Bill Barrett said on Jan. 17 that it entered into a confidentiality agreement with Bonanza, which sought federal bankruptcy protection on Jan. 4.
Bill Barrett said Bonanza Creek “indicated its interest in a combination transaction,” according to a Securities and Exchange Commission (SEC) filing.
Bonanza responded in a press release that “received an unsolicited inquiry” from Bill Barrett and seemed to scold the company for disclosing it had entered into a confidentiality agreement with the company.
“The company was given no prior notice that Bill Barrett intended to file” notice with the SEC and said it views the filing as a violation a confidentiality agreement.
“In keeping with the agreement it made with Bill Barrett pursuant to the confidentiality agreement, the company does not intend to publicly comment further on this matter at this time,” Bonanza said, adding its lack of comment wasn’t an indication of the company’s position on the offer.
David Tameron, senior analyst at Wells Fargo Securities, viewed the combination as a potential boost for Bill Barrett.
“Speculation around a combination of these two entities has existed for years,” but given its recent bankruptcy the time seems to make sense, Tameron said.
Bonanza produced 21,000 barrels of oil equivalent per day (Mboe/d) during third-quarter 2016, including 17 Mboe/d in the Wattenberg Field. The company owns 70,000 net D-J Basin acres, adjacent to or threaded by Bill Barrett’s holdings.
The company’s D-J geology includes Niobrara benches A, B, C and the Codell.
“It remains to be seen how much [Bill Barrett] would be willing to pay for Bonanza, but assuming $30,000/ flowing [barrel] and $5,000/acre, we get to a value of $980 million, which is slightly less than the aggregate principal value of BCEI's existing debt,” Tameron said.
Bonanza Creek filed a prepackaged Chapter 11 bankruptcy in U.S. District Court in Delaware proposing it reduce its debt by $867 million and launch a $200 million offering for new equity, backstopped by unsecured noteholders.
Debtholders would receive 95.5% of Bonanza’s equity interest, leaving the company's overdrawn $150 million commitment as its remaining debt.
The company intends to emerge from reorganization before the end of first-quarter 2017, if the plan is approved by the court.
“We pegged the acreage at $5,000 per, but given the statistical variability of well results and somewhat scattered acreage position, it's hard to get a great feel for fair per acre market price,” Tameron said. “But there is definitely some meaningful overlap between Bill Barrett and Bonanza, which would allow Bill Barrett to generate additional value by drilling longer laterals.”
If bondholders agreed to take equity in the potential combined entity, “even if Bill Barrett is forced to pay close to $900 million, we would view the transaction as a positive given it would likely be balance sheet accretive and have the potential to more than double existing inventory,” Tameron said.
The company has been looking for ways to deleverage its balance sheet and grow its asset base and Bonanza gives it an opportunity to do both, he said.
Darren Barbee can be reached at firstname.lastname@example.org.
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