Birchcliff Energy Ltd.
TSX : BIR

Birchcliff Energy Ltd.

September 04, 2007 15:11 ET

Birchcliff Energy Ltd. Announces a $270 Million Acquisition of Strategic Assets in the Peace River Arch Area of Alberta, a $100 Million Bought Deal Financing and...

...an Upward Revision to its 2007 Exit Production Guidance

CALGARY, ALBERTA--(Marketwire - Sept. 4, 2007) -

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

Birchcliff Energy Ltd. ("Birchcliff" or the "Company") (TSX:BIR) is pleased to announce that it has entered into a purchase and sale agreement to acquire from Compton Petroleum Corporation, oil and natural gas assets (the "Worsley Property") in the Peace River Arch area of Alberta for total cash consideration of $270 million before closing adjustments and related costs (the "Acquisition"). The Acquisition will be financed by the issuance of common shares, an increase to its current revolving credit facilities and a new non-revolving credit facility. The Acquisition is effective July 1, 2007 and is expected to close on September 27, 2007, with closing subject to customary industry conditions.

STRATEGIC ASSET ACQUISITION

The Worsley Property is located in the Peace River Arch area of Alberta approximately 100 miles north of Grande Prairie, which is in close proximity to Birchcliff's existing assets. Current production is approximately 3,500 BOE per day, consisting of 2,700 BBLS per day of 38 degrees light oil and natural gas liquids and 4.8 MMCF per day of natural gas. The Worsley Property is characterized by large contiguous blocks of mainly 100% working interest lands containing a very large Charlie Lake light oil pool. Essentially, all of the production is operated and the related infrastructure is owned.

Based on the Netherland Sewell & Associates Inc. Report as at December 31, 2006 prepared for Compton Petroleum Corporation (the "NSAI Report"), the Worsley Property included an estimated 11.9 million barrels of oil equivalent ("MMBOE") of proved reserves and 15.7 MMBOE of proved plus probable reserves. After adjustment for actual production to July 1, 2007, Birchcliff estimates the reserves of the Worsley Property at July 1, 2007, to be 11.3 million barrels of oil equivalent ("MMBOE") of proved reserves and 15.1 MMBOE of proved plus probable reserves. Birchcliff estimates the Worsley Property to have a long reserve life index of approximately 11.8 years based on current production of 3,500 BOE per day of proved plus probable reserves.

The Worsley Property includes strategic plant, facility and pipeline interests and 39,853 gross (34,774 net) undeveloped acres of land. Birchcliff has identified at least 80 drilling locations and over 30 recompletion opportunities.

Jeff Tonken, President & C.E.O. of Birchcliff commented,

"This acquisition is consistent with Birchcliff's previously stated strategy of acquiring grade A assets in the Peace River Arch area of Alberta. The purchase price, less land and seismic value, is equivalent to $17.53 per BOE of proved plus probable reserves. At a US$70.00 per BBL WTI and Cdn$7.00 per MMBTU the Worsley Property will generate a netback after deducting royalties and operating costs of approximately Cdn$38.50 per BOE which results in a 1.8 to 1 recycle ratio on the proved plus probable reserves acquired. The Worsley Property will provide long life, low decline, low risk infill drilling which complements our long life Montney/Doig natural gas resource play. The Worsley property will provide a stable cash flow to help fund our natural gas drilling in the Peace River Arch.

This very large Charlie Lake oil pool is located close to our existing properties which will provide us with opportunities for operational synergies. This large oil pool is estimated to have in excess of 124 million barrels of original light oil in place. There is further potential for increasing the original oil in place by delineation drilling and completions of by-passed pay. This pool should see continued long term recovery enhancements resulting from the water flood and from future technical advances.

The Worsley Property will provide commodity diversification from our high working interest focused natural gas assets. After completion of the Acquisition Birchcliff will be approximately 62% natural gas and 38% light oil and natural gas liquids.

As a result of this acquisition:

- Birchcliff will increase its average working interest in its production from 70% to 81%;

- Birchcliff will operate 85% of its production;

- Five operated properties will now make up 90% of Birchcliff's production.

- Birchcliff will increase its undeveloped lands to 281,910 gross (233,870 net) acres with an average working interest of 83%;

- Birchcliff will have the ability to focus its capital on its quality assets with the best economic return and to quickly react to adjust its capital program in response to changing commodity prices.

- Birchcliff continues to expand its foot print in the Peace River Arch area of Alberta.

