Baytex Energy (BTE) 6-K Condensed Consolidated Statements of Financial Position

Baytex Energy Corp.

Condensed Consolidated Statements of Financial Position

(thousands of Canadian dollars) (unaudited)

		As at
	Notes	September 30, 2019			December 31, 2018
ASSETS
Current assets
Trade and other receivables		$	171,337		$	111,564
Financial derivatives	18	45,318			79,582
		216,655			191,146
Non-current assets
Financial derivatives	18	3,342			—
Exploration and evaluation assets	5	337,586			358,935
Oil and gas properties	6	5,654,365			5,817,889
Other plant and equipment		8,042			9,228
Lease assets	3	13,885			—
		$	6,233,875		$	6,377,198
LIABILITIES
Current liabilities
Trade and other payables		$	212,404		$	258,114
Lease obligations	3, 9	5,659			—
Onerous contracts	3	—			1,986
		218,063			260,100
Non-current liabilities
Bank loan	7	569,447			520,700
Long-term notes	8	1,349,589			1,583,240
Lease obligations	3, 9	8,429			—
Asset retirement obligations	10	689,361			646,898
Deferred income tax liability		291,849			310,836
		3,126,738			3,321,774
SHAREHOLDERS’ EQUITY
Shareholders' capital	11	5,717,237			5,701,516
Contributed surplus		17,661			19,137
Accumulated other comprehensive income		600,029			667,874
Deficit		(3,227,790		)	(3,333,103		)
		3,107,137			3,055,424
		$	6,233,875		$	6,377,198

See accompanying notes to the condensed consolidated interim unaudited financial statements.

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Baytex Energy Corp.

Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)

(thousands of Canadian dollars, except per common share amounts and weighted average common shares) (unaudited)

		Three Months Ended September 30						Nine Months Ended September 30
	Notes	2019			2018			2019			2018
Revenue, net of royalties
Petroleum and natural gas sales	12	$	424,600		$	436,761		$	1,360,024		$	1,070,433
Royalties		(75,017		)	(91,945		)	(242,959		)	(233,989		)
		349,583			344,816			1,117,065			836,444
Expenses
Operating		97,377			77,698			298,143			213,735
Transportation		9,903			9,520			35,102			25,875
Blending and other		12,950			19,548			50,628			55,077
General and administrative		9,934			10,158			35,576			31,729
Transaction costs		—			13,066			—			13,066
Exploration and evaluation	5	2,138			510			8,667			3,887
Depletion and depreciation		180,422			144,501			551,548			364,654
Share-based compensation	13	3,401			7,180			14,245			15,010
Financing and interest	16	31,766			30,029			97,049			86,825
Financial derivatives (gain) loss	18	(28,523		)	30,900			(21,742		)	135,243
Foreign exchange loss (gain)	17	14,237			(20,943		)	(37,978		)	40,023
Gain on dispositions		(18		)	(34		)	(1,075		)	(1,764		)
Other income		(738		)	(302		)	(5,044		)	(869		)
		332,849			321,831			1,025,119			982,491
Net income (loss) before income taxes		16,734			22,985			91,946			(146,047		)
Income tax expense (recovery)	15
Current income tax expense (recovery)		501			—			1,591			(71		)
Deferred income tax expense (recovery)		1,082			(4,427		)	(14,958		)	(51,905		)
		1,583			(4,427		)	(13,367		)	(51,976		)
Net income (loss)		$	15,151		$	27,412		$	105,313		$	(94,071	)
Other comprehensive income (loss)
Foreign currency translation adjustment		25,344			(39,360		)	(67,845		)	77,096
Comprehensive income (loss)		$	40,495		$	(11,948	)	$	37,468		$	(16,975	)
Net income (loss) per common share	14
Basic		$	0.03		$	0.07		$	0.19		$	(0.33	)
Diluted		$	0.03		$	0.07		$	0.19		$	(0.33	)
Weighted average common shares (000's)	14
Basic		557,888			375,435			556,651			283,302
Diluted		560,888			378,763			560,438			283,302

See accompanying notes to the condensed consolidated interim unaudited financial statements.

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Baytex Energy Corp.

Condensed Consolidated Statements of Changes in Equity

(thousands of Canadian dollars) (unaudited)

	Shareholders’ capital			Contributed surplus			Accumulated other comprehensive income			Deficit			Total equity
Balance at December 31, 2017	$	4,443,576		$	15,999		$	463,104		$	(3,007,794	)	$	1,914,885
Issued on corporate acquisition	1,238,995			3,100			—			—			1,242,095
Issuance costs, net of tax	(316		)	—			—			—			(316		)
Vesting of share awards	19,272			(19,272		)	—			—			—
Share-based compensation	—			15,010			—			—			15,010
Comprehensive income (loss) for the period	—			—			77,096			(94,071		)	(16,975		)
Balance at September 30, 2018	$	5,701,527		$	14,837		$	540,200		$	(3,101,865	)	$	3,154,699
Balance at December 31, 2018	$	5,701,516		$	19,137		$	667,874		$	(3,333,103	)	$	3,055,424
Vesting of share awards	15,721			(15,721		)	—			—			—
Share-based compensation	—			14,245			—			—			14,245
Comprehensive income (loss) for the period	—			—			(67,845		)	105,313			37,468
Balance at September 30, 2019	$	5,717,237		$	17,661		$	600,029		$	(3,227,790	)	$	3,107,137

See accompanying notes to the condensed consolidated interim unaudited financial statements.

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Baytex Energy Corp.

