CALGARY, Alberta – Birchcliff Energy Ltd. (“Birchcliff” or the “Corporation”) (TSX: BIR) is proud to announce its strong financial and operational results for the three months ended March 31, 2021. Birchcliff is also pleased to announce that it is maintaining its 2021 F&D capital expenditures guidance and increasing its 2021 production, adjusted funds flow and free funds flow guidance.
“Birchcliff had a strong first quarter in 2021, highlighted by excellent drilling results. The performance of new wells and the execution by our team helped us achieve an average production rate of 75,065 boe/d, which represents an increase of 2% over Q1 2020. This production, together with improved commodity prices, resulted in substantially higher adjusted funds flow of $87.8 million in the quarter, a 138% increase from Q1 2020. As a result of our strong new well performance and our improved outlook for commodity prices, we are increasing our 2021 guidance for production, adjusted funds flow and free funds flow. We are now targeting annual average production of 79,000 to 81,000 boe/d, up from 78,000 to 80,000 boe/d, and adjusted funds flow of $400 million, up from $360 million. Notwithstanding our increased outlook for adjusted funds flow, we remain committed to capital discipline and are maintaining our F&D capital expenditures guidance at $210 million to $230 million, which results in free funds flow of $170 million to $190 million and puts us in an excellent position to significantly reduce our total debt during the second half of 2021,” commented Jeff Tonken, President and Chief Executive Officer of Birchcliff. “We are excited about the early results from the 7-well pad (04-04) that we brought on production in Pouce Coupe in March. The performance of these wells has exceeded our expectations, with very strong natural gas and condensate production rates. As a result, we have followed up with an 8-well pad immediately offsetting the 04-04 pad, which we expect to be brought on production in Q3 2021.”
Birchcliff’s unaudited interim condensed financial statements for the three months ended March 31, 2021 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.
Q1 2021 HIGHLIGHTS
- Achieved quarterly average production of 75,065 boe/d, a 2% increase from Q1 2020.
- Liquids accounted for approximately 23% of Birchcliff’s total production in Q1 2021, as compared to approximately 22% in Q1 2020, with total liquids production increasing by 7% from Q1 2020.
- Delivered $87.8 million of adjusted funds flow, or $0.33 per basic common share, a 138% increase and a 136% increase, respectively, from Q1 2020.
- Recorded net income to common shareholders of $22.2 million, or $0.08 per basic common share, as compared to a net loss to common shareholders of $45.2 million and $0.17 per basic common share in Q1 2020.
- Achieved operating expense of $3.18/boe, a 1% increase from Q1 2020.
- Realized an operating netback of $17.05/boe, an 83% increase from Q1 2020.
- F&D capital expenditures of $95.8 million. During the quarter, Birchcliff drilled 19 (19.0 net) wells and brought 7 (7.0 net) wells on production as part of the Corporation’s 2021 capital program (the “2021 Capital Program”).
This press release contains forward-looking statements within the meaning of applicable securities laws. For further information regarding the forward-looking statements contained herein, see “Advisories – Forward-Looking Statements”. In addition, this press release uses the terms “adjusted funds flow”, “adjusted funds flow per basic common share”, “free funds flow”, “transportation and other expense”, “operating netback”, “adjusted funds flow netback”, “total cash costs” and “total debt”, which do not have standardized meanings prescribed by GAAP and therefore may not be comparable to similar measures presented by other companies. For further information regarding these non-GAAP measures, see “Non-GAAP Measures”. With respect to the disclosure of Birchcliff’s production contained in this press release, see “Advisories – Production”.
Q1 2021 FINANCIAL AND OPERATIONAL HIGHLIGHTS
|Three months ended
March 31, 2021
|Three months ended
March 31, 2020
|Light oil (bbls/d)||3,355||3,954|
|Natural gas (Mcf/d)||345,057||342,831|
|Average realized sales price (CDN$)(1)|
|Light oil (per bbl)||67.02||53.18|
|Condensate (per bbl)||74.22||58.48|
|NGLs (per bbl)||24.69||12.02|
|Natural gas (per Mcf)||3.52||2.29|
|Total (per boe)||27.47||18.41|
|NETBACK AND COST ($/boe)|
|Petroleum and natural gas revenue(1)||27.47||18.41|
|Transportation and other expense||(5.52||)||(5.00||)|
|Operating netback ($/boe)||17.05||9.32|
|G&A expense, net||(0.92||)||(0.90||)|
|Realized loss on financial instruments||(2.29||)||(2.13||)|
|Adjusted funds flow netback ($/boe)||13.00||5.51|
|Depletion and depreciation expense||(7.47||)||(7.71||)|
|Unrealized loss on financial instruments||(1.13||)||(5.88||)|
|Other (expenses) income(2)||0.25||(0.29||)|
|Dividends on preferred shares||(0.25||)||(0.29||)|
|Income tax recovery (expense)||(1.12||)||1.91|
|Net income (loss) to common shareholders ($/boe)||3.28||(6.75||)|
|Petroleum and natural gas revenue ($000s)(1)||185,609||123,263|
|Cash flow from operating activities ($000s)||82,608||50,551|
|Adjusted funds flow ($000s)||87,820||36,894|
|Per basic common share ($)||0.33||0.14|
|Net income (loss) to common shareholders ($000s)||22,166||(45,201||)|
|Per basic common share ($)||0.08||(0.17||)|
|End of period basic common shares (000s)||266,045||265,935|
|Weighted average basic common shares (000s)||265,989||265,935|
|Dividends on common shares ($000s)||1,330||6,981|
|Dividends on preferred shares ($000s)||1,746||1,922|
|F&D capital expenditures ($000s)(3)||95,840||132,361|
|Total capital expenditures ($000s)(3)||96,625||132,840|
|Long-term debt ($000s)||701,735||619,055|
|Total debt ($000s)||777,385||739,631|
(1) Excludes the effects of financial instruments but includes the effects of physical delivery contracts.
