CALGARY, Alberta – Birchcliff Energy Ltd. (“Birchcliff” or the “Corporation”) (TSX: BIR) is pleased to announce its financial and operational results for the three and nine months ended September 30, 2020 and its preliminary outlook for 2021. Birchcliff is also excited to announce that it has discovered an extension to the Gordondale light oil pool.
“Birchcliff delivered excellent third quarter results, highlighted by quarterly adjusted funds flow of $59.4 million and free funds flow of $28.5 million, with quarterly average production of 78,376 boe/d. Our ability to drive significant cash flow in the current operating environment speaks to the strong performance of our assets and our low-cost structure,” commented Jeff Tonken, President and Chief Executive Officer of Birchcliff. “During the third quarter, we brought our 14-well pad on production in Pouce Coupe. The 14 wells are producing significantly more condensate/light oil and less natural gas than we previously forecast and we believe we have discovered an extension to the Gordondale light oil pool into the northeastern area of Pouce Coupe. The increased condensate/light oil rates make these 14 wells more economic than we had anticipated. In addition, our new inlet liquids-handling facility in Pouce Coupe that we completed in the third quarter of 2020 allows us to process and sell the condensate/light oil from these wells in Pouce Coupe to achieve a premium price.
We are increasing our 2020 adjusted funds flow guidance to $195 million from $185 million and reducing our 2020 annual average production guidance to 76,000 to 77,000 boe/d from 78,000 to 80,000 boe/d.
For 2021, we are committed to free funds flow generation and debt reduction. Although we have not yet finalized our 2021 plans, we are targeting F&D capital spending to be in the range of $200 million to $220 million with annual average production expected to be 78,000 to 80,000 boe/d, which would generate free funds flow of approximately $140 million at today’s strip prices. None of our production is currently subject to fixed price commodity hedges, which will allow us to take advantage of strengthening natural gas prices.”
Birchcliff’s unaudited interim condensed financial statements for the three and nine months ended September 30, 2020 and related management’s discussion and analysis (the “MD&A”) will be available on its website at www.birchcliffenergy.com and on SEDAR at www.sedar.com.
Q3 2020 Highlights
- Delivered adjusted funds flow of $59.4 million ($0.22 per basic common share) in Q3 2020, a 174% increase from Q2 2020 and a 6% decrease from Q3 2019.
- Free funds flow of $28.5 million ($0.11 per basic common share) in Q3 2020, a 146% increase from Q2 2020 and a 25% increase from Q3 2019.
- Achieved quarterly average production of 78,376 boe/d in Q3 2020, a 5% increase from Q2 2020 and a 3% decrease from Q3 2019.
- Achieved record low operating expense of $2.73/boe in Q3 2020, a 6% decrease from Q2 2020 and a 1% decrease from Q3 2019.
- Realized an operating netback of $12.03/boe in Q3 2020, a 76% increase from Q2 2020 and a 23% increase from Q3 2019.
- Reduced total debt at September 30, 2020 by $23.2 million from June 30, 2020.
- Continued with the successful execution of its 2020 capital program (the “2020 Capital Program”), completing and bringing on production 14 (14.0 net) wells. F&D capital expenditures in Q3 2020 were $30.8 million.
This press release contains forward-looking statements within the meaning of applicable securities laws. For further information regarding the forward-looking statements contained herein, see “Advisories – Forward-Looking Statements”. In addition, this press release contains references to “adjusted funds flow”, “adjusted funds flow per basic common share”, “free funds flow”, “transportation and other expense”, “operating netback”, “adjusted funds flow netback”, “total cash costs” and “total debt”, which do not have standardized meanings prescribed by GAAP and therefore may not be comparable to similar measures presented by other companies where similar terminology is used. For further information regarding these non-GAAP measures, see “Non-GAAP Measures”. With respect to the disclosure of Birchcliff’s production contained in this press release, see “Advisories – Production”.
