Birchcliff Energy hikes quarterly payout by 900%

The stock has gained about 24% over the past 12 months

Birchcliff Energy via YouTube.
Birchcliff Energy via YouTube.

Birchcliff Energy (BIR.TO)(BIREF) on Thursday announced a 900 per cent hike to its quarterly dividend, a payout that will rank among the highest on the Toronto Stock Exchange.

The Calgary-based oil and gas firm known for rewarding shareholders says its quarterly dividend will jump from $0.02 per share to $0.20 per share, payable on March 31 to shareholders of record at the close of business on March 15.

Thursday's announcement confirms the company's plans from October, as it worked towards zero debt. Birchcliff now expects to end 2023 with between $50 million and $70 million of debt.

The company also announced a five-year plan, budget, and 2023 guidance on Thursday. Birchcliff upped its capital spending plans from $255 million to $270 million while leaving its production estimate unchanged at roughly 82,000 barrels of oil equivalent per day, rising to average production of 90,000 (boe/d) in 2027. On current strip prices, the company expects to accumulate around $570 million of cash flow in 2023

Toronto-listed shares climbed modestly in early trading on Thursday, rising 3.45 per cent to $8.99 as at 12:50 p.m. ET. The stock has gained about 24 per cent over the past 12 months amid significant volatility for natural gas prices.

"We believe the equity could lag in 2023, given the headwinds for natural gas prices," Scotiabank Global Equity Research analyst Cameron Bean wrote in a client note on Thursday.

Bean says Birchcliff's 2023 guidance is in line with prevailing expectations, with capital spending coming in a bit higher, and a slightly slower planned production increase to 90,000 (boe/d).

Is Birchcliff's dividend sustainable?

Raymond James analyst Jeremy McCrea says Birchcliff's unhedged production strategy in 2022 helped the company accelerate debt repayment and boost its shareholder payouts. While strip prices for commodities have fallen since then, he notes strong gas production from the company's newest wells suggests the heftier dividend is sustainable.

"Early results are providing confidence in the ability to maintain this level of payout, if commodity prices were to drop further," McCrea wrote on Thursday. "Overall, with a low-cost model, and a diversified gas marketing strategy, there remains an attractive risk-reward opportunity."

Bean took a more cautious view, suggesting the dividend won't be the first item on the chopping block if Birchcliff runs into trouble.

"Given the company's higher break-even, we believe the market may have concerns about the sustainability of the dividend," he wrote. "However, we expect the company to cut capex before shareholder returns if natural gas prices fall further."

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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