NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN
THE UNITED STATES
Birchcliff Energy Ltd. ("Birchcliff") (TSX:BIR) is pleased to announce excellent
financial and operational results for the third quarter of 2013 with record
funds flow, significant earnings and a continued decrease in per unit operating
costs. Birchcliff is also pleased to announce a $59 million disposition of a
non-core asset. We confirm previously announced 2013 fourth quarter and year end
exit production guidance and provide 2014 preliminary guidance and the 2018 Five
Year Plan. The full 2013 Third Quarter Report, containing the unaudited interim
condensed financial statements for the three and nine month periods ended
September 30, 2013 and the related Management's Discussion and Analysis, is
available on Birchcliff's website at www.birchcliffenergy.com and will be
available on SEDAR at www.sedar.com.
Current Highlights
-- Average production for October and November to date is approximately
28,000 boe per day. Birchcliff has 14 (13.17 net) horizontal wells to
bring on production before year end, including 11 (11.0 net)
Montney/Doig horizontal natural gas wells, one (1.0 net) Charlie Lake
horizontal light oil well and two (1.17 net) Halfway horizontal light
oil wells. These wells were completed utilizing the latest multi-stage
fracture stimulation technology.
-- Confirmation of 2013 production guidance. Exit production of
approximately 30,000 boe per day; and fourth quarter average production
in the range of 28,000 to 29,000 boe per day.
-- $59 million asset disposition. Birchcliff has entered into an agreement
with a private company to sell non-core Progress Doe Creek assets. The
sale encompasses approximately 520 boe per day of light oil production.
The transaction has an effective date of May 1, 2013 and is expected to
close before year end, with net proceeds of sale used to reduce debt.
Third Quarter Highlights
-- Production increased 15% to 24,662 boe per day, an increase from 21,426
boe per day in the third quarter of 2012. On a per common share basis,
production increased by 14%.
-- Funds flow increased by 53% to $43.1 million or $0.30 per common share,
up from $28.2 million or $0.20 per common share in the third quarter of
2012. Excluding a non-recurring $4.2 million non-refundable deposit,
funds flow was $38.9 million or $0.27 per basic common share.
-- 16th consecutive quarter of earnings. Net income of $10.2 million, a
270% increase from $2.7 million in the third quarter of 2012.
-- Corporate operating costs of $5.66 per boe, a 6% decrease from $6.01 per
boe in the third quarter of 2012.
-- Pouce Coupe South Natural Gas Plant ("PCS Gas Plant") providing top tier
operating cost performance. In the first nine months of 2013, operating
costs were approximately $0.36 per Mcfe ($2.19 per boe) at our PCS Gas
Plant, where we processed 71% of our natural gas production.
-- Significant land acquisition. Birchcliff purchased 34,560 net acres or
54.0 net sections of undeveloped land predominately in the
Elmworth/Sinclair area, south of Pouce Coupe, Alberta, which is on the
Montney/Doig Natural Gas Resource Play. We now hold 67,680 net acres or
105.8 net sections of land in Elmworth/Sinclair, all at 100% working
interest.
2014 Preliminary Guidance
-- Birchcliff expects 2014 exit production to be between 36,000 and 38,000
boe per day. The capital expenditure to achieve this production target
is expected to be approximately $275 million. Details of the
Corporation's 2014 Budget will be announced mid-February 2014.
2018 Five Year Plan
-- Birchcliff's 2018 Five Year Plan targets a 2018 exit production rate of
approximately 61,500 boe per day, comprised of approximately 320 MMcf
per day of natural gas and 8,000 barrels per day of oil and natural gas
liquids.
-- Birchcliff expects to fund the 2018 Five Year Plan using internally
generated funds flow and available credit facilities. Based on the
forecast production rates and commodity process contained in the 2018
Five Year Plan, the ratio of year end debt to one year's forward funds
flow is expected to decrease each year.
