FOCUSED
2023 ANNUAL REPORT Proactive succession
planning resulted in
leadership changes
for Birchcliff at
the end of 2023.
Leaders throughout
Birchcliff have been
elevated to new
roles and greater
responsibilities,
supported by those
who have made
Birchcliff successful.
Our team remains
strong and focused.
TABLE OF CONTENTS
2023 Financial and
Operational Summary
Overview
Message to
Shareholders
Montney/Doig
Resource Play
Management’s
Discussion and Analysis
Management’s
Report
Independent
Auditors’ Report
Financial
Statements
Notes to the
Financial Statements
Abbreviations
Non-GAAP and Other
Financial Measures
Advisories
Corporate
Information
01
02
04
06
09
71
72
75
79
100
101
102
107
References to “Birchcliff ”, the “Corporation”, “we”, “our”, “us” and “its” mean Birchcliff Energy Ltd. This report 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 this report. With respect to the disclosure of Birchcliff ’s production
contained herein, see “Advisories – Production” in this report. In addition, this report uses various “non-GAAP financial measures”, “non-GAAP ratios” and “capital management measures” as such
terms are defined in National Instrument 52-112 – Non-GAAP and Other Financial Measures Disclosure (“NI 52-112”). Non-GAAP financial measures and non-GAAP ratios are not standardized financial
measures under GAAP and might not be comparable to similar financial measures disclosed by other issuers. For further information regarding the non-GAAP and other financial measures used herein,
see “Non-GAAP and Other Financial Measures” in this report.
2023 FINANCIAL AND OPERATIONAL SUMMARY
Three months ended
December 31,
Twelve months ended
December 31,
2023
2022
2023
2022
OPERATING
Average production
Light oil (bbls/d)
Condensate (bbls/d)
NGLs (bbls/d)
Natural gas (Mcf/d)
Total (boe/d)
Average realized sales prices (CDN$)(1)
Light oil (per bbl)
Condensate (per bbl)
NGLs (per bbl)
Natural gas (per Mcf)
Total (per boe)
NETBACK AND COST ($/boe)
Petroleum and natural gas revenue(1)
Royalty expense
Operating expense
Transportation and other expense(2)
Operating netback(2)
G&A expense, net
Interest expense
Realized gain (loss) on financial instruments
Other cash income (expense)
Adjusted funds flow(2)
Depletion and depreciation expense
Unrealized gain (loss) on financial instruments
Other expenses(3)
Dividends on preferred shares
Deferred income tax recovery (expense)
Net income (loss) to common shareholders
FINANCIAL
Petroleum and natural gas revenue ($000s)(1)
Cash flow from operating activities ($000s)
Adjusted funds flow ($000s)(4)
Per basic common share ($)(2)
Free funds flow ($000s)(4)
Per basic common share ($)(2)
Net income (loss) to common shareholders ($000s)
Per basic common share ($)
End of period basic common shares (000s)
Weighted average basic common shares (000s)
Dividends on common shares ($000s)
Dividends on preferred shares ($000s)
F&D capital expenditures ($000s)(5)
Total capital expenditures ($000s)(4)
Revolving term credit facilities ($000s)
Total debt ($000s)(6)
1,649
5,145
7,653
372,594
76,546
100.07
103.80
26.95
2.92
26.02
26.03
(2.75)
(3.81)
(5.53)
13.94
(1.80)
(0.95)
(0.38)
0.01
10.82
(8.44)
(1.58)
(1.88)
-
0.29
(0.79)
183,295
79,006
76,215
0.29
18,049
0.07
(5,533)
(0.02)
267,156
266,667
53,390
-
58,166
59,541
372,097
382,306
2,413
4,822
7,963
387,604
79,799
115.24
114.32
35.80
6.11
43.63
43.64
(4.86)
(4.06)
(5.37)
29.35
(1.82)
(0.53)
2.57
-
29.57
(7.97)
(8.31)
(0.77)
-
(3.06)
9.46
320,358
224,447
217,099
0.82
110,337
0.41
69,453
0.26
266,047
265,922
58,503
-
106,762
107,471
131,981
138,549
1,849
5,202
6,306
374,052
75,699
99.07
103.76
26.92
3.03
26.79
26.80
(2.54)
(3.83)
(5.69)
14.74
(1.52)
(0.74)
(1.35)
(0.03)
11.10
(8.20)
(1.38)
(0.95)
-
(0.22)
0.35
740,359
320,529
306,827
1.15
2,190
0.01
9,780
0.04
267,156
266,465
213,344
-
304,637
307,916
372,097
382,306
2,223
4,679
7,471
375,315
76,925
119.78
122.27
41.09
6.73
47.73
47.73
(5.74)
(3.62)
(5.52)
32.85
(1.27)
(0.49)
2.88
-
33.97
(7.61)
4.67
(0.43)
(0.18)
(7.14)
23.28
1,340,180
925,275
953,683
3.59
589,062
2.22
653,682
2.46
266,047
265,548
71,788
5,162
364,621
368,230
131,981
138,549
(1) Excludes the effects of financial instruments but includes the effects of physical delivery contracts.
(2) Non-GAAP ratio. See “Non-GAAP and Other Financial Measures” in this report.
(3) Includes non-cash items such as compensation, accretion, amortization of deferred financing fees and other gains and losses.
(4) Non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” in this report.
(5) See “Advisories – F&D Capital Expenditures” in this report.
(6) Capital management measure. See “Non-GAAP and Other Financial Measures” in this report.
2023 ANNUAL REPORT
1
OVERVIEW
Birchcliff Energy Ltd. (“Birchcliff ”) is a Calgary, Alberta based
intermediate sized, low-emissions intensity energy producer that
explores for, develops and produces natural gas, light oil, condensate
and other natural gas liquids. Birchcliff is focused on the Montney/Doig
Resource Play in Alberta, which is considered by management to be one
of the premier resource plays in North America. Birchcliff’s operations
are primarily concentrated in the Pouce Coupe and Gordondale areas
of Alberta, where Birchcliff operates the vast majority of its production,
owns large contiguous blocks of high working interest land and owns
and/or controls many of the significant facilities and infrastructure that it
relies upon to handle the majority of its production. Birchcliff’s common
shares are listed on the TSX under the symbol BIR.
2
BIRCHCLIFF ENERGY
We generated annual
adjusted funds flow(1) of
$306.8
MILLION
or $1.15 per basic common share(2).
Our cash flow from operating
activities was $320.5 million.
We returned
$224.8
MILLION
to shareholders through common share
dividends and share repurchases under
our normal course issuer bid.
Reserves life index(4) at December 31, 2023
of 8.0 years on a PDP basis, 25.1 years on a
proved basis and
36.0
YEARS
ON A PROVED PLUS
PROBABLE BASIS.
2023 ACHIEVEMENTS
We earned annual net income to common shareholders of
$9.8 MILLION
or $0.04 per basic common share.
Proved and proved plus probable reserves increased
by 3% and 1%, respectively, from December 31, 2022.
Birchcliff’s proved reserves totalled 691.9 MMboe at
December 31, 2023, which reflects an F&D reserves
replacement(3) of 144%.
BIRCHCLIFF’S PROVED
PLUS PROBABLE
RESERVES
TOTALLED
993.9
MMboe
at December 31, 2023, which reflects an F&D
reserves replacement of 103%.
375.8
NET
SECTIONS
of Montney acreage at December 31, 2023. Disclosed
our Elmworth asset consisting of approximately 140 net
sections of Montney lands that are largely unbooked
from a reserves basis, providing us with significant
inventory and a large potential future development area.
(1) Non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” in this report.
(2) Non-GAAP ratio. See “Non-GAAP and Other Financial Measures” in this report.
(3) See “Advisories – Oil and Gas Metrics” in this report for a description of the methodology used to calculate reserves replacement.
(4) See “Advisories – Oil and Gas Metrics” in this report for a description of the methodology used to calculate reserves life index.
2023 ANNUAL REPORT
3
MESSAGE TO SHAREHOLDERS
FELLOW SHAREHOLDERS,
For nearly 20 years, Birchcliff has been focused on people,
innovation, operational excellence and creating long-term
shareholder value. This foundation remains intact as we reflect
on 2023 and look to 2024 and the years ahead. Various global
events remind us of how critical safe and responsibly produced
natural gas and oil supply is for Alberta, Canada and the world.
Birchcliff remains well positioned to support Canada’s role
as a leading supplier of responsible and affordable energy to
the world.
LOOKING BACK
In 2023, we successfully and efficiently executed our capital
program and brought a total of 32 wells on production. We
delivered annual average production of 75,699 boe/d and
adjusted funds flow of $306.8 million and returned
$224.8 million to shareholders through an annual common
share dividend of $0.80 per share and share repurchases under
our normal course issuer bid. We achieved a PDP F&D operating
netback recycle ratio(1) of 1.1x in a low commodity price
environment, notwithstanding $58.0 million of capital spent on
strategic priorities that did not add reserves or production in
2023. Our proved and proved plus probable reserves increased
by 3% and 1%, respectively, from year-end 2022.
Over the last number of years, we have strategically built
a large, contiguous, 100% working interest Montney land
position in the Elmworth area of Alberta, located 25 kilometres
to the south of our producing properties in Pouce Coupe and
Gordondale. This significant, largely undeveloped land base
in Elmworth positions Birchcliff to continue to drive long-term
shareholder value, providing us with a large potential future
development area which can be responsibly developed over
time, leveraging the extensive knowledge that we have gained
in developing our Pouce Coupe and Gordondale assets. In
2023, we drilled two Montney horizontal wells in Elmworth to
preserve our optionality for future growth in the area, which
continued a number of sections of Montney lands in Elmworth
that were set to expire in 2023.
LEADERSHIP TRANSITION
Our Board of Directors at Birchcliff takes a proactive approach
to succession planning and we made some exciting changes
to our Executive Team at the end of 2023. After nearly 20 years
at the helm of Birchcliff, Jeff Tonken chose to step down as
Chief Executive Officer and I assumed the role of President and
Chief Executive Officer effective January 1, 2024. Although he
stepped down as Chief Executive Officer, Jeff will continue to
provide leadership and guidance in his role as the Chairman of
(1) Non-GAAP ratio. See “Non-GAAP and Other Financial Measures” in this report.
the Board of Directors. As part of Birchcliff’s leadership
succession process, Myles Bosman, previously Executive
Vice President, Exploration, and David Humphreys, previously
Executive Vice President, Operations, each chose to retire
effective December 31, 2023. In connection with these retirements,
Theo van der Werken, previously Vice President, Engineering,
was appointed as Chief Operating Officer and Duane Thompson,
previously Birchcliff’s Production Manager, was appointed as
Vice President, Operations, effective January 1, 2024.
In addition, Cameron Proctor joined our Board of Directors
on October 4, 2023. Cam is an executive and lawyer with over
20 years of experience in the energy industry, including in the
areas of executive leadership, operations, finance, corporate
governance, business development and sustainability. His broad-
based experience and business acumen will be an excellent asset
to the Board and we look forward to benefitting from his insights
and perspectives.
I am excited to transition into this new role and lead our incredibly
talented and dedicated team. I am extremely grateful to Jeff,
Myles and Dave for their leadership, vision and guidance over
the years, which have been instrumental in creating Birchcliff’s
culture of excellence and delivering significant shareholder value.
I look forward to working together with our Executive Team and
our Board of Directors for many years to come, as we continue to
execute on our strategy.
RESPONSIBLE DEVELOPMENT
At Birchcliff, we are committed to the safe and responsible
production and delivery of clean, reliable natural gas and liquids
and we recognize the importance of, and our responsibility for,
environmental stewardship while developing our assets. As an
organization, we are committed to reducing the environmental
impact of our operations and we take proactive steps to eliminate
or reduce our environmental impact. This involves implementing
new technology, systems and processes that will help improve
efficiency, reduce our environmental footprint and create a safer
work environment. We continue to be incredibly proud of our
corporate emissions performance and Birchcliff remains a top-
decile emissions intensity performer amongst our industry
peers, thereby maintaining our status as a low-emissions
intensity producer.
LOOKING FORWARD
In January 2024, we updated our five-year outlook for 2024 to
2028, which continues to be focused on maintaining our strong
balance sheet, free funds flow generation and delivering returns
to shareholders, while targeting disciplined production growth
to fully utilize our available existing processing and transportation
capacity. We are currently targeting disciplined production growth
4
BIRCHCLIFF ENERGY
of 16% over the five-year period, with 2028 annual
average production of approximately 87,500 boe/d.
Our 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 online in North America.
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 to 2.0 Bcf/d) net zero emissions LNG
export project on the West Coast of British Columbia.
In order to ensure our long-term sustainability and
protect Birchcliff’s strong balance sheet during the
current period of low natural gas prices, which is
projected to continue during 2024, our Board of
Directors approved a revised annual base dividend
amount of $0.40 per common share for 2024.
Notwithstanding the low natural gas prices we are
currently experiencing, we remain bullish on the long-
term outlook for natural gas as LNG export capacity
increases in North America.
We are excited about our 2024 capital program, which
utilizes our latest wellbore and completions design
and targets high rate-of-return wells with strong capital
efficiencies and attractive paybacks. Our 2024 capital
budget reflects our commitment to maintaining a strong
balance sheet, while focusing on sustainable shareholder
returns and the continued development of our world-
class asset base. We are closely monitoring commodity
prices and we have the flexibility to adjust our 2024
capital program if necessary to achieve these priorities.
Our significant ownership and operatorship of our assets
gives us a strong competitive advantage, providing us
with the flexibility to actively manage our capital program
in response to changing economic conditions.
On behalf of our Executive Team and the Board of
Directors, I want to thank all of our people for their
strong performance and contributions to Birchcliff’s
success, along with our shareholders, service providers,
First Nations and communities for your ongoing support.
Chris Carlsen
President and Chief Executive Officer
“We are excited about
our 2024 capital
program, which utilizes
our latest wellbore and
completions design
and targets high rate-of-
return wells with strong
capital efficiencies and
attractive paybacks.“
- CHRIS CARLSEN
BIRCHCLIFF IS A PROUD
PARTNER OF THE NATURAL
GAS INNOVATION FUND
2023 ANNUAL REPORT
5
MONTNEY/DOIG RESOURCE PLAY
Our operations are concentrated within our
one core area in northwest Alberta, adjacent
to the Alberta/British Columbia border. Our
Montney/Doig Resource Play is considered
by management to be one of the most
desirable natural gas and light oil drilling
areas in North America.
BC AB
Dawson
Creek
6
BIRCHCLIFF ENERGY
Legend
Birchcliff Non-Confidential Land
Pouce Coupe Gas Plant
Gordondale Gas Plant
559
MONTNEY/DOIG
HORIZONTAL WELLS
DRILLED AND CASED
(557.5 NET)
At December 31, 2023
Grande
Prairie
DISCLAIMER: The IHS Markit reports,
data and information referenced herein
(the “IHS Markit Materials”) are the
copyrighted property of IHS Markit Ltd.
and its subsidiaries (“IHS Markit”) and
represent data, research, opinions or
viewpoints published by
IHS Markit,
and are not representations of fact. The
IHS Markit Materials speak as of the
original publication date thereof and
not as of the date of this document. The
information and opinions expressed in
the IHS Markit Materials are subject to
change without notice and IHS Markit has
no duty or responsibility to update the
IHS Markit Materials. Moreover, while the
IHS Markit Materials reproduced herein
are from sources considered reliable, the
accuracy and completeness thereof are
not warranted, nor are the opinions and
analyses which are based upon it. IHS
Markit is a trademark of IHS Markit. Other
trademarks appearing in the IHS Markit
Materials are the property of IHS Markit
or their respective owners.
MONTNEY/DOIG RESOURCE PLAY
300m
”
r
e
p
p
U
“
”
r
e
w
o
L
“
Mature Developed/Commercial
Future Potential
As of December 31, 2023
Over the past 19 years, Birchcliff has worked to de-risk
its Montney/Doig Resource Play by drilling both vertical
and horizontal exploration wells in order to develop
an in-depth understanding of the oil and gas pools,
rock properties and petrophysical characteristics and
reservoir parameters.
Our Montney/Doig Resource Play is a regionally pervasive, continuous, low-permeability hydrocarbon
accumulation or system that typically requires intensive stimulation to produce. The production
characteristics of this play generally include steep initial declines that rapidly trend to much lower
decline rates, yielding long-life production. The play exhibits a statistical distribution of estimated
ultimate recoveries and therefore provides a repeatable distribution of drilling opportunities.
Birchcliff is developing its Montney/Doig Resource Play through the use of horizontal drilling and
multi-stage fracture stimulation technology. Over the last several years, Birchcliff has focused on
multi-well pad drilling which allows Birchcliff to reduce its environmental footprint and helps it to
keep its per well costs low. Birchcliff continues to utilize geology, geophysics, engineering and
data science/analytics to assist with its land evaluation, portfolio optimization and well planning,
including acquiring and utilizing 3D seismic and subsurface diagnostics to reduce risk and
optimize well placement of its horizontal wells.
2023 ANNUAL REPORT
7
As of December 31, 2023Mature Developed/Commercial300m Future Potential431 WellsProducing from“Lower” Montney Stack 111 WellsProducing from “Upper” Montney Stack“Lower”“Upper”BASAL DOIGMONTNEY D5MONTNEY D4MONTNEY D3MONTNEY D2MONTNEY D1MONTNEY C 2023 FINANCIALS
8
BIRCHCLIFF ENERGY
Management’s Discussion and Analysis
GENERAL
This Management’s Discussion and Analysis (“MD&A”) for Birchcliff Energy Ltd. (“Birchcliff” or the “Corporation”) dated
March 13, 2024 is with respect to the three and twelve months ended December 31, 2023 (the “Reporting Periods”) as compared
to the three and twelve months ended December 31, 2022 (the “Comparable Prior Periods”). This MD&A has been prepared
by management and approved by the Corporation’s audit committee and board of directors (the “Board”) and should be read in
conjunction with the annual audited financial statements of the Corporation and related notes for the years ended December 31, 2023
and 2022 (the “financial statements”) which have been prepared in accordance with IFRS Accounting Standards. All dollar amounts
are expressed in Canadian currency, unless otherwise stated.
This MD&A uses various “non-GAAP financial measures”, “non-GAAP ratios” and “capital management measures” as such terms
are defined in National Instrument 52-112 – Non-GAAP and Other Financial Measures Disclosure (“NI 52-112”). Non-GAAP financial
measures and non-GAAP ratios are not standardized financial measures under GAAP and might not be comparable to similar financial
measures disclosed by other issuers. For further information, including reconciliations to the most directly comparable GAAP financial
measures where applicable, see “Non-GAAP and Other Financial Measures” in this MD&A.
This MD&A contains forward-looking statements and forward-looking information (collectively, “forward-looking statements”)
within the meaning of applicable Canadian securities laws. Such forward-looking statements are based upon certain expectations and
assumptions and actual results may differ materially from those expressed or implied by such forward-looking statements. For further
information regarding the forward-looking statements contained herein, see “Advisories – Forward-Looking Statements” in this MD&A.
All boe amounts have been calculated by using the conversion ratio of 6 Mcf of natural gas to 1 bbl of oil. For further information,
see “Advisories – Boe Conversions” in this MD&A.
With respect to the disclosure of Birchcliff’s production contained in this MD&A: (i) references to “light oil” mean “light crude oil
and medium crude oil” as such term is defined in National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities
(“NI 51-101”); (ii) references to “liquids” mean “light crude oil and medium crude oil” and “natural gas liquids” (including condensate)
as such terms are defined in NI 51-101; and (iii) references to “natural gas” mean “shale gas”, which also includes an immaterial amount
of “conventional natural gas”, as such terms are defined in NI 51-101. In addition, NI 51-101 includes condensate within the product
type of “natural gas liquids”. Birchcliff has disclosed condensate separately from other natural gas liquids as the price of condensate as
compared to other natural gas liquids is currently significantly higher and Birchcliff believes presenting the two commodities separately
provides a more accurate description of its operations and results therefrom.
Birchcliff publishes an annual environmental, social and governance (“ESG”) report containing comprehensive information relating to its
ESG performance, which can be found on the Corporation’s website at www.birchcliffenergy.com.
ABOUT BIRCHCLIFF
Birchcliff is a dividend-paying, intermediate oil and natural gas company based in Calgary, Alberta with operations focused on the
Montney/Doig Resource Play in Alberta. Birchcliff’s common shares are listed for trading on the Toronto Stock Exchange (the “TSX”)
under the symbol “BIR”. Additional information relating to the Corporation, including its Annual Information Form for the financial year
ended December 31, 2023 (the “AIF”), is available on the SEDAR+ website at www.sedarplus.ca and on the Corporation’s website
at www.birchcliffenergy.com.
2023 ANNUAL REPORT
9
2023 HIGHLIGHTS
· Delivered annual average production of 75,699 boe/d (82% natural gas and 18% liquids) in the twelve month Reporting Period
and quarterly average production of 76,546 boe/d (81% natural gas and 19% liquids) in the three month Reporting Period.
· Generated annual adjusted funds flow(1) of $306.8 million in the twelve month Reporting Period and quarterly adjusted funds flow
of $76.2 million in the three month Reporting Period. Cash flow from operating activities was $320.5 million in the twelve month
Reporting Period and $79.0 million in three month Reporting Period.
·
·
·
Reported annual net income to common shareholders of $9.8 million in the twelve month Reporting Period and a quarterly net
loss to common shareholders of $5.5 million in the three month Reporting Period.
F&D capital expenditures were $304.6 million in the twelve month Reporting Period and $58.2 million in the three month
Reporting Period. Birchcliff drilled 30 (30.0 net) wells and brought 32 (32.0 net) wells on production in the twelve month
Reporting Period.
Returned $213.3 million to shareholders in the twelve month Reporting Period through its base common share dividend.
In addition, Birchcliff purchased an aggregate of 1,427,868 common shares under its normal course issuer bid.
2024 OUTLOOK AND GUIDANCE
Birchcliff’s disciplined 2024 capital budget reflects its commitment to maintaining a strong balance sheet, while focusing on sustainable
shareholder returns and the continued development of its assets. Birchcliff is closely monitoring commodity prices and the previously
announced deferral of 13 wells to the second half of the year provides it with the flexibility to further adjust its 2024 capital program if
necessary to achieve these priorities. Based on its targeted F&D capital expenditures of $240 million to $260 million and as a result of
the Corporation adjusting its capital spending profile by moving capital into the second half of 2024, Birchcliff expects annual average
production of 74,000 to 77,000 boe/d in 2024. Birchcliff’s production profile for 2024 is designed to deliver higher production in
Q4 2024 when the Corporation anticipates higher commodity prices.
(1) Non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” in this MD&A.
10
BIRCHCLIFF ENERGY
The following tables set forth Birchcliff’s guidance and commodity price assumptions for 2024, its 2023 actual audited results and
2023 guidance for comparative purposes, as well as its free funds flow sensitivity for 2024:
Production
Annual average production (boe/d)
% Light oil
% Condensate
% NGLs
% Natural gas
Average Expenses ($/boe)
Royalty
Operating
Transportation and other(2)
Adjusted Funds Flow (millions)(3)
F&D Capital Expenditures (millions)
Free Funds Flow (millions)(3)
Annual Base Dividend (millions)
Excess Free Funds Flow (millions)(3)
Total Debt at Year End (millions)(6)
Natural Gas Market Exposure
AECO exposure as a % of total natural gas production
Dawn exposure as a % of total natural gas production
NYMEX HH exposure as a % of total natural gas production
Alliance exposure as a % of total natural gas production
Commodity Prices
Average WTI price (US$/bbl)
Average WTI-MSW differential (CDN$/bbl)
Average AECO price (CDN$/GJ)
Average Dawn price (US$/MMBtu)
Average NYMEX HH price (US$/MMBtu)
Exchange rate (CDN$ to US$1)
2024 guidance and
assumptions –
January 17, 2024(1)
2023
actual
results
2023 guidance and
assumptions –
November 14, 2023
74,000 – 77,000
75,699
77,000
3%
6%
10%
81%
2.30 – 2.50
3.85 – 4.05
5.50 – 5.70
$340
$240 – $260
$80 – $100
$107(4)
-(5)
$405 – $425
17%(7)
44%(7)
37%(7)
2%(7)
75.00(8)
5.45(8)
2.50(8)
2.80(8)
3.00(8)
1.33(8)
3%
7%
8%
82%
2.54
3.83
5.69
$306.8
$304.6
$2.2
$213.3
($211.2)
$382.3
15%
43%
38%
4%
77.76
4.37
2.50
2.33
2.74
1.35
3%
7%
8%
82%
2.55 – 2.75
3.75 – 3.95
5.60 – 5.80
$350
$300
$50
$213
($163)
$330
15%
42%
37%
6%
78.90
4.10
2.60
2.45
2.80
1.35
Forward twelve months’ free funds flow sensitivity(8)(9)
Estimated change to 2024 free funds flow (millions)
Change in WTI US$1.00/bbl
Change in NYMEX HH US$0.10/MMBtu
Change in Dawn US$0.10/MMBtu
Change in AECO CDN$0.10/GJ
Change in CDN/US exchange rate CDN$0.01
$3.6
$6.8
$7.9
$2.6
$4.6
(1) Birchcliff’s guidance for its production commodity mix, adjusted funds flow, free funds flow, total debt and natural gas market exposure in 2024 is based on an annual average production rate of
75,500 boe/d in 2024, which is the mid-point of Birchcliff’s annual average production guidance range for 2024. For further information regarding the risks and assumptions relating to the Corporation’s
guidance, see “Advisories – Forward-Looking Statements” in this MD&A.
(2) Non-GAAP ratio. See “Non-GAAP and Other Financial Measures” in this MD&A.
(3) Non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” in this MD&A.
(4) Assumes that an annual base dividend of $0.40 per common share is paid and that there are 268 million common shares outstanding, with no special dividends paid. The declaration of future dividends
is subject to the approval of the Board and is subject to change.
(5) Birchcliff has not provided excess free funds flow guidance for 2024.
(6) Capital management measure. See “Non-GAAP and Other Financial Measures” in this MD&A.
(7) Birchcliff’s natural gas market exposure for 2024 takes into account its outstanding financial basis swap contracts.
(8) Birchcliff’s commodity price and exchange rate assumptions and free funds flow sensitivity for 2024 are based on anticipated full-year averages using the Corporation’s anticipated forward benchmark
commodity prices and the CDN/US exchange rate as of January 8, 2024.
(9) Illustrates the expected impact of changes in commodity prices and the CDN/US exchange rate on the Corporation’s forecast of free funds flow for 2024, holding all other variables constant. The
sensitivity is based on the commodity price and exchange rate assumptions set forth in the table above. The calculated impact on free 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 and/or when the
magnitude of the change increases.
2023 ANNUAL REPORT
11
Comparison of 2023 Actual Results to 2023 Guidance
Birchcliff’s 2023 annual average production was below its guidance of 77,000 boe/d, primarily due to unplanned third-party outages.
Birchcliff’s 2023 royalty expense per boe, operating expense per boe and transportation and other expense per boe were in line
with guidance. Birchcliff’s 2023 adjusted funds flow, free funds flow and excess free funds flow were lower than its guidance and total
debt was above its guidance, all primarily due to lower than anticipated annual average benchmark natural gas prices. F&D capital
expenditures in 2023 were higher than guidance primarily due to the capitalized portion of annual cash incentive payments accrued
in 2023, which were not included in guidance.
SELECTED ANNUAL INFORMATION
The following table sets forth a summary of the Corporation’s annual results for the three most recently completed financial years:
Average production
Light oil (bbls/d)
Condensate (bbls/d)
NGLs (bbls/d)
Natural gas (Mcf/d)
Total (boe/d)
Average realized sales prices ($)(1)
Light oil (per bbl)
Condensate (per bbl)
NGLs (per bbl)
Natural gas (per Mcf)
Total (per boe)
Cash flow from operating activities ($000s)
Adjusted funds flow ($000s)(2)
Per common share – basic ($)(3)
Free funds flow($000s)(2)
Per common share – basic ($)(3)
Net income to common shareholders ($000s)(4)
Per common share – basic ($)(4)
Petroleum and natural gas revenue ($000s)(1)
F&D capital expenditures ($000s)(5)
Total capital expenditures ($000s)(2)
Total assets ($000s)
Revolving term credit facilities ($000s)
Total debt ($000s)(6)
End of period basic common shares (000s)
Weighted average basic common shares (000s)
Dividends on common shares ($000s)
Per common share ($)
2023
1,849
5,202
6,306
374,052
75,699
99.07
103.76
26.92
3.03
26.79
320,529
306,827
1.15
2,190
0.01
9,780
0.04
740,359
304,637
307,916
3,176,910
372,097
382,306
267,156
266,465
213,344
0.80
2022
2,223
4,679
7,471
375,315
76,925
119.78
122.27
41.09
6.73
47.73
925,275
953,683
3.59
589,062
2.22
653,682
2.46
1,340,180
364,621
368,230
3,169,365
131,981
138,549
266,047
265,548
71,788
0.27
2021
2,899
5,715
7,705
373,217
78,520
79.24
85.65
30.54
4.29
32.53
515,369
539,733
2.03
309,254
1.16
310,489
1.17
932,406
230,479
232,480
2,959,967
500,870
499,397
264,790
265,990
6,639
0.03
(1) Excludes the effects of financial instruments but includes the effects of physical delivery contracts.
(2) Non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” in this MD&A.
(3) Non-GAAP ratio. See “Non-GAAP and Other Financial Measures” in this MD&A.
(4) Net income for the years ended December 31, 2022 and 2021 has been reduced by the dividends on the cumulative redeemable preferred shares, Series A (the “Series A Preferred Shares”) totalling
$3.1 million and $4.2 million, respectively, in determining net income to common shareholders.
(5) See “Advisories – F&D Capital Expenditures” in this MD&A.
(6) Capital management measure. See “Non-GAAP and Other Financial Measures” in this MD&A.
12
BIRCHCLIFF ENERGY
Annual average production in 2023 decreased by 2% and 4% from 2022 and 2021, respectively, primarily due to lower NGLs and light
oil production. In 2023, the Corporation’s NGLs production was negatively impacted by an unplanned system outage on Pembina
Pipeline’s Northern Pipeline system (the “Pembina Outage”) that reduced the Corporation’s NGLs sales volumes in the first half of
2023. The Corporation’s light oil production has generally trended lower as a result of the Corporation specifically targeting natural
gas wells in liquids-rich zones. Annual average production in each year was positively impacted by incremental production volumes
from new Montney/Doig wells brought on production and negatively impacted by natural production declines.
In 2023, cash flow from operating activities decreased by 65% and 38% from 2022 and 2021, respectively, and adjusted funds flow
decreased by 68% and 43% from 2022 and 2021, respectively. The decreases were primarily due to a lower average realized sales
price Birchcliff received for its production in 2023 as compared to 2022 and 2021. Birchcliff’s 2023 average realized sales price
decreased by 44% and 18% from 2022 and 2021, respectively, primarily due to a lower realized natural gas sales price received for
its production. Birchcliff’s cash flow from operating activities and adjusted funds flow were also negatively impacted by a realized loss
on financial instruments of $37.3 million in 2023 as compared to a realized gain on financial instruments of $80.7 million in 2022 and
a realized loss on financial instruments of $21.5 million in 2021.
Free funds flow in 2023 decreased by 100% and 99% from 2022 and 2021, respectively, primarily due to lower adjusted funds flow,
as compared to the prior two years.
Birchcliff’s net income to common shareholders in 2023 decreased by 99% and 97% from 2022 and 2021, respectively. The decreases
were primarily due to lower adjusted funds flow and an unrealized loss on financial instruments, largely resulting from the changes in
the fair value of the Corporation’s NYMEX HH/AECO 7A basis swap contracts, partially offset by a lower income tax expense in 2023.
Birchcliff recorded an unrealized loss on financial instruments of $38.2 million in 2023 as compared to an unrealized gain on financial
instruments of $131.0 million and $84.2 million in 2022 and 2021, respectively.
F&D capital expenditures in 2023 decreased by 16% from 2022 and increased by 32% from 2021. The Corporation’s F&D capital
expenditures fluctuate each year based on the: (i) Corporation’s outlook for commodity prices and market conditions; and (ii) level of
drilling and completions operations and other capital projects and the timing and cost thereof.
Total debt at December 31, 2023 increased by 176% from December 31, 2022, primarily due to F&D capital expenditures and
dividends paid to common shareholders being greater than adjusted funds flow in 2023. Total debt at December 31, 2023 decreased
by 23% from December 31, 2021, primarily due to significant free funds flow generated in 2022, which was largely allocated toward
debt reduction in that period. See “Capital Resources and Liquidity” in this MD&A.
Common share dividend distributions in 2023 increased from the prior two years, primarily due to the Corporation paying a $0.20 per
common share dividend in each quarter of 2023. See “Dividends” in this MD&A.
CASH FLOW FROM OPERATING ACTIVITIES AND ADJUSTED FUNDS FLOW
The following table sets forth the Corporation’s cash flow from operating activities and adjusted funds flow for the periods indicated:
Cash flow from operating activities ($000s)
Adjusted funds flow ($000s)(1)
Per basic common share ($)(2)
Per diluted common share ($)(2)
Adjusted funds flow per boe ($)(2)
Three months ended
December 31,
2022
% Change
224,447
217,099
0.82
0.79
29.57
(65)
(65)
(65)
(65)
(63)
2023
320,529
306,827
1.15
1.13
11.10
Twelve months ended
December 31,
2022
% Change
925,275
953,683
3.59
3.47
33.97
(65)
(68)
(68)
(67)
(67)
2023
79,006
76,215
0.29
0.28
10.82
(1) Non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” in this MD&A.
(2) Non-GAAP ratio. See “Non-GAAP and Other Financial Measures” in this MD&A.
Cash flow from operating activities decreased by 65% from both the three and twelve month Comparable Prior Periods. Adjusted
funds flow decreased by 65% and 68% from the three and twelve month Comparable Prior Periods, respectively. The decreases were
primarily due to lower natural gas revenue, which was largely impacted by a 52% and 55% decrease in the average realized sales price
Birchcliff received for its natural gas production in the three and twelve month Reporting Periods, respectively.
Birchcliff’s cash flow from operating activities and adjusted funds flow were also negatively impacted by realized losses on financial
instruments in the Reporting Periods as compared to realized gains on financial instruments in the Comparable Prior Periods and
positively impacted by lower royalty expense in the Reporting Periods due to lower commodity prices.
See “Discussion of Operations” in this MD&A for further information.
2023 ANNUAL REPORT
13
NET INCOME AND LOSS TO COMMON SHAREHOLDERS
The following table sets forth the Corporation’s net income and loss to common shareholders for the periods indicated:
Net income (loss) to common shareholders ($000s)
Per basic common share ($)
Per diluted common share ($)
Net income (loss) to common shareholders per boe ($)
Three months ended
December 31,
2022
% Change
69,453
0.26
0.25
9.46
(108)
(108)
(108)
(108)
Twelve months ended
December 31,
2022
% Change
653,682
2.46
2.38
23.28
(99)
(98)
(98)
(98)
2023
9,780
0.04
0.04
0.35
2023
(5,533)
(0.02)
(0.02)
(0.79)
Birchcliff reported a net loss to common shareholders of $5.5 million in the three month Reporting Period as compared to net income
to common shareholders of $69.5 million in the Comparable Prior Period. The change to a net loss position was primarily due to lower
adjusted funds flow, partially offset by a lower unrealized loss on financial instruments in the three month Reporting Period. Birchcliff
recorded an unrealized loss on financial instruments of $11.1 million in the three month Reporting Period as compared to an unrealized
loss on financial instruments of $61.0 million in the Comparable Prior Period.
Birchcliff earned net income to common shareholders of $9.8 million in the twelve month Reporting Period as compared to
$653.7 million in the Comparable Prior Period. The decrease was primarily due to lower adjusted funds flow and an unrealized loss on
financial instruments of $38.2 million in the twelve month Reporting Period as compared to an unrealized gain on financial instruments
of $131.0 million in the Comparable Prior Period, partially offset by a lower income tax expense in the twelve month Reporting Period.
The changes in unrealized gains and losses primarily resulted from changes in the net fair value of the Corporation’s NYMEX HH/AECO 7A
basis swap contracts.
See “Cash Flow From Operating Activities and Adjusted Funds Flow” and “Discussion of Operations” in this MD&A for further information.
DISCUSSION OF OPERATIONS
Petroleum and Natural Gas Revenue
The following table sets forth Birchcliff’s P&NG revenue by product category for the periods indicated:
($000s)
Light oil
Condensate
NGLs
Natural gas
P&NG sales(1)
Royalty income
P&NG revenue(1)
Three months ended
December 31,
Twelve months ended
December 31,
2023
15,180
49,135
18,977
99,957
183,249
46
2022
25,588
50,712
26,224
217,822
320,346
12
183,295
320,358
% Change
(41)
(3)
(28)
(54)
(43)
283
(43)
2023
66,848
197,032
61,969
414,336
740,185
174
2022
97,185
208,828
112,049
922,060
1,340,122
58
740,359
1,340,180
% Change
(31)
(6)
(45)
(55)
(45)
200
(45)
(1) Excludes the effects of financial instruments but includes the effects of physical delivery contracts.
P&NG revenue decreased by 43% and 45% from the three and twelve month Comparable Prior Periods, respectively. The decreases
were primarily due to a 54% and 55% decrease in natural gas revenue in the three and twelve month Reporting Periods, respectively,
which largely resulted from a lower average realized sales price received for Birchcliff’s natural gas production in the Reporting Periods.
P&NG revenue was also negatively impacted by lower liquids revenue in the Reporting Periods, which largely resulted from a lower
average realized sales price received for Birchcliff’s liquids production. P&NG revenue in the Reporting Periods was also negatively
impacted by lower production.
14
BIRCHCLIFF ENERGY
Production
The following table sets forth Birchcliff’s production by product category for the periods indicated:
Light oil (bbls/d)
Condensate (bbls/d)
NGLs (bbls/d)
Natural gas (Mcf/d)
Production (boe/d)
Liquids-to-gas ratio (bbls/MMcf)
Three months ended
December 31,
Twelve months ended
December 31,
2023
1,649
5,145
7,653
372,594
76,546
38.8
2022
2,413
4,822
7,963
387,604
79,799
39.2
% Change
(32)
7
(4)
(4)
(4)
(1)
2023
1,849
5,202
6,306
374,052
75,699
35.7
2022
2,223
4,679
7,471
375,315
76,925
38.3
% Change
(17)
11
(16)
-
(2)
(7)
Birchcliff’s production decreased by 4% and 2% from the three and twelve month Comparable Prior Periods, respectively.
The decrease in the three month Reporting Period was primarily due to: (i) unplanned third-party outages, including a third-party
compressor outage that continued until the end of January 2024; (ii) lower light oil production resulting from the Corporation
continuing to target natural gas wells in liquids-rich zones; and (iii) natural production declines.
The decrease in the twelve month Reporting Period was primarily due to: (i) the Pembina Outage, which reduced the Corporation’s
NGLs sales volumes in the first half of 2023; (ii) lower light oil production resulting from the Corporation continuing to target natural
gas wells in liquids-rich zones; (iii) the timing of wells brought on production in the twelve month Reporting Period as compared to the
Comparable Prior Period, which resulted from the strategic decision to defer the drilling of nine wells from Q2 2023 to Q3 2023; and
(iv) natural production declines.
Birchcliff’s production in the Reporting Periods was positively impacted by incremental production volumes from the new Montney/Doig
wells brought on production during the year.
The following table sets forth Birchcliff’s production weighting by product category for the periods indicated:
% Light oil production
% Condensate production
% NGLs production
% Natural gas production
Three months ended
December 31,
Twelve months ended
December 31,
2023
2022
2023
2022
2
7
10
81
3
6
10
81
3
7
8
82
3
6
10
81
Liquids accounted for 19% and 18% of Birchcliff’s total production in the three and twelve month Reporting Periods, respectively, as
compared to 19% in both of the Comparable Prior Periods. Liquids production weighting decreased in the twelve month Reporting
Period primarily due to the Pembina Outage, which negatively impacted NGLs sales volumes.
2023 ANNUAL REPORT
15
Benchmark Commodity Prices
Benchmark commodity prices directly impact the average realized sales prices that the Corporation receives for its liquids and natural
gas production.
The following table sets forth the average benchmark commodity prices and exchange rate for the periods indicated:
Light oil – WTI Cushing (US$/bbl)
Light oil – MSW (Mixed Sweet) (CDN$/bbl)
Natural gas – NYMEX HH (US$/MMBtu)
Natural gas – AECO 5A Daily (CDN$/GJ)
Natural gas – AECO 7A Month Ahead (US$/MMBtu)
Natural gas – Dawn Day Ahead (US$/MMBtu)
Natural gas – ATP 5A Day Ahead (CDN$/GJ)
Exchange rate (CDN$ to US$1)
Exchange rate (US$ to CDN$1)
Three months ended
December 31,
2022
82.64
110.18
6.26
4.85
4.11
5.16
4.53
1.3573
0.7368
% Change
(5)
(9)
(54)
(55)
(53)
(56)
(49)
1
(1)
Twelve months ended
December 31,
2022
% Change
94.31
119.95
6.64
5.04
4.28
6.04
5.14
1.3004
0.7690
(18)
(16)
(59)
(50)
(49)
(61)
(55)
4
(4)
2023
77.76
100.81
2.74
2.50
2.17
2.33
2.30
1.3523
0.7395
2023
78.32
100.31
2.88
2.18
1.94
2.28
2.30
1.3700
0.7299
Birchcliff physically sells substantially all of its natural gas production based on the AECO and Dawn benchmark prices. 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, with the first tranche of this service (120,000 GJ/d) expiring
on October 31, 2027, the second tranche of this service (30,000 GJ/d) expiring on October 31, 2028 and the third tranche of this
service (25,000 GJ/d) expiring on October 31, 2029. In addition, the Corporation has diversified a portion of its AECO production
to NYMEX HH-based pricing, on a financial basis, with various terms ending no later than December 31, 2027. Birchcliff had financial
NYMEX HH/AECO 7A basis swap contracts for 147,500 MMBtu/d at an average contract price of NYMEX HH less US$1.227/MMBtu
during the Reporting Periods and Comparable Prior Periods. Natural gas benchmark prices deteriorated significantly from the
Comparable Prior Periods largely due to a supply and demand imbalance that resulted from rising natural gas production and storage
inventories in North America and warm winter conditions that reduced weather-related regional demand for natural gas during the
Reporting Periods.
Birchcliff physically sells substantially all of its liquids production based on the MSW benchmark price, which generally trades at
a discount to the WTI benchmark price. Benchmark pricing for crude oil was lower in the Reporting Periods as compared to the
Comparable Prior Periods primarily due to: (i) continued global recession concerns; (ii) a rising interest rate environment to combat
inflation; (iii) lower than expected economic demand for crude oil in China; and (iv) a reduced risk premium on crude oil, which had
resulted from supply concerns arising from geopolitical conflicts worldwide. Benchmark pricing for crude oil was supported by
continued OPEC+ supply cuts.
