Birchcliff Energy Ltd. Announces 2016 Year-End Results, Material Reserves Additions, 2017 Capital Program and Strong Gordondale Drilling Results
(firmenpresse) - CALGARY, ALBERTA -- (Marketwired) -- 02/08/17 -- Birchcliff Energy Ltd. ("Birchcliff") (TSX: BIR) is pleased to announce its unaudited 2016 year-end and fourth quarter financial and operational results, highlights from its independent reserves evaluations effective December 31, 2016 and its 2017 capital expenditure program. Birchcliff is also pleased to provide an operational update and the results of its recent drilling in Pouce Coupe and Gordondale.
Jeff Tonken, President and Chief Executive Officer of Birchcliff, stated: "Our 2016 results showcase Birchcliff as one of the industry leading low-cost producers and finders of natural gas, oil and liquids in the Peace River Arch of Alberta. We are focused on achieving production in excess of 100,000 boe/d by the end of 2018, an estimated 61% production growth from our current production of 62,000 boe/d. We believe that we have the people, the assets, the forecast funds flow and the balance sheet to execute on our forecasted growth plan.
I am very pleased to announce that our test rates and early production rates from our new Gordondale oil and liquids-rich natural gas wells drilled in the fourth quarter of 2016 are meeting or exceeding our expectations, confirming our confidence in the Gordondale acquisition that was completed in July 2016. In addition, the two recent Montney horizontal natural gas wells drilled in Pouce Coupe appear to be among the best that Birchcliff has drilled in Pouce Coupe.
We have hedged approximately 50% of our 2017 natural gas production at an estimated average wellhead price of $3.46/Mcf. We expect that we can fully fund our $355 million 2017 capital program out of funds flow and grow Birchcliff''s average annual production in 2017 by an estimated 42% to 50%, with fourth quarter average production estimated to be greater than 80,000 boe/d."
This press release contains forward-looking information within the meaning of applicable securities laws. Such forward-looking information is based upon certain expectations and assumptions and actual results may differ materially from those expressed or implied by such forward-looking information. For further information regarding the forward-looking information contained herein, please see "Advisories - Forward-Looking Information". In addition, this press release contains references to "funds flow", "funds flow from operations", "funds flow per common share", "netback", "operating netback", "estimated operating netback", "funds flow netback", "operating margin", "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, including reconciliations to the most directly comparable GAAP measure where applicable, please see "Non-GAAP Measures". All financial and operating information for the fourth quarter and year ended December 31, 2016 is unaudited. See "Advisories - Unaudited Information".
2016 Year-End Highlights
2016 Fourth Quarter Highlights
2016 Year-End Reserves Highlights
2016 F&D Costs, FD&A Costs and Recycle Ratios
2017 Capital Expenditure Program and Guidance Highlights
2017 Hedging Highlights
Montney/Doig Recent Well Update
Quarterly Dividend to Common Shareholders
2016 FINANCIAL AND OPERATIONAL HIGHLIGHTS
2016 UNAUDITED YEAR-END FINANCIAL AND OPERATIONAL RESULTS
2016 Production
Birchcliff achieved record annual average production in 2016 of 49,236 boe/d, which is within its previous guidance of 49,000 to 51,000 boe/d. This annual average production represents a 26% increase from its 2015 annual average production of 38,950 boe/d. The increase in production from 2015 is largely due to the production volumes acquired pursuant to the Gordondale Acquisition, as well as incremental production added from new Montney/Doig horizontal natural gas wells that were tied into Birchcliff''s 100% owned and operated natural gas plant located in the Pouce Coupe area of Alberta (the "PC Gas Plant"), partially offset by natural well production declines. In addition, Birchcliff''s production was adversely impacted by transportation service curtailments on TransCanada''s NGTL System and by unplanned downtime and maintenance activities in its Worsley area during the fourth quarter of 2016.
Production consisted of approximately 84% natural gas, 8% light oil and 8% NGLs in 2016, which is in line with Birchcliff''s previous guidance of 83% natural gas and 17% oil/NGLs. This compares to 86% natural gas, 10% light oil and 4% NGLs in 2015. The increase in oil and NGLs weighting in 2016 is due to the more heavily-weighted oil and NGLs production that was acquired pursuant to the Gordondale Acquisition.
The following table highlights Birchcliff''s annual average production per day per basic common share since 2012:
2016 Funds Flow
Funds flow in 2016 was $147.4 million ($0.74/basic common share), an 8% decrease from $160.8 million ($1.06/basic common share) in 2015. The decrease from 2015 was largely due to lower realized commodity prices and higher interest costs, partially offset by the funds flow attributable to the production volumes acquired pursuant to the Gordondale Acquisition.
2016 Net Loss to Common Shareholders
Birchcliff had a net loss of $24.3 million in 2016, as compared to the net loss of $12.2 million in 2015. Birchcliff recorded a net loss to common shareholders of $28.3 million ($0.14/basic common share), as compared to the net loss to common shareholders of $16.2 million ($0.11/basic common share) in 2015. The increases in the net losses were mainly attributable to: (i) lower funds flow from operations; (ii) a $9.5 million non-cash loss on the sale of assets in the Progress area in the second quarter of 2016; and (iii) a $9.4 million non-cash "marked to market" unrealized loss on risk management contracts that relate to 2017 but were in place at December 31, 2016. These losses were partially offset by the funds flow attributable to the production volumes acquired pursuant to the Gordondale Acquisition.
2016 Operating Costs and General and Administrative Expense
Operating costs in 2016 were $4.18/boe, an 8% decrease from $4.54/boe in 2015. Operating costs per boe decreased from 2015 largely due to the continued cost benefits achieved from processing incremental volumes of natural gas at the PC Gas Plant, lower service costs resulting from reduced industry activity and various cost reductions and infrastructure optimization initiatives implemented by Birchcliff, and were partially offset by the higher operating cost structure associated with the liquids-rich Gordondale Assets.
General and administrative expense in 2016 was $1.19/boe, a 26% decrease from $1.61/boe in 2015. The decrease is largely due to the increase in production volumes as a result of the Gordondale Acquisition.
2016 PC Gas Plant Netbacks
During 2016, Birchcliff processed approximately 68% of its total corporate natural gas production and 59% of its total corporate production through the PC Gas Plant, with an average plant and field operating cost of $0.25/Mcfe ($1.49/boe). The estimated operating netback at the PC Gas Plant was $1.90/Mcfe ($11.38/boe), resulting in an operating margin of 75% in 2016.
