CALGARY, Alberta, Jan. 20, 2021 (GLOBE NEWSWIRE) -- Birchcliff Energy Ltd. (“ Birchcliff ” or the “ Corporation ”) (TSX: BIR) is pleased to announce its 2021 capital program and updated five year plan.
“Our priorities over the next five years are to maximize free funds flow generation and strengthen our balance sheet. We believe this strategy will provide us with the most optionality to maximize long-term shareholder returns and take advantage of future opportunities. In furtherance of these priorities, our board of directors has approved an F&D capital budget of $210 million to $230 million for 2021, which targets an annual average production rate of 78,000 to 80,000 boe/d. This targeted annual average production is expected to generate approximately $360 million of adjusted funds flow and free funds flow of $130 million to $150 million in 2021 1 . Free funds flow will be used primarily to strengthen our balance sheet. We are targeting to reduce our total debt at year end 2021 by up to $130 million from December 31, 2020 based on our anticipated F&D capital spending, annual average production and free funds flow in 2021,” commented Jeff Tonken, President and Chief Executive Officer of Birchcliff.
Jeff Tonken continued: “In alignment with the above priorities, our board of directors has approved an updated five year plan which provides for potential cumulative free funds flow of approximately $960 million by the end of the five years based on our targeted F&D capital spending, annual average production and adjusted funds flow over the period 2 . Free funds flow generated during the course of the five year plan will be prioritized towards debt reduction. In the first two years of the plan, our F&D capital spending will be focused on maintaining a relatively flat production profile in order to strengthen our balance sheet. In the last three years of the plan, we intend to focus on fully utilizing the available processing capacity of our existing infrastructure, which is expected to increase our free funds flow, drive down our per unit costs and maximize our operational efficiencies.”
This press release contains forward-looking statements within the meaning of applicable securities laws. For further information regarding the forward-looking statements contained herein, see “Advisories – Forward-Looking Statements”. In addition, this press release uses the terms “adjusted funds flow”, “free funds flow”, “transportation and other expense” and “total debt”, which do not have standardized meanings prescribed by GAAP and therefore may not be comparable to similar measures presented by other companies where similar terminology is used. For further information regarding these non-GAAP measures, see “Non-GAAP Measures”. With respect to the disclosure of Birchcliff’s production contained in this press release, see “Advisories – Production”.
RELEASE OF UNAUDITED RESULTS FOR 2020 – FEBRUARY 10, 2021
In Q4 2020, Birchcliff achieved average production of approximately 78,500 boe/d 3 (based on field estimates), which was the mid-point of its guidance of 78,000 to 79,000 boe/d. In 2020, Birchcliff achieved annual average production of approximately 76,500 boe/d 4 (based on field estimates), which was the mid-point of its guidance of 76,000 to 77,000 boe/d. Birchcliff expects to release its unaudited financial and operational results and reserves highlights for the year ended December 31, 2020 on February 10, 2021.
___________________________
1 Birchcliff’s estimate of adjusted funds flow of $360 million is based on an annual average production rate of 79,000 boe/d, which represents the mid-point of the Corporation’s 2021 annual average production guidance range. Assumes the following commodity prices and exchange rate in 2021: (i) an average WTI price of US$50.00/bbl; (ii) an average WTI-MSW differential of CDN$6.00/bbl; (iii) an average AECO 5A price of CDN$2.50/GJ; (iv) an average Dawn price of US$2.75/MMBtu; (v) an average NYMEX HH price of US$2.80/MMBtu; and (vi) an exchange rate (CDN$ to US$1) of 1.27. See “2021 Guidance” and “Advisories – Forward-Looking Statements”.
2 Assumes the following commodity prices and exchange rate over 2021 to 2025: (i) an average WTI price of US$50.00/bbl; (ii) an average WTI-MSW differential of CDN$6.00/bbl; (iii) an average AECO 5A price of CDN$2.50/GJ; (iv) an average Dawn price of US$2.75/MMBtu; (v) an average NYMEX HH price of US$2.80/MMBtu; and (vi) an exchange rate (CDN$ to US$1) of 1.27. See “Five Year Plan” and “Advisories – Forward-Looking Statements”.
3 Consists of approximately 362 MMcf/d of natural gas, 6,378 bbls/d of condensate, 8,165 bbls/d of NGLs and 3,671 bbls/d of light oil.
