Ranger Oil (ROCC) being acquired by Baytex - Feb 28

[dan_s]

ROCC closed on Friday, Feb 24 at $41.25US, which compares to the sales price of $44.36US.

Calgary, Alberta--(Newsfile Corp. - February 28, 2023) - Baytex Energy Corp. (TSX: BTE) (NYSE: BTE) ("Baytex", the "Company" or "we") today announced that it has entered into a definitive agreement (the "Agreement") to acquire Ranger Oil Corporation (NASDAQ: ROCC) ("Ranger"), a pure play Eagle Ford company (the "Acquisition").

The total consideration to be paid by Baytex, including assumption of net debt, is approximately US$2.5 billion (C$3.4 billion). The transaction has been unanimously approved by the Boards of Directors of Baytex and Ranger and is expected to close late in the second quarter of 2023. Under the terms of the Agreement, Ranger shareholders will receive 7.49 Baytex shares plus US$13.31 cash, for each Ranger common share, for total consideration of approximately US$44.36 per share.

Commenting on the Acquisition, Eric T. Greager, President and Chief Executive Officer of Baytex, said: "The Ranger acquisition is strategic. We are acquiring a strong operating capability in the Eagle Ford, on-trend with our non-operated position in the Karnes Trough and driving meaningful per-share accretion on all metrics. The transaction more than doubles our EBITDA and nearly doubles our free cash flow. The Ranger inventory immediately competes for capital in our portfolio and brings 12 to 15 years of quality oil-weighted drilling opportunities. We are building quality scale and a more durable business with a lower break-even WTI price."

"We are committed to enhancing direct shareholder returns, and through this transaction we are returning more value to our shareholders on a per-share basis. Upon closing of this transaction, we intend to initiate a dividend, which will be a key means of delivering reliable value to shareholders going forward. We are building an even stronger Canadian energy company with a high-quality diversified oil-weighted portfolio across the Western Canadian Sedimentary Basin and the Eagle Ford."

Key Highlights

Accretive on key per share metrics, including adjusted funds flow (24%), free cash flow (20%) and production (12%).

Allows immediate step-up in direct shareholder returns to 50% of free cash flow.

Supports the introduction of a dividend and increased share buybacks.

Materially increases Eagle Ford scale while building a quality operating platform in a premier basin.

Enhances inventory with 741 net undrilled locations representing an inventory life of 12 to 15 years.

Creates a more resilient and sustainable business.

Reduces asset level free cash flow break-even price by 15% to US$41/bbl.

Increases exposure to premium light oil U.S. Gulf Coast pricing and enhances operating netback.

Maintains financial strength with total debt to EBITDA ratio of 1.0x.

Supports Baytex's strong commitment to ESG performance with a 16% reduction in average GHG emissions intensity.

Commenting on the transaction on behalf of Ranger, Darrin Henke, Chief Executive Officer, said: "I couldn't be more proud of the Ranger team and the company we've built together. We expect that combining with the balance sheet strength, deep asset base, and operational excellence of Baytex will create a unique company of scale which will deliver sustained free cash flow growth and differentiated shareholder returns. We look forward to bringing together our complementary teams and assets to realize the long-term value of this combination for our shareholders."

In addition, Edward Geiser, Chairman of Ranger's Board and Managing Partner of Juniper Capital, added, "This transaction represents a leap forward in shareholder value creation potential and accelerates both companies' shareholder return strategies. We expect this combination will create a company that is exceptionally positioned for sustained shareholder returns."

Strategic Rationale

Significant Accretion. The assets are being acquired at an attractive valuation and the Acquisition is immediately accretive to key metrics. Transaction metrics are approximately 2.86x EBITDA at US$75/bbl WTI and $50,000 per barrel of production per day (working interest) which drives 24% accretion to adjusted funds flow per share, 20% accretion to free cash flow per share and 12% accretion to production per share. In addition, the Acquisition is 23% accretive to free cash flow per share for the remaining four years of our five-year plan period (2023 to 2026).

Enhanced Shareholder Returns. On closing of the transaction, Baytex intends to increase direct shareholder returns to 50% of free cash flow, introduce a dividend and increase share buybacks. Following closing of the transaction, management expects to recommend that the dividend, to be paid quarterly, be set at $0.0225 per share ($0.09 per share annualized), representing a dividend yield of approximately 1.6%. The dividend is expected to be fully funded to US$47/bbl WTI.

Builds Quality Scale and an Operating Platform. The transaction materially increases Eagle Ford scale in Texas while building a quality operating platform in a premier basin. The transaction includes:

162,000 net acres in the crude oil window of the Eagle Ford shale, highly concentrated in Gonzales, Lavaca, Fayette and Dewitt counties and on-trend with Baytex's non-operated position in the Karnes Trough.

Production of 67-70 Mboe/d (working interest) that is 96% operated (72% light oil, 15% NGLs and 13% natural gas).

174 MMboe of proved reserves (consisting of 120 MMbbls of tight oil, 27 MMbbls of NGLs and 162 Bcf of shale gas (working interest before the deduction of royalties).

258 MMboe of proved plus probable reserves (consisting of 180 MMbbls of tight oil, 39 MMbbls of NGLs and 232 Bcf of shale gas (working interest before the deduction of royalties).

Baytex's production is forecast to average 155,000 to 160,000 boe/d (52% light oil, 22% heavy oil, 11% NGLs and 14% natural gas) for the twelve-month period following closing. On a pro forma basis, Baytex is expected to generate annual EBITDA of approximately $2.4 billion and annual free cash flow of approximately $1.0 billion.

[dan_s]

By Kevin Crowley
(Bloomberg) -- Baytex Energy Corp. agreed to acquire Ranger
Oil Corp. for about $2.5 billion in cash and stock as the
Canadian company increases its presence in the Eagle Ford shale
region in south Texas.

