Baytex Energy Corp. (BTE) Earnings Call Transcript & Summary

Good morning, Eric.

Good morning, Menno.

So on behalf of TD Cowen, it's going to take me a bit of time to get used to saying that. I would like to thank you for joining us today. I understand it's been nonstop for you and the team since the Ranger deal was announced. So I do appreciate you taking the time.

Absolutely. Thank you. Yes. We were actually working on the final days in Toronto -- a number of days in Toronto, New York, Miami earlier this week. Brian and I just put back down here further west yesterday and happy to be talking about the deal, and congratulations on the TD Cowen.

Appreciate that. So in terms of the format, we have about 45 to 50 minutes. And what I'll do is maybe manage the questions for the first 30 minutes or so just to make sure we get through some of the really important stuff. And then we'll open it up to everyone on the line, you can just submit your questions through the portal, and I'm already seeing a bunch of them come through. So maybe, Eric, we'll just start the conversation off at a very high level. And have you take a couple of minutes just to walk us through your background, including your most recent experiences at Bonanza Creek and Civitas, and maybe you could also touch on what drew you to Baytex and what you've been most surprised by, good or bad, in the short time that you've been with the company?

You bet. You bet. So I have a long history of fulsome answers. So I'll try to keep it succinct. Just to understand something about kind of who I am within my DNA, I grew up in Western Colorado, a farming and ranching family, hunting and fishing. This part of oil and gas goes deep in Colorado, it goes deep in Alberta, Saskatchewan, Texas. It's extraordinarily important to society -- I mean, fundamentally, what we do is provide energy for society. And I believe because energy is the #1 factor input to food production worldwide, literally people live and die by adequate energy supplies for society. Everyone on this call, I'm sure, already agrees with that. But as a farmer and rancher, we were very interested in conservation all the way through, and it's important to us at Baytex to continue to build a bigger enterprise, but also a better, more responsible both financially to our shareholders, but all of our stakeholders, including our employees, bondholders, surface land owners and all the rest. And this runs through all of the work that we've done at Baytex in all of my history. Again, born and raised in Colorado, I went to Colorado School of Mines, graduated with an engineering degree, spent the first 11 years of my career after I graduated with Helmerich & Payne. So a very deep dive in the service sector operationally drilling and casing and cementing wells all across North America, offshore Gulf of Mexico to the West Coast, deep into South Texas. [indiscernible] Eagle Ford early in my career, deep high-temperature, high-pressure. And then later in my career after 11 years at H&P, I went back to the Gulf of Mexico. I did 2 years with Dominion E&P in the Gulf of Mexico. These were deepwater operations, also Blue Water Jack Up. I had -- in my time with H&P, I had done various consulting assignments within Exxon, Shell, BP, both in Houston and New Orleans. And so I had a fair bit of experience within the majors. That was an extraordinarily important training ground for me technically and operationally, and you couple that with the real roll up the sleeves kind of service sector work at H&P. In the first 14 or 15 years of my career I was just extraordinarily steep learning curve, lots and lots of exposure across the board to -- all manner of drilling completions offshore, onshore. And then this kind of set the stage for the onset of fracture stimulation which everybody recognizes was revolutionary. I joined Encana in 2006. My wife and I essentially had -- we had our three children in New Orleans in 2004 when I left Helmerich & Payne. Hurricanes Katrina and Rita hit back to back, and we were evacuated. My office right downtown next to the Superdome was damaged, one could say destroyed. And I took my family -- of course, we had good intelligence from the Gulf. We evacuated ahead of the crowd, got into Houston. Few weeks later, were evacuated from our evacuation center in Houston. And my wife looked at me and she said, what the hell are we doing? Like we're both from Colorado, we're both from the Rockies. We're here in the Gulf of Mexico running around trying to escape hurricanes. And so began looking -- I really enjoyed the work, but I began looking for an opportunity further west back to Colorado. Encana was growing dramatically building the Jonah operation, and that was my entry point. I worked for 12 years at Encana, absolutely love the company, love the experience they provided for me, fabulous mentors and just incredible experience. And it's how I got introduced to Canadian operations, of course, in the Montney and the Duvernay, they had substantial positions, which I was familiar with working there. I worked my way from kind of a drilling superintendent manager all the way through VP and General Manager for 3 years there. Before I left, I was running a multi-basin portfolio, 5 assets across 5 basins in the U.S. And that gave me the opportunity to really gain kind of in-responsible charge of a multi-basin portfolio, how to pull assets through commerciality, some which would ultimately be sold, some which would ultimately be maintained or more delivered into the development plan. And then I left Encana in 2018 to join Bonanza Creek Energy. This was my first opportunity to be -- to really kind of cut my teeth as a CEO, small eastern flank publicly traded company in DJ with Mid-Continent asset. I joined in April of 2018, and I left Bonanza Creek in February of '22. So about this time last year. Four years, we did an incredible -- we had an incredible run at BCEI Civitas. We sold one -- we sold the Mid-Continent asset pretty quickly after I joined the company, that was August of 2018 and then rode through the regulatory turmoil and difficulty with regard to just the surface cultural tension that existed -- exists less today, but existed in spades at the time. It helped me understand when you compare and contrast the pure-play exposure that a company like Bonanza Creek as a small publicly traded company exposed to a single play correlated or concentrated risk exposure, in this case, regulatory to the multi-basin portfolio that had charge over with Encana, you gain an understanding about why diversification matters. You have assets in different places along their maturity scale, not thermal maturity, but along the development maturity. And I learned through one of the very best development companies that has ever existed, which is Encana, now Ovintiv about how to bring assets through exploration, delineation demonstration and full development, some to sell, some to deliver to the development plan. You juxtapose that to the concentrated risk that I learned about in the DJ and then apply that to the modern world today where we sit with Baytex. And that gives a little bit of kind of context around why I believe, in the world we live in today, that diversification matters. It matters in terms of the regulatory exposure. At Baytex, we now have exposure to the Alberta regulatory construct, the Saskatchewan regulatory construct, obviously, the Texas regulatory construct and the ability to move capital back and forth seamlessly to press advantages that are profitable in one area that might not exist in another, and that is extraordinarily important, both to the resiliency of the business as well as to the profitability. Let me stop there, Menno. That's a fulsome answer, I think.

