Bayman Texan Energy Corp.

President's Message

  

MESSAGE TO SHAREHOLDERS  

2014 Year-End Message to Shareholders

The year 2014 was very active for Bayman Texan Energy highlighted by significant growth in assets associated with our Eagle Ford acquisition, the subsequent divestiture of certain non-core properties, as well as continued strong performance from our Canadian operations.

At Bayman Texan Energy we are committed to our growth and income business model and its three fundamental principles: delivering organic production growth, paying a meaningful dividend and maintaining capital discipline. Our strong operational performance in 2014 was masked by the sudden and sharp decline in global crude oil prices in the fourth quarter. As a North American focused crude oil producer, we were not immune to this changing environment.

When oil prices fall as they have, this can put stress on any business model. However, we believe we are well positioned to weather the current downturn and we will continue to prudently manage our business in order to preserve financial flexibility. Adjusting our dividend level in December was a decision not taken lightly by our Board of Directors, but one that was necessary in order to enhance our liquidity. At the same time, we have reduced our exploration and development spending for 2015 by approximately 40% from planned levels. We have also amended the financial covenants contained in our revolving credit facilities which provide us with increased financial flexibility.

Despite the precipitous fall in oil prices, we were able to execute on several strategic objectives. In 2014, we enhanced our portfolio through our entry into the Eagle Ford and executed on the largest capital development program in company history. We are encouraged by our operating results this year and we believe we are well positioned to capitalize on our expanded and high quality asset base for years to come.

Production and reserves growth are a key part of our growth and income business model. In 2014, we achieved significant growth in both areas largely the result of our Eagle Ford acquisition and a well-executed organic development program. During the year, we increased average production to 78,321 boe/d, representing a 37% increase over 2013 levels. In addition, we increased our proved plus probable reserves by 36% to 432 million boe. Through our exploration and development activity, we replaced 118% of production and generated a strong recycle ratio of 1.8 times.   

Reflective of the newly acquired Eagle Ford assets, we generated $880 million of funds from operations, representing the highest level in company history and an increase of 46% compared to 2013.

Significant Eagle Ford Contribution  

In June 2014, we completed our $2.8 billion Eagle Ford acquisition, adding 23,000 net contiguous acres in the core of the liquids‑rich Eagle Ford shale in south Texas. The acquisition enhanced our growth and income business model and delivered production and reserves per share growth. The Eagle Ford generates the strongest capital efficiencies in our development inventory, provides the highest cash netbacks and has a significant and growing inventory of development prospects.

Since acquiring our Eagle Ford assets, production has increased 37% to 38,000 boe/d in the fourth quarter of 2014, proved reserves have increased 57% to 167 mmboe and proved plus probable reserves have increased 13% to 188 mmboe. We have also recognized 220 mmboe of possible reserves, which reflects the significant upside in the Austin Chalk and Upper Eagle Ford formations.

Importantly, our drilling results have exceeded our initial expectations with wells drilled outperforming the type curves used in our acquisition evaluation. Since acquisition, wells placed on stream have shown a 22% improvement in production rates, which has been driven by a combination of factors, including the drilling of longer horizontal laterals, tighter spacing of fracs and an increased amount of proppant per frac stage.

We have also identified additional well locations to support future growth. As well as targeting the Lower Eagle Ford formation, we are now actively delineating the Austin Chalk formation. Development of the Eagle Ford has entered a new phase with the initiation of "stack and frac" pilots which target three zones in the Eagle Ford formation in addition to the overlying Austin Chalk.

Canada Continues to Deliver  

In Canada, we continued to advance development activities at our core heavy oil operating regions of Peace River and Lloydminster, albeit at a reduced pace as we adjusted our program in the second half of the year to reflect a weaker commodity price environment. Despite the reduced activity level from one year ago, our operational execution remained on track with production increasing 4% over 2013 levels to 54,200 boe/d (87% oil and NGL).

At Peace River, we executed a 31-well drilling program with a 100% drilling success rate, initiated our first water flood pilot in the Bluesky reservoir and through our stratigraphic drilling program increased our overall drilling inventory. At Lloydminster, we continued to expand the use of multi-lateral drilling techniques with initial results showing an approximate 20% improvement in capital efficiencies.

