Birchcliff Energy Ltd. (“
Birchcliff” or the
“
Corporation”) (TSX: BIR) is pleased to announce
its Q1 2023 financial and operational results and that its board of
directors (the “
Board”) has declared a quarterly
cash dividend of $0.20 per common share for the quarter ending June
30, 2023. Birchcliff is also pleased to disclose the details of its
land position on the Montney/Doig Resource Play in Elmworth,
Alberta.
“In Q1 2023, we generated adjusted funds flow(1)
of $88.7 million, with average production of 74,592 boe/d. In
addition, we returned an aggregate of $53.4 million to shareholders
in Q1 2023 through our base common share dividend,” commented Jeff
Tonken, Chief Executive Officer of Birchcliff. “We are also pleased
to disclose our large Montney land position in the Elmworth area of
Alberta, which consists of 153 sections of contiguous 100% working
interest land located 25 kilometres to the south of our producing
properties in Pouce Coupe and Gordondale. This significant land
base positions Birchcliff to continue to drive long-term
shareholder value, providing us with a large potential future
development area that can supply clean natural gas for many years
to come.”
Q1 2023 FINANCIAL AND OPERATIONAL
HIGHLIGHTS
-
Achieved quarterly average production of 74,592 boe/d, a 2%
decrease from Q1 2022, notwithstanding an unplanned outage on
Pembina Pipeline Corporation’s Northern Pipeline system that
significantly impacted the Corporation’s NGLs sales volumes in Q1
2023.
-
Generated quarterly adjusted funds flow of $88.7 million, or $0.33
per basic common share(2), both of which decreased by 52% from Q1
2022. Cash flow from operating activities was $111.3 million, a 28%
decrease from Q1 2022.
-
Reported a quarterly net loss to common shareholders of $42.5
million, or $0.16 per basic common share, as compared to net income
to common shareholders of $125.8 million and $0.47 per basic common
share in Q1 2022.
-
Achieved an operating netback(2) of $17.45/boe and adjusted funds
flow per boe(2) of $13.22, a 39% and 51% decrease, respectively,
from Q1 2022.
-
Realized an operating expense(3) of $3.95/boe, a 13% increase from
Q1 2022.
-
Total debt(4) at March 31, 2023 was $217.9 million, a 47% decrease
from March 31, 2022.
-
F&D capital expenditures were $115.0 million in Q1 2023.
-
Returned $53.4 million to common shareholders in Q1 2023 through
dividends as compared to $2.7 million in Q1 2022.
Birchcliff’s unaudited interim condensed
financial statements for the three months ended March 31, 2023 and
related management’s discussion and analysis will be available on
its website at www.birchcliffenergy.com and on SEDAR at
www.sedar.com.
DECLARATION OF Q2 2023 QUARTERLY
DIVIDEND AND SHAREHOLDER RETURNS
-
As part of its commitment to delivering significant shareholder
returns, the Board has declared a quarterly cash dividend of $0.20
per common share for the quarter ending June 30, 2023. The dividend
will be payable on June 30, 2023 to shareholders of record at the
close of business on June 15, 2023. The ex-dividend date is June
14, 2023. The dividend has been designated as an eligible dividend
for the purposes of the Income Tax Act (Canada).
-
This is the third consecutive quarter in which Birchcliff’s Board
has declared a cash dividend of $0.20 per common share.
-
The Board previously approved an annual base dividend of $0.80 per
common share for 2023, which is expected to be declared and paid
quarterly at the rate of $0.20 per common share, at the discretion
of the Board.
-
Subsequent to Q1 2023, Birchcliff purchased and cancelled an
aggregate of 1,265,268 common shares pursuant to its normal course
issuer bid at an average price of $8.10 per common share for an
aggregate cost of $10.2 million, before fees.
ELMWORTH – UPDATED LAND
POSITION
-
Over the last number of years, Birchcliff has strategically built a
large, contiguous 100% working interest Montney land position in
the Elmworth area of Alberta, located 25 kilometres to the south of
the Corporation’s producing properties in Pouce Coupe and
Gordondale.
-
As at May 9, 2023, Birchcliff held 153 sections(5) (97,920
acres(5)) of contiguous Montney lands in Elmworth, which are
largely undeveloped. Birchcliff expects minimal yearly capital
commitments over the next several years to maintain its land
position in the area.
-
This significant, largely undeveloped land base in Elmworth
positions the Corporation to continue to drive long-term
shareholder value by enhancing its ability for future production
growth. The Elmworth asset provides Birchcliff with a large
potential future development area which can be responsibly
developed over time, leveraging the extensive knowledge that
Birchcliff has gained in developing its Pouce Coupe and Gordondale
assets. In addition, the Corporation’s lands in Elmworth are
located in an area that is well suited to supply clean natural gas
to future LNG export facilities in Canada. This significant land
position in Elmworth also builds upon Birchcliff’s existing
extensive inventory of potential future drilling locations in Pouce
Coupe and Gordondale.
-
To preserve its optionality for future growth in Elmworth,
Birchcliff has licenced and is planning to drill 2 (2.0 net)
Montney horizontal wells in Elmworth in late Q2 2023, which will
continue a number of sections of Montney lands in the area that are
set to expire in 2023.
-
Birchcliff expects that the drilling of these wells will be
accomplished within the Corporation’s F&D capital expenditures
guidance range of $270 million to $280 million. See “Outlook and
Guidance” and “Operational Update”.
-
Birchcliff is only required to drill the wells in order to continue
the lands and accordingly, the wells will not be completed or
brought on production in 2023.
-
By drilling these wells to the planned measured depth, Birchcliff
will validate multiple initial term licenses and continue 64
sections of land into their five-year intermediate term.
-
Birchcliff anticipates that these wells will be completed as it
commences the development of its Elmworth area in the future.
-
Over the last six months, significant Crown land sale activity has
occurred in the areas offsetting Birchcliff’s Elmworth land
position, which has seen substantially higher prices for the
Montney mineral rights as compared to previous years. Since the
November 2, 2022 Alberta land sale, approximately $36 million has
been spent on 111 sections of prospective Montney lands in the
Elmworth area at Alberta Crown land sales(6). There have also been
a significant number of sections in Elmworth posted for several
upcoming land sales. In addition, several wells have recently been
drilled and brought on production in the area, which have had
strong production results. The Montney/Doig Resource Play in
Elmworth continues to garner attention and capital investment,
which solidifies the value of Birchcliff’s contiguous land position
in the area.
A map outlining the Corporation’s Elmworth area
is provided below.
Includes content supplied by IHS Markit Canada;
Copyright © IHS Markit Canada. All rights reserved.
For further information regarding Birchcliff’s
Elmworth land position, please see the Corporation’s corporate
presentation, a copy of which is available on its website at
www.birchcliffenergy.com.___________________________
(1) Non-GAAP financial measure. See
“Non-GAAP and Other Financial Measures”.(2) Non-GAAP
ratio. See “Non-GAAP and Other Financial Measures”.(3)
Supplementary financial measure. See “Non-GAAP and Other
Financial Measures”.(4) Capital management measure. See
“Non-GAAP and Other Financial Measures”.(5) On both a
gross and net basis.(6) Source:
https://www.alberta.ca/petroleum-natural-gas-sales.aspx.
ALBERTA WILDFIRE UPDATE
-
Our first priority is the health and safety of our personnel. At
the present time, none of Birchcliff’s operations, which are
located northwest of Grande Prairie, Alberta, have been directly
impacted by the wildfires in Alberta. We will continue to closely
monitor the situation.
-
Birchcliff’s thoughts are with the people and communities who have
been impacted by the wildfires. We would like to thank all
emergency responders for their tireless work in responding to the
fires and we hope that everyone remains safe.
ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
-
Birchcliff’s annual and special meeting of shareholders is
scheduled to take place tomorrow, Thursday, May 11, 2023, at 3:00
p.m. (Mountain Daylight Time) in the McMurray Room at the Calgary
Petroleum Club, 319 – 5th Avenue S.W., Calgary, Alberta.
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. For further
information regarding the non-GAAP and other financial measures
used in this press release, see “Non-GAAP and Other Financial
Measures”.
| Q1 2023
UNAUDITED FINANCIAL AND OPERATIONAL SUMMARY |
|
|
Three months ended March 31, 2023 |
Three months ended March 31, 2022 |
|
OPERATING |
|
|
|
Average production |
|
|
|
Light oil(bbls/d) |
2,088 |
|
2,369 |
|
|
Condensate(bbls/d) |
5,358 |
|
4,796 |
|
|
NGLs(bbls/d) |
3,288 |
|
7,976 |
|
|
Natural gas(Mcf/d) |
383,145 |
|
365,296 |
|
|
Total(boe/d) |
74,592 |
|
76,024 |
|
|
Average realized sales price(CDN$)(1)(2) |
|
|
|
Light oil(per bbl) |
105.69 |
|
115.47 |
|
|
Condensate(per bbl) |
105.88 |
|
121.56 |
|
|
NGLs(per bbl) |
36.69 |
|
43.56 |
|
|
Natural gas(per Mcf) |
3.68 |
|
5.40 |
|
|
Total(per boe) |
31.07 |
|
41.79 |
|
|
|
|
|
|
NETBACK AND COST($/boe)(2) |
|
|
|
Petroleum and natural gas revenue(1) |
31.08 |
|
41.80 |
|
|
Royalty expense |
(4.37 |
) |
(4.41 |
) |
|
Operating expense |
(3.95 |
) |
(3.49 |
) |
|
Transportation and other expense(3) |
(5.31 |
) |
(5.43 |
) |
|
Operating netback(3) |
17.45 |
|
28.47 |
|
|
G&A expense, net |
(1.41 |
) |
(1.12 |
) |
|
Interest expense |
(0.47 |
) |
(0.48 |
) |
|
Realized loss on financial instruments |
(2.36 |
) |
(0.03 |
) |
|
Other cash income |
0.01 |
|
0.01 |
|
|
Adjusted funds flow(3) |
13.22 |
|
26.85 |
|
|
Depletion and depreciation expense |
(8.26 |
) |
(7.47 |
) |
|
Unrealized gain (loss) on financial instruments |
(12.43 |
) |
5.07 |
|
|
Other expense(4) |
(0.56 |
) |
(0.08 |
) |
|
Dividends on preferred shares |
- |
|
(0.25 |
) |
|
Deferred income tax recovery (expense) |
1.69 |
|
(5.74 |
) |
|
Net income (loss) to common shareholders |
(6.34 |
) |
18.38 |
|
|
|
|
|
|
FINANCIAL |
|
|
|
Petroleum and natural gas revenue($000s)(1) |
208,647 |
|
285,976 |
|
|
Cash flow from operating activities($000s) |
111,330 |
|
154,152 |
|
|
Adjusted funds flow($000s)(5) |
88,737 |
|
183,699 |
|
|
Per basic common share($)(3) |
0.33 |
|
0.69 |
|
|
Free funds flow($000s)(5) |
(26,302 |
) |
95,417 |
|
|
Per basic common share($)(3) |
(0.10 |
) |
0.36 |
|
|
Net income (loss) to common shareholders($000s) |
(42,548 |
) |
125,792 |
|
|
Per basic common share($) |
(0.16 |
) |
0.47 |
|
|
End of period basic common shares(000s) |
266,987 |
|
266,810 |
|
|
Weighted average basic common shares(000s) |
266,447 |
|
265,530 |
|
|
Dividends on common shares($000s) |
53,392 |
|
2,658 |
|
|
Dividends on preferred shares($000s) |
- |
|
1,717 |
|
|
F&D capital expenditures($000s)(6) |
115,039 |
|
88,282 |
|
|
Total capital expenditures($000s)(5) |
115,659 |
|
88,124 |
|
|
Revolving term credit facilities($000s) |
191,426 |
|
397,752 |
|
|
Total debt($000s)(7) |
217,927 |
|
408,998 |
|
(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 costs 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”.
