NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN
THE UNITED STATES
Birchcliff Energy Ltd. ("Birchcliff") (TSX:BIR) is pleased to announce its 2012
audited financial statements and provide an operational update. The audited
financial statements are consistent with the unaudited financial results
announced in the press release issued by Birchcliff on February 13, 2013. The
full text of the 2012 audited financial statements and the related Management's
Discussion and Analysis is available on Birchcliff's website at
www.birchcliffenergy.com and will be available on SEDAR at www.sedar.com.
Certain information contained in this press release is repeated from our
February 13, 2013 press release, which included our 2012 fourth quarter results,
2012 operational results and highlights from the 2012 independent reserves
evaluation and 2012 independent Montney/Doig natural gas resource assessment.
Jeff Tonken, President and CEO of Birchcliff said, "from 2009 to 2012,
Birchcliff's proved developed producing reserves per common share is up 131%;
proved reserves per common share is up 81%; proved plus probable reserves per
common share is up 77%; production per common share is up 75%; and funds flow
per common share is up 54%, all despite a 40% decline in AECO natural gas
prices. This growth has been primarily achieved through Birchcliff's low risk
development drilling on the Montney/Doig Natural Gas Resource Play and the
impact of the low operating cost structure of our Pouce Coupe South natural gas
plant ("PCS Gas Plant") and related infrastructure."
Birchcliff is extremely pleased to report that it added significant reserves at
very low costs, outperformed its 2012 public production guidance and reduced its
per unit operating costs, resulting in material funds flow from operations and
net income, all in a very difficult natural gas price environment.
PRESS RELEASE HIGHLIGHTS
Growth by the drill bit
2013 Production and Operational Update
-- Estimated 2013 average production of approximately 26,400 boe per day, a
15.8% increase over 2012, with estimated 2013 exit production of
approximately 28,000 boe per day.
-- January and February production has averaged approximately 26,200 boe
per day.
-- Drilling results to date include 8 (7.5 net) successful wells,
consisting of 3 (3.0 net) Montney/Doig horizontal natural gas wells in
the Pouce Coupe area, 4 (4.0 net) Charlie Lake horizontal light oil
wells in the Worsley area and 1 (0.5 net) Halfway horizontal light oil
well in the Progress area.
-- 3 drilling rigs currently working: 2 in the Pouce Coupe area drilling
Montney/Doig horizontal natural gas wells and 1 rig in the Worsley area
drilling Charlie Lake horizontal light oil wells.
-- Acquired 13.5 (13.5 net) sections of land on the Montney/Doig Natural
Gas Resource Play trend, all proximal to our development area.
2012 Financial and Operational Results
-- 2012 average production of 22,802 boe per day, a 25.7% increase over
2011 average production of 18,136 boe per day.
-- Funds flow of $120.3 million or $0.88 per basic share, an 8.1% decrease
from 2011.
-- Net income available to common shareholders of $11.6 million or $0.08
per common share, notwithstanding low natural gas prices, compared to
$34.5 million in 2011.
-- Capital expenditures during 2012 of $298.9 million as compared to $237.5
million during 2011.
-- Operating costs of $6.06 per boe (excluding transportation and marketing
costs), down 10.2% from $6.75 per boe in 2011.
-- Processed 64% of our Montney/Doig production at the PCS Gas Plant at an
average cost of $0.35 per Mcfe or $2.08 per boe.
-- Operating netback recycle ratio of 3.3 and funds flow netback recycle
ratio of 2.4, in each case excluding future development costs, based on
finding, development and acquisition costs and proved plus probable
reserves.
-- Drilled a total of 38 (35.1 net) wells in 2012, with 100% drilling
success.
-- Drilled 24 (24.0 net) wells in 2012 on our Montney/Doig Natural Gas
Resource Play, including 22 (22.0 net) horizontal natural gas wells and
2 (2.0 net) vertical exploration wells.
-- Drilled 11 (11.0 net) wells in 2012 on our Worsley Light Oil Resource
Play, all of which were horizontal wells.
-- Expansion of undeveloped land base to 544,129 (506,024 net) acres up
from 531,903 (493,968 net) acres at December 31, 2011, with a 93%
average working interest.
-- Continued expansion of Birchcliff's footprint on the Montney/Doig
Natural Gas Resource Play in the Pouce Coupe area of North West Alberta
with the acquisition of contiguous blocks of high working interest land
through private transactions and Alberta Crown land sale purchases.
-- Increased potential Montney/Doig horizontal natural gas well drilling
locations to 1,929 net, up from 1,850 net at December 31, 2011, as a
result of land acquisitions, production performance and drilling
success.
-- Development of new resource plays in the Peace River Arch including
extensive technical work and the acquisition in 2012 of large contiguous
blocks of prospective lands totalling 76,909 (76,909 net) acres at 100%
working interest.
2012 Fourth Quarter Results
-- Fourth quarter average production of 26,655 boe per day, a 34.5%
increase over production of 19,812 boe per day in the fourth quarter of
2011 and a 24.4% increase over production of 21,426 boe per day in the
third quarter of 2012.
-- Funds flow of $39.8 million or $0.28 per basic share, a 31.1% increase
from the fourth quarter of 2011.
-- Net income available to common shareholders of $5.3 million or $0.04 per
common share in the fourth quarter of 2012, a 59.2% increase from the
fourth quarter of 2011.
-- Operating costs of $5.88 per boe (excluding transportation and marketing
costs), down 14.8% from $6.90 per boe in the fourth quarter of 2011.
-- Total year end debt, including working capital deficiency, of $462.1
million. Long-term bank debt of $432.6 million against available lines
of credit of $540 million.
-- Drilled 3 (3.0 net) Montney/Doig horizontal natural gas wells, 1 (1.0
net) Montney/Doig vertical exploration well and 1 (0.03 net) Charlie
Lake horizontal oil well, all of which were successful.
-- Phase III expansion of the PCS Gas Plant was completed and operational
in October 2012. Total licensed processing capacity of the PCS Gas Plant
is 150 MMcf per day.
2012 Reserves Evaluation
-- Proved developed producing reserves of 54.6 MMboe, a 41.0% increase from
December 31, 2011.
-- Proved plus probable reserves of 317.8 MMboe, a 15.4% increase from
December 31, 2011.
-- Added 50.7 MMboe of proved plus probable reserves and produced 8.3 MMboe
during the year for a net increase of 42.3 MMboe of proved plus probable
reserves (6.1 boe added for each boe that was produced in 2012).
-- Reserve life index of 33 years on a proved plus probable basis assuming
an average daily production rate of 26,400 boe per day.
2012 Finding and Development Costs
-- Finding, development and acquisition ("FD&A") costs on a proved plus
probable basis of $5.89 per boe, excluding future development capital
and $11.56 per boe, including future development capital. In 2012, FD&A
costs included $62 million of facilities capital (excluding equipment
and tie-in costs).
2012 Montney/Doig Natural Gas Resource Assessment
-- Updated Montney/Doig natural gas resource assessment effective December
31, 2012.
-- Best estimate of 39.7 Tcfe of total petroleum initially-in-place.
-- Best estimate of 4.9 Tcfe of contingent resources, a material increase
of 127% from 2.1 Tcfe in 2011.
-- Best estimate of 13.0 Tcfe of prospective resources.
