Birchcliff Energy Ltd. Announces First Quarter 2017 Results, A Return to Profitability and Continued Operational Success
Birchcliff Energy Ltd. ("Birchcliff" or the "Corporation") (TSX:BIR) is pleased to announce its 2017 first quarter results, with record quarterly average production of 61,662 boe/d. The full text of Birchcliff's First Quarter Report containing the unaudited interim condensed financial statements for the three month period ended March 31, 2017 and the related management's discussion and analysis will be available on Birchcliff's website at www.birchcliffenergy.com and on SEDAR at www.sedar.com.
Jeff Tonken, President and Chief Executive Officer of Birchcliff, stated: "Birchcliff's team executed another strong quarter, with record quarterly average production of 61,662 boe/d. During the first quarter of 2017, we advanced the construction of the Phase V and VI expansions of our Pouce Coupe natural gas processing plant. We expect to initiate commissioning of Phase V in July and to bring it on-stream by October 1, 2017. As a result, we expect to achieve record quarterly average production of 80,000 to 82,000 boe/d in the fourth quarter of 2017. In addition to the capital investment at Pouce Coupe, our development activities at Gordondale in the first quarter of 2017 allowed us to further our understanding of the D1 and D2 layers in the Montney, with early production results meeting or exceeding our expectations.
Our current balance sheet strength increases our ability to execute multi-year development projects and commence the planning necessary to construct in two phases a 250 MMcf/d deep-cut natural gas processing facility at Pouce Coupe, bringing the total capacity of our gas plant to 590 MMcf/d by year-end 2020. This deep-cut facility is expected to significantly reduce our future operating costs at Gordondale. Our drilling inventory together with our recent results and financial strength allows us to enter into long-term marketing arrangements as we develop our concentrated Montney/Doig Resource Play. Birchcliff remains committed to running a profitable business and with our low-cost Montney/Doig Resource Play, we expect we will be able to maximize the value we continue to create for our shareholders."
PRESIDENT'S MESSAGE FROM THE FIRST QUARTER 2017 REPORT
May 10, 2017
We are pleased to report the first quarter financial and operational results for Birchcliff Energy Ltd. ("Birchcliff") for the three month period ended March 31, 2017.
Highlights for the First Quarter 2017
We had a successful first quarter in 2017, with record quarterly average production. In addition, we saw a return to net income as compared to the net loss recorded in the first quarter of 2016, primarily as a result of improved commodity prices and greater production. Highlights of the first quarter include the following:
Update on the PC Gas Plant Expansions
Our PC Gas Plant currently has a processing capacity of 180 MMcf/d. We are actively working to further expand the processing capacity of the PC Gas Plant. Field installation of the Phase V expansion (which will increase processing capacity by 80 MMcf/d to 260 MMcf/d) commenced in January 2017. We expect to initiate commissioning of Phase V in July and to bring it on-stream by October 1, 2017. In addition, the engineering and licensing work has been completed for the Phase VI expansion (which will increase processing capacity by 80 MMcf/d to 340 MMcf/d). Fabrication of the major components has commenced and it is currently expected that Phase VI will be on-stream in October 2018.
We have commenced the planning and initial work to further expand the capacity of the PC Gas Plant in 2019 by 150 MMcf/d to 490 MMcf/d (Phase VII), which expansion would include a deep-cut capability. In addition, we have commenced the planning and initial work for a further expansion in 2020 to increase the capacity by an additional 100 MMcf/d (Phase VIII) which would bring the total processing capacity to 590 MMcf/d. An engineering and design study for Phases VII and VIII is expected to be complete by June 2017. Once we have finalized the design scope for Phases VII and VIII, we expect to commence the regulatory approval process.
Update on Credit Facilities - Extension of Maturity Dates and Unchanged Borrowing Base
Our syndicate of lenders recently completed their semi-annual review of the borrowing base limit under our extendible revolving credit facilities which have an aggregate principal amount of $950 million (the "Credit Facilities"). In connection therewith, Birchcliff and the lenders agreed to an extension of the maturity dates of each facility from May 11, 2018 to May 11, 2020 and to the borrowing base remaining unchanged at $950 million. In addition, subject to the terms and conditions of the agreement governing the Credit Facilities, the lenders have consented to the disposition of the Charlie Lake Light Oil Resource Play and to the borrowing base remaining at $950 million after giving effect to such disposition. The next semi-annual review is scheduled for November 2017.