OUTLOOK AND GUIDANCE
Updated 2023 Guidance
As a result of the ongoing impact of a force
majeure event on Pembina Pipeline Corporation’s
(“Pembina”) Northern Pipeline system (the
“Pembina Pipeline System”),
Birchcliff currently expects that it will be on the low end of its
annual average production guidance range of 77,000 to 80,000 boe/d.
As previously disclosed in Birchcliff’s press releases dated
February 15, 2023 and March 15, 2023, Pembina notified Birchcliff
on January 19, 2023 of a force majeure event on the Pembina
Pipeline System, which resulted in an unplanned outage impacting a
substantial portion of the volumes on the system, including the
Corporation’s NGLs sales volumes. The Pembina Pipeline System has
been operating under limited NGLs capacity since February 2023,
which continues to impact the Corporation’s NGLs sales revenue and
volumes. The Corporation has been closely monitoring the situation
and diligently working with Pembina to help mitigate the impact of
the outage and is optimistic that the outage will be resolved in
the near-term.
The Corporation is tightening its 2023 F&D
capital expenditures guidance range to $270 million to $280 million
(previously $260 million to $280 million) to reflect the drilling
of an additional 2 (2.0 net) wells in the Elmworth area, as
discussed in further detail under the headings “Elmworth – Updated
Land Position” and “Operational Update”.
The Corporation is lowering its 2023 guidance
for adjusted funds flow, free funds flow and excess free funds flow
to reflect a lower commodity price forecast for 2023. As a result
of lower anticipated adjusted funds flow in 2023, Birchcliff now
expects to fund its capital program and dividend payments in 2023
through a combination of adjusted funds flow and the Corporation’s
extendible revolving term credit facilities (the “Credit
Facilities”), which is anticipated to result in higher
total debt at year-end 2023 than previously forecast. Birchcliff
has significant unutilized credit capacity under its Credit
Facilities, which provides it with substantial financial
flexibility and additional capital resources. Subsequent to Q1
2023, Birchcliff’s syndicate of lenders confirmed the borrowing
base limit under the Credit Facilities at $850.0 million. See “Q1
2023 Financial and Operational Results – Debt and Credit
Facilities”.
The following tables set forth Birchcliff’s
updated and previous guidance and commodity price assumptions for
2023, as well as its free funds flow sensitivity:
|
|
Updated 2023 guidance and assumptions – May 10,
2023(1) |
Previous 2023 guidance andassumptions – March 15,
2023 |
|
Production |
|
|
|
Annual average production (boe/d) |
77,000 – 80,000 |
77,000 – 80,000 |
|
% Light oil |
3% |
|
3% |
|
% Condensate |
7% |
|
7% |
|
% NGLs |
8% |
|
9% |
|
% Natural gas |
82% |
|
81% |
|
|
|
|
|
Average Expenses ($/boe) |
|
|
|
Royalty(2) |
3.60 – 3.80 |
4.25 – 4.45 |
|
Operating(2) |
3.60 – 3.80 |
3.55 – 3.75 |
|
Transportation and other(3) |
5.30 – 5.50 |
5.25 – 5.45 |
|
|
|
|
|
Adjusted Funds Flow (millions)(4) |
$360 |
$475 |
|
|
|
|
|
F&D Capital Expenditures (millions) |
$270 – $280 |
$260 – $280 |
|
|
|
|
|
Free Funds Flow (millions)(4) |
$80 – $90 |
$195 – $215 |
|
|
|
|
|
Annual Base Dividend (millions)(5) |
$213 |
$213 |
|
|
|
|
|
Excess Free Funds Flow (millions)(4)(5) |
($123) – ($133) |
($18) – $2 |
|
|
|
|
|
Total Debt at Year End (millions)(6) |
$280 – $290(7) |
$145 – $165 |
|
|
|
|
|
Natural Gas Market Exposure |
|
|
|
AECO exposure as a % of total natural gas production |
15%(8) |
|
17% |
|
Dawn exposure as a % of total natural gas production |
42%(8) |
|
41% |
|
NYMEX HH exposure as a % of total natural gas production |
37%(8) |
|
36% |
|
Alliance exposure as a % of total natural gas production |
6%(8) |
|
6% |
|
|
|
|
|
Commodity Prices |
|
|
|
Average WTI price (US$/bbl) |
78.00(9) |
|
78.50 |
|
Average WTI-MSW differential (CDN$/bbl) |
4.20(9) |
|
3.25 |
|
Average AECO price (CDN$/GJ) |
2.45(9) |
|
3.00 |
|
Average Dawn price (US$/MMBtu) |
2.50(9) |
|
3.05 |
|
Average NYMEX HH price (US$/MMBtu) |
2.85(9) |
|
3.50 |
|
Exchange rate (CDN$ to US$1) |
1.35(9) |
|
1.35 |
|
Forward eight months’ free funds flow
sensitivity(10) |
Estimated change to 2023 free funds
flow (millions) |
|
Change in WTI US$1.00/bbl |
$2.7 |
|
Change in NYMEX HH US$0.10/MMBtu |
$4.8 |
|
Change in Dawn US$0.10/MMBtu |
$5.4 |
|
Change in AECO CDN$0.10/GJ |
$2.3 |
|
Change in CDN/US exchange rate CDN$0.01 |
$3.0 |
(1) Birchcliff’s updated guidance for its production
commodity mix, adjusted funds flow, free funds flow, excess free
funds flow, total debt and natural gas market exposure in 2023 is
based on an annual average production rate of 77,000 boe/d in 2023,
which is the low end of Birchcliff’s 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)
Assumes that an annual base dividend of $0.80 per common
share is paid and that there are 266 million common shares
outstanding, with no changes to the base dividend rate and no
special dividends paid. Other than the dividends declared for the
quarters ending March 31, 2023 and June 30, 2023, the declaration
of dividends is subject to the approval of the Board and is subject
to change.(6) Capital management measure. See “Non-GAAP
and Other Financial Measures”.(7) The forecast of total
debt at December 31, 2023 is expected to be comprised of any
amounts outstanding under the Credit Facilities plus accounts
payable and accrued liabilities and less cash, accounts receivable
and prepaid expenses and deposits at the end of the year.(8)
Birchcliff’s natural gas market exposure for 2023 takes into
account its physical and financial basis swap contracts outstanding
as at May 1, 2023.(9) Birchcliff’s updated commodity
price and exchange rate assumptions for 2023 are based on
anticipated full-year averages, which include settled benchmark
commodity prices and the CDN/US exchange rate for the period from
January 1, 2023 to April 30, 2023.(10) Illustrates the
expected impact of changes in commodity prices and the CDN/US
exchange rate on the Corporation’s updated forecast of free funds
flow for 2023, holding all other variables constant. The
sensitivity is based on the updated commodity price and exchange
rate assumptions set forth in the table above. The calculated
impact on free funds flow is only applicable within the limited
range of change indicated. Calculations are performed independently
and may not be indicative of actual results. Actual results may
vary materially when multiple variables change at the same time
and/or when the magnitude of the change increases.
Updated Five-Year
Outlook(7)
As a result of the changes to its 2023 guidance,
Birchcliff is also updating its five-year outlook for 2023 to
2027.
2024
As previously updated in Birchcliff’s press
release dated March 15, 2023, the Corporation currently expects
that it will keep its production relatively flat year-over-year.
2024 annual average production is currently forecast to be 78,000
boe/d (previously 78,500 boe/d) resulting from forecast 2024
F&D capital expenditures of $255 million.
Assuming the payment of an annual base dividend
of $0.80 per common share(8) and
that realized commodity prices match the Corporation’s commodity
price assumptions, Birchcliff would achieve 2024 excess free funds
flow of $67 million (previously $82 million) and total debt at year
end 2024 of $230 million (previously $85 million). Birchcliff
currently anticipates that excess free funds flow generated in 2024
will be primarily used to reduce indebtedness and that it will be
in a position to fund its common share dividend payments and reduce
its total debt in 2024 from year-end 2023.
Outlook to 2027
Over the longer-term, Birchcliff remains
committed to generating substantial free funds flow and delivering
significant returns to shareholders, while achieving disciplined
production growth to fully utilize the Corporation’s existing
processing and transportation capacity. Birchcliff’s five-year
outlook still provides for potential cumulative free funds flow of
approximately $1.3 billion by the end of the five-year period.
Annual average production in 2027 is still forecast to be 87,000
boe/d, subject to commodity prices.
For further information regarding the
Corporation’s updated five-year outlook and the commodity price and
other assumptions underlying such outlook, see “Advisories –
Forward-Looking Statements” and the Corporation’s corporate
presentation, a copy of which is available on its website at
www.birchcliffenergy.com.
_________________________________(7) The
five-year outlook presented herein is for illustrative purposes
only and should not be relied upon as indicative of future results.
The internal projections, expectations and beliefs underlying this
outlook are subject to change in light of ongoing results and
prevailing economic and industry conditions. Birchcliff’s F&D
capital budgets for 2024 to 2027 have not been finalized and are
subject to approval by the Board. Accordingly, the levels of
F&D capital expenditures for 2024 to 2027 are subject to
change, which could have an impact on the Corporation’s forecasted
production, adjusted funds flow, free funds flow, excess free funds
flow and year end total debt or total surplus over the five-year
period. In addition, changes in assumed commodity prices and
variances in production forecasts can have an impact on the
Corporation’s five-year outlook, which impact could be material.
See “Advisories – Forward-Looking Statements”.
(8) Assumes that an annual base
dividend of $0.80 per common share is paid and that there are 266
million common shares outstanding, with no changes to the base
dividend rate and no special dividends paid. Other than the
dividends declared for the quarters ending March 31, 2023 and June
30, 2023, the declaration of dividends is subject to the approval
of the Board and is subject to change. The Board has not approved
the annual base dividend rate for 2024. See “Advisories –
Forward-Looking Statements”.
