As the price of oil continues to fall, most oil and gas companies are generating substantially lower cash flow. For juniors like Birchcliff Energy and Trilogy Energy that means reduced spending for exploration and development. However, Birchcliff increased oil production in the latest quarter. It also received a vote of confidence from a prominent investor. We view Birchcliff as a buy for aggressive investors. Trilogy has cut back production and is focused on conserving cash. We see it as a worthwhile hold with long-term growth potential.
BIRCHCLIFF ENERGY (Toronto symbol BIR; www.birchcliffenergy.com) develops, produces and explores for oil and gas, mainly in the Peace River Arch area near the Alberta/B.C. border. About 87% of its output is gas. The remaining 13% is oil.
In the three months ended September 30, 2015, Birchcliff’s cash flow per share dropped 42.0%, to $0.29 from $0.50 a year earlier. Sharply lower oil and gas prices offset a 12.3% rise in daily production.
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The company continues to support its cash flow with cost cuts. As well, in response to low prices, Birchcliff cut back on exploration and development spending for 2015. It will likely spend $249 million during the full year, down 45.0% from $451 million in 2014. It hasn’t yet announced its 2016 spending plans.
Prominent Toronto investor Seymour Schulich is the company’s largest shareholder; he just bought 2 million shares, bringing his total to 42 million, or 27.6% of its shares outstanding.
The stock now trades at 3.1 times Birchcliff’s cash flow per share, based on the latest quarter. That’s low for a company with strong potential to grow when oil and gas prices recover.
Birchcliff is a buy for aggressive investors.
Recommendation in Stock Pickers Digest: HOLD
Energy stocks: Trilogy sells off undeveloped land to raise cash and pay down debt
TRILOGY ENERGY CORP. (Toronto symbol TET; www.trilogyenergy.com) owns oil and gas properties in central Alberta’s Kaybob and Grande Prairie areas. About 64% of Trilogy’s production is natural gas. The remaining 36% is oil.
In the three months ended September 30, 2015, Trilogy produced 25,090 barrels of oil equivalent a day (including gas), down 28.6% from 35,125 barrels a year earlier. However, pipeline outages cut about 2,600 barrels a day from the latest figure.
Cash flow per share fell sharply, to $0.18 from $0.69, on the production drop and lower oil and gas prices.
Trilogy is now focused on conserving cash and paying down debt while it waits for oil and gas prices to recover. It’s spending $85 million on exploration and development in 2015, down from $400 million in 2014. The company is also selling off assets to raise cash; it recently sold undeveloped lands in the Kaybob area for $110 million.
Trilogy ended the latest quarter with long-term debt of $657.2 million, or a high 152% of its currently depressed $432.8-million market cap.
The stock trades at 4.7 times the company’s cash flow per share, based on the latest quarter.
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