CALGARY, ALBERTA--(Marketwire - May 19, 2011) -
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 its financial and operating results for the first quarter of 2011. The full text of Birchcliff's First Quarter Report containing the Condensed Financial Statements for the three month period ended March 31, 2011 and the related Management's Discussion and Analysis is available on Birchcliff's website at www.birchcliffenergy.com and will be available on SEDAR at www.sedar.com.
Expansion of Pouce Coupe South Gas Plant
Birchcliff is pleased to announce that its Directors have approved the Phase III expansion of the Pouce Coupe South Gas Plant (the "PCS Gas Plant") from 60 mmcf per day to 120 mmcf per day of processing capacity. Phase III is scheduled to commence processing natural gas on November 1, 2012. As a result, Birchcliff forecasts its 2012 exit production rate to be between 27,000 and 28,000 boe per day.
Jeff Tonken, President and Chief Executive Officer of Birchcliff stated:
"We are very excited to be moving ahead with the Phase III expansion which will allow us to further develop the large Montney/Doig natural gas resource base on our lands in the Pouce Coupe area of Alberta. The PCS Gas Plant will process our Montney/Doig natural gas for more than 30 years and is an essential part of our strategy to control our production and processing facilities and reduce our operating costs.
Our recent press releases respecting our year-end independent Reserve Report and our independent Montney/Doig Resource Assessment confirm the strength of our asset base on the Montney/Doig Natural Gas Resource Play."
Increased Syndicated Bank Credit Facilities
Birchcliff is pleased to announce that it has received Bank Syndicate approval to increase its revolving credit facilities to $450 Million from $375 Million and in addition has received approval for a $70 Million, 5 year term credit facility, the proceeds of which will be used to finance the construction of the Phase III expansion of the PCS Gas Plant. The aggregate maximum amount available under these credit facilities is now $520 Million.
Expansion of 2011 Capital Program
Birchcliff is pleased to announce the expansion of its 2011 Capital budget to $227 Million from $159 Million. The details of this capital budget are set forth below in the President's Message. Its primary purposes are to:
-- commence construction of Phase III of the PCS Gas Plant;
-- increase drilling of Montney/Doig horizontal natural gas wells to fill
Phase III of the PCS Gas Plant;
-- increase drilling of Montney/Doig horizontal natural gas wells to keep
Phases I and II of the PCS Gas Plant operating at full capacity; and
-- continue further horizontal light oil drilling and develop and expand
the water flood at Worsley.
First Quarter Highlights:
-- Production averaged 17,742 boe/day, a 70% increase from the first
quarter of 2010.
-- Cash Flow of $32.3 Million ($0.26 per share), up 50% from the first
quarter of 2010.
-- Net income of $9.6 Million ($0.08 per share).
-- Operating netback of $25.95/boe and cash flow netback of $20.24/boe.
-- Operating expenses per boe of $6.97, down 23% from the first quarter of
2010.
-- Net capital expenditures of $52.2 Million.
-- Drilled 11 (9.8 net) wells, including 5 (3.8 net) Montney/Doig
horizontal natural gas wells and 6 (6.0 net) Worsley horizontal light
oil wells.
-- Increased undeveloped land base to 538,791 gross (497,236 net) acres,
all in the Peace River Arch area of Alberta.
-- Increased land holdings and potential drilling locations on the
Montney/Doig Natural Gas Resource Play.
IFRS Advisory
Birchcliff's financial data disclosed above have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board that was adopted by the Corporation on January 1, 2011, with an effective date of January 1, 2010. Previously, Birchcliff prepared its annual and interim financial statements in accordance with Canadian Generally Accepted Accounting Principles then applicable to publically accountable enterprises. Comparative information described above has been restated to comply with the requirements of IFRS. The adoption of IFRS does not impact the underlying economics of Birchcliff's operations. Further details are described in the "Transition to International Financial Reporting Standards" section of the Management's Discussion & Analysis portion of the 2011 First Quarter Report.
The full text of the President's Message and the Financial and Operational Highlights from the 2011 First Quarter Report follows:
May 18, 2011
Fellow Shareholders,
Birchcliff is pleased to report its first quarter financial and operating results for the three months ended March 31, 2011. Our drilling results in 2011 continue to be very strong, we continue to have success controlling our operating costs per boe and we have been successful in acquiring more undeveloped land on our two key resource plays.
