Earnings call transcript: Baytex Energy Corp Q2 2025 beats EPS forecasts

Baytex Energy Corp reported a robust second quarter for 2025, with earnings per share (EPS) of $0.1447, significantly surpassing the forecasted $0.0218, resulting in a surprise of 563.76%. Despite this earnings beat, the company’s revenue of $641.26 million fell short of expectations by 1.02%. The stock experienced a 2.82% decline to $2.13 in regular trading but saw a 1.88% increase in premarket activity, indicating mixed investor reactions. According to InvestingPro data, the company maintains a strong financial health score of 3.17 (GREAT), with an attractive EV/EBITDA ratio of 2.01x, suggesting efficient operational performance.

Key Takeaways

• Baytex Energy reported a substantial EPS beat, exceeding forecasts by over 500%.
• Revenue missed expectations slightly, with a 1.02% negative surprise.
• The stock showed mixed reactions, with a decline in regular trading but a rise in premarket.
• Operational improvements and cost management were highlighted as key performance drivers.

Company Performance

Baytex Energy Corp demonstrated a strong performance in Q2 2025, driven by significant operational improvements and cost management strategies. The company reported adjusted funds flow of $367 million and a net income of $152 million. Production averaged 148,095 barrels of oil equivalent (BOE) per day, marking a 2% increase year-over-year. These results underscore Baytex’s ability to navigate a challenging market environment effectively.

Financial Highlights

• Revenue: $641.26 million (slightly below forecast)
• Earnings per share: $0.1447 (significant beat)
• Net income: $152 million
• Free cash flow: $3 million
• Net debt reduced by $96 million to $2.3 billion

Earnings vs. Forecast

Baytex Energy’s EPS of $0.1447 exceeded the forecast of $0.0218, resulting in a surprise of 563.76%. However, revenue of $641.26 million fell short of the expected $647.89 million, with a negative surprise of 1.02%. This mixed performance highlights the company’s strong cost management and operational efficiencies, even as it faced revenue challenges.

Market Reaction

The stock closed down by 2.82% at $2.13 but saw a 1.88% increase in premarket trading to $2.17. The mixed stock reaction suggests investor caution, potentially due to the revenue miss and broader market conditions. The stock remains below its 52-week high of $3.75, reflecting ongoing sector challenges. Based on InvestingPro’s Fair Value analysis, Baytex currently appears undervalued, presenting a potential opportunity for value investors. Discover more undervalued opportunities in the energy sector with InvestingPro’s comprehensive research reports, available for over 1,400 US stocks.

Outlook & Guidance

Baytex Energy projects generating $400 million in free cash flow for 2025, with plans to allocate this towards debt repayment. The company aims to reduce net debt to $2 billion by year-end. Strategic initiatives include the commercialization of Pembina Duvernay, targeting 18-20 wells per year by 2027.

Executive Commentary

CEO Eric Greager emphasized the company’s commitment to capital allocation, stating, "We remain committed to rigorous capital allocation and regularly evaluate opportunities within our portfolio to maximize shareholder value." COO Chad Lundberg noted operational efficiencies, highlighting, "We’re seeing some relief from our service partners with just service cost reductions."

Risks and Challenges

• Volatility in oil prices could impact revenue and cash flow.
• Market saturation and competition in key production areas.
• Potential supply chain disruptions affecting operational efficiency.
• Macroeconomic pressures influencing investor sentiment and stock performance.

Q&A

During the earnings call, analysts inquired about cost improvements in the Eagle Ford operations and the company’s hedging strategies. Management highlighted a 50% cost reduction in Eagle Ford due to service cost reductions and operational efficiencies. CFO Chad Kalmacoff described hedging as "a bit of an insurance product," underscoring its role in managing financial risk.

Full transcript - Baytex Energy Corp (BTE) Q2 2025:

Conference Operator: Good day, everyone. Thank you for standing by. This is the conference operator. Welcome to the Baytex Energy Corp. Second Quarter twenty twenty five Financial and Operating Results Conference Call.

