Birchcliff Energy Ltd.
TSX : BIR

Birchcliff Energy Ltd.

February 27, 2007 00:30 ET

Birchcliff Energy Ltd. Announces 2006 Year End Reserves Summary, Operational Update, 2007 Capital Program, 2007 Guidance and Appointment of Vice President Operations

CALGARY, ALBERTA--(CCNMatthews - Feb. 27, 2007) -

THIS PRESS RELEASE IS NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.

Birchcliff Energy Ltd. ("Birchcliff") (TSX:BIR) is pleased to provide the following update. Birchcliff's annual audit of its financial statements is not yet complete and accordingly all financial amounts referred to in this press release are management's best estimates which have not yet been audited. Birchcliff expects to issue its audited financial statements for 2006 in late March.

2006 Highlights

- Birchcliff added 9,527 mboe of Proved and Probable Reserves during 2006 resulting in Proved and Probable Reserves at the end of 2006 of 28,344 mboe. These reserve additions are 46% of Birchcliff's proved and probable reserves at the start of 2006.

- Finding and development costs for 2006 on a proved and probable basis were $10.57/boe excluding future development costs and $20.39/boe including future development costs.

- Birchcliff added Proved and Probable Reserves equal to 4.86 boe for each boe produced during 2006.

- Birchcliff's reserve life index on a proved and probable basis increased to 12.7 years from 10.7 years.

- Fourth quarter 2006 production averaged 5,861 boe per day, a 17% increase over the fourth quarter of 2005.

- Birchcliff increased its 2006 average daily production to 5,368 boe/d a 13% increase over its 2005 average daily production.

- Based on finding and development costs, Birchcliff has a proved plus probable operating netback recycle ratio of 2.8, excluding future capital and 1.4, including future capital.

- Birchcliff increased its net undeveloped land at December 31, 2006 to 171,834 net acres, a 52% increase over year end 2005. All of Birchcliff's is in the Peace River Arch Arch and includes large contiguous blocks.

2006 Production

Birchcliff announced that its 2006 fourth quarter production averaged 5,861 boe per day, which is a 5% increase from the third quarter 2006 average production rate of 5,571 boe per day and a 17% increase over the average production rate of 5,009 boe per day for the fourth quarter of 2005. This represents an increase of approximately 35% over the average production rate of 4,341 boe per day reported during June 2005, the first month of operations following the acquisition of the Peace River Arch area properties. Except for some minor acquisitions the production growth has come through the drill bit.

2006 Cash Flow

Cash flow for the fourth quarter 2006 was approximately $11.7 million. This is an increase of 9% over the third quarter 2006 of $10.7 million. Cash flow for the 2006 year was approximately $46.7 million. This represents a 29% increase over the 2005 cash flow of $36.2 million.

2006 Year End Debt and Capitalization

Birchcliff's December 31, 2006 total year end debt which includes the working capital deficit is estimated to be approximately $87.8 million. The bank credit facility was drawn to approximately $81.3 million and the remaining $6.5 million consisted of working capital deficiency. Birchcliff has a $120 million credit facility with a syndicate of banks which was reviewed and confirmed in October, 2006.

At December 31, 2006, Birchcliff had outstanding 64,139,413 common shares.

2006 Drilling

During 2006, Birchcliff drilled 46 (39.6 net) wells, 91.3% of which were cased. Birchcliff's 2006 drilling program, which offered a mixture of moderate to high impact development and exploration prospects, resulted in the discovery of a number of new natural gas pools. Birchcliff focused on the exploration and development of long term sustainable, repeatable natural gas plays. Birchcliff has had significant success in that regard. One major drilling success is the continued exploration and development of Birchcliff's Montney and Doig resource play in the Pouce Coupe area. The Montney Doig play has provided Birchcliff with significant proved and probable reserves and a large portfolio of drilling locations. On a well by well basis, this play is characterized by long life reserves with lower productivity wells. Accordingly, the higher the gas price the more economical the play.

It is noteworthy that 15.8 net wells of the 39.6 net wells Birchcliff drilled in 2006 were exploratory. New pools were discovered in the Kiskatinaw, Montney, Doig, Halfway, Bluesky and Gething zones in 2006. This has resulted in substantial proved and probable reserve additions and contributed to the significant increase in Birchcliff's net undeveloped land base, which are both detailed below. Birchcliff has aggressively acquired land around its exploration successes and this has provided Birchcliff with a large portfolio of additional drilling locations for 2007 and beyond.

