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  • Baytex Energy Corp.
Baytex Energy Corp.

Message to Shareholders


2015 Year-End Message to Shareholders

The year 2015 will be remembered as one of the most challenging years the oil and gas industry has faced. Global oversupply of crude oil continued to weigh on the market, ultimately pushing prices below US$30/bbl in early 2016. As the year unfolded, resource play development in North America was increasingly challenged, funds from operations declined materially, and balance sheet strength and liquidity became of paramount importance.  

We were not immune to these challenges. The decline in global crude oil prices significantly stressed our business model. In order to ensure the long-term viability and success of our company, we needed to respond in a prudent fashion to this rapidly changing environment. Our priorities shifted from growing our production through the efficient development of our high quality assets and paying a meaningful dividend to our shareholders to preserving strong levels of financial liquidity.  

We undertook several steps to preserve strong levels of financial liquidity in 2015, including completing an equity financing, adjusting the level and timing of capital spending, negotiating cost reductions with service providers, reducing staffing levels and suspending the monthly dividend. We believe these decisions will serve us well as we move forward.

In 2015, our exploration and development capital program totaled $521 million, which was reduced from an original budget level of $575 million to $650 million. This capital program was funded largely by our funds from operations, which totaled $516 million. We remain committed to preserving financial liquidity through this downturn, and will continue to target exploration and development capital expenditures at a level that approximates our funds from operations in order to minimize any increase in our debt levels. 

Our bank lending syndicate agreed to relax the financial covenants contained in our unsecured revolving credit facilities twice during 2015. In each case, these amendments were obtained pro‑actively, as we remained in compliance with our unamended financial covenants throughout 2015. We will continue to manage our credit facilities and, if the outlook for commodity prices remains low, we may seek further covenant relief.  

We also realized over $150 million in efficiencies in 2015 as we remained focused on cost reductions across all of our operations, including drilling and completions, production and operating expenses, transportation expenses, and general and administrative expenses. We continue to take active measures to reduce costs while maintaining the efficiency and compliance of our operations and the integrity of our assets without compromising the safety of our employees and contractors.

Despite a reduced capital program, our operating results were consistent with our expectations. We achieved average annual production of 84,648 boe/d during 2015, in line with guidance. We also increased our proved plus probable reserves (excluding bitumen) by 2% and generated a strong recycle ratio of 2.1 times. This is a testament to the quality of our asset base.  

The addition of the Eagle Ford assets to our portfolio in 2014 provided us with exposure to one of the premier oil resource plays in North America. The high quality Eagle Ford assets provide the highest cash netbacks in our portfolio and contain a significant inventory of development prospects. In 2015, we focused our development activity in the Eagle Ford, where we directed 86% of our exploration and development expenditures. Significantly, while the Eagle Ford accounted for 47% of our 2015 production, it generated approximately two-thirds of our operating netback.  

In the Eagle Ford, significant advancements were made in the past year to delineate the multi-zone potential of our acreage position. We continued to implement "stack and frac" pilots which target up to three zones in the Eagle Ford formation in addition to the overlying Austin Chalk. Production in the Eagle Ford averaged 40,284 boe/d in the fourth quarter of 2015, up 6% from the fourth quarter of 2014. We replaced 205% of production, and increased our proved plus probable reserves by 8% to 203 million boe.  

Production in Canada averaged 44,691 boe/d during 2015, down 21% from the prior year as commodity prices did not support a full-year capital development program combined with non-core asset dispositions and uneconomic volumes that were shut-in. We also suspended operations at our Cliffdale cyclic steam stimulation project and decommissioned our Gemini steam-assisted gravity drainage pilot project. With a modest recovery in crude oil prices, our heavy oil assets generate attractive rates of return with strong capital efficiencies. We continue to have a multi-year development inventory on these assets.  

Responsible Value Creation  

While the commodity price environment has required us to recalibrate our business model, it has not had an impact on the core values which drive our business decisions and the ethics we hold as a company.  We believe that by acting as a responsible company in all aspects of our operations, we create long-term value for all stakeholders.  We focus on employee opportunities for personal growth, an improved quality of life in communities where we operate, business opportunities for Aboriginal groups, and an attractive return on investment for shareholders. Crude oil and natural gas development can provide significant benefits to communities, landowners, suppliers and others, often in areas where limited economic development opportunities exist. In the end, everyone benefits from environmentally responsible development that produces reliable energy at a reasonable cost.

Developing crude oil and natural gas resources requires long-term commitment. Collaboration with a broad range of engaged stakeholders is important to achieve enduring success in resource development. Accordingly, we have continued our focus on stakeholder engagement, furthering the progress of our Good Neighbour Program throughout our field operations. This program strives to create social and economic benefits for the community while mitigating the impacts related to our operations; it is a real-life expression of responsible value creation. In 2015, we issued our first Good Neighbour Program Report Card as well as our second biennial Corporate Responsibility Report.


What has not changed for us through this downturn is the quality of our assets. We have built an exceptional asset base focused on crude oil and liquids with a significant inventory of development prospects. Our development program will remain flexible and allows for adjustments to spending based on changes in the commodity price environment. We currently plan to move forward in 2016 with a reduced pace of development in the Eagle Ford and will forgo any heavy oil development in Canada until prices recover. 

We now anticipate exploration and development expenditures for 2016 of $225 to $265 million, of which approximately 95% will be invested in the Eagle Ford. At the mid-point, this represents a 53% reduction in capital spending relative to 2015.

Baytex's success is due to our dedicated and talented team of employees who align with our strategy, consistently execute on our plans and drive the creation of shareholder value. Complementing our leadership team and committed employees, it is important to recognize that our Board of Directors is an indispensable source of guidance and support which contribute significantly to our success.

We look forward to executing our plans for 2016 for the ongoing benefit of all stakeholders and we thank you for your continued support. . 

On behalf of the Board of Directors,

James L. Bowzer
President and Chief Executive Officer
March 3, 2016

Forward-Looking Statements

This webpage contains forward-looking statements. We refer you to the end of the Management's Discussion and Analysis section of our 2015 Annual Report  for our advisory on forward‑looking information and statements. 

Contingent Resources

This report contains estimates of contingent resources. Contingent resources is not, and should not be confused with, petroleum and natural gas reserves. Contingent resources is defined in the Canadian Oil and Gas Evaluation Handbook as "those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingencies may include factors such as economic, legal, environmental, political and regulatory matters or a lack of markets. It is also appropriate to classify as contingent resources the estimated discovered recoverable quantities associated with a project in the early evaluation stage." For additional information on contingent resources, we refer you to the end of our 2015 Annual Report for our advisory on oil and gas information. 

Non-GAAP Financial Measures

In this webpage we refer to certain measures that are commonly used in the oil and gas industry but are not based on generally accepted accounting principles in Canada, such as funds from operations, operating netback and total monetary debt. For a description of these measures, we refer you to "Non-GAAP Financial Measures" in our 2015 Annual Report


Explore Our

Our operations are organized into Canadian Heavy Oil, Canadian Light Oil and Gas and United States business units.

Operations Map

Operations Map
Responsible Development

Baytex Energy’s Good Neighbour program is a company-wide program that focuses on being a welcomed neighbour in the communities in which we operate.

Good Neighbour Program

Heavy Oil

Learn more about the
business of heavy oil in our marketing section.

Learn More

Understanding Heavy Oil