Average Realized Sales Prices
The average realized sales prices that the Corporation receives for its liquids and natural gas production directly impacts the
Corporation’s net income and loss to common shareholders, adjusted funds flow and financial position. Such prices depend on
a number of factors, including, but not limited to, the benchmark prices for crude oil and natural gas, the U.S. to Canadian dollar
exchange rate, transportation costs, product quality differentials and the heat premium on the Corporation’s natural gas production.
The following table sets forth Birchcliff’s average realized light oil, condensate, NGLs and natural gas sales prices for the periods indicated:
Light oil ($/bbl)
Condensate ($/bbl)
NGLs ($/bbl)
Natural gas ($/Mcf)
Average realized sales price ($/boe)(1)
Three months ended
December 31,
2022
% Change
115.24
114.32
35.80
6.11
43.63
(13)
(9)
(25)
(52)
(40)
Twelve months ended
December 31,
2022
% Change
119.78
122.27
41.09
6.73
47.73
(17)
(15)
(34)
(55)
(44)
2023
99.07
103.76
26.92
3.03
26.79
2023
100.07
103.80
26.95
2.92
26.02
(1) Excludes the effects of financial instruments but includes the effects of physical delivery contracts.
16
BIRCHCLIFF ENERGY
The Corporation’s average realized sales price decreased by 40% and 44% from the three and twelve month Comparable Prior Periods,
respectively, primarily due to lower benchmark oil and natural gas prices, which negatively impacted the sales prices Birchcliff received
for its liquids and natural gas production in the Reporting Periods. Birchcliff is fully exposed to increases and decreases in benchmark
commodity prices as it has no fixed price commodity hedges in place.
Natural Gas Sales, Production and Average Realized Sales Price by Market
The average realized sales price that the Corporation receives from each natural gas market depends on regional supply and
demand fundamentals, which can be impacted by a number of factors, including, but not limited to, production levels, weather-related
demand in each natural gas consuming market, economic activity, local inventory levels and access to storage and pipeline supply
takeaway capacity.
The following table sets forth Birchcliff’s physical sales, production and average realized sales price by natural gas market for the
periods indicated, before taking into account the Corporation’s financial instruments:
Three months ended
December 31, 2023
Three months ended
December 31, 2022
Natural
gas sales
($000s)(1)
50,508
47,433
2,016
Natural gas
production
(Mcf/d)
203,024
161,119
8,451
(%)
51
47
2
(%)
55
43
2
99,957
100
372,594 100
Average
realized
sales price
($/Mcf)(1)
2.72
3.20
2.59
2.92
Natural
gas sales
($000s)(1)
101,194
106,494
10,134
Natural gas
production
(Mcf/d)
208,042
161,671
17,891
(%)
46
49
5
(%)
53
42
5
217,822
100
387,604 100
Average
realized
sales price
($/Mcf)(1)
5.31
7.16
6.16
6.11
Twelve months ended
December 31, 2023
Twelve months ended
December 31, 2022
Natural
gas sales
($000s)(1)
205,465
193,448
15,423
Natural gas
production
(Mcf/d)
200,400
161,234
12,418
(%)
50
47
3
(%)
54
43
3
414,336
100
374,052
100
Average
realized
sales price
($/Mcf)(1)
2.82
3.29
3.40
3.03
Natural
gas sales
($000s)(1)
388,167
479,726
54,166
Natural gas
production
(Mcf/d)
189,311
160,837
25,167
(%)
42
52
6
(%)
50
43
7
922,059
100
375,315
100
Average
realized
sales price
($/Mcf)(1)
5.66
8.17
5.90
6.73
Natural gas market
AECO
Dawn
Alliance(2)
Total
Natural gas market
AECO
Dawn
Alliance(2)
Total
(1) Excludes the effects of financial instruments but includes the effects of physical delivery contracts.
(2) Birchcliff has short-term physical sales agreements with third-party marketers to sell and deliver into the Alliance pipeline system. Alliance sales are recorded net of transportation tolls.
The average realized sales price in each natural gas market deteriorated significantly from the Comparable Prior Periods largely due
to rising natural gas production and storage inventories in North America and warm winter conditions that reduced weather-related
regional demand for natural gas during the Reporting Periods.
Market Diversification and Risk Management
Birchcliff engages in market diversification and risk management activities to diversify its sales points or fix commodity prices and market
interest rates. The Board has approved the Corporation to execute a risk management strategy whereby Birchcliff is authorized, subject
to compliance with the agreement governing the Corporation’s extendible revolving term credit facilities (the “Credit Facilities”), to
enter into agreements and financial or physical transactions with one or more counterparties from time to time that are intended to
reduce the risk to the Corporation from volatility in future commodity prices, interest rates and/or foreign exchange rates.
Birchcliff has not designated its financial derivative contracts as effective accounting hedges, even though the Corporation considers
all financial instruments to be effective economic hedges. As a result, all such financial instruments are recorded on the statements of
financial position on a mark-to-market fair value basis at the end of the reporting period, with the changes in the net fair value being
recognized as a non-cash unrealized gain or loss in profit or loss and realized upon settlement. These contracts are not entered into for
trading or speculative purposes.
2023 ANNUAL REPORT
17
Commodity Price Risk
Commodity price risk is the risk that the fair value of future cash flows will fluctuate as a result of changes in commodity prices.
Significant changes in commodity prices can materially impact the Corporation’s financial performance, operating results and financial
position.
At December 31, 2023, the Corporation had the following financial derivative contracts in place to manage commodity price risk:
Product
Type of Contract
Average Notional Quantity
Period(1)
Average Contract Price
Natural gas
AECO 7A basis swap(2)
147,500 MMBtu/d
Jan. 1, 2024 – Dec. 31, 2024
NYMEX HH less US$1.120/MMBtu
Natural gas
AECO 7A basis swap(2)
147,500 MMBtu/d
Jan. 1, 2025 – Dec. 31, 2025
NYMEX HH less US$1.088/MMBtu
Natural gas
AECO 7A basis swap(2)
70,000 MMBtu/d
Jan. 1, 2026 – Dec. 31, 2026
NYMEX HH less US$0.961/MMBtu
Natural gas
AECO 7A basis swap(2)
25,000 MMBtu/d
Jan. 1, 2027 – Dec. 31, 2027
NYMEX HH less US$0.788/MMBtu
(1) Transactions with a common term have been aggregated and presented at the weighted average price.
(2) Birchcliff sold AECO basis swap.
There were no financial derivative contracts entered into subsequent to December 31, 2023 to manage commodity price risk.
Interest Rate Risk
Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Corporation’s Credit
Facilities are exposed to interest rate risk. The remainder of Birchcliff’s financial assets and liabilities are not directly exposed to interest
rate risk.
At December 31, 2023, Birchcliff had the following financial derivative contracts in place to manage interest rate risk:
Type of Contract
Index
Remaining Term(1)
Notional Amount
Fixed Rate
Interest rate swap
One-month banker’s acceptance – CDOR(2)
Jan. 1, 2024 – Feb. 29, 2024
$350 million
2.215%
(1) All transactions have been aggregated and presented at the weighted average fixed rate.
(2) Canadian Dollar Offered Rate (“CDOR”).
There were no financial derivative contracts entered into subsequent to December 31, 2023 to manage interest rate risk.
Realized Gains and Losses on Financial Instruments
The following table provides a summary of Birchcliff’s realized gains and losses on financial instruments for the periods indicated:
Realized gain (loss) ($000s)
Realized gain (loss) ($/boe)
Three months ended
December 31,
Twelve months ended
December 31,
2023
(2,583)
(0.38)
2022
% Change
2023
2022
% Change
18,764
2.57
(114)
(115)
(37,285)
(1.35)
80,742
2.88
(146)
(147)
Birchcliff recorded a realized loss on financial instruments of $2.6 million and $37.3 million in three and twelve month Reporting Periods,
respectively, as compared to a realized gain on financial instruments of $18.8 million and $80.7 million in the Comparable Prior Periods.
Birchcliff’s realized gains and losses on financial instruments were primarily impacted by the settlement of its NYMEX HH/AECO 7A
basis swap contracts during the Reporting Periods and Comparable Prior Periods. The Corporation records a realized gain on its
NYMEX HH/AECO 7A basis swap contracts when the average realized settlement price (the average spread between NYMEX HH and
AECO 7A) of the contracted volumes is higher than the average contract price in the period. Conversely, the Corporation records a
realized loss on its NYMEX HH/AECO 7A basis swap contracts when the average realized settlement price of the contracted volumes
is lower than the average contract price in the period.
The average contract volume and price for Birchcliff’s NYMEX HH/AECO 7A basis swap contracts were 147,500 MMBtu/d and
US$1.227/MMBtu, respectively, during the Reporting Periods and Comparable Prior Periods. The average realized settlement price
of the Corporation’s financial NYMEX HH/AECO 7A basis swap contracts during the three and twelve month Reporting Periods was
US$0.94/MMBtu and US$0.57/MMBtu, respectively, as compared to US$2.14/MMBtu and US$2.36/MMBtu during the Comparable
Prior Periods.
18
BIRCHCLIFF ENERGY
Unrealized Gains and Losses on Financial Instruments
The following table provides a summary of Birchcliff’s unrealized gains and losses on financial instruments for the periods indicated:
Unrealized gain (loss) ($000s)
Unrealized gain (loss) ($/boe)
Three months ended
December 31,
Twelve months ended
December 31,
2023
2022
% Change
2023
2022
% Change
(11,149)
(61,013)
(1.58)
(8.31)
82
81
(38,185)
131,042
(1.38)
4.67
(129)
(130)
Birchcliff’s unrealized gains and losses on financial instruments are impacted by changes in the net fair value of its financial contracts at
the end of the current reporting period as compared to the previous reporting period. The Corporation records an unrealized gain on
its financial instruments when the net fair value of its financial contracts has increased at the end of the current reporting period when
compared to the previous reporting period. Conversely, the Corporation records an unrealized loss on its financial instruments when
the net fair value of its financial contracts has decreased at the end of the current reporting period when compared to the previous
reporting period. The Corporation’s unrealized gains and losses on financial instruments can fluctuate materially from period to period
due to movement in the underlying forward strip commodity prices and interest rates and may have a significant impact on its net
income or loss in a period. Unrealized gains and losses on financial instruments do not impact the Corporation’s adjusted funds flow
and may differ materially from the actual gains or losses realized on the eventual cash settlement of financial contracts in a period.
The unrealized loss on financial instruments of $11.1 million in the three month Reporting Period resulted from a decrease in the fair value
net asset position to $9.1 million at December 31, 2023 from $20.2 million at September 30, 2023. The change in the net fair value of
the Corporation’s financial instruments was primarily due to the: (i) decrease (or tightening) in the forward basis spread between the
Corporation’s financial NYMEX HH/AECO 7A basis swap contracts outstanding at December 31, 2023 as compared to the net fair
value previously assessed at September 30, 2023; and (ii) settlement of the Corporation’s financial NYMEX HH/AECO 7A basis swap
contracts during the three month Reporting Period.
The unrealized loss on financial instruments of $38.2 million in the twelve month Reporting Period resulted from a decrease in the fair
value net asset position to $9.1 million at December 31, 2023 from $47.3 million at December 31, 2022. The change in the net fair value
of the Corporation’s financial instruments was primarily due to the: (i) decrease (or tightening) in the forward basis spread between the
Corporation’s financial NYMEX HH/AECO 7A basis swap contracts outstanding at December 31, 2023 as compared to the net fair
value previously assessed at December 31, 2022; and (ii) settlement of the Corporation’s financial NYMEX HH/AECO 7A basis swap
contracts during the twelve month Reporting Period.
Royalties
The following table sets forth Birchcliff’s royalty expense for the periods indicated:
Royalty expense ($000s)(1)
Royalty expense ($/boe)
Effective royalty rate (%)(2)
Three months ended
December 31,
2022
% Change
35,679
4.86
11
(46)
(43)
-
Twelve months ended
December 31,
2022
% Change
161,226
5.74
12
(56)
(56)
(25)
2023
70,257
2.54
9
2023
19,400
2.75
11
(1) Royalties are paid primarily to the Government of Alberta.
(2) The effective royalty rate is calculated by dividing the aggregate royalties into P&NG sales for the period.
Royalty expense per boe decreased by 43% and 56% from the three and twelve month Comparable Prior Periods, respectively,
primarily due to a lower average realized sales price received for Birchcliff’s production in the Reporting Periods.
2023 ANNUAL REPORT
19
Operating Expense
The following table sets forth a breakdown of Birchcliff’s operating expense for the periods indicated:
($000s)
Field operating expense
Recoveries
Operating expense
Operating expense ($/boe)
Three months ended
December 31,
2022
% Change
30,952
(1,169)
29,783
4.06
(10)
(4)
(10)
(6)
2023
110,116
(4,307)
105,809
3.83
Twelve months ended
December 31,
2022
% Change
106,203
(4,622)
101,581
3.62
4
(7)
4
6
2023
27,932
(1,124)
26,808
3.81
Operating expense per boe decreased by 6% from the three month Comparable Prior Period and increased by 6% from the
twelve month Comparable Prior Period. The decrease from the three month Comparable Prior Period was primarily due to lower
power and fuel costs in the Reporting Period. The increase from the twelve month Comparable Prior Period was primarily due to
inflationary pressures in service labour and other supply costs used in Birchcliff’s field operations, which together increased by
22% on a per boe basis, from the Comparable Prior Period, and higher property taxes and regulatory fees.
Transportation and Other
The following table sets forth Birchcliff’s transportation and other expense for the periods indicated:
($000s)
Natural gas transportation
Liquids transportation
Fractionation
Other fees
Transportation expense
Transportation expense ($/boe)
Marketing purchases(1)
Marketing revenue(1)
Marketing loss (gain)(2)
Marketing loss (gain) ($/boe)(3)
Transportation and other expense(2)
Transportation and other expense ($/boe)(3)
Three months ended
December 31,
2022
% Change
Twelve months ended
December 31,
2022
% Change
2023
28,061
8,608
1,840
-
28,277
8,118
2,298
100
38,509
38,793
5.47
8,928
5.29
9,529
(8,532)
(8,916)
396
0.06
613
0.08
38,905
39,406
5.53
5.37
(1)
6
(20)
(100)
(1)
3
(6)
(4)
(35)
(25)
(1)
3
2023
118,588
27,455
6,782
3
115,833
29,639
10,222
170
152,828
155,864
5.53
34,772
5.55
17,866
(30,521)
(18,806)
4,251
0.16
(940)
(0.03)
157,079
154,924
5.69
5.52
2
(7)
(34)
(98)
(2)
-
95
62
552
663
1
3
(1) Marketing purchases and marketing revenue primarily represent the purchase and sale of commodities with third parties. Birchcliff enters into certain commodity purchase and sale arrangements to
reduce its take-or-pay fractionation fees associated with third-party commitments. The value of commodities purchased or sold during the period is primarily driven by prevailing commodity prices, the
availability of sellers and buyers for fractionated products and the fractionation capacity available in the market. The value of commodities purchased and sold to third parties are recorded on a gross basis
for financial statement presentation purposes. Marketing revenue also includes a propane supply arrangement with a third-party polypropylene producer, which is recorded net of processing costs and
other charges.
(2) Non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” in this MD&A.
(3) Non-GAAP ratio. See “Non-GAAP and Other Financial Measures” in this MD&A.
Transportation and other expense per boe increased by 3% from both the three and twelve month Comparable Prior Periods. The
increases from the Comparable Prior Periods were primarily due to a marketing loss on a propane supply arrangement with a third-party
producer of polypropylene and lower production volumes during the Reporting Periods.
20
BIRCHCLIFF ENERGY
Operating Netback
The following table sets forth Birchcliff’s average production and operating netback for the Pouce Coupe operating assets geologically
situated in the dry natural gas and liquids-rich natural gas trends of the Montney/Doig Resource Play (the “Pouce Coupe assets”) and
the Gordondale operating assets geologically situated in the light oil and liquids-rich trends of the Montney/Doig Resource Play
(the “Gordondale assets”) and operating netback on a corporate basis for the periods indicated:
Three months ended
December 31,
Twelve months ended
December 31,
2023
2022
% Change
2023
2022
% Change
Pouce Coupe assets
Average production
Light oil (bbls/d)
Condensate (bbls/d)
NGLs (bbls/d)
Natural gas (Mcf/d)
Production (boe/d)
Liquids-to-gas ratio (bbls/MMcf)
% of corporate production
Netback and cost ($/boe)
P&NG revenue(1)
Royalty expense
Operating expense
Transportation and other expense(2)
Operating netback(2)
Gordondale assets
Average production
Light oil (bbls/d)
Condensate (bbls/d)
NGLs (bbls/d)
Natural gas (Mcf/d)
Production (boe/d)
Liquids-to-gas ratio (bbls/MMcf)
% of corporate production
Netback and cost ($/boe)
P&NG revenue(1)
Royalty expense
Operating expense
Transportation and other expense(2)
Operating netback(2)
Corporate(3)
Netback and cost ($/boe)
P&NG revenue(1)
Royalty expense
Operating expense
Transportation and other expense(2)
Operating netback(2)
47
3,605
2,263
23
3,236
1,669
285,334
281,836
53,472
51,901
20.7
70%
24.31
(2.09)
(3.12)
(5.87)
13.23
1,600
1,534
5,386
86,862
22,997
98.1
30%
30.01
(4.30)
(5.36)
(4.72)
15.63
26.03
(2.75)
(3.81)
(5.53)
13.94
17.5
65%
42.21
(4.42)
(3.38)
(5.32)
29.09
2,388
1,581
6,292
105,353
27,820
97.4
35%
46.28
(5.69)
(5.31)
(5.45)
29.83
43.64
(4.86)
(4.06)
(5.37)
29.35
104
11
36
1
3
18
8
(42)
(53)
(8)
10
(55)
(33)
(3)
(14)
(18)
(17)
1
(14)
(35)
(24)
1
(13)
(48)
(40)
(43)
(6)
3
(53)
50
3,827
1,748
20
3,130
1,774
283,396
277,764
52,857
51,217
19.9
70%
25.07
(1.97)
(3.06)
(5.85)
14.19
1,797
1,370
4,554
90,229
22,759
85.6
30%
30.78
(3.87)
(5.55)
(5.30)
16.06
26.80
(2.54)
(3.83)
(5.69)
14.74
17.7
67%
46.38
(4.65)
(2.89)
(5.48)
33.36
2,201
1,545
5,695
97,135
25,631
97.2
33%
50.43
(7.93)
(5.02)
(5.60)
31.88
47.73
(5.74)
(3.62)
(5.52)
32.85
150
22
(1)
2
3
12
4
(46)
(58)
6
7
(57)
(18)
(11)
(20)
(7)
(11)
(12)
(9)
(39)
(51)
11
(5)
(50)
(44)
(56)
6
3
(55)
(1) Excludes the effects of financial instruments but includes the effects of physical delivery contracts.
(2) Non-GAAP ratio. See “Non-GAAP and Other Financial Measures” in this MD&A.
(3) Includes other minor oil and natural gas properties, which were not individually significant during the respective periods.
2023 ANNUAL REPORT
21
Pouce Coupe Assets
Birchcliff’s production from the Pouce Coupe assets increased by 3% from both the three and twelve month Comparable Prior Periods.
The increases in the Reporting Periods were primarily due to incremental production volumes from the new natural gas wells brought
on production in the Pouce Coupe area since the Comparable Prior Periods, partially offset by natural production declines.
The liquids-to-gas ratio for the Pouce Coupe assets increased by 18% and 12% from the three and twelve month Comparable Prior
Periods, respectively, primarily due to incremental liquids volumes from the new Montney/Doig wells brought on production since
the Comparable Prior Periods.
Birchcliff’s operating netback for the Pouce Coupe assets decreased by 55% and 57% from the three and twelve month
Comparable Prior Periods, respectively, primarily due to lower per boe P&NG revenue, partially offset by lower per boe royalty
expense, both of which were largely impacted by a lower average realized sales price received for Birchcliff’s natural gas production
in the Reporting Periods.
Gordondale Assets
Birchcliff’s production from the Gordondale assets decreased by 17% and 11% from the three and twelve month Comparable Prior
Periods, respectively. The decrease from the three month Comparable Prior Period was primarily due to: (i) fewer wells brought on
production; (ii) unplanned third-party outages, including a third-party compressor outage in Gordondale; and (iii) natural production
declines during the Reporting Period. Birchcliff’s production in the twelve month Reporting Period was also negatively impacted by
the Pembina Outage, which reduced the Corporation’s NGLs sales volumes in the first half of 2023. Production in Gordondale was
positively impacted by incremental production volumes from the new Montney/Doig wells brought on production in the Gordondale
area since the Comparable Prior Periods.
The liquids-to-gas ratio for the Gordondale assets was comparable to the three month Comparable Prior Period and decreased by
12% from the twelve month Comparable Prior Period. The decrease from the twelve month Comparable Prior Period was primarily
due to the Pembina Outage, which negatively impacted the Corporation’s NGLs sales volumes in the Reporting Period, and the
Corporation continuing to target natural gas wells in liquids-rich zones.
Birchcliff’s operating netback for the Gordondale assets decreased by 48% and 50% from the three and twelve month Comparable
Prior Periods, respectively, primarily due to lower per boe P&NG revenue, partially offset by lower per boe royalty expense, both of
which were largely impacted by lower average realized sales prices received for Birchcliff’s liquids and natural gas production in the
Reporting Periods.
22
BIRCHCLIFF ENERGY
Administrative Expense
The following table sets forth the components of Birchcliff’s net administrative expense for the periods indicated:
($000s)
Cash:
Salaries and benefits(1)
Other(2)
G&A expense, gross
Operating overhead recoveries
Capitalized overhead(3)
G&A expense, net
G&A expense, net ($/boe)
Non-cash:
Other compensation
Capitalized compensation(3)
Other compensation, net
Other compensation, net ($/boe)
Administrative expense, net
Administrative expense, net ($/boe)
Three months ended
December 31,
Twelve months ended
December 31,
2023
2022
% Change
2023
2022
% Change
16,117
4,825
20,942
(28)
(8,217)
12,697
1.80
10,953
(4,638)
6,315
0.90
19,012
2.70
18,377
4,967
23,344
(31)
(9,979)
13,334
1.82
4,081
(1,920)
2,161
0.29
15,495
2.11
(12)
(3)
(10)
(10)
(18)
(5)
(1)
168
142
192
210
23
28
41,297
21,506
62,803
(125)
38,049
17,831
55,880
(139)
(20,583)
(19,967)
42,095
1.52
35,774
1.27
26,292
12,956
(12,652)
(6,500)
13,640
0.49
55,735
2.01
6,456
0.23
42,230
1.50
9
21
12
(10)
3
18
20
103
95
111
113
32
34
(1) Includes salaries, benefits and incentives paid to employees of the Corporation and fees and benefits paid to directors of the Corporation.
(2) Includes costs such as corporate travel, rent, legal fees, taxes, insurance, computer hardware and software and other general business expenses incurred by the Corporation.
(3) Includes a portion of gross G&A expense and other compensation directly attributable to the exploration and development activities of the Corporation, which have been capitalized. In the three and
twelve month Reporting Periods, the Corporation capitalized 40% and 37% of its administrative expense, respectively, as compared to 43% and 38% in the Comparable Prior Periods.
On an aggregate basis, net administrative expense increased by 23% and 32% from the three and twelve month Comparable Prior
Periods, respectively.
The increase in net administrative expense from the three month Comparable Prior Period was primarily due to higher net other
compensation expense, which resulted from an increase in the: (i) Black-Scholes fair value expense associated with Birchcliff’s annual
stock option grants; and (ii) post-employment benefit expense associated with the retirement of certain executive officers of the
Corporation effective December 31, 2023. The increase in net administrative expense in the three month Reporting Period was
partially offset by a decrease in net G&A expense in the Reporting Period as a result of lower annual incentive payments as compared
to the Comparable Prior Period.
The increase in net administrative expense from the twelve month Comparable Prior Period was primarily due to higher: (i) net G&A
expense, which was attributed to increased incentive payments made to the Corporation’s employees and higher general business
expenditures largely driven by increased compliance, regulatory, advocacy, corporate travel and employee-related costs; and (ii) net
other compensation expense which resulted from an increase in the Black-Scholes fair value expense associated with Birchcliff’s annual
stock option grants and an increase in the post-employment benefit expense associated with the retirement of certain executive officers
of the Corporation effective December 31, 2023.
2023 ANNUAL REPORT
23
Depletion and Depreciation Expense
Depletion and depreciation (“D&D”) expense is a function of the estimated proved and probable reserves additions, the F&D costs
attributable to those reserves, the associated future development costs (“FDC”) required to recover those reserves and the actual
production in the relevant period. The Corporation determines its D&D expense on a field-area basis. The following table sets forth
Birchcliff’s D&D expense for the periods indicated:
Depletion and depreciation expense ($000s)
Depletion and depreciation expense ($/boe)
Three months ended
December 31,
Twelve months ended
December 31,
2023
59,462
8.44
2022
% Change
2023
2022
% Change
58,490
7.97
2
6
226,514
213,808
8.20
7.61
6
8
D&D expense per boe increased by 6% and 8% from the three and twelve month Comparable Prior Periods, respectively, primarily due
to higher FDC to bring the proved plus probable reserves on an FD&A basis on production. FDC for proved plus probable reserves
increased to $4.97 billion at December 31, 2023 from $4.54 billion at December 31, 2022.
Included in the depletion assessment at December 31, 2023 was 993.9 MMboe (December 31, 2022 – 986.4 MMboe) of total proved
plus probable reserves as estimated by the Corporation’s independent third-party reserves evaluator. See “Advisories – Reserves”
in this MD&A.
Asset Impairment Assessment
In accordance with IFRS Accounting Standards, an impairment test is performed if Birchcliff identifies indicators of impairment at the
end of a reporting period. At December 31, 2023 and 2022, Birchcliff determined there were no impairment indicators present and
therefore an impairment test was not required.
Finance Expense
The following table sets forth the components of the Corporation’s finance expense for the periods indicated:
($000s)
Cash:
Interest expense(1)
Interest expense ($/boe)(1)
Non-cash:
Accretion(2)
Amortization of deferred financing fees
Other finance expenses
Other finance expenses ($/boe)
Finance expense
Finance expense ($/boe)
Three months ended
December 31,
Twelve months ended
December 31,
2023
2022
% Change
2023
2022
% Change
6,724
0.95
1,087
424
1,511
0.21
8,235
1.16
3,856
0.53
1,016
426
1,442
0.20
5,298
0.73
74
79
7
-
5
5
55
59
20,312
0.74
4,399
1,700
6,099
0.22
26,411
0.96
13,738
0.49
4,050
1,451
5,501
0.19
19,239
0.68
48
51
9
17
11
16
37
41
(1) Birchcliff’s interest expense consists of interest incurred on amounts drawn under the Corporation’s Credit Facilities and standby charges. Standby charges reflect fees paid by Birchcliff on the undrawn
portion of its Credit Facilities. For a description of the Credit Facilities, see “Capital Resources and Liquidity” in this MD&A.
(2) Includes accretion on decommissioning obligations, post-employment benefit obligations and lease obligations.
On an aggregate basis, finance expense increased by 55% and 37% from the three and twelve month Comparable Prior Periods,
respectively, primarily due to an increase in interest expense associated with the Corporation’s Credit Facilities, which are comprised
of the Working Capital Facility and Syndicated Credit Facility (as defined herein). Birchcliff’s aggregate interest expense increased from
the Comparable Prior Periods primarily due to a higher average effective interest rate on amounts drawn under its Credit Facilities.
Interest expense was also negatively impacted by a higher average outstanding balance under the Syndicated Credit Facility in the
three month Reporting Period and positively impacted by a lower average outstanding balance under the Syndicated Credit Facility
in the twelve month Reporting Period.
24
BIRCHCLIFF ENERGY
The following table sets forth the Corporation’s average effective interest rates under its Working Capital Facility and Syndicated Credit
Facility for the periods indicated:
Working Capital Facility (%)
Syndicated Credit Facility (%)(1)(2)
Three months ended
December 31,
Twelve months ended
December 31,
2023
2022
2023
2022
8.2
7.1
6.8
5.9
8.0
6.9
5.1
3.6
(1) The average effective interest rate under the Syndicated Credit Facility was determined primarily based on: (i) the market interest rate applicable to LIBOR and SOFR loans; and (ii) the stamping pricing
margin. Birchcliff’s stamping pricing margin will change as a result of the ratio of outstanding indebtedness to the trailing four quarter EBITDA as calculated in accordance with the Corporation’s
agreement governing the Credit Facilities. EBITDA is defined as earnings before interest and non-cash items, including (if any) deferred income taxes, other compensation, gains and losses on sale of
assets, unrealized gains and losses on financial instruments, gains and losses on investments, depletion, depreciation, accretion and amortization and impairment charges. The effective interest rate
disclosed in the table excludes the impact of standby charges.
(2) Effective May 3, 2022, the agreement governing the Credit Facilities was amended to, among other things, convert any outstanding LIBOR loans into SOFR loans.
The average effective interest rates under the Working Capital Facility and the Syndicated Credit Facility increased from the
Comparable Prior Periods primarily due to increases in the policy interest rate, set by the Bank of Canada, which in turn affects the
banks’ prime lending rates.
The average outstanding balance under the Syndicated Credit Facility was approximately $329.3 million and $231.4 million in the three
and twelve month Reporting Periods, respectively, as compared to $171.0 million and $285.1 million in the Comparable Prior Periods,
calculated as the simple average of the month-end amounts.
Other Gains and Losses
The following table sets forth the components of the Corporation’s other non-cash gains and losses for the periods indicated:
Other gains (losses) ($000s)
Other gains (losses) ($/boe)
Loss on Investment
Three months ended
December 31,
2022
% Change
(2,080)
(0.03)
(158)
(2,433)
Twelve months ended
December 31,
2022
% Change
370
-
(1,840)
-
2023
(6,439)
(0.23)
2023
(5,358)
(0.76)
On August 31, 2017, Birchcliff acquired securities consisting of 4,500,000 common A LP units in a limited partnership and 10,000,000
preferred trust units in a trust (collectively, the “Securities”) at a combined investment value of $10.0 million. The Securities are not
publicly listed and do not constitute significant investments. Birchcliff recorded a loss on investment on the Securities of $1.2 million
during the twelve month Reporting Period, as compared to a gain of $1.8 million during the Comparable Prior Period.
Loss on Sale of Assets
During the twelve month Reporting Period, Birchcliff completed a non-monetary swap transaction in Pouce Coupe which resulted
in a $4.7 million loss on sale of assets. The disposition was considered non-core as it represented less than 1% of both Birchcliff’s
total production during the Reporting Period and total proved plus probable reserves at December 31, 2023 and was therefore not
significant to the Corporation’s financial results and operational performance.
Income Taxes
The following table sets forth the components of the Corporation’s deferred income tax expense and recovery for the periods indicated:
($000s)
Deferred tax recovery (expense)
Dividend tax expense on preferred shares
Deferred income tax recovery (expense)
Deferred income tax recovery (expense) ($/boe)
Three months ended
December 31,
Twelve months ended
December 31,
2022
% Change
2023
2022
% Change
(22,460)
(109)
(6,170)
(198,421)
-
(22,460)
(3.06)
-
(109)
(109)
-
(2,065)
(6,170)
(200,486)
(0.22)
(7.14)
(97)
(100)
(97)
(97)
2023
2,047
-
2,047
0.29
Birchcliff reported an income tax recovery of $2.0 million in the three month Reporting Period, as compared to an income tax expense
of $22.5 million in the Comparable Prior Period, primarily due to a before-tax net loss in the Reporting Period.
2023 ANNUAL REPORT
25
Birchcliff incurred an income tax expense of $6.2 million in the twelve month Reporting Period, as compared to $200.5 million in the
Comparable Prior Period, primarily due to lower before-tax net income in the Reporting Period.
The Corporation’s estimated income tax pools were $1.3 billion at December 31, 2023. Management expects that future taxable
income will be available to utilize the accumulated tax pools. The components of the Corporation’s estimated income tax pools are set
forth in the table below:
As at December 31, ($000s)
Canadian oil and gas property expense
Canadian development expense
Canadian exploration expense(1)
Undepreciated capital costs
Non-capital losses(1)
Scientific research and experimental development expenditures(1)
Investment tax credits(2)
Financing costs and other
Estimated income tax pools
(1) Immediately available in full to reduce any taxable income in future periods.
(2) Immediately available in full to reduce any cash taxes owing in future periods.
CAPITAL EXPENDITURES
The following table sets forth a summary of the Corporation’s capital expenditures for the periods indicated:
2023
272,570
319,420
295,099
206,983
191,838
24,022
3,540
2,391
1,315,863
Twelve months ended
December 31,
2022
% Change
($000s)
Land
Seismic
Workovers
Drilling and completions
Well equipment and facilities
F&D capital expenditures(1)
Acquisitions
Dispositions
FD&A capital expenditures(2)
Administrative assets
Total capital expenditures(2)
Three months ended
December 31,
2022
% Change
807
416
5,250
70,909
29,380
106,762
-
-
106,762
709
107,471
(70)
(49)
(49)
(35)
(70)
(46)
-
-
(46)
95
(45)
2023
242
212
2,657
46,326
8,729
58,166
2
(10)
58,158
1,383
59,541
2023
9,036
1,017
9,265
2,854
879
13,482
228,392
248,433
56,927
304,637
190
(87)
98,973
364,621
2,348
(315)
304,740
366,654
3,176
1,576
307,916
368,230
217
16
(31)
(8)
(42)
(16)
(92)
(72)
(17)
102
(16)
(1) See “Advisories – F&D Capital Expenditures” in this MD&A.
(2) Non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” in this MD&A.
During the three month Reporting Period, Birchcliff’s F&D capital expenditures were $58.2 million, which primarily included
$38.2 million (66%) for the drilling and completions of new wells in Pouce Coupe, $8.0 million (14%) for the completion of new wells
in Gordondale and $6.9 million (12%) on gas gathering and infrastructure projects in Pouce Coupe. During the three month Reporting
Period, Birchcliff drilled 5 (5.0 net) wells and brought 9 (9.0 net) wells on production.
During the twelve month Reporting Period, Birchcliff’s F&D capital expenditures were $304.6 million, which primarily included
$192.2 million (63%) for the drilling and completions of new wells in Pouce Coupe, $20.2 million (7%) for the drilling and completion
of new wells in Gordondale, $12.4 million (4%) for the drilling of new wells in Elmworth and $48.7 million (16%) on gas gathering and
infrastructure projects in Pouce Coupe. During the twelve month Reporting Period, Birchcliff drilled 30 (30.0 net) wells and brought
32 (32.0 net) wells on production.
26
BIRCHCLIFF ENERGY
CAPITAL RESOURCES AND LIQUIDITY
The capital-intensive nature of Birchcliff’s operations requires it to maintain adequate sources of liquidity to fund its short-term and long-
term financial obligations. Birchcliff’s capital resources primarily consist of its adjusted funds flow and available Credit Facilities, which
are described in further detail below. The Corporation believes that its anticipated adjusted funds flow in 2024 and available Credit
Facilities will be sufficient to fund its ongoing capital requirements in 2024, which include its working capital, F&D capital expenditures
and dividend payments approved by the Board. Should commodity prices deteriorate significantly, Birchcliff may adjust its capital
requirements, seek additional debt/equity financing and/or consider the potential sale of non-core assets. See “Advisories – Forward-
Looking Statements” in this MD&A.
Credit Facilities and Debt
At December 31, 2023, the Corporation’s Credit Facilities were comprised of an extendible revolving syndicated term credit facility
(the “Syndicated Credit Facility”) of $750.0 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 maturity date of each of the
Syndicated Credit Facility and the Working Capital Facility is currently May 11, 2025. 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. All repayments on the Credit
Facilities are due at the maturity date. As the Credit Facilities do not mature in 2024, all liabilities related to the Corporation’s Credit
Facilities are considered to be non-current.
The agreement governing the Credit Facilities allows for prime rate loans, SOFR term loans, U.S. base rate loans, bankers’ acceptances
and, in the case of the Working Capital Facility only, letters of credit. The Credit Facilities are subject to semi-annual reviews of the
borrowing base limit, which is directly impacted by the value of Birchcliff’s oil and gas reserves. The agreement governing the Credit
Facilities also contains provisions that give the lenders the right to redetermine the borrowing base in certain circumstances.
At December 31, 2023, Birchcliff had a balance outstanding under its Credit Facilities of $372.1 million from available Credit Facilities of
$850.0 million, leaving the Corporation with $475.9 million (56%) of unutilized credit capacity after adjusting for outstanding letters of
credit and unamortized deferred financing fees. This unutilized credit capacity provides Birchcliff with significant financial flexibility and
available capital resources.
Total debt at December 31, 2023 was $382.3 million, an increase of 176% from $138.5 million at December 31, 2022. The increase
was primarily due to F&D capital expenditures and dividends paid to common shareholders being greater than adjusted funds flow
in the twelve month Reporting Period. During the twelve month Reporting Period, Birchcliff incurred $304.6 million in F&D capital
expenditures, paid $213.3 million in common share dividends and generated $306.8 million in adjusted funds flow.
Working Capital
Adjusted working capital consists of items from day-to-day operations, which includes cash, accounts receivables, prepaid expenses
and deposits, accounts payables and accrued liabilities and the current portion of post-employment benefit obligations and excludes
the current portion of financial instruments and lease obligations. The Corporation’s adjusted working capital varies from quarter
to quarter primarily due to the timing and size of items included from its normal operations and total capital expenditures, as well
as volatility in commodity prices and changes in revenue, among other things. Birchcliff manages its adjusted working capital using
adjusted funds flow and advances under its Credit Facilities. The Corporation’s adjusted working capital position does not impact the
borrowing base available under Birchcliff’s Credit Facilities.
The Corporation’s adjusted working capital deficit(2) was $10.2 million at December 31, 2023 as compared to $6.6 million at
December 31, 2022. The increase in the deficit position was primarily due to a decrease in accounts receivable arising from lower
P&NG revenue and an increase in the current portion of post-employment benefit obligations, partially offset by a decrease in accounts
payable and accrued liabilities arising from the Corporation’s reduced capital and operating activities and an increase in prepaid
expenses and deposits.
At December 31, 2023, the major component of Birchcliff’s current assets was cash to be received from its commodity marketers in
respect of December 2023 production (80%), which was subsequently received in January 2024. Birchcliff continues to monitor the
financial strength of its marketers. At this time, Birchcliff expects that such counterparties will be able to meet their financial obligations.
Birchcliff’s current liabilities at December 31, 2023 primarily consisted of accounts payables and accrued liabilities for capital and
operating expenses incurred in the Reporting Periods.
(2 ) Capital management measure. See “Non-GAAP and Other Financial Measures” in this MD&A.
2023 ANNUAL REPORT
27
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The Corporation enters into various contractual obligations and commitments in the normal course of operations. The following table
lists Birchcliff’s estimated material contractual obligations and commitments at December 31, 2023:
($000s)
Accounts payable and accrued liabilities
Drawn revolving term credit facilities
Firm transportation and fractionation(1)
Natural gas processing(2)
Operating commitments(3)
Capital commitments(4)
Lease payments
2025
2026-2028
Thereafter
2024
94,822
-
-
373,939
167,720
19,380
2,078
9,024
3,111
167,175
19,327
2,078
5,518
3,414
-
-
348,972
53,500
4,329
5,400
7,302
-
-
140,888
68,667
-
-
120
Estimated contractual obligations and commitments(5)
296,135
571,451
419,503
209,675
(1) Includes firm transportation service arrangements and fractionation commitments with third parties.
(2) Includes natural gas processing commitments at third-party facilities.
(3) Includes variable operating components associated with Birchcliff’s head office premises.
(4) Includes drilling commitments.
(5) Contractual obligations and commitments that are not material to Birchcliff are excluded from the above table. The Corporation’s decommissioning obligations are excluded from the table as these
obligations arose from a regulatory requirement rather than from a contractual arrangement. Birchcliff estimates the total undiscounted cash flow to settle its decommissioning obligations on its wells and
facilities at December 31, 2023 to be approximately $250.8 million and are estimated to be incurred as follows: 2024 – $2.9 million, 2025 – $2.9 million and $245.0 million thereafter. The estimate for
determining the undiscounted decommissioning obligations requires significant assumptions on both the abandonment cost and timing of the decommissioning and therefore the actual obligation may
differ materially.
OFF-BALANCE SHEET TRANSACTIONS
The Corporation does not believe it has any off-balance sheet arrangements that have, or are reasonably likely to have, a current or
future effect on the Corporation’s financial position, operational results, liquidity or capital expenditures.
SHARE INFORMATION
The authorized share capital of the Corporation consists of an unlimited number of common shares and an unlimited number
of preferred shares, each without par value. At March 12, 2024, there were 268,513,636 common shares and no preferred
shares outstanding.
The following table sets forth the common shares issued by the Corporation for the periods indicated:
Balance at December 31, 2022
Issuance of common shares(1)
Repurchase of common shares(2)
Balance at December 31, 2023
Issuance of common shares(1)
Balance at March 12, 2024
Common Shares
266,046,810
2,536,733
(1,427,868)
267,155,675
1,357,961
268,513,636
(1) Represents common shares that have been issued pursuant to the Corporation’s stock option plan.
(2) Represents common shares that have been purchased and cancelled pursuant to the Corporation’s normal course issuer bid.
At March 12, 2024, the Corporation also had the following securities outstanding: (i) 21,542,356 stock options to purchase an
equivalent number of common shares; and (ii) 404,967 performance warrants to purchase an equivalent number of common shares.
During the twelve month Reporting Period, Birchcliff issued 2,536,733 common shares pursuant to the stock option plan at an average
exercise price of $2.82 for aggregate proceeds of $7.2 million. Subsequent to December 31, 2023, Birchcliff issued 1,357,961 common
shares at an average exercise price of $3.37 for aggregate proceeds of $4.6 million.
28
BIRCHCLIFF ENERGY
Normal Course Issuer Bid
On November 20, 2023, Birchcliff announced that the TSX had accepted the Corporation’s notice of intention to make a normal course
issuer bid (the “2024 NCIB”). Pursuant to the 2024 NCIB, Birchcliff may purchase up to 13,328,267 of its outstanding common shares
over a period of twelve months commencing on November 27, 2023 and terminating no later than November 26, 2024. Under the
2024 NCIB, common shares may be purchased in open market transactions on the TSX and/or alternative Canadian trading systems
at the prevailing market price at the time of such transaction. Subject to exceptions for block purchases, the total number of common
shares that Birchcliff is permitted to purchase on the TSX during a trading day is subject to a daily purchase limit of 275,590 common
shares. All common shares purchased under the 2024 NCIB will be cancelled. The 2024 NCIB effectively renewed the Corporation’s
previous normal course issuer bid under which the Corporation was permitted to purchase up to 13,295,786 common shares over
the period from November 25, 2022 to November 24, 2023 (the “2023 NCIB”). During the twelve month Reporting Period, Birchcliff
purchased and cancelled 1,427,868 common shares pursuant to the 2023 NCIB at an average price of $8.02 for an aggregate cost of
$11.4 million (before fees). Birchcliff has not purchased any common shares pursuant to the 2024 NCIB as of March 13, 2024.
