MANAGEMENT'S DISCUSSION AND ANALYSIS

GENERAL

This Management's Discussion and Analysis ("MD&A") for Birchcliff Energy Ltd. ("Birchcliff" or the "Corporation") dated November 12, 2020 is with respect to the three and nine months ended September 30, 2020 (the "Reporting Periods") as compared to the three and nine months ended September 30, 2019 (the "Comparable Prior Periods"). This MD&A has been prepared by management and approved by the Corporation's Audit Committee and Board of Directors and should be read in conjunction with the annual audited financial statements of the Corporation and the related notes for the year ended December 31, 2019 which have been prepared in accordance with IFRS. All dollar amounts are expressed in Canadian currency, unless otherwise stated.

This MD&A uses the terms "adjusted funds flow", "adjusted funds flow per common share", "free funds flow", "transportation and other expense", "operating netback", "adjusted funds flow netback", "total cash costs", "adjusted working capital deficit" 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, including reconciliations to the most directly comparable GAAP measures where applicable, see "Non-GAAP Measures" in this MD&A.

This MD&A contains forward-looking statements and 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 forwardlooking 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 and all Mcfe amounts have been calculated by using the conversion ratio of 1 bbl of oil to 6 Mcf of natural gas. For further information, see "Advisories – Boe and Mcfe 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) unless otherwise indicated, 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.

ABOUT BIRCHCLIFF

Birchcliff is a Calgary, Alberta based intermediate oil and natural gas company with operations concentrated within its one core area, the Peace River Arch of Alberta. Birchcliff's common shares, cumulative redeemable preferred shares, Series A (the "Series A Preferred Shares") and cumulative redeemable preferred shares, Series C (the "Series C Preferred Shares") are listed for trading on the Toronto Stock Exchange (the "TSX") under the symbols "BIR", "BIR.PR.A" and "BIR.PR.C", respectively. Additional information relating to the Corporation, including its Annual Information Form for the financial year ended December 31, 2019 (the "AIF"), is available on the SEDAR website at www.sedar.com and on the Corporation's website at www.birchcliffenergy.com.

COVID-19 OPERATING ENVIRONMENT

On January 30, 2020, the World Health Organization declared the novel Coronavirus disease ("COVID-19") outbreak a public health emergency of international concern and, on March 10, 2020, declared it to be a pandemic. The outbreak of the COVID-19 pandemic has had a significant negative impact on global economic conditions. This has included a sharp decrease in crude oil demand which, combined with other macro-economic conditions, has resulted in significant volatility in oil and natural gas commodity prices, as well as increased economic uncertainty. The COVID-19 pandemic remains an evolving situation that has had, and is expected to continue to have, a significant impact on Birchcliff's business, results of operations, financial condition and the environment in which it operates. See "Risk Factors and Risk Management" in this MD&A.

Birchcliff has taken a number of proactive measures to ensure liquidity and financial flexibility in the current environment as described in this MD&A under the heading "Capital Resources and Liquidity". The Corporation has also increased its monitoring of receivables due from petroleum and natural gas marketers and from joint asset partners to manage credit risk. Birchcliff historically has not experienced any significant collection issues with petroleum and natural gas marketers as a significant portion of these receivables are with creditworthy purchasers.

In response to the COVID-19 pandemic, Birchcliff has implemented a number of initiatives to protect the well-being of its employees and contractors. The Corporation has established a response team to coordinate and implement such initiatives and continues to closely monitor the recommendations of applicable government and health authorities. In addition, the Corporation has established remote working capabilities and procedures to ensure business continuity and the reliability of its operations in the event of future COVID-19 related restrictions or lockdowns.

Birchcliff determined there were no impairment indicators present at September 30, 2020 due to the improvement in the current and forward commodity prices for oil and natural gas and the increase in its market capitalization since March 31, 2020 when impairment indicators were last identified.

See also "Risk Factors and Risk Management" in this MD&A.

2020 THIRD QUARTER FINANCIAL AND OPERATIONAL HIGHLIGHTS

Delivered adjusted funds flow of $59.4 million ($0.22 per basic common share) in the three month Reporting Period, a 174% increase from the second quarter of 2020 and a 6% decrease from the three month Comparable Prior Period.
Free funds flow of $28.5 million ($0.11 per basic common share) in the three month Reporting Period, a 146% increase from the second quarter of 2020 and a 25% increase from the three month Comparable Prior Period.
Achieved quarterly average production of 78,376 boe/d in the three month Reporting Period, a 5% increase from the second quarter of 2020 and a 3% decrease from the three month Comparable Prior Period.
Achieved record low operating expense of $2.73/boe in the three month Reporting Period, a 6% decrease from the second quarter of 2020 and a 1% decrease from the three month Comparable Prior Period.
Realized an operating netback of $12.03/boe in the three month Reporting Period, a 76% increase from the second quarter of 2020 and a 23% increase from the three month Comparable Prior Period.
Reduced total debt at September 30, 2020 by $23.2 million from June 30, 2020.
Continued with the successful execution of its 2020 capital program (the "2020 Capital Program"), completing and bringing on production 14 (14.0 net) wells. F&D capital expenditures in the three month Reporting Period were $30.8 million.

See "Cash Flow from Operating Activities and Adjusted Funds Flow", "Net Loss to Common Shareholders", "Discussion of Operations", "Capital Expenditures" and "Capital Resources and Liquidity" in this MD&A for further information regarding the financial and operational results for the Reporting Periods and Comparable Prior Periods.

OUTLOOK AND GUIDANCE

Preliminary Outlook for 2021

Based on current strip prices, Birchcliff expects to generate free funds flow of approximately $140 million in 2021(1) , with priority being given to debt reduction. Although Birchcliff has not yet finalized its 2021 capital spending plans, it is currently targeting F&D capital spending of $200 million to $220 million and an annual average production rate of 78,000 to 80,000 boe/d. Birchcliff expects to be able to maintain its production at or near 2020 levels with less F&D capital due to the Corporation's high-quality, low-decline assets. Birchcliff expects facilities and infrastructure spending in 2021 to decrease by approximately 70%, from approximately $75 million in 2020 to approximately $20 million in 2021 as a result of one-time facilities and infrastructure projects completed in 2020.

The 2021 capital program will be designed to provide Birchcliff with significant optionality to take advantage of volatile commodity prices. As a result of Birchcliff's large inventory of potential future drilling locations, the Corporation has the ability to focus on natural gas, liquids-rich natural gas or light oil drilling, depending on its outlook for commodity prices.

Birchcliff believes that generating free funds flow and the repayment of debt in 2021 will provide it with the most optionality to take advantage of future opportunities in its industry and give Birchcliff the ability to maximize future shareholder returns. Birchcliff continues to work through its plans for 2021 and expects to announce details of its 2021 capital program and guidance in January 2021.

(1) Assuming the following commodity prices and exchange rate: an average WTI price of US$43.70/bbl; an average WTI-MSW differential of CDN$6.25/bbl; an average AECO 5A price of CDN$2.60/GJ; an average Dawn price of US$2.80/MMBtu; an average NYMEX HH price of US$2.95/MMBtu; and an exchange rate (CDN$ to US$1) of 1.31.

Revised 2020 Guidance

As noted above, Birchcliff is revising its adjusted funds flow guidance to $195 million from $185 million and its annual average production guidance to 76,000 to 77,000 boe/d from 78,000 to 80,000 boe/d. Average production in Q4 2020 is now expected to be 78,000 to 79,000 boe/d (previously 81,000 to 83,000 boe/d). Birchcliff expects to generate significant free funds flow in Q4 2020, which will be directed towards debt reduction. Birchcliff's F&D capital expenditures are expected to be approximately $285 million, which is the mid-point of Birchcliff's previous guidance range of $275 million to $295 million. Birchcliff now anticipates that total debt at year end will be $740 million to $760 million (previously $750 million to $770 million), a further reduction of $24 million to $44 million from total debt at September 30, 2020.

The following table sets forth Birchcliff's revised and previous guidance and commodity price assumptions for 2020:

	Revised 2020 guidance and	Previous 2020 guidance and
	assumptions(1)	assumptions(2)(3)
Production
Annual average production (boe/d)	76,000 – 77,000	78,000 – 80,000
% Light oil	6%	7%
% Condensate	8%	8%
% NGLs	9%	9%
% Natural gas	77%	76%
Q4 average production (boe/d)	78,000 – 79,000	81,000 – 83,000
Average Expenses ($/boe)
Royalty	0.60 – 0.80	0.70 – 0.90
Operating	2.85 – 3.05	2.85 – 3.05
Transportation and other	4.90 – 5.10	5.00 – 5.20
Adjusted Funds Flow (MM$)	195(4)	185
F&D Capital Expenditures (MM$)	285(5)	275 – 295
Free Funds Flow (MM$)(6)	(90)	(90) – (110)
Total Debt at Year End (MM$)	740 – 760(7)	750 – 770
Natural Gas Market Exposure(8)
AECO exposure as a % of total natural gas production	16%	19%

	Revised 2020 guidance and	Previous 2020 guidance and
	assumptions(1)	assumptions(2)(3)
Dawn exposure as a % of total natural gas production	46%	44%
NYMEX HH exposure as a % of total natural gas production	34%	34%
Alliance exposure as a % of total natural gas production	4%	3%
Commodity Prices
Average WTI price (US$/bbl)	37.50	39.00
Average WTI-MSW differential (CDN$/bbl)	8.10	8.75
Average AECO 5A price (CDN$/GJ)	2.20	2.10
Average Dawn price (US$/MMBtu)(9)	1.95	1.90
Average NYMEX HH price (US$/MMBtu)(9)	2.10	2.10
Exchange rate (CDN$ to US$1)	1.35	1.35

(1) Birchcliff's revised guidance for its commodity mix, adjusted funds flow and natural gas market exposure in 2020 is based on an annual average production rate of 76,500 boe/d during 2020, which is the mid-point of Birchcliff's revised annual average production guidance for 2020.

(2) Birchcliff's previous guidance for its commodity mix, adjusted funds flow and natural gas market exposure in 2020 was based on an annual average production rate of 79,000 boe/d during 2020, which was the mid-point of Birchcliff's previous annual average production guidance for 2020.

(3) As previously issued on August 12, 2020.

(4) Birchcliff's estimate of adjusted funds flow takes into account the effects of its physical and financial commodity risk management contracts outstanding as at November 12, 2020. See "Discussion of Operations – Risk Management" in this MD&A.

(5) Birchcliff's estimate of F&D capital expenditures excludes any net potential acquisitions and dispositions. See "Advisories – Capital Expenditures" in this MD&A*.*

(6) Free funds flow is calculated as adjusted funds flow less F&D capital expenditures and is prior to acquisitions and dispositions, dividend payments, abandonment and reclamation obligations, administrative assets, financing fees and capital lease obligations. See "Non-GAAP Measures" in this MD&A.

(7) The total debt amount set forth in the table above assumes the following: (i) that the timing and amount of preferred share dividends paid by the Corporation remains consistent with previous years, with the dividend rates remaining flat; (ii) that a common share dividend of $0.005 per share is paid for the quarter ending December 31, 2020; (iii) that there are approximately 266 million common shares outstanding; (iv) that there will be 1.96 million Series C Preferred Shares outstanding at December 31, 2020; (v) that the 2020 Capital Program will be carried out as currently contemplated and the level of capital spending set forth herein will be achieved; and (vi) the targets for production, commodity mix, capital expenditures, adjusted funds flow, free funds flow and natural gas market exposure and the commodity price and exchange rate assumptions set forth herein are met. The amount set forth in the table above does not include annual cash incentive payments.

(8) Birchcliff's guidance regarding its natural gas market exposure in 2020 assumes: (i) 175,000 GJ/d being sold at the Dawn index price; (ii) 15,600 GJ/d being sold at Alliance's Trading Pool daily index price; and (iii) 132,500 MMBtu/d being hedged on a financial and physical basis at a fixed basis differential between the AECO 7A price and the NYMEX HH price.

(9) See "Advisories – MMBtu Pricing Conversions" in this MD&A.

Ongoing weakness in commodity prices resulting from the COVID-19 pandemic and market volatility may adversely and materially impact the Corporation's future financial and operational results. Changes in assumed commodity prices and variances in production estimates can have a significant impact on the Corporation's estimates of adjusted funds flow and free funds flow and the Corporation's other guidance, which impact may be material. For further information, see "Advisories – Forward-Looking Statements" and "Risk Factors and Risk Management" 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:

	Three months endedSeptember 30,			Nine months endedSeptember 30,
	2020	2019	2020	2019
Cash flow from operating activities ($000s)	52,977	48,908	116,749	241,509
Adjusted funds flow ($000s)	59,377	62,958	118,017	253,563
Per common share – basic ($)	0.22	0.24	0.44	0.95
Per common share – diluted ($)	0.22	0.24	0.44	0.95
Adjusted funds flow netback ($/boe)	8.23	8.50	5.69	11.91

Adjusted funds flow in the three and nine month Reporting Periods decreased by 6% and 53%, respectively, from the Comparable Prior Periods. The decrease from the three month Comparable Prior Period was primarily due to a realized loss on financial instruments recorded in the three month Reporting Period as compared to a realized gain in the three month Comparable Prior Period, partially offset by higher reported revenue. Petroleum and natural gas revenue in the three month Reporting Period increased by 9% from the three month Comparable Prior Period largely due to a higher average realized natural gas sales price, partially offset by a decrease in the average light oil and condensate sales prices and a decrease in corporate production.

