Pine Cliff Energy Ltd T.PNE

For those who don't receive... email from PH today.

[zack50]

NOTE: All charts, graphs, trend lines and footnotes have been deleted for brevity.
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Hello everyone. I hope the holiday season is treating you well.

As many of you are aware, I typically limit myself to four distribution list emails a year. However, I occasionally add a short update when I feel investors might appreciate it. Given that December has been one of the toughest months in recent memory for energy stocks, I thought the end of 2024 would be an appropriate time for an update. I also wanted to share some of the reasons behind my decision to increase my personal position in PNE stock.

In our Q3 update, I highlighted that weather would be the key driver of natural gas prices this winter, and I still believe that holds true. With December almost behind us, we are fully in natural gas withdrawal season in Canada, the United States and Europe, meaning the abnormally high storage amounts we had entering November are rapidly being reduced. As shown in the trend lines below, the United States natural gas storage has quickly moved down and is now just 1% above the storage level one year ago. In Canada, although we started with significantly higher storage levels compared to last winter, natural gas storage is also dropping quickly, with the Canadian storage level now only 10% over the same time last year. The sharp decline in European gas storage has triggered concern, leading to a sharp increase in gas prices.

Aiding the Western Canada withdrawal season has been record exports to the US, which surpassed nine BCF per day this month. This is a significant development and will likely be a key point of discussion when the topic of potential U.S. tariffs on Canadian imports arises.

The two year pause on LNG development in North America, which saw a slight decline in 2024, has officially ended with the start-up of the Plaquemines LNG export facility in the Gulf of Mexico earlier this month. The Corpus Christi facility is expected to follow quickly in early 2025, and LNG Canada remains on track to ship cargoes by the middle of the year. The steep ramp up of North American LNG exports is expected to continue through to the end of the decade.

I have been writing about this upcoming “hockey stick” curve of LNG exports for some time, and I suspect that investors and traders will start paying more attention to this trend as further press releases announce the startup of these projects. US gas prices seem to be reflecting this upcoming growth in exports with the recent rise in NYMEX, despite winter weather being relatively mild in parts of North America so far.

What has been frustrating for Canadian natural gas producers has been the widening differential between US and Canadian natural gas prices, which are currently over US$2 per mcf.

There are a few theories behind this trend, but the fact that Canadian natural gas production has been resilient throughout 2024 while US natural gas production has shown its first year over year decline in 20 years is probably the biggest factor.

A key factor behind the flat Canadian natural gas production profile is the upcoming launch of LNG Canada. Adding two BCF per day of demand onto a system that currently produces 19 BCF per day will be material, and producers have been preparing for this demand surge throughout 2024. While we believe that LNG Canada Phase 1 will be helpful to Canadian gas prices, it is the additional natural gas demand forecasted to come from energy growth that excites us the most as a natural gas producer.

The enormous electricity requirements of artificial intelligence has captured the media’s attention. It is possible that I am subject to proximity bias on this topic as the news about data centre projects have been continuous here in our Province of Alberta,(15)(16) with the most recent flurry of articles around a $70 Billion AI data centre project being proposed in Northwest Alberta.

We believe our team has positioned Pine Cliff in a prime spot to capitalize on the natural gas demand trends emerging in Western Canada. The Canadian natural gas price (AECO) faced a challenging 2024 due to historically high natural gas storage levels created from back-to-back record warm winters, followed by increased production in anticipation of LNG Canada’s launch. During this time, Pine Cliff integrated a $100 Million acquisition (purchased without using equity) and currently offers a dividend yielding over 7% on today’s price.

Among Canadian public companies, PNE has one of the highest per-share leverage to AECO, with every $0.10 increase of realized natural gas price equating to $3.7 Million of annual adjusted funds flow. These are some of the reasons I bought more PNE in the past couple weeks. I believe that Pine Cliff is “paying you to wait” for higher Western Canada natural gas prices, which we expect to materialize. And who knows, maybe weather will even cooperate in the New Year to shorten our wait.

As the year comes to a close, it’s a natural time to reflect. As Pine Cliff wraps up its 13th year, I want to personally thank each of you who have supported Pine Cliff as a shareholder at any point in our journey thus far. Your support means a great deal to us, and we never take it for granted. I hope you all have the chance to enjoy some quality time with family and friends this holiday season. On behalf of myself and the entire management team at Pine Cliff, I wish you and your loved ones a wonderful holiday season.

I look forward to seeing or speaking with you again soon.

Regards,
Phil

Pine Cliff Energy Ltd.
Suite 850, 1015 - Fourth Street S.W.
Calgary, Alberta T2R 1J4
Direct Telephone: [phone]

[Gmcdonagh89]

Thanks good recap for NG and LNG markets for next few years, I have added as well