bExhibit 2  Consolidated Financial
Statements of  BAYTEX ENERGY LTD.  December 31, 2002 and 2001  
   Deloitte & Touche LLP 3000, 700 Second Street SW Calgary, AB  Canada 
T2P 0S7  Telephone     +1 403-267-1700 Facsimile      +1 403-264-2871   Independent Auditors Report To the Shareholders of Baytex Energy Ltd.  We
have audited the consolidated balance sheets of Baytex Energy Ltd. as at
December 31, 2002 and 2001 and the consolidated statements of operations and
deficit and of cash flows for the years then ended.  These consolidated financial statements are the responsibility of
the Companys management.  Our
responsibility is to express an opinion on these consolidated financial statements
based on our audits.  We
conducted our audits in accordance with Canadian generally accepted auditing
standards.  Those standards require that
we plan and perform an audit to obtain reasonable assurance whether the
consolidated financial statements are free of material misstatement.  An audit includes examining, on a test
basis, evidence supporting the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation.  In
our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31,
2002 and 2001 and the results of its operations and its cash flows for the
years then ended in accordance with Canadian generally accepted accounting
principles.  On
March 3, 2003, we reported separately to the board of directors and
shareholders of Baytex Energy Ltd. on the consolidated financial statements for
the same period, prepared in accordance with Canadian generally accepted
accounting principles but which excluded Note 17, United States Accounting
Principles and Reporting and Note 18, Condensed Consolidating Financial
Information.  (signed)/s/ Deloitte & Touche
  LLPCalgary, Alberta
  Chartered AccountantsMarch 3, 2003  COMMENT BY AUDITORS FOR U.S. READERS ON CANADA-U.S. REPORTING  In
the United States of America, reporting standards for auditors require the
addition of an explanatory paragraph (following the opinion paragraph)
outlining changes in accounting principles that have been implemented in the
financial statements.  As discussed in
Note 2 to the consolidated financial statements, in 2002 the Company changed
its method of accounting for foreign currency translation to conform to the
Canadian Institute of Chartered Accountants recommendation 1650 and adopted the
new recommendation 3870 with respect to stock-based compensation.  (signed)/s/ Deloitte & Touche
  LLPCalgary, Alberta
  Chartered AccountantsMarch 3, 2003  2 
   Baytex Energy Ltd. Consolidated Balance Sheets As at December 31, 2002 and 2001 (thousands)  2002
  
  2001(restated  see
  notes 2 & 4)AssetsCurrent assetsCash
  
  $
  4,098
  
  $
  Accounts receivable
  
  52,667
  
  44,300Properties held for sale
  
  
  
  46,89556,765
  
  91,195Deferred charges and other assets
  
  8,679
  
  8,674Petroleum and natural gas properties (note 3)
  
  932,316
  
  867,177$
  997,760
  
  $
  967,046LiabilitiesCurrent liabilitiesAccounts payable and accrued liabilities
  
  $
  92,563
  
  $
  64,334Bank loan (note 4)
  
  
  
  73,820Current portion of long-term debt (note 5)
  
  
  
  2,00092,563
  
  140,154Long-term debt (note 5)
  
  326,977
  
  330,102Deferred credits (note 6)
  
  12,181
  
  18,694Provision for future site restoration costs
  
  21,950
  
  20,541Future income taxes (note 9)
  
  184,402
  
  146,446638,073
  
  655,937Shareholders EquityShare capital (note 7)
  
  398,176
  
  394,734Deficit
  
  (38,489
  )
  (83,625
  )359,687
  
  311,109$
  997,760
  
  $
  967,046  On behalf of the Board   (signed)
  
  (signed)/s/ John A. Brussa
  
  /s/ W. A. Blake CassidyJohn A. Brussa
  
  W. A. Blake CassidyDirector
  
  Director  See
accompanying notes to the consolidated financial statements.  3 
   Baytex Energy Ltd. Consolidated Statements of Operations
and Deficit Years Ended December 31, 2002 and 2001 (thousands, except per share data)  2002
  
  2001(restated  see
  note 2)RevenuePetroleum and natural gas sales
  
  $
  365,860
  
  $
  329,700Royalties
  
  (58,922
  )
  (57,805
  )306,938
  
  271,895ExpensesOperating
  
  75,228
  
  83,439General and administrative
  
  6,743
  
  5,262Interest (note 5)
  
  25,217
  
  32,942Foreign exchange (gain) loss (note 2)
  
  (2,691
  )
  16,262Depletion and depreciation (note 3)
  
  106,834
  
  367,384Site restoration costs
  
  2,799
  
  3,912214,130
  
  509,201Income (loss) before income
  taxes
  
  92,808
  
  (237,306
  )Income taxes (recovery)(note 9)Current
  
  9,716
  
  7,128Future
  
  37,956
  
  (107,327
  )47,672
  
  (100,199
  )Net income (loss)
  
  45,136
  
  (137,107
  )Retained earnings (deficit),
  beginning of year, as previously reported
  
  (75,954
  )
  52,555Accounting policy change(note 2)
  
  (7,671
  )
  927Retained
  earnings (deficit), beginning of year, as restated
  
  (83,625
  )
  53,482Deficit, end of year
  
  $
  (38,489
  )
  $
  (83,625
  )Net income (loss) per common share (note 8)Basic
  
  $
  0.86
  
  $
  (2.77
  )Diluted
  
  $
  0.85
  
  $
  (2.77
  )  See
accompanying notes to the consolidated financial statements.  4 
   Baytex Energy Ltd. Consolidated Statements of Cash Flows Years Ended December 31, 2002 and 2001 (thousands, except per share data)  2002
  
  2001(restated  see
  note 2)Cash provided by (used in):Operating
  activitiesNet income (loss)
  
  $
  45,136
  
  $
  (137,107
  )Items not affecting cash:Site restoration costs
  
  2,799
  
  3,912Amortization of deferred charges
  
  1,052
  
  946Foreign exchange (gain) loss
  
  (2,691
  )
  16,262Depletion and depreciation
  
  106,834
  
  367,384Future income taxes (recovery)
  
  37,956
  
  (107,327
  )Cash flow from operations
  
  191,086
  
  144,070Change in non-cash working capital (note 10)
  
  1,272
  
  5,682Increase in deferred charges
  
  (1,057
  )
  Increase (decrease) in deferred credits (note 6)
  
  (18,694
  )
  18,694172,607
  
  168,446Financing activitiesIssue of senior subordinated term notes
  
  
  
  227,895Decrease in bank loan and other debt
  
  (76,254
  )
  (88,474
  )Increase in deferred charges
  
  
  
  (9,037
  )Increase in deferred credits (note 6)
  
  12,181
  
  Repurchase of common shares (note 7)
  
  (55
  )
  (860
  )Issue of common shares
  
  3,497
  
  1,444(60,631
  )
  130,968Investing activitiesCorporate acquisitions (note 14)
  
  
  
  (249,152
  )Items not affecting cashShares issued on acquisition
  
  
  
  68,104Assumption of long-term debt
  
  
  
  36,356Assumption of working capital
  
  
  
  (2,734
  )
  
  (147,426
  )Petroleum and natural gas property expenditures
  
  (182,048
  )
  (189,283
  )Disposal of petroleum and natural gas properties
  
  55,580
  
  62,582Properties held for sale
  
  (46,895
  )
  46,895Change in non-cash working capital (note 10)
  
  65,485
  
  (72,182
  )(107,878
  )
  (299,414
  )Change in cash during the year
  
  4,098
  
  Cash, beginning of year
  
  
  
