Several analysts have recently weighed in on Bonanza Creek Energy Inc (NYSE:BCEI), issuing notes to investors. From them David Meats of Morning Star issued a note on the stock on 29th July with a $8.96 price target.
“The sharp reduction in our Bonanza Creek Energy fair value estimate is not a reaction to a disastrous quarter. In fact, the firm beat our production estimate of 27 mboe/d (actual was 28 mboe/d). But the financials were disappointing relative to consensus forecasts because of weaker-than expected commodity prices. Since our last publication, expectations for West Texas Intermediate in 2015 have fallen 12% and 2016 and 2017 estimates have fallen 18% and 14%, respectively. The impact on projected cash flows weighs heavily on our valuation and drives our fair value estimate down to $7 per share from $16.”
David also added, “Bonanza Creek is one of the most leveraged names in exploration and production, which explains why a 10%-20% shift in near-term oil prices caused a 56% reduction in our valuation (the stock has collapsed 58% over the same period). For oil bulls, the good news is that leverage works both ways, but other investors should be wary. Bonanza Creek has attractive E&P assets and is making good progress improving returns through efficiency gains and technological improvements. But its finances are starting to look very strained, with limited liquidity. The firm would struggle to endure further slippage in commodity prices for long.”
“We expect management will maintain its current rate of activity in the company’s core DJ Basin asset. The economics are decent, even at these prices, and production growth should be fairly rapid since the firm’s production base is low (we model a 12% compound annual growth rate through 2019). But some incremental borrowing will be necessary to fund operations at that pace, pushing net debt/ EBITDA from an already uncomfortable 2.7 times to a peak of more than 6 times in 2017. Robust EBITDA growth will improve leverage after that, and there’s enough liquidity to fund the cumulative cash flow gap, but only just. ”
Bonanza Creek Energy Inc (NYSE:BCEI) is an energy company engaged in the acquisition, exploration, development and production of onshore oil and associated liquids-rich natural gas in the United States. Its oil and liquids-weighted assets are concentrated primarily in the Wattenberg Field in Colorado, which the Company has designated the Rocky Mountain region and the Dorcheat Macedonia Field in Southern Arkansas, which it has designated the Mid-Continent region. In addition, the Company owns and operates oil-producing assets in the North Park Basin in Colorado and the McKamie Patton Field in Southern Arkansas.
On July 27, 2015 Bonanza Creek Energy Inc (NYSE:BCEI) reported its second quarter 2015 financial and operating results. The Company previously announced revisions to its agreements with its gas processing providers in the Rocky Mountain region allowing it to report operated sales volumes in three streams (oil, NGLs and natural gas) effective January 1, 2015. Unless noted, all references to barrel of oil equivalent (boe) volumes related to activities completed in the Rocky Mountain region during 2014 have incorporated 6:1 gas to liquids conversion of two-stream (oil and wet gas) volumes.
Highlights from second quarter 2015 and current operations include: Sales volumes grew to 28.0 Mboe/d representing a 14% increase compared to estimated 3-stream sales volumes in the second quarter of 2014(1) and 2% compared to first quarter 2015. Current Wattenberg Field standard 4,000 foot lateral (“SRL”) well costs are $3.4-3.5 million vs. $3.6 million during the second quarter. First BCEI operated long reach lateral on northern acreage in the Wattenberg Field tracking to a 9,000 foot lateral (“XRL”) equivalent EUR of 680 Mboe. Company to seek strategic operating and capital partners for the purposes of accelerating the growth of the Company’s wholly-owned midstream subsidiary, Rocky Mountain Infrastructure, LLC (“RMI”)