Update on the Charlie Lake Light Oil Resource Play Sales Process
On March 21, 2017, we announced that we would pursue the sale of our oil and natural gas properties and related assets on the Charlie Lake Light Oil Resource Play located in the Peace River Arch of Alberta, which includes our Worsley Charlie Lake Light Oil Pool. We have engaged Scotiabank Global Banking and Markets as our marketing agent to seek potential purchasers. A virtual data room opened recently and is available for interested parties who have executed a confidentiality agreement. Further details on this opportunity are available at www.gbm.scotiabank.com.
Update on Natural Gas Transportation Capacity - Additional Firm Service
Virtually all of our natural gas production is currently transported on TCPL's NGTL System in Alberta pursuant to both firm and interruptible service agreements. We currently have in place firm service contracts that in the aggregate provide transportation capacity slightly above the processing capacity of our own processing facilities and sufficient transportation capacity to meet our processing commitments at third party processing facilities. In March 2017, we entered into agreements with TCPL for the firm service transportation of 175,000 GJ/d in aggregate (approximately 155 MMcf/d) of natural gas on TCPL's Canadian Mainline for a ten year term, whereby natural gas will be transported from the Empress receipt point in Alberta to the Dawn trading hub located in Southern Ontario. The toll for the Empress to Dawn portion of the service is $0.77/GJ plus fuel. Subject to regulatory approval, this service is expected to become available in three tranches on November 1 of each of 2017, 2018 and 2019. Provision of the service is conditional on, among other things, TCPL receiving National Energy Board approval on terms and conditions satisfactory to TCPL. The application to the National Energy Board for approval of the service was filed on April 26, 2017 and included the request to implement the service starting November 1, 2017.
FIRST QUARTER 2017 FINANCIAL AND OPERATIONAL RESULTS
Production for the first quarter of 2017 averaged 61,662 boe/d, which is approximately 0.6% below our previous guidance of 62,000 boe/d. This quarterly average production represents a 47% increase over our quarterly average production of 41,958 boe/d in the first quarter of 2016. The increase in production from the first quarter of 2016 is primarily attributable to the production from our assets in Gordondale which we acquired on July 28, 2016 (the "Gordondale Acquisition").
Production consisted of approximately 79% natural gas, 9% light oil and 12% NGLs in the first quarter of 2017 as compared to 88% natural gas, 8% light oil and 4% NGLs in the first quarter of 2016. The increase in oil and NGLs weighting in 2016 is due to the more heavily-weighted oil and NGLs production from our assets in Gordondale.
Funds Flow from Operations, Cash Flow From Operating Activities and Net Income
Funds flow from operations was $67.6 million ($0.26/basic common share), a 227% increase from $20.7 million ($0.14/basic common share) in the first quarter of 2016. Cash flow from operating activities for the first quarter of 2017 was $70.6 million, a 241% increase from $20.7 million for the first quarter of 2016. These increases from the first quarter of 2016 were largely due to higher realized commodity prices and the production from our assets in Gordondale which we acquired pursuant to the Gordondale Acquisition.
We had net income of $29.9 million, as compared to the net loss of $12.0 million in the first quarter of 2016. We recorded net income to common shareholders of $28.9 million ($0.11/basic common share) in the first quarter of 2017, as compared to the net loss to common shareholders of $13.0 million ($0.09/basic common share) in the first quarter of 2016. The changes were largely due to: (i) higher funds flow from operations; (ii) a $2.4 million realized cash gain on financial commodity price risk management contracts; and (iii) a $16.5 million non-cash "mark to market" unrealized gain on commodity price risk management contracts.
Capital Activities and Expenditures
Our 2017 Capital Program contemplates the drilling of a total of 46 (46.0 net) wells during 2017 and a continued investment in the expansions of the PC Gas Plant. In addition, our 2017 Capital Program includes capital for the various stages of the completion, equipping and tieing in of 10 wells drilled in 2016. Accordingly, it is expected that a total of 56 (56.0 net) wells will be brought on production during 2017. It is expected that the majority of capital under our 2017 Capital Program will be spent during the first and second quarters of 2017 in order to complete the Phase V expansion of our PCS Gas Plant (expected to come on-stream by October 1, 2017) and to drill, complete, equip and tie-in the wells necessary to fill the expanded plant. Accordingly, the majority of drilling is scheduled for the first half of the year.
During the first quarter of 2017, we had net capital expenditures of $124.5 million, as compared to $63.9 million during the first quarter of 2016. Our total F&D capital during the first quarter of 2017 (which excludes acquisitions, dispositions and administrative expenses) was $129.5 million, which consists of $0.7 million on land and seismic, $79.5 million on drilling and completions, $47.0 million on facilities and infrastructure and $2.3 million on other capital expenditures attributed to the execution of our 2017 Capital Program. Of the $47.0 million spent on facilities and infrastructure, approximately $25.4 million was spent on the Phase V and VI expansions of the PC Gas Plant. See "Advisories - Capital Expenditures".
