Quarterly / Earnings Reports | Debt | Second Quarter (2Q) Update | Financial Results | Capital Markets

Pine Cliff Energy Ltd. Second Quarter 2020 Results

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Pine Cliff Energy Ltd. reported its Q2 2020 results.

The second quarter of 2020 was dominated by the collapse of crude oil and liquids prices due to global over-supply combined with demand destruction from the coronavirus pandemic. Despite 92% of Pine Cliff’s Q2 production volume being natural gas, the price collapse had a material impact on its revenue and funds flow. While the negative impact of low crude oil and liquids prices was mitigated to some degree by stable natural gas prices, it was not enough to prevent Pine Cliff from generating negative adjusted funds flow.

Highlights:

• realized $2.03 per Mcf natural gas price for the three months ended June 30, 2020, 3% higher than the AECO 5A benchmark of $1.98 per Mcf and 20% higher than the $1.69 per Mcf realized for the comparable quarter in 2019;
• produced an average of 18,968 Boe/d and 19,068 Boe/d in the three and six months ended June 30, 2020, a 1% decrease and 1% increase respectively compared to the same periods in 2019;
• tied-in production from 1 gross (0.08 net) Edson oil well drilled in the first quarter of 2020; and,
• accessed the Federal Government’s Canada Emergency Wage Subsidy Program (“CEWS“) during the quarter, reducing office and field payroll expenses in total by $561,000.

Insider Loan Facility

Without access to a bank credit facility, the crude oil price volatility resulting from COVID-19 put a strain on the Company’s cash balance and working capital. To alleviate this short-term pressure on liquidity, Pine Cliff has entered into a Loan Facility (the “Facility“) with an insider of the Company (the “Lender“) whereby the Lender will provide up to $4.0 million of borrowings at an interest rate of 6.5% per annum. The term (the “Term“) of the Facility will expire on the later of: (i) March 31, 2021; or (ii) the date of full repayment of any outstanding borrowings. Amounts can be drawn, repaid and redrawn by the Company at any time during the Term and borrowings under the Facility are payable on demand to the Lender on 60 days written notice. The Facility can be cancelled at any time by the Lender on 60 days written notice, while the Term may also be extended by mutual consent of the Company and the Lender.

Outlook

While the first half of 2020 has been the most volatile and unpredictable start to a year that Pine Cliff has ever experienced, the prospects for Canadian natural gas producers are improving. With forward natural gas prices in Canada for the next twelve months being the strongest in years, this raises the prospects for improved funds flow in the second half of 2020 and into 2021. There are various reasons for the increase in forward AECO natural gas prices, but two significant factors appear to be: (i) lower crude oil prices have resulted in a decrease in crude oil drilling and thereby reduced production of associated natural gas; and (ii) natural gas drilling has also dropped dramatically with the availability of capital being constrained. In January 2020, there was an average of 995 oil and gas drilling rigs operating in North America and for July 2020, that average had fallen to only 290. In Canada alone, oil and gas drilling rigs have fallen from an average of 204 in January 2020 to an average of 36 in July 2020.

Pine Cliff continues to be disciplined and focused on its strategy, including prioritizing the health and safety of its employees. Pine Cliff successfully transitioned its office staff to work remotely in March and as restrictions eased through July, a portion of our workforce has returned to the office. We continue to monitor the situation related to COVID-19 and will follow the advice of public health officials in supporting our employees, their families and our business partners.