Baytex Announces Closing of Ranger Acquisition and Updated Guidance for 2023

2023-06-20

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

Calgary, Alberta--(Newsfile Corp. - June 20, 2023) - Baytex Energy Corp. (TSX: BTE) (NYSE: BTE) ("Baytex") announces the closing of its acquisition (the "Merger") of Ranger Oil Corporation ("Ranger").

"We are excited to close the Ranger acquisition, which materially increases our scale in the Eagle Ford while building quality operating capability in a premier basin. We have emerged from this transaction as a well-capitalized and diversified North American exploration and production company with a portfolio of high-quality oil weighted assets in Western Canada and the Eagle Ford shale in Texas. The transaction enhances our inventory and creates a more resilient and sustainable business with an attractive free cash flow profile. With our strong financial position we intend to increase our direct shareholder returns to 50% of free cash flow and introduce a dividend," commented Eric T. Greager, President and Chief Executive Officer.

H2/2023 Outlook

Target average production of 153,000 to 157,000 boe/d (84% oil and NGLs) Execute an exploration and development program of $595 to $635 million Onstream 34 net wells in the Eagle Ford and 90 net wells in Canada Return 50% of free cash flow(1)to shareholders through share buybacks and a dividend Introduce a quarterly dividend(2)of $0.0225 per share ($0.09 per share annualized) Maintain strong liquidity with 50% undrawn capacity on our US$1.1 billion credit facility

Acquisition Highlights

The total consideration paid by Baytex, including assumption of net debt, was approximately US$2.2 billion (C$2.9 billion). Under the terms of the agreement, Ranger shareholders received 7.49 Baytex shares plus US$13.31 cash for each share of Ranger common stock.

The acquisition materially increases the scale of our Eagle Ford operations. We are adding 162,000 net acres in the crude oil window of the Eagle Ford, on-trend with Baytex's non-operated position in the Karnes Trough, and 741 net undrilled locations, representing an inventory life of 12 to 15 years that immediately competes for capital in our portfolio. The transaction increases our exposure to premium U.S. Gulf Coast pricing and includes substantial infrastructure in place with low operating and transportation costs.

(1) Specified financial measure that does not have any standardized meaning prescribed by International Financial Reporting Standards ("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. (2) Refer to the Dividend Advisory section in this press release for further information.

Business Strategy

Through this transaction, Baytex has emerged as a well-capitalized, diversified oil-weighted North American E&P company with a strong free cash flow profile. Assuming a US$75 WTI crude oil price, we expect to generate annual EBITDA(1)(2)(3)of approximately $2.4 billion and annual free cash flow(3)of approximately $1 billion(1). The key elements of our business strategy include the following:

Disciplined Capital Allocation. We are committed to a disciplined returns-based capital allocation strategy, targeting modest single digit organic production growth with exploration and development expenditures representing approximately 50% to 55% of our adjusted funds flow(4)at US$75 WTI. Each of our core assets has 10 or more years of development inventory at our current pace of development. This provides us the ability to efficiently allocate capital in response to changes in regional commodity prices and other economic factors.

Focus on Free Cash Flow Generation. Our commitment to efficient capital allocation across our portfolio is expected to generate meaningful free cash flow. We intend to allocate 50% of free cash flow to debt repayment and 50% of free cash flow to shareholder returns. Our shareholder returns are expected to include a combination of share buybacks and a quarterly dividend(5).

Maintain Financial Strength. Baytex has a strong balance sheet with significant financial liquidity. Our commitment to a strong balance sheet is unwavering and, with our 50% allocation of free cash flow to debt repayment, we intend to further strengthen our balance sheet. We have established a total debt(4)target of $1.5 billion which represents 1.0x total debt to adjusted EBITDA(3)at US$50/bbl WTI. Upon reaching this milestone, we will direct 75% of free cash flow to shareholder returns. We believe this level of total debt will provide us with full flexibility to run our business through commodity price cycles and generate meaningful returns.

Hedging Program. We employ a disciplined hedging program to help mitigate volatility in revenue due to changes in commodity prices. We intend to hedge approximately 40% of our net crude oil exposure for the next 12 months by utilizing wide 2-way collars with the floor set to ensure a modest return on our highest breakeven assets.

