Baytex Announces Third Quarter 2022 Results and Continued Strong Clearwater Drilling Results

2022-11-03

TSXV - TSX Venture Exchange · Oil · Natural Gas · Natural Gas Liquids · Lithium · Canada

Calgary, Alberta--(Newsfile Corp. - November 3, 2022) - Baytex Energy Corp. (TSX: BTE) ("Baytex") reports its operating and financial results for the three and nine months ended September 30, 2022 (all amounts are in Canadian dollars unless otherwise noted).

"We continue to deliver on our commitments with a much-improved balance sheet (0.9x net debt to trailing 12 month EBITDA ratio), substantial free cash flow generation ($478 million through nine months) and a shareholder return framework that is driving real value for our shareholders (3.8% of shares repurchased to-date). We are building operational momentum as we approach 2023 with current Clearwater production of 10,000 bbl/d driving an expected corporate exit rate production of 87,000 to 88,000 boe/d. Our first four Clearwater wells this quarter generated 30 day initial production rates of 1,100 bbl/d per well and we have initiated down-spacing (moving to 5 wells per section) which offers a potential 20% increase in our future Peavine Clearwater drilling inventory," commented Ed LaFehr, President and Chief Executive Officer.

Highlights

Generated production of 83,194 boe/d (84% oil and NGL) in Q3/2022, a 4% increase over Q3/2021. Production in October increased to over 87,000 boe/d. Delivered adjusted funds flow(1) of $284 million ($0.51 per basic share) in Q3/2022, a 43% increase compared to $198 million ($0.35 per basic share) in Q3/2021. Generated free cash flow(2)of $112 million ($0.20 per basic share) in Q3/2022, an 11% increase compared to $101 million ($0.18 per basic share) in Q3/2021. Reported cash flows from operating activities of $310 million ($0.56 per basic share) in Q3/2022, a 73% increase compared to $179 million ($0.32 per basic share) in Q3/2021. Reduced net debt(1)by 21% to $1.1 billion, from $1.4 billion at year-end 2021. Repurchased 21.6 million common shares year-to-date, representing 3.8% of our shares outstanding, at an average price of $6.53 per share. Divested of non-core natural gas assets in west central Alberta for net proceeds of $26 million. Production associated with the divestiture was approximately 600 boe/d. Generated production from our Clearwater play at Peavine of 8,191 bbl/d in Q3/2022. Production during the month of October averaged 10,000 bbl/d from 24 producing wells.

CEO Transition

As previously announced, the Board of Directors appointed Mr. Eric Greager to the position of President and Chief Executive Officer and as a Director effective November 4, 2022. Mr. Greager succeeds Mr. LaFehr who announced his intention to retire earlier this year. In keeping with this transition, Mr. LaFehr has also stepped down from the Board of Directors, he will remain in an advisory capacity until January 2023.

2022 Outlook

We remain intensely focused on maintaining capital discipline and driving meaningful free cash flow in our business. We continue to execute our 2022 plan and anticipate full-year production of approximately 84,000 boe/d (mid-point of previous guidance range of 83,000 to 85,000 boe/d) with a targeted exit rate of 87,000 to 88,000 boe/d. Based on the forward strip for the balance of 2022(3)we expect to generate approximately $650 million of free cash flow this year.

2022 Outlook (continued)

We now anticipate full-year 2022 exploration and development expenditures of approximately $515 million, up 3% from our previously targeted $500 million (representing the high end of our prior guidance range of $450 to $500 million). The incremental capital largely reflects the impact of a strengthening U.S. dollar, relative to the Canadian dollar, on our U.S. operations and further level loading of activity through year-end to maintain the efficiency of our operations.

We have increased our general and administrative expense by 12% largely to reflect the impacts of inflation and expanded staffing costs associated with our higher pace of activity and strong performance. We have also fine-tuned our interest expense guidance to reflect higher interest rates on our credit facilities and the impact of a strengthening U.S. dollar, relative to the Canadian dollar, on our U.S. dollar denominated debt.

The following table highlights our 2022 annual guidance.

