President's Message to Shareholders

Future Capital Allocations

Pine Cliff is starting 2023 with the strongest and cleanest balance sheet in our history. I am frequently asked what Pine Cliff is going to do with its growing cash reserves.  My standard response is that we will continue to make capital allocation decisions to optimize what we feel will be best for our shareholders. This may sound simplistic, however it is the same premise that has guided us since we started this business over 11 years ago with 100 Boe/d of production. To provide a little more colour on this topic, here are some of our current considerations concerning capital allocation:

a) Capital Expenditures

Our 2023 capital expenditure budget of $27.9 million includes $12.8 million to drill four (2.8 net) Pekisko oil wells in Central Alberta and three (0.3 net) Ellerslie natural gas wells, $8.6 million for facility optimization and maintenance capital and $6.5 million for abandonments and reclamation. Despite the 37% reduction in our 2023 drilling budget compared to 2022 development expenditures, we believe this capital investment should maintain our 2023 production between 20,0002 – 21,000 Boe/d(. Those numbers highlight Pine Cliff’s advantage of having one of the lowest production decline rates (approximately 7%) of all oil and gas producers in Canada.

b) Asset and Corporate Acquisitions

Our team continues to conduct weekly business development meetings assessing the various assets and companies for sale or those we think may come up for sale. The lower expected commodity prices in 2023 will result in a reduction in our funds flow compared to 2022 but should also reduce the price expectations that vendors held in 2022. Last year was one of the only years we did not purchase any material assets since our first acquisition in 2012.  Our current cash balance gives us the benefit of looking at asset packages that could help grow our base without the requirement of issuing debt or additional equity. Our cash balance also extends Pine Cliff’s reach to consider larger asset acquisitions or mergers that would not be attainable if we were carrying significant debt.

c) Dividends

The sustainability of dividends in the oil and gas sector will come under increasing scrutiny from investors if commodity prices show further weakness and volatility in 2023. Pine Cliff is currently committed to maintaining our current monthly dividend and will not be reluctant to use our cash balance if necessary.  Although the current PNE dividend yield over 10% may raise eyebrows, we hope that investors will appreciate that our annual dividend commitment is approximately $45.7 million, which is less than our growing cash balance. We have raised our dividend twice since its inception in June 2022, and we believe that our unique business model will provide the opportunity to raise it again in the future. Although we cannot predict the future, at today’s strip prices, our capital and dividend program for 2023 can be fully funded from Pine Cliff’s forecasted adjusted funds flow.

The Importance of Mentorship

None of Pine Cliff’s accomplishments mentioned above would have been possible without the original founder of Pine Cliff, Mr. George Fink.  I have been fortunate to have had many mentors in my career, but George has been the one I have leaned on the most during my time at Pine Cliff.  He has been a calming influence and a relentless financial and moral supporter of our company and our industry.  Mr. Fink has advised the Board that he will not be standing for re-election at the next Annual Meeting of shareholders. In our 11 plus years of working together at Pine Cliff, and our many years before that as business acquaintances, George has been the consummate gentleman and a guiding light for both me and our team, showing us how we should treat others and take pride in delivering value and results to our shareholders.

George was the one who gave me the chance to invest in myself back in January 2012, with the vision of building a low decline natural gas focused producer. I will forever be grateful to George for that opportunity and the ongoing support he has provided to me as a leader of an organization I am very proud of. Although George will no longer be sitting on our Board, he remains a loyal supporter and one of Pine Cliff’s largest shareholders, so I look forward to our ongoing interactions. On behalf of our entire team and the many Pine Cliff shareholders for whom he has helped build value, I thank George for his time on our Board and his numerous contributions to the success of Pine Cliff.

Outlook

North America experienced one of the warmest Januarys in recorded history this year.  This warm weather coincided with the ongoing Freeport LNG export facility outage in Texas and resulted in a 41% reduction in Henry Hub natural gas pricing in January 2023. Although AECO pricing moved lower during this time, AECO Daily 5A still averaged $3.72 per Mcf in January. The AECO Daily 5A price this morning is $3.33 Mcf and the forward AECO strip price for the remainder of 2023 is $2.94 Mcf.  At these projected prices, Pine Cliff is on track to generate the second highest annual adjusted funds flow in our history.

We have built Pine Cliff to be a long-term sustainable business and will not allow short term pricing volatility to take our focus off building a company that will deliver material rates of returns to our investors for many years to come. We manage our business as the significant shareholders we are, including adding physical hedges where we feel they are beneficial to protect us from short term volatility.

We continue to be optimistic about being a Western Canada natural gas producer. The Province of Alberta utilizes more natural gas than any other Province in Canada, and that demand is growing with the final coal to gas power plant conversions later this year. We also welcome the impact that LNG Canada and multiple other new LNG export facilities will have on our North American market when they start up in 2025.

Thank you for your support as we look forward to an exciting 2023 and beyond.

Yours truly,

‍Phil Hodge

President and Chief Executive Officer

March 7, 2023