Thank you for standing by. This is the conference operator. Welcome to the Baytex Energy First Quarter 2020 Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Brian Ector, the Vice President, Capital Markets. Please, go ahead.

Thank you, operator. Good morning, ladies and gentlemen, and thank you for joining us today to discuss our first quarter 2020 financial and operating results. With me today are Ed LaFehr, our President and Chief Executive Officer and Rod Gray, Executive VP, and Chief Financial Officer. We also have on the line from their work-at-home stations today, Kendall Arthur, Vice President, Heavy Oil; and Chad Kalmakoff, Vice President, Finance; Chad Lundberg, Vice President, Light Oil; and Scott Lovett, our Vice President of Corporate Development. While listening, please keep in mind that some of our remarks will contain forward-looking statements within the meaning of applicable securities laws. I would refer you to the advisories regarding forward-looking statements, oil, and gas information, and non-GAAP financial, and capital management measures in yesterday afternoon's press release. All dollar amounts referenced in our remarks are in Canadian dollars unless otherwise specified. And with that, I would now like to turn the call over to Ed.

Thanks, Brian, and good morning, everyone. I'd like to welcome everybody to our first quarter 2020 conference call. Before we begin, I would like to take a moment and acknowledge all of the frontline healthcare workers and essential service providers across Calgary, and in the communities where we operate, for all of the tremendous work they've been doing throughout the COVID crisis. Many of our employees have family members or friends on the front lines, and we are very grateful for their effort. On behalf of the entire Baytex family and all of our stakeholders, we thank you. I also want to acknowledge our employees, who have responded to this unprecedented challenge our industry is facing, with the poise and commitment that we have all come to expect. We have implemented a number of measures to foster resilience through these unpredictable times, including a work from home program and altering shifts in the field. We are focused on protecting the health and safety of our personnel, while maintaining our operations and to-date we have had no positive cases of COVID-19 within the company. The demand destruction, as the global economy has shut down, the resulting collapse in crude oil prices and the uncertainty over the duration of this downturn can strain any organization. And I'm very proud of our team, and how we have responded. As market conditions have changed during the first quarter, we move quickly to adjust our business plan. We curtail exploration and development spending in March, which resulted in capital spending of CAD177 million, 12% lower than our original expectation. Approximately 70% of our capital was directed toward or operated assets in Canada, where we have had a very active program in both the Viking and heavy oil. We generated strong production at 98,400 BOEs per…

Thanks, Ed, and good morning, everyone. As Ed mentioned, the demand destruction caused from shutting down the economy to prevent the spread of the coronavirus combined with an increasing supply of crude oil from Russia and Saudi Arabia has caused an unprecedented drop in crude oil prices, this decline in prices combined with the economic uncertainty, led us to recording an impairment during the first quarter of CAD2.7 billion as the carrying value of our oil and gas properties exceeded their recoverable amounts. These impairments may be reversed in the future should commodity price forecasts increase or there be indications of a change in value. We had strong liquidity at the end of the first quarter with CAD417 million of undrawn capacity on our credit facilities, resulting in approximately CAD315 million of liquidity net of working capital requirements. We discussed this on our last quarterly conference call, but it's important to reiterate, during the first quarter, we enhanced our long-term note maturity schedule, which provides us with improved flexibility and liquidity. On February 5th, we issued us CAD500 million principal amount of 8.75% senior unsecured notes maturing April 1, 2027. We also redeemed two series of notes during the quarter. On February, 20, we redeemed $400 million due June 21. And, on March 6th, we redeemed CAD300 million due July 19, 2022. Following these redemptions, our first long-term note maturity of $400 million is not until June 2024. We also extended the maturities on our credit facilities to April 2, 2024, the credit facilities are not boring based facilities, and do not require annual or semiannual reviews. We also continue to manage commodity price risk through an active hedging program; we realized the financial derivatives gain of CAD27 million in Q1 2020. For the remainder of 2020, we have entered…

Okay. Thanks Rob. In this challenging environment we've responded decisively to protect the health and safety of employees and to dramatically reposition operating activity to maximize our cash flow, and minimize the draw on our liquidity. Our operating teams continue to drive cost savings and prudently shut-in production that is currently uneconomic as I mentioned. And the refinancing of our long term notes and extension of our revolving credit facilities to 2024 were both important steps in improving our financial flexibility and liquidity. You can be assured we are working very hard for all stakeholders to make the necessary changes and overhauls to our plans in 2020 in this extraordinary environment. And with that, I will ask the operator to please open the call for questions.

Certainly. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Manav Gupta with Credit Suisse. Please go ahead.