Our 2023 capital budget is expected to be released in early December following approval by our Board of Directors.

Shareholder Returns

Our improved financial position enabled us to implement the second phase of our enhanced shareholder return framework in May, allocating 25% of annual free cash flow to a share buyback program with 75% of free cash flow allocated to debt reduction.

During the third quarter, we repurchased 12.6 million common shares for $79 million, representing 2.2% of our shares outstanding, at an average price of $6.25 per share. Year-to-date, we have repurchased 21.6 million common shares for $141 million, representing 3.8% of our shares outstanding, at an average price of $6.53 per share.

As of September 30, 2022, our net debt(4)totaled $1.1 billion, representing a net debt to EBITDA(5)ratio (trailing twelve months) of 0.9x. Our net debt at quarter-end was largely unchanged from Q2/2022 due to our share buyback program and the impact of a strengthening U.S. dollar, relative to the Canadian dollar, on our U.S. dollar denominated debt. Based on current commodity prices and forecast free cash flow for the fourth quarter, we expect to exit 2022 with net debt of under $1.0 billion. In addition, we expect to reach a net debt level of $800 million by mid-2023(6), at which time, we anticipate increasing direct shareholder returns to 50% of our free cash flow and accelerating our share buyback program.

We have also established an ultimate net debt target for the company of $400 million, which represents an expected net debt to EBITDA ratio of 1.0x at a US$45 WTI price. We feel this level of net debt will provide us with full flexibility to run our business through the commodity price cycles and generate meaningful returns for our shareholders. At current commodity prices, we expect to achieve this net debt level in 2024, at which point we intend to increase direct shareholder returns to 75% of our free cash flow.

(1) As announced on July 27, 2022. (2) Specified financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable with the calculation of similar measures presented by other entities. Refer to the Specified Financial Measures section in this press release for further information. (3) Calculated as operating, transportation, general and administrative or cash interest expense divided by barrels of oil equivalent production volume for the applicable period. (4) Capital management measure. Refer to the Specified Financial Measures in this press release for further information. (5) Calculated in accordance with the Credit Facilities Agreement. (6) 2023 pricing assumptions: WTI - US$79/bbl; WCS differential - US$23/bbl; MSW differential – US$3/bbl, NYMEX Gas - US$5.20/mcf; AECO Gas - $4.65/mcf and Exchange Rate (CAD/USD) - 1.36.