2023 Outlook

We continue to execute on our base business as planned. Our average production for the second quarter of 2023 is estimated at 88,500 to 89,000 boe/d, which includes production from Ranger for the 11 days following closing of the Merger. Production in Q2/2023 was reduced by approximately 4,500 boe/d due to the temporary curtailment of production resulting from the wildfires in Alberta.

For the second half of 2023, exploration and development expenditures are forecast to be $595 to $635 million, which are expected to generate an average production rate of 153,000 to 157,000 boe/d. Our production mix for the second half of 2023 is forecast to be 84% oil and NGLs (50% light oil, 22% heavy oil and 12% NGLs) and 16% natural gas.

| | Q1/2023 Actual | Q2/2023 Estimate | H1/2023 Estimate | H2/2023 Guidance | FY 2023 Guidance | | Production (boe/d) | 86761 (6) | 88,500-89,000 | 87,750 | 153,000-157,000 | 120,500-122,500 | | Exploration and development expenditures ($ millions) | $234 | $170-$180 | $410 | $595-$635 | $1,005-$1,045 |

(1) Based on the 12-month period from July 1, 2023 to June 30, 2024, and the following commodity prices: WTI - US$75/bbl, WCS differential to WTI - US$15/bbl, NYMEX Gas - US$3.50/MMbtu; Exchange Rate (CAD/USD) - 1.35. (2) EBITDA is calculated in accordance with the credit facilities agreement which is available on SEDAR at www.sedar.com. (3) 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. (4) Capital management measure. Refer to the Specified Financial Measures section in this press release for further information. (5) Refer to the Dividend Advisory section in this press release for further information. (6) Q1/2023 actual production is comprised of 31,678 bbl/d of light crude oil and medium crude oil (including condensate), 34,191 bbl/d of heavy crude oil, 7,213 bbl/d of natural gas liquids and 82,066 mcf/d of conventional natural gas.

Return of Capital Framework

In conjunction with closing of the Merger, we intend to increase our direct shareholder returns to 50% of free cash flow(1)generated by the combined company, which will allow us to increase the value of our share buyback program and introduce a dividend.

Our share buyback program was placed on hold at the beginning of the year due to the pending Merger. To meet our shareholder return commitment, we intend to include 25% of the free cash flow generated from January 1, 2023 to June 19, 2023 in our 2023 share buyback program.

The Baytex Board of Directors has approved the filing of a Normal Course Issuer Bid ("NCIB") application with the Toronto Stock Exchange (the "TSX") for a share buyback program for up to 10% of our post-closing public float. In addition, we intend to introduce a quarterly dividend of $0.0225 per share ($0.09 per share annualized). If declared by the Baytex Board of Directors, the initial dividend is expected to be paid in October 2023(2).

Financial Liquidity

We are well capitalized and have significant liquidity on our credit facilities. We have established a new US$1.1 billion revolving credit facility with a maturity date of April 1, 2026, and a new US$150 million two-year term loan.

Our total debt(3)is forecast to be approximately $2.5 billion as at June 30, 2023 and we expect to maintain strong liquidity with approximately 50% undrawn capacity on our revolving credit facility.

Our balance sheet remains a priority with a newly established total debt target of $1.5 billion, representing approximately 1x total debt to EBITDA(4)at US$50/bbl WTI. Upon achieving this total debt level, we intend to increase direct shareholder returns to 75% of free cash flow.

The proceeds from our US$800 million private placement offering of senior notes (the "Notes") have been released from escrow. The Notes bear interest at a rate of 8.5% per annum and mature on April 30, 2030. The net proceeds from the offering, together with borrowings under our credit facilities and term loan, were used to fund the cash portion of the consideration for the acquisition, to repay certain outstanding indebtedness of Ranger and to pay fees and expenses in connection with the Merger.

Risk Management

To help manage the impacts of commodity price movements, we utilize various financial derivative contracts to reduce the volatility of our revenues. We intend to hedge approximately 40% of our net crude oil exposure for the next 12 months.

