# Birchcliff Energy Ltd (TSE: BIR)



## PMREdmonton (Apr 6, 2009)

I was wondering if any of you have been following Birchcliff Energy. This is an intermediate sized E&P company out of Western Canada. They are a mid-tier producer of about 20K BOE/day that has recently been knocked way down. This is partly because much of their production is dry natural gas which as been pounded over the last few years and this past winter in particular. The other reason is they had been approached about a buyout in the fall and they have ultimately rejected those offers deciding they did not offer enough value to the shareholders.

Now this company is profitable but because of the crunch in NG their PE is still about 25 at present. However they are only selling at about 7x CFO presently. They also have built a gas processing facility so they aren't purely on the production side anymore and that should help stabilize earnings to some extent. However, part of their profitability was hedging with natural gas fetching them 3.85 last year which is double the current spot price.

The reason why I bring this play up is there has been some massive insider buying after the collapse the sale. Seymour Schulich bough 2M shares which is about 1.6% of total existing shares and he now owns 35M shares or a 28% stake. He is known to be a very shrewd commodities investor and was the fellow who started up FNV and later became a director at Newmont Mining. He also took a huge stake at COS at $8.50 in 2004 before it really took off. He seems to be making a pretty large bet on a well run but marginally profitable nat gas company not paying a dividend, PE of 25 and a P/B of about 1.3 right now so they aren't selling at a particularly huge discount to the market here. Do any of you have any thoughts on this one?


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## moneyisfornothing (Feb 18, 2012)

PMREdmonton said:


> I was wondering if any of you have been following Birchcliff Energy. This is an intermediate sized E&P company out of Western Canada. They are a mid-tier producer of about 20K BOE/day that has recently been knocked way down. This is partly because much of their production is dry natural gas which as been pounded over the last few years and this past winter in particular. The other reason is they had been approached about a buyout in the fall and they have ultimately rejected those offers deciding they did not offer enough value to the shareholders.
> 
> Now this company is profitable but because of the crunch in NG their PE is still about 25 at present. However they are only selling at about 7x CFO presently. They also have built a gas processing facility so they aren't purely on the production side anymore and that should help stabilize earnings to some extent. However, part of their profitability was hedging with natural gas fetching them 3.85 last year which is double the current spot price.
> 
> The reason why I bring this play up is there has been some massive insider buying after the collapse the sale. Seymour Schulich bough 2M shares which is about 1.6% of total existing shares and he now owns 35M shares or a 28% stake. He is known to be a very shrewd commodities investor and was the fellow who started up FNV and later became a director at Newmont Mining. He also took a huge stake at COS at $8.50 in 2004 before it really took off. He seems to be making a pretty large bet on a well run but marginally profitable nat gas company not paying a dividend, PE of 25 and a P/B of about 1.3 right now so they aren't selling at a particularly huge discount to the market here. Do any of you have any thoughts on this one?



I bought Bir recently.
It may go towards 5 bux though.
very unpredictable atm.
this one i am holding for the long run.
same with FEL, which possibly will drift lower.
those companies may be forced to sell assets that are also rich in oil if natural gas does not get some steam.


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## PMREdmonton (Apr 6, 2009)

The whole natural gas cycle is really scary for investors. I initially bought a small chunk of ECA at 20, doubled down at 18 and then exited at 19 for a small loss. I just became spooked by the spectre of all the oil frackers flooding the market with unprofitable nat gas and all the land leaseholders in the US who are forced to produce gas even at an operational loss.

Right now I am a bit more prepared to enter this space again but it has to be the right play. I have bought into MQL because it is severely undervalued but also because it was a gas play that has switched over to mostly liquids and oils but this hasn't been recognized by the market. They are going to be producing at about 3500 boe/day by the end of the year but are priced like a company producing 1000 boe/day.

I have been thinking about some gas plays and have been pondering ECA and PEY since they are both profitable and have some gas plays and should be able to survive the downturn which may last up to 3 years. However, Schulich aggressively buying into BIR gives me pause - he knows what is happening inside this company and he is a well-known value investor in commodities so if he sees value here I have to pay attention.


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## moneyisfornothing (Feb 18, 2012)

PMREdmonton said:


> The whole natural gas cycle is really scary for investors. I initially bought a small chunk of ECA at 20, doubled down at 18 and then exited at 19 for a small loss. I just became spooked by the spectre of all the oil frackers flooding the market with unprofitable nat gas and all the land leaseholders in the US who are forced to produce gas even at an operational loss.
> 
> Right now I am a bit more prepared to enter this space again but it has to be the right play. I have bought into MQL because it is severely undervalued but also because it was a gas play that has switched over to mostly liquids and oils but this hasn't been recognized by the market. They are going to be producing at about 3500 boe/day by the end of the year but are priced like a company producing 1000 boe/day.
> 
> I have been thinking about some gas plays and have been pondering ECA and PEY since they are both profitable and have some gas plays and should be able to survive the downturn which may last up to 3 years. However, Schulich aggressively buying into BIR gives me pause - he knows what is happening inside this company and he is a well-known value investor in commodities so if he sees value here I have to pay attention.


