CALGARY, Alberta – Birchcliff Energy Ltd. (“Birchcliff” or the “Corporation”) (TSX: BIR) is proud to announce its financial and operational results for the three and six months ended June 30, 2021.
“Birchcliff had an excellent second quarter in 2021, with solid average production of 75,265 boe/d which resulted in $90.2 million of adjusted funds flow(1), a 315% increase from Q2 2020. Our average production in July exceeded 85,000 boe/d(2) based on field estimates and we are on track to meet our second half production guidance of 84,000 to 86,000 boe/d and our annual average production guidance of 79,000 to 81,000 boe/d. The performance of our new wells and the current strength we are seeing in oil and natural gas prices positions us for a very strong second half in 2021, with significant anticipated increases in adjusted funds flow and free funds flow(1). Birchcliff does not have any fixed price commodity hedges which allows all of our production to benefit from strong oil and natural gas prices and we currently have no intention of entering into any fixed price commodity hedges,” commented Jeff Tonken, President and Chief Executive Officer of Birchcliff.
“Due to the successful execution of our business plan and the recent strengthening of forward oil and natural gas prices, we are increasing our 2021 guidance for adjusted funds flow to $500 million(3) (up from $400 million) and free funds flow to $270 million to $290 million (up from $170 million to $190 million). We remain committed to capital discipline and we are maintaining our guidance for 2021 F&D capital expenditures at $210 million to $230 million, notwithstanding the fact that this is the second time in 2021 that we have increased our guidance for adjusted funds flow and free funds flow,” said Mr. Tonken. “As the majority of our 2021 capital program has now been completed, our total debt(1) is expected to significantly decrease over the remainder of the year. With free funds flow now targeted at $270 million to $290 million, we expect that our total debt at year end will be $500 million to $520 million, down from our previous guidance of $600 million to $620 million. Our total debt at year end is expected to decrease by as much as 34% ($262 million) from our total debt at December 31, 2020 of $762.0 million based on our anticipated F&D capital spending, annual average production and free funds flow in 2021.”
Birchcliff’s unaudited interim condensed financial statements for the three and six months ended June 30, 2021 and related management’s discussion and analysis will be available on its website at www.birchcliffenergy.com and on SEDAR at www.sedar.com.
Q2 2021 HIGHLIGHTS
- Achieved quarterly average production of 75,265 boe/d, which is comparable to Birchcliff’s average production of 74,950 boe/d in Q2 2020.
- Liquids accounted for approximately 22% of Birchcliff’s total production in Q2 2021, as compared to approximately 24% in Q2 2020.
- Generated $90.2 million of adjusted funds flow(1), or $0.34 per basic common share, a 315% increase and a 325% increase, respectively, from Q2 2020. Delivered $81.0 million of cash flow from operating activities, a 513% increase from Q2 2020.
- Delivered $9.3 million of free funds flow(1) in Q2 2021.
- Recorded net income to common shareholders of $43.9 million, or $0.16 per basic common share, as compared to a net loss to common shareholders of $39.5 million and $0.15 per basic common share in Q2 2020.
- Achieved operating expense of $3.14/boe, a 9% increase from Q2 2020.
- Realized an operating netback(1) of $17.19/boe, a 151% increase from Q2 2020.
- F&D capital expenditures were $80.9 million in Q2 2021. During the quarter, Birchcliff continued with the safe and efficient execution of its 2021 capital program (the “2021 Capital Program”), drilling 8 (8.0 net) wells and bringing 14 (14.0 net) wells on production.
- On June 16, 2021, the Corporation released its fourth annual ESG report which outlines Birchcliff’s ESG performance for the year ended December 31, 2020, highlighting Birchcliff as one of the lowest emissions intensity producers in the industry. For more information on Birchcliff’s ESG performance metrics and ESG initiatives, please see the Corporation’s 2020 ESG Report and ESG video which are available on the Corporation’s website at www.birchcliffenergy.com.
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”. With respect to the disclosure of Birchcliff’s production contained in this press release, see “Advisories – Production”.
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(1) Non-GAAP measure that does not have any standardized meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other companies where similar terminology is used. See “Non-GAAP Measures”.
(2) Consists of approximately 411,738 Mcf/d of natural gas, 5,929 bbls/d of condensate, 7,514 bbls/d of NGLs and 2,936 bbls/d of light oil.
(3) Based on an annual average production rate of 80,000 boe/d, which is the mid-point of Birchcliff’s 2021 annual average production guidance of 79,000 to 81,000 boe/d. See “Outlook and Guidance”.
