Baytex Energy Corp (USA)(NYSE:BTE) agreed to buy Peace River heavy oil assets in a deal valued at $65 million CAD and is funding this transaction with $100 million CAD in bought deal financing. If the financial side of these assets is similar to company’s existing Canadian assets, then the transaction would seem to be interesting at $50 to $60 oil. The deal timing seems to be fortuitous provided that the OPEC deal pushed 2017 oil futures higher to that range not much long after the contract was announced.
Baytex is purchasing current production of 3,000 BOEPD in the Peace River region of Canada. This production is over 80% heavy oil, which is more than the 71% heavy oil recorded for its existing Canadian production. Another production of 3,000 BOEPD is shut-in due to regulatory and economics reasons. Baytex stated that this production could be resumed at a cost of $30 million CAD.
The deal can hence be seen as current production of 3,000 BOEPD for $65 million CAD or production of 6,000 BOEPD for $95 million CAD. As well, the company mentions that the deal will double its Peace River land place, giving it considerable additional development prospects if oil prices are favorable.
Baytex is financing the deal with $100 million CAD in bought deal funding at $5.25 CAD per share. The additional shares amounting to 19.05 million will add nearly 9% to Baytex’s outstanding share number. The equity financing amount is enough to cover the acquisition expenses and the restart expenses for the shut-in production.
Due to the extremely high gaps for Canadian heavy oil production, the report for the Peace River businesses are highly reliant on oil prices. Some rough computations utilizing 85% heavy oil production and company’s existing Canadian operational report as a guide shows that Baytex may generate nearly $2.20 per BOE in EBITDA from new production point at $40 NYMEX oil compared to $15.60 per BOE – $60 NYMEX oil. This comprises the impact of royalty percentages that moves up with oil prices.