The decrease in adjusted funds flow from the nine month Comparable Prior Period was primarily due to lower reported revenue and a realized loss on financial instruments recorded in the nine month Reporting Period as compared to a realized gain in the nine month Comparable Prior Period. Petroleum and natural gas revenue in the nine month Reporting Period decreased by 18% from the nine month Comparable Prior Period largely due to lower average realized light oil and condensate sales prices and a decrease in corporate production. Birchcliff's light oil and condensate revenue in the Reporting Periods was impacted by the significant weakness and volatility in oil prices as a result of the COVID-19 pandemic and ensuing global demand destruction.

Adjusted funds flow in the Reporting Periods was also positively impacted by lower operating and royalty expenses, and negatively impacted by higher transportation and other expense as a result of Birchcliff's increased Dawn and AECO firm service as compared to the Comparable Prior Periods.

Cash flow from operating activities for the three and nine month Reporting Periods increased by 8% and decreased by 52%, respectively, from the Comparable Prior Periods. The reason for the change is consistent with the explanation for adjusted funds flow; however, cash flow from operating activities was also impacted by changes in non-cash operating working capital and decommissioning expenditures.

The following table sets forth a breakdown of the Corporation's total cash costs on a per unit basis for the periods indicated:

			Three months endedSeptember 30,		Nine months endedSeptember 30,
($/boe)	2020	2019	% Change	2020	2019	% Change
Royalty expense	0.55	0.76	(28)%	0.56	0.90	(38)%
Operating expense	2.73	2.75	(1)%	2.91	3.10	(6)%
Transportation and other expense	4.49	4.34	3%	4.94	4.41	12%
G&A expense, net	0.67	0.74	(9)%	0.80	0.84	(5)%
Interest expense	0.93	0.77	21%	0.84	0.90	(7)%
Total cash costs	9.37	9.36	-	10.05	10.15	(1)%

See "Discussion of Operations" in this MD&A for further details.

NET LOSS TO COMMON SHAREHOLDERS

The following table sets forth the Corporation's net loss to common shareholders for the periods indicated:

		Three months endedSeptember 30,	Nine months endedSeptember 30,
	2020	2019	2020	2019
Net loss to common shareholders ($000s)	17,692	46,889	102,415	40,595
Per common share – basic ($)	0.07	0.18	0.39	0.15
Per common share – diluted ($)	0.07	0.18	0.39	0.15
Net loss to common shareholders ($/boe)	2.45	6.33	4.94	1.91

The decrease in the net loss to common shareholders from the three month Comparable Prior Period was primarily due to lower unrealized mark-to-market losses on financial instruments, partially offset by lower adjusted funds flow as described above and a decrease in income tax recovery in the three month Reporting Period.

The increase in the net loss to common shareholders from the nine month Comparable Prior Period was primarily due to lower adjusted funds flow and a decrease in income tax recovery, partially offset by lower unrealized mark-to-market losses on financial instruments in the nine month Reporting Period.

POUCE COUPE GAS PLANT NETBACKS

During the nine month Reporting Period, Birchcliff processed approximately 69% of its total corporate natural gas production and 59% of its total corporate production through its 100% owned and operated natural gas processing plant in Pouce Coupe (the "Pouce Coupe Gas Plant") as compared to 73% and 63%, respectively, during the nine month Comparable Prior Period. The following table sets forth Birchcliff's average daily production and operating netback for wells producing to the Pouce Coupe Gas Plant for the periods indicated:

		Nine months ended		Nine months ended
		September 30, 2020		September 30, 2019
Average production:
Condensate (bbls/d)		4,126		3,845
NGLs (bbls/d)		1,056		871
Natural gas (Mcf/d)		238,482		264,699
Total (boe/d)		44,929		48,832
Liquids-to-gas ratio(1) (bbls/MMcf)		21.7		17.8
Netback and cost:	$/Mcfe	$/boe	$/Mcfe	$/boe
Petroleum and natural gas revenue(2)	2.87	17.19	3.09	18.55
Royalty expense	(0.05)	(0.30)	(0.05)	(0.32)
Operating expense(3)	(0.37)	(2.17)	(0.35)	(2.10)
Transportation and other expense	(0.88)	(5.30)	(0.75)	(4.47)
Operating netback	$1.57	$9.42	$1.94	$11.66
Operating margin(4)	55%	55%	63%	63%

(1) Liquids consists of condensate and other NGLs.

(2) Excludes the effects of financial instruments but includes the effects of physical delivery contracts.

(3) Represents plant and field operating expense.

(4) Operating margin is calculated by dividing the operating netback for the period by the petroleum and natural gas revenue for the period.

The Corporation's liquids-to-gas ratio increased by 22% to 21.7 bbls/MMcf in the nine month Reporting Period as compared to 17.8 bbls/MMcf in the nine month Comparable Prior Period primarily due to: (i) the completion of Birchcliff's inlet liquids-handling facility at the Pouce Coupe Gas Plant (the "Inlet Liquids-Handling Facility"); and (ii) the addition of the new condensate-rich 14-well pad brought on production in Pouce Coupe in the three month Reporting Period.

DISCUSSION OF OPERATIONS

Petroleum and Natural Gas Revenue

The following table sets forth Birchcliff's P&NG revenue by product category for the Corporation's Pouce Coupe operating assets geologically situated in the dry gas and condensate-rich trends of the Montney/Doig Resource Play (the "Pouce Coupe assets"), the Corporation's Gordondale operating assets geologically situated in the oil-rich trend of the Montney/Doig Resource Play (the "Gordondale assets") and on a corporate basis for the periods indicated:

			Three months ended			Three months ended
			September 30, 2020			September 30, 2019
	Pouce Coupe	Gordondale		Pouce Coupe	Gordondale
($000s)	assets	assets	Corporate(1)	assets	assets	Corporate(1)
Light oil	111	19,544	19,655	-	30,082	30,157
Condensate	25,835	6,428	32,263	26,954	7,942	34,847
NGLs	1,829	7,087	8,917	1,361	5,421	6,782
Natural gas	57,841	24,100	81,940	44,824	13,976	58,800
P&NG sales(2)	85,616	57,159	142,775	73,139	57,421	130,586
Royalty income	1	1	4	4	(4)	2
P&NG revenue	85,617	57,160	142,779	73,143	57,417	130,588
% of corporate P&NG revenue	60%	40%		56%	44%

			Nine months ended			Nine months ended
			September 30, 2020			September 30, 2019
	Pouce Coupe	Gordondale		Pouce Coupe	Gordondale
($000s)	assets	assets	Corporate(1)	assets	assets	Corporate(1)
Light oil	420	51,811	52,238	-	90,258	90,611
Condensate	53,241	16,751	69,992	72,979	24,085	96,766
NGLs	5,971	19,832	25,802	4,891	19,652	24,543
Natural gas	160,610	61,570	222,180	180,116	56,667	236,785
P&NG sales(2)	220,242	149,964	370,212	257,986	190,662	448,705
Royalty income	3	2	10	11	80	95
P&NG revenue	220,245	149,966	370,222	257,997	190,742	448,800

(1) Includes other minor oil and natural gas properties that were not individually significant during the respective periods.

(2) Excludes the effects of financial instruments but includes the effects of physical delivery contracts.

On a corporate basis, P&NG revenue increased by 9% and decreased by 18% from the three and nine month Comparable Prior Periods, respectively. Petroleum and natural gas revenue increased in the three month Reporting Period largely due to a higher average realized natural gas sales price received for Birchcliff's production, partially offset by lower average realized light oil and condensate sales prices received for Birchcliff's production and a decrease in corporate production as compared to the three month Comparable Prior Period. Petroleum and natural gas revenue decreased in the nine month Reporting Period largely due to lower average realized light oil and condensate sales prices received for Birchcliff's production and a decrease in corporate production, partially offset by a higher average realized natural gas sales price.

Actions taken around the world to mitigate the spread of COVID-19 resulted in significant weakness and volatility in oil prices which negatively impacted Birchcliff's light oil and condensate revenue in the Reporting Periods. Natural gas revenue was negatively impacted by lower natural gas production and lower benchmark prices in non-AECO markets, partially offset by higher benchmark prices in AECO markets during the Reporting Periods.

Production

The following table sets forth Birchcliff's production by product category for the Pouce Coupe assets, the Gordondale assets and on a corporate basis for the periods indicated:

			Three months endedSeptember 30, 2020			Three months endedSeptember 30, 2019
	Pouce Coupe	Gordondale		Pouce Coupe	Gordondale
	assets	assets	Corporate(1)	assets	assets	Corporate(1)
Light oil (bbls/d)	25	4,380	4,405	9	4,868	4,882
Condensate (bbls/d)	5,845	1,421	7,266	4,465	1,279	5,744
NGLs (bbls/d)	1,132	5,766	6,898	1,032	6,527	7,559
Natural gas (Mcf/d)	249,837	109,014	358,851	282,286	91,892	374,180
Production (boe/d)	48,641	29,735	78,376	52,554	27,990	80,548
Liquids-to-gas ratio (bbls/MMcf)	28.0	106.1	51.7	19.5	137.9	48.6
% of corporate production	62%	38%		65%	35%
			Nine months ended			Nine months ended
			September 30, 2020			September 30, 2019
	Pouce Coupe	Gordondale		Pouce Coupe	Gordondale
	assets	assets	Corporate(1)	assets	assets	Corporate(1)
Light oil (bbls/d)	38	4,661	4,700	16	4,826	4,845
Condensate (bbls/d)	4,241	1,304	5,545	3,995	1,231	5,226
NGLs (bbls/d)	1,134	6,303	7,436	924	6,154	7,078
Natural gas (Mcf/d)	248,094	99,693	347,787	275,591	89,401	364,996
Production (boe/d)	46,761	28,883	75,645	50,867	27,112	77,982
Liquids-to-gas ratio (bbls/MMcf)	21.8	123.1	50.8	17.9	136.6	47.0
% of corporate production	62%	38%		65%	35%

(1) Includes other minor oil and natural gas properties that were not individually significant during the respective periods.

Birchcliff's corporate production decreased by 3% from the three and nine month Comparable Prior Periods. The decreases were primarily due to the on-stream timing of incremental production from new horizontal oil and condensate-rich natural gas wells in Gordondale and Pouce Coupe during the Reporting Periods, as well as natural production declines and ongoing impacts of frac-driven interaction. In order to manage the higher condensate and frac water flowback volumes associated with the new 14-well pad brought on production in July and August 2020, Birchcliff proactively and temporarily restricted production of existing wells in Pouce Coupe during the three month Reporting Period.

Corporate liquids production increased by 2% and 3% from the three and nine month Comparable Prior Periods, respectively. The corporate liquids-to-gas ratio (liquids yield) increased by 6% and 8% from the three and nine month Comparable Prior Periods, respectively. These increases were largely attributable to incremental production from new condensate-rich natural gas wells that were brought on production in Pouce Coupe.

The following table sets forth Birchcliff's production weighting by product category for its Pouce Coupe and Gordondale assets and on a corporate basis for the periods indicated:

			Three months endedSeptember 30, 2020			Three months endedSeptember 30, 2019
	Pouce Coupeassets	Gordondaleassets	Corporate(1)	Pouce Coupeassets	Gordondaleassets	Corporate(1)
% Light oil production	-	15%	6%	-	17%	6%
% Condensate production	12%	5%	9%	9%	5%	8%
% NGLs production	2%	19%	9%	2%	23%	9%
% Natural gas production	86%	61%	76%	89%	55%	77%
			Nine months endedSeptember 30, 2020			Nine months endedSeptember 30, 2019
	Pouce Coupeassets	Gordondaleassets	Corporate(1)	Pouce Coupeassets	Gordondaleassets	Corporate(1)
% Light oil production	-	16%	6%	-	18%	6%
% Condensate production	10%	5%	7%	8%	5%	7%
% NGLs production	2%	22%	10%	2%	23%	9%
% Natural gas production	88%	57%	77%	90%	54%	78%

(1) Includes other minor oil and natural gas properties that were not individually significant during the respective periods.

Birchcliff's corporate liquids accounted for approximately 24% and 23% of total production in three and nine month Reporting Periods, respectively, as compared to approximately 23% and 22% in the Comparable Prior Periods.

