Following a recent announcement that Baytex Energy Corp. signed an agreement to acquire Ranger Oil Corp., one prominent energy investor said he thinks there is widespread confusion among market participants regarding the deal.

Baytex announced that it signed an agreement to acquire U.S.-based Ranger Oil on Tuesday in a deal valued at $3.4 billion, including assumed debt. The deal would increase Baytex’s presence in the Eagle Ford shale area of south Texas, a region in which Baytex already has assets. 

“We saw Baytex [shares] fall nine per cent on the day of [the announcement] and I think there was a lot of confusion around what were they trying to achieve with that acquisition,” Eric Nuttall, a partner and senior portfolio manager at Ninepoint Partners, said in an interview with BNN Bloomberg Thursday.

The Calgary-based energy company said it plans to start paying out dividends to investors and increasing share buybacks after its acquisition deal closes. 

“So the attributes for which we liked Baytex before, I always think about mergers and acquisitions, do I like the company better today than I did yesterday? Are they a better company today than they were yesterday? I would say, 'yes,'” said Nuttall.

Nuttall said his organization “crunched the numbers” on the acquisition and found it could result in a cash flow accretion of roughly 20 per cent per share. 

“Meaning next year, 2024, every share will generate 20 per cent more free cash flow. It also allows them to expedite how much of the free cash they're getting back,” he said. 

However, Nuttall said following acquisition announcement he thinks there is a short-term overhang on the stock and recommends the company market “aggressively” to try and find a new U.S. investor.

“We’ve been very clear on what we want from our major holdings. We want them to maximize free cash flow, we want them to increase cash flow, and we want them to pay it back to us. And I think people misinterpreted the acquisition and how that helps Baytex achieve that,” he said.