BIRCHCLIFF ENERGY $4.67

BIRCHCLIFF ENERGY $4.67 (Toronto symbol BIR; TSINetwork Rating: Speculative) (403-261-6401; www.birchcliffenergy.com; Shares outstanding: 152.3 million; Market cap: $711.3 million; No dividends paid) explores for, develops and produce oil and gas, mainly in the Peace River Arch area near the Alberta-B.C. border. About 87% of its output is gas. The remaining 13% is oil. In the three months ended December 31, 2015, Birchcliff’s cash flow per share dropped 46.3%, to $0.22 from $0.41 a year earlier. Sharply lower oil and gas prices offset a 7.3% rise in daily production. The company continues to cut costs to support its cash flow. As well, in response to low prices, Birchcliff has reduced exploration and development spending for 2016. It will likely spend $128 million this year, down 45.0% from $242.7 million in 2015. Prominent Toronto investor Seymour Schulich is the company’s largest shareholder; he recently purchased 2 million shares. That brought his total to 42 million, or 27.6% of the company’s shares. Birchcliff’s debt of $622.1 million is a high 87% of its currently depressed market cap. However, its cash flow of $33.7 million easily covers its $6.7 million in quarterly interest costs. The direction of oil and gas prices depends on economic growth rates around the world and other key factors. We assume that oil prices will turn around later this year or in 2017. But if not, junior oil and gas producers such as Birchcliff will struggle to sustain drilling, and their cash flow will drop even lower. Birchcliff remains a buy for aggressive investors.