Condensed Consolidated Statements of Cash Flows

(thousands of Canadian dollars) (unaudited)

		Three Months Ended September 30						Nine Months Ended September 30
	Notes	2019			2018			2019			2018
CASH PROVIDED BY (USED IN):
Operating activities
Net income (loss) for the period		$	15,151		$	27,412		$	105,313		$	(94,071	)
Adjustments for:
Share-based compensation	13	3,401			7,180			14,245			15,010
Unrealized foreign exchange loss (gain)	17	13,855			(20,583		)	(38,404		)	38,136
Exploration and evaluation	5	2,138			510			8,667			3,887
Depletion and depreciation		180,422			144,501			551,548			364,654
Non-cash financing and accretion	16	5,014			3,686			14,021			10,441
Unrealized financial derivatives (gain) loss	18	(7,666		)	46			30,922			65,140
Gain on dispositions		(18		)	(34		)	(1,075		)	(1,764		)
Deferred income tax expense (recovery)		1,082			(4,427		)	(14,958		)	(51,905		)
Payments on onerous contracts		—			(147		)	—			(439		)
Asset retirement obligations settled	10	(1,134		)	(3,028		)	(10,860		)	(9,215		)
Change in non-cash working capital		(17,275		)	(1,025		)	(59,499		)	(23,633		)
		194,970			154,091			599,920			316,241
Financing activities
Increase (decrease) in bank loan		155,199			(38,305		)	50,445			(43,348		)
Common share issuance costs		—			(433		)	—			(433		)
Payments on lease obligations	9	(1,390		)	—			(4,402		)	—
Redemption of long-term notes	8	(198,128		)	—			(198,128		)	—
		(44,319		)	(38,738		)	(152,085		)	(43,781		)
Investing activities
Additions to exploration and evaluation assets	5	(1,047		)	(2,462		)	(2,441		)	(3,864		)
Additions to oil and gas properties	6	(138,038		)	(136,733		)	(396,733		)	(307,695		)
Additions to other plant and equipment		(19		)	(1,395		)	(398		)	(1,902		)
Property acquisitions		(120		)	—			(2,193		)	(187		)
Property swaps		—			—			(524		)	—
Proceeds from dispositions		150			—			1,100			2,234
Change in non-cash working capital		(11,577		)	70,396			(46,646		)	84,113
		(150,651		)	(70,194		)	(447,835		)	(227,301		)
Change in cash		—			45,159			—			45,159
Cash, beginning of period		—			—			—			—
Cash, end of period		$	—		$	45,159		$	—		$	45,159
Supplementary information
Interest paid		$	22,315		$	20,708		$	78,493		$	70,406
Income taxes paid		$	76		$	10		$	1,158		$	—

See accompanying notes to the condensed consolidated interim unaudited financial statements.

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Baytex Energy Corp.

Notes to the Condensed Consolidated Interim Financial Statements

For the periods ended September 30, 2019 and 2018

(all tabular amounts in thousands of Canadian dollars, except per common share amounts) (unaudited)

1. REPORTING ENTITY

Baytex Energy Corp. (the “Company” or “Baytex”) is an oil and gas corporation engaged in the acquisition, development and production of oil and natural gas in the Western Canadian Sedimentary Basin and the United States. The Company’s common shares are traded on the Toronto Stock Exchange and the New York Stock Exchange under the symbol BTE. The Company’s head and principal office is located at 2800, 520 – 3rd Avenue S.W., Calgary, Alberta, T2P 0R3, and its registered office is located at 2400, 525 – 8th Avenue S.W., Calgary, Alberta, T2P 1G1.

2. BASIS OF PRESENTATION

The condensed consolidated interim financial statements ("consolidated financial statements") have been prepared in accordance with International Accounting Standards 34, Interim Financial Reporting, under International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board (the "IASB"). These consolidated financial statements do not include all the necessary annual disclosures as prescribed by IFRS and should be read in conjunction with the annual consolidated financial statements as at and for the year ended December 31, 2018.

The consolidated financial statements were approved by the Board of Directors of Baytex on October 31, 2019.

The consolidated financial statements have been prepared on a historical cost basis, with the exception of derivative financial instruments which have been measured at fair value. The consolidated financial statements are presented in Canadian dollars which is the functional currency of the Company. All financial information is rounded to the nearest thousand, except per share amounts or when otherwise indicated.

The audited consolidated financial statements of the Company as at and for the year ended December 31, 2018 are available through its filings on SEDAR at www.sedar.com and through the U.S. Securities and Exchange Commission at www.sec.gov.

3. SIGNIFICANT ACCOUNTING POLICIES

The accounting policies, critical accounting judgments and significant estimates used in preparation of the 2018 annual financial statements have been applied in the preparation of these consolidated financial statements, except for the adoption of IFRS 16 Leases as described below.

Changes in significant accounting policies

Leases

Baytex adopted IFRS 16 Leases on January 1, 2019 using the modified retrospective approach. The modified retrospective approach does not require restatement of comparative financial information as it recognizes the cumulative effect on transition as an adjustment to opening retained earnings and applies the standard prospectively. Comparative information in the Company's consolidated statements of financial position, consolidated statements of income (loss) and comprehensive income (loss), consolidated statements of changes in equity, and consolidated statements of cash flows has not been restated.

The cumulative effect of initial application of the standard was to recognize an $18.0 million increase to right-of-use assets ("lease assets"), a $2.0 million reduction of onerous contracts and a $18.0 million increase to lease obligations. Initial measurement of the lease obligation was determined based on the remaining lease payments at January 1, 2019 using a weighted averaged incremental borrowing rate of approximately 3.9%. The lease assets were initially recognized at an amount equal to the lease obligations. The lease assets and lease obligations recognized largely relate to the Company's head office lease in Calgary.

The adoption of IFRS 16 using the modified retrospective approach allowed the Company to use the following practical expedients in determining the opening transition adjustment:

• The weighted average incremental borrowing rate in effect at January 1, 2019 was used as opposed to the rate in effect at inception of the lease;

• Leases with a remaining term of less than 12 months as at January 1, 2019 were accounted for as short-term leases;

• Leases with an underlying asset of low value are recorded as an expense and not recognized as a lease asset;

• Leases with similar characteristics were accounted for as a portfolio using a single discount rate; and

• Used the Company's previous assessment under IAS 37, "Provisions, Contingent Liabilities and Contingent Assets' for onerous contracts instead of reassessing the lease assets for impairment at January 1, 2019.

