Here’s how they did it.
Birchcliff Energy Ltd. is an intermediate oil and gas company operating primarily out of the Peace River Arch of Alberta. Jeffery Tonken, CEO of Birchcliff Energy in Alberta, says their stock is down 64% compared to a year ago, yet the company is more profitable than ever.
How does that happen?
The short answer. Companies that are strategic with an ironclad profit plan regardless of the investment climate and price of oil can succeed in the current market.
Birchcliff’s strategy was ensured that the 5000 locations that they drill In Peace River Arch were 100% owned by them. They have no partners and they own their infrastructure. This insular approach ensured a level of responsibility for the outcome of their business, and as a result, profitability was stronger than ever. Tonken believed that reliance on investment to keep the company afloat would negatively impact the bottom line.
Where many companies are failing is in designing a plan that overcomes all possible declines, including oil price and investment. Tonken warns that companies that have to rely on outside equity to grow or produce oil at this time, would suffer in company profitability, based on a lack of current investors in the oil and gas market.
Today Birchcliff Energy Inc. produces 70,000 barrels of oil a day. In a year from now, they expect to be at 100,000 barrels a day. At the current industry average estimate of oil price $54 oil and $3 gas, Tonken says, “We are a low-cost producer and sustain a small dividend which we intend to grow over the next number of years. There are some moving pieces to consider;
Do you have the properties, people, and the assets to execute a growth plan?
Do you have a good balance sheet?
Are you living within your means so that the growth profile is not so high that you outspend your cash flow?”
He continues, “I’m very unhappy with my stock price but I know my business strategy holds together, and I can execute it. And I believe that over time, as the commodity’s energy stock returns to a better place, the value players will start to buy our stock and it will go back up. And I know one this for sure, I can survive at low commodity prices.”
A carbon tax, corporate tax, property tax, personal income tax added to an oil price decline, longer regulatory processes and an investment decline is a recipe for the perfect storm. That storm may take down the country’s economic engine which is a powerful contributor to our healthcare and other social services. Tonken says, “when you add costs, and more costs, and more costs, to the energy business eventually you are going to kill it. In the US, they are becoming very pro-energy, and they are driving their costs down, and their tax regimes are more competitive for them to do business down there. If we don’t be careful in Canada, we are going to add too many taxes to our businesses and strangle the golden goose.”
Pictures and Source:
Birchcliff Energy Inc.
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