THIRD QUARTER FINANCIAL AND OPERATIONAL HIGHLIGHTS
Three months ended Nine months ended
September 30, September 30,
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2013 2012 2013 2012
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OPERATING
Average daily production
Light oil - (barrels) 3,903 4,076 3,963 4,365
Natural gas - (thousands
of cubic feet) 119,608 100,075 121,526 98,725
NGLs - (barrels) 824 671 747 689
Total - barrels of oil
equivalent (6:1) 24,662 21,426 24,965 21,508
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Average sales price ($ CDN)
Light oil - (per barrel) 102.82 82.45 92.90 84.77
Natural gas - (per
thousand cubic feet) 2.60 2.47 3.26 2.28
NGLs - (per barrel) 95.58 79.74 90.00 85.11
Total - barrels of oil
equivalent(6:1) 32.06 29.73 33.30 30.39
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NETBACK AND COST ($ per
barrel of oil equivalent
at 6:1)
Petroleum and natural gas
revenue 32.07 29.75 33.39 30.41
Royalty expense (3.01) (2.39) (3.02) (3.06)
Operating expense (5.66) (6.01) (5.77) (6.13)
Transportation and
marketing expense (2.44) (2.33) (2.43) (2.36)
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Netback 20.96 19.02 22.17 18.86
General & administrative
expense, net (1.67) (2.03) (2.06) (2.79)
Interest expense (2.14) (2.67) (2.48) (2.43)
Other income 1.83 - 0.61 -
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Funds flow netback 18.98 14.32 18.24 13.64
Stock-based compensation
expense, net (0.39) (0.56) (0.46) (0.68)
Depletion and
depreciation expense (11.40) (11.05) (11.48) (11.36)
Accretion expense (0.26) (0.23) (0.23) (0.22)
Amortization of deferred
financing fees (0.11) (0.10) (0.09) (0.10)
Gain on sale of assets - - - 0.66
Dividends on preferred
shares, Series C (0.46) - (0.15) -
Income tax expense (1.88) (0.99) (1.67) (0.77)
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Net income 4.48 1.39 4.16 1.17
Dividends on preferred
shares, Series A (0.44) (0.29) (0.44) (0.10)
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Net income to common
shareholders 4.04 1.10 3.72 1.07
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FINANCIAL
Petroleum and natural gas
revenue ($000's) 72,762 58,643 227,545 179,205
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Funds flow from operations
($000's)(1) 43,053 28,230 124,301 80,411
Per common share - basic
($)(1) 0.30 0.20 0.87 0.59
Per common share -
diluted ($)(1) 0.30 0.20 0.86 0.58
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Net income ($000's) 10,156 2,744 28,355 6,891
Net income to common
shareholders ($000's)(2) 9,156 2,165 25,355 6,312
Per common share - basic
($)(2) 0.06 0.02 0.18 0.05
Per common share -
diluted ($)(2) 0.06 0.02 0.17 0.05
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Common shares outstanding
End of period - basic 142,752,160 141,534,645 142,752,160 141,534,645
End of period - diluted 163,395,946 162,945,783 163,395,946 162,945,783
Weighted average common
shares for period -
basic 142,548,847 141,474,489 142,206,017 135,572,012
Weighted average common
shares for period -
diluted 145,086,695 143,571,758 144,922,366 138,456,300
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Dividends on preferred
shares, Series A ($000's) 1,000 579 3,000 579
Dividends on preferred
shares, Series C ($000's) 1,038 - 1,038 -
Capital expenditures
($000's) 76,186 88,099 197,582 266,766
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Long-term bank debt
($000's) 444,719 390,541 444,719 390,541
Working capital deficit
($000's) 42,988 77,643 42,988 77,643
Total debt ($000's) 487,707 468,184 487,707 468,184
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(1) Funds flow from operations and per common share amounts are non-GAAP
measures that represent cash flow from operating activities as per the
Statements of Cash Flows before the effects of changes in non-cash
working capital and decommissioning expenditures. Per common share
amounts are calculated by dividing funds flow from operations by the
weighted average number of common shares outstanding for the period.
(2) Net income to common shareholders is calculated using net income as
determined in accordance with GAAP, adjusted for dividends paid on
preferred shares, Series A. Per common share amounts are calculated by
dividing net income to common shareholders by the weighted average
number of common shares outstanding for the period.
PRESIDENT'S MESSAGE FROM THE 2013 THIRD QUARTER REPORT
November 13, 2013
Fellow Shareholders,
Birchcliff Energy Ltd. ("Birchcliff") is pleased to announce excellent financial
and operational results for the third quarter of 2013 with record funds flow,
significant earnings and a continued decrease in per unit operating costs. It is
noteworthy that this is our 16th consecutive quarter of generating earnings.
We continue to be on track to exit 2013 with production of approximately 30,000
boe per day; and fourth quarter average production in the range of 28,000 to
29,000 boe per day.
Average production for October and November to date is approximately 28,000 boe
per day.
To September 30, 2013, Birchcliff has drilled and cased 111 (99.2 net)
Montney/Doig horizontal natural gas wells, utilizing multi-stage fracture
stimulation technology.
Birchcliff has 14 (13.17 net) horizontal wells to bring on production before
year end, including 11 (11.0 net) Montney/Doig horizontal natural gas wells, one
(1.0 net) Charlie Lake horizontal light oil well and two (1.17 net) Halfway
horizontal light oil wells. These wells were completed utilizing the latest
multi-stage fracture stimulation technology. These new wells are expected to
provide Birchcliff with production momentum moving into the first quarter of
2014.
I am pleased to report that through land acquisitions, Birchcliff added a
significant amount of 100% working interest land in its Elmworth/Sinclair area,
which is south of Pouce Coupe, Alberta. This area has excellent potential for
the development of our Montney/Doig Natural Gas Resource Play. Birchcliff had
previously drilled three successful vertical exploration wells in this area
prior to a recent land sale and now owns 67,680 net acres or 105.8 net sections
of land in the Elmworth/Sinclair area, all at 100% working interest. There is
currently access to existing third party infrastructure for the delineation
stage of this project, but as part of our 2018 Five Year Plan, Birchcliff plans
to build a 100% owned natural gas processing facility on or near these lands.
Also in 2013, we have added 12.5 (12.5 net) sections of contiguous land and
additional drilling locations in the heart of our Pouce Coupe area on the
Montney/Doig Natural Gas Resource Play, adjacent to our PCS Gas Plant and
existing infrastructure. As a result of these land acquisitions and our 2013
successful drilling program, Birchcliff now has up to 2,106 net future potential
horizontal drilling locations on the Montney/Doig Natural Gas Resource Play.
Subsequent to the end of the third quarter of 2013, Birchcliff entered into an
agreement with a private company to sell non-core Progress Doe Creek assets for
$59 million, subject to usual closing adjustments. The sale encompasses
approximately 520 boe per day of light oil production, 2.7 million proved
reserves and 4.5 million proved plus probable reserves. The transaction has an
effective date of May 1, 2013 and is expected to close before year end, with net
proceeds of sale used to reduce debt.
Upon the closing of the Progress Doe Creek transaction, Birchcliff will realize
a significant one-time gain in net income. The sale of these assets will not
result in any reduction of Birchcliff's current credit facilities.
We are focused on drilling additional Montney/Doig horizontal natural gas wells
that will produce, at very low cost, to the Pouce Coupe South Natural Gas Plant
(the "PCS Gas Plant"). We continue to decrease our per unit operating costs and
generate even greater returns by utilizing excess capacity at the plant, as our
costs do not significantly increase as processing volumes increase.
Our strategy is to be one of the lowest cost operators in our industry. To
execute this strategy, we intend to process the vast majority of our production
growth at our PCS Gas Plant, where we achieve our lowest processing costs and
highest netbacks.
2013 THIRD QUARTER FINANCIAL AND OPERATIONAL RESULTS
Production
Third quarter production averaged 24,662 boe per day, which is a 15% increase
over production of 21,426 boe per day in the third quarter of 2012. Production
per common share increased 14% from the third quarter of 2012.
Production consisted of approximately 81% natural gas and 19% crude oil and
natural gas liquids in the third quarter. Approximately 71% of Birchcliff's
natural gas production and 60% of corporate production was processed at the PCS
Gas Plant in the first nine months of 2013.
Funds Flow and Earnings
Funds flow increased 53% from the third quarter of 2012, to $43.1 million or
$0.30 per basic common share. Excluding a non-recurring $4.2 million
non-refundable deposit, funds flow was $38.9 million or $0.27 per basic common
share, as compared to $28.2 million or $0.20 per basic common share.
This is the 16th consecutive quarter that Birchcliff has reported earnings.
Birchcliff had net income of $10.2 million as compared to $2.7 million in the
third quarter of 2012, a significant increase of 270%.
Operating Costs
Operating costs in the third quarter were $5.66 per boe, down 6% from the third
quarter of 2012 and down 4% from the second quarter of 2013. This reduction of
operating costs on a per unit basis was largely due to the cost benefits
achieved from processing increased volumes of natural gas through the PCS Gas
Plant and the implementation of various optimization initiatives.
Debt and Capitalization
At September 30, 2013, Birchcliff's long-term bank debt was $444.7 million from
available credit facilities aggregating to approximately $600 million. Total
debt, including the working capital deficit of $43.0 million, was $487.7
million.
Subsequent to the end of the third quarter of 2013, Birchcliff entered into an
agreement with a private company to sell non-core Progress Doe Creek assets for
$59 million, subject to usual closing adjustments. The sale encompasses
approximately 520 boe per day of light oil production, 2.7 million proved
reserves and 4.5 million proved plus probable reserves. The transaction has an
effective date of May 1, 2013 and is expected to close before year end, with net
proceeds of sale used to reduce debt.
Upon the closing of the Progress Doe Creek transaction, Birchcliff will realize
a significant one-time gain in net income. The sale of these assets will not
result in any reduction of Birchcliff's current credit facilities.
At September 30, 2013, Birchcliff had 142,752,160 basic common shares outstanding.
PCS Gas Plant Netbacks
Processing natural gas at the PCS Gas Plant has materially improved Birchcliff's
funds flow and net earnings.
In the first nine months of 2013, net operating costs for natural gas processed
at the PCS Gas Plant averaged $0.36 per Mcfe ($2.19 per boe) and the estimated
operating netback for Birchcliff's natural gas production flowing to the PCS Gas
Plant was $2.79 per Mcfe ($16.77 per boe).
The following table details Birchcliff's net production and estimated operating
netback for wells producing to the PCS Gas Plant, on a production month basis.
------------------------------------
Nine months ended Nine months ended
Production Processed through the PCS Gas September 30, September 30,
Plant 2013(1) 2012
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Average daily production, net to
Birchcliff:
Natural gas (Mcf) 86,870 51,235
Oil & NGLs (bbls) 427 189
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Total boe (6:1) 14,905 8,729
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Percentage of corporate natural gas
production 71% 52%
Percentage of corporate production 60% 41%
Netback and cost: $/Mcfe $/boe $/Mcfe $/boe
Petroleum and natural gas revenue(2) 3.57 21.42 2.54 15.24
Royalty expense (0.15) (0.92) (0.08) (0.48)
Operating expense, net of recoveries (0.36) (2.19) (0.33) (1.98)
Transportation and marketing expense (0.27) (1.54) (0.23) (1.36)
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Estimated operating netback 2.79 16.77 1.90 11.42
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Operating margin(3) 78% 78% 75% 75%
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(1) The PCS Gas Plant processed an average of 104 MMcf per day of gross raw
gas at the inlet for the first nine months of 2013, against current
licensed capacity of 150 MMcf per day at September 30, 2013.
(2) AECO natural gas price averaged $3.06 per Mcf and $2.12 per Mcf for the
nine months ended September 30, 2013 and September 30, 2012,
respectively.
(3) Operating margin at the PCS Gas Plant is determined by dividing the
estimated operating netback by petroleum and natural gas revenue in the
period.
OPERATIONS UPDATE
Drilling
Birchcliff's 2013 drilling program is focused on our two proven resource plays,
the Montney/Doig Natural Gas Resource Play and the Worsley Charlie Lake Light
Oil Resource Play. Birchcliff actively employs the evolving technology utilized
by leaders in the industry regarding horizontal well drilling and the related
multi-stage fracture stimulation techniques.
During the third quarter of 2013, Birchcliff drilled 11 (10.67 net) wells, being
six (6.0 net) natural gas wells and five (4.67 net) oil wells. The natural gas
wells included five (5.0 net) Montney/Doig horizontal wells and one (1.0 net)
Montney/Doig vertical exploration well and the light oil wells included four
(4.0 net) Worsley Charlie Lake horizontal light oil wells and one (0.67 net)
Halfway horizontal light oil well.
In 2013, to the end of the third quarter, Birchcliff has drilled 31 (30.17 net)
wells, being 19 (19.0 net) natural gas wells and 12 (11.17 net) oil wells. The
natural gas wells included 18 (18.0 net) Montney/Doig horizontal wells and one
(1.0 net) Montney/Doig vertical exploration well and the light oil wells
included nine (9.0 net) Worsley Charlie Lake horizontal light oil wells and
three (2.17 net) Halfway horizontal light oil wells.
Birchcliff currently has three drilling rigs working. Two rigs are drilling
Montney/Doig horizontal natural gas wells and the third rig is in the Worsley
area, drilling Charlie Lake horizontal light oil wells. Birchcliff is at various
stages of drilling, completing and tying in the remaining wells in our 2013
drilling program. Birchcliff has 14 (13.17 net) horizontal wells to bring on
production before year end, including 11 (11.0 net) Montney/Doig horizontal
natural gas wells, one (1.0 net) Charlie Lake horizontal light oil well and two
(1.17 net) Halfway horizontal light oil wells.
We continue to evolve our drilling and completion techniques, especially on the
Montney/Doig Natural Gas Resource Play. We utilize a multi-disciplined approach
in our business, incorporating reservoir, facility, drilling and completion
engineering; geology; geophysics; hydrodynamics; petrophysics; and mineral and
surface land, all focused to optimize our drilling and completion programs. As a
result of this work, Birchcliff is seeing higher initial production rates,
higher ultimate recoveries, lower costs per frac and a reduction of our
environmental impact.
The Corporation's drilling activities to date in 2013 utilize leading edge
technology for horizontal well drilling and the application of multi-stage
fracture stimulation techniques. We are utilizing multi-well pad drilling to
improve our drilling and completion efficiencies and provide a significant
reduction in the drilling and completion costs. Another benefit of pad drilling
is that we were able to drill continuously through spring break-up. On our
Montney/Doig Natural Gas Resource Play we used six multi-well pads in 2013; one
six-well pad; two four-well pads, one three-well pad; two two-well pads; and
four single-well pads.
Land
In the third quarter of 2013, Birchcliff added 34,560 (34,560 net) acres or 54.0
net sections of undeveloped land, all at 100% working interest, for a corporate
total at the end of the third quarter of 571,096 (536,771 net) acres of
undeveloped land, all located on the Peace River Arch. The land purchased in the
third quarter of 2013 was acquired for a total of $10.0 million and was
predominantly located in the Elmworth/Sinclair area on the Montney/Doig Natural
Gas Resource Play.
