Baytex Announces Fourth Quarter and Full Year 2022 Financial and Operating Results and Year End Reserves

2023-02-23

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

Calgary, Alberta--(Newsfile Corp. - February 23, 2023) - Baytex Energy Corp. (TSX: BTE) (NYSE: BTE) ("Baytex") reports its operating and financial results for the three months and year ended December 31, 2022 (all amounts are in Canadian dollars unless otherwise noted).

"2022 was an exciting year for Baytex as we delivered strong operating results, generated record free cash flow, further strengthened our balance sheet and initiated direct shareholder returns. We generated a 4% year-over-year increase in production, repurchased 4.3% of our shares outstanding and reduced net debt by 30%. We expect another strong year in 2023 as we advance development across our high-quality oil weighted portfolio, further delineate our Peavine Clearwater acreage and progress our Duvernay light oil resource play. At current commodity prices, we anticipate hitting our next debt target during the third quarter at which point we intend to increase direct shareholder returns to 50% of our free cash flow," commented Eric T. Greager, President and Chief Executive Officer.

2022 Highlights

Generated production of 86,864 boe/d (84% oil and NGL) in Q4/2022, an 8% increase over Q4/2021. Production for the full-year 2022 averaged 83,519 boe/d (84% oil and NGL), a 4% increase over 2021.

Delivered adjusted funds flow(1) of $256 million ($0.47 per basic share) in Q4/2022 and $1,165 million ($2.09 per basic share) for 2022.

Generated free cash flow(2)of $143 million ($0.26 per basic share) in Q4/2022 and $622 million ($1.11 per basic share) for 2022.

Cash flows from operating activities was $303 million ($0.56 per basic share) in Q4/2022 and $1,173 million ($2.10 per basic share) for 2022.

Exploration and development expenditures totaled $104 million in Q4/2022, bringing aggregate spending for 2022 to $522 million.

Reduced net debt(1)by 30% in 2022 to $987 million, from $1.4 billion at year-end 2021.

Repurchased 24.3 million common shares in 2022, representing 4.3% of our shares outstanding, at an average price of $6.54 per share.

Reduced our GHG emissions intensity in 2022 by 15% from 2021 levels and have now achieved a 59% reduction, relative to our 2018 baseline.

At year-end 2022, proved developed producing ("PDP") reserves total 124 MMboe, proved reserves ("1P") total 264 MMboe and proved plus probable reserves ("2P") total 438 MMboe(3). We generated a PDP recycle ratio of 2.8x and a 1P recycle ratio of 1.4x based on a 2022 operating netback(2)of $54.64/boe.

The present value of our reserves, discounted at 10% before tax, is estimated to be $5.9 billion ($5.1 billion at year-end 2021). The increase is largely attributable to a higher commodity price forecast being utilized by our reserves evaluator (consultant average of approximately US$81/bbl WTI).

Our net asset value at year-end 2022, discounted at 10% before tax, is $9.28 per share. This is based on the estimated reserves value plus a value for undeveloped acreage, net of long-term debt and working capital.

(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) Baytex's year-end 2022 reserves were evaluated by McDaniel & Associates Consultants Ltd. ("McDaniel"), an independent qualified reserves evaluator, in accordance with National Instrument 51-101 "Standards of Disclosure for Oil and Gas Activities" ("NI 51-101").

