Baytex Energy Corp. (TSX: BTE) is an oil and gas company which is engaged in the acquisition, development and production of crude oil and natural gas in the Western Canadian Sedimentary Basin and in the Eagle Ford in the United States. The Company has oil and gas operations in Canada and the United States.

Key highlights

• Strong production in FY 2021, and positive projection for FY 2022: Robust performance of oil wells throughout the period resulted in production of 80,156 boe/d, which was slightly higher than the annual projection range of 77,000 - 79,000 boe/d, which is a significant positive. Furthermore, the business provided robust production guidance for FY 2022, ranging from 80,000 to 83,000 boe/d.

• Maximizing free cash flows: As a result of strong output and higher commodity prices, the company's cash flow from operations climbed to CAD 712.3 million from CAD 353.0 million in pcp, while free cash flows increased to CAD 421.3 million from CAD 18.0 million. Furthermore, it aims to earn more than CAD 550 million in free cash flow in 2022, which would be a significant plus.

          Source: Company Filing

• Curtailing net debts: The company prioritizes debt management in order to continue operations and support long-term ambitions. On December 31, 2021, the firm reduced its net debt by 24%, or CAD 437.9 million, to CAD 1.41 billion, compared to CAD 1.85 billion in pcp. The decrease in net debt is mostly due to the allocation of CAD 421.3 million of free cash flow in debt repayment. Furthermore, the business anticipates meeting its initial CAD 1.2 billion net debt target in Q2 FY2022, which is a huge bonus.

Risks associated with investment 

Since the company is in the oil and gas exploration sector, its revenues are linked to oil prices. Oil price volatility is anticipated to have an impact on the company's performance. Other variables that may have an influence on company’s financials include low demand for oil and gas, fluctuation in dollar index, and financial risk on the company’s hedged assets. 

Financial overview of FY 2021 (In 000 of CAD)

Source: Company Filing

• In FY 2021, the company’s reported total revenues increased to CAD 1,529.0 million, compared to CAD 811.7 million in the previous corresponding period. An increase was primarily due strong production and higher commodities realization price.
• On the back of impairment reversal worth CAD 1,542 million in FY 2021, the company managed to report net income before tax of CAD 1,694.8 million against a loss of CAD 2,599.3 million in pcp.
• Primarily due to above stated reason the company transformed its net loss of CAD 2,438.9 million in FY 2020 into net profit of CAD 1,613.6 million in FY 2021.

Valuation Methodology (Illustrative): EV to Sales based multiple

Analysis by Kalkine Group

Stock recommendation

In fiscal year 2021, the company generated good operating and financial success. Energy prices rose in tandem with rising demand as countries recovered from the COVID-19 epidemic, while supply remained constrained by OPEC production cuts and limited global oil and gas investment. In addition, the business pledged to maintain capital discipline, optimize free cash flow, and minimize net debt.

With ongoing operational momentum and current commodity prices, the company expects to produce more than CAD 550 million free cash flow in 2022, on the back of higher guided production. The company will also meeting its initial CAD 1.2 billion net debt target by the second quarter, which would be a significant positive. Therefore, based on the above rationale and valuation, we recommend a "Hold" rating at the last closing price of CAD 5.45 as on March 31, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on March 31, 2022). Source: REFINITIV, Analysis by Kalkine Group

Disclaimer

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