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BXE - TD Report - Continued Consolidation in the Ferrier Area at Solid Metrics Event Bellatrix announces a $9.5mm acquisition in the Ferrier area and a natural gas hedging update. Impact: POSITIVE The company announced the acquisition of assets from Daewoo E&P Canada, which include 1,250 BOE/d (35% liquids) in its core Ferrier area. Total consideration includes $1.75mm in cash and 6.75mm BXE shares at an implied price of $1.15/share. The assets include 61 gross (19.6 net) wells which have been jointly operated by BXE since 2013 and have a low production decline rate of 15%. Bellatrix estimates that the valuation equates to 3.0x 2019 cash flow. The acquisition is expected to close around November 30 and will have minimal impact on FY2018 production. This acquisition represents the continuation of the company's strategy of consolidating working interests in its core area at what we see as attractive metrics ($7,600/BOE/d). Production from these assets will be processed through operated infrastructure, and this is the second such acquisition in recent months as the company also recently completed the buyout of working interests from Grafton (Note). Bellatrix has locked-in very attractive pricing for its natural gas sales to the Dawn/Chicago/Malin markets through Q1/19. As a reminder, the company's natural gas marketing contracts through October 2020 include 30 mmcf/d at each of the Dawn and Chicago markets and another 15 mmcf/d at Malin. Given the recent surge in these benchmarks, the company has been able to lock-in advantageous pricing (net of transportation), including a December average of $4.33/mcf for 50 mmcf/d and a Q1/19 average of $4.19/mcf for 30 mmcf/d. Although absolute leverage metrics remain elevated, cash flow remains extremely leveraged to positive moves in either AECO or the gas benchmarks mentioned above. For context, a 10% increase in pricing at these hubs drives a 21% increase in our 2019E cash flow estimate. TD Investment Conclusion The company could become one of the biggest beneficiaries from a positive move in natural gas pricing at several key hubs, and we remain convinced that the core assets are solid. That said, we remain cautious due to debt levels and pressured netbacks. Our target price remains at $1.25 and we reiterate our HOLD rating. |
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