Ross HealyBirchcliff Energy Ltd.BIR.TOTOP PICKMar 08, 2023

As part of Birchliff's orderly and planned leadership succession process, Jeff Tonken retired as CEO effective December 31, 2023, and Chris Carlsen is now the President and CEO. BIR has $244M in net debt, representing a small 0.9X net debt/EBITDA ratio and 0.15 debt/equity ratio. A rough estimation of ~$55M in quarterly cash from operations and ~$50M in CAPEX, along with ~$55M in quarterly dividends, equates to approximately $50M of debt issued each quarter to service its current dividend. It is tough to gauge exactly what the company might do if gas prices remain at these levels, but we feel the company is less likely to cut the dividend than it is to issue debt or equity to fund the dividends. At its currently low debt levels, we believe the company will likely continue increasing its debt to fund its yield.
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His numbers show burning $25M of debt to satisfy dividend next year. US nat gas supply's at all-time high. Won't cut dividend, unless gas price goes down materially due to a warm winter. Strong balance sheet. Trades at a premium. 13% downside from here. Yields almost 12%.

Negative momentum would be the main issue holding us back right now. It is down 18% in November alone, and with the 3Q 'miss' and the big negative shift in the energy sector, it is hard to step in aggressively without at least some stabilization. BIR is down 34% this year, and could also still see a bit more tax loss selling. A shift in momentum is never easy to time perfectly, but in this case we would be more willing to pay a bit more if the stock price can at least stabilize for a period of time. Without this, we would be OK with a slow beginning accumulation of stock if it moves close to the low $6 level.
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The update was slightly negative as free cash flow missed estimates. Earnings did as well. Spending was 'slightly higher' which also added to debt. EPS was 6c vs 9c expected. Cash flow was $71.4M vs estimates $85.6M. Production fell 5% to 74,143 b/d. Per share cash flow was 27c vs $1.01 last year. Capex was $67.5M. Production was in line with estimates. 12-month payout ratio is still below 50% on operating cash flow. Consider strong growth is still expected in 2024, the stock's decline seems a bit harsh to us. The balance sheet also remains in excellent shape. 
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Very high dividend yield has been a concern given natural gas prices. Expecting dividend to remain where it is. Better names to buy in sector. Expecting ~$8 share price. 

If natural gas price doesn't go up, they'll have to cut the dividend. They, and others, were too optimistic on the commodity price when setting the base dividend. Trades at 5x $80 oil. Natural gas is tough.

Thedividend is guaranteed, but considering a) current prices and outlook b) a very strong balance sheet; c) payout ratio and d) the fact that it was only just increased in January, it is not a dividend we would be overly concerned with.
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Decline in earnings forecast. Doesn't think dividend will be cut. Balance sheet is very strong. Even with short-term pressure, dividend doesn't need to be cut. Likes energy stocks.

The oil and gas sector has been under-invested for a long time so there is good upside in the long term. It has a good balance sheet, nice dividend, good revenue and value. The downside is limited.

Not a great company to own at current share price.
Good time to sell shares.
Currently not covering dividend with strip price
Will have to take on debt.
Better names to own in sector.

Makes sense. MEG is a pure oil play with long-life reserves, and BIR is more levered to natural gas. You're adding a new level of risk to switch back and forth. The risk is you do it at the wrong time and end up losing. The volatility is beautiful on the upside, but kills you on the downside. Instead, buy ARX with decent nat gas, and a light oil play since they bought Seven Generations, and production growth. Then you don't have to make the decisions about moving back and forth. 

Gas weighted company.
Long term is a good investment, but will be volatile in the short time.
LNG in Canada starting soon.
9% dividend yield with current share price.
Finally have clean balance sheet (lowered debt).

LNG Canada is bringing a significant export opportunity for all Canadian nat gas companies towards the end of 2025. This will be transformational. He likes all Canadian nat gas producers on a volume basis. His preference is ARX, as it's diversified with undeveloped land. Prefers PEY to BIR; management is stronger, though its dividend will be subject to commodity prices, can grow production long-term.