CALGARY, ALBERTA (April 28, 2022) – Baytex Energy Corp. (“Baytex”)(TSX: BTE) reports its operating and financial results for the three months ended March 31, 2022 (all amounts are in Canadian dollars unless otherwise noted).
“We remain focused on capital discipline, generating free cash flow and reducing debt. We also materially advanced our Clearwater development with ten wells drilled at Peavine, including three wells averaging 30-day initial production rates of 1,100 bbl/d per well. These exceptional wells have enabled us to more than double our Clearwater production to 8,000 bbl/d today. As a result, we are pleased to increase our 2022 production guidance and add six new Clearwater wells to our Q4/2022 program. Our focus on delivering substantial free cash flow is unchanged – our updated five-year plan (2022 through 2026) is expected to generate approximately $3 billion of cumulative free cash flow. I am also excited to announce that our board of directors has approved a share buyback program that is expected to commence in May,” commented Ed LaFehr, President and Chief Executive Officer.
Oil & Gas Permit Download
Baytex Wells Drilled Since 2021
Baytex Facility Permits Sincs 2021
- Q1 2022 Highlights
- Generated production of 80,867 boe/d (82% oil and NGL) in Q1/2022, a 3% increase over Q1/2021.
- Delivered adjusted funds flow(1) of $280 million ($0.49 per basic share) in Q1/2022, a 78% increase compared to $157 million ($0.28 per basic share) in Q1/2021.
- Generated free cash flow(2) of $121 million ($0.21 per basic share) in Q1/2022, a 72% increase compared to $70 million ($0.13 per basic share) in Q1/2021.
- Cash flows from operating activities was $199 million ($0.35 per basic share) in Q1/2022, a 64% increase compared to $121 million ($0.22 per basic share) in Q1/2021.
- Reduced net debt(1) by 10% to $1.28 billion, from $1.41 billion at year-end 2021.
- Drilled 10 Clearwater wells at Peavine in Q1/2022 with our first three wells generating an average 30-day initial production rate of 1,100 bbl/d per well, boosting field production to 8,000 bbl/d today.
- Increasing exploration and development expenditures and production guidance given strong Peavine results and inflationary pressure.
- We intend to repurchase and cancel the remaining US$200 million principal amount of 5.625% long-term notes at par on June 1, 2022.
Baytex Well Permit Summary
We remain intensely focused on maintaining capital discipline and driving meaningful free cash flow in our business. Based on the forward strip(3), we expect to generate approximately $700 million ($1.25 per basic share) of free cash flow this year. As art of our previously announced return of capital framework, we expect to allocate approximately 25% of our annual free cash low to direct shareholder returns through a share buyback program commencing in May of 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(1) to EBITDA(4) ratio of 1.0x at a US$55 WTI price. This level of net debt will provide us with flexibility to run our business through the commodity price cycles and generate meaningful returns for our shareholders. At current prices, we expect to achieve this net debt level in early 2023, at which point we will consider steps to further enhance shareholder returns.
Our operational success, the continued strong economics of our drilling program and the inflationary pressures being experienced throughout our industry caused us to review our capital program for the year. We are now forecasting 2022 exploration and development expenditures of $450 to $500 million, up from $400 to $450 million, which was set in a US$65 pricing environment. The incremental capital reflects additional activity on our Clearwater lands and the Eagle Ford as well as expected capital cost inflation.
With continued strong operating momentum and production growth on our Clearwater lands, we are increasing our production guidance for 2022 to 83,000 to 85,000 boe/d, up from 80,000 to 83,000 boe/d, previously, and expect to exit 2022 producing approximately 87,000 to 88,000 boe/d.
The Clearwater has emerged as one of the most profitable plays in North America and our Q1/2022 drilling program has delivered exceptional results. As a result, we are expanding our 2022 plan to run a full one rig program at Peavine through yearend (previously budgeted plans had our drilling program wrapping up in September) which results in an incremental six wells being drilled in Q4/2022. We also anticipate drilling 2-3 net incremental wells in the Eagle Ford in H2/2022, the highest free cash flow generating asset in our portfolio. This increased activity set will result in $30 million of incremental exploration and development expenditures, which is offset by approximately $10 million of reduced light oil activity.
We have also updated our 2022 plan to reflect an incremental 8% expected capital cost inflation, which increases our exploration and development expenditures by approximately $30 million. This reflects industry cost pressures related to labour, logistics, fuel and tangible items such as steel, frac sand and chemicals. In aggregate, we are now assuming 18% capital cost inflation in 2022, as compared to 2021.
We have fine-tuned several of our cost assumptions to reflect increased royalties due to higher commodity prices and inflationary pressures on operating and transportation expenses related to labor, fuel, electricity and hauling. Offsetting these cost pressures to a certain extent is increased production and a reduction in our interest expense as our net debt is reduced.
Update to Five-Year Plan
We introduced our five-year plan one year ago (April 2021) to highlight our financial and operational sustainability and ability to generate meaningful free cash flow. We continue to benchmark our results to this five-year plan and intend to update as warranted based on the macro-environment (commodity prices, cost inflation) and drilling results and activity across our land base.
We are now rolling our five-year plan forward to capture the period 2022 to 2026. Year one of the five-year plan is based on 2022 guidance and forward strip commodity prices and years two through five (2023 through 2026) are based on a constant US$75 WTI price. Our focus on delivering free cash flow is unchanged – under these pricing assumptions, we expect to generate approximately $3 billion of cumulative free cash flow(1) during the plan period.
We have also updated our five-year plan to include expected inflationary cost increases along with increased drilling on our Clearwater lands that has us drilling approximately 120 net wells through 2026. With this updated view of our land base, we expect Clearwater production to increase from zero at the beginning of 2021 to approximately 10,000 bbl/d while generating over $400 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 15,000 bbl/d.
Through this plan period, we are committed to a disciplined, returns based capital allocation philosophy, targeting exploration and development expenditures at less than 50% of our adjusted funds flow. We expect to generate annual production growth of 2% to 4%, with production reaching approximately 95,000 boe/d in 2026.