EX-99.1 2 a991-q12019fs.htm EXHIBIT 99.1 Exhibit
Baytex Energy Corp.
Condensed Consolidated Statements of Financial Position
(thousands of Canadian dollars) (unaudited)
 
 
As at

Notes
March 31, 2019

December 31, 2018

 
 
 
 
ASSETS
 
 
 
Current assets
 
 
 
Trade and other receivables
18
$
181,366

$
111,564

Financial derivatives
18
27,569

79,582

 
 
208,935

191,146

Non-current assets
 
 
 
Exploration and evaluation assets
5
349,768

358,935

Oil and gas properties
6
5,775,238

5,817,889

Other plant and equipment
 
8,783

9,228

Lease assets
3
16,433

—

 
 
$
6,359,157

$
6,377,198

 
 
 
 
LIABILITIES
 
 
 
Current liabilities
 
 
 
Trade and other payables
18
$
236,703

$
258,114

Financial derivatives
18
127

—

Lease obligations
3, 9
5,784

—

Onerous contracts
3
—

1,986

 
 
242,614

260,100

Non-current liabilities
 
 
 
Financial derivatives
18
1,121

—

Bank loan
7
549,503

520,700

Long-term notes
8
1,557,058

1,583,240

Lease obligations
3, 9
10,786

—

Asset retirement obligations
10
679,759

646,898

Deferred income tax liability
 
293,507

310,836

 
 
3,334,348

3,321,774

 
 
 
 
SHAREHOLDERS’ EQUITY
 
 
 
Shareholders' capital
11
5,709,162

5,701,516

Contributed surplus
 
17,334

19,137

Accumulated other comprehensive income
 
620,080

667,874

Deficit
 
(3,321,767
)
(3,333,103
)
 
 
3,024,809

3,055,424

 
 
$
6,359,157

$
6,377,198


Subsequent event (note 7)

See accompanying notes to the condensed consolidated interim unaudited financial statements.






Page 1


Baytex Energy Corp.
Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
(thousands of Canadian dollars, except per common share amounts and weighted average common shares) (unaudited)
 
 
Three Months Ended March 31
 
Notes
2019

2018

 
 
 
 
Revenue, net of royalties
 
 
 
Petroleum and natural gas sales
12
$
453,424

$
286,067

Royalties
 
(81,325
)
(64,839
)
 
 
372,099

221,228

 
 
 
 
Expenses
 
 
 
Operating
 
100,292

65,888

Transportation
 
13,330

8,519

Blending and other
 
16,788

17,290

General and administrative
 
14,136

11,008

Exploration and evaluation
5
1,844

2,019

Depletion and depreciation
 
185,354

108,289

Share-based compensation
13
5,843

3,915

Financing and interest
16
32,742

28,010

Financial derivatives loss
18
34,447

27,550

Foreign exchange (gain) loss
17
(27,536
)
36,217

Gain on disposition of oil and gas properties
 
—

(1,486
)
Other income
 
(2,587
)
(279
)
 
 
374,653

306,940

Net loss before income taxes
 
(2,554
)
(85,712
)
Income tax expense (recovery)
15
 
 
Current income tax expense (recovery)
 
595

(73
)
Deferred income tax recovery
 
(14,485
)
(22,917
)
 
 
(13,890
)
(22,990
)
Net income (loss) attributable to shareholders
 
$
11,336

$
(62,722
)
Other comprehensive income (loss)
 
 
 
Foreign currency translation adjustment
 
(47,794
)
72,322

Comprehensive income (loss)
 
$
(36,458
)
$
9,600

 
 
 
 
Net income (loss) per common share
14
 
 
Basic
 
$
0.02

$
(0.27
)
Diluted
 
$
0.02

$
(0.27
)
 
 
 
 
Weighted average common shares (000's)
14
 
 
Basic
 
555,438

236,315

Diluted
 
558,732

236,315


See accompanying notes to the condensed consolidated interim unaudited financial statements.
 


Page 2


Baytex Energy Corp.
Condensed Consolidated Statements of Changes in Equity
(thousands of Canadian dollars) (unaudited)
 
Shareholders’ capital

Contributed surplus

Accumulated other comprehensive income

Deficit

Total equity

Balance at December 31, 2017
$
4,443,576

$
15,999

$
463,104

$
(3,007,794
)
$
1,914,885

Vesting of share awards
8,325

(8,325
)
—

—

—

Share-based compensation
—

3,915

—

—

3,915

Comprehensive income (loss) for the period
—

—

72,322

(62,722
)
9,600

Balance at March 31, 2018
$
4,451,901

$
11,589

$
535,426

$
(3,070,516
)
$
1,928,400

Balance at December 31, 2018
$
5,701,516

$
19,137

$
667,874

$
(3,333,103
)
$
3,055,424

Vesting of share awards
7,646

(7,646
)
—

—

—

Share-based compensation
—

5,843

—

—

5,843

Comprehensive income (loss) for the period
—

—

(47,794
)
11,336

(36,458
)
Balance at March 31, 2019
$
5,709,162

$
17,334

$
620,080

$
(3,321,767
)
$
3,024,809


See accompanying notes to the condensed consolidated interim unaudited financial statements.
 

