Calgary, Alberta – Baytex Energy Corp. (TSX: BTE) (“Baytex”) announces that its Board of Directors has approved 2023 exploration and development expenditures of $575 to $650 million, which are designed to generate average annual production of 86,000 to 89,000 boe/d.
“We expect to generate record free cash flow in 2022 and our priorities for 2023 remain the same. We will advance development across our high-quality oil weighted portfolio, further delineate our Peavine Clearwater acreage and progress our Duvernay light oil resource play. We are committed to allocating capital efficiently to generate meaningful free cash flow and, as we achieve our debt targets, increasing direct shareholder returns. In a US$80/bbl WTI pricing environment, we expect to generate approximately $3.1 billion of cumulative free cash flow through our 2022-2026 five-year outlook,” commented Eric Greager, President and Chief Executive Officer.
Highlights of the 2023 Budget
- Funding of Capital Program. Based on the forward strip(1) our exploration and development expenditures represent approximately 55% of adjusted funds flow.
- Free Cash Flow. Based on the forward strip(1) we expect to generate approximately $450 million of free cash flow(2) in 2023. For every US$5/bbl change in WTI, our adjusted funds flow(3) changes by approximately $139 million on an unhedged basis ($128 million including 2023 WTI hedges).
- Production Growth. Our 2023 production guidance (at the mid-point) represents a 4% increase from forecast 2022 production guidance (8% increase on a per-share basis(4)).
- Capital Efficiency. Our capital program is expected to generate capital efficiencies of approximately $19,500 per boe/d across the portfolio.
- Capital Allocation. We plan to direct approximately 65% of our exploration and development expenditures to our light oil assets and approximately 35% to our heavy oil assets, which includes approximately 15% of our 2023 capital program being directed to our Peavine Clearwater assets.
- Shareholder Returns. We are currently allocating 25% of free cash flow to share buybacks and 75% of free cash flow to debt reduction. We expect to reach a net debt(3) level of $800 million by mid-2023 at which point we anticipate increasing direct shareholder returns to 50% of free cash flow and accelerating our share buyback program.
- Risk Management. Approximately 18% of our net crude oil exposure has been hedged for 2023 utilizing a 3-way structure that provides price protection at US$78/bbl with upside participation to US$96/bbl.
The 2023 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 87,500 boe/d, approximately 70% of our production is in Canada with the remaining 30% in the Eagle Ford. Our production mix is forecast to be 85% liquids (36% light oil and condensate, 41% heavy oil and 8% natural gas liquids) and 15% natural gas, based on a 6:1 natural gas-to-oil equivalency.
(1) 2023 pricing assumptions: WTI – US$76/bbl; WCS differential – US$25/bbl; MSW differential – US$3/bbl, NYMEX Gas – US$5.70/mmbtu; AECO Gas – $4.75/mcf and Exchange Rate (CAD/USD) – 1.34.
(2) Specified financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable with the calculation of similar measures presented by other entities. Refer to the Specified Financial Measures section in this press release for further information.
(3) Capital management measure. Refer to the Specified Financial Measures section in this press release for further information.
(4) Includes impact of share buyback program.
Shareholder Returns
In 2022, we benefited from our diversified oil weighted portfolio and our commitment to allocate capital effectively. We are forecasting record 2022 free cash flow(1) of approximately $650 million and expect to exit the year with net debt(2) of approximately $950 million, a 33% reduction from year-end 2021. We are in a strong financial position with a year-end 2022 net debt to forecast 2023 EBITDA(3) ratio of 0.8x.
Our improved financial position enabled us to implement the second phase of our enhanced shareholder return framework in May, allocating 25% of annual free cash flow to a share buyback program with 75% of free cash flow allocated to debt reduction. Year-to-date, we repurchased 23.5 million common shares for $154 million, representing 4.1% of our shares outstanding, at an average price of $6.53 per share.
Based on the forward strip for 2023, we expect to generate approximately $450 million of free cash flow and reach a net debt level of $800 million by mid-2023. Upon achieving this target debt level, we expect to increase direct shareholder returns to 50% of our free cash flow and accelerate our share buyback program.
We have also established an ultimate net debt target for the company of $400 million, which represents an expected net debt to EBITDA ratio of 1.0x at a US$45/bbl WTI price. We feel this level of net debt provides us with flexibility to run our business through the commodity price cycles and generate meaningful returns for our shareholders. At current commodity prices, we expect to achieve this net debt level in 2024, at which point we intend to increase direct shareholder returns to 75% of our free cash flow.
Five-Year Plan
We introduced a five-year plan in 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), drilling results and activity across our land base.
We are committed to a disciplined, returns-based capital allocation philosophy, targeting exploration and development expenditures at approximately 50% of our adjusted funds flow at a US$80/bbl WTI price. We expect to generate annual production growth of 2% to 4% during the plan period, with production reaching approximately 95,000 boe/d in 2026.
Under our current five-year plan and based on a constant US$80/bbl WTI price, we expect to generate approximately $3.1 billion of cumulative free cash flow. Through this plan period, we have incorporated inflation of 30% on exploration and development expenditures, as compared to 2021.
