Earnings call transcript: Pine Cliff Energy Q2 2025 earnings reflect strong strategy

Pine Cliff Energy reported its Q2 2025 earnings, showcasing a strategic focus on debt reduction and future growth initiatives. The company realized a natural gas price of $2.48 per Mcf, a significant premium over the AECO daily 5A price, reflecting its robust market positioning. The company is actively targeting a debt-to-cash flow ratio under 1x, paying down over $1 million in term debt quarterly. Pine Cliff’s stock currently trades at $0.47, with a market capitalization of $170 million. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value estimate, presenting a potential opportunity for value investors.

Key Takeaways

• Pine Cliff Energy is focusing on debt reduction, with a target of reducing its debt-to-cash flow ratio to under 1x.
• The company plans a significant drilling program in Q4 2025, targeting high-return projects.
• Pine Cliff is hedging a substantial portion of its production to safeguard against market volatility.

Company Performance

Pine Cliff Energy’s performance in Q2 2025 reflects its strategic focus on maintaining a strong balance sheet and preparing for future growth. Despite not drilling any wells in the past 18 months, the company has maintained a robust financial position, partly due to effective hedging strategies and premium natural gas pricing. Pine Cliff’s competitive edge is further supported by advantageous shipping times to Asian markets, positioning it as a potential major player in the global LNG export market.

Financial Highlights

• Realized natural gas price: $2.48 per Mcf, a 48% premium over AECO daily 5A price of $1.68.
• Debt-to-cash flow ratio: 1.5x, with a target of under 1x.
• Hedged 54% of gross natural gas production at $2.82 per Mcf for the remainder of 2025.

Outlook & Guidance

Looking ahead, Pine Cliff Energy plans to initiate a drilling program in Q4 2025, targeting Glock oil wells and Basal Quartz formations. The company is also exploring the potential for data center sites on existing shallow gas sites. With 30% of its 2026 production already hedged at approximately $3 per Mcf, Pine Cliff is well-positioned to navigate future market fluctuations. The company is also considering the restoration of dividends in 2026, contingent upon improved free cash flow.

Executive Commentary

CEO Phil Hodge emphasized the company’s strategic focus, stating, "We’re going to continue to watch the markets closely on commodity prices." He also highlighted the positive impact of new LNG facilities, noting, "Any LNG facility, export facilities that come online anywhere in North America is a positive thing for natural gas producers."

Risks and Challenges

• Market volatility: Fluctuating natural gas prices could impact revenue.
• Drilling program execution: Delays or inefficiencies could affect production targets.
• Global LNG competition: Increased competition could impact Pine Cliff’s market share.

Pine Cliff Energy’s Q2 2025 earnings call highlighted its strategic initiatives and strong market positioning, setting the stage for future growth and shareholder value enhancement. For detailed insights into Pine Cliff’s financial health, growth prospects, and expert analysis, explore the comprehensive Pro Research Report available exclusively on InvestingPro, part of their coverage of over 1,400 top stocks.

Full transcript - Pine Cliff Energy Ltd (PNE) Q2 2025:

Phil Hodge, President and Chief Executive Officer, Pine Cliff Energy: Good morning, thank you for joining the Pine Cliff Energy second quarter webcast. We will open with remarks from President and Chief Executive Officer, Phil Hodge. Mr. Hodge is joined today by Terry McNeil, Chief Operating Officer Christopher Zak, Chief Financial Officer Austin Newdorp, Vice President, Finance and Dan Keenan, Vice President, Exploitation. Questions for the management team can be registered on the webcast.

Prior to starting, we would like to remind participants that the call may contain comments on or discussion of forward looking information. As such, we refer participants to the cautionary statements on forward looking information included in the presentation on our website, ww.pinecliffenergy.com. With that, we will turn the call to Mr. Phil Hodge, President and CEO. Thanks, Chris, and thanks to everybody for either attending right now or listening to this webcast and its replay that will be on our website.