FINANCIAL AND OPERATIONAL HIGHLIGHTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
|Three months ended
||Nine months ended
|Light oil (bbls/d)||4,405||4,882||4,700||4,845|
|Natural gas (Mcf/d)||358,851||374,180||347,787||364,996|
|Average realized sales price (CDN$)(1)|
|Light oil (per bbl)||48.50||67.15||40.57||68.50|
|Condensate (per bbl)||48.27||65.94||46.07||67.82|
|NGLs (per bbl)||14.05||9.75||12.66||12.70|
|Natural gas (per Mcf)||2.48||1.71||2.33||2.38|
|Total (per boe)||19.80||17.62||17.86||21.08|
|NETBACK AND COST ($/boe)|
|Petroleum and natural gas revenue(1)||19.80||17.62||17.86||21.08|
|Transportation and other expense||(4.49||)||(4.34||)||(4.94||)||(4.41||)|
|Operating netback ($/boe)||12.03||9.77||9.45||12.67|
|G&A expense, net||(0.67||)||(0.74||)||(0.80||)||(0.84||)|
|Realized gain (loss) on financial instruments||(2.28||)||0.22||(2.31||)||0.95|
|Adjusted funds flow netback ($/boe)||8.23||8.50||5.69||11.91|
|Depletion and depreciation expense||(7.54||)||(7.57||)||(7.63||)||(7.51||)|
|Unrealized loss on financial instruments||(3.55||)||(8.22||)||(3.75||)||(6.87||)|
|Dividends on preferred shares||(0.27||)||(0.26||)||(0.28||)||(0.27||)|
|Income tax recovery||0.73||1.50||1.36||1.42|
|Net loss to common shareholders ($/boe)||(2.45||)||(6.33||)||(4.94||)||(1.91||)|
|Petroleum and natural gas revenue ($000s)(1)||142,779||130,588||370,222||448,800|
|Cash flow from operating activities ($000s)||52,977||48,908||116,749||241,509|
|Adjusted funds flow ($000s)||59,377||62,958||118,017||253,563|
|Per basic common share ($)||0.22||0.24||0.44||0.95|
|Net loss to common shareholders ($000s)||(17,692||)||(46,889||)||(102,415||)||(40,595||)|
|Per basic common share ($)||(0.07||)||(0.18||)||(0.39||)||(0.15||)|
|End of period basic common shares (000s)||265,935||265,935||265,935||265,935|
|Weighted average basic common shares (000s)||265,935||265,935||265,935||265,928|
|Dividends on common shares ($000s)||1,330||6,981||9,638||20,942|
|Dividends on preferred shares ($000s)||1,905||1,921||5,749||5,765|
|Total capital expenditures ($000s)(3)||31,193||41,621||248,006||242,111|
|Long-term debt ($000s)||771,706||638,631||771,706||638,631|
|Total debt ($000s)||784,414||644,407||784,414||644,407|
(1) Excludes the effects of financial instruments but includes the effects of physical delivery contracts.
(2) Includes non-cash expenses such as compensation, accretion, amortization of deferred financing fees and other income.
(3) See “Advisories – Capital Expenditures”.
OUTLOOK AND GUIDANCE
Preliminary Outlook for 2021
Based on current strip prices, Birchcliff expects to generate free funds flow of approximately $140 million in 2021(1), with priority being given to debt reduction. Although Birchcliff has not yet finalized its 2021 capital spending plans, it is currently targeting F&D capital spending of $200 million to $220 million and an annual average production rate of 78,000 to 80,000 boe/d. Birchcliff expects to be able to maintain its production at or near 2020 levels with less F&D capital due to the Corporation’s high-quality, low-decline assets. Birchcliff expects facilities and infrastructure spending in 2021 to decrease by approximately 70%, from approximately $75 million in 2020 to approximately $20 million in 2021 as a result of one-time facilities and infrastructure projects completed in 2020.
The 2021 capital program will be designed to provide Birchcliff with significant optionality to take advantage of volatile commodity prices. As a result of Birchcliff’s large inventory of potential future drilling locations, the Corporation has the ability to focus on natural gas, liquids-rich natural gas or light oil drilling, depending on its outlook for commodity prices.
Birchcliff believes that generating free funds flow and the repayment of debt in 2021 will provide it with the most optionality to take advantage of future opportunities in its industry and give Birchcliff the ability to maximize future shareholder returns. Birchcliff continues to work through its plans for 2021 and expects to announce details of its 2021 capital program and guidance in January 2021.
(1) Assuming the following commodity prices and exchange rate: an average WTI price of US$43.70/bbl; an average WTI-MSW differential of CDN$6.25/bbl; an average AECO 5A price of CDN$2.60/GJ; an average Dawn price of US$2.80/MMBtu; an average NYMEX HH price of US$2.95/MMBtu; and an exchange rate (CDN$ to US$1) of 1.31.
Revised 2020 Guidance
As noted above, Birchcliff is revising its adjusted funds flow guidance to $195 million from $185 million and its annual average production guidance to 76,000 to 77,000 boe/d from 78,000 to 80,000 boe/d. Average production in Q4 2020 is now expected to be 78,000 to 79,000 boe/d (previously 81,000 to 83,000 boe/d). Birchcliff expects to generate significant free funds flow in Q4 2020, which will be directed towards debt reduction. Birchcliff’s F&D capital expenditures are expected to be approximately $285 million, which is the mid-point of Birchcliff’s previous guidance range of $275 million to $295 million. Birchcliff now anticipates that total debt at year end will be $740 million to $760 million (previously $750 million to $770 million), a further reduction of $24 million to $44 million from total debt at September 30, 2020.