(2) Includes non-cash items such as compensation, accretion, amortization of deferred financing fees and other gains and losses.
(3) See “Advisories – Capital Expenditures”.
OUTLOOK AND GUIDANCE
Increased 2021 Guidance – Maintaining F&D Capital Expenditures
Birchcliff is revising its 2021 guidance as a result of its strong new well performance and improved outlook for commodity prices. Birchcliff now expects to generate approximately $400 million of adjusted funds flow on annual average production of 79,000 to 81,000 boe/d. The Corporation is now targeting $170 million to $190 million of free funds flow in 2021 (previously $130 million to $150 million), which will be prioritized towards debt reduction, with total debt at year end now anticipated to be $600 million to $620 million (previously $635 million to $655 million). Birchcliff is maintaining its previous guidance for F&D capital expenditures and its operating and transportation and other expenses and increasing its royalties guidance due to higher anticipated benchmark commodity prices.
The following table sets forth Birchcliff’s revised and previous guidance and commodity price assumptions for 2021:
|Revised 2021 guidance and
|Previous 2021 guidance and
|Annual average production (boe/d)||79,000 – 81,000||78,000 – 80,000|
|% Light oil||4%||5%|
|% Natural gas||78%||76%|
|Second half 2021 average production (boe/d)||84,000 – 86,000||83,000 – 85,000(3)|
|Average Expenses ($/boe)|
|Royalty||1.55 – 1.75||1.15 – 1.35|
|Operating||2.90 – 3.10||2.90 – 3.10|
|Transportation and other||5.00 – 5.20||5.00 – 5.20|
|Adjusted Funds Flow (MM$)||400(4)||360|
|F&D Capital Expenditures (MM$)(5)||210 – 230||210 – 230|
|Free Funds Flow (MM$)(6)||170 – 190||130 – 150|
|Total Debt at Year End (MM$)||600 – 620(7)||635 – 655|
|Natural Gas Market Exposure(8)|
|AECO exposure as a % of total natural gas production||13%||12%|
|Dawn exposure as a % of total natural gas production||43%||44%|
|NYMEX HH exposure as a % of total natural gas production||38%||38%|
|Alliance exposure as a % of total natural gas production||6%||6%|
|Average WTI price (US$/bbl)||62.00||50.00|
|Average WTI-MSW differential (CDN$/bbl)||5.70||6.00|
|Average AECO 5A price (CDN$/GJ)||2.80||2.50|
|Average Dawn price (US$/MMBtu)(10)||2.85||2.75|
|Average NYMEX HH price (US$/MMBtu)(10)||2.90||2.80|
|Exchange rate (CDN$ to US$1)||1.24||1.27|
(1) Birchcliff’s guidance for its commodity mix, adjusted funds flow and natural gas market exposure in 2021 is based on an annual average production rate of 80,000 boe/d during 2021, which is the mid-point of Birchcliff’s revised annual average production guidance for 2021.
(2) As previously disclosed on March 10, 2021.
(3) Previously disclosed on January 20, 2021. Guidance disclosed on March 10, 2021 included Q4 2021 average production guidance of 83,000 to 85,000 boe/d, which guidance has not been updated.
(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 May 12, 2021.
