Listen to the fool Oil and Gas Prices Continue Rising: 2 Top Energy Stocks With Massive Upside Karen Thomas, The Motley Fool
8 hours ago
Baytex Energy Corp. (TSX:BTE)(NYSE:BTE) has performed well over the last month, having rallied 21%. But the stock is still trading lower compared to one year ago, despite the price of oil having rallied approximately 20% since then.
And while Baytex may have had a good reason for this lacklustre performance, a higher oil pricesolves many of its issues.
Baytex, as we know, has been hit by the fact that the company was and is still carrying too much debt. But, while at sub-$30 oil this is a huge problem, one that puts the company as a going concern at risk, at $60 oil, the story is totally different.
Baytex has big leverage to the oil price, and accordingly, the stock has big upside. It has been slowly reducing its debt and has taken it down from $2.1 billion to the current $1.7 billion.
The company?s asset disposition plan, which is expected to bring in much-needed proceeds from the sale of non-core assets, will go a long way to deleverage the balance sheet and reduce the risk of investing in these shares.
The company has been performing better operationally, with management producing in the upper end of its guidance and reducing its 2017 operating cost guidance by 10%.
As a reminder, at $50 per barrel, Baytex is free cash flow neutral; at $55 per barrel, Baytex generates incremental free cash flow of $75 million; and oil at $65 per barrel means incremental free cash flow of $175 million.
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The other company is Peyto Exploration which I didn’t include.