Baytex Energy Corp Q4 2025 Earnings Call - Repositioned as Net-Cash, Canada-Focused Oil Producer, Buybacks Prioritized

Ishita, Conference Operator: Thank you for standing by. This is the conference operator. Welcome to the Baytex Energy Corp fourth quarter 2025 financial and operational operating results conference call. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity for analysts to ask questions. To join the question queue, you may press Star then one on your telephone keypad. You may also submit questions in writing at any time using the form in the lower section of the webcast frame. Should you need assistance during the conference call, you may signal an operator by pressing Star then zero. I would now like to turn the conference over to Brian Ector, Senior Vice President, Capital Markets and Investor Relations. Please go ahead.

Brian Ector, Senior Vice President, Capital Markets and Investor Relations, Baytex Energy Corp: Thank you, Ishita. Good morning and welcome to Baytex’s fourth quarter full year 2025 results conference call. Joining me today are Eric T. Greager, our CEO, Chad Lundberg, our President and COO, and Chad Kalmakoff, our CFO. Before we begin, please note that our discussion today contains forward-looking statements within the meaning of applicable securities laws. I refer you to the advisories regarding forward-looking statements, oil and gas information, and non-GAAP financial and capital management measures in yesterday’s press release. On the call today, we will also be discussing the evaluation of our reserves at year-end 2025.

These evaluations have been prepared in accordance with Canadian disclosure standards, which are not comparable in all respects to the United States or other disclosure standards. Our remarks regarding reserves are also forward-looking statements. All dollar amounts referenced in our remarks are in Canadian dollars unless otherwise specified. After our prepared remarks, we will open the call for questions from analysts. Webcast participants can also submit questions online. With that, let me turn the call over to Eric.

Eric T. Greager, Chief Executive Officer (Outgoing), Baytex Energy Corp: Thanks, Brian. Good morning, everyone. 2025 was a defining year for Baytex. With the closing of the Eagle Ford sale in December, we successfully completed the repositioning of this company into a focused high return Canadian oil producer. This is our first call since that milestone. It marks a significant upshift in our trajectory. Baytex is a technically driven organization with an industry leading balance sheet. By exiting the year in a net cash position, we have established a premier platform built for disciplined long-term value creation. We are entering 2026 with a clear strategy and the financial flexibility to navigate any market environment. With this strategic pivot now complete, it is the right time to formalize our leadership transition. As we announced yesterday, Chad Lundberg will succeed me as CEO following our AGM in May.

Chad has been a valuable partner to me and to this organization. His promotion is the result of a deliberate, structured succession process to help ensure our positive momentum remains uninterrupted. I have complete confidence in Chad’s leadership and ability to drive our next chapter. I’m proud of the foundation we’ve built together. Baytex is in excellent shape and I look forward to its continued success under Chad’s leadership. I now turn the call over to Chad Lundberg for his remarks and a detailed operational overview.

Chad Lundberg, President and COO (Incoming CEO), Baytex Energy Corp: Thank you, Eric. I appreciate the board’s confidence and I’m excited to lead Baytex and our team into the next chapter. My focus as we move forward is simple. We remain committed to technical leadership and disciplined capital allocation to create value. We will continue to build our business by prioritizing our heavy oil and Duvernay assets with an enhanced focus on exploration and new play development, all of which is underpinned by a balance sheet that is in great shape. We will prioritize a competitive return through a combination of organic growth, share buybacks and dividends. Let’s turn to our operational performance. In 2025, our Canadian portfolio delivered annual production of 65,500 BOE per day, which excluding dispositions, represented 6% organic growth year-over-year.

