Two articles:
Summary
In this article, I introduced a microcap Canadian producer Bonterra Energy. This company produces oil-weighted, low-capital wells in the Cardium oil play. These wells have relatively short payback windows that are less than a year and produce reasonable amounts of FCF. The company has been using this FCF to retire over $200 million of debt over the last three years.
As a result of this improved financial condition, the company is approaching financial performance metrics that will allow it to start paying a quarterly dividend. The FCF analysis performed showed that a $0.04/share dividend can be supported with a margin at $75WTI and $2/MCF Henry Hub prices. The stress test showed that the dividend breakeven was $67.50/barrel.
This analysis did not take into account any favorable pricing that Bonterra could receive as a result of the opening of the TMX pipeline. A benefit of $1.25/barrel was shown to have sufficient financial impact to cover approximately 54% of the projected dividend.
In addition to progressing through its debt reduction program, Bonterra has accumulated a small secondary play in the Montney window in western Alberta. The initial economics of these wells appear favorable due to shallow depth and multiple zones available for development.
I like Bonterra as a slow organic growth story that may eventually be acquired by a bigger entity. The company's priorities are fiscally responsible and conservatively grounded. Purchasing this company below $5/share gives an adequate risk-adjusted opportunity for a long-term shareholder in my view.
R.