Birchcliff Energy Ltd. (“
Birchcliff” or the
“
Corporation”) (TSX: BIR) is pleased to announce a
special dividend on its common shares, its preliminary 2023
guidance and updated 2022 guidance.
Jeff Tonken, Birchcliff’s Chief Executive
Officer, commented: “By the end of 2022, we expect to have retired
approximately $840 million of total debt(1) and preferred shares
since June 30, 2020, nearing our goal of zero total debt. As a
result, our board of directors has declared a special cash dividend
of $0.20 per common share (approximately $53 million in
aggregate(2)) payable on October 28, 2022 and approved an $80
million increase(3) to our F&D capital budget for 2022. This
further capital investment in our business will help to ensure the
most efficient execution of our 2023 capital program and will not
increase our 2022 annual average production.
We expect that we will be in a cash surplus(4)
position at the end of Q1 2023 after payment of this special
dividend and the increase to our 2022 F&D capital budget.
Looking forward to 2023, we are currently
targeting F&D capital expenditures in the range of $240 million
to $270 million, which we expect will deliver annual average
production of 81,000 to 83,000 boe/d and generate adjusted funds
flow(5) of $855 million and free funds flow(5) of $585 million to
$615 million, based on current strip pricing. We continue to target
an annual common share dividend of $0.80 per share in 2023
(approximately $213 million annually(2), payable quarterly),
subject to commodity prices and the approval of our board of
directors. After the payment of this targeted common share dividend
of $213 million, we are forecasting that we will have approximately
$370 million to $400 million of excess free funds flow(5) in 2023
and a cash surplus of approximately $295 million to $325 million at
December 31, 2023(6).”
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”.
SPECIAL DIVIDEND
Birchcliff’s board of directors has declared a
special cash dividend of $0.20 per common share. The dividend will
be payable on October 28, 2022 to shareholders of record at the
close of business on October 21, 2022. The ex-dividend date is
October 20, 2022. The dividend has been designated as an eligible
dividend for the purposes of the Income Tax Act (Canada).
Birchcliff expects that a common share dividend
in the amount of $0.02 per share for the quarter ending December
31, 2022 will be declared by the Corporation’s board of directors
in November 2022. A press release containing the details of such
dividend, including the payment date, will be issued at such time
as the board of directors declares such dividend.
_______________________ |
(1)
Capital management measure. See “Non-GAAP and Other Financial
Measures Disclosure”.(2) Based on 266 million common shares
outstanding.(3) As compared to the Corporation’s previous 2022
F&D capital expenditures guidance of $275 million to $285
million and based on the mid-point of guidance.(4) Equivalent to
“total surplus”, which is a capital management measure. See
“Non-GAAP and Other Financial Measures”.(5) Non-GAAP financial
measure. See “Non-GAAP and Other Financial Measures”.(6) See
“Preliminary 2023 Guidance” and “Advisories – Forward-Looking
Statements” for further information regarding Birchcliff’s
preliminary 2023 guidance and its commodity price and exchange rate
assumptions. |
PRELIMINARY 2023 GUIDANCE
Birchcliff is currently targeting F&D
capital expenditures of $240 million to $270 million in 2023, which
is expected to deliver annual average production of 81,000 to
83,000 boe/d, a 5% increase over 2022(7). Based on these targeted
levels of capital spending and production, Birchcliff currently
expects that it will bring approximately 30 wells on production in
2023. Similar to 2022, the 2023 capital program will be designed to
utilize multi-well pads and two drilling rigs, which is more
operationally efficient for the Corporation. Birchcliff continues
to secure multi-year contracts with its key service providers and
has ordered various long-lead items, which will help to ensure the
efficient execution of the Corporation’s 2023 capital program, as
well as help Birchcliff to mitigate inflationary pressures and
manage supply chain constraints by ensuring security of equipment
and services.
Birchcliff is currently forecasting that it will
generate adjusted funds flow of approximately $855 million and free
funds flow of approximately $585 million to $615 million in 2023,
based on current strip pricing. This anticipated significant free
funds flow provides the Corporation with the ability to sustainably
increase shareholder returns. As previously disclosed, Birchcliff
is currently targeting an annual common share dividend of $0.80 per
share in 2023 (approximately $213 million annually), subject to
commodity prices and the approval of the Corporation’s board of
directors. This common share dividend is expected to be paid
quarterly at a rate of $0.20 per share, commencing with the quarter
ending March 31, 2023. Birchcliff believes that this targeted
dividend is sustainable at substantially lower commodity prices,
with such targeted dividend and F&D capital expenditures for
2023 being fully funded from adjusted funds flow at an average WTI
price of US$70.00/bbl, an average AECO price of CDN$3.00/GJ, an
average Dawn price of US$3.20/MMBtu and an average NYMEX HH price
of US$3.40/MMBtu(8). Birchcliff does not have any fixed price
commodity hedges in place and does not currently intend to enter
into any, which gives it the ability to take advantage of any
further strengthening of commodity prices above the Corporation’s
current commodity price assumptions for 2023.
After the payment of its anticipated common
share dividend of $213 million, Birchcliff is forecasting that it
will have approximately $370 million to $400 million of excess free
funds flow in 2023. This anticipated excess free funds flow
provides the Corporation with significant financial and operational
flexibility, allowing it to focus on ways to further increase
shareholder returns and enhance long-term shareholder value.
Birchcliff will continue to strategically evaluate the potential
uses for its excess free funds flow, which may include special
dividends, increases to the Corporation’s base dividend and/or
common share buybacks. Consideration may also be given to other
opportunities that would complement or otherwise improve the
Corporation’s business and enhance long-term shareholder value,
such as further investments in its business and strategic
acquisitions.
In addition, Birchcliff currently expects to use
a portion of its excess free funds flow to establish a meaningful
cash position. This will help to protect the Corporation’s common
share dividend and capital program in the event of a downturn in
commodity prices and/or economic conditions and provide the
Corporation with optionality to pursue various opportunities to
enhance long-term shareholder value.
