Birchcliff Energy Ltd. (“
Birchcliff” or the
“
Corporation”) (TSX: BIR) is pleased to announce
its unaudited 2022 full-year and fourth quarter financial and
operational results and highlights from its independent reserves
evaluation effective December 31, 2022.
“2022 was a record year for all of Birchcliff’s
cash flow metrics. We generated record annual adjusted funds
flow(1) of $953.7 million, record annual free funds flow(1) of
$589.1 million and record annual net income to common shareholders
of $653.7 million, with annual average production of 76,925 boe/d.
As a result of the significant free funds flow that we have
generated over the past two years, we have retired an aggregate of
$768.1 million of total debt(2) and preferred shares since June 30,
2020. In addition, we returned an aggregate of $128.9 million to
shareholders in 2022 through our base common share dividend, a
special dividend of $0.20 per common share and common share
repurchases,” commented Jeff Tonken, Chief Executive Officer of
Birchcliff.
“Birchcliff was able to replace 127% of its
annual production with new proved developed producing
(“PDP”) reserves at year-end 2022, with PDP
F&D costs(3) of $10.24/boe, which has resulted in Birchcliff’s
PDP reserves having an adjusted funds flow recycle ratio(4) of
3.3x, highlighting the profitability of our business.”
“For 2023, we remain committed to generating
free funds flow, delivering shareholder returns through the payment
of our common share dividend and maintaining capital discipline. We
are closely monitoring commodity prices and have the flexibility to
adjust our 2023 capital program if necessary to achieve these
priorities. As set forth in our press release dated January 18,
2023, our board approved an increase to our annual base dividend to
$0.80 per common share for 2023 (approximately $213 million in
aggregate(5)), which will be declared and paid quarterly at the
rate of $0.20 per common share(6), beginning with the first payment
date of March 31, 2023 for those shareholders of record as of March
15, 2023. Our F&D capital program of $260 million to $280
million and base dividend of $0.80 per common share for 2023 remain
fully funded at an average WTI price of US$70.00/bbl, an average
AECO price of CDN$3.00/GJ, an average Dawn price of US$3.25/MMBtu
and an average NYMEX HH price of US$3.35/MMBtu(7)(8).”
2022 Full-Year Financial and Operational
Highlights
-
Achieved annual average production of 76,925 boe/d, a 2% decrease
from 2021. Liquids accounted for 19% of Birchcliff’s total
production in 2022 as compared to 21% in 2021.
-
Generated record annual adjusted funds flow of $953.7 million, or
$3.59 per basic common share(4), both of which increased by 77%
from 2021. Cash flow from operating activities was a record $925.3
million, an 80% increase from 2021.
-
Delivered record annual free funds flow of $589.1 million, or $2.22
per basic common share(4), a 90% and 91% increase, respectively,
from 2021.
-
Earned record annual net income to common shareholders of $653.7
million, or $2.46 per basic common share, a 111% and 110% increase,
respectively, from 2021.
-
Achieved an operating netback(4) of $32.85/boe and adjusted funds
flow per boe(4) of $33.97, a 53% and 80% increase, respectively,
from 2021.
-
Realized an operating expense(3) of $3.62/boe, a 13% increase from
2021.
-
Successfully executed the Corporation’s 2022 capital program,
bringing on production a total of 39 wells. F&D capital
expenditures were $364.6 million in 2022.
-
Retired approximately $449.0 million of total debt and preferred
shares in 2022, including reducing total debt by $360.8 million
(72%) from $499.4 million at December 31, 2021 and the redemption
of all of its issued and outstanding Series A and Series C
preferred shares for an aggregate redemption value of $88.2
million.
-
Returned $128.9 million to common shareholders in 2022 through
dividends and purchases under its normal course issuer bid (the
“NCIB”), including the purchase of 6,340,192
common shares under the NCIB at an average price of $9.01 per share
(before fees).
Q4 2022 Financial and Operational
Highlights
-
Achieved quarterly average production of 79,799 boe/d, a 1%
increase from Q4 2021. Liquids accounted for 19% of Birchcliff’s
total production in Q4 2022 as compared to 20% in Q4 2021.
-
Generated quarterly adjusted funds flow of $217.1 million, or $0.82
per basic common share, both of which increased by 12% from Q4
2021. Cash flow from operating activities was $224.4 million, a 14%
increase from Q4 2021.
-
Delivered quarterly free funds flow of $110.3 million, or $0.41 per
basic common share, a 30% and 32% decrease, respectively, from Q4
2021.
-
Earned quarterly net income to common shareholders of $69.5
million, or $0.26 per basic common share, both of which decreased
by 35% from Q4 2021.
-
Achieved an operating netback of $29.35/boe and adjusted funds flow
per boe of $29.57, a 7% and 11% increase, respectively, from Q4
2021.
-
Realized an operating expense of $4.06/boe, a 16% increase from Q4
2021.
-
F&D capital expenditures were $106.8 million in Q4 2022.
-
Returned $61.3 million to common shareholders in Q4 2022 through
dividends and purchases under the NCIB, including the payment of a
special dividend of $0.20 per common share for an aggregate of
approximately $53.2 million and the purchase of 300,000 common
shares under the NCIB at an average price of $9.30 per share
(before fees).
2022 Year-End Reserves
Highlights
-
PDP reserves at December 31, 2022 were 224.8 MMboe, an increase of
approximately 4% from 217.1 MMboe at December 31, 2021. After
taking into account 2022 actual production of 28.1 MMboe(9),
Birchcliff added 35.6 MMboe of PDP reserves in 2022, which reflects
a reserves replacement of 127%.
-
Birchcliff delivered PDP F&D costs of $10.24/boe and an
adjusted funds flow recycle ratio of 3.3x, which are attributed to
the high-quality nature of Birchcliff’s Montney/Doig assets,
notwithstanding $80.5 million in F&D capital expenditures that
were allocated to DCCET projects that had no production or PDP
reserves assigned at year-end 2022 and major facility turnarounds
and infrastructure enhancement projects where the benefits are
expected to be realized over several years.
-
The net present value of future net revenue at December 31, 2022
(before income taxes, discounted at 10%) was $3.3 billion for
Birchcliff’s PDP reserves, $6.5 billion for its proved reserves and
$8.2 billion for its proved plus probable reserves, a 31%, 30% and
28% increase, respectively, from December 31, 2021.
-
The net asset value per common share(10) of Birchcliff’s PDP and
proved reserves at December 31, 2022 (before income taxes,
discounted at 10%) was $11.32 and $22.43, respectively, which is
28% and 155% higher than the closing price of its common shares on
February 14, 2023 of $8.81 per share and demonstrates the
significant value opportunity presented by Birchcliff.
-
Birchcliff had a reserves life index at December 31, 2022 of 7.5
years on a PDP basis, 22.3 years on a proved basis and 32.9 years
on a proved plus probable basis, based on a forecast production
rate of 82,000 boe/d (which represents the mid-point of
Birchcliff’s annual average production guidance range for 2023 as
disclosed in its January 18, 2023 press release).
Birchcliff anticipates filing its annual
information form and audited financial statements and related
management’s discussion and analysis for the year ended December
31, 2022 on March 15, 2023.
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”. With respect
to the disclosure of Birchcliff’s reserves and related reserves
metrics contained in this press release, see “2022 Year-End
Reserves”, “Presentation of Oil and Gas Reserves” and “Advisories –
Oil and Gas Metrics”. In addition, this press release uses various
“non-GAAP financial measures”, “non-GAAP ratios”, “supplementary
financial measures” and “capital management measures” as such terms
are defined in National Instrument 52-112 – Non-GAAP and Other
Financial Measures Disclosure (“NI 52-112”).
Non-GAAP financial measures and non-GAAP ratios are not
standardized financial measures under GAAP and might not be
comparable to similar financial measures disclosed by other issuers
where similar terminology is used. For further information
regarding the non-GAAP and other financial measures used in this
press release, see “Non-GAAP and Other Financial Measures”.
______________________
(1) Non-GAAP financial measure. See “Non-GAAP
and Other Financial Measures”.(2) Capital management measure. See
“Non-GAAP and Other Financial Measures”.(3) Supplementary financial
measure. See “Non-GAAP and Other Financial Measures”.(4) Non-GAAP
ratio. See “Non-GAAP and Other Financial Measures”.(5) Based
on 266 million common shares outstanding.(6) Other than the
dividend declared for the quarter ending March 31, 2023, the
declaration of dividends is subject to the approval of the board of
directors (the “Board”) and is subject to change.
See “Advisories – Forward-Looking Statements”.(7) Based on F&D
capital expenditures of approximately $270 million in 2023, which
is the mid-point of the Corporation’s F&D capital expenditures
guidance range for 2023.(8) Holding all other variables
constant.(9) Consists of 811.4 Mbbls of light oil, 1,707.8 Mbbls of
condensate, 2,726.9 Mbbls of NGLs and 136,990.0 MMcf of natural
gas. (10) Non-GAAP ratio. See “Non-GAAP and Other
Financial Measures”.
2022 UNAUDITED FINANCIAL AND OPERATIONAL
SUMMARY
|
|
Three months endedDecember 31, |
|
Twelve months endedDecember 31, |
|
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
OPERATING |
|
|
|
|
|
|
|
|
| Average production |
|
|
|
|
|
|
|
|
| Light oil (bbls/d) |
2,413 |
|
2,604 |
|
2,223 |
|
2,899 |
|
| Condensate (bbls/d) |
4,822 |
|
5,330 |
|
4,679 |
|
5,715 |
|
| NGLs (bbls/d) |
7,963 |
|
7,570 |
|
7,471 |
|
7,705 |
|
| Natural gas (Mcf/d) |
387,604 |
|
379,275 |
|
375,315 |
|
373,217 |
|
|
Total (boe/d) |
79,799 |
|
78,716 |
|
76,925 |
|
78,520 |
|
|
Average realized sales price (CDN$)(1)(2) |
|
|
|
|
|
|
|
|
| Light oil (per bbl) |
115.24 |
|
92.79 |
|
119.78 |
|
79.24 |
|
| Condensate (per bbl) |
114.32 |
|
98.66 |
|
122.27 |
|
85.65 |
|
| NGLs (per bbl) |
35.80 |
|
38.24 |
|
41.09 |
|
30.54 |
|
| Natural gas (per Mcf) |
6.11 |
|
5.52 |
|
6.73 |
|
4.29 |
|
|
Total (per boe) |
43.63 |
|
40.02 |
|
47.73 |
|
32.53 |
|
|
|
|
|
|
|
|
|
|
|
| NETBACK AND
COST ($/boe)(2) |
|
|
|
|
|
|
|
|
| Petroleum and natural gas
revenue(1) |
43.64 |
|
40.02 |
|
47.73 |
|
32.53 |
|
| Royalty expense |
(4.86 |
) |
(3.93 |
) |
(5.74 |
) |
(2.66 |
) |
| Operating expense |
(4.06 |
) |
(3.50 |
) |
(3.62 |
) |
(3.19 |
) |
|
Transportation and other expense(3) |
(5.37 |
) |
(5.06 |
) |
(5.52 |
) |
(5.18 |
) |
|
Operating netback(3) |
29.35 |
|
27.53 |
|
32.85 |
|
21.50 |
|
| G&A expense, net |
(1.82 |
) |
(1.45 |
) |
(1.27 |
) |
(0.99 |
) |
| Interest expense |
(0.53 |
) |
(0.72 |
) |
(0.49 |
) |
(1.00 |
) |
| Realized gain (loss) on
financial instruments |
2.57 |
|
1.37 |
|
2.88 |
|
(0.75 |
) |
| Other
cash income |
- |
|
0.01 |
|
- |
|
0.07 |
|
|
Adjusted funds flow(3) |
29.57 |
|
26.74 |
|
33.97 |
|
18.83 |
|
| Depletion and depreciation
expense |
(7.97 |
) |
(7.44 |
) |
(7.61 |
) |
(7.42 |
) |
| Unrealized gain (loss) on
financial instruments |
(8.31 |
) |
- |
|
4.67 |
|
2.94 |
|
| Other (expense) income(4) |
(0.77 |
) |
(0.01 |
) |
(0.43 |
) |
0.03 |
|
| Dividends on preferred
shares |
- |
|
(0.23 |
) |
(0.18 |
) |
(0.24 |
) |
|
Deferred income tax expense |
(3.06 |
) |
(4.41 |
) |
(7.14 |
) |
(3.31 |
) |
|
Net income to common shareholders |
9.46 |
|
14.65 |
|
23.28 |
|
10.83 |
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL |
|
|
|
|
|
|
|
|
|
Petroleum and natural gas revenue ($000s)(1) |
320,358 |
|
289,806 |
|
1,340,180 |
|
932,406 |
|
|
Cash flow from operating activities ($000s) |
224,447 |
|
196,142 |
|
925,275 |
|
515,369 |
|
| Adjusted funds flow
($000s)(5) |
217,099 |
|
193,649 |
|
953,683 |
|
539,733 |
|
| Per basic common share
($)(3) |
0.82 |
|
0.73 |
|
3.59 |
|
2.03 |
|
| Free funds flow
($000s)(5) |
110,337 |
|
157,923 |
|
589,062 |
|
309,254 |
|
| Per
basic common share ($)(3) |
0.41 |
|
0.60 |
|
2.22 |
|
1.16 |
|
| Net income to common
shareholders ($000s) |
69,453 |
|
106,102 |
|
653,682 |
|
310,489 |
|
| Per
basic common share ($) |
0.26 |
|
0.40 |
|
2.46 |
|
1.17 |
|
|
End of period basic common shares (000s) |
266,047 |
|
264,790 |
|
266,047 |
|
264,790 |
|
| Weighted average basic common
shares (000s) |
265,922 |
|
265,197 |
|
265,548 |
|
265,990 |
|
|
Dividends on common shares ($000s) |
58,503 |
|
2,646 |
|
71,788 |
|
6,639 |
|
|
Dividends on preferred shares ($000s) |
- |
|
1,717 |
|
5,162 |
|
6,905 |
|
|
F&D capital expenditures ($000s)(6) |
106,762 |
|
35,726 |
|
364,621 |
|
230,479 |
|
| Total capital expenditures
($000s)(5) |
107,471 |
|
36,075 |
|
368,230 |
|
232,480 |
|
| Revolving term credit
facilities ($000s) |
131,981 |
|
500,870 |
|
131,981 |
|
500,870 |
|
| Total
debt ($000s)(7) |
138,549 |
|
499,397 |
|
138,549 |
|
499,397 |
|
(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
and losses.(5) Non-GAAP financial measure. See “Non-GAAP and Other
Financial Measures”.(6) See “Advisories – F&D Capital
Expenditures”.(7) Capital management measure. See “Non-GAAP and
Other Financial Measures”.
