Mr. Jeffery Tonken reports
BIRCHCLIFF ENERGY LTD. PROVIDES 2014 Q1 PRODUCTION AND FUNDS FLOW ESTIMATES, OPERATIONAL UPDATE AND ANNOUNCES AUDITED 2013 FINANCIAL STATEMENTS
Birchcliff Energy Ltd. is providing estimates of its 2014 first quarter production and funds flow, an operational update, and its 2013 audited financial statements. The audited financial statements are consistent with the unaudited financial results announced in the press release issued by Birchcliff on Feb. 12, 2014. The full text of the 2013 audited financial statements and the related management's discussion and analysis are available on Birchcliff's website and will be available on SEDAR.
Certain information contained in this press release is repeated from Birchcliff's Feb. 12, 2014, press release, including the 2013 financial and operational results, and highlights from the 2013 independent reserves evaluation and the 2013 independent Montney/Doig natural gas resource assessment.
Jeff Tonken, president and chief executive officer of Birchcliff, said, "As a result of significant natural gas production growth and the cost-efficiency of our natural gas plant in the Pouce Coupe South area, coupled with strong natural gas prices, Birchcliff is now capable of funding the substantial majority of its $347.1-million 2014 capital expenditure program out of internally generated funds flow."
Press release highlights
First quarter of 2014 estimates and outlook:
- The company forecasts record first quarter average production of approximately
31,800 barrels of oil equivalent per day, consisting of 83.6 per cent natural gas and 16.4 per cent crude oil
and natural gas liquids.
- It forecasts record first quarter funds flow of approximately $83-million
(58 cents per common share), assuming a realized natural gas price at the
wellhead of $6.12 per thousand cubic feet (based on an expected average AECO daily spot
price of $5.40 per gigajoule) and a realized crude oil price at the wellhead of
$89.11 per barrel for the first quarter. This forecast represents a 66-per-cent
increase from funds flow of $50.1-million in the fourth quarter of 2013
and a 110-per-cent increase from $39.4-million in the first quarter of 2013.
- Exit production for 2014 is expected to be between 37,500 and 39,500 boe
per day, with plans to drill 40 (39.5 net) wells in 2014.
- A substantial majority of the $347.1-million 2014 capital expenditure
program is expected to be financed out of internally generated funds flow.
- Birchcliff's natural gas production is unhedged for the winter months of
2014.
- A natural gas hedging program is in place for the 2014 summer months (April to
October), with Birchcliff contracting forward physical sales of 75,000
gigajoule's per day for approximately $4.35 per thousand cubic feet, representing 41 per cent of its
estimated gas volumes for that period.
- A phase 4 expansion is planned for the fall of 2014 that will bring processing
capacity of the company's PCS gas plant from current licensed capacity of 150 million cubic feet per day to 180 million cubic feet per day for a modest capital investment of
approximately $11.6-million.
- The company completed a strategic acquisition on Jan. 15, 2014, purchasing a partner's 30-per-cent
working interest in land and production on the Montney/Doig natural gas
resource play, giving Birchcliff a 100-per-cent working interest in 38 sections
of land. Approximately 9.6 million cubic feet equivalent (1,600 boe per day) of production was
acquired, the majority of which goes to Birchcliff's PCS gas plant.
Operational update for 2014:
- The company has had drilling results to date of 11 (11 net) wells, consisting of seven (seven
net) Montney/Doig horizontal natural gas wells in the Pouce Coupe area
and four (four net) Charlie Lake horizontal light oil wells in the Worsley
area.
- Birchcliff currently has four drilling rigs at work. Two rigs are active
in the Pouce Coupe area drilling Montney/Doig horizontal natural gas
wells on multiwell pads, which will allow these rigs to drill
continuously through breakup. One rig is active in the Worsley area
drilling Charlie Lake horizontal oil wells, and one rig is in the
Progress area drilling a Doig oil well.
Financial and operational results for 2013:
- Birchcliff had 2013 average production of 25,829 boe per day, a 13.3-per-cent increase over
2012 average production of 22,802 boe per day.
- The company had record funds flow of $174.4-million, or $1.22 per basic share, a 45-per-cent
increase from 2012.
- The company had net income of $65.4-million, a 396-per-cent increase from $13.2-million in 2012.
Net income in 2013, excluding the impact of the sale of assets, was
$40.1-million.
- The company had long-term bank debt of $394-million against available lines of credit of
approximately $600-million. Total year-end debt, including a working
capital deficiency of $60-million, was $454-million.
- The company's operating costs of $5.68 per boe were down 6.3 per cent from $6.06 per boe in 2012.
- The company's general and administrative costs of $2.19 per boe were down 20.4 per cent from $2.75
per boe in 2012.
- The company had top-tier operating performance at the PCS gas plant. With the AECO
natural gas price averaging $3.17 per thousand cubic feet during 2013, Birchcliff
realized $3.77 per thousand cubic feet equivalent, resulting in an operating netback of $2.99 per
thousand cubic feet equivalent for natural gas processed at the PCS gas plant.
- Birchcliff's capital expenditures in 2013 were $270.1-million or $215.8-million net of
dispositions.
- The company drilled a total of 43 (41.67 net) wells in 2013, consisting of:
- 26 (26 net) wells on its Montney/Doig natural gas resource play,
including 25 (25 net) horizontal natural gas wells and one (one net)
vertical exploration well;
- 13 (13 net) wells on its Worsley Charlie Lake light oil resource
play, all of which were horizontal wells;
- Four (2.67 net) wells on its Halfway light oil play, all of which were
horizontal wells.
