BIRCHCLIFF ENERGY LTD. ANNOUNCES 2024 BUDGET AND GUIDANCE AND UPDATED FIVE-YEAR OUTLOOK AND DECLARES $0.10 PER COMMON SHARE DIVIDEND FOR Q1 2024

Energy
Wednesday, January 17th, 2024 9:32 pm EDT

Birchcliff Energy Ltd. has provided details of its 2024 budget and guidance and its updated five-year outlook for 2024 to 2028. Birchcliff’s board of directors has declared a quarterly cash dividend of 10 cents per common share for the quarter ending March 31, 2024.

Chris Carlsen, Birchcliff’s president and chief executive officer, commented: “Birchcliff’s 2024 capital budget and updated five-year outlook reflect our commitment to maintaining a strong balance sheet and capital discipline, while focusing on sustainable shareholder returns and the continued development of our world-class asset base. Our updated five-year outlook targets disciplined production growth of 16 per cent over the period, with annual average production of approximately 87,500 boe/d [barrels of oil equivalent/day] in 2028, which would fully utilize the corporation’s available existing processing and transportation capacity. Our five-year outlook provides for potential cumulative free funds flow generation of $870-million over the five-year period, which has the potential to result in substantial shareholder returns through common share dividends of approximately $535-million and cumulative excess free funds flow (after the payment of dividends) of approximately $335-million, based on our current pricing assumptions.

“Birchcliff continues to target $240-million to $260-million in F&D capital expenditures in 2024. We have adjusted our 2024 capital spending plans since our preliminary guidance was provided on Nov. 14, 2023, by reducing capital expenditures in the first half of the year. Our revised 2024 capital plan allows us to bring substantial production on later in the year when commodity prices are anticipated to be higher. This change affords us the flexibility to monitor commodity prices and capital costs during the first half of the year, which provides us with optionality to reduce capital spending if there is further deterioration in commodity prices. Due to this revised capital spending profile in 2024, we now anticipate that annual average production will remain relatively flat in 2024 at 74,000 to 77,000 boe/d, which we expect will generate free funds flow of $80-million to $100-million in the year based on our current pricing assumptions.

“In 2023, we successfully and efficiently executed our capital program and, as we committed to, returned $213.3-million to our shareholders through common share dividends. In order to protect Birchcliff’s strong balance sheet during the current period of low natural gas prices, which is projected to continue during 2024, our board has approved an annual base dividend amount of 40 cents per common share for 2024 (approximately $107-million in aggregate) and declared a quarterly cash dividend of 10 cents per common share for the quarter ending March 31, 2024. We remain bullish on the long-term outlook for natural gas as LNG export capacity increases in North America and we are committed to sustainable shareholder returns as a pillar of our long-term strategy.

“We look forward to announcing our unaudited financial and operational results for the year ended Dec. 31, 2023, on Feb. 14, 2024.”

Key highlights

2024 F&D (finding and development) capital budget and guidance:

• 2024 F&D capital spending is expected to be $240-million to $260-million;
• Annual average production of 74,000 to 77,000 boe/d expected in 2024;
• 2024 adjusted funds flow of approximately $340-million and free funds flow of $80-million to $100-million;
• Approved 2024 annual base dividend of 40 cents per common share (approximately $107-million in aggregate);
• Focused on balance sheet strength, with 2024 year-end total debt of $405-million to $425-million, which is anticipated to be less than one time forward annual adjusted funds flow;
• Extendible revolving term credit facilities with an aggregate borrowing base of $850-million provide significant financial flexibility. The credit facilities have a maturity date of May 11, 2025, and do not contain any financial maintenance covenants.

