bonanza creek energy, inc. · 6/3/2016 · resume growth in 2017. company overview bonanza creek...

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Bonanza Creek Energy, Inc. June 3, 2016

Commentary by Dan Steffens It has been rough sledding for Bonanza Creek Energy, Inc., (BCEI) in 2016. Early this year they decided to shut down all drilling operations to preserve capital until commodity prices improve. On February 29th the Company announced that the sale of their RMI midstream assets was not going to close. The sale was expected to shore up the balance sheet. News like this at the same time oil prices were hitting cycle lows was not well received by the market. Things got worse on May 21st when the banks decided to reduce their credit facility to $200 million, putting BCEI $88 million overdrawn.

The company has more than enough cash to pay the bank $88 million, but investors dumped the stock on the news.

RMI asset sale: BCEI terminated its agreement with Meritage Midstream Services IV after the two could not settle on terms to close the transaction. Meritage was expected to pay $175 million at closing with the remaining $80 million due over a two-year period contingent upon drilling commitments. Bonanza Creek is re-marketing the RMI assets and trying to sell their legacy producing assets in Arkansas, however there is no assurance that these sales will happen. If they are able to find buyers for these assets, the share price should rebound.

Management Richard Carty, President, CEO Tony Buchanon, Executive VP, COO Lynn Boone, SVP Planning & Reserves Wade Jaques, VP CAO, Principal FO Curt Moore, VP Land

www.bonanzacrk.com



On a significantly lower capital program this year ($40 to $50 million), Bonanza Creek’s production is expected to decline 25% to 30% YOY in 2016. Based on my forecast, cash flow from operations should cover the reduced capital expenditure program. Operating results have been quite good. In the Wattenberg area, Bonanza Creek continues to get good well results. If oil prices move over $50/bbl and natural gas & NGL prices firm up (as I am expecting them to do) then BCEI will survive and should be in good position heading into 2017. With most of the company’s leasehold now held by production, BCEI can adjust their capital expenditure program to survive an extended period of low oil prices. They have done a great job of reducing their on-going cash expenses by close to $5.00/boe during 2015 and Q1 2016. On March 25, the company announced a corporate reorganization and workforce reduction that will further reduce their lease operating expenses and G&A.

My Fair Value Estimate for BCEI is $3.50/share Compared to First Call’s Price Target of $2.91

Disclosure: I do not have a position in BCEI and I do not intend on buying or selling it in the next 72 hours. I wrote this profile myself, and it expresses my own opinions. I am not receiving compensation for it from the company. I have no business relationship with any company whose stock is mentioned in this article.



The bottom line is that Bonanza Creek is in the Wall Street “Penalty Box” as a result of the RMI sale falling through. If they can find a buyer at anything close to the previous sales price, the stock price could bounce back quickly. Regardless, if oil & gas prices rebound as I expect them to do; the company should survive and be well positioned to resume growth in 2017.

Company Overview Bonanza Creek Energy, Inc. (NYSE: BCEI) is a Denver-based, independent energy company engaged in the acquisition, exploration, development and production of onshore oil and associated liquids-rich natural gas in the United States. Bonanza Creek’s oil and liquids-weighted assets are concentrated primarily in the Wattenberg Field in the DJ Basin of Colorado and the Cotton Valley Field Sands of Southern Arkansas. The low risk, oily, and stable production profile of BCEI’s Arkansas assets provides a strong cash flow base from which to develop the Niobrara and Codell formations in Colorado, the growth engine of the company. Bonanza Creek maintains high working interest in its properties and operates all of its proved reserves. The Company’s technical staff of geologists, petroleum engineers, and geophysicists have decades of industry experience and are experts in horizontal drilling and fracture stimulation. BCEI is dedicated throughout the organization to safety and environmental responsibility. 1st Quarter 2016 Financial and Operating Highlights

• First quarter production volumes averaged 24.3 MBoe per day, compared to guidance of 23.9 MBoe per day at the midpoint

• Adjusted EBITDAX of $18.5 million; adjusted net loss of $0.46 per diluted share

• First quarter CAPEX of $20.7 million, a 33% sequential decrease from the fourth quarter of 2015 "I am proud to announce our first quarter operational results which have exceeded expectations for the third consecutive quarter. While the commodity price environment continues to be challenging for the Company financially, our underlying Wattenberg assets continue to outperform. For the balance of 2016, the Company will continue its efforts to maximize its liquidity position through potential asset sales and putting intense focus into maximizing the productivity of base production and optimizing cost structure," -- Richard Carty, President and Chief Executive Officer.



