Press release from Marketwire
Birchcliff Energy Ltd. Announces Strong Second Quarter Results and an Operations Update
Thursday, August 11, 2011
Birchcliff Energy Ltd. Announces Strong Second Quarter Results and an Operations Update02:10 EDT Thursday, August 11, 2011CALGARY, ALBERTA--(Marketwire - Aug. 11, 2011) -THIS PRESS RELEASE IS NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.Birchcliff Energy Ltd. ("Birchcliff") (TSX:BIR) is pleased to announce its financial and operating results for the second quarter of 2011. The full text of Birchcliff's Second Quarter Report containing the Condensed Financial Statements for the three and six month periods ended June 30, 2011 and the related Management's Discussion and Analysis is available on Birchcliff's website at www.birchcliffenergy.com and will be available on SEDAR at www.sedar.com.SECOND QUARTER HIGHLIGHTS:-- Average production of 17,324 boe/day, a 40% increase above the second quarter of 2010. -- Record cash flow of $34.3 Million ($0.27/share), 49% above the second quarter of 2010. -- Net income of $10.1 Million ($0.08/share), 99% above the second quarter of 2010. -- Operating net back of $27.80/boe and cash flow net back of $21.74/boe in the second quarter of 2011 which is a 7% and 6% increase, respectively, from the second quarter of 2010. -- Reduced operating costs per boe to $6.74, down 12% from the second quarter of 2010 and 3% from the first quarter of 2011. -- Capital expenditures of $32.3 Million in the second quarter of 2011. -- Drilled 6 (4.8 net) wells, including 5 (3.8 net) Montney/Doig horizontal natural gas wells at Pouce Coupe and 1 (1.0 net) horizontal light oil well at Worsley. -- Announced the results of Birchcliff's Montney/Doig Natural Gas Resource Assessment (See April 26, 2011 Press Release). -- Announced an increase in aggregate credit facilities to $520 million (See May 18, 2011 Press Release). -- Announced Directors' approval to proceed with the construction of Phase III of Birchcliff's 100% owned Pouce Coupe South Gas Plant that will increase processing capacity from 60 mmcf per day to 120 mmcf per day and is scheduled to start-up by November 1, 2012 (See May 18, 2011 Press Release.) -- As a result of the Pouce Coupe South Gas Plant Phase III expansion, Birchcliff announced that it expects to exit 2012 producing approximately 27,000 - 28,000 boe/day. -- Substantial industry activity on new resource plays in Birchcliff's core area, including drilling operations, large land acquisitions and technological developments.CURRENT UPDATE-- Birchcliff confirms its previously announced guidance that 2011 average production is expected to be approximately 18,500 boe/day. -- First half 2011 average production was 17,532 boe/day, which achieved Birchcliff's previously announced guidance of 17,500 boe/day. -- Current production is approximately 17,700 boe/day. -- Birchcliff currently has 3 rigs working. -- Recently commenced the process to obtain regulatory approval for a Phase IV expansion of the Pouce Coupe South Gas Plant which would increase the processing capacity from 120 mmcf per day to 240 mmcf per day.IFRS AdvisoryBirchcliff's financial data disclosed above have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board that was adopted by the Corporation on January 1, 2011, with an effective date of January 1, 2010. Previously, Birchcliff prepared its annual and interim financial statements in accordance with Canadian Generally Accepted Accounting Principles then applicable to publically accountable enterprises. Comparative information described above has been restated to comply with the requirements of IFRS. The adoption of IFRS does not impact the underlying economics of Birchcliff's operations. Further details are described in the "Transition to International Financial Reporting Standards" section of the Management's Discussion & Analysis portion of the 2011 Second Quarter Report.The full text of the President's Message and the Financial and Operational Highlights from the 2011 Second Quarter Report follows:August 10, 2011Fellow ShareholdersBirchcliff is pleased to report its second quarter financial and operating results for the three months ended June 30, 2011. In summary, Birchcliff had a very active quarter, drilling through break-up, constructing new facilities, completing new wells and adding new production.In addition, Birchcliff Energy Ltd. announced the results of its Montney Doig Natural Gas Resource Assessment (see Press Release dated April 26th, 2011), increased aggregate credit facilities to $520 million (see Press Release dated May 18th, 2011) and expanded its capital budget to $227 million (see Press Release dated May 18th, 2011).Birchcliff is now focused on the construction of the Phase III expansion of its 100% owned Pouce Coupe South Gas Plant ("PCS Gas Plant"), that is scheduled to start-up by November 1, 2012, together with the planning and execution of an estimated 32 Montney/Doig Horizontal natural gas wells that will be drilled between now and the start up of Phase III. The PCS Gas Plant Phase III expansion will increase processing capacity from 60 mmcf per