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Category: Bonanza Creek (BCEI)
Date: 19 February 2021 Stock price of Bonanza Creek (BCEI): $26.68 We take a more detailed look at Bonanza Creek (BCEI) an independent Denver-based exploration and production company focused on the acquisition, development, and extraction of oil and associated liquids-rich natural gas in the United States.
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We operate approximately 84% of all our productive wells, allowing us to control the pace, costs, and completion techniques used in the development of our reserves. The Wattenberg Field has a low cost structure, mature infrastructure, strong production efficiencies, multiple producing horizons, multiple service providers, established reserves, and prospective drilling opportunities, which helps facilitate predictable production and reserve growth. "
More About Bonanza Creek
Bonanza Creek is an independent Denver-based exploration and production company focused on the acquisition, development, and extraction of oil and associated liquids-rich natural gas in the United States. The Company's oil and liquids-weighted assets and operations are concentrated in the rural
portions of the Wattenberg Field in Colorado. Our development and extraction activities are primarily directed at the horizontal development of the Niobrara and Codell formations in the Denver-Julesburg (“DJ”) Basin. The majority of our revenues are generated through the sale of oil, natural gas, and natural gas liquids production.
We operate approximately 84% of all our productive wells, allowing us to control the pace, costs, and completion techniques used in the development of our reserves. The Wattenberg Field has a low cost structure, mature infrastructure, strong production efficiencies, multiple producing horizons, multiple service providers, established reserves, and prospective drilling opportunities, which helps facilitate predictable production and reserve growth.
Although commodity prices have improved slightly over the last few months, the challenging commodity price environment continues to be volatile. Nevertheless, we believe we remain well-positioned in this environment due to our debt-free balance sheet, ample liquidity, inventory of economic drilling locations, low operating costs, and our operational flexibility, which allows us to respond to commodity price fluctuations.
During 2020, we demonstrated our operational focus on achieving best-in-class execution by lowering our cost of operations on a per unit basis. We increased drilling efficiencies and improved well performance via enhanced completion designs, which contributed to the growth of our reserves and production. Additionally, we maintained our conservative balance sheet and paid our reserve-based credit facility to a zero balance, thereby providing substantial available liquidity. We intend to continue our operational focus in 2021, emphasizing responsible growth and development, cost control, and full-cycle returns, with the intent to achieve positive cash flow. We will continue to monitor the ongoing commodity price and regulatory environment and expect to retain the operational flexibility to adjust our drilling and completion plans in response to such conditions
portions of the Wattenberg Field in Colorado. Our development and extraction activities are primarily directed at the horizontal development of the Niobrara and Codell formations in the Denver-Julesburg (“DJ”) Basin. The majority of our revenues are generated through the sale of oil, natural gas, and natural gas liquids production.
We operate approximately 84% of all our productive wells, allowing us to control the pace, costs, and completion techniques used in the development of our reserves. The Wattenberg Field has a low cost structure, mature infrastructure, strong production efficiencies, multiple producing horizons, multiple service providers, established reserves, and prospective drilling opportunities, which helps facilitate predictable production and reserve growth.
Although commodity prices have improved slightly over the last few months, the challenging commodity price environment continues to be volatile. Nevertheless, we believe we remain well-positioned in this environment due to our debt-free balance sheet, ample liquidity, inventory of economic drilling locations, low operating costs, and our operational flexibility, which allows us to respond to commodity price fluctuations.
During 2020, we demonstrated our operational focus on achieving best-in-class execution by lowering our cost of operations on a per unit basis. We increased drilling efficiencies and improved well performance via enhanced completion designs, which contributed to the growth of our reserves and production. Additionally, we maintained our conservative balance sheet and paid our reserve-based credit facility to a zero balance, thereby providing substantial available liquidity. We intend to continue our operational focus in 2021, emphasizing responsible growth and development, cost control, and full-cycle returns, with the intent to achieve positive cash flow. We will continue to monitor the ongoing commodity price and regulatory environment and expect to retain the operational flexibility to adjust our drilling and completion plans in response to such conditions
Business Strategy Of Bonanza Creek
The Company’s primary objective is to maximize shareholder returns by responsibly developing our oil and gas resources. We seek to accomplish this through development of existing inventory and value-accretive acquisition and divestiture activity. We seek to balance our production base while achieving positive cash flow. Key aspects of our strategy include:
The Company is also committed to continuously improving its environment, social, and governance (“ESG”) performance. We work to identify and implement opportunities to minimize our environmental impact. In addition to employing best practices to reduce emissions, generally, our efforts include monitoring and reducing greenhouse gas emissions, and evaluating the risks and opportunities that climate change may present to our business and incorporating them into our business strategy. We invest in our employees by providing regular annual safety training for all employees, hands-on safety training for field employees, and opportunities for professional development across the organization. The Company also plans to conduct regular shareholder outreach efforts focused on a variety of topics, including executive compensation and other ESG issues. As a further step in these efforts, our Board of Directors recently approved the restructuring of its EHS&RC and Reserves Committee to become its new “ESG Committee.” The ESG Committee will be responsible for overseeing and supporting the Company’s commitment to environmental, health, and safety, social responsibility, sustainability, and other public policy matters relevant to the Company. (Responsibility for oversight of the Company’s processes for estimating and reporting its proved reserves will shift to the Board’s Audit Committee.) The ESG Committee will assist senior management in setting the Company’s general strategy relating to ESG matters and in developing, implementing, and monitoring initiatives and policies based on that strategy
- Multi-well pad development across our leasehold. We believe horizontal development is the most efficient, environmentally responsible, and safest way to recover the hydrocarbons located within our leasehold.
