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Ten inch and 4"inch pipes used to draw gas from a pipeline into Coquitlam, B.C. (CHAD HIPOLITO For The Globe and Mail)
Ten inch and 4"inch pipes used to draw gas from a pipeline into Coquitlam, B.C. (CHAD HIPOLITO For The Globe and Mail)

Schizas’ Mailbag

This natural gas producer hasn’t bottomed yet Add to ...

Hi Lou,

I am looking to add some shares of Birchcliff to my portfolio near $7.00. While their debt/cash flow is a little higher than I would like, they have done a very good job of growing production and reserves.

Also: If/when LNG terminals are built (west coast or otherwise) they should be in good position. They have strong backing of a billionaire. Presumably he is in to make $.

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I would like your thoughts.

Thank you,

Tom

Hey Tom,

Thanks for the assignment.

Birchcliff Energy Ltd. has been suffering with all natural gas producers. The price of the commodity has been under pressure as new sources of supply in North America have left producers scrambling to find new markets in Asia. The promise of liquefied natural gas exports is what I would call an if come. If it comes, great, but it’s not yet a reality. You mentioned a billionaire stepping up to invest in the company. My research indicates it was Seymour Schulich who on March 30, 2012, injected $38-million in an effort to maintain his ownership stake in the enterprise. Other investors saw the issuing of new shares as a dilution of their equity position and responded by selling.

A study of the charts will inform my thoughts on the opportunities and risks related to BIR.

The three-year chart illustrates the gap down after the announcement that Schulich was stepping up in March of last year. The shares eventually hit a low of $5.60 on June 29, 2012, where it caught a bounce and started a new advance. The move higher came to an end when the shares met resistance near $9.00 and pulled back to $7.00. Worth noting is the double top that formed in late May and early July of 2013 and the death cross that surfaced in late August.

The six-month chart provides a close-up of the double top which signalled the end of the advance. In addition, the MACD and the RSI indicated that sellers were taking control of market in mid July. Currently the momentum indicators are turning lower which suggests that investors should expect more selling pressure.

Unfortunately these charts are not providing me with enough evidence to support a buy. The shares have been building a base at $7.00 but I am not sure that it’s the bottom. Personally I would give this one a pass.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it in to lschizas@globeandmail.com.

 
Security Price Change
BIR-T Birchcliff Energy 11.52 -0.06
-0.518 %
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