Natural gas prices recently dropped below $2 U.S. per million British thermal units (BTUs), a 10-year low. Prices have since moved up somewhat, to $2.82.
Shale gas discoveries continue to increase supply. At the same time, demand is slowing due to the weak global economy. Even so, the long-term outlook for gas is positive—and one reason is the prospect of rising liquefied natural gas (LNG) exports to countries like Japan, China and South Korea, where gas sells at a big premium to North American prices.
One of the junior energy stocks we cover in Stock Pickers Digest is striving to cash in on the anticipated upturn in natural gas, while maintaining a quarter of its production in oil.
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 75% of Birchcliff’s production is natural gas. The remaining 25% is oil.
Prominent Toronto investor Seymour Schulich is the company’s largest shareholder; he owns about 28% of its outstanding shares.
In the three months ended June 30, 2012, Birchcliff’s production rose 27.2%, to 22,039 barrels of oil equivalent per day (including natural gas) from 17,324 barrels a year earlier.
Even so, cash flow per share fell 29.6%, $0.19 from $0.27. The production increase was offset by a 50.6% decline in natural gas prices.
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Energy stocks: Birchcliff has end of year as target date for major gas-plant expansion
The company’s exploration efforts continue to be successful, and its production keeps rising as it starts up the resulting new wells. In addition, Birchcliff has completed Phases I and II of its gas-plant expansion in Pouce Coupe, Alberta. That’s letting it bring the additional gas it is producing to market.
By November 2012, the company expects to finish Phase III, which will double the plant’s capacity. As a result, it will be able to process the 26,000 barrels per day that it expects to produce by the end of 2012.
The stock trades at 9.2 times the company’s annual cash flow, based on the latest quarter.
In the latest edition of Stock Pickers Digest, we look at Birchcliff’s debt levels and examine whether increased production will be enough to overcome the continuing low price of natural gas. We conclude with our clear buy-hold-sell advice.
COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members
Do you think the price of natural gas has hit bottom, or do you expect it to fall further? Do you think it’s better to be “late” to buy natural gas producers, or would you prefer to buy them “early”? Let us know what you think in the comments section below. Click here.
Comments
Ivor
It is my firm belief that the investor who has time and patience on his side would do well to invest in natural gas stocks. This slow cheap period will not last and gas will be in great demand since it is the most enviromental friendly abuntant source of energy. LNG is the fuel of the future for powering our vehicles this would be an enormous step forward in saving the enviroment from complete distruction.
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It is my firm belief that the investor who has time and patience on his side would do well to invest in natural gas stocks. This slow cheap period will not last and gas will be in great demand since it is the most enviromental friendly abuntant source of energy. LNG is the fuel of the future for powering our vehicles this would be an enormous step forward in saving the enviroment from complete distruction.