FINANCIAL AND OPERATIONAL HIGHLIGHTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021
Three months ended June 30, |
Six months ended June 30, |
|||||||
2021 | 2020 | 2021 | 2020 | |||||
OPERATING | ||||||||
Average production | ||||||||
Light oil (bbls/d) | 2,766 | 5,744 | 3,059 | 4,849 | ||||
Condensate (bbls/d) | 6,070 | 4,825 | 5,770 | 4,675 | ||||
NGLs (bbls/d) | 7,647 | 7,455 | 8,187 | 7,709 | ||||
Natural gas (Mcf/d) | 352,694 | 341,558 | 348,897 | 342,195 | ||||
Total (boe/d) | 75,265 | 74,950 | 75,166 | 74,265 | ||||
Average realized sales price (CDN$)(1) | ||||||||
Light oil (per bbl) | 76.50 | 25.72 | 71.33 | 36.92 | ||||
Condensate (per bbl) | 81.90 | 31.09 | 78.28 | 44.35 | ||||
NGLs (per bbl) | 25.27 | 12.05 | 24.96 | 12.04 | ||||
Natural gas (per Mcf) | 3.48 | 2.22 | 3.50 | 2.25 | ||||
Total (per boe) | 28.27 | 15.27 | 27.87 | 16.83 | ||||
NETBACK AND COST ($/boe) | ||||||||
Petroleum and natural gas revenue(1) | 28.27 | 15.27 | 27.87 | 16.83 | ||||
Royalty expense | (2.44 | ) | (0.20 | ) | (2.08 | ) | (0.57 | ) |
Operating expense | (3.14 | ) | (2.89 | ) | (3.16 | ) | (3.01 | ) |
Transportation and other expense(2) | (5.50 | ) | (5.34 | ) | (5.51 | ) | (5.18 | ) |
Operating netback ($/boe)(2) | 17.19 | 6.84 | 17.12 | 8.07 | ||||
G&A expense, net | (0.88 | ) | (0.84 | ) | (0.90 | ) | (0.87 | ) |
Interest expense | (1.21 | ) | (0.69 | ) | (1.21 | ) | (0.79 | ) |
Realized loss on financial instruments | (1.96 | ) | (2.51 | ) | (2.12 | ) | (2.32 | ) |
Other income | 0.03 | 0.39 | 0.19 | 0.25 | ||||
Adjusted funds flow netback ($/boe)(2) | 13.17 | 3.19 | 13.08 | 4.34 | ||||
Depletion and depreciation expense | (7.49 | ) | (7.66 | ) | (7.48 | ) | (7.68 | ) |
Unrealized gain (loss) on financial instruments | 3.12 | (1.86 | ) | 1.01 | (3.85 | ) | ||
Other (expenses) income(3) | (0.24 | ) | (0.64 | ) | 0.01 | (0.47 | ) | |
Dividends on preferred shares | (0.25 | ) | (0.28 | ) | (0.25 | ) | (0.28 | ) |
Income tax recovery (expense) | (1.91 | ) | 1.46 | (1.52 | ) | 1.67 | ||
Net income (loss) to common shareholders ($/boe) | 6.40 | (5.79 | ) | 4.85 | (6.27 | ) | ||
FINANCIAL | ||||||||
Petroleum and natural gas revenue ($000s)(1) | 193,643 | 104,180 | 379,252 | 227,443 | ||||
Cash flow from operating activities ($000s) | 81,013 | 13,221 | 163,621 | 63,772 | ||||
Adjusted funds flow ($000s)(2) | 90,188 | 21,746 | 178,008 | 58,640 | ||||
Per basic common share ($)(2) | 0.34 | 0.08 | 0.67 | 0.22 | ||||
Net income (loss) to common shareholders ($000s) | 43,854 | (39,522 | ) | 66,019 | (84,723 | ) | ||
Per basic common share ($) | 0.16 | (0.15 | ) | 0.25 | (0.32 | ) | ||
End of period basic common shares (000s) | 266,953 | 265,935 | 266,953 | 265,935 | ||||
Weighted average basic common shares (000s) | 266,231 | 265,935 | 266,110 | 265,935 | ||||
Dividends on common shares ($000s) | 1,333 | 1,327 | 2,663 | 8,308 | ||||
Dividends on preferred shares ($000s) | 1,725 | 1,922 | 3,471 | 3,844 | ||||
F&D capital expenditures ($000s)(4) | 80,887 | 83,473 | 176,727 | 215,834 | ||||
Total capital expenditures ($000s)(4) | 81,160 | 83,974 | 177,785 | 216,814 | ||||
Long-term debt ($000s) | 720,920 | 753,092 | 720,920 | 753,092 | ||||
Total debt ($000s)(2) | 770,897 | 807,573 | 770,897 | 807,573 |
(1) Excludes the effects of financial instruments but includes the effects of physical delivery contracts.