Updated five-year outlook:

• Potential cumulative adjusted funds flow of approximately $2.4-billion and cumulative free funds flow of approximately $870-million over the five-year period;
• Contemplates potential cumulative shareholder returns of approximately $535-million through common share dividends and cumulative excess free funds flow (after the payment of dividends) of approximately $335-million, in each case over the five-year period;
• Targets disciplined production growth of 16 per cent over the five-year period, with 2028 annual average production of approximately 87,500 boe/d;
• Maintains capital discipline, with moderate F&D capital expenditures of $240-million to $300-million per year during the first three years and $325-million to $375-million per year during the last two years in order to fill the corporation’s available existing infrastructure and reduce per boe operating and transportation costs;
• Protects strong balance sheet with total debt reduction to well below one time forward annual adjusted funds flow over the five-year period;
• Significant market exposure to the NYMEX HH and Dawn trading hubs, which are priced in U.S. dollars, with growth volumes expected to be sold at AECO to align with the anticipated positive pricing impact of Canadian LNG (liquefied natural gas) exports.

Declaration of Q1 2024 quarterly dividend

The board has approved an annual base dividend of 40 cents per common share for 2024. This annual base dividend will be declared and paid quarterly at the rate of 10 cents per common share, at the discretion of the board. In connection therewith, the board has declared a quarterly cash dividend of 10 cents per common share for the quarter ending March 31, 2024. The dividend will be payable on March 28, 2024, to shareholders of record at the close of business on March 15, 2024. The ex dividend date is March 14, 2024. The dividend has been designated as an eligible dividend for the purposes of the Income Tax Act (Canada).

2024 guidance

For 2024, Birchcliff remains focused on maintaining balance sheet strength, capital discipline, generating free funds flow and delivering returns to shareholders. Based on its targeted F&D capital expenditures of $240-million to $260-million and as a result of the corporation adjusting its capital spending profile by moving capital into the second half of 2024, Birchcliff expects annual average production of 74,000 to 77,000 boe/d in 2024. Birchcliff’s production profile for 2024 is designed to deliver higher production in Q4 when the corporation anticipates higher commodity prices.

Birchcliff is currently forecasting that it will generate approximately $340-million of adjusted funds flow and $80-million to $100-million of free funds flow in 2024 based on its targeted levels of F&D capital expenditures and annual average production.

Any excess free funds flow generated in 2024 is anticipated to be used to further invest in the corporation’s business, increase shareholder returns in the form of enhanced common share dividends and/or reduce indebtedness. Such decisions will be made based on what Birchcliff believes will provide the most value to shareholders, giving consideration to commodity prices and other relevant factors. In addition, excess free funds flow may be used to repurchase common shares under the corporation’s normal course issuer bid to help offset the number of common shares it issues throughout the year pursuant to the exercise of stock options in order to minimize or eliminate dilution to shareholders.

Birchcliff’s 2024 guidance for its production has been adjusted from its preliminary guidance of 77,000 to 79,000 boe/d as a result of revisions to the timing of the corporation’s 2024 capital program, as discussed above and under the heading “2024 F&D capital budget.” Birchcliff’s 2024 guidance for F&D capital expenditures is unchanged from its preliminary guidance. Primarily as a result of a decreased commodity price forecast for 2024, Birchcliff’s 2024 guidance for its adjusted funds flow, free funds flow and annual base dividend is lower than its preliminary guidance of $500-million, $240-million to $260-million and $213-million, respectively.

Changes in assumed commodity prices and variances in production forecasts can have an impact on the corporation’s forecasts of adjusted funds flow and free funds flow and the corporation’s other guidance, which impact could be material. In addition, any acquisitions or dispositions completed over the course of 2024 could have an impact on Birchcliff’s 2024 guidance and assumptions set forth herein, which impact could be material.

2024 F&D capital budget

The board has approved a disciplined F&D capital budget of $240-million to $260-million for 2024. This level of capital spending will allow the corporation to bring 29 wells on production in 2024. Birchcliff’s 2024 capital program has been revised since its preliminary guidance was provided on Nov. 14, 2023, by delaying the drilling of 13 wells until late Q2 and into Q3, with these wells expected to come on production in Q4 2024. Birchcliff’s revised 2024 capital spending profile is designed to ensure that the corporation’s capital is deployed optimally and also affords Birchcliff the flexibility to monitor commodity prices and capital costs during the first half of the year, providing it with optionality to reduce capital spending during the year if there is further deterioration in the commodity price environment.

