Baytex Announces 2024 Budget And 5-Year Outlook With Continued Focus On Free Cash Flow Generation And Shareholder Returns; 2024 Exploration And Development Expenditures Of $1.2B-$1.3B Designed To Generate Average Annual Production Of 150K-156K Barrels/Day

Baytex Energy Corp. ("Baytex") (TSX:BTE) (NYSE:BTE) announces that its Board of Directors has approved a budget for 2024 exploration and development expenditures of $1.2 to $1.3 billion, which is designed to generate average annual production of 150,000 to 156,000 boe/d.

"Our 2024 budget and five-year outlook demonstrates the strength of our diversified oil-weighted portfolio in western Canada and the Eagle Ford shale in Texas. In 2024, we intend to progress the Pembina Duvernay, further delineate our Clearwater and Mannville heavy oil position, and deliver strong drilling and completion performance in the Eagle Ford. Our business is underpinned by strong drilling economics and greater than ten years inventory across our portfolio, and our commitment to shareholder returns is expected to drive meaningful per-share growth in production and free cash flow," commented Eric T. Greager, President and Chief Executive Officer.

Highlights of the 2024 Budget

• Free Cash Flow(4) Based on the forward strip(2), we expect to generate approximately $530 million of free cash flow in 2024.

• Reinvestment Rate(1) Exploration and development expenditures represent approximately 60% of forecast EBITDA(2)(3).

• Production Growth. Our 2024 production guidance (at the mid-point) represents a 1% to 2% increase from forecast H2/2023 production guidance (7% increase on a per-share basis(6)), adjusted for the previously announced sale of our Forgan and Plato assets in the Viking.

• Capital Efficiency(7) Our capital program is expected to generate capital efficiencies of approximately $22,000 per boe/d across the portfolio.

• Capital Allocation. We plan to direct 60% to 65% of our exploration and development expenditures to our Eagle Ford light oil assets in the United States and 35% to 40% to our Canadian assets. In Canada, our capital program is expected to be equally split between light oil and heavy oil.     

• Shareholder Returns. We intend to allocate 50% of free cash flow to share buybacks and our base dividend and 50% of free cash flow to further strengthen the balance sheet. 

Tax Reassessment Update

On November 13, 2023 we provided an update with respect to certain tax reassessments received from the Canada Revenue Agency. While we remain confident in our position, we have purchased $272.5 million of insurance coverage to help manage the litigation risk associated with this matter. The policy premium (inclusive of applicable taxes) was approximately $60 million.

(1) Reinvestment rate is a supplementary financial measure calculated as exploration and development expenditures expressed as a percentage of EBITDA for the applicable period.

(2) 2024 pricing assumptions: WTI - US$73/bbl; WCS differential - US$16/bbl; NYMEX Gas -  US$2.90/MMbtu; Exchange Rate (CAD/USD) - 1.35.

(3) Calculated in accordance with the amended credit facilities agreement which is available on SEDAR+ at www.sedarplus.ca.

(4) 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.

(5) Capital management measure. Refer to the Specified Financial Measures section in this press release for further information.

(6) Includes impact of share buyback program.

(7) Supplementary financial measure calculated as total exploration and development expenditures divided by the initial first year production profiles of developed wells for the applicable period.

2024 Budget

The 2024 capital program is expected to be 55% weighted to the first half of the year. Based on the mid-point of our production guidance of 153,000 boe/d, approximately 60% of our production is in the Eagle Ford with the remaining 40% in Canada. Our production mix is forecast to be 84% liquids (46% light oil and condensate, 25% heavy oil and 13% natural gas liquids) and 16% natural gas, based on a 6:1 natural gas-to-oil equivalency.

In 2024, we intend to progress the Pembina Duvernay, further delineate our Clearwater and Mannville heavy oil acreage, and deliver strong drilling and completion performance in the Eagle Ford.

