CALGARY, Alberta, Jan. 18, 2023 (GLOBE NEWSWIRE) -- Birchcliff Energy Ltd. (“Birchcliff” or the “Corporation”) (TSX: BIR) is pleased to announce that its board of directors has declared a quarterly cash dividend of $0.20 per common share for the quarter ending March 31, 2023. Birchcliff is also pleased to announce its five-year plan for 2023 to 2027 and its 2023 budget and guidance.

“Our board of directors has approved a new five-year plan for 2023 to 2027, which is designed to generate substantial free funds flow, deliver significant returns to shareholders and establish a meaningful cash position, while achieving disciplined production growth of 10% over the five-year period(1). The five-year plan provides for potential cumulative free funds flow(2) of approximately $2.0 billion by the end of the five-year period, which provides us with the ability to deliver significant shareholder returns. Our board of directors has also approved the previously announced increase to our annual base dividend to $0.80 per common share for 2023, which will be declared and paid quarterly at the rate of $0.20 per common share. The five-year plan contemplates potential significant excess free funds flow after our targeted finding and development (“F&D”) capital expenditures and the payment of the base dividend, providing us with significant flexibility to further increase shareholder returns and invest in our business, depending on commodity prices,”(3) commented Jeff Tonken, Chief Executive Officer of Birchcliff.

“With respect to 2023, our board of directors has approved an F&D capital budget of $260 million to $280 million, which is expected to deliver 5% production growth over 2022(4). Based on this targeted production and current strip prices(5), we expect to generate approximately $570 million of adjusted funds flow(2) and $290 million to $310 million of free funds flow in 2023 and pay dividends to our shareholders of approximately $213 million(6), resulting in excess free funds flow(2) of approximately $77 million to $97 million in 2023.”(7)

“We had an excellent year in 2022 which saw us safely and successfully execute our 2022 capital program, significantly reduce our indebtedness and redeem all of our issued and outstanding preferred shares for approximately $88.2 million, while returning $128.9 million to our common shareholders through dividends and common share buybacks. We look forward to announcing our unaudited results for the year ended December 31, 2022 on February 15, 2023.”

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(1) Based on an annual average production rate of 82,000 boe/d in 2023, which is the mid-point of Birchcliff’s annual average production guidance range for 2023, and an annual average production rate of 90,000 boe/d in 2027.
(2) Non-GAAP financial measure. See “Non-GAAP and Other Financial Measures”.
(3) See “Five-Year Plan” and “Advisories – Forward-Looking Statements” for further information regarding the Corporation’s five-year plan and the commodity price, exchange rate and other assumptions underlying such plan.
(4) Based on an annual average production rate of 78,000 boe/d in 2022 and 82,000 boe/d in 2023, which is the mid-point of Birchcliff’s annual average production guidance range for 2023.
(5) See “2023 Guidance” for Birchcliff’s commodity price assumptions for 2023.
(6) Based on 266 million common shares outstanding.
(7) See “2023 F&D Capital Budget”, “2023 Guidance” and “Advisories – Forward-Looking Statements” for further information regarding the Corporation’s 2023 capital program and guidance and the commodity price, exchange rate and other assumptions underlying such guidance.

This press release contains forward-looking statements within the meaning of applicable securities laws. For further information regarding the forward-looking statements contained herein, see “Advisories – Forward-Looking Statements”. With respect to the disclosure of Birchcliff’s production contained in this press release, see “Advisories – Production”. In addition, this press release uses various “non-GAAP financial measures”, “non-GAAP ratios”, “supplementary financial measures” and “capital management measures” as such terms are defined in National Instrument 52-112 – Non-GAAP and Other Financial Measures Disclosure (“NI 52-112”). Non-GAAP financial measures and non-GAAP ratios are not standardized financial measures under GAAP and might not be comparable to similar financial measures disclosed by other issuers where similar terminology is used. For further information regarding the non-GAAP and other financial measures used in this press release, see “Non-GAAP and Other Financial Measures”.

2023 DIVIDEND INCREASE AND DECLARATION OF Q1 2023 QUARTERLY DIVIDEND

As part of its commitment to increasing shareholder returns, Birchcliff’s board of directors (the “Board”) has approved the previously announced increase to the Corporation’s annual base dividend to $0.80 per common share for 2023. This annual base dividend will be declared and paid quarterly at the rate of $0.20 per common share, at the discretion of the Board.

In connection therewith, the Board has declared a quarterly cash dividend of $0.20 per common share for the quarter ending March 31, 2023, which represents a 10-fold increase over the previous quarterly dividend of $0.02 per common share. The dividend will be payable on March 31, 2023 to shareholders of record at the close of business on March 15, 2023. The ex-dividend date is March 14, 2023. The dividend has been designated as an eligible dividend for the purposes of the Income Tax Act (Canada).

In Q4 2022, Birchcliff paid a special dividend of $0.20 per common share. Together with the $0.20 dividend for Q1 2023, this will be the second consecutive quarter in which Birchcliff has paid a cash dividend of $0.20 to its shareholders.

FIVE-YEAR PLAN

The Board has approved a new five-year plan for 2023 to 2027 (the “Five-Year Plan”), which is designed to generate substantial free funds flow, deliver significant returns to shareholders and establish a meaningful cash position, while achieving disciplined production growth to fully utilize the Corporation’s existing processing and transportation capacity. The Five-Year Plan takes a balanced approach to increasing returns to shareholders, while investing in the long-term sustainability and profitability of the Corporation.