The following table details Birchcliff''s annual net production and estimated operating netback for wells producing to the PC Gas Plant, on a production month basis:
2016 Total Cash Costs and Funds Flow Netbacks
During 2016, Birchcliff had total cash costs of $10.59/boe, a 4% decrease from $11.01/boe in 2015. The decrease from 2015 was primarily driven by lower per unit operating costs in the Pouce Coupe area and lower general and administrative costs and partially offset by a higher operating cost structure attributable to the Gordondale Assets.
During 2016, Birchcliff had funds flow netback of $8.18/boe, a 28% decrease from $11.31/boe in 2015. The decrease was primarily driven by lower average realized oil and natural gas prices and partially offset by lower per unit total cash costs in 2016.
2016 Debt
At December 31, 2016, Birchcliff''s long-term bank debt was $572.5 million (December 31, 2015: $622.1 million) from available credit facilities of approximately $950 million(1) (December 31, 2015: $800 million), leaving $356.9 million of unutilized credit capacity after adjusting for outstanding letters of credit and unamortized interest and fees. Total debt at December 31, 2016 was $600.0 million, which is below Birchcliff''s previous guidance of $607 million. This compares to total debt of $643.6 million at December 31, 2015. The decreases in long-term debt and total debt from December 31, 2015 is largely due to the fact that the remaining net proceeds from the equity financings completed in July 2016 (after the payment of the balance of the purchase price for the Gordondale Assets) were used to reduce Birchcliff''s indebtedness under its credit facilities.
Birchcliff has extendible revolving credit facilities in the aggregate principal amount of $950 million (the "Credit Facilities") with maturity dates of May 11, 2018, which are comprised of an extendible revolving syndicated term credit facility of $900 million (the "Syndicated Credit Facility") and an extendible revolving working capital facility of $50 million (the "Working Capital Facility"). The Credit Facilities contain no financial maintenance covenants.
The Credit Facilities are subject to a semi-annual review of the borrowing base limit by Birchcliff''s syndicate of lenders, which limit is directly impacted by the value of Birchcliff''s oil and natural gas reserves. Birchcliff may each year, at its option, request an extension to the maturity date of the Syndicated Credit Facility and the Working Capital Facility, or either of them, for an additional period of up to three years from May 11 of the year in which the extension request is made.
(1) In connection with the closing of the Gordondale Acquisition, the Credit Facilities were amended to increase the borrowing base from $750 million (December 31, 2015: $800 million) to $950 million.
Risk Management
Included in the net loss to common shareholders in 2016 was a realized gain and an unrealized loss on commodity risk management contracts of $0.8 million and $9.4 million, respectively. There were no commodity risk management contracts outstanding during the period ended December 31, 2015.
The 2016 calendar year unrealized loss of $9.4 million on commodity risk management contracts relates primarily to Birchcliff''s natural gas financial swap contracts for 2017 which were "marked to market" at December 31, 2016, when the forward calendar 2017 AECO price was above Birchcliff''s average 2017 hedge contract price of $3.02/GJ. At the date of this press release, the forward AECO price for calendar 2017 has now fallen below Birchcliff''s average 2017 natural gas hedge contract price of $3.02/GJ which would result in the reversal of the unrealized loss relating to the natural gas contracts at December 31, 2016 and the additional recording of an unrealized gain to income for the amount it has fallen below the average contract price. The volatility in the daily AECO prices and the accounting requirements to record these contracts at the end of each quarter may result in material changes in net income from quarter to quarter which are unrealized and thus have no cash consequence.
2016 Capital Expenditures
In 2016, Birchcliff had total capital expenditures of $168.5 million and net capital expenditures of $148.5 million (net of acquisitions and dispositions), in each case excluding the Gordondale Acquisition, which is slightly above Birchcliff''s previous guidance of $164 million total capital expenditures and $145 million net capital expenditures. Including the Gordondale Acquisition, Birchcliff had net capital expenditures of $762.0 million during 2016. See "Advisories - Capital Expenditures".
Birchcliff''s total finding and development capital during 2016 (which excludes acquisitions, dispositions and administrative expenses) was $165.5 million, which consists of $5.7 million on land and seismic, $76.2 million on drilling and completions, $66.8 million on facilities and infrastructure and $16.8 million on other capital expenditures attributed to execution of Birchcliff''s capital program. Of the $66.8 million spent on facilities and infrastructure, approximately $27.6 million was spent on Birchcliff''s Phase V expansion of the PC Gas Plant. The capital for the Phase V expansion was primarily for the completion of the engineering, procurement and fabrication work required for the expansion.
2016 Drilling Program
Birchcliff''s 2016 drilling program was focused on capital efficiencies and land retention on its two proven resource plays, the Montney/Doig Resource Play and the Charlie Lake Light Oil Resource Play. Birchcliff actively employed the evolving technology utilized by the industry regarding horizontal well drilling and the related multi-stage fracture stimulation ("MSF") technology.
Birchcliff drilled a total of 22 (22.0 net) wells during 2016, consisting of 14 (14.0 net) Montney/Doig horizontal natural gas wells in the Pouce Coupe area, 6.0 (6.0 net) Montney horizontal oil and natural gas wells in the Gordondale area, 1 (1.0 net) water disposal well in the Gordondale area and 1 (1.0 net) Charlie Lake horizontal light oil well in the Worsley area. All of the horizontal wells drilled in 2016 utilized MSF technology. For further information regarding Birchcliff''s drilling activities during 2016, please see "Operations Overview and Update" in this press release.
2016 Land
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.
Birchcliff''s land activities during 2016 included: (i) the acquisition of 265.7 (225.3 net) sections, including 143.5 (84.7 net) sections pursuant to the Gordondale Acquisition; and (ii) the disposition of 22.8 (12.5 net) sections, including 6.5 (4.1 net) sections of land pursuant to a disposition in the Progress area in April 2016.
Birchcliff''s undeveloped land base at December 31, 2016 was 709.6 (658.2 net) sections, with a 93% average working interest.
The following table summarizes Birchcliff''s land holdings on the following resource plays at December 31, 2016:
2016 FOURTH QUARTER FINANCIAL AND OPERATIONAL RESULTS
2016 Q4 Production
Birchcliff achieved record quarterly average production of 60,750 boe/d, which represents an 11% increase from production of 54,538 boe/d in the third quarter of 2016 and a 50% increase from 40,445 boe/d in the fourth quarter of 2015. This quarterly average production is slightly below Birchcliff''s previous guidance of 62,000 to 63,000 boe/d. Birchcliff''s production was impacted by transportation service curtailments on TransCanada''s NGTL System and by unplanned downtime and maintenance activities in its Worsley area during the fourth quarter of 2016.
Production per basic common share decreased by 3% from the third quarter of 2016 and 13% from the fourth quarter of 2015.
