EARNINGS / Baytex Energy Reports To TSE Update Request
TSE, ASE SYMBOL: BTE.A
JUNE 4, 1998
CALGARY, ALBERTA--At the request of The Toronto Stock Exchange,
Baytex Energy Ltd. ("the Corporation") has been asked to issue a
press release commenting on the recent weakness of its listed
securities.
Growth in the First Quarter 1998 was impaired as a result of low
oil prices:
/T/
Reported cash flow for first quarter $0.32 Per share
Oil prices realized in the first quarter
were 47 percent lower than first quarter
1997 resulting in a cash flow decrease of $0.21 Per share
Shut-in production during the first
quarter resulted in a cash flow
decrease of $0.08 Per share
Non-execution of an anticipated
acquisition resulted in a cash
flow decrease of $0.13 Per share
-----
Budgeted first quarter cash flow $0.74 Per share
-----
-----
/T/
The drop in cash flow per share was directly attributable to the
collapse of oil prices and lower than expected production rates.
A business decision was made by the Corporation to defer
development of the Carruthers heavy oil project in the first
quarter. This decision was made as there was no clear positive
direction of future prices for oil. The Corporation had the
logistics set up to complete this development program in the first
quarter and had to make adjustments to its business plan when oil
prices collapsed. As a result of this price collapse, an
estimated 8,100 bopd was deferred in favor of capital expenditure
projects targeting light oil and liquids rich natural gas. This
diversion of funds proved successful as the Corporation was able
to build a 16 mmcf/d gas plant at Alder Flats, Alberta and drill a
number of significant gas wells. Production from Alder Flats
began on May 11, 1998 at 11.5 mmcf/d with associated ngl's and is
expected to increase to 13.5 mmcf/d in June, 1998. A significant
natural gas discovery was made at Leahurst, Alberta and this
discovery is scheduled to be placed on production today at 5
mmcf/d. As well, the Corporation drilled several gas discoveries
in northern Alberta, which are expected to produce between 11 and
20 mmcf/d when brought on production.
The Corporation's plan to acquire 4,000 to 6,000 boe/d of
production for approximately $100 million has not yet been
realized. Baytex was involved in a bidding process for certain
assets in the Gold Creek area of Alberta. The Corporation was
aggressively pursuing the acquisition of these assets which it
considered to have considerable value and upside potential.
Baytex was advised it was not the successful bidder for these
properties. The Corporation is currently disputing the bid
process that occurred as it believes it was not treated equitably
in the process and the matter is now before the Courts.
Baytex is continually evaluating numerous strategic investment
opportunities and Gold Creek is one of many strategic acquisitions
the Corporation is interested in acquiring. Baytex remains
confident in its position on the Gold Creek assets and will keep
shareholders informed as events transpire.
Production reconciliation:
/T/
Production reconciliation:
Reported production for the first quarter 16,100 Boe/day
Deferred oil development 8,100 Boe/day
Shut-in production 3,900 Boe/day
--------------
28,100 Boe/day
--------------
/T/
Forward
The Corporation is currently trading at substantially less than
its year-end 1997 net asset value of $19.82 per share, calculated
using a present worth discounted at 15 percent. At the end of
1997, reserves of 111.4 mmboe were booked with the Corporation
adding significant gas and oil reserves during the first quarter
of 1998.
Baytex now is able to economically justify and will therefore,
aggressively pursue the development of heavy oil reserves in
Saskatchewan and natural gas and condensate reserves in Alberta.
For the near term the Corporation will be leveraged to oil
production with most increases coming from its heavy oil reserve
base. Under today's current pricing scenarios, the Corporation is
able to lock in $16.80 U.S. oil prices with a $6.07 U.S. to $6.50
U.S. light to heavy oil price differential from October 1 to
December 31, 1998. The Corporation has made arrangements to blend
its heavy oil with condensate, saving approximately $3.75 per bbl.
The three projects that the Corporation is currently developing
are expected to have the following breakdown on net-backs for
production in the fourth quarter of 1998:
/T/
Hoosier Carruthers Reward
------- ---------- ------
WTI $U.S./bbl $16.80 $16.80 $16.80
Differential (6.43) (6.50) (6.07)
-------------------------------
10.37 10.30 10.73
-------------------------------
U.S. to Cdn. Exchange
of 1.4565 15.10 15.00 15.63
Royalties @ 7.3 percent (1.10) (1.10) (1.14)
-------------------------------
14.00 13.90 14.49
Operating Costs (3.25) (4.50) (5.50)
-------------------------------
10.75 9.40 8.99
Pipeline Tariff/Trucking (0.20) (0.15) (1.50)
-------------------------------
Total Net-backs $10.55 $9.25 $7.49
Finding and Development
Costs $2.59 $2.68 $3.72
Recycle Ratio 4.07x 3.45x 2.01x
Rate of Return ( in percent) 60.8 32.7 25.9
/T/
The Corporation has secured additional drilling rigs to complete a
157 well drilling program in the second and third quarters of
1998. Total wells drilled will increase substantially from an
estimated 225 to 340 for the year. Production from these large
scale development programs are expected to add 9,060 boe/d over
the next four months. Fourth quarter drilling of approximately
100 wells is expected to add an additional 5,200 boe/d. There
remains an additional 280 drilling locations to be completed on
these projects in 1999 and 2000.