FULL-YEAR AND Q4 2022 UNAUDITED
FINANCIAL AND OPERATIONAL RESULTS
Production
Birchcliff’s production averaged 76,925 boe/d in
2022, a 2% decrease from 2021. Birchcliff’s production averaged
79,799 boe/d in Q4 2022, a 1% increase from Q4 2021. Birchcliff’s
production in the full-year and Q4 2022 was slightly below its
guidance of 78,000 boe/d and 81,000 to 83,000 boe/d, respectively.
Birchcliff’s full-year production was negatively impacted by: (i)
natural production declines; (ii) a major scheduled turnaround in
Q2 2022 at AltaGas’ deep-cut sour gas processing facility in
Gordondale (the “AltaGas Facility”) that decreased
annual average production in Gordondale by approximately 900 boe/d;
and (iii) the timing of new wells brought on production in 2022 as
compared to 2021, which resulted from scheduling differences in
Birchcliff’s drilling and completions program year-over-year.
Birchcliff’s full-year and Q4 production was positively impacted by
incremental production volumes from the 39 new Montney/Doig light
oil and liquids-rich natural gas wells brought on production in
2022.
Liquids accounted for 19% of total production in
2022 as compared to 21% in 2021, with a liquids-to-gas ratio in
2022 of 38.3 bbls/MMcf (48% high-value light oil and condensate).
Liquids accounted for 19% of Birchcliff’s total production in Q4
2022 as compared to 20% in Q4 2021, with a liquids-to-gas ratio in
Q4 2022 of 39.2 bbls/MMcf (48% high-value light oil and
condensate). The decreases in the liquids production weighting were
primarily due to: (i) the Corporation specifically targeting
horizontal natural gas wells in liquids-rich zones in Pouce Coupe;
and (ii) natural production declines from light oil and
liquids-rich natural gas wells producing since December 31, 2021.
The full-year liquids production weighting was also negatively
impacted by the AltaGas Facility turnaround in Q2 2022, which
resulted in lower liquids being produced in the Gordondale
area.
Adjusted Funds Flow and Cash Flow From
Operating Activities
Birchcliff achieved record adjusted funds flow
of $953.7 million in 2022, or $3.59 per basic common share, both of
which increased by 77% from 2021. Birchcliff’s adjusted funds flow
was $217.1 million in Q4 2022, or $0.82 per basic common share,
both of which increased by 12% from Q4 2021. Birchcliff’s full-year
adjusted funds flow was lower than its guidance of $1.02 billion,
primarily due to a lower than anticipated average realized natural
gas sales price.
Birchcliff’s cash flow from operating activities
was a record $925.3 million in 2022, an 80% increase from 2021.
Birchcliff’s cash flow from operating activities was $224.4 million
in Q4 2022, a 14% increase from Q4 2021.
The increases in adjusted funds flow and cash
flow from operating activities were primarily due to higher
reported petroleum and natural gas revenue, partially offset by a
higher royalty expense, both of which were largely impacted by a
47% and 9% increase in the average realized sales price received
for Birchcliff’s production in the full-year and Q4 2022,
respectively, as compared to 2021. Birchcliff’s average realized
sales price benefited from the increases in benchmark oil and
natural gas prices in the full-year and Q4 2022. See “Full-Year and
Q4 2022 Unaudited Financial and Operational Results – Commodity
Prices”. Birchcliff’s adjusted funds flow and cash flow from
operating activities were also positively impacted by a realized
gain on financial instruments of $80.7 million and $18.8 million in
the full-year and Q4 2022, respectively, as compared to a realized
loss on financial instruments of $21.5 million in 2021 and a
realized gain on financial instruments of $9.9 million in Q4
2021.
Free Funds Flow
Birchcliff delivered record free funds flow of
$589.1 million in 2022, or $2.22 per basic common share, a 90% and
91% increase, respectively, from 2021. The increases were primarily
due to higher adjusted funds flow, partially offset by higher
F&D capital expenditures in 2022 as compared to 2021.
Birchcliff’s free funds flow in 2022 was lower than its guidance of
$655 million to $665 million, primarily due to lower than
anticipated adjusted funds flow.
Birchcliff’s free funds flow was $110.3 million
in Q4 2022, or $0.41 per basic common share, a 30% and 32%
decrease, respectively, from Q4 2021. The decreases were primarily
due to higher F&D capital expenditures in Q4 2022 as compared
to Q4 2021, as a result of the acceleration of the Corporation’s
2023 capital program, which was announced on October 13, 2022,
partially offset by higher adjusted funds flow in Q4 2022 as
compared to Q4 2021.
Net Income to Common
Shareholders
Birchcliff earned record net income to common
shareholders of $653.7 million in 2022, or $2.46 per basic common
share, a 111% and 110% increase, respectively, from 2021. The
increases were primarily due to higher adjusted funds flow and an
increase in the unrealized mark-to-market gain on financial
instruments which resulted from changes in the fair value of the
Corporation’s NYMEX HH/AECO 7A basis swap contracts, partially
offset by a higher deferred income tax expense in 2022. Birchcliff
recorded an unrealized mark-to-market gain on financial instruments
of $131.0 million in 2022, a 56% increase from 2021.
Birchcliff earned net income to common
shareholders of $69.5 million in Q4 2022, or $0.26 per basic common
share, both of which decreased by 35% from Q4 2021. The decreases
were primarily due to an unrealized mark-to-market loss on
financial instruments which resulted from changes in the fair value
of the Corporation’s NYMEX HH/AECO 7A basis swap contracts,
partially offset by higher adjusted funds flow and a lower deferred
income tax expense in Q4 2022. Birchcliff recorded an unrealized
mark-to-market loss on financial instruments of $61.0 million in Q4
2022 as compared to a negligible unrealized mark-to-market gain on
financial instruments in Q4 2021.
Operating Netback and Selected Cash
Costs
Birchcliff’s operating netback was $32.85/boe in
2022, a 53% increase from 2021. Birchcliff’s operating netback was
$29.35/boe in Q4 2022, a 7% increase from Q4 2021. The increases
were primarily due to higher per boe petroleum and natural gas
revenue and a lower interest expense, partially offset by higher
per boe royalty, operating, transportation and other and G&A
expenses in the full-year and Q4 2022.
The following table sets forth Birchcliff’s
selected cash costs for the periods indicated:
|
|
Three months ended December
31, |
|
Twelve months ended December
31, |
|
|
($/boe) |
2022 |
2021 |
% Change |
|
2022 |
2021 |
% Change |
|
| Royalty expense(1) |
4.86 |
3.93 |
24 |
|
5.74 |
2.66 |
116 |
|
| Operating expense(1) |
4.06 |
3.50 |
16 |
|
3.62 |
3.19 |
13 |
|
| Transportation and other
expense(2) |
5.37 |
5.06 |
6 |
|
5.52 |
5.18 |
7 |
|
| G&A expense, net(1) |
1.82 |
1.45 |
26 |
|
1.27 |
0.99 |
28 |
|
|
Interest expense(1) |
0.53 |
0.72 |
(26 |
) |
0.49 |
1.00 |
(51) |
|
(1) Supplementary financial measure. See “Non-GAAP and Other
Financial Measures”.(2) Non-GAAP ratio. See “Non-GAAP and Other
Financial Measures”.
Royalty expense per boe increased by 116% and
24% from the full-year and Q4 2021, respectively, primarily due to
a higher average realized sales price received for Birchcliff’s
production. Birchcliff’s full-year royalty expense was below its
guidance of $6.70/boe to $6.80/boe, primarily due to a lower than
anticipated average realized natural gas sales price.
Operating expense per boe increased by 13% and
16% from the full-year and Q4 2021, respectively, primarily due to:
(i) inflationary pressures on power prices and fuel, chemicals and
lubricants costs used in Birchcliff’s field operations, which
together increased by 42% and 61% on a per boe basis in the
full-year and Q4 2022, respectively; and (ii) higher field labour
costs. Operating expense per boe in Q4 2022 was also negatively
impacted by higher natural gas processing costs at the AltaGas
Facility due to incremental production coming on-stream in Q4 2022.
Birchcliff’s full-year operating expense was slightly above its
guidance of $3.40/boe to $3.50/boe, primarily due to lower than
anticipated annual average production.
Transportation and other expense per boe
increased by 7% and 6% from the full-year and Q4 2021,
respectively, primarily due to higher liquids-handling costs and
third-party fractionation processing fees that resulted from
inflationary pressures, partially offset by lower liquids pipeline
tariffs. Transportation and other expense per boe in the full-year
was also negatively impacted by increased take-or-pay fractionation
fees and higher NGTL tolling charges for natural gas deliveries.
Birchcliff’s full-year transportation and other expense was
slightly above its guidance of $5.40/boe to $5.50/boe, primarily
due to lower than anticipated annual average production.
G&A expense per boe increased by 28% and 26%
from the full-year and Q4 2021, respectively, primarily due to
higher employee-related expenses, higher corporate costs due to the
easing of Birchcliff’s COVID-19 restrictions and higher general
business costs due to inflationary pressures.
Interest expense per boe decreased by 51% and
26% from the full-year and Q4 2021, respectively, primarily due to
a lower average outstanding balance under the Corporation’s
extendible revolving term credit facilities (the “Credit
Facilities”) as a result of the Corporation’s focus on
reducing indebtedness. Birchcliff’s full-year interest expense was
within its guidance of $0.40/boe to $0.50/boe.
Debt and Credit Facilities
Total debt at December 31, 2022 was $138.5
million, a decrease of 72% from $499.4 million at December 31,
2021. Birchcliff’s 2022 year-end total debt was above its guidance
of $60 million to $70 million, primarily due to a lower than
anticipated average realized natural gas sales price. At December
31, 2022, Birchcliff had long-term bank debt under its Credit
Facilities of $132.0 million (December 31, 2021: $500.9 million)
from available Credit Facilities of $850.0 million (December 31,
2021: $850.0 million), leaving the Corporation with $714.3 million
of unutilized credit capacity after adjusting for outstanding
letters of credit and unamortized deferred financing fees. This
unutilized credit capacity provides Birchcliff with significant
financial flexibility and additional capital resources to fund its
capital expenditure program and dividend payments if required in
the future. The Credit Facilities do not contain any financial
maintenance covenants and do not mature until May 11, 2025.
