desjade thanks for taking the time and effort in doing your own modelling on BNE. I think it is underappreciated especially given the scrutiny that usually follows often with quite a pedantic focus. I find your assumptions reasonable and my modelling directionally is similar. I could read 5 different reports and all could be true depending on the variable used after-all they are only forecasts.
On FCF $75-$100 for 2022 is within reach depending on price deck and production numbers used, most energy companies use ranges so the point missed is that BNE will organically solve their debt issue within the next 12-18 months if one believes in $70 oil. I take the view they are likely to transact with the rise in their stock price closer to peers CPG & WCP in what could be a DE-leveraging event. George is mindful of this fact and with his large ownership in stock is aligned with his shareholder base in wanting to move the stock price higher.
For illustration purposes I will use Haywoods recent take on BNE and add some colour with the published presentation.
I find it hard to see under almost any scenario (bar a collapse in the oil price to $50) how BNE would not reduce debt YoY from 2020 Exit of $315 million.(see below)
As illustrated above by Bonterra's presentation at strip or even $55 oil BNE will be lower YoY. I would wager under $300 million is almost certain given YTD pricing and $70+ oil. (note this doesnt reflect higher AECO pricing which will drop to the bottom line reducing debt) The real point here and objective by George is to get his company out of the hands (or control) of bankers like NBF. The BDC essentially does this with bank debt be paid of in 2021 and 2022. At $70 in 2022(if you believe as I do in being bullish on oil) bank lenders will not be much of an issue for BNE in 2022 with bank debt plunging to $107 million by 2022E. Sure we have some ground to travel , however their are lenders that are favourable to BNE within the syndicate and those that are not. The BDC loan allowed BNE increase production by 30% in 2021(first mover advantage) capture higher pricing and still deal with their lenders by reducing bank debt. Total debt will also move down in 2021 but the priority was the lenders as they have forced hedging onto the sector at huge losses.(BNE probably $25 million in 2021) By 2022 that will change and this stock can go much higher on a re-rating from removal of the debt overhang.
Why has the stocked moved and many have not noticed? Its the leverage BNE has to higher oil prices.(see below)
I believe the above is self explanatory so no need for colour. Moving back to debt...
George's goal was to front load capex(Q1) using BDC loan but still pay off bank lenders. (All parties understood this plan and agreed) Sure total debt rose as expected when you drill heavily in Q1(standard practise prior to 2014) Naturally the naysayers pointed to the obvious(higher total debt in Q1/21 but not necessarily 2021 exit) At this juncture the jury was still out on oil even though many such as myself believed in $70 oil was coming as we begun 2021. With time Georges strategy has proven successful and with each month of oil above $70 the stock has moved higher on analysts and investor pencilling in the improved outlook for the stock. In time more will come around as the stock is still cheap and has much further to move.
desjade Haywood is within your ballpark(see below)
Haywood uses 14,000 production in 2022 on $80 million capex but still shows $4.82 in Cashflow and 1.2X D/CF (fairly normal) I agree we might see price inflation with drilling but that should also demonstrate the benefit BNE has enjoyed with lower drilling costs in 2021 and keeping rig running. Timing is key and so is commodity pricing for 2022, if BNE front ends 2022 capex and keeps drilling they might be able to control costs better then peers.(with their jump start in 2021)
BNE might also under higher price deck maintain Q4's peak production, we shall see.
The above shows that on a EV/DACF basis BNE is still cheap for 2022, the debt is normalized and FCF is huge ($84 million as per Haywood) while still being under $30,000 flowing bbl! What more could you want ; ) stayed tuned as Howard Jones said "things can only get better'
* Ran out of time to proof this post. Thanks to my partner in crime in for directing me to this original post...back to enjoying the summer.