CALGARY, Alberta, Aug. 10, 2022 (GLOBE NEWSWIRE) — Birchcliff Energy Ltd. (“Birchcliff” or the “Corporation”) (TSX: BIR) is pleased to announce its Q2 2022 financial and operational results, which included record quarterly adjusted funds flow and free funds flow, resulting in a significant reduction in the Corporation’s total debt.
“Birchcliff had a record quarter in Q2 2022,” stated Jeff Tonken, Chief Executive Officer of Birchcliff. “We remain confident that Birchcliff will reach zero total debt and be in a cash surplus position in Q4 2022, based on the strength of forward commodity prices. We continue to target increasing our annual common share dividend in 2023 to at least $0.80 per share ($212 million annually), subject to commodity prices and the approval of our board of directors. We have initiated our formal budgeting process for 2023 and plan on providing a corporate update and releasing our preliminary 2023 budget on October 13, 2022.”
Mr. Tonken continued: “Birchcliff’s quarterly average production was 73,746 boe/d, resulting in record quarterly adjusted funds flow(1) of $285.5 million ($1.08 per basic common share(2)) and record quarterly free funds flow(1) of $201.3 million ($0.76 per basic common share(2)). To illustrate this accomplishment, our free funds flow in Q2 2022 was $17.6 million higher than our adjusted funds flow in Q1 2022, a quarterly record at the time. These results allowed us to significantly reduce our total debt(3) at June 30, 2022 to $266.9 million, a decrease of $504.0 million (65%) from June 30, 2021 and $142.1 million (35%) from March 31, 2022.”
Q2 2022 HIGHLIGHTS
- Achieved quarterly average production of 73,746 boe/d, which included the impact of planned turnarounds and maintenance activities, a 2% decrease from Q2 2021. Liquids accounted for 17% of Birchcliff’s total production in Q2 2022 as compared to 22% in Q2 2021.
- Generated record quarterly adjusted funds flow of $285.5 million, or $1.08 per basic common share, a 217% and 218% increase, respectively, from Q2 2021. Cash flow from operating activities was $273.7 million, a 238% increase from Q2 2021.
- Delivered record quarterly free funds flow of $201.3 million, or $0.76 per basic common share, an increase of $192.0 million from Q2 2021.
- Earned record quarterly net income to common shareholders of $213.9 million, or $0.81 per basic common share, a 388% and 406% increase, respectively, from Q2 2021.
- F&D capital expenditures were $84.2 million in Q2 2022, which included drilling 12 (12.0 net) wells and bringing 10 (10.0 net) wells on production.
- Significantly reduced total debt at June 30, 2022 to $266.9 million, a reduction of $504.0 million (65%) from June 30, 2021.
- Achieved an operating netback(2) of $41.73/boe, a 143% increase from Q2 2021.
- Achieved adjusted funds flow per boe(2) of $42.55, a 223% increase from Q2 2021.
- Realized an operating expense(4) of $3.40/boe, an 8% increase from Q2 2021.
- In Q2 2022, Birchcliff returned $46.0 million to common shareholders through dividends and purchases under its normal course issuer bid (the “NCIB”), including the doubling of its common share dividend and the purchase of 4,211,596 common shares under the NCIB at an average price of $9.67 per share (before fees). In the first six months of 2022, Birchcliff returned $57.4 million to common shareholders through dividends and the purchase of 5,514,792 common shares under the NCIB at an average price of $8.96 per share (before fees).
Birchcliff’s unaudited interim condensed financial statements for the three and six months ended June 30, 2022 and related management’s discussion and analysis will be available on its website at www.birchcliffenergy.com and on SEDAR at www.sedar.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”. In addition, this press release uses various “non-GAAP financial measures”, “non-GAAP ratios”, “supplementary financial measures” and “capital management measures” as such terms are defined in National Instrument 52-112 – Non-GAAP and Other Financial Measures Disclosure (“NI 52-112”). Non-GAAP financial measures and non-GAAP ratios are not standardized financial measures under GAAP and might not be comparable to similar financial measures disclosed by other issuers where similar terminology is used. For further information regarding the non-GAAP and other financial measures used in this press release, see “Non-GAAP and Other Financial Measures”.
(1) Non-GAAP financial measure. See “Non-GAAP and Other Financial Measures”.
(2) Non-GAAP ratio. See “Non-GAAP and Other Financial Measures”.
(3) Capital management measure. See “Non-GAAP and Other Financial Measures”.
(4) Supplementary financial measure. See “Non-GAAP and Other Financial Measures”.
