Bonterra Energy will be a major beneficiary of the firmer oil prices
Expect a dividend in 2024
Bonterra Energy (BNE.TO) has outstanding assets in the Cardium but has struggled with excess debt for years. That debt is now well under control and should drop well below 1 X cash flow in 2024, and the company plans to begin to pay 25% of free cash flows as dividends once that metric is met. Bonterra has only 38 million shares outstanding and its production is 60% weighted to light oil, currently about CAD$115 a barrel in Western Canada.
Based on CAD$115 oil, CAD$3.00 a gigajoule for natural gas and CAD$50 a barrel for NGL, I model the company having cash flow of over CAD$200 million in 2024 with free cash flow in excess of CAD$75 million after a capital program of CAD$125 million (all assumptions I have made, not company disclosure). At that level, a dividend of $0.50 seems likely for 2024 and year end 2024 net debt I project at less than CAD$100 million while production should increase to about 16,000 Boe/day by year end 2024 from closer to 14,000 Boe/day in 2023.
I foresee sustained growth in output in the 10% range with enough cash flow to keep retiring the debt balance while paying increasing dividends and within 3 years I expect BNE.TO to be debt free and capable of paying a sustained dividend of at least CAD$1.00 a share. At a current price of CAD$8.00 a share more or less, the shares appear deeply undervalued. I hold 50,000 shares.
My crude model for Bonterra operations (pre-dividend) shows a 2024 value north of CAD$20.00 a share. Loaded with assumptions, no one should think this model is a recommendation or an accurate prognosis of the unknowable, but it is useful as a mechanism to assess possible outcomes.