- The company had an undeveloped land base of 576,893 (544,917 net) acres at Dec. 31,
2013, up from 544,129 (506,024 net) acres at Dec. 31, 2012, with a
94-per-cent average working interest.
- The company added 90,645.3 (90,325.3 net) acres or 141.3 (141.1 net) sections of
undeveloped land in 2013, substantially all at a 100-per-cent working interest and all within Birchcliff's core area of the Peace River Arch of
Alberta.
Fourth quarter of 2013 financial and operational results:
- Fourth quarter production averaged 28,391 boe per day, a 15.1-per-cent increase
over production of 24,662 boe per day in the third quarter of 2013 and a
6.5-per-cent increase from 26,655 boe per day in the fourth quarter of 2012.
- The company had record quarterly funds flow of $50.1-million, a 16.3-per-cent increase from the
third quarter of 2013 and a 25.6-per-cent increase from the fourth quarter of
2012.
- The company had net income of $37.1-million in the fourth quarter of 2013, a 265-per-cent
increase from the third quarter of 2013 and a 488-per-cent increase from the
fourth quarter of 2012. Excluding the impact of the sale of assets in
the fourth quarter, Birchcliff had net income of $11.8-million in the
fourth quarter of 2013.
- The company had operating costs of $5.44 per boe, down 3.9 per cent from $5.66 per boe in the
third quarter of 2013 and down 7.5 per cent from $5.88 per boe in the fourth
quarter of 2012.
- The company made a $54.7-million strategic disposition, net of adjustments, of
predominately non-operated low-working-interest non-core assets in the
Progress area of Alberta.
- The company had capital expenditures in the fourth quarter of $73-million or $18.2-million net of dispositions.
- The company drilled 12 (11.5 net) wells in the fourth quarter of 2013, comprising seven (seven net) Montney/Doig horizontal natural gas wells, four (four net)
Charlie Lake horizontal oil wells and one (0.5 net) Halfway horizontal oil
well, all of which were successful.
Independent reserves evaluation for 2013:
- The company had proved plus probable reserves of 370.1 million boe, a 16.5-per-cent increase from
Dec. 31, 2012. It added 6.9 boe of proved plus probable reserves for
each boe that was produced and sold in 2013.
- The company had proved reserves of 220 million boe, an 18.3-per-cent increase from Dec. 31,
2012.
- The company had proved developed producing reserves of 62 million boe, a 13.6-per-cent increase.
This is a net increase of 7.4 million boe from 54.6 million boe at Dec. 31,
2012.
- After taking into account 2013 production of 9.4 million boe and 2013
dispositions of 1.1 million boe, Birchcliff added 17.9 million boe of proved
developed producing reserves, which is 32.9 per cent of Birchcliff's proved
developed producing reserves at Dec. 31, 2012.
- The company increased its potential net future Montney/Doig horizontal natural gas well
drilling locations to 2,254 at Dec. 31, 2013, up from 1,929 at
Dec. 31, 2012, as a result of land acquisitions and drilling.
Finding and development costs and recycle ratios for 2013:
- The company had finding, development and acquisition costs on a proved plus
probable basis of $3.46 per boe, excluding future development capital
of $8.60 per boe, including future development capital.
- The company had an operating-netback-recycle ratio of 6.5 and a funds-flow-netback-recycle
ratio of 5.3, in each case excluding future development costs, based on
finding, development and acquisition costs, and proved plus probable
reserves.
Independent Montney/Doig natural gas resource assessment for 2013:
- The following is an assessment of Birchcliff's land that has potential for the Montney/Doig
natural gas resource play. Birchcliff has, on a best-estimate basis, reflecting
Birchcliff's working interest:
- Total petroleum initially in place of 52 trillion cubic feet equivalent, a 31-per-cent increase from
Dec. 31, 2012;
- Prospective resources of 15.8 trillion cubic feet equivalent, a 22-per-cent increase from Dec. 31,
2012;
- Contingent resources of 6.5 trillion cubic feet equivalent, a 35-per-cent increase from Dec. 31,
2012.
2013 FINANCIAL AND OPERATIONAL HIGHLIGHTS
Three months ended Dec. 31, 12 months ended Dec. 31,
2013 2012 2013 2012
Operating
Average daily production
Light oil (barrels) 4,227 3,986 4,030 4,270
Natural gas (thousands of
cubic feet) 138,132 131,120 125,712 106,868
Natural gas liquids (barrels) 1,142 816 847 721
Total -- barrels of oil
equivalent (6:1) 28,391 26,655 25,829 22,802
Average sales price
Light oil (per barrel) $ 81.52 $ 83.38 $ 89.89 $ 84.45
Natural gas (per thousand
cubic feet) 3.81 3.43 3.41 2.63
NGLs (per barrel) 85.45 80.44 88.45 83.78
Total -- barrels of oil
equivalent (6:1) 34.10 31.78 33.52 30.80
Netback and cost ($ per barrel
of oil equivalent at 6:1)
Petroleum and natural
gas revenue 34.11 31.81 33.59 30.82
Royalty (expense) (2.68) (2.52) (2.92) (2.90)
Operating (expense) (5.44) (5.88) (5.68) (6.06)
Transportation and
marketing (expense) (2.52) (2.09) (2.46) (2.28)
Netback 23.47 21.32 22.53 19.58
General and administrative
(expense), net (2.54) (2.66) (2.19) (2.75)
Interest (expense) (1.77) (2.41) (2.28) (2.42)
Other income - - 0.44 -
Funds flow netback 19.16 16.25 18.50 14.41
Stock-based compensation
(expense), net (0.37) (0.41) (0.43) (0.60)
Depletion and
depreciation (expense) (11.70) (11.75) (11.54) (11.48)
Accretion (expense) (0.24) (0.18) (0.23) (0.21)
Amortization of deferred
financing fees (0.10) (0.08) (0.09) (0.09)
Gain on sale of assets 12.93 - 3.58 0.46
Unrealized (loss) on
financial instruments (0.15) - (0.04) -
Dividends on preferred
shares, Series C (0.33) - (0.20) -
Income tax (expense) (5.01) (1.26) (2.61) (0.91)
Net income 14.19 2.57 6.94 1.58
Dividends on preferred
shares, Series A (0.38) (0.41) (0.43) (0.19)
Net income to common
shareholders 13.81 2.16 6.51 1.39
Financial
Petroleum and natural
gas revenue ($000s) $ 89,092 $ 78,001 $ 316,637 $ 257,206
Funds flow from
operations ($000s) 50,060 39,848 174,361 120,259
Per common share -- basic 0.35 0.28 1.22 0.88
Per common share -- diluted 0.34 0.28 1.20 0.86
Net income ($000s) 37,062 6,305 65,417 13,196
Net income to common
shareholders ($000s) 36,062 5,305 61,417 11,617
Per common share -- basic 0.25 0.04 0.43 0.08
Per common share -- diluted $ 0.25 $ 0.04 $ 0.42 $ 0.08
Outlook for 2014
Birchcliff's 2014 capital budget is $347.1-million (including $56-million for a strategic acquisition in January, 2014).
