PeterPP wrote: Event
Q1/19 results. Conference call at 11.00 a.m. ET ( 1-800-319-4610/webcast).
Impact: POSITIVE
Production and FFO come in ahead of expectations (Exhibit 1): Q1 production of 101 mboe/d was ~4% higher than previous guidance of ~97 mboe/d. This was primarily driven by strong operational execution in the Eagle Ford. Canadian volumes were essentially flat q/q. Relative to our estimates, higher Eagle Ford liquids production was the primary driver of the FFO beat.
Tightening the bands for 2019 production and capex guidance (Exhibit 2): At the midpoint, production guidance has been increased by 1% (now 95-97 mboe/ d vs. 93-97 mboe/d previously). Midpoint capex is unchanged at $600mm but the range is now $575mm-$625mm (vs. $550mm-$650mm previously).
Surplus CF outlook improves with higher commodity prices; prioritizing debt repayment: At current strip prices, BTE is forecasting ~$350mm in surplus cash flow, ~$300mm of which has been earmarked for debt repayment. BTE has also extended the maturity on its $1.07bln revolving credit facility to April 2021 (~50% currently undrawn). With no debt maturities until 2021, we believe that BTE is well-positioned from a liquidity perspective, especially if FFO continues to exceed capex.
Q1 operational highlights: BTE continues to advance the delineation of its sizable East Shale Duvernay land position, with two of its four planned land retention/appraisal wells drilled. Completions are planned for H2/19. In the Eagle Ford, Q1 wells averaged an IP30 rate of 1,600 boe/d vs. the 2018 average of 1,750 boe/d (partly due to the drilling of shorter laterals). Lastly, in the Peace River heavy oil region, BTE acquired 26 sections of prospective acreage. It is planning to drill its first exploratory multi-lateral in H2/19. Since WCS heavy differentials have normalized, BTE's heavy oil assets are once again starting to compete for capital (and on returns) with its light oil operations.
TD Investment Conclusion
We upgraded BTE on the RRX merger. This deal materially strengthened its balance sheet while simultaneously increasing its high netback light oil exposure (Viking) and capital flexibility. BTE is trading at 3.4x 2019E EV/DACF vs. its peers at 4.0x. Although leverage remains a bit high, we expect Net Debt/FFO to organically trend down to 2.2x by year-end.