Calgary-based competitors Baytex Energy Corp. and Raging River Exploration Inc. agreed Monday to merge in a transaction estimated to be worth close to C$5 billion (US$3.78 billion) to create an onshore producer with holdings in Western Canada and South Texas.
The combined organization, to operate under the Baytex name, is expected to produce about 94,000 boe/d from a portfolio that extends from Canada’s Viking, Peace River, Lloydminster and East Duvernay formations to the Eagle Ford Shale in South Texas.
Together, production would be weighted 45% to light oil/condensate, 28% heavy oil, 17% natural gas and 10% natural gas liquids. About 62% of output would be from Canada and 38% from South Texas.
Raging River Executive Chairman Neil Roszell is to chair the revamped Baytex board, with Baytex CEO Edward LaFehr taking the reins as CEO/president.
“We are uniting two strong oil companies with exceptional people and assets,” Roszell said. “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.”
Equity value of the combined company is estimated at C$2.8 billion (US$2.12 billion), with net debt of C$2.1 billion (US$1.59 billion), leading to an enterprise value of C$4.9 billion (US$3.7 billion). Proved developed producing reserves combined are estimated at 135 million boe, with proved reserves of 338 million boe and proved plus probable reserves of 539 million boe.
Baytex COO Richard Ramsay and CFO Rodney Gray would retain their positions, while Raging River President Bruce Beynon is to become executive vice president of exploration, land and corporate development, and COO Jason Jaskela is to become vice president of the East Duvernay Shale division.
Baytex is forecasting a pro forma 2018 exit production rate of 97,000-99,000 boe/d, based on exploration and development expenditures of C$350-375 million (US$265-284 million) for the combined company in the second half of 2018.
For 2019, total exploration and development expenditures are expected to be C$750-850 million (US$567-643 million) to generate average annual production of 100,000-105,000 boe/d, which at the mid-point would represent production growth of 8%.
Development plans for 2019 include an expanded heavy oil program in Canada with two drilling rigs each running in Peace River (32 net wells) and Lloydminster (100 net wells). It also plans activity in the Viking play, with an estimated 275 net wells, and the Eagle Ford (30 net wells).
In the Eagle Ford, Baytex has focused on enhanced completions in Karnes County. Wells that began producing in 1Q2018 established 30-day initial production (IP) rates of 1,750 boe/d per well, a 20% improvement over wells brought on production in 2017, Baytex noted.
In addition, it noted that two wells drilled in late 2017 in the northern Austin Chalk fracture trend of Texas achieved 30-day IPs of 2,400 boe/d per well; six additional Austin Chalk wells are planned for the second half of 2018.
Peace River in northwest Alberta, where Baytex has 725 net sections and an inventory of 350 drilling locations, has been a core asset since 2004. Its recent northern Seal well generated a 30-day IP of 900 boe/d; a total of 10 wells are slated to be drilled in the area in 2018. Production averaged 16,500 boe/d in 1Q2018.
Baytex’s Lloydminster holdings has been developed through vertical and horizontal drilling, water flood, steam-assisted gravity drainage operations and, more recently, the implementation of polymer flooding to enhance reserves recovery. Production averaged 10,000 boe/d in the first quarter. Baytex planned to restart its Soda Lake multilateral drilling program in June and expects to have two rigs running in the second half of the year.
In East Duvernay, Raging River has a 260,000 net acre position. During the first quarter, the company began a three-well evaluation program that included a discovery in the Pembina area that has produced at an average rate of 430 boe/d (88% light oil and NGL) since coming online in late March.
“Given the success of the exploration program, four additional locations are being licensed offsetting the discovery well in preparation for an expanded capital program in the second half of 2018 and a 2019 plan that will include 12-20 net wells,” management said.
Raging River also has a dominant position in the Viking light oil resource play in Western Canada with more than 460 net sections and 10 years of drilling inventory at the current pace of development. Production in the Viking averaged 23,000 boe/d in 1Q2018.