| | | Three Months Ended | | | Twelve Months Ended | | | | | | | | | | | | | December 31, 2022 | | | September 30, 2022 | | | December 31, 2021 | | | December 31, 2022 | | | December 31, 2021 | | FINANCIAL (thousands of Canadian dollars, except per common share amounts) | | | | | | | | | | | | | | | | Petroleum and natural gas sales | $ | 648,986 | | $ | 712,065 | | $ | 552,403 | | $ | 2,889,045 | | $ | 1,868,195 | | Adjusted funds flow (1) | | 255,552 | | | 284,288 | | | 214,766 | | | 1,165,151 | | | 745,628 | | Per share - basic | | 0.47 | | | 0.51 | | | 0.38 | | | 2.09 | | | 1.32 | | Per share - diluted | | 0.46 | | | 0.51 | | | 0.37 | | | 2.07 | | | 1.30 | | Free cash flow (2) | | 143,324 | | | 111,568 | | | 137,133 | | | 621,526 | | | 421,329 | | Per share - basic | | 0.26 | | | 0.20 | | | 0.24 | | | 1.11 | | | 0.75 | | Per share - diluted | | 0.26 | | | 0.20 | | | 0.24 | | | 1.10 | | | 0.74 | | Cash flows from operating activities | | 303,441 | | | 310,423 | | | 240,567 | | | 1,172,872 | | | 712,384 | | Per share - basic | | 0.56 | | | 0.56 | | | 0.43 | | | 2.10 | | | 1.26 | | Per share - diluted | | 0.55 | | | 0.56 | | | 0.42 | | | 2.08 | | | 1.25 | | Net income (loss) | | 352,807 | | | 264,968 | | | 563,239 | | | 855,605 | | | 1,613,600 | | Per share - basic | | 0.65 | | | 0.48 | | | 1.00 | | | 1.53 | | | 2.86 | | Per share - diluted | | 0.64 | | | 0.47 | | | 0.98 | | | 1.52 | | | 2.82 | | | | | | | | | | | | | | | | | | Capital Expenditures | | | | | | | | | | | | | | | | Exploration and development expenditures | $ | 103,634 | | $ | 167,453 | | $ | 73,995 | | $ | 521,542 | | $ | 313,303 | | Acquisitions and divestitures | | 937 | | | (25,460) | | | (5,414) | | | (24,297) | | | (6,247) | | Total oil and natural gas capital expenditures | $ | 104,571 | | $ | 141,993 | | $ | 68,581 | | $ | 497,245 | | $ | 307,056 | | | | | | | | | | | | | | | | | | Net Debt | | | | | | | | | | | | | | | | Credit facilities | $ | 385,394 | | $ | 450,051 | | $ | 506,514 | | $ | 385,394 | | $ | 506,514 | | Long-term notes | | 554,597 | | | 648,207 | | | 885,920 | | | 554,597 | | | 885,920 | | Long-term debt | | 939,991 | | | 1,098,258 | | | 1,392,434 | | | 939,991 | | | 1,392,434 | | Working capital deficiency | | 47,455 | | | 15,301 | | | 17,283 | | | 47,455 | | | 17,283 | | Net debt(1) | $ | 987,446 | | $ | 1,113,559 | | $ | 1,409,717 | | $ | 987,446 | | $ | 1,409,717 | | | | | | | | | | | | | | | | | | Shares Outstanding - basic(thousands) | | | | | | | | | | | | | | | | Weighted average | | 546,279 | | | 553,409 | | | 564,213 | | | 557,986 | | | 563,674 | | End of period | | 544,930 | | | 547,615 | | | 564,213 | | | 544,930 | | | 564,213 | | | | | | | | | | | | | | | | | | BENCHMARK PRICES | | | | | | | | | | | | | | | | Crude oil | | | | | | | | | | | | | | | | WTI (US$/bbl) | $ | 82.64 | | $ | 91.56 | | $ | 77.19 | | $ | 94.23 | | $ | 67.92 | | MEH oil (US$/bbl) | | 85.88 | | | 96.15 | | | 78.89 | | | 97.79 | | | 69.26 | | MEH oil differential to WTI (US$/bbl) | | 3.24 | | | 4.59 | | | 1.70 | | | 3.57 | | | 1.34 | | Edmonton par ($/bbl) | | 109.57 | | | 116.79 | | | 93.29 | | | 119.95 | | | 80.23 | | Edmonton par differential to WTI (US$/bbl) | | (1.94) | | | (2.13) | | | (3.15) | | | (2.07) | | | (3.92) | | WCS heavy oil ($/bbl) | | 77.37 | | | 93.62 | | | 78.82 | | | 98.94 | | | 68.79 | | WCS differential to WTI (US$/bbl) | | (25.65) | | | (19.87) | | | (14.63) | | | (18.21) | | | (13.05) | | Natural gas | | | | | | | | | | | | | | | | NYMEX (US$/mmbtu) | $ | 6.26 | | $ | 8.20 | | $ | 5.83 | | $ | 6.64 | | $ | 3.84 | | AECO ($/mcf) | | 5.58 | | | 5.81 | | | 4.94 | | | 5.56 | | | 3.56 | | | | | | | | | | | | | | | | | | CAD/USD average exchange rate | | 1.3577 | | | 1.3059 | | | 1.2600 | | | 1.3016 | | | 1.2536 |