Forecast Key Metrics

The following tables set forth the forecast production and financial metrics, commodity price assumptions and cumulative free funds flow sensitivity for the Five-Year Plan:

Five-Year Plan – Production and Financial Metrics(1)

 20232024202520262027
Annual Average Production (boe/d)81,000 – 83,00083,00087,00090,00090,000
      
Liquids (%)20%21%20%19%18%
      
Number of Wells Brought on Production3244453229
      
Adjusted Funds Flow (millions)(2)$570$745$735$755$745
      
F&D Capital Expenditures (millions)$260 – $280$355$360$305$285
      
Free Funds Flow (millions)(2)$290 – $310$390$375$450$460
      
Annual Base Dividend (millions)(3)$213$213$213$213$213
      
Excess Free Funds Flow (millions)(2)(3)$77 – $97$177$162$237$247
      
Total (Debt) Surplus at Year End (millions)(4)(5)($50 – $70)$110$260$490$725
      
Cumulative Free Funds Flow (millions)(2)(5)$290 – $310$690$1,065$1,515$1,975

Average Expenses and Natural Gas Market Exposure(1)

 20232024202520262027
Average Expenses($/boe)     
Royalty(6)4.25 – 4.455.105.054.904.80
Operating(6)3.45 – 3.653.503.403.303.25
Transportation and Other(7)5.20 – 5.405.305.054.904.70
Current Income Tax(6)(8)–2.804.003.853.75
      
Natural Gas Market Exposure(9)     
AECO Exposure as a % of Total Natural Gas Production17%28%32%63%67%
Dawn Exposure as a % of Total Natural Gas Production41%39%37%35%30%
NYMEX HH Exposure as a % of Total Natural Gas Production36%33%31%2%3%
Alliance Exposure as a % of Total Natural Gas Production6%––––

Commodity Price Assumptions(1)

 20232024202520262027
Commodity Prices     
Average WTI Price (US$/bbl)76.0080.0080.0080.0080.00
Average WTI-MSW Differential (CDN$/bbl)4.755.005.005.005.00
Average AECO Price (CDN$/GJ)3.304.404.404.404.40
Average Dawn Price (US$/MMBtu)3.554.454.454.454.45
Average NYMEX HH Price (US$/MMBtu)3.854.604.604.604.60
Exchange Rate (CDN$ to US$1)1.341.341.341.341.34

Cumulative Free Funds Flow Sensitivity(1)(10)

 Estimated Change to 2023 to 2027 Cumulative Free Funds Flow (millions)
Change in WTI US$1.00/bbl$21.0
Change in NYMEX HH US$0.10/MMBtu$17.7
Change in Dawn US$0.10/MMBtu$22.0
Change in AECO CDN$0.10/GJ$25.8
Change in CDN/US Exchange Rate CDN$0.01$25.4

(1) For illustrative purposes only and should not be relied upon as indicative of future results. The internal projections, expectations and beliefs underlying the Five-Year Plan are subject to change in light of ongoing results and prevailing economic and industry conditions. Birchcliff’s F&D capital budgets for 2024 to 2027 have not been finalized and are subject to approval by the Board. Accordingly, the levels of F&D capital expenditures set forth herein are subject to change, which could have an impact on the forecasted production, production commodity mix, number of wells, adjusted funds flow, free funds flow, excess free funds flow, total (debt) surplus at year end, expenses and natural gas market exposure set forth herein. For further information regarding the risks and assumptions relating to the Five-Year Plan, see “Advisories – Forward-Looking Statements”.
(2) Non-GAAP financial measure. See “Non-GAAP and Other Financial Measures”.
(3) Assumes that an annual base dividend of $0.80 per common share is paid during 2023 to 2027 and that there are 266 million common shares outstanding, with no changes to the base dividend rate and no special dividends paid. Other than the dividend declared for the quarter ending March 31, 2023, the declaration of dividends is subject to the approval of the Board and is subject to change.
(4) Capital management measure. See “Non-GAAP and Other Financial Measures”. The forecast of total debt at year end 2023 is expected to be comprised of any amounts outstanding under the Corporation’s extendible revolving credit facilities (the “Credit Facilities”) plus accounts payable and accrued liabilities and less cash, accounts receivable and prepaid expenses and deposits at the end of the year. The forecasts of total surplus at year end 2024 to 2027 are expected to be largely comprised of cash plus accounts receivable less accounts payable and accrued liabilities at the end of the year.
(5) The Corporation has used the mid-point of its 2023 guidance for free funds flow and total debt at year end in determining the cumulative free funds flow and total debt or total surplus (as the case may be) at year end for 2024 to 2027.
(6) Supplementary financial measure. See “Non-GAAP and Other Financial Measures”.
(7) Non-GAAP ratio. See “Non-GAAP and Other Financial Measures”.
(8) The Corporation had previously forecasted that it would be required to pay Canadian income taxes commencing in 2023. As a result of a lower than anticipated commodity price forecast, the Corporation now expects that it will be required to pay Canadian income taxes commencing in 2024.
(9) Birchcliff’s natural gas market exposure for 2023 to 2027 takes into account its physical and financial basis swap contracts outstanding as at January 9, 2023.
(10) Illustrates the expected impact of changes in commodity prices and the CDN/US exchange rate on the Corporation’s forecast of potential cumulative free funds flow of approximately $2.0 billion generated during 2023 to 2027, holding all other variables constant. The sensitivity is based on the commodity price and exchange rate assumptions set forth in the table above. The calculated impact on cumulative free funds flow is only applicable within the limited range of change indicated. Calculations are performed independently and may not be indicative of actual results. Actual results may vary materially when multiple variables change at the same time and/or when the magnitude of the change increases.

Highlights of the Five-Year Plan

Substantial Free Funds Flow and Capital Discipline

Delivering Significant Shareholder Returns and Establishing a Cash Position

Disciplined Production Growth Utilizing Existing Available Processing and Transportation Capacity

Extensive Drilling Inventory

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(8) See “Advisories – Drilling Locations”.
(9) Takes into account the wells drilled by the Corporation during 2022, as well as the 182 wells that are forecast to be brought on production over the course of the Five-Year Plan as set forth in further detail in the table above under the heading “Five-Year Plan – Forecast Key Metrics”.

Optionality for Further Growth at Pouce Coupe and Gordondale

The Five-Year Plan set forth herein does not reflect any potential special dividends, increases to the Corporation’s base dividend, common share buybacks or further investment in its business, all of which may receive consideration, and could have an impact on the Corporation’s forecast metrics. Changes in assumed commodity prices and variances in production forecasts can have an impact on the Corporation’s forecasts of adjusted funds flow and free funds flow and the Corporation’s other metrics for the Five-Year Plan, which impact could be material. In addition, any acquisitions or dispositions completed over the course of the Five-Year Plan could have an impact on Birchcliff’s forecasts and assumptions set forth herein, which impact could be material. For further information, see “Advisories – Forward-Looking Statements”.