Q2 2022 FINANCIAL AND OPERATIONAL SUMMARY
Three months ended June 30, |
Six months ended June 30, |
|||||||
2022 | 2021 | 2022 | 2021 | |||||
OPERATING | ||||||||
Average production | ||||||||
Light oil (bbls/d) | 1,855 | 2,766 | 2,111 | 3,059 | ||||
Condensate (bbls/d) | 4,500 | 6,070 | 4,647 | 5,770 | ||||
NGLs (bbls/d) | 6,349 | 7,647 | 7,158 | 8,187 | ||||
Natural gas (Mcf/d) | 366,256 | 352,694 | 365,779 | 348,897 | ||||
Total (boe/d) | 73,746 | 75,265 | 74,879 | 75,166 | ||||
Average realized sales price (CDN$)(1)(2) | ||||||||
Light oil (per bbl) | 135.91 | 76.50 | 124.50 | 71.33 | ||||
Condensate (per bbl) | 138.28 | 81.90 | 129.70 | 78.28 | ||||
NGLs (per bbl) | 48.26 | 25.27 | 45.66 | 24.96 | ||||
Natural gas (per Mcf) | 8.61 | 3.48 | 7.02 | 3.50 | ||||
Total (per boe) | 58.75 | 28.27 | 50.19 | 27.87 | ||||
NETBACK AND COST ($/boe)(2) | ||||||||
Petroleum and natural gas revenue(1) | 58.75 | 28.27 | 50.19 | 27.87 | ||||
Royalty expense | (7.75 | ) | (2.44 | ) | (6.06 | ) | (2.08 | ) |
Operating expense | (3.40 | ) | (3.14 | ) | (3.44 | ) | (3.16 | ) |
Transportation and other expense(3) | (5.87 | ) | (5.50 | ) | (5.65 | ) | (5.51 | ) |
Operating netback(3) | 41.73 | 17.19 | 35.04 | 17.12 | ||||
G&A expense, net | (1.15 | ) | (0.88 | ) | (1.14 | ) | (0.90 | ) |
Interest expense | (0.50 | ) | (1.21 | ) | (0.49 | ) | (1.21 | ) |
Realized gain (loss) on financial instruments | 2.49 | (1.96 | ) | 1.21 | (2.12 | ) | ||
Other income (expense) | (0.02 | ) | 0.03 | – | 0.19 | |||
Adjusted funds flow(3) | 42.55 | 13.17 | 34.62 | 13.08 | ||||
Depletion and depreciation expense | (7.52 | ) | (7.49 | ) | (7.50 | ) | (7.48 | ) |
Unrealized gain on financial instruments | 7.07 | 3.12 | 6.06 | 1.01 | ||||
Other non-cash (expense) income(4) | (0.38 | ) | (0.24 | ) | (0.22 | ) | 0.01 | |
Dividends on preferred shares | (0.26 | ) | (0.25 | ) | (0.26 | ) | (0.25 | ) |
Deferred income tax expense | (9.59 | ) | (1.91 | ) | (7.64 | ) | (1.52 | ) |
Net income to common shareholders | 31.87 | 6.40 | 25.06 | 4.85 | ||||
FINANCIAL | ||||||||
Petroleum and natural gas revenue ($000s)(1) | 394,315 | 193,643 | 680,291 | 379,252 | ||||
Cash flow from operating activities ($000s) | 273,711 | 81,013 | 427,863 | 163,621 | ||||
Adjusted funds flow ($000s)(5) | 285,535 | 90,188 | 469,234 | 178,008 | ||||
Per basic common share ($)(3) | 1.08 | 0.34 | 1.77 | 0.67 | ||||
Free funds flow ($000s)(5) | 201,288 | 9,301 | 296,705 | 1,281 | ||||
Per basic common share ($)(3) | 0.76 | 0.03 | 1.12 | – | ||||
Net income to common shareholders ($000s) | 213,855 | 43,854 | 339,647 | 66,019 | ||||
Per basic common share ($) | 0.81 | 0.16 | 1.28 | 0.25 | ||||
End of period basic common shares (000s) | 265,204 | 266,953 | 265,204 | 266,953 | ||||
Weighted average basic common shares (000s) | 265,440 | 266,231 | 265,485 | 266,110 | ||||
Dividends on common shares ($000s) | 5,310 | 1,333 | 7,968 | 2,663 | ||||
Dividends on preferred shares ($000s) | 1,715 | 1,725 | 3,432 | 3,471 | ||||
F&D capital expenditures ($000s)(6) | 84,247 | 80,887 | 172,529 | 176,727 | ||||
Total capital expenditures ($000s)(5) | 86,150 | 81,160 | 174,274 | 177,785 | ||||
Long-term debt ($000s) | 276,030 | 720,920 | 276,030 | 720,920 | ||||
Total debt ($000s)(7) | 266,894 | 770,897 | 266,894 | 770,897 |
(1) Excludes the effects of financial instruments but includes the effects of physical delivery contracts.
(2) Average realized sales prices and the component values of netback and cost set forth in the table above are supplementary financial measures unless otherwise indicated. See “Non-GAAP and Other Financial Measures”.
(3) Non-GAAP ratio. See “Non-GAAP and Other Financial Measures”.
(4) Includes non-cash items such as compensation, accretion, amortization of deferred financing fees and other gains and losses.
(5) Non-GAAP financial measure. See “Non-GAAP and Other Financial Measures”.
(6) See “Advisories – F&D Capital Expenditures”.
(7) Capital management measure. See “Non-GAAP and Other Financial Measures”.
OUTLOOK AND GUIDANCE
2023 Budgeting Process
The Corporation has initiated its formal budgeting process for 2023, which will be geared towards maximizing Birchcliff’s ability to generate free funds flow, increasing shareholder returns and fully utilizing the processing capacity of the Corporation’s existing infrastructure. Birchcliff plans to provide a corporate update and release its preliminary 2023 budget on October 13, 2022 after the completion of the Corporation’s preliminary 2023 budget planning process.
Updated 2022 Guidance
Birchcliff continues to expect to reach zero total debt and be in a cash surplus position in Q4 2022, which takes into account the redemption of all of its issued and outstanding cumulative redeemable preferred shares, Series A (the “Series A Preferred Shares”) and cumulative redeemable preferred shares, Series C (the “Series C Preferred Shares”) on September 30, 2022 for an aggregate redemption price of approximately $88.2 million, which redemption was announced by the Corporation on August 4, 2022. Birchcliff is able to take full advantage of strong commodity prices because it has no fixed price commodity hedges in place and it does not currently intend to hedge any future production.
Birchcliff is updating its 2022 guidance to reflect the current commodity price environment and the impacts of inflation on its business. The Corporation anticipates significant production additions in the second half of 2022 and is maintaining its previous guidance for annual average production at 78,000 to 80,000 boe/d. Significant changes to Birchcliff’s guidance include the following:
- Adjusted funds flow for 2022 is now anticipated to be $1.1 billion, primarily as a result of the revised commodity price forecast.
- F&D capital expenditures in 2022 are now anticipated to be $275 million to $285 million, primarily as a result of increased inflation and the procurement of certain long-lead capital items to prepare for the efficient execution of Birchcliff’s 2023 capital program.
- Free funds flow for 2022 is now anticipated to be $830 million to $840 million and excess free funds flow for 2022 is now anticipated to be $810 million to $820 million, both as a result of the changes to Birchcliff’s adjusted funds flow and F&D capital expenditures guidance.
