Birchcliff Energy Ltd.
TSX : BIR

Birchcliff Energy Ltd.

February 21, 2008 00:05 ET

Birchcliff Energy Ltd. Doubles Reserves in 2007 and Announces Operational Update

CALGARY, ALBERTA--(Marketwire - Feb. 21, 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 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 annual audited financial statements for 2007 in late March, 2008.

2007 Highlights

- Doubled proved & probable reserves to 56.6 million boe at December 31, 2007 from 28.3 million boe at December 31, 2006, an increase of 100%.

- More than doubled its proven reserves to 34.3 million boe at December 31, 2007 from 14.1 million boe at December 31, 2006, an increase of 143%.

- Increased its proved plus probable reserves per basic share at year end 2007 by 36% over December 31, 2006.

- At December 31, 2007, the net present value of the future net revenue from its proved and probable reserves discounted at 8% before tax is $1.17 billion.

- Birchcliff calculates its net asset value at December 31, 2007 to be $9.49 per basic share and $8.97 per fully diluted share without giving value to its substantial, high working interest, undeveloped land base, (assuming NPV 8% of $1.17 billion and less $272.9 million of debt at December 31, 2007)

- 2007 Finding, Development and Acquisition costs on a proved and probable basis were $11.38/boe excluding future development costs and $16.45/boe including future development costs.

- 2007 Finding and Development costs on a proved and probable basis were $5.07/boe excluding future development costs and $12.03/boe including future development costs.

- Birchcliff's reserve life index on a proved and probable basis increased to 15.5 years from 12.7 years based upon the January 2008 average production rate of approximately 10,000 boe/day.

- 2007 fourth quarter average production was 9,260 boe/day, a 58% increase over 2006 fourth quarter average production.

- 2007 average production was 6,711 boe/day, a 25% increase over its 2006 average daily production. Average fourth quarter production from Worsley (approximately 3,100 boe/day) was only included in Birchcliff's 2007 average production from September 27, 2007.

- Based on 2007 Finding and Development costs, Birchcliff had a proved plus probable operating netback recycle ratio in 2007 of 6.0, excluding future capital and 2.5, including future capital.



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Summary Financial Data ($ millions)
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2007 Total Capital $349.9
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2007 Acquisition Capital $271.1
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2007 Finding and Development Capital $ 78.8
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2007 Year end Total Debt
(Including working capital deficiency) $272.9
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2007 Year end Bank Debt
(Not including working capital deficiency) $254.7
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2007 Reserves Evaluation and Finding and Development Costs

Birchcliff has had its reserves evaluated effective December 31, 2007 by AJM Petroleum Consultants ("AJM"), an independent reserves evaluator, in accordance with National Instrument 51-101. In its evaluation report dated February 20, 2008 (the "AJM Evaluation"), AJM has estimated that as at December 31, 2007, Birchcliff has 34,318 mboe of proved reserves and 56,637 mboe of proved and probable reserves.

During 2007, Birchcliff increased by development and acquisitions its proved plus probable reserves by 30,744 mboe to 56,637 mboe which is an increase of 108% compared to its proved and probable reserves at year end 2006.

During 2007, Birchcliff spent approximately $78.8 million on exploration and development and $271.1 million on acquisitions and estimates its finding and development costs as follows:



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Three
FD&A Costs Excluding Future Development Year
Capital 2007 2006 2005 Average
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F&D - Exploration and Development
- Proved $ 6.92 $34.46 $ 9.03 $11.52
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F&D - Exploration and Development - Proved
and Probable $ 5.07 $10.57 $ 5.50 $ 6.70
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Acquisitions - Proved $24.12 $62.51 $30.28 $26.76
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Acquisitions - Proved and Probable $17.83 $47.28 $20.80 $19.17
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FD&A - Total - Proved $15.46 $35.05 $21.37 $19.01
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FD&A - Total - Proved and Probable $11.38 $10.72 $13.93 $12.17
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FD&A Costs Including Future Development
Capital (1)
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F&D - Exploration and Development
- Proved $17.04 $47.44 $14.63 $20.73
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F&D - Exploration and Development - Proved
and Probable $12.03 $20.39 $10.57 $13.91
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Acquisitions - Proved $26.44 $62.51 $31.25 $28.51
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Acquisitions - Proved and Probable $20.96 $47.28 $21.86 $21.38
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FD&A - Total - Proved $21.71 $48.11 $24.29 $24.57
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FD&A - Total - Proved and Probable $16.45 $20.56 $16.79 $17.20
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(1) Includes the increase of $ 155.8 million in future development capital
from the 2006 amount of $156.1 million.


