• Baytex Energy Corp.
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  • Baytex Energy Corp.
Baytex Energy Corp.

Message to Shareholders


2021 Year-End Message to Shareholders

This past year, we witnessed a remarkable turnaround for the oil and gas industry as economies recovered from the Covid-19 pandemic and energy prices surged. During this period of renewed optimism, we stayed true to our priorities of maintaining capital discipline, maximizing free cash flow and reducing net debt.  Our team has proven to be resilient, focused and totally committed to generating value for shareholders.

In 2021, we generated production of just over 80,000 boe/d, above the high end of our annual guidance and delivered record free cash flow(1) of $421 million. We significantly strengthened our business as we allocated 100% of free cash flow to reducing debt repayment, reducing net debt(2) by 24% to $1.4 billion.  Exploration and development expenditures totaled $313 million in line with our annual guidance.  We also continued to advance our exciting new Clearwater play in northwest Alberta with four of the highest initial rate wells drilled to date in the play.

During 2021, we introduced a five-year plan (2021 to 2025) which highlighted our financial and operational sustainability and free cash flow generating capability.  Our base plan at US%65 WTI will see us invest approximately 50% of our annual adjusted funds flow during the plan period, generate $2.1 billion of cumulative free cash flow and grow production to approximately 90,000 boe/d, reflecting a 2% to 4% annual production growth rate.  Under constant US$75/bbl and US$85/bbl pricing scenarios, our expected cumulative free cash flow increases to approximately $2.8 billion and $3.4 billion, respectively. 

Our business is backstopped by proved developed producing reserves of 129 million boe, proved reserves of 278 million boe and proved plus probable reserves of 451 million boe. In Canada, we have one of the largest conventional oil portfolios, including high operating netback, light oil production in the Viking and low decline, heavy oil production at Peace River and Lloydminster.  We also hold a dominant land position in the Pembina Duvernay which has similar geologic and reservoir characteristics to our Eagle Ford shale asset in the United States. Our position in the Eagle Ford is considered one of the highest quality, lowest-cost U.S. resource plays with outstanding drilling economics.

Clearwater Development

Across all of our core assets, inventory enhancement continues to be a priority.  We are also committed to building and maintaining respectful relationships with Indigenous communities and creating opportunities for meaningful economic participation and inclusion.  We have now executed two strategic agreements with the Peavine Metis Settlement in the Peace River area that cover 80 sections of land directly to the south of our existing operations.  We hold another 45 sections of land with Clearwater potential, giving us 125 sections of prospective lands in the play.  This play aligns strongly with our core competencies in heavy oil exploration and multi-lateral development. 

Our 2021 appraisal program yielded exceptional results with production increasing from zero at the beginning of 2021 to over 3,000 bbl/d in January 2022.  Our 2022 drilling program is underway and we expect to bring 18 wells onstream this  year.  With continued success, we believe the play ultimately holds potential for over 200 drilling locations that could support production increasing to over 10,000 bbl/d. The Clearwater generates strong economics with the ability to grow organically while enhancing our free cash flow profile.

Environmental Stewardship 

The energy industry and society are undergoing a transition to a low-carbon economy.  We believe oil and gas will be instrumental in this energy transition.  As a responsible energy producer, we are committed to monitoring greenhouse gas (GHG) emissions from our operations, setting targets to reduce our GHG emissions intensity and pursuing cost-effective decarbonization strategies. 

We have established a target to reduce our corporate GHG emission intensity (tonnes of CO2e per boe) by 65% by 2025, relative to our 2018 baseline.  In 2021, we reduced our GHG emissions intensity by 11% over 2020 levels. Our emissions reduction strategy includes increased gas conservation and combustion, reusing associated gas as fuel for field activities, reducing emissions from storage tanks, along with monitoring and preventing fugitive emissions.

Our commitment to responsible development also extends to the retirement of our assets.  We plan for full lifecycle development of our properties which includes the restoration, abandonment and reclamation of asserts that have reached the end of their productive life.  At December 31, 2020, we had an end of life well inventory of approximately 4,500 wells. We have committed to reducing this well inventory to zero by 2040. 

Looking Forward  

In 2022, we expect to benefit from our diversified oil weighted portfolio and our commitment to allocate capital effectively. Our capital program is designed to generate stable production from our light and heavy oil assets in Canada and the Eagle Ford in the United States, while scaling up development in the Clearwater. Our 2022 guidance remains unchanged as we target production of 80,000 to 83,000 boe/d with exploration and development expenditures of $400 to $450 million. Based on the forward strip at the time of writing, we expect to generate over $550 million of free cash flow in 2022.   

With continued operating momentum and strong commodity prices, we expect to reach our initial $1.2 billion net debt target during the second quarter of 2022. As we reach this debt level, we will have reduced our net debt by approximately $1.1 billion over the past three and a half years. As a result of our significantly improved financial position, we are pleased to introduce the next phase of our enhanced return to shareholders. 

For 2022, we expect to allocate approximately 25% of our annual free cash flow to a share buyback program commencing in Q2/2022.  The remainder of our free cash flow will continue to be allocated to debt reduction until we achieve a net debt level of $800 million, which represents an expected net debt to EBITDA ratio(3) of 1.0x at a US$55 WTI price.  We feel this will provide us with ultimate flexibility to run our business through the commodity price cycles and generate meaningful returns for all stakeholders.  At current prices, we expect to achieve this net debt level by mid-2023, at which point we will consider steps to further enhance shareholder returns. 

Baytex's success is due to our dedicated and talented team of employees who are passionate about delivering our strategies and plans to create value for shareholders. Complementing our leadership team and dedicated 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 2022 for the ongoing benefit of all stakeholders and we thank you for your continued support.    


Edward D. LaFehr

President and Chief Executive Officer

February 24, 2022



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 2021 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 2021 Annual Report