As a reminder, all participants are in a listen only mode. The conference I would now like to turn the floor 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, Jamie. Good morning and welcome to Baytex’s second quarter twenty twenty five earnings call. I am joined today by Eric Greager, our President and Chief Executive Officer Chad Kalmacoff, our Chief Financial Officer and Chad Lundberg, our Chief Operating Officer. Before we begin, 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.

All dollar amounts referenced in our remarks are in Canadian dollars unless otherwise specified. And after our prepared remarks, we’ll open the call for questions from analysts. Webcast participants can also submit questions online and we will address as many as time permits. With that, let me turn the call over to Eric.

Eric Greager, President and Chief Executive Officer, Baytex Energy Corp.: Thanks, Brian. Good morning, everyone. We delivered solid operational and financial results in the second quarter that reflect the quality of our assets as well as our focus on operational excellence. In the Pembina Duvernay, we achieved the highest thirty day peak oil rates recorded in the West Shale Basin. These results validate our technical and operational advances and help demonstrate the exceptional resource potential within our portfolio.

Beyond the Duvernay, the teams consistently delivered solid execution across our operations. Heavy oil production grew by 7% quarter over quarter, while our Eagle Ford team delivered two more strong refracs at half the cost of new wells. The commodity backdrop in Q2 was soft with WTI averaging $64 per barrel. In this volatile environment, we remain focused on capital discipline, prioritizing free cash flow and reducing net debt. Our second quarter results demonstrate our resiliency through commodity price cycles while maintaining capital flexibility.

Let me turn the call over to Chad Kalmakoff for our financial results.

Chad Kalmacoff, Chief Financial Officer, Baytex Energy Corp.: Thanks, Eric. We delivered second quarter financial results consistent with our full year plan. Adjusted funds flow was $367,000,000 or $0.48 per basic share and we generated net income of $152,000,000 We generated $3,000,000 in free cash flow and returned $21,000,000 to shareholders, including $4,000,000 in share repurchases and $17,000,000 in quarterly dividends. Balance sheet strength remains a priority. Net debt decreased $96,000,000 or 4% to $2,300,000,000 supported by a strengthening Canadian dollar.

We repurchased $41,000,000 of our 8.5% long term notes during the quarter as part of our systematic approach to debt reduction. We maintain substantial financial flexibility with US1.1 billion dollars in credit facility capacity that is less than 25% drawn and matures in June 2029. Our long term debt maturity profile provides significant runway with our earliest known maturity in April 2030. Let me turn the call over to Chad Lundberg for our operating results. Thanks

Chad Lundberg, Chief Operating Officer, Baytex Energy Corp.: Chad. We’re pleased with the operating performance across our portfolio. Production averaged 148,095 BOE per day, a 2% increase in production per share compared to the same quarter last year. Exploration and development expenditures totaled $357,000,000 consistent with our full year plan and we brought 67 wells on stream. In the Pembina Duvernay, our first pad achieved average thirty day peak production rates of eighteen sixty five BOE per day per well with 3,800 meter completed lateral lengths.

The second pad came on stream through early July with similar lateral lengths and over the last twenty six days has averaged twelve sixty four boe per day per well. Our third pad is expected on stream in September. The performance of our first two pads has exceeded initial rate expectations with the first pad delivering the highest thirty day peak oil rates to date in the West Shale Basin. These results demonstrate our continued advancement in drilling and completions performance. In addition to well performance, we achieved a 12% improvement in drilling and completion costs compared to 2024.

These efficiency gains strengthen well economics and further support our capital allocation decisions. With 140 net sections and approximately 200 locations identified, we plan to transition to full commercialization through 2026 and into 2027. This means we would target drilling 18 to 20 wells per year resulting in production ramping to 20,000 to 25,000 BOE per day by twenty nine-two thousand and thirty. In the Eagle Ford, we brought on stream 15 wells, while realizing an approximate 11% improvement in drilling and completion costs. We delivered two additional refracs with initial rates comparable to our broader development program at approximately half the cost.