Baytex shareholders will own 63% of the combined company
and Ranger investors will hold the remainder, according to
Tuesday statements from the companies. The transaction price
includes $650 million of debt.

US-listed shares of Baytex fell 7.2% in premarket trading
in New York, while Ranger Oil rose 3.7%.

The deal allows Baytex to more than triple its production
and acreage in the Eagle Ford, which typically offers a cheaper
entry point than the more prolific Permian Basin due to its
advanced maturity. It also enhances Baytex’s key financial
metrics such as free cash flow per share and production per
share, allowing it to introduce a quarterly dividend.

[dan_s]

MY TAKE is that the Buyer's share price always falls when these deals are announced because the Wall Street Gang assumes (a) that they paid a premium and (b) the shareholders of the acquired company will sell a lot of the stock they received. So, it is best to wait for the Baytex stock price to settle down before buying it.
The deal will take a couple of months to close.

[ChuckGeb]

Baytex stock for Ranger. Yikes.

[Fraser921]

why so cheap. Any comments on the buyout price, Dan?

[JBtheBrit]

Looks like a low ball bid and ROCC p/e owners cashing out. Dan - whats your view on potential for other bidders ?

[dan_s]

This is a merger, not a "sale". The price is a low-ball bid only if you think BTE stock is overvalued. It is close to a merger of equals with a cash "kicker" so the Baytex management team can retain control.
Very little chance of a higher offer coming forward. I'm sure Ranger had several companies in the dataroom.

Mergers are done to gain scale, which lowers operating costs per boe and opens access to more capital if needed. Size matters in this business.

[ChuckGeb]

Hard to see any merits for ROCC shareholders. I sold my shares. Plenty of other opportunities that I can understand and have synergyies.

[Hawker99]

I currently have a position in BTE and they are a good operator who has a lot of free cash flow and are paying down debt quickly.
Their Canadian clearwater assets are some of the most profitable wells in NA.

Combining ROCC with the current BTE Eagleford assets will lead to improved synergies.

Here is a take on the deal from a well informed source.

********************************************************************************

Baytex Energy: Excellent Eagle Ford Acquisition Of Ranger Oil

https://seekingalpha.com/article/458328 ... ranger-oil

[ChuckGeb]

Thanks for that info and best of luck on the post merger investment. Will keep an eye on Baytex.

[dan_s]

Baytex is a possible addition to the Sweet 16. I need to spend a day building a Proforma forecast model on Baytex to come up with a valuation.

Size matters in this business for several reasons. One of them is that when companies get over 100,000 Boepd of production, they get a lot more analysts covering them. That's why I remain very bullish on ESTE and PR.

[tlengoc]

Looks like a law firm is investigating the merger between BTE and ROCC:

https://www.nasdaq.com/press-release/ro ... ranger-oil

This might not be over.

[Fraser921]

THANK YOU HAWKER AND CHUCK

[Fraser921]

tlen > They picked up Dan's target price

In particular, according to an analysis of Wall Street price targets for Ranger in the last 90 days published on Seeking Alpha, there is an average target price of $58.40 per share, and a high price target of $74.00 per share. Both are above the deal price, which indicates that Wall Street analysts think the deal consideration is too low.

Dan, you can be an expert witness. You are usually too high with valuations but this miss was ridiculous. No takeover premium whatsoever

[Fraser921]

Raymond James Downgrades Baytex Energy to Market Perform, Lowers Price Target to C$5.5

Baytex Energy Kept at Market Perform at BMO after US$2.5 Billion Acquisition; Price Target Kept at C$7.50



Baytex Energy Upgraded to Buy at TD, Shares Rebound
BY MT Newswires
— 10:29 AM ET 03/01/2023

10:29 AM EST, 03/01/2023 (MT Newswires) -- Baytex Energy Corp. (BTE) was upgraded to Buy from Hold at TD Securities.

Analyst Menno Hulshof maintained a target price of $7 on shares of the Calgary-based oil and gas company.

Hulshof said Tuesday's sell-off in the stock was unjustified, following the acquisition of Eagle Ford pure-play Ranger Oil.

"We believe the market reaction to the transaction was overly punitive and believe the positives outweigh the negatives," the analyst said in a note to clients.

"Yesterday's excessive share-price pullback has boosted our target return to 34% which, in turn, merits an upgrade to Buy."

Stifel FirstEnergy on Wednesday reiterated its hold rating on the shares of Baytex Energy (BTE) while lowering its price target to C$7.00 from C$8.00 after the oil and gas producer agreed to acquire Ranger Oil (ROCC) for US$2.5 billion in cash, shares and debt to expand in the Eagle Ford shales in Texas.

[Fraser921]

forbes article

https://open.substack.com/pub/blackmon/p/forbes-piece-baytexranger-oil-combination?r=nh748&utm_campaign=post&utm_medium=email

[dan_s]

AGAIN: This deal is a MERGER, not a SALE. My current valuations ("price targets") are what I believe a company should sell for in a negotiated sale.

Why is a merger different? Because the shareholdersin Ranger are going to get a lot of shares in Baytex, so they still own the assets of the company, but in a much larger entity. Plus, they get a nice cash "kicker".

There are always a few lawyers that try to make a buck off these deals, ignore them.

[Hawker99]

Here is a video interview from today on BNN TV with a top Canadian oil fund manager.

He likes BTE and the deal of them merging with ROCC.

Those who currently own ROCC may want to hang on to BTE shares when the deal closes

https://www.bnnbloomberg.ca/video/very-meaningful-upside-ahead-for-the-energy-market-eric-nuttall~2639004