Birchcliff Energy Ltd. (“Birchcliff” or the “Corporation”) is pleased to announce its 2025 budget and guidance and its updated five-year outlook and capital allocation strategy for 2025 to 2029.
Chris Carlsen, Birchcliff’s President and Chief Executive Officer, commented: “Our 2024 capital program successfully delivered on our strategy to improve our capital efficiency through enhanced well performance, as well as to reduce our costs through strong operational execution and strategic optimization initiatives. Our strategy for 2025 builds off of the operational momentum from 2024, maintaining our focus on capital efficiency improvements and further driving down costs. Our F&D capital budget for 2025 of $260 million to $300 million is expected to deliver annual average production of 76,000 to 79,000 boe/d and has been designed to ensure that our capital is strategically deployed throughout the year. This will provide us with the flexibility to adjust our capital spending if necessary in response to the commodity price volatility we expect during 2025, including as a result of the potential for U.S. tariffs and the start-up of LNG Canada.(1)
Over the last few years, our industry faced depressed natural gas prices driven by several factors, including constrained natural gas egress and a challenging political environment, during which time we limited growth, maintained a relatively flat production profile and focused on shareholder returns, paying approximately $390 million ($1.47 per common share(2)) to our shareholders through common share dividends. With the landscape for natural gas demand significantly improving and given our strong asset performance in 2024, we believe that it is in the best interests of the Corporation to shift our capital allocation strategy to focus on investing in and profitably growing our business, strengthening our balance sheet and providing a base dividend that is more sustainable through commodity price cycles. We believe that this strategy will allow us to deliver significant shareholder value.
To that end, we have updated our five-year plan for 2025 to 2029 and made the decision to reduce our annual base dividend to $0.12 per common share, which will allow us to invest in our world-class asset base, profitably grow our production and strengthen our balance sheet, which will improve our financial flexibility. Our updated five-year plan allocates capital towards fully utilizing our existing infrastructure and firm transportation capacity to reach production of 87,500 boe/d in the second half of 2027, achieving production growth of approximately 14%(3) over the next three years. This plan will allow us to improve our operating margins and netbacks and enhance the free funds flow generated by our business. In addition, Birchcliff forecasts that its total debt(4) will be reduced to approximately $175 million by the end of 2029, significantly reducing our interest costs and enhancing our flexibility to pursue other opportunities to create additional per share value, including further investment in our Pouce Coupe or Elmworth areas or through strategic acquisitions.”(5)
KEY HIGHLIGHTS
Flexible F&D capital budget for 2025 of $260 million to $300 million, which is expected to deliver annual average production of 76,000 to 79,000 boe/d.
Birchcliff expects to generate adjusted funds flow(6) of $445 million in 2025, which represents a 93% increase from its estimated adjusted funds flow of approximately $230 million in 2024.
Birchcliff expects to generate free funds flow(6) of $145 million to $185 million in 2025. For every $0.10 change in each of the AECO, Dawn and NYMEX HH markets for natural gas, Birchcliff’s estimated free funds flow for 2025 changes by approximately $19.2 million (in aggregate).(7)
Birchcliff expects to exit 2025 with total debt of $410 million to $450 million, which will result in a total debt to annual adjusted funds flow ratio(8) of less than 1.0 times, in line with management’s long-term target.
Annual base dividend for 2025 of $0.12 per common share (approximately $33 million in aggregate(9)), which will be declared and paid quarterly at the rate of $0.03 per common share, at the discretion of Birchcliff’s board of directors (the “Board”). This annual base dividend will be paid entirely out of internally generated free funds flow based on the Corporation’s commodity price assumptions.
Updated five-year outlook forecasts that Birchcliff will reach production of approximately 87,500 boe/d in the second half of 2027.
Updated five-year outlook forecasts cumulative free funds flow of approximately $635 million and cumulative excess free funds flow(6) (after the payment of cumulative dividends of approximately $165 million(9)) of $470 million at the end of the five-year period.