The breakdown of estimated production based on risked drilling is
as follows:
/T/
Current Production and production to be
brought on in next 30 days 19,350 Boe/day
157 well development program by
Oct. 1/98 (risked) 9,060 Boe/day
100 well 4th quarter development
program (risked) 5,300 Boe/day
Dispositions (3,200)Boe/day
Production declines (2,420)Boe/day
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Expected 1998 exit production rates 28,090 Boe/day
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/T/
The Corporation's estimated cash flow for 1999, using the
following commodity price assumptions which is a blend of a number
of oil and gas analysts projections for 1999 of oil at $18.50 U.S.
per bbl and gas of $2.45 Cdn. per mcf.
/T/
Cash Flow Exit 1998
Cash flow Estimate Annualized
Production(x) Net Back (000's) Cash Flow
(xx)
----------------------------------------------
Natural Gas 75,600 Mcf/d $1.53 $42,219
Light to
Medium Oil 6,400 Bbl/d $14.00 $32,704
Heavy Oil 14,040 Bbl/d $10.36 $53,091
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Total
Barrels of
Equivalent 28,000 Boe/d $128,014 $3.56
(x) assumes a 28 mmcf/d disposition and no exploration success.
(xx) assumes fully diluted shares outstanding of 36 million
/T/
With first quarter production of 16,100 boe/d and current
production of 16,500 boe/d, Baytex anticipates entering the fourth
quarter at 23,000 boe/d after divesting of 3,200 boe/d in the
third quarter of 1998. This represents a 63 percent increase in
production over the first quarter average without accounting for
any potential exploration success or acquisitions that the
Corporation may complete. Baytex has $100 million available for
acquisitions.
Estimated funding sources for the 1998 drilling program are as
follows:
/T/
Cash flow $75.7 million
Debt $68.0 million
Dispositions $53.0 million
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$196.7 million
/T/
Estimated 1998 capital expenditure program:
/T/
Quarter one $60.0 million
Quarter two $25.0 million
Quarter three $82.0 million
Quarter four $25.0 million
-------------
$192.0 million
/T/
Baytex's philosophy is unchanged, which is to grow profitably and
to develop areas where the Corporation will have a competitive
advantage. Heavy oil development may not be in-favor today. This
is to Baytex's advantage as the Corporation has vast reserves of
heavy oil and can take advantage of current market sentiment to
cut finding and development costs on these projects.
Exploration
Exploration will also remain a priority as the Corporation
controls over 1.3 million acres of undeveloped land. Baytex has
assembled a land and prospect inventory which continues to be
explored on an on-going basis. The following prospects are
currently available for drilling:
/T/
Potential Potential
Reserves Reserves
Area Gas Area Oil
---- --- ---- ---
Minehead 300 Bcf Red Earth 25 mmbbls
Airdrie 30 Bcf Ogston 18 mmbbls
Kaybob 250 Bcf Hoosier 80 mmbbls
Gold Creek 450 Bcf Willesden Green 22 mmbbls
Okotoks 120 Bcf Seal 18 mmbbls
Sakwatamau 68 Bcf
Ferrier 25 Bcf
/T/
The exploration focus will be on liquids rich gas in order to
balance the Corporation's production mix.
Certain statements in this release contain forward-looking
statements including outlook on prices, expectations of future
production, business plans for drilling and exploration and
expectations of capital expenditures. Information concerning
reserves contained in this report may also be deemed to be
forward-looking statements as such estimates involve the implied
assessment that the resources described can be profitably produced
in future. These statements are based on current expectations
that involve a number of risks and uncertainties which could cause
actual results to differ from those anticipated by the Company.
These risks include, but are not limited to: the background risks
of the oil and gas industry (e.g., operational risks in
development, exploration and production; potential delays or
changes in plans with respect to exploration or development
projects or capital expenditures; the uncertainty of reserve
estimates, the uncertainty of estimates and projections relating
to production, costs and expenses, and health, safety and
environmental risks), and uncertainties resulting from potential
delays or changes in plans with respect to exploration or
development projects or capital expenditures. Additional
information on these and other factors which could affect the
Company's operation or financial results are included in the
Company's Annual Report under the headings "Management's
Discussion and Analysis - Business Risk and Uncertainties" and in
the Company's other reports on file with Canadian securities
regulatory authorities.
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