As a result of significant natural gas production growth and the cost-efficiency of the company's PCS gas plant, coupled with strong natural gas prices, Birchcliff is now capable of financing a substantial majority of its 2014 capital expenditure program out of internally generated cash flow. This will result in Birchcliff significantly improving its balance sheet while at the same time continuing to post significant production and reserves growth.
The company expects production in the first quarter of 2014 to be approximately 31,800 boe per day and forecasts record first quarter funds flow to be approximately $83-million (58 cents per common share), assuming a realized natural gas price at the wellhead of $6.12 per thousand cubic feet (based on an expected average AECO daily spot price of $5.40 per gigajoule) and a realized crude oil price at the wellhead of $89.11 per barrel for the first quarter. This forecast represents a 66-per-cent increase from funds flow of $50.1-million in the fourth quarter of 2013 and a 110-per-cent increase from $39.4-million in the first quarter of 2013.
The company expects exit production in 2014 to be between 37,500 and 39,500 boe per day. Planned drilling activities in 2014 include 40 (39.5 net) wells.
Birchcliff's natural gas production during the winter of 2014 is unhedged and, as a result, the company is receiving the full benefit of the high natural gas prices.
Birchcliff has contracted forward physical sales of 75,000 gigajoules per day for approximately $4.35 per thousand cubic feet, representing 41 per cent of its estimated natural gas volumes during the summer months, April 1 to Oct. 31, 2014. The company has no current intention of contracting forward physical sales of natural gas for the winter months of 2015, however, in late 2014 it will consider hedging natural gas for the 2015 summer months.
The company's PCS gas plant is currently licensed to process up to 150 million cubic feet per day of natural gas. The phase 4 expansion planned for the fall of 2014 will bring processing capacity to 180 million cubic feet per day by adding additional compression and sales pipeline capacity for a modest capital investment of approximately $11.6-million.
The company remains focused on its strategy -- growth by the drill bit -- in its core area of the Peace River Arch of Alberta. It continues to use the same services, in the same area, directed by the same experienced Birchcliff personnel, which provides consistency, repeatability and reliability in its operations.
The company's record production and low-cost structure, together with high natural gas prices, have given it tremendous momentum for strong financial results and production growth in 2014.
Operational update for 2014
Year-to-date drilling results include the drilling of 11 (11 net) wells, consisting of seven (seven net) Montney/Doig horizontal natural gas wells in the Pouce Coupe area and four (four net) Charlie Lake horizontal light oil wells in the Worsley area.
Birchcliff currently has four drilling rigs at work. Two rigs are active in the Pouce Coupe area drilling Montney/Doig horizontal natural gas wells on multiwell pads, which will allow these rigs to drill continuously through breakup. One rig is active in the Worsley area drilling Charlie Lake horizontal oil wells, and one rig is in the Progress area drilling a Doig oil well.
Financial and operational results for 2013
Production for 2013
Production in 2013 averaged 25,829 boe per day, which is a 13.3-per-cent increase over 2012 average production of 22,802 boe per day. Production per common share increased 9 per cent from 2012. This increase was achieved through the success of Birchcliff's capital drilling program and increased incremental production from new horizontal natural gas wells on the Montney/Doig natural gas resource play that are processed through Birchcliff's PCS gas plant.
Production consisted of approximately 81 per cent natural gas, and 19 per cent crude oil and natural gas liquids in 2013. Approximately 73 per cent of Birchcliff's natural gas production and 61 per cent of corporate production was processed at the PCS gas plant during 2013.
Funds flow and earnings for 2013
Funds flow for 2013 was approximately $174.4-million, or $1.22 per common share, a 45-per-cent increase from 2012. This increase was a result of increased natural gas production, the 32.6-per-cent increase in the average AECO natural gas spot price from $2.39 per thousand cubic feet in 2012 to $3.17 per thousand cubic feet in 2013 and lower operating costs on a per-unit basis.
Birchcliff recorded net income available to common shareholders of $61.4-million, or 43 cents per common share, in 2013, as compared with $11.6-million, or eight cents per common share, in 2012. This was a 429-per-cent increase in net income from 2012. Net income available to common shareholders in 2013 was $36.1-million.
