Earnings call transcript: Pine Cliff Energy Q4 2024 sees strategic focus

Pine Cliff Energy Ltd., a Canadian energy company with a market capitalization of $199.45 million, recently disclosed its fourth-quarter 2024 earnings, reporting a net loss per share of $0.02 on revenue of $47.08 million. According to InvestingPro data, the company has experienced an 11.7% revenue decline over the last twelve months, while maintaining its strategic focus on diversification and strengthening its balance sheet amid a challenging market environment.

Key Takeaways

• Pine Cliff Energy reported a net loss per share of $0.02 for Q4 2024.
• The company hedged a significant portion of its natural gas and oil volumes.
• Strategic land swaps were completed to consolidate infrastructure.
• No specific capital expenditure guidance for 2025 due to market uncertainty.
• Institutional support remains strong, with Aimco holding over 10% of the stock.

Company Performance

Pine Cliff Energy has demonstrated resilience in the face of market challenges, expanding its daily production to 23,000 barrels from just 100 barrels over the past 13 years. While currently trading at a high Price-to-Book ratio of 4.5x, the company offers a significant dividend yield of 7.41%. Despite reporting a net loss this quarter, the company continues to focus on diversification through developing data centers and exploring strategic drilling opportunities. The company also completed strategic land swaps to optimize its infrastructure.

Financial Highlights

• Revenue: $47.08 million for Q4 2024.
• Earnings per share: -$0.02 for Q4 2024.
• Natural gas hedged at $2.91/MCF for 35% of Q4 2024 volumes.
• Oil hedged at $69/barrel USD for 31% of Q4 2024 volumes.

Outlook & Guidance

While Pine Cliff Energy did not provide specific capital expenditure guidance for 2025, the company emphasized its priorities of debt repayment, dividend management, and potential strategic acquisitions. InvestingPro analysis reveals the company operates with a moderate debt-to-equity ratio of 0.93 and faces liquidity challenges with a current ratio of 0.47. For deeper insights into Pine Cliff Energy’s financial health and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro. The company remains vigilant about the impact of U.S. tariffs on energy exports and continues to monitor Canadian/U.S. dollar exchange rates.

Executive Commentary

CEO Phil Hodge stated, "Our drilling inventory has never been stronger in the history of Pine Cliff," highlighting the company’s robust position in the market. He also emphasized the company’s commitment to long-term capital allocation decisions and the search for resilient assets within its drilling inventory.

Risks and Challenges

• Market uncertainty affecting capital expenditure plans.
• Potential impact of U.S. tariffs on Canadian energy exports.
• Fluctuations in commodity prices and exchange rates.
• Dependence on institutional support for stock stability.
• Natural gas storage levels below the five-year average.

Pine Cliff Energy remains focused on strategic initiatives and maintaining financial flexibility to navigate the current market landscape. Based on InvestingPro’s Fair Value analysis, the stock currently appears undervalued, though investors should note the company’s cash burn rate and short-term obligations exceeding liquid assets. Access InvestingPro’s detailed valuation models and eight additional ProTips to make more informed investment decisions.

Full transcript - Pine Cliff Energy Ltd (PNE) Q4 2024:

Chris, Moderator/Unspecified, Pinecliff Energy: Good morning, and welcome to the Pinecliff Energy Q4 year end and results webcast. Before we start, I would like to remind participants that the comments made on this call may include discussion of forward looking information. We refer participants to the cautionary statements on forward looking information in our presentation, which can be found on our website. We’re going to start the call with an overview from comments with overview comments from Phil Hodge, President and CEO. Remind participants that they can register questions on the webcast.

We’ll then flip over to questions from the webcast. Also in the room with Phil is Austin Neudorf, Vice President, Finance and Controller Dan Keenan, Vice President, Exploitation Terry McNeil, Chief Operating Officer and Chris Zack, Chief Financial Officer. With that, we’ll turn it over to Phil.

Phil Hodge, President and CEO, Pinecliff Energy: Thank you, Chris. Good morning, everybody. Thanks for your time today. We appreciate it. We’ll dispense with reading the press release or kind of rereading my President’s letter, both of which you should have access to.

But I would like we’ll just start with some general comments and then get right into the questions that are already in the queue here. The one thing that we talked about at the Board level yesterday was we’ve never had a stronger inventory here at Pine Cliff from a drilling perspective in the history of our we’re now going on fourteen years. And so that it raises a lot of really relevant questions given in all the uncertainty in the market right now as to how we allocate capital in 2025. We chose not to go with exact guidance for net for this year for what we’re going to do on the CapEx side. There’s a lot of uncertainty as everybody on this call knows with the tariffs, with the startup of LNG on the horizon, there’s with the kind of a storage situation, it’s kind of much improved over the last few months with the colder weather in both The United States and Canada, but still a lot of moving parts.

