Baytex Energy Corp.: Could it Rise Another 100%?

Baytex Energy Corp.: (TSX:BTE)(NYSE:BTE) has more than doubled off the January lows, and there could be more gains on the way.

| More on:
The Motley Fool

Baytex Energy Corp.: (TSX:BTE)(NYSE:BTE) was pretty much left for dead in January when it traded below $2 per share, but the stock has more than doubled off those lows, and investors are wondering if the rally can continue.

Let’s take a look at the current situation to see if Baytex deserves to be in your portfolio.

Debt situation

Baytex finished Q4 2015 with long-term debt of $1.88 billion and net debt of $2.05 billion. That’s a heavy load for a company with a market capitalization of $1 billion, but the situation isn’t quite as bleak as it looks.

None of the long-term debt is due before 2021, and the company has about $820 million available in undrawn credit facilities that don’t mature until June 2019.

Many energy companies are working with their banks to relax covenants in their credit facilities with various measures of success. Baytex has done a good job of being proactive throughout the oil rout and managed to get its lending syndicate to adjust the terms twice in 2015.

This is important for investors because it means the banks see value in the underlying assets of the company.

What is Baytex worth?

In the Q4 2015 report, Baytex said its estimated net asset value discounted at 10% is $11.05 per share. This is based on an estimated reserve value of $4.3 billion plus extra value for undeveloped land, net of long-term debt, asset retirement obligations, and working capital.

At the time of writing, the stock is trading at $4.40 per share, so there is another 150% upside potential right there if the valuation estimate is reasonable in the current environment.

Cost controls and production outlook

Management is doing a good job of adjusting expenses to ensure the company can survive the rout. The 2016 exploration and capital budget has been slashed by a further 33% and is expected to be $225-265 million with 95% of the investment going toward the company’s Eagle Ford assets.

Production guidance for 2016 is 68,000-72,000 barrels of oil equivalent per day (boe/d), down from the 84,648 boe/d produced in 2015, which means cash flow will remain under pressure if oil prices don’t recover.

Should you buy Baytex?

If you believe oil prices have bottomed out, Baytex is a good way to play a recovery in the sector. The company is not at risk of going bust in the near term, and the upside potential remains significant on a continued oil rally. Remember, this was a $48 stock less than 18 months ago.

At some point I think Baytex will be bought out, which would add an extra pop to the share price, especially if suitors start to line up to get their hands on the company’s attractive properties.

While another 100% move is certainly possible, investors should wade in carefully just in case the latest oil rally is a head fake.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker has no position in any stocks mentioned.

More on Energy Stocks

Arrowings ascending on a chalkboard
Energy Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Canadian Natural Resources stock is well set up to beat the TSX as it continues to generate strong cash flows…

Read more »

energy industry
Energy Stocks

2 TSX Energy Stocks to Buy Hand Over Fist Now

These two rallying TSX energy stocks can continue delivering robust returns to investors in the long term.

Read more »

green energy
Energy Stocks

1 Magnificent TSX Dividend Stock Down 37% to Buy and Hold Forever

This dividend stock has fallen significantly from poor results, but zoom in and there are some major improvements happening.

Read more »

oil tank at night
Energy Stocks

3 Energy Stocks Already Worth Your While

Here's why blue-chip TSX energy stocks such as Enbridge should be part of your equity portfolio in 2024.

Read more »

Solar panels and windmills
Energy Stocks

1 Beaten-Down Stock That Could Be the Best Bet in the TSX

This renewable energy stock could be one of the best buys you make this year, as the company starts to…

Read more »

Dice engraved with the words buy and sell
Energy Stocks

Is Enbridge Stock a Buy, Sell, or Hold?

Here's why Enbridge (TSX:ENB) remains a top dividend stock long-term investors may want to consider, despite current risks.

Read more »

Gas pipelines
Energy Stocks

If You Had Invested $5,000 in Enbridge Stock in 2018, This Is How Much You Would Have Today

Enbridge's high dividend yield hasn't made up for its dismal total returns.

Read more »

Bad apple with good apples
Energy Stocks

Avoid at All Costs: This Stock Is Portfolio Poison

A mid-cap stock commits to return more to shareholders, but some investors remember the suspension of dividends a few years…

Read more »