ex99_1.htm

Baytex Energy Corp.

Condensed Consolidated Statements of Financial Position

(thousands of Canadian dollars) (unaudited)

As at	March 31, 2012				December 31, 2011

ASSETS
Current assets
Cash		$	2,812			$	7,847
Trade and other receivables			180,589				206,951
Crude oil inventory			569				898
Financial derivatives (note 15)			9,201				10,879
			193,171				226,575
Non-current assets
Deferred income tax asset (note 11)			8,469				10,133
Financial derivatives (note 15)			256				180
Exploration and evaluation assets (note 3)			127,467				129,774
Oil and gas properties (note 4)			2,093,990				2,032,160
Other plant and equipment			29,567				25,233
Goodwill			37,755				37,755
		$	2,490,675			$	2,461,810

LIABILITIES
Current liabilities
Trade and other payables		$	221,799			$	225,831
Dividends payable to shareholders			26,159				25,936
Financial derivatives (note 15)			32,440				25,205
			280,398				276,972
Non-current liabilities
Bank loan (note 5)			326,889				311,960
Long-term debt (note 6)			295,241				297,731
Asset retirement obligations (note 7)			264,189				260,411
Deferred income tax liability (note 11)			109,527				93,217
Financial derivatives (note 15)			10,018				14,785
			1,286,262				1,255,076

SHAREHOLDERS’ EQUITY
Shareholders’ capital (note 8)			1,730,666				1,680,184
Contributed surplus			73,706				85,716
Accumulated other comprehensive loss			(8,932	)			(3,546	)
Deficit			(591,027	)			(555,620	)
			1,204,413				1,206,734
		$	2,490,675			$	2,461,810

Subsequent event (note 16)

See accompanying notes to the condensed consolidated financial statements.

Page 1 of 18

Baytex Energy Corp.

Condensed Consolidated Statements of Income and Comprehensive Income

(thousands of Canadian dollars, except per common share amounts) (unaudited)

	Three Months Ended March 31
	2012			2011

Revenues, net of royalties (note 12)	$	290,361		$	241,513

Expenses
Exploration and evaluation		2,463			3,466
Production and operating		58,287			47,476
Transportation and blending		61,737			64,160
General and administrative		11,188			11,130
Share-based compensation (note 9)		6,856			7,982
Financing costs (note 13)		10,299			10,562
Loss on financial derivatives (note 15)		11,342			44,883
Foreign exchange gain (note 14)		(4,868	)		(3,930	)
Depletion and depreciation		72,311			56,644
		229,615			242,373
Net income (loss) before income taxes		60,746			(860	)
Deferred income tax expense (recovery) (note 11)		17,788			(1,810	)
Net income attributable to shareholders	$	42,958		$	950

Other comprehensive income (loss)
Foreign currency translation adjustment		(5,386	)		(4,998	)
Comprehensive income (loss)	$	37,572		$	(4,048	)

Net income per common share (note 10)
Basic	$	0.36		$	0.01
Diluted	$	0.36		$	0.01

Weighted average common shares (note 10)
Basic		118,563			114,409
Diluted		120,282			117,661

See accompanying notes to the condensed consolidated financial statements.

Page 2 of 18

Baytex Energy Corp.

Condensed Consolidated Statements of Changes in Equity

(thousands of Canadian dollars) (unaudited)

	Shareholders’ capital		Contributed surplus			Accumulated other comprehensive income (loss)				Deficit			Total equity
Balance at December 31, 2010	$	1,484,335	$	129,129			$	(10,323	)	$	(492,005	)	$	1,111,136
Dividends to shareholders		-		-				-			(68,791	)		(68,791	)
Exercise of share rights		53,336		(33,705	)			-			-			19,631
Share-based compensation		-		7,982				-			-			7,982
Issued pursuant to dividend reinvestment plan		16,442		-				-			-			16,442
Comprehensive income (loss) for the period		-		-				(4,998	)		950			(4,048	)
Balance at March 31, 2011	$	1,554,113	$	103,406			$	(15,321	)	$	(559,846	)	$	1,082,352
Balance at December 31, 2011	$	1,680,184	$	85,716			$	(3,546	)	$	(555,620	)	$	1,206,734
Dividends to shareholders		-		-				-			(78,365	)		(78,365	)
Exercise of share rights		21,246		(12,421	)			-			-			8,825
Vesting of share awards		6,445		(6,445	)			-			-			-
Share-based compensation		-		6,856				-			-			6,856
Issued pursuant to dividend reinvestment plan		22,791		-				-			-			22,791
Comprehensive income (loss) for the period		-		-				(5,386	)		42,958			37,572
Balance at March 31, 2012	$	1,730,666	$	73,706			$	(8,932	)	$	(591,027	)	$	1,204,413

See accompanying notes to the condensed consolidated financial statements.

Page 3 of 18

Baytex Energy Corp.

Condensed Consolidated Statements of Cash Flows

(thousands of Canadian dollars) (unaudited)

	Three Months Ended March 31
	2012			2011

CASH PROVIDED BY (USED IN):
Operating activities
Net income for the period	$	42,958		$	950
Adjustments for:
Share-based compensation (note 9)		6,856			7,982
Unrealized foreign exchange gain (note 14)		(5,993	)		(4,856	)
Exploration and evaluation		1,830			2,484
Depletion and depreciation		72,311			56,644
Unrealized loss on financial derivatives (note 15)		4,202			46,470
Deferred income tax expense (recovery) (note 11)		17,788			(1,810	)
Financing costs (note 13)		10,299			10,562
Change in non-cash working capital (note 14)		1,881			2,392
Asset retirement obligations (note 7)		(771	)		(919	)
		151,361			119,899

Financing activities
Payments of dividends		(55,351	)		(52,057	)
Increase (decrease) in bank loan		18,142			(1,077	)
Proceeds from issuance of long-term debt (note 6)		-			145,810
Issuance of common shares (note 8)		8,825			19,631
Interest paid		(14,552	)		(10,520	)
		(42,936	)		101,787

Investing activities
Additions to exploration and evaluation assets (note 3)		(3,731	)		(5,456	)
Additions to oil and gas properties		(132,187	)		(81,558	)
Property acquisitions		(2,336	)		(37,518	)
Corporate acquisitions		-			(117,346	)
Proceeds from divestitures		3,568			-
Additions to other plant and equipment, net of disposals		(5,044	)		275
Change in non-cash working capital (note 14)		26,118			23,830
		(113,612	)		(217,773	)
Impact of foreign currency translation on cash balances		152			59
Change in cash		(5,035	)		3,972
Cash, beginning of period		7,847			-

Cash, end of period	$	2,812		$	3,972

See accompanying notes to the condensed consolidated financial statements.