A security holder may obtain, for no charge, a copy of the notice in respect of the 2024 NCIB filed with the TSX by contacting the
Corporation at 403-261-6401.
DIVIDENDS
The following table sets forth the dividend distributions by the Corporation for each class of shares:
Common Shares:
Dividend distribution ($000s)
Per common share ($)
Series A Preferred Shares(1):
Series A dividend distribution ($000s)
Per Series A Preferred Share ($)
Series C Preferred Shares(1):
Series C dividend distribution ($000s)
Per Series C Preferred Share ($)
Three months ended
December 31,
Twelve months ended
December 31,
2023
2022
2023
2022
53,390
0.20
58,503
0.22
213,344
0.80
-
-
-
-
-
-
-
-
-
-
-
-
71,788
0.27
3,149
1.57
2,013
1.32
(1) On September 30, 2022, Birchcliff redeemed all outstanding Series A Preferred Shares and cumulative redeemable preferred shares, Series C (the “Series C Preferred Shares”).
During the twelve month Reporting Period, the Corporation paid a quarterly cash dividend of $0.20 per common share for the quarters
ended March 31, 2023, June 30, 2023, September 30, 2023 and December 31, 2023.
On January 17, 2024, the Board declared a quarterly cash dividend of $0.10 per common share for the quarter ending March 31, 2024.
The dividend will be payable on March 28, 2024 to shareholders of record at the close of business on March 15, 2024.
All dividends have been designated as “eligible dividends” for the purposes of the Income Tax Act (Canada).
2023 ANNUAL REPORT
29
SUMMARY OF QUARTERLY RESULTS
The following table sets forth a summary of the Corporation’s quarterly results for the eight most recently completed quarters:
Quarter ending,
Average light oil production (bbls/d)
Average condensate production (bbls/d)
Average NGLs production (bbls/d)
Dec. 31,
2023
Sep. 30,
2023
Jun. 30,
2023
Mar. 31,
2023
Dec. 31,
2022
Sep. 30,
2022
Jun. 30,
2022
Mar. 31,
2022
1,649
5,145
7,653
1,728
4,850
7,412
1,936
5,462
6,811
2,088
5,358
3,288
2,413
4,822
7,963
2,254
4,601
7,593
1,855
4,500
6,349
2,369
4,796
7,976
Average natural gas production (Mcf/d)
372,594
360,924
379,807
383,145
387,604
381,788
366,256
365,296
Average production (boe/d)
76,546
74,143
77,510
74,592
79,799
78,079
73,746
76,024
Average realized light oil sales price ($/bbl)(1)
100.07
100.46
Average realized condensate sales price ($/bbl)(1)
Average realized NGLs sales price ($/bbl)(1)
Average realized natural gas sales price ($/Mcf)(1)
Average realized sales price ($/boe)(1)
P&NG revenue ($000s)(1)
F&D capital expenditures ($000s)(2)
Total capital expenditures ($000s)(3)
103.80
26.95
2.92
26.02
107.67
26.35
2.86
25.96
89.89
98.18
22.86
2.67
24.28
105.69
105.88
36.69
3.68
31.07
115.24
114.32
35.80
6.11
43.63
115.94
115.84
38.18
6.83
47.26
135.91
138.28
48.26
8.61
58.75
115.47
121.56
43.56
5.40
41.79
183,295
177,126
171,291
208,647
320,358
339,531
394,315
285,976
58,166
66,677
64,755
115,039
106,762
85,330
84,247
88,282
59,541
67,475
65,241
115,659
107,471
86,485
86,150
88,124
Cash flow from operating activities ($000s)
79,006
67,840
62,353
111,330
224,447
272,965
273,711
154,152
Adjusted funds flow ($000s)(3)
76,215
72,225
69,650
88,737
217,099
267,350
285,535
183,699
Per basic common share ($)(4)
Per diluted common share ($)(4)
0.29
0.28
0.27
0.27
0.26
0.26
0.33
0.33
0.82
0.79
1.01
0.97
1.08
1.03
0.69
0.67
Free funds flow ($000s)(3)
18,049
5,548
4,895 (26,302)
110,337
182,020
201,288
95,417
Net income (loss) to common shareholders ($000s)
(5,533)
15,108
42,753
(42,548)
69,453
244,582
213,855
125,792
Per basic common share ($)
Per diluted common share ($)
Total assets ($ millions)
Total liabilities ($ millions)
(0.02)
(0.02)
3,177
951
0.06
0.06
3,175
897
0.16
0.16
3,165
856
(0.16)
(0.16)
3,141
817
0.26
0.25
3,169
757
0.92
0.89
3,188
788
0.81
0.77
0.47
0.46
3,066
3,006
857
961
Revolving term credit facilities ($000s)
372,097
318,711
281,354
191,426
131,981
196,989
276,030
397,752
Total debt ($000s)(5)
382,306
327,655
278,521
217,927
138,549
186,064
266,894 408,998
Dividends on common shares ($000s)
53,390
53,321
53,241
53,392
58,503
5,317
5,310
2,658
Weighted average common shares outstanding
Basic (000s)
Diluted (000s)
266,667
266,390
266,354
266,447
265,922
265,298
265,440
265,530
271,651
272,447
272,365
266,447
275,567
274,223
276,015
275,980
(1) Excludes the effects of financial instruments but includes the effects of physical delivery contracts.
(2) See “Advisories – F&D Capital Expenditures” in this MD&A.
(3) Non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” in this MD&A.
(4) Non-GAAP ratio. See “Non-GAAP and Other Financial Measures” in this MD&A.
(5) Capital management measure. See “Non-GAAP and Other Financial Measures” in this MD&A.
Production in the last eight quarters was primarily impacted by Birchcliff’s successful drilling of new horizontal liquids-rich natural gas
and light oil wells in Pouce Coupe and Gordondale and the timing thereof, as well as natural production declines during those periods.
Light oil production has generally trended lower over the last eight quarters primarily due to the Corporation specifically targeting
natural gas wells in liquids-rich zones. Production in the first and second quarter of 2023 was negatively impacted by a decrease in
NGLs sales volumes as a result of the Pembina Outage. Production in the fourth quarter of 2023 was negatively impacted by unplanned
third-party outages, including a third-party compressor outage. Light oil and NGLs production during the second quarter of 2022
were lower compared to other disclosed quarters due to a major scheduled turnaround at AltaGas’ deep-cut sour gas processing
facility in Gordondale.
P&NG revenue, adjusted funds flow and cash flow from operating activities in the last eight quarters were largely impacted by the
average realized sales price received for Birchcliff’s production. Birchcliff’s average realized sales price has experienced significant
volatility over the last eight quarters. The Corporation’s average realized sales price in the four most recently completed quarters
decreased significantly from the prior quarters due to declining benchmark oil and natural gas commodity prices.
30
BIRCHCLIFF ENERGY
Birchcliff’s net income and loss in the last eight quarters were largely impacted by fluctuations in adjusted funds flow and unrealized
gains and losses on financial instruments, which resulted from changes in the fair value of the Corporation’s NYMEX HH/AECO 7A basis
swap contracts and certain other adjustments, including D&D expense and deferred income tax expense and recoveries.
The Corporation’s F&D capital expenditures fluctuate from quarter to quarter based on the Corporation’s outlook for commodity prices
and market conditions, the level of drilling and completions operations and other capital projects and the timing and cost thereof.
The Corporation’s free funds flow is impacted by the amount and timing of F&D capital expenditures and fluctuations in adjusted funds
flow quarter to quarter.
The amount outstanding under the Credit Facilities and the Corporation’s total debt in the last four quarters have trended higher
primarily due to the aggregate of F&D capital expenditures and dividends paid to common shareholders being greater than adjusted
funds flow in each quarter of 2023.
The Corporation pays dividends on its common shares when declared and approved by the Board. The dividend payments on
the Corporation’s common shares increased substantially in the last five quarters as a result of the higher quarterly base dividend of
$0.20 per common share that was paid in each quarter of 2023 and a special dividend of $0.20 per common share that was paid in
the fourth quarter of 2022.
POTENTIAL TRANSACTIONS
Within its focus area, the Corporation is continually reviewing potential asset acquisitions and dispositions and corporate mergers and
acquisitions for the purpose of determining whether any such potential transaction is of interest to the Corporation, as well as the terms
on which such a potential transaction would be available. As a result, the Corporation may from time to time be involved in discussions
or negotiations with other parties or their agents in respect of potential asset acquisitions and dispositions and corporate merger and
acquisition opportunities.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Disclosure Controls and Procedures
The Corporation’s Chief Executive Officer and Chief Financial Officer (the “Certifying Officers”) have designed, or caused to
be designed under their supervision, disclosure controls and procedures (“DC&P”), as defined by National Instrument 52-109 –
Certification of Disclosure in Issuers’ Annual and Interim Filings (“NI 52-109”), to provide reasonable assurance that: (i) material
information relating to the Corporation is made known to the Certifying Officers by others, particularly during the period in which the
annual filings are being prepared; and (ii) information required to be disclosed by the Corporation in its annual filings, interim filings,
or other reports filed or submitted by the Corporation under securities legislation is recorded, processed, summarized and reported
within the time periods specified in securities legislation. The Certifying Officers have evaluated, or caused to be evaluated under their
supervision, the effectiveness of the Corporation’s DC&P at December 31, 2023 and have concluded that the Corporation’s DC&P
were effective at December 31, 2023.
While the Certifying Officers believe that the Corporation’s DC&P provide a reasonable level of assurance and are effective, they do
not expect that the DC&P will prevent all errors and fraud. A control system, no matter how well conceived, maintained and operated,
can provide only reasonable, but not absolute, assurance that the objectives of the control system will be met.
Internal Control over Financial Reporting
The Certifying Officers have designed, or caused to be designed under their supervision, internal control over financial reporting
(“ICFR”), as defined in NI 52-109, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles applicable to the Corporation.
The control framework the Certifying Officers used to design the Corporation’s ICFR is Internal Control – Integrated Framework (2013)
published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Certifying Officers have
evaluated, or caused to be evaluated under their supervision, the effectiveness of the Corporation’s ICFR at December 31, 2023 and
have concluded that the Corporation’s ICFR was effective at December 31, 2023. There were no changes in the Corporation’s ICFR
that occurred during the period beginning on October 1, 2023 and ended on December 31, 2023 that have materially affected,
or are reasonably likely to materially affect, the Corporation’s ICFR.
While the Certifying Officers believe that the Corporation’s ICFR provides a reasonable level of assurance and is effective, they do
not expect that the ICFR will prevent all errors and fraud. A control system, no matter how well conceived, maintained and operated,
can provide only reasonable, but not absolute, assurance that the objective of the control system will be met.
2023 ANNUAL REPORT
31
CRITICAL ACCOUNTING ESTIMATES
The timely preparation of the financial statements requires management to make judgments, estimates and assumptions that affect the
application of accounting policies and reported amounts of assets and liabilities and income and expenses. Accordingly, actual results
may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Benchmark oil and natural gas prices remained volatile during the Reporting Periods primarily driven by a confluence of factors,
including the extension of production cuts by the OPEC+, ongoing global economic slowdown concerns attributed to rising inflation
and interest rates, geopolitical tensions arising from the Russian invasion of Ukraine as well as ongoing conflict in the Middle East and
global commodity supply constraints and labour shortages. These factors remain evolving situations that have had, and may continue
to have, a significant impact on Birchcliff’s business, results of operations, financial position and the environment in which it operates.
Management cannot reasonably estimate the length or severity of these events and economic conditions, or the extent to which they
will impact the Corporation’s go-forward financial position, profit or loss and cash flows. The potential direct and indirect impacts of
these economic conditions and events have been considered in management’s estimates and assumptions at December 31, 2023 and
have been reflected in the Corporation’s financial results.
Significant Judgments in Applying Accounting Policies
The following are the critical judgments that management has made in the process of applying the Corporation’s accounting policies
and that have the most significant effect on the amounts recognized in its financial statements:
Identification of Cash-Generating Units
Birchcliff’s assets are required to be aggregated into cash-generating units (“CGUs”) for the purpose of calculating impairment based
on their ability to generate largely independent cash inflows. CGUs have been determined based on similar geological structure,
shared infrastructure, geographical proximity, operating structure, commodity type and similar exposures to market risks. By their
nature, these assumptions are subject to management’s judgment and may impact the carrying value of the Corporation’s assets in
future periods.
Identification of Impairment Indicators
IFRS Accounting Standards require Birchcliff to assess, at each reporting date, whether there are any internal or external indicators that
its petroleum and natural gas properties and equipment within a CGU may be impaired. Birchcliff is required to consider information
from both external sources (such as negative downturn in forecasted oil and gas commodity prices, significant adverse changes in the
technological, market, economic or legal environment in which the entity operates) and internal sources (such as downward revisions
in the estimate of proved and probable oil and gas reserves and the related cash flows, significant adverse effect on the financial and
operational performance of a CGU, evidence of obsolescence or physical damage to the asset). By their nature, these assumptions are
subject to management’s judgment.
Key Sources of Estimation Uncertainty
The following are the key assumptions concerning the sources of estimation uncertainty at the end of the reporting period, that have a
significant risk of causing adjustments to the carrying amounts of assets and liabilities within the next financial year:
Reserves
Reported recoverable quantities of proved and probable oil and gas reserves and the related cash flows require estimation and are
subject to assumptions regarding forecasted production, forecasted oil and gas commodity prices, forecasted operating costs,
forecasted royalty costs and forecasted future development costs. They also require interpretation of geological and geophysical
models in order to make an assessment of the size, shape, depth and quality of reservoirs, and their anticipated recoveries. The
economical, geological and technical factors used to estimate proved and probable oil and gas reserves may change from period to
period. The Corporation uses estimated proved and probable oil and gas reserves to deplete petroleum and natural gas properties
and equipment, to assess for indicators of impairment on the Corporation’s CGU and, if any indicators exist, to perform an impairment
test to estimate the recoverable amount of a CGU. The Corporation engages an independent third-party reserves evaluator to evaluate
its proved and probable oil and gas reserves. The estimated recoverable quantities of proved and probable oil and gas reserves
and the related cash flows from Birchcliff’s petroleum and natural gas interests are evaluated by an independent third-party reserves
evaluator at least annually.
The Corporation’s proved and probable oil and gas reserves represent the estimated quantities of petroleum, natural gas and NGLs
which geological, geophysical and engineering data demonstrate with a specified degree of certainty to be economically recoverable
in future years from known reservoirs and which are considered commercially producible. Such proved and probable oil and gas
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BIRCHCLIFF ENERGY
reserves may be considered commercially producible if management has the intention of developing and producing them and such
intention is based upon: (i) a reasonable assessment of the future economics of such production; (ii) a reasonable expectation that
there is a market for all or substantially all the expected petroleum and natural gas production; and (iii) evidence that the necessary
production, transmission and transportation facilities are available or can be made available. Reserves may only be considered proved
and probable if producibility is supported by either production or conclusive formation tests. Birchcliff’s proved and probable oil
and gas reserves are determined in accordance with the standards contained in NI 51-101 and the Canadian Oil and Gas Evaluation
Handbook (the “COGE Handbook”).
Decommissioning Obligations
The Corporation estimates future remediation costs of production facilities, wells and pipelines at different stages of development
and construction of assets or facilities. In most instances, removal of assets occurs many years into the future. This requires an estimate
regarding abandonment date, future environmental and regulatory legislation, the extent of reclamation activities, the engineering
methodology for estimating cost, future removal technologies in determining the removal cost and liability-specific discount rates to
determine the present value of these risk-free cash flows.
Impairment of Non-Financial Assets
For the purposes of determining the extent of any impairment or its reversal, if any, estimates must be made regarding proved
and probable oil and gas reserves and the related cash flows considering significant assumptions including forecasted oil and gas
commodity prices, forecasted production, forecasted operating costs, forecasted royalty costs and forecasted future development
costs. These significant assumptions are subject to change as new information becomes available. Changes in economic conditions
can also affect the discount rate estimate used to discount the cash flow estimates related to proved and probable oil and gas reserves.
Changes in the aforementioned assumptions could affect the carrying amount of the Corporation’s assets, and impairment charges and
reversal, if any, will affect profit or loss.
Income Taxes
Birchcliff files corporate income tax, goods and services tax and other tax returns with various provincial and federal taxation authorities
in Canada. There can be differing interpretations of applicable tax laws and regulations. The resolution of these tax positions through
negotiations or litigation with tax authorities can take several years to complete. The Corporation does not anticipate that there will be
any material impact upon the results of its operations, financial position or liquidity.
Tax provisions are based on enacted or substantively enacted laws. Changes in those laws could affect amounts recognized in profit or
loss both in the period of change, which would include any impact on cumulative provisions, and in future periods.
Deferred tax assets (if any) are recognized only to the extent it is considered probable that those assets will be recoverable. This involves
an assessment of when those deferred tax assets are likely to reverse and a judgment as to whether or not there will be sufficient taxable
profits available to offset the tax assets when they do reverse. This requires assumptions regarding future profitability and is therefore
inherently uncertain. Estimates of future taxable income are based on forecasted cash flows from operations. To the extent that any
interpretation of tax law is challenged by the tax authorities or future cash flows and taxable income differ significantly from estimates,
the ability of Birchcliff to realize the deferred tax assets recorded at the statement of financial position date could be impacted.
REGULATORY UPDATE
Regulations relating to climate change and climate-related matters continue to evolve and may result in additional disclosure
requirements in the future. On June 26, 2023, the International Sustainability Standards Board (the “ISSB”) published the new IFRS
sustainability disclosure standards, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and
IFRS S2 Climate-related Disclosures (collectively, the “ISSB Standards”). There is no requirement for public companies in Canada,
including the Corporation, to adopt the ISSB Standards until the Canadian Sustainability Standards Board and the Canadian Securities
Administrators have made decisions on the applicable reporting requirements in Canada.
RISK FACTORS
Investors should carefully consider the risk factors set out below and consider all other information contained herein and in the
Corporation’s other public filings before making an investment decision. The risks set out below are not an exhaustive list and
should not be taken as a complete summary or description of all the risks associated with the Corporation’s business and the oil
and natural gas business generally. If any of the risks set out below materialize, the Corporation’s business, financial condition,
results of operations, prospects, cash flow and reputation may be adversely affected, which may, in turn, reduce or restrict the
Corporation’s ability to pay dividends and may materially affect the market price of the Corporation’s common shares.
2023 ANNUAL REPORT
33
Commodity Prices
The prices of oil, natural gas and NGLs are volatile, outside of the Corporation’s control and affect the Corporation’s financial
condition, financial performance, cash flow and future rate of growth
The Corporation’s revenue, profitability, cash flow and future rate of growth are highly dependent on commodity prices. Commodity
prices may fluctuate widely in response to relatively minor changes in the supply of, and demand for, oil, natural gas and NGLs, market
uncertainty and a variety of additional factors that are beyond the Corporation’s control. These factors include, but are not limited to,
the following:
· domestic and global supply of, and demand for, oil, natural gas and NGLs;
· market expectations with respect to the future supply of, demand for and price of, oil, natural gas and NGLs;
· production and inventory levels of oil, NGLs and natural gas;
·
·
·
volatility and trading patterns in the commodity-futures markets;
the proximity, capacity, cost and availability of pipelines and other transportation infrastructure;
the capacity of refiners to utilize available supplies of oil and NGLs;
· weather conditions affecting supply and demand;
· overall domestic and global economic conditions;
· political conditions, instability and hostilities, including conflicts in the Middle East, Eastern Europe and elsewhere;
·
·
·
·
·
·
·
sanctions imposed on certain oil producing nations (such as Russia) by other countries;
the actions of OPEC, its members and other state-controlled oil companies relating to oil price and production controls;
currency fluctuations;
the price and quantity of oil, NGLs and LNG imports to, and exports from, the US and other countries;
the development of new hydrocarbon exploration, production and transportation methods or technological advancements in
existing methods;
capital investments by oil and natural gas companies relating to the exploration, development and production of hydrocarbons;
social attitudes or policies affecting energy consumption and energy supply;
· domestic and foreign governmental regulations, including environmental regulations, climate change regulations and taxation;
·
·
·
shareholder activism or activities by non-governmental organizations to limit sources of capital for the energy sector or restrict the
exploration, development and production of oil, NGLs and natural gas;
the effects of energy conservation efforts and GHG reduction measures; and
the price, availability and acceptance of alternative energies, including renewable energy.
Crude oil and natural gas prices are expected to remain volatile for the near future because of market uncertainties over the supply and
demand of these commodities due to the current state of the world economies, shale oil production in the United States, OPEC actions,
political uncertainties, sanctions imposed on certain oil producing nations by other countries, conflicts in the Middle East, the war
in Ukraine and ongoing credit and liquidity concerns. Prices for crude oil and natural gas are also subject to the availability of foreign
markets and the ability to access such markets.
Any substantial and prolonged decline in the price of oil and natural gas would have an adverse effect on the carrying value of the
Corporation’s assets, borrowing capacity, revenue, profitability and cash flow from operating activities and may have a material adverse
effect on the Corporation’s business, financial condition, results of operations, prospects, its ability to pay dividends and ultimately on
the market price of its common shares.
A material decline in oil and natural gas prices could result in a reduction in the Corporation’s net production revenue. The economics
of producing from some wells may change because of lower prices, which could result in reduced production of oil, natural gas or
NGLs. The Corporation might also elect not to produce from certain wells at lower prices. In addition, any prolonged period of low
oil or natural gas prices could result in a decision by the Corporation to suspend or slow exploration and development activities or the
construction or expansion of new or existing facilities or reduce its production levels.
Volatile oil and natural gas prices make it difficult to estimate the value of producing properties for acquisitions and often cause disruption
in the market for oil and natural gas producing properties, as buyers and sellers have difficulty agreeing on the value of such properties.
Price volatility also makes it difficult to budget for and project the return on potential acquisitions or development and exploitation projects.
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BIRCHCLIFF ENERGY
Lower commodity prices may also affect the volume and value of the Corporation’s reserves, rendering certain reserves uneconomic
for development. The Corporation’s reserves at December 31, 2023 are estimated using forecast prices and costs. If oil and natural gas
prices decrease, the Corporation’s reserves may be substantially reduced as economic limits of developed reserves are reached earlier
and undeveloped reserves become uneconomic at such prices. Even if some reserves remain economic at lower price levels, sustained
low prices may compel the Corporation to re-evaluate its development plans and reduce or eliminate various projects with marginal
economics. Any decrease in the value of the Corporation’s reserves may reduce the borrowing base under the Credit Facilities, which,
depending on the level of the Corporation’s indebtedness, could result in the Corporation having to repay a portion
of its indebtedness. See “Risk Factors – Credit Facilities” in this MD&A.
In addition, lower commodity prices restrict the Corporation’s cash flow resulting in less funds being available to fund the
Corporation’s capital expenditure programs. The Corporation’s capital expenditure plans are impacted by the Corporation’s cash
flow. Consequently, the Corporation may not be able to replace its production with additional reserves and both the Corporation’s
production and reserves could be reduced on a year-over-year basis.
In addition to possibly resulting in a decrease in the value of the Corporation’s economically recoverable reserves, lower commodity
prices may also result in a decrease in the value of the Corporation’s infrastructure and facilities, all of which could also have the effect
of requiring a write-down of the carrying value of its oil and natural gas assets on its balance sheet and the recognition of an impairment
charge on its income statement.
Exploration, Development and Production Risks
The Corporation’s business, operations and financial condition may be affected by the financial, operational, environmental and
safety risks associated with the exploration, development and production of oil and natural gas
Oil and natural gas operations involve many risks that even a combination of experience, knowledge and careful evaluation may
not be able to overcome. The long-term commercial success of the Corporation depends on its ability to find, acquire, develop
and commercially produce oil and natural gas reserves. Without the continual addition of new reserves, the Corporation’s existing
reserves and the production therefrom, will decline over time as the Corporation produces from such reserves. A future increase in the
Corporation’s reserves will depend on both the ability of the Corporation to explore and develop its existing properties and its ability
to select and acquire suitable producing properties or prospects. There is no assurance that the Corporation will be able to continue
to find satisfactory properties to acquire or participate in. Moreover, management of the Corporation may determine that current
markets, terms of acquisition or participation or pricing conditions make potential acquisitions or participation uneconomic. There is
also no assurance that the Corporation will discover or acquire further commercial quantities of oil or natural gas. The success of the
Corporation’s business is highly dependent on its ability to acquire or discover new reserves in a cost-efficient manner as substantially
all of the Corporation’s cash flow is derived from the sale of the petroleum and natural gas reserves that it accumulates and develops. In
order to remain financially viable, the Corporation must be able to replace reserves over time at a lesser cost on a per unit basis than its
cash flow on a per unit basis.
Future oil and natural gas exploration may involve unprofitable efforts from dry wells or wells that are productive but do not produce
sufficient petroleum substances to return a profit after drilling, completing (including hydraulic fracturing), operating and other costs.
Completion of a well does not ensure a profit on the investment or recovery of drilling, completion and operating costs.
Drilling hazards, environmental damage and various field operating conditions could greatly increase the cost of operations and
adversely affect the production from successful wells. Adverse field operating conditions include, but are not limited to, delays in
obtaining governmental approvals or consents, the shutting-in of wells resulting from extreme weather conditions, insufficient storage
or transportation capacity or geological and mechanical conditions. While diligent well supervision, effective maintenance operations
and the development and utilization of enhanced recovery technologies can contribute to maximizing production rates over time, it is
not possible to eliminate production delays and declines from normal field operating conditions, which can negatively affect revenue
and cash flow levels to varying degrees.
The Corporation utilizes multi-well pad drilling where practicable. Wells drilled on a pad are typically not placed on production until
all wells on the pad are drilled and completed. In addition, problems affecting a single well could adversely affect production from
all of the wells on the pad. As a result, multi-well pad drilling can cause delays in the scheduled commencement of production or
interruptions in ongoing production. These delays or interruptions may cause volatility in the Corporation’s operating results.
The Corporation’s business is subject to all the risks and hazards typically associated with oil and natural gas exploration, development
and production operations, including, but not limited to, fire, explosion, blowouts, cratering, sour gas releases, spills and other
environmental hazards. These typical risks and hazards could result in substantial damage to oil and natural gas wells, production
facilities, other property or the environment and cause personal injury or threaten wildlife. Particularly, the Corporation may explore for
and produce sour gas in certain areas. An unintentional leak of sour gas could result in personal injury, loss of life or damage to property
and may necessitate an evacuation of populated areas, all of which could result in liability to the Corporation.
2023 ANNUAL REPORT
35
Oil and natural gas production operations are also subject to geological and seismic risks, including encountering unexpected
formations or pressures, premature decline of reservoirs and the invasion of water into producing formations. Losses resulting from
the occurrence of any of these risks may have a material adverse effect on the Corporation’s business, financial condition, results of
operations and prospects.
As is standard industry practice, the Corporation is not fully insured against all risks, nor are all risks insurable. Although the Corporation
maintains liability and business interruption insurance in amounts that it considers consistent with industry practice, liabilities associated
with certain risks could exceed policy limits or not be covered. In either event, the Corporation could incur significant costs. See “Risk
Factors – Insurance” in this MD&A.
Restrictions on the availability and cost of materials and equipment may impede the Corporation’s exploration, development and
operating activities as such activities are dependent on the availability and cost of specialized materials and equipment (typically
sourced from third parties) in the areas where such activities are conducted. The availability of such material and equipment is limited.
An increase in demand or cost, or a decrease in the availability of such materials and equipment, may impede the Corporation’s
exploration, development and operating activities. See “Risk Factors – Availability and Cost of Equipment, Materials and Services and
Inflation” in this MD&A.
Project Risks
The success of the Corporation’s operations may be negatively impacted by factors outside of its control resulting in operational
delays and cost overruns
The Corporation manages a variety of small and large projects in the conduct of its business. Project delays and interruptions may delay
expected revenue from operations. Significant project cost overruns could make a project uneconomic. The Corporation’s ability to
execute projects and successfully market its oil, natural gas and NGLs depends upon numerous factors beyond the Corporation’s
control, including:
·
·
·
·
·
the availability and proximity of processing and pipeline capacity;
the availability of storage capacity;
the availability of, and the ability to acquire, water supplies needed for drilling and hydraulic fracturing and the Corporation’s
ability to dispose of water used or removed from strata at a reasonable cost and in accordance with applicable environmental
regulations;
the effects of inclement and severe weather events, including fire, drought, flooding and extreme temperatures;
the availability of drilling and related equipment;
· unexpected cost increases;
·
·
·
·
accidental events;
currency fluctuations;
regulatory changes;
the availability and productivity of skilled labour;
· environmental and Indigenous activism or land claims that result in delays or cancellations of projects;
·
litigation and judicial interpretation and application of laws, including with respect to Indigenous rights and historical treaties;
· political uncertainty; and
·
the regulation of the oil and natural gas industry by various levels of government and governmental agencies.
If cash flow from operating activities and funds from external financing sources are not sufficient to cover the Corporation’s capital
expenditure requirements, the Corporation may be required to reallocate available capital among its projects or modify its capital
expenditure plans, which may result in delays in, or cancellation of, certain projects or the deferral of certain capital expenditures.
Any change to the Corporation’s capital expenditure plans could, in turn, have a material adverse effect on the Corporation’s business,
financial position, results of operations and plans.
Due to these factors, the Corporation could be unable to execute projects on time, on budget, or at all, and may be unable to
effectively market the oil, natural gas and NGLs that it produces.
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BIRCHCLIFF ENERGY
Availability and Cost of Equipment, Materials and Services and Inflation
Restrictions on the availability and cost of equipment, materials and services may impede the Corporation’s exploration,
development and operating activities and the Corporation’s operations may be negatively impacted by inflationary pressures
Oil and natural gas exploration, development and operating activities are dependent on the availability and cost of specialized
equipment and other materials (typically leased from third parties) in the areas where such activities will be conducted. The availability
of such equipment and materials is limited.
The cost or availability of oil and gas field equipment may adversely affect the Corporation’s ability to undertake exploration,
development and construction projects. The oil and gas industry is cyclical in nature and is prone to shortages of supply of equipment
and services, including drilling rigs, geological and geophysical services, engineering and construction services, major equipment
items for infrastructure projects and construction materials generally. These materials and services may not be available when required
at reasonable prices. A failure to secure the services and equipment necessary to the Corporation’s operations for the expected price,
on the expected timeline, or at all, may have an adverse effect on the Corporation’s financial performance and cash flow.
Canada, the United States and other countries have recently experienced high levels of inflation, supply chain disruptions, equipment
limitations, escalating supply costs and commodity prices and additional government intervention through stimulus spending and
additional regulations, which have impacted the Corporation’s operating costs. The Corporation’s inability to manage costs may
impact project returns and future development decisions, which could have a material adverse effect on its financial performance and
cash flow.
In addition, many central banks, including the Bank of Canada, have taken steps to raise interest rates in an attempt to combat inflation.
The rise in interest rates has impacted the Corporation’s borrowing costs. The increase in borrowing costs may impact project returns
and future development decisions, which could have a material adverse effect on the Corporation’s financial performance. Rising
interest rates could also result in a recession in Canada or other countries, which could have a negative impact on demand for oil and
natural gas, causing a decrease in commodity prices. A decrease in commodity prices would immediately impact the Corporation’s
revenues and could also reduce drilling activity. It is unknown how long high levels of inflation will continue to impact the economy of
Canada and how inflation and rising interest rates will impact oil and gas demand and commodity prices.
Market Price of the Common Shares
The market price of the Corporation’s common shares may be volatile and adversely affected by factors related and unrelated to the
oil and natural gas industry and cannot be accurately predicted
The market price of the Corporation’s common shares may be volatile, which may affect the ability of holders to sell such shares at an
advantageous price. The market prices of the securities of oil and natural gas issuers, including the Corporation, is subject to substantial
volatility often based on factors related and unrelated to the financial performance or prospects of the issuers involved. Factors
unrelated to the Corporation’s performance could include macroeconomic developments nationally, within North America or globally,
domestic and global commodity prices, current perceptions of the oil and natural gas market and worldwide pandemics. This includes,
but is not limited to, changing (and in some cases negative) investor sentiment towards energy-related businesses. In recent years, the
volatility of oil and natural gas commodity prices and the securities of issuers involved in the oil and natural gas business, has increased
due, in part, to the implementation of computerized trading and the decrease of discretionary commodity trading. The volatility,
trading volume and market prices of oil and natural gas issuers have been impacted by increasing investment levels in passive funds
that track major indices and only purchase securities included in such indices and subsequently dispose of those securities if they are
excluded from such indices. In addition, many institutional investors, pension funds and insurance companies, including government-
sponsored entities, have implemented investment strategies increasing their investments in low-carbon assets and businesses while
decreasing the carbon intensity of their portfolios through, among other measures, divestments. These factors have impacted the
volatility and liquidity of certain securities and put downward pressure on the market prices of those securities.
Similarly, the market price of the Corporation’s common shares could be subject to significant fluctuations in response to variations in
the Corporation’s operating results, financial condition, liquidity, debt levels, dividend levels and other internal factors. In addition,
market price fluctuations in the common shares may also be due to the Corporation’s results failing to meet the expectations of
securities analysts or investors in any quarter, downward revisions in securities analysts’ estimates and material public announcements
by the Corporation, along with a variety of additional factors, including, without limitation, those set forth under “Advisories – Forward-
Looking Statements”. Accordingly, the prices at which the Corporation’s common shares will trade cannot be accurately predicted.
2023 ANNUAL REPORT
37
Dividends
The amount of and frequency at which future cash dividends are paid may vary and there is no assurance that the Corporation will
pay dividends in the future
The declaration and payment of future dividends (and the amount thereof) is subject to the discretion of the Board and may vary
depending on a variety of factors and conditions existing from time to time, including: fluctuations in commodity prices; the financial
condition of Birchcliff; current and future levels of cash flow; production levels; results of operations; capital expenditure requirements;
working capital requirements; debt service requirements and debt levels; liquidity requirements; operating costs; royalty burdens;
foreign exchange and interest rates; tax laws; the Corporation’s risk management activities or programs; available investment
opportunities; the Corporation’s business plan, strategies and objectives; legal, regulatory and contractual restrictions; the satisfaction
of the solvency and liquidity tests imposed by the Business Corporations Act (Alberta) (the “ABCA”) for the declaration and payment
of dividends; and other factors that the Board may deem relevant. Depending on these and various other factors, many of which are
beyond the control of Birchcliff, the dividend policy of the Corporation may vary from time to time and, as a result, future cash dividends
could be reduced or suspended entirely.
Pursuant to the ABCA, the Corporation may not declare or pay a dividend if there are reasonable grounds for believing that: (i) the
Corporation is, or would after the payment be, unable to pay its liabilities as they become due; or (ii) the realizable value of its assets
would thereby be less than the aggregate of its liabilities and stated capital of all classes. Additionally, pursuant to the agreement
governing the Credit Facilities, the Corporation is not permitted to make any distribution (which includes dividends) at any time when
an event of default exists or would reasonably be expected to exist upon making such distribution, unless such event of default arose
subsequent to the ordinary course declaration of the applicable distribution.
Dividends may be reduced or suspended during periods of lower cash flow from operating activities. The timing and amount of
Birchcliff’s capital expenditures, and the ability of the Corporation to repay or refinance existing debt as it becomes due, directly affects
the amount of cash dividends that may be declared by the Board. Future acquisitions, expansions of Birchcliff’s assets, and other capital
expenditures and the repayment or refinancing of existing debt as it becomes due may be financed from sources such as cash flow from
operating activities, the issuance of additional shares or other securities of Birchcliff, and borrowings. Dividends may be reduced, or
even eliminated, at times when significant capital or other expenditures are made. There can be no assurance that sufficient capital will
be available on terms acceptable to Birchcliff, or at all, to make additional investments, fund future expansions or make other required
capital expenditures. To the extent that external sources of capital, including from the issuance of additional shares or other securities
or the availability of additional credit facilities, become limited or unavailable on favourable terms or at all due to credit market
conditions or otherwise, the ability of the Corporation to make the necessary capital investments to maintain or expand its operations,
to repay outstanding debt and to invest in assets, as the case may be, may be impaired. To the extent Birchcliff is required to use cash
flow from operating activities to finance capital expenditures or acquisitions or to repay existing debt as it becomes due, the cash
available for dividends may be reduced and the level of dividends declared may be reduced or suspended entirely.
Over time, the Corporation’s capital and other cash needs may change significantly from its current needs, which could affect whether
the Corporation pays dividends and the amount of dividends, if any, it may pay in the future. If the Corporation continues to pay
dividends at the current levels, it may not retain a sufficient amount of cash to finance external growth opportunities, meet any large
unanticipated liquidity requirements or fund its activities in the event of a significant business downturn.
The Board may amend, revoke or suspend the Corporation’s dividend policy at any time. A decline in the market price, liquidity or both,
of the Corporation’s common shares may result if the Corporation reduces or eliminates the payment of dividends, which may result in
losses to shareholders. Furthermore, the future treatment of dividends for tax purposes will be subject to the nature and composition of
dividends paid by Birchcliff and potential legislative and regulatory changes.
Gathering and Processing Facilities, Pipeline Systems, Trucking and Rail
Lack of capacity and/or regulatory constraints on gathering and processing facilities, pipeline systems and railway lines may have a
negative impact on the Corporation’s ability to produce and sell its oil and natural gas
The Corporation delivers its products through gathering and processing facilities, pipeline systems, by truck and, in certain
circumstances, by rail. The amount of oil, natural gas and NGLs that the Corporation can produce and sell is subject to the accessibility,
availability, proximity and capacity of these gathering and processing facilities, pipeline systems, trucks and railway lines. The lack of
firm pipeline capacity, production limits and limits on availability of capacity in gathering and processing facilities, pipeline systems and
railway lines continues to affect the oil and natural gas industry and limits the ability to transport produced oil, natural gas and NGLs to
market. Unexpected shutdowns or curtailment of capacity of pipelines for maintenance or integrity work or because of actions taken by
regulators could also affect the Corporation’s production, operations and financial results.
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BIRCHCLIFF ENERGY
The Corporation’s production passes through Birchcliff owned or third-party infrastructure prior to it being ready for sale. There is a risk
that should this infrastructure fail and cause a significant portion of the Corporation’s production to be shut-in and unable to be sold,
this could have a material adverse effect on the Corporation’s available cash flow. With respect to facilities owned by third parties and
over which the Corporation has no control, these facilities may discontinue or decrease operations, either as a result of normal servicing
requirements or as a result of unexpected events. A discontinuation or decrease of operations could have a material adverse effect on
the Corporation’s ability to process its production and deliver the same to market. Midstream and pipeline companies may take actions
to maximize their return on investment which may in turn adversely affect producers and shippers, especially when combined with a
regulatory framework that may not always align with the interests of particular shippers.
Further, the Corporation has certain long-term take-or-pay commitments to deliver products through third-party owned infrastructure
which creates a financial liability and there can be no assurance that future volume commitments will be met which may adversely affect
the Corporation’s financial condition and cash flow from operating activities.
Geopolitical Events
Geopolitical events or instability may have wide-ranging consequences for the global market and economic conditions, including
energy and commodity prices
The Corporation’s business may be adversely affected by geopolitical events and decisions made in Canada, the United States, the
Middle East, China, Europe and elsewhere.
The current war in Ukraine and the international response has had, and may continue to have, potential wide-ranging consequences
for global market volatility and economic conditions, including energy and commodity prices, which may, in turn, increase inflationary
pressures and interest rates. Certain countries, including Canada and the United States, have imposed strict financial and trade
sanctions against Russia, which have had, and may continue to have, far-reaching effects on the global economy and energy and
commodity prices.
The current war between Israel and Hamas in the Gaza Strip has the potential to have wide-ranging consequences on the world
economy. While neither Israel nor the Gaza Strip are significant oil producers, there is a risk that the conflict could lead to wider regional
instability in the Middle East, home to some of the world’s biggest oil producers.
In addition, attacks by Houthi rebels in the Red Sea has put significant risks on shipping lanes in the area and has resulted in increased
shipping costs to various business entities. Continued attacks on shipping in the Middle East may result in further increases in shipping
costs and longer transit times and delays in delivering products or procuring supplies. Further escalation of the conflict may spark
confrontations in other parts of the Middle East and have further consequences on global markets, commodity prices, supply chains
and shipping lanes.
The short, medium and long-term implications of these and other potential future international conflicts are difficult to predict with any
certainty at this time and there remains uncertainty relating to the potential direct and indirect impacts on the Corporation, and each
conflict could have a material and adverse effect on its business, financial condition and results of operations. Depending on their extent,
duration and severity, such conflicts may have the effect of heightening many of the other risks described herein, including, without
limitation, the risks relating to the Corporation’s exposure to commodity prices; the successful completion of the Corporation’s growth
and expansion projects, including the expected return on investment thereof; supply chains and the Corporation’s ability to obtain
required equipment, materials or labour; cyber-security risks; inflationary pressures; and restricted access to capital and increased
borrowing costs as a result of increased interest rates.
Political Uncertainty
The Corporation’s business may be adversely affected by political and social events and decisions made in Canada and elsewhere
The Corporation’s results can be adversely impacted by political, legal or regulatory developments in Canada and elsewhere that
affect local operations and local and international markets. Changes in government, government policy or regulations, changes in
law or the interpretation of settled law, third-party opposition to industrial activity generally or projects specifically, and the duration
of regulatory reviews could impact the Corporation’s existing operations and planned projects. This includes actions by regulators or
other political actors to delay or deny necessary licences and permits for the Corporation’s activities or restrict the operation of third-
party infrastructure that the Corporation relies on. Additionally, changes in environmental regulations, assessment processes or other
laws, and increasing and expanding stakeholder consultation (including Indigenous stakeholders), may increase the cost of compliance
or reduce or delay available business opportunities and adversely impact the Corporation’s results.
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Other government and political factors that could adversely affect the Corporation’s financial results include increases in taxes
or government royalty rates (including retroactive claims) and changes in trade policies and agreements. Further, the adoption
of regulations mandating efficiency standards, the sale of electric vehicles and the use of alternative fuels or uncompetitive fuel
components could affect the demand for the Corporation’s products. Many governments are providing tax advantages and other
subsidies to support alternative energy sources or are mandating the use of specific fuels, technologies or the use of electric vehicles.
