Birchcliff Energy Ltd.
TSX VENTURE : BIR

Birchcliff Energy Ltd.

May 31, 2005 15:06 ET

Birchcliff Announces Closing of the Acquisition of Peace River Arch Assets, Equity Issue, Bank Financing and Merger with Veracel

CALGARY, ALBERTA--(CCNMatthews - May 31, 2005) -

This press release is not for distribution to United States Newswire Services or for dissemination in the United States.

Birchcliff Energy Ltd. (TSX VENTURE:BIR) announced today that it closed its previously announced acquisition of oil and natural gas assets in the Peace River Arch area of Alberta and its Plan of Arrangement transaction with Veracel Inc.

Birchcliff also announced that Veracel closed its previously announced $136 million financing (34 million shares at $4 per share) and Birchcliff expects to close a further $10 million financing (2 million flow-through shares at $5 per share) on June 2nd, 2005 for total gross proceeds of $146 million.

Birchcliff has announced that is has entered into a $70 million bank credit facility with The Bank of Nova Scotia.

Jeff Tonken, President, stated, "We are very pleased with the purchase of this suite of Peace River Arch properties which contain significant growth potential. Our strategy is to aggressively drill for oil and natural gas and to expand our footprint and operations in the Peace River Arch area of Alberta."

CORPORATE PROFILE

Based on information provided by the Vendor to Birchcliff in the closing statement of adjustments, average production from the assets acquired for the period from January 1st, 2005 to March 31st, 2005 was 4,841 boe/day. Current production is estimated to be 4,400 boe/day, which is ahead of Birchcliff's expectations considering declines, the lack of any significant capital being spent on these properties since January 1, 2005 and seasonal turnarounds. Production is weighted 80% towards natural gas and natural gas liquids and 20% light oil.

Current debt will be approximately $53 million, after receipt of the flow through share proceeds on June 2, 2005. After that the flow through share issue, Birchcliff will have 56.4 million shares outstanding.

All of Birchcliff's properties are located in the Peace River Arch of Alberta, the highlights of which include:

- 60% average working interest.

- 55% of production is operated.

- 3 properties represent 75% of the production from the Pouce Coupe, Progress and Rycroft areas of Alberta.

- The establishment of a clearly focused production base.

- 226,463 gross acres of land and 156,640 total net acres of land (60.3% average working interest).

- 130,863 gross undeveloped acres and 86,421 net undeveloped acres (66% average working interest).

- The establishment of a large, clearly focused land base in the Peace River Arch area of Alberta with large contiguous blocks of developed and undeveloped land.

- Significant ownership interests in 10 facilities, 3 operated gas plants, 8 non-operated gas plants and numerous compressor stations, several oil batteries and miscellaneous infrastructure.

- A licensed copy of approximately 129.5 square km of 3-D seismic and 918 km of 2-D seismic to assist Birchcliff in the ongoing identification and evaluation of the upside potential associated with these assets.

- Light oil is not hedged.

- Approximately 40% of the natural gas is sold under index based pricing delivery contracts that expire in October 31, 2005. Birchcliff has no current plans to hedge its production.

- Majority of properties have year round access.

- Birchcliff has the opportunity to exploit, develop and explore for oil & gas where there is multi-zone potential with ownership in a developed infrastructure system.

SHORT TERM OUTLOOK

In the very near term, Birchcliff intends to focus on the organization and day to day running of its newly acquired assets. This includes obtaining recognition under joint operating agreements so that Birchcliff can initiate operations and transferring of operatorship of facilities to Birchcliff. Birchcliff has expanded its staff to 27 and is now fully prepared to assume the day to day operations of the properties.

CAPITAL EXPENDITURES

In the next 60 days Birchcliff intends to commence and/or complete the following programs:

- 6-8 recompletions with an average 95% working interest.

- 4-6 reactivations with an average 67% working interest.

- commence drilling operations on the first of a series of wells.

PRODUCTION TARGET

Management has targeted an exit rate of 5,500 to 6,000 boe/day for 2006. The character of the properties and their multi-zone potential should provide Birchcliff with low cost production and reserve additions.

BUDGET REVIEW

Birchcliff intends to review its assets and announce its remaining 2005 budget by the end of June 2005.

Birchcliff's work on these properties to date has continued to add numerous opportunities to its inventory of possible operations. As a result, Birchcliff expects that in late June 2005 it will be in a position to announce an increase to its 2005 capital expenditure program, which was previously estimated at $14 million.

Birchcliff intends to announce its 2006 budget in late 2005.

The term barrels of oil equivalent ("boe") may be misleading, particularly is used in isolation. Per barrel of oil equivalent ("boe") amounts have been calculated using conversion rate of six thousand cubic feet of natural gas to one barrel of oil ("6:1"). A boe conversion ratio of 6:1 is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Birchcliff is a publicly traded company that trades on the TSX Venture Exchange under the symbol "BIR".

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • Birchcliff Energy Ltd.
    Jeff Tonken
    President and CEO
    (403) 261-6401
    or
    Birchcliff Energy Ltd.
    Jim Surbey
    Vice President, Corporate Development
    (403) 261-6401
    (403) 261-6424 (FAX)