CALGARY, Alberta, Nov. 09, 2022 (GLOBE NEWSWIRE) — Birchcliff Energy Ltd. (“Birchcliff” or the “Corporation”) (TSX: BIR) is pleased to announce its Q3 2022 financial and operational results.
“Birchcliff continued to deliver exceptional results in the third quarter, highlighted by quarterly average production of 78,079 boe/d, which resulted in record Q3 adjusted funds flow(1) of $267.4 million ($1.01 per basic common share(2)), record Q3 free funds flow(1) of $182.0 million ($0.69 per basic common share(2)) and record quarterly net income to common shareholders of $244.6 million ($0.92 per basic common share),” commented Jeff Tonken, Chief Executive Officer of Birchcliff.
Mr. Tonken continued: “As previously announced on October 13, 2022, Birchcliff paid a special cash dividend of $0.20 per share to our common shareholders on October 28, 2022. Additionally, we have commenced the execution of our 2023 capital program, which we expect will result in annual average production of 81,000 to 83,000 boe/d in 2023, a 5% increase over 2022(3). After the payment of Birchcliff’s targeted 2023 annual common share dividend of $0.80 per share ($0.20 per share quarterly), we are forecasting that we will have a cash surplus(4) of approximately $295 million to $325 million at December 31, 2023(5). We are maintaining our 2022 guidance and preliminary 2023 guidance that we provided on October 13, 2022 and we expect to announce the details of our 2023 capital program and updated five year plan for 2023 to 2027 on January 18, 2023.”
Q3 2022 HIGHLIGHTS
- Achieved quarterly average production of 78,079 boe/d, an 8% decrease from Q3 2021. Liquids accounted for 19% of Birchcliff’s total production in Q3 2022, consistent with Q3 2021.
- Generated record Q3 adjusted funds flow of $267.4 million, or $1.01 per basic common share, a 59% and 60% increase, respectively, from Q3 2021. Quarterly cash flow from operating activities was $273.0 million, a 75% increase from Q3 2021.
- Delivered record Q3 free funds flow of $182.0 million, or $0.69 per basic common share, a 21% and 23% increase, respectively, from Q3 2021.
- Earned record quarterly net income to common shareholders of $244.6 million, or $0.92 per basic common share, each a 77% increase from Q3 2021.
- F&D capital expenditures were $85.3 million in Q3 2022, which included drilling 8 (8.0 net) wells and bringing 19 (19.0 net) wells on production.
- Achieved an operating netback(2) of $32.31/boe, a 37% increase from Q3 2021.
- Achieved adjusted funds flow per boe(2) of $37.22, a 73% increase from Q3 2021.
- Realized an operating expense(6) of $3.50/boe, an 18% increase from Q3 2021.
- Redeemed all of its issued and outstanding cumulative redeemable preferred shares, Series A and Series C on September 30, 2022 for an aggregate redemption price of $88.2 million.
- Significantly reduced total debt(7) at September 30, 2022 to $186.1 million, a reduction of $451.8 million (71%) from September 30, 2021 and $80.8 million (30%) from June 30, 2022. The Corporation retired approximately $169.0 million of total debt and preferred shares in Q3 2022.
- In Q3 2022, Birchcliff returned $10.3 million to common shareholders through dividends and purchases under its normal course issuer bid (the “NCIB”), including the purchase of 525,400 common shares under the NCIB at an average price of $9.44 per share (before fees). In the first nine months of 2022, Birchcliff returned $67.7 million to common shareholders through dividends and the purchase of 6,040,192 common shares under the NCIB at an average price of $9.00 per share (before fees).
(1) Non-GAAP financial measure. See “Non-GAAP and Other Financial Measures”.
(2) Non-GAAP ratio. See “Non-GAAP and Other Financial Measures”.
(3) Based on an annual average production rate of 78,000 boe/d in 2022 and 82,000 boe/d in 2023, which is the mid-point of Birchcliff’s preliminary annual average production guidance range for 2023.
(4) Equivalent to “total surplus”, which is a capital management measure. See “Non-GAAP and Other Financial Measures”.
(5) See “Outlook and Guidance – Preliminary 2023 Guidance” and “Advisories – Forward-Looking Statements” for further information regarding Birchcliff’s preliminary 2023 guidance and its commodity price and exchange rate assumptions.
