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"Operating margin" for the Pouce Coupe Gas Plant is calculated by dividing the estimated operating netback for the period by the petroleum and natural gas revenue for the period. Management believes that operating margin assists management and investors in assessing the profitability and efficiency of the Pouce Coupe Gas Plant and Birchcliff's ability to generate operating cash flows (equal to petroleum and natural gas revenue less royalties, less operating expenses and less transportation and marketing expenses).
"Total cash costs" are comprised of royalty, operating, transportation and marketing, general and administrative and interest expenses. Total cash costs are calculated on a per boe basis. Management believes that total cash costs assists management and investors in assessing Birchcliff's efficiency and overall cash cost structure.
"Adjusted working capital deficit" is calculated as current assets minus current liabilities excluding the effects of any financial instruments. Management believes that adjusted working capital deficit assists management and investors in assessing Birchcliff's liquidity. The following table reconciles working capital deficit (current assets minus current liabilities), as determined in accordance with IFRS, to adjusted working capital deficit:
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--------------------------------------------- As at,($000s) June 30, 2017 December 31, 2016 June 30, 2016 ---------------------------------------------------------------------------- Working capital deficit 60,254 36,928 6,017 Fair value of financial instruments 11,829 (9,433) 124 ---------------------------------------------------------------------------- Adjusted working capital deficit 72,083 27,495 6,141 ----------------------------------------------------------------------------/T/
"Total debt" is calculated as the revolving term credit facilities plus adjusted working capital deficit. Management believes that total debt assists management and investors in assessing Birchcliff's liquidity. The following table provides a reconciliation of the revolving term credit facilities, as determined in accordance with IFRS, to total debt:
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--------------------------------------------- As at,($000s) June 30, 2017 December 31, 2016 June 30, 2016 --------------------------------------------------------------------------- Revolving term credit facilities 628,401 572,517 709,510 Adjusted working capital deficit 72,083 27,495 6,141 --------------------------------------------------------------------------- Total debt 700,484 600,012 715,651 ---------------------------------------------------------------------------/T/
ADVISORIES
Unaudited Information
All financial and operating information contained in this press release for the three and six months ended June 30, 2017 is unaudited.
Currency
All amounts in this press release are stated in Canadian dollars unless otherwise specified.
Operating Costs
References in this press release to "operating costs" exclude transportation and marketing costs.
Boe and Mcfe Conversions
Boe amounts have been calculated by using the conversion ratio of 6 Mcf of natural gas to 1 bbl of oil and Mcfe amounts have been calculated by using the conversion ratio of 1 bbl of oil to 6 Mcf of natural gas. Boe and Mcfe amounts may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl and an Mcfe conversion ratio of 1 bbl: 6 Mcf is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.
MMbtu Pricing Conversions
$1.00 per MMbtu equals $1.00 per Mcf based on a standard heat value Mcf.
Conversion from GJ to Mcf - Wellhead Price
Birchcliff receives premium pricing for its natural gas production due to its high heat content from its properties. With respect to Birchcliff's natural gas hedging contracts outstanding as of June 30, 2017, the prices have been presented in both AECO CDN $/GJ and $/Mcf, with the latter representing the average expected natural gas wellhead price under contract. The conversion from GJ to Mcf is based on an expected corporate average natural gas heat content value of 40.63 MJ/m3 for the period from July 1, 2017 to December 31, 2017.
Initial Production Rates
Any references in this press release to initial production rates and other short-term production rates are useful in confirming the presence of hydrocarbons; however, such rates are not determinative of the rates at which such wells will continue to produce and decline thereafter and are not indicative of the long-term performance or of the ultimate recovery of such wells.
Oil and Gas Metrics
This press release contains metrics commonly used in the oil and natural gas industry, including "operating netback" and "funds flow netback". These oil and gas metrics do not have any standardized meanings or standard methods of calculation and therefore may not be comparable to similar measures presented by other companies where similar terminology is used and should not be used to make comparisons. Such metrics have been included herein to provide readers with additional measures to evaluate Birchcliff's performance; however, such measures are not reliable indicators of Birchcliff's future performance and future performance may not compare to Birchcliff's performance in previous periods and therefore such metrics should not be unduly relied upon. For information on how such netbacks are calculated, please see "Non-GAAP Measures".
