Equity Analyst Gabriele Sorbara of Topeca Capital Markets Issued a report on Bonanza Creek Energy Inc (NYSE:BCEI) titled ”3Q15 Preview; Adjusting Estimates; Reaffirm Buy.” Lowering their price target to $11 from $18.
According to the report ”We revisit our estimates for our recently revised commodity price deck (see this morning’s weekly industry report for details) and preview 3Q15 results, expected in early November. We reaffirm our Buy, but recognize it is difficult to recommend shares given leverage metrics blow-out over the next 12-18 months at the current strip prices. However, we continue to believe shares remain attractive in a normalized environment (>$65/bbl NYMEX WTI oil).
With 3Q15 results, investors will focus on management’s body language towards a 2016 spending program and a potential transaction with Rocky Mountain Infrastructure, LLC (RMI), which would reduce the 2016 capex burden. Based on our revised commodity price assumptions, we reaffirm our Buy, but lower our PT to $11 (from $18 previously).
Bonanza Creek Energy Inc (NYSE:BCEI) is an independent oil and natural gas company engaged in the acquisition, exploration, development and production of onshore oil and associated liquids-rich natural gas in the United States. The Company’s assets and operations are concentrated primarily in the Rocky Mountains in the Wattenberg Field, focused on the Niobrara and Codell formations, and in southern Arkansas, focused on the oily Cotton Valley sands.
On July 27 BCEI announced second Quarter 2015 Financial and Operating Results; 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. The Company also announced they Increased Rocky Mountain region sales volumes by 21% compared to second quarter 2014(1), to 22.7 Mboe/d and 4% compared to first quarter 2015.”
Equity Analyst Gabriele Sorbara raised some key points including ”3Q15 production and pricing should be in line with guidance. We model 3Q15 production at 28,634 boe/d, roughly in line with the Consensus of 28,599 boe/d, and compared to management’s guidance of 28,600 boe/d. On the pricing front, 3Q15 Wattenberg oil differentials are expected within its guidance range of $9.00-$10.00/bbl. All in all, we model 3Q15 loss and DCFPS at ($0.29) and $1.01, vs. the Consensus of ($0.20) and $1.14, respectively. We believe the Consensus has yet to reset for the lower actual NYMEX oil prices during the quarter.
Potential RMI transaction would lighten capital expenditures. Over its entire Wattenberg position, management estimates $300-$400 million for infrastructure spending over the next several years; however, BCEI now believes it has the scale to attract a partner to build it out. RMI has a book value of $50 million and is growing into year-end. Currently, BCEI has two remaining bidders in the negotiation process. BCEI’s goal is to lighten the capital load on the infrastructure side with a transaction announcement as soon as with 3Q15 results. Stay tuned as this is a key catalyst that could lift shares out of this depressed trading range.
On valuation Analyst Gabriele Sorbara noted that ”On an EV/EBITDA basis, BCEI is trading at 4.3x and 4.2x for 2016 and 2017, vs. its peers’ average multiples of 5.8x and 4.8x, respectively. Our $11 PT implies 2016 and 2017 EV/EBITDA metrics of 5.3x and 5.2x, respectively. BCEI trades at a 69.5% discount to our $19 RNAV.