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| Name | Symbol | Market | Type |
|---|---|---|---|
| Birchcliff Energy Ltd | TSX:BIR.PR.A | Toronto | Preference Share |
| Price Change | % Change | Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 24.96 | 24.94 | 25.10 | 0 | 00:00:00 |
Hot Features
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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 its 2013
fourth quarter and 2013 year-end unaudited financial and operational results;
provide highlights from its 2013 independent Reserves Evaluation and from its
2013 independent Montney/Doig Natural Gas Resource Assessment; announce its 2014
capital budget and provide an operational update. All financial amounts referred
to in this press release are management's best estimates and information from
the year-end financial statements has not yet been audited.
We are pleased to report that Birchcliff has achieved record production, funds
flow and net earnings; reduced operating costs; added a significant amount of
undeveloped land in its core area; and added material reserves and resources.
Current production is approximately 33,000 boe per day. To date in 2014,
Birchcliff has produced an average of approximately 31,400 boe per day.
Birchcliff is receiving high natural gas prices for its current production as it
is unhedged for the winter months of 2014.
PRESS RELEASE HIGHLIGHTS
2013 Fourth Quarter Results
-- Fourth quarter production averaged 28,391 boe per day, a 15.1% increase
over production of 24,662 boe per day in the third quarter of 2013 and a
6.5% increase from 26,655 boe per day in the fourth quarter of 2012.
-- Record quarterly funds flow of $50.1 million, a 16.3% increase from the
third quarter of 2013 and a 25.6% increase from the fourth quarter of
2012.
-- Net income of $37.1 million in the fourth quarter of 2013, a 265%
increase from the third quarter of 2013 and a 488% increase from the
fourth quarter of 2012. Excluding the impact of the sale of assets in
the fourth quarter, Birchcliff had net income of $11.8 million in the
fourth quarter of 2013.
-- Operating costs of $5.44 per boe, down 3.9% from $5.66 per boe in the
third quarter of 2013 and down 7.5% from $5.88 per boe in the fourth
quarter of 2012.
-- $54.7 million strategic disposition, net of adjustments, of
predominately non-operated, low working interest, non-core assets in the
Progress area of Alberta.
-- Capital expenditures in the fourth quarter of $73.0 million, $18.2
million net of dispositions.
-- Drilled 12 (11.5 net) wells in the fourth quarter of 2013, comprising of
7 (7.0 net) Montney/Doig horizontal natural gas wells, 4 (4.0 net)
Charlie Lake horizontal oil wells and 1 (0.5 net) Halfway horizontal oil
well, all of which were successful.
2013 Year-End Financial and Operational Results
-- 2013 average production of 25,829 boe per day, a 13.3% increase over
2012 average production of 22,802 boe per day.
-- Record funds flow of $174.4 million or $1.22 per basic share, a 45.0%
increase from 2012.
-- Net income of $65.4 million, a 396% increase from $13.2 million in 2012.
Net income in 2013, excluding the impact of the sale of assets, was
$40.1 million.
-- Long-term bank debt of $394 million against available lines of credit of
approximately $600 million. Total year-end debt, including working
capital deficiency of $60 million, was $454 million.
-- Operating costs of $5.68 per boe, down 6.3% from $6.06 per boe in 2012.
-- General and administrative costs of $2.19 per boe, down 20.4% from $2.75
per boe in 2012.
-- Top tier operating performance at Pouce Coupe South Natural Gas Plant
("PCS Gas Plant"). From the AECO natural gas price averaging $3.17 per
Mcf during 2013 Birchcliff realized $3.77 per Mcfe, resulting in an
operating netback of $2.99 per Mcfe for natural gas processed at the PCS
Gas Plant.
-- Capital expenditures in 2013 was $270.1 million, $215.8 million net of
dispositions.
-- Drilled a total of 43 (41.67 net) wells in 2013, consisting of:
-- 26 (26.0 net) wells on our Montney/Doig Natural Gas Resource Play,
including 25 (25.0 net) horizontal natural gas wells and 1 (1.0 net)
vertical exploration well;
-- 13 (13.0 net) wells on our Worsley Charlie Lake Light Oil Resource
Play, all of which were horizontal wells; and
-- 4 (2.67 net) wells on our Halfway Light Oil Play, all of which were
horizontal wells.
-- Undeveloped land base of 576,893 (544,917 net) acres at December 31,
2013, up from 544,129 (506,024 net) acres at December 31, 2012, with a
94% average working interest.
-- Added 90,645.3 (90,325.3 net) acres or 141.3 (141.1 net) sections of
undeveloped land in 2013, substantially all at 100% working interest,
and all within Birchcliff's core area of the Peace River Arch of
Alberta.
2013 Independent Reserves Evaluation
-- Proved plus probable reserves of 370.1 MMboe, a 16.5% increase from
December 31, 2012. Added 6.9 boe of proved plus probable reserves for
each boe that was produced and sold in 2013.
-- Proved reserves of 220.0 MMboe, an 18.3% increase from December 31,
2012.
-- Proved developed producing reserves of 62.0 MMboe, a 13.6% increase.
This a net increase of 7.4 MMboe from 54.6 MMboe at December 31, 2012.
-- After taking into account 2013 production of 9.4 MMboe and 2013
dispositions of 1.1 MMboe, Birchcliff added 17.9 MMboe of proved
developed producing reserves, which is 32.9% of Birchcliff's proved
developed producing reserves at December 31, 2012.
-- Increased potential net future Montney/Doig horizontal natural gas well
drilling locations to 2,254 at December 31, 2013, up from 1,929 at
December 31, 2012, as a result of land acquisitions and drilling.
2013 Finding and Development Costs and Recycle Ratios
-- Finding, development and acquisition ("FD&A") costs on a proved plus
probable basis of $3.46 per boe, excluding future development capital
and $8.60 per boe, including future development capital.
-- Operating netback recycle ratio of 6.5 and funds flow netback recycle
ratio of 5.3, in each case excluding future development costs, based on
finding, development and acquisition costs and proved plus probable
reserves.
2013 Independent Montney/Doig Natural Gas Resource Assessment
-- Assessment of Birchcliff's land that have potential for the Montney/Doig
Natural Gas Resource Play. On a best estimate basis, reflecting
Birchcliff's working interest:
-- Total petroleum initially-in-place of 52.0 Tcfe, a 31% increase from
December 31, 2012;
-- Prospective resources of 15.8 Tcfe, a 22% increase from December 31,
2012; and
-- Contingent resources of 6.5 Tcfe, a 35% increase from December 31,
2012.
2014 Budget and Guidance
-- 2014 capital budget of $347.1 million (including $56.1 million for
acquisitions), with plans to drill 40 (39.5 net) wells.
-- 2014 exit production expected to be between 37,500 and 39,500 boe per
day, ahead of the 2014 exit estimate in our current 2018 Five Year Plan.
2014 Production and Operational Update
-- Current production is approximately 33,000 boe per day. To date in 2014,
Birchcliff has produced an average of approximately 31,400 boe per day
(83% natural gas and 17% crude oil and natural gas liquids).
-- Drilling results to date of 6 (6.0 net) successful wells, consisting of
4 (4.0 net) Montney/Doig horizontal natural gas wells in the Pouce Coupe
area and 2 (2.0 net) Charlie Lake horizontal light oil wells in the
Worsley area.
-- Four drilling rigs currently working: three in the Pouce Coupe area
drilling Montney/Doig horizontal wells and one in the Worsley area
drilling Charlie Lake horizontal wells.
-- Birchcliff is receiving high natural gas prices for its current
production as it is unhedged for the winter months of 2014. Birchcliff
has a hedging program in place for the 2014 summer months only, as
detailed below.
