Pine Cliff Energy Ltd T.PNE

President's message to shareholders...

[zack50]

I hope all of Pine Cliff’s shareholders and families are well. I am pleased to report that Q1 2022 produced the highest quarterly adjusted funds flow in the history of Pine Cliff at $32.3 million. Definitely a great way to start 2022.

Highlights from the first quarter include:
• generated $32.3 million of adjusted funds flow ($0.09 per basic and fully diluted share) for the three months ended March 31, 2022, 223% higher than the $10.0 million generated for the three months ended March 31, 2021;
• net debt decreased by 50% or $24.9 million from $49.7 million on December 31, 2021, to $24.8 million at March 31, 2022;
• generated net earnings of $15.4 million ($0.05 per basic and $0.04 per fully diluted share) for the three months ended March 31, 2022, compared to a net loss of $0.1 million ($0.00 per basic share) for the comparable period in 2021;
• production averaged 20,397 Boe/d for the three months ended March 31, 2022, 2,090 Boe/d or 11% higher than the 18,307 Boe/d for the comparable period in 2021;
• repaid $10.0 million of term debt due December 31, 2024 during the first quarter of 2022; 
• completed and tied-in two (1.4 net) Pekisko oil wells drilled in the fourth quarter of 2021 and drilled, completed and tied in one (0.3 net) Notikewin natural gas well.

Commencement of Dividends
Our team is genuinely excited to announce that the Pine Cliff Board of Directors has approved the declaration and payment of a monthly dividend of $0.0083 per common share (effective annual rate of $0.10 per common share). The first dividend payment will be payable June 30, 2022, to shareholders of record on June 15, 2022. This will be the first dividend paid by Pine Cliff in its history.

After careful consideration and at this stage of Pine Cliff’s maturity, we believe that a sustainable dividend is the optimal way to return capital to our shareholders at this time. Based on current forecasted commodity prices, Pine Cliff’s low decline assets generate stable adjusted funds flow into the foreseeable future which we feel will comfortably support this initial base dividend. We will continue to monitor the business environment with a goal to increase our base dividend over time. At today’s PNE closing stock price of $1.79, this initial dividend calculates to be a 5.6% annual yield, which is one of the highest base dividend yields in our sector.

Repayment of Term Debt
I think one of the most impressive highlights in Q1 was that Pine Cliff reduced its net debt position to $24.8 million, a decrease of $24.9 million. We paid down $10 million of the AIMCo debt in Q1 and a urther $10.0 million was repaid on April 29, 2022, reducing the amount of long-term debt currently outstanding to $22.0 million. Our current intention is to use available free funds flow to fully retire the remaining term debt as early as this summer.

Operational Update
The two Pekisko oil wells (1.4 net) that were placed on production on February 15, 2022 are both continuing to significantly outperform both our internal and our independent engineers’ average type curves. The average gross IP30 rates for both wells was 567 Boe/d (259 Bbl/d oil, 50 Bbl/d natural gas liquids and 1,551 Mcf/d natural gas). The all-in capital costs averaged $3.2 million per well ($2.3 million net). These wells are on pace to payout in less than six months and I am proud of our team for doing such a good job on proving up this play and building our drilling inventory in this Central Alberta core area.

Further information on our well results can be found in our updated corporate presentation available on Pine Cliff’s website at https://www.pinecliffenergy.com.

Outlook
Our record adjusted funds flow in Q1 was 28% higher than Pine Cliff’s adjusted funds flow for the years 2018, 2019 and 2020 combined. Our company was built to excel in an improved natural gas price environment and this is reflected in our current balance sheet which has never been this strong. We anticipate being debt free this summer. Commodity prices have been volatile with the Russian invasion of Ukraine but natural gas storage is below five years average levels in Europe, Canada and the United States and LNG exports out of the United States are at record highs. LNG Canada is over 50% complete on an export terminal off the West Coast of Canada and is expected to be operational in 2025. Governments around the world are awakening to the importance of energy security and the critical role natural gas will play in their efforts to reduce carbon emissions to combat climate change. The AECO spot price this morning was $8.77 Mcf and on today’s 2022 forward strip pricing, Pine Cliff can expect to generate more than $190 million of adjusted funds flow in 2022, of which approximately $148 million would be free funds flow after our budgeted CAPEX and dividend payments this year. It is a good time to be a natural gas producer in Western Canada.

I want to personally thank all of our shareholders for their support and willingness to invest your hard earned money in our company. Our team is thrilled to return capital to you in June and we are looking forward to safeguarding your investment moving forward. I will always remember 2022 as being the year that Pine Cliff was able to achieve its goal of being a natural gas dividend paying company. I would like to give a special thanks to our long term shareholders for their continued loyalty and confidence in our business model.

Yours truly,
Phil Hodge
President and Chief Executive Officer
May 4, 2022