Commodity Prices

The following table sets forth the average benchmark index prices and exchange rate for the periods indicated:

			Three months ended
			September 30,
	2020	2019	Change
Light oil – WTI Cushing (US$/bbl)	40.27	56.45	(29)%
Light oil – MSW (Mixed Sweet) (CDN$/bbl)	48.09	67.88	(29)%
Natural gas – NYMEX HH (US$/MMBtu)(1)	1.98	2.23	(11)%
Natural gas – AECO 5A Daily (CDN$/GJ)	2.13	0.86	148%
Natural gas – AECO 7A Month Ahead (US$/MMBtu)(1)	1.62	0.79	105%
Natural gas – Dawn Day Ahead (US$/MMBtu)(1)	1.82	2.12	(14)%
Natural gas – ATP 5A Day Ahead (CDN$/GJ)	2.12	0.93	128%
Exchange rate (CDN$ to US$1)	1.3316	1.3207	1%
Exchange rate (US$ to CDN$1)	0.7509	0.7572	(1)%

			Nine months ended
			September 30,
	2020	2019	Change
Light oil – WTI Cushing (US$/bbl)	37.68	57.06	(34)%
Light oil – MSW (Mixed Sweet) (CDN$/bbl)	41.50	69.07	(40)%
Natural gas – NYMEX HH (US$/MMBtu)(1)	1.86	2.67	(30)%
Natural gas – AECO 5A Daily (CDN$/GJ)	1.98	1.44	38%
Natural gas – AECO 7A Month Ahead (US$/MMBtu)(1)	1.52	1.04	46%
Natural gas – Dawn Day Ahead (US$/MMBtu)(1)	1.74	2.46	(29)%
Natural gas – ATP 5A Day Ahead (CDN$/GJ)	1.80	1.58	14%
Exchange rate (CDN$ to US$1)	1.3539	1.3292	2%

(1) See "Advisories – MMBtu Pricing Conversions" in this MD&A.

Birchcliff sells substantially all of its light oil based on the MSW benchmark price and substantially all of its natural gas production based on the AECO and Dawn benchmark prices. Effective November 1, 2019, Birchcliff increased its firm service transportation to Dawn by 25,000 GJ/d, bringing its total natural gas production receiving the Dawn benchmark price to 175,000 GJ/d (see "Discussion of Operations – Petroleum and Natural Gas Revenue – Natural Gas Sales, Production and Average Realized Sales Price" in this MD&A). Birchcliff has also financially diversified a portion of its AECO production to NYMEX HH-based pricing beginning January 1, 2019 (see "Discussion of Operations – Risk Management" in this MD&A). The average realized sales prices the Corporation receives for its light oil and natural gas production depend on a number of factors, including the average benchmark trading hub prices for crude oil and natural gas, the US to Canadian dollar exchange rate, transportation costs, product quality differentials and the heat premium on its natural gas production.

The benchmark prices for crude oil are impacted by global and regional events that dictate the level of supply and demand for crude oil. The principal benchmark trading exchanges that Birchcliff compares its oil price to are the WTI price and the MSW price. The differential between the WTI price and the MSW price can fluctuate due to a number of factors, including, but not limited to, domestic oil supply and demand balance, North American refinery utilization rates and inventory levels and pipeline infrastructure capacity connecting key consuming oil markets. In late February 2020, benchmark oil index prices started a significant drop predominately due to the COVID-19 pandemic, resulting in oil demand destruction and widening of the oil price differentials. Since the onset of the COVID-19 pandemic, significant effort has been made by global oil producers to rebalance the markets which has resulted in an improvement in oil benchmark index prices and a tightening of the WTI/MSW oil price differential throughout the Reporting Periods.

Canadian natural gas prices are mainly influenced by North American supply and demand fundamentals which can be impacted by a number of factors, including, but not limited to, production growth levels, weather-related conditions in key consuming natural gas markets, changing demographics, economic growth, inventory levels, access to underground storage, net import and export markets, pipeline supply takeaway capacity, maintenance on key natural gas infrastructure, cost of competing renewable and non-renewable energy alternatives, drilling and completion rates and efficiencies in extracting natural gas from North American natural gas basins. The decline in benchmark natural gas index prices in non-AECO markets since the Comparable Prior Periods were primarily due to an increased supply and demand imbalance in North America during the Reporting Periods. The AECO benchmark natural gas index prices have increased since the Comparable Prior Periods largely due to an improved supply and demand balance in Western Canada.

The following table sets forth Birchcliff's average realized light oil, condensate, NGLs and natural gas sales prices for the periods indicated:

			Three months ended
			September 30,
	2020	2019	Change
Light oil ($/bbl)	48.50	67.15	(28)%
Condensate ($/bbl)	48.27	65.94	(27)%
NGLs ($/bbl)	14.05	9.75	44%
Natural gas ($/Mcf)	2.48	1.71	45%
Average realized sales price ($/boe)(1)	19.80	17.62	12%
			Nine months ended
			September 30,
	2020	2019	Change
Light oil ($/bbl)	40.57	68.50	(41)%
Condensate ($/bbl)	46.07	67.82	(32)%
NGLs ($/bbl)	12.66	12.70	-
Natural gas ($/Mcf)(2)	2.33	2.38	(2)%
Average realized sales price ($/boe)(1)	17.86	21.08	(15)%

(1) Excludes the effects of financial instruments but includes the effects of physical delivery contracts.

(2) The average realized sales price for the nine month Comparable Prior Period also includes the effects of physical natural gas delivery contracts at Dawn for 50,000 MMBtu/d at an average contract price of US$5.05/MMBtu, which settled in the first quarter of 2019.

For further production and average realized pricing details for Birchcliff's Pouce Coupe assets and Gordondale assets, see "Discussion of Operations – Operating Netbacks" in this MD&A.

Natural Gas Sales, Production and Average Realized Sales Price

The following table sets forth Birchcliff's sales, average daily production and average realized sales price by natural gas market for the periods indicated:

					Three months endedSeptember 30, 2020					Three months endedSeptember 30, 2019
	Natural gas		Natural gas		Averagerealized	Natural gas		Natural gas		Averagerealized
	sales($000s)(1)	(%)	production(Mcf/d)	(%)	sales price($/Mcf)(1)	sales($000s)(1)	(%)	production(Mcf/d)	(%)	sales price($/Mcf)(1)
AECO	40,259	49	181,984	51	2.41	20,343	34	225,991	60	0.98
Dawn(2)	37,723	46	158,745	44	2.58	37,528	64	137,018	37	2.98
Alliance(3)	3,958	5	18,122	5	2.37	929	2	11,171	3	0.90
Total	81,940	100	358,851	100	2.48	58,800	100	374,180	100	1.71
	Nine months ended
										Nine months ended
	Natural gassales		Natural gasproduction		September 30, 2020Averagerealizedsales price	Natural gassales		Natural gasproduction		September 30, 2019Averagerealizedsales price
	($000s)(1)	(%)	(Mcf/d)	(%)	($/Mcf)(1)	($000s)(1)	(%)	(Mcf/d)	(%)	($/Mcf)(1)
AECODawn(2)	108,451107,943	4948	178,134159,024	5146	2.232.48	87,075141,493	3760	212,554137,020	5838	1.483.78
Alliance(3)	5,786	3	10,629	3	1.99	8,217	3	15,422	4	1.95

(1) Excludes the effects of financial instruments but includes the effects of physical delivery contracts.

(2) Birchcliff has agreements for the firm service transportation of an aggregate of 175,000 GJ/d of natural gas on TCPL's Canadian Mainline, whereby natural gas is transported to the Dawn trading hub in Southern Ontario. The first tranche of this service (120,000 GJ/d) became available on November 1, 2017, the second tranche (30,000 GJ/d) became available on November 1, 2018 and the third tranche (25,000 GJ/d) became available on November 1, 2019. Each tranche has a 10-year term. During the nine month Comparable Prior Period, Birchcliff had in place physical natural gas delivery contracts at Dawn for 50,000 MMBtu/d at an average contract price of US$5.05/MMBtu, which settled in the first quarter of 2019.

(3) Birchcliff has sales agreements with a third-party marketer to sell and deliver into the Alliance pipeline system. Alliance sales are recorded net of transportation tolls.

Risk Management

Birchcliff engages in risk management activities by utilizing various financial instruments and physical delivery contracts to diversify its sales points or fix commodity prices and market interest rates. Subject to compliance with the agreement governing the Corporation's extendible revolving credit facilities (the "Credit Facilities"), the Board of Directors has authorized the Corporation to execute a risk management strategy whereby Birchcliff is authorized 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, foreign exchange rates and/or interest rates.

Financial Derivative Contracts

Birchcliff has not designated its financial derivative contracts as effective accounting hedges, even though the Corporation considers all commodity price contracts 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 September 30, 2020, with the changes in 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.

Product	Type of Contract	Notional Quantity	Remaining Term(1)	Contract Price
Natural gas	AECO 7A basis swap(2)	30,000 MMBtu/d	Oct. 1, 2020 – Dec. 31, 2023	NYMEX HH less US$1.298/MMBtu
Natural gas	AECO 7A basis swap(2)	10,000 MMBtu/d	Oct. 1, 2020 – Dec. 31, 2023	NYMEX HH less US$1.320/MMBtu
Natural gas	AECO 7A basis swap(2)	30,000 MMBtu/d	Oct. 1, 2020 – Dec. 31, 2023	NYMEX HH less US$1.330/MMBtu
Natural gas	AECO 7A basis swap(2)	15,000 MMBtu/d	Oct. 1, 2020 – Dec. 31, 2024	NYMEX HH less US$1.185/MMBtu
Natural gas	AECO 7A basis swap(2)	5,000 MMBtu/d	Oct. 1, 2020 – Dec. 31, 2024	NYMEX HH less US$1.200/MMBtu
Natural gas	AECO 7A basis swap(2)	5,000 MMBtu/d	Oct. 1, 2020 – Dec. 31, 2024	NYMEX HH less US$1.200/MMBtu
Natural gas	AECO 7A basis swap(2)	12,500 MMBtu/d	Oct. 1, 2020 – Dec. 31, 2025	NYMEX HH less US$1.108/MMBtu
Natural gas	AECO 7A basis swap(2)	10,000 MMBtu/d	Oct. 1, 2020 – Dec. 31, 2025	NYMEX HH less US$1.115/MMBtu
Natural gas	AECO 7A basis swap(2)	10,000 MMBtu/d	Oct. 1, 2020 – Dec. 31, 2025	NYMEX HH less US$1.050/MMBtu
Natural gas	AECO 7A basis swap(2)	5,000 MMBtu/d	Jan. 1, 2021 – Dec. 31, 2025	NYMEX HH less US$1.178/MMBtu
Natural gas	AECO 7A basis swap(2)	10,000 MMBtu/d	Jan. 1, 2021 – Dec. 31, 2025	NYMEX HH less US$1.175/MMBtu
Natural gas	AECO 7A basis swap(2)	5,000 MMBtu/d	Jan. 1, 2021 – 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

At September 30, 2020, Birchcliff had the following financial derivative contracts in place in order to manage commodity price risk:

(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.

There were no financial derivative contracts entered into subsequent to September 30, 2020.

Birchcliff also enters into physical delivery contracts to manage commodity price risk. These contracts are considered normal executory sales contracts and are not recorded at fair value through profit or loss.

At September 30, 2020, the Corporation had the following physical delivery contract in place:

Product	Type of Contract	Quantity	Remaining Term	Contract Price
Natural gas	AECO 7A basis swap(1)	5,000 MMBtu/d	Oct. 1, 2020 – Dec. 31, 2023	NYMEX HH less US$1.205/MMBtu

(1) Birchcliff sold AECO basis swap.

There were no physical delivery contracts entered into subsequent to September 30, 2020.

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 September 30, 2020, Birchcliff had the following financial derivative contracts in place to manage interest rate risk:

Type of Contract	Index	Remaining Term(1)	Notional value	Fixed Rate
Interest rate swap	One-month banker's acceptance – CDOR(2)	Oct. 1 2020 – Mar. 1, 2024	$350 million	2.215%

(1) Transactions with common terms and the same counterparty have been aggregated and presented at the weighted average price.

(2) Canadian Dollar Offered Rate ("CDOR").

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 for the periods indicated:

				Three months endedSeptember 30,				Nine months endedSeptember 30,
		2020		2019		2020		2019
	($000s)	($/boe)	($000s)	($/boe)	($000s)	($/boe)	($000s)	($/boe)
Realized gain (loss)	(16,440)	(2.28)	1,603	0.22	(47,846)	(2.31)	20,238	0.95
Unrealized loss	(25,632)	(3.55)	(60,915)	(8.22)	(77,683)	(3.75)	(146,163)	(6.87)

Birchcliff realized a cash loss of $16.4 million and $47.8 million during the three and nine month Reporting Periods, respectively, primarily due to the settlement of financial NYMEX HH/AECO basis swap contracts that were outstanding in those periods.