Page 4 of 18

Baytex Energy Corp.

Notes to the Condensed Consolidated Financial Statements

As at March 31, 2012, and for the three months ended March 31, 2012 and 2011

(all tabular amounts in thousands of Canadian dollars, except per common share amounts) (unaudited)

1.	REPORTING ENTITY

Baytex Energy Corp. (the “Company” or “Baytex”) is an oil and gas corporation engaged in the acquisition, development and production of oil and natural gas in the Western Canadian Sedimentary Basin and the United States. The Company’s common shares are traded on the Toronto Stock Exchange and the New York 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 condensed interim unaudited consolidated financial statements (“consolidated financial statements”) have been prepared in accordance with International Accounting Standards 34, Interim Financial Reporting, as issued by the International Accounting Standards Board. These consolidated financial statements do not include all the necessary annual disclosures as prescribed by International Financial Reporting Standards and should be read in conjunction with the annual audited consolidated financial statements as of December 31, 2011. The Company’s accounting policies are unchanged compared to December 31, 2011 and the use of estimates and judgments is also consistent with the December 31, 2011 financial statements.

The consolidated financial statements were approved and authorized by the Board of Directors on May 9, 2012.

The consolidated financial statements have been prepared on the historical cost basis, except for derivative financial instruments which have been measured at fair value. The consolidated financial statements are presented in Canadian dollars, which is the Company’s functional currency. All financial information is rounded to the nearest thousand, except per share amounts and when otherwise indicated.

3.	EXPLORATION AND EVALUATION ASSETS

Cost

As at December 31, 2010	$	113,082
Capital expenditures		9,104
Corporate acquisition		14,944
Property acquisition		18,013
Exploration and evaluation expense		(10,130	)
Transfer to oil and gas properties		(14,398	)
Divestitures		(2,058	)
Foreign currency translation		1,217
As at December 31, 2011	$	129,774
Capital expenditures		3,731
Property acquisition		327
Exploration and evaluation expense		(1,830	)
Transfer to oil and gas properties		(3,500	)
Divestitures		(102	)
Foreign currency translation		(933	)
As at March 31, 2012	$	127,467

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4.	OIL AND GAS PROPERTIES

Cost

As at December 31, 2010	$	1,819,351
Capital expenditures		364,578
Corporate acquisition		131,635
Property acquisitions		61,137
Transferred from exploration and evaluation assets		14,398
Change in asset retirement obligations		84,879
Divestitures		(10,233	)
Foreign currency translation		5,674
As at December 31, 2011	$	2,471,419
Capital expenditures		132,187
Property acquisitions		2,009
Transferred from exploration and evaluation assets		3,500
Change in asset retirement obligations		2,964
Divestitures		(3,466	)
Foreign currency translation		(4,025	)
As at March 31, 2012	$	2,604,588
Accumulated depletion
As at December 31, 2010	$	194,722
Depletion for the period		244,893
Divestitures		(667	)
Foreign currency translation		311
As at December 31, 2011	$	439,259
Depletion for the period		71,596
Divestitures		-
Foreign currency translation		(257	)
As at March 31, 2012	$	510,598

Carrying value
As at December 31, 2011	$	2,032,160
As at March 31, 2012	$	2,093,990

BANK LOAN

As at	March 31, 2012				December 31, 2011
Bank loan		$	326,889			$	311,960

Baytex Energy Ltd. ("Baytex Energy"), a wholly-owned subsidiary of Baytex, has established a $40.0 million extendible operating loan facility with a chartered bank and a $660.0 million extendible syndicated loan facility with a syndicate of chartered banks, each of which constitute a revolving credit facility for a three-year term (to June 14, 2014), which is extendible annually for a 1, 2 or 3 year period (subject to a maximum three-year term at any time). The credit facilities contain standard commercial covenants for facilities of this nature and do not require any mandatory principal payments during the three-year term. Advances (including letters of credit) under the credit facilities can be drawn in either Canadian or U.S. funds and bear interest at the agent bank’s prime lending rate, bankers’ acceptance discount rates or London Interbank Offer Rates, plus applicable margins. The credit facilities are secured by a floating charge over all of Baytex Energy’s assets and are guaranteed by Baytex and certain of its material subsidiaries. The credit facilities do not include a term-out feature or a borrowing base restriction. In the event that Baytex Energy does not comply with the covenants under the credit facilities, Baytex’s ability to pay dividends to its shareholders may be restricted.

Financing costs for the three months ended March 31, 2012 include facility amendment fees of $nil ($0.1 million for the three months ended March 31, 2011). The weighted average interest rate on the bank loan for three months ended March 31, 2012 was 3.59% (3.84% for the three months ended March 31, 2011).

Page 6 of 18

6.	LONG-TERM DEBT

As at	March 31, 2012			December 31, 2011
9.15% senior unsecured debentures (Cdn$150,000 – principal)		$	147,443		$	147,328
6.75% senior unsecured debentures (US$150,000 – principal)			147,798			150,403
		$	295,241		$	297,731

Accretion expense on debentures of $0.2 million has been recorded for the three months ended March 31, 2012 (three months ended March 31, 2011 - $0.1 million).