  Cash, end of year
  
  $
  4,098
  
  $
  Cash flow from operations per common share(note 8)Basic
  
  $
  3.65
  
  $
  2.91Diluted
  
  $
  3.59
  
  $
  2.87  See
accompanying notes to the consolidated financial statements.  5 
   Baytex Energy Ltd. Notes to the Consolidated Financial
Statements Years Ended December 31, 2002 and
2001 (all tabular amounts in thousands,
except per share amounts)  1. Significant Accounting Policies  These consolidated
financial statements have been prepared in accordance with Canadian generally
accepted accounting principles within the framework of the accounting policies
summarized below:  Consolidation  The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries and partnership from
the respective dates of acquisition of the subsidiary companies.  Inter-company transactions and balances are
eliminated upon consolidation.  Measurement Uncertainty  Amounts recorded for
depreciation and depletion and amounts used for ceiling test calculations are
based on estimates of petroleum and natural gas reserves and future costs
required to develop those reserves.  The
Companys reserve estimates are reviewed annually by an independent engineering
firm.  By their nature, these estimates
of reserves and the related future cash flows are subject to measurement
uncertainty, and the impact on the financial statements of future periods could
be material.  Cash and Cash Equivalents  Cash and cash equivalents
include monies on deposit and short-term investments accounted for at cost that
have a maturity date of not more that 90 days.  Petroleum and
natural gas operations  The Company follows the
full cost method of accounting for its petroleum and natural gas operations
whereby all costs relating to the exploration for and development of petroleum
and natural gas reserves are capitalized in one Canadian cost centre and
charged against income, as set out below. 
Such costs include land acquisition, drilling of productive and
non-productive wells, geological and geophysical, production facilities,
carrying costs directly related to unproved properties and corporate expenses
directly related to acquisition, exploration and development activities and do
not include any costs related to production or general overhead expenses.  These costs along with estimated future
costs that are based on current costs and that are incurred in developing
proved reserves, are depleted and depreciated on a unit of production basis
using estimated gross proved petroleum and natural gas reserves.  For purposes of this calculation, petroleum
and natural gas reserves are converted to a common unit of measurement on the
basis of their relative energy content where six thousand cubic feet of gas
equates to one barrel of oil.  Costs of
acquiring and evaluating unproved properties are excluded from costs subject to
depletion and depreciation until it is determined whether proved reserves are
attributable to the properties or impairment occurs.  Unproved properties are evaluated for impairment on an annual
basis.  Gains or losses on sales of
properties are recognized only when crediting the proceeds to costs would
result in a change of 20 percent or more in the depletion rate.  The net amount at which
petroleum and natural gas properties are carried is subject to a cost recovery
test (the ceiling test).  Under this
test, an estimate is made of the ultimate recoverable amount from future net
revenues using proved reserves and period end prices, plus the net costs of
major development projects and unproved properties, less future removal and
site restoration costs, overhead, financing costs and income taxes.  If the net carrying costs exceed the
ultimate recoverable amount, additional depletion and depreciation is provided.  6 
   Provision for
future site restoration costs  Estimates are made of the
future site restoration costs relating to the Companys petroleum and natural
gas properties at the end of their economic life, based on year end values, in
accordance with current legislative requirements and industry practice.  Annual charges are provided for on a unit of
production method.  Actual expenditures
incurred are applied against the provision for future site restoration costs.  Joint interests  A portion of the Companys
exploration, development and production activities is conducted jointly with
others.  These consolidated financial
statements reflect only the Companys proportionate interest in such activities.  Foreign currency translation  Foreign currency
denominated monetary items are translated into Canadian dollars at the exchange
rate in effect at the balance sheet date. 
Effective January 1, 2002, the Company retroactively adopted the
Canadian Institute of Chartered Accountants (CICA) amended accounting standard
with respect to accounting for foreign currency translation.  As a result of the amendments, all exchange
gains and losses on long-term monetary items that do not qualify for hedge
accounting are recognized in income.  Revenue and expenses are
translated at the monthly average rate of exchange.  Translation gains and losses are included in net income.  Deferred charges  Financing costs related to the issuance of the senior
secured term notes and the senior subordinated term notes have been deferred
and are amortized over the term of the respective notes on a straight-line basis.  Financial
instruments  The Company formally
documents its risk management objectives and strategies, including the
permitted use of derivative financial instruments.  The Company utilizes derivative financial instruments to manage
exposures to fluctuations in commodity prices, interest rates and foreign
currency exchange rates.  All
transactions of this nature entered into by the Company are related to an
underlying financial position or to future petroleum and natural gas
production.  The Company does not use
derivative financial instruments for trading purposes.  Costs and gains on derivative contracts are
recognized in income in the same period that the transactions are settled.  The fair values of derivative instruments
are not recorded in the balance sheet.  Gains and losses related to
derivative financial instruments that have been closed prior to the settlement
dates are deferred and recognized in the statement of operations over the
original settlement period.  Future Income taxes  Income taxes are accounted
for under the liability method of tax allocation, which determines future
income taxes based on the differences between assets and liabilities reported
for financial accounting purposes and those reported for tax purposes.  Future income taxes are calculated using tax
rates anticipated to apply in periods that temporary differences are expected to
reverse.  7 
   Flow-through shares  The Company has financed a
portion of its exploration and development activities through the issue of
flow-through shares.  Under the terms of
the flow-through share agreements, the tax attributes of the related expenditure
are renounced to the subscribers. 
Accordingly, the carrying value of the expenditures incurred and the
shares issued are recorded net of tax benefits renounced to the subscribers.
The Company records the gross carrying value of the expenditures and records a
future tax liability for the tax benefits renounced to subscribers.  Stock-Based Compensation  The Companys stock-based
compensation plans are described in note 7. 
The Company accounts for employee stock options based on intrinsic
values.  No compensation expense is
recognized when stock options are issued. 
The consideration paid on the exercise of stock options is credited to
share capital.  Benefits paid under the
stock appreciation rights plan are charged to net income.  Per Share Amounts  Basic net income per share
and basic cash flow from operations per share are computed by dividing net
income and cash flow from operations by the weighted average number of common
shares outstanding during the year. 
Diluted per share amounts reflect the potential dilution that could
occur if options or warrants to purchase common shares were exercised.  The treasury stock method is used to
determine the dilutive effect of stock options and warrants, whereby any
proceeds from the exercise of stock options or other dilutive instruments are
assumed to be used to purchase common shares at the average market price during
the period.  2.             Changes in Accounting Policy  Foreign Currency  Effective January 1, 2002,
the Company retroactively adopted the CICA amended accounting standard with
respect to accounting for foreign currency translation.  As a result of the amendments, all exchange
gains and losses on long-term monetary items that do not qualify for hedge
accounting are recognized in income. 
Previously, these exchange gains and losses were deferred and amortized
over the remaining life of the monetary item. 
The impact of the amended standard on the year ended December 31, 2002
was to increase net income by $1.8 million (2001  decrease of $8.6
million).  The effect of this change on
the December 31, 2001 Consolidated Balance Sheet is an elimination of the
unrealized foreign exchange loss of $13.7 million, a decrease in future income
taxes of $6.0 million, and an increase in the deficit of $7.7 million.  Stock-based
Compensation  Effective January 1, 2002, the Company adopted the new
recommendations of the CICA with respect to stock-based compensation.  In accordance with the new standard, the
Company has elected to continue its policy of accounting for employee stock
options based on intrinsic values and will disclose the pro forma results of
using the fair value based method.  The
new recommendations apply to options granted after December 31, 2001.  8 
   3.             Petroleum
and Natural Gas Properties  As at December 31,2002
  
  2001Petroleum and natural gas properties
  
  $
  1,989,246
  
  $
  1,817,273Accumulated depletion and depreciation
  
  (1,056,930
  )
  (950,096
  )$
  932,316
  
  $
  867,177  During 2002, $6.7 million
(2001 - $5.3 million) of corporate expenses relating to exploration and
development activities were capitalized. 
In calculating the depletion and depreciation provision for 2002, $80.3
million (2001 - $85.3 million) of costs relating to undeveloped properties and
materials and supplies of $5.5 million (2001- $7.1 million) were excluded from
costs subject to depletion and depreciation.  As a result of the ceiling
test performed at December 31, 2001, the Company recorded additional depletion
and depreciation on its petroleum and natural gas properties of $234.5 million
($131.3 million net of income tax).  At December 31, 2002, the
estimated future site restoration costs to be accrued over the life of the
remaining proved reserves are $26.2 million (2001 - $30.0 million).  4.             Bank
Loan  As at December 31,2002
  
  2001Bank loan
  
  $
  
  
  $
  73,820  Bank loan  The bank loan facilities
consist of an operating loan and a 364-day revolving loan, which are provided
by a syndicate of chartered banks.  The
facilities can be drawn in either Canadian or U.S. funds and bear interest at
the agent banks prime lending rate, bankers acceptance rates plus applicable
margins or LIBOR rates plus applicable margins.  The facilities are subject to periodic review and are secured by
a charge over all of the Companys assets. 
The security is shared pari passu with the senior secured term
notes.  At December 31, 2002, the
facilities are limited to total commitment under the facilities of $77 million
and a $165 million borrowing base of total senior funded debt, which is defined
to include the senior secured term notes.  Effective
January 1, 2002, the Company has classified borrowing under its bank facilities
as a current liability as required by new CICA guidance.  The bank loan at December 31, 2001 has been
restated to conform to the current presentation.  5.             Long-Term
Debt  As at December 31,2002
  