Debt and capitalization for 2013
At Dec. 31, 2013, Birchcliff's long-term bank debt was $394-million from available credit facilities of approximately $600-million. Total debt, including the working capital deficit of $60-million, was $454-million, as compared with $462-million at Dec. 31, 2012.
Birchcliff expects that as a result of significant reserve additions in 2013, its bank credit facilities will be increased during its normal credit review in May, 2014.
At Dec. 31, 2013, Birchcliff had 143,676,661 basic common shares outstanding.
Operating and general and administrative costs for 2013
Operating costs in 2013 were $5.68 per boe, down 6.3 per cent from $6.06 per boe in 2012. This reduction of operating costs on a per-boe basis was largely due to the cost benefits achieved from processing increased volumes of natural gas through the PCS gas plant and implementation of various optimization initiatives.
General and administrative expenses of $2.19 per boe were down 20.4 per cent from $2.75 per boe in 2012, and the corporation expects this trend to continue as Birchcliff increases production without having to add significant additional resources.
Capital expenditures for 2013
During the year ended Dec. 31, 2013, Birchcliff had capital expenditures of $270.1-million or $215.8-million net of dispositions. Capital expenditures in 2013 were $23.5-million above Birchcliff's budgeted capital program of $246.6-million, with the expanded portion of the budget primarily directed toward strategic land sale purchases in the fourth quarter and the drilling of three (three net) additional Montney/Doig natural gas wells in late 2013, which kept the company's drilling rigs working until year-end. These additional wells were brought on production early in the first quarter of 2014.
PCS gas plant netbacks for 2013
Processing increased volumes of natural gas at the PCS gas plant has materially improved Birchcliff's funds flow and net earnings. In 2013, net operating costs for natural gas processed at the PCS gas plant were 37 cents per thousand cubic feet equivalent ($2.24 per boe) and the estimated operating netback was $2.99 per thousand cubic feet equivalent ($17.92 per boe). The attached table details Birchcliff's annual net production and operating netback for wells producing to the PCS gas plant, on a production-month basis.
PRODUCTION PROCESSED THROUGH THE PCS GAS PLANT
12 months ended
Dec. 31,
2013 (1) 2012
Average daily production,
net to Birchcliff
Natural gas (mcf) 91,666 59,327
Oil and NGLs (bbl) 527 204
Total boe (6:1) 15,805 10,092
Percentage of corporate
natural gas production 73% 56%
Percentage of
corporate production 61% 44%
Netback and cost $/mcfe $/boe $/mcfe $/boe
Petroleum and natural
gas revenue (2) 3.77 22.64 2.91 17.44
Royalty (expense) (0.16) (0.93) (0.11) (0.67)
Operating (expense),
net of recoveries (0.37) (2.24) (0.35) (2.08)
Transportation and
marketing(expense) (0.25) (1.55) (0.23) (1.37)
Estimated operating
netback 2.99 17.92 2.22 13.32
Operating margin (3) 79% 79% 76% 76%
Notes:
(1) The PCS gas plant processed an average of 109
million cubic feet per day of gross raw gas at the
inlet in 2013 against a licensed inlet capacity of
150 million cubic feet per day at Dec. 31, 2013.
(2) The AECO natural gas price averaged $3.17 per
thousand cubic feet and $2.39 per thousand cubic
feet during 2013 and 2012, respectively.
(3) Operating margin at the PCS gas plant is
determined by dividing the estimated operating
netback by petroleum and natural gas revenue in
the period.
After Birchcliff began processing natural gas at the PCS gas plant in early 2010, total corporate operating costs on a per-boe basis have trended downward as an increasing percentage of corporate natural gas sales volumes have been processed at the PCS gas plant.
Drilling program for 2013
Birchcliff's 2013 drilling program was focused on its two proven resource plays, the Montney/Doig natural gas resource play and the Worsley Charlie Lake light oil resource play. Birchcliff actively employs the evolving technology utilized by leaders in the industry regarding horizontal well drilling and the related multistage fracture stimulation technology.
During 2013, Birchcliff drilled 43 (41.67 net) wells, consisting of 26 (26 net) natural gas wells and 17 (15.67 net) oil wells. The natural gas wells included 25 (25 net) Montney/Doig horizontal wells and one (one net) Montney/Doig vertical exploration well. The oil wells included 13 (13 net) Worsley Charlie Lake horizontal light oil wells and four (2.67 net) Halfway horizontal light oil wells. All horizontal wells drilled in 2013 utilized the latest advancements in multistage fracture stimulation technology.
Land in 2013
Birchcliff's undeveloped land base at Dec. 31, 2013, was 576,893 (544,917 net) acres, up from 544,129 (506,024 net) acres at Dec. 31, 2012, with a 94-per-cent average working interest.
During 2013, Birchcliff added 90,645.3 (90,325.3 net) acres, or 141.6 (141.1 net) sections of undeveloped land, substantially all at a 100-per-cent working interest and all in Birchcliff's core area of the Peace River Arch of Alberta. The undeveloped land acquired during 2013 includes 12.5 (12.5 net) sections right in the middle of its Pouce Coupe development area, as well as 33 (33 net) sections in the Elmworth/Sinclair area where Birchcliff is planning further drilling to delineate the Montney/Doig natural gas resource play.
Birchcliff's land base primarily consists of large contiguous blocks of high-working-interest acreage located near facilities owned and/or operated by Birchcliff, or near third party infrastructure. Substantially all of the new land has been purchased without partners at a 100-per-cent working interest.
Birchcliff continued to strategically add lands on resource plays during 2013. The attached table summarizes Birchcliff's land holdings on resource plays at Dec. 31, 2013.
