Baytex stellar Peavine results point to robust results for Rubellite, Headwater and Tamarack
Clearwater remains the best oil play in Canada
Baytex Energy (BTE.TO) reported a solid 2022 with debt falling to manageable levels and guidance for substantial free cash flow in 2023 further cutting debt and setting the stage for dividends or buybacks. But the most impressive part of Baytex's 2022 report was the growth and profitability of their Peavine drilling in the prolific Clearwater play. Baytex invested CAD$55 million in that play in 2022 and generated CAD$142 million of operating netback, and sees the acreage growing to 15,000 Boe/day.
Given the size and scale of Baytex, the impressive Peavine results are diluted by the company’s large Eagle Ford and Canadian heavy oil operations in other areas. Clearwater is important to Baytex, of course, but three other public companies have direct exposure to Clearwater and focus solely on that play, with only a minor natural gas play for Headwater (HWX.TO) outside of the area.
Tamarack Valley (TVE.TO) is the largest operator in Clearwater and reports 2022 on or about March 1, 2023. I expect a very strong report and even stronger guidance. Headwater reports about March 28, 2023 and I expect a very positive report. Rubellite has not set a date for 2022 reporting as yet.
I hold all these names but my Rubellite (RBY.TO) position is both my largest and possibly the most speculative. I believe Rubellite’s potential growth on a “per share” basis outstrips the others by a wide margin since the company only has about 60 million shares outstanding and has a capital budget in Clearwater of CAD$50 million, almost as large as Baytex’s CAD$55 million. My rough model of Rubellite (burdened by a lot of assumptions many of which will not pan out but nonetheless representative) shows rapid growth and is supportive of a share price in the CAD$10 range within a couple of years compared to the current price of ~CAD$2.40. Here is that model:
It will be interesting to see how Rubellite’s drilling success unfolds and whether I will be eating caviar or humble pie. I hold 42,000 shares of Rubellite.