4 Consists of approximately 352 MMcf/d of natural gas, 5,754 bbls/d of condensate, 7,620 bbls/d of NGLs and 4,441 bbls/d of light oil.
2021 CAPITAL PROGRAM
Overview
Birchcliff’s 2021 capital program (the “ 2021 Capital Program ”) marks the first year of its five year plan for 2021 to 2025 (the “ Five Year Plan ”) and is focused on maximizing free funds flow generation and strengthening Birchcliff’s balance sheet. Birchcliff’s 2021 F&D capital budget of $210 million to $230 million targets an annual average production rate of 78,000 to 80,000 boe/d, with a production commodity mix of approximately 76% natural gas and 24% liquids. None of Birchcliff’s production is currently subject to fixed price commodity hedges, which will allow it to capitalize on strengthening commodity prices. This, coupled with Birchcliff’s efficient execution and low-cost structure, will allow the Corporation to maximize free funds generation and strengthen its balance sheet.
The 2021 Capital Program builds off the technical and operational knowledge Birchcliff gained from its 2020 capital program, which will help it to continue to refine its drilling and completions operations and improve well performance. Furthermore, Birchcliff’s focused drilling activities and large-scale well pad designs are expected to result in improved capital efficiencies.
Adjusted funds flow of approximately $360 million is expected to be generated in 2021 based on the mid-point of the Corporation’s 2021 annual average production guidance range, with free funds flow of approximately $130 million to $150 million which will be used primarily to strengthen the balance sheet. The Corporation is targeting to reduce its total debt at year end 2021 by up to $130 million from December 31, 2020 based on its anticipated F&D capital spending, annual average production and free funds flow in 2021.
Highlights of the 2021 Capital Program
The key highlights of Birchcliff’s 2021 Capital Program are as follows:
F&D Capital Spending and Production
- Total F&D capital expenditures are estimated to be $210 million to $230 million, which represents a 23% 5 reduction from 2020 mainly as the result of one-time facilities and infrastructure projects completed by Birchcliff in 2020.
- Annual average production in 2021 is expected to be in the range of 78,000 to 80,000 boe/d.
- Production in the first half of 2021 is anticipated to average approximately 74,000 boe/d 6 . In order to minimize frac-driven interaction associated with offset drilling and completions activities, Birchcliff plans to protect its existing wells by proactively shutting-in some production in the first half of 2021. In addition, Birchcliff has scheduled a turn-around in the first half of 2021 at part of its 100% owned and operated natural gas processing plant in Pouce Coupe (the “ Pouce Coupe Gas Plant ”).
- Production in the second half of 2021 is expected to average approximately 84,000 boe/d 7 , with production expected to ramp up in Q3 and Q4 as the majority of Birchcliff’s new 2021 wells are planned to be brought on production in the second half of the year. Bringing on the majority of wells later in 2021 will allow Birchcliff to take advantage of stronger expected natural gas prices that are typically seen in the winter months.
Capital Activities and Allocation
- Approximately 73% 8 of the program is directed towards drilling, completions, equipping and tie-in (“ DCCET ”) activities, with a total of 27 (27.0 net) wells expected to be drilled and 33 (33.0 net) wells expected to be brought on production in 2021.
- Birchcliff’s 2021 drilling program is focused on developing its low-cost natural gas and liquids-rich production in Pouce Coupe and Gordondale.
- Approximately 12% 8 of the program is directed towards facilities and infrastructure.
- As a result of the completion of various one-time projects in 2020, Birchcliff’s facilities and infrastructure spending in 2021 is expected to decrease by approximately 65%, from approximately $75 million in 2020 to approximately $25 million in 2021. Facilities and infrastructure spending in 2021 will be directed towards various facility optimization projects in order to improve the production performance of Birchcliff’s existing wells.
- In 2020, Birchcliff completed an inlet-liquids handling facility at its Pouce Coupe Gas Plant and the addition of natural gas compression and a significant trunk line in Gordondale. These long lifespan infrastructure projects have helped Birchcliff to improve its efficiencies and netbacks, which has further enhanced Birchcliff’s free funds flow generating capacity.
- The program is weighted towards the first half of the year, with the majority of F&D capital expected to be spent by the end of Q2 2021.
