Baytex Energy Corp. (“Baytex”) (TSX: BTE) announces that its Board
of Directors have approved a 2022 capital budget of $400 to $450
million, which is designed to generate average annual production of
80,000 to 83,000 boe/d.
“I am excited with the momentum we are building
in our business. We expect to generate record free cash flow in
2021 and our priorities for 2022 remain much the same. Our 2022
capital program is designed to generate meaningful free cash flow
with modest annual production growth driven by exploration success
and scaled up development in the Clearwater. In a US$65/bbl WTI
pricing environment, we expect to generate approximately $2.1
billion of cumulative free cash flow through our 2021-2025
five-year outlook,” commented Ed LaFehr, President and Chief
Executive Officer.
Highlights of the 2022
Budget
- Funding of Capital Program. Our
capital program is expected to be fully funded from adjusted funds
flow at a WTI price of US$45/bbl. Based on the forward strip(1) our
capital program represents approximately 55% of our adjusted funds
flow.
- Free Cash Flow. Based on the
forward strip(1) we expect to generate approximately $340 million
of free cash flow in 2022. For every US$1/bbl change in WTI, our
adjusted funds flow changes by approximately $24 million on an
unhedged basis ($15 million including 2022 hedges).
- Capital Efficiency. Our capital
program is expected to generate strong capital efficiencies of
approximately $15,000 per boe/d across the portfolio.
- Capital Allocation. We will direct
approximately 60% of our capital program to our high netback light
oil assets in the Viking and Eagle Ford, 25% to our heavy oil
assets at Peace River and Lloydminster and 10% to the
Clearwater.
- Risk Management. Approximately 42%
of our net crude oil exposure has been hedged for 2022 utilizing a
combination of a 3-way option structure that provides price
protection at US$58/bbl with upside participation to US$68/bbl and
swaptions at US$53.50/bbl.
The 2022 capital program is expected to be
equally weighted to the first and second half of the year. Based on
the mid-point of our production guidance of 81,500 boe/d,
approximately 65% of our production is in Canada with the remaining
35% in the Eagle Ford. Our production mix is forecast to be 83%
liquids (43% light oil and condensate, 32% heavy oil and 8% natural
gas liquids) and 17% natural gas, based on a 6:1 natural gas-to-oil
equivalency.
Note:
(1) 2022 pricing assumptions:
WTI - US$66/bbl; WCS differential - US$16/bbl; MSW differential –
US$5/bbl, NYMEX Gas - US$4.10/mcf; AECO Gas - $3.50/mcf and
Exchange Rate (CAD/USD) - 1.28.
2022 Free Cash Flow
In 2021 we made a commitment to maintain capital
discipline, maximize free cash flow and reduce our net debt. We
expect to generate record free cashflow in 2021 of approximately
$420 million, which is accelerating our debt reduction efforts. As
a result, we expect to exit 2021 with net debt of approximately
$1.4 billion, which represents a 25% reduction from year-end 2020.
Over the past three years, we will have reduced our net debt by
approximately $900 million.
Based on the forward strip for 2022, we expect
to generate approximately $340 million of free cash flow. We remain
committed to further strengthening our balance sheet and providing
an enhanced return to our shareholders.
Our priorities for the allocation of free cash
flow in 2022 are as follows:
- We will allocate 100% of our free
cash flow to reducing net debt until we hit our initial $1.2
billion net debt target. We expect this to occur by mid-2022. This
debt target represents a net debt to EBITDA ratio of approximately
1.4x at a US$65 WTI price.
- Upon reaching a net debt level of
$1.2 billion, we anticipate announcing a plan for enhanced
shareholder returns, which could include share buybacks and/or a
dividend, while we continue to reduce our net debt to further
strengthen the business.
Five-Year Outlook
Our five-year outlook (2021 to 2025) highlights
our financial and operational sustainability and ability to
generate meaningful free cash flow. Through this plan period, we
are committed to a disciplined, returns based capital allocation
philosophy, targeting capital expenditures at approximately 50% of
our adjusted funds flow, while optimizing production in the 85,000
to 90,000 boe/d range. This generates annual production growth of
2% to 4% with annual capital spending of $400 to $475 million from
2022 to 2025.
