We have drilled a total of 53 (53.0 net) wells year-to-date (21 during the first quarter, 22 during the second quarter, 9 wells during the third quarter and 1 well subsequent to the end of the third quarter), all of which were successful. Of the 54 (54.0 net) wells planned to be drilled during 2017, a total of 52 wells are anticipated to be brought on production this year as one Montney D1 horizontal natural gas well is scheduled to be drilled in December 2017 and will not be brought on production until 2018 and the Montney/Doig vertical science and technology well will not be a producing well. In addition, our 2017 Capital Program also included the capital associated with the completion, equipping and tie-in of 10 wells drilled in 2016, all of which were brought on production in the first quarter of 2017. Accordingly, a total of 62 (62.0 net) wells are expected to be brought on production during 2017.
All wells drilled in 2017 were drilled on multi-well pads, which allows us to reduce our per well costs and our environmental footprint. In addition, we actively employ the evolving technology utilized by the industry regarding horizontal well drilling and the related multi-stage fracture stimulation technology.
In Pouce Coupe, there are 10 wells left to bring on production during the remainder of 2017, 4 of which have already been completed and 6 of which are awaiting completion. We anticipate that these wells will be brought on production between mid-November and late December 2017 and that they will keep our Pouce Coupe Gas Plant full into the first quarter of 2018. In addition, we have one well left to drill in Pouce Coupe in 2017, which we plan to start drilling in December 2017. This well is expected to be completed and brought on production in 2018.
In Gordondale, we drilled 6 (6.0 net) Montney horizontal wells in the fourth quarter of 2016, 3 of which were Montney D2 oil wells and 3 of which were Montney D1 liquids-rich natural gas wells. These wells were completed, equipped and brought on production in the first quarter of 2017 and continue to meet our expectations. During 2017, we have drilled, equipped, completed and brought on production an additional 16 (16.0 net) wells and we have concluded our drilling program in Gordondale for 2017. We have drilled, cased, completed and equipped a total of 22 wells on our Gordondale assets (12 Montney D2 oil wells, 5 Montney D1 oil wells and 5 Montney D1 liquids-rich natural gas wells) since we acquired the assets in July 2016.
Update on Gordondale Montney D2 Horizontal Oil Wells
Since we acquired our Gordondale assets on July 28, 2016, we have drilled a total of 12 Montney D2 horizontal oil wells, all of which were brought on production during 2017. When we first acquired our Gordondale assets, the average production for such assets was approximately 26,000 boe/d for the first half of 2016. The 12 D2 wells, together with the 10 Montney D1 horizontal wells that we have drilled and brought on production, have replaced the natural production declines and have significantly increased the production on our Gordondale assets (currently approximately 30,000 boe/d). In addition, these 12 D2 horizontal wells have also helped us to significantly delineate, de-risk and prove the commerciality of the Montney D2 play as when we acquired the assets, there was only one D2 well that had been drilled on the play and only one offsetting D2 well.
In an effort to continuously improve our well performance and optimize our completions strategy, we have utilized three different completion systems on our Montney D2 wells drilled to date, including open hole packers, cemented sleeves fraced with coil tubing and plug and perf technology. We continue to evaluate the production results and cost efficiencies of each system in order to optimize field development in Gordondale.
Our Montney D2 horizontal well results are meeting our expectations. We anticipate significant reserve additions on our Montney D2 play at year-end 2017 due to the successful results of our drilling program in this interval.
We have been able to reduce the average drilling, completion, equipping and tie-in costs of our Montney D2 horizontal wells to approximately $5.3 million during 2017, which is approximately $1 million less than what we had initially budgeted at the time of our acquisition of the Gordondale assets. This has helped to significantly improve the economics of our Montney D2 wells.
Update on Science and Technology Multi-Well Pad Program
In the third quarter of 2017, we drilled a vertical science and technology well in Pouce Coupe. The well was drilled to the top of the Montney where we cut a full diameter core through the entire Montney section (approximately 300 metres). The extracted rock core will provide analytical data to increase our knowledge of rock properties, which will be incorporated in our petrophysical models and help us to more accurately represent the geology of the area. We are currently compiling all of the lab measurements and analytical data from this well. The well was drilled in the northern part of Pouce Coupe where we have drilled only a few horizontal wells to date. We are in the early stages of evaluating the data; however, the data we have received to date looks encouraging for the four different intervals to be developed in this area, being our two proven intervals (the Basal Doig/Upper Montney and the Montney D1) and our two relatively new intervals (the Montney D2 and the Montney C).
