That's some Harry Potter MAGIC....At work....right there! Just a small wave of the wand, and then shouting "Expelliamus" & PRESTO instantly turn a horrid report into an almost blemish free financials right at your feet! LOL..... I mean seriously, who are these guys trying to fool really? This is stuff right out of the movies and The Hogwartz School of Magic. It "almost" seems that the folks over at Birch HQ (along with their auditor) were in panic mode & scrambling to make some VERY last minute "alterations" to do whatever they could, in some boderline legal accounting terms, to make sure this report was at least somewhat presentable to investors and did everything in their power to show a "profit".......A bit of glossy red lipstick here and a littl spurtz of rose scented perfume there, wrap this up in a little bow ......wasve the magical accounting wand!....and voila! Presto! You just got yourselves some semi decent quaretly results......
I'm almost asking myself if the folks over at Birch HQ... read my posts on SH, paniced and then proceeded to make the appropriate changes/alterations or begged their auditor to do what was "legallly" possible. in accounting terms, to make certain those figures turned out OK. Maybe that's WHY the report was so late.....who knows. Just a few last minute changes? LOL......who knows what really went down there, but i'll just point out, briefly, what i found "suspect" and had problems with. The report was basically what i "expected", with a few added "surprises" of course lol, and most of what was reported came inline with what i had stated. To keep this short, i'll just be brief with my comments on the actual accounting they implemented.
First the good & expected stuff. The revenue! Gross revenue came in as expected, almost to a tee, to about ~$170M, which was a little under my figures. But well within my expectations. Secondly, The Debt. As expected debt rose substantially, because there's no money (FCF) coming in or very little of it after ALL cash expenses are paid out & settled. So debt went completelt vertical with a massive ~$100M increase. So now they're back to about $400M in critical debt & rising fast, in comparison to just a shoer time ago where they were ALOMST debt free. The good news? At least they're keeping "in check" & maintaining their decomm liabilities. As for the long term debt & their lines of credit, if this keeps up they'll be back up at 2020 levels in no time. Which of course as you all know is NOT sustainable and brings a whole slew of problems.
Now some "stuff" which was reported which i had serious "issues" with. And let's start with that reported unrealized gain of ~$50M. Why did i have issues with it? Because it was VERY "convenient" for them to report such a huge unrealized, when it was needed. Because without that huge "GAIN" the quarter would have shown a deep loss. Especially after having reported a HUGE loss just three short months ago in the prior quarter. Why such a HUGE swing in their Risk managment portfolio when Natgas was bascially flat throughout that time? Is it possible or is this just FAKE news? As i'm not the auditor, i don't know. Boderline legal? Maybe.......but VERY convenientfor sure. More Harry Potter magic i suppose.
Another problem i had was with the royalties scheme, and the numbers that were reported there. I follow quite a few Canadian operators, both big & small across both BC & Alberta & Sask, so i have a good idea what these guys are paying out in terms of royalties. So why do i have a problem with the figure that was reported? Because while everyone is paying more or less in the same ballpark, it seem that Birch by some miracle, in this instance for this quarter, is paying HALF the rates everyone else is paying. Now, why is that? Especially after having reported completely different rates for the prior quarter? I still can't figure that one out, and imho, the figure stated there should be 50% higher than what was reported for this qtr.
For a few final words. I think it's obvious to everyone now, that Birch is in somekind of financial "diffilcuties" and facing a serious dilemma. And they have a very hard decision to make....soon. I think it's also obvious because of the dire situation of their cash flow, they're borrowing/adding debt to pay for both the ENTIRETY of the divvy payout and some of their CapEx spending needs. And as i've indicated, at this rate of borrowing, they'll be back to close ~$1B in debt in very short time IF energy pricing for Natgas doesn't change soon or if they don't take some drastic measures.
It's painfully obvious, that dividend payout is a real problem for them, hurting them real badly by eating up all their cash and i fully i understand why they don't want to pull it for fearing the serious damage it will do to an already suffering stock. But the reality is that they CANNOT afford it and if they were smart about it, they would eliminate it asap to relieve some financial pressures & burdens. I mean yeah, they "technically" can afford to continue paying that out, in they want to, in the hope to keep existing or attract new investors, but at what cost to the company & it's s/h in the long term? For me, it's a low hanging fruit, easy decision to make. Hopefully they'll see it as i or the rest of us do.
In the end, i DO NOT rec'd investors invest here, if it's for solely the divvy & passive income. That could be accomplished much more easily with a lot less risk elsewhere in companies such as Cardinal or Peyto. So until the company makes some significant, material changes to the way their operate OR Natgas prices start to move up passed $3 at HH, i would personally avoid any investment here, as the risks here are way more than the average. I still beleive that Birch & it's holders would be better served if they find a suitable merger partner, someone like Kelt with no debt & highly leveraged to oil, which would help reduce the risks by diversifying their production profile, assets and enhance their books. So they do have options if they're willing to take them.
GLTA