(5) Birchcliff’s estimate of F&D capital expenditures excludes any net potential acquisitions and dispositions and corresponds to Birchcliff’s 2021 F&D capital budget. 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, preferred share redemptions, 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 common share and preferred share dividends paid by the Corporation remains consistent with previous years, with the dividend rates and applicable taxes remaining unchanged; (ii) that there are 266 million common, 2,000,000 series A and 1,550,129 series C preferred shares outstanding, with no additional redemptions of series C preferred shares or buybacks of common shares occurring during the remainder of 2021; (iii) that there is no repayment of debt using the proceeds from asset dispositions or debt or equity issuances; (iv) that the 2021 Capital Program will be carried out as currently contemplated and the level of capital spending set forth herein will be achieved; and (v) the targets for production, 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 2021 assumes: (i) 175,000 GJ/d being sold on a physical basis at the Dawn price; (ii) 25,300 GJ/d being sold at Alliance on a physical basis at the AECO 5A price plus a premium; and (iii) 152,500 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) Commodity price assumptions are based on anticipated full-year average benchmark prices which includes actual settled benchmark prices for the period from January 1, 2021 to April 30, 2021 and forward strip benchmark prices as of May 5, 2021 for the period from May 1, 2021 to December 31, 2021.
(10) See “Advisories – MMBtu Pricing Conversions”.
Adjusted Funds Flow Sensitivity
Birchcliff does not currently have in place any fixed price commodity hedges and therefore all of its production has benefited from the recent strengthening of benchmark oil and natural gas index prices.
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 2021 of $400 million:
|Forward Nine Months’ Sensitivity(1)||Estimated change to 2021 adjusted funds flow (MM$)(2)(3)|
|Change in WTI US$1.00/bbl||3.8|
|Change in NYMEX HH US$0.10/MMBtu||4.1|
|Change in Dawn US$0.10/MMBtu||5.4|
|Change in AECO CDN$0.10/GJ||3.3|
|Change in CDN/US exchange rate CDN$0.01||3.6|
(1) Adjusted funds flow sensitivities take into account actual settled benchmark prices and exchange rates from January 1, 2021 to March 31, 2021.
(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 volatility in commodity prices resulting from the COVID-19 pandemic 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.
EXTENSION OF CREDIT FACILITIES
Subsequent to the end of the quarter, Birchcliff’s syndicate of lenders completed its regular semi-annual review of the borrowing base limit under the Corporation’s extendible revolving credit facilities (the “Credit Facilities”). During this review, Birchcliff requested that the lenders agree to extend the maturity date of the Credit Facilities by two years and reduce the aggregate borrowing base limit from $1.0 billion to $850.0 million (see “Q1 2021 Financial and Operational Results – Debt and Credit Facilities”). Due to Birchcliff’s significant anticipated adjusted funds flow in 2021 and its commitment to capital discipline and debt reduction, it does not anticipate requiring additional credit capacity, and accordingly, requested the borrowing base limit reduction. This reduction to the borrowing base limit will result in a corresponding decrease to its renewal and standby fees. Birchcliff is committed to capital discipline, reducing its interest costs, strengthening its balance sheet and reducing its total debt going forward. As noted above, Birchcliff expects to generate $170 million to $190 million of free funds flow and reduce its total debt to $600 million to $620 million in 2021.
ANNUAL MEETING OF SHAREHOLDERS – MAY 13, 2021
Birchcliff’s annual meeting of shareholders (the “Meeting”) is scheduled to take place tomorrow, Thursday, May 13, 2021 at 3:00 p.m. (Mountain Daylight Time). The Meeting will be held in a virtual-only format conducted via live audio webcast accessible online at https://web.lumiagm.com/245051871, password “birchcliff2021” (case sensitive). Details of the matters proposed to be put before the Meeting and instructions about how to attend and vote at the Meeting are set out in Birchcliff’s management information circular, which can be found on the Corporation’s website at www.birchcliffenergy.com/investors or on the Corporation’s SEDAR profile at www.sedar.com. Registered shareholders and duly appointed proxyholders will be able to vote on the matters put before the Meeting and ask questions, regardless of their geographic location. Non-registered (beneficial) shareholders who have not duly appointed themselves as proxyholders may still attend the Meeting as guests. Guests will be able to login and listen to the proceedings of the Meeting but will not be able to vote.
Q1 2021 FINANCIAL AND OPERATIONAL RESULTS
Birchcliff’s production averaged 75,065 boe/d in Q1 2021, which was a 2% increase from 73,580 boe/d in Q1 2020. The increase was primarily due to incremental production volumes from the horizontal light oil and natural gas wells brought on production since Q1 2020, including from the new 7-well pad (04-04) brought on production in March 2021, partially offset by natural production declines.
Liquids accounted for approximately 23% of Birchcliff’s total production in Q1 2021, as compared to approximately 22% in Q1 2020, with total liquids production increasing by 7% from Q1 2020. The change in the commodity production mix was primarily due to incremental production from new horizontal light oil and condensate-rich natural gas wells brought on production since Q1 2020, including from the 14-well pad (14-19) and the 7-well pad (04-04) brought on production in July 2020 and March 2021, respectively, as well as increased NGLs recovery at Phase III of the Corporation’s 100% owned and operated natural gas processing plant in Pouce Coupe (the “Pouce Coupe Gas Plant”) beginning in Q4 2020.
