- Published: 19 February 2010
- Written by Editor
Birchcliff Energy Ltd. Announces Significant 2009 Reserve Additions, Low 2009 Finding and Development Costs, Unaudited 2009 Financial Results
Birchcliff Energy Ltd. ("Birchcliff") (TSX: BIR.TO) is pleased to provide the following update. Birchcliff's annual audit of its financial statements is not yet complete and accordingly all financial amounts referred to in this press release are management's best estimates which have not yet been audited. Birchcliff expects to issue its annual audited financial statements for 2009 on March 17, 2010.
2009 Highlights
- Substantially increased proved and probable reserves by 60% to 157.3 million boe at December 31, 2009 from 98.5 million boe at December 31, 2008.
- 2009 Finding, Development and Acquisition costs on a proved and probable basis were $1.61 per boe, excluding future development costs and $5.37 per boe, including future development costs.
- 2009 average production was 11,216 boe per day, which was an increase of 11% from 2008.
- Birchcliff essentially achieved its previously announced guidance of 2009 average production rate of 11,300 boe per day, notwithstanding third party infrastructure curtailments.
- 2009 cash flow of $67.5 million or $0.57 per basic share ($0.56 per diluted share).
- Phase I of the Pouce Coupe South Gas Plant ("PCS Gas Plant") is on schedule, on budget and is expected to increase production to approximately 14,000 boe per day by the end of April, 2010.
- Estimated net asset value at December 31, 2009 amounted to $15.79 per diluted share, an increase of 34% over the $11.78 per diluted share at December 31, 2008, in each case determined using the net present value of all reserves at a 10% discount rate, deducting total debt, assuming exercise of all options and warrants and without including any additional value for Birchcliff's substantial high working interest, undeveloped land base.
- Birchcliff's reserve life index on a proved and probable basis increased by 45% to 30.8 years (assuming 14,000 boe per day of production) which is a substantial increase from 21.3 years in 2008 and 15.5 years in 2007.
- Excellent drilling results including exploration successes and expanded application of horizontal drilling and multi-stage fracture stimulation technology in Birchcliff's resource play areas.
2010 Budget Highlights
- A 2010 capital budget of $182 million - a 78% increase from 2009.
- The Phase II expansion of the PCS Gas Plant which is expected to increase processing capacity from 30 to 60 mmcf per day in December, 2010, adding 3,500 boe per day net to Birchcliff.
- A 2010 exit production rate between 17,000 and 19,000 boe per day, as a result of the increased capital and PCS Gas Plant expansion, assuming Phase II of the PCS Gas Plant is fully operational in December, 2010.
- Birchcliff expects to drill 16 (12.1 net) Montney/Doig horizontal natural gas wells in 2010 bringing the total horizontal wells drilled by Birchcliff since 2007 to 41 (33.4 net), all of which are expected to be on production by year end 2010.
Jeff Tonken, President and CEO of Birchcliff said "The phenomenal drilling results, low cost reserve additions and our ability to finance and build 100% owned and controlled infrastructure on our repeatable Montney/Doig natural gas resource play in the Pouce Coupe area of Alberta has positioned Birchcliff to significantly grow its production in 2010."
2009 Fourth Quarter Results
- 2009 fourth quarter average production was 10,515 boe per day.
- Drilling results for the fourth quarter 2009 included the drilling of 7 (6.1 net) wells, including 2 (2.0 net) oil wells and 5 (4.1 net) gas wells with no dry holes.
- The 5 gas wells were all successful Montney/Doig horizontals utilizing multi-stage fracture stimulation technology. Two of the wells were horizontally drilled and completed in the Middle/Lower Montney, significantly expanding the Montney/Doig resource play.
- Birchcliff drilled one 100% owned oil well which was a development well in our Worsley light oil resource play and a successful Montney/Doig oil well was drilled at Kakut.
- Birchcliff received regulatory approval for Phase II of its PCS Gas Plant which will add another 30 mmcf per day of processing capacity bringing the total processing capacity to 60 mmcf per day.
- Continued expansion of Birchcliff's footprint on the Montney/Doig natural gas resource play in the Pouce Coupe area of North West Alberta with the acquisition of high working interest, contiguous blocks of land through private and Alberta land sale purchases.
- A successful land strategy resulted in expanding our undeveloped land base to 398,308 gross and 353,150 net acres, with an 89% average working interest.
