Jameson Berkow

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Birchcliff Energy is planning to completely eliminate its debt within the next two years, which analysts believe will allow the natural gas producer to pay significantly higher dividends.

The Calgary-based company released an updated five-year plan after markets closed Wednesday forecasting as much as $1.9 billion in cash to be generated between now and the end of 2026, with the potential to reduce total debt to zero in 2023. Birchcliff is hoping to reduce the amount of money it owes to creditors by more than three quarters from early 2021 levels of $762 million to a range of $175 million to $195 million by the end of this year.

“We see [Birchcliff] becoming debt-free in 2023, setting the stage for an outsized return of capital via continued increases to base dividend and share buybacks,” RBC Capital Markets Analyst Michael Harvey said in a note to clients on Thursday morning.

Having already doubled its quarterly payout to one cent per share last November, RBC is now expecting the Birchcliff dividend to increase four more times by the end of next year, rising to nine cents per share on an annualized basis by the end of 2022 and $0.24 by late 2023.

Those higher payouts might not start until much later this year, however, as CIBC Capital Markets Analyst Chris Thompson told clients “further [dividend] increases are unlikely in the first half of 2022.”