Baytex Energy touts conservative balance sheet, low debt ratios despite big dividend payments

By Paul Deckelman

New York, Oct. 16 - Baytex Energy Corp. has "a very conservative financial structure," its chief operating officer declared on Tuesday in a presentation to potential investors in Miami.

Marty L. Proctor told attendees at the Canaccord Global Resources Conference that the Calgary, Alta.-based oil and natural gas exploration and production company's ratio of debt versus funds from operation is just 0.8 times, or around 0.9 times taking into account the company's recent $120 million acquisition of undeveloped oil sands leases in the Cold Lake area in the northeastern part of the Canadian province of Alberta.

Baytex paid for the acquisition by drawing on its revolving credit facility.

That ratio of debt versus FFO stood at a full 3 times at the end of 2004, but the company had managed to more than cut that in half by the end of 2006. And for the next five years, until the end of 2008, the company kept it between 1.1 times and 1.6 times, before lowering it yet again by June 30 to around one-quarter of where it originally stood.

Proctor also noted that the company's other credit metrics were "very strong," including a leverage ratio of debt versus EBITDA of 0.9 times and interest coverage of about 15 times. Debt makes up about 8% of the company's enterprise value.

The company's major debt consists of $150 million of 6¾% series B senior unsecured debentures due in 2021 and C$300 million of 6 5/8% series C senior unsecured debentures due 2022. As of the end of September, the U.S. dollar tranche was trading above 105, for a 5.9% yield to worst, while the Canadian-dollar bonds were trading above 107, for a 5.6% yield.

"Keep in mind that we've achieved this strong balance sheet while we've been paying out dividends," Proctor reminded his listeners. He said that 40% of the company's cash flow is allocated to its monthly dividends to equity holders, totaling some C$1.4 billion since the company's 1993 inception. The company currently pays a C22-cent-per share dividend for a 5.7% dividend yield.

The COO said that Baytex "has a sustainable growth-and-income business model, with a proven track record. This model works for us because of our oil weighting," with 87% of its production in crude oil against just 13% natural gas and with most of the crude oil operations in the area of heavy crude oil - distilled from the tar sands that make up much of the petroleum reserves in Alberta and neighboring Saskatchewan.

The company also has some conventional light oil and natural gas operations in British Columbia and in the U.S. in northwestern North Dakota.

Proctor said: "We have a large inventory of excellent opportunities in heavy oil and light oil areas, and we've got sector-leading capital efficiency."

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