Td expecting 320MM in cash flow
2019 332MM in cash flow and stock at 4$
Last night, Birchcliff announced Q1/20 results and an 80% reduction in the dividend.
Impact: SLIGHTLY NEGATIVE
Q1/20 production of 73.6 mBOE/d was in line with TD (72.7 mBOE/d) and consensus (73.0 mBOE/d); CFPS of $0.14 was in line with TD ($0.14) and slight below consensus ($0.15). Netback items were generally in line with our forecasts, although Birchcliff spent quite a bit less ($133mm) than our estimate of $148mm, resulting in slightly lower financial leverage.
The quarter was solid operationally, as Birchcliff was able to drill 18 wells, complete 14 wells, and bring four wells on production; this is significant progress relative to 2020 guidance, which includes 28 wells and bringing 34 wells on production. Drilling at Birchcliff's 14-well condensate-rich pad at Pouce Coupe is almost complete, and is expected to come onstream in Q3/20, with the completion of the new liquids-handling capacity at the Pouce Coupe plant. We expect to see significant savings associated with this pad's development as it is by far the largest single pad that Birchcliff has developed to-date.
Unlike most of its peers, Birchcliff has not shut-in any production or deferred the completion of any of its assets due to current commodity prices. In our view, this is due to the fact that stronger natural gas prices have offset weakening liquids prices, with the company's asset mix being a beneficiary of this change. Although Birchcliff has more recently shifted its development to favour condensate and oil- weighted Montney targets, the overall production remains overwhelmingly weighted to natural gas (76% in 2021). Should commodity prices persist, we would expect Birchcliff to look to reallocate its development accordingly, although this is an unlikely scenario in 2020.
As published recently in our research (Link), we are constructive on natural gas supply/demand fundamentals and expect that further production shut-ins will reduce supply. Specific to Birchcliff, a C$1.00/mcf move in AECO will result in a 37% increase in 2021 cash flow.
Birchcliff also announced an 80% reduction in the quarterly dividend to $0.005/ share (from $0.02625/share). This will reduce its annualized cash outlay by $23mm.
TD Investment Conclusion
Our estimates are slightly changed, but we are maintaining our BUY recommendation and $2.25 target price.
May 14, 2020
Full Report | Table of Contents
Energy Producers - Junior & Intermediate
Juan Jarrah, CFA, P. Eng. Dustin Besaw, CFA
Recommendation: BUY
Risk: HIGH
12-Month Target Price: C$2.25