| | | Three Months Ended | | | Twelve Months Ended | | | | | | | | | | | | | December 31, 2022 | | | September 30, 2022 | | | December 31, 2021 | | | December 31, 2022 | | | December 31, 2021 | | OPERATING | | | | | | | | | | | | | | | | Daily Production | | | | | | | | | | | | | | | | Light oil and condensate (bbl/d) | | 32,105 | | | 33,247 | | | 34,986 | | | 33,101 | | | 35,789 | | Heavy oil (bbl/d) | | 32,819 | | | 29,244 | | | 23,482 | | | 28,993 | | | 22,188 | | NGL (bbl/d) | | 7,661 | | | 7,536 | | | 7,984 | | | 7,575 | | | 7,244 | | Total liquids (bbl/d) | | 72,585 | | | 70,027 | | | 66,452 | | | 69,669 | | | 65,221 | | Natural gas (mcf/d) | | 85,679 | | | 79,003 | | | 86,029 | | | 83,101 | | | 89,606 | | Oil equivalent (boe/d @ 6:1) (1) | | 86,864 | | | 83,194 | | | 80,789 | | | 83,519 | | | 80,156 | | | | | | | | | | | | | | | | | | Netback (thousands of Canadian dollars) | | | | | | | | | | | | | | | | Total sales, net of blending and other expense (2) | $ | 598,812 | | $ | 671,120 | | $ | 523,382 | | $ | 2,699,591 | | $ | 1,782,506 | | Royalties | | (121,691) | | | (146,994) | | | (100,152) | | | (562,964) | | | (339,156) | | Operating expense | | (104,335) | | | (110,139) | | | (95,357) | | | (422,666) | | | (343,002) | | Transportation expense | | (14,817) | | | (12,771) | | | (8,169) | | | (48,561) | | | (32,261) | | Operating netback(2) | $ | 357,969 | | $ | 401,216 | | $ | 319,704 | | $ | 1,665,400 | | $ | 1,068,087 | | General and administrative | | (14,945) | | | (12,003) | | | (11,481) | | | (50,270) | | | (40,804) | | Cash financing and interest | | (19,711) | | | (19,774) | | | (21,319) | | | (80,386) | | | (92,069) | | Realized financial derivatives loss | | (49,665) | | | (76,408) | | | (70,544) | | | (334,481) | | | (184,241) | | Other (3) | | (18,096) | | | (8,743) | | | (1,594) | | | (35,112) | | | (5,345) | | Adjusted funds flow (4) | $ | 255,552 | | $ | 284,288 | | $ | 214,766 | | $ | 1,165,151 | | $ | 745,628 | | | | | | | | | | | | | | | | | | Netback per boe (5) | | | | | | | | | | | | | | | | Total sales, net of blending and other expense (2) | $ | 74.93 | | $ | 87.68 | | $ | 70.42 | | $ | 88.56 | | $ | 60.93 | | Royalties | | (15.23) | | | (19.21) | | | (13.47) | | | (18.47) | | | (11.59) | | Operating expense | | (13.06) | | | (14.39) | | | (12.83) | | | (13.86) | | | (11.72) | | Transportation expense | | (1.85) | | | (1.67) | | | (1.10) | | | (1.59) | | | (1.10) | | Operating netback (2) | $ | 44.79 | | $ | 52.41 | | $ | 43.02 | | $ | 54.64 | | $ | 36.52 | | General and administrative | | (1.87) | | | (1.57) | | | (1.54) | | | (1.65) | | | (1.39) | | Cash financing and interest | | (2.47) | | | (2.58) | | | (2.87) | | | (2.64) | | | (3.15) | | Realized financial derivatives loss | | (6.21) | | | (9.98) | | | (9.49) | | | (10.97) | | | (6.30) | | Other (3) | | (2.26) | | | (1.14) | | | (0.23) | | | (1.16) | | | (0.19) | | Adjusted funds flow (4) | $ | 31.98 | | $ | 37.14 | | $ | 28.89 | | $ | 38.22 | | $ | 25.49 |

