Birchcliff Energy Ltd. (“
Birchcliff” or the
“
Corporation”) (TSX: BIR) is pleased to announce
its 2024 budget and guidance and its updated five-year outlook for
2024 to 2028 (the “
Five-Year Outlook”). Birchcliff
is also pleased to announce that its board of directors (the
“
Board”) has declared a quarterly cash dividend of
$0.10 per common share for the quarter ending March 31, 2024.
Chris Carlsen, Birchcliff’s President and Chief
Executive Officer, commented: “Birchcliff’s 2024 capital budget and
updated Five-Year Outlook reflect our commitment to maintaining a
strong balance sheet and capital discipline, while focusing on
sustainable shareholder returns and the continued development of
our world-class asset base. Our updated Five-Year Outlook targets
disciplined production growth of 16%(1) over the period, with
annual average production of approximately 87,500 boe/d in 2028,
which would fully utilize the Corporation’s available existing
processing and transportation capacity. Our Five-Year Outlook
provides for potential cumulative free funds flow(2) generation of
$870 million over the five-year period, which has the potential to
result in substantial shareholder returns through common share
dividends of approximately $535 million and cumulative excess free
funds flow(2) (after the payment of dividends) of approximately
$335 million, based on our current pricing assumptions.(3)
“Birchcliff continues to target $240 million to
$260 million in F&D capital expenditures in 2024. We have
adjusted our 2024 capital spending plans since our preliminary
guidance was provided on November 14, 2023 by reducing capital
expenditures in the first half of the year. Our revised 2024
capital plan allows us to bring substantial production on later in
the year when commodity prices are anticipated to be higher. This
change affords us the flexibility to monitor commodity prices and
capital costs during the first half of the year, which provides us
with optionality to reduce capital spending if there is further
deterioration in commodity prices. Due to this revised capital
spending profile in 2024, we now anticipate that annual average
production will remain relatively flat in 2024 at 74,000 to 77,000
boe/d, which we expect will generate free funds flow of $80 million
to $100 million in the year based on our current pricing
assumptions.(4)(5)
“In 2023, we successfully and efficiently
executed our capital program and, as we committed to, returned
$213.3 million to our shareholders through common share dividends.
In order to protect Birchcliff’s strong balance sheet during the
current period of low natural gas prices, which is projected to
continue during 2024, our Board has approved an annual base
dividend amount of $0.40 per common share for 2024 (approximately
$107 million in aggregate) and declared a quarterly cash dividend
of $0.10 per common share for the quarter ending March 31, 2024. We
remain bullish on the long-term outlook for natural gas as LNG
export capacity increases in North America and we are committed to
sustainable shareholder returns as a pillar of our long-term
strategy.
“We look forward to announcing our unaudited
financial and operational results for the year ended December 31,
2023 on February 14, 2024.”
KEY HIGHLIGHTS
2024 F&D Capital Budget and
Guidance(5)
-
2024 F&D capital spending is expected to be $240 million to
$260 million.
-
Annual average production of 74,000 to 77,000 boe/d expected in
2024.
-
2024 adjusted funds flow(2) of approximately $340 million(4) and
free funds flow of $80 million to $100 million.
-
Approved 2024 annual base dividend of $0.40 per common share
(approximately $107 million in aggregate).(6)
-
Focused on balance sheet strength, with 2024 year-end total debt(7)
of $405 million to $425 million, which is anticipated to be less
than 1.0 times forward annual adjusted funds flow.(8)
-
Extendible revolving term credit facilities (the “Credit
Facilities”) with an aggregate borrowing base of $850
million provide significant financial flexibility. The Credit
Facilities have a maturity date of May 11, 2025 and do not contain
any financial maintenance covenants.
Updated Five-Year
Outlook(3)
-
Potential cumulative adjusted funds flow of approximately $2.4
billion and cumulative free funds flow of approximately $870
million over the five-year period.
-
Contemplates potential cumulative shareholder returns of
approximately $535 million(6) through common share dividends and
cumulative excess free funds flow (after the payment of dividends)
of approximately $335 million, in each case over the five-year
period.
-
Targets disciplined production growth of 16% over the five-year
period, with 2028 annual average production of approximately 87,500
boe/d.
-
Maintains capital discipline, with moderate F&D capital
expenditures of $240 million to $300 million per year during the
first three years and $325 million to $375 million per year during
the last two years in order to fill the Corporation’s available
existing infrastructure and reduce per boe operating and
transportation costs.
-
Protects strong balance sheet with total debt reduction to well
below 1.0 times forward annual adjusted funds flow over the
five-year period.
-
Significant market exposure to the NYMEX HH and Dawn trading hubs,
which are priced in U.S. dollars, with growth volumes expected to
be sold at AECO to align with the anticipated positive pricing
impact of Canadian LNG exports.
________________________________
(1) Based on an annual average production rate of 75,500 boe/d
in 2024, which is the mid-point of Birchcliff’s annual average
production guidance range for 2024, and an annual average
production rate of 87,500 boe/d in 2028.(2) Non-GAAP financial
measure. See “Non-GAAP and Other Financial Measures”.(3) See
“Updated Five-Year Outlook” and “Advisories – Forward-Looking
Statements” for further information regarding the Corporation’s
Five-Year Outlook and the commodity price, exchange rate and other
assumptions underlying such outlook.(4) Based on an annual average
production rate of 75,500 boe/d in 2024, which is the mid-point of
Birchcliff’s annual average production guidance range for 2024.(5)
See “2024 Guidance” and “Advisories – Forward-Looking Statements”
for further information regarding the Corporation’s 2024 guidance
and the commodity price, exchange rate and other assumptions
underlying such guidance.(6) Assumes that an annual base dividend
of $0.40 per common share is paid during 2024 or over the five-year
period, as the case may be, and that there are 267 million common
shares outstanding, with no special dividends paid. The declaration
of future dividends is subject to the approval of the Board and is
subject to change. (7) Capital management measure. See “Non-GAAP
and Other Financial Measures”. (8) Non-GAAP ratio. See “Non-GAAP
and Other Financial Measures”.
This press release contains forward-looking
statements and forward-looking information within the meaning of
applicable securities laws. For further information regarding the
forward-looking statements and forward-looking information
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” and “capital management measures” as such terms
are defined in National Instrument 52-112 – Non-GAAP and Other
Financial Measures Disclosure (“NI 52-112”).
Non-GAAP financial measures and non-GAAP ratios are not
standardized financial measures under GAAP and might not be
comparable to similar financial measures disclosed by other
issuers. For further information regarding the non-GAAP and other
financial measures used in this press release, see “Non-GAAP and
Other Financial Measures”.
DECLARATION OF Q1 2024 QUARTERLY
DIVIDEND
The Board has approved an annual base dividend
of $0.40 per common share for 2024. This annual base dividend will
be declared and paid quarterly at the rate of $0.10 per common
share, at the discretion of the Board. In connection therewith, the
Board has declared a quarterly cash dividend of $0.10 per common
share for the quarter ending March 31, 2024. The dividend will be
payable on March 28, 2024 to shareholders of record at the close of
business on March 15, 2024. The ex-dividend date is March 14, 2024.
The dividend has been designated as an eligible dividend for the
purposes of the Income Tax Act (Canada).
2024 GUIDANCE
For 2024, Birchcliff remains focused on
maintaining balance sheet strength, capital discipline, generating
free funds flow and delivering returns to shareholders. Based on
its targeted F&D capital expenditures of $240 million to $260
million and as a result of the Corporation adjusting its capital
spending profile by moving capital into the second half of 2024,
Birchcliff expects annual average production of 74,000 to 77,000
boe/d in 2024. Birchcliff’s production profile for 2024 is designed
to deliver higher production in Q4 when the Corporation anticipates
higher commodity prices.
Birchcliff is currently forecasting that it will
generate approximately $340 million of adjusted funds flow and $80
million to $100 million of free funds flow in 2024 based on its
targeted levels of F&D capital expenditures and annual average
production.