- Enhanced completions. We continuously evaluate completion designs to increase well productivity and apply a multivariate regression analysis with the objective of optimizing economic returns. Petrophysical, geological, and geophysical analysis is used in conjunction with spacing evaluations and individualized well designs to increase value of each spacing unit.
- Continuous safety improvement and strict adherence to health and safety regulations. Our goal is to utilize industry best practices to meet or exceed regulatory requirements and consistently engage stakeholders in our development planning and operations. We strive to maintain a safe workplace for our employees and contractors at all times.
- Environmental stewardship. We constantly strive to control and reduce emissions and seek to comply with all applicable air quality and other environmental rules and regulations. We employ best practices, including pipeline gathering and takeaway as well as vapor recovery and leak detection equipment. Additionally, we work closely with our service providers to help ensure they stay in compliance with environmental regulations when operating on our behalf.
- Disciplined approach to acquisitions and divestitures. Opportunities are evaluated in the context of maintaining development flexibility, positive cash flows, and a healthy balance sheet. We pursue value-accretive acquisitions and strive to maximize scale and minimize financial and operational risk.
- Prudent risk management. The Company believes a healthy balance sheet, focus on cost control, and minimizing long-term commitments are critical to controlling risk. A low debt profile and judicious use of hedging practices help reduce cash flow volatility. Continually striving to be a cost-efficient operator and maintaining a flexible capital spending program enable us to respond to changing market conditions.
The Company is also committed to continuously improving its environment, social, and governance (“ESG”) performance. We work to identify and implement opportunities to minimize our environmental impact. In addition to employing best practices to reduce emissions, generally, our efforts include monitoring and reducing greenhouse gas emissions, and evaluating the risks and opportunities that climate change may present to our business and incorporating them into our business strategy. We invest in our employees by providing regular annual safety training for all employees, hands-on safety training for field employees, and opportunities for professional development across the organization. The Company also plans to conduct regular shareholder outreach efforts focused on a variety of topics, including executive compensation and other ESG issues. As a further step in these efforts, our Board of Directors recently approved the restructuring of its EHS&RC and Reserves Committee to become its new “ESG Committee.” The ESG Committee will be responsible for overseeing and supporting the Company’s commitment to environmental, health, and safety, social responsibility, sustainability, and other public policy matters relevant to the Company. (Responsibility for oversight of the Company’s processes for estimating and reporting its proved reserves will shift to the Board’s Audit Committee.) The ESG Committee will assist senior management in setting the Company’s general strategy relating to ESG matters and in developing, implementing, and monitoring initiatives and policies based on that strategy
Operations Of Bonanza Creek
During 2020, our operations were solely focused in the rural portions of the Wattenberg Field in the Rocky Mountain region in Weld County, Colorado, targeting the Niobrara and Codell formations. As of December 31, 2020, our Wattenberg position consisted of approximately 87,000 gross (65,000 net) acres, and our estimated proved reserves were 118,192 MBoe and contributed 25,242 Boe per day of sales volumes during 2020. The Niobrara and Codell formations are now primarily developed using horizontal drilling and multi-stage fracture stimulation techniques. We believe the Niobrara B and C benches have been fully delineated on our legacy acreage, while the Codell formation has been delineated on our western legacy acreage. Our northern and southern acreage positions are still being delineated. As of December 31, 2020, we had a total of 758 gross producing wells, of which 575 were horizontal wells. Our sales volumes for the fourth quarter of 2020 were 25,029 Boe per day. As of December 31, 2020, our working interest for all productive wells averaged approximately 80%, and our net revenue interest was approximately 66%. We drilled and participated in drilling 25 gross (13.9 net) standard reach lateral (“SRL”) equivalent wells in 2020 in the Wattenberg Field. As of December 31, 2020, we have an identified drilling inventory of approximately 216 gross (141.0 net) proved undeveloped (“PUD”) drilling locations (297.5 gross SRL equivalents) on our acreage.
