Exhibit 99.1
Baytex Energy Corp.
Condensed Consolidated Interim Statements of Financial Position
(thousands of Canadian dollars) (unaudited)
As at | |||||||||||
Notes | June 30, 2022 | December 31, 2021 | |||||||||
ASSETS | |||||||||||
Current assets | |||||||||||
Trade and other receivables | $ | 326,383 | $ | 173,409 | |||||||
Financial derivatives | 16 | 17,979 | 8,654 | ||||||||
344,362 | 182,063 | ||||||||||
Non-current assets | |||||||||||
Exploration and evaluation assets | 4 | 163,811 | 172,824 | ||||||||
Oil and gas properties | 5 | 4,287,087 | 4,464,371 | ||||||||
Other plant and equipment | 6,994 | 7,121 | |||||||||
Lease assets | 7,896 | 8,264 | |||||||||
$ | 4,810,150 | $ | 4,834,643 | ||||||||
LIABILITIES | |||||||||||
Current liabilities | |||||||||||
Trade and other payables | $ | 309,163 | $ | 190,692 | |||||||
Financial derivatives | 16 | 228,289 | 134,020 | ||||||||
Lease obligations | 3,177 | 2,938 | |||||||||
Asset retirement obligations | 8 | 10,929 | 11,080 | ||||||||
551,558 | 338,730 | ||||||||||
Non-current liabilities | |||||||||||
Financial derivatives | 16 | 12,549 | — | ||||||||
Credit facilities | 6 | 494,410 | 505,171 | ||||||||
Long-term notes | 7 | 634,758 | 874,527 | ||||||||
Lease obligations | 4,068 | 4,827 | |||||||||
Asset retirement obligations | 8 | 551,231 | 732,603 | ||||||||
Deferred income tax liability | 13 | 141,965 | 167,456 | ||||||||
2,390,539 | 2,623,314 | ||||||||||
SHAREHOLDERS’ EQUITY | |||||||||||
Shareholders' capital | 9 | 5,653,883 | 5,736,593 | ||||||||
Contributed surplus | 35,883 | 13,559 | |||||||||
Accumulated other comprehensive income | 662,941 | 632,103 | |||||||||
Deficit | (3,933,096) | (4,170,926) | |||||||||
2,419,611 | 2,211,329 | ||||||||||
$ | 4,810,150 | $ | 4,834,643 |
See accompanying notes to the condensed consolidated interim financial statements.
1
Baytex Energy Corp.
Condensed Consolidated Interim Statements of Income and Comprehensive Income
(thousands of Canadian dollars, except per common share amounts and weighted average common shares) (unaudited)
Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||||||
Notes | 2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenue, net of royalties | |||||||||||||||||
Petroleum and natural gas sales | 12 | $ | 854,169 | $ | 442,354 | $ | 1,527,994 | $ | 827,056 | ||||||||
Royalties | (171,559) | (81,531) | (294,279) | (148,481) | |||||||||||||
682,610 | 360,823 | 1,233,715 | 678,575 | ||||||||||||||
Expenses | |||||||||||||||||
Operating | 107,426 | 82,901 | 208,192 | 163,449 | |||||||||||||
Transportation | 11,758 | 7,486 | 20,973 | 16,274 | |||||||||||||
Blending and other | 56,895 | 19,967 | 98,335 | 37,087 | |||||||||||||
General and administrative | 11,640 | 10,610 | 23,322 | 19,343 | |||||||||||||
Exploration and evaluation | 4 | 7,210 | 3,005 | 10,780 | 3,952 | ||||||||||||
Depletion and depreciation | 142,286 | 103,055 | 283,077 | 205,067 | |||||||||||||
Impairment reversal | 5 | — | (1,126,414) | — | (1,126,414) | ||||||||||||
Share-based compensation | 10 | 2,942 | 2,770 | 6,887 | 5,751 | ||||||||||||
Financing and interest | 14 | 27,077 | 27,354 | 51,321 | 54,804 | ||||||||||||
Financial derivatives loss | 16 | 65,274 | 123,507 | 305,901 | 230,259 | ||||||||||||
Foreign exchange loss (gain) | 15 | 27,709 | (2,256) | 13,364 | (5,061) | ||||||||||||
Gain on dispositions | (207) | (274) | (441) | (3,980) | |||||||||||||
Other expense (income) | 568 | (506) | (464) | (1,726) | |||||||||||||
460,578 | (748,795) | 1,021,247 | (401,195) | ||||||||||||||
Net income before income taxes | 222,032 | 1,109,618 | 212,468 | 1,079,770 | |||||||||||||
Income tax expense (recovery) | 13 | ||||||||||||||||
Current income tax expense | 1,140 | 568 | 2,050 | 408 | |||||||||||||
Deferred income tax expense (recovery) | 39,920 | 56,051 | (27,412) | 61,715 | |||||||||||||
41,060 | 56,619 | (25,362) | 62,123 | ||||||||||||||
Net income | $ | 180,972 | $ | 1,052,999 | $ | 237,830 | $ | 1,017,647 | |||||||||
Other comprehensive income (loss) | |||||||||||||||||
Foreign currency translation adjustment | 58,917 | (107) | 30,838 | (7,206) | |||||||||||||
Comprehensive income | $ | 239,889 | $ | 1,052,892 | $ | 268,668 | $ | 1,010,441 | |||||||||
Net income per common share | 11 | ||||||||||||||||
Basic | $ | 0.32 | $ | 1.87 | $ | 0.42 | $ | 1.81 | |||||||||
Diluted | $ | 0.32 | $ | 1.85 | $ | 0.42 | $ | 1.79 | |||||||||
Weighted average common shares (000's) | 11 | ||||||||||||||||
Basic | 566,997 | 564,156 | 566,262 | 563,126 | |||||||||||||
Diluted | 571,697 | 569,931 | 570,844 | 568,115 |
See accompanying notes to the condensed consolidated interim financial statements.
2
Baytex Energy Corp.