Q1 2023 FINANCIAL AND OPERATIONAL
RESULTS
Production
Birchcliff’s production averaged 74,592 boe/d in
Q1 2023, a 2% decrease from Q1 2022. The decrease was primarily due
to the outage on the Pembina Pipeline System, which negatively
impacted the Corporation’s NGLs sales volumes in Q1 2023, and
natural production declines. Birchcliff’s production in Q1 2023 was
positively impacted by incremental production volumes from the new
Montney/Doig wells brought on production since Q1 2022, including
the 5 (5.0 net) wells on its 03-06 pad that were brought on
production in December 2022 and early January 2023 and the 6 (6.0
net) wells on its 14-06 pad that were brought on production in
February 2023.
Liquids accounted for 14% of Birchcliff’s total
production in Q1 2023 as compared to 20% in Q1 2022. Liquids
production weighting decreased from Q1 2022 primarily due to a 59%
decrease in NGLs sales volumes, which were largely impacted by the
outage on the Pembina Pipeline System.
Adjusted Funds Flow and Cash Flow From
Operating Activities
Birchcliff’s adjusted funds flow was $88.7
million in Q1 2023, or $0.33 per basic common share, both of which
decreased by 52% from Q1 2022. Birchcliff’s cash flow from
operating activities was $111.3 million in Q1 2023, a 28% decrease
from Q1 2022. The decreases were primarily due to lower petroleum
and natural gas revenue, which was largely impacted by a 32%
decrease in the average realized natural gas sales price and lower
NGLs sales volumes due to the outage on the Pembina Pipeline
System. Birchcliff’s adjusted funds flow and cash flow from
operating activities were also negatively impacted by a higher
realized loss on financial instruments in Q1 2023 as compared to Q1
2022. Birchcliff recorded a realized loss on financial instruments
of $15.8 million in Q1 2023 as compared to a negligible realized
loss on financial instruments in Q1 2022.
Net Loss to Common
Shareholders
Birchcliff reported a net loss to common
shareholders of $42.5 million in Q1 2023, or $0.16 per basic common
share, as compared to net income to common shareholders of $125.8
million and $0.47 per basic common share in Q1 2022. The change to
a net loss position was primarily due to lower adjusted funds flow
and an unrealized mark-to-market loss on financial instruments in
Q1 2023, which resulted from changes in the fair value of the
Corporation’s NYMEX HH/AECO 7A basis swap contracts, partially
offset by a deferred income tax recovery in Q1 2023 as compared to
a deferred income tax expense in Q1 2022. Birchcliff recorded an
unrealized mark-to-market loss on financial instruments of $83.4
million in Q1 2023 as compared to an unrealized mark-to-market gain
on financial instruments of $34.7 million in Q1 2022.
Debt and Credit Facilities
Total debt at March 31, 2023 was $217.9 million,
a 47% decrease from March 31, 2022. At March 31, 2023, Birchcliff
had long-term bank debt under its Credit Facilities of $191.4
million (March 31, 2022: $397.8 million) from available Credit
Facilities of $850.0 million (March 31, 2022: $850.0 million),
leaving the Corporation with $655.3 million (77%) of unutilized
credit capacity after adjusting for outstanding letters of credit
and unamortized deferred financing fees.
Subsequent to Q1 2023, Birchcliff’s syndicate of
lenders completed its regular semi-annual review of the borrowing
base limit under the Credit Facilities. In connection therewith,
the lenders confirmed the borrowing base limit at $850.0 million.
The Credit Facilities have a maturity date of May 11, 2025 and do
not contain any financial maintenance covenants.
Commodity Prices
The Corporation’s average realized sales price
in Q1 2023 was $31.07/boe, a 26% decrease from Q1 2022. The
decrease was due to lower benchmark commodity prices, which
negatively impacted the sales prices Birchcliff received for its
production in Q1 2023. Birchcliff is fully exposed to increases and
decreases in commodity prices as it has no fixed price commodity
hedges in place.
The following table sets forth the average
benchmark commodity index prices for the periods indicated:
|
|
Three months ended March
31, |
|
|
2023 |
2022 |
% Change |
|
Light oil – WTI Cushing (US$/bbl) |
76.09 |
94.29 |
(19) |
|
|
Light oil – MSW (Mixed Sweet) (CDN$/bbl) |
99.11 |
115.64 |
(14) |
|
|
Natural gas – NYMEX HH (US$/MMBtu) |
3.42 |
4.95 |
(31) |
|
|
Natural gas – AECO 5A Daily (CDN$/GJ) |
3.05 |
4.49 |
(32) |
|
|
Natural gas – AECO 7A Month Ahead (US$/MMBtu) |
3.21 |
3.61 |
(11) |
|
|
Natural gas – Dawn Day Ahead (US$/MMBtu) |
2.72 |
4.42 |
(38) |
|
|
Natural gas – ATP 5A Day Ahead (CDN$/GJ) |
2.88 |
4.58 |
(37) |
|
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 Q1
2023, after taking into account the Corporation’s financial
instruments:
|
Three months ended March 31, 2023 |
|
|
Effective sales(1)
(CDN$000s) |
Percentage of total sales (%) |
Effectiveproduction(per day) |
Percentage of total natural gas
production(%) |
Percentage of total corporate
production(%) |
Effective average realizedsales
price(1)(CDN$) |
|
Market |
|
|
|
|
|
|
|
AECO(2)(3) |
28,465 |
13 |
89,081 Mcf |
23 |
20 |
3.55/Mcf |
|
Dawn(4) |
55,292 |
26 |
157,375 Mcf |
41 |
35 |
3.90/Mcf |
|
NYMEX HH(1)(2)(5) |
47,769 |
23 |
136,689 Mcf |
36 |
31 |
3.88/Mcf |
|
Total natural gas(1) |
131,526 |
62 |
383,145 Mcf |
100 |
86 |
3.81/Mcf |
|
Light oil |
19,862 |
9 |
2,088 bbls |
|
3 |
105.69/bbl |
|
Condensate |
51,062 |
24 |
5,358 bbls |
|
7 |
105.88/bbl |
|
NGLs |
10,855 |
5 |
3,288 bbls |
|
4 |
36.69/bbl |
|
Total liquids |
81,779 |
38 |
10,734 bbls |
|
14 |
84.65/bbl |
|
Total corporate(1) |
213,305 |
100 |
74,592 boe |
|
100 |
31.77/boe |
(1) Effective sales and effective average realized
sales price on a total natural gas and total corporate basis and
for the AECO and NYMEX HH markets are non-GAAP financial measures
and non-GAAP ratios, respectively. 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 Q1 2023.(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 Q1 2023 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 an
aggregate of 152,500 MMBtu/d at an average contract price of NYMEX
HH less US$1.23/MMBtu during Q1 2023.Birchcliff’s effective average
realized sales price for NYMEX HH of CDN$3.88/Mcf (US$2.57/MMBtu)
was determined on a gross basis before giving effect to the average
NYMEX HH/AECO 7A fixed contract basis differential price of
CDN$1.85/Mcf (US$1.23/MMBtu) and includes any realized gains and
losses on financial NYMEX HH/AECO 7A basis swap contracts during Q1
2023.After giving effect to the NYMEX HH/AECO 7A basis contract
price and including any realized gains and losses on financial
NYMEX HH/AECO 7A basis swap contracts during Q1 2023, Birchcliff’s
effective average realized net sales price for NYMEX HH was
CDN$2.03/Mcf (US$1.34/MMBtu) in Q1 2023.
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 March 31, 2023 |
|
Natural gas market |
Natural gas
sales(1)(CDN$000s) |
Percentage of natural gas sales (%) |
Natural gas production(Mcf/d) |
Percentage of natural gas production(%) |
Average realizednatural gas sales
price(1)(2)(CDN$/Mcf) |
Natural gas transportation costs(2)(3)
(CDN$/Mcf) |
Natural gas sales netback(2)(4)(CDN$/Mcf) |
|
AECO |
66,352 |
52 |
210,309 |
55 |
3.53 |
0.45 |
3.08 |
|
Dawn |
55,292 |
44 |
157,375 |
41 |
3.90 |
1.54 |
2.36 |
|
Alliance(5) |
5,178 |
4 |
15,461 |
4 |
3.72 |
- |
3.72 |
|
Total |
126,822 |
100 |
383,145 |
100 |
3.68 |
0.88 |
2.80 |
|
Three months ended March 31, 2022 |
|
Natural gas market |
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 |
72,361 |
41 |
158,501 |
43 |
5.07 |
0.52 |
4.55 |
|
Dawn |
83,830 |
47 |
161,291 |
44 |
5.77 |
1.57 |
4.20 |
|
Alliance(5) |
21,419 |
12 |
45,504 |
13 |
5.23 |
- |
5.23 |
|
Total |
177,610 |
100 |
365,296 |
100 |
5.40 |
0.92 |
4.48 |
(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
In Q1 2023, Birchcliff drilled 14 (14.0 net)
wells and brought 15 (15.0 net) wells on production, with F&D
capital expenditures of $115.0 million. The following table sets
forth the wells that were drilled and brought on production in the
quarter:
|
|
Drilled |
On Production |
|
Pouce Coupe |
|
|
|
|
03-06 pad(1) |
|
0 |
1 |
|
|
14-06 pad(2) |
|
0 |
6 |
|
|
15-27 pad(3) |
|
3 |
4 |
|
|
04-23 pad(3) |
|
3 |
4 |
|
|
04-16 pad |
|
8 |
0 |
|
|
|
TOTAL |
14 |
15 |
(1) The 03-06 pad included 4
wells that were brought on production in December
2022.(2) The 6 wells on the 14-06 pad were drilled
in Q4 2022.(3) The 15-27 pad and the 04-23 pad
each included 1 well that was drilled in Q4 2022.
OPERATIONAL UPDATE
6-Well Pad (14-06)
Birchcliff successfully completed its 6-well
14-06 pad in January 2023, which was brought on production in
February 2023. The pad was drilled in late Q4 2022 in 3 different
intervals (3 in the Montney D1, 2 in the Montney D2 and 1 in the
Montney C) and targeted condensate-rich natural gas. The following
table summarizes the aggregate and average production rates for the
wells from the pad:
|
|
Wells: IP 30(1) |
Wells: IP 60(1) |
|
Aggregate production rate (boe/d) |
4,513 |
4,406 |
|
|
Aggregate natural gas production rate (Mcf/d) |
21,182 |
20,908 |
|
|
Aggregate condensate production rate (bbls/d) |
965 |
903 |
|
Average per well production rate (boe/d) |
752 |
734 |
| |
Average
per well natural gas production rate (Mcf/d) |
3,530 |
3,485 |
|
|
Average per well condensate production rate (bbls/d) |
161 |
151 |
|
Condensate-to-gas ratio (bbls/MMcf) |
46 |
43 |
(1) Represents the cumulative
volumes for each well measured at the wellhead separator for the 30
or 60 days (as applicable) of production immediately after each
well was considered stabilized after producing fracture treatment
fluid back to surface in an amount such that flow rates of
hydrocarbons became reliable. See “Advisories – Initial Production
Rates”.