RESOURCE PLAY LAND HOLDINGS AT DEC. 31, 2013
Working Gross Net
interest (acres) (acres)
Middle/Lower Montney play 93.3% 209,920 195,821
Basal Doig/Upper Montney play 92.4% 196,640 181,715
Worsley Charlie Lake light oil play 98.7% 125,280 123,610
Duvernay play 99.8% 168,320 167,936
Nordegg play 85.8% 432,960 371,571
Banff/Exshaw play 99.3% 447,360 443,669
Fourth quarter of 2013 results
Fourth quarter production averaged 28,391 boe per day, which is a 15.1-per-cent increase over production of 24,662 boe per day in the third quarter of 2013 and a 6.5-per-cent increase from 26,655 boe per day in the fourth quarter of 2012.
Funds flow was $50.1-million, which is a 16.3-per-cent increase from $43.1-million in the third quarter of 2013 and a 25.6-per-cent increase from $39.8-million the fourth quarter of 2012.
Net income available to common shareholders increased to $36.1-million in the fourth quarter of 2013, as compared with $9.2-million in the third quarter of 2013 and $5.3-million in the fourth quarter of 2012. Excluding the gain from the sale of assets, Birchcliff had net income available to common shareholders of $10.8-million in the fourth quarter of 2013.
Operating costs per boe (excluding transportation and marketing costs) were $5.44 per boe, down 3.9 per cent from $5.66 per boe in the third quarter of 2013 and down 7.5 per cent from $5.88 per boe in the fourth quarter of 2012. This reduction in operating costs on a per-boe basis was largely due to the cost benefits achieved from processing increased volumes of natural gas through the PCS gas plant and the implementation of various optimization initiatives.
In November, 2013, Birchcliff made a strategic disposition of non-core assets in the Progress area for $54.7-million, net of adjustments. The transaction included approximately 520 boe per day of Doe Creek light oil production, 2.7 million boe of proved reserves and 4.5 million boe of proved plus probable reserves. This transaction resulted in a financial gain of $33.8-million or $25.3-million net of tax.
Capital expenditures in the fourth quarter were $73-million or $18.2-million net of dispositions.
Drilling activities during the fourth quarter of 2013 resulted in 12 (11.5 net) wells, being seven (seven net) natural gas wells and five (4.5 net) oil wells. The seven natural gas wells were all Montney/Doig horizontal natural gas wells. The oil wells included four (four net) Charlie Lake horizontal light oil wells and one (0.5 net) Halfway horizontal light oil well. All the horizontal wells drilled in the fourth quarter of 2013 utilized the latest advancements in multistage fracture stimulation technology.
Independent reserves evaluation for 2013
Deloitte LLP, independent qualified reserves evaluators of Calgary, Alta., prepared a reserves estimation and economic evaluation effective Dec. 31, 2013, in respect of Birchcliff's oil and natural gas properties, which is contained in a report dated Feb. 5, 2014. Deloitte also prepared reserves estimations and economic evaluations effective Dec. 31, 2012, and Dec. 31, 2011. Reserves estimates stated herein as at Dec. 31, 2013, 2012 and 2011, are extracted from the relevant evaluation. The 2013 reserves evaluation and the prior reserves evaluations have been prepared in accordance with the standards contained in the Canadian Oil and Gas Evaluation handbook and National Instrument 51-101, standards of disclosure for oil and gas activities.
At Dec. 31, 2013, Deloitte estimated that Birchcliff had 370.1 million boe of proved plus probable reserves and 220 million boe of proved reserves. Birchcliff's proved plus probable reserves consist of 86.5 per cent natural gas, and 13.5 per cent light oil and natural gas liquids.
Reserves summary
The attached table summarizes Deloitte's estimates of Birchcliff's working interest oil and natural gas reserves at Dec. 31, 2013, and Dec. 31, 2012, using the Deloitte forecast price assumptions in effect at the applicable reserves evaluation date.
SUMMARY OF OIL AND NATURAL GAS RESERVES
Dec. 31, 2013 Dec. 31, 2012
(mmboe) (mmboe)
Proved developed producing 62.0 54.6
Total proved 220.0 186.0
Probable 150.0 131.8
Total proved plus probable 370.1 317.8
Net present value of future net revenue
The attached table is a summary of the net present value of future net revenue associated with Birchcliff's reserves at Dec. 31, 2013, before deducting future income tax expense and calculated at various discount rates. The net present value of future net revenue attributable to the corporation's reserves is based on Deloitte's Dec. 31, 2013, forecast price assumptions of commodity prices, which can be found at Deloitte's website.
NET PRESENT VALUE OF FUTURE NET REVENUE BEFORE INCOME TAXES
(forecasted prices and costs, in millions of dollars, per year)
Discounted at
0% 5% 8% 10% 15% 20%
Proved
Developed producing $ 1,643.7 $ 1,220.0 $ 1,057.3 $ 972.2 $ 813.3 $ 703.9
Developed non-producing 255.5 188.6 161.8 147.5 120.1 101.0
Undeveloped 3,175.8 1,725.2 1,220.5 971.9 544.0 284.0
Total proved 5,074.9 3,133.8 2,439.6 2,091.5 1,477.5 1,088.9
Probable 4,920.2 2,191.2 1,437.3 1,106.8 606.7 350.2
Total proved plus probable $ 9,995.2 5,325.0 3,876.9 3,198.3 2,084.1 1,439.1
The natural gas price forecast used by Deloitte in the 2013 reserves evaluation for the years 2014 through 2018 is approximately 26 cents per million British thermal units lower than the forecast used by Deloitte for the same period in its 2012 reserves evaluation. Notwithstanding the natural gas price forecast for these years decreased by 6 per cent, the net present value of the proved developed producing reserves (at a 10-per-cent discount rate) increased by 17.2 per cent as a result of increased reserves volumes, increased oil prices and reduced operating costs recognized in the 2013 reserves evaluation.