2023 F&D CAPITAL BUDGET

The Board has approved a disciplined F&D capital budget of $260 million to $280 million for 2023, which is designed to deliver 5% production growth over 2022 and generate free funds flow of $290 million to $310 million.

The budget is fully funded, with the Corporation’s F&D capital expenditures representing approximately 47% of Birchcliff’s anticipated 2023 adjusted funds flow(11). Birchcliff’s F&D capital budget and base dividend of $0.80 per common share for 2023 would remain fully funded at an average WTI price of US$70.00/bbl, an average AECO price of CDN$3.00/GJ, an average Dawn price of US$3.25/MMBtu and an average NYMEX HH price of US$3.35/MMBtu(11)(12).

The following table sets forth details regarding Birchcliff’s expected capital spending allocation in 2023:

ClassificationCapital (millions)
DCCET(1)(2)$191 – $206
Facilities and Infrastructure(3)$26 – $28
Maintenance and Optimization(4)$19 – $20
Land and Seismic(5) $6
Other(6)$18 – $20
Total F&D Capital Expenditures(7)$260 – $280

(1) On a DCCET basis, the average well cost in 2023 is estimated to be approximately $7 million for each of Pouce Coupe and Gordondale. These costs can vary depending on factors such as the size of the associated multi-well pads, horizontal well length, the costs of construction, the existence of pipelines and other infrastructure and the distance to existing or planned pipelines and other infrastructure.
(2) Includes the completion, equipping and tie-in costs of approximately $37.8 million associated with 9 wells that were drilled and rig released in Q4 2022.
(3) Facilities and infrastructure includes capital for a variety of projects, including gas gathering and plant emissions reduction initiatives that will provide long-term economic and environmental benefits.
(4) Maintenance and optimization includes capital to enhance production, reduce operating expense and maximize netbacks.
(5) Land and seismic includes capital for crown sales and rental payments but does not include other property acquisitions and dispositions.
(6) Other primarily includes capitalized G&A.
(7) Net property acquisitions and dispositions have not been included in the table above as these amounts are generally unbudgeted. See “Advisories – F&D Capital Expenditures” and “Advisories – Forward-Looking Statements”.

Birchcliff’s F&D capital budget for 2023 has taken into account expected inflationary increases in materials, labour and services costs as compared to 2022.

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(10) Source: LNG Canada Project Mid-Year Update, Summer 2022 (July 28, 2022).
(11) Based on F&D capital expenditures of approximately $270 million in 2023, which is the mid-point of the Corporation’s F&D capital expenditures guidance range for 2023.
(12) Holding all other variables constant.

Highlights of the 2023 F&D Capital Budget and Guidance

Disciplined Production Growth

Efficient Two-Drilling Rig Program

Significant Adjusted Funds Flow and Free Funds Flow

Delivering Shareholder Returns

Excess Free Funds Flow

See “2023 Guidance” and “Advisories – Forward-Looking Statements” for additional information regarding Birchcliff’s 2023 guidance.

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(13) Based on an annual average production rate of 82,000 boe/d, which is the mid-point of the Corporation’s annual production guidance range for 2023. 

Capital Activities

Birchcliff’s 2023 drilling program is focused on high rate-of-return targets and developing its low-cost natural gas and liquids production in Pouce Coupe and Gordondale. Wells will be brought on production from multi-well pads, which allows Birchcliff to reduce its environmental footprint and keep its per well costs low. The program builds off the technical and operational knowledge Birchcliff gained from its previous capital programs. As previously announced on October 13, 2022, Birchcliff accelerated the execution of its 2023 capital program into Q4 2022, drilling 9 wells that will be brought on production in 2023.

The following table sets forth the number and types of wells Birchcliff expects to drill and bring on production in 2023:


Area		Total Wells to be Drilled in 2023Total Wells to be Brought on
Production in 2023(1)
Pouce Coupe  
 Basal Doig/Upper Montney Horizontal Natural Gas Wells44
 Montney D2 Horizontal Natural Gas Wells68
 Montney D1 Horizontal Natural Gas Wells915
 Montney C Horizontal Natural Gas Wells23
 Total – Pouce Coupe2130
Gordondale  
 Montney D2 Horizontal Oil Wells11
 Montney D1 Horizontal Oil Wells11
 Total – Gordondale 22
TOTAL – COMBINED 2332

(1) Includes 9 wells that were drilled and rig released in Q4 2022 in Pouce Coupe.

In Pouce Coupe, Birchcliff plans to drill 21 wells and bring 30 wells on production in 2023 from 5 pads targeting a mix of liquids-rich and high-rate natural gas wells placed in the lower Montney and upper Montney/Doig intervals. The program is designed to deliver profitable production growth with robust returns that will be further enhanced as Birchcliff progressively fills the processing capacity of its existing available infrastructure. As part of the 2023 program for Pouce Coupe, Birchcliff will continue to make significant investments in gas gathering pipelines to support future field development. In addition, the Corporation plans to install approximately 20 km of fuel gas lines that will provide long-term economic and environmental benefits. By delivering natural gas to existing and future sites, Birchcliff’s adoption of bi-fuel technology will reduce emissions and costs. In addition, the fuel gas will be used to enhance production and reduce future well downtime by installing gas lift systems where appropriate.

In Gordondale, Birchcliff plans to drill and bring 2 wells on production in 2023, which are expected to keep the AltaGas Facility full during the year. The pad is strategically placed to target high-rate, liquids-rich wells in the Montney D1 and D2 intervals.

Environmental Stewardship

Birchcliff anticipates spending approximately $3.5 million in 2023 on its abandonment and reclamation activities. Birchcliff is in an enviable position as it has a focused asset base with minimal abandonment and reclamation obligations compared to the industry average.

