October 15, 2020
VIA EDGAR
Division of Corporation Finance
United States Securities and Exchange Commission
Washington, D.C. 20549
Attention: John Hodgin, Office of Energy & Transportation
Re: BAYTEX ENERGY CORP.
Form 40-F for the Fiscal Year ended December 31, 2019
Filed March 10, 2020
| SEC File No. 001-32754 | ||
Dear Sir/Madam,
This letter sets forth the responses of Baytex Energy Corp. (“Baytex”, the “Company,” or “we”) to the comments received from the staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission by letter dated September 25, 2020 (the “Comment Letter”).
We have repeated each comment from the Comment Letter and provided our response to each comment below.
1.We understand from your response to our prior comment letter that you will provide disclosures beginning with your next annual report on Form 40-F, consistent with the revisions outlined in your response letter. Please also incorporate the revisions that are necessary to address the concerns outlined in the remaining comment in this letter.
We confirm that in future filings, beginning with our Annual Report on Form 40-F for the year ended December 31, 2020, the Company will incorporate the revisions necessary to address the concerns outlined in the remaining comment in this letter.
2.We note that your response to prior comment five, regarding the reasons for significant changes in total proved reserves, indicates that the change attributed to improved recovery for fiscal 2018 was the result of infill drilling.
2
However, we believe that changes associated with infill drilling should be categorized as revisions of previous estimates, rather than improved recovery, based on the guidance in subparagraphs (a) and (b) of FASB ASC 932-235-50-5.
Under this guidance, improved recovery relates to the recovery of hydrocarbons, beyond primary recovery, obtained through secondary or tertiary recovery methods that generally supplement the natural reservoir recovery processes. Please revise the classifications within your reserves reconciliations and the associated narratives accordingly.
We have revised the Appendix I attached to our letter dated September 14, 2020 to reflect the categorization of changes associated with infill drilling as revisions of previous estimates, rather than improved recovery. The revised Appendix I is attached to this letter. In addition, we have provided revised explanations for the reasons for significant changes to the net quantities of total proved reserves for each line in the reserves reconciliation attached as Appendix I. They are as follows:
Revisions of Previous Estimates
In 2018, the company realized additional net proved reserves of 19,105 Mboe. This was primarily due to 13,003 Mboe of revisions from infill drilling comprised of: 10,341 Mboe in the Viking, 1,822 Mboe in the Eagle Ford and 840 Mboe in Peace River and Lloydminster. The remainder of the revisions were attributable to 4,042 Mboe due to well performance in our Canadian and Eagle Ford assets and 2,060 Mboe due to changes to the constant price forecast.
Purchase of minerals in place
In 2018, the Company acquired 60,452 Mboe of net proved reserves. 60,443 Mboe as the result of the Company’s strategic combination with Raging River Exploration Inc. and 9 Mboe as a result of minor property acquisitions in Canada.
Extensions and Discovery
In 2019, the Company added 35,763 Mboe of net proved reserves. 23,376 Mboe were added in Canada as a result of our 2019 drilling program and 12,387 Mboe were added in our Eagle Ford acreage due to improved well performance.
These classification changes also result in a change to the table showing our Reconciliation of Changes in Standardized Measure of Future Net Cash Flows Discounted at 10% per Year Relating to Net Proved Petroleum and Natural Gas Reserves for 2018. We have attached an updated table as Appendix II.
We would respectfully ask that you confirm our answers and proposed course of action is satisfactory so that we can proceed accordingly.
If you have any further questions, please do not hesitate to contact me at: (587) 952-3160.
3
Yours truly,
BAYTEX ENERGY CORP.
