June’s multi-colored eyes (Photo credit: kakissel)

BELLATRIX EXPLORATION (T-BXE) $2.69 -0.01 

 Analysts Views as at June 26, 2012 

Mason Granger is a fund manager with Sentry Investments and he was featured on BNN June 25. One of his three top picks was Bellatrix Exploration.

There are lots of folks in the business that love and admire the work that Ray Smith and his team at Bellatrix are doing. So what. In this world where oil prices have been pummeled and worries are that Europe is going into a recession of some scale. All oil stocks have been pummeled. Just take one look at the chart of Bellatrix. On BNN Granger suggested that they had been expecting oil to fall off this year because of Europe and also suggested that the Saudi’s have had an influence.

 But now that Brent is down to where it is close to a break-even point for the Saudi’s, he suggests we are in a bottoming process or at least near a bottom.

They are trying to pick stocks these days that have a strong balance sheet and a low-cost structure just in case the bad times persist. But as far as Bellatrix, there were more than a few analysts reports out in the last couple of days on the stock and once again, all are positive.

 Brian Kristjansen at Canaccord writes a feature piece, “Doing More With Less.” He writes, “Bellatrix announced this morning (June 21) that it will be reducing capital spending in 2012 to a range of $140 to $150 million, from the prior $180 million to be more in line with cash flow. Production estimatesc (16,500 to 17,000 BOE/d) and exit rates (19,000 to 19,500 BOE/d) are unchanged, however, given continued Cardium and Notikewin well outperformance.

 The company restarted drilling June 22, with its first rig deployed at Willesden Green targeting the Cardium, and expects to deploy its second rig at Ferrier in the coming days as weather permits. The capital program will be spent drilling 15 (13.6 net) Cardium wells and 2 (1.5 net) Notikewin wells.

  We  would note the previously planned Duvernay vertical is not included, which we view positively as a better return is likely to be had from a Cardium or Notikewin well. The IP30 rate on its first Duvernay well was 5.6 Mmcf/d. The well is believed to only be producing from the heel and will be cleaned out with a coil tubing rig when weather permits. Our focus and positive view of the company remain on the consistent and more economic Cardium and Notikewin inventory.

 Impact: Positive 

 Spending less to achieve the same results is especially positive in volatile times when capital preservation is key. 

We have tempered our Q3/12 outlook as two rigs rather then three are being deployed, reducing our 2012 average (we were previously above guidance) to 17,000 BOE/d from 17,250 BOE/d. The spending reduction brings debt to cash flow to 1.1x/0.8x in 2012/2013 (from 1.4x/0.9x). With exit guidance intact, our 2013 estimates remain unchanged.

 Recommendation:

 Bellatrix remains our WatchList ; we are reiterating our BUY recommendation and increasing our target price to C$9.00 (from C$8.75). Our target remains based on a 5.5x 2013E EV/DACF multiple supplemented by $0.08 of risked Cardium upside. We expect to review our risked upside estimates in the near term, given more production history from the company’s Ferrier block.”

The Duvernay well might have been little more than an expensive science project, more than a real well, and with what’s going on in the world it is probably time to make sure one’s budgets are realistic.

Kevin Shaw of Casimir Capital also has a $9.00 target and one does wonder at some of these targets here in the real world with what’s been going on, we still hope Josef Schachter who had predicted much of this year right (although some of his stocks picks have suffered as well) is correct in that we get past an ugly summer and early fall, oil and much of the world seems to recover.

Again, Schachter is predicting $100 on oil some time next winter.