Production consisted of approximately 79% natural gas, 8% light oil and 13% NGLs in the fourth quarter of 2016, which is in line with Birchcliff''s previous guidance of 79% natural gas and 21% oil/NGLs. This compares to 87% natural gas, 9% light oil and 4% NGLs in the fourth quarter of 2015. The increase in oil and NGLs weighting is due to the more heavily-weighted oil and NGLs production that was acquired pursuant to the Gordondale Acquisition.
2016 Q4 Funds Flow
Funds flow was $71.8 million ($0.27/basic common share), a 72% increase from $41.7 million ($0.18/basic common share) in the third quarter of 2016 and a 113% increase from $33.7 million ($0.22/basic common share) in the fourth quarter of 2015. The increases were largely due to increased funds flow attributable to the production volumes acquired pursuant to the Gordondale Acquisition and higher realized oil and natural gas prices in the fourth quarter of 2016.
2016 Q4 Income to Common Shareholders
Birchcliff had net income of $12.1 million, as compared to the net loss of $1.1 million in the third quarter of 2016 and the net loss of $9.3 million in the fourth quarter of 2015. Birchcliff recorded net income to common shareholders of $11.1 million ($0.04/basic common share), as compared to net loss to common shareholders of $2.1 million ($0.01/basic common share) in the third quarter of 2016 and the net loss to common shareholders of $10.3 million ($0.07/basic common share) in the fourth quarter of 2015. The change to net income positions was largely due to increased funds flow attributable to the production volumes acquired pursuant to the Gordondale Acquisition and higher realized oil and natural gas prices in the fourth quarter of 2016 and offset by an unrealized loss of $9.6 million recorded in the fourth quarter of 2016 in respect of Birchcliff''s commodity risk management contracts outstanding at December 31, 2016.
2016 Q4 Operating Costs and General and Administrative Expense
Operating costs were $4.54/boe, a 2% decrease from $4.65/boe in the third quarter of 2016 and a 9% increase from $4.16/boe in the fourth quarter of 2015.
General and administrative expense was $1.19/boe, an 11% increase from $1.07/boe in the third quarter of 2016 and a 41% decrease from $2.01/boe in the fourth quarter of 2015.
2016 Q4 Capital Expenditures
Net capital expenditures in the fourth quarter were $62.5 million. Of these capital expenditures, approximately $34.7 million was incurred on drilling and completions and $17.6 million on facilities and infrastructure.
2016 Q4 Drilling
Drilling activities during the fourth quarter of 2016 were focused on Birchcliff''s Montney/Doig Resource Play. During the fourth quarter, Birchcliff drilled 9 (9.0 net) wells, consisting of 2 (2.0 net) Montney/Doig horizontal natural gas wells in the Pouce Coupe area, 6 (6.0 net) Montney horizontal oil and natural gas wells in the Gordondale area and 1 (1.0 net) water disposal well in the Gordondale area. For further information regarding Birchcliff''s drilling activities during 2016, please see "Operations Overview and Update" in this press release.
2016 YEAR-END RESERVES
Birchcliff retained two independent qualified reserves evaluators, Deloitte LLP ("Deloitte") and McDaniel & Associates Consultants Ltd. ("McDaniel"), to evaluate and prepare reports on 100% of Birchcliff''s light crude oil and medium crude oil (combined), conventional natural gas, shale gas and NGLs reserves. Deloitte evaluated all of Birchcliff''s properties other than the Gordondale Assets, representing approximately 76% of the assigned total proved plus probable reserves and 73% of the total proved plus probable future net revenue discounted at 10%. McDaniel evaluated the reserves attributable to the Gordondale Assets, representing approximately 24% of the assigned total proved plus probable reserves and 27% of the total proved plus probable future net revenue discounted at 10%.
The reserves data set forth below at December 31, 2016 is based upon the evaluation by Deloitte with an effective date of December 31, 2016 as contained in the report of Deloitte dated February 3, 2017 (the "2016 Deloitte Reserves Report") and the evaluation by McDaniel with an effective date of December 31, 2016 as contained in the report of McDaniel dated February 8, 2017 (the "2016 McDaniel Reserves Report"), which are contained in the consolidated report of Deloitte with an effective date of December 31, 2016 (the "2016 Consolidated Reserves Report"). Deloitte prepared the 2016 Consolidated Reserves Report by consolidating the properties evaluated by Deloitte in the 2016 Deloitte Reserves Report with the properties evaluated by McDaniel in the 2016 McDaniel Reserves Report, in each case using Deloitte''s forecast price and cost assumptions effective December 31, 2016 (the "2016 Deloitte Price Forecast"). Hedging gains and losses have been incorporated into the Consolidated Reserves Report.
Deloitte also prepared an evaluation of Birchcliff''s reserves effective December 31, 2015 (the "2015 Deloitte Reserves Report") and reserves data contained herein at December 31, 2015 is based upon such report. The price forecast used in such evaluation was Deloitte''s forecast price and cost assumptions effective December 31, 2015 (the "2015 Deloitte Price Forecast").
The 2016 Deloitte Reserves Report, the 2016 McDaniel Reserves Report, the 2016 Consolidated Reserves Report and the 2015 Deloitte Reserves Report were prepared in accordance with the standards contained in the Canadian Oil and Gas Evaluation Handbook (the "COGE Handbook") and National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities ("NI 51-101") in effect at the relevant time.
Numbers presented in the tables below may not total due to rounding.
For additional information regarding the presentation of Birchcliff''s reserves disclosure contained herein, please see "Presentation of Oil and Gas Reserves" and "Advisories" in this press release. The reserves data provided in this press release presents only a portion of the disclosure required under NI 51-101. The disclosure required under NI 51-101 will be contained in Birchcliff''s Annual Information Form for the year ended December 31, 2016, which is expected to be filed on the System for Electronic Document Analysis and Retrieval () on March 15, 2017.
Reserves Summary
The following table summarizes the estimates of Birchcliff''s gross reserves at December 31, 2016 and December 31, 2015, using the forecast price and cost assumptions in effect at the applicable reserves evaluation date:
The following table sets forth Birchcliff''s light crude oil and medium crude oil, conventional natural gas, shale gas and NGLs reserves at December 31, 2016, using the 2016 Deloitte Price Forecast:
Net Present Value of Future Net Revenue
The following table sets forth the net present value of future net revenue attributable to Birchcliff''s reserves at December 31, 2016, using the 2016 Deloitte Price Forecast, before deducting future income tax expenses and calculated at various discount rates:
Pricing Assumptions
The following table sets forth the forecast price and cost assumptions used in the 2016 Consolidated Reserves Report:
2016 Deloitte Price Forecast
Reconciliation of Changes in Reserves
The following table sets forth a reconciliation of Birchcliff''s gross reserves at December 31, 2016 set forth in the 2016 Consolidated Reserves Report, using the 2016 Deloitte Price Forecast, to Birchcliff''s gross reserves at December 31, 2015 set forth in the 2015 Deloitte Reserves Report, using the 2015 Deloitte Price Forecast:
Positive technical revisions, which did not require any increase to FDC, can be attributed to Deloitte''s assignment of new Montney/Doig terminal declines within Pouce Coupe and Elmworth, which is based on the historical performance of the Birchcliff and industry offsetting Montney/Doig wells and the improved performance of Birchcliff''s producing wells. These positive technical revisions accounted for 43% of the proved developed producing reserves additions, 33% of the proved reserves additions, 53% of the probable reserves additions and 36% of the proved plus probable reserves additions, when excluding the reserves additions attributable to the Gordondale Acquisition.
