BKH 4Q2016 Earnings Note

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Market Price (2/2/2017): $61.38/share; ST-Target: $80/share; NIV: $102/share

2017 feels like year for growth, but danger lurks

2017 feels like BKH is ready to focus on growth and leave behind write-offs and asset rationalization. Focus on efficiency and cost reductions to continue. But, Oil & Gas could still provide volatility. Looking for renewed filing for cost-of-service-gas program (COSGP) in all jurisdictions in 1H2017. Maintaining 2017 AEPS guidance of $3.45-$3.65. Capex spending estimated at $324MM (before COSGP). We look for BKH to pull trigger on large acquisition within 12-18 months continuing its focus on Utilities. We still favor Mancos shale for source of COSGP. It remains our opinion that BKH not pursue its COSGP program, but if it does then, in our opinion, BKH should buy producing reserves now as a base then methodically and systematically develop its Mancos shale play with the intent of transferring reserves as it’s developed into the COSGP as needed. Mancos shale play could add between $20/share-to-$61/share to BKH’s share price at the peak and add some $1.19/share-to-$3.68/share to BKH’s AEPS. We believe reorganization of non-utilities businesses is over. We look for higher demographic and economic growth. SourceGas is largely fully integrated.

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