We invested CAD 548 million in Canada in a highly efficient capital program and delivered solid reserves growth, low F&D costs, and healthy recycle ratios across all reserve categories. Our Pembina Duvernay and heavy oil development contributed significantly to this performance and continued a strong track record of value creation. This demonstrates the long-term resiliency and sustainability of our business. Importantly, we have significant running room across our portfolio and are excited about our business going forward. First, let’s talk about the Duvernay. We have assembled 91,500 net acres and identified approximately 210 drilling locations. 2025 was a breakthrough year. We validated the resource potential, reduced well costs on a per foot basis, and improved our characterization of the play.

We grew production to 10,600 BOE per day in the fourth quarter, a 46% increase over Q4 2024. We are now transitioning to full commercialization with plans to bring 12 wells on stream this year, a 50% increase over 2025. We currently have 1 rig drilling a 4-well pad on our southern acreage. Completion operations are scheduled for the second quarter, with the wells expected to onstream by mid-year and the remaining 2 pads in the third and fourth quarters. Shifting to heavy oil, we continue to see strong, predictable performance across the portfolio. Our heavy oil assets comprise 750,000 net acres and 1,100 drilling locations, supporting 12 years of drilling at our current pace of development. In total, we expect to bring 91 heavy oil wells on stream in 2026.

We are pleased with the expansion of our Northeast Alberta acreage, where we are currently targeting 7 discrete horizons in the Mannville stack. Recent success includes 2 multilateral wells in the Sparky and a 5-well pad in the upper Waseca. Our 2026 program will also see increased exploration activity, including stratigraphic tests, step-out wells, and 3D seismic to expand our development inventory and test new play concepts across our extensive heavy oil fairway. In addition, we are advancing 2 waterflood pilots at Peavine, blending the attractive capital efficiencies of multilateral primary development with the potential for enhanced recovery and moderated decline rates. Thank you to our teams for executing safely through 2025 and into 2026. With that, I’ll turn the call over to Chad Kalmakoff to discuss our financial results.

Chad Kalmakoff, Chief Financial Officer, Baytex Energy Corp: Thank you, Chad, and good morning, everyone. Our 2025 financial results demonstrate the cash generating power of our Canadian assets and the transformative impact of the Eagle Ford divestiture. For the full year, we generated CAD 1.5 billion in adjusted funds flow and CAD 275 million in free cash flow. In the fourth quarter, we delivered CAD 262 million of adjusted funds flow and CAD 76 million in free cash flow, which included CAD 35 million of non-recurring expenses related to the Eagle Ford disposition. This was achieved despite a softer commodity backdrop, with WTI averaging US $59 per barrel during the quarter.

The 2025 net loss of CAD 604 million reflects the non-recurring loss on the Eagle Ford disposition, a deferred tax expense relating to the restructuring from the sale, and a CAD 148 million impairment on our Viking assets. These non-cash adjustments have no impact on our cash flow generation outlook for 2026. Turning to the balance sheet. We exited 2025 with the strongest financial position in Baytex’s history. We eliminated our net debt and ended the year with CAD 857 million in cash, less bonds, and our CAD 750 million credit facility fully undrawn. We remain committed to returning a significant portion of the Eagle Ford proceeds to our shareholders and believe the NCIB program is the most efficient approach.

Since reinitiating our buyback program in late December, we have repurchased 30 million shares, nearly 4% of the company, for $141 million. Our current NCIB remains active through June. We intend to launch a renewed NCIB in July. As we monitor the broader macro environment, we continue to assess the pace and mechanism of our buybacks to ensure we’re maximizing the long-term value for our shareholders. We have considered an SIB or substantial issuer bid, but at this time, we believe we can meet our shareholder commitments through our NCIBs in 2026 while maintaining our annual dividend of $0.09 per share. I’ll now turn the call back to Eric for closing remarks.

Eric T. Greager, Chief Executive Officer (Outgoing), Baytex Energy Corp: Thanks, Chad. To build on those points, this focused, high return Canadian company is the next chapter for Baytex. For 2026, our operations are on track and our annual guidance of 67,000-69,000 BOE per day remains unchanged from December, with the high end of that range representing 5% organic growth year-over-year. We have significant inventory depth and optionality across our portfolio to support our current plan and potentially accelerate growth beyond these levels. I’m proud of the trajectory we’ve established. We are now positioned to demonstrate the true potential of this Canadian portfolio. Operator, let’s open the call for a line of questions.