Acquisitions, which was comprised of the Gordondale Acquisition, accounted for 69% of the proved developed producing reserves additions, 52% of the proved reserves additions, 80% of the probable reserves additions and 62% of the proved plus probable reserves additions.
Birchcliff was also able to add significant "Extensions" primarily resulting from Montney D1 type curve upgrades in two sub areas and additional locations added in Pouce Coupe due to increased geological confidence and continued delineation on the Montney/Doig Resource Play.
Future Development Costs
Changes in forecast FDC occur annually as a result of development activities, acquisition and disposition activities and capital cost estimates that reflect the independent reserves evaluators'' best estimate of what it will cost to bring the proved and proved plus probable reserves on production.
The following table sets forth the independent reserves evaluators'' estimated FDC to bring the proved and proved plus probable reserves on production:
FDC for total proved reserves increased to $2.50 billion at December 31, 2016 from $1.81 billion at December 31, 2015. FDC for total proved plus probable reserves increased to $4.15 billion at December 31, 2016 from $3.09 billion at December 31, 2015.
The increases in FDC for both proved and proved plus probable reserves are largely due to the reserves associated with the Gordondale Assets which were acquired pursuant to the Gordondale Acquisition and the associated capital required to develop such reserves ($346 million on a proved basis and $674 million on a proved plus probable basis). In addition, the increases in FDC are also due to the FDC associated with the increase in Montney/Doig potential net future drilling locations in each category of reserves from Birchcliff''s 2016 drilling program and additional locations added in Pouce Coupe due to increased geological confidence and continued delineation on the Montney/Doig Resource Play.
The FDC for both proved and proved plus probable reserves are primarily the capital costs required to drill, complete, equip and tie-in undeveloped locations. The estimates of FDC on a proved basis also include approximately $181 million for the expansion of the PC Gas Plant to 420 MMcf/d of total throughput. The estimates of FDC on a proved plus probable basis include approximately $261 million for the expansion of the PC Gas Plant to 500 MMcf/d of total throughput. The FDC for the expansions of the PC Gas Plant also include the costs of the related gathering pipelines, sales pipeline expansion and compression.
The following table sets forth the average cost to drill, complete, equip and tie-in a multistage fractured horizontal well as estimated by Deloitte and McDaniel:
Reserves Replacement
The following table sets forth Birchcliff''s 2016 reserves replacement ratios:
Reserves Life Index
The following table sets forth Birchcliff''s 2016 reserves life index:
Reserves on the Montney/Doig Resource Play
The following table summarizes the estimates of reserves attributable to Birchcliff''s horizontal wells on the Montney/Doig Resource Play as contained in the 2016 Consolidated Reserves Report and the number of horizontal wells to which reserves were attributed:
Montney/Doig Resource Play Reserves Data(1)(2)
The following table sets forth the number of existing and potential future drilling locations by drilling interval to which proved plus probable reserves were assigned in the Consolidated Reserves Report:
Existing and Potential Future Drilling Locations by Interval at December 31, 2016
Reserves on the Charlie Lake Light Oil Resource Play - Worsley Area
At December 31, 2016, Deloitte estimated that in the Worsley Charlie Lake light oil pool, Birchcliff had 7.6 MMboe of proved developed producing reserves, 20.4 MMboe of proved reserves and 38.9 MMboe proved plus probable reserves.
2016 FINDING AND DEVELOPMENT COSTS
During 2016, Birchcliff''s F&D costs were $165.5 million and its FD&A costs were $759.0 million.
The following table sets forth Birchcliff''s estimates of its F&D costs per boe and FD&A costs per boe for 2016, 2015 and 2014, excluding and including FDC:
2016 RECYCLE RATIOS
The following table shows Birchcliff''s recycle ratios for operating and funds flow netbacks for 2016 and 2015, excluding and including FDC:
During 2016, the average WTI price of crude oil was US$43.32/bbl and the average price of natural gas at AECO was CDN$2.16/Mcf.
The operating netback was $11.01/boe in 2016, as compared to $14.52/boe in 2015. Funds flow netback was $8.18/boe in 2016, as compared to $11.31/boe in 2015.
2017 CAPITAL PROGRAM
Birchcliff''s board of directors has approved a capital expenditure budget of approximately $355 million, which represents an increase of 139% over Birchcliff''s net capital expenditures during 2016 of $148.5 million (excluding the Gordondale Acquisition). Given Birchcliff''s hedging program for 2017 and the recent modest improvement in commodity prices and Birchcliff''s outlook for such prices, Birchcliff has significantly increased its planned capital spending and activities for 2017.
Details on the expected capital spending allocation are set forth in the table below:
Highlights of the 2017 Capital Program
The 2017 Capital Program is focused on the continued exploration and development of Birchcliff''s low-cost natural gas, crude oil and liquids-rich assets on its Montney/Doig Resource Play and achieving controlled growth, maintaining balance sheet strength and the payment of a sustainable quarterly dividend to common shareholders. The 2017 Capital Program directs capital investment to those projects with the most favourable rates of return, including a mix of crude oil, liquids-rich natural gas and natural gas development opportunities. In addition, the 2017 Capital Program contemplates continued investment in the PC Gas Plant and other strategic infrastructure to provide for future growth. Highlights of the 2017 Capital Program include the following:
Drilling and Development
Birchcliff''s 2017 drilling program is focused on Birchcliff''s natural gas, liquids-rich and crude oil assets on the Montney Doig Resource Play in the Pouce Coupe and Gordondale areas. Of the 46 (46.0 net) wells contemplated by the 2017 Capital Program, Birchcliff plans to drill 32 (32.0 net) wells in its Pouce Coupe area (consisting of 22 Montney D1 horizontal natural gas wells, 7 Basal Doig/Upper Montney horizontal natural gas wells and 3 Montney D4 horizontal natural gas wells) and 14 (14.0 net) wells in the Gordondale area (consisting of 7 Montney D2 horizontal oil wells, 5 Montney D1 horizontal oil wells and 2 Montney D1 liquids-rich horizontal natural gas wells). The 46 Montney/Doig wells will be drilled on 12 pads - three 2-well pads, two 3-well pads, five 4-well pads and two 7-well pads.