2009 Reserves Evaluation and Finding and Development Costs
Birchcliff has had its reserves evaluated by AJM Petroleum Consultants ("AJM"), an independent qualified reserves evaluator, in accordance with National Instrument 51-101 effective at December 31 in each of the years 2007, 2008 and 2009. Reserves estimates stated herein for each of those years are extracted from the relevant evaluation prepared by AJM.
In its evaluation report dated February 16, 2010 (the "AJM Evaluation"), AJM has estimated that as at December 31, 2009, Birchcliff has 157.3 mmboe of proved and probable reserves and 90.0 mmboe of proved reserves. Birchcliff's proved and probable reserves are comprised of 20.7% light oil and NGL's and 79.3% natural gas.
AJM's Evaluation estimates Birchcliff's reserves and pre-tax discounted future net revenues based on forecast prices and costs are set forth in the following table:
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MMboe NPV 0%
(MM$)
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2009 2008 2009 2008
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Proved Developed Producing 20.6 19.1 790 777
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Total Proved 90.0 55.7 3,202 1,992
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Probable 67.2 42.9 2,803 1,876
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Total Proved and Probable 157.3 98.5 6,005 3,868
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(i) Note: NI 51-101 disclosure requires Birchcliff to provide the following
warning - The estimates of discounted future net revenues disclosed in
this table do not represent fair market values.
(ii)Note: AJM relied upon its then current forecast of commodity prices
which can be found at www.ajmpetroleumconsultants.com.
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NPV 5% NPV 8% NPV 10%
(MM$) (MM$) (MM$)
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2009 2008 2009 2008 2009 2008
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Proved Developed Producing 607 603 534 534 495 497
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Total Proved 2,055 1,373 1,651 1,141 1,446 1,019
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Probable 1,441 1,008 1,034 744 845 620
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Total Proved and Probable 3,496 2,382 2,685 1,885 2,291 1,639
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(i) Note: NI 51-101 disclosure requires Birchcliff to provide the following
warning - The estimates of discounted future net revenues disclosed in
this table do not represent fair market values.
(ii)Note: AJM relied upon its then current forecast of commodity prices
which can be found at www.ajmpetroleumconsultants.com.
During 2009, Birchcliff increased its proved plus probable reserves by 58.8 mmboe to 157.3 mmboe which is an increase of 60% compared to its proved and probable reserves at year end 2008 of 98.5 mmboe, and increased its proved reserves by 62% to 98.5 mmboe.
Birchcliff increased its proved plus probable reserves per share by 45% from 2008 and its proved reserves per share by 47% for 2008 using basic shares outstanding at last year level.
Total proved plus probable reserves increased by 14.4 boe for each boe that was produced during 2009 (1,436% reserve replacement on a total proved plus probable basis).
The net present value of total proved plus probable reserves, amounted to $2.29 billion, an increase of 40% from $1.64 billion in 2008. The net present value of total proved reserves amounted to $1.45 billion, an increase of 42% from $1.02 billion in 2008.
Each of these net present value amounts is calculated using the pre-tax present value of the reserves estimated by AJM discounted at 10% without including any additional value for Birchcliff's substantial high working interest, undeveloped land base.
During 2009, Birchcliff's capital expenditures were $101.7 million which included approximately $97.7 million for exploration and development (including $45.5 million for well equipment and facilities) and $3.3 million for net acquisitions. The following table sets forth Birchcliff's estimates of its finding and development costs ("F&D") and its finding, development and acquisition costs ("FD&A").
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Three
FD&A Costs per boe Excluding Future Year
Development Capital 2009 2008 2007 Average
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F&D - Exploration and Development -
Proved $ 2.57 $ 9.09 $ 6.92 $ 5.41
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F&D - Exploration and Development -
Proved and Probable $ 1.57 $ 4.99 $ 5.07 $ 3.27
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Acquisitions, net - Proved $ 8.84 $ 37.11 $ 24.12 $23.94
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Acquisitions, net - Proved and
Probable $ 6.32 $ 21.59 $ 17.83 $17.57
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FD&A - Total - Proved $ 2.63 $ 9.40 $ 15.46 $ 7.97
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FD&A - Total - Proved and Probable $ 1.61 $ 5.17 $ 11.38 $ 4.93
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FD&A Costs per boe Including Future
Development Capital (1)
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F&D - Exploration and Development -
Proved $ 7.12 $ 20.17 $ 17.04 $13.00
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F&D - Exploration and Development -
Proved and Probable $ 5.36 $ 13.98 $ 12.03 $ 9.36
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Acquisitions, net - Proved $ 8.84 $ 37.11 $ 26.44 $26.13
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Acquisitions, net - Proved and
Probable $ 6.32 $ 21.59 $ 20.96 $20.50
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FD&A - Total - Proved $ 7.13 $ 20.36 $ 21.71 $14.81
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FD&A - Total - Proved and Probable $ 5.37 $ 14.06 $ 16.45 $10.66
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(1) Includes the increase for 2009 of $236.5 million in future development
capital from the 2008 amount.