4-Well Pad (15-27) and 4-Well Pad (04-23)
Birchcliff successfully completed its 4-well
15-27 pad and 4-well 04-23 pad at the end of Q1 2023. These wells
are producing in-line with the Corporation’s expectations. As the
wells on these pads have not yet produced for over 60 days,
Birchcliff anticipates providing further details regarding the
results of these wells with the release of its Q2 2023 results.
Ongoing Drilling and Completions Operations
The Corporation’s 2023 capital program
contemplates the drilling of 25 (25.0 net) wells (previously 23
(23.0 net) wells) and the bringing on production of 32 (32.0 net)
wells in 2023. The 25 wells to be drilled in 2023 includes the 2
(2.0 net) wells in Elmworth that will be drilled but not completed
or brought on production this year.
The following table sets forth the wells that
are part of the Corporation’s full-year 2023 drilling program,
including the anticipated timing of the remaining wells to be
drilled and brought on production in 2023:
|
|
Total # of wells to be brought on
production |
|
Drilled |
|
On production |
|
Pouce Coupe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
03-06 pad(1) |
Montney D1
Total |
1 |
|
0 |
|
1 |
|
|
|
|
|
|
|
|
|
|
|
14-06 pad(2) |
Montney D2 |
2 |
|
0 |
|
2 |
|
|
|
Montney D1 |
3 |
|
0 |
|
3 |
|
|
|
Montney C |
1 |
|
0 |
|
1 |
|
|
|
Total |
6 |
|
0 |
|
6 |
|
|
|
|
|
|
|
|
|
|
|
15-27 pad(3) |
Montney D2 |
1 |
|
1 |
|
1 |
|
|
|
Montney D1 |
2 |
|
1 |
|
2 |
|
|
|
Montney C |
1 |
|
1 |
|
1 |
|
|
|
Total |
4 |
|
3 |
|
4 |
|
|
|
|
|
|
|
|
|
|
|
04-23 pad(3) |
Montney D2 |
2 |
|
2 |
|
2 |
|
|
|
Montney D1 |
2 |
|
1 |
|
2 |
|
|
|
Total |
4 |
|
3 |
|
4 |
|
|
|
|
|
|
|
|
|
|
|
04-16 pad |
Basal Doig/Upper Montney |
4 |
|
4 |
|
Expected Q2 2023 |
|
|
|
Montney D1 |
4 |
|
4 |
|
Expected Q2 2023 |
|
|
|
Total |
8 |
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
09-04 pad |
Montney D2 |
2 |
|
Expected Q3 2023 |
|
Expected Q4 2023 |
|
|
|
Montney D1 |
3 |
|
Expected Q3 2023 |
|
Expected Q4 2023 |
|
|
|
Montney C |
2 |
|
Expected Q3 2023 |
|
Expected Q4 2023 |
|
|
|
Total |
7 |
|
|
|
|
|
|
|
|
|
|
|
|
Gordondale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02-27 pad |
Montney D2 |
1 |
|
Expected Q3 2023 |
|
Expected Q4 2023 |
|
|
|
Montney D1 |
1 |
|
Expected Q3 2023 |
|
Expected Q4 2023 |
|
|
|
Total |
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Elmworth |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
01-28 pad |
Montney |
N/A |
|
Expected Q2 2023 |
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
02-08 pad |
Montney |
N/A |
|
Expected Q2 2023 |
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
32 |
|
|
|
|
(1) The 03-06 pad included 4
wells that were brought on production in December
2022.(2) The 6 wells on the 14-06 pad were drilled
in Q4 2022.(3) The 15-27 pad and the 04-23 pad
each included 1 well that was drilled in Q4 2022.
Drilling operations at the Corporation’s 8-well
04-16 pad commenced in Q1 2023 and the pad is currently undergoing
completion operations. The pad was drilled in 2 different intervals
(4 in each of the Basal Doig/Upper Montney and Montney D1
intervals) and targeted condensate-rich natural gas. The wells are
expected to be brought on production in Q2 2023, with production
flowing through Birchcliff’s 100% owned and operated natural gas
processing plant in Pouce Coupe.
As discussed above, Birchcliff has licenced and
is planning to drill 2 (2.0 net) Montney horizontal wells in the
Elmworth area in late Q2 2023. Subsequent to the drilling of these
wells, the drilling rig is expected to return to the
Pouce/Gordondale area where the Corporation plans to drill and
complete the remaining wells that are part of the Corporation’s
2023 capital program, consisting of 7 wells in the Pouce Coupe area
(09-04 pad) and 2 wells in the Gordondale area (02-27 pad). These 9
wells are expected to be brought on production in Q4 2023, when
commodity prices are forecast to be higher.
ABBREVIATIONS
|
AECO |
benchmark price for natural gas determined at the AECO ‘C’ hub in
southeast Alberta |
|
ATP |
Alliance Trading Pool |
|
bbl |
barrel |
|
bbls |
barrels |
|
bbls/d |
barrels per day |
|
boe |
barrel of oil equivalent |
|
boe/d |
barrel of oil equivalent per day |
|
condensate |
pentanes plus (C5+) |
|
F&D |
finding and development |
|
G&A |
general and administrative |
|
GAAP |
generally accepted accounting principles for Canadian public
companies, which are currently International Financial Reporting
Standards as issued by the International Accounting Standards
Board |
|
GJ |
gigajoule |
|
GJ/d |
gigajoules per day |
|
HH |
Henry Hub |
|
IP |
initial production |
|
LNG |
liquefied natural gas |
|
Mcf |
thousand cubic feet |
|
Mcf/d |
thousand cubic feet per day |
|
MMBtu |
million British thermal units |
|
MMBtu/d |
million British thermal units per day |
|
MMcf |
million cubic feet |
|
MSW |
price for mixed sweet crude oil at Edmonton, Alberta |
|
NGLs |
natural gas liquids consisting of ethane (C2), propane (C3) and
butane (C4) and specifically excluding condensate |
|
NYMEX |
New York Mercantile Exchange |
|
OPEC |
Organization of the Petroleum Exporting Countries |
|
WTI |
West Texas Intermediate, the reference price paid in U.S. dollars
at Cushing, Oklahoma, for crude oil of standard grade |
|
000s |
thousands |
|
$000s |
thousands of dollars |
NON-GAAP AND OTHER FINANCIAL
MEASURES
This press release uses various “non-GAAP
financial measures”, “non-GAAP ratios”, “supplementary financial
measures” and “capital management measures” (as such terms are
defined in NI 52-112), which are described in further detail below.
These measures facilitate management’s comparisons to the
Corporation’s historical operating results in assessing its results
and strategic and operational decision-making and may be used by
financial analysts and others in the oil and natural gas industry
to evaluate the Corporation’s performance.
Non-GAAP Financial Measures
NI 52-112 defines a non-GAAP financial measure
as a financial measure that: (i) depicts the historical or expected
future financial performance, financial position or cash flow of an
entity; (ii) with respect to its composition, excludes an amount
that is included in, or includes an amount that is excluded from,
the composition of the most directly comparable financial measure
disclosed in the primary financial statements of the entity; (iii)
is not disclosed in the financial statements of the entity; and
(iv) is not a ratio, fraction, percentage or similar
representation. The non-GAAP financial measures used in this press
release are not standardized financial measures under GAAP and
might not be comparable to similar measures presented by other
companies. Investors are cautioned that non-GAAP financial measures
should not be construed as alternatives to or more meaningful than
the most directly comparable GAAP financial measures as indicators
of Birchcliff’s performance. Set forth below is a description of
the non-GAAP financial measures used in this press release.
Adjusted Funds Flow, Free Funds Flow and
Excess Free Funds Flow
Birchcliff defines “adjusted funds flow” as cash
flow from operating activities before the effects of
decommissioning expenditures and changes in non-cash operating
working capital. Birchcliff eliminates settlements of
decommissioning expenditures from cash flow from operating
activities as the amounts can be discretionary and may vary from
period to period depending on its capital programs and the maturity
of its operating areas. The settlement of decommissioning
expenditures is managed with Birchcliff’s capital budgeting process
which considers available adjusted funds flow. Changes in non-cash
operating working capital are eliminated in the determination of
adjusted funds flow as the timing of collection and payment are
variable and by excluding them from the calculation, the
Corporation believes that it is able to provide a more meaningful
measure of its operations and ability to generate cash on a
continuing basis. Adjusted funds flow can also be derived from
petroleum and natural gas revenue less royalty expense, operating
expense, transportation and other expense, net G&A expense,
interest expense and any realized losses (plus realized gains) on
financial instruments and plus any other cash income and expense
sources. Management believes that adjusted funds flow assists
management and investors in assessing Birchcliff’s financial
performance after deducting all operating and corporate cash costs,
as well as its ability to generate the cash necessary to fund
sustaining and/or growth capital expenditures, repay debt, settle
decommissioning obligations, buy back common shares and pay
dividends.
Birchcliff defines “free funds flow” as adjusted
funds flow less F&D capital expenditures. Management believes
that free funds flow assists management and investors in assessing
Birchcliff’s ability to generate shareholder returns through a
number of initiatives, including but not limited to, debt
repayment, common share buybacks, the payment of dividends and
acquisitions.
Birchcliff defines “excess free funds flow” as
free funds flow less common share dividends paid. Management
believes that excess free funds flow assists management and
investors in assessing Birchcliff’s ability to further enhance
shareholder returns after the payment of common share dividends,
which may include debt repayment, special dividends, increases to
the Corporation’s base dividend, common share buybacks,
acquisitions and other opportunities that would complement or
otherwise improve the Corporation’s business and enhance long-term
shareholder value.
