TD Action Notes Summary Equity Research December 13, 2016 Action Notes Summary
Equity Research
December 13, 2016
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Event
We are re-initiating research coverage following the closing of Baytex Energy Corp.'s
(BTE-T's) $115mm equity financing. ~57% of the proceeds will be used to fund the
$65mm acquisition of Peace River heavy oil assets, while residual funds will shore
up the balance sheet. BTE also rolled out a 2017 budget that points to a return of
capital to Canada to stabilize production, while maintaining operational momentum
in the Eagle Ford.
Impact: POSITIVE
BTE announced a $300mm-$350mm capital program for the coming year. This is
expected to generate average production of 66-70 mboe/d and exit-to-exit growth
of 3-4%. This compares with the previous 2017 Street consensus of $283mm and
66.4 mboe/d (grossed up to reflect the Peace River acquisition). On our estimates,
2017 capex will be fully funded through internally generated cash flow at current
strip prices (with a funding surplus of ~$17mm).
The 2017 budget reflects solid capital efficiencies of ~$13,500/boe/d (inclusive of
facilities)—10% lower than the $15,000/boe/d it had initially guided to.
BTE is paying $65mm for 3,000 boe/d
(85% oil)
of contiguous Peace River
production. BTE sees opportunities to optimize development, in addition to
restoring 3,000 boe/d of shut-in volumes should oil prices be conducive.
~57% of the $115mm in gross proceeds of the equity financing will fund the above
acquisition. We note that the full over-allotment was exercised. Surplus funds from
the financing will be used to reduce debt.
TD Investment Conclusion
With the proceeds from the financing, the Peace River tuck-in acquisition, and the
return of capital to its heavy oil assets (these assets compete well at WTI prices in the
mid-US$50 range), we believe that BTE is well-positioned to return to growth mode
in 2017.
We fully acknowledge that BTE, as a higher beta name, should outperform
in the event of a stronger recovery in oil prices than we are forecasting. To this end,
we note that
WTI oil prices have risen 16%
since the OPEC announcement, with
BTE shares up 43% (versus the XEG at 10%).
We are increasing our target price
to $7.00 (from $6.50) on a higher target multiple; however, we are maintaining our
HOLD rating
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BTE-T: Price
Company Profile
Baytex Energy Corp. is an oil and gas company
engaged in the acquisition, development, and
production of oil and natural gas assets in the
Western Canadian Sedimentary Basin and in the
Eagle Ford in the United States. Baytex shares
are traded on the Toronto Stock Exchange and the
New York Stock Exchange under the symbol BTE.
Energy Producers - Junior & Intermediate
Baytex Energy Corp.
(BTE-T, BTE-N) C$7.03 | US$5.35
Equity Financing Closes; Regaining Operational Momentum in
2017
Menno Hulshof, CFA
Josie Ho, (Associate)
Recommendation:
HOLD
Risk:
HIGH
12-Month Target Price:
C$7.00
Prior: C$6.50
12-Month Dividend (Est.):
C$0.00
12-Month Total Return:
(0.4)%
Market Data (C$)
Current Price
C$7.03
52-Week Range
$1.57 - $9.04
Mkt Cap (f.d.) ($mm)
$1,664.0
Mkt Cap (basic) ($mm)
$1,640.8
Float Cap ($mm)
$1,452.4
Current Dividend
$0.00
Dividend Yield
0.0%
Avg. Daily Trading Vol.
10,159,570
Financial Data (C$)
Fiscal Y-E
December
Shares O/S (f.d)(mm)
236.7
Shares O/S (basic) (mm)
233.4
Float Shares (mm)
206.6
Net Debt ($mm)
$1,803.7
Net Debt/Total Cap
45.9%
Net Debt/EBITDA
4.8x
Estimates (C$)
Year
2014A
2015A
2016E
2017E
CFPS (f.d)
5.91
2.44
1.31
1.57
CFPS (f.d) (old)
–
–
–
1.65
NAVPS (f.d.)
–
6.91
–
–
Oil (b/d)
67,448
69,353
54,155
54,031
Gas (MMcf/d)
65.2
91.8
90.9
86.4
MBOE/d
78.3
84.6
69.3
68.4
CFPS (f.d) Quarterly Estimates (C$)
Year
2014A
2015A
2016E
2017E
Q1
1.35
0.94
0.21
0.35
Q2
1.22
0.76
0.38
0.38
Q3
1.79
0.50
0.36
0.42
Q4
1.47
0.44
0.38
0.43
Valuations
Year
2014A
2015A
2016E
2017E
EV/DACF
7.8x
9.5x
7.7x
6.7x
P/NAV
–
101.7%
–
–
Supplemental Data
Year
2014A
2015A
2016E
2017E
WTI (US$/bbl)
92.81
48.96
43.50
57.00
WCS (US$/bbl)
73.90
35.65
30.00
43.00
HENRY HUB (US$/
MMBTU)
4.27
2.64
2.55
3.25
FX (US$/C$)
0.91
0.78
0.76
0.77