Yes. No, that was -- we just -- we covered a lot of ground there. And you clearly have a lot of familiarity with Western Canada and the Gulf of Mexico as well, which is great to hear. But maybe we'll just cut to the chase on the Ranger acquisition. You now have two Eagle Ford assets that are more or less next to one another in the oil and condensate windows. One is operated, Ranger. The other is nonoperated by Marathon. But I guess the question is, what can we expect the dynamic between the two assets to look like? And are there opportunities to take learnings from one and apply together? Because, obviously, Marathon has been doing really good things on the Karnes County acreage in particular for a long, long time?

You bet, Menno. I think -- so organizationally, we're going to fold our Karnes Trough nonoperational oversight into our Ranger team. We've got an absolutely fantastic team. And I'll double back on this, on why I have such confidence in the team operationally and technically. It's one of the things that's very unique about this marriage between Baytex and Ranger, so -- but I want to get back to kind of how we're going to do it and what we expect the dynamic to be. If you look at Slide 7, and I've got the slide in front of me as I glance up to the screen behind my camera. You can see in the Karnes Trough -- Southwest Karnes Trough the 25% working interest in 80,000 gross acres that we have at Baytex in those four AMIs. This is the best unconventional resource in the world. It is absolutely phenomenal, performs extremely well, drills well. I mean, it's high pressure, but it's light sweet, you naturally are going to get really, really good pricing. So we've got MEH pricing, which is WTI plus a couple of bucks today, access to ship channel gas pricing which someday will be worth something again. And this is just really, really good acreage. You couple that with the fact that Marathon is a very, very good operator. You just look in the records and you can see. They've done really well in the Karnes Trough. They're doing really well on behalf of the partnership. And I see nothing but opportunity here. And so we have -- because of the relationship between Ranger and Baytex, which again, I'll double back on here shortly, but also between the Ranger team and the Marathon team, they have a long history of swaps and trades. And now that we're coupling this large AMI, again 25% working interest in 80,000 gross acres on the Karnes Trough Marathon operator, which is red, with what looks like blue to me on the Ranger operated acreage. We have a lot of opportunity to swap working interest, to swap DSUs, to extend the length, to just create more operational efficiency across both programs. We intend to do that, and this is a real opportunity that is unlocked through the marriage of Ranger and Baytex. The reason I've got so much confidence in the team at Ranger is because I spent 12 years at Encana. Darrin Henke, the CEO -- President and CEO of Ranger was there. He was my senior. I worked for Darrin for years. Julie and I worked together. She's the COO at Ranger and will be running all of the Eagle Ford operations for Baytex Ranger at the time when we get closed. And Julie and I spent -- I think she was there before I got there, left a little bit earlier, but we were there together for 10 years. Worked in different parts of the organization, but both operationally focused. Darrin and I have known each other for a very long time. I've watched them take these assets and demonstrate that the assets are far better than most people thought they were. And just look at the records, in the last 2.5 or 3 years, they've done an absolutely fantastic job. There's a young man that works there, his name is Taylor Young. I've known Taylor for a very long time. There's a young man that works within Juniper's organization, [indiscernible], I've known [indiscernible] for a very long time. I've known Eddie at Juniper as well for a long time. And so this marriage, there's fabric that goes across the relationships that allows us to have deeper than the VDR, deeper than all the detailed kind of private data that you get through this kind of evaluation. There's deep understanding that they have of the asset. And I don't think there's any outside company who understands the Ranger assets as well as Baytex does. When I joined Baytex back in November, the first question I asked is, who are we interested in? And what are we interested in doing from a corporate development perspective? And the team had a model built that they had been tracking both financially and operationally for years, using public data updated every quarter. I also had a model that I built this summer. And so my model wasn't nearly as good as the team's model. But when we brought these together, we were able to get a real jump on it. And that's why in 5 short months, we're able to get to where we are today because I had a deep understanding and confidence in the assets, but more importantly, the team, Darrin, Julia, Taylor and all the rest that -- Rusty, for example, I have known for a long time, very, very good team. And that confidence was inspiring to me and by proxy inspiring to our team. And then the deep dive, we just kept finding opportunities to be more encouraged, and so that's the double back I've been promising on the team and it goes a long way, I think, to understanding why we could react so quickly.