Birchcliff recorded an unrealized non-cash loss on financial instruments of $25.6 million and $77.7 million in the three and nine month Reporting Periods, respectively, primarily due to the increase in the fair value liability of the Corporation's financial instruments to $210.3 million at September 30, 2020 from a liability position of $184.7 million and $132.6 million at June 30, 2020 and December 31, 2019, respectively. The fair value of the liability is the estimated discounted value to settle outstanding financial contracts at a point in time. The change in the fair value of Birchcliff's financial instruments was primarily attributable to: (i) the decrease in the forward basis spread between NYMEX HH and AECO 7A for contracts outstanding at September 30, 2020 as compared to the fair value previously assessed at June 30, 2020 and December 31, 2019; and (ii) the settlement of financial NYMEX HH/AECO basis swap contracts in the Reporting Periods.

The unrealized gains and losses on financial instruments can fluctuate materially from period-to-period due to movement in the forward strip commodity prices and interest rates. Unrealized gains and losses on financial instruments do not impact adjusted funds flow and may differ materially from the actual gains or losses realized on the eventual cash settlement of financial contracts in the period.

Royalties

The following table sets forth Birchcliff's royalty expense for the periods indicated:

		Three months ended		Nine months ended
		September 30,		September 30,
	2020	2019	2020	2019
Royalty expense ($000s)(1)	3,935	5,633	11,682	19,189
Royalty expense ($/boe)	0.55	0.76	0.56	0.90
Effective royalty rate (%)(2)	3%	5%	3%	4%

(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.

Birchcliff's per unit royalties decreased by 28% and 38% from the three and nine month Comparable Prior Periods, respectively, primarily due to the decline in the average realized light oil and condensate sales prices in the Reporting Periods and the effect these prices had on the sliding scale royalty calculation.

Operating Expense

The following table sets forth a breakdown of Birchcliff's operating expense for the periods indicated:

		Three months ended		Nine months ended
		September 30,		September 30,
($000s)	2020	2019	2020	2019
Field operating expense	21,380	21,766	64,130	68,776
Recoveries	(1,712)	(1,409)	(3,715)	(2,850)
Operating expense	19,668	20,357	60,415	65,926
Operating expense per boe	$2.73	$2.75	$2.91	$3.10

On a per unit basis, operating expense decreased by 1% and 6% from the three and nine month Comparable Prior Periods, respectively. The decreases were primarily due to various field optimization and cost-saving initiatives in Pouce Coupe and Gordondale, which included the Corporation's expanded liquids-handling capabilities in Pouce Coupe. Birchcliff's operating cost structure remained largely unaffected by the COVID-19 pandemic in the Reporting Periods.

Transportation and Other

		Three months ended		Nine months ended
		September 30,		September 30,
($000s)	2020	2019	2020	2019
Natural gas transportation	25,982	23,333	79,505	70,611
Liquids transportation	7,373	7,362	21,301	20,023
Fractionation(1)	(36)	1,454	3,246	3,125
Other fees	30	32	95	98
Transportation expense	33,349	32,181	104,147	93,857
Transportation expense per boe	$4.62	$4.34	$5.02	$4.41

Marketing purchases(2)	3,532	-	9,975	-
Marketing revenue(2)	(4,422)	-	(11,798)	-
Marketing gain(2)	(890)	-	(1,823)	-
Marketing gain per boe	$(0.13)	-	$(0.08)	-
Transportation and other expense	32,459	32,181	102,324	93,857
Transportation and other expense per boe	$4.49	$4.34	$4.94	$4.41

The following table sets forth Birchcliff's transportation and other expense for the periods indicated:

(1) Includes a $1.4 million prior-period equalization credit from third-party fractionation operators recorded in the three month Reporting Period.

(2) Marketing purchases and marketing revenue mainly represent the volumes purchased and sold to third parties, which are recorded on a gross basis for financial statement presentation purposes. Birchcliff enters into certain marketing purchase and sales arrangements to reduce its take-or-pay fractionation fees associated with third-party commitments. Any gains or losses from the purchase and sale of third-party products relate to the commodity price differential.

On a per unit basis, transportation expense increased by 6% and 14% from the three and nine month Comparable Prior Periods, respectively. The increases were primarily due to: (i) an additional 25,000 GJ/d of firm service transportation to Dawn that became available on November 1, 2019; (ii) additional AECO firm service transportation associated with Birchcliff's commitments on the NGTL system; and (iii) increased total liquids production in the Reporting Periods.

Operating Netback

The following table sets forth Birchcliff's average production and operating netback for the Corporation's Pouce Coupe assets, Gordondale assets and on a corporate basis for the periods indicated:

September 30,September 30,2020201920202019Pouce Coupe assets:Average production:Light oil (bbls/d)2593816Condensate (bbls/d)5,8454,4654,2413,995NGLs (bbls/d)1,1321,0321,134924Natural gas (Mcf/d)249,837282,286248,094275,591Total (boe/d)48,64152,55446,76150,867% of corporate production62%65%62%65%Liquids-to-gas ratio (bbls/MMcf)28.019.521.817.9Netback and cost ($/boe):Petroleum and natural gas revenue(1)19.1315.1317.1918.58Royalty expense(0.27)(0.27)(0.34)(0.37)Operating expense(1.95)(1.66)(2.12)(2.02)Transportation and other expense(4.90)(4.38)(5.26)(4.52)Operating netback12.018.829.4711.67Gordondale assets:Average production:Light oil (bbls/d)4,3804,8684,6614,826Condensate (bbls/d)1,4211,2791,3041,231NGLs (bbls/d)5,7666,5276,3036,154Natural gas (Mcf/d)109,01491,89299,69389,401Total (boe/d)29,73527,99028,88327,112% of corporate production38%35%38%35%Liquids-to-gas ratio (bbls/MMcf)106.1137.9123.1136.6Netback and cost ($/boe):Petroleum and natural gas revenue(1)20.9022.3018.9525.77Royalty expense(0.99)(1.68)(0.93)(1.90)Operating expense(3.97)(4.77)(4.18)(5.07)Transportation and other expense(3.87)(4.27)(4.40)(4.20)Operating netback12.0711.589.4414.60Total Corporate:Average production:Light oil (bbls/d)4,4054,8824,7004,845Condensate (bbls/d)7,2665,7445,5455,2266,8987,5597,4367,078NGLs (bbls/d)Natural gas (Mcf/d)358,851374,180347,787364,996		Three months ended	Nine months ended








































Total (boe/d)(2)78,37680,54875,64577,982
Liquids-to-gas ratio (bbls/MMcf)51.748.650.847.0
Netback and cost ($/boe):
Petroleum and natural gas revenue(1)19.8017.6217.8621.08
Royalty expense(0.55)(0.76)(0.56)(0.90)
Operating expense(2.73)(2.75)(2.91)(3.10)
Transportation and other expense(4.49)(4.34)(4.94)(4.41)
Operating netback12.039.779.4512.67

(1) Excludes the effects of financial instruments but includes the effects of physical delivery contracts.

(2) Includes other minor oil and natural gas properties which were not individually significant.

Pouce Coupe Montney/Doig Resource Play

Birchcliff's average production from its Pouce Coupe assets was 48,641 boe/d in the three month Reporting Period and 46,761 boe/d in the nine month Reporting Period, a 7% and 8% decrease, respectively, from the Comparable Prior Periods. The decreases were primarily due to natural production declines, proactive temporary production shut-ins to minimize frac-driven interaction and scheduled facility maintenance, partially offset by the incremental production from new horizontal condensate-rich natural gas wells that were brought on production in Pouce Coupe in the Reporting Periods. Production from the Pouce Coupe assets was also impacted by the on-stream timing of incremental production from the new condensate-rich 14-well pad which was brought on production in July and August 2020.

Birchcliff's liquids-to-gas ratio for the Pouce Coupe assets was 28.0 bbls/MMcf in the three month Reporting Period and 21.8 bbls/MMcf in the nine month Reporting Period, a 44% and 22% increase, respectively from the Comparable Prior Periods. The increases were primarily due to higher condensate recoveries and lower natural gas production rates from the new 14-well pad brought on production in Pouce Coupe in the three month Reporting Period.

Royalty expense for the Pouce Coupe assets was $0.27/boe in the three month Reporting Period and $0.34/boe in the nine month Reporting Period. Royalty expense in the three month Reporting Period was the same as the three month Comparable Prior Period. Royalty expense in the nine month Reporting Period decreased by 8% from the nine month Comparable Prior Period primarily due to the decline in the average realized condensate sales price and the effect this price had on the sliding scale royalty calculation.

Operating expense for the Pouce Coupe assets was $1.95/boe in the three month Reporting Period and $2.12/boe in the nine month Reporting Period, a 17% and 5% increase, respectively from the Comparable Prior Periods. The increases were primarily due to increased costs associated with higher total liquids production in Pouce Coupe as compared with the Comparable Prior Periods.

Transportation and other expense for the Pouce Coupe assets was $4.90/boe in the three month Reporting Period and $5.26/boe in the nine month Reporting Period, a 12% and 16% increase, respectively, from the Comparable Prior Periods. The increases were primarily due to additional firm service transportation to AECO and Dawn sales trading hubs and increased total liquids production in Pouce Coupe.

Gordondale Montney/Doig Resource Play

Birchcliff's average production from its Gordondale assets was 29,735 boe/d in the three month Reporting Period and 28,883 boe/d in the nine month Reporting Period, a 6% and 7% increase, respectively, from the Comparable Prior Periods. Production in the Reporting Periodsincreased primarily due to the incremental production from new horizontal oil wells that were brought on production in Gordondale since the Comparable Prior Periods, partially offset by natural production declines.

Birchcliff's liquids-to-gas ratio for the Gordondale assets was 106.1 bbls/MMcf in the three month Reporting Period and 123.1 bbls/MMcf in the nine month Reporting Period, a 23% and 10% decrease, respectively from the Comparable Prior Periods. The decreases were primarily due to higher natural gas production rates on the incremental production from the new horizontal oil wells that were brought on production in Gordondale.

Royalty expense for the Gordondale assets was $0.99/boe in the three month Reporting Period and $0.93/boe in the nine month Reporting Period, a 41% and 51% decrease, respectively, from the Comparable Prior Periods. The decreases were primarily due to the decline in the average realized light oil and condensate sales prices and the effect these prices had on the sliding scale royalty calculation.

Operating expense for the Gordondale assets was $3.97/boe in the three month Reporting Period and $4.18/boe in the nine month Reporting Period, a 17% and 18% decrease, respectively, from the Comparable Prior Periods. The decreases were primarily due to various field optimization initiatives which increased operating efficiencies in the Gordondale area.

Transportation and other expense for the Gordondale assets was $3.87/boe in the three month Reporting Period and $4.40/boe in the nine month Reporting Period, a 9% decrease and 5% increase, respectively, from the Comparable Prior Periods. The decrease in the three month Reporting Period was primarily due to an approximately $1.4 million priorperiod equalization credit from third-party fractionation operators recorded in the three month Reporting Period. The increase in the nine month Reporting Period was primarily due to additional firm service transportation to AECO and Dawn sales trading hubs.

Administrative Expense

The following table sets forth the components of Birchcliff's net administrative expense for the periods indicated:

			Three months ended	September 30,			Nine months ended	September 30,
		2020		2019		2020		2019
	($000s)	(%)	($000s)	(%)	($000s)	(%)	($000s)	(%)
Cash:
Salaries and benefits(1)	6,007	70	5,712	64	18,464	67	17,774	63
Other(2)	2,520	30	3,276	36	9,234	33	10,617	37
G&A expense, gross	8,527	100	8,988	100	27,698	100	28,391	100
Operating overhead recoveries	(32)	(1)	(36)	(1)	(100)	(1)	(115)	(1)
Capitalized overhead(3)	(3,691)	(42)	(3,480)	(38)	(11,011)	(39)	(10,496)	(36)
G&A expense, net	4,804	57	5,472	61	16,587	60	17,780	63
G&A expense, net per boe	$0.67		$0.74		$0.80		$0.84
Non-cash:
Other compensation	1,274	100	1,747	100	4,224	100	6,799	100
Capitalized compensation(3)	(702)	(55)	(988)	(57)	(2,357)	(56)	(3,319)	(49)
Other compensation, net	572	45	759	43	1,867	44	3,480	51
Other compensation, net per boe	$0.08		$0.10		$0.09		$0.16
Administrative expense, net	5,376		6,231		18,454		21,260
Administrative expense, net per boe	$0.75		$0.84		$0.89		$1.00

(1) Includes salaries and benefits paid to officers and employees of the Corporation and retainer fees, meeting fees and benefits paid to directors of the Corporation.

(2) Includes costs such as rent, legal, tax, insurance, computer hardware and software and other business expenses incurred by the Corporation.

(3) Includes a portion of gross G&A expenses and other compensation directly attributable to the exploration and development activities of the Corporation, which have been capitalized.