Birchcliff’s 2024 drilling program is designed to target high-rate-of-return wells with attractive paybacks and strong capital efficiency metrics. Two drilling rigs will be utilized to deliver a level-loaded capital program focused on efficient execution, with optimized capital spending throughout the year while taking advantage of any potential reductions in service costs in the second half of 2024. The wells brought on production as part of Birchcliff’s 2024 capital program are expected to yield strong production benefiting from the corporation’s latest wellbore design, which incorporates longer lateral lengths, reduced stage spacing and increased proppant loading where appropriate.

In Pouce Coupe, Birchcliff plans to drill 18 wells and bring 23 wells on production from four pads, targeting wells placed in Lower Montney, Middle Montney and Basal Doig/Upper Montney intervals. The corporation expects that the first five-well pad will be brought on production in late January, 2024, and the second five-well pad will be brought on production in late Q1 2024, with the remaining 13 wells on two pads brought on production in Q4 2024, aligned with the anticipated improvement in commodity prices.

In Gordondale, Birchcliff plans to drill and bring 6 wells on production from two pads, targeting wells placed in Lower Montney intervals. These wells are expected to be brought on production in Q2 2024.

In addition to its 2024 DCCET capital program, Birchcliff anticipates allocating $15-million to $20-million to facilities and longer-term infrastructure projects, which includes capital to tie a third party NGLs (natural gas liquids) pipeline directly into the corporation’s 100-per-cent-owned-and-operated natural gas processing plant in Pouce Coupe. This connection is expected to reduce NGLs trucking activity and improve corporate netbacks by lowering NGLs transportation costs.

In addition to the corporation’s 2024 F&D capital budget, Birchcliff has allocated approximately $3-million to abandonment and reclamation activities in 2024.

Elmworth

Birchcliff’s F&D capital budget does not include any significant capital with respect to the corporation’s Elmworth Montney land position. Birchcliff may consider allocating some capital in 2024 to continue to build, protect and optimize its Elmworth Montney land position, including through drilling and completions activity, strategic A&D transactions, and Crown land sales. As previously disclosed in the corporation’s press release dated Nov. 14, 2023, Birchcliff has initiated the formal planning for the construction of a proposed 100-per-cent-owned-and-operated natural gas processing plant in the area, including determining processing capacity, takeaway capacity, and specific timelines for consultation and construction. Birchcliff currently has a successful acid gas disposal well and an AER approved acid gas disposal scheme in the Elmworth area, which is a key component for a natural gas processing plant.

Updated five-year outlook

Birchcliff has updated its five-year outlook for 2024 to 2028. The five-year outlook continues to be focused on maintaining the corporation’s strong balance sheet, free funds flow generation and delivering significant returns to shareholders, while targeting disciplined production growth to fully utilize the corporation’s available existing processing and transportation capacity, which is expected to result in lower per boe operating and transportation costs.

Birchcliff’s updated five-year outlook has the potential to generate substantial shareholder returns through common share dividends of approximately $535-million over the period and maintain the corporation’s strong balance sheet, with potential cumulative adjusted funds flow of approximately $2.4-billion, cumulative free funds flow of approximately $870-million and cumulative excess free funds flow (after the payment of dividends) of approximately $335-million. Over the five-year period, total debt is anticipated to be reduced to well below one time forward annual adjusted funds flow. Birchcliff does not anticipate that it will be required to pay any material Canadian income taxes until 2027.

The five-year outlook contemplates moderate F&D capital spending of $240-million to $300-million annually for the first three years, increasing to $325-million to $375-million annually in 2027 and 2028, which would allow the corporation to bring between 170 and 180 wells on production over the five-year period. These capital expenditures are expected to result in production growth of approximately 16 per cent over the period, with 2028 annual average production of approximately 87,500 boe/d. The production growth contemplated in the five-year outlook is planned to occur primarily in 2027 and 2028 commensurate with the moderate increases in capital spending in these years.