| | | | | Three Months Ended | | | Nine Months Ended | | | | | | | | | | | | | | | | September 30, 2022 | | | June 30, 2022 | | | September 30, 2021 | | | September 30, 2022 | | | September 30, 2021 | | | | FINANCIAL (thousands of Canadian dollars, except per common share amounts) | | | | | | | | | | | | | | | | | | | Petroleum and natural gas sales | | $ | 712,065 | | $ | 854,169 | | $ | 488,736 | | $ | 2,240,059 | | $ | 1,315,792 | | | | Adjusted funds flow(1) | | | 284,288 | | | 345,704 | | | 198,397 | | | 909,599 | | | 530,862 | | | | Per share - basic | | | 0.51 | | | 0.61 | | | 0.35 | | | 1.62 | | | 0.94 | | | | Per share - diluted | | | 0.51 | | | 0.60 | | | 0.35 | | | 1.60 | | | 0.93 | | | | Free cash flow (2) | | | 111,568 | | | 245,316 | | | 101,215 | | | 478,202 | | | 284,196 | | | | Per share - basic | | | 0.20 | | | 0.43 | | | 0.18 | | | 0.85 | | | 0.50 | | | | Per share - diluted | | | 0.20 | | | 0.43 | | | 0.18 | | | 0.84 | | | 0.50 | | | | Cash flows from operating activities | | | 310,423 | | | 360,034 | | | 178,961 | | | 869,431 | | | 471,817 | | | | Per share - basic | | | 0.56 | | | 0.63 | | | 0.32 | | | 1.55 | | | 0.84 | | | | Per share - diluted | | | 0.56 | | | 0.63 | | | 0.31 | | | 1.53 | | | 0.83 | | | | Net income | | | 264,968 | | | 180,972 | | | 32,713 | | | 502,798 | | | 1,050,361 | | | | Per share - basic | | | 0.48 | | | 0.32 | | | 0.06 | | | 0.89 | | | 1.86 | | | | Per share - diluted | | | 0.47 | | | 0.32 | | | 0.06 | | | 0.89 | | | 1.84 | | | | | | | | | | | | | | | | | | | | | | | Capital Expenditures | | | | | | | | | | | | | | | | | | | Exploration and development expenditures | | $ | 167,453 | | $ | 96,633 | | $ | 94,235 | | $ | 417,908 | | $ | 239,308 | | | | Acquisitions and divestitures | | | (25,460 | ) | | 194 | | | (612 | ) | | (25,234 | ) | | (833 | ) | | | Total oil and natural gas capital expenditures | | $ | 141,993 | | $ | 96,827 | | $ | 93,623 | | $ | 392,674 | | $ | 238,475 | | | | | | | | | | | | | | | | | | | | | | | Net Debt | | | | | | | | | | | | | | | | | | | Credit facilities | | $ | 450,051 | | $ | 496,917 | | $ | 546,803 | | $ | 450,051 | | $ | 546,803 | | | | Long-term notes | | | 648,207 | | | 643,600 | | | 1,000,171 | | | 648,207 | | | 1,000,171 | | | | Long-term debt | | | 1,098,258 | | | 1,140,517 | | | 1,546,974 | | | 1,098,258 | | | 1,546,974 | | | | Working capital | | | 15,301 | | | (17,220 | ) | | 17,684 | | | 15,301 | | | 17,684 | | | | Net debt(1) | | $ | 1,113,559 | | $ | 1,123,297 | | $ | 1,564,658 | | $ | 1,113,559 | | $ | 1,564,658 | | | | | | | | | | | | | | | | | | | | | | | Shares Outstanding - basic(thousands) | | | | | | | | | | | | | | | | | | | Weighted average | | | 553,409 | | | 566,997 | | | 564,211 | | | 561,931 | | | 563,492 | | | | End of period | | | 547,615 | | | 560,139 | | | 564,213 | | | 547,615 | | | 564,213 | | | | | | | | | | | | | | | | | | | | | | | BENCHMARK PRICES | | | | | | | | | | | | | | | | | | | Crude oil | | | | | | | | | | | | | | | | | | | WTI (US$/bbl) | | $ | 91.56 | | $ | 108.41 | | $ | 70.56 | | $ | 98.09 | | $ | 64.82 | | | | MEH oil (US$/bbl) | | | 96.15 | | | 112.41 | | | 71.64 | | | 101.76 | | | 66.05 | | | | MEH oil differential to WTI (US$/bbl) | | | 4.59 | | | 4.00 | | | 1.08 | | | 3.67 | | | 1.23 | | | | Edmonton par ($/bbl) | | | 116.79 | | | 137.79 | | | 83.78 | | | 123.41 | | | 75.88 | | | | Edmonton par differential to WTI (US$/bbl) | | | (2.13 | ) | | (0.47 | ) | | (4.07 | ) | | (1.89 | ) | | (4.19 | ) | | | WCS heavy oil ($/bbl) | | | 93.62 | | | 122.05 | | | 71.81 | | | 105.65 | | | 65.47 | | | | WCS differential to WTI (US$/bbl) | | | (19.87 | ) | | (12.80 | ) | | (13.57 | ) | | (15.74 | ) | | (12.51 | ) | | | Natural gas | | | | | | | | | | | | | | | | | | | NYMEX (US$/mmbtu) | | $ | 8.20 | | $ | 7.17 | | $ | 4.01 | | $ | 6.77 | | $ | 3.18 | | | | AECO ($/mcf) | | | 5.81 | | | 6.27 | | | 3.54 | | | 5.56 | | | 3.11 | | | | | | | | | | | | | | | | | | | | | | | CAD/USD average exchange rate | | | 1.3059 | | | 1.2766 | | | 1.2601 | | | 1.2829 | | | 1.2515 | |