The following table sets forth Birchcliff’s revised and previous guidance and commodity price assumptions for 2020:
|Revised 2020 guidance and
|Previous 2020 guidance and
|Annual average production (boe/d)||76,000 – 77,000||78,000 – 80,000|
|% Light oil||6%||7%|
|% Natural gas||77%||76%|
|Q4 average production (boe/d)||78,000 – 79,000||81,000 – 83,000|
|Average Expenses ($/boe)|
|Royalty||0.60 – 0.80||0.70 – 0.90|
|Operating||2.85 – 3.05||2.85 – 3.05|
|Transportation and other||4.90 – 5.10||5.00 – 5.20|
|Adjusted Funds Flow (MM$)||195(4)||185|
|F&D Capital Expenditures (MM$)||285(5)||275 – 295|
|Free Funds Flow (MM$)(6)||(90)||(90) – (110)|
|Total Debt at Year End (MM$)||740 – 760(7)||750 – 770|
|Natural Gas Market Exposure(8)|
|AECO exposure as a % of total natural gas production||16%||19%|
|Dawn exposure as a % of total natural gas production||46%||44%|
|NYMEX HH exposure as a % of total natural gas production||34%||34%|
|Alliance exposure as a % of total natural gas production||4%||3%|
|Average WTI price (US$/bbl)||37.50||39.00|
|Average WTI-MSW differential (CDN$/bbl)||8.10||8.75|
|Average AECO 5A price (CDN$/GJ)||2.20||2.10|
|Average Dawn price (US$/MMBtu)(9)||1.95||1.90|
|Average NYMEX HH price (US$/MMBtu)(9)||2.10||2.10|
|Exchange rate (CDN$ to US$1)||1.35||1.35|
(1) Birchcliff’s revised guidance for its commodity mix, adjusted funds flow and natural gas market exposure in 2020 is based on an annual average production rate of 76,500 boe/d during 2020, which is the mid-point of Birchcliff’s revised annual average production guidance for 2020.
(2) Birchcliff’s previous guidance for its commodity mix, adjusted funds flow and natural gas market exposure in 2020 was based on an annual average production rate of 79,000 boe/d during 2020, which was the mid-point of Birchcliff’s previous annual average production guidance for 2020.
(3) As previously issued on August 12, 2020.
(4) Birchcliff’s estimate of adjusted funds flow takes into account the effects of its physical and financial commodity risk management contracts outstanding as at November 12, 2020.
(5) Birchcliff’s estimate of F&D capital expenditures excludes any net potential acquisitions and dispositions. See “Advisories – Capital Expenditures”.
(6) Free funds flow is calculated as adjusted funds flow less F&D capital expenditures and is prior to acquisitions and dispositions, dividend payments, abandonment and reclamation obligations, administrative assets, financing fees and capital lease obligations. See “Non-GAAP Measures”.
(7) The total debt amount set forth in the table above assumes the following: (i) that the timing and amount of preferred share dividends paid by the Corporation remains consistent with previous years, with the dividend rates remaining flat; (ii) that a common share dividend of $0.005 per share is paid for the quarter ending December 31, 2020; (iii) that there are approximately 266 million common shares outstanding; (iv) that there will be 1.96 million cumulative redeemable preferred shares, Series C outstanding at December 31, 2020; (v) that the 2020 Capital Program will be carried out as currently contemplated and the level of capital spending set forth herein will be achieved; and (vi) the targets for production, commodity mix, capital expenditures, adjusted funds flow, free funds flow and natural gas market exposure and the commodity price and exchange rate assumptions set forth herein are met. The amount set forth in the table above does not include annual cash incentive payments.
(8) Birchcliff’s guidance regarding its natural gas market exposure in 2020 assumes: (i) 175,000 GJ/d being sold at the Dawn index price; (ii) 15,600 GJ/d being sold at Alliance’s Trading Pool daily index price; and (iii) 132,500 MMBtu/d being hedged on a financial and physical basis at a fixed basis differential between the AECO 7A price and the NYMEX HH price.
(9) See “Advisories – MMBtu Pricing Conversions”.
