Canadian ‘cash flow machine’ Birchcliff Energy sees shares fall

Thursday’s corporate update from Birchcliff Energy outlined upside spending plans aimed at smoothing inflationary and supply chain pressures, but without an increase in annual production. (GETTY)

Birchcliff Energy Shares (BIR.TO) fell on Friday, as concerns over rising costs at the mid-sized Canadian oil and gas producer appeared to overshadow a special dividend announced after the closing bell on Thursday.

The expected update from the Calgary-based Birchcliff company on Thursday outlined plans for higher spending aimed at smoothing inflationary and supply chain pressures, but with no expected increase in annual production.

Toronto-listed shares fell 7.48% to $10.91 at 10:52 a.m. ET, erasing a gain of more than 5% in the previous session. Like many in the oil and gas sector, Birchcliff’s stock has been a strong performer in 2022, up more than 82%.

“The lack of a significant material production increase for 2022 or 2023 is drawing negative reactions from investors,” Cameron Bean, an analyst at Scotiabank Global Equity Research, wrote in a note to the media. customers Thursday.

In his update, Birchcliff increased this year’s capital expenditure budget by $80 million to a range of $355-365 million.

“This new capital investment in our business will help ensure the most efficient execution of our 2023 capital program and will not increase our average annual production in 2022,” Birchcliff Chief Executive Jeff Tonken said. in the press release.

Bean expects the company won’t be alone in reporting higher spending this year.

“Several other producers are expected to ramp up capital spending in the second half of 2022, with minimal production upside, due to the tight services market and runaway inflation,” he wrote.

Despite the chilling reception from investors on Friday, analysts are largely positive about the company’s shareholder value. Scotiabank’s Bean dubbed Birchcliff “a cash flow machine with further upside dividend potential in 2023 and beyond” at current strip prices.

Earlier this week, Raymond James analyst Jeremy McCrea predicted “shareholder-friendly stories” would be in the cards when Birchcliff delivered Thursday’s update.

“Essentially, management is starting its large dividend program, yielding around 7%, a quarter ahead of schedule,” he wrote in a separate note to clients on Friday.

On Thursday, Birchcliff announced a special dividend payment of $0.20 per common share to be paid to investors on October 28. As a result, and a weaker commodity price outlook, it is expected to end this year with $60-70 million in debt.

Birchcliff had previously forecast that it would have a total surplus of $160 million to $170 million as of December 31 and achieve its goal of zero total debt in the fourth quarter of 2022.

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

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