Friday, November 18, 2016

Potential Catalyst for Bonanza Creek $BCEI

Bonanza Creek will have an interest payment due February 1, 2017 on its $300 million of 5.75% unsecured notes. That will be $8,625,000 of cash that they may decide they'd rather not part with.


ADL said...

I'd ask "do they make it that long?" but likely they do; running on fumes is still running, and when you're powered by debt and optimism your last concern is the creditors' estate.

CP said...

"For the third quarter of 2016, the Company reported average daily production of 21.0 MBoe per day, a 10% sequential decrease from the second quarter of 2016, and a 28% decrease from the third quarter of 2015. The reduction in production volumes is a result of suspended drilling and completion operations at the end of the first quarter of 2016."

Suspended drilling and steep production decline rates means EBITDA will be quickly declining.

Repayment of the secured loan borrowing base deficiency will use a lot of cash.

Accounts payable and royalties payable may be expected to decline as revenue declines. (So will accounts receivable, but this is smaller than those current liability accounts.) That will be another cash sink.

It seems plausible that the company would file at the end of Q1, after using the 30 day grace period on the Feb 1 interest payment.

If not based on the Feb 1 payment, then it's tough to see how the company would pay the larger Apr 15 payment.

ADL said...

My thoughts too. They really should file now, but as long as there's a (dwindling) cash hoard they won't unless someone forces them to. The psychology in these circumstances is very interesting.

ADL said...

And speaking of psychology, an interesting psychological catalyst is coming up for BPT in late Feb/early Mar 2017. They publish their estimated future value based (perhaps foolishly) on prior-year average WTI pricing. We now have almost 11 months of data on that (and will of course have 12 before the trust makes its announcement), and know that it's lower than 2015's SEC pricing. So the trust value will be lower--in the single digits per unit--and the estimated royalty value termination date may move from 2020 to earlier.

This will very likely set up another showdown between (retail) trust longs and (small fund) trust shorts, the latter of which will promulgate the trust's overvaluation based on SEC-mandated figures and escalating contractual costs. The SEC mandate provides a flawed snapshot (the trust is likely overvalued, but current rather oil prices plus CPI and contractual allowable costs, rather than past oil prices, determine its value), but the point is not the valuation but the argument over valuation, which will likely occur with the filing of its 10K.