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Baytex Energy

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FY2021 Annual Report · Baytex Energy
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20      21

ANNUAL 
REPORT

TAKING  
THE LEAD
CREATING ENERGY
CREATING VALUE

T S X   B T E 

OUR 
HIGHLIGHTS

80,156 boe/d
for the full-year 2021

$ 421 million

free cash flow

(1)

24%
reduction
in net debt 

Clearwater appraisal program 
delivers
exciting results

52% 

reduction in GHG emissions intensity, 
relative to our 2018 baseline

1) Non-GAAP financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable with the calculation of similar measures 
presented by other entities. See “Specified Financial Measures” in the 2021 Annual MD&A for information related to this non-GAAP financial measure, which information is 
incorporated by reference into this document. 

Peace River

Duvernay

OUR  
OPERATING 
AREAS

Lloydminster

Viking

Eagle Ford

TABLE  
OF CONTENTS

Message to Shareholders 
Management’s Discussion and Analysis 
Management’s Report 
Auditors’ Reports 
Consolidated Financial Statements 
Reserves Information 

4
6
44
45
48
77

T S X   B T E 

SUMMARY 

FINANCIAL   
(thousands of Canadian dollars, except per common share amounts) 
Petroleum and natural gas sales 
Adjusted funds flow  (1) 
Per share – basic 
Per share – diluted 

Free cash flow (2) 

Per share – basic 
Per share – diluted 

Cash flows from operating activities 

Per share – basic 
Per share – diluted 

Net income (loss) 
Per share – basic 
Per share – diluted 

Capital Expenditures 
   Exploration and development expenditures 

   Acquisitions and divestitures 

 Total oil and natural gas capital expenditures  

Net Debt 
   Credit facilities 
   Long-term notes 
Long-term debt 
Working capital deficiency 

   Net debt (1) 

Shares Outstanding - basic (thousands) 

Weighted average 
End of period 

Twelve Months Ended 

December 31, 2021 

December 31, 2020 

$ 

$ 

$ 

$ 

$ 

1,868,195  
745,628  
1.32  
1.30  
421,329  
0.75  
0.74  
712,384  
1.26  
1.25  
1,613,600  
2.86  
2.82  

313,303  
(6,247) 
307,056  

506,514  
885,920  
1,392,434  
17,283  
1,409,717  

563,674  
564,213  

$ 

$ 

$ 

$ 

$ 

975,477  
311,506  
0.56  
0.56  
18,073  
0.03  
0.03  
353,096  
0.63  
0.63  
(2,438,964) 
(4.35) 
(4.35) 

280,340  
(182) 
280,158  

651,173  
1,147,950  
1,799,123  
48,478  
1,847,601  

560,657  
561,227  

Baytex Energy Corp. 2021 Annual Report

1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OPERATING 

Daily Production 

Light oil and condensate (bbl/d) 
Heavy oil (bbl/d) 
NGL (bbl/d) 
Total liquids (bbl/d) 
Natural gas (mcf/d) 
 Oil equivalent (boe/d @ 6:1) (3) 

Netback (thousands of Canadian dollars) 
Total sales, net of blending and other expense (2) 

Royalties 
Operating expense 
Transportation expense 

Operating netback (2) 

General and administrative 
Cash financing and interest 
Realized financial derivatives (loss) gain 
Other (4) 

Adjusted funds flow (1) 

Netback per boe (5) 
Total sales, net of blending and other expense (2) 

Royalties 
Operating expense 
Transportation expense 

Operating netback (2) 

General and administrative 
Cash financing and interest 
Realized financial derivatives (loss) gain 
Other (4) 

Adjusted funds flow (1) 

Twelve Months Ended 

December 31, 2021 

December 31, 2020 

35,789  
22,188  
7,244  
65,221  
89,606  
80,156  

1,782,506  
(339,156) 
(343,002) 
(32,261) 
1,068,087  
(40,804) 
(92,069) 
(184,241) 
(5,345) 
745,628  

60.93  
(11.59) 
(11.72) 
(1.10) 
36.52  
(1.39) 
(3.15) 
(6.30) 
(0.19) 
25.49  

$ 

$ 

$ 

$ 

$ 

$ 

37,056  
21,142  
7,340  
65,538  
85,464  
79,781  

927,096  
(163,735) 
(331,345) 
(28,437) 
403,579  
(34,268) 
(106,534) 
47,836  
893  
311,506  

31.75  
(5.61) 
(11.35) 
(0.97) 
13.82  
(1.17) 
(3.65) 
1.64  
0.03  
10.67  

$ 

$ 

$ 

$ 

$ 

$ 

Notes: 

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

(2)  Specified financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable with the calculation of similar measures 

presented by other entities. Refer to the Specified Financial Measures section in this press release for further information.

(3)  Barrel of oil equivalent ("boe") amounts have been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel of oil. The use of boe 
amounts may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas to one barrel of oil is based on an 
energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. 

(4)  Other is comprised of realized foreign exchange gain or loss, other income or expense, current income tax expense or recovery and share-based compensation. 

Refer to the 2021 MD&A for further information on these amounts.  

(5)  Calculated as royalties, operating or transportation expense divided by barrels of oil equivalent production volume for the applicable period.

2

Baytex Energy Corp. 2021 Annual Report

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Advisory Regarding Forward-Looking Statements 

In the interest of providing Baytex's shareholders and potential investors with information regarding Baytex, including management's assessment 
of Baytex's future plans and operations, certain statements in this report are "forward-looking statements" within the meaning of the United States 
Private Securities Litigation Reform Act of 1995 and "forward-looking information" within the meaning of applicable Canadian securities legislation 
(collectively,  "forward-looking  statements").  In  some  cases,  forward-looking  statements  can  be  identified  by  terminology  such  as  "believe", 
"continue",  ""estimate",  "expect",  "forecast",  "intend",  "may",  "objective",  "ongoing",  "outlook",  "potential",  "project",  "plan",  "should",  "target", 
"would", "will" or similar words suggesting future outcomes, events or performance.  The forward-looking statements contained in this report speak 
only as of the date thereof and are expressly qualified by this cautionary statement. 

Specifically, this document contains forward-looking statements relating to but not limited to: our business strategies, plans and objectives; that we 
continue to advance our Clearwater play; that our 5-year plan targets capital spending at ~50% of adjusted funds flow at a US$65 WTI price, 
generates $2.1 billion of cumulative free cash flow, and grows production to 90,000 boe/d (2% to 4% annual production growth) and at US$75 and 
$85 WTI generates $2.8 billion and $3.4 billion of cumulative free cash flow; inventory enhancement continues to be a priority; our Clearwater play 
holds the potential for >200 locations and 18 Clearwater wells are planned for 2022; oil and gas will be instrumental for in the energy transition; 
our GHG emissions commitments and targets; our 2040 abandonment and reclamation commitment; we expect to benefit from our diversified oil 
weighted portfolio and commitment to allocate capital effectively; for 2022, our capital budget, expected average daily production and expected 
free cash flow; that we intend to allocate ~25% of our free cash flow to share buybacks commencing Q2/2022; de-leveraging remains a priority; 
our long-term net debt target of $800 million and that we expect to hit that net debt target mid-2023 at which point we will consider further enhanced 
shareholder returns. In addition, information and statements relating to reserves are deemed to be forward-looking statements, as they involve 
implied assessment, based on certain estimates and assumptions, that the reserves described exist in quantities predicted or estimated, and that 
the reserves can be profitably produced in the future. 

These forward-looking statements are based on certain key assumptions regarding, among other things: petroleum and natural gas prices and 
differentials between light, medium and heavy oil prices; well production rates and reserve volumes; our ability to add production and reserves 
through our exploration and development activities; capital expenditure levels; our ability to borrow under our credit agreements; the receipt, in a 
timely manner, of regulatory and other required approvals for our operating activities; the availability and cost of labour and other industry services; 
interest and foreign exchange rates; the continuance of existing and, in certain circumstances, proposed tax and royalty regimes; our ability to 
develop  our  crude  oil  and  natural  gas  properties  in  the  manner  currently  contemplated;  and  current  industry  conditions,  laws  and  regulations 
continuing in effect (or, where changes are proposed, such changes being adopted as anticipated). Readers are cautioned that such assumptions, 
although considered reasonable by Baytex at the time of preparation, may prove to be incorrect. 

Actual results achieved will vary from the information provided herein as a result of numerous known and unknown risks and uncertainties and 
other factors. Such factors include, but are not limited to: the volatility of oil and natural gas prices and price differentials (including the impacts of 
Covid-19); restrictions or costs imposed by climate change initiatives and the physical risks of climate change; risks associated with our ability to 
develop our properties and add reserves; the impact of an energy transition on demand for petroleum productions; changes in income tax or other 
laws or government incentive programs; availability and cost of gathering, processing and pipeline systems; retaining or replacing our leadership 
and key personnel; the availability and cost of capital or borrowing; risks associated with a third-party operating our Eagle Ford properties; risks 
associated with large projects; costs to develop and operate our properties; public perception and its influence on the regulatory regime; current 
or future control, legislation or regulations; new regulations on hydraulic fracturing; restrictions on or access to water or other fluids; regulations 
regarding the disposal of fluids; risks associated with our hedging activities; variations in interest rates and foreign exchange rates; uncertainties 
associated with estimating oil and natural gas reserves; our inability to fully insure against all risks; additional risks associated with our thermal 
heavy oil projects; our ability to compete with other organizations in the oil and gas industry; risks associated with our use of information technology 
systems; results of litigation; that our credit facilities may not provide sufficient liquidity or may not be renewed; failure to comply with the covenants 
in our debt agreements; risks of counterparty default; the impact of Indigenous claims; risks associated with expansion into new activities; risks 
associated  with  the  ownership  of  our  securities,  including  changes  in  market-based  factors;  risks  for  United  States  and  other  non-resident 
shareholders, including the ability to enforce civil remedies, differing practices for reporting reserves and production, additional taxation applicable 
to  non-residents  and  foreign  exchange  risk;  and  other  factors,  many  of  which  are  beyond  our  control.  These  and  additional  risk  factors  are 
discussed in our Annual Information Form, Annual Report on Form 40-F and Management's Discussion and Analysis for the year ended December 
31, 2021, to be filed with Canadian securities regulatory authorities and the U.S. Securities and Exchange Commission not later than March 31, 
2022 and in our other public filings. 

These and additional risk factors are discussed in our Annual Information Form, Annual Report on Form 40-F and Management's Discussion and 
Analysis  for  the  year  ended  December  31,  2021,  filed  with  Canadian  securities  regulatory  authorities  and  the  U.S.  Securities  and  Exchange 
Commission on March 1, 2022 and in our other public filings. 

The  above summary  of  assumptions  and  risks  related  to  forward-looking statements  has  been  provided  in  order  to  provide shareholders  and 
potential investors with a more complete perspective on Baytex’s current and future operations and such information may not be appropriate for 
other purposes. 

There is no representation by Baytex that actual results achieved will be the same in whole or in part as those referenced in the forward-looking 
statements and Baytex does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether 
as a result of new information, future events or otherwise, except as may be required by applicable securities law. 

All amounts in this report are stated in Canadian dollars unless otherwise specified. 

Baytex Energy Corp. 2021 Annual Report

3

 
 
MESSAGE  
TO SHAREHOLDERS

           During this period of renewed optimism, 
we stayed true to our priorities of maintaining 
capital discipline, maximizing free cash flow and 
reducing net debt. Our team has proven to be 
resilient, focused and totally committed to 
generating value for shareholders. 

Edward D. LaFehr 
President and Chief Executive Officer

This past year we witnessed a remarkable turnaround for the oil and gas industry as economies recovered from the 
Covid-19 pandemic and energy prices surged. During this period of renewed optimism, we stayed true to our priorities 
of maintaining capital discipline, maximizing free cash flow and reducing net debt. Our team has proven to be resilient, 
focused and totally committed to generating value for shareholders. 

(1)

In 2021, we generated production of just over80,000 boe/d, above the high end of our annual guidance and delivered 
record free cash flow  of $421 million. We significantly strengthened our business as we allocated 100% of free cash flow to 
debt repayment, reducing net debt  by 24% to $1.4 billion. Exploration and development expenditures totaled $313 million, 
in line with our annual guidance. We also continued to advance our exciting new Clearwater play in northwest Alberta with 
four of the highest initial rate wells drilled to date in the play. 

(2)

During 2021, we introduced a five-year plan (2021 to 2025) which highlighted our financial and operational sustainability 
and free cash flow generating capability. Our base plan at US$65 WTI will see us invest approximately 50% of our annual 
adjusted funds flow during the plan period, generate $2.1 billion of cumulative free cash flow and grow production to 
approximately 90,000 boe/d, reflecting a 2% to 4% annual production growth rate. Under constant US$75/bbl and 
US$85/bbl pricing scenarios, our expected cumulative free cash flow increases to approximately $2.8 billion and  
$3.4 billion, respectively. 

Our business is backstopped by proved developed producing reserves of 129 million boe, proved reserves of 278 million 
boe and proved plus probable reserves of 451 million boe. In Canada, we have one of the largest conventional oil portfolios, 
including high operating netback, light oil production in the Viking and low decline, heavy oil production at Peace River and 
Lloydminster. We also hold a dominant land position in the Pembina Duvernay, which has similar geologic and reservoir 
characteristics to our Eagle Ford shale asset in the United States. Our position in the Eagle Ford is considered one of the 
highest quality, lowest-cost U.S. resource plays with outstanding drilling economics. 

Clearwater Development 

Across all of our core assets, inventory enhancement continues to be a priority. We are also committed to building and 
maintaining respectful relationships with Indigenous communities and creating opportunities for meaningful economic 
participation and inclusion. We have now executed two strategic agreements with the Peavine Métis Settlement in the 
Peace River area that cover 80 sections of land directly to the south of our existing operations. We hold another  
45 sections of land with Clearwater potential, giving us 125 sections of prospective lands in the play. This play aligns 
strongly with our core competencies in heavy oil exploration and multi-lateral development. 

4

Baytex Energy Corp. 2021 Annual Report

 
 
 
Our 2021 appraisal program yielded exceptional results with production increasing from zero at the beginning of 2021 to 
over 3,000 bbl/d in January 2022. Our 2022 drilling program is underway and we expect to bring 18 wells onstream this 
year. With continued success, we believe the play ultimately holds the potential for over 200 drilling locations that could 
support production increasing to over 10,000 bbl/d. The Clearwater generates strong economics with the ability to grow 
organically while enhancing our free cash flow profile. 

Environmental Stewardship 

The energy industry and society are undergoing a transition to a low-carbon economy. We believe oil and gas will be 
instrumental in this energy transition. As a responsible energy producer, we are committed to monitoring greenhouse gas 
(GHG) emissions from our operations, setting targets to reduce our GHG emissions intensity and pursuing cost-effective 
decarbonization strategies. 

We have established a target to reduce our corporate GHG emission intensity (tonnes of CO2e per boe) by 65% by 2025, 
relative to our 2018 baseline. In 2021, we reduced our GHG emissions intensity by 11% over 2020 levels. Our emissions 
reduction strategy includes increased gas conservation and combustion, reusing associated gas as fuel for field activities, 
reducing emissions from storage tanks, along with monitoring and preventing fugitive emissions. 

Our commitment to responsible development also extends to the retirement of our assets. We plan for full lifecycle 
development of our properties which includes the restoration, abandonment and reclamation of assets that have reached 
the end of their productive life. At December 31, 2020, we had an end of life well inventory of approximately 4,500 wells. 
We have committed to reducing this well inventory to zero by 2040.  

Looking Forward 

In 2022, we expect to benefit from our diversified oil weighted portfolio and our commitment to allocate capital effectively. 
Our capital program is designed to generate stable production from our light and heavy oil assets in Canada and the Eagle 
Ford in the United States, while scaling up development in the Clearwater. Our 2022 guidance remains unchanged as we 
target production of 80,000 to 83,000 boe/d with exploration and development expenditures of $400 to $450 million. 
Based on the forward strip at time of writing, we expect to generate over $550 million of free cash flow in 2022. 

With continued operating momentum and strong commodity prices, we expect to reach our initial $1.2 billion net debt 
target during the second quarter of 2022. As we reach this debt level, we will have reduced our net debt by approximately 
$1.1 billion over the past three and a half years. As a result of our significantly improved financial position, we are pleased 
to introduce the next phase of our enhanced return to shareholders. 

For 2022, we expect to allocate approximately 25% of our annual free cash flow to a share buyback program commencing 
in Q2/2022. The remainder of our free cash flow will continue to be allocated to debt reduction until we achieve a net debt 
level of $800 million, which represents an expected net debt to EBITDA ratio  of 1.0x at a US$55 WTI price. We feel this 
will provide us with ultimate flexibility to run our business through the commodity price cycles and generate meaningful 
returns for all stakeholders. At current prices, we expect to achieve this net debt level by mid-2023, at which point we will 
consider steps to further enhance shareholder returns. 

(3)

Baytex’s success is due to our dedicated and talented team of employees who are passionate about delivering our 
strategies and plans to create value for shareholders. Complementing our leadership team and dedicated employees,  
our Board of Directors is an indispensable source of guidance and support which contribute greatly to our success.  
We look forward to executing our plans for 2022 for the ongoing benefit of all stakeholders and we thank you for your 
continued support. 

Sincerely,

Edward D. LaFehr 

President and Chief Executive Officer 
February 24, 2022 

(1) Non-GAAP financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable with the  

calculation of similar measures presented by other entities. See "Specified Financial Measures" in the 2021 Annual MD&A for information 
related to this non-GAAP financial measure, which information is incorporated by reference into this document.

(2) Capital management measure. See "Specified Financial Measures" in the 2021 Annual MD&A for information related to this measure, which 

information is incorporated by reference into this document.

(3) Net debt to EBITDA ratio is comprised of net debt divided by Bank EBITDA. Bank EBITDA is calculated in accordance with our credit facility 

which is accessible on the SEDAR website at www.sedar.com

Baytex Energy Corp. 2021 Annual Report

5

MANAGEMENT'S DISCUSSION AND ANALYSIS

The following is management’s discussion and analysis (“MD&A”) of the operating and financial results of Baytex Energy Corp. for 
the years ended December 31, 2021 and 2020. This information is provided as of February 24, 2022. In this MD&A, references to 
“Baytex”, the “Company”, “we”, “us” and “our” and similar terms refer to Baytex Energy Corp. and its subsidiaries on a consolidated 
basis,  except  where  the  context  requires  otherwise.  The  results  for  the  three  months  and  year  ended  December  31,  2021 
("Q4/2021" and "2021") have been compared with the results for the three months and year ended December 31, 2020 ("Q4/2020" 
and  "2020").  This  MD&A  should  be  read  in  conjunction  with  the  Company’s  audited  consolidated  financial  statements 
(“consolidated financial statements”) for the years ended December 31, 2021 and 2020, together with the accompanying notes and 
the Annual  Information  Form  ("AIF")  for  the  year  ended December  31,  2021. These  documents  and  additional  information  about 
Baytex  are  accessible  on  the  SEDAR  website  at  www.sedar.com  and  through  the  U.S.  Securities  and  Exchange  Commission  at 
www.sec.gov. All amounts are in Canadian dollars, unless otherwise stated, and all tabular amounts are in thousands of Canadian 
dollars, except for percentages and per common share amounts or as otherwise noted. 

In this MD&A, barrel of oil equivalent (“boe”) amounts have been calculated using a conversion rate of six thousand cubic feet of 
natural gas to one barrel of oil, which represents an energy equivalency conversion method applicable at the burner tip and does 
not  represent  a  value  equivalency  at  the  wellhead.  While  it  is  useful  for  comparative  measures,  it  may  not  accurately  reflect 
individual product values and may be misleading if used in isolation. 

This MD&A contains forward-looking information and statements along with certain measures which do not have any standardized 
meaning  in  accordance  with  International  Financial  Reporting  Standards  ("IFRS")  as  prescribed  by  the  International Accounting 
Standards  Board.  The  terms  "operating  netback",  "free  cash  flow",  "average  royalty  rate",  "heavy  oil,  net  of  blending  and  other 
expense" and "total sales, net of blending and other expense" are specified financial measures that do not have any standardized 
meaning as prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies where 
similar terminology is used. This MD&A also contains the terms "adjusted funds flow", "net debt" and "net debt to adjusted funds 
flow ratio" which are capital management measures. Refer to  our advisory on forward-looking information  and statements  and  a 
summary of our specified financial measures at the end of the MD&A.

BAYTEX ENERGY CORP.

Baytex Energy Corp. is a North American focused energy company based in Calgary, Alberta. The company operates in Canada 
and the United States ("U.S."). The Canadian operating segment includes our light oil assets in the Viking and Duvernay, our heavy 
oil assets in Peace River and Lloydminster and our conventional oil and natural gas assets in Western Canada. The U.S. operating 
segment includes our Eagle Ford assets in Texas.

2021 ANNUAL HIGHLIGHTS

Baytex delivered strong operating and financial results in 2021. Energy prices strengthened with increasing demand as economies 
recovered  from  the  COVID-19  pandemic  and  supply  remained  limited  by  OPEC  production  curtailments  along  with  restricted  oil 
and  gas  investment  globally. As  a  result,  WTI  averaged  US$67.92/bbl  for  2021  which  was  a  US$28.52/bbl  increase  from  2020 
when WTI averaged US$39.40/bbl. With higher commodity prices, we generated adjusted funds flow(1) of $745.6 million and free 
cash flow(2) of $421.3 million which contributed to a $437.9 million reduction in net debt(1). Strong well performance across all of our 
assets  resulted  in  production  of  80,156  boe/d  which  was  slightly  above  the  high  end  of  our  annual  guidance  range  of  77,000  - 
79,000 boe/d. Our disciplined approach to capital allocation and continued focus on reducing our cost structure has improved the 
results we have achieved as commodity prices have increased. 

Exploration and development expenditures were $313.3 million in 2021 with $208.2 million invested in Canada and $105.1 million 
in the U.S. In Canada, we drilled 37 (33.5 net) heavy oil wells, including 8 (8.0 net) wells in our developing Clearwater play, and 
125 (123.2 net) light oil wells which resulted in production of 49,424 boe/d for 2021 compared to 48,602 boe/d in 2020. In the U.S., 
production of 30,731 boe/d for 2021 reflects our successful development activity which restored production to be consistent with 
31,179 boe/d in 2020 when spending was limited in response to low commodity prices. In 2021, we brought 93 (23.1 net) wells on 
production compared to 2020 where we brought 62 (14.1 net) wells on production.

(1) Capital management measure. Refer to the Specified Financial Measures section in this MD&A for further information.
(2) Specified financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable with the calculation 

of similar measures presented by other entities. Refer to the Specified Financial Measures section in this MD&A for further information.

6

Baytex Energy Corp. 2021 Annual Report

Adjusted funds flow(1) of $745.6 million in 2021 increased $434.1 million from 2020 due to the increase in oil and natural gas prices 
relative to 2020 when adjusted funds flow was $311.5 million. Improved pricing was the main factor contributing to a $664.5 million 
increase in operating netback(2) in 2021 compared to 2020. Our strong operating and financial results generated net income of $1.6 
billion for 2021 which included impairment reversals of $1.5 billion compared to a net loss of $2.6 billion for 2020 which included 
impairment write-downs of $2.4 billion.

We  used  our  2021  free  cash  flow(2)  of  $421.3  million  to  reduce  our  net  debt(1)  to  $1.41  billion  at  December  31,  2021  which  was 
$437.9 million lower compared to $1.85 billion at December 31, 2020. As part of our debt reduction we repurchased and cancelled 
US$200  million  of  the  5.625%  Notes  due  in  2024  during  2021. At December  31,  2021,  US$200.0  million  of  the  2024  Notes  and 
US$500 million of the 2027 Notes remain outstanding.

(1) Capital management measure. Refer to the Specified Financial Measures section in this MD&A for further information.
(2) Specified financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable with the calculation 

of similar measures presented by other entities. Refer to the Specified Financial Measures section in this MD&A for further information.

GUIDANCE 

The following table compares our 2021 annual guidance to our 2021 results. We delivered production that exceeded our annual 
guidance  with  exploration  and  development  expenditures  that  approximated  the  high  end  of  our  guidance  range.  Expenses  and 
lease expenditures were within or slightly below our annual guidance as a result of our continued efforts to control costs.

Exploration and development expenditures

Production (boe/d)

Expenses:

Average royalty rate(3)
Operating(4)
Transportation(4)
General and administrative(4)
Cash Interest(4)

Leasing expenditures

Asset retirement obligations

Original Annual 
Guidance(1)
$225 - $275 million

Revised Annual 
Guidance(2)
$285 - $315 million

73,000 - 77,000

77,000 - 79,000

18.0% - 18.5%

18.0% - 18.5%

$11.50 - $12.25/boe

$11.25 - $12.00/boe

$1.00 - $1.10/boe

$1.15 - $1.25/boe

2021 Results

$313 million

80,156 

 19.0 %

$11.72/boe

$1.10/boe

$42 million ($1.53/boe)

$42 million ($1.48/boe)

$41 million ($1.39/boe)

$105 million ($3.84/boe)

$98 million ($3.46/boe)

$92 million ($3.15/boe)

$4 million

$6 million

$4 million

$6 million

$4 million

$7 million

(1) As announced on December 2, 2020.
(2) As  announced  on  April  29,  2021.  This  guidance  reference  date  included  the  introduction  of  a  five-year  outlook.  2021  guidance  was 
subsequently  tightened  on  November  4,  2021,  reflecting  year-to-date  results,  to  $300  to  $315  million  for  exploration  and  development 
expenditures,  79,500  to  80,000  boe/d  for  production,  18.5%  to  19.0%  for  royalty  rates,  $11.25/boe  to  $11.75/boe  for  operating  expenses, 
$1.10/boe to $1.15/boe for transportation expenses and $92 million ($3.16/boe) for interest expense.

(3) Specified financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable with the calculation 

of similar measures presented by other entities. Refer to the Specified Financial Measures section in this MD&A for further information.

(4) Refer to Operating Expense, Transportation Expense, General and Administrative Expense and Financing and Interest Expense sections of 

this MD&A for description of the composition of these measures.

Baytex Energy Corp. 2021 Annual Report

7

On December 1, 2021 our Board of Directors approved our 2022 budget which included exploration and development expenditures 
of $400 - $450 million that is designed to generate production of 80,000 - 83,000 boe/d. The program is expected to be equally 
weighted between the first and second half of 2022. Additional activity and Clearwater development in 2022 will result in exploration 
and development expenditures of $400 - $450 million in 2022 compared to $313 million in 2021. The increase in asset retirement 
obligations settled in 2022 relative to 2021 reflects our commitment to reduce our inactive wellbore count. We expect lower interest 
expense in 2022 relative to 2021 due to lower net debt as we continue to use free cash flow for debt repayment.

The following table compares our 2022 annual guidance as released on December 1, 2021 to our 2021 results.

Exploration and development expenditures

Production (boe/d)

Expenses:

Average royalty rate(1)
Operating(2)
Transportation(2)
General and administrative(2)
Cash Interest(2)

Leasing expenditures
Asset retirement obligations settled (3)

2022 Guidance

$400 - $450 million

80,000 - 83,000

2021 Results

$313 million

80,156 

18.5% - 19.0%

$12.25 - $13.00/boe

$1.20 - $1.30/boe

 19.0 %

$11.72/boe

$1.10/boe

$43 million ($1.45/boe)

$41 million ($1.39/boe)

$80 million ($2.70/boe)

$92 million ($3.15/boe)

$3 million

$20 million

$4 million

$7 million

(1) Specified financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable with the calculation 

of similar measures presented by other entities. Refer to the Specified Financial Measures section in this MD&A for further information.

(2) Refer  to  Operating  Expense,  Transportation  Expense  General  and  Administrative  Expense  and  Financing  and  Interest  Expense  sections  of 

this MD&A for description of the composition of these measures. 

(3) Government  grants  reduced  asset  retirement  obligations  by  $3  million  in  2021.  In  2022  we  expect  government  grants  to  reduce  asset 

retirement obligations by $15 million. 

8

Baytex Energy Corp. 2021 Annual Report

RESULTS OF OPERATIONS 

The Canadian operating segment includes our light oil assets in the Viking and Duvernay, our heavy oil assets in Peace River and 
Lloydminster and our conventional oil and natural gas assets in Western Canada. The U.S. operating segment includes our Eagle 
Ford assets in Texas.

Production

Daily Production

Liquids (bbl/d)

Light oil and condensate

Heavy oil

Natural Gas Liquids ("NGL")

Total liquids (bbl/d)

Natural gas (mcf/d)

Total production (boe/d)

Production Mix

Segment as a percent of total

Light oil and condensate

Heavy oil

NGL

Natural gas

Years Ended December 31

2021

2020

Canada

U.S.

Total

Canada

U.S.

Total

16,943 

22,188 

1,671 

40,802 

51,733 

49,424 

18,846 

— 

5,573 

24,419 

37,874 

30,731 

35,789 

22,188 

7,244 

65,221 

89,606 

80,156 

19,103 

21,142 

1,224 

41,469 

42,799 

48,602 

17,953 

— 

6,116 

24,069 

42,665 

31,179 

37,056 

21,142 

7,340 

65,538 

85,464 

79,781 

 62 %

 38 %

 100 %

 61 %

 39 %

 100 %

 34 %

 45 %

 3 %

 18 %

 61 %

 — %

 18 %

 21 %

 45 %

 28 %

 9 %

 18 %

 39 %

 44 %

 3 %

 14 %

 58 %

 — %

 20 %

 22 %

 46 %

 27 %

 9 %

 18 %

Production of 80,156 boe/d in 2021 was consistent with 79,781 boe/d in 2020. Production declined from Q1/2020 to Q2/2020 due 
to the sharp decline in crude oil prices in March 2020 when we shut-in production in Canada and moderated the pace of activity in 
the  U.S.  Commodity  prices  began  to  recover  in  Q3/2020  and  have  strengthened  throughout  2021  which  supported  increased 
development activity and resulted in production of 80,789 boe/d for Q4/2021 relative to 70,475 boe/d in Q4/2020. 

In Canada, total production of 49,424 boe/d in 2021 was consistent with 48,602 boe/d in 2020 as our successful 2021 development 
program  restored  production  after  development  activity  was  limited  and  production  declined  throughout  2020.  In  the  U.S., 
production  was  30,731  boe/d  in  2021  compared  to  31,179  boe/d  for  2020.  Production  levels  were  consistent  year  over  year  as 
successful  development  program  in  2021  restored  production  levels  that  declined  throughout  2020  when  development  spending 
was limited.

Total production of 80,156 boe/d for 2021 was slightly above our revised guidance of 77,000 - 79,000 boe/d which reflects strong 
well performance from our successful development programs in the U.S. and Canada. We expect production in 2022 to average 
80,000 - 83,000 boe/d in 2022 which is a modest increase from 2021.

Commodity Prices

The  prices  received  for  our  crude  oil  and  natural  gas  production  directly  impact  our  earnings,  free  cash  flow  and  our  financial 
position.

Crude Oil

Global benchmark prices for crude oil were strong throughout 2021. Oil supply was impacted by OPEC production curtailments and 
limited production growth from large independent producers while the outlook for oil demand improved as global economic activity 
increased and economies recovered from the pandemic. These factors resulted in the WTI benchmark price averaging US$67.92/
bbl for 2021 which is US$28.52/bbl higher relative to US$39.40/bbl for 2020.

We compare the price received for our U.S. crude oil production to the Magellan East Houston ("MEH") stream at Houston, Texas 
which is a representative benchmark for light oil pricing at the U.S. Gulf coast. The MEH benchmark averaged US$69.26/bbl during 
2021, representing a premium of US$1.34/bbl relative to WTI, compared to US$40.15/bbl or a premium of US$0.75/bbl for 2020. 

Baytex Energy Corp. 2021 Annual Report

9

Prices for Canadian oil trade at a discount to WTI due to a lack of egress to diversified markets from Western Canada. Differentials 
for Canadian oil prices relative to WTI fluctuate from period to period based on production and inventory levels in Western Canada.

We compare the price received for our light oil production in Canada to the Edmonton par benchmark oil price. The Edmonton par 
price averaged $80.23/bbl for 2021 compared to $45.34/bbl for 2020. Edmonton par traded at a US$3.92/bbl discount to WTI in 
2021  which  is  tighter  than  a  discount  of  US$5.60/bbl  for  2020  as  a  result  of  incremental  egress  with  the  Line  3  expansion  and 
higher demand for Canadian light oil.

We compare the price received for our heavy oil production in Canada to the WCS heavy oil benchmark. The WCS heavy oil price 
for 2021 averaged $68.79/bbl compared to $35.95/bbl for 2020. The increase in the WCS heavy oil benchmark is a result of the 
higher WTI price as the differential of US$13.05/bbl in 2021 was relatively consistent with the differential of US$12.60/bbl during 
2020.

Natural Gas

Our  U.S.  natural  gas  production  is  priced  in  reference  to  the  New York  Mercantile  Exchange  ("NYMEX")  natural  gas  index. The 
NYMEX  natural  gas  benchmark  averaged  US$3.84/mmbtu  for  2021  which  is  higher  than  US$2.08/mmbtu  for  2020  as  strong 
demand and lower U.S. production resulted in reduced inventory levels for 2021 relative to 2020.

In Canada, we receive natural gas pricing based on the AECO benchmark which continues to trade at a discount to NYMEX as a 
result  of  limited  market  access  for  Canadian  natural  gas  production.  The  AECO  benchmark  averaged  $3.56/mcf  during  2021 
compared  to  $2.24/mcf  during  2020.  The  AECO  benchmark  was  higher  in  2021  relative  to  2020  due  to  lower  production  and 
increased demand for natural gas which resulted in reduced inventory levels in Canada.

The following tables compare select benchmark prices and our average realized selling prices for the years ended December 31, 
2021 and 2020.

Benchmark Averages
WTI oil (US$/bbl)(1)
MEH oil (US$/bbl)(2)
MEH oil differential to WTI (US$/bbl)
Edmonton par oil ($/bbl)(3)
Edmonton par oil differential to WTI (US$/bbl)
WCS heavy oil ($/bbl)(4)
WCS heavy oil differential to WTI (US$/bbl)
AECO natural gas price ($/mcf)(5)
NYMEX natural gas price (US$/mmbtu)(6)
CAD/USD average exchange rate

Years Ended December 31

2021 

67.92 

69.26 

1.34 

80.23 

(3.92) 

68.79 

(13.05) 

3.56 

3.84 

1.2536 

2020 

Change

39.40 

40.15 

0.75 

45.34 

(5.60) 

35.95 

(12.60) 

2.24 

2.08 

1.3413 

28.52 

29.11 

0.59 

34.89 

1.68 

32.84 

(0.45) 

1.32 

1.76 

(0.0877) 

(1) WTI refers to the arithmetic average of NYMEX prompt month WTI for the applicable period. 
(2) MEH refers to arithmetic average of the Argus WTI Houston differential weighted index price for the applicable period.
(3) Edmonton par refers to the average posting price for the benchmark MSW crude oil.
(4) WCS refers to the average posting price for the benchmark WCS heavy oil. 
(5) AECO refers to the AECO arithmetic average month-ahead index price published by the Canadian Gas Price Reporter ("CGPR").
(6) NYMEX refers to the NYMEX last day average index price as published by the CGPR.

10

Baytex Energy Corp. 2021 Annual Report

Years Ended December 31

2021

2020

Canada

U.S.

Total

Canada

 U.S.

Total

$ 

77.65  $ 

85.14  $ 

81.59  $ 

42.35  $ 

49.84  $ 

45.98 

58.65 

30.99 

3.62 

— 

37.17 

5.70 

58.65 

35.74 

4.50 

24.28 

13.47 

2.13 

— 

15.57 

2.65 

24.28 

15.22 

2.39 

$ 

57.79  $ 

65.98  $ 

60.93  $ 

29.42  $ 

35.38  $ 

31.75 

Average Realized Sales Prices
Light oil and condensate ($/bbl)(1)

Heavy oil, net of blending and other expense
($/bbl)(2)
NGL ($/bbl)(1)
Natural gas ($/mcf)(1)
Total sales, net of blending and other expense 
($/boe)(2)

Average Realized Sales Prices

Our total sales, net of blending and other expense per boe was $60.93/boe for 2021 compared to $31.75/boe for 2020. In Canada, 
our realized sales price of $57.79/boe for 2021 was $28.37/boe higher than $29.42/boe for 2020. Our realized sales price in the 
U.S. was $65.98/boe in 2021 which is $30.60/boe higher than $35.38/boe in 2020. The increase in our realized price in Canada 
and the U.S. for 2021 was a result of higher North American benchmark prices relative to 2020.

We  compare  our  light  oil  realized  price  in  Canada  to  the  Edmonton  par  benchmark  price.  Our  realized  light  oil  and  condensate 
price in 2021 was $77.65/bbl compared to $42.35/bbl in 2020. Our realized light oil and condensate price for 2021 increased with 
the  improvement  in  the  benchmark  price  and  represents  a  discount  of  $2.58/bbl  to  the  Edmonton  par  benchmark  which  is 
consistent with a $2.99/bbl discount in 2020.

We compare the price received for our U.S. light oil and condensate production to the MEH benchmark. Our realized light oil and 
condensate price averaged $85.14/bbl for 2021 compared to $49.84/bbl for 2020. Expressed in U.S. dollars, our realized light oil 
and condensate price of US$67.92/bbl for 2021 reflects a US$1.34/bbl discount to the MEH benchmark for 2021 compared to a 
realized  price  of  US$37.16/bbl  and  discount  of  US$2.99/bbl  in  2020.  Improved  pricing  on  our  contracts  in  place  for  2021  have 
resulted in improved price realizations relative to 2020.

Our realized heavy oil price, net of blending and other expense(1) averaged $58.65/bbl in 2021 compared to $24.28/bbl in 2020. 
Our  realized  heavy  oil  price,  net  of  blending  and  other  expense  for  2021  increased  $34.37/bbl  which  is  slightly  higher  than  a 
$32.84/bbl increase in the WCS benchmark due to improved pricing on our rail contracts in place during 2021.

Our realized NGL price as a percentage of WTI can vary from period to period based on the product mix of our NGL volumes and 
changes in the market prices of the underlying products. Our realized NGL price was $35.74/bbl in 2021 or 42% of WTI (expressed 
in Canadian dollars) compared to $15.22/bbl or 29% of WTI (expressed in Canadian dollars) in 2020. Our realized NGL price was 
higher as a percentage of WTI in 2021 relative to 2020 due to strong global demand, incremental LNG export capacity and lower 
supply of NGLs in 2021.

We compare our realized natural gas price in Canada to the AECO benchmark price. Our realized natural gas price for 2021 was 
$3.62/mcf compared to $2.13/mcf in 2020. These realized prices were relatively consistent with the AECO benchmark price in both 
periods. In the U.S., our realized natural gas price was US$4.55/mcf for 2021 compared to US$1.98/mcf in 2020. A portion of our 
natural gas production is based on daily indexes which resulted in a US$0.71/mcf premium for our realized natural gas price when 
compared  to  the  NYMEX  benchmark  for  2021  due  to  fluctuations  in  the  daily  index  caused  by  severe  weather  events  which 
disrupted supply and caused increased demand in the U.S. Gulf coast during 2021.

(1) Calculated  as  light  oil  and  condensate,  NGL  or  natural  gas  sales  divided  by  barrels  of  oil  equivalent  production  volume  for  the  applicable 

period. 

(2) Specified financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable with the calculation 

of similar measures presented by other entities. Refer to the Specified Financial Measures section in this MD&A for further information.

Baytex Energy Corp. 2021 Annual Report

11

Petroleum and Natural Gas Sales

($ thousands)

Oil sales

Years Ended December 31

2021

2020

Canada

U.S.

Total

Canada

U.S.