Birchcliff has been very successful in adding to its undeveloped land base. In
2013, to the end of the third quarter, Birchcliff has purchased 72,885.3
(72,565.3 net) acres or 113.9 (113.4 net) sections of undeveloped land at a cost
of $34.4 million dollars. We are delighted with the land acquisitions and
pleased with the investment we have made as we see material future value
associated with these lands. Acquiring this land represents a substantial
investment that Birchcliff has made in its long-term business strategy.
The lands acquired in 2013 include 12.5 (12.5 net) sections right in the middle
of our Pouce Coupe development area as well as 33 (33.0 net) sections in the
Elmworth/Sinclair area where Birchcliff recently drilled and completed its third
vertical exploration well, delineating the Montney/Doig Natural Gas Resource
Play. Our confidence in this project is very high and we are currently planning
for our first horizontal well in the area in 2014. In the Elmworth/Sinclair
area, we now hold 67,680 net acres or 105.8 net sections of land at 100% working
interest.
Montney/Doig Natural Gas Resource Play
In the third quarter of 2013, Birchcliff drilled five (5.0 net) Montney/Doig
horizontal natural gas wells on the Montney/Doig Natural Gas Resource Play. In
2013, to the end of the third quarter, Birchcliff has drilled 18 (18.0 net)
Montney/Doig horizontal natural gas wells and one (1.0 net) Montney/Doig
vertical exploration well, continuing to expand the Montney/Doig Natural Gas
Resource Play both geographically and stratigraphically. Ten (10.0 net) wells
were recently completed and brought on production; six wells on the first
multi-well pad and four wells on the second multi-well pad. Initial production
performance on these 10 wells looks very positive.
Our budget for 2013 includes 25 (25.0 net) Montney/Doig horizontal natural gas
wells and one (1.0 net) Montney/Doig vertical exploration well. Of the 25
horizontal wells, 24 (24.0 net) wells are targeting the Middle/Lower Montney
Play and one (1.0 net) well is targeting the Basal Doig/Upper Montney Play.
We anticipate material reserves additions in the proved developed producing,
proved and proved plus probable categories as a result of our drilling program
on the Montney/Doig Natural Gas Resource Play and land purchases in the Pouce
Coupe area.
Further, we anticipate material additions in resources as a result of our land
purchase in the Elmworth/Sinclair and Pouce Coupe areas. We expect our year end
Montney/Doig Natural Gas Resource Assessment will show material additions to the
category of Total Petroleum Initially In Place, the promotion of resources from
the Undiscovered category to the Discovered category and increases to our
Contingent resources, as compared to our 2012 year end resource assessment.
On the Montney/Doig Natural Gas Resource Play Birchcliff currently owns 329.3
(307.1 net) sections, with an average 93.3% working interest, which have
potential for the Middle/Lower Montney Play, and 267.3 (244.1 net) sections,
with an average 91.3% working interest, which have potential for the Basal
Doig/Upper Montney Play. Birchcliff's total land holdings on these two plays is
596.6 (551.2 net) sections.
With full development of four horizontal wells per section, per play, Birchcliff
has 2,205 net drilling locations. With 99.2 net horizontal locations drilled to
the end of the third quarter of 2013, there remain 2,106 net future horizontal
drilling locations.
Two drilling rigs are currently drilling on our Montney/Doig Natural Gas
Resource Play and we anticipate having 11 (11.0 net) additional Montney/Doig
horizontal natural gas wells on production between now and year end.
PCS Gas Plant Phase IV Expansion
Birchcliff continues to plan for the Phase IV expansion of the PCS Gas Plant in
2014, which has been approved by Birchcliff's Board of Directors. Processing
capacity will be expanded to 180 MMcf per day from 150 MMcf per day by adding
additional compression and sales pipeline capacity. The estimated cost of the
Phase IV expansion is approximately $10 million, with the majority of the costs
to be incurred in 2014. The anticipated start-up date of the Phase IV expansion
will be in the fall of 2014. Subject to natural gas prices in 2014, we intend to
fill the Phase IV expansion with natural gas from new wells drilled by
Birchcliff.
Worsley Charlie Lake Light Oil Resource Play
In the third quarter of 2013, Birchcliff drilled four (4.0 net) Charlie Lake
horizontal light oil wells. In 2013, to the end of the third quarter, Birchcliff
has successfully drilled nine (9.0 net) Charlie Lake horizontal light oil wells,
utilizing multi-stage fracture stimulation technology. Our budget for 2013 for
the Worsley area includes the drilling of 12 (12.0 net) Charlie Lake horizontal
light oil wells.
With the continued positive response of the waterflood within the oil pool, we
are expanding the waterflood area and are conducting the field operations
necessary to convert two wells to injectors and install the associated water
injection infrastructure.
