BIRCHCLIFF ENERGY (Toronto symbol BIR; www.birchcliffenergy.com) develops, produces and explores for oil and natural gas, mainly in the Peace River Arch area near the Alberta/B.C. border. About 81% of its output is gas. The remaining 19% is oil.
In the three months ended December 31, 2013, Birchcliff’s production rose 6.5%, to 28,391 barrels of oil equivalent per day (including gas) from 26,655 barrels a year earlier. Cash flow per share gained 25.0%, to $0.35 from $0.28, on the increased production and higher gas prices.
In 2012, Birchcliff completed Phase III of its gas plant expansion in Pouce Coupe, Alberta. This project doubled the facility’s capacity and is letting the company bring the additional gas it is producing to market.
Birchcliff exited 2013 with production of 30,000 barrels a day. This year, it plans to spend $275 million on exploration and development, up 9.6% from $251 million in 2013. That will raise its output as high as 39,500 barrels a day by the end of 2014.
The company’s $394.2 million of debt is 26.3% of its $1.5-billion market cap.
Energy stocks: Costly Little Bow project expected to boost production within two years
ZARGON OIL & GAS (Toronto symbol ZAR; www.zargon.ca) produces natural gas and oil in Alberta, Manitoba, Saskatchewan and North Dakota. Its production is 64% oil and 36% gas.
In the quarter ended December 31, 2013, Zargon produced 7,276 barrels of oil equivalent a day, down 5.8% from 7,634 a year earlier. That’s because it sold some less-important properties and cut back on natural gas drilling in response to lower gas prices.
That lower output more than offset slightly higher oil and gas prices in the latest quarter, dropping the company’s cash flow per share by 27.3%, to $0.40 from $0.55.
The company is engaged in high development spending at its alkaline surfactant polymer (ASP) enhanced oil recovery project at Little Bow, Alberta.
The company acquired the Little Bow plant from Masters Energy in 2009. ASP is a new process that floods oil wells with a chemical mixture when water is no longer effective. The alkali in the mixture penetrates the rock and frees trapped oil.
This project is costly, and it’s diverting funds from Zargon’s conventional oil well drilling. Meanwhile, the company’s stock yields a high 8.4%.
In the latest edition of Stock Pickers Digest, we look at Birchcliff’s cash flow outlook for 2014 and whether that will let it continue to fund its high capital spending. We also look at how Zargon’s high spending on its Little Bow plant will impact its near-term and long-term production, and whether it can maintain its high dividend. We conclude with our clear buy-hold-sell-advice on these two stocks.
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