Total

Light oil and condensate

$  480,199  $  585,635  $ 1,065,834  $  296,125  $  327,460  $  623,585 

Heavy oil

NGL

Total liquids sales

Natural gas sales

560,696 

— 

560,696 

236,235 

— 

236,235 

18,904 

75,611 

94,515 

6,037 

34,845 

40,882 

1,059,799 

661,246 

1,721,045 

538,397 

362,305 

900,702 

68,338 

78,812 

147,150 

33,344 

41,431 

74,775 

Total petroleum and natural gas sales

1,128,137 

740,058 

1,868,195 

571,741 

403,736 

975,477 

(48,381) 
Blending and other expense
Total sales, net of blending and other expense(1) $ 1,042,448  $  740,058  $ 1,782,506  $  523,360  $  403,736  $  927,096 
(1) Specified financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable with the calculation 

(85,689) 

(48,381) 

(85,689) 

— 

— 

of similar measures presented by other entities. Refer to the Specified Financial Measures section in this MD&A for further information.

Total sales, net of blending and other expense, of $1.78 billion for 2021 increased $0.86 billion or 92% from $0.93 billion for 2020. 
The increase in total sales, net of blending and other expense, in 2021 is a result of higher realized pricing due to the increase in 
benchmark pricing relative to 2020. 

In Canada, total sales, net of blending and other expense, was $1.04 billion for 2021 which is an increase of $0.52 billion or 100% 
from $0.52 billion reported for 2020. In the U.S., petroleum and natural gas sales were $740.1 million for 2021 which is an increase 
of  $336.3  million  or  83%  from  $403.7  million  reported  for  2020.  Total  sales,  net  of  blending  and  other  expense,  increased  in 
Canada and the U.S. in 2021 due to higher oil and natural gas prices relative to 2020.

Royalties 

Royalties are paid to various government entities and to land and mineral rights owners. Royalties are calculated based on gross 
revenues  or  on  operating  netbacks  less  capital  investment  for  specific  heavy  oil  projects  and  are  generally  expressed  as  a 
percentage of total sales, net of blending and other expense. The actual royalty rates can vary for a number of reasons, including 
the commodity produced, royalty contract terms, commodity price level, royalty incentives and the area or jurisdiction. The following 
table summarizes our royalties and royalty rates for the years ended December 31, 2021 and 2020.

Years Ended December 31

2021

2020

($ thousands except for % and per boe)

Canada

U.S.

Total

Canada

U.S.

Total

Royalties
Average royalty rate(1)(2)
Royalties per boe(3)

$ 121,306 

$ 217,850 

$ 339,156 

$  46,064 

$ 117,671 

$ 163,735 

 11.6 %

 29.4 %

 19.0 %

 8.8 %

 29.1 %

 17.7 %

$ 

6.72 

$  19.42 

$  11.59 

$ 

2.59 

$  10.31 

$ 

5.61 

(1) Average royalty rate is calculated as royalties divided by total sales, net of blending and other expense.
(2) Specified financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable with the calculation 

of similar measures presented by other entities. Refer to the Specified Financial Measures section in this MD&A for further information.

(3) Royalties per boe is calculated as royalties divided by barrels of oil equivalent production volume for the applicable period.

Royalties for 2021 were $339.2 million or 19.0% of total sales, net of blending and other expense, compared to $163.7 million or 
17.7% in 2020. Total royalty expense was higher in 2021 due to higher total sales, net of blending and other expense, relative to 
2020.  Our  average  royalty  rate  of  19.0%  for  2021  is  higher  than  17.7%  for  2020  due  to  a  higher  royalty  rate  on  our  Canadian 
properties  as  a  result  of  higher  commodity  prices.  Our  average  royalty  rate  of  19.0%  for  2021  is  consistent  with  our  annual 
guidance range of 18.0% - 18.5% for 2021.

In Canada, the average royalty rate was 11.6% in 2021 which was higher than 8.8% for 2020 as certain production in Canada is 
subject to higher royalty rates with higher benchmark commodity prices. In the U.S., the average royalty rate was 29.4% for 2021 
which is consistent with 29.1% for 2020 as the royalty rate on our U.S. production does not vary with price but can vary across our 
acreage.

We expect our average royalty rate to be 18.5% - 19.0% in 2022 which is consistent with 2021.

12

Baytex Energy Corp. 2021 Annual Report

Operating Expense

Years Ended December 31

2021

2020

($ thousands except for per boe)

Operating expense
Operating expense per boe(1)

Canada

U.S.

Total

Canada

U.S.

Total

$  257,658  $ 

85,344  $  343,002  $  247,050  $ 

84,295  $  331,345 

$ 

14.28  $ 

7.61  $ 

11.72  $ 

13.89  $ 

7.39  $ 

11.35 

(1) Operating expense per boe is calculated as operating expense divided by barrels of oil equivalent production volume for the applicable period.

Total operating expense was $343.0 million ($11.72/boe) in 2021 compared to $331.3 million ($11.35/boe) in 2020. The increase in 
total operating expense is primarily attributed to a slight increase in per unit operating expenses. Operating expense of $11.72/boe 
for 2021 is consistent with our annual guidance range of $11.25 - $12.00/boe. 

In  Canada,  operating  expense  was $257.7  million  ($14.28/boe)  for  2021  compared  to  $247.1  million  ($13.89/boe)  for  2020. The 
increase in total operating expense was a result of slightly higher production and a slight increase in per unit operating expense in 
2021 relative to 2020. The increase in per unit operating expense to $14.28/boe for 2021 from $13.89/boe reported for 2020 was a 
result of reactivating higher cost production that was shut-in for a portion of 2020 in addition to an increase in fuel and electricity 
costs in 2021.

U.S. operating expense was $85.3 million ($7.61/boe) for 2021 compared to $84.3 million ($7.39/boe) for 2020. Expressed in U.S. 
dollars,  per  unit  operating  expense  was  US$6.07/boe  for  2021  and  was  relatively  consistent  with  US$5.51/boe  for  2020  after 
normalizing for a $3.7 million credit recorded during 2020 for the reimbursement of prior period charges.

We expect annual operating expense of $12.25 - $13.00/boe for 2022 which reflects higher production in our Canadian operations 
relative to 2021.

Transportation Expense

Transportation  expense  includes  the  costs  to  move  production  from  the  field  to  the  sales  point.  The  largest  component  of 
transportation expense relates to the trucking of oil in Canada to pipeline and rail terminals which can vary from period to period 
depending on hauling distances as we seek to optimize sales prices and trucking rates. 

The following table compares our transportation expense for the years ended December 31, 2021 and 2020.

Years Ended December 31

2021

2020

($ thousands except for per boe)

Transportation expense
Transportation expense per boe(1)

Canada

U.S.

Total

Canada

U.S.

Total

$ 

$ 

32,261  $ 

1.79  $ 

—  $ 

—  $ 

32,261  $ 

28,437  $ 

—  $ 

28,437 

1.10  $ 

1.60  $ 

—  $ 

0.97 

(1) Transportation  expense  per  boe  is  calculated  as  transportation  expense  divided  by  barrels  of  oil  equivalent  production  volume  for  the 

applicable period.

Transportation expense was $32.3 million ($1.10/boe) for 2021 compared to $28.4 million ($0.97/boe) for 2020. Total transportation 
expense increased in 2021 relative to 2020 as more volumes were trucked and we experienced higher per unit costs in 2021. Per 
unit  transportation  expense  in  Canada  of  $1.79/boe  in  2021  is  higher  than  $1.60/boe  in  2020  as  a  result  of  increased  trucking 
distances  and  higher  fuel  costs  in  2021  relative  to  2020.  Transportation  expense  of  $1.10/boe  in  2021  is  at  the  low  end  of  our 
annual guidance range of $1.15 - $1.25/boe for 2021. We expect annual transportation expense of $1.20 - $1.30/boe per boe for 
2022 which is higher than 2021 as we expect trucking rates to increase with higher fuel costs in 2022.

Blending and Other Expense

Blending  and  other  expense  primarily  includes  the  cost  of  blending  diluent  purchased  to  reduce  the  viscosity  of  our  heavy  oil 
transported  through  pipelines  in  order  to  meet  pipeline  specifications.  The  purchased  diluent  is  recorded  as  blending  and  other 
expense. The price received for the blended product is recorded as heavy oil sales revenue. We net blending and other expense 
against heavy oil sales to compare the realized price on our produced volumes to benchmark pricing.

Blending  and  other  expense  was $85.7  million  for  2021  compared  to  $48.4  million  for  2020. The  increase  in  blending  and  other 
expense in 2021 compared to 2020 is primarily the result of an increase in the price of condensate purchased as diluent in 2021 
relative to 2020.

Baytex Energy Corp. 2021 Annual Report

13

Financial Derivatives

As part of our normal operations, we are exposed to movements in commodity prices, foreign exchange rates, interest rates and 
changes  in  our  share  price.  In  an  effort  to  manage  these  exposures,  we  utilize  various  financial  derivative  contracts  which  are 
intended to partially reduce the volatility in our adjusted funds flow. Contracts settled in the period result in realized gains or losses 
based  on  the  market  price  compared  to  the  contract  price  and  the  notional  volume  outstanding.  Changes  in  the  fair  value  of 
unsettled contracts are reported as unrealized gains or losses in the period as the forward markets for commodities and currencies 
fluctuate and as new contracts are executed. The following table summarizes the results of our financial derivative contracts for the 
years ended December 31, 2021 and 2020.

($ thousands)

Realized financial derivatives gain (loss)

Crude oil

Natural gas

Interest and financing

Total

Unrealized financial derivatives gain (loss)

Crude oil

Natural gas

Interest and financing

Equity total return swap

Total

Total financial derivatives gain (loss)

Crude oil

Natural gas

Interest and financing

Equity total return swap

Total

$ 

$ 

$ 

$ 

$ 

Years Ended December 31

2021 

2020 

Change

(170,975) $ 

(13,266) 

— 

48,495  $ 

(219,470) 

138 

(797) 

(13,404) 

797 

(184,241) $ 

47,836  $ 

(232,077) 

(105,492) $ 

(17,696) $ 

(5,749) 

— 

7,610 

282 

34 

(1,120) 

(87,796) 

(6,031) 

(34) 

8,730 

(103,631) $ 

(18,500) $ 

(85,131) 

(276,467) $ 

(19,015) 

— 

7,610 

30,799  $ 

(307,266) 

420 

(763) 

(1,120) 

(19,435) 

763 

8,730 

$ 

(287,872) $ 

29,336  $ 

(317,208) 

We recorded total financial derivatives losses of $287.9 million for 2021 compared to a gain of $29.3 million for 2020. The realized 
financial derivatives loss for 2021 of $184.2 million was primarily a result of the market prices for crude oil settling at levels above 
those set in our derivative contracts outstanding during the year. The unrealized loss on financial derivatives of $103.6 million for 
2021  was  primarily  a  result  of  the  increase  in  forecasted  crude  oil  pricing  used  to  revalue  our  crude  oil  contracts  in  place  at 
December 31, 2021. The fair value of our financial derivative contracts resulted in a net liability of $125.4 million at December 31, 
2021 compared to a net liability of $21.7 million at December 31, 2020. 

14

Baytex Energy Corp. 2021 Annual Report

Baytex had the following commodity financial derivative contracts as at February 24, 2022.

Period

Volume

Price/Unit (1)

Oil
Basis swap

Basis swap
Basis swap(3)
Basis swap(3)
Fixed - Sell
3-way option(2)
3-way option(2)
3-way option(2)
3-way option(2)
3-way option(2)
3-way option(2)
3-way option(2)(3)

Natural Gas
Fixed - Sell

Fixed - Sell

Fixed - Sell
3-way option(2)
3-way option(2)
3-way option(2)
3-way option(2)
3-way option(2)

Jan 2022 to Dec 2022

12,000 bbl/d

WTI less US$12.40/bbl

Jan 2022 to Dec 2022

Feb 2022 to Jun 2022

Mar 2022 to Dec 2022

4,000 bbl/d

1,000 bbl/d

2,000 bbl/d

WTI less US$4.43/bbl

WTI less US$3.00/bbl

WTI less US$2.88/bbl

Jan 2022 to Dec 2022

10,000 bbl/d

US$53.50/bbl

Jan 2022 to Dec 2022

Jan 2022 to Dec 2022

Jan 2022 to Dec 2022

Jan 2022 to Dec 2022

Jan 2022 to Dec 2022

Jan 2023 to Dec 2023

Jan 2023 to Dec 2023

1,500 bbl/d

2,000 bbl/d

2,500 bbl/d

2,500 bbl/d

2,000 bbl/d

2,000 bbl/d

2,500 bbl/d

US$40.00/US$50.00/US$58.10

US$46.00/US$56.00/US$66.72

US$47.00/US$57.00/US$67.00

US$50.00/US$60.00/US$70.00

US$53.00/US$63.50/US$72.90

US$55.00/US$66.00/US$84.00

US$60.00/US$75.00/US$91.54

Jan 2022 to Dec 2022

Jan 2022 to Dec 2022

5,000 GJ/d

14,250 GJ/d

$2.53/GJ

$2.84/GJ

Jan 2022 to Dec 2022

1,000 mmbtu/d

US$2.94/mmbtu

Jan 2022 to Dec 2022

2,500 mmbtu/d

US$2.25/US$2.75/US$3.06

Jan 2022 to Dec 2022

1,500 mmbtu/d

US$2.60/US$2.91/US$3.56

Jan 2022 to Dec 2022

2,500 mmbtu/d

US$2.60/US$3.00/US$3.83

Jan 2022 to Dec 2022

2,500 mmbtu/d

US$2.65/US$2.90/US$3.40

Jan 2022 to Dec 2022

2,500 mmbtu/d

US$3.00/US$3.75/US$4.40

Index

WCS

MSW

MSW

MSW

WTI

WTI

WTI

WTI

WTI

WTI

WTI

WTI

AECO 7A

AECO 5A

NYMEX

NYMEX

NYMEX

NYMEX

NYMEX

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.

(3) Contracts entered subsequent to December 31, 2021.

Operating Netback

The  following  table  summarizes  our  operating  netback  on  a  per  boe  basis  for  our  Canadian  and  U.S.  operations  for  the  years 
ended December 31, 2021 and 2020.

($ per boe except for volume)

Total production (boe/d)

Canada

49,424 

U.S.

Total

30,731 

80,156 

Canada

48,602 

 U.S.

Total

31,179 

79,781 

Years Ended December 31

2021

2020

Operating netback:
Total sales, net of blending and other expense(1) $ 
Less:
Royalties(2)
Operating expense(2)
Transportation expense(2)
Operating netback(1)
Realized financial derivatives gain (loss)(3)
Operating netback after financial derivatives(1)

$ 

$ 

57.79  $ 

65.98  $ 

60.93  $ 

29.42  $ 

35.38  $ 

31.75 

(6.72) 

(19.42) 

(14.28) 

(1.79) 

(7.61) 

— 

(11.59) 

(11.72) 

(1.10) 

(2.59) 

(10.31) 

(5.61) 

(13.89) 

(1.60) 

(7.39) 

(11.35) 

— 

(0.97) 

35.00  $ 

38.95  $ 

36.52  $ 

11.34  $ 

17.68  $ 

13.82 

— 

— 

(6.30) 

— 

— 

1.64 

35.00  $ 

38.95  $ 

30.22  $ 

11.34  $ 

17.68  $ 

15.46 

(1) Specified financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable with the calculation 

of similar measures presented by other entities. Refer to the Specified Financial Measures section in this MD&A for further information.

(2) Refer  to  Royalties,  Operating  Expense  and  Transportation  Expense  sections  in  this  MD&A  for  a  description  of  the  composition  these 

measures.

(3) Calculated as realized financial derivatives gain (loss) expense divided by barrels of oil equivalent production volume for the applicable period.

Baytex Energy Corp. 2021 Annual Report

15

Our  operating  netback(1)  of  $36.52/boe  for  2021  was  higher  than  $13.82/boe  for  2020  due  to  an  increase  in  North  American 
benchmark  prices  which  resulted  in  higher  per  units  sales,  net  of  royalties.  Total  operating  expense  of  $11.72/boe  and 
transportation expense of $1.10/boe for 2021 were slightly higher than $11.35/boe and $0.97/boe in 2020. Including realized gains 
and losses on financial derivatives our operating netback was $30.22/boe for 2021 compared to $15.46/boe for 2020. 

(1) Specified financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable with the calculation 

of similar measures presented by other entities. Refer to the Specified Financial Measures section in this MD&A for further information.

General and Administrative Expense

General  and  administrative  ("G&A")  expense  includes  head  office  and  corporate  costs  such  as  salaries  and  employee  benefits, 
public company costs and administrative recoveries earned for operating exploration and development activities on behalf of our 
working  interest  partners.  G&A  expense  fluctuates  with  head  office  staffing  levels  and  the  level  of  operated  exploration  and 
development activity during the period.

The following table summarizes our G&A expense for the years ended December 31, 2021 and 2020.

($ thousands except for per boe)

Gross general and administrative expense

Overhead recoveries

General and administrative expense
General and administrative expense per boe(1)

Years Ended December 31

2021 

44,368  $ 

(3,564) 

40,804  $ 

1.39  $ 

2020 

37,217  $ 

(2,949) 

34,268  $ 

1.17  $ 

Change

7,151 

(615) 

6,536 

0.22 

$ 

$ 

$ 

(1) General  and  administrative  expense  per  boe  is  calculated  as  general  and  administrative  expense  divided  by  barrels  of  oil  equivalent 

production volume for the applicable period.

G&A  expense  was  $40.8  million  ($1.39/boe)  for  2021  compared  to  $34.3  million  ($1.17/boe)  for  2020.  G&A  expense  was 
$6.5  million  higher  relative  to  2020  as  employee  and  director  compensation  was  reduced  from  Q2/2020  to  Q4/2020  and  we 
received benefits under the Canadian Emergency Wage Subsidy program in 2020. G&A expense of $40.8 million ($1.39/boe) for 
2021 was consistent with expectations and was slightly below our revised annual guidance of $42 million ($1.44/boe). We expect 
annual G&A expense of $43 million ($1.45/boe) for 2022.

Financing and Interest Expense

Financing and interest expense includes interest on our credit facilities, long-term notes and lease obligations as well as non-cash 
financing and interest costs which include the accretion on our debt issue costs and asset retirement obligations. Financing and 
interest expense varies depending on debt levels outstanding during the period, the applicable borrowing rates, CAD/USD foreign 
exchange rates, along with the carrying amount of asset retirement obligations and the discount rates used to present value these 
obligations.

The following table summarizes our financing and interest expense for the years ended December 31, 2021 and 2020.

($ thousands except for per boe)

Interest on credit facilities

Interest on long-term notes

Interest on lease obligations

Cash interest

Amortization of debt issue costs

Accretion of asset retirement obligations

Early redemption expense

Financing and interest expense
Cash interest per boe(1)
Financing and interest expense per boe(1)

Years Ended December 31

2021 

2020 

13,300  $ 

15,256  $ 

78,546 

223 

90,830 

448 

Change

(1,956) 

(12,284) 

(225) 

92,069  $ 

106,534  $ 

(14,465) 

4,858 

12,381 

1,851  $ 

111,159  $ 

3.15  $ 

3.80  $ 

6,617 

8,978 

3,312 

(1,759) 

3,403 

(1,461) 

125,441  $ 

(14,282) 

3.65  $ 

4.30  $ 

(0.50) 

(0.50) 

$ 

$ 

$ 

$ 

$ 

$ 

(1) Calculated as cash interest or financing and interest expense divided by barrels of oil equivalent production volume for the applicable period.

Financing and interest expense was $111.2 million ($3.80/boe) in 2021 compared to $125.4 million ($4.30/boe) in 2020.

16

Baytex Energy Corp. 2021 Annual Report

Cash interest of $92.1 million ($3.15/boe) in 2021 was lower than $106.5 million ($3.65/boe) in 2020 as we reduced our debt to 
$1.4 billion at December 31, 2021 compared to $1.8 billion at December 31, 2020. Interest on our credit facilities was lower due to 
lower  borrowings  and  a  lower  weighted  average  borrowing  rate  on  amounts  outstanding  in  2021  relative  to 2020. The  weighted 
average interest rate on our credit facilities was 2.1% in 2021 compared to 2.4% in 2020. Interest on our long-term notes was lower 
in 2021 as the average principal amount outstanding was lower as we repurchased and redeemed US$200.0 million of the 5.625% 
Notes in 2021.

Financing  and  interest  expense  for  2021  includes  the  accelerated  amortization  of  debt  issue  costs  and  $1.9  million  of  early 
redemption expense associated with the redemption of US$200 million principal amount of the 5.625% Notes in 2021. Accretion of 
asset retirement obligations of $12.4 million for 2021 was higher than $9.0 million for 2020 due to a higher discount rate for 2021 
relative to 2020.

Cash  interest  of  $92.1  million  ($3.15/boe)  for  2021  was  consistent  with  our  annual  guidance  of  $92.0  million  ($3.16/boe).  We 
expect annual cash interest to be $80.0 million ($2.70/boe) for 2022 as we continue to reduce the amount of debt in our capital 
structure.

Exploration and Evaluation Expense 

Exploration  and  evaluation  ("E&E")  expense  is  related  to  the  expiry  of  leases  and  the  de-recognition  of  costs  for  exploration 
programs that have not demonstrated commercial viability and technical feasibility. E&E expense will vary depending on the timing 
of  expiring  leases,  the  accumulated  costs  of  the  expiring  leases  and  the  economic  facts  and  circumstances  related  to  the 
Company's exploration programs. E&E expense was $15.2 million for 2021 which is consistent with $14.0 million for 2020.

Depletion and Depreciation 

Depletion and depreciation expense varies with the carrying amount of the Company's oil and gas properties, the amount of proved 
plus  probable  reserves  volumes  and  the  rate  of  production  for  the  period.  The  following  table  summarizes  depletion  and 
depreciation expense for the years ended December 31, 2021 and 2020.

($ thousands except for per boe)

Depletion

Depreciation

Depletion and depreciation
Depletion and depreciation per boe(1)

Years Ended December 31

2021

2020

Change

$ 

$ 

$ 

458,941  $ 

478,859  $ 

5,639 

7,521 

464,580  $ 

486,380  $ 

15.88  $ 

16.66  $ 

(19,918) 

(1,882) 

(21,800) 

(0.78) 

(1) Depletion and depreciation expense per boe is calculated as depletion and depreciation expense divided by barrels of oil equivalent production 

volume for the applicable period.

Depletion and depreciation expense was $464.6 million ($15.88/boe) for 2021 compared to $486.4 million ($16.66/boe) reported for 
2020. Total depletion and depreciation expense as well as the depletion rate per boe were lower in 2021 relative to 2020 as the 
Company recorded a $2.2 billion impairment loss on our oil and gas properties in 2020 which reduced the depletable base of our oil 
and gas properties for 2021 despite the $1.5 billion impairment reversals recorded for the year ended December 31, 2021.

Impairment

2021 Impairment Reversals

During 2021, we identified indicators of impairment reversal for oil and gas properties in each of our six CGU's due to the increase 
in forecasted commodity prices. 

At  December  31,  2021,  utilizing  updated  development  plans  and  changes  to  commodity  prices  we  estimated  the  recoverable 
amount of oil and gas properties in five CGUs. We recorded an impairment reversal of $416.0 million as the estimated recoverable 
amount in three of our CGUs exceeded their carrying value. No indicators of impairment or impairment reversal were identified for 
the Company's E&E assets at December 31, 2021.

At December 31, 2021, the recoverable amount of five CGUs was calculated using the following benchmark reference prices for 
the  years  2022  to  2031  adjusted  for  differentials  specific  to  each  CGU.  The  prices  and  costs  subsequent  to  2031  have  been 
adjusted for inflation at an annual rate of 2.0%.

Baytex Energy Corp. 2021 Annual Report

17

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

WTI crude oil (US$/bbl)

72.83 

68.78 

66.76 

68.09 

69.45 

70.84 

72.26 

73.70 

75.18 

76.68 

WCS heavy oil ($/bbl)

74.42 

69.17 

66.54 

67.87 

69.23 

70.61 

72.02 

73.46 

74.69 

76.19 

LLS crude oil (US$/bbl)

74.33 

70.28 

68.27 

69.62 

71.01 

72.41 

73.85 

75.32 

76.82 

78.35 

Edmonton par oil ($/bbl)

86.82 

80.73 

78.01 

79.57 

81.16 

82.78 

84.44 

86.13 

87.85 

89.61 

Henry Hub gas (US$/mmbtu)

AECO gas ($/mmbtu)

Exchange rate (CAD/USD)

3.85 

3.56 

1.26 

3.44 

3.21 

1.26 

3.17 

3.05 

1.26 

3.24 

3.11 

1.26 

3.30 

3.17 

1.26 

3.37 

3.23 

1.26 

3.44 

3.30 

1.26 

3.50 

3.36 

1.26 

3.58 

3.43 

1.26 

3.65 

3.50 

1.26 

The  following  table  summarizes  the  recoverable  amount  and  impairment  reversal  at December  31,  2021  and  demonstrates  the 
sensitivity of the estimated recoverable amount of the five CGUs tested for impairment reversal with respect to reasonably possible 
changes in key assumptions inherent in the estimate.

Recoverable 
amount

Impairment 
Reversal

Change in discount 
rate of 1%

Change in oil price 
of $2.50/bbl

Change in gas 
price of $0.25/mcf

Conventional CGU

$ 

77,846  $ 

19,000  $ 

—  $ 

3,000  $ 

Peace River CGU

Lloydminster CGU

Viking CGU

Eagle Ford CGU

489,274 

479,411 

1,320,094 

2,008,478 

251,000 

146,000 

— 

— 

8,500 

12,500 

38,000 

97,200 

53,000 

52,000 

85,500 

138,800 

$ 

4,375,103  $ 

416,000  $ 

156,200  $ 

332,300  $ 

8,000 

3,500 

— 

4,500 

31,300 

47,300 

At  June  30,  2021,  we  identified  indicators  of  impairment  reversal  for  oil  and  gas  properties  in  each  of  our  six  CGU's  due  to  the 
increase in forecasted commodity prices. We recorded an impairment reversal of $1.1 billion as the estimated recoverable amount 
of all six CGUs exceeded their carrying value. No indicators of impairment or impairment reversal were identified for the Company's 
E&E assets at June 30, 2021.

At June 30, 2021, the recoverable amount of the Company's CGUs were calculated using the following benchmark reference prices 
for the years 2021 to 2030 adjusted for commodity differentials specific to the Company. The prices and costs subsequent to 2030 
have been adjusted for inflation at an annual rate of 2.0%.

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

WTI crude oil (US$/bbl)

71.33 

67.20 

63.95 

63.23 

64.50 

65.79 

67.10 

68.44 

69.81 

71.21 

WCS heavy oil ($/bbl)

72.22 

66.84 

61.73 

60.70 

61.91 

63.15 

64.42 

65.70 

67.02 

68.36 

LLS crude oil (US$/bbl)

72.17 

68.53 

65.80 

65.10 

66.39 

67.71 

69.05 

70.42 

71.82 

73.26 

Edmonton par oil ($/bbl)

83.20 

78.27 

74.06 

73.05 

74.51 

76.00 

77.52 

79.07 

80.66 

82.27 

Henry Hub gas (US$/mmbtu)

AECO gas ($/mmbtu)

Exchange rate (CAD/USD)

3.42 

3.46 

1.24 

3.19 

3.13 

1.25 

2.92 

2.72 

1.25 

2.96 

2.71 

1.25 

3.02 

2.76 

1.25 

3.08 

2.82 

1.25 

3.14 

2.88 

1.25 

3.21 

2.94 

1.25 

3.27 

2.99 

1.25 

3.34 

3.05 

1.25 

18

Baytex Energy Corp. 2021 Annual Report

The  following  table  summarizes  the  recoverable  amount  and  impairment  reversal  at  June  30,  2021  and  demonstrates  the 
sensitivity of the estimated recoverable amount of the Company's CGUs comprising oil and gas properties to reasonably possible 
changes in key assumptions inherent in the estimate.

Recoverable 
amount

Impairment 
Reversal

Change in discount 
rate of 1%

Change in oil price 
of $2.50/bbl

Change in gas 
price of $0.25/mcf

Conventional CGU

$ 

57,891  $ 

15,000  $ 

1,000  $ 

1,000  $ 

Peace River CGU

Lloydminster CGU
Duvernay CGU(1)
Viking CGU

Eagle Ford CGU

238,714 

340,730 

115,157 

1,338,985 

2,015,118 

154,000 

154,000 

5,000 

356,000 

442,415 

4,000 

12,500 

45,000 

47,000 

109,400 

40,000 

52,000 

44,500 

89,500 

103,900 

$ 

4,106,595  $ 

1,126,415  $ 

218,900  $ 

330,900  $ 

8,000 

2,500 

— 

44,500 

4,500 

24,400 

83,900 

(1)   The impairment reversal for the Duvernay CGU was limited to total accumulated impairments less subsequent depletion of $5.0 million.

2020 Impairments

We recorded total net impairments of $2.4 billion for the year ended December 31, 2020 due to significant changes in forecasted 
commodity prices caused by the COVID-19 pandemic and OPEC+ price war.

At March 31, 2020, we identified indicators of impairment due to the sharp decline in forecasted commodity prices. We performed 
impairment tests on the E&E assets and oil and gas properties for our six CGUs. We recorded an impairment loss of $2.7 billion in 
Q1/2020 as the carrying value of the E&E assets and oil and gas properties exceeded the estimated recoverable amounts of the 
CGUs. The total impairment loss recorded at Q1/2020 included $2.6 billion related to oil and gas properties and $0.1 billion related 
to E&E assets.

At  December  31,  2020,  with  updated  development  plans,  including  capital  efficiencies  and  reduced  well  costs,  reflected  in  our 
reserves along with changes in commodity prices, we estimated the recoverable amount for E&E assets and oil and gas properties 
in  each  of  our  six  CGUs.  We  recorded  an  impairment  reversal  of  $356.1  million  at  December  31,  2020  as  the  estimated 
recoverable amount of the Viking and Eagle Ford CGUs exceeded their carrying value. The total impairment reversal recorded at 
Q4/2020 includes $341.3 million related to oil and gas properties and $14.8 million related to E&E assets.

Share-Based Compensation Expense 

Share-based compensation ("SBC") expense includes expense associated with our Share Award Incentive Plan, Incentive Award 
Plan, and Deferred Share Unit Plan and includes gains or losses on equity total return swaps used to fix the aggregate cost of new 
grants  made  under  the  Incentive  Award  Plan  and  the  Deferred  Share  Unit  Plan.  SBC  expense  varies  from  period  to  period 
depending on the fair value assigned to new grants and the number of unvested awards or units outstanding. 

We recorded SBC expense of $11.1 million for 2021 which is higher than $9.5 million reported for 2020. The total expense for 2021 
is comprised of non-cash compensation expense of $6.4 million related to the Share Award Incentive Plan compared to $7.2 million 
in 2020. SBC expense for 2021 also included cash compensation expense of $4.7 million related to the Incentive Award Plan and 
Deferred Unit Share Plan compared to $2.3 million in 2020. 

Foreign Exchange 

Unrealized  foreign  exchange  gains  and  losses  are  primarily  a  result  of  changes  in  the  reported  amount  of  our  U.S.  dollar 
denominated  long-term  notes  and  our  U.S.  dollar  denominated  intercompany  notes  issued  in  2020.  The  long-term  notes  and 
intercompany  notes  are  translated  to  Canadian  dollars  on  the  balance  sheet  date  using  the  closing  CAD/USD  exchange  rate 
resulting  in  unrealized  gains  and  losses.  Realized  foreign  exchange  gains  and  losses  are  due  to  day-to-day  U.S.  dollar 
denominated transactions occurring in our Canadian functional currency entities.

Baytex Energy Corp. 2021 Annual Report

19

($ thousands except for exchange rates)

Unrealized foreign exchange (gain) loss

Realized foreign exchange gain

Foreign exchange (gain) loss

CAD/USD exchange rates:

At beginning of period

At end of period

Years Ended December 31

$ 

$ 

2021 

(1,905) $ 

(963) 

(2,868) $ 

2020 

9,232  $ 

(544) 

Change

(11,137) 

(419) 

8,688  $ 

(11,556) 

1.2755 

1.2656 

1.2965 

1.2755 

We  recorded  a  foreign  exchange  gain  of  $2.9  million  for  2021  compared  to  a  loss  of  $8.7  million  for  2020.  Unrealized  foreign 
exchange gains $1.9 million for 2021 relate to the remeasurement of our long-term notes, intercompany notes and credit facilities 
due to changes in the value of the Canadian dollar relative to the U.S. dollar at December 31, 2021 compared to December 31, 
2020.  Realized  foreign  exchange  gains  and  losses  will  fluctuate  depending  on  the  amount  and  timing  of  day-to-day  U.S.  dollar 
denominated  transactions  for  our  Canadian  operations.  We  recorded  a  realized  foreign  exchange  gain  of  $1.0  million  for  2021 
compared to a gain of $0.5 million for 2020.

Income Taxes

($ thousands)

Current income tax expense

Deferred income tax expense (recovery)

Total income tax expense (recovery)

Years Ended December 31

2021 

1,272  $ 

2020 

574  $ 

79,968 

(160,967) 

81,240  $ 

(160,393) $ 

Change

698 

240,935 

241,633 

$ 

$ 

Current income tax expense was $1.3 million for 2021 compared to $0.6 million recorded in 2020. Current income tax is higher in 
2021 due to higher state tax owed on our U.S. operations.

We  recorded  a  deferred  income  tax  expense  of  $80.0  million  for  2021  compared  to  a  recovery  of  $161.0  million  for  2020.  The 
deferred income tax expense in 2021 is primarily related to the impairment reversals recorded in 2021 whereas the deferred tax 
recovery recorded in 2020 is primarily related to the impairment loss recorded in 2020.

As  disclosed  in  the  2020  annual  financial  statements,  certain  indirect  subsidiaries  received  reassessments  from  the  Canada 
Revenue Agency (the "CRA”) that deny $591.0 million of non-capital loss deductions relevant to the calculation of income taxes for 
the  years  2011  through  2015.  In  September  2016,  we  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.  We  remain  confident  that  our  original  tax  filings  are  correct  and  intend  to  defend  these  tax  filings  through  the  appeals 
process.

Canadian Tax Pools ($ thousands)

Canadian oil and natural gas property expenditures

Canadian development expenditures

Canadian exploration expenditures

Undepreciated capital costs

Non-capital losses

Financing costs and other

Total Canadian tax pools

U.S. Tax Pools ($ thousands)

Depletion

Intangible drilling costs

Tangibles

Net operating losses

Other

Total U.S. tax pools

20

Baytex Energy Corp. 2021 Annual Report

December 31, 2021

December 31, 2020

$ 

$ 

$ 

406,475  $ 

480,814 

— 

287,170 

996,556 

12,835 

2,183,850  $ 

136,505  $ 

1,898 

23,949 

992,258 

152,509 

$ 

1,307,119  $ 

449,670 

557,554 

10,907 

347,297 

1,015,152 

14,780 

2,395,360 

147,160 

5,521 

39,028 

1,150,068 

192,495 

1,534,272 

Net Income (Loss)

Net income or loss for the years ended December 31, 2021 and 2020 are set forth in the following table.

($ thousands)

Petroleum and natural gas sales

Royalties

Revenue, net of royalties

Expenses

Operating

Transportation

Blending and other
Operating netback (1)

General and administrative

Cash interest

Realized financial derivative (loss) gain

Realized foreign exchange gain

Other (expense) income

Current income tax expense

Share-based compensation - cash

Adjusted funds flow (2)

Exploration and evaluation

Depletion and depreciation

Share-based compensation - non-cash

Non-cash financing, accretion and early redemption expense

Non-cash other income

Unrealized financial derivatives loss

Unrealized foreign exchange gain (loss)

Gain on dispositions

Impairment reversals (expense)

Deferred income tax (expense) recovery

Years Ended December 31

2021 

2020

$ 

1,868,195  $ 

975,477  $ 

(339,156) 

1,529,039 

(163,735) 

811,742 

(343,002) 

(32,261) 

(85,689) 

(331,345) 

(28,437) 

(48,381) 

Change

892,718 

(175,421) 

717,297 

(11,657) 

(3,824) 

(37,308) 

$ 

1,068,087  $ 

403,579  $ 

664,508 

(40,804) 

(92,069) 

(184,241) 

963 

(295) 

(1,272) 

(4,741) 

(34,268) 

(106,534) 

47,836 

544 

3,176 

(574) 

(2,253) 

(6,536) 

14,465 

(232,077) 

419 

(3,471) 

(698) 

(2,488) 

$ 

745,628  $ 

311,506  $ 

434,122 

(15,212) 

(464,580) 

(6,389) 

(19,090) 

2,857 

(103,631) 

1,905 

9,666 

1,542,414 

(79,968) 

(14,011) 

(486,380) 

(7,216) 

(18,907) 

2,128 

(18,500) 

(9,232) 

901 

(1,201) 

21,800 

827 

(183) 

729 

(85,131) 

11,137 

8,765 

(2,360,220) 

3,902,634 

160,967 

(240,935) 

Net income (loss)

$ 

1,613,600  $ 

(2,438,964) $ 

4,052,564 

(1) Specified financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable with the calculation 

of similar measures presented by other entities. Refer to the Specified Financial Measures section in this MD&A for further information.

(2) Capital management measure. Refer to the Specified Financial Measures section in this MD&A for further information.

We generated adjusted funds flow of $745.6 million for 2021 compared to $311.5 million for 2020. The $434.1 million increase in 
adjusted funds flow for 2021 is primarily due to improvements in commodity benchmark prices, which resulted in a $664.5 million 
increase in operating netback partially offset by a $232.1 million increase in realized financial derivative losses. 

We reported net income of $1.6 billion for 2021 compared to a net loss of $2.4 billion for 2020. The increase in net income for 2021 
was primarily the result of impairment reversals of $1.2 billion net of tax compared to impairment losses of $1.8 billion net of tax 
recorded in 2020. Net income in 2021 also reflects the $434.1 million increase in adjusted funds flow relative to 2020.

Other Comprehensive Income (Loss)

Other comprehensive income or loss is comprised of the foreign currency translation adjustment on U.S. net assets which includes 
a series of intercompany debt instruments outstanding between our Canadian and U.S. subsidiaries. Foreign exchange gains or 
losses on the debt owing from the U.S. subsidiary is recorded in other comprehensive income and the offsetting foreign exchange 
gain or loss on debt owed to the Canadian subsidiary is included in profit and loss for the period. 

Baytex Energy Corp. 2021 Annual Report

21

The  foreign  currency  translation  gain  of  $13.1  million  for  2021  relates  to  the  change  in  value  of  our  U.S.  net  assets  and 
intercompany notes which are expressed in Canadian dollars and are influenced by changes in the value of the Canadian dollar 
relative to the U.S. dollar at December 31, 2021 compared to December 31, 2020. The CAD/USD exchange rate was 1.2656 CAD/
USD  at  December  31,  2021  compared  to  1.2755  CAD/USD  at  December  31,  2020.  Impairment  reversals  of  US$362  million  at 
Q2/2021 increased the value of our U.S. net assets which further contributed to the foreign currency translation gain for 2021.

Capital Expenditures

Capital expenditures for the years ended December 31, 2021 and 2020 are summarized as follows.

Years Ended December 31

2021

2020

($ thousands)

Canada

U.S.

Total

Canada

U.S.

