Birchcliff Energy Ltd. (“
Birchcliff” or the
“
Corporation”) (TSX: BIR) is pleased to announce
its Q1 2022 financial and operational results, the doubling of its
quarterly common share dividend for the quarter ending June 30,
2022 and plans to further increase the Corporation’s common share
dividend in 2023.
“We continue to be committed to maximizing free
funds flow generation and significantly reducing indebtedness. I am
pleased to report that Birchcliff delivered on both fronts in Q1
2022. Our quarterly average production was 76,024 boe/d and we
generated quarterly adjusted funds flow(1) of $183.7 million and
record first quarter free funds flow(1) of $95.4 million. As a
result of the free funds flow we generated in the quarter, we were
able to significantly reduce our total debt(2) at March 31, 2022 by
$368.4 million (47%) from March 31, 2021 and by $90.4 million (18%)
from December 31, 2021,” commented Jeff Tonken, Chief Executive
Officer of Birchcliff.
Mr. Tonken continued: “Based on the strength of
the forward commodity price environment and our excellent results
year-to-date, we have increased our full-year 2022 targets for
adjusted funds flow to $1.18 billion and free funds flow to $920
million to $940 million(3) and updated our five year plan for 2022
to 2026. We expect to reach zero total debt in Q4 2022 and have a
surplus(2) of $260 million to $280 million at year-end 2022(3). As
a result, we have accelerated our plans for increasing shareholder
returns. Our board of directors has declared a doubled quarterly
common share dividend of $0.02 per common share for the quarter
ending June 30, 2022. In addition, we are currently targeting
increasing our annual common share dividend in 2023 to at least
$0.80 per share ($212 million annually), subject to commodity
prices and the approval of our board of directors. After the
payment of this targeted common share dividend in 2023, we are
forecasting a surplus of $575 million at year-end 2023(4). We
believe that this increased dividend would be sustainable at an
average WTI price of US$70.00/bbl and an average AECO price of
CDN$3.00/GJ.”
UPDATED OUTLOOK AND INCREASED
SHAREHOLDER RETURNS HIGHLIGHTS
-
Birchcliff is maintaining its previous 2022 guidance for annual
average production at 78,000 to 80,000 boe/d and F&D capital
expenditures at $240 million to $260 million, with F&D capital
expenditures currently anticipated to be on the high end of the
guidance range.
-
Birchcliff anticipates that it will generate adjusted funds flow of
$1.18 billion and free funds flow of $920 million to $940 million
in 2022 based on current strip pricing(3). Birchcliff does not have
any fixed price commodity hedges in place and does not currently
intend to hedge any future production, which allows the Corporation
to take full advantage of the robust commodity price
environment.
-
Subject to the approval of Birchcliff’s board of directors,
Birchcliff currently intends to redeem all of its outstanding
Series A and Series C preferred shares at the end of Q3 2022.
-
Birchcliff expects to reach zero total debt in Q4 2022, even after
the proposed redemption of its Series A and Series C preferred
shares, with an anticipated surplus of $260 million to $280 million
at year-end 2022, based on current strip pricing(3).
-
Birchcliff’s board of directors has declared a quarterly cash
dividend of $0.02 per common share for the quarter ending June 30,
2022, which represents a 100% increase over the prior quarter. This
is the second time in the past twelve months that Birchcliff has
doubled its quarterly common share dividend, which demonstrates
Birchcliff’s commitment to increasing shareholder returns.
-
Birchcliff will consider additional increases to its common share
dividend in 2022, depending on commodity prices and free funds flow
levels, among other things.
-
Subject to commodity prices, Birchcliff achieving its target of
zero total debt in Q4 2022 and the approval of the board of
directors, the Corporation is currently targeting increasing its
annual common share dividend in 2023 to at least $0.80 per common
share, which is expected to be paid quarterly at a rate of $0.20
per share, commencing with the quarter ending March 31, 2023. After
the payment of this targeted common share dividend, the Corporation
is forecasting a surplus of $575 million at year-end 2023(4).
-
This targeted dividend of $0.80 per common share ($212 million
annually)(5) and Birchcliff’s targeted F&D capital expenditures
would be funded over the course of the Corporation’s five year plan
at an average WTI price of US$70.00/bbl, an average AECO price of
CDN$3.00/GJ and average Dawn and NYMEX prices of US$3.30/MMBtu(6).
Assuming these commodity prices, Birchcliff forecasts a surplus of
$218 million at year-end 2023(6).
Q1 2022 HIGHLIGHTS
-
Achieved quarterly average production of 76,024 boe/d, a 1%
increase from Q1 2021. Liquids accounted for 20% of Birchcliff’s
total production in Q1 2022 as compared to 23% in Q1 2021.
-
Generated quarterly adjusted funds flow of $183.7 million, or $0.69
per basic common share(7), a 109% increase from Q1 2021. Cash flow
from operating activities was $154.2 million, an 87% increase from
Q1 2021.
-
Delivered record first quarter free funds flow of $95.4 million, or
$0.36 per basic common share(7).
-
Significantly reduced total debt at March 31, 2022 to $409.0
million, a reduction of $368.4 million (47%) from March 31,
2021.
-
Earned quarterly net income to common shareholders of $125.8
million, or $0.47 per basic common share, a 467% and 488% increase,
respectively, from Q1 2021.
-
Achieved an operating netback(7) of $28.47/boe, a 67% increase from
Q1 2021.
-
Realized an operating expense(8) of $3.49/boe, a 10% increase from
Q1 2021.
-
F&D capital expenditures were $88.3 million in Q1 2022. In Q1
2022, Birchcliff drilled 11 (11.0 net) wells and brought 6 (6.0
net) wells on production.
-
In Q1 2022, Birchcliff purchased 1,303,196 common shares pursuant
to its normal course issuer bid (the “NCIB”) at an
average price of $6.66 per common share for an aggregate gross cost
of $8.7 million (before fees). Year-to-date, Birchcliff has
purchased 4,422,192 common shares pursuant to the NCIB at an
average price of $8.58 per common share for an aggregate gross cost
of $38.0 million (before fees).
Birchcliff’s unaudited interim condensed
financial statements for the three months ended March 31, 2022 and
related management’s discussion and analysis will be available on
its website at www.birchcliffenergy.com and on SEDAR at
www.sedar.com.
EXTENSION OF CREDIT FACILITIES AND
MAINTENANCE OF BORROWING BASE LIMIT
-
Subsequent to the end of Q1 2022, Birchcliff’s syndicate of lenders
completed its regular semi-annual review of the borrowing base
limit under the Corporation’s extendible revolving credit
facilities (the “Credit Facilities”).
-
In connection therewith, the agreement governing the Credit
Facilities was amended effective May 3, 2022 to extend the maturity
dates of each of the syndicated extendible revolving term credit
facility and the extendible revolving working capital facility from
May 11, 2024 to May 11, 2025. In addition, the lenders confirmed
the borrowing base limit at $850.0 million. The Credit Facilities
do not contain any financial maintenance covenants.
This press release contains forward-looking
statements within the meaning of applicable securities laws. For
further information regarding the forward-looking statements
contained herein, see “Advisories – Forward-Looking Statements”.
With respect to the disclosure of Birchcliff’s production contained
in this press release, see “Advisories – Production”. In addition,
this press release uses various “non-GAAP financial measures”,
“non-GAAP ratios”, “supplementary financial measures” and “capital
management measures” as such terms are defined in National
Instrument 52-112 – Non-GAAP and Other Financial Measures
Disclosure (“NI 52-112”). Non-GAAP financial
measures and non-GAAP ratios are not standardized financial
measures under GAAP and might not be comparable to similar
financial measures disclosed by other issuers where similar
terminology is used. For further information regarding the non-GAAP
and other financial measures used in this press release, see
“Non-GAAP and Other Financial Measures”.
________________________
(1) Non-GAAP financial measure. See “Non-GAAP and Other
Financial Measures”.(2) Capital management measure. See “Non-GAAP
and Other Financial Measures”. (3) Birchcliff’s updated guidance
for its adjusted funds flow, free funds flow and surplus in 2022 is
based on an annual average production rate of 79,000 boe/d, which
is the mid-point of Birchcliff’s annual average production range
for 2022. See “Outlook and Guidance – Updated 2022 Guidance” for
further information regarding Birchcliff’s updated guidance for
2022 and its updated commodity price and exchange rate assumptions.
See also “Advisories – Forward-Looking Statements”.(4) See “Outlook
and Guidance – Updated Five Year Outlook and Plans to Increase
Common Share Dividend in 2023” for further information regarding
Birchcliff’s estimate of surplus at year-end 2023 and its updated
commodity price and exchange rate assumptions for the updated five
year plan. See also “Advisories – Forward-Looking Statements”.(5)
Assumes 265 million common shares outstanding.(6) Assuming no other
changes to the Corporation’s targeted metrics under the five year
plan.(7) Non-GAAP ratio. See “Non-GAAP and Other Financial
Measures”.(8) Supplementary financial measure. See “Non-GAAP and
Other Financial Measures”.