Condensed Consolidated Interim Statements of Changes in Equity
(thousands of Canadian dollars) (unaudited)
Notes | Shareholders’ capital | Contributed surplus | Accumulated other comprehensive income | Deficit | Total equity | |||||||||||||||
Balance at December 31, 2020 | $ | 5,729,418 | $ | 14,345 | $ | 618,976 | $ | (5,784,526) | $ | 578,213 | ||||||||||
Vesting of share awards | 7,100 | (7,100) | — | — | — | |||||||||||||||
Share-based compensation | — | 3,150 | — | — | 3,150 | |||||||||||||||
Comprehensive income (loss) | — | — | (7,206) | 1,017,647 | 1,010,441 | |||||||||||||||
Balance at June 30, 2021 | $ | 5,736,518 | $ | 10,395 | $ | 611,770 | $ | (4,766,879) | $ | 1,591,804 | ||||||||||
Balance at December 31, 2021 | $ | 5,736,593 | $ | 13,559 | $ | 632,103 | $ | (4,170,926) | $ | 2,211,329 | ||||||||||
Vesting of share awards | 9 | 8,429 | (8,429) | — | — | — | ||||||||||||||
Share-based compensation | 10 | — | 2,078 | — | — | 2,078 | ||||||||||||||
Repurchase of common shares for cancellation | 9 | (91,139) | 28,675 | — | — | (62,464) | ||||||||||||||
Comprehensive income | — | — | 30,838 | 237,830 | 268,668 | |||||||||||||||
Balance at June 30, 2022 | $ | 5,653,883 | $ | 35,883 | $ | 662,941 | $ | (3,933,096) | $ | 2,419,611 |
See accompanying notes to the condensed consolidated interim financial statements.
3
Baytex Energy Corp.
Condensed Consolidated Interim Statements of Cash Flows
(thousands of Canadian dollars) (unaudited)
Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||||||
Notes | 2022 | 2021 | 2022 | 2021 | |||||||||||||
CASH PROVIDED BY (USED IN): | |||||||||||||||||
Operating activities | |||||||||||||||||
Net income | $ | 180,972 | $ | 1,052,999 | $ | 237,830 | $ | 1,017,647 | |||||||||
Adjustments for: | |||||||||||||||||
Share-based compensation | 10 | 372 | 1,646 | 2,078 | 3,150 | ||||||||||||
Unrealized foreign exchange loss (gain) | 15 | 27,499 | (1,792) | 12,951 | (4,322) | ||||||||||||
Exploration and evaluation | 4 | 7,210 | 3,005 | 10,780 | 3,952 | ||||||||||||
Depletion and depreciation | 142,286 | 103,055 | 283,077 | 205,067 | |||||||||||||
Impairment reversal | 5 | — | (1,126,414) | — | (1,126,414) | ||||||||||||
Non-cash financing and accretion | 14 | 6,603 | 3,800 | 10,420 | 6,847 | ||||||||||||
Non-cash other income | 8 | (183) | (676) | (1,465) | (1,664) | ||||||||||||
Unrealized financial derivatives (gain) loss | 16 | (58,768) | 84,483 | 97,493 | 170,467 | ||||||||||||
Gain on dispositions | (207) | (274) | (441) | (3,980) | |||||||||||||
Deferred income tax expense (recovery) | 13 | 39,920 | 56,051 | (27,412) | 61,715 | ||||||||||||
Asset retirement obligations settled | 8 | (2,716) | (993) | (6,009) | (2,410) | ||||||||||||
Change in non-cash working capital | 17,046 | (3,014) | (60,294) | (37,199) | |||||||||||||
360,034 | 171,876 | 559,008 | 292,856 | ||||||||||||||
Financing activities | |||||||||||||||||
Increase (decrease) in credit facilities | 62,791 | (117,939) | (15,351) | (160,660) | |||||||||||||
Debt issuance costs | (1,832) | — | (1,832) | — | |||||||||||||
Payments on lease obligations | (1,039) | (919) | (2,213) | (2,001) | |||||||||||||
Redemption of long-term notes | 7 | (252,830) | (6,787) | (252,830) | (6,787) | ||||||||||||
Repurchase of common shares | 9 | (62,464) | — | (62,464) | — | ||||||||||||
(255,374) | (125,645) | (334,690) | (169,448) | ||||||||||||||
Investing activities | |||||||||||||||||
Additions to exploration and evaluation assets | 4 | (2,338) | (428) | (5,897) | (644) | ||||||||||||
Additions to oil and gas properties | 5 | (94,295) | (61,057) | (244,558) | (144,429) | ||||||||||||
Additions to other plant and equipment | (260) | (320) | (634) | (411) | |||||||||||||
Property acquisitions | (208) | — | (267) | (25) | |||||||||||||
Proceeds from dispositions | 14 | 18 | 41 | 246 | |||||||||||||
Change in non-cash working capital | (7,573) | 16,931 | 26,997 | 23,230 | |||||||||||||
(104,660) | (44,856) | (224,318) | (122,033) | ||||||||||||||
Change in cash | — | 1,375 | — | 1,375 | |||||||||||||
Cash, beginning of period | — | — | — | — | |||||||||||||
Cash, end of period | $ | — | $ | 1,375 | $ | — | $ | 1,375 | |||||||||
Supplementary information | |||||||||||||||||
Interest paid | $ | 11,181 | $ | 16,764 | $ | 41,529 | $ | 47,601 | |||||||||
Income taxes paid | $ | 263 | $ | — | $ | 263 | $ | — |
See accompanying notes to the condensed consolidated interim financial statements.
4
Baytex Energy Corp.
Notes to the Condensed Consolidated Interim Financial Statements
For the periods ended June 30, 2022 and 2021
(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 energy company engaged in the acquisition, development and production of oil and natural gas in the Western Canadian Sedimentary Basin and Texas, United States. The Company’s common shares are traded on the Toronto 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 condensed 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, 2021.
The consolidated financial statements were approved by the Board of Directors of Baytex on July 27, 2022.
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. References to “US$” are to United States ("U.S.") dollars. 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, 2021 are available through its filings on SEDAR at www.sedar.com and through the U.S. Securities and Exchange Commission at www.sec.gov.
Significant Accounting Policies
The accounting policies, critical accounting judgments and significant estimates used in preparation of the 2021 annual financial statements have been applied in the preparation of these consolidated financial statements, except for the adoption of Normal Course Issue Bid ("NCIB") Share Repurchases as described below.
Current Environment and Estimation Uncertainty
Management makes judgements and assumptions about the future in deriving estimates used in preparation of these consolidated financial statements in accordance with IFRS. Sources of estimation uncertainty include estimates used to determine economically recoverable oil, natural gas, and natural gas liquids reserves, the recoverable amount of long-lived assets or cash generating units, the fair value of financial derivatives, the provision for asset retirement obligations and the provision for income taxes and the related deferred tax assets and liabilities.
During the six months ended June 30, 2022, demand for oil and natural gas improved as the global economy continued to recover from the COVID-19 pandemic. Energy prices strengthened to multi-year highs due to elevated uncertainty of global oil and natural gas supply after Russia's invasion of Ukraine in addition to limited production growth reflecting oil and gas producers' capital discipline. While we have benefited from these improvements in crude oil prices, there is uncertainty related to COVID-19 and geopolitical events that have been considered in our estimates as at and for the period ended June 30, 2022.