Commodity Prices
The following table sets forth the average
benchmark commodity index prices and exchange rate for the periods
indicated:
|
|
Three months ended December
31, |
|
Twelve months ended December
31, |
|
|
|
2022 |
2021 |
% Change |
|
2022 |
2021 |
% Change |
|
| Light oil – WTI Cushing
(US$/bbl) |
82.64 |
79.78 |
4 |
|
94.31 |
68.70 |
37 |
|
| Light oil – MSW (Mixed Sweet)
(CDN$/bbl) |
110.18 |
96.12 |
15 |
|
119.95 |
80.67 |
49 |
|
| Natural gas – NYMEX HH
(US$/MMBtu)(1) |
6.26 |
5.83 |
7 |
|
6.64 |
3.88 |
71 |
|
| Natural gas – AECO 5A Daily
(CDN$/GJ) |
4.85 |
4.41 |
10 |
|
5.04 |
3.44 |
47 |
|
| Natural gas – AECO 7A Month
Ahead (US$/MMBtu)(1) |
4.11 |
3.93 |
5 |
|
4.28 |
2.84 |
51 |
|
| Natural gas – Dawn Day Ahead
(US$/MMBtu)(1) |
5.16 |
4.65 |
11 |
|
6.04 |
3.62 |
67 |
|
| Natural gas – ATP 5A Day Ahead
(CDN$/GJ) |
4.53 |
4.74 |
(4 |
) |
5.14 |
4.03 |
28 |
|
| Exchange rate (CDN$ to
US$1) |
1.3573 |
1.2598 |
8 |
|
1.3004 |
1.2537 |
4 |
|
|
Exchange rate (US$ to CDN$1) |
0.7368 |
0.7938 |
(8 |
) |
0.7690 |
0.7976 |
(4 |
) |
(1) See “Advisories – MMBtu Pricing Conversions”.
Marketing and Natural Gas Market
Diversification
Birchcliff’s physical natural gas sales exposure
primarily consists of the AECO, Dawn and Alliance markets. In
addition, the Corporation has various financial instruments
outstanding that provide it with exposure to NYMEX HH pricing. The
following table details Birchcliff’s effective sales, production
and average realized sales price for natural gas and liquids for Q4
2022, after taking into account the Corporation’s financial
instruments:
|
Three months ended December 31, 2022 |
|
|
Effective sales (CDN$000s) |
Percentage of total sales (%) |
Effectiveproduction(per day) |
Percentage of total natural gas
production(%) |
Percentage of total corporate
production(%) |
Effective average realizedsales
price(CDN$) |
|
Market |
|
|
|
|
|
|
|
AECO(1)(2)(3) |
42,360 |
12 |
85,657 Mcf |
22 |
18 |
5.38/Mcf |
|
Dawn(4) |
106,494 |
30 |
161,671 Mcf |
42 |
34 |
7.16/Mcf |
|
NYMEX HH(1)(2)(5) |
109,377 |
30 |
140,276 Mcf |
36 |
29 |
8.48/Mcf |
|
Total natural gas(1) |
258,231 |
72 |
387,604 Mcf |
100 |
81 |
7.24/Mcf |
|
Light oil |
25,588 |
7 |
2,413 bbls |
|
3 |
115.24/bbl |
|
Condensate |
50,712 |
14 |
4,822 bbls |
|
6 |
114.32/bbl |
|
NGLs |
26,224 |
7 |
7,963 bbls |
|
10 |
35.80/bbl |
|
Total liquids |
102,524 |
28 |
15,198 bbls |
|
19 |
73.32/bbl |
|
Total corporate(1) |
360,755 |
100 |
79,799 boe |
|
100 |
49.14/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 Q4
2022.(3) Birchcliff has short-term physical sales agreements with
third-party marketers to sell and deliver into the Alliance
pipeline system. All of Birchcliff’s short-term physical Alliance
sales and production during Q4 2022 received AECO premium pricing
and have therefore been included as effective sales and production
in the AECO market.(4) Birchcliff has agreements for the firm
service transportation of an aggregate of 175,000 GJ/d of natural
gas on TransCanada PipeLines’ Canadian Mainline, whereby natural
gas is transported to the Dawn trading hub in Southern Ontario.(5)
NYMEX HH sales and production include financial and physical NYMEX
HH/AECO 7A basis swap contracts for an aggregate 152,500 MMBtu/d at
an average contract price of NYMEX HH less US$1.23/MMBtu during Q4
2022. Birchcliff’s effective average realized sales price for NYMEX
HH of CDN$8.48/Mcf (US$5.74/MMBtu) was determined on a gross basis
before giving effect to the average NYMEX HH/AECO 7A fixed contract
basis differential price of CDN$1.81/Mcf (US$1.23/MMBtu) and
includes any realized gains and losses on financial NYMEX HH/AECO
7A basis swap contracts during Q4 2022. After giving effect to the
NYMEX HH/AECO 7A basis contact price and including any realized
gains and losses on financial NYMEX HH/AECO 7A basis swap contracts
during Q4 2022, Birchcliff’s effective average realized net sales
price for NYMEX HH was CDN$6.67/Mcf (US$4.51/MMBtu) in Q4 2022.
The following table sets forth Birchcliff’s
sales, production, average realized sales price, transportation
costs and natural gas sales netback by natural gas market for the
periods indicated, before taking into account the Corporation’s
financial instruments:
|
Three months ended December 31, 2022 |
|
|
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 |
101,194 |
46 |
208,042 |
53 |
5.29 |
0.39 |
4.90 |
|
Dawn |
106,494 |
49 |
161,671 |
42 |
7.16 |
1.41 |
5.75 |
|
Alliance(5) |
10,134 |
5 |
17,891 |
5 |
6.16 |
- |
6.16 |
|
Total |
217,822 |
100 |
387,604 |
100 |
6.11 |
0.80 |
5.31 |
|
Three months ended December 31, 2021 |
|
|
Natural gas
sales(1)(CDN$000s) |
Percentage of natural gas sales (%) |
Natural gas production(Mcf/d) |
Percentage of natural gas production(%) |
Average realized natural gas
sales price(1)(2)(CDN$/Mcf) |
Natural gas transportation costs(2)(3)
(CDN$/Mcf) |
Natural gas sales netback(2)(4)(CDN$/Mcf) |
|
AECO |
85,230 |
44 |
185,870 |
49 |
4.98 |
0.42 |
4.56 |
|
Dawn |
88,932 |
46 |
156,618 |
41 |
6.17 |
1.47 |
4.70 |
|
Alliance(5) |
18,391 |
10 |
36,787 |
10 |
5.43 |
- |
5.43 |
|
Total |
192,553 |
100 |
379,275 |
100 |
5.52 |
0.82 |
4.70 |
(1) Excludes the effects of financial instruments but includes
the effects of physical delivery contracts.(2) Supplementary
financial measure. See “Non-GAAP and Other Financial Measures”.(3)
Reflects costs to transport natural gas from the field receipt
point to the delivery sales trading hub.(4) Natural gas sales
netback denotes the average realized natural gas sales price less
natural gas transportation costs.(5) Birchcliff has short-term
physical sales agreements with third-party marketers to sell and
deliver into the Alliance pipeline system. Alliance sales are
recorded net of transportation tolls.
Capital Activities and
Investment
Birchcliff’s 2022 capital program was focused on
the drilling of high-value, liquids-rich natural gas and light oil
wells in Pouce Coupe and Gordondale. In addition, the Corporation
directed funds towards two planned facility turnarounds and key
infrastructure enhancement projects to increase the overall
throughput, reliability and safety of Birchcliff’s operating
assets. F&D capital expenditures were $364.6 million in 2022,
which was within Birchcliff’s guidance of $355 million to $365
million.
The following table summarizes the number of
wells Birchcliff drilled and brought on production in 2022:
|
|
Total # of wells drilled in 2022 |
|
Total # of wells brought on production in
2022 |
|
POUCE COUPE |
|
|
|
|
|
|
Basal Doig/Upper Montney |
10 |
|
12 |
|
|
|
Montney D2 |
5 |
|
2 |
|
|
|
Montney D1 |
16 |
|
14 |
|
|
|
Montney C |
4 |
|
2 |
|
|
|
Total |
35 |
|
30 |
|
|
|
|
|
|
|
|
GORDONDALE |
|
|
|
|
|
|
Montney D2 |
5 |
|
5 |
|
|
|
Montney D1 |
4 |
|
4 |
|
|
Total |
9 |
|
9 |
|
|
|
|
|
|
|
TOTAL |
44(1)(2) |
|
39(3) |
(1) Includes 7 wells that were brought on production in January
and February 2023 and 1 well that is currently standing and may be
completed as part of the 2023 capital program.(2) Does not include
2 (0.375 net) Charlie Lake horizontal oil wells that the
Corporation participated in during 2022, with production coming
on-stream in Q1 2023.(3) Includes 5 wells that were drilled and rig
released in Q4 2021.
Birchcliff was able to safely and efficiently
execute on its 2022 capital program despite significant
inflationary pressures, labour shortages and supply chain
constraints experienced during the year that affected the Canadian
oil and gas industry as a whole. The Corporation accomplished this
through detailed planning and excellent collaboration with its
service providers.
In 2022, Birchcliff successfully developed
multiple zones in the lower Montney (D2, D1 and C) and Basal
Doig/Upper Montney intervals, targeting brownfield and greenfield
reservoir areas. The 2022 capital program was developed using
pad-specific well spacing and geo-engineered completions designs to
maximize economic resource recovery. The learnings from the 2022
capital program have been significant as they demonstrate both the
economic and technical success of the Corporation’s approach and
provide greater confidence in Birchcliff’s robust inventory of
multi-layer Montney/Doig opportunities across its land base.
OPERATIONS UPDATE
Gordondale
9-Well Pad (06-35-77-11W6)
As disclosed in the Corporation’s press release
dated November 9, 2022, Birchcliff brought all 9 (9.0 net) wells on
its 06-35 pad on production through Birchcliff’s owned and operated
infrastructure in late September 2022. The wells from this pad are
producing in-line with the Corporation’s expectations. The
following table summarizes the aggregate and average production
rates for the 9 wells from the 06-35 pad:
|
|
IP 30(1) |
IP 60(1) |
|
Aggregate production rate (boe/d) |
8,108 |
7,220 |
|
|
Aggregate natural gas production rate (Mcf/d) |
40,568 |
36,923 |
|
|
Aggregate oil production rate (bbls/d) |
1,349 |
1,066 |
|
Average per well production rate (boe/d) |
901 |
802 |
| |
Average
per well natural gas production rate (Mcf/d) |
4,508 |
4,103 |
|
|
Average per well oil production rate (bbls/d) |
150 |
118 |
|
Condensate-to-gas ratio (bbls/MMcf) |
33 |
29 |
(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”.
Pouce Coupe
6-Well Pad (03-06-78-11W6)
As part of the accelerated 2023 capital program
that was initiated in Q4 2022, the Corporation brought 4 (4.0 net)
wells on its 03-06 pad on production in December 2022 and 1 (1.0
net) well on production in early January 2023. These wells are
producing with strong liquids and natural gas rates and are
exceeding internal forecasts. The sixth well on this pad is
currently standing and may be completed later in the year as part
of the 2023 capital program. As the wells have not yet produced for
over 60 days, Birchcliff anticipates providing further details
regarding the results of these wells with the release of its
audited 2022 results.
6-Well Pad (14-06-79-12W6)
Birchcliff successfully completed its 6-well
14-06 pad in early January 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. Flowback operations have commenced and the wells are
expected to be on-stream in February 2023, with production flowing
through Birchcliff’s 100% owned and operated natural gas processing
plant in Pouce Coupe (the “Pouce Coupe Gas
Plant”).
Ongoing Drilling and Completions
Operations
Birchcliff has completed the drilling of two
4-well pads in its core acreage that will be completed later in Q1
2023 and are anticipated to be brought on production in Q2 2023.
The first 4-well pad is located at 04-23-78-12W6 and consists of 2
Montney D1 and 2 Montney D2 wells. The second 4-well pad is located
at 15-27-78-13W6 and consists of 2 Montney D1, 1 Montney D2 and 1
Montney C wells.
Birchcliff currently has two drilling rigs at
work on its 8-well 04-16-78-13W6 pad. This pad is targeting 4 wells
in each of the Basal Doig/Upper Montney and Montney D1 intervals.
The Corporation’s 2023 capital program is focused on optimizing
well spacing to maximize economic resource recovery.
