Drilling & Completions | First Quarter (1Q) Update | Financial Results | Capital Markets | Capital Expenditure | Drilling Activity | Credit Facility Change

Birchcliff Energy First Quarter 2021 Results

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Birchcliff Energy Ltd. reported its Q1 2021 results.

Birchcliff is maintaining its 2021 F&D capital expenditures guidance and increasing its 2021 production, adjusted funds flow and free funds flow guidance.

Q1 2021 Highlights:

• Achieved quarterly average production of 75,065 boe/d, a 2% increase from Q1 2020.
• Liquids accounted for approximately 23% of Birchcliff’s total production in Q1 2021, as compared to approximately 22% in Q1 2020, with total liquids production increasing by 7% from Q1 2020.
• Delivered $87.8 million of adjusted funds flow, or $0.33 per basic common share, a 138% increase and a 136% increase, respectively, from Q1 2020.
• Recorded net income to common shareholders of $22.2 million, or $0.08 per basic common share, as compared to a net loss to common shareholders of $45.2 million and $0.17 per basic common share in Q1 2020.
• Achieved operating expense of $3.18/boe, a 1% increase from Q1 2020.
• Realized an operating netback of $17.05/boe, an 83% increase from Q1 2020.
• F&D capital expenditures of $95.8 million. During the quarter, Birchcliff drilled 19 (19.0 net) wells and brought 7 (7.0 net) wells on production as part of the Corporation’s 2021 capital program (the “2021 Capital Program”).

Capital Activities and Investment

During Q1 2021, Birchcliff continued with the successful execution of its 2021 Capital Program, drilling 19 (19.0 net) wells, completing 11 (11.0 net) wells and bringing 7 (7.0 net) wells on production.

“Birchcliff had a strong first quarter in 2021, highlighted by excellent drilling results. The performance of new wells and the execution by our team helped us achieve an average production rate of 75,065 boe/d, which represents an increase of 2% over Q1 2020. This production, together with improved commodity prices, resulted in substantially higher adjusted funds flow of $87.8 million in the quarter, a 138% increase from Q1 2020. As a result of our strong new well performance and our improved outlook for commodity prices, we are increasing our 2021 guidance for production, adjusted funds flow and free funds flow. We are now targeting annual average production of 79,000 to 81,000 boe/d, up from 78,000 to 80,000 boe/d, and adjusted funds flow of $400 million, up from $360 million. Notwithstanding our increased outlook for adjusted funds flow, we remain committed to capital discipline and are maintaining our F&D capital expenditures guidance at $210 million to $230 million, which results in free funds flow of $170 million to $190 million and puts us in an excellent position to significantly reduce our total debt during the second half of 2021,” commented Jeff Tonken, President and Chief Executive Officer of Birchcliff. “We are excited about the early results from the 7-well pad (04-04) that we brought on production in Pouce Coupe in March. The performance of these wells has exceeded our expectations, with very strong natural gas and condensate production rates. As a result, we have followed up with an 8-well pad immediately offsetting the 04-04 pad, which we expect to be brought on production in Q3 2021.”

 Outlook & Guidance

Increased 2021 Guidance – Maintaining F&D Capital Expenditures

Birchcliff is revising its 2021 guidance as a result of its strong new well performance and improved outlook for commodity prices. Birchcliff now expects to generate approximately $400 million of adjusted funds flow on annual average production of 79,000 to 81,000 boe/d. The Corporation is now targeting $170 million to $190 million of free funds flow in 2021 (previously $130 million to $150 million), which will be prioritized towards debt reduction, with total debt at year end now anticipated to be $600 million to $620 million (previously $635 million to $655 million). Birchcliff is maintaining its previous guidance for F&D capital expenditures and its operating and transportation and other expenses and increasing its royalties guidance due to higher anticipated benchmark commodity prices.

Credit Facility Extension

Subsequent to the end of the quarter, Birchcliff’s syndicate of lenders completed its regular semi-annual review of the borrowing base limit under the Corporation’s extendible revolving credit facilities (the “Credit Facilities”). During this review, Birchcliff requested that the lenders agree to extend the maturity date of the Credit Facilities by two years and reduce the aggregate borrowing base limit from $1.0 billion to $850.0 million (see “Q1 2021 Financial and Operational Results – Debt and Credit Facilities”). Due to Birchcliff’s significant anticipated adjusted funds flow in 2021 and its commitment to capital discipline and debt reduction, it does not anticipate requiring additional credit capacity, and accordingly, requested the borrowing base limit reduction. This reduction to the borrowing base limit will result in a corresponding decrease to its renewal and standby fees. Birchcliff is committed to capital discipline, reducing its interest costs, strengthening its balance sheet and reducing its total debt going forward. As noted above, Birchcliff expects to generate $170 million to $190 million of free funds flow and reduce its total debt to $600 million to $620 million in 2021.29dk2902l

Q1 2021 Results

Production

Birchcliff’s production averaged 75,065 boe/d in Q1 2021, which was a 2% increase from 73,580 boe/d in Q1 2020. The increase was primarily due to incremental production volumes from the horizontal light oil and natural gas wells brought on production since Q1 2020, including from the new 7-well pad (04-04) brought on production in March 2021, partially offset by natural production declines.

