Combined company targets 100 MBOEPD in 2019 with $750 million CapEx budget

After a quiet first quarter, Canadian M&A activity has been busy in Q2 2018, with two major producers merging today.

Baytex Energy (ticker: BTE) and Raging River Exploration (ticker: RRX) announced a strategic combination, creating a company with a combined enterprise value of about $5 billion.

The combined company will have a major presence in North American oil production, with assets in Alberta, Saskatchewan and Texas. The combined company is expected to produce about 102.5 MBOEPD in 2019, with a capital spending program of $750 million.

Canadian M&A Continues in C$1.6 Billion Deal

Source: Baytex Investor Presentation

The largest single operating area in the combined company is not in Canada at all, but rather in the Eagle Ford. The company expects to produce 36 MBOEPD from the area, compared to 21 MBOEPD from the Viking and 26.5 MBOEPD from several heavy oil projects.

The combined company will also work to develop the East Duvernay shale, which is in the early stages of delineation. Merging Raging River and Baytex will give the resultant company a large cash flow base to develop the 260,000 acres it holds in the basin, Baytex reports. Wells in the East Duvernay produce almost exclusively liquids, with only 10% of the production mix made up of gas. Raging River has four wells already drilled in the play, with 6-12 planned for the next four quarters.

Canadian M&A Continues in C$1.6 Billion Deal

Source: Baytex Investor Presentation

Baytex predicts the combined company will have about $1 billion of adjusted funds flow and $425 million of free cash flow in 2019. With no major debt maturities before 2021, the company expects it will be able to internally fund its growth projects.

All-stock transaction represents 10% premium

The transaction is all-stock, with Baytex issuing Raging River shareholders 1.36 shares of Baytex for each Raging River share owned. This values the company at $1.6 billion. Baytex reports the exchange ratio was determined based on prices when the two companies began negotiations. At Friday’s closing prices, this represents a premium of 10%.

The combined company be chaired by Neil Roszell, current Chairman and CEO of Raging River. Edward LaFehr, President and CEO of Baytex, will continue to serve both roles. Senior management and the board of directors will be made up of members from both Baytex and Raging River. The combined company will operate and trade under the Baytex name. Baytex expects the transaction to close in August 2018.

“We are uniting two strong oil companies with exceptional people and assets. This combination creates a diversified, well-capitalized oil producer that has an impressive suite of high quality producing assets and the ability to materially advance our East Duvernay Shale light oil opportunity, while continuing to develop our Eagle Ford, Viking, Peace River and Lloydminster core assets. The combination provides a substantial value proposition for all shareholders of Raging River and Baytex incremental to what each company could deliver on its own,” said Mr. Roszell.


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