- Birchcliff is now forecasting that it will have a surplus of $160 million to $170 million at December 31, 2022.
- Average royalty expense for 2022 is now anticipated to be $6.60/boe to $6.80/boe, primarily as a result of the revised commodity price forecast.
- Average operating expense for 2022 is now anticipated to be $3.30/boe to $3.50/boe, primarily as a result of anticipated inflationary pressures continuing to impact power and other fuel supply costs.
The following table sets forth Birchcliff’s updated and previous guidance and commodity price assumptions for 2022, as well as its free funds flow sensitivity:
2022 Guidance and Commodity Price Assumptions
Updated 2022 guidance and assumptions – August 10, 2022(1) |
Previous 2022 guidance and assumptions – May 11, 2022 |
Original 2022 guidance and assumptions – January 19, 2022 |
|
Production | |||
Annual average production (boe/d) | 78,000 – 80,000 | 78,000 – 80,000 | 78,000 – 80,000 |
% Light oil | 3% | 3% | 3% |
% Condensate | 6% | 7% | 7% |
% NGLs | 10% | 10% | 10% |
% Natural gas | 81% | 80% | 80% |
Q4 average production (boe/d) | 81,000 – 83,000 | 81,000 – 83,000 | 81,000 – 83,000 |
Average Expenses ($/boe) | |||
Royalty(2) | 6.60 – 6.80 | 7.10 – 7.30 | 3.10 – 3.30 |
Operating(2) | 3.30 – 3.50 | 3.15 – 3.35 | 3.15 – 3.35 |
Transportation and other(3) | 5.30 – 5.50 | 5.20 – 5.40 | 4.90 – 5.10 |
Interest(2) | 0.30 – 0.50 | 0.20 – 0.40 | 0.50 – 0.60 |
Adjusted Funds Flow(4) | $1.115 billion | $1.180 billion | $0.590 billion |
F&D Capital Expenditures (millions) | $275 – $285(5) | $240 – $260 | $240 – $260 |
Free Funds Flow (millions)(4) | $830 – $840 | $920 – $940 | $330 – $350 |
Excess Free Funds Flow (millions)(4)(6) | $810 – $820 | $900 – $920 | N/A |
Surplus (Total Debt) at Year End (millions)(7) | $160 – $170(8) | $260 – $280 | ($175 – $195) |
Natural Gas Market Exposure | |||
AECO exposure as a % of total natural gas production | 16% | 19% | 19% |
Dawn exposure as a % of total natural gas production | 42% | 42% | 42% |
NYMEX HH exposure as a % of total natural gas production | 38% | 38% | 38% |
Alliance exposure as a % of total natural gas production | 4% | 1% | 1% |
Commodity Prices | |||
Average WTI price (US$/bbl) | 99.00 | 99.50 | 76.00 |
Average WTI-MSW differential (CDN$/bbl) | 3.60 | 3.10 | 5.00 |
Average AECO price (CDN$/GJ) | 5.60 | 6.50 | 3.50 |
Average Dawn price (US$/MMBtu) | 6.65 | 6.85 | 3.90 |
Average NYMEX HH price (US$/MMBtu) | 6.95 | 6.95 | 4.00 |
Exchange rate (CDN$ to US$1) | 1.28 | 1.28 | 1.26 |
Forward Six Months’ Free Funds Flow Sensitivity(9)
Forward six months’ sensitivity | Estimated change to 2022 free funds flow (millions) | |
Change in WTI US$1.00/bbl | $1.8 | |
Change in NYMEX HH US$0.10/MMBtu | $2.4 | |
Change in Dawn US$0.10/MMBtu | $2.9 | |
Change in AECO CDN$0.10/GJ | $1.3 | |
Change in CDN/US exchange rate CDN$0.01 | $4.1 |
(1) Birchcliff’s updated guidance for its production commodity mix, adjusted funds flow, free funds flow, excess free funds flow, surplus and natural gas market exposure in 2022 is based on an annual average production rate of 79,000 boe/d, which is the mid-point of Birchcliff’s annual average production guidance range for 2022. For further information regarding the risks and assumptions relating to the Corporation’s guidance, see “Advisories – Forward-Looking Statements”.
(2) Supplementary financial measure. See “Non-GAAP and Other Financial Measures”.
(3) Non-GAAP ratio. See “Non-GAAP and Other Financial Measures”.
(4) Non-GAAP financial measure. See “Non-GAAP and Other Financial Measures”.
(5) Birchcliff’s updated estimate of F&D capital expenditures excludes any net potential acquisitions and dispositions and the capitalized portion of annual cash incentive payments that have not been approved by Birchcliff’s board of directors. See “Advisories – F&D Capital Expenditures”.
(6) Excess free funds flow is defined as free funds flow less common share dividends paid. This measure was not disclosed on January 19, 2022.
(7) Capital management measure. See “Non-GAAP and Other Financial Measures”.
(8) Surplus is equivalent to adjusted working capital surplus as disclosed in the Corporation’s financial statements (see “Non-GAAP and Other Financial Measures”). The updated estimate of surplus at December 31, 2022 is expected to be largely comprised of cash on hand plus accounts receivable less accounts payable at the end of the year. Birchcliff previously referred to “surplus” as “cash”.
(9) Illustrates the expected impact of changes in commodity prices and the CDN/US exchange rate on the Corporation’s estimate of free funds flow for 2022 of $830 million to $840 million. The sensitivity is based on the updated commodity price and exchange rate assumptions set forth in the table above. The calculated impact on free 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 and/or when the magnitude of the change increases.
Q2 2022 FINANCIAL AND OPERATIONAL RESULTS
Production
Birchcliff’s production averaged 73,746 boe/d in Q2 2022, a 2% decrease from 75,265 boe/d in Q2 2021. The decrease in production was primarily due to a major scheduled turnaround in May and June 2022 at AltaGas’ deep-cut sour gas processing facility in Gordondale (the “AltaGas Facility”) that decreased quarterly liquids and natural gas production in Gordondale by approximately 3,600 boe/d. Production was positively impacted by incremental production volumes from the new Montney/Doig wells brought on production since Q2 2021, including the new 10-well (01-08) pad in Pouce Coupe brought on production in May 2022 and the new 6-well (13-29) pad in Pouce Coupe brought on production in February 2022, partially offset by natural production declines.