Page 3


Baytex Energy Corp.
Condensed Consolidated Statements of Cash Flows
(thousands of Canadian dollars) (unaudited)
 
 
Three Months Ended March 31
 
Notes
2019

2018

 
 
 
 
CASH PROVIDED BY (USED IN):
 
 
 
Operating activities
 
 
 
Net income (loss) for the period
 
$
11,336

$
(62,722
)
Adjustments for:
 
 
 
Share-based compensation
13
5,843

3,915

Unrealized foreign exchange (gain) loss
17
(26,941
)
36,046

Exploration and evaluation
5
1,844

2,019

Depletion and depreciation
 
185,354

108,289

Non-cash financing and accretion
16
4,558

3,499

Unrealized financial derivatives loss
18
53,261

17,709

Gain on disposition of capital properties
 
—

(1,486
)
Deferred income tax recovery
 
(14,485
)
(22,917
)
Payments on onerous contracts
 
—

(97
)
Asset retirement obligations settled
10
(4,928
)
(3,263
)
Change in non-cash working capital
 
(58,477
)
6,620

 
 
157,365

87,612

 
 
 
 
Financing activities
 
 
 
Increase (decrease) in bank loan
 
31,612

(3,916
)
Payments on lease obligations
9
(1,389
)
—

 
 
30,223

(3,916
)
 
 
 
 
Investing activities
 
 
 
Additions to exploration and evaluation assets
5
(1,125
)
(1,287
)
Additions to oil and gas properties
6
(152,718
)
(92,247
)
Additions to other plant and equipment
 
(65
)
—

Property acquisitions
 
—

(187
)
Proceeds from disposition of capital properties
 
—

2,213

Change in non-cash working capital
 
(33,680
)
7,812

 
 
(187,588
)
(83,696
)
 
 
 
 
Change in cash
 
—

—

Cash, beginning of period
 
—

—

Cash, end of period
 
$
—

$
—

 
 
 
 
Supplementary information
 
 
 
Interest paid
 
$
22,035

$
18,876

Income taxes paid
 
$
—

$
—


See accompanying notes to the condensed consolidated interim unaudited financial statements.
 

Page 4


Baytex Energy Corp.
Notes to the Condensed Consolidated Interim Financial Statements
For the periods ended March 31, 2019 and 2018
(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 consolidated interim unaudited financial statements ("consolidated financial statements") have been prepared in accordance with International Accounting Standards 34, Interim Financial Reporting, under International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board (the "IASB"). These consolidated financial statements do not include all the necessary annual disclosures as prescribed by IFRS and should be read in conjunction with the annual audited consolidated financial statements as at and for the year ended December 31, 2018.

The consolidated financial statements were approved by the Board of Directors of Baytex on May 2, 2019.

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

The audited consolidated financial statements of the Company as at and for the year ended December 31, 2018 are available
through its filings on SEDAR at www.sedar.com and through the U.S. Securities and Exchange Commission at www.sec.gov.

3.
SIGNIFICANT ACCOUNTING POLICIES

The accounting policies, critical accounting judgments and significant estimates used in preparation of the 2018 annual financial statements have been applied in the preparation of these consolidated financial statements, except for the adoption of IFRS 16 Leases as described below.

Changes in significant accounting policies

Leases

Baytex adopted IFRS 16 Leases on January 1, 2019 using the modified retrospective approach. The modified retrospective approach does not require restatement of comparative financial information as it recognizes the cumulative effect on transition as an adjustment to opening retained earnings and applies the standard prospectively. Comparative information in the Company's consolidated statements of financial position, consolidated statements of income (loss) and comprehensive income (loss), consolidated statements of changes in equity, and consolidated statements of cash flows has not been restated.

The cumulative effect of initial application of the standard was to recognize a $18.0 million increase to right-of-use assets ("lease assets"), a $2.0 million reduction of onerous contracts and an $18.0 million increase to lease obligations. Initial measurement of the lease obligation was determined based on the remaining lease payments at January 1, 2019 using a weighted averaged incremental borrowing rate of approximately 3.9%. The lease assets were initially recognized at an amount equal to the lease obligations. The lease assets and lease obligations recognized largely relate to the Company's head office lease in Calgary.

The adoption of IFRS 16 using the modified retrospective approach allowed the Company to use the following practical expedients in determining the opening transition adjustment:

•
The weighted average incremental borrowing rate in effect at January 1, 2019 was used as opposed to the rate in effect at inception of the lease;
•
Leases with a term of less than 12 months as at January 1, 2019 were accounted for as short-term leases;
•
Leases with an underlying asset of low value are recorded as an expense and not recognized as a lease asset;
•
Leases with similar characteristics were accounted for as a portfolio using a single discount rate; and
•
Used the Company's previous assessment under IAS 37, "Provisions, Contingent Liabilities and Contingent Assets' for onerous contracts instead of reassessing the lease assets for impairment at January 1, 2019.


Page 5


The Company's accounting policy for leases effective January 1, 2019 is set forth below. The Company applied IFRS 16 using the modified retrospective approach. Comparative information continues to be accounted for in accordance with the Company's previous accounting policy found in the 2018 annual financial statements.