7.	ASSET RETIREMENT OBLIGATIONS

	March 31, 2012				December 31, 2011
Balance, beginning of period		$	260,411			$	169,611
Liabilities incurred			2,633				5,834
Liabilities settled			(771	)			(10,588	)
Liabilities acquired			-				5,003
Liabilities divested			(479	)			(556	)
Accretion			1,627				6,185
Change in estimate(1)			810				84,879
Foreign currency translation			(42	)			43
Balance, end of period		$	264,189			$	260,411

(1) Changes in the status of wells, changes in discount rates and changes in the estimated costs of abandonment and reclamation are factors resulting in a change in estimate.

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. These costs are expected to be incurred over the next 52 years. The undiscounted amount of estimated cash flow required to settle the asset retirement obligations using an estimated annual inflation rate of 2.0% at March 31, 2012 is $318.6 million (December 31, 2011 - $315.9 million). The amount of estimated cash flow required to settle the asset retirement obligations using an estimated annual inflation rate of 2.0% and discounted at a risk free rate of 2.5% at March 31, 2012 (December 31, 2011 – 2.5%) is $264.2 million (December 31, 2011 - $260.4 million).

8.	SHAREHOLDERS’ CAPITAL

Shareholders’ Capital

The authorized capital of Baytex consists of an unlimited number of common shares without nominal or par value and 10,000,000 preferred shares without nominal or par value, issuable in series. Baytex establishes the rights and terms of the preferred shares upon issuance. As at March 31, 2012, no preferred shares have been issued by the Company and all common shares issued were fully paid.

	Number of Common Shares (000’s)		Amount
Balance, December 31, 2010		113,712	$	1,484,335
Issued on exercise of share rights		2,665		45,048
Transfer from contributed surplus on exercise of share rights		-		77,258
Issued pursuant to dividend reinvestment plan		1,516		73,543
Balance, December 31, 2011		117,893	$	1,680,184
Issued on exercise of share rights		462		8,825
Transfer from contributed surplus on exercise of share rights		-		12,421
Transfer from contributed surplus on vesting of share awards		133		6,445
Issued pursuant to dividend reinvestment plan		417		22,791
Balance, March 31, 2012		118,905	$	1,730,666

Monthly dividends of $0.22 per common share were declared by the Company during the three months ended March 31, 2012 for total dividends declared of $78.4 million.

Page 7 of 18

Subsequent to March 31, 2012, the Company announced that monthly dividends in respect of April 2012 operations of $0.22 per common share totaling $26.2 million will be payable on May 15, 2012 to shareholders of record at April 30, 2012.

9.	EQUITY BASED PLANS

Share Rights Plan

As a result of the conversion of the legal structure of Baytex Energy Trust (the “Trust”) from an income trust to a corporation at year-end 2010, all outstanding rights to acquire trust units of the Trust (“unit rights”) were exchanged for equivalent rights to acquire common shares of Baytex (“share rights”), which are governed by the terms of the Common Share Rights Incentive Plan (the “Share Rights Plan”). As a result of the adoption of the Share Award Incentive Plan (as described below) effective January 1, 2011, no further grants will be made under the Share Rights Plan. The Share Rights Plan will remain in place until such time as all outstanding share rights have been exercised, cancelled, or expired.

Baytex recorded compensation expense of $0.4 million for the three months ended March 31, 2012 (three months ended March 31, 2011 - $5.3 million) related to the share rights under the Share Rights Plan.

The number of share rights outstanding and exercise prices are detailed below:

	Number of share rights (000’s)			Weighted average exercise price
Balance, December 31, 2010 (1)		5,761			$	17.02
Exercised		(2,665	)			16.92
Forfeited (1)		(125	)			23.05
Balance, December 31, 2011 (1)		2,971			$	16.98
Exercised		(462	)			18.87
Forfeited (1)		(50	)			20.43
Balance, March 31, 2012 (1)		2,459			$	17.02

(1)	Weighted average exercise price reflects the grant price less the reduction in exercise price.

The following table summarizes information about the share rights outstanding at March 31, 2012:

Exercise Prices Applying Original Grant Price												Exercise Prices Applying Original Grant Price Reduced for Dividends and Distributions Subsequent to Grant Date
PRICE RANGE		Number Outstanding at March 31, 2012 (000’s)		Weighted Average Grant Price		Weighted Average Remaining Term (years)		Number Exercisable at March 31, 2012 (000’s)		Weighted Average Exercise Price		Number Outstanding at March 31, 2012 (000’s)		Weighted Average Exercise Price		Weighted Average Remaining Term (years)		Number Exercisable at March 31, 2012 (000’s)		Weighted Average Exercise Price
$	6.00 to $13.00		5	$	12.46		2.0		5	$	12.46		1,030	$	10.30		1.2		1,024	$	10.29
$	13.01 to $20.00		1,279		18.34		1.3		1,273		18.34		417		17.36		1.7		359		17.53
$	20.01 to $27.00		190		23.45		2.4		97		23.26		819		22.45		2.7		479		22.43
$	27.01 to $34.00		950		27.99		2.7		577		27.88		178		28.64		2.8		92		27.86
$	34.01 to $41.00		32		36.08		3.4		5		36.00		13		35.00		3.3		3		35.14
$	41.01 to $47.72		3		45.02		3.7		1		45.19		2		42.81		3.7		1		43.28
$	6.00 to $47.72		2,459	$	22.71		1.9		1,958	$	21.43		2,459	$	17.02		1.9		1,958	$	15.46

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Share Award Incentive Plan

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 plan of the Company, including the Share Rights Plan) shall not at any time exceed 10% of the then issued and outstanding common shares.

The Company recorded compensation expense of $6.5 million for the three months ended March 31, 2012 related to the share awards (three months ended March 31, 2011 - $2.7 million).