(6) Supplementary financial measure. See “Non-GAAP and Other Financial Measures”.
(7) Capital management measure. See “Non-GAAP and Other Financial Measures”.
Birchcliff’s unaudited interim condensed financial statements for the three and nine months ended September 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”.
Q3 2022 FINANCIAL AND OPERATIONAL SUMMARY
Three months ended September 30, |
Nine months ended September 30, |
|||||||
2022 | 2021 | 2022 | 2021 | |||||
OPERATING | ||||||||
Average production | ||||||||
Light oil (bbls/d) | 2,254 | 2,878 | 2,159 | 2,998 | ||||
Condensate (bbls/d) | 4,601 | 5,990 | 4,631 | 5,844 | ||||
NGLs (bbls/d) | 7,593 | 6,889 | 7,305 | 7,750 | ||||
Natural gas (Mcf/d) | 381,788 | 415,005 | 371,174 | 371,175 | ||||
Total (boe/d) | 78,079 | 84,924 | 75,957 | 78,454 | ||||
Average realized sales price(CDN$)(1)(2) | ||||||||
Light oil (per bbl) | 115.94 | 83.52 | 121.49 | 75.28 | ||||
Condensate (per bbl) | 115.84 | 88.04 | 125.06 | 81.65 | ||||
NGLs (per bbl) | 38.18 | 35.13 | 43.04 | 28.01 | ||||
Natural gas (per Mcf) | 6.83 | 4.46 | 6.95 | 3.86 | ||||
Total (per boe) | 47.26 | 33.70 | 49.18 | 30.00 | ||||
NETBACK AND COST ($/boe)(2) | ||||||||
Petroleum and natural gas revenue(1) | 47.26 | 33.71 | 49.18 | 30.00 | ||||
Royalty expense | (6.04 | ) | (2.50 | ) | (6.05 | ) | (2.23 | ) |
Operating expense | (3.50 | ) | (2.96 | ) | (3.46 | ) | (3.09 | ) |
Transportation and other expense(3) | (5.41 | ) | (4.73 | ) | (5.58 | ) | (5.22 | ) |
Operating netback(3) | 32.31 | 23.52 | 34.09 | 19.46 | ||||
G&A expense, net | (0.98 | ) | (0.70 | ) | (1.08 | ) | (0.83 | ) |
Interest expense | (0.44 | ) | (0.92 | ) | (0.48 | ) | (1.10 | ) |
Realized gain (loss) on financial instruments | 6.33 | (0.32 | ) | 2.99 | (1.46 | ) | ||
Other cash income (expense) | – | (0.07 | ) | – | 0.09 | |||
Adjusted funds flow(3) | 37.22 | 21.51 | 35.52 | 16.16 | ||||
Depletion and depreciation expense | (7.48 | ) | (7.31 | ) | (7.49 | ) | (7.42 | ) |
Unrealized gain on financial instruments | 15.30 | 9.02 | 9.26 | 3.93 | ||||
Other (expense) income(4) | (0.39 | ) | 0.05 | (0.28 | ) | 0.03 | ||
Dividends on preferred shares | (0.24 | ) | (0.22 | ) | (0.25 | ) | (0.25 | ) |
Deferred income tax expense | (10.36 | ) | (5.34 | ) | (8.59 | ) | (2.91 | ) |
Net income to common shareholders | 34.05 | 17.71 | 28.17 | 9.54 | ||||
FINANCIAL | ||||||||
Petroleum and natural gas revenue ($000s)(1) | 339,531 | 263,348 | 1,019,822 | 642,600 | ||||
Cash flow from operating activities ($000s) | 272,965 | 155,606 | 700,828 | 319,227 | ||||
Adjusted funds flow ($000s)(5) | 267,350 | 168,076 | 736,584 | 346,084 | ||||
Per basic common share ($)(3) | 1.01 | 0.63 | 2.78 | 1.30 | ||||
Free funds flow ($000s)(5) | 182,020 | 150,050 | 478,725 | 151,331 | ||||
Per basic common share ($)(3) | 0.69 | 0.56 | 1.80 | 0.57 | ||||
Net income to common shareholders ($000s) | 244,582 | 138,367 | 584,229 | 204,387 | ||||
Per basic common share ($) | 0.92 | 0.52 | 2.20 | 0.77 | ||||
End of period basic common shares (000s) | 265,877 | 265,573 | 265,877 | 265,573 | ||||
Weighted average basic common shares (000s) | 265,298 | 266,547 | 265,422 | 266,258 | ||||
Dividends on common shares ($000s) | 5,317 | 1,330 | 13,285 | 3,993 | ||||
Dividends on preferred shares ($000s) | 1,730 | 1,717 | 5,162 | 5,188 | ||||
F&D capital expenditures ($000s)(6) | 85,330 | 18,026 | 257,859 | 194,753 | ||||
Total capital expenditures ($000s)(5) | 86,485 | 18,622 | 260,759 | 196,407 | ||||
Long-term debt ($000s) | 196,989 | 648,327 | 196,989 | 648,327 | ||||
Total debt ($000s)(7) | 186,064 | 637,905 | 186,064 | 637,905 |
(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.