Liquids accounted for approximately 23% of Birchcliff’s total production in Q1 2021, as compared to approximately 22% in Q1 2020, with total liquids production increasing by 7% from Q1 2020. The change in the commodity production mix was primarily due to incremental production from new horizontal light oil and condensate-rich natural gas wells brought on production since Q1 2020, including from the 14-well pad (14-19) and the 7-well pad (04-04) brought on production in July 2020 and March 2021, respectively, as well as increased NGLs recovery at Phase III of the Corporation’s 100% owned and operated natural gas processing plant in Pouce Coupe (the “Pouce Coupe Gas Plant”) beginning in Q4 2020.

Birchcliff’s adjusted funds flow in Q1 2021 was $87.8 million, or $0.33 per basic common share, a 138% increase and a 136% increase, respectively, from $36.9 million and $0.14 per basic common share in Q1 2020. The increases were primarily due to higher reported revenue which was largely the result of a 49% increase in the average realized sales price received for Birchcliff’s production in Q1 2021 as compared to Q1 2020. The average realized sales price benefited from the significant recovery in benchmark oil and natural gas prices mainly due to renewed oil production curtailments by OPEC+, an increase in global demand for oil after governments began easing COVID-19 related restrictions and higher seasonal demand for natural gas in Q1 2021 as compared to Q1 2020.

Birchcliff recorded net income to common shareholders of $22.2 million, or $0.08 per basic common share, in Q1 2021, as compared to a net loss to common shareholders of $45.2 million, or $0.17 per basic common share in Q1 2020. The change to a net income position was primarily due to higher adjusted funds flow and a lower unrealized after-tax mark‐to‐market loss on financial instruments in Q1 2021 as compared to Q1 2020.

Birchcliff’s operating expense was $3.18/boe in Q1 2021, a 1% increase from $3.14/boe in Q1 2020. The increase was primarily due to higher power and fuel prices as demand increased as a result of extreme cold winter conditions in Q1 2021 and an increase in production costs associated with higher natural gas volumes processed at third-party facilities in the Gordondale area. The increase was partially offset by improved operating efficiencies achieved in the field.

Birchcliff is committed to reducing its per unit operating expense by executing on various field optimization and cost-saving initiatives in Pouce Coupe and Gordondale, which included the completed expansion of Birchcliff’s liquids‐handling capabilities in Pouce Coupe in Q3 2020. Birchcliff’s operating cost structure in Q1 2021 remained largely unaffected by the COVID-19 pandemic.

Birchcliff’s operating netback was $17.05/boe in Q1 2021, an 83% increase from $9.32/boe in Q1 2020. The increase was primarily due to higher per boe petroleum and natural gas revenue, partially offset by higher per boe royalty, operating and transportation and other expenses in Q1 2021.

Birchcliff’s total cash costs were $12.55/boe in Q1 2021, a 15% increase from $10.88/boe in Q1 2020. The increase was primarily due to higher per boe royalty, transportation and other and interest expenses.

During Q1 2021, Birchcliff processed 69% of its total corporate natural gas production and 60% of its total corporate production through the Pouce Coupe Gas Plant, as compared to 69% and 59%, respectively, during Q1 2020.

Birchcliff’s production and liquids-to-gas ratio increased from Q1 2020 primarily due to: (i) specifically targeted condensate-rich natural gas wells in Pouce Coupe, including the 14-well pad (14-19) and the 7-well pad (04-04) brought on production in July 2020 and March 2021, respectively; (ii) increased NGLs recovery at Phase III of the Pouce Coupe Gas Plant beginning in Q4 2020; and (iii) the operation of its 20,000 bbls/d (50% condensate, 50% water) inlet liquids‐handling facility at the Pouce Coupe Gas Plant (the “Inlet Liquids-Handling Facility”), which became operational in Q3 2020 and allows Birchcliff to handle increased condensate volumes in Pouce Coupe.

At March 31, 2021, Birchcliff had long-term bank debt of $701.7 million (March 31, 2020: $619.1 million) from available Credit Facilities of $1.0 billion (March 31, 2020: $1.0 billion), leaving $293.1 million of unutilized credit capacity after adjusting for outstanding letters of credit and unamortized fees. Total debt at March 31, 2021 was $777.4 million, as compared to $739.6 million at March 31, 2020.

The agreement governing the Credit Facilities was amended effective May 6, 2021 to: (i) extend the maturity dates of each of the syndicated term credit facility (the “Syndicated Credit Facility”) and the extendible revolving working capital facility (“Working Capital Facility”) from May 11, 2022 to May 11, 2024; and (ii) decrease the borrowing base limit to $850.0 million from $1.0 billion, with the Syndicated Credit Facility being decreased to $750.0 million and the Working Capital Facility remaining at $100.0 million. The Credit Facilities do not contain any financial maintenance covenants.