Total

Drilling, completion and equipping

$ 

182,761  $ 

102,985  $ 

285,746  $ 

143,013  $ 

104,599  $ 

247,612 

Facilities

Land, seismic and other

Exploration and development 
expenditures

Property acquisitions

Proceeds from dispositions

18,213 

7,236 

924 

1,184 

19,137 

8,420 

26,043 

5,896 

21 

768 

26,064 

6,664 

$ 

$ 

$ 

208,210  $ 

105,093  $ 

313,303  $ 

174,952  $ 

105,388  $ 

280,340 

1,557  $ 

(7,211) $ 

—  $ 

1,557  $ 

(593) $ 

(7,804) $ 

—  $ 

(182) $ 

—  $ 

—  $ 

— 

(182) 

Exploration and development expenditures were $313.3 million for 2021 compared to $280.3 million for 2020. Expenditures were 
higher in 2021 compared to 2020 after we reset our development programs in the U.S. and Canada in response to the volatility in 
crude  oil  prices  throughout  2020.  We  resumed  development  activity  in  Q4/2020  as  commodity  prices  stabilized  and  have 
maintained the pace of development throughout 2021.

In  Canada,  we  invested  $208.2  million  on  exploration  and  development  expenditures  in 2021  which  is  $33.3  million  higher  than 
$175.0  million  in  2020  as  we  resumed  development  operations  in  Q4/2020  and  maintained  the  pace  of  development  throughout 
2021. Exploration and development expenditures in 2021 include costs associated with drilling 125 (123.2 net) light oil wells, 37 
(33.5  net)  heavy  oil  wells,  2  (2.0  net)  conventional  natural  gas  wells  and  investing  $18.2  million  on  facilities.  Exploration  and 
development expenditures of $175.0 million for 2020 include costs associated with drilling 104 (101.2 net) light oil wells, 33 (33.0 
net) heavy oil wells, 2 (2.0 net) conventional natural gas wells, 6 (6.0 net) stratigraphic exploration wells, along with $26.0 million on 
facilities. 

Total U.S. exploration and development expenditures were $105.1 million for 2021 which is $0.3 million lower than $105.4 million 
for 2020. Exploration and development expenditures of $105.1 million for 2021 include costs associated with the drilling of 67 (15.5 
net) wells along with completing 93 (23.1 net) wells that were brought on production. Reduced well costs and a stronger Canadian 
dollar in 2021 resulted in exploration and development expenditures that were lower than 2020 when we spent $105.4 million and 
drilled 65 (16.3 net) wells and brought 62 (14.1 net) wells on production.

We completed minor acquisitions in 2021 for consideration of $1.6 million and dispositions for proceeds of $7.8 million. In 2020 we 
completed minor dispositions of $0.2 million.

Total exploration and development expenditures of $313.3 million for 2021 was in line with our annual guidance range of $285 - 
$315 million. We expect annual exploration and development expenditures of $400 - $450 million for 2022 which reflects additional 
activity and Clearwater development relative to 2021.

CAPITAL RESOURCES AND LIQUIDITY

Our  capital  management  objective  is  to  maintain  financial  flexibility  and  sufficient  sources  of  liquidity  to  execute  our  capital 
programs, while meeting our short and long-term commitments. We strive to actively manage our capital structure in response to 
changes  in  economic  conditions. At  December  31,  2021,  our  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 our capital structure and liquidity, we 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 our operations requires the maintenance of adequate sources of liquidity to fund ongoing exploration 
and development. Our capital resources consist primarily of adjusted funds flow, available credit facilities and proceeds received 
from the divestiture of oil and gas properties.

22

Baytex Energy Corp. 2021 Annual Report

Management  of  debt  levels  is  a  priority  for  Baytex  in  order  to  sustain  operations  and  support  long-term  plans. At December  31, 
2021,  net  debt(1)  of  $1.41  billion  was  $437.9  million  lower  than  $1.85  billion  at  December  31,  2020. The  decrease  in  net  debt  is 
primarily a result of free cash flow(2) of $421.3 million generated during 2021 being allocated to debt repayment.

We  monitor  our  capital  structure  and  liquidity  requirements  using  a  net  debt  to  adjusted  funds  flow  ratio  calculated  on  a  trailing 
twelve month basis. At December 31, 2021, our net debt to adjusted funds flow ratio(1) was 1.9 compared to a ratio of 5.9 as at 
December 31, 2020. The decrease in the net debt to adjusted funds flow ratio relative to December 31, 2020 is attributed to higher 
adjusted  funds  flow  during  2021  and  lower  net  debt  at  December  31,  2021  as  our  priority  was  to  direct  free  cash  flow  to  debt 
repayment.

Credit Facilities

Our credit facilities include US$575 million of revolving credit facilities and a $300 million non-revolving term loan (collectively, the 
"Credit Facilities"). Our Credit Facilities mature on April 2, 2024 and will automatically be extended to June 4, 2024 providing we 
have either refinanced, or have the ability to repay, the outstanding 2024 long-term notes with existing credit capacity as of April 1, 
2024. At December 31, 2021, we had $521.5 million of borrowings and letters of credit outstanding under our Credit Facilities that 
total approximately $1.0 billion. 

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 London Interbank Offered Rates ("LIBOR"), plus applicable margins.

The LIBOR benchmark transition begins on December 31, 2021. Certain tenors of the U.S. dollar LIBOR benchmark will no longer 
be  published  as  of  December  31,  2021  while  some  tenors  will  continue  to  be  published  through  mid-2023.  We  expect  the  U.S. 
dollar LIBOR benchmarks to be replaced with an alternative that will apply to our U.S. dollar borrowing at our option. We do not 
expect this change to have a material impact to Baytex as U.S. dollar borrowings under the credit facilities can also bear interest at 
the U.S. base loan rate. 

The  agreements  and  associated  amending  agreements  relating  to  the  Credit  Facilities  are  accessible  on  the  SEDAR  website  at 
www.sedar.com.

The weighted average interest rate on the Credit Facilities was 2.1% for 2021 as compared to 2.4% for 2020.

(1) Capital management measure. Refer to the Specified Financial Measures section in this MD&A for further information.
(2) Specified financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable with the calculation 

of similar measures presented by other entities. Refer to the Specified Financial Measures section in this MD&A for further information.

Financial Covenants

The  following  table  summarizes  the  financial  covenants  applicable  to  the  Credit  Facilities  and  our  compliance  therewith  at 
December 31, 2021.

Covenant Description
Senior Secured Debt(1) to Bank EBITDA(2) (Maximum Ratio)
Interest Coverage(3) (Minimum Ratio)

Position as at 
December 31, 2021

0.6:1.0

9.1:1.0

Covenant

3.5:1.0

2.0:1.0

(1)

(2)

(3)

"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  December  31,  2021,  the  Company's  Senior  Secured  Debt 
totaled $521.5 million.
"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 December 31, 2021 was $836.9 million. 
"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 
expenses for the twelve months ended December 31, 2021 were $91.8 million.

Baytex Energy Corp. 2021 Annual Report

23

Long-Term Notes

We have two series of long-term notes outstanding with a total principal amount of $885.9 million as at December 31, 2021. The 
long-term notes do not contain any financial maintenance covenants.

On  June  6,  2014,  we  issued  US$800  million  of  senior  unsecured  notes,  comprised  of  US$400  million  of  5.125%  notes  due 
June 1, 2021 (the "5.125% Notes"), which were redeemed February 20, 2020, and US$400 million of 5.625% notes due June 1, 
2024  (the  "5.625%  Notes").  The  5.625%  Notes  pay  interest  semi-annually  with  the  principal  amount  repayable  at  maturity.  The 
5.625% Notes are redeemable at our option, in whole or in part, at 100.938% and will be redeemable at par from June 1, 2022 to 
maturity.  During  2021,  Baytex  repurchased  and  cancelled  a  total  of  US$200.0  million  of  the  5.625%  Notes  and  recorded  early 
redemption expense of $1.9 million. As at December 31, 2021, there was US$200.0 million of the 5.625% Notes outstanding.

On February 5, 2020, we issued US$500 million aggregate principal amount of senior unsecured notes due April 1, 2027 bearing 
interest at a rate of 8.75% per annum payable semi-annually (the "8.75% Senior Notes"). The 8.75% Senior Notes are redeemable 
at our option, in whole or in part, at specified redemption prices after April 1, 2023 and will be redeemable at par from April 1, 2026 
to  maturity.  Transaction  costs  of  $12.5  million  were  incurred  in  conjunction  with  the  issuance  which  resulted  in  net  proceeds  of 
$652.2 million. 

Shareholders’ Capital 

We  are  authorized  to  issue  an  unlimited  number  of  common  shares  and  10.0  million  preferred  shares.  The  rights  and  terms  of 
preferred shares are determined upon issuance. During the year ended December 31, 2021, we issued 3.0 million common shares 
pursuant to our share-based compensation program. As at February 24, 2022, we had 564.2 million common shares issued and 
outstanding and no preferred shares issued and outstanding.

Contractual Obligations

We have a number of financial obligations that are incurred in the ordinary course of business. These obligations are of a recurring 
nature  and  impact  our  adjusted  funds  flow  in  an  ongoing  manner.  A  significant  portion  of  these  obligations  will  be  funded  by 
adjusted funds flow. These obligations as of December 31, 2021 and the expected timing for funding these obligations are noted in 
the table below.

($ thousands)

Total

Less than 
1 year

1-3 years

3-5 years Beyond 5 years

Trade and other payables

$ 

190,692  $ 

190,692  $ 

Financial derivatives
Credit facilities - principal (1) (2)
Total long-term notes - principal (2)
Interest on long-term notes (3)
Lease obligations (2)
Processing agreements

Transportation agreements

134,020 

506,514 

885,920 

325,172 

8,014 

6,090 

81,182 

134,020 

— 

— 

69,608 

3,068 

753 

20,500 

—  $ 

— 

506,514 

253,120 

130,868 

3,989 

890 

37,825 

—  $ 

— 

— 

— 

110,740 

902 

530 

14,673 

— 

— 

— 

632,800 

13,956 

55 

3,917 

8,184 

Total

$ 

2,137,604  $ 

418,641  $ 

933,206  $ 

126,845  $ 

658,912 

(1) The credit facilities mature on April 2, 2024. Maturity will automatically be extended to June 4, 2024 providing Baytex has either refinanced, or 

has the ability to repay, the outstanding 2024 long-term notes with existing credit capacity as of April 1, 2024. 

(2) Principal amount of instruments. 
(3) Excludes  interest  on  our  credit  facilities  as  interest  payments  fluctuate  based  on  a  floating  rate  of  interest  and  changes  in  the  outstanding 

balances.

We also have ongoing obligations related to the abandonment and reclamation of well sites and facilities when they reach the end 
of  their  economic  lives.  Programs  to  abandon  and  reclaim  well  sites  and  facilities  are  undertaken  regularly  in  accordance  with 
applicable legislative requirements.

24

Baytex Energy Corp. 2021 Annual Report

FOURTH QUARTER OPERATING AND FINANCIAL RESULTS

($ thousands except for per boe)

Total daily production

Light oil and condensate (bbl/d)

Heavy oil (bbl/d)

NGL (bbl/d)

Total liquids (bbl/d)

Natural gas (mcf/d)

Total production (boe/d)

Operating netback ($/boe)
Light oil and condensate ($/bbl) (1)
Heavy oil, net of blending and other expense ($/
bbl) (2)
NGL ($/bbl) (1)
Natural gas ($/mcf) (1)
Total sales, net of blending and other per boe (2)
Royalties per boe (3)
Operating expense per boe (3)
Transportation expense per boe (3)
Operating netback per boe (1)

Financial

Three Months Ended December 31

2021

2020

Canada

U.S.

Total

Canada

U.S.

Total

16,388 

23,482 

1,713 

41,583 

52,673 

50,362 

18,598 

— 

6,271 

24,869 

33,356 

30,428 

34,986 

23,482 

7,984 

66,452 

86,029 

80,789 

15,212 

21,725 

1,364 

38,301 

42,117 

45,321 

14,356 

— 

5,131 

19,487 

33,999 

25,154 

29,568 

21,725 

6,495 

57,788 

76,116 

70,475 

$ 

91.17  $ 

97.68  $ 

94.63  $ 

47.43  $ 

52.73  $ 

50.00 

67.76 

41.73 

4.65 

67.54 

— 

39.42 

6.70 

75.17 

(8.15) 

(22.28) 

(15.37) 

(1.76) 

(8.63) 

— 

67.76 

39.92 

5.44 

70.42 

(13.47) 

(12.83) 

(1.10) 

27.87 

16.57 

2.50 

32.10 

— 

19.18 

3.26 

38.41 

27.87 

18.63 

2.84 

34.35 

(2.90) 

(11.11) 

(5.83) 

(14.73) 

(1.60) 

(7.92) 

(12.30) 

— 

(1.03) 

$ 

42.26  $ 

44.26  $ 

43.02  $ 

12.87  $ 

19.38  $ 

15.19 

Petroleum and natural gas sales

$  341,966  $  210,437  $  552,403  $  144,741  $  88,895  $  233,636 

Royalties

(37,770)  

(62,382)  

(100,152)  

(12,092)  

(25,715)  

(37,807) 

Revenue, net of royalties

304,196 

148,055 

452,251 

132,649 

63,180 

195,829 

Operating

Transportation

Blending and other
Operating netback (2)

General and administrative

Cash interest

Realized financial derivatives (loss) gain

Other

Adjusted funds flow (4)
Net income

(71,203)  

(24,154)  

(95,357)  

(61,409)  

(18,339)  

(79,748) 

(8,169)  

(29,021)  

—   

—   

(8,169)  

(6,692) 

(29,021)  

(10,891) 

— 

— 

(6,692) 

(10,891) 

$  195,803  $  123,901  $  319,704  $  53,657  $  44,841  $  98,498 

— 

— 

— 

— 

— 

— 

— 

— 

(11,481) 

(21,319) 

(70,544) 

(1,594) 

— 

— 

— 

— 

— 

— 

— 

306 

(9,314) 

(25,194) 

17,105 

1,081 

$  195,803  $  123,901  $  214,766  $  53,657  $  45,147  $  82,176 

$  526,412  $  72,457  $  563,239  $  112,954  $  144,200  $  221,160 

Exploration and development expenditures

$  59,821  $  14,174  $  73,995  $  45,030  $  32,779  $  77,809 

Property acquisitions

Proceeds from dispositions

Net debt (4)

$ 

$ 

1,443  $ 

(6,857) $ 

—  $ 

—  $ 

1,443  $ 

(6,857) $ 

—  $ 

(33) $ 

—  $ 

—  $ 

— 

(33) 

$ 1,409,717 

$ 1,847,601 

(1) Calculated  as  light  oil  and  condensate,  NGL  or  natural  gas  sales  divided  by  barrels  of  oil  equivalent  production  volume  for  the  applicable 

period.

(2) Specified financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable with the calculation 

of similar measures presented by other entities. Refer to the Specified Financial Measures section in this MD&A for further information.
(3) Calculated as royalties, operating or transportation expense divided by barrels of oil equivalent production volume for the applicable period.
(4) Capital management measure. Refer to the Specified Financial Measures section in this MD&A for further information.

Baytex Energy Corp. 2021 Annual Report

25

Benchmark Averages
WTI oil (US$/bbl) (1)
MEH oil (US$/bbl) (2)
MEH oil differential to WTI (US$/bbl)
Edmonton par oil ($/bbl) (3)
Edmonton par oil differential to WTI (US$/bbl)
WCS heavy oil ($/bbl) (4)
WCS heavy oil differential to WTI (US$/bbl)
AECO natural gas price ($/mcf) (5)
NYMEX natural gas price (US$/mmbtu) (6)
CAD/USD average exchange rate

Three Months Ended December 31

2021 

77.19 

78.89 

1.70 

93.29 

(3.15) 

78.82 

(14.63) 

4.94 

5.83 

1.2600 

2020 

Change

42.66 

43.05 

0.39 

50.24 

(4.11) 

43.46 

(9.31) 

2.77 

2.66 

34.53 

35.84 

1.31 

43.05 

0.96 

35.36 

(5.32) 

2.17 

3.17 

1.3031 

(0.0431) 

(1) WTI refers to the arithmetic average of NYMEX prompt month WTI for the applicable period. 
(2) MEH refers to arithmetic average of the Argus WTI Houston differential weighted index price for the applicable period.
(3) Edmonton par refers to the average posting price for the benchmark MSW crude oil.
(4) WCS refers to the average posting price for the benchmark WCS heavy oil. 
(5) AECO refers to the AECO arithmetic average month-ahead index price published by the Canadian Gas Price Reporter ("CGPR").
(6) NYMEX refers to the NYMEX last day average index price as published by the CGPR.

Our  operating  and  financial  results  for  Q4/2021  reflect  the  successful  execution  of  our  2021  development  programs  and  strong 
benchmark commodity prices. We invested $74.0 million on exploration and development expenditures in Q4/2021 and delivered 
production  of  80,789  boe/d.  Free  cash  flow(1)  was  $137.1  million  in  Q4/2021  which  reflects  strong  commodity  prices  and  the 
disciplined execution of our development programs.

In Canada, production averaged 50,362 boe/d in Q4/2021 which was 5,041 boe/d higher than 45,321 boe/d reported for Q4/2020 
as  a  result  of  higher  development  activity  in  2021  relative  to  2020.  Strong  benchmark  pricing  resulted  in  our  realized  price  of 
$67.54/boe  for  Q4/2021  which  was  $35.44/boe  higher  than  $32.10/boe  for  Q4/2020.  In  Q4/2021,  the  Edmonton  Par  benchmark 
was $93.29/bbl and the WCS heavy oil price was $78.82/bbl compared to $50.24/bbl and $43.46/bbl for the same period of 2020, 
respectively. As a result of higher production and benchmark pricing, we generated operating netback(1) of $195.8 million ($42.26/
boe) for Q4/2021 which was $142.1 million ($29.39/boe) higher than $53.7 million ($12.87/boe) reported for Q4/2020. Exploration 
and  development  expenditures  of  $59.8  million  in  Q4/2021  includes  drilling  and  completion  costs  associated  with  57  (57.0  net) 
wells compared to 32 (32.0 net) wells in Q4/2020 when we spent $45.0 million.

In the U.S., production averaged 30,428 boe/d for Q4/2021 which is 5,274 boe/d higher than 25,154 boe/d reported for Q4/2020. 
The increase in production was a result of higher completion activity on our lands in 2021 relative to 2020 when exploration and 
development  activities  were  limited.  The  increase  in  benchmark  commodity  prices  resulted  in  our  realized  price  of  $75.17/boe 
which was $36.76/boe higher than our realized price of $38.41/boe in Q4/2020. The MEH benchmark averaged US$78.89/bbl in 
Q4/2021  which  was  US$35.84/boe  higher  than  US$43.05/bbl  during  Q4/2020.  Operating  netback  of  $123.9  million  ($44.26/boe) 
was  $79.1  million  ($24.88/boe)  higher  than  $44.8  million  ($19.38/boe)  for  Q4/2020  due  to  higher  benchmark  prices  and  higher 
production  in  Q4/2021.  Exploration  and  development  expenditures  of  $14.2  million  in  Q4/2021  includes  costs  associated  with 
drilling  15  (4.4  net)  wells  and  commencing  production  from  14  (2.5  net)  wells.  Exploration  and  development  expenditures  were 
lower in Q4/2021 due to the timing of drilling and completion activity relative to Q4/2020 when we spent $32.8 million and drilled 26 
(7.1 net) wells and brought 9 (2.7 net) wells on production.

We generated adjusted funds flow(2) of $214.8 million in Q4/2021 which is $132.6 million higher than $82.2 million in Q4/2020. The 
increase in adjusted funds flow in Q4/2021 is due to higher realized pricing driven by an increase in benchmark pricing along with 
higher production. Production of 80,789 boe/d in Q4/2021 was higher than 70,475 boe/d for Q4/2020 as development activity was 
limited during 2020 and was restarted late in 2020 and continued throughout 2021. Operating netback(1) of $43.02/boe in Q4/2021 
is  $27.83/boe  higher  than  $15.19/boe  in  Q4/2020  and  reflects  higher  benchmark  prices.  The  increase  in  our  realized  price 
combined with the impact of higher production resulted in an $221.2 million increase in operating netback in Q4/2021 compared to 
Q4/2020.  We  recorded  realized  financial  derivatives  losses  of  $70.5  million  in  Q4/2021  compared  to  gains  of  $17.1  million  in 
Q4/2020.  G&A  expense  of  $11.5  million  in  Q4/2021  was  higher  than  $9.3  million  in  Q4/2020  when  director  and  employee 
compensation  was  reduced  by  10%.  Interest  expense  of  $21.3  million  in  Q4/2021  was  $3.9  million  lower  than  $25.2  million  for 
Q4/2020  due  to  a  decrease  in  our  net  debt(2)  and  a  decrease  in  our  long-term  notes  outstanding  following  the  redemption  of 
US$200.0 million of our 5.625% Notes during 2021. Net debt decreased from $1.85 billion in Q4/2020 to $1.41 billion in Q4/2021 
as free cash flow generated in 2021 was used to reduce net debt.

(1) Specified financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable with the calculation 

of similar measures presented by other entities. Refer to the Specified Financial Measures section in this MD&A for further information.

(2) Capital management measure. Refer to the Specified Financial Measures section in this MD&A for further information.

26

Baytex Energy Corp. 2021 Annual Report

We  recorded  net  income  of  $563.2  million  in  Q4/2021  compared  to  $221.2  million  in  Q4/2020.  The  increase  in  net  income  for 
Q4/2021  relative  to  Q4/2020  is  primarily  a  result  of  the  improvement  in  commodity  benchmark  prices.  Net  income  for  Q4/2021 
includes  $416.0  million  of  impairment  reversals  due  to  improvements  in  forecasted  commodity  prices  while  Q4/2020  includes 
$341.3 million of impairment reversals.

QUARTERLY FINANCIAL INFORMATION

($ thousands, except per common share 
amounts)

Petroleum and natural gas sales

Net income (loss)

Per common share - basic

Per common share - diluted

Adjusted funds flow (1)

Per common share - basic

Per common share - diluted

Free cash flow (2)

Per common share - basic

Per common share - diluted

2021

2020

Q4

552,403 

563,239 

1.00 

0.98 

Q3

Q2

Q1

Q4

Q3

Q2

Q1

488,736 

442,354 

384,702 

233,636 

252,538 

152,689 

336,614 

32,714    1,052,999 

(35,352) 

221,160 

(23,444)    (138,463)   (2,498,217) 

0.06 

0.06 

1.87 

1.85 

(0.06) 

(0.06) 

0.39 

0.39 

(0.04) 

(0.04) 

(0.25) 

(0.25) 

(4.46) 

(4.46) 

214,766 

198,397 

175,883 

156,582 

82,176 

78,508 

17,887 

132,935 

0.38 

0.37 

0.35 

0.35 

0.31 

0.31 

0.28 

0.28 

0.15 

0.15 

0.14 

0.14 

0.03 

0.03 

0.24 

0.24 

137,133 

101,215 

112,486 

70,495 

1,794 

59,939 

5,939 

(49,599) 

0.24 

0.24 

0.18 

0.18 

0.20 

0.20 

0.13 

0.13 

— 

— 

0.11 

0.11 

0.01 

0.01 

(0.09) 

(0.09) 

Cash flows from operating activities

240,567 

178,961 

171,876 

120,980 

51,017 

93,688 

25,824 

182,567 

Per common share - basic

Per common share - diluted

Exploration and development

Canada

U.S.

Property acquisitions

Proceeds from dispositions
Net debt (1)
Total assets

0.43 

0.42 

73,995 

59,821 

14,174 

1,443 

(6,857) 

0.32 

0.31 

94,235 

75,499 

18,736 

89 

(701) 

0.30 

0.30 

61,485 

30,387 

31,098 

— 

(18) 

0.22 

0.22 

83,588 

42,503 

41,085 

25 

(228) 

0.09 

0.09 

77,809 

45,030 

32,779 

— 

(33) 

0.17 

0.17 

15,902 

3,882 

12,020 

— 

(98) 

0.05 

0.05 

9,852 

2,929 

6,923 

— 

(11) 

0.33 

0.33 

176,777 

123,110 

53,667 

— 

(40) 

  1,409,717    1,564,658    1,629,629    1,758,894    1,847,601    1,906,079    1,994,953    2,051,617 

  4,834,643    4,453,971    4,438,162    3,338,408    3,408,096    3,156,414    3,267,820    3,441,040 

Common shares outstanding

564,213 

564,213 

564,182 

564,111 

561,227 

561,163 

560,545 

560,483 

Daily production

Total production (boe/d)

Canada (boe/d)

U.S. (boe/d)

Benchmark prices

WTI oil (US$/bbl)

WCS heavy ($/bbl)

Edmonton Light ($/bbl)

CAD/USD avg exchange rate

AECO gas ($/mcf)

NYMEX gas (US$/mmbtu)

Total sales, net of blending and other 
expense ($/boe) (2)
Royalties ($/boe) (3)
Operating expense ($/boe) (3)
Transportation expense ($/boe) (3)

Operating netback ($/boe) (2)

Financial derivatives gain (loss) ($/boe) (3)

Operating netback after financial 
derivatives ($/boe) (2)

80,789 

50,362 

30,428 

79,872 

48,124 

31,748 

81,162 

47,205 

33,957 

78,780 

52,039 

26,741 

70,475 

45,321 

25,154 

77,814 

49,164 

28,650 

72,508 

37,691 

34,817 

98,452 

62,262 

36,190 

77.19 

78.82 

93.29 

1.2600 

4.94 

5.83 

70.42 

(13.47) 

(12.83) 

(1.10) 

43.02 

(9.49) 

70.56 

71.81 

83.78 

66.07 

67.03 

77.28 

57.84 

57.46 

66.58 

42.66 

43.46 

50.24 

40.93 

42.40 

49.83 

27.85 

22.70 

29.85 

46.17 

34.48 

51.43 

1.2601 

1.2279 

1.2663 

1.3031 

1.3316 

1.3860 

1.3445 

3.54 

4.01 

2.85 

2.83 

2.93 

2.69 

2.77 

2.66 

2.18 

1.98 

1.91 

1.72 

2.14 

1.95 

63.85 

(12.32) 

(11.46) 

(1.06) 

39.01 

(7.34) 

57.19 

(11.04) 

(11.22) 

(1.01) 

33.92 

(5.28) 

51.84 

(9.44) 

34.35 

(5.83) 

33.79 

(5.59) 

22.31 

(4.42) 

35.19 

(6.33) 

(11.36) 

(12.30) 

(10.26) 

(11.17) 

(11.66) 

(1.24) 

29.80 

(2.93) 

(1.03) 

15.19 

2.64 

(0.89) 

17.05 

(1.36) 

(0.76) 

5.96 

2.06 

(1.15) 

16.05 

3.00 

33.53 

31.67 

28.64 

26.87 

17.83 

15.69 

8.02 

19.05 

(1) Capital management measure. Refer to the Specified Financial Measures section in this MD&A for further information.
(2) Specified financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable with the calculation 

of similar measures presented by other entities. Refer to the Specified Financial Measures section in this MD&A for further information.

(3) Calculated as Operating, transportation or financial derivatives gain (loss) expense divided by barrels of oil equivalent production volume for 

the applicable period.

Baytex Energy Corp. 2021 Annual Report

27

Our  results  for  the  previous  eight  quarters  reflect  the  disciplined  execution  of  our  development  programs  and  management  of 
production in response to fluctuations in the prices for the commodities we produce. Production declined from Q1/2020 to Q2/2020 
due  to  the  sharp  decline  in  crude  oil  prices  in  March  2020  when  we  shut-in  production  in  Canada  and  moderated  the  pace  of 
activity  in  the  U.S.  Commodity  prices  began  to  recover  in  Q3/2020  and  have  strengthened  throughout  2021  which  supported 
increased development activity and resulted in production of 80,789 boe/d for Q4/2021.

North  American  benchmark  commodity  prices  were  relatively  strong  leading  in  to  Q1/2020  with  the  West  Texas  Intermediate 
("WTI")  benchmark  price  averaging  US$57.53/bbl  in  January  2020.  Decisions  made  by  Saudi  Arabia  and  Russia  to  increase 
production of crude oil as demand was decreasing due to the spread of COVID-19 resulted in a sharp decline in global crude oil 
prices  with  WTI  averaging  US$27.85/bbl  in  Q2/2020.  Prices  improved  during  the  second  half  of  2020  as  OPEC+  agreed  to 
reinstate production curtailments and measures to control the spread of COVID-19 were relaxed. Commodity prices continued to 
strengthen in 2021 with WTI hitting multi-year highs and averaging US$77.19/bbl in Q4/2021 as the outlook for demand improved 
with  increasing  global  mobility  and  supply  growth  was  limited  by  OPEC+  production  curtailments  along  with  limited  production 
growth  from  large  independent  producers.  The  impact  of  increased  commodity  prices  is  reflected  in  our  realized  sales  price  of 
$70.42/boe for Q4/2021 which is our strongest realized price for the previous eight quarters.

Adjusted funds flow is directly impacted by our average daily production and changes in benchmark commodity prices which are 
the basis for our realized sales price. Adjusted funds flow(1) improved throughout 2021, to $214.8 million in Q4/2021, due to strong 
price realizations and ongoing efforts to control operating and transportation costs.

Net debt can fluctuate depending on the timing of exploration and development expenditures, changes in our adjusted funds flow 
and the closing CAD/USD exchange rate which is used to translate our U.S. dollar denominated debt. Net debt(1) has decreased 
from $2.1 billion at Q1/2020 to $1.4 billion at Q4/2021 as free cash flow(2) of $439.4 million generated over the last eight quarters 
has been directed towards debt repayment. Our net debt has also been reduced by a decrease in the CAD/USD exchange rate 
used to translate our U.S. dollar denominated debt from 1.412 CAD/USD at Q1/2020 to 1.2656 CAD/USD at Q4/2021.

(1) Capital management measure. Refer to the Specified Financial Measures section in this MD&A for further information.
(2) Specified financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable with the calculation 

of similar measures presented by other entities. Refer to the Specified Financial Measures section in this MD&A for further information.

ENVIRONMENTAL REGULATIONS

As a result of our involvement in the exploration and production of oil and natural gas we are subject to various emissions, carbon 
and other environmental regulations. Refer to the Risk Factors section of this MD&A for a full description of the risks associated 
with these regulations and how they may impact our business in the future. In addition to the Risk Factors discussed in this MD&A, 
additional information related to our emissions and sustainability initiatives is available on our website.

Reporting Regulations

Environmental  reporting  for  public  enterprises  continues  to  evolve  and  we  may  be  subject  to  additional  future  disclosure 
requirements.  The  International  Sustainability  Standards  Board  has  issued  an  IFRS  Sustainability  Disclosure  Standard  with  the 
objective to develop a global framework for environmental sustainability disclosure. The Canadian Securities Administrators have 
also  issued  a  proposed  National  Instrument  51-107  Disclosure  of  Climate-related  Matters  which  sets  forth  additional  reporting 
requirements for Canadian Public Companies. We continue to monitor developments on these reporting requirements and have not 
yet quantified the cost to comply with these regulations.

OFF BALANCE SHEET TRANSACTIONS

We do not have any financial arrangements that are excluded from the consolidated financial statements as at December 31, 2021, 
nor are any such arrangements outstanding as of the date of this MD&A.

CRITICAL ACCOUNTING ESTIMATES

The  preparation  of  the  consolidated  financial  statements  in  accordance  with  IFRS  requires  management  to  make  judgments, 
estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, revenues 
and  expenses.  These  judgments,  estimates  and  assumptions  are  based  on  all  relevant  information,  including  considerations 
related to environmental regulation and related matters, available to the Company at the time of financial statement preparation. 
Actual results can differ from those estimates as the effect of future events cannot be determined with certainty. The key areas of 
judgment or estimation uncertainty that have a significant risk of causing material adjustment to the reported amounts of assets, 
liabilities, revenues, and expenses are discussed below.

28

Baytex Energy Corp. 2021 Annual Report

Reserves

The Company uses estimates of oil, natural gas and natural gas liquids ("NGL") reserves in the calculation of depletion, evaluating 
the  recoverability  of  deferred  income  tax  assets  and  in  the  determination  of  fair  value  estimates  for  non-financial  assets.  The 
process  to  estimate  reserves  is  complex  and  requires  significant  judgment.  Estimates  of  the  Company's  reserves  are  evaluated 
annually by independent reserves evaluators and represent the estimated recoverable quantities of oil, natural gas and NGL and 
the related net cash flows. This evaluation of reserves is prepared in accordance with the reserves definition contained in National 
Instrument 51-101 "Standards of Disclosure for Oil and Gas Activities" and the Canadian Oil and Gas Evaluation Handbook.

Estimates of economically recoverable oil, natural gas and NGL and their future net cash flows are based on a number of factors 
and  assumptions.  Changes  to  estimates  and  assumptions  such  as  forward  price  forecasts,  production  rates,  ultimate  reserve 
recovery, timing and amount of capital expenditures, production costs, marketability of oil and natural gas, royalty rates and other 
geological,  economic  and  technical  factors  could  have  a  significant  impact  on  reported  reserves.  Changes  in  the  Company's 
reserves estimates can have a significant impact on the carrying values of the Company's oil and gas properties, the calculation of 
depletion,  the  timing  of  cash  flows  for  asset  retirement  obligations,  asset  impairments  and  estimates  of  fair  value  determined  in 
accounting for business combinations. 

Cash-generating Units ("CGUs")

The Company's oil and gas properties are aggregated into CGUs which are the smallest identifiable group of assets that generates 
cash flows that are largely independent of the cash flows from other assets or groups of assets. The aggregation of assets in CGUs 
requires management judgment and is based on geographical proximity, shared infrastructure and similar exposure to market risk.

Identification of Impairment and Impairment Reversal Indicators

Judgment  is  required  to  assess  when  indicators  of  impairment  or  impairment  reversal  exist  and  when  a  calculation  of  the 
recoverable  amount  is  required.  The  CGUs  comprising  oil  and  gas  properties  are  reviewed  at  each  reporting  date  to  assess 
whether there is any indication of impairment or impairment reversal. The assessment for each CGU considers significant changes 
in  reservoir  performance  including  forecasted  production  volumes,  forecasted  royalty,  operating,  capital  and  abandonment  and 
reclamation costs, forecasted oil and gas prices and the resulting cash flows from proved plus probable oil and gas reserves.

Measurement of Recoverable Amount

If indicators of impairment or impairment reversal are determined to exist, the recoverable amount of an asset or CGU is calculated 
based on the higher of value-in-use ("VIU") and fair value less cost of disposal ("FVLCD"). These calculations require the use of 
estimates and assumptions including cash flows associated with proved plus probable oil and gas reserves, the discount rate used 
to  present  value  future  cash  flows,  and  assumptions  regarding  the  timing  and  amount  of  capital  expenditures  and  future 
abandonment and reclamation obligations. Any  changes  to  these  estimates and assumptions could impact  the calculation  of  the 
recoverable amount and the carrying value of assets.

Exploration and Evaluation ("E&E") Assets

Costs  associated  with  acquiring  oil  and  natural  gas  licenses  and  exploratory  drilling  are  accumulated  as  E&E  assets  pending 
determination of technical feasibility and commercial viability. The determination of technical feasibility and commercial viability of 
E&E  assets  for  the  purposes  of  reclassifying  such  assets  to  oil  and  gas  properties  is  subject  to  management  judgment. 
Management  uses  the  establishment  of  commercial  reserves  as  the  basis  for  determining  technical  feasibility  and  commercial 
viability. Upon determination of commercial reserves, E&E assets are tested for impairment and reclassified to oil and natural gas 
properties.

Asset Retirement Obligations

The Company's provision for asset retirement obligations is based on estimated costs to abandon and reclaim the wells and the 
facilities,  the  estimated  time  period  during  which  these  costs  will  be  incurred  in  the  future,  and  discount  and  inflation  rates. The 
provision for asset retirement obligations represents management's best estimate of the present value of the future abandonment 
and  reclamation  costs  required  under  current  regulatory  requirements.  Actual  abandonment  and  reclamation  costs  could  be 
materially different from estimated amounts.

Baytex Energy Corp. 2021 Annual Report

29

Income Taxes

Tax regulations and legislation in the various jurisdictions in which the Company and its subsidiaries operate are subject to change 
and there are differing interpretations requiring management judgment. Deferred tax assets are recognized when it is considered 
probable that deductible temporary differences will be recovered in future periods, which requires management judgment. Deferred 
tax liabilities are recognized when it is considered probable that temporary differences will be payable to tax authorities in future 
periods,  which  requires  management  judgment.  Income  tax  filings  are  subject  to  audit  and  re-assessment  and  changes  in  facts, 
circumstances and interpretations of the standards may result in a material change to the Company's provision for income taxes. 
Estimates of future income taxes are subject to measurement uncertainty.

NYSE LISTING

On March 24, 2020 we received notice from the New York Stock Exchange (“NYSE”) that Baytex was no longer in compliance with 
one  of  the  NYSE’s  continued  listing  standards  because  the  average  closing  price  of  Baytex’s  common  shares  was  less  than 
US$1.00  per  share  over  a  consecutive  30-day  trading  period.  Baytex  did  not  regain  compliance  and  its  common  shares  were 
delisted from the NYSE on December 3, 2020. 

Baytex's common shares remain registered with the U.S. Securities and Exchange Commission. Given that Baytex remains listed 
on the TSX and the average daily trading volume of Baytex’s common shares in the U.S. is greater than 5% of Baytex’s worldwide 
average  daily  trading  volume  over  the  12-month  period  following  the  delisting,  Baytex  is  not  eligible  to  deregister  its  common 
shares and must continue to follow the reporting guidelines of the Securities Exchange Act of 1934, as amended.

SPECIFIED FINANCIAL MEASURES

In  this  MD&A,  we  refer  to  certain  specified  financial  measures  (such  as  free  cash  flow,  operating  netback,  total  sales,  net  of 
blending and other expense, heavy oil sales, net of blending and other expense, and average royalty rate) which do not have any 
standardized  meaning  prescribed  by  IFRS.  While  these  measures  are  commonly  used  in  the  oil  and  natural  gas  industry,  our 
determination  of  these  measures  may  not  be  comparable  with  calculations  of  similar  measures  presented  by  other  reporting 
issuers. This MD&A also contains the terms "adjusted funds flow", "net debt" and "net debt to adjusted funds flow ratio" which are 
capital  management  measures.  We  believe  that  inclusion  of  these  specified  financial  measures  provides  useful  information  to 
financial statement users when evaluating the financial results of Baytex.

Non-GAAP Financial Measures

Total sales, net of blending and other expense

Total  sales,  net  of  blending  and  other  expense  represents  the  revenues  realized  from  produced  volumes  during  a  period.  Total 
sales,  net  of  blending  and  other  expense  is  comprised  of  total  petroleum  and  natural  gas  sales  adjusted  for  blending  and  other 
expense. We believe including the blending and other expense associated with purchased volumes is useful when analyzing our 
realized pricing for produced volumes against benchmark commodity prices.

Operating netback

Operating netback and operating netback after financial derivatives are used to assess our operating performance and our ability to 
generate  cash  margin  on  a  unit  of  production  basis.  Operating  netback  is  comprised  of  petroleum  and  natural  gas  sales,  less 
blending  expense,  royalties,  operating  expense  and  transportation  expense.  Realized  financial  derivatives  gains  and  losses  are 
added to operating netback to provide a more complete picture of our financial performance as our financial derivatives are used to 
provide price certainty on a portion of our production.

30

Baytex Energy Corp. 2021 Annual Report

The following table reconciles operating netback and operating netback after realized financial derivatives to petroleum and natural 
gas sales.

($ thousands)

Petroleum and natural gas sales

Blending and other expense

Total sales, net of blending and other expense

Royalties

Operating expense

Transportation expense

Operating netback
Realized financial derivatives (gain) loss(1)
Operating netback after realized financial derivatives

Years Ended December 31

2021

$ 

1,868,195  $ 

(85,689) 

1,782,506 

(339,156) 

(343,002) 

(32,261) 

1,068,087 

(184,241) 

$ 

883,846  $ 

2020

975,477 

(48,381) 

927,096 

(163,735) 

(331,345) 

(28,437) 

403,579 

47,836 

451,415 

(1) Realized  financial  derivatives  gain  or  loss  is  a  component  of  financial  derivatives  gain  or  loss;  see  Note  17  Financial  Instruments  and  Risk 

Management in the Consolidated Financial Statements for the year ended December 31, 2021 for further information. 