day to 120 mmcf per day, which will allow Birchcliff to achieve a 2012 exit production rate between 27,000 and 28,000 boe/day.2011 SECOND QUARTER RESULTSProductionBased on estimates from field reports, current production is approximately 17,700 boe/day.Notwithstanding severely abnormal weather conditions, including a significant amount of rain and flooding, Birchcliff met its previous guidance for average production of 17,500 boe/day in the first half of 2011. Birchcliff expects to average approximately 18,500 boe/day for 2011, consistent with previous guidance.Second quarter production averaged 17,324 boe/day, (76% natural gas and 24% light oil and natural gas liquids) up 40% from 12,357 boe/day in the second quarter of 2010. This significant increase in production volumes over the past year was primarily a result of Birchcliff's Montney/Doig horizontal natural gas drilling program and the completion of Phases I and II of the PCS Gas Plant in the Pouce Coupe area. We also achieved drilling successes in both the Worsley area and our east area.Cash Flow and EarningsCash flow was $34.3 million or $0.27 per share for the second quarter of 2011, as compared to $23.0 million or $0.18 per share in the second quarter of 2010. Net income during the second quarter was $10.1 million ($0.08 per share) as compared to $ 5.1 million ($0.04 per share) during the second quarter of 2010. Cash flow and earnings were also ahead of the first quarter of 2011, notwithstanding slightly less production in the second quarter.We are very pleased that we have significant earnings during a quarter of low natural gas prices. This is reflective of both the low finding cost nature of our asset base as a result of our growth having been through the drill bit and the low operating costs per boe we achieve from our owned and operated facilities.Capital Expenditures and Drilling ResultsDuring the second quarter of 2011, net capital spending aggregated $32.3 million. The specific breakdown of our capital expenditure program is contained in the Capital Expenditure section of our MD&A analysis.During the second quarter of 2011, Birchcliff drilled 6 (4.8 net) wells, all of which were cased, for a success rate of 100%. These wells included 5 (3.8 net) Montney/Doig horizontal natural gas wells and 1 (1.0 net) Worsley horizontal light oil well.Operating CostsBirchcliff achieved lower operating costs per boe at the PCS Gas Plant which resulted in a reduction in corporate operating costs per boe to $6.74.In addition, we expect operating costs per boe to decline further as we move away from poor weather in the winter and spring of 2011 and maximize and maintain our volume through-put at the PCS Gas Plant.For further details regarding our operating costs, please refer to the disclosures under the heading "PCS Gas Plant Operating Netback" in Management's Discussion and Analysis set forth below.IndebtednessAt June 30, 2011, the amount outstanding under Birchcliff's bank credit facilities was approximately $339.1 million. Birchcliff's working capital deficiency as at June 30, 2011 was $10.1 million, for total debt of $349.2 million. The working capital deficiency does not reduce the amount Birchcliff can draw under its credit facilities.In May 2011, Birchcliff's bank syndicate increased Birchcliff's total credit facilities to an aggregate limit of $520 million from $375 million.The facilities include a $450 million revolving credit facility. The two year term out feature of Birchcliff's credit facilities remains intact so that if the credit facilities are not renewed at their annual renewal date, they convert to a two year term loan repayable at maturity.The second facility is a $70 million non-revolving 5 year term credit facility. This credit facility will be used primarily to fund the construction of the Phase III expansion of the PCS Gas Plant.LandBirchcliff continues to have a substantial undeveloped land base in the Peace River Arch, which at June 30, 2011 was comprised of 542,143 gross (501,188 net) acres.Birchcliff has a high average working interest in its undeveloped land base (92%), which reflects our long standing strategy of acquiring high working interest undeveloped land proximate to our operated high working interest production base.OPERATIONS UPDATECurrently, Birchcliff has 3 rigs working of which 2 rigs are in the Pouce Coupe area drilling horizontal Montney/Doig natural gas wells and the other rig is active on our Worsley Light Oil Resource Play drilling horizontal Charlie Lake light oil wells.Montney/Doig Natural Gas Resource Play UpdateIn the second quarter of 2011, Birchcliff's activities on the Montney/Doig Natural Gas Resource Play included the drilling of 5 (3.8 net) horizontal natural gas wells utilizing multi-stage fracture stimulation techniques. Of these wells 1 (1.0 net) well was an exploration well that was successful in finding a new pool, the other 4 (2.8 net) were development wells.Rapid advancements in horizontal drilling and multi-stage fracture stimulation technology have resulted in significant improvements in production and reserve capture for many different plays