If you’re looking for a contrarian play in Canadian energy, Baytex Energy (TSX:BTE) might be the value spot of 2025. The dividend stock has been battered over the past year, down more than 44% from its 52-week high, as softer oil prices and shifting investor sentiment toward energy producers weighed on valuations. But beneath the surface, the dividend stock has been quietly posting strong operational results and positioning itself for a more profitable future. So let’s dive in.
Into earnings
In the second quarter, Baytex reported production of 148,095 barrels of oil equivalent per day, with a healthy 84% weighting toward oil and natural gas liquids. That mix matters in a year when liquids pricing remains favourable relative to natural gas. Cash flow from operating activities came in at $354 million, while net income reached $152 million, up significantly from the same quarter in 2024. Even with a modest $3 million in free cash flow this quarter, the dividend stock maintained its dividend and repurchased shares, returning $21 million to shareholders.
One of Baytex’s standout achievements this year was its record-setting well performance in the Pembina Duvernay. The first pad of three wells delivered an average 30-day peak production rate of 1,865 barrels of oil equivalent per day per well. That’s the highest oil rates ever reported in the West Shale Basin.
Drilling and completion costs per lateral foot have also fallen by roughly 12% compared to last year, improving project economics. With 140 net sections of prospective land and about 200 identified drilling locations, Baytex has a long runway for development. If fully realized, the dividend stock projects that production from the Duvernay could climb from around 6,600 boe/d today to as high as 25,000 boe/d by the end of the decade.
More to come
South of the border, the Eagle Ford asset continues to pull its weight. Production there averaged 83,928 boe/d, supported by strong results from new wells and two successful refracs that delivered output on par with fresh wells at improved capital efficiency. These refracs are more than just one-off wins. Baytex identified about 300 similar opportunities in its inventory, setting the stage for an expanded refrac program in 2026. This could extend the life of the asset and boost returns without the cost of new full-scale drilling.
Heavy oil, often viewed as a higher-cost segment, was also a bright spot for Baytex this year. Output from areas like Peavine, Peace River, and Lloydminster climbed 7% over the previous quarter, thanks to a combination of operational improvements and supportive Western Canadian Select pricing. Heavy oil remains one of the dividend stock’s highest-return plays, and Baytex’s broad land position allows for efficient, repeatable development.
Considerations
The big question for investors is whether Baytex can turn momentum into shareholder value. Management’s 2025 plan targets average production of about 148,000 boe/d, with capital spending of roughly $1.2 billion. Based on current commodity price forecasts, the dividend stock is expected to generate around $400 million in free cash flow this year. Most of it would arrive in the second half as production ramps and spending moderates. Every dollar of that free cash flow, after dividends, is earmarked for debt reduction, with a year-end net debt target of about $2 billion. For now, a $10,000 investment could bring in $328 annually for investors.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|
| BTE | $2.745 | 3,642 | $0.09 | $327.78 | Quarterly | $9,999.39 |
The main risks for Baytex investors revolve around commodity prices and execution. Lower oil prices would hit cash flow and slow debt repayment. Operational setbacks could delay production growth plans. The company also needs to prove that its high-profile Duvernay and refrac programs can continue delivering strong results at scale.
Bottom line
Still, with the energy stock trading at a steep discount to book value and a forward price/earnings (P/E) ratio in the low teens, the market seems to be pricing in bad news. If Baytex keeps hitting operational milestones while sticking to its free cash flow and debt reduction goals, it could be one of the better energy value plays left on the TSX in 2025. For patient investors willing to stomach some volatility, this could be a case of near-term pessimism masking long-term potential.