ANNUAL BASE DIVIDEND RATE AND DECLARATION OF Q1 2025 QUARTERLY DIVIDEND
The Board has approved an annual base dividend of $0.12 per common share for 2025. This annual base dividend will be declared and paid quarterly at the rate of $0.03 per common share, at the discretion of the Board.
In connection therewith, the Board has declared a quarterly cash dividend of $0.03 per common share for the quarter ending March 31, 2025. The dividend will be payable on March 31, 2025 to shareholders of record at the close of business on March 14, 2025. The dividend has been designated as an eligible dividend for the purposes of the Income Tax Act (Canada).
2025 F&D CAPITAL BUDGET
Overview
The Board has approved a flexible F&D capital budget for 2025 of $260 million to $300 million. The following table sets forth details regarding Birchcliff’s expected capital spending allocation in 2025:
Drilling and Completions
Birchcliff’s 2025 capital program contemplates the bringing on production of 27 (27.0 net) wells and the drilling of 26 (26.0 net) wells in 2025.
The program is designed to target high rate-of-return wells with attractive paybacks and strong capital efficiency metrics. Two drilling rigs will be utilized to deliver a level-loaded capital program focused on efficient execution, with optimized capital spending throughout the year. Benefitting from learnings gained from its 2024 capital program, the wells from Birchcliff’s 2025 capital program are expected to yield strong production, using the Corporation’s latest wellbore design, which incorporates longer lateral lengths, reduced stage spacing and increased proppant loading where appropriate.
In Pouce Coupe, Birchcliff plans to drill 22 (22.0 net) wells and bring 23 (23.0 net) wells on production, targeting wells placed in the Lower Montney. The Corporation expects that two pads (8 wells in total) will be brought on production in Q1 2025, two pads (9 wells total) will be brought on production in Q2 2025 and the last pad (6 wells) will be brought on production in Q4 2025.
In Gordondale, Birchcliff plans to drill and bring 4 (4.0 net) wells on production from one pad, targeting wells placed in the Lower Montney. These wells are expected to be brought on production in Q2 2025.
In Elmworth, Birchcliff plans to complete a horizontal land retention well in Q1 2025 that was drilled by Birchcliff in Q3 2024. This well will undergo a short flow test to continue a number of sections of Montney lands in the area and is not currently planned to be tied in.
In order to prepare for the efficient execution of the Corporation’s capital program in 2026, Birchcliff’s 2025 F&D capital budget also includes the capital for the drilling of 4 (4.0 net) wells in Pouce Coupe in late Q4 2025, which are expected to be completed and brought on production in Q1 2026, and the drilling of various surface holes and pad-site construction activities in Q4 2025.
Facilities and Infrastructure
Birchcliff anticipates allocating $35 million to $40 million to facilities and infrastructure. This includes the capital for the completion of a large gas gathering infrastructure project for approximately $12 million and a planned facility turnaround in Pouce Coupe for approximately $12 million, which is expected to be completed in Q2 2025.
2025 OUTLOOK AND GUIDANCE
Birchcliff remains bullish on the long-term outlook for natural gas and anticipates structural improvement in natural gas prices over the course of 2025 due to the anticipated increase in demand from the start-up of various North American LNG projects and gas-fired power generation.
However, Birchcliff believes that AECO prices will continue to be volatile in 2025 as a result of the dynamics surrounding the start-up of LNG Canada and the potential for U.S. tariffs to be imposed on energy and other goods exported from Canada, with AECO prices anticipated to be relatively weak for the first half of the year and strengthening in the second half.
Birchcliff expects to generate adjusted funds flow of $445 million in 2025, which represents a 93% increase from its estimated adjusted funds flow of approximately $230 million in 2024.
