BXE - Bellatrix Explorations

[influx]

Looks like he already sold all he needed to sell before the news leaked, so I wouldn't anticipate this having a dramatic impact on BXE's near term price.

 

“My fund is almost completely in cash,” said Lewis in an e-mail, “that’s the responsible thing to do before this leaked.”

“

 

This is what I see at sedi

Looks to me like they still have this holding and made a partial liquidation?

 

He still has it, resigned though:

 

“It has been a privilege to serve on the board of Bellatrix. I have been in active discussions with the Board regarding my

firm's investment in Bellatrix. No decision has been made with respect to our investment in the Bellatrix, nor is there any

immediate requirement to do so.” said Daniel Lewis, Managing Partner of Orange Capital.

[kwilde]

Guys,

 

Am hoping someone can help me reconcile a few items for my model.

 

Based on managements comments from the 3Q2015 earnings call, I understood that the following:

1. 2016 estimated corporate decline rate would be ~ 30% (12,600 boe/d).

2. In 2016 they planned to spend $100MM on Drilling & Completing + $15MM on tying in new wells (almost entirely Spirit River wells).

3. The CEO backed this out as $100MM / $8k/boe/d Capital Efficiency to replace 12,500 boe/d and keep the production flat in 2016.

 

Unfortunately, I can't see how this jives with the info in their investor presentations.

 

1.  BXE Spirit River 5.2 Type Curve had an average IP365 of ~ 5.0 Mcfe/d or 833 boe/d.

2.  Half Cycle F&D costs for Spirit River wells (again from Investor Presentation) are $4.3MM.

3.  Thus $115MM CapEx should result in 26+ net wells.

4.  26 net wells should produce on average 26 x 833 boe/d = 21,000 + boe/d.

 

Obviously adding 21,000+ boe/d far outstrips the 12,600 boe/d that they lost via the decline rates.  So, what am I missing?

[cmakam]

I think you are not factoring in the joint venture agreements in the new wells, BXE doesn't get the benefit of 100% of the production in the new wells.

-cmakam

[Cardboard]

They had excellent Q4 results IMO considering commodities. Costs are coming down very nicely. Latest reserve calculation indicates that this was trading yesterday at 1/3 of NAV.

 

http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aBXE-2354616&symbol=BXE&region=C

 

http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aBXE-2354615&symbol=BXE&region=C

 

Cardboard

[tede02]

Based on the improving operating metrics, it sure does appear that management is effective.  The ongoing repayment of debt (although minimal) must give the company's lenders confidence.  If commodity ever recover (they will but I just have no idea when), its hard to see this firm not doing very well. 

[StevieV]

Hey Wilson.  Any thoughts you would care to share about the earnings report?  I heard you got in a good question on the conference call.  Haven't seen a transcript yet.

[tede02]

Wilson did get in a good question about operating cost reductions (whether they were sustainable or one-time).  Management suggested that by-in-large, they are structural and lasting. 

 

Anyone else get a kick out of the Wells Fargo analyst?  I think he was kicking manure off his cowboy boots when he asked his question.  ;)

[Cardboard]

Not sure why Wilson-TPC removed his comments/link. I thought that they were bang on.

 

Today we have Raymond James bashing BXE in the Globe and Mail:

 

http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aBXE-2355327&symbol=BXE&region=C

 

Not sure what their stock universe is but, every company that I have seen so far has shown dramatic revision in their reserves amount and values since Dec 31, 2014 due the collapse in commodity prices. And what about the natural gas price???

 

Proven/producing has dropped 14%, proven 11% and proven/probable 11%. So they have 4.5 years of proven/producing and all they need to do is to punch more holes to extract 10 years of proven reserves at current forecast rate. It goes all the way to 16.4 years using P+P which is a heck of a lot better than so many players. Pretty normal that some reserves are no longer profitable to extract at these prices.

 

Really don't understand the concern or again what universe they are looking at. The same guy had a $3.50 share price target in December and now $1.50. And people keep buying and selling based on these #### recommendations!

 

Cardboard

[Packer16]

The analysis appears pretty shallow and the analyst apparently does not understand the economics of the Spirit River.

 

Packer

[aws]

Insane volume today, 27 million on NYSE alone.  Did Orange liquidate?