Free cash flow

We use free cash flow to evaluate our financial performance and to assess the cash available for debt repayment, common share 
repurchases, dividends and acquisition opportunities. Free cash flow is comprised of cash flows from operating activities adjusted 
for  changes  in  non-cash  working  capital,  additions  to  exploration  and  evaluation  assets,  additions  to  oil  and  gas  properties  and 
payments on lease obligations.

Free cash flow is reconciled to cash flows from operating activities in the following table.

($ thousands)

Cash flows from operating activities

Change in non-cash working capital

Additions to exploration and evaluation assets

Additions to oil and gas properties

Payments on lease obligations

Free cash flow

Non-GAAP Financial Ratios

Heavy oil, net of blending and other expense per bbl

Years Ended December 31

2021

712,384  $ 

26,582  $ 

(3,298) 

(310,005) 

(4,334) 

421,329  $ 

2020

353,096 

(48,758) 

(4,490) 

(275,850) 

(5,925) 

18,073 

$ 

$ 

Heavy oil, net of blending and other expense per bbl represents the realized price for produced heavy oil volumes during a period. 
Heavy oil, net of blending and other expense is a non-GAAP financial ratio that is divided by barrels of heavy oil production volume 
for the applicable period to calculate the ratio. We use heavy oil, net of blending and other expense per bbl to analyze our realized 
heavy oil price for produced volumes against the WCS benchmark price.

Total sales, net of blending and other expense per boe

Total  sales,  net  of  blending  and  other  per  boe  is  used  to  compare  our  realized  pricing  to  applicable  benchmark  prices  and  is 
calculated as total sales, net of blending and other expense (a non-GAAP financial measure) divided by barrels of oil equivalent 
production volume for the applicable period.

Average royalty rate

Average  royalty  rate  is  used  to  evaluate  the  performance  of  our  operations  from  period  to  period  and  is  comprised  of  royalties 
divided by total sales, net of blending and other expense (a non-GAAP financial measure). The actual royalty rates can vary for a 
number  of  reasons,  including  the  commodity  produced,  royalty  contract  terms,  commodity  price  level,  royalty  incentives  and  the 
area or jurisdiction.

Baytex Energy Corp. 2021 Annual Report

31

Operating netback per boe

Operating  netback  per  boe  is  operating  netback  (a  non-GAAP  financial  measure)  divided  by  barrels  of  oil  equivalent  production 
volume for the applicable period and is used to assess our operating performance on a unit of production basis. Realized financial 
derivative gains and losses per boe are added to operating netback per boe to arrive at operating netback after financial derivatives 
per boe. Realized financial derivatives gains and losses are added to operating netback to provide a more complete picture of our 
financial performance as our financial derivatives are used to provide price certainty on a portion of our production.

Capital Management Measures

Net debt 

We  use  net  debt  to  monitor  our  current  financial  position  and  to  evaluate  existing  sources  of  liquidity.  We  also  use  net  debt 
projections to estimate future liquidity and whether additional sources of capital are required to fund ongoing operations. Net debt is 
comprised  our  credit  facilities  and  long-term  notes  outstanding  adjusted  for  unamortized  debt  issuance  costs,  trade  and  other 
payables, cash, and trade and other receivables.

The following table summarizes our calculation of net debt.

($ thousands)

Credit facilities
Unamortized debt issuance costs - Credit facilities(1)
Long-term notes
Unamortized debt issuance costs - Long-term notes(1)
Trade and other payables

Trade and other receivables

Net debt

December 31, 2021

December 31, 2020

$ 

505,171  $ 

1,343 

874,527 

11,393 

190,692 

$ 

(173,409) 

1,409,717  $ 

649,221 

1,952 

1,132,868 

15,082 

155,955 

(107,477) 

1,847,601 

(1) Unamortized  debt  issuance  costs  were  obtained  from  Note 7  Credit  Facilities  and  Note 8  Long-term  Notes  from  the  Consolidated  Financial 
Statements for the year ended December 31, 2021. These amounts represent the remaining balance of costs that were paid by Baytex at the 
inception of the contract.

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. We also 
use 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. Net debt to adjusted funds flow is comprised of net debt divided by adjusted funds flow.

Adjusted funds flow is reconciled to amounts disclosed in the primary financial statements in the following table.

($ thousands)

Cash flows from operating activities

Change in non-cash working capital

Asset retirement obligations settled

Adjusted funds flow

Net debt to adjusted funds flow

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Years Ended December 31

2021

712,384  $ 

26,582 

6,662 

745,628  $ 

1.9 

2020

353,096 

(48,758) 

7,168 

311,506 

5.9 

$ 

$ 

As  of  December  31,  2021,  an  evaluation  was  conducted  to  determine  the  effectiveness  of  our  “disclosure  controls  and 
procedures”  (as  defined  in  the  United  States  by  Rules  13a-15(e)  and  15d-15(e)  under  the  Securities  Exchange Act  of  1934  (the 
“Exchange Act”) and in Canada by National Instrument 52-109, Certification of Disclosure in Issuers' Annual and Interim Filings ("NI 
52-109")) under the supervision of and with the participation of management, including the President and Chief Executive Officer 
and  the  Executive  Vice  President  and  Chief  Financial  Officer  of  Baytex  (collectively  the  "certifying  officers").  Based  on  that 
evaluation, the certifying officers concluded that our disclosure controls and procedures are effective to ensure that the information 
required to be disclosed in the reports that we file or submit under the Exchange Act or under Canadian securities legislation is (i) 

32

Baytex Energy Corp. 2021 Annual Report

recorded,  processed,  summarized  and  reported  within  the  time  periods  specified  in  the  applicable  rules  and  forms  and  (ii) 
accumulated  and  communicated  to  our  management,  including  the  certifying  officers,  to  allow  timely  decisions  regarding  the 
required disclosure.

It should be noted that while the certifying officers believe that our disclosure control and procedures provide a reasonable level of 
assurance that they are effective, they do not expect that our disclosure controls and procedures will prevent all errors and fraud. A 
control system, no matter how well conceived or operated, can provide only reasonable, not absolute assurance that the objectives 
of the control system are met.

Internal Control Over Financial Reporting

Management  is  responsible  for  establishing  and  maintaining  adequate  internal  control  over  the  Company's  financial  reporting. 
Internal  control  over  our  financial  reporting  is  a  process  designed  under  the  supervision  of  and  with  the  participation  of 
management,  including  the  certifying  officers,  to  provide  reasonable  assurance  regarding  the  reliability  of  financial  reporting  and 
the preparation of financial statements. 

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements and even those 
systems determined to be effective can provide only reasonable assurance with respect to the financial statement preparation and 
presentation.

Management  has  assessed  the  effectiveness  of  our  "internal  control  over  financial  reporting"  as  defined  in  Rules  13a-15(f)  and 
15d-15(f)  of  the  Exchange Act  and  as  defined  by  NI  52-109. The  assessment  was  based  on  the  framework  in  Internal  Control  - 
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management 
concluded that our internal control over financial reporting was effective as of December 31, 2021. 

The  effectiveness  of  our  internal  control  over  financial  reporting  as  of  December  31,  2021  has  been  audited  by  KPMG  LLP,  an 
independent registered public accounting firm, as stated in their Report of Independent Registered Public Accounting Firm. 

Changes in Internal Control over Financial Reporting

No  changes  were  made  to  our  internal  control  over  financial  reporting  during  the  year  ended  December  31,  2021  that  have 
materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting.

SELECTED ANNUAL INFORMATION

The  following  table  summarizes  key  annual  financial  and  operating  information  over  the  three  most  recently  completed  financial 
years.

($ thousands, except per common share amounts)

Revenues, net of royalties
Adjusted funds flow (1)

Per common share - basic

Per common share - diluted

Net income (loss)

Per common share - basic

Per common share - diluted

Total assets

Credit facilities - principal

Long term notes - principal
Total sales, net of blending and other expense ($/boe) (2)
Total production (boe/d)

$ 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

2021

1,529,039  $ 

745,628  $ 

1.32  $ 

1.30  $ 

2020

2019

811,742  $ 

1,485,678 

311,506  $ 

902,426 

0.56  $ 

0.56  $ 

1.62 

1.62 

1,613,600  $ 

(2,438,964) $ 

(12,459) 

2.86  $ 

2.82  $ 

(4.35) $ 

(4.35) $ 

(0.02) 

(0.02) 

4,834,643  $ 

3,408,096  $ 

5,914,083 

506,514  $ 

885,920  $ 

60.93  $ 

80,156 

651,173  $ 

506,471 

1,147,950  $ 

1,337,200 

31.75  $ 

79,781 

48.72 

97,680 

(1) Capital management measure. Refer to the Specified Financial Measures section in this MD&A for further information.
(2) Specified financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable with the calculation 

of similar measures presented by other entities. Refer to the Specified Financial Measures section in this MD&A for further information.

Baytex Energy Corp. 2021 Annual Report

33

FORWARD-LOOKING STATEMENTS

In  the  interest  of  providing  our  shareholders  and  potential  investors  with  information  regarding  Baytex,  including  management's 
assessment of the Company’s future plans and operations, certain statements in this document are "forward-looking statements" 
within the meaning of the United States Private Securities Litigation Reform Act of 1995 and "forward-looking information" within 
the  meaning  of  applicable  Canadian  securities  legislation  (collectively,  "forward-looking  statements").  In  some  cases,  forward-
looking  statements  can  be  identified  by  terminology  such  as  "anticipate",  "believe",  "continue",  "could",  "estimate",  "expect", 
"forecast", "intend", "may", "objective", "ongoing", "outlook", "potential", "plan", "project", "should", "target", "would", "will" or similar 
words suggesting future outcomes, events or performance. The forward-looking statements contained in this document speak only 
as of the date of this document and are expressly qualified by this cautionary statement.

Specifically,  this  document  contains  forward-looking  statements  relating  to  but  not  limited  to:  our  business  strategies,  plans  and 
objectives;  for  2022,  our  capital  budget,  expected  average  daily  production,  expected  royalty  rate  and  operating  expense, 
transportation  expense,  general  and  administrative  expense,  cash  interest  expense,  lease  expenditures  and  asset  retirement 
obligations settled; the existence, operation and strategy of our risk management program; the reassessment of our tax filings by 
the  Canada  Revenue  Agency;  that  our  internally  generated  adjusted  funds  flow  and  our  existing  undrawn  credit  facilities  will 
provide  sufficient  liquidity  to  sustain  our  operations  and  planned  capital  expenditures;  that  we  may  issue  or  repurchase  debt  or 
equity securities from time to time or sell assets; our intent to fund certain financial obligations with cash flow from operations and 
the  expected  timing  of  the  financial  obligations;  our  plans  with  respect  to  asset  retirement  obligation  activities;  and  the 
circumstances  in  which  we  may  be  eligible  to  deregister  our  common  shares  under  the  Securities  Exchange  Act  of  1934.  In 
addition,  information  and  statements  relating  to  reserves  are  deemed  to  be  forward-looking  statements,  as  they  involve  implied 
assessment, based on certain estimates and assumptions, that the reserves described exist in quantities predicted or estimated, 
and that the reserves can be profitably produced in the future.

These forward-looking statements are based on certain key assumptions regarding, among other things: petroleum and natural gas 
prices and differentials between light, medium and heavy oil prices; well production rates and reserve volumes; our ability to add 
production and reserves through our exploration and development activities; capital expenditure levels; our ability to borrow under 
our credit agreements; the receipt, in a timely manner, of regulatory and other required approvals for our operating activities; the 
availability and cost of labour and other industry services; interest and foreign exchange rates; the continuance of existing and, in 
certain  circumstances,  proposed  tax  and  royalty  regimes;  our  ability  to  develop  our  crude  oil  and  natural  gas  properties  in  the 
manner currently contemplated; and current industry conditions, laws and regulations continuing in effect (or, where changes are 
proposed,  such  changes  being  adopted  as  anticipated).  Readers  are  cautioned  that  such  assumptions,  although  considered 
reasonable by Baytex at the time of preparation, may prove to be incorrect.

Actual  results  achieved  will  vary  from  the  information  provided  herein  as  a  result  of  numerous  known  and  unknown  risks  and 
uncertainties  and  other  factors.  Such  factors  include,  but  are  not  limited  to:  the  volatility  of  oil  and  natural  gas  prices  and  price 
differentials (including the impacts of Covid-19); restrictions or costs imposed by climate change initiatives and the physical risks of 
climate change; risks associated with our ability to develop our properties and add reserves; the impact of an energy transition on 
demand for petroleum productions; changes in income tax or other laws or government incentive programs; availability and cost of 
gathering,  processing  and  pipeline  systems;  retaining  or  replacing  our  leadership  and  key  personnel;  the  availability  and  cost  of 
capital or borrowing; risks associated with a third-party operating our Eagle Ford properties; risks associated with large projects; 
costs to develop and operate our properties; public perception and its influence on the regulatory regime; current or future control, 
legislation  or  regulations;  new  regulations  on  hydraulic  fracturing;  restrictions  on  or  access  to  water  or  other  fluids;  regulations 
regarding the disposal of fluids; risks associated with our hedging activities; variations in interest rates and foreign exchange rates; 
uncertainties associated with estimating oil and natural gas reserves; our inability to fully insure against all risks; additional risks 
associated  with  our  thermal  heavy  oil  projects;  our  ability  to  compete  with  other  organizations  in  the  oil  and  gas  industry;  risks 
associated with our use of information technology systems; results of litigation; that our credit facilities may not provide sufficient 
liquidity  or  may  not  be  renewed;  failure  to  comply  with  the  covenants  in  our  debt  agreements;  risks  of  counterparty  default;  the 
impact  of  Indigenous  claims;  risks  associated  with  expansion  into  new  activities;  risks  associated  with  the  ownership  of  our 
securities,  including  changes  in  market-based  factors;  risks  for  United  States  and  other  non-resident  shareholders,  including  the 
ability  to  enforce  civil  remedies,  differing  practices  for  reporting  reserves  and  production,  additional  taxation  applicable  to  non-
residents and foreign exchange risk; and other factors, many of which are beyond our control. These and additional risk factors are 
discussed in our Annual Information Form, Annual Report on Form 40-F and Management's Discussion and Analysis for the year 
ended  December  31,  2021,  to  be  filed  with  Canadian  securities  regulatory  authorities  and  the  U.S.  Securities  and  Exchange 
Commission not later than March 31, 2022 and in our other public filings.

The  above  summary  of  assumptions  and  risks  related  to  forward-looking  statements  has  been  provided  in  order  to  provide 
shareholders  and  potential  investors  with  a  more  complete  perspective  on  Baytex’s  current  and  future  operations  and  such 
information may not be appropriate for other purposes.

There is no representation by Baytex that actual results achieved will be the same in whole or in part as those referenced in the 
forward-looking  statements  and  Baytex  does  not  undertake  any  obligation  to  update  publicly  or  to  revise  any  of  the  included 
forward-looking  statements,  whether  as  a  result  of  new  information,  future  events  or  otherwise,  except  as  may  be  required  by 
applicable securities law.

34

Baytex Energy Corp. 2021 Annual Report

RISK FACTORS

We are focused on long-term strategic planning and have identified key risks, uncertainties and opportunities associated with our 
business that can impact the financial and operational results. Listed below is a description of these risks and uncertainties. 

Risks Relating to Our Business and Operations

Volatility of oil and natural gas prices and price differentials 

Our financial condition is substantially dependent on, and highly sensitive to, the prevailing prices of crude oil and natural gas. Low 
prices for crude oil and natural gas produced by us could have a material adverse effect on our operations, financial condition and 
the value and amount of our reserves.

Prices for crude oil and natural gas fluctuate in response to changes in the supply of, and demand for, crude oil and natural gas, 
market uncertainty and a variety of additional factors beyond our control. Crude oil prices are primarily determined by international 
supply  and  demand.  Factors  which  affect  crude  oil  prices  include  the  actions  of  OPEC,  OPEC+,  the  condition  of  the  Canadian, 
United States, European and Asian economies, the impact of pandemics/epidemics (including Covid-19), government regulation, 
political stability in the Middle East and elsewhere, the supply of crude oil in North America and internationally, the ability to secure 
adequate transportation for products, the availability of alternate fuel sources and weather conditions. Natural gas prices realized 
by  us  are  affected  primarily  in  North America  by  supply  and  demand,  weather  conditions,  industrial  demand,  prices  of  alternate 
sources of energy and developments related to the market for liquefied natural gas. All of these factors are beyond our control and 
can  result  in  a  high  degree  of  price  volatility.  Fluctuations  in  currency  exchange  rates  further  compound  this  volatility  when 
commodity prices, which are generally set in U.S. dollars, are stated in Canadian dollars.

Our  financial  performance  also  depends  on  revenues  from  the  sale  of  commodities  which  differ  in  quality  and  location  from 
underlying commodity prices quoted on financial exchanges. Of particular importance are the price differentials between our light/
medium  oil  and  heavy  oil  (in  particular  the  light/heavy  differential)  and  quoted  market  prices.  Not  only  are  these  discounts 
influenced by regional supply and demand factors, they are also influenced by other factors such as transportation costs, capacity 
and interruptions, refining demand, storage capacity, the availability and cost of diluents used to blend and transport product and 
the quality of the oil produced, all of which are beyond our control. In addition, there is not sufficient pipeline capacity for Canadian 
crude oil to access the American refinery complex or tidewater to access world markets and the availability of additional transport 
capacity via rail is more expensive and variable, therefore, the price for Canadian crude oil is very sensitive to pipeline and refinery 
outages, which contributes to this volatility.

Decreases to or prolonged periods of low commodity prices, particularly for oil, may negatively impact our ability to meet guidance 
targets,  maintain  our  business  and  meet  all  of  our  financial  obligations  as  they  come  due.  It  could  also  result  in  the  shut-in  of 
currently producing wells without an equivalent decrease in expenses due to fixed costs, a delay or cancellation of existing or future 
drilling, development or construction programs, un-utilized long-term transportation commitments and a reduction in the value and 
amount of our reserves.

We conduct assessments of the carrying value of our assets in accordance with IFRS. If crude oil and natural gas forecast prices 
change, the carrying value of our assets could be subject to revision and our net earnings could be adversely affected.

Restrictions and/or costs associated with regulatory initiatives to combat climate change and the physical risks of climate 
change may have a material adverse affect on our business

Regulatory and Policy Initiatives

Our exploration and production facilities and other operational activities emit GHGs. As such, it is highly likely that GHG emissions 
regulation (including carbon taxes) enacted in jurisdictions where we operate will impact us. In addition, certain of our assets have 
a higher GHG emissions intensity than others and may be disproportionately impacted.

Negative consequences which could result from new GHG emissions regulation include, but are not limited to: increased operating 
costs, additional taxes, increased construction and development costs, additional monitoring and compliance costs, a requirement 
to  redesign  or  retrofit  current  facilities,  permitting  delays,  additional  costs  associated  with  the  purchase  of  emission  credits  or 
allowances and reduced demand for crude oil. Additionally, if GHG emissions regulation differs by region or type of production, all 
or part of our production could be subject to costs which are disproportionately higher than those of other producers.

The  direct  or  indirect  costs  of  compliance  with  GHG  emissions  regulation  may  have  a  material  adverse  affect  on  our  business, 
financial condition, results of operations and prospects. At this time, it is not possible to predict whether compliance costs will have 
a material adverse affect our financial condition, results of operations or prospects.

Although we provide for the necessary amounts in our annual capital budget to fund our currently estimated obligations, there can 
be no assurance that we will be able to satisfy our actual future obligations associated with GHG emissions from such funds.

Physical Risk

Climate  change  has  been  linked  to  extreme  weather  conditions.  Extreme  hot  and  cold  weather,  heavy  snowfall,  heavy  rain  fall, 
hurricanes  and  wildfires  may  restrict  our  ability  to  access  our  properties,  cause  operational  difficulties  including  damage  to 

Baytex Energy Corp. 2021 Annual Report

35

machinery and facilities. Extreme weather also increases the risk of personnel injury as a result of dangerous working conditions. 
Certain of our assets are located where they are exposed to forest fires, floods, heavy rains, hurricanes and other extreme weather 
conditions which can lead to significant downtime, damage to such assets and/or increased costs of construction and maintenance. 
Moreover, extreme weather conditions may lead to disruptions in our ability to transport  produced oil and natural  gas  as well  as 
goods and services in our supply chain.

Our success is highly dependent on our ability to develop existing properties and add to our oil and natural gas reserves

Our oil and natural gas reserves are a depleting resource and decline as such reserves are produced, as a result, our long-term 
commercial success depends on our ability to find, acquire, develop and commercially produce oil and natural gas reserves. Future 
oil  and  natural  gas  exploration  may  involve  unprofitable  efforts,  not  only  from  unsuccessful  wells,  but  also  from  wells  that  are 
productive  but  do  not  produce  sufficient  hydrocarbons  to  return  a  profit.  Completion  of  a  well  does  not  assure  a  profit  on  the 
investment. Drilling hazards or environmental liabilities or damages could greatly increase the cost of operations, and various field 
operating  conditions  may  adversely  affect  the  production  from  successful  wells.  These  conditions  include  delays  or  failure  in 
obtaining governmental approvals or consents, shut-ins of connected wells resulting from extreme weather conditions, insufficient 
storage  or  transportation  capacity  or  other  geological  and  mechanical  conditions.  While  diligent  well  supervision  and  effective 
maintenance operations can contribute to maximizing production rates over time, production delays and declines from normal field 
operating conditions cannot be eliminated and can be expected to adversely affect revenue and cash flow from operating activities 
to varying degrees. 

There  is  no  assurance  we  will  be  successful  in  developing  our  reserves  or  acquiring  additional  reserves  at  acceptable  costs. 
Without these reserves additions, our reserves will deplete and as a consequence production from and the average reserve life of 
our properties will decline, which may adversely affect our business, financial condition, results of operations and prospects.

An energy transition that lessens demand for petroleum products may have an adverse affect on our business

A  transition  away  from  the  use  of  petroleum  products,  which  may  include  conservation  measures,  alternative  fuel  requirements, 
increasing  consumer  demand  for  alternatives  to  oil  and  natural  gas  and  technological  advances  in  fuel  economy  and  renewable 
energy, could reduce demand for oil and natural gas. Certain jurisdictions have implemented policies or incentives to decrease the 
use of fossil fuels and encourage the use of renewable fuel alternatives, which may lessen demand for petroleum products and put 
downward  pressure  on  commodity  prices.  In  addition,  advancements  in  energy  efficient  products  have  a  similar  effect  on  the 
demand for oil and gas products. We cannot predict the impact of changing demand for oil and natural gas products, and any major 
changes may have a material adverse effect on our business and financial condition by decreasing our cash flow from operating 
activities and the value of our assets.

Income tax laws or other laws or government incentive programs or regulations relating to our industry may in the future 
be changed or interpreted in a manner that adversely affects us and our Shareholders

Income tax laws and government incentive programs relating to the oil and gas industry may change in a manner that adversely 
affects our financial condition, results of operations and prospects. 

In addition, tax authorities having jurisdiction over us or our Shareholders may disagree with the manner in which we calculate our 
income for tax purposes or could change their administrative practices to our detriment or the detriment of our Shareholders. We 
file  all  required  income  tax  returns  and  believe  that  we  are  in  full  compliance  with  the  applicable  tax  legislation.  However,  such 
returns are subject to audit and reassessment by the applicable taxation authority. Any such reassessment may have an impact on 
current  and  future  taxes  payable.  At  present,  the  Canadian  tax  authorities  have  reassessed  the  returns  of  certain  of  our 
subsidiaries.

The  amount  of  oil  and  natural  gas  that  we  can  produce  and  sell  is  subject  to  the  availability  and  cost  of  gathering, 
processing and pipeline systems

We deliver our products through gathering, processing and pipeline systems which we do not own and purchasers of our products 
rely on third party infrastructure to deliver our products to market. The lack of access to capacity in any of the gathering, processing 
and pipeline systems could result in our inability to realize the full economic potential of our production or in a reduction of the price 
offered  for  our  production. Alternately,  a  substantial  decrease  in  the  use  of  such  systems  can  increase  the  cost  we  incur  to  use 
them.  In  addition,  many  of  the  pipeline  systems  that  we  use  are  controlled  by  a  single  company  and  rates  are  set  through  a 
regulatory  process,  as  a  result  we  are  subject  to  the  outcome  of  those  regulatory  processes. Any  significant  change  in  market 
factors,  regulatory  decisions  or  other  conditions  affecting  these  infrastructure  systems  and  facilities,  as  well  as  any  delays  in 
constructing new infrastructure systems and facilities, could harm our business and, in turn, our financial condition. 

Access to the pipeline capacity for the export of crude oil from Canada has, at times, been inadequate for the amount of Canadian 
production being exported. This has resulted in significantly lower prices being realized by Canadian producers compared with the 
WTI price and the Brent price for crude oil. In addition, the pro-rationing of capacity on inter-provincial pipeline systems continues 
to affect the ability to export oil and natural gas from Canada. There can be no certainty that current investment in pipelines will 
provide sufficient long-term take-away capacity or that currently operating systems will remain in service. There is also no certainty 

36

Baytex Energy Corp. 2021 Annual Report

that short-term operational constraints on pipeline systems, arising from pipeline interruption and/or increased supply of crude oil, 
will not occur. 

There  is  no  certainty  that  crude-by-rail  transportation  and  other  alternative  types  of  transportation  for  our  production  will  be 
sufficient to address any gaps caused by operational constraints on pipeline systems. In addition, our crude-by-rail shipments may 
be impacted by service delays, inclement weather, derailment or blockades and could adversely impact our crude oil sales volumes 
or the price received for our product. Crude oil produced and sold by us may be involved in a derailment or incident that results in 
legal liability or reputational harm. 

A portion of our production may be processed through facilities controlled by third parties. From time to time these facilities may 
discontinue  or  decrease  operations  either  as  a  result  of  normal  servicing  requirements  or  as  a  result  of  unexpected  events.  A 
discontinuance or decrease of operations could materially adversely affect our ability to process our production and to deliver the 
same for sale.

Failure to retain or replace our leadership and key personnel may have an adverse affect on our business

Our success is dependent upon our management, our leadership capabilities and the quality and competency of our talent. If we 
are unable to retain key personnel and critical talent or to attract and retain new talent with the necessary leadership, professional 
and technical competencies, it could have a material adverse effect on our financial condition, results of operations and prospects.

Availability and cost of capital or borrowing to maintain and/or fund future development and acquisitions

The business of exploring for, developing or acquiring reserves is capital intensive. If external sources of capital (including, but not 
limited  to,  debt  and  equity  financing)  become  limited  or  unavailable  on  commercially  reasonable  terms,  our  ability  to  make  the 
necessary  capital  investments  to  maintain  or  expand  our  oil  and  natural  gas  reserves  may  be  impaired.  Unpredictable  financial 
markets  and  the  associated  credit  impacts  may  impede  our  ability  to  secure  and  maintain  cost  effective  financing  and  limit  our 
ability  to  achieve  timely  access  to  capital  on  acceptable  terms  and  conditions.  If  external  sources  of  capital  become  limited  or 
unavailable, our ability to make capital investments, continue our business plan, meet all of our financial obligations as they come 
due and maintain existing properties may be impaired. 

Our ability to obtain additional capital is dependent on, among other things, a general interest in energy industry investments and, 
in  particular,  interest  in  our  securities  along  with  our  ability  to  maintain  our  credit  ratings.  If  we  are  unable  to  maintain  our 
indebtedness and financial ratios at levels acceptable to our credit rating agencies, or should our business prospects deteriorate, 
our  credit  ratings  could  be  downgraded.  Additionally,  from  time  to  time,  our  securities  may  not  meet  the  investment  criteria  or 
characteristics  of  a  particular  institutional  or  other  investor,  including  institutional  investors  who  are  not  willing  or  able  to  hold 
securities  of  oil  and  gas  companies  for  reasons  unrelated  to  financial  or  operational  performance.  This  may  include  changes  to 
market-based  factors  or  investor  strategies,  including  ESG,  or  responsible  investing  criteria/rankings  (for  example,  ESG,  social 
impact  or  environmental  scores),  the  implementation  of  new  financial  market  regulations  and  fossil  fuel  divestment  initiatives 
undertaken by governments, pension funds and/or other institutional investors. These events would adversely affect the value of 
our outstanding securities and existing debt and our ability to obtain new financing, and may increase our borrowing costs. 

From time to time we may enter into transactions which may be financed in whole or in part with debt or equity. The level of our 
indebtedness  from  time  to  time,  could  impair  our  ability  to  obtain  additional  financing  on  a  timely  basis  to  take  advantage  of 
business opportunities that may arise. Additionally, from time to time, we may issue securities from treasury in order to reduce debt, 
complete acquisitions and/or optimize our capital structure. 

We are not the operator of our drilling locations in our Eagle Ford acreage and, therefore, we will not be able to control 
the timing of development, associated costs or the rate of production of that acreage

Marathon Oil is the operator of our Eagle Ford acreage and we are reliant upon Marathon Oil to operate successfully. Marathon Oil 
will  make  decisions  based  on  its  own  best  interest  and  the  collective  best  interest  of  all  of  the  working  interest  owners  of  this 
acreage,  which  may  not  be  in  our  best  interest.  We  have  a  limited  ability  to  exercise  influence  over  the  operational  decisions  of 
Marathon  Oil,  including  the  setting  of  capital  expenditure  budgets  and  determination  of  drilling  locations  and  schedules.  The 
success  and  timing  of  development  activities,  operated  by  Marathon  Oil,  will  depend  on  a  number  of  factors  that  will  largely  be 
outside of our control, including:

•
the timing and amount of capital expenditures;
• Marathon Oil's expertise and financial resources;
approval of other participants in drilling wells;
•
selection of technology; and
•
the rate of production of reserves.
•

To the extent that the capital expenditure requirements related to our Eagle Ford acreage exceeds our budgeted amounts, it may 
reduce  the  amount  of  capital  we  have  available  to  invest  in  our  other  assets.  We  have  the  ability  to  elect  whether  or  not  to 
participate  in  well  locations  proposed  by  Marathon  Oil  on  an  individual  basis.  If  we  elect  to  not  participate  in  a  well  location,  we 

Baytex Energy Corp. 2021 Annual Report

37

forgo any revenue from such well until Marathon Oil has recouped, from our working interest share of production from such well, 
300% to 500% of our working interest share of the cost of such well.

We may participate in larger projects and may have more concentrated risk in certain areas of our operations

We have a variety of exploration, development and construction projects underway at any given time. Project delays may result in 
delayed revenue receipts and cost overruns may result in projects being uneconomic. Our ability to complete projects is dependent 
on  general  business,  community  relationships  and  market  conditions  as  well  as  other  factors  beyond  our  control,  including  the 
availability  of  skilled  labour  and  manpower,  the  availability  and  proximity  of  pipeline  capacity  and  rail  terminals,  weather, 
environmental  and  regulatory  matters,  ability  to  access  lands,  availability  of  drilling  and  other  equipment  and  supplies,  and 
availability of processing capacity.

Our financial performance is significantly affected by the cost of developing and operating our assets

Our  development  and  operating  costs  are  affected  by  a  number  of  factors  including,  but  not  limited  to:  price  inflation,  access  to 
skilled  and  unskilled  labour,  availability  of  equipment,  scheduling  delays,  trucking  and  fuel  costs,  failure  to  maintain  quality 
construction  standards,  the  cost  of  new  technologies  and  supply  chain  disruptions.  Labour  costs,  natural  gas,  electricity,  water, 
diluent  and  chemicals  are  examples  of  some  of  the  operating  and  other  costs  that  are  susceptible  to  significant  fluctuation. 
Increases to development and operating costs could have a material adverse effect on our financial condition, results of operations 
or prospects.

Public perception and its influence on the regulatory regime

Concern over the impact of oil and gas development on the environment and climate change has received considerable attention in 
the  media  and  recent  public  commentary,  and  the  social  value  proposition  of  resource  development  is  being  challenged. 
Additionally, certain pipeline leaks, rail car derailments, major weather events and induced seismicity events have gained media, 
environmental and other stakeholder attention. Future laws and regulation may be impacted by such incidents, which could have a 
material adverse effect on our financial condition, results of operations or prospects.

Current or future controls, legislation or regulations applicable to the oil and gas industry could adversely affect us

Operations

The oil and gas industry is subject to extensive controls and regulations governing its operations (including land tenure, exploration, 
development, production, refining, transportation, and marketing) imposed by legislation enacted by various levels of government. 
All such controls, regulations and legislation are subject to revocation, amendment or administrative change, some of which have 
historically  been  material  and  in  some  cases  materially  adverse.  The  exercise  of  discretion  by  government  authorities  under 
existing  controls,  legislation  or  regulations,  the  implementation  of  new  controls,  legislation  or  regulations  or  the  modification  of 
existing  controls,  legislation  or  regulations  affecting  the  oil  and  gas  industry  could  reduce  demand  for  crude  oil  and  natural  gas, 
increase our costs, or delay or restrict our operations, all of which could have a material adverse effect on our financial condition, 
results of operations or prospects.

Environment

All  phases  of  our  operations  are  subject  to  environmental  and  health  and  safety  regulation  pursuant  to  a  variety  of  federal, 
provincial, state and municipal laws and regulations (collectively, "environmental regulations") governing occupational health and 
safety,  the  spill,  release  or  emission  of  substances  into  the  environment  or  otherwise  relating  to  environmental  protection. 
Environmental  regulations  require  that  wells,  facility  sites  and  other  properties  associated  with  our  operations  be  constructed, 
operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. In addition, certain types of 
operations  require  the  submission  and  approval  of  environmental  impact  assessments  or  permit  applications.  Environmental 
regulations impose restrictions, liabilities and obligations in connection with the generation, handling, use, storage, transportation, 
treatment  and  disposal  of  hazardous  substances  and  waste  and  in  connection  with  spills,  releases  and  emissions  of  various 
substances  to  the  environment. The  jurisdictions  where  we  operate  have  developed  liability  management  programs  designed  to 
prevent taxpayers from incurring costs associated with suspension, abandonment, remediation and reclamation of wells, facilities 
and pipelines in the event that a licensee or permit holder becomes defunct. Changes to the requirements of liability management 
programs may result in significant increases to the security that must be posted, the timing of our abandonment and reclamation 
operations and the costs associated with such operations.

Compliance  with  environmental  regulations  can  require  significant  expenditures,  including  expenditures  for  clean-up  costs  and 
damages arising out of contaminated properties. Failure to comply with environmental regulations may result in the imposition of 
administrative, civil and criminal penalties or issuance of clean up orders in respect of us or our properties, some of which may be 
material.  We  may  also  be  exposed  to  civil  liability  for  environmental  matters  or  for  the  conduct  of  third  parties  regardless  of 
negligence  or  fault. Although  it  is  not  expected  that  the  costs  of  complying  with  environmental  regulations  will  have  a  material 
adverse  effect  on  our  financial  condition  or  results  of  operations,  no  assurance  can  be  made  that  the  costs  of  complying  with 
environmental regulations in the future will not have such an effect. The implementation of new environmental regulations or the 
modification of existing environmental regulations could reduce demand for crude oil and natural gas, result in stricter standards 

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Baytex Energy Corp. 2021 Annual Report

and enforcement, larger penalties and liability and increased capital expenditures and operating costs, which could have a material 
adverse effect on our financial condition, results of operations or prospects.

Foreign Investment and Competition Act Legislation

In  addition  to  regulatory  requirements  mentioned  above,  our  business  and  financial  condition  could  be  influenced  by  federal 
legislation affecting, in particular, foreign investment, through legislation such as the Competition Act (Canada) and the Investment 
Canada Act (Canada) and the Hart-Scott-Rodino Antitrust Improvements Act in the United States. 

New  regulations  on  hydraulic  fracturing  may  lead  to  operational  delays,  increased  costs  and/or  decreased  production 
volumes

Hydraulic  fracturing  involves  the  injection  of  water,  sand  and  small  amounts  of  additives  under  pressure  into  rock  formations  to 
stimulate the production of oil and natural gas. Specifically, hydraulic fracturing enables the production of commercial quantities of 
oil  and  natural  gas  from  reservoirs  that  were  previously  unproductive.  Hydraulic  fracturing  has  featured  prominently  in  recent 
political, media and activist commentary on the subject of water usage, induced seismicity events and environmental damage. Any 
new  laws,  regulations  or  permitting  requirements  regarding  hydraulic  fracturing  could  lead  to  operational  delays,  increased 
operating  costs,  third  party  or  governmental  claims,  and  could  increase  our  costs  of  compliance  and  doing  business  as  well  as 
delay  the  development  of  oil  and  natural  gas  resources  from  shale  formations,  which  are  not  commercial  without  the  use  of 
hydraulic fracturing. Restrictions on hydraulic fracturing could also reduce the amount of oil and natural gas that we are ultimately 
able to produce from our reserves.

Water use restrictions and/or limited access to water or other fluids may impact the Corporation's ability to fracture its 
wells or carry out waterflood operations

We  undertake  or  intend  to  undertake  certain  hydraulic  fracturing,  SAGD,  CCS  and  waterflooding  programs.  To  undertake  such 
operations we need to have access to sufficient volumes of water, or other liquids. There is no certainty that we will have access to 
the required volumes of water. In addition, in certain areas there may be restrictions on water use for activities such as hydraulic 
fracturing,  SAGD,  CCS  and  waterflooding.  If  we  are  unable  to  access  such  water  it  may  not  be  able  to  undertake  hydraulic 
fracturing, SAGD, CCS or waterflooding activities, which may reduce the amount of oil and natural gas that we are ultimately able 
to produce from our reserves. 

Regulations regarding the disposal of fluids used in our operations may increase our costs of compliance or subject it to 
regulatory penalties or litigation

The  safe  disposal  of  hydraulic  fracturing  fluids  (including  the  additives)  and  water  recovered  from  oil  and  natural  gas  wells  is 
subject to ongoing regulatory review by the federal, provincial and state governments, including its effect on fresh water supplies 
and the ability of such water to be recycled, amongst other things. While it is difficult to predict the impact of any regulations that 
may be enacted in response to such review, the implementation of stricter regulations may increase the our costs of compliance.

Our hedging activities may negatively impact our income and our financial condition

In  response  to  fluctuations  in  commodity  prices,  foreign  exchange  and  interest  rates,  we  may  utilize  various  derivative  financial 
instruments  and  physical  sales  contracts  to  manage  our  exposure  under  a  hedging  program.  The  terms  of  these  arrangements 
may limit the benefit to us of favourable changes in these factors, including receiving less than the market price for our production, 
and  for  certain  assets  will  result  in  us  paying  royalties  at  a  reference  price  which  is  higher  than  the  hedged  price.  We  may  also 
suffer financial loss due to hedging arrangements if we are unable to produce oil or natural gas to fulfill our delivery obligations. 
There is also increased exposure to counterparty credit risk. To the extent that our current hedging agreements are beneficial to us, 
these  benefits  will  only  be  realized  for  the  period  and  for  the  commodity  quantities  in  those  contracts.  In  addition,  there  is  no 
certainty  that  we  will  be  able  to  obtain  additional  hedges  at  prices  that  have  an  equivalent  benefit  to  us,  which  may  adversely 
impact our revenues in future periods.

Variations in interest rates and foreign exchange rates could adversely affect our financial condition

There is a risk that interest rates will increase given the current historical low level of interest rates. An increase in interest rates 
could  result  in  a  significant  increase  in  the  amount  we  pay  to  service  debt  and  could  have  an  adverse  effect  on  our  financial 
condition, results of operations and prospects.

