Why Baytex (TSX:BTE) Stock Fell 16% in August

Despite posting strong second-quarter results at the start of the month, shares in Baytex Energy Corp. (TSX:BTE)(NYSE:BTE) finished August 16% lower than where they started. Find out what went wrong.

| More on:

Despite posting strong second-quarter results at the start of the month, shares in Baytex (TSX: BTE)(NYSE: BTE) finished August 16% lower than where they started.

So, what exactly went wrong?

Canadian benchmark oil prices fared better in the second quarter relative to their U.S. counterparts, as the market has been able to stabilize (for now) following a rocky start to the year that was blamed on a lack of pipeline capacity to transport Canadian exports south of the border.

But despite stronger oil prices that helped to boost the cash flows of producers in the second quarter, most remain cautious (putting it mildly) about what the second half of 2019 may bring, and that’s unfortunately put a bit of a dampening on business investment and overall investor sentiment towards Canada’s energy sector.

Keeping with Baytex as a prime example of the outlook currently facing many of Canada’s energy producers, in the second quarter the company flat out delivered, generating record levels of free cash flow through the first half of the year and exceeding the high end of its production guidance.

Yet because energy prices remain at a mere fraction of where they were just a few years ago, highly levered companies like Baytex are still in survival mode.

Instead of using a strong quarter to boost forward production capabilities, BTE says it plans to use the cash to pay down its US$150 million of 6.75% senior unsecured notes during the third quarter, as it continues to rationalize its balance sheet and financial obligations.

But while that, in all likelihood, will prove to be a wise strategy in terms of its long-term viability, it comes at a cost.

Despite posting record cash flows through the first half of 2019, its management announced as part of its second-quarter earnings release that the company is now lowering its allocated budget for exploration and development capital expenditures by $25 million against both the top end and bottom end of its previously released corporate guidance.

That’s not exactly an encouraging sign for long-term shareholders, without question.

Foolish bottom line

Baytex is undoubtedly one of the riskiest and most levered oil plays in the Canadian market (at least for a company of its size), so will there be other opportunities to get in and out of this stock and make some money?

Most likely.

But for serious long-term shareholders, this is a story that has been going on for quite some time now, and based off August’s earnings release, we still don’t have any convincing evidence that the current narrative is about to change anytime soon.

With markets continuing to exhibit volatility, nervousness, and trepidation thanks to a still mostly uncertain six-month economic outlook, there are better ways for investors to gain exposure to Canada’s energy markets.

Suncor Energy and Cenovus Energy, for example, would be two companies that should enjoy more insulation from volatile swings in energy prices thanks to their size and integrated upstream-downstream business models.

Fool contributor Jason Phillips owns shares in Cenovus Energy Inc.

More on Dividend Stocks

the word REIT is an acronym for real estate investment trust
Dividend Stocks

This Industrial REIT Could Be a Quiet Growth Engine

Learn how Granite REIT utilizes a strategic approach to enhance portfolio growth through its diverse industrial properties.

Read more »

woman gazes forward out window to future
Dividend Stocks

The 5 Canadian Stocks So Safe I’d Tell My Mother to Buy Them

These five Canadian stocks combine durable businesses, strong competitive positions, and long-term resilience for cautious investors.

Read more »

man looks surprised at investment growth
Dividend Stocks

These 2 Canadian Dividend Stocks Are Screaming Buys, and I’m Taking The Bait

With reliable business models, stable cash flows, consistent dividends, and healthy growth prospects, these two dividend stocks offer compelling buying…

Read more »

Group of people network together with connected devices
Dividend Stocks

Enbridge Names New CEO Michele Harradence: What Investors Need to Know

Enbridge’s upcoming CEO transition puts Michele Harradence in charge of a company with a $41 billion growth backlog, diversified energy…

Read more »

Man meditating in lotus position outdoor on patio
Dividend Stocks

2 TSX Dividend Stocks Perfect for Patient Investors

With resilient business models, consistent dividend growth, and compelling long-term prospects, these two dividend stocks offer an attractive opportunity for…

Read more »

Canada Day fireworks over two Adirondack chairs on the wooden dock in Ontario, Canada
Dividend Stocks

Is Enbridge Stock Still a Buy With CEO Greg Ebel Retiring?

Enbridge CEO Greg Ebel is retiring and Michele Harradence takes over in 2027. Here is what the leadership change means…

Read more »

ETF is short for exchange traded fund, a popular investment choice for Canadians
Dividend Stocks

The Canadian Energy ETF to Own as Oil Prices Surge

The iShares S&P/TSX Capped Energy ETF (TSX:XEG) lets you buy Canadian energy stocks in a diversified package.

Read more »

Couple working on laptops at home and fist bumping
Dividend Stocks

$200 a Month in Tax-Free Income Is Closer Than You Think With These 2 TSX Stocks

Turn unused TFSA room into a $200 monthly, tax-free “paycheque” with two steady Canadian dividend payers.

Read more »