Birchcliff Announces Third Quarter 2017 Results and Appointment of New Director – Part 2

For further information regarding our financial and operational results for the third quarter of 2017, please see "Third Quarter 2017 Financial and Operational Results" below.

THIRD QUARTER 2017 FINANCIAL AND OPERATIONAL RESULTS

Production

Production for the third quarter of 2017 averaged 65,276 boe/d, notwithstanding: (i) the sale of our Worsley Charlie Lake Light Oil Pool which represented forecast 2017 average production of approximately 3,100 boe/d and was only included in our production until August 31, 2017; and (ii) the planned turnarounds that were conducted at our major facilities in Pouce Coupe and Gordondale, as well as at the AltaGas Facility.

Our 2017 third quarter average production represents a 20% increase over our quarterly average production of 54,538 boe/d in the third quarter of 2016. The increase in production is primarily attributable to the production from our assets in Gordondale which reflect volumes reported for the full quarter, as well as our 2017 capital drilling program which resulted in incremental production from new horizontal wells brought on production in Pouce Coupe and Gordondale. Production in the third quarter of 2017 was also positively impacted by incremental volumes from new Montney/Doig horizontal natural gas wells brought on-stream to Phase V of the Pouce Coupe Gas Plant, which came on-stream in September 2017.

Production consisted of approximately 79% natural gas, 10% light oil and 11% NGLs in the third quarter of 2017 as compared to 81% natural gas, 8% light oil and 11% NGLs in the third quarter of 2016. The change in the corporate production mix was as a result of the more heavily-weighted oil and NGLs production attributed to our assets in Gordondale.

Funds Flow from Operations and Net Loss

Funds flow from operations was $64.4 million, or $0.24 per basic common share, a 55% increase and a 33% increase, respectively, from $41.7 million and $0.18 per basic common share in the third quarter of 2016. These increases from the third quarter of 2016 were largely due to higher corporate production, partially offset by a lower average realized commodity sales price.

We had a net loss of $120.7 million as compared to the net loss of $1.1 million in the third quarter of 2016. We recorded a net loss to common shareholders of $121.7 million ($0.46 per basic common share) in the third quarter of 2017 as compared to the net loss to common shareholders of $2.1 million ($0.01 per basic common share) in the third quarter of 2016. These net losses are primarily attributable to the after-tax book loss of $132.3 million ($22.04/boe) on the sale of our Worsley Charlie Lake Light Oil Pool.

Operating Costs and General and Administrative Expense

Operating costs in the third quarter of 2017 were $4.27/boe, an 8% decrease from $4.65/boe in the third quarter of 2016. The decrease in operating costs per boe from the third quarter of 2016 was largely due to an increased percentage of incremental production additions in the three months ended September 30, 2017 being brought on-stream to Phase V of our Pouce Coupe Gas Plant in September 2017, the sale of our higher cost Worsley Charlie Lake Light Oil Pool and various cost reductions and infrastructure optimization initiatives implemented by Birchcliff.

General and administrative expense in the third quarter of 2017 was $0.82/boe, a 23% decrease from $1.07/boe in the third quarter of 2016. The decrease on a per unit basis is primarily due to an increase in corporate production.

Interest Expense

Interest expense was $1.15/boe, a 29% decrease from $1.61/boe in the third quarter of 2016. The decrease is primarily due to a combination of higher production, lower average effective interest rates and a lower average outstanding total credit facilities balance in the third quarter of 2017 as compared to the third quarter of 2016.

Commodity Prices

During the third quarter of 2017, the average benchmark price for WTI oil was US$48.21/bbl, up 7% from US$44.94/bbl during the third quarter of 2016, and the average benchmark price for natural gas sold at AECO was $1.45/MMbtu, down 38% from $2.32/MMbtu during the third quarter of 2016. The average corporate realized sales price during the quarter was $18.55/boe, a 4% decrease from $19.40/boe during the third quarter of 2016.

