Birchcliff Energy Ltd.
TSX : BIR

Birchcliff Energy Ltd.

September 08, 2008 16:10 ET

Birchcliff Energy Ltd. Announces Expansion of 2008 Capital Expenditure Program to $220 Million, Increases Exit Rate Production Target

Announces Construction of Natural Gas Plant Facility in Pouce Coupe, and Continued Success With Its Montney/Doig Natural Gas Resource Play

CALGARY, ALBERTA--(Marketwire - Sept. 8, 2008) -

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 announce that , as a result of continued success with the development of its two resource plays, the Montney/Doig natural gas and it's Worsley light oil, Birchcliff is increasing its 2008 capital expenditure program to $220 million. Birchcliff is now expecting to exit 2008 producing between 13,500-14,000 boe per day, an increase from 12,500 to 13,000 boe per day. More importantly, and as detailed below, Birchcliff has, and will spend significant capital on its natural gas infrastructure and land base, which lays the ground work for the expansion of its Montney/Doig natural gas horizontal well drilling programs in 2009 and beyond.

Increased Capital Expenditure Program

As a result of the success of our drilling and our land acquisitions program, which has increased the depth of our drilling opportunities, the Directors of Birchcliff have approved the second expansion of our 2008 capital expenditure program by $70 million to $220 million from $150 million. The increase in our capital expenditure program is highlighted by an increase to our target exit production rate, the announcement of our decision to build a sour gas plant facility and other infrastructure to support the Montney/Doig natural gas resource play, and the meaningful increase to our proven and trend land on the Montney/Doig natural gas resource play. The increased capital expenditure program will be funded out of cash flow and Birchcliff's credit facilities.

Of the $70 million increase, $60 million will be directed to our Montney/Doig natural gas program and $ 10 million to our Worsley light oil program. By expenditure type, $25 million is directed to drilling, $10 million to land, $22 million to the construction of natural gas infrastructure and expenses associated with the sour gas plant facility, $3 million to recompletions, seismic and other and $10 million to acquisitions completed in the 2nd quarter of 2008 which included significant lands on the Montney/Doig play.

Birchcliff expects to drill approximately 80 gross (68.8 net) oil and gas wells an increase from 71 gross (59.4 net) in 2008.

To date Birchcliff has increased its undeveloped land base to 357,958 gross (308,823 net) acres with an average 86% working interest.

Montney /Doig Natural Gas Resource Play Update

As a result of the increased capital program for 2008, Birchcliff expects to drill 15 gross (13.2 net) Montney/Doig horizontal natural gas wells in 2008, up from 12 gross wells (10.4 net). In 2008 Birchcliff has drilled 9 gross (7.95 net) Montney/Doig horizontal natural gas wells, of which 4 are on production. Birchcliff is currently drilling 2 horizontal wells with 4 horizontal wells remaining to be drilled. All 15 Montney/Doig horizontal natural gas wells are anticipated to be on production by year end.

Birchcliff is very pleased to announce that two vertical natural gas wells and one horizontal natural gas well that it has recently drilled have tested at commercial production rates from two new stratigraphic zones within the Montney/Doig, which are commonly described as the Middle and Lower Montney. To date Birchcliff has been focused on the Doig and Upper Montney. Birchcliff and other industry competitors believe that the Lower and Middle Montney reservoir characteristics are similar to the Doig and Upper Montney producing zones, including the potential for 4 horizontal gas wells per stratigraphic zone, per section. Birchcliff also believes that over time it will be assigned more natural gas reserves as a result of, more production, more gas in place and greater recovery factors being assigned to those sections with multiple stratigraphic zones. These successful tests of these stratigraphic zones have increased the scope and depth of drilling opportunities on Birchcliff's lands and will increase the production synergies from existing and future infrastructure on those lands which contain these new stratigraphic zones. Birchcliff is evaluating its land base to determine the number of potential drilling opportunities that exist in the Lower and Middle Montney stratigraphic zones.