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The Company's accounting policy for leases effective January 1, 2019 is set forth below. The Company applied IFRS 16 using the modified retrospective approach. Comparative information continues to be accounted for in accordance with the Company's previous accounting policy found in the 2018 annual financial statements.

Leases

A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. A lease obligation and corresponding right-of-use asset ("lease asset") are recognized at the commencement of the lease. The present value of the lease obligation is based on the future lease payments and is discounted using the Company's incremental borrowing rate when the rate implicit in the lease is not readily available. The Company uses a single discount rate for a portfolio of leases with similar characteristics. The lease asset is recognized at the amount of the lease obligation, adjusted for lease incentives received and initial direct costs, on commencement of the lease. Depreciation is recognized on the lease asset over the shorter of the estimated useful life of the asset or the lease term.

Lease payments are allocated between the liability and interest expense. Interest expense is recognized on the lease obligations using the effective interest rate method and payments are applied against the lease obligation.

The preparation of the consolidated financial statements in accordance with IFRS requires management to make judgments, estimates, and assumptions that affect the reported amount of assets, liabilities, income, and expenses. Actual results could differ significantly from these estimates. Management has made the following judgments, estimates, and assumptions related to the accounting for leases.

The carrying amounts of the right-of-use assets, lease obligations, and the resulting interest and depletion and depreciation expense are based on the implicit interest rate within the lease arrangement or, if this information is unavailable, the incremental borrowing rate. Incremental borrowing rates are based on judgments including economic environment, term, and the underlying risk inherent to the asset.

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4. SEGMENTED FINANCIAL INFORMATION

Baytex'sreportable segments are determined based on the geographic location and nature of the underlying operations:

• Canada includes the exploration for, and the development and production of, crude oil and natural gas in Western Canada;

• U.S. includes the exploration for, and the development and production of, crude oil and natural gas in the United States; and

• Corporate includes corporate activities and items not allocated between operating segments.

	Canada						U.S.						Corporate						Consolidated
Three Months Ended September 30	2019			2018			2019			2018			2019			2018			2019			2018
Revenue, net of royalties
Petroleum and natural gas sales	$	258,769		$	217,805		$	165,831		$	218,956		$	—		$	—		$	424,600		$	436,761
Royalties	(26,193		)	(26,139		)	(48,824		)	(65,806		)	—			—			(75,017		)	(91,945		)
	232,576			191,666			117,007			153,150			—			—			349,583			344,816
Expenses
Operating	73,701			54,710			23,676			22,988			—			—			97,377			77,698
Transportation	9,903			9,520			—			—			—			—			9,903			9,520
Blending and other	12,950			19,548			—			—			—			—			12,950			19,548
General and administrative	—			—			—			—			9,934			10,158			9,934			10,158
Transaction costs	—			—			—			—			—			13,066			—			13,066
Exploration and evaluation	2,138			510			—			—			—			—			2,138			510
Depletion and depreciation	116,316			77,083			63,572			66,830			534			588			180,422			144,501
Share-based compensation	—			—			—			—			3,401			7,180			3,401			7,180
Financing and interest	—			—			—			—			31,766			30,029			31,766			30,029
Financial derivatives (gain) loss	—			—			—			—			(28,523		)	30,900			(28,523		)	30,900
Foreign exchange loss (gain)	—			—			—			—			14,237			(20,943		)	14,237			(20,943		)
Gain on dispositions	(18		)	(34		)	—			—			—			—			(18		)	(34		)
Other income	—			—			—			—			(738		)	(302		)	(738		)	(302		)
	214,990			161,337			87,248			89,818			30,611			70,676			332,849			321,831
Net income (loss) before income taxes	17,586			30,329			29,759			63,332			(30,611		)	(70,676		)	16,734			22,985
Income tax expense (recovery)
Current income tax expense	—			—			501			—			—			—			501			—
Deferred income tax expense (recovery)	4,734			4,134			(203		)	9,278			(3,449		)	(17,839		)	1,082			(4,427		)
	4,734			4,134			298			9,278			(3,449		)	(17,839		)	1,583			(4,427		)
Net income (loss)	$	12,852		$	26,195		$	29,461		$	54,054		$	(27,162	)	$	(52,837	)	$	15,151		$	27,412
Total oil and natural gas capital expenditures(1)	$	96,744		$	94,477		$	42,311		$	44,718		$	—		$	—		$	139,055		$	139,195

(1) Includes acquisitions and property swaps, net of proceeds from divestitures.

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	Canada						U.S.						Corporate						Consolidated
Nine Months Ended September 30	2019			2018			2019			2018			2019			2018			2019			2018
Revenue, net of royalties
Petroleum and natural gas sales	$	817,506		$	471,742		$	542,518		$	598,691		$	—		$	—		$	1,360,024		$	1,070,433
Royalties	(82,313		)	(55,471		)	(160,646		)	(178,518		)	—			—			(242,959		)	(233,989		)
	735,193			416,271			381,872			420,173			—			—			1,117,065			836,444
Expenses
Operating	221,680			147,054			76,463			66,681			—			—			298,143			213,735
Transportation	35,102			25,875			—			—			—			—			35,102			25,875
Blending and other	50,628			55,077			—			—			—			—			50,628			55,077
General and administrative	—			—			—			—			35,576			31,729			35,576			31,729
Transaction costs	—			—			—			—			—			13,066			—			13,066
Exploration and evaluation	8,667			3,887			—			—			—			—			8,667			3,887
Depletion and depreciation	347,661			170,514			202,303			192,212			1,584			1,928			551,548			364,654
Share-based compensation	—			—			—			—			14,245			15,010			14,245			15,010
Financing and interest	—			—			—			—			97,049			86,825			97,049			86,825
Financial derivatives (gain) loss	—			—			—			—			(21,742		)	135,243			(21,742		)	135,243
Foreign exchange (gain) loss	—			—			—			—			(37,978		)	40,023			(37,978		)	40,023
Gain on dispositions	(1,075		)	(1,764		)	—			—			—			—			(1,075		)	(1,764		)
Other income	—			—			—			—			(5,044		)	(869		)	(5,044		)	(869		)
	662,663			400,643			278,766			258,893			83,690			322,955			1,025,119			982,491
Net income (loss) before income taxes	72,530			15,628			103,106			161,280			(83,690		)	(322,955		)	91,946			(146,047		)
Income tax expense (recovery)
Current income tax expense (recovery)	—			—			1,591			(71		)	—			—			1,591			(71		)
Deferred income tax expense (recovery)	8,842			(197		)	4,505			15,951			(28,305		)	(67,659		)	(14,958		)	(51,905		)
	8,842			(197		)	6,096			15,880			(28,305		)	(67,659		)	(13,367		)	(51,976		)
Net income (loss)	$	63,688		$	15,825		$	97,010		$	145,400		$	(55,385	)	$	(255,296	)	$	105,313		$	(94,071	)
Total oil and natural gas capital expenditures(1)	$	271,520		$	174,563		$	129,271		$	134,949		$	—		$	—		$	400,791		$	309,512

