Bonanza Creek Energy Announces Second Quarter 2018 Financial Results and Operational Update

Source Press Release
Company Bonanza Creek Energy Inc 
Tags Hedging, Capital Spending, Financial & Operating Data, Strategy - Corporate
Date August 08, 2018

Bonanza Creek Energy, Inc. (NYSE: BCEI) (the "Company" or "Bonanza Creek") today announced its second quarter 2018 financial results and operating outlook and has posted an updated investor presentation on its corporate website.

Bonanza Creek delivered solid performance in the second quarter driven by strong production growth and lower capital spend. The Company is on track to grow Wattenberg production by approximately 25% year-over-year and 50% when comparing the fourth quarter of 2018 to the fourth quarter of 2017.

  • Second quarter sales volumes averaged 18.0 MBoe per day including the negative effects of a prior-period adjustment of 0.6 Mboe per day related to non-operated wells

  • Rapidly improving well performance yields over 1,000 economic drilling locations in Wattenberg

  • Full year 2018 Wattenberg production guidance raised while lowering full year capex guidance

  • Accretive Mid-Continent divestiture of $117 million(1) bolsters balance sheet, improves unit operating costs and focuses operations on highest returning opportunities

  • Well head pressures effectively managed via Rocky Mountain Infrastructure's ("RMI") multiple third-party gas processing optionality

  • Second quarter GAAP net income of $4.9 million, or $0.24 per diluted share; Adjusted net income(1) of $24.2 million, or $1.18 per diluted share

  •  Adjusted EBITDAX(2) of $34.8 million, 17% growth over first quarter 2018

(1) Effective date of February 1, 2018

(2) Non-GAAP measures, see attached reconciliation schedules at the end of this release."

Bonanza Creek delivered a solid quarter, marked by consistently improving operational and financial performance. We continue to be encouraged by the strong well performance across our Wattenberg position. Through a combination of improving well productivity from more recent completion designs, and attention to our base, we are able to raise our full year 2018 production guidance while lowering our full-year capex," said Eric Greager, President and CEO."

As we look further into this year and next, we expect to see strong production growth, improving unit costs and increased operating cash flow as we accelerate our pace of development. Our balance sheet remains strong. We are well-funded to execute on our capital plan which provides for approximately 25% Rockies production growth in 2018 and greater than 50% growth in 2019."

Second Quarter 2018 Results

During the second quarter of 2018, the Company reported average daily sales of 18.0 MBoe per day, which was at the low end of the Company's guidance range of 18.0 – 18.6 MBoe per day. Otherwise strong production during the quarter was impacted by a negative adjustment of 0.6 MBoe per day related to our interest in several months of production from two outside-operated pads. If not for this adjustment, second quarter production would have been at the high-end of guidance. The Company's second quarter reported sales increased 7% sequentially as we continue to see strong well performance from the recent completion designs and consistently low wellhead gathering pressures on the Company's RMI system. As a result of these factors, we are raising our full-year production guidance, pro-forma for the Mid-Continent divestiture, as detailed below. Product mix for the second quarter of 2018 was 58% oil, 20% NGLs, and 22% residue natural gas.

Net revenue for the second quarter of 2018 was $71.9 million, compared to $44.1 million for the second quarter of 2017. The increase in second quarter 2018 net revenue compared to 2017 was primarily a result of increased production and improved commodity pricing.  Crude oil accounted for approximately 85% of total revenue. Differentials for the Company's Wattenberg oil production during the quarter averaged approximately $6.39 per barrel off of NYMEX WTI. Corporate average realized prices for the second quarter of 2018 are presented below.

Average Realized Prices 
(Before Derivatives) 
  Three Months Ended
June 30, 2018 
Oil (per Bbl)  $63.67 
Gas (per Mcf)  $2.13 
NGL (per Bbl)  $19.05 
Boe (Per Boe)  $43.57 