Governments and others are also promoting research into new technologies to reduce the cost and increase the scalability of
alternative energy sources and the success of these initiatives may decrease the demand for the Corporation’s products.
A change in federal, provincial, state or municipal governments in Canada or the United States may have an impact on the directions
taken by such governments on matters that may impact the oil and natural gas industry, including the balance between economic
development and environmental policy. The oil and natural gas industry has become an increasingly politically polarizing topic,
which has resulted in a rise in civil disobedience surrounding oil and natural gas development, particularly with respect to infrastructure
projects such as pipelines. Protests, blockades, demonstrations and vandalism have the potential to delay and disrupt the Corporation’s
activities. See “Risk Factors – Public Opposition and Non-Governmental Organizations” in this MD&A.
Substantial Capital and Additional Funding Requirements
The Corporation may require additional financing from time to time to fund the acquisition, exploration and development of
properties and its ability to obtain such financing in a timely fashion and on acceptable terms may be negatively impacted by the
current economic and global market volatility
The Corporation anticipates making substantial capital expenditures for the acquisition, exploration, development and production of
oil, natural gas and NGLs reserves in the future. As future capital expenditures are expected to be financed out of cash generated from
operations and borrowings as well as possible future asset and equity sales, the Corporation’s ability to do so is dependent on, among
other factors:
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the overall state of the capital markets;
the Corporation’s credit rating (if applicable);
commodity prices;
interest rates;
royalty rates;
tax burden due to current and future tax laws; and
investor appetite for investments in the energy industry and the Corporation’s securities in particular.
The Corporation’s cash flow from its properties may not be sufficient to fund its ongoing activities at all times and from time to time the
Corporation may require additional financing. The inability of the Corporation to access sufficient capital for its operations and activities
could have a material adverse effect on the Corporation’s financial condition, results of operations and prospects.
There can be no assurance that debt or equity financing or cash generated by operations will be available or sufficient to meet the
Corporation’s requirements or, if debt or equity financing is available, that it will be on terms acceptable to the Corporation. To the
extent that external sources of capital become limited, unavailable or available on onerous terms, the Corporation’s ability to make
capital investments and maintain existing assets may be impaired, and its assets, liabilities, business, financial condition and results of
operations may be affected materially and adversely as a result. In addition, the Corporation may be required to seek additional equity
financing on terms that are highly dilutive to existing shareholders. Moreover, future activities may require the Corporation to alter its
capitalization significantly. A failure to obtain financing on a timely basis could cause the Corporation to forfeit its interest in certain
properties, miss certain acquisition opportunities and reduce or terminate its operations.
Climate Change
Climate change may pose varied and far-ranging risks to the business and operations of the Corporation, both known and unknown,
which may adversely affect its business, operations and financial condition
Global climate issues continue to attract public and scientific attention. Numerous reports, including reports from the
Intergovernmental Panel on Climate Change, have engendered concern about the impacts of human activity, especially fossil fuel
combustion, on global climate issues. In turn, increasing public, government and investor attention is being paid to global climate
issues and to GHG emissions, including emissions of carbon dioxide and methane from the production and use of oil, NGLs and
natural gas. The majority of countries, including Canada, have agreed to reduce their carbon emissions in accordance with the Paris
Agreement. At the 2021 United Nations Climate Change Conference, Canada’s Prime Minister Justin Trudeau made several pledges
regarding reducing Canada’s GHG emissions and at the 2023 United Nations Climate Change Conference, Canada renewed its
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commitments to transitioning away from fossil fuels and further cutting emissions. As discussed below, the Corporation faces both
physical risks and transition risks associated with climate change and climate change policy and regulations.
Physical Risks – Acute
Climate change has been linked to an increased severity and frequency of extreme weather. Extreme hot and cold weather, heavy
snowfall, heavy rainfall, drought and wildfires may restrict or interfere with the Corporation’s operations, increasing its costs and
negatively impacting its production. For example, extreme weather may impact the Corporation’s ability to complete capital
projects, facility turnarounds, maintenance and repairs on time. Moreover, extreme weather conditions may lead to disruptions in the
Corporation’s ability to transport its production, as well as goods and services in its supply chains. Extreme weather also increases
the risk of damage to infrastructure and equipment and the risk of injury to the Corporation’s personnel due to dangerous working
conditions. Certain of the Corporation’s properties are proximate to forests and rivers and a wildfire or flood may lead to significant
downtime and/or damage to the Corporation’s assets. See “Risk Factors – Seasonality and Extreme Weather” in this MD&A.
Physical Risks – Chronic
Climate change has been linked to long-term shifts in climate patterns, including rising mean temperature and sea levels and long-term
changes in precipitation patterns. As the level of activity in the Canadian oil and natural gas industry is influenced by seasonal weather
patterns, long-term shifts in climate patterns pose the risk of exacerbating operational delays and other risks posed by seasonal
weather patterns. In addition, long-term shifts in weather patterns such as water scarcity, increased frequency of storms and fires and
prolonged heat waves may, among other things, require the Corporation to incur greater expenditures (time and capital) to deal with
the challenges posed by such changes to its premises, operations, supply chain, transport needs and employee safety, which may in
turn have a material adverse effect on the Corporation’s business, operations and financial condition. In the event of water shortages
or sourcing issues, the Corporation may not be able to, or will incur greater costs to, carry out hydraulic fracturing. See “Risk Factors –
Seasonality and Extreme Weather” and “Risk Factors – Hydraulic Fracturing” in this MD&A.
Transition Risks – Reputational
The Corporation’s business, financial condition, operations or prospects may be negatively impacted as a result of any negative public
opinion towards the Corporation or as a result of any negative sentiment towards, or in respect of, the Corporation’s reputation with
stakeholders, special interest groups, political leadership, the media or other entities. Public opinion may be influenced by certain
media and special interest groups’ negative portrayal of the industry in which the Corporation operates, as well as their opposition to
certain oil and natural gas projects.
Concerns about climate change have resulted in a number of environmental activists and members of the public opposing the
continued exploitation and development of fossil fuels, which has influenced investors’ willingness to invest in the oil and natural gas
industry. Historically, political and legal opposition to the fossil fuel industry focused on public opinion and the regulatory process.
More recently, however, there has been a movement to more directly hold governments and oil and natural gas companies responsible
for climate change through climate litigation.
Given the perceived elevated long-term risks associated with policy development, regulatory changes, public and private legal
challenges, or other market developments related to climate change, there have also been efforts in recent years affecting the financial
community, including investment advisors, sovereign wealth funds, banks, public pension funds, universities and other institutional
investors, promoting direct engagement and dialogue with companies in their portfolios on climate change action (including
exercising their voting rights on matters relating to climate change) and increased capital allocation to investments in low-carbon assets
and businesses, while decreasing the carbon intensity of their portfolios through, among other measures, divestments of companies
with high exposure to GHG-intensive operations and products. Certain stakeholders have also pressured insurance providers and
commercial and investment banks to reduce or stop providing insurance coverage and financing to oil and natural gas companies
and related infrastructure businesses and projects. The impact of such efforts may require the Corporation’s management to dedicate
significant time and resources to these climate change-related concerns and may adversely affect the Corporation’s operations,
the demand for and price of its common shares, the Corporation’s cost of capital and the Corporation’s access to the capital markets,
which negative impact could prove to be material over time.
See “Risk Factors – Changing Investor Sentiment”, “Risk Factors – Public Opinion and Reputational Risk” and “Risk Factors – Public
Opposition and Non-Governmental Organizations” in this MD&A.
2023 ANNUAL REPORT
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Transition Risks – Market
Concerns over climate change, fossil fuels, GHG emissions and water and land-use could lead to reduced demand for the oil, natural
gas and NGLs that the Corporation produces, which would have a material adverse effect on the Corporation’s business, financial
condition, results of operations and prospects. See “Risk Factors – Energy Transition and Alternatives to and Changing Demand for
Petroleum Products” in this MD&A.
Transition Risks – Regulatory and Policy
Foreign and domestic governments continue to evaluate and implement policy, legislation and regulations focused on restricting
GHG emissions and promoting adaptation to climate change and the transition to a low-carbon economy. It is not possible to predict
what measures foreign and domestic governments may implement in this regard, nor is it possible to predict the requirements that such
measures may impose or when such measures may be implemented. However, international multilateral agreements, the obligations
adopted thereunder and legal challenges concerning the adequacy of climate-related policy brought against foreign and domestic
governments may accelerate the implementation of these measures.
Existing and future laws and regulations may impose significant liabilities for a failure to comply with their requirements. Concerns over
climate change, fossil fuels, GHG emissions and water and land-use could lead to the enactment of more stringent laws and regulations
applicable to the Corporation. Any new laws and regulations (or additional requirements to existing laws and regulations) could have a
material impact on the Corporation’s business, financial condition, results of operations and prospects.
Adverse impacts to the Corporation’s business as a result of GHG legislation may include, but are not limited to, increased compliance
costs, permitting delays, increased operating costs and capital expenditures. Given the evolving nature of climate change policy and
the control of GHG emissions and resulting requirements, including carbon taxes and carbon pricing schemes implemented by varying
levels of government, it is expected that current and future climate change regulations will have the effect of increasing the Corporation’s
operating expenses and, in the long-term, potentially reducing the demand for oil, natural gas and NGLs, resulting in a decrease in the
Corporation’s profitability and a reduction in the value of its assets or requiring impairments for financial statement purposes.
The Corporation’s exploration and production facilities and other operations and activities emit GHGs which requires the Corporation
to comply with applicable GHG emissions legislation. The Corporation is subject to TIER and may become subject to future regional,
provincial and/or federal climate change regulations to manage GHG emissions.
Emissions, carbon and other regulations impacting climate and climate-related matters are constantly evolving. With respect to ESG
and climate reporting, the ISSB has issued the ISSB Standards with the aim of developing sustainability disclosure standards that are
globally consistent, comparable and reliable. The Canadian Securities Administrators and Canadian Sustainability Standards Board are
considering amending Canadian reporting requirements informed by the ISSB Standards. If the Corporation is not able to meet future
sustainability reporting requirements of regulators or current and future expectations of investors, insurance providers, lenders or other
stakeholders, its business and ability to attract and retain skilled employees, obtain regulatory permits, licences, registrations, approvals
and authorizations from various governmental authorities, and raise capital may be adversely affected.
See “Risk Factors – Regulatory”, “Risk Factors – Environmental Regulation”, “Risk Factors – Evolving Corporate Governance, Sustainability
and Reporting Framework” and “Risk Factors – Carbon Pricing Risk” in this MD&A.
Transition Risks – Legal
Claims have been made against certain energy companies alleging that GHG emissions from oil and natural gas operations constitute a
public nuisance under certain laws or that such energy companies provided misleading disclosure to the public and investors of current
or future risks associated with climate change. Individuals, government authorities or other organizations may make claims against
oil and natural gas companies, including the Corporation, for alleged personal injury, property damage or other potential liabilities.
While the Corporation is not a party to any such litigation or proceedings, it could be named in actions making similar allegations. An
unfavorable ruling in any such case could adversely affect the demand for and price of securities issued by the Corporation, impact its
operations and have an adverse effect on its financial condition, which could prove to be material. See “Risk Factors – Litigation”
in this MD&A.
Transition Risks – Technology
The adoption of new technologies by the Corporation to deal with climate change could require a significant capital investment.
Limitations related to the development, adoption and success of these technologies or the development of disruptive technologies
may have a material adverse effect on the Corporation’s business, financial condition, results of operations and prospects. See “Risk
Factors – Cost of New Technologies” in this MD&A.
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BIRCHCLIFF ENERGY
Regulatory
Modification to current, or implementation of additional, regulations and the failure to obtain any necessary regulatory approvals
could negatively impact the Corporation
Various levels of governments impose extensive controls and regulations on oil and natural gas operations, including exploration,
development, production, pricing, marketing, transportation, infrastructure and mergers and acquisitions. Governments may regulate
or intervene with respect to exploration and production activities, prices, taxes, royalties, the exportation of oil and natural gas,
infrastructure projects and the transfer of assets pursuant to acquisition and divestiture activities. Amendments to these controls and
regulations may occur from time to time in response to economic or political conditions. The implementation of new regulations or the
modification of existing regulations affecting the oil and natural gas industry could reduce the demand for oil and natural gas, increase
the Corporation’s costs or make certain projects uneconomic, any of which may have a material adverse effect on the Corporation’s
business, financial condition, results of operations and prospects.
In order to conduct oil and natural gas operations, the Corporation requires regulatory permits, licences, registrations, approvals
and authorizations from various governmental authorities. Obtaining certain approvals from regulatory authorities can involve,
among other things, stakeholder and Indigenous consultation, environmental impact assessments and public hearings. Regulatory
approvals obtained may be subject to the satisfaction of certain conditions including, but not limited to, security deposit obligations,
ongoing regulatory oversight of projects, mitigating or avoiding project impacts, environmental and habitat assessments and other
commitments or obligations. In addition, third-party challenges to regulatory decisions and orders can reduce the efficiency of the
regulatory regime, as the implementation of the decisions and orders may be delayed resulting in uncertainty and interruption to the
business of the oil and natural gas industry. There can be no assurance that the Corporation will be able to obtain all of the permits,
licences, registrations, approvals and authorizations that may be required to conduct operations that it may wish to undertake in
the time required or on acceptable terms and conditions. Any failure to renew, maintain or obtain the required permits, licences,
registrations, approvals and authorizations or the revocation or termination of the same may disrupt the Corporation’s operations
and have a material adverse effect on the Corporation’s business and financial condition.
In addition, the Corporation may have to comply with the requirements of certain federal legislation such as the Competition Act (Canada)
and the Investment Canada Act (Canada), which may adversely affect its business and financial condition and the market value of its
common shares or assets, particularly when undertaking, or attempting to undertake, an acquisition or disposition.
Environmental Regulation
Compliance with environmental regulations requires the dedication of a portion of the Corporation’s financial and
operational resources
All phases of the oil and natural gas business present environmental risks and hazards and are subject to environmental regulation
pursuant to a variety of federal, provincial and municipal laws and regulations. Environmental legislation provides for, among other
things, the initiation and approval of new oil and natural gas projects and restrictions and prohibitions on the spill, release or emission
of various substances produced in association with oil and natural gas industry operations. In addition, such legislation sets out the
requirements with respect to oilfield waste handling and storage, habitat protection and the satisfactory operation, maintenance,
abandonment and reclamation of well and facility sites.
Compliance with environmental legislation can require significant expenditures and/or result in operational restrictions. A breach of
applicable environmental legislation may result in the imposition of fines and penalties, some of which may be material. In addition,
a breach may result in the suspension or revocation of necessary licences and authorizations and/or the Corporation being subject to
interim compliance measures, all of which may restrict the Corporation’s ability to conduct operations. Further, the Corporation could
be subject to civil liability for pollution damage. The discharge of oil, natural gas or other pollutants into the air, soil or water may give
rise to liabilities to governments and third parties and may require the Corporation to incur costs to remedy such discharge.
Environmental legislation is evolving in a manner expected to result in stricter standards and enforcement, larger fines and liabilities and
potentially increased capital expenditures and operating costs. Although the Corporation believes that it is in material compliance with
current applicable environmental legislation, no assurance can be given that environmental compliance requirements will not result in
a curtailment of production or a material increase in the costs of production, development or exploration activities or otherwise have
a material adverse effect on the Corporation’s business, financial condition, results of operations and prospects.
In addition, new environmental legislation may increase uncertainty among oil and natural gas participants as the new legislation is
implemented. The implementation of new environmental legislation or the modification of existing legislation affecting the oil and
natural gas industry generally could reduce the demand for oil and natural gas and increase costs. See “Risk Factors – Climate Change”
in this MD&A.
2023 ANNUAL REPORT
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Changing Investor Sentiment
Changing investor sentiment towards the oil and natural gas industry may impact the Corporation’s access to, and cost of, capital
A number of factors, including the effects of the use of fossil fuels on climate change, the impact of oil and natural gas operations on
the environment, environmental damage relating to spills of petroleum products during production and transportation and Indigenous
rights, have affected certain investors’, lenders’ and insurers’ sentiments towards investing in, lending to and insuring participants in,
the oil and natural gas industry. As a result of these concerns, some institutional, retail and governmental investors, lenders and insurers
have announced that they no longer are willing to fund or invest in, lend to or insure oil and natural gas properties or companies, or are
reducing the amount of such investments over time. In addition, certain institutional investors, lenders and insurers are requesting that
issuers develop and implement more robust ESG policies and practices and make related disclosures. Developing and implementing
such policies and practices, and making such related disclosures, can involve significant costs and require a significant time commitment
from the Corporation’s Board, management and employees. Failing to implement the policies and practices, and make the related
disclosures, as requested by institutional investors, lenders and insurers, may result in such investors reducing their investment in or
loan to the Corporation, or not investing in or lending to the Corporation at all, or such insurers refusing to insure the Corporation.
Any reduction in the investor, lender or insurance base interested or willing to invest in, lend to or insure participants in the oil and
natural gas industry and more specifically, the Corporation, may result in limiting the Corporation’s access to, or increasing the cost of,
capital or insurance and decreasing the price and liquidity of its common shares, even if the Corporation’s operating results, underlying
asset values or prospects have not changed or improved.
Public Opinion and Reputational Risk
The Corporation relies on its reputation to continue its operations and to attract and retain investors and employees
The Corporation’s business, financial condition, operations and prospects may be negatively impacted by any negative public
opinion towards the Corporation or as a result of any negative sentiment towards, or in respect of, the Corporation’s reputation with
stakeholders, special interest groups, political leadership, the media or other entities. Public opinion may be influenced by certain
media and special interest groups’ negative portrayal of the industry in which the Corporation operates, as well as their opposition
to certain oil and natural gas projects. Potential impacts of negative public opinion or reputational issues may include delays or
interruptions in operations, legal or regulatory actions or challenges, blockades, increased regulatory oversight, reduced support for,
delays in, challenges to, or the revocation of regulatory approvals, permits and/or licences, increased costs and/or cost overruns and
reduced access to (or an increase in the cost of) capital, credit and/or insurance. See “Risk Factors – Public Opposition and
Non-Governmental Organizations” in this MD&A.
Any environmental damage, loss of life, injury or damage to property caused by the Corporation’s operations could damage its
reputation. Negative sentiment towards the Corporation could result in a lack of willingness of governmental authorities to grant the
necessary licences or permits for the Corporation to operate its business. In addition, negative sentiment towards the Corporation could
result in the residents of the areas where the Corporation is doing business opposing further operations in the area by the Corporation.
If the Corporation develops a reputation of having an unsafe workplace, this may impact its ability to attract and retain the necessary
skilled employees and consultants to operate its business. Further, the Corporation’s reputation and public opinion could be affected
by the actions and activities of other companies operating in the oil and natural gas industry, particularly other producers, over which
the Corporation has no control. In addition, opposition from special interest groups opposed to oil and natural gas development and
the possibility of climate-related litigation against governments and fossil fuel companies may harm the Corporation’s reputation.
See “Risk Factors – Climate Change” in this MD&A.
Reputational risk cannot be managed in isolation from other forms of risk. Credit, market, operational, insurance, regulatory and
legal risks, among others, must all be managed effectively to safeguard the Corporation’s reputation. Damage to the Corporation’s
reputation could result in negative investor sentiment towards the Corporation, which may result in limiting the Corporation’s access to,
or increasing the cost of, capital, credit and/or insurance and decreasing the price and liquidity of its common shares.
Public Opposition and Non-Governmental Organizations
The oil and natural gas industry and the Corporation may be subject to public opposition and other actions by non-governmental
organizations
The oil and natural gas industry may, at times, be subject to public opposition. The oil and natural gas industry has become an
increasingly politically polarizing topic in Canada, which has resulted in a rise in civil disobedience surrounding oil and natural gas
development, particularly with respect to infrastructure projects. Public opposition could expose the Corporation to the risk of higher
costs, operational delays and disruptions or even project cancellations due to increased pressure on governments and regulators by
special interest groups, which may include Indigenous groups, landowners, environmental interest groups (including those opposed
to oil and natural gas production operations) and other non-governmental organizations. Potential impacts of such pressure and
opposition include blockades, legal or regulatory actions or challenges, increased regulatory oversight, reduced support of federal,
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provincial or municipal governments, and delays in, challenges to, or the revocation of regulatory approvals, permits and/or licences,
as well as direct legal challenges, including the possibility of climate-related litigation. There is no guarantee that the Corporation will
be able to satisfy the concerns of the special interest groups and non-governmental organizations and attempting to address such
concerns may require significant and unanticipated capital and operating expenditures and may divert the attention of management
and key personnel from business operations, which may negatively impact the Corporation’s business, financial condition, results of
operations and prospects.
In addition, the Corporation’s oil and natural gas properties, wells and facilities or the third-party facilities and pipelines utilized
by the Corporation could be the subject of a terrorist attack or sabotage. If any of such properties, wells or facilities are the subject
of terrorist attack or sabotage, it may have a material adverse effect on the Corporation’s business, financial condition, results of
operations and prospects.
Energy Transition and Alternatives to and Changing Demand for Petroleum Products
The global energy transition to a low-carbon economy, changes to the demand for oil and natural gas products and the rise of
petroleum alternatives may negatively affect the Corporation’s business, financial condition, results of operations and cash flow
A transition away from the use of petroleum products, which may include fuel conservation measures, alternative fuel requirements,
electric vehicle mandates, increasing consumer demand for alternatives to oil, natural gas and NGLs and technological advances in fuel
economy and renewable energy, could reduce the demand for oil and natural gas. Certain jurisdictions have implemented policies or
incentives to decrease the use of fossil fuels and encourage the use of renewable fuel alternatives, which may lessen the demand for
petroleum products and put downward pressure on commodity prices. In addition, advancements in energy efficient products have
a similar effect on the demand for oil, natural gas and NGLs products. The Corporation cannot predict the impact of the changing
demand for oil, natural gas and NGLs products and any major changes may have a material adverse effect on the Corporation’s
business, financial condition, results of operations and cash flow by decreasing the Corporation’s profitability, increasing its costs,
limiting its access to capital or decreasing the value of its assets.
In addition, the Corporation may invest in technologies and other opportunities related to decreasing GHG emissions or energy
transition, which may involve investments in businesses, operations or assets relating to renewable or other alternative forms of energy.
Such investments may involve certain risks and uncertainties in addition to those identified herein in respect of the Corporation’s
existing business, operations and assets, including the obligation to comply with additional regulatory and other legal requirements
associated with such businesses, operations or assets and the potential requirement for additional sources of capital to make, develop
and/or maintain such investments and the Corporation’s ability to access such sources of capital. In the event the Corporation were to
complete such investments, there can be no guarantee that the Corporation will realize a return on those investments or businesses,
operations or assets that is similar to the returns it receives in respect of its existing business, operations and assets.
Evolving Corporate Governance, Sustainability and Reporting Framework
Evolving corporate governance, sustainability and reporting framework may increase both compliance costs and the risk of non-
compliance that may have an adverse effect on the Corporation
The Corporation is subject to evolving rules and regulations promulgated by a number of governmental and self-regulated
organizations, including the Canadian Securities Administrators, the TSX and the Financial Accounting Standards Board. These rules
and regulations continue to evolve in scope and complexity, making compliance more difficult and uncertain. Further, the Corporation’s
efforts to comply with these and other new and existing rules and regulations have resulted in, and are likely to continue to result in,
increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities
to compliance activities. See “Risk Factors – Climate Change – Transition Risks – Regulatory and Policy” in this MD&A.
Credit Facilities
The Corporation’s borrowing base under the Credit Facilities could be redetermined and the Corporation could fail to comply with
covenants under the Credit Facilities, resulting in restricted access to capital or a requirement to repay all amounts owing thereunder
The amount authorized under the Credit Facilities is dependent on the borrowing base determined by the Corporation’s lenders.
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, natural gas and NGLs reserves. The Corporation’s lenders use the Corporation’s
reserves, commodity prices and other factors to determine the Corporation’s borrowing base. Depressed commodity prices
could result in a reduction in the Corporation’s borrowing base, thereby reducing the funds available to the Corporation under the
Credit Facilities. As the borrowing base is determined based on the lender’s interpretation of the Corporation’s reserves and future
commodity prices, there can be no assurance as to the amount of the borrowing base determined at each review.
2023 ANNUAL REPORT
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In addition to the semi-annual reviews of the borrowing limit, the lenders under the Credit Facilities have the right to redetermine the
borrowing base limit in certain other circumstances. In the event that: (i) the Corporation, any material subsidiary of the Corporation
or any of its borrowing base properties become subject to an abandonment/reclamation order by an energy regulator where the
aggregate estimated current cost to the Corporation and its material subsidiaries to comply with all outstanding orders exceeds
10% of the borrowing base; or (ii) the liability management rating (as such term is defined in the agreement governing the Credit
Facilities) of the Corporation or any material subsidiary is less than 2.0, then, unless agreed to by all of the lenders, a redetermination
of the borrowing base shall be completed within 45 days of receipt by the Corporation or the applicable material subsidiary of such
order or demand in the case of (i) above, and of receipt by the agent of notice that the liability management rating is less than 2.0 in
the case of (ii) above. Further, a majority of lenders have the right once per year to redetermine the borrowing base in between
scheduled redeterminations and the borrowing base may also be reduced in connection with asset dispositions.
If, at the time of a borrowing base redetermination, the outstanding borrowings under the Credit Facilities were to exceed the
borrowing base as a result of any such redetermination, the Corporation would be required to make principal repayments or otherwise
eliminate the borrowing base shortfall. If the Corporation is forced to repay a portion of its indebtedness under the Credit Facilities,
it may not have sufficient funds to make such repayments. If it does not have sufficient funds and is otherwise unable to negotiate
renewals of its borrowings or arrange new financing, it may have to sell significant assets. Any such sale could have a material adverse
effect on the Corporation’s business and financial results.
The maturity date of the Credit Facilities is currently May 11, 2025. 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 the event that either of the Credit Facilities is not
extended before the maturity date, all outstanding indebtedness under such Credit Facility will be repayable at the maturity date.
There is also a risk that the Credit Facilities will not be renewed for the same principal amount or on the same terms. Any of these events
could adversely affect the Corporation’s ability to fund its ongoing operations and to pay dividends.
The Corporation is required to comply with covenants under the Credit Facilities. In the event that the Corporation does not comply
with these covenants, the Corporation’s access to capital could be restricted or repayment could be required. Events beyond
the Corporation’s control may contribute to the failure of the Corporation to comply with such covenants. A failure to comply with
covenants could result in an event of default under the Credit Facilities, which could result in the Corporation being required to
repay amounts owing thereunder and may prevent the payment of dividends to shareholders. The acceleration of the Corporation’s
indebtedness under one agreement may permit acceleration of indebtedness under other agreements that contain cross-default or
cross-acceleration provisions. In addition, the Credit Facilities impose certain restrictions on the Corporation, including, but not limited
to, restrictions on the payment of dividends and other distributions, incurring of additional indebtedness, dispositions of properties
and the entering into of amalgamations, mergers, plans of arrangements, reorganizations or consolidations with any person. The Credit
Facilities do not currently contain any financial maintenance covenants; however, there is no assurance that the Corporation’s lenders
will not impose any such covenants on the Corporation in the future. Any such covenants may either affect the availability or price of
additional funding.
If the Corporation’s lenders require repayment of all or portion of the amounts outstanding under the Credit Facilities for any reason,
including for a default of a covenant, there is no certainty that the Corporation would be in a position to make such repayment. Even if
the Corporation is able to obtain new financing in order to make any required repayment under the Credit Facilities, it may not be on
commercially reasonable terms or terms that are acceptable to the Corporation. If the Corporation is unable to repay amounts owing
under the Credit Facilities, the lenders under the Credit Facilities could proceed to foreclose or otherwise realize upon the collateral
granted to them to secure the indebtedness.
Issuance of Debt
Increased debt levels may impair the Corporation’s ability to borrow additional capital on a timely basis to fund opportunities
as they arise
From time to time, the Corporation may finance its activities (including asset acquisitions) in whole or in part with debt, which may
increase the Corporation’s debt levels above industry standards for oil and natural gas companies of similar size. Depending on future
exploration and development plans, the Corporation may require additional debt financing that may not be available or, if available,
may not be available on favourable terms. Neither the Corporation’s articles nor its by-laws limit the amount of indebtedness that the
Corporation may incur. The level of the Corporation’s indebtedness from time to time could impair the Corporation’s ability to obtain
additional financing on a timely basis to take advantage of business opportunities that may arise and may adversely affect the market
price of its common shares.
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BIRCHCLIFF ENERGY
Risk Management Activities
Risk management activities expose the Corporation to the risk of financial loss and counter-party risk
From time to time, the Corporation may enter into physical or financial agreements to receive fixed prices on its oil, natural gas and
NGLs production to offset the risk of revenue losses if commodity prices decline. Similarly, the Corporation may enter into agreements
to fix the differential or discount pricing gap which exists and may fluctuate between different grades of oil, natural gas and NGLs and
the various market prices received for such products. However, to the extent that the Corporation engages in price risk management
activities to protect itself from commodity price declines, it may also be prevented from realizing the full benefits of price increases
above the levels of the derivative instruments used to manage price risk. In addition, the Corporation’s risk management arrangements
expose it to the risk of financial loss in certain circumstances, including instances in which:
· production falls short of the contracted volumes or prices fall significantly lower than projected;
·
·
·
there is a widening of price-basis differentials between delivery points for production and the delivery point assumed in the
arrangement;
the counterparties to the arrangements or other risk management contracts fail to perform under those arrangements; and/or
a sudden unexpected material event impacts oil or natural gas prices.
On the other hand, a failure to diversify commodity prices into different markets exposes the Corporation to reduced liquidity when
prices decline in a single market. A sustained lower commodity price environment in that single market would result in lower realized
prices for undiversified volumes and reduce the prices at which the Corporation would enter into derivative contracts on future
volumes. This could make such diversification transactions unattractive, and, as a result, some or all of the Corporation’s production
volumes forecasted for the current fiscal year and beyond may not be protected by derivative arrangements.
Similarly, the Corporation may enter into agreements to fix the exchange rate of Canadian dollars to United States dollars or other
currencies in order to offset the risk of revenue losses if the Canadian dollar increases in value compared to the other currencies.
However, if the Canadian dollar declines in value compared to such fixed currencies, the Corporation will not benefit from the
fluctuating exchange rate.
Further, the Corporation may enter into arrangements to fix interest rates applicable to the Corporation’s debt. However, if interest
rates decrease as compared to the interest rate fixed by the Corporation, the Corporation will not benefit from the lower interest rate.
Hydraulic Fracturing
Implementation of new regulations on hydraulic fracturing may lead to operational delays, increased costs and/or decreased
production volumes, adversely affecting the Corporation’s financial position. The Corporation’s operations are dependent upon the
availability of water and its ability to dispose of produced water from drilling and production activities
Hydraulic fracturing involves the injection of water, sand and small amounts of additives under high pressure into tight rock formations to
stimulate the production of oil and natural gas. Concerns about seismic activity, including earthquakes, caused by hydraulic fracturing
have resulted in regulatory authorities implementing additional protocols for areas that are prone to seismic activity and completely
banning hydraulic fracturing in other areas. Any new laws, regulations or permitting requirements regarding hydraulic fracturing could
lead to operational delays, increased operating costs and third-party or governmental claims and could increase the Corporation’s
costs of compliance and doing business, as well as delay the development of oil, NGLs and natural gas resources from shale formations,
which are not commercial without the use of hydraulic fracturing. Restrictions or bans on hydraulic fracturing in the areas where the
Corporation operates could reduce the amount of oil, natural gas and NGLs that the Corporation is ultimately able to produce from its
reserves and/or result in the Corporation being unable to economically recover certain of its oil, natural gas and NGLs reserves, which
in either case could result in a significant decrease in the value of the Corporation’s assets.
Water is an essential component of the Corporation’s drilling and hydraulic fracturing processes. Limitations or restrictions on the
Corporation’s ability to secure sufficient amounts of water (including limitations resulting from natural causes such as drought), could
materially and adversely impact its operations. Severe drought conditions can result in local water authorities taking steps to restrict
the use of water in their jurisdiction for drilling and hydraulic fracturing in order to protect the local water supply. If the Corporation is
unable to obtain water to use in its operations from local sources, it may need to be obtained from new sources and transported to
drilling sites, resulting in increased costs. Cost increases could have a material adverse effect on drilling economics resulting in delays
or suspensions of drilling, which could have a detrimental effect on the Corporation’s financial condition, results of operations and cash
flows. See “Risk Factors – Availability of Water” in this MD&A.
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The Corporation must dispose of the fluids produced from oil, natural gas and NGLs production operations, including produced water,
which it does directly or through the use of third-party vendors. The legal requirements related to the disposal of produced water into a
non-producing geologic formation by means of underground injection wells are subject to change based on concerns of the public or
governmental authorities regarding such disposal activities. See “Risk Factors – Disposal of Fluids Used in Operations” in this MD&A.
Government authorities may issue orders to shut down or curtail the injection depth of existing wells in the vicinity of seismic events.
Another consequence of seismic events may be lawsuits alleging that disposal well operations have caused damage to neighbouring
properties or otherwise violated laws and regulations regarding waste disposal. These developments could result in additional regulation
and restrictions on the use of injection wells by the Corporation or by commercial disposal well vendors that the Corporation may use
from time to time to dispose of produced water. Increased regulation and attention given to induced seismicity could also lead to greater
opposition, including litigation to limit or prohibit oil and natural gas activities utilizing injection wells for produced water disposal. Any
one or more of these developments may result in the Corporation or its vendors having to limit disposal well volumes, disposal rates,
pressures or locations, or require the Corporation or its vendors to shut down or curtail the injection of produced water into disposal
wells, which events could have a material adverse effect on the Corporation’s business, financial condition and results of operations.
Minor earthquakes are common in certain parts of Alberta. Since 2015, the Alberta Energy Regulator (the “AER”) has introduced seismic
protocols for hydraulic fracturing operators in the Fox Creek, Red Deer and Brazeau areas (collectively, the “Seismic Protocol Regions”)
initially in response to significant induced seismic activity in the Duvernay formation in Fox Creek. Oil and natural gas producers in each
of the Seismic Protocol Regions are subject to a “traffic light” reporting system that sets thresholds on the Richter scale of earthquake
magnitude, which vary among the three regions. The reporting requirements include an assessment of the potential for seismicity prior
to conducting operations, the implementation of a response plan to address potential seismic events and the suspension of operations,
depending on the magnitude of an earthquake. Orders imposed by the AER in response to seismic events remain in effect as long as
the AER deems them necessary. In recent years, hydraulic fracturing has been linked to increased seismicity in the areas in which
hydraulic fracturing takes place, leading to continued monitoring by the AER. The AER may extend seismic protocols to other areas
of the province if necessary, which may adversely affect the Corporation’s operations.
Availability of Water
Lack of availability of water may affect the Corporation’s ability to implement various processes
The Corporation uses water in many parts of its operations, including drilling and completions activities. As a result of below-average
precipitation over the past number of months, snowpack, rivers and reservoirs around the Province of Alberta are low. For the first time
since 2001, Alberta’s Drought Command Team has been authorized to negotiate water-sharing agreements with water licence holders,
including in the Red Deer River, Bow River and Old Man River basins, to manage water use and mitigate the risks of drought. Reduced
availability of water could have a material adverse effect on the results of operations and financial condition of the Corporation.
Disposal of Fluids Used in Operations
Regulations regarding the disposal of fluids used in operations may increase costs of compliance or subject the Corporation to
regulatory penalties or litigation
The safe disposal of hydraulic fracturing fluids (including the additives) and water recovered from oil and natural gas wells is subject
to ongoing regulatory review by the federal and provincial governments, including its effect on fresh water supplies and the ability of
such water to be recycled, amongst other things. While it is difficult to predict the impact of any regulations that may be enacted in
response to such review, the implementation of stricter regulations may increase the Corporation’s costs of compliance which may
impact the economics of certain projects and, in turn, impact activity levels and new capital spending on the Corporation’s oil and
natural gas properties.
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BIRCHCLIFF ENERGY
Industry Competition
The Corporation competes with other oil and natural gas companies, some of which have greater financial and operational resources
or other competitive advantages
The oil and natural gas industry is highly competitive in all of its phases. The Corporation competes with numerous other entities in the
exploration for, and the development, production and marketing of, oil, natural gas and NGLs, including land, acquisitions of reserves,
access to drilling and service rigs and other equipment, access to transportation and access to skilled technical and operating personnel.
The Corporation’s competitors include oil and natural gas companies that have substantially greater financial resources, staff and facilities
than those of the Corporation. Some of these companies not only explore for, develop and produce oil and natural gas, but also carry on
refining operations and market oil, natural gas and NGLs on an international basis. As a result of these complementary activities, some of
these competitors may have greater and more diverse competitive resources to draw on than the Corporation. The Corporation’s ability
to increase its reserves in the future will depend not only on its ability to explore and develop its present properties, but also on its ability
to select and acquire other suitable producing properties or prospects for exploratory drilling. To a lesser extent, the Corporation also
faces competition from companies that supply alternative sources of energy, such as wind and solar power. Other factors that could affect
competition in the marketplace include additional discoveries of hydrocarbon reserves by the Corporation’s competitors, the cost of
production, political and economic factors and other factors outside of the Corporation’s control.
Carbon Pricing Risk
Taxes on carbon emissions affect the demand for oil and natural gas and the Corporation’s operating expenses and may impair the
Corporation’s ability to compete
The majority of countries across the globe have agreed to reduce their carbon emissions in accordance with the Paris Agreement.
In Canada, the Government of Canada has implemented legislation aimed at incentivizing the use of alternative fuels and in turn
reducing carbon emissions. The federal system, which was upheld by the Supreme Court of Canada as constitutional, currently applies
in provinces and territories without their own system that meets federal standards.
Any taxes placed on carbon emissions may have the effect of decreasing the demand for oil, natural gas and NGLs products and at the
same time, increasing the Corporation’s operating expenses, each of which may have a material adverse effect on the Corporation’s
profitability and financial condition. Further, the imposition of carbon taxes puts companies at an economic disadvantage with their
counterparts who operate in jurisdictions where there are less costly carbon regulations. See “Risk Factors – Climate Change” and
“Risk Factors – Environmental Regulation” in this MD&A.
Uncertainty of Reserves Estimates
The Corporation’s estimated reserves are based on numerous factors and assumptions which may prove incorrect and which may
affect the Corporation
There are numerous uncertainties inherent in estimating quantities of oil, natural gas and NGLs reserves and the future net revenue
attributed to such reserves. In general, estimates of economically recoverable oil, natural gas and NGLs reserves and the future net
revenue therefrom are based upon a number of variable factors and assumptions, such as commodity prices, historical production
from the properties, production rates, ultimate reserves recovery, the timing and amount of capital expenditures, marketability of oil,
natural gas and NGLs, royalty rates, the assumed effects of regulation by governmental agencies and future operating costs, all of
which may vary materially from actual results. For these reasons, estimates of the economically recoverable oil, natural gas and NGLs
reserves attributable to any particular group of properties, the classification of such reserves based on risk of recovery and estimates of
future net revenue associated with reserves prepared by different engineers, or by the same engineer at different times, may vary. The
Corporation’s actual production, revenue, taxes and development and operating expenditures with respect to its reserves will vary
from estimates thereof and such variations could be material.
The estimation of proved and probable reserves that may be developed and produced in the future is often based upon volumetric
calculations and upon analogy to similar types of reserves rather than actual production history. Recovery factors and drainage areas
are often estimated by experience and analogy to similar producing pools. Estimates based on these methods are generally less
reliable than those based on actual production history. Subsequent evaluation of the same reserves based upon production history
and production practices will result in variations in the estimated reserves and such variations could be material.
In accordance with applicable securities laws in Canada, the Corporation’s independent qualified reserves evaluator has used
forecast prices and costs in estimating the reserves and future net revenue as summarized herein. Actual future net revenue will
be affected by other factors such as actual production levels, supply and demand for oil, natural gas and NGLs, curtailments or
increases in consumption by oil, natural gas and NGLs purchasers, changes in governmental regulations or taxation and the impact
of inflation on costs.
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Actual production and cash flow derived from the Corporation’s reserves will vary from the estimates contained in the Corporation’s
independent reserves evaluation and such variations could be material. The independent reserves evaluation is based in part on the
assumed success of activities the Corporation intends to take in future years. The reserves and estimated future net revenue to be
derived therefrom and contained in the Corporation’s independent reserves evaluation will be reduced to the extent that such activities
are not undertaken or, if undertaken, do not achieve the level of success assumed in the evaluation.
Variations in Foreign Exchange Rates and Interest Rates
Variations in foreign exchange rates and interest rates could adversely affect the Corporation’s financial condition
World oil and natural gas prices are quoted in United States dollars. The Canadian/United States dollar exchange rate, which fluctuates
over time, consequently affects the price received by Canadian producers of oil and natural gas. Material increases in the value of
the Canadian dollar relative to the United States dollar may negatively affect the Corporation’s production revenue. Accordingly,
Canadian/United States exchange rates could impact the future value of the Corporation’s reserves as determined by independent
reserves evaluators. Although a low value of the Canadian dollar relative to the United States dollar may positively affect the price the
Corporation receives for its oil, natural gas and NGLs production, it could also result in an increase in the price for certain goods used
in the Corporation’s operations, which may have a negative impact on the Corporation’s financial results.
To the extent that the Corporation engages in risk management activities related to foreign exchange and interest rates, there are risks
associated with such activities. See “Risk Factors – Risk Management Activities” in this MD&A.
An increase in interest rates could result in a significant increase in the amount the Corporation pays to service debt, resulting in
reduced funds available to fund its exploration and development activities and the cash available for dividends and could negatively
impact the market price of the Corporation’s common shares.
Seasonality and Extreme Weather
Oil and natural gas operations are subject to seasonal conditions and extreme weather and the Corporation may experience
significant operational delays as a result
The level of activity in the Canadian oil and natural gas industry is influenced by seasonal weather patterns. Wet weather and spring thaw
may make the ground unstable, which may prevent, delay or make operations more difficult. Consequently, municipalities and provincial
transportation departments enforce road bans that restrict the movement of rigs and other heavy equipment, thereby reducing activity
levels. Road bans and other restrictions generally result in a reduction of drilling and exploration activities and may also result in the
shut-in of some of the Corporation’s production if not otherwise tied-in. In addition, certain oil and natural gas producing properties may
be located in areas that are inaccessible other than during the winter months because the ground surrounding the sites in these areas
consists of swampy terrain. Further, extreme cold weather, heavy snowfall and heavy rainfall may restrict the Corporation’s ability to access
its properties, cause operational difficulties and delays, damage infrastructure or equipment and contribute to personnel injury because
of dangerous working conditions.
