Baytex Energy NYSE: BTE reported a stronger-than-expected first quarter and raised its 2026 production outlook, citing outperformance across its heavy oil portfolio and continued development in the Duvernay.
President and Chief Executive Officer Chad Lundberg, speaking on his first earnings call in the role, said production averaged 69,500 barrels of oil equivalent per day in the first quarter, above the high end of the company’s guidance. Oil and natural gas liquids represented 88% of the production mix, according to Chief Operating Officer Kendall Arthur.
“Q1 was a strong start to the year,” Lundberg said. “Production averaged above the high end of our guidance, driven by outperformance across our heavy oil portfolio.”
Baytex raised its 2026 production guidance to 69,000 to 71,000 BOE per day, which Lundberg said represents 7% annual growth at the midpoint, up from the company’s previous expectation of 3% to 5% growth. The company also said it expects capital expenditures to move to the high end of its guidance range, at CAD 625 million, including incremental projects in the Duvernay and heavy oil assets.
Baytex Raises Three-Year Growth Outlook
Alongside its updated 2026 guidance, Baytex revised its three-year outlook. Lundberg said the company is now targeting 6% to 8% annual production growth through 2028, up from a prior midpoint of 4%, while maintaining a net cash position through the period.
Lundberg said the company’s strategy is to grow production, advance its Duvernay and heavy oil portfolio, invest in future optionality and return capital to shareholders. He said Baytex is targeting 15% annual total shareholder return at a mid-cycle oil price of CAD 70, through a combination of production growth, dividends and share buybacks.
In the question-and-answer session, Capital One analyst Phillips Johnston asked about the math behind the total shareholder return target and the company’s buyback plans. Lundberg said Baytex remains committed to returning 75% of proceeds from the Eagle Ford sale, or CAD 650 million, through share buybacks in 2026. Beyond that, he said the business is capable of targeting the 15% return framework “moving from this point into the future.”
Baytex repurchased 35 million shares during the quarter, representing 4.6% of shares outstanding, for CAD 174 million. Chief Financial Officer Chad Kalmakoff said the company ended the quarter with a net cash position of CAD 591 million. The quarterly dividend remains unchanged at CAD 0.0225 per share. In response to webcast questions, Lundberg said the annual dividend is CAD 0.09 per share and that the company does not intend to increase it at this time.
Heavy Oil Portfolio Drives First-Quarter Outperformance
Arthur said Baytex invested CAD 145 million in exploration and development during the quarter and brought 53 wells on stream, consistent with its full-year plan.
In heavy oil, the company reported strong results across several areas. At Peavine, the first six wells of the 2026 program averaged 30-day initial production rates of 680 barrels per day, which Arthur said was well above the expected type curve. At Lloydminster, Baytex increased activity to three rigs during the quarter and targeted seven discrete horizons across the Mannville stack, bringing 16.7 net wells on stream.
At Peace River, Baytex brought three wells on stream and acquired an additional 40 sections at Utikuma, increasing its total land position there to 109 sections. The company completed a 21-square-mile seismic shoot covering about 20% of the land base, and Arthur said that following interpretation, Baytex could drill its first exploration test well in early 2027.
Baytex is also piloting two waterflood projects at Peavine. In response to a question from CIBC analyst Dennis Fong, Lundberg said one pilot involves converting a two-leg lateral, which was the initial discovery well in the play, into an injector. The company will monitor how quickly it can refill voidage and how offsetting declines and production respond. The second pilot involves new producers drilled in conjunction with new injectors, with Baytex monitoring the effect on declines and recovery factors.
Lundberg said conventional cold heavy oil production typically recovers about 7% of oil in place on primary development, with waterflooding potentially doubling that and polymer flooding potentially pushing recovery above 20%, though he characterized those figures as broad estimates.
Duvernay Growth and Cost Improvements Remain Priorities
In the Duvernay, Baytex drilled its first four wells of the year, with completions underway. Arthur said the first wells are expected on stream in June, followed by nine more in the third and fourth quarters, for a total of 13 wells on stream in 2026. One four-well pad is expected to be drilled and completed in early 2027.
Lundberg said the Duvernay is on track to deliver 35% production growth in 2026, with an exit rate of 14,000 to 15,000 BOE per day. He added that moving toward an 18- to 20-well program in 2027 would put the asset at a one-rig levelized pace and could improve capital efficiency.
In response to a question from Fong about Duvernay well costs, Lundberg said Baytex reduced costs from CAD 1,165 per foot of completed lateral length in 2024 to CAD 1,050 per foot in 2025 and is budgeting CAD 1,000 per foot in 2026. He said the company believes that, at full rig activity, costs could reach CAD 900 per foot or better.
Lundberg also said Baytex expects elevated facilities spending in the Duvernay for 2026 through 2028, at about CAD 35 million annually, before it falls to about CAD 10 million. He said that spending would support the completion of five of seven major anchor batteries and 2.5 of five water reservoirs.
Financial Results and Hedging
Kalmakoff said Baytex generated CAD 152 million of adjusted funds flow, or CAD 0.20 per basic share, in the first quarter. Operating netback improved to CAD 35.36 per BOE from CAD 29.30 per BOE in the fourth quarter of 2025, driven by higher realized pricing and cost discipline.
The company recorded CAD 29 million of realized hedging losses in the quarter. Kalmakoff said Baytex still has about 50% of its WTI exposure hedged until the end of the second quarter, largely from legacy hedges that were in place before the Eagle Ford sale. Once those hedges roll off, he said Baytex will have “robust exposure” to WTI prices and is not looking to add more WTI hedges.
Kalmakoff said Baytex expects to continue hedging differentials such as Western Canadian Select and MSW. He also said that on an unhedged basis, every US$5 movement in WTI affects annual adjusted funds flow by about CAD 125 million.
Asked about free cash flow expectations, Kalmakoff said the remainder of the year should be more robust. Assuming an average oil price of CAD 80 for the rest of the year, he said Baytex would generate roughly CAD 250 million of free cash flow for 2026 in total.
Gemini Thermal Project Remains Longer-Term Option
Lundberg said the Gemini Thermal project remains a significant long-term option beyond the three-year outlook. He said the project is regulatory approved, has 44 million barrels of booked reserves and has a first phase design of 5,000 barrels per day.
In response to RBC Capital Markets analyst Greg Pardy, Lundberg said the project has been in Baytex’s portfolio since 2014 and has 300 million barrels of identified resource. At a 50% recovery assumption, Baytex would target 150 million barrels. Lundberg said the initial 5,000-barrel-per-day phase could potentially be expanded, and the company is reassessing the technical, commercial and capital cost outlook. Baytex is working toward a final investment decision in early 2027, which Lundberg said could allow first barrels in 2029.
Baytex also announced leadership changes. Arthur has moved into the chief operating officer role, while Adrian Blazevic has been appointed vice president of heavy oil. Lundberg also recognized former CEO Eric Greager for his leadership and Brian Ector, senior vice president of capital markets and investor relations, who is retiring at the end of July.
About Baytex Energy NYSE: BTE
Baytex Energy Corp. is an oil & gas exploration and production company. The firm engages in the acquisition, development and production of crude oil and natural gas in the Western Canadian Sedimentary Basin and in the Eagle Ford in the United States. The company was founded on June 3, 1993 and is headquartered in Calgary, Canada.
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