And when you think about the differences between the Marathon operated and the Ranger operated assets, like what would be sort of the top three major sort of differentiators when you look at the two asset basis?

Yes. So the Karnes Trough particularly south of the graben feature which is clearly a seismic feature you can see. The Karnes Trough acreage -- that is Marathon operated, we're nonop in -- is just south of that. It spans volatile oil, gas condensate and gets a little gassier to the Southeast as you move kind of down dip in the Gulf Coast basin, but it's quiet, meaning it doesn't have a lot of seismic complexity or geophysical complexity that you would see in terms of the structure in the subsurface. Again, south of the graben feature. The graben feature itself is very noisy and busted up. But if you get south of it where this red set of polygons, it's a little bit quieter. They've got a lot of understanding, a lot of history in development there. As you move on trend to the Northeast, it gets a little bit more seismically active, meaning it's a little bit more fractured. There's more faulting. The team -- and this is one of the things that I really credit the Ranger team, particularly in the last couple of years to have done a fantastic job, reprocessing the 3D seismic, understanding at a very, very kind of deep and detailed level what those structural features look like and how to navigate the structural features. Sometimes you can drill right through them. There's nothing but a bit of fault gouge and you emerge on the other side, you can cheat the fault and drill longer. In other cases, the faults can be more problematic. And the team has done an extraordinary job in building out the data set and how to navigate these. They've shown it to us. We're very confident in it. I've drilled in faulted and fractured zones and horizons throughout my past. There's an established science to doing it, but you've got to have a good operational understanding. This Ranger team does. They've demonstrated in the last couple of years. And I would just point to yesterday's release, the Ranger team just released a 3,000 BOE a day, IP30 well, 3,000 BOE a day. Now that is phenomenal. And when you look at the performance improvements they've put together quarter-over-quarter, year-over-year in the last couple of years, they're really unlocking the potential of this resource. And I think that had we waited a year or two, what would have happened is that everyone would have recognized that the team was unlocking the potential and we wouldn't have been able to sort of buy this asset, this team and merge these two entities together in a constructive way we have here at such an accretive price to the Baytex shareholders. And I think that's really important on the timing. So we had a unique opportunity, we could react fast because of the confidence in the models and the confidence in the team, but also I think we got such a fair price for the buyer because we saw what the world will see in just a few short quarters, and I think we were able to see it before the market saw it and we're able to sort of buy that opportunity. I think primarily, it is two things. It's the fractured faulted nature, which if you can navigate the faults well, which we're confident we can, the stress environment creates better fracture stimulation performance. And I think the 3,000 BOE a day well really demonstrates that. It also tends to sit just a little bit up structure, so disproportionately liquids orients, so we've got more black oil, volatile oil and gas condensate on the Ranger lands. And you can see that, again, I'm sort of staring at Slide 7. You see the crude oil mix and the total liquids mix in red is kind of 59% and 77%, respectively, on the Am Merrill operated Baytex stand-alone lands. And you see those same two numbers are 72% and 87%. So it's higher on the Ranger stand-alone lands. And of course, today, liquids weighting is more profitable. But this gives us the opportunity to move capital around across gas and oil, across different parts of both the operated and hopefully having some opportunities to influence Marathon about how they capitalize on the asset that's not operated as well. Let me stop there, Menno.

Sure. No, that was very thorough. Maybe you and I were chatting about this before we got this fireside underway. But yes, last week was a very busy week on the Baytex side of things, had a lot of different conversations with a lot of different people. I had a number of people suggest that this acquisition is negative read-throughs for the rest of the portfolio, meaning that perhaps some of your other assets aren't as competitive as previously thought or lack the running room on drilling inventory. So what -- how would you respond to that?