The Corporation’s operations are susceptible to the impacts of wildfires and flooding. In addition to the loss of revenue that would result
from the loss of production if the Corporation’s operations were affected by wildfires and/or flooding, the Corporation would incur
delays and expenses responding to such events, repairing damaged equipment and resuming operations. Although the Corporation’s
insurance policies may compensate it for part of the Corporation’s losses, they will not compensate the Corporation for all of its losses.
In addition, wildfires and/or flooding consume both financial resources and management and employee time. The Corporation can
offer no assurance that the severe wildfires and flooding that have at times affected the oil and natural gas industry in Western Canada
will not occur again in the future with equal or greater severity.
Seasonal factors and unexpected weather patterns may lead to declines in exploration and production activity and also to volatility in
commodity prices as the demand for natural gas typically fluctuates during cold winter months and hot summer months.
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BIRCHCLIFF ENERGY
Asset Concentration
All of the Corporation’s properties are located on the Montney/Doig Resource Play in Alberta, making the Corporation vulnerable to
risks associated with having its production concentrated in one area
All of the Corporation’s producing and undeveloped properties are geographically concentrated on the Montney/Doig Resource Play
in Alberta. As a result of this concentration, the Corporation may be disproportionately exposed to the impact of delays or interruptions
of production or operations from that area caused by transportation capacity constraints, curtailment of production, government
regulation, natural disasters, availability of equipment, facilities or services, adverse weather conditions or other events which impact
that area. Due to the concentrated nature of the Corporation’s portfolio of properties, a number of the Corporation’s properties
could experience any of the same conditions at the same time, resulting in a relatively greater impact on the Corporation’s results of
operations than they might have on other companies that have a more diversified portfolio of properties. Such delays or interruptions
could have a material adverse effect on the Corporation’s financial condition and results of operations.
In addition, industry activity is high in the Corporation’s areas of operations, as are the demand for and costs of personnel, equipment,
power, services and resources. Any delay or inability to secure the necessary personnel, equipment, power, services or resources
could result in the Corporation’s actual production volumes being below its forecasts. Any such decrease in production volumes, or
any significant increases in costs, could have a material adverse effect on the Corporation’s financial condition, results of operations,
cash flow and profitability.
Cost of New Technologies
The Corporation’s ability to successfully implement new technologies into its operations in a timely and efficient manner will affect its
ability to compete
The oil and natural gas industry is characterized by rapid and significant technological advancements and introductions of new products
and services utilizing new technologies. Other oil and natural gas companies may have greater financial, technical and personnel
resources that allow them to implement and benefit from new technologies before the Corporation. There can be no assurance that
the Corporation will be able to respond to such competitive pressures and implement such technologies on a timely basis or at an
acceptable cost. If the Corporation implements such technologies, there is no assurance that the Corporation will do so successfully.
One or more of the technologies currently utilized by the Corporation or implemented in the future may become obsolete. In such
case, the Corporation’s business, financial condition, results of operations and prospects could be materially adversely affected. If
the Corporation is unable to utilize the most advanced commercially available technology or is unsuccessful in implementing certain
technologies, its business, financial condition, results of operations and prospects could also be materially adversely affected.
Reliance on a Skilled Workforce and Key Personnel
An inability to recruit and retain a skilled workforce and key personnel could negatively impact the Corporation
The operations and management of the Corporation require the recruitment and retention of a skilled workforce, including engineers,
technical personnel and other professionals. The loss of key members of such workforce, or a substantial portion of the workforce as
a whole, could result in the failure to implement the Corporation’s business plans, which could have a material adverse effect on the
Corporation’s business, financial condition, results of operations and prospects.
Competition for qualified personnel in the oil and natural gas industry is intense and there can be no assurance that the Corporation
will be able to continue to attract and retain all personnel necessary for the development and operation of its business. In addition,
the decline in market conditions in recent years has resulted in a significant number of skilled personnel exiting the oil and natural gas
industry and fewer young people entering the industry. Contributions of the existing management team to the immediate and near-term
operations of the Corporation are likely to be of central importance. In addition, certain of the Corporation’s current employees may
have significant institutional knowledge that must be transferred to other employees prior to their departure from the Corporation. If the
Corporation is unable to: (i) retain current employees; (ii) successfully complete effective knowledge transfers; and/or (iii) recruit new
employees with the requisite knowledge and experience, the Corporation could be negatively impacted. In addition, the Corporation
could experience increased costs to retain and recruit these professionals. Investors in the Corporation must rely upon the ability,
expertise, judgment, discretion, integrity and good faith of the Corporation’s management.
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Information Technology Systems and Cyber-Security
A disruption of information technology services or a cyber-security breach may adversely affect the Corporation
The Corporation has become increasingly dependent upon the availability, capacity, reliability and security of its information technology
infrastructure and its ability to expand and continually update this infrastructure to conduct daily operations. The Corporation depends on
various information technology systems to estimate reserves, process and record financial data, manage its financial resources and land
base, analyze seismic information, administer its contracts with its operators and lessees and communicate with employees, consultants,
securityholders and other stakeholders, regulators and other third parties.
In the event the Corporation is unable to regularly deploy software and hardware, effectively upgrade systems and network
infrastructure and take other steps to maintain or improve the efficiency and efficacy of its information technology systems, the
operation of such systems could be interrupted or result in the loss, corruption or release of data. Further, the Corporation is subject
to a variety of information technology and system risks as a part of its normal course operations, including potential breakdown, invasion,
virus, cyber-attack, cyber-fraud, security breach, and destruction or interruption of the Corporation’s information technology systems
by third parties or insiders. Unauthorized access to these systems by employees or third parties could lead to corruption or exposure of
confidential, fiduciary or proprietary information, interruption to communications or operations or disruption to its business activities or
its competitive position. In addition, cyber-phishing attempts, in which a malicious party disguising themselves as a trustworthy entity in
an electronic communication attempts to obtain sensitive information such as usernames, passwords, credit card or banking details
(and money) or to have phony wire transfer or cheque requests approved, have become more widespread and sophisticated in recent
years. If the Corporation becomes a victim of a cyber-phishing attack, it could result in a loss or theft of the Corporation’s financial
resources or critical data and information or could result in a loss of control of the Corporation’s technological infrastructure or financial
resources. The Corporation’s employees are often the targets of such cyber-phishing attacks, as they are and will continue to be
targeted by parties using fraudulent “spoof” emails to misappropriate information or to introduce viruses or other malware through
“trojan horse” programs to the Corporation’s computers. These emails appear to be legitimate emails, but direct recipients to fake
websites operated by the sender of the email or request recipients to send a password or other confidential information through email
or download malware.
In addition to the oversight provided by the Corporation’s Information Technology Committee, there is further reporting on the
Corporation’s information technology and cyber-security risks to the Board. Further, the Corporation maintains policies and procedures
that address and implement employee protocols with respect to electronic communications and electronic devices and the Corporation
periodically conducts cyber-security risk assessments and education and training for its employees. Despite the Corporation’s efforts
to mitigate such cyber-phishing attacks through education and training, cyber-phishing activities remain a serious problem that may
damage its information technology infrastructure. The Corporation applies technical and process controls in line with industry-accepted
standards to protect its information assets and systems, including a written incident response plan for responding to a cyber-security
incident. However, these controls may not adequately prevent cyber-security breaches. Disruption of critical information technology
services, or breaches of information security, could have a negative effect on the Corporation’s performance, earnings and its reputation
and any damages sustained may not be adequately covered by the Corporation’s current insurance coverage, or at all. The significance
of any such event is difficult to quantify, but may in certain circumstances be material and could have a material adverse effect on the
Corporation’s business, financial condition, results of operations and prospects.
To date, the Corporation has not been subject to a cyber-security attack or other breach that has had a material impact on its business
or operations or resulted in material losses to the Corporation; however, there is no assurance that the measures the Corporation takes
to protect its business systems and operational control systems will be effective in protecting against a breach in the future and that the
Corporation will not incur such losses in the future.
The handling of secure information exposes the Corporation to potential data security risks that could result in monetary damages
against the Corporation and could otherwise damage its reputation, and adversely affect its business, financial condition and
results of operations
The protection of customer, employee and company data is also critical to the Corporation’s business. The regulatory environment
in Canada surrounding information security and privacy is increasingly demanding, with the frequent imposition of new and constantly
changing requirements. A significant breach of customer, employee or company data could attract a substantial amount of media
attention, damage customer relationships and the Corporation’s reputation and result in fines or lawsuits. In addition, an increasing
number of countries have introduced and/or increased enforcement of comprehensive privacy laws or are expected to do so.
The continued emphasis on information security, as well as increasing concerns about government surveillance, may lead customers
to request additional measures to enhance security and/or assume higher liability under the Corporation’s contracts. As a result of
legislative initiatives and customer demands, the Corporation may have to modify its operations to further improve data security.
Any such modifications may result in increased expenses and operational complexity and adversely affect the Corporation’s reputation,
business, financial condition and results of operations.
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BIRCHCLIFF ENERGY
Additionally, the Corporation’s information technology systems may incorporate the use of artificial intelligence (“AI”) and the
development of such capabilities remains ongoing. Although the Corporation has implemented a policy with respect to its employees’
use of AI tools, AI presents risks, challenges and unintended consequences that could affect its adoption, and therefore the Corporation’s
business. AI algorithms and training methodologies may be flawed. The use of AI to support business operations of the Corporation,
its partners, vendors, suppliers, contractors or others carries inherent risks related to data privacy and cyber-security, such as intended,
unintended or inadvertent transmission of proprietary or sensitive information, as well as challenges related to implementing and
maintaining AI tools, including the development and maintenance of appropriate datasets for such support. Dependence on AI to make
certain business decisions without adequate safeguards may introduce additional operational vulnerabilities by producing inaccurate
outcomes or other unintended results, based on flaws or deficiencies in the underlying data. Further, AI tools or software may rely
on data sets to produce derivative work which may contain content subject to licence, copyright, patent or trademark protection or
sensitive personal information and can produce outputs that infringe intellectual property rights or compromise privacy of individuals
or organizations, raising concerns about data privacy. As AI is an emerging technology for which the legal and regulatory landscape is
not fully developed, including potential liability for breaching intellectual property or privacy rights or laws, new laws and regulations
applicable to AI initiatives remain uncertain and the Corporation’s obligation to comply with such laws could entail significant costs,
negatively affect the Corporation’s business or limit the Corporation’s ability to incorporate certain AI capabilities into its operations.
Insurance
Not all risks are insurable and the occurrence of an uninsurable event may have a material adverse effect on the Corporation
The Corporation’s involvement in the exploration for, and development of, oil and natural gas properties may result in the Corporation
becoming subject to liability for pollution, blowouts, leaks of sour natural gas, property damage, personal injury or other hazards.
Although the Corporation maintains insurance in accordance with industry standards to address certain of these risks, such insurance
has limitations on liability and may not be sufficient to cover the full extent of such liabilities. In addition, certain risks are not, in all
circumstances, insurable or, in certain circumstances, the Corporation may elect not to obtain insurance to deal with specific risks due
to the high premiums associated with such insurance or other reasons. The payment of any uninsured liabilities would reduce the funds
available to the Corporation. The occurrence of a significant event that the Corporation is not fully insured against, the Corporation’s
inability to obtain insurance against one or more risks at acceptable premiums or at all or the insolvency of the insurer of such event,
could have a material adverse effect on the Corporation’s business, financial condition, results of operations and prospects.
The Corporation’s insurance policies are generally renewed on an annual basis and, depending on factors such as market conditions,
the premiums, policy limits and/or deductibles for certain insurance policies can vary substantially. In some instances, certain insurance
may become unavailable or available only for reduced amounts of coverage. Significantly increased costs could lead the Corporation
to decide to reduce or possibly eliminate coverage. In addition, insurance is purchased from a number of third-party insurers, often in
layered insurance arrangements, some of which may discontinue providing insurance coverage for their own policy or strategic reasons.
Should any of these insurers refuse to continue to provide insurance coverage, the Corporation’s overall risk exposure could be increased
and the Corporation could incur significant costs.
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Litigation
The Corporation may be involved in litigation in the normal course of its operations and the outcome of litigation may adversely affect
the Corporation and its reputation
In the normal course of the Corporation’s operations, it may become involved in, be named as a party to or be the subject of, various
legal proceedings, including regulatory proceedings, tax proceedings and legal actions. Such proceedings may develop in relation to
personal injury (including claims resulting from exposure to hazardous substances), property damage, property taxes, land and access
rights, royalty rights, environmental issues (including claims relating to contamination), securities law matters, employment matters
and contractual disputes. The outcome of outstanding, pending or future proceedings cannot be predicted with certainty and may be
determined adversely to the Corporation and, as a result, could have a material adverse effect on the Corporation’s business, financial
condition and results of operations. Even if the Corporation prevails in any such legal proceedings, the proceedings could be costly
and time-consuming and may divert the attention of management and key personnel from the Corporation’s business operations,
which may adversely affect the Corporation.
Due to the rapid development of oil and natural gas technology, the Corporation may become involved in, be named as a party to
or be the subject of, various legal proceedings in which it is alleged that the Corporation has infringed the intellectual property rights
of others or conversely, the Corporation may commence lawsuits against others who the Corporation believes are infringing upon
its intellectual property rights. The Corporation’s involvement in intellectual property litigation could result in significant expense,
adversely affecting the development of its assets or intellectual property or diverting the efforts of its technical and management
personnel, whether or not such litigation is resolved in the Corporation’s favour. In the event of an adverse outcome as a defendant in
any such litigation, the Corporation may, among other things, be required to: (i) pay substantial damages; (ii) cease the use of infringing
intellectual property; (iii) expend significant resources to develop or acquire non-infringing intellectual property; (iv) discontinue
processes incorporating infringing technology; or (v) obtain licences to the infringing intellectual property. However, the Corporation
may not be successful in such development or acquisition or such licences may not be available on reasonable terms. Any such
development, acquisition or licence could require the expenditure of substantial time and other resources and could have a material
adverse effect on the Corporation’s business and financial results.
Indigenous Land and Rights Claims
Indigenous land and rights claims and opposition by Indigenous groups to the conduct of the Corporation’s operations, development
or exploration activities may negatively impact the Corporation
Opposition by Indigenous groups to the conduct of the Corporation’s operations, development or exploration activities may negatively
impact the Corporation in terms of public perception, diversion of management’s time and resources, legal and other advisory
expenses, and could adversely impact the Corporation’s progress and ability to explore and develop properties.
Some Indigenous groups have established or asserted Indigenous treaty, title and rights to portions of Canada. There may be
outstanding Indigenous and treaty rights claims, which may include Indigenous title claims, on the lands where the Corporation
operates. Such claims, if successful, could have a material adverse impact on the Corporation’s ability to operate on such lands, which
could in turn have a material adverse impact on the Corporation’s financial condition, results of operations and/or growth plans.
The Canadian federal and provincial governments have a duty to consult with Indigenous people when contemplating actions that may
adversely affect the asserted or proven Indigenous or treaty rights and, in certain circumstances, accommodate their concerns. The
scope of the duty to consult by federal and provincial governments varies with the circumstances and is often the subject of litigation.
The fulfillment of the duty to consult Indigenous people and any associated accommodations may adversely affect the Corporation’s
ability to, or increase the timeline to, obtain or renew, permits, leases, licences and other approvals, or to meet the terms and conditions
of those approvals. For example, the decision in Yahey v British Columbia (the “Blueberry Decision”) determined that the cumulative
impacts of government-sanctioned industrial development on the traditional territories of the Blueberry River First Nation (the “BRFN”)
in Northeast British Columbia breached that group’s treaty rights. Recently, the Government of British Columbia and the BRFN came to
an agreement relating to further industrial activities in the area. Although the Corporation does not have any assets in British Columbia,
the BRFN may lead to similar claims of cumulative effects across Canada in other areas covered by numbered treaties. For example,
in July 2022, Duncan’s First Nation filed a lawsuit against the Government of Alberta relying on similar arguments to those advanced
successfully by the BRFN. While a settlement between the British Columbia government and BRFN was entered into and the regulatory
authorities have resumed granting certain approvals for oil and natural gas activities in British Columbia, the long-term impacts of,
and associated risks with, the Blueberry Decision and the Duncan’s First Nation lawsuit on the Canadian oil and natural gas industry
remain uncertain.
54
BIRCHCLIFF ENERGY
In addition, the Government of Canada has introduced the United Nations Declaration on the Rights of Indigenous Peoples Act to
implement the United Nations Declaration on the Rights of Indigenous Peoples (“UNDRIP”). Other Canadian jurisdictions, including
British Columbia, have introduced or passed similar legislation and have begun considering the principles and objectives of UNDRIP,
or may do so in the future. The means and timelines associated with UNDRIP’s implementation by governments are uncertain. Additional
processes may be created and legislation associated with project development and operations may be amended or introduced, further
increasing uncertainty with respect to project regulatory approval timelines and requirements.
Credit Risk
The Corporation is exposed to credit risk through its contractual arrangements and its third-party operators or partners of properties
in which it has an interest
The Corporation may be exposed to third-party credit risk through its contractual arrangements with joint venture partners, marketers of
its oil, natural gas and NGLs production, counterparties to its risk management contracts and other parties. In addition, the Corporation
may be exposed to third-party credit risk from operators of properties in which the Corporation has a working or royalty interest and
from purchasers of assets from the Corporation for various liabilities, including well abandonment and reclamation obligations assumed
by the purchasers. In the event such entities fail to meet their contractual or other obligations to the Corporation, such failures may
have a material adverse effect on the Corporation’s business, financial condition, results of operations and prospects. The use of risk
management contracts involves the risk that the counterparties will be unable to meet the financial terms of such transactions. The
Corporation is unable to predict changes in a counterparty’s creditworthiness or ability to perform. Even if the Corporation accurately
predicts such changes, its ability to negate this risk may be limited depending upon market conditions and the contractual terms of
the agreements. During periods of high volatility in commodity prices, the Corporation’s derivative receivable positions may increase,
which would increase the Corporation’s counterparty credit exposure. To the extent that any of such third parties go bankrupt, become
insolvent or make a proposal or institute any proceedings relating to bankruptcy or insolvency, it could result in the Corporation being
unable to collect all or a portion of any money owing from such parties. Any of these factors could materially adversely affect the
Corporation’s financial and operational results.
Conversely, the Corporation’s counterparties may deem the Corporation to be at risk of defaulting on its contractual obligations.
These counterparties may require that the Corporation provide additional credit assurance by prepaying anticipated expenses or
posting letters of credit, which would decrease the Corporation’s available liquidity.
Title to and Right to Produce from Assets
Defects in the Corporation’s title or rights to produce from its properties may result in a financial loss
The Corporation’s actual title to and interest in its properties, and its right to produce and sell the oil, natural gas and NGLs therefrom,
may vary from the Corporation’s records. Although title reviews may be conducted prior to the purchase of oil and natural gas producing
properties or the commencement of drilling wells, such reviews do not guarantee or certify that an unforeseen defect in the chain of
title will not arise. In addition, there may be valid legal challenges or legislative changes that affect the Corporation’s title to and right to
produce from its oil and natural gas properties, which could impair the Corporation’s activities on them and result in a reduction of the
revenue received by the Corporation.
If a defect exists in the chain of title or in the Corporation’s right to produce, or a legal challenge or legislative change arises, it is
possible that the Corporation may lose all or a portion of the properties to which the title defect relates and/or its right to produce
from such properties. This may have a material adverse effect on the Corporation’s business, financial condition, results of operations
and prospects.
Expiration of Licences and Leases
The Corporation, or its working interest partners, may fail to meet the requirements of a licence or lease, causing its
termination or expiry
The Corporation’s properties are held in the form of licences and leases and working interests in licences and leases. If the Corporation
or the holder of a licence or lease fails to meet the specific requirements of the licence or lease, the licence or lease may terminate or
expire. There can be no assurance that any of the obligations required to maintain each licence or lease will be met. The termination
or expiration of the Corporation’s licences or leases or the working interests relating to a licence or lease may have a material adverse
effect on the business, financial condition, results of operations and prospects of the Corporation.
2023 ANNUAL REPORT
55
Operational Dependence
The Corporation is subject to risk as it pertains to other parties operating assets it has an interest in
Other companies operate some of the assets in which the Corporation has an interest. The Corporation has limited ability to
exercise influence over the operation of those assets or their associated costs, which could adversely affect the Corporation’s
business, financial condition, results of operations and prospects. The Corporation’s return on assets operated by others depends
upon a number of factors that may be outside of the Corporation’s control, including, but not limited to, the timing and amount of
capital expenditures, the operator’s expertise and financial resources, the approval of other participants, the selection of technology
and risk management practices.
In addition, companies that may operate some of the assets in which the Corporation has an interest may be in or encounter financial
difficulty, which could impact their ability to fund and pursue capital expenditures, carry out their operations in a safe and effective
manner and satisfy regulatory requirements with respect to abandonment and reclamation obligations. If companies that operate
some of the assets in which the Corporation has an interest fail to satisfy regulatory requirements with respect to abandonment and
reclamation obligations, the Corporation may be required to satisfy such obligations and to seek recourse from such companies.
To the extent that any such companies go bankrupt, become insolvent or make a proposal or institute any proceedings relating to
bankruptcy or insolvency, it could result in such assets being shut-in, the Corporation potentially becoming subject to additional
liabilities relating to such assets and the Corporation having difficulty collecting revenue due to it from such operators or recovering
amounts owing to the Corporation from such operators for their share of abandonment and reclamation obligations. Any of these
factors could have a material adverse effect on the Corporation’s financial and operational results.
Risks Associated with Acquisitions and Dispositions
The anticipated benefits of acquisitions may not be achieved and the Corporation may dispose of certain assets for less than their
carrying value on the financial statements
The Corporation considers acquisitions and dispositions of assets in the ordinary course of business. Typically, once an acquisition
opportunity is identified, a review of available information relating to the assets is conducted. There is a risk that even a detailed review
of records and assets may not necessarily reveal every existing or potential problem, nor will it permit the Corporation to become
sufficiently familiar with the assets to fully assess their deficiencies and potential. There is no guarantee that defects in the chain of title
will not arise to defeat the Corporation’s title to certain assets or that environmental defects, liabilities or deficiencies do not exist or
are greater than anticipated. Inspections may not always be performed on every well and environmental problems, such as ground
water contamination, are not necessarily observable even when an inspection is undertaken. Even when problems are identified,
the Corporation may assume certain environmental and other risk liabilities in connection with acquired assets.
In addition, acquisitions of oil and natural gas properties or companies are based in part on engineering, environmental and economic
assessments. These assessments include a series of assumptions regarding such factors as recoverability and marketability of oil and
natural gas, environmental restrictions and prohibitions regarding releases and emissions of various substances, future prices of oil
and natural gas, future operating costs, future capital expenditures and royalties and other government levies which will be imposed
over the producing life of the reserves. Many of these factors are subject to change and are beyond the control of the Corporation.
All such assessments involve a measure of geological, engineering, environmental and regulatory uncertainty that could result in lower
production and reserves or higher operating or capital expenditures than anticipated. If actual reserves or production are less than
expected, the Corporation’s revenues and consequently the value of its common shares could be negatively affected.
Achieving the benefits of acquisitions depends on successfully consolidating functions and integrating operations and procedures
in a timely and efficient manner and the Corporation’s ability to realize the anticipated growth opportunities and synergies from
combining the acquired businesses and operations with those of the Corporation. The integration of acquired businesses and assets
may require substantial management effort, time and resources, diverting management’s focus away from other strategic opportunities
and operational matters, and may also result in the loss of key employees, the disruption of ongoing business, supplier, customer and
employee relationships and deficiencies in internal controls or information technology controls.
Management continually assesses the value and contribution of the various assets within its portfolio. In this regard, certain assets
may be periodically disposed of so the Corporation can focus its efforts and resources more efficiently. Depending on the state of the
market for such assets, there is a risk that certain assets of the Corporation, if disposed of, could realize less than their carrying value on
the Corporation’s financial statements.
56
BIRCHCLIFF ENERGY
Management of Growth and Integration
The Corporation may not be able to effectively manage the growth of its business
The Corporation may be subject to both integration and growth-related risks, including capacity constraints and pressure on its
internal systems and controls. The ability of the Corporation to effectively manage growth and the integration of additional assets will
require it to continue to implement and improve its operational and financial systems and to train and manage, and potentially expand,
its employee base. The inability of the Corporation to effectively deal with this integration and growth could have a material adverse
impact on its business, financial condition, results of operations and prospects.
Liability Management and Abandonment and Reclamation Costs
Liability management programs enacted by regulators may prevent or interfere with the Corporation’s ability to acquire properties
or require a substantial cash deposited with the regulator. In addition, the Corporation may have to pay certain costs associated with
abandonment and reclamation
Alberta has developed a liability management program designed to prevent taxpayers from incurring costs associated with the
suspension, abandonment, remediation and reclamation of wells, facilities and pipelines in the event that a licencee or permit holder
is unable to satisfy its regulatory obligations. The implementation of or changes to the requirements of liability management programs
may result in significant increases to the security that must be posted, increased and more frequent financial disclosure obligations
or the denial of licence or permit transfers, which could impact the availability of capital to be spent by the Corporation. In addition,
these liability management programs may prevent or interfere with the Corporation’s ability to acquire or dispose of assets, as both the
vendor and the purchaser of oil and natural gas assets must be in compliance with the liability management programs (both before and
after the transfer of the assets) for the AER to allow for the transfer of such assets.
The Corporation will need to comply with the terms and conditions of environmental and regulatory approvals and all legislation
regarding the abandonment of its projects and reclamation of the project lands at the end of their economic life, which may result in
substantial abandonment and reclamation costs. Any failure to comply with the terms and conditions of approvals and legislation may
result in the imposition of fines and penalties, which may be material. Generally, abandonment and reclamation costs are substantial
and, while the Corporation accrues a reserve in its financial statements for such costs in accordance with IFRS Accounting Standards,
such accruals may be insufficient.
It is not possible at this time to estimate abandonment and reclamation costs reliably since they will, in part, depend on future regulatory
requirements. In addition, it may be prudent or required by applicable laws, regulations or regulatory approvals in the future for the
Corporation to establish and fund one or more reclamation funds to provide for payment of future abandonment and reclamation costs.
If the Corporation establishes a reclamation fund, its liquidity and funds flow may be adversely affected.
Internal Controls
Material weaknesses in the Corporation’s internal controls may negatively affect the Corporation and the market price of
its common shares
Effective internal controls are necessary for the Corporation to provide reliable financial reports and to help prevent fraud. Although
the Corporation has implemented procedures in order to help ensure the reliability of its financial reports, including those imposed on
it under Canadian securities laws, the Corporation cannot be certain that such measures will ensure that the Corporation will maintain
adequate control over financial processes and reporting. Failure to implement required new or improved controls, or difficulties
encountered in their implementation, could harm the Corporation’s results of operations or cause it to fail to meet its reporting
obligations. If the Corporation or its independent auditors discover a material weakness, the disclosure of that fact, even if quickly
remedied, could reduce the market’s confidence in the Corporation’s financial statements and negatively impact the market price
of its common shares.
Royalty Regimes
Changes to royalty regimes may negatively impact the Corporation’s cash flow
The Government of Alberta may adopt a new royalty regime or modify the existing royalty regime, which may impact the economic
viability of the Corporation’s projects. An increase in royalties would reduce the Corporation’s earnings and could make future capital
investments, or the Corporation’s operations, less economic or uneconomic.
2023 ANNUAL REPORT
57
Negative Impact of Additional Sales or Issuances of Securities
The Corporation may issue additional securities, diluting current shareholders
The Corporation may issue an unlimited number of common shares without any vote or action by the shareholders, subject to the
rules of any stock exchange on which the Corporation’s securities may be listed. The Corporation may make future acquisitions or
enter into financings or other transactions involving the issuance of securities of the Corporation. If the Corporation issues additional
securities, the percentage ownership of existing shareholders will be reduced and diluted and the market price of the common
shares could decrease.
Breaches of Confidentiality
Breach of confidentiality by a third party could impact the Corporation’s competitive advantage or put it at risk of litigation
While discussing potential business relationships or other transactions with third parties, the Corporation may disclose confidential
information relating to its business, operations or affairs. Although confidentiality agreements are generally signed by third parties
prior to the disclosure of any confidential information, a breach could put the Corporation at competitive risk and may cause significant
damage to its business. The harm to the Corporation’s business from a breach of confidentiality cannot presently be quantified but
may be material and may not be compensable in damages. There is no assurance that, in the event of a breach of confidentiality, the
Corporation would be able to obtain equitable remedies, such as injunctive relief, from a court of competent jurisdiction in a timely
manner, if at all, in order to prevent or mitigate any damage to its business that such a breach of confidentiality may cause.
Conflicts of Interest
Conflicts of interest may arise for the Corporation’s directors and officers
Certain of the Corporation’s directors and officers are engaged in, and will continue to engage in, other activities in the oil and natural
gas industry and as a result, may become subject to conflicts of interest. Conflicts of interest, if any, will be subject to and governed by
procedures prescribed by the ABCA which require a director or officer of a corporation who is a party to, or is a director or an officer of,
or has a material interest in any person who is a party to, a material contract or proposed material contract or a material transaction, or
proposed material transaction, with the Corporation to disclose his or her interest and, in the case of directors, to refrain from voting on
any matter in respect of such contract or transaction, unless otherwise permitted under the ABCA.
Income Taxes
Taxation authorities may reassess the Corporation’s tax returns
The Corporation files all required income tax returns and believes that it is in compliance with the provisions of the Income Tax Act
(Canada) and all applicable provincial tax legislation. However, such returns are subject to reassessment by the applicable taxation
authority. In the event of a successful reassessment of the Corporation, such reassessment may have an impact on current and future
taxes, penalties and interest payable, which could have an adverse effect on its financial condition.
Income tax laws or other laws or government incentive programs relating to the oil and natural gas industry, such as the treatment of
resource taxation, dividends, share repurchases or capital gains, may in the future be changed or interpreted in a manner that adversely
affects the Corporation and/or its shareholders. Furthermore, tax authorities having jurisdiction over the Corporation may disagree with
how the Corporation calculates its income for tax purposes or could change administrative practices to the Corporation’s detriment
and/or the detriment of its shareholders.
Additional Taxation Applicable to Non-Residents
Non-resident shareholders are required to pay additional taxes on their dividends
Tax legislation in Canada may impose withholding or other taxes on the cash dividends, stock dividends or other property
transferred by the Corporation to non-resident shareholders. These taxes may be reduced pursuant to tax treaties between Canada
and the non-resident shareholder’s jurisdiction of residence. Evidence of eligibility for a reduced withholding rate must be filed by the
non-resident shareholder in prescribed form with their broker (or in the case of registered shareholders, with the transfer agent). In
addition, the country in which the non-resident shareholder is resident may impose additional taxes on such dividends. Any of these
taxes may change from time to time.
58
BIRCHCLIFF ENERGY
Foreign Exchange Risk for Non-Resident Shareholders
Variations in foreign exchange rates may affect the amount of cash dividends received by shareholders who receive dividends in
currencies other than Canadian dollars
The Corporation’s cash dividends are declared in Canadian dollars and may be converted in certain instances to foreign denominated
currencies at the spot exchange rate at the time of payment. As a consequence, non-resident shareholders and shareholders who
calculate their return in currencies other than the Canadian dollar are subject to foreign exchange risk. To the extent that the Canadian
dollar strengthens with respect to their currency, the amount of any dividend will be reduced when converted to the shareholder’s
home currency.
Infectious Disease Risks
Infectious diseases may cause disruptions in economic activity in Canada and internationally and impact the demand for oil
and natural gas
Pandemics, epidemics or outbreaks of an infectious disease in Canada or worldwide could have an adverse impact on the
Corporation’s business, including changes to the way the Corporation and its counterparties operate, and on the Corporation’s
financial results and condition. In the event of a global pandemic, countries around the world may close international borders and
order the closure of institutions and businesses deemed non-essential. This could result in a significant reduction in economic activity
in Canada and internationally along with a drop in demand for oil and natural gas. Any reduction in economic activity in certain
countries resulting from outbreaks, government-imposed lockdowns and other restrictions could have a negative effect on demand
for oil and natural gas and could also aggravate the other risk factors identified herein.
Social Media
The Corporation faces compliance and supervisory challenges in respect of the use of social media as a means of communicating
Increasingly, social media is used as a vehicle to carry out cyber-phishing attacks. Information posted on social media sites, for business
or personal purposes, may be used by attackers to gain entry into the Corporation’s systems and obtain confidential information. As
social media continues to grow in influence and access to social media platforms becomes increasingly prevalent, there are significant
risks that the Corporation may not be able to properly regulate social media use and preserve adequate records of business activities
and client communications conducted through the use of social media platforms.
Expansion into New Activities
Expanding the Corporation’s business may expose it to new risks and uncertainties
The operations and expertise of the Corporation’s management are currently focused on oil and natural gas production, exploration
and development on the Montney/Doig Resource Play in Alberta. In the future, the Corporation may acquire or move into new
industry-related activities or new geographical areas or may acquire different energy-related assets. As a result, the Corporation may
face unexpected risks or alternatively, the Corporation’s exposure to one or more existing risk factors may be significantly increased,
which may in turn result in the Corporation’s future operational and financial condition being adversely affected.
Forward-Looking Information
Forward-looking information may prove inaccurate
Shareholders and prospective investors are cautioned not to place undue reliance on the Corporation’s forward-looking statements.
By their nature, forward-looking statements involve numerous assumptions and known and unknown risks and uncertainties, of both a
general and specific nature, that could cause actual results to differ materially from those suggested by the forward-looking statements
or contribute to the possibility that predictions, forecasts or projections will prove to be materially inaccurate. Additional information
on the risks, assumptions and uncertainties relating to forward-looking statements is found under the heading “Advisories – Forward-
Looking Statements”.
2023 ANNUAL REPORT
59
ABBREVIATIONS
AECO
ATP
bbl
bbls
bbls/d
boe
boe/d
benchmark price for natural gas determined at the AECO ‘C’ hub in southeast Alberta
Alliance Trading Pool
barrel
barrels
barrels per day
barrel of oil equivalent
barrel of oil equivalent per day
condensate
pentanes plus (C5+)
F&D
FD&A
G&A
GAAP
GHG
GJ
GJ/d
HH
IFRS
LIBOR
Mcf
Mcf/d
MMboe
MMBtu
MMBtu/d
MMcf
MSW
NGLs
NYMEX
OPEC
OPEC+
P&NG
SOFR
TCPL
WTI
000s
$000s
finding and development
finding, development and acquisition
general and administrative
generally accepted accounting principles for Canadian public companies, which are currently IFRS Accounting
Standards
greenhouse gas
gigajoule
gigajoules per day
Henry Hub
International Financial Reporting Standards as issued by the International Accounting Standards Board
London Interbank Offered Rate
thousand cubic feet
thousand cubic feet per day
million barrels of oil equivalent
million British thermal units
million British thermal units per day
million cubic feet
price for mixed sweet crude oil at Edmonton, Alberta
natural gas liquids consisting of ethane (C2), propane (C3) and butane (C4) and specifically excluding condensate
New York Mercantile Exchange
Organization of the Petroleum Exporting Countries
Organization of the Petroleum Exporting Countries, with certain non-OPEC oil exporting countries
petroleum and natural gas
Secured Overnight Financing Rate
TransCanada PipeLines Limited
West Texas Intermediate, the reference price paid in U.S. dollars at Cushing, Oklahoma, for crude oil of standard
grade
thousands
thousands of dollars
60
BIRCHCLIFF ENERGY
NON-GAAP AND OTHER FINANCIAL MEASURES
This MD&A uses various “non-GAAP financial measures”, “non-GAAP ratios” and “capital management measures” (as such terms are
defined in NI 52-112), which are described in further detail below.
Non-GAAP Financial Measures
NI 52-112 defines a non-GAAP financial measure as a financial measure that: (i) depicts the historical or expected future financial
performance, financial position or cash flow of an entity; (ii) with respect to its composition, excludes an amount that is included in, or
includes an amount that is excluded from, the composition of the most directly comparable financial measure disclosed in the primary
financial statements of the entity; (iii) is not disclosed in the financial statements of the entity; and (iv) is not a ratio, fraction, percentage
or similar representation. The non-GAAP financial measures used in this MD&A are not standardized financial measures under GAAP
and might not be comparable to similar measures presented by other companies. Investors are cautioned that non-GAAP financial
measures should not be construed as alternatives to or more meaningful than the most directly comparable GAAP financial measures
as indicators of Birchcliff’s performance. Set forth below is a description of the non-GAAP financial measures used in this MD&A.
Adjusted Funds Flow, Free Funds Flow and Excess Free Funds Flow
Birchcliff defines “adjusted funds flow” as cash flow from operating activities before the effects of decommissioning expenditures,
retirement benefit payments and changes in non-cash operating working capital. Birchcliff eliminates settlements of decommissioning
expenditures from cash flow from operating activities as the amounts can be discretionary and may vary from period to period
depending on its capital programs and the maturity of its operating areas. The settlement of decommissioning expenditures is
managed with Birchcliff’s capital budgeting process which considers available adjusted funds flow. Birchcliff eliminates retirement
benefit payments from cash flow from operating activities as such payments reflect costs for past service and contributions made by
eligible executives under the Corporation’s post-employment benefit plan, which are not indicative of the current period. Birchcliff has
not historically adjusted for retirement benefit payments in the calculation of adjusted funds flow as previously no payments had been
made to executive officers pursuant to their respective executive employment agreements. Changes in non-cash operating working
capital are eliminated in the determination of adjusted funds flow as the timing of collection and payment are variable and by excluding
them from the calculation, the Corporation believes that it is able to provide a more meaningful measure of its operations and ability
to generate cash on a continuing basis. Management believes that adjusted funds flow assists management and investors in assessing
Birchcliff’s financial performance after deducting all operating and corporate cash costs, as well as its ability to generate the cash
necessary to fund sustaining and/or growth capital expenditures, repay debt, settle decommissioning obligations, buy back common
shares and pay dividends.
Birchcliff defines “free funds flow” as adjusted funds flow less F&D capital expenditures. Management believes that free funds flow assists
management and investors in assessing Birchcliff’s ability to generate shareholder returns through a number of initiatives, including but
not limited to, debt repayment, common share buybacks, the payment of common share dividends, acquisitions and other opportunities
that would complement or otherwise improve the Corporation’s business and enhance long-term shareholder value.
Birchcliff defines “excess free funds flow” as free funds flow less common share dividends paid. Management believes that excess free
funds flow assists management and investors in assessing Birchcliff’s ability to further enhance shareholder returns after the payment
of common share dividends, which may include debt repayment, special dividends, increases to the Corporation’s base common
share dividend, common share repurchases, acquisitions and other opportunities that would complement or otherwise improve the
Corporation’s business and enhance long-term shareholder value.
2023 ANNUAL REPORT
61
The most directly comparable GAAP financial measure to adjusted funds flow, free funds flow and excess free funds flow is cash flow
from operating activities. The following table provides a reconciliation of cash flow from operating activities to adjusted funds flow,
free funds flow and excess free funds flow for the periods indicated:
($000s)
Cash flow from operating activities
Change in non-cash operating working capital
Decommissioning expenditures
Retirement benefit payments
Adjusted funds flow
F&D capital expenditures
Free funds flow
Dividends on common shares
Excess free funds flow
Three months ended
December 31,
2023
79,006
(6,248)
1,457
2,000
76,215
2022
224,447
(7,919)
571
-
2023
320,529
(19,477)
3,775
2,000
Twelve months ended
December 31,
2022
2021
925,275
515,369
25,662
2,746
-
21,161
3,203
-
217,099
306,827
953,683
539,733
(58,166)
(106,762)
(304,637)
(364,621)
(230,479)
18,049
110,337
2,190
(53,390)
(58,503)
(213,344)
(35,341)
51,834
(211,154)
589,062
(71,788)
517,274
309,254
(6,639)
302,615
Birchcliff has disclosed in this MD&A forecasts of adjusted funds flow and free funds flow for 2024, which are forward-looking non-GAAP
financial measures (see “2024 Outlook and Guidance” in this MD&A). The equivalent historical non-GAAP financial measures are
adjusted funds flow and free funds flow for the twelve months ended December 31, 2023. Birchcliff anticipates the forward-looking
non-GAAP financial measures for adjusted funds flow and free funds flow disclosed herein will be higher than their respective historical
amounts primarily due to higher anticipated benchmark oil and natural gas prices, which are expected to increase the average realized
sales prices the Corporation receives for its production. The commodity price assumptions on which the Corporation’s guidance is
based are set forth under the heading “2024 Outlook and Guidance” in this MD&A.
FD&A and Total Capital Expenditures
Birchcliff defines “FD&A capital expenditures” as exploration and development expenditures, less dispositions, plus acquisitions (if
any). Birchcliff defines “total capital expenditures” as FD&A capital expenditures plus administrative assets. Management believes that
FD&A capital expenditures and total capital expenditures assist management and investors in assessing Birchcliff’s overall capital cost
structure associated with its P&NG activities. The most directly comparable GAAP financial measure to FD&A capital expenditures and
total capital expenditures is exploration and development expenditures. The following table provides a reconciliation of exploration
and development expenditures to FD&A capital expenditures and total capital expenditures for the periods indicated:
($000s)
Exploration and development expenditures(1)
Acquisitions
Dispositions
FD&A capital expenditures
Administrative assets
Total capital expenditures
Three months ended
December 31,
Twelve months ended
December 31,
2023
58,166
2
(10)
58,158
1,383
59,541
2022
2023
2022
2021
106,762
304,637
364,621
230,479
-
-
190
(87)
2,348
(315)
283
-
106,762
304,740
366,654
230,762
709
3,176
1,576
1,718
107,471
307,916
368,230
232,480
(1) Disclosed as F&D capital expenditures elsewhere in this MD&A. See “Advisories – F&D Capital Expenditures” in this MD&A.
62
BIRCHCLIFF ENERGY
Transportation and Other Expense and Marketing Gains and Losses
Birchcliff defines “transportation and other expense” as transportation expense plus marketing loss (less marketing gain), which
denotes marketing purchases less marketing revenue. Birchcliff may enter into certain marketing purchase and sales arrangements
with the objective of reducing any unused transportation or fractionation fees associated with its take-or-pay commitments and/or
increasing the value of its production through value-added downstream initiatives. Management believes that transportation and other
expense assists management and investors in assessing Birchcliff’s total cost structure related to transportation and marketing activities.
Management believes that marketing gains and losses assists management and investors in assessing the success of Birchcliff’s marketing
arrangements. The most directly comparable GAAP financial measure to transportation and other expense is transportation expense.
