Scotia Target $12.00 Birchcliff announced its year-end 2013 reserves and preliminary financial
results. We are upgrading the stock to Sector Outperform based on its continuing
operational success, leverage to natural gas prices, and sightline to continuing
growth. . Solid Q4/13. Q4/13 Production of 28,391 boe/d was in line with our forecast,
. while CFPS of $0.34/sh was ~7% ahead. Strong reserves growth. BIR's year-end 2013 2P reserves were up ~16.7% to 370.1
mmboe (86.5% natural gas) on strong FD&A (including FDC) costs of $8.60/boe.
Based on its reported operating netback of $22.53/boe BIR realized a 2P recycle
ratio of ~2.6x - likely top quartile. . High leverage to natural gas prices. With the current AECO winter and summer
strip prices well above $4.00/mcf, we see potential for BIR to deliver 2014 CFPS
and D/CF results well ahead of our current estimates should the AECO price hold
in. . Sightline to continuing growth. Based on BIR's five-year plan and historic
capital efficiency levels, we see potential for the company to generate
~10%/year debt-adjusted production per share growth and >15%/year CFPS growth
through 2018, while reducing its D/CF ratio. . We are upgrading BIR to SO (from SP) and increasing our one-year target price to
$12.00/share (from $10.00/share).