CALGARY, Alberta – Baytex Energy Corp. (“Baytex”) (TSX, NYSE: BTE.BC) announces that its Board of Directors has approved a 2021 capital budget of $225 to $275 million, which is designed to generate free cash flow and average annual production of 73,000 to 77,000 boe/d.
“We have re-set our business in response to a volatile crude oil market brought on by Covid-19 and are poised to deliver free cash flow and stable production in a US$40 to US$45 WTI environment. In 2021, we will benefit from our high graded development opportunities as well as our continued drive to improve cost structure and capital efficiencies. Our disciplined approach to capital allocation is focused on our high netback light oil assets in the Viking and Eagle Ford and will allow us to continue to pay down debt,” commented Ed LaFehr, President and Chief Executive Officer.
Highlights of the 2021 Budget
- Funding of Capital Program. Our capital program is expected to be fully funded from adjusted funds flow at a WTI price of US$35/bbl.
- Free Cash Flow. Based on the forward strip(1), we expect to generate approximately $75 million of free cash flow during 2021. For every US$1/bbl change in WTI, our adjusted funds flow changes by approximately $23 million on an unhedged basis.
- Capital Efficiency. Our capital program is expected to generate strong capital efficiencies of approximately $12,000 per boe/d across the portfolio. This represents a 30% improvement over our 2020 budget and reflects the high grading of our portfolio in response to lower oil prices and our diligent focus on driving further efficiencies in our business.
- Capital Allocation. Approximately 85% of our capital program will be directed to our high netback light oil assets in the Viking and Eagle Ford and 10% will be directed to our heavy oil assets at Peace River and Lloydminster. We have the operational flexibility to adjust our spending plans based on changes in commodity prices.
- Risk Management. Approximately 48% of our net crude oil exposure has been hedged for 2021 utilizing a combination of fixed price swaps at US$45/bbl and a 3-way option structure that provides price protection at US$45/bbl with upside participation to US$52/bbl.(1) 2021 pricing assumptions: WTI – US$45/bbl; WCS differential – US$13/bbl; MSW differential – US$6/bbl, NYMEX Gas – US$2.85/mcf; AECO Gas – $2.55/mcf and Exchange Rate (CAD/USD) – 1.29.
The 2021 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 75,000 boe/d, approximately 60% of our production is in Canada with the remaining 40% in the Eagle Ford. Our production mix is forecast to be 81% liquids (46% light oil and condensate, 26% heavy oil and 9% natural gas liquids) and 19% natural gas, based on a 6:1 natural gas-to-oil equivalency.
In Canada, our development activity is largely focused on the Viking, where we expect to invest 45% of our capital and bring approximately 120 net wells onstream. We control 460 net sections of prospective lands in this light oil resource play. The Viking generates the highest operating netback in our portfolio and is expected to generate meaningful free cash flow.
The returns associated with our heavy oil assets are competitive with our other plays in a US$45 WTI pricing environment. We have scheduled minimal heavy oil development for the first half of 2021, but retain significant flexibility to implement a strong program in the second half of the year. Our 2021 program could see upwards of 30 net wells at Lloydminster and 6 net wells at Peace River.
We continue to prudently advance our Pembina Duvernay Shale light oil play. Our most recent two wells were completed in October and initial flow back rates are very encouraging. The first well (10-16) was brought on-stream November 2 and is currently producing 1,300 boe/d (90% liquids). The second well (11-16) was brought on-stream November 17 and is currently producing 950 boe/d (90% liquids). Based on early flowback results, these two wells demonstrate repeatability of our 11-30 pad completed in 2019 with strong economic returns at US$50 WTI. We have the flexibility in 2021 to drill up to 4 net wells in the second half of the year, with the level of activity dependent on crude oil prices.
Our Eagle Ford asset in South Texas is one of the premier oil resource plays in North America. We expect this asset to generate 40% of corporate production and substantial free cash flow. Approximately 40% of our 2021 capital program will be directed to the Eagle Ford where we expect to bring 18 net wells onstream.
The following table summarizes our 2021 annual guidance.
|Exploration and development capital ($ millions)||$225 – $275|
|Production (boe/d)||73,000 – 77,000|
|Royalty rate (%)||18.0 – 18.5%|
|Operating ($/boe)||$11.50 – $12.25|
|Transportation ($/boe)||$1.00 – $1.10|
|General and administrative ($ millions)||$42 ($1.53/boe)|
|Interest ($ millions)||$105 ($3.84/boe)|
|Leasing expenditures ($ millions)||$4|
|Asset retirement obligations ($ millions)||$6|
2021 Adjusted Funds Flow Sensitivities
|Excluding Hedges ($ millions)||Including Hedges when WTI is between US$35/bbl and US$45/bbl ($ millions)||Including Hedges when WTI is between US$45/bbl and US$52/bbl ($ millions)|
|Change of US$1.00/bbl WTI crude oil||$22.7||$12.8||$20.7|
|Change of US$1.00/bbl WCS heavy oil differential||$7.1||$3.2||$3.2|
|Change of US$1.00/bbl MSW light oil differential||$6.9||$4.2||$4.2|
|Change of US$0.25/mcf NYMEX natural gas||$8.7||$5.0||$5.0|
|Change of $0.01 in the C$/US$ exchange rate||$5.1||$5.1||$5.1|
2021 Capital Budget and Wells On-Stream by Operating Area
|Operating Area||Amount (1) ($ millions)||Wells On–stream (net)|
|United States (2)||$100||18|
(1) Reflects mid-point of capital budget guidance range.
(2) Based on a Canadian-U.S. exchange rate of 1.32 CAD/USD.
2021 Capital Budget Breakdown
|Drill, complete and equip||$235|
|Land and seismic||$5|
(1) Reflects mid-point of capital budget guidance range.
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 2021, we have entered into hedges on approximately 48% of our net crude oil exposure utilizing a combination of fixed price swaps at US$45/bbl and a 3-way option structure that provides price protection at US$45/bbl with upside participation to US$52/bbl. We also have WTI-MSW differential hedges on approximately 40% of our expected 2021 Canadian light oil production at US$5.17/bbl and WCS differential hedges on approximately 45% of our expected 2021 heavy oil production at a WTI-WCS differential of approximately US$13.50/bbl.
For 2021, we are contracted to deliver 5,500 bbl/d of our heavy oil volumes to market by rail.