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Baytex Energy: The Good The Bad And The Ugly


  • Eagle Ford light oil production needs to become a great enough percentage of total company production to properly fund the company needs.
  • The heavy oil acquisition was ill advised because heavy oil still loses money and produces relatively little cash flow.
  • Management has made no progress according to the company presentation reducing the heavy oil breakeven or reducing the heavy oil cost structure.
  • Eagle Ford cost structure appears to be lowering and production performance exceeds expectations.
  • The company loaned money to meet its first quarter needs and sold stock to make the acquisition.  The increasing debt is a step in the wrong direction when cash flow is insufficient.

Baytex Energy (NYSE:BTE) made an acquisition earlier in the year that expanded a money losing division. Even though the purchase was made by concurrently selling stock, the acquisition was probably ill-advised. The WTI price needed for success was just too high. Now there may be a way for the company to increase its cash flow despite the expansion of that money losing division. But it will be a tussle and until the market sees a clear direction, the stock price could continue to suffer. The stock will probably continue to decrease until the Eagle Ford production generates sufficient cash flow. That could be awhile for this cash constrained company. But it is probably the main survival chance for the company.

The Good

Eagle Ford production grew another 7% in the second quarter over the first quarter. Company production is now 72,500 BOED with most of that production growth coming from the high margin light oil Eagle Ford production. Operation improvements continue to exceed expectations. Currently, the news would indicate that those operational improvements will continue (maybe even accelerate). Since the company has nearly C$2 billion of long term debt, more cash flow is needed to support that debt. So the Eagle Ford production growth is sorely needed as cash flow up until how has been woefully inadequate.

(Canadian Dollars Unless Otherwise Noted)

Source: Baytex Energy June, 2017 Corporate Presentation

As shown on the first slide the Eagle Ford has the lowest breakeven. So the obvious way to lower the corporate breakeven is to increase the percentage of Eagle Ford production when compared to the total company production. So far that is exactly what is happening. The second slide demonstrates that as the WTI approaches $45, the Eagle Ford remains competitive. In fact, the company should make decent money on the Eagle Ford at WTI $40. Continuing operational improvements should

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I am a high school teacher for a decade. I am now retired.  Before that I was an analyst (operations and financial) and for a short time a Controller I have a B.S. with an emphasis in Accounting and an MBA (for which I studied Finance, Economics, and Management) I passed the CPA exam on the first try and am a retired CPA in the state of Maryland. I have a high school teaching credential and an MA in Math Education

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