Keystone Financial (Ryan Irvine)Disclosure: I used to own BIR but now own PNE. GLTA
BIR vs PNE (June 2023)
YSOT – Come in from Ryan via email (who is a client). And he wanted me to review Birchcliff Energy (BIR:TSX) – saying “it’s been trading at a lower price lately with a high dividend of 10%. I understand it is commodity driven however oil is not that high right now and the dividend helps while we wait for it to come back up. Based on conversations on Moneytalks, there is a good case to be long term bull on Oil. What are your thoughts?”
Okay so I will answer your question Ryan, and I thought that I would review Birchcliff in relation to Pine Cliff Energy (PNE:TSX), which is another name that I have looked at in the past on the podcast.
So looking at the chart here Pinecliff is the Blue line, and Birchcliff is the Orange line.
(BIR:TSX)
Price: $7.67
Market Cap: $2.05 Billion
Forward Dividend Yield: 10.4%
Birchcliff Energy Ltd., an intermediate oil and natural gas company, which acquires, explores for, develops, and produces natural gas (86% of Q1 2023 production.), light oil (3% of production.), condensate (7% of production), and other natural gas liquids (4% of production). The company holds interests in the Montney/Doig resource play located northwest of Grande Prairie, Alberta. Its asset portfolio also includes various other properties, including the Elmworth and Progress areas of Alberta.
Looking at Birchcliff’s financials:
Revenue for Q1 2023 was down 27% primarily due to a reduction in energy prices.
Adj. Funds Flow per share was down 31% (also because of energy prices)
EPS was a loss of $(0.16) per share.
TTM Payout Ratio of 25%.
Net Debt of $205 Million.
Net debt to Adj. Funds Flow of 0.2x.
Now moving on to Pine Cliff.
(PNE:TSX)
Price: $1.45
Market Cap: $522.1 Million
Forward Dividend Yield: 8.8%
Pine Cliff is engaged in the acquisition, exploration, development and production of natural gas and oil in the Western Canadian Sedimentary Basin. Like that of Birchcliff, the company primarily produces Natural Gas which is expected to be 85% of production in 2023.
Looking at Pine Cliff’s financials which were reported on May 2nd 2023.
Revenue Q1 2023 was down 18% primarily due to a reduction in the price of natural gas.
Adj. Funds Flow per share and EPS were down 33% and 80%, respectively.
TTM Payout Ratio of 36%.
Net Cash of $58.1 Million.
And just for visualization sake, we can see that both of these companies are highly correlated to the price of natural gas (which is the light blue line on the chart).
To compare the two companies, both are projecting relatively similar growth in production for 2023, but Birchcliff’s long term production projections are appealing (if they can be achieved). Birchcliff pays a better dividend yield of 10.4%, has a lower payout ratio, and a lower valuation multiple. But Pine Cliff’s balance sheet is superior with a net cash position, but this is not to say that Birchcliff’s balance sheet is not healthy (as I would conclude that at this point in time it is).
So to answer the listeners question, yes, I believe that if one is bullish on energy prices and natural gas, Birchcliff could be a higher risk option for investors to speculate on energy… all while collecting the dividend… But as Ryan has said on the podcast before, that over the past 20+ years of his experience he has seen energy producers’ cut and reinstate their dividends time and time again… and is why he has taught me that investing for the dividend in a energy producer can be a very risky game… So keep this in mind if you are interested in investing in either of these names, as the dividend is not guaranteed, and of course there is also no guarantee that the price of energy will increase over the next one to two years… and if energy prices remain depressed or flat… both Birchcliff and Pine Cliff’s share prices will likely perform poorly, and could lead them to cut their dividends.