Birchcliff Energy Ltd.
TSX : BIR

Birchcliff Energy Ltd.

March 27, 2006 00:01 ET

Birchcliff Energy Ltd. Announces 2005 Financial Results and 2006 Operations Update

CALGARY, ALBERTA--(CCNMatthews - March 27, 2006) -

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

Birchcliff Energy Ltd. (TSX:BIR) ("Birchcliff") is pleased to announce that it has filed its financial statements for the year ended December 31, 2005 and the related Management's Discussion and Analysis on SEDAR at www.sedar.com.

Included in this Press Release is reserve information previously released on February 22, 2006, however, to make the financial results easier to understand we have restated this information.

Fourth Quarter 2005 Highlights

- Fourth quarter cash flow increased to $18.1 million, an 18% increase over the third quarter.

- Fourth quarter cash flow per share (basic) increased to $0.32 per share, an 18% increase over the third quarter.

- Fourth quarter average production increased to 5,009 boe per day, an 8% increase over the third quarter.

- Fourth quarter natural gas sales price was $12.23 per mcf resulting in a netback of $7.71 per mcf. Birchcliff receives a premium price for its natural gas based on its high heat value.

- Completed a 29 well (20.1 net) drilling program from a standing start on June 1, 2005.

2005 Highlights

- Proved and probable reserves increased to 20.8 million boe which is a 81% increase from the 11.5 million boe acquired in mid-2005.

- 2005 production averaged 4,751 boe per day from June 1, 2005 (the commencement of production) to December 31, 2005.

- 2005 cash flow was $36,182,000 and net earnings were $3,189,000.

- 2005 cash flow per share (basic) was $0.89 per share from just seven months of production in Birchcliff's first year.

- Birchcliff expects to remain non-taxable for 2006 which will allow it to reinvest all of its cash flow in the Peace River Arch.

- Birchcliff's 2005 recycle ratio relating only to exploration and development capital is 7.5, excluding future capital and 3.9, including future capital.

- Birchcliff's finding and development costs (excluding acquisitions) on a proved plus probable basis were $10.57 per boe notwithstanding future capital of $49.7 million is included in the calculation as a result of 2005 being Birchcliff's first year of operation.


Highlights from Birchcliff's financial report for 2005 are set forth in the following table:



Twelve Three Three
months months months
ended ended ended
December September December
31, 2005 30, 2005 31, 2005
(1)(2)
------------------------------------------------------------------------
------------------------------------------------------------------------
FINANCIAL
Petroleum & Natural Gas
Revenue ($000) 67,790 26,843 34,175
------------------------------------------------------------------------
Cash Flow from Operations ($) 36,182 15,303 18,112
Per share - basic ($) 0.89 0.27 0.32
Per share - diluted ($) 0.84 0.26 0.30
------------------------------------------------------------------------
Net Earnings ($) 3,189 4,336 124
Per share - basic ($) 0.08 0.08 -
Per share - diluted ($) 0.07 0.07 -
------------------------------------------------------------------------
Common Shares Outstanding
- End of Period (000's)
Basic 58,147 56,365 58,147
Diluted 65,091 63,259 65,091
Weighted Average for Period
- Basic 40,631 56,365 56,614
Weighted Average for Period
- Diluted 42,948 58,842 59,964
------------------------------------------------------------------------
Capital Expenditures ($000) 306,628 14,807 38,485
Working Capital (Deficiency)
($000) (23,730) (5,803) (23,730)
Revolving Credit Facility ($000) 36,614 47,945 36,614
Total Debt ($000) 60,344 53,748 60,344
------------------------------------------------------------------------
------------------------------------------------------------------------

