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Baytex bets on Texas Eagle Ford assets Canadian-based oil producer shelves oil sands pilot despite positive results; CEO warns of further cap-ex cuts if oil below US$70 Gary Park For Petroleum News
Baytex Energy, the Calgary-based oil producer, is further sharpening its focus on Eagle Ford assets acquired last year by stalling progress on a thermal oil sands pilot in northern Alberta.
Having already uprooted itself from a small interest in the North Dakota Bakken, it has now decided to put off a sanctioning decision on going commercial with 5,000 barrels per day from its Gemini project until oil prices return to US$80-$90 per barrel “sometime in the future,” Chief Executive Officer James Bowzer told analysts in a first quarter conference call.
He said that despite good results from the Gemini pilot and recent strengthening of Western Canada Select (a blend of bitumen and lighter petroleum) prices, Baytex has decided it was time to decommission the pilot.
Since operations started more than a year ago, the company had “captured the key data associated with all of the pilot’s objectives,” he said.
Baytex acquired almost 30,000 acres of leases in the Cold Lake region for C$120 million in 2012 from Koch Oil Sands Operation, which had obtained regulatory approval for a 10,000 bpd project.
Pilot had been producing The company reported that the pilot has produced 200,000 barrels at a favorable ratio of 2.3 barrels of steam for every barrel of oil, with output peaking at 1,100 bpd.
In December, Baytex applied for permission to go ahead with a 5,000 bpd commercial operation starting in 2016.
But it has now opted to join a growing list of oil sands investment deferrals, including an C$11 billion Joslyn North Mine proposed by France’s Total, the Pierre River mine owned by Shell Canada and Statoil’s 44,000 bpd thermal Corner project.
Consultant Wood Mackenzie predicted in March that up to 16 planned but unsanctioned oil sands developments carrying C$59 billion in estimated capital costs could be deferred.
For Baytex, the Gemini move is consistent with its concentration on Eagle Ford assets acquired last year for US$2.6 billion from Australia’s Aurora Oil & Gas - a location where it received better oil prices because of the proximity to Gulf Coast refineries.
In the latest quarter, the company recorded output from its core Eagle Ford holding in the Sugarkane area of 41,000 barrels of oil equivalent per day (80 percent liquids), up 50 percent from a year earlier, and views the holding as one of its “highest rate of return projects.”
Canadian output down Against that gain, Baytex’s Canadian output eased back by 8 percent to 50,000 boe per day after accounting for 2,000 boe per day of divestitures and a shut-in of some heavy oil volumes due to low prices.
Spending on exploration and development in Canada was C$21 million in Canada, less than one-third of the final quarter of 2014, while the company posted a loss of C$176 million compared with a profit of C$48 million in last year’s opening quarter, but production surged to 90,700 boe per day from 59,500 boe per day over the same period. Cash flow slipped to C$160 million from C$246 million.
Mark Friesen, an analyst with RBC Dominion Securities, said he expects growth from Eagle Ford will “largely offset the brunt of the Canadian production declines.”
He now thinks it is unlikely that Gemini will come on stream until late this decade.
Thomas Matthews, an AltaCorp Capital analyst, said Baytex is well placed for any recovery in oil prices later this year.
With well costs coming down throughout all plays, continued operational success in Eagle Ford and a sub-US$50 per barrel WTI breakeven cost base, among other factors, Baytex could reap the rewards of an oil-weighted recovery, he said.
Bowzer said there could be further cuts to the capital budget at mid-year unless oil prices hold consistently above US$60, noting that achieving the original spending plans of US$550 million-C$575 million needs prices above US$70.
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