Q1 2022 FINANCIAL AND OPERATIONAL
SUMMARY
|
Three months endedMarch 31,
2022 |
Three months endedMarch 31,
2021 |
OPERATING |
|
|
Average production |
|
|
Light oil (bbls/d) |
2,369 |
|
3,355 |
|
Condensate (bbls/d) |
4,796 |
|
5,467 |
|
NGLs (bbls/d) |
7,976 |
|
8,734 |
|
Natural gas (Mcf/d) |
365,296 |
|
345,057 |
|
Total (boe/d) |
76,024 |
|
75,065 |
|
Average realized sales price (CDN$)(1)(2) |
|
|
Light oil (per bbl) |
115.47 |
|
67.02 |
|
Condensate (per bbl) |
121.56 |
|
74.22 |
|
NGLs (per bbl) |
43.56 |
|
24.69 |
|
Natural gas (per Mcf) |
5.40 |
|
3.52 |
|
Total (per boe) |
41.79 |
|
27.47 |
|
|
|
|
NETBACK AND
COST ($/boe)(2) |
|
|
Petroleum and natural gas revenue(1) |
41.80 |
|
27.47 |
|
Royalty expense |
(4.41 |
) |
(1.72 |
) |
Operating expense |
(3.49 |
) |
(3.18 |
) |
Transportation and other expense(3) |
(5.43 |
) |
(5.52 |
) |
Operating netback(3) |
28.47 |
|
17.05 |
|
G&A expense, net |
(1.12 |
) |
(0.92 |
) |
Interest expense |
(0.48 |
) |
(1.21 |
) |
Realized loss on financial instruments |
(0.03 |
) |
(2.29 |
) |
Other cash income |
0.01 |
|
0.37 |
|
Adjusted funds flow(3) |
26.85 |
|
13.00 |
|
Depletion and depreciation expense |
(7.47 |
) |
(7.47 |
) |
Unrealized gain (loss) on financial instruments |
5.07 |
|
(1.13 |
) |
Other (expense) income(4) |
(0.08 |
) |
0.25 |
|
Dividends on preferred shares |
(0.25 |
) |
(0.25 |
) |
Deferred income tax expense |
(5.74 |
) |
(1.12 |
) |
Net income to common shareholders |
18.38 |
|
3.28 |
|
|
|
|
FINANCIAL |
|
|
Petroleum and natural gas revenue ($000s)(1) |
285,976 |
|
185,609 |
|
Cash flow from operating activities ($000s) |
154,152 |
|
82,608 |
|
Adjusted funds flow ($000s)(5) |
183,699 |
|
87,820 |
|
Per basic common share ($)(3) |
0.69 |
|
0.33 |
|
Free funds flow ($000s)(5)(6) |
95,417 |
|
(8,020 |
) |
Per basic common share ($)(3)(6) |
0.36 |
|
(0.03 |
) |
Net income to common shareholders ($000s) |
125,792 |
|
22,166 |
|
Per basic common share ($) |
0.47 |
|
0.08 |
|
End of period basic common shares (000s) |
266,810 |
|
266,045 |
|
Weighted average basic common shares (000s) |
265,530 |
|
265,989 |
|
Dividends on common shares ($000s) |
2,658 |
|
1,330 |
|
Dividends on preferred shares ($000s) |
1,717 |
|
1,746 |
|
F&D capital expenditures ($000s)(7) |
88,282 |
|
95,840 |
|
Total capital expenditures ($000s)(5) |
88,124 |
|
96,625 |
|
Long-term debt ($000s) |
397,752 |
|
701,735 |
|
Total debt ($000s)(8) |
408,998 |
|
777,385 |
|
(1) Excludes the effects of financial
instruments but includes the effects of physical delivery
contracts.(2) Average realized sales prices and the component
values of netback and cost set forth in the table above are
supplementary financial measures unless otherwise indicated. See
“Non-GAAP and Other Financial Measures”. (3) Non-GAAP ratio. See
“Non-GAAP and Other Financial Measures”.(4) Includes non-cash items
such as compensation, accretion, amortization of deferred financing
fees and other gains and losses.(5) Non-GAAP financial measure. See
“Non-GAAP and Other Financial Measures”.(6) Negative free funds
flow denotes F&D capital expenditures in excess of adjusted
funds flow.(7) See “Advisories – F&D Capital Expenditures”.(8)
Capital management measure. See “Non-GAAP and Other Financial
Measures”.
OUTLOOK AND GUIDANCE
Updated 2022 Guidance
Birchcliff is updating its 2022 guidance as a
result of the strong commodity price environment and the excellent
results it has achieved year-to-date. Significant changes to
Birchcliff’s guidance include the following:
- Adjusted funds flow guidance has
been increased to $1.18 billion, primarily as a result of the
improvement in the commodity price forecast. Birchcliff does not
have any fixed price commodity hedges in place and does not
currently intend to hedge any future production, which allows the
Corporation to take full advantage of the robust commodity price
environment.
-
Free funds flow guidance has been increased to $920 million to $940
million, primarily as a result of higher anticipated adjusted funds
flow in 2022.
-
Birchcliff is now forecasting that it will reach zero total debt in
Q4 2022 and have a surplus of $260 million to $280 million at
December 31, 2022 as compared to its original guidance of total
debt of $175 million to $195 million. The change to a surplus
position is largely as a result of Birchcliff’s higher anticipated
free funds flow in 2022, which is primarily being used to reduce
indebtedness.
-
Average royalty expense guidance has been increased to $7.10/boe to
$7.30/boe, primarily as a result of the improvement in the
commodity price forecast.
-
Average interest expense guidance has been decreased to $0.20/boe
to $0.40/boe, primarily as a result of the anticipated repayment in
full of the Corporation’s Credit Facilities in 2022.
-
Birchcliff’s updated 2022 guidance reflects an increased quarterly
common share dividend, as well as the proposed redemption of all of
Birchcliff’s outstanding cumulative redeemable preferred shares,
series A (the “Series A Preferred Shares”) and
cumulative redeemable preferred shares, series C (the
“Series C Preferred Shares”) at the end of Q3
2022. The proposed redemption of the Series A and Series C
Preferred Shares is subject to the approval of the board of
directors. See “Intended Redemption of the Series A and Series C
Preferred Shares”.
The Corporation is maintaining its previous
guidance for annual average production at 78,000 to 80,000 boe/d
and F&D capital expenditures at $240 million to $260 million,
with F&D capital expenditures currently anticipated to be on
the high end of the guidance range. Birchcliff’s operations in 2022
have been impacted by cost inflation, labour shortages and supply
constraints; however, the Corporation has been able to navigate the
impact of these challenges year-to-date. The Corporation will
continue to actively monitor the impacts of these pressures
throughout the remainder of the year and into 2023.
The following table sets forth Birchcliff’s
updated and original guidance and commodity price assumptions for
2022, as well as its free funds flow sensitivity:
2022 Guidance and Commodity Price
Assumptions
|
Updated 2022 guidance andassumptions – May 11,
2022(1) |
Original 2022 guidance andassumptions –
January 19, 2022 |
Production |
|
|
Annual average production (boe/d) |
78,000 – 80,000 |
78,000 – 80,000 |
% Light oil |
3% |
3% |
% Condensate |
7% |
7% |
% NGLs |
10% |
10% |
% Natural gas |
80% |
80% |
Q4 average production (boe/d) |
81,000 – 83,000 |
81,000 – 83,000 |
|
|
|
Average Expenses ($/boe) |
|
|
Royalty(2) |
7.10 – 7.30 |
3.10 – 3.30 |
Operating(2) |
3.15 – 3.35 |
3.15 – 3.35 |
Transportation and other(3) |
5.20 – 5.40 |
4.90 – 5.10 |
Interest(2) |
0.20 – 0.40 |
0.50 – 0.60 |
|
|
|
Adjusted Funds Flow (millions)(4) |
$1,180(5) |
$590 |
|
|
|
F&D Capital Expenditures (millions) |
$240 – $260(6) |
$240 – $260 |
|
|
|
Free Funds Flow (millions)(4) |
$920 – $940 |
$330 – $350 |
|
|
|
Excess Free Funds Flow (millions)(4)(7) |
$900 – $920 |
N/A |
|
|
|
Surplus (Total Debt) at Year
End (millions)(8) |
$260 – $280(9) |
($175 – $195) |
|
|
|
Natural Gas Market Exposure(10) |
|
|
AECO exposure as a % of total natural gas production |
19% |
19% |
Dawn exposure as a % of total natural gas production |
42% |
42% |
NYMEX HH exposure as a % of total natural gas production |
38% |
38% |
Alliance exposure as a % of total natural gas production |
1% |
1% |
|
|
|
Commodity Prices |
|
|
Average WTI price (US$/bbl) |
99.50(11) |
76.00 |
Average WTI-MSW differential (CDN$/bbl) |
3.10(11) |
5.00 |
Average AECO price (CDN$/GJ) |
6.50(11) |
3.50 |
Average Dawn price (US$/MMBtu) |
6.85(11) |
3.90 |
Average NYMEX HH price (US$/MMBtu) |
6.95(11) |
4.00 |
Exchange rate (CDN$ to US$1) |
1.28(11) |
1.26 |
Forward Nine Months’ Free Funds Flow
Sensitivity(12)
Forward nine months’ sensitivity |
Estimated change to 2022 free funds
flow (millions) |
Change in WTI US$1.00/bbl |
$2.7 |
Change in NYMEX HH US$0.10/MMBtu |
$4.2 |
Change in Dawn US$0.10/MMBtu |
$4.7 |
Change in AECO CDN$0.10/GJ |
$2.3 |
Change in CDN/US exchange rate CDN$0.01 |
$5.3 |
(1) Birchcliff’s guidance for its production
commodity mix, adjusted funds flow, free funds flow, excess free
funds flow, surplus and natural gas market exposure in 2022 is
based on an annual average production rate of 79,000 boe/d, which
is the mid-point of Birchcliff’s annual average production guidance
range for 2022. (2) Supplementary financial measure. See “Non-GAAP
and Other Financial Measures”. (3) Non-GAAP ratio. See “Non-GAAP
and Other Financial Measures”. (4) Non-GAAP financial measure. See
“Non-GAAP and Other Financial Measures”. (5) Birchcliff’s updated
estimate of adjusted funds flow takes into account the effects of
its physical and financial basis swap contracts outstanding as at
May 11, 2022 and excludes annual cash incentive payments that have
not been approved by Birchcliff’s board of directors.(6)
Birchcliff’s estimate of F&D capital expenditures excludes any
net potential acquisitions and dispositions and the capitalized
portion of annual cash incentive payments that have not been
approved by Birchcliff’s board of directors. See “Advisories –
F&D Capital Expenditures”. (7) Excess free funds flow is
defined as free funds flow less common share dividends paid. The
estimate of excess free funds flow set forth in the table above
assumes that: (i) a quarterly common share dividend of $0.02 per
common share is paid for the quarters ending June 30, 2022,
September 30, 2022 and December 31, 2022; and (ii) there are 265
million common shares outstanding, with no further buybacks of
common shares occurring during 2022. Other than the dividend
declared for the quarter ending June 30, 2022, the declaration of
dividends is subject to the approval of the board of directors and
is subject to change. See “Advisories – Forward-Looking
Statements”. This measure was not disclosed on January 19, 2022.(8)
Capital management measure. See “Non-GAAP and Other Financial
Measures”. (9) Surplus is equivalent to adjusted working capital
surplus as disclosed in the Corporation’s financial statements (see
“Non-GAAP and Other Financial Measures”). The estimate of surplus
at December 31, 2022 is expected to be largely comprised of cash on
hand plus accounts receivable less accounts payable at the end of
the year and assumes the following: (i) that any free funds flow
remaining after the payment of dividends, asset retirement
obligations and other amounts for administrative assets, financing
fees and capital lease obligations is allocated towards debt
reduction; (ii) that there are 265 million common shares
outstanding, with no further buybacks of common shares occurring
during 2022, and a quarterly common share dividend of $0.02 per
share is paid for the quarters ending June 30, 2022, September 30,
2022 and December 31, 2022; (iii) that there are 2,000,000 Series A
and 1,528,619 Series C Preferred Shares outstanding, with such
shares redeemed by the Corporation at the end of the third quarter
of 2022, and a quarterly dividend of $0.523375 per Series A
Preferred Share and $0.4375 per Series C Preferred Share is paid
for the quarters ending June 30, 2022 and September 30, 2022; (iv)
that no significant acquisitions or dispositions are completed by
the Corporation and there is no repayment of debt using the
proceeds from equity issuances during 2022; (v) that there are no
further proceeds received from the exercise of stock options or
performance warrants during 2022; (vi) that the 2022 capital
program will be carried out as currently contemplated with capital
spending of $260 million, being the high end of the Corporation’s
F&D capital expenditures guidance range; and (vii) the targets
for production, production commodity mix, capital expenditures,
adjusted funds flow, free funds flow and natural gas market
exposure and the commodity price and exchange rate assumptions set
forth herein are met. The amount set forth in the table above does
not include annual cash incentive payments that have not been
approved by Birchcliff’s board of directors. Birchcliff previously
referred to “surplus” as “cash”.(10) Birchcliff’s guidance
regarding its natural gas market exposure assumes: (i) 175,000 GJ/d
being sold on a physical basis at the Dawn price; (ii) 12,499 GJ/d
being sold at Alliance on a physical basis at the AECO 5A price
plus a premium; and (iii) 152,500 MMBtu/d being contracted on a
financial and physical basis at an average fixed basis differential
price between AECO 7A and NYMEX HH of approximately US$1.23/MMBtu.
