Mr. Eric Greager reports

BAYTEX ANNOUNCES CLOSING OF RANGER ACQUISITION AND UPDATED GUIDANCE FOR 2023

Baytex Energy Corp. has closed its acquisition of Ranger Oil Corp.

"We are excited to close the Ranger acquisition, which materially increases our scale in the Eagle Ford while building quality operating capability in a premier basin. We have emerged from this transaction as a well-capitalized and diversified North American exploration and production company with a portfolio of high-quality oil weighted assets in Western Canada and the Eagle Ford shale in Texas. The transaction enhances our inventory and creates a more resilient and sustainable business with an attractive free cash flow profile. With our strong financial position, we intend to increase our direct shareholder returns to 50 per cent of free cash flow and introduce a dividend," commented Eric T. Greager, president and chief executive officer.

H2 2023 outlook:

• Target average production of 153,000 to 157,000 barrels of oil equivalent per day (boe/d) (84 per cent oil and NGLs (natural gas liquids));
• Execute an exploration and development program of $595-million to $635-million;
• Onstream 34 net wells in the Eagle Ford and 90 net wells in Canada;
• Return 50 per cent of free cash flow to shareholders through share buybacks and a dividend;
• Introduce a quarterly dividend of 2.25 cents per share (nine cents per share annualized);
• Maintain strong liquidity with 50-per-cent undrawn capacity on its $1.1-billion (U.S.) credit facility.

Acquisition highlights

The total consideration paid by Baytex, including assumption of net debt, was approximately $2.2-billion (U.S.) ($2.9-billion (Canadian)). Under the terms of the agreement, Ranger shareholders received 7.49 Baytex shares plus $13.31 (U.S.) cash for each share of Ranger common stock.

The acquisition materially increases the scale of its Eagle Ford operations. The company is adding 162,000 net acres in the crude oil window of the Eagle Ford, on trend with Baytex's non-operated position in the Karnes trough, and 741 net undrilled locations, representing an inventory life of 12 to 15 years that immediately competes for capital in its portfolio. The transaction increases its exposure to premium U.S. Gulf Coast pricing and includes substantial infrastructure in place with low operating and transportation costs.

Business strategy

Through this transaction, Baytex has emerged as a well-capitalized, diversified oil-weighted North American E&P (exploration and production) company with a strong free cash flow profile. Assuming a $75 (U.S.) WTI crude oil price, the company expects to generate annual EBITDA (earnings before interest, taxes, depreciation and amortization) of approximately $2.4-billion and annual free cash flow of approximately $1-billion. The key elements of its business strategy include the following:

• Disciplined capital allocation: It is committed to a disciplined returns-based capital allocation strategy, targeting modest single digit organic production growth with exploration and development expenditures representing approximately 50 per cent to 55 per cent of its adjusted funds flow at $75 (U.S.) WTI. Each of its core assets has 10 or more years of development inventory at its current pace of development. This provides it the ability to efficiently allocate capital in response to changes in regional commodity prices and other economic factors.
• Focus on free cash flow generation: Its commitment to efficient capital allocation across its portfolio is expected to generate meaningful free cash flow. The company intends to allocate 50 per cent of free cash flow to debt repayment and 50 per cent of free cash flow to shareholder returns. Its shareholder returns are expected to include a combination of share buybacks and a quarterly dividend.
• Maintain financial strength: Baytex has a strong balance sheet with significant financial liquidity. Its commitment to a strong balance sheet is unwavering and, with its 50-per-cent allocation of free cash flow to debt repayment, it intends to further strengthen its balance sheet. It has established a total debt target of $1.5-billion which represents one times total debt to adjusted EBITDA at $50 (U.S.) per barrel (bbl) WTI. Upon reaching this milestone, the company will direct 75 per cent of free cash flow to shareholder returns. It believes this level of total debt will provide it with full flexibility to run its business through commodity price cycles and generate meaningful returns.
• Hedging program: The company employs a disciplined hedging program to help mitigate volatility in revenue due to changes in commodity prices. It intends to hedge approximately 40 per cent of its net crude oil exposure for the next 12 months by utilizing wide two-way collars with the floor set to ensure a modest return on its highest breakeven assets.

2023 outlook

The company continues to execute on its base business as planned. Its average production for the second quarter of 2023 is estimated at 88,500 to 89,000 boe/d, which includes production from Ranger for the 11 days following closing of the merger. Production in Q2 2023 was reduced by approximately 4,500 boe/d due to the temporary curtailment of production resulting from the wildfires in Alberta.