2023 GUIDANCE

The following tables set forth Birchcliff’s guidance, commodity price assumptions and free funds flow sensitivity for 2023:

 2023 Guidance and Assumptions(1)
Production 
Annual Average Production (boe/d)81,000 – 83,000
% Light Oil3%
% Condensate7%
% NGLs10%
% Natural Gas80%
  
Average Expenses ($/boe) 
Royalty(2)4.25 – 4.45
Operating(2)3.45 – 3.65
Transportation and Other(3)5.20 – 5.40
  
Adjusted Funds Flow (millions)(4)$570
  
F&D Capital Expenditures (millions)$260 – $280
  
Free Funds Flow (millions)(4)$290 – $310
  
Annual Base Dividend (millions)(5)$213
  
Excess Free Funds Flow (millions)(4)(5)$77 – $97
  
Total (Debt) at Year End (millions)(6)($50 – $70)
  
Natural Gas Market Exposure(7) 
AECO Exposure as a % of Total Natural Gas Production17%
Dawn Exposure as a % of Total Natural Gas Production41%
NYMEX HH Exposure as a % of Total Natural Gas Production36%
Alliance Exposure as a % of Total Natural Gas Production6%
  
Commodity Prices(8) 
Average WTI Price (US$/bbl)76.00
Average WTI-MSW Differential (CDN$/bbl)4.75
Average AECO Price (CDN$/GJ)3.30
Average Dawn Price (US$/MMBtu)3.55
Average NYMEX HH Price (US$/MMBtu)3.85
Exchange Rate (CDN$ to US$1)1.34


Forward Twelve Months’ Free Funds Flow Sensitivity(9)Estimated Change to 2023 Free Funds Flow (millions)
Change in WTI US$1.00/bbl$5.7
Change in NYMEX HH US$0.10/MMBtu$7.0
Change in Dawn US$0.10/MMBtu$8.3
Change in AECO CDN$0.10/GJ$4.3
Change in CDN/US exchange rate CDN$0.01$6.4

(1) Birchcliff’s guidance for its production commodity mix, adjusted funds flow, free funds flow, excess free funds flow, total debt and natural gas market exposure in 2023 is based on an annual average production rate of 82,000 boe/d in 2023, which is the mid-point of Birchcliff’s annual average production guidance range for 2023. Birchcliff’s guidance for its free funds flow, excess free funds flow and total debt in 2023 is based on F&D capital expenditures of approximately $270 million in 2023, which is the mid-point of the Corporation’s F&D capital expenditures guidance range for 2023. For further information regarding the risks and assumptions relating to the Corporation’s guidance, see “Advisories – Forward-Looking Statements”.
(2) Supplementary financial measure. See “Non-GAAP and Other Financial Measures”.
(3) Non-GAAP ratio. See “Non-GAAP and Other Financial Measures”.
(4) Non-GAAP financial measure. See “Non-GAAP and Other Financial Measures”.
(5) Assumes that an annual base dividend of $0.80 per common share is paid and that there are 266 million common shares outstanding, with no changes to the base dividend rate and no special dividends paid. Other than the dividend declared for the quarter ending March 31, 2023, the declaration of dividends is subject to the approval of the Board and is subject to change.
(6) Capital management measure. See “Non-GAAP and Other Financial Measures”. The forecast of total debt at December 31, 2023 is expected to be comprised of any amounts outstanding under the Credit Facilities plus accounts payable and accrued liabilities and less cash, accounts receivable and prepaid expenses and deposits at the end of the year.
(7) Birchcliff’s natural gas market exposure for 2023 takes into account its physical and financial basis swap contracts outstanding as at January 9, 2023. Birchcliff’s preliminary 2023 guidance (disclosed on October 13, 2022 and reiterated on November 9, 2022) for its ACEO, Dawn and NYMEX HH natural gas market exposure was 23%, 41% and 36%, respectively. As a result of entering into contracts for transportation service on the Alliance pipeline system, Birchcliff’s AECO natural gas market exposure for 2023 has been revised from 23% to 17%, with a corresponding increase to its forecast Alliance natural gas market exposure.
(8) Birchcliff’s commodity price and exchange rate assumptions for 2023 are based on anticipated full-year averages using the forward strip benchmark commodity prices and CDN/US exchange rate as of January 9, 2023.
(9) Illustrates the expected impact of changes in commodity prices and the CDN/US exchange rate on the Corporation’s forecast of free funds flow for 2023, holding all other variables constant. The sensitivity is based on the commodity price and exchange rate assumptions set forth in the table above. The calculated impact on free funds flow is only applicable within the limited range of change indicated. Calculations are performed independently and may not be indicative of actual results. Actual results may vary materially when multiple variables change at the same time and/or when the magnitude of the change increases.

Birchcliff’s 2023 guidance for its production is unchanged from its preliminary guidance. Birchcliff’s 2023 guidance for F&D capital expenditures of $260 million to $280 million is slightly higher than its preliminary guidance of $240 million to $270 million as a result of higher inflation and the inclusion of some minor additional capital projects. Primarily as a result of a lower than anticipated commodity price forecast for 2023, Birchcliff’s 2023 guidance for its adjusted funds flow, free funds flow and excess free funds flow is lower than its preliminary guidance of $855 million, $585 million to $615 million and $370 million to $400 million, respectively. Birchcliff’s 2023 guidance for its royalty expense is lower than its preliminary guidance of $4.95 to $5.15 per boe as a result of a lower than anticipated commodity price forecast for 2023.

In addition, the Corporation had previously forecasted that it would have a total surplus of $295 million to $325 million at December 31, 2023 and have a total surplus at the end of the Q1 2023. Primarily as a result of a lower than anticipated commodity price forecast for 2023, the Corporation is now forecasting that it will have total debt of $50 million to $70 million at December 31, 2023. Birchcliff continues to believe that operating with little to no debt is in the best interests of the Corporation over the long-term, as it increases the resiliency and sustainability of the Corporation. Accordingly, Birchcliff will continue to progress towards its goal of reaching zero total debt over the course of 2023.

Changes in assumed commodity prices and variances in production forecasts can have an impact on the Corporation’s forecasts of adjusted funds flow and free funds flow and the Corporation’s other guidance, which impact could be material. In addition, any acquisitions or dispositions completed over the course of 2023 could have an impact on Birchcliff’s 2023 guidance and assumptions set forth herein, which impact could be material. For further information, see “Advisories – Forward-Looking Statements”.

