Baytex Energy (NYSE:BTE) reported second-quarter production above the high end of its guidance range, raised its full-year production outlook and maintained its capital program as heavy oil operations and initial Duvernay wells delivered strong results.
President and Chief Executive Officer Chad Lundberg said production averaged 71,200 barrels of oil equivalent per day during the quarter, marking the second consecutive quarter above the company’s guidance range. Baytex raised its full-year production guidance to 71,000 BOE/d, an increase of 1,000 BOE/d from the midpoint of its prior outlook, while retaining its planned capital program of C$625 million. The company is targeting an exit rate of 72,000 BOE/d.
Operations Exceed Guidance
Chief Operating Officer Kendall Arthur said second-quarter production totaled 71,243 BOE/d, up 11% from the same period in 2025. Baytex invested C$122 million in exploration and development during the quarter and brought 24.6 wells on stream, with activity weighted toward production growth in the second half of the year.
Heavy oil operations were strong across the portfolio. At Peavine, six wells brought online during the quarter recorded average 30-day initial production rates of 478 barrels per day per well. Arthur said the results continued to exceed internal expectations as development expands beyond the core area.
At Lloydminster, the company brought seven Mannville wells on stream across multiple horizons. Baytex also resumed activity at Peace River following spring breakup and said it was on track with second-half development. The company expects to operate four rigs across its heavy oil portfolio, with a fifth rig scheduled to begin work in Morinville in August.
Baytex is also advancing waterflood pilots. Two initial Peavine pilots are now injecting water: one is testing repressurization through the conversion of a producer into an injector, while the other is testing pressure maintenance on new development. Two additional Peavine patterns and a Rex formation test in Morinville are expected to begin injection by the fourth quarter.
Arthur said Baytex expects to assess pilot performance over roughly 12 to 18 months, depending on injectivity. Key indicators will include production responses that differ from primary decline trends and suppression of gas-to-oil ratios. Produced water from the field is sufficient for the current pilots, he said.
Duvernay Results Support Development Plans
Baytex brought its first southern Gilby Duvernay pad on production in June. Three of the four wells delivered average 30-day initial production of 1,630 BOE/d per well, with 88% liquids. Arthur described the wells as among the company’s strongest Duvernay results on a length-normalized basis.
A fourth Gilby well was completed with a half-length lateral after its bottom-hole assembly became stuck during drilling and could not be recovered. That well recorded a 30-day initial production rate of 866 BOE/d.
Lundberg said the Gilby results confirmed the company’s expectations for the acreage but said it was too early to determine whether they represent upside to Baytex’s inventory assumptions. He noted that the company needs more time to evaluate how the wells perform against longer-term production curves.
Baytex has drilled a second Duvernay pad in its North Pembina acreage, where completion operations are underway. The pad is expected to begin production in September. The company’s 2026 Duvernay program includes 17 wells drilled, 13 of which are expected online this year, with the final four-well pad planned for completion and startup in early 2027.
Lundberg said Baytex is continuing to test completion designs, including changes in cluster design, proppant tonnage and water loading. The company has budgeted Duvernay drilling, completion and equipping costs of C$1,000 per foot in 2026, compared with about C$1,150 per foot in 2024 and C$1,050 per foot in 2025. Its longer-term target is C$900 per foot.
Cash Flow, Buybacks and Balance Sheet
Chief Financial Officer Chad Kalmakoff said Baytex generated C$254 million of adjusted funds flow, or C$0.35 per share, in the second quarter. Operating netback rose to C$55.33 per BOE from C$35.36 per BOE in the first quarter, reflecting realized pricing and cost discipline.
The company reported net income of C$175 million, or C$0.24 per share, and free cash flow of C$128 million, or C$0.18 per share. Baytex exited the quarter with net cash of C$566 million.
Baytex repurchased 22 million shares for C$136 million during the quarter at an average price of C$6.27 per share. Since selling its Eagle Ford business in December 2025, the company has repurchased 69 million shares, or approximately 9% of shares outstanding, for C$378 million.
Kalmakoff said Baytex expects to repurchase C$650 million of shares using proceeds from the U.S. asset sale and plans to execute the program through its normal course issuer bid rather than a substantial issuer bid. The company renewed its issuer bid in July, providing authority to repurchase up to 70.9 million shares through July 1, 2027.
- Quarterly dividend declared: C$0.0225 per share, payable Oct. 1.
- No WTI hedges remain following the expiration of hedges associated with the prior U.S. asset portfolio.
- Management said it does not anticipate adding WTI hedges given the company’s current balance-sheet position.
Baytex said it holds cash with Canadian chartered banks in its lending syndicate and earns approximately 2.75% on those balances. Kalmakoff added that the company could use cash on hand to retire remaining U.S.-dollar bonds when they become callable next March, if it determines that is appropriate.
Longer-Term Priorities
Lundberg reiterated Baytex’s strategy of growing production by 6% to 8% annually, expanding its heavy oil business, commercializing the Duvernay, reducing costs and returning capital to shareholders. The company is targeting a 15% annual total shareholder return at a mid-cycle WTI price of C$70 through production growth, dividends and share repurchases.
Beyond its three-year outlook, Baytex continues to advance its Gemini Thermal project and is targeting a final investment decision in the second half of 2027. Lundberg said remaining work includes further subsurface characterization, assessment of modular SAGD facility technology and costs, and clarification of the regulatory environment.
The company also completed a 21-square-mile seismic program at Utikuma covering about 20% of its 109-section land position. Initial interpretations confirmed the presence of Keg River mounds, and Baytex is preparing to drill up to two exploration wells in early 2027 at an estimated cost of about C$2.5 million per well.
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.
