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CALGARY, Alberta, Aug. 14, 2019 (GLOBE NEWSWIRE) — Birchcliff Energy Ltd. (“Birchcliff” or the “Corporation”) (TSX: BIR) is pleased to announce its financial and operational results for the three and six months ended June 30, 2019 and an expanded 2019 capital program. Birchcliff’s unaudited interim condensed financial statements for the three and six months ended June 30, 2019 and related management’s discussion and analysis (the “MD&A”) will be available on its website at www.birchcliffenergy.com and on SEDAR at www.sedar.com. Birchcliff is also pleased to provide an operational update, including encouraging results from its recent well pads brought on production in Pouce Coupe and Gordondale.
“We had strong results in the second quarter, which were underpinned by the strong performance of our assets and our new oil and liquids-rich wells, the successful execution of our capital program, our record low operating costs and our natural gas market diversification initiatives. Our average production for the quarter was 78,453 boe/d, which was ahead of our internal budget and represents a 3% increase from Q2 2018. Given these production results, we expect that we would have achieved the mid-point of our 2019 annual average production guidance of 76,000 to 78,000 boe/d, before taking into account the expansion to our 2019 capital program,” commented Jeff Tonken, President and Chief Executive Officer of Birchcliff. “As a result of our achievements year-to-date and our strong quarterly results and balance sheet, we have determined to drill an additional 7 (7.0 net) horizontal wells in 2019, all of which are expected to be on-stream by November 1, 2019. Accordingly, we have increased our capital budget by $38 million to $242 million. We anticipate that this additional capital will allow us to maintain production in 2020 at or near current levels and reduce the amount of capital that we will need to spend in 2020. Notwithstanding this increase, our capital expenditures in 2019 are still expected to be significantly less than our forecast of 2019 adjusted funds flow. Based on the strong performance of our wells and the expansion to our capital program, we are increasing our 2019 annual average production guidance to 77,000 to 79,000 boe/d.”
Q2 2019 Highlights
- Production averaged 78,453 boe/d (6% light oil, 7% condensate, 9% NGLs and 78% natural gas), a 3% increase from Q2 2018. Liquids production weighting increased by 3% from Q1 2019 and by 8% from Q2 2018.
- Adjusted funds flow of $74.0 million, or $0.28 per basic common share, a 2% increase and a 4% increase, respectively, from Q2 2018. Birchcliff generated $6.0 million of free funds flow in Q2 2019.
- Net loss to common shareholders of $9.5 million, or $0.04 per basic common share as compared to the net income to common shareholders of $6.4 million and $0.02 per basic common share in Q2 2018. Included in the net loss is an after-tax unrealized mark-to-market loss on financial instruments of $35.7 million, or $0.13 per basic common share, and a future income tax recovery of $18.9 million, or $0.07 per basic common share, resulting from the change in Alberta’s corporate income tax rate from 12% to 8% over the next four years.
- Record low operating expense of $3.17/boe, a 6% decrease from Q2 2018.
- Operating netback of $11.38/boe, a 14% decrease from Q2 2018.
- Birchcliff drilled 5 (5.0 net) wells and brought 14 (14.0 net) wells on production.
- F&D capital expenditures were $67.9 million, which were approximately $6.0 million (9%) less than Birchcliff’s Q2 2019 adjusted funds flow. Total capital expenditures were $68.5 million.
- As at June 30, 2019, Birchcliff’s long-term bank debt was $622.3 million and its total debt was $654.7 million, a 1% increase and a 1% decrease, respectively, from its long-term and total debt as at June 30, 2018.
Encouraging Initial Production Rates in Pouce Coupe and Gordondale
- Birchcliff’s 14-06-079-12W6M six-well pad in Pouce Coupe had an aggregate average production rate of 6,350 boe/d (27.9 MMcf/d of raw natural gas and 1,690 bbls/d of condensate) during the initial 30 days of production.
- Birchcliff’s 01-10-078-11W6M five-well pad in Gordondale had an aggregate average production rate of 4,446 boe/d (2,114 bbls/d of oil and 14.0 MMcf/d of raw natural gas) during the initial 30 days of production.