Adjusted Funds Flow
Birchcliff’s adjusted funds flow in Q1 2021 was $87.8 million, or $0.33 per basic common share, a 138% increase and a 136% increase, respectively, from $36.9 million and $0.14 per basic common share in Q1 2020. The increases were primarily due to higher reported revenue which was largely the result of a 49% increase in the average realized sales price received for Birchcliff’s production in Q1 2021 as compared to Q1 2020. The average realized sales price benefited from the significant recovery in benchmark oil and natural gas prices mainly due to renewed oil production curtailments by OPEC+, an increase in global demand for oil after governments began easing COVID-19 related restrictions and higher seasonal demand for natural gas in Q1 2021 as compared to Q1 2020.
Net Income to Common Shareholders
Birchcliff recorded net income to common shareholders of $22.2 million, or $0.08 per basic common share, in Q1 2021, as compared to a net loss to common shareholders of $45.2 million, or $0.17 per basic common share in Q1 2020. The change to a net income position was primarily due to higher adjusted funds flow and a lower unrealized after-tax mark‐to‐market loss on financial instruments in Q1 2021 as compared to Q1 2020.
Birchcliff’s operating expense was $3.18/boe in Q1 2021, a 1% increase from $3.14/boe in Q1 2020. The increase was primarily due to higher power and fuel prices as demand increased as a result of extreme cold winter conditions in Q1 2021 and an increase in production costs associated with higher natural gas volumes processed at third-party facilities in the Gordondale area. The increase was partially offset by improved operating efficiencies achieved in the field.
Birchcliff is committed to reducing its per unit operating expense by executing on various field optimization and cost-saving initiatives in Pouce Coupe and Gordondale, which included the completed expansion of Birchcliff’s liquids‐handling capabilities in Pouce Coupe in Q3 2020. Birchcliff’s operating cost structure in Q1 2021 remained largely unaffected by the COVID-19 pandemic.
Birchcliff’s operating netback was $17.05/boe in Q1 2021, an 83% increase from $9.32/boe in Q1 2020. The increase was primarily due to higher per boe petroleum and natural gas revenue, partially offset by higher per boe royalty, operating and transportation and other expenses in Q1 2021.
Total Cash Costs
Birchcliff’s total cash costs were $12.55/boe in Q1 2021, a 15% increase from $10.88/boe in Q1 2020. The increase was primarily due to higher per boe royalty, transportation and other and interest expenses.
Pouce Coupe Gas Plant Netbacks
During Q1 2021, Birchcliff processed 69% of its total corporate natural gas production and 60% of its total corporate production through the Pouce Coupe Gas Plant, as compared to 69% and 59%, respectively, during Q1 2020. The following table sets forth Birchcliff’s average daily production and operating netback for wells producing to the Pouce Coupe Gas Plant for the periods indicated:
|Three months ended
March 31, 2021
|Three months ended
March 31, 2020
|Natural gas (Mcf/d)||237,957||239,236|
|Netback and cost:||$/Mcfe||$/boe||$/Mcfe||$/boe|
|Petroleum and natural gas revenue(2)||4.34||26.05||2.90||17.39|
|Transportation and other expense||(0.98||)||(5.90||)||(0.89||)||(5.34||)|
(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 production and liquids-to-gas ratio increased from Q1 2020 primarily due to: (i) specifically targeted condensate-rich natural gas wells in Pouce Coupe, including the 14-well pad (14-19) and the 7-well pad (04-04) brought on production in July 2020 and March 2021, respectively; (ii) increased NGLs recovery at Phase III of the Pouce Coupe Gas Plant beginning in Q4 2020; and (iii) the operation of its 20,000 bbls/d (50% condensate, 50% water) inlet liquids‐handling facility at the Pouce Coupe Gas Plant (the “Inlet Liquids-Handling Facility”), which became operational in Q3 2020 and allows Birchcliff to handle increased condensate volumes in Pouce Coupe.
Debt and Credit Facilities
At March 31, 2021, Birchcliff had long-term bank debt of $701.7 million (March 31, 2020: $619.1 million) from available Credit Facilities of $1.0 billion (March 31, 2020: $1.0 billion), leaving $293.1 million of unutilized credit capacity after adjusting for outstanding letters of credit and unamortized fees. Total debt at March 31, 2021 was $777.4 million, as compared to $739.6 million at March 31, 2020.
The agreement governing the Credit Facilities was amended effective May 6, 2021 to: (i) extend the maturity dates of each of the syndicated term credit facility (the “Syndicated Credit Facility”) and the extendible revolving working capital facility (“Working Capital Facility”) from May 11, 2022 to May 11, 2024; and (ii) decrease the borrowing base limit to $850.0 million from $1.0 billion, with the Syndicated Credit Facility being decreased to $750.0 million and the Working Capital Facility remaining at $100.0 million. The Credit Facilities do not contain any financial maintenance covenants.