/s/ Rodney D. Gray
Rodney D. Gray
Executive Vice President and
Chief Financial Officer
APPENDIX I (Page 1 of 2)
| Canada | United States | |||||||||||||||||||||||||||||||||||||||||||
| Crude Oil | NGL | Bitumen | Natural Gas | Crude Oil | NGL | Bitumen | Natural Gas | |||||||||||||||||||||||||||||||||||||
| (mbbl) | (mbbl) | (mbbl) | (mmcf) | (mbbl) | (mbbl) | (mbbl) | (mmcf) | |||||||||||||||||||||||||||||||||||||
| Net proved reserves | ||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2017 | 29,636 | 1,214 | 12,115 | 45,974 | 35,770 | 58,449 | — | 168,624 | ||||||||||||||||||||||||||||||||||||
| Revisions of previous estimates | 17,133 | (395) | (482) | 853 | 5,625 | (2,222) | — | (4,177) | ||||||||||||||||||||||||||||||||||||
| Improved recovery | 1,647 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Purchases of minerals in place | 56,837 | 241 | — | 20,246 | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Extensions and discoveries | 2,149 | 567 | — | 2,357 | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Production | (11,113) | (404) | (198) | (14,452) | (4,234) | (3,523) | — | (13,312) | ||||||||||||||||||||||||||||||||||||
| Sales of minerals in place | (1) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| December 31, 2018 | 96,289 | 1,224 | 11,435 | 54,978 | 37,161 | 52,705 | — | 151,136 | ||||||||||||||||||||||||||||||||||||
| Revisions of previous estimates | (2,324) | 694 | 429 | 13,188 | 91 | (97) | — | 11,900 | ||||||||||||||||||||||||||||||||||||
| Improved recovery | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Purchases of minerals in place | 1,209 | 1 | — | 85 | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Extensions and discoveries | 18,990 | 1,321 | — | 18,392 | 4,158 | 5,426 | — | 16,813 | ||||||||||||||||||||||||||||||||||||
| Production | (14,995) | (436) | (727) | (16,372) | (3,725) | (4,359) | — | (14,485) | ||||||||||||||||||||||||||||||||||||
| Sales of minerals in place | (2,289) | — | — | (83) | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| December 31, 2019 | 96,879 | 2,804 | 11,136 | 70,188 | 37,685 | 53,675 | — | 165,363 | ||||||||||||||||||||||||||||||||||||
| Net proved developed reserves | ||||||||||||||||||||||||||||||||||||||||||||
| End of year 2017 | 20,207 | 583 | 7,376 | 29,141 | 14,156 | 19,822 | — | 67,150 | ||||||||||||||||||||||||||||||||||||
| End of year 2018 | 46,557 | 772 | 8,616 | 39,222 | 13,466 | 23,432 | — | 68,273 | ||||||||||||||||||||||||||||||||||||
| End of year 2019 | 47,577 | 1,179 | 9,286 | 44,537 | 16,119 | 23,906 | — | 71,748 | ||||||||||||||||||||||||||||||||||||
| Net proved undeveloped reserves | ||||||||||||||||||||||||||||||||||||||||||||
| End of year 2017 | 9,429 | 631 | 4,739 | 16,833 | 21,614 | 38,627 | — | 101,474 | ||||||||||||||||||||||||||||||||||||
| End of year 2018 | 49,732 | 452 | 2,819 | 15,756 | 23,696 | 29,272 | — | 82,863 | ||||||||||||||||||||||||||||||||||||
| End of year 2019 | 49,302 | 1,625 | 1,850 | 25,651 | 21,566 | 29,769 | — | 93,615 | ||||||||||||||||||||||||||||||||||||
APPENDIX I (Page 2 of 2)
| Total | |||||||||||||||||||||||||||||
| Crude Oil | NGL | Bitumen | Natural Gas | Total | |||||||||||||||||||||||||
| (mbbl) | (mbbl) | (mbbl) | (mmcf) | (mboe) | |||||||||||||||||||||||||