  2001Senior secured term notes (US$57 million)
  
  $
  90,037
  
  $
  90,778Senior subordinated term notes (US$150 million)
  
  236,940
  
  238,890Other long-term debt
  
  
  
  2,434326,977
  
  332,102Less: current portion
  
  
  
  2,000$
  326,977
  
  $
  330,102  9 
   Senior
secured term notes  On November 13, 1998, the
Company issued US$57 million of senior secured term notes, bearing interest at
7.23 percent payable quarterly with principal repayable on November 13,
2004.  These notes are governed by
financial and other corporate covenants and are secured by a charge over all of
the Companys assets, which security is shared pari passu with the bank loan
facilities.  During 2002, the Company
terminated an outstanding interest rate swap agreement associated with these
notes.  The gain from the settlement of
this contract has been deferred and is being amortized as a reduction of
interest expense over the original term of the agreement (note 6).  Senior subordinated term notes  On February 12, 2001, the Company issued US$150
million of senior subordinated term notes bearing interest at 10.5 percent
payable semi-annually with principal repayable on February 15, 2011.  These notes are unsecured and are
subordinate to the Companys bank facilities and senior secured term notes.  During 2002, the Company terminated
outstanding interest rate swap agreements associated with these notes.  The gain from the settlement of these
contracts has been deferred and is being amortized as a reduction of interest
expense over the original term of the agreements (note 6).  Interest Expense  The Company has incurred interest expense on its
outstanding debt as follows:  2002
  
  2001Bank loan
  
  $
  760
  
  $
  4,620Amortization of deferred charges
  
  1,052
  
  946Long-term debt
  
  23,405
  
  27,376Total interest
  
  $
  25,217
  
  $
  32,942  6.             Deferred
Credits  As at December 31,2002
  
  2001Deferred interest swap settlement (note 5)
  
  $
  12,181
  
  $
  Deferred commodity contract gain
  
  
  
  18,694$
  12,181
  
  $
  18,694  In
August 2002, the Company terminated all outstanding interest rate swap agreements
for total proceeds of $14.1 million. 
This amount has been deferred and is being amortized as a reduction of
interest expense over the original terms of the agreements.  During
2001, the Company renegotiated certain derivative contracts related to 2002 commodity
prices and received a net payment of $18.7 million.  This amount was recognized in income during 2002.  10 
   7.             Share
Capital  Authorized  The Company has an unlimited number of common
shares in its authorized share capital.  Issued  2002
  
  2001# Shares
  
  Amount
  
  # Shares
  
  AmountBalance, beginning of year
  
  52,008
  
  $
  394,734
  
  45,797
  
  $
  326,767Shares issued for corporate acquisitions (note
  14)
  
  
  
  
  
  6,119
  
  68,104Stock options exercised
  
  820
  
  3,497
  
  314
  
  1,444Normal course issuer bid
  
  (9
  )
  (55
  )
  (222
  )
  (860
  )Future tax related to flow-through shares
  
  
  
  
  
  
  
  (721
  )Balance, end of year
  
  52,819
  
  $
  398,176
  
  52,008
  
  $
  394,734  Stock options and stock appreciation
rights  The Company grants stock
options to its employees and directors at the market price of the common shares
at the time of the grant.  The options
vest over three years and have a term of four years.  At December 31, 2002, 3.7 million common shares (2001 - 4.6
million common shares) of the Company are reserved under the stock option plan
for issuance.  Of the 5.1 million
options outstanding as of December 31, 2002, 1.4 million options are subject to
shareholder ratification.  # Options
  
  Price Range
  
  Weighted Average
  Exercise PriceOutstanding December 31, 2000
  
  4,042
  
  $ 3.30 to $ 15.50
  
  $
  8.26Granted
  
  2,478
  
  $ 3.51 to $ 13.30
  
  $
  6.17Exercised
  
  (314
  )
  $ 3.30 to $ 12.25
  
  $
  4.84Cancelled
  
  (1,738
  )
  $ 3.80 to $ 15.50
  
  $
  11.25Outstanding December 31, 2001
  
  4,468
  
  $ 3.30 to $ 10.75
  
  $
  6.19Granted
  
  1,682
  
  $ 4.40 to $   7.97
  
  $
  7.61Exercised
  
  (820
  )
  $ 3.30 to $   6.10
  
  $
  4.27Cancelled
  
  (204
  )
  $ 4.72 to $   7.67
  
  $
  5.78Outstanding December 31, 2002
  
  5,126
  
  $ 3.51 to $ 10.75
  
  $
  6.98  The following table
summarizes information about the stock options outstanding at December 31,
2002:  Number
  Outstanding at
  December 31,
  2002
  
  Weighted
  Average
  Remaining
  Term
  
  Weighted
  Average
  Exercise
  Price
  
  Number
  Exercisable at
  December 31,
  2002
  
  Weighted
  Average
  Exercise
  Price(years)$ 3.51 to $   5.00
  
  2,029
  
  2.2
  
  $
  4.52
  
  901
  
  $
  4.27$ 5.01 to $   7.00
  
  315
  
  2.8
  
  $
  6.61
  
  77
  
  $
  6.35$ 7.01 to $   9.00
  
  1,712
  
  3.4
  
  $
  7.87
  
  214
  
  $
  8.76$ 9.01 to $ 10.75
  
  1,070
  
  1.8
  
  $
  10.32
  
  713
  
  $
  10.32Total
  
  5,126
  
  2.5
  
  $
  6.98
  
  1,905
  
  $
  7.12  11 
   The Company accounts for
its stock options using intrinsic values. 
On this basis, compensation costs are not required to be recognized in
the financial statements for stock options granted at market value.  Had compensation costs for the Companys
stock option plan been determined based on the fair-value method at the dates
of grants under the plan after January 1, 2002, the Companys pro-forma net
income for the year ended December 31, 2002 would have been reduced by $0.6
million and net income per share would be $0.85.  The weighted average fair market value of options granted in 2002
was $3.65 per option.  The fair value of
the stock options granted is estimated on the grant date using the
Black-Scholes option-pricing model using the following assumptions: risk free
interest rate of 4%; expected life of 4 years; and expected volatility of 57%.  The Company had granted
stock appreciation rights (Rights) to certain employees.  Holders of the Rights were entitled to
receive incentive payments based on the difference between market price of the
Companys common shares and exercise price of the Rights.  The exercise price of the Rights was
determined based on the market price of the Companys common shares at the time
the Rights were granted.  The Rights
vested over three years and had a term of four years.  During 2002, all 202,334 remaining Rights (2001  6,666) were
exercised.  The related compensation
expense has been included in general and administrative expenses.  Normal course issuer bid  During the year ended
December 31, 2002, the Company acquired 9,200 (2001  222,400) of its common
shares through a normal course issuer bid program at an average cost of $6.03
per share (2001 - $3.87 per share).  The
shares purchased under the normal course issuer bid were cancelled.  In January 2003, the Company renewed the
normal course issuer bid to purchase up to 5.2 million common shares of the
Company during the 12-month period beginning January 7, 2003 and ending January
5, 2004.  Flow-through shares  In accordance with the
terms of flow-through share offerings entered into by the Company and one of
its subsidiaries, and pursuant to certain provisions of the Income Tax Act
(Canada), the Company and its subsidiary fulfilled their commitment to renounce
for income tax purposes, exploration expenditures of $1.6 million in 2001 to
the subscribers of the flow-through shares.  8.         Net Income and Cash Flow From
Operations per Share  The Company applies the
treasury stock method to assess the dilutive effect of outstanding stock
options on net income and cash flow from operations per share.  The number of shares used in the calculation
of diluted net income and cash flow from operations per share is determined as
follows:  2002
  
  2001Weighted average number of shares outstanding, basic
  
  52,298
  
  49,503Dilutive effect of stock options
  
  939
  
  701Weighted average number
  of shares outstanding, diluted
  
  53,237
  
  50,204  The diluted net income and
cash flow from operations per share discussed above did not include 2.8 million
(2001- 1.3 million) of stock options because the respective exercise prices
exceeded the average market price of the common shares during the year.  12 
   9.         Income Taxes  The provision for income taxes has been computed as
follows:  2002
  
