Why Bellatrix Exploration Is a BuyBXE) is making the right moves by lowering the cost structure at the Spirit River that should improve its IRR additionally. For instance, its optimization improvements helped the company to reduce its drill times to 13 days during the first quarter of 2016 in the Spirit River formation, down 13% as compared to 15 days of drill times from 2015 levels. This move is enabling Bellatrix Exploration to reduce its total drill complete equipment tie-in-costs to under CAD3.7 million per well, which is significantly lower than last year. This continued reduction in the well costs should improve the economic value of its Spirit River play in the future.
Apart from this, Bellatrix Exploration for the quarter lowered its operating costs by 14% to an average of $7.37 per barrel of oil equivalent, demonstrating a decrease of 14% as compared to the first quarter of 2015. Also, the company managed to reduce its transportation costs by 25% year-on-year basis. At the same time, its G&A expenses fell 30% to $1.29 per Boe, compared with $1.83 per Boe in the same quarter last year.
This reduction in costs has improved Bellatrix Exploration earnings performance.
For instance, its earnings for the quarter came in at $0.10 per share as compared to net loss of $0.07 per share in the first quarter of 2015. Thus, the company is doing the right things by lowering its cost structure which should keep its earnings performance intact going forward.
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Strong hedging position should keep its revenue intact ahead
Bellatrix Exploration has recently updated their risk management position that remains attractive against commodity price volatility. As per this position, the company has hedged approximately 55% of gross natural gas volumes at an average fixed price of around CAD2.96 per Mcf from April 2016 to December 31. In fact, Bellatrix Exploration maintained a solid base level of risk management in 2017 as well. The company has hedged around 30% of its forecasted gross natural gas volumes at an average price of CAD3.37 per Mcf.
The mark to market fair value for its hedging position is approximately CAD36 million. This is a strong hedging position that should protect its cash flow in the future as it did in the past. For instance, its operating netback for the quarter had come to $6.50 per Boe as against the $9.03 in the same quarter last year. However, with the hedges in place, the company was able to improve its netback to $8.28 per Boe in the last reported quarter.
Bellatrix Exploration remains focused on managing debt and liquidity with further deleveraging at the appropriate time. For instance, the company during the last reported quarter reduced its net debt by over $3.8 million to $713.8 million as compared to $717.6 million in the fourth quarter of 2015. The important thing is that the company has no near-term debt maturities. It has only $250 million of notes that mature in May 2020.
Bellatrix Exploration continues to lower its cost structure, which is improving its bottom line performance. Also, the company is mitigating risk with the strong hedges and living within its cash flow. At the same time, its net debt keeps on getting better with the reduction in the net debt, making its balance sheet healthy. Thus, in my opinion, the company remains an attractive investment in the long-run.
Published on Sep 15, 2016By Vinay Singh