The fair value of share awards is determined at the date of grant using the closing price of the common shares and, for performance awards, an estimated payout multiplier. The amount of compensation expense is reduced by an estimated forfeiture rate, which has been estimated at 4.6% of outstanding share awards. Fluctuations in compensation expense may occur due to changes in estimating the outcome of the performance conditions. The estimated weighted average fair value for share awards at the measurement date is $56.43 per restricted award and performance award granted during the three months ended March 31, 2012 (three months ended March 31, 2011 - $48.32 per restricted award and performance award).

The number of share awards outstanding is detailed below:

	Number of restricted awards (000’s)			Number of performance awards (000’s)			Number of share awards (000’s)
Balance, December 31, 2010		-			-			-
Granted		389			243			632
Forfeited		(24	)		(14	)		(38	)
Balance, December 31, 2011		365			229			594
Granted		177			147			324
Vested and converted to common shares		(58	)		(37	)		(95	)
Forfeited		(17	)		(15	)		(32	)
Balance, March 31, 2012		467			324			791

10.	NET INCOME PER SHARE

Baytex calculates basic income per share based on the net income attributable to shareholders and a weighted average number of shares outstanding during the period. Diluted income per share amounts reflect the potential dilution that could occur if share rights were exercised and share awards were converted. The treasury stock method is used to determine the dilutive effect of share rights and share awards whereby any proceeds from the exercise of share rights and the conversion of share awards or other dilutive instruments and the amount of compensation expense, if any, attributed to future services not yet recognized are assumed to be used to purchase common shares at the average market price during the periods.

	Three Months Ended March 31, 2012						Three Months Ended March 31, 2011
	Net income		Common shares (000’s)		Net income per share		Net income		Common shares (000’s)		Net income per share
Net income - basic	$	42,958		118,563	$	0.36	$	950		114,409	$	0.01
Dilutive effect of share rights		-		1,514				-		3,182
Dilutive effect of share awards		-		205				-		70
Net income - diluted	$	42,958		120,282	$	0.36	$	950		117,661	$	0.01

For the three months ended March 31, 2012, nil share rights (three months ended March 31, 2011 – nil share rights) were excluded in calculating the weighted average number of diluted common shares outstanding as they were anti-dilutive.

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11.	INCOME TAXES

The provision for (recovery of) income taxes has been computed as follows:
	Three months ended March 31
	2012			2011
Net income (loss) before income taxes	$	60,746		$	(860	)
Expected income taxes at the statutory rate of 25.45% (2011 – 26.98%)(1)		15,460			(232	)
Increase (decrease) in income taxes resulting from:
Non-taxable portion of foreign exchange loss (gain)		(752	)		(655	)
Non-deductible (taxable) items		-			33
Share-based compensation		1,745			2,153
Effect of change in income tax rates		170			(2,686	)
Effect of rate adjustments for foreign jurisdictions		(992	)		-
Effect of change in opening tax pool balances		-			(356	)
Other		2,157			(67	)
Deferred income tax expense (recovery)	$	17,788		$	(1,810	)

(1)	The change in statutory rate is related to a legislated reduction in the Canadian Federal corporate income tax rate and changes in the provincial apportionment of income.

12.

REVENUES

	Three Months Ended March 31
	2012			2011
Petroleum and natural gas revenues	$	341,155		$	289,793
Royalty charges		(52,994	)		(48,802	)
Royalty income		2,200			522
Revenues, net of royalties	$	290,361		$	241,513

13.	FINANCING COSTS

Baytex incurred financing costs on its outstanding liabilities as follows:

	Three Months Ended March 31
	2012		2011
Bank loan and other	$	2,540	$	3,721
Long-term debt		6,112		4,696
Accretion on asset retirement obligations		1,627		1,484
Debt financing costs		20		661
Financing costs	$	10,299	$	10,562

14.	SUPPLEMENTAL INFORMATION

Change in Non-Cash Working Capital Items

	Three Months Ended March 31
	2012			2011
Trade and other receivables	$	26,362		$	(27,467	)
Crude oil inventory		329			1,802
Trade and other payables		2,016			51,618
Foreign exchange		(708	)		269
	$	27,999		$	26,222
Changes in non-cash working capital related to:
Operating activities	$	1,881		$	2,392
Investing activities		26,118			23,830
	$	27,999		$	26,222

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Foreign Exchange

	Three Months Ended March 31
	2012			2011
Unrealized foreign exchange gain	$	(5,993	)	$	(4,856	)
Realized foreign exchange loss		1,125			926
Foreign exchange gain	$	(4,868	)	$	(3,930	)

15.	FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The Company’s financial assets and liabilities are comprised of cash, trade and other receivables, trade and other payables, dividends payable to shareholders, bank loan, financial derivatives and long-term debt.

Categories of Financial Instruments

The estimated fair values of the financial instruments have been determined based on the Company’s assessment of available market information. These estimates may not necessarily be indicative of the amounts that could be realized or settled in a market transaction. The fair values of financial instruments, other than bank loan and long-term debt, are equal to their carrying amounts due to the short-term maturity of these instruments. The fair value of the bank loan approximates its carrying value as it is at a market rate of interest. The fair value of the long-term debt is based on the trading value of the debentures.

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.

The carrying value and fair value of the Company’s financial instruments carried on the condensed consolidated statements of financial position are classified into the following categories:

As at	March 31, 2012						December 31, 2011
	Carrying Value			Fair Value			Carrying Value			Fair Value			Fair Value Measurement Hierarchy
Financial Assets
FVTPL(1)
Cash	$	2,812		$	2,812		$	7,847		$	7,847		Level 1
Derivatives		9,457			9,457			11,059			11,059		Level 2
Total FVTPL(1)	$	12,269		$	12,269		$	18,906		$	18,906
Loans and receivables
Trade and other receivables	$	180,589		$	180,589		$	206,951		$	206,951			-
Total loans and receivables	$	180,589		$	180,589		$	206,951		$	206,951
Financial Liabilities
FVTPL(1)
Derivatives	$	(42,458	)	$	(42,458	)	$	(39,990	)	$	(39,990	)	Level 2
Total FVTPL(1)	$	(42,458	)	$	(42,458	)	$	(39,990	)	$	(39,990	)

Other financial liabilities
Trade and other payables	$	(221,799	)	$	(221,799	)	$	(225,831	)	$	(225,831	)		-
Dividends payable to shareholders		(26,159	)		(26,159	)		(25,936	)		(25,936	)		-
Bank loan		(326,889	)		(326,889	)		(311,960	)		(311,960	)		-
Long-term debt		(295,241	)		(314,250	)		(297,731	)		(314,201	)		-
Total other financial liabilities	$	(870,088	)	$	(889,097	)	$	(861,458	)	$	(877,928	)

(1) FVTPL means fair value through profit or loss.