We have updated our five-year outlook to include
expected inflationary cost increases along with increased drilling
on our Clearwater lands. Our base plan assumes development of 20
sections (of our 80-section land base) which have been delineated
to-date and includes the drilling of approximately 80 net wells.
With this initial phase of drilling, we expect Clearwater
production to increase from zero at the beginning of 2021 to
approximately 6,000 bbl/d while generating over $100 million of
cumulative free cash flow. With continued success, we believe the
play ultimately holds the potential for over 200 drilling locations
that could support production increasing to over 10,000 bbl/d.
We have grounded our updated five-year outlook
on a constant US$65/bbl WTI price and expect to generate
approximately $2.1 billion of cumulative free cash flow. Under a
constant US$75/bbl pricing scenario, our expected cumulative free
cash flow increases to approximately $2.8 billion.
Risk Management
To manage commodity price movements, we utilize
various financial derivative contracts and crude-by-rail to reduce
the volatility of our adjusted funds flow.
For 2022, we have entered into hedges on
approximately 42% of our net crude oil exposure utilizing a
combination of a 3-way option structure that provides price
protection at US$58/bbl with upside participation to US$68/bbl and
swaptions at US$53.50/bbl. We also have WTI-WCS differential hedges
on approximately 70% of our expected net heavy oil exposure at
US$12.28/bbl and MSW differential hedges on approximately 25% of
our expected net Canadian light oil exposure at a WTI-MSW
differential of approximately US$4.43/bbl.
2022 Budget Details
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 assets in Canada and the
Eagle Ford in the United States, while scaling up development in
the Clearwater.
Eagle Ford and Viking Light Oil
Approximately 60% of our capital program will be
directed to our high netback light oil assets in the Viking and
Eagle Ford, where we forecast stable production and strong asset
level free cash flow. We expect to bring approximately 145 net
wells onstream in the Viking and 14 net wells onstream in the Eagle
Ford.
Heavy Oil
Approximately 25% of our capital program will be
directed to our heavy oil assets at Peace River and Lloydminster.
Our 2022 activity reflects a capital efficient drilling program
complemented by long life and high value polymer flood projects. In
total, we will see approximately 47 net wells drilled at
Lloydminster and 9 net Bluesky wells drilled at Peace River.
Clearwater
We will allocate approximately 10% of our 2022
capital budget to the Peace River Clearwater as successful
exploration results in 2021 lead to scaling up our development. We
expect to bring approximately 18 Clearwater wells onstream in
2022.
We are currently executing our Q4/2021 drilling
program and preparing for increased activity in 2022 with our three
Q4/2021 Peavine wells scheduled to be onstream in December. In
addition, we have drilled our first Clearwater exploration well in
the core of our Seal legacy land base and have a follow-up
appraisal well planned for H2/2022. During the first quarter of
2022, we anticipate running a two-rig program that will see eight
wells drilled on our Peavine lands.
At current commodity prices, the Clearwater
generates among the strongest economics within our portfolio with
payouts of less than six months and the ability to grow organically
while enhancing our free cash flow profile.
Pembina Area Duvernay Light Oil
During the third quarter, we drilled two 100%
working interest wells with very encouraging results. The first
well (7-8) was brought on-stream October 18 and established a
30-day initial production rate of 944 boe/d (712 bbl/d light oil,
148 bbl/d NGLs and 0.5 mmcf/d of natural gas). The second well
(6-8) was brought on-stream October 30 and established a 30-day
initial production rate of 1,230 boe/d (814 bbl/d light oil, 265
bbl/d NGLs and 0.9 mmcf/d of natural gas).
We expect to drill three net wells in the
Duvernay during 2022 as we follow-up on our successful 2021
program.
