If commodity prices fall, we’ll cut capital spending before we cut the dividend: Birchcliff CEO
Birchcliff Energy Ltd. announced a 900 per cent increase to its quarterly dividend Wednesday, as the company moved to fulfill its previous commitment of returning capital to shareholders.
The new quarterly dividend will be valued at $0.20 per common share for the quarter ending March 31, 2023, according to a news release from the Calgary-based oil company. The dividend was previously valued at $0.02 per share.
The dividend increase comes alongside approval from Birchcliff Energy’s board regarding its new five-year plan, which focuses on delivering returns to shareholders while investing in profitability and long-term sustainability.
“We're not chasing production, we're chasing cash flow and margin. And enough cash flow to fund capex and that dividend and not draw down debt so we don't run into the balance sheet issue ever, period,” Jeffrey Tonken, the Birchcliff Energy chief executive officer, said in an interview with BNN Bloomberg Thursday.
The heightened focus on returning capital to shareholders through outsized dividends will continue to be sustainable, according to Tonken, barring West Texas Intermediate oil prices falling below a US$70 average per barrel and natural gas prices below an average of $3 per gigajoule (GJ).
“Meaning that's our break over [point] where we could not fund all of our dividend and our capital expenditures out of just straight cash flow. We're good to US$70 oil and [an] average [of] $3 [natural] gas. We're pretty comfortable that those averages, if we get down to that, we still can fund our dividend and not have to draw down debt,” Tonken said.
Tonken said that based on current strip prices, the company expects to accumulate around $570 million of cash flow in 2023. Birchcliff Energy will spend around $270 million to generate around 82,000 barrels each day of average production, which leaves the organization with about $300 million in free cash flow.
“And of that $300 million, we are going to give our shareholders $213 million, 80 cents a share or 20 cents a quarter. So that leaves us with $87 million of excess funds. If oil averages US$70 this year and natural gas averaged $3, that $87 million would disappear,” he said.
Birchcliff Energy is a “different company” today then it was three years ago, said Tonken, as it has paid around $920 million of its debt during that time.
Debt elimination has been a long-standing focus for the energy company, which stated in January 2022 that it was working toward eliminating its debt in the next two years.
“We had an excellent year in 2022 which saw us safely and successfully execute our 2022 capital program, significantly reduce our indebtedness and redeem all of our issued and outstanding preferred shares for approximately $88.2 million, while returning $128.9 million to our common shareholders through dividends and common share buybacks,” Tonken said in the release.
In its most recent five-year plan, the company said it will continue to work toward reaching its goal of zero debt in 2023.