The following table illustrates the expected impact of changes in commodity prices and the CDN/US exchange rate on the Corporation’s estimate of adjusted funds flow for 2020 of $195 million, after taking into account the effects of its commodity risk management contracts outstanding as at November 12, 2020:
|Forward Three Months’ Sensitivity(1)||Estimated change to Q4 2020 adjusted funds flow
|Change in WTI US$1.00/bbl||0.9|
|Change in NYMEX HH US$0.10/MMBtu||0.5|
|Change in Dawn US$0.10/MMBtu||1.3|
|Change in AECO CDN$0.10/GJ||0.9|
|Change in CDN/US exchange rate CDN$0.01||0.3|
(1) Adjusted funds flow sensitivities take into account actual prices and exchange rates from January 1, 2020 to September 30, 2020.
(2) See the guidance table above.
(3) The calculated impact on adjusted funds flow is only applicable within the limited range of change indicated. Calculations are performed independently and may not be indicative of actual results. Actual results may vary materially when multiple variables change at the same time.
Ongoing weakness in commodity prices resulting from the COVID-19 pandemic and market volatility may adversely and materially impact the Corporation’s future financial and operational results. Changes in assumed commodity prices and variances in production estimates can have a significant impact on the Corporation’s estimates of adjusted funds flow and free funds flow and the Corporation’s other guidance, which impact may be material. For further information, see “Advisories – Forward-Looking Statements” in this press release.
Q3 2020 FINANCIAL AND OPERATIONAL RESULTS
Birchcliff’s production averaged 78,376 boe/d in Q3 2020, a 5% increase from 74,950 boe/d in Q2 2020. The increase was primarily due to the new 14-well pad brought on production in Pouce Coupe during Q3 2020, partially offset by natural production declines and ongoing impacts of frac-driven interaction. In order to manage the higher condensate and frac water flowback volumes associated with the 14-well pad, Birchcliff proactively and temporarily restricted production of existing wells in Pouce Coupe during Q3 2020.
Birchcliff’s production in Q3 2020 decreased by 3% from 80,548 boe/d in Q3 2019. The decrease was primarily due to the on-stream timing of incremental production from new horizontal oil and condensate-rich natural gas wells in Gordondale and Pouce Coupe during Q3 2020 being later as compared to Q3 2019, as well as natural production declines and ongoing impacts of frac-driven interaction.
Liquids accounted for approximately 24% of Birchcliff’s total production in Q3 2020, which was the same as Q2 2020 and up from 23% in Q3 2019. Liquids weighting increased from Q3 2019 primarily due to incremental production from new liquids-rich natural gas wells in 2020.
Adjusted Funds Flow
Birchcliff’s adjusted funds flow for Q3 2020 was $59.4 million, or $0.22 per basic common share, a 174% and 175% increase, respectively, from $21.7 million and $0.08 per basic common share in Q2 2020. The increases were primarily due to higher reported revenue as compared to Q2 2020. Petroleum and natural gas revenue increased by 37% as compared to Q2 2020, primarily due to a higher average realized sales price in Q3 2020 and an increase in production. Adjusted funds flow was also positively impacted by lower transportation and other expense and a lower realized loss on financial instruments and negatively impacted by higher royalty and interest expenses as compared to Q2 2020.
Birchcliff’s adjusted funds flow in Q3 2020 decreased by 6% and 8% from $63.0 million and $0.24 per basic common share in Q3 2019. The decreases were primarily due to a realized loss on financial instruments of $16.4 million in Q3 2020 as compared to a realized gain on financial instruments of $1.6 million in Q3 2019, partially offset by higher reported revenue. Petroleum and natural gas revenue increased by 9% as compared to Q3 2019, largely due to a higher average realized natural gas sales price in Q3 2020, partially offset by a decrease in the average realized light oil and condensate sales prices and a decrease in corporate production. Birchcliff’s light oil and condensate revenue was negatively impacted by the significant weakness and volatility in oil prices as a result of the COVID-19 pandemic and ensuing global demand destruction. Adjusted funds flow was also negatively impacted by higher interest and transportation and other expenses, and positively impacted by lower operating and royalty expenses as compared to Q3 2019.
Net Loss to Common Shareholders
Birchcliff recorded a net loss to common shareholders of $17.7 million, or $0.07 per basic common share, in Q3 2020, a decrease from $39.5 million and $0.15 per basic common share in Q2 2020. The decreases were primarily due to higher adjusted funds flow as described above, partially offset by higher unrealized mark-to-market losses on financial instruments and a decrease in income tax recovery as compared to Q2 2020.
Birchcliff’s net loss to common shareholders in Q3 2020 decreased from $46.9 million and $0.18 per basic common share in Q3 2019. The decreases were primarily due to lower unrealized mark-to-market losses on financial instruments, partially offset by lower adjusted funds flow as described above and a decrease in income tax recovery as compared to Q3 2019.