AJM's estimates of future development costs are $668.5 million on a proved basis and $953.7 million on a proved plus probable basis, which includes approximately $100 million for the expansion of the PCS Gas Plant to 120 mmcf per day of total capacity.
During 2009, the average WTI price of crude oil was $US 61.80 per barrel and the average price of natural gas at AECO was Cdn $3.96 per mcf.
Birchcliff had an estimated average 2009 operating netback of $21.77 per boe and an estimated cash flow netback of $16.48 per boe.
The following table shows Birchcliff's operating and cash flow netback recycle ratios:
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Cash Flow
Operating Netback Netback
Recycle Ratio Recycle Ratio
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2009 2008 2009 2008
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Recycle Ratio Excluding Future Development
Capital
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F&D - Exploration and Development - Proved
and Probable 13.9 8.5 10.5 7.1
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FD&A - Exploration, Development and
Acquisition - Proved and Probable 13.5 8.3 10.3 6.9
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Recycle Ratio Including Future Development Capital
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F&D - Exploration and Development - Proved
and Probable 4.1 3.1 3.1 2.5
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FD&A - Exploration, Development and
Acquisition - Proved and Probable 4.1 3.0 3.1 2.5
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The recycle ratios in the above table are calculated in each case by dividing the average operating netback per boe or cash flow netback per boe, as the case may be, by each of F&D and FD&A.
Birchcliff has a proved and probable reserve life index of 30.8 years and a proved reserve life index of 17.6 years, in each case, calculated by dividing the aggregate reserves by an average daily production rate of approximately 14,000 boe per day.
Birchcliff's proved and probable reserve life index of 30.8 years has consistently risen from 21.3 years reported for 2008 and 15.5 years reported for 2007, and its proved reserve life index of 17.6 years has consistently risen from 12.0 years reported for 2008 and 9.4 years reported for 2007.
Montney/Doig Natural Gas Resource Play Reserve Details
Birchcliff increased by 100% its proved and probable Montney/Doig reserves to 115.5 mmboe at December 31, 2009 (of which 114.2 mmboe are attributed to horizontal wells) as compared to approximately 57.7 mmboe at December 31, 2008 and approximately 19.3 mmboe at December 31, 2007 as estimated by AJM.
The following table sets forth reserves data attributable to Birchcliff's horizontal wells on the Montney/Doig natural gas resource play, the number of horizontal wells to which reserves were attributed and the future capital associated with such reserves:
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Natural Gas
Natural Gas Liquids Total
(Bcf) (mbbl) (mboe)
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2009 2008 2009 2008 2009 2008
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Proved Developed
Producing 41.2 27.2 263.7 253.1 7,138.7 4,779.7
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Total Proved 352.3 157.6 2,238.8 1,441.0 60,952.0 27,707.8
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Proved and Probable 660.0 314.3 4,145.4 2,848.1 114,150.6 55,225.0
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Existing Wells
and
Future Locations Net Future
------------------------ Capital
Gross Net ($millions)
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2009 2008 2009 2008 2009 2008
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Proved Developed
Producing 21 17 18.4 14.9 17.8 0
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Total Proved 167 104 132.0 86.4 547.0(1) 354.6
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Proved and Probable 253 145 199.7 120.7 811.4(1) 525.4
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(1) Includes Future Plant Capital of approximately $100 million for the
expansion of the PCS Gas Plant to 120 mmcf per day of total capacity.
Birchcliff believes that the ultimate recovery from its Montney/Doig horizontal natural gas wells will continue to improve year over year as production declines continue to flatten. In addition, as drilling and completion technologies continue to improve, recovery factors and production rates in this unconventional reservoir should also improve.
