Birchcliff Energy Ltd. Announces Unaudited 2020 Year-End and Fourth Quarter Results and 2020 Reserves Highlights

CALGARY, Alberta, Feb. 10, 2021 (GLOBE NEWSWIRE) — Birchcliff Energy Ltd. (“Birchcliff” or the “Corporation”) (TSX: BIR) is pleased to announce its unaudited 2020 year-end and fourth quarter financial and operational results and highlights from its independent reserves evaluation effective December 31, 2020.
Jeff Tonken, President and Chief Executive Officer of Birchcliff commented: “Birchcliff is proud to announce its fourth quarter and full-year 2020 results. 2020 was a challenging year for Birchcliff and for the industry as a whole. Despite the economic damage and pricing uncertainty caused by the COVID-19 pandemic, we were able to efficiently execute our 2020 capital program, generating annual adjusted funds flow of $185 million, with annual average production of 76,401 boe/d and record low annual operating costs of $2.95 per/boe. Birchcliff also returned to free funds flow generation in the second half of 2020, with free funds flow of $25 million in Q4 2020. These achievements speak to the strong performance of our assets and the significant efforts of our team to remain one of industry’s lowest-cost producers. Looking forward to 2021, we are focused on maximizing free funds flow and strengthening our balance sheet, while maintaining a relatively flat production profile. We expect to generate approximately $360 million of adjusted funds flow in 2021¹, with F&D capital expenditures of between $210 million and $230 million, resulting in significant free funds flow for the year as set forth in our press release dated January 20, 2021. As none of Birchcliff’s production is currently subject to fixed price commodity hedges, we are excited about the undersupplied natural gas market that is emerging and being accelerated by cold weather in North America, Europe and Asia, which sets up a strong outlook for forward natural gas pricing.”Q4 2020 HighlightsAchieved quarterly average production of 78,649 boe/d, a 1% increase from Q4 2019.Liquids accounted for approximately 24% of Birchcliff’s total production in Q4 2020, as compared to approximately 22% in Q4 2019, with total liquids production increasing by 8% from Q4 2019.Delivered $66.5 million of adjusted funds flow, or $0.25 per basic common share, an 18% decrease and a 17% decrease, respectively, from Q4 2019.Generated $25.2 million of free funds flow in Q4 2020, a 4% increase from $24.1 million in Q4 2019.Recorded net income to common shareholders of $40.4 million, or $0.15 per basic common share, as compared to a net loss to common shareholders of $19.0 million and $0.07 per basic common share in Q4 2019.Achieved operating expense of $3.03/boe, a 1% decrease from Q4 2019.Realized an operating netback of $13.01/boe, a 9% decrease from Q4 2019.F&D capital expenditures of $41.3 million. During the quarter, Birchcliff drilled 6 (6.0 net) wells to help ensure the efficient execution of the Corporation’s 2021 capital program (the “2021 Capital Program”).Redeemed 364,655 Series C preferred shares in Q4 2020 for an aggregate of $9.1 million.2020 Year-End HighlightsAchieved annual average production of 76,401 boe/d, a 2% decrease from 2019.Liquids accounted for approximately 23% of Birchcliff’s total production in 2020, as compared to approximately 22% in 2019, with total liquids production increasing by 4% from 2019.Delivered $184.5 million of adjusted funds flow, or $0.69 per basic common share, each a 45% decrease from 2019.Recorded a net loss to common shareholders of $62.0 million, or $0.23 per basic common share, as compared to a net loss to common shareholders of $59.6 million and $0.22 per basic common share in 2019.Achieved record low annual operating expense of $2.95/boe, a 5% decrease from 2019.Realized an operating netback of $10.37/boe, a 21% decrease from 2019.Successfully executed the Corporation’s 2020 capital program (the “2020 Capital Program”), drilling and bringing on production a total of 34 (34.0 net) wells. F&D capital expenditures were $288.0 million in 2020.Redeemed 402,820 Series C preferred shares during 2020. At December 31, 2020, the Corporation had 1,597,180 Series C preferred shares outstanding, with an aggregate redemption value of approximately $39.9 million.Total debt at December 31, 2020 was $762.0 million, as compared to $632.6 million at December 31, 2019.Birchcliff anticipates filing its annual information form and audited financial statements and related management’s discussion and analysis for the year ended December 31, 2020 on March 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 “Advisories – Forward-Looking Statements”. Details of Birchcliff’s 2021 guidance and 2021 Capital Program were announced on January 20, 2021 and can be found online at www.birchcliffenergy.com/investors/news-releases/.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”, “adjusted funds flow per basic common share”, “free funds flow”, “transportation and other expense”, “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, including reconciliations to the most directly comparable GAAP measure where applicable, see “Non-GAAP Measures”. This press release contains metrics commonly used in the oil and natural gas industry, including “netbacks”, “reserves life index”, “recycle ratio”, “reserves replacement”, “F&D costs” “FD&A costs” and “net asset value”, which do not have any standardized meanings. See “Advisories – Oil and Gas Metrics”. All financial and operating information for the fourth quarter and year ended December 31, 2020 is unaudited. See “Advisories – Unaudited Information”. With respect to the disclosure of Birchcliff’s production contained in this press release, see “Advisories – Production”.
