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M&A in Oil & Gas?

A wave of M&A activity among the Canadian energy trusts has made these stocks attractive again, Cramer said during Wednesday’s Mad Money. He thinks that Baytex Energy Trust is the next most likely takeover target.

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Cramer had turned sour on these companies after a change in law meant their dividends would lose favored tax status, starting in 2011. But two recent acquisitions – Korea National Oil buying Harvest Energy Trust and Denbury Resources buying Encore – at high premiums have forced the Mad Money host to give the group a second look.

Baytex offers investors “multiple ways to win,” Cramer said, not just through an M&A deal. The $1.44 annual dividend, with a 5.6% yield, will compound over time if it’s reinvested, and the stock’s also a play on Baytex’s potential production growth.

The oil-and-gas company’s now using a “steam-injection system” to extract more heavy oil from its reserves, a technique that upped one well’s output to 900 barrels a day from just 70. While Texas light sweet crude fetches more money on the open market, the price disparity has shrunk to 15% from 30% over the past 10 years.

Baytex reported a strong quarter on Nov. 10, producing 42,600 barrels of oil equivalent a day and delivering 83 cents a share of cash flow, which came in ahead of estimates. Also, the company drilled 33 new wells last quarter – with a 100% success rate. Cramer endorsed the balance sheet, too, calling it “reasonably clean.”

BTE may be up 187% year-to-date – more than the other Canadian energy trusts – but the stock still has room to run, Cramer said, thanks the strength of the company’s assets.

“I don’t want you buying crude,” Cramer said. “I want you to buy Baytex.”

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