Any excess free funds flow generated in 2024 is
anticipated to be used to further invest in the Corporation’s
business, increase shareholder returns in the form of enhanced
common share dividends and/or reduce indebtedness. Such decisions
will be made based on what Birchcliff believes will provide the
most value to shareholders, giving consideration to commodity
prices and other relevant factors. In addition, excess free funds
flow may be used to repurchase common shares under the
Corporation’s normal course issuer bid to help offset the number of
common shares it issues throughout the year pursuant to the
exercise of stock options in order to minimize or eliminate
dilution to shareholders.
The following tables set forth Birchcliff’s
guidance, commodity price assumptions and free funds flow
sensitivity for 2024:
|
|
2024 guidance and assumptions(1) |
|
Production |
|
|
Annual average production (boe/d) |
74,000 – 77,000 |
|
% Light oil |
3% |
|
% Condensate |
6% |
|
% NGLs |
10% |
|
% Natural gas |
81% |
|
|
|
|
Average Expenses ($/boe) |
|
|
Royalty |
2.30 – 2.50 |
|
Operating |
3.85 – 4.05 |
|
Transportation and other(2) |
5.50 – 5.70 |
|
|
|
|
Adjusted Funds Flow (millions)(3) |
$340 |
|
|
|
|
F&D Capital Expenditures (millions) |
$240 – $260 |
|
|
|
|
Free Funds Flow (millions)(3) |
$80 – $100 |
|
|
|
|
Annual Base Dividend (millions)(4) |
$107 |
|
|
|
|
Total Debt at Year End (millions)(5) |
$405 – $425 |
|
|
|
|
Natural Gas Market Exposure(6) |
|
|
AECO exposure as a % of total natural gas production |
17% |
|
Dawn exposure as a % of total natural gas production |
44% |
|
NYMEX HH exposure as a % of total natural gas production |
37% |
|
Alliance exposure as a % of total natural gas production |
2% |
|
|
|
|
Commodity Prices(7) |
|
|
Average WTI price (US$/bbl) |
75.00 |
|
Average WTI-MSW differential (CDN$/bbl) |
5.45 |
|
Average AECO price (CDN$/GJ) |
2.50 |
|
Average Dawn price (US$/MMBtu) |
2.80 |
|
Average NYMEX HH price (US$/MMBtu) |
3.00 |
|
Exchange rate (CDN$ to US$1) |
1.33 |
|
Forward twelve months’ free funds flow
sensitivity(7)(8) |
Estimated change to 2024 free funds flow
(millions) |
|
Change in WTI US$1.00/bbl |
$3.6 |
|
Change in NYMEX HH US$0.10/MMBtu |
$6.8 |
|
Change in Dawn US$0.10/MMBtu |
$7.9 |
|
Change in AECO CDN$0.10/GJ |
$2.6 |
|
Change in CDN/US exchange rate CDN$0.01 |
$4.6 |
(1) Birchcliff’s guidance for its production
commodity mix, adjusted funds flow, free funds flow, total debt and
natural gas market exposure in 2024 is based on an annual average
production rate of 75,500 boe/d in 2024, which is the mid-point of
Birchcliff’s annual average production guidance range for 2024. For
further information regarding the risks and assumptions relating to
the Corporation’s guidance, see “Advisories – Forward-Looking
Statements”.(2) Non-GAAP ratio. See “Non-GAAP and Other Financial
Measures”. (3) Non-GAAP financial measure. See “Non-GAAP and Other
Financial Measures”. (4) Assumes that an annual base dividend of
$0.40 per common share is paid and that there are 267 million
common shares outstanding, with no special dividends paid. The
declaration of future dividends is subject to the approval of the
Board and is subject to change. (5) Capital management measure. See
“Non-GAAP and Other Financial Measures”. (6) Birchcliff’s natural
gas market exposure for 2024 takes into account its outstanding
financial basis swap contracts.(7) Birchcliff’s commodity price and
exchange rate assumptions and free funds flow sensitivity for 2024
are based on anticipated full-year averages using the Corporation’s
anticipated forward benchmark commodity prices and the CDN/US
exchange rate as of January 8, 2024.(8) Illustrates the expected
impact of changes in commodity prices and the CDN/US exchange rate
on the Corporation’s forecast of free funds flow for 2024, 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 2024 guidance for its production
has been adjusted from its preliminary guidance of 77,000 to 79,000
boe/d as a result of revisions to the timing of the Corporation’s
2024 capital program, as discussed above and under the heading
“2024 F&D Capital Budget”. Birchcliff’s 2024 guidance for
F&D capital expenditures is unchanged from its preliminary
guidance. Primarily as a result of a decreased commodity price
forecast for 2024, Birchcliff’s 2024 guidance for its adjusted
funds flow, free funds flow and annual base dividend is lower than
its preliminary guidance of $500 million, $240 million to $260
million and $213 million, respectively.
Changes in assumed commodity prices and
variances in production forecasts can have an impact on the
Corporation’s forecasts of adjusted funds flow and free funds flow
and the Corporation’s other guidance, which impact could be
material. In addition, any acquisitions or dispositions completed
over the course of 2024 could have an impact on Birchcliff’s 2024
guidance and assumptions set forth herein, which impact could be
material. For further information, see “Advisories –
Forward-Looking Statements”.
2024 F&D CAPITAL BUDGET
The Board has approved a disciplined F&D
capital budget of $240 million to $260 million for 2024. This level
of capital spending will allow the Corporation to bring 29 wells on
production in 2024. Birchcliff’s 2024 capital program has been
revised since its preliminary guidance was provided on November 14,
2023 by delaying the drilling of 13 wells until late Q2 and into
Q3, with these wells expected to come on production in Q4 2024.
Birchcliff’s revised 2024 capital spending profile is designed to
ensure that the Corporation’s capital is deployed optimally and
also affords Birchcliff the flexibility to monitor commodity prices
and capital costs during the first half of the year, providing it
with optionality to reduce capital spending during the year if
there is further deterioration in the commodity price
environment.
The following table sets forth details regarding
Birchcliff’s expected capital spending allocation in 2024:
|
Classification |
Capital (millions) |
|
DCCET(1)(2) |
$190 – $195 |
| Facilities and
infrastructure |
$15 – $20 |
| Maintenance and
optimization(3) |
$15 – $20 |
| Land and seismic(4) |
$5 |
|
Other(5) |
$15 – $20 |
|
Total F&D Capital Expenditures(6) |
$240 – $260 |
(1) On a DCCET basis, the average well cost in
2024 is estimated to be approximately $7.4 million for each of
Pouce Coupe and Gordondale. These costs can vary depending on
factors such as the size of the associated multi-well pads,
horizontal well length, the costs of construction, the existence of
pipelines and other infrastructure and the distance to existing or
planned pipelines and other infrastructure.(2) Includes the
completion, equipping and tie-in costs of approximately $20 million
associated with 5 wells that were drilled and rig released in Q4
2023.(3) Maintenance and optimization includes capital to enhance
production, reduce operating expense and maximize netbacks.(4) Land
and seismic includes capital for crown sales and rental payments
but does not include other property acquisitions and
dispositions.(5) Other primarily includes capitalized G&A. (6)
Net property acquisitions and dispositions have not been included
in the table above as these amounts are generally unbudgeted. See
“Advisories – F&D Capital Expenditures” and “Advisories –
Forward-Looking Statements”.
Birchcliff’s 2024 drilling program is designed
to target high rate-of-return wells with attractive paybacks and
strong capital efficiency metrics. Two drilling rigs will be
utilized to deliver a level-loaded capital program focused on
efficient execution, with optimized capital spending throughout the
year while taking advantage of any potential reductions in service
costs in the second half of 2024. The wells brought on production
as part of Birchcliff’s 2024 capital program are expected to yield
strong production benefitting from the Corporation’s latest
wellbore design, which incorporates longer lateral lengths, reduced
stage spacing and increased proppant loading where appropriate.
In Pouce Coupe, Birchcliff plans to drill 18
wells and bring 23 wells on production from 4 pads, targeting wells
placed in Lower Montney, Middle Montney and Basal Doig/Upper
Montney intervals. The Corporation expects that the first 5-well
pad will be brought on production in late January 2024 and the
second 5-well pad will be brought on production in late Q1 2024,
with the remaining 13 wells on two pads brought on production in Q4
2024, aligned with the anticipated improvement in commodity
prices.
