Clearwater & DuvernayWith the price of oil being at US$70+ Baytex is printing money. The deleveraging is going to be much quicker than the current 5 yr. plan and this should continue to be a good tailwind to the share price which is significantly undervalued based on historical averages (P/CF, P/DCAF, P/FFO, etc...). The WCS differentials should also be a great tailwind in the next few years, as Canada's pipeline capacity expands both to the south and of course to the BC coast with the completion of Transmountain. WCS differentials should tighten and benefit CDN heavy oil producers. The Clearwater discovery has a lot of people excited and once Baytex delineates the potential shareholders could see a decent re-rate on the stock.
All the above were things that Ed Lafehr stated during the recent TD investor persentation and are well known to the market. The one new piece of information that Lafehr said on the TD call was the potential for Baytex to partner on Duvernay's exploration & development. The market seems to have missed this important statement. Duvernay has been slow in development due to Baytex's limited capex flexibility over the last few years, slowing their ability to exploit another world class asset. LaFehr has previously stated that Duvernay has the same characteristics of Eagle Ford. Baytex has had no financial capacity (or incentive in a sub $50 oil market) to accelerate the development of this massive land position & potential. Now that Clearwater has emerged as a world class potential oil discovery Baytex is indicating that a partnership for development of Duvernay is on th table. It is possible that Baytex confirms the potential of Clearwater in the next 6 months and also sells an operating stake in Duvernay to a larger partner (making the arrangement similar to the one with MRO in EF). Such an event could rapidly send Baytex shares into double digits. The funds from the sale of a stake in the Duvernay would get their balance sheet in a position where they could immediately begin to returning capital to shareholders and keep long term value in their key properties. If oil prices remain in the $70 range Lafehr is signalling that a Duvernay deal will likely occur...which should result in a futher re-rating of Baytex.
GLTAL.