(1) Includes acquisitions and property swaps, net of proceeds from divestitures.

As at	September 30, 2019		December 31, 2018
Canadian assets	$	3,758,068	$	3,739,029
U.S. assets	2,467,765		2,628,941
Corporate assets	8,042		9,228
Total consolidated assets	$	6,233,875	$	6,377,198

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5. EXPLORATION AND EVALUATION ASSETS

	September 30, 2019			December 31, 2018
Balance, beginning of period	$	358,935		$	272,974
Capital expenditures	2,441			10,567
Corporate acquisition	—			97,858
Property acquisitions	1,473			514
Divestitures	(132		)	(1,021		)
Property swaps	417			—
Exploration and evaluation expense	(8,667		)	(21,729		)
Transfer to oil and gas properties	(12,421		)	(13,866		)
Foreign currency translation	(4,460		)	13,638
Balance, end of period	$	337,586		$	358,935

6. OIL AND GAS PROPERTIES

	Cost			Accumulated depletion			Net book value
Balance, December 31, 2017	$	7,932,327		$	(3,974,018	)	$	3,958,309
Capital expenditures	485,154			—			485,154
Corporate acquisition	1,748,368			—			1,748,368
Property acquisitions	202			—			202
Transfers from exploration and evaluation assets	13,866			—			13,866
Change in asset retirement obligations	238,662			—			238,662
Divestitures	(15		)	—			(15		)
Impairment	—			(285,341		)	(285,341		)
Foreign currency translation	325,969			(110,651		)	215,318
Depletion	—			(556,634		)	(556,634		)
Balance, December 31, 2018	$	10,744,533		$	(4,926,644	)	$	5,817,889
Capital expenditures	396,733			—			396,733
Property acquisitions	1,328			—			1,328
Transfers from exploration and evaluation assets	12,421			—			12,421
Change in asset retirement obligations (note 10)	45,342			—			45,342
Divestitures	(2,069		)	1,690			(379		)
Property swaps	(5,754		)	4,694			(1,060		)
Foreign currency translation	(121,053		)	50,489			(70,564		)
Depletion	—			(547,345		)	(547,345		)
Balance, September 30, 2019	$	11,071,481		$	(5,417,116	)	$	5,654,365

7. BANK LOAN

	September 30, 2019			December 31, 2018
Bank loan - U.S. dollar denominated(1)	$	269,205		$	122,388
Bank loan - Canadian dollar denominated	301,587			399,906
Bank loan - principal	570,792			522,294
Unamortized debt issuance costs	(1,345		)	(1,594		)
Bank loan	$	569,447		$	520,700

(1) U.S. dollar denominated bank loan balance was US$203.3 million as at September 30, 2019 (December 31, 2018 - US$89.7 million).

Baytex has US$575 million of revolving credit facilities (the "Revolving Facilities") and a $300 million non-revolving term loan (the "Term Loan") (collectively the "Credit Facilities"). On May 2, 2019, Baytex amended its Credit Facilities to extend maturity from June

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4, 2020 to April 2, 2021. These facilities will automatically be extended to June 4, 2021 providing Baytex has either refinanced, or has the ability to repay, the outstanding 2021 long-term notes with existing credit capacity as of April 1, 2021.

The extendible secured Revolving Facilities are comprised of a US$50 million operating loan (previously US$35 million) and a US$325 million syndicated revolving loan for Baytex (previously US$340 million) and a US$200 million syndicated revolving loan for Baytex's wholly-owned subsidiary, Baytex Energy USA, Inc. and matures on April 2, 2021. The Term Loan is secured by the assets of Baytex's wholly-owned subsidiary, Baytex Energy Limited Partnership and matures on April 2, 2021.

The Credit Facilities are not borrowing base facilities and do not require annual or semi-annual reviews. The Credit Facilities contain standard commercial covenants in addition to the financial covenants detailed below. There are no mandatory principal payments required prior to maturity which could be extended upon Baytex's request. Advances (including letters of credit) under the Credit Facilities can be drawn in either Canadian or U.S. funds and bear interest at the bank’s prime lending rate, bankers’ acceptance discount rates or London Interbank Offered Rates, plus applicable margins. In the event that Baytex breaches any of the covenants under the Credit Facilities, Baytex may be required to repay, refinance or renegotiate the loan terms and may be restricted from taking on further debt or paying dividends to shareholders.

At September 30, 2019, Baytex had $15.4 million of outstanding letters of credit (December 31, 2018 - $14.6 million) under the Credit Facilities.

At September 30, 2019, Baytex was in compliance with all of the covenants contained in the Credit Facilities. The following table summarizes the financial covenants applicable to the Revolving Facilities and Baytex's compliance therewith as at September 30, 2019.

Covenant Description	Position as at September 30, 2019	Covenant
Senior Secured Debt(1) to Bank EBITDA(2) (Maximum Ratio)	0.66:1.00	3.50:1.00
Interest Coverage(3) (Minimum Ratio)	8.02:1.00	2.00:1.00

(1) "Senior Secured Debt" is defined as the principal amount of the bank loan and other secured obligations identified in the credit agreement. As at September 30, 2019, the Company's Senior Secured Debt totaled $586.2 million which includes $570.8 million of principal amounts outstanding and $15.4 million of letters of credit.

(2) Bank EBITDA is calculated based on terms and definitions set out in the credit agreement which adjusts net income or loss for financing and interest expenses, unrealized gains and losses on financial derivatives, income tax, non-recurring losses, payments on lease obligations, certain specific unrealized and non-cash transactions (including depletion, depreciation, exploration and evaluation expenses, unrealized gains and losses on financial derivatives and foreign exchange and share-based compensation) and is calculated based on a trailing twelve month basis including the impact of material acquisitions as if they had occurred at the beginning of the twelve month period. Bank EBITDA for the twelve months ended September 30, 2019 was $889.4 million.

(3) Interest coverage is computed as the ratio of Bank EBITDA to financing and interest expenses, excluding non-cash interest and accretion on asset retirement obligations, and is calculated on a trailing twelve month basis. Financing and interest expenses for the twelve months ended September 30, 2019 were $111.0 million.

8. LONG-TERM NOTES

	September 30, 2019			December 31, 2018
6.75% notes (US$150,000 – principal) due February 17, 2021	$	—		$	204,683
5.125% notes (US$400,000 – principal) due June 1, 2021	529,740			545,820
6.625% notes (Cdn$300,000 – principal) due July 19, 2022	300,000			300,000
5.625% notes (US$400,000 – principal) due June 1, 2024	529,740			545,820
Total long-term notes - principal	1,359,480			1,596,323
Unamortized debt issuance costs	(9,891		)	(13,083		)
Total long-term notes - net of unamortized debt issuance costs	$	1,349,589		$	1,583,240

On September 13, 2019, Baytex completed the early redemption of the US$150,000 principal amount of 6.75% senior unsecured notes, due February 17, 2021. The total principal payment was $198.1 million.

The long-term notes do not contain any significant financial maintenance covenants. The long-term notes contain a debt incurrence covenant that restricts the Company's ability to raise additional debt beyond the existing credit facilities and long-term notes unless the Company maintains a minimum fixed charge coverage ratio (computed as the ratio of Bank EBITDA (as defined in note 7) to financing and interest expenses on a trailing twelve month basis) of 2.50:1.00. At September 30, 2019, the fixed charge coverage ratio was 8.02:1.00.

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9. LEASE OBLIGATIONS

Baytex had the following future commitments associated with its lease obligations at September 30, 2019.

	September 30, 2019
Less than 1 year	$	6,102
1 - 3 years	8,517
3 - 5 years	196
After 5 years	—
Total lease payments	14,815
Amounts representing interest over the term of the lease	(727		)
Present value of net lease payments	14,088
Less current portion of lease obligations	5,659
Non-current portion of lease obligations	$	8,429

The Company recorded interest related to its lease obligations of $0.1 millionand$0.5 million for the three and nine months ended September 30, 2019. The Company recorded lease payments of $1.4 millionand $4.4 million for the three and nine months ended September 30, 2019.

10. ASSET RETIREMENT OBLIGATIONS

	September 30, 2019			December 31, 2018
Balance, beginning of period	$	646,898		$	368,995
Liabilities incurred	16,873			12,537
Liabilities settled	(10,860		)	(14,035		)
Liabilities assumed from corporate acquisition	—			39,960
Liabilities acquired from property acquisitions	608			132
Liabilities divested	(424		)	(580		)
Property swaps	(1,229		)	—
Accretion (note 16)	10,268			10,914
Change in estimate	(2,435		)	33,453
Changes in discount rates and inflation rates(1)	30,904			192,672
Foreign currency translation	(1,242		)	2,850
Balance, end of period	$	689,361		$	646,898

(1) The discount and inflation rates at September 30, 2019 were 1.75%, compared to 2.15% and 2.00%, respectively, at December 31, 2018.

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11. SHAREHOLDERS' CAPITAL

The authorized capital of Baytex consists of an unlimited number of common shares without nominal or par value and 10.0 million preferred shares without nominal or par value, issuable in series. Baytex establishes the rights and terms of the preferred shares upon issuance. At September 30, 2019, no preferred shares have been issued by the Company and all common shares issued were fully paid.

The holders of common shares may receive dividends as declared from time to time and are entitled to one vote per share at any meetings of the holders of common shares. All common shares rank equally with regard to the Company's net assets in the event the Company is wound-up or terminated.

	Number of Common Shares (000s)	Amount
Balance, December 31, 2017	235,451	$	4,443,576
Vesting of share awards	3,343	19,496
Issued on corporate acquisition	315,266	1,238,995
Issuance costs, net of tax	—	(551		)
Balance, December 31, 2018	554,060	$	5,701,516
Vesting of share awards	3,912	15,721
Balance, September 30, 2019	557,972	$	5,717,237

12. PETROLEUM AND NATURAL GAS SALES

Petroleum and natural gas sales from contracts with customers for the Company's Canadian and U.S. operating segments is set forth in the following table.