-- Initiated a hedging program in 2014, with Birchcliff contracting forward
physical sales of 65,000 GJ's per day, representing 35% of its estimated
gas volumes during the summer months, April 1 to October 31, 2014, for
approximately $4.24 per Mcf (up from information contained in
Birchcliff's January 15, 2014 press release) and WTI put options for
1,000 barrels per day of crude oil for the calendar year 2014, 500
barrels per day with a strike price of US $90 and 500 barrels per day
with a strike price of US $85.
2014 Strategic Acquisition
-- Strategic acquisition completed on January 15, 2014, purchasing a
partner's 30% working interest in Montney/Doig Resource Play lands and
production in the Pouce Coupe area, giving Birchcliff a 100% working
interest in 38 sections of land. Approximately 9.6 MMcfe (1,600 boe per
day) of production was acquired, the majority of which goes to
Birchcliff's PCS Gas Plant.
2013 FINANCIAL AND OPERATIONAL HIGHLIGHTS
Three months ended Twelve months ended
December 31, December 31,
----------------------------------------------------
2013 2012 2013 (1) 2012
----------------------------------------------------------------------------
OPERATING
Average daily production
Light oil - (barrels) 4,227 3,986 4,030 4,270
Natural gas -
(thousands of cubic
feet) 138,132 131,120 125,712 106,868
NGLs - (barrels) 1,142 816 847 721
Total - barrels of oil
equivalent (6:1) 28,391 26,655 25,829 22,802
----------------------------------------------------------------------------
Average sales price ($
CDN)
Light oil - (per
barrel) 81.52 83.38 89.89 84.45
Natural gas - (per
thousand cubic feet) 3.81 3.43 3.41 2.63
NGLs - (per barrel) 85.45 80.44 88.45 83.78
Total - barrels of oil
equivalent(6:1) 34.10 31.78 33.52 30.80
----------------------------------------------------------------------------
----------------------------------------------------------------------------
NETBACK AND COST ($ per
barrel of oil
equivalent at 6:1)
Petroleum and natural
gas revenue 34.11 31.81 33.59 30.82
Royalty expense (2.68) (2.52) (2.92) (2.90)
Operating expense (5.44) (5.88) (5.68) (6.06)
Transportation and
marketing expense (2.52) (2.09) (2.46) (2.28)
----------------------------------------------------------------------------
Netback 23.47 21.32 22.53 19.58
General &
administrative
expense, net (2.54) (2.66) (2.19) (2.75)
Interest expense (1.77) (2.41) (2.28) (2.42)
Other income - - 0.44 -
----------------------------------------------------------------------------
Funds flow netback 19.16 16.25 18.50 14.41
Stock-based
compensation expense,
net (0.37) (0.41) (0.43) (0.60)
Depletion and
depreciation expense (11.70) (11.75) (11.54) (11.48)
Accretion expense (0.24) (0.18) (0.23) (0.21)
Amortization of
deferred financing
fees (0.10) (0.08) (0.09) (0.09)
Gain on sale of assets 12.93 - 3.58 0.46
Unrealized loss on
financial instruments (0.15) - (0.04) -
Dividends on preferred
shares, Series C (0.33) - (0.20) -
Income tax expense (5.01) (1.26) (2.61) (0.91)
----------------------------------------------------------------------------
Net income 14.19 2.57 6.94 1.58
Dividends on preferred
shares, Series A (0.38) (0.41) (0.43) (0.19)
----------------------------------------------------------------------------
Net income to common
shareholders 13.81 2.16 6.51 1.39
----------------------------------------------------------------------------
----------------------------------------------------------------------------
FINANCIAL
Petroleum and natural
gas revenue ($000's) 89,092 78,001 316,637 257,206
----------------------------------------------------------------------------
Funds flow from
operations ($000's)(2) 50,060 39,848 174,361 120,259
Per common share -
basic ($)(2) 0.35 0.28 1.22 0.88
Per common share -
diluted ($)(2) 0.34 0.28 1.20 0.86
----------------------------------------------------------------------------
Net income ($000's) 37,062 6,305 65,417 13,196
Net income to common
shareholders
($000's)(3) 36,062 5,305 61,417 11,617
Per common share -
basic ($)(3) 0.25 0.04 0.43 0.08
Per common share -
diluted ($)(3) 0.25 0.04 0.42 0.08
----------------------------------------------------------------------------
Common shares
outstanding
End of period - basic 143,676,661 141,596,279 143,676,661 141,596,279
End of period -
diluted 163,547,913 162,997,383 163,547,913 162,997,383
Weighted average
common shares for
period - basic 143,062,664 141,585,180 142,421,939 137,083,519
Weighted average
common shares for
period - diluted 145,319,288 144,238,774 145,006,118 139,904,484
----------------------------------------------------------------------------
Dividends on preferred
shares, Series A
($000's) 1,000 1,000 4,000 1,579
Dividends on preferred
shares, Series C
($000's) 875 - 1,913 -
Capital expenditures,
net ($000's) 18,188 32,137 215,770 298,903
----------------------------------------------------------------------------
Long-term bank debt
($000's) 393,967 432,563 393,967 432,563
Working capital deficit
($000's)(4) 60,071 29,567 60,071 29,567
Total debt ($000's) 454,038 462,130 454,038 462,130
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) The financial statements have not yet been audited.
(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
preferred shares, Series A. 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 commodity price risk management contracts.
2013 FOURTH QUARTER RESULTS
Fourth quarter production averaged 28,391 boe per day, which is a 15.1% increase
over production of 24,662 boe per day in the third quarter of 2013 and a 6.5%
increase from 26,655 boe per day in the fourth quarter of 2012.
Funds flow was $50.1 million, which is a 16.3% increase from $43.1 million in
the third quarter of 2013 and a 25.6% increase from $39.8 million the fourth
quarter of 2012.
Net income available to common shareholders increased to $36.1 million in the
fourth quarter of 2013 as compared to $9.2 million in the third quarter of 2013
and $5.3 million in the fourth quarter of 2012. Excluding the gain from the sale
of assets, Birchcliff had net income available to common shareholders of $10.8
million in the fourth quarter of 2013.
Operating costs per boe (excluding transportation and marketing costs) were
$5.44 per boe, down 3.9% from $5.66 per boe in the third quarter of 2013 and
down 7.5% from $5.88 per boe in the fourth quarter of 2012. This reduction in
operating costs on a per boe basis was largely due to the cost benefits achieved
from processing increased volumes of natural gas through the PCS Gas Plant and
implementation of various optimization initiatives.
In November 2013, Birchcliff made a strategic disposition of non-core assets in
the Progress area for $54.7 million, net of adjustments. The transaction
included approximately 520 boe per day of Doe Creek light oil production, 2.7
million boe of proved reserves and 4.5 million boe of proved plus probable
reserves. This transaction resulted in a financial gain of $33.8 million, $25.3
million net of tax.
Capital expenditures in the fourth quarter were $73.0 million, $18.2 million net
of dispositions.
Drilling activities during the fourth quarter of 2013 resulted in 12 (11.5 net)
wells, being 7 (7.0 net) natural gas wells and 5 (4.5 net) oil wells. The seven
natural gas wells were all Montney/Doig horizontal natural gas wells. The oil
wells included 4 (4.0 net) Charlie Lake horizontal light oil wells and 1 (0.5
net) Halfway horizontal light oil well. All the horizontal wells drilled in the
fourth quarter of 2013 utilized the latest advancements in multi-stage fracture
stimulation technology.
