2020 ANNUAL REPORT Although people will look back on 2020 as being memorable for its challenges, at Birchcliff we will look back at our successes, building out our infrastructure and driving down our costs. We are building momentum for the future. Table of Contents 02 Overview 03 Financial and Operational Highlights 04 Message to Shareholders 06 Executive Team 08 Management Team 10 History 12 2020 Accomplishments 13 2021 Key Objectives 16 Peace River Arch 27 Environmental, Social & Governance 32 2020 Year-End Reserves 38 Management’s Discussion & Analysis 99 Financial Statements 108 Notes to the Financial Statements 133 Glossary 135 Non-GAAP Measures 135 Presentation of Oil and Gas Reserves 136 Advisories 143 Team Birchcliff 144 Corporate Information This Annual Report contains forward-looking statements and information within the meaning of applicable securities laws. Such forward-looking statements and information are based upon certain expectations and assumptions and actual results may differ materially from those expressed or implied by such forward-looking statements and information. For further information regarding the forward-looking statements and information contained herein, see “Advisories – Forward-Looking Statements” in this Annual Report. In addition, this Annual Report uses the terms “adjusted funds flow”, “adjusted funds flow per basic common share”, “free funds flow”, “transportation and other expense”, “operating netback”, “adjusted funds flow netback” and “total debt”, which do not have standardized meanings prescribed by GAAP and therefore may not be comparable to similar measures presented by other companies where similar terminology is used. For further information, see “Non-GAAP Measures” in this Annual Report and in the management’s discussion and analysis for the year ended December 31, 2020 (the “MD&A”). Boe amounts in this Annual Report have been calculated by using the conversion ratio of 6 Mcf of natural gas to 1 bbl of oil. With respect to the disclosure of Birchcliff’s production in this Annual Report, see “Advisories – Production”. ANNUAL REPORT 2020 1 Overview Birchcliff Energy Ltd. is an intermediate oil and gas company based in Calgary, Alberta, with operations concentrated within one core area, the Peace River Arch of Alberta. In 2020, Birchcliff generated $184.5 million of adjusted funds Our Montney/Doig Resource Play provides us with flow and averaged 76,401 boe/d of production. an extensive inventory of repeatable, low-cost drilling opportunities targeting natural gas, light oil, condensate At December 31, 2020, 453 (449.9 net) Montney/Doig and NGLs. Birchcliff has the ability to grow when commodity horizontal wells have been successfully drilled and cased prices warrant doing so, while also having the ability to on Birchcliff’s lands. The majority of Birchcliff’s natural gas is maintain production in a low commodity price environment. processed through our 100% owned and operated natural gas plant located in the Pouce Coupe area of Alberta (the We continue to operate essentially all of our high working “Pouce Coupe Gas Plant”). The Pouce Coupe Gas Plant has a interest production, which is surrounded by large contiguous processing capacity of 340 MMcf/d and is the cornerstone of blocks of high working interest lands where we own control our strategy to develop our Montney/Doig Resource Play, to and/or have long-term access to the infrastructure. Our control and expand our production in the play and to further operatorship, land position and infrastructure ownership reduce our operating costs per boe. gives us a competitive advantage in our areas of operation and supports our low-cost structure, which helps us to maximize our returns to shareholders. Our common shares are listed on the TSX under the symbol BIR. Our Series A and Series C Preferred Shares are listed for trading on the TSX under the symbols BIR.PR.A and BIR.PR.C, respectively. By the Numbers As at December 31, 2020 99% 99% 89% 453 (449.9 NET) Operated New drilling Average working Horizontal wells production initiated and interest in drilled and cased on controlled undeveloped land the Montney/Doig Resource Play 2 BIRCHCLIFF ENERGY FINANCIAL AND OPERATIONAL HIGHLIGHTS Three months ended Twelve months ended December 31, December 31, 2020 2019 2020 2019 OPERATING Average production Light oil (bbls/d) 3,566 4,435 4,415 4,742 Condensate (bbls/d) 6,658 4,906 5,824 5,145 NGLs (bbls/d) 8,285 7,814 7,650 7,264 Natural gas (Mcf/d) 360,839 364,847 351,068 364,958 Total (boe/d) 78,649 77,962 76,401 77,977 Average realized sales price (CDN$)(1) Light oil (per bbl) 49.56 67.58 42.39 68.29 Condensate (per bbl) 52.90 68.80 48.03 68.06 NGLs (per bbl) 16.16 16.62 13.62 13.76 Natural gas (per Mcf) 2.93 2.81 