World  oil  prices  are  quoted  in  United  States  dollars  and  the  price  received  by  Canadian  producers  is  therefore  affected  by  the 
Canada/U.S.  foreign  exchange  rate  that  may  fluctuate  over  time.  A  material  increase  in  the  value  of  the  Canadian  dollar  may 
negatively impact our revenues. A substantial portion of our operations and production are in the United States and, as such, we 
are exposed to foreign currency risk on both revenues and costs to the extent the value of the Canadian dollar decreases relative 
to the U.S. dollar. In addition, we are exposed to foreign currency risk as a large portion of our indebtedness is denominated in U.S. 
dollars and the interest payable thereon is payable in U.S. dollars. Future Canada/U.S. foreign exchange rates could also impact 
the future value of our reserves as determined by our independent evaluator.

Baytex Energy Corp. 2021 Annual Report

39

A decline in the value of the Canadian dollar relative to the United States dollar provides a competitive advantage to United States 
companies  acquiring  Canadian  oil  and  gas  properties  and  may  make  it  more  difficult  for  us  to  replace  reserves  through 
acquisitions.

There are numerous uncertainties inherent in estimating quantities of recoverable oil and natural gas reserves, including 
many factors beyond our control

The reserves estimates included in the AIF are estimates only. There are numerous uncertainties inherent in estimating quantities 
of  reserves,  including  many  factors  beyond  our  control.  In  general,  estimates  of  economically  recoverable  oil  and  natural  gas 
reserves  and  the  future  net  revenues  therefrom  are  based  upon  a  number  of  factors  and  assumptions  made  as  of  the  date  on 
which the reserves estimates were determined, such as geological and engineering estimates which have inherent uncertainties, 
the  assumed  effects  of  regulation  by  governmental  agencies,  historical  production  from  the  properties,  initial  production  rates, 
production decline rates, the availability, proximity and capacity of oil and gas gathering systems, pipelines and processing facilities 
and estimates of future commodity prices and capital costs, all of which may vary considerably from actual results.

All  such  estimates  are,  to  some  degree,  uncertain  and  classifications  of  reserves  are  only  attempts  to  define  the  degree  of 
uncertainty involved. For these reasons, estimates of the economically recoverable oil and natural gas reserves attributable to any 
particular group of properties, the classification of such reserves based on risk of recovery and estimates of future net revenues 
expected  therefrom,  prepared  by  different  engineers  or  by  the  same  engineers  at  different  times,  may  vary  substantially.  Our 
reserves as at December 31, 2021 are estimated using forecast prices and costs. If we realize lower prices for crude oil, natural 
gas liquids and natural gas and they are substituted for the estimated price assumptions, the present value of estimated future net 
revenues  for  our  reserves  and  net  asset  value  would  be  reduced  and  the  reduction  could  be  significant.  Our  actual  production, 
revenues, royalties, taxes and development, abandonment and operating expenditures with respect to our reserves will likely vary 
from such estimates, and such variances could be material.

Estimates of reserves that may be developed and produced in the future are often based upon volumetric calculations and upon 
analogy to similar types of reserves, rather than upon actual production history. Subsequent evaluation of the same reserves based 
upon production history will result in variations in the previously estimated reserves and such variances could be material.

Acquiring,  developing  and  exploring  for  oil  and  natural  gas  involves  many  physical  hazards.  We  have  not  insured  and 
cannot fully insure against all risks related to our operations

Our  crude  oil  and  natural  gas  operations  are  subject  to  all  of  the  risks  normally  incidental  to  the:  (i)  storing,  transporting, 
processing, refining and marketing of crude oil, natural gas and other related products; (ii) drilling and completion of crude oil and 
natural  gas  wells;  and  (iii)  operation  and  development  of  crude  oil  and  natural  gas  properties,  including,  but  not  limited  to: 
encountering  unexpected  formations  or  pressures,  premature  declines  of  reservoir  pressure  or  productivity,  blowouts,  fires, 
explosions, equipment failures and other accidents, gaseous leaks, uncontrollable or unauthorized flows of crude oil, natural gas or 
well fluids, migration of harmful substances, oil spills, corrosion, adverse weather conditions, pollution, acts of vandalism, theft and 
terrorism and other adverse risks to the environment.

Although we maintain insurance in accordance with customary industry practice, we are not fully insured against all of these risks 
nor are all such risks insurable and in certain circumstances we may elect not to obtain insurance to deal with specific risks due to 
the  high  premiums  associated  with  such  insurance  or  other  reasons.  In  addition,  the  nature  of  these  risks  is  such  that  liabilities 
could  exceed  policy  limits,  in  which  event  we  could  incur  significant  costs  that  could  have  a  material  adverse  effect  on  our 
business, financial condition, results of operations and prospects.

Our thermal heavy oil projects face additional risks compared to conventional oil and gas production

Our  thermal  heavy  oil  projects  are  capital  intensive  projects  which  rely  on  specialized  production  technologies.  Certain  current 
technologies  for  the  recovery  of  heavy  oil,  such  as  CSS  and  SAGD,  are  energy  intensive,  requiring  significant  consumption  of 
natural gas and other fuels in the production of steam that is used in the recovery process. The amount of steam required in the 
production process varies and therefore impacts costs. The performance of the reservoir can also affect the timing and levels of 
production  using  new  technologies. A  large  increase  in  recovery  costs  could  cause  certain  projects  that  rely  on  CSS,  SAGD  or 
other new technologies to become uneconomic, which could have an adverse effect on our financial condition and our reserves. 
There  are  risks  associated  with  growth  and  other  capital  projects  that  rely  largely  or  partly  on  new  technologies  and  the 
incorporation of such technologies into new or existing operations. The success of projects incorporating new technologies cannot 
be assured.

Project  economics  and  our  earnings  may  be  reduced  if  increases  in  operating  costs  are  incurred.  Factors  which  could  affect 
operating costs include, without limitation: labour costs; the cost of catalysts and chemicals; the cost of natural gas and electricity; 
water  handling  and  availability;  power  outages;  produced  sand  causing  issues  of  erosion,  hot  spots  and  corrosion;  reliability  of 
facilities; maintenance costs; the cost to transport sales products; and the cost to dispose of certain by-products.

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Baytex Energy Corp. 2021 Annual Report

We may be unable to compete successfully with other organizations in the oil and natural gas industry, or obtain required 
vendor services to compete

The  oil  and  natural  gas  industry  is  highly  competitive.  We  compete  for  capital,  acquisitions  of  reserves  and/or  resources, 
undeveloped lands, skilled/qualified labour, access to drilling rigs, service rigs and other equipment and materials such as drilling 
rigs,  hydraulic  fracturing  pumping  equipment  and  related  skilled  personnel,  access  to  processing  facilities,  pipeline  and  refining 
capacity, as well as many other services, and in many other respects, with a substantial number of other organizations, many of 
which  may  have  greater  technical  and  financial  resources  than  us.  As  a  result,  some  of  our  competitors  may  have  greater 
opportunities and be able to access, services or vendors that we are not able to access, thereby limiting our ability to compete. 

Our information technology systems are subject to certain risks

We utilize a number of information technology systems for the administration and management of our business and are subject to a 
variety  of  information  technology  and  system  risks  as  a  part  of  our  normal  course  operations,  including  potential  breakdown, 
invasion,  virus,  cyber-attack,  cyber-fraud,  security  breach,  and  destruction  or  interruption  of  the  Corporation's  information 
technology systems by third parties or insiders. If our ability to access and use these systems is interrupted and cannot be quickly 
and  easily  restored  then  such  event  could  have  a  material  adverse  effect  on  us.  Furthermore,  although  the  Corporation  has 
security measures and controls in place to mitigate these risks, a breach of its security measures and/or a loss of information could 
occur  and  result  in  a  loss  of  material  and  confidential  information  and  reputation,  breach  of  privacy  laws,  and/or  disruption  to 
business activities. The significance of any such event is difficult to quantify but may in certain circumstances be material and could 
have a material adverse effect on the Corporation's business, financial condition and results of operations. 

Adverse results from litigation may have an adverse affect on our business

In  the  normal  course  of  our  operations,  we  may  become  involved  in,  named  as  a  party  to,  or  be  the  subject  of,  various  legal 
proceedings,  including  regulatory  proceedings,  tax  proceedings  and  legal  actions.  Potential  litigation  may  develop  in  relation  to 
personal injuries, property damage, royalties, taxes, land and access rights, environmental issues, natural resource damages and 
contract disputes. The outcome with respect to outstanding, pending or future proceedings cannot be predicted with certainty and 
may be determined adversely to us and could have a material adverse effect on our assets, liabilities, business, financial condition 
and results of operations. Even if we prevail in any such legal proceedings, the proceedings could be costly and time-consuming 
and may divert the attention of management and key personnel from business operations, which could have an adverse affect on 
our financial condition.

Our  Credit  Facilities  may  not  provide  sufficient  liquidity  and  a  failure  to  renew  our  Credit  Facilities  at  maturity  could 
adversely affect our financial condition

Our  Credit  Facilities  and  any  replacement  credit  facilities  may  not  provide  sufficient  liquidity.  The  amounts  available  under  our 
Credit Facilities may not be sufficient for future operations, or we may not be able to obtain additional financing on economic terms, 
if  at  all. There  can  be  no  assurance  that  the  amount  of  our  Credit  Facilities  will  be  adequate  for  our  future  financial  obligations, 
including future capital expenditures, or that we will be able to obtain additional funds. In the event we are unable to refinance our 
debt obligations, it may impact our ability to fund ongoing operations. In the event that the Credit Facilities are not extended before 
April 2, 2024, indebtedness under the Credit Facilities will be repayable at that time. There is also a risk that the Credit Facilities will 
not be renewed for the same amount or on the same terms.

Failure to comply with the covenants in the agreements governing our debt, including our obligation to repay the Senior 
Notes at maturity, could adversely affect our financial condition

We  are  required  to  comply  with  the  covenants  in  our  Credit  Facilities  and  the  Senior  Notes.  If  we  fail  to  comply  with  such 
covenants, are unable to repay or refinance amounts owned at maturity or pay the debt service charges or otherwise commit an 
event of default, such as bankruptcy, it could result in the seizure and/or sale of our assets by our creditors. The proceeds from any 
sale of our assets would be applied to satisfy amounts owed to the secured creditors and then unsecured creditors. Only after the 
proceeds of that sale were applied towards our debt would the remainder, if any, be available for the benefit of our Shareholders. 

We are subject to risk of default by the counterparties to our contracts and our counterparties may deem us to be a 
default risk

We  are  subject  to  the  risk  that  counterparties  to  our  risk  management  contracts,  marketing  arrangements  and  operating 
agreements and other suppliers of products and services may default on their obligations under such agreements or arrangements, 
including  as  a  result  of  liquidity  requirements  or  insolvency.  Furthermore,  low  oil  and  natural  gas  prices  increase  the  risk  of  bad 
debts  related  to  our  joint  venture  and  industry  partners.  A  failure  by  such  counterparties  to  make  payments  or  perform  their 
operational  or  other  obligations  to  us  may  adversely  affect  our  results  of  operations,  cash  flow  from  operating  activities  and 
financial  position.  Conversely,  our  counterparties  may  deem  us  to  be  at  risk  of  defaulting  on  our  contractual  obligations.  These 
counterparties  may  require  that  we  provide  additional  credit  assurances  by  prepaying  anticipated  expenses  or  posting  letters  of 
credit, which would decrease our available liquidity and increase our costs.

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41

Indigenous Claims

Indigenous  peoples  have  claimed  Indigenous  rights  and  title  in  portions  of  Western  Canada.  We  are  not  aware  that  any  claims 
have been made in respect of our properties and assets. However, if a claim arose and was successful, such claim may have a 
material  adverse  effect  on  our  business,  financial  condition,  results  of  operations  and  prospects.  In  addition,  the  process  of 
addressing such claims, regardless of the outcome, is expensive and time consuming and could result in delays in the construction 
of infrastructure systems and facilities which could have a material adverse effect on our business and financial results.

Expansion into New Activities

Our operations and the expertise of our management are currently focused primarily on oil and natural gas production, exploration 
and development in the Provinces of Alberta and Saskatchewan and the State of Texas. In the future, we may acquire or move into 
new industry related activities or new geographical areas and may acquire different energy-related assets; as a result, we may face 
unexpected risks or, alternatively, our exposure to one or more existing risk factors may be significantly increased, which may in 
turn result in our future operational and financial conditions being adversely affected.

Risks Related to Ownership of our Securities

Changes in market-based factors may adversely affect the trading price of the Common Shares

The market price of our Common Shares is sensitive to a variety of market-based factors including, but not limited to, commodity 
prices, interest rates, foreign exchange rates, the decision of certain indices to include our Common Shares and the comparability 
of the Common Shares to other securities. Any changes in these market-based factors may adversely affect the trading price of the 
Common Shares.

Forward-Looking Information rely upon assumptions which may not prove correct

Shareholders and prospective investors are cautioned not to place undue reliance on our forward-looking information. By its nature, 
forward-looking  information  involves  numerous  assumptions,  known  and  unknown  risks  and  uncertainties,  of  both  a  general  and 
specific  nature,  that  could  cause  actual  results  to  differ  materially  from  those  suggested  by  the  forward-looking  information  or 
contribute to the possibility that predictions, forecasts or projections will prove to be materially inaccurate. 

Certain Risks for United States and other non-resident Shareholders

The ability of investors resident in the United States to enforce civil remedies is limited

We  are  a  corporation  incorporated  under  the  laws  of  the  Province  of Alberta,  Canada,  our  principal  office  is  located  in  Calgary, 
Alberta  and  a  substantial  portion  of  our  assets  are  located  outside  the  United  States.  Most  of  our  directors  and  officers  and  the 
representatives of the experts who provide services to us (such as our auditors and our independent qualified reserves evaluators), 
and all or a substantial portion of their assets are located outside the United States. As a result, it may be difficult for investors in 
the United States to effect service of process within the United States upon such directors, officers and representatives of experts 
who  are  not  residents  of  the  United  States  or  to  enforce  against  them  judgments  of  the  United  States  courts  based  upon  civil 
liability under the United States federal securities laws or the securities laws of any state within the United States. There is doubt as 
to the enforceability in Canada against us or any of our directors, officers or representatives of experts who are not residents of the 
United States, in original actions or in actions for enforcement of judgments of United States courts of liabilities based solely upon 
the United States federal securities laws or securities laws of any state within the United States.

Canadian  and  United  States  practices  differ  in  reporting  reserves  and  production  and  our  estimates  may  not  be 
comparable to those of companies in the United States

We  report  our  production  and  reserves  quantities  in  accordance  with  Canadian  practices  and  specifically  in  accordance  with  NI 
51-101. These  practices  are  different  from  the  practices  used  to  report  production  and  to  estimate  reserves  in  reports  and  other 
materials filed with the SEC by companies in the United States.

We  incorporate  additional  information  with  respect  to  production  and  reserves  which  is  either  not  required  to  be  included  or 
prohibited under rules of the SEC and practices in the United States. We follow the Canadian practice of reporting gross production 
and reserve volumes (before deduction of Crown and other royalties). We also follow the Canadian practice of using forecast prices 
and  costs  when  we  estimate  our  reserves,  whereas  the  SEC  rules  require  that  a  12-month  average  price,  calculated  as  the 
unweighted arithmetic average of the first-day-of-the-month price for each month within the 12-month period prior to the end of the 
reporting period, be utilized.

Probable reserves have a lower certainty of recovery than proved reserves. The SEC requires oil and gas issuers in their filings 
with  the  SEC  to  disclose  only  proved  reserves  but  permits  the  optional  disclosure  of  probable  reserves.  The  SEC  definitions  of 
proved reserves and probable reserves are different than NI 51-101; therefore, our disclosure of proved, probable and proved plus 
probable reserves may not be comparable to United States standards.

42

Baytex Energy Corp. 2021 Annual Report

As  a  consequence  of  the  foregoing,  our  reserves  estimates  and  production  volumes  may  not  be  comparable  to  those  made  by 
companies utilizing United States reporting and disclosure standards.

There is additional taxation applicable to non-residents

Tax  legislation  in  Canada  may  impose  withholding  or  other  taxes  on  the  cash  dividends,  stock  dividends  or  other  property 
transferred  by  us  to  non-resident  shareholders.  These  taxes  may  be  reduced  pursuant  to  tax  treaties  between  Canada  and  the 
non-resident shareholder's jurisdiction of residence. Evidence of eligibility for a reduced withholding rate must be filed by the non-
resident  shareholder  in  prescribed  form  with  their  broker  (or  in  the  case  of  registered  shareholders,  with  the  transfer  agent).  In 
addition, the country in which the non-resident shareholder is resident may impose additional taxes on such dividends. Any of these 
taxes may change from time to time.

Baytex Energy Corp. 2021 Annual Report

43

MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The  management  of  Baytex  Energy  Corp.  (the  "Company")  is  responsible  for  establishing  and  maintaining  adequate  internal 
control  over  financial  reporting.  Under  the  supervision  of  our  President  and  Chief  Executive  Officer  and  our  Executive  Vice 
President and Chief Financial Officer we have conducted an evaluation of the effectiveness of our internal control over financial 
reporting based on the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of 
the Treadway Commission ("COSO"). Based on our assessment, we have concluded that as of December 31, 2021, our internal 
control over financial reporting was effective.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements and even those 
systems determined to be effective can provide only reasonable assurance with respect to the financial statement preparation 
and presentation.

The  effectiveness  of  the  Company's  internal  control  over  financial  reporting  as  of  December  31,  2021  has  been  audited  by 
KPMG  LLP,  the  Company's  Independent  Registered  Public  Accounting  Firm,  who  also  audited  the  Company's  consolidated 
financial statements for the year ended December 31, 2021.

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS

Management, in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting 
Standards  Board,  has  prepared  the  accompanying  consolidated  financial  statements  of  the  Company.  Financial  and  operating 
information presented throughout this Annual Report is consistent with that shown in the consolidated financial statements.

Management is responsible for the integrity of the financial information. Internal control systems are designed and maintained to 
provide  reasonable  assurance  that  assets  are  safeguarded  from  loss  or  unauthorized  use  and  to  produce  reliable  accounting 
records for financial reporting purposes.

KPMG  LLP  were  appointed  by  the  Company's  Board  of  Directors  to  express  an  audit  opinion  on  the  consolidated  financial 
statements.  Their  examination  included  such  tests  and  procedures,  as  they  considered  necessary,  to  provide  a  reasonable 
assurance that the consolidated financial statements are presented fairly in accordance with IFRS.

The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and internal 
control.  The  Board  of  Directors  exercises  this  responsibility  through  the Audit  Committee,  with  assistance  from  the  Reserves 
Committee regarding the annual review of our petroleum  and natural gas reserves. The Audit Committee meets  regularly  with 
management and the Independent Registered Public Accounting Firm to ensure that management's responsibilities are properly 
discharged,  to  review  the  consolidated  financial  statements  and  recommend  that  the  consolidated  financial  statements  be 
presented  to  the  Board  of  Directors  for  approval.  The  Audit  Committee  also  considers  the  independence  of  KPMG  LLP  and 
reviews their fees. The Independent Registered Public Accounting Firm has access to the Audit Committee without the presence 
of management.

/s/ Edward D. LaFehr

Edward D. LaFehr

/s/ Rodney D. Gray

Rodney D. Gray

President and Chief Executive Officer

Executive Vice President and Chief Financial Officer

Baytex Energy Corp.

Baytex Energy Corp.

February 24, 2022

44

Baytex Energy Corp. 2021 Annual Report

 
 
 
 
 
 
 
 
 
 
 
 
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of Baytex Energy Corp.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of financial position of Baytex Energy Corp. (and subsidiaries) (the 
“Company”)  as  of  December  31,  2021  and  2020,  the  related  consolidated  statements  of  income  (loss)  and  comprehensive 
income (loss), changes in equity, and cash flows for the years then ended, and the related notes (collectively, the consolidated 
financial  statements).  In  our  opinion,  the  consolidated  financial  statements  present  fairly,  in  all  material  respects,  the  financial 
position of the Company as of December 31, 2021 and 2020, and its financial performance and its cash flows for the years then 
ended,  in  conformity  with  International  Financial  Reporting  Standards  as  issued  by  the  International  Accounting  Standards 
Board.

We  also  have  audited,  in  accordance  with  the  standards  of  the  Public  Company Accounting  Oversight  Board  (United  States) 
(PCAOB),  the  Company’s  internal  control  over  financial  reporting  as  of  December  31,  2021,  based  on  criteria  established  in 
Internal  Control  –  Integrated  Framework  (2013)  issued  by  the  Committee  of  Sponsoring  Organizations  of  the  Treadway 
Commission, and our report dated February 24, 2022 expressed an unqualified opinion on the effectiveness of the Company’s 
internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an 
opinion  on  these  consolidated  financial  statements  based  on  our  audits.  We  are  a  public  accounting  firm  registered  with  the 
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and 
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the 
audit  to  obtain  reasonable  assurance  about  whether  the  consolidated  financial  statements  are  free  of  material  misstatement, 
whether  due  to  error  or  fraud.  Our  audits  included  performing  procedures  to  assess  the  risks  of  material  misstatement  of  the 
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such 
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial 
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, 
as  well  as  evaluating  the  overall  presentation  of  the  consolidated  financial  statements.  We  believe  that  our  audits  provide  a 
reasonable basis for our opinion.

Critical Audit Matters

The  critical  audit  matters  communicated  below  are  matters  arising  from  the  current  period  audit  of  the  consolidated  financial 
statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or 
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or 
complex  judgments.  The  communication  of  critical  audit  matters  does  not  alter  in  any  way  our  opinion  on  the  consolidated 
financial  statements,  taken  as  a  whole,  and  we  are  not,  by  communicating  the  critical  audit  matters  below,  providing  separate 
opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Assessment of the recoverable amount of of oil and gas properties

As discussed in note 6 to the consolidated financial statements, the Company recorded an impairment reversal of $1,537 million 
related  to  the  Company’s  Conventional,  Peace  River,  Lloydminster,  Viking  and  Eagle  Ford  cash  generating  units  (CGUs). The 
Company identified indicators of impairment reversal as of December 31, 2021 for each of the CGUs and therefore determined 
the  recoverable  amount  as  of  December  31,  2021  of  each  of  the  CGUs.  The  determination  of  recoverable  amount  of  a  CGU 
involves numerous estimates, including cash flows associated with estimated proved and probable oil and gas reserves of the 
CGU (“CGU reserves”) and the discount rate. The estimation of proved and probable oil and gas reserves involves the expertise 
of independent reserves evaluators, who take into consideration assumptions related to forecasted production volumes, royalty, 
operating  and  capital  costs  and  commodity  prices  (collectively  “reserve  assumptions”).  The  Company  engages  independent 
reserves evaluators to estimate CGU reserves.

We  identified  the  assessment  of  the  recoverable  amount  of  each  of  the  Company’s  CGUs  as  a  critical  audit  matter.  Minor 
changes in reserve assumptions and discount rates could have had a significant impact on the estimate of recoverable amounts 
and the resulting impairment reversal of the CGUs. A high degree of auditor judgment was required to evaluate the Company’s 
estimates of CGU reserves, and related reserve assumptions, and the discount rates, which were inputs into the calculation of 
recoverable  amounts.  Additionally,  the  evaluation  of  these  estimates  required  involvement  of  valuation  professionals  with 
specialized skills and knowledge.

Baytex Energy Corp. 2021 Annual Report

45

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested 
the operating effectiveness of certain internal controls related to the critical audit matter. This included controls related to:  

•

•

the Company’s determination of the recoverable amount of each of the CGUs, including the discount rate

the Company’s determination of reserve assumptions of the CGU reserves and resulting cash flows. 

We evaluated the competence, capabilities and objectivity of the independent reserves evaluators engaged by the Company. We 
evaluated  the  methodology  used  by  the  independent  reserves  evaluators  to  estimate  the  CGU  reserves  for  compliance  with 
regulatory  standards.  We  compared  the  current  year  actual  CGU  production  volumes,  royalty,  operating  and  capital  costs  to 
those  estimates  used  in  the  prior  year  estimate  of  proved  reserves  by  CGU  to  assess  the  Company’s  ability  to  accurately 
forecast. We assessed the forecasted commodity prices used in the estimate of the CGU reserves by comparing them to those 
published  by  other  reserve  engineering  companies.  We  assessed  the  forecasted  production  volumes  and  forecasted  royalty, 
operating and capital costs assumptions used in the current year estimate of the CGU reserves by comparing them to historical 
results. We involved valuation professionals with specialized skills and knowledge, who assisted in:

•

•

evaluating  the  Company’s  determination  of  discount  rates  by  comparing  the  discount  rate  against  publicly  available 
market data for comparable assets and assessing the resulting discount rate

evaluating the Company’s estimate of aggregate recoverable amount of all CGUs by comparing the implied enterprise 
value to publicly available market data.

Impact of estimated oil and gas reserves on depletion expense related to oil and gas properties 

As discussed in note 3 to the consolidated financial statements, the Company depletes its oil and gas properties using the unit-
of-production  method  by  depletable  area.  Under  such  method,  capitalized  costs  are  depleted  over  estimated  proved  and 
probable  oil  and  gas  reserves  by  depletable  area  (“area  reserves”).  As  discussed  in  note  6  to  the  consolidated  financial 
statements,  the  Company  recorded  depletion  expense  related  to  oil  and  gas  properties  of  $459  million  for  the  year  ended 
December 31, 2021. The estimation of area reserves requires the expertise of independent reserves evaluators who take into 
consideration reserve assumptions. The Company engages independent reserves evaluators to estimate area reserves.

We identified the assessment of the impact of estimated area reserves on depletion expense related to oil and gas properties as 
a  critical  audit  matter.  Changes  in  assumptions  used  to  estimate  area  reserves  could  have  had  a  significant  impact  on  the 
calculation of depletion expense of the depletable area. A high degree of auditor judgment was required in evaluating the area 
reserves, and related reserve assumptions, which were used in the calculation of depletion expense.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested 
the operating effectiveness of certain internal controls related to the critical audit matter. This included controls related to:

•

•

the Company’s calculation of depletion expense

the Company’s determination of reserve assumptions and resulting area reserves.

We assessed the calculation of depletion expense for compliance with International Financial Reporting Standards as issued by 
the  International  Accounting  Standards  Board.  We  evaluated  the  competence,  capabilities  and  objectivity  of  the  independent 
reserves evaluators engaged by the Company. We evaluated the methodology used by the independent reserves evaluators to 
estimate  area  reserves  for  compliance  with  regulatory  standards.  We  compared  current  year  actual  area  production  volumes, 
royalty, operating and capital costs to those estimates used in the prior year estimate of proved reserves by area to assess the 
Company’s ability to accurately forecast. We assessed the forecasted commodity prices used in the estimate of area reserves by 
comparing them to those published by other reserves engineering companies. We assessed the forecasted production volumes 
and  forecasted  royalty,  operating  and  capital  costs  assumptions  used  in  the  estimate  of  area  reserves  by  comparing  them  to 
historical results.

/s/ KPMG LLP

Chartered Professional Accountants

We have served as the Company’s auditor since 2016.

Calgary, Canada
February 24, 2022

46

Baytex Energy Corp. 2021 Annual Report

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of Baytex Energy Corp.

Opinion on Internal Control Over Financial Reporting

We  have  audited  Baytex  Energy  Corp.’s  (and  subsidiaries’)  (the  “Company”)  internal  control  over  financial  reporting  as  of 
December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of 
Sponsoring  Organizations  of  the  Treadway  Commission.  In  our  opinion,  the  Company  maintained,  in  all  material  respects, 
effective  internal  control  over  financial  reporting  as  of  December  31,  2021,  based  on  criteria  established  in  Internal  Control  - 
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We  also  have  audited,  in  accordance  with  the  standards  of  the  Public  Company Accounting  Oversight  Board  (United  States) 
(PCAOB),  the  consolidated  statements  of  financial  position  of  the  Company  as  of  December  31,  2021  and  2020,  the  related 
consolidated statements of income (loss) and comprehensive income (loss), changes in equity, and cash flows for the years then 
ended,  and  the  related  notes  (collectively,  the  consolidated  financial  statements),  and  our  report  dated  February  24,  2022 
expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The  Company’s  management  is  responsible  for  maintaining  effective  internal  control  over  financial  reporting  and  for  its 
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual 
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control 
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be 
independent  with  respect  to  the  Company  in  accordance  with  the  U.S.  federal  securities  laws  and  the  applicable  rules  and 
regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the 
audit  to  obtain  reasonable  assurance  about  whether  effective  internal  control  over  financial  reporting  was  maintained  in  all 
material  respects.  Our  audit  of  internal  control  over  financial  reporting  included  obtaining  an  understanding  of  internal  control 
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating 
effectiveness  of  internal  control  based  on  the  assessed  risk.  Our  audit  also  included  performing  such  other  procedures  as  we 
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A  company’s  internal  control  over  financial  reporting  is  a  process  designed  to  provide  reasonable  assurance  regarding  the 
reliability  of  financial  reporting  and  the  preparation  of  financial  statements  for  external  purposes  in  accordance  with  generally 
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that 
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions 
of  the  assets  of  the  company;  (2)  provide  reasonable  assurance  that  transactions  are  recorded  as  necessary  to  permit 
preparation  of  financial  statements  in  accordance  with  generally  accepted  accounting  principles,  and  that  receipts  and 
expenditures  of  the  company  are  being  made  only  in  accordance  with  authorizations  of  management  and  directors  of  the 
company;  and  (3)  provide  reasonable  assurance  regarding  prevention  or  timely  detection  of  unauthorized  acquisition,  use,  or 
disposition of the company’s assets that could have a material effect on the financial statements.

Because  of  its  inherent  limitations,  internal  control  over  financial  reporting  may  not  prevent  or  detect  misstatements.  Also, 
projections  of  any  evaluation  of  effectiveness  to  future  periods  are  subject  to  the  risk  that  controls  may  become  inadequate 
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

Chartered Professional Accountants

Calgary, Canada
February 24, 2022

Baytex Energy Corp. 2021 Annual Report

47

Baytex Energy Corp.
Consolidated Statements of Financial Position
(thousands of Canadian dollars)

As at

ASSETS

Current assets

Trade and other receivables

Financial derivatives

Non-current assets

Exploration and evaluation assets

Oil and gas properties

Other plant and equipment

Lease assets

Deferred income tax asset

LIABILITIES

Current liabilities

Trade and other payables

Financial derivatives

Lease obligations

Asset retirement obligations

Non-current liabilities 

Credit facilities

Long-term notes 

Lease obligations

Asset retirement obligations

Deferred income tax liability 

SHAREHOLDERS’ EQUITY

Shareholders' capital 

Contributed surplus 

Accumulated other comprehensive income

Deficit 

Commitments (note 19) 

Notes

December 31, 2021

December 31, 2020

$ 

$ 

$ 

17

5

6

14

17

9

7

8

9

14

10

173,409  $ 

8,654 

182,063 

172,824 

4,464,371 

7,121 

8,264 

— 

107,477 

5,057 

112,534 

191,865 

3,077,548 

7,996 

11,098 

7,055 

4,834,643  $ 

3,408,096 

190,692  $ 

134,020 

2,938 

11,080 

338,730 

505,171 

874,527 

4,827 

732,603 

167,456 

2,623,314 

5,736,593 

13,559 

632,103 

(4,170,926) 

2,211,329 

155,955 

26,792 

4,289 

11,820 

198,856 

649,221 

1,132,868 

6,787 

748,563 

93,588 

2,829,883 

5,729,418 

14,345 

618,976 

(5,784,526) 

578,213 

3,408,096 

$ 

4,834,643  $ 

See accompanying notes to the consolidated financial statements.

/s/ Mark R. Bly

Mark R. Bly

/s/ Jennifer A. Maki

Jennifer A. Maki

Director, Baytex Energy Corp.

Director, Baytex Energy Corp.

48

Baytex Energy Corp. 2021 Annual Report

Baytex Energy Corp. 
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
(thousands of Canadian dollars, except per common share amounts and weighted average common shares) 

Years Ended December 31

Notes

2021 

2020 

Revenue, net of royalties 

Petroleum and natural gas sales 

Royalties

Expenses

Operating

Transportation

Blending and other

General and administrative

Exploration and evaluation 

Depletion and depreciation 

Impairment (impairment reversal)

Share-based compensation 

Financing and interest 

Financial derivatives loss (gain)

Foreign exchange (gain) loss

Gain on dispositions

Other income

Net income (loss) before income taxes

Income tax expense (recovery)

Current income tax expense

Deferred income tax expense (recovery)

Net income (loss)

Other comprehensive income (loss)

Foreign currency translation adjustment

Comprehensive income (loss)

Net income (loss) per common share

Basic

Diluted

Weighted average common shares 

Basic

Diluted

See accompanying notes to the consolidated financial statements. 

13

$ 

1,868,195  $ 

(339,156) 

1,529,039 

5

5, 6

11

15

17

16

14

12

12

$ 

$ 

$ 

$ 

343,002 

32,261 

85,689 

40,804 

15,212 

464,580 

(1,542,414) 

11,130 

111,159 

287,872 

(2,868) 

(9,666) 

(2,562) 

(165,801) 

1,694,840 

1,272 

79,968 

81,240 

1,613,600  $ 

13,127 

1,626,727  $ 

2.86  $ 

2.82  $ 

563,674 

571,610 

975,477 

(163,735) 

811,742 

331,345 

28,437 

48,381 

34,268 

14,011 

486,380 

2,360,220 

9,469 

125,441 

(29,336) 

8,688 

(901) 

(5,304) 

3,411,099 

(2,599,357) 

574 

(160,967) 

(160,393) 

(2,438,964) 

62,752 

(2,376,212) 

(4.35) 

(4.35) 

560,657 

560,657 

Baytex Energy Corp. 2021 Annual Report

49

Baytex Energy Corp. 
Consolidated Statements of Changes in Equity 
(thousands of Canadian dollars) 

Notes

Shareholders’
 capital

Contributed
 surplus

Accumulated
 other
 comprehensive
 income

Deficit

Total equity

Balance at December 31, 2019

$ 

5,718,835  $ 

17,712  $ 

556,224  $ 

(3,345,562)  $ 

2,947,209 

Vesting of share awards

Share-based compensation

Comprehensive income (loss)

Balance at December 31, 2020

Vesting of share awards

Share-based compensation

Comprehensive income

10

11

10

11

10,583 

(10,583) 

— 

— 

7,216 

— 

— 

— 

— 

— 

— 

7,216 

62,752 

(2,438,964) 

(2,376,212) 

$ 

5,729,418  $ 

14,345  $ 

618,976  $ 

(5,784,526)  $ 

578,213 

7,175 

— 

— 

(7,175) 

6,389 

— 

— 

— 

— 

— 

— 

6,389 

13,127 

1,613,600 

1,626,727 

Balance at December 31, 2021

$ 

5,736,593  $ 

13,559  $ 

632,103  $ 

(4,170,926)  $ 

2,211,329 

See accompanying notes to the consolidated financial statements. 

50

Baytex Energy Corp. 2021 Annual Report

Baytex Energy Corp. 
Consolidated Statements of Cash Flows
(thousands of Canadian dollars)

Years Ended December 31

Notes

2021 

2020 

CASH PROVIDED BY (USED IN):

Operating activities

Net income (loss)

Adjustments for:

Share-based compensation 

Unrealized foreign exchange (gain) loss

Exploration and evaluation 

Depletion and depreciation 

Impairment (impairment reversal)

Non-cash financing, accretion and early redemption expense

Non-cash other income

Unrealized financial derivatives loss

Gain on dispositions

Deferred income tax expense (recovery)

Asset retirement obligations settled 

Change in non-cash working capital

Cash flows from operating activities

Financing activities

(Decrease) increase in credit facilities

Payments on lease obligations

Net proceeds from issuance of long-term notes

Redemption of long-term notes 

Cash flows used in financing activities

Investing activities

Additions to exploration and evaluation assets

Additions to oil and gas properties

Additions to other plant and equipment

Property acquisitions 

Proceeds from dispositions

Change in non-cash working capital

Cash flows used in investing activities

Change in cash

Cash, beginning of year

Cash, end of year

Supplementary information

Interest paid

Income taxes paid

See accompanying notes to the consolidated financial statements. 

$ 

1,613,600  $ 

(2,438,964) 

11

16

5

5, 6

15

9

17

14

9

18

7

8

8

5

6

18

$ 

$ 

$ 

6,389 

(1,905) 

15,212 

464,580 

(1,542,414) 

19,090 

(2,857) 

103,631 

(9,666) 

79,968 

(6,662) 

(26,582) 

712,384 

(145,321) 

(4,334) 

— 

(251,969) 

(401,624) 

(3,298) 

(310,005) 

(907) 

(1,557) 

7,804 

(2,797) 

(310,760) 

— 

— 

—  $ 

93,114  $ 

253  $ 

7,216 

9,232 

14,011 

486,380 

2,360,220 

18,907 

(2,128) 

18,500 

(901) 

(160,967) 

(7,168) 

48,758 

353,096 

143,248 

(5,925) 

652,150 

(833,672) 

(44,199) 

(4,490) 

(275,850) 

(2,280) 

— 

182 

(32,031) 

(314,469) 

(5,572) 

5,572 

— 

102,358 

1,155 

Baytex Energy Corp. 2021 Annual Report

51

Baytex Energy Corp. 
Notes to the Consolidated Financial Statements 
For the years ended December 31, 2021 and 2020 
(all tabular amounts in thousands of Canadian dollars, except per common share amounts)

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  in  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  consolidated  financial  statements  have  been  prepared  in  accordance  with  International  Financial  Reporting  Standards 
("IFRS")  as  issued  by  the  International Accounting  Standards  Board  (the  "IASB").  The  significant  accounting  policies  set  forth 
below were consistently applied to all periods presented. 

The consolidated financial statements were approved by the Board of Directors of Baytex on February 24, 2022.

The  consolidated  financial  statements  have  been  prepared  on  a  historical  cost  basis,  with  the  exception  of  certain  fair  value 
measurements noted in the accounting policies set forth below. 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 where otherwise indicated. 

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  year  ended  December  31,  2021,  the  global  economy  continued  to  show  signs  of  recovery  from  the  impacts  of  the 
COVID-19  pandemic.  Global  spot  prices  for  crude  oil  have  recovered  and  now  exceed  pre-pandemic  levels  as  optimism  for 
demand  recovery  improves  with  limited  production  growth  from  independent  producers  and  ongoing  OPEC+  production 
curtailments.  While  we  have  benefited  from  these  improvements  in  crude  oil  prices  there  is  a  degree  of  uncertainty  related  to 
COVID-19 that has been considered in our estimates for the period ended December 31, 2021. 

Environmental Reporting Regulations

Environmental  reporting  for  public  enterprises  continues  to  evolve  and  we  may  be  subject  to  additional  future  disclosure 
requirements. The International Sustainability Standards Board has issued an IFRS Sustainability Disclosure Standard with the 
objective to develop a global framework for environmental sustainability disclosure. The Canadian Securities Administrators have 
also  issued  a  proposed  National  Instrument  51-107 Disclosure  of  Climate-related  Matters  which  sets  forth  additional  reporting 
requirements for Canadian Public Companies. We continue to monitor developments on these reporting requirements and have 
not yet quantified the cost to comply with these regulations.

Measurement Uncertainty and Judgments

The  preparation  of  the  consolidated  financial  statements  in  accordance  with  IFRS  requires  management  to  make  judgments, 
estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, revenues 
and  expenses.  These  judgments,  estimates  and  assumptions  are  based  on  all  relevant  information  available,  including 
considerations  related  to  environmental  regulation  and  related  matters,  to  the  Company  at  the  time  of  financial  statement 
preparation. Actual results can differ from those estimates as the effect of future events cannot be determined with certainty. The 
key  areas  of  judgment  or  estimation  uncertainty  that  have  a  significant  risk  of  causing  material  adjustment  to  the  reported 
amounts of assets, liabilities, revenues, and expenses are discussed below.