From the 2013 reserves evaluation to the 2012 reserves evaluation, Birchcliff had the following:
- It had a 190-per-cent reserve replacement on a proved developed producing basis.
Birchcliff added 1.9 boe of proved developed producing reserves for
each boe that was produced and sold during the year (calculated by
dividing 2013 proved developed producing reserves additions before
production, acquisition and dispositions by total production in 2013).
- Birchcliff had a 486-per-cent reserve replacement on a proved basis. Birchcliff added 4.86 boe of
proved reserves for each boe that was produced or sold during the year
(calculated by dividing 2013 proved reserves additions before
production, acquisition and dispositions by total production in 2013).
- The company had a 692-per-cent reserve replacement on a proved plus probable basis. Birchcliff
added 6.92 boe of proved plus probable reserves for each boe that was
produced or sold during the year (calculated by dividing 2013 proved
plus probable reserves additions before production, acquisition and
dispositions by total production in 2013).
Reserves on the Montney/Doig natural gas resource play
Deloitte estimated at Dec. 31, 2013, Birchcliff had 319.2 million boe of proved plus probable reserves attributed to horizontal wells on the Montney/Doig natural gas resource play. This is an increase of 20 per cent from 266.8 million boe proved plus probable reserves attributed to horizontal wells on the Montney/Doig natural gas resource play at Dec. 31, 2012.
The attached tables summarize Deloitte's estimates of reserves attributable to Birchcliff's horizontal wells on the Montney/Doig natural gas resource play, the number of horizontal wells to which reserves were attributed and the future capital associated with such reserves.
MONTNEY/DOIG NATURAL GAS RESOURCE PLAY RESERVES DATA
Oil and natural gas
Natural gas liquids Total
(bcf) (mbbl) (mboe)
2013 2012 2013 2012 2013 2012
Proved developed
producing 291.6 241.0 1,940.6 1,334.9 50,538.1 41,493.6
Total proved 1,113.0 907.6 8,202.1 5,243.2 193,704.5 156,509.7
Total proved
plus probable 1,828.0 1,541.6 14,550.3 9,922.2 319,214.6 266,848.4
MONTNEY/DOIG NATURAL GAS RESOURCE PLAY RESERVES DATA
Existing horizontal wells and future
horizontal well locations Net future capital
Gross Net (millions)
2013 2012 2013 2012 2013 2012
Proved developed
producing 117 93 105.2 80.8 1.25 0
Total proved 384 325 330.9 272.7 1,306.1 1,129.4
Total proved
plus probable 549 472 470.8 397.5 2,146.2 1,849.9
MONTNEY/DOIG LAND AND HORIZONTAL WELL DATA
Dec. 31, Dec. 31, Dec. 31,
2013 2012 2011
Gross Net Gross Net Gross Net
Number of sections to which Deloitte
attributed proved plus probable
reserves 131.6 115.2 114.3 98.3 98.5 83.4
For existing and future horizontal
wells, number of well locations to
which Deloitte attributed proved
plus probable reserves 549 470.8 472 397.5 425 352.7
For existing and future horizontal
wells, average number of net well
locations per net section to which
Deloitte attributed proved plus
probable reserves 4.1 4.1 4.2
For existing horizontal wells,
average remaining recoverable proved
plus probable reserves attributed by
Deloitte, plus cumulative production 4.9 bcfe 4.8 bcfe 4.3 bcfe
For future horizontal wells, average
remaining recoverable proved plus
probable reserves attributed by
Deloitte 4.2 bcfe 4.1 bcfe 4.0 bcfe
Average cost per well, forecast by
Deloitte $5.2-million $5.2-million $4.8-million
Deloitte has attributed Montney/Doig proved plus probable reserves to 131.6 (115.2 net) sections of land. Drilling success during 2013 in the Middle/Lower Montney play has resulted in significant reserve assignments by Deloitte to 106.6 (92.5 net) sections of land, an increase of 17.5 net sections of land from 2012. Deloitte has attributed reserves in the Basal Doig/Upper Montney play to 78.2 (65.3 net) sections of land. There are now 53.2 (42.6 net) sections to which Deloitte has attributed reserves to both the Basal Doig/Upper Montney play and the Middle/Lower Montney play.
Management believes that the ultimate recovery from the corporation's Montney/Doig horizontal natural gas wells will continue to improve year over year as production declines continue to flatten. In addition, as drilling and completion technologies continue to improve, recovery factors and production rates in this unconventional reservoir should also improve.
Reserves on the Worsley Charlie Lake light oil resource play
At Dec. 31, 2013, Deloitte estimated that in the Worsley Charlie Lake light oil pool on the Worsley Charlie Lake light oil resource play, Birchcliff had 38.9 million boe proved plus probable reserves and 19.6 million boe of proved reserves. This continues the growth trend for Birchcliff's Worsley Charlie Lake reserves since July 1, 2007 (being the effective date of the acquisition of this property), when recoverable reserves were estimated at 15.1 million boe on a proved plus probable basis and 11.3 million boe on a proved basis. Both the original oil in place and the estimated recoverable reserves continue to grow, and Birchcliff is pleased to report that the Worsley Charlie Lake light oil pool continues to be a top-quality asset.