2013 YEAR-END FINANCIAL AND OPERATIONAL RESULTS
All financial and operating information in this press release for the year ended
December 31, 2013 is based on the estimated, unaudited financial statements.
These estimated amounts may change upon the completion of audited financial
statements, which are scheduled to be released on March 12, 2014.
2013 Production
Production in 2013 averaged 25,829 boe per day, which is a 13.3% increase over
2012 average production of 22,802 boe per day. Production per common share
increased 9.0% from 2012. This increase was achieved through the success of
Birchcliff's capital drilling program and increased incremental production from
new horizontal natural gas wells on the Montney/Doig Natural Gas Resource Play
that are processed through Birchcliff's PCS Gas Plant.
Production consisted of approximately 81% natural gas and 19% crude oil and
natural gas liquids in 2013. Approximately 73% of Birchcliff's natural gas
production and 61% of corporate production was processed at the PCS Gas Plant
during 2013.
2013 Funds Flow and Earnings
2013 funds flow was approximately $174.4 million or $1.22 per common share, a
45.0% increase from 2012. This increase was a result of increased natural gas
production, the 32.6% increase in the average AECO natural gas spot price from
$2.39 per Mcf in 2012 to $3.17 per Mcf in 2013 and lower operating costs on a
per unit basis.
Birchcliff recorded net income available to common shareholders of $61.4 million
or $0.43 per common share in 2013 as compared to $11.6 million or $0.08 per
common share in 2012. This was a 429% increase in net income from 2012. Net
income available to common shareholders in 2013, excluding the impact of the
sale of assets, was $36.1 million.
2013 Debt and Capitalization
At December 31, 2013, Birchcliff's long-term bank debt was $394 million from
available credit facilities of approximately $600 million. Total debt, including
the working capital deficit of $60 million, was $454 million, as compared to
$462 million at December 31, 2012.
Birchcliff expects that as a result of significant reserve additions in 2013,
its bank credit facilities will be increased during its normal credit review in
May 2014.
At December 31, 2013, Birchcliff had 143,676,661 basic common shares outstanding.
2013 Operating and G&A Costs
Operating costs in 2013 were $5.68 per boe, down 6.3% from $6.06 per boe in
2012. This reduction of operating costs on a per boe basis was largely due to
the cost benefits achieved from processing increased volumes of natural gas
through the PCS Gas Plant and implementation of various optimization
initiatives.
General and administrative expenses of $2.19 per boe were down 20.4% from $2.75
per boe in 2012 and the Corporation expects this trend to continue as Birchcliff
increases production without having to add significant additional resources.
2013 Capital Expenditure
During the year ended December 31, 2013, Birchcliff had capital expenditures of
$270.1 million, $215.8 million net of dispositions. Capital expenditures in 2013
were $23.5 million above Birchcliff's budgeted capital program of $246.6
million, with the expanded portion of the budget primarily directed toward
strategic land sale purchases in the fourth quarter and the drilling of
additional wells in late 2013, which kept our drilling rigs working until year
end. These additional wells were brought on production early in the first
quarter of 2014.
2013 PCS Gas Plant Netbacks
Processing increased volumes of natural gas at the PCS Gas Plant has materially
improved Birchcliff's funds flow and net earnings. In 2013, net operating costs
for natural gas processed at the PCS Gas Plant was $0.37 per Mcfe ($2.24 per
boe) and the estimated operating netback was $2.99 per Mcfe ($17.92 per boe).
The following table details Birchcliff's annual net production and operating
netback for wells producing to the PCS Gas Plant, on a production month basis.
Production Processed through the
PCS Gas Plant Twelve months ended Twelve months ended
December 31, 2013(1) December 31, 2012
----------------------------------------------------------------------------
Average daily production, net to
Birchcliff:
Natural gas (Mcf) 91,666 59,327
Oil & NGLs (bbls) 527 204
----------------------------------------------------------------------------
Total boe (6:1) 15,805 10,092
----------------------------------------------------------------------------
Percentage of corporate natural
gas production 73% 56%
Percentage of corporate
production 61% 44%
Netback and cost: $/Mcfe $/boe $/Mcfe $/boe
Petroleum and natural gas
revenue(2) 3.77 22.64 2.91 17.44
Royalty expense (0.16) (0.93) (0.11) (0.67)
Operating expense, net of
recoveries (0.37) (2.24) (0.35) (2.08)
Transportation and marketing
expense (0.25) (1.55) (0.23) (1.37)
----------------------------------------------------------------------------
Estimated operating netback 2.99 17.92 2.22 13.32
----------------------------------------------------------------------------
Operating margin(3) 79% 79% 76% 76%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) The PCS Gas Plant processed an average of 109 MMcf per day of gross raw
gas at the inlet in 2013, against a licensed inlet capacity of 150 MMcf
per day at December 31, 2013.
(2) AECO natural gas price averaged $3.17 per Mcf and $2.39 per Mcf during
2013 and 2012, respectively.
(3) Operating margin at the PCS Gas Plant is determined by dividing the
estimated operating netback by petroleum and natural gas revenue in the
period.
As illustrated in the table below, after Birchcliff began processing natural gas
at the PCS Gas Plant in early 2010, total corporate operating costs on a per boe
basis have trended downward as increasing production volumes have been processed
at the PCS Gas Plant:
To view table, Corporate Operating Costs per Boe vs. % of Total Natural Gas
Sales Volumes Processed at the PCS Gas Plant, please visit the following link:
http://media3.marketwire.com/docs/927011i.pdf
2013 Drilling Program
Birchcliff's 2013 drilling program was focused on our two proven resource plays,
the Montney/Doig Natural Gas Resource Play and the Worsley Charlie Lake Light
Oil Resource Play. Birchcliff actively employs the evolving technology utilized
by leaders in the industry regarding horizontal well drilling and the related
multi-stage fracture stimulation technology.
During 2013, Birchcliff drilled 43 (41.67 net) wells, consisting of 26 (26.0
net) natural gas wells and 17 (15.67 net) oil wells. The natural gas wells
included 25 (25.0 net) Montney/Doig horizontal wells and 1 (1.0 net)
Montney/Doig vertical exploration well. The oil wells included 13 (13.0 net)
Worsley Charlie Lake horizontal light oil wells and 4 (2.67 net) Halfway
horizontal light oil wells. All horizontal wells drilled in 2013 utilized the
latest advancements in multi-stage fracture stimulation technology.
2013 Land
Birchcliff's undeveloped land base at December 31, 2013 was 576,893 (544,917
net) acres, up from 544,129 (506,024 net) acres at December 31, 2012, with a 94%
average working interest.
During 2013, Birchcliff added 90,645.3 (90,325.3 net) acres, or 141.6 (141.1
net) sections of undeveloped land, substantially all at 100% working interest,
and all in Birchcliff's core area of the Peace River Arch of Alberta. The
undeveloped land acquired during 2013 includes 12.5 (12.5 net) sections right in
the middle of our Pouce Coupe development area, as well as 33 (33.0 net)
sections in the Elmworth/Sinclair area where Birchcliff is planning further
drilling to delineate the Montney/Doig Natural Gas Resource Play.
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. Substantially all of the new land
has been purchased without partners at 100% working interest.
Birchcliff continued to strategically add lands on resource plays during 2013.
The following table summarizes Birchcliff's land holdings on resource plays at
December 31, 2013.
