Of interest... Email from Phil Hodge This may be of interest to most of you... copy of email from Phil Hodge... unfortunately charts would not copy/paste.
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Hi everyone.
I hope you are well. I typically don’t send emails out to our distribution list between quarters, but our Q4 and 2021 numbers are not out until March 8th, so I thought I would quickly highlight a few updates.
For those that may have missed it over the holidays, Pine Cliff did a $22.2 Million acquisition in late December that added approximately 1,900 BOED to our core Ghost Pine area. More details can be found in the press release and February corporate presentation at www.pinecliffenergy.com. We did that deal with surplus cash and without any debt or equity. That acquisition, combined with our Q4 drilling program, raised our production to over 21,000 BOED (87% natural gas) as we entered 2022. Attached is today’s press release highlighting our new reserve report that takes into consideration the Q4 acquisition and 2021 drilling. A key highlight for me from that report was that the net present value for Pine Cliff’s total proved reserves, discounted at 10%, has risen by $141.8 Million, or 362%, to $196 Million from $54.2 Million a year ago.
Our Q4 acquisition and drilling were timely with the increase in the natural gas, oil and liquids commodity prices. Below is our updated 2022 Sensitivities table that is slide two in the February presentation on our website. For reference, as of this morning, the 2022 calendar strip price for AECO 5A is $4.45 Mcf.
As followers or shareholders of Pine Cliff, you were probably aware of the torque our business model has to increases in natural gas prices, but seeing these updated free cash flow per share numbers even surprised me. I am also proud how we have built more “defensiveness” into our model so that even at lower natural gas prices we generate significant free cash flow. This sustainability will serve us well when we start returning capital to shareholders.
You were probably also aware that Pine Cliff has the lowest production decline rate of any other public natural gas company in Canada at less than 9% while the industry average is over 25% and can be as high as 40%. In a strong natural gas price environment like we are now in, this low decline allows us to generate one of the highest free cash flow yields in the industry at over 40%, as recently highlighted by the Desjardins Capital Group in the chart below. Our budgeted CAPEX program for 2022 is $25.5 Million, and that includes growth, maintenance and abandonment expenses.
An email from me just wouldn’t seem right without an update on natural gas storage. The National Centers for Environmental Information advised that December 2021 was the warmest recorded United States December in its 127 years of keeping records. That should have been a disaster for US natural gas storage, but the cold US weather in January/February has resulted in Desjardins Capital Markets forecasting that the US natural gas storage level will drop below the five year average by approximately 340 Bcf by February 18th and forecasters are expecting US storage levels to be in the 1.3 Bcf to 1.6 Bcf level at the end of withdrawal season, which would be well below the five year average number.
Those of us in Western Canada know that December weather was not so kind to us. Cold weather in December and January had a dramatic impact on our natural gas storage, resulting in Western Canadian storage being 30.2% below last year’s level at this time and 21.8% below the five year average as shown in the National Bank graph below. Western Canada storage currently stands at 167 Bcf, the lowest absolute storage level since 2010 for early February. This scenario sets up for a bullish natural gas pricing sentiment for the remainder of 2022 as the industry attempts to replenish storage for the 2022-23 winter.
2022 is a pivotal year for Pine Cliff. We are forecasting to generate record amounts of funds flow for our company and that has reinforced our intention to commence a dividend in Q3. As we prepare for this transition to a dividend paying company, we recognize the importance of increasing our investor relations reach. As part of that process, I invite you to attend Pine Cliff’s first ever entry into the Twitter World with an interview followed by questions and answers tomorrow (Wednesday, February 9th) at 2:30PM MST with Shubham Garg of White Tundra Investments. The link to join this event is Interview and Q&A with Phil Hodge of Pine Cliff Energy
For our shareholders, thank you for continuing to support Pine Cliff. 2022 is going to be an exciting year for us.
Regards,
Phil