throughout North America. Birchcliff believes that the Montney/Doig Natural Gas Resource Play continues to experience some of the best results of the application of this technology due to its unique reservoir characteristics. Birchcliff classifies the Montney/Doig Natural Gas Resource Play as a hybrid resource play that significantly benefits from having approximately 300 meters (1,000 feet) of gas saturated rock that has both tight silt and sand reservoir rock inter layered with shale gas source rock. The horizontal wells are designed to maximize the contributions from this complex reservoir. As our knowledge grows with respect to both the reservoir characteristics and the operational technology of these resources, we expect our results to continue to improve.Birchcliff's strategy for the Montney/Doig Natural Gas Resource Play has evolved into a full cycle, exploration, exploitation, development and production program. We continue to aggressively add to our undeveloped land inventory, we continue to build out our infrastructure, we are now drilling infill wells on 300 meter inter-well spacing. Further evaluation is being conducted to support down spacing to less than 300 meters, as has been done by other competitors on the play.To date in 2011 we have added 20.5 (18.5 net) sections of land on the Montney/Doig Natural Gas Resource Play. In total Birchcliff now has 319.2 (286.6 net) sections of land that it believes have potential for the Montney/Doig Resource play. Based on the assumption that only one play of the two plays, Basal Doig/Upper Montney or the Middle/Lower Montney play, are considered and only 4 wells per section, Birchcliff controls land to develop over 1,200 locations.Of these locations 60 (49.6 net) wells have been drilled to date. In its reserve evaluation dated February 9, 2011, prepared by AJM Petroleum Consultants ("AJM") as at December 31, 2010, AJM attributed Montney/Doig reserves to 219 net locations.AJM conducted a Montney/Doig Natural Gas Play Resource Assessment (see April 26, 2011 Press Release). The resource assessment covered lands held by Birchcliff at December 31, 2010 which was comprised of 281 gross (256 net) sections of land which included Montney rights and 221 gross (194 net) sections of land, which included Doig rights. In total the assessment assigned resources on 298.7 (268.2 net) sections of land.Birchcliff continues to explore to geographically and stratigraphically expand the Montney/Doig Natural Gas Resource Play. Of the wells drilled to date in 2011 on the play, 2 (2.0 net) horizontal wells are exploratory in nature and successfully found new pools and proved new lands. Birchcliff continues to expand its infrastructure to control the play and reduce operating costs per boe. This provides economic efficiencies as well as strategic control and reserve capture in the area.Drilling plans for 2011 for the Montney/Doig Natural Gas Resource Play includes 12 (9.5 net) Basal Doig/Upper Montney horizontal wells, 11 (9.8 net) Middle/Lower Montney horizontal wells and 1 (1.0 net) vertical exploration well.Pouce Coupe South Gas Plant Update - Phase III and Phase IV ExpansionsBirchcliff is well underway in planning for construction of the Phase III expansion of the PCS Gas Plant. The engineering and design work is currently being completed and procurement of all major components has begun. Shop fabrication of all major skid packages will commence soon and field construction will start in the spring of 2012. Phase III is scheduled to start-up by November 1, 2012.In order to continue to develop its large resource base, Birchcliff has recently commenced the process to obtain regulatory approval for a Phase IV expansion of the Pouce Coupe South Gas Plant which would increase the processing capacity from 120 mmcf per day to 240 mmcf per day.Worsley Light Oil Resource Play UpdateThe Worsley Light Oil Resource Play has demonstrated consistent and prolific production performance. Successful expansion of the pool, water flood performance and the application of horizontal drilling and multi-stage fracture stimulation technology have all contributed to its continued reserve growth, production growth and high netbacks.To date in 2011, Birchcliff has drilled 10 (10.0 net) successful horizontal development oil wells in the Worsley Light Oil Resource Play. Our 2011 drilling program to date has successfully delineated and extended the pool to the west and south, which increased our estimate of original oil in place. With this success, a sizeable number of follow up locations have been identified. The water flood response is meeting our expectations and we are committed to further expansion of the water flood area, particularly in the south east area of the pool. On the Worsley Light Oil Resource Play, both the original oil in place and the estimated recoverable reserves for the pool continue to grow from July 1, 2007, the date we originally acquired these lands.New Resource Play UpdateBirchcliff has invested considerable time and capital analyzing and evaluating various new resource plays in the Peace River Arch. Several industry competitors have recently