PNE Pine Cliff Energy Ltd

Pine Cliff Energy Ltd. (“Pine Cliff” or the “Company”) (TSX: PNE) is pleased to announce the filing of its second quarter financial and operating results. Included in the filings were Pine Cliff's unaudited interim condensed consolidated financial statements and related management's discussion and analysis for the three and six months ended June 30, 2018 (the "Q2-Report"). Selected highlights are shown below and should be read in conjunction with the Q2-Report.

SECOND QUARTER 2018 HIGHLIGHTS

Highlights from the second quarter of 2018 are as follows: 

• produced an average of 19,557 Boe/d (94% natural gas) in the three months ended June 30, 2018, a 7% decrease compared to the same period of 2017, mainly related to shut-ins for the quarter when the daily AECO reference price fell below the Company’s internal economic threshold levels; and
• reduced bank debt by $0.5 million during the quarter and by $5.3 million during the six months ended June 30, 2018 to $12.7 million, the lowest Company bank debt level since 2014. The reduction in bank debt resulted in interest expense and bank charges, net of dividend income, of $0.41 per Boe and $0.42 per Boe for the three and six months ended June 30, 2018, compared to $0.49 per Boe and $0.50 per Boe for the comparable periods in 2017.

Impact of Pine Cliff’s Diversification Strategy

This past quarter Pine Cliff was able to realize a natural gas price of $1.55 per Mcf, an increase of $0.37 per Mcf, or 31% higher than the average daily AECO price of $1.18 per Mcf, primarily due to the Company’s commodity price management initiatives. Pine Cliff’s main operational focus in the first quarter of 2018 was optimizing infrastructure to increase the flexibility to move production volumes to different delivery points. The result of that field-work is that approximately 48% of the Company’s forecasted 2018 natural gas production is currently being sold to non-AECO markets.

In this past quarter, Pine Cliff had negative adjusted funds flow of $1.0 million on production of 19,557 Boe/d. For a sense of comparison, the only other quarter in the past 25 quarters where Pine Cliff suffered negative adjusted funds flow was Q2 of 2016, when Pine Cliff had negative adjusted funds flow of $3.7 million. During that quarter, the average daily AECO price was $0.21 per Mcf higher than this past quarter at $1.39 per Mcf and Pine Cliff’s production was at 22,647 Boe/d. This comparison highlights how impactful Pine Cliff’s Q1 infrastructure and ongoing operational improvements have been in lowering the Company’s AECO adjusted funds flow breakeven point down to approximately $1.27 per Mcf.

Balance Sheet Strategy Shift

In July, Pine Cliff completed a process started in 2016 to align the balance sheet with the Company’s longer term business model, by replacing the existing bank debt with a tranche of term debt due in 2022 from Alberta Investment Management Corporation (AIMCo), the same group Pine Cliff placed term debt with in 2016.  At the same time, Pine Cliff also increased and extended its insider debt to 2020. These moves do not alter Pine Cliff’s overall net debt level, but they do move debt away from the short term nature of bank debt, to more flexible longer term debt. 

Outlook

AECO gas prices have improved in Q3 from Q2, but are still not at levels the Company believes will justify producers drilling for dry natural gas in Western Canada. The 2018 storage injection season is scheduled to end in three months and although US natural gas supply continues to come on at a record pace, North American gas storage appears to be heading into the fall at the lowest level in 10 years.  If this trend continues, Pine Cliff expects natural gas prices should strengthen this winter when seasonal heating demand increases to deal with colder weather while storage levels are at a decade low.

Financial and Operating Results

					Three months ended June 30,				Six months ended June 30,
					2018		2017		2018		2017
($000s, unless otherwise indicated)
Oil and gas sales (before royalty expense)					21,939		35,561		51,650		70,709
Cash flow from operating activities					531		10,007		7,510		23,842
Adjusted funds flow1					(977	)	10,834		4,160		22,067
Per share – Basic and Diluted ($/share)1					0.00		0.04		0.01		0.07
Loss					(17,909	)	(2,118	)	(33,489	)	(4,654	)
Per share – Basic and Diluted ($/share)					(0.06	)	(0.01	)	(0.11	)	(0.02	)
Capital expenditures					1,276		3,267		4,453		7,068
Net Debt1					54,737		52,562		54,737		52,562
Production (Boe/d)					19,557		21,077		19,781		21,145
Weighted-average common shares outstanding (000s)
Basic and diluted					307,076		307,076		307,076		307,076
Combined sales price ($/Boe)					12.33		18.55		14.43		18.48
Operating netback ($/Boe)1					0.72		7.41		2.39		7.28
Corporate netback ($/Boe)1					(0.55	)	5.65		1.16		5.78
Operating netback ($ per Mcfe)1					0.12		1.24		0.40		1.21
Corporate netback ($ per Mcfe)1					(0.09	)	0.94		0.19		0.96

1 This is a non-GAAP measure, see NON-GAAP Measures for additional information.

For further information, please contact:

Philip B. Hodge – President and CEOAlan MacDonald – Interim CFO and Corporate SecretaryTelephone: (403) 269-2289Fax: (403) 265-7488Email: info@pinecliffenergy.com

NON-GAAP Measures

This press release uses the terms “adjusted funds flow”, “operating netbacks”, “corporate netbacks” and “net debt” which are not recognized under International Financial Reporting Standards (“IFRS”) and may not be comparable to similar measures presented by other companies.  These measures should not be considered as an alternative to, or more meaningful than, IFRS measures including earnings (loss), cash flow from operating activities, or total liabilities.  The Company uses these measures to evaluate its performance, leverage and liquidity.  Adjusted funds flow is a non-Generally Accepted Accounting Principles (“non-GAAP”) measure that represents the total cash flow from operating activities, before adjusting for changes in non-cash working capital, and decommissioning obligations settled.  Net debt is a non-GAAP measure calculated as the sum of bank debt, subordinated promissory notes at the principal amount, amounts due to related party and trade and other payables less trade and other receivables, cash, prepaid expenses and deposits and investments.  Operating netback is a non-GAAP measure calculated as the Company’s total revenue, less operating and transportation expenses, divided by the Boe production of the Company.  Corporate netback is a non-GAAP measure calculated as the Company’s operating netback, less general and administrative expenses, interest and bank charges plus finance and dividend income, divided by the Boe production of the Company.  Please refer to the Q2-Report for additional details regarding non-GAAP measures and their calculation. 

Cautionary Statements

Certain statements contained in this news release include statements which contain words such as “anticipate”, “could”, “should”, “expect”, “seek”, “may”, “intend”, “likely”, “will”, “believe” and similar expressions, statements relating to matters that are not historical facts, and such statements of our beliefs, intentions and expectations about developments, results and events which will or may occur in the future, constitute “forward-looking information” within the meaning of applicable Canadian securities legislation and are based on certain assumptions and analysis made by us derived from our experience and perceptions.  Forward-looking information in this news release includes, but is not limited to: expected production levels, expected operating cost, royalty and general & administrative expense levels; future capital expenditures, including the amount and nature thereof; future acquisition opportunities including Pine Cliff’s ability to execute on those opportunities; future drilling opportunities and Pine Cliff’s ability to generate reserves and production from the undrilled locations; ability to implement a dividend or buy back shares; oil and natural gas prices and demand; expansion and other development trends of the oil and natural gas industry; business strategy and guidance; expansion and growth of our business and operations;  amounts drawn on Pine Cliff’s credit facility and repayment thereof; maintenance of existing customer, supplier and partner relationships; supply channels; accounting policies; risks; Pine Cliff’s ability to generate cash flow from operating activities and adjusted funds flow; and other such matters.

All such forward-looking information is based on certain assumptions and analyses made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances.  The risks, uncertainties and assumptions are difficult to predict and may affect operations, and may include, without limitation: foreign exchange fluctuations; equipment and labour shortages and inflationary costs; general economic conditions; industry conditions; changes in applicable environmental, taxation and other laws and regulations as well as how such laws and regulations are interpreted and enforced; the ability of oil and natural gas companies to raise capital; the effect of weather conditions on operations and facilities; the existence of operating risks; volatility of oil and natural gas prices; oil and gas product supply and demand; risks inherent in the ability to generate sufficient cash flow from operations to meet current and future obligations; increased competition; stock market volatility; opportunities available to or pursued by us; and other factors, many of which are beyond our control. The foregoing factors are not exhaustive.

Actual results, performance or achievements could differ materially from those expressed in, or implied by, this forward-looking information and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking information will transpire or occur, or if any of them do, what benefits will be derived there from.  Except as required by law, Pine Cliff disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise.

Undrilled locations consist of drilling and recompletion locations booked in the independent reserve report dated February 12, 2018 prepared by McDaniel & Associates Consultants Limited and unbooked drilling and recompletion locations.  Unbooked drilling and recompletion locations are internal estimates based on evaluation of geologic, reserves and spacing based on industry practice.  There is no guarantee that Pine Cliff will drill these locations and there is no certainty that the drilling or completing of these locations will result in additional reserves and production or achieve expected internal rates of return. Pine Cliff activity depends on availability of capital, regulatory approvals, commodity prices, drilling costs and other factors. 

Natural gas liquids and oil volumes are recorded in barrels of oil (“Bbl”) and are converted to a thousand cubic feet equivalent (“Mcfe”) using a ratio of one (1) Bbl to six (6) thousand cubic feet. Natural gas volumes recorded in thousand cubic feet (“Mcf”) are converted to barrels of oil equivalent (“Boe”) using the ratio of six (6) thousand cubic feet to one (1) Bbl. This conversion ratio is based on energy equivalence primarily at the burner tip and does not represent a value equivalency at the wellhead. The terms Boe or Mcfe may be misleading, particularly if used in isolation.

Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of oil, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.

The forward-looking information contained in this news release is expressly qualified by this cautionary statement.

The TSX does not accept responsibility for the accuracy of this release.