Richard Zeits – Zeits Energy Analytics – Seeking Alpha
Similar to many of its peers, Bill Barrett Corporation (BBG) – a Rockies-focused small-cap natural gas producer ($2.1 billion firm value) – has been challenged by the rapid deterioration of natural gas fundamentals and the need to shift its operating focus towards oil. The company’s effort to develop an asset platform for profitable growth in the new commodity price environment may soon begin to bear visible results.
In the past three years, Bill Barrett was able to add to its portfolio – early on and at a reasonable cost – meaningful positions in two attractive oil plays that may surprise to the upside in terms of drilling returns and impact on the company’s value. Those positions are the Niobrara / Codell play in the DJ Basin and the East Bluebell area in the tight oil sands play in the Uinta Basin. While Bill Barrett is still in the process of delineating these two positions and is yet to demonstrate their full productive strength, offset operator activity indicates that both assets are of high quality and should provide a multi-year inventory of high-return drilling locations. These two operating areas – particularly the Niobrara – will likely account for the majority of Bill Barrett’s capital spending in the near future and will define the company’s production growth, profitability and valuation.
Bill Barrett’s other assets – which include its legacy liquids-rich gas assets in the Piceance, extensive Uinta Oil leasehold (~130,000 acres not including East Bluebell), and acreage in the emerging plays in the Powder River Basin – are also significant. While the company will likely put its projects outside of the Niobrara and East Bluebell on a “back burner,” the existing production has tangible value and should contribute to the stock’s resilience on the downside.