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Pine Cliff Energy Ltd. (PNE) reported robust financial performance for the first quarter of 2025, marked by a significant cash flow increase, a reduction in debt, and strategic hedging activities. The company’s stock price increased by 3.85% following the earnings announcement, reflecting positive investor sentiment. According to InvestingPro analysis, the company appears undervalued at its current market capitalization of $140 million, despite trading near its 52-week low of $0.37.
Key Takeaways
- Pine Cliff Energy achieved one of its strongest cash flow quarters in eight periods.
- The company reduced its debt by 19% since the inception of its loan.
- Pine Cliff Energy’s stock rose by 3.85% on the day of the earnings call.
- The company is exploring new opportunities in data center power supply and off-grid power generation.
Company Performance
Pine Cliff Energy’s performance in the first quarter of 2025 was bolstered by a realized natural gas price of $2.90 per Mcf, a premium over the AECO average of $2.16 per Mcf. Although production was slightly lower due to freeze-offs, the company’s strategic hedging and debt reduction efforts underscore its strong financial position. The company remains well-positioned to capitalize on future opportunities, including potential acquisitions and expansion into new markets.
Financial Highlights
- Revenue: Not specified in the report.
- Earnings per share: Not specified in the report.
- Realized natural gas price: $2.90/Mcf
- Debt reduction: 19% since loan inception
Outlook & Guidance
Pine Cliff Energy continues to optimize its debt structure and capital allocation, with a focus on being potentially debt-free by 2026, depending on commodity prices. InvestingPro analysis reveals that while short-term obligations exceed liquid assets, the company has demonstrated strong returns over the last five years. The company is closely monitoring the startup of LNG Canada, which could open new hedging opportunities. Subscribers to InvestingPro can access 6 additional ProTips and detailed financial health scores to better understand the company’s potential. Additionally, Pine Cliff plans to exploit its drilling inventory in the latter half of 2024, supported by a flexible capital expenditure budget of $12.5 million.
Executive Commentary
Phil Hodge, CEO of Pine Cliff Energy, emphasized the company’s strategic focus, stating, "We’re always looking at acquisitions," highlighting the company’s growth-oriented mindset. CFO Chris Zak added, "We continue to believe that repayment of debt is going to be an important consideration," underscoring the company’s commitment to financial health.
Risks and Challenges
- Commodity Price Volatility: Fluctuations in natural gas and oil prices could impact profitability.
- Operational Risks: Weather-related disruptions, such as freeze-offs, may affect production levels.
- Market Dynamics: Changes in the LNG export market and storage levels could influence future earnings.
- Regulatory Changes: Potential shifts in energy policies could impact operational strategies.
Q&A
During the earnings call, analysts inquired about the company’s hedging strategy, data center power opportunities, and acquisition plans. Management provided insights into their flexible drilling program and the potential impacts of LNG Canada on their operations.
The robust performance and strategic initiatives of Pine Cliff Energy in Q1 2025 have set a positive tone for the rest of the year, with the company remaining vigilant about market dynamics and opportunities for growth.
Full transcript - Pine Cliff Energy Ltd (PNE) Q1 2025:
Chris Zak, Chief Financial Officer, Pine Cliff Energy: Good morning and welcome to the first quarter Pine Cliff Energy conference call. My name is Chris Zak, Chief Financial Officer. We will open with remarks from President and CEO, Phil Hodge. Joining Mr. Hodge today is Terry McNeil, Chief Operating 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’d 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, I will turn the call over to Phil Hodge, President
Phil Hodge, President and CEO, Pine Cliff Energy: Thanks, Chris. I think we’ll just do a couple of introductory comments and then jump right into the questions. You’ve got the press release and also my President’s letter. Those of you who are subscribers to our e mail would have already received our quarterly e mail as well. First quarter was quite positive in the sense that it’s been a long time since we’ve seen kind of a period of time where we’re seeing over $3 forward prices in the AECO market.
