Canadian small cap producer Birchcliff Energy Ltd. (OTCPK:BIREF) offers unlevered appreciation potential of 12% to a McDep Ratio of 1.0 where stock price would equal Net Present Value (NPV) of US$11 a share, up from US$9. Preliminary estimates released last night disclosed a 58% increase in proven reserves in 2009 to 90 million barrels oil equivalent (mmboe). Probable reserves increased by a similar percentage to 67 mmboe.
As a result, we increase our estimate of the value of proven reserves in an industry context to US$1.0 billion. We capture some of the potential for probable reserves when we assess “Montney/Doig upside” at 40% of NPV. Reported proven and probable reserves are associated by the independent engineer with 200 net well locations while management believes it has 700 net potential locations on its lands. Birchcliff is a leading independent producer in the Montney/Doig unconventional shale gas/tight gas exploration play in northwest Alberta. Global oil companies are showing keen interest in unconventional natural gas as evidenced by a string of billion dollar deals. Prices paid put a high value on future potential that may bear little relation to current cash flow.
Originally published on February 19, 2010.