And so from our perspective, it’s really all about capital allocation and that discipline that I think that we’ve displayed over the last thirteen years. How do we go forward? How do we what is the proper way for us to allocate capital? Now with an extra variable in there with this deep drilling inventory that we’ve got, because there’s some very good economic opportunities that we definitely would like to start to exploit in the back half of this year. So that’s kind of the overall overreaching kind of discussion that has been kind of consuming our management team and the board level going forward.

And so there’s when we look at capital allocation, there’s obviously debt repayment, there’s the CapEx, there’s the dividend, There’s other operational decisions that have to be made on capital and the timing of that. All of that goes into the mix as to kind of where we want to go going forward. Wanted to keep our balance sheet strength for opportunities and transactions. As many of you have been shareholders for many years, you’re well aware that our model has always been to opportunistically take advantage on a when we can see accretive acquisitions. We’ve been able to successfully get those into the portfolio.

We’ve grown from 100 barrels a day to now to 23,000 in the last thirteen years. We think there’s going to be more opportunities in the back half of this year and into ’26. So that’s also in our back of our mind is making sure that we are in a position to take advantage of those opportunities should they present themselves. And so there is a it’s just a lot of uncertainty right now and that’s this is not particular to Pinecliff. This is going with every business owner across Canada right now.

It’s got a lot of uncertainty as to what the horizon is going to be, what does the back half of this year look like, what is the impact of tariffs. I mean, one of the questions we had here was to what extent do we think the tariffs are going to impact our business and with regard to the pricing. It is very unique on the energy side and that’s why I think the President Trump has already kind of lowered the tariff that he imposed upon the Canadian energy is currently at 10% versus the 25% across some of the other sectors. Big part of that is because the our energy that we export to The U. S, which is about eight Bcf a day of gas and about over 4,000,000 barrels a day of oil are pretty integral to The U.

S. System. And it’s not as easy to just to find alternative sources on either the natural gas or the oil. So there’s a complicating factor with regard to the tariffs because this question is going to be who’s going to bear the cost of that. In many cases, I think it’s going to be the consumers within The United States, which is going to create an extra pressure on the President going forward because inflation is not what he’s trying to do with the tariffs.

So there’s that kind of backdrop across a lot of our decision making. The guiding force for us is about cash flow per share growth, always has been. And that when we look at acquisitions, that’s the key factor, the key metric that we’re looking at. And then also how we allocate our capital going forward. So it’s going to be something that we’re going to continue to watch very closely.

We did highlight in the President’s letter and press release the fact that we’re moving forward with data center development. We’ve got multiple sites that we think would be very good locations for data centers. We announced the one. We continue to work on potential other sites. I think that’s going to be a good long term diversification opportunity for us and for our natural gas production.

And I think the one extra piece I would add to this is that the capital allocation, when we talk about ways that we can increase the cash flow per share, there has there’s always a kind of a give and take with that transaction. We’ve always got we only have so much capital. It seems to be we’ve had some good last week in AECO pricing. We’re starting to see the forward strip start to move up, not just the spot price, but also the forward strip for the rest of the year and into next year. And so we’re starting to see winter pricing get around that $3 level, which is a very that’s a good level for us.

And we’ve always talked about that being a price level where we generated a lot of free cash flow. So the question is how do we again optimize our position going into the back half of ’twenty five and into ’twenty six. So with that, I think we’ll get to some of these questions. One of the questions is about providing some detail around the strategic drilling opportunities that we’re evaluating in the second half. Maybe I’ll turn that over to Terry MacNeil to talk a little bit about that.

Terry McNeil, Chief Operating Officer, Pinecliff Energy: Thanks, Phil. The our as Phil had indicated right off the top, our inventory has really never been better. You’ll see it in our reserves report with our reserves bookings. I believe we have 18 booked Glock locations in Sundry now. Those locations are the same ones that one of the top plays of Tourmaline and Whitecap are quite involved in.

And our team was able to, through the lands we acquired in the Certus acquisition, do some strategic land swaps to be able to increase our working interest and consolidate our interest around our owned and operated infrastructure. So a lot of that work was done in 2024 and our team did a fantastic job consolidating the land base and setting up the locations to drill. So we’ve got an excellent inventory of top quality wells. The wells based on the current forward strip payout in about a year, give or take, depending on commodity prices. But so they’re very, very low payout and excellent wells.

So we’re excited about the over pressured guac in the Sundry Caroline area. Also there’s the emerging Basal Courts Play that’s just north of Drumheller. There’s several private equity companies that are out there actively developing the play. And we’ve got an excellent land base and light bookings on our reserve. And we have a lot of infrastructure that we control in that area.

