I've written two pieces covering the basics of the Bonanza Creek (BCEI) story. It's not a complex one and I won't dive into those details again at this time but would suggest reading the articles here and here in conjuction with this piece which contains a first iteration of my BCEI model for 2012 (see below). The model should prove conservative as it falls under the mid point of production guidance and towards the upper end of costs. I'd rather start at the lower end and be proven conservative as the quarters of 2012 unfold.
Using our price deck for 2012 ($105 oil and $4 natural gas), their hedges, and their cost guidance (which looks reasonable given their expected growth) we get to 2012 EBITDA of $180 mm or CFPS of $4.30. As of Friday's close this puts them at TEV /2012E EBITDA and P / 2012E CFPS multiples under 3.5x. That's cheap for any oily, no debt, high growth, seasoned management team possessing, onshore player.
Note also that as production advances and per unit costs decline the name is undergoing rapid EBITDA per BOE expansion. While I've gone with somewhat middling production volumes relative to guidance I did err on the side of conservatism on their per unit cash costs (LOE, G&A, and production taxes) and still we see a marked expansion of margins.
I'll make adjustments to the model in time, adding a quarterly look at the current year once they have reported their fourth quarter, but I don't expect to stray too far from my current bottom line. The current model presented below should also prove conservative from a timing of production standpoint relative to oil prices which I expect to be higher into year end when they are exiting well above their yearly expected avearge. Note that there is nothing in the model, or for that matter in the stock, for the 5,700 net acres they have that they believe to be prospective for the Brown Dense play in southern Arkansas. Bonanza will let others (SWN, COG, DVN and XOM) derisk that play before committing capital as their acreage is HBP anyway.
Sellside coverage is coming (most likely later this week) and yes, it will be of the obligatory Buy rating variety but this name is reasonably priced on last year's reserves and last Fall's production levels, let alone on the numbers they are forecasting for 2012. It simply came to market at a bad time (OPEC production quota maneuvers, European meltdown contangion fears, and the year end sleepiness of buysiders).
Maybe this one wakes up with coverage, maybe it wakes up with 4Q results, and maybe it wakes up if and when someone notches a successful horizontal in the Brown Dense (but again, that's not necessary from a value standpoint). For the most part the name remains fairly unknown by the Street, a sort of "nice call, too small" name that will undoubtedly be liked more when it is higher, as in when the chart has moved back above the December 2011 offering price. Given the value here I content to add more at current levels and wait for others to become interested in the name.
On to the model...
click to enlarge