(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”.
Q3 2022 FINANCIAL AND OPERATIONAL RESULTS
Production
Birchcliff’s production averaged 78,079 boe/d in Q3 2022, an 8% decrease from 84,924 boe/d in Q3 2021. The decrease was primarily due to the timing of new wells brought on production in Q3 2022 as compared to Q3 2021, which resulted from scheduling differences in Birchcliff’s drilling and completions program year-over-year. During Q3 2022, the Corporation brought a total 19 wells on production, which included the 10-well 04-04 pad brought onstream in August 2022 and the 9-well 06-35 pad brought onstream in late September 2022, as compared to 22 wells in Q3 2021, the majority of which were brought on production earlier in that quarter. Production was positively impacted by incremental production volumes from new Montney/Doig wells brought on production since September 30, 2021, partially offset by natural production declines.
Liquids accounted for 19% of Birchcliff’s total production in Q3 2022, consistent with Q3 2021, with a liquids-to-gas ratio in Q3 2022 of 37.8 bbls/MMcf (47% high-value light oil and condensate).
Adjusted Funds Flow and Cash Flow From Operating Activities
Birchcliff achieved record Q3 adjusted funds flow of $267.4 million, or $1.01 per basic common share, in Q3 2022, a 59% and 60% increase, respectively, from $168.1 million and $0.63 per basic common share in Q3 2021. Birchcliff’s cash flow from operating activities was $273.0 million in Q3 2022, a 75% increase from $155.6 million in Q3 2021. The increases were primarily due to higher petroleum and natural gas revenue and a realized gain on financial instruments of $45.5 million in Q3 2022 as compared to a realized loss on financial instruments of $2.5 million in Q3 2021, partially offset by a higher royalty expense in Q3 2022. The increases in petroleum and natural gas revenue and royalty expense were largely the result of a 40% increase in the average realized sales price received for Birchcliff’s production in Q3 2022 as compared to Q3 2021. The Corporation’s average realized sales price in Q3 2022 benefited from significant increases in benchmark oil and natural gas prices as compared to Q3 2021. See “Q3 2022 Financial and Operational Results – Commodity Prices”.
Free Funds Flow
Birchcliff delivered record Q3 free funds flow of $182.0 million, or $0.69 per basic common share, in Q3 2022, a 21% and 23% increase, respectively, from $150.1 million and $0.56 per basic common share in Q3 2021. The increases were primarily due to higher adjusted funds flow, partially offset by higher F&D capital expenditures in Q3 2022 as compared to Q3 2021.
Net Income to Common Shareholders
Birchcliff earned record quarterly net income to common shareholders of $244.6 million, or $0.92 per basic common share, in Q3 2022, each a 77% increase from $138.4 million and $0.52 per basic common share in Q3 2021. The increases were primarily due to higher adjusted funds flow and a higher unrealized mark-to-market gain on financial instruments. Birchcliff recorded an unrealized mark-to-market gain on financial instruments of $109.9 million in Q3 2022 as compared to a $70.5 million in Q3 2021. Net income to common shareholders was negatively impacted by an increase in deferred income tax expense of $32.6 million in Q3 2022.