1st Quarter Financial Results

• Bonanza Creek Energy is an interesting play for investors after they announced their 1st quarter results because not only does its stock have decent short-term momentum, but it is seeing solid activity on the earnings estimate revision front as well. In the past 30 days, 2nd quarter EPS estimates have gone higher for BCEI with no downward revisions by analysts in the same time period. The trend has been favorable, with estimates narrowing from a loss of 57 cents a share 45 days ago, to a loss of 29 cents today.

• For the first quarter of 2016, the Company reported average daily production of 24.3 MBoe per day, a 12% decrease from the first quarter of 2015, and a 15% sequential decrease from the fourth quarter of 2015. The reduction in production volumes is a result of decreased activity and timing of completions within the quarter. Product mix for the first quarter of 2016 was 58% oil, 17% NGLs, and 25% natural gas.

• Revenue for the first quarter of 2016 was $51.7 million (including cash settlements on hedges), compared to $73.1 million for the first quarter of 2015. Crude oil accounted for approximately 78% of total revenue. Differentials for the Company's Rocky Mountain oil production during the quarter averaged approximately $8.36 per Bbl



• LOE for the first quarter of 2016 was $13.3 million, or $6.01 per Boe, compared to $17.0 million or $6.86 per Boe in the first quarter of 2015. Throughout 2015 and into 2016, the Company has executed on multiple cost saving initiatives which have resulted in absolute and per unit LOE reductions of 22% and 12%, respectively from the first quarter of 2015 to the first quarter of 2016.

• Starting in 2016, the Company changed the presentation of its consolidated statement of operations to provide more granular disclosure of its LOE by separating out the operating costs of its non-E&P assets. The Company's gas plant and midstream operating expenses includes the operating costs of both gas plants located in the Company's Mid-Continent region and the Company's Rocky Mountain Infrastructure assets located on its Wattenberg acreage. Below is a breakout of the Company's regional LOE and gas plant and midstream operating expense for the first quarter of 2016.

• Cash general and administrative ("G&A") expense for the first quarter of 2016 was $14.7 million, or $6.63 per Boe. At the end of the first quarter, the Company underwent a workforce reorganization to better align its employee base and organization with further tempered activity levels. As a result of this reorganization, the Company expects its cash G&A expense to be reduced by approximately $7.6 million annually. Also as a result of the reorganization, the Company incurred a one-time cash charge of approximately $2.2 million related to severance payments.

• Since September of 2015, the Company has materially reduced and restructured its organization to leverage operating efficiencies and match its workforce to activity levels, resulting in aggregated estimated annual reductions in cash G&A of approximately $13.0 million. When adjusting for one-time severance payments, cash G&A expense was $12.5 million or $5.66 per Boe, for the first quarter of 2016 compared to cash G&A expense of $13.4 million or $5.43 per Boe in the first quarter of 2015.

• Total CAPEX for the first quarter of 2016 was $20.7 million, of which $4.8 million was attributable to RMI. In an effort to preserve liquidity in a period of depressed commodity prices, the Company has lowered its



completed well costs and drilling & completion activity over the past year, reducing total costs incurred by over 80% from the first quarter of 2015.

• Reported GAAP net loss for the first quarter of 2016 was $47.2 million, or $0.96 per diluted share, compared to a net loss of $18.4 million, or $0.41 per diluted share, for the first quarter of 2015. Adjusted net loss for the first quarter of 2016 was $22.4 million, or $0.46 per diluted share, compared to an adjusted net loss of $2.7 million, or $0.06 per diluted share for the first quarter of 2015, and an adjusted net loss of $8.4 million, or $0.17 per diluted share for the fourth quarter of 2015.