With 300 refrac opportunities identified across our acreage, this program extends asset duration while delivering strong capital efficiency. Our heavy oil operations continue their strong performance with production up 7% quarter over quarter. We brought on stream 43 wells across Peavine, Peace River and Lloydminster continuing to demonstrate the capital efficient development of these assets. Our team continues to focus on safe and efficient development across our portfolio as we progress through the year. Let me turn the call back to Eric for his closing remarks.

Eric Greager, President and Chief Executive Officer, Baytex Energy Corp.: Thanks, Chad. Our second quarter results reinforce the quality of our asset portfolio and our ability to execute through volatile market conditions. The top performance in the Pembina Duvernay highlights the asset’s strong value and growth potential, while our heavy oil operations continue delivering strong returns and our Viking and Eagle Ford assets provide reliable cash flow and asset duration. We remain committed to rigorous capital allocation and regularly evaluate opportunities within our portfolio maximize shareholder value. The operational achievements delivered in the second quarter provide us with valuable options as we continue to optimize our plans.

Based on forward strip pricing, we expect to generate approximately $400,000,000 of free cash flow in 2025 Based with the majority weighted to the second half of the year given our production and capital spending profile. We plan to allocate 100% of free cash flow to debt repayment after funding quarterly dividend payments, targeting net debt of approximately $2,000,000,000 by year end. Looking ahead, our oil weighted production profile provides significant exposure to oil price upside with approximately 84% of our production weighted toward crude oil and liquids. Every U. S.

Dollars 5 per barrel change in WTI impacts our annual adjusted funds flow by approximately $225,000,000 on an unhedged basis. This positions us well to benefit from any oil price recovery. We remain focused on operational excellence, financial discipline and positioning Baytex to deliver sustainable long term value for shareholders. Operator, we’re ready for questions.

Conference Operator: We will now begin the analyst question and answer session. Our first question today comes from Amir Arif from ATB Capital. Please go ahead with your question.

Amir Arif, Analyst, ATB Capital: Thanks. Good morning, guys. Couple of quick questions. Just with the 12% improvement that you’re citing in the Duvernay, can you let us know what your average well cost is averaging up there?

Eric Greager, President and Chief Executive Officer, Baytex Energy Corp.: Yes. Thanks, Amir. Good morning. The average well cost so far this year has been running right at $12,500,000 So for a 12,000 foot lateral, 12,500 foot lateral, that’s right at $1,000 per completed lateral foot. And that’s, I think, affords us continued opportunities for improvement as well.

So we’re targeting a lower value over time, but that’s kind of where we stand today.

Amir Arif, Analyst, ATB Capital: Got it. And based on your comments of eventually moving to commercialization in 2026, 2027, should we think about like one rig program for 2026, like 12 well program next year?

Eric Greager, President and Chief Executive Officer, Baytex Energy Corp.: Well, so yes, we are eventually moving in 2027 to a one rig levelized program. We think that will generate 18 to 20 wells per year. So a single rig running around the calendar, Amir, will be an 18 to 20 well pace of development. Next year in 2026, we’re targeting 12 to 15 wells. It kind of depends on the balance of the year and kind of commodity price, let’s say in 2026, but we’re shooting for 12 to 15 and that continues to step toward full commercialization.

We’re very pleased, very encouraged by the opportunity for this commercialization and moving toward full development. But one rig will be higher than 12. So next year won’t quite get.

Amir Arif, Analyst, ATB Capital: Okay. I appreciate that. I appreciate the color there. Just switching over to the Eagle Ford, the IP rates are fantastic. I mean, those are essentially like a new well rate.

Is the decline rate different post the refracs?

Eric Greager, President and Chief Executive Officer, Baytex Energy Corp.: It’s still a little early. Yes. So, yes, the early rates are strong. The pressure performance is strong. Everything we can see so far within the reservoir characteristics, dynamic testing indicates to us that we’re touching all new reservoir And that’s really encouraging, but it’s a little bit too early on the two refracs in 2025 to know really with data specificity around decline rates.

So far so good, they feel very strong and we have every indication that we’re touching new reservoir in these refracs. So, that’s strong.