___________________________
5 Based on estimated F&D capital expenditures of $285 million in 2020 and the mid-point of the Corporation’s 2021 F&D capital expenditures guidance range.
6 Represents the mid-point of the Corporation’s production guidance range for the first half of 2021 of 73,000 to 75,000 boe/d.
7 Represents the mid-point of the Corporation’s production guidance range for the second half of 2021 of 83,000 to 85,000 boe/d.
8 Based on the mid-point of the Corporation’s F&D capital expenditures guidance range.
Capital Allocation
The following tables set forth further details regarding Birchcliff’s expected capital spending allocation and the number and types of wells expected to be drilled and brought on production in 2021:
2021 Capital Program – Capital Expenditures by Classification
| Classification | Capital (MM) | |
| DCCET | | |
| | Pouce Coupe (1) | $93 – $102 | |
| | Gordondale (1) | $38 – $41 | |
| | Additional Well Completions Capital (2) | $22 – $24 | |
Total DCCET
| $153 – $167 | |
| Facilities and Infrastructure | $25 – $28 | |
| Maintenance and Optimization | $12 – $14 | |
| Land and Seismic (3) | $4 | |
| Other | $16 – $17 | |
| TOTAL F&D Capital Expenditures (4) | $210 – $230 | |
| (1) | On a DCCET basis, the average well cost in 2021 is estimated to be approximately $5.3 million for each of Pouce Coupe and Gordondale. These costs can vary depending on factors such as the size of the associated multi-well pads, the costs of construction, the existence of pipelines and other infrastructure and the distance to existing or planned pipelines and other infrastructure. |
| (2) | Represents the estimated completion, equipping and tie-in costs associated with 6 (6.0 net) wells that were drilled and rig released in Q4 2020. |
| (3) | Includes capital for crown sales and rental payments but does not include other property acquisitions and dispositions. |
| (4) | Net property acquisitions and dispositions have not been included in the table above as these amounts are generally unbudgeted. Birchcliff makes acquisitions and dispositions in the ordinary course of business and any acquisitions and dispositions completed during 2021 could have an impact on Birchcliff’s capital expenditures, production, adjusted funds flow, free funds flow, costs and total debt, which impact could be material. See “Advisories – Capital Expenditures” and “Advisories – Forward-Looking Statements”. |
2021 Capital Program – Wells to be Drilled and Brought on Production
Area |
Total wells to be drilled in 2021 | | Total wells to be brought on production in 2021 (1) | |
| Pouce Coupe | | | | |
| | Montney D1 horizontal natural gas wells | 7 | | 7 | |
| | Montney D2 horizontal natural gas wells | 4 | | 4 | |
| | Montney C horizontal natural gas wells | 4 | | 4 | |
| | Basal Doig/Upper Montney horizontal natural gas wells | 4 | | 10 | |
| | Total – Pouce Coupe | 19 | | 25 | |
| | | | | |
| Gordondale | | | | |
| | Montney D1 horizontal natural gas wells | 2 | | 2 | |
| | Montney D2 horizontal natural gas wells | 1 | | 1 | |
| | Montney C horizontal natural gas wells | 1 | | 1 | |
| | Montney D1 horizontal oil wells | 2 | | 2 | |
| | Montney D2 horizontal oil wells | 2 | | 2 | |
| | Total – Gordondale | 8 | | 8 | |
| TOTAL – COMBINED | 27 | | 33 | |
(1) Includes 6 (6.0 net) wells that were drilled and rig released in Q4 2020.
Pouce Coupe
Approximately 67% of the 2021 Capital Program is directed towards Birchcliff’s Pouce Coupe area. Key focus areas for Pouce Coupe in 2021 will be the drilling of condensate-rich natural gas wells and the further exploitation and delineation of condensate-rich trends in the Montney D1, D2 and C intervals and the Basal Doig/Upper Montney.
Birchcliff plans to drill a total of 19 (19.0 net) wells and bring on production 25 (25.0 net) wells in 2021. All wells will be drilled on multi-well pads to reduce Birchcliff’s environmental footprint and per well costs. Birchcliff is planning to drill a 10-well pad building off the success of its 14-well pad in 2020 which used multi-interval cube style development and resulted in Birchcliff achieving significant cost savings on a per well basis of 29% and 23%, respectively, compared to 2018 and 2019 average per well costs. This reservoir development strategy allows for the co-development of the Montney C, D1 and D2 intervals, which Birchcliff believes is preferable to single interval development over several years. In addition, co-development allows Birchcliff to continue reducing per well costs through scale and repeatability.