[Packer16]

It looks like over 20m traded in the aftermarket.  The only holder with that much stock is Orange.

 

Packer

[argonaut]

Given their previous ownership percentage, I would have to assume they will have to file a statement indicating the sale within a few days? Must be selling because the price dropped. I'm surprised they did not have to sell before when the fund closed. And the stick was at $1.48 recently too..

 

That leaves Baupost as the next biggest holder? Packer, will you add below $1 or already at your max %?

[tede02]

I hope it stays sub $1 so my limit order executes on Monday.

 

Wilson posted his analysis on Seeking Alpha.  See Hedge Fund Insights at Seeking Alpha.

 

P.S. Wilson, I may bite the bullet and subscribe.  You have some great content. 

[tede02]

Any thoughts on why all of the volume appears to have occurred after hours?  I don't know much about after-hours trading but is this typically institutions?

[tede02]

I agree the analyst reports looks like garbage.  With respect to reserve values, what does the guy expect when you look at where AECO and  crude prices are/have been in recent months?  Although it hasn't been terribly significant, Bellatrix has even chipped away at their debt over the past two quarters largely from operating cash flow (I believe there were some small asset sales too).  How many other E&P firms are doing that in this environment? 

[Packer16]

I am at my max percentage.

 

Packer

[Cardboard]

The overhang from Orange Capital has to be a reason. And I would say that being levered and producing 71% from natural gas while it has not done well at all can't help.

 

Then you have an analyst coming out publicly to bash the stock right after a positive quarterly release and killing any upward momentum.

 

Cardboard

[Wilson-TPC]

Hey Guys,

 

Sorry I've been so MIA, but have been getting hit with calls after calls about the current situation of the shares.

 

I've confirmed with management right now it doesn't look like Orange sold any. Now we won't know exactly what caused this volume spike till next week monday... I know, painful weekend.

 

From what I can tell you and given my sources, I am 1000% sure it's not Baupost selling. I know a firm that sold a decent chunk when BXE was at $1.40 to reduce risk so that's another reason why you didn't see that big follow through on the stock when oil rallied. Unfortunately right now, you are just at the whims of the market.

 

I have attached my model below and what my expectations are for 2016. Please feel free to change price assumptions as you see fit.

 

A little bit more additional color on the earnings:

 

I thought it was fantastic given that my previous thesis that opex/boe would naturally decline due to the higher weighted Spirit River production. They are really cutting costs on all fronts, and have recently applied for an extension on the maturity of the credit line. All in all, things look pretty good.

 

But you wouldn't know that by looking at the stock price, it's quite frustrating but that's just what it is.

 

Propane prices are also expected to get MATERIALLY better. Remember, BXE spent half of the year last year with negative to below cost propane prices. They produce 3,000 boe/d of this stuff.

 

Lastly, on Raymond James. These guys are really bearish natural gas, so it's not a surprise.

 

The only question you can ask, and I've said this before, is can BXE survive? And from this quarterly report, the answer is yes.

 

Model link: https://www.dropbox.com/s/vegn2pkw7r2seey/BXE%20Final%20Model.xlsx?dl=0

 

Best,

 

Wilson

[Cardboard]

Regarding volume, it was really high in Canada as well yesterday.

 

Something that I have observed with BXE trading in the U.S. is some form of "manipulation" right before the close: the stock would move up or down by a large percentage or 5 to 10%.

 

Has anyone seen that as well on the daily charts?

 

Regarding whomever might be selling, I am not worried about that. What is more worrisome is that they have warned that the banks will likely cut again the credit line on redetermination. While they have $193 million undrawn on the credit line out of $540 million (I include the impact from letters of credit), a cut below $347 M would force some move: asset sale, equity raise or else.

 

Another warning that they have provided us, is that they are likely to breach their Senior debt to EBITDA covenants of 3.5 times if energy prices remain as is. Now that is very difficult to understand since we don't know what level of prices they are considering with that statement: is it $30 oil or $40, $2 U.S. natural gas? And they are pretty well hedged on natural gas with 50% of production at $3.08 CAD. Finally, this could be negotiable since PWT is allowed 5 times on that covenant.

 

Cardboard

[cmakam]

Aren't the ebitda covenants based on realized prices?Am under the impression these matter only when the current hedges roll off and prices remain same come 2018.