The following table sets forth the average benchmark index prices and exchange rate for the periods indicated:
|Three months ended March 31,|
|Light oil – WTI Cushing (US$/bbl)||57.78||46.17||25|
|Light oil – MSW (Mixed Sweet) (CDN$/bbl)||66.46||51.27||30|
|Natural gas – NYMEX HH (US$/MMBtu)(1)||2.69||1.95||38|
|Natural gas – AECO 5A Daily (CDN$/GJ)||2.70||1.93||40|
|Natural gas – AECO 7A Month Ahead (US$/MMBtu)(1)||2.16||1.60||35|
|Natural gas – Dawn Day Ahead (US$/MMBtu)(1)||2.97||1.76||69|
|Natural gas – ATP 5A Day Ahead (CDN$/GJ)||4.03||1.63||147|
|Exchange rate (CDN$ to US$1)||1.2663||1.3442||(6||)|
|Exchange rate (US$ to CDN$1)||0.7897||0.7439||6|
(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. These instruments allow Birchcliff to swap its physical natural gas sales at the AECO 7A benchmark price for, predominantly on a financial basis, a floating NYMEX HH benchmark price less the fixed basis contract price. The price received for Birchcliff’s NYMEX HH natural gas sales is not fixed, which allows the Corporation to fully participate in the current strengthening of NYMEX HH benchmark prices.
The following table details Birchcliff’s effective sales, production and average realized sales price for natural gas and liquids for Q1 2021, after taking into account the Corporation’s financial instruments:
|Three months ended March 31, 2021|
total natural gas
|NYMEX HH(1)||26,441||16||139,425 Mcf||40||31||2.11/Mcf|
|Total natural gas||93,943||55||345,057 Mcf||100||77||3.03/Mcf|
|Light oil||20,238||12||3,355 bbls||4||67.02/bbl|
|Total liquids||76,161||45||17,556 bbls||23||48.20/bbl|
|Total corporate||170,104||100||75,066 boe||100||25.18/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 the NYMEX HH market. Birchcliff sold financial and physical AECO 7A basis swaps for 152,500 MMBtu/d at an average contract price of NYMEX HH less US$1.227/MMBtu during Q1 2021.
(2) Birchcliff has short-term physical sales agreements with third-party marketers to sell and deliver into the Alliance pipeline system. All of Birchcliff’s short-term physical Alliance sales and production during Q1 2021 received AECO premium pricing and have therefore been included as effective sales and production in the AECO market. Alliance sales are recorded net of transportation tolls.
(3) 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.
The following table sets forth Birchcliff’s sales, average daily production, average realized sales price, transportation costs and netback by physical natural gas market for the periods indicated, before taking into account the Corporation’s financial instruments:
|Three months ended March 31, 2021|
|Natural gas production
natural gas sales
|Natural gas transportation costs(2)
|Three months ended March 31, 2020|
|Natural gas production
natural gas production
natural gas sales
|Natural gas transportation costs(2)
(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) Birchcliff has short-term physical sales agreements with third-party marketers to sell and deliver into the Alliance pipeline system. Alliance sales are recorded net of transportation tolls.
Capital Activities and Investment
During Q1 2021, Birchcliff continued with the successful execution of its 2021 Capital Program, drilling 19 (19.0 net) wells, completing 11 (11.0 net) wells and bringing 7 (7.0 net) wells on production. The following table sets forth the number of wells drilled and brought on production by the Corporation in Q1 2021:
|Area||Wells drilled in Q1 2021||Wells brought on production
in Q1 2021(1)
|Montney D1 horizontal natural gas wells||6||1|
|Montney D2 horizontal natural gas wells||3||0|
|Montney C horizontal natural gas wells||3||0|
|Basal Doig/Upper Montney horizontal natural gas wells||3||6|
|Total – Pouce Coupe||15||7|
|Montney D1 horizontal natural gas wells||2||0|
|Montney D2 horizontal natural gas wells||1||0|
|Montney C horizontal natural gas wells||1||0|
|Montney D1 horizontal oil wells||0||0|
|Montney D2 horizontal oil wells||0||0|
|Total – Gordondale||4||0|
|TOTAL – COMBINED||19||7|
(1) Includes 6 (6.0 net) wells that were drilled and rig released in Q4 2020.
Total capital expenditures for Q1 2021 were $96.6 million, which included F&D capital expenditures of $95.8 million. For further information regarding Birchcliff’s operational activities year-to-date, see “Operational Update”.