-----------------------------------------
Resource Play Land Holdings December 31, 2013
Working Gross Net
Interest (acres) (acres)
----------------------------------------------------------------------------
Middle/Lower Montney Play 93.3% 209,920 195,821
Basal Doig/Upper Montney Play 92.4% 196,640 181,715
Worsley Charlie Lake Light Oil Play 98.7% 125,280 123,610
Duvernay Play 99.8% 168,320 167,936
Nordegg Play 85.8% 432,960 371,571
Banff/Exshaw Play 99.3% 447,360 443,669
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2013 INDEPENDENT RESERVES EVALUATION
Deloitte LLP ("Deloitte"), independent qualified reserves evaluators of Calgary,
Alberta, prepared a Reserves Estimation and Economic Evaluation effective
December 31, 2013 in respect of Birchcliff's oil and natural gas properties,
which is contained in a report dated February 5, 2014 (the "2013 Reserves
Evaluation"). Deloitte also prepared reserves estimations and economic
evaluations effective December 31, 2012 (the "2012 Reserves Evaluation") and
December 31, 2011. Reserves estimates stated herein as at December 31, 2013,
2012 and 2011 are extracted from the relevant evaluation. The 2013 Reserves
Evaluation and the prior reserves evaluations have been prepared in accordance
with the standards contained in the Canadian Oil and Gas Evaluation Handbook
("COGE Handbook") and National Instrument 51-101 - Standards of Disclosure for
Oil and Gas Activities ("NI 51-101").
At December 31, 2013, Deloitte estimated that Birchcliff had 370.1 MMboe of
proved plus probable reserves and 220.0 MMboe of proved reserves. Birchcliff's
proved plus probable reserves are comprised of 86.5% natural gas and 13.5% light
oil and natural gas liquids.
Reserves Summary
The following table summarizes Deloitte's estimates of Birchcliff's working
interest oil and natural gas reserves at December 31, 2013 and December 31,
2012, using the Deloitte forecast price assumptions in effect at the applicable
reserves evaluation date.
---------------------------------------
Summary of Oil and Natural Gas Dec 31, 2013 Dec 31, 2012 Change from
Reserves(1) (MMboe) (MMboe) Dec 31, 2012
----------------------------------------------------------------------------
Proved Developed Producing 62.0 54.6 +13.6%
----------------------------------------------------------------------------
Total Proved 220.0 186.0 +18.3%
----------------------------------------------------------------------------
Probable 150.0 131.8 +13.8%
----------------------------------------------------------------------------
Total Proved Plus Probable 370.1 317.8 +16.5%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Numbers may not total due to rounding
Net Present Value of Future Net Revenue
The following table is a summary of the net present value of future net revenue
associated with Birchcliff's reserves at December 31, 2013 before deducting
future income tax expense, and calculated at various discount rates. The net
present value of future net revenue attributable to the Corporation's reserves
is based on Deloitte's December 31, 2013 forecast price assumptions of commodity
prices, which can be found at http://www.ajmpc.com/price-forecasts.html.
Net Present Value of Future Net Revenue Before Income Taxes(1)(2)(3)
Discounted At
(Forecast Prices and
Costs)(MM$)(per year) 0% 5% 8% 10% 15% 20%
----------------------------------------------------------------------------
Proved
Developed Producing 1,643.7 1,220.0 1,057.3 972.2 813.3 703.9
Developed Non-producing 255.5 188.6 161.8 147.5 120.1 101.0
Undeveloped 3,175.8 1,725.2 1,220.5 971.9 544.0 284.0
----------------------------------------------------------------------------
Total Proved 5,074.9 3,133.8 2,439.6 2,091.5 1,477.5 1,088.9
----------------------------------------------------------------------------
Probable 4,920.2 2,191.2 1,437.3 1,106.8 606.7 350.2
----------------------------------------------------------------------------
Total Proved Plus Probable 9,995.2 5,325.0 3,876.9 3,198.3 2,084.1 1,439.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Estimates of future net revenue, whether discounted or not, do not
represent fair market value.
(2) Future net revenue is after deduction of estimated costs of abandonment
of existing and future wells and reclamation of future wells and does
not include costs of abandonment of facilities, reclamation of
facilities and reclamation of existing wells.
(3) Numbers may not total due to rounding.
The natural gas price forecast used by Deloitte in the 2013 Reserves Evaluation
for the years 2014 through 2018 is approximately $0.26 per MMbtu lower than the
forecast used by Deloitte for the same period in its 2012 Reserves Evaluation.
Notwithstanding the natural gas price forecast for these years decreased by 6%,
the net present value of the proved developed producing reserves (at a 10%
discount rate) increased by 17.2% as a result of increased reserves volumes,
increased oil prices and reduced operating costs recognized in the 2013 Reserves
Evaluation.
From the 2013 Reserves Evaluation to the 2012 Reserves Evaluation, Birchcliff had:
-- 190% reserve replacement on a proved developed producing basis.
Birchcliff added 1.90 boe of proved developed producing reserves for
each boe that was produced and sold during the year (calculated by
dividing 2013 proved developed producing reserves additions before
production, acquisition and dispositions by total production in 2013).
-- 486% reserve replacement on a proved basis. Birchcliff added 4.86 boe of
proved reserves for each boe that was produced or sold during the year
(calculated by dividing 2013 proved reserves additions before
production, acquisition and dispositions by total production in 2013).
-- 692% reserve replacement on a proved plus probable basis. Birchcliff
added 6.92 boe of proved plus probable reserves for each boe that was
produced or sold during the year (calculated by dividing 2013 proved
plus probable reserves additions before production, acquisition and
dispositions by total production in 2013).
Reserves on the Montney/Doig Natural Gas Resource Play
Deloitte estimated at December 31, 2013, Birchcliff had 319.2 MMboe of proved
plus probable reserves attributed to horizontal wells on the Montney/Doig
Natural Gas Resource Play. This is an increase of 20% from 266.8 MMboe proved
plus probable reserves attributed to horizontal wells on the Montney/Doig
Natural Gas Resource Play at December 31, 2012.
The following tables summarize Deloitte's estimates of reserves attributable to
Birchcliff's horizontal wells on the Montney/Doig Natural Gas Resource Play, the
number of horizontal wells to which reserves were attributed and the future
capital associated with such reserves.
Montney/Doig Natural Gas Resource Play Reserves Data(1)
------------------------------------------------------------
Oil and Natural Gas
Natural Gas Liquids Total
(Bcf) (Mbbl) (Mboe)
------------------------------------------------------------
2013 2012 2013 2012 2013 2012
----------------------------------------------------------------------------
Proved Developed
Producing 291.6 241.0 1,940.6 1,334.9 50,538.1 41,493.6
----------------------------------------------------------------------------
Total Proved 1,113.0 907.6 8,202.1 5,243.2 193,704.5 156,509.7
----------------------------------------------------------------------------
Total Proved
Plus Probable 1,828.0 1,541.6 14,550.3 9,922.2 319,214.6 266,848.4
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Montney/Doig Natural Gas Resource Play Reserves Data(1)
------------------------------------------------------------
Existing Horizontal Wells and Future
Horizontal Well Locations Net Future Capital
Gross Net (MM$)
------------------------------------------------------------
2013 2012 2013 2012 2013(2) 2012
----------------------------------------------------------------------------
Proved Developed
Producing 117 93 105.2 80.8 1.25 0
----------------------------------------------------------------------------
Total Proved 384 325 330.9 272.7 1,306.1 1,129.4
----------------------------------------------------------------------------
Total Proved
Plus Probable 549 472 470.8 397.5 2,146.2 1,849.9
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Estimates of reserves and future net revenue for reserves relating to
individual properties may not reflect the same confidence level as
estimates of reserves and future net revenue for all properties due to
the effects of aggregation.