As at December 31, 2009, the Montney/Doig reserve bookings in the AJM Reserve Report include 78.4 sections of land (63.4 net) and 228 gross horizontal locations (178.5 net) up from 67.5 sections of land (56.7 net) and 128 gross horizontal locations (105.7 net) in 2008 and up from 35 gross horizontal locations (26.4 net) in 2007. The AJM Evaluation attributes to each of these net future horizontal well locations on average, 3.5 Bcf of proved and probable natural gas reserves at an average capital cost of $4 million per well as compared to an average of 2.8 Bcf of proved and probable natural gas reserves at an average capital cost of $5 million per future well used in the reserves evaluation prepared by AJM as at December 31, 2008.
AJM has assigned reserves to 253 (199.7 net) existing wells and future horizontal locations on 78.4 (63.4 net) sections of land, for an average of 3.22 (3.15 net) wells and/or future horizontal locations per section. For clarity, the 253 (199.7 net) existing wells and future horizontal locations include 25 (21.2 net) existing horizontal wells and 228 (178.5 net) future horizontal locations.
Drilling success in a second stratigraphic zone, the Middle/Lower Montney, has resulted in significant reserve assignments by AJM to 32 (24.9 net) sections of land. There are now 19 (14.2 net) sections to which AJM has assigned reserves in respect of both the Basal Doig/Upper Montney and the Middle/Lower Montney stratigraphic zones.
Birchcliff believes that at December 31, 2009 it had at least 700 net potential future horizontal locations on its lands. These potential locations are comprised of 178.5 net future horizontal locations to which reserves have been assigned in the AJM Evaluation, 110.7 net potential future horizontal locations on lands to which AJM has assigned reserves and 415.2 net potential future horizontal locations on Birchcliff's trend lands. These potential locations assume 4 horizontal wells per section.
Trend land is land which Birchcliff believes has a high likelihood of extending the Montney/Doig natural gas resource play based on technical information including geological and geophysical data.
Worsley Light Oil Resource Play Reserve Details
Birchcliff is pleased to report that the Worsley light oil pool continues to prove itself as a top quality asset. Both the original oil in place and the estimated recoverable reserves for the pool continue to grow. As of December 31, 2009, AJM estimated reserves for the Worsley light oil pool to be 6.0 mmboe proved developed producing, 18.3 mmboe proved and 26.3 mmboe proved plus probable. This continues the growth trend for the Worsley reserves since July 1, 2007 (being the effective date of the acquisition), when recoverable reserves were estimated at 11.3 mmboe proved, and 15.1 mmboe proved plus probable.
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History of Reserves Estimated for Worsley Oil Pool
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July 1, 2007 Dec 31, 2007 Dec 31, 2008 Dec 31, 2009
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Proved Reserves 11.3 15.0 17.5 18.3
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Proved + Provable
Reserves 15.1 21.2 24.6 26.3
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2009 Unaudited Financial & Operating Results
All financial and operating information included in this press release for year ended December 31, 2009, such as production information, finding and development costs and net asset values are based on estimated unaudited financial results for the year and are subject to the same limitations as discussed under Forward Looking Statements set out below. These estimated amounts may change upon the completion of audited financial statements for the year ended December 31, 2009 and changes could be material.
---------------------------------------------------------------------------- Year ended December 31, ($000's, except for share information) 2009 2008 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Petroleum and natural gas revenue 150,669 248,441 Total revenue, net royalties 135,327 206,992 ---------------------------------------------------------------------------- Cash flow from operations 67,476 131,453 Per share - basic ($) 0.57 1.21 Per share - diluted ($) 0.56 1.16 ---------------------------------------------------------------------------- Net earnings (loss) (24,252) 29,898 Per share - basic ($) (0.21) 0.27 Per share - diluted ($) (0.20) 0.26 ---------------------------------------------------------------------------- Capital expenditures 101,690 237,079 Total assets 837,108 814,823 Working capital deficit 20,291 38,276 Revolving credit facilities 201,230 211,586 Total debt 221,521 249,862 Shareholders' equity 554,561 507,371 ---------------------------------------------------------------------------- Common shares outstanding End of period - basic 123,815,002 112,395,970 End of period - diluted 134,464,987 121,659,923 Weighted average shares for period - basic 117,993,314 108,986,165 Weighted average shares for period - diluted 119,786,708 113,092,125 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
2009 Production
The 2009 average production rate was approximately 11,216 boe per day which represents an increase of approximately 11% over the 2008 average production rate of 10,148 boe per day. This production growth is significant considering Birchcliff invested only $101.7 million of capital in 2009 and almost half ($45.5 million) of that capital was spent on well equipment and facilities infrastructure as compared to $237.1 million in 2008.
