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Baytex to acquire Ranger for $2.5 billion

Updated: Oct 30, 2023

Acquisition Overview

On 28th February, Baytex Energy Corp. announced its acquisition of Ranger Oil Corporation, a pure-play Eagle Ford company, with a total transaction value estimated at US$2.5 billion. This demonstrates Baytex’s ambition to expand its operation in the Eagle Ford shale, an area that has seen sharp oil production growth since 2010.

Deal Structure

The deal is financed by both cash and stock. Ranger shareholders will receive 7.49 Baytex common shares and US$13.31 per share cash, for a total consideration of approximately US$44.36 per share. This represents a 7.6% premium to the closing price on 24th February 2023. The total transaction value is estimated at US$2.5 billion, which includes net debt of around US$650 million.

The firms acting as financial advisors for the two sides are CIBC Capital Markets (Baytex), RBC Capital Markets (Baytex), BofA Securities, Inc. (Ranger), and Wells Fargo Securities, LLC (Ranger).

Baytex Energy Corp. Overview

Baytex Energy Corp. is an energy company based in Calgary, Alberta. The company is primarily 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. It possesses around 10 years of projected drilling inventory in each of its core areas, including Viking, Eagle Ford and Canadian heavy oil. It has recently invested in its Clearwater Development and Exploration project, which has more than 125 net prospective sections. The continued appraisal drilling at Peavine and Seal has contributed to the company’s ambitious 5-year plan to generate $3.1 billion of free cash flow at US$80 WTI by 2026.

Founded: 1993

Number of employees: 231

EV: CAD 3.31bn

LTM Revenue: CAD 2.33bn


Market Cap: CAD 2.38bn

Ranger Oil Corporation Overview

Ranger Oil Corporation is an independent oil and gas company engaged in the development and production of oil, natural gas liquids (NGLs), and natural gas in the Eagle Ford shale in south Texas. Its total sales volumes in 2022 were 40.8 thousand barrels of oil equivalent per day (Mboe/d), which increased 47% year-over-year. Currently, it produces more than 50 Mboe/d, and the continued optimisation of development techniques has resulted in another new IP-30 field record with an IP-30 rate of over 3,000 boe/d.

Founded: 1882

Number of employees: 136

EV: US$1.85bn

LTM Revenue: US$1.09bn

LTM EBITDA: US$760.1mn

Market Cap: US$684.6mn

Industry Insight

While the energy industry has suffered during the COVID-19 pandemic, it has largely recovered from it. In 2023, the impact of Russia-Ukraine war and the shift to clean energy must not be overlooked. These industry trends will be elaborated below.

Recovery of the energy industry: Lockdowns and travel restrictions during the COVID-19 pandemic led to a drastic decline in the demand for oil and gas. As the travel restrictions have been lifted up and China has reopened, demand for oil is expected to rise to record levels. This is followed by an uptick in world oil supply in February by 830 kb/d in February to 101.5 mb/d. It has been predicted that world oil demand growth will accelerate sharply over the course of 2023, from 710 kb/d in 1Q23 to 2.6 mb/d in 4Q23. Overall speaking, the prospect of the oil and gas industry is promising.

Impact of the Russia-Ukraine war: Following the EU crude embargo and a G7 price cap, the oil output by Russia saw a sharp decline last year. Russian oil exports have thus shifted from the EU to Asia, with China and India taking in 70% of the exports in February. Meanwhile, the geo-political tension has also disrupted the natural gas supplies to Europe and hence caused Europe to explore alternative sources of energy. This has raised concerns about the reliability of Russian energy exports and created opportunities for energy companies in other regions.

Shifting to clean energy: Rising commodity prices and apprehension over energy security have incentivised companies to diversify their supply chain and invest in clean energy. Since 2020, clean energy investment by oil and gas companies has increased by an average of 12% each year. The United States has provided for about $450 billion of clean energy and related investments by passing the Infrastructure Investment and Jobs Act and the Inflation Reduction Act. Similarly, the European Commission has committed itself to a clean energy transition and emissions reduction of around €300 billion in its Fit for 55 climate package and Europe’s REPowerEU plan. These have signalled a prevalent preference for clean energy.

Strategic Rationale

Ranger primarily operates in the Eagle Ford shale, which is also one of the core locations of Baytex. By acquiring Ranger, Baytex can expand its operation and ensure a more sustainable level of inventory. This will also allow Baytex to develop a more resilient business model, which will be analysed below.

Expansion in operation scale and inventory: The acquisition will materially increase Baytex’s scale in Eagle Ford and boost its production in the area from 27,000 boe/d to 68,500 boe/d. The locations operated by Ranger Oil span across the Eagle Ford shale and their attractiveness are bolstered by the fact that 96% of them are operated. Coupled with 741 net undrilled locations, Baytex has foreseen 12 to 15 years of sustainable development following the acquisition. The inventory generated is also expected to be readily purchased by the market, and it is expected that at least 50 wells can be turned into sales every year.

A more resilient and sustainable business: Since 96% of the locations owned by Ranger are operated, the acquisition will pull the operated production of Baytex from 70% to 82%. The increase in asset level will hence provide flexibility to allocate capital across Baytex’s portfolio, which may include defensive inventory when the WTI pricing is low. These factors will contribute to a more resilient operation amidst an oil industry downturn. Moreover, the expanded operation in Eagle Ford will increase exposure to premium Gulf Coast pricing and the Eagle Ford light oil receives a premium to WTI. Therefore, the revenue of oil generated by Baytex will be benefited, creating a more sustainable business.

Long Term Prospects

Oil production in the Eagle Ford shale accelerated sharply between 2010 and 2015, leading to a record high of 18% of U.S. oil produced in 2015. However, the percentage has declined steadily to 9.7% in June 2022, which has provoked apprehension about the prospect of oil production in Eagle Ford. Nonetheless, the relatively high production volume by Ranger and the availability of numerous undrilled locations are likely to expand Baytex’s operation scale greatly. Oil demands in Europe are on a record high level due to the recovery from the COVID-19 pandemic and the disruption by the Russia-Ukraine war, hence this acquisition will allow Baytex to immediately benefit from the active market. However, it remains to be seen whether there will be a sustainable and sufficient demand for the increased oil produced by Baytex in the coming 10 to 15 years.

Written by Ovi Cheung (London School of Economics and Political Science)

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