NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN
THE UNITED STATES
Birchcliff Energy Ltd. ("Birchcliff") (TSX:BIR) is pleased to announce financial
and operational results for the first quarter of 2014 with record production,
cash flow and earnings, a continued decrease in per unit operating costs and
2014 production and cash flow guidance. The full 2014 First Quarter Report,
containing the unaudited interim condensed financial statements for the three
month period ended March 31, 2014 and the related Management's Discussion and
Analysis, is available on Birchcliff's website at www.birchcliffenergy.com and
will be available on SEDAR at www.sedar.com.
Current Highlights
-- Current production is approximately 32,000 boe per day.
-- Estimated record annual average production of approximately 34,000 boe
per day for 2014, representing 32% growth over the annual average of
25,829 boe per day in 2013.
-- Estimated 2014 fourth quarter average production is approximately 38,000
boe per day.
-- Estimated 2014 cash flow is approximately $331 million or $2.30 per
common share, based on estimated annual production of 34,000 boe per
day, an AECO natural gas price of $4.50 per GJ and WTI oil price of US
$95.00 per bbl from April 1 through December 31, 2014, and based on
basic weighted average common shares outstanding in the first quarter of
144,026,125.
-- Increased credit facilities to $750 million, from $600 million.
-- On schedule and on budget for the Phase IV expansion of the Pouce Coupe
South Natural Gas Plant ("PCS Gas Plant"), increasing processing
capacity to 180 MMcf per day from 150 MMcf per day for a cost of $11.6
million, starting up in September 2014.
-- 2014 budgeted capital expenditure program of $291 million (excluding
acquisitions) is expected to be funded wholly out of internally
generated funds flow.
-- Drilling results to date of 20 (20.0 net) wells, all 100% working
interest, consisting of 12 Montney/Doig horizontal natural gas wells and
two Montney/Doig horizontal light oil wells in the Pouce Coupe area; one
Doig horizontal light oil well in the Progress area; and five Charlie
Lake horizontal light oil wells in the Worsley area.
-- Birchcliff currently has two drilling rigs at work in the Pouce Coupe
area, drilling Montney/Doig horizontal natural gas wells through break-
up on multi-well pads. After break-up, two other rigs will resume their
drilling programs, one rig will be drilling Montney/Doig horizontal
wells in the Pouce Coupe area and the other rig will be drilling Charlie
Lake horizontal wells in the Worsley area.
2014 First Quarter Highlights
-- Record average production of 31,749 boe per day, an increase of 22% from
26,108 boe per day in the first quarter of 2013 and an increase of 12%
from 28,391 boe per day in the fourth quarter of 2013. Production per
share increased 20% from the first quarter of 2013.
-- Record funds flow of $88.4 million, an increase of 124% from $39.4
million in the first quarter of 2013 and an increase of 77% from $50.1
million in the fourth quarter of 2013. Birchcliff exceeded its
previously announced 2014 first quarter cash flow guidance of $83
million by $5.4 million, due mainly to higher than forecasted oil and
liquids pricing for February and March production.
-- Funds flow of $0.61 per common share, an increase of 118% from the first
quarter of 2013 and an increase of 74% from the fourth quarter of 2013.
-- Record net income to common shareholders of $38.5 million or $0.27 per
common share, an increase of 499% and 440% respectively, from the first
quarter of 2013. This is an increase of 259% from net income to common
shareholders of $10.8 million in the fourth quarter of 2013, excluding a
non-recurring gain on the sale of assets.
-- Operating costs of $5.21 per boe, a decrease of 10% from $5.77 per boe
in the first quarter of 2013 and a decrease of 4% from $5.44 per boe in
the fourth quarter of 2013. At our PCS Gas Plant, where we processed 76%
of our natural gas production and achieved an operating margin of 81%,
operating costs were approximately $0.43 per Mcfe or $2.61 per boe in
the first quarter of 2014.
-- General and administrative costs of $1.89 per boe, a decrease of 9% from
$2.08 per boe in the first quarter of 2013 and a decrease of 26% from
$2.54 per boe in the fourth quarter of 2013.
-- Total cash costs of $11.28 per boe (operating, transportation and
marketing, general and administrative and interest), a decrease of 11%
from the first quarter of 2013 and a decrease of 8% from the fourth
quarter of 2013.
-- Funds flow netback of $30.93 per boe, an increase of 84% from $16.79 per
boe in the first quarter of 2013 and an increase of 61% from $19.16 per
boe in the fourth quarter of 2013, as a result of strong oil and natural
gas prices and Birchcliff's low cost structure.