2.49 2.48 Total (per boe) 21.87 22.97 18.90 21.55 NETBACK AND COST ($/boe) Petroleum and natural gas revenue(1) 21.88 22.97 18.90 21.56 Royalty expense (0.90) (1.15) (0.65) (0.96) Operating expense (3.03) (3.06) (2.95) (3.09) Transportation and other expense (4.94) (4.51) (4.93) (4.44) OPERATING NETBACK ($/boe) 13.01 14.25 10.37 13.07 G&A expense, net (1.11) (1.26) (0.88) (0.94) Interest expense (1.20) (0.82) (0.93) (0.88) Realized gain (loss) on financial instruments (1.63) (0.92) (2.13) 0.48 Other income 0.12 0.03 0.17 0.02 ADJUSTED FUNDS FLOW NETBACK ($/boe) 9.19 11.28 6.60 11.75 Depletion and depreciation expense (7.49) (7.49) (7.60) (7.50) Unrealized gain (loss) on financial instruments 5.84 (6.50) (1.27) (6.77) Other expenses (income)(2) 0.30 (0.28) (0.16) (0.51) Dividends on preferred shares (0.26) (0.27) (0.27) (0.27) Income tax recovery (expense) (2.00) 0.61 0.48 1.21 Net income (loss) to common shareholders ($/boe) 5.58 (2.65) (2.22) (2.09) FINANCIAL Petroleum and natural gas revenue ($000s)(1) 158,283 164,759 528,505 613,559 Cash flow from operating activities($000s) 71,431 85,557 188,180 327,066 Adjusted funds flow($000s) 66,509 80,941 184,526 334,504 Per basic common share ($) 0.25 0.30 0.69 1.26 Net income (loss) to common shareholders ($000s) 40,407 (18,984) (62,008) (59,579) Per basic common share ($) 0.15 (0.07) (0.23) (0.22) End of period basic common shares (000s) 265,943 265,935 265,943 265,935 Weighted average basic common shares (000s) 265,940 265,935 265,936 265,930 Dividends on common shares ($000s) 1,330 6,981 10,968 27,923 Dividends on preferred shares ($000s) 1,905 1,922 7,654 7,687 F&D capital expenditures ($000s)(3) 41,291 56,800 287,967 256,395 Total capital expenditures ($000s)(4) 28,778 58,136 276,785 300,246 Long-term debt ($000s) 731,372 609,177 731,372 609,177 Total debt ($000s) 761,951 632,582 761,951 632,582 (1) Excludes the effects of financial instruments but includes the effects of physical delivery contracts. (2) Includes non-cash items such as compensation, accretion, amortization of deferred financing fees and other gains and losses. (3) See “Advisories – Capital Expenditures”. (4) Includes acquisitions, dispositions and administrative assets. See “Advisories – Capital Expenditures”. ANNUAL REPORT 2020 3 Message To Shareholders Dear Fellow Shareholders, 2020 was a challenging year for Birchcliff and for the industry camps for contractors, which significantly reduced interaction as a whole. The significant negative impact of the COVID-19 with the communities surrounding our operations. We have pandemic on economic conditions in Canada and the rest of established a response team to coordinate and implement the world, compounded by production and pricing decisions initiatives relating to COVID-19 and we continue to closely from OPEC, drove down the price of oil, with WTI moving into monitor the recommendations of applicable government negative territory. Needless to say, these events put significant and health authorities. strain on Birchcliff, its employees, and its stakeholders. While others in our industry struggled to maintain liquidity in 2020, Birchcliff reconfirmed its $1 billion credit facilities with our 2020 OVERVIEW AND ACHIEVEMENTS syndicate of banks in early May 2020. This was notwithstanding very weak commodity prices and the decimation of our economy We took decisive action in 2020 to strengthen our balance sheet and is a testament to the strength and value of our assets. and ensure liquidity and financial flexibility, including reducing These credit facilities do not contain any financial maintenance our original capital budget by 19% and our common share covenants and mature on May 11, 2022. dividend by 81%. We also implemented a number of initiatives to protect the safety and well-being of our employees and Birchcliff moved forward with its previously planned contractors, while effectively executing our 2020 business infrastructure build-out projects in 2020. These projects, which plan. These initiatives, which are ongoing, include remote are expected to last for decades, are highlighted by our new inlet work-from-home arrangements, physical distancing measures, liquids-handling facility (the “Inlet Liquids-Handling Facility”) enhanced cleaning and sanitization measures and conducting at the Pouce Coupe Gas Plant and the completion of a significant meetings through virtual means. We also brought in industrial trunk line in the southwest of Gordondale. The addition of the “We are full speed ahead and enthusiastically looking forward to executing our business plan.” 4 BIRCHCLIFF ENERGY Inlet Liquids-Handling Facility, which was completed ahead of OUTLOOK schedule and under budget, increases the operational safety of the Pouce Coupe Gas Plant.