Baytex Doubles Down On Eagle Ford And Our Take On It

Baytex Energy, our 4th largest position, announced this morning that it will acquire Ranger Oil Corporation (ROCC) for a price tag of $2.5 billion. 

Here is the slide deck.

We are not fans of this deal.

But let's talk about the positives first:

On a multiple bases, BTE illustrates in its slide deck the attractiveness of this acquisition. The pro-forma company to the BTE shareholder will benefit from 1) a larger scale, 2) higher free cash flow generation, and 3) higher liquid weighting. 

In addition, Baytex makes the argument that this acquisition will lower its Eagle Ford breakeven by $7/bbl. And given the merger of equals here, the accretion to all the metrics is why shareholders should support this deal.

From purely a financial perspective, this deal makes sense. At ~85k boe/d, BTE, like Meg, was stuck in no-mans land. At that size, you can either grow your way to become a more meaningful producer, acquire, or get acquired. And for BTE, the path to becoming larger was to acquire ROCC

I can get behind the rationale of this. Synergy, G&A, scale, inventory, and all the various financial metrics make sense, but we have worries and you will see why.

Now let's talk about the negatives...