Bonanza Creek (BCEI)

[dan_s]

Bonanza Creek had good operating results during the 2nd quarter and the company has more than enough liquidity to survive an extended period of low commodity prices, however they are going into "maintenance mode" with the goal of keeping their production flat through 2016. Therefore, I will be dropping them from the Sweet 16 Growth Portfolio.

I am lowering the multiple of CFPS I use to value the stock. My valuation drops $9.05 to $22.25/share, compared to First Call's Price Target of $21.32.

Proceeds from the stock sale in February + cash flow from operations should cover their capital program for 2015, but they will need higher oil prices (north of $70/bbl) to fund growth beyond this year. They hope to find a JV partner for their midstream subsidiary, which should help a lot. Lowering their completed well costs is also helping.

My updated forecast model will be posted to the website this afternoon.

[smjjpres]

Thanks Dan for the thorough analysis as always.

BCEI has been hit much harder than most of the other issues; per the most recent numbers, it is the lowest valued stock on a CFPS basis in the Sweet 16...

Any thoughts on why there has been such a dramatic distaste for this issue? Is having cash flow neutrality at 70 the problem? Still seems BCEI can bring that number down a little, and even at current prices, CF should cover about 50% of future CapEx giving the company a long runway for oil prices to recover...

Thanks for your insight.

Steve

[dan_s]

FEAR and GREED drive the market and FEAR is now under control. During periods like this, the small-caps really get hammered. Even the slightest hint of bad news can crush them.

Bonanza Creek will survive and I think their plans to dial it down a bit is wise. They are getting excellent well results and there is no reason to drill and complete wells into these low prices. They should just drill to hold acreage and wait for prices to go back up. I truly believe they hold a lot of oil reserves.

When oil prices do rebound, and eventually they will, it is the small-caps that have double and triple potential. During the 2009-2010 rebound, we made a killing on high quality small-caps just like this.