From Banque NationaleBirchcliff Energy Ltd. Show Me the Money!
BIR (TSX) STOCK RATING TARGET EST. TOTAL RETURN C$10.03 Outperform (Unchanged) C$13.50 (Unchanged) 42.6% Q3/22 Operating & Financial Results
Q3/22 Operating & Financial Results
The company reported third quarter operating & financial results in line with expectations, including average production of 78.1 mboe/d (19% liquids) and associated CFPS of $0.97 (vs. consensus $0.98). During the quarter, the company substantially benefited from the strength of its NYMEX basis hedges (+155% Q/Q), which in addition to contracting cash costs (-12%), insulated backwardation of realizations (-20%), and delivered a cash netback of $37/ boe (-13% Q/Q). That profile supported a robust backdrop in association with its maintenance-oriented program, with PPS of +7% achieved within a 30-35% payout to imply a 27% associated FCF yield.
Pedal to the Metal
As previously detailed, the company will accelerate its capital program through Q4/22, advancing the drilling or completion of 14 wells in order to level load the program through 2023 to the benefit of services utilization & seasonal gas prices. In support of that, the company continues to generate strong & consistent capital efficiencies in association with solid well performance (1,000 boe/d IP60) and a secured cost structure (services intact), with production being added to its low decline asset base (recall, foundational restricted production base; ~20% base decline) at a low cost of $14,000/ boed (E&D), and excess cash backstopped by its robust netback (above). With that, the view through its unchanged 2023 outlook is for its level-loaded capital program to derive ~5% production growth within the context of a ~30% payout ratio to imply a 20-25% free cash flow yield, and similar to be reflected through its forthcoming five-year plan (January), where yields should be further augmented by long-term economies of scale & optimized throughput (i.e., facility utilization).
Maintain Outperform Rating & $13.50/sh Target Price The company is on solid footing, and patience through its refined operations will continue to be rewarded through long-term dividend growth in support of shareholder value. BIR is poised for a 19% return profile (vs. peers 28%) on leverage of -0.3x (vs. peers -0.3x), while trading at 3.4x 2023e EV/DACF (vs. peers 3.1x).