This is Matt Reustle and today we’re breaking down Baytex Energy. With oil prices hovering over $100 a barrel, we thought it was a particularly good time to revisit this sector. Why Baytex Energy? The 80,000 barrel a day producer certainly isn’t a household name. And with a market cap just north of $3 billion, it’s far from a mega-cap. But Baytex has production in five different operating areas spanning across the US and Canada. Some of those fields are mature, some are emerging. The company has been allocating cash flow between unconventional wells, conventional wells, and debt reduction in recent years. When you take Baytex and everything that’s happening within that business, it offers a perfect lens to view the historically boom and bust industry of oil production. To help break down Baytex, I’m joined by oil and gas investor, Josh Young, of Bison Interests. For the full show notes, transcript, and links to the best content to learn more, check out the episode page here. ----- Business Breakdowns is a property of Colossus, LLC. For more episodes of Business Breakdowns, visit joincolossus.com/episodes. Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here. Follow us on Twitter: @JoinColossus | @patrick_oshag | @jspujji | @zbfuss Show Notes [00:03:19] - [First question] - The journey of producing a barrel of oil and how Baytex fits into the oil production ecosystem [00:05:29] - How $100 is dispersed amongst the value chain when a barrel of oil is purchased [00:08:03] - A broad overview of Baytex today and its history [00:13:05] - The production of a barrel of shale oil and unique characteristics of shale [00:16:25] - The main drivers of increased productivity and optimization in oil production [00:19:11] - What breaking even looks like today on a barrel of oil [00:23:20] - Describing the decline rate of a shale well compared to conventional plays [00:25:22] - Overview of the differences of oil blends and quality coming out of Texas versus Canada [00:30:51] - A snapshot of what Baytex’s Canadian operations look like [00:35:38] - The other major Canadian assets Baytex has [00:38:28] - The heavy oil decline rate of Canadian oil wells compared to US shale wells [00:39:59] - What makes Clearwater such an exciting and interesting opportunity for Baytex [00:43:30] - Identifying where oil might be and what that process looks like [00:47:02] - His process as an investor in evaluating new projects like Clearwater [00:56:00] - How to ascribe value to a project like Duvernay compared to Clearwater [01:00:05] - Baytex’s approach to hedging and how it differs from the rest of the industry [01:02:15] - How the management team at Baytex manages capital allocation [01:05:33] - Why return capital to shareholders [01:07:41] - Metrics he uses to value an oil production company or adjacent business [01:11:19] - Rules of thumb to consider when it comes to evaluating the asset base [01:14:05] - Main risks that could drive stock underperformance [01:16:38] - Lessons and takeaways from his time investing and working with Baytex