(2) Non-GAAP measure that does not have any standardized meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other companies where similar terminology is used. See “Non-GAAP Measures”.
(3) Includes non-cash items such as compensation, accretion, amortization of deferred financing fees and other gains and losses.
(4) See “Advisories – Capital Expenditures”.
OUTLOOK AND GUIDANCE
Updated 2021 Outlook and Guidance
Birchcliff is reaffirming its second half 2021 production guidance of 84,000 to 86,000 boe/d and its 2021 annual average production guidance of 79,000 to 81,000 boe/d. Birchcliff does not have any fixed price commodity hedges which allows all of its production to benefit from strong oil and natural gas prices. This production, together with strong commodity prices, is expected to generate significant adjusted funds flow and free funds flow in 2021. Birchcliff remains committed to significantly reducing its total debt over the next number of years and free funds flow will be primarily used to reduce indebtedness.
Due to the successful execution of Birchcliff’s business plan and the recent strengthening of forward oil and natural gas prices, Birchcliff is revising its commodity price and exchange rate assumptions for 2021 and its guidance for adjusted funds flow, free funds flow and total debt. Significant changes to Birchcliff’s 2021 guidance include the following:
- Adjusted funds flow guidance has been increased to $500 million (previously $400 million), primarily as a result of the improvement in the commodity price forecast.
- Free funds flow guidance has been increased to $270 million to $290 million (previously $170 million to $190 million), as a result of higher anticipated adjusted funds flow in 2021 with no change to targeted F&D capital expenditures in 2021.
- Total debt at year-end is now expected to be $500 million to $520 million (previously $600 million to $620 million), primarily as a result of higher anticipated free funds flow in 2021.
- Average royalty expense is now expected to be $2.40/boe to $2.60/boe (previously $1.55/boe to $1.75/boe), primarily as a result of the improvement in the commodity price forecast.
Birchcliff is maintaining its previous 2021 guidance for average production, F&D capital expenditures, operating and transportation and other expenses, and natural gas market exposure.
The following table sets forth Birchcliff’s revised and previous guidance and commodity price assumptions for 2021:
Revised 2021 guidance and assumptions – August 11, 2021(1) |
Previous 2021 guidance and assumptions – May 12, 2021(2) |
Original 2021 guidance and assumptions – January 20, 2021(3) |
||
Production | ||||
Annual average production (boe/d) | 79,000 – 81,000 | 79,000 – 81,000 | 78,000 – 80,000 | |
% Light oil | 4% | 4% | 5% | |
% Condensate | 7% | 8% | 9% | |
% NGLs | 10% | 10% | 10% | |
% Natural gas | 79% | 78% | 76% | |
Second half 2021 average production (boe/d) | 84,000 – 86,000 | 84,000 – 86,000 | 83,000 – 85,000 | |
Average Expenses ($/boe) | ||||
Royalty | 2.40 – 2.60 | 1.55 – 1.75 | 1.15 – 1.35 | |
Operating | 2.90 – 3.10 | 2.90 – 3.10 | 2.90 – 3.10 | |
Transportation and other | 5.00 – 5.20 | 5.00 – 5.20 | 5.00 – 5.20 | |
Adjusted Funds Flow (MM$) | 500(4) | 400 | 360 | |
F&D Capital Expenditures (MM$)(5) | 210 – 230 | 210 – 230 | 210 – 230 | |
Free Funds Flow (MM$)(6) | 270 – 290 | 170 – 190 | 130 – 150 | |
Total Debt at Year End (MM$) | 500 – 520(7) | 600 – 620 | 635 – 655 | |
Natural Gas Market Exposure(8) | ||||
AECO exposure as a % of total natural gas production | 13% | 13% | 12%(9) | |
Dawn exposure as a % of total natural gas production | 43% | 43% | 44% | |
NYMEX HH exposure as a % of total natural gas production | 38% | 38% | 38%(9) | |
Alliance exposure as a % of total natural gas production | 6% | 6% | 6% | |
Commodity Prices | ||||
Average WTI price (US$/bbl) | 66.00(10) | 62.00 | 50.00 | |
Average WTI-MSW differential (CDN$/bbl) | 5.50(10) | 5.70 | 6.00 | |
Average AECO 5A price (CDN$/GJ) | 3.30(10) | 2.80 | 2.50 | |
Average Dawn price (US$/MMBtu)(11) | 4.05(10) | 2.85 | 2.75 | |
Average NYMEX HH price (US$/MMBtu)(11) | 3.45(10) | 2.90 | 2.80 | |
Exchange rate (CDN$ to US$1) | 1.25(10) | 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 annual average production guidance for 2021.
(2) As previously disclosed on May 12, 2021.
