Bonterra Energy Corp. (TSX:BNE), one of Canada’s largest producers of crude oil and natural gas, announced first-quarter earnings results after the market closed on May 12, and its stock has responded by remaining relatively flat in the trading sessions since. The company’s stock still sits more than 46% below its 52-week high, so let’s take a closer look at the results to determine if we should consider initiating long-term positions today, or if we should avoid the stock for the time being.
Lower commodity prices lead to very weak results
Here’s a summary of Bonterra’s first-quarter earnings results compared with its results in the same period a year ago.
| Metric | Q1 2015 | Q1 2014 |
| Earnings Per Share | ($0.06) | $0.73 |
| Revenue, Net of Royalties | $39.12 million | $73.85 million |
Source: Bonterra Energy Corp.
In the first quarter of fiscal 2015, Bonterra reported a net loss of $1.94 million, or $0.06 per share, compared with a net profit of $23.04 million, or $0.73 per share, in the same quarter a year ago, as its total revenue, net of royalties, decreased 47% to $39.12 million.
These very weak results can be attributed to the steep decline in commodity prices over the last year, which led to the company’s average realized selling price of crude oil decreasing 49.5% to $48.70 per barrel, its average realized selling price of natural gas liquids decreasing 67% to $22.36 per barrel, and its average realized selling price of natural gas decreasing 51.8% to $2.97 per thousand cubic feet.
Here’s a quick breakdown of eight other notable statistics from the report compared with the year-ago period:
- Realized oil and gas sales decreased 48.5% to $42.48 million
- Production of crude oil increased 7.4% to 8,128 barrels per day
- Production of natural gas liquids increased 9.7% to 791 barrels per day
- Production of natural gas decreased 11.6% to 19.71 million cubic feet per day
- Funds flow from operations decreased 59.4% to $22.09 million
- Funds flow from operations decreased 59.9% to $0.69 per diluted share
- Cash flow from operations decreased 46.9% to $26.08 million
- Capital expenditures decreased 28.2% to $38.96 million
Should you be a buyer of Bonterra Energy today?
The first quarter was very weak for Bonterra, so I think the lack of movement in its stock is warranted, especially since it has already fallen over 46% from its 52-week high. With this being said, I think the stock has bottomed and represents an attractive long-term investment opportunity today.
First, I think commodity prices will continue to recover over the next 12 months, including the price of crude oil heading back towards about $75 per barrel and the price of natural gas heading back towards about $4 per thousand cubic feet, which will lead to higher sales and profitability for Bonterra. This will also lead to an increased demand for the stocks of energy companies, sending them much higher.
Second, Bonterra pays a monthly dividend of $0.15 per share, or $1.80 per share annually, giving its stock a very high 5.1% yield at today’s levels. This high yield will provide significant returns to investors while they wait for the rebound in commodity prices, while also providing protection to the downside in times of market volatility.
With all of the information provided above in mind, I think Bonterra Energy represents one of the best small-cap investment opportunities in the energy sector today. Foolish investors should take a closer look and consider beginning to scale in to positions.