In the fourth quarter of 2009 production averaged 10,515 boe per day.
2009 Cash Flow
Cash flow for 2009 was approximately $67.5 million or $0.57 per basic share ($0.56 per diluted share).
Cash flow for the fourth quarter 2009 was approximately $20.9 million or $0.17 per basic and diluted share. This is a 71% increase compared to cash flow for the third quarter 2009 of $12.2 million or $0.10 per basic share and a decrease of 15% over the fourth quarter 2008 cash flow of $24.6 million or $0.22 per basic share.
2009 Year End Debt and Capitalization
At December 31, 2009, Birchcliff's bank debt was $201.2 million from available credit facilities aggregating $305 million. As such, Birchcliff has significant credit capacity and financial flexibility. At December 31, 2009, Birchcliff's working capital deficiency was $20.3 million and total debt was $221.5 million.
Birchcliff is pleased to announce that in January 2010 its syndicate of banks extended the $50 million non revolving portion of its credit facilities to May 21, 2011 and approved Birchcliff's drawdown of the entire amount of this facility. This $50 million credit facility was due to expire in May 2010 and its extension is a reflection of the significant success Birchcliff has enjoyed which has resulted in the addition of production, reserves and infrastructure.
Birchcliff expects to draw down this facility and apply the proceeds to reduce amounts outstanding under its revolving credit facility.
At December 31, 2009, Birchcliff had 123,815,002 common shares outstanding and 134,464,987 diluted common shares.
2009 Drilling
Birchcliff's 2009 drilling program, which offered a mixture of moderate to high impact development and exploration prospects, focused on our two resource plays, the Montney/Doig natural gas resource play and the Worsley light oil resource play. During 2009, Birchcliff drilled 18 (15.3 net) wells, all of which were cased except for 1 (1.0 net) dry hole. These wells included 11 (8.3 net) gas wells, and 6 (6.0 net) oil wells.
Birchcliff drilled 3 (2.1 net) Montney/Doig vertical exploration wells that were successful in finding new gas pools. As well on the Montney/Doig program Birchcliff drilled 8 (6.2 net) Montney/Doig horizontals utilizing multi-stage fracture stimulation technology in our Pouce Coupe area. On our Worsley light oil resource play we drilled 3 (3.0 net) vertical oil wells and 1 (1.0 net) horizontal oil well. In other areas Birchcliff also drilled 2 successful Montney/Doig oil wells, comprised of 1 (1.0 net) vertical and 1 (1.0 net) horizontal.
2009 Land
Birchcliff's undeveloped land base at December 31, 2009 consisted of 398,308 gross (353,150 net) undeveloped acres. This is a 1.4% increase over its 2008 year end net undeveloped land base of 348,249 net undeveloped acres. Further, this is essentially a 371% increase over the 75,000 net undeveloped acres it acquired in the significant Peace River Arch area acquisition completed on May 31, 2005.
Birchcliff's land base consists of large contiguous blocks of high working interest acreage located near facilities owned and/or operated by Birchcliff or near third party infrastructure. A significant amount of the land purchased is a direct result of exploration and development success by Birchcliff in the Peace River Arch. Much of the new land has been purchased without partners at 100% working interest.
2009 Montney/Doig Natural Gas Resource Play Update
Birchcliff's full cycle exploration strategy for the Montney/Doig natural gas resource play continued to be successful in 2009. The program included 3 (2.1 net) vertical exploration wells that were all successful in finding new pools. To maximize production and reserves, Birchcliff continued to optimize horizontal natural gas drilling and multi-stage fracture stimulation operations, drilling 8 (6.2 net) horizontal natural gas wells in 2009. Our team has been successful in reducing the average costs of these wells. Recently Birchcliff drilled, cased, completed, equipped and tied-in a Montney/Doig horizontal gas well off an existing pad for under $4 million.
