Pine Cliff Energy Webinar on July 11

[dan_s]

I am preparing a forecast/valuation model for Pine Cliff, so that I can ask intelligent questions on this Friday's webinar.

Chris MacCulloch, CFA at Dejardins is a respected energy sector analyst that follows Pine Cliff Energy Ltd. (PNE.TO) closely. Here are his last two updates.
May 5: First Take on Q1 2025 results
Rating: Buy, Risk: Above-average, Target: C$1.00

1Q25 First Take – Getting ready to hit the gas

Impact—neutral. Earlier this evening, Pine Cliff released 1Q25 financial results which closely aligned with our expectations. Following several quarters of limited capital spending as the company remained on the sidelines in response to depressed AECO prices and elevated corporate debt levels, PNE is poised to reactivate its drilling program in 2H25 as western Canadian natural gas market fundamentals improve with the impending start-up of LNG Canada.

Funds flow remains steady. CFPS of C$0.03 landed below consensus (C$0.04) while matching our estimate. Production of 21,283 boe/d (79% natural gas) also broadly aligned with our forecast (21,500 boe/d), despite being negatively impacted by temporary freeze-offs during February’s extremely cold temperatures. Meanwhile, capex of C$1.2m was slightly below our assumption (C$1.5m), comprising facility and maintenance capital. Relative to our model, stronger natural gas price realizations were largely offset by elevated opex.

Marketing update. PNE highlighted recent additions to its AECO hedge book, which have locked in ~42% of natural gas volumes at an average price of C$2.90/mcf through the balance of 2025. Meanwhile, the company has now hedged ~32% of crude oil production at US$65.02/bbl through year-end.

The capex pause is almost over. While management reiterated plans to remain flexible with respect to planned capital spending, improving natural gas fundamentals and contango in the AECO forward curve have enhanced the economics of putting capital to work in 2H25. Accordingly, PNE maintained its recently announced 2025 capex budget of C$23.5m, which implies a 2H25-weighted capital and production profile. While we expect activity to remain dormant until spring break-up concludes, resulting in a relatively sleepy 2Q25 print, we are currently modelling modest production growth in 3Q25 and 4Q25, which should effectively backfill geological declines within the corporate profile and position the company for strengthened AECO prices in 2026.
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May 7: After Q1 conference call with Pine Cliff Management
Preparing to hit the drill bit; trimming our target to C$0.95 (from C$1.00)

The Desjardins Takeaway
We are trimming our target on Pine Cliff to C$0.95 (from C$1.00), reflecting downward revisions to our production forecast prior to a resumption in drilling activity later this year. Despite our more cautious outlook, we still see the company generating material discretionary FCF at strip prices following its recent dividend cut, which should support rapid balance sheet deleveraging. We therefore continue highlighting the stock as the most exposed Canadian producer to structurally improving AECO natural gas prices.

Highlights from the Conference Call

Preparing to hit the drill bit. PNE delivered another mechanical quarterly update while remaining on the sidelines of asset development as it evaluates the comparative attractiveness of drilling opportunities in a rapidly shifting commodity price environment. As previously noted, the decision to slash the dividend to token status ($0.00125/month) while abstaining from drilling activity were painful yet necessary steps to protect balance sheet flexibility in the face of depressed western Canadian natural gas prices. Meanwhile, news flow has been relatively slow in recent quarters, although we expect it to pick up as PNE finalizes its drilling program, which is expected to focus on development opportunities within the Glauconite and Basal Quartz plays, ideally packaged with a guidance release. Furthermore, on the conference call, management noted that it is currently in the process of recalibrating its debt structure to better align with updated capital priorities and provide additional flexibility.

Going forward, the stock appears increasingly attractive in view of shifting tides in western Canadian natural gas markets as the first phase of LNG Canada prepares to begin ramping operations this summer, which has supported a contango pricing structure. By extension, we now see a ~17% FCF yield in 2026 based on current strip prices and our C$25m capex assumption. It is a compelling entry point for investors willing to stomach higher-torque natural gas exposure. < During Friday's EPG webinar Phil Hodges, Pine Cliff's CEO will highlight the impact of the LNG Canada start-up on natural gas prices in Western Canada.

Valuation
Our revised C$0.95 target implies 3.7x EV/DACF (2026E) on a hedge-adjusted basis, which is below the stock’s historical consensus multiple of 4.3x. For context, our target multiple would expand to 5.6x based on current strip prices. Alternatively, our target also implies a 19.7% FCF yield (2026E), which would contract to 11.2% at the strip.

Recommendation: We maintain our Buy rating.

[dan_s]

Stock price up 10.5% on July 15th.
Watch the replay of our webinar here: https://www.youtube.com/watch?v=oXD7D_nnGRs