2012 FINANCIAL AND OPERATIONAL HIGHLIGHTS
----------------------------------------------------
Financial and
Operational Highlights Three months ended Twelve months ended
Dec 31, 2012 Dec 31, 2011 Dec 31, 2012 Dec 31, 2011
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OPERATING
Average daily production
Light oil - (barrels) 3,986 4,229 4,270 3,905
Natural gas -
(thousands of cubic
feet) 131,120 90,116 106,868 82,116
NGLs - (barrels) 816 564 721 545
Total - barrels of oil
equivalent (6:1) 26,655 19,812 22,802 18,136
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Average sales price
($CDN)
Light oil - (per
barrel) 83.38 95.52 84.45 92.00
Natural gas - (per
thousand cubic feet) 3.43 3.40 2.63 3.85
NGLs - (per barrel) 80.44 94.67 83.78 89.33
Total - barrels of oil
equivalent (6:1) 31.78 38.54 30.80 39.94
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Undeveloped land
Gross (acres) 544,129 531,903 544,129 531,903
Net (acres) 506,024 493,968 506,024 493,968
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NETBACK AND COST ($ per
barrel of oil
equivalent at 6:1)
Petroleum and natural
gas revenue 31.81 38.55 30.82 39.97
Royalty expense (2.52) (4.16) (2.90) (4.44)
Operating expense (5.88) (6.90) (6.06) (6.75)
Transportation and
marketing expense (2.09) (2.66) (2.28) (2.64)
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Netback 21.32 24.83 19.58 26.14
General &
administrative
expense, net (2.66) (5.88) (2.75) (3.74)
Interest expense (2.41) (2.27) (2.42) (2.64)
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Funds flow netback 16.25 16.68 14.41 19.76
Stock-based
compensation expense,
net (0.41) (1.48) (0.60) (1.42)
Depletion and
depreciation expense (11.75) (11.97) (11.48) (10.84)
Accretion expense (0.18) (0.23) (0.21) (0.27)
Amortization of
deferred financing
fees (0.08) (0.11) (0.09) (0.13)
Gain on sale of assets - - 0.46 0.32
Income tax expense (1.26) (1.06) (0.91) (2.22)
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Net income 2.57 1.83 1.58 5.20
Preferred share
dividends (0.41) - (0.19) -
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Net income available to
common shareholders 2.16 1.83 1.39 5.20
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FINANCIAL
Petroleum and natural
gas revenue ($000) 78,001 70,261 257,206 264,587
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Funds flow from
operations ($000)(1) 39,848 30,400 120,259 130,826
Per common share -
basic ($)(1) 0.28 0.24 0.88 1.04
Per common share -
diluted ($)(1) 0.28 0.23 0.86 1.00
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Net income ($000) 6,305 3,333 13,196 34,454
Net income available to
common shareholders
($000)(2) 5,305 3,333 11,617 34,454
Per common share -
basic ($)(2) 0.04 0.03 0.08 0.27
Per common share -
diluted ($)(2) 0.04 0.03 0.08 0.26
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Common shares
outstanding
End of period - basic 141,596,279 126,745,577 141,596,279 126,745,577
End of period -
diluted 162,997,383 140,152,250 162,997,383 140,152,250
Weighted average
shares for period -
basic 141,585,180 126,731,919 137,083,519 126,282,910
Weighted average
shares for period -
diluted 144,238,774 132,216,022 139,904,484 131,444,878
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Capital expenditures
($000) 32,137 81,023 298,903 237,480
Preferred share
dividends ($000) 1,000 - 1,579 -
Working capital deficit
($000) 29,567 48,598 29,567 48,598
Non-revolving five-year
term credit facility
($000) 68,250 68,925 68,250 68,925
Revolving credit
facilities ($000) 364,313 319,500 364,313 319,500
Total debt ($000) 462,130 437,023 462,130 437,023
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(1) Funds flow from operations and funds flow per common share amounts are
non-GAAP measures that represent cash flow from operating activities, before the
effects of changes in non-cash working capital and decommissioning expenditures.
(2) Net income per common share amounts are calculated using net income
available to Birchcliff's shareholders, adjusted for any preferred share
dividends paid and divided by the weighted average number of common shares
outstanding for the period.
2013 PRODUCTION AND OPERATIONAL UPDATE
January and February production has averaged approximately 26,200 boe per day.
Based on the capital budgeted for 2013, estimated 2013 average production is
expected to be 26,400 boe per day, which is a 15.8% increase over 2012, with an
estimated 2013 exit production rate of approximately 28,000 boe per day.
The PCS Gas Plant is currently processing approximately 105 MMcf per day. The
PCS Gas Plant has a licensed processing capacity of 150 MMcf per day, which
allows for further production increases without significant facilities capital.
To operate the PCS Gas Plant at 150 MMcf per day will require some modification
to pipelines and sales meters on the NOVA pipeline system, but the capital
required is not material.
Birchcliff continues to be focused on reducing its per unit operating costs. In
2013, Birchcliff is utilizing multi-well pad drilling on its Montney/Doig
Natural Gas Resource Play to improve drilling and completion efficiencies and
reduce the cost per well, drilling six horizontal natural gas wells from one pad
and three horizontal natural gas wells from another. The reduction in drilling
and completion costs are significant and allows Birchcliff to drill right
through spring break-up. However, production growth during 2013 will come in
large increments as the new horizontal natural gas wells effectively commence
production simultaneously, not one at a time as they are drilled. Accordingly,
Birchcliff will see normal production declines during the second quarter
followed by material production growth in the third and fourth quarters.
On our Worsley Light Oil Resource Play we have received approval to further
expand the water flood area and are conducting the field operations necessary to
convert wells to injectors and install pipelines and related facilities.
In our Peace River Arch core area we are analyzing and evaluating new resource
plays on which virtually all of our undeveloped land has potential, with a focus
on oil opportunities and the application of horizontal drilling and multi-stage
fracture stimulation technology.
The Corporation has been actively buying more land on the Montney/Doig Natural
Gas Resource Play trend. Year to date, 13.5 (13.5 net) sections have been
acquired, all of which is proximal to its current drilling activities.
Significant undeveloped reserves additions are anticipated to be booked at year
end on these recently acquired lands.
Birchcliff currently has three drilling rigs at work: two rigs are active at
Pouce Coupe drilling Montney/Doig horizontal natural gas wells and one rig is
active at Worsley drilling Charlie Lake horizontal oil wells. Year to date
drilling results include the drilling of 8 (7.5 net) successful wells,
consisting of 3 (3.0 net) Montney/Doig horizontal natural gas wells in the Pouce
Coupe area, 4 (4.0 net) Charlie Lake horizontal light oil wells in the Worsley
area and 1 (0.5 net) Halfway light oil well in the Progress area.
2012 FINANCIAL AND OPERATIONAL RESULTS
2012 Production
Production in 2012 averaged 22,802 boe per day, which is a 25.7% increase over
2011 average production of 18,136 boe per day. This increase was achieved
through the success of Birchcliff's capital drilling program, increased
incremental production from new horizontal natural gas wells on the Montney/Doig
Natural Gas Resource Play that are processed through Birchcliff's PCS Gas Plant
and increased light oil production.
Production consisted of approximately 78% natural gas and 22% crude oil and
natural gas liquids in 2012 and 75% natural gas and 25% crude oil and natural
gas liquids in 2011.
2012 Funds Flow and Earnings
2012 funds flow was approximately $120.3 million or $0.88 per common share, an
8.1% decrease from 2011. This decrease was largely a result of the 34.2%
decrease in the average AECO natural gas spot price from $3.63 per Mcf in 2011
to $2.39 per Mcf in 2012.
Birchcliff recorded net income available to common shareholders of $11.6 million
or $0.08 per common share in 2012 as compared to $34.5 million or $0.27 per
common share in 2011. These earnings are significant as natural gas prices were
extremely low in the first half of 2012, resulting in reduced margins, yet
Birchcliff was profitable on a full cycle basis, which demonstrates its resource
plays continue to be economic notwithstanding very low commodity prices.