(2) Includes approximately $68.2 million of capital for the expansion of the
PCS Gas Plant to 240 MMcf per day of total capacity, together with the
related gathering pipelines, sales pipeline expansion and compression,
plus $32.2 million of capital for the expansion of the PCS Gas Plant to
270 MMcf of total capacity.
---------------------------------------
Montney/Doig Land and Horizontal Well Dec 31, Dec 31, Dec 31,
Data 2013 2012 2011
---------------------------------------
Gross Net Gross Net Gross Net
----------------------------------------------------------------------------
Number of sections to which Deloitte
attributed proved plus probable
reserves 131.6 115.2 114.3 98.3 98.5 83.4
----------------------------------------------------------------------------
For existing and future horizontal
wells, number of well locations to
which Deloitte attributed proved
plus probable reserves 549 470.8 472 397.5 425 352.7
----------------------------------------------------------------------------
For existing and future horizontal
wells, average number of net well
locations per net section to which
Deloitte attributed proved plus
probable reserves 4.1(1) 4.1 4.2
----------------------------------------------------------------------------
For existing horizontal wells,
average remaining recoverable proved
plus probable reserves attributed by
Deloitte, plus cumulative production 4.9 Bcfe 4.8 Bcfe 4.3 Bcfe
----------------------------------------------------------------------------
For future horizontal wells, average
remaining recoverable proved plus
probable reserves attributed by
Deloitte 4.2 Bcfe 4.1 Bcfe 4.0 Bcfe
----------------------------------------------------------------------------
Average cost per well, forecast by
Deloitte $5.2 million $5.2 million $4.8 million
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Currently, for existing and future horizontal wells, the average number
of net well locations per net section to which Deloitte attributed
proved plus probable reserves is 3.2 for the Basal Doig/Upper Montney
Play and 2.9 for the Middle/Lower Montney Play.
Deloitte has attributed Montney/Doig proved plus probable reserves to 131.6
(115.2 net) sections of land. Drilling success during 2013 in the Middle/Lower
Montney Play has resulted in significant reserve assignments by Deloitte to
106.6 (92.5 net) sections of land, an increase of 17.5 net sections of land from
2012. Deloitte has attributed reserves in the Basal Doig/Upper Montney Play to
78.2 (65.3 net) sections of land. There are now 53.2 (42.6 net) sections to
which Deloitte has attributed reserves to both the Basal Doig/Upper Montney Play
and the Middle/Lower Montney Play.
Management believes that the ultimate recovery from the Corporation's
Montney/Doig horizontal natural gas wells will continue to improve year over
year as production declines continue to flatten. In addition, as drilling and
completion technologies continue to improve, recovery factors and production
rates in this unconventional reservoir should also improve.
Reserves on the Worsley Charlie Lake Light Oil Resource Play
At December 31, 2013, Deloitte estimated that in the Worsley Charlie Lake light
oil pool on the Worsley Charlie Lake Light Oil Resource Play, Birchcliff had
38.9 MMboe proved plus probable reserves and 19.6 MMboe of proved reserves. This
continues the growth trend for Birchcliff's Worsley Charlie Lake reserves since
July 1, 2007 (being the effective date of the acquisition of this property),
when recoverable reserves were estimated at 15.1 MMboe on a proved plus probable
basis and 11.3 MMboe on a proved basis. Both the original oil in place and the
estimated recoverable reserves continue to grow and Birchcliff is pleased to
report that the Worsley Charlie Lake light oil pool continues to be a top
quality asset.
History of Reserves Estimated for the Worsley Charlie Lake Pool (MMboe)(1)
----------------------------------------------------------------
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, July 1,
2013 2012 2011 2010 2009 2008 2007 2007
----------------------------------------------------------------------------
Proved 19.6 19.6 18.8 18.8 18.3 17.5 15.0 11.3
----------------------------------------------------------------------------
Proved Plus
Probable 38.9 34.7 31.3 28.2 26.3 24.6 21.2 15.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Estimates of reserves relating to individual properties may not reflect
the same confidence level as estimates of reserves for all properties
due to the effects of aggregation.
2013 FINDING AND DEVELOPMENT COSTS
During 2013, Birchcliff's finding and development ("F&D") costs were $268.1
million and its finding, development and acquisition ("FD&A") costs were $213.8
million. The following table sets forth Birchcliff's estimates of its F&D costs
per boe and FD&A costs per boe, excluding future development capital and
including future development capital, on a proved and proved plus probable
basis.
Finding and Development Costs ($/boe)(1)
Three Year
Excluding Future Development Capital 2013 2012 2011 Average
----------------------------------------------------------------------------
F&D - Proved $ 5.85 $ 7.77 $ 4.77 $ 6.00
F&D - Proved Plus Probable $ 4.11 $ 6.09 $ 2.88 $ 4.08
Acquisitions - Proved - $10.96 $732.34 $13.74
Acquisitions - Proved Plus Probable $ 0.79 $ 3.38 $ 36.11 $ 3.87
Dispositions - Proved $23.90 $ 9.71 $ 6.31 $14.13
Dispositions - Proved Plus Probable $13.32 $ 4.36 $ 3.69 $ 7.23
Total FD&A - Proved(2) $ 4.91 $ 7.83 $ 4.85 $ 5.74
Total FD&A - Proved Plus Probable(2) $ 3.46 $ 5.89 $ 2.92 $ 3.87
----------------------------------------------------------------------------
Including Future Development Capital(3)
----------------------------------------------------------------------------
F&D - Proved $ 9.39 $11.10 $ 13.15 $11.28
F&D - Proved Plus Probable $ 9.03 $11.99 $ 12.01 $11.02
Acquisitions - Proved - $17.78 $732.34 $20.54
Acquisitions - Proved Plus Probable $23.21 $ 9.61 $ 36.11 $11.10
Dispositions - Proved $30.42 $19.80 $ 6.31 $20.65
Dispositions - Proved Plus Probable $17.56 $12.71 $ 3.69 $12.57
Total FD&A - Proved(2) $ 8.29 $10.91 $ 13.47 $10.99
Total FD&A - Proved Plus Probable(2) $ 8.60 $11.56 $ 12.31 $10.93
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) See advisories for an explanation of the methodology used to calculate
F&D costs.
(2) Based upon FD&A costs, net of disposition proceeds, and reserve
additions, net of reserves disposed of.
(3) Includes the increase in future development capital for 2013 over 2012
of $147.1 million on a proved basis and $316.7 million on a proved plus
probable basis.
Deloitte's estimates of future development costs are $1.45 billion on a proved
basis and $2.50 billion on a proved plus probable basis, which includes
approximately $100.4 million for the expansion of the PCS Gas Plant to 270 MMcf
per day of total capacity, together with the related gathering pipelines, sales
pipeline expansion and compression. The increase in future development capital
for 2013 over 2012 is $147.1 million on a proved basis and $316.7 million on a
proved plus probable basis.
Both the 2013 Reserves Evaluation and the 2012 Reserves Evaluation included, on
average, $5.2 million for each future Montney/Doig horizontal natural gas well
to which reserves were assigned, which includes drill, case, complete and tie-in
costs.
2013 RECYCLE RATIOS
The following table shows Birchcliff's recycle ratio for operating and funds
flow netback, which are calculated in each case by dividing the average
operating netback per boe or funds flow netback per boe, as the case may be, by
each of the F&D costs and the FD&A costs.
----------------------------------------
Recycle Ratios(1) Operating Netback Funds Flow Netback
Recycle Ratio Recycle Ratio
----------------------------------------
2013 2012 2013 2012
----------------------------------------------------------------------------
Excluding Future Development Capital
F&D - Proved Plus Probable 5.5 3.2 4.5 2.4
FD&A - Proved Plus Probable 6.5 3.3 5.3 2.4
----------------------------------------------------------------------------
Including Future Development Capital
F&D - Proved Plus Probable 2.5 1.6 2.0 1.2
FD&A - Proved Plus Probable 2.6 1.7 2.2 1.2
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) See advisories for the methodology used in the calculation of F&D costs
used in these recycle ratios.
