Our view: Birchcliff filed its Q4/22 audited financial statements, which featured pre-released production volumes and CFPS of 79,799 boe/d (19% liquids) and AFFO of $0.82/share. In tandem, the company reduced its 2023 and 2024 guidance figures, prompted by deteriorating commodity prices. Our revised outlook calls for the company to generate roughly $243 million in FCF this year, which maps to a FCF yield of 11% (at the futures strip).
Key points:
Updates to 2023/2024 Guidance. BIR has reduced its 2023 formal guidance, as lower commodity prices have resulted in a shift of nine wells to Q3/23 (from Q2/23) plus the effect of a midstream outage. 2023 volumes now map to 78,500 boe/d (midpoint) on unchanged capex of $270 million. 2024 capital and volume guidance were also reduced on lower commodity prices, with the company now expecting to invest $250 million (down by roughly $100 million), driving volumes of 78,500 boe/d (down from 83,000 boe/d). In our view, these changes make sense given the rapid pullback in pricing, and we would expect to see additional similar changes amongst other producer group as lower pricing becomes a reality.
Operations Update – Focusing on Pouce Coupe. BIR also provided a short operations update, which generally featured wells producing in line with (or slightly above) expectations. Well counts for this year remain at 23 wells set to be drilled (and 32 brought onto production), with the focus primarily at Pouce Coupe (only two wells will be drilled at Gordondale).
Updating Estimates. We reduce our production estimates for 2023 and 2024 by 4% and 5%, respectively, driving 1% and 4% cuts to our respective CFPS estimates. At futures strip pricing, $243 million and $314 million in FCF are set to be generated this year and next, with a simple payout ratio (assuming unchanged dividends) mapping to 41% and 36%, respectively, and an effective payout (dividends + capex) of 94% and 82%. The company’s $0.80/share (annualized) dividend remains unchanged. Birchcliff’s balance sheet remains in very good shape, with leverage expected to be 0.4x at year-end 2023 (futures strip). Our price target declines to $12 (from $14) on lowered estimates and a generally weaker natural gas macro environment. Additional details from the company’s initial year-end release can also be found here.