HISTORY OF RESERVES ESTIMATED FOR THE WORSLEY CHARLIE LAKE POOL (MMBOE)
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, July 1,
2013 2012 2011 2010 2009 2008 2007 2007
Proved 19.6 19.6 18.8 18.8 18.3 17.5 15.0 11.3
Proved plus
probable 38.9 34.7 31.3 28.2 26.3 24.6 21.2 15.1
Finding and development costs for 2013
During 2013, Birchcliff's finding and development costs were $268.1-million, and its finding, development and acquisition costs were $213.8-million. The attached table sets forth Birchcliff's estimates of its F&D costs per boe and FD&A costs per boe, excluding future development capital and including future development capital, on a proved and proved plus probable basis.
FINDING AND DEVELOPMENT COSTS
($/boe)
Three-year
2013 2012 2011 average
Excluding future development capital
F&D -- proved $ 5.85 $ 7.77 $ 4.77 $ 6.00
F&D -- proved plus probable $ 4.11 $ 6.09 $ 2.88 $ 4.08
Acquisitions -- proved - $ 10.96 $ 732.34 $ 13.74
Acquisitions -- proved plus probable $ 0.79 $ 3.38 $ 36.11 $ 3.87
Dispositions -- proved $ 23.90 $ 9.71 $ 6.31 $ 14.13
Dispositions -- proved plus probable $ 13.32 $ 4.36 $ 3.69 $ 7.23
Total FD&A -- proved $ 4.91 $ 7.83 $ 4.85 $ 5.74
Total FD&A -- proved plus probable $ 3.46 $ 5.89 $ 2.92 $ 3.87
Including future development capital
F&D -- proved $ 9.39 $ 11.10 $ 13.15 $ 11.28
F&D -- proved plus probable $ 9.03 $ 11.99 $ 12.01 $ 11.02
Acquisitions -- proved - $ 17.78 $ 732.34 $ 20.54
Acquisitions -- proved plus probable $ 23.21 $ 9.61 $ 36.11 $ 11.10
Dispositions -- proved $ 30.42 $ 19.80 $ 6.31 $ 20.65
Dispositions -- proved plus probable $ 17.56 $ 12.71 $ 3.69 $ 12.57
Total FD&A -- proved $ 8.29 $ 10.91 $ 13.47 $ 10.99
Total FD&A -- proved plus probable $ 8.60 $ 11.56 $ 12.31 $ 10.93
Deloitte's estimates of future development costs are $1.45-billion on a proved basis and $2.5-billion on a proved plus probable basis, which includes approximately $100.4-million for the expansion of the PCS gas plant to 270 million cubic feet per day of total capacity, together with the related gathering pipelines, sales pipeline expansion and compression. The increase in future development capital for 2013 over 2012 is $147.1-million on a proved basis and $316.7-million on a proved plus probable basis.
Both the 2013 reserves evaluation and the 2012 reserves evaluation included, on average, $5.2-million for each future Montney/Doig horizontal natural gas well to which reserves were assigned, which includes drilling, casing, completion and tie-in costs.
Recycle ratios for 2013
The attached table shows Birchcliff's recycle ratios for operating and funds flow netback, which are calculated in each case by dividing the average operating netback per boe or funds flow netback per boe, as the case may be, by each of the F&D costs and the FD&A costs.
RECYCLE RATIOS
Operating netback Funds flow netback
recycle ratio recycle ratio
2013 2012 2013 2012
Excluding future development capital
F&D -- proved plus probable 5.5 3.2 4.5 2.4
FD&A -- proved plus probable 6.5 3.3 5.3 2.4
Including future development capital
F&D -- proved plus probable 2.5 1.6 2.0 1.2
FD&A -- proved plus probable 2.6 1.7 2.2 1.2
During 2013, the average West Texas Intermediate price of crude oil was $97.97 (U.S.) per barrel and the average price of natural gas at AECO was $3.17 per thousand cubic feet. Operating netback per boe for 2013 was $22.53. Funds flow netback per boe for 2013 was $18.50.
Independent Montney/Doig natural gas resource assessment for 2013
Deloitte conducted an independent review and audit of resources, effective Dec. 31, 2013, in respect of Birchcliff lands that have potential for the Montney/Doig natural gas resource play, which is contained in a report dated Feb. 6, 2014. Deloitte also prepared a resource assessment effective Dec. 31, 2012. The 2013 resource assessment and 2012 resource assessment have been prepared in accordance with the standards contained in the COGE handbook and NI 51-101.
Resource estimates stated herein as at Dec. 31, 2013, and Dec. 31, 2012, are extracted from the relevant evaluation and reflect only Birchcliff's working interest share of resources for its lands in the area covered by the resource assessment. The resource assessment does not include Birchcliff's Worsley Charlie Lake light oil resource play or any of Birchcliff's other properties.
Montney/Doig natural gas resource assessment summary
The attached table summarizes Deloitte's estimates of Birchcliff's natural gas resources on the Montney/Doig natural gas resource play at Dec. 31, 2013, and Dec. 31, 2012, on a best-estimate case.
SUMMARY OF MONTNEY/DOIG NATURAL GAS RESOURCES
Best-estimate case
Dec. 31, 2013 Dec. 31, 2012
(bcfe) (bcfe)
Total petroleum initially in place 52,036.4 39,709.5
Total undiscovered PIIP 34,443.3 26,331.8
Prospective resources 15,809.9 13,003.3
Total discovered PIIP 17,593.2 13,377.7
Contingent resources 6,547.8 4,869.1
Compared with the 2012 resource assessment, the best estimate of total petroleum initially in place has grown from 39.7 trillion cubic feet equivalent to 52 trillion cubic feet equivalent, a 31-per-cent increase. Additionally, Birchcliff was very successful with its strategy to promote resources from undiscovered to discovered in 2013 through its exploration program. Discovered PIIP increased 31.5 per cent from the 2012 resource assessment, from 13.4 trillion cubic feet equivalent to 17.6 trillion cubic feet equivalent. Compared with the 2012 resource assessment, the best estimate of contingent resources has grown from 4.9 trillion cubic feet equivalent to 6.5 trillion cubic feet equivalent, a 35-per-cent increase. These increases are a result of land acquisitions and drilling.