(3) Except where otherwise noted, as previously disclosed on January 20, 2021. Birchcliff’s original guidance for its commodity mix, adjusted funds flow and natural gas market exposure in 2021 was based on an annual average production rate of 79,000 boe/d during 2021, which was the mid-point of Birchcliff’s original annual average production guidance for 2021.
(4) Birchcliff’s estimate of adjusted funds flow takes into account the effects of its physical and financial basis swap contracts outstanding as at August 11, 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, proceeds received from the exercise of stock options and performance warrants, 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 267 million common, 2,000,000 series A and 1,533,108 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 equity issuances; (iv) that there are no proceeds received from the exercise of stock options and performance warrants during the remainder of 2021; (v) 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 (vi) 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) 34,000 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 contracted on a financial and physical basis at a fixed basis differential between the AECO 7A price and the NYMEX HH price.
(9) Updated on March 10, 2021.
(10) Updated commodity price and exchange rate assumptions are based on anticipated full-year averages, which include actual settled benchmark commodity prices and exchange rate for the period from January 1, 2021 to June 30, 2021 and forward strip benchmark commodity prices and exchange rate as of August 6, 2021 for the period from July 1, 2021 to December 31, 2021.
(11) See “Advisories – MMBtu Pricing Conversions”.
Adjusted Funds Flow Sensitivity
The following table illustrates the expected impact of changes in commodity prices and the CDN/US exchange rate for the second half of 2021 on the Corporation’s estimate of adjusted funds flow for 2021 of $500 million:
Forward Six Months’ Sensitivity(1) | Estimated change to 2021 adjusted funds flow (MM$)(2)(3) | |
Change in WTI US$1.00/bbl | 2.0 | |
Change in NYMEX HH US$0.10/MMBtu | 2.4 | |
Change in Dawn US$0.10/MMBtu | 3.0 | |
Change in AECO CDN$0.10/GJ | 2.0 | |
Change in CDN/US exchange rate CDN$0.01 | 2.6 |
(1) Adjusted funds flow sensitivities take into account actual settled benchmark commodity prices and exchange rate for the period from January 1, 2021 to June 30, 2021 and forward strip benchmark commodity prices and exchange rate as of August 6, 2021 for the period from July 1, 2021 to December 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”.
Q2 2021 FINANCIAL AND OPERATIONAL RESULTS
Production
Birchcliff’s production averaged 75,265 boe/d in Q2 2021, which is comparable to Birchcliff’s average production of 74,950 boe/d in Q2 2020. Production in Q2 2021 was positively impacted by incremental production volumes from new condensate-rich natural gas wells brought on production since June 30, 2020. Production was negatively impacted by scheduled plant turnarounds in May 2021 at Phases 5/6 of the Corporation’s 100% owned and operated natural gas processing plant in Pouce Coupe (the “Pouce Coupe Gas Plant”) and extreme heat conditions in June 2021 which reduced production processing capabilities in the field, as well as by natural production declines. For details regarding the wells drilled and brought on production in 2021, see “Operational Update”.
Liquids accounted for approximately 22% of Birchcliff’s total production in Q2 2021, as compared to approximately 24% in Q2 2020, with total liquids production decreasing by 9% from Q2 2020. The change in the corporate commodity production mix was primarily due to Birchcliff targeting natural gas wells in the Pouce Coupe and Gordondale areas since June 30, 2020.
Adjusted Funds Flow and Cash Flow From Operating Activities
Birchcliff’s adjusted funds flow in Q2 2021 was $90.2 million, or $0.34 per basic common share, a 315% increase and a 325% increase, respectively, from $21.7 million and $0.08 per basic common share in Q2 2020. The increases were primarily due to higher reported petroleum and natural gas revenue, partially offset by an increase in royalty expense, both of which were largely impacted by an 85% increase in the average realized sales price received for Birchcliff’s production in Q2 2021 as compared to Q2 2020. The average realized sales price in Q2 2021 benefited from the significant increases in benchmark oil and natural gas prices. See “Q2 2021 Financial and Operational Results – Commodity Prices”.
Birchcliff’s cash flow from operating activities in Q2 2021 was $81.0 million, a 513% increase from $13.2 million in Q2 2020. The reason for the increase is consistent with the explanation for adjusted funds flow.
Net Income to Common Shareholders
Birchcliff recorded net income to common shareholders of $43.9 million, or $0.16 per basic common share, in Q2 2021, as compared to a net loss to common shareholders of $39.5 million, or $0.15 per basic common share in Q2 2020. The change to a net income position was primarily due to higher adjusted funds flow and an unrealized after-tax mark-to-market gain on financial instruments of $16.4 million in Q2 2021 as compared to an unrealized after-tax mark-to-market loss on financial instruments of $9.8 million in Q2 2020.