During 2013, the average WTI price of crude oil was US $97.97 per barrel and the
average price of natural gas at AECO was Cdn $3.17 per Mcf. Operating netback
per boe for 2013 was $22.53. Funds flow netback per boe for 2013 was $18.50.
2013 INDEPENDENT MONTNEY/DOIG NATURAL GAS RESOURCE ASSESSMENT
Deloitte conducted an independent review and audit of resources, effective
December 31, 2013, in respect of Birchcliff lands that have potential for the
Montney/Doig Natural Gas Resource Play, which is contained in a report dated
February 6, 2014 (the "2013 Resource Assessment"). Deloitte also prepared a
resource assessment effective December 31, 2012 (the "2012 Resource
Assessment"). The 2013 Resource Assessment and 2012 Resource Assessment have
been prepared in accordance with the standards contained in the COGE Handbook
and NI 51-101.
Resource estimates stated herein as at December 31, 2013 and 2012 are extracted
from the relevant evaluation and reflect only Birchcliff's working interest
share of resources for its lands in the area covered by the resource assessment
(the "Study Area"). The resource assessment does not include Birchcliff's
Worsley Charlie Lake Light Oil Resource Play or any of Birchcliff's other
properties.
Montney/Doig Natural Gas Resource Assessment Summary
The following table summarizes Deloitte's estimates of Birchcliff's natural gas
resources on the Montney/Doig Natural Gas Resource Play at December 31, 2013 and
December 31, 2012, on a best estimate case.
---------------------------------------
Best Estimate Case
----------------------------------------------------------------------------
Summary of Montney/Doig Natural Gas Dec 31, 2013 Dec 31, 2012 Change from
Resources (Bcfe) (Bcfe) Dec 31, 2012
----------------------------------------------------------------------------
Total Petroleum Initially In Place
("PIIP") 52,036.4 39,709.5 +31.0%
----------------------------------------------------------------------------
Total Undiscovered PIIP(1) 34,443.3 26,331.8 +30.8%
----------------------------------------------------------------------------
Prospective Resources 15,809.9 13,003.3 +21.6%
----------------------------------------------------------------------------
Total Discovered PIIP(1) 17,593.2 13,377.7 +31.5%
----------------------------------------------------------------------------
Contingent Resources 6,547.8 4,869.1 +34.5%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) See the advisories with respect to discovered and undiscovered
resources.
Compared to the 2012 Resource Assessment, the best estimate of total PIIP has
grown from 39.7 Tcfe to 52.0 Tcfe, a 31% increase. Additionally, Birchcliff was
very successful with its strategy to promote resources from undiscovered to
discovered in 2013 through its exploration program. Discovered PIIP increased
31.5% from the 2012 Resource Assessment, from 13.4 Tcfe to 17.6 Tcfe. Compared
to the 2012 Resource Assessment, the best estimate of contingent resources has
grown from 4.9 Tcfe to 6.5 Tcfe, a 35% increase. These increases are a result of
land acquisitions and drilling.
Background to the Montney/Doig Natural Gas Resource Assessment
Birchcliff holds significant high working interest acreage in large contiguous
blocks on the Montney/Doig Natural Gas Resource Play in the Peace River Arch
area of Alberta. Birchcliff's lands are proximal to the PCS Gas Plant and to
third party gathering and processing infrastructure.
The Study Area assessed by Deloitte is comprised of the Doig Phosphate, Basal
Doig, and Montney formations in the greater Pouce Coupe, Elmworth, Sinclair and
Bezanson areas of the Peace River Arch region of Alberta, ranging from Townships
69 to 81, Ranges 2 to 13W6. The Study Area is bounded in a northwest - southeast
direction by the Montney/Doig deep basin edges and covered a total of 340.5
gross sections of land held by Birchcliff at December 31, 2013, which includes:
-- 328.0 (306.0 net) sections, with a 93.3% working interest, which have
potential for the Middle/Lower Montney Play; and
-- 307.25 (283.9 net) sections, with a 92.4% working interest, which have
potential for the Basal Doig/Upper Montney Play.
Birchcliff's total land holdings on the two plays described above are 635.25
(589.9 net) sections. On full development of four horizontal wells per section
per play, Birchcliff has 2,359.6 net horizontal drilling locations. With 117
(105.2 net) horizontal locations drilled at the end of 2013, there remain
2,254.4 net future horizontal drilling locations.
Deloitte utilized probabilistic methods to generate high, best, and low
estimates of reserves and resources volumes. Results from the 2013 Resource
Assessment are presented in the following table for Birchcliff's working
interest share of gross volumes. Proved, proved plus probable and proved plus
probable plus possible reserves determined by the 2013 Reserves Evaluation are
included in this table for completeness, however reserves were not the focus of
the 2013 Resource Assessment.
Summary of Birchcliff Reserves and Resources(1)(2)
Reserves and Resource
Resource Class Volumes(Bcfe)
------------------------------
Low Best High
Estimate Estimate Estimate
Case Case Case
----------------------------------------------------------------------------
Discovered Cumulative Production(3) 130.7 130.7 130.7
Remaining Reserves(3)(4) 1,163.5 1,912.5 2,792.1
Surface Loss/Shrinkage 66.2 104.6 149.9
Total Commercial 1,360.4 2,147.8 3,072.7
------------------------------
Contingent Resources 4,456.0 6,547.8 9,961.1
Unrecoverable(5) 7,147.5 8,897.6 11,027.4
Total Sub-commercial 11,603.5 15,445.3 20,988.5
---------------------------------------------------------
Total Discovered PIIP 12,964.0 17,593.2 24,061.2
----------------------------------------------------------------------------
Undiscovered Prospective Resources 10,168.6 15,809.6 24,619.8
Unrecoverable(5) 16,273.4 18,633.7 20,888.1
-----------------------------------------------------------
Total Undiscovered PIIP 26,442.0 34,443.3 45,507.9
----------------------------------------------------------------------------
Total Petroleum Initially In Place (PIIP) 39,406.0 52,036.4 69,569.1
----------------------------------------------------------------------------
Notes:
(1) All reserves and resources are gross volumes at December 31, 2013, which
are equal to Birchcliff's working interest share before deduction of
royalties and without including any royalties held by Birchcliff.
(2) Numbers may not total due to rounding.
(3) Sales gas and related natural gas liquids.
(4) Includes reserves assigned to both vertical and horizontal Montney/Doig
wells. The best estimate reflects the estimate of proved plus probable
reserves contained in the 2013 Reserves Evaluation. The low estimate
reflects the estimate of proved reserves contained in the 2013 Reserves
Evaluation. The high estimate reflects the estimate of proved plus
probable plus possible reserves contained in the 2013 Reserves
Evaluation.
(5) Unrecoverable includes surface loss/shrinkage on volumes of contingent
resources and prospective resources. The unrecoverable portion of
Undiscovered PIIP is those quantities determined not to be recoverable
by future development projects. A portion of these resources may become
recoverable in the future as commercial circumstances change or
technological developments occur, but the remaining portion may never be
recovered due to physical and/or chemical constraints of the reservoir
rock and the fluid within it.
