Birchcliff Energy - April 2017

Suite 1000, 600 – 3rd Ave. SW Calgary, AB T2P 0G5
Phone 403.261.6401  •  Website:
Content updated periodically  •  Dated April 24, 2017

Ticker Symbol: BIR-T

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Shares Outstanding


Market Capitalization


Q1/17 Actual Production

62,000 boe/d

Enterprise Value


Large Cap Company

Current Price (04/21/17)


Attractive Purchase

Under $6.00

Table-Pounding BUY

Under $5.25

12 Month Target


Bull Market Peak



The company was incorporated in July 2004 and changed its name to Birchcliff Energy Ltd. in January 2005. Birchcliff is a large Canadian oil and gas producer that explores for, develops and produces natural gas, light oil and natural gas liquids from a concentrated core area in the Peace River Arch area in Alberta. They are a very low cost operator and hold one of the largest Montney land positions. Firm transportation covers their growing production profile. BIR operates with three teams: The Pouce Coupe team covers their core Pouce Coupe Montney natural gas production, their Gordondale team operates their liquids rich Gordondale assets acquired from Encana in 2016, and their Worsley team operates their exploration portfolio.

BIR Corporate History

Birchcliff Energy - April 2017



BIR had 130 full time employees at head office in Calgary and 52 in the field at year end 2016. Major shareholders include Seymour Schulich, whose 40M shares comprise 15% of the outstanding shares. He has made this his primary Montney natural gas and liquids play. His most recent purchase of stock was in early April when he bought 2.0M shares at $7.84 per share. Another shareholder is Fidelity Investments, which owns 10.8% of the shares outstanding with 28.7M shares.

TitleManagementShares Owned
President & CEOJeff Tonken1.3M
VP Exploration & COOMyles Bosman49K
VP & CFOBruno Geremia214K
TitleManagementShares Owned
VP EngineeringChristopher Carlson30K
VP OperationsDavid Humphreys38K

Source: April 2017


Montney/Doig Resource Play

BIR operates the Pouce Coupe South Gas Plant (PCS gas plant) to process 180 Mmcf/d. BIR has firm take away capacity for these volumes. To year end 2016, 295 Montney/Doig wells have been drilled of which 17 were drilled in 2016. They have over 5,700 drilling locations in inventory and BIR has drilled up to six wells per pad to a depth of 2,700 metres. With 6 productive zones (Basal Doig, Montney D4, Montney D3, Montney D2, Montney D1 and Montney C), they could put four wells per section per zone and have 24 wells per section when fully developed. So far to year end 2016, they have focused on the Montney D1 (214 wells so far) and the Basal Doig (67 wells to date) which are Upper Montney intervals. The next phase of plant expansion will occur this year with the startup of Phase V adding 80 Mmcf/d and lifting capacity to 260 Mmcf/d commencing operation in October 2017. They have firm transportation capacity for this expansion. The Phase VI expansion forecasted to be on production in October 2018 will add another 80 Mmcf/d raising capacity to 340 Mmcf/d. This plant provides BIR with a very low cost structure. Its plant, operating costs and transportation were $0.58/mcf or $3.53/boe in 2016.  Production in Q4/16 was 60,750 boe/d. This area showed 95% of Q4/16 total production. Capex in 2017 will be devoted 60% to the Pouce Coupe area and over 30% to the Gordondale area. The Gordondale area is more liquids rich with oil and liquids potential and in 2016, six wells were drilled in this new area. In 2017, up to 14 wells will be drilled to increase liquids percentages. BIR drills its well open hole and uses slickwater fluid for its fracks. Total cost of a gas well is $7.0M, for an oil well cost is $8.0M and they each take 17 days to drill.