_______________________ |
(7) Based
on an annual average production rate of 78,000 boe/d in 2022 and
82,000 boe/d in 2023, which is the mid-point of Birchcliff’s
preliminary annual average production guidance range for 2023.(8)
Assuming all other variables are held constant. |
The following table sets forth Birchcliff’s
preliminary guidance and commodity price assumptions for 2023, as
well as its free funds flow sensitivity:
Preliminary 2023 Guidance and Commodity
Price Assumptions
|
Preliminary 2023 guidance and assumptions(1) |
Annual Average Production (boe/d) |
81,000 – 83,000 |
|
|
Average Expenses ($/boe) |
|
Royalty(2) |
4.95 – 5.15 |
Operating(2) |
3.40 – 3.60 |
Transportation and other(3) |
5.20 – 5.40 |
Interest(2) |
negligible |
Current income tax(2) |
1.55 – 1.75 |
|
|
Adjusted Funds Flow (millions)(4) |
$855 |
|
|
F&D Capital Expenditures (millions)(5) |
$240 – $270 |
|
|
Free Funds Flow (millions)(4) |
$585 – $615 |
|
|
Common Share Dividends (millions)(6) |
$213 |
|
|
Excess Free Funds Flow (millions)(4)(6) |
$370 – $400 |
|
|
Total Surplus at Year End (millions)(7) |
$295 – $325 |
|
|
Natural Gas Market Exposure |
|
AECO exposure as a % of total natural gas production |
23% |
Dawn exposure as a % of total natural gas production |
41% |
NYMEX HH exposure as a % of total natural gas production |
36% |
|
|
Commodity Prices |
|
Average WTI price (US$/bbl) |
80.00 |
Average WTI-MSW differential (CDN$/bbl) |
5.00 |
Average AECO price (CDN$/GJ) |
4.80 |
Average Dawn price (US$/MMBtu) |
5.30 |
Average NYMEX HH price (US$/MMBtu) |
5.55 |
Exchange rate (CDN$ to US$1) |
1.35 |
Forward Twelve Months’ Free Funds Flow
Sensitivity(8)
Forward twelve months’ sensitivity |
Estimated change to 2023 free funds flow
(millions) |
Change in WTI US$1.00/bbl |
$4.0 |
Change in NYMEX HH US$0.10/MMBtu |
$7.5 |
Change in Dawn US$0.10/MMBtu |
$7.7 |
Change in AECO CDN$0.10/GJ |
$3.3 |
Change in CDN/US exchange rate CDN$0.01 |
$7.7 |
(1) Birchcliff’s
preliminary 2023 guidance for its adjusted funds flow, free funds
flow, excess free funds flow, total surplus and natural gas market
exposure in 2023 is based on an annual average production rate of
82,000 boe/d, which is the mid-point of Birchcliff’s preliminary
annual average production guidance range for 2023. For further
information regarding the risks and assumptions relating to the
Corporation’s guidance, see“Advisories – Forward-Looking
Statements”.(2) Supplementary financial measure. See“Non-GAAP and
Other Financial Measures”.(3) Non-GAAP ratio. See“Non-GAAP and
Other Financial Measures”.(4) Non-GAAP financial measure.
See“Non-GAAP and Other Financial Measures”.(5) Birchcliff’s
estimate of F&D capital expenditures excludes any net potential
acquisitions and dispositions and the capitalized portion of annual
cash incentive payments that have not been approved by Birchcliff’s
board of directors. See“Advisories – F&D Capital
Expenditures”.(6) Assumes that an annual common share dividend of
$0.80 per share is paid in 2023 and there are 266 million common
shares outstanding. The declaration of dividends is subject to the
approval of the board of directors and is subject to change.
See“Advisories – Forward-Looking Statements”.(7) Capital management
measure. See“Non-GAAP and Other Financial Measures”.The estimate of
total surplus at December 31, 2023 is expected to be comprised of
adjusted working capital, which is expected to be largely comprised
of cash, accounts receivable and accounts payable and accrued
liabilities at the end of the year. Birchcliff previously referred
to total surplus as “surplus”.(8) Illustrates the expected impact
of changes in commodity prices and the CDN/US exchange rate on the
Corporation’s estimate of free funds flow for 2023 of $585 million
to $615 million, holding all other variables constant. The
sensitivity is based on the commodity price and exchange rate
assumptions set forth in the table above. The calculated impact on
free funds flow is only applicable within the limited range of
change indicated. Calculations are performed independently and may
not be indicative of actual results. Actual results may vary
materially when multiple variables change at the same time and/or
when the magnitude of the change increases. |
Birchcliff’s preliminary guidance for 2023 is
based on its preliminary planning and takes into account expected
increases in materials, labour and services costs as compared to
the current year. Birchcliff continues to work through its plans
for 2023 and expects to announce the details of its 2023 capital
program and guidance on January 18, 2023, as well as its updated
five year plan for 2023 to 2027.
UPDATED 2022 GUIDANCE
Birchcliff’s Montney/Doig Resource Play
continues to be one of the most profitable plays in North America
and the Corporation’s 2022 drilling program has delivered very
strong results. As at the date hereof, Birchcliff has successfully
completed the drilling of all 30 (30.0 net) wells and brought on
production all 35 (35.0 net) wells previously planned under its
2022 capital program. The wells were drilled using the
Corporation’s two-drilling rig program and brought on production
from 4 separate multi-well pads. All of the pads have expected
payouts of less than one year. In addition, Birchcliff safely and
efficiently completed a significant planned turnaround in Q2 2022
at its 100% owned and operated natural gas processing plant in
Pouce Coupe.
As a result of Birchcliff nearing its goal of
zero total debt, the successful execution of its 2022 capital
program and the continued strength in commodity prices, the
Corporation’s board of directors has approved an $80 million
increase to its 2022 F&D capital budget. Accordingly, total
F&D capital expenditures in 2022 are now anticipated to be $355
million to $365 million.
Approximately 83% of the increase is
attributable to additional DCCET activity, which will deliver
incremental Montney/Doig production in early 2023 and allows
Birchcliff to continue its two-drilling rig program throughout 2022
and into 2023. As no additional wells are expected to be brought on
production until late December 2022, Birchcliff is not anticipating
any significant additional production volumes in 2022. The
remainder of the increase is attributable to the procurement of
various long-lead items and the acceleration of select
infrastructure and construction activities into 2022, which will
help to ensure the most efficient execution of the Corporation’s
2023 capital program and allows Birchcliff to manage supply chain
constraints and mitigate inflationary pressures.