Birchcliff’s record low operating expense was $2.73/boe in Q3 2020, a 6% decrease from $2.89/boe in Q2 2020 and a 1% decrease from $2.75/boe in Q3 2019. The decreases were primarily due to various field optimization and cost-saving initiatives in Pouce Coupe and Gordondale, which included the Corporation’s expanded liquids-handling capabilities in Pouce Coupe.
Birchcliff’s operating netback was $12.03/boe in Q3 2020, a 76% and 23% increase from $6.84/boe in Q2 2020 and $9.77/boe in Q3 2019. The increase from Q2 2020 was primarily due to a higher average realized sales price and lower per boe operating and transportation and other expenses, partially offset by a higher per boe royalty expense. The increase from Q3 2019 was primarily due to a higher average realized sales price and lower per boe operating and royalty expenses, partially offset by higher per boe transportation and other expense.
Total Cash Costs
Birchcliff’s total cash costs were $9.37/boe in Q3 2020, a 6% decrease from $9.96/boe in Q2 2020. The decrease was primarily due to lower per boe operating, G&A and transportation and other expenses, partially offset by higher per boe royalty and interest expenses. Birchcliff’s total cash costs on a per boe basis in Q3 2020 were comparable to $9.36/boe in Q3 2019.
Debt and Credit Facilities
Birchcliff has significant liquidity from its credit facilities which have an aggregate principal amount of $1.0 billion and are comprised of an extendible revolving syndicated term credit facility of $900.0 million and an extendible revolving working capital facility of $100.0 million. Birchcliff’s credit facilities do not contain any financial maintenance covenants and do not mature until May 11, 2022. At September 30, 2020, Birchcliff had long-term bank debt of $771.7 million (June 30, 2020: $753.1 million; September 30, 2019: $638.6 million), leaving $222.6 million of unutilized credit capacity after adjusting for outstanding letters of credit and unamortized interest and fees. Total debt at September 30, 2020 was $784.4 million as compared to $807.6 million at June 30, 2020 and $644.4 million at September 30, 2019. Total debt peaked in early Q3 2020 and is expected to decrease throughout the remainder of 2020, with total debt at year end 2020 anticipated to be $740 million to $760 million, a reduction of $24 million to $44 million from total debt at September 30, 2020. See “Outlook and Guidance – Revised 2020 Guidance”.
Pouce Coupe Gas Plant Netbacks
Birchcliff processed approximately 69% of its total corporate natural gas production and 59% of its total corporate production through Birchcliff’s 100% owned and operated natural gas processing plant in Pouce Coupe (the “Pouce Coupe Gas Plant”) in the nine months ended September 30, 2020 as compared to 73% and 63%, respectively, in the nine months ended September 30, 2019. The following table sets forth Birchcliff’s average daily production and operating netback for wells producing to the Pouce Coupe Gas Plant for the periods indicated:
|Nine months ended
September 30, 2020
|Nine months ended
September 30, 2019
|Natural gas (Mcf/d)||238,482||264,699|
|Liquids-to-gas ratio(1) (bbls/MMcf)||21.7||17.8|
|Netback and cost:||$/Mcfe
|Petroleum and natural gas revenue(2)||2.87||17.19||3.09||18.55|
|Transportation and other expense||(0.88||)||(5.30||)||(0.75||)||(4.47||)|
(1) Liquids consists of condensate and other NGLs.
(2) Excludes the effects of financial instruments but includes the effects of physical delivery contracts.
(3) Represents plant and field operating expense.
(4) Operating margin is calculated by dividing the operating netback for the period by the petroleum and natural gas revenue for the period.
Birchcliff’s liquids-to-gas ratio increased by 22% as compared to the nine months ended September 30, 2019 primarily due to: (i) the completion of Birchcliff’s inlet liquids-handling facility at the Pouce Coupe Gas Plant (the “Inlet Liquids-Handling Facility”); and (ii) the addition of the new condensate-rich 14-well pad brought on production in Pouce Coupe in Q3 2020.
The following table sets forth the average benchmark index prices and exchange rate for the periods indicated:
|Three months ended
September 30, 2020
|Three months ended
September 30, 2019
|Light oil – WTI Cushing (US$/bbl)||40.27||56.45||(29||)|
|Light oil – MSW (Mixed Sweet) (CDN$/bbl)||48.09||67.88||(29||)|
|Natural gas – NYMEX HH (US$/MMBtu)(1)||1.98||2.23||(11||)|
|Natural gas – AECO 5A Daily (CDN$/GJ)||2.13||0.86||148|
|Natural gas – AECO 7A Month Ahead (US$/MMBtu)(1)||1.62||0.79||105|
|Natural gas – Dawn Day Ahead (US$/MMBtu)(1)||1.82||2.12||(14||)|
|Natural gas – ATP 5A Day Ahead (CDN$/GJ)||2.12||0.93||128|
|Exchange rate (CDN$ to US$1)||1.3316||1.3207||1|
|Exchange rate (US$ to CDN$1)||0.7509||0.7572||(1||)|
(1) See “Advisories – MMBtu Pricing Conversions”.
