Our view: Birchcliff delivered a quarter which was roughly in line with the Street as volumes of 73,746 boe/d drove AFFO of $286 million ($1.03/ share) and generated $201 million ($0.76/share) in FCF. Our outlook calls for a meaningful increase in Cal23 dividends (to $0.80/share) plus buybacks continuing. BIR continues to manage inflationary pressures, somewhat mitigated by a consistent 2-rig program. Reiterate Outperform.
Key points:
Q2/22 - solid. Volumes of 73,746 boe/d (17% liquids) compared to our estimate of 73,500 boe/d (19% liquids) (Street 73,500 boe/d). Adjusted funds flow of $286 mm ($1.03/ f.d. sh) was in line with our estimate of $1.07 (Street $1.02). Variances vs our model include slightly lower realizations driven by lower liquids mix. During the quarter, $86 million in capital was invested (RBC $115 million), with the company drilling 12 net wells and bringing 10 wells on production.
2022 guidance - capex tweaked up. BIR largely reiterated 2022 guidance with volumes of 78-80 mboe/d, though capex was tweaked up to $275- $285 million (was $240-260 million) largely on inflationary factors. The updated budget continues to contemplate the drilling of 30 and completion of 35 wells (including 5 DUCs drilled in Q4/21), with the drilling of all wells now finished and 26 completed.
Operational update. Operational highlights from the quarter include: (1) turnaround of Pouce Coupe South gas plant on time and budget; (2) several new pads completed at Pouce Coupe, delivering productivity in line with curve. Operations were lighter during the quarter given spring breakup conditions.
Return of Capital plans. Birchcliff has been active with its NCIB to date, purchasing a total of 5.5 million shares (~$50 million) year to date in 2022. At strip, we anticipate the company moving into a net cash position by late 2022, at which point a more meaningful dividend increase (to roughly $200 million in 2023) will come into focus. This would map to a yield of 8.1% based on the current share price. BIR has also noted its intention to redeem all outstanding preferred shares during Q3, which is incorporated within our figures.
Outperform. By our numbers BIR is well positioned to generate considerable free cash for the next several years, leaving optionality for meaningful dividend increases plus buybacks. We like the company's low cost model, favorable efficiency metrics, and diversified product stream.