The Corporation’s increased 2022 capital program
contemplates that a total of 44 (44.0 net) wells will be drilled
and 41 (41.0 net) wells will be brought on production by Birchcliff
in 2022 and includes the following additional DCCET activity:
-
The drilling and completion of 6 (6.0 net) Montney/Doig horizontal
wells in Pouce Coupe on a 6-well pad (03-06). These additional
wells are expected to be brought on production in late December
2022.
-
The drilling of 6 (6.0 net) Montney/Doig horizontal wells in Pouce
Coupe on a 6-well pad (14-06). These additional wells are expected
to be completed and brought on production in Q1 2023.
-
The drilling of 1 (1.0 net) well and 3 (3.0 net) surface holes on
each of the Corporation’s two 4-well pads in Pouce Coupe (15-27 and
04-23). These additional wells are expected to be completed and
brought on production in the first half of 2023.
In addition, the Corporation is participating in
the drilling and completion of 2 (0.375 net) Charlie Lake
horizontal oil wells in Pouce Coupe, which are expected to be
brought on production in Q1 2023.
The following table sets forth the number and
types of wells expected to be drilled and brought on production in
2022:
Area |
Total wells to be drilled in 2022 |
Total wells to be brought on production in
2022(1) |
REVISED |
ORIGINAL |
REVISED |
ORIGINAL |
Pouce Coupe |
|
|
|
|
|
Montney D1 horizontal natural gas wells |
16 |
9 |
15 |
12 |
|
Montney D2
horizontal natural gas wells |
5 |
0 |
3 |
0 |
|
Montney C
horizontal natural gas wells |
4 |
2 |
2 |
2 |
|
Basal Doig/Upper Montney horizontal natural gas wells |
10 |
10 |
12 |
12 |
|
Total – Pouce Coupe |
35 |
21 |
32 |
26 |
Gordondale |
|
|
|
|
|
Montney D1 horizontal
oil wells |
4 |
4 |
4 |
4 |
|
Montney D2 horizontal oil wells |
5 |
5 |
5 |
5 |
|
Total – Gordondale |
9 |
9 |
9 |
9 |
TOTAL – COMBINED |
44(2) |
30 |
41 |
35 |
(1) Includes 5 wells that were drilled and rig
released in Q4 2021.(2) Does not include the 2 (0.375) net
Charlie Lake wells. |
Of the Corporation’s increased $355 million to
$365 million F&D capital budget, approximately $245 million to
$250 million (approximately 70%) is expected to be allocated
towards DCCET activities and $35 million to $40 million
(approximately 10%) towards facilities and infrastructure, with the
remainder allocated towards maintenance and optimization, land and
seismic and other activities.
Birchcliff is updating its 2022 guidance to
reflect its increased F&D capital budget and the payment of the
special common share dividend on October 28, 2022, as well as lower
forecasted commodity prices. Significant changes to Birchcliff’s
guidance include the following:
-
As all of the wells previously planned under its 2022 capital
program have been brought on production, Birchcliff now estimates
annual average production of approximately 78,000 boe/d.
-
Adjusted funds flow for 2022 is now anticipated to be $1.02
billion, primarily as a result of a lower commodity price
forecast.
-
F&D capital expenditures in 2022 are now anticipated to be $355
million to $365 million, as a result of the additional capital
investment in 2022.
-
Free funds flow for 2022 is now anticipated to be $655 million to
$665 million and excess free funds flow for 2022 is now anticipated
to be $585 million to $595 million, both as a result of the changes
to Birchcliff’s adjusted funds flow and F&D capital
expenditures guidance. Birchcliff’s excess free funds flow guidance
has also been impacted by the special dividend.
-
Birchcliff had previously forecast that it would have a total
surplus of $160 million to $170 million at December 31, 2022 and
reach its goal of zero total debt in Q4 2022. As a result of the
additional capital investment in 2022, the special dividend and a
lower commodity price forecast, Birchcliff now expects that it will
have total debt of $60 million to $70 million at December 31, 2022.
Excluding the special dividend (approximately $53 million in
aggregate, based on 266 million common shares outstanding) and the
additional capital investment of $80 million, Birchcliff forecasts
that it would have had a total surplus of approximately $65 million
to $75 million at December 31, 2022. Birchcliff expects to be in a
total surplus position at the end of Q1 2023.