Environmental Stewardship
As part of our commitment to enhancing our
culture of sustainability, we are investing $30 million to progress
our plans to decarbonize and shrink the environmental footprint of
our operations. We will invest approximately $10 million as part of
our GHG mitigation program and expect to reduce our GHG emissions
intensity by 10% over 2021 levels. In addition, we will embark on
an active abandonment and reclamation program with approximately
$20 million being directed to pipeline, wellbore and facility
decommissioning along with well site reclamations.
2022 Guidance
The following table summarizes our 2022 annual
guidance.
|
Exploration and development capital ($ millions) |
$400 - $450 |
|
|
Production (boe/d) |
80,000 - 83,000 |
|
|
|
|
|
|
Expenses: |
|
|
|
Royalty rate (%) |
18.5 – 19.0% |
|
|
Operating ($/boe) |
$12.25 - $13.00 |
|
|
Transportation ($/boe) |
$1.20 - $1.30 |
|
|
General and administrative ($ millions) |
$43 ($1.45/boe) |
|
|
Interest ($ millions) |
$80 ($2.70/boe) |
|
|
|
|
|
|
Leasing expenditures ($
millions) |
$3 |
|
|
Asset
retirement obligations ($ millions) |
$20 |
|
|
|
|
|
2022 Adjusted Funds Flow Sensitivities
|
|
Excluding Hedges($ millions) |
Including Hedges($ millions) |
|
|
Change of US$1.00/bbl WTI
crude oil |
$24.1 |
$15.1 |
|
|
Change of US$1.00/bbl WCS
heavy oil differential |
$8.4 |
$3.3 |
|
|
Change of US$1.00/bbl MSW
light oil differential |
$7.0 |
$5.3 |
|
|
Change of US$0.25/mcf NYMEX
natural gas |
$7.6 |
$4.8 |
|
|
Change
of $0.01 in the C$/US$ exchange rate |
$11.5 |
$11.5 |
|
|
|
|
|
|
2022 Capital Budget and Wells On-Stream by Operating
Area
|
Operating Area |
Amount (1)($ millions) |
Wells On-stream(net) |
|
|
Canada |
$335 |
216 |
|
|
United States (2) |
$90 |
14 |
|
|
Total |
$425 |
230 |
|
(1) Reflects mid-point of capital budget
guidance range.(2) Based on a Canadian-U.S.
exchange rate of 1.27 CAD/USD.
2022 Capital Budget Breakdown
|
Classification |
Amount (1)($
millions) |
|
|
|
|
|
|
Drill, complete and equip |
$385 |
|
|
Facilities |
$20 |
|
|
Land and seismic |
$10 |
|
|
GHG
Mitigation |
$10 |
|
|
Total |
$425 |
|
(1) Reflects mid-point
of capital budget guidance range.
Advisory Regarding Forward-Looking
Statements
In the interest of providing Baytex's
shareholders and potential investors with information regarding
Baytex, including management's assessment of Baytex's future plans
and operations, certain statements in this press release are
"forward-looking statements" within the meaning of the United
States Private Securities Litigation Reform Act of 1995 and
"forward-looking information" within the meaning of applicable
Canadian securities legislation (collectively, "forward-looking
statements"). In some cases, forward-looking statements can
be identified by terminology such as "anticipate", "believe",
"continue", "could", "estimate", "expect", "forecast", "intend",
"may", "objective", "ongoing", "outlook", "potential", "project",
"plan", "should", "target", "would", "will" or similar words
suggesting future outcomes, events or performance. The
forward-looking statements contained in this press release speak
only as of the date thereof and are expressly qualified by this
cautionary statement.