The 2021 Capital Program is focused on developing Birchcliff’s low-cost natural gas and liquids-rich production in Pouce Coupe and Gordondale, with the majority of capital investment directed to drilling, completing and bringing on production horizontal condensate-rich natural gas wells in Pouce Coupe and horizontal light oil and condensate-rich natural gas wells in Gordondale. Birchcliff has completed the majority of its 2021 Capital Program, with all but 2 wells being drilled, 21 of 33 wells being completed and 11 of 33 wells being brought on production to date and several field infrastructure projects successfully completed. The 2021 Capital Program is 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.
The following tables set forth the wells that Birchcliff has drilled and brought on production year-to-date and the remaining and total number of wells to be drilled and brought on production in 2021:
Wells Drilled – 2021
|Area||Wells drilled to date
|Remaining wells to be drilled in 2021||Total wells to be
drilled in 2021
|Montney D1 horizontal natural gas wells||7||0||7|
|Montney D2 horizontal natural gas wells||3||0||3|
|Montney C horizontal natural gas wells||3||0||3|
|Basal Doig/Upper Montney horizontal natural gas wells||6||0||6|
|Total – Pouce Coupe||19||0||19|
|Montney D1 horizontal natural gas wells||2||0||2|
|Montney D2 horizontal natural gas wells||1||0||1|
|Montney C horizontal natural gas wells||1||0||1|
|Montney D1 horizontal oil wells||1||1||2|
|Montney D2 horizontal oil wells||1||1||2|
|Total – Gordondale||6||2||8|
|TOTAL – COMBINED||25||2||27|
Wells Brought on Production – 2021
|Area||Wells brought on
production to date
|Remaining wells to be brought on production
|Total wells to be brought on production
|Montney D1 horizontal natural gas wells||1||6||7|
|Montney D2 horizontal natural gas wells||0||3||3|
|Montney C horizontal natural gas wells||0||3||3|
|Basal Doig/Upper Montney horizontal natural gas wells||6||6||12|
|Total – Pouce Coupe||7||18||25|
|Montney D1 horizontal natural gas wells||2||0||2|
|Montney D2 horizontal natural gas wells||1||0||1|
|Montney C horizontal natural gas wells||1||0||1|
|Montney D1 horizontal oil wells||0||2||2|
|Montney D2 horizontal oil wells||0||2||2|
|Total – Gordondale||4||4||8|
|TOTAL – COMBINED||11||22||33|
(1) Includes 6 (6.0) net wells that were drilled and rig released in Q4 2020.
Pouce Coupe Area
Significant IP30 and IP60 Results from Birchcliff’s 7-Well Pad (04-04-78-13W6)
Birchcliff has successfully completed its 7-well pad (04-04) in Pouce Coupe, which was drilled in late Q4 2020 and early January 2021 and brought on production in March 2021 through Birchcliff’s existing owned and operated infrastructure. Six wells on the 04-04 pad were drilled in the Basal Doig/Upper Montney interval and one well was drilled in the Montney D1 interval, offsetting several of Birchcliff’s existing high-productivity, low-cost natural gas wells.
The wells have now been producing for over 60 days and have produced at significantly better rates than previously forecast. After completing approximately 20 days of initial well testing and frac clean-up operations, the 6 Basal Doig/Upper Montney wells have flowed with approximate peak daily rates between 5.5 and 10.5 MMcf/d, with 40 to 70 bbls of condensate per MMcf of natural gas and the Montney D1 well has flowed with a peak daily rate of 14.0 MMcf/d with 5 bbls of condensate per MMcf of natural gas. After well testing, the Corporation has been flowing the wells at restricted rates between 3.0 and 6.5 MMcf/d to manage drawdown and any potential sand flowback. Birchcliff expects that several of the wells are capable of being held at stabilized rates for an extended duration, which will allow for strong stable production profiles and less backout of Birchcliff’s existing area production.
During the initial 30 and 60 days of production, the pad was flowing inline post-fracture condensate, raw natural gas and frac water. The production rates of the wells are stabilized and the frac water flowing back to surface continues to diminish over time. The following table summarizes the aggregate and average production rates for the 7 wells:
|IP 30(1)||IP 60(1)|
|Aggregate production rate (boe/d)||8,728||7,753|
|Aggregate natural gas production rate (Mcf/d)||46,824||41,854|
|Aggregate condensate production rate (bbls/d)||923||777|
|Average per well production rate (boe/d)||1,247||1,108|
|Average per well natural gas production rate (Mcf/d)||6,689||5,979|
|Average per well condensate production rate (bbls/d)||132||111|
|Condensate to gas ratio (bbls/MMcf)||20||19|
(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”.
