Conference Transcript - BTE 2026-01-22

Dennis Fong, Analyst — CIBC

Good morning, everyone, and welcome back. My name is Dennis Fong, and I'm the Senior Oil and Gas Research Analyst here at CIBC. It is my pleasure to welcome you to our 29th annual CIBC Western Institutional Investor Conference, hosted here in Whistler. Next up, I'm pleased to welcome Eric Greger, CEO, and Chad Lundberg, President and COO, both from Baytex Energy. Through this presentation, if there are any audience-driven Q&A, please raise your hand, and we'll get to it in turn. But first and foremost, Eric, Chad, thank you very much for joining us here today.

Chad Lundberg, COO

Yeah, thank you, Dennis.

Dennis Fong, Analyst — CIBC

I want to kick off the questioning here just around, obviously, there is a large sale from the Eagleford. It allowed you to add a lot of cash to the system, get to a point where the balance sheet isn't even remotely that much of a concern. But it lands you in a place of a lot of opportunity. And so I wanted to maybe lead off by asking about how do you think about, obviously, the uses of this cash, the go-forward strategy? Obviously, there's a refocus on Canada given the divestiture of the U.S. assets, but I just want to lead off on that just so we can kind of set the tone for this conversation.

Eric Greager, CEO

So the sale of the U.S. clearly set us up nicely to take the balance sheet to a net cash position. $3.25 billion of gross proceeds in the sale, took the bonds almost completely out through both a redemption and a tender, paid off the credit facility, and so today we're sitting with about $800 million of net cash. $700 million of that we intend to direct toward buybacks. We'd like to concentrate that in 2026, and that's partly driven by what we believe is value creation around our current market multiple and value capture through what feels like the bottom of a down cycle in the global commodity price of oil. And so $700 million this year should take 20% of our shares out of the market, And that should set the business up, not just through 2026, but through 27 through 30 for a much stronger per share growth, total shareholder return. And frankly, and I'll let Chad talk more about the operational plan, but we really feel strongly that this is the right use of proceeds, directing it back to shareholders and really driving that market multiple in the valuation of our equity security higher.

Chad Lundberg, COO

No, fantastic. Yeah, I was just I was gonna add of course there's the incremental cash from the sale not earmarked to buybacks in this particular instance that we're going to put back into small tuck-ins, bolt-ons, kind of quiet stuff we execute on behind the scenes. I think one thing people underappreciate as the Egoford overshadowed the story in the past three years is the Canadian side of the business has been quietly outperforming. We've taken the Duvernay, again, with the help of partners in the area. Fotis put a shout out to us. We'll put it right back his way. We've taken it and delineated it, worked on the characterization with record wells last year and then capital costs. So it's at a point where we're ready to commercialize and have the confidence. And then our heavy oil portfolio has gone from kind of what it was three years ago to today. We've added to it. We've added more bolt-ons, tuck-ins, delineated, and de-riffed. And we have a much stronger position at this point in time where we sit to really launch this new company.

Dennis Fong, Analyst — CIBC

No, that's fantastic. I do want to dig a little bit more into that because I think it's important to maybe be less understood that a lot of your teams in Canada have found a great deal of success finding and building new kind of areas that drive an opportunity to not just replenish inventory, but give new opportunities for the company. Morinville, Peavine, Duvernay, or Peavine Duvernay, excuse me. And so can you talk about that team specifically and maybe the methodology that goes behind it, obviously the skill set that goes behind it, and why you're so excited about giving this team a little bit more we'll call it slack to be able to really run with yeah i think so