	Three Months Ended September 30
	2019						2018
	Canada		U.S.		Total		Canada		U.S.		Total
Light oil and condensate	$	134,921	$	140,344	$	275,265	$	69,557	$	170,402	$	239,959
Heavy oil	117,961		—		117,961		139,305		—		139,305
NGL	1,486		11,045		12,531		4,147		30,508		34,655
Natural gas sales	4,401		14,442		18,843		4,796		18,046		22,842
Total petroleum and natural gas sales	$	258,769	$	165,831	$	424,600	$	217,805	$	218,956	$	436,761
	Nine Months Ended September 30
	2019						2018
	Canada		U.S.		Total		Canada		U.S.		Total
Light oil and condensate	$	409,117	$	442,763	$	851,880	$	79,894	$	476,086	$	555,980
Heavy oil	381,684		—		381,684		364,957		—		364,957
NGL	6,684		47,656		54,340		11,595		71,480		83,075
Natural gas sales	20,021		52,099		72,120		15,296		51,125		66,421
Total petroleum and natural gas sales	$	817,506	$	542,518	$	1,360,024	$	471,742	$	598,691	$	1,070,433

Included in accounts receivable at September 30, 2019 is $138.6 million (December 31, 2018 - $77.4 million) of accrued production revenue related to deliveries for periods ended prior to the reporting date.

13. SHARE AWARD INCENTIVE PLAN

The Company recorded compensation expense related to the share awards of $3.4 million and $14.2 million for the three and nine months ended September 30, 2019 ($7.2 million and $15.0 million for the three and nine months ended September 30, 2018).

The weighted average fair value of share awards granted was $2.63per restricted and performance award for the nine months ended September 30, 2019 ($4.04 per restricted and performance award for the nine months ended September 30, 2018).

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The number of share awards outstanding is detailed below:

(000s)	Number of restricted awards		Number of performance awards(1)		Total number of share awards
Balance, December 31, 2017	2,028		2,253		4,281
Granted	2,793		2,591		5,384
Assumed on corporate acquisition	302		257		559
Vested and converted to common shares	(1,682	)	(1,661	)	(3,343	)
Forfeited	(198	)	(167	)	(365	)
Balance, December 31, 2018	3,243		3,273		6,516
Granted	3,158		3,245		6,403
Vested and converted to common shares	(1,902	)	(2,010	)	(3,912	)
Forfeited	(281	)	(315	)	(596	)
Balance, September 30, 2019	4,218		4,193		8,411

(1) Based on underlying awards before applying the payout multiplier which can range from 0x to 2x.

Share Options

Baytex inherited share option plans pursuant to a business combination in 2018. No new grants will be made under the option plans.

The Company accounts for share options using the fair value method. Under this method, compensation is expensed over the vesting period for the share options, with a corresponding increase to contributed surplus.

Share options granted under the option plans had a maximum term of 3.5 years to expiry. One third of the options granted vest on each of the first, second, and third anniversaries of the date of grant. The following tables summarize the information about the share options.

(000s, except per common share amounts)	Number of options		Weighted average exercise price
Balance, December 31, 2017	—		$	—
Assumed on corporate acquisition	9,187		6.63
Forfeited/Expired	(4,322	)	6.57
Balance, December 31, 2018	4,865		$	6.70
Forfeited/Expired	(1,468	)	6.24
Balance, September 30, 2019	3,397		$	6.90

	Options Outstanding				Options Exercisable
Exercise price	Number outstanding at September 30, 2019 (000s)	Weighted average remaining life (years)	Weighted average exercise price		Number exercisable at September 30, 2019 (000s)	Weighted average exercise price
$5.00 - $7.00	1,957	1.09	$	6.32	1,175	$	6.40
$7.01 - $9.00	1,440	0.29	7.68		1,326	7.66
Total	3,397	0.75	$	6.90	2,501	$	7.07

14. NET INCOME (LOSS) PER SHARE

Baytex calculates basic income or loss per share based on the net income or loss attributable to shareholders using the weighted average number of shares outstanding during the period. Diluted income or loss per share amounts reflect the potential dilution that could occur if share awards and share options were converted. The treasury stock method is used to determine the dilutive effect of share awards and share options whereby the potential conversion of share awards and share options and the amount of compensation expense, if any, attributed to future services are assumed to be used to purchase common shares at the average market price during the period.

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	Three Months Ended September 30
	2019					2018
	Net income		Weighted average common shares (000s)	Net income per share		Net income			Weighted average common shares (000s)	Net income per share
Net income - basic	$	15,151	557,888	$	0.03	$	27,412		375,435	$	0.07
Dilutive effect of share awards	—		3,000	—		—			3,328	—
Dilutive effect of share options	—		—	—		—			—	—
Net income - diluted	$	15,151	560,888	$	0.03	$	27,412		378,763	$	0.07
	Nine Months Ended September 30
	2019					2018
	Net income		Weighted average common shares (000s)	Net income per share		Net loss			Weighted average common shares (000s)	Net loss per share
Net income (loss) - basic	$	105,313	556,651	$	0.19	$	(94,071	)	283,302	$	(0.33	)
Dilutive effect of share awards	—		3,787	—		—			—	—
Dilutive effect of share options	—		—	—		—			—	—
Net income (loss) - diluted	$	105,313	560,438	$	0.19	$	(94,071	)	283,302	$	(0.33	)

For the three and nine months ended September 30, 2019, no share awards were considered to be anti-dilutive. For the three months ended September 30, 2018, no share awards were considered to be anti-dilutive and for the nine months ended September 30, 2018, 6.7 million share awards were excluded from the calculation of diluted earnings per share as they were determined to be anti-dilutive. For the three and nine months ended September 30, 2019, 3.4 million share options were excluded from the calculation of diluted earnings per share as they were determined to be anti-dilutive (8.7 million for the three and nine months ended September 30, 2018).

15. INCOME TAXES

The provision for income taxes has been computed as follows:

	Nine Months Ended September 30
	2019			2018
Net income (loss) before income taxes	$	91,946		$	(146,047	)
Expected income taxes at the statutory rate of 26.72% (2018 – 27.00%)	24,568			(39,433		)
(Increase) decrease in income tax recovery resulting from:
Share-based compensation	3,806			3,963
Non-taxable portion of foreign exchange (gain) loss	(5,179		)	5,201
Effect of change in income tax rates	(10,573		)	—
Effect of rate adjustments for foreign jurisdictions	(20,965		)	(27,400		)
Effect of change in deferred tax benefit not recognized(1)	(4,803		)	5,201
Adjustments and assessments	(221		)	492
Income tax recovery	$	(13,367	)	$	(51,976	)

(1) A deferred income tax asset has not been recognized for accumulated allowable capital losses of $120 million (December 31, 2018 - $139 million) related to foreign exchange losses on long-term notes.