2014 STRATEGIC ACQUISITION OF PARTNER'S INTEREST
Birchcliff completed a strategic acquisition on January 15, 2014, with an
effective date of January 1, 2014, where Birchcliff bought a partner's 30%
working interest in land and production in the Pouce Coupe area. The acquisition
included 38 (11.3 net) sections of land on the Montney/Doig Natural Gas Resource
Play and 9.6 MMcfe per day (1,600 boe per day) of Birchcliff operated
production, the majority of which is processed at the PCS Gas Plant. This
transaction has allowed Birchcliff to consolidate lands it formerly held at a
70% working interest with lands it holds at 100% working interest, allowing for
a contiguous development plan, eliminating holding buffers and increasing
flexibility of capital allocation. By extrapolation from the reserves assigned
by Deloitte at December 31, 2013 to the lands held at 70% working interest, the
30% working interest acquired represents additional reserves as follows.
---------------
Reserves Acquired January 15, 2014(1) (MMboe)
----------------------------------------------------------------------------
Proved Developed Producing 5.4
----------------------------------------------------------------------------
Total Proved 26.9
----------------------------------------------------------------------------
Probable 13.9
----------------------------------------------------------------------------
Total Proved Plus Probable 40.8
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Estimates of reserves relating to individual properties may not reflect
the same confidence level as estimates of reserves for all properties
due to the effects of aggregation.
Reserve Life Index
Birchcliff's reserve life index is 34.1 years on a proved plus probable basis
and 20.5 years on a proved basis, in each case using reserves estimates by
Deloitte at December 31, 2013 plus the reserves added in the strategic
acquisition of a partner's interest on January 15, 2014 and assuming an average
daily production rate of 33,000 boe per day.
2014 BUDGET AND GUIDANCE
2014 Capital Budget and Guidance
Birchcliff is very pleased to announce its 2014 capital budget of $347.1 million
(including $56.1 million for acquisitions). Birchcliff expects to drill 40 (39.5
net) wells in 2014. Details of the budget are as follows:
------------------------------
Net
Gross Capital
2014 Capital Budget Wells Net Wells (MM$)
----------------------------------------------------------------------------
Drilling & Development(1)
Basal Doig/Upper Montney Horizontal Natural
Gas Wells 4.0 4.0 25.8
Middle/Lower Montney Horizontal Oil and
Natural Gas Wells 25.0 25.0 155.8
Worsley Charlie Lake Horizontal Oil Wells 8.0 8.0 29.2
Halfway Oil Wells 2.0 1.5 3.5
Other Oil Wells 1.0 1.0 5.6
----------------------------------------------------------------------------
Total Drilling & Development(1) 40.0 39.5 219.9
----------------------------------------------------------------------------
Facilities 30.2
----------------------------------------------------------------------------
Production Optimization 13.1
----------------------------------------------------------------------------
Land & Seismic 12.9
----------------------------------------------------------------------------
Acquisition & Dispositions 56.1
----------------------------------------------------------------------------
Other 14.9
----------------------------------------------------------------------------
Total Net Capital 347.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) On a drill, case, complete, equip and tie-in basis.
Birchcliff expects 2014 exit production to be between 37,500 and 39,500.
We expect to fund our 2014 capital program using internally generated funds flow
and available credit facilities. We expect that the ratio of 2014 year-end debt
to one year's forward funds flow will decrease from year-end 2013. These
expectations are based on Birchcliff realizing Cdn. $87.00 per barrel of oil and
Cdn. $4.10 per GJ ($4.67 per Mcf) of natural gas. Birchcliff's realized natural
gas price from January 1 to February 10, 2014 was $5.38 per GJ ($6.12 per Mcf).
2014 PRODUCTION AND OPERATIONAL UPDATE
Current Update
Current production is approximately 33,000 boe per day. To date in 2014
Birchcliff has produced an average of approximately 31,400 boe per day.
Birchcliff expects 2014 exit production to be between 37,500 and 39,500 boe per
day.
The PCS Gas Plant is currently processing approximately 136 MMcf per day. The
Phase IV expansion of the PCS Gas Plant, which will expand processing capacity
to 180 MMcf per day by adding additional compression and sales pipeline
capacity, will start-up in the fall of 2014. The estimated cost of the Phase IV
expansion is approximately $11.6 million.
Birchcliff currently has four drilling rigs at work: three rigs are active in
the Pouce Coupe area, drilling Montney/Doig horizontal natural gas wells and one
rig is active in the Worsley area, drilling Charlie Lake horizontal oil wells.
Year to date drilling results include the drilling of 6 (6.0 net) wells,
consisting of 4 (4.0 net) Montney/Doig horizontal natural gas wells in the Pouce
Coupe area and 2 (2.0 net) Charlie Lake horizontal light oil wells in the
Worsley area.
Hedging
Birchcliff is receiving high natural gas prices for its current production as it
is unhedged for the winter months of 2014.
The Corporation initiated a hedging program in 2014, with Birchcliff contracting
forward physical sales of 65,000 GJ's per day, representing approximately 35% of
its estimated natural gas volumes during the summer months, April 1 - October
31, 2014, for approximately $4.24 per Mcf. This is up from the natural gas
hedging information disclosed in our January 15, 2014 press release of 50,000
GJ's per day, representing 30% of its estimated natural gas volumes during that
same time, for approximately $4.20 per Mcf. Birchcliff has also purchased oil
hedges, with WTI put options for 1,000 barrels per day of crude oil for the
calendar year 2014, comprised of 500 barrels per day with a strike price of US
$90 and 500 barrels per day with a strike price of US $85.
2018 FIVE YEAR PLAN
Highlights of the 2018 Five Year Plan include exit production in 2018 of
approximately 61,500 boe per day, made up of approximately 320 MMcf per day of
natural gas and 8,000 barrels of oil and natural gas liquids.
Birchcliff expects to fund the 2018 Five Year Plan using internally generated
funds flow and available credit facilities. Based on the forecast production
rates and commodity prices contained in the 2018 Five Year Plan, the ratio of
year-end debt to the next year's forward funds flow is expected to decrease each
year, based on the assumptions set out in the advisories.
Birchcliff currently owns and controls the land base necessary to achieve this
production growth profile, allowing it to execute the program without relying on
land, asset or corporate acquisitions. We are confident that we have the asset
base, the people, the capital and the defined strategy required to successfully
execute our 2018 Five Year Plan.
SHAREHOLDER SUPPORT
We thank Mr. Seymour Schulich, our largest shareholder, for his unwavering
commitment and his ongoing financial support. Mr. Schulich holds 40 million
common shares representing 27.8% of the current issued and outstanding common
shares.
SUMMARY
We remain focused on our strategy - growth by the drill bit, in our core area of
the Peace River Arch of Alberta. We continue to use the same services, in the
same area, directed by the same experienced Birchcliff personnel, which provides
consistency, repeatability and reliability in our operations.
We are very pleased and excited with the current and future outlook for
Birchcliff. Our production and opportunity portfolio continues to increase while
our cost structure continues to decrease. Focus, low cost operations and
financial flexibility has positioned Birchcliff to execute its long term
strategy.
The recent strength in natural gas prices has provided material financial
momentum to our low cost business. The gas hedges for approximately $4.24 per
Mcf during the summer months, April 1 to October 31, 2014, protect our summer
cash flow.
We recently increased our exit production targets to 37,500 to 39,500 boe per
day from 36,000 to 38,000 boe per day. With strong gas prices and increased
production momentum, we look forward to a very strong 2014.
On behalf of our Management Team and Directors, I thank all of our staff for
their hard work and dedication to the achievement of our corporate goals. Thank
you to all of our shareholders for their continued support and trust in all of
us at Birchcliff.
We look forward to another excellent year.