In Gordondale, Birchcliff plans to drill and
bring 6 wells on production from two pads, targeting wells placed
in Lower Montney intervals. These wells are expected to be brought
on production in Q2 2024.
The following table sets forth the number and
types of wells Birchcliff expects to drill and bring on production
in 2024:
|
Area |
Total Wells to be Drilled in 2024 |
Total Wells to be Brought on Production in
2024(1) |
|
Pouce Coupe |
|
|
|
Basal Doig/Upper Montney horizontal natural gas wells |
1 |
1 |
|
Montney D4 horizontal natural gas wells |
1 |
1 |
|
Montney D1 horizontal natural gas wells |
14 |
19 |
|
Montney C horizontal natural gas wells |
2 |
2 |
|
Total – Pouce Coupe |
18 |
23 |
|
Gordondale |
|
|
|
Montney D2 horizontal natural gas wells |
1 |
1 |
|
Montney D1 horizontal natural gas wells |
1 |
1 |
|
Montney D1 horizontal oil wells |
4 |
4 |
|
Total – Gordondale |
6 |
6 |
|
TOTAL – COMBINED |
24 |
29 |
(1) Includes 5 wells that were drilled and rig
released in Q4 2023 in Pouce Coupe.
In addition to its 2024 DCCET capital program,
Birchcliff anticipates allocating $15 million to $20 million to
facilities and longer-term infrastructure projects, which includes
capital to tie a third-party NGLs pipeline directly into the
Corporation’s 100% owned and operated natural gas processing plant
in Pouce Coupe. This connection is expected to reduce NGLs trucking
activity and improve corporate netbacks by lowering NGLs
transportation costs.
In addition to the Corporation’s 2024 F&D
capital budget, Birchcliff has allocated approximately $3 million
to abandonment and reclamation activities in 2024.
Elmworth
Birchcliff’s F&D capital budget does not
include any significant capital with respect to the Corporation’s
Elmworth Montney land position. Birchcliff may consider allocating
some capital in 2024 to continue to build, protect and optimize its
Elmworth Montney land position, including through drilling and
completions activity, strategic A&D transactions and Crown land
sales. As previously disclosed in the Corporation’s press release
dated November 14, 2023, Birchcliff has initiated the formal
planning for the construction of a proposed 100% owned and operated
natural gas processing plant in the area, including determining
processing capacity, takeaway capacity and specific timelines for
consultation and construction. Birchcliff currently has a
successful acid gas disposal well and an AER approved Acid Gas
Disposal Scheme in the Elmworth area, which is a key component for
a natural gas processing plant.
UPDATED FIVE-YEAR OUTLOOK(9)
Birchcliff has updated its Five-Year Outlook for
2024 to 2028. The Five-Year Outlook continues to be focused on
maintaining the Corporation’s strong balance sheet, free funds flow
generation and delivering significant returns to shareholders,
while targeting disciplined production growth to fully utilize the
Corporation’s available existing processing and transportation
capacity, which is expected to result in lower per boe operating
and transportation costs.
Birchcliff’s updated Five-Year Outlook has the
potential to generate substantial shareholder returns through
common share dividends of approximately $535 million over the
period and maintain the Corporation’s strong balance sheet, with
potential cumulative adjusted funds flow of approximately $2.4
billion, cumulative free funds flow of approximately $870 million
and cumulative excess free funds flow (after the payment of
dividends) of approximately $335 million. Over the five-year
period, total debt is anticipated to be reduced to well below 1.0
times forward annual adjusted funds flow. Birchcliff does not
anticipate that it will be required to pay any material Canadian
income taxes until 2027.
The Five-Year Outlook contemplates moderate
F&D capital spending of $240 million to $300 million annually
for the first three years, increasing to $325 million to $375
million annually in 2027 and 2028, which would allow the
Corporation to bring between 170 and 180 wells on production over
the five-year period. These capital expenditures are expected to
result in production growth of approximately 16% over the period,
with 2028 annual average production of approximately 87,500 boe/d.
The production growth contemplated in the Five-Year Outlook is
planned to occur primarily in 2027 and 2028 commensurate with the
moderate increases in capital spending in these years.
Birchcliff’s production growth during the
five-year period coincides with anticipated increases in commodity
prices and demand for Canadian natural gas as a result of LNG
projects coming online in North America. The Corporation continues
to benefit from its diversified natural gas sales with exposure to
AECO, NYMEX HH and Dawn prices. The incremental natural gas from
Birchcliff’s planned production growth over the next five years is
expected to be sold at AECO, which gives the Corporation increased
exposure to the anticipated positive pricing impact of Canadian LNG
exports. The Corporation is looking forward to the increases in LNG
export capacity in North America that are expected in the next five
years and is committed to contributing to the development of the
needed infrastructure in Canada. Birchcliff is a partner in Rockies
LNG Partners, which is collaborating with the Nisga’a Nation, a
modern treaty Nation in British Columbia, and Western LNG, an
experienced LNG developer, to develop the Ksi Lisims LNG export
project, a 12 million tonne per year (approximately 1.7 to 2.0
Bcf/d) net zero emissions LNG export project on the West Coast of
British Columbia.
Birchcliff’s Five-Year Outlook does not
currently include any significant capital allocated to the
Corporation’s Elmworth Montney land position. It is anticipated
that capital will be deployed in Elmworth during the five-year
period to continue to build, protect and optimize Birchcliff’s land
position, as well as progressing its plans for the development of a
100% owned and operated natural gas processing plant in the
area.
Additional information regarding Birchcliff’s
Five-Year Outlook is contained in the Corporation’s corporate
presentation, which can be found at
https://www.birchcliffenergy.com/investors/corporate-presentation.
________________________________
(9) 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
Outlook are subject to change in light of ongoing results and
prevailing economic and industry conditions. Birchcliff’s F&D
capital budgets for 2025 to 2028 have not been finalized and are
subject to approval by the Board. Accordingly, the levels of
F&D capital expenditures set forth herein are subject to
change, which could have an impact on the forecasted production,
adjusted funds flow, free funds flow, excess free funds flow and
other metrics set forth herein. For further information regarding
the risks and assumptions relating to the Five-Year Outlook, see
“Advisories – Forward-Looking Statements”.
OPERATIONAL UPDATE
In early Q4 2023, Birchcliff brought 7 wells on
production in Pouce Coupe and 2 wells on production in Gordondale.
The Corporation is pleased with the strong initial results from
these pads as they are in-line with or ahead of internal
expectations.
As a result of unplanned third-party outages,
including a third-party compressor outage that is expected to
continue until mid to late January 2024, the Corporation’s average
production for Q4 2023 is anticipated to be 76,000 to 77,000 boe/d,
resulting in annual average production of 75,500 to 76,000 boe/d,
which is slightly behind previous guidance. Birchcliff’s 2023
F&D capital expenditures are estimated to be approximately $305
million, which includes the capitalized portion of cash incentive
payments accrued in 2023.
7-Well Pad (09-04)
Birchcliff successfully brought its 7-well 09-04
pad on production in early Q4 2023. The pad was drilled in 2
different Lower Montney zones, with 4 wells in the Montney D1 and 3
wells in the Montney C. The following table summarizes the
aggregate and average production rates for the wells from the
pad:
|
|
Wells: IP 30(1) |
Wells: IP 60(1) |
|
Aggregate production rate (boe/d) |
5,834 |
5,466 |
|
Aggregate natural gas production rate (Mcf/d) |
32,463 |
30,525 |
|
Aggregate condensate production rate (bbls/d) |
424 |
360 |
|
Average per well production rate (boe/d) |
833 |
778 |
|
Average per well natural gas production rate (Mcf/d) |
4,638 |
4,361 |
|
Average per well condensate production rate (bbls/d) |
61 |
51 |
|
Condensate-to-gas ratio (bbls/MMcf) |
13 |
11 |
(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”.