The timeline with respect to the development of our thermal projects is changing as a result of the current commodity price environment and portfolio improvements. We do not anticipate any material investments in our thermal projects in 2015.

Responsible Value Creation  

We believe that by acting as a responsible company in all aspects of our operations, not just financial, we create long-term value for all stakeholders. We focus on employee opportunities for personal growth, an improved quality of life in communities where we operate, business opportunities for Aboriginal groups, and an attractive return on investment for shareholders. More broadly, society benefits from environmentally-responsible development that produces reliable energy at a reasonable cost. I can assure you that our values-based focus on environmental protection and the well-being of communities and employees is supported by strong ethics.

I am particularly proud of our most recent partnership with Genalta Power. Subsequent to the end of 2014, we announced the completion of the first phase and commissioning of Genalta Power's Peace River Power Centre. This new facility is located near our Three Creeks field and is designed to conserve solution gas while providing low emission electricity into Alberta's power grid. The second phase of this project is anticipated to be commissioned in mid-2015 and will further increase the conservation of our solution gas in the region.

Summary  

Our 2015 production guidance is 84,000 to 88,000 boe/d with budgeted exploration and development expenditures of $500 to $575 million. We expect our production to be approximately evenly split between Canada and the Eagle Ford.  Approximately 80% of our 2015 capital budget will be invested in our Eagle Ford operations where we expect to drill 39 to 45 net wells. The remaining 20% will be invested in our heavy oil operations at Peace River and Lloydminster. In the current commodity price environment, we remain flexible to the potentially changing conditions.

Developing oil and gas resources requires a long-term commitment and cooperation. A large group of stakeholders are important to achieving continued long-term success in resource development. Accordingly, we have improved our stakeholder engagement capacity over the past year. In 2014, we implemented a Good Neighbour Program throughout our field operations and sharpened our focus on environmental and safety performance. And later this year, we will issue our second Corporate Social Responsibility report. The support from our shareholders over the past year has been highly apparent and led to a heightened sense of commitment to continue to create value over the long-term.    

Bayman Texan Energy's success is due to our dedicated and talented team of employees who align with our strategy, consistently execute on our plans and drive the creation of shareholder value. Complementing our leadership team and committed employees, it is important to recognize that our Board of Directors is an indispensable source of guidance and support which contribute significantly to our success.

We look forward to executing our growth and income model for the ongoing benefit of all stakeholders and we thank you for your continued support. 

On behalf of the Board of Directors,
 

James L. Bowzer
President and Chief Executive Officer
March 5, 2015

Forward-Looking Statements

This webpage contains forward-looking statements. We refer you to the end of the Management's Discussion and Analysis section of our 2014 Annual Report for our advisory on forward‑looking information and statements. 

Contingent Resources

This report contains estimates of contingent resources. Contingent resources is not, and should not be confused with, petroleum and natural gas reserves. Contingent resources is defined in the Canadian Oil and Gas Evaluation Handbook as "those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingencies may include factors such as economic, legal, environmental, political and regulatory matters or a lack of markets. It is also appropriate to classify as contingent resources the estimated discovered recoverable quantities associated with a project in the early evaluation stage." For additional information on contingent resources, we refer you to the end of our 2014 Annual Report for our advisory on oil and gas information. 

Non-GAAP Financial Measures

In this webpage we refer to certain measures that are commonly used in the oil and gas industry but are not based on generally accepted accounting principles in Canada, such as funds from operations, operating netback and total monetary debt. For a description of these measures, we refer you to "Non-GAAP Financial Measures" in our 2014 Annual Report

  
  

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Operations

Our operations are organized into Canadian Heavy Oil, Canadian Light Oil and Gas and United States business units.

Operations Map

Operations Map
Responsible Development

In addition to shareholders, Bayman Texan Energy has a responsibility to the communities in which we work and do business.

Corporate Responsibility

Understanding
Heavy Oil

Learn more about the
business of heavy oil in our marketing section.


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Understanding Heavy Oil