So those are the two biggest emerging plays that we have and we’re very, very excited about both of them. Our previous inventory, the Kisco is still booked inventory that we still have and we’re still very, very much excited about it. But it’s at this point in time, both the Basel Quarts and the Gloc wells payout in twelve months, give or take. So they’re very, very quick payout, lucrative wells, high rate of return even at today’s commodity prices. So those are the opportunities that we have in front of us.

Phil Hodge, President and CEO, Pinecliff Energy: Thanks, Terry. The just to add to that, the one thing that was highlighted in our reserve report that some of you have already commented on and some of the analysts have commented on is that even though we didn’t drill a well in 2024, we actually had an increase in our proved plus probable reserves even after taking into account the production for last year, which is pretty impressive. And as Terry said, we’ve now added locations. There’s booked locations in both the Guac oil and also in the basal quartz area. So these are areas that we’re pretty excited to get to.

One of the questions we’ve got is how do you free up cash cash flow to take advantage of those opportunities. And like I said, there is we’ve got our cash flow coming in and luckily it seems to be it’s in the last couple of weeks it’s been rising. But we’ve got to measure that again. So, okay, how do we look at debt repayment for the year? How do we look at kind of drilling?

We’ve got the dividend commitment that we continue to watch very closely and monitor and assess. So there’s a few levers that we can pull. And for us, again, the test is how do we what do we think is the best path to increase cash flow per share for our shareholders? And it’s not just about this quarter or next quarter. It’s about how do we do that for the years to come.

So we’ve got the another question we had here is about the Canadian dollar and the U. S. Dollar affecting your business. Maybe I’ll pass that over to Chris.

Chris, Moderator/Unspecified, Pinecliff Energy: Yes. Thanks, Phil. So the Canadian dollar is obviously there’s a lot of uncertainty in the market right now with respect to commodity prices. And ACO prices are higher than they were at this point in time last year and continue to move, creep up a little bit higher here. But WTI prices are lower.

Fortunately, when The U. S. Dollar or when WTI moves down, generally we get some offsetting impact by a weaker Canadian dollar. So we’re seeing that a bit in the numbers. It’s not a perfect offset.

Oil prices are still weaker than where they were at this point in time last year, but it certainly helps.

Phil Hodge, President and CEO, Pinecliff Energy: Thanks, Chris. Another question we had here is about the storage situation in Canada and whether or not there’s regular announcements on storage levels in Canada like there is in The U. S, there isn’t any we don’t The U. S. For those who aren’t don’t follow it, every Thursday typically is when they announce what their storage levels are.

And so it’s a very clear and it’s the everybody waits for that announcement. The Canada is an ongoing monitoring, but it’s a very transparent if you’re on the TC Energy website, you can see where storage are and you can actually see on a hourly basis, what is the storage draws or injections that are going on at that time. So the I highlighted it in my e mail that went out and I think everybody probably on this call is probably a subscriber to our quarterly e mail. But the storage has dropped a lot in the last little bit and a lot meaning it’s now we start went into this winter with the highest storage level we’ve ever had. I mean, we were actually testing the maximum limits of what our storage was, which is not good for pricing, which is why ACO was as weak as it was.

We’ve had a cold winter. So this is after two abnormally warm winters. This winter is much more in the normal to cold side. Because of that, we’ve seen a really quick reduction in natural gas storage to the point that is now below the five year high and heading in Canada and heading below right now on a trajectory that would take below the five year average, which is pretty amazing given where we started at. And so and that’s all in the backdrop of having LNG Canada starting up this summer, which will be a big draw, it could be depending on how fast it ramps up.

Early indications are that could be as high as a BCF a day in the summer months, ramping up to close to two BCF BCF a day by the end of the year. So The United States is already ahead of us from their in that context because their storage is already under their five year average, which is why NYMEX has had as much strength as it has over the last month here. So it is a there is no specific, like I said, no specific announcement on the storage, but it is a very readily accessible data that you can get. We’ve got a question just about our liquidity level. This is something that we watch very closely and maybe I’ll hand it over to Chris.

I mean, when we talk about the payout ratio, that’s something that we watch very closely. And the payout ratio is essentially all the money that you bring in and then all the money that you send out. And obviously, we’ve had a our dividend since 2022. We treat that like a variable dividend. We obviously in a perfect world continue to hold it or increase it, but we’ve reduced it before where we didn’t feel it was in the best interest of the business.

We’ve also increased it a couple of times. So that’s an important toggle or lever that we have if we’re looking at how do we access cash flow if we need it, if we see better opportunities to use that cash flow in the longer term. Again, I think shareholders most of our shareholders do take a longer term around why they own Pine Cliff. There’s you’ve got the longer term prospects around where we think natural gas is going in Western Canada and having that exposure to it. I don’t know, Chris, if you want to add anything.

