Baytex Energy Corp (TSX:BTE) Shareholders: Buy Advantage Oil & Gas Ltd. (TSX:AAV) Instead

I suggest you read my original article for the details, but my conclusion was that while the company may survive this year, it will likely come at a significant cost to current shareholders. Not only might the company be paying junk bond interest rates on its debt, but shareholders are likely to be extremely diluted via stock sales at market lows.

If you own Baytex stock, it’s time to reconsider your investment. If you want to maintain exposure to beaten-down energy names, Advantage Oil & Gas (TSX:AAV) (NYSE:AAV) looks like a much better choice.

It’s hard to win with Baytex If oil prices rise, energy stocks should benefit, right? This is not so with Baytex.

Over the next three years, Baytex needs to pay down or refinance $1.6 billion in debt. Its current market capitalization is just $1.3 billion. Even if oil prices rise, shareholders could still lose due to this massive debt maturity cliff.

Baytex only has a few options to survive.

First, it could refinance its debt, pushing maturities out by another few years. This is a short-term fix that would likely come at expensive interest rates. At a time when the company is starved for cash, it may need to pay double or triple the interest per quarter, if debt markets even comply with its wishes for more funding.

Second, the company could sell assets. But with energy assets now fetching bottom-of-the-cycle prices, that would be a difficult route. Even if assets were sold, the value wouldn’t be able to cover the impending debt maturities.

Lastly, Baytex could massively dilute shareholders by selling hundreds of millions of dollars’ worth of stock near all-time lows. Out of all the options, this is the most likely, although this strategy will likely be complemented by some asset sales and pricey refinancing.

Advantage Oil & Gas looks much better If Baytex stock could struggle even if industry conditions improve, which company should you bet on? Advantage Oil & Gas looks like a great pick.

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With a market capitalization of $430 million, Advantage’s $300 million debt load isn’t anything to sneeze at, but it’s much more reasonable than Baytex’s daunting maturity cliff.

Most impressively, Advantage is positioned well for another market downturn.

Notably, if market conditions turn sour, up to $100 million in capital expenditures this year can be delayed to 2020 with minimal impact on long-term production. That’s a lifeline that Baytex simply doesn’t have.

Additionally, the company’s new projects break even at prices below $1.00 per mcf. With current prices around $2.00 per mcf, Advantage has a huge margin of safety.

Choose this stock In total, the future of both companies will be dictated by the long-term prices of oil and gas. Advantage, however, has a much better chance of surviving to see that potential future.

If you own Baytex stock or are looking to capitalize on the energy bear market, Advantage Oil & Gas is a great place to start.

Fool contributor Ryan Vanzo has no position in any stocks mentioned.

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