Marketing and Natural Gas Market Diversification
Birchcliff’s physical natural gas sales exposure primarily consists of the AECO, Dawn and Alliance markets. In addition, the Corporation has various financial instruments outstanding that provide it with exposure to NYMEX HH pricing.
The following table details Birchcliff’s effective sales, production and average realized sales price for natural gas and liquids for Q3 2020, after taking into account the Corporation’s financial instruments:
|Three months ended September 30, 2020|
total natural gas
|NYMEX HH(1)||12,813||10||%||120,071 Mcf||33||%||25||%||1.16/Mcf|
|Total natural gas||68,221||53||%||358,851 Mcf||100||%||76||%||2.07/Mcf|
|Light oil||19,655||15||%||4,405 bbls||6||%||48.50/bbl|
|Total liquids||60,835||47||%||18,569 bbls||24||%||35.61/bbl|
|Total corporate||129,056||100||%||78,378 boe||100||%||17.90/boe|
(1) A portion of AECO 5A sales and production that effectively received NYMEX HH pricing under Birchcliff’s long-term physical and financial NYMEX/AECO 7A basis swap contracts has been included as effective sales and production in NYMEX HH markets. Birchcliff sold financial and physical AECO 7A basis swaps for 100,000 MMBtu/d at an average contract price of NYMEX less US$1.23/MMBtu during Q3 2020.
(2) Birchcliff has agreements for the firm service transportation of an aggregate of 175,000 GJ/d of natural gas on TCPL’s Canadian Mainline, whereby natural gas is transported to the Dawn trading hub in Southern Ontario.
(3) Birchcliff has sales agreements with a third party marketer to sell and deliver into the Alliance pipeline system. Alliance sales are recorded net of transportation tolls.
Effectively 89% of the Corporation’s sales revenue, representing 82% of its total natural gas production and 87% of its total corporate production, was generated from markets outside of AECO in Q3 2020, after taking into account its liquids sales and long-term financial NYMEX/AECO basis swap position.
The following tables set forth Birchcliff’s sales, production, average realized sales price, transportation costs and natural gas sales netback by natural gas market for the periods indicated, before taking into account the Corporation’s financial instruments:
|Three months ended September 30, 2020|
natural gas sales
|Three months ended September 30, 2019|
natural gas sales
(1) Excludes the effects of financial instruments but includes the effects of physical delivery contracts.
(2) Reflects costs to transport natural gas from the field receipt point to the delivery sales trading hub.
(3) Natural gas sales netback denotes the average realized natural gas sales price less natural gas transportation costs.
(4) Alliance sales are recorded net of transportation tolls.
Capital Activities and Investment
During Q3 2020, Birchcliff continued with the successful execution of the 2020 Capital Program, completing and bringing on production 14 (14.0 net) wells. Total capital expenditures in the quarter were $31.2 million and F&D capital expenditures were $30.8 million. For further information regarding Birchcliff’s operational activities year-to-date, see “Operational Update”.
Discovery of Extension to the Gordondale Light Oil Pool
In Q3 2020, the Corporation brought the production on from its 14-well pad (14-19-079-12W6) located in the northeastern area of Pouce Coupe. The 14 wells were drilled in 3 different intervals, with 5 wells drilled in the Montney D2, 4 wells drilled in the Montney D1 and 5 in the Montney C. The wells have now been producing for over 60 days and have produced significantly more condensate/light oil than previously forecast. During the initial 60 days of production, the pad was flowing inline post-fracture condensate/light oil, raw natural gas and frac water. The production rates of the wells have been stabilizing as the frac water flowing back to surface has been diminishing over time. The following table summarizes the aggregate and average production rates for the 14 wells:
|IP 30(1)||IP 60(1)|
|Aggregate production rate (boe/d)||10,353||9,932|
|Aggregate natural gas production rate (Mcf/d)||31,214||33,991|
|Aggregate condensate/light oil production rate (bbls/d)||5,150||4,265|
|Average per well production rate (boe/d)||740||709|
|Average per well natural gas production rate (Mcf/d)||2,230||2,428|
|Average per well condensate/light oil production rate (bbls/d)||368||305|
|Condensate/light oil to gas ratio (bbls/MMcf)||165||125|
(1) Represents the cumulative volumes for each well measured at the wellhead separator for the 30 or 60 days (as applicable) of production immediately after each well was considered stabilized after producing fracture treatment fluid back to surface in an amount such that flow rates of hydrocarbons became reliable. See “Advisories – Initial Production Rates”.
