There are a few things about Baytex Energy Corp. (TSX:BTE) that are working in its favour. This includes record production, improving well economics, and of course, the company’s ability to generate strong cash flows.
They have translated into recent strength in Baytex Energy’s stock price. As you can see from the graph below, Baytex’s stock price has more than doubled since its April lows.
But West Texas intermediate (WTI) oil prices are down 14% versus one year ago, and 25% from early 2025 highs. This is clearly not good for a company like Baytex Energy. Is there any hope for the stock? Is Baytex Energy actually a good buy heading into 2026?
About Baytex Energy
Baytex is a Canadian oil and gas producer with a strong position in the Duvernay formation in central Alberta, as well as heavy oil assets at Peace River and Lloydminster in Western Canada. The heavy oil assets deliver steady and predictable production, with strong cash flows. The Duvernay area assets are high-return oil and liquids-rich gas assets. Together, they are delivering solid cash flows, production growth, and returns.
Third-quarter results
In Baytex’s most recent quarter, the company reported record production at its high growth Duvernay assets – a 53% growth rate. Its heavy oil assets also reported strong production growth of 5%.
On the financial side of things, Baytex’s adjusted funds flow came in at $0.55 per share, compared to $0.48 in the prior quarter and $0.67 in the prior year. The decline in funds flow versus last year was due to the lower oil prices. The average WTI price in the third quarter was $64.93 versus the average price of $75.10 in the same period last year. Thus, this 14% drop in WTI prices was the reason for the weaker financial results.
Taking a closer look
There are some things that are worth paying attention to when it comes to Baytex Energy. These are bullish signs that I think should make investors consider the shares for energy exposure.
The first is the company’s recent sale of its non-core U.S. Eagle Ford assets. This sale brings in $3.3 billion of cash and will go a long way in reducing Baytex’s debt and increasing shareholder returns. Baytex currently has $2 billion in long-term debt. After the deal closes, the company will have a net cash position. According to the company, this will lead to accelerated shareholder returns, as management intends to resume its share buyback program.
Secondly, Baytex will become a more focused company – one that’s focused on its high-quality heavy oil operations as well as its position in the Duvernay. This will allow Baytex to better pursue disciplined growth and capitalize on new opportunities.
Thirdly, after the disposition of the U.S. assets, Baytex’s break-even WTI oil price will fall by $8 to $52 per barrel. The WTI oil price is currently trading at approximately $58.
Finally, Baytex has significant opportunity for growth. The company’s heavy oil assets include 1,100 drilling locations, which supports 10 years of drilling at today’s pace. In the Duvernay, Baytex has approximately 212 drilling locations. At the right WTI prices, the company expects to post a more than 5% growth rate in production.
The bottom line
Baytex Energy stock has not been the best performer in the last few years. This has brought us here, to a place where the stock is trading at a very depressed cash flow multiple of 2.2 times.
We cannot really predict future oil prices. But there are some things that are more certain – Baytex’s strong operational execution and the improvements that will come with the U.S. divestiture. To sum up, I think that Baytex Energy stock is a buy and investors should consider it for their portfolios.