In addition, the 2017 Capital Program includes capital for the various stages of the completion, equipping and tieing in of 10 wells drilled in 2016. Accordingly, it is expected that a total of 56 (56.0 net) wells will be brought on production during 2017.
Facilities and Infrastructure
The 2017 Capital Program continues Birchcliff''s investment in the PC Gas Plant and other strategic infrastructure.
PC Gas Plant - Phase V Expansion
Approximately $27.3 million will be directed towards the completion of the field construction of the Phase V expansion of the PC Gas Plant which will increase processing capacity from 180 MMcf/d to 260 MMcf/d. Field installation commenced in January 2017 and it is expected that Phase V will be on-stream in October 2017.
PC Gas Plant - Phase VI Expansion
Approximately $26.0 million will be directed towards the procurement and fabrication of the major components required for the Phase VI expansion of the PC Gas Plant which will increase processing capacity from 260 MMcf/d to 340 MMcf/d. The engineering and licensing work has been completed for the Phase VI expansion of the PC Gas Plant and Birchcliff currently expects that Phase VI will be on-stream in October 2018.
PC Gas Plant - Phase VII Expansion
Birchcliff has started the planning and initial work to further expand the capacity of the PC Gas Plant in 2019 and 2020 by 250 MMcf/d to 590 MMcf/d of total processing capacity. Birchcliff''s current plans for this expansion include a deep-cut capability and an on-stream date in mid-2019 for 150 MMcf/d of the additional capacity, with the balance of the expansion to start-up in 2020.
Birchcliff recently started the notification process for this incremental processing capacity and is working on the engineering and design and related infrastructure of this proposed deep-cut facility. Birchcliff has currently allocated less than $1 million of capital for the Phase VII expansion in the 2017 Capital Program.
2017 Production
Based on the 2017 Capital Program, Birchcliff expects its annual average production in 2017 to be in the range of 70,000 to 74,000 boe/d, which represents a range of 42% to 50% growth over Birchcliff''s annual average production of 49,236 boe/d in 2016. Birchcliff expects that production will ramp up in the fourth quarter of 2017 in connection with the start-up of the Phase V expansion of the PC Gas Plant.
Funding of the 2017 Capital Program
Birchcliff expects to fund the 2017 Capital Program using internally generated funds flow and Birchcliff has implemented a hedging program to help protect its balance sheet and its funds flow. The 2017 Capital Program is projected to be less than Birchcliff''s expected funds flow for 2017, based on a forecast average WTI price of US$55.00 per barrel of oil and a forecast average AECO price of CDN$3.00 per GJ of natural gas during 2017.
GUIDANCE
The following table sets forth Birchcliff''s guidance for 2017:
UPDATE ON HEDGING
Birchcliff has been actively implementing a hedging program in order to reduce volatility in its financial results and to protect a portion of its funds flow and capital expenditure programs. Birchcliff''s strategy for 2017 is to hedge approximately 50% of its estimated annual average natural gas production and up to 50% of its oil production using a combination of financial derivatives and physical sales contracts.
For 2017, Birchcliff has entered into hedging contracts for an average of 187,600 GJ/d (163,600 Mcf/d) of natural gas at an average AECO price of CDN$3.02/GJ (or an estimated average wellhead price of $3.46/Mcf) during 2017. This represents approximately 50% of Birchcliff''s estimated annual average natural gas production for 2017. In addition, Birchcliff entered into financial derivative contracts for 1,500 bbls/d of crude oil at an average WTI price of CDN$69.90/bbl for 2017.
Birchcliff''s hedge contracts for the fourth quarter of 2017 cover 210,000 GJ/d (183,200 Mcf/d) of natural gas at an average AECO price of CDN$3.05/GJ (or an estimated average wellhead price of $3.50/Mcf).
Birchcliff''s current strategy for 2018 is to hedge approximately 50% of its estimated annual average natural gas and oil production.
UPDATE ON TRANSPORTATION AND MARKETING ARRANGEMENTS
Virtually all of Birchcliff''s natural gas production is transported on TransCanada''s NGTL System in Alberta pursuant to both firm and interruptible service agreements. Birchcliff currently has in place firm service contracts that in the aggregate provide transportation capacity slightly above the processing capacity of its own processing facilities and sufficient transportation capacity to meet its processing commitments at third party processing facilities.
Birchcliff has entered into sales agreements with a third party marketer to sell approximately 40 MMcf/d of natural gas under contracts commencing November 1, 2017 and expiring March 31, 2018 and approximately 5 MMcf/d of natural gas under contracts commencing April 1, 2017 and expiring October 31, 2020. This production will be delivered into the Alliance Pipeline system and sold at Alliance''s Trading Pool daily index price. Birchcliff is currently proceeding with the installation of the pipeline facilities necessary to access the Alliance pipeline system.
Birchcliff expects that connection to the Alliance system will permit it to access a more diverse portfolio of gas markets and prices beyond AECO.
OPERATIONS OVERVIEW AND UPDATE
Birchcliff''s operations are concentrated within its one core area, the Peace River Arch, which is centred northwest of Grande Prairie, Alberta, adjacent to the Alberta/British Columbia border. Birchcliff''s operations are focused on two established resource plays within the Peace River Arch, the Montney/Doig Resource Play and the Charlie Lake Light Oil Resource Play. Birchcliff''s strategy is to continue to develop and expand these resource plays, while maintaining low capital costs and operating costs.
Birchcliff had an active year during 2016, drilling a total of 22 (22.0 net) wells and completing the Gordondale Acquisition, as discussed in further detail below. The 2017 Capital Program contemplates the drilling of 46 (46.0 net) wells and a continued investment in Birchcliff''s PC Gas Plant.
Montney/Doig Resource Play
Birchcliff''s Montney/Doig Resource Play is centred approximately 95 km northwest of Grande Prairie, Alberta and contains three primary producing regions: Pouce Coupe, Gordondale and Elmworth.
Part of Birchcliff''s long-term strategy is to continue to explore and delineate the Montney/Doig Resource Play, both geographically and stratigraphically. The Montney/Doig Resource Play exists in two geological formations, the Montney and the Doig, and Birchcliff has divided the geologic column in its areas of operation into six drilling intervals from the youngest (top) to the oldest (bottom): (i) the Basal Doig/Upper Montney; (ii) the Montney D4; (iii) the Montney D3; (iv) the Montney D2; (v) the Montney D1; and (vi) the Montney C.