There were no transfers between Level 1 and 2 in the period.

Page 11 of 18

Financial Risk

Baytex is exposed to a variety of financial risks, including market risk, liquidity risk and credit risk. The Company monitors and, when appropriate, utilizes derivative contracts to manage its exposure to these risks. The Company does not enter into derivative contracts for speculative purposes.

Market Risk

Market risk is the risk that the fair value or future cash flows of financial assets or liabilities will fluctuate due to movements in market prices. Market risk is comprised of foreign currency risk, interest rate risk and commodity price risk.

Foreign currency risk

Baytex is exposed to fluctuations in foreign currency as a result of the U.S. dollar portion of its bank loan, its Series B senior unsecured debentures, crude oil sales based on U.S. dollar indices and commodity contracts that are settled in U.S. dollars. The Company’s net income and cash flow will therefore be impacted by fluctuations in foreign exchange rates.

To manage the impact of currency exchange rate fluctuations, the Company may enter into agreements to fix the Canada – U.S. exchange rate.

At March 31, 2012, the Company had in place the following currency derivative contracts:

Type	Period	Amount per month	Sales Price	Reference
Monthly forward spot sale	June 2010 to June 2012	US$ 1.00 million	1.0250	(1)
Monthly forward spot sale	January 2011 to June 2012	US$ 3.00 million	1.0622	(1)
Monthly forward spot sale	January 2011 to August 2012	US$ 1.00 million	1.0565	(1)
Monthly forward spot sale	January 2011 to September 2012	US$ 1.50 million	1.0553	(1)
Monthly forward spot sale	November 2011 to October 2013	US$ 1.00 million	1.0433	(1)
Monthly average rate forward	Calendar 2012	US$ 1.25 million	1.0209	(2)
Monthly spot collar	Calendar 2012	US$ 0.75 million	0.9524 – 1.0503	(1)
Monthly spot collar	Calendar 2012	US$ 0.25 million	1.0200 – 1.0700	(1)
Monthly average collar	Calendar 2012	US$ 0.25 million	0.9700 – 1.0310	(1)
Monthly average collar	Calendar 2012	US$ 0.50 million	0.9750 – 1.0305	(1)
Monthly average collar	Calendar 2012	US$ 0.50 million	0.9900 – 1.0805	(2)
Monthly average collar	Calendar 2012	US$ 0.75 million	1.0225 – 1.0425	(1)
Monthly average collar	Calendar 2012	US$ 0.25 million	1.0295 – 1.0545	(1)
Monthly forward spot sale	Calendar 2013	US$ 4.50 million	1.0007	(2)
Monthly average rate forward	Calendar 2013	US$ 0.25 million	1.0023	(1)
Monthly average collar	Calendar 2013	US$ 0.25 million	0.9700 – 1.0310	(1)
Monthly spot collar	Calendar 2012	US$ 1.00 million	0.9800 – 1.0722	(1)
Monthly spot collar	Calendar 2012	US$ 1.00 million	0.9900 – 1.0720	(1)
Monthly spot collar	Calendar 2012	US$ 0.50 million	0.9900 – 1.0785	(1)
Monthly average rate forward	January 2012 to June 2012	US$ 1.00 million	1.0500	(1)(3)
Monthly forward spot sale	April 2012 to June 2012	US$ 3.50 million	1.0228	(2)
Monthly forward spot sale	April 2012 to December 2012	US$ 3.00 million	0.9951	(1)
Monthly spot collar	June 2012 to December 2012	US$ 1.00 million	0.9800 – 1.0720	(1)
Monthly forward spot sale	July 2012 to December 2012	US$ 2.50 million	1.0173	(2)

(1) Actual contract rate (CAD/USD).

(2) Based on the weighted average contract rates (CAD/USD).

(3) Counterparty has the option to extend the term of the contract for an additional six months.

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The following table demonstrates the effect of exchange rate movements on net income due to changes in the fair value of risk management contracts in place at March 31, 2012 as well as the unrealized gain or loss on revaluation of outstanding U.S. dollar denominated debt. The sensitivity is based on a $0.01 increase and decrease in the CAD/USD foreign exchange rate and excludes the impact on revenue proceeds.

Sensitivity of Foreign Exchange Exposure:	$0.01 Increase in CAD/USD Exchange rate			$0.01 Decrease in CAD/USD Exchange Rate
Loss (gain) on currency derivative contracts		$	2,006		$	(2,047	)
Loss (gain) on other monetary assets/liabilities			2,903			(2,903	)
Net income decrease (increase)		$	4,909		$	(4,950	)

The carrying amounts of the Company’s U.S. dollar denominated monetary assets and liabilities at the reporting date are as follows:

	Assets		Liabilities
	March 31, 2012	December 31, 2011	March 31, 2012	December 31, 2011
U.S. dollar denominated	US$125,985	US$107,138	US$413,321	US$402,979

Interest rate risk

The Company’s interest rate risk arises from Baytex Energy’s floating rate bank credit facilities. As at March 31, 2012, $326.9 million of the Company’s total debt is subject to movements in floating interest rates. A change of 100 basis points in interest rates would impact net income before taxes for the three months ended March 31, 2012 by approximately $0.8 million. Baytex uses a combination of short-term and long-term debt to finance operations. The bank loan is typically at floating rates of interest and long-term debt is typically at fixed rates of interest.