On May 18, 2011, the Directors of Birchcliff authorized the Phase III expansion of its Pouce Coupe South Gas Plant ("PCS Gas Plant"), which will increase processing capacity from 60 mmcf per day to 120 mmcf per day. The Phase III expansion is fully permitted and is expected to commence processing natural gas by November 1, 2012. The decision to proceed with the Phase III expansion was primarily based on:
-- The successful drilling and completion results and production rates that
we have been achieving from the horizontal wells on our Montney/Doig
Natural Gas Resource Play;
-- The substantial increase in reserves independently attributed to our
Montney/Doig Natural Gas Resource Play lands at December 31, 2010 in the
Reserves Evaluation prepared by AJM Petroleum Consultants, the details
of which were released on February 16, 2011;
-- The large volumes of Contingent Resources and Prospective Resources that
were independently attributed to our Montney/Doig Natural Gas Resource
Play lands at December 31, 2010 in the Montney/Doig Natural Gas Resource
Assessment prepared by AJM Petroleum Consultants, the details of which
were released on April 26, 2011; and
-- The recent increase in our revolving credit facilities from $375 Million
to $450 Million as described below and the establishment of a new non-
revolving $70 million term credit facility with a five (5) year term,
the proceeds of which will be used to finance the construction of the
Phase III expansion.
Once the Phase III expansion has been completed, Birchcliff's exit production in 2012 is expected to range between 27,000 and 28,000 boe/day. This range is a function of how much third party gas will be processed in the PCS Plant, the extent of production growth from Worsley in 2012, the performance of our base production and the total capital program for 2012, which is yet to be determined, and the performance of our base production.
Birchcliff is turning its focus to the execution of the construction of Phase III and the drilling and completion of 38 additional Montney/Doig horizontal natural gas wells in 2011 and 2012 required to fill Phase III of the PCS Gas Plant and to keep Phases I and II full. The 2011 Montney/Doig horizontal natural gas drilling program will include up to 6 (4.8 net) Montney/Doig horizontal natural gas wells in addition to the 17 (13.6 net) horizontal wells previously announced in our initial budget on February 16, 2011.
The planned start-up of the Phase III expansion on November 1, 2012 provides sufficient lead time to properly plan and concurrently execute both the construction of the Phase III expansion of the PCS Gas Plant and our planned Montney/Doig horizontal natural gas drilling program. We intend to keep a keen eye on both scheduling and costs as we did with the construction and drilling programs associated with Phases I and II of the PCS Gas Plant, each of which were completed on time and under budget.
2011 FIRST QUARTER RESULTS
Production
Current production is 17,800 boe/day. First quarter production averaged 17,742 boe/day, (75.7% natural gas and 24.3% light oil and natural gas liquids). Birchcliff continues to expect to average approximately 17,500 boe per day in the first half of 2011 and approximately 18,500 boe per day for 2011.
Cash Flow and Earnings
Cash flow was $32.3 million or $0.26 per share for the first quarter of 2011, as compared to $21.6 million or $0.17 per share in the first quarter of 2010.
Earnings before asset dispositions were $9.6 million or $0.08 per share for the first quarter of 2011 as compared to $4.5 million or $0.04 per share in the first quarter of 2010. The earnings continue to be a very positive measure of our business notwithstanding the very weak natural gas prices in the first quarter of 2011.
Capital Expenditures and Drilling Results
During the first quarter of 2011, net capital spending aggregated $52.2 million.
Drilling activities during the first quarter of 2011 resulted in 11 (9.8 net) wells, of which all were cased. Birchcliff drilled and cased 5 (3.8 net) Montney/Doig horizontal natural gas wells, and 6 (6.0 net) Worsley horizontal light oil wells. In addition, Birchcliff focused significant time and effort on evaluating and developing new resource plays in the Peace River Arch area of Alberta with a focus on oil plays.
Birchcliff expects total capital expenditures for the first half of 2011 to be approximately $87 million.
Operating Costs
Operating costs during the first quarter of 2011 were $6.97 per boe. This is 23% lower than the $9.03 per boe recorded for the corresponding quarter in 2010 and slightly higher than the $6.84 per boe recorded for the fourth quarter of 2010. Operating costs were affected by prior period costs, extreme cold and related adverse weather conditions that impacted aggregate production volumes during the quarter. Operating costs per boe are expected to trend downwards for the rest of 2011 as volumes increase.
