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  5. BIR: It has been a long while since I have owned Birchcliff Energy (BIR) and I was shocked to see it trading for less tham $6. [Birchcliff Energy Ltd.]
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Q: It has been a long while since I have owned Birchcliff Energy (BIR) and I was shocked to see it trading for less tham $6. The dividend yield is nearly 14 per cent. I understand that at 2.50 natural gas pricing that BIR has to use leverage to maintain the 20 cent per quarter dividend. I remember about a year ago BIR was debt free so I don't image their debt is that high. I also remember Jeff Tonkin saying that the dividend was almost sacrosanct. So I few questions. Is Tonkin still the COE or has he retired or stepped up to be on the BOD? Is the debt level of BIR still low? At 2.50 gas (I know BIR never used to hedge so I assume they are gettting spot pricing) how much debt per quarter must BIR use in order to maintain the current dividend and spend enough to keep production flat? Do you think they will resize, that is, cut the dividend? And if they cut do you thin they would do an NCIB and start to buy back the shares from their depressed levels?
Asked by Paul on January 03, 2024
5i Research Answer:

As part of Birchliff's orderly and planned leadership succession process, Jeff Tonken retired as CEO effective December 31, 2023, and Chris Carlsen is now the President and CEO. BIR has $244M in net debt, representing a small 0.9X net debt/EBITDA ratio and 0.15 debt/equity ratio. A rough estimation of ~$55M in quarterly cash from operations and ~$50M in CAPEX, along with ~$55M in quarterly dividends, equates to approximately $50M of debt issued each quarter to service its current dividend. It is tough to gauge exactly what the company might do if gas prices remain at these levels, but we feel the company is less likely to cut the dividend than it is to issue debt or equity to fund the dividends. At its currently low debt levels, we believe the company will likely continue increasing its debt to fund its yield.

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