TD Comments - Impact Positive
Event
Q2 was highlighted by in line production (70 mboe/d vs. consensus of 69.6 mboe/ d), and an FFO beat ($81.3mm vs. consensus of $73.2mm). Production was down from Q1 levels of 75.8 mboe/d given shut-ins and reduced activity levels. In addition, lower projected H2 activity levels triggered a 13% hit to midpoint capex guidance, but only a 1% hit to midpoint production guidance (excluding the impact of dispositions). Conference call scheduled for 11:00 ET (North America - 1-866-225-2055, International - 1-800-6578-9868).
Impact: POSITIVE
Reasonable trade on revised capex and production guidance: BTE now only has three Eagle Ford rigs operating, down three or 50% q/q. Eagle Ford wells are now being drilled for $5.4mm, down from $5.6mm in Q1 (and $8.2mm in late 2014). With this activity adjustment, it is now forecasting 2016 E&D capex of $200-225mm, down from $225-265mm previously. Production guidance falls to 67-69 mboe/d, from 68-72 mboe/d as a result. The low-end of the revised range reflects the annualized impact of dispositions (more on this below), while the highend reflects the annualized impacted of dispositions and reduced spending. The key point here is that this equates to a 13% reduction to capex vs. only a 1% hit to production guidance (excluding the impact of dispositions) - a good trade under any scenario, in our view. Lastly, we note that BTE is suggesting that it expects year-to-date plus strip H2 FFO to exceed 2016 capex.
Dispositions starting to chip away at leverage: BTE has entered into agreements to sell 2.25 mboe/d of production comprising 1 mboe/d of lower netback, operated Eagle Ford production for $55mm, and 1.25 mboe/d of Canadian production (prices not disclosed, to our knowledge). Both are expected to close in the Q3 timeframe. We note that with Q2 FFO exceeding capex, net debt fell by $39mm to $1,943mm (i.e., only marginally).