For the second half of 2023, we have entered into hedges on approximately 37% of our net crude oil exposure, utilizing a combination of 2-way collars on 33,775 bbl/d with a weighted average floor price of US$66.61/bbl and a weighted average ceiling price of US$92.60/bbl and a 5,000 bbl/d purchased put at US$60/bbl.

For the first half of 2024, we have currently entered into hedges on approximately 5% of our net crude oil exposure, utilizing 2-way collars on 4,950 bbl/d with a weighted average floor price of US$65.00/bbl and a weighted average ceiling price of US$83.48/bbl.

Board of Directors and Leadership Team

On closing of the Merger, Baytex appointed Jeffrey E. Wojahn and Tiffany ("T.J.") Thom Cepak to the Baytex Board of Directors, which provides continuity and experience with the Ranger business and expertise in U.S. regulatory and operating matters. The Baytex Board of Directors is comprised of ten members, nine of whom are independent and four of whom are women. All committees of the Baytex Board of Directors are Chaired by independent members and two of the four committee Chairs are women.

(1) 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. (2) Refer to the Dividend Advisory section in the press release for further information. (3) Capital management measure. Refer to the Capital Management Measures section in this press release for further information. (4) EBITDA is calculated in accordance with the credit facilities agreement which is available on SEDAR at www.sedar.com.

We have an established leadership team committed to creating shareholder value. We are excited to welcome Julia Gwaltney and Kayla Baird to the Baytex leadership team, as well as the Ranger teams operating in Texas. The Baytex leadership team is comprised of:

Eric Greager, President and Chief Executive Officer Chad Kalmakoff, Chief Financial Officer Chad Lundberg, Chief Operating Officer James Maclean, Chief Legal Officer and Corporate Secretary Brian Ector, Senior Vice President, Capital Markets and Investor Relations Kendall Arthur, Senior Vice President and General Manager, Canadian Heavy Oil Operations Julia Gwaltney, Senior Vice President and General Manager, U.S. Eagle Ford Operations Nicole Frechette, Vice President and General Manager, Canadian Light Oil Operations Chris Lessoway, Vice President, Finance and Treasurer Kayla Baird, Vice President, U.S. Accounting and Corporate Services

Advisory Regarding Forward-Looking Statements

In the interest of providing Baytex's shareholders and potential investors with information regarding Baytex, including management's assessment of Baytex's future plans and operations, certain statements in this press release are "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995 and "forward-looking information" within the meaning of applicable Canadian securities legislation (collectively, "forward-looking statements"). In some cases, forward-looking statements can be identified by terminology such as "believe", "continue", "estimate", "expect", "forecast", "intend", "may", "objective", "ongoing", "outlook", "potential", "project", "plan", "should", "target", "would", "will" or similar words suggesting future outcomes, events or performance. The forward-looking statements contained in this press release speak only as of the date thereof and are expressly qualified by this cautionary statement.

Specifically, this press release contains forward-looking statements relating to but not limited to: the strategic rationale for the Merger, including that the Merger will result in a combined company that will deliver an attractive free cash flow profile and increased shareholder returns; our expectations of enhanced inventory and creation of a more resilient and sustainable business as a result of the Merger; the expected financial effects of the Merger, including our expected annual EBITDA and annual free cash flow; expectations regarding our intention to further strengthen our balance sheet and the allocation of free cash flow, including with respect to debt repayment and shareholder returns; the expectation that our commitment to efficient capital allocation will generate meaningful free cash flow; our intention to increase direct shareholder returns to 50% of free cash flow through share buybacks and implementation of a quarterly dividend; expectations regarding the anticipated dividend, including the amount and the timing thereof; our intention to direct a portion of free cash flow generated from January 1, 2023 to June 19, 2023 in our 2023 share buyback program; our target debt milestone and our intention that, upon reaching such milestone, we will begin directing additional free cash flow to shareholder returns and the expected benefits of such; the expectation that our anticipated level of total debt will provide us with full flexibility to run our business through commodity price cycles and generate meaningful returns; expectations regarding our undrawn capacity on our revolving credit facility and that we'll maintain strong liquidity; our estimated and target production rates; our forecasted production mix for the second half of 2023; expectations regarding execution of an exploration and development expenditure program, the forecasted amount thereof, the anticipated timing of such and the expected resulting production rates; our target of modest single digit organic production growth and the portion of our adjusted funds flow that exploration and development expenditures are expected to will represent; our intention to file an NCIB application with the TSX for a share buyback program; our plans and expectations in respect of our drilling program, including the anticipated number of wells to be brought onstream and the locations of such wells; our hedging plans during the next 12 months, including that we intend to utilize wide 2-way collars with the floor set to ensure a modest return on our highest breakeven assets; that our core assets have 10 or more years development inventory at the current pace of development and that such will allow us to efficiently allocate capital in response to changes in regional commodity prices and other economic factors; our expectations regarding current and future hedges, including the anticipated benefits of such; and other similar matters.

