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Birchcliff Announces Third Quarter 2017 Results and Appointment of New Director – Part 4


NON-GAAP MEASURES

This press release uses "funds flow from operations", "funds flow per common share", "operating netback", "estimated operating netback", "funds flow netback", "operating margin", "total cash costs", "adjusted working capital deficit (surplus)" and "total debt". These measures do not have standardized meanings prescribed by GAAP and therefore may not be comparable to similar measures presented by other companies where similar terminology is used. Management believes that these non-GAAP measures assist management and investors in assessing Birchcliff's profitability, efficiency, liquidity and overall performance. Each of these measures is discussed in further detail below.

"Funds flow from operations" denotes cash flow from operating activities before the effects of decommissioning expenditures and changes in non-cash working capital. "Funds flow per common share" denotes funds flow from operations divided by the basic or diluted weighted average number of common shares outstanding for the period. Management believes that funds flow from operations and funds flow per common share assist management and investors in assessing Birchcliff's profitability, as well as its ability to generate the cash necessary to fund future growth through capital investments, pay dividends and repay debt. The following table provides a reconciliation of cash flow from operating activities, as determined in accordance with IFRS, to funds flow from operations:

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---------------------------------------- Three months ended Nine months ended September 30, September 30, ---------------------------------------- ($000s) 2017 2016 2017 2016 ---------------------------------------------------------------------------- Cash flow from operating activities 70,584 22,144 198,665 49,940 Adjustments: Decommissioning expenditures 330 270 701 863 Change in non-cash working capital (6,484) 19,261 21,306 24,834 ---------------------------------------------------------------------------- Funds flow from operations 64,430 41,675 220,672 75,637 ----------------------------------------------------------------------------

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"Operating netback" denotes petroleum and natural gas revenue less royalties, less operating expenses and less transportation and marketing expenses. "Estimated operating netback" of the Pouce Coupe Gas Plant (and the components thereof) is based upon certain cost allocations and accruals directly attributable to the Pouce Coupe Gas Plant and related wells and infrastructure. "Funds flow netback" denotes petroleum and natural gas revenue less royalties, less operating expenses, less transportation and marketing expenses, less net general and administrative expenses, less interest expenses and less any realized losses (plus realized gains) on financial instruments and plus any other cash income sources. All netbacks are calculated on a per unit basis, unless otherwise indicated. Management believes that operating netback, estimated operating netback and funds flow netback assist management and investors in assessing Birchcliff's profitability and its operating results on a per unit basis to better analyze its performance against prior periods on a comparable basis. The following table provides a breakdown of operating netback and funds flow netback:

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-------------------------------------------- Three months ended September 30, -------------------------------------------- 2017 2016 -------------------------------------------- ($000s) ($/boe)(1) ($000s) ($/boe)(1) ---------------------------------------------------------------------------- Petroleum and natural gas revenue 111,488 18.56 97,365 19.41 Royalty expense (3,779) (0.63) (7,298) (1.45) Operating expense (25,623) (4.27) (23,311) (4.65) Transportation and marketing expense (15,960) (2.65) (12,501) (2.50) ---------------------------------------------------------------------------- Operating netback 66,126 11.01 54,255 10.81 ---------------------------------------------------------------------------- General & administrative expense, net (4,914) (0.82) (5,364) (1.07) Interest expense (6,885) (1.15) (8,069) (1.61) Realized gain on financial instruments 10,103 1.69 853 0.18 ---------------------------------------------------------------------------- Funds flow netback 64,430 10.73 41,675 8.31 ----------------------------------------------------------------------------
-------------------------------------------- Nine months ended September 30, -------------------------------------------- 2017 2016 -------------------------------------------- ($000s) ($/boe)(1) ($000s) ($/boe)(1) ---------------------------------------------------------------------------- Petroleum and natural gas revenue 390,793 22.41 202,129 16.26 Royalty expense (19,456) (1.12) (10,734) (0.86) Operating expense (82,026) (4.70) (49,866) (4.01) Transportation and marketing expense (45,341) (2.60) (29,500) (2.38) ---------------------------------------------------------------------------- Operating netback 243,970 13.99 112,029 9.01 ---------------------------------------------------------------------------- General & administrative expense, net (17,053) (0.98) (14,845) (1.19) Interest expense (21,243) (1.22) (22,483) (1.81) Realized gain on financial instruments 14,998 0.87 936 0.07 ---------------------------------------------------------------------------- Funds flow netback 220,672 12.66 75,637 6.08 ----------------------------------------------------------------------------

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(1) All per boe figures are calculated by dividing each aggregate financial

amount by the production (boe) in the respective period.

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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 unit 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 (surplus)" is calculated as current assets minus current liabilities excluding the effects of any financial instruments and excluding assets held for sale including associated liabilities. Management believes that adjusted working capital deficit (surplus) 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 (surplus):

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------------------------------------------------------- As at,($000s) September 30, 2017 December 31, 2016 September 30, 2016 ---------------------------------------------------------------------------- Working capital deficit (surplus) 53,566 36,928 (22,623) Fair value of financial instruments 9,666 (9,433) 169 Assets held for sale including associated liabilities 18,253 - - ---------------------------------------------------------------------------- Adjusted working capital deficit (surplus) 81,485 27,495 (22,454) ----------------------------------------------------------------------------

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"Total debt" is calculated as the revolving term credit facilities plus adjusted working capital deficit or less adjusted working capital surplus, as the case may be. 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:

/T/

------------------------------------------------------- As at,($000s) September 30, 2017 December 31, 2016 September 30, 2016 ---------------------------------------------------------------------------- Revolving term credit facilities 585,323 572,517 634,534 Adjusted working capital deficit (surplus) 81,485 27,495 (22,454) ---------------------------------------------------------------------------- Total debt 666,808 600,012 612,080 ----------------------------------------------------------------------------

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ADVISORIES

Unaudited Information

All financial and operating information contained in this press release for the three and nine months ended September 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 September 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 40.8 MJ/m3 for the period from October 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.

Birchcliff's guidance regarding its 2017 capital expenditures has been presented both on a total and a net basis (net of acquisitions and dispositions). Certain dispositions that have been completed at the date of this press release have been accounted for in Birchcliff's estimate of net capital expenditures. 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 its 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.



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