Birchcliff’s production growth during the five-year period coincides with anticipated increases in commodity prices and demand for Canadian natural gas as a result of LNG projects coming on-line in North America. The corporation continues to benefit from its diversified natural gas sales with exposure to AECO, NYMEX HH and Dawn prices. The incremental natural gas from Birchcliff’s planned production growth over the next five years is expected to be sold at AECO, which gives the corporation increased exposure to the anticipated positive pricing impact of Canadian LNG exports. The corporation is looking forward to the increases in LNG export capacity in North America that are expected in the next five years and is committed to contributing to the development of the needed infrastructure in Canada. Birchcliff is a partner in Rockies LNG Partners, which is collaborating with the Nisga’a Nation, a modern treaty nation in British Columbia, and Western LNG, an experienced LNG developer, to develop the Ksi Lisims LNG export project, a 12-million-tonne-per-year (approximately 1.7 billion to two billion cubic feet/day) net-zero emissions LNG export project on the west coast of British Columbia.

Birchcliff’s five-year outlook does not currently include any significant capital allocated to the corporation’s Elmworth Montney land position. It is anticipated that capital will be deployed in Elmworth during the five-year period to continue to build, protect and optimize Birchcliff’s land position, as well as progressing its plans for the development of a 100-per-cent-owned-and-operated natural gas processing plant in the area.

Operational update

In early Q4 2023, Birchcliff brought seven wells on production in Pouce Coupe and two wells on production in Gordondale. The corporation is pleased with the strong initial results from these pads as they are in line with or ahead of internal expectations.

As a result of unplanned third party outages, including a third party compressor outage that is expected to continue until mid- to late January, 2024, the corporation’s average production for Q4 2023 is anticipated to be 76,000 to 77,000 boe/d, resulting in annual average production of 75,500 to 76,000 boe/d, which is slightly behind previous guidance. Birchcliff’s 2023 F&D capital expenditures are estimated to be approximately $305-million, which includes the capitalized portion of cash incentive payments accrued in 2023.

Seven-well pad (09-04)

Birchcliff successfully brought its seven-well 09-04 pad on production in early Q4 2023. The pad was drilled in two different Lower Montney zones, with four wells in the Montney D1 and 3 wells in the Montney C.

Two-well pad (02-27)

Birchcliff successfully brought its two-well 02-27 pad on production in early Q4 2023. The pad was drilled in two different Lower Montney zones, with one well in each of the Montney D1 and Montney D2.

Continuing activities

The corporation successfully completed drilling its five-well 04-30 pad in Pouce Coupe in December, 2023. Completions operations are currently under way on the pad, with the wells scheduled to come on production in late January. The pad was drilled in the Lower Montney interval targeting condensate-rich natural gas.

Drilling operations at the corporation’s five-well 16-17 pad in Pouce Coupe commenced in January, 2024, utilizing two drilling rigs, with completions operations scheduled to commence in February. The pad is targeting condensate-rich natural gas, with three wells in the Lower Montney interval, one well in the Middle Montney interval and one well in the Basal Doig/Upper Montney interval. The wells are anticipated to be brought on production in late Q1 2024.

Birchcliff would like to take this opportunity to thank its field employees, consultants and service providers for their dedication and for ensuring that the corporation’s operations continued to be safely and efficiently executed during the recent period of extreme cold weather experienced in Alberta.

ESG report

Birchcliff is proud of its continued progress in accomplishing its ESG (environmental, social, governance) goals, including being an industry leader with respect to emissions intensity and its commitment to maintain strong community relationships. On Dec. 15, 2023, Birchcliff released its 2022 ESG report, which can be found on Birchcliff’s website. Birchcliff’s ESG report contains detailed information regarding the corporation’s completed and continuing environmental, social and governance initiatives and the results of the corporation’s ESG performance for the year ended Dec. 31, 2022.

About Birchcliff Energy Ltd.

Birchcliff is a dividend-paying, intermediate oil and natural gas company based in Calgary, Alta., with operations focused on the Montney/Doig resource play in Alberta. Birchcliff’s common shares are listed for trading on the Toronto Stock Exchange under the symbol BIR.

We seek Safe Harbor.