Pouce Coupe Gas Plant Netbacks

Approximately 58% of our total corporate natural gas production and 47% of our total corporate production was processed at our Pouce Coupe Gas Plant during the nine months ended September 30, 2017 as compared to 72% and 64%, respectively, during the nine months ended September 30, 2016. These decreases are primarily due to the increased weighting of liquids-rich production from our assets in Gordondale as a percentage of corporate production. The average plant and field operating cost for production processed through the Pouce Coupe Gas Plant for the nine months ended September 30, 2017 was $0.35/Mcfe ($2.07/boe) and the estimated operating netback at the Pouce Coupe Gas Plant was $2.28/Mcfe ($13.65/boe), resulting in an operating margin of 75%.

The following table details our average daily production and estimated operating netback for wells producing to the Pouce Coupe Gas Plant:

/T/

------------------------------------------------ Nine months Nine months Nine months ended ended ended September 30, September 30, September 30, 2017 2016 2015 ---------------------------------------------------------------------------- Average daily production, net to Birchcliff: Natural gas (Mcf) 173,351 168,638 159,786 Oil & NGLs (bbls) 1,146 968 1,258 ---------------------------------------------------------------------------- Total boe 30,038 29,074 27,889 ---------------------------------------------------------------------------- AECO - C daily ($/Mcf)(1) $2.31 $1.85 $2.77 ---------------------------------------------------------------------------- Netback and cost: $/Mcfe $/boe $/Mcfe $/boe $/Mcfe $/boe Petroleum and natural gas revenue(2) 3.05 18.28 2.19 13.17 3.26 19.58 Royalty expense (0.08) (0.48) (0.05) (0.29) (0.11) (0.65) Operating expense(3) (0.35) (2.07) (0.25) (1.50) (0.33) (2.00) Transportation and marketing expense (0.34) (2.08) (0.32) (1.95) (0.32) (1.91) ---------------------------------------------------------------------------- Estimated operating netback $2.28 $13.65 $1.57 $9.43 $2.50 $15.02 ---------------------------------------------------------------------------- Operating margin 75% 75% 72% 72% 77% 77% ---------------------------------------------------------------------------- (1) $1.00/MMbtu = $1.00/Mcf based on a standard heat value Mcf. (2) Excludes the effects of hedges using financial instruments but includes the effects of fixed price physical delivery contracts. (3) Represents plant and field operating costs.

/T/

Funds Flow Netback and Total Cash Costs

During the third quarter of 2017, we had funds flow netback of $10.73/boe, a 29% increase from $8.31/boe in the third quarter of 2016. The increase was primarily driven by a decrease in total cash costs on a per unit basis and a higher realized gain on financial hedges, partially offset by a lower average corporate realized commodity sales price in the third quarter of 2017.

During the third quarter of 2017, we had total cash costs of $9.52/boe, a 16% decrease from $11.28/boe in the third quarter of 2016. On a per unit basis, the decrease in total cash costs in the third quarter of 2017 was primarily driven by lower royalty, operating, general and administrative and interest expenses, partially offset by higher transportation and marketing expenses.

Capital Activities and Expenditures

During the third quarter of 2017, we had net capital expenditures of $12.1 million. Net capital expenditures for the nine months ended September 30, 2017 were $257.5 million.

Our capital expenditure activities during the three and nine months ended September 30, 2017 were focused on our Montney/Doig Resource Play in our Pouce Coupe and Gordondale areas. Capital expenditures were primarily focused on drilling and completions activity, as well as spending on infrastructure related to the expansions of our Pouce Coupe Gas Plant. Our total F&D capital during the third quarter of 2017 (which excludes acquisitions, dispositions and administrative expenses) was $105.7 million, which consisted of $70.4 million on drilling and completions, $32.9 million on facilities and infrastructure, $0.9 million on land and seismic and $1.5 million on other capital expenditures. Of the $32.9 million spent on facilities and infrastructure, approximately $8.2 million was spent on the Phase V and VI expansions of the Pouce Coupe Gas Plant. See "Advisories - Capital Expenditures".

