After recent Eagle Ford netback success, Baytex rethinking assets

By Luke Geiver | June 04, 2018

At $32 per barrel of oil, Baytex Energy Corp. this quarter has reported its strongest production netback in the Eagle Ford since 2014. For comparison, the Canadian exploration and production company received a netback of only $8/b across its Canadian operations.

The netbacks—or net profits on oil and gas production after royalties, production and transportation expenses—are due in part to the pricing that Baytex receives for crude produced in the Eagle Ford. In the South Texas play, the company’s assets are located close to Gulf Coast markets, making production from the region priced off Louisiana Light Sweet crude benchmark, which is a function of the Brent price. “As a result,” the company said, “we benefit from a widening of the Brent-WTI spread.”

For Baytex, the increased netbacks are also coming at a time of record production. The company has deployed an enhanced completion that relies on 29 frack stages with 2,100 pounds of proppant per foot placed across an average 6,200-foot lateral.

Ed LaFehr, president and CEO, said that at $65/b WTI, the wells will yield greater than 100 percent initial rate of return with payouts in one year.

With oil prices in the $60s, Baytex has changed its tune on selling assets to reduce its debt. After mentioning the possibility of asset divestitures in the Eagle Ford during previous investor updates, LaFehr said that with cash flow increasing significantly the company now has more options with its assets and that they have higher expectations of what their properties are worth.

The Baytex team estimates the company has more than 10 years left of drilling inventory. They are currently running two drilling rigs with the possibility of adding another rig later this year. The focus in the latter half of the year will include the addition of another spot frack crew to work on drawing down the company’s inventory of drilled but uncompleted wells while it works to apply its enhanced completion designs to more recently drilled wells.