Why Bonanza Creek Energy (BCEI) is Rallying Today

Bonanza Creek Energy Inc. engages in the development and production of onshore oil and natural gas in the United States. The company's oil and liquids weighted assets are located primarily in the Wattenberg Field in Colorado; and the Dorcheat Macedonia Field in southern Arkansas. It also owns and operates oil-producing assets in the North Park Basin in Colorado; and the McKamie Patton Field in Southern Arkansas. Bonanza Creek Energy Inc. was founded in 2010 and is headquartered in Denver, Colorado.

Bonanza Creek filed for bankruptcy last month -- we can blame the falling price of oil...but also some rotten luck in the exploration part of their business (it's an occupational hazard with oil and gas plays) -- the news of which sent the stock plummeting from a high of $2.40 to a low of only $0.55 in a matter of hours. Since then share price has stabilized as details of the company's restructuring plan have been unfolding in the media. Today shares are rallying strongly, heading into the price gap created last month, and trading as high as a net gain of 50% over last night's close.

The catalyst for today's strong move is news that the company is now expected to emerge from Chapter 11 protection sooner than expected...as early as March of this year. Moreover, the debt obligation has successfully been restructure such that nearly $1B in interest charges are being wiped clean, and an additional infusion of $200M is being made available to the company to keep operations afloat. And there was confirmation that all employees, vendors, creditors, and lien holders will be paid what they are owed in due course.

This is good news all around, hence the rally in shares. Owning shares of Bonanza Creek remains high risk, of course, but the stock looks good for a short-term trade here on today's news. We see a further rally from here to about $2.20 where price will meet trendline resistance. A reasonable stop-loss would be about $0.25 below entry. Note that this is a high risk, high-reward trade.

Posted to Dr. Stoxx Options Letter on Jan 04, 2017 — 2:01 PM
Comments ({[comments.length]})
Sort By:
Loading Comments
No comments. Break the ice and be the first!
Error loading comments Click here to retry
No comments found matching this filter
Want to add a comment? Take me to the new comment box!