Expanded 2019 Capital Program and Revised Guidance
- Birchcliff has expanded its 2019 capital program (the “2019 Capital Program”) to include the drilling and bringing on production of an additional 7 (7.0 net) HZ wells in 2019. F&D capital expenditures are now expected to be $242 million.
- Birchcliff expects to generate approximately $335 million of adjusted funds flow and $93 million of free funds flow (adjusted funds flow less F&D capital expenditures) in 2019.
SECOND QUARTER 2019 FINANCIAL AND OPERATIONAL HIGHLIGHTS
| Three months ended June 30, |
Six months ended June 30, |
|||||||
| 2019 | 2018(5) | 2019 | 2018(5) | |||||
| OPERATING | ||||||||
| Average production | ||||||||
| Light oil – (bbls/d) | 4,853 | 5,599 | 4,827 | 4,872 | ||||
| Condensate – (bbls/d)(1) | 5,505 | 3,934 | 4,963 | 3,808 | ||||
| NGLs – (bbls/d)(1) | 6,923 | 6,036 | 6,834 | 5,816 | ||||
| Natural gas – (Mcf/d) | 367,033 | 364,360 | 360,327 | 370,880 | ||||
| Total – boe/d | 78,453 | 76,296 | 76,678 | 76,309 | ||||
| Average realized sales price (CDN$)(2) | ||||||||
| Light oil – (per bbl) | 72.25 | 79.55 | 69.20 | 76.33 | ||||
| Condensate – (per bbl)(1) | 71.69 | 87.52 | 68.93 | 85.35 | ||||
| NGLs – (per bbl)(1) | 11.13 | 21.94 | 14.36 | 23.46 | ||||
| Natural gas – (per Mcf) | 1.95 | 2.01 | 2.73 | 2.37 | ||||
| Total – per boe | 19.59 | 21.68 | 22.92 | 22.45 | ||||
| NETBACK AND COST ($/boe) | ||||||||
| Petroleum and natural gas revenue(2) | 19.59 | 21.69 | 22.93 | 22.45 | ||||
| Royalty expense | (0.75 | ) | (1.53 | ) | (0.98 | ) | (1.48 | ) |
| Operating expense | (3.17 | ) | (3.36 | ) | (3.28 | ) | (3.57 | ) |
| Transportation and other expense | (4.29 | ) | (3.64 | ) | (4.45 | ) | (3.60 | ) |
| Operating netback ($/boe) | 11.38 | 13.16 | 14.22 | 13.80 | ||||
| G&A expense, net | (0.87 | ) | (0.88 | ) | (0.89 | ) | (0.88 | ) |
| Interest expense | (0.92 | ) | (0.96 | ) | (0.97 | ) | (0.96 | ) |
| Realized gain (loss) on financial instruments | 0.74 | (0.93 | ) | 1.34 | (0.69 | ) | ||
| Other income | 0.03 | 0.03 | 0.03 | 0.03 | ||||
| Adjusted funds flow netback ($/boe) | 10.36 | 10.42 | 13.73 | 11.30 | ||||
| Depletion and depreciation expense | (7.40 | ) | (7.60 | ) | (7.47 | ) | (7.50 | ) |
| Unrealized gain (loss) on financial instruments | (6.50 | ) | 0.36 | (6.14 | ) | (0.43 | ) | |
| Other expenses(3) | (1.17 | ) | (1.47 | ) | (0.76 | ) | (0.90 | ) |
| Dividends on Series C preferred shares | (0.12 | ) | (0.13 | ) | (0.13 | ) | (0.13 | ) |
| Income tax recovery (expense) | 3.65 | (0.51 | ) | 1.37 | (0.71 | ) | ||
| Net income (loss) ($/boe) | (1.18 | ) | 1.07 | 0.60 | 1.63 | |||
| Dividends on Series A preferred shares | (0.15 | ) | (0.15 | ) | (0.15 | ) | (0.15 | ) |
| Net income (loss) to common shareholders ($/boe) | (1.33 | ) | 0.92 | 0.45 | 1.48 | |||
| FINANCIAL | ||||||||
| Petroleum and natural gas revenue ($000s)(2) | 139,857 | 150,561 | 318,212 | 310,092 | ||||
| Cash flow from operating activities ($000s) | 97,857 | 71,825 | 192,601 | 163,678 | ||||
| Adjusted funds flow ($000s) | 73,957 | 72,369 | 190,605 | 156,027 | ||||
| Per common share – basic ($) | 0.28 | 0.27 | 0.72 | 0.59 | ||||
| Per common share – diluted ($) | 0.28 | 0.27 | 0.72 | 0.58 | ||||
| Net income (loss) ($000s) | (8,458 | ) | 7,437 | 8,388 | 22,562 | |||
| Net income (loss) to common shareholders ($000s) | (9,505 | ) | 6,390 | 6,294 | 20,468 | |||
| Per common share – basic ($) | (0.04 | ) | 0.02 | 0.02 | 0.08 | |||
| Per common share – diluted ($) | (0.04 | ) | 0.02 | 0.02 | 0.08 | |||