Yes. I think it's a reasonable reflex, right? People will often look at acquisitions or mergers as some sort of judgment on the existing portfolio. I would say that that's a decent reflex, but it's -- but it wouldn't be the right read-through. And I'm looking at Slide 9 here. What I want to point out is the quality of our existing portfolio is absolutely fantastic. Again, I'm staring at Slide 9. On the lower left panel, this relative IRR is a function of 2P reserves on the X-axis. You see on the left, stand-alone Baytex inventory, these are all run at $75 WTI. You see on the left there, you've got kind of the steep collection of assets that set the Y-axis. That's our Clearwater Peavine. I don't have to tell anybody how spectacular that is. At 75, it's generating 300-plus percent rate of return. In the first 18 months of ownership, it's paid back its entire acquisition value and upfront development capital. And over the next decade of operations, Clearwater Peavine will generate CAD 1 billion of free cash flow over that decade. So if we could do nothing but Clearwater Peavine across our entire $1.2 billion of CapEx per year, we would. But we can't. It's right now operating in the 12,000 to 15,000 barrel a day range. And we believe that's the responsible place to operate. We'll push it harder if we can, but we want to be very transparent with all of our stakeholders, our shareholders, our landowners, our royalty interest partners because people live on these lands in which we operate, and I've learned this over 30 years of operating in the U.S., Northern Arapaho, in Wyoming, in New Mexico, [indiscernible] Apache and Navajo. Obviously, native relationships with the native peoples in Canada is something that the Baytex team has a lot of experience in. So we didn't really have to tell each other how to do it. I think we all understood that being a responsible operator and sort of managing our commitments for pace of development within our headlights and our landowner relations is extremely important. So that's why we are continuing to deliver in this kind of 12,000 to 15,000 barrels a day plateau, and that is just the responsible way to operate. So as you look at the next group down, that's mostly the Karnes Trough, and that's our Marathon operated interest. You see just to its right is kind of the top 40% or 50%, let's call it 50%, of the opportunities on the newly merged Ranger lands. With the Ranger team and all of their operating and technical capability, you can see that, that -- those assets perform -- the top of the assets perform in line with the Karnes Trough, and they stepped down a little bit at $75 as a WTI price. And then you get into that kind of center orange block, you've got your Duvernay assets that are kind of stand-alone Baytex, Viking assets on both the left and the right. We've got Lloydminster on the left. And so the point of this is to say, as you continue to work your way through these blended groups of both Ranger assets and both our heavy oil and our light oil assets in Canada, they mix very well. And you can see, when I go through the capital allocation, you'll see that we're not diverting capital from Canada, we'll spend CAD 600 million in the 4-quarter period after close on Canadian assets or, I guess, more clearly on our Baytex stand-alone assets, which would include the major lands -- sorry, the Baytex Marathon-operated lands. But in addition to that CAD 600 million on our Baytex stand-alone lands, we will also spend another CAD 600 million on the Ranger merge lands. And so what we've effectively done through this merger is we have doubled the size of our opportunity set to deliver, on average, 85% or 90% returns within the portfolio at a 50% to 55% reinvestment rate. We're doing so with 12% or 13% weighted average cost of capital through the merger if you think about just kind of 50-50 debt and equity use to merge. We've bought 12 to 15 years of, I don't know, 75% to 95% returns. And to me, that's just a really, really compelling opportunity. So at $75, you can see the step down from the blending of Baytex stand-lone, Ranger stand-alone, Baytex stand-alone, Ranger stand-alone and so on as you move your way through the skyline plot. But one of the things that I think is so important for the investment community to understand is this is also a defensive asset. We talked about MEH pricing, WTI plus. You look to the right, if you run the same portfolio at $55 WTI, you still see the Clearwater Peavine on the left, you still see the Karnes, but you see how the group of blue box as they compress and they move to the left. And what that means is it's effectively a defensive asset. With prices going to $55, these assets are more profitable in our portfolio relative to the entire portfolio. And as prices continue to go down, this asset continues to deliver free cash flow even deep into the 40s. And so what we have now at Baytex post-close as we have this defensive set of assets in South Texas with MEH pricing, so you've got defense to the bottom or low WTI price, and you've got all this exposure, which we're not diverting opportunities from that has worked to the upside. And so now you have more dimensionality, more ability to both protect the balance sheet, protect the business, protect shareholders, protect free cash flow and the return of capital in a defensive asset, but also maintain all the torque that our heavy oil generates to the upside. And so when you couple that with the defense against kind of concentrated risks that we talked about earlier, with regard to the regulatory diversification, we now have heavy oil, light oil both in Canada, light oil on the Gulf Coast, and we've got multi-basin exposure to regulatory. This is just a much more durable and resilient set of assets in company. And at the same time, we can deliver on accretion, basically all the way through the financial metrics from unit revenues all the way through operating cash flow per share, free cash flow per share. I mean, the 20% accretion per share all the way through our return of capital. And if you look at our return of capital on a long-term basis, over the next 4 years of our 5-year plan, every shareholder for every share they own, for every quarter they own it, they will have 23% more money in their pockets just as a result of this transaction alone. So let me stop there, Menno.

So if we pivot back to the Ranger assets themselves and the development plan, I think you talked about a 39% decline rate. I think you also talked about going from 3 rigs to 2 rigs. So can you just elaborate on what you have planned on those lands for the next, call it, 18 months? And how you would expect that to impact the corporate decline, which I believe on a blended basis is about 34%, 35% right now?