2012 Debt and Capitalization
At December 31, 2012, Birchcliff's long-term bank debt was $432.6 million from
available credit facilities aggregating $540 million. As such, Birchcliff has
significant credit capacity and financial flexibility. At December 31, 2012,
Birchcliff's working capital deficiency was $29.6 million and total debt was
$462.1 million.
Birchcliff expects that as a result of its significant 2012 reserve additions,
its bank credit facilities will be increased during its normal credit review in
May 2013. The extent of any such increase is unknown at this time.
At December 31, 2012, Birchcliff had outstanding 141,596,279 basic common
shares, 162,997,383 fully diluted common shares and 2,000,000 Series A Preferred
Shares. The Corporation also has 6,000,000 warrants outstanding, each warrant
providing the right to purchase one common share at an exercise price of $8.30
until August 8, 2014.
2012 Operating Costs
Operating costs were $6.06 per boe (excluding transportation and marketing
costs), down 10.2% from $6.75 per boe in 2011. This reduction of operating costs
per boe was largely due to the increased volumes of natural gas being processed
through Birchcliff's low cost PCS Gas Plant and implementation of various
optimization initiatives. The Phase III expansion of the PCS Gas Plant began
processing natural gas in October 2012.
2012 PCS Gas Plant Netbacks
Birchcliff receives premium pricing of $2.91 per Mcfe, due to the heat content
of our natural gas sales and the value of recovered condensate. During the same
period, AECO natural gas spot price averaged $2.39 per Mcf. The estimated
operating netback for Birchcliff's natural gas production flowing to the PCS Gas
Plant was $2.22 per Mcfe on a production month basis in 2012. The strong netback
is a result of the low cost structure of the PCS Gas Plant and the premium price
received for its natural gas and condensate. Some of the financial and
operational highlights of the PCS Gas Plant during 2012 include:
-- Low net operating costs at the PCS Gas Plant, averaging $0.35 per Mcfe
($2.08 per boe).
-- High operating margin of 76% at the PCS Gas Plant, which is determined
by calculating the percentage of petroleum and natural gas revenue
remaining after the payment of royalties, operating costs and
transportation and marketing costs.
-- Approximately 55.5% of Birchcliff's total natural gas sales volumes and
44.3% of total corporate sales volumes were processed at the PCS Gas
Plant.
The following table details Birchcliff's annual net production and operating
netback for wells producing to the PCS Gas Plant.
----------------------------------------
Production Processed through the PCS
Gas Plant 2012 2011
----------------------------------------------------------------------------
Average Daily Production, Net to
Birchcliff:
Natural Gas (Mcf) 59,327 40,334
Oil & NGLs (bbls) 204 96
Total boe (6:1) 10,092 6,818
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Netback and Cost: ($/Mcfe) ($/boe) ($/Mcfe) ($/boe)
Petroleum and Natural Gas Revenue 2.91(1) 17.44 3.98(1) 23.88
Royalty Expense (0.11) (0.67) (0.26) (1.55)
Operating Expense, Net of
Recoveries (0.35) (2.08) (0.21) (1.28)
Transportation and Marketing
Expense (0.23) (1.37) (0.27) (1.59)
Estimated Operating Netback
(production month basis) 2.22 13.32 3.24 19.46
Operating Margin 76% 76% 81% 81%
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(1) Premium pricing resulting from the heat value of natural gas being processed
at the PCS Gas Plant and the value of recovered condensate. AECO natural gas
spot price averaged $2.39 per Mcf during 2012 and $3.63 per Mcf during 2011.
As illustrated in the table below, after Birchcliff began processing natural gas
at the PCS Gas Plant in early 2010, total corporate operating costs on a per boe
basis have trended downward as increasing production volumes have been processed
at the PCS Gas Plant.
Corporate Operating Costs per Boe vs. % of Total Natural Gas Sales Volumes
Processed at the PCS Gas Plant: http://media3.marketwire.com/docs/bir_graph.jpg
The average daily production processed at the PCS Gas Plant during 2012
increased by approximately 48% from 2011. Processing Montney/Doig horizontal
natural gas wells at the PCS Gas Plant has significantly improved the economics
of these wells, allowing the Corporation to not only generate positive netbacks,
but also achieve high operating margins during this period of depressed natural
gas prices.
2012 Recycle Ratios
The following table shows Birchcliff's recycle ratio for operating and funds
flow netback, which are calculated in each case by dividing the average
operating netback per boe or funds flow netback per boe, as the case may be, by
each of the finding and development ("F&D") costs and the FD&A costs.
------------------------------------------------
Operating Netback Funds Flow Netback
Recycle Ratio Recycle Ratio
------------------------------------------------
2012 2011 2012 2011
----------------------------------------------------------------------------
Excluding Future Development
Capital
F&D - Proved Plus Probable 3.2 9.1 2.4 6.9
FD&A - Proved Plus
Probable 3.3 8.9 2.4 6.8
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Including Future Development
Capital
F&D - Proved Plus Probable 1.6 2.2 1.2 1.6
FD&A - Proved Plus
Probable 1.7 2.1 1.2 1.6
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During 2012, the average WTI price of crude oil was US $94.21 per barrel and the
average price of natural gas at AECO was CDN $2.39 per Mcf. Operating netback
per boe for 2012 was $19.58. Funds flow netback per boe for 2012 was $14.41.
2012 Drilling Program
Birchcliff's 2012 drilling program, which offered a mixture of moderate to high
impact development and exploration prospects, focused on our two resource plays,
the Montney/Doig Natural Gas Resource Play and the Worsley Light Oil Resource
Play. During 2012, Birchcliff drilled 38 (35.09 net) wells. These wells included
24 (24.0 net) natural gas wells, and 14 (11.09 net) oil wells, and no dry holes
for a 100% success rate.
In the Pouce Coupe area, Birchcliff drilled 22 (22.0 net) Montney/Doig
horizontal natural gas wells utilizing multi-stage fracture stimulation
technology. Birchcliff continues to expand the Montney/Doig Natural Gas Resource
Play both geographically and stratigraphically, as 4 (4.0 net) of the 22 (22.0
net) Montney/Doig horizontal natural gas wells were exploration successes.
Birchcliff also drilled 2 (2.0 net) successful vertical exploration wells in the
Montney/Doig Natural Gas Resource Play.
Drilling activities at Worsley included 11 (11.0 net) horizontal Charlie Lake
oil wells on our Worsley Light Oil Resource Play, utilizing multi-stage fracture
stimulation technology.
The remaining 3 (0.1 net) wells were low working interest, non-operated Charlie
Lake horizontal oil wells.
2012 Land
We have continued to expand our undeveloped land base to 544,129 (506,024 net)
acres up from 531,903 (493,968 net) acres at December 31, 2011, with a 93%
average working interest. During 2012, Birchcliff acquired 76,909 (76,909 net)
acres of undeveloped land, all in its core area of the Peace River Arch of
Alberta.
Birchcliff's land base primarily consists of large contiguous blocks of high
working interest acreage located near facilities owned and/or operated by
Birchcliff or near third party infrastructure. A significant amount of the land
purchased is a direct result of the exploration and development success by
Birchcliff in the Peace River Arch area. All of the new land has been purchased
without partners at 100% working interest.
2012 New Tight/Shale Oil Resource Play Development
In Birchcliff's core area of the Peace River Arch, numerous industry competitors
have announced significant developments on a number of new tight/shale oil
resource plays. Throughout 2012 and the beginning of 2013, there have been
significant lands posted and acquired in the Peace River Arch area and numerous
new wells have been drilled, completed and brought on production, targeting
these new resource plays, including the Montney, Charlie Lake, Nordegg and the
Duvernay. We continue to spend significant time analyzing and evaluating various
new resource plays in the Peace River Arch area.