| Common shares outstanding (000s) | ||||||||
| End of period – basic | 265,935 | 265,845 | 265,935 | 265,845 | ||||
| End of period – diluted | 287,381 | 285,253 | 287,381 | 285,253 | ||||
| Weighted average common shares for period – basic | 265,933 | 265,820 | 265,924 | 265,809 | ||||
| Weighted average common shares for period – diluted | 265,933 | 267,773 | 266,297 | 266,793 | ||||
| Dividends on common shares ($000s) | 6,981 | 6,646 | 13,961 | 13,291 | ||||
| Dividends on Series A preferred shares ($000s) | 1,047 | 1,047 | 2,094 | 2,094 | ||||
| Dividends on Series C preferred shares ($000s) | 875 | 875 | 1,750 | 1,750 | ||||
| Total capital expenditures ($000s)(4) | 68,532 | 66,464 | 200,490 | 199,608 | ||||
| Long-term debt ($000s) | 622,282 | 617,291 | 622,282 | 617,291 | ||||
| Adjusted working capital deficit ($000s) | 32,427 | 44,118 | 32,427 | 44,118 | ||||
| Total debt ($000s) | 654,709 | 661,409 | 654,709 | 661,409 | ||||
(1) Beginning in Q1 2019, Birchcliff began presenting condensate and NGLs separately. Prior period sales and volumes have been adjusted to conform to this current period presentation.
(2) Excludes the effects of financial instruments but includes the effects of physical delivery contracts.
(3) Includes non-cash expenses such as compensation, accretion, amortization of deferred financing fees and other losses.
(4) See “Advisories – Capital Expenditures”. Total capital expenditures for the six months ended June 30, 2019 include the $39 million Acquisition (as defined below).
(5) Birchcliff adopted IFRS 16: Leases effective January 1, 2019 using the modified retrospective approach; therefore 2018 comparative information has not been restated.
This press release contains forward-looking statements within the meaning of applicable securities laws. For further information regarding the forward-looking statements contained herein, please see “Advisories – Forward-Looking Statements”. In addition, this press release contains references to “adjusted funds flow”, “adjusted funds flow per common share”, “free funds flow”, “operating netback”, “adjusted funds flow netback”, “total cash costs”, “adjusted working capital deficit” and “total debt”, which do not have standardized meanings prescribed by GAAP. For further information regarding these non-GAAP measures, please see “Non-GAAP Measures”.
Q2 2019 FINANCIAL AND OPERATIONAL RESULTS
FINANCIAL RESULTS
Production
Birchcliff’s production averaged 78,453 boe/d in Q2 2019, a 3% increase from 76,296 boe/d in Q2 2018. The increase was primarily attributable to the incremental production from new horizontal oil wells in Gordondale and horizontal condensate-rich natural gas wells in Pouce Coupe that were brought on production in Q2 2019, partially offset by production curtailments on the NGTL and TCPL Canadian Mainline systems and natural production declines.
Production consisted of approximately 6% light oil, 7% condensate, 9% NGLs and 78% natural gas in Q2 2019 as compared to 7% light oil, 5% condensate, 8% NGLs and 80% natural gas in Q2 2018. Birchcliff’s liquids production weighting increased by 8% from Q2 2018. The change in the commodity production mix was primarily attributable to the addition of condensate-rich natural gas wells in Pouce Coupe and an increase in C3+ recovered from the natural gas stream at Birchcliff’s 100% owned and operated natural gas processing plant located in Pouce Coupe (the “Pouce Coupe Gas Plant”).