Birchcliff is on target to meet is annual average production guidance of 78,000 to 80,000 boe/d due to significant production additions expected in the second half of 2022.
Liquids accounted for 17% of Birchcliff’s total production in Q2 2022 as compared to 22% in Q2 2021, with a liquids-to-gas ratio in Q2 2022 of 34.7 bbls/MMcf (50% high-value light oil and condensate). The decrease in liquids weighting was primarily due to a combination of lower liquids production in Gordondale as a result of the AltaGas Facility turnaround, the Corporation specifically targeting horizontal natural gas wells in liquids-rich zones in the Pouce Coupe and Gordondale areas since Q2 2021 and natural production declines from light oil and liquids-rich natural gas wells producing since Q2 2021.
Adjusted Funds Flow and Cash Flow From Operating Activities
Birchcliff achieved record quarterly adjusted funds flow of $285.5 million, or $1.08 per basic common share, in Q2 2022, a 217% and 218% increase, respectively, from $90.2 million and $0.34 per basic common share in Q2 2021. Birchcliff’s cash flow from operating activities was $273.7 million in Q2 2022, a 238% increase from $81.0 million in Q2 2021. The increases were primarily due to higher reported petroleum and natural gas revenue and a realized gain on financial instruments of $16.7 million in Q2 2022 as compared to a realized loss on financial instruments of $13.4 million in Q2 2021, partially offset by a higher royalty expense in Q2 2022. The increases in petroleum and natural gas revenue and royalty expense were largely the result of a 108% increase in the average realized sales price received for Birchcliff’s production in Q2 2022. The Corporation’s average realized sales price in Q2 2022 benefited from significant increases in benchmark oil and natural gas prices since Q2 2021. See “Q2 2022 Financial and Operational Results – Commodity Prices”.
Free Funds Flow
Birchcliff delivered record quarterly free funds flow of $201.3 million, or $0.76 per basic common share, in Q2 2022, as compared to $9.3 million and $0.03 per basic common share in Q2 2021. The increases were primarily due to significantly higher adjusted funds flow and comparable F&D capital expenditures in Q2 2022 as compared to Q2 2021.
Net Income to Common Shareholders
Birchcliff earned record quarterly net income to common shareholders of $213.9 million, or $0.81 per basic common share, in Q2 2022, a 388% and 406% increase, respectively, from $43.9 million and $0.16 per basic common share in Q2 2021. The increases were primarily due to higher adjusted funds flow and a higher unrealized mark-to-market gain on financial instruments, partially offset by an increase in deferred income tax expense in Q2 2022. Birchcliff recorded an unrealized mark-to-market gain on financial instruments of $47.5 million in Q2 2022, as compared to $21.3 million in Q2 2021.
Operating Netback and Selected Cash Costs
In Q2 2022, Birchcliff’s operating netback was $41.73/boe, a 143% increase from $17.19/boe in Q2 2021. The increase was primarily due to higher per boe petroleum and natural gas revenue, partially offset by a higher per boe royalty expense, both of which were both largely impacted by a 108% increase in the average realized sales price received for Birchcliff’s production in Q2 2022.
The following table sets forth Birchcliff’s selected cash costs for the periods indicated:
Three months ended June 30, |
|||
($/boe) | 2022 | 2021 | % Change |
Royalty expense(1) | 7.75 | 2.44 | 218% |
Operating expense(1) | 3.40 | 3.14 | 8% |
Transportation and other expense(2) | 5.87 | 5.50 | 7% |
G&A expense, net(1) | 1.15 | 0.88 | 31% |
Interest expense(1) | 0.50 | 1.21 | (59%) |
(1) Supplementary financial measure. See “Non-GAAP and Other Financial Measures”.
(2) Non-GAAP ratio. See “Non-GAAP and Other Financial Measures”.
Royalty expense per boe increased by 218% from Q2 2021, primarily due to the significant increase in the average realized sales price received for Birchcliff’s liquids and natural gas production in Q2 2022.
Operating expense per boe increased by 8% from Q2 2021, primarily due to higher inflationary pressures on power and other fuel supply costs which together increased by 45% on a per boe basis. Operating expense per boe was also negatively impacted by higher field labour costs, road and lease maintenance costs, municipal property taxes and regulatory fees, and was partially offset by lower third-party natural gas processing fees resulting from the turnaround at the AltaGas Facility in Q2 2022.
Transportation and other expense per boe increased by 7% from Q2 2021, primarily due to higher natural gas transportation costs which resulted from increased natural gas production and higher firm NGTL tolling charges. Notwithstanding lower liquids production, liquids transportation and fractionation costs also increased in Q2 2022, primarily due to inflationary pressures that resulted in higher pipeline tariffs, higher trucking and hauling costs and higher variable operating, power, fuel and service costs.
Net G&A expense per boe increased by 31% from Q2 2021, primarily due to higher employee-related expenses, higher corporate costs due to the easing of Birchcliff’s COVID-19 restrictions and higher general business expenditures due to inflationary pressures.
Interest expense per boe decreased by 59% from Q2 2021, primarily due to a decrease in the Corporation’s average effective interest rate and a lower average outstanding balance under its extendible revolving credit facilities (the “Credit Facilities”) in Q2 2022.
Debt and Credit Facilities
Total debt at June 30, 2022 was $266.9 million, a decrease of 65% from $770.9 million at June 30, 2021. At June 30, 2022, Birchcliff had long-term bank debt under the Credit Facilities of $276.0 million (June 30, 2021: $720.9 million) from available Credit Facilities of $850.0 million (June 30, 2021: $850.0 million), leaving $569.4 million of unutilized credit capacity after adjusting for outstanding letters of credit and unamortized fees.