A. Jeffery Tonken, President and Chief Executive Officer
DEFINITIONS OF OIL AND GAS RESOURCES AND RESERVES
Uncertainty Ranges are described by the Canadian Oil and Gas Evaluation Handbook
as low, best, and high estimates for reserves and resources as follows:
Low Estimate: This is considered to be a conservative estimate
of the quantity that will actually be recovered. It is likely
that the actual remaining quantities recovered will exceed the
low estimate. If probabilistic methods are used, there should be
at least a 90% probability (P90) that the quantities actually
recovered will equal or exceed the low estimate.
Best Estimate: This is considered to be the best estimate of the
quantity that will actually be recovered. It is equally likely
that the actual remaining quantities recovered will be greater
or less than the best estimate. If probabilistic methods are
used, there should be at least a 50% probability (P50) that the
quantities actually recovered will equal or exceed the best
estimate.
High Estimate: This is considered to be an optimistic estimate
of the quantity that will actually be recovered. It is unlikely
that the actual remaining quantities recovered will exceed the
high estimate. If probabilistic methods are used, there should
be at least a 10% probability (P10) that the quantities actually
recovered will equal or exceed the high estimate.
Reserves are estimated remaining quantities of oil and natural gas and related
substances anticipated to be recoverable from known accumulations, as of a given
date, based on the analysis of drilling, geological, geophysical and engineering
data; the use of established technology; and specified economic conditions,
which are generally accepted as being reasonable.
Reserves are classified according to the degree of certainty associated with the
estimates:
Proved Reserves are those reserves that can be estimated with a
high degree of certainty to be recoverable. It is likely that
the actual remaining quantities recovered will exceed the
estimated proved reserves.
Probable Reserves are those additional reserves that are less
certain to be recovered than proved reserves. It is equally
likely that the actual remaining quantities recovered will be
greater or less than the sum of the estimated proved plus
probable reserves.
Possible Reserves are those additional reserves that are less
certain to be recovered than probable reserves. It is unlikely
that the actual remaining quantities recovered will exceed the
sum of the estimated proved plus probable plus possible
reserves.
Resources encompasses all petroleum quantities that originally existed on or
within the earth's crust in naturally occurring accumulations, including
Discovered and Undiscovered (recoverable and unrecoverable) plus quantities
already produced. "Total resources" is equivalent to "total Petroleum
Initially-In-Place". Resources are classified in the following categories:
Total Petroleum Initially-In-Place ("PIIP") is that quantity of
petroleum that is estimated to exist originally in naturally
occurring accumulations. It includes that quantity of petroleum
that is estimated, as of a given date, to be contained in known
accumulations, prior to production, plus those estimated
quantities in accumulations yet to be discovered.
Discovered Petroleum Initially-In-Place is that quantity of
petroleum that is estimated, as of a given date, to be contained
in known accumulations prior to production. The recoverable
portion of discovered petroleum initially in place includes
production, reserves, and contingent resources; the remainder is
unrecoverable.
Contingent Resources are those quantities of petroleum
estimated, as of a given date, to be potentially recoverable
from known accumulations using established technology or
technology under development but which are not currently
considered to be commercially recoverable due to one or more
contingencies.
Undiscovered Petroleum Initially-In-Place is that quantity of
petroleum that is estimated, on a given date, to be contained in
accumulations yet to be discovered. The recoverable portion of
undiscovered petroleum initially in place is referred to as
"prospective resources" and the remainder as "unrecoverable."
Prospective Resources are those quantities of petroleum
estimated, as of a given date, to be potentially recoverable
from undiscovered accumulations by application of future
development projects.
Unrecoverable is that portion of Discovered and Undiscovered
PIIP quantities which is estimated, as of a given date, not to
be recoverable by future development projects. A portion of
these quantities may become recoverable in the future as
commercial circumstances change or technological developments
occur; the remaining portion may never be recovered due to the
physical/chemical constraints represented by subsurface
interaction of fluids and reservoir rocks.
Production is the cumulative quantity of petroleum that has been
recovered at a given date.
ADVISORIES
Unaudited Numbers: The Corporation's annual audit of its financial statements is
not yet complete and accordingly, all financial amounts referred to in this
Press Release 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. Estimated operating
netback is based upon certain cost allocations and accruals directly related to
the PCS Gas Plant and related wells and infrastructure 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-working capital. Funds flow, funds flow netback or funds flow from
operations is also 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.
MMbtu Pricing Conversion: $1.00 per MMbtu equals $1.00 per Mcf based on a
standard heat value Mcf.
Reserves for Portion of Properties: With respect to the disclosure of reserves
contained herein relating to portions of the Corporation's properties, the
estimates of reserves and future net revenue for individual properties may not
reflect the same confidence level as estimates of reserves and future net
revenue for all properties due to the effects of aggregation.
Finding and Development Costs: With respect to disclosure of finding and
development costs disclosed in this Press Release:
-- The amounts of finding and development and/or acquisition costs
contained in the table and the disclosure set forth above for each of
the years 2011, 2012 and 2013 are calculated by dividing the total of
the net amount of the particular costs noted in each line incurred
during such year by the amounts of additions to total proved reserves
and total proved plus probable reserves during such year that resulted
from the expenditure of such costs.
-- In calculating the amounts of finding and development and/or acquisition
costs for a year, the changes during the year in estimated future
development costs and in estimated reserves are based upon the
evaluations of Birchcliff's reserves prepared by Deloitte, or their
predecessor, effective December 31 of such year.
-- The aggregate of the exploration and development costs incurred in the
most recent financial year and any change during that year in estimated
future development costs generally will not reflect total finding and
development costs related to reserves additions for that year.
Discovered Resources: With respect to the discovered resources (including
contingent resources) described in this Press Release, there is no certainty
that it will be commercially viable to produce any portion of the resources.
Undiscovered Resources: With respect to the undiscovered resources (including
prospective resources) described in this Press Release, there is no certainty
that any portion of the resources will be discovered. If discovered, there is no
certainty that it will be commercially viable to produce any portion of the
resources.
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. Information relating to reserves and resources
is forward-looking as it involves the implied assessment, based on certain
estimates and assumptions, that the reserves and resources exist in the
quantities estimated and that they will be commercially viable to produce in the
future. Words such as "plan", "expect", "project", "intend", "believe",
"anticipate", "estimate", "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 estimates of
recoverable reserves and resource volumes; planned production increases, planned
2014 capital spending and sources of funding; and the intention to drill and
complete future wells.
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 estimates of reserves and resource volumes, a key
assumption is the validity of the data used by Deloitte in their independent
reserves evaluation and resource assessments. 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 average
annual 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. The assumptions utilized in the 2018 Five Year Plan are set out in
the following table:
2014 2015 2016 2017 2018
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Annual exit production (boe per day) 37,100 38,300 45,300 52,600 61,500
Light oil - WTI Cushing ($CDN/bbl) 90.00 90.00 90.00 90.00 90.00
Light oil - Edmonton Par ($CDN/bbl) 84.00 84.00 84.00 84.00 84.00
Natural gas - AECO - C daily ($/GJ) 3.50 3.80 4.00 4.25 4.50
----------------------------------------------------------------------------
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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
(403) 261-6424 (FAX)
Birchcliff Energy Ltd.
Bruno Geremia
Vice-President and Chief Financial Officer
(403) 261-6401
(403) 261-6424 (FAX)
Birchcliff Energy Ltd.
Jim Surbey
Vice-President, Corporate Development
(403) 261-6401
(403) 261-6424 (FAX)
Birchcliff Energy Ltd.
Suite 500, 630 - 4th Avenue S.W.
Calgary, AB T2P 0J9
(403) 261-6401
(403) 261-6424 (FAX)
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