Third-Party Pipeline Outage
On January 19, 2023, Birchcliff was notified
that a force majeure event had occurred on a major third-party NGLs
transportation pipeline, resulting in an unplanned outage impacting
all volumes on the pipeline, which includes the Corporation’s NGLs
volumes. Birchcliff has been able to reduce the impact of the
outage on its production volumes by retaining NGLs within its
natural gas stream to the extent possible. The third-party pipeline
operator has stated that they expect the pipeline to resume service
in late February 2023, subject to regulatory approval. The
Corporation continues to monitor the situation to determine the
anticipated impact on its annual average production volumes.
2022 YEAR-END RESERVES
Birchcliff retained Deloitte LLP
(“Deloitte”), independent qualified reserves
evaluator, to evaluate and prepare a report on 100% of Birchcliff’s
light crude oil and medium crude oil, conventional natural gas,
shale gas and NGLs reserves. The reserves data set forth below at
December 31, 2022 is based upon the evaluation by Deloitte with an
effective date of December 31, 2022 as contained in the report of
Deloitte dated February 15, 2023 (the “2022 Reserves
Report”). The forecast commodity prices, inflation and
exchange rates utilized were computed using the average of
forecasts from Deloitte, McDaniel & Associates Consultants Ltd.
(“McDaniel”), GLJ Ltd. (“GLJ”)
and Sproule Associates Limited (“Sproule”)
effective January 1, 2023 (the “2022 IQRE Price
Forecast”).
The 2022 Reserves Report has been prepared in
accordance with the standards contained in the Canadian Oil and Gas
Evaluation Handbook (the “COGE Handbook”) and
National Instrument 51-101 – Standards of Disclosure for Oil and
Gas Activities (“NI 51-101”).
For additional information regarding the
presentation of Birchcliff’s reserves disclosure contained herein,
see “Presentation of Oil and Gas Reserves” and “Advisories” in this
press release. The reserves data provided in this press release
presents only a portion of the disclosure required under NI 51-101.
The disclosure required under NI 51-101 will be contained in
Birchcliff’s annual information form for the year ended December
31, 2022, which is expected to be filed on the System for
Electronic Document Analysis and Retrieval (www.sedar.com) on March
15, 2023. In certain of the tables below, numbers may not add due
to rounding.
Reserves Summary
The following table summarizes the estimates of
Birchcliff’s gross reserves at December 31, 2022 and December
31, 2021, estimated using the forecast price and cost assumptions
in effect as at the effective date of the applicable reserves
evaluation:
Summary of Gross Reserves (Forecast
Prices and Costs)
|
Reserves Category |
December 31, 2022(Mboe) |
December 31, 2021(1)(Mboe) |
% Change |
| Proved Developed
Producing |
224,826 |
217,145 |
4 |
| Total Proved |
668,545 |
689,941 |
(3) |
| Total Probable |
317,867 |
331,927 |
(4) |
| Total Proved Plus
Probable |
986,412 |
1,021,868 |
(3) |
(1) Deloitte prepared an evaluation with an
effective date of December 31, 2021 as contained in the report of
Deloitte dated February 9, 2022 (the “2021 Reserves
Report”). Deloitte prepared the 2021 Reserves Report using
the average of forecasts from Deloitte, McDaniel, GLJ and Sproule
effective January 1, 2022 (the “2021 IQRE Price
Forecast”).
Birchcliff has remained focused over the last
several years on delivering PDP reserves additions by leveraging
its efficient execution and large multi-well pads to improve
capital efficiencies and maximize profitability. This focus on PDP
reserves, which included converting existing proved undeveloped or
probable undeveloped locations into PDP reserves, as well as the
optimization of its field development plan, resulted in the
Corporation’s proved and proved plus probable reserves declining
slightly at December 31, 2022 as compared to December 31, 2021.
Birchcliff continues to have a large inventory of potential future
locations that are not booked in the 2022 Reserves Report that may
be added over time depending on the Corporation’s drilling programs
in subsequent years.
The following table sets forth Birchcliff’s
light crude oil and medium crude oil, conventional natural gas,
shale gas and NGLs reserves at December 31, 2022, estimated
using the 2022 IQRE Price Forecast:
Summary of Reserves at December 31,
2022(Forecast Prices and Costs)
|
Reserves Category |
Light Crude Oil and Medium Crude Oil |
|
Conventional Natural Gas |
|
Shale Gas |
|
NGLs(1) |
|
Total Boe |
|
Gross(Mbbls) |
|
Net(Mbbls) |
|
Gross(MMcf) |
|
Net(MMcf) |
|
Gross(MMcf) |
|
Net(MMcf) |
|
Gross(Mbbls) |
|
Net(Mbbls) |
|
Gross(Mboe) |
|
Net(Mboe) |
|
Proved |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Developed Producing |
|
6,433 |
|
5,130 |
|
6,526 |
|
6,051 |
|
1,076,797 |
|
963,829 |
|
37,839 |
|
29,320 |
|
224,826 |
|
196,097 |
| |
Developed Non-Producing |
|
9 |
|
9 |
|
0 |
|
0 |
|
5,635 |
|
5,184 |
|
228 |
|
185 |
|
1,177 |
|
1,058 |
| |
Undeveloped |
|
9,224 |
|
7,495 |
|
2,908 |
|
2,621 |
|
2,296,003 |
|
2,015,974 |
|
50,167 |
|
38,758 |
|
442,543 |
|
382,685 |
|
Total Proved |
15,666 |
|
12,634 |
|
9,434 |
|
8,672 |
|
3,378,435 |
|
2,984,986 |
|
88,234 |
|
68,263 |
|
668,545 |
|
579,840 |
|
Total Probable |
10,354 |
|
7,940 |
|
5,267 |
|
4,767 |
|
1,535,665 |
|
1,310,222 |
|
50,691 |
|
38,020 |
|
317,867 |
|
265,125 |
|
Total Proved Plus Probable |
26,020 |
|
20,574 |
|
14,701 |
|
13,439 |
|
4,914,100 |
|
4,295,207 |
|
138,925 |
|
106,283 |
|
986,412 |
|
844,965 |
(1) NGLs includes condensate.
Net Present Values of Future Net
Revenue
The following table sets forth the net present
values of future net revenue attributable to Birchcliff’s reserves
at December 31, 2022, estimated using the 2022 IQRE Price Forecast,
before deducting future income tax expenses and calculated at
various discount rates:
Summary of Net Present Values of Future
Net Revenue at December 31, 2022(1)(Forecast
Prices and Costs)
|
Reserves Category |
|
Before Income Taxes Discounted At (%/year) |
|
|
|
0 ($000s) |
|
5 ($000s) |
|
10 ($000s) |
|
15 ($000s) |
|
20($000s) |
|
Unit Value Discounted at 10%/year($/boe)(2) |
|
Proved |
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed Producing |
|
5,411,147 |
|
4,099,497 |
|
3,270,335 |
|
2,731,169 |
|
2,359,084 |
|
16.68 |
|
Developed Non-Producing |
|
32,220 |
|
23,580 |
|
18,604 |
|
15,449 |
|
13,295 |
|
17.58 |
|
Undeveloped |
|
9,417,320 |
|
5,225,962 |
|
3,165,262 |
|
2,030,121 |
|
1,350,164 |
|
8.27 |
|
Total Proved |
|
14,860,687 |
|
9,349,039 |
|
6,454,201 |
|
4,776,739 |
|
3,722,543 |
|
11.13 |
|
Total Probable |
|
8,151,975 |
|
3,452,613 |
|
1,701,775 |
|
938,455 |
|
562,867 |
|
6.42 |
|
Total Proved Plus Probable |
|
23,012,662 |
|
12,801,652 |
|
8,155,976 |
|
5,715,194 |
|
4,285,410 |
|
9.65 |
(1) Estimates of future net revenue, whether calculated without
discount or using a discount rate, do not represent fair market
value.(2) Unit values are based on net reserves volumes.
Pricing Assumptions
The following table sets forth the 2022 IQRE
Price Forecast used in the 2022 Reserves Report:
2022 IQRE Price Forecast
|
Year |
|
Crude Oil |
|
Natural Gas(1) |
|
NGLs |
Currency Exchange Rate (US$/CDN$) |
|
Price and Cost Inflation Rates(%) |
|
|
WTI at Cushing Oklahoma (US$/bbl) |
|
Edmonton City Gate (CDN$/bbl) |
|
Alberta AECOAverage
Price(CDN$/Mcf) |
|
Ontario DawnReference
Point(CDN$/Mcf) |
|
NYMEX Henry Hub(US$/Mcf) |
|
Edmonton Ethane(CDN$/bbl) |
|
Edmonton Propane (CDN$/bbl) |
|
Edmonton Butane (CDN$/bbl) |
|
Edmonton Pentanes + Condensate (CDN$/bbl) |
|
|
|
2023 |
|
$80.25 |
|
$103.16 |
|
$4.44 |
|
$6.53 |
|
$4.93 |
|
$13.91 |
|
$41.25 |
|
$54.35 |
|
$105.00 |
|
0.74 |
|
0.0 |
|
2024 |
|
$78.19 |
|
$97.34 |
|
$4.53 |
|
$5.92 |
|
$4.66 |
|
$14.27 |
|
$40.16 |
|
$52.73 |
|
$100.05 |
|
0.76 |
|
2.5 |
|
2025 |
|
$76.10 |
|
$94.21 |
|
$4.37 |
|
$5.51 |
|
$4.42 |
|
$13.77 |
|
$40.04 |
|
$51.08 |
|
$96.97 |
|
0.76 |
|
2.0 |
|
2026 |
|
$76.96 |
|
$94.90 |
|
$4.44 |
|
$5.59 |
|
$4.50 |
|
$14.00 |
|
$40.35 |
|
$51.47 |
|
$98.35 |
|
0.77 |
|
2.0 |
|
2027 |
|
$78.50 |
|
$96.48 |
|
$4.52 |
|
$5.70 |
|
$4.59 |
|
$14.23 |
|
$41.01 |
|
$52.32 |
|
$99.98 |
|
0.76 |
|
2.0 |
|
2028 |
|
$80.07 |
|
$98.41 |
|
$4.61 |
|
$5.80 |
|
$4.68 |
|
$14.52 |
|
$41.84 |
|
$53.37 |
|
$101.98 |
|
0.77 |
|
2.0 |
|
2029 |
|
$81.67 |
|
$100.38 |
|
$4.70 |
|
$5.93 |
|
$4.78 |
|
$14.82 |
|
$42.67 |
|
$54.43 |
|
$104.03 |
|
0.77 |
|
2.0 |
|
2030 |
|
$83.30 |
|
$102.38 |
|
$4.79 |
|
$6.04 |
|
$4.87 |
|
$15.11 |
|
$43.52 |
|
$55.51 |
|
$106.10 |
|
0.77 |
|
2.0 |
|
2031 |
|
$84.96 |
|
$104.43 |
|
$4.88 |
|
$6.17 |
|
$4.97 |
|
$15.42 |
|
$44.39 |
|
$56.63 |
|
$108.22 |
|
0.77 |
|
2.0 |
|
2032 |
|
$86.68 |
|
$106.16 |
|
$4.98 |
|
$6.30 |
|
$5.08 |
|
$15.73 |
|
$45.11 |
|
$57.54 |
|
$110.39 |
|
0.77 |
|
2.0 |
|
2033 |
|
$88.40 |
|
$108.28 |
|
$5.08 |
|
$6.41 |
|
$5.18 |
|
$16.05 |
|
$46.02 |
|
$58.69 |
|
$112.60 |
|
0.77 |
|
2.0 |
|
2034 |
|
$90.17 |
|
$110.45 |
|
$5.19 |
|
$6.54 |
|
$5.28 |
|
$16.37 |
|
$46.93 |
|
$59.87 |
|
$114.85 |
|
0.77 |
|
2.0 |
|
2035 |
|
$91.98 |
|
$112.65 |
|
$5.29 |
|
$6.67 |
|
$5.38 |
|
$16.70 |
|
$47.88 |
|
$61.06 |
|
$117.14 |
|
0.77 |
|
2.0 |
|
2036 |
|
$93.82 |
|
$114.92 |
|
$5.39 |
|
$6.81 |
|
$5.50 |
|
$17.03 |
|
$48.84 |
|
$62.29 |
|
$119.49 |
|
0.77 |
|
2.0 |
|
2037 |
|
$95.69 |
|
$117.21 |
|
$5.50 |
|
$6.94 |
|
$5.60 |
|
$17.37 |
|
$49.81 |
|
$63.54 |
|
$121.88 |
|
0.77 |
|
2.0 |
|
2038 |
|
$97.61 |
|
$119.55 |
|
$5.61 |
|
$7.08 |
|
$5.71 |
|
$17.72 |
|
$50.81 |
|
$64.80 |
|
$124.32 |
|
0.77 |
|
2.0 |
|
2039 |
|
$99.56 |
|
$121.94 |
|
$5.73 |
|
$7.22 |
|
$5.83 |
|
$18.07 |
|
$51.82 |
|
$66.10 |
|
$126.80 |
|
0.77 |
|
2.0 |
|
2040 |
|
$101.55 |
|
$124.38 |
|
$5.83 |
|
$7.36 |
|
$5.94 |
|
$18.43 |
|
$52.86 |
|
$67.43 |
|
$129.34 |
|
0.77 |
|
2.0 |
|
2041 |
|
$103.58 |
|
$126.87 |
|
$5.95 |
|
$7.51 |
|
$6.07 |
|
$18.80 |
|
$53.92 |
|
$68.76 |
|
$131.92 |
|
0.77 |
|
2.0 |
|
2042 |
|
$105.66 |
|
$129.41 |
|
$6.06 |
|
$7.67 |
|
$6.18 |
|
$19.17 |
|
$54.99 |
|
$70.15 |
|
$134.56 |
|
0.77 |
|
2.0 |
|
2043+ |
|
2.0% |
|
2.0% |
|
2.0% |
|
2.0% |
|
2.0% |
|
2.0% |
|
2.0% |
|
2.0% |
|
2.0% |
|
0.77 |
|
2.0 |
(1) 1 Mcf = 1 MMBtu.
