BAYTEX ENERGY CORP. Annual Review: A Strategic Transformation

Baytex Energy Corp. underwent a pivotal strategic transformation this past year, fundamentally reshaping its operations and financial future. This summary highlights the key changes and their implications for investors.

Business Overview: A New Focus on Exclusively Canadian Operations

BAYTEX ENERGY CORP., a Calgary-based energy company, refocused its business entirely on its Western Canadian oil and natural gas assets. This major shift culminated on December 19, 2025, when the company sold its U.S. Eagle Ford assets, which it had acquired in the 2023 Ranger Oil Corporation merger. This move establishes Baytex as a pure-play Canadian energy producer, concentrating on its light oil assets in Viking and Duvernay, and heavy oil assets in Peace River and Lloydminster.

Operational Performance (Canadian Continuing Operations): Despite the strategic divestment, Baytex's continuing Canadian operations demonstrated resilience and growth in 2025:

• Overall Production: Increased 2% to 65,528 barrels of oil equivalent per day (boe/d) in 2025, from 63,948 boe/d in 2024. This growth helped offset the impact of the late 2024 sale of the Kerrobert thermal asset.
• Heavy Oil: Increased 1% to 42,775 barrels per day (bbl/d) from 42,313 bbl/d in 2024.
• Natural Gas Liquids (NGL): Jumped a robust 28% to 3,524 bbl/d from 2,749 bbl/d in 2024.
• Natural Gas: Rose 6% to 43,988 thousand cubic feet per day (mcf/d) from 41,412 mcf/d in 2024.
• Light Oil & Condensate: Decreased slightly by 1% to 11,897 bbl/d from 11,983 bbl/d in 2024.

Total Company Production (including U.S. until sale): Total production for 2025, including both Canadian and U.S. operations until the sale date, reached 145,079 boe/d. This represented a 5% decrease from 153,048 boe/d in 2024, aligning with the company's revised annual plan. U.S. operations averaged 79,551 boe/d in 2025, down 11% from 89,100 boe/d in 2024.

Financial Performance: Navigating Lower Prices and Strategic Shifts

The year 2025 presented a mixed financial picture, heavily influenced by lower commodity prices and the significant U.S. asset sale.

• Revenue (after royalties): Total revenue decreased to $2.86 billion CAD in 2025 from $3.33 billion CAD in 2024. This decline stemmed from reduced revenue in both continuing Canadian operations (from $1.61 billion CAD to $1.48 billion CAD) and discontinued U.S. operations (from $1.72 billion CAD to $1.38 billion CAD).
• Net Income: The company reported a substantial net loss of $603.8 million CAD in 2025, a significant swing from a net profit of $236.6 million CAD in 2024. Lower average West Texas Intermediate (WTI) oil prices (US$64.81/bbl in 2025 vs. US$75.72/bbl in 2024) and a considerable $510.6 million CAD loss related to the U.S. asset sale primarily drove this loss. Continuing Canadian operations also saw a larger net loss of $276.8 million CAD, compared to a $97.5 million CAD loss in 2024.
• Cash Flow:
  • Adjusted Funds Flow (a key measure of operational cash flow) decreased from $2.0 billion CAD in 2024 to $1.5 billion CAD in 2025.
  • Cash Flows from Operating Activities also fell from $1.9 billion CAD to $1.5 billion CAD.
  • Free Cash Flow: Despite the challenges, Baytex generated $274.9 million CAD in free cash flow, demonstrating its ability to generate cash after capital investments. The company strategically used this cash for debt reduction and shareholder returns.
• Asset Value: Net oil and gas assets grew from $3.76 billion CAD at the end of 2024 to $3.84 billion CAD by the end of 2025, reflecting ongoing investment in its core assets.

Financial Health: Strengthening the Balance Sheet - From Debt to Net Cash

The strategic U.S. asset sale delivered the most dramatic financial improvement, fundamentally transforming Baytex's balance sheet.

• Massive Debt Reduction: Baytex received approximately US$2.2 billion from the Eagle Ford sale. This enabled the company to transition from a net debt position of $2.4 billion CAD at the end of 2024 to a remarkable net cash position of $765.8 million CAD by the end of 2025.
• Debt Repayment Details: Baytex used the proceeds to fully repay its credit facilities, all of its 8.50% Senior Notes due 2030, and the majority of its 7.375% Senior Notes due 2032. This significantly de-risked the company's financial profile.
• Previous Debt Management: Baytex also paid off its 7.75% senior unsecured notes due April 2027 as of April 1, 2024. On the same date, it issued new 7.375% senior unsecured notes due March 2032, repaying most of these by year-end 2025.
• Stable Borrowing Costs: The average interest rate on its long-term notes and credit facilities remained consistent at 7.00% for both 2024 and 2025.
• Lease Liabilities: Obligations for leases due within one year increased slightly from $10 million CAD in 2024 to $11 million CAD in 2025.