In 2012 Birchcliff acquired 76,909 (76,909 net) acres of undeveloped lands that
we believe are prospective for one or more of these new resource plays. As is
consistent with our corporate strategy, Birchcliff has acquired several large
contiguous blocks at 100% working interest. Some of these lands are also
prospective for the Montney/Doig Natural Gas Resource Play or the Worsley Light
Oil Resource Play.
----------------------------------------------
Tight/Shale Oil Resource Play
Land Holdings (acres) 2012 2011
WI Gross Net Gross Net
----------------------------------------------------------------------------
Duvernay Resource Play 98% 141,280 138,966 126,560 125,715
Nordegg Resource Play 82% 404,200 331,437 460,480 394,461
Banff/Exshaw Resource Play 92% 376,520 344,848 422,880 415,696
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We are early in the development of these new resource plays, however, based on
the high level of industry activity and our internal technical evaluation, we
are optimistic about their potential ultimate value.
2012 FOURTH QUARTER RESULTS
Birchcliff's production in the fourth quarter of 2012 averaged 26,655 boe per
day, a 24.4% increase from 21,426 boe per day in the third quarter of 2012 and a
34.5% increase from 19,812 boe per day in the fourth quarter of 2011.
Funds flow in the fourth quarter of 2012 increased to $39.8 million as compared
to $28.2 million in the third quarter of 2012 and $30.4 million in the fourth
quarter of 2011.
Net income available to common shareholders increased to $5.3 million in the
fourth quarter of 2012 as compared to $2.2 million in the third quarter of 2012
and $3.3 million in the fourth quarter of 2011.
Operating costs per boe (excluding transportation and marketing costs) were
$5.88 per boe, down 2.2% from $6.01 per boe in the third quarter of 2012 and
down 14.8% from $6.90 per boe in the fourth quarter of 2011. The decrease in
operating costs per boe is due to the increased volumes of natural gas processed
through Birchcliff's low cost PCS Gas Plant and implementation of various
optimization initiatives.
General and administrative expenses were $2.66 per boe, down 54.8% from $5.88
per boe in the fourth quarter of 2011.
Total cash costs were $15.56 per boe, down 28.9% from $21.87 per boe in the
fourth quarter of 2011.
Capital expenditures in the fourth quarter of 2012 were $32.1 million as
compared to $88.1 million in the third quarter of 2012 and $81.0 million in the
fourth quarter of 2011.
Total debt (including working capital deficit) was $462.1 million at December
31, 2012, as compared to $468.2 million at September 30, 2012 and $437.0 million
at December 31, 2011. Long-term bank debt was $432.6 million at December 31,
2012 against total available lines of credit of $540 million.
Drilling activities during the fourth quarter of 2012 resulted in 5 (4.0 net)
wells, of which all were successful. Birchcliff drilled and cased 3 (3.0 net)
Montney/Doig horizontal natural gas wells, 1 (1.0 net) Montney/Doig vertical
exploration well and 1 (0.03 net) Charlie Lake horizontal light oil well.
The Phase III expansion of the PCS Gas Plant was completed and operational in
October 2012, expanding the total licensed capacity of the PCS Gas Plant to 150
MMcf per day.
2012 RESERVES EVALUATION
Deloitte ("AJM Deloitte"), independent qualified reserves evaluators of Calgary,
Alberta, prepared a Reserves Assessment and Economic Evaluation effective
December 31, 2012 in respect of Birchcliff's oil and natural gas properties,
which is contained in a report dated February 8, 2013 (the "2012 Reserves
Evaluation"). AJM Deloitte also prepared a reserves evaluation effective
December 31, 2011 (the "2011 Reserves Evaluation") and a predecessor of AJM
Deloitte, AJM Petroleum Consultants, prepared a reserves evaluation effective
December 31, 2010. Reserves estimates stated herein as at December 31, 2012 and
2011 are extracted from the relevant evaluation. The 2012 Reserves Evaluation
and the prior reserves evaluations have been prepared in accordance with the
standards contained in the Canadian Oil and Gas Evaluation Handbook ("COGEH")
and National Instrument 51-101 - Standards of Disclosure for Oil and Gas
Activities ("NI 51-101").
At December 31, 2012, AJM Deloitte estimated that Birchcliff had 317.8 MMboe of
proved plus probable reserves and 185.9 MMboe of proved reserves. Birchcliff's
proved plus probable reserves are comprised of 85.5% natural gas and 14.5% light
oil and natural gas liquids.
Reserves Summary
The following table summarizes AJM Deloitte's estimates of Birchcliff's working
interest oil and natural gas reserves at December 31, 2012 and December 31,
2011, using the AJM Deloitte forecast price assumptions in effect at the
applicable evaluation date.
-------------------------------
Change
Dec 31, Dec 31, from
2012 2011 Dec 31,
(MMboe) (MMboe) 2011
----------------------------------------------------------------------------
Proved Developed Producing 54.6 38.7 +41.0%
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Total Proved 186.0 156.2 +19.1%
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Probable 131.8 119.3 +10.5%
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Total Proved Plus Probable 317.8 275.4 +15.4%
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Net Present Value of Future Net Revenue
The following table is a summary of the net present value of future net revenue
associated with Birchcliff's reserves at December 31, 2012 before deducting
future income tax expense, and calculated at various discount rates. The net
present value of future net revenue attributable to the Corporation's reserves
is based on AJM Deloitte's December 31, 2012 forecast price assumptions of
commodity prices, which can be found at
http://www.ajmpc.com/price-forecasts.html.
Net Present Value Of Future Net Revenue Before Income Taxes(1)(2)
------------------------------------------------
Discounted at
----------------------------------------------------------------------------
(Forecast Prices and
Costs)(MM$)(per year) 0% 5% 8% 10% 15% 20%
----------------------------------------------------------------------------
Proved
Developed Producing 1,428.1 1,050.0 905.3 829.7 688.5 591.4
Developed Non-producing 155.6 117.9 102.8 94.7 78.9 67.5
Undeveloped 2,515.2 1,341.4 931.9 730.3 384.3 175.6
----------------------------------------------------------------------------
Total Proved 4,099.0 2,509.2 1,940.0 1,654.7 1,151.7 834.6
----------------------------------------------------------------------------
Probable 4,096.8 1,860.4 1,233.3 956.0 532.6 312.9
----------------------------------------------------------------------------
Total Proved Plus Probable 8,195.8 4,369.7 3,173.3 2,610.7 1,684.3 1,147.4
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Estimates of future net revenue, whether discounted or not, do not represent
fair market value.
(2) Future net revenue is after deduction of estimated costs of abandonment of
existing and future wells and reclamation of future wells and does not include
costs of abandonment of facilities and reclamation of facilities and existing
wells.
The natural gas price forecast used by AJM Deloitte in the 2012 Reserves
Evaluation for the years 2013 through 2017 is approximately $1.10 per MMbtu
lower than the forecast used by AJM Deloitte for the same years in its 2011
Reserves Evaluation. Notwithstanding the natural gas price forecast for these
years decreased by more than 22%, the net present value of the proved developed
producing reserves (at a 10% discount rate) increased by 3% as a result of
increased reserves volumes and reduced operating costs recognized in the
additional reserves in the 2012 Reserves Evaluation. The proved plus probable
reserves (at a 10% discount rate) decreased by 21% primarily as a result of the
reduced natural gas price forecast.
