Birchcliff's deal with Altagas is better than the market seems to think

Shipment of Butane to Asia through Altagas is more profitable than selling Butane in the Alberta market

Under the radar, the deal with Altagas that gives Birchcliff the operating role in the Gordondale gas processing plant has investors focusing on the relatively minor benefits in terms of operating costs. Don’t ignore those savings, while relatively minor they are nonetheless material.

More importantly, but ignored by the market is the tolling agreement that lets Birchcliff sell butane to the Asian market through Altagas, starting at a rate of 625 boe/day and rising to 1 thousand boe/day by March of 2025.

The butane price in Asian markets is about $18.60 per million Btu, almost six times higher than the $2.80 price in Alberta markets.

A barrel of Butane is a heat value of 4.3 million BTU. US$18.60 per mmbtu is equivalent to roughly CDN$105 per barrel (4.3 x 18.6 x 1.32 = ~$105). The benefit to Birchcliff is an uptick of about CDN$25 million a year in cash flow in 2025. I would expect the tolling agreement to comprise greater volumes in later years as Altagas and Birchcliff work together.

Birchcliff annual production of ~75,000 Boe/day is 10% NGL or 7,500 boe/day. Butane and isobutane comprise about 17% of NGL, in the case of Birchcliff somewhere in the range of 1,275 boe/day. The benefit of the Altagas tolling agreement is a much higher price for current butane content and the volumes will grow or fall with the level of output Birchcliff turns in each year, but at present the deal with Altagas provides a high price on a substantial portion of Birchcliff’s NGL output.

Time will tell how beneficial the Altagas deal will work out for both companies, but at first blush it looks like both companies win.

As I have often told readers, I have a large position in Birchcliff and expect I will add to it over time.