Running some numbers.....For those interested.......In knowing WTH is going on with Birch, what you're up against and the serious financial dilemma they face. For those that arent't interested OR DONT CARE what i have to say, just exit this post right now and DO NOT bother reading any further. This will just be a very brief assessment of Birch's Q2, what i expect from it and what the eventual consequences will be. Nothing more, nothing less and my motivations for doing so are purely from an unbaised investor's POV.
So.....the first thing you may ask yourself is, "why is MrMoMo, who isn't even a s/h, wasting all this time posting (for some it may seem as bashing lol) all this info and unduly (from the perspective of some here!) criticizing the company & its mgmt"? Simple enough, right? And i'll gladly answer this! As it has been from the VERY beginning, when i first created an account on SH, one of the main objectives of me being here and sharing my knowledge, was to help out OTHER investors. Investors who were fairly new, who lacked the XP needed to properly invest......and also to avoid potential pitfalls. As well as a mutual sharing of ideas, opinions & investment strategies with other like minded, experienced investors. So NOW you KNOW WHY i'm posting all this and wasting my precious time.....8). So if it wasn't clear before in my numerous past posts over those many years, i hope it's clear NOW!
With THAT out of the way.....let's go back to Birch's Q2 and what they could they possibly tell us. Like i said, this will be a brief summary & analysis, without going in too deep. So.....what do i expect? And why should i care? Let's answer that 2nd question first....ok? Why do i care what an obscure small Canadian O&G operator like Birchcliff will post as their Q2 results? Personally....i really don't because since i'm not a holder or have a vested interest it doesn't DIRECTLY affect me. BUT indirectly, what they will post as results & will SAY, might have some "future" implications for some of my OTHER positions in this sector. So in other words, everything is the tiny, tightly linked Canadian O&G sector, everything is very closely related & has braod implications which reverberate across every E&P. So this is WHY i CARE....
As for that first question, and the main reason why i'm here and all the rest of you are STILL reading this. Birch's Q2 financials & expectations! I'm guessing that those "anxiously awaited" quarterly results SHOULD probably be released by end of this week. For all our sakes.....wait...let me rephrase that and say...."for all your sakes", you better hope they DO NOT release on the "DREADED FRIDAY". As this to me....or for those that STILL don't know what that means lol....it usually indicates REALLY bad news that mgmt prefer to hide from investors.... as much as possible. So yes my friends, do cross your fingers XX that Birch's mgmt is man enough to release those quaterly results BEFORE that extremely dreaded Friday.....and not making it a after close Friday Night bombshell. As it's usually the case with "suspect" companies, especially Canadian ones, being the bearer of bad & unfortunate news for shareholders.....right before their relaxing week-end.
So my expectations? I'm guessing that numbers will be much worse than the prior qtr. That's about the only thing i'm fairly certain, everything else is up in the air, speculation and estmiations. And talking anout estimations, i estimate that "gross" revenue should probably come in at about ~185M. After most "relevant" expenditures are deducted, excluding non cash expenses (which i'll get into in just a sec) that will leave Birch with about ~$75M in net revenue before taxes. Now this is where it becomes "relevant", muddy and sticky for you folks. AFTER what is needed to pay out their divvy, which is about ~$55M for the quarter & taxes, you're left with barely ~$15M bucks back into their pockets. But wait!.....there's more!.....and it's at this point where it becomes REALLY complicated and even more relevant & sticky.....for s/h.
Remember, i said this was only AFTER ONLY direct cash expenses and that NON cash items like D&D and a little something else called "risk mgmt" derivatives/instruments are NOT included! In which the LATTER is the REAL BIG wild card as to HOW BAD the loss, because it's most definitely going to be A LOSS for the qtr. So assuming the best case scenario, when D&D is included and risk mgmt lossses are neutral, then the loss is containted to about ~$40M. Which for all intents & purposes is all that bad. BUT and this is where it gets really frightening for holders....assuming the worst for their risk mgmt portfolio, the losses could be as much as ~$100M for the qtr. So that's the gist my friends!
So, what are the implications here? Well, for me they are QUITE obvious. With cash on hand very low or non existant and with no positive cashflow, what happens to two critical items like the dividend & sustainable capex? They surely don't have the money coming in for to properly maintain both and probably not even one of them. So imho they'll probably need to cut one entirely or at the very least, slash it quite a bit like Michael Meyers does to his victims on Fridays. And i seriously DOUBT they'll cut into their capex more than what is urgently needed to maintain their production levels. Sooooo.....i'm guessing you KNOW to where this is headed? Right? Yep the sustainbility or integrity of their divvy. I'm mean yeah....sure...they can keep borrowing to continue paying that out like everything is fine & dandy like our mutual friend Mr. Plutu (btw is that named after the planet or the WD mut?) says. But just one caveat or problem with that, according to the fgiures i kist laid out above, IF fairly accurate, they're going to be borrowing HEAVILY just to keep up with the minimal capex required to sustain operations. Where's the logical in that line of thought and how much more can they continue to borrow from their lines of credit before the're back to 2020 levels .....again?
Just some very DEEP things to think about before folks invest in companies like Birch, as well as for holders of the stock. I hope this helps some you with your investment decisions and clarifies a few things.
GLTA