Reconciliation of Changes in
Reserves
The following table sets forth the
reconciliation of Birchcliff’s gross reserves at December 31,
2022 as set forth in the 2022 Reserves Report, estimated using the
2022 IQRE Price Forecast, to Birchcliff’s gross reserves at
December 31, 2021 as set forth in the 2021 Reserves Report,
estimated using the 2021 IQRE Price Forecast:
Reconciliation of Gross Reserves from
December 31, 2021 to December 31,
2022(Forecast Prices and Costs)
|
Factors |
|
Light Crude Oil andMedium Crude
Oil (Mbbls) |
|
Conventional Natural Gas(MMcf) |
|
Shale Gas(MMcf) |
|
NGLs(8)(Mbbls) |
|
Oil Equivalent(Mboe) |
|
|
GROSS TOTAL PROVED |
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance December 31, 2021 |
|
17,810 |
|
7,577 |
|
3,460,484 |
|
94,121 |
|
689,941 |
|
|
Extensions and Improved Recovery(1) |
|
223 |
|
0 |
|
156,308 |
|
3,936 |
|
30,210 |
|
|
Technical Revisions(2) |
|
(1,567 |
) |
1,603 |
|
(127,679 |
) |
(5,935 |
) |
(28,514 |
) |
|
Discoveries(3) |
|
0 |
|
0 |
|
0 |
|
0 |
|
0 |
|
|
Acquisitions(4) |
|
0 |
|
70 |
|
1,529 |
|
26 |
|
293 |
|
|
Dispositions(5) |
|
0 |
|
0 |
|
0 |
|
0 |
|
0 |
|
|
Economic Factors(6) |
|
11 |
|
873 |
|
24,094 |
|
521 |
|
4,693 |
|
|
Production(7) |
|
(811 |
) |
(689 |
) |
(136,301 |
) |
(4,435 |
) |
(28,078 |
) |
|
Closing balance December 31, 2022 |
|
15,666 |
|
9,434 |
|
3,378,435 |
|
88,234 |
|
668,545 |
|
|
GROSS TOTAL PROBABLE |
|
Opening balance December 31, 2021 |
|
12,103 |
|
4,569 |
|
1,593,344 |
|
53,505 |
|
331,927 |
|
|
Extensions and Improved Recovery(1) |
|
(223 |
) |
0 |
|
(50,556 |
) |
(1,872 |
) |
(10,520 |
) |
|
Technical Revisions(2) |
|
(1,533) |
|
278 |
|
(16,602 |
) |
(1,161 |
) |
(5,415 |
) |
|
Discoveries(3) |
|
0 |
|
0 |
|
0 |
|
0 |
|
0 |
|
|
Acquisitions(4) |
|
0 |
|
16 |
|
1,228 |
|
25 |
|
232 |
|
|
Dispositions(5) |
|
0 |
|
0 |
|
0 |
|
0 |
|
0 |
|
|
Economic Factors(6) |
|
7 |
|
404 |
|
8,251 |
|
194 |
|
1,643 |
|
|
Production(7) |
|
0 |
|
0 |
|
0 |
|
0 |
|
0 |
|
|
Closing balance December 31, 2022 |
|
10,354 |
|
5,267 |
|
1,535,665 |
|
50,691 |
|
317,867 |
|
|
GROSS TOTAL PROVED PLUS PROBABLE |
|
Opening balance December 31, 2021 |
|
29,913 |
|
12,146 |
|
5,053,827 |
|
147,627 |
|
1,021,868 |
|
|
Extensions and Improved Recovery(1) |
|
0 |
|
0 |
|
105,752 |
|
2,064 |
|
19,690 |
|
|
Technical Revisions(2) |
|
(3,100 |
) |
1,881 |
|
(144,282) |
|
(7,096 |
) |
(33,929 |
) |
|
Discoveries(3) |
|
0 |
|
0 |
|
0 |
|
0 |
|
0 |
|
|
Acquisitions(4) |
|
0 |
|
86 |
|
2,757 |
|
51 |
|
525 |
|
|
Dispositions(5) |
|
0 |
|
0 |
|
0 |
|
0 |
|
0 |
|
|
Economic Factors(6) |
|
18 |
|
1,277 |
|
32,345 |
|
715 |
|
6,337 |
|
|
Production(7) |
|
(811 |
) |
(689 |
) |
(136,301 |
) |
(4,435 |
) |
(28,078 |
) |
|
Closing balance December 31, 2022 |
|
26,020 |
|
14,701 |
|
4,914,100 |
|
138,925 |
|
986,412 |
|
(1) Additions to volumes resulting from capital expenditures
for: (i) step-out drilling in previously discovered reservoirs;
(ii) infill drilling in previously discovered reservoirs that were
not drilled as part of an enhanced recovery scheme; and (iii) the
installation of improved recovery schemes.(2) Positive or negative
volume revisions to an estimate resulting from new technical data
or revised interpretations on previously assigned volumes,
performance and operating costs.(3) Additions to volumes in
reservoirs where no reserves were previously booked.(4) Positive
additions to volume estimates because of purchasing interests in
oil and gas properties.(5) Reductions in volume estimates because
of selling all or a portion of an interest in oil and gas
properties.(6) Changes to volumes resulting from different price
forecasts, inflation rates and regulatory changes.(7) Reductions in
the volume estimates due to actual production.(8) NGLs includes
condensate.
Key highlights include the following:
Extensions and Improved
Recovery
Reserves were added from the 39 wells that were
brought on production pursuant to the Corporation’s successful 2022
capital program, which also resulted in the assignment of reserves
to potential future drilling locations offsetting the new wells. In
addition, potential future drilling locations that were not
included in 2021 Reserves Report were added based on available
infrastructure capacity, superior economics and COGE Handbook
development guidelines.
Technical Revisions
-
The technical revisions in all reserves categories for light crude
oil and medium crude oil were primarily the result of the
reclassification of 10 oil wells in the 2021 Reserves Report to
condensate-rich natural gas wells in the 2022 Reserves Report.
-
The technical revisions in all reserves categories for conventional
natural gas were primarily the result of the reactivation of
several wells during 2022 as a result of strong commodity
prices.
-
The technical revisions in all reserves categories for shale gas
were mainly a result of: (i) an updated reserves forecast for
existing wells based on historic performance; (ii) an updated
full-field development plan, which included the combining of
multiple proved and probable potential future drilling locations
utilizing increased well lengths, resulting in the removal of 15
proved undeveloped and 3 probable locations; and (iii) an increase
in well performance for existing and potential future drilling
locations in the Basal Doig/Upper Montney and Montney D1 intervals
in Pouce Coupe.
-
The technical revisions in all reserves categories for NGLs were
primarily a result of: (i) a reduction in the associated shale gas
volumes; (ii) an increase in the liquids capacity at the AltaGas
Facility; and (iii) updated NGLs recoveries based on most recent
data at the Pouce Coupe Gas Plant.
Economic Factors
The forecast prices for each product type were
generally higher in the 2022 IQRE Price Forecast than the 2021 IQRE
Price Forecast, which resulted in the economic limit at the end of
a well’s life being achieved later, thereby increasing the reserves
volumes in all reserves categories.
Future Development Costs
Future development costs
(“FDC”) reflect Deloitte’s best estimate of what
it will cost to bring the proved and proved plus probable reserves
on production. Changes in forecast FDC occur annually as a result
of development activities, acquisition and disposition activities
and capital cost estimates. The following table sets forth
development costs deducted in the estimation of Birchcliff’s future
net revenue attributable to the reserves categories noted
below:
Future Development Costs
(Forecast Prices and Costs)
|
Year |
|
Proved($000s) |
|
Proved Plus Probable($000s) |
| 2023 |
|
258,525 |
|
289,650 |
| 2024 |
|
444,751 |
|
457,977 |
| 2025 |
|
474,233 |
|
492,020 |
| 2026 |
|
821,719 |
|
821,719 |
| 2027 |
|
447,364 |
|
469,944 |
| Thereafter |
|
612,441 |
|
2,011,059 |
|
Total undiscounted |
|
3,059,033 |
|
4,542,369 |
FDC for proved reserves increased by $160.9
million to $3.06 billion at December 31, 2022 from $2.90 billion at
December 31, 2021. FDC for proved plus probable reserves increased
by $259.4 million to $4.54 billion at December 31, 2022 from $4.28
billion at December 31, 2021. The increases in FDC for both proved
and proved plus probable reserves were largely due to: (i) an
increase in DCCET costs for future locations in Gordondale to $5.3
million per well from $5.1 million per well at December 31, 2021
and in Pouce Coupe to $5.3 million per well from $4.7 million per
well at December 31, 2021; and (ii) an increase in future
sustaining and gas gathering infrastructure capital in Pouce Coupe
at December 31, 2022.
The FDC for both proved and proved plus probable
reserves are primarily the capital costs required to drill, case,
complete, equip and tie-in the net undeveloped locations. The
estimates of FDC on a proved and proved plus probable basis also
include approximately $256 million (unescalated) for the continued
expansion of the Pouce Coupe Gas Plant from the existing 340 MMcf/d
to 660 MMcf/d of total throughput. The FDC for the expansion of the
Pouce Coupe Gas Plant also include the costs of the related
gathering pipelines and maintenance capital.
The following table sets forth the average cost
to drill, case, complete, equip and tie-in a multi-stage fractured
horizontal well as estimated by Deloitte:
|
Average Well Cost |
December 31, 2022($ millions) |
December 31, 2021($ millions) |
| Pouce Coupe |
5.3 |
4.7 |
|
Gordondale |
5.3 |
5.1 |
Finding and Development
Costs
The following table sets forth Birchcliff’s
F&D costs per boe for its PDP, total proved and total proved
plus probable reserves for the five previous financial years,
including FDC:
|
F&D costs ($/boe)(1) |
2022(2) |
2021 |
2020 |
2019 |
2018 |
5-Year Average |
|
Proved Developed Producing |
$10.24(3) |
$5.88 |
$10.16 |
$8.65 |
$8.75 |
$8.62 |
|
Total Proved |
$82.02(4) |
$10.50 |
$7.08 |
$7.84 |
$0.64 |
$8.66 |
|
Total Proved Plus Probable |
n/a(5) |
$13.57 |
$6.66 |
$6.22 |
$1.27 |
$9.19 |
(1) Supplementary financial measure. See “Non-GAAP and Other
Financial Measures”. See “Advisories – Oil and Gas Metrics” for a
description of the methodology used to calculate F&D costs.