PMR
i do not trade venture stocks if ur referring to MQL-X.
nevertheless it surely is severely undervalued.
as for ECa , in the very very long run they will do fine but if u made profit than good for ya.
Schulich is a heavy buyer since 2008 at different values along the way, and in large volumes .
insider buying is always a good indicator, but that is all.
take a look at AEI insider buying for example.
that is an oil play though.
it sure can indicate a good return in the long run , but the natural gas mkt has to react positively which IMO will not happen from day to night.
and that is why i was specific by mentioning that i bought both BIR and FEL but not all in.
If we point towards 5 bux on Bir and depending on future events i will buy more.
this stocks atm are not for the faint of heart.
cheers.


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## PMREdmonton (Apr 6, 2009)

Thanks for your perspective on the situation. 

I know MQL is on the Venture exchange but it is an actual solid producer with known reserves, ramping production, history of good execution, history of good management and recent heavy insider buying. Even though they are on the Venture I don't consider them severely risky at this stage. To me it is almost semantics as they produce almost 3000 boe/day now which is probably more than some companies listed on the TSE. Its valuation is ridiculous given its cash flow, production and drilling locations so I couldn't resist picking some up and waiting for the market to realize what this company is.

As for the gas plays I wasn't entirely ready for my first dip into ECA. It seemed like excellent value and had a well supported dividend but I got spooked with all the talk to gas dropping to 1.00 and staying there for a few years. I now am more prepared for that possibility and know that I have to venture into a very strong firm if I am going to make a play here and I have to accept that the valuation may get alot worse before getting better. The thing that I am leery of is if a company doesn't have enough financing to weather the storm over the next 3 years they may have to sell assets which impair their long-term profitability. Company's are so short-sighted these days and this is what scared me out of ECA - they seemed to be liquidating good assets at cheap prices for current liquidity and earnings and this worried me. Now I think they were just trying to ensure they maintained proper liquidity. Nevertheless, I would have preferred if they just suspended the dividend until we get through this tight patch instead of having firesales on good drilling sites.

Right now I am leaning to Peyto because they have liquid rich property but I want to see it drop a bit more and/or more heavy insider buying. However, I'm going to keep my eye on BIR, too. I may dive in if it drops below 5.

The government needs to do something to incentivize natural gas usage. We have tons of it and it burns cleanly. We should incentivize all truck fleets to be converted to natural gas right now with some legislation to ensure that all trucks are on natural gas by 2020. The technology is here now and is actually owned by a Canadian company (WPT) to do this right now.

The whole political thing irks me. Government should be doing more to guide a national energy policy. It should be Hydro, natural gas, wind and uranium for electrical power. It should be natural gas for trucks and fleets. Oil should be reserved for industry and automobiles. That would be a rational use of our natural resources to ensure we make proper use of what we have.


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## moneyisfornothing (Feb 18, 2012)

PMREdmonton said:


> Thanks for your perspective on the situation.
> 
> I know MQL is on the Venture exchange but it is an actual solid producer with known reserves, ramping production, history of good execution, history of good management and recent heavy insider buying. Even though they are on the Venture I don't consider them severely risky at this stage. To me it is almost semantics as they produce almost 3000 boe/day now which is probably more than some companies listed on the TSE. Its valuation is ridiculous given its cash flow, production and drilling locations so I couldn't resist picking some up and waiting for the market to realize what this company is.
> 
> ...


PMR
i am a fan of peyto and chenyere.
as of now i think that peyto can shed some more before a good entry.
as for BIR do not forget their heavy debt load.
till the natural gas mkts gets balanced all these companies will stay in the dumpster.
unless heavy cuts are announced by conoco, xom , chk and eca , prices will drift lower.
those cuts have to be substantial and not like the ones announced before providing fake rallies in the futures mkts that reached 2.8.
as you probably know XOM is the largest NG producer in NA and no cuts were announced .


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## PMREdmonton (Apr 6, 2009)

It looks like Seymour Schulich has dipped back in and bought even more shares at around 7.50 or so.

The other thing going in their favor is they are a very low cost supplier so they probably should survive the weak market without a dilution. They claim they can get by at 1.00 mcf but that is hard to believe for any non-liquids rich wells.