There has been significant industry activity on the Charlie Lake Light Oil
Resource Play south and east of Worsley, with increasing land costs and a number
of drilling successes from various operators. This activity is adding value to
Birchcliff's large undeveloped land position on the play.
One drilling rig is currently drilling on our Worsley Charlie Lake Light Oil
Resource Play and we anticipate having one (1.0 net) additional Charlie Lake
light oil well on production between now and year end, with the remaining two
(2.0 net) on production early in 2014.
Halfway Light Oil Play
In the third quarter of 2013, Birchcliff drilled one (0.67 net) Halfway
horizontal light oil well. This well was drilled from a pad and following the
end of the third quarter, another well (0.5 net) was drilled from the pad and
rig released. These wells were recently completed and will be on production
soon. To date in 2013, Birchcliff has drilled four (2.67 net) wells on the
Halfway Light Oil Play.
SHAREHOLDER SUPPORT
We thank Mr. Seymour Schulich, our largest shareholder, for his leadership,
unwavering commitment and his ongoing financial support. Mr. Schulich holds 40
million common shares representing 28.2% of the current issued and outstanding
common shares.
OUTLOOK
Birchcliff expects 2013 exit production of approximately 30,000 boe per day; and
fourth quarter average production in the range of 28,000 to 29,000 boe per day.
We anticipate material reserves additions in the proved developed producing,
proved and proved plus probable categories as a result of our drilling program
on the Montney/Doig Natural Gas Resource Play and land purchases in the Pouce
Coupe area. The new proved producing reserve additions in 2013 are expected to
result in future increases to Birchcliff's credit facilities, which are
scheduled for renewal in May 2014.
Further, we anticipate material additions in resources as a result of our land
purchases in the Elmworth/Sinclair and Pouce Coupe areas. We expect our year end
Montney/Doig Natural Gas Resource Assessment will show material additions to the
category of Total Petroleum Initially In Place, the promotion of resources from
the Undiscovered category to the Discovered category and increases to our
Contingent resources, as compared to our 2012 year end resource assessment.
The net proceeds of the sale of our non-core Progress Doe Creek assets will
reduce our bank debt and the disposition of these assets will reduce our unit
operating costs and allow us to stay focused on opportunities within on our 100%
working interest lands.
Birchcliff continues to be bullish respecting long-term natural gas prices,
however the extreme volatility in gas prices has led Birchcliff to consider a
hedging program for 2014 in order to protect its cash flow and capital
expenditure program. Accordingly, Birchcliff intends to hedge a portion of its
natural gas for the summer months of 2014 and a portion of its oil production
for the 2014 calendar year. This strategy will allow Birchcliff to participate
in the upside of commodity prices, while being partially protected from weak
commodity prices.
Preliminary Guidance for 2014
Birchcliff expects to have a very strong production growth profile for 2014.
Initially, we will be targeting exit production between 36,000 and 38,000 boe
per day. Although our 2014 Budget has not yet been finalized, on a preliminary
basis, the capital expenditure required to achieve this production target is
expected to be approximately $275 million. Birchcliff expects to fund its 2014
capital program using internally generated funds flow and available credit
facilities and expects that the ratio of 2014 year end debt to one year's
forward funds flow will decrease from year end 2013. These expectations are
based on Birchcliff realizing Cdn. $90.00 per barrel of oil and Cdn. $3.50 per
GJ of natural gas.
2018 Five Year Plan
Birchcliff updates its five year plan in the fall of each year. Birchcliff has
recently finalized its 2018 Five Year Plan, highlights of which include exit
production in 2018 of approximately 61,500 boe per day, made up of approximately
320 MMcf per day of natural gas and 8,000 barrels of oil and natural gas
liquids.
Birchcliff expects to fund the 2018 Five Year Plan using internally generated
funds flow and available credit facilities. Based on the forecast production
rates and commodity process contained in the 2018 Five Year Plan, the ratio of
year end debt to one year's forward funds flow is expected to decrease each
year, based on the assumptions set out in the following table.
2014 2015 2016 2017 2018
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Annual exit production (boe per day) 37,100 38,300 45,300 52,600 61,500
Light oil - WTI Cushing ($CAD/bbl) 90.00 90.00 90.00 90.00 90.00
Light oil - Edmonton Par ($CAD/bbl) 84.00 84.00 84.00 84.00 84.00
Natural gas - AECO - C daily ($/GJ) 3.50 3.80 4.00 4.25 4.50
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Birchcliff currently owns and controls the land necessary to achieve this
production growth profile, allowing it to execute the program without relying on
land, asset or corporate acquisitions. We are confident that we have the asset
base, the people and the capital required to successfully execute our 2018 Five
Year Plan.
We remain focused on our business - growth by the drill bit, in our core area of
the Peace River Arch of Alberta. We continue to use the same services, in the
same area, directed by the same experienced Birchcliff personnel, which provides
consistency, repeatability and reliability in our operations.