Capital Expenditures
Unless otherwise stated, references in this press release to "net capital expenditures" and "capital expenditures, net" denote F&D costs plus administrative costs plus acquisition capital, less any dispositions.
The 2017 Capital Program has been presented both on a total and a net basis (net of acquisitions and dispositions). Certain dispositions that have been completed or announced at the date of this press release have been accounted for in Birchcliff's estimate of net capital expenditures as disclosed under the heading "Expansion to 2017 Capital Expenditure Budget". Birchcliff makes acquisitions and dispositions in the ordinary course of business. Any further acquisitions and dispositions completed during 2017 could have an impact on Birchcliff's capital expenditures, production and funds flow from operations for 2017, which impact could be material. In addition, Birchcliff's estimate of 2017 net capital expenditures is subject to change if any unplanned acquisition and disposition activity is carried out during 2017. See also "Advisories - Forward-Looking Information" below.
Forward-Looking Information
Certain statements contained in this press release constitute forward-looking statements and information (collectively referred to as "forward-looking information") within the meaning of applicable Canadian securities laws. Such forward-looking information relates to future events or Birchcliff's future performance. All information other than historical fact may be forward-looking information. Such forward-looking information is often, but not always, identified by the use of words such as "seek", "plan", "expect", "project", "intend", "believe", "anticipate", "estimate", "forecast", "potential", "proposed", "predict", "budget", "continue", "targeting", "may", "will", "could", "might", "should" and other similar words and expressions. This information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information. Birchcliff believes that the expectations reflected in the forward-looking information are reasonable in the current circumstances but no assurance can be given that these expectations will prove to be correct and such forward-looking information included in this press release should not be unduly relied upon.
In particular, this press release contains forward-looking information relating
to the following: Birchcliff's plans and other aspects of its anticipated
future financial performance, operations, focus, objectives, strategies,
opportunities, priorities and goals, including Birchcliff's focus on
maintaining a strong balance sheet, reducing indebtedness and funding capital
expenditures from internally generated funds flow; the Asset Sales, including
the total expected proceeds from the Asset Sales, the estimates of 2017
production for the assets, the anticipated closing dates of the Worsley
Disposition and the Additional Disposition, the anticipated use of proceeds
from the Asset Sales and the anticipated benefits of the Asset Sales (including
that the Asset Sales will allow Birchcliff to focus on its Pouce Coupe and
Gordondale properties, that the proceeds from the Asset Sales will allow
Birchcliff to reduce its indebtedness, that Birchcliff's balance sheet will be
improved and that its financial flexibility will be increased and Birchcliff's
expectation that certain of its costs will decrease on a per unit basis); the
2017 Capital Program and Birchcliff's proposed exploration and development
activities and the timing thereof, including the amount and allocation of
capital expenditures, the number and types of wells to be drilled and brought
on production and the timing thereof, estimates of total and net capital
expenditures, that the majority of capital will be spent during the first half
of 2017, the focus of the program and Birchcliff's expectation that the
entirety of the 2017 Capital Program will be fully funded out of Birchcliff's
forecast funds flow from operations for 2017 and the proceeds from the Asset
Sales;
Birchcliff's science and technology multi-well pad program; Birchcliff's
production guidance, including its estimates of its annual average and fourth
quarter average production and commodity mix in 2017 and Birchcliff's
expectation that it will have strong fourth quarter average production;
proposed expansions of the Pouce Coupe Gas Plant, including the anticipated
processing capacities of the Pouce Coupe Gas Plant after such expansions, the
anticipated timing of such expansions, the anticipated cost of and the capital
required for such expansions and the timing thereof (including that Phase V
will be under budget and that Birchcliff will not be required to spend any
material capital in 2017 and 2018 on Phase VII), the proposed design and
capabilities of such expansions, that no unnecessary stress is expected to be
placed on Birchcliff's balance sheet over the next few years as capital is