During Q2 2022, Birchcliff’s syndicate of lenders completed its regular semi-annual review of the borrowing base limit under the Credit Facilities. As a result of this review, the agreement governing the Credit Facilities was amended effective May 3, 2022 to extend the maturity dates of each of the syndicated extendible revolving term credit facility and the extendible revolving working capital facility from May 11, 2024 to May 11, 2025. In addition, the lenders confirmed the borrowing base limit at $850.0 million. The Credit Facilities do not contain any financial maintenance covenants.
Commodity Prices
The following table sets forth the average benchmark commodity index prices and exchange rate for the periods indicated:
Three months ended June 30, |
|||
2022 | 2021 | % Change | |
Light oil – WTI Cushing (US$/bbl) | 109.08 | 66.07 | 65% |
Light oil – MSW (Mixed Sweet) (CDN$/bbl) | 137.55 | 76.77 | 79% |
Natural gas – NYMEX HH (US$/MMBtu)(1) | 7.17 | 2.83 | 153% |
Natural gas – AECO 5A Daily (CDN$/GJ) | 6.86 | 2.98 | 130% |
Natural gas – AECO 7A Month Ahead (US$/MMBtu)(1) | 4.94 | 2.32 | 113% |
Natural gas – Dawn Day Ahead (US$/MMBtu)(1) | 7.21 | 2.80 | 158% |
Natural gas – ATP 5A Day Ahead (CDN$/GJ) | 7.48 | 2.68 | 179% |
Exchange rate (CDN$ to US$1) | 1.2688 | 1.2281 | 3% |
Exchange rate (US$ to CDN$1) | 0.7881 | 0.8143 | (3%) |
(1) See “Advisories – MMBtu Pricing Conversions”.
Marketing and Natural Gas Market Diversification
Birchcliff’s physical natural gas sales exposure primarily consists of the AECO, Dawn and Alliance markets. In addition, the Corporation has various financial instruments outstanding that provide it with exposure to NYMEX HH pricing.
The following table details Birchcliff’s effective sales, production and average realized sales price for natural gas and liquids for Q2 2022, after taking into account the Corporation’s financial instruments:
Three months ended June 30, 2022 | ||||||
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)(3) | 48,133 | 11% | 67,748 Mcf | 18% | 15% | 7.81/Mcf |
Dawn(4) | 141,145 | 33% | 159,817 Mcf | 44% | 36% | 9.71/Mcf |
NYMEX HH(1)(2)(5) | 136,627 | 32% | 138,691 Mcf | 38% | 32% | 10.83/Mcf |
Total natural gas(1) | 325,905 | 76% | 366,256 Mcf | 100% | 83% | 9.78/Mcf |
Light oil | 22,935 | 5% | 1,855 bbls | 2% | 135.91/bbl | |
Condensate | 56,620 | 13% | 4,500 bbls | 6% | 138.28/bbl | |
NGLs | 27,887 | 6% | 6,349 bbls | 9% | 48.26/bbl | |
Total liquids | 107,442 | 24% | 12,704 bbls | 17% | 92.94/bbl | |
Total corporate(1) | 433,347 | 100% | 73,746 boe | 100% | 64.57/boe |
(1) Effective sales and effective average realized sales price are non-GAAP financial measures and non-GAAP ratios, respectively, as identified in the above table. See “Non-GAAP and Other Financial Measures”.
(2) AECO sales and production that effectively received NYMEX HH pricing under Birchcliff’s long-term physical NYMEX HH/AECO 7A basis swap contracts have been included as effective sales and production in the NYMEX HH market. Birchcliff sold physical NYMEX HH/AECO 7A basis swaps for 5,000 MMBtu/d at an average contract price of NYMEX HH less US$1.205/MMBtu during Q2 2022.
(3) 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 2022 received AECO premium pricing and have therefore been included as effective sales and production in the AECO market.
(4) Birchcliff has agreements for the firm service transportation of an aggregate of 175,000 GJ/d of natural gas on TransCanada PipeLines’ Canadian Mainline, whereby natural gas is transported to the Dawn trading hub in Southern Ontario.
(5) NYMEX HH sales and production includes financial and physical NYMEX HH/AECO 7A basis swaps for 152,500 MMBtu/d at an average contract price of NYMEX HH less US$1.227/MMBtu during Q2 2022. Birchcliff’s effective average realized sales price for NYMEX HH of CDN$10.83/Mcf (US$7.76/MMBtu) was determined on a gross basis before giving effect to the average NYMEX HH/AECO 7A fixed contract basis differential price of CDN$1.70/Mcf (US$1.23/MMBtu). After giving effect to the NYMEX HH/AECO 7A basis contact price, Birchcliff’s effective average realized net sales price for NYMEX HH was CDN$9.13/Mcf (US$6.53/MMBtu) in Q2 2022.
The following table sets forth Birchcliff’s sales, production, average realized sales price, transportation costs and natural gas sales netback by natural gas market for the periods indicated, before taking into account the Corporation’s financial instruments:
Three months ended June 30, 2022 | |||||||
Natural gas sales(1) (CDN$000s) |
Percentage of natural gas sales (%) |
Natural gas production (Mcf/d) |
Percentage of natural gas production (%) |
Average realized natural gas sales price(1)(2) (CDN$/Mcf) |
Natural gas transportation costs(2)(3) (CDN$/Mcf) |
Natural gas sales netback(2)(4) (CDN$/Mcf) |
|
AECO | 131,062 | 46 | 186,717 | 51 | 7.71 | 0.45 | 7.35 |
Dawn | 141,145 | 49 | 159,817 | 44 | 9.71 | 1.50 | 8.20 |
Alliance(5) | 14,648 | 5 | 19,722 | 5 | 8.16 | – | 8.16 |
Total | 286,855 | 100 | 366,256 | 100 | 8.61 | 0.89 | 7.72 |
Three months ended June 30, 2021 | |||||||
Natural gas sales(1) (CDN$000s) |
Percentage of natural gas sales (%) |
Natural gas production (Mcf/d) |
Percentage of natural gas production (%) |
Average realized natural gas sales price(1)(2) (CDN$/Mcf) |
Natural gas transportation costs(2)(3) (CDN$/Mcf) |
Natural gas sales netback(2)(4) (CDN$/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(5) | 14,810 | 13 | 46,319 | 13 | 3.51 | – | 3.51 |
Total | 111,556 | 100 | 352,694 | 100 | 3.48 | 0.91 | 2.57 |
(1) Excludes the effects of financial instruments but includes the effects of physical delivery contracts.
