Post by
ResearchSeeker on Jan 18, 2022 6:10pm
Mergers Acquisitions and Oil Prices
I do enjoy the posts on this board, about where Baytex will be price wise in the future.
Posts made made BayStreetWolf and Red 2000 - Nice research! Thanks, it's a lot of work.
I do have an idea that others may want to consider. Baytex has acquired or merged with two companies since 2014.
Aurora Oil & Gas - $2.35B in Feb 2014
Raging River Exploration - $2.13B in Jun 2018
Another way to arrive at a price, is to consider what other companies might be willing to pay for Baytex, both high and low.
Put yourself in the shoes of the board at Baytex, on the board of a company that may be interested in buying Baytex, and, of a company that Baytex itself may want to acquire. Now is definitely the time when there should be more mergers and acquisitions in this space. There have not been many to my knowledge.
I am going to consider:
1. Who Baytex might want to acquire, and at what price/terms.
2. Who might Baytex merge with, and what might this do to the combined sales, stock structure, and stock price per share.
3. What company might want to buy Baytex out, and at what price/terms.
These things are being considered right now, and the only thing we can be absolutely sure of, is we will not get any details until after something like this has already happened.
If I come to any conclusions, I will share. Congrats to the person who predicts any of this before it happens.
What I already know is, it's unlikely most oil and gas companies have enough cash to acquire without support from a bank, or by way of stock dilution or bonds. Only the supermajors appear to be able to get this sort of deal done.
Most of the companies I looked at last night, didn't even look good enough for further investigation. This alone tells me Baytex is better off than most, as it stands now.
Regarding the price of what we produce and sell:
Baytex is significantly levered to the price of oil. I think supply & demand environment is favorable for longs at the moment. I would really like to see things stay as they are, without intervention by governments to control oil prices.
I do have concerns about the price of oil for the future, both too low or too high.
1. Transportation
When transportation costs go up due to fuel price increases, it affects the bottom line of both businesses and individuals. In some cases, principal or interest alone can no longer be paid. The higher the oil and refined product prices go, the worse it becomes. This may cause large banks, to lobby governments, to do things that are not good for free markets. Those banks will need lower oil prices to prevent loan defaults. This does not mean the banks will be successful. I am opposed to this, though history tells us this can happen.
2. Bad Central Bank Policy and Inflation
I watched Alan Greenspan raise rates many times, and markets crashed, and a bad recession followed. This was 1999-2001. Fuel prices had been really low for a long time. People stopped consuming as much fuel. Low prices prohibit companies like Baytex from putting capital to work in new wells. Eventually oil prices went higher, and new drilling happened, though it took some time. I feel this could happen in the next year for the same reasons as it did when Greenspan raised interest rates. Powell is talking about it now. My best guess is they raise rates one time, and when it has a negative result, they will stop. A recession will cause oil demand to go down some. I do think this is possible in the next year.
On the other end of the spectrum, inflation itself may cause consumption to go down. People will eat and pay their rent/mortgage before they drive, and will be forced to find ways to use less fuel.
3. CapEx and Drilling
There has not been much drilling since the last price crash in 2014. Since 2014, we have drilled a lot of rapidly depleting wells in the Permian, many of them too close to each other, though not much anywhere else. The supply deficit is likely to increase, and with it the price of oil will increase. If free markets prevail, without intervention, and, not much capex is applied to drilling new wells, then oil will certainly go higher.
4. Fear and Hysteria
Pipelines being blown up in Nigera, and other places, drone strikes, labor shortages, people with experience not returning to oil and gas exploration, retirement, and many other reasons, why, it will be more costly to replace oil production capacity. These conditions will all come into play this year.
I would estimate that $70 to $90 for West Texas Intermediate, is the status quo for 2022. I will guess that number is breached in either direction in a 35%/65% chance. That is, 35% it will go lower than $70, and 65% it will go higher than $90, for a time this year.
About me, and interaction with this board.
I read more than I post. If people put me on ignore, it does not matter to me. I do not put anyone on ignore.