Birchcliff Energy raises quarterly payout by 90%

Birchcliff Energy (BIR.TO)(BIREF) on Thursday announced a 900 per cent hike to its quarterly dividend, a payout that will rank among the highest on the Toronto Stock Exchange.

Calgary-based oil and gas firm known for rewarding shareholders The quarterly dividend will rise from $0.02 to $0.20 per Share, and will be paid on March 31 to shareholders with record as of March 15.

Thursday’s announcement confirms that the company has been working towards zero debt since October. Birchcliff anticipates that it will end 2023 with debt of between $50 and $70 millions.

On Thursday, Birchcliff also revealed a five year plan, budget, 2023 guidance, and a budget. Birchcliff raised its capital expenditure plans from $255million to $270million while maintaining its production estimate at around 82,000,000 barrels of oil equivalent per daily. It will increase to an average production of 90million (boe/d in 2027).

Toronto-listed shares gained modestly in early trading Thursday morning, increasing 3.45% to $8.99 as of 12:50 pm. ET. The stock has seen a 24 percent increase over the past 12 month despite volatility in natural gas prices.

Cameron Bean, Scotiabank Global Equity Research analyst wrote in a client letter on Thursday that “we believe the equity could be lag in 2023 given the headwinds to natural gas prices.”

Bean states that Birchcliff’s 2023 guidance matches prevailing expectations. There will be a slight increase in capital spending and a slower increase in planned production to 90 million (boe/d).

Is Birchcliff’s dividend sustainable?

Raymond James analyst Jeremy McCrea claims that Birchcliff’s 2022 unhedged production strategy helped accelerate debt repayment and increase shareholder payouts. He notes that while commodity strip prices have dropped since then but that strong gas production from the company’s newest wells indicates that the company’s larger dividend is sustainable.

McCrea stated that early results were encouraging confidence in our ability to pay this amount even if commodity prices drop further. Overall, the attractive risk-reward ratio remains with a low-cost model and a diversified marketing strategy for gas.

Bean took a cautiouser approach, suggesting that the dividend will not be the first to be cut if Birchcliff is in trouble.

“Given that the company has a higher break-even we believe the market may be concerned about the sustainability and dividend,” he wrote. “We expect the company will reduce capex prior to shareholder returns, if natural gas prices drop further.”

Jeff Lagerquist, a senior reporter for Yahoo Finance Canada, is Jeff Lagerquist. Follow him on Twitter @jefflagerquist.

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