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'Environment has changed': Birchcliff CEO on dividend cut

In response to a significant drop in commodity prices, Birchcliff Energy has announced a dividend cut and revised output projections for 2024. The company, grappling with the changing economic landscape, aims to navigate the challenges posed by fluctuating market conditions.

Birchcliff Energy made waves in the financial realm by revealing on Wednesday evening that it would slash its quarterly dividend by 50%. This move came as part of a broader strategy to align the company's financial outlook with the current realities of the market. Alongside the dividend reduction, the energy company also adjusted its average output expectations for 2024 to a range of 74,000 to 77,000 barrels of oil equivalent per day. Additionally, cash flow projections for the year were revised downward to $340 million.

The market responded swiftly to these changes, with Birchcliff becoming the worst-performing stock on the TSX as of Thursday morning. Chris Carlsen, the President and CEO of Birchcliff Energy, addressed the alterations during a television interview, shedding light on the factors that prompted these adjustments.

Carlsen explained that the initial projections for 2021 and 2022 were made in a different economic climate when commodity prices were high. However, the landscape has shifted, leading Birchcliff to adapt its strategies accordingly.

"Looking forward into 2024, our real concern is that commodity prices have significantly weakened off, and what we're not going to do is take on a significant amount of debt that puts the company at risk," Carlsen emphasized.

He highlighted the importance of financial prudence in the face of economic uncertainties, stating, "We're just not going to do that." Carlsen sees the dividend cut as a strategic move, making the payouts sustainable for the long term. At 40 cents a share, the company aims to ensure financial stability and longevity, steering away from short-term decision-making.

Carlsen delved into the specific challenges faced by Birchcliff due to the drop in natural gas prices. In August 2022, natural gas was trading at US$9.33 metric million British thermal units (MMBtu), a stark contrast to the current price of $2.75 as of Thursday morning. Carlsen acknowledged that during the period of high prices, the company focused on reducing its debt.

"Commodity prices were in great shape, and Birchcliff itself was able to pay almost $900 million of debt, including our preferred shares," he recalled.

Now, with the natural gas price decline, the company is strategically adjusting its production. Birchcliff has deferred the drilling of 13 wells originally planned for Q2, intending to proceed with these activities in Q3. The goal is to bring these wells online during a period of stronger commodity prices in Q4, aligning the company's operations with market dynamics.

In essence, Birchcliff Energy's recent decisions reflect a proactive approach to the evolving economic landscape. By carefully navigating the challenges presented by fluctuating commodity prices, the company aims to safeguard its financial health and position itself for long-term success.