(11) Birchcliff’s updated commodity price and exchange rate
assumptions for 2022 are based on anticipated full-year averages,
which include settled benchmark commodity prices and exchange rate
for the period from January 1, 2022 to April 30, 2022 and forward
strip benchmark commodity prices and CDN/US exchange rate as of May
4, 2022 for the period from May 1, 2022 to December 31, 2022. (12)
Illustrates the expected impact of changes in commodity prices and
the CDN/US exchange rate on the Corporation’s estimate of free
funds flow for 2022 of $920 million to $940 million. The
sensitivity is based on the updated commodity price and exchange
rate assumptions set forth in the table above. The calculated
impact on free funds flow is only applicable within the limited
range of change indicated. Calculations are performed independently
and may not be indicative of actual results. Actual results may
vary materially when multiple variables change at the same time
and/or when the magnitude of the change increases.
Updated Five Year Outlook and Plans to
Increase Common Share Dividend in 2023
Birchcliff’s five year plan for 2022 to 2026
(the “Five Year Plan”), which was previously
announced on January 19, 2022, has been updated to reflect the
strong commodity price environment and the changes to the
Corporation’s 2022 guidance.
-
The Corporation’s targets for adjusted funds flow and free funds
flow have been increased each year, primarily as a result of the
improvement in the commodity price forecast.
-
The Corporation is now targeting a surplus of $260 million to $280
million at December 31, 2022 and has increased its targets for
surplus in the remaining years of the Five Year Plan. The
Corporation had previously targeted total debt of $175 million to
$195 million at December 31, 2022, with zero total debt to be
achieved in 2023.
-
The Corporation’s targeted royalty expense has increased each year,
primarily as a result of the improvement in the commodity price
forecast. The Corporation’s targeted interest expense in 2022
decreased as a result of the anticipated repayment in full of the
Corporation’s Credit Facilities in 2022.
-
Birchcliff now anticipates that it will be required to pay Canadian
income taxes commencing in 2023 given the improvement in the
commodity price forecast and the anticipated increases to its
adjusted funds flow, which has resulted in the expectation for
higher taxable income in 2023 to 2026. The Corporation previously
anticipated that it would be required to pay Canadian income taxes
starting in 2024.
-
The potential free funds flow to be generated during the Five Year
Plan provides Birchcliff with significant capacity to sustainably
increase shareholder returns.
- Subject to commodity prices,
Birchcliff achieving its target of zero total debt in Q4 2022 and
the approval of the board of directors, the Corporation is
currently targeting increasing its annual common share dividend in
2023 to at least $0.80 per common share, which is expected to be
paid quarterly at a rate of $0.20 per share, commencing with the
quarter ending March 31, 2023. This would equate to $212 million of
common share dividends paid in 2023, based on 265 million common
shares outstanding.
-
Birchcliff believes that this targeted dividend is sustainable at
substantially lower commodity prices, with such targeted dividend
and Birchcliff’s targeted F&D capital expenditures expected to
be funded over the course of the Five Year Plan at an average WTI
price of US$70.00/bbl, an average AECO price of CDN$3.00/GJ and
average Dawn and NYMEX prices of US$3.30/MMBtu(9).
-
The declaration of dividends is subject to the approval of the
board of directors and the details of any dividends declared
(including the final dividend amount) will be communicated to
shareholders via press release, as and when such dividends are
declared. Birchcliff’s common share dividend policy and the amount
of common share dividends will continue to be evaluated by
Birchcliff on an ongoing basis and will depend on commodity prices
and free funds flow levels, among other things.
-
Birchcliff’s Five Year Plan contemplates significant excess free
funds flow after the payment of common share dividends, providing
it with the ability to further enhance shareholder returns.
Birchcliff will continue to strategically evaluate the potential
uses for excess free funds flow and additional steps to enhance
shareholder returns, which may include further dividend increases,
common share buybacks and other opportunities that would complement
or otherwise improve the Corporation’s business and enhance
long-term shareholder value.
-
Birchcliff currently expects to use its common share dividend as
its primary mechanism for shareholder returns over the course of
the Five Year Plan.
-
Birchcliff anticipates that it will continue to repurchase its
common shares to help offset the dilution resulting from the
exercise of stock options. In addition, Birchcliff will continue to
evaluate opportunistic repurchases of its common shares when the
intrinsic value of such shares exceeds the current market
price.
- Excess free funds flow remaining
after the payment of this targeted common share dividend of $0.80
per common share is forecast to be $323 million in 2023, with a
forecasted surplus at year-end 2023 of $575 million.
-
There are no changes to the Corporation’s average production,
production commodity mix or F&D capital expenditures in the
updated Five Year Plan. Birchcliff reviews its capital expenditures
and other financial metrics on an ongoing basis and will continue
to monitor the impact of cost inflation in order to determine
whether any adjustments to the Five Year Plan are necessary.
The focus of the Five Year Plan is unchanged and
remains on increasing shareholder value by maximizing free funds
flow and reducing the Corporation’s indebtedness, increasing
shareholder returns and fully utilizing the available processing
capacity of the Corporation’s existing infrastructure.
________________________
(9) Assuming no other changes to the Corporation’s targeted
metrics under the Five Year Plan.
The following tables set forth the updated
targeted production and financial metrics, commodity price
assumptions and cumulative free funds flow sensitivity for the Five
Year Plan(1):
Five Year Plan – Production and
Financial Metrics
|
2022 |
2023 |
2024 |
2025 |
2026 |
|
|
|
|
|
|
Average Production (boe/d) |
78,000 – 80,000 |
81,000 |
86,000 |
90,000 |
90,000 |
|
|
|
|
|
|
Liquids(%) |
20% |
20% |
20% |
19% |
18% |
|
|
|
|
|
|
Adjusted Funds Flow (millions)(2)(3) |
$1,180 |
$795 |
$860 |
$880 |
$865 |
|
|
|
|
|
|
F&D Capital
Expenditures (millions)(4) |
$240 – $260 |
$260 |
$255 |
$245 |
$225 |
|
|
|
|
|
|
Free Funds Flow (millions)(2) |
$920 – $940 |
$535 |
$605 |
$635 |
$640 |
|
|
|
|
|
|
Common Share Dividends (millions)(5) |
$20 |
$212 |
$212 |
$212 |
$212 |
|
|
|
|
|
|
Excess Free Funds Flow (millions)(2)(5) |
$900 – $920 |
$323 |
$393 |
$423 |
$428 |
|
|
|
|
|
|
Surplus at Year End (millions)(6)(7) |
$260 – $280 |
$575 |
$960 |
$1,380 |
$1,800 |
|
|
|
|
|
|
Cumulative Free Funds
Flow (millions)(2)(6) |
$920 – $940 |
$1,455 |
$2,060 |
$2,695 |
$3,335 |
Average Expenses and Commodity Price
Assumptions
|
2022 |
2023 |
2024 |
2025 |
2026 |
|
|
|
|
|
|
Average Expenses ($/boe) |
|
|
|
|
|
Royalty(8) |
7.10 – 7.30 |
5.05 |
5.10 |
4.95 |
4.85 |
Operating(8) |
3.15 – 3.35 |
3.15 |
3.00 |
2.90 |
2.90 |
Transportation and other(9) |
5.20 – 5.40 |
4.85 |
4.60 |
4.40 |
4.40 |
Interest(8) |
0.20 – 0.40 |
– |
– |
– |
– |
Current income tax(8)(10) |
– |
5.20 |
5.65 |
5.60 |
5.50 |
|
|
|
|
|
|
Commodity Prices(11) |
|
|
|
|
|
Average WTI price (US$/bbl) |
99.50 |
88.00 |
88.00 |
88.00 |
88.00 |
Average WTI-MSW differential (CDN$/bbl) |
3.10 |
5.00 |
5.00 |
5.00 |
5.00 |
Average AECO price (CDN$/GJ) |
6.50 |
5.20 |
5.20 |
5.20 |
5.20 |
Average Dawn price (US$/MMBtu) |
6.85 |
5.40 |
5.40 |
5.40 |
5.40 |
Average NYMEX HH price (US$/MMBtu) |
6.95 |
5.50 |
5.50 |
5.50 |
5.50 |
Exchange rate (CDN$ to US$1) |
1.28 |
1.28 |
1.28 |
1.28 |
1.28 |
Cumulative Free Funds Flow
Sensitivity(12)
|
Estimated change to 2022 to 2026 cumulative free funds
flow (millions) |
Change in WTI US$1.00/bbl |
$17.1 |
Change in NYMEX HH US$0.10/MMBtu |
$20.1 |
Change in Dawn US$0.10/MMBtu |
$25.5 |
Change in AECO CDN$0.10/GJ |
$17.9 |
Change in CDN/US exchange rate CDN$0.01 |
$28.5 |
(1) For illustrative purposes only and should
not be relied upon as indicative of future results. The internal
projections, expectations and beliefs underlying the Five Year Plan
are subject to change in light of ongoing results and prevailing
economic and industry conditions. Birchcliff’s F&D capital
budgets for 2023 to 2026 have not been finalized and are subject to
approval by Birchcliff’s board of directors. Accordingly, the
levels of F&D capital expenditures set forth herein are subject
to change, which would have an impact on the targeted production,
production commodity mix, adjusted funds flow, free funds flow,
excess free funds flow, surplus at year end and expenses set forth
herein. See “Advisories – Forward-Looking Statements”.(2) Non-GAAP
financial measure. See “Non-GAAP and Other Financial Measures”. (3)
Birchcliff’s updated estimates of adjusted funds flow take into
account the effects of its physical and financial basis swap
contracts outstanding as at May 11, 2022 and exclude annual cash
incentive payments that have not been approved by Birchcliff’s
board of directors. (4) The Five Year Plan contemplates that
approximately 170 to 180 wells will be brought on production by the
Corporation over 2022 to 2026.(5) Assumes that: (i) for 2022, a
quarterly common share dividend of $0.02 per common share is paid
for the quarters ending June 30, 2022, September 30, 2022 and
December 31, 2022; (ii) for 2023 to 2026, an annual common share
dividend of $0.80 per common share is paid; and (iii) there are 265
million common shares outstanding. Other than the dividend declared
for the quarter ending June 30, 2022, the declaration of dividends