| | | | | Three Months Ended | | | Nine Months Ended | | | | | | | | | | | | | | | | September 30, 2022 | | | June 30, 2022 | | | September 30, 2021 | | | September 30, 2022 | | | September 30, 2021 | | | | OPERATING | | | | | | | | | | | | | | | | | | | Daily Production | | | | | | | | | | | | | | | | | | | Light oil and condensate (bbl/d) | | | 33,247 | | | 33,007 | | | 35,614 | | | 33,437 | | | 36,060 | | | | Heavy oil (bbl/d) | | | 29,244 | | | 28,586 | | | 21,996 | | | 27,703 | | | 21,752 | | | | NGL (bbl/d) | | | 7,536 | | | 7,468 | | | 7,174 | | | 7,547 | | | 6,995 | | | | Total liquids (bbl/d) | | | 70,027 | | | 69,061 | | | 64,784 | | | 68,686 | | | 64,807 | | | | Natural gas (mcf/d) | | | 79,003 | | | 84,169 | | | 90,528 | | | 82,232 | | | 90,812 | | | | Oil equivalent (boe/d @ 6:1) (3) | | | 83,194 | | | 83,090 | | | 79,872 | | | 82,392 | | | 79,942 | | | | | | | | | | | | | | | | | | | | | | | Netback (thousands of Canadian dollars) | | | | | | | | | | | | | | | | | | | Total sales, net of blending and other expense (2) | | $ | 671,120 | | $ | 797,274 | | $ | 469,155 | | $ | 2,100,779 | | $ | 1,259,124 | | | | Royalties | | | (146,994) | | | (171,559) | | | (90,523) | | | (441,273) | | | (239,004) | | | | Operating expense | | | (110,139) | | | (107,426) | | | (84,196) | | | (318,331) | | | (247,645) | | | | Transportation expense | | | (12,771) | | | (11,758) | | | (7,818) | | | (33,744) | | | (24,092) | | | | Operating netback(2) | | $ | 401,216 | | $ | 506,531 | | $ | 286,618 | | $ | 1,307,431 | | $ | 748,383 | | | | General and administrative | | | (12,003) | | | (11,640) | | | (9,980) | | | (35,325) | | | (29,323) | | | | Cash financing and interest | | | (19,774) | | | (20,474) | | | (22,793) | | | (60,675) | | | (70,750) | | | | Realized financial derivatives loss | | | (76,408) | | | (124,042) | | | (53,905) | | | (284,816) | | | (113,697) | | | | Other (4) | | | (8,743) | | | (4,671) | | | (1,543) | | | (17,016) | | | (3,751) | | | | Adjusted funds flow (1) | | $ | 284,288 | | $ | 345,704 | | $ | 198,397 | | $ | 909,599 | | $ | $530,862 | | | | | | | | | | | | | | | | | | | | | | | Netback (per boe) (5) | | | | | | | | | | | | | | | | | | | Total sales, net of blending and other expense (2) | | $ | 87.68 | | $ | 105.44 | | $ | 63.85 | | $ | 93.40 | | $ | 57.69 | | | | Royalties | | | (19.21) | | | (22.69) | | | (12.32) | | | (19.62) | | | (10.95) | | | | Operating expense | | | (14.39) | | | (14.21) | | | (11.46) | | | (14.15) | | | (11.35) | | | | Transportation expense | | | (1.67) | | | (1.56) | | | (1.06) | | | (1.50) | | | (1.10) | | | | Operating netback (2) | | $ | 52.41 | | $ | 66.98 | | $ | 39.01 | | $ | 58.13 | | $ | 34.29 | | | | General and administrative | | | (1.57) | | | (1.54) | | | (1.36) | | | (1.57) | | | (1.34) | | | | Cash financing and interest | | | (2.58) | | | (2.71) | | | (3.10) | | | (2.70) | | | (3.24) | | | | Realized financial derivatives loss | | | (9.98) | | | (16.41) | | | (7.34) | | | (12.66) | | | (5.21) | | | | Other (4) | | | (1.14) | | | (0.60) | | | (0.21) | | | (0.76) | | | (0.18) | | | | Adjusted funds flow (1) | | $ | 37.14 | | $ | 45.72 | | $ | 27.00 | | $ | 40.44 | | $ | 24.32 | |