Lease operating expenses ("LOE") for the second quarter of 2018 were $11.3 million, compared to $9.4 million in the second quarter of 2017.  LOE on a unit basis for the second quarter of 2018increased by 6.6% to $6.90 per Boe from $6.47 per Boe in the second quarter of 2017. Gas plant and midstream expenses for the second quarter of 2018 were $3.2 million, compared to $2.6 million in the second quarter of 2017. On a unit basis, gas plant and midstream expenses increased 10% to $1.98 per Boe for the second quarter of 2018 from $1.80 per Boe in the second quarter of 2017. Unit operating costs were impacted by decisions to pull forward certain planned activities and to pursue high-returning maintenance opportunities. They were also impacted by some cost inflation and environmental compliance costs required by the air emissions consent order in the Wattenberg Field. The Company’s accelerated compressor replacement program is now largely complete and will continue to ensure Bonanza Creek’s product flows while helping to reduce future operating costs. Additional spending on the company’s base optimization efforts (e.g. pipeline pigging and well servicing) have helped improve base production volumes. Cost pressures due to a busier operating environment and air emissions compliance costs are expected to continue through 2018 and are reflected in our revised LOE, gas plant and midstream expense guidance.

Below is a breakout of the Company's regional operating expenses for the second quarter of 2018.

  Three Months Ended June 30, 2018 
  Wattenberg    Mid-Continent    Total Company 
  ($M)    ($/Boe)    ($M)    ($/Boe)    ($M)    ($/Boe) 
Lease operating expense  8,247      6.01      3,069      11.45      11,316      6.90   
Gas plant and midstream operating expense  2,181      1.59      1,066      3.98      3,247      1.98   
Total  10,428      7.60      4,135      15.43      14,563      8.88   

The Company's general and administrative ("G&A") expense was $9.9 million for the second quarter of 2018, which includes $2.2 million in stock compensation. This represents a 48% decrease from the second quarter of 2017. Cash G&A expense, which excludes stock compensation, was $7.7 million for the quarter and is tracking at the low-end of the Company's full year 2018 guidance.

Reported net income for the second quarter of 2018 was $4.9 million, or $0.24 per diluted share. Adjusted net income for the second quarter of 2018 was $24.2 million, or $1.18 per diluted share.

Adjusted EBITDAX for the second quarter of 2018 was $34.8 million.

Cash G&A, Adjusted net income, and Adjusted EBITDAX are non-GAAP financial measures. Please refer to the respective reconciliations in the schedules at the end of this release for additional information about these measures.

The table below summarizes the Company's annual results as compared to previously provided guidance.

Guidance vs Actual Summary       
  2Q18 Guidance    2Q18 Actual 
Production (MBoe/d)  18.0 - 18.6     18.0   
  Annual Guidance    YTD Actual 
Lease operating expense ($/Boe)  $5.00 - $6.00    $6.92  
Gas plant and midstream operating expense ($/Boe)  $1.40 - $1.80    $2.18  
Cash G&A ($MM)*  $33 - $35    $16  
Production taxes (% of pre-derivative realization)  7% - 8%     8% 
CAPEX ($MM)  $280 - $320    $95  
* Cash G&A guidance is a non-GAAP measure that excludes the Company's stock based compensation. The Company does not guide to GAAP G&A expense as it has excessive uncertainty due to the stock based compensation portion of GAAP G&A. Please refer to the non-GAAP disclosure at the end of this release for information regarding cash G&A. 

Production, Capital, and Expense Outlook

The Company is updating its 2018 annual guidance to account for strong well performance in the Wattenberg and the sale of the Mid-Continent operations on August 6, 2018.  Third quarter 2018production and operating expense guidance is also being provided for the full company and pro-forma for the sale of the  Mid-Continent operations. Below is a table summarizing the Company's production, capital, and expense guidance for the remainder of 2018.

Guidance Summary           
  Three Months Ended 
September 30, 2018
Three Months Ended
September 30, 2018 
  Twelve Months Ended
December 31, 2018 
Production (MBoe/d)  16.6 - 17.2  17.4 - 18.0    17.4 - 18.0     
LOE ($/Boe)  $4.40 - $4.80  $4.75 - $5.15    $5.50 - $5.90     
Midstream expense ($/Boe)  $1.25 - $1.45  $1.45 - $1.65    $1.70 - $1.90     
Recurring cash G&A* ($MM)        $32.5 - $33.5     
Production taxes (% of pre-derivative realization)        7% - 8%   
Total CAPEX ($MM)        $275 - $295   
* Recurring Cash G&A is a non-GAAP measure that excludes the Company's stock based compensation. The Company does not guide to GAAP G&A expense as it has excessive uncertainty due to the stock based compensation portion of GAAP G&A.   
(1) Pro-forma is the Company estimate for the third quarter of 2018 excluding results from the Mid-Continent operations.     