As at March 31, 2012, Baytex had the following interest rate swap financial derivative contracts:

Type	Period	Notional Principal Amount	Fixed interest rate			Floating rate index
Swap – pay fixed, receive floating	September 27, 2011 to September 27, 2014	US$90.0 million		4.06	%	3-month LIBOR

Swap – pay fixed, receive floating	September 25, 2012 to September 25, 2014	US$90.0 million		4.39	%	3-month LIBOR

When assessing the potential impact of forward interest rate changes on financial derivative contracts outstanding as at March 31, 2012, an increase of 100 basis points would decrease the unrealized loss at March 31, 2012 by $3.9 million, while a decrease of 100 basis points would increase the unrealized loss at March 31, 2012 by $2.5 million.

Commodity Price Risk

Baytex monitors and, when appropriate, utilizes financial derivative contracts or physical delivery contracts to manage the risk associated with changes in commodity prices. The use of derivative instruments is governed under formal policies and is subject to limits established by the Board of Directors of Baytex. Under the Company’s risk management policy, financial derivatives are not to be used for speculative purposes.

When assessing the potential impact of oil price changes on the financial derivative contracts outstanding as at March 31, 2012, a 10% increase in oil prices would increase the unrealized loss at March 31, 2012 by $40.7 million, while a 10% decrease would decrease the unrealized loss at March 31, 2012 by $39.7 million.

When assessing the potential impact of natural gas price changes on the financial derivative contracts outstanding as at March 31, 2012, a 10% increase in natural gas prices would increase the unrealized loss at March 31, 2012 by $0.5 million, while a 10% decrease would decrease the unrealized loss at March 31, 2012 by $0.1 million.

Page 13 of 18

Financial Derivative Contracts

At March 31, 2012, Baytex had the following financial derivative contracts:

Oil	Period	Volume	Price/Unit(1)	Index
Fixed – Sell	January to June 2012	3,600 bbl/d	US$100.59	WTI
Fixed – Sell	January to June 2012(2)	500 bbl/d	US$108.00	WTI
Fixed – Sell	January to June 2012(2)	500 bbl/d	US$108.45	WTI
Time spread	January to December 2012	500 bbl/d	Dec 2014 plus US$3.25	WTI
Time spread	January to December 2012	500 bbl/d	Dec 2014 plus US$0.65	WTI
Price collar	March to December 2012	200 bbl/d	US$97.00 – US$117.60	WTI
Price collar	March to December 2012	300 bbl/d	US$97.00 – US$116.60	WTI
Fixed – Sell	April to June 2012	1,200 bbl/d	US$105.23	WTI
Fixed – Sell	April to June 2012(3)	500 bbl/d	US$107.70	WTI
Fixed – Sell	July to September 2012	300 bbl/d	US$107.38	WTI
Fixed – Sell	July to December 2012(2)	500 bbl/d	US$107.30	WTI
Fixed – Sell	July to December 2012(4)	500 bbl/d	US$108.80	WTI
Fixed – Sell	July to December 2012(4)	500 bbl/d	US$108.65	WTI
Fixed – Sell	July to December 2012(4)	500 bbl/d	US$107.80	WTI
Fixed – Sell	July to December 2012(4)	500 bbl/d	US$109.25	WTI
Fixed – Sell	Calendar 2012	7,950 bbl/d	US$93.96	WTI
Price collar	Calendar 2012	400 bbl/d	US$98.00 – US$104.52	WTI
Price collar	Calendar 2012	300 bbl/d	US$100.00 – US$104.90	WTI
Price collar	Calendar 2012	200 bbl/d	US$97.50 – US$104.25	WTI
Price collar	Calendar 2012	300 bbl/d	US$100.00 – US$105.92	WTI
Fixed – Buy	Calendar 2012	200 bbl/d	US$102.50	WTI
Fixed – Buy	January to June 2013	250 bbl/d	US$102.07	WTI
Fixed – Buy	July to December 2013	350 bbl/d	US$101.70	WTI
Fixed – Buy	Calendar 2014	380 bbl/d	US$101.06	WTI

(1) Based on the weighted average price/unit for the remainder of the contract.

(2) Counterparty has the option to extend the term of the contract for an additional six months.

(3) Counterparty has the option to extend the term of the contract for an additional six months on 250 bbl/d.

(4) Counterparty has the option to increase the volume on the contract to 1,000 bbl/d.

Natural Gas	Period	Volume	Price/Unit(1)	Index
Basis swap	Calendar 2012	1,000 mmBtu/d	NYMEX less US$0.328	AECO
Basis swap	Calendar 2012	1,000 mmBtu/d	NYMEX less US$0.390	AECO
Basis swap	Calendar 2012	1,000 mmBtu/d	NYMEX less US$0.370	AECO
Basis swap	Calendar 2012	1,000 mmBtu/d	NYMEX less US$0.450	AECO
Basis swap	Calendar 2012	1,000 mmBtu/d	NYMEX less US$0.430	AECO
Basis swap	Calendar 2012	1,000 mmBtu/d	NYMEX less US$0.410	AECO
Basis swap	Calendar 2012	1,500 mmBtu/d	NYMEX less US$0.490	AECO
Basis swap	Calendar 2012	1,000 mmBtu/d	NYMEX less US$0.515	AECO
Basis swap	Calendar 2012	2,000 mmBtu/d	NYMEX less US$0.520	AECO
Basis swap	Calendar 2012	2,500 mmBtu/d	NYMEX less US$0.530	AECO
Sold call	Calendar 2012	6,000 mmBtu/d	US$5.25	NYMEX
Fixed – Sell	Calendar 2012	7,000 mmBtu/d	US$5.07	NYMEX

(1) Based on the weighted average price/unit for the remainder of the contract.