The following table sets forth Birchcliff’s
updated and previous guidance and commodity price assumptions for
2022, as well as its free funds flow sensitivity:
2022 Guidance and Commodity Price
Assumptions
|
Updated 2022 guidance and assumptions – October 13,
2022(1) |
Previous 2022 guidance and assumptions
– August 10, 2022 |
Original 2022 guidance and assumptions
– January 19, 2022 |
Production |
|
|
|
Annual average production (boe/d) |
78,000 |
78,000 – 80,000 |
78,000 – 80,000 |
% Light oil |
3% |
3% |
3% |
% Condensate |
6% |
6% |
7% |
% NGLs |
10% |
10% |
10% |
% Natural gas |
81% |
81% |
80% |
Q4 average production (boe/d) |
81,000 – 83,000 |
81,000 – 83,000 |
81,000 – 83,000 |
|
|
|
|
Average Expenses ($/boe) |
|
|
|
Royalty(2) |
6.70 – 6.80 |
6.60 – 6.80 |
3.10 – 3.30 |
Operating(2) |
3.40 – 3.50 |
3.30 – 3.50 |
3.15 – 3.35 |
Transportation and other(3) |
5.40 – 5.50 |
5.30 – 5.50 |
4.90 – 5.10 |
Interest(2) |
0.40 – 0.50 |
0.30 – 0.50 |
0.50 – 0.60 |
|
|
|
|
Adjusted Funds Flow (millions)(4) |
$1,020 |
$1,115 |
$590 |
|
|
|
|
F&D Capital Expenditures (millions) |
$355 – $365(5) |
$275 – $285 |
$240 – $260 |
|
|
|
|
Free Funds Flow (millions)(4) |
$655 – $665 |
$830 – $840 |
$330 – $350 |
|
|
|
|
Common Share Dividends (millions) |
$72(6) |
$20 |
$20 |
|
|
|
|
Excess Free Funds Flow (millions)(4) |
$585 – $595(6) |
$810 – $820 |
N/A(7) |
|
|
|
|
Total (Debt) Surplus at Year End
(millions)(8) |
($60) – ($70)(9) |
$160 – $170 |
($175) – ($195) |
|
|
|
|
Natural Gas Market Exposure |
|
|
|
AECO exposure as a % of total natural gas production |
15% |
16% |
19% |
Dawn exposure as a % of total natural gas production |
42% |
42% |
42% |
NYMEX HH exposure as a % of total natural gas production |
38% |
38% |
38% |
Alliance exposure as a % of total natural gas production |
5% |
4% |
1% |
|
|
|
|
Commodity Prices |
|
|
|
Average WTI price (US$/bbl) |
95.00 |
99.00 |
76.00 |
Average WTI-MSW differential (CDN$/bbl) |
2.50 |
3.60 |
5.00 |
Average AECO price (CDN$/GJ) |
5.25 |
5.60 |
3.50 |
Average Dawn price (US$/MMBtu) |
6.35 |
6.65 |
3.90 |
Average NYMEX HH price (US$/MMBtu) |
6.85 |
6.95 |
4.00 |
Exchange rate (CDN$ to US$1) |
1.30 |
1.28 |
1.26 |
Forward Three Months’ Free Funds Flow
Sensitivity(10)
Forward three months’ sensitivity |
Estimated change to 2022 free funds flow
(millions) |
Change in WTI US$1.00/bbl |
$1.0 |
Change in NYMEX HH US$0.10/MMBtu |
$1.3 |
Change in Dawn US$0.10/MMBtu |
$1.8 |
Change in AECO CDN$0.10/GJ |
$1.2 |
Change in CDN/US exchange rate CDN$0.01 |
$1.3 |
(1) For further
information regarding the risks and assumptions relating to the
Corporation’s guidance, see “Advisories – Forward-Looking
Statements”.(2) Supplementary financial measure. See “Non-GAAP and
Other Financial Measures”.(3) Non-GAAP ratio. See “Non-GAAP and
Other Financial Measures”.(4) Non-GAAP financial measure. See
“Non-GAAP and Other Financial Measures”.(5) Birchcliff’s updated
estimate of F&D capital expenditures excludes any net potential
acquisitions and dispositions and the capitalized portion of annual
cash incentive payments that have not been approved by Birchcliff’s
board of directors. See “Advisories – F&D Capital
Expenditures”.(6) Assumes that: (i) a special dividend of $0.20 per
common share is paid on October 28, 2022 and a dividend of $0.02
per common share is paid for the quarter ending December 31, 2022;
and (ii) there are 266 million common shares outstanding. Other
than the special dividend of $0.20 to be paid on October 28, 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”.(7) This measure was not disclosed on
January 19, 2022.(8) Capital management measure. See “Non-GAAP and
Other Financial Measures”.(9) Birchcliff’s updated estimate of
total debt at December 31, 2022 is expected to be comprised of any
amounts outstanding under the Corporation’s extendible revolving
credit facilities (the “Credit Facilities”) and
adjusted working capital, which is expected to be largely comprised
of cash, accounts receivable and accounts payable and accrued
liabilities at the end of the year.(10) Illustrates the expected
impact of changes in commodity prices and the CDN/US exchange rate
on the Corporation’s estimate of free funds flow for 2022 of $655
million to $665 million, holding all other variables constant. The
sensitivity is based on the 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. |
FORECAST ROYALTIES, TAXES AND FEES
Birchcliff currently forecasts that total
royalties and other taxes and fees to be paid to the Province of
Alberta in 2022 and 2023 will be in the amount of approximately
$206 million and $168 million, respectively. Royalties are
comprised of payments in respect of production and revenue from
Birchcliff’s oil and natural gas wells producing in Alberta. Other
taxes and fees primarily include municipal property taxes,
regulatory compliance and administration fees, surface and mineral
lease rentals and land sale bonuses paid to acquire development
rights in the Province.
Birchcliff currently forecasts that corporate
income taxes to be paid to the Federal Government in 2023 will be
in the amount of approximately $49 million. The Corporation expects
to have sufficient tax pools available to offset taxable income in
2022 and therefore no corporate income taxes are expected to paid
in 2022.
ABBREVIATIONS
AECO |
benchmark price for natural gas determined at the AECO ‘C’ hub in
southeast Alberta |
bbl |
barrel |
boe |
barrel of oil equivalent |
boe/d |
barrel of oil equivalent per day |
condensate |
pentanes plus (C5+) |
DCCET |
drill, case, complete, equip and tie-in |
F&D |
finding and development |
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 |
Mcf |
thousand cubic feet |
MMBtu |
million British thermal units |
MMBtu/d |
million British thermal units per day |
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 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 and expense
sources. Management believes that adjusted funds flow assists
management and investors in assessing Birchcliff’s financial
performance after deducting all operating and corporate cash costs,
as well as its ability to generate the cash necessary to fund
sustaining and/or growth capital expenditures, repay debt, settle
decommissioning obligations, buy back common shares and pay
dividends.
Birchcliff defines “free funds flow” as adjusted
funds flow less F&D capital expenditures. Management believes
that free funds flow assists management and investors in assessing
Birchcliff’s ability to generate shareholder returns through a
number of initiatives, including but not limited to, debt
repayment, common share buybacks, the payment of dividends and
acquisitions.
Birchcliff defines “excess free funds flow” as
free funds flow less common share dividends paid. Management
believes that excess free funds flow assists management and
investors in assessing Birchcliff’s ability to further enhance
shareholder returns after the payment of common share dividends,
which may include special dividends, increases to the Corporation’s
base dividend, common share buybacks, acquisitions and other
opportunities that would complement or otherwise improve the
Corporation’s business and enhance long-term shareholder value.