Yes. No, I think

Chris, Moderator/Unspecified, Pinecliff Energy: I would just reiterate, Phil, thank you, that we continue to be very sensitive to the fact that we need to run a balanced budget over the course of the year in 2024. We managed to keep our payout ratio below 100% by pulling different levers and managing through things like strategic dispositions and hedging. And we’ll continue

Phil Hodge, President and CEO, Pinecliff Energy: to look at all of those options

Chris, Moderator/Unspecified, Pinecliff Energy: to be able to protect the liquidity on the balance sheet.

Phil Hodge, President and CEO, Pinecliff Energy: Thanks, Chris. Yes. I mean, from our perspective, it’s again, all the decisions we’re making on capital allocation are long term. And so it is not we’ve been around now for this is our fourteenth year. We think we’re going to be around a long time to come in what we believe is going to be a much better natural gas environment here in Western Canada.

And the fact that we’ve stabilized our cash flow and our balance sheet with adding oil and liquids production. That has turned out to be very prudent. I think one of the things we’re quite happy with was the transaction that we did in December of twenty twenty three. That production that we added, which was over 5,000 barrels a day, about 50% of it, which was liquids, has been very consistent all through 2024 and still remains over 5,000 barrels a day. So that’s again, we continue to look for resilient assets within drilling inventory that we can add.

Like as I started this call off, our drilling inventory has never been stronger in the history of Pine Cliff. And that’s we’re very fortunate that we now have got some very economic drilling locations that Terry touched upon in his question. One of the questions is about Aimco. The question was if the Aimco board change will impact the holding of the company’s stock. We have Aimco has been a fantastic shareholder for us for many years now.

There have now been so there for those of you who aren’t aware, the Alberta Aimco is the Alberta investment management company, which manages about 160,000,000,000 They’re one of the biggest pension funds in Canada. They have been with us now for over eight years as a shareholder and own over 10% of our stock. They we have ongoing discussions with them. Every indication is that they’re very happy to be a shareholder. They continue to be very supportive.

We do not think that any of the changes that have happened at the Board level with Aimco will have any negative impact on their shareholders in Alberta. In fact, on a from a taking one step back, the Alberta government is one of the reasons they made some of the changes or at least they seem to have indicated is they’d like to see a bit more focus on Canadian investment by Aimco and not and so that’s why they closed some of their international offices, which I think would be positive for us Because if we see opportunities in the future that we could if equity is part of that solution, then we hopefully have got a partner who’s going to be supportive in those transactions. Another question is what is our hedging position today? I’ll pass it over to Chris.

Chris, Moderator/Unspecified, Pinecliff Energy: Yes. Thanks, Phil. So our hedging position, we continue to build out and add positions opportunistically. At the end of the year or at the time of the report that we published last night on gas, if you use 2024, the fourth quarter twenty twenty four volumes as a benchmark, we’re about 35% hedged on natural gas at an average price of around $2.91 in MCS, so that’s Canadian. So that’s certainly helpful to our gas exposure.

And then on the oil side, we’re around 31% of our Q4 Q4 twenty twenty four volumes hedged at just about USD 69 a barrel. So again, certainly helping at the margin with our cash flow.

Phil Hodge, President and CEO, Pinecliff Energy: Thanks, Chris. I think that covers all of the questions that we’ve currently got in the queue. The I think most the shareholders are well aware that if there are any other follow-up questions or comments that they’re welcome to send emails to the management team and we’ll get back to you as soon as we can. We appreciate the ongoing support from the shareholders. It is a tumultuous time.

This is a one of the it’s always been volatile. It’s always we’ve always had different stresses and tailwinds and headwinds that are competing with each other. This one’s a bit unique. We haven’t had the tariff. This is a new circumstance that we’re dealing with.

But it’s still too early. I get asked about the tariffs quite frequently. And it’s just too early to say what the impact is going to be on Pinecliff specifically or even on broader base the natural gas energy sector in Canada. Time will tell. Are these tariffs going to be here for a long period of time?

How are are they going to be are the prices or sorry, are the tariffs going to be impact really picked up by the end consumer or will that be borne in any way by the producers? We’re all kind of guessing. And I guess we’ll keep a close eye on all of that. And again, it comes back to us. It’s all about the cash flow per share.

And so, I mean, what are the impacts on that? If there’s capital allocation decisions that we have to make in response to kind of that uncertainty, then those are the decisions we have to make. And so as I’ve often highlighted to those who follow our story, management owns a lot of stock. So we are totally aligned with the shareholders where every decision we make is trying to increase cash flow and the value of our shares. And so the we are very close to it.

We watch it and we discuss it on an ongoing basis. And this is no different than at any time during the past thirteen years. It’s just little different circumstances and we will continue to make decisions that we think are prudent for the shareholders. Thank you to everybody for their time today. Very much appreciate it.

Look forward to talking to you again in the future.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.