Birchcliff had negligible capital and reserves additions associated
with its acquisitions and dispositions in 2022, resulting in its
FD&A costs approximating F&D costs for PDP, proved and
proved plus probable reserves categories.(2) Birchcliff’s F&D
capital expenditures were $364.6 million in 2022, which included:
(i) $36.1 million in DCCET capital expenditures associated with the
acceleration of the Corporation’s 2023 capital program for which
there was no production or PDP reserves assigned at year-end 2022;
and (ii) $44.4 million in major infrastructure turnarounds and gas
gathering capital where the benefits are expected to be realized
over several years.(3) Birchcliff added 35.6 MMboe of PDP reserves
in 2022, after adding back 2022 actual production of 28.1 MMboe.(4)
Includes the 2022 increase in FDC (excluding acquisitions and
dispositions) from 2021 of $159.4 million on a proved basis.
Birchcliff added 6.4 MMboe of proved reserves in 2022, after adding
back 2022 actual production of 28.1 MMboe.(5) Includes the 2022
increase in FDC (excluding acquisitions and dispositions) from 2021
of $256.7 million on a proved plus probable basis. Birchcliff’s
proved plus probable reserves decreased by 7.9 MMboe in 2022, after
adding back 2022 actual production of 28.1 MMboe. As a result of
the year-over-year decrease in proved plus probable reserves, the
calculation for F&D costs for this reserves category was not
applicable in 2022.
Recycle Ratios
The following table sets forth Birchcliff’s
F&D recycle ratios, on an operating netback and adjusted funds
flow basis, for its PDP, total proved and total proved plus
probable reserves for 2022 and 2021, including FDC:
|
Reserves Category |
Operating NetbackRecycle
Ratio(1)(2) |
Adjusted Funds Flow Recycle
Ratio(1)(3) |
|
2022 |
2021 |
2022 |
2021 |
|
Proved Developed Producing |
3.2x |
3.7x |
3.3x |
3.2x |
| Total Proved |
0.4x |
2.0x |
0.4x |
1.8x |
| Total
Proved Plus Probable |
n/a(4) |
1.6x |
n/a(4) |
1.4x |
(1) Non-GAAP ratio. See “Non-GAAP and Other Financial
Measures”.(2) Birchcliff’s operating netback was $32.85/boe in 2022
as compared to $21.50/boe in 2021.(3) Birchcliff’s adjusted funds
flow was $33.97/boe in 2022 as compared to $18.83/boe in 2021.(4)
As a result of the year-over-year decrease in proved plus probable
reserves, the calculations for operating netback and adjusted funds
flow recycle ratios for this reserves category were not applicable
in 2022.
Reserves Replacement
The following table sets forth Birchcliff’s 2022
reserves replacement on an F&D basis for its PDP, total proved
and total proved plus probable reserves:
|
Reserves Category |
2022 Reserves Replacement(1) |
|
Proved Developed Producing |
127% |
|
Total Proved |
23% |
|
Total Proved Plus Probable(2) |
(28%) |
(1) See “Advisories – Oil and Gas Metrics” for a
description of the methodology used to calculate reserves
replacement.(2) Birchcliff’s proved plus probable reserves
decreased by 7.9 MMboe in 2022, after adding back 2022 actual
production of 28.1 MMboe.
Reserves Life Index
The following table sets forth Birchcliff’s
reserves life index for its PDP, total proved and total proved plus
probable reserves at December 31, 2022:
|
Reserves Category |
Reserves Life Index(1) |
|
Proved Developed Producing |
7.5 years |
|
Total Proved |
22.3 years |
|
Total Proved Plus Probable |
32.9 years |
(1) Based on a forecast production rate of 82,000 boe/d, which
represents the mid-point of Birchcliff’s annual average production
guidance range for 2023. See “Advisories – Oil and Gas Metrics” for
a description of the methodology used to calculate reserves life
index.
Net Asset Value
The following table sets forth Birchcliff’s net
asset value for its PDP, total proved and total proved plus
probable reserves at December 31, 2022:
|
|
Proved Developed Producing |
Total Proved |
Total Proved Plus Probable |
|
($000s, except per share amounts) |
2022 |
2021 |
2022 |
2021 |
2022 |
2021 |
|
Reserves, NPV10%(1) |
3,270,335 |
2,490,206 |
6,454,201 |
4,966,920 |
8,155,976 |
6,367,284 |
| Total debt(2) |
(138,549) |
(499,397) |
(138,549) |
(499,397) |
(138,549) |
(499,397) |
|
Preferred shares(3) |
- |
(88,268) |
- |
(88,268) |
- |
(88,268) |
|
Value of unexercised securities(4) |
110,136 |
50,392 |
110,136 |
50,392 |
110,136 |
50,392 |
|
Net asset value(5)(6) |
3,241,922 |
1,952,933 |
6,425,788 |
4,429,647 |
8,127,563 |
5,830,011 |
|
Net asset value (per common share)(6)(7) |
$11.32 |
$6.89 |
$22.43 |
$15.62 |
$28.37 |
$20.56 |
(1) Represents the net present value of the future net revenue
(before income taxes, discounted at 10%) of Birchcliff’s PDP, total
proved and total proved plus probable reserves, as applicable, as
estimated by Deloitte effective December 31, 2022 and December 31,
2021, using forecast prices and costs.(2) Capital management
measure. See “Non-GAAP and Other Financial Measures”.(3) Represents
the aggregate redemption value of the Corporation’s Series A and
Series C preferred shares, which were redeemed by the Corporation
on September 30, 2022.(4) Represents the value of unexercised
in-the-money stock options and performance warrants outstanding at
December 31, 2022. The closing trading price on the Toronto Stock
Exchange of Birchcliff’s common shares on December 30, 2022 and
December 31, 2021 was $9.43 and $6.46, respectively.(5) Excludes
any value from undeveloped land and seismic.(6) Net asset value is
a non-GAAP financial measure and net asset value per common share
is a non-GAAP ratio. See “Non-GAAP and Other Financial
Measures”.(7) For 2022, based on 286.4 million common shares, which
includes 266.0 million basic common shares outstanding at December
31, 2022 and 20.4 million dilutive common shares from unexercised
in-the-money stock options and performance warrants outstanding at
December 31, 2022. For 2021, based on 283.6 million common shares,
which includes 264.8 million basic common shares outstanding at
December 31, 2021 and 18.8 million dilutive common shares from
unexercised in-the-money stock options and performance warrants
outstanding at December 31, 2021.
Reserves on the Montney/Doig Resource
Play
The following table summarizes the estimates of
reserves attributable to Birchcliff’s horizontal wells on the
Montney/Doig Resource Play as contained in the 2022 Reserves Report
and the number of horizontal wells to which reserves were
attributed:
Montney/Doig Resource Play Reserves
Data(1)(2)
|
|
Shale Gas (Bcf) |
Light Crude Oil and Medium Crude Oil
Combined(Mbbls) |
NGLs(Mbbls) |
Total(Mboe) |
Existing Horizontal Wells and Potential Future Horizontal
Well Locations |
|
Gross |
Net |
|
Reserves Category |
2022 |
2021 |
2022 |
2021 |
2022 |
2021 |
2022 |
2021 |
2022 |
2021 |
2022 |
2021 |
|
Proved Developed Producing |
1,062 |
1,016 |
6,308 |
6,575 |
36,638 |
37,790 |
220,017 |
213,712 |
513 |
472 |
511.4 |
469.7 |
|
Total Proved |
3,363 |
3,448 |
15,541 |
17,779 |
86,958 |
93,155 |
663,002 |
685,673 |
982 |
965 |
980.2 |
962.4 |
|
Total Proved Plus Probable |
4,894 |
5,038 |
25,861 |
29,874 |
137,243 |
146,334 |
978,818 |
1,015,869 |
1,224 |
1,205 |
1,213.4 |
1,201.4 |
(1) Estimates of reserves and future net revenue for individual
properties may not reflect the same confidence level as estimates
of reserves and future net revenue for all properties, due to the
effects of aggregation.(2) At December 31, 2022, the estimated FDC
for Birchcliff’s reserves on its Montney/Doig Resource Play is
$3,056 million on a total proved basis (as compared to $2,895
million at December 31, 2021) and $4,537 million on a total proved
plus probable basis (as compared to $4,278 million at December 31,
2021).
POTENTIAL FUTURE DRILLING OPPORTUNITIES
ON THE MONTNEY/DOIG RESOURCE PLAY
Birchcliff’s operations are primarily
concentrated in its core areas of Pouce Coupe and Gordondale. At
December 31, 2022, Birchcliff held 226.7 (214.2 net) sections of
contiguous land that have potential for the Montney/Doig Resource
Play in Pouce Coupe and Gordondale. The 2022 Reserves Report
attributed proved plus probable reserves to 694 potential net
future horizontal drilling locations in Pouce Coupe and Gordondale
(excluding Elmworth). In addition, at December 31, 2022 Birchcliff
had approximately 3,079 potential net future horizontal drilling
locations in Pouce Coupe and Gordondale (excluding Elmworth) that
have not had any proved or probable reserves attributed to them by
Deloitte. Over the past few years, Birchcliff has worked diligently
to divest non-core properties and to direct its production to the
Pouce Coupe Gas Plant and the AltaGas Facility, resulting in over
99% of Birchcliff’s production being associated with Pouce Coupe
and Gordondale at December 31, 2022. See “2022 Year-End Reserves”
and “Advisories – Potential Future Drilling Locations”.
ABBREVIATIONS
|
AECO |
benchmark price for natural gas determined at the AECO ‘C’ hub in
southeast Alberta |
|
bbl |
barrel |
|
bbls |
barrels |
|
bbls/d |
barrels per day |
|
Bcf |
billion cubic feet |
|
boe |
barrel of oil equivalent |
|
boe/d |
barrel of oil equivalent per day |
|
condensate |
pentanes plus (C5+) |
|
DCCET |
drill, case, complete, equip and tie-in |
|
F&D |
finding and development |
|
FD&A |
finding, development and acquisition |
|
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 |
|
Mbbls |
thousand barrels |
|
Mboe |
thousand barrels of oil equivalent |
|
Mcf |
thousand cubic feet |
|
Mcf/d |
thousand cubic feet per day |
|
MMboe |
million barrels of oil equivalent |
|
MMBtu |
million British thermal units |
|
MMBtu/d |
million British thermal units per day |
|
MMcf |
million cubic feet |
|
MMcf/d |
million cubic feet per day |
|
MPa |
megapascal |
|
MSW |
price for mixed sweet crude oil at Edmonton, Alberta |
|
NGLs |
natural gas liquids |
|
NPV |
net present value |
|
NGTL |
NOVA Gas Transmission Ltd. |
|
NYMEX |
New York Mercantile Exchange |
|
OPEC |
Organization of the Petroleum Exporting Countries |
|
WTI |
West Texas Intermediate, the reference price paid in U.S. dollars
at Cushing, Oklahoma, for crude oil of standard grade |
|
000s |
thousands |
|
$000s |
thousands of dollars |
NON-GAAP AND OTHER FINANCIAL
MEASURES
This press release uses various “non-GAAP
financial measures”, “non-GAAP ratios”, “supplementary financial
measures” and “capital management measures” (as such terms are
defined in NI 52-112), which are described in further detail below.
These measures facilitate management’s comparisons to the
Corporation’s historical operating results in assessing its results
and strategic and operational decision-making and may be used by
financial analysts and others in the oil and natural gas industry
to evaluate the Corporation’s performance.
Non-GAAP Financial Measures
NI 52-112 defines a non-GAAP financial measure
as a financial measure that: (i) depicts the historical or expected
future financial performance, financial position or cash flow of an
entity; (ii) with respect to its composition, excludes an amount
that is included in, or includes an amount that is excluded from,
the composition of the most directly comparable financial measure
disclosed in the primary financial statements of the entity; (iii)
is not disclosed in the financial statements of the entity; and
(iv) is not a ratio, fraction, percentage or similar
representation. The non-GAAP financial measures used in this press
release are not standardized financial measures under GAAP and
might not be comparable to similar measures presented by other
companies where similar terminology is used. Investors are
cautioned that non-GAAP financial measures should not be construed
as alternatives to or more meaningful than the most directly
comparable GAAP measures as indicators of Birchcliff’s performance.
Set forth below is a description of the non-GAAP financial measures
used in this press release.
Adjusted Funds Flow and Free Funds
Flow
Birchcliff defines “adjusted funds flow” as cash
flow from operating activities before the effects of
decommissioning expenditures and changes in non-cash operating
working capital. Birchcliff eliminates settlements of
decommissioning expenditures from cash flow from operating
activities as the amounts can be discretionary and may vary from
period to period depending on its capital programs and the maturity
of its operating areas. The settlement of decommissioning
expenditures is managed with Birchcliff’s capital budgeting process
which considers available adjusted funds flow. Changes in non-cash
operating working capital are eliminated in the determination of
adjusted funds flow as the timing of collection and payment are
variable and by excluding them from the calculation, the
Corporation believes that it is able to provide a more meaningful
measure of its operations and ability to generate cash on a
continuing basis. Adjusted funds flow can also be derived from
petroleum and natural gas revenue less royalty expense, operating
expense, transportation and other expense, net G&A expense,
interest expense and any realized losses (plus realized gains) on
financial instruments and plus any other cash income 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.