8-Well Pad (14-28-77-13W6)
The results from the 04-04 pad provide Birchcliff with significantly more potential high-rate natural gas and condensate drilling opportunities. In light of the successful results, Birchcliff has substituted 4 wells from a northern Pouce Coupe pad with 4 wells on its 8-well pad (14-28), which is offsetting the 04-04 pad. The Corporation has recently completed the drilling of all 8 wells on the 14-28 pad (6 in the Basal Doig/Upper Montney and 2 in the Montney D1) and the pad is now awaiting completion operations. Modifying the 2021 Capital Program by moving these wells within Pouce Coupe reflects Birchcliff’s ability to build on its recent drilling success.
10-Well Pad (14-06-79-13W6)
Birchcliff has successfully drilled, completed and is currently in preliminary flow testing operations on its 10-well pad (14-06), which was drilled in 3 intervals (3 in the Montney C, 4 in the Montney D1 and 3 in the Montney D2). The pad resides three miles south of the Corporation’s 2020 14-well pad (14-19) and is targeting condensate-rich natural gas wells versus the light oil wells discovered at 14-19 pad. Birchcliff expects to continue to drive drilling and completion costs down through scale and repeatability on larger pads as exhibited by its recent execution on its 2021 Capital Program and the successful operations at the 14-19 pad in 2020.
It is expected that the 14-06 pad and the 14-28 pad will be brought on production in the second and third quarters of 2021, respectively. The Inlet Liquids-Handling Facility, which was completed in Q3 2020, allows the Corporation to process and sell the condensate from its new wells in Pouce Coupe to achieve a premium price and handle the majority of the fracture flowback water volumes at the Pouce Coupe Gas Plant instead of relying on third-party infrastructure.
2020 14-Well Pad (14-19-79-11W6) Update
In Q3 2020, the Corporation brought the production on from its 14-well pad (14-19) located in the northeastern area of Pouce Coupe. The 14 wells were drilled in 3 different intervals (5 in the Montney D2, 4 in the Montney D1 and 5 in the Montney C). The wells have now been producing for over 6 months and continue to produce more condensate/light oil than initially forecast. Final average per well costs were approximately $4.2 million per well.
The gross capital cost of the 14-19 pad was $58.2 million dollars, which includes a large diameter pipeline that has significant future value. As of April 30, 2021, Birchcliff has received estimated net operating cash flow of approximately $37.0 million dollars from the pad since it has come on-stream in August 2020 and anticipates that the pad will pay out approximately 1.3 years after coming on-stream.
Birchcliff plans to drill and bring on production a total of 8 (8.0 net) wells on 2 pads in Gordondale in 2021, which is expected to keep AltaGas’s deep-cut sour gas processing facility in Gordondale (the “AltaGas Facility”) full during the year. Development of the Montney D1 and D2 will continue in Gordondale and Birchcliff has also recently brought on production its first Montney C well in Gordondale. The Corporation is targeting liquids-rich natural gas versus light oil due to Birchcliff’s outlook for strong natural gas prices.
4-Well Pad (05-07-79-11W6)
Subsequent to the end of the first quarter, Birchcliff completed and brought on production its 4-well pad (05-07) in Gordondale which utilized multi-interval cube style development. The 05-07 pad is targeting 3 intervals (2 in the Montney D1, 1 in the Montney D2 and 1 in the Montney C). The extension of the Montney C interval into Gordondale is based on successful well results offsetting in Pouce Coupe and significant technical reservoir and geoscience work. Birchcliff has been encouraged by the initial flow test results to date on this pad.
4-Well Pad (06-35-77-11W6)
Birchcliff currently has one drilling rig working at its 4-well pad (06-35) in Gordondale, which is targeting light oil and natural gas in two intervals (2 in the Montney D1 and 2 in the Montney D2). These wells are offsetting high-rate light oil and natural gas producing wells drilled by Birchcliff in the southeastern portion of Gordondale in 2019 and 2020.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
Birchcliff is committed to the responsible development of its assets and is one of the lowest emissions intensity producers in the industry. Continuing Birchcliff’s industry-leading ESG performance remains a top priority in 2021. Birchcliff intends to release its ESG report for the year ended December 31, 2020 in Q3 2021.
Emissions Performance Credits
The Pouce Coupe Gas Plant is a very low emissions intensity facility and is playing a significant role in Birchcliff continuing to be one of the lowest emissions intensity producers in the industry. Birchcliff has been awarded Emissions Performance Credits (“EPCs”) for the two most recent reporting years, valued at an aggregate of approximately $2.8 million, as a result of the many efficiency initiatives at the Pouce Coupe Gas Plant. In Alberta EPCs are awarded pursuant to the Technology Innovation and Emissions Reduction Regulation (“TIER”), which replaced its predecessor regulation on January 1, 2020. Facilities regulated under TIER, such as the Pouce Coupe Gas Plant, must reduce emissions beyond their established facility benchmarks in order to generate EPCs.
