Pine Cliff Energy Q2 Earnings Call Highlights

Key Points

• Improved commodity prices strengthened cash flow, allowing Pine Cliff Energy to increase capital spending while maintaining its dividend and avoiding plans to issue equity or materially increase debt.
• The company approved another Glauconite well for the fall after its first 2025 well averaged about 1,100 BOE per day and performed above its engineering type curve. Pine Cliff has 37 net locations, representing an estimated CAD 300 million to CAD 350 million of inventory.
• Pine Cliff’s hedging strategy supported realized gas prices of CAD 2.38 per Mcf, a 47% premium to AECO 5A, and 41% of production is hedged for the balance of 2026. Management is also watching potential future demand growth from LNG exports and data centers.

Pine Cliff Energy TSE: PNE said stronger natural gas and oil prices supported improved cash flow during the second quarter, enabling the company to increase capital spending and approve another Glauconite well for drilling this fall.

President and Chief Executive Officer Phil Hodge said Western Canadian natural gas prices were materially higher than a year earlier, though still below levels the company would prefer. He attributed much of the market outlook to the ramp-up of LNG Canada, whose Phase 1 operations have not consistently drawn gas from the Western Canadian system in recent weeks.

“Natural gas prices [are] well over CAD 1 higher at MCF in Western Canada than they were this time last year,” Hodge said. He added that LNG Canada’s gas demand is closely watched because its export capacity of roughly 1.8 billion to 2 billion cubic feet per day represents a significant portion of Canada’s approximately 19 Bcf per day of production.

LNG Canada Activity Remains a Key Market Factor

Hodge said LNG Canada operated near full capacity in June, when Canadian LNG export records were set, but its activity declined during July and August. The lower draw contributed to rising storage levels during the period, he said. More recently, the company has seen indications that flows to the Kitimat, British Columbia facility are increasing again.

According to Hodge, the company monitors gas flows through TC Energy infrastructure, including Willow Valley, to assess whether LNG Canada is drawing gas from the broader NOVA system. When the facility is operating below certain levels, he said, it can rely more heavily on production directly associated with LNG Canada owners rather than pulling gas from the regional system.

Hodge said Pine Cliff expects further Canadian LNG demand growth later in the decade. LNG Canada’s potential Phase 2 would add another roughly 2 Bcf per day of exports, while the Ksi Lisims project is also expected to seek a final investment decision. Hodge said projects being discussed could bring Canada’s LNG exports above 7 Bcf per day by the end of the decade.

He also cited the expansion of U.S. LNG exports, which he said have risen from zero in 2016 to as much as 20 Bcf per day, with expected capacity exceeding 35 Bcf per day by 2030. Hodge said Western Canada benefits from a shorter shipping route to Asian markets compared with LNG shipped from the U.S. Gulf Coast.

Glauconite Well Supports Higher Capital Program

Pine Cliff’s increased capital spending is aimed in part at developing the Glauconite inventory acquired in its December 2023 acquisition. Hodge said the company had delayed additional development while AECO natural gas prices were weak, but improving cash flow allowed the board to authorize another well this fall.

The company drilled one Glauconite well earlier this year. Chief Operating Officer Terry McNeill said the 4-23 well began production in mid-February and, from March through June, averaged approximately 1,100 barrels of oil equivalent per day.

McNeill said the well has remained relatively flat month to month, has performed above Pine Cliff’s engineering type curve and represents nearly 5% of corporate production. The production mix has been approximately 50% gas and 50% liquids.

“It’s a good well,” McNeill said. “We’re excited. It’s performing well. We’d like to do more.”

Hodge said a completed and tied-in Glauconite well generally costs between CAD 8 million and CAD 9 million. At current commodity prices, he estimated the net present value of each location at approximately CAD 8 million to CAD 10 million. Pine Cliff has 37 net locations in the area, representing an estimated CAD 300 million to CAD 350 million of inventory, according to Hodge.

• Pine Cliff aims to drill roughly two to four wells next year, subject to commodity prices and cash flow.
• The company may accelerate development in a stronger pricing environment or add Pekisko wells to the program.
• Hodge said Pine Cliff does not intend to issue equity at current share prices or materially increase debt to fund drilling.
• The company intends to maintain its dividend while directing more capital toward drilling for the remainder of the year.

McNeill said the Glauconite wells’ liquid content could vary by location but is not expected to change appreciably across Pine Cliff’s concentrated land base. Initially, the wells produce roughly 20% to 25% condensate and natural gas liquids on a total BOE basis, although the condensate contribution is expected to decline over time.

Hodge said Pine Cliff remains predominantly a natural gas producer, with about 80% of production consisting of natural gas. However, liquids contributed more than 50% of revenue in the last quarter, aided by the Glauconite well and stronger West Texas Intermediate crude pricing. He noted that condensate prices are closely correlated with WTI.

Hedging Provides Cash Flow Support

Chief Financial Officer Kris B. Zack said Pine Cliff’s hedging and diversification strategy helped lift realized gas pricing in the second quarter. The company realized CAD 2.38 per thousand cubic feet of gas, a 47% premium to the AECO 5A price of CAD 1.62 per Mcf, according to Zack.

Zack said Pine Cliff is “pretty well hedged” for the balance of 2026, with approximately 41% of production hedged at CAD 3.16 per Mcf. For the winter period spanning the fourth quarter through the first quarter, the company has hedged approximately 36% of production at around CAD 3.10 per Mcf.

While weather remains difficult to forecast, Zack said the company considers weather risks, including the potential for a warmer El Niño winter pattern, when managing its hedge book.

Management Sees Consolidation and Data-Center Demand Opportunities

Hodge said Pine Cliff continues to assess acquisitions, mergers and other transactions that could increase shareholder value. He cited Shell’s announced acquisition of ARC Resources as a positive signal for foreign investment in Western Canadian energy assets.

Still, he said commodity-price volatility can make dealmaking more difficult because buyers and sellers may use different assumptions for future oil and gas prices. Until a suitable transaction emerges, Hodge said Pine Cliff can pursue organic growth through its existing drilling inventory.

Management also discussed potential longer-term demand from data centers, cryptocurrency mining and distributed power generation. Hodge said Alberta could see between 1 Bcf and 2 Bcf per day of additional gas demand from such projects, potentially reaching 3 Bcf per day depending on development activity.

Pine Cliff has announced one data-center transaction, and Hodge said the counterparty has indicated it is close to obtaining financing. The company is also in discussions with multiple groups regarding other potential sites. Hodge said data-center-related gas demand is not expected to have an immediate effect on Western Canadian prices, but could become more meaningful beginning next year and especially in 2028 and 2029.

McNeill said Pine Cliff currently expects no carbon-tax impact because it is classified as a small emitter under current regulations. The company has not included carbon-tax allowances in its forward planning, though McNeill noted the situation could change if federal fuel-tax measures were reinstated.

About Pine Cliff Energy (TSE:PNE)

Pine Cliff is a natural gas and crude oil company with a long-term view of creating shareholder value.

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