Leases

A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. A lease obligation and corresponding right-of-use asset ("lease asset") are recognized at the commencement of the lease. The present value of the lease obligation is based on the future lease payments and is discounted using the Company's incremental borrowing rate when the rate implicit in the lease is not readily available. The Company uses a single discount rate for a portfolio of lease with similar characteristics. The lease asset is recognized at the amount of the lease obligation, adjusted for lease incentives received and initial direct costs, on commencement of the lease. Depreciation is recognized on the lease asset over the shorter of the estimated useful life of the asset or the lease term.

Lease payments are allocated between the liability and interest expense. Interest expense is recognized on the lease obligations using the effective interest rate method and payments are applied against the lease obligation.

The preparation of the consolidated financial statements in accordance with IFRS requires management to make judgments, estimates, and assumptions that affect the reported amount of assets, liabilities, income, and expenses. Actual results could differ significantly from these estimates. Management has made the following judgments, estimates, and assumptions related to the accounting for leases.

The carrying amounts of the right-of-use assets, lease obligations, and the resulting interest and depletion and depreciation expense are based on the implicit interest rate within the lease arrangement or, if this information is unavailable, the incremental borrowing rate. Incremental borrowing rates are based on judgments including economic environment, term, and the underlying risk inherent to the asset.


Page 6


4.
SEGMENTED FINANCIAL INFORMATION

Baytex's reportable segments are determined based on the geographic location and nature of the underlying operations:

•
Canada includes the exploration for, and the development and production of, crude oil and natural gas in Western Canada;
•
U.S. includes the exploration for, and the development and production of, crude oil and natural gas in the United States; and
•
Corporate includes corporate activities and items not allocated between operating segments.
 
Canada
U.S.
Corporate
Consolidated
Three Months Ended March 31
2019

2018

2019

2018

2019

2018

2019

2018

 
 
 
 
 
 
 
 
 
Revenue, net of royalties
 
 
 
 
 
 
 
 
Petroleum and natural gas sales
$
264,039

$
106,814

$
189,385

$
179,253

$
—

$
—

$
453,424

$
286,067

Royalties
(25,184
)
(11,334
)
(56,141
)
(53,505
)
—

—

(81,325
)
(64,839
)
 
238,855

95,480

133,244

125,748

—

—

372,099

221,228

 
 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
 
Operating
74,102

45,420

26,190

20,468

—

—

100,292

65,888

Transportation
13,330

8,519

—

—

—

—

13,330

8,519

Blending and other
16,788

17,290

—

—

—

—

16,788

17,290

General and administrative
—

—

—

—

14,136

11,008

14,136

11,008

Exploration and evaluation
1,844

2,019

—

—

—

—

1,844

2,019

Depletion and depreciation
115,020

46,340

69,824

61,120

510

829

185,354

108,289

Share-based compensation
—

—

—

—

5,843

3,915

5,843

3,915

Financing and interest
—

—

—

—

32,742

28,010

32,742

28,010

Financial derivatives loss
—

—

—

—

34,447

27,550

34,447

27,550

Foreign exchange (gain) loss
—

—

—

—

(27,536
)
36,217

(27,536
)
36,217

Gain on disposition of oil and gas properties
—

(1,486
)
—

—

—

—

—

(1,486
)
Other income
—

—

—

—

(2,587
)
(279
)
(2,587
)
(279
)
 
221,084

118,102

96,014

81,588

57,555

107,250

374,653

306,940

Net income (loss) before income taxes
17,771

(22,622
)
37,230

44,160

(57,555
)
(107,250
)
(2,554
)
(85,712
)
Income tax expense (recovery)
 
 
 
 
 
 
 
 
Current income tax expense (recovery)
—

—

595

(73
)
—

—

595

(73
)
Deferred income tax expense (recovery)
4,248

(6,107
)
2,694

2,239

(21,427
)
(19,049
)
(14,485
)
(22,917
)
 
4,248

(6,107
)
3,289

2,166

(21,427
)
(19,049
)
(13,890
)
(22,990
)
Net income (loss)
$
13,523

$
(16,515
)
$
33,941

$
41,994

$
(36,128
)
$
(88,201
)
$
11,336

$
(62,722
)
 
 
 
 
 
 
 
 
 
Total oil and natural gas capital expenditures(1)
$
104,870

$
49,499

$
48,973

$
42,009

$
—

$
—

$
153,843

$
91,508

(1)
Includes acquisitions, net of proceeds from divestitures.