The results from Birchcliff’s 14-well pad demonstrate the extension of the Gordondale light oil pool into the northeastern area of Pouce Coupe, which provides the Corporation with significantly more potential condensate/light oil drilling opportunities. The 14 wells are showing strong initial condensate/light oil rates, similar to the light oil wells that Birchcliff drilled in Gordondale over the past year, and are delivering strong rates of return at current commodity prices. The Inlet Liquids-Handling Facility, which was completed in the Q3 2020, allows the Corporation to process and sell the condensate/light oil from these wells in Pouce Coupe to achieve a premium price.
Update on the 2020 Capital Program
Birchcliff has completed the vast majority of its 2020 Capital Program, with all previously planned wells brought on production and all major facilities and infrastructure projects successfully completed. The 2020 Capital Program was strategically front-end loaded, allowing Birchcliff to bring new wells on production relatively early in the year in order to optimize producing days for capital spent. Birchcliff expects to spend $285 million in 2020, the mid-point of its previous capital expenditure guidance, as it completes its capital program in Q4 2020. Birchcliff intends to utilize any capital savings realized on the $285 million 2020 Capital Program to prepare for the efficient execution of its 2021 capital program.
The following table summarizes the wells that Birchcliff has brought on production in 2020:
|Area||Total wells brought on
production in 2020
|Montney D1 horizontal natural gas wells||4|
|Montney D2 horizontal natural gas wells||12|
|Montney C horizontal natural gas wells||8|
|Total – Pouce Coupe||24|
|Montney D1 horizontal oil wells||5|
|Montney D2 horizontal oil wells||4|
|Montney D4 horizontal oil wells||1|
|Total – Gordondale||10|
|TOTAL – COMBINED||34|
|AECO||benchmark price for natural gas determined at the AECO ‘C’ hub in southeast Alberta|
|ATP||Alliance Trading Pool|
|bbls/d||barrels per day|
|boe||barrel of oil equivalent|
|boe/d||barrel of oil equivalent per day|
|condensate||pentanes plus (C5+)|
|F&D||finding and development|
|G&A||general and administrative|
|GAAP||generally accepted accounting principles for Canadian public companies which are currently International Financial Reporting Standards as issued by the International Accounting Standards Board|
|GJ/d||gigajoules per day|
|Mcf||thousand cubic feet|
|Mcf/d||thousand cubic feet per day|
|Mcfe||thousand cubic feet of gas equivalent|
|MM$||millions of dollars|
|MMBtu||million British thermal units|
|MMBtu/d||million British thermal units per day|
|MMcf||million cubic feet|
|MMcf/d||million cubic feet per day|
|MSW||price for mixed sweet crude oil at Edmonton, Alberta|
|NGLs||natural gas liquids consisting of ethane (C2), propane (C3) and butane (C4) and specifically excluding condensate|
|NYMEX||New York Mercantile Exchange|
|OPEC||Organization of the Petroleum Exporting Countries|
|TCPL||TransCanada PipeLines Limited|
|WTI||West Texas Intermediate, the reference price paid in U.S. dollars at Cushing, Oklahoma, for crude oil of standard grade|
|$000s||thousands of dollars|
This press release uses the terms “adjusted funds flow”, “adjusted funds flow per basic common share”, “free funds flow”, “transportation and other expense”, “operating netback”, “adjusted funds flow netback”, “total cash costs” and “total debt”. These measures do not have standardized meanings prescribed by GAAP and therefore may not be comparable to similar measures presented by other companies where similar terminology is used. Management believes that these non-GAAP measures assist management and investors in assessing Birchcliff’s profitability, efficiency, liquidity and overall performance.
“Adjusted funds flow” denotes cash flow from operating activities before the effects of decommissioning expenditures and changes in non-cash operating working capital and “adjusted funds flow per basic common share” denotes adjusted funds flow divided by the basic weighted average number of common shares outstanding for the period. “Free funds flow” denotes adjusted funds flow less F&D capital expenditures. “Transportation and other expense” denotes transportation expense plus marketing purchases minus marketing revenue. “Operating netback” denotes petroleum and natural gas revenue less royalty expense, less operating expense and less transportation and other expense. “Adjusted funds flow netback” denotes petroleum and natural gas revenue less royalty expense, less operating expense, less transportation and other expense, less net G&A expense, less interest expense and less any realized losses (plus realized gains) on financial instruments and plus any other cash income sources. “Total cash costs” are comprised of royalty, operating, transportation and other, G&A and interest expenses. “Total debt” is calculated as the revolving term credit facilities plus adjusted working capital deficit. For additional information regarding these non-GAAP measures, including reconciliations to the most directly comparable GAAP measures where applicable, see “Non-GAAP Measures” in the MD&A.