announced important developments on new resource plays in this area of Alberta. Birchcliff has acquired several large contiguous blocks at 100% working interest that are prospective for one or more of these new resource plays. While still in the early development phase, based on the high level of industry activity and our own internal technical evaluation, we are optimistic about the potential value of these new resource plays on our lands.Birchcliff is also conducting detailed core work on various plays to better understand rock properties and play potential in our area. We continue to plan for the drilling of a vertical exploration well in one of these new resource plays. The timing for the drilling of this well is dependent on the results of the preparatory technical work which is currently underway. Once this well has been drilled it will be evaluated to determine whether we should re-enter the well and/or drill horizontally to determine its commerciality.PROPOSED CHANGE OF AUDITOREffective June 1, 2011 Birchcliff's auditor, Deloitte & Touche LLP ("Deloitte") acquired the business of AJM Petroleum Consultants ("AJM") which is Birchcliff's independent reserves evaluator. As a result, Deloitte has advised Birchcliff that, to the extent that AJM provides a future independent reserves evaluation of Birchcliff's properties, Deloitte, under the applicable rules relating to its independence, cannot audit financial numbers that are based on such reserves evaluation by AJM since it would be auditing evaluation amounts prepared by Deloitte.Birchcliff therefore expects that during the third quarter of 2011, Birchcliff's Directors will appoint a new auditor to replace Deloitte. The Audit Committee is currently reviewing proposals from other auditing firms and once the replacement auditor is determined a further announcement will be made.It is with regret that we must proceed down this path as our relationship with Deloitte has been long standing. On behalf of Birchcliff and its shareholders, I thank Deloitte for the many years of excellent professional service that it has provided to Birchcliff and in particular I would like to single out Ms. Debbie Gerlach for her tireless efforts in this regard.SHAREHOLDER SUPPORTDuring 2011, Mr Seymour Schulich has increased his share holdings in Birchcliff to just under 26%. We confirm Mr Schulich's unwavering commitment to our management team which allows us to focus on our strategy and on achieving our long term goals that we believe will create significant value for all Birchcliff shareholders.OUTLOOKBirchcliff remains very confident that its two highly focused, high working interest, low cost, repeatable, sustainable long term growth resource plays in the Peace River Arch area of Alberta offer tremendous upside value to our shareholders. The Montney/Doig Natural Gas Resource Play continues to be one of the most active geological plays in North Western Alberta and Birchcliff is in the heart of the play.We continue to exploit our Worsley Light Oil Resource Play. We expect that production and reserves will continue to grow each year providing significant cash flow to exploit our resource plays at a time when oil prices are strong and gas prices are low.Our strategy has not changed, notwithstanding the weakness in natural gas prices. We believe that we can economically find, develop and produce natural gas from the Montney/Doig geological zone at low costs. Our significant earnings in 2011 are a testament to our strategy.The key to our strategy of being a low cost producer is to own and operate our processing capacity and related infrastructure. We also believe that technology advances will continue to reduce our finding and development costs and increase our recovery factors.We believe that the capital investments we are making are necessary to expand and improve our competitive position, to continue to reduce our operating costs and to make full use of our strategic advantages over our competitors. We have set a goal to exit 2012 producing between 27,000 and 28,000 boe/day, a target which we believe is achievable in light of our excellent results to date. Now, it is primarily about execution rather than geological risk.On behalf of our management team and directors I thank all of our shareholders for their continued support and our staff for their hard work and dedication.A. Jeffery Tonken, President and Chief Executive OfficerADVISORIESBoe ConversionsBarrels of oil equivalent ("boe") amounts may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet (6 mcf) of natural gas to one barrel of oil (1 bbl) is based on an energy equivalent conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.Forward Looking InformationThis Press Release contains certain forward-looking statements and forward-looking information (hereinafter collectively referred to as "forward-looking information") within the meaning of applicable Canadian securities laws. These statements relate to future events or future performance and are based upon the Corporation's current internal expectations, estimates, projections, assumptions and beliefs. All statements