As at
March 31, 2019

December 31, 2018

Canadian assets
$
3,806,030

$
3,739,029

U.S. assets
2,544,344

2,628,941

Corporate assets
8,783

9,228

Total consolidated assets
$
6,359,157

$
6,377,198



Page 7


5.
EXPLORATION AND EVALUATION ASSETS

March 31, 2019

December 31, 2018

Balance, beginning of period
$
358,935

$
272,974

Capital expenditures
1,125

10,567

Corporate acquisition
—

97,858

Property acquisitions
—

514

Divestitures
—

(1,021
)
Exploration and evaluation expense
(1,844
)
(21,729
)
Transfer to oil and gas properties
(5,275
)
(13,866
)
Foreign currency translation
(3,173
)
13,638

Balance, end of period
$
349,768

$
358,935


6.
OIL AND GAS PROPERTIES

Cost

Accumulated depletion

Net book value

Balance, December 31, 2017
$
7,932,327

$
(3,974,018
)
$
3,958,309

Capital expenditures
485,154

—

485,154

Corporate acquisition
1,748,368

—

1,748,368

Property acquisitions
202

—

202

Transfers from exploration and evaluation assets
13,866

—

13,866

Change in asset retirement obligations
238,662

—

238,662

Divestitures
(15
)
—

(15
)
Impairment
—

(285,341
)
(285,341
)
Foreign currency translation
325,969

(110,651
)
215,318

Depletion
—

(556,634
)
(556,634
)
Balance, December 31, 2018
$
10,744,533

$
(4,926,644
)
$
5,817,889

Capital expenditures
152,718

—

152,718

Transfers from exploration and evaluation assets
5,275

—

5,275

Change in asset retirement obligations (note 10)
35,218

—

35,218

Foreign currency translation
(82,036
)
31,496

(50,540
)
Depletion
—

(185,322
)
(185,322
)
Balance, March 31, 2019
$
10,855,708

$
(5,080,470
)
$
5,775,238


7.
BANK LOAN
 
March 31, 2019

December 31, 2018

Bank loan - U.S. dollar denominated(1)
$
78,835

$
122,388

Bank loan - Canadian dollar denominated
471,916

399,906

Bank loan - principal
550,751

522,294

Unamortized debt issuance costs
(1,248
)
(1,594
)
Bank loan
$
549,503

$
520,700

(1)
U.S. dollar denominated bank loan balance was US$59.0 million as at March 31, 2019 (December 31, 2018 - US$89.7 million).

Baytex has credit facilities that include US$575 million of revolving credit facilities (the "Revolving Facilities") and a $300 million non-revolving term loan (the "Term Loan"). On May 2, 2019, Baytex amended its Credit Facilities to extend maturity from June 4, 2020 to April 2, 2021. These facilities will automatically be extended to June 4, 2021 providing Baytex has either refinanced, or has the ability to repay, the outstanding 2021 long-term notes with existing credit capacity as of April 1, 2021.

The extendible secured Revolving Facilities are comprised of a US$50 million operating loan (previously US$35 million) and a US$325 million syndicated revolving loan for Baytex (previously US$340 million) and a US$200 million syndicated revolving loan for

Page 8


Baytex's wholly-owned subsidiary, Baytex Energy USA, Inc. and matures on April 2, 2021. The Term Loan is secured by the assets of Baytex's wholly-owned subsidiary, Baytex Energy Limited Partnership and matures on April 2, 2021.

The credit facilities are not borrowing base facilities and do not require annual or semi-annual reviews. The credit facilities contain standard commercial covenants in addition to the financial covenants detailed below. There are no mandatory principal payments required prior to maturity which could be extended upon Baytex's request. Advances (including letters of credit) under the credit facilities can be drawn in either Canadian or U.S. funds and bear interest at the bank’s prime lending rate, bankers’ acceptance discount rates or London Interbank Offered Rates, plus applicable margins. In the event that Baytex breaches any of the covenants under the credit facilities, Baytex may be required to repay, refinance or renegotiate the loan terms and may be restricted from taking on further debt or paying dividends to shareholders.

At March 31, 2019, Baytex had $15.4 million of outstanding letters of credit (December 31, 2018 - $14.6 million) under the credit facilities.

At March 31, 2019, Baytex was in compliance with all of the covenants contained in the credit facilities. The following table summarizes the financial covenants applicable to the Revolving Facilities and Baytex's compliance therewith as at March 31, 2019.
Covenant Description
Position as at March 31, 2019
Covenant
Senior Secured Debt(1) to Bank EBITDA(2) (Maximum Ratio)
0.64:1.00
3.50:1.00
Interest Coverage(3) (Minimum Ratio)
8.16:1.00
2.00:1.00
(1)
"Senior Secured Debt" is defined as the principal amount of the bank loan and other secured obligations identified in the credit agreement. As at March 31, 2019, the Company's Senior Secured Debt totaled $566.2 million which includes $550.8 million of principal amounts outstanding and $15.4 million of letters of credit.
(2)
Bank EBITDA is calculated based on terms and definitions set out in the credit agreement which adjusts net income or loss for financing and interest expenses, unrealized gains and losses on financial derivatives, income tax, non-recurring losses, payments on lease obligations, certain specific unrealized and non-cash transactions (including depletion, depreciation, exploration and evaluation expenses, unrealized gains and losses on financial derivatives and foreign exchange and share-based compensation) and is calculated based on a trailing twelve month basis including the impact of material acquisitions as if they had occurred at the beginning of the twelve month period. Bank EBITDA for the twelve months ended March 31, 2019 was $881.3 million.
(3)
Interest coverage is computed as the ratio of Bank EBITDA to financing and interest expenses, excluding non-cash interest and accretion on asset retirement obligations, and is calculated on a trailing twelve month basis. Financing and interest expenses for the twelve months ended March 31, 2019 were $108.0 million.