Yes, you're right, 34% on the Baytex stand-alone. Of course, we've been underway on a reasonably modest kind of 3% to 4% development pace or growth pace. And that's the way we're going to operate the Ranger lands as well. Now the Ranger team has been growing the Ranger standalone lands much more significantly than that running 3 rigs, at times even 4 rigs at time. We're going to pull back, and we're going to run 2 rigs level loaded across the operation. Julian, Darrin and their team have helped inform us on this. That was a subject of lots and lots of work, but we really like this kind of, call it, low to mid-single-digit production growth, 50-ish percent investment rate. And that will take CAD 600 million to run those 2 rigs with a stimulation crew right at the tailgate. We'll maintain a working DUC inventory, but not building a whole bunch of DUCs in inventory. And it's capitally efficient, it runs right on par with the capital efficiency of our stand-alone, not quite as good because the fracture stimulation is a little bit more capital in the numerator, but the wells are absolutely phenomenal in the denominator of that capital efficiency calculation, but it competes really well. And on an operating cash flow basis it is definitely accretive to the overall cash cost structure of the Baytex business. And so the margin is a little bit better on the whole when you merge them together. The operating cash cost structure is lower on the whole. And the capital efficiency is just a little bit higher or slightly worse when you merge them all together. But the point of this is, on the whole, this is a far better business. Now on declines, the 39% decline rate is certainly running the business faster as the Ranger team has done. As we moderate that pace of development, that's going to come down, call it, I'm going to say, 37% is kind of what we're thinking -- 36%, 37% as we bring that down to the 3% to 4% production growth with 2 rigs and a frac crew. And then when you blend that with the stand-alone Baytex at kind of 33%, 34%, you're going to end up in the 35%, 36% kind of blended average decline rate. And given the operational cash cost structure, the margins and the free cash flow, this combined business presents with the opportunities to really flex across such a large attack surface, we believe we're going to be able to make a lot of improvements along the way across the business. So whether that's TMX coming online and basis diffs compressing or whether that's MEH coming on or Freeport connecting our gas to markets outside the North American continent, I think there are tons of opportunities to unlock here. So if the accretion is not good enough at 20% to 25% across all the cash metrics and over a 4-year -- 0- to 4-year period, then there's a ton of opportunity to continue to unlock given this opportunity set. We'll continue to develop this thing over time, Menno, at 3% to 4%, 50 to 55 net wells, CAD 600 million, very levelized, very deliberate with a team that is second to none.

And so I did promise to open up the line to question. So I'm just -- I've got a bunch of them, so I'm going to consolidate them a little bit. But some of them relate to your sort of -- some of the transactions that you completed at Bonanza Creek and Civitas. You've got one across the line of Baytex. How should we be thinking about your appetite for additional M&A going forward? Is this a one and done? And I guess the other piece of that, that I'm just, again, trying to consolidate questions here, how are you thinking about the Marathon-operated assets? I know under the prior leadership, there was some openness to potentially unloading that if the right price or the right offer were made, but how are you thinking about all of that post-Ranger?