Drilling and Completions
Our drilling and completions activities during the first quarter of 2017 were focused on our Pouce Coupe and Gordondale areas. During the quarter, we drilled a total of 21 (21.0 net) wells, with a 100% success rate. In the Pouce Coupe area, we drilled 13 (13.0 net) Montney/Doig horizontal natural gas wells, of which 9 were Montney D1 wells, 3 were Basal Doig/Upper Montney wells and 1 was a Montney D4 well. In the Gordondale area, we drilled 8 (8.0 net) Montney horizontal oil and natural gas wells, of which 5 were Montney D1 wells (3 oil and 2 natural gas) and 3 were Montney D2 oil wells. In addition, we completed and brought on production a total of 10 (10.0 net) wells that were drilled in 2016, 4 in the Pouce Coupe area and 6 in the Gordondale area.
At March 31, 2017, we have successfully drilled and cased an aggregate of 316 (310.7 net) Montney/Doig horizontal wells, which includes 87 (81.8 net) wells acquired in the Gordondale Acquisition.
At March 31, 2017, our long-term bank debt was $579.0 million (March 31, 2016: $655.8 million) from available credit facilities of approximately $950 million (March 31, 2016: $800 million), leaving $350.6 million of unutilized credit capacity after adjusting for outstanding letters of credit and unamortized interest and fees. Total debt at March 31, 2017 was $664.4 million as compared to $690.1 million at March 31, 2016. The decreases in long-term debt and total debt from March 31, 2016 are largely due to the fact that the remaining net proceeds from the equity financings completed in July 2016 (after the payment of the balance of the purchase price for the Gordondale assets acquired pursuant to the Gordondale Acquisition) were used to reduce indebtedness under the Credit Facilities.
Our Credit Facilities are comprised of an extendible revolving syndicated term credit facility of $900 million (the "Syndicated Credit Facility") and an extendible revolving working capital facility of $50 million (the "Working Capital Facility"). The Credit Facilities are subject to a semi-annual review of the borrowing base limit by our syndicate of lenders. We may each year, at our option, request an extension to the maturity date of the Syndicated Credit Facility and the Working Capital Facility, or either of them, for an additional period of up to three years from May 11 of the year in which the extension request is made. In connection with the recently completed semi-annual review of the borrowing base limit, we and our lenders agreed to an extension of the maturity dates from May 11, 2018 to May 11, 2020 and to the borrowing base remaining unchanged at $950 million. The Credit Facilities do not contain any financial maintenance covenants.
Our 2017 Capital Program is progressing well, is on schedule and is meeting our expectations for capital costs. We have drilled a total of 30 (30.0 net) wells year-to-date (21 during the first quarter and an additional 9 wells subsequent to the end of the quarter), all of which were successful. Of these wells, only two have been brought on production to date. Of the 30 wells drilled year-to-date, 20 (20.0 net) wells were Montney/Doig horizontal natural gas wells drilled in the Pouce Coupe area and 10 (10.0 net) wells were Montney horizontal wells drilled in the Gordondale area. All wells were drilled on multi-well pads, which allows us to reduce our per well costs and our environmental footprint. In addition, we actively employ the evolving technology utilized by the industry regarding horizontal well drilling and the related multi-stage fracture stimulation technology.
We currently have 4 drilling rigs at work, 1 in the Gordondale area and 3 in the Pouce Coupe area. In addition to these drilling rigs, we have multiple completion rigs and pipeline crews working on various projects.
To date in 2017, we have drilled 20 (20.0 net) Montney/Doig horizontal natural gas wells in Pouce Coupe: 14 Montney D1 wells, 4 Basal Doig/Upper Montney wells and 2 Montney D4 wells. All of these wells are in various stages of completion and equipping but only two have been brought on production to date. It is expected that the remaining 18 wells will be on production prior to the Phase V expansion coming on-stream. We have 12 wells left to drill in Pouce Coupe during the remainder of 2017: 8 Montney D1 wells, 3 Basal Doig/Upper Montney wells and 1 Montney D4 well.
The assets that we acquired pursuant to the Gordondale Acquisition in July 2016 continue to meet or exceed our expectations. In the fourth quarter of 2016, we drilled 6 (6.0 net) Montney horizontal wells, 3 of which were Montney D2 oil wells and 3 of which were Montney D1 liquids-rich natural gas wells. These wells were completed, equipped and brought on production in the first quarter of 2017 and continue to meet our expectations.
