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Ranger Oil Acquisition by Baytex: Boosting Shareholder Returns and Introducing Dividend with Improved Free Cash Flow in Eagle Ford Operations
03/29/2023
Baytex Energy, a Canadian oil and gas company, has announced its acquisition of Ranger Oil, an Eagle Ford operator based in Texas, in a deal worth $150 million. The acquisition will accelerate Baytex's shareholder returns and introduce a dividend with enhanced free cash flow.
With this acquisition, Baytex is set to expand its operations in the Eagle Ford region, one of the largest shale formations in the United States. Ranger Oil holds approximately 22,000 net acres in the region, with production averaging around 2,400 barrels of oil equivalent per day.
According to Baytex CEO Ed LaFehr, the acquisition will enhance the company's free cash flow and enable it to increase shareholder returns. The company plans to achieve this by optimizing Ranger Oil's production, reducing costs, and implementing efficient drilling and completion techniques.
LaFehr also stated that the acquisition aligns with Baytex's strategy of maintaining a strong balance sheet while continuing to grow its business. The company plans to fund the acquisition using its credit facility and expects the transaction to close in the fourth quarter of 2021.
The transaction includes
- Acquisition of 162,000 net acres in the crude oil window of the Eagle Ford shale, concentrated in Gonzales, Lavaca, Fayette, and Dewitt counties. The area is on-trend with Baytex's non-operated position in the Karnes Trough.
- Production of 67-70 Mboe/d (working interest), with 96% operated. The breakdown is 72% light oil, 15% NGLs, and 13% natural gas.
- 174 MMboe of proved reserves (working interest before royalties), comprising 120 MMbbls of tight oil, 27 MMbbls of NGLs, and 162 Bcf of shale gas.
- 258 MMboe of proved plus probable reserves (working interest before royalties), comprising 180 MMbbls of tight oil, 39 MMbbls of NGLs, and 232 Bcf of shale gas.
- Baytex's production is expected to average 155,000 to 160,000 boe/d (52% light oil, 22% heavy oil, 11% NGLs, and 14% natural gas) for the twelve months following closing.
An enhanced inventory of 741 net undrilled locations that immediately compete for capital in Baytex's portfolio. This represents an inventory life of 12 to 15 years and includes 523 quality Lower Eagle Ford opportunities and 218 additional Upper Eagle Ford and Austin Chalk opportunities. Baytex anticipates modest production growth from the acquired assets using two rigs and around 50 to 55 net wells per year.
Once the acquisition is complete, Baytex plans to recommend an initial quarterly dividend of $0.0225 per share ($0.09 per share annualized), representing a dividend yield of approximately 1.6%. This dividend is expected to be fully funded up to US$47/bbl WTI and would represent 4% of adjusted funds flow and 8% of free cash flow at US$75 WTI. The first dividend is expected to be paid in October 2023, subject to approval by the Baytex Board of Directors.
Baytex's balance sheet will remain a priority following the acquisition, with a total debt target of $1.5 billion, which represents approximately 1x total debt to EBITDA at US$50/bbl WTI. Once this debt level is achieved, Baytex plans to increase direct shareholder returns to 75% of free cash flow.
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Energy Giant Baytex Makes a Bold Move: Snaps Up Ranger Oil in $2.5 Billion Deal
Baytex Energy Group has announced that it will acquire Eagle Ford exploration and production company, Ranger Oil, for approximately $2.5 billion in cash and stock, which includes taking over the company's existing debt. Upon the successful closure of the acquisition, Baytex will have a controlling stake of approximately 63% in the newly merged company, leaving Ranger shareholders with around 37%. This significant move is in line with a trend of substantial mergers and acquisitions in the Eagle Ford area, with Marathon Oil, Devon Energy, and Chesapeake Energy among the companies involved in recent transactions.
Global Oil Supply and Demand Trends Overview: Insights from Rextag
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Global oil supply and demand saw notable changes in April 2023. Liquids demand declined by 0.7 MMb/d to 99.9 MMb/d, with gains in China and Europe offset by reduced demand in Japan and the Middle East. OPEC 10 production remained stable at 29.5 MMb/d, while Saudi Arabia increased output by 0.3 MMb/d. Non-OPEC production declined slightly, Russian production dropped further, and US shale production remained steady. Combined production in Iran, Venezuela, and Libya remained unchanged. Commercial inventories increased, and OPEC+ implemented production cuts. Economic sentiment remains uncertain amid rising global inflation.
Global oil supply and demand saw notable changes in April 2023. Liquids demand declined by 0.7 MMb/d to 99.9 MMb/d, with gains in China and Europe offset by reduced demand in Japan and the Middle East. OPEC 10 production remained stable at 29.5 MMb/d, while Saudi Arabia increased output by 0.3 MMb/d. Non-OPEC production declined slightly, Russian production dropped further, and US shale production remained steady. Combined production in Iran, Venezuela, and Libya remained unchanged. Commercial inventories increased, and OPEC+ implemented production cuts. Economic sentiment remains uncertain amid rising global inflation.
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