(2) Supplementary financial measure. See “Non-GAAP and Other Financial Measures”.
(3) Reflects costs to transport natural gas from the field receipt point to the delivery sales trading hub.
(4) Natural gas sales netback denotes the average realized natural gas sales price less natural gas transportation costs.
(5) 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
F&D capital expenditures were $84.2 million in Q2 2022. In Q2 2022, Birchcliff drilled 12 (12.0 net) wells and brought 10 (10.0 net) wells on production. In addition, Birchcliff safely and efficiently completed significant turnarounds in Pouce Coupe and Gordondale. See “Operations Update”.
OPERATIONS UPDATE
As at the date hereof, Birchcliff has successfully completed the drilling of all 30 (30.0 net) wells under its 2022 capital program and has completed 26 (26.0 net) wells (which includes 5 wells that were drilled and rig released in Q4 2021). During Q3 2022, Birchcliff anticipates that it will finish well completions and bring on production 10 (10.0 net) wells in Pouce Coupe and 9 (9.0 net) wells in Gordondale. Similar to the wells previously brought on production this year, these 19 (19.0 net) wells are expected to deliver strong natural gas and condensate rates with an average payout of less than a year, driven by successful execution and robust commodity prices. As part of its long-term planning strategy, the Corporation has secured multi-year contracts with its key service providers to ensure the efficient execution of its short and long-term plans.
The following table sets forth the wells that are part of the Corporation’s 2022 capital program, including the anticipated timing of the remaining wells to be completed and brought on production in 2022:
Total # of wells to be brought on production in 2022 | Status at August 10, 2022 | ||||||||
Drilled | Completed | On production | |||||||
POUCE COUPE | |||||||||
13-29 pad | Basal Doig/Upper Montney | 2 | 0 | 2 | 2 | ||||
Montney D1 | 4 | 1 | 4 | 4 | |||||
Total | 6(1) | 1 | 6 | 6 | |||||
01-08 pad | Basal Doig/Upper Montney | 4 | 4 | 4 | 4 | ||||
Montney D1 | 5 | 5 | 5 | 5 | |||||
Montney C | 1 | 1 | 1 | 1 | |||||
Total | 10 | 10 | 10 | 10 | |||||
04-04 pad | Basal Doig/Upper Montney | 6 | 6 | 6 | Q3 | ||||
Montney D1 | 3 | 3 | 3 | Q3 | |||||
Montney C | 1 | 1 | 1 | Q3 | |||||
Total | 10 | 10 | 10 | ||||||
GORDONDALE | |||||||||
06-35 pad | Montney D2 | 5 | 5 | Q3 | Q3 | ||||
Montney D1 | 4 | 4 | Q3 | Q3 | |||||
Total | 9 | 9 | |||||||
TOTAL | 35(1) | 30 | 26 | 16 |
(1) Includes 5 wells that were drilled and rig released in Q4 2021.
Pouce Coupe Area
6-well pad (13-29-77-12W6)
Birchcliff’s 13-29 pad was brought on production in Q1 2022. The initial 30 and 60 day production rates for the wells from the 13-29 pad were disclosed in the Corporation’s press release dated May 11, 2022. The performance of this 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 (01-08-78-13W6)
Birchcliff’s 01-08 pad in Pouce Coupe was drilled in Q2 2022 and brought on production in April and May 2022 through Birchcliff’s owned and operated infrastructure. The wells from the 01-08 pad have now been producing for over 60 days and have produced in-line with the Corporation’s forecast. 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 01-08 pad:
IP 30(1) | IP 60(1) | |
Aggregate production rate (boe/d) | 9,079 | 8,261 |
Aggregate natural gas production rate (Mcf/d) | 52,552 | 47,921 |
Aggregate condensate production rate (bbls/d) | 358 | 288 |
Average per well production rate (boe/d) | 908 | 826 |
Average per well natural gas production rate (Mcf/d) | 5,255 | 4,792 |
Average per well condensate production rate (bbls/d) | 36 | 29 |
Condensate-to-gas ratio (bbls/MMcf) | 7 | 6 |
(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”.
10-well pad (04-04-78-13W6)
The Corporation recently finished completion operations on its 04-04 pad in Pouce Coupe and all 10 wells are expected to be brought on production in Q3 2022. Birchcliff anticipates providing further details regarding the results of these wells with the release of its Q3 2022 results.
Gordondale Area
9-well pad (06-35-77-11W6)
Birchcliff’s 06-35 pad in Gordondale was drilled in Q2 and Q3 2022 and is expected to be completed and brought on production before the end of Q3 2022. These wells are offsetting high-rate light oil and natural gas producing wells drilled by Birchcliff in the southeastern portion of Gordondale in the previous three years. Birchcliff anticipates providing further details regarding the results of these wells with the release of its Q3 2022 results.
Turnarounds
During Q2 2022, Birchcliff safely and efficiently completed significant turnarounds in Pouce Coupe and Gordondale. In April 2022, Birchcliff completed a turnaround at its 100% owned and operated natural gas processing plant in Pouce Coupe, ahead of schedule and on budget, while effectively mitigating the impact to production volumes. In May and June 2022, the Corporation completed a significant turnaround in Gordondale at two of Birchcliff’s major oil batteries, while a turnaround was completed by AltaGas at the AltaGas Facility.
