Baytex Energy Trust (NYSE:BTE) may be known primarily as a Canadian heavy oil energy trust, but all that may change over the next few years as the company is set to convert to a dividend paying corporation with a large inventory of light oil opportunities to develop.

IN PICTURES: 5 Tips To Reading The Balance Sheet

Heavy Oil
Baytex Energy Trust has most of its current production and reserves from heavy oil properties in Canada. In 2009, production of heavy oil was approximately 60% of total production, and averaged approximately 26,000 barrels of oil equivalent (BOE) per day. Reserves of heavy oil are 70% of total reserves.

Heavy oil is oil with high viscosity, and is usually defined as oil with an API gravity below 22.3 degrees. In laymen's terms, this refers to oil that is located in accessible reservoirs but doesn't flow as well and therefore is more difficult and costly to extract from the ground relative to light oil. Heavy oil also sells at a discount to light oil.

Baytex Energy Trust is active in these heavy oil areas and drilled 90 wells in 2009. The company has 382,000 undeveloped acres scattered over nine separate project areas.

Seal Project
One heavy oil property that Baytex Energy Trust is working on is the Seal project in Alberta. The company has 67,000 acres located on 105 sections. During the primary development phase, the company is drilling up to 12 wells per section and estimates that it can recover up to 7% of the original oil in place of 50 million BOE per section. Production from Seal averaged 9,000 BOE per day in the second quarter of 2010.

Light Oil
Baytex Energy Trust also has light oil properties in the United States and Canada. The company has between 150 and 300 potential net locations in North Dakota that is prospective for the Bakken and Three Forks formation. Current production here is negligible but the company has an aggressive drilling plan scheduled for 2010 and will drill 20 gross wells here.

Whiting Petroleum (NYSE:WLL) recently reported two completions into the Three Forks formation in North Dakota. Both wells flowed at more than 2,000 BOE during a 24-hour test period.

Baytex Energy Trust also has other light oil exposure in the Viking Sands formation in several areas in Alberta and Saskatchewan.

Corporate Conversion
Due to a change in tax laws in Canada, Baytex Energy Trust is converting from a trust to a corporation in 2011. The company intends to maintain its monthly distribution of $0.18 CAD per share, giving the company a yield of 6%. The tax treatment of dividends and capital gains for U.S. investors is complex and should be researched prior to investing.

Other Canadian trusts have cut payouts as they anticipate converting to a corporation in 2011. Penn West Energt Trust (NYSE:PWE) cut its payout by 40%. Another of the higher yielding Canadian energy trusts is Provident Energy Trust (NYSE:PVX) with a yield of 10%.

The Bottom Line
Baytex Energy Trust has a majority of reserves and production from heavy oil properties in western Canada, but this is slowly changing as the company pursues light oil opportunities in other areas. (To learn more, see our Oil And Gas Industry Primer.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing

    Time to Bring Active Back into a Portfolio?

    While stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
  2. Economics

    Investing Opportunities as Central Banks Diverge

    After the Paris attacks investors are focusing on central bank policy and its potential for divergence: tightened by the Fed while the ECB pursues easing.
  3. Stock Analysis

    The Biggest Risks of Investing in Pfizer Stock

    Learn the biggest potential risks that may affect the price of Pfizer's stock, complete with a fundamental analysis and review of other external factors.
  4. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  5. Economics

    Long-Term Investing Impact of the Paris Attacks

    We share some insights on how the recent terrorist attacks in Paris could impact the economy and markets going forward.
  6. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  7. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  8. Markets

    PEG Ratio Nails Down Value Stocks

    Learn how this simple calculation can help you determine a stock's earnings potential.
  9. Stock Analysis

    What Exactly Does Warren Buffett Own?

    Learn about large changes to Berkshire Hathaway's portfolio. See why Warren Buffett has invested in a commodity company even though he does not usually do so.
  10. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. How do mutual funds work in India?

    Mutual funds in India work in much the same way as mutual funds in the United States. Like their American counterparts, Indian ... Read Full Answer >>
  3. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  4. What does low working capital say about a company's financial prospects?

    When a company has low working capital, it can mean one of two things. In most cases, low working capital means the business ... Read Full Answer >>
  5. Do nonprofit organizations have working capital?

    Nonprofit organizations continuously face debate over how much money they bring in that is kept in reserve. These financial ... Read Full Answer >>
  6. Can a company's working capital turnover ratio be negative?

    A company's working capital turnover ratio can be negative when a company's current liabilities exceed its current assets. ... Read Full Answer >>

You May Also Like

Trading Center