We expect this acquisition to help us create value for Birchcliff's shareholders."

Highlights associated with the Acquisition are set forth below:

1. The Purchase Price is $270 million before closing adjustments and related costs. Undeveloped land and seismic has been internally valued at $5.4 million, for a total consideration of $264.6 million paid for the reserves and production. Birchcliff has acquired the Worsley Property for approximately $75,600 per BOE per day, $23.38 per proved BOE and $17.53 per proved and probable BOE, excluding future capital, based on the NSAI Report, after adjustment to July 1, 2007. Including future capital the proved reserves were purchased for $26.13 per boe and the proved and probable reserves for $21.45 per BOE.

2. Production:

a. Current production is estimated to be approximately 3,500 BOE per day comprised of 78% oil (38 degrees API) and natural gas liquids and 22% natural gas;

b. The average working interest in the production is 90%;

c. Operating costs (including transportation) averaged $11.18 per BOE in 2006 and $12.46 per BOE in the first half of 2007;

d. Operating synergies as a result of the concentrated nature of the Worsley Property coupled with the proximity to Birchcliff's existing production base are expected to lead to lower per unit operating costs for Birchcliff's properties.

3. Reserves:

a. Based on the NSAI Report and deducting actual production through the first half of 2007, Birchcliff estimates the reserves at July 1, 2007 to be 11.3 MMBOE proved and 15.1 MMBOE proved plus probable. Future capital included in the NSAI Report was $31.2 million for the proved reserves and $59.2 million for the proved plus probable reserves from January 1, 2007 forward and $24.8 million for the proved reserves and $44.3 million for the proved plus probable reserves from July 1, 2007 forward.

b. The reserve life index based on production of 3,500 boe/d and the NSAI Report is 8.8 years for proved reserves and 11.8 years for proved plus probable reserves.

c. Prior to the Acquisition Birchcliff's December 31, 2006 year end proved reserves were 50% of the proved plus probable reserves. On a pro forma basis using Birchcliff's December 31, 2006 reserves and the NSAI Report adjusted for actual production to July 1, 2007, the ratio of proved reserves to proved plus probable reserves increases to 57%.

d. Birchcliff's current estimate of recoverable original oil in place results in a recovery factor ranging between 11% and 18% for various parts of the pool. Birchcliff expects to increase the original oil in place estimate and the recovery factors using a combination of primary and secondary waterflood recovery and further delineation and infill drilling. Significant upside could exist beyond current recovery estimates since analog Charlie Lake and Triassic-aged pools have predicted total ultimate waterflood oil recoveries of 17% to 45% with an average recovery of 28%, which is well above our current estimates for recovery. There is also future potential to further increase oil recoveries above those achievable from waterflooding by using either surfactant or carbon dioxide injection.

e. The production profile for Worsley is expected to increase over the next four years as the waterflood is expanded, in contrast to the production profiles of mature conventional Western Canada pools. The amount of capital expended on the property will ultimately determine its production profile. The Worsley Property includes a multi-year drilling inventory of at least 80 identified well locations designed to optimize pool recovery and at least 30 recompletion opportunities.

4. Diversification of Birchcliff's asset base and commodity price risk as Birchcliff's production base will move from 85% natural gas and 15% light oil and liquids to approximately 62% natural gas and 38% light oil and liquids.

5. Birchcliff views the Worsley Property as a long-term cash flow engine to help fuel its deep high impact and resource play natural gas drilling over the long term, while providing a good return to its shareholders. It also reduces the risk that depressed natural gas prices could have on Birchcliff's ability to continue its high impact and resource play natural gas drilling.

6. The income tax pools associated with the Acquisition will be equal to $270 million, prior to closing adjustments and related costs.

7. The Acquisition does not require a proportionate increase in general and administrative costs which will result in a decrease in Birchcliff's general and administrative costs per unit of production. With the minimal integration and hiring of new staff, Birchcliff's management team and technical teams can maintain their focus on the execution of Birchcliff's remaining 2007 capital program and its 2008 capital program.

8. At approximately 9,500 BOE per day, Birchcliff will have increased capability to compete more aggressively in the Peace River Arch. This growth has been accomplished entirely within Birchcliff's focus area in the Peace River Arch area of Alberta.