Reserves

The  Company  uses  estimates  of  oil,  natural  gas  and  natural  gas  liquids  ("NGL")  reserves  in  the  calculation  of  depletion, 
evaluating  the  recoverability  of  deferred  income  tax  assets  and  in  the  determination  of  fair  value  estimates  for  non-financial 
assets. The process to estimate reserves is complex and requires significant judgment. Estimates of the Company's reserves are 

52

Baytex Energy Corp. 2021 Annual Report

evaluated  annually  by  independent  reserves  evaluators  and  represent  the  estimated  recoverable  quantities  of  oil,  natural  gas 
and  NGL  and  the  related  net  cash  flows.  This  evaluation  of  reserves  is  prepared  in  accordance  with  the  reserves  definition 
contained  in  National  Instrument  51-101  "Standards  of  Disclosure  for  Oil  and  Gas Activities"  and  the  Canadian  Oil  and  Gas 
Evaluation Handbook.

Estimates of economically recoverable oil, natural gas and NGL and their future net cash flows are based on a number of factors 
and  assumptions.  Changes  to  estimates  and  assumptions  such  as  forward  price  forecasts,  production  rates,  ultimate  reserve 
recovery, timing and amount of capital expenditures, production costs, marketability of oil and natural gas, royalty rates and other 
geological,  economic  and  technical  factors  could  have  a  significant  impact  on  reported  reserves.  Changes  in  the  Company's 
reserves estimates can have a significant impact on the carrying values of the Company's oil and gas properties, the calculation 
of  depletion,  the  valuation  of  deferred  income  tax  assets,  the  timing  of  cash  flows  for  asset  retirement  obligations,  asset 
impairments and estimates of fair value determined in accounting for business combinations. 

Cash-generating Units ("CGUs")

The  Company's  oil  and  gas  properties  are  aggregated  into  CGUs  which  are  the  smallest  identifiable  group  of  assets  that 
generates cash flows that are largely independent of the cash flows from other assets or groups of assets. The aggregation of 
assets  in  CGUs  requires  management  judgment  and  is  based  on  geographical  proximity,  shared  infrastructure  and  similar 
exposure to market risk.

Identification of Impairment and Impairment Reversal Indicators

Judgment  is  required  to  assess  when  indicators  of  impairment  or  impairment  reversal  exist  and  when  a  calculation  of  the 
recoverable  amount  is  required.  The  CGUs  comprising  oil  and  gas  properties  are  reviewed  at  each  reporting  date  to  assess 
whether  there  is  any  indication  of  impairment  or  impairment  reversal.  The  assessment  for  each  CGU  considers  significant 
changes  in  reservoir  performance  including  forecasted  production  volumes,  forecasted  royalty,  operating,  capital  and 
abandonment  and  reclamation  costs,  forecasted  oil  and  gas  prices  and  the  resulting  cash  flows  from  proved  plus  probable  oil 
and gas reserves.

Measurement of Recoverable Amount

If  indicators  of  impairment  or  impairment  reversal  are  determined  to  exist,  the  recoverable  amount  of  an  asset  or  CGU  is 
calculated based on the higher of value-in-use ("VIU") and fair value less cost of disposal ("FVLCD"). These calculations require 
the  use  of  estimates  and  assumptions  including  cash  flows  associated  with  proved  plus  probable  oil  and  gas  reserves,  the 
discount rate used to present value future cash flows and assumptions regarding the timing and amount of capital expenditures 
and  future  abandonment  and  reclamation  obligations.  Any  changes  to  these  estimates  and  assumptions  could  impact  the 
calculation of the recoverable amount and the carrying value of assets.

Exploration and Evaluation ("E&E") Assets

Costs  associated  with  acquiring  oil  and  natural  gas  licenses  and  exploratory  drilling  are  accumulated  as  E&E  assets  pending 
determination of technical feasibility and commercial viability. The determination of technical feasibility and commercial viability of 
E&E  assets  for  the  purposes  of  reclassifying  such  assets  to  oil  and  gas  properties  is  subject  to  management  judgment. 
Management  uses  the  establishment  of  commercial  reserves  as  the  basis  for  determining  technical  feasibility  and  commercial 
viability. Upon determination of commercial reserves, E&E assets are tested for impairment and reclassified to oil and natural gas 
properties.

Asset Retirement Obligations

The Company's provision for asset retirement obligations is based on estimated costs to abandon and reclaim the wells and the 
facilities, the estimated time period during which these costs will be incurred in the future, and discount and inflation rates. The 
provision  for  asset  retirement  obligations  represents  management's  best  estimate  of  the  present  value  of  the  future 
abandonment and reclamation costs required under current regulatory requirements. Actual abandonment and reclamation costs 
could be materially different from estimated amounts.

Income Taxes

Tax  regulations  and  legislation  in  the  various  jurisdictions  in  which  the  Company  and  its  subsidiaries  operate  are  subject  to 
change  and  there  are  differing  interpretations  requiring  management  judgment.  Deferred  tax  assets  are  recognized  when  it  is 
considered  probable  that  deductible  temporary  differences  will  be  recovered  in  future  periods,  which  requires  management 
judgment. Deferred tax liabilities are recognized when it is considered probable that temporary differences will be payable to tax 
authorities  in  future  periods,  which  requires  management  judgment.  Income  tax  filings  are  subject  to  audit  and  re-assessment 
and  changes  in  facts,  circumstances  and  interpretations  of  the  standards  may  result  in  a  material  change  to  the  Company's 
provision for income taxes. Estimates of future income taxes are subject to measurement uncertainty.

Baytex Energy Corp. 2021 Annual Report

53

3. SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Subsidiaries are 
entities  controlled  by  the  Company.  Control  exists  when  the  Company  has  the  power  to  govern  the  financial  and  operating 
policies to obtain benefits from its activities. Significant subsidiaries included in the Company's accounts include Baytex Energy 
USA, Inc., Baytex Energy Ltd. and Baytex Energy Limited Partnership. Intercompany transactions are eliminated in preparation 
of the consolidated financial statements.

Many  of  the  Company's  exploration,  development  and  production  activities  are  conducted  through  joint  arrangements.  The 
consolidated  financial  statements  include  the  Company's  proportionate  share  of  the  assets,  liabilities,  revenues  and  expenses 
generated by joint arrangements.

Business Combinations

Business  combinations  are  accounted  for  using  the  acquisition  method  of  accounting  when  the  acquired  assets  meet  the 
definition  of  a  business  under  IFRS.  The  cost  of  an  acquisition  is  measured  as  cash  paid  and  the  fair  value  of  assets  given, 
equity  instruments  issued  and  liabilities  incurred  or  assumed  at  the  date  of  exchange.  The  acquired  identifiable  assets  and 
liabilities assumed are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair 
value  of  the  net  identifiable  assets  acquired  is  recognized  as  goodwill.  If  the  cost  of  acquisition  is  below  the  fair  values  of  the 
identifiable  net  assets  acquired,  the  difference  is  recognized  as  a  bargain  purchase  gain  in  net  income  or  loss.  Associated 
transaction costs are expensed when incurred.

Revenue Recognition 

Revenue  from  the  sale  of  light  oil  and  condensate,  heavy  oil,  natural  gas  liquids,  and  natural  gas  is  recognized  based  on  the 
consideration  specified  in  contracts  with  customers.  Baytex  recognizes  revenue  by  unit  of  production  and  when  control  of  the 
product transfers to the customer and collection is reasonably assured. This is generally at the point in time when the customer 
obtains legal title to the product which is when it is physically transferred to the pipeline or other transportation method agreed 
upon.

The nature of the Company's performance obligations, including roles of third parties and partners, are evaluated to determine if 
the  Company  acts  as  a  principal.  Baytex  recognizes  revenue  on  a  gross  basis  when  it  acts  as  the  principal  and  has  primary 
responsibility for the transaction. Revenue is recognized on a net basis when Baytex acts in the capacity of an agent rather than 
as a principal.

The  transaction  price  for  variable  price  contracts  in  the  Canadian  and  U.S.  operating  segments  is  based  on  a  representative 
commodity  price  index,  and  may  include  adjustments  for  quality,  location,  delivery  method,  or  other  factors  depending  on  the 
agreed upon terms of the contract. The amount of revenue recorded can vary depending on the grade, quality and quantities of 
oil  or  natural  gas  transferred  to  customers.  Market  conditions,  which  impact  the  Company's  ability  to  negotiate  certain 
components of the transaction price, can also cause the amount of revenue recorded to fluctuate from period to period.

Tariffs,  tolls  and  fees  charged  to  other  entities  for  the  use  of  pipelines  and  facilities  owned  by  Baytex  are  evaluated  by 
management  to  determine  if  these  originate  from  contracts  with  customers  or  from  incidental  or  collaborative  arrangements. 
Tariffs, tolls and fees charged to other entities that are from contracts with customers are recognized in revenue when the related 
services are provided.

E&E Assets 

Pre-license  costs,  including  certain  geological,  geophysical  and  seismic  expenditures,  are  incurred  before  the  legal  rights  to 
explore  a  specific  area  have  been  obtained.  These  costs  are  charged  to  exploration  expense  in  the  period  in  which  they  are 
incurred. 

Once the legal right to explore has been acquired, costs directly associated with an exploration program are capitalized as an 
intangible asset until results of the exploration program have been evaluated. Costs capitalized as E&E assets include costs of 
license acquisition, technical services and studies, seismic acquisition, exploration drilling and testing of initial production results. 

E&E costs are subject to technical, commercial and management review to confirm the continued intent to develop or otherwise 
extract  the  underlying  reserves.  The  technical  feasibility  and  commercial  viability  of  extracting  petroleum  and  natural  gas 
resources is dependent on the existence of economically recoverable reserves for the project. If the asset is determined not to be 
technically  feasible  or  commercially  viable  the  accumulated  E&E  costs  associated  with  the  exploration  project  are  charged  to 
E&E expense in the period the determination is made. 

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Baytex Energy Corp. 2021 Annual Report

Upon  determination  of  technical  feasibility  and  commercial  viability,  as  evidenced  by  the  classification  of  commercial  reserves 
and management's intention to develop the E&E asset, the accumulated costs associated with the exploration project are tested 
for impairment and transferred to oil and gas properties.

Oil and Gas Properties

Oil  and  gas  properties  are  initially  recorded  at  cost  and  include  the  costs  to  acquire,  develop,  complete  geological  and 
geophysical surveys, drill wells, and construct and install infrastructure including wellhead equipment and processing facilities.

Oil and gas properties includes costs related to planned major inspection, overhaul and turnaround activities to maintain items of 
oil and gas properties and benefit future years of operations. Replacements outside of a major inspection, overhaul or turnaround 
are  recognized  as  oil  and  gas  properties  when  it  is  probable  the  economic  benefits  of  the  replacement  will  be  realized  by  the 
Company in the future. The carrying amount of any replaced or disposed item of oil and gas properties is derecognized. Repair 
and maintenance costs incurred for servicing an item of oil and gas properties is recorded as operating expense as incurred.

Depletion and Depreciation 

The costs associated with oil and gas properties are depleted on a unit-of-production basis by depletable area over proved plus 
probable reserves once commercial production has commenced. Future development costs required to bring those reserves into 
production are included in the depletable base. For purposes of the depletion calculation, petroleum and natural gas reserves are 
converted  to  a  common  unit  of  measurement  on  the  basis  of  their  relative  energy  content  where  six  thousand  cubic  feet  of 
natural gas equates to one barrel of oil equivalent.

Impairment and Impairment Reversals

Non-financial Assets

The Company reviews its non-financial assets, other than E&E assets, for indicators of impairment and impairment reversal at 
the  end  of  each  reporting  period.  The  recoverable  amount  of  the  asset  is  estimated  if  indicators  of  impairment  or  impairment 
reversal exist. E&E assets are assessed for impairment when they are reclassified to oil and gas properties or when facts and 
circumstances suggest that the carrying amount exceeds the recoverable amount.

When  reviewing  for  indicators  of  impairment  or  impairment  reversal,  and  testing  for  impairment  or  impairment  reversal  when 
indicators have been identified, assets are grouped together at a CGU level. The recoverable amount of an asset or CGU is the 
higher of its FVLCD and its VIU. The determination of recoverable amount includes estimates of proved and probable oil and gas 
reserves  and  the  associated  cash  flows.  Factors  that  impact  these  cash  flows  include  CGU  production  volumes,  royalty 
obligations,  operating  costs,  capital  costs,  forecast  commodity  prices,  along  with  inflation  and  discount  rates  used  to  estimate 
present value. FVLCD is determined as the amount that would be obtained from the sale of an asset or CGU in an arm's length 
transaction between willing parties. In determining FVLCD, recent market transactions are considered if available. In the absence 
of such transactions, an appropriate valuation model is used. VIU is assessed using the present value of the estimated future 
cash  flows  of  the  asset  or  CGU. The  estimated  future  cash  flows  are  adjusted  for  risks  specific  to  the  asset  or  CGU  and  are 
discounted using a discount rate that reflects current market assessments of the time value of money.

Where the carrying amount of a CGU exceeds its recoverable amount, the CGU is considered impaired and is written down to its 
recoverable amount. The impairment reduces the carrying amount of any goodwill allocated to the CGU first, with any remaining 
impairment being allocated to the individual assets in the CGU on a pro-rata basis.

Impairments may be reversed for all CGUs and individual assets, other than goodwill, when there is indication that a previously 
recognized  impairment  may  no  longer  exist  or  may  have  decreased.  If  such  indication  exists,  the  recoverable  amount  is 
estimated. An  impairment  may  be  reversed  only  to  the  extent  that  the  asset’s  revised  carrying  amount  does  not  exceed  the 
carrying  amount  that  would  have  been  determined,  net  of  depreciation  and  depletion,  had  no  impairment  been  recognized. 
Impairment recognized in relation to goodwill is not reversed for subsequent increases in its recoverable amount.

Impairments and impairment reversals are recorded in net income or loss in the period the impairment or impairment reversal 
occurs.

Asset Retirement Obligations

The Company recognizes asset retirement obligations when it has a legal or constructive obligation as a result of past events, it 
is probable that an outflow of economic resources will be required to settle the obligation and a reliable estimate can be made of 
the amount of the obligation. The Company’s asset retirement obligations are based on its net ownership in wells and facilities. 
Management estimates the costs to abandon and reclaim the wells and the facilities using existing technology and the estimated 
time period during which these costs will be incurred in the future. 

Baytex Energy Corp. 2021 Annual Report

55

Asset retirement obligations are recognized for future asset retirement costs associated with the abandonment and reclamation 
of  the  Company's  E&E  assets  and  oil  and  gas  properties. Asset  retirement  obligations  are  measured  at  the  present  value  of 
management's  best  estimate  of  the  future  cash  flows  required  to  settle  the  present  obligation,  discounted  using  the  risk-free 
interest rate. The present value of the liability is capitalized as part of the cost of the related asset and depleted over its useful 
life.  The  asset  retirement  obligation  is  accreted  until  the  date  of  expected  settlement  of  the  retirement  obligation  and  is 
recognized within finance expense in the statements of income or loss. Changes in the future cash flow estimates resulting from 
revisions to the estimated timing or amount of undiscounted cash flows or the discount rates are recognized as changes in the 
asset retirement obligation provision and related asset at each reporting date.

Foreign Currency Translation

Foreign Transactions

Transactions  completed  in  currencies  other  than  the  functional  currency  are  translated  into  the  functional  currency  at  the 
exchange  rates  prevailing  at  the  time  of  the  transactions.  Foreign  currency  assets  and  liabilities  are  translated  to  functional 
currency  at  the  period-end  exchange  rate.  Revenue  and  expenses  are  translated  to  functional  currency  using  the  average 
exchange  rate  for  the  period.  Realized  and  unrealized  gains  and  losses  resulting  from  the  settlement  or  translation  of  foreign 
currency transactions are included in net income or loss.

Foreign Operations

The functional currency of the Company's subsidiaries is the currency of the primary economic environment in which the entity 
operates.  Certain  subsidiaries  of  the  Company  operate  and  transact  primarily  in  currencies  other  than  the  Canadian  dollar. 
Management judgement is required in the designation of a subsidiary's functional currency which is based on the currency of the 
primary economic environment in which the subsidiary operates.

The  financial  statements  of  each  entity  are  translated  into  Canadian  dollars  during  the  preparation  of  the  Company's 
consolidated  financial  statements.  The  assets  and  liabilities  of  a  foreign  operation  are  translated  to  Canadian  dollars  at  the 
period-end exchange rate. Revenues and expenses of foreign operations are translated to Canadian dollars using the average 
exchange rate for the period. Foreign exchange differences are recognized in other comprehensive income or loss.

If  the  Company  or  any  of  its  entities  disposes  of  its  entire  interest  in  a  foreign  operation,  or  loses  control,  joint  control,  or 
significant influence over a foreign operation, the accumulated foreign currency translation gains or losses related to the foreign 
operation are recognized in net income or loss.

Financial Instruments

Financial assets are initially classified into three categories: measured at amortized cost; fair value through other comprehensive 
income  (“FVOCI”);  or  fair  value  through  profit  or  loss  (“FVTPL”).  Financial  assets  are  categorized  based  on  the  Company’s 
objective for the asset and the contractual cash flows. A financial asset is classified as amortized cost if the asset is held with the 
objective to collect contractual cash flows that are solely payments of principal and interest on principal amounts outstanding. A 
financial  asset  is  classified  as  FVOCI  if  the  asset  is  held  with  the  objective  to  both  collect  contractual  cash  flows  and  sell  the 
financial  asset.  All  other  financial  assets  are  measured  at  FVTPL.  Financial  assets  are  assessed  for  impairment  using  an 
expected credit loss model.

The measurement categories for each class of financial asset and financial liability is set forth in the following table.

Financial Instrument

Cash and cash equivalents

Trade and other receivables

Financial derivatives

Trade and other payables

Credit facilities

Long-term notes

Classification

Amortized cost

Amortized cost

Fair value through profit or loss

Amortized cost

Amortized cost

Amortized cost

An embedded derivative is a component of a contract that modifies the cash flows of the contract. These hybrid contracts consist 
of a host contract and an embedded derivative. The embedded derivative is separated from the host contract and accounted for 
as a derivative unless the economic characteristics and risks of the embedded derivative are closely related to the host contract. 
The embedded derivatives are measured at FVTPL.

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Baytex Energy Corp. 2021 Annual Report

Debt  issuance  costs  related  to  the  amendment  of  our  credit  facilities  or  the  issuance  of  long  term  notes  are  capitalized  and 
amortized as financing costs over the term of the credit facilities or long term notes. For a financial asset or a financial liability 
carried  at  amortized  cost,  transaction  costs  directly  attributable  to  acquiring  or  issuing  the  asset  or  liability  are  added  to,  or 
deducted  from,  the  fair  value  on  initial  recognition  and  amortized  through  net  income  or  loss  over  the  term  of  the  financial 
instrument.  Transaction  costs  that  are  directly  attributable  to  the  acquisition  or  issue  of  a  financial  asset  or  a  financial  liability 
classified as FVTPL are expensed at inception of the contract.

The  Company  formally  documents  its  risk  management  objectives  and  strategies  to  manage  exposures  to  fluctuations  in 
commodity  prices,  interest  rates  and  foreign  currency  exchange  rates. The  risk  management  policy  permits  the  use  of  certain 
derivative financial instruments, including swaps and collars, to manage these fluctuations. All transactions of this nature entered 
into  by  the  Company  are  related  to  underlying  financial  instruments  or  future  petroleum  and  natural  gas  production.  These 
instruments are classified as FVTPL. The Company does not use financial derivatives for trading or speculative purposes. The 
Company  has  not  designated  its  financial  derivative  contracts  as  effective  accounting  hedges,  and  therefore  has  not  applied 
hedge  accounting.  As  a  result,  the  Company  applies  the  fair  value  method  of  accounting  for  all  derivative  instruments  by 
recording an asset or liability on the statements of financial position and recognizing changes in the fair value of the instrument in 
the statements of income or loss for the current period. The fair values of these instruments are based on quoted market prices 
or, in their absence, third-party market indications and forecasts. Attributable transaction costs are recognized in net income or 
loss when incurred.

The Company has accounted for its physical delivery sales contracts, which were entered into and continue to be held for the 
purpose  of  receipt  or  delivery  of  non-financial  items  in  accordance  with  its  expected  purchase,  sale  or  usage  requirements  as 
executory  contracts.  As  such,  these  contracts  are  not  considered  to  be  derivative  financial  instruments  and  have  not  been 
recorded  at  fair  value  on  the  statements  of  financial  position.  Settlements  on  these  physical  delivery  sales  contracts  are 
recognized in revenue in the period the product is delivered to the sales point.

Impairment  of  financial  assets  is  determined  by  calculating  the  expected  credit  loss  ("ECL"). The  Company  measures  an  ECL 
allowance for trade and other receivables. The Company determines the ECL which is the probability of default events related to 
the  financial  asset  by  using  historical  realized  bad  debts  and  forward  looking  information.  The  carrying  amounts  of  financial 
assets  are  reduced  by  the  amount  of  the  ECL  through  an  allowance  account  and  losses  are  recognized  in  the  statement  of 
income or loss. 

Fair Value of Financial Instruments

Baytex classifies the fair value of financial instruments according to the following hierarchy based on the amount of observable 
inputs used to value the instruments:

•

•

•

Level 1: Values based on unadjusted quoted prices in active markets that are accessible at the measurement date for
identical assets or liabilities.
Level 2: Values based on quoted prices in markets that are not active or model inputs that are observable either directly
or indirectly for substantially the full term of the asset or liability.
Level 3: Values based on prices or valuation techniques that require inputs that are both unobservable and significant to
the overall fair value measurement.

Income Taxes 

Current and deferred income taxes are recognized in net income or loss, except when they relate to items that are recognized 
directly in equity, in which case the current and deferred taxes are also recognized directly in equity. 

Current income taxes for the current and prior periods are measured at the amount expected to be recoverable from or payable 
to the taxation authorities based on the income tax rates enacted at the end of the reporting period. The Company recognizes 
the financial statement impact of a tax filing position when it is probable that the position will be sustained upon audit. The liability 
is measured based on an assessment of possible outcomes and their associated probabilities.

The Company follows the asset and liability method of accounting for income taxes. Under this method, deferred income taxes 
are recorded for the effect of any temporary differences between the carrying amounts of assets and liabilities in the consolidated 
financial statements and the corresponding tax basis used in the computation of taxable income. Deferred income tax liabilities 
are  generally  recognized  for  all  taxable  temporary  differences.  Deferred  income  tax  assets  are  recognized  for  all  temporary 
differences deductible to the extent future recovery is probable. The carrying amount of deferred income tax assets is reviewed 
at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable income will be 
available to allow all or part of the asset to be recovered. Deferred income taxes are calculated using enacted or substantively 
enacted tax rates. Deferred income tax balances are adjusted for any changes in the enacted or substantively enacted tax rates 
and the adjustment is recognized in the period that the rate change occurs.

Baytex Energy Corp. 2021 Annual Report

57

Share-based Compensation Plans

The  Company  has  a  full-value  award  plan  (the  "Share  Award  Incentive  Plan")  pursuant  to  which  restricted  awards  and 
performance awards (collectively, "Share Awards") may be granted to the directors, officers and employees of the Company and 
its subsidiaries. The maximum number of common shares issuable under the Share Award Incentive Plan (and any other long-
term incentive plans of the Company) shall not at any time exceed 3.8% of the then-issued and outstanding common shares. 

Share Awards vest in equal tranches on the first, second and third anniversaries of the grant date. Each restricted award entitles 
the  holder  to  be  issued  the  number  of  common  shares  designated  in  the  restricted  award  (plus  dividend  equivalents).  Each 
performance award entitles the holder to be issued the number of common shares designated in the performance award (plus 
dividend  equivalents)  multiplied  by  a  payout  multiplier.  Expenses  related  to  the  Share  Award  Incentive  Plan  are  determined 
based  on  the  fair  value  of  the  Share  Awards  on  the  grant  date  which  is  based  on  quoted  market  prices  for  the  Company's 
common  shares.  Both  restricted  and  performance  awards  are  expensed  over  the  vesting  period  using  the  graded  vesting 
method,  with  a  corresponding  increase  to  contributed  surplus.  The  payout  multiplier  is  dependent  on  the  performance  of  the 
Company  relative  to  predefined  corporate  performance  measures  for  a  particular  period.  In  the  case  of  both  restricted  and 
performance  awards,  the  number  of  common  shares  to  be  issued  on  the  applicable  issue  date  is  adjusted  to  account  for  the 
payments of dividends from the grant date to the applicable issue date.

The Company has a cash-settled incentive award plan (the "Incentive Award Plan") pursuant to which incentive awards may be 
granted  to  officers  and  employees  of  the  Company  and  its  subsidiaries.  Each  incentive  award  entitles  the  holder  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.

58

Baytex Energy Corp. 2021 Annual Report

4. 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.

Years Ended December 31

2021 

2020

2021 

2020

2021 

2020

2021 

2020

Canada

U.S.

Corporate

Consolidated

Revenue, net of royalties

Petroleum and natural gas sales 

$ 1,128,137  $  571,741  $  740,058  $  403,736  $ 

—  $ 

—  $ 1,868,195  $  975,477 

Royalties

(121,306)   

(46,064)   

(217,850)   

(117,671)   

1,006,831 

525,677 

522,208 

286,065 

Expenses

Operating

Transportation

Blending and other

General and administrative

Exploration and evaluation 

Depletion and depreciation 

257,658 

247,050 

85,344 

84,295 

32,261 

85,689 

— 

28,437 

48,381 

— 

15,212 

14,011 

— 

— 

— 

— 

— 

— 

— 

— 

303,135 

309,420 

155,806 

169,439 

Impairment (reversal) loss

  (1,100,000)    1,737,000 

(442,414) 

623,220 

— 

— 

— 

— 

— 

— 

5,639 

— 

— 

(339,156)   

(163,735) 

—    1,529,039 

811,742 

— 

— 

— 

— 

343,002 

331,345 

32,261 

85,689 

40,804 

15,212 

28,437 

48,381 

34,268 

14,011 

7,521 

464,580 

486,380 

—    (1,542,414)    2,360,220 

40,804 

34,268 

Share-based compensation 

Financing and interest 

Financial derivatives loss (gain)

Foreign exchange (gain) loss

(Gain) loss on dispositions

Other (income) expense

— 

— 

— 

— 

— 

— 

— 

— 

(9,856) 

(2,857) 

(901) 

(2,128) 

— 

— 

— 

— 

190 

— 

— 

— 

— 

— 

— 

— 

11,130 

9,469 

11,130 

9,469 

111,159 

125,441 

111,159 

125,441 

287,872 

(29,336) 

287,872 

(29,336) 

(2,868) 

8,688 

— 

295 

— 

(3,176) 

(2,868) 

(9,666) 

(2,562) 

8,688 

(901) 

(5,304) 

(418,758)    2,381,270 

(201,074) 

876,954 

454,031 

152,875 

(165,801)    3,411,099 

Net income (loss) before income taxes   1,425,589    (1,855,593) 

723,282 

(590,889)   

(454,031)   

(152,875)    1,694,840    (2,599,357) 

Income tax expense (recovery)

Current income tax (recovery) expense

(548) 

469 

Deferred income tax expense (recovery)

86,928 

86,380 

(77,201) 

(76,732) 

1,820 

72,913 

74,733 

105 

— 

— 

(57,199) 

(79,873) 

(26,567) 

(57,094) 

(79,873) 

(26,567) 

1,272 

79,968 

81,240 

574 

(160,967) 

(160,393) 

Net income (loss)

$ 1,339,209  $ (1,778,861) $  648,549  $  (533,795)  $  (374,158)  $  (126,308)  $ 1,613,600  $ (2,438,964) 

Additions to exploration and evaluation 
assets

3,298 

4,490 

— 

— 

Additions to oil and gas properties

204,912 

170,462 

105,093 

105,388 

Property acquisitions

Proceeds from dispositions

1,557 

(7,211) 

— 

(182) 

— 

(593) 

— 

— 

— 

— 

— 

— 

— 

— 

— 

— 

3,298 

4,490 

310,005 

275,850 

1,557 

(7,804) 

— 

(182) 

As at

Canadian assets

U.S. assets

Corporate assets

Total consolidated assets

December 31, 2021

December 31, 2020

$ 

$ 

2,658,281  $ 

2,152,323 

24,039 

4,834,643  $ 

1,646,412 

1,737,533 

24,151 

3,408,096 

Baytex Energy Corp. 2021 Annual Report

59

 
5. EXPLORATION AND EVALUATION ASSETS

December 31, 2021

December 31, 2020

Balance, beginning of year

$ 

191,865  $ 

Capital expenditures

Property acquisitions

Divestitures

Property swaps

Impairment
Exploration and evaluation expense (1)
Transfers to oil and gas properties (note 6)

Foreign currency translation

Balance, end of year

3,298 

1,100 

(166) 

408 

— 

(15,212) 

(7,727) 

(742) 

$ 

172,824  $ 

320,210 

4,490 

— 

— 

468 

(113,058) 

(14,011) 

(8,585) 

2,351 

191,865 

(1) Exploration and evaluation expense balance consists of land expiries as at December 31, 2021.

At December 31, 2021, there were no indicators of impairment or impairment reversal for exploration and evaluation assets in 
any of the Company's CGUs.

At March 31, 2020, the Company identified indicators of impairment for the exploration and evaluation assets within each of its 
six  CGUs.  The  estimated  recoverable  amount  was  below  the  carrying  value  of  the  exploration  and  evaluation  assets  in  the 
Conventional, Peace River, Lloydminster, Viking and Eagle Ford CGUs and an impairment loss of $127.9 million was recorded at 
March 31, 2020. The recoverable amount of each CGU was based on its "FVLCD" and was estimated with reference to arm's 
length transactions in comparable locations and the discounted cash flows associated with the Company's future development 
plans. The following table indicates the impairment loss booked for each CGU at March 31, 2020.

Conventional CGU

Peace River CGU

Lloydminster CGU

Viking CGU

Eagle Ford CGU

Impairment at
March 31, 2020

4,000 

20,000 

42,000 

13,000 

48,861 

127,861 

$ 

$ 

At December 31, 2020, the Company estimated the recoverable amount of the exploration and evaluation assets within each of 
its  six  CGUs  due  to  the  ongoing  volatility  in  future  oil  and  natural  gas  prices. The  recoverable  amount  supported  the  carrying 
amount  for  the  Conventional,  Peace  River,  Lloydminster,  and  Duvernay  CGUs  and no  impairment  loss  or  impairment  reversal 
was recorded. The recoverable amount for the Viking and Eagle Ford CGUs exceeded their carrying amounts which resulted in 
an impairment reversal of $14.8 million at December 31, 2020. The recoverable amount of each CGU was based on its FVLCD 
and was estimated with reference to arm's length transaction in comparable locations and the discounted cash flows associated 
with the Company's future development plans. The following table indicates the impairment reversal booked for the Viking and 
Eagle Ford CGUs at December 31, 2020.

Viking CGU

Eagle Ford CGU

Impairment reversal at 
December 31, 2020

$ 

$ 

2,000 

12,803 

14,803 

60

Baytex Energy Corp. 2021 Annual Report

6. OIL AND GAS PROPERTIES

Balance, December 31, 2019

Capital expenditures

Transfers from exploration and evaluation assets (note 5)

Change in asset retirement obligations (note 9)

Property swaps

Impairment

Foreign currency translation

Depletion

Balance, December 31, 2020

Capital expenditures

Property acquisitions

Divestitures

Property swaps

Transfers from exploration and evaluation assets (note 5)

Change in asset retirement obligations (note 9)

Impairment reversal

Foreign currency translation

Depletion

Balance, December 31, 2021

Accumulated

Cost

 depletion Net book value

$ 

11,128,297  $ 

(5,740,408) $ 

5,387,889 

275,850 

8,585 

94,994 

(1,190) 

— 

— 

— 

178 

275,850 

8,585 

94,994 

(1,012) 

— 

(2,247,162) 

(2,247,162) 

(82,860) 

— 

120,123 

(478,859) 

37,263 

(478,859) 

$ 

11,423,676  $ 

(8,346,128) $ 

3,077,548 

310,005 

274 

(37,835) 

(26,131) 

7,727 

(12,222) 

— 

— 

32,844 

25,900 

— 

— 

310,005 

274 

(4,991) 

(231) 

7,727 

(12,222) 

— 

1,542,414 

1,542,414 

(31,977) 

34,765 

2,788 

— 

(458,941) 

(458,941) 

$ 

11,633,517  $ 

(7,169,146) $ 

4,464,371 

Baytex recorded total impairment reversals related to oil and gas properties of $1.5 billion for the year ended December 31, 2021 
and impairment losses related to oil and gas properties of $2.2 billion for the year ended December 31, 2020.

2021 Impairment Reversals

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 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%. 

At  December  31,  2021,  the  recoverable  amount  of  the  five  CGUs  tested  were  calculated  using  the  following  benchmark 
reference  prices  for  the  years  2022  to  2031  adjusted  for  commodity  differentials  specific  to  the  CGU.  The  prices  and  costs 
subsequent to 2031 have been adjusted for inflation at an annual rate of 2.0%.

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

WTI crude oil (US$/bbl)

72.83 

68.78 

66.76 

68.09 

69.45 

70.84 

72.26 

73.70 

75.18 

76.68 

WCS heavy oil ($/bbl)

74.42 

69.17 

66.54 

67.87 

69.23 

70.61 

72.02 

73.46 

74.69 

76.19 

LLS crude oil (US$/bbl)

74.33 

70.28 

68.27 

69.62 

71.01 

72.41 

73.85 

75.32 

76.82 

78.35 

Edmonton par oil ($/bbl)

86.82 

80.73 

78.01 

79.57 

81.16 

82.78 

84.44 

86.13 

87.85 

89.61 

Henry Hub gas (US$/mmbtu)

AECO gas ($/mmbtu)

Exchange rate (CAD/USD)

3.85 

3.56 

1.26 

3.44 

3.21 

1.26 

3.17 

3.05 

1.26 

3.24 

3.11 

1.26 

3.30 

3.17 

1.26 

3.37 

3.23 

1.26 

3.44 

3.30 

1.26 

3.50 

3.36 

1.26 

3.58 

3.43 

1.26 

3.65 

3.50 

1.26 

Baytex Energy Corp. 2021 Annual Report

61

The following table summarizes the recoverable amount and impairment reversal at December 31, 2021 and demonstrates the 
sensitivity  of  the  estimated  recoverable  amount  of  the  five  CGUs  with  respect  to  reasonably  possible  changes  in  key 
assumptions inherent in the estimate.

Recoverable 
amount

Impairment
 reversal

Change in discount 
rate of 1%

Change in oil price 
of $2.50/bbl

Change in gas 
price of $0.25/mcf

Conventional CGU

$ 

77,846  $ 

19,000  $ 

—  $ 

3,000  $ 

Peace River CGU

Lloydminster CGU

Viking CGU

Eagle Ford CGU

489,274 

479,411 

1,320,094 

2,008,478 

251,000 

146,000 

— 

— 

8,500 

12,500 

38,000 

97,200 

53,000 

52,000 

85,500 

138,800 

$ 

4,375,103  $ 

416,000  $ 

156,200  $ 

332,300  $ 

8,000 

3,500 

— 

4,500 

31,300 

47,300 

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  and  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%. 

At  June  30,  2021,  the  recoverable  amount  of  the  Company's  CGUs  were  calculated  using  the  following  benchmark  reference 
prices for the years 2021 to 2030 adjusted for commodity differentials specific to the Company. The prices and costs subsequent 
to 2030 have been adjusted for inflation at an annual rate of 2.0%.

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

WTI crude oil (US$/bbl)

71.33 

67.20 

63.95 

63.23 

64.50 

65.79 

67.10 

68.44 

69.81 

71.21 

WCS heavy oil ($/bbl)

72.22 

66.84 

61.73 

60.70 

61.91 

63.15 

64.42 

65.70 

67.02 

68.36 

LLS crude oil (US$/bbl)

72.17 

68.53 

65.80 

65.10 

66.39 

67.71 

69.05 

70.42 

71.82 

73.26 

Edmonton par oil ($/bbl)

83.20 

78.27 

74.06 

73.05 

74.51 

76.00 

77.52 

79.07 

80.66 

82.27 

Henry Hub gas (US$/mmbtu)

AECO gas ($/mmbtu)

Exchange rate (CAD/USD)

3.42 

3.46 

1.24 

3.19 

3.13 

1.25 

2.92 

2.72 

1.25 

2.96 

2.71 

1.25 

3.02 

2.76 

1.25 

3.08 

2.82 

1.25 

3.14 

2.88 

1.25 

3.21 

2.94 

1.25 

3.27 

2.99 

1.25 

3.34 

3.05 

1.25 

The  following  table  summarizes  the  recoverable  amount  and  impairment  reversal  at  June  30,  2021  and  demonstrates  the 
sensitivity of the estimated recoverable amount of the Company's CGUs comprising oil and gas properties to reasonably possible
changes in key assumptions inherent in the estimate.

Recoverable 
amount

Impairment
 reversal

Change in discount 
rate of 1%

Change in oil price 
of $2.50/bbl

Change in gas 
price of $0.25/mcf

Conventional CGU

$ 

57,891  $ 

15,000  $ 

1,000  $ 

1,000  $ 

Peace River CGU

Lloydminster CGU
Duvernay CGU(1)
Viking CGU

Eagle Ford CGU

238,714 

340,730 

115,157 

1,338,985 

2,015,118 

154,000 

154,000 

5,000 

356,000 

442,415 

4,000 

12,500 

45,000 

47,000 

109,400 

40,000 

52,000 

44,500 

89,500 

103,900 

$ 

4,106,595  $ 

1,126,415  $ 

218,900  $ 

330,900  $ 

8,000 

2,500 

— 

44,500 

4,500 

24,400 

83,900 

(1)   The impairment reversal for the Duvernay CGU was limited to total accumulated impairments less subsequent depletion of $5.0 million.

62

Baytex Energy Corp. 2021 Annual Report

 
 
2020 Impairments

At  December  31,  2020,  the  Company  estimated  the  recoverable  amount  of  each  of  its  six  CGUs  due  to  the  volatility  in 
commodity prices during the year and a reduction in future development costs per well for the Viking and Eagle Ford CGUs. The 
recoverable amount supported the carrying amount for the Conventional, Peace River, Lloydminster, and Duvernay CGUs and 
no  impairment  or  impairment  reversal  was  recorded. The  recoverable  amount  for  the  Viking  and  Eagle  Ford  CGUs  exceeded 
their  carrying  amounts  which  resulted  in  an  impairment  reversal  of  $341.3  million  recorded  at  December  31,  2020.  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. The after-tax discount rates 
applied to the cash flows were between 10% and 17%. 

At  December  31,  2020,  the  recoverable  amount  of  the  Company's  CGUs  were  calculated  using  the  following  benchmark 
reference prices for the years 2021 to 2030 adjusted for commodity differentials specific to the Company. The prices and costs 
subsequent to 2030 have been adjusted for inflation at an annual rate of 2%.

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

WTI crude oil (US$/bbl)

47.17 

50.17 

53.17 

54.97 

56.07 

57.19 

58.34 

59.50 

60.69 

61.91 

WCS heavy oil ($/bbl)

44.63 

48.18 

52.10 

54.10 

55.19 

56.29 

57.42 

58.57 

59.74 

60.93 

LLS crude oil (US$/bbl)

49.50 

52.85 

55.87 

57.69 

58.82 

59.97 

61.15 

62.34 

63.56 

64.83 

Edmonton par oil ($/bbl)

55.76 

59.89 

63.48 

65.76 

67.13 

68.53 

69.95 

71.40 

72.88 

74.34 

Henry Hub gas (US$/mmbtu)

AECO gas ($/mmbtu)

Exchange rate (CAD/USD)

2.83 

2.78 

1.30 

2.87 

2.70 

1.31 

2.90 

2.61 

1.31 

2.96 

2.65 

1.31 

3.02 

2.70 

1.31 

3.08 

2.76 

1.31 

3.14 

2.81 

1.31 

3.20 

2.87 

1.31 

3.26 

2.92 

1.31 

3.33 

2.98 

1.31 

The  following  table  demonstrates  the  sensitivity  of  the  estimated  recoverable  amount  of  the  Company's  CGUs  to  reasonably 
possible changes in key assumptions inherent in the estimate.