The 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 endedJune 30, |
|
Six months endedJune 30, |
|
Twelve months endedDecember
31, |
|
($000s) |
2022 |
|
2021 |
|
2022 |
|
2021 |
|
2021 |
|
Cash flow from operating activities |
273,711 |
|
81,013 |
|
427,863 |
|
163,621 |
|
515,369 |
|
Change in non-cash operating working capital |
11,199 |
|
8,982 |
|
40,029 |
|
13,111 |
|
21,161 |
|
Decommissioning expenditures |
625 |
|
193 |
|
1,342 |
|
1,276 |
|
3,203 |
|
Adjusted funds flow |
285,535 |
|
90,188 |
|
469,234 |
|
178,008 |
|
539,733 |
|
F&D capital expenditures |
(84,247 |
) |
(80,887 |
) |
(172,529 |
) |
(176,727 |
) |
(230,479 |
) |
Free funds flow |
201,288 |
|
9,301 |
|
296,705 |
|
1,281 |
|
309,254 |
|
Dividends on common shares |
(5,310 |
) |
(1,333 |
) |
(7,968 |
) |
(2,663 |
) |
(6,639 |
) |
Excess free funds flow |
195,978 |
|
7,968 |
|
288,737 |
|
(1,382 |
) |
302,615 |
|
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 endedJune 30, |
|
Six months endedJune 30, |
|
Twelve months endedDecember
31, |
|
($000s) |
2022 |
|
2021 |
|
2022 |
|
2021 |
|
2021 |
|
Transportation expense |
39,855 |
|
38,165 |
|
77,692 |
|
75,849 |
|
151,263 |
|
Marketing purchases |
2,644 |
|
1,734 |
|
6,213 |
|
3,781 |
|
18,034 |
|
Marketing revenue |
(3,043 |
) |
(2,234 |
) |
(7,277 |
) |
(4,692 |
) |
(20,722 |
) |
Marketing gain |
(399 |
) |
(500 |
) |
(1,064 |
) |
(911 |
) |
(2,688 |
) |
Transportation and other expense |
39,456 |
|
37,665 |
|
76,628 |
|
74,938 |
|
148,575 |
|
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 ratio used in this
press release.
Transportation and Other Expense Per
Boe
Birchcliff calculates “transportation and other
expense per boe” as aggregate transportation and other expense in
the period divided by the production (boe) in the period.
Management believes that transportation and other expense per boe
assists management and investors in assessing Birchcliff’s cost
structure as it relates to its transportation and marketing
activities by isolating the impact of production volumes to better
analyze its performance against prior periods on a comparable
basis.
Supplementary Financial
Measures
NI 52-112 defines a supplementary financial
measure as a financial measure that: (i) is, or is intended to be,
disclosed on a periodic basis to depict the historical or expected
future financial performance, financial position or cash flow of an
entity; (ii) is not disclosed in the financial statements of the
entity; (iii) is not a non-GAAP financial measure; and (iv) is not
a non-GAAP ratio. The supplementary financial measures used in this
press release are either a per unit disclosure of a corresponding
GAAP measure, or a component of a corresponding GAAP measure,
presented in the financial statements. Supplementary financial
measures that are disclosed on a per unit basis are calculated by
dividing the aggregate GAAP measure (or component thereof) by the
applicable unit for the period. Supplementary financial measures
that are disclosed on a component basis of a corresponding GAAP
measure are a granular representation of a financial statement line
item and are determined in accordance with GAAP. The supplementary
financial measures used in this press release include royalty
expense per boe, operating expense per boe, interest expense per
boe and current income tax per boe.
Capital Management Measures
NI 52-112 defines a capital management measure
as a financial measure that: (i) is intended to enable an
individual to evaluate an entity’s objectives, policies and
processes for managing the entity’s capital; (ii) is not a
component of a line item disclosed in the primary financial
statements of the entity; (iii) is disclosed in the notes to the
financial statements of the entity; and (iv) is not disclosed in
the primary financial statements of the entity. Set forth below is
a description of the capital management measures used in this press
release.
Total Debt and Total
Surplus
Birchcliff calculates “total debt (surplus)” as
the amounts outstanding under the Corporation’s Credit Facilities
(if any) plus adjusted working capital deficit (less adjusted
working capital surplus) at the end of the period. “Adjusted
working capital deficit (surplus)” is calculated as working capital
deficit (surplus) (determined as current liabilities less current
assets) plus the fair value of the current asset portion of
financial instruments less the fair value of the current liability
portion of financial instruments and less capital securities at the
end of the period. Management believes that total debt (surplus)
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 (surplus), respectively for the
periods indicated:
As at, ($000s) |
|
June 30, 2022 |
|
December 31, 2021 |
|
Revolving term credit facilities |
|
276,030 |
|
500,870 |
|
Working capital deficit(1) |
|
18,633 |
|
53,312 |
|
Fair value of financial instruments – asset(2) |
|
13,099 |
|
69 |
|
Fair value of financial instruments – liability(2) |
|
(2,663 |
) |
(16,586 |
) |
Capital securities |
|
(38,205 |
) |
(38,268 |
) |
Adjusted working capital (surplus) |
|
(9,136 |
) |
(1,473 |
) |
Total debt(3) |
|
266,894 |
|
499,397 |
|
(1) Current
liabilities less current assets(2) Reflects the current
portion only.(3) Total debt can also be derived from the
amounts outstanding under the Corporation’s Credit Facilities plus
accounts payable and less cash, accounts receivable and accrued
liabilities and prepaid expenses and deposits at the end of the
period. |
ADVISORIES
Currency
Unless otherwise indicated, all dollar amounts
are expressed in Canadian dollars and all references to “$” 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.
Production
With respect to the disclosure of Birchcliff’s
production contained in this press release: (i) references to
“light oil” mean “light crude oil and medium crude oil” as such
term is defined in National Instrument 51-101 – Standards of
Disclosure for Oil and Gas Activities (“NI
51-101”); (ii) references to “liquids” mean “light crude
oil and medium crude oil” and “natural gas liquids” (including
condensate) as such terms are defined in NI 51-101; and (iii)
references to “natural gas” mean “shale gas”, which also includes
an immaterial amount of “conventional natural gas”, as such terms
are defined in NI 51-101. In addition, NI 51-101 includes
condensate within the product type of natural gas liquids.
