Birchcliff Energy Ltd. (“Birchcliff” or the “Corporation”) is pleased to announce its Q2 2024 financial and operational results. Birchcliff is also pleased to announce that its board of directors (the “Board”) has declared a quarterly cash dividend of $0.10 per common share for the quarter ending September 30, 2024.
“We continued with the successful execution of our capital program in the second quarter, bringing 11 wells on production. These wells are exceeding our internal projections, with strong initial production rates that contributed to our solid quarterly average production of 78,358 boe/d. Driven by the outperformance of our capital program year-to-date, we are tightening our 2024 production guidance range to 75,000 to 77,000 boe/d (previously 74,000 boe/d to 77,000 boe/d),” stated Chris Carlsen, President and Chief Executive Officer of Birchcliff. “We will continue to build off this operational momentum throughout the remainder of the year as we bring the last 11 wells of our capital program on production in the fourth quarter, when natural gas prices are forecasted to be stronger.”
“We continue to evaluate and implement initiatives aimed at improving efficiencies and reducing our costs, such as our new long-term contract operating agreement whereby we assumed operatorship of AltaGas’ deep-cut gas processing facility in Gordondale. This new arrangement allows us to leverage various cost optimization opportunities across our core producing assets, which is expected to drive costs lower. Moving forward, we are well positioned to deliver improved capital efficiencies through stronger well performance and efficient execution in 2024 and beyond.”
Q2 2024 FINANCIAL AND OPERATIONAL HIGHLIGHTS
Achieved average production of 78,358 boe/d (83% natural gas, 8% NGLs, 6% condensate and 3% light oil).
Generated adjusted funds flow(1) of $53.7 million, or $0.20 per basic common share(2), and cash flow from operating activities of $26.9 million.
Reported net income to common shareholders of $46.4 million, or $0.17 per basic common share.
Birchcliff’s market diversification initiatives contributed to an average realized natural gas sales price of $1.82/Mcf(3), which represented a 27% premium to the average benchmark AECO 7A Monthly Index price in Q2 2024.
Birchcliff entered into a long-term contract operating agreement (the “COA”) with AltaGas Ltd. (“AltaGas”). Pursuant to the COA, Birchcliff assumed operatorship of AltaGas’ Gordondale deep-cut gas processing facility (the “Gordondale Facility”) effective July 1, 2024. This arrangement will allow Birchcliff to leverage cost optimization opportunities that exist between its 100% owned and operated gas plant in Pouce Coupe and the Gordondale Facility, which are located approximately six miles apart and are pipeline connected. These optimization opportunities are expected to drive lower operating costs, reduce downtime and optimize NGLs recoveries for Birchcliff. For further details, see the joint press release of Birchcliff and AltaGas dated June 13, 2024.
During the quarter, Birchcliff brought 11 wells on production, which have exhibited strong average initial production rates. See “Operational Update”.
Birchcliff’s 2-well 02-27 natural gas pad in Gordondale achieved an average per well IP 30 rate of 1,462 boe/d (7,390 Mcf/d of raw natural gas and 230 bbls/d of condensate).(4)
Birchcliff’s 4-well 01-10 light oil pad in Gordondale achieved an average per well IP 30 rate of 840 boe/d (1,627 Mcf/d of raw natural gas and 569 bbls/d of light oil).(4)
Birchcliff’s 5-well 16-17 natural gas pad in Pouce Coupe achieved an average per well IP 30 rate of 1,481 boe/d (8,681 Mcf/d of raw natural gas and 34 bbls/d of condensate).(4)
F&D capital expenditures were $48.4 million in the quarter.
Total debt(5) at June 30, 2024 was $465.2 million.
Birchcliff extended the maturity date of its extendible revolving credit facilities (the “Credit Facilities”) to May 11, 2027, while maintaining the borrowing base limit at $850 million.
Birchcliff’s unaudited interim condensed financial statements for the three and six months ended June 30, 2024 and related management’s discussion and analysis will be available on its website at www.birchcliffenergy.com and on SEDAR+ at www.sedarplus.ca.
DECLARATION OF Q3 2024 QUARTERLY DIVIDEND
Birchcliff’s Board has declared a quarterly cash dividend of $0.10 per common share for the quarter ending September 30, 2024.
The dividend will be payable on September 27, 2024 to shareholders of record at the close of business on September 13, 2024. The ex-dividend date is September 13, 2024. The dividend has been designated as an eligible dividend for the purposes of the Income Tax Act (Canada).
OUTLOOK AND GUIDANCE
Update on 2024 Capital Program
Pouce Coupe and Gordondale
Birchcliff’s 2024 capital program contemplates that 27 (27.0 net) wells will be brought on production in 2024, of which 16 (16.0 net) wells have been brought onstream year-to-date. The remaining 11 (11.0 net) wells are scheduled to be brought on production in Q4 2024, when natural gas prices are forecasted to be stronger.
