Why Baytex Energy Stock Is a Buy

Baytex Energy [stock_market_widget type="inline" template="generic" color="default" assets="BTE.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] has been in a soup this year as the stock has lost momentum after a promising start to 2019. The stock of the Calgary-based oil producer has been in free fall since the end of April as Canadian oil and gas prices have retreated. But a closer look at the company’s performance last quarter indicates that it can do well in an adverse pricing environment.

Let’s take a look at how Baytex did last quarter and how it might perform going forward.

Baytex did Impeccably Last Quarter

Baytex Energy’s first-quarter oil equivalent production came in at 101,115 barrels during the first quarter. This was a massive improvement over the prior-year period’s production of 69,522 oil equivalent barrels.

Thanks to this massive jump in Baytex’s production, its first-quarter revenue increased to C$453 million from C$286 million in the prior-year period. This massive increase in Baytex’s revenue allowed it to post a profit of $0.02 per share during the quarter as compared to a loss of $0.27 per share a year ago.

Moreover, Baytex’s operating netback increased to $26.56 per barrel of oil equivalent during the quarter. This was a substantial increase over the year-ago period’s operating netback of $20.71 per barrel of oil equivalent.

Baytex benefited from a lower spread between the Western Canadian Select (WCS) crude oil prices and the West Texas Intermediate (WTI) oil prices. The company pointed out that the WCS-WTI spread during the first quarter of the year fell to an average of $12.29 during the first quarter of 2019 as compared to a massive $39.42 per barrel during the fourth quarter of 2018.

As a result, Baytex was able to deliver an impressive financial performance as it managed to take advantage of higher production and better pricing. Baytex is looking to increase its output, but whether that will lead to an improvement in its financial performance or not remains to be seen.

A Bright Path Ahead

Baytex Energy has slightly raised its 2019 production outlook after its encouraging first-quarter performance and it has reduced its capital expenditure guidance for the full year. According to the company’s press release:

Given our strong operating performance to date, we are tightening our 2019 production guidance range to 95,000 to 97,000 boe/d (previously 93,000 to 97,000 boe/d) with budgeted exploration and development capital expenditures of $575 to $625 million (previously $550 to $650 million).

This improved production and lower capital expenses should allow Baytex to improve its balance sheet. The company is already working towards reducing its debt, and it could do even better going forward. In the first quarter, Baytex reduced its debt by $90 million in the first quarter of 2019.

The company now expects its adjusted funds flow to exceed the mid-point of its capital guidance by a massive figure of $350 million. Baytex believes that this will lead to “accelerated debt repayment” this year.

As such, even though Baytex shares have taken a beating this year, it makes sense to stay long as it is making the right operational moves.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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