2020 UNAUDITED FINANCIAL AND OPERATIONAL HIGHLIGHTS^{(1)   Excludes the effects of financial instruments but includes the effects of physical delivery contracts.
(2)   Includes non-cash items such as compensation, accretion, amortization of deferred financing fees and other gains and losses.
(3)   See “Advisories – Capital Expenditures”.
(4)   Includes acquisitions, dispositions and administrative assets. See “Advisories – Capital Expenditures”.}
2020 RESERVES, F&D COSTS, RECYCLE RATIO AND NET ASSET VALUE HIGHLIGHTSThe following table summarizes the estimates of Birchcliff’s gross reserves at December 31, 2020 and December 31, 2019, as estimated by Birchcliff’s independent qualified reserves evaluators using the forecast price and cost assumptions in effect as at the effective dates of the applicable reserves evaluations:Proved developed producing reserves increased by 28,344.9 Mboe during 2020, before including the effects of acquisitions and dispositions and adding back 2020 actual production of 27,962.6 Mboe².Proved developed producing reserves increased by 1.01 boe for each boe that was produced in 2020, before including the effects of acquisitions and dispositions and adding back 2020 actual production.NGLs reserves, which include condensate, increased by 14% on a proved developed producing basis, 4% on a proved basis and 9% on a proved plus probable basis as a result of: (i) the discovery of condensate-rich natural gas trends in the northern area of Pouce Coupe; and (ii) Birchcliff’s focus on extracting more high-value NGLs in 2020 from its natural gas stream.Total light and medium crude oil and NGLs weighting of its proved developed producing, proved and proved plus probable reserves increased to 22%, 16% and 18% of total reserves in each category, respectively.The estimated net present value at December 31, 2020 (before income taxes, discounted at 10%) was $1.9 billion for Birchcliff’s proved developed producing reserves (December 31, 2019: $1.9 billion), $3.7 billion for its proved reserves (December 31, 2019: $4.1 billion) and $4.8 billion for its proved plus probable reserves (December 31, 2019: $5.3 billion).The net asset value of Birchcliff’s proved developed producing reserves at December 31, 2020, before income taxes discounted at 10% and after deducting total debt and the redemption value of the Corporation’s outstanding Series A and Series C preferred shares, is estimated to be $3.83 per common share, which is 43% above the closing trading price of its common shares of $2.68 on February 9, 2021.The following table sets forth Birchcliff’s net asset value for its proved developed producing, total proved and total proved plus probable reserves at December 31, 2020:² Consists of approximately 1,616 Mbbls of light oil, 2,132 Mbbls of condensate, 2,800 Mbbls of NGLs and 128,491 MMcf of natural gas.^{(1)   Represents the net present values of the future net revenue of Birchcliff’s proved developed producing, total proved and total proved plus probable reserves, as applicable, as estimated by Deloitte LLP (“Deloitte”) at December 31, 2020 using forecast prices and costs. Includes Deloitte’s estimate of the net present value of Birchcliff’s abandonment and reclamation costs.
(2)   Represents the redemption value of Series A and Series C preferred shares.
(3)   Excludes any value from undeveloped land, seismic and unexercised securities.
(4)   Based on 265.9 million common shares outstanding at December 31, 2020.
(5)   See “Advisories – Oil and Gas Metrics” for a description of the methodology used to calculate net asset value.}Reserves life index of 7.2 years on a proved developed producing basis, 24.2 years on a proved basis and 36.1 years on a proved plus probable basis, based on a forecast production rate of 79,000 boe/d (which represents the mid-point of Birchcliff’s annual average production guidance range for 2021).During 2020, Birchcliff’s F&D capital expenditures were $288.0 million, which included $74.8 million of facilities and infrastructure capital spent in 2020 that did not result in the addition of proved developed producing reserves at year-end 2020. FD&A capital expenditures were $275.1 million in 2020.The following table sets forth Birchcliff’s F&D costs and FD&A costs per boe for its proved developed producing, total proved and total proved plus probable reserves for 2020, 2019 and 2018, including FDC:^{(1)   See “Advisories – Oil and Gas Metrics” for a description of the methodology used to calculate F&D and FD&A costs.
