Baytex Energy Corp T.BTE

Ink Research

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Morning Report: Baytex insiders bet on the proposed Ranger Oil deal 

March 13, 2023

The share price of Baytex Energy (BTE) had already been underperforming the broad Energy sector when it announced on the morning of February 28th its intention to acquire Ranger Oil (Sunny; ROCC) in a cash plus stock deal. Under the terms of the proposed deal, Ranger shareholders will receive 7.49 BTE shares plus US$13.31 cash for each Ranger share. It seems Baytex shareholders were not so happy to learn that cash would be going to Ranger shareholders even as Baytex issued more shares and debt in the process. Baytex stock sank 9.8% on the day. Deal criticism has included concerns that the company's risk profile could increase due to relatively more challenging well economics associated with Ranger's Eagle Ford area assets compared to Baytex's existing production portfolio.

Baytex management, unsurprisingly, has a different perspective. When announcing the deal, Baytex CEO Eric Greager said, "[Ranger's inventory] brings 12 to 15 years of quality oil-weighted drilling opportunities. We are building quality scale and a more durable business with a lower break-even WTI price." If everything goes to plan, upon deal closing management expects to recommend to the board a quarterly dividend be set at $0.0225 per share ($0.09 annualized) which it expects to be fully funded to US$47/bbl WTI. Through the dividend as well as increasing share buybacks, it intends to direct 50% of free cash flow to shareholders. Post-closing, management expects Baytex's 12-month production to average 155,000 to 160,000 barrels of oil equivalent per day (74% oil). Insiders are not just talking about the deal, they have also been betting on it. Since the deal was announced, they have spent over $2 million buying shares in the public market.