-- 2,335.8 net future horizontal drilling locations on our Montney/Doig
Natural Gas Resource Play, increased from 2,254.4 net future horizontal
drilling locations at December 31, 2013.
-- Strategic acquisition effective January 1, 2014, purchasing a partner's
30% working interest in land and production on the Montney/Doig Natural
Gas Resource play, giving Birchcliff a 100% working interest in 38
sections of land. Approximately 9.6 MMcfe per day (1,600 boe per day) of
production was acquired, the majority of which goes to Birchcliff's PCS
Gas Plant.
2014 FIRST QUARTER FINANCIAL AND OPERATIONAL HIGHLIGHTS
Three months Three months
ended ended
March 31, March 31,
2014 2013
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OPERATING
Average daily production
Light oil - (barrels) 3,977 4,047
Natural gas - (thousands of cubic feet) 158,456 128,101
NGLs - (barrels) 1,362 710
Total - barrels of oil equivalent (6:1) 31,749 26,108
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Average sales price ($ CDN)(1)
Light oil - (per barrel) 97.30 84.82
Natural gas - (per thousand cubic feet) 6.10 3.40
NGLs - (per barrel) 95.35 86.80
Total - barrels of oil equivalent(6:1) 46.73 32.21
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NETBACK AND COST ($ per barrel of oil equivalent
at 6:1)
Petroleum and natural gas revenue 46.74 32.22
Royalty expense (4.43) (2.74)
Operating expense (5.21) (5.77)
Transportation and marketing expense (2.48) (2.25)
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Netback 34.62 21.46
General & administrative expense, net (1.89) (2.08)
Interest expense (1.70) (2.59)
Realized loss on financial instruments (0.10) -
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Funds flow netback 30.93 16.79
Stock-based compensation expense, net (0.34) (0.55)
Depletion and depreciation expense (11.19) (11.51)
Accretion expense (0.21) (0.20)
Amortization of deferred financing fees (0.09) (0.08)
Unrealized loss on financial instruments (0.05) -
Dividends on Series C Preferred Shares (0.31) -
Income tax expense (4.92) (1.29)
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Net income 13.82 3.16
Dividends on Series A Preferred Shares (0.35) (0.43)
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Net income to common shareholders 13.47 2.73
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FINANCIAL
Petroleum and natural gas revenue ($000's) 133,558 75,718
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Funds flow from operations ($000's)(2) 88,369 39,444
Per common share - basic ($)(2) 0.61 0.28
Per common share - diluted ($)(2) 0.60 0.27
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Net income ($000's) 39,499 7,424
Net income to common shareholders ($000's)(3) 38,499 6,424
Per common share - basic ($)(3) 0.27 0.05
Per common share - diluted ($)(3) 0.26 0.04
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Common shares outstanding
End of period - basic 144,503,777 142,096,130
End of period - diluted 166,085,345 164,106,949
Weighted average common shares for period - basic 144,026,125 141,821,280
Weighted average common shares for period -
diluted 147,090,254 144,366,102
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Dividends on Series A Preferred Shares ($000's) 1,000 1,000
Dividends on Series C Preferred Shares ($000's) 875 -
Capital expenditures, net ($000's) 161,403 81,010
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Long-term bank debt ($000's) 453,772 451,371
Working capital deficit ($000's)(4) 70,948 50,920
Total debt ($000's) 524,720 502,291
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(1) Average sales price excludes the effect of hedges on financial
instruments.
(2) Funds flow from operations and per common share amounts are non-GAAP
measures that represent cash flow from operating activities as per the
statements of cash flows before the effects of changes in non-cash working
capital and decommissioning expenditures. Per common share amounts are
calculated by dividing funds flow from operations by the weighted average
number of basic or diluted common shares outstanding for the period.
(3) Net income to common shareholders is calculated using net income as
determined in accordance with GAAP, adjusted for dividends paid on Series A
Preferred Shares. Per common share amounts are calculated by dividing net
income to common shareholders by the weighted average number of basic or
diluted common shares outstanding for the period.
(4) Excludes the fair value of financial instruments and related deferred
premium.
The full text of the President's Message from the 2014 First Quarter Report follows:
May 14, 2014
Fellow Shareholders,
Birchcliff Energy Ltd. ("Birchcliff") is pleased to report its first quarter
financial and operational results for the three month period ended March 31,
2014. Birchcliff had an excellent quarter. Record natural gas production
together with strong natural gas prices resulted in record first quarter
revenue, funds flow and earnings. In addition, total cash costs (operating,
transportation and marketing, general and administrative and interest costs)
were reduced on a per boe basis from the first quarter of 2013 and the fourth
quarter of 2013, notwithstanding the difficult operating conditions resulting
from the bitterly cold winter.
Outlook for 2014 Production and Cash Flow
Birchcliff is on track to achieve record annual average production of
approximately 34,000 boe per day for 2014, representing 32% growth over the
annual average of 25,829 boe per day in 2013.
Estimated fourth quarter average production is approximately 38,000 boe per day.
We maintain our previously announced exit production rate guidance of 37,500 to
39,500 boe per day.
Estimated 2014 cash flow is approximately $331 million or $2.30 per share, based
on forecasted annual production of 34,000 boe per day, an AECO natural gas price
of $4.50 per GJ and WTI oil price of US $95.00 per bbl from April 1 through
December 31, 2014, and based on basic weighted average common shares outstanding
in the first quarter of 144,026,125.
Production
Current production is approximately 32,000 boe per day.
Birchcliff had record average production of 31,749 boe per day in the first
quarter of 2014, an increase of 22% from 26,108 boe per day in the first quarter
of 2013 and an increase of 12% from 28,391 boe per day in the fourth quarter of
2013. Production per share increased 20% from the first quarter of 2013.
Funds Flow and Earnings
Funds flow was $88.4 million or $0.61 per common share in the first quarter of
2014, an increase of 124% from $39.4 million and an increase of 118% from $0.28
per common share in the first quarter of 2013.
Birchcliff had record net income to common shareholders in the first quarter of
2014 of $38.5 million or $0.27 per common share, an increase of 499% and 440%
respectively, from the first quarter of 2013. This is an increase of 259% from
net income to common shareholders of $10.8 million in the fourth quarter of
2013, excluding a non-recurring gain on the sale of assets.
Continued Cost Reductions
We are very pleased that our operating costs per boe continue to decline quarter
over quarter. The credit for maintaining our low operating costs in the bitterly
cold winter and difficult operating conditions goes to our field employees. We
never forget that our best assets are our people.
In the first quarter of 2014, we reduced our operating costs to an average of
$5.21 per boe, a decrease of 10% from the first quarter of 2013 and a decrease
4% from the fourth quarter of 2013. Notably, at Birchcliff's 100% owned Pouce
Coupe South Natural Gas Plant ("PCS Gas Plant"), where we processed 76% of our
natural gas production and achieved an 81% operating margin, operating costs
were approximately $0.43 per Mcfe or $2.61 per boe. We anticipate increasing the
percentage of natural gas processed at the PCS Gas Plant as new Montney/Doig
horizontal natural gas wells are drilled in 2014, which will further reduce our
corporate operating costs on a per boe basis.
Total cash costs per boe, including operating costs, transportation and
marketing costs, general and administrative expenses and interest were $11.28
per boe in the first quarter of 2014, a decrease of 11% from the first quarter
of 2013 and a decrease of 8% from the fourth quarter of 2013. Strong oil and
natural gas prices together with Birchcliff's low operating cost structure
resulted in material funds flow netback of $30.93 per boe in the first quarter
of 2014, an increase of 84% from $16.79 per boe in the first quarter of 2013.
Phase IV Expansion of the PCS Gas Plant
The Phase IV expansion of the PCS Gas Plant will bring processing capacity to
180 MMcf per day, from 150 MMcf per day, by adding additional compression and
sales pipeline capacity. The estimated cost of the Phase IV expansion is
approximately $11.6 million. The anticipated start-up date of the Phase IV
expansion is September 2014. This project is on schedule and on budget.
Increase to Credit Facilities
On May 9, 2014, Birchcliff's bank syndicate approved an increase of the
aggregate credit facilities limit to $750 million from $600 million and the
revolving credit facilities were converted to a three-year term with a maturity
date of May 9, 2017. The aggregate credit facilities include $620 million of
revolving term credit facilities (previously $470 million); a $70 million
non-revolving five-year term credit facility; and a $60 million non-revolving
five-year term credit facility. The increased aggregate credit facilities will
provide Birchcliff with increased financial flexibility.
Strategic Acquisitions
We are very pleased with the $56 million strategic acquisition of a partner's
30% working interest in land and production on the Montney/Doig Natural Gas
Resource Play in January 2014, giving Birchcliff a 100% working interest in 38
sections of land that has Montney and Doig rights. Approximately 9.6 MMcfe per
day (1,600 boe per day) of production was acquired, the majority of which goes
to Birchcliff's PCS Gas Plant. This transaction has allowed Birchcliff to
consolidate lands it formerly held at 70% working interest with lands it held at
100% working interest, allowing for a contiguous development plan, eliminating
holding buffers and increasing the flexibility of capital allocation.