Normal Course Issuer Bid ("NCIB") Share Repurchases
On May 2, 2022, Baytex announced the acceptance from the Toronto Stock Exchange (TSX) for implementation of a normal course issuer bid ("NCIB") under which Baytex is permitted to purchase for cancellation a specified number of common shares over a specified time frame. The shares repurchased and cancelled are accounted for as a reduction in Share Capital at historical cost, with any discount paid recorded to Contributed Surplus and any premium paid recorded to Retained Earnings. Total consideration paid includes any commissions or fees paid as part of the transaction.
5
3. SEGMENTED FINANCIAL INFORMATION
Baytex's reportable 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 U.S.; and
•Corporate includes corporate activities and items not allocated between operating segments.
Canada | U.S. | Corporate | Consolidated | |||||||||||||||||||||||
Three Months Ended June 30 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||
Revenue, net of royalties | ||||||||||||||||||||||||||
Petroleum and natural gas sales | $ | 581,197 | $ | 254,026 | $ | 272,972 | $ | 188,328 | $ | — | $ | — | $ | 854,169 | $ | 442,354 | ||||||||||
Royalties | (91,133) | (26,193) | (80,426) | (55,338) | — | — | (171,559) | (81,531) | ||||||||||||||||||
490,064 | 227,833 | 192,546 | 132,990 | — | — | 682,610 | 360,823 | |||||||||||||||||||
Expenses | ||||||||||||||||||||||||||
Operating | 82,471 | 61,793 | 24,955 | 21,108 | — | — | 107,426 | 82,901 | ||||||||||||||||||
Transportation | 11,758 | 7,486 | — | — | — | — | 11,758 | 7,486 | ||||||||||||||||||
Blending and other | 56,895 | 19,967 | — | — | — | — | 56,895 | 19,967 | ||||||||||||||||||
General and administrative | — | — | — | — | 11,640 | 10,610 | 11,640 | 10,610 | ||||||||||||||||||
Exploration and evaluation | 7,210 | 3,005 | — | — | — | — | 7,210 | 3,005 | ||||||||||||||||||
Depletion and depreciation | 100,712 | 63,088 | 40,097 | 38,663 | 1,477 | 1,304 | 142,286 | 103,055 | ||||||||||||||||||
Impairment reversal | — | (684,000) | — | (442,414) | — | — | — | (1,126,414) | ||||||||||||||||||
Share-based compensation | — | — | — | — | 2,942 | 2,770 | 2,942 | 2,770 | ||||||||||||||||||
Financing and interest | — | — | — | — | 27,077 | 27,354 | 27,077 | 27,354 | ||||||||||||||||||
Financial derivatives loss | — | — | — | — | 65,274 | 123,507 | 65,274 | 123,507 | ||||||||||||||||||
Foreign exchange loss (gain) | — | — | — | — | 27,709 | (2,256) | 27,709 | (2,256) | ||||||||||||||||||
Gain on dispositions | (207) | (274) | — | — | — | — | (207) | (274) | ||||||||||||||||||
Other (income) expense | (183) | (676) | — | — | 751 | 170 | 568 | (506) | ||||||||||||||||||
258,656 | (529,611) | 65,052 | (382,643) | 136,870 | 163,459 | 460,578 | (748,795) | |||||||||||||||||||
Net income (loss) before income taxes | 231,408 | 757,444 | 127,494 | 515,633 | (136,870) | (163,459) | 222,032 | 1,109,618 | ||||||||||||||||||
Income tax expense | ||||||||||||||||||||||||||
Current income tax expense | 1,140 | 568 | ||||||||||||||||||||||||
Deferred income tax expense | 39,920 | 56,051 | ||||||||||||||||||||||||
41,060 | 56,619 | |||||||||||||||||||||||||
Net income (loss) | $ | 231,408 | $ | 757,444 | $ | 127,494 | $ | 515,633 | $ | (136,870) | $ | (163,459) | $ | 180,972 | $ | 1,052,999 | ||||||||||
Additions to exploration and evaluation assets | 2,338 | 428 | — | — | — | — | 2,338 | 428 | ||||||||||||||||||
Additions to oil and gas properties | 49,543 | 29,959 | 44,752 | 31,098 | — | — | 94,295 | 61,057 | ||||||||||||||||||
Property acquisitions | 208 | — | — | — | — | — | 208 | — | ||||||||||||||||||
Proceeds from dispositions | (14) | (18) | — | — | — | — | (14) | (18) | ||||||||||||||||||
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Canada | U.S. | Corporate | Consolidated | |||||||||||||||||||||||
Six Months Ended June 30 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||
Revenue, net of royalties | ||||||||||||||||||||||||||
Petroleum and natural gas sales | $ | 1,034,901 | $ | 493,448 | $ | 493,093 | $ | 333,608 | $ | — | $ | — | $ | 1,527,994 | $ | 827,056 | ||||||||||
Royalties | (148,809) | (50,857) | (145,470) | (97,624) | — | — | (294,279) | (148,481) | ||||||||||||||||||
886,092 | 442,591 | 347,623 | 235,984 | — | — | 1,233,715 | 678,575 | |||||||||||||||||||
Expenses | ||||||||||||||||||||||||||
Operating | 161,011 | 123,154 | 47,181 | 40,295 | — | — | 208,192 | 163,449 | ||||||||||||||||||
Transportation | 20,973 | 16,274 | — | — | — | — | 20,973 | 16,274 | ||||||||||||||||||
Blending and other | 98,335 | 37,087 | — | — | — | — | 98,335 | 37,087 | ||||||||||||||||||
General and administrative | — | — | — | — | 23,322 | 19,343 | 23,322 | 19,343 | ||||||||||||||||||
Exploration and evaluation | 10,780 | 3,952 | — | — | — | — | 10,780 | 3,952 | ||||||||||||||||||
Depletion and depreciation | 201,794 | 133,562 | 78,461 | 68,928 | 2,822 | 2,577 | 283,077 | 205,067 | ||||||||||||||||||
Impairment reversal | — | (684,000) | — | (442,414) | — | — | — | (1,126,414) | ||||||||||||||||||
Share-based compensation | — | — | — | — | 6,887 | 5,751 | 6,887 | 5,751 | ||||||||||||||||||
Financing and interest | — | — | — | — | 51,321 | 54,804 | 51,321 | 54,804 | ||||||||||||||||||
Financial derivatives loss | — | — | — | — | 305,901 | 230,259 | 305,901 | 230,259 | ||||||||||||||||||
Foreign exchange loss (gain) | — | — | — | — | 13,364 | (5,061) | 13,364 | (5,061) | ||||||||||||||||||
Gain on dispositions | (441) | (3,980) | — | — | — | (441) | (3,980) | |||||||||||||||||||
Other (income) expense | (1,465) | (1,664) | — | 1,001 | (62) | (464) | (1,726) | |||||||||||||||||||