is subject to the approval of the board of directors and is subject
to change. See “Advisories – Forward-Looking Statements”. (6) The
Corporation has used the low-point of its 2022 guidance for free
funds flow and surplus at year end in determining the cumulative
free funds flow and surplus at year end for 2023 to 2026.(7)
Capital management measure. The estimates of surplus at year end
are expected to be largely comprised of cash on hand plus accounts
receivable less accounts payable at the end of the year and assume
the following: (i) that any free funds flow remaining after the
payment of dividends, asset retirement obligations and other
amounts for administrative assets, financing fees and capital lease
obligations is allocated towards debt reduction; (ii) that there
are 265 million common shares outstanding, with no further buybacks
of common shares occurring during 2022 and no buybacks occurring
during 2023 to 2026; (iii) that a quarterly common share dividend
of $0.02 per share is paid for the quarters ending June 30, 2022,
September 30, 2022 and December 31, 2022 and that a quarterly
common share dividend of $0.20 per share is paid in 2023 to 2026;
(iv) that the Series A Preferred Shares and the Series C Preferred
Shares are redeemed by the Corporation at the end of the third
quarter of 2022 and a quarterly dividend of $0.523375 per Series A
Preferred Share and $0.4375 per Series C Preferred Share is paid
for the quarters ending June 30, 2022 and September 30, 2022; (v)
that no significant acquisitions or dispositions are completed by
the Corporation and there is no repayment of debt using the
proceeds from equity issuances during 2022 to 2026; (vi) that there
are no further proceeds received from the exercise of stock options
or performance warrants during 2022 to 2026; (vii) that the capital
program for each year will be carried out as currently contemplated
and the level of capital spending set forth herein will be
achieved; and (viii) the targets for production, production
commodity mix, capital expenditures, adjusted funds flow, free
funds flow and natural gas market exposure and the commodity price
and exchange rate assumptions set forth herein are met. The amount
set forth in the table above does not include annual cash incentive
payments that have not been approved by Birchcliff’s board of
directors. Birchcliff previously referred to “surplus” as “cash”.
(8) Supplementary financial measure. See “Non-GAAP and Other
Financial Measures”. (9) Non-GAAP ratio. See “Non-GAAP and Other
Financial Measures”.(10) The Corporation currently expects that it
will be required to pay Canadian income taxes commencing in 2023.
(11) Updated commodity price and exchange rate assumptions for 2022
are based on anticipated full-year averages, which include settled
benchmark commodity prices and exchange rate for the period from
January 1, 2022 to April 30, 2022 and forward strip benchmark
commodity prices and exchange rate as of May 4, 2022 for the period
from May 1, 2022 to December 31, 2022. Updated commodity price and
exchange rate assumptions for 2023 to 2026 are based on anticipated
full-year averages from forward strip benchmark commodity prices
and exchange rates as of May 4, 2022. (12) Illustrates the expected
impact of changes in commodity prices and the CDN/US exchange rate
on the Corporation’s target of potential cumulative free funds flow
of $3.3 billion generated during 2022 to 2026. The sensitivity is
based on the updated commodity price and exchange rate assumptions
set forth in the table above. The calculated impact on cumulative
free funds flow is only applicable within the limited range of
change indicated. Calculations are performed independently and may
not be indicative of actual results. Actual results may vary
materially when multiple variables change at the same time and/or
when the magnitude of the change increases.
Changes in assumed commodity prices and
variances in production estimates can have an impact on the
Corporation’s estimates of adjusted and free funds flow, the
Corporation’s other metrics for the Five Year Plan, dividend levels
and the declaration and payment of targeted dividends, which impact
may be material. In addition, any acquisitions and dispositions
completed over the course of the Five Year Plan could have an
impact on Birchcliff’s production, adjusted funds flow, free funds
flow, surplus, expenses, dividend levels and the declaration and
payment of targeted dividends, which impact could be material. For
further information, see “Advisories – Forward-Looking
Statements”.
Q1 2022 FINANCIAL AND OPERATIONAL
RESULTS
Production
Birchcliff’s production averaged 76,024 boe/d in
Q1 2022, a 1% increase from 75,065 boe/d in Q1 2021. The increase
was primarily due to incremental production volumes from the new
Montney/Doig wells brought on production since Q1 2021, including
the new 6-well (13-29) pad in Pouce Coupe brought on production
during February 2022, partially offset by natural production
declines.
Liquids accounted for 20% of Birchcliff’s total
production in Q1 2022 as compared to 23% in Q1 2021, with a
liquids-to-gas ratio in Q1 2022 of 41.4 bbls/MMcf (47% high-value
light oil and condensate). The decrease in the liquids production
weighting was primarily due to the Corporation targeting horizontal
natural gas wells in liquids-rich zones in the Pouce Coupe and
Gordondale areas since Q1 2021 and natural production declines from
light oil and condensate-rich natural gas wells producing since Q1
2021.
Adjusted Funds Flow and Cash Flow From
Operating Activities
Birchcliff achieved adjusted funds flow of
$183.7 million, or $0.69 per basic common share, in Q1 2022, a 109%
increase from $87.8 million and $0.33 per basic common share in Q1
2021. The increases were primarily due to higher reported petroleum
and natural gas revenue and lower realized losses on financial
instruments, partially offset by a higher royalty expense.
Petroleum and natural gas revenue and royalty expense were largely
impacted by a 52% increase in the average realized sales price
received for Birchcliff’s production in Q1 2022. The average
realized sales price in Q1 2022 benefited from the significant
increase in benchmark oil and natural gas prices since Q1 2021. See
“Q1 2022 Financial and Operational Results – Commodity Prices”.
Birchcliff’s cash flow from operating activities
was $154.2 million in Q1 2022, an 87% increase from $82.6 million
in Q1 2021. The reasons for the increase are consistent with the
explanation for the increase to adjusted funds flow; however, cash
flow from operating activities was also impacted by increased
non-cash operating working capital, partially offset by decreased
decommissioning expenditures.
Free Funds Flow
Birchcliff delivered free funds flow of $95.4
million, or $0.36 per basic common share, in Q1 2022. In Q1 2021,
Birchcliff’s F&D capital expenditures exceeded its adjusted
funds flow by $8.0 million. The change to a free funds flow
position was due to higher adjusted funds flow and lower F&D
capital expenditures.
Net Income to Common
Shareholders
Birchcliff earned net income to common
shareholders of $125.8 million, or $0.47 per basic common share, in
Q1 2022, a 467% and 488% increase, respectively, from $22.2 million
and $0.08 per basic common share in Q1 2021. The increases were
primarily due to higher adjusted funds flow and an unrealized
mark-to-market gain on financial instruments, which were partially
offset by an increase in deferred income tax expense in Q1 2022.
Birchcliff recorded an unrealized mark-to-market gain on financial
instruments of $34.7 million in Q1 2022 as compared to an
unrealized mark-to-market loss on financial instruments of $7.6
million in Q1 2021.
Operating Netback and Selected Cash
Costs
In Q1 2022, Birchcliff’s operating netback was
$28.47/boe, a 67% increase from $17.05/boe in Q1 2021. The increase
was primarily due to higher per boe petroleum and natural gas
revenue, partially offset by a higher per boe royalty expense, both
of which were both largely impacted by a 52% increase in the
average realized sales price received for Birchcliff’s production
in Q1 2022.
The following table sets forth Birchcliff’s
selected cash costs for the periods indicated:
|
Three months endedMarch 31, |
($/boe) |
2022 |
2021 |
% Change |
Royalty expense(1) |
4.41 |
1.72 |
156 |
|
Operating expense(1) |
3.49 |
3.18 |
10 |
|
Transportation and other expense(2) |
5.43 |
5.52 |
(2 |
) |
G&A expense, net(1) |
1.12 |
0.92 |
22 |
|
Interest expense(1) |
0.48 |
1.21 |
(60 |
) |
(1) Supplementary financial measure. See
“Non-GAAP and Other Financial Measures”.(2) Non-GAAP financial
ratio. See “Non-GAAP and Other Financial Measures”.
Royalty expense per boe increased by 156% from
Q1 2021, primarily due to the significant increase in the average
realized sales price received for Birchcliff’s production,
partially offset by a prior period gas cost allowance adjustment of
$2.6 million recorded in Q1 2022.
Operating expense per boe increased by 10% from
Q1 2021, primarily due to higher power and fuel costs, municipal
property taxes, regulatory fees and field labour costs in Q1
2022.
G&A expense per boe increased by 22% from Q1
2021, primarily due to higher employee-related expenses, an
increase in corporate travel-related costs due to the easing of
COVID-19 restrictions in Alberta and higher general business
expenditures.
Interest expense per boe decreased by 60% from
Q1 2021, primarily due to a decrease in the Corporation’s average
effective interest rate and a lower average outstanding balance
under the Credit Facilities in Q1 2022.
Debt and Credit Facilities
Total debt at March 31, 2022 was $409.0 million,
a decrease of 47% from $777.4 million at March 31, 2021. At March
31, 2022, Birchcliff had long-term bank debt under its Credit
Facilities of $397.8 million (March 31, 2021: $701.7 million) from
available credit facilities of $850.0 million (March 31, 2021: $1.0
billion), leaving $448.6 million of unutilized credit capacity
after adjusting for outstanding letters of credit and unamortized
fees.