Birchcliff has disclosed condensate separately from other natural
gas liquids as the price of condensate as compared to other natural
gas liquids is currently significantly higher and Birchcliff
believes presenting the two commodities separately provides a more
accurate description of its operations and results therefrom.
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”, “deliver” and other similar words and expressions.
By their nature, forward-looking statements
involve known and unknown risks, uncertainties and other factors
that may cause actual results or events to differ materially from
those anticipated in such forward‐looking statements. Accordingly,
readers are cautioned not to place undue reliance on such
forward-looking statements. Although Birchcliff believes that the
expectations reflected in the forward-looking statements are
reasonable, there can be no assurance that such expectations will
prove to be correct and Birchcliff makes no representation that
actual results achieved will be the same in whole or in part as
those set out in the forward-looking statements.
In particular, this press release contains
forward‐looking statements relating to 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 by
the end of 2022, Birchcliff expects to have retired approximately
$840 million of total debt and preferred shares since June 30,
2022, nearing its goal of zero total debt; and that Birchcliff
expects that it will be in a cash surplus position at the end of Q1
2023 after payment of the special dividend and the increase to its
2022 F&D capital budget;
-
the declaration and payment of future dividends, including: that
Birchcliff continues to target an annual common share dividend of
$0.80 per share in 2023 (approximately $213 million annually),
subject to commodity prices and the approval of its board of
directors; that this common share dividend is expected to be paid
quarterly at a rate of $0.20 per share, commencing with the quarter
ending March 31, 2023; Birchcliff’s belief that this targeted
dividend is sustainable at substantially lower commodity prices,
with such targeted dividend and F&D capital expenditures for
2023 being fully funded from adjusted funds flow at an average WTI
price of US$70.00/bbl, an average AECO price of CDN$3.00/GJ, an
average Dawn price of US$3.20/MMBtu and an average NYMEX HH price
of US$3.40/MMBtu; and that Birchcliff expects that a common share
dividend in the amount of $0.02 per share for the quarter ending
December 31, 2022 will be declared by the Corporation’s board of
directors in November 2022;
-
the information set forth under the heading “Updated 2022 Guidance”
and elsewhere in this press release as it relates to Birchcliff’s
updated outlook, guidance and capital program for 2022, including:
estimates of annual and Q4 average production, production commodity
mix, average expenses, adjusted funds flow, F&D capital
expenditures and the allocation of such expenditures, free funds
flow, common share dividends, excess free funds flow, total debt at
year end and natural gas market exposure and the expected impact of
changes in commodity prices and the CDN/US exchange rate on
Birchcliff’s estimate of free funds flow; that the further capital
investment in its business will help to ensure the most efficient
execution of its 2023 capital program and will not increase its
2022 annual average production; that the pads brought on production
year-to-date have expected payouts of less than one year; the
objectives of, the anticipated results from and expected benefits
of the increased 2022 capital program (including: that the
additional DCCET activity will deliver incremental Montney/Doig
production in early 2023 and allows Birchcliff to continue its
two-drilling rig program throughout 2022 and into 2023; that as no
additional wells are expected to be brought on production until
late December 2022, Birchcliff is not anticipating any significant
additional production volumes in 2022; and that the procurement of
various long-lead items and the acceleration of select
infrastructure and construction activities into 2022 will help to
ensure the most efficient execution of the Corporation’s 2023
capital program and allows Birchcliff to manage supply chain
constraints and mitigate inflationary pressures); the number and
types of wells expected to be drilled and brought on production and
the timing thereof and targeted product types; that excluding the
special dividend (approximately $53 million in aggregate, based on
266 million common shares outstanding) and the additional capital
investment of $80 million, Birchcliff forecasts that it would have
had a total surplus of approximately $65 million to $75 million at
December 31, 2022; and that the estimate of total debt at December
31, 2022 is expected to be comprised of any amounts outstanding
under the Credit Facilities and adjusted working capital, which is
expected to be largely comprised of cash, accounts receivable and
accounts payable and accrued liabilities at the end of the
year;
-
the information set forth under the heading “Preliminary 2023
Guidance” and elsewhere in this press release as it relates to
Birchcliff’s preliminary outlook, guidance and capital program for
2023, including: estimates of annual average production, average
expenses, adjusted funds flow, F&D capital expenditures, free
funds flow, common share dividends, excess free funds flow, total
surplus at year end and natural gas market exposure and the
expected impact of changes in commodity prices and the CDN/US
exchange rate on Birchcliff’s estimate of free funds flow; that
Birchcliff is currently targeting F&D capital expenditures in
the range of $240 million to $270 million, which is expected to
deliver annual average production of 81,000 to 83,000 boe/d (a 5%
increase over 2022) and generate adjusted funds flow of $855
million and free funds flow of $585 million to $615 million, based
on current strip pricing; that after the payment of the targeted
common share dividend of $213 million, Birchcliff is forecasting
that it will have approximately $370 million to $400 million of
excess free funds flow in 2023 and a cash surplus of $295 million
to $325 million at December 31, 2023; that based on its targeted
levels of capital spending and production, Birchcliff currently
expects that it will bring approximately 30 wells on production in
2023; that similar to 2022, the 2023 capital program will be
designed to utilize multi-well pads and two drilling rigs, which is
more operationally efficient for the Corporation; that Birchcliff
continues to secure multi-year contracts with its key service
providers and has ordered various long-lead items, which will help
to ensure the efficient execution of the Corporation’s 2023 capital
program, as well as help Birchcliff to mitigate inflationary
pressures and manage supply chain constraints by ensuring security
of equipment and services; that the anticipated significant free
funds flow in 2023 provides the Corporation with the ability to
sustainably increase shareholder returns; that Birchcliff does not
have any fixed price commodity hedges in place and does not
currently intend to enter into any, which gives it the ability to
take advantage of any further strengthening of commodity prices
above the Corporation’s current commodity price assumptions for
2023; that Birchcliff’s anticipated excess free funds flow in 2023
provides it with significant financial and operational flexibility,
allowing it to focus on ways to further increase shareholder
returns and enhance long-term shareholder value; that Birchcliff
will continue to strategically evaluate the potential uses for its
excess free funds flow, which may include special dividends,
increases to the Corporation’s base dividend and/or common share
buybacks; that consideration may also be given to other
opportunities that would complement or otherwise improve the
Corporation’s business and enhance long-term shareholder value,
such as further investments in its business and strategic
acquisitions; that Birchcliff currently expects to use a portion of
its excess free funds flow to establish a meaningful cash position,
which will help to protect the Corporation’s common share dividend
and capital program in the event of a downturn in commodity prices
and/or economic conditions and provide the Corporation with
optionality to pursue various opportunities to enhance long-term
shareholder value; that the estimate of total surplus at December
31, 2023 is expected to be comprised of adjusted working capital,
which is expected to be largely comprised of cash, accounts
receivable and accounts payable and accrued liabilities at the end
of the year; and that Birchcliff expects to announce the details of
its 2023 capital program and guidance on January 18, 2023, as well
as its updated five year plan for 2023 to 2027;
-
the information set forth under the heading “Forecast Royalties,
Taxes and Fees”, including: that Birchcliff currently forecasts
that total royalties and other taxes and fees to be paid to the
Province of Alberta in 2022 and 2023 will be in the amount of
approximately $206 million and $168 million, respectively; that
Birchcliff currently forecasts that corporate income taxes to be
paid to the Federal Government in 2023 will be in the amount of
approximately $49 million; and that the Corporation expects to have
sufficient tax pools available to offset taxable income in 2022 and
therefore no corporate income taxes are expected to paid in 2022;
and
-
the performance and other characteristics of Birchcliff’s oil and
natural gas properties and expected results from its assets.