The Pouce Coupe Gas Plant is highly fuel efficient compared to many older plants in Alberta. It is equipped with modern, high-efficiency natural gas engines with state-of-the-art emission controls, waste heat recovery, high efficiency process heaters, and acid gas capture and sequestration. The Pouce Coupe Gas Plant has two acid gas sequestration wells, which have extracted and disposed of over 56,300 tonnes of CO2 from the raw natural gas stream in their 11 years of operation. This acid gas scheme is a significant competitive advantage for Birchcliff as the price of carbon increases.
Further Emissions Reduction Initiatives
Birchcliff maintains an active fugitive emission management program to detect and repair methane leaks, pursuant to Alberta Energy Regulator Directive 060: Upstream Petroleum Industry Flaring, Incinerating, and Venting (“Directive 60”). Birchcliff engages a third-party environmental firm to conduct an annual fugitive emission survey on its behalf. This report summarizes the emissions identified at each of the surveyed facilities, as well as the leak detection and quantification methodologies applied. Additionally, Birchcliff is continually looking for opportunities to reduce its carbon footprint. The Corporation has developed a Methane Reduction and Retrofit Compliance Plan (“MRRCP”) pursuant to Directive 60 to identify, retrofit or remove all remaining venting equipment from its operations. Birchcliff has a relatively small inventory of remaining methane venting equipment, such as pneumatic devices and compressor seals, and expects to have this initiative completed by 2023. In 2020, these venting sources combined with fugitive emissions made up only approximately 10% of Birchcliff’s corporate GHG emissions. With the implementation of its MRRCP, the Corporation anticipates that these venting sources and fugitive emissions will be reduced by 50% before 2023.
NGIF Industry Grants and NGIF Cleantech Ventures Equity Fund
Birchcliff is investing financial resources and time to support its commitment to further reduce its impact and the impact of the oil and gas industry as a whole on the environment. Birchcliff is proud to be a partner in the Natural Gas Innovation Fund (“NGIF”) through two of its entities: NGIF Industry Grants organization and Cleantech Ventures Equity Fund.
Birchcliff has been a member of NGIF Industry Grants since 2018 when it was expanded to include natural gas producers. NGIF Industry Grants was created by the Canadian Gas Association to support the funding of cleantech innovation in the natural gas value chain. In total, NGIF Industry Grants has approved grant funding to over 50 projects, committing approximately $15 million, and leveraged federal and provincial grant funding of over $35 million, to help early-stage clean technology companies develop solutions to reduce emissions, increase energy efficiency and accelerate the use of natural gas to support environmental goals in Canada. NGIF Industry Grants anticipates that the technologies supported by these grants will result in an estimated 6 megatonne reduction in emissions by 2030, as the technologies are commercialized.
On April 1, 2021, Birchcliff became a founding partner in the NGIF Cleantech Ventures Equity Fund, a $35 million industry-led seed fund that will leverage the experience and expertise of the seven energy sector limited partner investors to support early-stage clean technology companies through equity investment. NGIF Cleantech Ventures investments will include solutions that lead to emissions reductions and other environmental benefits in existing natural gas production, transmission, distribution, carbon capture utilization and storage, and end-use applications, as well as projects that will lead to the expanded production of emerging fuels like renewable natural gas and hydrogen.
|AECO||benchmark price for natural gas determined at the AECO ‘C’ hub in southeast Alberta|
|ATP||Alliance Trading Pool|
|bbls/d||barrels per day|
|boe||barrel of oil equivalent|
|boe/d||barrel of oil equivalent per day|
|condensate||pentanes plus (C5+)|
|ESG||environmental, social and governance|
|F&D||finding and development|
|G&A||general and administrative|
|GAAP||generally accepted accounting principles for Canadian public companies which are currently IFRS|
|GJ/d||gigajoules per day|
|IFRS||International Financial Reporting Standards as issued by the International Accounting Standards Board|
|Mcf||thousand cubic feet|
|Mcf/d||thousand cubic feet per day|
|Mcfe||thousand cubic feet of gas equivalent|
|MM$||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 (“OPEC”), with certain non-OPEC oil 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 on a per boe basis. “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” denotes royalty, operating, transportation and other, G&A and interest expenses on a per unit basis. “Total debt” is calculated as the amount outstanding under the Credit Facilities plus adjusted working capital deficit (which is calculated as current assets minus current liabilities excluding the effects of any current portion of financial instruments and capital securities). 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 months ended March 31, 2021 and 2020 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 7-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 (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 (between 0 and 4 days), divided by 30 or 60 (as applicable), which were then added together to determine the aggregate production rates for the 7-well pad and then divided by 7 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 7 wells were stabilized between 6.1 and 14.1 MPa for IP 30 production rates and between 3.5 to 4.4 MPa for IP 60 production rates. Approximate casing pressures for the 7 wells were stabilized between 3.1 and 5.0 MPa for IP 30 production rates and between 6.8 to 14.8 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.