EP Energy, Bonanza Creek Selling Off After Credit Suisse Thesis

EP Energy Corp EPE and Bonanza Creek Energy Inc BCEI are selling off following an early morning research note by Credit Suisse.

According to Credit Suisse analysts, E&P (exploration and production) "struggled" on the capex front throughout 2015, citing low crude oil prices as having "forced the group to be more disciplined." Looking ahead, the firm expected the sector to focus on "liquidity preservation"; "We now expect our E&P coverage universe to cut spending 50 percent from 2015 levels which drives a 4 percent production decline."

The firm continued, "While a rebalance is underway the futures strip still presents a challenge for the industry, and as we forecast out beyond 2016 a bleaker reality sets in for some of the more challenged companies as production declines become harder to fight, hedges roll off and balance sheets deteriorate exponentially."

Following this thesis, Credit Suisse checked in on a few of the E&P names under its coverage, and the analysts updated some of the ratings and price targets within the space.

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EP Energy

"[W]e see risks to the company's balance sheet once its hedges roll off in 2017," Credit Suisse explained.

"Given its stretched balance sheet, EPE is cutting back activity but with such large declines setting in, we see risks to the company's long-term cash flows."

Bonanza Creek Energy

Credit Suisse justified this cut and downgrade by saying, "[W]e see the business challenged due to the termination of the Rocky Mountain Infrastructure (RMI) agreement […] In the absence of a definitive agreement we see its balance sheet and ability to accrete NAV stretched in the current environment."

At The Time Of Writing…

Bonanza Creek Energy Inc was down almost 7 percent since Monday's close, while EP Energy was down over 8.8 percent in the same period.