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; the approval of the board of
directors of future dividends; the ability to obtain any necessary
regulatory or other approvals in a timely manner; the satisfaction
by third parties of their obligations to Birchcliff; the ability of
Birchcliff to secure adequate processing and transportation for its
products; Birchcliff’s ability to successfully market natural gas
and liquids; the results of the Corporation’s risk management and
market diversification activities; and Birchcliff’s natural gas
market exposure. In addition to the foregoing assumptions,
Birchcliff has made the following assumptions with respect to
certain forward-looking statements contained in this press
release:
-
With respect to Birchcliff’s 2022 guidance (as updated on October
13, 2022):
-
The following commodity prices and exchange rate are assumed: an
average WTI price of US$95.00/bbl; an average WTI-MSW differential
of CDN$2.50/bbl; an average AECO price of CDN$5.25/GJ; an average
Dawn price of US$6.35/MMBtu; an average NYMEX HH price of
US$6.85/MMBtu; and an exchange rate (CDN$ to US$1) of 1.30. These
commodity price and exchange rate assumptions are based on
anticipated full-year averages, which include settled benchmark
commodity prices and exchange rate for the period from January 1,
2022 to September 30, 2022 and forward strip benchmark commodity
prices and CDN/US exchange rate as of October 5, 2022 for the
period from October 1, 2022 to December 31, 2022.
-
Birchcliff’s production guidance for 2022 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.
-
Birchcliff’s updated estimate of capital expenditures for 2022
assumes 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.
-
Birchcliff’s updated estimates of adjusted funds flow, free funds
flow and excess free funds flow for 2022 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 set forth herein are met.
Birchcliff’s updated estimate of adjusted funds flow takes into
account the effects of its physical and financial basis swap
contracts outstanding as at October 13, 2022 and excludes annual
cash incentive payments that have not been approved by Birchcliff’s
board of directors.
-
Birchcliff’s updated estimate of total debt at December 31, 2022
assumes that: (i) 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 in 2022; (ii) there are 266
million common shares outstanding, with no further buybacks of
common shares occurring during 2022; (iii) a special dividend of
$0.20 per common share is paid on October 28, 2022 and a dividend
of $0.02 per common share is paid for the quarter ending December
31, 2022, with no further special dividends paid during 2022; (iv)
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) there are no further
proceeds received from the exercise of stock options or performance
warrants during 2022; (vi) the 2022 capital program will be carried
out as currently contemplated with F&D capital expenditures of
$355 million to $365 million; and (vii) the targets for production,
production commodity mix, adjusted funds flow, free funds flow and
natural gas market exposure and the commodity price and exchange
rate assumptions set forth herein are met. Birchcliff’s estimate of
total debt at December 31, 2022 excludes annual cash incentive
payments that have not been approved by Birchcliff’s board of
directors.
-
Birchcliff’s guidance regarding its natural gas market exposure for
2022 assumes: (i) 175,000 GJ/d being sold on a physical basis at
the Dawn price; (ii) 22,040 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.
-
With respect to Birchcliff’s preliminary guidance for 2023:
-
The following commodity prices and exchange rate are assumed: an
average WTI price of US$80.00/bbl; an average WTI-MSW differential
of CDN$5.00/bbl; an average AECO price of CDN$4.80/GJ; an average
Dawn price of US$5.30/MMBtu; an average NYMEX HH price of
US$5.55/MMBtu; and an exchange rate (CDN$ to US$1) of 1.35. These
commodity price and exchange rate assumptions are based on
anticipated full-year averages, which include forward strip
benchmark commodity prices and CDN/US exchange rate as of October
5, 2022 for the period from January 1, 2023 to December 31,
2023.
-
Birchcliff’s preliminary production guidance for 2023 is subject to
similar assumptions set forth herein for Birchcliff’s 2022
production guidance.
-
Birchcliff’s estimate of F&D capital expenditures for 2023
assumes that Birchcliff’s 2023 capital program will be carried out
as currently contemplated.
-
Birchcliff’s estimates of adjusted funds flow, free funds flow and
excess free funds flow for 2023 assume that: Birchcliff’s 2023
capital program will be carried out as currently contemplated and
the level of capital spending for 2023 set forth herein will be
achieved; and the targets for production, expenses and natural gas
market exposure and the commodity price and exchange rate
assumptions set forth herein are met. Birchcliff’s estimate of
adjusted funds flow takes into account the effects of its physical
and financial basis swap contracts outstanding as at October 13,
2022 and excludes annual cash incentive payments that have not been
approved by Birchcliff’s board of directors.