The most directly comparable GAAP measure for
adjusted funds flow and free funds flow is cash flow from operating
activities. The following table provides a reconciliation of cash
flow from operating activities, as determined in accordance with
GAAP, to adjusted funds flow and free funds flow for the periods
indicated:
|
|
Three months endedDecember
31, |
Twelve months endedDecember
31, |
|
($000s) |
2022 |
2021 |
2022 |
2021 |
|
Cash flow from operating activities |
224,447 |
196,142 |
925,275 |
515,369 |
|
Change in non-cash operating working capital |
(7,919) |
(4,255) |
25,662 |
21,161 |
|
Decommissioning expenditures |
571 |
1,762 |
2,746 |
3,203 |
|
Adjusted funds flow |
217,099 |
193,649 |
953,683 |
539,733 |
|
F&D capital expenditures |
(106,762) |
(35,726) |
(364,621) |
(230,479) |
|
Free funds flow |
110,337 |
157,923 |
589,062 |
309,254 |
Transportation and Other
Expense
Birchcliff defines “transportation and other
expense” as transportation expense plus marketing purchases less
marketing revenue. Birchcliff primarily enters 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 and marketing activities. The most directly
comparable GAAP measure for transportation and other expense is
transportation expense. The following table provides a
reconciliation of transportation expense, as determined in
accordance with GAAP, to transportation and other expense for the
periods indicated:
|
|
Three months endedDecember
31, |
Twelve months endedDecember
31, |
|
($000s) |
2022 |
2021 |
2022 |
2021 |
|
Transportation expense |
38,793 |
37,454 |
155,864 |
140,574 |
|
Marketing purchases |
9,529 |
5,413 |
17,866 |
11,127 |
|
Marketing revenue |
(8,916) |
(6,169) |
(18,806) |
(13,687) |
|
Transportation and other expense |
39,406 |
36,698 |
154,924 |
138,014 |
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 the components of
Birchcliff’s operating netback for the periods indicated:
|
|
Three months endedDecember
31, |
Twelve months endedDecember
31, |
|
($000s) |
2022 |
2021 |
2022 |
2021 |
|
Petroleum and natural gas revenue |
320,358 |
289,806 |
1,340,180 |
932,406 |
|
Royalty expense |
(35,679) |
(28,452) |
(161,226) |
(76,271) |
|
Operating expense |
(29,783) |
(25,315) |
(101,581) |
(91,515) |
|
Transportation and other expense |
(39,406) |
(36,698) |
(154,924) |
(148,575) |
|
Operating netback |
215,490 |
199,341 |
922,449 |
616,045 |
Total Capital Expenditures
Birchcliff defines “total capital expenditures”
as exploration and development expenditures, plus acquisitions,
less dispositions 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 measure for total capital expenditures is
exploration and development expenditures. The following table
provides a reconciliation of exploration and development
expenditures, as determined in accordance with GAAP, to total
capital expenditures for the periods indicated:
|
|
Three months endedDecember
31, |
Twelve months endedDecember
31, |
|
($000s) |
2022 |
2021 |
2022 |
2021 |
|
Exploration and development expenditures(1) |
106,762 |
35,726 |
364,621 |
230,479 |
|
Acquisitions |
- |
56 |
2,348 |
175 |
|
Dispositions |
- |
- |
(315) |
108 |
|
Administrative assets |
709 |
293 |
1,576 |
1,718 |
|
Total capital expenditures |
107,471 |
36,075 |
368,230 |
232,480 |
(1) Disclosed as F&D capital expenditures elsewhere in this
press release. See “Advisories – F&D Capital Expenditures”.
Net Asset Value
Birchcliff defines “net asset value” as
petroleum and natural gas properties and equipment, plus reserves
premium adjustment (less reserves discount adjustment) for its PDP,
total proved and total proved plus probable reserves (as the case
may be), less total debt, less the redemption value of the Series A
and Series C preferred shares outstanding at the end of the period
(if any) and plus the value of unexercised in-the-money stock
options and performance warrants outstanding at the end of the
period. Management believes that net asset value assists management
and investors in assessing the long-term fair value of Birchcliff’s
underlying reserves assets after settling its outstanding financial
obligations. The most directly comparable GAAP measure for net
asset value is petroleum and natural gas properties and equipment.
The following table provides a reconciliation of petroleum and
natural gas properties and equipment, as determined in accordance
with GAAP, to net asset value for the periods indicated:
|
|
Proved Developed Producing |
Total Proved |
Total Proved Plus Probable |
|
($000s) |
2022 |
2021 |
2022 |
2021 |
2022 |
2021 |
|
Petroleum and natural gas properties and
equipment |
2,972,592 |
2,852,232 |
2,972,592 |
2,852,232 |
2,972,592 |
2,852,232 |
|
Reserves premium (discount) adjustment(1) |
297,708 |
(362,026) |
3,481,608 |
2,114,688 |
5,183,408 |
3,515,052 |
|
Total debt |
(138,549) |
(499,397) |
(138,549) |
(499,397) |
(138,549) |
(499,397) |
|
Preferred shares(2) |
- |
(88,268) |
- |
(88,268) |
- |
(88,268) |
|
Value of unexercised securities |
110,136 |
50,392 |
110,136 |
50,392 |
110,136 |
50,392 |
|
Net asset value |
3,241,887 |
1,952,933 |
6,425,787 |
4,429,647 |
8,127,587 |
5,830,011 |
(1) Represents the premium or discount, as the case may be,
between the net present value of future net revenue (before income
taxes, discounted at 10%) of Birchcliff’s PDP, total proved and
total proved plus probable reserves, as the case may be, and the
petroleum and natural gas properties and equipment disclosed on the
financial statements.(2) Represents the aggregate redemption value
of the Corporation’s Series A and Series C preferred shares, which
were redeemed by the Corporation on September 30, 2022.
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
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, as determined in accordance
with GAAP, to effective total natural gas sales and effective total
corporate sales for the periods indicated:
|
|
Three months endedDecember
31 |
|
($000s) |
2022 |
2021 |
|
Natural gas sales |
217,822 |
192,553 |
|
Realized gain on financial instruments |
18,764 |
11,531 |
|
Notional fixed basis costs(1) |
21,645 |
21,687 |
|
Effective total natural gas sales |
258,231 |
225,771 |
|
Light oil sales |
25,588 |
22,232 |
|
Condensate sales |
50,712 |
48,377 |
|
NGLs sales |
26,224 |
26,634 |
|
Effective total corporate sales |
360,755 |
323,014 |
(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 where similar terminology is used. Set
forth below is a description of the non-GAAP ratios used in this
press release.
Adjusted Funds Flow Per Boe and Adjusted
Funds Flow Per Basic Common Share
Birchcliff calculates “adjusted funds flow per
boe” as aggregate adjusted funds flow in the period divided by the
production (boe) in the period. Management believes that adjusted
funds flow per boe assists management and investors in assessing
Birchcliff’s financial profitability and sustainability on a cash
basis by isolating the impact of production volumes to better
analyze its performance against prior periods on a comparable
basis. The Corporation previously referred to adjusted funds flow
per boe as “adjusted funds flow netback”.
Birchcliff calculates “adjusted funds flow per
basic common share” as aggregate adjusted funds flow in the period
divided by the 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 generate
shareholder returns on a per common share basis.
Transportation and Other Expense Per
Boe
Birchcliff calculates “transportation and other
expense per boe” as aggregate transportation and other expense in
the period divided by the production (boe) in the period.
Management believes that transportation and other expense per boe
assists management and investors in assessing Birchcliff’s cost
structure as it relates to its transportation and marketing
activities by isolating the impact of production volumes to better
analyze its performance against prior periods on a comparable
basis.
Operating Netback Per Boe
Birchcliff calculates “operating netback per
boe” as aggregate operating netback in the period divided by the
production (boe) in the period. Management believes that operating
netback per boe assists management and investors in assessing
Birchcliff’s operating profitability and sustainability by
isolating the impact of production volumes to better analyze its
performance against prior periods on a comparable basis.
Operating Netback Recycle Ratio and
Adjusted Funds Flow Recycle Ratio
Birchcliff calculates “recycle ratio” as
operating netback per boe or adjusted funds flow per boe in the
period, as the case may be, divided by F&D costs for its PDP,
proved and proved plus probable reserves, as the case may be, in
the period. Management believes that recycle ratios assist
management and investors in assessing Birchcliff’s ability to
profitably find and develop its PDP, proved and proved plus
probable reserves.
Net Asset Value Per Common
Share
Birchcliff calculates “net asset value per
common share” as the net asset value in each category of reserves
divided by the aggregate of the basic common shares and in-the
money dilutive common shares attributable to stock options and
performance warrants outstanding at the end of the period.
Management believes that net asset value per common share assists
management and investors in comparing Birchcliff’s common share
trading price to the underlying fair market value of its net assets
on a per common share basis.
Effective Average Realized Sales Price –
Total Corporate, Total Natural Gas, AECO Market and NYMEX HH
Market
Birchcliff calculates “effective average
realized sales price” as effective sales, in each of total
corporate, total natural gas, AECO market and NYMEX HH market, as
the case may be, divided by the effective production in each of the
markets during the period. Management believes that disclosing
effective average realized sales price for each natural gas market
assists management and investors in comparing Birchcliff’s
commodity price realizations in each natural gas market on a per
unit basis.
Supplementary Financial
Measures
NI 52-112 defines a supplementary financial
measure as a financial measure that: (i) is, or is intended to be,
disclosed on a periodic basis to depict the historical or expected
future financial performance, financial position or cash flow of an
entity; (ii) is not disclosed in the financial statements of the
entity; (iii) is not a non-GAAP financial measure; and (iv) is not
a non-GAAP ratio. The supplementary financial measures used in this
press release are either a per unit disclosure of a corresponding
GAAP measure, or a component of a corresponding GAAP measure,
presented in the financial statements. Supplementary financial
measures that are disclosed on a per unit basis are calculated by
dividing the aggregate GAAP measure (or component thereof) by the
applicable unit for the period. Supplementary financial measures
that are disclosed on a component basis of a corresponding GAAP
measure are a granular representation of a financial statement line
item and are determined in accordance with GAAP.
The supplementary financial measures used in
this press release include: 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) income per boe; dividends on preferred shares per boe;
natural gas transportation costs per Mcf; natural gas sales netback
per Mcf; PDP F&D costs per boe; total proved F&D costs per
boe; and total proved plus probable F&D costs per boe.
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) |
December 31, 2022 |
December 31, 2021 |
|
Revolving term credit facilities |
131,981 |
500,870 |
|
Working capital deficit (surplus)(1) |
(7,902) |
53,312 |
|
Fair value of financial instruments - assets(2) |
17,729 |
69 |
|
Fair value of financial instruments - liability(2) |
(1,345) |
16,586 |
|
Other liabilities(2) |
(1,914) |
- |
|
Capital securities |
- |
(38,268) |
|
Total debt(3) |
138,549 |
499,397 |
(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.
PRESENTATION OF OIL AND GAS
RESERVES
Deloitte prepared the 2022 Reserves Report and
the 2021 Reserves Report. In addition, Deloitte prepared a reserves
evaluation in respect of Birchcliff’s oil and natural gas
properties effective December 31, 2020. Such evaluations were
prepared in accordance with the standards contained in NI 51-101
and the COGE Handbook that were in effect at the relevant time.
Reserves estimates stated herein are extracted from the relevant
evaluation.
There are numerous uncertainties inherent in
estimating quantities of oil, natural gas and NGLs reserves and the
future net revenue attributed to such reserves. The reserves and
associated future net revenue information set forth in this press
release are estimates only. In general, estimates of economically
recoverable oil, natural gas and NGLs reserves and the future net
revenue therefrom are based upon a number of variable factors and
assumptions, such as historical production from the properties,
production rates, ultimate reserves recovery, the timing and amount
of capital expenditures, marketability of oil, natural gas and
NGLs, royalty rates, the assumed effects of regulation by
governmental agencies and future operating costs, all of which may
vary materially from actual results. For these reasons, estimates
of the economically recoverable oil, natural gas and NGLs reserves
attributable to any particular group of properties, the
classification of such reserves based on risk of recovery and
estimates of future net revenue associated with reserves prepared
by different engineers, or by the same engineer at different times,
may vary. Birchcliff’s actual production, revenue, taxes and
development and operating expenditures with respect to its reserves
will vary from estimates thereof and such variations could be
material.