In Q1 2021, Birchcliff plans on completing a 7-well pad comprised of 6 Basal Doig/Upper Montney wells and 1 Montney D1 well. Birchcliff has not been active drilling the Basal Doig/Upper Montney over the last few years; however, recent results from offsetting activity and improved natural gas prices make these locations significantly more attractive and have the potential for follow-up drilling based on successful results.
Birchcliff also plans on installing field compression in the south-western portion of Pouce Coupe, which will help reduce line pressures in the area and allow for improved performance of existing wells. This project is expected to be onstream in early Q2 2021.
Gordondale
Approximately 22% of the 2021 Capital Program is directed towards Birchcliff’s Gordondale area. Key focus areas for Gordondale in 2021 will be the drilling of liquids-rich natural gas wells and the further exploitation and delineation of condensate and light oil trends in the Montney D1, D2 and C intervals.
Birchcliff plans to drill and bring on production a total of 8 (8.0 net) wells on 2 pads in 2021, which is expected to keep AltaGas’s deep-cut sour gas processing facility in Gordondale (the “ AltaGas Facility ”) full during 2021. Birchcliff will be targeting the Montney C interval in the north-eastern portion of Gordondale, which is progressing the successful Montney C development into Gordondale from Pouce Coupe. Development of the Montney D1 and D2 will continue in Gordondale, targeting liquids-rich natural gas versus light oil in 2021 due to Birchcliff’s outlook for strong natural gas prices in 2021. Birchcliff continues to have a significant inventory of light oil drilling locations should light oil prices continue to improve.
OPERATIONAL UPDATE
Birchcliff currently has 3 drilling rigs at work, with 1 rig in the Gordondale area and 2 in the Pouce Coupe area. Year-to-date, Birchcliff has drilled:
- 2 (2.0 net) Montney/Doig horizontal natural gas wells in the Pouce Coupe area (1 Montney D1 and 1 Montney D2); and
- 2 (2.0 net) Montney D1 horizontal natural gas wells in the Gordondale area.
2021 GUIDANCE
The following table sets forth Birchcliff’s guidance and commodity price assumptions for 2021:
| | | 2021 guidance and assumptions (1) | |
| Production | | | |
| Annual average production (boe/d) | | 78,000 – 80,000 | |
| % Light oil | | 5% | |
| % Condensate | | 9% | |
| % NGLs | | 10% | |
| % Natural gas | | 76% | |
| Q4 average production (boe/d) | | 83,000 – 85,000 | |
| | | | |
| Average Expenses ($/boe) | | | |
| Royalty | | 1.15 – 1.35 | |
| Operating | | 2.90 – 3.10 | |
| Transportation and other | | 5.00 – 5.20 | |
| | | | |
| Adjusted Funds Flow (MM$) | | 360 (2) | |
| | | | |
| F&D Capital Expenditures (MM$) | | 210 – 230 (3)(4) | |
| | | | |
| Free Funds Flow (MM$) | | 130 – 150 (5)(6) | |
| | | | |
| Total Debt at Year End (MM$) | | 635 – 655 (7) | |
| | | | |
| Natural Gas Market Exposure (8) | | | |
| AECO exposure as a % of total natural gas production | | 17% | |
| Dawn exposure as a % of total natural gas production | | 44% | |
| NYMEX HH exposure as a % of total natural gas production | | 33% | |
| Alliance exposure as a % of total natural gas production | | 6% | |
| | | | |
| Commodity Prices | | | |
| Average WTI price (US$/bbl) | | 50.00 | |
| Average WTI-MSW differential (CDN$/bbl) | | 6.00 | |
| Average AECO 5A price (CDN$/GJ) | | 2.50 | |
| Average Dawn price (US$/MMBtu) (9) | | 2.75 | |
| Average NYMEX HH price (US$/MMBtu) (9) | | 2.80 | |
| Exchange rate (CDN$ to US$1) | | 1.27 | |
| (1) | Birchcliff’s guidance for its production commodity mix, adjusted funds flow and natural gas market exposure is based on an annual average production rate of 79,000 boe/d during 2021, which is the mid-point of Birchcliff’s annual average production guidance range. |
| (2) | Birchcliff’s estimate of adjusted funds flow takes into account the effects of its commodity risk management contracts outstanding as at January 20, 2021. |
| (3) | Birchcliff’s estimate of F&D capital expenditures excludes any net potential acquisitions and dispositions and corresponds to Birchcliff’s 2021 F&D capital budget. See “2021 Capital Program” and “Advisories – Capital Expenditures”. |