We will utilize the learnings from the vertical well to finalize the planning on the execution of a science and technology multi-well pad program in order to optimize field development and develop an improved understanding of wells drilled on the Montney/Doig Resource Play. The second phase of the program which is expected to commence in early 2018 involves the drilling, completing, equipping and bringing on production of a Montney/Doig multi-layer four well pad utilizing the reservoir learnings from the vertical well. During the completion of the 4 horizontal wells, we intend to utilize the vertical well as a seismic monitoring well to gain further insight into fracture parameters and complexity. In addition to the vertical well, we plan to install a permanent fiber optic cable within the horizontal portion of one of the Montney horizontal wells, allowing further data to be collected on fracture parameters and ongoing production performance along the horizontal well length.
The purpose of this program is to collect high quality and high value data from the vertical well and the straddling horizontal wells, which can be used to enhance our technical capabilities and understanding with respect to the drilling, completion and production from a multi-layer resource play.
Update on Natural Gas Transportation & Marketing - Mitigation of AECO Pricing Risk and Market Diversification
We have agreements with TransCanada Pipelines ("TCPL") for the firm service transportation of 175,000 GJ/d in aggregate (approximately 152 MMcf/d) of natural gas on TCPL's Canadian Mainline for a ten year term, whereby natural gas will be transported from the Empress receipt point in Alberta to the Dawn trading hub located in Southern Ontario. The toll for the Empress to Dawn portion of the service is $0.77/GJ plus fuel. The first tranche of this service (120,000 GJ/d) became available to Birchcliff on November 1, 2017, with additional tranches becoming available on November 1, 2018 (35,000 GJ/d) and November 1, 2019 (20,000 GJ/d).
In addition, we have sales agreements with a third party marketer to sell and deliver into the Alliance pipeline system: (i) approximately 40 MMcf/d of natural gas under contracts which commenced November 1, 2017 and expire March 31, 2018, 10 MMcf/d of which is sold at Alliance's Trading Pool daily index price and 30 MMcf/d of which is sold at a Chicago index price; and (ii) approximately 5 MMcf/d of natural gas under contracts which commenced April 1, 2017 and expire October 31, 2020, which is sold at Alliance's Trading Pool daily index price.
Virtually all of our natural gas production was previously transported on the NGTL system in Alberta and sold at AECO. Approximately 60% of our current natural gas production is being sold at AECO, with 28% being sold at the Dawn, Ontario price and 12% being marketed via the Alliance pipeline system. After taking into account our Dawn and Alliance arrangements which commenced on November 1, 2017, we expect that approximately 73% of our forecast natural gas production for the fourth quarter of 2017 will be sold at AECO, approximately 19% will be sold at the Dawn, Ontario price and approximately 8% will be sold into the Alliance pipeline system. Of the 73% we expect to sell at AECO, approximately 65% is hedged at $3.51/Mcf.
These Dawn and Alliance arrangements will provide us with access to a more diverse portfolio of natural gas markets and reduce our exposure to prices at AECO which have been extremely volatile in recent months.
OUTLOOK AND GUIDANCE
We are re-affirming our 2017 fourth quarter average production guidance of 79,000 to 80,000 boe/d (approximately 20% oil and NGLs) and our 2017 annual average production guidance of 67,000 to 68,000 boe/d (approximately 21% oil and NGLs). The following table sets forth our guidance for 2017:
/T/2017 Guidance(1) --------------------------------------------- ------------------------------ Estimated 2017 Annual Average Production 67,000 - 68,000 boe/d % Oil and NGLs 21% Estimated 2017 Q4 Average Production 79,000 - 80,000 boe/d % Oil and NGLs 20% Estimated 2017 Q4 Operating Costs less than $4.00/boe Total capital expenditures $404 million Net capital expenditures $262 million ---------------------------------------------------------------------------- (1) For further information regarding our guidance, including the assumptions surrounding such guidance, please see "Advisories - Forward- Looking Information" in this press release.
We have hedged approximately 50% of our forecast 2017 natural gas production at an estimated average wellhead price of $3.47/Mcf, which helps to protect our balance sheet and our 2017 Capital Program. We expect that the entirety of our 2017 Capital Program will be fully funded out of our forecast 2017 funds flow from operations, as well as the proceeds from the Asset Sales. The foregoing is based on our budgeted forecast average prices of approximately WTI US$50.00 per barrel of oil and an average wellhead price for natural gas of approximately CDN$2.75 per Mcf during 2017.
