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Bonanza (BCEI) Announces Closing of Merger Deal With HighPoint

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Zacks Equity Research
·3 min read
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Bonanza Creek Energy BCEI announced the completion of its previously-announced merger deal with HighPoint Resources Corporation on Apr 1, 2021.

The agreement involved the merger of the companies in the Denver-Julesburg (“DJ”) Basin to form a new entity as well as combine their property and production. Notably, the transaction will result in Bonanza shareholders owning approximately 68% stake in the merged company, with HighPoint’s stakeholders holding the rest.

Following the deal closure, Bonanza’s balance sheet is expected to include $100 million of new 7.50% senior unsecured notes due 2026 and nearly $154 million of reserve base-lending debt from HighPoint. Moreover, the merged company is likely to obtain a combined cash balance of $85 million.

Bonanza also announced 2021 guidance for the combined company. For 2021, the company expects an annual capital expenditure of $150-$170 million, with a production of 42 MBoe/d on a pro-forma basis.

Notably, the company benefitted from the unexpected surge in commodity prices that have lifted its 2021 cash-flow expectations. This resulted in an addition of nearly $35 million in cash at the closing of the merger deal. Bonanza rescheduled certain HighPoint well completions from fourth-quarter 2020 to late 2021 to enable the combined company to design the completions and optimize facility and gathering capital.

Hence, the company’s 2021 capital plan involves the completion of 45 gross drilled but uncompleted (“DUC”) wells. Further, it intends to take up a drilling rig in fourth-quarter 2021 and complete the newly-drilled wells to operate effectively in 2022. Importantly, Bonanza plans to exit the year with 30 gross DUCs from the current inventory.

The strategic alliance is expected to generate significant synergies worth $150 million in present value, which comprise $15 million of near-term capital expenditure savings. Notably, Bonanza expects synergies of $31 million for 2021, which consist of savings from general and administrative expenses, lease operating expenses, and capital expenditure.

Company Profile

Headquartered in Denver, Bonanza is an independent energy company engaged in the acquisition, exploration, and development of onshore oil and natural gas properties in the United States.

Zacks Rank & Stocks to Consider

The company currently has a Zack Rank #4 (Sell).

Some better-ranked players in the energy space are Royal Dutch Shell Plc RDS.A, CNOOC Limited CEO and Devon Energy Corporation DVN, each currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shell’s earnings for 2021 are expected to rise 19.2% year over year.

CNOOC’s earnings for 2021 are expected to increase 12.1% year over year.

Devon’s earnings for 2021 are expected to grow 16% year over year.

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