490,987 | (375,615) | 125,642 | (333,191) | 404,618 | 307,611 | 1,021,247 | (401,195) | |||||||||||||||||||
395,105 | 818,206 | 221,981 | 569,175 | (404,618) | (307,611) | 212,468 | 1,079,770 | |||||||||||||||||||
Income tax expense (recovery) | ||||||||||||||||||||||||||
Current income tax expense | 2,050 | 408 | ||||||||||||||||||||||||
Deferred income tax (recovery) expense | (27,412) | 61,715 | ||||||||||||||||||||||||
(25,362) | 62,123 | |||||||||||||||||||||||||
Net income (loss) | $ | 395,105 | $ | 818,206 | $ | 221,981 | $ | 569,175 | $ | (404,618) | $ | (307,611) | $ | 237,830 | $ | 1,017,647 | ||||||||||
Additions to exploration and evaluation assets | 5,897 | 644 | — | — | — | — | 5,897 | 644 | ||||||||||||||||||
Additions to oil and gas properties | 172,114 | 72,246 | 72,444 | 72,183 | — | — | 244,558 | 144,429 | ||||||||||||||||||
Property acquisitions | 267 | 25 | — | — | — | — | 267 | 25 | ||||||||||||||||||
Proceeds from dispositions | (41) | (246) | — | — | — | — | (41) | (246) |
June 30, 2022 | December 31, 2021 | |||||||
Canadian assets | $ | 2,583,110 | $ | 2,658,281 | ||||
U.S. assets | 2,194,171 | 2,152,323 | ||||||
Corporate assets | 32,869 | 24,039 | ||||||
Total consolidated assets | $ | 4,810,150 | $ | 4,834,643 |
7
4. EXPLORATION AND EVALUATION ASSETS
June 30, 2022 | December 31, 2021 | |||||||
Balance, beginning of period | $ | 172,824 | $ | 191,865 | ||||
Capital expenditures | 5,897 | 3,298 | ||||||
Property acquisitions | — | 1,100 | ||||||
Divestitures | (55) | (166) | ||||||
Property swaps | — | 408 | ||||||
Exploration and evaluation expense | (10,780) | (15,212) | ||||||
Transfer to oil and gas properties (note 5) | (5,461) | (7,727) | ||||||
Foreign currency translation | 1,386 | (742) | ||||||
Balance, end of period | $ | 163,811 | $ | 172,824 |
At June 30, 2022 and December 31, 2021, there were no indicators of impairment or impairment reversal for exploration and evaluation assets in any of the Company's cash generating units ("CGU").
5. OIL AND GAS PROPERTIES
Cost | Accumulated depletion | Net book value | |||||||||
Balance, December 31, 2020 | $ | 11,423,676 | $ | (8,346,128) | $ | 3,077,548 | |||||
Capital expenditures | 310,005 | — | 310,005 | ||||||||
Property acquisitions | 274 | — | 274 | ||||||||
Transfers from exploration and evaluation assets (note 4) | 7,727 | — | 7,727 | ||||||||
Change in asset retirement obligations (note 8) | (12,222) | — | (12,222) | ||||||||
Divestitures | (37,835) | 32,844 | (4,991) | ||||||||
Property swaps | (26,131) | 25,900 | (231) | ||||||||
Impairment reversal | — | 1,542,414 | 1,542,414 | ||||||||
Foreign currency translation | (31,977) | 34,765 | 2,788 | ||||||||
Depletion | — | (458,941) | (458,941) | ||||||||
Balance, December 31, 2021 | $ | 11,633,517 | $ | (7,169,146) | $ | 4,464,371 | |||||
Capital expenditures | 244,558 | — | 244,558 | ||||||||
Property acquisitions | 355 | — | 355 | ||||||||
Transfers from exploration and evaluation assets (note 4) | 5,461 | — | 5,461 | ||||||||
Change in asset retirement obligations (note 8) | (181,026) | — | (181,026) | ||||||||
Foreign currency translation | 72,623 | (39,000) | 33,623 | ||||||||
Depletion | — | (280,255) | (280,255) | ||||||||
Balance, June 30, 2022 | $ | 11,775,488 | $ | (7,488,401) | $ | 4,287,087 |
At June 30, 2022, there were no indicators of impairment or impairment reversal for oil and gas properties in any of the Company's CGUs.
2021 Impairment Reversals
At June 30, 2021, we identified indicators of impairment reversal for oil and gas properties in each of our six CGUs due to the increase in forecasted commodity prices. The recoverable amount for each of our six CGUs exceeded their carrying amounts which resulted in an impairment reversal of $1.1 billion recorded at June 30, 2021. The recoverable amount for each CGU was based on its FVLCD which was estimated using a discounted cash flow model of proved plus probable cash flows from an independent reserve report prepared as at December 31, 2020 which was adjusted by management for operations between December 31, 2020 and June 30, 2021. The after-tax discount rates applied to the cash flows were between 10% and 16%.
8
At December 31, 2021, we identified indicators of impairment reversal for oil and gas properties in five CGUs due to the increase in forecasted commodity prices in addition to changes in proved plus probable reserves. The recoverable amount for three CGUs exceeded their carrying amounts which resulted in an impairment reversal of $416 million recorded at December 31, 2021. The recoverable amount for each CGU was based on its fair value less costs of disposal ("FVLCD") which was estimated using a discounted cash flow model of proved plus probable cash flows from an independent reserve report prepared as at December 31, 2021. The after-tax discount rates applied to the cash flows were between 12% and 19%.
6. CREDIT FACILITIES
June 30, 2022 | December 31, 2021 | |||||||
Credit facilities - U.S. dollar denominated (1) | $ | 215,423 | $ | 156,332 | ||||
Credit facilities - Canadian dollar denominated | 281,494 | 350,182 | ||||||
Credit facilities - principal (2) | 496,917 | 506,514 | ||||||
Unamortized debt issuance costs | (2,507) | (1,343) | ||||||
Credit facilities | $ | 494,410 | $ | 505,171 |
(1)U.S. dollar denominated credit facilities balance was US$167.4 million as at June 30, 2022 (December 31, 2021 - US$123.5 million).
(2)The decrease in the principal amount of the credit facilities outstanding from December 31, 2021 to June 30, 2022 is the result of net repayments of $15.3 million, partially offset by an increase in the reported amount of U.S. denominated debt of $5.7 million due to foreign exchange.
