From RBC
May 4, 2018
Bonavista Energy Corporation
Q1/18 - In-Line Quarter
Our view: Q1 results were right in line with expectations with a continued
focus on efficiency; we see production adds this year at roughly $11,000/
boe/d which is amongst the best in the group. BNP's payout this year maps
to roughly 65% (strip), and we would expect activity to accelerate if gas
prices can breach $2/mcf for an extended period. Reiterate SP and $1.75/
share target.
Key points:
Q1/18 in-line. Bonavista's Q1 production volumes of 72,417 boe/d were in
line with our estimate of 72,050 boe/d (Street: 73,053 boe/d). This drove
CFPS of $0.27, which compared to our estimate of $0.27 (Street $0.27);
key variances are noted in Exhibit 2. Controllable cash costs of $9.38/boe
(operating, transportation, G&A, financing) were roughly 5% above Q4 of
last year.
2018 outlook maintained. BNP maintained its 2018 outlook (which was
reduced in March) and expects to invest $135-155 million, set to drive
production of 69,000-71,000 boe/d, which represents a modest YoY
reduction. Based on the current strip BNP's updated 2018 payout ratio
maps to roughly 65%, with the company positioned to pay down debt
throughout the year. Notably, the company AECO exposure through the
summer months is only 9% given a robust hedge book and market
diversification.
Operations - maintenance mode. Going forward, we expect that +C$2/
mcf AECO will likely be required for the company to begin to bring growth
capital back into the picture. Q1 operations included the drilling of 7 (5.3
net) wells and the completion of 13 (13 net). The company's focus remains
on liquids rich targets with the bulk of capital spending for the balance
of the year expected to be spent on drilling of Strachan Glauconite and
Morningside Falher wells.
Balance sheet - leverage higher than peers but no liquidity issues. Our
updated estimates point to net debt of $768 million at year end 2018,
mapping to a D/CF ratio of 3.1x (peers 1.6x). In 2019 we currently forecast
D/CF of 3.4x vs. peers at 1.6x. We currently expect the company to
remain largely undrawn on its $500 million facility through 2019 (including
working capital, 11% excluding) given outstanding term debt.
Sector Perform rating. While we believe BNP shares offer good longterm
value given a discounted valuation, we see few catalysts on the
horizon amid a murky natural gas environment. We could become more
constructive as the company executes its debt reduction strategy and in
the event that natural gas pricing rises to operable/growth levels.