Amir Arif, Analyst, ATB Capital: Okay. And then just one final question if I can. Pleasantly surprised to see that your cost per lateral foot even improved in the Eagle Ford like by meaningful amount 10% or 11%. What are you doing differently over there? Like I would have thought it’s more of a mature play where you’d just be getting a few percentage point improvements per year?

Eric Greager, President and Chief Executive Officer, Baytex Energy Corp.: Well, I’m going to pitch that one over to Lundberg. Chad, why don’t you comment on kind of some of the progression around drilling and completions improvements on the CapEx side and efficiency improvements as well.

Chad Lundberg, Chief Operating Officer, Baytex Energy Corp.: Okay. Yes, I mean, it’s a combination of two things. We’re seeing some relief from our service partners with just service cost reductions. Most notably, you see drill rig activity levels and frac productivity levels in The U. S.

It’s no secret that they’ve been dropping significantly. So we have seen some relief from our service companies on the cost side. We’re excited about that. We’re probably more pleased with just the continued efficiency gains. We like to measure those in lateral foot footage per day or completion pump hours per day.

In half one this year, we saw another marked improvement over 2023 or 2024, 2023 was better than Q2. So we just continue to see improvements on the efficiency side. Lastly, though, I’d point to, we made a conscious effort to switch late last year and then through most of half one this year to field gas on the frac side. And so instead of burning diesel to power the equipment to put the net energy into the ground, we’re able to plug into the gas flows right on-site. And so that’s been a meaningful savings as well.

So savings, efficiencies and just a little bit different plumbing on lease for how we’re capturing at Amir.

Amir Arif, Analyst, ATB Capital: Okay. And then Chad, if you had to break out that 11% in terms of service cost reduction versus these efficiencies, Is it a rough number that you could give?

Chad Lundberg, Chief Operating Officer, Baytex Energy Corp.: I think we’re in the 50% both sides. And so and I would just point out efficiencies are sticky and that’s why we get more excited about them because they last through all parts of the commodity cycle.

Amir Arif, Analyst, ATB Capital: Sounds great. Congrats on the good operating results. Thanks.

Chad Lundberg, Chief Operating Officer, Baytex Energy Corp.: Thank you.

Conference Operator: And ladies and gentlemen, with that, we’ll be closing the question and answer session from the phone lines. I’d like to turn the floor back over to Brian Ector for questions received online.

Brian Ector, Senior Vice President, Capital Markets and Investor Relations, Baytex Energy Corp.: Great. Thanks. Thanks, operator. I do have several questions coming in on the webcast, some from our analysts and a few from investors as well. Continuing with the Pembina Duvernay performance, Eric, can you speak to the variability across the three wells?

So we talked about the performance of the 701 pad. There were three wells on that pad. Can you speak to the variability? Was there much variability in each of those three wells?

Eric Greager, President and Chief Executive Officer, Baytex Energy Corp.: Yes. So I’m going to let Chad comment on this. Chad Lundberg, over to you.

Chad Lundberg, Chief Operating Officer, Baytex Energy Corp.: Yes. I mean on the pad itself, they’re pretty localized wells. We see consistent performance across them. And then the differences in rates between the pad in the South, the pad in the North, I mean, let’s face it, there’s rock characteristic differences, reservoir characteristic differences. And then we are also trialing some different ways that we, not so much complete the wells, but maybe more on the facility side, the flowback side.

And so while we see an IP difference we think that these naturally will trend to a similar EUR pattern ultimately through time. But the reality is there is going to be differences throughout the play. I think what we’re most excited about is these both these pads are exceeding kind of certainly our expectations and our internal curves at this point, but it’s early. I would just caveat it with it’s early and we’ll see where they go from here.

Brian Ector, Senior Vice President, Capital Markets and Investor Relations, Baytex Energy Corp.: All right. And one more question related to the Duvernay and that’s on the infrastructure side. Just can we discuss the potential infrastructure spending needed to expand the production in the Pembina Duvernay?

Chad Lundberg, Chief Operating Officer, Baytex Energy Corp.: I mean, I think we’ve got that fairly well characterized right now. I mean, saw our Gibson deal that we announced last quarter or two quarters ago, where they’re taking some of the infrastructure burden off of us. We’re still pleased with the agreement and the synergies that we’re creating with Gibson’s. We think facilities, no doubt, are going to be somewhat front end loaded. We think about it as 25,000,000 to $30,000,000 a year for these early years, liberating itself to a lower rate in the out years.