Operating Expense
Birchcliff’s operating expense was $3.14/boe in Q2 2021, a 9% increase from $2.89/boe in Q2 2020. The increase was primarily due to higher power and fuel prices as a result of increased demand and higher municipal property taxes in Q2 2021 as compared to Q2 2020. In 2020, the Alberta Government provided municipal property tax relief in response to the COVID-19 pandemic; however, this tax relief was discontinued in 2021. These increases were partially offset by improved operating efficiencies achieved in the field.
Operating Netback
Birchcliff’s operating netback was $17.19/boe in Q2 2021, a 151% increase from $6.84/boe in Q2 2020. The increase was primarily due to higher per boe petroleum and natural gas revenue, partially offset by a higher per boe royalty expense in Q2 2021.
Total Cash Costs
Birchcliff’s total cash costs were $13.17/boe in Q2 2021, a 32% increase from $9.96/boe in Q2 2020. The increase was primarily due to a higher per boe royalty expense.
Pouce Coupe Gas Plant Netbacks
During the six months ended June 30, 2021, Birchcliff processed 69% of its total corporate natural gas production and 61% of its total corporate production through the Pouce Coupe Gas Plant, as compared to 66% and 55%, respectively, during the six months ended June 30, 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:
Six months ended June 30, 2021 |
Six months ended June 30, 2020 |
|||||||
Average production: | ||||||||
Condensate (bbls/d) | 3,935 | 2,872 | ||||||
NGLs (bbls/d) | 1,858 | 940 | ||||||
Natural gas (Mcf/d) | 239,768 | 224,354 | ||||||
Total (boe/d) | 45,754 | 41,204 | ||||||
Liquids-to-gas ratio(1)(bbls/MMcf) | 24.2 | 17.0 | ||||||
Netback and cost: | $/Mcfe | $/boe | $/Mcfe | $/boe | ||||
Petroleum and natural gas revenue(2) | 4.42 | 26.51 | 2.68 | 16.10 | ||||
Royalty expense | (0.28 | ) | (1.70 | ) | (0.06 | ) | (0.35 | ) |
Operating expense(3) | (0.36 | ) | (2.15 | ) | (0.41 | ) | (2.47 | ) |
Transportation and other expense(4) | (0.97 | ) | (5.81 | ) | (0.90 | ) | (5.44 | ) |
Operating netback(4) | $2.81 | $16.85 | $1.31 | $7.84 | ||||
Operating margin(5) | 64% | 64% | 49% | 49% |
(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) Non-GAAP measure that does not have any standardized meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other companies where similar terminology is used. See “Non-GAAP Measures”.
(5) 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 Q2 2020 primarily due to: (i) specifically targeted condensate-rich natural gas wells brought on production in Pouce Coupe, including from the 14-well pad (14-19) brought on production in Q3 2020 and the 7-well pad (04-04) and 10-well pad (14-06) brought on production in the first half of 2021; (ii) increased NGLs recovery at Phase 3 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 June 30, 2021, Birchcliff had long-term bank debt of $720.9 million (June 30, 2020: $753.1 million) from available credit facilities of $850.0 million (June 30, 2020: $1.0 billion), leaving $120.7 million of unutilized credit capacity after adjusting for outstanding letters of credit and unamortized fees. Total debt at June 30, 2021 was $770.9 million, as compared to $807.6 million at June 30, 2020. With free funds flow now targeted at $270 million to $290 million, the Corporation expects that its total debt at year end 2021 will be $500 million to $520 million, down from its previous guidance of $600 million to $620 million. See “Outlook and Guidance”.
During Q2 2021, 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. Due to the fact that Birchcliff is committed to significantly reducing total debt over the course of its current five-year plan, it does not anticipate requiring additional credit capacity, and accordingly, requested the borrowing base limit reduction. This reduction to the borrowing base limit resulted in a corresponding decrease to the Corporation’s renewal fees and reduces its standby fees going forward. Accordingly, the agreement governing the Credit Facilities was amended effective May 6, 2021 to: (i) extend the maturity dates of each of the extendible revolving 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 $100.0 million.
The Credit Facilities do not contain any financial maintenance covenants.