Land additions in the first quarter of 2014 have increased Birchcliff's number
of Montney/Doig Resource Play net future horizontal drilling locations to
2,335.8 from 2,254.4 at December 31, 2013.
Hedging Activities
Birchcliff's natural gas production during the winter of 2013/2014 was unhedged
and as a result we received the full benefit of the high natural gas prices in
the first quarter of 2014.
Birchcliff has contracted forward physical sales of 75,000 GJ per day for
approximately $4.35 per Mcf, representing 40% of our estimated natural gas
volumes during the summer months, April 1 to October 31, 2014. We have no
current intention of contracting forward physical sales of natural gas for the
winter months of 2014/2015, however later in 2014 we will consider hedging
natural gas for the 2015 summer months.
2014 FIRST QUARTER FINANCIAL AND OPERATIONAL RESULTS
Production
First quarter 2014 production averaged 31,749 boe per day, an increase of 22%
from 26,108 boe per day in the first quarter of 2013.
Production consisted of approximately 83% natural gas and 17% crude oil and
natural gas liquids in the first quarter of 2014. Approximately 76% of
Birchcliff's natural gas production and 66% of corporate production was
processed at the PCS Gas Plant during the first quarter of 2014.
Funds Flow and Earnings
First quarter 2014 funds flow was $88.4 million or $0.61 per common share, a
124% increase from $39.4 million or $0.28 per common share in the first quarter
of 2013. The increase from the first quarter of 2013 was a result of the 24%
increase in natural gas production and 78% increase in the AECO natural gas spot
price, which averaged $5.71 per Mcf for the first quarter of 2014 compared to
$3.20 per Mcf for the first quarter of 2013.
Birchcliff exceeded its previously announced 2014 first quarter cash flow
guidance of $83 million by $5.4 million, due mainly to higher than forecasted
oil and liquids pricing for February and March production.
Birchcliff had record net income to common shareholders in the first quarter of
2014 of $38.5 million or $0.27 per common share, an increase of 499% from $6.4
million and 440% from $0.05 per common share respectively from the first quarter
of 2013. This is an increase of 259% from net income to common shareholders of
$10.8 in the fourth quarter of 2013, excluding a non-recurring gain on the sale
of assets.
Debt and Capitalization
At March 31, 2014, Birchcliff's long-term bank debt was $453.8 million from
available credit facilities of approximately $600 million. Total debt, including
the working capital deficit of $70.9 million, was $524.7 million as compared to
$454.0 million at December 31, 2013.
On May 9, 2014, Birchcliff's bank syndicate approved an increase of the
aggregate credit facilities limit to $750 million from $600 million as a result
of the significant reserve additions in 2013.
At March 31, 2014, Birchcliff had outstanding 144,503,777 basic common shares.
Preferred Share Warrants
At March 31, 2014, Birchcliff had 6,000,000 warrants outstanding, each warrant
providing the right to purchase one common share at an exercise price of $8.30
until August 8, 2014. Birchcliff expects that the holders of the warrants will
exercise their warrants prior to August 8, which will result in Birchcliff
receiving approximately $50 million in warrant proceeds and will require the
issuance of six million common shares.
Operating Costs
Operating costs in the first quarter of 2014 were $5.21 per boe, a decrease of
10% from $5.77 per boe in the first quarter of 2013. This reduction of operating
costs on a per boe basis was largely due to increased volumes of natural gas
being processed through the PCS Gas Plant and the implementation of various
optimization initiatives.
General and administrative expenses in the first quarter of 2014 was $1.89 per
boe, a decrease of 9% from $2.08 per boe in the first quarter of 2013.
Capital Expenditures
The following table sets forth a summary of Birchcliff's capital expenditures at
the end of the first quarter of 2014.
------------------
Three months ended
($000's) March 31, 2014
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Land 9,064
Seismic 5,384
Workovers 2,952
Drilling and completions 66,942
Well equipment and facilities 20,230
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Finding and development costs (F&D) 104,572
Acquisitions 56,553
Dispositions -
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Finding, development and acquisition costs (FD&A) 161,125
Administrative assets 278
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Capital expenditures, net 161,403
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PCS Gas Plant Netbacks
Processing natural gas at the PCS Gas Plant has materially improved Birchcliff's
funds flow and net earnings. In the first quarter of 2014, operating costs for
natural gas processed at the PCS Gas Plant averaged $0.43 per Mcfe ($2.61 per
boe) and the estimated operating netback for Birchcliff's natural gas production
flowing to the PCS Gas Plant was $5.25 per Mcfe. Approximately 76% of
Birchcliff's natural gas production and 66% of corporate production was
processed at the PCS Gas Plant in the first quarter of 2014.
