Scotia Top Pick 12.00 target Alberta Montney producer Birchcliff Energy Ltd. (BIR) added 13 cents to $8.80 on 3.34 million shares, as it continued to digest its recent $625-million acquisition from EnCana Corp. (ECA: $12.98), covering assets producing about 26,000 barrels of oil equivalent a day in the Gordondale area. The acquisition closed late last month and boosted Birchcliff's total production to around 65,000 barrels a day. Birchcliff is now fleshing out plans for further production hikes, according to management's recent marketing trip, which was summarized in a research note this morning by Scotia Capital analyst Cameron Bean. Mr. Bean says Birchcliff's new Gordondale assets have enough infrastructure in place to reach production of 35,000 barrels a day (which is the level they reached in 2014, before EnCana started to ignore them in favour of its other assets in the Montney and elsewhere). Birchcliff also intends to increase production from its other core assets, which are in the Pouce Coupe area. Most of this production is processed through the company's wholly owned Pouce Coupe South gas plant, which can currently process 180 million cubic feet a day. Birchcliff plans to increase this capacity to 260 million cubic feet a day in the fourth quarter of 2017 and to 340 million in the fourth quarter of 2018, at a total remaining cost of about $60-million ($30-million per phase). These infrastructure expansions, along with the existing infrastructure at Gordondale, will give Birchcliff enough capacity to reach production of 80,000 barrels a day by the end of 2017 and 100,000 by the end of 2018, says Mr. Bean. Post-2018 plans will be determined in light of commodity prices and hedges. Birchcliff's management says it is working on a five-year plan and expects to finalize it later this year.
Birchcliff will also release its official guidance for 2017 soon. Mr. Bean, who has predicted that the company will produce 70,800 barrels a day in 2017 on a budget of $395-million, said it was "evident" during the marketing trip that management shares that production goal (or something similar), but expects to achieve it for less money. If so, says Mr. Bean, Birchcliff should enjoy extra cash flow that it could use to pay down debt, increase exploration spending or even start a dividend. "... [We] believe that balance sheet maintenance and a small sustainable dividend are the most likely options that the company will consider for excess cash flow," the analyst concluded. He dubbed the stock "our top pick" and kept his price target at $12.