And so we’ve touched on that before about our how we’ve been layering hedges into that market and the most recent hedges that we’ve put in place going into 2026 and even into the winter of twenty twenty six, ’20 ’7, we’re seeing prices that are well over $3 and actually closer to $350 So this is it’s been a while since we’ve seen that. So the first quarter was one of the strongest quarters we’ve had in about eight quarters from a cash flow perspective. And so that’s quite positive. We’re not by any means out of the woods yet, where this the summer months here, Q2, Q3, AECO is not as strong as we’re seeing in kind of for Q4 and Q1 of going into the winter season, but it’s still better. And we’re over we’re about 50% hedged, which Chris has highlighted before for the summer months, in Q2, as we kind of wait for LNG Canada to start up.
From an operational standpoint, Q1, where our production was a
Chris Zak, Chief Financial Officer, Pine Cliff Energy: little bit lower because of
Phil Hodge, President and CEO, Pine Cliff Energy: the freeze offs, but then that’s like the inverse of the freeze offs means that you’ve got very cold weather and therefore gas prices were higher. So the actual financial results weren’t impacted and actually were more positive in Q1, even though we did have some production shut ins because of the cold weather. The think what the main thing for us is that we’ve kind of positioned our balance sheet and trying to create as much flexibility as we can going into the back half of this year. We’ve created CapEx and we’ve set a budget for the year to be spending about $12,500,000 on CapEx. That is always subject to what’s going on in the markets.
We’re fortunate that we don’t have to make any decisions on the drill programs until the back half of the year. So as we come out of breakup, we’ll kind of we’re going through a lot of internal processes and starting to talk to partners in our key areas about what the optimal way for us to allocate the CapEx is. And so this is something that we’ll be watching very closely. The I think from our perspective, continuing to pay down debt is a key piece. And so well, actually, that’s one the things I want to pass back over to Chris.
One of the questions was that we received last night was about the kind of how we’re looking at our debt, how we’re looking at the as we move from our credit facility from one bank to another bank, which is a process that’s undergoing is happening right now. Chris, maybe I’ll pass back to you to comment on that.
Chris Zak, Chief Financial Officer, Pine Cliff Energy: Yes. Thanks, Phil. So you might have noticed in notes of the financial statements that the increased demand loan that we had outstanding at the end of the year was extended at $15,000,000 to the May. And that’s really to accommodate the timing of as Phil suggested our bank reviews, have taken a little bit longer than expected as we’re moving over to a new bank platform. But we noted at the March, we had about $8,600,000 drawn, which is still well below the increase that was sustained at $15,000,000 For our term loan, I just note that, we’re at just below $45,000,000 at the end of the first quarter, that’s down about 19% since the inception of the loan, which was taken out to help finance a strategic acquisition at the end of twenty twenty three.
Debt repayment will always be an important part of our allocation of capital considerations as we move forward as we’re looking to continue to bring that down. But we’re also always looking to optimize our capital structure and we’re continuing to work with our debt partners to make sure that we have the most flexibility within our capital structure to accomplish the supporting our free cash flow and our development program as we look ahead into 2025 and into 2026.
Phil Hodge, President and CEO, Pine Cliff Energy: Okay. I think we’ll jump right into the questions. One of the questions we’ve got is around LNG, both in LNG Canada and in U. S. LNG.
The LNG Canada, there was actually when I sent out my e mail yesterday, shortly afterwards, kind of press the send button, there was another update that there were some discussion from some undisclosed sources that they could see shipments out of the LNG Canada sooner rather than later. In other words, possibly in June, July as opposed to kind of later in the summer. We’re watching that very closely because we think that that could be a key piece to the storage. Our production in Canada has been pretty flat right around 19 Bcf a day. The demand continues to rise in for The U.
S. Exports, it was hit at kind of a peak of 8.8 Bcf a day. We continue to see oil sands using about 3.8 Bcf a day. So storage levels are actually about 20% below in Canada, below the one year where they were last year. But an important piece to that is what happens this summer if, when demand weakens a little bit, if we don’t have a very hot summer, for instance, what happens to storage?
And that’s where LNG Canada comes in. And so we’re all looking forward to seeing the LNG Canada kind of start up and launch in 2025. The question is just when that’s going to happen. One of the questions we had was about the how much LNG Canada gets produced into LNG and is there a loss percentage? Second one, I’ll pass over to Terry.