Ishita, Conference Operator: Thank you. We will now begin the analyst question and answer session. To join the question queue, you may press Star, then 1 on your telephone keypad. You will hear a tone acknowledging your request. To submit your question in writing, please use the form in the lower right section of the webcast frame. If you’re using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press Star then 2. The first question comes from Menno Hulshof with TD Cowen. Please go ahead.

Menno Hulshof, Analyst, TD Cowen: Good morning, everyone, congrats to the both of you on the transition. I’ll start with.

Chad Lundberg, President and COO (Incoming CEO), Baytex Energy Corp: Thank you, Mano.

Menno Hulshof, Analyst, TD Cowen: Yeah, I’ll just start with a question on the growth outlook. You’re currently guiding 3% to 5% for 2026, but if we assume that oil prices remain elevated for longer than expected, is there a scenario where growth exceeds the top end of the current range? Has your overall thought process in terms of high-level deliverables for 2027 changed at all within the last several weeks?

Chad Lundberg, President and COO (Incoming CEO), Baytex Energy Corp: Thanks, Mano. It’s Chad. I’ll take a crack at answering your question. On growth, yes. I mean, we’ve guided to a capital program of CAD 550 million-CAD 625 million, delivering 67,000-69,000 barrels a day, which represents 3%-5% production growth. We’re actively monitoring the macro kind of picture and situation right now. And we would expect to make any decisions on increased growth at the breakup timeframe. We certainly have the optionality within the portfolio depth and quality to go a little bit harder this year and to your point, into 2027. As I said, that’ll come, you know, we’ll look at that through breakup and make the decisions accordingly. Maybe just a little bit of an example of where we could look to expand the program.

you know, potentially another pad in the Duvernay that may look like a drill that gets ducked into in the next year and completed or continued expansion in that Northeast Alberta fairway where we utilize the two drill rigs that are drilling there today and potentially continue with that second rig. We could also pivot, though, just again, an example of the depth of the inventory, pivot up into Peace River, where we’ve got some of the exploration work happening and elect to allocate capital up into that region as well. lots of optionality currently on our radar. We’re not moving moving it too fast, but those will come kind of decisions through breakup.

Menno Hulshof, Analyst, TD Cowen: Terrific. Thanks for that, Chad. Then maybe, I guess my second question relates to your opening comments on some of the comments that you made on the Tavan waterflood opportunity. Like, how material could that be? How do you plan to tackle this relative to some of your peers who are already well down that track? What could that look like in terms of deliverables, what could that look like over the next, call it, 12 to 18 months?

Chad Lundberg, President and COO (Incoming CEO), Baytex Energy Corp: We’re deploying two pilot projects this year. One is into the kind of part of the play that we’ve been actively drilling to this point. You can expect that, you know, we’ve produced barrels out of the well that’s going to be converted ultimately into an injector. What we’re looking for there is just how fast can we fill it up to then pressure support the entire system around it to ultimately drive a lower decline and more barrels out of the ground. The second pilot is in a new development area where we’re actually drilling the producers and the injectors simultaneously with each other, and we’ll turn them on together at the same time. What’s all this mean? I mean, certainly the waterflood has been doing great things for our industry. We’re not sure what happens with our rock.

That’s why we’ve committed to pilots at this point in time. As a reminder, our primary development is very strong, holding 48 of the top 50 wells in the play, and that’s really a part and parcel to the incremental pressure that we have in situ in the rock itself. There’s various factors that are maybe unique to our situation that are potentially different from others. If you extrapolate that out, though, to the big picture, we’re pretty excited for what it could do if it were to work with respect to base declines and driving more oil out of the ground. What does that mean for the future in the next 18 months? I think, you know, we’re going to work very hard to try and understand this through kinda end of the year and into the budget process.