Drilling and Completions

Our drilling and completions activities during the third quarter of 2017 were focused on our Montney/Doig Resource Play in our Pouce Coupe and Gordondale areas. During the quarter, we drilled a total of 9 (9.0 net) wells with a 100% success rate. In Pouce Coupe, we drilled 6 (6.0 net) Montney/Doig horizontal natural gas wells, all of which were Montney D1 natural gas wells, as well as 1 (1.0 net) Montney/Doig vertical science and technology well. In Gordondale, we drilled 2 (2.0 net) Montney horizontal wells, both of which were Montney D2 oil wells. At September 30, 2017, we have successfully drilled and cased an aggregate of 346 (340.7 net) Montney/Doig horizontal wells, which includes 87 (81.8 net) wells that were acquired when we initially purchased our Gordondale assets in July 2016.

Credit Facilities and Debt

Our extendible revolving credit facilities have an aggregate principal amount of $950 million (the "Credit Facilities") and are comprised of an extendible revolving syndicated term credit facility of $900 million (the "Syndicated Credit Facility") and an extendible revolving working capital facility of $50 million (the "Working Capital Facility"). The maturity date of each of the Syndicated Credit Facility and the Working Capital Facility is May 11, 2020. We may each year, at our option, request an extension to the maturity date of the Syndicated Credit Facility and the Working Capital Facility, or either of them, for an additional period of up to three years from May 11 of the year in which the extension request is made. The Credit Facilities do not contain any financial maintenance covenants.

The Credit Facilities are subject to semi-annual reviews of the borrowing base limit by our syndicate of lenders, which are typically completed in May and November of each year. The November semi-annual review of our borrowing base is currently underway and is expected to be completed on or about November 15, 2017. Birchcliff does not require any additional borrowing base capacity at this time. As such, we anticipate that our borrowing base limit will remain at $950 million upon the completion of such review primarily as a result of the material proved developed producing reserves additions that are expected at year-end 2017.

At September 30, 2017, our long-term bank debt was $585.3 million (September 30, 2016: $634.5 million) from available credit facilities of approximately $950 million (September 30, 2016: $950 million), leaving $342.4 million of unutilized credit capacity after adjusting for outstanding letters of credit and unamortized interest and fees. Total debt at September 30, 2017 was $666.8 million as compared to $612.1 million at September 30, 2016.

Risk Management

At September 30, 2017, we are committed under our financial and physical hedge contracts to the sale of 210,000 GJ/d or approximately 48% of our forecast corporate natural gas production from October 1, 2017 to December 31, 2017 at an average price of $3.05/GJ. After taking into account our market diversification on the Dawn and Alliance system markets (see "Financial and Operational Update" below), approximately 65% of our forecast 2017 fourth quarter average production volumes being sold at AECO are hedged.

At September 30, 2017, we had the following AECO natural gas hedges outstanding on a quarterly basis:

/T/

--------------------------------------------------------- Estimated Natural Gas Average Production Natural Gas AECO AECO Hedged Wellhead Price (GJ/d) ($/GJ) (Mcf/d)(1) ($/Mcf)(1) ---------------------------------------------------------------------------- Q4 2017 210,000 3.05 182,688 3.51 ---------------------------------------------------------------------------- (1) See "Advisories" for the conversion from GJ to Mcf.

/T/

We also have outstanding financial derivative contracts for 1,500 bbls/d of crude oil production from October 1, 2017 to December 31, 2017 at an average WTI price of CDN$69.90/bbl for 2017.

FINANCIAL AND OPERATIONAL UPDATE

Update on Asset Sales

During the third quarter of 2017, we completed the sale of our Worsley Charlie Lake Light Oil Pool on August 31, 2017 for total consideration of approximately $100 million (before adjustments) ($90 million in cash; $10 million in securities of affiliates of the purchaser). Subsequent to the end of the quarter, we completed an additional disposition on October 2, 2017 for total cash consideration of $31.7 million (before adjustments). To date in 2017, we have completed asset sales (the "Asset Sales") for total proceeds of approximately $148 million (before adjustments) ($138 million in cash; $10 million in securities), representing forecast 2017 average production of approximately 3,600 boe/d.

Update on Pouce Coupe Gas Plant Expansions

Pouce Coupe Gas Plant - Phase V

During the third quarter of 2017, our 80 MMcf/d Phase V expansion of our Pouce Coupe Gas Plant was successfully brought on-stream, increasing the total processing capacity of the plant to 260 MMcf/d from 180 MMcf/d. Phase V was on budget and brought on-stream ahead of the initially scheduled on-stream date of October 1, 2017. The current throughput of the Pouce Coupe Gas Plant is 260 MMcf/d as we have filled Phase V with the new Pouce Coupe wells that we drilled during 2017. The Pouce Coupe Gas Plant is currently running efficiently at near- maximum design throughput.