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Birchcliff’s estimate of total surplus at December 31, 2023 assumes
that: (i) 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 full debt repayment in 2023; (ii) there are
266 million common shares outstanding, with no buybacks of common
shares occurring during 2023; (iii) an annual common share dividend
of $0.80 per share is paid in 2023, with no special dividends paid
during 2023; (iv) no significant acquisitions or dispositions are
completed by the Corporation and there is no repayment of debt
using the proceeds from equity issuances during 2023; (v) there are
no proceeds received from the exercise of stock options or
performance warrants during 2023; (vi) the 2023 capital program
will be carried out as currently contemplated with F&D capital
expenditures of $240 million to $270 million; and (vii) the targets
for production, adjusted funds flow, free funds flow and natural
gas market exposure and the commodity price and exchange rate
assumptions set forth herein are met. Birchcliff’s estimate of
total surplus at December 31, 2023 excludes annual cash incentive
payments that have not been approved by Birchcliff’s board of
directors. Birchcliff’s expectations as to the amount of total debt
and preferred shares it expects to retire by the end of 2022 and
that it will have a cash (total) surplus at the end of Q1 2023 are
subject to similar assumptions.
-
Birchcliff’s guidance regarding its natural gas market exposure for
2023 assumes: (i) 175,000 GJ/d being sold on a physical basis at
the Dawn price; and (ii) 152,500 MMBtu/d being contracted on a
financial and physical basis at an average fixed basis differential
price between AECO 7A and NYMEX HH of approximately
US$1.23/MMBtu.
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Birchcliff’s forecasts of royalties to be paid in 2022 and 2023 are
based on the current royalty regime in Alberta and Birchcliff’s
forecast of taxes to be paid in 2023 is based on the current tax
regimes in the Province of Alberta and in Canada. In addition, such
forecasts are based on the Corporation’s guidance and commodity
price assumptions for 2022 and 2023 as set forth herein.
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With respect to statements of future wells to be drilled and
brought on production, such statements assume: the continuing
validity of the geological and other technical interpretations
performed by Birchcliff’s technical staff, which indicate that
commercially economic volumes can be recovered from Birchcliff’s
lands as a result of drilling future wells; and that commodity
prices and general economic conditions will warrant proceeding with
the drilling of such wells.
Birchcliff’s actual results, performance or
achievements could differ materially from those anticipated in the
forward-looking statements as a result of both known and unknown
risks and uncertainties including, but not limited to: the risks
posed by pandemics (including COVID-19), epidemics and global
conflict (including the Russian invasion of Ukraine) and their
impacts on supply and demand and commodity prices; actions taken by
OPEC and other major producers of crude oil and the impact such
actions may have on supply and demand and commodity prices; the
uncertainty of estimates and projections relating to production,
revenue, costs, expenses and reserves; the risk that any of the
Corporation’s material assumptions prove to be materially
inaccurate (including the Corporation’s commodity price and
exchange rate assumptions for 2022 and 2023); the potential for
changes to the Corporation’s preliminary estimate of F&D
capital expenditures for 2023, which could impact the Corporation’s
other preliminary 2023 guidance; 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 increase to the annual common
share dividend to $0.80 per share in 2023, the payment of such
dividend remains 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. The declaration and payment of
any future 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 payment of dividends to shareholders is
not assured or guaranteed and dividends may be reduced or suspended
entirely. In addition to the foregoing, the Corporation’s ability
to pay dividends now or in the future may be limited by covenants
contained in the agreements governing any indebtedness that the
Corporation has incurred or may incur in the future, including the
terms of the Credit Facilities. The agreement governing the Credit
Facilities provides that Birchcliff is not permitted to make any
distribution (which includes dividends) at any time when an event
of default exists or would reasonably be expected to exist upon
making such distribution, unless such event of default arose
subsequent to the ordinary course declaration of the applicable
distribution.
Readers are cautioned that the foregoing lists
of factors are not exhaustive. Additional information on these and
other risk factors that could affect results of operations,
financial performance or financial results are included in
Birchcliff’s most recent Annual Information Form under the heading
“Risk Factors” and in other reports filed with Canadian securities
regulatory authorities.
This press release contains information that may
constitute future-orientated financial information or financial
outlook information (collectively, “FOFI”) about
Birchcliff’s prospective financial performance, financial position
or cash flows, all of which is subject to the same assumptions,
risk factors, limitations and qualifications as set forth above.
Readers are cautioned that the assumptions used in the preparation
of such information, although considered reasonable at the time of
preparation, may prove to be imprecise or inaccurate and, as such,
undue reliance should not be placed on FOFI. Birchcliff’s actual
results, performance and achievements could differ materially from
those expressed in, or implied by, FOFI. Birchcliff has included
FOFI in order to provide readers with a more complete perspective
on Birchcliff’s future operations and management’s current
expectations relating to Birchcliff’s future performance. Readers
are cautioned that such information may not be appropriate for
other purposes. FOFI contained herein was made as of the date of
this press release. Unless required by applicable laws, Birchcliff
does not undertake any obligation to publicly update or revise any
FOFI statements, whether as a result of new information, future
events or otherwise.
Management has included the above summary of
assumptions and risks related to forward-looking statements
provided in this press release in order to provide readers with a
more complete perspective on Birchcliff’s future operations and
management’s current expectations relating to Birchcliff’s future
performance. Readers are cautioned that this information may not be
appropriate for other purposes.
The forward-looking statements contained in this
press release are expressly qualified by the foregoing cautionary
statements. The forward-looking statements contained herein are
made as of the date of this press release. Unless required by
applicable laws, Birchcliff does not undertake any obligation to
publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
ABOUT BIRCHCLIFF:
Birchcliff is a Calgary, Alberta based
intermediate oil and natural gas company with operations focused on
the Montney/Doig Resource Play in Alberta. Birchcliff’s common
shares are listed for trading on the Toronto Stock Exchange under
the symbol “BIR”.
For further information, please contact: |
Birchcliff Energy Ltd.Suite 1000, 600 – 3rd Avenue
S.W. Calgary, Alberta T2P 0G5Telephone: (403) 261-6401Email:
info@birchcliffenergy.comwww.birchcliffenergy.com |
|
Jeff Tonken – Chief Executive OfficerChris
Carlsen – President and Chief Operating
OfficerBruno Geremia – Executive Vice President
and Chief Financial Officer |
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