Birchcliff expects to capitalize on strengthening commodity prices outside the AECO sales market in 2025 as a result of its natural gas market diversification, with approximately 76% of its total natural gas production anticipated to be effectively sold in the NYMEX HH and Dawn sales markets where prices are forecasted to be significantly higher than AECO prices in 2025. For every US$0.10/MMBtu change in the NYMEX HH and Dawn benchmark prices, Birchcliff’s estimated free funds flow for 2025 changes by approximately $15.8 million (in aggregate).(10)
Birchcliff expects to strengthen its balance sheet in 2025, with excess free funds flow (after the payment of dividends) anticipated to be allocated primarily towards debt reduction. Birchcliff expects to exit 2025 with total debt of $410 million to $450 million, which represents a significant reduction from its expected total debt at year end 2024. Should commodity prices be higher than its current assumptions, Birchcliff has the flexibility to adjust its capital spending in 2025 in order to accelerate growth.
UPDATED FIVE-YEAR OUTLOOK(11)
The Board has approved an updated five-year plan for 2025 to 2029, which is designed to deliver significant long-term shareholder value through:
achieving profitable production growth by fully utilizing the Corporation’s existing infrastructure and firm transportation capacity, which will allow Birchcliff to improve its operating margins and netbacks and enhance the free funds flow generated by its business;
strengthening the Corporation’s balance sheet to improve its financial flexibility and resiliency; and
providing a base dividend to shareholders that is sustainable through commodity price cycles.
Birchcliff’s updated five-year outlook forecasts potential cumulative adjusted funds flow of $2.2 billion, cumulative free funds flow of approximately $635 million and cumulative excess free funds flow (after the payment of dividends) of $470 million at the end of the five-year period. This potential excess free funds flow, combined with a strong balance sheet, is anticipated to provide Birchcliff with significant flexibility, allowing it to focus on further enhancing long-term shareholder value.
While excess free funds flow will initially be prioritized towards reducing indebtedness, consideration will be given to opportunities that would complement or otherwise improve the Corporation’s business and enhance long-term shareholder value, such as further investment in the Corporation’s Pouce Coupe or Elmworth areas, strategic acquisitions and increasing shareholder returns. Such considerations will take into account commodity prices, debt levels and the amount of excess free funds flow available in future years.
Should commodity prices be higher or lower than the commodity price assumptions underlying its five-year plan, Birchcliff has the flexibility to accelerate or decelerate its capital spending and production profile over the next five years accordingly.
Profitable Production Growth
Birchcliff’s updated five-year plan reflects the confidence that it has in its asset base. Building off of its strong asset performance and improved capital efficiency achieved in 2024, its updated five-year outlook provides for profitable production growth of approximately 14% over the next three years, commensurate with the increased drilling necessary to fully utilize its existing infrastructure and firm transportation capacity, reaching production of 87,500 boe/d in the second half of 2027. Thereafter, annual average production levels are expected to remain relatively stable at approximately 87,500 in 2028 and 2029.
Birchcliff’s updated five-year outlook contemplates F&D capital spending of approximately $260 million to $300 million annually in each of 2025 and 2026. F&D capital spending is forecast to increase to approximately $325 million to $375 million in each of 2027 and 2028 in order to drill the necessary wells to fully utilize the Corporation’s existing infrastructure in the second half of 2027 and keep such infrastructure at or near capacity in 2028. F&D capital spending is then forecast to decrease to approximately $300 million to $325 million in 2029, as less wells are required to maintain production due to reduced base production declines compared to 2027 and 2028.
Profitably growing its production to fully utilize its existing infrastructure and firm transportation capacity will allow the Corporation to improve its operating margins and netbacks and reduce its per boe costs, which will further drive its ability to generate free funds flow.
In addition to the production growth currently contemplated in its five-year year plan, the Corporation holds the additional transportation required to further grow its production by expanding its 100% owned and operated natural gas plant in Pouce Coupe and/or constructing a new gas processing facility in its Elmworth area. These are not currently contemplated in the updated five-year plan.