The following table details Birchcliff's net production, estimated operating
netback and operating margin for wells producing to the PCS Gas Plant, on a
production month basis.
----------------------------------------
Production Processed at the PCS Gas Three months ended Three months ended
Plant March 31, 2014(1) March 31, 2013
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Average daily production, net to
Birchcliff:
Natural gas (Mcf) 120,316 87,104
Oil & NGLs (bbls) 923 246
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Total boe (6:1) 20,975 14,763
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Percentage of corporate natural gas
production 76% 68%
Percentage of corporate production 66% 57%
Netback and cost: $/Mcfe $/boe $/Mcfe $/boe
Petroleum and natural gas
revenue(2) 6.51 39.08 3.57 21.40
Royalty expense (0.53) (3.19) (0.22) (1.33)
Operating expense(3) (0.43) (2.61) (0.28) (1.68)
Transportation and marketing
expense (0.30) (1.78) (0.24) (1.40)
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Estimated operating netback 5.25 31.50 2.83 16.99
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Operating margin(4) 81% 81% 79% 79%
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(1) The PCS Gas Plant processed an average of 127 MMcf per day of gross raw
gas at the inlet during the first quarter of 2014, against a current
licensed processing capacity of 150 MMcf per day.
(2) AECO natural gas spot price averaged $5.71 per Mcf and $3.20 per Mcf in
the first quarter of 2014 and first quarter of 2013, respectively.
(3) The increased operating expense per boe results from reduced third party
recoveries as a result of the January 2014 acquisition of a partner's
working interest in joint lands, offset by increased volumes of natural gas
processed through the PCS Gas Plant.
(4) Operating margin at the PCS Gas Plant is determined by dividing the
estimated operating netback by petroleum and natural gas revenue in the
period.
OPERATIONS UPDATE
Drilling
Birchcliff's 2014 drilling program is focused on our two proven resource plays,
the Montney/Doig Natural Gas Resource Play and the Worsley Charlie Lake Light
Oil Resource Play. During the first quarter of 2014, Birchcliff drilled 15 (15.0
net) wells, all 100% working interest, including 7 (7.0 net) natural gas wells,
and 8 (8.0 net) oil wells.
Wells drilled in the first quarter of 2014 include 7 (7.0 net) Montney/Doig
horizontal natural gas wells, 2 (2.0 net) Montney/Doig horizontal oil wells; 1
(1.0 net) Upper Doig horizontal oil well; and 5 (5.0 net) Charlie Lake
horizontal oil wells, all of which were completed utilizing multi-stage fracture
stimulation technology, and all of which were successful.
Birchcliff currently has two drilling rigs at work in the Pouce Coupe area,
drilling Montney/Doig horizontal natural gas wells through break-up on
multi-well pads. These rigs are designed for multi-well pad drilling and as a
result, have drilled over the break-up period. After break-up, two other rigs
will resume their drilling programs, one rig will be drilling Montney/Doig
horizontal wells in the Pouce Coupe area and the other rig will be drilling
Charlie Lake horizontal wells in the Worsley area.
Land
The Corporation has been strategically acquiring more land. We have continued to
expand our undeveloped land base and held 577,572 (549,083 net) acres at March
31, 2014, with a 95% average working interest. During the first quarter of 2014,
Birchcliff acquired 17,953 net acres of land, all in its core area of the Peace
River Arch of Alberta through Crown land sales and the purchase of third party
lands. Most of the land acquired in the first quarter of 2014 was on the
Montney/Doig Resource Play in the Pouce Coupe area. Key lands were acquired
through the strategic acquisition of a partner's 30% working interest in land
and production on the Montney/Doig Resource Play, giving Birchcliff 100%
interest in 38 sections of land. The other newly acquired lands on the
Montney/Doig Resource Play are contiguous with our existing land base and we
expect a significant amount of proved plus probable reserves and discovered
resources to be attributed to these newly acquired lands at year end.
Birchcliff's land base primarily consists of large contiguous blocks of high
working interest acreage located near facilities owned and/or operated by
Birchcliff or near third party infrastructure. This gives Birchcliff the
flexibility to optimize well layouts in order to maximize reservoir contact.
Seismic
Birchcliff believes seismic data, more specifically three dimensional ("3-D")
seismic data, is a key technical tool in the development of resource plays. A
high percentage of Birchcliff's drilling activities are supported by 3-D
seismic. In the first quarter of 2014 Birchcliff spent $5.4 million on 3-D
seismic, which included 74 square kilometers of new proprietary 3-D seismic; 27
square kilometers of new industry speculative 3-D seismic; and 308 square
kilometers of trade 3-D seismic. This geophysical data gives a much more refined
image of what the subsurface looks like, assisting in geological interpretations
to delineate reservoir distribution of our resource plays, and assisting in the
drilling of the horizontal wells.