Land
Birchcliff continues to grow its undeveloped land base in the Peace River Arch. As at March 31, 2011, Birchcliff has increased its undeveloped land position to 538,791 gross acres (497,236 net) resulting in a 92% average working interest. Birchcliff's very high average working interest in its undeveloped land base reflects our longstanding strategy of acquiring high working interest undeveloped land proximate to our operated high working interest production base.
Indebtedness
At March 31, 2011, the amount outstanding under Birchcliff's bank credit facilities was approximately $335.2 million. Birchcliff's working capital deficiency as at March 31, 2011 was $17.6 million, for total debt of $352.8 million. The working capital deficiency does not reduce the amount Birchcliff can draw under its credit facilities.
2011 UPDATE
Montney/Doig Natural Gas Resource Play Update
In the first quarter of 2011, Birchcliff's activities on the Montney/Doig Natural Gas Resource Play included the drilling of 5 (3.8 net) horizontal wells utilizing multi-stage fracture stimulation techniques. To date in 2011, Birchcliff has drilled and cased 8 (5.9 net) wells, of which 5 (3.8 net) have been completed and are on production. Currently, Birchcliff has one rig working in the Pouce Coupe area of Alberta, focused on drilling horizontal Montney/Doig natural gas wells.
The rapid advancements in horizontal drilling and multi-stage fracture stimulation of these horizontal wells have resulted in significant improvements in production and reserve capture for many different plays throughout North America. Birchcliff believes that the Montney/Doig Natural Gas Resource Play continues to experience some of the best results of the application of this technology due to its unique reservoir characteristics. Birchcliff classifies the Montney/Doig Natural Gas Resource Play as a hybrid resource play which significantly benefits from having approximately 300 meters (1,000 feet) of gas saturated rock that has both tight silt and sand reservoir rock inter-layered with shale gas source rock. The horizontal wells are designed to maximize the contributions from the different elements of this complex reservoir. As our knowledge grows with respect to both operational technology and characteristics of these reservoirs, we expect our results to continue to improve.
In a reserve evaluation dated February 9, 2011, prepared by AJM Petroleum Consultants ("AJM") as at December 31, 2010 (the "AJM Reserves Evaluation"), AJM attributed Montney/Doig reserves to 76.1 net sections of land. During 2011, Birchcliff has increased its land position on the Montney/Doig Natural Gas Resource Play by 17 net sections and Birchcliff estimates it now has in excess of 300 net sections of land on the play. The AJM Reserves Evaluation also attributed reserves to 219 net future horizontal well drilling locations. Birchcliff believes that it has in excess of 1,000 potential Montney/Doig horizontal natural gas drilling locations on its lands.
On April 26, 2011, Birchcliff announced details of a Resource Assessment relating to Birchcliff's lands on the Montney/Doig Natural Gas Resource Play, which was prepared by AJM Petroleum Consultants (the "AJM Resource Assessment"). The contents of that Press Release can be accessed on Birchcliff's website at www.birchcliffenergy.com. The AJM Resource Assessment is an important data point that independently confirms Birchcliff's lands hold significant resources to execute a large scale development program. Birchcliff is in the favorable position of having a very high working interest in a large land position on a world class natural gas resource.
Worsley Light Oil Resource Play Update
The Worsley property continues its strong production performance. Our successful expansion of the water flood, application of horizontal drilling and multi-stage fracture stimulation technology, continued reserve growth as well as high netback production all contributes to this high quality asset. To date in 2011, Birchcliff has drilled 6 (6.0 net) horizontal light oil wells, five of which are on production.
During the first quarter, Birchcliff shot a 40 km(2) 3D seismic program on lands in the North West end of the Worsley light oil pool that will be used to delineate the pool and optimally place future horizontal wells, thereby increasing our chance of success.
Syndicated Bank Credit Facilities
As a result of our significant year end reserve additions, Birchcliff's bank syndicate recently approved the increase of Birchcliff's revolving credit facilities to an aggregate limit of $450 million from $375 million. The two year term out feature of Birchcliff's revolving credit facilities remains intact so that if the credit facilities are not renewed at their annual renewal date, they convert to a two year term loan repayable at maturity.
In addition, Birchcliff has entered into a $70 million non-revolving 5 year term credit facility, with its existing Bank Syndicate which matures on May 25, 2016. This facility requires principal payments of $350,000 per quarter commencing on July 1, 2013. This facility will be used to fund the construction of Phase III of the PCS Gas Plant.
The maximum aggregate amount available under these credit facilities is $520 million.