As at December 31, 2016, Birchcliff has successfully drilled and cased 295 (289.7 net) Montney/Doig horizontal wells (which includes 87 (82.5 net) wells acquired in the Gordondale Acquisition), consisting of 67 wells in the Basal Doig/Upper Montney interval, 9 wells in the Montney D4 interval, 4 wells in the Montney D2 interval, 214 wells in the Montney D1 interval and 1 well in the Montney C interval.
The Montney D2 interval was a major focus for Birchcliff in 2016. The Gordondale Assets had one well drilled in this interval in 2014. Birchcliff has significantly increased its confidence in the ultimate commerciality of the D2 interval based upon the previous technical work that was done on the Gordondale Assets by the prior owner, publicly available information resulting from industry activity on the Montney D2 interval, Birchcliff''s own technical expertise developed in its Pouce Coupe Montney operations and its recent completion results in the Gordondale area. Please see "Recent Well Results - Pouce Coupe and Gordondale".
Pouce Coupe Area
Birchcliff was active in the Pouce Coupe area during 2016, drilling a total of 14 (14.0 net) Montney/Doig horizontal natural gas wells (2 Basal Doig/Upper Montney, 10 Montney D1 and 2 Montney D4 wells), all of which were successful. Of these wells, 2 were brought on production in February 2017.
A large portion of the 2017 Capital Program is directed towards Birchcliff''s Pouce Coupe area, including the drilling of 32 (32.0 net) wells and a continued investment in the expansion of the PC Gas Plant (see "2017 Capital Program"). Birchcliff currently has three drilling rigs operating in the Pouce Coupe area (see "Drilling Update").
Gordondale Area
On July 28, 2016, Birchcliff completed the Gordondale Acquisition. The Gordondale Assets include high working interest operated production and a large contiguous land base adjacent to Birchcliff''s existing properties in the Pouce Coupe area. Subsequent to the completion of the Gordondale Acquisition, Birchcliff established a new technical team to manage the Gordondale Assets, which devoted significant time analyzing how to best optimize the assets and identifying cost savings initiatives. In addition, Birchcliff commenced its drilling program in the Gordondale area and drilled a total of 6 (6.0 net) Montney horizontal oil and natural gas wells in the area (3 Montney D2 horizontal oil wells and 3 Montney D1 horizontal liquids-rich natural gas wells) in the fourth quarter of 2016. All six of these wells were recently completed and tested inline. Birchcliff also drilled 1 (1.0 net) water disposal well in the Gordondale area in 2016 to reduce water transportation and disposal costs.
Birchcliff expects to be active in the Gordondale area during 2017 and the 2017 Capital Program contemplates the drilling of 14 (14.0 net) wells in the Gordondale area (7 Montney D1 wells and 7 Montney D2 wells) (see "2017 Capital Program"). Birchcliff currently has two drilling rigs operating in the Gordondale area (see "Drilling Update").
Elmworth Area
In the fourth quarter of 2014, Birchcliff drilled its first successful Montney/Doig horizontal exploration well in the Montney D4 interval in the Elmworth area. Birchcliff subsequently drilled its second successful horizontal exploration well in the Elmworth area in the Montney D4 interval in the first quarter of 2015, which was brought on production in June 2015.
As part of Birchcliff''s future growth plans for its Montney/Doig Resource Play, Birchcliff is continuing to prove up the play in the Elmworth area and intends to construct and operate a 100% owned and operated natural gas plant in the Elmworth area (the "Elmworth Gas Plant"). It is anticipated that the Elmworth Gas Plant will be on-stream in the fall of 2021 and have a processing capacity of 40 MMcf/d. Birchcliff has commenced the preliminary planning for this plant and a critical requirement is a nearby acid gas disposal well which Birchcliff drilled in the first quarter of 2015. In the second and third quarters of 2015, Birchcliff conducted successful injectivity tests on the well. Birchcliff received regulatory approval for this acid gas well in August 2016.
Recent Well Results - Pouce Coupe and Gordondale
Shortly after the completion of the Gordondale Acquisition, Birchcliff announced an expansion to its 2016 capital expenditure program, which included the drilling of eight 100% wells, six at Gordondale (3 Montney D2 horizontal oil wells and 3 Montney D1 horizontal liquids-rich natural gas wells) and two Pouce Coupe Montney D1 horizontal liquids-rich natural gas wells. These eight wells were drilled and cased in the fourth quarter of 2016 and were recently completed and tested inline. Birchcliff is pleased to announce that all eight of these wells are meeting its expectations. These results support Birchcliff''s optimistic view of the Gordondale Assets that it acquired in July 2016 and more importantly, these results increase Birchcliff''s confidence in the future drilling opportunities, production additions and low-cost repeatability of its Montney/Doig Resource Play in the Peace River Arch of Alberta.
Birchcliff is very excited about the results of these new wells which were completed utilizing its latest engineered completion designs. All eight wells are meeting Birchcliff''s forecast type curves and are expected to achieve the production volumes it had budgeted. These results support the new drilling and completion techniques that Birchcliff has been evolving as it continues to see significant performance improvements.
Testing details for the wells are set forth below. The type of test conducted for each of the wells was a production test. The geological formation tested was the Montney formation and the specific intervals tested were the Montney D1 and the Montney D2 as set forth below. These test results should be considered preliminary at this stage because no pressure transient analysis or well-test interpretation was carried out on any of the wells. The duration of the production tests conducted ranged from 4 to 18 days. The test results set forth below for each well disclose the average rate of production over the last two days of the test. The average rates of flow during each entire test period have not been provided because that data is not representative of the flow capability of the wells since early flow rates are adversely affected by the frac sand and fluid injected in the stimulation process. The recovered fluid types in each case were natural gas, light and medium crude oil and condensate. The natural gas volumes recovered from the tests represent raw gas volumes as opposed to sales gas volumes and include NGLs which were not recovered separately. "Load water" (i.e. water used in well completion stimulation) is still being produced and the test rates disclosed below may include recovered load water fluids.
Birchcliff typically installs chokes in its new wells to constrain flow rates and production from these wells on a choked basis is expected to be less than the tested flow rates. These wells are expected to see high decline rates over the first two years of production and then transition to a terminal decline rate after approximately 4 years.
Test results are not necessarily indicative of the long-term performance or ultimate recovery of the wells. See "Advisories - Test Results and Initial Production Rates".
Testing details for the three Gordondale Montney D2 oil wells are as follows:
Testing details for the three Gordondale Montney D1 liquids-rich natural gas wells are as follows:
Testing details for the two Pouce Coupe Montney D1 liquids-rich natural gas wells are as follows:
Birchcliff is very excited about the six Gordondale well results as it is proving up the upside that it believed in at the time of the Gordondale Acquisition. In addition, the two Pouce Coupe wells appear to be among the best that Birchcliff has drilled in Pouce Coupe.