These forward-looking statements are based on certain key assumptions regarding, among other things: our ability to successfully integrate the acquired business into our existing operations; the ability of the combined business to realize the anticipated benefits of the Merger; that the Baytex Board of Directors will declare the expected dividend; petroleum and natural gas prices and differentials between light, medium and heavy oil prices; well production rates and reserve volumes; our ability to add production and reserves through our exploration and development activities; the future impact of wildfires on our production; that our core assets have more than 10 years development inventory at the current pace of development; capital expenditure levels; our ability to borrow under our credit agreements; the receipt, in a timely manner, of regulatory and other required approvals for our operating activities; the receipt, in a timely manner, of approval of the NCIB by the TSX; the availability and cost of labour and other industry services, including operating and transportation costs; interest and foreign exchange rates; the continuance of existing and, in certain circumstances, proposed tax and royalty regimes; our hedging program; our ability to develop our crude oil and natural gas properties in the manner currently contemplated; and current industry conditions, laws and regulations continuing in effect (or, where changes are proposed, such changes being adopted as anticipated). Readers are cautioned that such assumptions, although considered reasonable by Baytex at the time of preparation, may prove to be incorrect.

Actual results achieved will vary from the information provided herein as a result of numerous known and unknown risks and uncertainties and other factors. Such factors include, but are not limited to: risks relating to any unforeseen liabilities of Baytex and Ranger; that the anticipated benefits of the Merger are not achieved; that the Merger fails to result in the anticipated benefits; that the Baytex Board of Directors determines not to declare the expected dividend; that the TSX determines not to approve the NCIB; that Baytex fails to meet its guidance; the volatility of oil and natural gas prices and price differentials (including the impacts of Covid-19); risks related to ongoing wildfires; restrictions or costs imposed by climate change initiatives and the physical risks of climate change; risks associated with our ability to develop our properties and add reserves; the impact of an energy transition on demand for petroleum productions; changes in income tax or other laws or government incentive programs; availability and cost of gathering, processing and pipeline systems; retaining or replacing our leadership and key personnel; the availability and cost of capital or borrowing; risks associated with a third-party operating our Eagle Ford properties; risks associated with large projects; costs to develop and operate our properties, including transportation costs; public perception and its influence on the regulatory regime; current or future control, legislation or regulations; new regulations on hydraulic fracturing; restrictions on or access to water or other fluids; regulations regarding the disposal of fluids; risks associated with our hedging activities; variations in interest rates and foreign exchange rates; uncertainties associated with estimating oil and natural gas reserves; our inability to fully insure against all risks; additional risks associated with our thermal heavy oil projects; our ability to compete with other organizations in the oil and gas industry; risks associated with our use of information technology systems; results of litigation; that our credit facilities may not provide sufficient liquidity or may not be renewed; failure to comply with the covenants in our debt agreements; risks of counterparty default; the impact of Indigenous claims; risks associated with expansion into new activities; risks associated with the ownership of our securities, including changes in market-based factors; risks for United States and other non-resident shareholders, including the ability to enforce civil remedies, differing practices for reporting reserves and production, additional taxation applicable to non-residents and foreign exchange risk; and other factors, many of which are beyond our control.