Based on Birchcliff's estimated average 2007 operating netback and including all capital spent in 2007 ($349.9 million) for exploration, development and acquisition spending, Birchcliff has a proved plus probable recycle ratio of 2.7 excluding future capital and 1.9 including future capital. This recycle ratio is calculated in each case by dividing the average 2007 operating netback per boe by total finding, development and acquisition costs per boe.

The recycle ratio calculated by dividing the average 2007 operating netback per boe by proved plus probable finding and development costs per boe relating to only exploration and development capital is 6.0, excluding future capital and 2.5, including future capital.

The recycle ratio calculated by dividing the average 2007 cash flow netback per boe by proved plus probable finding and development costs per boe relating to only exploration and development capital is 4.5, excluding future capital and 1.9, including future capital.

Birchcliff has a proved and probable reserve life index of 15.5 years versus 12.7 years in 2006 and a proved reserve life index of 9.4 years versus 6.4 years in 2006 based on the AJM Evaluation and Birchcliff's estimated January, 2008 production rate of approximately 10,000 boe/day.

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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NPV 0% NPV 5% NPV 8% NPV 10%
Mboe (MM$) (MM$) (MM$) (MM$)
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Proved Developed Producing 15,228 587.5 469.7 421.4 395.3
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Total Proved 34,318 1,343.4 928.8 779.0 701.9
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Probable 22,319 1,030.5 526.4 390.8 329.2
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Total Proved and Probable 56,637 2,373.9 1,455.2 1,169.8 1,031.1
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(1) Note: NI 51-101 disclosure requires Birchcliff 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, 2007 which forecasts natural gas prices at AECO of $ Cdn 6.90 per mcf for 2008 and $Cdn 7.75 per mcf for 2009. Full details of AJM's commodity price forecast can be accessed via the internet at www.ajma.net.

2007 ESTIMATED FINANCIAL & OPERATING RESULTS

2007 Production

2007 fourth quarter average production was 9,260 boe/day, which is a 54% increase from the 2007 third quarter average production of 6,014 boe/day and a 58% increase over the 2006 fourth quarter average production of 5,861 boe/day.

The 2007 average production rate was approximately 6,711 boe/day which represents an increase of approximately 25% over the 2006 average production rate of 5,368 boe/day. Production from the Worsley acquisition (approximately 3,100 boe/day) is only included from September 27, 2007.

2007 Cash Flow

Cash flow for the fourth quarter 2007 was approximately $19.9 million or $0.21 per basic share. This is a 114% increase over the third quarter 2007 of $9.3 million and an increase of 70% over the fourth quarter 2006 of $11.7 million.

Cash flow for the 2007 year was approximately $56.2 million or $0.78 per basic share. This represents a 20% increase over the 2006 cash flow of $46.7 million.

2007 Year End Debt and Capitalization

Birchcliff's December 31, 2007 total year end debt, which includes the working capital deficit, is estimated to be approximately $272.9 million. The bank credit facilities were drawn to approximately $254.7 million and the remaining $18.2 million consisted of working capital deficiency. This bank debt is comprised of a fully drawn Bridge Facility of $100 million, which is due and payable September 27, 2008 and approximately $155 million drawn under its $200 million revolving credit facility with a syndicate of banks.

At December 31, 2007, Birchcliff had 94,554,269 common shares outstanding and 103,639,748 fully diluted common shares.

2007 Drilling

As detailed and discussed in our Press Release dated January 24, 2008, Birchcliff successfully drilled and completed its first two Montney/Doig horizontal natural gas wells in late 2007. These wells continue to meet Birchcliff's production and reserve expectations. Birchcliff has approximately 120 Montney/Doig horizontal natural gas well locations it could drill on approximately 30 net sections of developed land. Also Birchcliff has approximately 20 net sections of undeveloped land in the Pouce Coupe area where Birchcliff believes there is a high likelihood of the extension of the Montney/Doig play on these lands.