G&A expense in the Reporting Periods remained largely consistent with the Comparable Prior Periods. Other compensation expense decreased by 27% and 38% from the three and nine month Comparable Prior Periods, respectively, primarily due to a decrease in stock-based compensation expense resulting from lower fair value stock option grants outstanding during the Reporting Periods.

There was no significant impact to net administrative expenses during the Reporting Periods as a result of the COVID-19 pandemic.

The following table sets forth the Corporation's outstanding stock options for the periods indicated:

	Three months endedSeptember 30,							Nine months endedSeptember 30,
		2020		2019		2020		2019
	Number	Price ($)(1)	Number	Price ($)(1)	Number	Price ($)(1)	Number	Price ($)(1)
Outstanding, beginning	21,139,001	4.00	18,506,468	4.88	23,483,368	4.28	15,847,570	5.74
Granted(2)	53,000	1.16	136,000	2.36	177,500	1.20	4,955,200	3.51
Exercised	-	-	-	-	-	-	(23,867)	(3.08)
Forfeited	(8,500)	(1.18)	(33,901)	(3.70)	(66,067)	(2.93)	(202,402)	(4.28)
Expired	(49,000)	(6.47)	(76,199)	(6.46)	(2,460,300)	(6.59)	(2,044,133)	(8.56)
Outstanding, ending	21,134,501	3.99	18,532,368	4.85	21,134,501	3.99	18,532,368	4.85

(1) Calculated on a weighted average basis.

(2) Each stock option granted entitles the holder to purchase one common share at the exercise price.

At September 30, 2020, there were also 2,939,732 performance warrants outstanding with an exercise price of $3.00 and an expiry date of January 31, 2025.

Depletion and Depreciation Expense

Depletion and depreciation ("D&D") expense is a function of the estimated proved plus probable reserve additions, the F&D costs attributable to those reserves, the associated future development costs 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:

		Three months endedSeptember 30,		Nine months endedSeptember 30,
($000s)	2020	2019	2020	2019
Depletion and depreciation expense	54,374	56,108	158,205	159,808
Depletion and depreciation expense per boe	$7.54	$7.57	$7.63	$7.51

D&D expense on an aggregate basis for the Reporting Periods was lower as compared to Comparable Prior Periods primarily due to a decrease in production.

Finance Expense

The following table sets forth the components of the Corporation's finance expense for the periods indicated:

		Three months ended		Nine months ended
		September 30,		September 30,
($000s)	2020	2019	2020	2019
Cash:
Interest expense(1)	6,736	5,689	17,415	19,221
Interest expense per boe(1)	$0.93	$0.77	$0.84	$0.90
Non-cash:
Accretion(2)	627	995	2,186	2,554
Amortization of deferred financing fees	249	386	981	1,142
Other expenses	876	1,381	3,167	3,696
Other expenses per boe	$0.12	$0.18	$0.16	$0.17
Finance expense	7,612	7,070	20,582	22,917
Finance expense per boe	$1.05	$0.95	$1.00	$1.07

(1) The Credit Facilities are comprised of an extendible revolving syndicated term credit facility (the "Syndicated Credit Facility") of $900.0 million and an extendible revolving working capital facility (the "Working Capital Facility") of $100.0 million. Birchcliff can draw on its Syndicated Credit Facility using CDN dollar denominated bankers' acceptances and US dollar denominated LIBOR loans. The average effective interest rate under the Syndicated Credit Facility is determined based on: (i) the market interest rate of its drawn bankers' acceptances and/or LIBOR loans; and (ii) stamping fees. Birchcliff's stamping fees are calculated using a pricing margin grid and 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) income taxes, other compensation, gains and losses on sale of assets, unrealized gains and losses on financial instruments, gains and losses on securities, depletion, depreciation and amortization and impairment charges.

(2) Includes accretion on decommissioning obligations, lease obligations and post-employment benefit obligations.

Birchcliff's aggregate interest expense in the three and nine month Reporting Periods increased by 18% and decreased by 9%, respectively, from the Comparable Prior Periods.

The increase in the three month Reporting Period was primarily due to a higher average outstanding Syndicated Credit Facility balance as compared to the three month Comparable Prior Period and higher stamping fees applicable to the Syndicated Credit Facility, partially offset by lower average market interest rates on drawn loans.

The decrease in the nine month Reporting Period was primarily due to lower average market interest rates on drawn loans and lower stamping fees applicable to the Syndicated Credit Facility, partially offset by a higher average outstanding Syndicated Credit Facility balance as compared to the nine month Comparable Prior Period.

The following table sets forth the Corporation's average effective interest rates under its Credit Facilities for the periods indicated:

		Three months endedSeptember 30,		Nine months endedSeptember 30,
	2020	2019	2020	2019
Working Capital Facility	4.0%	4.7%	4.0%	4.7%
Syndicated Credit Facility(1)	3.4%	3.7%	3.2%	4.3%

(1) Average effective interest rate is mainly comprised of stamping fees and market interest rate component on drawn loans.

Birchcliff's average outstanding total Credit Facilities balance was approximately $773 million and $688 million in the three and nine month Reporting Periods, respectively, as compared to $614 million and $603 million in the Comparable Prior Periods, calculated as the simple average of the month-end amounts.

Other Income

The following table sets forth the components of the Corporation's other cash income for the periods indicated:

	Three months endedSeptember 30,						Nine months ended
							September 30,
		2020		2019		2020		2019
	($000s)	($/boe)	($000s)	($/boe)	($000s)	($/boe)	($000s)	($/boe)
Other income	640	0.08	99	0.02	4,064	0.19	498	0.03

Birchcliff's other cash income includes wage subsidy assistance under the Federal Government's Canada Emergency Wage Subsidy Program of $0.6 million and $3.4 million in the three and nine month Reporting Periods, respectively.

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:

	Three months endedSeptember 30,						Nine months endedSeptember 30,
		2020		2019		2020		2019
	($000s)	($/boe)	($000s)	($/boe)	($000s)	($/boe)	($000s)	($/boe)
Other (gains) and losses(1)	(1,100)	(0.15)	-	-	1,563	0.08	5,593	0.26

(1) Primarily comprised of non-cash long-term investments gains and losses.

On August 31, 2017, Birchcliff acquired securities consisting of 4,500,000 common A units in a limited partnership and 10,000,000 preferred units in a trust (collectively, the "Securities") at a combined investment value of $10 million. The Securities are not publicly listed and do not constitute significant investments. Birchcliff recorded a gain on investment of $1.1 million during the three month Reporting Period and a loss on investment of $2.0 million during the nine month Reporting Period.

Income Taxes

The following table sets forth the components of the Corporation's income taxes for the periods indicated:

		Three months ended		Nine months ended
		September 30,		September 30,
($000s)	2020	2019	2020	2019
Deferred tax recovery	5,953	12,005	30,102	32,653
Dividend tax expense on preferred shares	(763)	(768)	(2,300)	(2,306)
Income tax recovery	5,190	11,237	27,802	30,347
Income tax recovery per boe	$0.73	$1.50	$1.36	$1.42

Birchcliff's income taxes are primarily impacted by the before-tax net losses recorded in the respective periods. During the nine month Comparable Prior Period, Birchcliff recorded a deferred tax recovery of $18.9 million related to the reduction in the general corporate income tax rate from 12% to 8% as set forth by the Government of Alberta.

The Corporation's estimated income tax pools were $2.2 billion at September 30, 2020. 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:

	Tax pools as at
($000s)	September 30, 2020
Canadian oil and gas property expense	401,744
Canadian development expense	478,995
Canadian exploration expense	314,680
Undepreciated capital costs	336,253
Non-capital losses	641,415
SR&ED(1) & Investment tax credits	23,940
Financing costs and other	7,793
Estimated income tax pools	2,204,820

(1) Scientific research and experimental development ("SR&ED") tax pools.

CAPITAL EXPENDITURES

The following table sets forth a summary of the Corporation's capital expenditures for the periods indicated:

		Three months endedSeptember 30,		Nine months endedSeptember 30,
($000s)	2020	2019	2020	2019
Land	290	733	1,319	1,985
Seismic	163	304	681	4,087
Workovers	2,609	1,563	9,218	6,039
Drilling and completions	15,201	27,814	145,262	137,705
Well equipment and facilities	12,579	9,778	90,196	49,779
Finding and development capital	30,842	40,192	246,676	199,595
Acquisitions	-	1,209	14	40,608
Finding, development and acquisition capital	30,842	41,401	246,690	240,203
Administrative assets	351	220	1,316	1,908
Total capital expenditures	31,193	41,621	248,006	242,111

During the three month Reporting Period, Birchcliff had total capital expenditures of $31.2 million, which included approximately $13.8 million (44%) on the completion of Montney horizontal wells in Pouce Coupe, $1.4 million (4%) on the completion of Montney horizontal wells in Gordondale, and $3.6 million (12%) on the Inlet Liquids-Handling Facility.

During the nine month Reporting Period, Birchcliff had total capital expenditures of $248.0 million, which included approximately $98.4 million (40%) on the drilling and completion of Montney horizontal wells in Pouce Coupe, $46.8 million (19%) on the drilling and completion of Montney horizontal wells in Gordondale, $23.9 million (10%) on pipeline twinning and battery compression projects in Gordondale, and $34.7 million (14%) on the Inlet Liquids-Handling Facility.

During the nine month Reporting Period, Birchcliff drilled 20 (20.0 net) wells and completed 24 (24.0 net) wells in Pouce Coupe and drilled 8 (8.0 net) wells and completed 10 (10.0 net) wells in Gordondale.

The remaining capital during the Reporting Periods was primarily spent on land, seismic, infrastructure expansion, gas gathering and optimization projects in the Montney/Doig Resource Play and other oil and gas development projects in the Peace River Arch.

CAPITAL RESOURCES AND LIQUIDITY

Liquidity and Capital Resources

The following table sets forth a summary of the Corporation's capital resources for the periods indicated:

		Three months ended	Nine months ended
		September 30,	September 30,
($000s)	2020	2019	2020	2019
Adjusted funds flow	59,377	62,958	118,017	253,563
Changes in non-cash working capital from operations	(6,220)	(13,531)	(292)	(10,211)
Decommissioning expenditures	(180)	(519)	(976)	(1,843)
Exercise of stock options	-	-	-	73
Repurchase of equity securities	(25)	-	(635)	-
Financing fees paid on credit facilities	-	-	-	(990)
Lease payments	(573)	(537)	(1,719)	(1,611)
Dividends paid	(3,235)	(8,902)	(15,387)	(26,707)
Net change in revolving term credit facilities	18,365	16,041	161,703	33,445
Deposit on acquisition	-	-	-	3,900
Changes in non-cash working capital from investing	(36,343)	(13,840)	(12,742)	(7,491)
Capital resources	31,166	41,670	247,969	242,128

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 adjusted funds flow and available Credit Facilities. The COVID-19 pandemic has had a significant negative impact on oil prices and global capital markets. The disruption and volatility that has resulted from the COVID-19 pandemic may continue and could impact future oil price recovery and increase future costs of capital. Notwithstanding this, the Corporation believes that its internally generated adjusted funds flow and its existing undrawn Credit Facilities will provide sufficient liquidity to fund the remainder of its 2020 Capital Program and future capital expenditures, dividend distributions and working capital requirements for the foreseeable future. Birchcliff's adjusted funds flow depends on a number of factors, including, but not limited to, commodity prices and market diversification initiatives, production and sales volumes, royalties, operating and transportation expenses and foreign exchange rates.

The Corporation closely monitors commodity prices and its capital spending and has taken proactive measures to ensure liquidity and financial flexibility in the current environment, including the following:

On March 11, 2020, the Corporation announced the deferral of $65 million of capital spending in 2020, which represented approximately 19% of its original 2020 capital budget.
In connection with the semi-annual review of the borrowing base limit under the Credit Facilities which was completed by the Corporation's syndicate of lenders in May 2020, the borrowing base limit was confirmed at $1.0 billion. The Credit Facilities do not mature until May 11, 2022 and do not contain any financial maintenance covenants. At September 30, 2020, the Corporation has $222.6 million in unused credit capacity available under its Credit Facilities, after adjusting for outstanding letters of credit and unamortized fees.
Birchcliff continues to engage in strategic risk management activities. Birchcliff's market diversification initiatives have increased its exposure to various natural gas sales trading hubs in North America. 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 sales trading hub in Southern Ontario. Birchcliff also has various financial and physical risk management contracts in place to 2025 with exposure to NYMEX HH pricing. See "Discussion of Operations – Petroleum and Natural Gas Revenue" and "Discussion of Operations – Risk Management" in this MD&A.
Birchcliff reduced the amount of its quarterly common share dividend from $0.02625 per share (or $0.105 per share annually) to $0.005 per share (or $0.02 per share annually) commencing with the quarter ending June 30, 2020, which is expected to result in the preservation of cash in 2020.
Birchcliff received $3.4 million in subsidies under the Federal Government's Canada Emergency Wage Subsidy Program during the nine month Reporting Period. Birchcliff continues to actively monitor all government announcements to determine its eligibility for any relief that is being provided through this highly volatile and challenging period.

Working Capital

The Corporation's adjusted working capital deficit decreased to $12.7 million at September 30, 2020 from $23.4 million at December 31, 2019. The deficit at September 30, 2020 was largely comprised of costs incurred on the completion of new wells in Pouce Coupe and infrastructure capital.

At September 30, 2020, the major component of Birchcliff's current assets was revenue to be received from its marketers in respect of September 2020 production (88%), which was subsequently received in October 2020. 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. Current liabilities at September 30, 2020 largely consisted of trade payables and accrued capital and operating expenses.

Adjusted working capital includes items expected from normal operations, including trade receivables and payables, accruals, deposits and prepaid expenses and excludes the current portion of the fair value of financial instruments and capital securities. The Corporation's adjusted working capital varies from quarter to quarter primarily due to the timing of such items, as well as the size and timing of the Corporation's capital expenditures, volatility in commodity prices and changes in revenue, among other things. Birchcliff manages its adjusted working capital deficit using adjusted funds flow and advances under its Credit Facilities. The adjusted working capital deficit position does not reduce the amount available under the Credit Facilities.

Bank Debt

Management of debt levels continues to be a priority for Birchcliff given the current volatility in the commodity price environment. Total debt, including the adjusted working capital deficit, was $784.4 million at September 30, 2020 compared to $632.6 million at December 31, 2019. Total debt increased from December 31, 2019 primarily due to adjusted funds flow being less than the aggregate of total capital expenditures and dividends paid in the Reporting Periods. Birchcliff spent $248.0 million in capital expenditures in the nine month Reporting Period primarily on the drilling and completions of new horizontal oil and condensate-rich natural gas wells and infrastructure costs related to the Inlet Liquids-Handling Facility.

The following table sets forth the Corporation's unused Credit Facilities for the periods indicated:

As at, ($000s)	September 30, 2020	December 31, 2019
Maximum borrowing base limit(1):
Revolving term credit facilities	1,000,000	1,000,000
Principal amount utilized:
Drawn revolving term credit facilities	(773,186)	(611,483)
Outstanding letters of credit(2)	(4,185)	(4,185)
	(777,371)	(615,668)
Unused credit	222,629	384,332
% unused credit	22%	38%

(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 P&NG reserves. In connection with the semi-annual review of the borrowing base limit under the Credit Facilities which was completed by the Corporation's syndicate of lenders in May 2020, the borrowing base limit was confirmed at $1.0 billion. 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 September 30, 2020 was 18.07. The Credit Facilities do not contain any financial maintenance covenants.

(2) Letters of credit are issued to various service providers. The letters of credit reduce the amount available under the Working Capital Facility.

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 September 30, 2020:

($000s)	2020	2021	2022-2024	Thereafter
Accounts payable and accrued liabilities	71,096	-	-	-
Drawn revolving term credit facilities	-	-	773,186	-
Firm transportation and fractionation(1)	33,688	137,787	366,387	304,130
Natural gas processing(2)	4,324	17,155	51,512	137,334
Operating commitments(3)	492	2,260	6,780	6,968
Lease payments	752	3,008	8,029	8,821
Capital securities(4)	49,046	-	-	-
Estimated contractual obligations(5)	159,398	160,210	1,205,894	457,253

(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) Birchcliff has 1,961,835 Series C Preferred Shares outstanding at September 30, 2020, which are redeemable by their holders at $25.00 per share. For further details, see "Outstanding Share Information – Capital Securities" in this MD&A and the interim condensed financial statements of the Corporation and related notes for the Reporting Periods.
(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 September 30, 2020 to be approximately $207.8 million and are estimated to be incurred as follows: 2020 - $2.0 million, 2021 – $2.2 million and $203.6 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 has certain arrangements, all of which are reflected in the contractual obligations and commitments table above, which were entered into in the normal course of operations.

OUTSTANDING SHARE INFORMATION

At November 12, 2020, Birchcliff had common shares, Series A Preferred Shares and Series C Preferred Shares that were outstanding. Birchcliff's common shares are listed on the TSX under the symbol "BIR". Birchcliff's Series A Preferred Shares and Series C Preferred Shares are individually listed on the TSX under the symbols "BIR.PR.A" and "BIR.PR.C", respectively.

The following table sets forth the common shares issued by the Corporation:

	Common Shares
Balance at December 31, 2019	265,935,229
Conversion of Series C Preferred Shares(1)	464,562
Normal course issuer bid(2)	(464,562)
Balance at September 30, 2020	265,935,229
Exercise of options	3,500
Balance at November 12, 2020	265,938,729

(1) See capital securities note below

(2) Birchcliff purchased 464,562 common shares pursuant to its normal course issuer bid.

At November 12, 2020, the Corporation had the following securities outstanding: 265,938,729 common shares; 2,000,000 Series A Preferred Shares; 1,961,835 Series C Preferred Shares; 21,074,001 stock options to purchase an equivalent number of common shares; and 2,939,732 performance warrants to purchase an equivalent number of common shares.

Capital Securities

Subject to the provisions of the Business Corporations Act (Alberta) and the provisions governing the Series C Preferred Shares (the "Provisions"), a holder of Series C Preferred Shares may, at its option, upon giving notice in accordance with the Provisions (the "Notice of Redemption"), redeem for cash, all or any number of Series C Preferred Shares held by such holder on the last day of a financial quarter at $25.00 per share, together with all accrued and unpaid dividends to but excluding the date fixed for redemption.

Upon receipt of the Notice of Redemption, the Corporation may, at its option (subject, if required, to stock exchange approval), upon not less than 20 days' prior written notice, elect to convert all such Series C Preferred Shares into common shares. The number of common shares into which each Series C Preferred Share may be so converted will be determined by dividing the amount of $25.00, together with all accrued and unpaid dividends to but excluding the date fixed for conversion, by the greater of $2.00 and 95% of the "Current Market Price" (as determined in accordance with the Provisions) of the common shares.

The Corporation received Notices of Redemptions for 38,165 Series C Preferred Shares in the nine month Reporting Period. The Corporation elected to settle in cash the redemption of 1,000 Series C Preferred Shares at $25.00 per share for a total of $25,000. The Corporation elected to convert the remaining 37,165 Series C Preferred Shares into common shares and accordingly issued a total of 464,562 common shares.

Dividends

The following table sets forth the dividend distributions by the Corporation for each class of shares for the periods indicated:

		Three months ended	Nine months endedSeptember 30,
		September 30,
	2020	2019	2020	2019
Common shares:
Dividend distribution ($000s)	1,330	6,981	9,638	20,942
Per common share ($)	0.0050	0.0263	0.0121	0.0263
Preferred shares – Series A:
Series A dividend distribution ($000s)	1,046	1,046	3,140	3,140
Per Series A Preferred Share ($)	0.5234	0.5234	0.5234	0.5234
Preferred shares – Series C:
Series C dividend distribution ($000s)	859	875	2,609	2,625
Per Series C Preferred Share ($)	0.4375	0.4375	0.4375	0.4375

All dividends have been designated as "eligible dividends" for the purposes of the Income Tax Act (Canada).

In the second quarter of 2020, the Corporation reduced the amount of its quarterly common share dividend from $0.02625 per share (or $0.105 per share annually) to $0.005 per share (or $0.02 per share annually).

On September 1, 2020, the Corporation's Board of Directors declared a quarterly cash dividend on its common shares, Series A Preferred Shares and Series C Preferred Shares which was paid on September 30, 2020.

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,	Sep. 30,2020	Jun. 30,2020	Mar. 31,2020	Dec. 31,2019	Sep. 30,2019	Jun. 30,2019	Mar. 31,2019	Dec. 31,2018

Average production (boe/d)	78,376	74,950	73,580	77,962	80,548	78,453	74,884	76,408
Average realized light oil sales price ($/bbl)(1)	48.50	25.72	53.18	67.58	67.15	72.25	66.08	41.39
Average realized condensate sales price ($/bbl)(1)	48.27	31.09	58.48	68.80	65.94	71.69	65.45	55.99
Average realized NGLs sales price ($/bbl)(1)	14.05	12.05	12.02	16.62	9.75	11.13	17.71	21.60
Average realized natural gas sales price ($/Mcf)(1)	2.48	2.22	2.29	2.81	1.71	1.95	3.55	3.03
Average realized sales price ($/boe)	19.80	15.27	18.41	22.97	17.62	19.59	26.45	22.01
P&NG revenue ($000s)(1)	142,779	104,180	123,263	164,759	130,588	139,857	178,355	154,720
Operating expense ($/boe)	2.73	2.89	3.14	3.06	2.75	3.17	3.40	3.51
F&D capital expenditures ($000s)	30,842	83,473	132,361	56,800	40,192	67,937	91,466	52,321
Total capital expenditures ($000s)	31,193	83,974	132,840	58,136	41,621	68,532	131,958	52,886
Cash flow from operating activities ($000s)	52,977	13,221	50,551	85,557	48,908	97,857	94,744	92,200
Adjusted funds flow ($000s)	59,377	21,746	36,894	80,941	62,958	73,957	116,648	81,517
Per common share – basic ($)	0.22	0.08	0.14	0.30	0.24	0.28	0.44	0.31
Per common share – diluted ($)	0.22	0.08	0.14	0.30	0.24	0.28	0.44	0.30
Free funds flow ($000s)	28,535	(61,727)	(95,467)	24,141	22,766	6,020	25,182	29,196
Net income (loss) ($000s)	(16,646)	(38,475)	(44,154)	(17,937)	(45,843)	(8,458)	16,846	71,947
Net income (loss) to common shareholders ($000s)(2)	(17,692)	(39,522)	(45,201)	(18,984)	(46,889)	(9,505)	15,799	70,900
Per common share – basic ($)	(0.07)	(0.15)	(0.17)	(0.07)	(0.18)	(0.04)	0.06	0.27
Per common share – diluted ($)	(0.07)	(0.15)	(0.17)	(0.07)	(0.18)	(0.04)	0.06	0.27
Total assets ($ million)	2,912	2,929	2,871	2,817	2,822	2,840	2,860	2,763
Long-term bank debt ($000s)	771,706	753,092	619,055	609,177	638,631	622,282	611,911	605,267
Total debt ($000s)	784,414	807,573	739,631	632,582	644,407	654,709	626,454	641,484
Dividends on common shares ($000s)	1,330	1,327	6,981	6,981	6,981	6,981	6,980	6,648
Dividends on pref. shares – Series A ($000s)	1,046	1,047	1,047	1,047	1,046	1,047	1,047	1,047
Dividends on pref. shares – Series C ($000s)	859	875	875	875	875	875	875	875
Pref. shares outstanding – Series A (000s)	2,000	2,000	2,000	2,000	2,000	2,000	2,000	2,000
Pref. shares outstanding – Series C (000s)	1,962	1,963	2,000	2,000	2,000	2,000	2,000	2,000
Common shares outstanding (000s)
Basic	265,935	265,935	265,935	265,935	265,935	265,935	265,924	265,911
Diluted	290,009	290,014	290,037	292,358	287,407	287,381	287,480	284,699
Wtd. avg. common shares outstanding (000s)
Basic	265,935	265,935	265,935	265,935	265,935	265,933	265,914	265,910
Diluted	265,935	265,935	265,935	265,935	265,935	265,933	266,382	267,288

(1) Excludes the effects of financial instruments but includes the effects of physical delivery contracts.

(2) Reduced for the Series A Preferred Share dividends paid in the period.

Quarterly average daily production volumes were impacted primarily by Birchcliff's successful drilling of new horizontal wells brought on production in Pouce Coupe and Gordondale and natural production declines during those periods.

P&NG revenue and adjusted funds flow in the last eight quarters were largely impacted by quarterly production and the average realized sales price received for Birchcliff's production. Over the last eight quarters, Birchcliff's adjusted funds flow was also impacted by realized gains and losses on the settlement of financial instruments and lower trending operating expenses primarily due to reduced third-party processing fees and higher trending transportation and other expense primarily due to added market diversification initiatives and additional AECO firm service.

Birchcliff's net income (loss) in each of the last eight quarters was largely impacted by adjusted funds flow and certain non-cash adjustments, including depletion expense and unrealized mark-to-market gains and losses on financial instruments after giving effect to income taxes.

The Corporation's F&D and total capital expenditures fluctuate quarter-to-quarter based on the outlook in commodity prices and market conditions, the timing of drilling and completions operations and the timing of acquisitions and dispositions.

Long-term debt and total debt fluctuate quarter-to-quarter primarily based on changes in adjusted funds flow, capital expenditures and dividends paid. Long-term debt in the last three quarters has increased due to adjusted funds flow being less than total capital expenditures and dividends paid in the respective periods.