Commodity Prices
The following table sets forth the average
benchmark commodity index prices and exchange rate for the periods
indicated:
|
Three months ended March 31, |
|
2022 |
2021 |
% Change |
Light oil – WTI Cushing (US$/bbl) |
94.29 |
57.78 |
63 |
Light oil – MSW (Mixed Sweet) (CDN$/bbl) |
115.64 |
66.46 |
74 |
Natural gas – NYMEX HH (US$/MMBtu)(1) |
4.95 |
2.69 |
84 |
Natural gas – AECO 5A Daily (CDN$/GJ) |
4.49 |
2.70 |
66 |
Natural gas – AECO 7A Month Ahead (US$/MMBtu)(1) |
3.61 |
2.16 |
67 |
Natural gas – Dawn Day Ahead (US$/MMBtu)(1) |
4.42 |
2.97 |
49 |
Natural gas – ATP 5A Day Ahead (CDN$/GJ) |
4.58 |
4.03 |
14 |
Exchange rate (CDN$ to US$1) |
1.2699 |
1.2663 |
- |
Exchange rate (US$ to CDN$1) |
0.7875 |
0.7897 |
- |
(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 Q1 2022, after taking into account the
Corporation’s financial instruments:
Three months ended March 31, 2022 |
|
Effectivesales(1)(CDN$000s) |
Percentageof totalsales(%) |
Effectiveproduction(per day) |
Percentage oftotal natural
gasproduction(%) |
Percentage oftotal
corporateproduction(%) |
Effective averagerealizedsales
price(1)(CDN$) |
Market |
|
|
|
|
|
|
AECO(2)(3) |
29,913 |
10 |
64,120 Mcf |
18 |
14 |
5.18/Mcf |
Dawn(4) |
83,830 |
27 |
161,291 Mcf |
44 |
35 |
5.77/Mcf |
NYMEX HH(1)(2)(5) |
86,419 |
28 |
139,885 Mcf |
38 |
31 |
6.86/Mcf |
Total natural gas(1) |
200,162 |
65 |
365,296 Mcf |
100 |
80 |
6.09/Mcf |
Light oil |
24,624 |
8 |
2,369 bbls |
|
4 |
115.47/bbl |
Condensate |
52,466 |
17 |
4,796 bbls |
|
6 |
121.56/bbl |
NGLs |
31,265 |
10 |
7,976 bbls |
|
10 |
43.56/bbl |
Total liquids |
108,355 |
35 |
15,141 bbls |
|
20 |
79.52/bbl |
Total corporate(1) |
308,517 |
100 |
76,024 boe |
|
100 |
45.09/boe |
(1) Effective sales is a non-GAAP financial measure and
effective average realized sales price is a non-GAAP ratio. 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/AECO 7A basis swap contracts
have been included as effective sales and production in the NYMEX
HH market. Birchcliff sold physical AECO 7A basis swaps for 5,000
MMBtu/d at an average contract price of NYMEX HH less
US$1.205/MMBtu during Q1 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 Q1 2022
received AECO premium pricing and have therefore been included as
effective sales and production in the AECO market.(4) Birchcliff
has agreements for the firm service transportation of an aggregate
of 175,000 GJ/d of natural gas on TransCanada PipeLines’ Canadian
Mainline, whereby natural gas is transported to the Dawn trading
hub in Southern Ontario.(5) NYMEX HH sales and production includes
financial and physical AECO 7A basis swaps for 152,500 MMBtu/d at
an average contract price of NYMEX HH less US$1.226/MMBtu during Q1
2022. Birchcliff’s effective average realized sales price for NYMEX
HH of CDN$6.86/Mcf (US$4.96/MMBtu) was determined on a gross basis
before giving effect to the average NYMEX HH/AECO 7A fixed contract
basis differential price of CDN$1.70/Mcf (US$1.23/MMBtu). After
giving effect to the NYMEX HH/AECO 7A basis contact price,
Birchcliff’s effective average realized net sales price for NYMEX
HH was CDN$5.16/Mcf (US$3.73/MMBtu) in Q1 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 March 31, 2022 |
|
Natural
gassales(1)(CDN$000s) |
Percentage ofnatural gassales(%) |
Natural gasproduction(Mcf/d) |
Percentage ofnatural gasproduction(%) |
Average realizednatural gas
salesprice(1)(2)(CDN$/Mcf) |
Natural
gastransportationcosts(2)(3)(CDN$/Mcf) |
Natural gassalesnetback(2)(4)(CDN$/Mcf) |
AECO |
72,361 |
41 |
158,501 |
43 |
5.07 |
0.52 |
4.55 |
Dawn |
83,830 |
47 |
161,291 |
44 |
5.77 |
1.57 |
4.20 |
Alliance(5) |
21,419 |
12 |
45,504 |
13 |
5.23 |
- |
5.23 |
Total |
177,610 |
100 |
365,296 |
100 |
5.40 |
0.92 |
4.48 |
Three months ended March 31, 2021 |
|
Natural
gassales(1)(CDN$000s) |
Percentage ofnatural gassales(%) |
Natural gasproduction(Mcf/d) |
Percentage ofnatural gasproduction(%) |
Average realizednatural gas
salesprice(1)(2)(CDN$/Mcf) |
Natural
gastransportationcosts(2)(3)(CDN$/Mcf) |
Natural gassalesnetback(2)(4)(CDN$/Mcf) |
AECO |
39,392 |
36 |
133,379 |
39 |
3.28 |
0.51 |
2.77 |
Dawn |
53,869 |
49 |
160,280 |
46 |
3.73 |
1.57 |
2.16 |
Alliance(5) |
16,180 |
15 |
51,398 |
15 |
3.50 |
- |
3.50 |
Total |
109,441 |
100 |
345,057 |
100 |
3.52 |
0.93 |
2.59 |
(1) Excludes the effects of financial
instruments but includes the effects of physical delivery
contracts.(2) Supplementary financial measure. See “Non-GAAP and
Other Financial Measures”.(3) Reflects costs to transport natural
gas from the field receipt point to the delivery sales trading
hub.(4) Natural gas sales netback denotes the average realized
natural gas sales price less natural gas transportation costs.(5)
Birchcliff has short-term physical sales agreements with
third-party marketers to sell and deliver into the Alliance
pipeline system. Alliance sales are recorded net of transportation
tolls.
Capital Activities and
Investment
In Q1 2022, Birchcliff drilled 11 (11.0 net)
wells and brought 6 (6.0 net) wells on production. F&D capital
expenditures were $88.3 million in Q1 2022.
OPERATIONS UPDATE
Birchcliff has had a strong start to its 2022
capital program, with 15 wells drilled year-to-date and 16 wells
completed (which includes 5 wells that were drilled and rig
released in Q4 2021). The following table sets forth the wells that
are part of the Corporation’s 2022 capital program, including the
anticipated timing of the remaining wells to be drilled, completed
and brought on production in 2022:
|
Total # of wells to bebrought on production |
|
Drilled |
|
Completed |
|
On production |
|
|
|
|
|
|
|
|
POUCE COUPE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-29 pad |
Basal Doig/Upper Montney |
2 |
|
0 |
|
2 |
|
2 |
|
|
Montney D1 |
4 |
|
1 |
|
4 |
|
4 |
|
|
Total |
6(1) |
|
1 |
|
6 |
|
6 |
|
|
|
|
|
|
|
|
|
|
|
01-08 pad |
Basal Doig/Upper Montney |
4 |
|
4 |
|
4 |
|
Q2 |
|
|
Montney D1 |
5 |
|
5 |
|
5 |
|
Q2 |
|
|
Montney C |
1 |
|
1 |
|
1 |
|
Q2 |
|
|
Total |
10 |
|
10 |
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
04-04 pad |
Basal Doig/Upper Montney |
6 |
|
3 |
|
Q2 |
|
Q3 |
|
|
Montney D1 |
3 |
|
0 |
|
Q2 |
|
Q3 |
|
|
Montney C |
1 |
|
1 |
|
Q2 |
|
Q3 |
|
|
Total |
10 |
|
4 |
|
|
|
|
GORDONDALE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06-35 pad |
Montney D2 |
5 |
|
Q2 |
|
Q3 |
|
Q3 |
|
|
Montney D1 |
4 |
|
Q2 |
|
Q3 |
|
Q3 |
|
Total |
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
35(1) |
|
15 |
|
16 |
|
6 |
(1) Includes 5 wells that were drilled and rig
released in Q4 2021.
Birchcliff’s 13-29 pad in Pouce Coupe was
drilled in Q1 2022 and brought on production in March 2022 through
Birchcliff’s owned and operated infrastructure. The wells from the
13-29 pad have now been producing for over 60 days and have
produced at better rates than previously forecast. During the
initial 30 and 60 days of production, the pad was flowing inline
post-fracture condensate, raw natural gas and frac water. The
production rates of the wells are stabilized and the frac water
flowing back to surface continues to diminish over time. The
following table summarizes the aggregate and average production
rates for the 6 wells from the 13-29 pad:
|
IP 30(1) |
IP 60(1) |
Aggregate production
rate (boe/d) |
7,261 |
6,789 |
|
Aggregate natural gas production rate (Mcf/d) |
42,235 |
39,776 |
|
Aggregate condensate production rate (bbls/d) |
222 |
160 |
Average per well production
rate (boe/d) |
1,210 |
1,132 |
|
Average per well natural gas production rate (Mcf/d) |
7,039 |
6,629 |
|
Average per well condensate production rate (bbls/d) |
37 |
27 |
Condensate-to-gas
ratio (bbls/MMcf) |
5 |
4 |
(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”.
The Corporation recently finished completion
operations on its 01-08 pad in Pouce Coupe and all 10 wells are
expected to be brought on production in Q2 2022.
In addition to its drilling and completion
activities, Birchcliff has successfully completed several large
gathering infrastructure projects that will allow for stable base
production declines and provide additional pipeline capacity to
support future growth.
In April 2022, Birchcliff successfully completed
its planned two-week turnaround at its 100% owned and operated
natural gas processing plant in Pouce Coupe (the “Pouce
Coupe Gas Plant”) ahead of schedule and on-budget, while
effectively mitigating the impact to production volumes. The
scheduled turnaround at AltaGas’ deep-cut sour gas processing
facility in Gordondale (the “AltaGas Facility”) is
planned for two weeks starting at the end of May 2022.
