Baytex Energy to buy Ranger Oil in $3.4bn deal

May 2023 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

May 2023 Issue

Canadian oil & gas company Baytex Energy has agreed to acquire US rival Ranger Oil in a deal valued at $3.4bn.

Under the terms of the transaction, Ranger Oil shareholders will receive 7.49 Baytex shares plus US$13.31 in cash for each Ranger common share they own, representing a premium of 7.38 percent to Ranger’s last closing price. The total offer from Calgary-based Baytex Energy is valued at $44.36 per Ranger Oil share.

The cash and stock deal offers the US energy company a premium of nearly 39 percent compared to its current market value of $1.8bn. The deal’s value also includes assumed debt and is expected to close in the second quarter of 2023. The deal has received unanimous approval from the boards of both companies. Upon closure of the deal, Baytex shareholders will own approximately 63 percent of the combined company, and Ranger shareholders will own approximately 37 percent.

According to a statement announcing the deal, Baytex said the acquisition would be immediately accretive to key metrics and the company intends to increase direct shareholder returns to 50 percent of free cash flow, introduce a dividend and increase share buybacks. The deal is set to considerably increase Baytex’s footprint in South Texas’ Eagle Ford shale basin, which accounts for nearly 30 percent of all of Ranger Oil’s total production at present. The acquisition expands Baytex’s US assets, adding another 162,000 acres in the Eagle Ford shale play in Texas and encompasses working production of 67,000 to 70,000 barrels of oil equivalent per day.

“We expect that combining with the balance sheet strength, deep asset base, and operational excellence of Baytex will create a unique company of scale which will deliver sustained free cash flow growth and differentiated shareholder returns,” said Darrin Henke, president and chief executive of Ranger. “We look forward to bringing together our complementary teams and assets to realize the long-term value of this combination for our shareholders.”

“This transaction represents a leap forward in shareholder value creation potential and accelerates both companies’ shareholder return strategies,” said Edward Geiser, chairman of Ranger’s board and managing partner of Juniper Capital. “We expect this combination will create a company that is exceptionally positioned for sustained shareholder returns.”

“The Ranger acquisition is strategic,” said Eric T. Greager, president and chief executive of Baytex. “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 breakeven WTI price,” he continued. “We are committed to enhancing direct shareholder returns, and through this transaction we are returning more value to our shareholders on a per-share basis. Upon closing of this transaction, we intend to initiate a dividend, which will be a key means of delivering reliable value to shareholders going forward. We are building an even stronger Canadian energy company with a high quality diversified oil-weighted portfolio across the Western Canadian Sedimentary Basin and the Eagle Ford.”

News of the acquisition of Ranger Oil came just days after Baytex announced a Q4 2022 profit of $352.8m and a relisting on the New York Stock Exchange.

The Baytex deal comes as a number of Canadian energy companies have recently sought to increase production in the US or exit Canada entirely, including Calgary-based Enerplus Corp., which closed on the sale of its Canadian assets to Surge Energy Inc. in December in order to focus on operations in North Dakota and Pennsylvania.

Richard Summerfield