Montney/Doig Natural Gas Resource Play
In the first quarter of 2014, Birchcliff drilled 7 (7.0 net) Montney/Doig
horizontal natural gas wells and 2 (2.0 net) Montney/Doig horizontal light oil
wells. Year-to-date Birchcliff has drilled 12 (12.0 net) Montney/Doig horizontal
natural gas wells and 2 (2.0 net) Montney/Doig horizontal light oil wells.
Birchcliff continues to expand the Montney/Doig Natural Gas Resource Play both
geographically and stratigraphically.
All seven Montney/Doig horizontal natural gas wells and the two Montney/Doig
horizontal light oil wells drilled in the first quarter of 2014 have been
brought on production. With respect to the Montney/Doig light oil wells,
Birchcliff has a modest development plan for the Montney/Doig light oil play,
but at this time we have only a limited number of follow-up locations with oil
potential in this area.
On our Montney/Doig Natural Gas Resource Play we are currently utilizing
multi-well pad drilling, allowing us to drill continuously right through spring
break-up. We are currently drilling on two multi-well pads where we are drilling
five horizontal natural gas wells on each.
To quantify our aggressive growth strategy for the Montney/Doig Resource Play,
in the first quarter of 2014, through landsales and acquisitions and removing
any expires, we added 12.8 net sections of land for the Basal Doig/Upper Montney
Play and 13.0 sections of land for the Middle/Lower Montney Play, for a total of
25.8 net sections to develop on the Montney/Doig Resource Play. These lands,
developed at four wells per section, per play, yields a total of 103.2 net
future locations.
At March 31, 2014, Birchcliff's total land holdings on the Middle/Lower Montney
Play and the Basal Doig/Upper Montney Play was 644.5 (615.7 net) sections. On
full development of four horizontal wells per section per play, at the end of
the first quarter of 2014 Birchcliff had 2,462.7 net horizontal existing wells
and future horizontal drilling locations. By subtracting the 126.9 net locations
drilled at the end of the first quarter of 2014, there remain 2,335.8 net future
horizontal drilling locations.
By definition, all of the new land on the play will contribute to our Total
Petroleum Initially In Place ("TPIIP") so we anticipate a significant increase
in TPIIP at year end. These newly acquired lands are proximal to our Pouce Coupe
development area so we expect a large percentage of the TPIIP to be categorized
as Discovered Petroleum Initially In Place.
Recently there have been some significant positive developments by industry on
the Montney/Doig Natural Gas Resource Play. One general area of development is
the increased exploration and commercialization of new stratigraphic intervals
within this play. We continue to evaluate additional new target intervals within
the Montney and Doig formations, to more fully define the potential of our
Montney/Doig Natural Gas Resource Play. We anticipate drilling our first
horizontal well in one of the new intervals by year end.
Worsley Charlie Lake Light Oil Resource Play
On the Worsley Charlie Lake Light Oil Resource Play, in the first quarter of
2014, Birchcliff drilled 5 (5.0 net) Charlie Lake horizontal oil wells,
utilizing multi-stage fracture stimulation technology.
With the continued success of the water flood on the Worsley Light Oil pool, we
are expanding the water flood area and are conducting the field operations
necessary to convert two more wells to injectors and will install associated
facility infrastructure.
SHAREHOLDER SUPPORT
We thank Mr. Seymour Schulich, our largest shareholder, for his ongoing
financial and moral support. Mr. Schulich did not blink when natural gas prices
hit $1.61 per GJ in September 2013, and in fact was even more supportive when
extremely low gas prices made life difficult at Birchcliff. Having a significant
shareholder with a long-term investment horizon is a significant reason why
Birchcliff is where it is today. Mr. Schulich holds 40 million common shares
representing 28.2% of the current issued and outstanding common shares.
OUTLOOK
Birchcliff has never had a brighter outlook than it has today. Our low cost
structure, our solid low decline production base together with higher commodity
prices has positioned us to accelerate our growth while improving our balance
sheet.
I would like to summarize our current and future outlook as set out below:
1. Birchcliff is on track to achieve record annual average production of
approximately 34,000 boe per day for 2014, representing 32% growth over
the annual average of 25,829 boe per day in 2013.
2. We currently forecast fourth quarter average production to be
approximately 38,000 boe per day. We maintain our previously announced
exit production rate guidance of 37,500 to 39,500 boe per day.
