I met with Bonterra this week and, in three words – I like it. BNE may have doubled off its lows, but fundamentally, I think it’s cheap. BNE has a proved-developed-producing (i.e., PDP) NAV of over $9/share at $75 oil and $2.50 AECO (1P and 2P are $20.86 and $29.06 respectively at those prices). Almost nothing trades below PDP out there and BNE is really changing its character with its focus on its growing Charlie Lake play and its Montney position. Both of those plays have capital efficiencies that are substantially better than the Cardium. The Cardium is still a core asset for BNE, but the Charlie Lake and the Montney are where the high organic growth can come from. I don’t see this discount lasting as market awareness grows.
When I look at BNE, I think I know why it trades so cheaply:
- it has a small market cap and is not that liquid, which means that a lot of institutions just won’t look at it,
- the shareholder base is largely retail and was historically dividend-driven,
- with net debt of about $175 million, it has slightly higher leverage than its peers (but the bulk of that is termed out to 2030), and…
- the market just doesn’t know the story.
Aside from the slightly elevated debt (which is just over 1x debt-to-cash flow at $75 oil), none of these are fundamental reasons. As BNE continues to deliver, it will generate something like $50 million of free cash flow in 2026 (at $75 oil) for share buybacks and discretionary capital. With only 36.6 million shares outstanding, the current enterprise value is just over $400 million and 2026 guidance, at $60/barrel oil, was for $105-110 million of cash flow. Every dollar that oil is above $60 for the year adds $2.2 million of cash flow… so if your view is that oil will average $75 this year, which I don’t think is a stretch, that 2026 cash flow grows to $138-143 million. That puts BNE trading at about 2.9x EV/CF. That’s pretty cheap… and this is where it gets interesting… no one would balk at BNE if it was trading at 3.9x EV/CF given the profile of the company and its strong fundamentals. That 1x increase from the current 2.9x EV/CF would be worth $3.80 per share, which would have BNE trading at $10. I’m not sure when the market is going to look in more detail at BNE… perhaps a couple/few more operational updates will do it. Maybe it’s some M&A as BNE continues to gravitate towards its new plays for future development. Maybe a little of both. In any case, I’ve been adding to BNE at current levels and look forward to seeing them execute on their growth plans.