Production, Revenues And Price History Of Bonanza Creek
Oil and gas prices fluctuated significantly during 2020. Oil prices are impacted by production levels, crude oil inventories, real or perceived geopolitical risks in oil producing regions, the relative strength of the U.S. dollar, weather, and global demand. During periods of favorable pricing, we expect increased industry activity, which could moderate the magnitude of price increases throughout the year.
Sensitivity Analysis
If oil and natural gas SEC prices declined by 10%, our proved reserve volumes would decrease by 2% and our PV-10 value as of December 31, 2020 would decrease by approximately 27% or $117.6 million. If oil and natural gas SEC prices increased by 10%, our proved reserve volumes would increase by 1% and our PV-10 value as of December 31, 2020 would increase by approximately 27% or $119.3 million.
Sensitivity Analysis
If oil and natural gas SEC prices declined by 10%, our proved reserve volumes would decrease by 2% and our PV-10 value as of December 31, 2020 would decrease by approximately 27% or $117.6 million. If oil and natural gas SEC prices increased by 10%, our proved reserve volumes would increase by 1% and our PV-10 value as of December 31, 2020 would increase by approximately 27% or $119.3 million.
Customers Of Bonanza Creek
We believe the loss of any one customer would not have a material effect on our financial position or results of operations because there are numerous potential customers for our product.
Delivery Commitments Of Bonanza Creek
The Company is party to a purchase agreement to deliver fixed determinable quantities of crude oil to NGL Crude. The NGL Crude agreement includes defined volume commitments over a term ending in 2023. Under the terms of the NGL Crude agreement, the Company is required to make periodic deficiency payments for any shortfalls in delivering minimum gross volume commitments, which are set in six-month periods. The minimum gross volume commitment will increase approximately 3% each year for the remainder of the contract, to a maximum of approximately 16,000 gross barrels per day. The aggregate financial commitment fee over the remaining term is $49.7 million as of December 31, 2020
Title To Properties Of Bonanza Creek
Our properties are subject to customary royalty interests, overriding royalty interests, obligations incident to operating agreements, liens for current taxes, other industry-related constraints, and certain other leasehold restrictions. We do not believe that any of these burdens materially interfere with our use of the properties in the operation of our business. We believe that we have satisfactory title to all of our producing properties. We undergo a thorough title review process upon receipt of title opinions prepared by outside legal counsel before we commence drilling operations. Although title to our properties is subject to complex interpretation of multiple conveyances, deeds, reservations, and other instruments that serve to affect mineral title, we believe that none of these risks will materially detract from the value of our properties or from our interest therein or otherwise materially interfere with the operation of our business
Competition Of Bonanza Creek
The oil and natural gas industry is highly competitive, and we compete with a substantial number of other companies that often have greater resources. Many of these companies explore for, produce, and market oil and natural gas, carry on refining operations, and market the resultant products on a worldwide basis. The primary areas in which we encounter substantial competition are in locating and acquiring desirable leasehold acreage for our drilling and development operations, locating and acquiring attractive producing oil and gas properties, attracting and retaining qualified personnel, and obtaining transportation for the oil and gas we produce. There is also competition between producers of oil and gas and other industries producing alternative energy and fuel. Furthermore, competitive conditions may be substantially affected by various forms of energy legislation and/or regulation considered from time to time by federal, state, and local governments; however, it is not possible to predict the nature of any such legislation or regulation that may ultimately be adopted or its effects upon our future operations. Such laws and regulations may, however, substantially increase the costs of exploring for, developing, or producing gas and oil and may prevent or delay the commencement or continuation of a given operation. The effect and potential impacts of these risks are difficult to accurately predict. Further, oil prices and natural gas prices do not necessarily fluctuate in direct relationship to each other. Because approximately 67% of our estimated proved reserves as of December 31, 2020 were oil and natural gas liquids reserves, our financial results are more sensitive to movements in oil prices. During the year ended December 31, 2020, the daily NYMEX WTI oil spot price ranged from a high of $63.27 per Bbl to a low of negative $36.98 per Bbl, and the NYMEX natural gas HH spot price ranged from a high of $3.14 per MMBtu to a low of $1.33 per MMBtu
Employees Of Bonanza Creek
As of December 31, 2020, the Company had 109 employees, of which 29 full-time employee equivalents were dedicated to our Rocky Mountain Infrastructure, LLC operations. The Company's diverse team of talented employees possess a vast array of skills including engineering, geology, research and development, midstream operations, production, logistics and administrative support, such as accounting, information technology, legal, human resources and finance. Certain of the Company's employees have highly specialized skills and subject-matter expertise in their respective fields, which helps enable the Company to deliver industry leading innovation and results.
Bonanza Creek (BCEI) stock price chart over the last 3 years
The image below shows the stock price chart of Bonanza Creek (BCEI) over the last 3 years. And its not been a good time for Bonanza Creek stockholders. Over the last 3 years the stock of Bonanza decreased by -3.8%. No investor would want to see those kind of returns.
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