The Corporation had the following increases in the 2012 Reserves Evaluation from
the 2011 Reserves Evaluation:
-- 41.0% increase in proved developed producing reserves of 54.6 MMboe.
-- 3% increase in the net present value of proved developed producing
reserves (NPV 10%) of $23.6 million.
-- 19.1% increase in proved reserves to 186.0 MMboe.
-- 17% decrease in the net present value of proved reserves (NPV 10%)
of $334.7 million.
-- 15.4% increase in proved plus probable reserves to 317.8 MMboe.
-- 21% decrease in the net present value of proved plus probable
reserves (NPV 10%) of $709.5 million.
-- 290% reserve replacement on a proved developed producing basis,
Birchcliff added 2.9 boe of proved developed producing reserves for each
boe that was produced during the year (calculated by dividing proved
developed producing reserves additions before production in 2012 by
total production in 2012.)
-- 607% reserve replacement on a proved plus probable basis, Birchcliff
added 6.1 boe of proved plus probable reserves for each boe that was
produced during the year (calculated by dividing proved plus probable
reserves additions before production in 2012 by total production in
2012.)
-- 6.6% increase in proved reserves on a per common share basis, using
shares outstanding at year end.
-- 3.3% increase in proved plus probable reserves on a per common share
basis, using shares outstanding at year end.
Reserve Life Index
Birchcliff's reserve life index is 33 years on a proved plus probable basis and
19 years on a proved basis, in each case using reserves estimates by AJM
Deloitte at December 31, 2012 and assuming an average daily production rate of
26,400 boe per day.
Reserves on the Montney/Doig Natural Gas Resource Play
AJM Deloitte estimated at December 31, 2012, Birchcliff had 266.8 MMboe of
proved plus probable reserves attributed to horizontal wells on the Montney/Doig
Natural Gas Resource Play. This is an increase of 17% from 227.7 MMboe proved
plus probable reserves attributed to horizontal wells on the Montney/Doig
Natural Gas Resource Play at December 31, 2011.
The following tables summarize AJM Deloitte's estimates of reserves attributable
to Birchcliff's horizontal wells on the Montney/Doig Natural Gas Resource Play,
the number of horizontal wells to which reserves were attributed and the future
capital associated with such reserves.
Montney/Doig Natural Gas Resource Play Reserves Data
----------------------------------------------------------------------------
Natural Gas Natural Gas Liquids Total
(Bcf) (Mbbl) (Mboe)
------------------------------------------------------------
2012 2011 2012 2011 2012 2011
----------------------------------------------------------------------------
Proved Developed
Producing 241.0 147.7 1,334.9 808.3 41,493.6 25,424.2
----------------------------------------------------------------------------
Total Proved 907.6 737.1 5,243.2 4,238.5 156,509.7 127,094.1
----------------------------------------------------------------------------
Total Proved
Plus Probable 1,541.6 1,316.8 9,922.2 8,216.2 266,848.4 227,676.9
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Montney/Doig Natural Gas Resource Play Reserves Data
----------------------------------------------------------------------------
Existing Horizontal Wells and Future Net Future Capital
Horizontal Well Locations (MM$)
Gross Net
------------------------------------------------------------
2012 2011 2012 2011 2012(1) 2011
----------------------------------------------------------------------------
Proved Developed
Producing 93 68 80.8 56.8 0 0
----------------------------------------------------------------------------
Total Proved 325 284 272.7 232.8 1,129.4 1,027.1
----------------------------------------------------------------------------
Total Proved
Plus Probable 472 425 397.5 352.7 1,849.9 1,605.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Includes approximately $102.3 million of capital for the expansion of the
PCS Gas Plant to 240 MMcf per day of total capacity, together with the related
gathering pipelines, sales pipeline expansion and compression.
------------------------------------
Montney/Doig Land and Horizontal Wells
Data 2012 2011
------------------------------------
Gross Net Gross Net
----------------------------------------------------------------------------
Number of sections to which AJM Deloitte
attributed reserves 114.3 98.3 98.5 83.4
Number of existing wells and future
horizontal well locations to which AJM
Deloitte attributed reserves 472 397.5 425 352.7
Average proved plus probable reserves
attributed by AJM Deloitte per existing
horizontal well 5.1 Bcfe 4.3 Bcfe
Average proved plus probable reserves
attributed by AJM Deloitte per future
horizontal well location 4.1 Bcfe 4.0 Bcfe
Average cost per well as forecast by AJM
Deloitte $5.2 million $4.8 million
Average number of net existing
horizontal wells and future horizontal
well locations per net section to which
reserves were attributed by AJM
Deloitte 4.1(1) 4.2
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Currently, the average number of net existing horizontal wells and future
horizontal well locations per net section to which Basal Doig/Upper Montney
reserves were attributed by AJM Deloitte, is 3.2 wells per section and to which
Middle/Lower Montney reserves were attributed by AJM Deloitte, is 2.6 wells per
section.
AJM Deloitte has attributed Montney/Doig proved plus probable reserves to 114.3
(98.3 net) sections of land. Drilling success during 2012 in the Middle/Lower
Montney Play has resulted in significant reserve assignments by AJM Deloitte to
87.6 (74.9 net) sections of land, an increase of 11.6 net sections of land from
2011. AJM Deloitte has attributed reserves in the Basal Doig/Upper Montney Play
to 76.9 (63.7 net) sections of land. There are now 50.2 (40.3 net) sections to
which AJM Deloitte has attributed reserves in respect of both the Basal
Doig/Upper Montney Play and the Middle/Lower Montney Play.
Management believes that the ultimate recovery from the Corporation's
Montney/Doig horizontal natural gas wells will continue to improve year over
year as production declines continue to flatten. In addition, as drilling and
completion technologies continue to improve, recovery factors and production
rates in this unconventional reservoir should also improve.
Reserves on the Worsley Light Oil Resource Play
At December 31, 2012, AJM Deloitte estimated that in the Worsley Charlie Lake
Pool on the Worsley Light Oil Resource Play, Birchcliff had 34.7 MMboe proved
plus probable reserves and 19.6 MMboe of proved reserves. This continues the
growth trend for Birchcliff's Worsley reserves since July 1, 2007 (being the
effective date of the acquisition of this property), when recoverable reserves
were estimated at 15.1 MMboe on a proved plus probable basis and 11.3 MMboe on a
proved basis. Both the original oil in place and the estimated recoverable
reserves continue to grow and Birchcliff is pleased to report that the Worsley
light oil pool continues to be a top quality asset.
History of Reserves Estimated for the Worsley Charlie Lake Pool (MMboe)
----------------------------------------------------------------------------
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, July 1,
2012 2011 2010 2009 2008 2007 2007
----------------------------------------------------------------------------
Proved 19.6 18.8 18.8 18.3 17.5 15.0 11.3
----------------------------------------------------------------------------
Proved Plus
Probable 34.7 31.3 28.2 26.3 24.6 21.2 15.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2012 FINDING AND DEVELOPMENT COSTS
During 2012, Birchcliff's FD&A costs were $298.5 million, which included
approximately $62 million for the Phase III expansion of the PCS Gas Plant and
major related pipelines.
The following table sets forth Birchcliff's estimates of its F&D costs per boe
and FD&A costs per boe, excluding future development capital and including
future development capital, on a proved and proved plus probable basis.