As in the past, Birchcliff expects to release its unaudited 2013 year end
financial results, 2013 year end reserves evaluation, 2013 year end Montney/Doig
Natural Gas Resource Assessment, 2013 finding and development costs and 2014
Budget in the middle of February 2014.
We are very pleased and excited with the current and future outlook for
Birchcliff. Our production and opportunity portfolio continues to increase while
our cost structure continues to decrease. Focus, low cost operations and
financial flexibility has positioned Birchcliff to execute its long term
strategy.
Thank you to all of our shareholders for their support and to our staff who
continue to go that extra mile for the benefit of all of us.
With Respect,
A. Jeffery Tonken, President and Chief Executive Officer
ADVISORIES
Unaudited numbers: All financial amounts referred to in this Press Release are
management's best estimates and are unaudited.
Non-GAAP Measures: This Press Release uses "funds flow", "funds flow from
operations", "funds flow netback", "funds flow per common share", "netback",
"operating netback", "estimated operating netback" and "operating margin", which
do not have standardized meanings prescribed by generally accepted accounting
principles ("GAAP") and therefore may not be comparable measures to other
companies where similar terminology is used. Netback or operating netback
denotes petroleum and natural gas revenue less royalties, less operating
expenses and less transportation and marketing expenses. Operating costs at the
PCS Gas Plant are calculated on a production month basis. Estimated operating
netback of the PCS Gas Plant (and the components thereof) is based upon certain
cost allocations and accruals directly related to the PCS Gas Plant and the
related wells and infrastructure, calculated on a production month basis. Funds
flow, funds flow netback or funds flow from operations denotes cash flow from
operating activities as it appears on the Corporation's Condensed Statements of
Cash Flows before decommissioning expenditures and changes in non-cash working
capital. Funds flow, funds flow netback or funds flow from operations is derived
from net income plus income tax expense, depletion and depreciation expense,
accretion expense, stock-based compensation expense, amortization of deferred
financing fees and gains on divestitures. Funds flow per common share denotes
funds flow divided by the weighted average number of common shares. Operating
margin is calculated by dividing the estimated operating netback for the period
by the petroleum and natural gas revenue for the period.
Boe Conversions: Barrel of oil equivalent ("boe") amounts have been calculated
by using the conversion ratio of six thousand cubic feet (6 Mcf) of natural gas
to one barrel of oil (1 bbl). Boe amounts may be misleading, particularly if
used in isolation. A boe conversion ratio of 6 Mcf to 1 bbl is based on an
energy equivalency conversion method primarily applicable at the burner tip and
does not represent a value equivalency at the wellhead.
Mcfe Conversions: Thousands of cubic feet of gas equivalent ("Mcfe") amounts
have been calculated by using the conversion ratio of one barrel of oil (1 bbl)
to six thousand cubic feet (6 Mcf) of natural gas. Mcfe amounts may be
misleading, particularly if used in isolation. A conversion ratio of 1 bbl to 6
Mcf is based on an energy equivalency conversion method primarily applicable at
the burner tip and does not represent a value equivalency at the wellhead.
MMbtu pricing conversions: $1.00 per MMbtu equals $1.00 per Mcf based on a
standard heat value Mcf.
2012 Reserves Evaluation: The reserves volumes disclosed are based on a
reserves evaluation prepared by Deloitte LLP ("Deloitte"), independent qualified
reserves evaluators of Calgary, Alberta, effective December 31, 2012 in respect
of Birchcliff's oil and natural gas properties, which is contained in a report
dated February 8, 2013 (the "2012 Reserves Evaluation"). The 2012 Reserves
Evaluation has been prepared in accordance with the standards contained in the
Canadian Oil and Gas Evaluation Handbook ("COGEH") and National Instrument
51-101 - Standards of Disclosure for Oil and Gas Activities ("NI 51-101").
Reserves for Portion of Properties: With respect to the disclosure of reserves
contained herein relating to portions of the Corporation's properties, the
estimates of reserves and future net revenue for individual properties may not
reflect the same confidence level as estimates of reserves and future net
revenue for all properties due to the effects of aggregation.
2012 Resource Assessment: The resource volumes disclosed are based on a
resource assessment prepared by Deloitte effective December 31, 2012 in respect
of Birchcliff's lands that have potential for the Montney/Doig Natural Gas
Resource Play, which is contained in a report dated February 12, 2013 (the "2012
Resource Assessment"). The 2012 Resource Assessment has been prepared in
accordance with the standards contained in COGEH and NI 51-101.
Discovered Resources: With respect to the discovered resources (including
contingent resources) described in this Press Release, there is no certainty
that it will be commercially viable to produce any portion of the resources.