Yes. So let me go back. I want to unpack the BC [indiscernible] and the M&A piece. One should never do M&A for the sake of M&A, bigger for the sake of bigger is not in the interest of public shareholders. However, there's a very clear correlation to market multiple expansion as E&P companies get bigger. And that -- if you measure that in terms of EV or you measure that in terms of -- with a healthy balance sheet, in terms of market capitalization, either way, it's very, very clear there's a positive correlation to scale. That is the market multiple. The market will deliver a better multiple. And there are fundamental reasons why that's the case, right? It has to do with scale and investment-grade credit and the lower cost of capital that comes both on the debt and the equity side of the business when one reaches investment-grade scale and investment-grade credit quality. All of those are aspirational goals, but we are one big step closer to all of those things. And those will create straight through to the shareholder because the lower cost of capital means a few percentage points of additional return to the shareholders. So when you think about kind of M&A, it's bigger for the sake of better. And I think we've printed a very, very good deal here that demonstrates how better it looks. It's not just scale, but it's also accretion on every metric and it's a more durable business at both low prices and high prices. And then you think about, how one goes about doing that? So in April of 2018, the first thing we did at Bonanza Creek is we disposed off the Mid-Continent assets. It was a reasonably small transaction in an absolute sense. But given the scale of that company at the time, it was a $500 million publicly traded small cap in -- primarily in the eastern flank of the DJ with these Mid-Con assets. We've got a premium price out of the Mid-Con assets, and it's an interesting story, but I won't bore you with it today. And that was August of '18. And then, of course, the regulatory construct set in, and it was tough on all public companies in DJ. But what we did is recognize that outside competition, outside capital won't be competing in the DJ given the regulatory construct, and we could use that to our advantage. And so because it reset the table and we had the opportunity to take our balance sheet to net cash with that transaction, we did so. And then we really invested hard in our assets, and we demonstrated that the eastern flank and the DJ while objectively in the -- maybe in the bottom half of resource quality, as you measure it in terms of, let's say, resistivity as a simple measure of resource quality, over the 4-year period, out of all the operators that we're operating in that 4-year period from the day I started to the day I stepped down, objectively, the kind of bottom half objective resource quality punched at the very top of the pack, top decile rank; second only to Noble and buoyed by their absolutely large-scale and top-quality resource to BCEI's West, okay? So put that in context, you take, let's call them, Tier 2 assets. We spent time and energy in helping unlock the resource quality and deliver basically the concept that was. If you stimulate right and you take a systems engineering approach to reservoir pressure management all the rest that had to be done through the Bonanza Creek apparatus, you could deliver top decile performance out of Tier 2 assets. We did that. It's in the record. And over time, what that did is it allowed us, one, to gain a great deal of confidence in the shareholder and investment community; but two, through the balance sheet strength when COVID hit, others weren't as strong in the basin and there was no outside capital to compete with. So it became effectively reverse auction. We acquired. It was an acquisition by merger of High Point at a discount to their PDP. We worked directly with their bondholder group to do so. That was a one-of-a-kind toggle mechanism through that deal, public merger. We doubled in size there, then we doubled again. We closed that in April of '21. We announced the 50-50 MOE with extraction in May of '21. And then before we filed the merger proxy statement, we've folded in Crestone Peak as a joint acquisition, again another one-of-a-kind deal and closed those in November of '21, doubling the size again. So you double it, you double it again. And then moving in towards the end of the year post closing, we made a small acquisition Bison, that was a private entity and then coincident with that announcement, I stepped down, personal reasons. Four years of M&A and fighting through regulatory was enough to make me want to take a breather. And I did in February step down, absolutely love that business, created a great deal of value. We took that company from, let's just say, round numbers, $500 million market cap to almost $6 billion in February of 2022 and did so without leverage. Now looking back, leverage could have amplified the total shareholder returns even more. But if you look back from the day I started to the day I handed, it wasn't because of me. But if you just mark that time, the total shareholder return on an absolute basis for BCEI over that almost 4-year period was the highest of any E&P company, large or small, any basin, anywhere in the U.S., and that includes Baytex, and it includes everyone, including Magnolia. We actually -- Magnolia was SPAC at the time I started. That's a phenomenal company, really rewarded well with its market multiple. That's the only company to the left on that TSR plot, and it was something like 30 companies that existed at the time. And so any investment banker can do that work for you, but I think that's a demonstration, 12x -- 10x to 12x growth in market capitalization without leverage and the highest total shareholder return growth over the same 4-year period. And I'm confident, I'm absolutely confident that Baytex is starting with a better set of assets, in a better place and if you apply the same kind of application of disciplined M&A, bigger for better sake along with the fact that you can create advantages across the larger portfolio, I think we stand to do quite a bit better in terms of just what Baytex is capable of. And I'm really, really excited to get the Ranger team together with the Baytex team and unlock the potential in the people, unlock the potential in the resource. And I couldn't be more confident. Let me stop there, Menno, and feel free to kind of auger in any part of that.

Yes. No, I mean the -- yes, we went through that exercise as well of just sort of mapping out the performance of Bonanza Creek and it was, to your point, pretty stunning. Maybe I'll just touch on sort of the cross-border business model. There's not too many companies that have that. It's yourself, it's Ovintiv, [indiscernible] had that. Now they're effectively out of Canada, solely focused on the U.S. You just relisted on the NYSE. Ovintiv chose to redomicile to the U.S. Sort of a lot to speak to there. But more broadly, how are you thinking about the advantages versus the disadvantages of the cross-border model? And how committed are you to that? Is that just -- I guess my question is, is that an output? Or did you -- or is that -- that's something you're actively -- that you expect to actively pursue longer term?