The Corporation distributes dividends on its common shares, Series A Preferred Shares and Series C Preferred Shares when declared and approved by the Board of Directors. On June 2, 2020, the Corporation reduced the amount of its quarterly common share dividend from $0.02625 per share to $0.005 per share with the first reduced payment taking effect for the quarter ended June 30, 2020.

Quarterly variances in free funds flow are primarily due to fluctuations in adjusted funds flow and F&D capital expenditures.

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

There were no changes in the Corporation's internal control over financial reporting ("ICFR") that occurred during the period beginning on July 1, 2020 and ended on September 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Corporation's ICFR. Birchcliff's ICFR was not impacted by the COVID-19 pandemic during the Reporting Periods.

CRITICAL ACCOUNTING ESTIMATES

The preparation of the financial statements requires management to make judgments, estimates and assumptions that affect the application of IFRS accounting policies, 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. The Corporation's use of estimates, judgments and assumptions in preparing the interim condensed financial statements for the Reporting Periods and the Comparable Prior Periods is discussed in Note 3 of the annual audited financial statements for the year ended December 31, 2019.

Management cannot reasonably estimate the length or severity of the COVID-19 pandemic, or the extent to which the disruption will impact the Corporation's statements of net loss and comprehensive loss, statements of financial position or statements of cash flows in fiscal 2020. The potential direct and indirect impacts of the economic downturn have been considered in management's estimates and assumptions at September 30, 2020 and have been reflected in the Corporation's unaudited interim financial statements for the Reporting Periods.

CHANGES IN ACCOUNTING POLICIES

Accounting Pronouncements Adopted

On January 1, 2020, Birchcliff adopted the amendment as issued on October 22, 2018 to IFRS 3: Business Combinations ("IFRS 3"). IFRS 3 sets out the principles in accounting for the acquisition of a business.

The amendments to this standard include a change in the definition of a business and the addition of an optional concentration test to determine if the acquisition is a business for any acquisition occurring on or after January 1, 2020. The amended definition of a business under IFRS 3 is that a business consists of inputs and processes applied to those inputs that have the ability to contribute to the creation of outputs. The three elements of a business are defined as follows:

Input: any economic resource that creates outputs, or has the ability to contribute to the creation of outputs, when one or more processes are applied to it.
Process: any system, standard, protocol, convention or rule that, when applied to an input or inputs, creates outputs or has the ability to contribute to the creation of outputs.
Output: the result of inputs and processes applied to those inputs that provide goods or services to customers, generate investment income or generate other income from ordinary activities.

The optional concentration test permits a simplified assessment of whether an acquired set of activities and assets is in fact a business. An entity may elect to apply, or not apply, the test. An entity may make such an election separately for each transaction or other event. If the concentration test is met, the set of activities and assets is determined not to be a business and no further assessment is needed. The amendment to IFRS 3 had no effect to the Corporation for the Reporting Periods.

Accounting Policies Adopted

Government Grants

Government grants are recognized when there is reasonable assurance that the grant will be received and all attached conditions will be complied with. If a grant is received but reasonable assurance and compliance with conditions is not achieved, the grant is recognized as a deferred liability until such conditions are fulfilled. When the grant relates to an expense item, it is recognized as other income in profit or loss on a systematic basis in the period in which the costs are incurred.

RISK FACTORS AND RISK MANAGEMENT

Birchcliff's financial and operational performance is potentially affected by a number of factors, including, but not limited to, financial risks, risks relating to economic conditions, business and operational risks, environmental and regulatory risks and other risks. A detailed discussion of the risk factors affecting the Corporation is presented under the headings "Risk Factors and Risk Management" in the MD&A for the year ended December 31, 2019 and "Risk Factors" in the AIF. The following risk factor supplements those disclosed in Birchcliff's AIF and MD&A for the year ended December 31, 2019.

COVID-19 Pandemic

The COVID-19 pandemic has adversely affected and could continue to adversely affect the Corporation's business

On March 10, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic prompting many countries around the world to close international borders and order the closure of institutions and businesses. The COVID-19 pandemic has had a significant negative impact on global economic conditions. This has included a sharp decrease in crude oil demand which, combined with other macro-economic conditions, has resulted in significant volatility in oil and natural gas commodity prices, as well as increased economic uncertainty.

There is significant ongoing uncertainty surrounding COVID-19 and the extent and duration of the impacts that Birchcliff may experience. While the duration and full impact of the COVID-19 pandemic is not yet known, the effect of low commodity prices as a result of reduced demand associated with the impact of COVID-19 has had, and may continue to have a negative impact on the Corporation's business, results of operations, financial condition and the environment in which it operates. Low prices for crude oil and natural gas will reduce Birchcliff's cash flow, impact its level of capital investment and may result in the reduction of production at certain producing properties. Although Birchcliff determined there were no impairment indicators present at September 30, 2020, further declines in commodity prices could lead to future impairments on the Corporation's P&NG properties and assets. Furthermore, the Corporation may from time to time have restricted access to capital and increased borrowing costs. In addition to the economic impacts associated with falling commodity prices, the effects of COVID-19 may also include disruptions to production operations, access to materials and services, increased employee absenteeism from illness and temporary closures of the Corporation's facilities. COVID-19 may also increase the Corporation's third-party credit risk and the risk that counterparties default on their contractual obligations to the Corporation or declare force majeure. All of the foregoing may adversely and materially affect Birchcliff's business, results of operations, financial condition, prospects and its ability to pay dividends.

The extent to which the Corporation's business, results of operations, financial condition and prospects are affected by COVID-19 will depend on various factors and consequences beyond its control, such as the duration and scope of the pandemic, additional actions taken by business and government in response to the pandemic and the speed and effectiveness of responses to combat the virus.

Additionally, the COVID-19 pandemic and its effect on local and global economic conditions could also aggravate the other risk factors identified in Birchcliff's AIF and MD&A for the year ended December 31, 2019, the extent of which is not yet known.

ABBREVIATIONS

AECO	benchmark price for natural gas determined at the AECO 'C' hub in southeast Alberta
ATP	Alliance Trading Pool
bbl	barrel
bbls	barrels
bbls/d	barrels per day
boe	barrel of oil equivalent
boe/d	barrel of oil equivalent per day
	condensate pentanes plus (C5+)
F&D	finding and development
G&A	general and administrative
GAAP	generally accepted accounting principles for Canadian public companies which are currently IFRS
GJ	gigajoule
GJ/d	gigajoules per day
HH	Henry Hub
IFRS	International Financial Reporting Standards as issued by the International Accounting Standards Board
m3	cubic metres
Mcf	thousand cubic feet
Mcf/d	thousand cubic feet per day
Mcfe	thousand cubic feet of gas equivalent
MJ	megajoule
MM$	millions of dollars
MMBtu	million British thermal units
MMBtu/d	million British thermal units per day
MMcf	million cubic feet
MMcf/d	million cubic feet per day
MSW	price for mixed sweet crude oil at Edmonton, Alberta
NGLs	natural gas liquids consisting of ethane (C2), propane (C3) and butane (C4) and specifically excluding condensate
NGTL	NOVA Gas Transmission Ltd.
NYMEX	New York Mercantile Exchange
OPEC+	Organization of the Petroleum Exporting Countries ("OPEC"), with certain non-OPEC oil exporting countries
P&NG	petroleum and natural gas
TCPL	TransCanada PipeLines Limited
WTI	West Texas Intermediate, the reference price paid in U.S. dollars at Cushing, Oklahoma, for crude oil of standard grade
000s	thousands
$000s	thousands of dollars

NON-GAAP MEASURES

This MD&A uses the terms "adjusted funds flow", "adjusted funds flow per common share", "free funds flow", "transportation and other expense", "operating netback", "adjusted funds flow netback", "total cash costs", "adjusted working capital deficit" and "total debt". These measures 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. Management believes that these non-GAAP measures assist management and investors in assessing Birchcliff's profitability, efficiency, liquidity and overall performance. Each of these measures is discussed in further detail below.

"Adjusted funds flow" denotes cash flow from operating activities before the effects of decommissioning expenditures and changes in non-cash operating working capital and "adjusted funds flow per common share" denotes adjusted funds flow divided by the basic or diluted weighted average number of common shares outstanding for the period. 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. 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 and adjusted funds flow per common share assist management and investors in assessing Birchcliff's operating performance, as well as its ability to generate cash necessary to fund sustaining and/or growth capital expenditures, repay debt, settle decommissioning obligations and pay common share and preferred share dividends. Investors are cautioned that adjusted funds flow should not be construed as an alternative to or more meaningful than cash flow from operating activities or net income or loss as determined in accordance with GAAP as an indicator of Birchcliff's performance. "Free funds flow" denotes adjusted funds flow less F&D capital expenditures. Management believes that free funds flow assists management and investors in assessing Birchcliff's ability to further generate shareholder returns through a number of initiatives, including but not limited to, potential debt repayment, common share repurchases, future dividend increases and acquisitions. The following table provides a reconciliation of cash flow from operating activities, as determined in accordance with GAAP, to adjusted funds flow and free funds flow for the periods indicated:

		Three months endedSeptember 30,		Nine months endedSeptember 30,
($000s)	2020	2019	2020	2019
Cash flow from operating activities	52,977	48,908	116,749	241,509
Change in non-cash operating working capital	6,220	13,531	292	10,211
Decommissioning expenditures	180	519	976	1,843
Adjusted funds flow	59,377	62,958	118,017	253,563
F&D capital expenditures	(30,842)	(40,192)	(246,676)	(199,595)
Free funds flow	28,535	22,766	(128,659)	53,968

"Transportation and other expense" denotes transportation expense plus marketing purchases minus marketing revenue. Birchcliff may enter into certain marketing purchase and sales arrangements with the objective of reducing any available transportation and/or fractionation fees associated with its take-or-pay commitments. Management believes that transportation and other expense assists management and investors in assessing Birchcliff's total cost structure related to transportation activities.

"Operating netback" denotes petroleum and natural gas revenue less royalty expense, less operating expense and less transportation and other expense. "Adjusted funds flow netback" denotes petroleum and natural gas revenue less royalty expense, less operating expense, less transportation and other expense, less net G&A expense, less interest expense and less any realized losses (plus realized gains) on financial instruments and plus any other cash income sources. All netbacks are calculated on a per unit basis, unless otherwise indicated. Management believes that operating netback and adjusted funds flow netback assist management and investors in assessing Birchcliff's operating results by isolating the impact of production volumes to better analyze its performance against prior periods on a comparable basis. The following table provides a breakdown of Birchcliff's operating netback and adjusted funds flow netback for the periods indicated:

					Nine months ended
	Three months ended
	September 30,			September 30,
		2020		2019		2020		2019
	($000s)	($/boe)	($000s)	($/boe)	($000s)	($/boe)	($000s)	($/boe)
Petroleum and natural gas revenue	142,779	19.80	130,588	17.62	370,222	17.86	448,800	21.08
Royalty expense	(3,935)	(0.55)	(5,633)	(0.76)	(11,682)	(0.56)	(19,189)	(0.90)
Operating expense	(19,668)	(2.73)	(20,357)	(2.75)	(60,415)	(2.91)	(65,926)	(3.10)
Transportation and other expense	(32,459)	(4.49)	(32,181)	(4.34)	(102,324)	(4.94)	(93,857)	(4.41)
Operating netback	86,717	12.03	72,417	9.77	195,801	9.45	269,828	12.67
G&A, net	(4,804)	(0.67)	(5,472)	(0.74)	(16,587)	(0.80)	(17,780)	(0.84)
Interest expense	(6,736)	(0.93)	(5,689)	(0.77)	(17,415)	(0.84)	(19,221)	(0.90)
Realized gain (loss) on financial instruments	(16,440)	(2.28)	1,603	0.22	(47,846)	(2.31)	20,238	0.95
Other income	640	0.08	99	0.02	4,064	0.19	498	0.03
Adjusted funds flow netback	59,377	8.23	62,958	8.50	118,017	5.69	253,563	11.91

(1) All per boe amounts are calculated by dividing each aggregate financial amount by the production (boe) in the respective period.

The breakdown for the operating netback from the Pouce Coupe Gas Plant is provided under the heading "Pouce Coupe Gas Plant Netbacks" in this MD&A.

"Total cash costs" are comprised of royalty, operating, transportation and other, G&A and interest expenses. Total cash costs are calculated on a per unit basis. Management believes that total cash costs assists management and investors in assessing Birchcliff's efficiency and overall cash cost structure.