We also appreciate the questions that I received last night. Most of you who are listening probably already receive my email that goes out each quarter. But if don’t, you can sign up for it on the website. But from that last night, there was a few questions, which we’ll get to, but I would encourage anybody listening, if you’ve got any questions you want to type right now, we’ll get those and we can respond to those right away. Or if there’s if you’re listening to this on a recording and you want to get back to us with questions, we can answer after the webcast.

Q2 itself wasn’t all that eventful. It was we knew this summer, as we wait for LNG Canada to ramp up, that it was going to be fairly challenging on the storage front and that natural gas production had risen throughout early in 2025, and then it’s been pretty stable as we’re waiting for the LNG to start up. So because of that, storage is elevated from five year averages. Interestingly, it’s actually below what it was this time last year, though. And I think that maybe isn’t fully kind of considered by the market.

When you think about as LNG ramps up, we’re actually in a better position than we were last year, which is why I think we see the forwards growing fairly fair amount of contango and with the forward prices being over $3 in 2026. So I think from an investor standpoint, a lot of the questions I get nowadays are about 2026. It’s about what’s our cash flow going to look like, what’s our capital allocation, and we’ll touch a little bit about on that today. I think between the press release that went out, along with the President’s letter and then also with the e mail, I think we’ve given a try to be as transparent as we can about some of these kind of issues and what we’re from our standpoint, how we think about capital allocation. As most of the listeners would know, we have not drilled any wells for eighteen I think it’s eighteen months now.

But the plan is to drill in the fourth quarter this year. That’s still our intent. I mean we’re going to continue to watch the markets closely on commodity prices. And whether or not it makes sense to do it in fourth quarter or not. But that’s currently our intent.

And that was one of the questions we received yesterday or last night was around what we thought about the drilling program timing. Obviously, Q2 and so far with Q3, with gas prices being weaker, we’re not generating the amount of cash flow that we had originally budgeted to have into these quarters. And that impacts also the timing of the drilling. But as I said, right now, intent is to continue to go ahead with the drill program in the fourth quarter. The one thing that’s quite different from previous years at Pine Cliff is that we’ve got pretty extensive drilling inventory and a choice of different areas to allocate the capital towards.

And so that’s nice to have. And so that has sparked a lot of conversations here with internally as to where do we best put the funding in this winter and already starting to look into 2026. Maybe I’ll get to a few of the questions that I’d received last night. One of the questions was whether or not Pine Cliff gas is going to directly flow on the Coastal GasLink pipeline. For those who aren’t familiar, the Coastal GasLink pipeline is the $34,000,000,000 pipeline that was built sorry, it was yes, think it was about all in was the whole project.

I think the actual pipeline was in that kind of I think it was in the 4,000,000,000 or $5,000,000,000 range. But the but that pipeline is what takes gas to Kitimat, BC. And that is where the LNG Canada facility is, and it’s also where the Cedar LNG facility is located. It’s unlikely that our gas molecules will flow to on that pipeline. But as I’ve said before, any LNG facility, export facilities that come online anywhere in North America is a positive thing for natural gas producers because it just means more demand.

The one thing that’s a little bit different when you see these LNG projects is that that’s typically 20 fourseven, three sixty five type demand. So it’s not weather related. For decades, natural gas market has been really dictated by weather and about how winter use and then in the summer, it’s more tied to electricity. It’s becoming much not as seasonal because of some of a lot of these base demand that’s coming on from LNG or from data centers tends to be much more consistent throughout the seasons. And so that’s a dynamic that we continue to watch.

The one thing I would say, and this ties to another question we had was, what is that what’s the differential? What do we think is going to happen to the AECO differential compared to the Henry Hub, which is the NYMEX or sorry, The U. S. Natural gas hub pricing? And the reality is none of us know for sure because we’ve never had LNG exports off the West Coast before.