2006 Reserves Evaluation and Finding and Development Costs

Birchcliff has had its reserves evaluated effective December 31, 2006 by AJM Petroleum Consultants ("AJM"), an independent reserves evaluator, in accordance with National IInstrument 51-101. In its evaluation report dated February 26, 2007 (the "AJM Evaluation"), AJM has estimated that as at December 31, 2006, Birchcliff has 14,143 mboe of proved reserves and 28,344 mboe of proved and probable reserves.

During 2006 Birchcliff added proved plus probable reserves of 9,527 mboe which is 46% of its proved and probable reserves at the start of 2006. Further, Birchcliff replaced its production by adding 4.86 boe of proved and probable reserves for each boe produced during the year, a ratio of 486%.

During 2006, Birchcliff spent approximately $101 million on exploration and development (excluding minor acquisition costs ) and estimates its finding and development costs as follows:



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Two Year
FD&A Costs Excluding Future Development Capital 2005 2006 Average
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F&D - Exploration and Development - Proved $ 9.03 $ 34.46 $ 17.42
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F&D - Exploration and Development - Proved
and Probable $ 5.50 $ 10.57 $ 8.00
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Acquisitions - Proved $ 30.28 $ 62.51 $ 30.35
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Acquisitions - Proved and Probable $ 20.80 $ 47.28 $ 20.86
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FD&A - Total - Proved $ 21.37 $ 35.05 $ 23.70
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FD&A - Total - Proved and Probable $ 13.93 $ 10.72 $ 12.95
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FD&A Costs Including Future Development
Capital (1)
---------------------------------------------------------------------------
F&D - Exploration and Development - Proved $ 14.63 $ 47.44 $ 25.45
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F&D - Exploration and Development - Proved
and Probable $ 10.57 $ 20.39 $ 15.42
---------------------------------------------------------------------------
Acquisitions - Proved $ 31.25 $ 62.51 $ 31.32
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Acquisitions - Proved and Probable $ 21.86 $ 47.28 $ 21.90
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FD&A - Total - Proved $ 24.29 $ 48.11 $ 28.34
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FD&A - Total - Proved and Probable $ 16.79 $ 20.56 $ 17.94
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(1) Includes the increase in future development capital from the 2005
amount.


The above amounts of 2006 finding and development and/or acquisition costs are calculated by dividing the total of the particular costs noted in each line incurred during 2006 by the amounts of additions to proved reserves and proved and probable reserves based upon the AJM Evaluation that resulted from the expenditure of such costs during 2006 .

Based on Birchcliff's estimated average 2006 operating netback and including all capital spent in 2006 ($102.2 million) for exploration, development and acquisition spending, Birchcliff has a proved plus probable recycle ratio of 2.7, excluding future capital and 1.4, including future capital. This recycle ratio is calculated in each case by dividing the average 2006 operating netback per boe by total finding, development and acquisition costs per boe.

The recycle ratio calculated by dividing the average 2006 operating netback per boe by F&D costs per boe relating to only exploration and development capital is 2.8, excluding future capital and 1.4, including future capital.

The recycle ratio calculated by dividing the average 2006 cash flow netback per boe by F&D costs per boe relating to only exploration and development capital is 2.3, excluding future capital and 1.2, including future capital.

Birchcliff has a proved and probable reserve life index of 12.7 years vs.10.7 years in 2005 and a proved reserve life index of 6.4 years vs 6.8 years in 2005 based on the AJM Evaluation and Birchcliff's estimated January, 2007 production rate of approximately 6,100 boe per day.

Birchcliff drilled a significant number of gas wells which contained multiple potentially productive zones. However because of the high costs experienced in 2006 with all facets of testing and completing such wells Birchcliff chose to test, complete and tie in only one or two of these productive zones in each wellbore. Accordingly, the potentially productive zones which were not tested were not assigned proved reserves but in most cases were assigned probable reserves.