Hey, guys. I'm just trying to understand this but, again, right now both Viking and heavy oil have been shut. You have indicated that heavy oil will most likely remain shut for the rest of the year. At the same time, you're evaluating Viking production every month. I'm trying to understand what's the thought process? When could you actually look to restart the Viking? And in what circumstances, could you actually think about bringing back heavy oil, if any, during the year?

Yeah. It's a really good question, Manav, in a very dynamic environment. So when I say 25,000 barrels a day were shut in, that's today and that's an instantaneous basis and for the month of May. Having said that, we're looking at opportunities to sell at -- in the range of margin that gives us a $5 access over variable costs to a $10 dollar excess over variable costs. And we're at that point right now and into June. So we've made some spot sales, we've done some things. But -- so having said that, right now, 24,000 barrels a day of heavy oil are shut in and a very small amount of light oil is shut in. And it's primarily Duvernay. It's not really Viking. And in June, we plan to bring on a vast majority of all of our light oil. And in heavy oil we can start bringing on barrels, if prices, not only give us that $5 to $10 excess over variable cost, but if we see some stability in the macro environment that suggests the price environment that we're in will be will be stable. So we're looking at that very closely. And it's not overnight, it comes in tranches. So there's a first tranche of barrels that are coming back in June, as I mentioned, there's a second tranche that could come on later. And it's not a cookie cutter here, it's a very dynamic and volatile situation, and our marketing and asset teams are remaining extremely nimble. So, the way I would plan in terms of modeling is 25,000 barrels a day is what we've said today. And that should moderate itself down to 20,000 barrels a day for second half of the year, shut-in.

Thanks for taking my questions.

Our next question comes from Philip Skolnick with Eight Capital. Please go ahead.

Yes. Good morning. Just on the cost reductions. How much would you say you know would come back in a more normalized environment and how much is a more permanent for the corporation?

Yeah. Really, really good question and one that we're working actively right now but of the CAD135 million of cost savings, roughly CAD80 million of that is OpEx, and another big chunk of that is transportation in a very small amount of G&A. But let's focus on the OpEx for a moment, because some of the transportation costs will come back with volumes and -- some of the OpEx will as well. I would give you kind of a 50-50 blend of 50% of the CAD135 million is due to volumes, simply being off, and 50% is truly cost savings and deferrals. Some of that, I think will come back. And -- so here are some examples, inside OpEx, we have items like fuel, maintenance, I would say labor, some of these areas, we're working hard, we've furloughed a lot of people and some of those people will be necessary to come back and help bring back those volumes, but not all. Reinventing the way we're working out there as well, and repairs, maintenance, work over's remains to be seen what we do there, but we're definitely seeing cost reductions in different areas. But I would look at it as 50-50, and of the 50%, I'm calling cost savings, some of that will come back I just don't have a number for you right now.

Okay. No, problem. Just, I guess, then on the cost savings. I mean, is there anything with respect to maintenance CapEx that you're looking to do that, then you know we look into 2021 estimates in normalize environment that maybe it would cost you to less to maintain production or level maybe?

Well there's a big category, we call repairs, maintenance and supplies, and I think all of that is being challenged and looked at to be reinvented or, you know, look at phasing and type of maintenance and when it's done, and how to shelter more et cetera. But so I don't have an answer on that, and I don't have an answer on how much labor will need to come back either, I know -- all of it will come back. And we're committed to that. But I would say, we're those are the things we're working on right now, Phil.

Okay. Understood. Thanks.

Our next question comes from Gregory Pardy with RBC Capital Markets. Please go ahead.

Hi. It's Adnan Usman on for Greg. Thank you for taking my question. Just a quick one from me, as you ramped -- what amount of things are expected there again associate marketing?

I’ll turn that over to Rod on marketing. We're not going to talk about our specific agreements, but we were running about 12,000 barrels a day in Q1. And we've ramped that down about 50%. We've shut in almost the entirety of our Peace River field, which is a majority of our rail volumes. So we're down to 2,000 barrels day in Peace River, and therefore, when you're talking about shutting in an entire field, then that, that becomes a significant conversation throughout the value chain into your markets. Now, before I pass it over to Rod on anything he wants to add. He did say, Rod did say that that railing our volumes to the Gulf Coast is a priority long term, until we have enough egress and pipelines in place. So it is part of our strategy to rail volumes and we have some very important customers that we like dealing with. But we're down to, kind of, minimum levels. I would say both in Peace River and in Lloyd on our rail volumes. Rod, do you want to add to that?

I think Ed said it. We've got good working relationships with our partners around rail and we continue to view crude-by-rail as an integral part of getting our product to market. And thankfully we've been able to work through this challenging time with the majority of the partners.

Got it. Thanks so much.

This concludes the question-and-answer session. I would like to turn the conference back over to Brian Ector for any closing remarks.

All right. Thank you, operator, and thanks everyone for participating in our first quarter conference call. Have a great day.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.