The completion of these turnarounds was particularly challenging in the current environment due to labour shortages and cost pressures and Birchcliff commends its field staff and contractors for their great teamwork, coordination and dedication to safety in efficiently completing them. The AltaGas turnaround will allow Birchcliff to maximize liquids recovery through the deep-cut plant and increase overall plant reliability throughout the remainder of 2022 and onwards.
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+) |
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 |
Mcf | thousand cubic feet |
Mcf/d | thousand cubic feet per day |
MMBtu | million British thermal units |
MMBtu/d | million British thermal units per day |
MMcf | million cubic feet |
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 |
NGTL | NOVA Gas Transmission Ltd. |
NYMEX | New York Mercantile Exchange |
OPEC | Organization of the Petroleum Exporting Countries |
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 |
NON-GAAP AND OTHER FINANCIAL MEASURES
This press release uses various “non-GAAP financial measures”, “non-GAAP ratios”, “supplementary financial measures” and “capital management measures” (as such terms are defined in 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, Free Funds Flow and Excess 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 and expense 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, buy back common shares and pay 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 generate shareholder returns through a number of initiatives, including but not limited to, debt repayment, preferred share redemptions, common share buybacks, the payment of dividends and acquisitions.
Birchcliff defines “excess free funds flow” as free funds flow less common share dividends paid. Management believes that excess free funds flow assists management and investors in assessing Birchcliff’s ability to further enhance shareholder returns after the payment of common share dividends, which may include dividend increases, common share buybacks and other opportunities that would complement or otherwise improve the Corporation’s business and enhance long-term shareholder value.
The following table provides a reconciliation of cash flow from operating activities, as determined in accordance with GAAP, to adjusted funds flow, free funds flow and excess free funds flow for the periods indicated:
Three months ended June 30, |
Six months ended June 30, |
|||
($000s) | 2022 | 2021 | 2022 | 2021 |
Cash flow from operating activities | 273,711 | 81,013 | 427,863 | 163,621 |
Change in non-cash operating working capital | 11,199 | 8,982 | 40,029 | 13,111 |
Decommissioning expenditures | 625 | 193 | 1,342 | 1,276 |
Adjusted funds flow | 285,535 | 90,188 | 469,234 | 178,008 |
F&D capital expenditures | (84,247) | (80,887) | (172,529) | (176,727) |
Free funds flow | 201,288 | 9,301 | 296,705 | 1,281 |
Dividends on common shares | (5,310) | (1,333) | (7,968) | (2,663) |
Excess free funds flow | 195,978 | 7,968 | 288,737 | (1,382) |
Transportation and Other Expense
Birchcliff defines “transportation and other expense” as transportation expense plus marketing purchases less marketing revenue. Birchcliff may enter into certain marketing purchase and sales arrangements with the objective of reducing any available transportation and/or fractionation fees associated with its take-or-pay commitments. Management believes that transportation and other expense assists management and investors in assessing Birchcliff’s total cost structure related to transportation activities. The following table provides a reconciliation of transportation expense, as determined in accordance with GAAP, to transportation and other expense for the periods indicated:
Three months ended June 30, |
Six months ended June 30, |
|||
($000s) | 2022 | 2021 | 2022 | 2021 |
Transportation expense | 39,855 | 38,165 | 77,692 | 75,849 |
Marketing purchases | 2,644 | 1,734 | 6,213 | 3,781 |
Marketing revenue | (3,043) | (2,234) | (7,277) | (4,692) |
Marketing gain | (399) | (500) | (1,064) | (911) |
Transportation and other expense | 39,456 | 37,665 | 76,628 | 74,938 |
Operating Netback
Birchcliff defines “operating netback” as petroleum and natural gas revenue less royalty expense, operating expense and transportation and other expense. Management believes that operating netback assists management and investors in assessing Birchcliff’s operating profits after deducting the cash costs that are directly associated with the sale of its production, which can then be used to pay other corporate cash costs or satisfy other obligations. The following table provides a breakdown of Birchcliff’s operating netback for the periods indicated:
Three months ended June 30, |
Six months ended June 30, |
|||
($000s) | 2022 | 2021 | 2022 | 2021 |
Petroleum and natural gas revenue | 394,315 | 193,643 | 680,291 | 379,252 |
Royalty expense | (52,010) | (16,692) | (82,168) | (28,319) |
Operating expense | (22,796) | (21,538) | (46,643) | (43,036) |
Transportation and other expense | (39,456) | (37,665) | (76,628) | (74,938) |
Operating netback – Corporate | 280,053 | 117,748 | 474,852 | 232,959 |
Effective Sales – Total Corporate, Total Natural Gas, AECO Market and NYMEX HH Market
Birchcliff defines “effective sales” in the AECO market and NYMEX HH market as the sales amount received from the production of natural gas that is effectively attributed to the AECO and NYMEX HH market pricing, respectively, and does not consider the physical sales delivery point in each case. Effective sales in the NYMEX HH market includes realized gains and losses on financial instruments and excludes the notional fixed basis costs associated with the underlying financial contract in the period. Birchcliff defines “effective total natural gas sales” as the aggregate of the effective sales amount received in each natural gas market. Birchcliff defines “effective total corporate sales” as the aggregate of the effective total natural gas sales and the sales amount received from the production of light oil, condensate and NGLs. Management believes that disclosing effective sales for each natural gas market assists management and investors in assessing Birchcliff’s natural gas diversification and commodity price exposure to each market. The following table provides a reconciliation of natural gas sales, as determined in accordance with GAAP, to effective total natural gas sales and effective total corporate sales for the periods indicated:
Three months ended June 30, |
||
($000s) | 2022 | 2021(1) |
Natural gas sales | 286,855 | 111,556 |
Realized gain (loss) on financial instruments | 16,687 | (13,392) |
Notional fixed basis costs(2) | 22,363 | 22,502 |
Effective total natural gas sales | 325,905 | 120,666 |
Light oil sales | 22,935 | 19,255 |
Condensate sales | 56,620 | 45,241 |
NGLs sales | 27,887 | 17,582 |
Effective total corporate sales | 433,347 | 202,744 |
(1) Prior period amounts have been adjusted to include the aggregate notional fixed basis cost for comparison purposes.