8.
LONG-TERM NOTES
 
March 31, 2019

December 31, 2018

6.75% notes (US$150,000 – principal) due February 17, 2021
$
200,393

$
204,683

5.125% notes (US$400,000 – principal) due June 1, 2021
534,380

545,820

6.625% notes (Cdn$300,000 – principal) due July 19, 2022
300,000

300,000

5.625% notes (US$400,000 – principal) due June 1, 2024
534,380

545,820

Total long-term notes - principal
1,569,153

1,596,323

Unamortized debt issuance costs
(12,095
)
(13,083
)
Total long-term notes - net of unamortized debt issuance costs
$
1,557,058

$
1,583,240


The long-term notes do not contain any significant financial maintenance covenants. The long-term notes contain a debt incurrence covenant that restricts the Company's ability to raise additional debt beyond the existing credit facilities and long-term notes unless the Company maintains a minimum fixed charge coverage ratio (computed as the ratio of Bank EBITDA (as defined in note 7) to financing and interest expenses on a trailing twelve month basis) of 2.50:1.00. At March 31, 2019, the fixed charge coverage ratio was 8.16:1.00.


Page 9


9.
LEASE OBLIGATIONS

Baytex had the following future commitments associated with its lease obligations at March 31, 2019.
 
March 31, 2019

Less than 1 year
$
6,325

1 - 3 years
10,130

3 - 5 years
1,061

After 5 years
—

Total lease payments
17,516

Amounts representing interest over the term of the lease
(946
)
Present value of net lease payments
16,570

Less current portion of lease obligations
5,784

Non-current portion of lease obligations
$
10,786


For the three months ended March 31, 2019, the Company recorded interest of $0.2 million and payments of $1.4 million related to its lease obligations.

10.
ASSET RETIREMENT OBLIGATIONS
 
March 31, 2019

December 31, 2018

Balance, beginning of period
$
646,898

$
368,995

Liabilities incurred
7,471

12,537

Liabilities settled
(4,928
)
(14,035
)
Liabilities assumed from corporate acquisition
—

39,960

Liabilities acquired from property acquisitions
—

132

Liabilities divested
—

(580
)
Accretion (note 16)
3,463

10,914

Change in estimate
—

33,453

Changes in discount rates and inflation rates(1)
27,747

192,672

Foreign currency translation
(892
)
2,850

Balance, end of period
$
679,759

$
646,898

(1)
The discount and inflation rates at March 31, 2019 were 2.00%, compared to 2.15% and 2.00%, respectively, at December 31, 2018.

11.
SHAREHOLDERS' CAPITAL
The authorized capital of Baytex consists of an unlimited number of common shares without nominal or par value and 10.0 million preferred shares without nominal or par value, issuable in series. Baytex establishes the rights and terms of the preferred shares upon issuance. At March 31, 2019, no preferred shares have been issued by the Company and all common shares issued were fully paid.

The holders of common shares may receive dividends as declared from time to time and are entitled to one vote per share at any meetings of the holders of common shares. All common shares rank equally with regard to the Company's net assets in the event the Company is wound-up or terminated.
 
Number of Common Shares
(000s)

Amount

Balance, December 31, 2017
235,451

$
4,443,576

Transfer from contributed surplus on vesting and conversion of share awards
3,343

19,496

Issued on corporate acquisition
315,266

1,238,995

Issuance costs, net of tax
—

(551
)
Balance, December 31, 2018
554,060

$
5,701,516

Transfer from contributed surplus on vesting and conversion of share awards
1,812

7,646

Balance, March 31, 2019
555,872

$
5,709,162


Page 10



12.
PETROLEUM AND NATURAL GAS SALES

Petroleum and natural gas sales from contracts with customers for the Company's Canadian and U.S. operating segments is set forth in the following table.
 
Three Months Ended March 31
 
2019
2018
 
Canada

U.S.

Total

Canada

U.S.

Total

Light oil and condensate
$
132,368

$
148,916

$
281,284

$
4,851

$
144,607

$
149,458

Heavy oil
117,686

—

117,686

91,883

—

91,883

NGL
3,441

20,802

24,243

3,356

18,178

21,534

Natural gas sales
10,544

19,667

30,211

6,724

16,468

23,192

Total petroleum and natural gas sales
$
264,039

$
189,385

$
453,424

$
106,814

$
179,253

$
286,067


Included in accounts receivable at March 31, 2019 is $157.1 million (December 31, 2018 - $77.4 million) of accrued production revenue related to deliveries for periods ended prior to the reporting date.

13.
SHARE AWARD INCENTIVE PLAN
The Company recorded compensation expense related to the share awards of $5.8 million for the three months ended March 31, 2019 ($3.9 million for the three months ended March 31, 2018).
 
The weighted average fair value of share awards granted was $2.65 per restricted and performance award for the three months ended March 31, 2019 ($4.17 per restricted and performance award for the three months ended March 31, 2018).