The most directly comparable GAAP financial
measure to adjusted funds flow, free funds flow and excess free
funds flow is cash flow from operating activities. The following
table provides a reconciliation of cash flow from operating
activities to adjusted funds flow, free funds flow and excess free
funds flow for the periods indicated:
|
|
Three months ended |
Twelve months ended |
|
|
March 31, |
December 31, |
|
($000s) |
2023 |
|
2022 |
|
2022 |
|
|
Cash flow from operating activities |
111,330 |
|
154,152 |
|
925,275 |
|
|
Change in non-cash operating working capital |
(22,967 |
) |
28,830 |
|
25,662 |
|
|
Decommissioning expenditures |
374 |
|
717 |
|
2,746 |
|
|
Adjusted funds flow |
88,737 |
|
183,699 |
|
953,683 |
|
|
F&D capital expenditures |
(115,039 |
) |
(88,282 |
) |
(364,621 |
) |
|
Free funds flow |
(26,302 |
) |
95,417 |
|
589,062 |
|
|
Dividends on common shares |
(53,392 |
) |
(2,658 |
) |
(71,788 |
) |
|
Excess free funds flow |
(79,694 |
) |
92,759 |
|
517,274 |
|
Birchcliff has disclosed in this press release
forecasts of adjusted funds flow, free funds flow and excess free
funds flow for 2023, excess free funds flow for 2024 and cumulative
free funds flow for the period from 2023 to 2027, which are
forward-looking non-GAAP financial measures. The equivalent
historical non-GAAP financial measures are adjusted funds flow,
free funds flow and excess free funds flow for the twelve months
ended December 31, 2022. Birchcliff anticipates the forward-looking
non-GAAP financial measures for adjusted funds flow, free funds
flow and excess free funds flow disclosed herein to be lower than
their respective historical amounts primarily due to lower
anticipated benchmark oil and natural gas prices which are expected
to decrease the average realized sales prices the Corporation
receives for its production. The forward-looking non-GAAP financial
measure for excess free funds flow disclosed herein is also
expected to be lower as a result of a higher targeted annual base
common share dividend payment forecast during 2023 and 2024. The
commodity price assumptions on which the Corporation’s guidance is
based are set forth under the headings “Outlook and Guidance” and
“Advisories – Forward-Looking Statements”.
Transportation and Other
Expense
Birchcliff defines “transportation and other
expense” as transportation expense plus marketing purchases less
marketing revenue. Birchcliff may enter into certain marketing
purchase and sales arrangements with the objective of reducing any
available transportation and/or fractionation fees associated with
its take-or-pay commitments. Management believes that
transportation and other expense assists management and investors
in assessing Birchcliff’s total cost structure related to
transportation activities. The most directly comparable GAAP
financial measure to transportation and other expense is
transportation expense. The following table provides a
reconciliation of transportation expense to transportation and
other expense for the periods indicated:
|
|
Three months ended |
|
|
March 31, |
|
($000s) |
2023 |
|
2022 |
|
|
Transportation expense |
34,517 |
|
37,837 |
|
|
Marketing purchases |
10,625 |
|
3,569 |
|
|
Marketing revenue |
(9,438 |
) |
(4,234 |
) |
|
Transportation and other expense |
35,704 |
|
37,172 |
|
Operating Netback
Birchcliff defines “operating netback” as
petroleum and natural gas revenue less royalty expense, operating
expense and transportation and other expense. Management believes
that operating netback assists management and investors in
assessing Birchcliff’s operating profits after deducting the cash
costs that are directly associated with the sale of its production,
which can then be used to pay other corporate cash costs or satisfy
other obligations. The following table provides a breakdown of
Birchcliff’s operating netback for the periods indicated:
|
|
Three months ended |
|
|
March 31, |
|
($000s) |
2023 |
|
2022 |
|
|
Petroleum and natural gas revenue |
208,647 |
|
285,976 |
|
|
Royalty expense |
(29,308 |
) |
(30,158 |
) |
|
Operating expense |
(26,502 |
) |
(23,847 |
) |
|
Transportation and other expense |
(35,344 |
) |
(37,172 |
) |
|
Operating netback – Corporate |
117,493 |
|
194,799 |
|
Total Capital Expenditures
Birchcliff defines “total capital expenditures”
as exploration and development expenditures less dispositions plus
acquisitions (if any) and plus administrative assets. Management
believes that total capital expenditures assists management and
investors in assessing Birchcliff’s overall capital cost structure
associated with its petroleum and natural gas activities. The most
directly comparable GAAP financial measure for total capital
expenditures is exploration and development expenditures. The
following table provides a reconciliation of exploration and
development expenditures to total capital expenditures for the
periods indicated:
|
|
Three months ended |
|
|
March 31, |
|
($000s) |
2023 |
2022 |
|
|
Exploration and development expenditures(1) |
115,039 |
88,282 |
|
|
Dispositions |
- |
(315 |
) |
|
Administrative assets |
620 |
157 |
|
|
Total capital expenditures |
115,659 |
88,124 |
|
(1) Disclosed as F&D capital
expenditures elsewhere in this press release. See “Advisories –
F&D Capital Expenditures”.
Effective Sales – Total Corporate, Total
Natural Gas, AECO Market and NYMEX HH Market
Birchcliff defines “effective sales” in the AECO
market and NYMEX HH market as the sales amount received from the
production of natural gas that is effectively attributed to the
AECO and NYMEX HH market pricing, respectively, and does not
consider the physical sales delivery point in each case. Effective
sales in the NYMEX HH market includes realized gains and losses on
financial instruments and excludes the notional fixed basis costs
associated with the underlying financial contract in the period.
Birchcliff defines “effective total natural gas sales” as the
aggregate of the effective sales amount received in each natural
gas market. Birchcliff defines “effective total corporate sales” as
the aggregate of the effective total natural gas sales and the
sales amount received from the production of light oil, condensate
and NGLs. Management believes that disclosing effective sales for
each natural gas market assists management and investors in
assessing Birchcliff’s natural gas diversification and commodity
price exposure to each market. The most directly comparable GAAP
financial measure for effective total natural gas sales and
effective total corporate sales is natural gas sales. The following
table provides a reconciliation of natural gas sales to effective
total natural gas sales and effective total corporate sales for the
periods indicated:
|
|
Three months ended March
31, |
|
($000s) |
2023 |
|
2022 |
|
|
Natural gas sales |
126,821 |
|
177,610 |
|
|
Realized loss on financial instruments |
(15,811 |
) |
(199 |
) |
|
Notional fixed basis costs(1) |
20,156 |
|
22,751 |
|
|
Effective total natural gas sales |
131,526 |
|
200,162 |
|
|
Light oil sales |
19,862 |
|
24,624 |
|
|
Condensate sales |
51,062 |
|
52,466 |
|
|
NGLs sales |
10,855 |
|
31,265 |
|
|
Effective total corporate sales |
213,305 |
|
308,517 |
|
(1) Reflects the aggregate
notional fixed basis cost associated with Birchcliff’s financial
and physical NYMEX HH/AECO 7A basis swaps in the period.
Non-GAAP Ratios
NI 52-112 defines a non-GAAP ratio as a
financial measure that: (i) is in the form of a ratio, fraction,
percentage or similar representation; (ii) has a non-GAAP financial
measure as one or more of its components; and (iii) is not
disclosed in the financial statements of the entity. The non-GAAP
ratios used in this press release are not standardized financial
measures under GAAP and might not be comparable to similar measures
presented by other companies. Set forth below is a description of
the non-GAAP ratios used in this press release.
Adjusted Funds Flow Per Boe and Adjusted
Funds Flow Per Basic Common Share
Birchcliff calculates “adjusted funds flow per
boe” as aggregate adjusted funds flow in the period divided by the
production (boe) in the period. Management believes that adjusted
funds flow per boe assists management and investors in assessing
Birchcliff’s financial profitability and sustainability on a cash
basis by isolating the impact of production volumes to better
analyze its performance against prior periods on a comparable
basis.
Birchcliff calculates “adjusted funds flow per
basic common share” as aggregate adjusted funds flow in the period
divided by the weighted average basic common shares outstanding at
the end of the period. Management believes that adjusted funds flow
per basic common share assists management and investors in
assessing Birchcliff’s financial strength on a per common share
basis.
Free Funds Flow Per Basic Common
Share
Birchcliff calculates “free funds flow per basic
common share” as aggregate free funds flow in the period divided by
the weighted average basic common shares outstanding at the end of
the period. Management believes that free funds flow per basic
common share assists management and investors in assessing
Birchcliff’s financial strength and its ability to deliver
shareholder returns on a per common share basis.
Transportation and Other Expense Per
Boe
Birchcliff calculates “transportation and other
expense per boe” as aggregate transportation and other expense in
the period divided by the production (boe) in the period.
Management believes that transportation and other expense per boe
assists management and investors in assessing Birchcliff’s cost
structure as it relates to its transportation and marketing
activities by isolating the impact of production volumes to better
analyze its performance against prior periods on a comparable
basis.
Operating Netback Per Boe
Birchcliff calculates “operating netback per
boe” as aggregate operating netback in the period divided by the
production (boe) in the period. Management believes that operating
netback per boe assists management and investors in assessing
Birchcliff’s operating profitability and sustainability by
isolating the impact of production volumes to better analyze its
performance against prior periods on a comparable basis.
Effective Average Realized Sales Price –
Total Corporate, Total Natural Gas, AECO Market and NYMEX HH
Market
Birchcliff calculates “effective average
realized sales price” as effective sales, in each of total
corporate, total natural gas, AECO market and NYMEX HH market, as
the case may be, divided by the effective production in each of the
markets during the period. Management believes that disclosing
effective average realized sales price for each natural gas market
assists management and investors in comparing Birchcliff’s
commodity price realizations in each natural gas market on a per
unit basis.
Supplementary Financial
Measures
NI 52-112 defines a supplementary financial
measure as a financial measure that: (i) is, or is intended to be,
disclosed on a periodic basis to depict the historical or expected
future financial performance, financial position or cash flow of an
entity; (ii) is not disclosed in the financial statements of the
entity; (iii) is not a non-GAAP financial measure; and (iv) is not
a non-GAAP ratio. The supplementary financial measures used in this
press release are either a per unit disclosure of a corresponding
GAAP financial measure, or a component of a corresponding GAAP
financial measure, presented in the financial statements.
Supplementary financial measures that are disclosed on a per unit
basis are calculated by dividing the aggregate GAAP financial
measure (or component thereof) by the applicable unit for the
period. Supplementary financial measures that are disclosed on a
component basis of a corresponding GAAP financial measure are a
granular representation of a financial statement line item and are
determined in accordance with GAAP.
The supplementary financial measures used in
this press release include: average realized commodity sales price
per bbl, Mcf and boe, as the case may be; petroleum and natural gas
revenue per boe; royalty expense per boe; operating expense per
boe; G&A expense, net per boe; interest expense per boe;
realized gain (loss) on financial instruments per boe; other cash
income per boe; depletion and depreciation expense per boe;
unrealized gain (loss) on financial instruments per boe; other
expense per boe; dividends on preferred shares per boe; natural gas
transportation costs per Mcf; and natural gas sales netback per
Mcf.
Capital Management Measures
NI 52-112 defines a capital management measure
as a financial measure that: (i) is intended to enable an
individual to evaluate an entity’s objectives, policies and
processes for managing the entity’s capital; (ii) is not a
component of a line item disclosed in the primary financial
statements of the entity; (iii) is disclosed in the notes to the
financial statements of the entity; and (iv) is not disclosed in
the primary financial statements of the entity. Set forth below is
a description of the capital management measure used in this press
release.
