President's Message to Shareholders

2024 CAPEX and Production Guidance

Pine Cliff has persisted with its disciplined approach to capital programs during the current weakness in gas prices. In the first quarter, our expenditures were minimal, with just$0.6 million allocated to maintenance activities and another $0.6 million to abandonment and reclamation efforts. This course of action included no investment in new wells, as we saw little rationale in drilling our prime locations given the current natural gas price landscape. For 2024, the annual capex budget remains at $17.5 million, however, we are maintaining the flexibility to adjust the discretionary portion of that budget to align with cash flow throughout the rest of the year.

In the first quarter, production of 23,865 Boe/d was slightly below the low end of our annual guidance range as brief periods of cold weather in January and March and capacity constraints at third party processing facilities temporarily impacted production. We have been thoughtful with maintenance spending, ensuring that efforts and capital are spent on projects that impact our higher priced liquids volumes. Oil and NGLs account for just over 20% of our production but more than 50% of our projected2024 revenue at current strip pricing. We expect to get back to strategically drilling in 2025 as higher gas price evident in the forward strip materialize, however, for the time being, we remain patient and will continue to manage around our sub-10% corporate decline rate. Our production guidance range of 24,000 – 25,000 Boe/d⁴ remains unchanged.

Dividend

We are maintaining the current dividend at this time and will continue to make prudent capita lallocation decisions to manage our cash flows. We carefully monitor market conditions to ensure the sustainability of the dividend while preserving the future prospects of our business.  

I would like to point out that the monthly dividend declared at the beginning of May was deemed non-eligible for tax purposes.  This will likely impact any Pine Cliff shares held by Canadian residents in non-registered accounts. The significant tax pools that Pine Cliff received as part of the Certus acquisition were generated at low tax rates that are applicable to a Canadian controlled private corporation.  As Pine Cliff can use these tax pools to shelter corporate cash flow, a portion of which is ultimately paid out through our monthly dividend, the tax credit % for some investors may be slightly lower for ineligible dividends than it would be for eligible dividends.  This is not a permanent change, and at the current dividend payout rate, we expect a return to eligible status sometime in the second half of 2025.  Raising the dividend would accelerate this time frame, and lowering the dividend would extend it. The positive aspect of this is that Pine Cliff’s cash flow will benefit in the near term from having access to these tax pools to shelter income. We encourage any shareholders with any questions to reach out to a tax consultant.

Expanded Line of Credit

Pine Cliff has increased our financial flexibility by securing an expansion of our operating line to $15 million until the end of November, at which time it will reduce to $12 million. This increased line of credit, combined with a deferral of our initial amortizing term facility payment and the Q1 2024 dividend reduction, are all enabling us to navigate weak gas prices through 2024.  We are fortunate and grateful to have stakeholders who understand the volatile nature of commodity markets and are willing to work with us towards Pine Cliff’s long-term success.

Hedging Update

Pine Cliff uses physical hedging as part of our marketing strategy to help protect our cash flow as a dividend paying company.  We have now hedged approximately37% of our expected natural gas production for the next three quarters at $2.94/Mcf and approximately 52% of our crude oil production at $100.84/Bbl.  We will continue to add to these positions where it makes sense to support our business and dividend.  

Executive Appointments

Following the retirement of Alan MacDonald and the appointment of Kristopher Zack as Pine Cliff’s Chief Financial Officer and Corporate Secretary, I am pleased to announce Mr. Dan Keenan has been appointed to Vice-President Exploitation and Mr. Austin Nieuwdorp to Vice President of Finance and Controller.  Both Dan and Austin have been with Pine Cliff for several years and will play important roles in the ongoing strategic development and leadership of the business.  I would like to pass along a well-deserved congratulations to them both.

Webcast

Given the positive feedback from our in augural year-end webcast call, we will host another live webcast so that shareholders can ask management questions about the Q1 results.  The webcast will be held at 1:30 PM MT (3:30PM ET) on Wednesday, May 8th. Participants can access the live webcast via this Link or through the Pine Cliff website at www.pinecliffenergy.com.

Outlook

The current landscape presents both challenges and opportunities for natural gas producers in Western Canada, and Pine Cliff is well-positioned to navigate this environment. We believe that Pine Cliff’s substantial exposure to AECO gas prices will serve as a strategic advantage, particularly with the growing industrial natural gas demand in Western Canada and the expansion of North American LNG export capacity. Forward strip AECO gas prices indicate strength, currently sitting over $3/Mcf for the 2024/25 winter.  

Our commitment remains constant to our strategic objective of enhancing long-term shareholder value. This involves diligently optimizing our asset portfolio and maintaining the disciplined approach to capital allocation our shareholders have come to expect from our team.

Yours truly,

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Phil Hodge

President and Chief Executive Officer

May 7, 2024

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¹Disclosure Note: Please refer to Pine Cliff’s Website for Reader Advisories regarding forward looking information, non-GAAP measures, oil and gas measurements, definitions as this email is subject to the same cautionary statements as set out therein.

² Comprised of 113,633Mcf/d natural gas, 3,352 Bbl/d NGLs and 1,574 Bbl/d light and medium oil.

³ Comprised of 105,176Mcf/d natural gas, 1,446 Bbl/d NGLs and 1,101 Bbl/d light and medium oil.

⁴ Refer to the May 7, 2024 Press Release for commodity split by product.

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