Birchcliff Energy Faces Scrutiny Over Dividend Increase Amid Declining Free Cash Flow
Birchcliff Energy Ltd. (TSX: BIR) recently declared a dividend, a move that has caught the attention of market observers amidst a backdrop of declining free cash flow. The corporation’s board of directors declared a cash dividend of $0.10 per common share for the quarter ending March 31, 2024, amounting to an annual base dividend of $0.40 per common share for 2024, totaling approximately $107 million in aggregate.
However, questions arise regarding the sustainability of Birchcliff’s dividend payments, particularly as the company’s free cash flow has experienced a significant downturn. Observers note that while Birchcliff pays out $0.10 per share quarterly in dividends, the company only generated $0.01 per share annually in free cash flow in 2023, with a slight improvement to $0.07 per share in Q4, despite natural gas prices declining in Q1 2024.
“Where is the money coming from for divvies?” one observer remarked, highlighting concerns over Birchcliff’s financial health.
Another noted, “Debt and they were paying $0.20 quarterly dividends until recently. Imagine their financial situation when they report their Q1/24 results with a realized gas price of around $1.75: dividends eliminated?”
In 2023, Birchcliff faced a notable decrease in free funds flow, dropping to $2.2 million or $0.01 per basic common share, marking a 100% decrease from 2022. Similarly, free funds flow in Q4 2023 stood at $18.0 million, or $0.07 per basic common share, reflecting an 84% and 83% decrease, respectively, from Q4 2022. These declines primarily resulted from lower adjusted funds flow, albeit partially offset by decreased F&D (finding and development) capital expenditures.
Chris Carlsen, President and Chief Executive Officer of Birchcliff, acknowledged the challenges, stating, “In 2023, we delivered annual average production of 75,699 boe/d and adjusted funds flow of $306.8 million and returned $224.8 million to shareholders through common share dividends and share repurchases under our normal course issuer bid.” Notably, Carlsen highlighted adjusted numbers rather than actual.
Carlsen remained optimistic about Birchcliff’s future, emphasizing the company’s commitment to capital efficiency and sustainable shareholder returns. He pointed to the potential inherent in Birchcliff’s asset base, particularly its Elmworth asset, consisting of approximately 140 net sections of Montney lands, which remains largely unbooked from a reserves basis, providing significant inventory for future development.
Despite the challenges, Birchcliff remains focused on its 2024 capital program, designed to target high rate-of-return wells with strong capital efficiencies. The company aims to maintain a strong balance sheet and capital discipline while prioritizing sustainable shareholder returns.
However, with the uncertainty surrounding commodity prices and the potential need to adjust the 2024 capital program, Birchcliff’s dividend policy may face further scrutiny in the coming months. The company’s ability to navigate these challenges while maintaining financial stability will be closely monitored by investors and industry analysts alike.
Birchcliff Energy last traded at $5.21 on the TSX.
Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