I think the last note I’d make is some of the major facility when you think about unconventional resource, major facility spend is on gas plants and gas handling. The benefit we have is we’re overlaying a cobweb of earlier development that was gassier style development. So we’ve got gas pipe all through the area and then we’ve got a large gas processing facility with Keyera, one of our partners that’s not full. We don’t anticipate that it fills through the life of the place. So it’s got significant capacity to handle all the molecules we anticipate flowing into the future.

Said differently, we don’t have to go out and build what we would think as the largest capital contributor to these unconventionals in just the gas processing. I’ll switch to the Eagle Ford for a minute here. We talked about the refracs in the quarter. Eric, how are

Brian Ector, Senior Vice President, Capital Markets and Investor Relations, Baytex Energy Corp.: we looking to layer in capital on the refrac opportunities in the Eagle Ford given the depth of the inventory there?

Eric Greager, President and Chief Executive Officer, Baytex Energy Corp.: Yes. So we are very excited about the refracs. The team has gone from proof of concept last year to really strong successful refracs to follow-up the successful proof of concept last year. So couldn’t be more excited. We’ve got 300 opportunities identified in our current base and we intend to step up the pace of our refracs bringing those into the program with greater frequency.

So as it stands today, way we see 2026 is somewhere in the six to 10 refracs range. And again, the economic performance of these and the capital efficiency, we’re going to lean on that.

Brian Ector, Senior Vice President, Capital Markets and Investor Relations, Baytex Energy Corp.: Okay. Eric, on the non operating piece of our Eagle Ford asset, program is now operated by Conoco. They’ve been operating the wells for over a year post their acquisition of Marathon. Can you speak to any changes in their process or approach with regard to the non op asset and our relationship with the operator?

Eric Greager, President and Chief Executive Officer, Baytex Energy Corp.: Yes, we’ve got a great relationship with Conoco. We had a great relationship with Marathon as a significant working interest partner in those Karnes mutual interest areas. We work closely with them and across the organization, we get good information from them. They’re very thoughtful about how they develop. They’re very thoughtful about how they plan.

They were thoughtful and diligent in their timing of providing us the 2025 program. They told us to use the one we had until we heard otherwise. They’ve delivered a new 2025 plan to us and we’re satisfied with it. So we believe that we’ve got a strong relationship and we believe that the development is going to continue moving forward and we’re very comfortable with the plans that we’ve seen.

Brian Ector, Senior Vice President, Capital Markets and Investor Relations, Baytex Energy Corp.: Okay. And I’ve got one more question to ask today on the financial side. I’ll bring Chad Kamakoff into the conversation. Chad, how are we thinking about our hedging strategy going forward?

Chad Kalmacoff, Chief Financial Officer, Baytex Energy Corp.: Thanks, Brian. Yes, don’t our hedging strategy, I don’t think has changed. So we’re fairly hedged here in 2025. On the oil side, we’ve been targeting $60 floors and then selling calls on top of that to kind of fund the puts where we can. So generally speaking, we use it as a bit of an insurance product That $60 floor kind of based on the balance sheet and asset kind of break where we started flowing back capital below that $60 floor level.

So feeling good about where we have 25 As we look into 2026, we’re lately headed at this point, but still looking at that same framework where we want to have that $60 foot floor given where prices are today. The calls aren’t as high as they were at one time. But we started layering in a little bit here into Q1. When prices have spiked, the backwardation of the curve has still been pretty strong, but we’re trying to layer in 60 by kind of low mid-70s where we can get them and we’ll continue to do that through the balance of this year and look to have 40% hedged by the end of this year as we walk into 2026.

Brian Ector, Senior Vice President, Capital Markets and Investor Relations, Baytex Energy Corp.: Great. Thanks, Chad. And that does wrap up today’s call and the Q and A portion. I’d like to thank everyone for joining us. Thanks again for your time today and have a great day.

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

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