Potential Future Drilling Opportunities on the Montney/Doig Resource Play
As at December 31, 2016, Birchcliff held 441.2 sections of land that have potential for the Montney/Doig Resource Play. Of these lands, 433.9 (406.6 net) sections have potential for the Basal Doig/Upper Montney interval, 395.4 (383.9 net) sections have potential for the Montney D1 interval, 399.9 (388.4 net) sections have potential for the Montney D2 interval and 328.1 (319.3 net) sections have potential for the Montney D4 interval. As at December 31, 2016, Birchcliff''s total land holdings on these four intervals were 1,557.3 (1,498.2 net) sections. Assuming full development of four horizontal wells per section per drilling interval, Birchcliff has 5,992.8 net existing horizontal wells and potential net future horizontal drilling locations in respect of the Basal Doig/Upper Montney, Montney D1, Montney D2 and Montney D4 intervals as at December 31, 2016. With 295 (289.7 net) horizontal locations drilled at the end of 2016, there remains 5,703.1 potential net future horizontal drilling locations as at December 31, 2016, up from 3,367.3 at year end 2015. This does not include any potential net future horizontal drilling locations for the other two prospective Montney intervals, the Montney C and the Montney D3.
Substantial upside exists with respect to the 5,992.8 net existing horizontal wells and potential net future horizontal drilling locations. The 2016 Consolidated Reserves Report attributed proved reserves to 721.7 net existing wells and potential net future horizontal drilling locations (of which 435.0 net wells are potential future drilling locations) and proved plus probable reserves to 974.4 net existing wells and potential net future horizontal drilling locations (of which 687.7 net wells are potential future drilling locations). The remaining 5,018.4 potential net future horizontal drilling locations have not yet had any proved or probable reserves attributed to them by Birchcliff''s independent qualified reserves evaluators. Please see "2016 Year-End Reserves" and "Advisories - Drilling Locations".
Charlie Lake Light Oil Resource Play
Birchcliff''s Charlie Lake Light Oil Resource Play is centred approximately 150 km north of Grande Prairie, Alberta and contains two primary producing regions: Worsley and Progress. As at December 31, 2016, Birchcliff has successfully drilled and cased 61 (61.0 net) horizontal wells on the Charlie Lake Light Oil Resource Play, 59 wells in the Worsley area and 2 wells in the Progress area.
Early in 2016, Birchcliff drilled 1 (1.0 net) Charlie Lake horizontal light oil well in the Worsley area that continued 18 sections of land and delineated the pool to the northeast. Additional activities during 2016 included the conversion of two wells in the waterflood area to injectors to further enhance the waterflood scheme.
Drilling Update
Birchcliff has drilled 8 (8.0 net) wells year-to-date, consisting of 5 (5.0 net) Montney/Doig horizontal natural gas wells in the Pouce Coupe area and 3 (3.0 net) Montney/Doig horizontal natural gas wells in the Gordondale area. All wells were drilled on multi-well pads and none have been completed yet. Birchcliff currently has five drilling rigs at work, two in the Gordondale area and three in the Pouce Coupe area. In addition to these drilling rigs, Birchcliff has multiple completion rigs and pipeline crews working on various projects.
Birchcliff actively employs the evolving technology utilized by the industry regarding horizontal well drilling and the related MSF technology. Birchcliff is currently utilizing multi-well pad drilling which allows it to reduce its per well costs, as well as its environmental footprint. Industry is continuing to learn about MSF technology and its application to resource plays. The industry trend continues to be toward longer wells, more stages, larger fracs and less inter-well distances, both laterally and vertically.
Birchcliff has invested significant capital and time in researching and studying the reservoirs it is drilling. This leading edge science includes core derived analytical work, sophisticated petrophysical algorithms, geophysical attribute analysis and reservoir engineering. One of the technologies Birchcliff believes strongly in is the application of three dimensional seismic (3-D) data. In 2016, Birchcliff acquired 512 km2 of 3-D data and now has a total of 2,610 km2 of 3-D data. All wells drilled in 2017 will be covered with 3-D data. Birchcliff then integrates these learnings into its operations to design the best drilling technique and engineered completion it can. This is a multi-discipline process that involves a lot of time, effort and money. The investment is paying off as Birchcliff continues to improve on its results by driving down costs and improving performance.
OUTLOOK
"Our 2016 results showcase Birchcliff as one of the industry leading low-cost producers and finders of natural gas, oil and liquids in the Peace River Arch of Alberta. We are focused on achieving production in excess of 100,000 boe/d by the end of 2018, an estimated 61% production growth from our current production of 62,000 boe/d. We believe that we have the people, the assets, the forecast funds flow and the balance sheet to execute on our forecasted growth plan.
I am very pleased that our test rates and early production rates from our new Gordondale oil and liquids-rich natural gas wells drilled in the fourth quarter of 2016 are meeting or exceeding our expectations, confirming our confidence in the Gordondale Acquisition that was completed in July 2016. In addition, the two recent Montney horizontal natural gas wells drilled in Pouce Coupe appear to be among the best that Birchcliff has drilled in Pouce Coupe.
We have hedged approximately 50% of our 2017 natural gas production at an estimated average wellhead price of $3.46/Mcf. We expect that we can fully fund our $355 million 2017 capital program out of funds flow and grow Birchcliff''s average annual production in 2017 by an estimated 42% to 50%, with fourth quarter average production estimated to be greater than 80,000 boe/d.
We are focused on executing the drilling program ahead of us and the completion of the Phase V and VI expansions of our gas plant in Pouce Coupe, all with the goal of producing in excess of 100,000 boe/d by the end of 2018.
Our board of directors has approved a quarterly dividend policy in respect of our common shares, as previously announced on November 9, 2016. Subject to the approval of the board, we currently anticipate that the first dividend payable under this policy will be in respect of the quarter ending March 31, 2017 and will be in the amount of $0.025/common share.
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 thank Mr. Seymour Schulich, our largest shareholder, for his advice, unwavering commitment and his ongoing financial support. Mr. Schulich holds 35 million common shares representing 13% of the current issued and outstanding common shares.
Notwithstanding all of the issues surrounding the oil and gas industry, we believe that Birchcliff will continue to be one of the lowest cost producers in the industry, with a very strong balance sheet, a focused asset base and an extremely focused capital expenditure program, ultimately resulting in the creation of significant value for our shareholders."
On behalf of the Board of Directors,
A. Jeffery Tonken, President and Chief Executive Officer
Birchcliff Energy Ltd.
ABBREVIATIONS
NON-GAAP MEASURES
This press release uses "funds flow", "funds flow from operations", "funds flow per common share", "netback", "operating netback", "estimated operating netback", "funds flow netback", "operating margin", "total cash costs", "adjusted working capital deficit" and "total debt". These measures 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. Management believes that these non-GAAP measures assist management and investors in assessing Birchcliff''s profitability, efficiency, liquidity and overall performance. Each of these measures is discussed in further detail below.