Proved and Probable Reserves at year end 2016 were evaluated by reservoir engineers Deloitte’s at 880M barrels equivalent for BIR. Total reserves and resources that BIR is exposed to is 59Tcf in the low estimate case and 76Tcf in the best estimate case. Land holdings at year end 2016 were over 440 sections. All in cash costs were $1.77/mcf in 2016 so they were profitable at AECO of $2.05/mcf in 2016. In our forecast going out past 2020 we see AECO exceeding $4.00/mcf and BIR making a profit of over $1.50/mcf.

We like BIR because it has itself involved in a world class resource play with a first decile low cost structure. In addition, the play is resource dense, has a large areal extent, can be easily fracked, has high permeability, is over pressured and is a blanket style deposit providing repeatable results.

People, Focus, & Execution

Birchcliff Energy - April 2017

Five Year Plan

Birchcliff Energy - April 2017



  • BIR in Q4/16 produced 60,750 boe/d. CFPS in the quarter came in as expected at $0.27/share. For the full year production reached 49,236 boe/d (16% liquids) and cash flow per share reached $0.74. Our forecast for 2017 is for volumes to rise to 72,000 boe/d (22% liquids) and for CFPS to reach $1.50/share. Cash flow for 2017 is estimated at $400M and capex at $355M to drill 56 gross wells. Exit production should be over 80,000 boe/d. Net capex in 2016 including the acquisition of Gordondale was $762M. The acquisition was funded via a stock sale of 116.5M shares at $6.25 per share and generated $691M to fund the purchase from Encana.
  • Birchcliff has a healthy balance sheet with a $950M line of credit. At year end 2016 they had drawn down only $573M on the line. The stock trades at a discount to our conservative Net Asset Value of $9.27 per share at year end 2016. Book Value at the end of 2016 was $6.64 per share. An annual dividend of $0.10 per year was implemented on a quarterly basis effective March 31, 2017.
  • BIR has put its Charlie Lake crude oil resource play up for sale and if an attractive price is realized between $250-300M will be available and BIR will use the proceeds to repay debt. In 2017 these assets are estimated to produce 3,800 boe/d (56% liquids).
  • Our 12 Month Target of $13.00 per share is based upon a 7.4x (below their 1P RLI of 21.9 years) our Q4/17 annualized cash flow estimate of $1.76 per share. BIR would be an Attractive Purchase at under $6.00/share, and a Table Pounding BUY below $5.25/share. Our 3-5 year next Bull Market Peak target value is $24.00 per share providing lots of exciting upside as they execute their growth program and pay a rising dividend over time.
  • In our 3-5 year Bull Market scenario, we expect BIR to be producing >130,000 boe/d, and have CFPS estimate of greater than $3.00/share which should justify the stock trading at more than $24.00/share.

Balance of Evidence


  • BIR has one of the longest RLI’s in the business and can grow into the next decade in stair case fashion as they add additional phases to the Pouce Coupe and other plants.
  • If LNG exports do not move ahead over the next decade then BIR will generate significant cash flow in upcoming years when natural gas prices exceed $3/mcf, and could significantly increase its dividend or repurchase shares.
  • BIR would be a very attractive acquisition target if west coast LNG becomes a factor in the next decade. Many of the LNG owners do not have enough reserves to meet their needs for this long life project and BIR would be a very strategic resource capture. A deal could only occur with managements support if the price offered was >$20/share. Canadian natural gas prices would rise materially and close in on US prices if significant LNG capacity is brought on in the next decade.


  • Downtime from the Nova transportation system of TCPL has impacted production. The Nova lines are almost 40 years old and need significant upgrades.
  • While Pouce Coupe facilities are low cost, their Gordondale infrastructure has significant use of third party facilities run by AltaGas and others. These facilities are not run at full capacity harming efficiencies. At one facility, capacity is 135Mmcf/d and utilization at year end 2016 was 100Mmcf/d.
  • The price of Canadian natural gas will remain at a discount to US prices so long as we do not have egress via the west coast of Canada. While more production can be moved efficiently to eastern and southern markets, the transportation costs make profitability an issue. BIR fortunately can survive low AECO prices better than most of its competitors.


Birchcliff Energy - April 2017


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