required to construct these plant expansions and that natural gas processing
will be available to Birchcliff until the construction of Phase VII is
complete; the Elmworth Gas Plant, including the anticipated processing capacity
of the Elmworth Gas Plant and the anticipated timing of such plant;
Birchcliff's expectation that as a result of its revised arrangement with
AltaGas, its operating costs will be reduced by approximately $4.7 million in
2017 and that its take-or-pay obligation will not be fulfilled until 2020;
Birchcliff's expectation that its operating costs in the fourth quarter of 2017
will be less than $4.00/boe; the performance characteristics of Birchcliff's
oil and natural gas properties and expected results from its assets, including
that the profitable growth of Birchcliff's Pouce Coupe and Gordondale
properties is the driver of its returns to shareholders; the timing of the next
semi-annual review under Birchcliff's Credit Facilities; firm service on TCPL's
Canadian Mainline and the timing thereof and statements that Birchcliff's
arrangements to sell natural gas into the Alliance system and the proposed firm
service on TCPL's Canadian Mainline will provide Birchcliff with a more diverse
portfolio of natural gas markets and prices beyond AECO; Birchcliff's
expectation that it will announce its updated Five Year Plan in the fall of
2017; and that Birchcliff intends to continue to maintain a strong balance
sheet and financial flexibility, while it continues to pay a sustainable
dividend.
With respect to forward-looking information contained in this press release, assumptions have been made regarding, among other things: that the Worsley Disposition and the Additional Disposition will be completed on the terms and the timing anticipated; the ability to obtain any necessary regulatory approvals and the satisfaction of all conditions to the Worsley Disposition and the Additional Disposition in a timely manner; the scope of and the effects of the expected benefits of the Asset Sales; Birchcliff's ability to continue to develop its assets and obtain the anticipated benefits therefrom; prevailing and future commodity prices and differentials, currency exchange rates, interest rates, inflation rates, royalty rates and tax rates; expected funds flow from operations; Birchcliff's future debt levels; the state of the economy and the exploration and production business; the economic and political environment in which Birchcliff operates; the regulatory framework regarding royalties, taxes and environmental laws; the sources of funding for Birchcliff's capital expenditure programs and other activities; anticipated timing and results of capital expenditures; the sufficiency of budgeted capital expenditures to carry out planned operations; results of future operations; future operating, transportation, marketing and general and administrative costs; the performance of existing and future wells, well production rates and well decline rates; well drainage areas; success rates for future drilling; reserves and resource volumes and Birchcliff's ability to replace and expand oil and gas reserves through acquisition, development or exploration; the impact of competition on Birchcliff; the availability of, demand for and cost of labour, services and materials; Birchcliff's ability to access capital; the ability to obtain financing on acceptable terms; the ability to obtain any necessary regulatory approvals in a timely manner; the ability of Birchcliff to secure adequate transportation for its products; Birchcliff's ability to market oil and gas; and the availability of hedges on terms acceptable to Birchcliff.
In addition to the foregoing assumptions, Birchcliff has made the following assumptions with respect to certain forward-looking information contained in this press release:
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-- With respect to the 2017 Capital Program (including estimates of capital
expenditures and statements that the entirety of the 2017 Capital Program will be fully funded out of Birchcliff's forecast 2017 funds flow from operations and the proceeds from the Asset Sales), such program is based on the following commodity price and exchange rate assumptions during 2017: an annual average WTI price of approximately US$50.00 per bbl of oil (revised from US$55.00 as announced on February 8, 2017); an AECO price of approximately CDN $2.35 per GJ of natural gas (revised from $3.00 as announced on February 8, 2017); and an exchange rate of US$/CDN$ of 1.30 (revised from 1.29 as announced on February 8, 2017).-- With respect to Birchcliff's estimates of capital expenditures, such estimates assume that the 2017 Capital Program will be carried out as currently contemplated and, in the case of its estimate of net capital expenditures, that the Worsley Disposition and the Additional Disposition are completed on the terms and timing anticipated. See "Advisories - Capital Expenditures".