ABBREVIATIONS

AECObenchmark price for natural gas determined at the AECO ‘C’ hub in southeast Alberta
bblbarrel
boebarrel of oil equivalent
boe/dbarrel of oil equivalent per day
condensatepentanes plus (C5+)
DCCETdrill, case, complete, equip and tie-in
F&Dfinding and development
G&Ageneral and administrative
GAAPgenerally accepted accounting principles for Canadian public companies, which are currently International Financial Reporting Standards as issued by the International Accounting Standards Board
GJgigajoule
GJ/dgigajoules per day
HHHenry Hub
kmkilometre
LNGliquefied natural gas
Mcfthousand cubic feet
MMBtumillion British thermal units
MMBtu/dmillion British thermal units per day
MMcf/dmillion cubic feet per day
MSWprice for mixed sweet crude oil at Edmonton, Alberta
NGLsnatural gas liquids consisting of ethane (C2), propane (C3) and butane (C4) and specifically excluding condensate
NGTLNOVA Gas Transmission Ltd.
NYMEXNew York Mercantile Exchange
OPECOrganization of the Petroleum Exporting Countries
WTIWest Texas Intermediate, the reference price paid in U.S. dollars at Cushing, Oklahoma, for crude oil of standard grade
$000sthousands of dollars


NON-GAAP AND OTHER FINANCIAL MEASURES

This press release uses various “non-GAAP financial measures”, “non-GAAP ratios”, “supplementary financial measures” and “capital management measures” (as such terms are defined in NI 52-112), which are described in further detail below. These measures facilitate management’s comparisons to the Corporation’s historical operating results in assessing its results and strategic and operational decision-making and may be used by financial analysts and others in the oil and natural gas industry to evaluate the Corporation’s performance.

Non-GAAP Financial Measures

NI 52-112 defines a non-GAAP financial measure as a financial measure that: (i) depicts the historical or expected future financial performance, financial position or cash flow of an entity; (ii) with respect to its composition, excludes an amount that is included in, or includes an amount that is excluded from, the composition of the most directly comparable financial measure disclosed in the primary financial statements of the entity; (iii) is not disclosed in the financial statements of the entity; and (iv) is not a ratio, fraction, percentage or similar representation. The non-GAAP financial measures used in this press release are not standardized financial measures under GAAP and might not be comparable to similar measures presented by other companies where similar terminology is used. Investors are cautioned that non-GAAP financial measures should not be construed as alternatives to or more meaningful than the most directly comparable GAAP measures as indicators of Birchcliff’s performance. Set forth below is a description of the non-GAAP financial measures used in this press release.

Adjusted Funds Flow, Free Funds Flow and Excess Free Funds Flow

Birchcliff defines “adjusted funds flow” as cash flow from operating activities before the effects of decommissioning expenditures and changes in non-cash operating working capital. Birchcliff eliminates settlements of decommissioning expenditures from cash flow from operating activities as the amounts can be discretionary and may vary from period to period depending on its capital programs and the maturity of its operating areas. The settlement of decommissioning expenditures is managed with Birchcliff’s capital budgeting process which considers available adjusted funds flow. Changes in non-cash operating working capital are eliminated in the determination of adjusted funds flow as the timing of collection and payment are variable and by excluding them from the calculation, the Corporation believes that it is able to provide a more meaningful measure of its operations and ability to generate cash on a continuing basis. Adjusted funds flow can also be derived from petroleum and natural gas revenue less royalty expense, operating expense, transportation and other expense, net G&A expense, interest expense and any realized losses (plus realized gains) on financial instruments and plus any other cash income and expense sources. Management believes that adjusted funds flow assists management and investors in assessing Birchcliff’s financial performance after deducting all operating and corporate cash costs, as well as its ability to generate the cash necessary to fund sustaining and/or growth capital expenditures, repay debt, settle decommissioning obligations, buy back common shares and pay dividends.

Birchcliff defines “free funds flow” as adjusted funds flow less F&D capital expenditures. Management believes that free funds flow assists management and investors in assessing Birchcliff’s ability to generate shareholder returns through a number of initiatives, including but not limited to, debt repayment, common share buybacks, the payment of dividends and acquisitions.

Birchcliff defines “excess free funds flow” as free funds flow less common share dividends paid. Management believes that excess free funds flow assists management and investors in assessing Birchcliff’s ability to further enhance shareholder returns after the payment of common share dividends, which may include debt repayment, special dividends, increases to the Corporation’s base dividend, common share buybacks, acquisitions and other opportunities that would complement or otherwise improve the Corporation’s business and enhance long-term shareholder value.

Birchcliff has disclosed in this press release forecasts of adjusted funds flow, free funds flow and excess free funds flow for 2023 to 2027, which are forward-looking non-GAAP financial measures. The equivalent historical non-GAAP measures are adjusted funds flow, free funds flow and excess free funds flow for the twelve months ended December 31, 2021. The most directly comparable GAAP measure for adjusted funds flow, free funds flow and excess free funds flow is cash flow from operating activities. The following table provides a reconciliation of cash flow from operating activities to adjusted funds flow, free funds flow and excess free funds flow for the twelve months ended December 31, 2021:

 Twelve months ended
December 31,
($000s)2021
Cash flow from operating activities 515,369
Change in non-cash operating working capital21,161
Decommissioning expenditures3,203
Adjusted funds flow539,733
F&D capital expenditures(230,479)
Free funds flow309,254
Dividends on common shares(6,639)
Excess free funds flow302,615


Birchcliff anticipates the forward-looking non-GAAP financial measures for adjusted funds flow and free funds flow disclosed herein to generally exceed their respective historical amounts for the twelve months ended December 31, 2021, primarily due to higher anticipated benchmark oil and natural gas prices which are expected to increase the average realized sales prices the Corporation receives for its production. Birchcliff anticipates the forward-looking non-GAAP financial measure for excess free funds flow disclosed herein to be lower than its respective historical amount for the twelve months ended December 31, 2021, primarily due to a higher targeted annual common share dividend payment forecasted during 2023 to 2027. The commodity price assumptions on which the Corporation’s guidance is based are set forth in the tables under the headings “Five-Year Plan” and “2023 Guidance”.

