Bonanza Creek Energy Moves Forward In Wattenberg Field

By Eric Fox | October 23, 2012 AAA

Bonanza Creek Energy (NYSE:BCEI) conducted an initial public offering (IPO) of common stock in late 2011 and has spent the last year advancing its development program targeting the Niobrara play. The company is putting the majority of its capital budget into the development of this play in 2012.

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Initial Public Offering
Bonanza Creek Energy sold 10 million shares of common stock at $17 per share, raising gross proceeds of $170 million in the offering. The market was not all that receptive and the deal was priced below the expected range of $20 to $22 per share. The company also reduced the number of shares being offered from the original level of 14.3 million shares.

Other Energy IPOs
Several other energy companies have recently accessed the capital markets through an IPO. Summit Midstream Partners LP (NYSE:SMLP) raised gross proceeds of $250 million in September 2012 through an offering of 12.5 million shares. The pricing range prior to the deal was $19 to $21 per share. Summit Midstream Partners LP owns and operates gathering and processing infrastructure serving onshore oil and gas plays in Colorado and Texas. The company recently closed on the acquisition of midstream assets handling production from the Piceance and Uinta Basins.

Another exploration and production company targeting the Niobrara is Energy & Exploration Partners. The company is in the midst of its IPO and is looking to raise $236 million through the sale of 15.7 million shares at a price ranging from $14 to $16 per share. Energy & Exploration Partners is also active in the Permian Basin in West Texas and the Eaglebine play in East Texas.

SEE: Oil And Gas Industry Primer

Overview
Bonanza Creek Energy reported proved reserves of 43.7 million barrels of oil equivalent (BOE) at the end of 2011, with the majority of these reserves composed of crude oil and liquid hydrocarbons. The company estimates that production in 2012 will average between 9,100 and 10,100 BOE per day, with oil and natural gas liquids comprising 72% of the production stream.

Bonanza Creek Energy has budgeted $298 million in capital expenditures in 2012 to generate this production and has allocated most of these funds towards the development of oil and gas properties in the Rocky Mountains and Mid Continent areas.

SEE: A Guide To Investing In Oil Markets

Niobrara
Bonanza Creek Energy's main focus is in Colorado where the company is developing the Niobrara in both the Wattenberg Field and the North Park Basin.

Bonanza Creek Energy will spend $183 million in 2012 in the Wattenberg Field, where the company plans to drill 36 horizontal wells, with most targeting the Niobrara B bench. The company also plans a 72 well vertical program targeting the Niobrara and Codell formations.

The typical Niobrara horizontal well will be drilled on 80 acre spacing and cost approximately $4 million to drill and complete. These wells will have an estimated ultimate recovery (EUR) of 312,000 BOE and have a 65% crude oil component.

Bonanza Creek Energy expects its Wattenberg properties to be more productive than current estimates and is targeting the Niobrara C bench for development. The company is also testing extended reach laterals and plans its first well using this design in the fourth quarter of 2012.

Bonanza Creek Energy is evaluating industry efforts to test 40 acre down spacing in some areas in the Wattenberg Field and positive results here will boost the potential resources on the company's leasehold.

Other Niobrara Players
Bill Barrett Corporation (NYSE:BBG) also has acreage in the Wattenberg Field and plans to develop the Niobrara in 2012, with 23 net horizontal wells planned during the year. The company also believes that it can develop the Niobrara C bench on its leasehold.

Carrizo Oil and Gas (Nasdaq:CRZO) recently signed a joint development agreement on its Niobrara acreage with two Indian oil and gas companies. The company will receive $82.5 million in cash and a drilling carry for a 30% share of its properties.

The Bottom Line
Bonanza Creek Energy has selected the Niobrara play in Colorado as the focus of its 2012 development program and plans to leverage these oil and gas properties to grow the company's production and reserves.

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

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