Strengthening the Balance Sheet and Improving Financial Resiliency and Flexibility
The Corporation is focused on strengthening its balance sheet and is continuing to target a total debt to annual adjusted funds flow ratio of less than 1.0 times in the long-term. By the end of 2029, Birchcliff forecasts that its total debt will be reduced to approximately $175 million.
Birchcliff believes that reducing its indebtedness will reduce the risks to its business, save the Corporation significant interest costs and enhance its flexibility to pursue other opportunities to create additional per share value, including further investment in Birchcliff’s world-class asset base.
Under its updated five-year outlook, Birchcliff anticipates that it will not be required to pay any material Canadian income taxes during the period.
Sustainable Shareholder Returns
Birchcliff’s updated five-year plan contemplates that Birchcliff will pay shareholders a base common share dividend that is sustainable through commodity price cycles that will be paid entirely out of internally generated free funds flow based on its commodity price assumptions.
Birchcliff expects its base dividend to grow with the business over time.
Birchcliff will continue to evaluate opportunistic share buybacks under its normal course issuer bid.
OPERATIONAL UPDATE
In 2024, Birchcliff achieved a significant year-over-year improvement in capital efficiency(12) for our wells of approximately 23% compared to 2023. This improvement was driven by optimized field development strategies, including increased completion intensities and tighter cluster spacing, which resulted in strong well performance and production rates that exceeded internal forecasts. These results, supported by continuous improvement and advancements in operational execution and a focus on cost control, highlight the Corporation’s commitment to operational excellence.
Based on preliminary field estimates, Birchcliff anticipates that its average production for 2024 will be approximately 76,500 boe/d, which is on the higher end of its previous guidance range of 75,000 to 77,000 boe/d.
Birchcliff anticipates that its F&D capital expenditures for 2024 will be approximately $270 million(13) as compared to its previous guidance range of $250 million to $270 million. As a result of its strong operational execution and associated savings throughout the year, Birchcliff was able to drill three additional wells at its 5-well 04-05 pad in Q4 2024 as part of its 2024 capital program. This pad is currently undergoing completion operations, as described in further detail below.
During Q4 2024, the Corporation completed a strategic acquisition that included the purchase of several Montney sections and associated roads and infrastructure. The production from the lands acquired is approximately 250 boe/d. The total cash consideration for such acquisition was approximately $8 million (before customary closing adjustments).
Birchcliff expects to release its unaudited financial and operational results for the year ended December 31, 2024 on February 12, 2025.
Update on 2024 Capital Program
As part of its 2024 capital program, Birchcliff brought 11 wells on production in Q4 2024, delivering strong production results for the quarter and into 2025.
Birchcliff turned the wells on its 6-well 16-15 pad over to production through Birchcliff’s permanent facilities in October 2024. This pad targeted liquids-rich natural gas wells in the Lower Montney. The following table summarizes the aggregate and average production rates for the wells from the pad:
6-Well 16-15 Pad IP Rates
Birchcliff turned the wells on its 5-well 10-22 pad over to production through Birchcliff’s permanent facilities in November 2024. This pad targeted high-rate natural gas wells in the Lower Montney. The following table summarizes the aggregate and average production rates for the wells from the pad:
Update on 2025 Capital Program
The Corporation successfully completed drilling its 5-well 04-05 pad in Pouce Coupe in December 2024. Completions operations are currently underway on the pad, with the wells scheduled to come on production in February 2025. The pad was drilled in the Lower Montney targeting condensate-rich natural gas.
Drilling operations at Birchcliff’s 3-well 07-10 pad in Pouce Coupe commenced in January 2025, with completions operations scheduled to begin in February 2025. The pad is targeting high-rate natural gas wells in the Lower Montney. The wells are anticipated to be brought on production in Q2 2025.
Drilling operations at Birchcliff’s 4-well 02-27 pad in Gordondale commenced in January 2025, with completions operations scheduled to begin in February 2025. The pad is targeting liquids-rich natural gas wells in the Lower Montney. The wells are anticipated to be brought on production in Q2 2025.