Recoverable 
amount

Impairment
reversal

Change in discount 
rate of 1%

Change in oil price 
of $2.50/bbl

Change in gas 
price of $0.25/mcf

Conventional CGU

$ 

54,265  $ 

—  $ 

1,000  $ 

3,000  $ 

Peace River CGU

Lloydminster CGU

Duvernay CGU

Viking CGU

Eagle Ford CGU

104,225 

212,979 

70,491 

1,026,026 

1,609,562 

— 

— 

— 

116,000 

225,326 

1,000 

7,000 

5,500 

34,500 

91,600 

49,500 

57,500 

12,000 

106,500 

157,500 

$ 

3,077,548  $ 

341,326  $ 

140,600  $ 

386,000  $ 

9,000 

3,000 

500 

1,500 

5,000 

38,400 

57,400 

At  March  31,  2020,  the  Company  identified  indicators  of  impairment  for  each  of  its  six  CGUs  due  to  a  significant  decline  in 
forecasted  commodity  prices.  The  recoverable  amount  was  not  sufficient  to  support  the  carrying  amount  which  resulted  in  an 
impairment of $2.6 billion recorded at March 31, 2020. The recoverable amount of 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,  2019  and  was  adjusted  for  operations  between  December  31,  2019  and  March  31,  2020.  The 
after-tax discount rates applied to the cash flows were between 8% and 14%. 

At March 31, 2020, the recoverable amount of the Company's CGUs were calculated using the following benchmark reference 
prices for the years 2020 to 2029 adjusted for commodity differentials specific to the Company. The prices and costs subsequent 
to 2029 have been adjusted for inflation at an annual rate of 2%.

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

WTI crude oil (US$/bbl)

29.17 

40.45 

49.17 

53.28 

55.66 

56.87 

58.01 

59.17 

60.35 

61.56 

WCS heavy oil ($/bbl)

19.21 

34.65 

46.34 

51.25 

54.28 

55.72 

56.96 

58.22 

59.51 

60.82 

LLS crude oil (US$/bbl)

32.17 

43.80 

52.55 

56.68 

59.10 

60.35 

61.52 

62.72 

63.94 

65.19 

Edmonton par oil ($/bbl)

29.22 

46.85 

59.27 

65.02 

68.43 

69.81 

71.24 

72.70 

74.19 

75.71 

Henry Hub gas (US$/mmbtu)

AECO gas ($/mmbtu)

Exchange rate (CAD/USD)

2.10 

1.74 

1.41 

2.58 

2.20 

1.37 

2.79 

2.38 

1.34 

2.86 

2.45 

1.34 

2.93 

2.53 

1.34 

3.00 

2.60 

1.33 

3.07 

2.66 

1.33 

3.13 

2.72 

1.33 

3.19 

2.79 

1.33 

3.25 

2.85 

1.33 

Baytex Energy Corp. 2021 Annual Report

63

 
The  following  table  demonstrates  the  sensitivity  of  the  estimated  recoverable  amount  of  the  Company's  CGUs  to  reasonably 
possible changes in key assumptions inherent in the estimate.

Recoverable 
amount

Impairment

Change in discount 
rate of 1%

Change in oil price 
of $2.50/bbl

Change in gas 
price of $0.25/mcf

Conventional CGU

$ 

37,444  $ 

41,000  $ 

3,000  $ 

3,500  $ 

Peace River CGU

Lloydminster CGU

Duvernay CGU

Viking CGU

Eagle Ford CGU

109,631 

227,967 

61,197 

962,134 

1,576,423 

345,000 

470,000 

5,000 

915,000 

812,488 

9,500 

25,000 

5,500 

57,000 

120,750 

53,500 

69,500 

9,500 

123,000 

141,500 

$ 

2,974,796  $ 

2,588,488  $ 

220,750  $ 

400,500  $ 

8,500 

3,000 

— 

1,500 

4,000 

32,000 

49,000 

7. CREDIT FACILITIES

Credit facilities - U.S. dollar denominated(1)
Credit facilities - Canadian dollar denominated
Credit facilities - principal(2)
Unamortized debt issuance costs

Credit facilities

December 31, 2021

December 31, 2020

$ 

$ 

$ 

156,332  $ 

350,182 

506,514  $ 

(1,343) 

505,171  $ 

140,815 

510,358 

651,173 

(1,952) 

649,221 

(1) U.S. dollar denominated credit facilities balance was US$123.5 million as at December 31, 2021 (December 31, 2020 - US$110.4 million).
(2) The decrease in the principal amount of the credit facilities outstanding from December 31, 2020 to December 31, 2021 is the result of net 
repayments of $145.3 million and an increase in the reported amount of U.S. denominated debt of $0.7 million due to foreign exchange.

Baytex has US$575 million of revolving credit facilities (the "Revolving Facilities") and a $300 million non-revolving secured term 
loan (the "Term Loan") (collectively the "Credit Facilities"). The Credit Facilities mature on April 2, 2024 and will automatically be 
extended  to  June  4,  2024  providing  Baytex  has  either  refinanced,  or  has  the  ability  to  repay,  the  outstanding  2024  long-term 
notes with existing credit capacity as of April 1, 2024.

The extendible secured Revolving Facilities are comprised of a US$50 million operating loan and a US$325 million syndicated 
revolving loan for Baytex and a US$200 million syndicated revolving loan for Baytex's wholly-owned subsidiary, Baytex Energy 
USA,  Inc.  The  $300  million  Term  Loan  is  secured  by  the  assets  of  Baytex's  wholly-owned  subsidiary,  Baytex  Energy  Limited 
Partnership.

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 ("LIBOR"), plus applicable margins.

The  LIBOR  benchmark  transition  began  on  December  31,  2021.  Certain  tenors  of  the  U.S.  dollar  LIBOR  benchmark  are  no 
longer  published  as  of  December  31,  2021  while  some  tenors  will  continue  to  be  published  through  mid-2023.  We  expect  the 
U.S. dollar LIBOR benchmarks to be replaced with an alternative that will apply to our U.S. dollar borrowing at our option. We do 
not  expect  this  change  to  have  a  material  impact  to  Baytex  as  U.S.  dollar  borrowings  under  the  credit  facilities  can  also  bear 
interest at the U.S. base loan rate.

The weighted average interest rate on the Credit Facilities was 2.1% for the year ended December 31, 2021 (2.4% for the year 
ended December 31, 2020).

At December 31, 2021, Baytex had $15.0 million of outstanding letters of credit under the Credit Facilities (December 31, 2020 - 
$15.0 million).

64

Baytex Energy Corp. 2021 Annual Report

 
At December 31, 2021, Baytex was in compliance with all of the covenants contained in the Credit Facilities and is forecasting 
compliance  with  these  covenants  based  on  current  forward  commodity  prices.  The  following  table  summarizes  the  financial 
covenants applicable to the Revolving Facilities and Baytex's compliance therewith as at December 31, 2021.

Covenant Description
Senior Secured Debt(1) to Bank EBITDA(2) (Maximum Ratio)
Interest Coverage(3) (Minimum Ratio)

Position as at 
December 31, 2021

0.6:1.0

9.1:1.0

Covenant

3.5:1.0

2.0:1.0

(1)

(2)

(3)

"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 December 31, 2021, the Company's Senior Secured Debt 
totaled $521.5 million.
"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 year ended December 31, 2021 was $836.9 million.
"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 
expenses for the year ended December 31, 2021 was $91.8 million.

8. LONG-TERM NOTES

5.625% notes (US$200,000 – principal) due June 1, 2024

8.75% notes (US$500,000 – principal) due April 1, 2027
Total long-term notes - principal(1)
Unamortized debt issuance costs

Total long-term notes - net of unamortized debt issuance costs

December 31, 2021

December 31, 2020

253,120 

632,800 

885,920  $ 

(11,393) 

874,527  $ 

510,200 

637,750 

1,147,950 

(15,082) 

1,132,868 

$ 

$ 

(1) The  decrease  in  the  principal  amount  of  long-term  notes  outstanding  from  December  31,  2020  to  December  31,  2021  is  the  result  of 

principal repayments of $249.4 million and changes in the reported amount of U.S. denominated debt of $12.6 million.

During 2021, Baytex repurchased and cancelled principal notes totaling US$200 million of the 5.625% Notes and recorded early 
redemption expense of $1.9 million. As at December 31, 2021, there was a total of US$200.0 million of the 5.625% Notes that 
remained outstanding.

On  February  5,  2020,  Baytex  issued  US$500  million  aggregate  principal  amount  of  senior  unsecured  notes  due April  1,  2027 
bearing interest at a rate of 8.75% per annum payable semi-annually (the "8.75% Senior Notes"). The 8.75% Senior Notes are 
redeemable at Baytex's option, in whole or in part, at specified redemption prices after April 1, 2023 and will be redeemable at 
par  from  April  1,  2026  to  maturity.  Transaction  costs  of  $12.5  million  were  incurred  in  conjunction  with  the  issuance  which 
resulted in net proceeds of $652.2 million.

The long-term notes do not contain any significant financial maintenance covenants.

Baytex Energy Corp. 2021 Annual Report

65

9. ASSET RETIREMENT OBLIGATIONS

Balance, beginning of year

Liabilities incurred

Liabilities settled

Liabilities acquired from property acquisitions

Liabilities divested

Property swaps

Accretion (note 15)
Government grants(1)
Change in estimate
Changes in discount rates and inflation rates(2)
Foreign currency translation

Balance, end of year

Less current portion of asset retirement obligations

Non-current portion of asset retirement obligations

December 31, 2021

December 31, 2020

$ 

760,383  $ 

14,845 

(6,662) 

249 

(3,161) 

(4,113) 

12,381 

(2,857) 

(9,686) 

(17,381) 

(315) 

743,683  $ 

11,080 

732,603  $ 

$ 

$ 

667,974 

15,189 

(7,168) 

— 

(721) 

(525) 

8,978 

(2,128) 

(12,771) 

92,576 

(1,021) 

760,383 

11,820 

748,563 

(1) During 2021, Baytex recognized $2.9 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 ($2.1 million in 2020).

(2) The discount and inflation rates at December 31, 2021 were 1.7% and 1.8% respectively (December 31, 2020 - 1.2% and 1.5%).

At December 31, 2021, the undiscounted amount of estimated cash flows required to settle the asset retirement obligations is 
$721.7 million (December 31, 2020 - $721.0 million). The discounted amount of estimated cash flow required to settle the asset 
retirement obligations at December 31, 2021, calculated using an estimated inflation rate of 1.8% (December 31, 2020 - 1.5%) 
and a risk free discount rate of 1.7% (December 31, 2020 - 1.2%), is $743.7 million (December 31, 2020 - $760.4 million). These 
costs are expected to be incurred over the next 60 years.

10. 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. As  at  December  31,  2021,  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.

Balance, December 31, 2019

Vesting of share awards 

Balance, December 31, 2020

Vesting of share awards

Balance, December 31, 2021

11. SHARE-BASED COMPENSATION PLAN

Number of 
Common Shares
(000s)

558,305  $ 

2,922 

561,227  $ 

2,986 

564,213  $ 

Amount

5,718,835 

10,583 

5,729,418 

7,175 

5,736,593 

For  the  year  ended  December  31,  2021,  the  Company  recorded  total  compensation  expense  related  to  the  share  awards  of 
$11.1 million ($9.5 million for the year ended December 31, 2020) which includes $4.7 million of compensation expense related 
to the incentive award plan, deferred share unit plan and the associated equity total return swaps ($2.3 million for the year ended 
December 31, 2020).

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Baytex Energy Corp. 2021 Annual Report

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 year ended December 31, 2021 was $1.31 per restricted 
and performance award ($1.48 for the year ended December 31, 2020). 

The number of share awards outstanding is detailed below:

(000s)

Balance, December 31, 2019

Granted

Vested and converted to common shares

Forfeited

Balance, December 31, 2020

Granted

Added by performance factor

Vested and converted to common shares

Forfeited

Balance, December 31, 2021

Incentive Award Plan

Number of
 restricted 
awards

Number of
 performance 
awards

Total number of
 share awards

3,801 

2,239 

(1,730) 

(188) 

4,122 

— 

— 

(1,861) 

(168) 

2,093 

3,135 

3,253 

(1,192) 

(1,108) 

4,088 

4,067 

669 

(1,152) 

(291) 

7,381 

6,936 

5,492 

(2,922) 

(1,296) 

8,210 

4,067 

669 

(3,013) 

(459) 

9,474 

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.

During the year ended December 31, 2021, Baytex granted 5.0 million awards under the Incentive Award plan at a fair value of 
$1.33 per award (2.9 million awards at $1.50 per award for the year ended December 31, 2020). At December 31, 2021 there 
were 6.4 million awards outstanding under the Incentive Award plan (2.6 million awards outstanding at December 31, 2020).

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 year ended December 31, 2021, Baytex granted 0.9 million awards under the DSU plan at a fair value of $1.29 per 
award. At December 31, 2021, there were 0.8 million awards outstanding under the DSU plan.

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 Incentive Award plan and the DSU plan at the fair value determined on the grant date. The carrying value 
of the financial derivatives includes the fair value of the equity total return swap which was an asset of $6.5 million on December 
31,  2021  (December  31,  2020  -  liability  of  $1.1  million). At  December  31,  2021,  an  asset  of  $10.7  million  associated  with  the 
equity return swap is included in accounts payable as it relates to the settlement of cash compensation payable (December 31, 
2020 - a liability of $1.2 million).

Baytex Energy Corp. 2021 Annual Report

67

12. 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  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 
year.

Years Ended December 31

2021

Weighted 
average 
common 
shares 
(000's)

Net income

Net income 
per share

Net loss

2020

Weighted 
average 
common 
shares 
(000's)

Net loss per 
share

Net income (loss) - basic

$  1,613,600 

563,674  $ 

2.86  $ (2,438,964) 

560,657  $ 

(4.35) 

Dilutive effect of share awards

— 

7,936 

—   

— 

— 

— 

Net income (loss) - diluted

$  1,613,600 

571,610  $ 

2.82  $ (2,438,964) 

560,657  $ 

(4.35) 

For the year ended December 31, 2021, no share awards were excluded from the calculation of diluted income per share as their 
effect  was  dilutive.  For  the  year  ended  December  31,  2020,  all  share  awards  were  excluded  from  the  calculation  of  diluted 
earnings per share as their effect was anti-dilutive given the Company recorded a net loss. 

13. 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.

Years Ended December 31

2021

2020

Light oil and condensate

$ 

480,199  $ 

585,635  $  1,065,834  $ 

296,125  $ 

327,460  $ 

623,585 

Canada

U.S.

Total

Canada

U.S.

Total

Heavy oil

NGL

Natural gas sales

560,696 

18,904 

68,338 

— 

560,696 

236,235 

— 

236,235 

75,611 

78,812 

94,515 

147,150 

6,037 

33,344 

34,845 

41,431 

40,882 

74,775 

Total petroleum and natural gas sales

$  1,128,137  $ 

740,058  $  1,868,195  $ 

571,741  $ 

403,736  $ 

975,477 

Included  in  accounts  receivable  at  December  31,  2021  is  $154.0  million  of  accrued  receivables  related  to  delivered  volumes 
(December 31, 2020 - $81.3 million).

68

Baytex Energy Corp. 2021 Annual Report

14.

INCOME TAXES

The provision for income taxes has been computed as follows: 

Net income (loss) before income taxes 

Expected income taxes at the statutory rate of 25.12% (2020 – 25.42%)

(Increase) decrease in income tax recovery resulting from:

Share-based compensation

Effect of foreign exchange

Effect of change in income tax rates

Effect of rate adjustments for foreign jurisdictions

Effect of change in deferred tax benefit not recognized

Effect of U.S. tax change

Adjustments and assessments

Income tax expense (recovery)

Years Ended December 31

2021 

$ 

1,694,840  $ 

425,744 

1,605 

(841) 

(65) 

(21,746) 

(325,295) 

— 

1,838 

$ 

81,240  $ 

2020 

(2,599,357) 

(660,757) 

1,834 

1,017 

10,969 

22,375 

444,117 

19,807 

245 

(160,393) 

At  December  31,  2021,  a  deferred  tax  asset  of  $145.6  million  remains  unrecognized  due  to  uncertainty  surrounding  future 
commodity  prices  and  future  capital  gains  (December  31,  2020  -  $469.7  million).  These  deferred  income  tax  assets  relate  to 
capital losses of $237.4 million and non-capital losses of $461.1 million, which expire from 2033 to 2039.

In  June  2016,  certain  indirect  subsidiary  entities  received  reassessments  from  the  Canada  Revenue Agency  (the  “CRA”)  that 
denied $591 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.

A continuity of the net deferred income tax liability is detailed in the following tables:

As at

Taxable temporary differences:

January 1, 2021

Recognized in 
Net Income

Foreign 
Currency 
Translation 
Adjustment

December 31, 
2021

Petroleum and natural gas properties

$ 

(502,625) $ 

(257,800) $ 

(154) $ 

(760,579) 

Financial derivatives

Other

Deductible temporary differences:

Asset retirement obligations

Financial derivatives

Non-capital losses

Finance costs

— 

(22,377) 

187,840 

5,410 

241,514 

3,705 

— 

624 

(2,436) 

26,082 

104,479 

49,083 

— 

137 

(68) 

— 

(3,109) 

2,239 

— 

(21,616) 

185,336 

31,492 

342,884 

55,027 

Net deferred income tax liability(1)

$ 

(86,533) $ 

(79,968) $ 

(955) $ 

(167,456) 

(1) Non-capital loss carry-forwards at December 31, 2021 totaled $2.0 billion and expire from 2033 to 2039.

Baytex Energy Corp. 2021 Annual Report

69

As at

Taxable temporary differences:

January 1, 2020

Recognized in 
Net Loss

Foreign 
Currency 
Translation 
Adjustment

December 31, 
2020

Petroleum and natural gas properties

$ 

(881,994) $ 

378,321  $ 

1,048  $ 

(502,625) 

Financial derivatives

Other

Deductible temporary differences:

Asset retirement obligations

Financial derivatives

Non-capital losses

Finance costs

— 

(2,403) 

— 

(18,839) 

164,523 

802 

386,717 

97,047 

23,432 

4,608 

(141,468) 

(85,087) 

— 

(1,135) 

(115) 

— 

(3,735) 

(8,255) 

— 

(22,377) 

187,840 

5,410 

241,514 

3,705 

Net deferred income tax liability(1)

$ 

(235,308) $ 

160,967  $ 

(12,192) $ 

(86,533) 

(1) Non-capital loss carry-forwards at December 31, 2020 totaled $2.2 billion and expire from 2034 to 2040.

15. FINANCING AND INTEREST

Interest on credit facilities

Interest on long-term notes

Interest on lease obligations

Cash interest

Amortization of debt issue costs

Accretion of asset retirement obligations (note 9)

Early redemption expense (note 8)

Financing and interest

16. FOREIGN EXCHANGE

Unrealized foreign exchange loss - intercompany notes(1)
Unrealized foreign exchange gain - long-term notes & credit facilities

Realized foreign exchange gain

Foreign exchange (gain) loss

Years Ended December 31

2021 

13,300  $ 

78,546 

223 

92,069  $ 

4,858 

12,381 

1,851 

2020 

15,256 

90,830 

448 

106,534 

6,617 

8,978 

3,312 

111,159  $ 

125,441 

Years Ended December 31

2021 

12,000  $ 

(13,905) 

(963) 

(2,868) $ 

2020 

31,617 

(22,385) 

(544) 

8,688 

$ 

$ 

$ 

$ 

$ 

(1) During 2020, a series of intercompany notes totaling US$751.0 million were issued from a Canadian subsidiary to a U.S. subsidiary. During 
2021,  US$150.0  million  of  these  notes  were  redeemed  and  cancelled.  At  December  31,  2021,  US$601.0  million  of  this  series  of 
intercompany notes remained outstanding. 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 
subsidiary  are  recognized  in  unrealized  foreign  exchange  gain  or  loss  whereas  those  within  the  U.S.  subsidiary  are  recognized  in  other 
comprehensive income.

17. 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  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.

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Baytex Energy Corp. 2021 Annual Report

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: 

December 31, 2021

December 31, 2020

Carrying value

Fair value Carrying value

Fair value

Fair Value 
Measurement 
Hierarchy

Financial Assets

FVTPL

Financial Derivatives

Total

Amortized cost

Trade and other receivables

Total

Financial Liabilities

FVTPL

Financial Derivatives

Total

Amortized cost

$ 

$ 

$ 

$ 

$ 

$ 

8,654  $ 

8,654  $ 

8,654  $ 

8,654  $ 

5,057  $ 

5,057  $ 

5,057 

5,057 

Level 2

173,409  $ 

173,409  $ 

173,409  $ 

173,409  $ 

107,477  $ 

107,477  $ 

107,477 

107,477 

— 

(134,020) $ 

(134,020) $ 

(134,020) $ 

(134,020) $ 

(26,792) $ 

(26,792) $ 

(26,792) 

(26,792) 

Level 2

Trade and other payables

$ 

(190,692) $ 

(190,692) $ 

(155,955) $ 

(155,955) 

Credit Facilities

Long-term notes

Total

(505,171) 

(874,527) 

(506,514) 

(917,889) 

(649,221) 

(1,132,868) 

(651,173) 

(761,129) 

$ 

(1,570,390) $ 

(1,615,095) $ 

(1,938,044) $ 

(1,568,257) 

— 

— 

Level 1

There were no transfers between Level 1 and Level 2 during the years ended December 31, 2021 or 2020.

Foreign Currency Risk 

Baytex is exposed to fluctuations in foreign exchange rates as a result of the U.S. dollar portion of its credit facilities, long-term 
notes, intercompany notes, crude oil sales based on U.S. dollar benchmark prices and commodity financial derivative contracts 
that are settled in U.S. dollars. The Company's net income or loss, comprehensive income or loss and cash flow will therefore be 
impacted by fluctuations in foreign exchange rates.

A $0.01 increase or decrease in the CAD/USD foreign exchange rate on the revaluation of outstanding U.S. dollar denominated 
assets and liabilities would impact net income or loss before income taxes by approximately $2.3 million.

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:

U.S. dollar denominated

US$602,503 

US$759,508 

US$829,934 

US$934,731 

Assets

Liabilities

December 31, 2021

December 31, 2020

December 31, 2021

December 31, 2020

Interest Rate Risk 

The  Company's  interest  rate  risk  arises  from  borrowing  at  floating  rates  under  the  Credit  Facilities  (note  7).  Based  on  the 
principal  outstanding  on  the  Credit  Facilities  as  at  December  31,  2021,  a  change  of  100  basis  points  in  interest  rates  would 
impact net income or loss before income taxes by approximately $5.1 million. 

Baytex Energy Corp. 2021 Annual Report

71

Commodity Price Risk 

Baytex  utilizes  financial  derivative  contracts  or  physical  delivery  contracts  to  manage  the  risk  associated  with  changes  in 
commodity  prices.  The  use  of  derivatives  is  governed  by  a  Risk  Management  Policy  approved  by  the  Board  of  Directors  of 
Baytex  which  sets  out  limits  on  the  use  of  derivatives.  Baytex  does  not  use  financial  derivatives  for  speculative  purposes. 
Baytex's financial derivative contracts are subject to master netting agreements that create a legally enforceable right to offset by 
the counterparty the related financial assets and financial liabilities. 

When assessing the potential impact of crude oil price changes on the crude oil financial derivative contracts outstanding as at 
December 31, 2021, a US$1.00/bbl change in the underlying benchmark crude oil prices would impact net income or loss before 
income taxes by approximately $10.4 million.

When  assessing  the  potential  impact  of  natural  gas  price  changes  on  the  financial  derivative  contracts  outstanding  as  at 
December 31, 2021, a US$0.25 change in the underlying benchmark natural gas prices would impact net income or loss before 
income taxes by approximately $3.7 million.

72

Baytex Energy Corp. 2021 Annual Report

Financial Derivative Contracts

Baytex had the following commodity financial derivative contracts outstanding as at February 24, 2022.

Period

Volume

Price/Unit(1)

Oil
Basis swap

Basis swap
Basis swap(3)
Basis swap(3)
Fixed - Sell
3-way option(2)
3-way option(2)
3-way option(2)
3-way option(2)
3-way option(2)
3-way option(2)
3-way option(2)(3)

Natural Gas
Fixed - Sell

Fixed - Sell
Fixed - Sell
3-way option(2)
3-way option(2)
3-way option(2)
3-way option(2)
3-way option(2)

Jan 2022 to Dec 2022

12,000 bbl/d

WTI less US$12.40/bbl

Jan 2022 to Dec 2022

Feb 2022 to Jun 2022

Mar 2022 to Dec 2022

4,000 bbl/d

1,000 bbl/d

2,000 bbl/d

WTI less US$4.43/bbl

WTI less US$3.00/bbl

WTI less US$2.88/bbl

Jan 2022 to Dec 2022

10,000 bbl/d

US$53.50/bbl

Jan 2022 to Dec 2022

Jan 2022 to Dec 2022

Jan 2022 to Dec 2022

Jan 2022 to Dec 2022

Jan 2022 to Dec 2022

Jan 2023 to Dec 2023

Jan 2023 to Dec 2023

1,500 bbl/d

2,000 bbl/d

2,500 bbl/d

2,500 bbl/d

2,000 bbl/d

2,000 bbl/d

2,500 bbl/d

US$40.00/US$50.00/US$58.10

US$46.00/US$56.00/US$66.72

US$47.00/US$57.00/US$67.00

US$50.00/US$60.00/US$70.00

US$53.00/US$63.50/US$72.90

US$55.00/US$66.00/US$84.00

US$60.00/US$75.00/US$91.54

Jan 2022 to Dec 2022

5,000 GJ/d

$2.53/GJ

Jan 2022 to Dec 2022
Jan 2022 to Dec 2022

14,250 GJ/d
1,000 mmbtu/d

$2.84/GJ
US$2.94/mmbtu

Jan 2022 to Dec 2022

2,500 mmbtu/d

US$2.25/US$2.75/US$3.06

Jan 2022 to Dec 2022

1,500 mmbtu/d

US$2.60/US$2.91/US$3.56

Jan 2022 to Dec 2022

2,500 mmbtu/d

US$2.60/US$3.00/US$3.83

Jan 2022 to Dec 2022

2,500 mmbtu/d

US$2.65/US$2.90/US$3.40

Jan 2022 to Dec 2022

2,500 mmbtu/d

US$3.00/US$3.75/US$4.40

Index

WCS

MSW

MSW

MSW

WTI

WTI

WTI

WTI

WTI

WTI

WTI

WTI

AECO 7A

AECO 5A
NYMEX

NYMEX

NYMEX

NYMEX

NYMEX

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.
(3) Contracts entered subsequent to December 31, 2021.

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

Realized financial derivatives loss (gain)

Unrealized financial derivatives loss

Financial derivatives loss (gain)

Liquidity Risk

Years Ended December 31

$ 

$ 

2021 

184,241  $ 

103,631 

287,872  $ 

2020 

(47,836) 

18,500 

(29,336) 

Liquidity  risk  is  the  risk  that  Baytex  will  encounter  difficulty  in  meeting  obligations  associated  with  financial  liabilities.  Baytex 
manages  its  liquidity  risk  through  cash  and  debt  management.  Such  strategies  include  monitoring  forecasted  and  actual  cash 
flows  from  operating,  financing  and  investing  activities,  available  credit  under  existing  banking  arrangements,  opportunities  to 
issue additional common shares as well as reducing capital expenditures. 

As at December 31, 2021, Baytex had $506.5 million of principal amounts and $15.0 million of letters of credit outstanding on its 
Credit Facilities (December 31, 2020 - $651.2 million and $15.0 million, respectively) which have total availability of $1.0 billion 
(December 31, 2020 - $1.0 billion).

Baytex Energy Corp. 2021 Annual Report

73

The timing of cash outflows relating to financial liabilities as at December 31, 2021 is outlined in the table below:

Trade and other payables

$ 

190,692  $ 

Total

Financial derivatives
Credit facilities(1)(2)
Long-term notes(1)(3)
Interest on long-term notes(4)
Lease obligations(1)

134,020 

506,514 

885,920 

325,172 

8,014 

Less than 
1 year

190,692 

134,020 

— 

— 

69,608 

3,068 

1-3 years

3-5 years Beyond 5 years

—  $ 

— 

506,514 

253,120 

130,868 

3,989 

—  $ 

— 

— 

— 

110,740 

902 

— 

— 

— 

632,800 

13,956 

55 

$ 

2,050,332  $ 

397,388  $ 

894,491  $ 

111,642  $ 

646,811 

(1) Principal amount of instruments.
(2) The credit facilities mature on April 2, 2024 and will automatically be extended to June 4, 2024 providing the Company has either refinanced 

or has the ability to repay the outstanding 2024 long-term notes with existing credit capacity as of April 1, 2024.

(3) Principal  amount  of  instruments.  The  US$500  million  principal  amount  of  8.75%  senior  unsecured  notes  is  due  April  1,  2027  and  the 

US$200 million principal amount of the 5.625% senior unsecured notes is due June 1, 2024 (note 8). 

(4) Excludes  interest  on  credit  facilities  as  interest  payments  on  credit  facilities  fluctuate  based  on  amounts  outstanding  and  the  prevailing 

interest rate at the time of borrowing.

Credit Risk

Credit risk is the risk that a counterparty to a financial asset will default resulting in Baytex incurring a loss. As at December 31, 
2021,  the  Company  is  exposed  to  credit  risk  with  respect  to  its  trade  and  other  receivables  and  financial  derivatives.  Baytex 
manages these risks through the selection and monitoring of credit-worthy counterparties.

Most  of  the  Company's  trade  and  other  receivables  relate  to  petroleum  and  natural  gas  sales.  Baytex  reviews  its  exposure  to 
individual  entities  on  a  regular  basis  and  manages  its  credit  risk  by  entering  into  sales  contracts  after  reviewing  the 
creditworthiness of the entity. Letters of credit or parental guarantees may be obtained prior to the commencement of business 
with certain counterparties. Credit risk may also arise from financial derivative instruments. The maximum exposure to credit risk 
is equal to the carrying value of the financial assets. The Company considers all financial assets that are not impaired or past 
due to be of good credit quality.

The  majority  of  the  Company's  credit  exposure  on  trade  and  other  receivables  at  December  31,  2021  relates  to  accrued 
revenues. Accounts receivable from purchasers of the Company's petroleum and natural gas sales are typically collected on the 
25th day of the month following production. Joint interest receivables are typically collected within one to three months following 
production. Included in trade and other receivables at December 31, 2021 is $154.0 million (December 31, 2020 - $81.3 million) 
of accrued receivables related to delivered volumes. 

Should the Company determine that the ultimate collection of a receivable is in doubt, the carrying amount of trade and other 
receivables  is  reduced  by  adjusting  the  allowance  for  doubtful  accounts  and  recording  a  charge  to  net  income  or  loss.  If  the 
Company subsequently determines the accounts receivable is uncollectible, the receivable and allowance for doubtful accounts 
are  adjusted  accordingly. As  at  December  31,  2021,  allowance  for  doubtful  accounts  was  $2.6  million  (December  31,  2020  - 
$2.0 million). 

In determining whether amounts past due are collectible, the Company will assess the nature of the past due amounts as well as 
the credit worthiness and past payment history of the counterparty. As at December 31, 2021, accounts receivable that Baytex 
has  deemed  past  due  (more  than  90  days)  but  not  impaired  was $1.8  million  (December  31,  2020  -  $1.6  million).  Baytex  has 
estimated the lifetime expected credit loss as at and for the year ended December 31, 2021 to be nominal.

The Company's trade and other receivables, net of the allowance for doubtful accounts, were aged as follows at December 31, 
2021.

Trade and Other Receivables Aging

Current (less than 30 days)

31-60 days

61-90 days

Past due (more than 90 days)

74

Baytex Energy Corp. 2021 Annual Report

December 31, 2021

December 31, 2020

171,058  $ 

104,210 

441 

107 

1,803 

1,493 

220 

1,554 

173,409  $ 

107,477 

$ 

$ 

18. SUPPLEMENTAL INFORMATION

Changes in Non-Cash Working Capital Items

Trade and other receivables

Trade and other payables

Changes in non-cash working capital related to:

Operating activities

Investing activities

Foreign currency translation on non-cash working capital

Income Statement Presentation

Years Ended December 31

2021 

(65,932) $ 

34,737 

(31,195) $ 

(26,582) $ 

(2,797) 

(1,816) 

(31,195) $ 

2020 

66,285 

(51,499) 

14,786 

48,758 

(32,031) 

(1,941) 

14,786 

$ 

$ 

$ 

$ 

Baytex's consolidated statements of income or loss and comprehensive income or loss are prepared primarily according to the 
nature  of  expense,  with  the  exception  of  employee  compensation  costs  which  are  included  in  both  operating  expense  and 
general and administrative expense line items.

The following table details the amount of total employee compensation costs included in the operating expense and general and 
administrative expense.

Operating

General and administrative

Total employee compensation costs

19. COMMITMENTS

Years Ended December 31

2021 

11,053  $ 

29,538 

40,591  $ 

2020 

9,065 

22,802 

31,867 

$ 

$ 

Baytex  has  a  number  of  financial  obligations  that  are  incurred  in  the  ordinary  course  of  business.  These  obligations  are  of  a 
recurring  nature  and  impact  the  Company’s  cash  flow  from  operations  in  an  ongoing  manner.  A  significant  portion  of  these 
obligations will be funded by adjusted funds flow. These obligations as of December 31, 2021, and the expected timing of funding 
of these obligations, are noted in the table below.

Processing agreements

Transportation agreements

Total

$ 

$ 

Total

6,090 

81,182 

Less than
 1 year

753 

20,500 

1-3 years

3-5 years Beyond 5 years

890 

37,825 

530 

14,673 

3,917 

8,184 

87,272  $ 

21,253  $ 

38,715  $ 

15,203  $ 

12,101 

Baytex also has ongoing obligations related to the abandonment and reclamation of well sites and facilities which have reached 
the end of their economic lives. The present value of the future estimated abandonment and reclamation costs are included in 
the asset retirement obligations presented in the statements of financial position. Programs to abandon and reclaim wellsites and 
facilities are undertaken regularly in accordance with applicable legislative requirements.

Baytex Energy Corp. 2021 Annual Report

75

20. RELATED PARTIES

Transactions with key management personnel and directors are noted in the table below.

Short-term employee benefits

Share-based compensation

Total compensation for key management personnel

21. CAPITAL MANAGEMENT

Years Ended December 31

$ 

$ 

2021

5,995  $ 

5,917 

11,912  $ 

2020

4,295 

4,080 

8,375 

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  December  31,  2021,  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.

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.

The following table reconciles Net Debt to amounts disclosed in the primary financial statements.

December 31, 2021

December 31, 2020

Credit facilities

$ 

505,171  $ 

Unamortized debt issuance costs - Credit Facilities (note 7)

Long-term notes 

Unamortized debt issuance costs - Long-term notes (note 8)

Trade and other payables

Trade and other receivables

Net Debt

Adjusted Funds Flow

1,343 

874,527 

11,393 

190,692 

$ 

(173,409) 

1,409,717  $ 

649,221 

1,952 

1,132,868 

15,082 

155,955 

(107,477) 

1,847,601 

Adjusted Funds Flow is used to monitor operating performance and the Company's ability to generate funds for exploration and 
development expenditures, debt repayment, settlement of abandonment obligations and potential future dividends. Baytex also 
uses  a  Net  Debt  to Adjusted  Funds  Flow  ratio  calculated  on  a  twelve-month  trailing  basis  to  monitor  the  Company's  existing 
capital structure and future liquidity requirements.

Adjusted Funds Flow is reconciled to amounts disclosed in the primary financial statements in the following table.

Cash flows from operating activities

Change in non-cash working capital

Asset retirement obligations settled

Adjusted Funds Flow

Net Debt to Adjusted Funds Flow

76

Baytex Energy Corp. 2021 Annual Report

Years Ended December 31

2021

712,384  $ 

26,582 

6,662 

745,628  $ 

1.9 

2020

353,096 

(48,758) 

7,168 

311,506 

5.9 

$ 

$ 

Year-end 2021 Reserves

Baytex's year-end 2021 proved and probable reserves were evaluated by McDaniel & Associates Consultants Ltd. (“McDaniel”), an 
independent qualified reserves evaluator. All of our oil and gas properties were evaluated in accordance with National Instrument 
51-101 “Standards of Disclosure for Oil and Gas Activities” (“NI 51-101”) and the Canadian Oil and Gas Evaluation Handbook (the 
“COGE  Handbook”)  using  the  average  commodity  price  forecasts  and  inflation  rates  of  McDaniel,  GLJ  Petroleum  Consultants 
(“GLJ”)  and  Sproule Associates  Limited  (“Sproule”)  as  of  January  1, 2022.  Complete  reserves  disclosure  will  be  included  in  our 
Annual Information Form for the year ended December 31, 2021, which will be filed on or before March 31, 2022. 

Reserves Highlights

•

•

•
•

•

•

•

Proved developed producing ("PDP") reserves increased by 7%, from 120 mmboe to 129 mmboe. Proved reserves (“1P”)
total 278 mmboe (271 mmboe at year-end 2020) and proved plus probable reserves (“2P”) total 451 mmboe (462 mmboe
at year-end 2020).
Finding and development ("F&D") costs, including changes in future development costs (“FDC”), were $8.20/boe for PDP
reserves, $17.67/boe for 1P reserves and $24.55/boe for 2P reserves.
Generated a PDP recycle ratio of 4.5x and a 1P recycle ratio of 2.1x based on 2021 operating netback(2) of $36.52/boe.
Reserves on a 1P basis are comprised of 80% oil and NGL (36% light oil, 26% NGL’s, 17% heavy oil and 2% bitumen)
and  20%  natural  gas.  PDP  reserves  represent  46%  of  1P  reserves  (44%  at  year-end  2020)  and  1P  reserves  represent
62% of 2P reserves (59% at year-end 2020).
Baytex maintains a strong reserves life index of 4.4 years based on PDP reserves, 9.4 years based on 1P reserves and
15.3 years based on 2P reserves.
At year-end, 2021, the present value of our reserves, discounted at 10% before tax, is estimated to be $5.1 billion ($3.3
billion  at  year-end  2020). The  increase  is  largely  attributable  to  a  higher  commodity  price  forecast  being  utilized  by  our
reserves evaluator (consultant average of approximately US$70/bbl WTI).
Our net asset value at year-end 2021, discounted at 10% before tax, is $6.67 per share. This is based on the estimated
reserves value plus a value for undeveloped acreage, net of long-term debt and working capital.

(1)
(2)

Spending includes government grants received for abandonment and reclamations of $2 million in 2020, $3 million in 2021 and $15 million in 2022.
Specified financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable with the calculation of similar measures 
presented by other entities. Refer to the Specified Financial Measures section in this press release for further information.

Baytex Energy Corp. 2021 Annual Report

77

The following table sets forth our gross and net reserves volumes at December 31, 2021 by product type and reserves category. 
Please note that the data in the table may not add due to rounding.

