Baytex Oil Sands Tests Look Promising

| About: Baytex Energy (BTE)

Better than expected test results from Baytex Energy Trust's (NYSE:BTE) [TSE:BTE.UN] Seal oil sands property in Northern Alberta have raised the interest of several industry analysts.

“Seal's long-term potential dwarfs Baytex today,” UBS analysts Grant Hofer said in a research note Thursday. “With low operating and F&D costs, this play generates exceptional recycle ratios that should drive significant value appreciation for Baytex.”

The Alberta-based trust completed construction on its thermal pilot project in Q1 2008, and holds a 100% working interest in more than 100 sections of long-term oil sands leases there. Certain sections have also extracted heavy oil using horizontal drilling, with initial production rates at 150 barrels per day. 

Peters & Co. analyst Jeff Martin found Baytex's incremental steam-oil ratio [SOR] of 2.3 and total SOR of about 1.5 to be better than their expectations of 4.0.

“Assuming the process works on approximately 25% of the Trust's land base, our risked assessment of the value is approximately C$4 per unit.” But they aren't budging from their original 12-month target of C$32 per share.

UBS also predicts Baytex will hit C$32 per share, but suggests investors take a wait-and-see approach. “Without a concrete development plan it is too early for investors to ascribe much value to the ultimate potential within Seal,” they said.

Peters expects it will take at least two years to develop the project.

Baytex was trading at C$29.05 on Friday morning, down C$0.47 or -1.72%.