-- With respect to statements that the entirety of the 2017 Capital Program will be fully funded out of Birchcliff's forecast 2017 funds flow from operations and the proceeds from the Asset Sales, such estimates and statements assume that: the 2017 Capital Program will be carried out as currently contemplated; the production targets and commodity price assumptions set forth herein are achieved; Birchcliff's forecast commodity mix is achieved; and the Worsley Disposition and the Additional Disposition are completed on the terms and timing anticipated.
-- Birchcliff had previously disclosed that it expected that the entirety of its 2017 Capital Program would be fully funded out of its forecast funds flow from operations as such funds flow was expected to exceed its 2017 capital expenditures over the course of 2017, based on its budgeted forecast average prices of WTI US$55.00 per barrel of oil and AECO CDN$3.00 per GJ of natural gas during 2017. Birchcliff has revised its budgeted forecast commodity price assumptions to an average price of WTI US$50.00 per barrel of oil and an average price of AECO CDN$2.35 per GJ of natural gas during 2017. Given the Asset Sales and Birchcliff's increased 2017 Capital Program, its updated production guidance and its revised commodity price assumptions for 2017, Birchcliff now expects that the entirety of its 2017 Capital Program will be fully funded out of its forecast funds flow from operations, as well as the proceeds of the Asset Sales based on such revised commodity price assumptions and assuming completion of the Worsley Disposition and the Additional Disposition on the terms and timing anticipated.
-- The amount and allocation of capital expenditures for exploration and development activities by area and the number and types of wells to be drilled is dependent upon results achieved and is subject to review and modification by management on an ongoing basis throughout the year. Actual spending may vary due to a variety of factors, including commodity prices, economic conditions, results of operations and costs of labour, services and materials.
-- With respect to Birchcliff's production guidance, the key assumptions
are that: Birchcliff's capital expenditure programs will be carried out as currently contemplated; no unexpected outages occur in the infrastructure that Birchcliff relies on to produce its wells and that any transportation service curtailments or unplanned outages that occur will be short in duration or otherwise insignificant; the construction of new infrastructure meets timing and operational expectations; existing wells continue to meet production expectations; and future wells scheduled to come on production meet timing, production and capital expenditure expectations. In addition, Birchcliff's production may be affected by acquisition and disposition activity and acquisitions and dispositions could occur that may impact expected production.-- With respect to statements of future wells to be drilled and brought on
production, the key assumptions are: the continuing validity of the geological and other technical interpretations performed by Birchcliff's technical staff, which indicate that commercially economic volumes can be recovered from Birchcliff's lands as a result of drilling future wells; and that commodity prices and general economic conditions will warrant proceeding with the drilling of such wells.-- With respect to statements regarding proposed expansions of the Pouce
Coupe Gas Plant, including the anticipated processing capacities of the Pouce Coupe Gas Plant after such expansions and the anticipated timing of such expansions, the key assumptions are that: future drilling is successful; there is sufficient labour, services and equipment available; Birchcliff will have access to sufficient capital to fund those projects; the key components of the plant will operate as designed; and commodity prices and general economic conditions will warrant proceeding with the construction of such facilities and the drilling of associated wells.-- With respect to statements regarding Birchcliff's intention to construct
the Elmworth Gas Plant, including the anticipated processing capacity of such plant and the anticipated timing thereof, the key assumptions are that: future drilling in the Elmworth area is successful; the acid gas disposal well drilled by Birchcliff is capable of handling the volumes of acid gas to be produced at the plant and complies with all regulatory requirements; there is sufficient labour, services and equipment available; Birchcliff will have access to sufficient capital to fund the Elmworth Gas Plant; and commodity prices and general economic conditions warrant proceeding with the construction of the Elmworth Gas Plant and the drilling of associated wells./T/
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