------------------------------------------------------------------------
------------------------------------------------------------------------
OPERATING
Daily Average Production (2)
Light Oil - barrels/day 450 730 808
Natural Gas - thousands of cubic
feet/day 13,401 22,243 24,033
NGLs - barrels/day/day 110 189 196
Total - barrels of oil
equivalent (6:1) 2,793 4,626 5,009
Average Sales Price ($ Canadian)
Light Oil - per barrel 71.29 74.22 69.91
Natural Gas - per thousand
cubic feet 10.67 9.91 12.23
NGLs - per barrel 68.25 69.55 69.23
Total - per barrel of oil
equivalent (6:1) 65.36 62.20 72.65
------------------------------------------------------------------------
Undeveloped Land
Gross (acres) 157,429
Net (acres) 112,938
------------------------------------------------------------------------
------------------------------------------------------------------------
NETBACK AND COST
($ per barrel of oil
equivalent at 6:1)
Petroleum & natural gas revenue 66.50 63.06 74.15
Royalties, net of ARTC (15.13) (13.42) (17.94)
Operating expense (8.47) (8.08) (8.38)
Transportation and marketing
expense (1.55) (1.57) (1.66)
------------------------------------------------------------------------
Netback 41.35 39.99 46.17
General & administrative expense (5.19) (2.71) (5.57)
Interest expense (1.14) (1.16) (1.09)
Other income 0.68 0.01 -
Taxes (0.21) (0.18) (0.22)
------------------------------------------------------------------------
Cash Flow netback 35.49 35.95 39.29
Depletion and depreciation (19.57) (19.18) (19.23)
Accretion (0.24) (0.22) (0.25)
Stock option compensation expense (6.82) (1.57) (12.10)
Future income tax expense (5.74) (4.80) (7.45)
------------------------------------------------------------------------
Net Earnings 3.12 10.18 0.26
------------------------------------------------------------------------
------------------------------------------------------------------------
(1) Comparatives for the period from incorporation on July 6, 2004 to
December 31, 2004 have not been provided as they do not provide a
meaningful comparison. During this time period, the company was in
a start-up phase and did not have petroleum and natural gas
production.
(2) These production numbers are an average based on seven months of
production during the twelve month period. The average production
for the seven month period was 4,751 boe per day.


2006 Operations and Production Update

Birchcliff's current production is approximately 5,500 boe per day. This represents an increase of approximately 27% over the average production rate of 4,341 boe per day reported during June 2005, the first month of operations following the acquisition of its Peace River Arch properties.

Birchcliff expects to exit 2006 at approximately 8,000 boe per day, of which 85% is expected to be natural gas and 15% is expected to be light oil and liquids.

Since the beginning of 2006, Birchcliff has drilled 10 wells (net 9.8) all of which are cased. As of today's date, Birchcliff has 3 operated drilling rigs working and one non-operated drilling rig working on its behalf. Birchcliff has 3 service rigs working and a number of pipeline crews attempting to complete operations before breakup. Further, Birchcliff has a number of facility completion crews who are attempting to finish their infrastructure work before breakup. This activity will recommence immediately after breakup.

Birchcliff has 11.7 net wells remaining to be tied in and brought on production which will add production during the second and third quarters.

Birchcliff continues to increase its net undeveloped land base in 2006. Birchcliff has 190,840 gross (144,840 net) undeveloped acres all of which is in the Peace River Arch, with an average 76% working interest. Essentially all of the new land has been purchased without partners at 100% working interest.

Birchcliff's land base consists of large contiguous blocks of property located near facilities operated by Birchcliff or near third party infrastructure. Most importantly, a significant amount of the land purchased is a direct result of exploration and development success by Birchcliff in the Peace River Arch.

In light of industry interest and activity in the Peace River Arch, land prices have increased dramatically in 2005 and consequently the value of Birchcliff's undeveloped land has increased as well. The value of Peace River Arch acreage has seen average values paid by others of $324/ acre with some prices in excess of $1,680/ acre. Birchcliff believes that because of the nature of its undeveloped land (i.e. large contiguous blocks, high working interests, access to infrastructure in close proximity to exploration and development success by Birchcliff and others) Birchcliff's land is worth a significant premium in today's current market conditions.

2006 Capital Budget

Birchcliff previously announced on February 21, 2006 that its Board of Directors had approved a $128 million capital expenditure program for 2006. Approximately 54% of the budget relates to exploration and development drilling and completions, 21% for land and seismic, 23% for facilities and infrastructure construction and 2% for minor acquisitions. Birchcliff's 2006 capital budget was based on an annual average price of CDN.$10.00/mcf AECO and U.S.$60.00/bbl WTI for its commodity revenue, a CDN.$0.865 exchange rate and 5.4% prime interest rate.

