RE:map showing area purchased from Encana and positive commentsAn interesting post by certified8 and certainly worth a read. It offers a brief description of 3 energy companies that had fallen from grace, and, - in the writer’s own words, “who managed to make a comeback from the dead.” The 3: Athabasca, Penwest, and Birchcliff.
I only comment on Penwest and Birchcliff.
In order to stave off bankruptcy Penwest sold its crown jewel property for approx. 1 billion and “survived” to fight another day. Birchcliff, on the other hand, doubled its debt by purchasing the ECA Gordondale assets for 625 million. Yes, both have come back from the dead, -but a world of difference between the 2 patients. Penwest virtually had to chew off its own leg to free itself from the bear trap and now can only be described as “alive but gutted.” Throughout this annus horribilis, Birchcliff hunkered down and sold nothing. Finally at the end of a very long siege it miraculously had a relief package parachuted into their laps, -an asset at fire sale prices. You must understand this is a huge leveraged play, -and it takes its form in at least 3 different ways. First, the huge momentum of acquiring functioning assets entering a period of recovering energy prices. Secondly, all of Birchcliff’s assets, including the ECA acquisition, are in one single play and the company knows this geology very, very well. They sure as hell knew what they were buying! One gets terrific synergies when all of your assets are in one contiguous sweet spot. It packs one hell of a punch. Thirdly, all of these assets become much more valuable when leveraged to Birchcliff’s gas plant that has been so reviled as “Birchcliff’s Trojan horse” or “Birchcliff’s gas guzzle” on its balance sheet. I wonder what these people will say now.
Upon hearing of the deal I was excited mostly because something was finally happening. I then lapsed into moments of self-doubt just based on the sheer size and cost of the purchase. But I’ve come back around to my initial excitement realizing of course that we must continue to have an improving price environment to ensure its success.