"Adjusted working capital deficit" is calculated as current assets minus current liabilities excluding the effects of any current portion of financial instruments and capital securities. In the Comparable Prior Periods, Birchcliff's capital securities were long-term in nature and therefore no adjustment for capital securities was made to adjusted working capital deficit for that period. Management believes that adjusted working capital deficit assists management and investors in assessing Birchcliff's short-term liquidity. The following table reconciles working capital deficit (current assets minus current liabilities), as determined in accordance with GAAP, to adjusted working capital deficit:

As at, ($000s)	September 30, 2020	December 31, 2019	September 30, 2019
Working capital deficit	92,843	100,199	70,742
Financial instrument – current liability	(31,089)	(26,949)	(15,198)
Capital securities – current liability	(49,046)	(49,845)	(49,768)
Adjusted working capital deficit	12,708	23,405	5,776

"Total debt" is calculated as the revolving term credit facilities plus adjusted working capital deficit. Management believes that total debt assists management and investors in assessing Birchcliff's liquidity. The following table provides a reconciliation of the revolving term credit facilities, as determined in accordance with GAAP, to total debt:

As at, ($000s)	September 30, 2020	December 31, 2019	September 30, 2019
Revolving term credit facilities	771,706	609,177	638,631
Adjusted working capital deficit	12,708	23,405	5,776
Total debt	784,414	632,582	644,407

ADVISORIES

Unaudited Information

All financial and operational information contained in this MD&A for the Reporting Periods and the Comparable Prior Periods is unaudited.

Currency

Unless otherwise indicated, all dollar amounts are expressed in Canadian dollars and all references to "$" and "CDN$" are to Canadian dollars and all references to "US$" are to United States dollars.

MMBtu Pricing Conversions

$1.00 per MMBtu equals $1.00 per Mcf based on a standard heat value of 37.4 MJ/m3 or a heat uplift of 1.055 when converting from $/GJ.

Boe and Mcfe Conversions

Boe amounts have been calculated by using the conversion ratio of 6 Mcf of natural gas to 1 bbl of oil and Mcfe amounts have been calculated by using the conversion ratio of 1 bbl of oil to 6 Mcf of natural gas. Boe and Mcfe amounts may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl and an Mcfe conversion ratio of 1 bbl: 6 Mcf 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 MD&A contains metrics commonly used in the oil and natural gas industry, including netbacks. 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 where similar terminology is used. 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 netbacks, see "Non-GAAP Measures" in this MD&A.

Capital Expenditures

Unless otherwise indicated, references in this MD&A to: (i) "F&D capital" denotes capital for land, seismic, workovers, drilling and completions and well equipment and facilities; and (ii) "total capital expenditures" denotes F&D capital plus acquisitions, less any dispositions, plus administrative assets.

Forward-Looking Statements

Certain statements contained in this MD&A 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 MD&A relate to future events or Birchcliff's future plans, operations or performance 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" 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 MD&A contains forward‐looking statements relating to the following:

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 "COVID-19 Operating Environment", "Risk Factors and Risk Management" and elsewhere in this MD&A as it relates to the expected impacts of the COVID-19 pandemic,

including that the COVID-19 pandemic is expected to continue to have a significant impact on Birchcliff's business, results of operations, financial condition and the environment in which it operates;

Birchcliff's belief that generating free funds flow and the repayment of debt in 2021 will provide it with the most optionality to take advantage of future opportunities in its industry and give it the ability to maximize future shareholder returns;
the information set forth under the heading "Outlook and Guidance" and elsewhere in this MD&A as it relates to Birchcliff's outlook and guidance, including: statements regarding the Corporation's 2021 outlook (including: that, based on current strip prices, Birchcliff expects to generate free funds flow of approximately $140 million in 2021, with priority being given to debt reduction; that it is currently targeting F&D capital spending of $200 million to $220 million and an annual average production rate of 78,000 to 80,000 boe/d in 2021; that it expects to be able to maintain its production at or near 2020 levels with less F&D capital; that it expects facilities and infrastructure spending in 2021 to decrease by approximately 70%, from approximately $75 million in 2020 to approximately $20 million in 2021; that the 2021 capital program will be designed to provide Birchcliff with significant optionality to take advantage of volatile commodity prices; that as a result of Birchcliff's large inventory of potential future drilling locations, the Corporation has the ability to focus on natural gas, liquids-rich natural gas or light oil drilling; and statements that Birchcliff expects to announce details of its 2021 capital program and guidance in January 2021); statements with respect to the Corporation's 2020 guidance (including: that the Corporation's annual average production is now anticipated to be 76,000 to 77,000 boe/d and its average production in Q4 2020 is now expected to be 78,000 to 79,000 boe/d; that its adjusted funds flow is now anticipated to be $195 million; that its F&D capital expenditures are expected to be approximately $285 million; statements that total debt is expected to decrease throughout the remainder of 2020, with total debt at year end anticipated to be $740 million to $760 million, a further reduction of $24 million to $44 million from September 30, 2020; that Birchcliff expects to generate significant free funds flow in Q4 2020, which will be directed towards debt reduction; and estimates of annual and Q4 average production, annual commodity mix, average expenses, adjusted funds flow, F&D capital expenditures, free funds flow, total debt and natural gas market exposure);
Birchcliff's market diversification and risk management activities and any anticipated benefits to be derived therefrom;
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: statements 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; statements that Birchcliff's capital resources primarily consist of adjusted funds flow and available Credit Facilities; statements that the disruption and volatility that has resulted from the COVID-19 pandemic may continue and could impact future oil price recovery and increase future costs of capital; the Corporation's belief that its internally generated adjusted funds flow and its existing undrawn Credit Facilities will provide sufficient liquidity to fund the remainder of its 2020 Capital Program and future capital expenditures, dividend distributions and working capital requirements for the foreseeable future; statements regarding the Corporation's financial flexibility; statements that the Corporation's reduced common share dividend is expected to result in the preservation of cash in 2020; the Corporation's expectation that counterparties will be able to meet their financial obligations; and statements that management of debt levels continues to be a priority for Birchcliff;
estimates of Birchcliff's material contractual obligations and commitments and decommissioning obligations; and
statements regarding potential transactions.

With respect to the forward-looking statements contained in this MD&A, assumptions have been made regarding, among other things: the degree to which the Corporation's results of operations and financial condition will be disrupted by circumstances attributable to the COVID-19 pandemic and the responses of governments and the public to the pandemic; prevailing and future commodity prices and differentials, currency 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 environmental, climate change and other laws; future cash flow, debt and dividend levels; future operating, transportation, marketing, 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 success of new wells drilled; reserves and resource 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 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 availability of hedges on terms acceptable to Birchcliff; 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:

Birchcliff's 2020 guidance (as updated November 12, 2020) assumes the following commodity prices and exchange rate: an average WTI price of US$37.50/bbl; an average WTI-MSW differential of CDN$8.10/bbl; an average AECO 5A price of CDN$2.20/GJ; an average Dawn price of US$1.95/MMBtu; an average NYMEX HH price of US$2.10/MMBtu; and an exchange rate (CDN$ to US$1) of 1.35.
Birchcliff's preliminary 2021 outlook assumes the following commodity prices and exchange rate: an average WTI price of US$43.70/bbl; an average WTI-MSW differential of CDN$6.25/bbl; an average AECO 5A price of CDN$2.60/GJ; an average Dawn price of US$2.80/MMBtu; an average NYMEX HH price of US$2.95/MMBtu; and an exchange rate (CDN$ to US$1) of 1.31.
With respect to estimates of 2020 and 2021 capital expenditures and Birchcliff's spending plans for 2020 and 2021, such estimates and plans assume that the 2020 and 2021 capital programs will be carried out as currently contemplated. Birchcliff makes acquisitions and dispositions in the ordinary course of business. Any acquisitions and dispositions completed could have an impact on Birchcliff's capital expenditures, production, adjusted funds flow, free funds flow, costs and total debt, which impact could be material. 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.
With respect to Birchcliff's estimates of adjusted and free funds flow for 2020 and 2021, such estimates assume that: the 2020 and 2021 capital programs will be carried out as currently contemplated and the level of capital spending for 2020 and 2021 set forth herein will be achieved; and the targets for production, commodity mix and natural gas market exposure and the commodity price and exchange rate assumptions set forth herein are met.
With respect to Birchcliff's production guidance, such guidance assumes that: the Corporation's 2020 and 2021 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. Birchcliff's production guidance may be affected by acquisition and disposition activity.
With respect to statements regarding the future potential and prospectivity of properties and assets, such statements assume: the continuing validity of the geological and other technical interpretations determined by Birchcliff's technical staff with respect to such properties; and that, over the long-term, commodity prices and general economic conditions will warrant proceeding with the exploration and development of such properties.

Birchcliff's actual results, performance or achievements could differ materially from those anticipated in the forwardlooking 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) and epidemics 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; 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; fluctuations in currency 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 affecting Birchcliff or other parties whose operations or assets directly or indirectly affect Birchcliff; 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 efficiently and effectively operate its assets and achieve expected future results; uncertainties associated with estimating oil and natural gas reserves and resources; 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, including delays in the completion of gas plants and other facilities; 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 and other actions by government authorities; an inability of the Corporation to comply with existing and future environmental, climate change and other laws; the cost of compliance with current and future environmental laws; political uncertainty and uncertainty associated with government policy changes; dependence on facilities, gathering lines and pipelines, some of which the Corporation does not control; 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 activities and the risk that hedges on terms acceptable to Birchcliff may not be available; risks associated with the declaration and payment of future dividends, including the discretion of Birchcliff's Board of Directors to declare dividends and change the Corporation's dividend policy; 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, including transportation and hydraulic fracturing involving 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; the accuracy of the Corporation's accounting estimates and judgments; and potential requirements under applicable accounting standards for the impairment or reversal of estimated recoverable amounts of the Corporation's assets from time to time. Without limitation of the foregoing, the declaration and payment of future dividends (and the amount thereof) may vary depending on a variety of factors and conditions existing from time to time and is subject to the satisfaction of the solvency and liquidity tests imposed by the Business Corporations Act (Alberta). For further information relating to risks relating to dividends, see "Risk Factors – Dividends" in the AIF.

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 Birchcliff's AIF and in other reports filed with Canadian securities regulatory authorities.

This MD&A contains information that may constitute future-orientated financial information or financial outlook information (collectively, "FOFI") about Birchcliff's prospective results of operations including, without limitation, adjusted funds flow, free funds flow and total debt, 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. FOFI contained herein was 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 FOFI statements, whether as a result of new information, future events or otherwise.

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 contained in this MD&A are expressly qualified by the foregoing cautionary statements. The forward-looking statements 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, whether as a result of new information, future events or otherwise.

AI assistant

Birchcliff Energy Ltd. — Management Reports 2020

45554_rns_2020-11-12_24dd9ff3-1a84-4bf7-9e3b-a2b3a8d3f73a.pdf

MANAGEMENT'S DISCUSSION AND ANALYSIS

GENERAL

ABOUT BIRCHCLIFF

COVID-19 OPERATING ENVIRONMENT

2020 THIRD QUARTER FINANCIAL AND OPERATIONAL HIGHLIGHTS

OUTLOOK AND GUIDANCE

Preliminary Outlook for 2021

Revised 2020 Guidance

CASH FLOW FROM OPERATING ACTIVITIES AND ADJUSTED FUNDS FLOW

NET LOSS TO COMMON SHAREHOLDERS

POUCE COUPE GAS PLANT NETBACKS

DISCUSSION OF OPERATIONS

Petroleum and Natural Gas Revenue

Production

Commodity Prices

Natural Gas Sales, Production and Average Realized Sales Price

Risk Management

Financial Derivative Contracts

Interest Rate Risk

Realized and Unrealized Gains and Losses on Financial Instruments

Royalties

Operating Expense

Transportation and Other

Operating Netback

Pouce Coupe Montney/Doig Resource Play

Gordondale Montney/Doig Resource Play

Administrative Expense

Depletion and Depreciation Expense

Finance Expense

Other Income

Other Gains and Losses

Income Taxes

CAPITAL EXPENDITURES

CAPITAL RESOURCES AND LIQUIDITY

Liquidity and Capital Resources

Working Capital

Bank Debt

Contractual Obligations and Commitments

OFF-BALANCE SHEET TRANSACTIONS

OUTSTANDING SHARE INFORMATION

Capital Securities

Dividends

SUMMARY OF QUARTERLY RESULTS

POTENTIAL TRANSACTIONS

INTERNAL CONTROL OVER FINANCIAL REPORTING

CRITICAL ACCOUNTING ESTIMATES

CHANGES IN ACCOUNTING POLICIES

Accounting Pronouncements Adopted

Accounting Policies Adopted

Government Grants

RISK FACTORS AND RISK MANAGEMENT

COVID-19 Pandemic

The COVID-19 pandemic has adversely affected and could continue to adversely affect the Corporation's business

ABBREVIATIONS

NON-GAAP MEASURES

ADVISORIES

Unaudited Information

Currency

MMBtu Pricing Conversions

Boe and Mcfe Conversions

Oil and Gas Metrics

Capital Expenditures

Forward-Looking Statements

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Birchcliff Energy Ltd. Management Reports 2020