| Net proved reserves | |||||||||||||||||||||||||||||
| December 31, 2017 | 65,406 | 59,663 | 12,115 | 214,598 | 172,951 | ||||||||||||||||||||||||
| Revisions of previous estimates | 22,758 | (2,616) | (482) | (3,324) | 19,105 | ||||||||||||||||||||||||
| Improved recovery | 1,647 | — | — | — | 1,647 | ||||||||||||||||||||||||
| Purchases of minerals in place | 56,837 | 241 | — | 20,246 | 60,452 | ||||||||||||||||||||||||
| Extensions and discoveries | 2,149 | 567 | — | 2,357 | 3,109 | ||||||||||||||||||||||||
| Production | (15,347) | (3,926) | (198) | (27,764) | (24,098) | ||||||||||||||||||||||||
| Sales of minerals in place | (1) | — | — | — | (1) | ||||||||||||||||||||||||
| December 31, 2018 | 133,450 | 53,929 | 11,435 | 206,114 | 233,165 | ||||||||||||||||||||||||
| Revisions of previous estimates | (2,233) | 597 | 429 | 25,088 | 2,974 | ||||||||||||||||||||||||
| Improved recovery | — | — | — | — | — | ||||||||||||||||||||||||
| Purchases of minerals in place | 1,209 | 1 | — | 85 | 1,224 | ||||||||||||||||||||||||
| Extensions and discoveries | 23,148 | 6,748 | — | 35,205 | 35,763 | ||||||||||||||||||||||||
| Production | (18,720) | (4,795) | (727) | (30,857) | (29,385) | ||||||||||||||||||||||||
| Sales of minerals in place | (2,289) | — | — | (83) | (2,303) | ||||||||||||||||||||||||
| December 31, 2019 | 134,564 | 56,479 | 11,136 | 235,551 | 241,438 | ||||||||||||||||||||||||
| Net proved developed reserves | |||||||||||||||||||||||||||||
| End of year 2017 | 34,363 | 20,405 | 7,376 | 96,291 | 78,192 | ||||||||||||||||||||||||
| End of year 2018 | 60,022 | 24,204 | 8,616 | 107,495 | 110,758 | ||||||||||||||||||||||||
| End of year 2019 | 63,696 | 25,085 | 9,286 | 116,285 | 117,447 | ||||||||||||||||||||||||
| Net proved undeveloped reserves | |||||||||||||||||||||||||||||
| End of year 2017 | 31,043 | 39,259 | 4,739 | 118,307 | 94,759 | ||||||||||||||||||||||||
| End of year 2018 | 73,428 | 29,724 | 2,819 | 98,619 | 122,407 | ||||||||||||||||||||||||
| End of year 2019 | 70,869 | 31,395 | 1,850 | 119,266 | 123,991 | ||||||||||||||||||||||||
APPENDIX II (Page 1 of 1)
| As at December 31, 2018 (thousands of Canadian dollars) | Canada | United States | Total | ||||||||
| Balance, beginning of year | $ | 355,205 | $ | 1,145,248 | $ | 1,500,453 | |||||
| Sales, net of production costs | $ | (255,967) | $ | (478,727) | $ | (734,694) | |||||
| Net change in prices and production costs related to future production | $ | (33,000) | $ | 498,009 | $ | 465,009 | |||||
| Changes in previously estimated production costs incurred during the period | $ | (773,071) | $ | 104,733 | $ | (668,338) | |||||
| Development costs incurred during the period | $ | 291,550 | $ | 193,604 | $ | 485,154 | |||||
| Extensions, discoveries and improved recovery, net of related costs | $ | 53,963 | $ | — | $ | 53,963 | |||||
| Revisions of previous quantity estimates | $ | 927,949 | $ | 31,639 | $ | 959,588 | |||||
| Sales of reserves in place | $ | (15,000) | $ | — | $ | (15,000) | |||||
| Purchases of reserves in place | $ | 865,223 | $ | — | $ | 865,223 | |||||
| Accretion of discount | $ | 35,520 | $ | 116,576 | $ | 152,096 | |||||
| Net change in income taxes | $ | — | $ | (92,495) | $ | (92,495) | |||||
| Balance, end of year | $ | 1,452,372 | $ | 1,518,587 | $ | 2,970,959 | |||||