Production from Pouce Coupe was 51,746 boe/d (66% of total corporate production) in Q2 2019 as compared to 47,761 boe/d (63% of total corporate production) in Q2 2018. Production from Gordondale was 26,703 boe/d (34% of total corporate production) in Q2 2019 as compared to 28,308 boe/d (37% of total corporate production) in Q2 2018.
Adjusted Funds Flow
Birchcliff’s adjusted funds flow for Q2 2019 was $74.0 million, or $0.28 per basic common share, a 2% increase and a 4% increase, respectively, from $72.4 million and $0.27 per basic common share in Q2 2018. The increases were primarily due to lower royalty expense and a realized gain on financial instruments in Q2 2019 as compared to a realized loss on financial instruments in Q2 2018, largely offset by an increase in transportation and other expense as a result of Birchcliff’s increased Dawn and AECO firm service and lower reported revenue. Revenue received by the Corporation was lower mainly due to a decrease in the average realized liquids pricing, partially offset by increased production of high-value condensate in Pouce Coupe.
Net Loss to Common Shareholders
Birchcliff recorded a net loss to common shareholders of $9.5 million, or $0.04 per basic common share, in Q2 2019 as compared to net income to common shareholders of $6.4 million and $0.02 per basic common share in Q2 2018. The change to a net loss position from a net income position was primarily due to a $46.4 million unrealized mark-to-market loss on financial instruments recorded in Q2 2019 as compared to a $2.5 million unrealized mark-to-market gain on financial instruments in Q2 2018, partially offset by a $26.1 million income tax recovery in Q2 2019 as compared to a $3.6 million income tax expense in Q2 2018.
The unrealized mark-to-market loss on financial instruments on an after-tax basis was $35.7 million, or $0.13 per basic common share. Included in the $26.1 million income tax recovery in Q2 2019 was approximately $18.9 million related to the reduction in future income tax liability resulting from the change in Alberta’s corporate income tax rate from 12% to 8% over the next four years.
Operating Expense
Birchcliff’s operating expense was $3.17/boe in Q2 2019, a 6% decrease from $3.36/boe in Q2 2018. The decrease was primarily due to: (i) a step-down reduction in natural gas processing fees which became effective January 1, 2019 at AltaGas’ deep-cut sour gas processing facility in Gordondale; (ii) reduced take-or-pay processing commitments in Pouce Coupe beginning in November 2018, which resulted in natural gas being redirected from third-party facilities to the Pouce Coupe Gas Plant; and (iii) increased operating efficiencies resulting from expanded liquids-handling capabilities in Pouce Coupe.
Transportation and Other Expense
Birchcliff’s transportation and other expense was $4.29/boe in Q2 2019, an 18% increase from $3.64/boe in Q2 2018. The increase was primarily due to an additional 30,000 GJ/d of firm service transportation to Dawn which became available on November 1, 2018 and unused firm transportation costs associated with Birchcliff’s commitments on the NGTL system.
G&A Expense
Birchcliff’s G&A expense was $0.87/boe in Q2 2019, a 1% decrease from $0.88/boe in Q2 2018. The decrease was primarily due to higher corporate production, with no significant change to aggregate G&A expense.
Interest Expense
Birchcliff’s interest expense was $0.92/boe in Q2 2019, a 4% decrease from $0.96/boe in Q2 2018. The decrease was primarily due to higher corporate production, with no significant change to aggregate interest expense.
Total Cash Costs
Birchcliff’s total cash costs were $10.00/boe in Q2 2019, a 4% decrease from $10.37/boe in Q2 2018. The decrease was primarily due to lower per boe royalty and operating expenses, partially offset by higher transportation and other expense.
Operating Netback
Birchcliff’s operating netback was $11.38/boe in Q2 2019, a 14% decrease from $13.16/boe in Q2 2018. The decrease was primarily due to a 10% decrease in the corporate average realized sales price, partially offset by lower per boe total cash costs as noted above.