  2001Income
  (loss) before income taxes
  
  $
  92,808
  
  $
  (237,306
  )Expected
  income taxes (recovery) at the statutory rate of 43.9% (2001 - 44.0%)
  
  $
  40,743
  
  $
  (104,415
  )Increase
  (decrease) in taxes resulting from:Crown royalties
  
  21,153
  
  19,870Resource allowance
  
  (26,308
  )
  (22,560
  )Alberta royalty tax credit
  
  (219
  )
  (224
  )Rate change
  
  (138
  )
  183Other
  
  2,725
  
  (181
  )Large Corporation Tax and provincial capital tax
  
  9,716
  
  7,128Provision
  for income taxes
  
  $
  47,672
  
  $
  (100,199
  )  The components of future
income taxes are as follows:  As at December 31,2002
  
  2001Future income tax
  liabilities:Capital assets
  
  $
  202,429
  
  $
  173,430Future income tax assets:Abandonment costs
  
  (9,638
  )
  (9,038
  )Attributed Canadian Royalty Income
  
  (4,475
  )
  (5,263
  )Share issue costs
  
  (2,833
  )
  (4,398
  )Loss carry-forward
  
  (323
  )
  (7,528
  )Other
  
  (758
  )
  (757
  )Future income taxes
  
  $
  184,402
  
  $
  146,446  10.          Cash
Flow Information  Increase
(Decrease) in Non-Cash Working Capital Items  2002
  
  2001Current assets
  
  $
  38,528
  
  $
  (23,440
  )Current liabilities
  
  28,229
  
  (43,060
  )$
  66,757
  
  $
  (66,500
  )  2002
  
  2001Changes in non cash working capital related to:Operating activities
  
  $
  1,272
  
  $
  5,682Investing activities
  
  65,485
  
  (72,182
  )$
  66,757
  
  $
  (66,500
  )  During the year the Company made the following cash outlays in respect
of interest expense and current income taxes.  2002
  
  2001Interest
  
  $
  25,482
  
  $
  22,889Current income taxes (refund)
  
  $
  (3,298
  )
  $
  15,459  13 
   11.          Financial
Instruments  The Companys financial instruments recognized in the
balance sheet consist of accounts receivable, current liabilities and long-term
borrowings.  The estimated fair values
of financial instruments have been determined based on the Companys assessment
of available market information and appropriate valuation methodologies;
however, these estimates may not necessarily be indicative of the amounts that
could be realized or settled in a current market transaction.  The fair values of
financial instruments other than long-term borrowings approximate their
carrying amounts due to the short-term maturity of these instruments.  At December 31, 2002 and 2001, the reported
values of the Companys senior secured term notes, bank loan and other
long-term debt approximate their fair values. 
At December 31, 2002, the trading value of the Companys senior
subordinated term notes was 105% in relation to par (2001- 95%).  12.          Derivative
Contracts  The nature of the Companys operations results in
exposure to fluctuations in commodity prices, exchange rates and interest
rates.  The Company monitors and, when
appropriate, utilizes derivative contracts to manage its exposure to these risks.  The Company is exposed to credit-related
losses in the event of non-performance by counter-parties to these
contracts.  In 2002, petroleum and
natural gas sales were reduced by $8.3 million (2001 - $9.5 million) due to
derivative contracts.  At December 31, 2002, the
Company had derivative contracts for the following:  Period
  
  Volume
  
  Price
  
  IndexOilPrice collar
  
  Calendar 2003
  
  2,500 bbl/d
  
  US$20.00  $26.05
  
  WTIPrice collar
  
  Calendar 2003
  
  5,000 bbl/d
  
  US$20.00  $26.60
  
  WTIPrice collar
  
  Calendar 2003
  
  2,500 bbl/d
  
  US$20.00  $27.00
  
  WTI  The fair value of the oil
derivative contracts at December 31, 2002 is an unrecognized liability of $12.3
million.  Period
  
  Amount
  
  Exchange Rate
  
  Unrecognized loss at
  December 31, 2002Foreign currency swap
  
  January 1998 to December
  2005
  
  US$315,000 per month
  
  CAD/USD $1.4228
  
  $
  2,008  13.          Commitments  In October 2002, the Company entered into a long-term crude oil supply
contract with a third party that requires the delivery of 20,000 barrels per
day of Lloydminster Blend crude oil at a price fixed at 71% of NYMEX WTI oil
price.  The contract is for an initial
term of five years commencing January 1, 2003. 
The volumes contracted under this contract will increase from 9,000
barrels per day in January 2003 to 20,000 barrels per day in October 2003 and
thereafter.  For the period November 1,
2002 to October 31, 2003, the Company has entered into natural gas sales
contracts with third parties for 15,000 GJ per day for fixed prices averaging
$5.35/GJ and 10,000 GJ per day of collar contracts with prices between $4.20/GJ
and $7.22/GJ.  14 
   14.          Corporate Acquisitions  Effective May 1, 2001, the
Company acquired all of the issued and outstanding shares of OGY Petroleums Ltd.
(OGY), a public company involved in the exploration, development and
production of oil and natural gas in Western Canada.  The acquisition has been accounted for by the purchase method of
accounting as follows:  ConsiderationCash
  
  $
  50,683Transaction costs
  
  3,10053,783Issue of 1,169,481 common shares
  
  14,057$
  67,840Net Assets AcquiredPetroleum and natural gas properties
  
  $
  116,607Future income taxes
  
  (36,127
  )Future site restoration costs
  
  (1,844
  )78,636Working capital deficiency
  
  (4,809
  )Long-term debt
  
  (5,987
  )$
  67,840  Effective June 1, 2001, the
Company acquired all of the issued and outstanding shares of Triumph Energy
Corporation (Triumph), a public company involved in the exploration, development
and production of oil and natural gas in Western Canada.  The acquisition has been accounted for by
the purchase method of accounting as follows:  ConsiderationCash
  
  $
  82,337Transaction costs
  
  11,30693,643Issue of 4,949,245 common shares
  
  54,047$
  147,690Net Assets AcquiredPetroleum and natural gas properties
  
  $
  248,480Future income taxes
  
  (77,751
  )Future site restoration costs
  
  (213
  )170,516Working capital
  
  7,543Long-term debt
  
  (30,369
  )$
  147,690  15 
   15.          Subsequent
Event  On March 3, 2003, the Company signed an agreement to
sell certain crude oil and natural gas assets for total cash consideration of
$133.3 million.  The sale is subject to
certain conditions and is scheduled to close by the end of March 2003.  Upon closing of this transaction, the
Company intends to use the proceeds for debt reduction and general corporate
purposes.  16.          Comparative
Figures  Certain comparative figures
have been reclassified to conform to the current years presentation.  17.          Differences
Between Canadian and United States Generally Accepted Accounting Principles  Reconciliation Of Financial Statements To
United States Generally Accepted Accounting Principles  The consolidated financial
statements included in the Baytex Energy Ltd.s 2002 Annual Report have been
prepared in accordance with Canadian generally accepted accounting principles
(Canadian GAAP), which in most respects, conform to generally accepted
accounting principles in the United States (U.S. GAAP). The significant
differences in those principles, as they apply to the Company, are as follows:  (a)Under U.S. GAAP, the carrying value of
petroleum and natural gas properties and related facilities, net of future or
deferred income taxes, is limited to the present value of after tax future net
revenue from proven reserves, discounted at 10 percent, (based on prices and
costs at the balance sheet date) plus the lower of cost and fair value of unproven
properties.  Under Canadian GAAP, this
ceiling test is calculated without application of a discount factor but
interest and general and administrative expenses are deducted.  As a result of
applying the U.S. GAAP ceiling test in prior years, the Company recorded
additional depletion of $106.1 million before income tax.  At December 31, 2001, the application of the
full cost ceiling test under U.S. GAAP resulted in a write-down of capitalized
costs of $234.6 million ($131.4 million after tax).  Where the amount of a ceiling test write-down under Canadian GAAP
differs from the amount of the write-down under U.S. GAAP, the charge for
depletion, depreciation, and amortization will differ in subsequent years.  The calculation
of depletion and depreciation under U.S. GAAP will also differ from the
Canadian GAAP calculation, as the calculation is done with proven reserves as
defined by the Securities and Exchange Commission in the United States.  (b)Under U.S. GAAP, the provision for future
site restoration costs is recorded as a reduction of capital assets.  (c)The Financial Accounting Standards Board
(FASB) has issued Statement of Financial Accounting Standards No. 123,
Accounting for Stock-based Compensation (FAS 123) which establishes financial
accounting and reporting standards for stock-based employee compensation plans
as well as transactions in which an entity issues its equity instruments to
acquire goods or services from non-employees. As permitted by the FAS 123,
Baytex has elected to follow the intrinsic value method of accounting for
stock-based compensation arrangements, as provided for in Accounting Principles
Board Opinion 25 (APB 25). Since all options were granted with exercise price
equal to the market price at the date of the grant, no compensation cost has
been charged to income at the time of the option grants. Had compensation cost
for the Baytexs stock options been determined based on the fair market value
at the grant dates of the awards consistent with methodology prescribed by FAS
123, Accounting for Stock-Based Compensation, Baytexs net income (loss) and
net income (loss) per share for years ended December 31, 2002 and 2001 would
have been the pro forma amounts indicated below:  16 
   Years ended December 31,2002
  