As part of its long-term planning strategy, the
Corporation has secured multi-year contracts with its key services
providers to ensure the efficient execution of its short and
long-term plans.
DECLARATION OF QUARTERLY COMMON SHARE AND PREFERRED
SHARE DIVIDENDS
Birchcliff’s board of directors today declared
the following quarterly cash dividends for the quarter ending June
30, 2022:
Shares |
TSX stock symbol |
Dividend per share |
Common Shares |
BIR |
$0.02 |
Series A Preferred Shares |
BIR.PR.A |
$0.523375 |
Series C Preferred Shares |
BIR.PR.C |
$0.4375 |
The dividends are payable on June 30, 2022 to
shareholders of record at the close of business on June 15, 2022.
The ex-dividend date is June 14, 2022.
All of the dividends have been designated as
eligible dividends for the purposes of the Income Tax Act
(Canada).
INTENDED REDEMPTION OF THE SERIES A AND SERIES C
PREFERRED SHARES
Subject to the approval of the board of
directors, Birchcliff currently intends to redeem all of its
outstanding Series A and Series C Preferred Shares at the end of
the third quarter of 2022. As Friday, September 30, 2022 is a
federal holiday, the proposed redemptions, if approved, are
expected to occur on the next business day, being Monday, October
3, 2022.
Subject to the provisions of the Series A
Preferred Shares (the “Series A Provisions”), on
September 30, 2022 and every five years thereafter, the
Corporation, upon giving notice as provided in the Series A
Provisions, may redeem all or any part of the Series A Preferred
Shares by the payment of an amount in cash for each share to be
redeemed equal to $25.00 plus all accrued and unpaid dividends
thereon to but excluding the date fixed for redemption.
Subject to the provisions of the Series C
Preferred Shares (the “Series C Provisions”), the
Corporation may, upon giving notice as provided in the Series C
Provisions, redeem at any time all or any number of the outstanding
Series C Preferred Shares on the payment of the redemption price.
The redemption price per share at which any Series C Preferred
Share is redeemable shall be $25.00, together with an amount equal
to all accrued and unpaid dividends thereon to but excluding the
date fixed for redemption.
This announcement does not constitute a
notice of redemption for the Series A or Series C Preferred Shares.
If a decision is made to proceed with the redemption of all or any
part of the Series A or Series C Preferred Shares and the approval
of the board of directors is obtained, formal notice will be
provided in accordance with the Series A Provisions and the Series
C Provisions, copies of which are available on SEDAR under the
Corporation’s company profile at
www.sedar.com. See
“Advisories – Forward-Looking Statements”.
ANNUAL MEETING OF SHAREHOLDERS – MAY 12,
2022
Birchcliff’s annual meeting of shareholders is
scheduled to take place tomorrow, Thursday, May 12, 2022, at 3:00
p.m. (Mountain Daylight Time) in the McMurray Room at the Calgary
Petroleum Club, 319 – 5th Avenue S.W., Calgary, Alberta.
ABBREVIATIONS
AECO |
benchmark price for natural gas determined at the AECO ‘C’ hub in
southeast Alberta |
ATP |
Alliance Trading Pool |
bbl |
barrel |
bbls |
barrels |
bbls/d |
barrels per day |
boe |
barrel of oil equivalent |
boe/d |
barrel of oil equivalent per day |
condensate |
pentanes plus (C5+) |
F&D |
finding and development |
G&A |
general and administrative |
GAAP |
generally accepted accounting principles for Canadian public
companies, which are currently International Financial Reporting
Standards as issued by the International Accounting Standards
Board |
GJ |
gigajoule |
GJ/d |
gigajoules per day |
HH |
Henry Hub |
IP |
initial production |
Mcf |
thousand cubic feet |
Mcf/d |
thousand cubic feet per day |
MMBtu |
million British thermal units |
MMBtu/d |
million British thermal units per day |
MMcf |
million cubic feet |
MPa |
megapascal |
MSW |
price for mixed sweet crude oil at Edmonton, Alberta |
NGLs |
natural gas liquids consisting of ethane (C2), propane (C3) and
butane (C4) and specifically excluding condensate |
NYMEX |
New York Mercantile Exchange |
OPEC |
Organization of the Petroleum Exporting Countries |
WTI |
West Texas Intermediate, the reference price paid in U.S. dollars
at Cushing, Oklahoma, for crude oil of standard grade |
000s |
thousands |
$000s |
thousands of dollars |
NON-GAAP AND OTHER FINANCIAL
MEASURES
This press release uses various “non-GAAP
financial measures”, “non-GAAP ratios”, “supplementary financial
measures” and “capital management measures” (as such terms are
defined in NI 52-112), which are described in further detail below.
These measures facilitate management’s comparisons to the
Corporation’s historical operating results in assessing its results
and strategic and operational decision-making and may be used by
financial analysts and others in the oil and natural gas industry
to evaluate the Corporation’s performance.
Non-GAAP Financial Measures
NI 52-112 defines a non-GAAP financial measure
as a financial measure that: (i) depicts the historical or expected
future financial performance, financial position or cash flow of an
entity; (ii) with respect to its composition, excludes an amount
that is included in, or includes an amount that is excluded from,
the composition of the most directly comparable financial measure
disclosed in the primary financial statements of the entity; (iii)
is not disclosed in the financial statements of the entity; and
(iv) is not a ratio, fraction, percentage or similar
representation. The non-GAAP financial measures used in this press
release are not standardized financial measures under GAAP and
might not be comparable to similar measures presented by other
companies where similar terminology is used. Investors are
cautioned that non-GAAP financial measures should not be construed
as alternatives to or more meaningful than the most directly
comparable GAAP measures as indicators of Birchcliff’s performance.
Set forth below is a description of the non-GAAP financial measures
used in this press release.
Adjusted Funds Flow, Free Funds Flow and
Excess Free Funds Flow
Birchcliff defines “adjusted funds flow” as cash
flow from operating activities before the effects of
decommissioning expenditures and changes in non-cash operating
working capital. Birchcliff eliminates settlements of
decommissioning expenditures from cash flow from operating
activities as the amounts can be discretionary and may vary from
period to period depending on its capital programs and the maturity
of its operating areas. The settlement of decommissioning
expenditures is managed with Birchcliff’s capital budgeting process
which considers available adjusted funds flow. Changes in non-cash
operating working capital are eliminated in the determination of
adjusted funds flow as the timing of collection and payment are
variable and by excluding them from the calculation, the
Corporation believes that it is able to provide a more meaningful
measure of its operations and ability to generate cash on a
continuing basis. Adjusted funds flow can also be derived from
petroleum and natural gas revenue less royalty expense, operating
expense, transportation and other expense, net G&A expense,
interest expense and any realized losses (plus realized gains) on
financial instruments and plus any other cash income 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, repurchase common shares and pay common share and
preferred share dividends.
Birchcliff defines “free funds flow” as adjusted
funds flow less F&D capital expenditures. Management believes
that free funds flow assists management and investors in assessing
Birchcliff’s ability to generate shareholder returns through a
number of initiatives, including but not limited to, debt
repayment, preferred share redemptions, common share repurchases,
the payment of dividends and acquisitions.
Birchcliff defines “excess free funds flow” as
free funds flow less common share dividends paid. Management
believes that excess free funds flow assists management and
investors in assessing Birchcliff’s ability to further enhance
shareholder returns after the payment of its common share dividend,
which may include dividend increases, common share buybacks and
other opportunities that would complement or otherwise improve the
Corporation’s business and enhance long-term shareholder value.
The following table provides a reconciliation of
cash flow from operating activities, as determined in accordance
with GAAP, to adjusted funds flow, free funds flow and excess free
funds flow for the periods indicated:
|
Three months endedMarch 31, |
($000s) |
2022 |
|
2021 |
|
Cash flow from operating activities |
154,152 |
|
82,608 |
|
Change in non-cash operating working capital |
28,830 |
|
4,129 |
|
Decommissioning expenditures |
717 |
|
1,083 |
|
Adjusted funds flow |
183,699 |
|
87,820 |
|
F&D capital expenditures |
(88,282 |
) |
(95,840 |
) |
Free funds flow |
95,417 |
|
(8,020 |
) |
Dividends on common shares |
(2,658 |
) |
(1,330 |
) |
Excess free funds flow |
92,759 |
|
(9,350 |
) |
Transportation and Other
Expense
Birchcliff defines “transportation and other
expense” as transportation expense plus marketing purchases less
marketing revenue. Birchcliff may enter into certain marketing
purchase and sales arrangements with the objective of reducing any
available transportation and/or fractionation fees associated with
its take-or-pay commitments. Management believes that
transportation and other expense assists management and investors
in assessing Birchcliff’s total cost structure related to
transportation activities. The following table provides a
reconciliation of transportation expense, as determined in
accordance with GAAP, to transportation and other expense for the
periods indicated:
|
Three months endedMarch 31, |
($000s) |
2022 |
|
2021 |
|
Transportation expense |
37,837 |
|
37,684 |
|
Marketing purchases |
3,569 |
|
2,047 |
|
Marketing revenue |
(4,234 |
) |
(2,458 |
) |
Marketing gain |
(665 |
) |
(411 |
) |
Transportation and other expense |
37,172 |
|
37,273 |
|
Operating Netback
Birchcliff defines “operating netback” as
petroleum and natural gas revenue less royalty expense, operating
expense and transportation and other expense. Management believes
that operating netback assists management and investors in
assessing Birchcliff’s operating profits after deducting the cash
costs that are directly associated with the sale of its production,
which can then be used to pay other corporate cash costs or satisfy
other obligations. The following table provides a breakdown of
Birchcliff’s operating netback for the periods indicated:
|
Three months endedMarch 31, |
($000s) |
2022 |
|
2021 |
|
Petroleum and natural gas revenue |
285,976 |
|
185,609 |
|
Royalty expense |
(30,158 |
) |
(11,627 |
) |
Operating expense |
(23,847 |
) |
(21,498 |
) |
Transportation and other expense |
(37,172 |
) |
(37,273 |
) |
Operating netback – Corporate |
194,799 |
|
115,211 |
|
Effective Sales – Total Corporate, Total
Natural Gas, AECO Market and NYMEX HH Market
Birchcliff defines “effective sales” in the AECO
market and NYMEX HH market as the sales amount received from the
production of natural gas that is effectively attributed to the
AECO and NYMEX HH market pricing, respectively, and does not
consider the physical sales delivery point in each case. Effective
sales in the NYMEX HH market includes realized gains and losses on
financial instruments and excludes the notional fixed basis costs
associated with the underlying financial contract in the period.
