BXE - Bellatrix Explorations

[Cardboard]

They paid a very low price in $ per boe/d to consolidate their land so the seller likely wanted a low priced currency with upside to make it up. It is a big vote of confidence since the bottom of the press release still highlights risks as to the closing of transactions that will solve the credit line issue.

 

Overall I think it is positive.

 

Cardboard

[Guest notorious546]

I'm not sure what to think of this transaction. They bought more assets to increase leverage when the credit line is expected to come down. More assets improve the borrowing base. Not sure.~14,000 per flowing acquisition cost vs ~8-9,000 per flowing for their falher assets. Doesn't seem like a clear positive to me. ~10% dilution kinda sucks too!

 

 

 

 

[Cardboard]

"More assets improve the borrowing base."

 

With creditors these days, it is all about Proven Developed Producing reserves NPV. The proven reserve value for these 2,000 boe/d are then added automatically to their existing PDP NPV without spending any cash. That is if I understand correctly how their joint venture was accounted for.

 

Drilling and completing wells would likely have been cheaper as you are implying but, it would have required cash outlays.

 

Seems to be right into their core Ferrier/Spirit River area based on the map on the corporate presentation. So this should be high quality and low cost production for them. $25,000 to 30,000 per boe/d should have been a more regular price IMO.

 

Cardboard

[StevieV]

Probably an ok transaction for BXE at this time.  However, this is not a move that a company would make in normal times under no borrowing concerns or pressure.

 

I think most investors in BXE are looking for a multiple of the current price - say USD $3-5.  This isn't a company where you are looking for 10-15%/year of steady returns.  So, minor dilution which lessens the risk of selling an important asset or more significant dilution can be a positive even if it takes away a little of the upside.  If you were thinking $3-5 before, 10% dilution puts you at $2.70-$4.50, but a better chance of getting there.  Also, the assets they acquired are worth something.  So, the actual impairment is less than the 10%.  Basically, IMO, an ok move, but nothing to get excited about.

 

The same questions remain:  (1) How is the redetermination going to go?;  (2) Are the additional dispositions going to get done and at what price?  (3) Any further dilution?  Hope not.  (4) What is going to happen to O&G prices, particularly AECO and NGLs?  (5)  How well will management perform?

 

Received some good new from PWE last week.  I am hoping for some good news from BXE in the upcoming weeks. 

[Ballinvarosig Investors]

Down 10% after market, I can understand why.

 

https://www.sec.gov/Archives/edgar/data/1483405/000127956916003915/ex991.htm

 

[tede02]

Wow, that hurts.  The banks must be putting a lot of pressure on the company.  Is my math correct in that the company has raised nearly $300m between asset sales and the equity raise announced today over the past 3 months? 

[simplefocus]

Is anyone buying at this price?

[jawn619]

I exited a couple weeks back. I felt that there was downside that I couldn't live with.

[SharperDingaan]

Look closer at the convertible, and the 50-day moving average of the common.

You could borrow against the convertible, & simply sit on the thing for 3yrs ... earning a net positive cash flow over the entire period. Your risks are that BXE either goes bankrupt, or that rates rise dramatically while you are waiting - both seem reasonably unlikely. If you ultimately convert, you've bought at todays 50-day moving average - & you cannot do any of this with the common.

 

Our interest is because of maturing FTP bonds.

 

SD

[tede02]

I'm at my maximum position, however, I previously bought around these prices. 

[Simple Investor]

this has been a tough journey. but I bought a tad more. 

[philippoc93]

Bought more today. Averaged down to a cost basis of $0.91, but I'm reaching my maximum position size, which I will not be going over.

 

What IV would you put on the company at the moment? With all the asset sales and dilutive transactions, it's hard to keep up with it. I hate to admit it, but I'm outside of my circle of competence and it doesn't feel too nice. Definitely a lesson for future.

 

Interested to hear peoples opinions on the whole saga

 

Phil

 

 

[Picasso]

Lot of thesis drift here. 

[Simple Investor]

I'm with you.  A lesson for me.  Still holding (multiple biases). 

 

Times get tuff when you don't know exactly what's going on and your down 50%. 

 

Here is what I know- if Gas prices don't rise at some point in the future then my money will disappear.  Would that be considered speculative?  :)

[philippoc93]

Yep, it feels like an internet date gone wrong to be honest. She looked so good in the pictures, but then in real life turned out to be a major disappointment.  :o

 

How strict are the NYSE with delistings also? They were served notice the under day and I was wondering can they ask for extensions?

[StevieV]

Very frustrating stock.  Holding back the O&G portion of my portfolio.  I first bought in February along with several other O&G names and this is the clear laggard.

 

I don't see anything today that would make me sell if I held until today.  I got in somewhat late (thankfully), but clearly not late enough (if there ever will be late enough).  Since I have owned, there have been some times to sell - Grafton deal; further dilution; etc.  I don't think the earnings report and this week are one of those times though.