The first one, LNG Canada is about 1.8 Bcf to 1.9 Bcf a day at full, the first train at full capacity. And all of the producers, there’s five owners of LNG Canada. There’s Petronas, Shell, CoGas, PetroChina and Mitsubishi. And so they have varying the way LNG Canada works a little bit different than some of The U. S.
LNG facilities is that each of those owners needs to bring their percentage ownership to the LNG Canada, that’s their commitment. And then they also need to find that percentage of owners that percentage of buyers. So people watch kind of where the production is at. Some of the producers are a little bit below right now, their total amount of production than to match the Phase one of LNG Canada. But they’ve also indicated that they’re happy to buy on the market.
In other words, they could go in and just fill their share in the by buying off of AECO or Station two gas. As for the percentage, I’ll pass that over to Terry.
Terry McNeil, Chief Operating Officer, Pine Cliff Energy: Thanks, Phil. I’ll process it by saying I’m far from an expert on LNG processing facilities, but what we do have extensive knowledge with it and I believe the nature of the question is what is the typical gas shrinkage that the LNG Canada can expect. And in a conventional plant typically shrinkages are anywhere from 5% to 10% actually sorry, I should step back. I believe the nature of the question is if there’s two Bcf of gas processed in LNG Canada, does that mean there’s 2.2 Bcf of feedstock to the plant for a 10% shrinkage. And in a traditional processing plant in Western Canada, typically gas shrinkages would be in that 5% to 10% range.
And that shrinkage would encompass fuel and conversion of liquids from gas, recovery of gas liquids from the gas stream like propane and butane. So that’s usually 5% to 10%. LNG Canada is going to be predominantly electrical powered from an external power source and there is no liquid recovery. So I would expect the shrinkage to be quite small. I would expect it to be maximum 5% or probably lower.
So shrinkage is probably a handful of percent and that’s probably about it. Again, we’re not experts at it. We don’t operate these facilities, but that’s just my perception of what it would be.
Phil Hodge, President and CEO, Pine Cliff Energy: Thanks, Terry. Couple more questions around LNG here. One is, what are your plans for participating as a supplier in LNG? The reality is that our molecules that we produce in Alberta probably are not to be are going to be liquefied. But what’s important to know is that any LNG projects anywhere in North America are a positive for natural gas producers, because it’s all it is, is another form of demand.
So just think of LNG exports, anytime you’re seeing LNG export numbers, just think of that as more demand for natural gas, just like the any other form of demand for natural gas. So the most of the gas that will be liquefied for the any of the LNG projects and there’s multiple LNG projects that are being built off the West Coast Of British Columbia, that gas is most likely going to come from the Montney area, from Duvernay, sort of come from Northwest Alberta, Northeast British Columbia. But today, a lot of that production in those areas is now coming into it’s flowing East and therefore into Alberta and being some of it would be going to Eastern markets and Southern markets into The U. S. By virtue of that, the flow of that gas now going West, that just creates less supply for it to compete with the molecules that we do produce in Alberta.
So indirectly is definitely a positive. One of the other questions was what about the LNG United States, what else is coming on? The one that cut the market a little bit by, I don’t know, by surprise, but the Pluck minus LNG Phase two in Louisiana came on faster than people thought it would that I think most people thought it would. So I showed a graph of that in my email that went out last night is that, there was a kind of a staged as these LNG facilities come online, there’s been enough of them now in The U. S.
Because this was there’s been seven prior to Pluck Minus, Pluck Minus was number You can see how they build up their natural gas demand or their flow into the system and how much they use. Pluck Minus has gone up very fast, quicker than any other LNG facility that’s come online. So that’s actually now we’ve gone from about it was around 13.5 Bcf to 14 Bcf a day of LNG exports. Park Minas has taken that now to over 15. There’s been days that it’s been up as high as 16 Bcf a day.
The other two facilities that are coming online in 2025 in The U. S. Are planned to come on as Golden Pass LNG out of Texas and the Rio Grande LNG out of Texas. When all of these come online by the end of twenty twenty five, they’re talking about they were probably going be around that seventeen, seventeen point five Bcf a day. So it’s pretty significant.