  2001Net Income (loss):As Reported
  
  $
  22,889
  
  $
  (124,963
  )Deduct: total stock based employee compensation
  expense determined under fair value based method for all awards, net of
  related tax effects
  
  (612
  )
  (398
  )Pro forma
  
  $
  22,277
  
  $
  (125,361
  )Net Income (loss) per shareBasic:As Reported
  
  $
  0.44
  
  $
  (2.52
  )Pro forma
  
  $
  0.43
  
  $
  (2.53
  )Net Income (loss) per shareDiluted:As Reported
  
  $
  0.43
  
  $
  (2.52
  )Pro forma
  
  $
  0.42
  
  $
  (2.52
  )
  The weighted
average fair market value of options granted in 2002 was $3.65 per option (2001
- $2.46).  The fair value of each option
granted was estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions:  2002
  
  2001Risk-free interest rate
  (percent)
  
  4.0
  
  5.0Volatility in the price
  of the Companys common shares
  
  57
  
  61Expected life (years)
  
  4
  
  4Dividends paid
  
  Nil
  
  Nil  APB 25 also
requires recognition of compensation cost with respect to changes in intrinsic
value for variable employee stock compensation plans. As a result of the
modifications to the terms of employee stock options, the modified options are
subject to variable plan accounting, which results in an increase of
compensation cost of $3.7 million for the year ended December 31, 2002
(2001  reduction in compensation cost of $0.8 million) for U.S. GAAP purposes.  (d)Effective January 1, 2002, the Company retroactively adopted the
Canadian Institute of Chartered Accountants (CICA) amended accounting standard
with respect to accounting for foreign currency translation.  As a result of the amendments, all exchange
gains and losses on long-term monetary items that do not qualify for hedge
accounting are recognized in income. 
Previously under Canadian GAAP, these exchange gains and losses were
deferred and amortized over the remaining life of the monetary item.  The effect of this change is to make the
accounting for exchange gains and losses on foreign denominated long-term
monetary items consistent under both Canadian GAAP and U.S. GAAP.  The U.S. GAAP reconciliation for the years
presented have been retroactively restated as there is no longer a difference
in accounting principles.  (e)The Company adopted the liability method of
accounting for income taxes in 2000 retroactively without restatement.  The liability method of accounting for
income taxes is similar to Statement of Financial Accounting Standards No. 109,
which requires the use of the asset and liability method. The Canadian GAAP
liability method requires the measurement of future income tax liabilities and
assets using income tax rates that reflect enacted income tax rate reductions
provided it is more likely than not that the Company will be eligible for such
rate reductions in the period of reversal. U.S. GAAP allows recording of such
reductions only when claimed.  17 
   (f)On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, Accounting for Derivative instruments and Hedging
Activities (FAS 133), as modified by Statement No. 138 Accounting for Certain
Derivative Instruments and Certain Hedging Activities.  The statement, as amended, establishes accounting
and reporting standards requiring that every derivative instrument be recorded
in the balance sheet as either an asset or liability measured at its fair
value, and that changes in the fair value be recognized currently in earnings
unless specific hedge accounting criteria are met.  This statement requires an entity to establish, at the inception
of a hedge, the method it will use for assessing the effectiveness of the
hedging derivative and the measurement approach for determining the ineffective
aspect of the hedge. Those methods must be consistent with the entitys
approach to managing risk.  At December
31, 2002, the Companys financial instruments would be recorded as a liability
on the balance sheet at their fair value of $14.3 million (2001  an asset on
the balance sheet of $12.9 million). 
FAS 133 also requires that gain and losses on financial instruments be
included in the statement of operations when settled.  As a result, $12.2 million realized on the settlement of interest
rate swap derivative contracts would be included as an increase of the net
income for December 31, 2002 and the $18.7 million realized on the
renegotiation of financial derivative contracts would be included as a
reduction of the net loss for December 31, 2001 for U.S. GAAP.  (g)Under U.S. GAAP, the presentation
in current assets of assets held for sale would not be permitted, as the sale
of the properties had not occurred. 
Accordingly, this amount is included in long-term assets for U.S. GAAP
at December 31, 2001.  The proceeds from
the sale of the properties were deducted from the petroleum and natural gas
properties during the year ended December 31, 2002 when the sales occurred in
accordance with the full cost accounting standards under U.S. GAAP.  (h)The income tax effect of the items noted in (a) through (g) for the
year ended December 31, 2002 is a decrease in income taxes of $15.9 million
(2001  increase of $8.9 million).  (i)Statement of Financial Accounting
Standards No. 130 Comprehensive Income requires the reporting of
comprehensive income in addition to net earnings. Comprehensive income includes
net income plus other comprehensive income. Management believes that it has no
other comprehensive income; accordingly comprehensive income is equivalent to net
income.  Consolidated Statements of Operations  The application of U.S.
GAAP would have the following effect on net earnings as reported:  Years Ended December 312002
  
  2001Net income (loss) for the
  year  Canadian GAAP
  
  $
  45,136
  
  $
  (137,107
  )Adjustments:Depletion (a)
  
  (2,613
  )
  (11,041
  )Ceiling test write-down
  (a)
  
  
  
  (266
  )Compensation cost (c)
  
  (1,873
  )
  787Deferred revenue (f)
  
  (18,694
  )
  18,694Interest rate swaps (f)
  
  12,181
  
  Financial derivative
  instruments (f)
  
  (27,193
  )
  12,893Income taxes (h)
  
  15,945
  
  (8,923
  )Net income (loss) for the
  year  U.S. GAAP
  
  $
  22,889
  
  $
  (124,963
  )Net income (loss) per
  share  U.S. GAAPBasic
  
  $
  0.44
  
  $
  (2.52
  )Diluted
  
  $
  0.43
  
  $
  (2.52
  )  18 
   Consolidated Balance Sheets  The application of U.S.
GAAP would have the following effect on the Consolidated Balance Sheets as
reported:  December 31, 2002As
  Reported
  
  Increase
  (Decrease)
  
  U.S.
  GAAPAssets:Capital assets (a)
  
  $
  932,316
  
  $
  (120,091
  )
  $
  790,275(b)
  
  
  
  (21,950
  )Liabilities:Provision for site restoration costs (b)
  
  21,950
  
  (21,950
  )
  Future income taxes
  
  184,402
  
  (57,398
  )
  127,004Deferred credits (f)
  
  12,181
  
  (12,181
  )
  Financial derivative instruments (f)
  
  
  
  14,300
  
  14,300Shareholders equity:Share capital
  
  398,176
  
  13,942
  
  412,118Retained earnings (deficit)  see below
  
  (38,489
  )
  (87,500
  )
  (125,989
  )  December 31, 2001As
  Reported
  
  Increase
  (Decrease)
  
  U.S.
  GAAPAssets:Current assets (g)
  
  $
  91,195
  
  $
  (46,895
  )
  $
  44,300Capital assets (a)
  
  867,177
  
  (117,478
  )
  776,053(b)
  
  
  
  (20,541
  )(g)
  
  
  
  46,895Financial derivative instruments (f)
  
  
  
  12,893
  
  12,893Liabilities:Provision for site restoration costs (b)
  
  20,541
  
  (20,541
  )
  Future income taxes
  
  146,446
  
  (41,453
  )
  104,993Deferred credits (f)
  