Birchcliff’s 2024 capital program also includes the drilling of 2 (2.0 net) wells in Q4 2024 and various ancillary activities to prepare for the efficient execution of its 2025 capital program.
Elmworth
As previously disclosed in January and May of this year, Birchcliff continues to evaluate further investment in Elmworth in order to protect, optimize and further its long-term development strategy for this significant Montney asset.
The Corporation has made the strategic decision to drill 1 (1.0 net) horizontal well and 1 (1.0 net) vertical well in Elmworth in Q3 2024, neither of which will be completed this year. These wells will provide Birchcliff with the opportunity to continue a significant number of sections of Montney lands in Elmworth, as well as increase the Corporation’s inventory and reservoir expertise in the area.
The additional F&D capital associated with the drilling of these wells was not contemplated in the Corporation’s original 2024 capital program and is expected to be in the range of $5 million to $10 million. By incurring these capital expenditures in 2024, this is expected to reduce the Corporation’s required investment in Elmworth in 2025.
For further details regarding the Corporation’s 2024 capital program and recent well results, see “Operational Update”.
Updated 2024 Guidance
Birchcliff is updating its guidance to reflect its current commodity price forecast and other assumptions for 2024 and its financial and operational results for the first half of the year.
As noted above, Birchcliff is tightening its annual average production guidance to 75,000 to 77,000 boe/d to reflect the outperformance of its capital program year-to-date.
Birchcliff is lowering its guidance for royalty expense per boe to reflect a lower commodity price forecast in 2024.
The Corporation is lowering its 2024 guidance for operating expense per boe to reflect lower power and fuel costs forecasted for the remainder of the year.
Birchcliff is updating its F&D capital expenditures guidance to $250 million to $270 million (previously $240 million to $260 million) to reflect the additional capital associated with the drilling of the two additional wells in Elmworth.
The Corporation is lowering its guidance for adjusted funds flow and free funds flow, primarily to reflect a lower commodity price forecast in 2024. This lower anticipated adjusted funds flow is expected to result in higher total debt at year-end 2024 than previously forecast.
Birchcliff is reviewing the accounting treatment for the COA under IFRS Accounting Standards and the associated impact on its financial statements, which will be reflected in the Corporation’s Q3 2024 results. Accordingly, the guidance set forth herein does not reflect the impact of the COA. Birchcliff does not anticipate that the borrowing base limit and amounts available under its Credit Facilities or its forecast of total debt will be affected by the accounting treatment for the COA.
Although natural gas prices are forecasted to remain challenged through the middle part of 2024, the Corporation remains bullish on the long-term outlook for natural gas and it expects prices to improve due to the anticipated increased demand from the start-up of various North American LNG projects and gas-fired power generation. In the current commodity price environment, Birchcliff is committed to the development of its world-class Montney asset base and shareholder returns, while maintaining a strong balance sheet. In alignment with its commitment to maintain a strong balance sheet, the Corporation is continuing to target a total debt to forward annual adjusted funds flow ratio of less than 1.0 times in the long-term.
The Corporation has initiated its formal budgeting process for 2025 and expects to release its preliminary 2025 budget on November 14, 2024, along with its Q3 2024 results.
Changes in assumed commodity prices and variances in production forecasts can have an impact on the Corporation’s forecasts of adjusted funds flow and free funds flow and the Corporation’s other guidance, which impact could be material. In addition, any acquisitions or dispositions completed over the course of 2024 could have an impact on Birchcliff’s 2024 guidance and assumptions set forth herein, which impact could be material. For further information, see “Advisories – Forward-Looking Statements”.
Q2 2024 FINANCIAL AND OPERATIONAL RESULTS
Production
Birchcliff’s production averaged 78,358 boe/d in Q2 2024, a 1% increase from Q2 2023. The increase was primarily due to the strong performance of the Corporation’s capital program and the successful drilling of new Montney/Doig wells brought on production since Q2 2023, partially offset by natural production declines and maintenance and optimization projects completed in Q2 2024. As a result of lower natural gas prices in Q2 2024, the Corporation opportunistically performed multiple maintenance and optimization projects in the quarter that required periods of shut-in production volumes. See “Operational Update”.
Liquids accounted for 17% of Birchcliff’s total production in Q2 2024 as compared to 18% in Q2 2023. The decrease was largely due to the Corporation primarily targeting horizontal natural gas wells and natural production declines from light oil and liquids-rich natural gas wells producing since Q2 2023, partially offset by significant incremental light oil production from the new 4-well 01-10 pad in Gordondale brought on production in Q2 2024.
Adjusted Funds Flow and Cash Flow From Operating Activities
Birchcliff’s adjusted funds flow was $53.7 million in Q2 2024, or $0.20 per basic common share, both of which decreased by 23% from Q2 2023.
