Birchcliff stock jumps as analyst hails 'win-win' scenario for natural gas prices
Birchcliff Energy (BIR.TO) shares gained more than 14 per cent on Thursday. The natural gas-weighted Canadian fossil fuel producer boosted its 2025 guidance in anticipation of higher prices, prompting an analyst upgrade.
Toronto-listed Birchcliff shares closed 8.11 per cent higher at $5.73 on Thursday. The stock has been under pressure since cutting its quarterly dividend in half in January amid concerns about the company's debt load, and exposure to volatile commodity prices.
On Wednesday, Birchcliff raised its 2025 cash flow guidance and lowered its year-end debt target compared to estimates issued in late January.
'Our 2025 production and capital expenditures guidance is on target and, due to ongoing strengthening of natural gas prices, in particular at NYMEX [Henry Hub] and Dawn, where we have the majority of our natural gas sales exposure, our 2025 annual adjusted funds flow outlook has improved significantly,' president and CEO Chris Carlsen stated in a news release.
Birchcliff raised its 2025 estimate for adjusted funds flow to $580 million, compared to $445 million on Jan. 22. Total debt at year-end is now expected to be between $265 million and $305 million, versus a range of $410 million to $450 million previously.
CIBC Capital Markets analyst Chris Thompson upgraded his outlook on Birchcliff shares to 'outperform' on Wednesday, while raising his price target to $8 per share from $7.
'[The] macro picture for natural gas has improved with storage drawdowns and stronger NYMEX pricing,' Thompson wrote in a note to clients.
Natural gas prices have climbed to their highest levels in two years, driven in part by trade tensions between Canada and the United States. Futures contracts (NG=F) rose to $4.12 per million British thermal units on Thursday, a level last seen when Russia's invasion of Ukraine shocked global energy markets.
'While the current AECO basis to NYMEX is very wide, Birchcliff finds itself in somewhat of a win-win situation given its basis hedge position,' Thompson added.
'Should AECO strengthen as the startup timing of LNG Canada comes into focus, the increased value for the company's domestic netback will offset the softer hedging gains. If the basin remains oversupplied and AECO continues to trade at a discount, Birchcliff stands to generate substantial cash flow on its hedge book.'
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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