BIRCHCLIFF ENERGY $3.35 - Toronto symbol BIR

BIRCHCLIFF ENERGY $3.35 (Toronto symbol BIR; TSINetwork Rating: Speculative) (403-261-6401; www.birchcliffenergy.com; Shares outstanding: 152.3 million; Market cap: $461.5 million; No dividends paid) develops, produces and explores for oil and gas in Western Canada. In the quarter ended September 30, 2015, Birchcliff’s cash flow per share dropped 42.0%, to $0.29 from $0.50 a year earlier. Sharply lower oil and gas prices offset a 12.3% production rise. Now more than ever, it’s crucial for oil and gas producers to have sound balance sheets that can weather a long downturn. Birchcliff’s debt of $628.8 million is a high 136% of its currently depressed market cap. However, its cash flow of $44.3 million easily covers its $6.0 million in quarterly interest costs. The direction of oil and gas prices depends on a lot of things, particularly economic growth rates around the world. We assume that oil prices will turn around later this year or in 2017. But if not, junior oil and gas producers like Birchcliff will have difficulty sustaining drilling, and their cash flow will drop even lower. Birchcliff is a buy for aggressive investors.

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