Birchcliff’s cash flow from operating activities was $26.9 million in Q2 2024, a 57% decrease from Q2 2023.
The decreases were primarily due to lower natural gas revenue, which was largely impacted by a 32% decrease in the average realized sales price Birchcliff received for its natural gas production in Q2 2024, and a higher interest expense as compared to Q2 2023. The decreases were partially offset by a lower realized loss on financial instruments and decreases in G&A, operating and royalty expenses as compared to Q2 2023.
Net Income to Common Shareholders
Birchcliff reported net income to common shareholders of $46.4 million in Q2 2024, or $0.17 per basic common share, an 8% and 6% increase, respectively, from Q2 2023. The increases were primarily due to an unrealized gain on financial instruments of $70.7 million in Q2 2024 as compared to $48.2 million in Q2 2023, partially offset by lower adjusted funds flow.
Debt and Credit Facilities
Total debt at June 30, 2024 was $465.2 million, a 67% increase from June 30, 2023.
At June 30, 2024, Birchcliff had a balance outstanding under its Credit Facilities of $485.8 million (June 30, 2023: $281.4 million) from available Credit Facilities of $850.0 million (June 30, 2023: $850.0 million), leaving the Corporation with $364.2 million (43%) of unutilized credit capacity after adjusting for outstanding letters of credit and unamortized deferred financing fees.
Natural Gas Market Diversification
Birchcliff’s physical natural gas sales exposure consists of the AECO, Dawn and Alliance markets. In addition, the Corporation has various financial instruments outstanding that provide it with exposure to NYMEX HH pricing.
Capital Activities and Investment
In Q2 2024, Birchcliff drilled 1 (1.0 net) well and brought 11 (11.0 net) wells on production, with F&D capital expenditures of $48.4 million.
OPERATIONAL UPDATE
Capital Program Overview
Year-to-date, the Corporation has drilled 20 (20.0 net) wells and brought 16 (16.0 net) wells on production, with 6 (6.0 net) wells left to be drilled and 11 (11.0 net) wells left to be brought on production.
As a result of optimized field development designs, utilizing higher intensity completions and tighter cluster spacing, the 2024 capital program wells have exhibited strong production rates, exceeding the Corporation’s internal estimates. These strong production results, combined with the Corporation’s efficient execution of its capital program, are expected to drive improved capital efficiencies in 2024 as compared to 2023.
As a result of lower natural gas prices in Q2 2024, the Corporation opportunistically performed multiple maintenance and optimization projects in the quarter that required periods of shut-in production volumes. These proactive projects are expected to reduce downtime in Q4 2024 when natural gas prices are forecasted to be stronger.
Pouce Coupe
Birchcliff completed the drilling of its 5-well 16-17 pad in February 2024. Three of the wells were turned over to production through Birchcliff’s permanent facilities in April 2024 and the remaining two wells were turned over to production in May 2024. This pad targeted high-rate natural gas wells, with three wells in the Lower Montney and two wells in the Upper Montney. The table below summarizes the aggregate and average production rates for the wells from the pad:
5-Well 16-17 Pad IP Rates
The drilling on Birchcliff’s 6-well 16-15 pad and 5-well 10-22 pad in Pouce Coupe is substantially complete, with 1 (1.0 net) well remaining to be rig released on each pad. These pads are both targeting the Lower Montney and the 11 (11.0 net) wells are scheduled to be brought on production in Q4 2024.
In order to prepare for the efficient execution of its 2025 capital program, Birchcliff plans to drill 2 (2.0 net) wells in Q4 2024 as part of a 5-well pad in Pouce Coupe (the 04-05 pad). These wells are planned to be drilled in the Lower Montney and brought on production in early Q1 2025. In addition, Birchcliff plans to allocate capital towards the drilling of various surface holes, pad-site construction and other activities to prepare for its 2025 capital program.
Gordondale
Birchcliff completed the drilling of its 2-well 02-27 pad in March 2024 and the wells were turned over to production through Birchcliff’s permanent facilities in late April 2024. This pad targeted liquids-rich natural gas wells in the Lower Montney. The table below summarizes the aggregate and average production rates for the wells from the pad:
2-Well 02-27 Pad IP Rates
Birchcliff completed the drilling of its 4-well 01-10 pad in March 2024 and the wells were turned over to production through Birchcliff’s permanent facilities in late May 2024. This pad targeted light oil wells in the Lower Montney. The table below summarizes the aggregate and average production rates for the wells from the pad:
Elmworth
The Corporation has made the strategic decision to drill 1 (1.0 net) horizontal well and 1 (1.0 net) vertical well in Elmworth in Q3 2024, neither of which will be completed this year. These wells will provide Birchcliff with the opportunity to continue a significant number of sections of Montney lands in Elmworth, as well as increase the Corporation’s inventory and reservoir expertise in the area.