Total Debt
Birchcliff calculates “total debt” as the amount
outstanding under the Corporation’s Credit Facilities (if any) plus
working capital deficit (less working capital surplus) plus the
fair value of the current asset portion of financial instruments
less the fair value of the current liability portion of financial
instruments, less the current liability portion of other
liabilities and less capital securities (if any) at the end of the
period. Management believes that total debt assists management and
investors in assessing Birchcliff’s overall liquidity and financial
position at the end of the period. The following table provides a
reconciliation of the amount outstanding under the Credit
Facilities, as determined in accordance with GAAP, to total debt
for the periods indicated:
|
As at, ($000s) |
March 31, 2023 |
December 31, 2022 |
March 31, 2022 |
|
Revolving term credit facilities |
191,426 |
|
131,981 |
|
397,752 |
|
|
Working capital deficit (surplus)(1) |
49,365 |
|
(7,902 |
) |
46,213 |
|
|
Fair value of financial instruments – asset(2) |
7,585 |
|
17,729 |
|
4,684 |
|
|
Fair value of financial instruments – liability(2) |
(27,942 |
) |
(1,345 |
) |
(1,435 |
) |
|
Other liabilities(2) |
(2,507 |
) |
(1,914 |
) |
- |
|
|
Capital securities |
- |
|
- |
|
(38,216 |
) |
|
Total debt(3) |
217,927 |
|
138,549 |
|
408,998 |
|
(1) Current liabilities less
current assets.(2) Reflects the current portion
only.(3) Total debt can also be derived from the
amounts outstanding under the Corporation’s Credit Facilities plus
accounts payable and accrued liabilities and less cash, accounts
receivable and prepaid expenses and deposits at the end of the
period.
ADVISORIES
Unaudited Information
All financial and operational information
contained in this press release for the three months ended March
31, 2023 and 2022 is unaudited.
Currency
Unless otherwise indicated, all dollar amounts
are expressed in Canadian dollars and all references to “$” and
“CDN$” are to Canadian dollars and all references to “US$” are to
United States dollars.
Boe Conversions
Boe amounts have been calculated by using the
conversion ratio of 6 Mcf of natural gas to 1 bbl of oil. Boe
amounts may be misleading, particularly if used in isolation. A boe
conversion ratio of 6 Mcf: 1 bbl is based on an energy equivalency
conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead. Given that the
value ratio based on the current price of crude oil as compared to
natural gas is significantly different from the energy equivalency
of 6:1, utilizing a conversion on a 6:1 basis may be misleading as
an indication of value.
MMBtu Pricing Conversions
$1.00 per MMBtu equals $1.00 per Mcf based on a
standard heat value Mcf.
Oil and Gas Metrics
This press release contains metrics commonly
used in the oil and natural gas industry, including netbacks. These
oil and gas metrics do not have any standardized meanings or
standard methods of calculation and therefore may not be comparable
to similar measures presented by other companies. As such, they
should not be used to make comparisons. Management uses these oil
and gas metrics for its own performance measurements and to provide
investors with measures to compare Birchcliff’s performance over
time; however, such measures are not reliable indicators of
Birchcliff’s future performance, which may not compare to
Birchcliff’s performance in previous periods, and therefore should
not be unduly relied upon. For additional information regarding
netbacks and how such metric is calculated, see “Non-GAAP and Other
Financial Measures”.
Production
With respect to the disclosure of Birchcliff’s
production contained in this press release: (i) references to
“light oil” mean “light crude oil and medium crude oil” as such
term is defined in National Instrument 51-101 – Standards of
Disclosure for Oil and Gas Activities (“NI
51-101”); (ii) references to “liquids” mean “light crude
oil and medium crude oil” and “natural gas liquids” (including
condensate) as such terms are defined in NI 51-101; and (iii)
references to “natural gas” mean “shale gas”, which also includes
an immaterial amount of “conventional natural gas”, as such terms
are defined in NI 51-101. In addition, NI 51-101 includes
condensate within the product type of natural gas liquids.
Birchcliff has disclosed condensate separately from other natural
gas liquids as the price of condensate as compared to other natural
gas liquids is currently significantly higher and Birchcliff
believes presenting the two commodities separately provides a more
accurate description of its operations and results therefrom.
Initial Production Rates
Any references in this press release to initial
production rates or other short-term production rates are useful in
confirming the presence of hydrocarbons; however, such rates are
not determinative of the rates at which such wells will continue to
produce and decline thereafter and are not indicative of the
long-term performance or the ultimate recovery of such wells. In
addition, such rates may also include recovered “load oil” or “load
water” fluids used in well completion stimulation. Readers are
cautioned not to place undue reliance on such rates in calculating
the aggregate production for Birchcliff. Such rates are based on
field estimates and may be based on limited data available at this
time.
With respect to the production rates for the
Corporation’s 6-well 14-06 pad disclosed herein, such rates
represent the cumulative volumes for each well measured at the
wellhead separator for the 30 and 60 days (as applicable) of
production immediately after each well was considered stabilized
after producing fracture treatment fluid back to surface in an
amount such that flow rates of hydrocarbons became reliable,
divided by 30 or 60 (as applicable), which were then added together
to determine the aggregate production rates for the 6-well pad and
then divided by 6 to determine the per well average production
rates. The production rates excluded the hours and days when the
wells did not produce. To-date, no pressure transient or well-test
interpretation has been carried out on any of the wells. The
natural gas volumes represent raw natural gas volumes as opposed to
sales gas volumes.
F&D Capital
Expenditures
Unless otherwise stated, references in this
press release to “F&D capital expenditures” denotes exploration
and development expenditures as disclosed in the Corporation’s
financial statements in accordance with GAAP, and is primarily
comprised of capital for land, seismic, workovers, drilling and
completions, well equipment and facilities and capitalized G&A
costs and excludes any net acquisitions and dispositions,
administrative assets and the capitalized portion of cash incentive
payments that have not been approved by the Board. Management
believes that F&D capital expenditures assists management and
investors in assessing Birchcliff’s capital cost outlay associated
with its exploration and development activities for the purposes of
finding and developing its reserves.
Forward-Looking Statements
Certain statements contained in this press
release constitute forward‐looking statements and forward-looking
information (collectively referred to as “forward‐looking
statements”) within the meaning of applicable Canadian
securities laws. The forward-looking statements contained in this
press release relate to future events or Birchcliff’s future plans,
strategy, operations, performance or financial position and are
based on Birchcliff’s current expectations, estimates, projections,
beliefs and assumptions. Such forward-looking statements have been
made by Birchcliff in light of the information available to it at
the time the statements were made and reflect its experience and
perception of historical trends. All statements and information
other than historical fact may be forward‐looking statements. Such
forward‐looking statements are often, but not always, identified by
the use of words such as “seek”, “plan”, “focus”, “future”,
“outlook”, “position”, “expect”, “project”, “intend”, “believe”,
“anticipate”, “estimate”, “forecast”, “guidance”, “potential”,
“proposed”, “predict”, “budget”, “continue”, “targeting”, “may”,
“will”, “could”, “might”, “should”, “would”, “on track”,
“maintain”, “deliver” and other similar words and expressions.
By their nature, forward-looking statements
involve known and unknown risks, uncertainties and other factors
that may cause actual results or events to differ materially from
those anticipated in such forward‐looking statements. Accordingly,
readers are cautioned not to place undue reliance on such
forward-looking statements. Although Birchcliff 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 and Birchcliff makes no representation that
actual results achieved will be the same in whole or in part as
those set out in the forward-looking statements.
