Baytex/Ranger Oil Combination First Of Its Kind In Almost A Year

Calgary-based Baytex Energy Corp. announced on Tuesday that is has agreed to acquire Eagle Ford Shale pure play Ranger Oil Corp. for $2.5 billion, including net debt of $650 million. The deal represents the first combination of public companies in the oil and gas upstream sector since last year’s deal between Oasis Petroleum and Whiting Petroleum.

In the company’s release, Baytex CEO Eric T. Greager 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.”

In an email, Andrew Dittmar, Director at Enverus Intelligence Research, notes that the transaction “follows media reports late last year that Ranger had launched a strategic alternatives process including exploring a sale of the company.”

The deal provides Baytex with a strong operated position in the Eagle Ford play, a region in which it has previously held scattered non-operating interests. In its release, Baytex notes it will now command the following Eagle Ford position:

• 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 (7) (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 (7) (consisting of 180 MMbbls of tight oil, 39 MMbbls of NGLs and 232 Bcf of shale gas (working interest before the deduction of royalties).

Dittmar warns that this transaction may not mean the industry is about to embark on its first active mergers and acquisitions period since late-2020, cautioning that only a handful of potential small-to-mid-cap producers are actively soliciting interest from larger buyers. “While this one deal may not presage a rush of public company deals, it is positive that there are still SMID-caps open to sale and buyers willing to look at them,” Dittmar says. “Given the relative lack of inventory that some SMID-cap companies hold and the challenges of buying more at their current stock valuations, I think more should explore an exit. However, so far only Ranger and HighPeak Energy, a Midland producer, have confirmed exploring a sale.”

One positive data element accruing from this deal is that it gives an indication of the level of premium buyers will need to offer in order to complete a transaction. Dittmar notes that the flurry of late-2020 deals paid little-to-no premium over current asset value given that those deals took place in a time of low commodity prices and profitability. With the price for crude oil having risen significantly since, returning profitability to the shale/fracking business, many have speculated a higher premium would need to be offered to complete any deal.

“This deal at least partly answers that question with Ranger taking a modest premium of less than 10%,” Dittmar says. “Ranger also traded at what appears to solely the value of their production at about $47,200/bbl/d and 2.9x EV/EBITDA. That is in line with other deals that have similar quality inventory to Ranger, with most locations breaking even in the $50/bbl range. A company with more or higher quality inventory might look to command a larger premium.”

Bottom Line: This is not an earth-shattering deal in the mode of Oxy’s mammoth $55 billion acquisition of Anadarko PetroleumAPC
in 2020, nor is it necessarily a signal that another flurry of transactions could be imminent.

But it is a deal, and it’s the first one I’ve written about in quite some time. Here’s hoping for more to come.