2-Well Pad (02-27)
Birchcliff successfully brought its 2-well 02-27
pad on production in early Q4 2023. The pad was drilled in 2
different Lower Montney zones, with 1 well in each of the Montney
D1 and Montney D2. The following table summarizes the aggregate and
average production rates for the wells from the pad:
|
|
Wells: IP 30(1) |
Wells: IP 60(1) |
|
Aggregate production rate (boe/d) |
2,630 |
2,533 |
|
Aggregate natural gas production rate (Mcf/d) |
13,619 |
13,393 |
|
Aggregate condensate production rate (bbls/d) |
361 |
302 |
|
Average per well production rate (boe/d) |
1,315 |
1,267 |
|
Average per well natural gas production rate (Mcf/d) |
6,810 |
6,697 |
|
Average per well condensate production rate (bbls/d) |
181 |
151 |
|
Condensate-to-gas ratio (bbls/MMcf) |
31 |
26 |
(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”.
Ongoing Activities
The Corporation successfully completed drilling
its 5-well 04-30 pad in Pouce Coupe in December 2023. Completions
operations are currently underway on the pad, with the wells
scheduled to come on production in late January. The pad was
drilled in the Lower Montney interval targeting condensate-rich
natural gas.
Drilling operations at the Corporation’s 5-well
16-17 pad in Pouce Coupe commenced in January 2024 utilizing two
drilling rigs, with completions operations scheduled to commence in
February. The pad is targeting condensate-rich natural gas, with 3
wells in the Lower Montney interval, 1 well in the Middle Montney
interval and 1 well in the Basal Doig/Upper Montney interval. The
wells are anticipated to be brought on production in late Q1
2024.
Birchcliff would like to take this opportunity
to thank its field employees, consultants and service providers for
their dedication and for ensuring that the Corporation’s operations
continued to be safely and efficiently executed during the recent
period of extreme cold weather experienced in Alberta.
ESG REPORT
Birchcliff is proud of its continued progress in
accomplishing its ESG goals, including being an industry leader
with respect to emissions intensity and its commitment to maintain
strong community relationships. On December 15, 2023, Birchcliff
released its 2022 ESG Report, which can be found on Birchcliff’s
website at www.birchcliffenergy.com/esg. Birchcliff’s ESG report
contains detailed information regarding the Corporation’s completed
and ongoing environmental, social and governance initiatives and
the results of the Corporation’s ESG performance for the year ended
December 31, 2022.
ABBREVIATIONS
|
A&D |
acquisitions and dispositions |
|
AECO |
benchmark price for natural gas determined at the AECO ‘C’ hub in
southeast Alberta |
|
AER |
Alberta Energy Regulator |
|
bbl |
barrel |
|
bbls |
barrels |
|
bbls/d |
barrels per day |
|
Bcf/d |
billion cubic feet per day |
|
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 |
|
ESG |
environmental, social and governance |
|
F&D |
finding and development |
|
G&A |
general and administrative |
|
GAAP |
generally accepted accounting principles for Canadian public
companies, which are currently International Financial Reporting
Standards as issued by the International Accounting Standards
Board |
|
GJ |
gigajoule |
|
GJ/d |
gigajoules per day |
|
HH |
Henry Hub |
|
IP |
initial production |
|
LNG |
liquefied natural gas |
|
Mcf |
thousand cubic feet |
|
Mcf/d |
thousand cubic feet per day |
|
MMcf |
million 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” and “capital management
measures” (as such terms are defined in NI 52-112), which are
described in further detail below.
Non-GAAP Financial Measures
NI 52-112 defines a non-GAAP financial measure
as a financial measure that: (i) depicts the historical or expected
future financial performance, financial position or cash flow of an
entity; (ii) with respect to its composition, excludes an amount
that is included in, or includes an amount that is excluded from,
the composition of the most directly comparable financial measure
disclosed in the primary financial statements of the entity; (iii)
is not disclosed in the financial statements of the entity; and
(iv) is not a ratio, fraction, percentage or similar
representation. The non-GAAP financial measures used in this press
release are not standardized financial measures under GAAP and
might not be comparable to similar measures presented by other
companies. Investors are cautioned that non-GAAP financial measures
should not be construed as alternatives to or more meaningful than
the most directly comparable GAAP financial measures as indicators
of Birchcliff’s performance. Set forth below is a description of
the non-GAAP financial measures used in this press release.
Adjusted Funds Flow, Free Funds Flow and
Excess Free Funds Flow
Birchcliff defines “adjusted funds flow” as cash
flow from operating activities before the effects of
decommissioning expenditures, retirement benefit payments 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.
Birchcliff eliminates retirement benefit payments from cash flow
from operating activities as such payments reflect costs for past
service and contributions made by eligible participants under the
Corporation’s post-employment benefit plan, which are not
indicative of the current period. Birchcliff has not historically
adjusted for retirement benefit payments in the calculation of
adjusted funds flow as previously no payments had been made to
executive officers pursuant to their respective executive
employment agreements. 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. 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 common share
dividends, acquisitions and other opportunities that would
complement or otherwise improve the Corporation’s business and
enhance long-term shareholder value.
Birchcliff defines “excess free funds flow” as
free funds flow less common share dividends paid. Management
believes that excess free funds flow assists management and
investors in assessing Birchcliff’s ability to further enhance
shareholder returns after the payment of common share dividends,
which may include debt repayment, special dividends, increases to
the Corporation’s base common share dividend, common share
repurchases, acquisitions and other opportunities that would
complement or otherwise improve the Corporation’s business and
enhance long-term shareholder value.
The most directly comparable GAAP financial
measure to adjusted funds flow, free funds flow and excess free
funds flow is cash flow from operating activities. The following
table provides a reconciliation of cash flow from operating
activities to adjusted funds flow, free funds flow and excess free
funds flow for the twelve months ended December 31, 2022:
|
|
Twelve months endedDecember
31, |
|
($000s) |
2022 |
|
Cash flow from operating activities |
925,275 |
|
|
Change in non-cash operating working capital |
25,662 |
|
|
Decommissioning expenditures |
2,746 |
|
|
Adjusted funds flow |
953,683 |
|
|
F&D capital expenditures |
(364,621 |
) |
|
Free funds flow |
589,062 |
|
|
Dividends on common shares |
(71,788 |
) |
|
Excess free funds flow |
517,274 |
|
Birchcliff has disclosed in this press release
forecasts of adjusted funds flow, free funds flow and excess free
funds flow for the period from 2024 to 2028, which are
forward-looking non-GAAP financial measures. The equivalent
historical non-GAAP financial measures are adjusted funds flow,
free funds flow and excess free funds flow for the twelve months
ended December 31, 2022. Birchcliff anticipates that, on an
annualized basis, the forward-looking non-GAAP financial measures
for adjusted funds flow, free funds flow and excess free funds flow
disclosed herein will be lower than their respective historical
amounts primarily due to lower anticipated benchmark oil and
natural gas prices, which are expected to decrease the average
realized sales prices the Corporation receives for its production.
The forward-looking non-GAAP financial measure for excess free
funds flow disclosed herein is also expected to be lower on an
annualized basis as a result of a higher targeted annual common
share dividend payment forecast during 2024 to 2028 as compared to
its historical amount in 2022. The commodity price assumptions on
which the Corporation’s 2024 guidance is based are set forth under
the heading “2024 Guidance” and the commodity price assumptions on
which the Five-Year Outlook is based are set forth under the
heading “Advisories – Forward-Looking Statements”.
Transportation and Other
Expense
Birchcliff defines “transportation and other
expense” as transportation expense plus marketing purchases less
marketing revenue. Birchcliff may enter into certain marketing
purchase and sales arrangements with the objective of reducing any
unused transportation or fractionation fees associated with its
take-or-pay commitments and/or increasing the value of its
production through value-added downstream initiatives. Management
believes that transportation and other expense assists management
and investors in assessing Birchcliff’s total cost structure
related to transportation and marketing activities. The most
directly comparable GAAP financial measure to transportation and
other expense is transportation expense. The following table
provides a reconciliation of transportation expense to
transportation and other expense for the twelve months ended
December 31, 2022:
|
|
Twelve months endedDecember
31, |
|
($000s) |
2022 |
|
Transportation expense |
155,864 |
|
|
Marketing purchases |
17,866 |
|
|
Marketing revenue |
(18,806 |
) |
|
Transportation and other expense |
154,924 |
|
Non-GAAP Ratios
NI 52-112 defines a non-GAAP ratio as a
financial measure that: (i) is in the form of a ratio, fraction,
percentage or similar representation; (ii) has a non-GAAP financial
measure as one or more of its components; and (iii) is not
disclosed in the financial statements of the entity. The non-GAAP
ratios used in this press release are not standardized financial
measures under GAAP and might not be comparable to similar measures
presented by other companies. Set forth below is a description of
the non-GAAP ratios used in this press release.
