CALGARY, Alberta – Birchcliff Energy Ltd. (“Birchcliff” or the “Corporation”) (TSX: BIR) is pleased to announce that it has filed its annual audited financial statements (the “Financial Statements”) and related management’s discussion and analysis and its annual information form (the “AIF”) for the financial year ended December 31, 2021 (collectively, the “Annual Filings”) on the System for Electronic Document Analysis and Retrieval (“SEDAR”).
The Financial Statements are consistent with the unaudited financial results disclosed in the press release issued by Birchcliff on February 9, 2022. The AIF includes the disclosure and reports relating to reserves data and other oil and gas information required pursuant to National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities. The Annual Filings are available electronically on Birchcliff’s website at www.birchcliffenergy.com and on SEDAR at www.sedar.com.
2021 was a record year for all of the Corporation’s cash flow metrics. Highlights included:
- Annual average production of 78,520 boe/d(1), a 3% increase from 2020. Liquids accounted for 21% of Birchcliff’s total production in 2021.
- Record annual adjusted funds flow(2) of $539.7 million, or $2.03 per basic common share(3), an increase of 192% and 194%, respectively, from 2020. Cash flow from operating activities was $515.4 million, a 174% increase from 2020.
- Record annual free funds flow(2) of $309.3 million, or $1.16 per basic common share(3).
- Significantly reduced total debt(4) at year-end to $499.4 million, a reduction of $262.6 million (34%) from $762.0 million at December 31, 2020.
- Record annual net income to common shareholders of $310.5 million, or $1.17 per basic common share.
(1) Consisted of 2,899 bbls/d of light oil, 5,715 bbls/d of condensate, 7,705 bbls/d of NGLs and 373,217 Mcf/d of natural gas. See “Advisories – Boe Conversions” and “Advisories – Production”.
(2) Non-GAAP financial measure. See “Advisories – Non-GAAP and Other Financial Measures”.
(3) Non-GAAP ratio. See “Advisories – Non-GAAP and Other Financial Measures”.
(4) Capital management measure. See “Advisories – Non-GAAP and Other Financial Measures”.
“Birchcliff has had a strong start to 2022. Our production and capital expenditures guidance is on target and our initial 2022 drilling results are very encouraging. Our cash flow has been very strong as a result of the higher than anticipated commodity prices that we have seen year-to-date. Birchcliff has been able to benefit from these prices as none of our production is subject to fixed price commodity hedges. We remain committed to maintaining capital discipline, maximizing free funds flow and reducing indebtedness. Birchcliff looks forward to announcing our first quarter results on May 11, 2022,” commented Jeff Tonken, Chief Executive Officer of Birchcliff.
Birchcliff’s 2022 capital program is focused on the development of its low-cost natural gas and condensate production in Pouce Coupe and Gordondale. The 2022 capital program is designed to utilize two drilling rigs in order to bring 35 new wells from 4 large pads onto production during the year (26 wells in Pouce Coupe and 9 wells in Gordondale).
Birchcliff has successfully completed its 6-well 13-29 pad in Pouce Coupe, which was drilled in late Q4 2021 and early January 2022. Flowback operations are complete and Birchcliff has recently brought the pad onstream, with production flowing through Birchcliff’s existing owned and operated infrastructure. The Corporation has been encouraged by the initial flowback performance of the pad. Four wells on the 13-29 pad were drilled in the Montney D1 interval offsetting several of Birchcliff’s existing high-productivity, low-cost natural gas wells, and two wells were drilled in the Basal Doig/Upper Montney interval.
Birchcliff currently has two drilling rigs at work in Pouce Coupe, drilling low-cost, condensate-rich natural gas wells on the 10-well 01-08 pad. Wells on the 01-08 pad are being drilled in three intervals (5 in the Montney D1, 4 in the Basal Doig/Upper Montney and 1 in the Montney C). The 01-08 pad demonstrates Birchcliff’s commitment to using scale and repeatability to drive down per well costs and utilizing enhanced completions techniques to improve well performance.
|bbls/d||barrels per day|
|boe||barrel of oil equivalent|
|boe/d||barrel of oil equivalent per day|
|condensate||pentanes plus (C5+)|
|GAAP||generally accepted accounting principles for Canadian public companies, which are currently International Financial Reporting Standards as issued by the International Accounting Standards Board|
|Mcf||thousand cubic feet|
|Mcf/d||thousand cubic feet per day|
|NGLs||natural gas liquids consisting of ethane (C2), propane (C3) and butane (C4) and specifically excluding condensate|
|$000s||thousands of dollars|
Non-GAAP and Other Financial Measures
This press release uses various “non-GAAP financial measures”, “non-GAAP ratios” and “capital management measures” (as such terms are defined in National Instrument 52-112 – Non-GAAP and Other Financial Measures Disclosure (“NI 52-112”)), which are described in further detail below. These measures facilitate management’s comparisons to the Corporation’s historical operating results in assessing its results and strategic and operational decision-making and may be used by financial analysts and others in the oil and natural gas industry to evaluate the Corporation’s performance.