The following table provides a reconciliation of transportation expense to marketing gains and losses and transportation and other
expense for the periods indicated:
($000s)
Transportation expense
Marketing purchases
Marketing revenue
Marketing (gain) loss
Transportation and other expense
Operating Netback
Three months ended
December 31,
Twelve months ended
December 31,
2023
38,509
8,928
(8,532)
396
38,905
2022
38,793
9,529
(8,916)
613
39,406
2023
152,828
34,772
(30,521)
4,251
157,079
2022
155,864
17,866
(18,806)
(940)
154,924
Birchcliff defines “operating netback” as P&NG revenue less royalty expense, operating expense and transportation and other
expense. Operating netback is a key industry performance indicator and one that provides investors with information that is commonly
presented by other oil and natural gas producers. Management believes that operating netback assists management and investors in
assessing Birchcliff’s operating profits after deducting the cash costs that are directly associated with the sale of its production, which
can then be used to pay other corporate cash costs or satisfy other obligations. The following table provides a breakdown of Birchcliff’s
operating netback for its Pouce Coupe assets, Gordondale assets and on a corporate basis for the periods indicated:
($000s)
P&NG revenue
Royalty expense
Operating expense
Transportation and other expense
Operating netback – Pouce Coupe assets
P&NG revenue
Royalty expense
Operating expense
Transportation and other expense
Operating netback – Gordondale assets
P&NG revenue
Royalty expense
Operating expense
Transportation and other expense
Operating netback – Corporate
Three months ended
December 31,
Twelve months ended
December 31,
2023
119,583
(10,275)
(15,332)
(28,895)
65,081
63,489
(9,103)
(11,343)
(9,964)
33,079
183,295
(19,400)
(26,808)
(38,905)
2022
201,550
(21,092)
(16,120)
(25,414)
138,924
118,449
(14,575)
(13,578)
(13,946)
76,350
320,358
(35,679)
2023
483,750
(38,052)
(59,081)
2022
866,991
(86,987)
(54,037)
(112,825)
(102,331)
273,792
255,688
(32,118)
(46,108)
(44,057)
133,405
740,359
623,636
471,803
(74,164)
(46,967)
(52,422)
298,250
1,340,180
(70,257)
(161,226)
(29,783)
(105,809)
(101,581)
(39,406)
(157,079)
(154,924)
98,182
215,490
407,214
922,449
2023 ANNUAL REPORT
63
Non-GAAP Ratios
NI 52-112 defines a non-GAAP ratio as a financial measure that: (i) is in the form of a ratio, fraction, percentage or similar representation;
(ii) has a non-GAAP financial measure as one or more of its components; and (iii) is not disclosed in the financial statements of the entity.
The non-GAAP ratios used in this MD&A are not standardized financial measures under GAAP and might not be comparable to similar
measures presented by other companies. Set forth below is a description of the non-GAAP ratios used in this MD&A.
Adjusted Funds Flow Per Boe and Adjusted Funds Flow Per Basic and Diluted Common Share
Birchcliff calculates “adjusted funds flow per boe” as aggregate adjusted funds flow in the period divided by the production (boe) in
the period. Management believes that adjusted funds flow per boe assists management and investors in assessing Birchcliff’s financial
profitability and sustainability on a cash basis by isolating the impact of production volumes to better analyze its performance against
prior periods on a comparable basis.
Birchcliff calculates “adjusted funds flow per basic common share” and “adjusted funds flow per diluted common share” as aggregate
adjusted funds flow in the period divided by the weighted average basic or diluted common shares outstanding, as the case may be,
at the end of the period. Management believes that adjusted funds flow per basic and diluted common share assist management and
investors in assessing Birchcliff’s financial strength on a per common share basis.
Free Funds Flow Per Basic Common Share
Birchcliff calculates “free funds flow per basic common share” as aggregate free funds flow in the period divided by the weighted
average basic common shares outstanding at the end of the period. Management believes that free funds flow per basic common
share assists management and investors in assessing Birchcliff’s financial strength and its ability to deliver shareholder returns on a
per common share basis.
Transportation and Other Expense Per Boe
Birchcliff calculates “transportation and other expense per boe” as aggregate transportation and other expense in the period divided
by the production (boe) in the period. Management believes that transportation and other expense per boe assists management
and investors in assessing Birchcliff’s cost structure as it relates to its transportation and marketing activities by isolating the impact
of production volumes to better analyze its performance against prior periods on a comparable basis.
Marketing Gains and Losses Per Boe
Birchcliff calculates “marketing gain per boe” and “marketing loss per boe” as aggregate marketing gain or loss (as the case may be)
in the period divided by the production (boe) in the period. Management believes that marketing gains and losses per boe assists
management and investors in assessing the success of Birchcliff’s marketing arrangements by isolating the impact of production
volumes to better analyze its performance against prior periods on a comparable basis.
Operating Netback Per Boe
Birchcliff calculates “operating netback per boe” as aggregate operating netback in the period divided by the production (boe)
in the period. Operating netback per boe is a key industry performance indicator and one that provides investors with information
that is commonly presented by other oil and natural gas producers. Management believes that operating netback per boe assists
management and investors in assessing Birchcliff’s operating profitability and sustainability by isolating the impact of production
volumes to better analyze its performance against prior periods on a comparable basis.
64
BIRCHCLIFF ENERGY
Capital Management Measures
NI 52-112 defines a capital management measure as a financial measure that: (i) is intended to enable an individual to evaluate an entity’s
objectives, policies and processes for managing the entity’s capital; (ii) is not a component of a line item disclosed in the primary
financial statements of the entity; (iii) is disclosed in the notes to the financial statements of the entity; and (iv) is not disclosed in the
primary financial statements of the entity. Set forth below is a description of the capital management measures used in this MD&A.
Total Debt and Adjusted Working Capital
Birchcliff calculates “total debt” as the amount outstanding under the Corporation’s revolving term credit facilities (if any) plus adjusted
working capital deficit (less adjusted working capital surplus) at the end of the period. “Adjusted working capital deficit (surplus)” is
calculated as working capital deficit (surplus) plus the fair value of the current asset portion of financial instruments less the fair value of
the current liability portion of financial instruments and less the current portion of lease obligations and capital securities at the end of
the period. Management believes that total debt assists management and investors in assessing Birchcliff’s overall liquidity and financial
position at the end of the period. Management believes that adjusted working capital deficit (surplus) assists management and investors
in assessing Birchcliff’s short-term liquidity. The following table provides a reconciliation of the amount outstanding under the revolving
term credit facilities and working capital deficit (surplus), as determined in accordance with GAAP, to total debt and adjusted working
capital deficit (surplus), respectively, for the periods indicated:
As at December 31, ($000s)
Revolving term credit facilities
Working capital deficit (surplus)(1)
Fair value of financial instruments – asset(2)
Fair value of financial instruments – liability(2)
Lease obligations(3)
Capital securities(2)
Adjusted working capital deficit (surplus)
Total debt
(1) Current liabilities less current assets.
(2) Reflects the current portion only.
(3) Reflects the current portion only, which is included in “other liabilities” in the financial statements.
2023
372,097
10,522
3,588
(1,394)
(2,507)
-
10,209
382,306
2022
131,981
(7,902)
17,729
(1,345)
(1,914)
-
6,568
138,549
2021
500,870
53,312
69
(16,586)
-
(38,268)
(1,473)
499,397
2023 ANNUAL REPORT
65
ADVISORIES
Currency
All references to “$” and “CDN$” are to Canadian dollars and all references to “US$” are to United States dollars.
Boe Conversions
Boe amounts have been calculated by using the conversion ratio of 6 Mcf of natural gas to 1 bbl of oil. Boe amounts may be misleading,
particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl is based on an energy equivalency conversion method primarily
applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current
price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a
6:1 basis may be misleading as an indication of value.
MMBtu Pricing Conversions
$1.00 per MMBtu equals $1.00 per Mcf based on a standard heat value Mcf.
Oil and Gas Metrics
This MD&A contains metrics commonly used in the oil and natural gas industry, including operating netback. These oil and gas metrics
do not have any standardized meanings or standard methods of calculation and therefore may not be comparable to similar measures
presented by other companies. As such, they should not be used to make comparisons. Management uses these oil and gas metrics
for its own performance measurements and to provide investors with measures to compare Birchcliff’s performance over time; however,
such measures are not reliable indicators of Birchcliff’s future performance, which may not compare to Birchcliff’s performance in
previous periods, and therefore should not be unduly relied upon. For additional information regarding operating netback and how
such metric is calculated, see “Non-GAAP and Other Financial Measures” in this MD&A.
F&D Capital Expenditures
Unless otherwise stated, references in this MD&A to “F&D capital expenditures” denotes exploration and development expenditures
as disclosed in the Corporation’s financial statements in accordance with GAAP, and is primarily comprised of capital for land,
seismic, workovers, drilling and completions, well equipment and facilities and capitalized G&A costs and excludes any acquisitions,
dispositions, administrative assets and the capitalized portion of cash incentive payments that have not been approved by the Board.
Management believes that F&D capital expenditures assists management and investors in assessing Birchcliff’s capital cost outlay
associated with its exploration and development activities for the purposes of finding and developing its reserves.
Reserves
Birchcliff retained independent qualified reserves evaluator, Deloitte LLP (“Deloitte”), to evaluate and prepare reports on
100% of Birchcliff’s light crude oil and medium crude oil (combined), conventional natural gas, shale gas and NGLs reserves effective
December 31, 2023 and December 31, 2022. Such evaluations were prepared in accordance with the standards contained in the
COGE Handbook and NI 51-101. Further information regarding the Corporation’s reserves can be found in the AIF.
Certain terms used herein are defined in NI 51-101 or the COGE Handbook and, unless the context otherwise requires, shall have the
same meanings in this MD&A as in NI 51-101 or the COGE Handbook, as the case may be.
Forward-Looking Statements
Certain statements contained in this MD&A constitute forward-looking statements within the meaning of applicable Canadian
securities laws. The forward-looking statements contained in this MD&A relate to future events or Birchcliff’s future plans, strategy,
operations, performance or financial position and are based on Birchcliff’s current expectations, estimates, projections, beliefs and
assumptions. Such forward-looking statements have been made by Birchcliff in light of the information available to it at the time
the statements were made and reflect its experience and perception of historical trends. All statements and information other than
historical fact may be forward-looking statements. Such forward-looking statements are often, but not always, identified by the use of
words such as “seek”, “plan”, “focus”, “future”, “outlook”, “position”, “expect”, “project”, “intend”, “believe”, “anticipate”, “estimate”,
“forecast”, “guidance”, “potential”, “proposed”, “predict”, “budget”, “continue”, “targeting”, “may”, “will”, “could”, “might”, “should”,
“would”, “on track”, “maintain”, “deliver” and other similar words and expressions.
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BIRCHCLIFF ENERGY
By their nature, forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual
results or events to differ materially from those anticipated in such forward-looking statements. Accordingly, readers are cautioned
not to place undue reliance on such forward-looking statements. Although Birchcliff believes that the expectations reflected in the
forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct and Birchcliff
makes no representation that actual results achieved will be the same in whole or in part as those set out in the forward-looking statements.
In particular, this MD&A contains forward-looking statements relating to:
· Birchcliff’s plans and other aspects of its anticipated future financial performance, results, operations, focus, objectives,
strategies, opportunities, priorities and goals;
·
the information set forth under the heading “2024 Outlook and Guidance” as it relates to Birchcliff’s 2024 outlook and
guidance and its exploration, development and production activities and the timing thereof, including: that Birchcliff’s
disciplined 2024 capital budget reflects its commitment to maintaining a strong balance sheet, while focusing on sustainable
shareholder returns and the continued development of its assets; that the previously announced deferral of 13 wells to the
second half of the year provides it with the flexibility to further adjust its 2024 capital budget if necessary to achieve these
priorities; that 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; that Birchcliff’s production profile for 2024 is designed to deliver higher
production in Q4 2024 when the Corporation anticipates higher commodity prices; forecasts of annual average production,
production commodity mix, average expenses, adjusted funds flow, F&D capital expenditures, free funds flow, annual base
dividend, total debt at year end and natural gas market exposure in 2024; and the expected impact of changes in commodity
prices and the CDN/US exchange rate on Birchcliff’s forecast of free funds flow for 2024;
· Birchcliff’s market diversification and risk management activities and any anticipated benefits to be derived therefrom;
· estimates of reserves and future development costs;
·
·
the Corporation’s estimated income tax pools and management’s expectation that future taxable income will be available to
utilize the accumulated tax pools;
the information set forth under the heading “Capital Resources and Liquidity” and elsewhere in this MD&A as it relates to the
Corporation’s liquidity and capital resources, including: that the capital-intensive nature of Birchcliff’s operations requires it to
maintain adequate sources of liquidity to fund its short-term and long-term financial obligations; that the Corporation believes
that its anticipated adjusted funds flow and available Credit Facilities in 2024 will be sufficient to fund its ongoing capital
requirements, which include its working capital, F&D capital expenditures and dividend payments approved by the Board;
that should commodity prices deteriorate significantly, Birchcliff may adjust its capital requirements, seek additional debt/equity
financing and/or consider the potential sale of non-core assets; that the unutilized credit capacity under the Credit Facilities
provides Birchcliff with significant financial flexibility and available capital resources; and the Corporation’s expectation that
counterparties will be able to meet their financial obligations;
· estimates of Birchcliff’s material contractual obligations and commitments and decommissioning obligations;
·
·
·
·
the Corporation’s belief that it does not have any off-balance sheet arrangements that have, or are reasonably likely to have,
a current or future effect on the Corporation’s financial position, operational results, liquidity or capital expenditures;
statements relating to the 2024 NCIB, including: potential purchases under the 2024 NCIB; and the cancellation of common
shares under the 2024 NCIB;
statements regarding potential transactions; and
that Birchcliff anticipates the forward-looking non-GAAP financial measures for adjusted funds flow and free funds flow
disclosed herein will be higher than their respective historical amounts primarily due to higher anticipated benchmark oil and
natural gas prices, which are expected to increase the average realized sales prices the Corporation receives for its production.
Statements relating to reserves are forward-looking statements as they involve the implied assessment, based on certain estimates
and assumptions, that the reserves exist in the quantities predicted or estimated and that the reserves can be profitably produced
in the future.
2023 ANNUAL REPORT
67
With respect to the forward-looking statements contained in this MD&A, assumptions have been made regarding, among other things:
prevailing and future commodity prices and differentials, exchange rates, interest rates, inflation rates, royalty rates and tax rates; the
state of the economy, financial markets and the exploration, development and production business; the political environment in which
Birchcliff operates; the regulatory framework regarding royalties, taxes, environmental, climate change and other laws; the Corporation’s
ability to comply with existing and future laws; future cash flow, debt and dividend levels; future operating, transportation, G&A and
other expenses; Birchcliff’s ability to access capital and obtain financing on acceptable terms; the timing and amount of capital
expenditures and the sources of funding for capital expenditures and other activities; the sufficiency of budgeted capital expenditures to
carry out planned operations; the successful and timely implementation of capital projects and the timing, location and extent of future
drilling and other operations; results of operations; Birchcliff’s ability to continue to develop its assets and obtain the anticipated benefits
therefrom; the performance of existing and future wells; reserves volumes and Birchcliff’s ability to replace and expand reserves through
acquisition, development or exploration; the impact of competition on Birchcliff; the availability of, demand for and cost of labour,
services and materials; the approval of the Board of future dividends; the ability to obtain any necessary regulatory or other approvals
in a timely manner; the satisfaction by third parties of their obligations to Birchcliff; the ability of Birchcliff to secure adequate processing
and transportation for its products; Birchcliff’s ability to successfully market natural gas and liquids; the results of the Corporation’s risk
management and market diversification activities; and Birchcliff’s natural gas market exposure. In addition to the foregoing assumptions,
Birchcliff has made the following assumptions with respect to certain forward-looking statements contained in this MD&A:
· With respect to Birchcliff’s 2024 guidance, such guidance is based on the commodity price, exchange rate and other
assumptions set forth under the heading “2024 Outlook and Guidance”. In addition:
· Birchcliff’s production guidance assumes that: the 2024 capital program will be carried out as currently
contemplated; no unexpected outages occur in the infrastructure that Birchcliff relies on to produce its wells and
that any transportation service curtailments or unplanned outages that occur will be short in duration or otherwise
insignificant; the construction of new infrastructure meets timing and operational expectations; existing wells continue
to meet production expectations; and future wells scheduled to come on production meet timing, production and
capital expenditure expectations.
· Birchcliff’s forecast of F&D capital expenditures assumes that the 2024 capital program will be carried out as
currently contemplated and excludes any potential acquisitions, dispositions and the capitalized portion of cash
incentive payments that have not been approved by the Board. The amount and allocation of capital expenditures
for exploration and development activities by area and the number and types of wells to be drilled and brought on
production is dependent upon results achieved and is subject to review and modification by management on an
ongoing basis throughout the year. Actual spending may vary due to a variety of factors, including commodity prices,
economic conditions, results of operations and costs of labour, services and materials.
· Birchcliff’s forecasts of adjusted funds flow and free funds flow assume that: the 2024 capital program will be carried
out as currently contemplated and the level of capital spending for 2024 set forth herein is met; and the forecasts of
production, production commodity mix, expenses and natural gas market exposure and the commodity price and
exchange rate assumptions set forth herein are met. Birchcliff’s forecast of adjusted funds flow takes into account its
financial basis swap contracts outstanding as at January 8, 2024, and excludes cash incentive payments that have not
been approved by the Board.
· Birchcliff’s forecast of year end total debt assumes that: (i) the forecasts of adjusted funds flow and free funds flow are
achieved, with the level of capital spending for 2024 met and the payment of an annual base dividend of approximately
$107 million; (ii) any free funds flow remaining after the payment of dividends, asset retirement obligations and other
amounts for administrative assets, financing fees and capital lease obligations is allocated towards debt reduction;
(iii) there are no buybacks of common shares during 2024; (iv) there are no significant acquisitions or dispositions
completed by the Corporation during 2024; (v) there are no equity issuances during 2024; and (vi) there are no further
proceeds received from the exercise of stock options or performance warrants during 2024. The forecast of total debt
excludes cash incentive payments that have not been approved by the Board.
· Birchcliff’s forecast of its natural gas market exposure assumes: (i) 175,000 GJ/d being sold on a physical basis at the
Dawn price; (ii) 147,500 MMBtu/d being contracted on a financial basis at an average fixed basis differential price
between AECO 7A and NYMEX HH of approximately US$1.12/MMBtu; and (iii) 9,045 GJ/d being sold at Alliance on
a physical basis at the AECO 5A price plus a premium. Birchcliff’s natural gas market exposure takes into account its
outstanding financial basis swap contracts.
· With respect to statements regarding future wells to be drilled and brought on production, such statements assume: the
continuing validity of the geological and other technical interpretations performed by Birchcliff’s technical staff, which indicate
that commercially economic volumes can be recovered from Birchcliff’s lands as a result of drilling future wells; and that
commodity prices and general economic conditions will warrant proceeding with the drilling of such wells.
68
BIRCHCLIFF ENERGY
· With respect to estimates of reserves, the key assumption is the validity of the data used by Deloitte in its independent
reserves evaluation.
Birchcliff’s actual results, performance or achievements could differ materially from those anticipated in the forward-looking statements
as a result of both known and unknown risks and uncertainties including, but not limited to: the risks posed by pandemics (including
COVID-19), epidemics and global conflict (including the Russian invasion of Ukraine and the Israel-Hamas conflict) and their impacts on
supply and demand and commodity prices; actions taken by OPEC and other major producers of crude oil and the impact such actions
may have on supply and demand and commodity prices; the uncertainty of estimates and projections relating to production, revenue,
costs, expenses and reserves; the risk that any of the Corporation’s material assumptions prove to be materially inaccurate (including the
Corporation’s commodity price and exchange rate assumptions for 2024); general economic, market and business conditions which will,
among other things, impact the demand for and market prices of Birchcliff’s products and Birchcliff’s access to capital; volatility of crude
oil and natural gas prices; risks associated with increasing costs, whether due to high inflation rates, supply chain disruptions or other
factors; fluctuations in exchange and interest rates; stock market volatility; loss of market demand; an inability to access sufficient capital
from internal and external sources on terms acceptable to the Corporation; risks associated with Birchcliff’s Credit Facilities, including
a failure to comply with covenants under the agreement governing the Credit Facilities and the risk that the borrowing base limit may
be redetermined; fluctuations in the costs of borrowing; operational risks and liabilities inherent in oil and natural gas operations; the
occurrence of unexpected events such as fires, severe weather, explosions, blow-outs, equipment failures, transportation incidents and
other similar events; an inability to access sufficient water or other fluids needed for operations; uncertainty that development activities
in connection with Birchcliff’s assets will be economic; an inability to access or implement some or all of the technology necessary to
operate its assets and achieve expected future results; the accuracy of estimates of reserves, future net revenue and production levels;
geological, technical, drilling, construction and processing problems; uncertainty of geological and technical data; horizontal drilling
and completions techniques and the failure of drilling results to meet expectations for reserves or production; uncertainties related to
Birchcliff’s future potential drilling locations; delays or changes in plans with respect to exploration or development projects or capital
expenditures; the accuracy of cost estimates and variances in Birchcliff’s actual costs and economic returns from those anticipated;
incorrect assessments of the value of acquisitions and exploration and development programs; changes to the regulatory framework in
the locations where the Corporation operates, including changes to tax laws, Crown royalty rates, environmental laws, climate change
laws, carbon tax regimes, incentive programs and other regulations that affect the oil and natural gas industry; political uncertainty and
uncertainty associated with government policy changes; actions by government authorities; an inability of the Corporation to comply
with existing and future laws and the cost of compliance with such laws; dependence on facilities, gathering lines and pipelines;
uncertainties and risks associated with pipeline restrictions and outages to third-party infrastructure that could cause disruptions to
production; the lack of available pipeline capacity and an inability to secure adequate and cost-effective processing and transportation
for Birchcliff’s products; an inability to satisfy obligations under Birchcliff’s firm marketing and transportation arrangements; shortages in
equipment and skilled personnel; the absence or loss of key employees; competition for, among other things, capital, acquisitions of
reserves, undeveloped lands, equipment and skilled personnel; management of Birchcliff’s growth; environmental and climate change
risks, claims and liabilities; potential litigation; default under or breach of agreements by counterparties and potential enforceability issues
in contracts; claims by Indigenous peoples; the reassessment by taxing or regulatory authorities of the Corporation’s prior transactions
and filings; unforeseen title defects; third-party claims regarding the Corporation’s right to use technology and equipment; uncertainties
associated with the outcome of litigation or other proceedings involving Birchcliff; uncertainties associated with counterparty credit risk;
risks associated with Birchcliff’s risk management and market diversification activities; risks associated with the declaration and payment
of future dividends, including the discretion of the Board to declare dividends and change the Corporation’s dividend policy and the
risk that the amount of dividends may be less than currently forecast; the failure to obtain any required approvals in a timely manner or
at all; the failure to complete or realize the anticipated benefits of acquisitions and dispositions and the risk of unforeseen difficulties in
integrating acquired assets into Birchcliff’s operations; negative public perception of the oil and natural gas industry and fossil fuels; the
Corporation’s reliance on hydraulic fracturing; market competition, including from alternative energy sources; changing demand for
petroleum products; the availability of insurance and the risk that certain losses may not be insured; breaches or failure of information
systems and security (including risks associated with cyber-attacks); risks associated with the ownership of the Corporation’s securities;
and the accuracy of the Corporation’s accounting estimates and judgments.
The declaration and payment of any future dividends are subject to the discretion of the Board and may not be approved or may vary
depending on a variety of factors and conditions existing from time to time, including commodity prices, free funds flow, current and
forecast commodity prices, fluctuations in working capital, financial requirements of Birchcliff, applicable laws (including solvency tests
under the ABCA for the declaration and payment of dividends) and other factors beyond Birchcliff’s control. The payment of dividends
to shareholders is not assured or guaranteed and dividends may be reduced or suspended entirely. In addition to the foregoing, the
Corporation’s ability to pay dividends now or in the future may be limited by covenants contained in the agreements governing any
indebtedness that the Corporation has incurred or may incur in the future, including the terms of the Credit Facilities. The agreement
governing the Credit Facilities provides that Birchcliff is not permitted to make any distribution (which includes dividends) at any time
when an event of default exists or would reasonably be expected to exist upon making such distribution, unless such event of default
arose subsequent to the ordinary course declaration of the applicable distribution.
2023 ANNUAL REPORT
69
Readers are cautioned that the foregoing lists of factors are not exhaustive. Additional information on these and other risk factors that
could affect results of operations, financial performance or financial results are included in this MD&A and in the AIF under the heading
“Risk Factors” and in other reports filed with Canadian securities regulatory authorities.
This MD&A contains information that may constitute future-oriented financial information or financial outlook information (collectively,
“FOFI”) about Birchcliff’s prospective financial performance, financial position or cash flows, all of which is subject to the same
assumptions, risk factors, limitations and qualifications as set forth above. Readers are cautioned that the assumptions used in the
preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise or inaccurate
and, as such, undue reliance should not be placed on FOFI. Birchcliff’s actual results, performance and achievements could differ
materially from those expressed in, or implied by, FOFI. Birchcliff has included FOFI in order to provide readers with a more complete
perspective on Birchcliff’s future operations and management’s current expectations relating to Birchcliff’s future performance.
Readers are cautioned that such information may not be appropriate for other purposes.
Management has included the above summary of assumptions and risks related to forward-looking statements provided in this MD&A
in order to provide readers with a more complete perspective on Birchcliff’s future operations and management’s current expectations
relating to Birchcliff’s future performance. Readers are cautioned that this information may not be appropriate for other purposes.
The forward-looking statements and FOFI contained in this MD&A are expressly qualified by the foregoing cautionary statements.
The forward-looking statements and FOFI contained herein are made as of the date of this MD&A. Unless required by applicable laws,
Birchcliff does not undertake any obligation to publicly update or revise any forward-looking statements or FOFI, whether as a result of
new information, future events or otherwise.
70
BIRCHCLIFF ENERGY
Management’s Report
To the Shareholders of Birchcliff Energy Ltd.
The annual financial statements of Birchcliff Energy Ltd. for the year ended December 31, 2023 were prepared by management within
the acceptable limits of materiality and are in accordance with IFRS Accounting Standards. Management is responsible for ensuring
that the financial and operating information presented in the annual report is consistent with that shown in the financial statements.
The financial statements have been prepared by management in accordance with the accounting policies as described in the notes
to the financial statements. Timely release of financial information sometimes necessitates the use of estimates when transactions
affecting the current accounting period cannot be finalized until future periods. When necessary, such estimates are based on
informed judgments made by management.
Management has designed and maintains an appropriate system of internal controls to provide reasonable assurance that all assets are
safeguarded and financial records properly maintained to facilitate the preparation of financial statements for reporting purposes.
KPMG LLP, an independent firm of Chartered Professional Accountants appointed by shareholders, have conducted an examination
of the corporate and accounting records in order to express their opinion on the financial statements.
The Audit Committee, consisting of non-management directors, has met with representatives of KPMG LLP and management in order
to determine if management has fulfilled its responsibilities in the preparation of the financial statements. The Board of Directors has
approved the financial statements on the recommendation of the Audit Committee.
Respectfully,
(signed) “Bruno P. Geremia”
Bruno P. Geremia
Executive Vice President and Chief Financial Officer
(signed) “Christopher Carlsen”
Christopher Carlsen
President and Chief Executive Officer
Calgary, Canada
March 13, 2024
2023 ANNUAL REPORT
71
Independent Auditors’ Report
To the Shareholders of Birchcliff Energy Ltd.
Opinion
We have audited the financial statements of Birchcliff Energy Ltd. (the “Corporation”), which comprise:
·
·
·
·
·
the statements of financial position as at December 31, 2023 and December 31, 2022
the statements of net income and comprehensive income for the years then ended
the statements of changes in shareholders’ equity for the years then ended
the statements of cash flows for the years then ended
and notes to the financial statements, including a summary of material accounting policy information
(Hereinafter referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Corporation as
at December 31, 2023 and December 31, 2022, and its financial performance and its cash flows for the years then ended in accordance
with IFRS Accounting Standards.
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards
are further described in the “Auditor’s Responsibilities for the Audit of the Financial Statements” section of our auditor’s report.
We are independent of the Corporation in accordance with the ethical requirements that are relevant to our audit of the financial
statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements
for the year ended December 31, 2023. These matters were addressed in the context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
We have determined the matters described below to be the key audit matters to be communicated in our auditor’s report.
Assessment of the impact of estimated proved and probable oil and gas reserves on property, plant and equipment
Description of the matter
We draw attention to note 3 to the financial statements. The Corporation uses estimated proved and probable oil and gas reserves
to deplete developed and producing petroleum and natural gas interests included in property, plant and equipment (“PP&E”), to
assess for indicators of impairment on the Corporation’s cash generating unit (“CGU”) and if any such indicators exist, to perform an
impairment test to estimate the recoverable amount of the CGU. The Corporation has $3.06 billion of PP&E as at December 31, 2023.
The Corporation’s net carrying value of developed and producing petroleum and natural gas interests, net of estimated residual value,
is depleted on an area basis using the unit of production method. This depletion calculation includes actual production in the period
and total estimated proved and probable oil and gas reserves attributable to the assets being depleted, taking into account total
capitalized costs plus estimated future development costs necessary to bring those reserves into production.
The estimate of proved and probable oil and gas reserves requires the expertise of independent third-party reserve evaluators and
includes significant assumptions related to:
·
·
·
·
·
Forecasted oil and gas commodity prices
Forecasted production
Forecasted operating costs
Forecasted royalty costs
Forecasted future development costs.
The Corporation engages independent third-party reserve evaluators to evaluate the proved and probable oil and gas reserves.
72
BIRCHCLIFF ENERGY
Why the matter is a key audit matter
We identified the assessment of the impact of estimated proved and probable oil and gas reserves on PP&E as a key audit matter.
Significant auditor judgment was required to evaluate the results of our audit procedures regarding the estimate of proved and
probable oil and gas reserves.
How the matter was addressed in the audit
The following are the primary procedures we performed to address this key audit matter:
We assessed the depletion expense calculation for compliance with IFRS Accounting Standards.
With respect to the estimate of proved and probable oil and gas reserves:
· We evaluated the competence, capabilities and objectivity of the independent third-party reserve evaluators engaged
by the Corporation
· We compared forecasted oil and gas commodity prices to those published by independent third-party reserve evaluators
· We compared the 2023 actual production, operating costs, royalty costs and development costs of the Corporation to those
estimates used in the prior year’s estimate of proved oil and gas reserves to assess the Corporation’s ability to accurately forecast
· We evaluated the appropriateness of forecasted production and forecasted operating costs, royalty costs and future
development costs assumptions by comparing to 2023 historical results. We took into account changes in conditions and events
affecting the Corporation to assess the adjustments or lack of adjustments made by the Corporation in arriving at the assumptions.
Other Information
Management is responsible for the other information. Other information comprises:
·
·
the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions.
the information, other than the financial statements and the auditor’s report thereon, included in a document entitled
“2023 Annual Report”.
Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing
so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the
audit and remain alert for indications that the other information appears to be materially misstated.
We obtained the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities
Commissions and the information, other than financial statements and the auditor’s report thereon, included in a document entitled
“2023 Annual Report” as at the date of this auditor’s report. If, based on the work we have performed on this other information, we
conclude that there is a material misstatement of this other information, we are required to report that fact in the auditor’s report.
We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS Accounting
Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Corporation’s ability to continue as a going concern,
disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either
intends to liquidate the Corporation or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Corporation’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian
generally accepted auditing standards will always detect a material misstatement when it exists.
2023 ANNUAL REPORT
73
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of the financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and
maintain professional skepticism throughout the audit.
We also:
·
·
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide
a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
· Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control.
· Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
· Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the
Corporation’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However,
future events or conditions may cause the Corporation to cease to continue as a going concern.
· Evaluate the overall presentation, structure, and content of the financial statements, including the disclosures, and whether the
financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
· Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit
and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
·
Provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding
independence and communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
· Determine, from the matters communicated with those charged with governance, those matters that were of most significance in
the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our
auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances,
we determine that a matter should not be communicated in our auditor’s report because the adverse consequences of doing so
would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this auditor’s report is Timothy Arthur Richards.
(signed) “KPMG LLP”
Chartered Professional Accountants
Calgary, Canada
March 13, 2024
74
BIRCHCLIFF ENERGY
Birchcliff Energy Ltd.
Statements of Financial Position
(Expressed in thousands of Canadian dollars)
As at December 31,
ASSETS
Current assets:
Cash
Accounts receivable
Prepaid expenses and deposits
Financial instruments (Note 18)
Non-current assets:
Investments (Note 5)
Property, plant and equipment (Note 4)
Financial instruments (Note 18)
Total assets
LIABILITIES
Current liabilities:
Accounts payable and accrued liabilities
Other liabilities (Note 14)
Financial instruments (Note 18)
Non-current liabilities:
Revolving term credit facilities (Note 6)
Decommissioning obligations (Note 7)
Deferred income taxes (Note 8)
Other liabilities (Note 14)
Financial instruments (Note 18)
Total liabilities
SHAREHOLDERS’ EQUITY
Common share capital (Note 9)
Contributed surplus
Retained earnings
Total shareholders’ equity
Total shareholders’ equity and liabilities
Commitments and contingencies (Note 19)
The accompanying notes are an integral part of these financial statements.
Approved by the Board
(signed) “Debra A. Gerlach”
Debra A. Gerlach
Independent Director
(signed) “A. Jeffery Tonken”
A. Jeffery Tonken
Director
2023
2022
55
75,105
23,304
3,588
102,052
10,567
3,055,958
8,333
3,074,858
3,176,910
94,822
16,358
1,394
112,574
372,097
91,324
361,285
12,722
1,463
838,891
951,465
1,429,198
104,662
691,585
2,225,445
3,176,910
74
125,005
12,140
17,729
154,948
10,961
2,972,592
30,864
3,014,417
3,169,365
143,787
1,914
1,345
147,046
131,981
99,720
355,115
22,850
-
609,666
756,712
1,430,944
86,560
895,149
2,412,653
3,169,365
2023 ANNUAL REPORT
75
Birchcliff Energy Ltd.
Statements of Net Income and Comprehensive Income
(Expressed in thousands of Canadian dollars, except per share information)
Years ended December 31,
2023
2022
REVENUE
Petroleum and natural gas revenue (Note 11)
Marketing revenue (Note 11)
Royalties
Realized gain (loss) on financial instruments (Note 18)
Unrealized gain (loss) on financial instruments (Note 18)
Other income (expense)
EXPENSES
Operating (Note 12)
Transportation
Marketing purchases (Note 11)
Administrative, net (Note 13)
Depletion and depreciation (Note 4)
Finance (Note 15)
Dividends on capital securities
Other losses (gains) (Notes 4, 5, 7 & 14)
Net income before taxes
Deferred income tax expense (Note 8)
NET INCOME AND COMPREHENSIVE INCOME
Net income per common share (Note 10)
Basic
Diluted
The accompanying notes are an integral part of these financial statements.
740,359
30,521
(70,257)
(37,285)
(38,185)
(695)
624,458
105,809
152,828
34,772
55,735
226,514
26,411
-
6,439
608,508
15,950
(6,170)
9,780
$0.04
$0.04
1,340,180
18,806
(161,226)
80,742
131,042
4
1,409,548
101,581
155,864
17,866
42,230
213,808
19,239
2,013
(370)
552,231
857,317
(200,486)
656,831
$2.46
$2.38
76
BIRCHCLIFF ENERGY
Birchcliff Energy Ltd.
Statements of Changes in Shareholders’ Equity
(Expressed in thousands of Canadian dollars)
Share Capital
As at December 31, 2021
Issuance of common shares (Notes 9 & 16)
Repurchase of common shares (Note 9)
Purchase of performance warrants
Dividends on common shares (Note 9)
Dividends on perpetual preferred shares
Stock-based compensation (Notes 13 & 16)
Redemption of perpetual preferred shares
Net income
As at December 31, 2022
As at December 31, 2022
Issuance of common shares (Notes 9 & 16)
Repurchase of common shares (Note 9)
Dividends on common shares (Note 9)
Stock-based compensation (Notes 13 & 16)
Net income
As at December 31, 2023
Common
Shares
1,463,424
32,940
(57,207)
(8,213)
-
-
-
-
-
1,430,944
1,430,944
9,715
(11,461)
-
-
-
1,429,198
Preferred
Shares
Contributed
Surplus
Retained
Earnings
Total
41,434
-
-
-
-
-
-
(41,434)
-
-
-
-
-
-
-
-
-
90,924
(9,935)
-
(6,293)
-
-
11,864
-
-
86,560
86,560
(2,553)
-
-
20,655
-
321,821
1,917,603
-
-
-
(71,788)
(3,149)
-
(8,566)
656,831
895,149
23,005
(57,207)
(14,506)
(71,788)
(3,149)
11,864
(50,000)
656,831
2,412,653
895,149
2,412,653
-
-
7,162
(11,461)
(213,344)
(213,344)
-
9,780
20,655
9,780
104,662
691,585
2,225,445
The accompanying notes are an integral part of these financial statements.
2023 ANNUAL REPORT
77
Birchcliff Energy Ltd.
Statements of Cash Flows
(Expressed in thousands of Canadian dollars)
Years ended December 31,
Cash provided by (used in):
OPERATING
Net income
Adjustments for items not affecting operating cash:
Unrealized loss (gain) on financial instruments (Note 18)
Depletion and depreciation (Note 4)
Other compensation (Note 13)
Finance (Note 15)
Other losses (gains) (Notes 4, 5, 7 & 14)
Deferred income tax expense (Note 8)
Interest paid (Note 15)
Dividends on capital securities (Note 9)
Retirement benefit payments (Note 14)
Decommissioning expenditures (Note 7)
Changes in non-cash working capital (Note 20)
FINANCING
Issuance of common shares (Notes 9 & 16)
Repurchase of common shares (Note 9)
Redemption of capital securities
Redemption of perpetual preferred shares
Purchase of performance warrants
Financing fees paid
Lease payments (Note 14)
Dividend distributions (Note 9)
Net change in revolving term credit facilities (Note 6)
INVESTING
Exploration and development (Note 4)
Acquisitions (Note 4)
Dispositions (Note 4)
Administrative assets (Note 4)
Investments (Note 5)
Changes in non-cash working capital (Note 20)
Net change in cash
Cash, beginning of year
CASH, END OF YEAR
The accompanying notes are an integral part of these financial statements.
78
BIRCHCLIFF ENERGY
2023
2022
9,780
656,831
38,185
226,514
13,640
26,411
6,439
6,170
(20,312)
-
(2,000)
(3,775)
19,477
320,529
7,162
(11,461)
-
-
-
-
(2,458)
(213,344)
238,416
18,315
(131,042)
213,808
6,456
19,239
(370)
200,486
(13,738)
2,013
-
(2,746)
(25,662)
925,275
23,005
(57,207)
(38,268)
(50,000)
(14,506)
(1,275)
(2,458)
(76,950)
(369,066)
(586,725)
(304,637)
(364,621)
(190)
87
(3,176)
(1,241)
(29,706)
(338,863)
(19)
74
55
(2,348)
315
(1,576)
(1,956)
31,647
(338,539)
11
63
74
Birchcliff Energy Ltd.
Notes to the Financial Statements
For the Years Ended December 31, 2023 and 2022
(Expressed in Canadian dollars, unless otherwise stated)
1. NATURE OF OPERATIONS
Birchcliff Energy Ltd. (“Birchcliff” or the “Corporation”) is domiciled and incorporated in Alberta, Canada. Birchcliff is engaged in
the exploration for and the development, production and acquisition of oil and gas reserves in Western Canada. The Corporation’s
financial year end is December 31. The address of the Corporation’s registered office is Suite 1000, 600 – 3rd Avenue S.W.,
Calgary, Alberta, Canada T2P 0G5. Birchcliff’s common shares are listed for trading on the Toronto Stock Exchange (the “TSX”)
under the symbol “BIR”.
These financial statements were approved and authorized for issuance by Birchcliff’s board of directors (the “Board”) on
March 13, 2024.
2. BASIS OF PREPARATION
These financial statements present Birchcliff’s financial results of operations and financial position under IFRS Accounting Standards
as at and for the years ended December 31, 2023 and December 31, 2022. The financial statements have been prepared in
accordance with IFRS Accounting Standards and methods of computation as set forth in Note 3.
Birchcliff’s financial statements are prepared on a historical cost basis, except for certain financial and non-financial assets and
liabilities which have been measured at fair value. The Corporation’s financial statements include the accounts of Birchcliff only and
are expressed in Canadian dollars, unless otherwise stated. Birchcliff does not have any subsidiaries.
The preparation of the financial statements requires management to make judgments, estimates and assumptions that affect the
reported amounts of assets, liabilities, and the disclosure of commitments and consistencies at the date of the financial statements,
and revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimated. Significant
judgements and estimates used in the preparation of the financial statements are detailed in Note 3.
3. MATERIAL ACCOUNTING POLICIES
(a) Revenue Recognition
Revenue from the sale of crude oil, natural gas and natural gas liquids (“NGLs”) is measured based on the consideration specified
in contracts with marketers and other third parties. Birchcliff recognizes revenue when it transfers control of the product to the
contract customer. In making this evaluation, management considers if Birchcliff has the ability to direct the use of, and obtain
substantially all of the remaining benefits from the delivery of the product.
Birchcliff evaluates its arrangements with marketers and other third parties to determine if the Corporation acts as the principal or
as an agent. In making this evaluation, the Corporation considers if it obtains control of the product delivered or services provided,
which is indicated by the Corporation having the primary responsibility for the delivery of the product or rendering of the service,
having the ability to establish prices or having inventory risk. If the Corporation acts in the capacity of an agent rather than as a
principal in a transaction, then the revenue is recognized on a net-basis, only reflecting the fee, if any, realized by the Corporation
from the transaction.
(b) Jointly Owned Assets
Certain activities of the Corporation are conducted jointly with others where the participants have a direct ownership interest
in the related assets. Accordingly, the accounts of Birchcliff reflect only its working interest share of revenues, expenses and
capital expenditures related to these jointly owned assets. The relationship with jointly owned asset partners have been referred
to as jointly owned assets in the remainder of the financial statements as this is common terminology in the Canadian oil and
natural gas industry.
2023 ANNUAL REPORT
79
(c) Property, Plant and Equipment
(i) Recognition and measurement
Developed and producing petroleum and natural gas assets are measured at cost less accumulated depletion and depreciation
and accumulated impairment losses, if any. Such assets consist of the purchase price and costs directly attributable to bringing
the asset to the location and condition necessary for its intended use. Developed and producing petroleum and natural gas
asset interests include mineral lease acquisitions, geological and geophysical costs, facility and production equipment and
associated turnarounds, other directly attributable administrative costs and the initial estimate of the costs of dismantling and
removing an asset and restoring the site on which it was located.
