Canadian Manufacturing

Baytex Energy and Raging River Exploration sign merger deal

by Tara Deschamps, The Canadian Press   

Canadian Manufacturing
Manufacturing Operations Sales & Marketing Energy Oil & Gas

The combined company is expected to have production of approximately 94,000 barrels of oil equivalent per day from a diverse portfolio of oil assets. The deal is expected to close in August

TORONTO—Shares of Baytex Energy Corp. and Raging River Exploration Inc. dropped after the intermediate oil and gas producers announced a $2.8-billion merger Monday.

The combined company, which will operate under the Baytex name, is expected to have production of approximately 94,000 barrels of oil equivalent per day from a diverse portfolio of oil assets that includes the Viking, Peace River, Lloydminster and East Duvernay Shale regions in Canada and the Eagle Ford region in Texas.

Baytex shares closed down 63 cents or 12.35 per cent at $4.47, while Raging River ended down 63 cents or 10.03 per cent at $5.65.

“This is a truly compelling combination that creates an even stronger company,” said Neil Roszell, executive chairman and chief executive of Raging River, in a call announcing the deal. “It is a better position for value creation that is well beyond what either of our companies could do on a standalone basis.”


Roszell will become chairman of the merged company and Baytex chief executive Edward LaFehr will be chief executive.

Raging River said they consider the merger to be a “win-win combination” because it expects the deal to be a boon for providing scale to advance East Duvernay Shale operations, diversifying its asset portfolio to include a free cash flow generating asset in the Eagle Ford and to enhance the company’s size and trading liquidity

Meanwhile, Baytex said it adds a free cash flow generating asset in the Viking, increases operatorship, and gives the company exposure to emerging East Duvernay Shale oil activity.

Under the agreement, Raging River shareholders will receive 1.36 common shares of Baytex for each Raging River share owned. Baytex said the deal values Raging River at $1.9 billion as of both companies’ Friday closing prices, while the combined market capitalization of the new entity would be $2.8 billion.

TD Securities analyst Menno Hulshof said in a note that the deal represents about a 2.5 per cent premium to Raging River’s 10 and 20-day volume weighted average share price, while Desjardins analyst Kristopher Zack noted the deal was about a 10 per cent premium to Raging River’s Friday closing price.

Zack said the deal “checks the right boxes” for Baytex as it should help rejuvenate investor interest, add more profitable production in the Viking light oil area in Saskatchewan, and add the scale needed to expand in the East Duvernay shale play.

Hulshof said he thinks the deal will prove a “strategic win” longer-term despite the share dilution. He noted this was the second recent substantial oil and gas deal covering Saskatchewan assets, after Vermilion Energy Inc. announced in mid-April it was buying Spartan Energy Corp. in a $1.23-billion all-share deal to increase exposure to the province.

Baytex’s LaFehr said he has talked a lot about diluting Eagle Ford, but he thinks the deal puts the potential for such dilution on the back burner.

“We are very cored up…All of these oil assets have growth potential,” said LaFehr. “Our strategy going forward would be to essentially run the Viking and the Eagle Ford for free cash flow and maximize those returns, focus on capital efficiency and then the grow the Canadian heavy business as well as the East Duvernay oil play.”

LaFehr also said this is not a merger where there is a strong overlap of assets and workers, so he expects the majority of staff to be part of the deal.

The board of directors of the combined company will include six members of the Baytex board and four members of the Raging River board.

The deal, which requires approval by Raging River and Baytex shareholders, is expected to close in August.


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