Notes:

(1) 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.

(3) Other is comprised of realized foreign exchange gain or loss, other income or expense, current income tax expense or recovery and share-based compensation. Refer to the 2022 MD&A for further information on these amounts.

(4) Capital management measure. Refer to the Specified Financial Measures section in this press release for further information.

(5) Calculated as royalties, operating or transportation expense divided by barrels of oil equivalent production volume for the applicable period.

2023 Outlook

In 2023, we will advance development across our high-quality oil weighted portfolio, further delineate our Peavine Clearwater acreage and progress our Duvernay light oil resource play. We are committed to allocating capital efficiently to generate meaningful free cash flow and increasing direct shareholder returns. Our 2023 guidance remains unchanged as we target production of 86,000 to 89,000 boe/d with exploration and development expenditures of $575 to $650 million.

Based on the forward strip(1), we expect to generate approximately $450 million of free cash flow(2)in 2023. We expect to reach a net debt(3)level of $800 million during Q3/2023, at which time, we anticipate increasing direct shareholder returns to 50% of our free cash flow and accelerating our share buyback program.

The following table highlights our 2023 annual guidance.

2022 Results

In 2022, we delivered strong strong operating results and further strengthened our business. We generated record free cash flow of $622 million ($1.11 per basic share), up from $421 million ($0.75 per basic share) in 2021.

During 2022, we initiated direct shareholder returns, allocating 25% of annual free cash flow to a share buyback program with 75% of free cash flow allocated to debt reduction. We repurchased 24.3 million common shares for $159 million, representing 4.3% of our shares outstanding, at an average price of $6.54 per share. In addition, we significantly strengthened our balance sheet, reducing net debt by 30% to $987 million, representing a net debt to EBITDA(5)ratio (trailing twelve months) of 0.8x.

Production for the full-year 2022 averaged 83,519 boe/d, a 4% increase compared to 80,156 boe/d in 2021, and consistent with our annual guidance. Production in Q4/2022 averaged 86,864 boe/d (84% oil and NGL), an 8% increase compared to 80,789 boe/d (82% oil and NGL) in Q4/2021. During the fourth quarter, production was reduced by approximately 1,500 boe/d due to extreme cold weather conditions during the month of December.

We maintained capital discipline despite inflationary pressures across our portfolio that was consistent with the industry and broader economy. Exploration and development expenditures totaled $104 million in Q4/2022 and $522 million for full-year 2022. We participated in the drilling of 269 (212.2 net) wells.

We delivered adjusted funds flow(3)of $256 million ($0.47 per basic share) in Q4/2022 and $1,165 million ($2.09 per basic share) in 2022. We recorded net income of $353 million ($0.65 per basic share) in Q4/2022 and $855.6 million ($1.53 per basic share) in 2022. During Q4/2022, we reversed $268 million of previously recorded impairments on our assets primarily as a result of higher forecasted commodity prices.

(1) 2023 pricing assumptions: WTI - US$75/bbl; WCS differential - US$19/bbl; MSW differential - US$2/bbl, NYMEX Gas - US$3.05/MMbtu; AECO Gas - $2.95/mcf and Exchange Rate (CAD/USD) - 1.35.

(3) Capital management measure. Refer to the Specified Financial Measures section in this press release for further information.