Pouce Coupe Gas Plant - Phase VI

The engineering and licensing work has been completed for the 80 MMcf/d Phase VI expansion, which will increase the total processing capacity from 260 MMcf/d to 340 MMcf/d. Fabrication of the major components is underway and it is currently expected that Phase VI will be brought on-stream in October 2018. The total estimated cost for the Phase VI expansion is approximately $46 million, of which approximately $26 million has already been incurred and approximately $20 million is expected to be spent in 2018.

Pouce Coupe Gas Plant - Phases VII and VIII

We have commenced the planning and initial work to further expand the total processing capacity of our Pouce Coupe Gas Plant by 150 MMcf/d to 490 MMcf/d (Phase VII) and by 100 MMcf/d to 590 MMcf/d (Phase VIII), which expansions will include deep-cut capability. It is currently expected that Phases VII and VIII will be brought on-stream in 2020 and 2021, respectively.

Update on 2017 Capital Program

Our 2017 capital expenditure program (the "2017 Capital Program") contemplates the drilling of a total of 54 (54.0 net) wells during 2017, 38 (38.0 net) in Pouce Coupe and 16 (16.0 net) in Gordondale. The following tables summarize the wells we have drilled and brought on production year-to-date, as well as the remaining wells to be drilled and brought on production during 2017:

/T/

Wells Drilled - 2017

----------------------------------------------------------------------------

Remaining wells Total wells to Wells drilled to be be Area to-date drilled in 2017 drilled in 2017 ---------------------------------------------------------------------------- Pouce Coupe Montney D1 HZ Gas Wells 26 1 27 Basal Doig/Upper Montney HZ Gas Wells 7 0 7 Montney D4 HZ Gas Wells 3 0 3 Montney/Doig Vertical Science/Tech Well 1 0 1 ---------------------------------------------------------------------------- Total - Pouce Coupe 37 1 38

Gordondale

Montney D2 HZ Oil Wells 9 0 9 Montney D1 HZ Oil Wells 5 0 5 Montney D1 HZ Liquids Rich Gas Wells 2 0 2 ---------------------------------------------------------------------------- Total - Gordondale 16 0 16
---------------------------------------------------------------------------- TOTAL - COMBINED 53 1 54 ----------------------------------------------------------------------------

Wells Drilled and Brought on Production - 2017

----------------------------------------------------------------------------

Remaining wells Total wells to Wells brought to be brought be brought on on production on production production in Area to-date in 2017 2017 ---------------------------------------------------------------------------- Pouce Coupe Montney D1 HZ Gas Wells 17 9 26(1) Basal Doig/Upper Montney HZ Gas Wells 6 1 7 Montney D4 HZ Gas Wells 3 0 3 Montney/Doig Vertical Science/Tech Well N/A N/A N/A(1) ---------------------------------------------------------------------------- Total - Pouce Coupe 26 10 36(1)
Gordondale Montney D2 HZ Oil Wells 9 0 9 Montney D1 HZ Oil Wells 5 0 5 Montney D1 HZ Liquids Rich Gas Wells 2 0 2 ---------------------------------------------------------------------------- Total - Gordondale 16 0 16
---------------------------------------------------------------------------- TOTAL - COMBINED 41 10 52(1) ----------------------------------------------------------------------------

(1) A total of 27 Montney D1 horizontal natural gas wells are expected to be

drilled in Pouce Coupe in 2017. Of these 27 wells, one well is expected be drilled in December 2017 and will not be completed or brought on production until 2018. Accordingly, only 26 of the Montney D1 horizontal natural gas wells drilled in 2017 are expected to be brought on production during the year. In addition, the Montney/Doig vertical science and technology well will not be a producing well and will not be brought on production. Accordingly, of the 54 wells expected to be drilled during 2017, only 52 will be brought on production during 2017.

/T/

Share This:

---

More News Articles