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Baytex Energy Corp.

Message to Shareholders


2017 Year-End Message to Shareholders

2017 was a year about delivering on our commitments. Despite persistent low commodity prices, we delivered on our operational and financial targets, reduced our overall debt and acquired a strategic asset in Peace River. We continued to drive cost and capital efficiency in our business and increased our production, reserves and adjusted funds flow.

"We continued to drive cost and capital efficiency in our business and increased our production, reserves, and adjusted funds flow."

We achieved our best ever health, safety and environmental performance and strong regulatory compliance in all of our operating jurisdictions. We also published our third 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. 

We delivered annual production of 70,242 boe/d, above the high end of our guidance range while spending $326 million in capital. When comparing actual results for the fourth quarter of 2017 to the fourth quarter of 2016, production increased 7%. We also delivered adjusted funds flow of $348 million, an increase of 26% over 2016. Contributing to our adjusted funds flow was a reduction in cash costs (operating, transportation and general and administrative expenses) of 7.5% on a boe basis as compared to original guidance.

Net debt was reduced to $1.73 billion, down from $1.78 billion at year-end 2016, and we maintained strong financial liquidity with our US$575 million revolving credit facilities 70% undrawn. During 2017, we targeted capital expenditures to approximate adjusted funds flow in order to minimize additional bank borrowings. We exceeded this goal with adjusted funds flow exceeding capital expenditures by $21 million.

We grew our reserves with a capital investment portfolio that demonstrated continued success in the Eagle Ford along with the resumption of activity in Canada. We replaced 201% of production and increased proved plus probable reserves 6% to 432 mmboe. Our finding and development costs, inclusive of changes in future development costs, were $7.26/boe, generating a strong recycle ratio of 2.7x. Importantly, our net asset value increased 11% to $10.08 per share (before tax and discounted at 10%).

Strong well performance in the Eagle Ford, driven by enhanced completions, led to 30-day initial gross production rates of approximately 1,450 boe/d. This represents a 12% improvement over 2016. In addition, the wells that commenced production during the fourth quarter represent some of the highest productivity wells drilled to-date on our lands. Two of these wells in our new northern Austin Chalk fracture trend demonstrated 30-day initial gross production rates of approximately 2,400 boe/d.

At Peace River, through our innovative multi-lateral horizontal drilling and production techniques, we are able to generate some of the strongest capital efficiencies in the oil and gas industry. Our 2017 drilling program in Peace River included 8 net multi-lateral horizontal wells.

We also successfully integrated our acquisition of additional heavy oil assets in the Peace River region that closed on January 20, 2017 and have made meaningful progress in reducing operating costs on the acquired assets. To-date, we have achieved a 35% reduction with further improvements anticipated in 2018 and beyond.

At Lloydminster, we adopted the multi-lateral well design and geosteering capability that we have successfully utilized at Peace River. Our 2017 drilling program in Lloydminster included 33 net wells, of which 45% were multi-lateral horizontal wells.

Looking Forward  

We will continue to focus on our strategic priorities as we move forward with the intention to build on our health, safety, environmental and compliance culture while we drive cost and capital efficiency in our operations. We will strive to further grow production and reserves while looking for opportunities to balance our capital structure.  We have budgeted exploration and development capital expenditures of $325 to $375 million for 2018 and expect to deliver average annual production of 68,000 to 72,000 boe/d.

At the time of writing, commodity prices remain volatile with the price for WTI currently above US$60/bbl and Canadian heavy oil differentials averaging US$24/bbl for Q1/2018 due to transportation challenges. We anticipate these wide differentials to be temporary as the industry works to alleviate the bottlenecks through crude by rail and existing pipeline optimization and reconfigurations. We remain supporters of Canadian pipeline expansion as the medium term solution to market access. As we navigate this volatility, we continue to have the operational flexibility to adjust our spending plans based on changes in the commodity price environment.

We are encouraged by our operating results in the Eagle Ford and the strong cash generating capability of this asset as the prices for Brent and LLS are above US$63/bbl. During the fourth quarter, our netback in the Eagle Ford of $30/boe was the highest we have realized since 2014. At current crude oil prices, we expect the Eagle Ford to generate significant free cash flow in 2018.

In Canada, we are executing our first quarter drilling and development program as planned with improved WTI pricing partially offsetting the widening of the Canadian heavy oil differential. We continue to manage our heavy oil sales portfolio through operational optimization, crude-by-rail and the use of financial and physical hedges to optimize our heavy oil netbacks.

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.

We look forward to executing our plans in 2018 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, 2018



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 2017 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 2017 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