Birchcliff Delivers The Big Dividend Cut, But Problems Still Abound

2025-01-30 14:40:17 ET

Summary

• Birchcliff Energy's poor capital allocation and lack of hedging have led to debt more than tripling over the last two years.
• Despite reducing the dividend, Birchcliff's aggressive growth strategy remains risky given the current and projected low natural gas prices.
• Investors should consider gassy producers with at least modest oil production for less risky bets on upside potential in natural gas.

It still surprises us that people argue with the numbers. Of course, people can have a different opinion on what those numbers actually convey. But our discussions with commenters have sometimes centered on the raw facts, which really should not be in contention. This was the case with Birchcliff Energy ( BIR:CA ) as well. A company which (at the time of the referenced article), had one of the poorest capital allocation policies. This was coupled with a policy of riding out natural gas prices (no hedging) and the most expensive valuation amongst Canadian gas producers. Right after they cut the dividend the first time, the math did not add up. We felt a second one would be necessary....

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