  18,694
  
  (18,694
  )
  Shareholders equity:Share capital
  
  394,734
  
  13,942
  
  408,676Retained earnings (deficit)  see below
  
  (83,625
  )
  (65,252
  )
  (148,877
  )  19 
   December 31,2002
  
  2001Retained earnings
  (deficit) - Canadian GAAP
  
  $
  (38,489
  )
  $
  (83,625
  )Adjustments to depletion
  
  (128,163
  )
  (125,550
  )Flow through share
  differences
  
  (13,942
  )
  (13,942
  )Compensation expense
  
  (1,873
  )
  Financial derivative
  instruments
  
  (14,300
  )
  12,893Deferred credits
  
  12,181
  
  18,694Adjustments to future
  income taxes
  
  58,597
  
  42,653Retained earning
  (deficit) - U.S. GAAP
  
  $
  (125,989
  )
  $
  (148,877
  )  Consolidated Statements of Cash Flows  The consolidated statements of cash flows includes,
under investing activities, items not affecting cash, related to the non-cash
elements of corporate acquisitions. 
This disclosure is provided in order to disclose the aggregate costs
related to such activities and to then deduct the related non-cash amounts to
arrive at the cash amounts.  This
presentation is not permitted under U.S. GAAP.  Additional U.S. GAAP Disclosure  Under Canadian GAAP,
companies are permitted to provide supplementary measures of earnings and
earnings per share in the consolidated financial statements, provided that
these measures are not given the same prominence as reported earnings and
earnings per share.  For the purpose of
reporting under U.S GAAP, companies do not disclose supplementary measures of
net earnings and earnings per share.  Recent Developments in U.S.
Accounting  On January 1, 2002, the Company adopted Statement of
Financial Accounting Standards No.141  Business Combinations (FAS 141) and
No. 142 Goodwill and Other Intangible Assets (FAS 142).  FAS 141 requires the purchase method of
accounting to be used for all business combinations after July 1, 2002.  FAS 142 requires that goodwill and
intangible assets with an indefinite useful life no longer be amortized, but
instead tested for impairment at least annually.  The Company has no goodwill or other intangible assets that were
impacted by the adoption of FAS 142.  The Financial Accounting
Standards Board (FASB) issued Statement No. 143, Accounting for Asset
Retirement Obligations (FAS 143) in June 2001.  FAS 143 requires liability recognition for retirement obligations
associated with tangible long-lived assets. 
The initial measurement of the asset retirement obligation is to be at
fair value.  The asset retirement cost
equal to the fair value of the retirement obligation is to be capitalized as
part of the cost of the related long-lived asset and amortized to expense over
the useful life of the asset. 
Enterprises are required to adopt FAS 143 for fiscal years beginning
after June 15, 2002.  The Company is
currently assessing the impact that adoption of this standard would have on its
consolidated financial position and results of operations.  In January 2003, the FASB issued Statement No. 148, Accounting for Stock Based
Compensation  Transition and Disclosure re: Amendment of FAS 123.  FAS 148 provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based compensation.  In addition, FAS 148 amends the disclosure requirements of FAS 123 to require prominent disclosures
in both annual and interim financial statements about the method of accounting
and the effect of the method on reported results.  This statement has no material impact on the Company, as there is
no current plan to adopt the fair value method of accounting for stock-based
compensation.  20 
   18.          Condensed Consolidating Financial
Information  The Company issued debt
securities on February 12, 2001, which are fully and unconditionally guaranteed
on a joint and several basis by the Companys wholly-owned subsidiaries,
including the Baytex Energy Partnership. 
On January 1, 2001, the Company and its wholly-owned subsidiaries
contributed substantially all of their producing properties to the
partnership.  As a result subsequent to
January 1, 2001, the Company became primarily a holding company with no
material operations, sources of income or assets other than its equity
interests in its subsidiaries, including the partnership.  In May 2001, the Company acquired OGY
Petroleums Ltd. and Triumph Energy Corporation.  These companies became wholly-owned subsidiaries and partners in
the partnership.  Both OGY Petroleums
Ltd. and Triumph Energy Corporation contributed substantially all of their
producing properties to the partnership in May 2001.  Effective January 1, 2002, OGY Petroleums Ltd. and Triumph Energy
Corporation were amalgamated into the parent company, Baytex Energy Ltd.  21 
   BAYTEX
ENERGY LTD. CONSOLIDATING STATEMENT OF OPERATIONS For the year ended December 31, 2002   Parent
  Company
  
  Guarantor
  Subsidiaries
  
  Consolidating
  Adjustments
  
  ConsolidatedRevenuePetroleum
  and natural gas sales
  
  $
  464
  
  $
  365,396
  
  $
  
  
  $
  365,860Royalties
  
  
  
  (58,922
  )
  
  
  (58,922
  )464
  
  306,474
  
  
  
  306,938ExpensesOperating
  
  
  
  75,228
  
  
  
  75,228General
  and administrative
  
  6,819
  
  (76
  )
  
  
  6,743Interest
  
  25,217
  
  
  
  
  
  25,217Foreign
  exchange (gain)
  
  (2,691
  )
  
  
  
  
  (2,691
  )Depletion
  and depreciation
  
  708
  
  91,366
  
  14,760
  
  106,834Site
  restoration costs
  
  
  
  2,799
  
  
  
  2,79930,053
  
  169,317
  
  14,760
  
  214,130Income (loss) before the following
  
  (29,589
  )
  137,157
  
  (14,760
  )
  92,808Equity
  in net earnings of subsidiaries
  
  128,645
  
  
  
  (128,645
  )
  Income (loss) before income taxes
  
  99,056
  
  137,157
  
  (143,405
  )
  92,808Income taxes (recovery)Current
  
  7,676
  
  2,040
  
  
  
  9,716Future
  
  26,450
  
  6,472
  
  5,034
  
  37,95634,126
  
  8,512
  
  5,034
  
  47,672Net income (loss)  Canadian GAAP
  
  64,930
  
  128,645
  
  (148,439
  )
  45,136Adjustments (as outlined in Note 17)Depletion
  
  
  
  (2,247
  )
  (366
  )
  (2,613
  )Compensation cost
  
  (1,873
  )
  
  
  
  
  (1,873
  )Deferred revenue
  
  
  
  (18,694
  )
  
  
  (18,694
  )Interest rate swaps
  
  12,181
  
  
  
  
  
  12,181Financial derivative instruments
  
  
  
  (27,193
  )
  
  
  (27,193
  )Income taxes
  
  (5,347
  )
  21,131
  
  161
  
  15,945Net income (loss)  U.S. GAAP
  
  $
  69,891
  
  $
  101,642
  
  $
  (148,644
  )
  $
  22,889  22 
   BAYTEX
ENERGY LTD. CONSOLIDATING
BALANCE SHEET December 31, 2002  Parent
  Company
  
  Guarantor
  Subsidiaries
  
  Consolidating
  Adjustments
  
  ConsolidatedAssetsCash
  and cash equivalents
  
  $
  4,098
  
  $
  
  
  $
  
  
  $
  4,098Current
  assets
  
  51,659
  
  1,008
  
  
  
  52,667Inter-company
  receivable
  
  83,247
  
  149,353
  
  (232,600
  )
  Investment in subsidiaries and partnership
  
  911,878
  
  153,512
  
  (1,065,390
  )
  Deferred charges
  
  8,679
  
  
  
  
  
  8,679Petroleum and natural gas properties
  
  16,297
  
  800,912
  
  115,107
  
  932,316$
  1,075,858
  
  $
  1,104,785
  
  $
  (1,182,883
  )
  $
  997,760LiabilitiesAccounts payable and accrued liabilities
  
  $
  78,876
  
  $
  13,687
  
  $
  
  
  $
  92,563Inter-company payable
  
  149,353
  
  83,247
  
  (232,600
  )
  Long-term debt
  
  326,977
  
  
  
  
  
  326,977Deferred credits
  
  12,181
  
  
  
  
  
  12,181Provision for site restoration costs
  
  
  
  21,950
  
  
  
  21,950Future income taxes
  
  91,550
  
  16,049
  
  76,803
  
  184,402658,937
  
  134,933
  
  (155,797
  )
  638,073Shareholders EquityShare
  capital
  
  398,176
  
  934,417
  
  (934,417
  )
  398,176Retained earnings (deficit)
  
  18,745
  
  35,435
  
  (92,669
  )
  (38,489
  )416,921
  
  969,852
  
  (1,027,086
  )
  359,687$
  1,075,858
  
  $
  1,104,785
  
  $
  (1,182,883
  )
  $
  997,760  The application of U.S. GAAP (outlined in Note 17)
would have the following effect on the condensed consolidating balance sheet at
December 31, 2002:  Parent CompanyDecember 31, 2002As
  Reported
  