 

Having credit line reduced from 540m to 350m would be a big cut,if banks begin to close lines at that rate for the bxes of the world they may end up triggering distress sales that ends up in a destructive spiral.My wild guess is worst case they may cap existing lines at around currently drawn levels.

 

-cmakam

[Wilson-TPC]

Regarding volume, it was really high in Canada as well yesterday.

 

Something that I have observed with BXE trading in the U.S. is some form of "manipulation" right before the close: the stock would move up or down by a large percentage or 5 to 10%.

 

Has anyone seen that as well on the daily charts?

 

Regarding whomever might be selling, I am not worried about that. What is more worrisome is that they have warned that the banks will likely cut again the credit line on redetermination. While they have $193 million undrawn on the credit line out of $540 million (I include the impact from letters of credit), a cut below $347 M would force some move: asset sale, equity raise or else.

 

Another warning that they have provided us, is that they are likely to breach their Senior debt to EBITDA covenants of 3.5 times if energy prices remain as is. Now that is very difficult to understand since we don't know what level of prices they are considering with that statement: is it $30 oil or $40, $2 U.S. natural gas? And they are pretty well hedged on natural gas with 50% of production at $3.08 CAD. Finally, this could be negotiable since PWT is allowed 5 times on that covenant.

 

Cardboard

 

"At December 31, 2015, the Company was in compliance with the financial covenant. Based on the capital budget pricing assumptions, the Company does not expect to exceed the Senior Debt Covenant during 2016. However, if the current commodity price levels persist, the Company would expect to begin negotiating additional covenant relief with its lenders in order to ensure ongoing compliance. If the Company expected to reach or exceed the Senior Debt Covenant, there are a number of steps that may be taken to remain in compliance, including asset divestments, a reduction to capital spending, debt refinancing transactions, and equity issuances."

 

Using the model I have linked, you can figure out at what point 3.5x is breached. Remember AECO 2016 is already at 1.82/gj. And it's nowhere close right now, 2.4x according to my numbers.

 

Second, on the credit line, a cut of maybe 10% is likely on 540 million, so an additional 54 million gone. This is what I currently expect.

 

 

[tede02]

http://www.wsj.com/articles/natural-gas-producers-face-painful-spring-1458864530

 

This article may be more appropriate for the CHK thread because it is geared towards US natural gas production.  Nonetheless, it paints the current picture of the supply side.  I would expect if we see headlines about credit line reductions, the share price of natural gas firms will remain weak (no great insight here).  It is amazing that the US gas rig count is down over 50% over the past year and yet production has barely budged.  Seems like 2016 will be another weak year.  So-be-it.  What I like about BXE is, based on their operating metrics, I'm fairly confident I could go into a coma for 2-3 years and the firm will still be around (perhaps reaping the rewards of a commodity price recovery).  I can't say the same for CHK (for which I foolishly bought primarily because Icahn did).

 

Curious if anyone was fortunate enough to snap-up any BXE shares sub $0.90?   

[Simple Investor]

I got a few more at .96 and 1.04. 

[jawn619]

At current prices, BXE is in a running as fast as it can to stay in the same place. Using Wilson's detailed model, assuming $40 WTI and $2.00 AECO for 2016 and $2.50 AECO for 2017, There's no FCF after capex and interest to pay down debt.

 

It's only after $3.00 AECO that BXE gets to pay down some debt.

 

It's important to make explicit what the assumptions when we buy the common.

 

You're betting BXE runs at current production levels (which assumes they continue their their phenomenal hit rate)

You're betting natural gas prices will not go lower

You're betting BXE doesn't run into any unplanned hiccups which would result in more capex.

 

I'm in the common, but I think BXE doesn't have lowest chance of permanent capital loss.

 

I'll sum it up in one sentence. You're betting that BXE maintains current production for the next two or 3 years, and then betting that natural gas prices will be higher. I think natural gas prices being higher in a couple of years is an easily believable one, but what I worry about most is the company's ability to maintain production.

[tede02]

Jawn, I think you sum it up well. 

 

The company has said they've identified 10 year's worth of drilling locations.  Seems unlikely that if the locations are within the Spirit River play, that the hit rate would significantly change.  Although, if that did happen, clearly we'd be in trouble. 

 

Unknown unknowns are always as issue.