2016 was a year about delivering on our commitments in a difficult commodity price environment. The global oversupply of crude oil weighed heavily on the market as OPEC continued to favour a market share strategy for the majority of the year before coming to a new production quota agreement on November 30, 2016. It was imperative that we remained steadfast in our plan to maintain financial liquidity, reduce costs across all facets of our business,and deploy our capital effectively. In spite of the persistent low oil and gas prices, we were able to strengthen our financial liquidity, reduce our overall debt, and acquire a strategic asset in Peace River. The acquisition not only adds production, but more than doubles our land base and drilling inventory in the area.
Our operating results were in line with guidance, achieving annual average production of 69,509 boe/d while spending $225 million in capital. We targeted capital expenditures to approximate our funds from operations. We exceeded this goal, with our funds from operations totaling $276 million, generating $51 million of excess cash flow. We also disposed of certain non-core assets in Canada and the Eagle Ford for net proceeds of $63 million and we achieved a reduction in cash costs of 8% on a boe basis. All of this contributed to reducing our total net debt at the end of the year to $1.8 billion, a reduction of 13% year-over-year. At the end of the first quarter, we reached agreement with our lenders to amend our credit facilities to provide us with increased financial flexibility. We also delivered on our commitment to minimize any additional bank borrowings, remaining approximately two-thirds undrawn today on our US$575 million credit facilities.
Our Eagle Ford asset, one of the premier oil resource plays in North America, provides the highest cash netbacks in our portfolio and contains a world-class inventory of development prospects. During 2016, we continued our development activity, directing 88% of our exploration and development expenditures to this area. We commenced production from 36 net wells and established 30-day initial production rates of approximately 1,300 boe/d,representing a 20% improvement over 2015. In the fourth quarter of 2016, production averaged 33,432 boe/d. Our drilling, completions and equipping costs per well were also reduced to a record low US$4.5 million during the quarter - down 20% from $5.6 million in the first quarter of the year. These record low well costs were achieved despite increasing the number of frac stages and proppant loading. Two recently completed pads utilizing higher intensity fracs in the crude oil window of our Longhorn acreage have shown a substantial improvement in production rates compared to wells drilled previously. Toward year end we increased our rig activity and expect to run four to five rigs and two completion crews throughout 2017.
In Canada, low oil prices at the outset of the year required us to defer development in both our Peace River and Lloydminster regions. We also proactively shut-in 7,500 boe/d of low or negative margin heavy oil production in the first quarter. As oil prices improved, we reinitiated production from these wells by mid-year.
In November, we announced the strategic acquisition of additional heavy oil assets in Peace River, located immediately adjacent to our existing Peace River assets. The acquisition more than doubled our land base in the area and enables further efficiencies and synergies in our operations and significantly enhances our opportunities for future growth. We closed the acquisition on January 20, 2017 for total consideration of $65 million. At the time of closing, the assets were producing 3,000 boe/d with an additional 3,000 boe/d shut-in.
We are excited to get back to work in Canada in 2017 with an active drilling program planned at both Peace River and Lloydminster. The results to-date from this program have been very promising.
We believe that by conducting all aspects of our operations in a responsible and environmentally sensitive manner, we create long-term value for all stakeholders. 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 development. In the end, everyone benefits from environmentally responsible development that produces reliable energy at a reasonable cost.
We continue to strive for excellence in our health, safety and environment initiatives and we expect to publish our 2016 Corporate Responsibility Report in the fall of 2017.
As we look forward into 2017, we are now highly focused on two key priorities. The first is to arrest production declines through a highly efficient capital development program in both the Eagle Ford and Canada. And secondly, we will place a high priority on managing our debt position.
We have budgeted exploration and development capital expenditures of $300 to $350 million for 2017. For the full-year, approximately 70% of our planned capital expenditures will be directed to our Eagle Ford operations and the balance will be in Canada, largely toward our heavy oil assets at Peace River and Lloydminster. Our 2017 capital program is off to a strong start driven by larger fracture stimulations in the oil window of the Eagle Ford, the commencement of heavy oil drilling operations at Peace River and Lloydminster and increasing production from our recently acquired assets at Peace River. Overall, we expect to grow production 3-4% on an exit rate basis from 2016 to 2017 with average annual production of 66,000 to 70,000 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 the creation of shareholder value. 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.
We look forward to executing our plans for 2017 for the ongoing benefit of all stakeholders and we thank you for your continued support.
James L. Bowzer Edward D. LaFehr
Chief Executive Officer President
March 7, 2017
This webpage contains forward-looking statements. We refer you to the end of the Management's Discussion and Analysis section of our 2016 Annual Report for our advisory on forward‑looking information and statements.
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 2016 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 2016 Annual Report.