 

I figure there are two things going on with the big drop this week - (1) AECO took a nosedive starting Monday.  That matters for BXE short-term and they have their short term issues; and (2) Investors are getting fed up and throwing in the towel.

 

This has been and continues to be a speculation.  Speculation on gas and liquids prices.  Speculations on deal making.  Speculation on bank lines.  If it wasn't, it wouldn't have been priced at $1 USD and be lower now.

 

Maybe it would have been prudent to sell at one of the earlier chances.  It might be prudent to sell now after the big drop this week.  However, I don't think the major fundamentals have changed in the last few days (assuming daily changes in AECO pricing shouldn't be taken too significantly).

 

Anyway, this has clearly gone terribly so far, but I am likely to continue to hold.

[kab60]

Lot of thesis drift here.

Agreed. Can't judge the investment merits but a lot of the recent comments are terrible to read. Sounds like people should accept that things have changed, deal with the new facts and consider if they'd buy at these levels if they hadn't already. If not, cut the losses and move on. There's a big difference between a 50 and 100% loss.

[StevieV]

Lot of thesis drift here.

Agreed. Can't judge the investment merits but a lot of the recent comments are terrible to read. Sounds like people should accept that things have changed, deal with the new facts and consider if they'd buy at these levels if they hadn't already. If not, cut the losses and move on. There's a big difference between a 50 and 100% loss.

 

At its core, the thesis from earlier this year was AECO, oil and liquids prices would rise and BXE would survive until they did.  I think the early this year thesis was somewhat different than that of a few years ago.

 

What has happened is natural gas prices have risen, but there has been a large AECO differential and BXE got rid of their hedges in that regard too early.  Also, the bank line redetermination lowered their line a great deal and they were not able to sell the non-core assets they wanted to.  So, they had to dilute (10% Grafton with increased production; and 30% convertible).  They also had to sell part of their Alder Flatts plant.

 

Given that, there has been some pain.  The dilution is self-explanatory.  The Alder Flatts sale hurts their longer term costs.  On the positive, they have reduced their bank debt from 314 million to 122 million.  They also have longer term debt due in 2020 ($250).

 

Where does that leave things?  Reduced debt, but still high.  Less near term problems.  Still waiting for better pricing.  Lower upside due to dilution and the Alder Flatts sale.

[aws]

I've owned this a few times.  Most recently bought in early June and could have taken a 35% gain in two weeks, but didn't.  Now I have a 20% loss in 2 months.  Oh well, at least it's a less than 2% position and it's offset by my other small cap oil producers which have been flying up lately.  I might add, but I haven't had time lately to look into it. 

[Picasso]

Good summary Stevie.  I'm laying in bed sick without much to do, so I'm going to go on a little rant here.

 

Normally I would be content watching this blow up from the sidelines, but I see so much commentary on other sites where investors are super concentrated long in BXE.  It's like ZINC all over again.  It gives other concentrated investors like myself a bad rep.

 

Serious question: would anyone be long this name if Baupost hadn't made it a tiny position in their portfolio last year?  My guess is no.  Well where is Baupost now?  They've blown out of the position.  And when it happened everyone just laughed it off like "what does that guy and his analyst out in Boston know about BXE anyway?"  Apparently enough to get everyone else interested in it in the first place.

 

Nevermind Orange Capital blowing up.  AECO not moving with the rest of the commodity space.  Getting diluted twice after the CEO kept harping on no dilution.  Bank lines getting cut.  The stock not moving after these "catalysts" of big investors blowing out and removing the "overhang." Any one of those things should have set off major warning signs to sell down the position.  Instead I'm hearing they're one off events.  Bad luck that should start turning soon.  The check is in the mail.

 

It started off on this board as a value play, but suddenly it's morphed into a speculation.  Now you need gas prices to go up, you need them to stop diluting you, you need all these other variables to fall into place to maybe get a return back to your cost basis.  It's become riskier and riskier, and I see investors buying more instead of cutting down the position.  I could go back to the ZINC board and see the exact same thought process.  At a certain point on that thread it morphed from a value investment to speculation.  Even the longs started calling it a speculation, and a lot were buying all the way down. 

 

Just a friendly PSA to stick to your damn investment thesis.  I hope it turns out well for everyone, but if you can't stay disciplined you'll just get blown up the next time Mr. Market is less forgiving.

 

tldr; If George Soros gave you some of his capital to manage and you're still heavy long BXE after the past six months, he'd yank everything for lack of proper risk management.

[Picasso]

Take a look at the commentary from this Seeking Alpha transcript:

 

http://seekingalpha.com/article/3998352-bellatrix-explorations-bxe-ceo-ray-smith-q2-2016-results-earnings-call-transcript

 

I don't think even Apple transcripts get that much commentary on Seeking Alpha.  It's just bag holder city.  It's depressing to read.  Other comments are quoting god as their last hope, with investors buying down as much as they can "to get their basis down."  Pure madness.