All financial and operational information contained in this press release for the three and nine months ended September 30, 2020 and 2019 is unaudited.
Unless otherwise indicated, all dollar amounts are expressed in Canadian dollars and all references to “$” and “CDN$” are to Canadian dollars and all references to “US$” are to United States dollars.
MMBtu Pricing Conversions
$1.00 per MMBtu equals $1.00 per Mcf based on a standard heat value of 37.4 MJ/m3 or a heat uplift of 1.055 when converting from $/GJ.
Boe and Mcfe Conversions
Boe amounts have been calculated by using the conversion ratio of 6 Mcf of natural gas to 1 bbl of oil and Mcfe amounts have been calculated by using the conversion ratio of 1 bbl of oil to 6 Mcf of natural gas. Boe and Mcfe amounts may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl and an Mcfe conversion ratio of 1 bbl: 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. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.
With respect to the disclosure of Birchcliff’s production contained in this press release: (i) references to “light oil” mean “light crude oil and medium crude oil” as such term is defined in National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101”); (ii) unless otherwise indicated, references to “liquids” mean “light crude oil and medium crude oil” and “natural gas liquids” (including condensate) as such terms are defined in NI 51-101; and (iii) references to “natural gas” mean “shale gas”, which also includes an immaterial amount of “conventional natural gas”, as such terms are defined in NI 51-101. In addition, NI 51-101 includes condensate within the product type of natural gas liquids. Birchcliff has disclosed condensate separately from other natural gas liquids as the price of condensate as compared to other natural gas liquids is currently significantly higher and Birchcliff believes presenting the two commodities separately provides a more accurate description of its operations and results therefrom.
Oil and Gas Metrics
This press release contains metrics commonly used in the oil and natural gas industry, including netbacks. These oil and gas metrics do not have any standardized meanings or standard methods of calculation and therefore may not be comparable to similar measures presented by other companies where similar terminology is used. As such, they should not be used to make comparisons. Management uses these oil and gas metrics for its own performance measurements and to provide investors with measures to compare Birchcliff’s performance over time; however, such measures are not reliable indicators of Birchcliff’s future performance, which may not compare to Birchcliff’s performance in previous periods, and therefore should not be unduly relied upon. For additional information regarding netbacks, see “Non-GAAP Measures”.
Initial Production Rates
Any references in this press release to initial production rates or other short-term production rates are useful in confirming the presence of hydrocarbons; however, such rates are not determinative of the rates at which such wells will continue to produce and decline thereafter and are not indicative of the long-term performance or the ultimate recovery of such wells. In addition, such rates may also include recovered “load oil” or “load water” fluids used in well completion stimulation. While encouraging, readers are cautioned not to place undue reliance on such rates in calculating the aggregate production for Birchcliff. Such rates are based on field estimates and may be based on limited data available at this time. With respect to the production rates for the Corporation’s 14-well pad in Pouce Coupe disclosed herein, such rates represent the cumulative volumes for each well measured at the wellhead separator for the 30 and 60 days, respectively, of production immediately after each well was considered stabilized after producing back to surface fracture treatment fluid in an amount such that flow rates of hydrocarbons became reliable (between 2 and 19 days), divided by 30 or 60 (as applicable), which were then added together to determine the aggregate production rates for the 14-well pad and then divided by 14 to determine the per well average production rates. The production rates excluded the hours and days when the wells did not produce. Approximate tubing pressures for the 14 wells were stabilized between 3.9 and 5.4 MPa for IP 30 production rates and between 4.0 to 5.5 MPa for IP 60 production rates. Approximate casing pressures for the 14 wells were stabilized between 8.3 and 11.6 MPa for IP 30 production rates and between 7.5 to 9.7 MPa for IP 60 production rates. To-date, no pressure transient or well-test interpretation has been carried out on any of the wells. The natural gas volumes represent raw natural gas volumes as opposed to sales gas volumes.
Unless otherwise indicated, references in this press release to: (i) “F&D capital” denotes capital for land, seismic, workovers, drilling and completions and well equipment and facilities; and (ii) “total capital expenditures” denotes F&D capital plus acquisitions, less any dispositions, plus administrative assets.