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Canadian small cap producer Birchcliff Energy Ltd. (OTCPK:BIREF) offers unlevered appreciation potential of 41% to a McDep Ratio of 1.0 where stock price would equal Net Present Value (NPV) of US$14 a share. A volume increase of 19% from the first quarter was less than the 31% in our projections, in part apparently because new processing capacity did not always operate at full rate during its first full quarter. Phase II of the Pouce Coupe South natural gas plant is due to add another burst of volume in December as previously anticipated. Rising volume demonstrates concretely the economic value of the company’s rich resource position and helps validate our estimate of NPV.

Feeding the plant are horizontal wells drilled into the unconventional shale gas/tight gas Montney/Doig formation in northwest Alberta, a developing play attracting attention from other industry parties. For example, during the last month, Pengrowth (PGH) valued Monterey Exploration at about US$400 million as it acquired the early stage, British Columbia Montney player. Keeping its own position strong, Birchcliff increased its potential Montney/Doig drilling locations to more than 800 on more than 200 sections of land. With 37 wells drilled to date, development is in the beginning stages.

Finally, at a time when markets seem to reflect a high degree of uncertainty, we believe investment in Birchcliff, a well-managed, small cap, clean fuel producer with identifiable growth potential, will bring future rewards.

Originally published on August 13, 2010.

Source: Birchcliff Energy Offers Small Cap, Natural Gas Growth