(2)   Reflects the 2020 decrease in FDC from 2019 of $157.0 million on a proved basis and $41.8 million on a proved plus probable basis.
(3)   Reflects the 2019 increase in FDC from 2018 of $118.8 million on a proved basis and $127.0 million on a proved plus probable basis.
(4)   Reflects the 2018 decrease in FDC from 2017 of $272.2 million on a proved basis and $211.2 million on a proved plus probable basis.}The following table sets forth Birchcliff’s recycle ratios, on an operating and adjusted funds flow netback basis, for its proved developed producing, total proved and total proved plus probable reserves for 2020 and 2019, including FDC:^{(1)   See “Advisories – Oil and Gas Metrics” for a description of the methodology used to calculate recycle ratios.
(2)   Birchcliff’s operating netback was $10.37/boe in 2020, as compared to $13.07/boe in 2019.
(3)   Birchcliff’s adjusted funds flow netback was $6.60/boe in 2020, as compared to $11.75/boe in 2019.}Due to the unprecedented effects of the COVID-19 pandemic, the Corporation believes that its 2020 adjusted funds flow netback does not properly reflect the future profitability of the proved developed producing reserves added in 2020. Birchcliff anticipates that as a result of improved commodity prices, the Corporation’s netbacks and recycle ratios will improve in 2021 to be more comparable to its historical recycle ratios prior to COVID-19.Operations UpdateBirchcliff currently has 3 drilling rigs at work, consisting of 2 rigs drilling a 10-well pad in Pouce Coupe and 1 rig drilling a 4-well pad in Gordondale.Birchcliff has successfully completed its 7-well 04-04 pad in Pouce Coupe, which was drilled in late Q4 2020 and early January 2021. Flowback operations have commenced to achieve stabilized production rates prior to installing permanent production facilities. The majority of the wells on the pad are expected to be onstream in mid-March 2021. Six wells on the 04-04 pad were drilled in the Basal Doig interval, offsetting recent successful third-party drilling results, and one well was drilled in the Montney D1 interval, offsetting several of Birchcliff’s existing high-productivity, low-cost natural gas wells. Production from the 04-04 pad will flow into Birchcliff’s existing owned and operated infrastructure.Q4 AND FULL-YEAR 2020 UNAUDITED FINANCIAL AND OPERATIONAL RESULTSProductionBirchcliff’s production averaged 78,649 boe/d in Q4 2020, which was a 1% increase from Q4 2019 and within its guidance of 78,000 to 79,000 boe/d. Birchcliff’s full-year 2020 production averaged 76,401 boe/d, a 2% decrease from 77,977 boe/d in 2019 and within its guidance of 76,000 to 77,000 boe/d. Birchcliff’s Q4 2020 and full-year 2020 production was positively impacted by new horizontal light oil and condensate-rich natural gas wells brought on production in 2020, including incremental production from the 14‐well pad brought on production in Pouce Coupe in Q3 2020 and negatively impacted by natural production declines and the ongoing impacts of frac driven interaction. Additionally, in order to manage the higher condensate and frac water flowback volumes associated with the 14‐well pad, Birchcliff proactively and temporarily restricted production of existing wells in Pouce Coupe during Q3 2020, which negatively impacted Q4 2020 and full-year 2020 production.Liquids accounted for approximately 24% of Birchcliff’s total production in Q4 2020, as compared to approximately 22% in Q4 2019, with total liquids production increasing by 8% from Q4 2019. For full-year 2020, liquids accounted for approximately 23% of Birchcliff’s total production, as compared to approximately 22% in 2019. Total liquids production for full-year 2020 increased by 4% from 2019. The change in the commodity production mix was primarily due to incremental production from new liquids-rich natural gas wells brought on production in 2020.Adjusted Funds FlowBirchcliff’s adjusted funds flow for Q4 2020 was $66.5 million, or $0.25 per basic common share, an 18% decrease and a 17% decrease, respectively, from $80.9 million and $0.30 per basic common share in Q4 2019. Birchcliff’s full-year 2020 adjusted funds flow was $184.5 million, or $0.69 per basic common share, each a 45% decrease from $334.5 million and $1.26 per basic common share in 2019. Full-year 2020 adjusted funds flow was below Birchcliff’s guidance of $195 million primarily due to a lower than anticipated average realized natural gas sales price in Q4 2020.The decrease in adjusted funds flow from the comparative prior periods was primarily due to lower reported revenue and a realized loss on financial instruments recorded in Q4 2020 and full-year 2020. Revenue decreased largely due to a 24% decrease in the average realized light oil and condensate sales price (combined) in Q4 2020 and a 33% decrease in full-year 2020, as compared to the comparative prior periods. Birchcliff’s