Baytex Energy Corp T.BTE

Pay debt or drill

[dllscwbysfn]

It looks like a fair bit of debate as to whether it is better to pay off debt or drill for more oil. For me and my calculator it is very clear that at these prices companies are way better off drilling than paying off debt. Lets take a look at the math. I will try to use conservative numbers and please correct me if I am wrong.
 Scenario 1 Pay off 3million in debt, over a full 1 year period you would save 240, 000 in interest assuming an 8% interest rate.. So after 1 full year debt is down by 3,240, 000, the following full years you would save another 240,000/year/
 Scenario 2 Drill a well that cost 3million and takes 3 months to complete. If this well were to produce on average 300/ b/day and they netted $40/ barrel over the next 9 months they would receive 3,240,000. So after 1 full year comparing these 2 scenarios the company would be even. So what happens the following year(s). Lets say oil prices crash and they only make $10/barrel. That works out to be about 1 million/year. So under a pretty conservative scenario it looks like they would make 4 time more money drilling than paying off debt.

[Cobalt]

Thanks , was asking last week if any big math brains could lay down a formula cheers

[Snowballer]

If every producer drilled more the oil price would not be as high. The cost to produce more is also more expensive than ever. Supply constraints also limit them producing more.  And most importantly shareholders want a return that is secure and longlasting, not a short run on high cash payout only to enter into another bear market once supply and demand balance out again, the war ends and ESG

[1234bmth]

The SP behaviour at $110 + oil compared to its peers after Q1 result give us the answer for this. The level of debt for BTE is still too high for more drilling, debt reduction should be periority until reaching below $800M, anyway this my perspective.

[dllscwbysfn]

 I thought maybe if you drilled a well and one year later you paid off the equal amount of debt and interest and still have a producing well that you would be way better off. 

[Snowballer]

It's a valid point and not untrue but would go against industry narrative of flat prodcution, pay down debt, buy back shares.  So perhaps market would not support SP as much as it has? who knows.

[1234bmth]

  if it was that simple all oil companies can drill and print money, let's get to reality. There are many things to consider while drilling more. Some examples are: what is the cost of drilling, is it economically feasible? There will be demand for the extra production for a longer period? Will oil price stay high long enough? And many mores.

[topdown99]

You know dills your scenerio's don't take into account the financial freedom of getting rid of the debt . This has all been talked to death but it comes down to becoming free of "banker" meddling because it was the banks that forced so many O&G companies to put on those disasterous hedges in the first place . By getting rid of the higher interest notes you are then left with

[dllscwbysfn]

BTE s plan is clearly to spend more on cap-ex. You say that you expect prices to stay high and yet you would pay debt off first which is laughable. One year you have the same debt. I am very happy to see that BTE is using goog logic and simple math to get way better long term results

[topdown99]

I'm laughable ? screw you junior , new account May 6th 2022