These credit facilities will provide Birchcliff with the financial flexibility it requires to prudently manage its business.
Budget Expansion
Birchcliff is pleased to announce an increase to its 2011 Budget from $159 million to $227 million. The capital budget will be funded out of cash flow and debt.
The following table sets forth a comparison of the expanded 2011 capital budget to the original 2011 capital budget.
----------------------------------------------------------------------------
2011 Expanded Capital Budget
------------------------------------------------
Net Capital
Gross Wells Net Wells (millions)
----------------------------------------------------------------------------
New Old New Old New Old
Drilling & Development
Basal Doig/Upper Montney HZ
Gas Wells 13.0 9.0 9.9 7.1 $ 50.8 $ 37.0
Middle/Lower Montney HZ Gas
Wells 10.0 8.0 8.5 6.5 $ 51.3 $ 36.3
Vertical Exploratory Gas
Well 1.0 0.0 1.0 0.0 $ 3.1 $ 0.0
Worsley Charlie Lake HZ Oil
Wells 13.0 11.0 13.0 11.0 $ 35.2 $ 28.0
Worsley Charlie Lake
Vertical Oil Wells 5.0 4.0 5.0 4.0 $ 6.5 $ 5.5
Progress Doe Creek Oil
Wells 7.0 8.0 3.5 4.2 $ 3.2 $ 3.0
Other Oil Wells 3.0 3.0 2.0 2.5 $ 6.5 $ 6.2
Disposal Well 1.0 1.0 1.0 1.0 $ 3.1 $ 2.8
----------------------------------------------------------------------------
Total Drilling & Development 53.0 44.0 43.9 36.3 $159.7 $118.8
----------------------------------------------------------------------------
Facilities $ 28.8 $ 9.7
----------------------------------------------------------------------------
Production Optimization $ 19.7 $ 15.9
----------------------------------------------------------------------------
Land, Seismic & Other $ 19.1 $ 14.6
----------------------------------------------------------------------------
Total Net Capital $227.3 $159.0
----------------------------------------------------------------------------
Capital Associated with PCS Gas Plant Phase III Expansion and Horizontal Montney/Doig Wells
The capital associated with the construction of Phase III and our planned Montney/Doig horizontal well drilling program for 2011 and 2012 is set forth in the following table.
Forecast 2011 and 2012 Montney/Doig Capital Program
----------------------------------------------------------------------------
Montney/Doig Horizontal Wells
---------------------------------------------
Phase III
Costs Net Capital
($ millions) Gross Wells Net Wells ($ millions)
---------------
2011 $18 6 4.8 $25.5
2012 $48(1) 32 24.0 $126.0
Totals $66 38(2) 28.8 $151.5
(1) This includes approximately $6 million for other related infrastructure.
(2) This is comprised of 10 wells to keep Phases I and II of the PCS Plant
full, 22 wells to fill Phase III and 6 additional inventory wells.
SHAREHOLDER SUPPORT
I am pleased to note that during the first quarter, Mr. Seymour Schulich increased his share position to 33 million shares representing 26.3% of the outstanding shares of Birchcliff. Mr. Schulich's unwavering commitment to Birchcliff allows us to continue to focus on our business strategy and on achieving our long term goals that we believe will create significant value for all Birchcliff shareholders.
Thank you Mr. Schulich.
OUTLOOK
Birchcliff remains very confident that its two highly focused, high working interest, low cost, repeatable, sustainable long term growth resource plays in the Peace River Arch area of Alberta offer tremendous upside value to our shareholders. The Montney/Doig Natural Gas Resource Play continues to be one of the most active geological plays in North Western Alberta and Birchcliff is right in the heart of the play.
Our strategy has not changed, notwithstanding the weakness in commodity prices. We believe that we can economically find, develop and produce natural gas from the Montney/Doig geological zone at low costs. We also believe that technology advances will continue to reduce our finding costs and increase our recovery factors. We note that our 2010 finding costs were in the top decile as compared to others in the industry and 2011 results to date continue to be very positive.
Our excellent results, the AJM Reserves Evaluation and the AJM Resource Assessment have set the stage for Birchcliff to confidently move forward with the Phase III expansion of the PCS Gas Plant. We will continue to proceed cautiously and prudently with the execution and development of our Montney/Doig Natural Gas Resource Play. Our goal, to be producing between 27,000 and 28,000 boe/day at year-end 2012 is firmly in our sights. We look forward to reporting our progress to you in the coming months.