Birchcliff's drilling will continue to be in the gas-prone Peace River Arch area of Alberta.

In addition, Birchcliff intends to aggressively pursue the completion and tie-in opportunities of its behind pipe volumes. Birchcliff shares industry concerns that access to qualified services and equipment continues to slow down field operations on an industry wide basis. Birchcliff's experienced technical staff and management team are focused on mitigating this risk as much as possible and will continue to maximize the potential of its top quality assets.

2005 Production

Fourth quarter production averaged 5,009 barrels of oil equivalent ("boe") per day which was in line with previous guidance of 5,000 boe per day.

2005 Drilling

During 2005, Birchcliff drilled 29 (20.1 net) wells, all of which were cased. Birchcliff's 2005 drilling program, which offered a mixture of high impact development and exploration prospects, resulted in the discovery of a number of new natural gas pools. Birchcliff utilized two drilling rigs continuously through 2005 and has had up to 4 service rigs working at any one time.

It is noteworthy that 8.2 net wells of the 20.1 net wells Birchcliff drilled in 2005 were exploratory. This has resulted in significant reserves additions which are detailed below. Birchcliff has aggressively acquired land around its exploration successes and this has provided Birchcliff with a significant number of additional drilling locations for 2006 and beyond.

2005 Reserves Evaluation and Finding and Development Costs

Birchcliff has had its reserves evaluated effective December 31, 2005 by AJM Petroleum Consultants ("AJM"), an independent reserves evaluator (the "AJM Evaluation"). As at December 31, 2005, the AJM Evaluation estimates that Birchcliff has 13,189 mboe of proven reserves and 20,777 mboe of proven and probable reserves.

During 2005, Birchcliff spent $249.9 million for one significant acquisition and three minor acquisitions in the Peace River Arch Area of Alberta. Birchcliff estimates that it acquired 8,253 mboe of proven reserves and 12,012 mboe of proven and probable reserves as a result of these transactions. This estimate is based upon a prior reserves evaluation by AJM as at December 31, 2004 relating to more than 95% of the properties acquired and Birchcliff's own internal estimates.

Birchcliff estimates (based on the AJM Evaluation) that during 2005 it has added 5,955 mboe of proven reserves and 9,784 mboe of proven and probable reserves as a result of its exploration and development program since acquiring these properties.

2005 Finding, Development and Acquisition Costs

During 2005, Birchcliff spent approximately $53.8 million on exploration and development and estimates its finding and development costs as follows:



FD&A Costs Excluding Future Development Capital
------------------------------------------------------------------------
F&D - Exploration and Development - Proven $ 9.03
------------------------------------------------------------------------
F&D - Exploration and Development - Proven and Probable $ 5.50
------------------------------------------------------------------------
Acquisitions - Proven $ 30.28
------------------------------------------------------------------------
Acquisitions - Proven and Probable $ 20.80
------------------------------------------------------------------------
FD&A - Total - Proven $ 21.37
------------------------------------------------------------------------
FD&A - Total - Proven and Probable $ 13.93
------------------------------------------------------------------------

FD&A Costs Including Future Development Capital
------------------------------------------------------------------------
F&D - Exploration and Development - Proven $ 14.63
------------------------------------------------------------------------
F&D - Exploration and Development - Proven and Probable $ 10.57
------------------------------------------------------------------------
Acquisitions - Proven $ 31.25
------------------------------------------------------------------------
Acquisitions - Proven and Probable $ 21.86
------------------------------------------------------------------------
FD&A - Total - Proven $ 24.29
------------------------------------------------------------------------
FD&A - Total - Proven and Probable $ 16.79
------------------------------------------------------------------------


The above amounts of finding and development costs are calculated by dividing the total of exploration and development costs incurred during 2005 by the amounts of additions to proven reserves and proven and probable reserves from its exploration and development program during 2005 based upon the AJM Evaluation and Birchcliff's internal estimates of the proven reserves and the proven and probable reserves acquired with the Peace River Arch area properties.