Non-GAAP Financial Measures
NI 52-112 defines a non-GAAP financial measure as a financial measure that: (i) depicts the historical or expected future financial performance, financial position or cash flow of an entity; (ii) with respect to its composition, excludes an amount that is included in, or includes an amount that is excluded from, the composition of the most directly comparable financial measure disclosed in the primary financial statements of the entity; (iii) is not disclosed in the financial statements of the entity; and (iv) is not a ratio, fraction, percentage or similar representation. The non-GAAP financial measures used in this press release are not standardized financial measures under GAAP and might not be comparable to similar measures presented by other companies where similar terminology is used. Investors are cautioned that non-GAAP financial measures should not be construed as alternatives to or more meaningful than the most directly comparable GAAP measures as indicators of Birchcliff’s performance. Set forth below is a description of the non-GAAP financial measures used in this press release.
Adjusted Funds Flow and Free Funds Flow
Birchcliff defines “adjusted funds flow” as cash flow from operating activities before the effects of decommissioning expenditures and changes in non-cash operating working capital. Birchcliff eliminates settlements of decommissioning expenditures from cash flow from operating activities as the amounts can be discretionary and may vary from period to period depending on its capital programs and the maturity of its operating areas. The settlement of decommissioning expenditures is managed with Birchcliff’s capital budgeting process which considers available adjusted funds flow. Changes in non-cash operating working capital are eliminated in the determination of adjusted funds flow as the timing of collection and payment are variable and by excluding them from the calculation, the Corporation believes that it is able to provide a more meaningful measure of its operations and ability to generate cash on a continuing basis. Adjusted funds flow can also be derived from petroleum and natural gas revenue less royalty expense, operating expense, transportation and other expense, net G&A expense, interest expense and any realized losses (plus realized gains) on financial instruments and plus any other cash income sources. Management believes that adjusted funds flow assists management and investors in assessing Birchcliff’s financial performance after deducting all operating and corporate cash costs, as well as its ability to generate the cash necessary to fund sustaining and/or growth capital expenditures, repay debt, settle decommissioning obligations, repurchase common shares and pay common share and preferred share dividends.
Birchcliff defines “free funds flow” as adjusted funds flow less F&D capital expenditures. Management believes that free funds flow assists management and investors in assessing Birchcliff’s ability to further generate shareholder returns through a number of initiatives, including but not limited to, potential debt repayment, preferred share redemptions, common share repurchases, dividend increases and acquisitions.
The following table provides a reconciliation of cash flow from operating activities, as determined in accordance with GAAP, to adjusted funds flow and free funds flow for the periods indicated:
|Twelve months ended
|Cash flow from operating activities||515,369||188,180|
|Change in non-cash operating working capital||21,161||(5,977)|
|Adjusted funds flow||539,733||184,526|
|F&D capital expenditures||(230,479)||(287,967)|
|Free funds flow||309,254||(103,441)|
NI 52-112 defines a non-GAAP ratio as a financial measure that: (i) is in the form of a ratio, fraction, percentage or similar representation; (ii) has a non-GAAP financial measure as one or more of its components; and (iii) is not disclosed in the financial statements of the entity. The non-GAAP ratios used in this press release are not standardized financial measures under GAAP and might not be comparable to similar measures presented by other companies where similar terminology is used. Set forth below is a description of the non-GAAP ratios used in this press release.
Adjusted Funds Flow Per Basic Common Share
Birchcliff calculates “adjusted funds flow per basic common share” as aggregate adjusted funds flow in the period divided by the basic common shares outstanding at the end of the period. Management believes that adjusted funds flow per basic common share assists management and investors in assessing Birchcliff’s financial strength on a per common share basis.
Free Funds Flow Per Basic Common Share
Birchcliff calculates “free funds flow per basic common share” as aggregate free funds flow in the period divided by the basic common shares outstanding at the end of the period. Management believes that free fund flow per basic common share assists management and investors in assessing Birchcliff’s financial strength and its ability to generate shareholder returns on a per common share basis.
Capital Management Measures
NI 52-112 defines a capital management measure as a financial measure that: (i) is intended to enable an individual to evaluate an entity’s objectives, policies and processes for managing the entity’s capital; (ii) is not a component of a line item disclosed in the primary financial statements of the entity; (iii) is disclosed in the notes to the financial statements of the entity; and (iv) is not disclosed in the primary financial statements of the entity. Set forth below is a description of the capital management measure used in this press release.
Birchcliff calculates “total debt” as the amount outstanding under the Corporation’s revolving term credit facilities plus adjusted working capital deficit (surplus). Management believes that total debt assists management and investors in assessing Birchcliff’s overall liquidity and financial position at the end of the period. The following table provides a reconciliation of the revolving term credit facilities, as determined in accordance with GAAP, to total debt:
|As at December 31, ($000s)||2021||2020|
|Revolving term credit facilities||500,870||731,372|
|Working capital deficit||53,312||93,988|
|Fair value of financial instruments||(16,517)||(23,479)|
|Adjusted working capital deficit (surplus)(1)(2)||(1,473)||30,579|
(1) Capital management measure. Management believes that adjusted working capital deficit (surplus) assists management and investors in assessing Birchcliff’s short-term liquidity requirements.
(2) Previously classified as a non-GAAP measure under CSA Staff Notice 52-306 (Revised) – Non-GAAP Financial Measures.
Boe amounts have been calculated by using the conversion ratio of 6 Mcf of natural gas to 1 bbl of oil. Boe amounts may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. 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) except where otherwise stated, 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. In certain cases, 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.