Background to the Montney/Doig natural gas resource assessment
Birchcliff holds significant high-working-interest acreage in large contiguous blocks on the Montney/Doig natural gas resource play in the Peace River Arch area of Alberta. Birchcliff's lands are proximal to its PCS gas plant, and to third party gathering and processing infrastructure.
The study area assessed by Deloitte comprises the Doig Phosphate, Basal Doig, and Montney formations in the greater Pouce Coupe, Elmworth, Sinclair and Bezanson areas of the Peace River Arch region of Alberta, ranging from Township 69 to Township 81, ranges 2 to 13W6. The study area is bounded in a northwest-southeast direction by the Montney/Doig deep basin edges and covered a total of 340.5 gross sections of land held by Birchcliff at Dec. 31, 2013, which includes:
- 328 (306 net) sections with a 93.3-per-cent working interest, which have
potential for the Middle/Lower Montney play;
- 307.3 (283.9 net) sections with a 92.4-per-cent working interest, which have
potential for the Basal Doig/Upper Montney play.
Birchcliff's total landholdings on the two plays described above are 635.3 (589.9 net) sections. On full development of four horizontal wells per section per play, Birchcliff has 2,359.6 net horizontal drilling locations. With 117 (105.2 net) horizontal locations drilled at the end of 2013, there remain 2,254.4 net future horizontal drilling locations.
Deloitte utilized probabilistic methods to generate high, best and low estimates of reserves and resources volumes. Results from the 2013 resource assessment are presented in the attached table for Birchcliff's working-interest share of gross volumes. Proved, proved plus probable and proved plus probable plus possible reserves determined by the 2013 reserves evaluation are included in this table for completeness, however, reserves were not the focus of the 2013 resource assessment.
SUMMARY OF BIRCHCLIFF RESERVES AND RESOURCES
Reserves and resource
volumes (bcfe)
Low- Best- High-
estimate estimate estimate
Resource class case case case
Discovered
Cumulative production 130.7 130.7 130.7
Remaining reserves 1,163.5 1,912.5 2,792.1
Surface loss/shrinkage 66.2 104.6 149.9
Total commercial 1,360.4 2,147.8 3,072.7
Contingent resources 4,456.0 6,547.8 9,961.1
Unrecoverable 7,147.5 8,897.6 11,027.4
Total subcommercial 11,603.5 15,445.3 20,988.5
Total discovered petroleum
initially in place 12,964.0 17,593.2 24,061.2
Undiscovered
Prospective resources 10,168.6 15,809.6 24,619.8
Unrecoverable 16,273.4 18,633.7 20,888.1
Total undiscovered PIIP 26,442.0 34,443.3 45,507.9
Total PIIP 39,406.0 52,036.4 69,569.1
Strategic acquisition of partner's interest in 2014
Birchcliff completed a strategic acquisition on Jan. 15, 2014, with an effective date of Jan. 1, 2014, where Birchcliff bought a partner's 30-per-cent working interest in land and production in the Pouce Coupe area. The acquisition included 38 (11.3 net) sections of land on the Montney/Doig natural gas resource play and 9.6 million cubic feet equivalent per day (1,600 boe per day) of Birchcliff-operated production, the majority of which is processed at its PCS gas plant. This transaction has allowed Birchcliff to consolidate lands it formerly held at a 70-per-cent working interest with lands it holds at a 100-per-cent working interest, allowing for a contiguous development plan, eliminating holding buffers and increasing flexibility of capital allocation. By extrapolation from the reserves assigned by Deloitte at Dec. 31, 2013, to the lands held at 70-per-cent working interest, the 30-per-cent working interest acquired represents additional reserves, as shown in the attached table.
RESERVES ACQUIRED JANUARY 15, 2014
(mmboe)
Proved developed producing 5.4
Total proved 26.9
Probable 13.9
Total proved plus probable 40.8
Reserve life index
Birchcliff's reserve life index is 34.1 years on a proved plus probable basis and 20.5 years on a proved basis, in each case using reserves estimates by Deloitte at Dec. 31, 2013, plus the reserves added in the strategic acquisition of a partner's interest on Jan. 15, 2014, and assuming an average daily production rate of 33,000 boe per day.
Thank you to the Birchcliff team
The company is very pleased and excited with the current and future outlook for Birchcliff. Its production, reserves and opportunity portfolio continues to increase while its cost structure continues to decrease. Focus, low-cost operations and financial flexibility have positioned Birchcliff to execute its long-term strategy.
Birchcliff's 2013 results were achieved thanks to the dedication and hard work of its talented team.
The company thanks Seymour Schulich, its largest shareholder, holding 40 million common shares, representing 27.8 per cent of the current issued and outstanding common shares. Mr. Schulich provides phenomenal financial support and, more importantly, has never wavered from his commitment to our management team, whether the natural gas price is high or low. He provides continuous feedback and shrewd advice, which is always delivered with a little humour! Mr. Schulich is a major part of the Birchcliff team.
On behalf of the company's management team and directors, Mr. Tonken thanks all of Birchcliff's employees for their hard work and dedication to the achievement of its corporate goals.
Thank you to all our shareholders for your continued support and your trust in all of us at Birchcliff.
The company looks forward to another excellent year.
We seek Safe Harbor.
© 2024 Canjex Publishing Ltd. All rights reserved.