BTE - TSX/NY: Baytex Energy

[Uccmal]

Stevie V posted:

 

"BTE is a smaller position for me.  They have a large debt load, but relatively favorable maturities and covenants.  They don't have frequent redeterminations or near term debt maturities.  However, they definitely need higher prices and the debt situation is something that will have to be dealt with down the road.  I think their plan is to wait for higher oil prices, which should drive a higher share price and then they will do an equity raise.  I think they could trade at $20 in a $60+ WTI price environment (versus about $4 this week)."

 

I had a decent look at this over the weekend and bought a preliminary position today. 

 

As Stevie has indicated: the earliest due date for their debt is nearly 4 years out.  Barring a significant long term plunge in fossil fuel prices this should not be a huge issue.  Under current pricing they can kick the can down the road.  The market is pricing the stock as if this is an issue.

 

They operate in 3 distimct areas: Peace River; Lloydminster, and Eagle Ford (texas).  They have stopped drilling in Canada at the end of 2015 and are focussing their entire capex on Eagle Ford.  Eagle Ford I believe is the more valuable light sweet crude versus the heavy oil of their Canadian leases (If anyone can shed more light on this please do).  Eagle Ford also has operating cost advantages over the Cdn. assets - longer season; proximity to refiners. 

 

I believe the stock is trading so low because:

1) Perceived high debt load, or if you like, high debt.

2) Low fossil fuel prices.

3) only 15% hedged.

4) Change in corporate direction is unproven (more focus on Eagle Ford). 

 

Counter to this I believe:

1) high debt load is manageable should pirces stay around or above $45 US.  They are nowheres near a covenant breach.  As Stevie has indicated, as the price rises they could do an equity raise and dispatch the next tranche of debt without major shareholder dilution.

2) Fossil fuel prices are beyond our control.

3) low amount of hedging works both ways.

4) Should the investments in Eagle Ford prove as good as management alleges,  then the change in focus will be rewarded. 

 

I hold Whitecap: Whitecap has a market cap today of: 3.8 B and an enterprise value of around 4.5 B

And I believe it is undervalued.  42000 Barrels per day.  $100,000 dollars per boe/day

 

Baytex: Market Cap: 1.1 B - enterprise value of 3.0 B.  68000 B/day.  $44,000 dollars per boe/ day.

 

Obviously there are differences in the asset quality of the two companies with Whitecap being very well run, and Baytex being somewhat more speculative.  But I do think it is undervlaued as compared to Wcp, and even Pennwest, for that matter. 

 

CDN dollar used except for oil prices.  I have used the words " I believe" alot.  Any criticisms, corrections, or comments are welcome. 

 

Cheers.

 

P.s. typos caused by big hands on a small keyboard.

 

 

 

 

[StevieV]

I think that is a pretty reasonable summary.  Good luck to both of us on this one.  I'll make a few comments and maybe help the thread get going:

 

(1)  I think their debt is objectively high.  So, I would say they have a high debt load, not just a perceived high debt load.  The terms are favorable, so that the debt does not have the urgency or immediate threat it might otherwise, but it is still there.

 

(2)  As always with commodities, the lower cost producers are the safest.  Moving up to higher costs adds risk.  As you point out, the Eagle Ford has the best economics for BTE.  It may not be quite right to call their Canadian operations higher cost, the problem is the costs compared to the prices they get for that oil.  At the end of the day, whether it be the extraction cost or sales prices, the result is similar.

 

(3)  Oil prices.  At its core, this is a leveraged play on oil prices.  If oil goes up, BTE will do well.  If not, it won't.  So, potential for high upside with higher oil prices and debt terms that give them a little time.

[Uccmal]

Their hedging is a substantially higher percentage than I indicated above.  It ranges from 25% to 45% of their oil production, depending on oil type. 

 

 

[StevieV]

Thanks for clarifying.  I hadn't looked to check the hedging numbers.  Hedging is not a large part of the BTE story for me (compare to say, PGH, where the 2016 hedging was significant to my thesis).

 

Big drop in BTE today.  However, the API apparently reported a huge draw from inventories.  I guess we'll see what happens with the EIA report tomorrow.  I added some on the drop.

 

BTE is now a decent sized position for me.  If anyone has followed my other posts, they may know my other positions in this space.  I would say sizing wise for me presently:  PWE - large position;  BTE - medium+;  BXE - moderate; PGH and MCEP - small/very small.