Specifically, this press release contains
forward-looking statements relating to but not limited to: our 2022
capital budget of $400-$450 million, that the budget is designed to
generate average annual production of 80,000 to 83,000; we expect
to generate record free cash flow in 2021; our 2022 budget is
designed to generate meaningful free cash flow with modest annual
production growth; in a US$65 WTI environment we expect to generate
$2.1 billion of cumulative free cash flow through our 2021-2025
five-year outlook; our capital program is fully funded from
adjusted funds flow at US$45/bbl WTI; based on the forward strip
our capital program represents ~55% of adjusted funds flow and
generates ~$340 million of free cash flow; the amount our adjusted
funds flow changes based on a US$1/bbl change in WTI unhedged and
hedged; our capital program is expected to generate capital
efficiencies of $15,000 per boe/d across the portfolio; the
percentage of our net crude exposure that is hedged for 2022; the
allocation as between certain assets and timing of our capital
spending; the geographic breakdown and product type breakdown for
2022 production; our expected 2021 year-end net debt and resulting
one year and three year debt reduction; we are committed to further
strengthening our balance sheet and providing enhanced return to
our shareholders; we will allocated 100% of free cash flow to debt
reduction until we hit our initial net debt target of $1.2 billion;
our expected net debt to EBITDA ratios at certain WTI prices when
we hit our initial debt target; upon reaching our net debt target
we anticipate announcing a plan for enhanced shareholder returns,
which could include share buybacks and/or a dividend while we
continue to reduce our net debt; regarding our five-year outlook:
it highlights our financial and operational sustainability and
ability to generate meaningful free cash flow, during the
plan period we are committed to a disciplined, returns based
capital allocation philosophy, our targeted capital expenditures as
a percentage of adjusted funds flow, expected production growth and
capital spending; for the Clearwater during our five-year outlook:
development assumption, expected production rate and cumulative
free cash flow, number of potential drilling locations and that the
pay could support production increasing to over 10,000 bbl/d; the
expected cumulative free cash flow from during the five-year
outlook at US$65 WTI and US$75 WTI; the percentage of our net
crude, WTI-WCS differential and WTI-MSW differential exposure that
is hedged for 2022; we expect to benefit from our diversified oil
weighted portfolio and our commitment to allocate capital
effectively; our 2022 plan is designed to generate stable
production from our light and heavy assets in Canada and the United
States while scaling up development in the Clearwater; the
percentage capital allocation and expected wells drilled and
onstream by asset; we forecast stable production and strong asset
level free cash flow in the Eagle Ford and Viking; the expected
on-stream date of our three Q4/2021 Peavine wells; that we will run
a two rig program in Q1/2022 in Peavine; at current commodity
prices, the Clearwater generates among the strongest economics
within our portfolio with payouts of less than six months and has
the ability to grow organically while enhancing our free cash flow
profile; our GHG emissions reduction and abandonment and
reclamation plans and spending commitments; our expected
exploration and development capital spending, production, royalty
rate and operating, transportation, general and administrative,
interest costs, leasing expenditures and asset retirement
obligations for 2022; the sensitivity of our 2022 adjusted funds
flow to changes in WTI, WCS, MSW and NYMEX prices and the C$/US$
exchange rate (with and without hedges); the expected capital
budget and wells on-stream by operating area in 2022 and capital
budget by spending type for 2022.
In addition, information and statements relating
to reserves are deemed to be forward-looking statements, as they
involve implied assessment, based on certain estimates and
assumptions, that the reserves described exist in quantities
predicted or estimated, and that the reserves can be profitably
produced in the future. Although Baytex believes that the
expectations and assumptions upon which the forward-looking
statements are based are reasonable, undue reliance should not be
placed on the forward-looking statements because Baytex can give no
assurance that they will prove to be correct.
These forward-looking statements are based on
certain key assumptions regarding, among other things: petroleum
and natural gas prices and differentials between light, medium and
heavy oil prices; well production rates and reserve volumes; our
ability to add production and reserves through our exploration and
development activities; capital expenditure levels; our ability to
borrow under our credit agreements; the receipt, in a timely
manner, of regulatory and other required approvals for our
operating activities; the availability and cost of labour and other
industry services; interest and foreign exchange rates; the
continuance of existing and, in certain circumstances, proposed tax
and royalty regimes; our ability to develop our crude oil and
natural gas properties in the manner currently contemplated; and
current industry conditions, laws and regulations continuing in
effect (or, where changes are proposed, such changes being adopted
as anticipated). Readers are cautioned that such assumptions,
although considered reasonable by Baytex at the time of
preparation, may prove to be incorrect.