Operating Netback and Selected Cash Costs
In Q3 2022, Birchcliff’s operating netback was $32.31/boe, a 37% increase from $23.52/boe in Q3 2021. The increase was primarily due to higher per boe petroleum and natural gas revenue, partially offset by a higher per boe royalty expense, both of which were largely impacted by a 40% increase in the average realized sales price received for Birchcliff’s production in Q3 2022.
The following table sets forth Birchcliff’s selected cash costs for the periods indicated:
Three months ended September 30, |
||||
($/boe) | 2022 | 2021 | % Change | |
Royalty expense(1) | 6.04 | 2.50 | 142 | % |
Operating expense(1) | 3.50 | 2.96 | 18 | % |
Transportation and other expense(2) | 5.41 | 4.73 | 14 | % |
G&A expense, net(1) | 0.98 | 0.70 | 40 | % |
Interest expense(1) | 0.44 | 0.92 | (52 | %) |
(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 142% from Q3 2021, primarily due to the increase in the average realized sales price received for Birchcliff’s liquids and natural gas production in Q3 2022.
Operating expense per boe increased by 18% from Q3 2021, primarily due to inflationary pressures on power and other fuel supply costs, which together increased by 71% on a per boe basis. Operating expense per boe was also negatively impacted by higher municipal property taxes and regulatory fees.
Transportation and other expense per boe increased by 14% from Q3 2021, primarily due to higher liquids transportation costs as a result of inflationary pressures that increased liquids-handling costs in Q3 2022 and higher fractionation processing fees and take-or-pay commitments.
Net G&A expense per boe increased by 40% from Q3 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 52% from Q3 2021, primarily due to a lower average outstanding balance under the Corporation’s extendible revolving credit facilities (the “Credit Facilities”) in Q3 2022.
Debt and Credit Facilities
Total debt at September 30, 2022 was $186.1 million, a decrease of 71% from $637.9 million at September 30, 2021. At September 30, 2022, Birchcliff had long-term debt under the Credit Facilities of $197.0 million (September 30, 2021: $648.3 million) from available Credit Facilities of $850.0 million (September 30, 2021: $850.0 million), leaving the Corporation with $648.9 million of unutilized credit capacity after adjusting for outstanding letters of credit and unamortized deferred financing fees. This unutilized credit capacity provides Birchcliff with significant financial flexibility and additional capital resources to fund its working capital requirements, capital expenditure programs and dividend payments if required in the future. The Credit Facilities do not contain any financial maintenance covenants and do not mature until May 11, 2025.
Commodity Prices
The following table sets forth the average benchmark commodity index prices and exchange rate for the periods indicated:
Three months ended September 30, |
||||
2022 | 2021 | % Change | ||
Light oil – WTI Cushing (US$/bbl) | 91.55 | 71.06 | 29 | % |
Light oil – MSW (Mixed Sweet) (CDN$/bbl) | 116.82 | 83.32 | 40 | % |
Natural gas – NYMEX HH (US$/MMBtu)(1) | 8.20 | 4.01 | 104 | % |
Natural gas – AECO 5A Daily (CDN$/GJ) | 3.95 | 3.41 | 16 | % |
Natural gas – AECO 7A Month Ahead (US$/MMBtu)(1) | 4.46 | 2.83 | 58 | % |
Natural gas – Dawn Day Ahead (US$/MMBtu)(1) | 7.37 | 4.07 | 81 | % |
Natural gas – ATP 5A Day Ahead (CDN$/GJ) | 3.96 | 4.01 | (1 | %) |
Exchange rate (CDN$ to US$1) | 1.3054 | 1.2504 | 4 | % |
Exchange rate (US$ to CDN$1) | 0.7660 | 0.7997 | (4 | %) |
(1) See “Advisories – MMBtu Pricing Conversions”.
Marketing and Natural Gas Market Diversification
Birchcliff’s physical natural gas sales exposure primarily consists of the AECO, Dawn and Alliance markets. In addition, the Corporation has various financial instruments outstanding that provide it with exposure to NYMEX HH pricing.
