Tags: Baytex | BTE | energy | oil

Baytex Energy: Growth Plus Current Income

By Tim Plaehn   |   Tuesday, 30 Aug 2011 10:32 AM

Baytex Energy (BTE) is a Canadian crude oil and natural gas company with shares trading both in Canada and on the New York Stock Exchange. Since the company converted from a Canadian income trust to a corporation, the company has strived to provide investors a combination of income plus growth.

Historically, Canadian energy production companies were organized as income trusts. This business structure allowed the companies to pay minimum taxes and pass the majority of free cash flow to investors as dividends. Changes in the Canadian tax code — taking full effect in 2011 — pushed these energy companies to convert to corporate structures. As a corporation, the policy of Baytex Energy management is to pay out approximately 40 percent of the company's funds from operations as a monthly dividend. The balance of cash flow is reinvested to generate oil production growth without resorting to outside capital.

For the second quarter of 2011, Baytex produced 47,800 barrels of oil equivalent (BOE) per day, up from 44,100 BOE in the same period in 2010. During the quarter, Baytex Energy received $65.84 per barrel equivalent compared to $51.68 a year earlier. The lower price per barrel equivalent compared to the widely quoted price for a barrel of oil is due to the fact 85 percent of Baytex energy production is either heavy oil or natural gas, which have market prices significantly below the price for higher grade crude oil.

Value factors

Baytex management has a stated goal of increasing energy production by at least 8 percent per year. Additional factors which could affect the value of the stock are:
  • Higher or lower oil prices. During the second quarter the West Texas Intermediate average price was $103 per barrel. Stronger oil prices and, to a lesser extent, natural gas prices will boost the bottom line for Baytex.
  • A stronger Canadian dollar is good for U.S. investors, as each CAD translates into more U.S. dollars. A reversal would weaken the case for the U.S. investor.

Baytex Energy is currently paying a steady 20 cents Canadian monthly dividend. With a share price in the $48 range, this gives the stock a 5 percent yield. Canadian taxes are withheld from dividends at a 15 percent rate. The dividends are qualified under the U.S. tax code, so the withholding equals the 15 percent tax rate most U.S. investors will pay on the dividend earnings. The company next reports on Nov. 10.

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Baytex Energy (BTE) is a Canadian crude oil and natural gas company with shares trading both in Canada and on the New York Stock Exchange. Since the company converted from a Canadian income trust to a corporation, the company has strived to provide investors a combination...
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