Birchcliff Energy: Why Last Year’s TSX Energy Star Tumbled This Week

·3 min read
oil tank at night
oil tank at night

Written by Vineet Kulkarni at The Motley Fool Canada

What happened?

Canada’s natural gas producer Birchcliff Energy (TSX:BIR) stock plummeted 12% this week and fell close to its four-month lows. Last year, the stock rose 260% and was among the top-gainer TSX stocks in 2021.

The weakness in Birchcliff’s share price was mainly led by the fall in natural gas prices this week. Meanwhile, the company has recently issued an upbeat outlook for growth through 2026.

So what?

Birchcliff Energy sees an ongoing supportive energy market environment to substantially drive its free cash flow growth for the next few years. It expects potential cumulative free cash flows of $1.9 billion by 2026. With such steep financial growth, the company intends to turn its total debt to zero by next year.

Birchcliff Energy is a $1.6 billion Calgary-based energy producer with 80% production dominated by natural gas. Like many energy companies, Birchcliff has seen superior financial growth in 2021 with record gas prices. Because of this, it doubled shareholder payouts from $0.005 per share to $0.01 in Q4 2021.

Importantly, Birchcliff management sees immense potential for future dividend growth if energy commodity prices remain constructive. So, investors can expect a significant increase in dividends once Birchcliff’s total debt comes within the targeted range.

According to the guidance released by the company, Birchcliff will end 2022 with a total debt of approximately $185 million. That’s a notable drop of 77% from its debt as of December 2020.

This has been the theme so far for Canadian energy companies. Instead of allocating capital towards growth projects amid higher prices, they have been busy working on improving their balance sheet strength.

This week, Canada’s largest natural gas producer Tourmaline Oil also released an optimistic outlook. It increased the quarterly dividend by 11% and also issued a generous special dividend. TOU stock has also been on fire lately and has gained 125% in the last 12 months.

Now what?

Birchcliff Energy’s strong five-year plan should improve investor sentiment in the short term. The stock could change its course, as energy prices have ticked higher.

Energy stocks have seen a meteoric rise since mid-2020. Note that Birchcliff stock has shown a moderate correlation with natural gas prices since last year. So, that will be the biggest cue for its financial guidance and market performance going forward.

The post Birchcliff Energy: Why Last Year’s TSX Energy Star Tumbled This Week appeared first on The Motley Fool Canada.

Should You Invest $1,000 In Birchcliff Energy Ltd.?

Before you consider Birchcliff Energy Ltd., we think you’ll want to hear this.

Our S&P/TSX market doubling Stock Advisor Canada team just released their top 10 starter stocks for 2022 that we believe could be a springboard for any portfolio.

Want to see if Birchcliff Energy Ltd. made our list? Get started with Stock Advisor Canada today to receive all 10 of our starter stocks, a fully stocked treasure trove of industry reports, two brand-new stock recommendations every month, and much more.

Click Here to Learn More About Stock Advisor Canada Today * Returns as of 1/18/22

More reading

The Motley Fool has no position in any of the stocks mentioned. Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned.