Birchcliff Energy Ltd. announces solid Q1 2020 results and confirmation of borrowing base at $1 billion
May 13, 20201:00 PM Globe Newswire
CALGARY, Alberta – Birchcliff Energy Ltd. (“Birchcliff” or the “Corporation”) (TSX: BIR) is pleased to announce its financial and operational results for the three months ended March 31, 2020 and the confirmation of the borrowing base limit under its credit facilities at $1.0 billion. “Our industry is facing unprecedented challenges as a result of the impacts from the global COVID-19 pandemic which has resulted in a significant reduction in worldwide oil demand. We believe that Birchcliff’s strong financial position, low operating cost structure and low-decline asset base provides us with the ability to withstand these challenges. In addition, the reduced demand for oil has resulted in massive capital spending reductions and shut-ins of oil and natural gas production, leading to the strengthening of current and future natural gas prices in North America, which is key for our current and future adjusted funds flow,” commented Jeff Tonken, President and Chief Executive Officer of Birchcliff. “Our syndicate of lenders recently completed its semi-annual review of our credit facilities and our borrowing base limit has been confirmed at $1 billion. These credit facilities do not mature until May 11, 2022 and do not contain any financial maintenance covenants. In addition, we have taken various steps to strengthen our liquidity and financial flexibility in the current environment. Earlier in the year, we announced the deferral of $65 million of capital spending in 2020, which represented approximately 19% of our original capital budget. We also intend to reduce our quarterly common share dividend to $0.005 per share commencing June 30, 2020, which would result in the preservation of approximately $17.0 million in 2020.” “Our first priority is the health and safety of our employees, contractors and the communities where we operate. In response to the COVID-19 pandemic, we have introduced numerous measures to protect the well-being of our employees and contractors, including remote work-from-home arrangements, physical distancing measures, enhanced cleaning and sanitization measures and conducting meetings through virtual means. At various critical field sites, only essential personnel are authorized to be physically present and we have implemented a rotational work schedule. We have a long history of operational excellence and we are very proud of how our staff continue to exceed our expectations to maintain safe and reliable operations and the continuity of our business, despite having to adapt to this challenging new environment.” Birchcliff’s unaudited interim condensed financial statements for the three months ended March 31, 2020 and related management’s discussion and analysis (the “MD&A”) will be available on its website at www.birchcliffenergy.com and on SEDAR at www.sedar.com. Q1 2020 HIGHLIGHTS
Achieved quarterly average production of 73,580 boe/d in Q1 2020, a 2% decrease from Q1 2019.
Liquids accounted for approximately 22% of Birchcliff’s total production in Q1 2020 as compared to approximately 21% in Q1 2019.
Delivered adjusted funds flow of $36.9 million, or $0.14 per basic common share, in Q1 2020, a 68% decrease in each case from Q1 2019.
Achieved low operating expense of $3.14/boe in Q1 2020, an 8% decrease from Q1 2019.
Realized an operating netback of $9.32/boe in Q1 2020, a 46% decrease from Q1 2019.
Continued with the successful and efficient execution of its 2020 capital program (the “2020 Capital Program”), drilling 18 (18.0 net) wells, completing 14 (14.0 net) wells and bringing 4 (4.0 net) wells on production in Q1 2020. Total F&D capital expenditures were $132.4 million in the quarter.
Paid approximately $7.0 million in common share dividends in Q1 2020.
Birchcliff performed an impairment test on its petroleum and natural gas properties and equipment at March 31, 2020 and such assets were not impaired.
ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
Birchcliff’s annual and special meeting (the “Meeting”) of shareholders is scheduled to take place tomorrow, Thursday, May 14, 2020, at the offices of the Corporation, Suite 1000, 600 – 3rd Avenue S.W., Calgary, Alberta.
The Meeting will be held for the sole purpose of addressing the matters to be acted upon at the Meeting as disclosed in the Notice of Meeting of the Corporation dated March 25, 2020. No corporate update or investor presentation will be provided at the Meeting and most of the directors and executive officers of the Corporation will not be in attendance.
Shareholders are strongly encouraged not to attend the Meeting in person unless absolutely necessary.
Birchcliff reserves the right to refuse admission to anyone whom the Corporation believes may pose a health risk or whose admission would violate applicable public health laws, policies or orders in place at the time of the Meeting.
In order to ensure that all government restrictions with respect to public gatherings are complied with, only registered shareholders or their duly appointed proxy holders and other essential personnel will be permitted to attend the Meeting. Attendance may be further restricted as noted above.
REDEMPTION OF SERIES C PREFERRED SHARES BY HOLDERS
The Corporation currently has no intention to exercise its option to redeem its cumulative redeemable preferred shares, Series C (the “Series C Preferred Shares”), but rather, to leave such shares outstanding and continue paying a quarterly cash dividend on the shares.
On and after June 30, 2020, subject to the provisions governing the Series C Preferred Shares (the “Provisions”), a holder of the Series C Preferred Shares may, at its option, upon giving notice, redeem for cash, all or any number of Series C Preferred Shares held by such holder on the last day of a quarter at $25.00 per share, together with all accrued and unpaid dividends to but excluding the date fixed for redemption. If the Corporation receives a notice of redemption, it has the option to elect to convert any Series C Preferred Shares into common shares of the Corporation using a conversion price equal to the greater of $2.00 and 95% of the “Current Market Price” (as determined in accordance with the Provisions) of the common shares.
Important information regarding the process to be followed by holders who wish to redeem their Series C Preferred Shares is available on the Corporation’s website at http://birchcliffenergy.com/investors/series-c-preferred-shares/. Holders or prospective holders should consult their own tax and other professional advisors for advice with respect to the tax and other consequences of acquiring, holding or disposing of Series C Preferred Shares.
This press release contains forward-looking statements within the meaning of applicable securities laws. For further information regarding the forward-looking statements contained herein, see “Advisories – Forward-Looking Statements”. In addition, this press release contains references to “adjusted funds flow”, “adjusted funds flow per basic common share”, “free funds flow”, “transportation and other expense”, “operating netback”, “adjusted funds flow netback”, “total cash costs” and “total debt”, which do not have standardized meanings prescribed by GAAP and therefore may not be comparable to similar measures presented by other companies where similar terminology is used. For further information regarding these non-GAAP measures, see “Non-GAAP Measures”. With respect to the disclosure of Birchcliff’s production contained in this press release, see “Advisories – Production”. Q1 2020 FINANCIAL AND OPERATIONAL HIGHLIGHTS Three months ended March 31, 2020Three months ended March 31, 2019OPERATINGAverage productionLight oil – (bbls/d)3,9544,800Condensate – (bbls/d)4,5244,416NGLs – (bbls/d)7,9626,743Natural gas – (Mcf/d)342,831353,548Total – boe/d73,58074,884Average realized sales price (CDN$)(1)Light oil – (per bbl)53.1866.08Condensate – (per bbl)58.4865.45NGLs – (per bbl)12.0217.71Natural gas – (per Mcf)2.293.55Total – per boe18.4126.45 NETBACK AND COST ($/boe)Petroleum and natural gas revenue(1)18.4126.46Royalty expense(0.95)(1.22)Operating expense(3.14)(3.40)Transportation and other expense(5.00)(4.61)Operating netback ($/boe)9.3217.23G&A expense, net(0.90)(0.90)Interest expense(0.89)(1.03)Realized gain (loss) on financial instruments(2.13)1.98Other income0.110.03Adjusted funds flow netback ($/boe)5.5117.31Depletion and depreciation expense(7.71)(7.55)Unrealized loss on financial instruments(5.88)(5.77)Other expenses(2)(0.29)(0.33)Dividends on preferred shares(0.29)(0.29)Income tax recovery (expense)1.91(1.03)Net income (loss) to common shareholders ($/boe)(6.75)2.34 FINANCIALPetroleum and natural gas revenue ($000s)(1)123,263178,355Cash flow from operating activities ($000s)50,55194,744Adjusted funds flow ($000s)36,894116,648Per basic common share ($)0.140.44Net income (loss) to common shareholders ($000s)(45,201)15,799Per basic common share ($)(0.17)0.06End of period basic common shares (000s)265,935265,924Weighted average basic common shares (000s)265,935265,914Dividends on common shares ($000s)6,9816,980Dividends on preferred shares ($000s)1,9221,922Total capital expenditures ($000s)(3)132,840131,958Long-term debt ($000s)619,055611,911Total debt ($000s)739,631649,202 (1)Excludes the effects of financial instruments but includes the effects of physical delivery contracts.(2)Includes non-cash expenses such as compensation, accretion, amortization of deferred financing fees and other income.(3)See “Advisories – Capital Expenditures”.OUTLOOK AND GUIDANCE Competitive Advantage Birchcliff believes that the following key attributes provide it with a competitive advantage which will allow it to withstand this current period of low and volatile commodity prices:
Strong Financial PositionThe Corporation has extendible revolving credit facilities (the “Credit Facilities”) with a borrowing base limit of $1.0 billion. The Credit Facilities do not mature until May 11, 2022 and do not contain any financial maintenance covenants.
Low Operating Cost StructureBirchcliff has a very low operating cost structure, in large part as a result of owning the majority of the infrastructure through which its production flows, including its 100% owned and operated natural gas processing plant located in Pouce Coupe (the “Pouce Coupe Gas Plant”).
High-Quality, Low-Decline Asset BaseBirchcliff’s high-quality, low-decline asset base allows it to maintain production at or near current levels with less F&D capital each year and is also able to generate positive funds flow in a low commodity price environment. In addition, the Corporation’s owned-and-operated infrastructure, diverse portfolio of assets and production commodity mix of 78% natural gas and 22% liquids provides it with significant optionality to focus on those commodities that provide it with the highest rate of return.
PeopleThe Corporation’s dedicated and skilled employees and contractors have helped position Birchcliff as one of the lowest cost producers in the industry operating with rigorous health, safety and environmental standards. In addition, Birchcliff’s board of directors has been providing the Corporation with ongoing oversight and support to help guide it through this unprecedented period of uncertainty.
Strengthening Liquidity and Financial Flexibility In this challenging environment, Birchcliff is focused on strengthening its liquidity and financial flexibility and has taken various measures to protect its balance sheet and to provide it with additional financial flexibility, including the following:
Reduced Capital Spending By 19%On March 11, 2020, the Corporation announced that it was deferring $65 million of capital spending in 2020, which represented approximately 19% of its original 2020 capital budget.
Borrowing Base Limit Confirmed at $1.0 BillionAs discussed in further detail under “Q1 2020 Financial and Operational Results – Debt and Credit Facilities”, the borrowing base limit under the Corporation’s Credit Facilities was recently confirmed at $1.0 billion.
Strategic HedgingBirchcliff continues to engage in strategic risk management activities to help reduce its exposure to volatile commodity prices and protect its balance sheet and adjusted funds flow. As of May 12, 2020, the Corporation has entered into the following short-term hedges: (i) May 2020: 4,000 bbls/d of light oil at an average MSW price of CDN$20.05/bbl; (ii) June 2020: 6,000 bbls/d of light oil at an average MSW price of CDN$26.35/bbl; (iii) July 2020: 1,500 bbls/d of light oil at an average MSW price of CDN$31.33/bbl; and (iv) August 2020: 500 bbls/d of condensate at an average C5+ price of CDN$32.50/bbl. For further details regarding the Corporation’s hedging arrangements, see “Discussion of Operations – Risk Management” in the MD&A.
Common Share Dividend Reduced By 80%The Corporation intends to reduce the amount of its quarterly common share dividend from $0.02625 per share (or $0.105 per share annually) to $0.005 per share (or $0.02 per share annually) commencing with the quarter ending June 30, 2020, which would result in the preservation of approximately $17.0 million in 2020. This reduced quarterly cash dividend is expected to be declared by the Corporation’s board of directors on June 2, 2020, as originally scheduled. Birchcliff’s board of directors and management team believe that reducing the common share dividend is a prudent step in order to strengthen the Corporation’s financial resiliency in the current environment.
Production and Adjusted Funds Flow Increasing, Per Unit Costs Decreasing Birchcliff is also focused on the successful and efficient execution of its 2020 Capital Program, which is expected to be completed on time and on budget. The program is heavily weighted towards the first half of the year, with the majority of F&D capital expected to be spent by the end of Q2 2020. Over the course of 2020, the Corporation’s production is expected to increase with a corresponding reduction in per unit operating costs, with a significant number of wells planned to be brought on production in late Q3 2020, which will coincide with the bringing on-stream of Birchcliff’s 20,000 bbls/d (50% condensate, 50% water) inlet liquids-handling facility at the Pouce Coupe Gas Plant (the “Inlet Liquids-Handling Facility”). Production in Q4 2020 is expected to average approximately 81,000 to 83,000 boe/d. As the Corporation anticipates that natural gas prices will continue to strengthen throughout 2020 and into 2021, the Corporation expects that its higher production in the third and fourth quarters of 2020 will drive higher adjusted funds flow and lower per unit costs. As a result of very weak commodity prices anticipated for Q2 2020, Birchcliff currently expects that it will have significantly lower adjusted funds flow in Q2 2020 as compared to Q1 2020. In addition, as a result of executing the vast majority of the 2020 Capital Program in the first half of 2020, total debt is expected to peak early in Q3 2020. As production increases and commodity prices for natural gas are expected to strengthen over the course of 2020, Birchcliff anticipates that its total debt will gradually decrease throughout the remainder of 2020, while its adjusted funds flow will steadily increase. Looking forward, Birchcliff expects to exit 2020 in a strong position as a result of its higher production and lower costs. In addition, the expected proved developed producing reserves additions resulting from the 2020 Capital Program should position the Corporation well for the future. The Corporation is currently in the early stages of planning its 2021 capital program, which will be designed to provide Birchcliff with significant optionality to take advantage of volatile commodity prices. As a result of Birchcliff’s large inventory of potential future drilling locations, the Corporation has the ability to focus on natural gas, liquids-rich natural gas or light oil drilling, depending on its outlook for commodity prices. Based on current strip prices, the Corporation currently expects to return to a free funds flow model in 2021. Revised Guidance In light of the COVID-19 pandemic and current economic conditions, Birchcliff has revised its average royalty expense, adjusted funds flow, free funds flow and total debt guidance and commodity price assumptions for 2020. All other previous guidance for 2020 remains unchanged. The following table sets forth Birchcliff’s revised and previous guidance and commodity price assumptions for 2020: Revised 2020 guidance and assumptions(1)Previous 2020 guidance and assumptions(1)(2)ProductionAnnual average production (boe/d)78,000 – 80,00078,000 – 80,000% Light oil7%7%% Condensate8%8%% NGLs9%9%% Natural gas76%76%Q4 average production (boe/d)81,000 – 83,00081,000 – 83,000 Average Expenses ($/boe)Royalty0.65 – 0.851.00 – 1.20Operating3.05 – 3.253.05 – 3.25Transportation and other4.90 – 5.10(3)4.90 – 5.10Adjusted Funds Flow (MM$)161(4)252 F&D Capital Expenditures (MM$)275 – 295(5)275 – 295 Free Funds Flow (MM$)(6)(114) – (134)(23) – (43) Total Debt at Year End (MM$)770 – 790(7)700 – 720 Natural Gas Market Exposure(8)AECO exposure as a % of total natural gas production20%20%Dawn exposure as a % of total natural gas production45%45%NYMEX HH exposure as a % of total natural gas production34%34%Alliance exposure as a % of total natural gas production1%1% Commodity PricesAverage WTI price (US$/bbl)33.0048.00Average WTI-MSW differential (CDN$/bbl)11.005.70Average AECO 5A price (CDN$/GJ)2.201.90Average Dawn price (US$/MMBtu)(9)2.002.15Average NYMEX HH price (US$/MMBtu)(9)2.252.20Exchange rate (CDN$ to US$1)1.381.34 (1)Birchcliff’s guidance for its commodity mix, adjusted funds flow and natural gas market exposure in 2020 is based on an annual average production rate of 79,000 boe/d during 2020, which is the mid-point of Birchcliff’s annual average production guidance for 2020.(2)As disclosed on March 11, 2020.(3)Includes transportation tolls for 175,000 GJ/d of natural gas sold at the Dawn price and includes any unused firm transportation costs associated with Birchcliff’s commitments on the NGTL system.(4)Birchcliff’s estimate of adjusted funds flow takes into account the effects of its physical and financial commodity risk management contracts outstanding as at May 12, 2020. See “Discussion of Operations – Risk Management” in the MD&A.(5)Birchcliff’s estimate of F&D capital expenditures excludes any net potential acquisitions and dispositions and corresponds to Birchcliff’s 2020 F&D capital budget. See “Advisories – Capital Expenditures”.(6)Free funds flow is calculated as adjusted funds flow less F&D capital expenditures and is prior to acquisitions and dispositions, dividend payments, abandonment and reclamation obligations, administrative assets, financing fees and capital lease obligations. See “Non-GAAP Measures”.(7)The total debt amount set forth in the table above assumes the following: (i) that the timing and amount of preferred share dividends paid by the Corporation remains consistent with previous years, with the dividend rates remaining flat; (ii) that a common share dividend of $0.005 per share is paid for the quarters ending June 30, 2020, September 30, 2020 and December 31, 2020; (iii) that there are 265,935,229 common shares and 2,000,000 Series C Preferred Shares outstanding, with no Series C Preferred Shares redeemed in 2020; (iv) that the 2020 Capital Program will be carried out as currently contemplated and the level of capital spending set forth herein will be achieved; and (v) the targets for production, commodity mix, capital expenditures, adjusted funds flow, free funds flow and natural gas market exposure and the commodity price and exchange rate assumptions set forth herein are met. The amount set forth in the table above does not include annual cash incentive payments.(8)Birchcliff’s guidance regarding its natural gas market exposure in 2020 assumes: (i) 175,000 GJ/d being sold at the Dawn index price; (ii) 5 MMcf/d being sold at Alliance’s Trading Pool daily index price until October 31, 2020; and (iii) 132,500 MMBtu/d being hedged on a financial and physical basis at a fixed basis differential between the AECO 7A price and the NYMEX HH price.(9)See “Advisories – MMBtu Pricing Conversions”.The following table illustrates the expected impact of changes in commodity prices and the CDN/US exchange rate on the Corporation’s revised estimate of adjusted funds flow for 2020 of $161 million, after taking into account the effects of its commodity risk management contracts outstanding as at May 13, 2020: Estimated change to 2020 adjusted funds flow (MM$)(1)(2)Change in WTI US$1.00/bbl7.0Change in NYMEX HH US$0.10/MMBtu6.0Change in Dawn US$0.10/MMBtu8.3Change in AECO CDN$0.10/GJ3.5Change in CDN/US exchange rate CDN$0.012.0 (1)See the guidance table above.(2)The calculated impact on adjusted funds flow is only applicable within the limited range of change indicated. Calculations are performed independently and may not be indicative of actual results. Actual results may vary materially when multiple variables change at the same time.The outbreak of the COVID-19 pandemic has had a significant negative impact on global economic conditions and has resulted in a sharp decrease in the demand for crude oil which, combined with other macro-economic conditions, has resulted in significant volatility in oil and natural gas commodity prices, as well as increased economic uncertainty. Changes in assumed commodity prices and variances in production estimates can have a significant impact on the Corporation’s estimates of adjusted funds flow and free funds flow and the Corporation’s other guidance. For further information, see “Advisories – Forward-Looking Statements” in this press release and “Risk Factors and Risk Management” in the MD&A. Q1 2020 FINANCIAL AND OPERATIONAL RESULTS Production Birchcliff’s production averaged 73,580 boe/d in Q1 2020, which was on the high end of its guidance of 72,000 to 74,000 boe/d and which represented a 2% decrease from 74,844 boe/d in Q1 2019. In order to minimize frac-driven interaction associated with offset drilling and completions activities, Birchcliff proactively and temporarily shut-in some production during Q1 2020 in order to protect its existing wells, which was the main driver for the decrease from Q1 2019. Production was also impacted by natural production declines, partially offset by incremental production from the new horizontal oil and natural gas wells brought on production since Q1 2019. Liquids accounted for approximately 22% of Birchcliff’s total production in Q1 2020 as compared to approximately 21% in Q1 2019, with total liquids production increasing by 3% from Q1 2019. The change in the commodity production mix was primarily attributable to the addition of condensate-rich natural gas wells in Pouce Coupe and an increase in C3+ extracted from the natural gas stream at the Pouce Coupe Gas Plant. Adjusted Funds Flow Birchcliff’s adjusted funds flow for Q1 2020 was $36.9 million, or $0.14 per basic common share, a 68% decrease in each case from $116.6 million and $0.44 per basic common share in Q1 2019. The decreases were primarily due to lower reported revenue and a realized loss on financial instruments of $14.3 million in Q1 2020 as compared to a realized gain on financial instruments of $13.3 million in Q1 2019. Revenue decreased by $55.1 million (or 31%) as compared to Q1 2019, largely due to lower average realized liquids and natural gas sales prices in Q1 2020. Birchcliff’s light oil revenue in Q1 2020 was impacted by the significant weakness and volatility in oil prices as a result of the COVID-19 pandemic and OPEC+’s initial plan to increase production announced in early March 2020. Adjusted funds flow was also impacted by lower operating, royalty and interest expenses, partially offset by higher transportation and other expense as a result of Birchcliff’s increased Dawn and AECO firm service. Net Loss to Common Shareholders Birchcliff recorded a net loss to common shareholders of $45.2 million, or $0.17 per basic common share, in Q1 2020 as compared to net income to common shareholders of $15.8 million and $0.06 per basic common share in Q1 2019. The change to a net loss position was primarily due to lower adjusted funds flow as described above, partially offset by an income tax recovery of $12.7 million recorded in Q1 2020 as compared to an income tax expense of $7.0 million recorded in Q1 2019. Operating Expense Birchcliff’s operating expense was $3.14/boe in Q1 2020, an 8% decrease from $3.40/boe in Q1 2019. The decrease was primarily due to various field optimization initiatives in Pouce Coupe and Gordondale, which included the Corporation’s expanded liquids-handling capabilities in Pouce Coupe. Operating Netback Birchcliff’s operating netback was $9.32/boe in Q1 2020, a 46% decrease from $17.23/boe in Q1 2019. The decrease was primarily due to a 30% decrease in the corporate average realized sales price and higher per boe transportation and other expense as a result of Birchcliff’s increased Dawn and AECO firm service, partially offset by lower per boe operating and royalty expenses. Total Cash Costs Birchcliff’s total cash costs were $10.88/boe in Q1 2020, a 3% decrease from $11.16/boe in Q1 2019. The decrease was primarily due to lower per boe operating, interest and royalty expenses, partially offset by higher per boe transportation and other expense. Pouce Coupe Gas Plant Netbacks Birchcliff processed approximately 69% of its total corporate natural gas production and 59% of its total corporate production through the Pouce Coupe Gas Plant in Q1 2020 and Q1 2019. The following table sets forth Birchcliff’s average daily production and operating netback for wells producing to the Pouce Coupe Gas Plant for the periods indicated: Three months ended March 31, 2020 Three months ended March 31, 2019 Average production:Condensate (bbls/d)2,9812,931NGLs (bbls/d)1,025532Natural gas (Mcf/d)239,236242,699Total (boe/d)43,87943,913Liquids-to-gas ratio(1) (bbls/MMcf) 16.7 14.3Netback and cost:$/Mcfe$/boe$/Mcfe$/boePetroleum and natural gas revenue(2)2.9017.394.0724.42Royalty expense(0.10)(0.62)(0.12)(0.71)Operating expense(3)(0.33)(1.98)(0.32)(1.87)Transportation and other expense(0.89)(5.34)(0.78)(4.71)Operating netback$1.58$9.45$2.85$17.13Operating margin(4)54%54%70%70% (1)Liquids consists of condensate and other NGLs.(2)Excludes the effects of financial instruments but includes the effects of physical delivery contracts.(3)Represents plant and field operating expense.(4)Operating margin is calculated by dividing the operating netback for the period by the petroleum and natural gas revenue for the period.The Corporation’s liquids-to-gas ratio increased by 17% as compared to Q1 2019 primarily due to specifically targeted condensate-rich natural gas wells in Pouce Coupe and an increase in C3+ extracted from the natural gas stream at the Pouce Coupe Gas Plant. The amount of liquids (condensate and other NGLs) from Montney horizontal natural gas wells being produced to the Pouce Coupe Gas Plant increased by 16% to 4,006 bbls/d in Q1 2020 from 3,463 bbls/d in Q1 2019. The increase in the liquids-to-gas ratio improved Birchcliff’s average realized sales price and operating netback at the Pouce Coupe Gas Plant. Debt and Credit Facilities At March 31, 2020, Birchcliff had long-term bank debt of $619.0 million as compared to $611.9 million at March 31, 2019, leaving $374.8 million of unutilized credit capacity after adjusting for outstanding letters of credit and unamortized interest and fees. Total debt at March 31, 2020 was $739.6 million as compared to $649.2 million at March 31, 2019. Borrowing Base Confirmed at $1.0 Billion Birchcliff has significant liquidity from its Credit Facilities which have an aggregate principal amount of $1.0 billion and which are comprised of an extendible revolving syndicated term credit facility (the “Syndicated Credit Facility”) of $900.0 million and an extendible revolving working capital facility (the “Working Capital Facility”) of $100.0 million. The Credit Facilities do not contain any financial maintenance covenants. The Credit Facilities are subject to semi-annual reviews of the borrowing base limit by Birchcliff’s syndicate of lenders, which limit is directly impacted by the value of Birchcliff’s oil and natural gas reserves. Birchcliff’s syndicate of lenders recently completed its review and the borrowing base limit was confirmed at $1.0 billion, which is a testament to the strength of Birchcliff’s proved developed producing reserves. The maturity dates of the Credit Facilities are currently May 11, 2022. The Corporation may each year, at its option, request an extension to the maturity date of the Syndicated Credit Facility and the Working Capital Facility, or either of them, for an additional period of up to three years from May 11 of the year in which the extension request is made. In connection with the most recently completed borrowing base review, Birchcliff chose to not extend the maturity dates of the Credit Facilities by another year given that the Credit Facilities do not mature for another two years and the increased costs of credit in the current environment. Commodity Prices The following table sets forth the average benchmark index prices for the periods indicated: Three months ended March 31, 2020Three months ended March 31, 2019% ChangeLight oil – WTI Cushing (US$/bbl)46.1754.90(16%)Light oil – MSW (Mixed Sweet) (CDN$/bbl)51.2766.07(22%)Natural gas – NYMEX HH (US$/MMBtu)(1)1.953.15(38%)Natural gas – AECO 5A Daily (CDN$/GJ)1.932.49(22%)Natural gas – AECO 7A Month Ahead (US$/MMBtu)(1)1.601.4610%Natural gas – Dawn Day Ahead (US$/MMBtu)(1)1.762.91(40%)Natural gas – ATP 5A Day Ahead (CDN$/GJ)1.632.63(38%)Exchange rate (CDN$ to US$1)1.34421.32931%Exchange rate (US$ to CDN$1)0.74390.7523(1%) (1)See “Advisories – MMBtu Pricing Conversions”.Marketing and Natural Gas Market Diversification Birchcliff’s physical natural gas sales exposure primarily consists of the AECO, Dawn and Alliance markets. In addition, the Corporation has various financial instruments outstanding that provide it with exposure to NYMEX HH pricing. The following table details Birchcliff’s effective sales, production and average realized sales price for natural gas and liquids for Q1 2020, after taking into account the Corporation’s financial instruments: Three months ended March 31, 2020 Effective sales (CDN$000s)Percentage of total sales (%)Effective production (per day)Percentage of total natural gas production (%)Percentage of total corporate production (%)Effective average realized sales price (CDN$)MarketsAECO(1)10,6381053,816 Mcf16122.17/McfDawn(2)35,81832159,126 Mcf46362.47/McfAlliance(3)1,16218,571 Mcf321.50/McfNYMEX HH(1)9,6939121,318 Mcf35280.88/McfTotal natural gas57,31152342,831 Mcf100781.84/McfLight oil19,138183,954 bbls553.18/bblCondensate24,080224,524 bbls658.48/bblNGLs8,71087,962 bbls1112.02/bblTotal liquids51,9284816,440 bbls 2234.71/bblTotal corporate109,23910073,580 boe 10016.31/boe (1)A portion of AECO 5A sales and production that effectively received NYMEX HH pricing under Birchcliff’s long-term physical and financial NYMEX/AECO 7A basis swap contracts has been included as effective sales and production in NYMEX HH markets. Birchcliff sold financial and physical AECO 7A basis swaps for 132,500 MMBtu/d at an average contract price of NYMEX HH less US$1.234/MMBtu during Q1 2020.(2)Birchcliff has agreements for the firm service transportation of an aggregate of 175,000 GJ/d of natural gas on TCPL’s Canadian Mainline, whereby natural gas is transported to the Dawn trading hub in Southern Ontario. The first tranche of this service (120,000 GJ/d) became available on November 1, 2017, the second tranche (30,000 GJ/d) became available on November 1, 2018 and the third tranche (25,000 GJ/d) became available on November 1, 2019. Each tranche has a 10-year term.(3)Birchcliff has sales agreements with a third party marketer to sell and deliver into the Alliance pipeline system until October 31, 2020. Alliance sales are recorded net of transportation tolls.Effectively 90% of the Corporation’s sales revenue, representing 84% of its total natural gas production and 88% of its total corporate production, was generated from markets outside of AECO in Q1 2020, after taking into account its liquids sales and long-term financial NYMEX/AECO basis swap position. The following tables set forth Birchcliff’s sales, production, average realized sales price, transportation costs and natural gas sales netback by natural gas market for the periods indicated, before taking into account the Corporation’s financial instruments: Three months ended March 31, 2020Natural gas sales(1) (CDN$000s)Percentage of natural gas sales (%)Natural gas production (Mcf/d)Percentage of natural gas production (%)Average realized natural gas sales price(1) (CDN$/Mcf)Natural gas transportation costs(2) (CDN$/Mcf)Natural gas sales netback(3) (CDN$/Mcf)AECO(4)34,35248175,188512.170.381.79Dawn35,81850159,126462.471.451.02Alliance(5)1,16228,51731.50–1.50Total71,332100342,8311002.290.871.42 Three months ended March 31, 2019Natural gas sales(1) (CDN$000s)Percentage of natural gas sales (%)Natural gas production (Mcf/d)Percentage of natural gas production (%)Average realized natural gas sales price(1) (CDN$/Mcf)Natural gas transportation costs(2) (CDN$/Mcf)Natural gas sales netback(3) (CDN$/Mcf)AECO(4)44,68239194,058552.550.362.19Dawn62,86156137,978395.061.423.64Alliance(5)5,433521,51262.81–2.81Total112,976100353,5481003.550.762.79 (1)Excludes the effects of financial instruments but includes the effects of physical delivery contracts.(2)Reflects costs to transport natural gas from the field receipt point to the delivery sales trading hub.(3)Natural gas sales netback denotes the average realized natural gas sales price less natural gas transportation costs.(4)Includes physical AECO 7A basis swaps for 5,000 MMBtu/d at an average contract price of NYMEX less US$1.205 MMBtu.(5)Alliance sales are recorded net of transportation tolls.Capital Activities and Investment During Q1 2020, Birchcliff continued with the successful execution of its 2020 Capital Program, drilling 18 (18.0 net) wells, completing 14 (14.0 net) wells and bringing 4 (4.0 net) wells on production. The following table sets forth the number of wells drilled and brought on production by the Corporation in Q1 2020: AreaWells drilled in Q1 2020Wells brought on production in Q1 2020Pouce CoupeMontney D1 horizontal natural gas wells10Montney D2 horizontal natural gas wells64Montney C horizontal natural gas wells30Total – Pouce Coupe104GordondaleMontney D1 horizontal oil wells40Montney D2 horizontal oil wells40Total – Gordondale80TOTAL – COMBINED184Total F&D capital expenditures in Q1 2020 were $132.4 million, with F&D capital expenditures of $69.2 million in Pouce Coupe and $63.0 million in Gordondale. For further information regarding Birchcliff’s operational activities year-to-date, see “Operational Update” below. OPERATIONAL UPDATE Overview Birchcliff’s 2020 Capital Program is focused on its high-value light oil assets in Gordondale and its condensate-rich assets in Pouce Coupe, with the majority of capital investment directed towards the drilling of horizontal condensate-rich natural gas wells in Pouce Coupe and horizontal oil wells in Gordondale. The 2020 Capital Program contemplates the drilling of a total of 28 (28.0 net) wells and the bringing on production of a total of 34 (34.0 net) wells in 2020. As at the date hereof, the Corporation has completed the drilling of a total of 27 (27.0 net) wells and brought 20 (20.0 net) wells on production. The following tables summarize the wells that Birchcliff has drilled and brought on production year-to-date and the remaining and total number of wells to be drilled in 2020: Wells Drilled – 2020 AreaWells drilled year-to-dateRemaining wells to be drilled in 2020Total wells to be drilled in 2020Pouce CoupeMontney D1 horizontal natural gas wells404Montney D2 horizontal natural gas wells819Montney C horizontal natural gas wells707Total – Pouce Coupe19120GordondaleMontney D1 horizontal oil wells404Montney D2 horizontal oil wells404Total – Gordondale808TOTAL – COMBINED27128Wells Brought on Production – 2020 AreaWells brought on production year-to-dateRemaining wells to be brought on production in 2020Total wells to be brought on production in 2020(1)Pouce CoupeMontney D1 horizontal natural gas wells044Montney D2 horizontal natural gas wells7512Montney C horizontal natural gas wells358Total – Pouce Coupe101424GordondaleMontney D1 horizontal oil wells505Montney D2 horizontal oil wells404Montney D4 horizontal oil wells101Total – Gordondale10010TOTAL – COMBINED201434 (1)Includes 6 (6.0) net wells that were drilled and rig released in Q4 2019.Facilities and infrastructure spending under the 2020 Capital Program is largely directed towards the completion of Birchcliff’s Inlet Liquids-Handling Facility at the Pouce Coupe Gas Plant and other infrastructure projects in Gordondale. These projects are expected to provide numerous long-term benefits to Birchcliff, including the ability to increase its condensate production in the Pouce Coupe area, as discussed in further detail below. Birchcliff will continue to closely monitor commodity prices and its capital expenditures to curtail any spending beyond its current 2020 Capital Program. Pouce Coupe Drilling Activities and Results Birchcliff’s 2020 Capital Program for the Pouce Coupe area includes the drilling of 20 (20.0 net) wells and the bringing on production of 24 (24.0 net) wells. Year-to-date, Birchcliff has drilled 19 wells in Pouce Coupe and brought on production 10 wells. The 10 wells that were brought on production were completed on 2 pads. The first pad is an existing pad site at 06-32-078-12W6, where Birchcliff drilled an additional 2 wells in Q4 2019 and 2 wells in Q1 2020. All of these wells were drilled in the Montney D2 interval and were brought on production in late Q1 2020. Birchcliff has been encouraged by the initial results of these wells, which have showed strong condensate and natural gas rates. The second pad is an existing pad site at 14-06-079-12W6, where Birchcliff drilled an additional 2 wells in Q4 2019 and 4 wells in Q1 2020. These 6 wells were drilled in 2 different intervals (3 in the Montney D2 and 3 in the Montney C) and all were brought on production the week of May 11, 2020. Birchcliff’s 14-well pad located at 14-19-079-12W6 is using multi-interval cube-style development to maximize operational efficiencies through scale and repeatability, which in turn is expected to lead to further savings on a per well basis. To date, 13 of the 14 wells have been drilled and Birchcliff currently has 1 drilling rig at work which is drilling the last well on the pad. The pad is adjacent to the successful condensate-rich wells drilled by Birchcliff in 2019 in the Montney D1, D2 and C intervals at its 14-06-079-12W6 pad. Notwithstanding the current weakness in commodity prices, these 14 wells have excellent economics due to their high condensate and natural gas rates and low capital costs. This 14-well pad is anticipated to come on production in late Q3 2020, timed to coincide with the bringing on-stream of the new Inlet Liquids-Handling Facility. Facilities and Infrastructure The 2020 Capital Program also includes a number of facilities and infrastructure projects in the Pouce Coupe area, including the Inlet Liquids-Handling Facility. Field construction of the Inlet Liquids-Handling Facility is well underway and Birchcliff anticipates that the facility will be brought on-stream in late Q3 2020. Once completed, this facility will give Birchcliff the ability to increase its condensate production in the Pouce Coupe area to approximately 10,000 bbls/d. Gordondale Drilling Activities and Results Birchcliff’s 2020 Capital Program for the Gordondale area includes the drilling of 8 (8.0 net) wells and the bringing on production of 10 (10.0 net) wells. Birchcliff used multi-interval cube-style development to drill 10 wells using two drilling rigs on two proximal pads targeting the Montney D1, D2 and D4 intervals. Two wells were drilled in Q4 2019 and the remaining 8 wells were drilled in Q1 2020. Birchcliff drilled 4 wells on the first pad at 06-35-077-11W6 in Q1 2020. These 4 wells were drilled in 2 different intervals (2 in the Montney D1 and 2 in the Montney D2) and all were recently brought on production. Birchcliff has been encouraged by the initial results of these wells, which have showed strong light oil and natural gas rates. The second pad is adjacent to an existing pad site located at 02-02-078-11W6, where Birchcliff drilled an additional 6 wells. Two of the wells were drilled in Q4 2019 and 4 wells were drilled in Q1 2020. These 6 wells were drilled in 3 different intervals (3 in the Montney D1, 2 in the Montney D2 and 1 in the Montney D4). All of the wells are currently in various stages of completion and flow testing operations and are expected to be brought on production in Q2 2020. Although the initial results are still early, Birchcliff is encouraged by these results, which include test rates from the first Montney D4 well that the Corporation has drilled in Gordondale. The Montney D4 interval has been proven commercial in the Pouce Coupe area (with 12 producing wells) and Birchcliff anticipates that the extension of the Montney D4 into Gordondale will add more liquids-rich inventory utilizing the Corporation’s existing infrastructure. Facilities and Infrastructure The 2020 Capital Program also includes a number of facilities and infrastructure projects in the Gordondale area. Birchcliff recently completed the previously disclosed addition of natural gas compression at both of its 100% owned and operated oil batteries in Gordondale and the construction of its significant trunk line to transport oil, natural gas and water to these batteries from the southeastern portion of the field. The addition of natural gas compression at both batteries allows the existing wells to produce against lower wellhead pressures, which in turn is expected to increase production. The addition of the new trunk line allows the compression to become even more effective and handle both the new and existing volumes in the area. ABBREVIATIONS AECObenchmark price for natural gas determined at the AECO ‘C’ hub in southeast AlbertaATPAlliance Trading Poolbblbarrelbblsbarrelsbbls/dbarrels per dayboebarrel of oil equivalentboe/dbarrel of oil equivalent per dayC3+propane pluscondensatepentanes plus (C5+)F&Dfinding and developmentG&Ageneral and administrativeGAAPgenerally accepted accounting principles for Canadian public companies which are currently International Financial Reporting Standards as issued by the International Accounting Standards BoardGJgigajouleGJ/dgigajoules per dayHHHenry Hubm3cubic metresMcfthousand cubic feetMcf/dthousand cubic feet per dayMcfethousand cubic feet of gas equivalentMJmegajouleMM$millions of dollarsMMBtumillion British thermal unitsMMBtu/dmillion British thermal units per dayMMcfmillion cubic feetMMcf/dmillion cubic feet per dayMSWprice for mixed sweet crude oil at Edmonton, AlbertaNGLsnatural gas liquids consisting of ethane (C2), propane (C3) and butane (C4) and specifically excluding condensateNGTLNOVA Gas Transmission Ltd.NYMEXNew York Mercantile ExchangeOPEC+Organization of the Petroleum Exporting Countries (“OPEC”), with certain non-OPEC oil exporting countriesTCPLTransCanada PipeLines LimitedWTIWest Texas Intermediate, the reference price paid in U.S. dollars at Cushing, Oklahoma, for crude oil of standard grade000sthousands$000sthousands of dollarsAdvisories & Contact