And we’ve talked about this hockey stick of LNG demand that’s coming on. We’ve been talking about it for two years now. Just to remind everybody, in 2016, the United States did not export any LNG. And then they ramped that up to become the largest LNG exporter in the world, which is where they are today. And then, that’s kind of paused.
So from 2020 to February sorry, from 2022 to 2024, there was no new LNG. So they’d ramped it up to 14 Bcf a day. Now they’re in an expansion phase where we’re going to see about another 12 Bcf a day over the next few years come on in The United States, so very significant. And so they’re looking at by the end of the decade, exiting the decade somewhere between 28 to 30 Bcf a day, in addition to the extra LNG facility projects that are happening in Canada and in Mexico. So it’s pretty significant.
One of the other questions we had was about data centers. That’s something that we watch extremely closely. And for those of you who’ve been reading the quarterly emails, would have seen I’ve dropped in a lot of information and data and graphs. The province of Alberta has been very vocal in its desire to attract that type of investment into the province. We’re very happy to say that we are one of the very first companies to announce an arrangement with the data center that was in January.
We are we’ll continue to update our investors as that progresses. What’s significant for us is that the a lot of these data centers, they need 20 fourseven, three sixty five type power, so they can’t have intermittent power. And therefore natural gas is an obvious source of their power they need and they need a tremendous amount of power. We’re seeing a lot of different speculation as to how much the data centers are, their total amount of natural gas they’re going to need and how much the what percentage of the total electricity grid will be eventually dedicated to these data centers, which are really the data centers are just computer warehouses, if you will, that are used for a lot of the AI. So the artificial intelligence uses a tremendous amount of power.
And so we’re using a lot we’re seeing a lot more adoption of AI into everybody’s businesses and everybody’s life. And therefore, we’re seeing a lot more energy need. And this isn’t specific to North America. This is a global phenomenon. And we’re also I mean, The United States has led the way in growth of these data centers.
But we’re going to see a huge amount of major projects get announced. The ones that we are focused on, and we’ve got multiple sites that would be good locations for this type of application is where it’s off grid. In other words, where the power is going to be provided right on-site and therefore it doesn’t need the electricity from the power grid for its internal use. That’s key because the Alberta government and just about every other government has said that, they do not their infrastructure and the grids in the various areas can’t take on that kind of new demand without massive investment in the infrastructure. So that’s kind of the struggle that the data centers are going to have is that where can they find locations where they’ve got access to power without damaging the grid that’s already in place.
So stay tuned. I think Alberta is a prime spot because of our natural gas reserves that we’ve got throughout the province. And we’ve got a government that is very receptive to this type of project getting moved forward. We’ve got a question about hedging for 2025. I’ll give that back to Chris.
Chris Zak, Chief Financial Officer, Pine Cliff Energy: Yes, thanks, Bill. So we continue to be actively active in our in hedging our forward production. And I think that was again evident in the first quarter. We averaged a realized natural gas price in the first quarter of $2.9 an Mcf, that’s at a premium to the $2.16 an Mcf of the AECO average price over the first quarter. As we indicated for the balance of 2025, we’re around 42% hedged at ACO at around $2.9 with a bias of that percentage have more heavy in summer months.
We’re also 32% hedged on our WTI at $65 for our oil price or oil production. And those are all both positive relative to current prices and we’ll continue to look at ways in the very near term to continue to add in hedge positions that will help protect our cash flow. But also into 2026, I would just note that we’ve seen prices now at 2026 that we can hedge over $3 in Mcf for the calendar year. And if you look out to the winter twenty six, twenty seven, you can actually hedge out at prices that are into the $3.53 60 range right now. So these are prices that work very well in our model.
And so not only will we continue to focus on protecting our near term cash flow, but we’ll continue to look to build out our hedge book into 2026 and into the winter twenty twenty six, twenty twenty seven.
Phil Hodge, President and CEO, Pine Cliff Energy: Thanks, Chris. One of the questions we had here was about our balance sheet and as it relates to our acquisition strategy that we’ve deployed over the last fourteen years. We’re always looking at acquisitions. I don’t think there’s been a time or if there has been, it’s been very brief times where we there’s not been something we’re looking at over the last fourteen years. And sometimes it’s we’re looking at multiple things at the same time.