  Increase
  (Decrease)
  
  U.S.
  GAAPLiabilities:Deferred credits
  
  12,181
  
  (12,181
  )
  Future income taxes
  
  91,550
  
  (18,816
  )
  72,734Shareholders equity:Share capital
  
  398,176
  
  13,942
  
  412,118Retained earnings  see below
  
  18,745
  
  42,844
  
  61,589  23 
   December 31,2002Retained earnings under
  Canadian GAAP
  
  $
  18,745Flow through share
  differences
  
  (13,942
  )Compensation expense
  
  (1,873
  )Deferred credits
  
  12,181Adjustments to future
  income taxes
  
  46,478Retained earnings under
  U.S. GAAP
  
  $
  61,589  Guarantor SubsidiariesDecember 31, 2002As
  Reported
  
  Increase
  (Decrease)
  
  U.S.
  GAAPAssets:Capital assets
  
  800,912
  
  (117,350
  )
  661,612(21,950
  )Liabilities:Provision for site
  restoration costs
  
  21,950
  
  (21,950
  )
  Future income taxes
  
  16,049
  
  (23,123
  )
  (7,074
  )Financial derivative
  instruments
  
  
  
  14,300
  
  14,300Shareholders equity:Retained earnings
  (deficit)  see below
  
  35,435
  
  (128,808
  )
  (93,373
  )  December 31,2002Retained earnings under
  Canadian GAAP
  
  $
  35,435Adjustments to depletion
  
  (125,422
  )Financial derivative
  instruments
  
  (14,300
  )Adjustments to income
  taxes
  
  10,914Retained earning (deficit)
  under U.S. GAAP
  
  $
  (93,373
  )  24 
   ConsolidatedDecember 31, 2002As
  Reported
  
  Increase
  (Decrease)
  
  U.S.
  GAAPAssets:Capital assets
  
  932,316
  
  (120,091
  )
  790,275(21,950
  )Liabilities:Provision for site
  restoration costs
  
  21,950
  
  (21,950
  )
  Future income taxes
  
  184,402
  
  (57,398
  )
  127,004Deferred credits
  
  12,181
  
  (12,181
  )
  Financial derivative
  instruments
  
  
  
  14,300
  
  14,300Shareholders equity:Share capital
  
  398,176
  
  13,942
  
  412,118Retained earnings
  (deficit)  see below
  
  (38,489
  )
  (87,500
  )
  (125,989
  )  December 31,2002Retained earnings
  (deficit) - Canadian GAAP
  
  $
  (38,489
  )Adjustments to depletion
  
  (128,163
  )Flow through share
  differences
  
  (13,942
  )Compensation expense
  
  (1,873
  )Financial derivative
  instruments
  
  (14,300
  )Deferred credits
  
  12,181Adjustments to future
  income taxes
  
  58,597Retained earning
  (deficit) - U.S. GAAP
  
  $
  (125,989
  )  25 
   BAYTEX
ENERGY LTD. CONSOLIDATING STATEMENT OF CASH FLOWS For the year ended December 31, 2002  Parent
  Company
  
  Guarantor
  Subsidiaries
  
  Consolidating
  Adjustments
  
  ConsolidatedNET INFLOW (OUTFLOW) OF CASH
  RELATED TO THE FOLLOWING ACTIVITIES:OPERATINGNet income (loss)
  
  $
  64,930
  
  $
  128,645
  
  $
  (148,439
  )
  $
  45,136Items not affecting cash:Site restoration costs
  
  
  
  2,799
  
  
  
  2,799Amortization of deferred charges
  
  1,052
  
  
  
  
  
  1,052Foreign exchange (gain)
  
  (2,691
  )
  
  
  
  
  (2,691
  )Depletion and depreciation
  
  708
  
  91,366
  
  14,760
  
  106,834Future income taxes
  
  26,450
  
  6,472
  
  5,034
  
  37,956Cash flow from
  operations
  
  90,449
  
  229,282
  
  (128,645
  )
  191,086Equity in net earnings of subsidiaries
  
  (128,645
  )
  
  
  128,645
  
  Changes in non-cash working capital
  
  15,050
  
  (13,778
  )
  
  
  1,272Increase in deferred charges
  
  (1,057
  )
  
  
  
  
  (1,057
  )Deferred credits
  
  
  
  (18,694
  )
  
  
  (18,694
  )(24,203
  )
  196,810
  
  
  
  172,607FINANCINGDecrease in bank loan and other debt
  
  (76,254
  )
  
  
  
  
  (76,254
  )Increase in deferred credits
  
  12,181
  
  
  
  
  
  12,181(Increase) decrease in inter-company receivable
  
  54,490
  
  (143,422
  )
  88,932
  
  Increase (decrease) in inter-company payable
  
  34,442
  
  54,490
  
  (88,932
  )
  Repurchase of common shares
  
  (55
  )
  
  
  
  
  (55
  )Increase in common shares
  
  3,497
  
  
  
  
  
  3,49728,301
  
  (88,932
  )
  
  
  (60,631
  )INVESTINGPetroleum and natural
  gas property expendituresDisposal of petroleum and natural gas properties
  
  
  
  (182,048
  )
  
  
  (182,048
  )Properties held for sale
  
  
  
  55,580
  
  
  
  55,580Change in non-cash working capital
  
  
  
  (46,895
  )
  
  
  (46,895
  )
  
  65,485
  
  
  
  65,485
  
  (107,878
  )
  
  
  (107,878
  )CHANGE IN CASH DURING THE YEAR
  
  4,098
  
  
  
  
  
  4,098CASH POSITION, BEGINNING OF YEAR
  
  
  
  
  
  CASH POSITION, END OF YEAR
  
  $
  4,098
  
  $
  
  
  $
  
  
  $
  4,098  26 
   BAYTEX
ENERGY LTD. CONSOLIDATING STATEMENT OF OPERATIONS For the year ended December 31, 2001  Parent
  Company
  
  Guarantor
  Subsidiaries
  
  Consolidating
  Adjustments
  
  ConsolidatedRevenuePetroleum
  and natural gas sales
  
  $
  6,926
  
  $
  322,774
  
  $
  
  
  $
  329,700Royalties
  
  (1,321
  )
  (56,484
  )
  
  
  (57,805
  )5,605
  
  266,290
  
  
  
  271,895ExpensesOperating
  
  2,173
  
  81,266
  
  
  
  83,439General
  and administrative
  
  5,220
  
  42
  
  
  
  5,262Foreign
  exchange
  
  16,262
  
  
  
  
  
  16,262Interest
  
  32,942
  
  
  
  
  
  32,942Depletion
  and depreciation
  
  21,872
  
  267,960
  
  77,552
  
  367,384Site
  restoration costs
  
  67
  
  3845
  
  
  
  3,91278,536
  
  353,113
  
  77,552
  
  509,201Income (loss) before the following
  
  (72,931
  )
  (86,823
  )
  (77,552
  )
  (237,306
  )Equity
  in net earnings (loss) of subsidiaries
  
  (81,795
  )
  
  
  81,795
  
  Income (loss) before income taxes
  
  (154,726
  )
  (86,823
  )
  4,243
  
  (237,306
  )Income taxes (recovery)Current
  
  7,128
  
  
  
  
  
  7,128Future
  
  (80,676
  )
  (5,028
  )
  (21,623
  )
  (107,327
  )(73,548
  )
  (5,028
  )
  (21,623
  )
  (100,199
  )Net income (loss)  Canadian GAAP
  
  (81,178
  )
  (81,795
  )
  25,866
  
  (137,107
  )Adjustments (as outlined in note 17)Depletion
  
  (552
  )
  (8,170
  )
  (2,319
  )
  (11,041
  )Ceiling test write-down
  
  (13
  )
  (197
  )
  (56
  )
  (266
  )Compensation cost
  
  787
  
  
  
  
  
  787Deferred revenue
  
  
  
  18,694
  
  
  
  18,694Financial derivative instruments
  
  
  
  12,893
  
  
  
  12,893Income taxes
  
  249
  
  (10,217
  )
  1,045
  
  (8,923
  )Net income (loss)  U.S. GAAP
  
  $
  (80,707
  )
  $
  (68,792
  )
  $
  24,536
  
  $
  (124,963
  )  27 
   BAYTEX
ENERGY LTD. CONSOLIDATING
BALANCE SHEET December 31, 2001  Parent
  Company
  
