Quarterly / Earnings Reports | Second Quarter (2Q) Update

Pine Cliff Details Q2 Results; Talks 'Challenging' Environment

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Pine Cliff Energy Ltd. reported its Q2 2019 summary.

After a strong first quarter, the second quarter of 2019 was challenging with AECO 5A natural gas pricing averaging $1.03 per Mcf, the lowest in quarterly average in decades, resulting in adjusted funds used in operations.

Highlights:

• realized $1.69 per Mcf gas price for the three months ended June 30, 2019, 43% higher than the AECO 5A benchmark of $1.03 per Mcf;
• realized $2.27 per Mcf gas price for the six months ended June 30, 2019, 24% higher than the AECO 5A benchmark of $1.82 per Mcf;
• closed an acquisition of oil and natural gas assets in the Ghost Pine area of Central Alberta for cash consideration of $8.6 million (after estimated closing adjustments) on May 31, which added over 1,600 Boe/d as of the closing date and increased the Company's Pekisko oil locations to 28 gross (27.0 net) from eight gross (six net);
• issued 14,492,754 flow-through common shares at a price of $0.276, resulting in gross proceeds of $4.0 million;
• issued 6,215,652 common shares at a price of $0.23 per share for gross proceeds of $1.4 million; and
• exited the quarter with $7.9 million of cash in the bank.

Operations Update

Last year Pine Cliff drilled its first Pekisko oil well in Central Alberta, and it continues to exceed expectations. In its first 180 days it has produced 325 Boe/d, consisting of 190 Bbl/d of oil and natural gas liquids along with 810 Mcf/d of gas and generated approximately $1.7 Million of adjusted funds flow. The cost of this well to drill, complete and tie in was approximately $3.0 Million, with projected payback of approximately 14 months, based on current strip pricing. Pine Cliff plans on drilling at least one more Pekisko oil well in the fourth quarter of 2019.

Industry/Government Initiatives

The new administration of the Alberta Government has been working with Pine Cliff and other natural gas producers to find solutions to some of the issues that have arisen from the changes in the natural gas landscape of the past decade. The Alberta government appointed an Associate Minister of Natural Gas for the first time ever and has since announced an approximate 35% reduction in property taxes paid on certain shallow gas wells and pipelines. The tax reduction is not a rebate, but is an adjustment that recognizes that the Alberta municipal tax assessment system for natural gas assets is not equitable given the current asset valuations in the marketplace. Although Pine Cliff doesn't yet know how much this change in municipal taxation will impact the Company, for reference, last year Pine Cliff paid approximately $12 million in property taxes based on a total assessed value of over $650 million. That assessed value is more than six times the current enterprise value (market capitalization plus net debt) of approximately $110 million. In 2014, Pine Cliff's property taxes made up 9.1% of its adjusted funds flow from operations and in 2018, it was 109.0%. The Alberta government is undertaking a review of the municipal tax assessment system and Pine Cliff is optimistic that they will arrive at a more permanent structure that is more equitable to shallow gas producers.