Based on Birchcliff's estimated average 2005 operating netback, and including all capital spent in 2005 ($303.7 million) for exploration, development and acquisition spending, Birchcliff has a proven plus probable recycle ratio of 3.0, excluding future capital and 2.5, including future capital. This recycle ratio is calculated in each case by dividing the average 2005 operating netback per boe by total finding, development and acquisition costs per boe.

The recycle ratio calculated by dividing the average 2005 operating netback per boe by F&D costs per boe relating to only exploration and development capital is 7.5, excluding future capital and 3.9, including future capital.

The recycle ratio calculated by dividing the average 2005 cash flow netback per boe by F&D costs per boe relating to only exploration and development capital is 6.5, excluding future capital and 3.4, including future capital.

Birchcliff has a proven reserve life index of 6.6 years and a proven and probable reserve life index of 10.3 years based on the AJM Evaluation and Birchcliff's current production rate of approximately 5,500 boe per day.

The AJM Evaluation estimates Birchcliff's reserves and discounted future net revenues are as follows (using AJM's forecast prices and costs) (1):



Mboe NPV 0% NPV 5% NPV 10%
($millions) ($millions) ($millions)
------------------------------------------------------------------------
------------------------------------------------------------------------
Proved Developed Producing 8,651 $ 335.4 $ 273.0 $ 234.4
Proved Developed
Non-Producing 713 27.5 23.9 21.2
Proved Undeveloped 3,825 $ 110.6 $ 85.4 $ 68.6
Total Proved 13,189 $ 473.5 $ 382.2 $ 324.1
Probable 7,588 $ 292.4 $ 189.1 $ 140.2
------------------------------------------------------------------------
------------------------------------------------------------------------
Total Proved and Probable 20,777 $ 765.8 $ 571.3 $ 464.3
------------------------------------------------------------------------
------------------------------------------------------------------------

(1) Note: 51-101 disclosure requires us to provide the following warning
- The estimates of discounted future net revenues disclosed in this
table do not represent fair market values.


2005 Year End Debt

Birchcliff's December 31, 2005 total year end debt which includes the working capital deficit was approximately $60.3 million which is less than 1 times estimated 2006 cash flow.

The bank credit facility was drawn to approximately $36.6 million and the remaining $23.7 million consisted of working capital deficiency.

Based on the increase in its reserves contained in the new AJM Evaluation, Birchcliff has recently requested an increase beyond the $80 million limit of its current credit facilities. Birchcliff expects a favourable response to this request in the near future.

Advisory

Finding and Development Costs: With respect to disclosure of finding and development costs disclosed above:

(a) In calculating the amounts of finding and development costs, the change during the year in estimated future development costs is based on the change from the estimated future development costs contained in the reserves evaluation prepared by AJM effective December 31, 2004 which evaluated more than 95% of the properties acquired.

(b) National Instrument 51-101 requires the inclusion of the following warning statement:

The aggregate of the exploration and development costs incurred in the most recent financial year and any change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserves additions for that year.

BOE Conversions: The term barrels of oil equivalent ("boe") may be misleading, particularly if used in isolation. Per barrel of oil equivalent ("boe") amounts have been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel of oil equivalent ("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.

Forward Looking Statements: This document may contain forward-looking statements regarding the business and operations of Birchcliff Energy Ltd. All statements other than statements of historical fact contained here are forward-looking statements under applicable securities law, and there can be no assurance that the plan, intentions or expectations upon which these forward looking statements are based will occur.

In addition, all such forward-looking information necessarily involve risks associated with oil and gas exploration, production, marketing and transportation such as loss of market, volatility of prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers and ability to access sufficient capital from internal and external sources. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements.

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


The TSX 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 Chief Executive Officer
    (403) 261-6401
    or
    Birchcliff Energy Ltd.
    Bruno Geremia
    Vice President and Chief Financial Officer
    (403) 261-6401
    or
    Birchcliff Energy Ltd.
    Jim Surbey
    Vice President, Corporate Development
    (403) 261-6401
    (403) 261-6424 (FAX)