(2) Reflects the aggregate notional fixed basis cost associated with Birchcliff’s financial and physical NYMEX HH/AECO 7A basis swaps in the period.
Non-GAAP Ratios
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 Boe and Adjusted Funds Flow Per Basic Common Share
Birchcliff calculates “adjusted funds flow per boe” as aggregate adjusted funds flow in the period divided by the production (boe) in the period. Management believes that adjusted funds flow per boe assists management and investors in assessing Birchcliff’s financial profitability and sustainability on a cash basis by isolating the impact of production volumes to better analyze its performance against prior periods on a comparable basis. The Corporation previously referred to adjusted funds flow per boe as “adjusted funds flow netback”.
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 funds 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.
Transportation and Other Expense Per Boe
Birchcliff calculates “transportation and other expense per boe” as aggregate transportation and other expense in the period divided by the production (boe) in the period. Management believes that transportation and other expense per boe assists management and investors in assessing Birchcliff’s cost structure as it relates to its transportation and marketing activities by isolating the impact of production volumes to better analyze its performance against prior periods on a comparable basis.
Operating Netback Per Boe
Birchcliff calculates “operating netback per boe” as aggregate operating netback in the period divided by the production (boe) in the period. Management believes that operating netback per boe assists management and investors in assessing Birchcliff’s operating profitability and sustainability by isolating the impact of production volumes to better analyze its performance against prior periods on a comparable basis.
Effective Average Realized Sales Price – Total Corporate, Total Natural Gas, AECO Market and NYMEX HH Market
Birchcliff calculates “effective average realized sales price” as effective sales, in each of total corporate, total natural gas, AECO market and NYMEX HH market, as the case may be, divided by the effective production in each of the markets during the period. Management believes that disclosing effective average realized sales price for each natural gas market assists management and investors in comparing Birchcliff’s commodity price realizations in each natural gas market on a per unit basis.
Supplementary Financial Measures
NI 52-112 defines a supplementary financial measure as a financial measure that: (i) is, or is intended to be, disclosed on a periodic basis to depict the historical or expected future financial performance, financial position or cash flow of an entity; (ii) is not disclosed in the financial statements of the entity; (iii) is not a non-GAAP financial measure; and (iv) is not a non-GAAP ratio. The supplementary financial measures used in this press release are either a per unit disclosure of a corresponding GAAP measure, or a component of a corresponding GAAP measure, presented in the financial statements. Supplementary financial measures that are disclosed on a per unit basis are calculated by dividing the aggregate GAAP measure (or component thereof) by the applicable unit for the period. Supplementary financial measures that are disclosed on a component basis of a corresponding GAAP measure are a granular representation of a financial statement line item and are determined in accordance with GAAP.
The supplementary financial measures used in this press release include: operating expense per boe average realized sales price per bbl, Mcf and boe; petroleum and natural gas revenue per boe; royalty expense per boe; G&A expense, net per boe; interest expense per boe; realized gain (loss) on financial instruments per boe; other income (expense) per boe; depletion and depreciation expense per boe; unrealized gain on financial instruments per boe; other non-cash (expense) income per boe; dividends on preferred shares per boe; deferred income tax expense per boe; net income to common shareholders per boe; average realized natural gas sales price per Mcf; natural gas transportation costs per Mcf; and natural gas sales netback per Mcf.
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 measures used in this press release.
Total Debt and Adjusted Working Capital Deficit (Surplus)
Birchcliff calculates “total debt” as the amount outstanding under the Corporation’s Credit Facilities plus adjusted working capital deficit (surplus). “Adjusted working capital deficit (surplus)” is calculated as working capital deficit (current assets less current liabilities) less fair value of financial instruments and capital securities. Surplus as disclosed in this press release is equivalent to adjusted working capital 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. Management believes that adjusted working capital deficit (surplus) assists management and investors in assessing Birchcliff’s short-term liquidity. The following table provides a reconciliation of the amount outstanding under the Credit Facilities and working capital deficit, as determined in accordance with GAAP, to total debt and adjusted working capital deficit (surplus), respectively:
As at,($000s) | June 30, 2022 | March 31, 2022 | December 31, 2021 | June 30, 2021 |
Revolving term credit facilities | 276,030 | 397,752 | 500,870 | 720,920 |
Working capital deficit | 18,633 | 46,213 | 53,312 | 131,796 |
Fair value of financial instruments | 10,436 | 3,249 | (16,517) | (43,491) |
Capital securities | (38,205) | (28,216) | (38,268) | (38,328) |
Adjusted working capital deficit (surplus) | (9,136) | 11,246 | (1,473) | 49,977 |
Total debt | 266,894 | 408,998 | 499,397 | 770,897 |
ADVISORIES
Unaudited Information
All financial and operational information contained in this press release for the three and six months ended June 30, 2022 and 2021 is unaudited.
Currency
Unless otherwise indicated, all dollar amounts are expressed in Canadian dollars and all references to “$” and “CDN$” are to Canadian dollars and all references to “US$” are to United States dollars.
Boe Conversions
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.
MMBtu Pricing Conversions
$1.00 per MMBtu equals $1.00 per Mcf based on a standard heat value Mcf.
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 and Other Financial Measures”.
Production
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. 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.
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 10-well (10-08) 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 10-well pad and then divided by 10 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 10 wells were stabilized between 3.4 and 4.3 MPa for IP 30 production rates and between 3.1 and 3.6 MPa for IP 60 production rates. Approximate casing pressures for the 10 wells were stabilized between 8.0 and 11.3 MPa for IP 30 production rates and between 7.3 and 10.3 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.
F&D Capital Expenditures
Unless otherwise stated, references in this press release to “F&D capital expenditures” denotes exploration and development expenditures determined in accordance with GAAP. Management believes that F&D capital expenditures assists management and investors in assessing Birchcliff capital cost outlay associated with its exploration and development activities for the purposes of finding and developing its reserves.