Bonterra Energy reports November 8, 2022
I expect a solid quarter with debt falling, cash flow rising
Bonterra Energy (BNE.TO) is almost ignored by the stock market, likely since it had a near death experience during the early days of COVID when it looked like its debt could not be managed and the stock fell to the $1 per share level. Things have improved sharply since that time.
My model for Bonterra is based on published costs and recent commodity prices and with the current volatility in the price of oil & gas, could be materially wrong. Having said that, a good model can provide a lot of insight into how well or poorly a company will perform as commodity prices fluctuate, and Bonterra enjoys outstanding leverage to higher prices since it has only 36 million shares outstanding and has a low cost structure.
Based on my modelling Bonterra at the commodity prices shown, I see the company as generating as much as CAD$70 million cash flow quarterly and spending less than CAD$20 million quarterly on sustaining capital outlays and asset retirement obligations. That suggests that if commodity prices remain firm, Bonterra shares are deeply undervalued.
Here is my model, which assumes light sweet oil (e.g. Edmonton Par) is priced at CAD$687 per cubic meter which translates into roughly CAD$110 per barrel. Even after eating a loss of over CAD5.00 per barrel on mandated hedges, Bonterra field level cash flow should be around CAD$60 million for the quarter and north of CAD$70 million quarterly once the hedges roll off.
By year end, I expect debt to be less than cash flow and by year end 2023 Bonterra could be virtually debt free. At that point, at today’s oil & gas prices free cash flow per share would be somewhere in the CAD$3.50 to CAD$4.00 range and the company could prudently payout half of that in dividends. BNE.TO shares now trade just over CAD$10 share.
Simply stated, there is plenty of potential in Bonterra shares although the company’s leverage to oil prices cuts both ways and there is no shortage of risk.
I like the balance and hold 30,000 shares.