| (4) | As compared to Birchcliff’s preliminary guidance range of $200 million to $220 million previously disclosed on November 12, 2020. |
| (5) | Free funds flow is calculated as adjusted funds flow less F&D capital expenditures and is prior to acquisitions and dispositions, dividend payments, ARO, administrative assets, financing fees and capital lease obligations. See “Non-GAAP Measures”. |
| (6) | As compared to Birchcliff’s preliminary guidance of $140 million previously disclosed on November 12, 2020. |
| (7) | The total debt amount set forth in the table above assumes the following: (i) that the timing and amount of common share and preferred share dividends paid by the Corporation remains consistent with previous years, with the dividend rates and applicable taxes remaining unchanged; (ii) that there are 266 million common, 2,000,000 series A and 1,597,180 series C preferred shares outstanding, with no redemptions of series C preferred shares or buybacks of common shares occurring during 2021; (iii) that there is no repayment of debt using the proceeds from asset dispositions or debt or equity issuances; (iv) that the 2021 Capital Program will be carried out as currently contemplated and the level of capital spending set forth herein will be achieved; and (v) the targets for production, production commodity mix, capital expenditures, adjusted funds flow, free funds flow and natural gas market exposure and the commodity price and exchange rate assumptions set forth herein are met. The amount set forth in the table above does not include annual cash incentive payments. |
| (8) | Birchcliff’s guidance regarding its natural gas market exposure in 2021 assumes: (i) 175,000 GJ/d being sold at the Dawn index price; (ii) 25,400 MMcf/d being sold at Alliance’s Trading Pool daily index price; and (iii) 152,500 MMBtu/d being hedged on a financial and physical basis at a fixed basis differential between the AECO 7A price and the NYMEX HH price. |
| (9) | See “Advisories – MMBtu Pricing Conversions”. |
Adjusted Funds Flow Sensitivity
The following table illustrates the expected impact of changes in commodity prices and the CDN/US exchange rate on the Corporation’s estimate of adjusted funds flow for 2021 of $360 million, after taking into account the effects of its commodity risk management contracts outstanding as at January 20, 2021:
| | | Estimated change to 2021 adjusted funds flow (MM$) (1)(2) |
| Change in WTI US$1.00/bbl | | 5.9 |
| Change in NYMEX HH US$0.10/MMBtu | | 6.6 |
| Change in Dawn US$0.10/MMBtu | | 8.0 |
| Change in AECO CDN$0.10/GJ | | 3.0 |
| Change in CDN/US exchange rate CDN$0.01 | | 3.3 |
| (1) | See the guidance table above. |
| (2) | The calculated impact on adjusted funds flow is only applicable within the limited range of change indicated. Calculations are performed independently and may not be indicative of actual results. Actual results may vary materially when multiple variables change at the same time. |
Ongoing volatility in commodity prices resulting from the COVID-19 pandemic may adversely and materially impact the Corporation’s future financial and operational results. Changes in assumed commodity prices and variances in production estimates can have a significant impact on the Corporation’s estimates of adjusted funds flow and free funds flow and the Corporation’s other guidance, which impact may be material. For further information, see “Advisories – Forward-Looking Statements” in this press release.
FIVE YEAR PLAN
Overview
Birchcliff’s Five Year Plan is expected to generate strong economic returns and increase shareholder value over the long-term. The key highlights of the Five Year Plan are:
- Maximizing free funds flow and strengthening the Corporation’s balance sheet over the five year period.
- Fully utilizing the available processing capacity of the Corporation’s existing infrastructure over the last three years of the plan.
Targeted Key Metrics
The following table summarizes the targeted key metrics of the Five Year Plan (1)(2) :