The number of share awards outstanding is detailed below:
(000s)
Number of restricted awards

Number of performance awards(1)

Total number of share awards

Balance, December 31, 2017
2,028

2,253

4,281

Granted
2,793

2,591

5,384

Assumed on corporate acquisition
302

257

559

Vested and converted to common shares
(1,682
)
(1,661
)
(3,343
)
Forfeited
(198
)
(167
)
(365
)
Balance, December 31, 2018
3,243

3,273

6,516

Granted
3,074

3,124

6,198

Vested and converted to common shares
(910
)
(902
)
(1,812
)
Forfeited
(50
)
(113
)
(163
)
Balance, March 31, 2019
5,357

5,382

10,739

(1)
Based on underlying awards before applying the payout multiplier which can range from 0x to 2x.

Share Options

Baytex inherited share option plans pursuant to a business combination in 2018. No new grants will be made under the option plans.

The Company accounts for share options using the fair value method. Under this method, compensation is expensed over the vesting period for the share options, with a corresponding increase to contributed surplus.


Page 11


Share options granted under the option plans had a maximum term of 3.5 years to expiry. One third of the options granted vest on each of the first, second, and third anniversaries of the date of grant. The following tables summarize the information about the share options.
(000s, except per common share amounts)
Number of options

Weighted average exercise price

Balance, December 31, 2017
—

$
—

Assumed on corporate acquisition
9,187

6.63

Forfeited/Expired
(4,322
)
6.57

Balance, December 31, 2018
4,865

$
6.70

Forfeited/Expired
(394
)
5.91

Balance, March 31, 2019
4,471

$
6.77


 
Options Outstanding
Options Exercisable
Exercise price
Number outstanding at March 31, 2019 (000s)

Weighted average remaining life (years)

Weighted average exercise price

Number exercisable at March 31, 2019 (000s)

Weighted average exercise price

$5.00 - $7.00
3,031

1.16

$
6.33

2,001

$
6.42

$7.01 - $9.00
1,440

0.80

7.68

960

7.68

Total
4,471

1.04

$
6.77

2,961

$
6.83


14.
NET INCOME (LOSS) PER SHARE
Baytex calculates basic income per share based on the net income or loss attributable to shareholders using the weighted average number of shares outstanding during the period. Diluted income per share amounts reflect the potential dilution that could occur if share awards and share options were converted. The treasury stock method is used to determine the dilutive effect of share awards and share options whereby the potential conversion of share awards and share options and the amount of compensation expense, if any, attributed to future services are assumed to be used to purchase common shares at the average market price during the period.
 
Three Months Ended March 31
 
2019
2018
 
Net income

Weighted average common shares (000s)

Net income per share

Net loss

Weighted average common shares (000s)

Net loss per share

Net income (loss) - basic
$
11,336

555,438

$
0.02

$
(62,722
)
236,315

$
(0.27
)
Dilutive effect of share awards
—

3,294

—

—

—

—

Dilutive effect of share options
—

—

—

—

—

—

Net income (loss) - diluted
$
11,336

558,732

$
0.02

$
(62,722
)
236,315

$
(0.27
)

For the three months ended March 31, 2019, no share awards were considered to be anti-dilutive (2018 - 6.7 million). For the three months ended March 31, 2019, 4.5 million share options were excluded from the calculation of diluted earnings per share as they were determined to be anti-dilutive. There were no share options outstanding at March 31, 2018.


Page 12


15.
INCOME TAXES
The provision for income taxes has been computed as follows:
 
Three Months Ended March 31
 
2019

2018

Net loss before income taxes
$
(2,554
)
$
(85,712
)
Expected income taxes at the statutory rate of 27.00% (2018 – 27.00%)
(690
)
(23,142
)
(Increase) decrease in income tax recovery resulting from:
 
 
Share-based compensation
1,578

967

Non-taxable portion of foreign exchange loss (gain)
(3,674
)
4,912

Effect of rate adjustments for foreign jurisdictions
(7,321
)
(9,245
)
Effect of change in deferred tax benefit not recognized(1)
(3,674
)
4,912

Adjustments and assessments
(109
)
(1,394
)
Income tax recovery
$
(13,890
)
$
(22,990
)
(1)
A deferred income tax asset has not been recognized for allowable capital losses of $126 million related to the unrealized foreign exchange losses arising from the translation of U.S. dollar denominated long-term notes (December 31, 2018 - $139 million).

As disclosed in the 2018 annual financial statements, Baytex received several reassessments from the Canada Revenue Agency (the “CRA”) in June 2016 which denied $591 million of non-capital loss deductions that Baytex had previously claimed. In September 2016, Baytex filed notices of objection with the CRA appealing each reassessment received. There has been no change in the status of these reassessments since an Appeals Officer was assigned to our file in July 2018. Baytex remains confident that its original tax filings are correct and intends to defend those tax filings through the appeals process.

16.
FINANCING AND INTEREST
 
Three Months Ended March 31
 
2019

2018

Interest on bank loan
$
5,412

$
2,929

Interest on long-term notes
22,602

21,582

Interest on lease obligations
170

—

Non-cash financing
1,095

1,191

Accretion on asset retirement obligations (note 10)
3,463

2,308

Financing and interest
$
32,742

$
28,010


17.
FOREIGN EXCHANGE
 
Three Months Ended March 31
 
2019

2018

Unrealized foreign exchange (gain) loss
$
(26,941
)
$
36,046

Realized foreign exchange (gain) loss
(595
)
171

Foreign exchange (gain) loss
$
(27,536
)
$
36,217



Page 13


18.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company's financial assets and liabilities are comprised of cash, trade and other receivables, trade and other payables, financial derivatives, bank loan, long-term notes, and lease obligations.