Most of our capital and efforts on the Montney/Doig natural gas resource play continue to be focused on the Basal Doig/Upper Montney zones. In an effort to expand the stratigraphic potential of the play, of the 8 horizontal natural gas wells drilled in 2009, 3 (2.4 net) were drilled in the Middle/Lower Montney stratigraphic zone. The success of these horizontal and the vertical wells drilled in 2009 have significantly expanded the stratigraphic potential of the Montney/Doig natural gas resource play on Birchcliff's lands. Birchcliff and other industry competitors believe the Middle/Lower Montney reservoir characteristics are similar to the Basal Doig/ Upper Montney reservoirs and our drilling results to date have met or exceeded our expectations.
Birchcliff's strategy has been focused on exploration and delineation, acquiring land and drilling vertical wells to obtain geological and reservoir information. Birchcliff then drills horizontal wells that are completed using multi-stage fracture stimulation technology to optimize production and reserves. In general we have been drilling only one well per section and building out the infrastructure.
A critical criteria of this Montney/Doig natural gas resource play is well spacing. Industry competitors typically have been drilling up to 4 wells per section per stratigraphic zone on 400 metre inter-well distances (160 acre spacing). Recently, various industry competitors in the Peace River Arch area are drilling up to 8 wells per section (80 acre spacing units) per stratigraphic zone or 200 metre inter-well distances.
AJM's reserve assignments to Birchcliff's lands on this play are currently based on 400 metre inter-well distances (160 acre spacing). Birchcliff has done and will continue to do significant technical work that supports reducing inter-well distances that Birchcliff expects will provide AJM sufficient evidence so that AJM will ultimately assign future horizontal locations and reserves based on reduced inter-well distances.
A significant development on the Montney/Doig natural gas resource play for Birchcliff in 2009 was proving the viability of short length horizontals which will help maximize reserve recovery. Due to the preferred orientation we use to drill horizontal wells and the complications of land holdings, there are many areas where a full length horizontal cannot be drilled. In 2009 Birchcliff completed a 700 metre interval on one of its full length horizontal wells, with 7 stages of fracture stimulation, to demonstrate what a short horizontal well was capable of. With the very favorable results from this well the AJM Evaluation assigned reserves to 53 (43.9 net) future short length horizontal locations.
Birchcliff continues to put extensive capital and technical time and effort into tight gas and shale gas technologies to better understand the reservoir characteristics, optimal completion techniques and ultimate potential of these resource plays in general and the Montney/Doig natural gas resource play specifically.
Worsley Light Oil Resource Play Update
In 2009 Birchcliff drilled a horizontal light oil well and applied multi-stage fracture stimulation technology. This new horizontal light oil well came on production at approximately 400 boe per day. With this success a sizeable number of follow up locations have been identified. Birchcliff also drilled 3 (3.0 net) vertical infill and delineation oil wells extending the pool to the west.
The Worsley pool continues to be an excellent asset. Strong production performance, successful expansion of the waterflood, application of horizontal drilling and multi-stage fracture stimulation technology, continued reserve growth as well as high netback production all contribute to this high quality asset. Since its acquisition in late September, 2007, the Worsley property has provided $112 million of cash flow. Birchcliff has re-invested $80 million in the property.
2010 Capital Budget
Birchcliff is very pleased to announce its robust 2010 capital budget of $182 million, the majority of which, $110 million is focused on the continued development of its Montney/Doig natural gas resource play. Birchcliff expects to drill 51 (42.9 net) wells in 2010. Highlights of the budget include:
- $67 million for the drilling of 16 (12.1 net) Montney/Doig horizontal natural gas wells and 2 (2.0 net) vertical exploration wells;
- $19 million for the completion of Phase I of the PCS Gas Plant and related infrastructure;
- $24 million for the Phase II expansion of the PCS Gas Plant;
- $33 million for the Worsley light oil resource play including the drilling of 8 (8.0 net) horizontal wells and 10 (9.7 net) vertical wells and capital to support expansion of the waterflood;
- $5 million for the development of our Montney/Doig light oil play in the Grande Prairie area of Alberta; and
- $34 million for other projects, sustaining capital and seed capital for new growth opportunities.
This capital expenditure program will be funded out of cash flow and Birchcliff's debt facilities and is expected to result in a 2010 exit production rate between 17,000 and 19,000 boe per day.
2010 Production
As noted above, Birchcliff expects exit production to range between 17,000 and 19,000 boe per day in December, 2010. This range is a function of the exact timing of the commissioning of Phase II of the PCS Gas Plant as well as the success of Birchcliff's other drilling programs.