For the second half of 2023, exploration and development expenditures are forecast to be $595-million to $635-million, which are expected to generate an average production rate of 153,000 to 157,000 boe/d. Its production mix for the second half of 2023 is forecast to be 84 per cent oil and NGLs (50 per cent light oil, 22 per cent heavy oil and 12 per cent NGLs) and 16 per cent natural gas.

Return of capital framework

In conjunction with closing of the merger, the company intends to increase its direct shareholder returns to 50 per cent of free cash flow generated by the combined company, which will allow it to increase the value of its share buyback program and introduce a dividend.

Its share buyback program was placed on hold at the beginning of the year due to the pending merger. To meet its shareholder return commitment, the company intends to include 25 per cent of the free cash flow generated from Jan. 1, 2023, to June 19, 2023, in its 2023 share buyback program.

The Baytex board of directors has approved the filing of a normal course issuer bid (NCIB) application with the Toronto Stock Exchange for a share buyback program for up to 10 per cent of its postclosing public float. In addition, it intends to introduce a quarterly dividend of 2.25 cents per share (nine cents per share annualized). If declared by the Baytex board of directors, the initial dividend is expected to be paid in October, 2023.

Financial liquidity

The company is well capitalized and has significant liquidity on its credit facilities. It has established a new $1.1-billion (U.S.) revolving credit facility with a maturity date of April 1, 2026, and a new $150-million (U.S.) two-year term loan.

Its total debt is forecast to be approximately $2.5-billion as at June 30, 2023, and it expects to maintain strong liquidity with approximately 50-per-cent undrawn capacity on its revolving credit facility.

The company's balance sheet remains a priority with a newly established total debt target of $1.5-billion, representing approximately one times total debt to EBITDA at $50 (U.S.) per bbl WTI. Upon achieving this total debt level, the company intends to increase direct shareholder returns to 75 per cent of free cash flow.

The proceeds from its $800-million (U.S.) private placement offering of senior notes have been released from escrow. The notes bear interest at a rate of 8.5 per cent per annum and mature on April 30, 2030. The net proceeds from the offering, together with borrowings under its credit facilities and term loan, were used to finance the cash portion of the consideration for the acquisition, to repay certain outstanding indebtedness of Ranger, and to pay fees and expenses in connection with the merger.

Risk management

To help manage the impacts of commodity price movements, the company utilizes various financial derivative contracts to reduce the volatility of its revenues. It intends to hedge approximately 40 per cent of its net crude oil exposure for the next 12 months.

For the second half of 2023, the company has entered into hedges on approximately 37 per cent of its net crude oil exposure, utilizing a combination of two-way collars on 33,775 bbl/d with a weighted average floor price of $66.61 (U.S.) per bbl and a weighted average ceiling price of $92.60 (U.S.) per bbl and 5,000 bbl/d purchased put at $60 (U.S.) per bbl.

For the first half of 2024, it has currently entered into hedges on approximately 5 per cent of its net crude oil exposure, utilizing two-way collars on 4,950 bbl/d with a weighted average floor price of $65 (U.S.) per bbl and a weighted average ceiling price of $83.48 (U.S.) per bbl.

Board of directors and leadership team

On closing of the merger, Baytex appointed Jeffrey E. Wojahn and Tiffany (T.J.) Thom Cepak to the Baytex board of directors, which provides continuity and experience with the Ranger business and expertise in U.S. regulatory and operating matters. The Baytex board of directors comprises 10 members, nine of whom are independent and four of whom are women. All committees of the Baytex board of directors are chaired by independent members and two of the four committee chairs are women.

The company has an established leadership team committed to creating shareholder value. It is excited to welcome Julia Gwaltney and Kayla Baird to the Baytex leadership team, as well as the Ranger teams operating in Texas. The Baytex leadership team comprises:

• Mr. Greager, president and chief executive officer;
• Chad Kalmakoff, chief financial officer;
• Chad Lundberg, chief operating officer;
• James Maclean, chief legal officer and corporate secretary;
• Brian Ector, senior vice-president, capital markets and investor relations;
• Kendall Arthur, senior vice-president and general manager, Canadian heavy oil operations;
• Ms. Gwaltney, senior vice-president and general manager, U.S. Eagle Ford operations;
• Nicole Frechette, vice-president and general manager, Canadian light oil operations;
• Chris Lessoway, vice-president, finance and treasurer;
• Ms. Baird, vice-president, U.S. accounting and corporate services.

About Baytex Energy Corp.

Baytex Energy is an energy company with headquarters based in Calgary, Alta., with offices in Houston, Tex. The company is engaged in the acquisition, development and production of crude oil and natural gas in the Western Canadian sedimentary basin and in Eagle Ford in the United States.

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