Notes:

(1) Capital management measure. Refer to the Specified Financial Measures section in this press release for further information. (2) Specified financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable with the calculation of similar measures presented by other entities. Refer to the Specified Financial Measures section in this press release for further information. (3) Barrel of oil equivalent ("boe") amounts have been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel of oil. The use of boe amounts may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas to one barrel of oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. (4) Other is comprised of realized foreign exchange gain or loss, other income or expense, current income tax expense or recovery and cash share-based compensation. Refer to the Q3/2022 MD&A for further information on these amounts. (5) Calculated as royalties, operating, transportation, general and administrative, cash financing and interest expense or realized financial derivatives loss divided by barrels of oil equivalent production volume for the applicable period.

Q3/2022 Results

During the third quarter, we delivered strong operating and financial results which has set the stage for continued momentum as we approach 2023. In addition, we advanced our exciting Clearwater play at Peavine with initial results from our H2/2022 drilling program delivering among the best wells drilled to date in the play.

Production during the third quarter averaged 83,194 boe/d (84% oil and NGL) as compared to 83,090 boe/d (83% oil and NGL) in Q2/2022. Production in October increased to over 87,000 boe/d, in line with our targeted exit production rate of 87,000 to 88,000 boe/d. Exploration and development expenditures totaled $167 million in Q3/2022 and we participated in the drilling of 86 (72.0 net) wells.

During the quarter, we delivered adjusted funds flow(1)of $284 million ($0.51 per basic share) and net income of $265 million ($0.48 per basic share). We generated free cash flow(2)of $112 million ($0.20 per basic share) which brings our year-to-date free cash flow to $478 million ($0.85 per basic share).

Operating Results

Eagle Ford and Viking Light Oil

Production in the Eagle Ford averaged 27,391 boe/d (82% oil and NGL) during Q3/2022 and generated an operating netback(2)of $140 million. We invested $50 million on exploration and development in the Eagle Ford during the quarter and brought 19 (4.1 net) wells onstream. We expect to bring approximately 18 net wells onstream in 2022.

Production in the Viking averaged 16,019 boe/d (88% oil and NGL) during Q3/2022 and generated an operating netback of $116 million. We invested $62 million on exploration and development in the Viking during the quarter and brought 42 (40.5 net) wells onstream. We expect to bring approximately 130 net wells onstream in 2022.

Heavy Oil

Our heavy oil assets at Peace River and Lloydminster (excluding Clearwater development) produced a combined 23,377 boe/d (90% oil and NGL) during Q3/2022 and generated an operating netback of $80 million. We invested $31 million on exploration and development during the quarter and brought onstream 2 net Bluesky wells at Peace River and 2.6 net wells at Lloydminster. In 2022, we will drill approximately 9 net Bluesky wells at Peace River and 31 net wells at Lloydminster.

Peace River Clearwater

Production in the Clearwater averaged 8,191 boe/d (100% oil) during Q3/2022 and generated an operating netback of $37 million. Production during the month of October averaged approximately 10,000 bbl/d from 24 producing wells.

Our second half drilling program kicked off in July and will include the drilling of 13 Clearwater wells, including 12 wells at Peavine and one well at Seal that follows up a successful exploration well from 2021. The first four wells from the H2/2022 drilling program generated average 30-day initial production rates of 1,100 bbl/d per well. Initial well performance continues to outperform type curve assumptions and we now hold 13 of the top 15 initial rate wells drilled across the play.

We continue to optimize planned development for our Peavine lands, which now includes a combination of traditional multi-lateral wells (eight one-mile long laterals) and extended reach horizontal ("ERH") multi-lateral wells (four two-mile long laterals). The ERH multi-lateral wells are utilized to provide appropriate set-backs to residents and environmentally sensitive areas and were among the first of their type to be drilled in western Canada.