It should not be assumed that the undiscounted
or discounted net present value of future net revenue attributable
to the Corporation’s reserves estimated by the Corporation’s
independent qualified reserves evaluator represent the fair market
value of those reserves. There is no assurance that the forecast
prices and costs assumptions will be attained and variances could
be material. Actual oil, natural gas and NGLs reserves may be
greater than or less than the estimates provided herein and
variances could be material. With respect to the disclosure of
reserves contained herein relating to portions of Birchcliff’s
properties, the estimates of reserves and future net revenue for
individual properties may not reflect the same confidence level as
estimates of reserves and future net revenue for all properties,
due to the effects of aggregation.
In this press release, unless otherwise stated
all references to “reserves” are to Birchcliff’s gross company
reserves (Birchcliff’s working interest (operating or
non-operating) share before deduction of royalties and without
including any royalty interests of Birchcliff).
The information set forth in this press release
relating to the reserves, future net revenue and future development
costs of Birchcliff constitutes forward-looking statements and is
subject to certain risks and uncertainties. See “Advisories –
Forward-Looking Statements”.
Certain terms used herein but not defined are
defined in NI 51-101, CSA Staff Notice 51-324 – Revised Glossary to
NI 51-101 Standards of Disclosure for Oil and Gas Activities
(“CSA Staff Notice 51-324”) and/or the COGE
Handbook and, unless the context otherwise requires, shall have the
same meanings herein as in NI 51-101, CSA Staff Notice 51-324 and
the COGE Handbook, as the case may be.
ADVISORIES
Unaudited Information
All financial information contained in this
press release for the fourth quarter and year ended December 31,
2022, such as F&D costs, recycle ratio, net asset value,
adjusted funds flow, F&D capital expenditures, free funds flow,
operating expense and total debt, is based on unaudited estimated
financial information which has been disclosed in accordance with
GAAP and has not been reviewed by the Corporation’s auditor. These
estimated results are subject to change upon completion of the
audited financial statements for the year ended December 31, 2022,
and changes could be material. Birchcliff anticipates filing its
audited financial statements and related management’s discussion
and analysis for the year ended December 31, 2022 on SEDAR on March
15, 2023.
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 F&D costs,
reserves life index, reserves replacement, recycle ratio, net asset
value and netbacks, which have been determined by Birchcliff as set
out below. These oil and gas metrics do not have any standardized
meanings or standard methods of calculation and therefore may not
be comparable to similar measures presented by other companies
where similar terminology is used. As such, they should not be used
to make comparisons. Management uses these oil and gas metrics for
its own performance measurements and to provide shareholders 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.
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With respect to F&D costs:
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F&D costs for PDP, proved or proved plus probable reserves, as
the case may be, are calculated by taking the sum of: (i)
exploration and development costs (F&D capital expenditures)
incurred in the period; and (ii) where appropriate, the change
during the period in FDC for the reserves category; divided by the
additions to the reserves category after adding back production in
the period. F&D costs exclude the effects of acquisitions and
dispositions.
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In calculating the amounts of F&D costs for a year, the
additions during the year in estimated reserves and the change
during the period in estimated FDC are based upon the evaluations
of Birchcliff’s reserves prepared by its independent qualified
reserves evaluators, effective December 31 of such year. Birchcliff
calculates the 5-year average F&D costs per boe as total
aggregate F&D capital expenditures divided by total aggregate
reserves additions for the 5-year period, on a PDP, total proved
and total proved plus probable basis, as the case may be.
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The aggregate of the exploration and development costs incurred in
the most recent financial year and the change during that year in
estimated FDC generally will not reflect total F&D costs
related to reserves additions for that year.
-
F&D costs may be used as a measure of the Corporation’s
efficiency with respect to finding and developing its
reserves.
-
Reserves life index is calculated by dividing PDP, proved or proved
plus probable reserves, as the case may be, estimated by
Birchcliff’s independent qualified reserves evaluator at December
31, 2022, by the mid-point of the average annual production
guidance range for the period indicated. Reserves life index may be
used as a measure of the Corporation’s sustainability.
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Reserves replacement is calculated by dividing PDP, proved or
proved plus probable reserves additions, as the case may be, before
production by total annual production in the applicable period.
Reserves replacement may be used as a measure of the Corporation’s
sustainability and its ability to replace its PDP, proved or proved
plus probable reserves, as the case may be.
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For information regarding recycle ratios and how such metrics are
calculated, see “Non-GAAP and Other Financial Measures”.
-
For information regarding net asset value and how such metric is
calculated, see “Non-GAAP and Other Financial Measures”.
-
For information regarding netbacks and how such metrics are
calculated, see “Non-GAAP and Other Financial Measures”.
Potential Future Drilling
Locations
This press release discloses potential net
future horizontal drilling locations, specifically: in Pouce Coupe
and Gordondale, 694 potential net future horizontal drilling
locations to which proved plus probable reserves have been
attributed by Deloitte, and approximately 3,079 unbooked potential
net future horizontal drilling locations.
Proved plus probable locations consist of
proposed drilling locations identified in the 2022 Reserves Report
that have proved and/or probable reserves, as applicable,
attributed to them. Unbooked locations are internal estimates based
on Birchcliff’s prospective acreage and an assumption as to the
number of wells that can be drilled per section based on industry
practice and internal technical analysis review. Unbooked locations
have been identified by management as an estimate of Birchcliff’s
multi-year drilling activities based on evaluation of applicable
geologic, seismic, engineering, production and reserves
information. Unbooked locations do not have proved or probable
reserves attributed to them in the 2022 Reserves Report.
Birchcliff’s ability to drill and develop these
locations and the drilling locations on which Birchcliff actually
drills wells depends on a number of uncertainties and factors,
including, but not limited to, the availability of capital,
equipment and personnel, oil and natural gas prices, costs,
inclement weather, seasonal restrictions, drilling results,
additional geological, geophysical and reservoir information that
is obtained, production rate recovery, gathering system and
transportation constraints, the net price received for commodities
produced, regulatory approvals and regulatory changes. As a result
of these uncertainties, there can be no assurance that the
potential future drilling locations that Birchcliff has identified
will ever be drilled and, if drilled, that such locations will
result in additional oil, condensate, NGLs or natural gas
production and, in the case of unbooked locations, additional
reserves. As such, Birchcliff’s actual drilling activities may
differ materially from those presently identified, which could
adversely affect Birchcliff’s business. While certain of the
unbooked drilling locations have been de-risked by drilling
existing wells in relatively close proximity to such unbooked
drilling locations, some of the other unbooked drilling locations
are farther away from existing wells, where management has less
information about the characteristics of the reservoir and there is
therefore more uncertainty whether wells will be drilled in such
locations and, if drilled, there is more uncertainty that such
wells will result in additional proved or probable reserves,
resources or production.
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 9-well 06-35 pad in Pouce Coupe disclosed herein,
such rates represent the cumulative volumes for each well measured
at the wellhead separator for the 30 and 60 days (as applicable) of
production immediately after each well was considered stabilized
after producing fracture treatment fluid back to surface in an
amount such that flow rates of hydrocarbons became reliable
(between 1 and 2 days), divided by 30 or 60 (as applicable), which
were then added together to determine the aggregate production
rates for the 9-well pad and then divided by 9 to determine the per
well average production rates. The production rates excluded the
hours and days when the wells did not produce. Approximate tubing
pressures for the 9 wells were stabilized between 3.1 and 3.2 MPa
for IP 30 production rates and between 2.9 and 3.1 MPa for IP 60
production rates. Approximate casing pressures for the 9 wells were
stabilized between 6.1 and 10.2 MPa for IP 30 production rates and
between 5.5 and 8.8 MPa for IP 60 production rates.
To-date, no pressure transient or well-test
interpretation has been carried out on any of the wells. The
natural gas volumes represent raw natural gas volumes as opposed to
sales gas volumes.
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 NI 51-101; (ii) except
where otherwise stated, references to “liquids” mean “light crude
oil and medium crude oil” and “natural gas liquids” (including
condensate) as such terms are defined in NI 51-101; and (iii)
references to “natural gas” mean “shale gas”, which also includes
an immaterial amount of “conventional natural gas”, as such terms
are defined in NI 51-101. In addition, NI 51-101 includes
condensate within the product type of natural gas liquids. In
certain cases, Birchcliff has disclosed condensate separately from
other natural gas liquids as the price of condensate as compared to
other natural gas liquids is currently significantly higher and
Birchcliff believes presenting the two commodities separately
provides a more accurate description of its operations and results
therefrom.
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 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:
statements regarding Birchcliff’s 2023 outlook and guidance
(including: that for 2023, Birchcliff remains committed to
generating free funds flow, delivering shareholder returns through
the payment of its common share dividend and maintaining capital
discipline; that Birchcliff has the flexibility to adjust its 2023
capital program as necessary to achieve its priorities; that the
annual base dividend of $0.80 per common share for 2023 will be
declared and paid quarterly at the rate of $0.20 per common share,
beginning with the first payment date of March 31, 2023 for those
shareholders of record as of March 15, 2023; and that the
Corporation’s F&D capital program of $260 million to $280
million and base dividend of $0.80 per common share for 2023 remain
fully funded at an average WTI price of US$70.00/bbl, an average
AECO price of CDN$3.00/GJ, an average Dawn price of US$3.25/MMBtu
and an average NYMEX HH price of US$3.35/MMBtu; that the unutilized
credit capacity under the Credit Facilities provides the
Corporation with significant financial flexibility and additional
capital resources to fund its capital expenditure program and
dividend payments if required in the future; and Birchcliff’s
production guidance for 2023);
-
statements under the heading “Operations 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; that the sixth well on the Corporation’s 03-06 pad
that is currently standing may be completed later in the year as
part of the 2023 capital program; that Birchcliff anticipates
providing further details regarding the results of its wells on the
03-06 pad with the release of its audited 2022 results; that the
wells on the 14-06 pad are expected to be on-stream in February
2023; that the Corporation’s two 4-well pads will be completed
later in Q1 2023 and are anticipated to be brought on production in
Q2 2023; and that the Corporation’s 2023 capital program is focused
on optimizing well spacing to maximize economic resource recovery);
and statements regarding the force majeure event that occurred on a
major third-party NGLs transportation pipeline (including the
anticipated timing for the system to resume service);
-
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 estimates of potential future drilling
locations and opportunities;
-
the information set forth under the heading “2022 Year-End
Reserves” and elsewhere in this press release relating to the
Corporation’s reserves (including: that the Corporation’s large
inventory of unbooked potential future drilling locations may have
reserves attributed over time depending on the Corporation’s
drilling programs in subsequent years; that the benefits of major
facility turnarounds and infrastructure enhancement projects are
expected to be realized over several years; estimates of reserves;
estimates of the net present values of future net revenue
associated with Birchcliff’s reserves; forecasts for prices,
inflation and exchange rates; FDC; and reserves life index);
and
-
that Birchcliff anticipates filing its annual information form and
audited financial statements and related management’s discussion
and analysis for the year ended December 31, 2022 on March 15,
2023.
Information relating to reserves is
forward-looking as it involves the implied assessment, based on
certain estimates and assumptions, that the reserves exist in the
quantities predicted or estimated and that the reserves can
profitably be produced in the future. See “Presentation of Oil and
Gas Reserves”.
With respect to the forward‐looking statements
contained in this press release, assumptions have been made
regarding, among other things: the degree to which the
Corporation’s results of operations and financial condition will be
disrupted by circumstances attributable to the COVID-19 pandemic;
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:
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With respect to the estimate of capital expenditures for 2023, such
estimate 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.
-
With respect to Birchcliff’s production guidance for 2023, such
guidance assumes that: the Corporation’s capital program 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.
-
With respect to statements of future wells to be drilled and
brought on production and estimates of potential future drilling
locations and opportunities, such statements and estimates 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.
-
With respect to estimates of reserves volumes and the net present
values of future net revenue associated with Birchcliff’s reserves,
the key assumption is the validity of the data used by Deloitte in
the 2022 Reserves Report.
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; 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”.
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|
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 |
Birchcliff Energy (TSX:BIR)
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From Jan 2025 to Feb 2025
Birchcliff Energy (TSX:BIR)
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From Feb 2024 to Feb 2025
