A Member of Pat McKeough’s Inner Circle recently asked for his advice on Baytex Energy, an oil & gas company active in Western Canada and the Eagle Ford region of Texas.
Pat likes the company’s rising production and potential to profit from higher oil & gas prices. However, he notes that the company took on a lot of debt for a major acquisition and it remains to be seen if the company can integrate the purchase successfully.
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BAYTEX ENERGY CORP. (Symbol BTE on Toronto; www.baytexenergy.com) explores for, develops and produces oil and gas in Western Canada and the Eagle Ford, Texas, region of the U.S. The company’s output is 16% natural gas and 84% oil.
On June 20, 2023, Baytex completed its acquisition of Ranger Oil Corp. (symbol ROCC on Nasdaq) for $3.4 billion. Baytex paid $13.31 U.S. in cash and issued 7.49 Baytex shares for each Ranger share.
The company had to borrow the cash it needed to complete the deal. That has increased its long-term debt to about $2.6 billion, which is a high 59% of its market cap.
Ranger Oil operates exclusively in the Eagle Ford shale play in Texas, which boosts Baytex’s current presence in the area.
Inner Circle: Baytex Energy’s rising numbers are a bet on higher oil prices
The combined company has annual production of 155,000 to 160,000 barrels of oil equivalent. The Eagle Ford now accounts for about 61% of its yearly production.
Baytex didn’t pay dividends before the Ranger acquisition. But it started paying quarterly dividends of $0.0225 a share after the Ranger Oil transaction was completed. Baytex paid the first dividend in October 2023. The annual rate of $0.09 yields 1.7%.
In the quarter ended March 31, 2023, Baytex’s production rose 7.3%, to 86,760 barrels of oil equivalent per day from 80,867 barrels a year earlier. Cash flow fell 15.2%, to $237.0 million, or $0.43 a share, from $279.6 million, or $0.49 a share, a year earlier. That decline was from lower oil and natural gas prices, partly offset by the higher output.
Recommendation in Pat’s Inner Circle: Baytex Energy Corp. is a hold.
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