The following table details Birchcliff’s effective sales, production and average realized sales price for natural gas and liquids for Q3 2022, after taking into account the Corporation’s financial instruments:
Three months ended September 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) | 33,527 | 8% | 82,571 Mcf | 22% | 18% | 4.41/Mcf |
Dawn(4) | 148,258 | 36% | 160,526 Mcf | 42% | 34% | 10.04/Mcf |
NYMEX HH(1)(2)(5) | 125,342 | 31% | 138,691 Mcf | 36% | 29% | 9.82/Mcf |
Total natural gas(1) | 307,127 | 75% | 381,788 Mcf | 100% | 81% | 8.74/Mcf |
Light oil | 24,037 | 6% | 2,254 bbl | 3% | 115.94/bbl | |
Condensate | 49,031 | 12% | 4,601 bbl | 6% | 115.84/bbl | |
NGLs | 26,673 | 7% | 7,593 bbl | 10% | 38.18/bbl | |
Total liquids | 99,741 | 25% | 14,448 bbls | 19% | 75.04/bbl | |
Total corporate(1) | 406,868 | 100% | 78,079 boe | 100% | 56.64/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 swap contracts for 5,000 MMBtu/d at an average contract price of NYMEX HH less US$1.205/MMBtu during Q3 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 Q3 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 include financial and physical NYMEX HH/AECO 7A basis swap contracts for 152,500 MMBtu/d at an average contract price of NYMEX HH less US$1.227/MMBtu during Q3 2022. Birchcliff’s effective average realized sales price for NYMEX HH of CDN$9.82/Mcf (US$6.77/MMBtu) was determined on a gross basis before giving effect to the average NYMEX HH/AECO 7A fixed contract basis differential price of CDN$1.76/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$8.06/Mcf (US$5.54/MMBtu) in Q3 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 September 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 | 83,550 | 35% | 203,296 | 53% | 4.50 | 0.39 | 4.11 |
Dawn | 148,258 | 62% | 160,526 | 42% | 10.04 | 1.42 | 8.61 |
Alliance(5) | 7,965 | 3% | 17,966 | 5% | 4.82 | – | 4.82 |
Total | 239,773 | 100% | 381,788 | 100% | 6.83 | 0.81 | 6.02 |
Three months ended September 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 | 65,886 | 39% | 186,718 | 45% | 3.87 | 0.43 | 3.44 |
Dawn | 78,554 | 46% | 158,631 | 38% | 5.38 | 1.48 | 3.90 |
Alliance(5) | 26,001 | 15% | 69,656 | 17% | 4.06 | – | 4.06 |
Total | 170,441 | 100% | 415,005 | 100% | 4.46 | 0.76 | 3.70 |
(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 $85.3 million in Q3 2022, which included drilling 8 (8.0 net) wells and bringing 19 (19.0 net) wells on production. In addition, the Corporation participated in the drilling and completion of 2 (0.375 net) Charlie Lake horizontal oil wells in Pouce Coupe. See “Operations Update”.
OPERATIONS UPDATE
2022 Capital Program Update
Birchcliff has successfully drilled and brought on production all of the wells under its initial 2022 capital program. During Q3 2022, the Corporation brought 19 (19.0 net) wells on production, with strong natural gas and condensate rates and an average payout of less than a year, driven by efficient execution and robust commodity prices.
The following table sets forth the wells that were drilled and brought on production as part of the Corporation’s 2022 capital program:
Total # of wells drilled under initial 2022 capital program |
Total # of wells brought on production under initial 2022 capital program |
|||||
POUCE COUPE | ||||||
13-29 pad | Basal Doig/Upper Montney | 0 | 2 | |||
Montney D1 | 1 | 4 | ||||
Total | 1 | 6(1) | ||||
01-08 pad | Basal Doig/Upper Montney | 4 | 4 | |||
Montney D1 | 5 | 5 | ||||
Montney C | 1 | 1 | ||||
Total | 10 | 10 | ||||
04-04 pad | Basal Doig/Upper Montney | 6 | 6 | |||
Montney D1 | 3 | 3 | ||||
Montney C | 1 | 1 | ||||
Total | 10 | 10 | ||||
GORDONDALE | ||||||
06-35 pad | Montney D2 | 5 | 5 | |||
Montney D1 | 4 | 4 | ||||
Total | 9 | 9 | ||||
TOTAL | 30 | 35(1)(2) |
(1) Includes 5 wells that were drilled and rig released in Q4 2021.
