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Casimir sees hope for Bellatrix Exploration with new joint venture in the works

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Casimir Capital's Ryan Galloway maintained his price target of $9.50 on Bellatrix Exploration (TSE:BXE) on hopes for another potential joint venture, after the company reported a breakdown of its South Korean JV on Monday. 

In a statement, Bellatrix said the unnamed South Korean partner was not able to follow through with closing conditions of the agreement. The Calgary-based company said it woul not extend the deadline to the Korean firm, as it had done in April.

According to terms of the initial agreement, the joint venture partner was to contribute half of the required investment towards a seven year, 83-well program to develop Bellatrix's Ferrier area property in the Cardium formation in Western Alberta. The original closing date was set for April 30.

The analyst, which has a speculative buy recommendation on the oil and gas company, noted that Bellatrix is currently working to secure another partner for the area in order to meet its previous target of 24,000 to 25,000 barrels of oil equivalent per day (boe/d) for the year. 

"While BXE expects to close on a deal within 2 – 7 weeks, its capex budget has decreased slightly to $200mm (down from $230 – 240mm). We also note that on the conference call yesterday, CEO Ray Smith anticipates similar financial terms for a new deal so as to be equally beneficial for shareholders," wrote Galloway. 

He noted that the key driver of the South Korean deal failure was a change in the policy of insurer. At the time of the initial release in January, the South Korean firm's $150 million investment was expected to be 80 per cent guaranteed by government-backed Ksure and 20 per cent by Bellatrix. In the months that followed, however, new leadership at Ksure changed policy and required that the South Korean firm take on additional risk, which it was unwilling to do. 

The Casimir analyst highlights that Bellatrix's asset quality actually "looked better than expcted", with new independent reserve evaluators GLJ and McDaniel seeing higher performance than the company's own Sproule assessment. 

In addition, Galloway took note of the company's Notikewin well, which continues to perform "above expectations" at 20 mmcf/d. 

"With 6-8 net locations available for 2 mile wells, similar performance could have the potential to add an incremental 26kboe/d of (flush) gas weighted production to optimize production and potentially meet production targets with reduced capex even if all JV negotiations were to fall through," he concluded. 

Shares of Bellatrix, which is focused on assets in Alberta, British Columbia and Saskatchewan, rose 1.1 per cent to $5.46 on Wednesday, climbing back from a low of $4.77 on Monday. 

Quick facts: Bellatrix Exploration Ltd

Price: 0.38 CAD

TSX:BXE
Market: TSX
Market Cap: -
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