Bonanza Creek Energy (NYSE:BCEI) has filed for an initial public offering (IPO) of stock, and is set to develop a number of onshore oil and gas plays in the United States in 2012. The company has properties in the Rocky Mountains, the Mid Continent and California. (For additional reading, check out: A Guide To Investing In Oil Markets.)

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Initial Public Offering
Bonanza Creek Energy filed to sell approximately 9.5 million shares of stock and indicated a price range between $20 and $22 per share. Existing shareholders are also selling an additional 4.7 million shares in the initial public offering. The share amounts and price range is not final, and may change before the offering commences.

The company estimates that net proceeds to the company in the offering will be $184 million, assuming a selling price of $21 per share. The funds will be used to pay down debt and fund the company's 2012 capital program.

Bonanza Creek reported proved reserves of 32.8 million barrels of oil equivalent (BOE) as of the end of 2011, with approximately 68% of the reserves composed of crude oil and natural gas liquids. The company produced an average of 6,105 BOE per day in November 2011, with 71% consisting of crude oil and natural gas liquids. More than 50% of the company's production is from properties in the Mid Continent area.

The company estimates that the PV10 value of its proved reserves was $461.1 million at the end of 2010. This measure is calculated as the estimated future cash flows from the proved reserves less future development and production costs, discounted at a 10% rate. The PV10 does not consider future income taxes on these cash flows, and is considered a non-GAAP measure.

Capital Expenditures
Bonanza Creek estimates that the company will spend $162.1 million in capital expenditures in 2011. This level of spending funded the drilling of 115 gross wells across the company's properties, and the construction of a natural gas processing facility in Arkansas.

2012 Plans
Bonanza Creek plans to accelerate development of its properties and has set a preliminary capital budget of $250 million for 2012. The company's most promising area is in Colorado, where it has approximately 63,000 net acres under lease that is prospective for the Niobrara formation.

The company has drilled and completed three horizontal wells into the Niobrara to date, with initial production rates on these wells ranging from 738 to 886 BOE per day. The company has a fourth horizontal Niobrara well currently undergoing hydraulic fracturing operations.

Other Operators
The Niobrara is a promising and early stage oil and gas play that has attracted some of the largest public independent oil and gas operators. Anadarko Petroleum (NYSE:APC) recently reported some completions into this formation, and estimates that each Niobrara well will have an estimated ultimate recovery from 300,000 to 600,000 BOE.

Whiting Petroleum (NYSE:WLL) just completed a five well program at the Redtail Prospect, and has authorized a second round of drilling at this prospect. EOG Resources (NYSE:EOG) has 220,000 net acres in the Denver Julesburg Basin and is credited with being one of the first operators to develop the Niobrara here using horizontal drilling.

The Bottom Line
Bonanza Creek Energy has a foothold in the Niobrara and has started the initial exploration of this promising resource play. The company will soon have access to the public capital markets to accelerate development of this emerging play. (To know more about oil and gas industry, read: Oil And Gas Industry Primer.)

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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

Tickers in this Article: BCEI, APC, WLL, EOG

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