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

---------------------------------------------------------------------------
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Mboe NPV 0% NPV 5% NPV 8% NPV 10%
(MM$) (MM$) (MM$) (MM$)
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---------------------------------------------------------------------------
Proved Developed Producing 8,856 $ 305.7 $ 245.5 $ 221.3 $ 208.3
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Total Proved 14,143 $ 417.0 $ 323.5 $ 285.4 $ 264.7
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Probable 14,201 $ 501.9 $ 287.3 $ 223.4 $ 193.2
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Total Proved and Probable 28,344 $ 918.9 $ 610.8 $ 508.8 $ 457.9
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(1) Note: NI 51-101 disclosure requires Birchccliff to provide the
following warning - The estimates of discounted future net revenues
disclosed in this table do not represent fair market values.


The AJM Evaluation is based upon AJM's price forecast at December 31, 2006 which forecasts natural gas prices at AECO of $ Cdn 7.40 per mcf for 2007 and $Cdn 8.00 per mcf for 2008. Full details of AJM's commodity price forecast can be accessed via the internet at www.ajma.net.

2006 Land

Birchcliff's undeveloped land base at December 31, 2006 consisted of 171,834 net undeveloped acres. This is a 52% increase over its 2005 year end net undeveloped land base of 112,938 net acres. Further, this is essentially a 130% increase over the undeveloped land base it acquired in the significant Peace River Arch area acquisition it completed on June 1, 2005.

Birchcliff's land base consists of large contiguous blocks of property located near facilities owned and/or 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. Almost all of the new land has been purchased without partners at 100% working interest.

Further, in the fourth quarter, Birchcliff announced a significant farm-in encompassing a further 21 sections of land in the Pouce Coupe area of Alberta which has the attributes that Birchcliff considers essential to successful grass roots exploration. That is high working interest lands with multi-zone potential consisting of large contiguous blocks of property located near facilities owned/or operated by Birchcliff or near third party infrastructure.

2007 Capital Budget

Birchcliff announces today that its Board of Directors has approved a $77.2 million capital expenditure program for 2007 which will be funded out of cash flow and debt.

Approximately 60% of the budget relates to exploration and development drilling and completions, 30% for facilities and infrastructure construction and 10% for land and seismic. Birchcliff's drilling will continue to be focused in the Peace River Arch area of Alberta.

In determining its 2007 capital budget, Birchcliff has assumed an annual average price of CDN $ 7.50/GJ at AECO and US $58.00/bbl WTI, a CDN $0.86 exchange rate and a 6% prime interest rate. On these assumptions, the capital budget will be funded out of debt and cash flow.

Hedging

Birchcliff has not hedged any of its production.

Production Guidance

Estimated production based on field reports for the month of January, 2007 averaged approximately 6,100 boe per day. As of today, Birchcliff has 9 gross (7.5 net) wells awaiting completion and tie-in that will add to daily production.

Birchcliff expects to exit 2007 at approximately 7,000 boe per day, of which 84% is expected to be natural gas and 16% is expected to be light oil and liquids.

2007 Drilling

To date in 2007, Birchcliff has drilled 8 gross (6.1 net) wells in the Peace River Arch area of Alberta. All but one gross well have been cased. Most of these wells have multi-zone productive opportunities. Birchcliff continues to utilize two drilling rigs and will drill until breakup and recommence its program promptly thereafter.

Appointment of Vice President, Operations

Birchcliff is pleased to announce that Ms. Karen Pagano has accepted the newly created position of Vice President, Operations. Ms. Pagano has over 17 years of experience in drilling, completions and production operations in Western Canada. Ms. Pagano graduated with Distinction with a Bachelor of Science Degree in Electrical Engineering from the University of Saskatchewan in 1989.

Ms. Pagano has been with Birchcliff since May 2005 working as a critical member of the Pouce Coupe team in the role of Senior Exploitation Engineer.

Advisory

Unaudited Numbers: Birchcliff's annual audit of its financial statements is not yet complete and accordingly all financial amounts referred to in this press release are management's best estimates which have not yet been audited.

Finding and Development Costs: With respect to disclosure of finding and development costs disclosed above, 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 CEO
    (403) 261-6401
    (403) 261-6424 (FAX)
    or
    Birchcliff Energy Ltd.
    Myles Bosman
    Vice President, Exploration and COO
    (403) 261-6401
    (403) 261-6424 (FAX)