• Adjusted EBITDAX for the first quarter of 2016 was $18.5 million, a 73% decrease compared to $69.3 million for the first quarter of 2015 and a 72% sequential decrease from the fourth quarter of 2015.

1st Quarter Operational Results



BCEI’s main operations are focused on the Wattenberg Field and the Cotton Valley sands of Southern Arkansas. Each well they drill in the Wattenberg is now drilled horizontally. Every well they drill is fracture stimulated. Company’s strategy for creating shareholder value is primarily to grow organically by applying advanced technology to more efficiently and responsibly extract oil and natural gas resources. They also look to make strategic acquisitions in both their core areas and other oily basins in the United States where they can apply core competencies of horizontal drilling and fracture stimulation.

Rocky Mountain Region – Wattenberg Horizontal Development

• During the quarter, the Company connected 17 gross (11.4 net) horizontal wells into sales, consisting of 8.8 net standard reach laterals ("SRLs"), and 2.6 net medium reach laterals ("MRLs"). Of the 17 gross wells connected in the first quarter, 12 were operated by the Company. For the first quarter, upstream capital CAPEX for the region was approximately $16 million.

• Production from the Rocky Mountain region during the first quarter of 2016, averaged 19.9 MBoe/d, or 82%

of total Company volumes. The production was comprised of 59% crude oil, 17% NGLs and 24% natural gas. Rocky Mountain sales volumes decreased by 9% compared to the first quarter of 2015 and decreased sequentially by 16% compared to the fourth quarter of 2015 due to decreased activity levels.



• During the first quarter, the Company drilled and completed its first pad of wells that incorporated plug-and- perf completions, increased sand loading of 1,500 pounds per lateral foot, and monobore construction. Completed well costs for these wells were approximately $2.5 million per SRL, meeting the Company's well cost expectations. The Company is monitoring the results of these enhanced wells designs and plans to discuss their performance in the second half of 2016.

• At the end of the first quarter, the Company released its remaining operated rig and has halted drilling and

completion activity in its Rocky Mountain region. As of March 31, 2016 the Company had 6 drilled uncompleted wells, 4 SRLs and 2 extended reach laterals ("XRLs"). The Company plans to revisit its activity levels on a quarterly basis or as pending asset sales are completed or material changes to commodity price fundamentals occur.

Mid-Continent Region – Cotton Valley Development



• During the first quarter of 2016, the Company executed 12 gross (11.3 net) Cotton Valley re-completions. The Mid-Continent region contributed 4.5 MBoe/d, or 18% of total Company net sales volumes for the first quarter of 2016, and was comprised of 55% crude oil, 16% NGLs and 29% natural gas. Sales volumes decreased by 20% compared to the first quarter of 2015 and decreased approximately 10% from the fourth quarter of 2015 as a result of decreased activity levels.

North Park Basin – Colorado

• The North Park Basin is a high, sparsely populated basin (approximately 8,800 feet in elevation) in the Rocky Mountains in north central Colorado. Crude oil has been produced from the anticlinal traps of the Muddy Sandstone at the North McCallum and South McCallum oil fields.

• Bonanza Creek currently holds the second largest acreage position in the North Park Basin, with the

Niobrara formation identified across its position. The Niobrara is approximately 600 feet thick at an estimated depth of 7,500 feet.

• The Company is currently evaluating this area for future horizontal Niobrara development.

