Andrew Pyle Birchcliff Energy Ltd. BIR-T BUY Aug 29, 2024

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%.

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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Good for TFSA. The company is on solid footing with the energy outlook positive for 2-3 years. Oil prices today are higher than last year's expectations. Also, we haven't seen the oil exploration which is normal for this part of the cycle. Be careful, given the emergence of EVs which is a long-term trend, though term there are question marks.

He's been buying other small nat gas names. Cut dividend, a good thing because they were using debt to fund it. Next year, payout ratio should drop to 73% with $4 gas, a lot more defendable. Concerns about debt, takeaway capacity, and CEO succession. Cleaner names elsewhere. Yield is 6.7%.

Owning a company that's more cyclical is not owned for the dividend yield. You can find 6-7% dividend yields on companies that aren't as volatile. This one is fine, but tied to underlying commodity prices. The group hasn't performed exceptionally well.

If he's correct, dividend was cut in half earlier this year, now yielding about 6.5%. On the high end for the industry, as capex takes a lot funding. Once cut, he assumes they won't cut again, at least not right away.

Western Canadian oil and natural gas producer. Does not own shares. Not a good investment due to weak natural gas prices. 82% of production is natural gas which is not profitable at this time. If natural gas prices increase - would recommend Tourmaline. 

BIR beat estimates nicely across the board, with a very big beat on EBITDA at $132M. Average production was ahead of estimates at 78,358 b/d. Operationally, things look fine, but it did lower guidance on expected lower prices. Still, consensus calls for good growth overall in 2025. The balance sheet has some debt but is OK overall. The stock reacted well to the news, and we would be fine holding this for sector exposure. 
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If nat gas spikes to $5, this might give you a higher return. It's smaller than Compares to Tourmaline and Arc which have scale in their projects.

It is suffering much more than energy stocks in general. If it breaks $6 then buy for a swing trade.