To date in 2017, we have drilled 10 (10.0 net) Montney horizontal wells in Gordondale: 4 Montney D2 oil wells, 4 Montney D1 oil wells and 2 Montney D1 liquids-rich natural gas wells. All of these wells are in various stages of completion and equipping but are not yet on production. We have 4 wells left to drill in Gordondale during the remainder of 2017: 3 Montney D2 oil wells and 1 Montney D1 oil well. After the conclusion of our planned drilling program for 2017, we will have drilled, cased, completed and equipped a total of 20 wells on our Gordondale assets (10 Montney D2 wells and 10 Montney D1 wells) since they were acquired in July 2016.
ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
Our Annual and Special Meeting of Shareholders will be held tomorrow, May 11, 2017, at 3:00 p.m. (MDT) in the McMurray Room at the Calgary Petroleum Club, 319 - 5th Avenue S.W.
We thank Mr. Seymour Schulich, our largest shareholder, for his leadership, unwavering commitment and his ongoing support. It is this kind of leadership that keeps our staff motivated and focused on the execution of our business plan. Mr. Schulich recently acquired 5 million common shares and currently holds 40 million common shares, which represents 15% of the current issued and outstanding common shares.
We continue to execute on our business strategy of operating essentially all of our high working interest production, which is surrounded by large contiguous blocks of high working interest lands where we own and/or control the infrastructure. Our operatorship, land position and infrastructure ownership give us a competitive advantage over our competitors in our areas of operation and supports our low F&D costs and low operating cost structure, which helps us to maximize our funds flow. As part of our strategy, we intend to continue to develop and expand our Montney/Doig Resource Play. This resource play is large enough to provide us with an extensive inventory of repeatable, low-cost drilling opportunities that we expect will provide production and reserves growth for many years. Our strategy is based on our current ownership of large contiguous blocks of high working interest land in our operating areas and our high working interest or 100% ownership in our significant facilities and infrastructure. We have the ability to control our costs and our capital expenditures primarily because we control the infrastructure that handles the majority of our production. We continue to focus on improving our execution, reducing our costs and increasing our reserves, all leading to improved capital efficiencies and internal rates of return.
We are focused on executing the drilling program ahead of us and completing the Phase V and VI expansions of our PC Gas Plant. Our 2017 Capital Program contemplates the drilling, completing, equipping and bringing on production of a total of 46 (46.0 net) wells during 2017, as well as the completion, equipping and tieing in of 10 wells drilled in 2016. Accordingly, a total of 56 (56.0 net) wells are expected to be brought on production during 2017. With 30 wells drilled year-to-date, we have 16 wells left to drill in order to conclude our planned drilling program for 2017.
Our current production is approximately 62,500 boe/d. We expect to bring another 44 wells on production by October 1, 2017. Accordingly, production is expected to ramp up in the fourth quarter of 2017 in connection with the start-up of the Phase V expansion of the PC Gas Plant. We currently remain on target to meet our annual average production guidance for 2017 of 70,000 to 74,000 boe/d. We expect to be on the lower end of our annual average production guidance as a result of the extremely wet field conditions in the second quarter of 2017.
We have hedged approximately 50% of our forecast 2017 natural gas production at an estimated average wellhead price of $3.46/Mcf, which helps to protect our balance sheet and our 2017 Capital Program. Although the majority of our capital expenditures are planned to be spent during the first half of 2017, we expect that the entirety of our 2017 Capital Program will be fully funded out of our forecast 2017 funds flow from operations as such funds flow is expected to exceed our 2017 capital expenditures over the course of 2017. The foregoing is based on our previously budgeted forecast average prices of WTI US$55.00 per barrel of oil and AECO CDN$3.00 per GJ of natural gas during 2017.
On March 21, 2017, we announced that we would pursue the sale of our oil and natural gas properties and related assets on the Charlie Lake Light Oil Resource Play located in the Peace River Arch of Alberta. The data room recently opened and presentations are ongoing.
In light of our strong results for 2016 and the first quarter of 2017, we are disappointed with the current trading price of our common shares as we believe that we are currently trading well below our inherent asset value. We are of the view that the oil and gas sector has been penalized by the uncertainty in the financial markets. We intend to continue to execute on our five-year plan and we believe that we have the financial liquidity, the people and the assets to meet our objectives. We believe that over time, our share price will eventually reflect our true asset value.
Birchcliff is a Calgary, Alberta based intermediate oil and natural gas company with operations concentrated within its one core area, the Peace River Arch of Alberta. Birchcliff's common shares and cumulative redeemable preferred shares, Series A and Series C, are listed for trading on the Toronto Stock Exchange under the symbols "BIR", "BIR.PR.A" and "BIR.PR.C", respectively.
SOURCE: Birchcliff Energy Ltd.
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