Commodity Prices
The following table sets forth the average benchmark index prices and exchange rate for the periods indicated:
Three months ended June 30, |
||||
2021 | 2020 | % Change | ||
Light oil – WTI Cushing (US$/bbl) | 66.07 | 26.61 | 148 | |
Light oil – MSW (Mixed Sweet) (CDN$/bbl) | 76.77 | 25.15 | 205 | |
Natural gas – NYMEX HH (US$/MMBtu)(1) | 2.83 | 1.64 | 73 | |
Natural gas – AECO 5A Daily (CDN$/GJ) | 2.98 | 1.89 | 58 | |
Natural gas – AECO 7A Month Ahead (US$/MMBtu)(1) | 2.32 | 1.33 | 74 | |
Natural gas – Dawn Day Ahead (US$/MMBtu)(1) | 2.80 | 1.63 | 72 | |
Natural gas – ATP 5A Day Ahead (CDN$/GJ) | 2.68 | 1.68 | 60 | |
Exchange rate (CDN$ to US$1) | 1.2281 | 1.3860 | (11 | ) |
Exchange rate (US$ to CDN$1) | 0.8143 | 0.7215 | 13 |
(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 Q2 2021, after taking into account the Corporation’s financial instruments.
Three months ended June 30, 2021 | ||||||
Effective sales (CDN$000s) |
Percentage of total sales (%) |
Effective production (per day) |
Percentage of total natural gas production (%) |
Percentage of total corporate production (%) |
Effective average realized sales price (CDN$) |
|
Market | ||||||
AECO(1)(2) | 17,360 | 9 | 54,913 Mcf | 16 | 12 | 3.47/Mcf |
Dawn(3) | 53,025 | 26 | 159,197 Mcf | 45 | 35 | 3.66/Mcf |
NYMEX HH(1)(4) | 50,281 | 25 | 138,584 Mcf | 39 | 31 | 3.99/Mcf |
Total natural gas | 120,666 | 60 | 352,694 Mcf | 100 | 78 | 3.76/Mcf |
Light oil | 19,255 | 9 | 2,766 bbls | 4 | 76.50/bbl | |
Condensate | 45,241 | 22 | 6,070 bbls | 8 | 81.90/bbl | |
NGLs | 17,582 | 9 | 7,647 bbls | 10 | 25.27/bbl | |
Total liquids | 82,078 | 40 | 16,483 bbls | 22 | 54.72/bbl | |
Total corporate | 202,744 | 100 | 75,265 boe | 100 | 29.60/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 Q2 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 Q2 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.
(4) Birchcliff’s effective average realized sales price for NYMEX HH of CDN$3.99/Mcf (US$2.95/MMBtu) was determined on a gross basis before giving effect to the average NYMEX HH/AECO 7A contract basis price of CDN$1.66/Mcf (US$1.227/MMBtu). After giving effect to the NYMEX HH/AECO 7A basis contact price of CDN$1.66/Mcf, Birchcliff’s effective average realized net sales price for NYMEX HH was CDN$2.33/Mcf (US$1.72/MMBtu) in Q2 2021.
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 June 30, 2021 | |||||||
Natural gas sales(1) (CDN$000s) |
Percentage of natural gas sales (%) |
Natural gas production (Mcf/d) |
Percentage of natural gas production (%) |
Average realized natural gas sales price(1) (CDN$/Mcf) |
Natural gas transportation costs(2) (CDN$/Mcf) |
Natural gas sales netback(3) (CDN$/Mcf) |
|
AECO | 43,721 | 39 | 147,178 | 42 | 3.28 | 0.49 | 2.79 |
Dawn | 53,025 | 48 | 159,197 | 45 | 3.66 | 1.55 | 2.11 |
Alliance(4) | 14,810 | 13 | 46,319 | 13 | 3.51 | – | 3.51 |
Total | 111,556 | 100 | 352,694 | 100 | 3.48 | 0.91 | 2.57 |
Three months ended June 30, 2020 | |||||||
Natural gas sales(1) (CDN$000s) |
Percentage of natural gas sales (%) |
Natural gas production (Mcf/d) |
Percentage of natural gas production (%) |
Average realized natural gas sales price(1) (CDN$/Mcf) |
Natural gas transportation costs(2) (CDN$/Mcf) |
Natural gas sales netback(3) (CDN$/Mcf) |
|
AECO | 33,840 | 49 | 177,108 | 52 | 2.12 | 0.38 | 1.74 |
Dawn | 34,402 | 50 | 159,338 | 47 | 2.37 | 1.43 | 0.94 |
Alliance(4) | 665 | 1 | 5,112 | 1 | 1.43 | – | 1.43 |
Total | 68,907 | 100 | 341,558 | 100 | 2.22 | 0.87 | 1.35 |
(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 Q2 2021, Birchcliff continued with the safe and efficient execution of its 2021 Capital Program, drilling 8 (8.0 net) wells and bringing 14 (14.0 net) wells on production. The following table sets forth the number of wells drilled and brought on production by the Corporation in Q2 2021:
Area | Wells drilled in Q2 2021 |
Wells brought on production in Q2 2021 |
||
Pouce Coupe | ||||
Montney D1 horizontal natural gas wells | 1 | 4 | ||
Montney D2 horizontal natural gas wells | 0 | 3 | ||
Montney C horizontal natural gas wells | 0 | 3 | ||
Basal Doig/Upper Montney horizontal natural gas wells | 3 | 0 | ||
Total – Pouce Coupe | 4 | 10 | ||
Gordondale | ||||
Montney D1 horizontal natural gas wells | 0 | 2 | ||
Montney D2 horizontal natural gas wells | 0 | 1 | ||
Montney C horizontal natural gas wells | 0 | 1 | ||
Montney D1 horizontal oil wells | 2 | 0 | ||
Montney D2 horizontal oil wells | 2 | 0 | ||
Total – Gordondale | 4 | 4 | ||
TOTAL – COMBINED | 8 | 14 |
Total capital expenditures for Q2 2021 were $81.2 million, which included F&D capital expenditures of $80.9 million. For further information regarding Birchcliff’s operational activities year-to-date, see “Operational Update”.
