Yahoo Finance Baytex Energy shares climb following RBC upgrade to 'outperform'
The bank is bullish on the Canadian producer's plan to buy U.S. oil and gas company Ranger Oil
Baytex Energy (BTE.TO)(BTE) shares climbed as much as five per cent on Tuesday after an upgrade from RBC Capital Markets. Analyst Greg Pardy has issued a bullish take on the Canadian producer's plan to buy U.S. oil and gas company Ranger Oil in an estimated $3.4 billion deal.
If approved by regulators and shareholders, the transaction announced in late-February will see Calgary-based Baytex acquire 162,000 acres in the Eagle Ford shale play in Texas, raising its production by 67,000 to 70,000 barrels of oil equivalent per day.
"Baytex Energy's new President & CEO Eric Greager has wasted no time in his quest to build quality scale," Pardy wrote in a note to clients on Tuesday.
Toronto-listed shares added 3.81 per cent to $5.45 as at 10:37 a.m. ET on Tuesday. The stock is down about 14 per cent year-to-date. Pardy lifted his rating to "outperform" from "sector perform," while maintaining a $9 per share price target.
Baytex says Ranger's assets will provide about 12 to 15 years of inventory, and lower its breakeven price versus West Texas Intermediate (WTI) (CL=F), the U.S. benchmark grade of crude.
Pardy says Ranger's Eagle Ford operations carry a US$7 per barrel higher supply costs than Baytex's existing assets in the region, at US$54 versus US$47. However, he notes Baytex sees room to cut costs.
Like many energy sector executives, Greager is under pressure from investors to focus on shareholder returns while pursuing company growth. Baytex plans to introduce a quarterly dividend of 2.25 cents per share, and increase stock buybacks, after the Ranger deal's expected close in the second quarter of 2023. Baytex shareholders of record as of the close of business on April 3 will be able to vote on the Ranger acquisition at the company's annual meeting on May 15.
Last week, Raymond James analyst Jeremy McCrea highlighted Greager's purchase of $2.5 million worth of shares in the past six months as a bullish sign for the oil and gas sector.
"The recent buying should help give confidence on the underlying business and direction going forward," McCrea wrote in a research note on insider buying at Canadian oil and gas firms.
"Importantly as well, 55 per cent of CEOs in the mid-cap sector added to their positions in open-market purchases, highlighting the overall strength in the sector."
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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