Management Discussion: Key Achievements & Hurdles

The preceding sections—"Business Overview," "Financial Performance," and "Financial Health"—collectively highlight management's discussion and analysis, detailing the strategic rationale, operational results, and financial impacts of the year.

Wins:

• Strategic Transformation: The successful sale of U.S. assets and the shift to a focused Canadian producer stands as the year's defining achievement, significantly improving financial flexibility.
• Debt Elimination & Net Cash Position: The rapid transition from substantial net debt to a net cash position is a monumental achievement, providing a strong foundation for future growth and shareholder returns.
• Increased Canadian Production: Growth in Canadian operations, particularly NGL and natural gas, demonstrates the strength of its remaining asset base.
• Free Cash Flow Generation: Generating $274.9 million CAD in free cash flow in a challenging price environment highlights operational efficiency.
• Shareholder Returns: The company returned $98.0 million CAD to shareholders through share buybacks and quarterly dividends, a commitment reinforced by the debt reduction.
• Foreign Exchange Gain: A $97.6 million CAD foreign exchange gain provided a positive boost to the bottom line.

Challenges:

• Significant Net Loss: The overall net loss of $603.8 million CAD, primarily driven by lower oil prices and the loss on asset sale, presented a major financial hurdle.
• Lower Commodity Prices: The substantial drop in WTI oil prices directly impacted revenue and profitability across the board.
• Loss on Sale: While strategically beneficial, the accounting loss of $510.6 million CAD on the U.S. asset sale impacted reported earnings.
• Impairment Charge: A $148 million CAD impairment charge in Canadian operations reduced the book value of some assets, reflecting market conditions or asset performance.

Risk Factors

Baytex Energy's operations are subject to various risks and uncertainties that could materially affect its business, financial condition, and results of operations. Key risks include:

• Commodity Price Volatility: Fluctuations in crude oil and natural gas prices significantly impact revenue, profitability, and cash flows.
• Operational Risks: Risks inherent in oil and gas exploration, development, and production activities, including drilling hazards, equipment failures, and transportation disruptions.
• Environmental and Regulatory Risks: Compliance with evolving environmental laws and regulations, potential liabilities for environmental damage, and the impact of climate change policies.
• Customer Concentration: Four main customers each accounted for 10% to 19% of revenues in 2025. This concentration means a reduction in purchases by any of these key customers could significantly impact Baytex's sales.
• Tax Litigation: Ongoing involvement in a tax dispute with the Canada Revenue Agency from a 2016 transaction creates uncertainty and potential future costs.
• Reserves Estimates: Uncertainty in the estimation of proved and unproved oil and natural gas reserves and the future net revenue attributable to such reserves.
• Access to Capital: The ability to obtain sufficient capital to fund future exploration, development, and acquisition activities.
• Geopolitical and Economic Factors: Global economic conditions, political instability, and international conflicts can affect energy demand and supply.

Competitive Position

Baytex operates in a highly competitive industry within Western Canada. Several factors influence its competitive position:

• Asset Quality and Focus: The company's strategic shift to a pure-play Canadian producer, focusing on high-quality light oil assets in Viking and Duvernay, and heavy oil assets in Peace River and Lloydminster, aims to leverage its expertise and optimize returns from these core assets.
• Cost Structure: Maintaining a competitive cost structure for production and operations is crucial in the commodity-driven energy sector.
• Technological Application: The ability to efficiently apply advanced drilling and completion technologies to maximize recovery from its resource base.
• Market Access: Access to various markets and transportation infrastructure for its crude oil and natural gas production.
• Financial Strength: The recently strengthened balance sheet, moving to a net cash position, provides significant financial flexibility compared to many peers, enabling strategic investments and resilience during market downturns.
• Scale and Efficiency: While not the largest producer in Canada, Baytex aims to achieve economies of scale within its focused operating areas to drive efficiency.

Future Outlook: Strategy and Investor Considerations

With its new focus and strengthened balance sheet, Baytex Energy is poised for a new chapter. The company's strategy will likely center on optimizing its high-quality Canadian assets, disciplined capital allocation, and continued shareholder returns.

Key areas for investors to monitor include:

• Capital Allocation Strategy: How will the company utilize its significant net cash position? This will involve balancing further debt reduction (if any), increased shareholder distributions (dividends, buybacks), and strategic investments in its Canadian asset base for organic growth.
• Future Production & Growth: Details on future capital expenditure plans and production guidance for its Canadian assets will be crucial for assessing growth potential.
• Commodity Price Environment: As a pure-play energy producer, Baytex remains highly sensitive to fluctuations in oil and natural gas prices.
• Risk Management: Beyond commodity prices, investors should consider the company's approach to operational risks, regulatory changes, and environmental, social, and governance (ESG) factors, which are increasingly important for energy companies.
• Shareholder Returns: With a stronger financial position, expectations for consistent or increased shareholder returns will be high.

Baytex Energy's 2025 performance defined a bold strategic move that, while impacting short-term profitability, fundamentally de-risked the company and set the stage for a more focused and financially robust future. Investors will closely watch how this new foundation translates into sustained value creation.