Chad Lundberg, COO

so if you just if you step back and put this all into context and look how we've really built up the capital program this year so so again with the sale we've lowered our break-evens lowered our base declines all of that has resulted in lower sustaining capital so they have the opportunity to now build on a growth layer build on an infrastructure layer to again support that growth in the Duvernay and then an exploration layer that's approximately double what we've had in the past so fifty million dollars of our capital program 550 to 625 million earmarked to exploration and we really think that's one of the one of the kind of flagship focuses of the company P vine that everybody knows about five years ago started from zero barrels a day it was a thesis based on the re-characterization of how we look at logs. Went from zero barrels a day to peaking in the 20,000 barrel a day range, and it's still continuing to deliver and perform. You touched on the steady diet of how we continue to add these. The other big one that we think about today is in northeast Alberta, and so a bunch of the work that the teams have been doing, we've been able to translate that technical expertise across so not only increase the land base to approximately 75,000 acres double what what again we were three or four years ago but unlock eight different layers of rock and up in the process of doing that taking those technical teams that you highlighted thank you and really letting them run on the asset that's the quiet under performance that's been allowing us to to continue to add in that fashion and And so I think, you know, just recognize the key, recognize the strength of the teams, recognize what you have inside the organization, and today we're at a spot where we can liberate a little bit more capital to support that effort.

Dennis Fong, Analyst — CIBC

Oh, fantastic. And so given that, again, you want to give these teams latitude to be able to be opportunistic with respect to some of these, I'll call it pseudo-exploration or expansion of your underlying portfolio. Can you now maybe shift towards a little bit around how to think about you're flush with cash right now. There's obviously periods of time where with a volatile oil price environment, the balance sheet might have been a little bit less comfortable than obviously you are today. Where do you think about those bookends maybe strategically and how do you want to position the company that allows you to frankly be defensive while also being offensive and giving these teams kind of the available capacity to kind of do the good work that they do?

Chad Lundberg, COO

Yeah. So again, I'll point to the budget this year. So we've very systematically taken it from a lower sustaining breakeven than what we've had in the past and build these different layers to the program. It's all prefaced in a $60 oil environment, and we think about it as having strong flexibility to really respond to any price action. So as you think about the new company, think value and then think commodity cycle and really working within that to drive shareholder returns. So free cash neutrality is where we started at in a $60 environment, $550 to $625 million, driving 3% to 5% production growth. And to your mind there, on top of that, we're spending 45% of our capital program in half one. 55% have too. So that's uncharacteristic for how we've run our capital programs in the past. Should we see oil price kind of tailwinds that start to be a little bit more supportive, we have the flexibility to add. And quite frankly, the assets and teams are ready to run and ready to add to try and drive to more of that upper single-digit growth rate. You'll see that primarily come through the heavy oil portfolio where we do pull back a little bit in half too and and we'd elect to just keep those rigs running through the balance of the year. You could also expect to see some of the exploration work that we're exercising through the first half potentially capitalizing some of what we find in the in the back half of the year as we unlock more of the more of the resource on the flip side if we do see oil price weakness go forward we have the capacity to pull back again we've elegantly laid it out with respect to the sustaining capital and then various buckets on top of that you'd see us start to pull out of out of each of those buckets to get us back to that free free cash neutrality point so bottom line lots of flexibility to increase the capital program, to reduce the capital program. We do have some hedges in place on WCS. We're close to 50% hedged in a $13 range to really protect those heavy oil streams. Then we do have some hedging on WTI as well that will factor into the decision-making

Eric Greager, CEO

as we as we move through the year so hedging for defense net cash balance sheet for defense capital flexibility for defense net cash balance sheet for offense and you know opportunities really with optionality to go either direction in virtually every play and so that optionality gives us gives us a lot of flexibility a lot of room to take advantage of opportunities tactical bolt-ons are where we're focused in terms of that hundred million dollars or so that goes beyond our buybacks and but again this is a budget in 2026 that lives within operating cash flow and even over the longer horizon of three years we generate no financial leverage at a three percent three to five percent per year growth rate that's fantastic that's fantastic

Dennis Fong, Analyst — CIBC

to hear. Now, we touched briefly on the buyback program. Obviously, through this entire volatile cycle of commodities, there are going to be opportunities to look and repurchase stock throughout the entire period. How does that maybe factor into the way that you look at capital allocation versus obviously investing in your underlying asset base or even growing production? Where does that capital stack and how do you think about that?