Total Debt to Forward Annual Adjusted
Funds Flow
Birchcliff calculates “total debt to forward
annual adjusted funds flow” as total debt at the end of the
respective year divided by the anticipated annual adjusted funds
flow for the immediately following year. Management believes that
total debt to forward annual adjusted funds flow assists management
and investors in assessing Birchcliff’s overall debt position and
the strength of the Corporation’s balance sheet. Birchcliff uses
this ratio in its capital allocation decisions, including capital
spending levels, returns to shareholders and other financial
considerations.
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.
Capital Management Measures
NI 52-112 defines a capital management measure
as a financial measure that: (i) is intended to enable an
individual to evaluate an entity’s objectives, policies and
processes for managing the entity’s capital; (ii) is not a
component of a line item disclosed in the primary financial
statements of the entity; (iii) is disclosed in the notes to the
financial statements of the entity; and (iv) is not disclosed in
the primary financial statements of the entity. Set forth below is
a description of the capital management measure used in this press
release.
Total Debt
Birchcliff calculates “total debt” as the amount
outstanding under the Credit Facilities plus working capital
deficit (less working capital surplus) plus the fair value of the
current asset portion of financial instruments less the fair value
of the current liability portion of financial instruments and less
the current portion of capital lease obligations at the end of the
period. Management believes that total debt assists management and
investors in assessing Birchcliff’s overall liquidity and financial
position at the end of the period. The following table provides a
reconciliation of the amount outstanding under the Credit
Facilities, as determined in accordance with GAAP, to total debt as
at December 31, 2022:
|
As at, ($000s) |
December 31, 2022 |
|
Revolving term credit facilities |
131,981 |
|
|
Working capital surplus(1) |
(7,902 |
) |
|
Fair value of financial instruments – asset(2) |
17,729 |
|
|
Fair value of financial instruments – liability(2) |
(1,345 |
) |
|
Capital lease obligations(3) |
(1,914 |
) |
|
Total debt |
138,549 |
|
(1) Current liabilities less current assets.(2)
Reflects the current portion only.(3) Reflects the current portion
only, which is included in “other liabilities” in the financial
statements.
ADVISORIES
Currency
Unless otherwise indicated, all dollar amounts
are expressed in Canadian dollars, all references to “$” 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. These oil and gas metrics
do not have any standardized meanings or standard methods of
calculation and therefore may not be comparable to similar measures
presented by other companies. As such, they should not be used to
make comparisons. Management uses these oil and gas metrics for its
own performance measurements and to provide investors with measures
to compare Birchcliff’s performance over time; however, such
measures are not reliable indicators of Birchcliff’s future
performance, which may not compare to Birchcliff’s performance in
previous periods, and therefore should not be unduly relied
upon.
Production
With respect to the disclosure of Birchcliff’s
production contained in this press release: (i) references to
“light oil” mean “light crude oil and medium crude oil” as such
term is defined in National Instrument 51-101 – Standards of
Disclosure for Oil and Gas Activities (“NI
51-101”); (ii) references to “liquids” mean “light crude
oil and medium crude oil” and “natural gas liquids” (including
condensate) as such terms are defined in NI 51-101; and (iii)
references to “natural gas” mean “shale gas”, which also includes
an immaterial amount of “conventional natural gas”, as such terms
are defined in NI 51-101. In addition, NI 51-101 includes
condensate within the product type of natural gas liquids.
Birchcliff has disclosed condensate separately from other natural
gas liquids as the price of condensate as compared to other natural
gas liquids is currently significantly higher and Birchcliff
believes presenting the two commodities separately provides a more
accurate description of its operations and results therefrom.
Initial Production Rates
Any references in this press release to initial
production rates or other short-term production rates are useful in
confirming the presence of hydrocarbons; however, such rates are
not determinative of the rates at which such wells will continue to
produce and decline thereafter and are not indicative of the
long-term performance or the ultimate recovery of such wells. In
addition, such rates may also include recovered “load oil” or “load
water” fluids used in well completion stimulation. Readers are
cautioned not to place undue reliance on such rates in calculating
the aggregate production for Birchcliff. Such rates are based on
field estimates and may be based on limited data available at this
time.
With respect to the production rates for the
Corporation’s 7-well 09-04 and 2-well 02-27 pads disclosed herein,
such rates represent the cumulative volumes for each well on the
respective pad measured at the wellhead separator for the 30 and 60
days (as applicable) of production immediately after each well was
considered stabilized after producing fracture treatment fluid back
to surface in an amount such that flow rates of hydrocarbons became
reliable, divided by 30 or 60 (as applicable). The wells on each
pad were then added together to determine the aggregate production
rates for the pad and then divided by 7 or 2, respectively, to
determine the per well average production rates. The production
rates excluded the hours and days when the wells did not produce.
To-date, no pressure transient or well-test interpretation has been
carried out on any of the wells. The natural gas volumes represent
raw natural gas volumes as opposed to sales gas volumes.
F&D Capital
Expenditures
Unless otherwise stated, references in this
press release to “F&D capital expenditures” denotes exploration
and development expenditures as disclosed in the Corporation’s
financial statements in accordance with GAAP, and is primarily
comprised of capital for land, seismic, workovers, drilling and
completions, well equipment and facilities and capitalized G&A
costs and excludes any acquisitions, dispositions, administrative
assets and the capitalized portion of cash incentive payments that
have not been approved by the Board. Management believes that
F&D capital expenditures assists management and investors in
assessing Birchcliff’s capital cost outlay associated with its
exploration and development activities for the purposes of finding
and developing its reserves.
Forward-Looking Statements
Certain statements contained in this press
release constitute forward‐looking statements and forward-looking
information (collectively referred to as “forward‐looking
statements”) within the meaning of applicable Canadian
securities laws. The forward-looking statements contained in this
press release relate to future events or Birchcliff’s future plans,
strategy, operations, performance or financial position and are
based on Birchcliff’s current expectations, estimates, projections,
beliefs and assumptions. Such forward-looking statements have been
made by Birchcliff in light of the information available to it at
the time the statements were made and reflect its experience and
perception of historical trends. All statements and information
other than historical fact may be forward‐looking statements. Such
forward‐looking statements are often, but not always, identified by
the use of words such as “seek”, “plan”, “focus”, “future”,
“outlook”, “position”, “expect”, “project”, “intend”, “believe”,
“anticipate”, “estimate”, “forecast”, “guidance”, “potential”,
“proposed”, “predict”, “budget”, “continue”, “targeting”, “may”,
“will”, “could”, “might”, “should”, “would”, “on track”,
“maintain”, “deliver” and other similar words and expressions.
By their nature, forward-looking statements
involve known and unknown risks, uncertainties and other factors
that may cause actual results or events to differ materially from
those anticipated in such forward‐looking statements. Accordingly,
readers are cautioned not to place undue reliance on such
forward-looking statements. Although Birchcliff believes that the
expectations reflected in the forward-looking statements are
reasonable, there can be no assurance that such expectations will
prove to be correct and Birchcliff makes no representation that
actual results achieved will be the same in whole or in part as
those set out in the forward-looking statements.