In particular, this press release contains
forward‐looking statements relating to:
-
Birchcliff’s plans and other aspects of its anticipated future
financial performance, results, operations, focus, objectives,
strategies, opportunities, priorities and goals, including its
commitment to delivering significant shareholder returns;
-
Birchcliff’s plans for the Elmworth area, including: that the
Corporation’s significant land base positions Birchcliff to
continue to drive long-term shareholder value, providing it with a
large potential future development area that can supply clean
natural gas for many years to come; that Birchcliff expects minimal
yearly capital commitments over the next several years to maintain
its land position in the area; that this significant, largely
undeveloped land base in Elmworth positions the Corporation to
continue to drive long-term shareholder value by enhancing its
ability for future production growth; that the Elmworth asset
provides Birchcliff with a large potential future development area
which can be responsibly developed over time, leveraging the
extensive knowledge that Birchcliff has gained in developing its
Pouce Coupe and Gordondale assets; that the Corporation’s lands in
Elmworth are located in an area that is well suited to supply clean
natural gas to future LNG export facilities in Canada; that this
significant land position in Elmworth also builds upon Birchcliff’s
existing extensive inventory of potential future drilling locations
in Pouce Coupe and Gordondale; that to preserve its optionality for
future growth in Elmworth, Birchcliff has licenced and is planning
to drill 2 (2.0 net) Montney horizontal wells in Elmworth in late
Q2 2023, which will continue a number of sections of Montney lands
in the area that are set to expire in 2023; that Birchcliff expects
that the drilling of these wells will be accomplished within the
Corporation’s F&D capital expenditures guidance range of $270
million to $280 million; that these wells will not be completed or
brought on production in 2023; that by drilling these wells to the
planned measured depth, Birchcliff will validate multiple initial
term licenses and continue 64 sections of land into their five-year
intermediate term; that Birchcliff anticipates that these wells
will be completed as it commences the development of its Elmworth
area in the future; and that the Montney/Doig Resource Play in
Elmworth continues to garner attention and capital investment,
which solidifies the value of Birchcliff’s contiguous land position
in the area;
-
statements with respect to dividends, including that the annual
base dividend of $0.80 per common share for 2023 is expected to be
declared and paid quarterly at the rate of $0.20 per common share,
at the discretion of the Board;
-
the information set forth under the heading “Outlook and Guidance”
as it relates to Birchcliff’s outlook and guidance, including: that
as a result of the ongoing impact of the force majeure event on the
Pembina Pipeline System, Birchcliff currently expects that it will
be on the low end of its annual average production guidance range
of 77,000 to 80,000 boe/d; that the outage on the Pembina Pipeline
System will be resolved in the near-term; that as a result of lower
anticipated adjusted funds flow in 2023, Birchcliff now expects to
fund its capital program and dividend payments in 2023 through a
combination of adjusted funds flow and the Corporation’s Credit
Facilities, which is anticipated to result in higher total debt at
year-end 2023 than previously forecast; that the significant
unutilized credit capacity under its Credit Facilities provides the
Corporation with substantial financial flexibility and additional
capital resources; forecasts of annual average production,
production commodity mix, average expenses, adjusted funds flow,
F&D capital expenditures, free funds flow, annual base common
share dividend, excess free funds flow, total debt at year end and
natural gas market exposure in 2023; the expected impact of changes
in commodity prices and the CDN/US exchange rate on Birchcliff’s
forecast of free funds flow in 2023; that the forecast of total
debt at December 31, 2023 is expected to be comprised of any
amounts outstanding under the Credit Facilities plus accounts
payable and accrued liabilities and less cash, accounts receivable
and prepaid expenses and deposits at the end of the year; that the
Corporation currently expects that it will keep its production in
2024 relatively flat year-over-year; that 2024 annual average
production is currently forecast to be 78,000 boe/d resulting from
forecast 2024 F&D capital expenditures of $255 million; that
assuming the payment of an annual base dividend of $0.80 per common
share and that realized commodity prices match the Corporation’s
commodity price assumptions, Birchcliff would achieve 2024 excess
free funds flow of $67 million and total debt at year end 2024 of
$230 million; that Birchcliff currently anticipates that excess
free funds flow generated in 2024 will be primarily used to reduce
indebtedness and that it will be in a position to fund its common
share dividend payments and reduce its total debt in 2024 from
year-end 2023; that over the longer-term, Birchcliff remains
committed to generating substantial free funds flow and delivering
significant returns to shareholders, while achieving disciplined
production growth to fully utilize the Corporation’s existing
processing and transportation capacity; that Birchcliff’s five-year
outlook still provides for potential cumulative free funds flow of
approximately $1.3 billion by the end of the five-year period; and
that annual average production in 2027 is still forecast to be
87,000 boe/d, subject to commodity prices;
-
statements under the heading “Operational Update” and elsewhere in
this press release regarding Birchcliff’s 2023 capital program and
its exploration, production and development activities and the
timing thereof, including: estimates of F&D capital
expenditures; the anticipated number, types and timing of wells to
be drilled and brought on production; that Birchcliff anticipates
providing further details regarding the results of its 15-27 and
04-23 pads with the release of its Q2 2023 results; that the wells
from the 04-16 pad are expected to be brought on production in Q2
2023, with production flowing through Birchcliff’s 100% owned and
operated natural gas processing plant in Pouce Coupe; that
subsequent to the drilling of the 2 wells in Elmworth, the drilling
rig is expected to return to the Pouce/Gordondale area where the
Corporation plans to drill and complete the remaining wells that
are part of the Corporation’s 2023 capital program, consisting of 7
wells in the Pouce Coupe area (09-04 pad) and 2 wells in the
Gordondale area (02-27 pad); and that these 9 wells are expected to
be brought on production in Q4 2023, when commodity prices are
forecast to be higher;
-
the performance and other characteristics of Birchcliff’s oil and
natural gas properties and expected results from its assets
(including statements regarding the potential or prospectivity of
Birchcliff’s properties); and
-
that Birchcliff anticipates the forward-looking non-GAAP financial
measures for adjusted funds flow, free funds flow and excess free
funds flow disclosed herein to be lower than their respective
historical amounts primarily due to lower anticipated benchmark oil
and natural gas prices which are expected to decrease the average
realized sales prices the Corporation receives for its production;
and that the forward-looking non-GAAP financial measure for excess
free funds flow disclosed herein is expected to be lower as a
result of a higher targeted annual base common share dividend
payment forecast during 2023 and 2024.
With respect to the forward‐looking statements
contained in this press release, assumptions have been made
regarding, among other things: prevailing and future commodity
prices and differentials, exchange rates, interest rates, inflation
rates, royalty rates and tax rates; the state of the economy,
financial markets and the exploration, development and production
business; the political environment in which Birchcliff operates;
the regulatory framework regarding royalties, taxes, environmental,
climate change and other laws; the Corporation’s ability to comply
with existing and future laws; future cash flow, debt and dividend
levels; future operating, transportation, G&A and other
expenses; Birchcliff’s ability to access capital and obtain
financing on acceptable terms; the timing and amount of capital
expenditures and the sources of funding for capital expenditures
and other activities; the sufficiency of budgeted capital
expenditures to carry out planned operations; the successful and
timely implementation of capital projects and the timing, location
and extent of future drilling and other operations; results of
operations; Birchcliff’s ability to continue to develop its assets
and obtain the anticipated benefits therefrom; the performance of
existing and future wells; reserves volumes and Birchcliff’s
ability to replace and expand reserves through acquisition,
development or exploration; the impact of competition on
Birchcliff; the availability of, demand for and cost of labour,
services and materials; the approval of the Board of future
dividends; the ability to obtain any necessary regulatory or other
approvals in a timely manner; the satisfaction by third parties of
their obligations to Birchcliff; the ability of Birchcliff to
secure adequate processing and transportation for its products;
Birchcliff’s ability to successfully market natural gas and
liquids; the results of the Corporation’s risk management and
market diversification activities; and Birchcliff’s natural gas
market exposure. In addition to the foregoing assumptions,
Birchcliff has made the following assumptions with respect to
certain forward-looking statements contained in this press
release:
-
With respect to Birchcliff’s 2023 guidance (as updated on May 10,
2023), such guidance is based on the commodity price, exchange rate
and other assumptions set forth under the heading “Outlook and
Guidance – Updated 2023 Guidance”. In addition:
-
Birchcliff’s production guidance assumes that: the 2023 capital
program will be carried out as currently contemplated; that the
outage on the Pembina Pipeline System is resolved in May 2023, with
no further significant outages or restrictions occurring on such
system for the remainder of 2023; no other unexpected outages occur
in the infrastructure that Birchcliff relies on to produce its
wells and that any other transportation service curtailments or
unplanned outages that occur will be short in duration or otherwise
insignificant; the construction of new infrastructure meets timing
and operational expectations; existing wells continue to meet
production expectations; and future wells scheduled to come on
production meet timing, production and capital expenditure
expectations.
-
Birchcliff’s forecast of F&D capital expenditures assumes that
the 2023 capital program will be carried out as currently
contemplated and excludes any net potential acquisitions and
dispositions and the capitalized portion of cash incentive payments
that have not been approved by the Board. The amount and allocation
of capital expenditures for exploration and development activities
by area and the number and types of wells to be drilled and brought
on production is dependent upon results achieved and is subject to
review and modification by management on an ongoing basis
throughout the year. Actual spending may vary due to a variety of
factors, including commodity prices, economic conditions, results
of operations and costs of labour, services and materials.
-
Birchcliff’s forecasts of adjusted funds flow and free funds flow
assume that: the 2023 capital program will be carried out as
currently contemplated and the level of capital spending for 2023
set forth herein is met; and the forecasts of production,
production commodity mix, expenses and natural gas market exposure
and the commodity price and exchange rate assumptions set forth
herein are met. Birchcliff’s forecast of adjusted funds flow takes
into account its physical and financial basis swap contracts
outstanding as at May 1, 2023 and excludes cash incentive payments
that have not been approved by the Board.
-
Birchcliff’s forecast of excess free funds flow assumes that: the
forecasts of adjusted funds flow and free funds flow are achieved;
and an annual base dividend of $0.80 per common share is paid
during 2023 and there are 266 million common shares outstanding,
with no changes to the base dividend rate and no special dividends
paid.
-
Birchcliff’s forecast of year end total debt assumes that: (i) the
forecasts of adjusted funds flow, free funds flow and excess free
funds flow are achieved, with the level of capital spending for
2023 met and the payment of an annual base dividend of $213
million; (ii) any free funds flow remaining after the payment of
dividends, asset retirement obligations and other amounts for
administrative assets, financing fees and capital lease obligations
is allocated towards debt reduction; (iii) there are no further
buybacks of common shares during 2023; (iv) there are no
significant acquisitions or dispositions completed by the
Corporation during 2023; (v) there are no equity issuances during
2023; and (vi) there are no further proceeds received from the
exercise of stock options or performance warrants during 2023. The
forecast of total debt excludes cash incentive payments that have
not been approved by the Board.
-
Birchcliff’s forecast of its natural gas market exposure assumes:
(i) 175,000 GJ/d being sold on a physical basis at the Dawn price;
(ii) 152,500 MMBtu/d being contracted on a financial and physical
basis at an average fixed basis differential price between AECO 7A
and NYMEX HH of approximately US$1.23/MMBtu; and (iii) 22,000 GJ/d
being sold at Alliance on a physical basis at the AECO 5A price
plus a premium. Birchcliff’s natural gas market exposure takes into
account its physical and financial basis swap contracts outstanding
as at May 1, 2023.
-
With respect to Birchcliff’s five-year outlook (as updated on May
10, 2023), such outlook is based on the following commodity price
and exchange rate assumptions: an average WTI price of US$78.00/bbl
in 2023 and US$75.00/bbl in 2024 to 2027; an average AECO price of
CDN$2.45/GJ in 2023, CDN$3.15/GJ in 2024 and CDN$4.20/GJ in 2025 to
2027; an average Dawn price of US$2.50/MMBtu in 2023, US$3.45/MMBtu
in 2024 and US$4.20/MMBtu in 2025 to 2027; an average NYMEX HH
price of US$2.85/MMBtu in 2023, US$3.60/MMBtu in 2024 and
US$4.30/MMBtu in 2025 to 2027; and an average exchange rate (CDN$
to US$1) of 1.35 in 2023 and 2024 and 1.34 in 2025 to 2027. In
addition:
-
Birchcliff’s production forecasts assume that: the Corporation’s
capital programs will be carried out as currently contemplated; no
unexpected outages occur in the infrastructure that Birchcliff
relies on to produce its wells and that any transportation service
curtailments or unplanned outages that occur will be short in
duration or otherwise insignificant; the construction of new
infrastructure meets timing and operational expectations; existing
wells continue to meet production expectations; and future wells
scheduled to come on production meet timing, production and capital
expenditure expectations.
-
Birchcliff’s forecasts of F&D capital expenditures assume that
the Corporation’s capital programs will be carried out as currently
contemplated and exclude any net potential acquisitions and
dispositions and the capitalized portion of cash incentive payments
that have not been approved by the Board. The five-year outlook
also assumes that all wells will be brought on production over the
five-year period as currently forecast, which forecast is subject
to similar assumptions regarding wells drilled and brought on
production as set forth herein. The amount and allocation of
capital expenditures for exploration and development activities by
area and the number and types of wells to be drilled and brought on
production is dependent upon results achieved and is subject to
review and modification by management on an ongoing basis
throughout the year. Actual spending may vary due to a variety of
factors, including commodity prices, economic conditions, results
of operations and costs of labour, services and materials.
-
Birchcliff’s forecast of excess free funds flow for 2024 assumes:
free funds flow of $280 million in 2024; and that an annual base
dividend of $0.80 per common share is paid during 2024 and there
are 266 million common shares outstanding, with no changes to the
base dividend rate and no special dividends paid. Birchcliff’s
forecast of free funds flow assumes that: the Corporation’s capital
programs will be carried out as currently contemplated and the
level of capital spending for each year is met; and the
Corporation’s forecasts of production, production commodity mix,
expenses and natural gas market exposure and its commodity price
and exchange rate assumptions are met.