How does that translate into our program next year? It could mean incremental waterflood injector activity in 2027. It could mean leaving gaps in our drilling program in between primary producers for the future. And we’re just gonna have to wait and see, Menno, where we go.

Menno Hulshof, Analyst, TD Cowen: Can you remind me, I should know this, but when was the last time Baytex dabbled in waterfloods, if at all?

Chad Lundberg, President and COO (Incoming CEO), Baytex Energy Corp: I mean, waterflood’s not new to Baytex at all. We’ve actually been at it for 2 decades. Waterflood and then also polymer floods. It just depends on the quality of rock and then oil that we’re working with. You could think about it this way, Menno, approximately 10% of our heavy oil production, so 43,000 barrels a day in 2025, is waterflood-derived production. Not new to the story, and it’s not foreign to us. We’ve got the technical capacity and teams to really, we think, advance this forward.

Menno Hulshof, Analyst, TD Cowen: Terrific. I’ll turn it back. That was very helpful. Thank you.

Ishita, Conference Operator: That’s all the questions we have from the phone lines. I would like to turn the conference back over to Brian Ector for any questions received online. Please go ahead.

Brian Ector, Senior Vice President, Capital Markets and Investor Relations, Baytex Energy Corp: Great. Thank you. Yes, there are a few questions coming through in the webcast, I’ll try and run through those with you here, Chad. Menno spoke to sort of the current WTI price environment, maybe optionality and growth, another question comes in around, I think it’s referencing sort of breakeven prices. Is there a WTI price that we would sort of pause the growth scenario, Chad?

Chad Lundberg, President and COO (Incoming CEO), Baytex Energy Corp: Well, we set the budget out 3%-5%, centered at $60 oil, you know, guiding to the high side more the 5% at $65. Certainly the flexibility as we’ve built the program to pull that back, you know, below $60 oil. I think that’s how we think about it, think about our growth. Again, we’re just really observing the macro climate right now. Obviously, it’s incredibly dynamic, and we’re taking it in and not going to make any knee-jerk moves. I would remind that we have the optionality and flexibility to move harder if so desired.

Brian Ector, Senior Vice President, Capital Markets and Investor Relations, Baytex Energy Corp: Another question on the operations around our cost of production, and just can you speak to the capital efficiencies maybe that you see in the business generally, Chad, and steps we can take to continue to work on the cost of production and efficiencies overall?

Chad Lundberg, President and COO (Incoming CEO), Baytex Energy Corp: Yeah. You know, Brian, I think that gets into how we’ve laid out the budget for 2026. We’ve, you know, started with sustaining capital at CAD 435 million, add the CAD 50 million in growth, CAD 50 million in infrastructure, and CAD 50 million in exploration. I think when you look into each one of those buckets, they are designed to improve capital efficiency. I’ll just give an example in the Duvernay. The infrastructure spending is at a higher and elevated pace for the next 3 years and then falls off, you know, post 3 years to a much lower rate. That flows right through to capital efficiencies and excess free cash flow to the shareholder.

If you look in our investor pack, we’ve done, again, centered on the Duvernay, pretty good job of delineating the asset, improving the characterization, and then also reducing cash costs. Specifically in 2024, we improved by 11% on the characterization, and then equally so dropped our capital costs by 11%. Both of those flow straight through to capital efficiency. Maybe just a little bit on the heavy oil program. Touched on the CAD 50 million that’s allocated to exploration. This is absolutely intended to enhance and lengthen our inventory position.

I think, you know, some of the wells that we released through Q4 of last year up in the Sparky and the Sugden area, some of our upper Waseca wells as we step through that Northeast Alberta area and the seven different layers in the Mannville stack, we’re pretty excited about what it’s doing for capital efficiency. I would make this motherhood statement, though, to end the conversation. We’re not done. This is something that we do as a company. This is something that our teams are tremendously good at, and this is a huge focus and priority of mine as I step into this role and we move forward into the future from here.