For the nine months ended September 30, 2019, the deferred tax recovery includes $10.6 million attributable to decreases in the Alberta provincial income tax rate for the periods from July 1, 2019 to January 1, 2022, which reduces the provincial rate to 11% effective July 1, 2019, and further reduces it by 1% on January 1st for each of the years 2020, 2021 and 2022, bringing the provincial rate to 8%.

As disclosed in the 2018 annual financial statements, Baytex received several reassessments from the Canada Revenue Agency (the “CRA”) in June 2016 which denied $591 million of non-capital loss deductions that Baytex had previously claimed. In September

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2016, Baytex filed notices of objection with the CRA appealing each reassessment received. There has been no change in the status of these reassessments since an Appeals Officer was assigned to our file in July 2018. Baytex remains confident that its original tax filings are correct and intends to defend those tax filings through the appeals process.

16. FINANCING AND INTEREST

	Three Months Ended September 30				Nine Months Ended September 30
	2019		2018		2019		2018
Interest on bank loan	$	4,650	$	4,108	$	15,171	$	10,297
Interest on long-term notes	21,955		22,235		67,382		66,087
Interest on lease obligations	147		—		475		—
Non-cash financing	1,607		866		3,753		2,991
Accretion on asset retirement obligations (note 10)	3,407		2,820		10,268		7,450
Financing and interest	$	31,766	$	30,029	$	97,049	$	86,825

17. FOREIGN EXCHANGE

	Three Months Ended September 30					Nine Months Ended September 30
	2019		2018			2019			2018
Unrealized foreign exchange loss (gain)	$	13,855	$	(20,583	)	$	(38,404	)	$	38,136
Realized foreign exchange loss (gain)	382		(360		)	426			1,887
Foreign exchange loss (gain)	$	14,237	$	(20,943	)	$	(37,978	)	$	40,023

18. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The Company's financial assets and liabilities are comprised of cash, trade and other receivables, trade and other payables, financial derivatives, bank loan, long-term notes, and lease obligations. The fair value of the bank loan is equal to the principal amount outstanding as the Credit Facilities bear interest at floating rates and credit spreads that are indicative of market rates. The fair value of the long-term notes is determined based on market prices.

The carrying value and fair value of the Company's financial instruments carried on the consolidated statements of financial position are classified into the following categories:

	September 30, 2019						December 31, 2018
	Carrying value			Fair value			Carrying value			Fair value			Fair Value Measurement Hierarchy
Financial Assets
FVTPL(1)
Financial derivatives	$	48,660		$	48,660		$	79,582		$	79,582		Level 2
Total	$	48,660		$	48,660		$	79,582		$	79,582
Financial assets at amortized cost
Trade and other receivables	$	171,337		$	171,337		$	111,564		$	111,564		—
Total	$	171,337		$	171,337		$	111,564		$	111,564
Financial Liabilities
Financial liabilities at amortized cost
Trade and other payables	$	(212,404	)	$	(212,404	)	$	(258,114	)	$	(258,114	)	—
Bank loan	(569,447		)	(570,792		)	(520,700		)	(522,294		)	—
Long-term notes	(1,349,589		)	(1,315,950		)	(1,583,240		)	(1,492,363		)	Level 1
Lease obligations	(14,088		)	(14,088		)	—			—			—
Total	$	(2,145,528	)	$	(2,113,234	)	$	(2,362,054	)	$	(2,272,771	)

(1) FVTPL means fair value through profit or loss.

There were no transfers between Level 1 and Level 2 during the nine months ended September 30, 2019 and 2018.

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Foreign Currency Risk

The carrying amounts of the Company’s U.S. dollar denominated monetary assets and liabilities recorded in entities with a Canadian dollar functional currency at the reporting date are as follows:

	Assets				Liabilities
	September 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
U.S. dollar denominated		US$41,939		US$80,857		US$853,897		US$963,351

Interest Rate Risk

Interest Rate Swaps

Baytex had the following interest rate swaps outstanding as of October 31, 2019:

Contract Type	Notional Amount	Maturity Date	Fixed Contract Price	Reference(1)	Fair Value ($ millions)
Interest rate swap	$100 million	October 2020	2.02%	CDOR	$	—
Total					$	—

(1) Canadian Dollar Offered Rate.

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Commodity Price Risk

Financial Derivative Contracts

Baytex had the following financial derivative contracts outstanding as of October 31, 2019:

	Remaining Period	Volume	Price/Unit(1)		Index	Fair Value(2) ($ millions)
Oil
Basis Swap	Oct 2019 to Dec 2019	7,000 bbl/d	WTI less US$17.59/bbl		WCS	$	(2.5	)
Basis Swap	Oct 2019 to Dec 2019	4,000 bbl/d	WTI less US$8.00/bbl		MSW	$	(0.8	)
Basis Swap	Jan 2020 to Dec 2020	2,500 bbl/d	WTI less US$16.10/bbl		WCS	$	0.2
Fixed - Sell	Oct 2019 to Dec 2019	12,000 bbl/d	US$62.35/bbl		WTI	$	12.4
Fixed - Sell	Oct 2019 to Dec 2019	2,000 bbl/d	US$65.50/bbl		Brent	$	1.7
Fixed - Sell (6)	Jan 2020 to Mar 2020	4,000 bbl/d	US$55.90/bbl		WTI	$	—
3-way option(3)	Oct 2019 to Dec 2019	2,000 bbl/d	US$49.00/US$61.70/US$75.00		WTI	$	1.8
3-way option(3)	Oct 2019 to Dec 2019	2,000 bbl/d	US$50.00/US$60.00/US$70.00		WTI	$	1.4
3-way option(3)	Oct 2019 to Dec 2019	1,000 bbl/d	US$55.00/US$65.00/US$72.60		WTI	$	1.0
3-way option(3)	Oct 2019 to Dec 2019	1,000 bbl/d	US$56.00/US$66.00/US$72.50		WTI	$	1.0
3-way option(3)	Oct 2019 to Dec 2019	1,000 bbl/d	US$56.00/US$66.00/US$73.00		WTI	$	1.0
3-way option(3)	Oct 2019 to Dec 2019	2,000 bbl/d	US$57.00/US$67.00/US$73.00		WTI	$	2.2
3-way option(3)	Oct 2019 to Dec 2019	2,000 bbl/d	US$58.00/US$68.00/US$74.00		WTI	$	2.2
3-way option(3)	Oct 2019 to Dec 2019	1,000 bbl/d	US$60.00/US$69.90/US$75.00		WTI	$	1.1
3-way option(3)	Oct 2019 to Dec 2019	1,000 bbl/d	US$61.00/US$71.00/US$76.00		WTI	$	1.2
3-way option(3)	Oct 2019 to Dec 2019	1,000 bbl/d	US$63.00/US$73.00/US$78.00		WTI	$	1.2
3-way option(3)	Oct 2019 to Dec 2019	1,000 bbl/d	US$55.50/US$65.50/US$75.50		Brent	$	0.7
3-way option(3)	Oct 2019 to Dec 2019	1,000 bbl/d	US$60.00/US$70.00/US$77.55		Brent	$	1.0
3-way option(3)	Oct 2019 to Dec 2019	1,000 bbl/d	US$63.00/US$73.00/US$83.00		Brent	$	1.1
3-way option(3)	Jan 2020 to Dec 2020	3,000 bbl/d	US$50.00/US$56.00/US$61.35		WTI	$	2.0
3-way option(3)	Jan 2020 to Dec 2020	3,000 bbl/d	US$50.00/US$57.00/US$60.00		WTI	$	2.4
3-way option(3)(6)	Jan 2020 to Dec 2020	3,000 bbl/d	US$50.00/US$57.00/US$62.00		WTI	$	—
3-way option(3)	Jan 2020 to Dec 2020	1,500 bbl/d	US$51.00/US$59.00/US$65.60		WTI	$	2.6
3-way option(3)	Jan 2020 to Dec 2020	1,500 bbl/d	US$51.00/US$59.00/US$66.00		WTI	$	2.7
3-way option(3)	Jan 2020 to Dec 2020	1,000 bbl/d	US$51.00/US$59.50/US$66.15		WTI	$	1.9
3-way option(3)	Jan 2020 to Dec 2020	1,000 bbl/d	US$51.00/US$60.00/US$65.60		WTI	$	2.1
3-way option(3)	Jan 2020 to Dec 2020	1,000 bbl/d	US$51.00/US$60.00/US$66.00		WTI	$	2.1
3-way option(3)	Jan 2020 to Dec 2020	1,000 bbl/d	US$51.00/US$60.00/US$66.05		WTI	$	2.1
3-way option(3)	Jan 2020 to Dec 2020	2,000 bbl/d	US$51.00/US$60.00/US$66.70		WTI	$	4.3
Swaption(4)	Jan 2020 to Dec 2020	1,000 bbl/d	US$62.50/bbl		WTI	$	(0.1	)
Swaption(4)	Jan 2020 to Dec 2020	1,000 bbl/d	US$63.20/bbl		WTI	$	(0.1	)
Swaption(5)	Jan 2021 to Dec 2021	3,000 bbl/d	US$60.75/bbl		WTI	$	(2.2	)
Swaption(5)(6)	Jan 2021 to Dec 2021	3,000 bbl/d	US$70.00/bbl		Brent	$	—
Natural Gas
Fixed - Sell	Oct 2019 to Dec 2019	15,000 mmbtu/d		US$2.97	NYMEX	$	0.9
Total						$	48.6
Financial derivatives - Current asset						45.3
Financial derivatives - Non-current asset						3.3

(1) Based on the weighted average price per unit for the period.

(2) Fair values as at September 30, 2019.

(3) Producer 3-way option consists of a sold put, a bought put and a sold call. To illustrate, in a US$50/US$60/US$70 contract, Baytex receives WTI plus US$10.00/bbl when WTI is at or below US$50/bbl; Baytex receives US$60.00/bbl when WTI is between US$50/bbl and US$60/bbl; Baytex receives the market price when WTI is between US$60/bbl and US$70/bbl; and Baytex receives US$70/bbl when WTI is above US$70/bbl.

(4) For these contracts, the counterparty has the right, if exercised on December 31, 2019, to enter a swap transaction for the remaining term, notional volume and fixed price per unit indicated above.

(5) For these contracts, the counterparty has the right, if exercised on December 30, 2020, to enter a swap transaction for the remaining term, notional volume and fixed price per unit indicated above.

(6) Contracts entered subsequent to September 30, 2019.

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The following table sets forth the realized and unrealized gains and losses recorded on financial derivatives.

	Three Months Ended September 30					Nine Months Ended September 30
	2019			2018		2019			2018
Realized financial derivatives (gain) loss	$	(20,857	)	$	30,854	$	(52,664	)	$	70,103
Unrealized financial derivatives (gain) loss	(7,666		)	46		30,922			65,140
Financial derivatives (gain) loss	$	(28,523	)	$	30,900	$	(21,742	)	$	135,243

Physical Delivery Contracts

The following physical delivery contracts were held for the purpose of delivery of non-financial items in accordance with the Company's expected sale requirements. Physical delivery contracts are not considered financial instruments and, as a result, no asset or liability has been recognized in the consolidated statements of financial position.

As at October 31, 2019, Baytex had committed to deliver the following volumes of raw bitumen to market on rail:

Remaining Period	Volume
Oct 2019	1,000 bbl/d
Oct 2019 to Dec 2019	11,000 bbl/d
Jan 2020 to Dec 2020	7,500 bbl/d

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