The having the strong balance sheet is something that was very, very I think it’s very important for that And many of you who have been with us, have been shareholders with us for many years know that there’s been times where we’ve been debt free and there were we sat on cash as we looked for acquisitions. And we again, I think we showed our discipline that we didn’t go out and just buy things because there’s always things for sale. But for instance, I look back to 2022 is a good example of where we went from $50,000,000 of debt to $50,000,000 of cash. And but we went almost two years, we did a deal in December of twenty twenty one and then another deal, not another deal until December of twenty twenty three.
So even though we are sitting in a really strong position with cash, with the balance sheet being able to do, we could definitely have done something during that time. We just didn’t see prices that made sense to us at that time. And so that’s when we kind of started looking at doing more on the CapEx on the drilling side. So I really our management team really looks at capital allocation as our prime job and as to where is the where with the resources and the cash flow that we do generate, where is the best place to use that. And that was one of the reasons why we made the adjustment of the dividend here earlier this year is because we really wanted to put ourselves in an optimal position going into the back half of this year for either drilling or acquisitions or both.
And I think the our debt to cash flow on a forward basis would be somewhere around one times at the end of this year.
Chris Zak, Chief Financial Officer, Pine Cliff Energy: Maybe and one of the
Phil Hodge, President and CEO, Pine Cliff Energy: questions we had is how soon could you be in a position where you don’t have any debt? Well, that really depends on future prices. But you can if we are entering into 2026 at around one times, you can see there’s definitely scenarios where that deck could go down very rapidly, very quickly in 2026. So we continue to monitor it. I think there’s I agree with the comment from the question, which is kind of implied that if you’ve got a lower debt profile, then you’re probably in a stronger position for acquisitions.
I agree with that. And we’ve always kind of maintained that. And so that’s one of the reasons why that we are paying down debt And Chris already gave you some statistics on that is how fast we’ve been paying down the debt. That is going to be a continued focus for us to continue to pay down the debt to put us in a stronger position as possible.
Don’t know, Chris, if you’ve got anything to add to that.
Chris Zak, Chief Financial Officer, Pine Cliff Energy: No, I think that’s well put again. We continue to believe as a management team that the repayment of debt is going to be an important consideration in allocation of free cash flow as we move forward and with better commodity prices, we’ll be able to pay that debt down faster and that provides us with even more options both internally and strategically.
Phil Hodge, President and CEO, Pine Cliff Energy: And as Chris mentioned before, we’re dealing with both our on our credit facility and our term debt. We’ve got ongoing discussions with both those groups to try to get that optimal debt structure that gives us as much flexibility as possible going into the back half of this year. So there’ll be as we progress through those discussions, we’ll be able to update you more on that going forward. But we’re pleased with kind of the situation we’re in right now with our hedge position, with inventory that we have. I mean, we haven’t spent a lot of time talking about the inventory that we’ve developed through the last few acquisitions.
But it’s we’ve I have mentioned to some of you before in the history of Pine Cliff over the last fourteen years, we have never had this depth of inventory from a drilling location standpoint. So we’ve got some we’re quite excited to get back to exploiting some of those opportunities in the back half of this year. If commodity prices are weak to the point that it doesn’t make sense to do at that time, then that’s fine. Right now, it still does make sense to do it. Our economics would indicate that it’s still going to make sense for us to spend some of the CapEx in the back half of this year.
And so we’ll update you further more on that as we go through the year. But it is an exciting year. I mean, it’s been this has been we went through the last couple of years, it’s been after the last acquisition, we’re very fortunate that we did that acquisition because it added a very valuable liquid production to our profile, which was very helpful in 2024 when gas prices were much weaker. Now that gas prices are strengthening, you saw it in Q1 of this year, gas now is making up over 50% of our revenue again, which wasn’t hadn’t been the case in 2024. And so and it looks like it’s going to continue to make up a higher percentage as we go into the back half of this year and into 2026.
So I think that covers off all the questions we had for Q1. But don’t if anybody has any further questions or would like more clarification, don’t hesitate to reach out to any one of us and we’re happy to provide that. Thanks for your time today. Appreciate it.
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