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. Options & Futures

    Analyzing The 5 Most Liquid Commodity Futures

    Crude oil leads the pack as the most liquid commodity futures market, followed by corn and natural gas.
  2. Term

    What are Non-GAAP Earnings?

    Non-GAAP earnings are a company’s earnings that are not reported according to Generally Accepted Accounting Principles.
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI US 1000

    Find out about the PowerShares FTSE RAFI U.S. 1000 ETF, and explore detailed analysis of the fund that invests in undervalued stocks.
  4. Options & Futures

    Use Options to Hedge Against Iron Ore Downslide

    Using iron ore options is a way to take advantage of a current downslide in iron ore prices, whether for producers or traders.
  5. Stock Analysis

    Fortinet: A Great Play on Cybersecurity

    Discover how a healthy product mix, large-business deal growth and the boom of the cybersecurity industry are all driving Fortinet profits.
  6. Stock Analysis

    2 Catalysts Driving Intrexon to All-Time Highs

    Examine some of the main reasons for Intrexon stock tripling in price between 2014 and 2015, and consider the company's future prospects.
  7. Mutual Funds & ETFs

    Top 3 Switzerland ETFs

    Explore detailed analysis and information of the top three Swiss exchange-traded funds that offer exposure to the Swiss equities market.
  8. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  9. Savings

    Do Natural Gas Prices Always Follow Oil Trends?

    Prices for oil and natural gas are highly correlated. But investors should be aware of different factors affecting the prices of these commodities.
  10. Charts & Patterns

    Understand How Square Works before the IPO

    Square is reported to have filed for an IPO. For interested investors wondering how the company makes money, Investopedia takes a look at its business.
  1. Trade Credit

    An agreement where a customer can purchase goods on account (without ...
  2. Equity

    The value of an asset less the value of all liabilities on that ...
  3. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  4. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  5. Brazil, Russia, India And China ...

    An acronym for the economies of Brazil, Russia, India and China ...
  6. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  5. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  6. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!