  Guarantor
  Subsidiaries
  
  Consolidating
  Adjustments
  
  ConsolidatedAssetsCash and cash equivalents
  
  $
  
  
  $
  
  
  $
  
  
  $
  Current assets
  
  38,011
  
  53,184
  
  
  
  91,195Inter-company receivable
  
  137,737
  
  149,672
  
  (287,409
  )
  Investment in subsidiaries and
  partnership
  
  692,009
  
  315,511
  
  (1,007,520
  )
  Deferred financing costs
  
  8,674
  
  
  
  
  
  8,674Petroleum and natural gas properties
  
  79,194
  
  481,264
  
  306,719
  
  867,177$
  955,625
  
  $
  999,631
  
  $
  (988,210
  )
  $
  967,046LiabilitiesAccounts payable and accrued liabilities
  
  $
  52,178
  
  $
  14,156
  
  $
  
  
  $
  66,334Inter-company payable
  
  149,672
  
  137,737
  
  (287,409
  )
  Long-term debt
  
  403,922
  
  
  
  
  
  403,922Deferred credits
  
  
  
  18,694
  
  
  
  18,694Provision for site restoration costs
  
  67
  
  20,474
  
  
  
  20,541Future income taxes
  
  (22,127
  )
  21,381
  
  147,192
  
  146,446583,712
  
  212,442
  
  (140,217
  )
  655,937Shareholders EquityShare capital
  
  394,734
  
  863,315
  
  (863,315
  )
  394,734Retained earnings (deficit)
  
  (22,821
  )
  (76,126
  )
  15,322
  
  (83,625
  )371,913
  
  787,189
  
  (847,993
  )
  311,109$
  955,625
  
  $
  999,631
  
  $
  (988,210
  )
  $
  967,046  The application of U.S. GAAP (outlined in Note 17)
would have the following effect on the condensed consolidating balance sheet at
December 31, 2001:  Parent CompanyDecember 31, 2001As
  Reported
  
  Increase
  (Decrease)
  
  U.S.
  GAAPAssets:Capital assets
  
  79,194
  
  (565
  )
  78,562(67
  )Liabilities:Provision for site
  restoration costs
  
  67
  
  (67
  )
  Future income taxes
  
  (22,127
  )
  13,469
  
  (8,658
  )Shareholders equity:Share capital
  
  394,734
  
  13,942
  
  408,676Retained earnings
  (deficit)  see below
  
  (22,821
  )
  37,318
  
  14,497  28 
   December 31,2001Retained earnings
  (deficit) under Canadian GAAP
  
  $
  (22,821
  )Adjustments to depletion
  
  (565
  )Flow through share
  differences
  
  (13,942
  )Adjustments to future
  income taxes
  
  51,825Retained earning
  (deficit) under U.S. GAAP
  
  $
  14,497  Guarantor SubsidiariesDecember 31, 2001As
  Reported
  
  Increase
  (Decrease)
  
  U.S.
  GAAPAssets:Current assets
  
  53,184
  
  (46,895
  )
  6,289Capital assets
  
  481,264
  
  (114,538
  )
  393,147(20,474
  )46,895Financial derivative
  instruments
  
  
  
  12,893
  
  12,893Liabilities:Provision for site
  restoration costs
  
  20,474
  
  (20,474
  )
  Future income taxes
  
  21,381
  
  (1,992
  )
  19,389Deferred credits
  
  18,694
  
  (18,694
  )
  Shareholders equity:Retained earnings
  (deficit)  see below
  
  (76,126
  )
  (101,240
  )
  (177,366
  )  December 31,2001Retained earnings
  (deficit) under Canadian GAAP
  
  $
  (76,126
  )Adjustments to depletion
  
  (122,610
  )Financial derivative
  instruments
  
  12,893Deferred credits
  
  18,694Adjustments to income
  taxes
  
  (10,217
  )Retained earning
  (deficit) under U.S. GAAP
  
  $
  (177,366
  )  29 
   ConsolidatedDecember 31, 2001As Reported
  
  Increase (Decrease)
  
  U.S. GAAPAssets:Current assets
  
  $
  91,195
  
  $
  (46,895
  )
  $
  44,300Capital assets
  
  867,177
  
  (117,478
  )
  776,053(20,541
  )46,895Financial derivative
  instruments
  
  
  
  12,893
  
  12,893Liabilities:Provision for site
  restoration costs
  
  20,541
  
  (20,541
  )
  Future income taxes
  
  146,446
  
  (41,453
  )
  104,993Deferred credits
  
  18,694
  
  (18,694
  )
  Shareholders equity:Share capital
  
  394,734
  
  13,942
  
  408,676Retained earnings
  (deficit)  see below
  
  (83,625
  )
  (65,252
  )
  (148,877
  )  December 31,2001Retained earnings (deficit)
   Canadian GAAP
  
  $
  (83,625
  )Adjustments to depletion
  
  (125,550
  )Flow through share
  differences
  
  (13,942
  )Financial derivative
  instruments
  
  12,893Deferred credits
  
  18,694Adjustments to future
  income taxes
  
  42,653Retained earning (deficit)
   U.S. GAAP
  
  $
  (148,877
  )  30 
    BAYTEX
ENERGY LTD. CONSOLIDATING STATEMENT OF CASH FLOWS For the year ended December 31, 2001  Parent
  Company
  
  Guarantor
  Subsidiaries
  
  Consolidating
  Adjustments
  
  ConsolidatedNET INFLOW (OUTFLOW) OF
  CASH
  RELATED TO THE FOLLOWING ACTIVITIES:OPERATINGNet income (loss)
  
  $
  (81,178
  )
  $
  (81,795
  )
  $
  25,866
  
  (137,107
  )Items not affecting cash:Site restoration costs
  
  67
  
  3,845
  
  
  
  3,912Amortization of deferred charges
  
  946
  
  
  
  
  
  946Foreign exchange loss
  
  16,262
  
  
  
  
  
  16,262Depletion and depreciation
  
  21,872
  
  267,960
  
  77,552
  
  367,384Future income taxes (recovery)
  
  (80,676
  )
  (5,028
  )
  (21,623
  )
  (107,327
  )Cash flow from operations
  
  (122,707
  )
  184,982
  
  81,795
  
  144,070Equity in net earnings of subsidiaries
  
  81,795
  
  
  
  (81,795
  )
  Changes in non-cash working capital
  
  (3,346
  )
  9,028
  
  
  
  5,682Increase in deferred credits
  
  
  
  18,694
  
  
  
  18,694(44,258
  )
  212,704
  
  
  
  168,446FINANCINGIssue of senior subordinated term notes
  
  227,895
  
  
  
  
  
  227,895Increase (decrease) in bank loan
  
  (90,304
  )
  (2,702
  )
  4,532
  
  (88,474
  )Increase in deferred charges
  
  (9,037
  )
  
  
  
  
  (9,037
  )(Increase) decrease in inter-company
  receivable
  
  (57,613
  )
  (178,463
  )
  236,076
  
  Increase (decrease) in inter-company
  payable
  
  178,463
  
  57,613
  
  (236,076
  )
  Repurchase of common shares
  
  (860
  )
  
  
  
  
  (860
  )Increase in common shares
  
  1,444
  
  
  
  
  
  1,444249,988
  
  (123,552
  )
  4,532
  
  130,968INVESTINGCorporate acquisitions
  
  (249,152
  )
  
  
  
  
  (249,152
  )Items not involving cash:Shares issued on acquisition
  
  68,104
  
  
  
  
  
  68,104Assumption of long-term debt
  
  36,356
  
  
  
  
  
  36,356Assumption of working capital
  
  (2,734
  )
  
  
  
  
  (2,734
  )(147,426
  )
  
  
  
  
  (147,426
  )Petroleum and natural gas property
  expenditures
  
  (59,696
  )
  (129,587
  )
  
  
  (189,283
  )Disposal of petroleum and natural gas
  properties
  
  1,392
  
  61,190
  
  
  
  62,582Properties held for sale
  
  
  
  46,895
  
  
  
  46,895Change in non-cash working capital
  
  
  
  (72,182
  )
  
  
  (72,182
  )(205,730
  )
  (93,684
  )
  
  
  (299,414
  )CHANGE IN CASH DURING
  THE YEAR
  
  
  
  (4,532
  )
  4,532
  
  CASH POSITION, BEGINNING
  OF YEAR
  
  
  
  4,532
  
  (4,532
  )
  CASH POSITION, END OF
  YEAR
  
  $
  
  
  $
  
  
  $
  
  
  $
    31