Brian Ector, Senior Vice President, Capital Markets and Investor Relations, Baytex Energy Corp: Okay, thanks, Chad. Let’s shift gears to a couple of questions and conversations around the net cash balance sheet that we have. It’s around $800 million. Chad, just, I know we’ve talked a little bit about the NCIB in the prepared remarks, but how do we see allocating that $800 million going forward?

Chad Lundberg, President and COO (Incoming CEO), Baytex Energy Corp: We’ve been pretty clear that a good portion of that is going to be returned to the shareholders by way of buyback. Chad Kalmakoff, in his prepared remarks, talked about the NCIB as the preferred vehicle over an SIB at this point in time. We’ve also been very clear about utilizing some of the proceeds for greenfield, tuck-in, land acquisition, bolt-on style activity in our key and core focus areas. We’re still committed to that.

Brian Ector, Senior Vice President, Capital Markets and Investor Relations, Baytex Energy Corp: Maybe along those lines then, Chad, just when you look at buybacks, how would we evaluate kind of the market price, the value, and where we see value in the buyback program itself?

Chad Lundberg, President and COO (Incoming CEO), Baytex Energy Corp: You know, I would start here. This company is going to be all about value going forward and an intense focus on how we deliver that value. When we evaluate the buyback specifically, I think there’s 3 things we look at. One is the macro commodity environment. We’d like to think about really acting countercyclically and respecting where we’re at in the cycle. The second, though, is just how are we trading relative to our peers? As we evaluate that, it looks like we have good potential to grow with respect to how our peers are trading today. Lastly, and equally as important is just the intrinsic value of the business.

We’re constantly running models at different price scenarios with different enhancements that we can put on top of the plan, speaking to the optionality that we have in the, in the deep portfolio set in front of us. That would inform us on an intrinsic value that, you know, all three of those combined would anchor the conversation for how we proceed forward with buybacks. I guess when we look at those all together today, it would still signal that we are focused on the buybacks and continuing forward from here.

Brian Ector, Senior Vice President, Capital Markets and Investor Relations, Baytex Energy Corp: Excellent. One question I’m gonna throw over to Chad Kalmakoff, our CFO. Chad, can you just talk to the existing hedges in place, maybe WTI and WCS, and what the policy will look like going forward?

Chad Kalmakoff, Chief Financial Officer, Baytex Energy Corp: Sure. We had hedges in place kind of through the back half of last year, collar structures, with put floors at 60. Through the transaction, we maintain those, so we’d be roughly, you know, I’ll call it 60% hedged on TI Q1 and about 50, 45%-50% hedged in Q2. You know, nothing has changed policy-wise. I think we always talked in the past about a strong balance sheet is the best hedge you can have. Going forward, I think we obviously have a very pristine balance sheet. I wouldn’t expect us to be looking to hedge WTI contracts really in the future given the balance sheet we have today. That being said, I think we can still look at hedging WCS contracts.

We’re 45%-50% hedged on WCS this year, at about $13. We still think that’s an important piece of business to keep hedging, to kind of prevent any financial impact from major blowouts. Summary, WTI, those will be rolling off here at the end of June. I wouldn’t expect us to be that active in the hedging market on WTI, maybe in specific circumstances. Continue to kinda hedge differentials.

Brian Ector, Senior Vice President, Capital Markets and Investor Relations, Baytex Energy Corp: Okay, great. I think that’s going to wrap up the large portion of questions coming in from the webcast. I would like to thank everyone for joining us. For those who submitted webcast questions that we didn’t get to address, please reach out to our investor relations team, and we’ll follow up directly. Thanks again for your time today, and have a great day.

Ishita, Conference Operator: This concludes today’s conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.