Recent Events Credit Facility On March 10, 2016, BCEI announced it had elected to draw down $209 million on its credit facility, and had an aggregate of $300 million of borrowings, including a $12 million letter of credit, under the facility. As of March 10, 2016, the Company had $235 million of cash on its balance sheet after taking the recent draw into account. The Company also restructured its hedge book, eliminating in-the-money 3-way collar contracts in favor of crude oil hedges with a combination of in-the-money floor and above market fixed price contracts for the period April through December of 2016. (On May 20, 2019 the Company announced that its credit facility has been reduced to $200 million. See comments on the next page.) “Our recent election to draw down $209 million on our revolver was a risk management decision structured to mitigate exposure to capital market externalities in 2016. We are pleased to be working with our committed and supportive commercial bank syndicate in this regard. In addition, we elected to protect 2016 cash flows by monetizing our 3-way collars to fund the purchase of in-the-money floor and above market swap contracts. These recently purchased contracts represent greater than 80% of our forecasted Rockies oil production for the balance of 2016. The supplemental cash on our balance sheet reinforces our liquidity position while our team works to execute dispositions of our Mid-Continent assets and our Rocky Mountain Infrastructure subsidiary. Collectively, these measures are proactive steps taken by the Company to reduce our downside exposure to risks not in our direct control, and aim to preserve value for stockholders in



the event of a recovery in business conditions,” -- Richard Carty, President and Chief Executive Officer. Prior to the announced draw on the credit facility, the Company’s outstanding borrowings had remained unchanged since November 9, 2015. Additionally, the Company has been primarily operating within cash flow from operations since year-end. At March 31, 2016 the Company had a cash position of $235 million compared to a cash position of $21 million at December 31, 2015. After the recent draw, the Company remains in compliance with the incurrence covenants under the indentures related to its senior unsecured notes. Corporate Reorganization and Senior Management Change On March 25, 2016 Bonanza Creek announced a corporate reorganization, which resulted in a total workforce reduction of 26 employees and 17 contractors. The reorganization aligns its employee base and general and administrative cost structure with the current commodity price environment and resulting anticipated activity level. As a result of the reorganization and executive departures, the Company will incur a one-time charge of approximately $2.1 million related to severance payments, and expects its annual general and administrative expense and lease operating expense to be reduced by approximately $7.6 million and $3.1 million, respectively. Financial and Risk Management Update Debt and Liquidity The Company has a $1.0 billion revolving credit facility, which was redetermined in October of 2015 with an approved borrowing base and commitment amount of $475 million. As of March 31, 2016, the Company had borrowings under its credit facility of $288.0 million and a letter of credit totaling $12.0 million. Bonanza Creek has two outstanding issues of unsecured high-yield bonds which consist of $500 million of 6.75% senior notes due in 2021 and $300 million of 5.75% senior notes due in 2023. As of March 31, 2016, the Company was in compliance with all financial covenants, with a senior secured debt to TTM EBITDAX ratio of 1.3x, an interest coverage ratio of 3.9x, and a current ratio of 2.3x. In May, the Company’s lenders reassessed the company’s credit line as part of industry-wide twice-annual collateral review, Bonanza Creek’s lenders cut the company’s available credit to $200 million, from $475 million. Bonanza Creek said in a securities filing that the cut has left it overdrawn by $88 million and that the company is working with its lenders to figure out how to pay back that amount. From the SEC filing: As of May 20, 2016, the Company had $288 million in borrowings outstanding under the Credit Agreement and no outstanding letters of credit. As a result of this May 2016 redetermination, the Company now has a Borrowing Base Deficiency of $88 million. The Company received notice of this deficiency on May 20, 2016 (the “Deficiency Notice Date”). The Company is currently in compliance with all of the Credit Agreement’s financial and nonfinancial covenants. Under the terms of the Credit Agreement, the Company must pursue one of the following options to address the Borrowing Base Deficiency: (A) within 20 days after the Deficiency Notice Date, deliver to the Administrative Agent



written notice of the Company’s election to repay Advances such that the Borrowing Base Deficiency is cured within 30 days after the Deficiency Notice Date; (B) pledge, within 30 days after the Deficiency Notice Date, additional Oil and Gas Properties acceptable to the Lenders, which the Lenders deem sufficient in their sole discretion to eliminate the Borrowing Base Deficiency; (C) within 20 days after the Deficiency Notice Date, deliver to the Administrative Agent written notice of the Company’s election to repay Advances in six monthly installments equal to one-sixth of the Borrowing Base Deficiency, with the first such installment due 30 days after the Deficiency Notice Date and each following installment due 30 days after the preceding installment; or (D) within 20 days after the Deficiency Notice Date, deliver to the Administrative Agent written notice of the Company’s election to combine the options in clause (B) and (C) above, and indicating the amount to be repaid in installments and the amount to be provided as additional Collateral.