Actual results achieved will vary from the
information provided herein as a result of numerous known and
unknown risks and uncertainties and other factors. Such factors
include, but are not limited to: the volatility of oil and natural
gas prices and price differentials (including the impacts of
Covid-19); the availability and cost of capital or borrowing; risks
associated with our ability to exploit our properties and add
reserves; availability and cost of gathering, processing and
pipeline systems; that our credit facilities may not provide
sufficient liquidity or may not be renewed; failure to comply with
the covenants in our debt agreements; risks associated with a
third-party operating our Eagle Ford properties; public perception
and its influence on the regulatory regime; restrictions or costs
imposed by climate change initiatives and the physical risks of
climate change; new regulations on hydraulic fracturing;
restrictions on or access to water or other fluids; changes in
government regulations that affect the oil and gas industry;
regulations regarding the disposal of fluids; changes in
environmental, health and safety regulations; costs to develop and
operate our properties; variations in interest rates and foreign
exchange rates; risks associated with our hedging activities;
retaining or replacing our leadership and key personnel; changes in
income tax or other laws or government incentive programs;
uncertainties associated with estimating oil and natural gas
reserves; our inability to fully insure against all risks; risks of
counterparty default; risks related to our thermal heavy oil
projects; alternatives to and changing demand for petroleum
products; risks associated with our use of information technology
systems; results of litigation; risks associated with large
projects; risks associated with the ownership of our securities,
including changes in market-based factors; risks for United States
and other non-resident shareholders, including the ability to
enforce civil remedies, differing practices for reporting reserves
and production, additional taxation applicable to non-residents and
foreign exchange risk; and other factors, many of which are beyond
our control.
These and additional risk factors are discussed
in our Annual Information Form, Annual Report on Form 40-F and
Management's Discussion and Analysis for the year ended December
31, 2020, as filed with Canadian securities regulatory authorities
and the U.S. Securities and Exchange Commission.
The above summary of assumptions and risks
related to forward-looking statements has been provided in order to
provide shareholders and potential investors with a more complete
perspective on Baytex’s current and future operations and such
information may not be appropriate for other purposes.
There is no representation by Baytex that actual
results achieved will be the same in whole or in part as those
referenced in the forward-looking statements and Baytex does not
undertake any obligation to update publicly or to revise any of the
included forward-looking statements, whether as a result of new
information, future events or otherwise, except as may be required
by applicable securities law.
All amounts in this press release are stated in
Canadian dollars unless otherwise specified.
Non-GAAP Financial and Capital Management
Measures
In this news release, we refer to certain
financial measures (such as adjusted funds flow, capital
efficienty, exploration and development expenditures, free cash
flow and net debt) which do not have any standardized meaning
prescribed by Canadian GAAP (“non-GAAP measures”) and are
considered non-GAAP measures. While these terms are commonly used
in the oil and gas industry, our determination of these measures
may not be comparable with calculations of similar measures for
other issuers.
Adjusted funds flow is not a measurement based
on generally accepted accounting principles ("GAAP") in Canada, but
is a financial term commonly used in the oil and gas industry. We
define adjusted funds flow as cash flow from operating activities
adjusted for changes in non-cash operating working capital and
asset retirement obligations settled. Our determination of adjusted
funds flow may not be comparable to other issuers. We consider
adjusted funds flow a key measure that provides a more complete
understanding of operating performance and our ability to generate
funds for exploration and development expenditures, debt repayment,
settlement of our abandonment obligations and potential future
dividends.