(ii) Subsequent costs
Costs incurred subsequent to the determination of technical feasibility and commercial viability are recognized as developed
and producing petroleum and natural gas interests when they increase the future economic benefits embodied in the specific
asset to which they relate. Such capitalized developed and producing petroleum and natural gas interests generally represent
costs incurred in developed proved and/or probable reserves and bringing in or enhancing production from such reserves,
and are accumulated on an area basis. The cost of day-to-day servicing of an item of property, plant and equipment (“PP&E”)
is expensed in profit or loss as incurred.
PP&E are de-recognized upon disposal or when no future economic benefits are expected to arise from the continued use
of the asset. Any gain or loss arising from the disposal of an asset, determined as the difference between the net disposal
proceeds and the carrying amount of the asset, is recognized in profit or loss.
(iii) Asset exchanges
Exchanges of developed and producing petroleum and natural gas interests are measured at fair value, unless the exchange
transaction lacks commercial substance or the fair value of the assets given up or the assets received cannot be reliably
estimated. The cost of the acquired asset is measured at the fair value of the asset given up, unless the fair value of the asset
received is more reliable. Where fair value is not used, the cost of the acquired asset is measured at the carrying amount of
the asset given up. Any gain or loss on the de-recognition of the asset given up is recognized in profit and loss.
(iv) Depletion and depreciation
The net carrying value of developed and producing petroleum and natural gas interests, net of estimated residual value, is
depleted on an area basis using the unit of production method. This depletion calculation includes actual production in the
period and total estimated proved and probable oil and gas reserves attributable to the assets being depleted, taking into
account total capitalized costs plus estimated future development costs necessary to bring those reserves into production.
Relative volumes of reserves and production (before royalties) are converted at the energy equivalent conversion ratio of
six thousand cubic feet of natural gas to one barrel of oil. These estimates are evaluated by the Corporation’s independent
third-party reserves evaluator at least annually.
Capitalized plant turnaround costs are depreciated on a straight-line basis over the estimated time until the next turnaround
is completed. Corporate assets, which include office furniture and equipment, software, computer equipment and leasehold
improvements, are depreciated on a straight-line basis over the estimated useful lives of the assets, which are estimated to
be four years.
When significant parts of PP&E, including petroleum and natural gas interests, have different useful lives, they are accounted
for as separate items (major components). Depreciation methods, useful lives and residual values for PP&E are reviewed at
each reporting date.
80
BIRCHCLIFF ENERGY
(d) Decommissioning Obligations
The Corporation’s activities give rise to dismantling, restoration and site disturbance remediation activities. Costs related to
abandonment activities are estimated by management in consultation with the Corporation’s independent third-party reserves
evaluator based on risk-adjusted current costs, which take into consideration current technology in accordance with existing
legislation and industry practices.
Decommissioning obligations are measured at the present value of the best estimate of expenditures required to settle the
future obligations at the reporting date. When the best estimate of the liability is initially measured, the estimated risk-adjusted
cost, discounted using a pre-tax risk-free discount rate, is capitalized by increasing the carrying amount of the related PP&E. The
increase in the provision due to the passage of time, which is referred to as accretion, is recognized as a finance expense. Actual
costs incurred upon settlement of the liability are charged against the obligation to the extent that the obligation was previously
established. The carrying amount capitalized in PP&E is depleted in accordance with the Corporation’s depletion and depreciation
policy. The Corporation reviews the obligation at each reporting date and revisions to the estimated timing of cash flows, discount
rates and estimated costs result in an increase or decrease to the obligations and the related PP&E. Any difference between the
actual costs incurred upon settlement of the obligation and the recorded liability is recognized as a gain or loss in profit or loss.
(e) Financial Instruments
(i) Non-derivative financial instruments
Non-derivative financial instruments are comprised of cash, accounts receivable, deposits, investments, accounts payable
and accrued liabilities and revolving term credit facilities. Non-derivative financial instruments are recognized initially at fair
value plus any directly attributable transaction costs. Subsequent to initial recognition, non-derivative financial instruments
are measured based on their classification. The Corporation has made the following classifications:
· Cash, accounts receivable and deposits are classified as loans and receivables and are measured at amortized cost
using the effective interest method. Typically, the fair value of these balances approximates their carrying value due to
their short-term to maturity.
·
Investments have been categorized as fair value through profit and loss which requires the investments to be fair
valued at the end of each reporting period with any gains or losses recognized in profit and loss. Distributions
declared, if any, are recorded to profit or loss and presented as an operating activity on the statement of cash flow.
· Accounts payable and accrued liabilities and revolving term credit facilities are measured at amortized cost using
the effective interest method. Due to the short-term nature of accounts payable and accrued liabilities, their carrying
values approximate their fair values. The Corporation’s revolving term credit facilities bear interest at a floating rate
and accordingly the fair market value approximates the carrying value before the carrying value is reduced for any
remaining unamortized costs. Any financing fees associated with the Corporation’s credit facilities have been deferred
and netted against the amounts drawn, and are being amortized to profit or loss using the effective interest method
over the applicable term.
(ii) Derivative financial instruments
Derivatives may be used by the Corporation to manage economic exposure to market risk relating to commodity prices,
interest rates and foreign exchange. Birchcliff’s policy is not to utilize derivative financial instruments for speculative purposes.
The Corporation does not designate its financial derivative contracts as hedges, and as such does not apply hedge accounting.
As a result, financial derivatives are classified at fair value through profit or loss and are recorded on the statements of financial
position at fair value.
The fair value of risk management contracts is determined by discounting the difference between the contracted prices/rates
and published forward price/rates as at the statement of financial position date. The fair value of options and costless collars,
if any, is based on option models that use published information with respect to volatility, prices and interest rates.
The Corporation accounts for any forward physical delivery sales contracts, which were entered into and continue to be
held for the purpose of receipt or delivery of non-financial items, in accordance with its expected purchase, sale or usage
requirements as executory contracts. As such, these contracts are not considered to be derivative financial instruments
and have not been recorded at fair value on the statements of financial position. Settlements on physical commodity sales
contracts are recognized in petroleum and natural gas revenue in profit and loss.
(iii) Share capital
Common shares are classified as equity. Incremental costs directly attributable to the issuance of shares are recognized as a
reduction in share capital, net of any tax effects.
2023 ANNUAL REPORT
81
(f) Impairment
Impairment of financial assets
(i)
Impairment of financial assets is determined by measuring the assets’ expected credit loss (“ECL”). Birchcliff’s financial
assets are not considered to have a significant financing component and a lifetime ECL is measured at the date of initial
recognition of the financial asset. ECL allowances have not been recognized for cash and cash equivalents due to the virtual
certainty associated with their collection. The ECL pertaining to accounts receivable is assessed at initial recognition and
this provision is re-assessed at each reporting date. ECLs are a probability-weighted estimate of all possible default events
related to the financial asset (over the lifetime or within 12 months after the reporting period, as applicable) and are measured
as the difference between the present value of the cash flows due to Birchcliff and the cash flows the Corporation expects
to receive, including cash flows expected from collateral and other credit enhancements that are a part of contractual terms.
In making an assessment as to whether financial assets are credit-impaired, the Corporation considers historically realized
bad debts, evidence of a debtor’s present financial condition and whether a debtor has breached certain contracts, the
probability that a debtor will enter bankruptcy or other financial reorganization, changes in economic conditions that
correlate to increased levels of default, the number of days a debtor is past due in making a contractual payment, and the
term to maturity of the specified receivable. The carrying amounts of financial assets are reduced by the amount of the ECL
through an allowance account and losses are recognized within general and administrative expense in profit and loss.
Based on contractual terms and conditions, the Corporation considers its financial assets to be in default when the
counterparty fails to make contractual payments as required. Once the Corporation has pursued collection activities and it
has been determined that the incremental cost of pursuing collection outweighs the benefits, Birchcliff derecognizes the
gross carrying amount of the financial asset and the associated allowance from the statement of financial position.
Impairment of non-financial assets
(ii)
The Corporation’s PP&E are grouped into Cash Generating Units (“CGUs”) for the purpose of assessing impairment. A CGU
represents the smallest group of assets that generates cash inflows from continuing use that are largely independent of the
cash inflows of other assets or groups of assets.
CGUs are reviewed at each reporting date for internal and external indicators of impairment. Such indicators may include,
but are not limited to, changes in the Corporation’s business plan, deterioration in forecasted oil and gas commodity prices
or a significant downward revision of the estimated recoverable amount from proved and probable oil and gas reserves
and the related cash flows. If indicators of impairment exist, an impairment test is performed by comparing a CGUs carrying
value to its estimated recoverable amount. A CGUs recoverable amount is the greater of its fair value less cost to sell and its
current value in use. The estimated recoverable amount involves significant assumptions including the estimate of proved and
probable oil and gas reserves and the related cash flows and the discount rates. The estimate of proved and probable oil and
gas reserves and the related cash flows is sensitive to the significant assumptions regarding forecasted oil and gas commodity
prices, forecasted production, forecasted operating costs, forecasted royalty costs and forecasted future development costs.
Any excess of carrying value over recoverable amount is recognized as impairment loss in profit or loss.
In assessing the value in use, the estimated future cash flows from proved and probable oil and gas reserves are discounted
to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money. Fair
value is determined as the amount that would be obtained from the sale of the asset in an arm’s length transaction between
knowledgeable and willing parties. The forecasted oil and gas commodity prices used in the impairment test are based
on period-end forecasted oil and gas commodity prices estimated by the Corporation’s independent third-party
reserves evaluator.
Where circumstances change such that an impairment no longer exists or is less than the amount previously recognized,
the carrying amount of the CGU is increased to the revised estimate of its recoverable amount as long as the revised
estimate does not exceed the carrying amount that would have been determined, net of depletion and depreciation,
had no impairment loss been recognized for the CGU in prior periods. A reversal of an impairment loss is recognized
immediately through profit or loss.
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BIRCHCLIFF ENERGY
(g) Income Taxes
Birchcliff is a corporation as defined under the Income Tax Act (Canada) and is subject to Canadian federal and provincial taxes.
Birchcliff is subject to provincial taxes in Alberta as the Corporation operates in this jurisdiction. The Corporation’s income tax
expenses include current and/or deferred tax. Income tax expense is recognized through profit or loss except to the extent that
it relates to items recognized directly in equity, in which case the related income taxes are also recognized in equity.
Current tax is the expected tax payable on taxable income and Part VI.I dividend tax payable on taxable preferred shares for the
period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of
previous years.
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable income. Deferred tax liabilities are generally
recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary
differences to the extent that it is probable that taxable income will be available against which those deductible temporary
differences can be utilized. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and
reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the
asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is
expected to be settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by
the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would
follow from the manner in which Birchcliff expects, at the end of the reporting period, to recover or settle the carrying amount
of its assets and liabilities.
(h) Per Common Share
The Corporation calculates per common share amounts using net income available to Birchcliff’s shareholders, reduced for
perpetual preferred share dividends and divided by the weighted average number of common shares outstanding. Basic per
share information is computed using the weighted average number of basic common shares outstanding during the period.
Diluted per share information is calculated using the treasury stock method, which assumes that any proceeds from the exercise
of “in-the-money” stock options and performance warrants, plus the unamortized stock-based compensation expense amounts,
would be used to purchase common shares at the average market price during the period. No adjustment to diluted earnings per
share is made if the result of these calculations is anti-dilutive. The average market value of the Corporation’s shares for the purpose
of calculating the dilutive effect is based on average quoted market prices for the time that the stock options and performance
warrants were outstanding during the period.
(i) Significant Accounting Judgments and Key Sources of Estimation Uncertainty
Significant Judgments in Applying Accounting Policies
The following are the significant judgments that management has made in the process of applying the Corporation’s accounting
policies and that have the most significant effect on the amounts recognized in these financial statements:
Identification of cash-generating units
(i)
Birchcliff’s assets are required to be aggregated into CGUs for the purpose of calculating impairment based on their ability
to generate largely independent cash inflows. CGUs have been determined based on similar geological structure, shared
infrastructure, geographical proximity, operating structure, commodity type and similar exposures to market risks. By their
nature, these assumptions are subject to management’s judgment and may impact the carrying value of the Corporation’s
assets in future periods.
Identification of impairment indicators
(ii)
IFRS Accounting Standards requires Birchcliff to assess, at each reporting date, whether there are any internal or
external indicators that its PP&E within a CGU may be impaired. Birchcliff is required to consider information from both
external sources (such as negative downturn in forecasted oil and gas commodity prices, significant adverse changes
in the technological, market, economic or legal environment in which the entity operates) and internal sources (such as
downward revisions in the estimate of proved and probable oil and gas reserves and the related cash flows, significant
adverse effect on the financial and operational performance of a CGU, evidence of obsolescence or physical damage
to the asset). By their nature, these assumptions are subject to management’s judgment.
2023 ANNUAL REPORT
83
Key Sources of Estimation Uncertainty
The following are the key assumptions concerning the sources of estimation uncertainty at the end of the reporting period,
that have a significant risk of causing adjustments to the carrying amounts of assets and liabilities within the next financial year:
(i) Reserves
Reported recoverable quantities of proved and probable oil and gas reserves and the related cash flows requires estimation
and are subject to assumptions regarding forecasted production, forecasted oil and gas commodity prices, forecasted
operating costs, forecasted royalty costs and forecasted future development costs. It also requires interpretation of
geological and geophysical models in order to make an assessment of the size, shape, depth and quality of reservoirs,
and their anticipated recoveries. The economical, geological and technical factors used to estimate proved and probable
oil and gas reserves may change from period to period. The Corporation uses estimated proved and probable oil and gas
reserves to deplete PP&E to assess for indicators of impairment on the Corporation’s CGU and if any such indicators exist,
to perform an impairment test to estimate the recoverable amount of a CGU. The Corporation engages an independent
third-party reserves evaluator to evaluate its proved and probable oil and gas reserves. The estimated recoverable quantities
of proved and probable oil and gas reserves and the related cash flows from Birchcliff’s petroleum and natural gas interests
are evaluated by an independent third-party reserves evaluator at least annually.
The Corporation’s proved and probable oil and gas reserves represent the estimated quantities of petroleum, natural gas
and NGLs which geological, geophysical and engineering data demonstrate with a specified degree of certainty to be
economically recoverable in future years from known reservoirs and which are considered commercially producible. Such
proved and probable oil and gas reserves may be considered commercially producible if management has the intention of
developing and producing them and such intention is based upon: (i) a reasonable assessment of the future economics of
such production; (ii) a reasonable expectation that there is a market for all or substantially all the expected petroleum and
natural gas production; and (iii) evidence that the necessary production, transmission and transportation facilities are available
or can be made available. Reserves may only be considered proved and probable if producibility is supported by either
production or conclusive formation tests. Birchcliff’s proved and probable oil and gas reserves are determined in accordance
with the standards contained in National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities and the
Canadian Oil and Gas Evaluation Handbook.
(ii) Decommissioning obligations
The Corporation estimates future remediation costs of production facilities, wells and pipelines at different stages of
development and construction of assets or facilities. In most instances, removal of assets occurs many years into the future.
This requires an estimate regarding abandonment date, future environmental and regulatory legislation, the extent of
reclamation activities, the engineering methodology for estimating cost, future removal technologies in determining the
removal cost and liability-specific discount rates to determine the present value of these risk-free cash flows.
Impairment of non-financial assets
(iii)
For the purposes of determining the extent of any impairment or its reversal, if any, estimates must be made regarding proved
and probable oil and gas reserves and the related cash flows considering significant assumptions including forecasted oil and
gas commodity prices, forecasted production, forecasted operating costs, forecasted royalty costs and forecasted future
development costs. These significant assumptions are subject to change as new information becomes available. Changes
in economic conditions can also affect the discount rate estimate used to discount the cash flow estimates related to proved
and probable oil and gas reserves. Changes in the aforementioned assumptions could affect the carrying amount of the
Corporation’s assets, and impairment charges and reversal, if any, will affect profit or loss.
Income taxes
(iv)
Birchcliff files corporate income tax, goods and services tax and other tax returns with various provincial and federal taxation
authorities in Canada. There can be differing interpretations of applicable tax laws and regulations. The resolution of these tax
positions through negotiations or litigation with tax authorities can take several years to complete. The Corporation does not
anticipate that there will be any material impact upon the results of its operations, financial position or liquidity.
Tax provisions are based on enacted or substantively enacted laws. Changes in those laws could affect amounts recognized
in profit or loss both in the period of change, which would include any impact on cumulative provisions, and in future periods.
Deferred tax assets, if any, are recognized only to the extent it is considered probable that those assets will be recoverable.
This involves an assessment of when those deferred tax assets are likely to reverse and a judgment as to whether or not there
will be sufficient taxable profits available to offset the tax assets when they do reverse. This requires assumptions regarding
future profitability and is therefore inherently uncertain. Estimates of future taxable income are based on forecasted cash
84
BIRCHCLIFF ENERGY
flows from operations. To the extent that any interpretation of tax law is challenged by the tax authorities or future cash flows
and taxable income differ significantly from estimates, the ability of Birchcliff to realize the deferred tax assets recorded at the
statement of financial position date could be impacted.
(j) Material Accounting Policy Information
The Corporation adopted Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Accounting Standards Practice
Statement 2) effective January 1, 2023. Although the amendments did not result in any changes to the accounting policies
themselves, they impacted the accounting policy information disclosed in the financial statements. The amendments require the
disclosure of material, rather than significant, accounting policies. The amendments also provide guidance on the application of
materiality to disclosure of accounting policies, assisting entities to provide useful, entity-specific accounting policy information that
users need to understand other information in the financial statements. Management reviewed the accounting policies and made
updates to the information disclosed in certain instances in line with the amendments.
4. PROPERTY, PLANT AND EQUIPMENT
The continuity for PP&E is as follows:
($000s)
Cost:
As at December 31, 2021
Additions
Acquisitions
Dispositions
Exploration
& Evaluation
Assets(3)
Developed
& Producing
Assets
Lease
Assets
Corporate
Assets
Total
389
17
-
-
4,377,505
20,078
23,648
4,421,620
330,114
2,776
(315)
-
-
-
1,576
331,707
-
-
2,776
(315)
As at December 31, 2022
406
4,710,080
20,078
25,224
4,755,788
Additions
Acquisitions
Dispositions
-
-
-
311,436
620
(6,303)
951
-
-
3,176
315,563
-
-
620
(6,303)
As at December 31, 2023(1)
406
5,015,833
21,029
28,400
5,065,668
Accumulated depletion and depreciation:
As at December 31, 2021
Depletion and depreciation expense(2)
As at December 31, 2022
Depletion and depreciation expense(2)
As at December 31, 2023
Net book value:
As at December 31, 2022
As at December 31, 2023
-
-
-
-
-
(1,543,943)
(210,049)
(1,753,992)
(222,938)
(5,981)
(2,035)
(8,016)
(2,035)
(19,464)
(1,569,388)
(1,724)
(213,808)
(21,188)
(1,783,196)
(1,541)
(226,514)
(1,976,930)
(10,051)
(22,729)
(2,009,710)
406
406
2,956,088
3,038,903
12,062
10,978
4,036
5,671
2,972,592
3,055,958
(1) The Corporation’s PP&E were pledged as security for its revolving term credit facilities. Although the Corporation believes that it has title to its PP&E, it cannot control or completely protect itself
against the risk of title disputes and challenges.
(2) Future development costs required to develop and produce proved and probable oil and gas reserves totalled approximately $5.0 billion at December 31, 2023 (December 31, 2022 –
$4.5 billion) and are included in the depletion expense calculation.
(3) Exploration and evaluation (“E&E”) assets consist of the Corporation’s exploration activities which are pending the determination of economic quantities of commercially producible proved
reserves. Any additions represent the Corporation’s net share of costs incurred on E&E activities during the year. There were no exploration costs reclassified from the E&E category to developing
and producing category during 2023 and 2022.
Impairment Assessment
In accordance with IFRS Accounting Standards, an asset impairment test is performed if Birchcliff identifies indicators of impairment
at the end of a reporting period. At December 31, 2023 and December 31, 2022, Birchcliff determined that there were no asset
impairment indicators present and therefore an impairment test was not required.
2023 ANNUAL REPORT
85
5. INVESTMENTS
On August 31, 2017, Birchcliff acquired securities consisting of 4,500,000 Common A LP Units (the “Common A Units”) in a
limited partnership and 10,000,000 Preferred Trust Units (the “Preferred Trust Units”) in a trust (collectively, the “Securities”)
at a combined value of $10.0 million. The Securities are not publicly listed and do not constitute a significant investment.
During 2023, Birchcliff redeemed 138,669 Preferred Trust Units and 62,401 Common A Units. As at December 31, 2023, Birchcliff
held a total of 9,295,222 Preferred Trust Units and 4,182,849 Common A Units which collectively had a fair value of $8.1 million
(December 31, 2022 – $9.4 million). Birchcliff recorded a loss on investment of approximately $1.2 million in 2023 compared to
a gain on investment of $1.8 million in 2022.
6. REVOLVING TERM CREDIT FACILITIES
The components of the Corporation’s revolving term credit facilities include:
As at December 31, ($000s)
Syndicated credit facility
Working capital facility
Drawn revolving term credit facilities
Unamortized deferred financing fees
Revolving term credit facilities
2023
358,722
15,217
373,939
(1,842)
372,097
2022
109,201
26,321
135,522
(3,541)
131,981
At December 31, 2023, the aggregate principal amount of the Corporation’s revolving term credit facilities was $850.0 million
which were comprised of: (i) an extendible revolving syndicated term credit facility (the “Syndicated Credit Facility”) of
$750.0 million; and (ii) an extendible revolving working capital facility (the “Working Capital Facility”) of $100.0 million
(collectively, the “Credit Facilities”).
In November 2023, the lenders confirmed the maturity dates of each of the Syndicated Credit Facility and the Working Capital
Facility at May 11, 2025. In addition, the lenders confirmed the aggregate borrowing base limit under the Corporation’s Credit
Facilities at $850.0 million. Birchcliff’s Credit Facilities include a provision giving the lenders the right to redetermine the borrowing
base if the Corporation’s liability management rating (“LMR”) is less than 2.0. Birchcliff’s LMR at December 31, 2023 was 16.7. Upon
any change in or redetermination of the borrowing base limit which results in a borrowing base shortfall, Birchcliff must eliminate
the borrowing base shortfall amount.
The maturity date of the Credit Facilities may, at the request of the Corporation and with consent of the lenders, be extended on
an annual basis, for an additional period of up to three years from May 11 of the year in which the extension request is made. The
Credit Facilities are secured by a fixed and floating charge debenture and pledge charging substantially all of the Corporation’s
assets. No fixed charges have been granted pursuant to such debenture. The Credit Facilities do not contain any financial
maintenance covenants.
The agreement governing the Credit Facilities allows for prime rate loans, Secured Overnight Financing Rate (“SOFR”) term loans,
U.S. base rate loans, bankers’ acceptances and, in the case of the Working Capital Facility only, letters of credit, plus applicable
margins. The interest rates applicable to the drawn loans are based on a pricing margin grid and will change as a result of the ratio
of outstanding indebtedness to EBITDA as calculated in accordance with the agreement governing the Credit Facilities. EBITDA
is defined as earnings before interest and non-cash items including, if any, deferred income taxes, other compensation, gains
and losses on sale of assets, unrealized gains and losses on financial instruments, gains and losses on investments, depletion,
depreciation, accretion and amortization and impairment charges.
86
BIRCHCLIFF ENERGY
7. DECOMMISSIONING OBLIGATIONS
The Corporation estimates the total undiscounted (inflated) amount of cash flow required to settle its decommissioning
obligations to be approximately $250.8 million at December 31, 2023 (December 31, 2022 – $281.0 million). A reconciliation
of the decommissioning obligations is set forth below:
As at December 31, ($000s)
Balance, beginning
Obligations incurred
Obligations acquired
Obligations divested
Changes in estimated future cash flows(1)
Accretion
Decommissioning expenditures(2)
Balance, ending
2023
99,720
2,778
430
(764)
(8,631)
3,700
(5,909)
91,324
2022
140,603
4,004
428
(19)
(44,996)
3,248
(3,548)
99,720
(1) Primarily relates to changes in the inflation rate and discount nominal risk-free rate used to calculate the present value of the decommissioning obligations. Birchcliff applied an inflation rate of
1.62% and a discount nominal risk-free rate of 3.02% to calculate the present value of the decommissioning obligations at December 31, 2023 and an inflation rate of 2.09% and a discount nominal
risk-free rate of 3.28% at December 31, 2022.
(2) Includes $2.1 million and $0.8 million of funding from the Alberta Site Rehabilitation Program for the 2023 and 2022 periods, respectively, that were recorded to income as “other gains”.
8. INCOME TAXES
For the purposes of determining the current and deferred income taxes, the Corporation applied a combined Canadian federal
and provincial income tax rate of 23% in 2023 (2022 – 23%).
The components of deferred income tax expense are set forth below:
Years ended December 31, ($000s)
Net income before taxes
Computed expected income tax expense
(Increase) decrease in taxes resulting from:
Non-deductible stock-based compensation
Non-deductible dividends on capital securities
Non-deductible expenses and other
Change in deferred tax assets not recognized
Deferred income tax expense
The components of net deferred income tax liabilities are set forth below:
As at December 31, ($000s)
Deferred income tax liabilities:
PP&E
Deferred financing fees
Risk management contracts
Deferred income tax assets:
Decommissioning obligations
Other obligations
Bank financing costs
Non-capital losses and other
Deferred income tax liabilities
2023
15,950
(3,669)
(2,173)
-
48
(376)
2022
857,317
(197,183)
(1,628)
(463)
(1,108)
(104)
(6,170)
(200,486)
2023
2022
436,632
424
2,085
413,127
815
10,867
(21,005)
(22,936)
(3,927)
(550)
(52,374)
361,285
(3,276)
(988)
(42,494)
355,115
2023 ANNUAL REPORT
87
A continuity of the net deferred income tax liabilities is set forth below:
($000s)
PP&E
Deferred financing fees
Risk management contracts
Decommissioning obligations
Other obligations
Bank financing costs
Non-capital losses and other
($000s)
PP&E
Deferred financing fees
Decommissioning obligations
Other obligations
Risk management contracts
Bank financing and share issue costs
Non-capital losses and other
Balance
Jan. 1, 2023
Recognized in
Profit or Loss
Balance
Dec. 31, 2023
413,127
815
10,867
(22,936)
(3,276)
(988)
(42,494)
355,115
23,505
(391)
(8,782)
1,931
(651)
438
(9,880)
6,170
436,632
424
2,085
(21,005)
(3,927)
(550)
(52,374)
361,285
Balance
Jan. 1, 2022
Recognized in
Profit or Loss
Balance
Dec. 31, 2022
381,349
855
(19,273)
(32,496)
(3,550)
(873)
(169,317)
156,695
31,778
(40)
30,140
9,560
274
(115)
126,823
198,420
413,127
815
10,867
(22,936)
(3,276)
(988)
(42,494)
355,115
As at December 31, 2023, the Corporation had approximately $1.3 billion (December 31, 2022 – $1.3 billion) in tax pools
available for deduction against future taxable income. Included in this tax basis are estimated non-capital loss carry forwards
of approximately $191.8 million that expire between 2030 and 2041 and unrecognized temporary differences on marketable
securities of $3.6 million. Discretionary tax deductions, including Canadian Development Expenses, Canadian Oil and Gas
Property Expense and Capital Cost Allowance, were maximized in the respective tax years in order to reduce Birchcliff’s
accounting profits into a loss position for tax purposes.
88
BIRCHCLIFF ENERGY
9. CAPITAL STOCK
Share Capital
Authorized
The authorized share capital of the Corporation consists of an unlimited number of common shares and an unlimited number of
preferred shares, each without par value.
Number of Common Shares Issued and Outstanding
The following table sets forth the number of common shares issued and outstanding:
As at December 31, (000s)
Outstanding at beginning of year
Issuance of common shares(1)
Repurchase of common shares(2)
Outstanding at end of year
2023
2022
266,047
264,790
2,537
(1,428)
267,156
7,597
(6,340)
266,047
(1) Relates to the exercise of stock options and performance warrants during the period. See Note 16.
(2) On November 20, 2023, Birchcliff announced that the TSX had accepted the Corporation’s notice of intention to make a normal course issuer bid (the “2024 NCIB”). Pursuant to the 2024 NCIB,
Birchcliff may purchase up to 13,328,267 of its outstanding common shares over a period of twelve months commencing on November 27, 2023 and terminating no later than November 26, 2024.
Under the NCIB, common shares may be purchased in open market transactions on the TSX and/or alternative Canadian trading systems at the prevailing market price at the time of such transaction.
The total number of common shares that Birchcliff is permitted to purchase on the TSX during a trading day is subject to a daily purchase limit of 275,590 common shares. However, Birchcliff may
make one block purchase per calendar week which exceeds the daily purchase restriction. All common shares purchased under the 2024 NCIB will be cancelled. The 2024 NCIB effectively
renewed the Corporation’s previous normal course issuer bid under which the Corporation was permitted to purchase 13,295,786 common shares over the period from November 25, 2022 to
November 24, 2023 (the “2023 NCIB”). The 2023 NCIB effectively renewed the Corporation’s previous normal course issuer bid under which the Corporation was permitted to purchase up to
13,267,554 common shares over the period from November 25, 2021 to November 24, 2022 (the “2022 NCIB”).
During 2023, the Corporation purchased and cancelled 1,427,868 common shares pursuant to the 2023 NCIB at an average price of $8.02 for an aggregate cost of $11.4 million, before fees.
During 2022, the Corporation purchased and cancelled 6,340,192 common shares pursuant to the 2023 NCIB and 2022 NCIB at an average price of $9.01 for an aggregate cost of $57.1 million,
before fees.
Dividends
The following table sets forth the dividend distributions by the Corporation for each class of shares:
Years ended December 31,
Common Shares:
Dividend distribution ($000s)
Per common share ($)
Series A Preferred Shares(1):
Series A dividend distribution ($000s)
Per Series A Preferred Share ($)
Series C Preferred Shares(1):
Series C dividend distribution ($000s)
Per Series C Preferred Share ($)
2023
2022
213,344
0.80
-
-
-
-
71,788
0.27
3,149
1.57
2,013
1.32
(1) On September 30, 2022, Birchcliff redeemed all outstanding cumulative redeemable preferred shares, Series A (the “Series A Preferred Shares”) and cumulative redeemable preferred shares,
Series C (the “Series C Preferred Shares”).
The dividends have been designated as an eligible dividend for the purposes of the Income Tax Act (Canada).
2023 ANNUAL REPORT
89
10. EARNINGS PER SHARE
The following table sets forth the computation of net income per common share:
Years ended December 31,
Net income to common shareholders ($000s)(1)
Weighted average basic common shares outstanding (000s)
Dilutive securities (000s)
Weighted average diluted common shares outstanding (000s)(2)
Per basic common share
Per diluted common share
2023
9,780
266,465
6,023
272,488
$0.04
$0.04
2022
653,682
265,548
9,671
275,219
$2.46
$2.38
(1) Net income for the year ended December 31, 2022 has been reduced by the dividends on Series A Preferred Shares totalling $3.1 million in determining the net income to common shareholders.
(2) The weighted average diluted common shares outstanding excludes 5,942,934 stock options that were anti-dilutive as at December 31, 2023 (December 31, 2022 – 5,971,300).
11. REVENUE
The following table sets forth Birchcliff’s petroleum and natural gas (“P&NG”) sales and revenue by source:
Years ended December 31, ($000s)
Light oil sales
Condensate(1)
NGLs sales(2)
Natural gas sales
P&NG sales(3)(4)
Royalty income
P&NG revenue
Marketing revenue(5)
Revenue from contracts with customers
2023
66,848
197,032
61,969
414,336
740,185
174
740,359
30,521
2022
97,185
208,828
112,049
922,060
1,340,122
58
1,340,180
18,806
770,880
1,358,986
(1) Consists of pentanes plus.
(2) Consists of ethane, propane and butane.
(3) Excludes the effects of financial instruments but includes the effects of any physical delivery contracts outstanding during the year.
(4) Included in accounts receivable at December 31, 2023 was $62.3 million (December 31, 2022 – $118.0 million) in P&NG sales to be received from its marketers in respect of December 2023
production, which was subsequently received in January 2024.
(5) Marketing revenue primarily represents the sale of commodities purchased from third parties less applicable fees. Birchcliff enters into certain commodity purchase and sales arrangements to
reduce its take-or-pay fractionation fees associated with third-party commitments. The value of commodities purchased and sold during the period is primarily driven by prevailing commodity
prices, the availability of sellers and buyers for fractionated production and fractionation capacity available in the market. The value of commodities purchased and sold to third parties are recorded
on a gross basis for financial statement presentation purposes. Marketing revenue also includes a propane supply arrangement with a third-party polypropylene producer, which is recorded net of
processing costs and other charges. For the year ended December 31, 2023, the Corporation had marketing purchases from third parties of $34.8 million (2022 – $17.9 million).
12. OPERATING EXPENSE
The Corporation’s operating expenses include all costs with respect to day-to-day production operations. The components of
operating expenses are set forth below:
Years ended December 31, ($000s)
Field operating costs
Recoveries
Operating expense
2023
110,116
(4,307)
105,809
2022
106,203
(4,622)
101,581
90
BIRCHCLIFF ENERGY
13. ADMINISTRATIVE EXPENSE
The components of administrative expenses are set forth below:
Years ended December 31, ($000s)
Cash:
Salaries and benefits(1)
Other(2)
General and administrative, gross
Operating overhead recoveries
Capitalized overhead(3)
General and administrative, net
Non-cash:
Other compensation(4)
Capitalized compensation(3)
Other compensation, net
Administrative expense, net
2023
2022
41,297
21,506
62,803
(125)
(20,583)
42,095
26,292
(12,652)
13,640
55,735
38,049
17,831
55,880
(139)
(19,967)
35,774
12,956
(6,500)
6,456
42,230
Includes salaries, benefits and incentives paid to officers and employees of the Corporation and retainer fees, meeting fees and benefits paid to directors of the Corporation.
(1)
(2) Includes costs such as corporate travel, rent, legal fees, tax, insurance, computer hardware and software and other business expenses incurred by the Corporation.
(3) Includes a portion of gross general and administrative expenses and other compensation directly attributable to the exploration and development activities of the Corporation, which have
been capitalized.
(4) Includes stock-based compensation expense of $20.7 million and post-employment benefit expense of $5.6 million in 2023 (2022 - $11.9 million and $1.1 million, respectively). See Notes 14 & 16.
Total compensation expense for the Corporation’s executive officers and directors is comprised of the following:
Years ended December 31, ($000s)
Salaries and benefits(1)
Stock-based compensation(2)
Post-employment benefit(3)
Executive officer’s and director’s compensation
2023
10,216
4,863
5,637
20,716
2022
9,214
3,414
1,091
13,719
Includes salaries, benefits and other incentives paid to officers of the Corporation and directors’ fees and benefits paid to the directors of the Corporation.
(1)
(2) Represents stock-based compensation expense associated with options granted to the executive officers.
(3) Represents past and current service costs associated with post-employment benefits for the Corporation’s executive officers. See Note 14.
2023 ANNUAL REPORT
91
14. OTHER LIABILITIES
Post-Employment Benefit Obligations
The Corporation has established a post-employment benefit plan for eligible executive officers, which provides for post-employment
benefits based upon the age at retirement and their period of service with Birchcliff (the “Retirement Plan”). The Retirement Plan is
not funded and as such no plan assets exist. The post-employment benefit obligations arising from the Retirement Plan is determined
by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that have terms to maturity
approximating the terms of the related liability. The expenses associated with the Retirement Plan are comprised of current and past
service costs and the interest (accretion) on the unwinding of the present value of the post-employment benefit obligations.
The Corporation estimates the total undiscounted (inflated) amount of cash flow required to settle its obligations for all
participants meeting the eligibility requirements under the post-employment benefit plan was approximately $23.2 million
at December 31, 2023 (December 31, 2022 – $15.3 million).
A reconciliation of the discounted post-employment benefit obligations is set forth below:
As at December 31, ($000s)
Balance, beginning
Obligations incurred(1)(2)
Accretion
Loss on settlement(2)
Retirement benefit payments
Balance, ending(3)
Current portion(4)
Long-term portion
2023
11,170
5,637
171
1,487
(2,000)
16,465
13,851
2,614
2022
9,895
1,091
184
-
-
11,170
-
11,170
(1) Represents the past and current service costs associated with post-employment benefits.
(2) On October 4, 2023, Birchcliff announced the retirement of three executive officers effective December 31, 2023 (collectively, the “Retiring Officers”). As a result of these retirements, Birchcliff
incurred a past service cost of $5.1 million and a loss on settlement of the post-employment benefit obligation of approximately $1.5 million in 2023.
(3) Birchcliff applied a discount rate of 2.8% and an inflation rate of 3.0% to calculate the present value of the post-employment benefit obligations at December 31, 2023 and December 31, 2022.
(4) Reflects the remaining retirement benefit payments owing to the Retiring Officers at December 31, 2023, which was subsequently paid in January 2024.
Lease Obligations
The Corporation’s total undiscounted (inflated) amount of cash flow required to settle its lease obligations was approximately
$13.9 million at December 31, 2023 (December 31, 2022 – $15.3 million) and is expected to be settled no later than 2029.
A reconciliation of the discounted lease obligations is set forth below:
As at December 31, ($000s)
Balance, beginning
Lease payments
Change in estimate
Accretion
Balance, ending(1)
Current portion
Long-term portion
2023
13,594
(2,458)
951
528
12,615
2,507
10,108
2022
15,434
(2,458)
-
618
13,594
1,914
11,680
(1) Birchcliff applied a discount rate of 4.7% to calculate the present value of the lease obligations at December 31, 2023 and December 31, 2022.
92
BIRCHCLIFF ENERGY
15. FINANCE EXPENSE
The components of finance expenses are set forth below:
Years ended December 31, ($000s)
Cash:
Interest on Credit Facilities
Non-cash:
Accretion(1)
Amortization of deferred financing fees
Finance expense
(1) Includes accretion on decommissioning obligations, post-employment benefit obligations and lease obligations.
16. SHARE-BASED PAYMENT
Stock Options
2023
2022
20,312
13,738
4,399
1,700
26,411
4,050
1,451
19,239
At December 31, 2023, the Corporation’s stock option plan (the “Option Plan”) permitted the grant of options in respect
of a maximum of 26,715,568 (December 31, 2022 – 26,604,681) common shares. At December 31, 2023, there remained
3,935,618 (December 31, 2022 – 6,281,897) stock options available for issuance. For the stock options exercised during 2023,
the weighted average common share trading price on the TSX was $7.83 (2022 – $9.24) per common share.
A summary of the outstanding stock options is set forth below:
Years ended December 31,
Outstanding, beginning
Granted(2)
Exercised
Forfeited
Expired
2023
2022
Number
Price ($)(1)
Number
Price ($)(1)
20,322,784
5,236,200
(2,536,733)
(231,968)
(10,333)
5.53
6.16
(2.82)
(8.09)
(11.41)
23,116,919
5,995,300
(6,786,665)
(359,670)
(1,643,100)
3.96
9.34
(3.03)
(4.50)
(7.84)
5.53
Outstanding, ending
22,779,950
5.95
20,322,784
(1) Calculated on a weighted average basis.
(2) Each stock option granted entitles the holder to purchase one common share at the exercise price.
The weighted average fair value per option granted during 2023 was $1.10 (2022 – $4.42). In determining the stock-based
compensation expense for options granted during 2023, the Corporation applied a weighted average estimated forfeiture rate
of 7.0% (2022 – 7.5%).
The weighted average assumptions used in calculating the Black-Scholes fair values are set forth below:
Years ended December 31,
Risk-free interest rate
Expected life (years)
Expected volatility
Dividend yield
2023
3.7%
4.0
54.9%
13.4%
2022
3.1%
4.0
62.5%
0.8%
2023 ANNUAL REPORT
93
A summary of the stock options outstanding and exercisable under the Option Plan at December 31, 2023 is set forth below:
Grant Price ($)
Awards Outstanding
Awards Exercisable
Low
0.78
3.01
6.01
9.01
High
3.00
6.00
9.00
11.65
Quantity
5,303,155
1,316,961
10,491,734
5,668,100
22,779,950
Weighted
Average
Remaining
Contractual
Life (years)
Weighted
Average
Exercise
Price ($)
1.51
0.38
3.94
3.94
3.17
2.03
3.62
6.37
9.37
5.95
Weighted
Average
Remaining
Contractual
Life (years)
Weighted
Average
Exercise
Price ($)
1.51
0.28
2.95
3.94
2.19
2.02
3.59
6.56
9.36
4.70
Quantity
5,299,488
1,256,792
3,435,874
1,956,155
11,948,309
Performance Warrants
On January 18, 2005, Birchcliff issued 4,049,665 performance warrants as part of its initial restructuring to become a
public entity. Each performance warrant is exercisable at a price of $3.00 to purchase one common share of Birchcliff. As at
December 31, 2023, there remained 404,967 performance warrants (December 31, 2022 – 404,967) outstanding with an
expiry date of January 31, 2025.
17. CAPITAL MANAGEMENT
The Corporation’s general policy is to maintain a sufficient capital base to manage its business in the most effective manner
with the goal of increasing the value of its assets and thus its underlying share value. The Corporation’s objectives when managing
capital are to maintain financial flexibility to preserve its ability to meet financial obligations, to maintain a capital structure that
allows Birchcliff to finance its business strategy using primarily internally-generated cash flow and its available Credit Facilities and
to optimize the use of its capital to provide an appropriate investment return to its shareholders. There were no changes in the
Corporation’s approach to capital management during the year ended December 31, 2023.
The following table sets forth the Corporation’s total available credit:
As at December 31, ($000s)
Maximum borrowing base limit(1):
Revolving term credit facilities
Principal amount utilized:
Revolving term credit facilities
Unamortized deferred financing fees
Outstanding letters of credit
Unused credit
2023
2022
850,000
850,000
(372,097)
(131,981)
(1,842)
(185)
(3,541)
(185)
(374,124)
(135,707)
475,876
714,293
(1) The Credit Facilities are subject to a semi-annual review of the borrowing base limit, which is directly impacted by the value of Birchcliff’s oil and gas reserves.
94
BIRCHCLIFF ENERGY
The capital structure of the Corporation is as follows:
As at December 31, ($000s)
Total shareholders’ equity
Total shareholders’ equity as a % of total capital
Revolving term credit facilities
Working capital deficit (surplus)(1)
Fair value of financial instruments - asset(2)
Fair value of financial instruments - liability(2)
Lease obligations(2)
Adjusted working capital deficit(3)
Total debt
Total debt as a % of total capital
Total capital
2023
2022
% Change
2,225,445
2,412,653
(8)
85%
95%
372,097
10,522
3,588
(1,394)
(2,507)
10,209
131,981
(7,902)
17,729
(1,345)
(1,914)
6,568
382,306
138,549
15%
5%
2,607,751
2,551,202
176
2
(1) Current liabilities less current assets.