--------------------------------------------
Three Year
2012 2011 2010 Average
----------------------------------------------------------------------------
FD&A Costs per boe Excluding
Future Development Capital
F&D - Proved $7.77 $4.77 $9.09 $6.75
F&D - Proved Plus Probable $6.09 $2.88 $5.49 $4.42
Acquisitions - Proved $10.96 $732.34 $0.62 $5.88
Acquisitions - Proved Plus
Probable $3.38 $36.11 $0.31 $2.34
Total FD&A - Proved(1) $7.83 $4.85 $7.61 $6.52
Total FD&A - Proved Plus
Probable(1) $5.89 $2.92 $4.49 $4.18
----------------------------------------------------------------------------
FD&A Costs per boe Including
Future Development Capital(2)
F&D - Proved $11.10 $13.15 $13.01 $12.43
F&D - Proved Plus Probable $11.99 $12.01 $9.89 $11.49
Acquisitions - Proved $17.78 $732.34 $0.62 $8.64
Acquisitions - Proved Plus
Probable $9.61 $36.11 $0.31 $5.59
Total FD&A - Proved(1) $10.91 $13.47 $11.12 $12.04
Total FD&A - Proved Plus
Probable(1) $11.56 $12.31 $8.34 $11.03
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Based upon FD&A costs, net of disposition proceeds, and reserve additions,
net of reserves disposed of.
(2) Includes the increase in future development capital for 2012 over 2011 of
$117.4 million on a proved basis and $287.5 million on a proved plus probable
basis.
AJM Deloitte's estimates of future development costs are $1.30 billion on a
proved basis and $2.19 billion on a proved plus probable basis, which includes
approximately $102.3 million for the Phase IV expansion of the PCS Gas Plant to
240 MMcf per day of total capacity, together with the related gathering
pipelines, sales pipeline expansion and compression. The increase in future
development capital for 2012 over 2011 is $117.4 million on a proved basis and
$287.5 million on a proved plus probable basis.
The 2011 Reserves Evaluation included, on average, $4.8 million for each future
Montney/Doig horizontal natural gas well to which reserves were assigned. The
2012 Reserves Evaluation included, on average, $5.2 million for each future
Montney/Doig horizontal natural gas well to which reserves were assigned.
2012 MONTNEY/DOIG NATURAL GAS RESOURCE PLAY ASSESSMENT
AJM Deloitte prepared an independent Resource Assessment effective December 31,
2012 in respect of Birchcliff's lands that have potential for the Montney/Doig
Natural Gas Resource Play, which is contained in a report dated February 12,
2013 (the "2012 Resource Assessment"). AJM Deloitte also prepared resource
assessments effective December 31, 2011 (the "2011 Resource Assessment") and
June 30, 2011 and a predecessor of AJM Deloitte, AJM Petroleum Consultants
prepared a resource assessment effective December 31, 2010. The 2012 Resource
Assessment and the prior resource assessments have been prepared in accordance
with the standards contained in COGEH and NI 51-101.
Resource estimates stated herein as at December 31, 2012 and 2011 are extracted
from the relevant evaluation and reflect only Birchcliff's working interest
share of resources for its lands in the area covered by the resource assessment
(the "Study Area"). The resource assessment does not include Birchcliff's
Worsley Light Oil Resource Play or any of Birchcliff's other properties.
Montney/Doig Natural Gas Resource Summary
The following table summarizes AJM Deloitte's estimates of Birchcliff's natural
gas resources on the Montney/Doig Natural Gas Resource Play at December 31, 2012
and December 31, 2011, on a best estimate case.
-------------------------------
Change
Dec 31, Dec 31, from
2012 2011 Dec 31,
(Bcfe) (Bcfe) 2011
----------------------------------------------------------------------------
Total Petroleum Initially In Place ("PIIP") 39,709.5 39,048.5 +2%
----------------------------------------------------------------------------
Total Undiscovered PIIP 26,331.8 31,744.3 -17%
----------------------------------------------------------------------------
Prospective Resources 13,003.3 15,514.9 -16%
----------------------------------------------------------------------------
Total Discovered PIIP 13,377.7 7,304.2 +83%
----------------------------------------------------------------------------
Contingent Resources 4,869.1 2,149.6 +127%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Compared to the 2011 Resource Assessment, the best estimate of total PIIP has
grown modestly from 39.0 Tcfe to 39.7, a 2% increase. Birchcliff was very
successful with its strategy to promote resources from undiscovered to
discovered in 2012 through its exploration program. Compared to the 2011
Resource Assessment, the best estimate of contingent resources has grown
exceptionally from 2.1 Tcfe to 4.9 Tcfe, a 127% increase.
Background to the Montney/Doig Natural Gas Resource Assessment
Birchcliff holds significant high working interest acreage in large contiguous
blocks on the Montney/Doig Natural Gas Resource Play in the Peace River Arch
area of Alberta. Birchcliff's lands are proximal to its 100% owned PCS Gas Plant
and to third party gathering and processing infrastructure.
The Study Area assessed by AJM Deloitte is comprised of the Doig Phosphate,
Basal Doig, and Montney formations in the greater Pouce Coupe, Elmworth and
Bezanson areas of the Peace River Arch region of Alberta, ranging from Townships
69 to 81, Ranges 1 to 14W6. The Study Area is bounded in a northwest - southeast
direction by the Montney/Doig deep basin edges and covered a total of 327.6
(286.2 net) sections of land held by Birchcliff at December 31, 2012, which
includes:
-- 294.0 (267.8 net) sections, with 91.1% working interest, which has
potential for the Middle/Lower Montney Play; and
-- 264.2 (234.7 net) sections, with 88.8% working interest, which has
potential for the Basal Doig/Upper Montney Play.
Birchcliff's total land holdings on the two plays described above are 558.2
(502.5 net) sections. On full development of four horizontal wells per section
per play, Birchcliff has 2,010 net horizontal drilling locations. With 93 (80.8
net) horizontal locations drilled at the end of 2012, there remain 1,928.2 net
future horizontal drilling locations.
AJM Deloitte utilized probabilistic methods to generate high, best, and low
estimates of reserves and resource volumes. Results from the 2012 Resource
Assessment are presented in the following table for Birchcliff's working
interest share of gross volumes. Proved, proved plus probable and proved plus
probable plus possible reserves determined by the 2012 Reserves Evaluation are
included in this table for completeness, however reserves were not the focus of
the 2012 Resource Assessment.
Summary of Birchcliff Reserves and Resources on Birchcliff Lands(1)
------------------------------------
Resource Class Reserves and Resource Volumes (Bcfe)
------------------------------------
Best High
Low Estimate Estimate Estimate
Case Case Case
----------------------------------------------------------------------------
Discovered Cumulative Production
(2) 97.0 97.0 97.0
Remaining Reserves
(2)(3) 948.4 1,614.5 2,414.0
Surface
Loss/Shrinkage 58.9 97.1 144.4
Total Commercial 1,104.3 1,808.5 2,655.4
------------------------------------
Contingent Resources 4,131.6 4,869.1 6,259.7
Unrecoverable (4) 6,478.7 6,700.1 6,977.8
Total Sub-commercial 10,610.3 11,569.2 13,237.5
-------------------------------------------------------------
Total Discovered PIIP 11,714.6 13,377.7 15,892.9
----------------------------------------------------------------------------
Undiscovered Prospective Resources 9,481.7 13,003.3 17,823.2
Unrecoverable (4) 11,956.7 13,328.5 14,109.9
-------------------------------------------------------------
Total Undiscovered PIIP 21,438.4 26,331.8 31,933.1
----------------------------------------------------------------------------
Total Petroleum Initially In Place
(PIIP) 33,152.9 39,709.5 47,826.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) All reserves and resources are gross volumes at December 31, 2012, which are
equal to Birchcliff's working interest share before deduction of royalties and
without including any royalties held by Birchcliff.
(2) Sales gas and related natural gas liquids.