Reserves Summary

Reserves Summary
Gross (1)

Proved producing

Light and 

Heavy 

Medium Oil Tight Oil

Oil Bitumen Total Oil

(mbbls)

(mbbls)

(mbbls)

(mbbls)

(mbbls)

Natural 
Gas 
Liquids (3)
(mbbls)

Conventional 
Natural Gas (4)
(mmcf)

Shale 
Gas

(mmcf)

Total (5)
(mboe)

18,564 

26,623 

23,735 

641 

69,564 

31,853 

65,234 

99,778 

128,919 

Proved developed non-producing

664 

314 

765 

— 

1,743 

26,781 

26,278 

21,503 

4,197 

78,759 

46,009 

53,216 

46,003 

4,838 

150,067 

23,296 

21,485 

29,705 

45,874 

120,360 

69,305 

74,701 

75,709 

50,713 

270,427 

852 

39,431 

72,137 

27,751 

99,888 

1,973 

2,448 

3,333 

37,216 

129,213 

145,929 

104,423 

231,439 

278,181 

62,394 

84,928 

172,665 

166,817 

316,367 

450,846 

Proved undeveloped

Total proved

Total probable

Proved plus probable
Net (2)

Proved producing

17,436 

19,797 

20,775 

575 

58,583 

23,735 

58,749 

74,461 

104,519 

Proved developed non-producing

617 

232 

689 

— 

1,538 

Proved undeveloped

Total proved

Total probable

Proved plus probable

24,891 

19,882 

19,139 

3,857 

67,769 

42,944 

39,911 

40,602 

4,432 

127,890 

21,399 

16,404 

25,547 

37,186 

100,535 

64,343 

56,315 

66,149 

41,618 

228,425 

630 

29,521 

53,885 

20,970 

74,856 

1,687 

1,812 

2,751 

34,310 

96,601 

119,108 

94,745 

172,874 

226,378 

56,747 

64,506 

141,715 

151,492 

237,381 

368,093 

“Gross” reserves means the total working interest share of remaining recoverable reserves owned by Baytex before deductions of royalties payable to others.
“Net” reserves means Baytex's gross reserves less all royalties payable to others plus royalty interest reserves.

Notes:
(1)
(2)
(3) Natural Gas Liquids includes condensate.
(4) Conventional Natural Gas includes associated, non-associated and solution gas.
(5) Oil  equivalent  amounts  have  been  calculated  using  a  conversion  rate  of  six  thousand  cubic  feet  of  natural  gas  to  one  barrel  of  oil.    BOEs  may  be  misleading, 
particularly if used in isolation.  A boe conversion ratio of six thousand cubic feet of natural gas to one barrel of oil is based on an energy equivalency conversion 
method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

78

Baytex Energy Corp. 2021 Annual Report

Reserves Reconciliation 

The following table reconciles the year-over-year changes in our gross reserves volumes by product type and reserves category. 
Please note that the data in the table may not add due to rounding.

Proved Reserves – Gross Volumes (1) (Forecast Prices)

December 31, 2020

Extensions
Technical Revisions (2)
Acquisitions

Dispositions

Economic Factors

Production

December 31, 2021

Light and 

Heavy 

Medium Oil Tight Oil

Oil Bitumen Total Oil

(mbbls)

(mbbls)

(mbbls)

(mbbls)

(mbbls)

Natural 
Gas 
Liquids (3)
(mbbls)

Conventional 
Natural Gas (4)
(mmcf)

Shale 
Gas

(mmcf)

Total (5)
(mboe)

52,067 

53,316 

35,412 

5,737 

146,532 

72,475 

87,894 

226,334 

271,378 

3,227 

4,370 

(6,059) 

3 

(2) 

2,509 

520 

— 

(20) 

612 

8,977 

2,949 

1,228 

(260) 

5,160 

— 

16,574 

4,294 

16,032 

16,165 

26,234 

(394)   

(2,984) 

(1,379) 

(1,649) 

1,599 

(4,372) 

— 

— 

1,231 

(282) 

— 

(19) 

— 

(313) 

— 

(35) 

1,231 

(360) 

130 

8,411 

1,159 

20,547 

1,995 

13,326 

(5,734)   

(5,581)   

(7,464) 

(635)    (19,414) 

(4,392) 

(18,088)    (14,619) 

(29,257) 

46,009 

53,216 

46,003 

4,838 

150,067 

72,137 

104,423 

231,439 

278,181 

Probable Reserves – Gross Volumes (1) (Forecast Prices)

December 31, 2020

Extensions
Technical Revisions (2)
Acquisitions

Dispositions

Economic Factors

Production

December 31, 2021

Light and 

Heavy 

Medium Oil Tight Oil

Oil Bitumen Total Oil

(mbbls)

(mbbls)

(mbbls)

(mbbls)

(mbbls)

Natural 
Gas 
Liquids (3)
(mbbls)

Conventional 
Natural Gas (4)
(mmcf)

Shale 
Gas

(mmcf)

Total (5)
(mboe)

25,688 

24,642 

30,544 

46,093 

126,967 

32,760 

86,778 

96,852 

190,332 

2,413   

(2,315)   

(760) 

— 

(663) 

(5,357)   

(1,018)   

(1,721) 

(216)   

(8,312) 

— 

(5) 

556 

— 

— 

(5) 

182 

— 

458 

(225) 

1,409 

— 

— 

— 

(2) 

— 

458 

(235) 

2,145 

— 

(2,989) 

(1,634) 

— 

(258) 

(127) 

— 

(9,810)    (10,055) 

(6,963) 

(70)   

(2,403) 

(10,359) 

— 

(7,224) 

(7,280) 

— 

— 

(9) 

543 

— 

458 

(1,699) 

895 

— 

23,296 

21,485 

29,705 

45,874 

120,360 

27,751 

62,394 

84,928 

172,665 

Proved Plus Probable Reserves – Gross Volumes (1) (Forecast Prices)

December 31, 2020

Extensions
Technical Revisions (2)
Acquisitions

Dispositions

Economic Factors

Production

December 31, 2021

Light and 

Heavy 

Medium Oil Tight Oil

Oil Bitumen Total Oil

(mbbls)

(mbbls)

(mbbls)

(mbbls)

(mbbls)

Natural 
Gas 
Liquids (3)
(mbbls)

Conventional 
Natural Gas (4)
(mmcf)

Shale 
Gas

(mmcf)

Total (5)
(mboe)

77,755 

77,958 

65,956 

51,830 

273,499 

105,235 

174,671 

323,186 

461,710 

5,640 

2,054 

(11,416) 

(498) 

3 

(7) 

3,065 

— 

(26) 

794 

8,217 

1,228 

1,686 

(485) 

6,570 

— 

15,911 

1,304 

6,222 

6,110 

19,271 

(610)    (11,296) 

(3,013) 

(1,719) 

(804) 

(14,730) 

— 

— 

1,689 

(517) 

127 

10,556 

— 

(278) 

1,031 

— 

(7,536) 

— 

(45) 

1,689 

(2,058) 

13,267 

2,538 

14,221 

(5,734)   

(5,581)   

(7,464) 

(635)    (19,414) 

(4,392) 

(18,088)    (14,619) 

(29,257) 

69,305 

74,701 

75,709 

50,713 

270,427 

99,888 

166,817 

316,367 

450,846 

Notes:
(1)
“Gross” reserves means the total working interest share of remaining recoverable reserves owned by Baytex before deductions of royalties payable to others.
(2) Negative revisions in light and medium oil are predominantly associated with our Viking asset and due to variations in performance versus previous forecasts and 

the removal of inventory locations with higher finding and development costs.  

(3) Natural gas liquids include condensate.
(4) Conventional natural gas includes associated, non-associated and solution gas.
(5) Oil  equivalent  amounts  have  been  calculated  using  a  conversion  rate  of  six  thousand  cubic  feet  of  natural  gas  to  one  barrel  of  oil.    BOEs  may  be  misleading, 
particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas to one barrel of oil is based on an energy equivalency conversion 
method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Baytex Energy Corp. 2021 Annual Report

79

Future Development Costs

The  following  table  sets  forth  future  development  costs  deducted  in  the  estimation  of  the  future  net  revenue  attributable  to  the 
reserves categories noted below.

Future Development Costs ($ millions)
2022

Proved
Reserves
416 

Proved Plus 
Probable Reserves
423 

2023

2024

2025

2026

Remainder

Total FDC undiscounted

506 

517 

489 

398 

84 

2,410 

540 

562 

581 

657 

987 

3,750 

F&D and FD&A Costs – including future development costs

Based on the evaluation of our petroleum and natural gas reserves prepared by McDaniel, the efficiency of our capital program is 
summarized in the following table.

$ millions except for per boe amounts

Proved plus Probable Reserves

Finding & Development Costs

Exploration and development expenditures

Net change in Future Development Costs

Gross Reserves additions (mmboe)

F&D Costs ($/boe)

Finding, Development & Acquisition (“FD&A”) Costs

Exploration and development expenditures and net acquisitions

Net change in Future Development Costs

Gross Reserves additions (mmboe)

FD&A Costs ($/boe)

Proved Reserves

Finding & Development Costs

Exploration and development expenditures

Net change in Future Development Costs

Gross Reserves additions (mmboe)

F&D Costs ($/boe)

Finding, Development & Acquisition Costs

Exploration and development expenditures and net acquisitions

Net change in Future Development Costs

Gross Reserves additions (mmboe)

FD&A Costs ($/boe)

Proved Developed Producing Reserves

Finding & Development Costs

Exploration and development expenditures

Gross Reserves additions (mmboe)

F&D Costs ($/boe)

Finding, Development & Acquisition Costs

Exploration and development expenditures and net acquisitions

Gross Reserves additions (mmboe)

FD&A Costs ($/boe)

80

Baytex Energy Corp. 2021 Annual Report

2021

2020

2019

3 Year

313.3  $ 

147.4  $ 

18.8 

24.55  $ 

307.1  $ 

144.4  $ 

18.4 

24.55  $ 

313.3  $ 

308.6  $ 

35.2 

17.67  $ 

307.1  $ 

316.8  $ 

36.1 

17.30  $ 

313.3  $ 

38.2 

8.20  $ 

307.1  $ 

38.1 

8.06  $ 

280.3  $ 

(705.9)  $ 

(38.4) 

11.08  $ 

280.2  $ 

(709.3)  $ 

(38.6) 

11.12  $ 

280.3  $ 

(464.4)  $ 

(13.1) 

14.06  $ 

280.2  $ 

(464.4)  $ 

(13.1) 

14.07  $ 

280.3  $ 

7.7 

36.63  $ 

280.2  $ 

7.6 

36.64  $ 

552.3  $ 

96.7  $ 

39.8 

16.30  $ 

554.5  $ 

79.9  $ 

38.6 

16.42  $ 

552.3  $ 

(90.4)  $ 

35.8 

12.92  $ 

554.5  $ 

(107.2)  $ 

34.7 

12.88  $ 

1,145.9 

(461.8) 

20.2 

33.92 

1,141.7 

(485.0) 

18.5 

35.59 

1,145.9 

(246.2) 

57.9 

15.55 

1,141.7 

(254.7) 

57.7 

15.38 

552.3  $ 

1,145.9 

42.5 

13.04  $ 

88.2 

12.99 

554.5  $ 

1,141.7 

42.5 

13.04  $ 

88.3 

12.93 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

Reserves Life Index

The following table sets forth our reserves life index, which is calculated by dividing our proved and proved plus probable reserves 
at year-end 2021 by annualized Q4/2021 production. 

Q4/2021
Production

66,452 

86,029 

80,789 

Reserves Life Index (years)

Proved

9.2 

10.7 

9.4 

Proved Plus 
Probable

15.3 

15.4 

15.3 

Crude Oil and NGL (bbl/d)

Natural Gas (mcf/d)

Oil Equivalent (boe/d)

Forecast Prices and Costs

The following table summarizes the forecast prices used in preparing the estimated reserves volumes and the net present values of 
future net revenues at December 31, 2021. The estimated future net revenue to be derived from the production of the reserves is 
based on the following average of the price forecasts of McDaniel, GLJ and Sproule as of January 1, 2022. 

WTI Crude Oil
US$/bbl

Edmonton Light
Crude Oil
 $/bbl

Western 
Canadian Select
$/bbl

Henry Hub
US$/MMbtu

AECO Spot
 $/MMbtu

Inflation Rate 
%/Yr

Exchange Rate
$US/$Cdn

Year
2021 act.

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

67.95 

72.83 

68.78 

66.76 

68.09 

69.45 

70.84 

72.26 

73.70 

75.18 

76.68 

80.25 

86.82 

80.73 

78.01 

79.57 

81.16 

82.78 

84.44 

86.13 

87.85 

89.61 

68.80 

74.42 

69.17 

66.54 

67.87 

69.23 

70.61 

72.02 

73.46 

74.69 

76.19 

3.90 

3.85 

3.44 

3.17 

3.24 

3.30 

3.37 

3.44 

3.50 

3.58 

3.65 

3.55 

3.56 

3.21 

3.05 

3.11 

3.17 

3.23 

3.30 

3.36 

3.43 

3.50 

 1.4 

 — 

 2.3 

 2.0 

 2.0 

 2.0 

 2.0 

 2.0 

 2.0 

 2.0 

 2.0 

 2.0 

0.800 

0.797 

0.797 

0.797 

0.797 

0.797 

0.797 

0.797 

0.797 

0.797 

0.797 

0.797 

Thereafter

Escalation rate of 2.0%

Net Present Value of Reserves (1) (Forecast Prices and Costs)

The  following  table  summarizes  the  McDaniel  estimate  of  the  net  present  value  before  income  taxes  of  the  future  net  revenue 
attributable to our reserves.

Reserves at December 31, 2021 ($ millions, discounted at)

Proved developed producing

Proved developed non-producing

Proved undeveloped

Total proved

Probable

Total Proved Plus Probable (before tax)

Note:

0%

2,399 

94 

2,852 

5,345 

4,596 

9,941 

5%

2,235 

72 

1,948 

4,255 

2,554 

6,809 

10%

1,988 

60 

1,399 

3,448 

1,636 

5,084 

15%

1,787 

52 

1,040 

2,880 

1,149 

4,029 

(1)

Includes abandonment, decommissioning and reclamation costs for all producing and non-producing wells and facilities.

Baytex Energy Corp. 2021 Annual Report

81

Net Asset Value (Forecast Prices and Costs)

Our  estimated  net  asset  value  is  based  on  the  estimated  net  present  value  of  all  future  net  revenue  from  our  reserves,  before 
income  taxes,  as  estimated  by  McDaniel  at  year-end,  plus  the  estimated  value  of  our  undeveloped  land  holdings,  less  net  debt. 
This calculation can vary significantly depending on the oil and natural gas price assumptions. In addition, this calculation does not 
consider  "going  concern"  value  and  assumes  only  the  reserves  identified  in  the  reserves  report  with  no  further  acquisitions  or 
incremental development.

The following table sets forth our net asset value as at December 31, 2021.

($ millions, except per share amounts, discounted at)
Net present value of proved plus probable reserves (1)
Undeveloped land holdings (2)
Net Debt (4)
Net Asset Value
Net Asset Value per Share (3)

5%

6,809 

89 

(1,410) 

5,488 

9.73 

10%

5,084 

89 

(1,410) 

3,763 

6.67 

15%

4,029 

89 

(1,410) 

2,708 

4.80 

Notes:
(1)
(2)
(3)
(4) Capital management measure. Refer to the Specified Financial Measures section in this press release for further information.

Includes abandonment, decommissioning and reclamation costs for all producing and non-producing wells and facilities.
The value of undeveloped land holdings generally represents the estimated replacement cost of our undeveloped land.  
Based on 564.2 million common shares outstanding as at December 31, 2021. 

Additional Information

Our audited consolidated financial statements for the year ended December 31, 2021 and the related Management's Discussion 
and Analysis of the operating and financial results can be accessed on our website at www.baytexenergy.com and will be available 
shortly through SEDAR at www.sedar.com and EDGAR at www.sec.gov/edgar.shtml.

Advisory Regarding Forward-Looking Statements

In the interest of providing Baytex's shareholders and potential investors with information regarding Baytex, including management's assessment of 
Baytex's  future  plans  and  operations,  certain  statements  in  this  press  release  are  "forward-looking  statements"  within  the  meaning  of  the  United 
States  Private  Securities  Litigation  Reform  Act  of  1995  and  "forward-looking  information"  within  the  meaning  of  applicable  Canadian  securities 
legislation  (collectively,  "forward-looking  statements").  In  some  cases,  forward-looking  statements  can  be  identified  by  terminology  such  as 
"believe",  "continue",  ""estimate",  "expect",  "forecast",  "intend",  "may",  "objective",  "ongoing",  "outlook",  "potential",  "project",  "plan",  "should", 
"target", "would", "will" or similar words suggesting future outcomes, events or performance.  The forward-looking statements contained in this press 
release speak only as of the date thereof and are expressly qualified by this cautionary statement.

Specifically, this press release contains forward-looking statements relating to but not limited to: our business strategies, plans and objectives; that 
we expect to generate more than $550 million of free cash flow in 2022 and reach our $1.2 billion net debt target in Q2/2022; the next phase of our 
return of capital frame work, which includes allocating 25% of free cash flow to share buy backs starting in Q2/2022; in 2022 that: we expect to 
benefit from our diversified oil weighted portfolio and a commitment to allocate capital effectively and our program is designed to generate stable 
production while scaling up development in the Clearwater; our guidance for 2022 exploration and development expenditures, production, royalty 
rate,  operating,  transportation,  general  and  administration  and  interest  expense  and  leasing  expenditures  and  asset  retirement  obligations;  we 
expect  to  allocate  25%  of  free  cash  flow  to  share  buy  backs  starting  in  Q2/2022  with  the  remainder  of  our  free  cash  flow  allocated  to  debt 
repayment  until  we  achieve  a  net  debt  level  of  $800  million,  our  expected  net  debt  to  EBITDA  ratios  at  such  net  debt  level  at  $US55  WTI  and 
$US75 WTI and our expectation that we will achieve that net debt level by mid-2023 at which point we will consider enhanced shareholder returns; 
in the Eagle Ford that we expect to bring 14 net wells onstream in 2022; in the Viking that we expect to bring 145 nets wells onstream in 2022; in 
2022, that we will drill ~9 net Bluesky wells at Peace River and 37 net wells at Lloydminster; we have 125 sections that are highly prospective for 
Clearwater development; we have a follow-up Clearwater well scheduled on our legacy Seal lands in H2/2022; we are drilling 10 wells in Q1/2022 
on our Peavine lands and expect to bring 18 wells onstream in 2022; our Clearwater play holds the potential for greater than 200 locations, has 
strong economics and the ability to grow organically while enhancing free cash flow; in Duvernay that we are drilling a three well pad expected to be 
onstream  in  Q3/2022;  that  we  use  financial  derivative  contracts  and  crude-by-rail  to  reduce  adjusted  funds  flow  volatility,  the  percentage  of  our 
expected production in 2022 of Canadian light oil and heavy oil for which we have hedged the differential to WTI and the percentage of our 2022 
and  2023  net  crude  exposure  that  is  hedged;  that  we  are  committed  to  monitoring  GHG  emissions,  setting  targets  and  pursuing  cost-effective 

82

Baytex Energy Corp. 2021 Annual Report

decarbonization strategies; our 2025 GHG emissions intensity reduction target and our strategies to reach the target; our 2022 expected spending 
on GHG mitigation; our commitment to abandon and reclaim 4,500 wells by 2040, the number of wells we expect to abandon and our expected 
2022  spending  on  abandonment  and  reclamation;  future  development  costs,  F&D  and  FD&A;  our  reserves  life  index;  forecast  prices  for  oil  and 
natural gas; forecast inflation and exchange rates; the net present value before income taxes of the future net revenue attributable to our reserves; 
the  value  of  our  undeveloped  land  holdings  and  our  estimated  net  asset  value.  In  addition,  information  and  statements  relating  to  reserves  are 
deemed  to  be  forward-looking  statements,  as  they  involve  implied  assessment,  based  on  certain  estimates  and  assumptions,  that  the  reserves 
described exist in quantities predicted or estimated, and that they can be profitably produced in the future. 

These  forward-looking  statements  are  based  on  certain  key  assumptions  regarding,  among  other  things:  petroleum  and  natural  gas  prices  and 
differentials  between  light,  medium  and  heavy  oil  prices;  well  production  rates  and  reserve  volumes;  our  ability  to  add  production  and  reserves 
through our exploration and development activities; capital expenditure levels; our ability to borrow under our credit agreements; the receipt, in a 
timely manner, of regulatory and other required approvals for our operating activities; the availability and cost of labour and other industry services; 
interest and foreign exchange rates; the continuance of existing and, in certain circumstances, proposed tax, carbon tax and royalty regimes; our 
ability  to  develop  our  crude  oil  and  natural  gas  properties  in  the  manner  currently  contemplated;  and  current  industry  conditions,  laws  and 
regulations continuing in effect (or, where changes are proposed, such changes being adopted as anticipated). Readers are cautioned that such 
assumptions, although considered reasonable by Baytex at the time of preparation, may prove to be incorrect.

Actual results achieved will vary from the information provided herein as a result of numerous known and unknown risks and uncertainties and other 
factors.  Such  factors  include,  but  are  not  limited  to:  the  volatility  of  oil  and  natural  gas  prices  and  price  differentials  (including  the  impacts  of 
Covid-19); restrictions or costs imposed by climate change initiatives and the physical risks of climate change; risks associated with our ability to 
develop our properties and add reserves; the impact of an energy transition on demand for petroleum productions; changes in income tax or other 
laws or government incentive programs; availability and cost of gathering, processing and pipeline systems; retaining or replacing our leadership 
and  key  personnel;  the  availability  and  cost  of  capital  or  borrowing;  risks  associated  with  a  third-party  operating  our  Eagle  Ford  properties;  risks 
associated with large projects; costs to develop and operate our properties; public perception and its influence on the regulatory regime; current or 
future  control,  legislation  or  regulations;  new  regulations  on  hydraulic  fracturing;  restrictions  on  or  access  to  water  or  other  fluids;  regulations 
regarding the disposal of fluids; risks associated with our hedging activities; variations in interest rates and foreign exchange rates; uncertainties 
associated  with  estimating  oil  and  natural  gas  reserves;  our  inability  to  fully  insure  against  all  risks;  additional  risks  associated  with  our  thermal 
heavy oil projects; our ability to compete with other organizations in the oil and gas industry; risks associated with our use of information technology 
systems; results of litigation; that our credit facilities may not provide sufficient liquidity or may not be renewed; failure to comply with the covenants 
in  our  debt  agreements;  risks  of  counterparty  default;  the  impact  of  Indigenous  claims;  risks  associated  with  expansion  into  new  activities;  risks 
associated  with  the  ownership  of  our  securities,  including  changes  in  market-based  factors;  risks  for  United  States  and  other  non-resident 
shareholders, including the ability to enforce civil remedies, differing practices for reporting reserves and production, additional taxation applicable 
to non-residents and foreign exchange risk; and other factors, many of which are beyond our control.

These and additional risk factors are discussed in our Annual Information Form, Annual Report on Form 40-F and Management's Discussion and 
Analysis for the year ended December 31, 2021, to be filed with Canadian securities regulatory authorities and the U.S. Securities and Exchange 
Commission not later than March 31, 2022 and in our other public filings.

The  above  summary  of  assumptions  and  risks  related  to  forward-looking  statements  has  been  provided  in  order  to  provide  shareholders  and 
potential investors with a more complete perspective on Baytex’s current and future operations and such information may not be appropriate for 
other purposes.

There is no representation by Baytex that actual results achieved will be the same in whole or in part as those referenced in the forward-looking 
statements and Baytex does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as 
a result of new information, future events or otherwise, except as may be required by applicable securities law.

All amounts in this press release are stated in Canadian dollars unless otherwise specified.

Specified Financial Measures

In this press release, we refer to certain financial measures (such as free cash flow, operating netback, average royalty rate and total sales, net of 
blending and other expense) which do not have any standardized meaning prescribed by IFRS. While free cash flow and operating netback are 
commonly used in the oil and gas industry, our determination of these measures may not be comparable with calculations of similar measures for 
other  issuers.  In  addition,  this  press  release  contains  the  terms  adjusted  funds  flow  and  net  debt,  which  are  considered  capital  management 
measures.

Non-GAAP Financial Measures

Total sales, net of blending and other expense

Total  sales,  net  of  blending  and  other  expense  is  not  a  measurement  based  on  GAAP  in  Canada  and  represents  the  revenues  realized  from 
produced volumes during a period. Total sales, net of blending and other expense is comprised of total petroleum and natural gas sales adjusted 
for blending and other expense. We believe including the blending and other expense associated with purchased volumes is useful when analyzing 
our realized pricing for produced volumes against benchmark commodity prices.

Baytex Energy Corp. 2021 Annual Report

83

Operating netback

Operating netback is not a measurement based on GAAP in Canada, but is a financial term commonly used in the oil and gas industry.  Operating 
netback  is  equal  to  petroleum  and  natural  gas  sales  less  blending  expense,  royalties,  production  and  operating  expense  and  transportation 
expense. Our determination of operating netback may not be comparable with the calculation of similar measures for other entities.  We believe that 
this measure assists in characterizing our ability to generate cash margin on a unit of production basis and is a key measure used to evaluate our 
operating performance.

The following table reconciles total sales, net of blending and other expense and operating netback to petroleum and natural gas sales.

($ thousands)

Petroleum and natural gas sales

Blending and other expense

Total sales, net of blending and other expense

Royalties

Operating expense

Transportation expense

Operating netback

Free cash flow

Years Ended December 31

2021

$ 

1,868,195  $ 

(85,689) 

1,782,506 

(339,156) 

(343,002) 

(32,261) 

1,068,087 

2020

975,477 

(48,381) 

927,096 

(163,735) 

(331,345) 

(28,437) 

403,579 

Free  cash  flow  is  not  a  measurement  based  on  GAAP  in  Canada.  We  define  free  cash  flow  as  cash  flows  from  operating  activities  adjusted  for 
changes  in  non-cash  working  capital,  additions  to  exploration  and  evaluation  assets,  additions  to  oil  and  gas  properties  and  payments  on  lease 
obligations. Our determination of free cash flow may not be comparable to other issuers. We use free cash flow to evaluate funds available for debt 
repayment, common share repurchases, potential future dividends and acquisition and disposition opportunities.
Free cash flow is reconciled to cash flows from operating activities in the following table.

($ thousands)

Cash flows from operating activities

Change in non-cash working capital

Additions to exploration and evaluation assets

Additions to oil and gas properties

Payments on lease obligations

Free cash flow

Non-GAAP Financial Ratios

Total sales, net of blending and other expense per boe

Years Ended December 31

2021

712,384  $ 

26,582 

(3,298) 

(310,005) 

(4,334) 

421,329  $ 

2020

353,096 

(48,758) 

(4,490) 

(275,850) 

(5,925) 

18,073 

$ 

$ 

Total  sales,  net  of  blending  and  other  per  boe  is  used  to  compare  our  realized  pricing  to  applicable  benchmark  prices  and  is  calculated  as  total 
sales, net of blending and other expense divided by barrels of oil equivalent production volume for the applicable period.

Average royalty rate

Average royalty rate is used to evaluate the performance of our operations from period to period and is comprised of royalties divided by total sales, 
net of blending and other expense. The actual royalty rates can vary for a number of reasons, including the commodity produced, royalty contract 
terms, commodity price level, royalty incentives and the area or jurisdiction.

Operating netback per boe

Operating netback per boe is equal to operating netback divided by barrels of oil equivalent sales volume for the applicable period and is used to 
assess our operating performance on a unit of production basis.

84

Baytex Energy Corp. 2021 Annual Report

Capital Management Measures

Net debt

We define net debt to be the sum of our credit facilities and long-term notes outstanding adjusted for unamortized debt issuance costs, trade and 
other  payables,  cash  and  trade  and  other  receivables.  Our  definition  of  net  debt  may  not  be  comparable  to  other  issuers.  We  believe  that  this 
measure assists in providing a more complete understanding of our cash liabilities and provides a key measure to assess our liquidity. We use the 
principal  amounts  of  the  credit  facilities  and  long-term  notes  outstanding  in  the  calculation  of  net  debt  as  these  amounts  represent  our  ultimate 
repayment obligation at maturity. The carrying amount of debt issue costs associated with the credit facilities and long-term notes is excluded on 
the basis that these amounts have already been paid by Baytex at inception of the contract and do not represent an additional source of capital or 
repayment obligation.

The following table summarizes our calculation of net debt.

($ thousands)

Credit facilities
Unamortized debt issuance costs - Credit facilities(1)

Long-term notes
Unamortized debt issuance costs - Long-term notes(1)

Trade and other payables

Trade and other receivables

Net debt

December 31, 2021

December 31, 2020

$ 

505,171  $ 

1,343 

874,527 

11,393 

190,692 

(173,409) 

1,409,717  $ 

$ 

649,221 

1,952 

1,132,868 

15,082 

155,955 

(107,477) 

1,847,601 

(1) Unamortized debt issuance costs were obtained from Note 7 Credit Facilities and Note 8 Long-term Notes from the Consolidated Financial Statements for the year 

ended December 31, 2021.

Adjusted funds flow

Adjusted  funds  flow  is  a  financial  term  commonly  used  in  the  oil  and  gas  industry.  We  define  adjusted  funds  flow  as  cash  flow  from  operating 
activities adjusted for changes in non-cash operating working capital and asset retirement obligations settled. Our determination of adjusted funds 
flow  may  not  be  comparable  to  other  issuers.  We  consider  adjusted  funds  flow  a  key  measure  that  provides  a  more  complete  understanding  of 
operating  performance  and  our  ability  to  generate  funds  for  exploration  and  development  expenditures,  debt  repayment,  settlement  of  our 
abandonment obligations and potential future dividends.

Adjusted funds flow is reconciled to amounts disclosed in the primary financial statements in the following table.

($ thousands)

Cash flows from operating activities

Change in non-cash working capital

Asset retirement obligations settled

Adjusted funds flow

Advisory Regarding Oil and Gas Information

Years Ended December 31

2021

712,384  $ 

26,582 

6,662 

745,628  $ 

2020

353,096 

(48,758) 

7,168 

311,506 

$ 

$ 

The  reserves  information  contained  in  this  press  release  has  been  prepared  in  accordance  with  NI  51-101.    Complete  NI  51-101  reserves 
disclosure will be included in our Annual Information Form for the year ended December 31, 2021, which will be filed on or before March 31, 2022. 
Listed below are cautionary statements that are specifically required by NI 51-101:

•

•

•

The term barrels of oil equivalent (“boe”) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic
feet of natural gas to one boe (6 mcf/bbl) is based on an energy equivalency conversion method primarily applicable at the burner tip and
does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to
natural  gas  is  significantly  different  from  the  energy  equivalency  of  6:1,  utilizing  a  conversion  on  a  6:1  basis  may  be  misleading  as  an
indication of value.
With  respect  to  finding  and  development  costs,  the  aggregate  of  the  exploration  and  development  costs  incurred  in  the  most  recent
financial  year  and  the  change  during  that  year  in  estimated  future  development  costs  generally  will  not  reflect  total  finding  and
development costs related to reserves additions for that year.
This  press  release  contains  estimates  of  the  net  present  value  of  our  future  net  revenue  from  our  reserves.  Such  amounts  do  not
represent the fair market value of our reserves.

Baytex Energy Corp. 2021 Annual Report

85

Throughout this press release, “oil and NGL” refers to heavy oil, bitumen, light and medium oil, tight oil, condensate and natural gas liquids (“NGL”) 
product  types  as  defined  by  NI  51-101.  The  following  table  shows  Baytex’s  disaggregated  production  volumes  for  the  three  and  twelve  months 
ended December 31, 2021. The NI 51-101 product types are included as follows: “Heavy Oil” - heavy oil and bitumen, “Light and Medium Oil” - light 
and medium oil, tight oil and condensate, “NGL” - natural gas liquids and “Natural Gas” - shale gas and conventional natural gas.

Three Months Ended December 31, 2021

Twelve Months Ended December 31, 2021

Heavy Oil 
(bbl/d)

Light and 
Medium 
Oil (bbl/d)

NGL
 (bbl/d)

Natural 
Gas
 (Mcf/d)

Oil 
Equivalent 
(boe/d)

Heavy Oil 
(bbl/d)

Light and 
Medium 
Oil (bbl/d)

NGL
 (bbl/d)

Natural 
Gas
 (Mcf/d)

Oil 
Equivalent 
(boe/d)

11,491 

10,566 

1,425 

8 

12 

— 

— 

— 

— 

14,200 

1,475 

693 

22 

— 

— 

166 

733 

792 

11,027 

1,677 

— 

13,359 

10,858 

1,425 

11,198 

10,202 

788 

7 

6 

— 

11,679 

16,313 

2,766 

25,524 

2,668 

5,739 

— 

— 

— 

15,277 

1,047 

606 

23 

— 

— 

146 

598 

904 

11,408 

1,448 

— 

13,130 

10,449 

788 

11,133 

17,278 

2,178 

25,566 

2,008 

5,771 

— 

18,598 

6,271 

33,356 

30,428 

— 

18,846 

5,573 

37,874 

30,731 

Canada – Heavy

Peace River

Lloydminster

Peavine

Canada - Light

Viking

Duvernay

Remaining Properties

United States
Eagle Ford

Total

23,482 

34,986 

7,984 

86,029 

80,789 

22,188 

35,789 

7,244 

89,606 

80,156 

This  press  release  contains  metrics  commonly  used  in  the  oil  and  natural  gas  industry,  such  as  “finding  and  development  costs”,  “finding, 
development and acquisition costs”, “net asset value”, and “reserves life index.” These terms do not have a standardized meaning and may not be 
comparable to similar measures presented by other companies, and therefore should not be used to make such comparisons. Such metrics have 
been included in this press release to provide readers with additional measures to evaluate Baytex’s performance, however, such measures are not 
reliable  indicators  of  Baytex’s  future  performance  and  future  performance  may  not  compare  to  Baytex’s  performance  in  previous  periods  and 
therefore such metrics should not be unduly relied upon. 

Finding and development costs are calculated on a per boe basis by dividing the aggregate of the change in future development costs from the 
prior year for the particular reserve category and the costs incurred on exploration and development activities in the year by the change in reserves 
from the prior year for the reserve category. 

Finding, development and acquisition costs are calculated on a per boe basis by dividing the aggregate of the change in future development costs 
from the prior year for the particular reserve category and the costs incurred on development and exploration activities and property acquisitions 
(net of dispositions) in the year by the change in reserves from the year for the reserve category

Net asset value has been calculated based on the estimated net present value of all future net revenue from our reserves, before income taxes, as 
estimated by McDaniel effective December 31, 2021, plus the estimated value of our undeveloped land holdings, less net debt.

Reserve life index means the reserves for the particular reserve category divided by annualized 2021 fourth quarter production.

References  herein  to  average  30-day  initial  production  rates  and  other  short-term  production  rates  are  useful  in  confirming  the  presence  of 
hydrocarbons, however, such rates are not determinative of the rates at which such wells will commence production and decline thereafter and are 
not indicative of long term performance or of ultimate recovery. While encouraging, readers are cautioned not to place reliance on such rates in 
calculating aggregate production for us or the assets for which such rates are provided. A pressure transient analysis or well-test interpretation has 
not been carried out in respect of all wells. Accordingly, we caution that the test results should be considered to be preliminary. 

Notice to United States Readers

The  petroleum  and  natural  gas  reserves  contained  in  this  press  release  have  generally  been  prepared  in  accordance  with  Canadian  disclosure 
standards,  which  are  not  comparable  in  all  respects  to  United  States  or  other  foreign  disclosure  standards.    For  example,  the  United  States 
Securities and Exchange Commission (the "SEC") requires oil and gas issuers, in their filings with the SEC, to disclose only "proved reserves", but 
permits the optional disclosure of "probable reserves" (each as defined in SEC rules).  Canadian securities laws require oil and gas issuers disclose 
their reserves in accordance with NI 51-101, which requires disclosure of not only "proved reserves" but also "probable reserves".  Additionally, NI 
51-101 defines "proved reserves" and "probable reserves" differently from the SEC rules.  Accordingly, proved and probable reserves disclosed in 
this press release may not be comparable to United States standards.  Probable reserves are higher risk and are generally believed to be less likely 
to be accurately estimated or recovered than proved reserves.

In addition, under Canadian disclosure requirements and industry practice, reserves and production are reported using gross volumes, which are 
volumes prior to deduction of royalty and similar payments.  The SEC rules require reserves and production to be presented using net volumes, 
after deduction of applicable royalties and similar payments.

Moreover, Baytex has determined and disclosed estimated future net revenue from its reserves using forecast prices and costs, whereas the SEC 
rules require that reserves be estimated using a 12-month average price, calculated as the arithmetic average of the first-day-of-the-month price for 
each month within the 12-month period prior to the end of the reporting period.  As a consequence of the foregoing, Baytex's reserve estimates and 
production  volumes  in  this  press  release  may  not  be  comparable  to  those  made  by  companies  utilizing  United  States  reporting  and  disclosure 
standards.

86

Baytex Energy Corp. 2021 Annual Report

ABBREVIATIONS

AECO

bbl

bbl/d

boe*

boe/d

COSO

GAAP

GJ

GJ/d

IAS

IASB

the natural gas storage facility located
at Suffield, Alberta

barrel

barrel per day

barrels of oil equivalent

barrels of oil equivalent per day

Committee of Sponsoring
Organizations of the Treadway
Commission

generally accepted accounting
principles

gigajoule

gigajoule per day

International Accounting Standard

International Accounting Standards
Board

IFRS

LLS
mbbl
mboe*
mcf
mcf/d
mmBtu
mmBtu/d
mmcf
mmcf/d
NGL
NYMEX
NYSE
TSX
WCS
WTI

International Financial Reporting
Standards
Louisiana Light Sweet
thousand barrels
thousand barrels of oil equivalent
thousand cubic feet
thousand cubic feet per day
million British Thermal Units
million British Thermal Units per day
million cubic feet
million cubic feet per day
natural gas liquids
New York Mercantile Exchange
New York Stock Exchange
Toronto Stock Exchange
Western Canadian Select
West Texas Intermediate

*

Oil equivalent amounts may be misleading, particularly if used in isolation. In accordance with NI 51-101, a boe conversion
ratio for natural gas of 6 Mcf: 1 bbl has been used, which is based on an energy equivalency conversion method primarily
applicable at the burner tip and does not represent a value equivalency at the wellhead.

Baytex Energy Corp. 2021 Annual Report

87

BOARD OF DIRECTORS

OFFICERS

Mark R. Bly 
Chairman of the Board

Edward D. LaFehr 
Director 

Trudy M. Curran 2,4 
Director

Don G. Hrap 1,3 
Director

Jennifer A. Maki 1,2 
Director

Gregory K. Melchin 1,4 
Director

David L. Pearce 2,3 
Director

Steve D.L. Reynish 3,4 
Director

(1)   Member of the Audit Committee
(2)  Member of the Human Resources  
and Compensation Committee

(3)  Member of the Reserves  

and Sustainability Committee

(4)  Member of the Nominating  
and Governance Committee

AUDITORS

KPMG LLP

RESERVES ENGINEERS

McDaniel & Associates Consultants Ltd.

TRANSFER AGENT

Odyssey Trust Company

EXCHANGE LISTINGS

Toronto Stock Exchange
Symbol: BTE

Edward D. LaFehr 
President and  
Chief Executive Officer 

Rodney D. Gray 
Executive Vice President  
and Chief Financial Officer

Chad E. Lundberg 
Chief Operating and  
Sustainability Officer 

Kendall D. Arthur 
Vice President, Heavy Oil

Brian G. Ector 
Vice President, Capital Markets

Nicole M. Frechette 
Vice President, Light Oil

Chad L. Kalmakoff 
Vice President, Finance

Scott Lovett 
Vice President,  
Corporate Development

James R. Maclean 
Vice President, General Counsel 
and Corporate Secretary

HEAD OFFICE

Baytex Energy Corp.
Centennial Place, East Tower
2800, 520 - 3rd Avenue SW
Calgary, Alberta T2P 0R3

Toll-free 1.800.524.5521
T 587.952.3000
F 587.952.3001

www.baytexenergy.com

CORPORATE  
INFORMATION

T S X   B T E 

Design: ARTHUR / HUNTER 

                                         Printing: Merrill Corporation

 W W W.B AY T E X E N E R G Y . C O M