Transportation and Other Expense

Birchcliff defines “transportation and other expense” as transportation expense plus marketing purchases less marketing revenue. Birchcliff may enter into certain marketing purchase and sales arrangements with the objective of reducing any available transportation and/or fractionation fees associated with its take-or-pay commitments. Management believes that transportation and other expense assists management and investors in assessing Birchcliff’s total cost structure related to transportation activities. The most directly comparable GAAP measure for transportation and other expense is transportation expense. The following table provides a reconciliation of transportation expense to transportation and other expense for the twelve months ended December 31, 2021:

 Twelve months ended
December 31,
($000s)2021
Transportation expense151,263
Marketing purchases18,034
Marketing revenue(20,722)
Transportation and other expense148,575


Non-GAAP Ratios

NI 52-112 defines a non-GAAP ratio as a financial measure that: (i) is in the form of a ratio, fraction, percentage or similar representation; (ii) has a non-GAAP financial measure as one or more of its components; and (iii) is not disclosed in the financial statements of the entity. The non-GAAP ratio used in this press release is not a standardized financial measure under GAAP and might not be comparable to similar measures presented by other companies where similar terminology is used. Set forth below is a description of the non-GAAP ratio used in this press release.

Transportation and Other Expense Per Boe

Birchcliff calculates “transportation and other expense per boe” as aggregate transportation and other expense in the period divided by the production (boe) in the period. Management believes that transportation and other expense per boe assists management and investors in assessing Birchcliff’s cost structure as it relates to its transportation and marketing activities by isolating the impact of production volumes to better analyze its performance against prior periods on a comparable basis.

Supplementary Financial Measures

NI 52-112 defines a supplementary financial measure as a financial measure that: (i) is, or is intended to be, disclosed on a periodic basis to depict the historical or expected future financial performance, financial position or cash flow of an entity; (ii) is not disclosed in the financial statements of the entity; (iii) is not a non-GAAP financial measure; and (iv) is not a non-GAAP ratio. The supplementary financial measures used in this press release are per unit disclosures of corresponding GAAP measures presented in the financial statements, which are calculated by dividing the aggregate GAAP measure by the applicable unit for the period. The supplementary financial measures used in this press release are operating expense per boe, royalty expense per boe and current income tax expense per boe.

Capital Management Measures

NI 52-112 defines a capital management measure as a financial measure that: (i) is intended to enable an individual to evaluate an entity’s objectives, policies and processes for managing the entity’s capital; (ii) is not a component of a line item disclosed in the primary financial statements of the entity; (iii) is disclosed in the notes to the financial statements of the entity; and (iv) is not disclosed in the primary financial statements of the entity. Set forth below is a description of the capital management measures used in this press release.

Total Debt and Total Surplus

Birchcliff calculates “total debt” and “total surplus” as the amount outstanding under the Corporation’s Credit Facilities (if any) plus working capital deficit (less working capital surplus) plus the fair value of the current asset portion of financial instruments less the fair value of the current liability portion of financial instruments and less capital securities (if any) at the end of the period. Management believes that total debt and total surplus assist management and investors in assessing Birchcliff’s overall liquidity and financial position at the end of the period. The following table provides a reconciliation of the amount outstanding under the Credit Facilities, as determined in accordance with GAAP, to total debt as at December 31, 2021:

As at, ($000s)December 31, 2021
Revolving term credit facilities500,870
Working capital deficit(1)53,312
Fair value of financial instruments – asset(2)69
Fair value of financial instruments – liability(2)(16,586)
Capital securities(38,268)
Total debt(3)499,397

(1) Current liabilities less current assets.
(2) Reflects the current portion only.
(3) Total debt can also be derived from the amounts outstanding under the Corporation’s Credit Facilities plus accounts payable and accrued liabilities and less cash, accounts receivable and prepaid expenses and deposits at the end of the year.

ADVISORIES

Currency

Unless otherwise indicated, all dollar amounts are expressed in Canadian dollars and all references to “$” and “CDN$” are to Canadian dollars and all references to “US$” are to United States dollars.

Boe Conversions

Boe amounts have been calculated by using the conversion ratio of 6 Mcf of natural gas to 1 bbl of oil. Boe amounts may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.

MMBtu Pricing Conversions

$1.00 per MMBtu equals $1.00 per Mcf based on a standard heat value Mcf.

Production

With respect to the disclosure of Birchcliff’s production contained in this press release: (i) references to “light oil” mean “light crude oil and medium crude oil” as such term is defined in National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101”); (ii) references to “liquids” mean “light crude oil and medium crude oil” and “natural gas liquids” (including condensate) as such terms are defined in NI 51-101; and (iii) references to “natural gas” mean “shale gas”, which also includes an immaterial amount of “conventional natural gas”, as such terms are defined in NI 51-101. In addition, NI 51-101 includes condensate within the product type of natural gas liquids. Birchcliff has disclosed condensate separately from other natural gas liquids as the price of condensate as compared to other natural gas liquids is currently significantly higher and Birchcliff believes presenting the two commodities separately provides a more accurate description of its operations and results therefrom.

F&D Capital Expenditures

Unless otherwise stated, references in this press release to “F&D capital expenditures” denotes exploration and development expenditures determined in accordance with GAAP. Management believes that F&D capital expenditures assists management and investors in assessing Birchcliff capital cost outlay associated with its exploration and development activities for the purposes of finding and developing its reserves.

Potential Future Drilling Locations

This press release discloses potential net future horizontal drilling locations, specifically: (i) 730.7 potential net future horizontal drilling locations to which proved plus probable reserves have been attributed by the Corporation’s independent qualified reserves evaluator, Deloitte LLP (“Deloitte”); and (ii) approximately 3,084 unbooked potential net future horizontal drilling locations.

Proved plus probable locations consist of proposed drilling locations identified in the reserves report of Deloitte dated February 9, 2022 with an effective date of December 31, 2021 (the “Deloitte Report”) that have proved and/or probable reserves, as applicable, attributed to them. Unbooked locations are internal estimates based on Birchcliff’s prospective acreage and an assumption as to the number of wells that can be drilled per section based on industry practice and internal technical analysis review. Unbooked locations have been identified by management as an estimate of Birchcliff’s multi-year drilling activities based on evaluation of applicable geologic, seismic, engineering, production and reserves information. Unbooked locations do not have proved or probable reserves attributed to them in the Deloitte Report.