Operational Highlights

During the second quarter of 2018, the Company spud 12 gross (8.1 net) operated wells, ten of which were extended reach lateral ("XRL") wells, and completed 11 gross (11.0 net) operated wells, six of which were XRL wells.

The Company continues to be encouraged by its eight-well F26 pad on its western legacy acreage. These eight standard reach lateral ("SRL") wells have average cumulative production of 18.3 MBoe per 1,000 feet of lateral after 178 days of production. Additionally, the Company has finished completing and turned to production all eight XRL wells in the French Lake area. While two of the wells are currently hindered by mechanical issues, the Company is very pleased with the early results of the remaining six XRLs with results meeting or exceeding expectations.

The Company has provided updated production results for these wells in its August Investor Presentation, which is available on the Company's website.

The Company continued to benefit from multiple delivery points on the RMI system in the second quarter, including the Sterling interconnect which came online in the fourth quarter 2017. This delivery point flexibility, combined with consistent low line pressures on RMI, helped ensure minimal production curtailments. The Company entered into a new agreement with Cureton Front Range LLC (“Cureton”) whereby Cureton will gather and process gas from the Company’s northern acreage.  In addition to gathering and processing services, the new agreement provides flow assurance by adding 15 MMcf per day of firm gas processing capacity for up to twenty-five years. The Company also secured three years of downstream residue transportation from Cureton in order to support upcoming production needs. This improves the Company’s flexibility to manage system pressures across its Wattenberg position and provides the backbone infrastructure system to allow development of the northern acreage.

Upon completing the 2018 resource assessment and as a result of rapidly improving wellperformance, the Company has identified over 1,000 economic SRL equivalent locations in its Wattenberg position.

Financial Highlights

As of the end of the second quarter, the Company had liquidity of $153.7 million, which included cash on hand of $22.0 million and $131.7 million of borrowing capacity under its credit facility.  Pro forma for the Mid-Continent divestiture which closed on August 6, 2018, the Company had $256.6 million in liquidity.  The balance sheet strength and Wattenberg inventory provide the company with a strong position from which to deliver disciplined, return-oriented growth.

Commodity Derivative Position

The Company's current hedge position is summarized in the table below and reflects additional hedges the Company entered into through August 8, 2018. Subsequent to quarter-end, the Company entered into natural gas basis swaps between NYMEX Henry Hub price and the Colorado Interstate Gas (CIG) Rockies Natural Gas price, the index on which the majority of the Company's natural gas is sold.

    Crude Oil
  Natural Gas
(NYMEX Henry Hub) 
Natural Gas
(NYMEX Henry Hub) 
    Bbls/day    Weighted
Avg. Price
per Bbl 
  MMBtu/day    Weighted 
Avg. Price 
per MMBTU 
MMBtu/day    Weighted Avg. 
Basis Differential 
to NYMEX Henry 
Hub Price 
per MMBtu 
Cashless Collar    2,000    $43.00/$53.50    13,600    $2.75/$3.32  —     — 
Swap    5,000    $57.87    —    —  —     — 
  Basis Swap    —     —    —    —  8,354    $0.67 
Cashless Collar    2,000    $43.00/$53.50    12,600    $2.75/$3.35  —     — 
Swap    5,000    $58.07    —    —  —     — 
  Basis Swap    —     —    —    —  12,600    $0.67 
Cashless Collar    2,000    $43.00/$54.53    7,600    $2.75/$3.22  —     — 
Swap    5,000    $59.33    —    —  —     — 
  Basis Swap    —     —    —    —  7,600    $0.67 
Cashless Collar    3,330    $51.81/$64.23    2,505    $2.75/$3.22  —     — 
Swap    4,500    $58.32    —    —  —     — 
Swap    3,000    $55.00    —    —  —     — 
Swap    3,000    $55.00    —    —  —     — 

Conference Call Information

The Company will host a conference call to discuss these financial and operating results on August 9, 2018 at 10:00 a.m. Mountain Time (12:00 p.m. Eastern Time). A webcast of the live event, as wellas a replay, will be available on the Investor Relations section of the Company’s website at . Dial-in information for the conference call is included below.

Type  Phone Number  Passcode 
Live Participant  877-793-4362  3289067 
Replay  855-859-2056  3289067 
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