Pouce Coupe Gas Plant Netbacks
During the six months ended June 30, 2019, Birchcliff processed approximately 69% of its total corporate natural gas production and 59% of its total corporate production through the Pouce Coupe Gas Plant as compared to 67% and 57%, respectively, during the six months ended June 30, 2018. The following table sets forth Birchcliff’s average daily production and operating netback for wells producing to the Pouce Coupe Gas Plant for the periods indicated:
| Six months ended June 30, 2019 |
Six months ended June 30, 2018 |
|||||||
| Average production: | ||||||||
| Condensate (bbls/d) | 3,272 | 2,147 | ||||||
| NGLs (bbls/d) | 753 | 51 | ||||||
| Natural gas (Mcf/d) | 246,920 | 249,317 | ||||||
| Total (boe/d) | 45,178 | 43,751 | ||||||
| Liquids-to-gas ratio (bbls/MMcf) | 16.3 | 8.8 | ||||||
| Netback and cost: | $/Mcfe | $/boe | $/Mcfe | $/boe | ||||
| Petroleum and natural gas revenue(1) | 3.38 | 20.30 | 2.91 | 17.49 | ||||
| Royalty expense | (0.06 | ) | (0.35 | ) | (0.05 | ) | (0.29 | ) |
| Operating expense(2) | (0.39 | ) | (2.34 | ) | (0.39 | ) | (2.36 | ) |
| Transportation and other expense | (0.75 | ) | (4.55 | ) | (0.55 | ) | (3.33 | ) |
| Operating netback | $2.18 | $13.06 | $1.92 | $11.51 | ||||
| Operating margin(3) | 64 | % | 64 | % | 66 | % | 66 | % |
(1) Excludes the effects of financial instruments but includes the effects of physical delivery contracts. Please see “Q2 2019 Financial and Operational Results – Financial Results – Risk Management”.
(2) Represents plant and field operating expense.
(3) Operating margin is calculated by dividing the operating netback for the period by the petroleum and natural gas revenue for the period.
Birchcliff’s liquids-to-gas ratio increased by 85% as compared to the six months ended June 30, 2018 primarily due to: (i) the re-configuration of Phases V and VI of the Pouce Coupe Gas Plant in Q4 2018 which provided for shallow-cut capability, allowing Birchcliff to extract C3+ from the natural gas stream; and (ii) specifically targeted condensate-rich natural gas wells in Pouce Coupe. The amount of condensate being produced at the Pouce Coupe Gas Plant increased by 52% as compared to the six months ended June 30, 2018. The increase in the liquids-to-gas ratio improved Birchcliff’s average realized sales price and operating netback at the Pouce Coupe Gas Plant.
Debt
At June 30, 2019, Birchcliff had significant liquidity with long-term bank debt of $622.3 million (June 30, 2018: $617.3 million) from credit facilities in the aggregate principal amount of $1.0 billion (June 30, 2018: $950.0 million), leaving $357.6 million of unutilized credit capacity after adjusting for outstanding letters of credit and unamortized interest and fees. Total debt at June 30, 2019 was $654.7 million as compared to $661.4 million at June 30, 2018.
As previously disclosed in Birchcliff’s press release dated May 15, 2019, the agreement governing Birchcliff’s extendible revolving credit facilities (the “Credit Facilities”) was amended effective May 10, 2019 to: (i) extend the maturity dates of each of the extendible revolving syndicated term credit facility (the “Syndicated Credit Facility”) and the extendible revolving working capital facility (the “Working Capital Facility”) from May 11, 2021 to May 11, 2022; and (ii) increase the borrowing base limit to $1.0 billion from $950.0 million, with the Syndicated Credit Facility being increased to $900.0 million from $850.0 million and the Working Capital Facility remaining at $100.0 million. The Credit Facilities do not contain any financial maintenance covenants.
Commodity Prices
The following table sets forth the average benchmark index prices and Birchcliff’s average realized sales prices for the periods indicated:
| Three months ended June 30, 2019 |
Three months ended June 30, 2018 |
Bruno Geremia – Vice-President and Chief Financial Officer |
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