(4) Calculated as operating, transportation, general and administrative or interest expense divided by barrels of oil equivalent production volume for the applicable period.

(5) Calculated in accordance with the Credit Facilities Agreement.

Operating Results

Light Oil

Production in the Eagle Ford averaged 29,918 boe/d (78% oil and NGL) during Q4/2022 and 28,245 boe/d for the full-year 2022. In 2022, we invested $141 million on exploration and development in the Eagle Ford and generated an operating netback(1)of $582 million. During 2022, we participated in the drilling of 64 (15.8 net) wells and brought 68 (16.8 net) wells onstream. We expect to bring approximately 15 net wells onstream in 2023.

Production in the Viking averaged 14,625 boe/d (87% oil and NGL) during Q4/2022 and 16,239 boe/d for the full-year 2022. In 2022, we invested $168 million on exploration and development in the Viking and generated an operating netback of $479 million. During 2022, we drilled 137 (131.3 net) wells and brought 132 (126.9 net) wells onstream. We expect to bring approximately 144 net wells onstream in 2023.

Production in the Pembina Duvernay averaged 3,058 boe/d (81% oil and NGL) during Q4/2022 and 2,603 boe/d for the full-year 2022. In the Duvernay, we drilled a three-well pad in 2022 that provided increased confidence in capital execution and well performance. Our 2023 Duvernay program is expected to include two three-well pads as we continue to progress our understanding of the reservoir.

Heavy Oil

Our heavy oil assets at Peace River and Lloydminster (excluding our Clearwater development) produced a combined 23,999 boe/d (91% oil and NGL) during Q4/2022 and 23,834 boe/d for the full-year 2022. Our 2022 drilling program included 9 net Bluesky wells at Peace River and 28.1 net wells at Lloydminster. In 2022, we invested $113 million on exploration and development in Peace River and Lloydminster and generated an operating netback of $361 million. In 2023, we will drill approximately 10 net Bluesky wells at Peace River and 40 net wells at Lloydminster.

Clearwater

Production from our Peavine Clearwater development averaged 11,009 boe/d (100% oil) during Q4/2022 and 7,442 boe/d for the full-year 2022. In 2022, we invested $55 million on exploration and development on our Peavine Clearwater acreage and generated an operating netback of $142 million. During 2022, we drilled 22 (22.0 net) wells at Peavine and brought 23 (23.0 net) wells onstream. Initial well performance continues to outperform type curve assumptions and we now hold the top 15 initial rate wells (based on peak 30-day calendar rate) drilled across the play. We expect to bring approximately 31 net wells onstream at Peavine in 2023.

Our Peavine Clearwater acreage has emerged as one of the most highly economic plays in North America and has grown organically while enhancing our free cash flow profile. To-date, we have de-risked 50 sections (of our 80-section Peavine land base) and believe the lands hold the potential for greater than 250 locations with production increasing to approximately 15,000 bbl/d. When combined with our legacy acreage position in northwest Alberta, we estimate that over 125 sections of our lands are prospective for Clearwater development.

Financial Liquidity

Our credit facilities total US$850 million and have a maturity date of April 1, 2026. These are not borrowing base facilities and do not require annual or semi-annual reviews. As of December 31, 2022, we had $765 million of undrawn capacity on our credit facilities, resulting in liquidity, net of working capital, of $717 million.

Our net debt(2), which includes our credit facilities, long-term notes and working capital, totaled $987 million at December 31, 2022, down from $1.1 billion at September 30, 2022 and $1.4 billion at December 31, 2021.

On June 1, 2022, we redeemed the remaining US$200 million principal amount of 5.625% long-term notes due 2024 at par. In addition, we repurchased and cancelled US$90 million principal amount of 8.75% long-term notes due 2027 during 2022.

(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) Capital management measure. Refer to the Specified Financial Measures section in this press release for further information.

Risk Management

To manage commodity price movements, we utilize various financial derivative contracts and crude-by-rail to reduce the volatility of our adjusted funds flow.

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