I still have this one on my sights but will wait to see if it falls to 5.50 or so.

NG is such a tricky investment. The high quality companies will be doing well in about 3 years so long as they haven't sold off their assets to survive. The 3 I like best in the end are ECA, PEY and BIR. I just haven't dipped in yet.


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## moneyisfornothing (Feb 18, 2012)

PMREdmonton said:


> It looks like Seymour Schulich has dipped back in and bought even more shares at around 7.50 or so.
> 
> The other thing going in their favor is they are a very low cost supplier so they probably should survive the weak market without a dilution. They claim they can get by at 1.00 mcf but that is hard to believe for any non-liquids rich wells.
> 
> ...


NG is avery tricky investment.
have u looked at celtic?
just curious.
i am still impressed at ur capability of trading , posting and researching and practicing medicine.
impressive for the least.
now i ask you if u have any NG stocks like chenyere?
cheers and GL.
FEL at 1.5 will look very, very attractive


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## PMREdmonton (Apr 6, 2009)

No, I have not looked at Celtic but I have heard of them - just never looked at it in any detail.

I don't have much NG exposure. I bought some Marquee Energy which is about 40% NG right now, though. They are drifting more and more to oils and NGL.

I haven't looked at Cheniere. These are the buys proposing to build the gassification plant in the US? My problem is that project is a long way off and some speculate that in the end they may not be allowed to export NGL due to national energy policy type issues. I believe a large part of their run is due to this expectation which may never come to fruition. I think they have a role in Kitimat, too? This one only happen in a big way if they can win rights to run the pipeline across native land. Otherwise they will be very limited in the gas to export.


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## thenegotiator (May 23, 2012)

maybe you should have looked at Celtic?


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## PMREdmonton (Apr 6, 2009)

I did end up buying BIR which has had a good bounce (from low 5's now to low 8's) but haven't really looked at Celtic - I assume it has done well. MQL is still down in the dumps, though - still holding on that one.


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## thenegotiator (May 23, 2012)

Celtic doing well?
they were just offered a friendly buyout today from XOM.
BIR is a ok.


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## PMREdmonton (Apr 6, 2009)

Yes, XOM buying them out - saw it in the news last night.

I was a bit upset about BIR going up so quick as I had wanted to buy a bit more in the 5's. It just bounced so hard off the lows that I didn't get as much as I wanted and I still thought it would come back into my buying range. I won't buy anymore here right now as I think it will be hard for them to get much going in the way of earnings with nat gas prices still weak. I still expect another dip upcoming. Nat gas definitely seems to have a ceiling in the low to mid 3's right now because of coal substitution for power production when it gets higher. Additionally, I have heard that even though nat gas drillings are at record lows right now, nat gas production is actually higher right now than a year ago because of all the byproduct production from the oil shales.

I am considering locking in my profits at 9 and then waiting for the next dip. If nat gas price recovers I still have exposure through MQL which continues to be a dog for me. I may actually take my BIR proceeds and shove them into MQL although I know this goes against market wisdom of letting winners run and cut your losers. The junior market is just so out of balance right now that they mostly seem to bounce when a major comes along for a buyout. MQL has been murdered due to delays and getting wells tied in but mgmt seems to indicate that this issue has now passed so I'm still hoping for a bounce after the next earnings report.


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## Fraser19 (Aug 23, 2013)

I have been following this stock for a while, although I don't own it I may get into it soon.

Q4 average production 60,750 bpd.
2017 expected production 70,000-74,000 bpd.

Total debt 572.52 M

Put there Charlie Lake Light Oil Resource Play up for sale today.


So I realize that the last post in this thread was in 2012.
Since 2012 they have grown production from 26,600 bpd to 60,750.
No big debt concerns. 

Anyone else watching this stock?


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## doctrine (Sep 30, 2011)

Fraser19 said:


> So I realize that the last post in this thread was in 2012.
> Since 2012 they have grown production from 26,600 bpd to 60,750.
> No big debt concerns.
> 
> Anyone else watching this stock?


Production has increased 130% in 4 years and yet the stock price hasn't moved, due to decrease in natural gas prices. So typical of O&G these days; without increasing prices, companies aren't making money. It's hard to say when there will be a return on capital again in this industry. Everyone is still growing production faster than demand growth.


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## AltaRed (Jun 8, 2009)

I am guessing there has been a slow decline of conventional, tight and shale oil production overall in Canada over the past 2 years. The following is just a NEB 2015 published forecast (don't have actual data) but I suspect some marginal companies are imploding.

https://www.neb-one.gc.ca/nrg/sttstc/crdlndptrlmprdct/rprt/2015shll/index-eng.html


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