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Bonanza Creek & HighPoint Reach Merger Agreement Worth $376M

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Zacks Equity Research
·3 min read
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Oil and natural gas producers Bonanza Creek Energy, Inc. BCEI and HighPoint Resources Corporation HPR announced that they have reached an agreement of consolidation worth $376 million. The deal involves merging of the two companies in the Denver-Julesburg (DJ) Basin to form a new entity as well as combine their property and production.

The transaction has been approved by the boards of each company. The new organization will own approximately 206,000 acres of leases in the DJ Basin with a day-to-day production capacity of 50,000 barrels per day (bpd) of oil. Further, the merged entity will be able to generate savings of roughly $31 million and free cash flow of approximately $130 million in 2021. In fact, the company plans to maintain a business model that focuses on free cash flow, with a greater emphasis on shareholder returns.

The strategic union is expected to close in early 2021. Following the completion, Bonanza Creek shareholders will hold a 68% stake in the combined company, with HighPoint’s stakeholders owning a 32% share. The oil and natural gas firm’s balance sheet is estimated to represent a cash of $50 million, $100 million senior unsecured notes and $150 million of reserve based lending (“RBL”) debt in addition to $15 million of near-term capital expenditure savings.

Per Eric Greager, CEO at Bonanza Creek as well as of the combined company, the integration of their complementary resources will generate cumulative effects. This will mark a revolutionary transaction for Bonanza Creek. Furthermore, the merger of HighPoint’s midstream infrastructure with Bonanza Creek will provide additional flow assurance, operating cost management as well as enhanced flexibility to third-party processing and takeaway. Notably, the transaction will initiate a premier DJ Basin player with a peer-leading expenditure pattern and a sizable rural footprint. The deal also offers HighPoint shareholders the opportunity to engage in a larger DJ Basin producer with an attractive balance sheet as well as a free cash flow profile.

Zacks Rank & Stocks to Consider

Bonanza Creek currently carries a Zack Rank #5 (Strong Sell), while HighPoint Resources has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space are Sprague Resources LP SRLP and DCP Midstream Partners LP DCP, each currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days,the Zacks Consensus Estimate for 2020 earnings of Sprague Resources has been raised 54%.

DCP Midstream is expected to see a stellar earnings growth of 183.4% in 2021.

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Sprague Resources LP (SRLP) : Free Stock Analysis Report
 
Bonanza Creek Energy, Inc. (BCEI) : Free Stock Analysis Report
 
DCP Midstream Partners, LP (DCP) : Free Stock Analysis Report
 
HIGHPOINT RESOURCES CORP (HPR) : Free Stock Analysis Report
 
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