(3) Includes reserves assigned to both vertical and horizontal Montney/Doig
wells. The best estimate reflects the estimate of proved plus probable reserves
contained in the 2012 Reserves Evaluation. The low estimate reflects the
estimate of proved reserves contained in the 2012 Reserves Evaluation. The high
estimate reflects the estimate of proved plus probable plus possible reserves
contained in the 2012 Reserves Evaluation.
(4) Unrecoverable includes surface loss/shrinkage on volumes of contingent
resources and prospective resources. The unrecoverable portion of undiscovered
PIIP is those quantities determined not to be recoverable by future development
projects. A portion of these resources may become recoverable in the future as
commercial circumstances change or technological developments occur, but the
remaining portion may never be recovered due to physical and/or chemical
constraints of the reservoir rock and the fluid within it.
SHAREHOLDER SUPPORT
We once again thank Mr. Seymour Schulich, our largest shareholder, for ongoing
financial and moral support. Mr. Schulich holds 40 million common shares
representing 28.2% of the current issued and outstanding common shares.
OUTLOOK
Birchcliff has established itself as a low cost finder and producer of oil and
natural gas. This is a result of hard work, the success we have had from the
repeatability of our drilling program and the additions of 100% owned and
operated infrastructure, all the while keeping a close eye on expenses.
Birchcliff continues to develop and expand its two proven resource plays, the
Montney/Doig Natural Gas Resource Play and the Worsley Light Oil Resource Play.
These plays are characterized by repeatable and predictable opportunities with
scalable development potential. This is reflected in our three-year finding and
development costs, which are in the top decile of industry. Because we operate
in a focused area, where we have substantial ownership and control of the
necessary infrastructure, we have successfully reduced our operating costs over
the last five years. As our engine for future growth, Birchcliff has a
significant amount of undeveloped land, with a 93% average working interest that
surrounds or is proximal to our core production.
Our 2013 goals are to convert long life reserves into production and expand our
footprint on the Montney/Doig Natural Gas Resource Play and the Worsley Light
Oil Resource Play. We will focus on the reduction of our per boe operating costs
as we make use of the expanded capacity of our PCS Gas Plant. We will continue
to develop our high quality asset base, which will result in long-term
production and reserves growth, with low finding and development costs.
We are excited about our 2013 capital spending program as we will not be
required to allocate capital to any major facility projects as we have in prior
years. Capital efficiencies will improve as most of our capital will go to the
drilling, completion and tie-in of new wells.
Birchcliff expects that the 2013 annual production rate will average
approximately 26,400 boe per day, a 16% increase from the 2012 annual average
production rate of 22,802 boe per day. We expect to exit 2013 with production of
approximately 28,000 boe per day.
In 2013, Birchcliff is utilizing multi-well pad drilling on its Montney/Doig
Natural Gas Resource Play to improve drilling and completion efficiencies and
reduce the cost per well, drilling six horizontal natural gas wells from one pad
and three horizontal natural gas wells from another. The reduction in drilling
and completion costs are significant and allows Birchcliff to drill right
through spring break-up. However, production growth during 2013 will come in
large increments as the new horizontal natural gas wells effectively commence
production simultaneously, not one at a time as they are drilled. Accordingly,
Birchcliff will see normal production declines during the second quarter
followed by material production growth in the third and fourth quarters.
I would like to thank Mr. Schulich, whose sage advice and independent thinking
helps us to see the big picture in the natural gas production business.
On behalf of our Management Team and Directors, I thank all of the Birchcliff
staff for their hard work and dedication to the achievement of our corporate
goals. I thank our Directors for their continued advice and guidance. Most of
all, I thank our shareholders for their continued support and their trust in all
of us at Birchcliff.
We look forward to another excellent year.
A. Jeffery Tonken, President and Chief Executive Officer
DEFINITIONS OF OIL AND GAS RESOURCES AND RESERVES
Reserves are estimated remaining quantities of oil and natural gas and related
substances anticipated to be recoverable from known accumulations, as of a given
date, based on the analysis of drilling, geological, geophysical and engineering
data; the use of established technology; and specified economic conditions,
which are generally accepted as being reasonable.
Reserves are classified according to the degree of certainty associated with the
estimates:
Proved Reserves are those reserves that can be estimated with a high degree of
certainty to be recoverable. It is likely that the actual remaining quantities
recovered will exceed the estimated proved reserves.
Probable Reserves are those additional reserves that are less certain to be
recovered than proved reserves. It is equally likely that the actual remaining
quantities recovered will be greater or less than the sum of the estimated
proved plus probable reserves.
Possible Reserves are those additional reserves that are less certain to be
recovered than probable reserves. It is unlikely that the actual remaining
quantities recovered will exceed the sum of the estimated proved plus probable
plus possible reserves.
Resources encompasses all petroleum quantities that originally existed on or
within the earth's crust in naturally occurring accumulations, including
Discovered and Undiscovered (recoverable and unrecoverable) plus quantities
already produced. "Total resources" is equivalent to "total Petroleum
Initially-In-Place". Resources are classified in the following categories:
Total Petroleum Initially-In-Place ("PIIP") is that quantity of petroleum that
is estimated to exist originally in naturally occurring accumulations. It
includes that quantity of petroleum that is estimated, as of a given date, to be
contained in known accumulations, prior to production, plus those estimated
quantities in accumulations yet to be discovered.
Discovered PIIP is that quantity of petroleum that is estimated, as of a given
date, to be contained in known accumulations prior to production. The
recoverable portion of discovered petroleum initially in place includes
production, reserves, and contingent resources; the remainder is unrecoverable.
Contingent Resources are those quantities of petroleum estimated, as of a given
date, to be potentially recoverable from known accumulations using established
technology or technology under development but which are not currently
considered to be commercially recoverable due to one or more contingencies.
Undiscovered PIIP is that quantity of petroleum that is estimated, on a given
date, to be contained in accumulations yet to be discovered. The recoverable
portion of undiscovered petroleum initially in place is referred to as
"prospective resources" and the remainder as "unrecoverable."
Prospective Resources are those quantities of petroleum estimated, as of a given
date, to be potentially recoverable from undiscovered accumulations by
application of future development projects.
Unrecoverable is that portion of Discovered and Undiscovered PIIP quantities
which is estimated, as of a given date, not to be recoverable by future
development projects. A portion of these quantities may become recoverable in
the future as commercial circumstances change or technological developments
occur; the remaining portion may never be recovered due to the physical/chemical
constraints represented by subsurface interaction of fluids and reservoir rocks.
Production is the cumulative quantity of petroleum that has been recovered at a
given date.
Uncertainty Ranges are described by the Canadian Oil and Gas Evaluation Handbook
as low, best, and high estimates for reserves and resources as follows:
Low Estimate: This is considered to be a conservative estimate of the quantity
that will actually be recovered. It is likely that the actual remaining
quantities recovered will exceed the low estimate. If probabilistic methods are
used, there should be at least a 90 percent probability (P90) that the
quantities actually recovered will equal or exceed the low estimate.
Best Estimate: This is considered to be the best estimate of the quantity that
will actually be recovered. It is equally likely that the actual remaining
quantities recovered will be greater or less than the best estimate. If
probabilistic methods are used, there should be at least a 50 percent
probability (P50) that the quantities actually recovered will equal or exceed
the best estimate.
High Estimate: This is considered to be an optimistic estimate of the quantity
that will actually be recovered. It is unlikely that the actual remaining
quantities recovered will exceed the high estimate. If probabilistic methods are
used, there should be at least a 10 percent probability (P10) that the
quantities actually recovered will equal or exceed the high estimate.