Yes. So let me say at the offset, we have no plans to redomicile. There's no reason why we would pursue that. We absolutely love the headquarters office in Calgary. I think listing on TSX and NYSE is absolutely the right thing to do in terms of unlocking the largest possible investor base. Also initiating the dividend opens up a whole world of kind of income-oriented institutional investors. And also, it's just the right thing to do as one buys back shares and hopefully begins to flirt with one's kind of intrinsic value, you want to have a dividend that you can not only grow over time, but also have a dividend that you can kind of lean on in the event that you need to pull back from your share repurchase plan. It would be a good problem to have if one was priced at the point of intrinsic value. Right now, we're disproportionately shareholder -- or share repurchase oriented, but we intend to grow the dividend over time. It opens up a lot of shareholders on both sides of the border. We like that. We think the NYSE listing does as well. We like that. We love our headquarters in Calgary. And we love our assets in the Western Canadian Sedimentary Basin. When you put these things together, I think it stands on its own. Just the dimensionality and the opportunities that we can push and probe and press, like today, the phenomenal capabilities of the team and rolling the industrial logic of the Marathon-operated assets into the operated team with the premium pricing to the south, but then you look at the torque that the northern assets provide particularly heavy oil with the performance at Peavine, but also our exposure at Lloyd and a lot of heavy oil exposure in the broader Peace River, our exploration program across the Clearwater Fairway, we have tons of opportunities to the north. And as TMX compresses -- helps to compress the basis diff, we were very conservative in how we ran our basis diff in these models at $17.50. We're already above that. And we haven't added any of that to the kind of the narrative around free cash flow. But at $80, this business prints $1.2 billion a year of free cash flow, and that's assuming a $17.50 basis. As that basis compresses, those numbers go up. If you like $90 better as the WTI, the net free cash flow goes to CAD 1.7 billion and half of that will go to debt paydown and half of that will be allocated to return of capital until we get to our next milestone, at which point we step up our return of capital even more. I think the time has kind of come where acreage acquisitions have mostly run their course in North America. The positions are all held and inventory is kind of the name of the game over the next, I'm going to say, 0 to 5 years. The world is going to come to realize it's short oil, maybe not today, maybe not tomorrow, but in the quarters and the years to come, the world is going to recognize it's short oil. And the world is also going to recognize that it's North America that can answer that. We have short-cycle capital. We have a very strong regulatory apparatus. We have the best and most fluent investor base in the world, and it's that -- it's North American oil that we can answer that call. We will continue growing at 3% or 4% per year production growth and generating a lot of free cash flow to the benefit of our shareholders over time, but I think this asset base stands on its own in terms of its accretion, in terms of the free cash flow it can print, in terms of the structure, the return of capital framework and in terms of our opportunities to move capital north and south of the border with very limited friction through a multitude of commodity exposure, heavy oil, light oil, NGLs, natural gas and obviously across multiple price points. MSW at Edmonton, WCS Heavy as well as MEH Houston and Ship Channel gas, we've got a lot of opportunities to really take advantage of the upside. Opportunity is the name of the game and inventory is where you're going to get it these days. And I also think that scale is going to matter a lot in terms of kind of how one capitalizes. Very few companies our size set on 1.7 million acres of oil weighted exposure and that's what we've got. It's a real -- like this is a sleeping giant. I'm convinced of it. And we can print a lot of cash flow along the way. So it's not like you have to wait -- if you're an investor for 3 to 5 years, we're doing it tomorrow. As soon as we close this thing, we're going to step up.

Yes. And I'm getting a couple of questions on sort of the remaining steps that need to be taken to get this deal across the line. What -- is there any risk in deal closure?

Well, there's always some risk, but we've worked very hard to structure this deal. Again, I mentioned that I've known Eddie for a long time. I've known members of his team for a long time. I've known the Ranger team for a long time. So on both sides, they feel very good. Obviously, unanimous support from both boards. But the other thing that's unique about this is, the Juniper capital ownership of Ranger as a stand-alone entity was 54%. And the threshold for shareholder votes in the states on a deal like this is 50% plus 1. And so Juniper can and has signed a support agreement to deliver their shareholder vote in favor of this deal. And so on our side, we intend to deliver our shareholders, and we believe this deal stands on its own. I think the shareholders overtime are going to grow to love what it stands for. There's nothing not to love except the emotional reaction to the idea, which I think we've largely worked through because the merits of this deal, both low-price durability, high-price torque, as well as opportunities to create a more durable framework across regulatory time and space, commodity time and space and pricing and markets time and space, it's a phenomenal opportunity. And I think the deal stands on its own. I'm quite confident we will deliver our shareholders. I'm quite confident that the Ranger shareholders will deliver a favorable vote. Steps along the way, there's an antitrust process called Hart-Scott-Rodino, the HSR clearance. I've never had it stand in the way. So knock on wood. It won't stand in the way of this deal. I don't see how it could from an anticompetitive perspective, but that is a regulatory hurdle that needs to be cleared. And obviously, we have regulatory filings as two public companies on both sides of the border. And then we've got the shareholder vote, but we have committed financing. We have a strong bank group and it's an incredible asset package combined. I mean, two companies that are great stand-alone, but as a combined company far better than either company could be stand-alone. And I couldn't be more excited, and I just want to keep delivering the message to folks so that they can understand more and more. And I'm happy to keep doing these, Menno, as you get more questions.

Okay. Yes. Maybe we'll just continue the rapid fire. This is a fixed income question. Could you -- what are the interest rates on the new credit facilities for the acquisition, revolvers bridge, et cetera?

Yes. So Chad Kalmakoff is far better to have this conversation. So whoever asked that, Menno, please ask him to call through Brian, through the IR or through you and your team. Chad Kalmakoff is our CFO. What I will say is our credit facility is a non-RBL based. It's a covenant-based credit facility. So it doesn't have 6-month redeterminations on reserves. It's not like the U.S. facilities, number one. Number two, it's being expanded. And it's a SOFR plus, so it's variable. SOFR is the new version of LIBOR. It's a SOFR plus facility. And as everyone knows, cost of capital is going up on the back of all the central banks around the world raising interest rates. So that will go up. I think it's SOFR-plus 200 bps, but Chad is far better -- maybe it's 175. But again, Chad, have the right answer on that, but it's a SOFR-based facility. And that's going up. So in absolute terms, some of it is going to be financed at SOFR-plus up a small bit. And some of it is going to be financed with a combination of the term loan and then committed bridge financing to a high-yield offering. So we intend to, over the next couple of weeks, start getting really busy around high-yield offering, and that will be something that Chad is going to lead along with banking colleagues and there will be a lot more time to talk about the financing and the cost, but I think one could expect that today in the world we live in that high yield might go for 9%. And I'm guessing, so take that for what it's worth, you're getting that from a drilling engineer, not a finance guy. So -- but I think a new high-yield issue in today's world, 5-year no-call too or something, maybe a touch longer than that would probably go for 9%. And then our grid is probably notionally at, let's call it, 6.5% in terms of our -- maybe 7% in terms of our facility. So when you look at those together, that's how I can arrive at this notional construct of 8% cost of debt. And then you look at the free cash flow yield and that's, let's call it, 16% maybe 20%. But for round numbers, this is how we get to kind of the weighted average cost of capital used to merge the two entities and finance the deal against 12 to 15 years of 75% to 95% returns. Go ahead, Menno, next rapid fire.