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. On June 16, 2021, Birchcliff released its 2020 ESG Report, which details the Corporation’s ESG activities and performance metrics for the year ended December 31, 2020. In 2020, Birchcliff continued to find innovative ways to improve emissions performance and protect the environment, maintain and strengthen its relationships with the communities and Indigenous peoples where it operates and advance its deeply ingrained culture of health and safety excellence.
For more information on Birchcliff’s ESG performance metrics and ESG initiatives, please see the Corporation’s 2020 ESG Report and ESG video which are available on the Corporation’s website at www.birchcliffenergy.com.
OPERATIONAL UPDATE
As at the date hereof, Birchcliff has completed the majority of its 2021 Capital Program, with all previously planned wells having now been drilled and brought on production. 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 anticipates that the average payout for the wells brought on production in 2021 will be less than a year, driven by the successful execution of its low-cost drilling program, strong well results and current strip pricing. The following table sets forth the wells that Birchcliff has drilled and brought on production in 2021:
Area | Total wells drilled | Total wells brought on production(1) | ||
Pouce Coupe | ||||
Montney D1 horizontal natural gas wells | 7 | 7 | ||
Montney D2 horizontal natural gas wells | 3 | 3 | ||
Montney C horizontal natural gas wells | 3 | 3 | ||
Basal Doig/Upper Montney horizontal natural gas wells | 6 | 12 | ||
Total – Pouce Coupe | 19 | 25 | ||
Gordondale | ||||
Montney D1 horizontal natural gas wells | 2 | 2 | ||
Montney D2 horizontal natural gas wells | 1 | 1 | ||
Montney C horizontal natural gas wells | 1 | 1 | ||
Montney D1 horizontal oil wells | 2 | 2 | ||
Montney D2 horizontal oil wells | 2 | 2 | ||
Total – Gordondale | 8 | 8 | ||
TOTAL – COMBINED | 27 | 33 |
(1) Includes 6 (6.0) net wells that were drilled and rig released in Q4 2020.
As all wells have now been drilled and brought on production, the majority of the execution risk of the 2021 Capital Program is behind the Corporation. Birchcliff has been able to realize numerous capital cost savings as a result of its strategic planning and efficient execution of the 2021 Capital Program.
Pouce Coupe Area
Birchcliff has drilled 19 wells and brought 25 wells on production in Pouce Coupe this year, as discussed in further detail below. The wells were drilled on three multi-well pads.
7-Well Pad (04-04-78-13W6)
Birchcliff’s 04-04 pad in Pouce Coupe was drilled in late Q4 2020 and early Q1 2021 and brought on production in March 2021 through Birchcliff’s existing owned and operated infrastructure. Wells were drilled in two different intervals (six in the Basal Doig/Upper Montney and one in the Montney D1).
The initial 30 and 60 day production rates for the wells from the 04-04 pad were previously disclosed in the Corporation’s press release dated May 12, 2021. The performance of the pad continues to exceed the Corporation’s expectations, with very strong natural gas and condensate production rates. In addition, Birchcliff continues to see stabilized production rates for an extended duration, which allows for strong stable production profiles and less backout of Birchcliff’s existing area production.
10-Well Pad (14-06-79-12W6)
Birchcliff’s 14-06 pad in Pouce Coupe was drilled in Q1 2021 and brought on production in May 2021 through Birchcliff’s existing owned and operated infrastructure. The pad utilized multi-interval cube-style development and wells were drilled in three different intervals (three in the Montney C, four in the Montney D1 and three in the Montney D2). The pad resides three miles south of the Corporation’s 2020 14-well pad (14-19) and targeted condensate-rich natural gas wells versus the light oil wells discovered at the 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.