Birchcliff defines “effective total natural gas sales” as the
aggregate of the effective sales amount received in each natural
gas market. Birchcliff defines “effective total corporate sales” as
the aggregate of the effective total natural gas sales and the
sales amount received from the production of light oil, condensate
and NGLs. Management believes that disclosing effective sales for
each natural gas market assists management and investors in
assessing Birchcliff’s natural gas diversification and commodity
price exposure to each market. The following table provides a
reconciliation of natural gas sales, as determined in accordance
with GAAP, to effective total natural gas sales and effective total
corporate sales for the periods indicated:
|
Three months endedMarch 31, |
($000s) |
2022 |
2021(1) |
Natural gas sales |
177,610 |
109,441 |
|
Realized loss on financial instruments |
1,167 |
(14,009 |
) |
Notional fixed basis costs(2) |
21,385 |
21,325 |
|
Effective total natural gas sales |
200,162 |
116,757 |
|
Light oil sales |
24,624 |
20,238 |
|
Condensate sales |
52,466 |
36,516 |
|
NGLs sales |
31,265 |
19,407 |
|
Effective total corporate sales |
308,517 |
192,918 |
|
(1) Prior period amounts have been adjusted to
include the aggregate notional fixed basis cost for comparison
purposes.(2) Reflects the aggregate notional fixed basis cost
associated with Birchcliff’s financial and physical NYMEX HH/AECO
7A basis swaps in the period.
Non-GAAP Ratios
NI 52-112 defines a non-GAAP ratio as a
financial measure that: (i) is in the form of a ratio, fraction,
percentage or similar representation; (ii) has a non-GAAP financial
measure as one or more of its components; and (iii) is not
disclosed in the financial statements of the entity. The non-GAAP
ratios used in this press release are not standardized financial
measures under GAAP and might not be comparable to similar measures
presented by other companies where similar terminology is used. Set
forth below is a description of the non-GAAP ratios used in this
press release.
Adjusted Funds Flow Per
Boe and Adjusted Funds Flow Per Basic Common
Share
Birchcliff calculates “adjusted funds flow per
boe” as aggregate adjusted funds flow in the period divided by the
production (boe) in the period. Management believes that adjusted
funds flow per boe assists management and investors in assessing
Birchcliff’s financial profitability and sustainability on a cash
basis by isolating the impact of production volumes to better
analyze its performance against prior periods on a comparable
basis. The Corporation previously referred to adjusted funds flow
per boe as “adjusted funds flow netback”.
Birchcliff calculates “adjusted funds flow per
basic common share” as aggregate adjusted funds flow in the period
divided by the basic common shares outstanding at the end of the
period. Management believes that adjusted funds flow per basic
common share assists management and investors in assessing
Birchcliff’s financial strength on a per common share basis.
Free Funds Flow Per Basic Common
Share
Birchcliff calculates “free funds flow per basic
common share” as aggregate free funds flow in the period divided by
the basic common shares outstanding at the end of the period.
Management believes that free funds flow per basic
common share assists management and investors in assessing
Birchcliff’s financial strength and its ability to generate
shareholder returns on a per common share basis.
Transportation and Other Expense Per
Boe
Birchcliff calculates “transportation and other
expense per boe” as aggregate transportation and other expense in
the period divided by the production (boe) in the period.
Management believes that transportation and other expense per boe
assists management and investors in assessing Birchcliff’s cost
structure as it relates to its transportation and marketing
activities by isolating the impact of production volumes to better
analyze performance against prior periods on a comparable
basis.
Operating Netback Per Boe
Birchcliff calculates “operating netback per
boe” as aggregate operating netback in the period divided by the
production (boe) in the period. Management believes that operating
netback per boe assists management and investors in assessing
Birchcliff’s operating profitability and sustainability by
isolating the impact of production volumes to better analyze its
performance against prior periods on a comparable basis.
Effective Average Realized Sales Price –
Total Corporate, Total Natural Gas, AECO Market and NYMEX HH
Market
Birchcliff calculates “effective average
realized sales price” as effective sales, in each of total
corporate, total natural gas, AECO market and NYMEX HH market, as
the case may be, divided by the effective production in each of the
markets during the period. Management believes that disclosing
effective average realized sales price for each natural gas market
assists management and investors in comparing Birchcliff’s
commodity price realizations in each natural gas market on a per
unit basis.
Supplementary Financial
Measures
NI 52-112 defines a supplementary financial
measure as a financial measure that: (i) is, or is intended to be,
disclosed on a periodic basis to depict the historical or expected
future financial performance, financial position or cash flow of an
entity; (ii) is not disclosed in the financial statements of the
entity; (iii) is not a non-GAAP financial measure; and (iv) is not
a non-GAAP ratio. The supplementary financial measures used in this
press release are either a per unit disclosure of a corresponding
GAAP measure, or a component of a corresponding GAAP measure,
presented in the financial statements. Supplementary financial
measures that are disclosed on a per unit basis are calculated by
dividing the aggregate GAAP measure (or component thereof) by the
applicable unit for the period. Supplementary financial measures
that are disclosed on a component basis of a corresponding GAAP
measure are a granular representation of a financial statement line
item and are determined in accordance with GAAP.
Capital Management Measures
NI 52-112 defines a capital management measure
as a financial measure that: (i) is intended to enable an
individual to evaluate an entity’s objectives, policies and
processes for managing the entity’s capital; (ii) is not a
component of a line item disclosed in the primary financial
statements of the entity; (iii) is disclosed in the notes to the
financial statements of the entity; and (iv) is not disclosed in
the primary financial statements of the entity. Set forth below is
a description of the capital management measures used in this press
release.
Total Debt and Adjusted Working Capital
Deficit (Surplus)
Birchcliff calculates “total debt” as the amount
outstanding under the Corporation’s Credit Facilities plus adjusted
working capital deficit (surplus). “Adjusted working capital
deficit (surplus)” is calculated as working capital (current assets
less current liabilities) less fair value of financial instruments
and capital securities. Surplus as disclosed in this press release
is equivalent to adjusted working capital surplus. Management
believes that total debt assists management and investors in
assessing Birchcliff’s overall liquidity and financial position at
the end of the period. Management believes that adjusted working
capital deficit (surplus) assists management and investors in
assessing Birchcliff’s short-term liquidity. The following table
provides a reconciliation of the amount outstanding under the
Credit Facilities and working capital deficit, as determined in
accordance with GAAP, to total debt and adjusted working capital
deficit (surplus), respectively:
As at, ($000s) |
March 31, 2022 |
December 31, 2021 |
Revolving term credit facilities |
397,752 |
|
500,870 |
|
Working capital deficit |
46,213 |
|
53,312 |
|
Fair value of financial instruments |
3,249 |
|
(16,517 |
) |
Capital securities |
(38,216 |
) |
(38,268 |
) |
Adjusted working capital deficit (surplus) |
11,246 |
|
(1,473 |
) |
Total debt |
408,998 |
|
499,397 |
|
ADVISORIES
Unaudited Information
All financial and operational information
contained in this press release for the three months ended March
31, 2022 and 2021 is unaudited.
Currency
Unless otherwise indicated, all dollar amounts
are expressed in Canadian dollars and all references to “$” and
“CDN$” are to Canadian dollars and all references to “US$” are to
United States dollars.
Boe Conversions
Boe amounts have been calculated by using the
conversion ratio of 6 Mcf of natural gas to 1 bbl of oil. Boe
amounts may be misleading, particularly if used in isolation. A boe
conversion ratio of 6 Mcf: 1 bbl is based on an energy equivalency
conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead. Given that the
value ratio based on the current price of crude oil as compared to
natural gas is significantly different from the energy equivalency
of 6:1, utilizing a conversion on a 6:1 basis may be misleading as
an indication of value.
MMBtu Pricing Conversions
$1.00 per MMBtu equals $1.00 per Mcf based on a
standard heat value Mcf.
Oil and Gas Metrics
This press release contains metrics commonly
used in the oil and natural gas industry, including netbacks. These
oil and gas metrics do not have any standardized meanings or
standard methods of calculation and therefore may not be comparable
to similar measures presented by other companies where similar
terminology is used. As such, they should not be used to make
comparisons. Management uses these oil and gas metrics for its own
performance measurements and to provide investors with measures to
compare Birchcliff’s performance over time; however, such measures
are not reliable indicators of Birchcliff’s future performance,
which may not compare to Birchcliff’s performance in previous
periods, and therefore should not be unduly relied upon. For
additional information regarding netbacks, see “Non-GAAP and Other
Financial Measures”.
Production
With respect to the disclosure of Birchcliff’s
production contained in this press release: (i) references to
“light oil” mean “light crude oil and medium crude oil” as such
term is defined in National Instrument 51-101 – Standards of
Disclosure for Oil and Gas Activities (“NI
51-101”); (ii) except where otherwise stated, references
to “liquids” mean “light crude oil and medium crude oil” and
“natural gas liquids” (including condensate) as such terms are
defined in NI 51-101; and (iii) references to “natural gas” mean
“shale gas”, which also includes an immaterial amount of
“conventional natural gas”, as such terms are defined in NI 51-101.
In addition, NI 51-101 includes condensate within the product type
of natural gas liquids. Birchcliff has disclosed condensate
separately from other natural gas liquids as the price of
condensate as compared to other natural gas liquids is currently
significantly higher and Birchcliff believes presenting the two
commodities separately provides a more accurate description of its
operations and results therefrom.
Initial Production Rates
Any references in this press release to initial
production rates or other short-term production rates are useful in
confirming the presence of hydrocarbons; however, such rates are
not determinative of the rates at which such wells will continue to
produce and decline thereafter and are not indicative of the
long-term performance or the ultimate recovery of such wells. In
addition, such rates may also include recovered “load oil” or “load
water” fluids used in well completion stimulation. While
encouraging, readers are cautioned not to place undue reliance on
such rates in calculating the aggregate production for Birchcliff.
Such rates are based on field estimates and may be based on limited
data available at this time.