Eric Greager, CEO

Well, we certainly believe today, as my opening remarks probably suggested, that we're certainly below mid-cycle in the commodity price. I would suggest we're probably near the bottom of the commodity price cycle. How long this lasts, nobody knows. But this is a good time to be buying back your stock. We're also, in my mind, a couple of turns undervalued, also a good time to be buying back stock. really good value if you can if you can buy units of resource quality in your own company understanding that we understand more about the quality of our resources than anybody else does it's a it's a really well risk adjusted opportunity and a good value for us so that's the that is the what we would consider the highest and best use of our allocation to shareholder returns is through buybacks. We believe in the normal course issuer bid and really like the cost averaging framework of, you know, a fixed dollar amount per day. You probably saw the SETI filing for December when we kicked off our NCIB purchases at the end of 25 and beginning 26 at $3 million per day. And that levelized approach allows you to disproportionately capitalize automatically, You know, by default on weaker price with stronger buying and less buying at higher prices, keeping your cost basis down. That sets us up nicely for an SIB, which we continue to consider for mid-year and, you know, as maybe a third of the total buybacks for 2026. We think these are much more valuable to the shareholder community than straight special dividends. We will maintain our fixed base dividend at $0.09 per share per year, and the beauty of the compounding benefits of buyback systematically over time is it sets you up to systematically raise your fixed base dividend without increasing the leakage to your business if you think of a dividend as a fixed cost. So that's a way, do you want anything to add on allocation?

Chad Lundberg, COO

Well, just maybe a little bit on the go forward. So yes, the elephant in the room is deploying $700 million to buybacks this year. So that's a 2026, maybe a little bit into 2027 story, depending on how we use the SIB. Past that point, again, we're living at free cash neutrality today at $60. We see oil price momentum behind us. I think you'll see us allocate some of that to incremental growth, but then there will be reservation for the balance of that to be returned to the shareholders. As Eric described, our preferential method at this

Dennis Fong, Analyst — CIBC

point in time would be by way of buyback. Fantastic. You alluded to earlier there, Chad, in terms of obviously stacking the economic returns or potential of kind of the next well or the next opportunity set to target. I know within a lot of the discussions we've focused as well around the Peminent DuVernay and a lot of the work that you've done to kind of reach commerciality as you've kind of, or a higher degree of comfort around the more scaled development of that asset. So in kind of some of the initial plans, you've talked about growing from 8,000 to 10,000 barrels a day towards 20 or 25, and still feeling very comfortable about the depth of inventory there. Can you talk towards, again, maybe some of the work that you've done technically, scientifically, that, again, drives and informs that initial opinion? And then how you think about that eventual build-out or that steady growth towards that targeted level?

Chad Lundberg, COO

Sure, yeah. so so it's there's no doubt in an unconventional resource the quicker you can get to full commercialization the quicker you can get to the ultimate capital efficiencies to really drive value out of the play the issue becomes really understanding the delineation of the asset the characterization of the wells the capital cost as you get there I think history has told us and shown that there's been numerous examples of companies either a over capitalizing and assets, meaning too much capital, or undercapitalizing the asset through this time horizon. For example, if you look back three years, we would have characterized the Duvernay well in the 60 BOE per foot range. Today in 2025, we're characterizing it more in the 90 BOE a foot range. So you can see the tremendous value proposition by just really stepping back and doing exactly as you described, understanding the rock as as we move it through the system. Part of the process of understanding the rock has has come by way of machine learning and so we've got entire model sets across the entirety of the Duvernay, whether it's K-Bob all the way through to the East Shale Basin on the Red Deer corridor. We also have large machine models overlying the Eagle Ford. Eagle Ford is most naturally analogous to the Duvernay play. So we had started those before we took our position in the Eagle Ford on an operated basis for that reason, layer in the Eagle Ford team over the past three years to help accelerate some of those learnings. And that's what's giving us the confidence today. So assets delineated, we've improved the characterization, reduced capital costs, grown the team, and now at a point in the life cycle to have full confidence to go out and commercialize. And maybe I'll just end it there. The plan grows from 8,000 to 20, 25,000 barrels a day, 20, 29, 20, 30. At that point in time, we would have notionally a decade of inventory, decade plus to hold the asset flat and free cash flow it forward. And so that's the prize. As we get to that full rig pace, we think we'll get better efficiencies. They'll continue to notch down from where we've got to so far, so again, getting to full kind of factory-style activity pace. And then our infrastructure spend, our long-term infrastructure spend also drops three years from now from the $35 million a year cadence into the $10 million a year cadence. So you combine improved capital efficiencies at pace with reduced infrastructure spending as we get there. that all flows straight through to free cash flow as an output and value to the shareholders.

