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Baytex Energy Corp.

Message to Shareholders


2018 Year-End Message to Shareholders

In an environment of volatile commodity prices, 2018 was a defining year for Baytex as we repositioned our company as a North American crude oil producer with strong free cash flow and an improved balance sheet. We delivered on our commitment to grow production and reserves while continuing to drive cost and capital efficiency in our operations, and balance our capital structure.

On August 22, 2018, we completed the transformational combination with Raging River Exploration Inc. ("Raging River"). This $1.6 billion transaction increased our light oil exposure and operational control of our properties and strengthened our balance sheet.

We have successfully integrated the two companies, undertaken a strategic review of our operations, confirmed the organic growth opportunities in our diversified portfolio of assets and delivered on our near-term operational targets. In essence, we have created a new Baytex - with stronger assets and organizational capability than ever before.

One of the key benefits of the combination is strong oil price diversification, which includes light oil and condensate production in the Eagle Ford which commands premium Louisiana Light Sweet ("LLS") based pricing and our high operating netback Viking light oil production in Canada. Today our product mix is approximately 83% liquids (45% light oil, 27% heavy oil and 10% NGLs) and 17% natural gas.

In 2018, our annual production of 80,458 boe/d, exceeded the high end of our guidance, while capital expenditures of $496 million were in line with our guidance. Our fourth quarter 2018 production increased to 98,890 boe/d. We are very pleased with our operating results. In the Eagle Ford, we continued to see strong well performance driven by enhanced completions in the oil window of our acreage. In the Viking, our expanded use of extended reach horizontal wells continue to exceed expectations with multiple, previously untested sections proving economic. Our heavy oil assets, in both Peace River and Lloydminster, delivered strong results, despite the volatility surrounding heavy oil differentials in Canada.  We also continue to prudently advance our Duvernay shale light oil asset, an early stage light oil resource play. 

We delivered adjusted funds flow of $473 million in 2018 and our diligent focus on cost control drove our cash costs (operating, transportation and general and administrative expenses) lower by 4% on a boe basis, as compared to the mid-point of original guidance. We ended 2018 with strong financial liquidity. Our credit facilities are approximately 50% undrawn and our first long-term note maturity is not until 2021. Our net debt totaled $2.265 billion at December 31, 2018, which includes four series of long-term notes that total $1.6 billion.  

In aggregate, we replaced 106% of total 2018 production, adding 31 mmboe of proved plus probable reserves through development activities. Inclusive of the Raging River transaction, we replaced 422% of total 2018 production with 124 mmboe of proved plus probable reserves additions.

We also achieved strong health, safety and environmental performance and strong regulatory compliance across all of our operating jurisdictions. In 2019, we will publish our fourth Corporate Responsibility Report, focusing on environmental, social and economic metrics. We believe that corporate responsibility is a key component to achieving enduring success in resource development.

Looking Forward  

As we look ahead, we are well positioned to execute our business plan and further strengthen our balance sheet. With WTI trading at US$57 at the time of writing, in combination with the narrowing of Canadian differentials, we expect a positive impact on our adjusted funds flow.

As a result of current activity levels, excellent well performance in the Eagle Ford and outstanding operating efficiency across all of our assets, our first quarter 2019 volumes have exceeded expectations trending above 97,000 boe/d.  

We are on pace for $155 million of capital expenditures in Q1 2019, which remains consistent with the mid-point of our guidance range of $600 million.  Approximately 80% of those expenditures are being directed towards our light oil assets in the Eagle Ford and Viking.

Further deleveraging remains a top priority for Baytex. Based on the forward strip for 2019, we are projecting adjusted funds flow of approximately $800 million - a 32% increase from $605 million that was forecast at the outset of 2019. This will allow up to $200 million of debt repayment while maintaining production at the mid-point of our guidance of 95,000 boe/d.

Baytex's success is due to our dedicated and talented team of employees who align with our strategy, consistently deliver on our plans and drive value for our shareholders. Complementing our leadership team and committed employees, our Board of Directors is an indispensable source of guidance and support which contribute greatly to our success. With the combined team, we are confident we have the skills, experience and focus that will create a more prosperous future

We look forward to executing our plans in 2019 for the ongoing benefit of all stakeholders and we thank you for your continued support.    


Edward D. LaFehr

President and Chief Executive Officer

March 6, 2019



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  2018 Annual Report   for our advisory on forward looking information and statements. 

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 adjusted funds flow, operating netback and total monetary debt. For a description of these measures, we refer you to "Non-GAAP Financial Measures" in our 2018 Annual Report