Thoughts from Seeking Alpha boardWhat's everyone's thoughts on this take from Seeking Alpha board (Michael Blair)?
I believe in much higher oil price so don't agree with his suggestion of all the dilution
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With Baytex limited in its ability to fund material capital outlays for the time being, even a CAD$20 million Clearwater program with 100% returns will take several years before it makes much difference to Baytex EV. If Baytex wants investor support, the company should issue 100 million shares at the current CAD$2.00 range and devote the proceeds to Clearwater development. Playing chicken with commodity prices is why the company is in the doghouse today and management needs to wake up and get the debt down.
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Issue 100 million shares at CAD$2.00 is 16% dilution. Investment CAD$200 million in Clearwater play at 100% IRR to generate CAD$200 million per year incremental cash flow. Company says IRR is more than 100% at today's oil price. At 5x EBITDA added CAD$200 cash flow million is worth CAD$1 billion or about CAD$1.60 per diluted share, a bump of 80%. My arithmetic suggests the dilution is worth the candle.
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Baytex is way ahead if it issues CAD$200 million equity and devotes it to Clearwater. Spoiler alert - less debt, higher cash flow per share, better ratios at all levels.