So we’ll see what happens as that as we get more and more demand. As I mentioned in my letter, an email, I mean, it could be up to six Bcf, 6.5 Bcf a day of new LNG demand from Canada by the end of the decade, which we’re now in the back half here. So we’re in the next five years, we could see pretty extensive amount of LNG given that we only today produce around 18.5 Bcf to 19 Bcf a day. So, I don’t know if that the question that I directly received is, do you think AECO would ever trade above NYMEX? I guess you could see moments in time where that might happen.

I think it’s unlikely to happen on a longer term basis though, just because we do continue to export a lot of gas to The United States. And if that differential was to switch, that would be a situation where we would have more demand up in Canada than we would in The U. S. For the gas to stay in Canada. So I’m not saying that couldn’t ever happen.

I don’t think it’s going to be anytime soon. I think what we will see, we hope to see starting this fourth quarter is the differential between NYMEX and AECO starting to narrow again back to more historical levels, which would typically be in that kind of one dollar MCF level as opposed to the $2 or $3 of where we’re at today. Another question we had was just on capital allocation and how we’re if anything’s changed on that. I think the way I would kind of address that is we’ve kind of when we’re looking at our capital allocation, we’ve got we continue to pay down our debt and that’s a focus for us. And we will continue to do that each quarter.

Right now, it’s over $1,000,000 a quarter that we spend that we pay down our term debt. We’d like to get back to a position that our debt would be under 1x debt cash flow. Currently, we’re in around that 1.5 level. So that is one consideration. The other one is the drill program.

I mean, we definitely want to get back to drilling. Needs the reason that we had reduced the dividend back in March was to free up some cash flow for the drill program because it needs an initial kind of priming to of cash flow to get the program going. And then you the intent would be self sustaining. And then once the program is up and running, the cash flows from the drills would sustain future drilling. So that’s where we want to get to.

Now, as I said earlier, it’s a question of just timing. The other thing is on the M and A market, and that was another question I got is how we’re viewing the M and A market these days. Our sense is that it probably is going to get busier this fall. And one thing that we’ve got now that haven’t had before is we’ve got multiple areas, not all of which we’re going to be able to allocate capital to. And that’s the exact situation that we’ve always been on the other side of.

When we’re talking to companies about acquisitions, we talk to them about their non core assets and assets that they’re not going be applying capital to. And therefore, is that something that they’d be interested in disposing to us? We now find ourselves on the other side of that conversation occasionally, where we’ve got assets that are good, strong assets that we are not going to plan to have capital deployed to in the short term. And therefore, we’d be interested in disposing of those assets. So we’ve got lots of activities, lots of discussions going on.

We continue to have discussions with various groups around our data center sites that we have. That’s something that we’re quite excited about and have had a lot of discussions with different groups because the low shallow low decline shallow gas sites that we have are quite they’re quite they would be very suitable for that type of application. And so those discussions continue. And then obviously, the last from capital allocation is the dividend itself. And we’ve our goal will be to start to move that dividend back up again when our free cash flow is substantial enough that it allows us to do that.

Or when we look at 2026, the free cash flow starts to look quite good again. And so all of these different considerations on what you do with that free cash flow would be something we’d be considering and be very active with. And again, of you know that we’ve insiders own a high proportion of stock here. Every all the capital allocation decisions we make around the M and A, around the drilling, around the dividend are all kind of what do we think is going to be the best for on a per share basis. Another question I had had was the given that the BC preferential advantages for LNG that they have versus The U.

S. Gulf, do we think we’re going to continue to see even more expansion into that area? And I think the what the question is referring to is that it’s about a ten day shipping from the West Coast Of British Columbia to the Asian markets versus twenty four days out of The Gulf. That’s a significant advantage. And that’s why we’re seeing as much activity as we are with both the Canada, the wood fiber, the Heisla.

