Birchcliff Energy (OTCPK:BIREF) offers unlevered appreciation potential of 52% to a McDep Ratio of 1.0 where stock price would equal Net Present Value (NPV) of $9 a share. On July 14 we reduced NPV from $10 when we reduced estimated Present Value of North American Natural Gas by 20%. Unproven potential in the Montney/Doig formation underlying 395,000 acres (88% BIR) drives 31% of NPV.
Should bullish expectations for natural gas materialize in the next few years, BIR would be pursuing an ambitious program to develop the acreage itself or possibly be acquired by a larger company seeking such prospects. Meanwhile, to help endure the peak pressure on natural gas price over the next few months, BIR limited spending in the first half of 2009 to cash flow and has raised new equity.
Last month the company committed to building a natural gas processing plant and to reaccelerate drilling in the Pouce Coupe heart of its Montney Doig activity. As a result, we project an end to the short-term volume decline in 2010. Released late August 12, second quarter results benefited from lower royalties assessed by the Province of Alberta. Well-known Canadian investor Seymour Schulich increased his holdings to 29 million shares for a 23% ownership of BIR.
Promising exciting market action with risk and reward, BIR stock has doubled from its 52-week low and could double again before exceeding its 52-week high.
High Noon may be approaching for small cap natural gas producers as volume may need to be curtailed temporarily before the heating season begins. We think stock prices have already reflected the likely pressure on cash natural gas price. Yet, there is a chance of a final climactic event from which recovery could be sharp considering the prevailing caution of equity investors and record short interest in natural gas futures.
Originally published on August 14, 2009.