Dennis Fong, Analyst — CIBC

Fantastic. It's really nice for you to kind of set up all those various stages to kind of understand how this play is going to develop and evolve. I want to pick off a little bit on the infrastructure side. You obviously signed an agreement with Gibson to help market the crude aspect of it. How does that also benefit your ability to, again, feel comfort around the rate

Chad Lundberg, COO

of growth from that asset as well yeah so the Gibson agreement we announced earlier this year we are not afraid of third-party agreements and working with mid streamers in fact we have strong parties and partnerships in each one of our major operating areas the Gibson agreement was as much to to outsource maybe some sleepier capital so there's some long pipelines that they're that they're helping us to build but it's as much as that as it is the blending opportunity and the upside opportunity by leveraging their expertise in the space to be able to fetch more dollars ultimately for our barrel so all of our oil goes into Fort Saskatchewan into the Gibson terminal from there they can elect to go both ways either down TMX to get it west coast or down the main line Enbridge to get it down into into the USA so we can blend it with heavy again their expertise their call to get a better net back for our barrel but I think the other thing that's underappreciated about the Duvernay is you can market it either as a as a light oil or depending on where the growth trajectories go in the Western Canadian sedimentary basin with respect to the oil sands and the call and condensate we could also flip the marketing ads as a condensate. So we're continually looking at the ARBs to understand what's the best way to go with it. And ultimately, you know, that's kind of the other side of the equation, pushing the revenue side as much as we've talked in this conversation about the cost characterization and that side of

Dennis Fong, Analyst — CIBC

the business. No, it's fantastic. It seems like there's a multitude of levers that you can look at trying to pull and obviously to obviously grow scale, but then then optimize the operations and optimize the the value creation from from that underlying asset that's right you got it um when we think about obviously you highlighted the the growth trajectory of the the duvernay to that 20 to 25 000 bwe day level and obviously a very large comfort level around the inventory beyond that around the end of this decade when you think about the other parts of the portfolio You highlighted, obviously, a large amount of resource in that Lloydminster region. Again, your teams are trying to find more resource from a small tuck-in perspective. I don't necessarily say, like, well, what's next type of situation, but maybe I'll just frame it as a what else is really exciting to you within the context of the portfolio because it seems, again, like the trajectory of Pemina is there, and how do you keep kind of not just replenishing inventory, but how do you think about all the next steps on what you want to do and what you want to build this company into through time?

Eric Greager, CEO

Over the last couple of years, we've more than doubled the acreage position in Northeast Alberta. And that acreage is highly perspective across a number of target horizons from the colony at the top down through the Lloydminster. But it's effectively eight target horizons across Northeast Alberta. And the teams have been very successful in de-risking, delineating, and making successful land extensions around those successful discoveries. So that's been an incredible success. And northeast Alberta gets a great deal of our attention when we speak about heavy oil. But most recently, we've increased our position east of Peace River in the Pakisco Mounds area, and we'll be shooting 3D seismic this year to further enhance our understanding of the subsurface structure. We continue to deploy new development techniques, both technical and operational, in the Peavine. That has continued to be stronger for longer than I think anyone expected, including us. You know, it's been quite the gift that keeps on giving West Cadot, more than a township, a position perspective for the Blue Sky and West Cadot. And the team has just continued to deliver across, you know, these stratigraphic, these cores, now 3D and land extensions around all of those. So continuous replenishment, but I think what we're most interested in is continuing to fuel that. We've doubled the exploration budget coming off the sale of our U.S. enterprise. And I fully expect that the pace of discovery and land extension will be proportional to the investment we're making. And, you know, this is like a team of sled dogs where every other dog is a little bit hobbled because we've had to hold them back just a little bit and we want to be capitally disciplined. But this business wants to run at higher growth rates and I'm quite excited about 2026 demonstrating the quality and depth of the team, the quality and depth of the heavy oil inventory, the quality and depth of our stimulation designs and our continued demonstration and commerciality of Pamela DuVernay. So yeah, a lot to love within the business and the Viking continues to deliver with very tight P10 P90 distributions and you know we know exactly what we're gonna get when we put a dollar to work in our Viking so a lot to love there fantastic sorry Chad were

Chad Lundberg, COO

you gonna add something there I was just gonna emphasize that under appreciation of the Canadian assets over the last three years and Eric talked about it so you know there's the flagship P vine position of course that has been developed since the 2020 time horizon, but Northeast Alberta, so not only doubling the land position all the while, you know, in the past three years, but taking the way we really systematically piece through the logs and the characterization and moving across to the Northeast Alberta corridor, what was and used to be just horizontal, single lateral lined heavy oil producers, more of a horizontal chop style production technique. We've been able to turn into a multilateral development as well. Again, just taking how we look at the logs, how we characterize that quiet underperformance that's been happening systematically and now parlaying it forward. And I'll just put one small plug in there. There are a couple other things that we're working on that are coming in the future and they're just not ready to talk about in earnest

Dennis Fong, Analyst — CIBC

yet. No, that's fantastic. I look forward to that potential update into the future. You mentioned something, Eric, a little bit earlier around, obviously, and you as well, Chad, in terms of, A, the current level of hedging specifically on WCS, WTI basis, obviously with a very strong balance sheet at this point in time. How do you then think about the corporate strategy around commodity risk management and maybe being opportunistic to some degree, but also making sure you can manage around a certain capital span, obviously a growth rate. And I don't think the dividend is a very significant burden, but obviously an important part of the investment thesis. So how does that kind of in totality, how does that look like with

Eric Greager, CEO

the context of risk management? We carried in the hedge book. And when you're running a process like we were running with the disposition of our U.S. enterprise, you have to plan for both outcomes, both the retention outcome and the disposition outcome. And so we were prepared for the retention outcome prepared with the simple two-way cashless-caller structure with put floors at $60, and that was something that we retained, and fortunately, you know, that has been at or, you know, either at the money or in the money, fortunately or unfortunately, I suppose I'd prefer higher prices. But we also, so we believe in systematic basis hedge protection. We think that's just a very prudent way to de-risk our heavy oil business, our heavy oil exposure to WCS. You can expect to see us continue to do that systematically over time and in a substantial proportion of our heavy oil production. We probably won't. If you asked me, Gregor, what would you do if you woke up in the morning with a net cash balance sheet? Would you go out and execute a bunch of $60 put floors? I'd say no, probably not. A strong balance sheet is your best hedge. And as long as you've got lots of flexibility in your capital program, then you can respond very, very well to whatever the world delivers to you. But because we had it, because we retained it, and it was prudent to have given the options that we went into the year with. We've decided to keep it. And if it goes deep into money, who knows? But at this juncture, we look to retain it as risk management but probably not perpetuate the WTI, costless callers going forward, rather ensure our WCS and probably MSW basis protection. And I think that's probably the most sensible thing.

Chad Lundberg, COO

Would you add anything to that? Just a stronger portfolio, reduced break-evens, reduced maintenance capital commitments, and the general high grading of the portfolio that also happened with the most recent transaction puts us in a stronger financial position.

Eric Greager, CEO

A resting-based decline rate. I mean, the business is, at its core, meaningfully stronger today, not just the balance sheet, but the retained assets. And I think that's a very strong step in the direction of risk management.

Dennis Fong, Analyst — CIBC

With that, unfortunately, we've run out of time. So thank you again for spending this with us and sharing a little bit more about the Baytech story.

Eric Greager, CEO

Thank you, Dennis.

Chad Lundberg, COO

Thanks, everybody, for joining.