With respect to the production rates for the
Corporation’s 6-well (13-29) pad in Pouce Coupe disclosed herein,
such rates represent the cumulative volumes for each well measured
at the wellhead separator for the 30 and 60 days (as applicable) of
production immediately after each well was considered stabilized
after producing fracture treatment fluid back to surface in an
amount such that flow rates of hydrocarbons became reliable
(between 0 and 4 days), divided by 30 or 60 (as applicable), which
were then added together to determine the aggregate production
rates for the 6-well pad and then divided by 6 to determine the per
well average production rates. The production rates excluded the
hours and days when the wells did not produce. Approximate tubing
pressures for the 6 wells were stabilized between 3.3 and 3.6 MPa
for IP 30 production rates and between 3.2 and 3.5 MPa for IP 60
production rates. Approximate casing pressures for the 6 wells were
stabilized between 8.8 and 12.9 MPa for IP 30 production rates and
between 8.3 and 12.1 MPa for IP 60 production rates. To-date, no
pressure transient or well-test interpretation has been carried out
on any of the wells. The natural gas volumes represent raw natural
gas volumes as opposed to sales gas volumes.
F&D Capital
Expenditures
Unless otherwise stated, references in this
press release to “F&D capital expenditures” denotes exploration
and development expenditures determined in accordance with GAAP.
Management believes that F&D capital expenditures assists
management and investors in assessing Birchcliff capital cost
outlay associated with its exploration and development activities
for the purposes of finding and developing its reserves.
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”
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 the following:
- Birchcliff’s plans and other
aspects of its anticipated future financial performance, results,
operations, focus, objectives, strategies, opportunities,
priorities and goals, including: that Birchcliff continues to be
committed to maximizing free funds flow generation and
significantly reducing indebtedness; that Birchcliff does not have
any fixed price commodity hedges in place and does not currently
intend to hedge any future production, which allows the Corporation
to take full advantage of the robust commodity price environment;
Birchcliff’s commitment to increasing shareholder returns; that
Birchcliff will consider additional increases to its common share
dividend in 2022, depending on commodity prices and free funds flow
levels, among other things; that excess free funds flow remaining
after the payment of the targeted common share dividend of $0.80
per common share is forecast to be $323 million in 2023, with a
forecasted surplus at year-end 2023 of $575 million; that the
targeted dividend of $0.80 per common share ($212 million annually)
and Birchcliff’s targeted F&D capital expenditures would be
funded over the course of the Five Year Plan at an average WTI
price of US$70.00/bbl, an average AECO price of CDN$3.00/GJ and
average Dawn and NYMEX prices of US$3.30/MMBtu and that assuming
these commodity prices, the Corporation is forecasting a surplus of
$218 million at year-end 2023; and the anticipated repayment in
full of the Corporation’s Credit Facilities in 2022;
-
the information set forth under the heading “Outlook and Guidance –
Updated 2022 Guidance” and elsewhere in this press release as it
relates to Birchcliff’s updated outlook and guidance for 2022,
including: estimates of annual and Q4 average production,
production commodity mix, average expenses, adjusted funds flow,
F&D capital expenditures, free funds flow, excess free funds
flow, surplus at year end and natural gas market exposure; that the
estimate of surplus at December 31, 2022 is expected to be largely
comprised of cash on hand plus accounts receivable less accounts
payable at the end of the year; the expected impact of changes in
commodity prices and the CDN/US exchange rate on Birchcliff’s
estimate of free funds flow; that Birchcliff expects to reach zero
total debt in Q4 2022; that Birchcliff’s free funds flow in 2022 is
primarily being used to reduce indebtedness; and that Birchcliff’s
F&D capital expenditures are currently anticipated to be on the
high end of the guidance range;
- Birchcliff’s plans for increases to
its common share dividend, including: that subject to commodity
prices, Birchcliff achieving its target of zero total debt in Q4
2022 and the approval of the board of directors, the Corporation is
currently targeting increasing its annual common share dividend in
2023 to at least $0.80 per common share, which is expected to be
paid quarterly at a rate of $0.20 per share, commencing with the
quarter ending March 31, 2023; that this targeted dividend would
equate to $212 million of common share dividends paid in 2023; and
that Birchcliff believes that this increased dividend would be
sustainable at an average WTI price of US$70.00/bbl and an average
AECO price of CDN$3.00/GJ;
-
the information set forth under the heading “Outlook and Guidance –
Updated Five Year Outlook and Plans to Increase Common Share
Dividend in 2023” and elsewhere in this press release as it relates
to Birchcliff’s updated Five Year Plan, including: estimates and
targets of average production, production commodity mix, adjusted
funds flow, F&D capital expenditures, free funds flow, common
share dividends, excess free funds flow, surplus at year end and
average expenses; that the estimates of surplus at year end are
expected to be largely comprised of cash on hand plus accounts
receivable less accounts payable at the end of the year; the
expected impact of changes in commodity prices and the CDN/US
exchange rate on Birchcliff’s target of potential cumulative free
funds flow; that the Corporation now anticipates that it will be
required to pay Canadian income taxes commencing in 2023 and the
Corporation’s expectation for higher taxable income in 2023 to
2026; that the potential free funds flow to be generated during the
Five Year Plan provides Birchcliff with significant capacity to
sustainably increase shareholder returns; that the Five Year Plan
contemplates significant excess free funds flow after the payment
of common share dividends, providing Birchcliff with the ability to
further enhance shareholder returns; that Birchcliff will continue
to strategically evaluate the potential uses for excess free funds
flow and additional steps to enhance shareholder returns, which may
include further dividend increases, common share buybacks and other
opportunities that would complement or otherwise improve the
Corporation’s business and enhance long-term shareholder value;
that Birchcliff currently expects to use its common share dividend
as its primary mechanism for shareholder returns over the course of
the Five Year Plan; that Birchcliff anticipates that it will
continue to repurchase its common shares to help offset the
dilution resulting from the exercise of stock options; that
Birchcliff will continue to evaluate opportunistic repurchases of
its common shares when the intrinsic value of such shares exceeds
the current market price; and that the focus of the Five Year Plan
is unchanged and remains on increasing shareholder value by
maximizing free funds flow and reducing the Corporation’s
indebtedness, increasing shareholder returns and fully utilizing
the available processing capacity of the Corporation’s existing
infrastructure;
-
statements under the heading “Operations Update” regarding
Birchcliff’s 2022 capital program and its exploration, production
and development activities and the timing thereof, including: the
number and types of wells to be drilled and brought on production
in 2022; and planned facility turnarounds; and
- the proposed redemption of the
Series A and Series C Preferred Shares, including the anticipated
timing thereof.
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
environmental, climate change and other 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; board of director approval of
proposed dividends and the proposed redemption of the Series A and
Series C Preferred Shares; 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:
-
Birchcliff’s 2022 guidance (as updated on May 11, 2022) assumes the
following commodity prices and exchange rate: an average WTI price
of US$99.50/bbl; an average WTI-MSW differential of CDN$3.10/bbl;
an average AECO price of CDN$6.50/GJ; an average Dawn price of
US$6.85/MMBtu; an average NYMEX HH price of US$6.95/MMBtu; and an
exchange rate (CDN$ to US$1) of 1.28.
-
With respect to estimates of capital expenditures for 2022, such
estimates assume that the 2022 capital program will be carried out
as currently contemplated. 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 estimates of adjusted funds flow, free
funds flow and excess free funds flow for 2022, such estimates
assume that: the 2022 capital program will be carried out as
currently contemplated and the level of capital spending for 2022
set forth herein will be achieved; and the targets for production,
production commodity mix, expenses and natural gas market exposure
and the commodity price and exchange rate assumptions are met.
-
With respect to Birchcliff’s production guidance for 2022, such
guidance assumes that: the 2022 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, such statements assume: the continuing
validity of the geological and other technical interpretations
performed by Birchcliff’s technical staff, which indicate that
commercially economic volumes can be recovered from Birchcliff’s
lands as a result of drilling future wells; and that commodity
prices and general economic conditions will warrant proceeding with
the drilling of such wells.
-
With respect to the Five Year Plan (as updated on May 11, 2022),
the plan is based on the commodity price, exchange rate and other
assumptions set forth under the heading “Outlook and Guidance –
Updated Five Year Outlook and Plans to Increase Common Share
Dividend in 2023”. In addition:
-
The forecast production estimates contained in the Five Year Plan
are subject to similar assumptions set forth herein for
Birchcliff’s other production guidance.
-
With respect to Birchcliff’s estimates of capital expenditures and
spending plans, such estimates and plans assume that Birchcliff’s
capital programs are carried out as currently contemplated, with
the Pouce Coupe Gas Plant and the AltaGas Facility being filled by
the end of 2024. The Five Year Plan also forecasts that
approximately 170 to 180 wells will be brought on production over
the five year period, which forecast is subject to similar
assumptions regarding wells drilled and brought on production as
set forth herein.
-
With respect to Birchcliff’s estimates of adjusted funds flow, free
funds flow and excess free funds flow, such estimates assume that:
Birchcliff’s capital programs will be carried out as currently
contemplated and the level of capital spending for each year will
be achieved; and the targets for production and production
commodity mix and the commodity price and exchange rate assumptions
set forth herein are met.
-
The Corporation’s expectation that it will be required to pay
Canadian income taxes commencing in 2023 is based on the current
tax regime in Canada, the Corporation’s current available income
tax pools and the commodity price assumptions set forth herein. In
addition, this expectation is based on the Five Year Plan as
illustrated herein and assumes, among other things, that the levels
of spending and production set forth under the heading “Outlook and
Guidance – Updated Five Year Outlook and Plans to Increase Common
Share Dividend in 2023” are achieved.
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 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; 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;
actions by government authorities, including those with respect to
the COVID-19 pandemic; an inability of the Corporation to comply
with existing and future environmental, climate change and other
laws; the cost of compliance with current and future environmental
laws; political uncertainty and uncertainty associated with
government policy changes; 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
Birchcliff’s board of directors to declare dividends and change the
Corporation’s dividend policy; 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.
While Birchcliff anticipates approval by the
board of directors of the proposed redemption of the Series A and
Series C Preferred Shares and the proposed increase to the annual
common share dividend to $0.80 per share in 2023, the proposed
redemption and the payment of the increased common share dividend
remain subject to the approval of the board of directors. In
addition, the proposed increase to the common share dividend in
2023 is subject to commodity prices and Birchcliff achieving its
target of zero total debt in Q4 2022. The proposed redemption of
the Series A and Series C Preferred Shares and the declaration and
payment of any proposed dividends are subject to the discretion of
the board of directors 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 redemption of the Series A and Series C
Preferred Shares and 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 and Series A and Series C Preferred Shares are listed for
trading on the Toronto Stock Exchange under the symbols “BIR”,
“BIR.PR.A” and “BIR.PR.C”, respectively.
For further information, please contact: |
Birchcliff Energy Ltd.Suite 1000, 600 – 3rdAvenue
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 |
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