2016 Guidance During the quarter the Company engaged an adviser to market its Rocky Mountain Infrastructure assets (“RMI”). The marketing processes for these assets along with its Mid-Continent assets are currently ongoing. Results from these marketing processes will be announced at the earlier of the execution of a definitive purchase agreement or the Company's second quarter earnings conference call.



2016 Outlook • Focus on optimizing base production and operating costs • Continue marketing assets

o Rocky Mountain Infrastructure asset o Mid-Continent

• Re-evaluate activity levels upon completion of the RMI sale or material changes to market conditions

Investment Recap • World-class asset base • Contiguous acreage in rural area • Enhancing field productivity • Consistent operational execution • Reducing cost structure • Optimizing base production


Bonanza Creek Energy, Inc. (BCEI)Net Income and Cash Flow 2014 - 2017 (last updated 6/3/2016)($Thousands)

Actual Actual Actual Actual Actual Forecast Forecast ForecastActual Qtr1 Qtr2 Qtr3 Qtr4 Actual Qtr1 Qtr2 Qtr3 Qtr4 Forecast Forecast2014 2015 2015 2015 2015 2015 2016 2016 2016 2016 2016 2017

REVENUES: Oil and gas sales $558,633 $73,076 $90,422 $72,149 $57,032 $292,679 $44,174 $62,331 $58,544 $57,960 $223,010 $241,010 < Forecasts include realized gain (loss) on hedges

which are broken out below with actuals Total Revenues 558,633 73,076 90,422 72,149 57,032 292,679 44,174 62,331 58,544 57,960 223,010 241,010

EXPENSES: Lease Operating Expenses 72,412 19,264 20,895 20,236 16,011 76,406 13,298 12,767 10,943 9,540 46,549 37,851 < $6.10 / boe Gas plant & midstream oper expenses 3,789 3,663 3,140 2,737 13,328 10,859 < $1.75 / boe Severance and ad valorem tazes 50,429 6,496 4,148 2,411 5,574 18,629 3,154 4,052 3,805 3,767 14,778 15,666 < 6.5% of Oil & Gas Sales (one time credit in 3Q15) Exploration (Successful Efforts) 5,346 498 5,748 6,979 2,602 15,827 266 300 300 300 1,166 1,600 DD&A 228,790 59,004 69,925 58,635 57,357 244,921 26,379 25,116 21,528 18,768 91,791 74,460 < $12.00/boe Impairment + actual abandonments 167,592 5,469 14,527 168,411 585,614 774,021 16,906 5,000 5,000 5,000 31,906 20,000 < non-cash expense G&A 60,855 13,445 17,243 14,654 10,426 55,768 14,681 11,250 11,250 11,500 48,681 48,000 < Q1 2016 includes severance payments related to the Stock based compensation (non-cash) 20,716 3,427 4,359 3,164 3,601 14,551 3,004 3,000 3,000 3,000 12,004 12,000 workforce reduction announced on 3/25/2016

TOTAL EXPENSES 606,140 107,603 136,845 274,490 681,185 1,200,123 81,477 65,148 58,966 54,613 260,204 220,435

OPERATING EARNING -47,507 -34,527 -46,423 -202,341 -624,153 -907,444 -37,303 -2,816 -422 3,347 -37,194 20,575

Other income (expenses) Realized gain (loss) on derivatives 0 35,466 15,189 37,717 42,624 130,996 7,508 0 0 0 7,508 0 Unrealized derivative gain (loss) 121,615 18,856 -20,667 53,083 5,286 56,558 -8,515 0 0 0 -8,515 0 Interest expense - cash portion -46,447 -14,238 -14,468 -14,073 -14,273 -57,052 -13,939 -15,000 -15,000 -15,000 -58,939 -62,000 Amort of deferred financing costs -608 -608 -608 -608 -2,432 -2,432 Other income (loss) 347 -49 198 -2,077 -574 -2,502 -380 0 0 0 -380 0 Gain on sale of assets 3,516 0 0 0 0 0 6,000 0 0 0 6,000 0 Income from properties held for sale -72 0 0 0 0 0 0 0 0 0 0 0