The carrying value and fair value of the Company's financial instruments carried on the consolidated statements of financial position are classified into the following categories:
 
March 31, 2019
December 31, 2018
 
 
Carrying value

Fair value

Carrying
value

Fair value

Fair Value Measurement Hierarchy

Financial Assets
 
 
 
 
 
FVTPL(1)
 
 
 
 
 
Financial derivatives
$
27,569

$
27,569

$
79,582

$
79,582

Level 2

Total
$
27,569

$
27,569

$
79,582

$
79,582

 
 
 
 
 
 
 
Financial assets at amortized cost
 
 
 
 
 
Trade and other receivables
$
181,366

$
181,366

$
111,564

$
111,564

—

Total
$
181,366

$
181,366

$
111,564

$
111,564

 
 
 
 
 
 
 
Financial Liabilities
 
 
 
 
 
FVTPL(1)
 
 
 
 
 
Financial derivatives
$
(1,248
)
$
(1,248
)
$
—

$
—

Level 2

Total
$
(1,248
)
$
(1,248
)
$
—

$
—

 
 
 
 
 
 
 
Financial liabilities at amortized cost
 
 
 
 
 
Trade and other payables
$
(236,703
)
$
(236,703
)
$
(258,114
)
$
(258,114
)
—

Bank loan
(549,503
)
(550,751
)
(520,700
)
(522,294
)
—

Long-term notes
(1,557,058
)
(1,524,243
)
(1,583,240
)
(1,492,363
)
Level 1

Lease obligations
(16,570
)
(16,570
)
—

—

—

Total
$
(2,359,834
)
$
(2,328,267
)
$
(2,362,054
)
$
(2,272,771
)
 
(1)
FVTPL means fair value through profit or loss.

There were no transfers between Level 1 and Level 2 during the three months ended March 31, 2019 and 2018.

Foreign Currency Risk

The carrying amounts of the Company’s U.S. dollar denominated monetary assets and liabilities recorded in entities with a Canadian dollar functional currency at the reporting date are as follows:

Assets
Liabilities

March 31, 2019

December 31, 2018

March 31, 2019

December 31, 2018

U.S. dollar denominated

US$25,520


US$80,857


US$968,461


US$963,351


Interest Rate Risk

Interest Rate Swaps

Baytex had the following interest rate swaps outstanding as of May 2, 2019:
Contract Type
Notional Amount
Maturity Date
Fixed Contract Price
Reference(1)
Fair Value
($ millions)

Interest rate swap
$100 million
October 2020
2.02%
CDOR
$
(0.1
)
Total
 
 
 
 
$
(0.1
)
Current liability
 
 
 
 
(0.1
)
(1)
Canadian Dollar Offered Rate.


Page 14


Commodity Price Risk

Financial Derivative Contracts

Baytex had the following financial derivative contracts outstanding as of May 2, 2019:
 
Period
Volume
Price/Unit(1)

Index
Fair Value(2) 
($ millions)

Oil
 
 
 
 
 