On behalf of our management team and directors I thank all of our shareholders for their continued support and our staff for their hard work and dedication.
(signed) "A. Jeffery Tonken"
A. Jeffery Tonken
President and Chief Executive Officer
ADVISORIES
Boe Conversions
Barrels of oil equivalent ("boe") amounts may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet (6 mcf) of natural gas to one barrel of oil (1 bbl) is based on an energy equivalent conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
Forward Looking Information
This Press Release contains certain forward-looking statements and forward-looking information (hereinafter collectively referred to as "forward-looking information") within the meaning of applicable Canadian securities laws. These statements relate to future events or future performance and are based upon the Corporation's current internal expectations, estimates, projections, assumptions and beliefs. All statements other than statements of historical fact are forward-looking statements. In some cases, words such as "plan", "expect", "project", "intend", "believe", "anticipate", "estimate", "may", "will", "potential", "proposed" and other similar words, or statements that certain events or conditions "may" or "will" occur, are intended to identify forward-looking statements.
In particular, this Press Release contains forward-looking information relating to Birchcliff's intention to expand its processing facilities, drill and complete future wells, increase its production, scale up the development of its assets and an estimate of the number of its potential Montney/Doig horizontal natural gas drilling locations.
The Corporation cannot guarantee future results, levels of activity, performance or achievements. Consequently, there is no representation by the Corporation that actual results achieved will be the same in whole or in part as those set out in the forward-looking information.
With respect to such forward-looking information the key assumptions on which the Corporation relies are: that future prices for crude oil and natural gas, future currency exchange rates and interest rates, and future availability of debt and equity financing will be at levels and costs that allow the Corporation to manage, operate and finance its business and develop its properties and meet its future obligations; that the regulatory framework in respect of royalties, taxes and environmental matters applicable to the Corporation will not become so onerous as to preclude the Corporation from viably managing, operating and financing its business and the development of its properties; that the Corporation will continue to be able to identify, attract and employ qualified staff and obtain the outside expertise and specialized and other equipment it requires to manage, operate and finance its business and develop its properties; and its various assumptions as to future prices for crude oil and natural gas, currency exchange rates, inflation rates, future well production rates, well drainage areas, success rates of future well drilling and future costs and availability of labour and services. With respect to estimates of numbers of future wells to be drilled, two (2) key assumptions are that: (i) the future prices of oil and natural gas realized by the Corporation will be sufficient to justify the significant investments required; and (ii) the validity of the geological and other technical interpretations that have been performed by Birchcliff's technical staff that indicate that commercially economic reserves can be recovered from Birchcliff's lands as a result of drilling such future wells.
Undue reliance should not be placed on forward-looking information, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. Forward-looking information involves numerous assumptions, uncertainties and both known and unknown risks. There is a risk that such predictions, forecasts, and projections may not occur. Although the Corporation believes that the expectations reflected in the forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. Some of those risks include: risks inherent in the oil and gas industry, such as operational risks in exploring for, developing and producing crude oil and natural gas, market demand and unpredictable facilities outages; risks and uncertainties involving geology of oil and natural gas deposits; uncertainty of reserves and resources estimates, reserves life and underlying reservoir risk; general economic conditions in Canada, the United States and globally; changes in governmental regulation of the oil and gas industry, including environmental regulation; fluctuations in foreign exchange rates or interest rates; adverse conditions in the debt and equity markets; and competition from others for scarce resources.
The foregoing list of risk factors is not exhaustive. The forward-looking information contained in this Press Release is expressly qualified by this cautionary statement. Additional information on these and other risk factors that could affect operations or financial results are included in the Corporation's most recent Annual Information Form. In addition, information is available in the Corporation's other reports filed with Canadian securities regulatory authorities. Forward-looking information is based on estimates and opinions of management at the time the information is presented. The Corporation is not under any duty to update the forward-looking information after the date of this Press Release to conform such information to actual results or to changes in the Corporation's plans or expectations, except as otherwise required by applicable securities laws.
Birchcliff is a publicly traded company that trades on the TSX Exchange under the symbol "BIR".
This press release is not for distribution to United States Newswire Services or for dissemination in the United States.
The TSX Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.
Contact Information:
Jeff Tonken
President and CEO
(403) 261-6401
(403) 261-6424 (FAX)
Birchcliff Energy Ltd.
Jim Surbey
Vice President, Corporate Development
(403) 261-6401
(403) 261-6424 (FAX)
www.birchcliffenergy.com