(2) Does not include the 2 (0.375 net) Charlie Lake horizontal oil wells that the Corporation participated in during Q3 2022. See “Q3 2022 Financial and Operational Results – Capital Activities and Investment”.
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 this 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 strong natural gas and condensate production rates.
10-well pad (01-08-78-13W6)
Birchcliff’s 01-08 pad was drilled and brought on production in Q2 2022. The initial 30 and 60 day production rates for the wells from this pad were disclosed in the Corporation’s press release dated August 10, 2022. The performance of this pad continues to be in-line with the Corporation’s expectations, with strong natural gas and condensate production rates.
10-well pad (04-04-78-13W6)
During Q3 2022, the Corporation brought all 10 wells on its 04-04 pad on production through Birchcliff’s owned and operated infrastructure. The wells from this pad have now been producing for over 60 days and have produced ahead of the Corporation’s expectations, with strong natural gas and condensate production rates. The outperformance of this pad is significant as it demonstrates both the economical and technical success of a modified completions technique being used to target brownfield reservoir areas in the Upper and Lower Montney. 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 04-04 pad:
IP 30(1) | IP 60(1) | ||
Aggregate production rate (boe/d) | 11,655 | 10,020 | |
Aggregate natural gas production rate (Mcf/d) | 66,880 | 57,565 | |
Aggregate condensate production rate (bbls/d) | 509 | 425 | |
Average per well production rate (boe/d) | 1,166 | 1,002 | |
Average per well natural gas production rate (Mcf/d) | 6,688 | 5,757 | |
Average per well condensate production rate (bbls/d) | 51 | 43 | |
Condensate-to-gas ratio (bbls/MMcf) | 8 | 7 |
(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”.
Gordondale Area
9-well pad (06-35-77-11W6)
Birchcliff’s 06-35 pad was drilled in Q2 and Q3 2022 and brought on production in late September 2022. The wells from this pad have now been producing for over 30 days and have produced in-line with the Corporation’s expectations. As these wells have not yet produced for over 60 days, Birchcliff anticipates providing further details regarding the results of these wells with the release of its Q4 2022 results.
2023 Capital Program Acceleration
As previously announced on October 13, 2022, Birchcliff’s board of directors approved an additional $80 million of F&D capital expenditures to commence the execution of the Corporation’s 2023 capital program. It is expected that the accelerated capital expenditures will result in Birchcliff drilling 14 (14.0 net) wells in 2022 of the 36 (36.0 net) total wells planned for the Corporation’s 2023 capital program, and bringing 6 (6.0 net) of those wells on production in late December 2022. Accelerating Birchcliff’s 2023 capital program will result in incremental production early in 2023, allowing the Corporation to take advantage of stronger expected natural gas prices that are typically seen in the winter months. It has also allowed Birchcliff to significantly decrease the risks related to the price and availability of drilling and other oilfield services during a period of very tight supply. In addition, the Corporation has secured multi-year contracts with its key service providers to ensure the efficient execution of its medium and long-term plans.
The following table summarizes the additional 14 wells expected to be drilled and 6 wells to be brought on production in 2022:
Area | 2023 Capital Program Acceleration | ||
Wells to be drilled in 2022 | Wells to be brought on production in 2022 |
||
Pouce Coupe | |||
Montney D1 horizontal natural gas wells | 7 | 3 | |
Montney D2 horizontal natural gas wells | 5 | 3 | |
Montney C horizontal natural gas wells | 2 | 0 | |
TOTAL – POUCE COUPE | 14 | 6 |
As of the date hereof, Birchcliff has completed the drilling of 6 (6.0 net) Montney/Doig horizontal wells in Pouce Coupe on its 6-well 03-06 pad. Completion operations are scheduled for this pad during November 2022 and all 6 wells are expected to be brought on production in late December 2022.
Birchcliff’s two drilling rigs are currently drilling 6 (6.0 net) Montney/Doig horizontal wells in Pouce Coupe on its 6 well 14-06 pad, which are expected to be completed and brought on production in Q1 2023.
