Baytex Energy Corp.
(BTE-T, BTE-N) C$5.83 | US$4.31
Expanding Eagle Ford Footprint Through Ranger Acquisition Event
This morning, BTE announced an agreement to acquire Ranger Oil (ROCC-Q, not covered) in a cash plus stock deal.
Impact: POSITIVE
Pro-forma production increases to 155-160 mboe/d (+87% vs. 2022); 85% corporate liquids weighting unchanged: The 96%-operated ROCC portfolio adds 12-15 years of oil-weighted inventory (39% current decline vs. BTE at 33%) and immediately competes for capital. BTE's asset-level WTI breakeven price falls by 15% to US$41/bbl (vs. US$55/bbl prior, although management had alluded to its breakeven having fallen from that level on its Q4/22 conference call—note). ROCC's assets do not directly overlap with BTE's Eagle Ford Karnes county acreage, but they are close and on-trend in the oil/condensate window.
Deal expected to be accretive on all relevant metrics: BTE is guiding to accretion of 24%, 20%, and 12% for FFOPS, FCFPS, and PPS, respectively.
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ROCC shareholders receives 7.49 BTE shares plus US$13.31 cash: This represents an ~70% equity/~30% cash split and adds ~$1.6bln net debt (including ROCC net debt of $0.8bln) to BTE's balance sheet (vs. ~$1bln exiting 2022). However, pro-forma ND/EBITDA still comfortably sits at ~1.0x, up slightly from ~0.8x exiting 2022.
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Transaction metrics reflect ~US$48,700/boe/d, 2.7x EV/2023E DACF (both using 2023E FactSet consensus), and US$14.54/boe of YE2022 1P reserves. This is in line with the recent Chesapeake Eagle Ford asset sale which reflected US$51,400/boe and US$14.72/boe 1P reserves (link).
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Juniper Capital and affiliates control ~54% of ROCC's shares and support the transaction. Juniper will hold ~20% of pro-forma BTE on closing. BTE will also enter into a hold period agreement with each one-third of Juniper's BTE shares subject to a three-month, six-month, and nine-month period.
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Importantly, BTE expects to immediately accelerate shareholder capital returns: It intends to reinstate a base quarterly dividend of $0.0225/share upon deal closing (1.5% yield vs. VET—1.5%, CPG—4.2%, ERF—1.1%, and WCP— 5.5%). BTE last paid a dividend in 2015.
Further, it intends to immediately increase the FCF allocation to shareholder capital returns to 50% from 25% currently. We had previously expected BTE to reach 50% upon achieving ND of $0.8bln in mid-2023.