Baytex Acquires Heavy Oil Assets in Canada

Baytex has entered into an agreement to acquire heavy oil assets located in the Seal area of northern Alberta and the Lloydminster area of western Saskatchewan. The assets are being acquired through a combination of a corporate acquisition of a private company and an asset acquisition. The total consideration for the acquisition of $156.5 million (before closing adjustments and costs) will be funded by drawing on Baytex's revolving credit facility. The acquisition, which is subject to regulatory approvals and other conditions typical of transactions of this nature, is expected to close during the first quarter of 2011.

Acquisition Highlights

  • Forecast production for the remainder of 2011 of approximately 2,600 bbl/d (100% heavy oil), of which 65% is from the Seal area of northern Alberta and 35% is from the Lloydminster area of western Saskatchewan.
  • Reserves of approximately 10.5 million boe on a proved plus probable basis (100% heavy oil), effective January 1, 2011, as evaluated by Sproule Associates Limited in accordance with National Instrument 51-101.
  • Annualized net operating income from the acquired assets is estimated to be approximately $37 million, based on the current WTI price strip of approximately US $95/bbl, a WCS differential of 20% and a foreign exchange rate of 1.00 USD/CAD.
  • A 100% working interest in 95,600 acres of undeveloped land in the Seal area.
  • Expected acquisition metrics, before adjustment for the value of the undeveloped land being acquired, are:
    • Cost per producing boe/d $60,200 per boe/d
    • Multiple of annual net operating income 4.3 times
    • Cost per proved plus probable boe $14.90
  • The acquisition is estimated to be approximately 5% accretive to production per share, 6% accretive to funds from operations per share (after deduction of incremental interest expense) and 5% accretive to reserves per share.

Effects of the Transaction

On December 7, 2010, we announced a 2011 capital budget of $325 million for exploration and development (E&D) activities, which was designed to generate an average production rate of 47,000 to 48,000 boe/d in 2011. At present, we plan to maintain our previously-announced capital budget, reallocating capital investment as appropriate to the acquired properties to sustain production at approximately current levels. Assuming successful completion of this acquisition, we are increasing our production guidance for 2011 to an annual average of 49,000 to 50,000 boe/d. We expect to generate production growth from the acquired properties in subsequent years.

The acquisition provides additional development opportunities in the Seal area where we already possess significant leasehold and operating infrastructure. At Seal, we are acquiring a 100% working interest in 95,600 net acres of undeveloped land and current production of approximately 1,700 bbl/d of Bluesky heavy oil. The assets being acquired contain numerous opportunities for cold multi-lateral horizontal development. Pro forma the acquisition, Baytex will hold a 100% working interest in approximately 156,000 net acres of undeveloped land at Seal.

The acquired Lloydminster assets provide approximately 900 bbl/d of heavy oil production, and a number of recompletion and infill drilling opportunities. In addition, the Lloydminster assets can be readily consolidated into Baytex's existing operations to accrue operating economies of scale.

Pro forma the acquisition, we expect to have approximately $100 million of unutilized capacity on our currently-authorized $625 million revolving credit facility, before any upward adjustment for the lending value of the acquired assets. We will revisit the amount of our revolving credit facility with our lending syndicate following closing of the acquisition. After the acquisition, debt to annualized funds from operations for 2011 is estimated to be approximately 1.1 times, based on the current commodity price strip.


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