FINANCING

In conjunction with the Acquisition, Birchcliff has entered into a bought deal equity financing agreement with a syndicate of underwriters led by GMP Securities L.P. and Scotia Capital Inc. and including Cormark Securities Inc., HSBC Securities (Canada) Inc. and Raymond James Ltd. (collectively, the "Underwriters"), pursuant to which the Underwriters have agreed to purchase for resale to the public 26,315,800 common shares (the "Common Shares") at a price of $3.80 per Common Share for aggregate gross proceeds of $100,000,040 (the "Offering"). In addition, the Underwriters have been granted an overallotment option to purchase up to 3,947,370 additional Common Shares which may be exercised up to 30 days after closing of the Offering.

The proceeds from the Offering will be used to fund a portion of the purchase price upon closing of the Acquisition which is expected to occur September 27, 2007.

The Offering is subject to certain conditions including required regulatory approvals. The Common Shares will be offered in all provinces of Canada, except Quebec by way of a short form prospectus and in the U.S. on a private placement basis pursuant to exemptions from registration requirements. The closing of the Offering is expected to occur on September 27, 2007.

In conjunction with the Acquisition, today, the Corporation entered into an Amended and Restated Syndicated Credit Agreement with a syndicate of banks that, contingent on the completion of the Acquisition prior to October 31, 2007, completion of the distribution of common shares contemplated by this prospectus and satisfaction of usual closing conditions, which increases the Corporation's revolving credit facilities to a maximum limit of $200 million. The remaining terms of the revolving credit facilities remain essentially the same but the interest rates applicable to the Corporation's drawn loans are based on a pricing grid and will increase as a result of the increased ratio of outstanding indebtedness to earnings before interest, taxes, depreciation and amortization.

Today, Birchcliff also entered into an Acquisition Credit Agreement that, contingent on the completion of the Acquisition prior to October 31, 2007, completion of the distribution of Common Shares and satisfaction of usual closing conditions, provides a non-revolving credit facility with a maximum limit of $100 million that matures 1 year after closing of the Acquisition.

Including the Acquisition, on a proforma basis, the Company's net debt at June 30, 2007 would be $262 million.

OUTLOOK AND REVISED GUIDANCE

Birchcliff has had good drilling success in the third quarter and as a result of the Acquisition and the related equity issue Birchcliff will be increasing its capital expenditure program in 2007 to approximately $90 million from its original $77 million. The increased capital program will provide production momentum going into the first quarter of 2008. Drilling and the expansion of water injection on the Worsley Property may commence late in 2007 but as such will have no meaningful impact on 2007 average or exit volumes.

Birchcliff's July and August 2007 average production was approximately 6,000 BOE per day with approximately 8 gross (7.4 net) wells behind pipe. Excluding the Acquisition, the Company is maintaining its published production exit guidance of 7,000 BOE per day. After the Acquisition the Company's 2007 estimated exit production guidance is increased to 10,300 to 10,500 BOE per day. Birchcliff's current production rate after the Acquisition is estimated to be approximately 9,500 BOE per day.



The Company's revised 2007 capital budget is:

Capital Expenditure Program, including minor acquisitions $ 90 million
The Acquisition $ 270 million
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Total Capital Expenditure Program $ 360 million
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We encourage anyone interested in further details on our Company to visit our website at www.birchcliffenergy.com

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Advisory

RESERVES CONFIDENCE

The reserves relating to the Worsley Property as estimated in the NSAI Report represent only a portion of the reserves evaluated by the NSAI Report. A reader should note that 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.

NETBACK CALCULATIONS

The netback amounts referred to in this press release are calculated by deducting from the aggregate net revenues received on the sale of production, the aggregate amounts of royalties, transportation and operating costs applicable to such production and dividing the result by the aggregate production volumes sold.

RESERVE REPLACEMENT

The recycle ratios referred to in this press release are calculated by determining an estimated netback for the production and reserves to be acquired based on WTI of US$ 70 per BBL, CDN$ $7.00/mmbtu at AECO and historic royalty and cost levels and dividing the estimated netback by the amount per BOE being paid for the production and reserves being acquired.

FORWARD LOOKING STATEMENTS

Certain information set forth in this press release contains forward-looking statements. By their nature, forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond Birchcliff's control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other industry participants, the competition for qualified personnel and management, stock market volatility and ability to access sufficient capital from internal and external sources. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be incorrect and, as such, undue reliance should not be placed on forward-looking statements. Birchcliff's actual results, performance or achievement could differ materially from those expressed in or implied by these forward-looking statements, and accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits will derive therefrom. Except as required by law, Birchcliff disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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.

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