Current production based on field estimates is approximately 10,500 boe per day. January, 2010 production is estimated to be 10,415 boe per day. First quarter 2010 production is expected to average 10,350 boe per day.
The 2010 production forecast assumes that the PCS Gas Plant will reach full operating capacity in May, 2010, that no unexpected outages occur in the infrastructure that Birchcliff relies on to produce its wells and that existing wells and future wells continue to meet production expectations.
2010 Operations Update
Birchcliff has been extremely active in the first quarter of 2010 with its focus on Montney/Doig horizontal natural gas wells in Pouce Coupe, horizontal light oil wells in Worsley, building Phase I of the PCS Gas Plant and planning the Phase II expansion of the PCS Gas Plant.
Drilling results to date include the drilling of 5 (4.4 net) wells, consisting of 2 (2.0 net) horizontal light oil wells, 2 (1.4 net) successful Montney/Doig horizontal gas wells in our Pouce Coupe area and 1 (1.0 net) dry hole.
The PCS Gas Plant remains on schedule and on budget. Construction is almost complete and start-up operations will commence shortly.
In the first quarter of 2010, total capital expenditures are expected to be approximately $60 million.
Pouce Coupe South Gas Plant Update
During the fall of 2009, Birchcliff commenced the construction of its PCS Gas Plant with initial design processing capacity of approximately 30 mmcf per day. Construction of Phase I of the PCS Gas Plant cost approximately $50 million which includes expenditures for the plant, the associated acid gas disposal well, related infrastructure including gas gathering pipelines and other associated costs.
Birchcliff expects the PCS Gas Plant will add approximately 3,500 boe per day net to Birchcliff, vaulting its production to approximately 14,000 boe per day by the end of April, 2010.
The PCS Gas Plant is a significant milestone for Birchcliff as it will result in a step change in production volumes and will provide the following additional benefits:
- Increased production growth from the Pouce Coupe area where Birchcliff's current and future production growth is currently constrained by insufficient gathering and processing capacity;
- Reduced operating costs which will increase netbacks;
- Increased third party revenues which will reduce Birchcliff's operating costs and improve netbacks;
- Increased control over production volumes and decreased exposure to production curtailments caused by third party processing plants;
- Increased run times from its natural gas wells in the Pouce Coupe area;
- Increased ability to expand production in the area by expanding the processing capacity of the PCS Gas Plant to correspond with the timing of its drilling plans in the area;
- Increased strategic competitive advantage in Birchcliff's core development area; and
- Reduced construction costs for the PCS Gas Plant because it is being constructed at a time when there is competitive pricing for plant components and a competitive environment for services and materials necessary to complete construction.
The PCS Gas Plant is being constructed in the heart of Birchcliff's Montney/Doig natural gas resource play. Control of infrastructure is a key component to the successful development of any natural gas play but it is magnified in these circumstances because of the intense competition for infrastructure and gathering and processing capacity as the development of unconventional natural gas in the Pouce Coupe area of Alberta continues to grow. Birchcliff has proven in the last several years that it can find and develop natural gas in its focus area at low cost. The PCS Gas Plant will allow Birchcliff to produce natural gas at lower operating costs than producers that rely on third party processing. This will position Birchcliff to become a dominant low cost finder and producer of natural gas in the Pouce Coupe area of Alberta.
Currently, construction of the PCS Gas Plant remains on schedule and on budget and is expected to commence operations in April, 2010.
Pouce Coupe South Gas Plant - "Phase II" Expansion
Birchcliff is extremely pleased to announce that its Board of Directors has approved the Phase II expansion of its 100% owned PCS Gas Plant, increasing the processing capacity of the plant from approximately 30 to 60 mmcf per day. Birchcliff expects that Phase II of the plant will add approximately 3,500 boe per day of production net to Birchcliff in December, 2010.
Birchcliff recently received regulatory approval for Phase II of the PCS Gas Plant. Birchcliff estimates that the construction costs of Phase II of the plant will be approximately $24 million which is approximately half of the cost of Phase I. This cost reduction is a result of the peripheral infrastructure that has been put in place during Phase I construction in anticipation of further expansion. For example, the acid gas disposal well and related facilities ($5.0 million), inlet and sales gas lines ($8.2 million) and other gathering pipelines were installed as part of Phase I and sized to accommodate Phase II. As part of its 2010 capital program, Birchcliff expects to drill 7 gross (4.9 net) Montney/Doig horizontal natural gas wells to initially fill Phase II of the PCS Gas Plant.