We are pleased to announce that since our press release of August 12, through crown land sales, drilling and completion results, and updated evaluation, Birchcliff has increased its proven and trend acreage on the Montney/Doig natural gas play. Since August 12 we have increased our proven land to 47.9 net sections from 40.7 net sections and increased our trend land to 51.2 net sections from 45.1 net sections. At 4 wells per section that represents an inventory in excess of 395 potential horizontal drilling locations (up from 340 as of August 12) of which 11 horizontal wells have been drilled to date.

Birchcliff describes proven lands as lands which the Montney/Doig formations have been penetrated by logged well bores and evaluated to prove the potential for horizontal drilling, or lands which are adjacent to such penetrations. Trend lands are lands which have a high likelihood of extending the Montney/Doig natural gas resource play based on technical information including geological and geophysical data.

Worsley Light Oil Resource Play Update

Birchcliff now expects to drill 33 gross (33.0 net) light oil wells at Worsley during 2008, up from 29 gross (27.0 net) light oil wells. To date Birchcliff has drilled 18 vertical and 5 horizontal wells, and has 10 remaining wells left to drill. Recently, we successfully executed multi-stage fracturing completion techniques on a number of our horizontal wells. The early results are very positive but a longer production history is necessary to properly evaluate these completions.

Infrastructure Update

As a result of excellent drilling success and significant land accumulation, Birchcliff has reviewed its future sour gas processing facility requirements in its Pouce Coupe gas fields for 2009 and beyond. We are pleased to announce our decision to construct a sour gas plant facility in the Pouce Coupe area subject to obtaining necessary regulatory approvals. The plant will be strategically located in an unpopulated area that is close to both our development area and major sales gas pipelines.

The plant capacity has been designed for 30 mmcf per day and will be readily expandable to 50 mmcf per day in a second phase. Birchcliff has drilled, cased and completed an acid gas disposal well and has recently completed a successful injectivity test. Given the advanced progress made to date on the acid gas disposal well and the front end design work, Birchcliff expects that the plant should be fully commissioned by the end of 2009. Birchcliff is considering a number of financing options for the plant with a view to maintaining our strong balance sheet. Birchcliff is pleased that the new gas plant will address its future infrastructure requirements for the area.

As part of Birchcliff's strategy, we expect to spend $56 million of the total $220 million in 2008 on infrastructure. This includes well equipping and tie-ins, compressors, the acid gas injection well for the future sour gas plant and other infrastructure which continues to lay the ground work for the future development of our natural gas resource play. A significant portion of these funds are required up front with no corresponding immediate production additions but in the end are required for full cycle development of these natural gas fields. Operating and controlling the natural gas plants and facilities is a significant strategic advantage to Birchcliff. This new sour natural gas plant is an excellent addition to our large operated and owned infrastructure in the Peace River Arch.

Indebtedness

Assuming natural gas averages $7.00 per GJ AECO and oil averages US $115 per bbl WTI for the remainder of 2008, Birchcliff expects to exit the year at approximately $213 million in total debt, of which Birchcliff expects $190 million will be drawn on its credit facilities. Birchcliff currently has $240 million of credit facilities and expects that it will be able to increase those lines based on year end reserve additions. Accordingly, Birchcliff continues to enjoy a very strong balance sheet.

Production

As a result of our increased capital expenditure program, Birchcliff expects to exit the 2008 year producing between 13,500 and 14,000 boe per day, up from 12,500 and 13,000 boe per day. Birchcliff estimates that its current production is approximately 10,000 boe per day. Birchcliff has 16 gross (14.1 net) wells that are in various stages of completion and awaiting tie-in.

Outlook

We continue to be excited about the development of our two resource plays. The recent success of our Montney/Doig horizontal natural gas wells, the incremental potential locations, the increase in proven and trend land on the play, and the additions of owned and operated natural gas facilities all point to the future success of this play. Further, the success at Worsley is itself very positive and the oil reserves continue to underpin the value of our company as natural gas prices continue to fluctuate.

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:

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 there from. 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.

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