At June 30, 2022, Baytex had US$850 million of revolving credit facilities (the "Credit Facilities"). On April 1, 2022, Baytex amended its Credit Facilities to increase total capacity to a US$850 million revolving facility and extended the maturity from April 1, 2024 to April 1, 2026. The Credit Facilities are comprised of a US$50 million operating loan and a US$600 million syndicated revolving loan for Baytex and a US$10 million operating loan and a US$190 million syndicated revolving loan for Baytex's wholly-owned subsidiary, Baytex Energy USA, Inc. There were no changes to the financial covenants as a result of the amendment.
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 our 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 secured overnight financing rates ("SOFR"), plus applicable margins.
The weighted average interest rate on the Credit Facilities was 2.6% for the six months ended June 30, 2022 (2.1% for six months ended June 30, 2021).
At June 30, 2022, Baytex had $15.1 million of outstanding letters of credit (December 31, 2021 - $15.0 million) under the Credit Facilities.
The following table summarizes the financial covenants applicable to the Credit Facilities and our compliance therewith at June 30, 2022.
Covenant Description | Postion as at June 30, 2022 | Covenant | ||||||
Senior Secured Debt (1) to Bank EBITDA (2) (Maximum Ratio) | 0.5:1.0 | 3.5:1.0 | ||||||
Interest Coverage (3) (Minimum Ratio) | 13.3:1.0 | 2.0:1.0 |
(1)"Senior Secured Debt" is calculated in accordance with the Credit Facility agreements and is defined as the principal amount of the Credit Facilities and other secured obligations identified in the credit agreement. As at June 30, 2022, the Company's Senior Secured Debt totaled $512.1 million which included $496.9 million of principal amounts outstanding and $15.1 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, income tax, non-recurring losses, certain specific unrealized and non-cash transactions 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 June 30, 2022 was $1.1 billion.
(3)"Interest coverage" is calculated in accordance with the credit agreement and is computed as the ratio of Bank EBITDA to financing and interest expenses, excluding certain non-cash transactions, and is calculated on a trailing twelve-month basis. Financing and interest expense for the twelve months ended June 30, 2022 was $84.8 million.
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7. LONG-TERM NOTES
June 30, 2022 | December 31, 2021 | |||||||
5.625% notes (US$200,000 – principal) due June 1, 2024 | $ | — | $ | 253,120 | ||||
8.75% notes (US$500,000 – principal) due April 1, 2027 | 643,600 | 632,800 | ||||||
Total long-term notes - principal (1) | 643,600 | 885,920 | ||||||
Unamortized debt issuance costs | (8,842) | (11,393) | ||||||
Total long-term notes - net of unamortized debt issuance costs | $ | 634,758 | $ | 874,527 |
(1)The decrease in the principal amount of long-term notes outstanding from December 31, 2021 to June 30, 2022 is the result of principal repayments of $252.8 million partially offset by changes in the reported amount of U.S. denominated debt of $10.5 million.
The long-term notes do not contain any significant financial maintenance covenants but do contain a debt incurrence covenant that restricts the Company's ability to raise additional debt beyond the existing Credit Facilities and long-term notes.
On June 1, 2022, Baytex completed the early redemption of the US$200.0 million principal amount of the 5.625% Notes due in 2024 at par plus accrued interest and recorded a decrease to unamortized debt issuance costs of $1.7 million.
8. ASSET RETIREMENT OBLIGATIONS
June 30, 2022 | December 31, 2021 | |||||||
Balance, beginning of period | $ | 743,683 | $ | 760,383 | ||||
Liabilities incurred | 10,905 | 14,845 | ||||||
Liabilities settled | (6,009) | (6,662) | ||||||
Liabilities acquired from property acquisitions | 138 | 249 | ||||||
Liabilities divested | (505) | (3,161) | ||||||
Property swaps | — | (4,113) | ||||||
Accretion (note 14) | 6,991 | 12,381 | ||||||
Government grants (1) | (1,465) | (2,857) | ||||||
Change in estimate | 961 | (9,686) | ||||||
Changes in discount rates and inflation rates (2) | (192,892) | (17,381) | ||||||
Foreign currency translation | 353 | (315) | ||||||
Balance, end of period | $ | 562,160 | $ | 743,683 | ||||
Less current portion of asset retirement obligations | 10,929 | 11,080 | ||||||
Non-current portion of asset retirement obligations | $ | 551,231 | $ | 732,603 |
(1) During the six months ended June 30, 2022, Baytex recognized $1.5 million of non-cash other income and a reduction in asset retirement obligations related to government grants provided by the Government of Alberta and the Government of Saskatchewan ($2.9 million for the year ended December 31, 2021).
(2) The discount and inflation rates at June 30, 2022 were 3.1% and 1.8%, respectively, compared to 1.7% and 1.8% at December 31, 2021.
9. 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 June 30, 2022, 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 meeting 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.
During the three months ended June 30, 2022, the Toronto Stock Exchange ("TSX") accepted Baytex's notice of intention to implement a normal course issuer bid ("NCIB"). Under the terms of the NCIB, the Company may purchase for cancellation up to 56.3 million common shares over the 12-month period commencing May 9, 2022. The number of shares authorized for repurchase represents 10% of the Company's public float as at April 29, 2022. Purchases are made on the open market through facilities of the TSX and/or alternative trading systems in Canada and at market prices prevailing at the time of the transaction.
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Number of Common Shares (000s) | Amount | |||||||
Balance, December 31, 2020 | 561,227 | $ | 5,729,418 | |||||
Vesting of share awards | 2,986 | 7,175 | ||||||
Balance, December 31, 2021 | 564,213 | $ | 5,736,593 | |||||
Vesting of share awards | 5,001 | 8,429 | ||||||
Common shares repurchased and cancelled | (9,075) | (91,139) | ||||||
Balance, June 30, 2022 | 560,139 | $ | 5,653,883 |
During the six months ended June 30, 2022, Baytex repurchased and cancelled 9.1 million common shares at an average price of $6.88 per share for total consideration of $62.5 million. The total consideration paid includes commissions and fees and is recorded as a reduction to Shareholders' Equity.
10. SHARE-BASED COMPENSATION PLAN
For the three and six months ended June 30, 2022 the Company recorded total compensation expense related to the share awards of $2.9 million and $6.9 million respectively ($2.8 million and $5.8 million for the three and six months ended June 30, 2021). Included in compensation expense related to share awards for the three and six months ended June 30, 2022 is $2.6 million and $4.8 million of cash compensation expense related to the incentive award plan, deferred share unit plan and the associated equity total return swaps ($1.1 million and $2.6 million for the three and six months ended June 30, 2021).