ADVISORIES
Finding and Development Costs: With respect to disclosure of finding and
development costs disclosed in this Press Release:
-- The amounts of finding and development and/or acquisition costs
contained in the table and the disclosure set forth above for each of
the years 2010, 2011 and 2012 are calculated by dividing the total of
the net amount of the particular costs noted in each line incurred
during such year by the amounts of additions to total proved reserves
and total proved plus probable reserves during such year that resulted
from the expenditure of such costs.
-- In calculating the amounts of finding and development and/or acquisition
costs for a year, the changes during the year in estimated future
development costs and in estimated reserves are based upon the
evaluations of Birchcliff's reserves prepared by AJM Deloitte, or their
predecessor, effective December 31 of such year.
-- The aggregate of the exploration and development costs incurred in the
most recent financial year and any change during that year in estimated
future development costs generally will not reflect total finding and
development costs related to reserves additions for that year.
Reserves for Portion of Properties: With respect to the disclosure of reserves
contained herein relating to portions of the Corporation's properties, the
estimates of reserves and future net revenue for individual properties may not
reflect the same confidence level as estimates of reserves and future net
revenue for all properties due to the effects of aggregation.
Discovered Resources: With respect to the discovered resources (including
contingent resources) described in this Press Release, there is no certainty
that it will be commercially viable to produce any portion of the resources.
Undiscovered Resources: With respect to the undiscovered resources (including
prospective resources) described in this Press Release, there is no certainty
that any portion of the resources will be discovered. If discovered, there is no
certainty that it will be commercially viable to produce any portion of the
resources.
Non-GAAP Measures: This Press Release uses "funds flow", "funds flow from
operations", "funds flow netback", "funds flow per common share", "netback",
"operating netback", "estimated operating netback" and "operating margin", which
do not have standardized meanings prescribed by generally accepted accounting
principles ("GAAP") and therefore may not be comparable measures to other
companies where similar terminology is used. Netback or operating netback
denotes petroleum and natural gas revenue less royalties, less operating
expenses and less transportation and marketing expenses. Estimated operating
netback is based upon certain cost allocations and accruals directly related to
the PCS Gas Plant and related wells and infrastructure, on a production month
basis. Funds flow, funds flow netback or funds flow from operations denotes cash
flow from operating activities as it appears on the Corporation's Condensed
Statements of Cash Flows before decommissioning expenditures and changes in
non-cash working capital. Funds flow, funds flow netback or funds flow from
operations is derived from net income plus income tax expense, depletion and
depreciation expense, accretion expense, stock-based compensation expense,
amortization of deferred financing fees and gains on divestitures. Funds flow
per common share denotes funds flow divided by the weighted average number of
common shares. Operating margin is calculated by dividing the estimated
operating netback for the period by the petroleum and natural gas revenue for
the period.
Boe Conversions: Barrel of oil equivalent ("boe") amounts have been calculated
by using the conversion ratio of six thousand cubic feet (6 Mcf) of natural gas
to one barrel of oil (1 bbl). Boe amounts may be misleading, particularly if
used in isolation. A boe conversion ratio of 6 Mcf to 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.
Mcfe, MMcfe, Bcfe and Tcfe Conversions: Thousands of cubic feet of gas
equivalent ("Mcfe"), millions of cubic feet of gas equivalent ("MMcfe"),
billions of cubic feet of gas equivalent ("Bcfe") and trillions of cubic feet of
gas equivalent ("Tcfe") amounts have been calculated by using the conversion
ratio of one barrel of oil (1 bbl) to six thousand cubic feet (6 Mcf) of natural
gas. Mcfe, MMcfe, Bcfe and Tcfe amounts may be misleading, particularly if used
in isolation. A conversion ratio of 1 bbl to 6 Mcf is based on an energy
equivalency conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead.
MMbtu Pricing Conversion: $1.00 per MMbtu equals $1.00 per Mcf based on a
standard heat value Mcf.
Forward Looking Information: This Press Release contains forward-looking
information within the meaning of applicable Canadian securities laws.
Forward-looking information relates to future events or future performance and
is based upon the Corporation's current internal expectations, estimates,
projections, assumptions and beliefs. All information other than historical fact
is forward-looking information. Information relating to reserves and resources
is forward-looking as it involves the implied assessment, based on certain
estimates and assumptions, that the reserves and resources exist in the
quantities estimated and that they will be commercially viable to produce in the
future. Words such as "plan", "expect", "project", "intend", "believe",
"anticipate", "estimate", "may", "will", "potential", "proposed" and other
similar words that convey certain events or conditions "may" or "will" occur are
intended to identify forward-looking information. In particular, this Press
Release contains forward-looking information relating to planned production
increases; the intention to drill and complete future wells, expected future
reserves additions, estimates of recoverable reserves and resource volumes; and
anticipated future decreases of per unit operating costs.
The forward-looking information is based upon assumptions as to future commodity
prices, currency exchange rates, inflation rates, well production rates, well
drainage areas, success rates for future drilling and availability of labour and
services. With respect to estimates of reserves and resource volumes, a key
assumption is the validity of the data used by AJM Deloitte in their independent
reserves evaluation and resource assessments. With respect to numbers of future
wells to be drilled, a key assumption is that geological and other technical
interpretations performed by the Corporation's technical staff, which indicate
that commercially economic volumes can be recovered from the Corporation's lands
as a result of drilling future wells, are valid. Estimates as to 2013 average
annual production rates assume that no unexpected outages occur in the
infrastructure that the Corporation relies on to produce its wells, that
existing wells continue to meet production expectations and any future wells,
scheduled to come on production in 2013, meet timing and production
expectations.
Undue reliance should not be placed on forward-looking information, as there can
be no assurance that the plans, intentions or expectations upon which they are
based will occur. Although the Corporation believes that the expectations
reflected in the forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to be correct. As a consequence,
actual results may differ materially from those anticipated.
Forward-looking information necessarily involves both known and unknown risks
associated with oil and gas exploration, production, transportation and
marketing such as uncertainty of geological and technical data, imprecision of
reserves and resource estimates, operational risks, environmental risks, loss of
market demand, general economic conditions affecting ability to access
sufficient capital, changes in governmental regulation of the oil and gas
industry and competition from others for scarce resources.
The foregoing list of risk factors is not exhaustive. Additional information on
these and other risk factors that could affect operations or financial results
are included in the Corporation's most recent Annual Information Form and in
other reports filed with Canadian securities regulatory authorities.
Forward-looking information is based on estimates and opinions of management at
the time the information is presented. The Corporation is not under any duty to
update the forward-looking information after the date of this Press Release to
conform such information to actual results or to changes in the Corporation's
plans or expectations, except as otherwise required by applicable securities
laws.
Birchcliff is a Calgary, Alberta based intermediate oil and gas company with
operations concentrated within its one core area, the Peace River Arch of
Alberta. Birchcliff's Common Shares, Cumulative Redeemable Preferred Shares,
Series A and Warrants are listed for trading on the Toronto Stock Exchange under
the symbols "BIR", "BIR.PR.A" and "BIR.WT", respectively.
FOR FURTHER INFORMATION PLEASE CONTACT:
Birchcliff Energy Ltd.
Jeff Tonken
President and Chief Executive Officer
Birchcliff Energy Ltd.
Bruno Geremia
Vice-President and Chief Financial Officer
Birchcliff Energy Ltd.
Jim Surbey
Vice-President, Corporate Development
Birchcliff Energy Ltd.
Suite 500, 630 - 4th Avenue S.W.
Calgary, AB T2P 0J9
(403) 261-6401
(403) 261-6424 (FAX)
Birchcliff Energy (TSX:BIR)
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