Event:
After BXE’s share price fell 5% on Monday after updating its corporate
presentation (and down 20% since hitting a 52-week high in early May), we have
once again reviewed the company’s type
-curves based on GeoSCOUT data. Overall,
(and after some clarity from management on its type-curve inventory), we still
continue to believe the remaining 742 geologically-defined Cardium locations offer
some of the top economics in the basin, based on our audit of GeoSCOUT data.
Highlights:
Reviewing Stock Weakness: After marketing over the past couple weeks
and discussions with clients, 4 key items have concerned investors lately:
1. Lowering of full-year production guidance to 41,000 boe/d (due to a
number of facility outages/downtime and limited capacity in the region;
Unfortunately, as we’ve heard from other operators, facility operators
will typically give less than 3 months
’ notice, and with capacity quite full
in the region, the ability to loop production is limited.
Overall, we don’t
fault the company for this, and ultimately, the PV of delayed production
is still negligible on a NAV basis.
2. Capex increase to $440 million (prior to the equity raise) for its 220
mmcf facility. Some of our clients questioned whether BXE should have
contracted out a mid-streamer or Private Equity, and put the additional
capex into drilling;
We somewhat agree with our clients – especially if
the cost of capital being provided from PE was essentially 10%, and
B
XE’s well economics at 100%. With BXE indicating that they can
borrow at 4% on its bankline however, and with payback at 3.5 years on
its 220 mmcf facility, ultimately, the plant still provides a good use of
proceeds that likely also has intangible benefits.
3. Recent $172 million equity raise without a clear use of proceeds (and a
further increase in capex spending to $500 million) with only a minor
increase in 2014 exit production (up 1,000 boe/d).
Although the use of
proceeds clearly appears to be for an acquisition now (see within), the
communication and manner in which it was done could have been better
delivered (which has been admitted by management).
4. On Monday, when Bellatrix updated its corporate presentation, there
appeared to be meaningful revisions to type-curves (particularly to its
Ferrier Gas wells), which saw a 22% decrease in EUR to 511 mboe, with
the liquids cut also lowered by 41% to 116 mbbls. Although the
NPV/Cardium well remained unchanged at $6.1 million, the lack of
granularity regarding the Ferrier inventory alarmed a number of
investors, especially in the context of the prior month’s announcements.
Maintain Outperform:
A combination of issues have plagued BXE’s share price
lately, but ultimately, in reverting back to our 5-Point checklist,
BXE’s top tier well
economics at an under 12 month payout (and enhanced further with its JVs);
management execution over the past 3 years (3-yr growth CAGR at 29% CFPS; 28%
PPS; 27% PDP NAV); above average growth into 2015; low leverage; and valuation
that continues to remain cheap; all support our Outperform rating.