Share Award Incentive Plan
Baytex has a share award plan pursuant to which it issues restricted and performance awards. A restricted award entitles the holder of each award to receive one common share of Baytex at the time of vesting. A performance award entitles the holder of each award to receive between zero and two common shares on vesting; the number of common shares issued is determined by a multiplier. The multiplier, which ranges between zero and two, is calculated based on a number of factors determined and approved by the Board of Directors on an annual basis. The restricted awards and performance awards vest in equal tranches on the first, second and third anniversaries of the grant date. At Baytex's option, these awards may be cash settled at vesting.
The weighted average fair value of share awards granted during the six months ended June 30, 2022 was $5.68 per restricted and performance award ($1.29 for the six months ended June 30, 2021).
The number of share awards outstanding is detailed below:
(000s) | Number of restricted awards | Number of performance awards | Total number of share awards | ||||||||
Balance, December 31, 2020 | 4,122 | 4,088 | 8,210 | ||||||||
Granted | — | 4,067 | 4,067 | ||||||||
Added by performance factor | — | 669 | 669 | ||||||||
Vested | (1,861) | (1,152) | (3,013) | ||||||||
Forfeited | (168) | (291) | (459) | ||||||||
Balance, December 31, 2021 | 2,093 | 7,381 | 9,474 | ||||||||
Granted | — | 1,111 | 1,111 | ||||||||
Vested | (1,359) | (3,614) | (4,973) | ||||||||
Forfeited | (21) | (26) | (47) | ||||||||
Balance, June 30, 2022 | 713 | 4,852 | 5,565 |
Incentive Award Plan
Baytex has an incentive award plan (the "Incentive Award" plan) whereby the holder of each incentive award is entitled to receive a cash payment equal to the value of one Baytex common share at the time of vesting. The incentive awards vest in equal tranches on the first, second and third anniversaries of the grant date. The cumulative expense is recognized at fair value at each period end and is included in trade and other payables.
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During the six months ended June 30, 2022, Baytex granted 1.3 million awards under the Incentive Award plan at a fair value of $5.68 per award (4.9 million awards at $1.29 per award for the six months ended June 30, 2021). At June 30, 2022 there were 5.3 million awards outstanding under the Incentive Award plan (6.4 million awards outstanding at December 31, 2021).
Deferred Share Unit Plan
Baytex has a deferred share unit plan (the "DSU" plan) whereby each Director of Baytex is entitled to receive a cash payment equal to the value of one Baytex common share on the date on which they cease to be a member of the Board. The awards vest immediately upon being granted and are expensed in full on the grant date. The units are recognized at fair value at each period end and are included in trade and other payables.
During the six months ended June 30, 2022, Baytex granted 0.2 million awards under the DSU plan at a fair value of $5.68 per award (0.9 million awards at $1.29 per award for the six months ended June 30, 2021). At June 30, 2022, there were 1.0 million awards outstanding under the DSU plan.
Equity Total Return Swaps
The Company uses equity total return swaps on the equivalent number of Baytex common shares in order to fix a portion of the aggregate cost of the cash-settled plans including the Incentive Award plan, the DSU plan and the Share Award Incentive Plan, at the fair value determined on the grant date. The carrying value of the Company's financial derivatives includes the fair value of the equity total return swap which was an asset of $7.8 million on June 30, 2022 (December 31, 2021 - asset of $6.5 million). At June 30, 2022, an asset of $7.4 million associated with the equity return swap is included in accounts payable as it relates to the settlement of cash compensation payable (December 31, 2021 - an asset of $10.7 million).
11. NET INCOME 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 per share amounts reflect the potential dilution that could occur if share awards were converted to common shares. The treasury stock method is used to determine the dilutive effect of share awards whereby the potential conversion of share awards 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.
Three Months Ended June 30 | ||||||||||||||||||||
2022 | 2021 | |||||||||||||||||||
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 | $ | 180,972 | 566,997 | $ | 0.32 | $ | 1,052,999 | 564,156 | $ | 1.87 | ||||||||||
Dilutive effect of share awards | — | 4,700 | — | — | 5,775 | — | ||||||||||||||
Net income - diluted | $ | 180,972 | 571,697 | $ | 0.32 | $ | 1,052,999 | 569,931 | $ | 1.85 | ||||||||||
For the three and six months ended June 30, 2022 and June 30, 2021 no share awards were excluded from the calculation of diluted income per share as their effect was dilutive.
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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 June 30 | ||||||||||||||||||||
2022 | 2021 | |||||||||||||||||||
Canada | U.S. | Total | Canada | U.S. | Total | |||||||||||||||
Light oil and condensate | $ | 192,986 | $ | 222,606 | $ | 415,592 | $ | 106,269 | $ | 158,390 | $ | 264,659 | ||||||||
Heavy oil | 346,101 | — | 346,101 | 129,782 | — | 129,782 | ||||||||||||||
NGL | 8,288 | 24,895 | 33,183 | 3,786 | 16,796 | 20,582 | ||||||||||||||
Natural gas sales | 33,822 | 25,471 | 59,293 | 14,189 | 13,142 | 27,331 | ||||||||||||||
Total petroleum and natural gas sales | $ | 581,197 | $ | 272,972 | $ | 854,169 | $ | 254,026 | $ | 188,328 | $ | 442,354 | ||||||||
Six Months Ended June 30 | ||||||||||||||||||||
2022 | 2021 | |||||||||||||||||||
Canada | U.S. | Total | Canada | U.S. | Total | |||||||||||||||
Light oil and condensate | $ | 373,141 | $ | 403,426 | $ | 776,567 | $ | 217,814 | $ | 263,986 | $ | 481,800 | ||||||||
Heavy oil | 590,539 | — | 590,539 | 238,820 | — | 238,820 | ||||||||||||||
NGL | 15,772 | 46,902 | 62,674 | 8,150 | 29,939 | 38,089 | ||||||||||||||
Natural gas sales | 55,449 | 42,765 | 98,214 | 28,664 | 39,683 | 68,347 | ||||||||||||||
Total petroleum and natural gas sales | $ | 1,034,901 | $ | 493,093 | $ | 1,527,994 | $ | 493,448 | $ | 333,608 | $ | 827,056 |
Included in accounts receivable at June 30, 2022 is $298.9 million of accrued production revenue related to delivered volumes (December 31, 2021 - $154.0 million).
