Thoughts On Orange Capital and Seth Klarman Target

Orange Capital has been buying all the way down with the fall in Bellatrix Exploration. The fall has been long and hard, with Orange's average cost being in excess of $5 a share.

H/T @Wilson. Debt covenants recently got revised and going forward, all CAPEX spending will be within cash flow. We have had meaningful contact with the management, Orange Capital, and Baupost with regards to this subject going forward. 

The blueprint for BXE going forward will follow something similar to that of Advantage. BXE will sell off noncore assets and possibly the Cardium to become a pure play. Once done so, it will primarily focus on drilling just in the Spirit River formation. This will allow them to cut costs from $7.99/BOE to roughly $5/BOE. 

Spirit River wells are also much more weighted in Nat gas at 80% and 20% liquids. So the revenue mix going forward will shift more towards Nat gas as wells in Cardium decline while bringing on new Spirit River wells. 

Finally, at current EBITDA projections of roughly 140-150 mil, EV/EBITDA will be roughly 4.6-5x. The management said in the conference call that no further growth will be initiated unless commodity prices recover, and if so, they will focus on paying down debt first. Bankers seem to be very lenient with BXE as current credit facility were to pay down after debt issuance and remains very supportive of BXE during this downturn. 

The negatives I think is that the market still looks at BXE as a Cardium driller which is more oil weighted in revenue. There's the debt issue which the first glance will be really bad. And I think a lot of people are watching the way this is trading and wondering if there's a potential restructuring in store. 

I think the negatives are warranted but I believe that my team has more info on this than most uninformed sellers and feel that there's a distressed value attached to the assets they have roughly around 4 USD per share. 

Peyto's CEO Darren Gee recently told me during a private conversation that there's a good possibility for BXE to move in the direction of Advantage. The tone of the release and the call indicates this is the transitional quarter towards that goal as the company will not be pursuing growth at any costs (expensive JVs).

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