Bonanza Creek Energy Inc. CEO Eric Greager said proposed legislation that is quickly moving through the Colorado legislature might reduce some state regulatory authority, but it could balance oil and gas development and allow more local input over environmental concerns, based on his conversations with peers and trade groups.
The Denver-based independent, a pure-player in the Wattenberg field within the Denver-Julesburg Basin, expects to grow production by more than 30% in 2019 while cutting capital expenditures by 15% year/year.
At issue for Bonanza and other producers is Senate Bill (SB) 181, which Colorado lawmakers unveiled on March 1. The bill includes language that would allow more local government input on future energy development and strengthen forced pooling requirements. It would also reduce the regulatory authority of the Colorado Oil and Gas Conservation Commission (COGCC).
During a quarterly earnings call, Greager said based on recent conversations, there may be more nuanced changes to the language of SB 181.
"I think there's going to be perhaps a little less emphasis on the fostering of oil and gas development in the mission of the COGCC, and perhaps a little more emphasis on balancing development of oil and gas resources with the impacts on the community, vis-à-vis environmental safety and health," Greager said.
"We think that local control is going to have a subpart to it. That probably allows for very small municipalities to opt out and defer back to the COGCC because it's a sophisticated agency with lots of technical and on the ground expertise. A lot of these small communities...just don't have the resources for undergoing significant and/or sophisticated citing evaluations."
Greager said he was "really pleased to see solidarity" among oil and gas producers, both large and small, leading up to last November's defeat of Proposition 112 in Colorado, which threatened nearly all drilling locations for some of the state’s leading producers.
"When we have these conversations, there is not much bifurcation between the companies," Greager said. "It's really a strong alignment of interests and solidarity within the companies to ensure that we do as good a job as we possibly can, because we think that's going to allow the industry to arrive at the right outcome."
The company unveiled a capex budget of $230-255 million for 2019, including $210-220 million for drilling and completions (D&C). Last year capex was $275 million, including $250 million for D&C. The new budget is based on a West Texas Intermediate price of $50/bbl and a Henry Hub price of $3/Mcf.
Bonanza plans run a single rig to drill 32.6 net wells during the year and turn 32.8 net wells into sales. The focus is to be on its Legacy West and Legacy Central operating areas. It also plans to exit 2019 with about 10 net wells in various stages of completion.
Average daily sales volumes were up 48% year/year to 17,738 boe/d, while full-year sales volumes averaged 15,844 boe/d, up 24%. The company's product mix for the quarter and the full-year shifted toward oil, which accounted for 62% of sales in 4Q2018 and 61% in 2018, up from 56% in 4Q2017 and 52% in 2017.
Natural gas accounted for 21% of sales in 4Q2018 and for the full-year, down from 25% in the year-ago quarter and 26% in 2017. Natural gas liquids (NGL) production was 17% of sales in 4Q2018, down from 19% in the year-ago quarter. Full-year production included 18% NGLs in 2018, down from 22% in 2017.
During the fourth quarter, Bonanza drilled about 22 net operated wells, eight of which had extended reach laterals (XRL). The company turned about 13 net to sales, nine of which were XRLs.
Bonanza plans to use a higher-intensity completion design to drive well performance in 2019. The design relies on tighter stage and perforation architecture, as well as an increased use of proppant and slickwater. It holds about 65,000 net acres in the Wattenberg.
Production guidance for 2019 is 20,000-24,000 boe/d, which at the midpoint would represent about a 39% increase from 2018.
Bonanza reported net income of $106.1 million ($5.15/share) in 4Q2018, compared with a net loss of $5.8 million (minus 28 cents) in the year-ago quarter. For 2018, net income was $168.2 million ($8.16/share), up from $2.7 million (5 cents) in 2017. Bonanza emerged from bankruptcy in April 2017 and recorded a net loss of $5 million (minus 25 cents) for the period after.
Revenues from oil and gas sales totaled $66.2 million in 4Q2018, compared with $50.2 million in the year-ago quarter. Full-year revenues totaled $276.7 million in 2018, versus $68.6 million in 2017 before exiting Chapter 11 and $123.5 million thereafter.