Outlook
The successful licensing and construction of the PCS Gas Plant allows Birchcliff to systematically grow its production base at a pace controlled by Birchcliff. The Montney/Doig natural gas resource play is developing at a rate well beyond industry's expectations.
Birchcliff's 2010 goal is to convert its long life reserves into production. Birchcliff has the potential to increase production by 80% during the next 12 months to 19,000 boe per day. We also see continued significant production and reserves growth from our existing asset base in 2011 and into the future.
Birchcliff has established two low cost resource plays. The 2009 reserve additions demonstrate that Birchcliff has the ability to add low cost reserves and production on a repeatable basis. We have a reserve life index on a proved and probable basis of 30.8 years.
In light of the quality of the asset base and the skills and determination of our employees, we expect to be able to achieve our production and reserves goals from internal cash flows and existing credit facilities. We look forward to an excellent year.
Advisory
Unaudited Numbers: Birchcliff's annual audit of its financial statements is not yet complete and accordingly all financial amounts referred to in this press release are management's best estimates which have not yet been audited.
Finding and Development Costs: With respect to disclosure of finding and development costs disclosed above:
(a) The amounts of finding and development and/or acquisition costs contained in the table and disclosure set forth above for each of the years 2008 and 2009 are calculated by dividing the total of the particular costs noted in each line incurred during such year by the amounts of additions to proved reserves and proved and probable reserves during such year that resulted from the expenditure of such costs.
(b) In calculating the amounts of finding and development and/or acquisition costs for a year, the changes during the year in estimated future development costs and in estimated reserves are based upon the evaluations of Birchcliff's reserves prepared by AJM Petroleum Consultants effective December 31 of such year.
(c) National Instrument 51-101 requires the inclusion of the following warning statement:
The aggregate of the exploration and development costs incurred in the most recent financial year and any change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserves additions for that year.
Reserves For Portion of Properties: With respect to the disclosure of reserves contained herein relating to portions of Birchcliff's properties, the estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenues for all properties due to the effects of aggregation.
BOE Conversions: The term barrels of oil equivalent ("boe") may be misleading, particularly if used in isolation. Per barrel of oil equivalent ("boe") amounts have been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel of oil equivalent ("6:1"). A boe conversion ratio of 6:1 is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
Forward Looking Statements: This document contains forward-looking statements regarding the business and operations of Birchcliff Energy Ltd. All statements other than statements of historical fact contained here are forward-looking statements under applicable securities law. In particular statements as to recoverable reserves volumes and associated future net revenues and numbers of future wells that may be drilled are forward looking statements.
These forward looking statements are based upon various assumptions as to future commodity prices, currency exchange rates, inflation rates, future well production rates, well drainage areas, success rates of future well drilling and future costs and availability of labor and services.
With respect to estimates of reserves volumes and associated future net revenues and numbers of future wells to be drilled, a key assumption is the validity of the commodity prices, currency exchange rates, future capital and operating costs and well production rates forecast by AJM in the AJM Evaluation.
With respect to the number of future wells to be drilled, another key assumption is the validity of the geological and other technical interpretations that have been performed by Birchcliff's technical staff and which indicate that commercially economic reserves can be recovered from Birchcliff's lands as a result of drilling such future wells.
There can be no assurance that the plan, intentions or expectations upon which these forward looking statements are based on will occur.
In addition, all such forward-looking information necessarily involve risks associated with oil and gas exploration, production, marketing and transportation such as loss of market, volatility of prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers and ability to access sufficient capital from internal and external sources. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements.
Birchcliff is a publicly traded company that trades on the TSX Exchange under the symbol "BIR".
The TSX Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.
Contacts
Jeff Tonken
Birchcliff Energy Ltd.
President and CEO
(403) 261-6401
(403) 261-6424 (FAX)
Bruno Geremia
Birchcliff Energy Ltd.
Vice President and CFO
(403) 261-6401
(403) 261-6424 (FAX)
Jim Surbey
Birchcliff Energy Ltd.
Vice President, Corporate Development
(403) 261-6401
(403) 261-6424 (FAX)