The wells from the 14-06 pad have now been producing for over 60 days and have produced at better rates than previously forecast. After completing initial well testing and frac clean-up operations, the Corporation has been flowing the wells at restricted rates between 3.0 and 5.0 MMcf/d to manage drawdown and any potential sand flowback. Birchcliff expects that the pad is capable of being held at stabilized production 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 10 wells from the 14-06 pad:
IP 30(1) | IP 60(1) | |
Aggregate production rate (boe/d) | 9,612 | 8,794 |
Aggregate natural gas production rate (Mcf/d) | 42,871 | 41,326 |
Aggregate condensate production rate (bbls/d) | 2,467 | 1,906 |
Average per well production rate (boe/d) | 961 | 879 |
Average per well natural gas production rate (Mcf/d) | 4,287 | 4,133 |
Average per well condensate production rate (bbls/d) | 247 | 191 |
Condensate-to-gas ratio (bbls/MMcf) | 58 | 46 |
(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 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.
8-Well Pad (14-28-77-13W6)
Birchcliff’s 14-28 pad in Pouce Coupe was drilled in Q1 and Q2 2021 and brought on production in July 2021 through Birchcliff’s owned and operated infrastructure. Wells were drilled in two different intervals (six in the Basal Doig/Upper Montney and two in the Montney D1). The early results from this pad have been encouraging, with strong natural gas and condensate rates. Birchcliff anticipates providing further details regarding the results of these wells in November 2021, in conjunction with the release of its Q3 2021 results.
Gordondale Area
Birchcliff has drilled and brought on production 8 wells in Gordondale this year, as discussed in further detail below. The wells were drilled on two multi-well pads. The wells brought on production this year are expected to keep AltaGas’s deep-cut sour gas processing facility in Gordondale full during 2021. Development of the Montney D1 and D2 continues in Gordondale and Birchcliff also brought on production its first Montney C well in the area.
4-Well Pad (05-07-79-11W6)
Birchcliff’s 05-07 pad in Gordondale was drilled in Q1 2021 and brought on production in May 2021. The pad utilized multi-interval cube-style development and wells were drilled in three different intervals (two in the Montney D1, one in the Montney D2 and one in the Montney C). The successful extension of the Montney C interval into Gordondale was based on successful well results offsetting in Pouce Coupe and significant technical reservoir and geoscience work. This successful Montney C well adds a new commercialized drilling interval for the Corporation to pursue in Gordondale.
The wells from the 05-07 pad have now been producing for over 60 days and have produced at better rates than previously forecast. After completing initial well testing and frac clean-up operations, the Montney D1 and D2 wells have flowed with approximate peak daily rates between 8.5 and 11.0 MMcf/d with 30 to 50 bbls of condensate per MMcf of natural gas and the Montney C well has flowed with a peak daily rate of 9.4 MMcf/d with 63 bbls of condensate per MMcf of natural gas. After well testing, the Corporation has been flowing the wells at restricted rates between 5.0 and 6.5 MMcf/d to manage drawdown and any potential sand flowback. Birchcliff expects that the pad is capable of being held at stabilized production 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 4 wells from the 05-07 pad:
IP 30(1) | IP 60(1) | |
Aggregate production rate (boe/d) | 5,272 | 4,614 |
Aggregate natural gas production rate (Mcf/d) | 25,686 | 23,145 |
Aggregate condensate production rate (bbls/d) | 990 | 758 |
Average per well production rate (boe/d) | 1,318 | 1,154 |
Average per well natural gas production rate (Mcf/d) | 6,422 | 5,786 |
Average per well condensate production rate (bbls/d) | 248 | 190 |
Condensate-to-gas ratio (bbls/MMcf) | 39 | 33 |
(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”.
4-Well Pad (06-35-77-11W6)
Birchcliff’s 06-35 pad in Gordondale was drilled in Q2 2021 and brought on production in July 2021. Wells were drilled in two different intervals (two in the Montney D1 and two in the Montney D2) and targeted light oil and natural gas. 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. Birchcliff has been encouraged by the initial flow test results to date on this pad. Birchcliff anticipates providing further details regarding the results of these wells in November 2021, in conjunction with the release of its Q3 2021 results.
ABBREVIATIONS
AECO | benchmark price for natural gas determined at the AECO ‘C’ hub in southeast Alberta |
ATP | Alliance Trading Pool |
bbl | barrel |
bbls | barrels |
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 International Financial Reporting Standards as issued by the International Accounting Standards Board |
GJ | gigajoule |
GJ/d | gigajoules per day |
HH | Henry Hub |
IP | initial production |
m3 | cubic metres |
Mcf | thousand cubic feet |
Mcf/d | thousand cubic feet per day |
Mcfe | thousand cubic feet of gas equivalent |
MJ | megajoule |
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 |
MPa | megapascal |
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 |
$000s | thousands of dollars |