Undiscovered Resources: With respect to the undiscovered resources (including
prospective resources) described in this Press Release, there is no certainty
that any portion of the resources will be discovered. If discovered, there is no
certainty that it will be commercially viable to produce any portion of the
resources.
Forward-Looking Information: This Press Release contains forward-looking
information within the meaning of applicable Canadian securities laws.
Forward-looking information relates to future events or future performance and
is based upon the Corporation's current internal expectations, estimates,
projections, assumptions and beliefs. All information other than historical fact
is forward-looking information. Information relating to reserves and resources
is forward-looking as it involves the implied assessment, based on certain
estimates and assumptions, that the reserves and resources exist in the
quantities estimated and that they will be commercially viable to produce in the
future. Words such as "plan", "expect", "project", "intend", "believe",
"anticipate", "estimate", "may", "will", "potential", "proposed" and other
similar words that convey certain events or conditions "may" or "will" occur are
intended to identify forward-looking information. In particular, this Press
Release contains forward-looking information relating to 2013 average fourth
quarter and exit production expectations; 2014 exit production, capital
expenditures and sources of funding; 2018 exit production and sources of
funding; expected decrease in the ratio of year-end debt to one year's forward
funds flow; the anticipated closing of the sale of the Progress Doe Creek assets
and the subsequent reduction of debt; anticipated reduction of operating costs
of a per unit basis; the intention to drill and complete future wells; an
expansion of the PCS Gas Plant in 2014; and expected reserves and resource
additions at year-end; and 2014 production and capital spending and the
Corporation's 2018 Five Year Plan production targets.
The forward-looking information is based upon assumptions as to future commodity
prices, currency exchange rates, inflation rates, well production rates, well
drainage areas, success rates for future drilling and availability of labour and
services. With respect to estimates of reserves and resource volumes, a key
assumption is the validity of the data used by Deloitte in their independent
reserves evaluation and resource assessments. With respect to numbers of future
wells to be drilled, a key assumption is that geological and other technical
interpretations performed by the Corporation's technical staff, which indicate
that commercially economic volumes can be recovered from the Corporation's lands
as a result of drilling future wells, are valid. Estimates as to 2013, fourth
quarter and average expectations exit production, average fourth quarter and
annual production rates assume that no unexpected outages occur in the
infrastructure that the Corporation relies on to produce its wells, that
existing wells continue to meet production expectations and future wells
scheduled to come on production in 2013 meet timing and production expectations.
Estimates as to 2014 exit production and 2018 exit production assume future
wells meet production expectations. Estimates as to sources of funding and a
falling debt ratio assume the Corporation realizes certain production and
commodity price assumptions set out in the preliminary 2014 Budget and in the
2018 Five Year Plan.
Undue reliance should not be placed on forward-looking information, as there can
be no assurance that the plans, intentions or expectations upon which they are
based will occur. Although the Corporation believes that the expectations
reflected in the forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to be correct. As a consequence,
actual results may differ materially from those anticipated.
Forward-looking information necessarily involves both known and unknown risks
associated with oil and gas exploration, production, transportation and
marketing such as uncertainty of geological and technical data, imprecision of
reserves and resource estimates, operational risks, environmental risks, loss of
market demand, general economic conditions affecting ability to access
sufficient capital, changes in governmental regulation of the oil and gas
industry and competition from others for scarce resources.
The foregoing list of risk factors is not exhaustive. Additional information on
these and other risk factors that could affect operations or financial results
are included in the Corporation's most recent Annual Information Form and in
other reports filed with Canadian securities regulatory authorities.
Forward-looking information is based on estimates and opinions of management at
the time the information is presented. The Corporation is not under any duty to
update the forward-looking information after the date of this Press Release to
conform such information to actual results or to changes in the Corporation's
plans or expectations, except as otherwise required by applicable securities
laws.
Birchcliff is a Calgary, Alberta based intermediate oil and gas company with
operations concentrated within its one core area, the Peace River Arch of
Alberta. Birchcliff's Common Shares, Cumulative Redeemable Preferred Shares,
Series A and Warrants are listed for trading on the Toronto Stock Exchange under
the symbols "BIR", "BIR.PR.A" and "BIR.WT", respectively.
FOR FURTHER INFORMATION PLEASE CONTACT:
Birchcliff Energy Ltd.
Jeff Tonken
President and Chief Executive Officer
(403) 261-6401
(403) 261-6424 (FAX)
Birchcliff Energy Ltd.
Bruno Geremia
Vice-President and Chief Financial Officer
(403) 261-6401
(403) 261-6424 (FAX)
Birchcliff Energy Ltd.
Jim Surbey
Vice-President, Corporate Development
(403) 261-6401
(403) 261-6424 (FAX)
Birchcliff Energy Ltd.
Suite 500, 630 - 4th Avenue S.W.
Calgary, AB T2P 0J9
www.birchcliffenergy.com
Birchcliff Energy (TSX:BIR)
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