Imperial Capital: Bonanza Creek Energy Making All The Right Moves After Chapter 11

Crude oil prices continue to remain bullish, brightening the prospects of oil and related companies. Bonanza Creek Energy Inc BCEI, an oil and natural gas exploration and production company that emerged from Chapter 11 in April 2017, could also benefit from an improved cost structure, according to Imperial Capital. 

The Analyst

Analyst Irene Haas initiated coverage of Bonanza Creek with an Outperform and $37 price target, suggesting 26-percent upside.

The Thesis

Bonanza Creek reduced its G&A expenses and lease operating expenses by $20 million annually and continued to boost well productivity in 2017, Haas said in a Thursday note. (See the analyst's track record here.)

By investing $120 million to $130 million, drilling 13 net wells and completing 14 net wells, Bonanza accelerated growth as a standalone company after a deal to be acquired by SandRidge Energy Inc. SD fell through in December, Haas said.

Bonanza is set to re-establish its reputation as a dependable operator in Colorado's Wattenberg Field basin and has entered into two gas gathering agreements to guarantee flow assurance in 2018, the analyst said. 

"We are positive about BCEI's outlook." 

With new CEO Eric Greager having taken over April 11, the analyst said the leadership issue is resolved and the company's next milestone is the spring borrowing base redetermination.

Bonanza has presented a capex budget of $280 million to $320 million and a production growth target of about 15 percent, according to Imperial Capital.

The company plans to add a second rig in mid-2018 and boost production by more than 50 percent in 2019, Haas said. 

The Price Action

Bonanza Creek shares have gained about 6.4 percent year-to-date and were rallying 3.47 percent to $30.39 at the time of publication Thursday. 

Related Links:

A Near-Term View On Leveraged Energy ETFs

Gina Sanchez: Buy Exxon Mobil, Avoid Macy's