In our Canadian light oil business unit, we expect to bring onstream seven net wells in the Pembina Duvernay and 93 net wells in the Viking. In our Canadian heavy oil business unit, we expect to bring onstream 35 net Peavine Clearwater wells, 9 net wells at Peace River, 40 net Lloydminster Mannville wells and 4.5 net wells at Morinville. Our budget also includes continued exploration across our heavy oil portfolio with up to 14 stratigraphic test wells planned. In our U.S. light oil business unit, we expect to bring 62 net Eagle Ford wells onstream, including 46 net operated wells.  For 2024, we are targeting an 8% improvement in our operated drilling and completion costs per completed lateral foot over 2023. 

Shareholder Returns

In 2023, we increased direct shareholder returns to 50% of free cash flow(1) which allowed us to increase the value of our share buyback program and introduce a dividend. The remainder of our free cash flow continues to be allocated to the balance sheet.

Our normal course issuer bid allows for the purchase of up to 68.4 million common shares during the 12-month period ending June 28, 2024. Through November 30, 2023, we repurchased 39.1 million common shares for $215 million, representing 4.5% of our shares outstanding, at an average price of $5.49 per share. In addition, we currently pay a quarterly dividend of $0.0225 per share ($0.09 per share annualized). 

Five-Year Outlook

Our updated five-year outlook (2024 to 2028) demonstrates our financial and operational sustainability and ability to generate meaningful free cash flow. We are committed to a disciplined, returns-based capital allocation philosophy that drives increased shareholder returns on a per-share basis. We expect to generate annual production growth of 1% to 4% during the plan period, with production reaching approximately 170,000 boe/d in 2028.

Highlights of our five-year outlook, based on a constant US$70/bbl WTI price(2), include:

• 60% reinvestment rate(3) with annual exploration and development expenditures of $1.2 to $1.4 billion.

• Production per share(4) (boe/d per thousand shares) increases approximately 35% from 2024 to 2028.

• Free cash flow per share(1)(4) increases approximately 90% from 2024 to 2028.

• Free cash flow(1) over the five-year outlook totals approximately $2.9 billion.

• Return of capital(1) over the five-year outlook, including dividends and share repurchases, totals approximately $1.7 billion.

• Total debt(5) declines 55% to approximately $1 billion in 2028 and total debt to EBITDA(5) ratio improves to 0.5x.

To illustrate our sensitivity to changes in WTI, based on a constant US$80/bbl and US$90/bbl WTI price, over the five-year outlook, we expect to generate free cash flow(1) of $4.6 billion and $6.0 billion, respectively.

(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) Five-year outlook pricing assumptions: WCS differential - US$15/bbl in 2024, US$12/bbl in 2025-2028; NYMEX Gas -  US$3.50/MMbtu in 2024, US$3.75/MMbtu in 2025-2028; Exchange Rate (CAD/USD) - 1.35.

(3) Reinvestment rate is calculated as E&D expenditures expressed as a percentage of EBITDA for the applicable period.

(4) Includes impact of share buyback program.

(5) Calculated in accordance with the amended credit facilities agreement which is available on SEDAR+ at www.sedarplus.ca. 

Risk Management

We employ a disciplined commodity hedging program to help mitigate the volatility in revenue due to changes in commodity prices.

For the first half of 2024, we have entered into hedges on approximately 40% of our net crude oil exposure utilizing two way collars with a floor price of US$60/bbl and a ceiling price of US$100/bbl. For the second half of 2024, we have entered into hedges on approximately 25% of our net crude oil exposure utilizing two way collars with a floor price of US$60/bbl and a ceiling price of US$98/bbl.

2024 Guidance

The following table summarizes our 2024 annual guidance.

2024 Adjusted Funds Flow (3) Sensitivities

Exploration and Development Expenditures and Wells On-Stream

(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) Supplementary financial measure calculated as operating, transportation, general and administrative, cash interest expense, or current income taxes 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.

(4) Reflects the mid-point of the exploration and development expenditures guidance range.

(5) Based on a Canadian-U.S. exchange rate of 1.35 CAD/USD.

2024 Breakdown of Exploration and Development Expenditures

(1) Reflects the mid-point of the exploration and development expenditures guidance range.