Birchcliff also plans to drill 1 (1.0 net) well and 3 (3.0 net) surface holes on each of the Corporation’s two 4-well pads in Pouce Coupe (15-27 and 04-23) in 2022. These additional wells are expected to be completed and brought on production in the first half of 2023.
For additional details on Birchcliff’s 2022 and 2023 capital programs, see “Outlook and Guidance”.
OUTLOOK AND GUIDANCE
Birchcliff is maintaining its guidance for 2022 and its preliminary guidance for 2023, both as previously disclosed on October 13, 2022.
2022 Guidance
Birchcliff is on track to achieve its 2022 annual average production guidance of 78,000 boe/d, which is expected to generate approximately $1.02 billion of adjusted funds flow and $655 million to $665 million of free funds flow, based on the assumptions set forth herein. The Corporation anticipates F&D capital expenditures to be between $355 million and $365 million, which includes $80 million being spent to prepare for the efficient execution of the Corporation’s 2023 capital program. The following table sets forth Birchcliff’s guidance and commodity price assumptions for 2022, as well as its free funds flow sensitivity:
2022 Guidance and Commodity Price Assumptions
2022 guidance and assumptions(1) | |
Production | |
Annual average production (boe/d) | 78,000 |
% Light oil | 3% |
% Condensate | 6% |
% NGLs | 10% |
% Natural gas | 81% |
Q4 average production (boe/d) | 81,000 – 83,000 |
Average Expenses ($/boe) | |
Royalty(2) | 6.70 – 6.80 |
Operating(2) | 3.40 – 3.50 |
Transportation and other(3) | 5.40 – 5.50 |
Interest(2) | 0.40 – 0.50 |
Adjusted Funds Flow (millions)(4) | $1,020 |
F&D Capital Expenditures (millions)(5) | $355 – $365 |
Free Funds Flow (millions)(4) | $655 – $665 |
Common Share Dividends (millions)(6) | $72 |
Excess Free Funds Flow (millions)(4)(6) | $585 – $595 |
Total Debt at Year End (millions)(7) | $60 – $70 |
Natural Gas Market Exposure | |
AECO exposure as a % of total natural gas production | 15% |
Dawn exposure as a % of total natural gas production | 42% |
NYMEX HH exposure as a % of total natural gas production | 38% |
Alliance exposure as a % of total natural gas production | 5% |
Commodity Prices | |
Average WTI price (US$/bbl) | 95.00 |
Average WTI-MSW differential (CDN$/bbl) | 2.50 |
Average AECO price (CDN$/GJ) | 5.25 |
Average Dawn price (US$/MMBtu) | 6.35 |
Average NYMEX HH price (US$/MMBtu) | 6.85 |
Exchange rate (CDN$ to US$1) | 1.30 |
Forward Three Months’ Free Funds Flow Sensitivity(8)
Forward three months’ sensitivity | Estimated change to 2022 free funds flow (millions) | |
Change in WTI US$1.00/bbl | $1.0 | |
Change in NYMEX HH US$0.10/MMBtu | $1.3 | |
Change in Dawn US$0.10/MMBtu | $1.8 | |
Change in AECO CDN$0.10/GJ | $1.2 | |
Change in CDN/US exchange rate CDN$0.01 | $1.3 |
(1) 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 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) Assumes that a dividend of $0.02 per common share is paid for the quarter ending December 31, 2022 and that there are 266 million common shares outstanding. The declaration of dividends is subject to the approval of the board of directors and is subject to change. See “Advisories – Forward-Looking Statements”.
(7) Capital management measure. See “Non-GAAP and Other Financial Measures”. The estimate of total debt at December 31, 2022 is expected to be comprised of any amounts outstanding under the Credit Facilities and adjusted working capital, which is expected to be largely comprised of cash, accounts receivable and accounts payable and accrued liabilities at the end of the year.
(8) 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 $655 million to $665 million, holding all other variables constant. The sensitivity is based on the 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.
Preliminary 2023 Guidance
Birchcliff is currently targeting F&D capital expenditures of $240 million to $270 million in 2023, which will allow the Corporation to bring approximately 30 wells on production in 2023. With the addition of the 6 wells that will be brought on production in late December 2022, the Corporation expects to deliver annual average production of 81,000 to 83,000 boe/d in 2023, a 5% increase over 2022. Birchcliff is currently forecasting approximately $855 million of adjusted funds flow and $585 million to $615 million of free funds flow in 2023, based on the assumptions set forth herein.