3. Estimated 2014 cash flow is approximately $331 million or $2.30 per
common share, based on estimated annual production of 34,000 boe per
day, an AECO natural gas price of $4.50 per GJ and WTI oil price of US
$95.00 per bbl from April 1 through December 31, 2014, and based on
basic weighted average common shares outstanding in the first quarter of
144,026,125.
4. We have just had record first quarter cash flow and earnings while
continuing to reduce our cash costs per boe. We expect to fund our 2014
budgeted capital expenditure program of $291 million (excluding
acquisitions), wholly out of internally generated cash flow.
5. Funding our significant production growth out of our material cash flow
has significantly improved our debt ratios, bringing them in line with
or ahead of some of our peers.
6. We successfully purchased our partner out of the Pouce Coupe area,
giving us 100% working interests in the heart of Pouce Coupe.
7. We are on schedule and on budget with the PCS Gas Plant Phase IV
expansion to 180 MMcf per day of processing capacity, setting up for
material production growth in the fourth quarter of 2014.
8. At March 31, 2014, Birchcliff's total land holdings on the Middle/Lower
Montney Play and the Basal Doig/Upper Montney Play was 644.5 (615.7 net)
sections. On full development of four horizontal wells per section per
play, less the horizontal wells drilled to March 31, 2014, there remain
2,335.8 net future horizontal drilling locations.
9. To date we have drilled 132 (131.9 net) Montney/Doig horizontal natural
gas wells, all the while focusing on reducing costs and increasing our
knowledge and expertise on the play.
10. We believe that we have further exploration drilling opportunities on
both our Montney/Doig Natural Gas Resource Play and our Worsley Charlie
Lake Light Oil Resource Play, which may provide significant and material
increases to our future drilling opportunities.
11. Natural gas prices look to be strong for the foreseeable future. With
approximately 60% of our natural gas unhedged this summer, and totally
unhedged beyond this summer, Birchcliff looks to benefit significantly
from these high prices.
Birchcliff expects to receive approximately $50 million in proceeds from the
exercise of $8.30 Warrants before their expiry on August 8, 2014. It is our
expectation that in August 2014, Birchcliff will increase its capital budget by
at least $50 million. We expect to announce the details of this budget increase
with our second quarter results on August 13, 2014 at the close of markets. With
strong natural gas prices and growing cash flow, we expect to continue to
reinvest our cash flow and the proceeds from the exercise of the warrants, which
will result in very strong year-end production growth and position Birchcliff
for strong growth in 2015.
Our business worked very well and was profitable at low commodity prices. In
2013, we did not issue equity and dilute our shareholders when commodity prices
were weak, we chose to carry more debt, yet we still had top decile production,
cash flow and earnings growth. With strong natural gas prices and material cash
flow growth, we intend to grow as quickly as we prudently can. We will take
advantage of our approximately 2,335 net future Montney/Doig drilling locations
and our 100% owned infrastructure, which gives us the ability to speed up and
slow down capital expenditures. In 2014, we expect to fund our $291 million
capital program (excluding acquisitions) wholly out of internally generated cash
flow.
It's show time and we are ready to go.
On behalf of our Management Team and Directors, thank you to the Birchcliff
staff for their continued loyalty, dedication and continued hard work to help us
achieve our corporate goals.
(signed) "A. Jeffery Tonken"
A. Jeffery Tonken, President and Chief Executive Officer
ADVISORIES
Unaudited Numbers: All financial amounts referred to in this Press Release for
the three month period ended March 31, 2014 are management's best estimates and
are unaudited.
Non-GAAP Measures: This Press Release uses "funds flow", "funds flow from
operations", "funds flow netback", "funds flow per common share", "netback",
"operating netback", "estimated operating netback" and "operating margin", which
do not have standardized meanings prescribed by generally accepted accounting
principles ("GAAP") and therefore may not be comparable measures to other
companies where similar terminology is used. Netback or operating netback
denotes petroleum and natural gas revenue less royalties, less operating
expenses and less transportation and marketing expenses. Operating costs at the
PCS Gas Plant are calculated on a production month basis. Estimated operating
netback of the PCS Gas Plant (and the components thereof) is based upon certain
cost allocations and accruals directly related to the PCS Gas Plant and the
related wells and infrastructure, calculated on a production month basis. Funds
flow, funds flow netback or funds flow from operations denotes cash flow from
operating activities as it appears on the Corporation's Condensed Statements of
Cash Flows before decommissioning expenditures and changes in non-cash working
capital. Funds flow, funds flow netback or funds flow from operations is derived
from net income plus income tax expense, depletion and depreciation expense,
accretion expense, stock-based compensation expense, amortization of deferred
financing fees and gains on divestitures. Funds flow per common share denotes
funds flow divided by the weighted average number of common shares. Operating
margin is calculated by dividing the estimated operating netback for the period
by the petroleum and natural gas revenue for the period.