In addition, we use a ratio of net debt to
adjusted funds flow to manage our capital structure. We eliminate
settlements of abandonment obligations from cash flow from
operations as the amounts can be discretionary and may vary from
period to period depending on our capital programs and the maturity
of our operating areas. The settlement of abandonment obligations
are managed with our capital budgeting process which considers
available adjusted funds flow. Changes in non-cash working capital
are eliminated in the determination of adjusted funds flow as the
timing of collection, payment and incurrence is variable and by
excluding them from the calculation we are able to provide a more
meaningful measure of our cash flow on a continuing basis. For a
reconciliation of adjusted funds flow to cash flow from operating
activities, see Management's Discussion and Analysis of the
operating and financial results for the three and nine months ended
September 30, 2021.
Capital efficiency is not a measurement based on
GAAP in Canada. We define capital efficiency as exploration and
development expenditures divided by the expected aggregate IP365
rate (boe/d) for all wells coming on production in the year,
normalized to a January 1 start-date.
Exploration and development expenditures is not
a measurement based on GAAP in Canada. We define exploration and
development expenditures as additions to exploration and evaluation
assets combined with additions to oil and gas properties. We use
exploration and development expenditures to measure and evaluate
the performance of our capital programs. The total amount of
exploration and development expenditures is managed as part of our
budgeting process and can vary from period to period depending on
the availability of adjusted funds flow and other sources of
liquidity.
Free cash flow is not a measurement based on
GAAP in Canada. We define free cash flow as adjusted funds flow
less exploration and development expenditures (both non-GAAP
measures discussed above), payments on lease obligations, and asset
retirement obligations settled. Our determination of free cash flow
may not be comparable to other issuers. We use free cash flow to
evaluate funds available for debt repayment, common share
repurchases, potential future dividends and acquisition and
disposition opportunities.
Net debt is not a measurement based on GAAP in
Canada. We define net debt to be the sum of cash, trade and other
accounts receivable, trade and other accounts payable, and the
principal amount of both the long-term notes and the credit
facilities. Our definition of net debt may not be comparable to
other issuers. We believe that this measure assists in providing a
more complete understanding of our cash liabilities and provides a
key measure to assess our liquidity. We use the principal amounts
of the credit facilities and long-term notes outstanding in the
calculation of net debt as these amounts represent our ultimate
repayment obligation at maturity. The carrying amount of debt issue
costs associated with the credit facilities and long-term notes is
excluded on the basis that these amounts have already been paid by
Baytex at inception of the contract and do not represent an
additional source of capital or repayment obligation.
Advisory Regarding Oil and Gas Information
Where applicable, oil equivalent amounts have
been calculated using a conversion rate of six thousand cubic feet
of natural gas to one barrel of oil. The use of boe amounts
may be misleading, particularly if used in isolation. A boe
conversion ratio of six thousand cubic feet of natural gas to one
barrel of oil is based on an energy equivalency conversion method
primarily applicable at the burner tip and does not represent a
value equivalency at the wellhead.
References herein to average 30-day initial
production rates and other short-term production rates are useful
in confirming the presence of hydrocarbons, however, such rates are
not determinative of the rates at which such wells will commence
production and decline thereafter and are not indicative of
long-term performance or of ultimate recovery. While encouraging,
readers are cautioned not to place reliance on such rates in
calculating aggregate production for us or the assets for which
such rates are provided. A pressure transient analysis or well-test
interpretation has not been carried out in respect of all wells.
Accordingly, we caution that the test results should be considered
to be preliminary.
Baytex Energy Corp.
Baytex Energy Corp. is an oil and gas
corporation based in Calgary, Alberta. The company is engaged in
the acquisition, development and production of crude oil and
natural gas in the Western Canadian Sedimentary Basin and in the
Eagle Ford in the United States. Approximately 81% of Baytex’s
production is weighted toward crude oil and natural gas liquids.
Baytex’s common shares trade on the Toronto Stock Exchange under
the symbol BTE and the New York Stock Exchange under the symbol
BTE.BC.
For further information about Baytex, please
visit our website at www.baytexenergy.com or contact:
Brian Ector, Vice President, Capital
Markets
Toll Free Number: 1-800-524-5521Email:
investor@baytexenergy.com
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