[StevieV]

Take a look at the commentary from this Seeking Alpha transcript:

 

http://seekingalpha.com/article/3998352-bellatrix-explorations-bxe-ceo-ray-smith-q2-2016-results-earnings-call-transcript

 

I don't think even Apple transcripts get that much commentary on Seeking Alpha.  It's just bag holder city.  It's depressing to read.  Other comments are quoting god as their last hope, with investors buying down as much as they can "to get their basis down."  Pure madness.

 

That is a lot of comments.  I read the transcript, but didn't follow all of the comments.

 

Appreciate your comments in this thread.  Always interested in opinions on my investments.

 

BXE started as a relatively small portion of my portfolio and has gotten smaller.  Maybe just over 1% at cost and a little under 1% now.  I think of BXE as part of a basket of O&G companies.

 

Briefly, I think oil will eventually return to the $60 range.  Too much supply taken out at prices under that - deepwater, oil sands, etc.  Timing on that is difficult given sunk costs and the like.  That is my basic analysis, if that is wrong, everything that follows will be as well.

 

If I am reasonably confident in the oil price, the question becomes what companies to invest in.  Oil majors should survive, but everyone knows that.  Throughout the downturn, I am not sure there has ever been a particularly attractive price for Exxon assuming $60 oil.  Other companies have been priced low, but really need $80 oil to survive.  Some of these have already gone bankrupt.  I am much less confident we get to $80.  So, what I was looking for was O&G companies: (1) priced for distress; (2) that will make good money at $60 WTI; and (3) will survive until we get there.

 

Given the above, I invested in a basket of BTE, PGH, PWE and BXE.  They all have (or had) warts, but they were slightly different.  Simplified:  PWE had a big debt problem, but good assets.  BTE has a large debt load, but long maturities.  PGH is well hedged for this year.  BXE has a different profile due to its natural gas weighting.  I wanted to diversify my company specific risk somewhat.

 

Post transactions, I think the debt problem for PWE is solved, they are the least risky and I have made it my largest in this basket.  PGH and BTE have performed very well for me since I bought them, but I don't think either are necessarily out of the woods.

 

Regarding BXE, I still think they will survive, asset prices will turn more in their favor and it is worth more than its current price.  This week, the price has changed a lot, but I don't think the situation has gotten much worse.  To your points, I didn't invest because of Orange or Baupost, though I didn't like Baupost selling out.  Your point is well taken on the dilution - perhaps I should have sold out immediately at either.  I will have to consider more and perhaps be more specific when buying in.  Dilution that solves the debt problem is not necessarily bad.  The problem here, is it has solved it half-way.

 

I still think that BXE serves a purpose in the basket and my portfolio.  I also probably have a bias against selling out now that there has been the additional price drop this week for no additional reason (in my mind).

 

If we get $60 oil and PWE does well, I will do well on these trades even without BXE.  That being said, I am certainly not interested in losing my remaining investment in BXE.

 

Hope that adds something to the conversation.  I would like to see the board back away from the political bent and get back to investment discussions.

[Picasso]

All good points.  As part of an energy recovery basket, BXE made sense.  It's sort of a given that certain holdings in a basket will do poorly for various reasons.

 

I have issues with massive concentration in the stock when the thesis has jumped around more times than I can count.  Given the attention it gets on Seeking Alpha, and all this obsession I see from commentary about reducing the cost basis by doubling down, it's one of those stocks that a lot of investors have concentration in.  If they weren't concentrated they wouldn't be commenting all over the transcripts in a very obscure E&P microcap. 

 

There's probably some short to intermediate term overhang from the recent offering.  The convertibles have already lost 13% so maybe you're seeing some rotation out of the equity into a higher part of the cap structure that still involves an equity kicker.  There's an argument to be made to get paid 10% on the debt and still have the ability to convert it to equity.  But if you step back and think what 10% convertible debt implies... That's very expensive financing.  You have to question the value of their assets if in the span of a couple weeks the latest lenders are already a couple years of interest payments in the red.  The capital markets seem really shut out for these guys. 

 

Anyway, it is possible that not much has really changed over the past couple weeks and you start to see their cost of capital improve.  From the standpoint of anyone who participated in that latest offering, you can't help but feel like a sucker.  And if the debt is a sucker play, what does that say about the equity?  IMO it's hard to have an equity recovery in this name without seeing improvement in the debt.  I think if I were sort of stuck in the equity, I'd swap it out for those new convertibles.

 

Btw I attached a recent comment from the CEO.  Not sure how anyone takes what he says seriously.

[alertmeipp]

the convert can be redeemed by CASH after 2019 so their upside is very limited ...

 

BXE gets a good deal selling the new covert at 6.75 as its senior trades at even higher yield.

 

 

 

[Picasso]

On redemption yes, but if BXE does trade for $3 in the future the converts will trade really close to the conversion price.  So you can just sell them on the market for whatever they're worth without waiting for 2019. 

 

Converts cost the higher of the coupon or the equity conversion.  If you think 6.75% is a good deal, it's because you think the equity will not get over the conversion price.  In which case the equity is a bad purchase.  But if you think the equity is indeed undervalued, this is way more expense than higher coupon nonconvertible debt.