13. INCOME TAXES
The provision for income taxes has been computed as follows:
Six Months Ended June 30 | ||||||||
2022 | 2021 | |||||||
Net income before income taxes | $ | 212,468 | $ | 1,079,770 | ||||
Expected income taxes at the statutory rate of 25.12% (2021 – 24.89%) | 53,372 | 268,755 | ||||||
(Increase) decrease in income tax recovery resulting from: | ||||||||
Effect of foreign exchange | 984 | (656) | ||||||
Effect of rate adjustments for foreign jurisdictions | (18,357) | (17,339) | ||||||
Effect of change in deferred tax benefit not recognized | (17,823) | (191,235) | ||||||
Effect of internal debt restructuring | (45,182) | — | ||||||
Adjustments, assessments and other | 1,644 | 2,598 | ||||||
Income tax (recovery) expense | $ | (25,362) | $ | 62,123 |
At June 30, 2022, a deferred tax asset of $127.8 million remains unrecognized due to uncertainty surrounding future commodity prices and future capital gains (December 31, 2021 - $145.6 million).
As disclosed in the 2021 annual financial statements, in June 2016, certain indirect subsidiary entities received reassessments from the Canada Revenue Agency (the “CRA”) that denied $591.0 million of non-capital loss deductions that relate to the calculation of income taxes for the years 2011 through 2015. In September 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 the Company's file in July 2018. Baytex remains confident that the original tax filings are correct and intends to defend those tax filings through the appeals process.
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14. FINANCING AND INTEREST
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||
Interest on credit facilities | $ | 4,070 | $ | 3,250 | $ | 7,109 | $ | 6,586 | ||||||
Interest on long-term notes | 16,356 | 20,246 | 33,700 | 41,253 | ||||||||||
Interest on lease obligations | 48 | 58 | 92 | 118 | ||||||||||
Cash Interest | $ | 20,474 | $ | 23,554 | $ | 40,901 | $ | 47,957 | ||||||
Amortization of debt issue costs | 2,734 | 790 | 3,429 | 1,539 | ||||||||||
Accretion on asset retirement obligations (note 8) | 3,869 | 3,367 | 6,991 | 5,665 | ||||||||||
Gain on redemption of long-term notes (note 7) | — | (357) | — | (357) | ||||||||||
Financing and interest | $ | 27,077 | $ | 27,354 | $ | 51,321 | $ | 54,804 |
15. FOREIGN EXCHANGE
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||
Unrealized foreign exchange loss (gain) - intercompany notes (1) | $ | — | $ | 12,579 | $ | (2,674) | $ | 26,320 | ||||||
Unrealized foreign exchange loss (gain) - long-term notes & credit facilities | 27,499 | (14,371) | 15,625 | (30,642) | ||||||||||
Realized foreign exchange loss (gain) | 210 | (464) | 413 | (739) | ||||||||||
Foreign exchange loss (gain) | $ | 27,709 | $ | (2,256) | $ | 13,364 | $ | (5,061) |
(1)Baytex had a series of intercompany notes totaling US$601.0 million outstanding at December 31, 2021 that were issued from a Canadian functional currency subsidiary to a U.S. functional currency subsidiary. These notes are eliminated upon consolidation within the Statement of Financial Position and are revalued at the relevant foreign exchange rate at each period end. Foreign exchange gains or losses incurred within the Canadian functional currency subsidiary are recognized in unrealized foreign exchange gain or loss whereas those within the U.S. functional currency subsidiary are recognized in other comprehensive income. In January 2022 the intercompany notes were transferred from the Canadian functional currency subsidiary to another U.S. functional currency subsidiary. As a result, foreign exchange gains and losses incurred on these notes after the transfer are recognized in other comprehensive income.
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16. 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, Credit Facilities, and long-term notes. The fair value of trade and other receivables and trade and other payables approximates carrying value due to the short term to maturity. The fair value of the Credit Facilities 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 condensed consolidated statements of financial position are classified into the following categories:
June 30, 2022 | December 31, 2021 | ||||||||||||||||
Carrying value | Fair value | Carrying value | Fair value | Fair Value Measurement Hierarchy | |||||||||||||
Financial Assets | |||||||||||||||||
FVTPL | |||||||||||||||||
Financial derivatives | $ | 17,979 | $ | 17,979 | $ | 8,654 | $ | 8,654 | Level 2 | ||||||||
Total | $ | 17,979 | $ | 17,979 | $ | 8,654 | $ | 8,654 | |||||||||
Amortized cost | |||||||||||||||||
Trade and other receivables | $ | 326,383 | $ | 326,383 | $ | 173,409 | $ | 173,409 | — | ||||||||
Total | $ | 326,383 | $ | 326,383 | $ | 173,409 | $ | 173,409 | |||||||||
Financial Liabilities | |||||||||||||||||
FVTPL | |||||||||||||||||
Financial derivatives | $ | (240,838) | $ | (240,838) | $ | (134,020) | $ | (134,020) | Level 2 | ||||||||
Total | $ | (240,838) | $ | (240,838) | $ | (134,020) | $ | (134,020) | |||||||||
Amortized cost | |||||||||||||||||
Trade and other payables | $ | (309,163) | $ | (309,163) | $ | (190,692) | $ | (190,692) | — | ||||||||
Credit facilities | (494,410) | (496,917) | (505,171) | (506,514) | — | ||||||||||||
Long-term notes | (634,758) | (695,853) | (874,527) | (917,889) | Level 1 | ||||||||||||
Total | $ | (1,438,331) | $ | (1,501,933) | $ | (1,570,390) | $ | (1,615,095) |
There were no transfers between Level 1 and Level 2 during the six months ended June 30, 2022 and 2021.