(2) Reflects the current portion only.
(3) Represents items related to the day-to-day operations of Birchcliff and excludes the current portion of financial instruments and lease obligations where the benefit or obligation has not been
realized by the Corporation.
18. RISK MANAGEMENT
Birchcliff is exposed to credit risk, liquidity risk and market risk as part of its normal course of business. The Board has overall
responsibility for the establishment and oversight of the Corporation’s financial risk management framework and periodically
reviews the results of all risk management activities and all outstanding positions.
Credit Risk
Credit risk is the risk of financial loss to the Corporation if a customer or counterparty to a financial asset fails to meet its contractual
obligation, and arises principally from Birchcliff’s receivables from its oil and natural gas marketers. Cash is comprised of bank
balances. Historically, the Corporation has not carried short-term investments. Should this change in the future, counterparties will be
selected based on credit ratings, management will monitor all investments to ensure a stable return and complex investment vehicles
with higher risk will be avoided. The Corporation’s exposure to cash credit risk at the statement of financial position date is low.
The carrying amount of accounts receivable reflects management’s assessment of the credit risk associated with these customers.
The following table illustrates the Corporation’s maximum exposure for accounts receivable:
As at December 31, ($000s)
Marketers(1)
Jointly owned assets
Other
Accounts receivable
2023
62,251
11,576
1,278
75,105
2022
117,996
5,440
1,569
125,005
(1) At December 31, 2023, approximately 13% was due from one marketer (December 31, 2022 – 14%, one marketer). During 2023, the Corporation received 18%, 13% and 11% of its revenue,
respectively, from three marketers (2022 – 21%, 11% and 10% of its revenue, respectively, from three marketers).
Typically, Birchcliff’s maximum credit exposure from its marketers is revenue from its commodity sales. Receivables from marketers
are normally collected on the 25th day of the month following production. Birchcliff mitigates the credit risk associated with these
receivables by establishing marketing relationships with credit worthy purchasers, obtaining guarantees from their ultimate parent
companies and obtaining letters of credit, if and when appropriate. The Corporation historically has not experienced any material
collection issues with its marketers.
2023 ANNUAL REPORT
95
Birchcliff’s accounts receivables are aged as follows:
As at December 31, ($000s)
Current (less than 30 days)
30 to 60 days
61 to 90 days
Over 90 days
Accounts receivable
2023
71,092
1,778
1,304
931
2022
118,040
2,553
3,587
825
75,105
125,005
At December 31, 2023, approximately $0.9 million or 1.2% (December 31, 2022 – $0.8 million or 0.7%) of Birchcliff’s total accounts
receivable are aged over 90 days. The majority of these accounts are due from various partners of jointly owned assets. Birchcliff
attempts to mitigate the credit risk of receivables from jointly owned assets by obtaining pre-approval of significant capital
expenditures. However, the receivables are from participants in the oil and natural gas sector, and collection of the outstanding
balances is dependent on industry factors such as commodity price fluctuations, escalating costs and the risk of unsuccessful
drilling. In addition, further risk exists with partners of jointly owned assets as disagreements occasionally arise that increases the
potential for non-collection. The Corporation does not typically obtain collateral from partners of jointly owned assets; however,
the Corporation does have the ability to withhold production or proceeds from the eventual sale of jointly owned assets in the
event of non-payment. Birchcliff determined that the ultimate collection of accounts receivable were not in doubt and therefore
no allowance to profit or loss was recorded in 2023 and 2022.
Liquidity Risk
Liquidity risk is the risk that the Corporation will not be able to meet its obligations associated with financial liabilities that are settled
by cash as they become due. Birchcliff’s approach to managing liquidity is to ensure, as much as possible, that it will have sufficient
liquidity to meet its short-term and long-term financial obligations when due, under both normal and unusual conditions without
incurring unacceptable losses or risking harm to the Corporation’s reputation. Birchcliff actively manages its liquidity using cash and
debt management programs. Strategies include monitoring forecast and actual cash flows from operating, financing, and investing
activities and managing available credit and working capital under its Credit Facilities.
All of the Corporation’s contractual financial liabilities can be settled in cash. Typically, the Corporation ensures that it has sufficient
cash on demand to meet expected operational expenses, including the servicing of financial obligations. To achieve this objective,
the Corporation prepares annual capital expenditure budgets, which are approved by the Board and are regularly reviewed
and updated as considered necessary. P&NG production is monitored daily and is used to provide monthly cash flow estimates.
Further, the Corporation utilizes authorizations for expenditures on both operated and non-operated projects to manage capital
expenditure. The Corporation also attempts to match its payment cycle with collection of P&NG revenue on the 25th of each
month. Should commodity prices deteriorate materially, Birchcliff may adjust its capital spending accordingly to ensure that it is
able to service its short-term financial obligations.
To facilitate the capital expenditure program, the Corporation has an aggregate $850.0 million reserve-based bank credit facilities
at the end of 2023 which are reviewed semi-annually by its lenders. The principal amount drawn under the Corporation’s total
credit facilities including letters of credit at December 31, 2023 was $374.1 million (December 31, 2022 – $135.7 million) and
$475.9 million in unused credit was available at the end of 2023 (2022 – $714.3 million) to fund future obligations.
The following table details the undiscounted cash flows of the Corporation’s significant contractual financial liabilities at
December 31, 2023 in the period they are due:
($000s)
Accounts payable and accrued liabilities
Drawn revolving term credit facilities
Lease payments
Financial liabilities
Market Risk
2024
94,822
-
3,111
97,933
2025
-
373,939
3,414
377,353
2026-2028
Thereafter
-
-
7,302
7,302
-
-
120
120
Market risk is the risk that changes in market conditions, such as commodity prices, exchange rates and interest rates, will affect
the Corporation’s net income or the value of its financial instruments, if any. The objective of market risk management is to manage
and control exposures within acceptable limits, while maximizing returns. These risks are consistent with prior years. All risk
management transactions are conducted within risk management tolerances that are reviewed by the Board.
96
BIRCHCLIFF ENERGY
Commodity Price Risk
Commodity price risk is the risk that the fair value of future cash flows will fluctuate as a result of changes in commodity prices.
Significant changes in commodity prices can materially impact the Corporation’s financial performance operating results and
financial position. Commodity prices are not only influenced by Canadian (“CDN”) and the United States (“US”) supply and
demand, but also by world events that dictate the levels of supply and demand globally.
At December 31, 2023, Birchcliff had the following financial derivative contracts in place to manage commodity price risk:
Product
Type of Contract
Notional
Quantity
Remaining Term(1)
Contract Price
Natural gas
AECO 7A basis swap(2)
15,000 MMBtu/d
Jan. 1, 2024 – Dec. 31, 2024
NYMEX HH less US$1.185/MMBtu
Natural gas
AECO 7A basis swap(2)
5,000 MMBtu/d
Jan. 1, 2024 – Dec. 31, 2024
NYMEX HH less US$1.200/MMBtu
Natural gas
AECO 7A basis swap(2)
5,000 MMBtu/d
Jan. 1, 2024 – Dec. 31, 2024
NYMEX HH less US$1.200/MMBtu
Natural gas
AECO 7A basis swap(2)
12,500 MMBtu/d
Jan. 1, 2024 – Dec. 31, 2025
NYMEX HH less US$1.108/MMBtu
Natural gas
AECO 7A basis swap(2)
10,000 MMBtu/d
Jan. 1, 2024 – Dec. 31, 2025
NYMEX HH less US$1.115/MMBtu
Natural gas
AECO 7A basis swap(2)
10,000 MMBtu/d
Jan. 1, 2024 – Dec. 31, 2025
NYMEX HH less US$1.050/MMBtu
Natural gas
AECO 7A basis swap(2)
5,000 MMBtu/d
Jan. 1, 2024 – Dec. 31, 2025
NYMEX HH less US$1.178/MMBtu
Natural gas
AECO 7A basis swap(2)
10,000 MMBtu/d
Jan. 1, 2024 – Dec. 31, 2025
NYMEX HH less US$1.175/MMBtu
Natural gas
AECO 7A basis swap(2)
5,000 MMBtu/d
Jan. 1, 2024 – Dec. 31, 2025
NYMEX HH less US$1.190/MMBtu
Natural gas
AECO 7A basis swap(2)
30,000 MMBtu/d
Jan. 1, 2024 – Dec. 31, 2025
NYMEX HH less US$1.114/MMBtu
Natural gas
AECO 7A basis swap(2)
35,000 MMBtu/d
Jan. 1, 2024 – Dec. 31, 2025
NYMEX HH less US$1.081/MMBtu
Natural gas
AECO 7A basis swap(2)
5,000 MMBtu/d
Jan. 1, 2024 – Dec. 31, 2025
NYMEX HH less US$1.013/MMBtu
Natural gas
AECO 7A basis swap(2)
20,000 MMBtu/d
Jan. 1, 2025 – Dec. 31, 2025 NYMEX HH less US$1.005/MMBtu
Natural gas
AECO 7A basis swap(2)
5,000 MMBtu/d
Jan. 1, 2025 – Dec. 31, 2025 NYMEX HH less US$0.990/MMBtu
Natural gas
AECO 7A basis swap(2)
10,000 MMBtu/d
Jan. 1, 2026 – Dec. 31, 2026 NYMEX HH less US$0.895/MMBtu
Natural gas
AECO 7A basis swap(2)
40,000 MMBtu/d
Jan. 1, 2026 – Dec. 31, 2026 NYMEX HH less US$0.979/MMBtu
Natural gas
AECO 7A basis swap(2)
20,000 MMBtu/d
Jan. 1, 2026 – Dec. 31, 2026 NYMEX HH less US$0.960/MMBtu
Natural gas
AECO 7A basis swap(2)
25,000 MMBtu/d
Jan. 1, 2027 – Dec. 31, 2027 NYMEX HH less US$0.788/MMBtu
Fair value
Asset
(Liability)
($000s)
(406)
(148)
(162)
127
2
(39)
(258)
(517)
(346)
30
1,237
481
846
249
716
1,429
846
3,178
7,265
(1) Transactions with common terms and the same counterparty have been aggregated and presented at the weighted average price.
(2) Birchcliff sold AECO basis swap.
At December 31, 2023, if the future NYMEX HH/AECO 7A basis changed by US$0.10/MMBtu, with all other variables held
constant, after-tax net income in 2023 would have changed by approximately $13.7 million.
There were no financial derivative contracts entered into subsequent to December 31, 2023 to manage commodity price risk.
Interest Rate Risk
Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Corporation’s Credit
Facilities are exposed to interest rate risk. The remainder of Birchcliff’s financial assets and liabilities are not directly exposed to
interest rate risk.
At December 31, 2023, Birchcliff had the following financial derivative contracts in place to manage interest rate risk:
Type of Contract
Index
Remaining Term(1)
Notional
Amount
($million)
Fixed Rate
(%)
Fair Value
Asset
($000s)
Interest rate swap One-month banker’s acceptance – CDOR(2)
Jan. 1, 2024 – Feb. 29, 2024
350
2.215
1,799
(1) All transactions have been aggregated and presented at the weighted average fixed rate.
(2) Canadian Dollar Offered Rate (“CDOR”).
There were no financial derivative contracts entered into subsequent to December 31, 2023 to manage interest rate risk.
2023 ANNUAL REPORT
97
Foreign Currency Risk
Foreign currency risk is the risk that future cash flows will fluctuate as a result of changes in foreign currency exchange rates. The
exchange rate effect cannot be quantified but generally an increase in the value of the CDN dollar as compared to the US dollar will
reduce the CDN dollar prices received by Birchcliff for its P&NG sales. The Corporation had no long-term forward exchange rate
contracts in place as at or during the period ended December 31, 2023.
Realized and Unrealized Gains and Losses on Financial Instruments
The following table provides a summary of the realized and unrealized gains and losses on financial instruments:
Years ended December 31, ($000s)
Realized gain (loss)
Unrealized gain (loss)
2023
(37,285)
(38,185)
2022
80,742
131,042
The fair value net asset position of the Corporation’s financial instruments at December 31, 2023 was $9.1 million as compared to a
fair value net asset position of $47.2 million at December 31, 2022.
Fair Value of Financial Instruments
Birchcliff’s financial instruments include cash, accounts receivable, deposits, investments, accounts payable and accrued liabilities,
financial derivative contracts and outstanding revolving term credit facilities. Substantially all of Birchcliff’s financial instruments
are transacted in active markets. Financial instruments carried at fair value are assessed using the following hierarchy based on the
amount of observable inputs used to value the instrument:
Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are
those in which transactions occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1. Prices in Level 2 are either directly
or indirectly observable as of the reporting date. Level 2 valuations are based on inputs, including quoted forward prices for
commodities, time value and volatility factors, which can be substantially observed or corroborated in the marketplace.
Level 3 – Valuations in this level are those with inputs for the asset or liability that are not based on observable market data.
Assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement
within the fair value hierarchy level.
The carrying value and fair value of the Corporation’s financial assets and liabilities at December 31, 2023 are set forth below:
($000s)
Loans and receivables:
Cash
Accounts receivable
Deposits
Investments(1)
Financial derivatives(2)
Other liabilities:
Accounts payable and accrued liabilities
Drawn revolving term credit facilities
Investments are fair valued based on level 3.
(1)
(2) Financial derivative contracts are fair valued based on level 2.
Carrying Value
Fair Value
55
75,105
17,354
10,567
9,064
55
75,105
17,354
10,567
9,064
94,822
373,939
94,822
373,939
98
BIRCHCLIFF ENERGY
19. COMMITMENTS AND CONTINGENCIES
The Corporation enters into contracts and commitments in the normal course of operations. The following table lists Birchcliff’s
commitments at December 31, 2023:
($000s)
Operating commitments(1)
Capital commitments(2)
Firm transportation and fractionation(3)
Natural gas processing(4)
Commitments
2024
2,078
9,024
167,720
19,380
198,202
2025
2,078
5,518
167,175
19,327
194,098
2026 - 2028
Thereafter
4,329
5,400
348,972
53,500
412,201
-
-
140,888
68,667
209,555
(1) Includes variable operating components associated with Birchcliff’s head office premises.
(2) Includes drilling commitments.
(3) Includes firm transportation service arrangements and fractionation commitments with third parties.
(4) Includes natural gas processing commitments at third-party facilities.
The Corporation may be involved in litigation and disputes arising in the normal course of operations. Management is of the
opinion that any potential litigation will not have a material adverse impact on the Corporation’s financial position or results of
operations at December 31, 2023.
20.SUPPLEMENTARY CASH FLOW INFORMATION
Years ended December 31, ($000s)
Provided by (used in):
Accounts receivable
Prepaid expenses and deposits
Accounts payable and accrued liabilities
Dividend tax
Provided by (used in):
Operating
Investing
2023
2022
49,900
(11,164)
(48,965)
-
(10,229)
(32,591)
(6,408)
47,051
(2,067)
5,985
19,477
(25,662)
(29,706)
(10,229)
31,647
5,985
2023 ANNUAL REPORT
99
Abbreviations
bbl
bbls/d
Bcf/d
boe
boe/d
barrel
barrels per day
billion cubic feet per day
barrel of oil equivalent
barrel of oil equivalent per day
condensate
pentanes plus (C5+)
F&D
G&A
GAAP
LNG
Mcf
Mcf/d
MMBoe
NGLs
OPEC
PDP
TSX
000s
$000s
finding and development
general and administrative
generally accepted accounting principles for Canadian public companies, which are currently
IFRS Accounting Standards
liquefied natural gas
thousand cubic feet
thousand cubic feet per day
million barrels of oil equivalent
natural gas liquids consisting of ethane (C2), propane (C3) and butane (C4) and specifically excluding condensate
Organization of the Petroleum Exporting Countries
proved developed producing
Toronto Stock Exchange
thousands
thousands of dollars
100
BIRCHCLIFF ENERGY
Non-GAAP and Other Financial Measures
This report uses various “non-GAAP financial measures”, “non-GAAP ratios” and “capital management measures” (as such terms are
defined in NI 52-112), which are described in further detail below and under the heading “Non-GAAP and Other Financial Measures”
in the Corporation’s Management’s Discussion and Analysis for the year ended December 31, 2023 (“MD&A”) contained in this report.
NON-GAAP FINANCIAL MEASURES
The non-GAAP financial measures used in this report are “adjusted funds flow”, “free funds flow”, “transportation and other expense”,
“operating netback” and “total capital expenditures”. Additional information, including a description of these non-GAAP financial
measures and reconciliations to the most directly comparable GAAP financial measures, is included in the MD&A under the heading
“Non-GAAP and Other Financial Measures”.
NON-GAAP RATIOS
The non-GAAP ratios used in this report are “adjusted funds flow per boe”, “adjusted funds flow per basic common share”, “free funds
flow per basic common share”, “transportation and other expense per boe” and “operating netback per boe”. Additional information,
including a description of these non-GAAP ratios, is included in the MD&A under the heading “Non-GAAP and Other Financial Measures”.
PDP F&D Operating Netback Recycle Ratio
In addition, this report uses the non-GAAP ratio “PDP F&D operating netback recycle ratio”. Birchcliff calculates PDP F&D operating
netback recycle ratio as operating netback per boe in the period divided by F&D costs for its PDP reserves in the period. Management
believes that PDP F&D operating netback recycle ratio assists management and investors in assessing Birchcliff’s ability to profitably find
and develop its PDP reserves.
CAPITAL MANAGEMENT MEASURES
This report uses the capital management measure “total debt”. Additional information, including a description of total debt and
a reconciliation to the most directly comparable GAAP financial measure, is included in the MD&A under the heading “Non-GAAP
and Other Financial Measures”.
Presentation of Oil and Gas Reserves
The information contained in this report relating to reserves is based upon the evaluation prepared by Deloitte LLP (“Deloitte”),
independent qualified reserves evaluators, with an effective date of December 31, 2023 as contained in the report of Deloitte
dated February 14, 2024 (the “Deloitte Report”). The Deloitte Report was prepared in accordance with the standards contained in
National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101”) and the Canadian Oil and Gas Evaluation
Handbook.
In this report, all references to “reserves” are to Birchcliff’s gross company reserves (Birchcliff’s working interest (operating or non-
operating) share before deduction of royalties and without including any royalty interests of Birchcliff). There are numerous uncertainties
inherent in estimating quantities of reserves and the future net revenue attributed to such reserves. See “Risk Factors – Uncertainty of
Reserves Estimates” in the MD&A.
2023 ANNUAL REPORT
101
Advisories
CURRENCY
Unless otherwise indicated, all dollar amounts are expressed in Canadian dollars, all references to “$” and “CDN$” are to
Canadian dollars and all references to “US$” are to United States dollars.
BOE CONVERSIONS
Boe amounts have been calculated by using the conversion ratio of 6 Mcf of natural gas to 1 bbl of oil. Boe amounts may be misleading,
particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl is based on an energy equivalency conversion method primarily
applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current
price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a
6:1 basis may be misleading as an indication of value.
OIL AND GAS METRICS
This report contains metrics commonly used in the oil and natural gas industry, including F&D reserves replacement, reserves life index,
operating netback and operating netback recycle ratio, which have been determined by Birchcliff as set out below. These oil and gas
metrics do not have any standardized meanings or standard methods of calculation and therefore may not be comparable to similar
measures presented by other companies. As such, they should not be used to make comparisons. Management uses these oil and
gas metrics for its own performance measurements and to provide investors with measures to compare Birchcliff’s performance over
time; however, such measures are not reliable indicators of Birchcliff’s future performance, which may not compare to Birchcliff’s
performance in previous periods, and therefore should not be unduly relied upon.
·
·
·
Reserves replacement on an F&D basis is calculated by dividing proved or proved plus probable reserves additions, as the
case may be, before production, by the total annual production in the applicable period. Reserves replacement may be used
as a measure of the Corporation’s sustainability and its ability to replace its proved or proved plus probable reserves, as the
case may be.
Reserves life index is calculated by dividing PDP, proved or proved plus probable reserves, as the case may be, estimated
by Birchcliff’s independent qualified reserves evaluator at December 31, 2023, by 75,500 boe/d (which represents the
mid-point of Birchcliff’s annual average production guidance range for 2024). Reserves life index may be used as a measure
of the Corporation’s sustainability.
For information regarding operating netback and operating netback recycle ratio, and how such metrics are calculated,
see “Non-GAAP and Other Financial Measures” in this report and in the MD&A.
PRODUCTION
With respect to the disclosure of Birchcliff’s production contained in this report: (i) references to “light oil” mean “light crude oil and
medium crude oil” as such term is defined in NI 51-101; (ii) references to “liquids” mean “light crude oil and medium crude oil” and
“natural gas liquids” (including condensate) as such terms are defined in NI 51-101; and (iii) references to “natural gas” mean “shale gas”,
which also includes an immaterial amount of “conventional natural gas”, as such terms are defined in NI 51-101. In addition, NI 51-101
includes condensate within the product type of natural gas liquids. In certain cases, Birchcliff has disclosed condensate separately from
other natural gas liquids as the price of condensate as compared to other natural gas liquids is currently significantly higher and Birchcliff
believes presenting the two commodities separately provides a more accurate description of its operations and results therefrom.
F&D CAPITAL EXPENDITURES
Unless otherwise stated, references in this report to “F&D capital expenditures” denotes exploration and development expenditures
as disclosed in the Corporation’s financial statements in accordance with GAAP, and is primarily comprised of capital for land,
seismic, workovers, drilling and completions, well equipment and facilities and capitalized G&A costs and excludes any acquisitions,
dispositions, administrative assets and the capitalized portion of cash incentive payments that have not been approved by the Board
of Directors. Management believes that F&D capital expenditures assists management and investors in assessing Birchcliff’s capital
cost outlay associated with its exploration and development activities for the purposes of finding and developing its reserves.
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BIRCHCLIFF ENERGY
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report constitute forward-looking statements and forward-looking information (collectively
referred to as “forward-looking statements”) within the meaning of applicable Canadian securities laws. The forward-looking
statements contained in this report relate to future events or Birchcliff’s future plans, strategy, operations, performance or financial
position and are based on Birchcliff’s current expectations, estimates, projections, beliefs and assumptions. Such forward-looking
statements have been made by Birchcliff in light of the information available to it at the time the statements were made and reflect
its experience and perception of historical trends. All statements and information other than historical fact may be forward-looking
statements. Such forward-looking statements are often, but not always, identified by the use of words such as “plan”, “focus”, “future”,
“outlook”, “expect”, “anticipate”, “estimate”, “forecast”, “guidance”, “budget”, “continue”, “targeting”, “may”, “will”, “could” and
other similar words and expressions.
By their nature, forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual
results or events to differ materially from those anticipated in such forward-looking statements. Accordingly, readers are cautioned not
to place undue reliance on such forward-looking statements. Although Birchcliff believes that the expectations reflected in the forward-
looking statements are reasonable, there can be no assurance that such expectations will prove to be correct and Birchcliff makes no
representation that actual results achieved will be the same in whole or in part as those set out in the forward-looking statements.
In particular, this report contains forward-looking statements relating to:
· Birchcliff’s plans and other aspects of its anticipated future financial performance, results, operations, focus, objectives, strategies,
opportunities, priorities and goals, including: that Birchcliff remains well positioned to support Canada’s role as a leading supplier
of responsible and affordable energy to the world; that the Corporation is committed to the safe and responsible production
and delivery of clean, reliable natural gas and liquids; the Corporation’s commitment to reducing the environmental impact of its
operations and that it takes proactive steps to eliminate or reduce its environmental impact; statements regarding implementing
new technology, systems and processes that will help improve efficiency, reduce Birchcliff’s environmental footprint and create a
safer work environment; statements regarding the Corporation’s long-term sustainability and the protection of its balance sheet;
that the Corporation projects the current period of low natural gas prices to continue during 2024; and that the Corporation
remains bullish on the long-term outlook for natural gas as LNG export capacity increases in North America;
·
·
·
·
·
·
·
statements regarding Elmworth, including: that Birchcliff’s Elmworth asset provides it with significant inventory and a large
potential future development area; that Birchcliff’s significant, largely undeveloped land base in Elmworth positions it to continue
to drive long-term shareholder value, providing the Corporation with a large potential future development area which can be
responsibly developed over time, leveraging the extensive knowledge that it has gained in developing its Pouce Coupe and
Gordondale assets; and that Elmworth provides Birchcliff with optionality for future growth in the area;
statements regarding Birchcliff’s five-year outlook for 2024 to 2028, including: that the five-year outlook continues to be focused
on maintaining the Corporation’s strong balance sheet, free funds flow generation and delivering returns to shareholders, while
targeting disciplined production growth to fully utilize its available existing processing and transportation capacity; that the
Corporation is targeting disciplined production growth of 16% over the five-year period, with 2028 annual average production
of approximately 87,500 boe/d; and that 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 online in North America;
statements regarding the Ksi Lisims LNG export project, including its capacity and that the project will be net zero emissions;
statements regarding Birchcliff’s annual base dividend amount for 2024;
statements regarding Birchcliff’s 2024 capital program and exploration and development activities, including: that the
2024 capital program utilizes Birchcliff’s latest wellbore and completions design and targets high rate-of-return wells with strong
capital efficiencies and attractive paybacks; that the 2024 capital budget reflects the Corporation’s commitment to maintaining a
strong balance sheet while focusing on sustainable shareholder returns and the continued development of its world-class asset
base; that the Corporation is closely monitoring commodity prices and has the flexibility to adjust its 2024 capital program if
necessary to achieve these priorities; and that the Corporation’s significant ownership and operatorship of its assets gives it a
strong competitive advantage, providing it with the flexibility to actively manage its capital program in response to changing
economic conditions;
the performance and other characteristics of Birchcliff’s oil and natural gas properties and expected results from its assets,
including statements regarding the potential or prospectivity of Birchcliff’s properties; and
that multi-well pad drilling allows Birchcliff to reduce its environmental footprint and helps it to keep its per well costs low.
2023 ANNUAL REPORT
103
In addition, forward-looking statements in this report include the forward-looking statements identified in the MD&A under the heading
“Advisories – Forward-Looking Statements”.
Statements relating to reserves are forward-looking statements as they involve the implied assessment, based on certain estimates and
assumptions, that the reserves exist in the quantities predicted or estimated and that the reserves can be profitably produced in the
future. See “Presentation of Oil and Gas Reserves”.
With respect to the forward-looking statements contained in this report, assumptions have been made regarding, among other things:
prevailing and future commodity prices and differentials, exchange rates, interest rates, inflation rates, royalty rates and tax rates;
the state of the economy, financial markets and the exploration, development and production business; the political environment
in which Birchcliff operates; the regulatory framework regarding royalties, taxes, environmental, climate change and other laws; the
Corporation’s ability to comply with existing and future laws; future cash flow, debt and dividend levels; future operating, transportation,
G&A and other expenses; Birchcliff’s ability to access capital and obtain financing on acceptable terms; the timing and amount of capital
expenditures and the sources of funding for capital expenditures and other activities; the sufficiency of budgeted capital expenditures
to carry out planned operations; the successful and timely implementation of capital projects and the timing, location and extent of
future drilling and other operations; results of operations; Birchcliff’s ability to continue to develop its assets and obtain the anticipated
benefits therefrom; the performance of existing and future wells; the impact of competition on Birchcliff; the availability of, demand
for and cost of labour, services and materials; the ability to obtain any necessary regulatory or other approvals in a timely manner; the
satisfaction by third parties of their obligations to Birchcliff; the ability of Birchcliff to secure adequate processing and transportation
for its products; Birchcliff’s ability to successfully market natural gas and liquids; the results of the Corporation’s risk management and
market diversification activities; and Birchcliff’s natural gas market exposure.
In addition to the foregoing assumptions, Birchcliff has made the following assumptions with respect to certain forward-looking
statements contained in this report:
· Birchcliff’s estimates of its production in 2024 and 2028 and the production growth in its five-year outlook assume that: the
Corporation’s capital programs will be carried out as currently contemplated; no unexpected outages occur in the infrastructure
that Birchcliff relies on to produce its wells and that any transportation service curtailments or unplanned outages that occur will
be short in duration or otherwise insignificant; the construction of new infrastructure meets timing and operational expectations;
existing wells continue to meet production expectations; and future wells scheduled to come on production meet timing,
production and capital expenditure expectations.
· With respect to statements regarding future wells to be drilled and brought on production, such statements assume: the
continuing validity of the geological and other technical interpretations performed by Birchcliff’s technical staff, which indicate
that commercially economic volumes can be recovered from Birchcliff’s lands as a result of drilling future wells; and that
commodity prices and general economic conditions will warrant proceeding with the drilling of such wells.
· With respect to estimates of reserves, the key assumption is the validity of the data used by Deloitte in its independent
reserves evaluation.
Birchcliff’s actual results, performance or achievements could differ materially from those anticipated in the forward-looking statements
as a result of both known and unknown risks and uncertainties including, but not limited to: the risks posed by pandemics (including
COVID-19), epidemics and global conflict (including the Russian invasion of Ukraine and the Israel-Hamas conflict) and their impacts
on supply and demand and commodity prices; actions taken by OPEC and other major producers of crude oil and the impact such
actions may have on supply and demand and commodity prices; the uncertainty of estimates and projections relating to production,
revenue, costs, expenses and reserves; the risk that any of the Corporation’s material assumptions prove to be materially inaccurate
(including the Corporation’s commodity price assumptions for 2024 to 2028); general economic, market and business conditions
which will, among other things, impact the demand for and market prices of Birchcliff’s products and Birchcliff’s access to capital;
volatility of crude oil and natural gas prices; risks associated with increasing costs, whether due to high inflation rates, supply chain
disruptions or other factors; fluctuations in exchange and interest rates; stock market volatility; loss of market demand; an inability to
access sufficient capital from internal and external sources on terms acceptable to the Corporation; risks associated with Birchcliff’s
credit facilities, including a failure to comply with covenants under the agreement governing Birchcliff’s credit facilities and the risk
that the borrowing base limit may be redetermined; fluctuations in the costs of borrowing; operational risks and liabilities inherent in
oil and natural gas operations; the occurrence of unexpected events such as fires, severe weather, explosions, blow-outs, equipment
failures, transportation incidents and other similar events; an inability to access sufficient water or other fluids needed for operations;
uncertainty that development activities in connection with Birchcliff’s assets will be economic; an inability to access or implement some
or all of the technology necessary to operate its assets and achieve expected future results; the accuracy of estimates of reserves, future
net revenue and production levels; geological, technical, drilling, construction and processing problems; uncertainty of geological
and technical data; horizontal drilling and completions techniques and the failure of drilling results to meet expectations for reserves
or production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the accuracy
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BIRCHCLIFF ENERGY
of cost estimates and variances in Birchcliff’s actual costs and economic returns from those anticipated; changes to the regulatory
framework in the locations where the Corporation operates; political uncertainty and uncertainty associated with government policy
changes; actions by government authorities; an inability of the Corporation to comply with existing and future laws and the cost of
compliance with such laws; dependence on facilities, gathering lines and pipelines; uncertainties and risks associated with pipeline
restrictions and outages to third-party infrastructure that could cause disruptions to production; the lack of available pipeline capacity
and an inability to secure adequate and cost-effective processing and transportation for Birchcliff’s products; an inability to satisfy
obligations under Birchcliff’s firm marketing and transportation arrangements; shortages in equipment and skilled personnel; the
absence or loss of key employees; competition for, among other things, capital, undeveloped lands, equipment and skilled personnel;
management of Birchcliff’s growth; environmental and climate change risks, claims and liabilities; potential litigation; default under
or breach of agreements by counterparties and potential enforceability issues in contracts; claims by Indigenous peoples; the
reassessment by taxing or regulatory authorities of the Corporation’s prior transactions and filings; unforeseen title defects; third-party
claims regarding the Corporation’s right to use technology and equipment; uncertainties associated with the outcome of litigation
or other proceedings involving Birchcliff; uncertainties associated with counterparty credit risk; risks associated with Birchcliff’s risk
management and market diversification activities; risks associated with the declaration and payment of future dividends; the failure to
obtain any required approvals in a timely manner or at all; the failure to complete or realize the anticipated benefits of acquisitions and
dispositions and the risk of unforeseen difficulties in integrating acquired assets into Birchcliff’s operations; negative public perception
of the oil and natural gas industry and fossil fuels; the Corporation’s reliance on hydraulic fracturing; market competition, including from
alternative energy sources; changing demand for petroleum products; the availability of insurance and the risk that certain losses may
not be insured; breaches or failure of information systems and security (including risks associated with cyber-attacks); risks associated
with the ownership of the Corporation’s securities; and the accuracy of the Corporation’s accounting estimates and judgments.
The declaration and payment of any future dividends are subject to the discretion of the Board of Directors and may not be approved
or may vary depending on a variety of factors and conditions existing from time to time, including commodity prices, free funds
flow, current and forecast commodity prices, fluctuations in working capital, financial requirements of Birchcliff, applicable laws
(including solvency tests under the Business Corporations Act (Alberta) for the declaration and payment of dividends) and other factors
beyond Birchcliff’s control. The payment of dividends to shareholders is not assured or guaranteed and dividends may be reduced
or suspended entirely. In addition to the foregoing, the Corporation’s ability to pay dividends now or in the future may be limited by
covenants contained in the agreements governing any indebtedness that the Corporation has incurred or may incur in the future,
including the terms of the Corporation’s credit facilities. The agreement governing the credit facilities provides that Birchcliff is not
permitted to make any distribution (which includes dividends) at any time when an event of default exists or would reasonably be
expected to exist upon making such distribution, unless such event of default arose subsequent to the ordinary course declaration
of the applicable distribution.
Readers are cautioned that the foregoing lists of factors are not exhaustive. Additional information on these and other risk factors that
could affect results of operations, financial performance or financial results are included in the MD&A under the heading “Risk Factors”
and in other reports filed with Canadian securities regulatory authorities.
This report contains information that may constitute future-oriented financial information or financial outlook information (collectively,
“FOFI”) about Birchcliff’s prospective financial performance, financial position or cash flows, all of which is subject to the same
assumptions, risk factors, limitations and qualifications as set forth above. Readers are cautioned that the assumptions used in the
preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise or inaccurate
and, as such, undue reliance should not be placed on FOFI. Birchcliff’s actual results, performance and achievements could differ
materially from those expressed in, or implied by, FOFI. Birchcliff has included FOFI in order to provide readers with a more complete
perspective on Birchcliff’s future operations and management’s current expectations relating to Birchcliff’s future performance.
Readers are cautioned that such information may not be appropriate for other purposes.
Management has included the above summary of assumptions and risks related to forward-looking statements provided in this report
in order to provide readers with a more complete perspective on Birchcliff’s future operations and management’s current expectations
relating to Birchcliff’s future performance. Readers are cautioned that this information may not be appropriate for other purposes.
The forward-looking statements and FOFI contained in this report are expressly qualified by the foregoing cautionary statements. The
forward-looking statements and FOFI contained herein are made as of the date of this report. Unless required by applicable laws, Birchcliff
does not undertake any obligation to publicly update or revise any forward-looking statements or FOFI, whether as a result of new
information, future events or otherwise.
2023 ANNUAL REPORT 105
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106
BIRCHCLIFF ENERGY
CORPORATE INFORMATION
EXECUTIVE TEAM
MANAGEMENT TEAM
RESERVES EVALUATOR
Chris Carlsen
President and Chief Executive Officer
Gates Aurigemma
Manager, General Accounting
Deloitte LLP
Calgary, Alberta
Bruno Geremia
Executive Vice President and Chief
Financial Officer
Theo van der Werken
Chief Operating Officer
Robyn Bourgeois
Vice President, Legal, General Counsel
and Corporate Secretary
Duane Thompson
Vice President, Operations
Hue Tran
Vice President, Business Development
and Marketing
DIRECTORS
Jeff Tonken
Chairman of the Board
Calgary, Alberta
Dennis Dawson
Lead Independent Director
Calgary, Alberta
Debra Gerlach
Independent Director
Calgary, Alberta
Stacey McDonald
Independent Director
Calgary, Alberta
Cameron Proctor
Independent Director
Calgary, Alberta
James Surbey
Non-Independent Director
Calgary, Alberta
Jesse Doenz
Controller and Investor Relations Manager
Andrew Fulford
Surface Land Manager
Lee Grant
Manager of Engineering
Kevin Matiasz
Drilling and Completions Manager
Paul Messer
Manager of Information Technology
Tyler Murray
Mineral Land, Acquisitions and
Dispositions Manager
Tam Nguyen
Manager of Marketing
Landon Poffenroth
Montney Asset Manager
Michelle Rodgerson
Manager, Human Resources and
Corporate Services
Jeff Rogers
Facilities Manager
Victor Sandhawalia
Manager of Finance
Daniel Sharp
Manager of Geology
Greg Vreim
Production Manager
BANK SYNDICATE
The Bank of Nova Scotia
HSBC Bank Canada
National Bank of Canada
Canadian Imperial Bank of Commerce
Bank of Montreal
ATB Financial
Business Development Bank of Canada
Wells Fargo Bank, N.A., Canadian Branch
United Overseas Bank Limited
ICICI Bank Canada
HEAD OFFICE
1000, 600 – 3rd Avenue S.W.
Calgary, Alberta T2P 0G5
Phone: 403-261-6401
Email: birinfo@birchcliffenergy.com
SPIRIT RIVER OFFICE
5604 – 49th Avenue
Spirit River, Alberta T0H 3G0
Phone: 780-864-4624
AUDITORS
KPMG LLP,
Chartered Professional Accountants
Calgary, Alberta
TRANSFER AGENT
Computershare Trust Company of Canada
Calgary, Alberta & Toronto, Ontario
TSX: BIR
birchcliffenergy.com
2023 ANNUAL REPORT
107
THANK YOU TEAM BIRCHCLIFF
Jeffrey Akeroyd, Bradley Alexander, Tracy Anderson, Naheed Anjum, Camille Ashton, Gaetano Aurigemma, Amber Backer,
Maryna Bazylyuk, Angela Belbeck, Tyrus Bender, Riley Berge, Lindsey Berlinger, Daniel Blattler, Calvin Bohdan, Angela Boire,
Deborah Borthwick,
Jeff Boswell, Kaden Bouchard, Robyn Bourgeois, David Boyle, Anthony (Tony) Bozzi,
Jason Broad,
Monica Brookwell, Jordan Calderwood, Matthew Campbell, Chris Carlsen, Scott Cedergren, Benjamin Christenson, Ian Clarke,
Wendy Clay, Dallas Cline, Jacob Cloutier, Kalen Conrad, Laura Conroy (O’Neill), Michael Cordingley, David Cox, Kaleigh Cuthbertson,
Coleton Damer, Loren Damer, Imoreshi Dania, Sam Dawson, Elle Devost, Mark Dilworth, David Dixon, Joe Doenz, Tommy Doenz,
Jesse Doenz, Kelly Dolen, Alexander Donkersley, Terrance Dyck, Darryl Easter, Jennifer Elder, Weggy Emahazion, Luke Embree,
John (Cliff) Ennis, Eric Ewin, Lindsay Fast, Eric Faulkner, Beth Fawcett, Drew Feddema, Laura Ferguson, Grant Friesen, Marshall Fritz,
Andy Fulford, Carrie Fyfe, Alexandra Gatza, Melina Geremia, Bruno Geremia, Kathryne (Katie) Giesbrecht, Chad Goddard, Lee Grant,
Isaac Greenwell, Nicole Greiner, Hannah Grigore, Ryan Gugyelka, Rylan Gulka, Tania Haberlack-Dolan, Chad Haddow, Jesse Haines,
Mike Hale, Jessie Hall, Samuel Hampton, Mark Harcourt, Trevor Harley, Jack Hatchette, Wanda Hiebert, Warren Hingley, Paul Hirsekorn,
Colleen Hodge, Jasen Holmstrom, Lory-Ann Hoppe, Camryn Humphreys, Edward James, Derek Jamieson, Paige Jaras, David Johnson,
Lorn Johnson, Kaylee Johnson, Diana Kanditna, Emily Kanester, Dustin Kelm, Nyree Kennedy, Melissa Kinzner, Kelsey Kinzner,
Phyllis Kinzner, Diane Knoblauch, Jesiah (Jesse) Kurjata, Danny Kutrowski, Chase Lajeunesse, Sameer Lally, Wayne Lamotte,
Samantha Lasalle, Katherine Lazaruk, Calvin Leithead, Kirby Lenart, Kristen Lewicki, Thomas Lundquist, Scott Lundquist, Joseph Lyste,
Mason MacKay, Colter MacLean, Darcy MacLeod, Curtis Mah, Maggie Malapad, Collin Mathieson, Kevin Matiasz, Jessica Matkowski,
Angie McGonigal, Marc McIntosh, Ryan McIntosh, Jerilyn McPherson, Richard Melling, Paul Messer, Derek Michetti, Alfred Michetti,
Nikki Mishra, Nicole Mitchell-Tulissi, Emelyia Moghaddami, Thomas Moore, Danny Morrison, Ellen Morsky, McKenzie Murdoch,
Tyler Murray, Kody Naka, Sarah Nance-Redcliffe, Michael Ng, Tam Nguyen, Matthew O’Connell, Keely Olivier-Lintner,
Christopher Olson, Philomena Paisley, Jess Peterson, Landon Poffenroth, Luisa Porras, Glenn Power, Thomas Power, Adam Preston,
Shoni Proctor, Evan Pugh, Kathryn (Kate) Ramage, Lisa Reusch, Michelle Rodgerson, Karen Rodriguez, Jeff Rogers, Jared Rousson,
Jessica Rude, Todd Sajtovich, Lee Sallenbach, Victor Sandhawalia, Dustin Schaap, Wade Schultz, Mohammad (Sadeq) Shahamat,
Dan Sharp, Geordan Sidoruk, Brenden Sloane, Colin Smith, Jay Smith, Tanner St. Julian, Kai Sterling, Brent Sterling, Darby Stolk,
Lindsay Sturrock, TJ Suchlandt, Tracey Suchlandt, Tyson Suderman, Ryan Swanson, Mat Thiessen, Abby Thiessen, Duane Thompson,
Austen Thompson, Gerald Thornton, Dejan Timotijevic, Leah (Janet) Tkachuk, Gillian Topping, Terry Tracey, Hue Tran, Kevin Urness,
Joshua Cromwell Uy, Joshua van der Raadt, Theo van der Werken, Kara Vance, Kris Veach, Greg Vreim, Blair Walsh, Linda Wang,
Michael Warrick, Shelby Watson, David Wetta, Lyle Wiggers, Rhys Williams, Shawn Williams, Blake Wilson, Philip Wu, John Yeo,
Kent Zahara, Michael (Mike) Zimmerman
2023 ANNUAL REPORT 109
2 0 2 3 A N N U A L R E P O R T
BIRCHCLIFF ENERGY LTD.
Suite 1000, 600 3rd Avenue S.W.
Calgary, Alberta T2P 0G5
Phone: 403-261-6401
birchcliffenergy.com