Birchcliff Energy: Production Ahead of Forecast

Dec.13.10 | About: Birchcliff Energy (BIREF)

Canadian small cap producer Birchcliff Energy Ltd. (OTCPK:BIREF) offers unlevered appreciation potential of 34% to a McDep Ratio of 1.0 where stock price would equal Net Present Value (NPV) of US$14 a share. Phase II of the Pouce Coupe South natural gas plant is processing gas ahead of the scheduled December startup. Disclosed along with third quarter results after the market close on November 10, Birchcliff’s total current production has reached 16 thousand barrels equivalent daily (mboed), up from 13.1 for the third quarter.

As a result, we raise our estimate of Birchcliff’s total fourth quarter production to 15 mboed from 13, to account for the early startup and favorable progress. Though the year-end exit rate may be 19 mboed, we maintain a 17 mboed estimate for 2010 to allow for unexpected interruptions and other contingencies. Demonstrated rapid growth lends credibility to our estimated NPV, which includes recognition of future volumes from independently estimated proven and probable reserves.

Similarly, Chevron (NYSE:CVX)’s announcement on November 9 of its agreement to acquire Marcellus Shale producer Atlas Energy for $4.4 billion in cash and assumed debt further attests to the long-term value in future natural gas drilling potential despite the currently depressed natural gas price. Birchcliff is concentrated in the heart of the unconventional shale gas/tight gas Montney/Doig play in northwest Alberta, a prime target of industry attention.

Originally published on November 11, 2010.