President's Message to Shareholders

Dividend Sustainability

It was one year ago in Q2 2022 that Pine Cliff declared our first dividend. This was a significant achievement that we had worked for over a decade to achieve and a nice reward for our shareholders who patiently held or grew their investment in Pine Cliff through a volatile decade for commodities. As of August 1, 2023, and since the inception of the dividend, we have happily paid our shareholders ~$50.3 million in dividends. We are proud of this success, however our team is determined to further lower our costs and add accretive assets to our portfolio. Our goal is to give our dividend even more sustainability. Having $48 Million in the bank and no debt has created a buffer for our dividend sustainability, but I can assure you that we continue to look for ways to optimally utilize that capital and improve shareholder returns.

Asset and Corporate Acquisitions

It seems the Canadian oil and gas mergers and acquisition market has heated up this summer along with the temperatures.  Pine Cliff has always actively looked at potential acquisitions, but we were relatively quiet on the M&A front in 2022 when commodity prices were hitting new peaks. 2022 was a great year for funds flow, but not a great year, in our opinion, for purchasing assets. With commodity prices moderating in 2023, we are once again seeking assets that will further enhance the business model we have built in preparation for what we believe will be increasing commodity prices in the years ahead.  

Although Pine Cliff is properly thought of as a natural gas producer given that 87% of our production is dry gas, 2023 is a good example of why we feel it is beneficial to have some commodity diversity in our asset portfolio. The drilling we have done this year has been on oil locations from past purchases with 13% of our production now being liquids weighted and contributing approximately 35% of our revenues when natural gas prices bottomed earlier this year. Our focus remains on adding assets that will fit within our low decline portfolio while minimizing the addition of inactive liabilities, whether the assets are natural gas or oil weighted. If the assets also add drilling inventory, then we are willing to value the assets higher than ones that do not, but discipline on the price remains critical in our acquisition model. It is unlikely we will be able to “drill our way” to a good purchase price. We need to instead buy assets that are accretive to us and will make our Pine Cliff shares more valuable immediately after the purchase.

We have worked hard to build a strong balance sheet that now gives Pine Cliff a unique opportunity to capitalize on opportunities at this point in the cycle. Equity financing has not yet returned to our industry in a significant way and the cost of debt has quickly risen this year. What I can assure you is that increasing shareholder value has always been our guiding light for capital allocation decisions since we started Pine Cliff, and that discipline remains in place today.

Marketing and Diversification Strategy

Pine Cliff has not historically been known as a company that enters a significant amount of physical or financial hedges, but we are proud of the work our marketing team has done in 2023 to give us realized gas pricing of 14% and 16% higher than the AECO 5A benchmark in the three and six months ended June 30, 2023. These results are partially due to physical sale contracts we put in place and partially due to the internal market diversification we have with owning three pipelines that exit the Province of Alberta. We will continue to monitor future pricing and work with our experienced marketing team to minimize commodity risk to our dividend business model.

2023 Drilling Program Update

Pine Cliff drilled, completed and tied-in three Pekisko oil wells (2.1 net) during the first half of 2023 and all three wells were on production by June 9, 2023. The all in-capital gross costs per well averaged $3.7 million and although production is early, productivity from the three wells will more than meet initial expectations.   I commend our operations staff for their hard work throughout this process. Due to the success of these wells and the identification of some promising recompletion opportunities, we have decided not to drill a fourth Pekisko well as initially budgeted. We believe that capital can be better utilized in other areas of the Company this year and this well would be more efficiently drilled as part of our 2024 drilling program. There are several advantages of running a company with a single digit decline rate, and one of them is that we can be flexible with our capital expenditure program without resulting in a large production loss. Despite postponing 25% of our 2023 Pekisko well drilling program, we are maintaining our 2023 guidance of annual production to an average greater than 20,000 Boe/d.

Outlook

I would have thought that once Pine Cliff achieved its goal of being a dividend paying company with no debt that the intensity of guiding our ship would have diminished. While it is true that our management team is no longer anxious about banks, debt or natural gas prices being under $1 Mcf, we are now passionately motivated to continue to build on the success we have achieved to date to make Pine Cliff stronger and even more attractive to investors.

We are excited about the future of the oil and gas markets and the role we can play in being a lower risk investment option for investors wanting exposure to the natural gas commodity while receiving a sustainable dividend. The world needs more energy every single day, and it has become apparent to many market observers that oil and natural gas demand is going to continue to rise for many years to come. North American natural gas markets in particular look promising with a doubling of LNG export capacity in the next few years. Our job is to continue to deliver to our investors the same discipline of capital allocation we have demonstrated over the past 12 years to build more shareholder value. I believe our team is up to meeting this challenge and are excited to deliver.

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Yours truly,

Phil Hodge,

President and Chief Executive Officer

August 1, 2023

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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.

²Refer to the August 1, ,2023 Press Release for commodity split by product.