Financial derivatives are marked-to-market at the end of each reporting period, with the following reflected in the condensed consolidated statements of income and comprehensive income:

	Three Months Ended March 31
	2012		2011
Realized loss (gain) on financial derivatives	$	7,140	$	(1,587	)
Unrealized loss on financial derivatives		4,202		46,470
Loss on financial derivatives	$	11,342	$	44,883

Page 14 of 18

Subsequent to March 31, 2012, Baytex added the following financial derivative contracts:

Oil	Period	Volume	Price/Unit(1)	Index
Fixed – Sell	May to December 2012	1,000 bbl/d	US$106.36	WTI

(1) Based on the weighted average price/unit for the remainder of the contract.

Physical Delivery Contracts

At March 31, 2012, the following physical delivery contracts were entered into and continue to be held for the purpose of delivery of non-financial items in accordance with the Company’s expected sale requirements. Physical delivery contracts are not considered financial instruments; therefore, no asset or liability has been recognized in the consolidated financial statements.

Heavy Oil	Period	Volume	Weighted Average Price/Unit(1)
WCS Blend	October 2011 to December 2014	2,000 bbl/d	WTI x 81.00%
WCS Blend	April to June 2012	1,500 bbl/d	WTI less US$13.42
WCS Blend	July to September 2012	500 bbl/d	WTI less US$15.00
WCS Blend	October to December 2012	500 bbl/d	WTI less US$18.00
WCS Blend	Calendar 2012	4,000 bbl/d	WTI less US$18.13
WCS Blend	January to June 2013	1,250 bbl/d	WTI x 80.00%
WCS Blend	January to June 2013	4,250 bbl/d	WTI less US$18.18
WCS Blend	July to December 2013	2,750 bbl/d	WTI x 80.00%
WCS Blend	July to December 2013	2,750 bbl/d	WTI less US$21.00

(1) Based on the weighted average price/unit for the remainder of the contract.

Condensate (diluent)	Period	Volume	Price/Unit
Condensate	April 2012 to March 2013	640 bbl/d	WTI plus US$6.70

Subsequent to March 31, 2012, Baytex added the following physical purchase contract:

Heavy Oil	Period	Volume	Weighted Average Price/Unit(1)
WCS Blend	April to December 2012	2,600 bbl/d	WTI less US$18.00
WCS Blend	June 2012 to March 2013	2,600 bbl/d	WTI less US$18.00

Liquidity Risk

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 continuously monitoring forecasted and actual cash flows from operating, financing and investing activities, available credit under existing banking arrangements and opportunities to issue additional common shares. As at March 31, 2012, Baytex had available unused bank credit facilities in the amount of $373.1 million.

The timing of cash outflows (excluding interest) relating to financial liabilities is outlined in the table below:

	Total		Less than 1 year		1-3 years		3-5 years		Beyond 5 years
Trade and other payables	$	221,799	$	221,799	$	-	$	-	$	-
Dividends payable to shareholders		26,159		26,159		-		-		-
Bank loan (1)		326,889		-		326,889		-		-
Long-term debt (2)		299,865		-		-		150,000		149,865
	$	874,712	$	247,958	$	326,889	$	150,000	$	149,865

(1)	The bank loan is a three-year covenant-based revolving loan that is extendible annually, for a one, two or three year period (subject to a maximum three-year term at any time). Unless extended, the revolving period will end on June 14, 2014 with all amounts to be re-paid on such date.

(2)	Principal amount of instruments.

Page 15 of 18

Credit Risk

Credit risk is the risk that a counterparty to a financial asset will default resulting in Baytex incurring a loss. Most of the Company’s trade and other receivables relate to petroleum and natural gas sales and are exposed to typical industry credit risks. Baytex reviews its exposure to individual entities on a regular basis and manages its credit risk by entering into sales contracts with only creditworthy entities. Letters of credit and/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 that all financial assets that are not impaired or past due for each of the reporting dates under review are of good credit quality. None of the Company’s financial assets are secured by collateral.

Should Baytex determine that the ultimate collection of a receivable is in doubt based on the processes for managing credit risk, the carrying amount of accounts receivable is reduced through the use of an allowance for doubtful accounts and the amount of the loss is recognized in net income. If the Company subsequently determines that an account is uncollectible, the account is written-off with a corresponding change to allowance for doubtful accounts.

16.	SUBSEQUENT EVENTS

Subsequent to the end of the first quarter, Baytex Energy USA Ltd., a subsidiary of Baytex Energy, entered into an agreement to sell its non-operated interests in North Dakota for cash proceeds of US$311.0 million, subject to closing adjustments.

17.	CONSOLIDATING FINANCIAL INFORMATION – BASE SHELF PROSPECTUS

On August 4, 2011, Baytex filed a Short Form Base Shelf Prospectus with the securities regulatory authorities in each of the provinces of Canada (other than Québec) and a Registration Statement with the United States Securities and Exchange Commission (collectively, the "Shelf Prospectus"). The Shelf Prospectus allows Baytex to offer and issue common shares, subscription receipts, warrants, options and debt securities by way of one or more prospectus supplements at any time during the 25-month period that the Shelf Prospectus remains in place. The securities may be issued from time to time, at the discretion of Baytex, with an aggregate offering amount not to exceed $500 million (Canadian).

Any debt securities issued by Baytex pursuant to the Shelf Prospectus will be guaranteed by all of its direct and indirect wholly-owned material subsidiaries (the "Guarantor Subsidiaries"). The guarantees of the Guarantor Subsidiaries are full and unconditional and joint and several. These guarantees may in turn be guaranteed by Baytex. Other than investments in its subsidiaries, Baytex has no independent assets or operations.

Pursuant to the credit agreement governing Baytex Energy's credit facilities, Baytex Energy and its subsidiaries are prohibited from paying dividends to their shareholders that would have, or would reasonably be expected to have, a material adverse effect or would adversely affect or impair the ability or capacity of Baytex Energy to pay or fulfill any of its obligations under the credit agreement. In addition, Baytex Energy may not permit any of its subsidiaries to pay any dividends during the continuance of a default or event of default under the credit agreement.