Fixed - Sell
Apr 2019 to Jun 2019
2,000 bbl/d
US$62.85/bbl

WTI
$
0.8

Basis Swap
Apr 2019 to Jun 2019
4,000 bbl/d
WTI less US$14.20/bbl

WCS
$
(1.5
)
Basis Swap
Jul 2019 to Sep 2019
4,000 bbl/d
WTI less US$17.38/bbl

WCS
$
(1.2
)
Basis Swap
Oct 2019 to Dec 2019
4,000 bbl/d
WTI less US$20.88/bbl

WCS
$
(0.2
)
Fixed - Sell
Apr 2019 to Dec 2019
3,000 bbl/d
US$61.63/bbl

WTI
$
1.4

3-way option(3)
Apr 2019 to Dec 2019
2,000 bbl/d
US$50.00/US$60.00/US$70.00

WTI
$
1.4

3-way option(3)
Apr 2019 to Dec 2019
1,000 bbl/d
US$55.00/US$65.00/US$72.60

WTI
$
1.5

3-way option(3)
Apr 2019 to Dec 2019
1,000 bbl/d
US$56.00/US$66.00/US$72.50

WTI
$
1.7

3-way option(3)
Apr 2019 to Dec 2019
1,000 bbl/d
US$56.00/US$66.00/US$73.00

WTI
$
2.0

3-way option(3)
Apr 2019 to Dec 2019
2,000 bbl/d
US$57.00/US$67.00/US$73.00

WTI
$
3.7

3-way option(3)
Apr 2019 to Dec 2019
2,000 bbl/d
US$58.00/US$68.00/US$74.00

WTI
$
4.7

3-way option(3)
Apr 2019 to Dec 2019
2,000 bbl/d
US$49.00/US$61.70/US$75.00

WTI
$
2.3

3-way option(3)
Apr 2019 to Dec 2019
1,000 bbl/d
US$60.00/US$69.90/US$75.00

WTI
$
2.4

3-way option(3)
Apr 2019 to Dec 2019
1,000 bbl/d
US$61.00/US$71.00/US$76.00

WTI
$
3.0

3-way option(3)
Apr 2019 to Dec 2019
1,000 bbl/d
US$63.00/US$73.00/US$78.00

WTI
$
2.8

3-way option(3)
Apr 2019 to Dec 2019
1,000 bbl/d
US$55.50/US$65.50/US$75.50

Brent
$
0.5

3-way option(3)
Apr 2019 to Dec 2019
1,000 bbl/d
US$60.00/US$70.00/US$77.55

Brent
$
1.2

3-way option(3)
Apr 2019 to Dec 2019
1,000 bbl/d
US$63.00/US$73.00/US$83.00

Brent
$
1.8

Fixed - Sell(5)
Apr 2019 to Dec 2019
2,000 bbl/d
US$61.45/bbl

WTI
$
—

Fixed - Sell(5)
May 2019 to Dec 2019
5,000 bbl/d
US$64.09/bbl

WTI
$
—

Basis Swap(5)
Jun 2019 to Dec 2019
4,000 bbl/d
WTI less US$8.00/bbl

MSW
$
—

Swaption(4)
Jan 2020 to Dec 2020
1,000 bbl/d
US$62.50/bbl

WTI
$
(1.4
)
Swaption(4)
Jan 2020 to Dec 2020
1,000 bbl/d
US$63.20/bbl

WTI
$
(1.2
)
3-way option(3)
Jan 2020 to Dec 2020
1,500 bbl/d
US$51.00/US$59.00/US$65.60

WTI
$
(0.1
)
3-way option(3)
Jan 2020 to Dec 2020
1,500 bbl/d
US$51.00/US$59.00/US$66.00

WTI
$
—

3-way option(3)
Jan 2020 to Dec 2020
1,000 bbl/d
US$51.00/US$59.50/US$66.15

WTI
$
0.2

3-way option(3)(5)
Jan 2020 to Dec 2020
1,000 bbl/d
US$51.00/US$60.00/US$66.00

WTI
$
—

3-way option(3)(5)
Jan 2020 to Dec 2020
1,000 bbl/d
US$51.00/US$60.00/US$65.60

WTI
$
—

3-way option(3)(5)
Jan 2020 to Dec 2020
1,000 bbl/d
US$51.00/US$60.00/US$66.05

WTI
$
—

3-way option(3)(5)
Jan 2020 to Dec 2020
2,000 bbl/d
US$51.00/US$60.00/US$66.70

WTI
$
—

 
 
 
 
 
 
Natural Gas
 
 
 
 
 
Fixed - Sell
Apr 2019 to Dec 2019
5,000 mmbtu/d

US$3.15

NYMEX
$
0.6

Fixed - Sell
Apr 2019 to Jun 2019
10,000 mmbtu/d

US$2.79

NYMEX
$
0.1

Fixed - Sell
Jul 2019 to Sep 2019
10,000 mmbtu/d

US$2.79

NYMEX
$
—

Fixed - Sell
Oct 2019 to Dec 2019
10,000 mmbtu/d

US$2.88

NYMEX
$
—

Total
 
 
 
 
$
26.5

Current asset
 
 
 
 
27.6

Non-current liability
 
 
 
 
(1.1
)
(1)
Based on the weighted average price per unit for the period.
(2)
Fair values as at March 31, 2019. Contracts entered subsequent to March 31, 2019 have no fair value assigned.
(3)
Producer 3-way option consists of a sold put, a bought put and a sold call. To illustrate, in a US$50/US$60/US$70 contract, Baytex receives WTI plus US$10.00/bbl when WTI is at or below US$50/bbl; Baytex receives US$60.00/bbl when WTI is between US$50/bbl and US$60/bbl; Baytex receives the market price when WTI is between US$60/bbl and US$70/bbl; and Baytex receives US$70/bbl when WTI is above US$70/bbl.
(4)
For these contracts, the counterparty has the right, if exercised on December 31, 2019, to enter a swap transaction for the remaining term, notional volume and fixed price per unit indicated above.
(5)
Contracts entered subsequent to March 31, 2019.


Page 15


The following table sets forth the realized and unrealized gains and losses recorded on financial derivatives.
 
Three Months Ended March 31
 
2019

2018

Realized financial derivatives (gain) loss
$
(18,814
)
$
9,841

Unrealized financial derivatives loss
53,261

17,709

Financial derivatives loss
$
34,447

$
27,550


Physical Delivery Contracts

The following physical delivery contracts were 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 and, as a result, no asset or liability has been recognized in the consolidated statements of financial position.

As at May 2, 2019, Baytex had committed to deliver the following volumes of raw bitumen to market on rail:
Period
Volume
Apr 2019 to Oct 2019
1,000 bbl/d
Apr 2019 to Dec 2019
10,000 bbl/d
Jan 2020 to Dec 2020 
5,000 bbl/d


Page 16