Boe Conversions: Barrel of oil equivalent ("boe") amounts have been calculated
by using the conversion ratio of six thousand cubic feet (6 Mcf) of natural gas
to one barrel of oil (1 bbl). Boe amounts may be misleading, particularly if
used in isolation. A boe conversion ratio of 6 Mcf to 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.
Mcfe, MMcfe, Bcfe and Tcfe Conversions: Thousands of cubic feet of gas
equivalent ("Mcfe"), millions of cubic feet of gas equivalent ("MMcfe"),
billions of cubic feet of gas equivalent ("Bcfe") and trillions of cubic feet of
gas equivalent ("Tcfe") amounts have been calculated by using the conversion
ratio of one barrel of oil (1 bbl) to six thousand cubic feet (6 Mcf) of natural
gas. Mcfe, MMcfe, Bcfe and Tcfe amounts may be misleading, particularly if used
in isolation. A conversion ratio of 1 bbl to 6 Mcf is based on an energy
equivalency conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead.
Forward-Looking Information: This Press Release contains forward-looking
information within the meaning of applicable Canadian securities laws.
Forward-looking information relates to future events or future performance and
is based upon the Corporation's current internal expectations, estimates,
projections, assumptions and beliefs. All information other than historical fact
is forward-looking information. Words such as "plan", "expect", "project",
"intend", "believe", "anticipate", "estimate", "forecast", "may", "will",
"potential", "proposed" and other similar words that convey certain events or
conditions "may" or "will" occur are intended to identify forward-looking
information. In particular, this Press Release contains forward-looking
information relating to estimated annual and average production for 2014;
planned exit production increases; planned 2014 capital spending and sources of
funding; anticipated reduction of operating costs on a per boe basis; the
intention to drill and complete future wells; an expansion of the PCS Gas Plant;
and expected future reserves and resource additions.
The forward-looking information is based upon assumptions as to future commodity
prices, currency exchange rates, inflation rates, well production rates, well
drainage areas, success rates for future drilling and availability of labour and
services. With respect to numbers of future wells to be drilled, a key
assumption is that geological and other technical interpretations performed by
the Corporation's technical staff, which indicate that commercially economic
volumes can be recovered from the Corporation's lands as a result of drilling
future wells, are valid. Estimates as to 2014 exit production rates assume that
no unexpected outages occur in the infrastructure that the Corporation relies on
to produce its wells, that existing wells continue to meet production
expectations and any future wells, scheduled to come on production in 2014, meet
timing and production expectations.
Undue reliance should not be placed on forward-looking information, as there can
be no assurance that the plans, intentions or expectations upon which they are
based will occur. Although the Corporation 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. As a consequence,
actual results may differ materially from those anticipated.
Forward-looking information necessarily involves both known and unknown risks
associated with oil and gas exploration, production, transportation and
marketing such as uncertainty of geological and technical data, imprecision of
reserves and resource estimates, operational risks, environmental risks, loss of
market demand, general economic conditions affecting ability to access
sufficient capital, changes in governmental regulation of the oil and gas
industry and competition from others for scarce resources.
The foregoing list of risk factors is not exhaustive. Additional information on
these and other risk factors that could affect operations or financial results
are included in the Corporation's most recent Annual Information Form and in
other reports filed with Canadian securities regulatory authorities.
Forward-looking information is based on estimates and opinions of management at
the time the information is presented. The Corporation is not under any duty to
update the forward-looking information after the date of this Press Release to
conform such information to actual results or to changes in the Corporation's
plans or expectations, except as otherwise required by applicable securities
laws.
Birchcliff is a Calgary, Alberta based intermediate oil and gas company with
operations concentrated within its one core area, the Peace River Arch of
Alberta. Birchcliff's Common Shares; Cumulative Redeemable Preferred Shares,
Series A; Cumulative Redeemable Preferred Shares, Series C and Warrants are
listed for trading on the Toronto Stock Exchange under the symbols "BIR",
"BIR.PR.A", "BIR.PR.C" and "BIR.WT", respectively.
FOR FURTHER INFORMATION PLEASE CONTACT:
Birchcliff Energy Ltd.
Jeff Tonken
President and Chief Executive Officer
(403) 261-6401
Birchcliff Energy Ltd.
Bruno Geremia
Vice-President and Chief Financial Officer
(403) 261-6401
Birchcliff Energy Ltd.
Jim Surbey
Vice-President, Corporate Development
(403) 261-6401
(403) 261-6424 (FAX)
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