-
Birchcliff’s forecast of year end 2024 total debt is expected to be
comprised of any amounts outstanding under the Credit Facilities
plus accounts payable and accrued liabilities and less cash,
accounts receivable, prepaid expenses and deposits at the end of
the year, and assumes that: (i) the forecasts of adjusted funds
flow, free funds flow and excess free funds flow are achieved in
2023 and 2024 using the mid-point of Birchcliff’s 2023 free funds
flow guidance, with the level of capital spending for 2023 and 2024
met and the payment of an annual base dividend of $213 million in
2023 and 2024; (ii) any free funds flow remaining after the payment
of dividends, asset retirement obligations and other amounts for
administrative assets, financing fees and capital lease obligations
is allocated towards debt reduction; (iii) there are no further
buybacks of common shares during 2023 or 2024; (iv) there are no
significant acquisitions or dispositions completed by the
Corporation during 2023 or 2024; (v) there are no equity issuances
during 2023 or 2024; and (vi) there are no further proceeds
received from the exercise of stock options or performance warrants
during 2023 or 2024. The forecast of total debt excludes cash
incentive payments that have not been approved by the Board. The
statement that Birchcliff currently anticipates that it will be in
a position to fund its common share dividend payments and reduce
its total debt in 2024 is based on similar assumptions.
-
Birchcliff’s forecast of cumulative free funds flow assumes that:
the Corporation’s capital programs will be carried out as currently
contemplated and the level of capital spending for each year is
met; and the Corporation’s forecasts of production, production
commodity mix, expenses and natural gas market exposure and its
commodity price and exchange rate assumptions are met. Birchcliff’s
forecasts of adjusted funds flow take into account its physical and
financial basis swap contracts outstanding as at May 1, 2023 and
exclude cash incentive payments that have not been approved by the
Board. The Corporation has used the mid-point of its 2023 guidance
for free funds flow and total debt at year end in determining the
cumulative free funds flow at year end for 2024 to 2027.
-
With respect to statements of future wells to be drilled and
brought on production, such statements assume: the continuing
validity of the geological and other technical interpretations
performed by Birchcliff’s technical staff, which indicate that
commercially economic volumes can be recovered from Birchcliff’s
lands as a result of drilling future wells; and that commodity
prices and general economic conditions will warrant proceeding with
the drilling of such wells.
Birchcliff’s actual results, performance or
achievements could differ materially from those anticipated in the
forward-looking statements as a result of both known and unknown
risks and uncertainties including, but not limited to: the risks
posed by pandemics (including COVID-19), epidemics and global
conflict (including the Russian invasion of Ukraine) and their
impacts on supply and demand and commodity prices; actions taken by
OPEC and other major producers of crude oil and the impact such
actions may have on supply and demand and commodity prices; the
uncertainty of estimates and projections relating to production,
revenue, costs, expenses and reserves; the risk that any of the
Corporation’s material assumptions prove to be materially
inaccurate (including the Corporation’s commodity price and
exchange rate assumptions for 2023 to 2027); general economic,
market and business conditions which will, among other things,
impact the demand for and market prices of Birchcliff’s products
and Birchcliff’s access to capital; volatility of crude oil and
natural gas prices; risks associated with increasing costs, whether
due to high inflation rates, supply chain disruptions or other
factors; fluctuations in exchange and interest rates; stock market
volatility; loss of market demand; an inability to access
sufficient capital from internal and external sources on terms
acceptable to the Corporation; risks associated with Birchcliff’s
Credit Facilities, including a failure to comply with covenants
under the agreement governing the Credit Facilities and the risk
that the borrowing base limit may be redetermined; fluctuations in
the costs of borrowing; operational risks and liabilities inherent
in oil and natural gas operations; the occurrence of unexpected
events such as fires, severe weather, explosions, blow-outs,
equipment failures, transportation incidents and other similar
events; an inability to access sufficient water or other fluids
needed for operations; uncertainty that development activities in
connection with Birchcliff’s assets will be economic; an inability
to access or implement some or all of the technology necessary to
operate its assets and achieve expected future results; the
accuracy of estimates of reserves, future net revenue and
production levels; geological, technical, drilling, construction
and processing problems; uncertainty of geological and technical
data; horizontal drilling and completions techniques and the
failure of drilling results to meet expectations for reserves or
production; uncertainties related to Birchcliff’s future potential
drilling locations; delays or changes in plans with respect to
exploration or development projects or capital expenditures; the
accuracy of cost estimates and variances in Birchcliff’s actual
costs and economic returns from those anticipated; incorrect
assessments of the value of acquisitions and exploration and
development programs; changes to the regulatory framework in the
locations where the Corporation operates, including changes to tax
laws, Crown royalty rates, environmental laws, climate change laws,
carbon tax regimes, incentive programs and other regulations that
affect the oil and natural gas industry; political uncertainty and
uncertainty associated with government policy changes; actions by
government authorities; an inability of the Corporation to comply
with existing and future laws and the cost of compliance with such
laws; dependence on facilities, gathering lines and pipelines;
uncertainties and risks associated with pipeline restrictions and
outages to third-party infrastructure that could cause disruptions
to production; the lack of available pipeline capacity and an
inability to secure adequate and cost-effective processing and
transportation for Birchcliff’s products; an inability to satisfy
obligations under Birchcliff’s firm marketing and transportation
arrangements; shortages in equipment and skilled personnel; the
absence or loss of key employees; competition for, among other
things, capital, acquisitions of reserves, undeveloped lands,
equipment and skilled personnel; management of Birchcliff’s growth;
environmental and climate change risks, claims and liabilities;
potential litigation; default under or breach of agreements by
counterparties and potential enforceability issues in contracts;
claims by Indigenous peoples; the reassessment by taxing or
regulatory authorities of the Corporation’s prior transactions and
filings; unforeseen title defects; third-party claims regarding the
Corporation’s right to use technology and equipment; uncertainties
associated with the outcome of litigation or other proceedings
involving Birchcliff; uncertainties associated with counterparty
credit risk; risks associated with Birchcliff’s risk management and
market diversification activities; risks associated with the
declaration and payment of future dividends, including the
discretion of the Board to declare dividends and change the
Corporation’s dividend policy and the risk that the amount of
dividends may be less than currently forecast; the failure to
obtain any required approvals in a timely manner or at all; the
failure to complete or realize the anticipated benefits of
acquisitions and dispositions and the risk of unforeseen
difficulties in integrating acquired assets into Birchcliff’s
operations; negative public perception of the oil and natural gas
industry and fossil fuels; the Corporation’s reliance on hydraulic
fracturing; market competition, including from alternative energy
sources; changing demand for petroleum products; the availability
of insurance and the risk that certain losses may not be insured;
breaches or failure of information systems and security (including
risks associated with cyber-attacks); risks associated with the
ownership of the Corporation’s securities; and the accuracy of the
Corporation’s accounting estimates and judgments.
The declaration and payment of any future
dividends are subject to the discretion of the Board and may not be
approved or may vary depending on a variety of factors and
conditions existing from time to time, including commodity prices,
free funds flow, current and forecast commodity prices,
fluctuations in working capital, financial requirements of
Birchcliff, applicable laws (including solvency tests under the
Business Corporations Act (Alberta) for the declaration and payment
of dividends) and other factors beyond Birchcliff’s control. The
payment of dividends to shareholders is not assured or guaranteed
and dividends may be reduced or suspended entirely. In addition to
the foregoing, the Corporation’s ability to pay dividends now or in
the future may be limited by covenants contained in the agreements
governing any indebtedness that the Corporation has incurred or may
incur in the future, including the terms of the Credit Facilities.
The agreement governing the Credit Facilities provides that
Birchcliff is not permitted to make any distribution (which
includes dividends) at any time when an event of default exists or
would reasonably be expected to exist upon making such
distribution, unless such event of default arose subsequent to the
ordinary course declaration of the applicable distribution.
Readers are cautioned that the foregoing lists
of factors are not exhaustive. Additional information on these and
other risk factors that could affect results of operations,
financial performance or financial results are included in
Birchcliff’s most recent annual information form under the heading
“Risk Factors” and in other reports filed with Canadian securities
regulatory authorities.
This press release contains information that may
constitute future-orientated financial information or financial
outlook information (collectively, “FOFI”) about
Birchcliff’s prospective financial performance, financial position
or cash flows, all of which is subject to the same assumptions,
risk factors, limitations and qualifications as set forth above.
Readers are cautioned that the assumptions used in the preparation
of such information, although considered reasonable at the time of
preparation, may prove to be imprecise or inaccurate and, as such,
undue reliance should not be placed on FOFI. Birchcliff’s actual
results, performance and achievements could differ materially from
those expressed in, or implied by, FOFI. Birchcliff has included
FOFI in order to provide readers with a more complete perspective
on Birchcliff’s future operations and management’s current
expectations relating to Birchcliff’s future performance. Readers
are cautioned that such information may not be appropriate for
other purposes. FOFI contained herein was made as of the date of
this press release. Unless required by applicable laws, Birchcliff
does not undertake any obligation to publicly update or revise any
FOFI statements, whether as a result of new information, future
events or otherwise.
Management has included the above summary of
assumptions and risks related to forward-looking statements
provided in this press release in order to provide readers with a
more complete perspective on Birchcliff’s future operations and
management’s current expectations relating to Birchcliff’s future
performance. Readers are cautioned that this information may not be
appropriate for other purposes.
The forward-looking statements contained in this
press release are expressly qualified by the foregoing cautionary
statements. The forward-looking statements contained herein are
made as of the date of this press release. Unless required by
applicable laws, Birchcliff does not undertake any obligation to
publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
ABOUT BIRCHCLIFF:
Birchcliff is a Calgary, Alberta based
intermediate oil and natural gas company with operations focused on
the Montney/Doig Resource Play in Alberta. Birchcliff’s common
shares are listed for trading on the Toronto Stock Exchange under
the symbol “BIR”.
| For further
information, please contact: |
|
Birchcliff Energy Ltd.Suite 1000, 600 – 3rd Avenue
S.W. Calgary, Alberta T2P 0G5Telephone: (403) 261-6401Email:
info@birchcliffenergy.comwww.birchcliffenergy.com |
|
Jeff Tonken –
Chief Executive OfficerChris Carlsen – President
and Chief Operating OfficerBruno Geremia –
Executive Vice President and Chief Financial Officer |
__________________________________________
A figure accompanying this announcement is available at
https://www.globenewswire.com/NewsRoom/AttachmentNg/39ded96d-9988-420e-a096-7dd0ff696e2c
Birchcliff Energy (TSX:BIR)
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