2018 Preliminary Outlook
Preliminary 2018 Capital Spending Plans
We are currently in the process of finalizing our capital expenditure plans for 2018. Although such plans have not yet been finalized, we anticipate spending in the range of $250 million to $450 million during 2018, depending on commodity prices and other factors. We expect that we will target a capital budget that is driven by funds flow from operations.
We expect that our 2018 capital expenditure plans will continue to focus on our Pouce Coupe and Gordondale assets, including the completion of the Phase VI expansion of our Pouce Coupe Gas Plant which will increase the total processing capacity from 260 MMcf/d to 340 MMcf/d. Assuming a $250 million capital expenditure program, we expect that we would have annual average production of approximately 80,000 boe/d and be able to complete the construction of Phase VI. Assuming a $450 million capital expenditure program, we expect that we would be able to drill the necessary wells to fill Phase VI and achieve exit production of approximately 100,000 boe/d.
2018 Hedging Strategy
Our current hedging strategy for 2018 is to hedge up to 50% of our estimated 2018 forecast average production using a combination of financial derivatives and physical delivery sales contracts, depending on our outlook for commodity prices and the availability of hedges on terms acceptable to Birchcliff.
Release of 2017 Results and 2018 Capital Spending Plans
On February 14, 2018, we expect to release our unaudited financial results, reserves and F&D costs for the year ended December 31, 2017, as well as the details regarding our 2018 capital expenditure plans and 2018 guidance.
Our updated five year plan is dependent on the capital we expect to spend during 2018 and will be released concurrently with our 2018 capital expenditure plans.
We expect material additions to our reserves volumes at year-end 2017 primarily as a result of the strong well performance on our Montney/Doig Resource Play and the new wells we drilled during 2017.
Intention to Implement a Normal Course Issuer Bid
We believe that within a continued volatile market environment, the prevailing market price of our common shares from time to time may not reflect the underlying value of such common shares. Accordingly, we intend to make an application to the Toronto Stock Exchange (the "TSX") to implement a normal course issuer bid (the "NCIB") whereby we would have the option to repurchase our common shares for cancellation. The NCIB will be subject to the acceptance of the TSX and, if accepted, will be made in accordance with the applicable rules and policies of the TSX and applicable securities laws. A further press release will be issued by Birchcliff if and when the TSX accepts the NCIB.
APPOINTMENT OF NEW DIRECTOR
We are pleased to announce that Ms. Debbie Gerlach, C.A., was appointed as a director of Birchcliff today. Ms. Gerlach was also appointed as a member of the Audit Committee, the Reserves Evaluation Committee and the Compensation Committee of the board of directors.
Prior to her retirement in September 2017, Ms. Gerlach was a partner with Deloitte LLP for over 21 years where she practiced in the Assurance and Advisory group. During that time, she worked with many public oil and gas companies over her 35 year career with the firm. Ms. Gerlach is a Chartered Accountant with the Chartered Professional Accountants Alberta and holds a Bachelor of Commerce Degree and a Master of Business Administration Degree, both from the University of Calgary.
Based on Ms. Gerlach's financial background and her knowledge of the oil and gas industry, we believe she will be an excellent addition to our board of directors.
Seymour Schulich advised us that he sold all of his shares in Birchcliff in late September and early October 2017. Mr. Schulich was an objective sounding board and remains a friend to us at Birchcliff. We wish him the best in the future and thank him for his enthusiastic support over the last 10 years.
Our Management Team and our employees are excited, committed and remain enthusiastic about executing our long-term plan and delivering value to our shareholders. Thank you to all of our shareholders for your support and to our employees who continue to go that extra mile for the benefit of all of us.
(signed) "A. Jeffery Tonken"
President and Chief Executive Officer
Birchcliff Energy Ltd.
/T/AECO physical storage and trading hub for natural gas on the TransCanada Alberta transmission system which is the delivery point for various benchmark Alberta index prices bbl barrel bbls barrels bbls/d barrels per day boe barrel of oil equivalent boe/d barrels of oil equivalent per day F&D finding and development GAAP generally accepted accounting principles GJ gigajoule GJ/d gigajoules per day HZ horizontal IFRS International Financial Reporting Standards m3 cubic metres Mcf thousand cubic feet Mcfe thousand cubic feet of gas equivalent MJ megajoules MMbtu million British thermal units MMcf million cubic feet MMcf/d million cubic feet per day NGLs natural gas liquids NGTL NOVA Gas Transmission Ltd. WTI West Texas Intermediate oil at Cushing, Oklahoma, the benchmark for North American crude oil pricing 000s thousands $000s thousands of dollars