light oil and condensate sales revenue in 2020 was negatively impacted by the significant weakness and volatility in benchmark oil prices as a result of the COVID-19 pandemic and ensuing global demand destruction.Birchcliff recorded a realized loss on financial instruments of $11.8 million in Q4 2020 and $59.7 million in full-year 2020, as compared to a realized loss on market diversification financial contracts of $6.6 million in Q4 2019 and a realized gain on market diversification financial contracts of $13.7 million in full-year 2019. Birchcliff’s realized gains and losses on financial instruments were primarily due to the settlement of NYMEX/AECO basis swap contracts in the periods indicated.Adjusted funds flow in Q4 2020 and full-year 2020 was also negatively impacted by higher interest and transportation and other expenses, and positively impacted by lower royalty, operating and G&A expenses.Net Income (Loss) to Common ShareholdersBirchcliff recorded net income to common shareholders of $40.4 million, or $0.15 per basic common share, in Q4 2020, as compared to a net loss to common shareholders of $19.0 million and $0.07 per basic common share in Q4 2019. The change to a net income position was primarily due to an unrealized after-tax mark‐to‐market gain on financial instruments of $32.5 million in Q4 2020, as compared to an unrealized after-tax mark-to-market loss of $35.9 million in Q4 2019, partially offset by lower adjusted funds flow in Q4 2020 as described above.Birchcliff recorded a net loss to common shareholders of $62.0 million, or $0.23 per basic common share, in full-year 2020, as compared to a net loss to common shareholders of $59.6 million and $0.22 per basic common share in 2019. The increase in net loss was primarily due to lower adjusted funds flow as described above, partially offset by a lower unrealized after-tax mark-to-market loss on financial instruments. Birchcliff recorded an unrealized after-tax mark‐to‐market loss on financial instruments of $26.5 million in 2020, as compared to an unrealized after-tax mark-to-market loss of $148.4 million in 2019. Birchcliff’s unrealized gains and losses for the periods indicated were due to changes in the fair value of its market diversification financial contracts. The changes in the fair value of market diversification financial contracts were primarily due to: (i) fluctuations in the forward basis spread between NYMEX HH and AECO 7A contracts outstanding at December 31, 2020, as compared to the fair value previously assessed at September 30, 2020 and December 31, 2019; and (ii) the settlement of financial NYMEX/AECO basis swap contracts in the periods.Operating ExpenseThe Corporation remained focused on reducing its operating costs in 2020, resulting in an operating expense of $3.03/boe in Q4 2020, a 1% decrease from $3.06/boe in Q4 2019, and record low operating expense for full-year 2020 of $2.95/boe, a 5% decrease from $3.09/boe in 2019. Birchcliff’s full-year annual operating expense was within its guidance of $2.85/boe to $3.05/boe. The decreases were primarily due to various field optimization and cost saving initiatives in Pouce Coupe and Gordondale, which included the Corporation’s expanded liquids‐handling capabilities in Pouce Coupe.Operating NetbackBirchcliff’s operating netback was $13.01/boe in Q4 2020, a 9% decrease from $14.25/boe in Q4 2019. Birchcliff’s full-year 2020 operating netback was $10.37/boe, a 21% decrease from $13.07/boe in 2019. The decreases were primarily due to lower average realized light oil and condensate sales prices in 2020.Total Cash CostsBirchcliff’s total cash costs were $11.18/boe in Q4 2020, a 4% increase from $10.80/boe in Q4 2019. The increase was primarily due to higher per boe interest and transportation and other expenses, partially offset by lower per boe operating, royalty and G&A expenses. Birchcliff’s full-year 2020 total cash costs of $10.34/boe were comparable to $10.31/boe in 2019.Pouce Coupe Gas Plant NetbacksDuring 2020, Birchcliff processed 68% of its total corporate natural gas production and 59% of its total corporate production through its 100% owned and operated natural gas processing plant in Pouce Coupe (the “Pouce Coupe Gas Plant”), as compared to 72% and 62%, respectively, during 2019. 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:^{(1)   Liquids consists of condensate and other NGLs.
(2)   Excludes the effects of financial instruments but includes the effects of physical delivery contracts.
(3)   Represents plant and field operating expense.
(4)   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 26% as compared to 2019 primarily due to: (i) the completion of Birchcliff’s inlet liquids‐handling facility at the Pouce Coupe Gas Plant (the “Inlet Liquids‐Handling Facility”); and (ii) the addition of the condensate‐rich 14‐well pad brought on production in Pouce Coupe in Q3 2020.