In particular, this press release contains
forward‐looking statements relating to:
-
Birchcliff’s plans and other aspects of its anticipated future
financial performance, results, operations, focus, objectives,
strategies, opportunities, priorities and goals, including:
Birchcliff’s commitment to maintaining a strong balance sheet and
capital discipline, while focusing on sustainable shareholder
returns and the continued development of its world-class asset
base; that the Corporation projects the current period of low
natural gas prices to continue during 2024; and that the
Corporation remains bullish on the long-term outlook for natural
gas as LNG export capacity increases in North America and is
committed to sustainable shareholder returns as a pillar of its
long-term strategy;
-
statements with respect to dividends, including: that Birchcliff’s
annual base dividend of $0.40 per common share for 2024 will be
declared and paid quarterly at the rate of $0.10 per common share;
that the annual base dividend for 2024 will be approximately $107
million in aggregate; and that the Corporation’s Five-Year Outlook
contemplates potential cumulative shareholder returns of
approximately $535 million through common share dividends;
-
the information set forth under the heading “2024 Guidance” and
elsewhere in this press release as it relates to Birchcliff’s
guidance for 2024, including: forecasts of annual average
production, production commodity mix, average expenses, adjusted
funds flow, F&D capital expenditures, free funds flow, annual
base dividend, total debt at year end and natural gas market
exposure; that Birchcliff is focused on balance sheet strength,
with 2024 year-end total debt of $405 million to $425 million,
which is anticipated to be less than 1.0 times forward annual
adjusted funds flow; that the Credit Facilities provide significant
financial flexibility; that for 2024, Birchcliff remains focused on
maintaining balance sheet strength, capital discipline, generating
free funds flow and delivering returns to shareholders; that based
on its targeted F&D capital expenditures and as a result of the
Corporation adjusting its capital spending profile by moving
capital into the second half of 2024, Birchcliff expects annual
average production of 74,000 to 77,000 boe/d in 2024; that
Birchcliff’s production profile for 2024 is designed to deliver
higher production in Q4 when the Corporation anticipates higher
commodity prices; that Birchcliff is currently forecasting that it
will generate approximately $340 million of adjusted funds flow and
$80 million to $100 million of free funds flow in 2024 based on its
targeted levels of F&D capital expenditures and annual average
production; that any excess free funds flow generated in 2024 is
anticipated to be used to further invest in the Corporation’s
business, increase shareholder returns in the form of enhanced
common share dividends and/or reduce indebtedness and that such
decisions will be made based on what Birchcliff believes will
provide the most value to shareholders, giving consideration to
commodity prices and other relevant factors; that excess free funds
flow may be used to repurchase common shares under the
Corporation’s normal course issuer bid to help offset the number of
common shares it issues throughout the year pursuant to the
exercise of stock options in order to minimize or eliminate
dilution to shareholders; and the expected impact of changes in
commodity prices and the CDN/US exchange rate on Birchcliff’s
forecast of free funds flow;
-
the information set forth under the headings “2024 Guidance”, “2024
F&D Capital Budget” and “Operational Update” and elsewhere in
this press release as it relates to Birchcliff’s 2024 capital
program and its exploration, production and development activities
and the timing thereof, including: the focus of, the objectives of,
the anticipated results from and expected benefits of the 2024
capital program; statements regarding the Corporation’s revised
2024 capital spending plans (including: that capital expenditures
in the first half of the year will be reduced; that the revised
capital plan allows Birchcliff to bring substantial production on
later in the year when commodity prices are anticipated to be
higher; that this change affords Birchcliff the flexibility to
monitor commodity prices and capital costs during the first half of
the year, which provides it with optionality to reduce capital
spending if there is further deterioration in commodity prices;
that due to Birchcliff’s revised capital spending profile in 2024,
it is anticipated that annual average production will remain
relatively flat in 2024 at 74,000 to 77,000 boe/d; and that
Birchcliff’s revised 2024 capital spending profile is designed to
ensure that the Corporation’s capital is deployed optimally); that
the F&D capital budget of $240 million to $260 million will
allow the Corporation to bring 29 wells on production in 2024;
estimates of capital expenditures (including Birchcliff’s expected
capital spending allocation and average well costs in 2024); that
Birchcliff’s 2024 drilling program is designed to target high
rate-of-return wells with attractive paybacks and strong capital
efficiency metrics; that two drilling rigs will be utilized to
deliver a level-loaded capital program focused on efficient
execution, with optimized capital spending throughout the year
while taking advantage of any potential reductions in service costs
in the second half of 2024; that the wells brought on production as
part of Birchcliff’s 2024 capital program are expected to yield
strong production benefitting from the Corporation’s latest
wellbore design, which incorporates longer lateral lengths, reduced
stage spacing and increased proppant loading where appropriate;
that 13 wells on two pads will be brought on production in Q4 2024,
aligned with anticipated improvement in commodity prices; the
number and types of wells to be drilled and brought on production,
targeted product types and the number of well pads in 2024; the
expected timing for the wells to be drilled, completed and brought
on production; that Birchcliff’s facilities and longer-term
infrastructure spending includes capital to tie a third-party NGLs
pipeline directly into its 100% owned and operated natural gas
processing plant in Pouce Coupe, which is expected to reduce NGLs
trucking activity and improve corporate netbacks by lowering NGLs
transportation costs; that Birchcliff may consider allocating some
capital in 2024 to continue to build, protect and optimize its
Elmworth Montney land position, including through drilling and
completions activity, strategic A&D transactions and Crown land
sales; and that Birchcliff has initiated the formal planning for
the construction of a proposed 100% owned and operated natural gas
processing plant in the Elmworth area, including determining
processing capacity, takeaway capacity and specific timelines for
consultation and construction;
-
the information set forth under the heading “Updated Five-Year
Outlook” and elsewhere in this press release as it relates to
Birchcliff’s updated Five-Year Outlook, including: estimates of
cumulative common share dividends, cumulative adjusted funds flow,
cumulative free funds flow, cumulative excess free funds flow,
production growth, F&D capital expenditures and the number of
wells to be brought on production over the five-year period; that
the updated Five-Year Outlook targets disciplined production growth
of 16% over the period, with annual average production of
approximately 87,500 boe/d in 2028, which would fully utilize the
Corporation’s available existing processing and transportation
capacity; that the Five-Year Outlook maintains capital discipline,
with moderate F&D capital expenditures of $240 million to $300
million per year during the first three years and $325 million to
$375 million per year during the last two years in order to fill
the Corporation’s available existing infrastructure and reduce per
boe operating and transportation costs; that the Five-Year Outlook
continues to be focused on maintaining the Corporation’s strong
balance sheet, free funds flow generation and delivering
significant returns to shareholders, while targeting disciplined
production growth to fully utilize the Corporation’s available
existing processing and transportation capacity, which is expected
to result in lower per boe operating and transportation costs; that
Birchcliff’s updated Five-Year Outlook has the potential to
generate substantial shareholder returns through common share
dividends of approximately $535 million over the period and
maintains the Corporation’s strong balance sheet, with potential
cumulative adjusted funds flow of approximately $2.4 billion,
cumulative free funds flow of approximately $870 million and
cumulative excess free funds flow (after the payment of dividends)
of approximately $335 million over the period; that over the
five-year period, total debt is anticipated to be reduced to well
below 1.0 times forward annual adjusted funds flow; that Birchcliff
does not anticipate that it will be required to pay any material
Canadian income taxes until 2027; that the production growth
contemplated in the Five-Year Outlook is planned to occur primarily
in 2027 and 2028 commensurate with the moderate increases in
capital spending in these years; that Birchcliff’s production
growth during the five-year period coincides with anticipated
increases in commodity prices and demand for Canadian natural gas
as a result of LNG projects coming online in North America; that
the Corporation continues to benefit from its diversified natural
gas sales with exposure to AECO, NYMEX HH and Dawn prices; that the
incremental natural gas from Birchcliff’s planned production growth
over the next five years is expected to be sold at AECO, which
gives the Corporation increased exposure to the anticipated
positive pricing impact of Canadian LNG exports; that the
Corporation is looking forward to the increases in LNG export
capacity in North America that are expected in the next five years
and is committed to contributing to the development of the needed
infrastructure in Canada; statements regarding the Ksi Lisims LNG
export project, including its capacity and that the project will be
net zero emissions; and that it is anticipated that capital will be
deployed in Elmworth during the five-year period to continue to
build, protect and optimize Birchcliff’s land position, as well as
progressing its plans for the development of a 100% owned and
operated natural gas processing plant in the area;
-
that Birchcliff will announce its unaudited financial and
operational results for the year ended December 31, 2023 on
February 14, 2024;
-
the information set forth under the heading “Operational Update” as
it relates to Birchcliff’s guidance for 2023, including: that as a
result of unplanned third-party outages, including a third-party
compressor outage that is expected to continue until mid to late
January 2024, the Corporation’s average production for Q4 2023 is
anticipated to be 76,000 to 77,000 boe/d, resulting in annual
average production of 75,500 to 76,000 boe/d, which is slightly
behind previous guidance; and that Birchcliff’s 2023 F&D
capital expenditures are estimated to be approximately $305
million, which includes the capitalized portion of cash incentive
payments accrued in 2023; and
-
Birchcliff’s anticipation that, on an annualized basis, the
forward-looking non-GAAP financial measures for adjusted funds
flow, free funds flow and excess free funds flow disclosed herein
will be lower than their respective historical amounts for the
twelve months ended December 31, 2022 primarily due to lower
anticipated benchmark oil and natural gas prices, which are
expected to decrease the average realized sales prices the
Corporation receives for its production; and that the
forward-looking non-GAAP financial measure for excess free funds
flow disclosed herein is also expected to be lower on an annualized
basis as a result of a higher targeted annual common share dividend
payment forecast during 2024 to 2028.