"Funds flow" and "funds flow from operations" denote cash flow from operating activities before the effects of decommissioning expenditures and changes in non-cash working capital. "Funds flow per common share" denotes funds flow divided by the basic or diluted weighted average number of common shares outstanding for the period. Management believes that funds flow, funds flow from operations and funds flow per common share assist management and investors in assessing Birchcliff''s profitability, as well as its ability to generate the cash necessary to fund future growth through capital investments, pay dividends and repay debt. The following table provides a reconciliation of cash flow from operating activities, as determined in accordance with IFRS, to funds flow from operations:
"Netback" and "operating netback" denote petroleum and natural gas revenue less royalties, less operating expenses and less transportation and marketing expenses. "Estimated operating netback" of the PC Gas Plant (and the components thereof) is based upon certain cost allocations and accruals directly attributable to the PC Gas Plant and related wells and infrastructure on a production month basis. "Funds flow netback" denotes petroleum and natural gas revenue less royalties, less operating expenses, less transportation and marketing expenses, less net general and administrative expenses, less interest expenses and less any realized losses (plus realized gains) on financial instruments and plus any other cash income sources. All netbacks are calculated on a per boe basis, unless otherwise indicated. Management believes that netback, operating netback, estimated operating netback and funds flow netback assist management and investors in assessing Birchcliff''s profitability and its operating results on a per unit basis to better analyze its performance against prior periods on a comparable basis. The following table provides a breakdown of operating netback and funds flow netback:
"Operating margin" for the PC Gas Plant is calculated by dividing the estimated operating netback for the period by the petroleum and natural gas revenue for the period. Management believes that operating margin assists management and investors in assessing the profitability and efficiency of the PC Gas Plant and Birchcliff''s ability to generate operating cash flows (equal to petroleum and natural gas revenue less royalties, less operating expenses and less transportation and marketing expenses).
"Total cash costs" are comprised of royalty, operating, transportation and marketing, general and administrative and interest expenses. Total cash costs are calculated on a per boe basis. Management believes that total cash costs assists management and investors in assessing Birchcliff''s efficiency and overall cash cost structure.
"Adjusted working capital deficit" is calculated as current assets minus current liabilities excluding the effects of financial instruments. Management believes that adjusted working capital deficit assists management and investors in assessing Birchcliff''s liquidity. The following table reconciles current assets minus current liabilities to adjusted working capital deficit:
"Total debt" is calculated as the revolving term credit facilities plus adjusted working capital deficit. Management believes that total debt assists management and investors in assessing Birchcliff''s liquidity. The following table provides a reconciliation of the revolving term credit facilities, as determined in accordance with IFRS, to total debt:
PRESENTATION OF OIL AND GAS RESERVES
Deloitte prepared the 2016 Consolidated Reserves Report, the 2016 Deloitte Reserves Report and the 2015 Deloitte Reserves Report. McDaniel prepared the 2016 McDaniel Reserves Report. In addition, Deloitte prepared a reserves evaluation in respect of Birchcliff''s oil and natural gas properties effective December 31, 2014. Such evaluations were prepared in accordance with the standards contained in NI 51-101 and the COGE Handbook that were in effect at the relevant time. Reserves estimates stated herein are extracted from the relevant evaluation.
There are numerous uncertainties inherent in estimating quantities of oil, natural gas and NGLs reserves and the future cash flows attributed to such reserves, including many factors beyond the control of Birchcliff. The reserves and associated cash flow information set forth in this press release are estimates only. In general, estimates of economically recoverable oil, natural gas and NGLs reserves and the future net cash flows therefrom are based upon a number of variable factors and assumptions, such as historical production from the properties, initial production rates, production decline rates, ultimate reserve recovery, the timing and amount of capital expenditures, the success of future development activities, future commodity prices, marketability of oil, natural gas and NGL, royalty rates, the assumed effects of regulation by governmental agencies and future operating costs, all of which may vary materially from actual results. For those reasons, estimates of the economically recoverable oil, natural gas and NGLs reserves attributable to any particular group of properties, classification of such reserves based on risk of recovery and estimates of future net revenues associated with reserves prepared by different engineers, or by the same engineer at different times, may vary substantially. Birchcliff''s actual production, revenues, taxes and development and operating expenditures with respect to its reserves will vary from estimates thereof and such variations could be material.
With respect to the disclosure of reserves contained herein relating to portions of Birchcliff''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. Estimates of future net revenue, whether calculated without discount or using a discount rate, do not represent fair market value. In this press release, all references to "reserves" are to Birchcliff''s gross company reserves unless otherwise stated.
The information set forth in this press release relating to the reserves and future net revenues of Birchcliff constitutes forward-looking information which is subject to certain risks and uncertainties. See "Advisories - Forward-Looking Information".
Definitions
Certain terms used herein but not defined are defined in NI 51-101, CSA Staff Notice 51-324 - Revised Glossary to NI 51-101 Standards of Disclosure for Oil and Gas Activities ("CSA Staff Notice 51-324") and/or the COGE Handbook and, unless the context otherwise requires, shall have the same meanings herein as in NI 51-101, CSA Staff Notice 51-324 and the COGE Handbook, as the case may be.
Reserves Categories
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:
Interest in Reserves, Production, Wells and Properties
"Gross" means:
"Net" means:
ADVISORIES
Unaudited Information
All financial and operating information contained in this press release for the fourth quarter and year ended December 31, 2016, such as FD&A costs, F&D costs, recycle ratio, funds flow, capital expenditures, operating costs, total cash costs, total debt and production information, is based on unaudited estimated results. These estimated results are subject to change upon completion of the audited financial statements for the year ended December 31, 2016, and changes could be material. Birchcliff anticipates filing its audited financial statements and related management''s discussion and analysis for the year ended December 31, 2016 on SEDAR on March 15, 2017.
Currency
All amounts in this press release are stated in Canadian dollars unless otherwise specified.
Boe, Mcfe and Bcfe Conversions
Boe amounts have been calculated by using the conversion ratio of 6 Mcf of natural gas to 1 bbl of oil and Mcfe and Bcfe amounts have been calculated by using the conversion ratio of 1 bbl of oil to 6 Mcf of natural gas. Boe, Mcfe and Bcfe amounts may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl or an Mcfe/Bcfe conversion ratio of 1 bbl: 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. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.
Conversion from GJ to Mcf - Wellhead Price
Birchcliff receives premium pricing for its natural gas production due to its high heat content from its proper
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Datum: 08.02.2017 - 15:57 Uhr
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