Canaccord Report -Target Price $1.60Returning to growth in 2017
BXE released its 2017 budget this morning. The most significant takeaway, in our view, was the expected return to production growth through the year. After spending much of 2016 selling down assets, BXE intends to grow production by ~10% in 2017 (exit to exit) to 35,000 boe/d. The budget of $105M is largely in line with the company’s expected cashflow of ~$100M.
Relative to consensus, the budget of $105M was right in line with forecasts, while the production target of 33,500 boe/d average for the year was above consensus estimates of 32,500 boe/d. As a result, we have increased our 2017 production estimates.
We continue to rate the stock a HOLD with a $1.60 target price, which is NAV based and maps to a 2017E EV/DACF of 6.4x. BXE has done a commendable job of reducing the overhang on the stock from its bank debt position, which in our view has resulted in the strong share performance of late.
Details from the release:
• Capital budget. BXE has set is 2017 capital at $105M. This is up from $80M in 2016 and includes $70M of drilling activity and $13M towards the construction of the Phase 2 Alder Flats gas plant. See Figure 1 for a summary of our go forward estimates.
• Production guidance. The company is forecasting annual average production of 33,500 boe/d with an exit rate of 35,000 boe/d, a +10% growth over the company’s 2016 exit rate of ~31,500 boe/d. BXE noted that wet weather and minor delays in 4th quarter activity hampered Q4/16 volumes, and as such annual volumes will come in modestly below the mid-point of its guidance range (35,500 to 36,500 boe/d). Annual volumes of 35,750 boe/d would indicate Q4/16 volumes of ~32,000 versus the consensus of ~33,500 boe/d.
• Plant expansion. BXE continues to work towards the completion of Phase 2 of its Alder Flats gas plant, which will increase plant capacity to 120 mmcf/d (from 60 mmcf/ d), resulting in net throughput capacity of 57.5 mmcf/d to BXE (up from 30 mmcf/d). Completion is expected in Q2/18, at which point operating costs are expected to drop by ~$1.00/boe
• The 3-year plan. The company's 2017 budget falls into the company's broader 3-yr plan, which includes growing production to 42,000 boe/d by late 2019 (~10% CAGR). Over the period the company plans to drill ~55 Spirit River wells (14% of inventory) and 10 Cardium wells (4% of inventory).
• Hedging. In addition to increasing 2017 hedges to 66% of expected volumes (vs. ~60% in its last update), BXE has begun the prudent step of layering in 2018 hedges. The company has hedged ~35% of 2018 expected production at $3.11/mcf.
• Bank debt. Outstanding bank debt at year-end 2016 is ~$30M, providing the company with $70M in liquidity on its $100M bankline.