NET INCOME BEFORE TAXES 31,452 5,508 -66,171 -127,691 -591,090 -779,444 -47,237 -18,424 -16,030 -12,261 -93,952 -43,857INCOME TAXES Current -1,930 0 0 754 21 775 0 0 0 0 0 0 < No income taxes because of big loss carryforward Deferred 12,986 -11,537 -25,007 -69,051 -60,072 -165,667 0 0 0 0 0 0

NET INCOME $20,396 $17,045 ($41,164) ($59,394) ($531,039) ($614,552) ($47,237) ($18,424) ($16,030) ($12,261) ($93,952) ($43,857)

Common Stock outstanding 40,842 49,030 49,030 49,030 49,030 49,030 49,131 49,131 49,131 49,131 49,131 49,131Earnings per share $0.50 $0.35 ($0.84) ($1.21) ($10.83) ($12.53) ($0.96) ($0.38) ($0.33) ($0.25) ($1.91) ($0.89)NOTE: Current First Call Estimated EPS ($0.29) ($0.25) ($0.22) ($1.22) ($0.73) < First Call EPS range for 2016 is $-2.20 to $-0.46Cash flow incl cash settlements on hedges 326,225$ 55,397$ 50,023$ 51,540$ 49,911$ 206,871$ 8,291$ 15,100$ 13,906$ 14,915$ 52,212$ 62,435$ < CapEx Budget for 2016 is $40 to $50 MillionCashflow per share (before CapEx) $7.99 $1.13 $1.02 $1.05 $1.02 $4.22 $0.17 $0.31 $0.28 $0.30 $1.06 $1.27 <Fair Value 3 X 2016 to 2017 CFPS = $3.50

0.22$ 0.21$ 0.18$ 0.79$ 0.89$ < First Call CFPS estimates FC Target >> 2.91$ PRODUCTION Natural Gas (mcfp/d) 42,134 38,970 38,857 40,935 40,677 39,860 36,490 33,600 27,000 21,000 29,523 21,000 Oil (bbls/d) 15,380 16,561 16,847 16,857 16,282 16,637 14,102 13,500 11,500 10,500 12,401 10,500 NGLs (bbls/d) 1,086 4,453 4,716 5,272 5,510 4,988 4,136 3,900 3,500 3,000 3,634 3,000

boepd 23,488 27,509 28,039 28,952 28,572 28,268 24,320 23,000 19,500 17,000 20,955 17,000 < Company guidance for 2016 is 19,700 to 21,700 boepdPRODUCT PRICES 20.3% -25.9% -18.9% < Production Growth Natural Gas ($/mcf) 5.18$ 2.47$ 2.15$ 2.32$ 1.10$ 2.01$ 1.39$ 1.60$ 1.80$ 2.00$ 1.70$ 2.30$ Oil ($/bbl) 82.72$ 63.21$ 59.37$ 62.75$ 63.15$ 62.12$ 32.87$ 43.00$ 47.00$ 52.00$ 43.72$ 54.00$ < Includes hedges below & regional differentials NGLs ($/bbl) 49.48$ 14.14$ 16.28$ 7.91$ 1.88$ 10.05$ 12.98$ 13.00$ 13.50$ 14.00$ 13.37$ 15.00$ Gross Revenue check (prod * ave price) 563,641 108,544 105,608 109,889 99,665 425,926 51,682 62,331 58,544 57,960 234,540 241,010

53,930 52,180 49,500 198,880 210,370 < First Call's Revenue Forecast

Net Income and Cash Flow Forecast Model

Bonanza Creek Energy, Inc.

June 3, 2016

bonanza creek energy, inc. · 6/3/2016 · resume growth in 2017. company overview bonanza creek...

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