With respect to the forward‐looking statements
contained in this press release, assumptions have been made
regarding, among other things: prevailing and future commodity
prices and differentials, exchange rates, interest rates, inflation
rates, royalty rates and tax rates; the state of the economy,
financial markets and the exploration, development and production
business; the political environment in which Birchcliff operates;
the regulatory framework regarding royalties, taxes, environmental,
climate change and other laws; the Corporation’s ability to comply
with existing and future laws; future cash flow, debt and dividend
levels; future operating, transportation, G&A and other
expenses; Birchcliff’s ability to access capital and obtain
financing on acceptable terms; the timing and amount of capital
expenditures and the sources of funding for capital expenditures
and other activities; the sufficiency of budgeted capital
expenditures to carry out planned operations; the successful and
timely implementation of capital projects and the timing, location
and extent of future drilling and other operations; results of
operations; Birchcliff’s ability to continue to develop its assets
and obtain the anticipated benefits therefrom; the performance of
existing and future wells; reserves volumes and Birchcliff’s
ability to replace and expand reserves through acquisition,
development or exploration; the impact of competition on
Birchcliff; the availability of, demand for and cost of labour,
services and materials; the approval of the Board of future
dividends; the ability to obtain any necessary regulatory or other
approvals in a timely manner; the satisfaction by third parties of
their obligations to Birchcliff; the ability of Birchcliff to
secure adequate processing and transportation for its products;
Birchcliff’s ability to successfully market natural gas and
liquids; the results of the Corporation’s risk management and
market diversification activities; and Birchcliff’s natural gas
market exposure. In addition to the foregoing assumptions,
Birchcliff has made the following assumptions with respect to
certain forward-looking statements contained in this press
release:
-
With respect to Birchcliff’s 2024 guidance, such guidance is based
on the commodity price, exchange rate and other assumptions set
forth under the heading “2024 Guidance”. In addition:
-
Birchcliff’s production guidance assumes that: the 2024 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 forecast of F&D capital expenditures assumes that
the 2024 capital program will be carried out as currently
contemplated and excludes any potential acquisitions, dispositions
and the capitalized portion of cash incentive payments that have
not been approved by the Board. The amount and allocation of
capital expenditures for exploration and development activities by
area and the number and types of wells to be drilled and brought on
production is dependent upon results achieved and is subject to
review and modification by management on an ongoing basis
throughout the year. Actual spending may vary due to a variety of
factors, including commodity prices, economic conditions, results
of operations and costs of labour, services and materials.
-
Birchcliff’s forecasts of adjusted funds flow and free funds flow
assume that: the 2024 capital program will be carried out as
currently contemplated and the level of capital spending for 2024
set forth herein is met; and the forecasts of production,
production commodity mix, expenses and natural gas market exposure
and the commodity price and exchange rate assumptions set forth
herein are met. Birchcliff’s forecast of adjusted funds flow takes
into account its financial basis swap contracts outstanding as at
January 8, 2024 and excludes cash incentive payments that have not
been approved by the Board.
-
Birchcliff’s forecast of year end total debt assumes that: (i) the
forecasts of adjusted funds flow and free funds flow are achieved,
with the level of capital spending for 2024 met and the payment of
an annual base dividend of approximately $107 million; (ii) any
free funds flow remaining after the payment of dividends, asset
retirement obligations and other amounts for administrative assets,
financing fees and capital lease obligations is allocated towards
debt reduction; (iii) there are no buybacks of common shares during
2024; (iv) there are no significant acquisitions or dispositions
completed by the Corporation during 2024; (v) there are no equity
issuances during 2024; and (vi) there are no further proceeds
received from the exercise of stock options or performance warrants
during 2024. The forecast of total debt excludes cash incentive
payments that have not been approved by the Board.
-
Birchcliff’s year end total debt to forward annual adjusted funds
flow ratio is subject to similar assumptions set forth herein for
Birchcliff’s 2024 adjusted funds flow, free funds flow and total
debt guidance.
-
Birchcliff’s forecast of its natural gas market exposure assumes:
(i) 175,000 GJ/d being sold on a physical basis at the Dawn price;
(ii) 147,500 MMBtu/d being contracted on a financial basis at an
average fixed basis differential price between AECO 7A and NYMEX HH
of approximately US$1.12/MMBtu; and (iii) 9,045 GJ/d being sold at
Alliance on a physical basis at the AECO 5A price plus a premium.
Birchcliff’s natural gas market exposure takes into account its
outstanding financial basis swap contracts.
-
With respect to Birchcliff’s updated Five-Year Outlook, such
outlook assumes the following commodity prices and exchange rate:
an average WTI price of US$75.00/bbl; an average WTI-MSW
differential of CDN$5.45/bbl in 2024 and CDN$4.00/bbl in 2025 to
2028; an average AECO price of CDN$2.50/GJ in 2024 and CDN$3.60/GJ
in 2025 to 2028; an average Dawn price of US$2.80/MMBtu in 2024 and
US$3.80/MMBtu in 2025 to 2028; an average NYMEX HH price of
US$3.00/MMBtu in 2024 and US$4.00/MMBtu in 2025 to 2028; and an
exchange rate (CDN$ to US$1) of 1.33. In addition, Birchcliff’s
updated Five-Year Outlook is based on the following assumptions:
-
The forecast production estimates contained in the Five-Year
Outlook are subject to similar assumptions set forth herein for
Birchcliff’s 2024 production guidance.
-
Birchcliff’s forecasts of F&D capital expenditures assume that
the Corporation’s capital programs will be carried out as currently
contemplated and exclude any potential acquisitions, dispositions
and the capitalized portion of cash incentive payments that have
not been approved by the Board. The Five-Year Outlook 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. 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 five-year period. Actual spending may vary due to a
variety of factors, including commodity prices, economic
conditions, results of operations and costs of labour, services and
materials.
-
Birchcliff’s forecasts of cumulative adjusted funds flow and
cumulative free funds flow assume that: the Corporation’s capital
programs will be carried out as currently contemplated and the
level of capital spending for each year set forth herein is met;
and the forecasts of production, production commodity mix, expenses
and natural gas market exposure and the commodity price and
exchange rate assumptions set forth herein are met. Birchcliff’s
forecasts of adjusted funds flow take into account its financial
basis swap contracts outstanding as at January 8, 2024 and exclude
cash incentive payments that have not been approved by the
Board.
-
Birchcliff’s forecast of cumulative excess free funds flow assumes
that: the forecast of cumulative free funds flow is achieved for
the five-year period; and an annual base dividend of $0.40 per
common share is paid during the five-year period and there are 267
million common shares outstanding, with no special dividends
paid.