The Montney/Doig resource play represents a long term sustainable, repeatable source of future natural gas production and reserves for Birchcliff.

During 2007, Birchcliff drilled 47 (31.8 net) wells, all of which were cased. Birchcliff's 2007 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.

It is noteworthy that 15.6 net wells of the 31.8 net wells Birchcliff drilled in 2007 were exploratory. New pools were discovered in the Kiskatinaw, Montney, Doig, Halfway, Bluesky, Notikewan, Dunvegan and Gething zones in 2007. 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 2008 and beyond.

2007 Land

Birchcliff's undeveloped land base at December 31, 2007 consisted of 266,966 net undeveloped acres. This is a 55% increase over its 2006 year end net undeveloped land base of 171,834 net acres. Further, this is essentially a 256% 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 high working interest 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.

2008 Operations Update

Production:

Production averaged approximately 10,000 boe/day in January, 2008. As noted below and subject to an early spring break-up Birchcliff expects to add significant production in late March 2008 as its newly drilled wells are tied in and brought on production.

Drilling:

Currently, Birchcliff has four drilling rigs working. Two rigs are drilling Montney/Doig horizontal natural gas wells in Pouce Coupe. The third rig is drilling a horizontal light oil well in Worsley. The fourth rig is drilling a vertical light oil well in Worsley.

2008 Winter Drilling Program

Birchcliff has completed drilling the first of four development Montney/Doig horizontal natural gas wells. This first horizontal well has recently been fracced and is currently being production tested. As noted above two further horizontal wells are currently drilling. In aggregate, Birchcliff expects to drill, complete and tie-in 4 Montney/Doig horizontal natural gas wells in its 2008 winter drilling program. Birchcliff expects to drill 4-6 Montney/Doig horizontal natural gas wells in the second half of 2008 bringing the aggregate total to 8-10 Montney/Doig horizontal natural gas wells for 2008. Further, Birchcliff is executing the operational planning to significantly increase (beyond 6) the number of horizontal wells it could drill in the second half of 2008. The drilling of these wells will be dependent on drilling results, commodity prices, and industry conditions.

Worsley Light Oil Program

Birchcliff recently initiated its drilling program on its new Worsley (38 degrees API) light oil pool. Birchcliff has drilled and cased 4 delineation vertical light oil wells to extend the Worsley Charlie Lake pool to the north on 100% owned lands. Currently Birchcliff is drilling its first 100% horizontal light oil well in the north part of the Worsley pool. Birchcliff expects to drill 6 infill vertical wells in the main portion of the Worsley Pool before spring break up. In aggregate Birchcliff expects to drill approximately 10 vertical light oil wells on the Worsley property and potentially 3 horizontal light oil wells in the north portion of the Worsley Pool during the winter drilling program.

Birchcliff is actively planning and has commenced the operational activities to significantly expand and optimize the water flood program at the Worsley property. Based on recent commodity prices and recent drilling success, Birchcliff expects a very active drilling program at Worsley in the second half of 2008.

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:

(a) The amounts of 2007 finding and development and/or acquisition costs contained in the table set forth above are calculated by dividing the total of the particular costs noted in each line incurred during 2007 by the amounts of additions to proved reserves and proved and probable reserves during 2007 that resulted from the expenditure of such costs during 2007 which are based upon the AJM Evaluation and Birchcliff's internal estimates of the proven and probable reserves attributable to the Worsley property acquisition.

(b) In calculating the amounts of finding and development and/ or acquisition costs, the change during the year in estimated future development costs is based upon the evaluation of Birchcliff's reserves prepared by AGM Petroleum Consultants effective December 31, 2006 and the AJM Evaluation effective December 31, 2007;

(c) In calculating the amounts of finding and development and/ or acquisition costs with respect to the Worsley property at the time of its acquisition is based on Birchcliff's internal estimate of future development costs for the Worsley property at September 27, 2007; and

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