Birchcliff’s preliminary guidance for 2023 is based on its preliminary planning and takes into account expected increases in materials, labour and services costs as compared to the current year. Birchcliff continues to work through its plans for 2023 and expects to announce the details of its 2023 capital program and updated five year plan for 2023 to 2027 on January 18, 2023.
Preliminary 2023 Guidance and Commodity Price Assumptions
Preliminary 2023 guidance and assumptions(1) | |
Annual Average Production (boe/d) | 81,000 – 83,000 |
Average Expenses ($/boe) | |
Royalty(2) | 4.95 – 5.15 |
Operating(2) | 3.40 – 3.60 |
Transportation and other(3) | 5.20 – 5.40 |
Interest(2) | negligible |
Current income tax(2) | 1.55 – 1.75 |
Adjusted Funds Flow (millions)(4) | $855 |
F&D Capital Expenditures (millions)(5) | $240 – $270 |
Free Funds Flow (millions)(4) | $585 – $615 |
Common Share Dividends (millions)(6) | $213 |
Excess Free Funds Flow (millions)(4)(6) | $370 – $400 |
Total Surplus at Year End (millions)(7) | $295 – $325 |
Natural Gas Market Exposure | |
AECO exposure as a % of total natural gas production | 23% |
Dawn exposure as a % of total natural gas production | 41% |
NYMEX HH exposure as a % of total natural gas production | 36% |
Commodity Prices | |
Average WTI price (US$/bbl) | 80.00 |
Average WTI-MSW differential (CDN$/bbl) | 5.00 |
Average AECO price (CDN$/GJ) | 4.80 |
Average Dawn price (US$/MMBtu) | 5.30 |
Average NYMEX HH price (US$/MMBtu) | 5.55 |
Exchange rate (CDN$ to US$1) | 1.35 |
Forward Twelve Months’ Free Funds Flow Sensitivity(8)
Forward twelve months’ sensitivity | Estimated change to 2023 free funds flow (millions) | |
Change in WTI US$1.00/bbl | $4.0 | |
Change in NYMEX HH US$0.10/MMBtu | $7.5 | |
Change in Dawn US$0.10/MMBtu | $7.7 | |
Change in AECO CDN$0.10/GJ | $3.3 | |
Change in CDN/US exchange rate CDN$0.01 | $7.7 |
(1) Birchcliff’s preliminary 2023 guidance for its adjusted funds flow, free funds flow, excess free funds flow, total surplus and natural gas market exposure in 2023 is based on an annual average production rate of 82,000 boe/d, which is the mid-point of Birchcliff’s preliminary annual average production guidance range for 2023. 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 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) Assumes that an annual common share dividend of $0.80 per share is paid in 2023 and that there are 266 million common shares outstanding. The declaration of dividends is subject to the approval of the board of directors and is subject to change. See “Advisories – Forward-Looking Statements”.
(7) Capital management measure. See “Non-GAAP and Other Financial Measures”. The estimate of total surplus at December 31, 2023 is expected to be comprised of adjusted working capital, which is expected to be largely comprised of cash, accounts receivable and accounts payable and accrued liabilities at the end of the year. Birchcliff previously referred to total surplus as “surplus”.
(8) 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 2023 of $585 million to $615 million, holding all other variables constant. The sensitivity is based on the 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.
Forecast Royalties, Taxes and Fees
Birchcliff currently forecasts that total royalties and other taxes and fees to be paid to the Province of Alberta in 2022 and 2023 will be in the amount of approximately $206 million and $168 million, respectively. Royalties are comprised of payments in respect of production and revenue from Birchcliff’s oil and natural gas wells producing in Alberta. Other taxes and fees primarily include municipal property taxes, regulatory compliance and administration fees, surface and mineral lease rentals and land sale bonuses paid to acquire development rights in the Province.
Birchcliff currently forecasts that corporate income taxes to be paid to the Federal Government in 2023 will be in the amount of approximately $49 million. The Corporation expects to have sufficient tax pools available to offset taxable income in 2022 and therefore no corporate income taxes are expected to paid in 2022.