And then you also have got the Solisma as the former Rockies LNG project, which is very active and hopefully going to positive FID sooner rather than later. And then the next question will be when LNG Canada itself goes to a second phase. All of that, which would be a substantial boost to from a Canadian perspective. And that’s the comment I made. If all those projects went, Canada would go from not exporting any LNG to being the fourth largest exporter of LNG in the world on the current numbers.

So that is we’re very hopeful. The federal government has specifically talked about these LNG major infrastructure projects has been some of the projects that would be streamlined under their new rules. Time will tell. So have another question. So one of the questions was about our we talked about our initial drilling activities in late the second half and we’ll be targeting gas resources and how soon can they get online.

The two primary, I think at this point in time, the two areas that we’re most interested in drilling would be kind of the Glock oil wells and then we also have the Basal Quartz, both of which have oil and natural gas as part of them. It depends and what ratios they would be. We those are the areas that we are looking at. So there would be both oil and natural gas that would be brought on with those wells. The Glock wells will bring on a higher proportion of gas as a total amount percentage of their production versus the basal quartz.

But looking at both. So we’re a bit agnostic. It really is depending on where commodity prices are at, what does make the most sense for us and where are we going to get the quickest rate of return. One of the questions that people have asked is how fast is the payback? That’s why we introduced a new slide into our presentation deck that you can see that shows kind of the payback on these wells on type curve is about around one year payback.

IRRs are over 100% on commodity assumptions that we made. So these are very, very attractive well economics. And so I don’t blame anybody for not giving Pine Cliff much credit for our drilling inventory because we haven’t been drilling it. But I think when we do start to drill it, we hope that we’re going to be able to show that we’ve got some very economic locations and more deeper drilling inventory than we’ve ever had before. Another question was, are there any pressing lease expirations?

Gary, do you want

Terry McNeil, Chief Operating Officer, Pine Cliff Energy: to deal with that one? Yes. Thanks, Phil. No, we don’t have any lease any near term lease expiries on any of our main plays that include the Glock, the Basal Courts, even the Ellers, so they’re in Pokisco, they’re all held by production. So any drilling activity that we do is going to be based on strategic on where we feel puts us to the best position to drill, but also targeting the most economic return that we can we have.

So they would our first wells coming out of later this year would be what we would deem Tier one wells in those particular plays. And so there are no near term expiries on any of those plays.

Phil Hodge, President and Chief Executive Officer, Pine Cliff Energy: Thanks, Terry. Another question I got last night was about how we think about hedging and what we’ve done in 2025 and how we’re thinking about 2026. Chris is I think we’ve put pretty good disclosure in there about how our realized gas price versus the AECO price and our team has done a really good job of getting kind of the maximum amount. Maybe Chris, you want to chat a little bit about our hedging strategy? Yes.

Thanks, Phil. So our hedging strategy continued to be very effective for us in the second quarter. We realized a natural gas price of $2.48 an Mcf on our production through that period, which was 48% premium to the AECO daily 5A price of 1.68 In the recent months, we have added to our near term hedge positions to help protect against some of the price weakness that we’re seeing in the market currently in the very near term. So we are at about 54% of our gross natural gas production based on what we produced in the second quarter hedged through the balance of the year at $2.82 an Mcf. We also have about 43 of our crude oil production hedged at CAD64.15 for the balance of the year.

If you look at our hedge disclosure in the financial statements, what you’ll also see is that we’ve started to layer on positions into ’twenty six and ’twenty seven just as a matter of due course. And at this point in time, we have about 30% of our production hedged in $20.26 dollars at around $3 an Mcf. Good. Thanks, Chris. I think that covers all of the questions that were sent in to me either last night or this morning and the ones that we received today on the call.

So if there are no other questions, we won’t take any more of your day. But by all means, feel free to reach out to us at any time if you’ve got any further questions or any other comments on the quarter or just generally on Pinecliff and our plans going forward. Thanks again for your time today. Appreciate it.

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