-
Birchcliff’s forecast of its total debt to forward annual adjusted
funds flow ratio in the Five-Year Outlook is subject to similar
assumptions set forth herein for Birchcliff’s cumulative adjusted
funds flow and free funds flow over the five-year period and also
assumes that: (i) the forecasts of adjusted funds flow and free
funds flow are achieved, with the level of capital spending for
each year met and the payment of an annual base dividend of
approximately $107 million each year; (ii) any free funds flow
remaining after the payment of dividends, asset retirement
obligations and other amounts for administrative assets, financing
fees and capital lease obligations is allocated towards debt
reduction; (iii) there are no buybacks of common shares during the
Five-Year Outlook; (iv) there are no significant acquisitions or
dispositions completed by the Corporation during the Five-Year
Outlook; (v) there are no equity issuances during the Five-Year
Outlook; and (vi) there are no further proceeds received from the
exercise of stock options or performance warrants during the
Five-Year Outlook.
-
The Five-Year Outlook disclosed herein supersedes Birchcliff’s
previous five-year plan for 2023 to 2027 (the “Previous
Plan”) as disclosed by the Corporation on January 18,
2023. Primarily as a result of a lower commodity price forecast,
the updated Five-Year Outlook now forecasts lower adjusted funds
flow, free funds flow and excess free funds flow over a five-year
period, as well as higher total debt during the period. Primarily
as a result of updated commodity price outlook, the forecasts of
F&D capital expenditures under the updated Five-Year Outlook
have been revised from the Previous Plan, with lower spending in
the first three years and increased F&D capital spending in
2027. The Corporation’s forecasted average annual production under
the new Five-Year Outlook is lower as compared to the Previous Plan
as a result of lower F&D capital spending in that period.
-
With respect to Birchcliff’s expectation that it will not be
required to pay any material Canadian income taxes until 2027, such
expectation 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 Outlook and assumes, among other things,
that the estimated levels of spending and production are achieved.
Changes to any of the foregoing factors could result in the
Corporation paying income taxes earlier or later than currently
forecast.
-
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 the
Israel-Hamas 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; 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
2024 to 2028); general economic, market and business conditions
which will, among other things, impact the demand for and market
prices of Birchcliff’s products and Birchcliff’s access to capital;
volatility of crude oil and natural gas prices; risks associated
with increasing costs, whether due to high inflation rates, supply
chain disruptions or other factors; fluctuations in exchange and
interest rates; stock market volatility; loss of market demand; an
inability to access sufficient capital from internal and external
sources on terms acceptable to the Corporation; risks associated
with Birchcliff’s Credit Facilities, including a failure to comply
with covenants under the agreement governing the Credit Facilities
and the risk that the borrowing base limit may be redetermined;
fluctuations in the costs of borrowing; operational risks and
liabilities inherent in oil and natural gas operations; the
occurrence of unexpected events such as fires, severe weather,
explosions, blow-outs, equipment failures, transportation incidents
and other similar events; an inability to access sufficient water
or other fluids needed for operations; uncertainty that development
activities in connection with Birchcliff’s assets will be economic;
an inability to access or implement some or all of the technology
necessary to operate its assets and achieve expected future
results; the accuracy of estimates of reserves, future net revenue
and production levels; geological, technical, drilling,
construction and processing problems; uncertainty of geological and
technical data; horizontal drilling and completions techniques and
the failure of drilling results to meet expectations for reserves
or production; uncertainties related to Birchcliff’s future
potential drilling locations; delays or changes in plans with
respect to exploration or development projects or capital
expenditures; the accuracy of cost estimates and variances in
Birchcliff’s actual costs and economic returns from those
anticipated; incorrect assessments of the value of acquisitions and
exploration and development programs; changes to the regulatory
framework in the locations where the Corporation operates,
including changes to tax laws, Crown royalty rates, environmental
laws, climate change laws, carbon tax regimes, incentive programs
and other regulations that affect the oil and natural gas industry;
political uncertainty and uncertainty associated with government
policy changes; actions by government authorities; an inability of
the Corporation to comply with existing and future laws and the
cost of compliance with such laws; dependence on facilities,
gathering lines and pipelines; uncertainties and risks associated
with pipeline restrictions and outages to third-party
infrastructure that could cause disruptions to production; the lack
of available pipeline capacity and an inability to secure adequate
and cost-effective processing and transportation for Birchcliff’s
products; an inability to satisfy obligations under Birchcliff’s
firm marketing and transportation arrangements; shortages in
equipment and skilled personnel; the absence or loss of key
employees; competition for, among other things, capital,
acquisitions of reserves, undeveloped lands, equipment and skilled
personnel; management of Birchcliff’s growth; environmental and
climate change risks, claims and liabilities; potential litigation;
default under or breach of agreements by counterparties and
potential enforceability issues in contracts; claims by Indigenous
peoples; the reassessment by taxing or regulatory authorities of
the Corporation’s prior transactions and filings; unforeseen title
defects; third-party claims regarding the Corporation’s right to
use technology and equipment; uncertainties associated with the
outcome of litigation or other proceedings involving Birchcliff;
uncertainties associated with counterparty credit risk; risks
associated with Birchcliff’s risk management and market
diversification activities; risks associated with the declaration
and payment of future dividends, including the discretion of the
Board to declare dividends and change the Corporation’s dividend
policy and the risk that the amount of dividends may be less than
currently forecast; the failure to obtain any required approvals in
a timely manner or at all; the failure to complete or realize the
anticipated benefits of acquisitions and dispositions and the risk
of unforeseen difficulties in integrating acquired assets into
Birchcliff’s operations; negative public perception of the oil and
natural gas industry and fossil fuels; the Corporation’s reliance
on hydraulic fracturing; market competition, including from
alternative energy sources; changing demand for petroleum products;
the availability of insurance and the risk that certain losses may
not be insured; breaches or failure of information systems and
security (including risks associated with cyber-attacks); risks
associated with the ownership of the Corporation’s securities; and
the accuracy of the Corporation’s accounting estimates and
judgments.
The declaration and payment of any future
dividends are subject to the discretion of the Board and may not be
approved or may vary depending on a variety of factors and
conditions existing from time to time, including commodity prices,
free funds flow, current and forecast commodity prices,
fluctuations in working capital, financial requirements of
Birchcliff, applicable laws (including solvency tests under the
Business Corporations Act (Alberta) for the declaration and payment
of dividends) and other factors beyond Birchcliff’s control. The
payment of dividends to shareholders is not assured or guaranteed
and dividends may be reduced or suspended entirely. In addition to
the foregoing, the Corporation’s ability to pay dividends now or in
the future may be limited by covenants contained in the agreements
governing any indebtedness that the Corporation has incurred or may
incur in the future, including the terms of the Credit Facilities.
The agreement governing the Credit Facilities provides that
Birchcliff is not permitted to make any distribution (which
includes dividends) at any time when an event of default exists or
would reasonably be expected to exist upon making such
distribution, unless such event of default arose subsequent to the
ordinary course declaration of the applicable distribution.
Readers are cautioned that the foregoing lists
of factors are not exhaustive. Additional information on these and
other risk factors that could affect results of operations,
financial performance or financial results are included in
Birchcliff’s most recent annual information form under the heading
“Risk Factors” and in other reports filed with Canadian securities
regulatory authorities.
This press release contains information that may
constitute future-orientated financial information or financial
outlook information (collectively, “FOFI”) about
Birchcliff’s prospective financial performance, financial position
or cash flows, all of which is subject to the same assumptions,
risk factors, limitations and qualifications as set forth above.
Readers are cautioned that the assumptions used in the preparation
of such information, although considered reasonable at the time of
preparation, may prove to be imprecise or inaccurate and, as such,
undue reliance should not be placed on FOFI. Birchcliff’s actual
results, performance and achievements could differ materially from
those expressed in, or implied by, FOFI. Birchcliff has included
FOFI in order to provide readers with a more complete perspective
on Birchcliff’s future operations and management’s current
expectations relating to Birchcliff’s future performance. Readers
are cautioned that such information may not be appropriate for
other purposes.
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 and FOFI
contained in this press release are expressly qualified by the
foregoing cautionary statements. The forward-looking statements and
FOFI 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 or FOFI, whether as a result of new
information, future events or otherwise.
ABOUT BIRCHCLIFF:
Birchcliff is a dividend-paying, intermediate
oil and natural gas company based in Calgary, Alberta 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 |
Chris Carlsen – President and Chief Executive
OfficerBruno Geremia – Executive Vice President
and Chief Financial Officer |
Birchcliff Energy (TSX:BIR)
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