Birchcliff’s ability to drill and develop these locations and the drilling locations on which Birchcliff actually drills wells depends on a number of uncertainties and factors, including, but not limited to, the availability of capital, equipment and personnel, oil and natural gas prices, costs, inclement weather, seasonal restrictions, drilling results, additional geological, geophysical and reservoir information that is obtained, production rate recovery, gathering system and transportation constraints, the net price received for commodities produced, regulatory approvals and regulatory changes. As a result of these uncertainties, there can be no assurance that the potential future drilling locations that Birchcliff has identified will ever be drilled and, if drilled, that such locations will result in additional oil, condensate, NGLs or natural gas production and, in the case of unbooked locations, additional reserves. As such, Birchcliff’s actual drilling activities may differ materially from those presently identified, which could adversely affect Birchcliff’s business. While certain of the unbooked drilling locations have been de-risked by drilling existing wells in relatively close proximity to such unbooked drilling locations, some of the other unbooked drilling locations are farther away from existing wells, where management has less information about the characteristics of the reservoir and there is therefore more uncertainty whether wells will be drilled in such locations and, if drilled, there is more uncertainty that such wells will result in additional proved or probable reserves, resources or production.

Additional information regarding the Corporation’s oil and gas activities and its reserves is contained in its Annual Information Form for the year ended December 31, 2021, which is available on SEDAR at www.sedar.com.

Forward-Looking Statements

Certain statements contained in this press release constitute forward‐looking statements and forward-looking information (collectively referred to as “forward‐looking statements”) within the meaning of applicable Canadian securities laws. The forward-looking statements contained in this press release relate to future events or Birchcliff’s future plans, strategy, operations, performance or financial position and are based on Birchcliff’s current expectations, estimates, projections, beliefs and assumptions. Such forward-looking statements have been made by Birchcliff in light of the information available to it at the time the statements were made and reflect its experience and perception of historical trends. All statements and information other than historical fact may be forward‐looking statements. Such forward‐looking statements are often, but not always, identified by the use of words such as “seek”, “plan”, “focus”, “future”, “outlook”, “position”, “expect”, “project”, “intend”, “believe”, “anticipate”, “estimate”, “forecast”, “guidance”, “potential”, “proposed”, “predict”, “budget”, “continue”, “targeting”, “may”, “will”, “could”, “might”, “should”, “would”, “on track”, “maintain”, “deliver” and other similar words and expressions.

By their nature, forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward‐looking statements. Accordingly, readers are cautioned not to place undue reliance on such forward-looking statements. Although Birchcliff 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 and Birchcliff makes no representation that actual results achieved will be the same in whole or in part as those set out in the forward-looking statements.

In particular, this press release contains forward‐looking statements relating to:

With respect to the forward‐looking statements contained in this press release, assumptions have been made regarding, among other things: the degree to which the Corporation’s results of operations and financial condition will be disrupted by circumstances attributable to the COVID-19 pandemic; prevailing and future commodity prices and differentials, exchange rates, interest rates, inflation rates, royalty rates and tax rates; the state of the economy, financial markets and the exploration, development and production business; the political environment in which Birchcliff operates; the regulatory framework regarding royalties, taxes, environmental, climate change and other laws; the Corporation’s ability to comply with existing and future laws; future cash flow, debt and dividend levels; future operating, transportation, G&A and other expenses; Birchcliff’s ability to access capital and obtain financing on acceptable terms; the timing and amount of capital expenditures and the sources of funding for capital expenditures and other activities; the sufficiency of budgeted capital expenditures to carry out planned operations; the successful and timely implementation of capital projects and the timing, location and extent of future drilling and other operations; results of operations; Birchcliff’s ability to continue to develop its assets and obtain the anticipated benefits therefrom; the performance of existing and future wells; reserves volumes and Birchcliff’s ability to replace and expand reserves through acquisition, development or exploration; the impact of competition on Birchcliff; the availability of, demand for and cost of labour, services and materials; the approval of the Board of future dividends; the ability to obtain any necessary regulatory or other approvals in a timely manner; the satisfaction by third parties of their obligations to Birchcliff; the ability of Birchcliff to secure adequate processing and transportation for its products; Birchcliff’s ability to successfully market natural gas and liquids; the results of the Corporation’s risk management and market diversification activities; and Birchcliff’s natural gas market exposure. In addition to the foregoing assumptions, Birchcliff has made the following assumptions with respect to certain forward-looking statements contained in this press release:

Birchcliff’s actual results, performance or achievements could differ materially from those anticipated in the forward-looking statements as a result of both known and unknown risks and uncertainties including, but not limited to: the risks posed by pandemics (including COVID-19), epidemics and global conflict (including the Russian invasion of Ukraine) and their impacts on supply and demand and commodity prices; actions taken by OPEC and other major producers of crude oil and the impact such actions may have on supply and demand and commodity prices; the uncertainty of estimates and projections relating to production, revenue, costs, expenses and reserves; the risk that any of the Corporation’s material assumptions prove to be materially inaccurate (including the Corporation’s commodity price and exchange rate assumptions for 2023 to 2027); general economic, market and business conditions which will, among other things, impact the demand for and market prices of Birchcliff’s products and Birchcliff’s access to capital; volatility of crude oil and natural gas prices; risks associated with increasing costs, whether due to high inflation rates, supply chain disruptions or other factors; fluctuations in exchange and interest rates; stock market volatility; loss of market demand; an inability to access sufficient capital from internal and external sources on terms acceptable to the Corporation; risks associated with Birchcliff’s Credit Facilities, including a failure to comply with covenants under the agreement governing the Credit Facilities and the risk that the borrowing base limit may be redetermined; fluctuations in the costs of borrowing; operational risks and liabilities inherent in oil and natural gas operations; the occurrence of unexpected events such as fires, severe weather, explosions, blow-outs, equipment failures, transportation incidents and other similar events; an inability to access sufficient water or other fluids needed for operations; uncertainty that development activities in connection with Birchcliff’s assets will be economic; an inability to access or implement some or all of the technology necessary to operate its assets and achieve expected future results; the accuracy of estimates of reserves, future net revenue and production levels; geological, technical, drilling, construction and processing problems; uncertainty of geological and technical data; horizontal drilling and completions techniques and the failure of drilling results to meet expectations for reserves or production; uncertainties related to Birchcliff’s future potential drilling locations; delays or changes in plans with respect to exploration or development projects or capital expenditures; the accuracy of cost estimates and variances in Birchcliff’s actual costs and economic returns from those anticipated; incorrect assessments of the value of acquisitions and exploration and development programs; changes to the regulatory framework in the locations where the Corporation operates, including changes to tax laws, Crown royalty rates, environmental laws, climate change laws, carbon tax regimes, incentive programs and other regulations that affect the oil and natural gas industry; political uncertainty and uncertainty associated with government policy changes; actions by government authorities; an inability of the Corporation to comply with existing and future laws and the cost of compliance with such laws; dependence on facilities, gathering lines and pipelines; uncertainties and risks associated with pipeline restrictions and outages to third-party infrastructure that could cause disruptions to production; the lack of available pipeline capacity and an inability to secure adequate and cost-effective processing and transportation for Birchcliff’s products; an inability to satisfy obligations under Birchcliff’s firm marketing and transportation arrangements; shortages in equipment and skilled personnel; the absence or loss of key employees; competition for, among other things, capital, acquisitions of reserves, undeveloped lands, equipment and skilled personnel; management of Birchcliff’s growth; environmental and climate change risks, claims and liabilities; potential litigation; default under or breach of agreements by counterparties and potential enforceability issues in contracts; claims by Indigenous peoples; the reassessment by taxing or regulatory authorities of the Corporation’s prior transactions and filings; unforeseen title defects; third-party claims regarding the Corporation’s right to use technology and equipment; uncertainties associated with the outcome of litigation or other proceedings involving Birchcliff; uncertainties associated with counterparty credit risk; risks associated with Birchcliff’s risk management and market diversification activities; risks associated with the declaration and payment of future dividends, including the discretion of the Board to declare dividends and change the Corporation’s dividend policy and the risk that the amount of dividends may be less than currently forecast; the failure to obtain any required approvals in a timely manner or at all; the failure to complete or realize the anticipated benefits of acquisitions and dispositions and the risk of unforeseen difficulties in integrating acquired assets into Birchcliff’s operations; negative public perception of the oil and natural gas industry and fossil fuels; the Corporation’s reliance on hydraulic fracturing; market competition, including from alternative energy sources; changing demand for petroleum products; the availability of insurance and the risk that certain losses may not be insured; breaches or failure of information systems and security (including risks associated with cyber-attacks); risks associated with the ownership of the Corporation’s securities; and the accuracy of the Corporation’s accounting estimates and judgments.

The declaration and payment of any future dividends are subject to the discretion of the Board and may not be approved or may vary depending on a variety of factors and conditions existing from time to time, including commodity prices, free funds flow, current and forecast commodity prices, fluctuations in working capital, financial requirements of Birchcliff, applicable laws (including solvency tests under the Business Corporations Act (Alberta) for the declaration and payment of dividends) and other factors beyond Birchcliff’s control. The payment of dividends to shareholders is not assured or guaranteed and dividends may be reduced or suspended entirely. In addition to the foregoing, the Corporation’s ability to pay dividends now or in the future may be limited by covenants contained in the agreements governing any indebtedness that the Corporation has incurred or may incur in the future, including the terms of the Credit Facilities. The agreement governing the Credit Facilities provides that Birchcliff is not permitted to make any distribution (which includes dividends) at any time when an event of default exists or would reasonably be expected to exist upon making such distribution, unless such event of default arose subsequent to the ordinary course declaration of the applicable distribution.

Readers are cautioned that the foregoing lists of factors are not exhaustive. Additional information on these and other risk factors that could affect results of operations, financial performance or financial results are included in Birchcliff’s most recent Annual Information Form under the heading “Risk Factors” and in other reports filed with Canadian securities regulatory authorities.

This press release contains information that may constitute future-orientated financial information or financial outlook information (collectively, “FOFI”) about Birchcliff’s prospective financial performance, financial position or cash flows, all of which is subject to the same assumptions, risk factors, limitations and qualifications as set forth above. 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 imprecise or inaccurate and, as such, undue reliance should not be placed on FOFI. Birchcliff’s actual results, performance and achievements could differ materially from those expressed in, or implied by, FOFI. Birchcliff has included FOFI in order to provide readers with a more complete perspective on Birchcliff’s future operations and management’s current expectations relating to Birchcliff’s future performance. Readers are cautioned that such information may not be appropriate for other purposes. FOFI contained herein was made as of the date of this press release. Unless required by applicable laws, Birchcliff does not undertake any obligation to publicly update or revise any FOFI statements, whether as a result of new information, future events or otherwise.

Management has included the above summary of assumptions and risks related to forward-looking statements provided in this press release in order to provide readers with a more complete perspective on Birchcliff’s future operations and management’s current expectations relating to Birchcliff’s future performance. Readers are cautioned that this information may not be appropriate for other purposes.

The forward-looking statements contained in this press release are expressly qualified by the foregoing cautionary statements. The forward-looking statements contained herein are made as of the date of this press release. Unless required by applicable laws, Birchcliff does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

ABOUT BIRCHCLIFF:

Birchcliff is a Calgary, Alberta based intermediate oil and natural gas company with operations focused on the Montney/Doig Resource Play in Alberta. Birchcliff’s common shares are listed for trading on the Toronto Stock Exchange under the symbol “BIR”.

For further information, please contact:
Birchcliff Energy Ltd.
Suite 1000, 600 – 3rd Avenue S.W.
Calgary, Alberta T2P 0G5
Telephone: (403) 261-6401
Email: info@birchcliffenergy.com
www.birchcliffenergy.com		 Jeff Tonken – Chief Executive Officer

Chris Carlsen – President and Chief Operating Officer

Bruno Geremia – Executive Vice President and Chief Financial Officer