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Based in Denver, Colorado, Bonanza Creek Energy (proposed BCEI) scheduled a $300 million IPO with a market capitalization of $852 million at a price range mid-point of $21 for Thursday, December 15, 2011.p

A total of 11 IPOs to raise $3.5 billion the week of December 12, includes Zynga (ZYNG). See the full IPO calendar.

SUMMARY

BCEI is an oil and gas company cobbled together by institutions that is very expensive on a price-to-earnings basis, and appears reasonably price at 1.5 times book value.

Base on BCEI’s income statement there is virtually no exploration going on, and growth is expected from future acquisitions rather the exploration of current leasehold opportunities?

And BCEI plans on paying no dividends.

For a much better oil and gas exploration and development company, we encourage investors to looks at Laredo Petroleum Holdings (proposed LPI), which is also planning on IPO’ing the week of December 12, 2011.

CONCLUSION

Annualizing the September 2011 nine months, BCEI has a very high price-to-sales ratio of 8.2 and the relatively high price-to-earnings ratio of 48. Relative to another, somewhat similar IPO on this week's calendar -- Laredo Petroleum Holdings (proposed LPI) -- BCEI seems too expensive on the IPO...

BUSINESS

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.

Assets and operations are concentrated primarily in southern Arkansas (Mid-Continent region) and the DJ and North Park Basins in Colorado (Rocky Mountain region). In addition, BCEI owns and operates oil producing assets in the San Joaquin Basin (California region).

Exploration expense increased $0.4 million, or 184%, to $0.6 million in the nine months ended September 30, 2011, from $0.2 million in the nine months ended September 30, 2010. The increase in exploration expense was primarily related to the acquisition of 7,700 acres of 3-D seismic data on the eastern edge of the Wattenberg field in Weld County, Colorado, to help evaluate our Niobrara oil shale acreage.

CREDIT FACILITY

On March 29, 2011, BCEI entered into a four-year $300 million credit agreement with a syndicate of banks providing for a senior secured revolving credit facility with an initial borrowing base of $130 million and with a $5 million subfacility for standby letters of credit. As of December 2, 2011, the borrowing base under the credit facility is $220 million with a $15 million subfacility for standby letters of credit.

DIVIDEND POLICY

Does not expect to declare or pay any cash dividends in the foreseeable future on the common stock.

BCEI’s credit facility currently prohibits them from paying cash dividends on common stock.

COMPETITION

The oil and natural gas industry is highly competitive and BCEI competes with a substantial number of other companies that have greater resources. Many of these companies explore for, produce and market oil and natural gas, carry on refining operations and market the resultant products on a worldwide basis.

99% OWNERS PRE-IPO

In exchange for $265 million in cash, BCEI sold shares of Class A common stock ("Class A Common Stock") to Black Bear, an entity advised by West Face Capital, and to certain clients of AIMCo.

ABOUT WEST FACE CAPITAL

West Face Capital Inc. is a Canadian-based investment management firm with assets under management of over $2.2 billion.

ABOUT AIMCo

Alberta Investment Management Corporation (AIMCo) is one of Canada’s largest and most diversified institutional investment fund managers, with an investment portfolio of approximately $71 billion.

USE OF PROCEEDS

Of $184 million from sale of BCEI, 9.5 shares

  • Repay debt of $149 million
  • Balance to fund drilling &development program and to fun expansion of BCEI’s gas processing facilities.

Shareholders intend to sell 4.8 million shares or 34% of the IPO.

Source: IPO Preview: Bonanza Creek Energy