other than statements of historical fact are forward-looking statements. In some cases, words such as "plan", "expect", "project", "intend", "believe", "anticipate", "estimate", "may", "will", "potential", "proposed" and other similar words, or statements that certain events or conditions "may" or "will" occur, are intended to identify forward-looking statements.In particular, this Press Release contains forward-looking information relating to Birchcliff's intention to expand its processing facilities, drill and complete future wells, increase its production, scale up the development of its assets and an estimate of the number of its potential Montney/Doig horizontal natural gas drilling locations.The Corporation cannot guarantee future results, levels of activity, performance or achievements. Consequently, there is no representation by the Corporation that actual results achieved will be the same in whole or in part as those set out in the forward-looking information.With respect to such forward-looking information the key assumptions on which the Corporation relies are: that future prices for crude oil and natural gas, future currency exchange rates and interest rates, and future availability of debt and equity financing will be at levels and costs that allow the Corporation to manage, operate and finance its business and develop its properties and meet its future obligations; that the regulatory framework in respect of royalties, taxes and environmental matters applicable to the Corporation will not become so onerous as to preclude the Corporation from viably managing, operating and financing its business and the development of its properties; that the Corporation will continue to be able to identify, attract and employ qualified staff and obtain the outside expertise and specialized and other equipment it requires to manage, operate and finance its business and develop its properties; and its various assumptions as to future prices for crude oil and natural gas, currency exchange rates, inflation rates, future well production rates, well drainage areas, success rates of future well drilling and future costs and availability of labour and services. With respect to estimates of numbers of future wells to be drilled, two (2) key assumptions are that: (i) the future prices of oil and natural gas realized by the Corporation will be sufficient to justify the significant investments required; and (ii) the validity of the geological and other technical interpretations that have been performed by Birchcliff's technical staff that indicate that commercially economic reserves can be recovered from Birchcliff's lands as a result of drilling such future wells.Undue reliance should not be placed on forward-looking information, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. Forward-looking information involves numerous assumptions, uncertainties and both known and unknown risks. There is a risk that such predictions, forecasts, and projections may not occur. Although the Corporation 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. Some of those risks include: risks inherent in the oil and gas industry, such as operational risks in exploring for, developing and producing crude oil and natural gas, market demand and unpredictable facilities outages; risks and uncertainties involving geology of oil and natural gas deposits; uncertainty of reserves and resources estimates, reserves life and underlying reservoir risk; general economic conditions in Canada, the United States and globally; changes in governmental regulation of the oil and gas industry, including environmental regulation; fluctuations in foreign exchange rates or interest rates; adverse conditions in the debt and equity markets; and competition from others for scarce resources.The foregoing list of risk factors is not exhaustive. The forward-looking information contained in this Press Release is expressly qualified by this cautionary statement. Additional information on these and other risk factors that could affect operations or financial results are included in the Corporation's most recent Annual Information Form. In addition, information is available in the Corporation's other reports filed with Canadian securities regulatory authorities. Forward-looking information is based on estimates and opinions of management at the time the information is presented. The Corporation is not under any duty to update the forward-looking information after the date of this Press Release to conform such information to actual results or to changes in the Corporation's plans or expectations, except as otherwise required by applicable securities laws.Birchcliff is a publicly traded company that trades on the TSX Exchange under the symbol "BIR".This press release is not for distribution to United States Newswire Services or for dissemination in the United States.FOR FURTHER INFORMATION PLEASE CONTACT: Jeff TonkenBirchcliff Energy Ltd.President and CEOORJim SurbeyBirchcliff Energy Ltd.Vice President, Corporate Development(403) 261-6401(403) 261-6424 (FAX)The TSX Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.