Baytex Energy Corp. (NYSE: BTE) has announced that it has entered into a definitive agreement to acquire Ranger Oil Corporation (NASDAQ: ROCC).
The total consideration to be paid by Baytex, including the assumption of net debt, is approximately $2.5 billion, Baytex said. Under the terms of the deal, Ranger shareholders will receive 7.49 Baytex shares, plus $13.31 in cash, for each Ranger common share, for total consideration of approximately $44.36 per share, it said. highlight Baytex.
According to Baytex, the deal is accretive on key per-share metrics such as adjusted cash flow, free cash flow and production, supports the introduction of a dividend and increased share buybacks, and ” materially increases the scale of the Eagle Ford while building a quality operating platform.” in a first level basin”.
The deal has been unanimously approved by the boards of directors of Baytex and Ranger and is expected to close by the end of the second quarter of this year, Baytex noted.
“The acquisition of Ranger is strategic,” Baytex President and CEO Eric T. Greager said in a company statement.
“We are acquiring strong operating capability in the Eagle Ford, trending with our non-operated position in the Karnes Trough and driving significant accretion per share across all metrics. The transaction more than doubles our EBITDA and nearly doubles our cash flow free,” he added.
“The Ranger inventory competes immediately for capital in our portfolio and offers 12 to 15 years of oil-weighted quality drilling opportunities. We are building quality scale and a more durable business with a WTI breakeven price lower,” Greager continued.
Baytex’s chairman noted that the company is committed to improving direct shareholder returns and said that through this transaction, “we are returning more value to our shareholders per share.”
“Upon closing this transaction, we intend to initiate a dividend, which will be a key means of delivering reliable value to shareholders going forward,” he said.
“We are building an even stronger Canadian energy company with a diversified, high-quality, oil-weighted portfolio in the Western Canadian Sedimentary Basin and Eagle Ford,” he added.
In a statement posted on Ranger’s website, Darrin Henke, Ranger’s president and CEO, said, “I couldn’t be more proud of the Ranger team and the company we’ve built together.”
“We expect the combination with Baytex’s balance sheet strength, deep asset base and operational excellence to create a uniquely scaled company that will deliver sustained free cash flow growth and differentiated shareholder returns” , added.
“We look forward to bringing together our complementary teams and assets to realize the long-term value of this combination for our shareholders,” Henke continued.
Edward Geiser, chairman of Ranger’s board and managing partner of Juniper Capital, said in the statement that “this transaction represents a leap forward in the potential for shareholder value creation and accelerates the shareholder return strategies of both companies”.
“We expect this combination to create a company that is exceptionally positioned for sustained returns for shareholders,” he added.
First merger between public companies in almost a year
In a statement sent to Rigzone, Enverus Intelligence director of research Andrew Dittmar said the Baytex-Ranger deal is the first merger between public companies in nearly a year, “or since the Oasis Petroleum merger and Whiting Petroleum.”
“The deal follows media reports late last year that Ranger had launched a process of strategic alternatives, including exploring the sale of the company,” Dittmar said.
“Overall, there is room for further consolidation in the industry and a consensus that there is still work to be done to bring fewer, but larger, E&Ps to market. After seeing an active IPO market in late 2020, this process had stalled as most of the buyers’ attention turned to inventory-rich PE-sponsored companies,” added Dittmar.
“While this deal may not herald a rush of public company offerings, it is positive that there are still SMID caps open for sale and buyers willing to look at them. Given the relative lack of inventory they have some companies with SMID heads and the challenges of buying more at their current stock valuations, I think more should be exploring an exit However, so far only Ranger and HighPeak Energy, a Midland producer, have confirmed they are exploring a sale,” Dittmar continued to point out.
In the statement, Dittmar said one of the outstanding questions was how much of a premium buyers would have to offer to tempt sellers “given that the industry is in much healthier financial shape than when the previous rounds of corporate consolidation”.
“In previous rounds, buyers were able to make acquisitions at little or no premium to the seller’s share price. This deal at least partially answers that question with Ranger taking a modest premium of less than 10 percent,” added.
“Ranger also traded at what appears to be just the value of its production at around $47,200/bbl/d 2.9x EV/EBITDA. This is in line with other deals that have similar quality inventory to Ranger’s, with most locations that hit the $50/bbl range. A company with more or higher quality inventory could appear to command a larger premium,” Dittmar continued.
For Baytex, the deal adds a large, operating Eagle Ford position to its existing non-operating interests in the play, Dittmar said.
“However, while the price seems reasonable, there are limited synergies because the company has not previously operated assets in the Eagle Ford,” Dittmar said.
“The deal is also likely to raise questions about the quality of its existing portfolio of Canadian assets, as well as how the company will allocate capital between its Canadian assets and the new Eagle Ford position,” Dittmar added .
“These are questions that are likely driving the selloff in Baytex stock following the deal announcement,” said Enverus Intelligence Research Director.
To contact the author, please send an email andreas.exarcheas@rigzone.com