2023 Budget Details
Our 2023 exploration and development expenditures will see us advance development across our high-quality oil weighted portfolio, further delineate our Peavine Clearwater acreage and progress our Duvernay light oil resource play.
Light Oil
Approximately 65% of our exploration and development expenditures are expected to be directed to our high netback light oil assets in the Viking, Eagle Ford and Duvernay where we forecast relatively stable production and strong asset level free cash flow. We expect to bring approximately 144 net wells onstream in the Viking, 15 net wells onstream in the Eagle Ford, and six net wells onstream in the Duvernay.
In the Duvernay, we drilled a three-well pad in 2022 on the northern edge of of our land base and results have tracked to type well forecast for the region, increasing confidence in capital execution and well performance. Our 2023 Duvernay program is expected to include two three-well pads as we continue to progress our understanding of the reservoir. Across our Pembina acreage, we hold 200 sections of contiguous 100% working interest lands.
Heavy Oil
Approximately 20% of our exploration and development expenditures are expected to be directed to our heavy oil assets at Peace River and Lloydminster. Our 2023 activity reflects a capital efficient drilling program that will see approximately 40 net wells drilled at Lloydminster and 10 net Bluesky wells drilled at Peace River. At our Kerrobert steam-assisted gravity drainage (“SAGD”) project, we expect to drill three well pairs to maximize resource capture and optimize steam utilization.
(1) Specified financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable with the calculation of similar measures presented by other entities. Refer to the Specified Financial Measures section in this press release for further information.
(2) Capital management measure. Refer to the Specified Financial Measures section in this press release for further information.
(3) Calculated in accordance with the Credit Facilities Agreement.
Clearwater
We expect to allocate approximately 15% of our exploration and development expenditures to our Peavine Clearwater development as successful drilling results in 2022 have led to scaled up development. We expect to bring approximately 31 net Peavine Clearwater wells onstream in 2023, up from 23 net wells in 2022. In addition, we expect to drill two Clearwater wells on our Seal acreage. Our 2023 program also includes nine stratigraphic test wells across our greater Peace River acreage to further delineate our lands for potential Clearwater development and to support multi-lateral drilling in future years.
Our Peavine Clearwater acreage has emerged as one of the most highly economic plays in North America and has grown organically while enhancing our free cash flow profile. We expect production to increase approximately 60% in 2023 to average approximately 12,000 bbl/d (up from approximately 7,500 bbl/d in 2022).
Environmental Stewardship
As part of our commitment to enhancing our culture of sustainability, we expect to invest $40 million in 2023 to progress our plans to decarbonize and shrink the environmental footprint of our operations. We plan to invest approximately $15 million as part of our GHG mitigation program and expect to reduce our GHG emissions intensity by 7% from 2022 levels. In addition, we will continue our abandonment and reclamation program with approximately $25 million being directed to pipeline, wellbore and facility decommissioning along with well site reclamations.
2023 Guidance
The following table summarizes our 2023 annual guidance.
Exploration and development expenditures | $575 – $650 million |
Production (boe/d) | 86,000 – 89,000 |
Expenses: | |
Average royalty rate (1) | 20.0 – 22.0% |
Operating (2) | $14.00 – $14.75/boe |
Transportation (2) | $1.90 – $2.10/boe |
General and administrative (2) | $52 million ($1.63/boe) |
Interest (2) | $65 million ($2.04/boe) |
Leasing expenditures | $4 million |
Asset retirement obligations | $25 million |
2023 Adjusted Funds Flow (3) Sensitivities
Excluding Hedges ($ millions) |
Including Hedges ($ millions) |
|
Change of US$1.00/bbl WTI crude oil | $27.8 | $25.5 |
Change of US$1.00/bbl WCS heavy oil differential | $13.4 | $13.4 |
Change of US$1.00/bbl MSW light oil differential | $7.2 | $7.2 |
Change of US$0.25/mmbtu NYMEX natural gas | $7.0 | $7.0 |
Change of $0.01 in the C$/US$ exchange rate | $12.5 | $12.5 |
(1) Specified financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable with the calculation of similar measures presented by other entities. Refer to the Specified Financial Measures section in this press release for further information.
(2) Calculated as operating, transportation, general and administrative or cash interest expense divided by barrels of oil equivalent production volume for the applicable period.
(3) Capital management measure. Refer to the Specified Financial Measures section in this press release for further information.
2023 Exploration and Development Expenditures and Wells On-Stream by Operating Area
Operating Area | Amount (1) ($ millions) |
Wells On-stream (net) |
Canada | $485 | 234 |
United States (2) | $130 | 15 |
Total | $615 | 249 |
2023 Breakdown of Exploration and Development Expenditures
Classification | Amount (1) ($ millions) |
Drill, completion and equipping | $555 |
Facilities | $35 |
Land, seismic and other | $10 |
GHG Mitigation | $15 |
Total | $615 |
(1) Reflects the mid-point of the exploration and development expenditures guidance range.
(2) Based on a Canadian-U.S. exchange rate of 1.34 CAD/USD.