Page 16 of 18

The following tables present condensed interim unaudited consolidating financial information as at March 31, 2012, and December 31, 2011 and for the three months ended March 31, 2012 and 2011 for: 1) Baytex, on a stand-alone basis, 2) Guarantor subsidiaries, on a stand-alone basis, 3) non-guarantor subsidiaries, on a stand-alone basis and 4) Baytex, on a consolidated basis.

(thousands of Canadian dollars)	Baytex		Guarantor Subsidiaries			Non-guarantor Subsidiaries		Consolidation Adjustments			Total Consolidated
As at March 31, 2012
Current assets	$	5	$	192,958		$	208	$	-		$	193,171
Intercompany advances and investments		1,719,294		(491,902	)		72,853		(1,300,245	)		-
Non-current assets		2,435		2,295,069			-		-			2,297,504
Current liabilities		28,698		251,594			106		-			280,398
Bank loan and long-term debt		295,241		-			-		-			295,241
Asset retirement obligation and other non-current liabilities	$	-	$	383,734		$	-	$	-		$	383,734

As at December 31, 2011
Current assets	$	351	$	225,850		$	374	$	-		$	226,575
Intercompany advances and investments		1,753,047		(515,492	)		72,787		(1,310,342	)		-
Non-current assets		2,435		2,232,800			-		-			2,235,235
Current liabilities		34,502		242,303			167		-			276,972
Bank loan and long-term debt		297,731		311,960			-		-			609,691
Asset retirement obligation and other non-current liabilities	$	-	$	368,413		$	-	$	-		$	368,413

(thousands of Canadian dollars)	Baytex		Guarantor Subsidiaries		Non-guarantor Subsidiaries		Consolidation Adjustments			Total Consolidated
For the three months ended March 31, 2012
Revenues, net of royalties	$	5,833	$	290,736	$	3,906	$	(10,114	)	$	290,361
Production, operation and exploration		-		60,750		-		-			60,750
Transportation and blending		-		61,737		-		-			61,737
General, administrative and share-based compensation		375		17,946		98		(375	)		18,044
Financing, derivatives, foreign exchange and other gains/losses		3,378		23,131		3		(9,739	)		16,773
Depletion and depreciation		-		72,311		-		-			72,311
Deferred income tax (recovery) expense		-		17,788		-		-			17,788
Net income (loss)	$	2,080	$	37,073	$	3,805	$	-		$	42,958

(thousands of Canadian dollars)	Baytex			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Consolidation Adjustments			Total Consolidated
For the three months ended March 31, 2011
Revenues, net of royalties	$	4,432		$	241,888		$	1,815		$	(6,622	)	$	241,513
Production, operation and exploration		-			50,942			-			-			50,942
Transportation and blending		-			64,160			-			-			64,160
General, administrative and unit-based compensation		395			19,029			63			(375	)		19,112
Financing, derivatives, foreign exchange and other gains/losses		4,696			53,104			(38	)		(6,247	)		51,515
Depletion and depreciation		-			56,644			-			-			56,644
Deferred income tax expense (recovery)		-			(1,810	)		-			-			(1,810	)
Net income (loss)	$	(659	)	$	(181	)	$	1,790		$	-		$	950

Page 17 of 18

(thousands of Canadian dollars)	Baytex			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Consolidation Adjustments			Total Consolidated
For the three months ended March 31, 2012
Cash provided by (used in):
Operating activities	$	72,244		$	79,117		$	-		$	-		$	151,361

Payment of dividends		(55,351	)		-			-			-			(55,351	)
Increase in bank loan		-			18,142			-			-			18,142
Increase (decrease) in intercompany loans		(13,860	)		27,884			(14,024	)		-			-
Increase in investments					(14,024	)					14,024			-
Increase in equity		8,825			-			14,024			(14,024	)		8,825
Interest paid		(11,858	)		(2,694	)		-			-			(14,552	)
Financing activities		(72,244	)		29,308			-			-			(42,936	)
Additions to exploration and evaluation assets		-			(3,731	)		-			-			(3,731	)
Additions to oil and gas properties		-			(132,187	)		-			-			(132,187	)
Property acquisitions		-			(2,336	)		-			-			(2,336	)
Proceeds from divestitures		-			3,568			-			-			3,568
Additions to other plant and equipment, net of disposals		-			(5,044	)		-			-			(5,044	)
Acquisitions of financing entities		-			-			-			-			-
Change in non-cash working capital		-			26,118			-			-			26,118
Investing activities		-			(113,612	)		-			-			(113,612	)

Impact of foreign currency translation on cash balances	$	-		$	152		$	-		$	-		$	152

(thousands of Canadian dollars)	Baytex			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Consolidation Adjustments			Total Consolidated
For the three months ended March 31, 2011
Cash provided by (used in):
Operating activities	$	63,383		$	56,514		$	2		$	-		$	119,899

Payment of dividends		(52,057	)		-			-			-			(52,057	)
Increase in bank loan		-			(1,077	)		-			-			(1,077	)
Increase (decrease) in intercompany loans		(169,904	)		185,560			(15,656	)		-			-
Increase in investments		-			(15,654	)		-			15,654			-
Proceeds from issuance of long-term debt		145,810			-			-			-			145,810
Increase in equity		19,631			-			15,654			(15,654	)		19,631
Interest paid		(6,863	)		(3,657	)		-			-			(10,520	)
Financing activities		(63,383	)		165,172			(2	)		-			101,787

Additions to exploration and evaluation assets		-			(5,456	)		-			-			(5,456	)
Additions to oil and gas properties		-			(81,558	)		-			-			(81,558	)
Property acquisitions		-			(37,518	)		-			-			(37,518	)
Corporate acquisitions		-			(117,346	)		-			-			(117,346	)
Additions to other plant and equipment, net of disposals		-			275			-			-			275
Change in non-cash working capital		-			23,830			-			-			23,830
Investing activities		-			(217,773	)		-			-			(217,773	)

Impact of foreign currency translation on cash balances	$	-		$	59		$	-		$	-		$	59

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