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 | |||||||||||||
June 30, 2022 | December 31, 2021 | June 30, 2022 | December 31, 2021 | |||||||||||
U.S. dollar denominated | US$7,931 | US$602,503 | US$724,501 | US$829,934 |
15
Commodity Price Risk
Financial Derivative Contracts
Baytex had the following financial derivative contracts outstanding as of July 27, 2022:
Remaining Period | Volume | Price/Unit(1) | Index | |||||||||||
Oil | ||||||||||||||
Basis Swap | Jul 2022 to Dec 2022 | 12,000 bbl/d | WTI less US$12.40/bbl | WCS | ||||||||||
Basis Swap | Jul 2022 to Dec 2022 | 6,750 bbl/d | WTI less US$3.73/bbl | MSW | ||||||||||
Fixed Sell | Jul 2022 to Dec 2022 | 10,000 bbl/d | US$53.50/bbl | WTI | ||||||||||
3-way option(2) | Jul 2022 to Dec 2022 | 1,500 bbl/d | US$40.00/US$50.00/US$58.10 | WTI | ||||||||||
3-way option(2) | Jul 2022 to Dec 2022 | 2,000 bbl/d | US$46.00/US$56.00/US$66.72 | WTI | ||||||||||
3-way option(2) | Jul 2022 to Dec 2022 | 2,500 bbl/d | US$47.00/US$57.00/US$67.00 | WTI | ||||||||||
3-way option(2) | Jul 2022 to Dec 2022 | 2,500 bbl/d | US$50.00/US$60.00/US$70.00 | WTI | ||||||||||
3-way option(2) | Jul 2022 to Dec 2022 | 2,000 bbl/d | US$53.00/US$63.50/US$72.90 | WTI | ||||||||||
3-way option(2) | Jan 2023 to Dec 2023 | 2,000 bbl/d | US$55.00/US$66.00/US$84.00 | WTI | ||||||||||
3-way option(2) | Jan 2023 to Dec 2023 | 2,500 bbl/d | US$60.00/US$75.00/US$91.54 | WTI | ||||||||||
3-way option(2) | Jan 2023 to Dec 2023 | 2,500 bbl/d | US$65.00/US$85.00/US$100.00 | WTI | ||||||||||
3-way option(2) | Jan 2023 to Dec 2023 | 2,500 bbl/d | US$65.00/US$85.00/US$106.50 | WTI | ||||||||||
Natural Gas | ||||||||||||||
Fixed Sell | Jul 2022 to Dec 2022 | 5,000 GJ/d | $2.53/GJ | AECO 7A | ||||||||||
Fixed Sell | Jul 2022 to Dec 2022 | 14,250 GJ/d | $2.84/GJ | AECO 5A | ||||||||||
Fixed Sell | Jul 2022 to Dec 2022 | 1,000 mmbtu/d | US$2.94/mmbtu | NYMEX | ||||||||||
3-way option(2) | Jul 2022 to Dec 2022 | 2,500 mmbtu/d | US$2.25/US$2.75/US$3.06 | NYMEX | ||||||||||
3-way option(2) | Jul 2022 to Dec 2022 | 1,500 mmbtu/d | US$2.60/US$2.91/US$3.56 | NYMEX | ||||||||||
3-way option(2) | Jul 2022 to Dec 2022 | 2,500 mmbtu/d | US$2.60/US$3.00/US$3.83 | NYMEX | ||||||||||
3-way option(2) | Jul 2022 to Dec 2022 | 2,500 mmbtu/d | US$2.65/US$2.90/US$3.40 | NYMEX | ||||||||||
3-way option(2) | Jul 2022 to Dec 2022 | 2,500 mmbtu/d | US$3.00/US$3.75/US$4.40 | NYMEX |
(1)Based on the weighted average price per unit for the period.
(2)Producer 3-way option consists of a sold call, a bought put and a sold put. To illustrate, in a US$50.00/US$60.00/US$70.00 contract, Baytex receives WTI plus US$10.00/bbl when WTI is at or below US$50.00/bbl; Baytex receives US$60.00/bbl when WTI is between US$50.00/bbl and US$60.00/bbl; Baytex receives the market price when WTI is between US$60.00/bbl and US$70.00/bbl; and Baytex receives US$70.00/bbl when WTI is above US$70.00/bbl.
The following table sets forth the realized and unrealized gains and losses recorded on financial derivatives.
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||
Realized financial derivatives loss | $ | 124,042 | $ | 39,024 | $ | 208,408 | $ | 59,792 | ||||||
Unrealized financial derivatives (gain) loss | (58,768) | 84,483 | 97,493 | 170,467 | ||||||||||
Financial derivatives loss | $ | 65,274 | $ | 123,507 | $ | 305,901 | $ | 230,259 |
17. CAPITAL MANAGEMENT
The Company's capital management objective is to maintain financial flexibility and sufficient sources of liquidity to execute its capital programs, while meeting short and long-term commitments. Baytex strives to actively manage its capital structure in response to changes in economic conditions. At June 30, 2022, the Company's capital structure was comprised of shareholders' capital, long-term notes, trade and other receivables, trade and other payables and the Credit Facilities.
In order to manage its capital structure and liquidity, Baytex may from time to time issue equity or debt securities, enter into business transactions including the sale of assets or adjust capital spending to manage current and projected debt levels. There is no certainty that any of these additional sources of capital would be available if required.
The capital intensive nature of Baytex's operations requires the maintenance of adequate sources of liquidity to fund ongoing exploration and development. Baytex's capital resources consist primarily of Adjusted Funds Flow, available Credit Facilities and proceeds received from the divestiture of oil and gas properties. The following capital management measures and ratios are used to monitor current and projected sources of liquidity.
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Net Debt
The Company uses net debt to monitor it's current financial position and to evaluate existing sources of liquidity. Baytex also uses net debt projections to estimate future liquidity and whether additional sources of capital are required to fund ongoing operations. Baytex also uses a net debt to adjusted funds flow ratio calculated on a twelve-month trailing basis to monitor our existing capital structure and future liquidity requirements.
The following table reconciles Net Debt to amounts disclosed in the primary financial statements.
June 30, 2022 | December 31, 2021 | |||||||
Credit facilities | $ | 494,410 | $ | 505,171 | ||||
Unamortized debt issuance costs - Credit facilities (note 6) | 2,507 | 1,343 | ||||||
Long-term notes | 634,758 | 874,527 | ||||||
Unamortized debt issuance costs - Long-term notes (note 7) | 8,842 | 11,393 | ||||||
Trade and other payables | 309,163 | 190,692 | ||||||
Trade and other receivables | (326,383) | (173,409) | ||||||
Net Debt | $ | 1,123,297 | $ | 1,409,717 | ||||
Net Debt to Adjusted Funds Flow | 1.1 | 1.9 |
Adjusted Funds Flow
Adjusted funds flow is used to monitor operating performance and the our ability to generate funds for exploration and development expenditures and settlement of abandonment obligations. Adjusted funds flow is comprised of cash flows from operating activities adjusted for changes in non-cash working capital and asset retirements obligations settled during the applicable period.
Adjusted Funds Flow is reconciled to amounts disclosed in the primary financial statements in the following table.
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||
Cash flows from operating activities | $ | 360,034 | $ | 171,876 | $ | 559,008 | $ | 292,856 | ||||||
Change in non-cash working capital | (17,046) | 3,014 | 60,294 | 37,199 | ||||||||||
Asset retirement obligations settled | 2,716 | 993 | 6,009 | 2,410 | ||||||||||
Adjusted Funds Flow | $ | 345,704 | $ | 175,883 | $ | 625,311 | $ | 332,465 |
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