Yes. The -- just on the -- and we'll try to wrap it up in the next 5 minutes here. I think I promised you 45 minutes, and we're running up on 55.

It's all on me.

Yes, I know. So hedging, is there any desire to maybe lock in the payout period on this acquisition through hedges above and beyond what you have on the books right now?

Yes. We do intend to layer inputs. And those quotes will be set. I'm just going to say notionally again, it's a team, it's a combined team of very smart folks, including a lot of input from our Board on how we set these, but we intend to layer inputs notionally at about $60 WTI, layering those in overtime. And we intend to also layer in calls, probably a little bit further out in time. What the intention here is to separate the puts and calls so that they're not necessarily a cashless caller. They'll appear as though you're setting up a caller structure, but the duration and the time period won't necessarily be coincident, right? So the puts and the calls will be offsetting one another in every time period. The reason I mentioned that nuance is because we want to be able to roll the calls up and out. This backwardation in the strip is challenging to set a call structure so that it doesn't clip your upside. None of us want our upside to be clipped and we're willing to pay a little bit of our cash flow in order to maintain a little bit of upside. So we will set the puts in a way that protects our downside, again, call it 60. But the team, together with our Boards, will make that call or that decision. But the calls themselves, we will put those in place in a way to, one, help offset the puts. So we're selling the calls to help offset the cost of the puts. But also, we want to be sure that we're not just kind of mindlessly racing forward with collars that constrain our upside. And we will be diligent about taking advantage of opportunities to roll those calls up and out as longer-dated contracts roll into shorter dated contracts and give us opportunities to do so. So I hope that's a clear answer. We are intending to do at the level notionally. We'll go from, say, 20%. I think we're at 18% today, so call it, 18% of the stand-alone Baytex to notionally 40% in terms of volume hedged, and this is how we're going to do it. We're going to layer in the puts and we're going to separately layer in the calls and we're going to do so in a way to give us maximum exposure to the upside because they firmly believe the world is short oil and will come to know that over the next couple of quarters.

And last question, I promise. I think it's an easy one. Deal synergies. Presumably, there aren't any or they're very negligible, but any color there would be good.

Yes. We didn't make a big fuss about synergies because it's pretty clear this deal was meant primarily to create an operating capability and really drive accretion to the combined business. I've gone through that a lot already. The synergies that we've identified in our deck are about CAD 15 million per year. That's a combination of just eliminating redundancy on both sides. And let me just give you a couple of examples of how that redundancy comes to be. You don't need two boards. You only need one board. There's some redundancy there in terms of just cash retention and then travel costs and all the rest. And then you don't need two leadership teams. So Darrin and I are friends, long, long-time friends. And he's done an extraordinary job, but you don't need both of us, and there's synergy there. Likewise with CFO and other members of the C-suite. So [indiscernible] brings you on as a top leadership. She's top-flight as good as it gets, anywhere in the world, and she knows these assets. She knows these assets cold. And she will continue running not only the Ranger assets on behalf of Baytex, but also running the non-op side of the business as well. So her scope increases. And then we're keeping almost all of that very lean, very high-performing operations team. We're keeping almost all the rest of them. So there's redundancy in the C-suite and there's redundancy at the Board level. And then there's other back-office redundancies, which you might not think about. But outside financial audit, you don't need to outside socks audit. You don't need to outside IQRES, you don't need to -- there's a lot of rationalization of, I would say, IT systems, and I don't mean people necessarily, but I mean redundancy and systems. So subscriptions, you combine two subscriptions into one and you save 50%. There are lots of economies of scale and purchasing power. Again, if you take CAD 50 million per year and you run that out at a 10% discount, it's about $100 million all NPV. So it's not nothing, but it wasn't the real driver of this deal.

Okay. It's great color. I think we'll -- we're coming up on the hour. So I think we'll wrap it up there. Again, really appreciate you taking the time. I know it's been a very busy 10 days, and maybe we'll get you back in 6 months or so just to see where things stand. Thanks to everyone on the line for joining us. And have a great day.

Menno, thank you. Thanks to everyone.

Thanks, Eric. Take care.