Pine Cliff Energy Ltd. (PNE) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. And welcome to the Pine Cliff Energy Ltd. Annual General Meeting Conference Call. [Operator Instructions] This call is being recorded on Thursday, May 21, 2020. I would now like to turn the call over -- conference over to Mr. George Fink. Please go ahead.

Thank you very much. Good morning, ladies and gentlemen. And thank you for calling in to the Annual Meeting of Shareholders of Pine Cliff Energy. My name is George Fink. I'm the Chairman of Pine Cliff Energy, and I will act as Chairman for today's meeting. Before we begin the formal business of the meeting, I would like to take a moment to make a comment about the format of the meeting. In accordance with restrictions on mass gatherings implemented by the government of Alberta, the meeting is being held by teleconference with a minimum number of Pine Cliff's management team present along with the scrutineers, Odyssey Trust Company. There will not be a question-and-answer session nor will there be a corporate presentation at the end of the formal business of the meeting, but there will be a brief corporate update from the President and CEO, Mr. Phil Hodge. Members of the executive team present include Phil Hodge, Director, President and Chief Executive Officer; Terry McNeill, Chief Operating Officer; Chris Lee, Vice President, Geology; and Alan MacDonald, Chief Financial Officer and Secretary. The scrutineer for the meeting will be Jacquie Fisher, representing Odyssey Trust Company, our transfer agent. In order to cover the required business, we have prearranged with certain shareholders to move and to second some of the motions of business. We propose to vote on the appointment of auditors by a show of hands and by ballot on the election of directors. We will deal initially with the formal requirements of the meeting, following which, Phil Hodge, the company's CEO and President and a director, will give a short update on recent operating activities and future plans. The meeting will now come to order. And with the consent of the meeting, I will ask Alan MacDonald to act as secretary and Jacquie Fisher of Odyssey Trust Company to act as scrutineer. We have received confirmation that the notice of meeting, information circular, audited financial statements, auditor's report and other required documents have been mailed or otherwise distributed to all of the registered shareholders and the necessary intermediaries by the prescribed deadline. The scrutineer has advised me that the required quorum is present and, accordingly, I now declare that the meeting has been regularly called and is properly constituted for the transaction of business. The percentage of shares represented in person or by proxy is approximately 30%. Our first item of business pertains to the audited financial statements of the corporation for the year ended December 31, 2019, and the auditor's report thereon. We are not required to vote on this matter, but we are prepared to respond to any questions or comments you may have with regard to the financial statements or the auditor's report. If you have any questions on the financial statements, please direct them to Mr. MacDonald following the meeting, and he will reply to you forthwith. We'll now proceed with the election of directors for the ensuing year. The Board currently consists of 5 directors, and we are recommending that the Board remain at that number. I would ask for a motion to set the number of directors at 5.

Mr. Chairman, my name is Chris Lee, and I move the number of directors to be set at 5.

Mr. Chairman, my name is Terry McNeill, and I second the motion.

You have heard the motion. All in favor, please signify by raising your right hand. [Voting]

Contrary? [Voting]

None? I declare the motion carried. Existing directors consisting of Randy Jarock, Bill Rice, George Fink and Phil Hodge have been nominated for reelection along with the nomination of Jacqueline Ricci. We will now open the meeting for further nominations from the floor. There being no further nominations, we ask for a motion to declare nominations closed.

Mr. Chairman, my name is Terry McNeill, and I move the appointment of the nominated individuals as directors.

Mr. Chairman, my name is Chris Lee, and I second the motion.

Thanks, Terry and Chris. In accordance with the majority voting for directors policy of the corporation, we will conduct the vote by ballot for the election of directors individually. There are no ballots here, so we -- all nominees have been elected as directors to hold office until the next Annual Meeting of Shareholders or until their successors are appointed. The next item is the appointment of auditors. The auditors will be, once again, Deloitte LLP as the corporation's auditors for its remuneration to be negotiated and settled by the Board of Directors. We ask for a motion to reappoint Deloitte LLP as the corporation's auditors.

Mr. Chairman, my name is Terry McNeill, and I move that Deloitte LLP be appointed auditors of the corporation to hold office until the next Annual Meeting of Shareholders at such remuneration as may be fixed by the directors.

Mr. Chairman, my name is Chris Lee, and I second the motion.

Thank you, Terry and Chris. Any questions or comments? If there's no discussion, I would ask all those shareholders in favor to signify by raising their right hand. [Voting]

Contrary? [Voting]

The motion is carried. I declare that Deloitte LLP have been reappointed as the corporation's auditors. With that, I don't think we have any further business. So we'll just proceed with the termination of the meeting, if there isn't any further business. So we'll just wait for a moment to see whether anyone has any comments or questions. As there is no further formal business to be brought before the meeting, may I please have a motion to terminate the formal portion of the meeting?

Mr. Chairman, my name is Chris Lee, and I move the meeting be terminated.

Mr. Chairman, my name is Terry McNeill, and I second the motion.

Okay. All in favor, please signify by raising your right hand to terminate the meeting. [Voting]

Opposed, if any? [Voting]

Carried. I declare the meeting terminated. Thank you. And just before we turn the mic over to Phil, I'd just like to make a bit of a statement here. And first off, we'd like to thank our retiring Board member, Mr. Gary Drummond, who advised the company that he would not be seeking reelection as a member of the Board. Mr. Drummond has provided valuable information and guidance to the company for many years. We wish him good health, happiness and success in his new ventures. To replace Mr. Drummond, we welcome Jacqueline Ricci, who is being elected today to the Bonterra Board and joins Messrs. Phil Hodge; Bill Rice; Randy Jarock; and me, George Fink, to complete our 5-person Board. Welcome, Jacqueline, and we certainly look forward to working with you in the future and to have your guidance and experience in the future. With that, Phil, I'll turn it over to you.

Thanks, George. I'd quickly echo the exact comments that George made. I want to thank Gary for his guidance over the years. This is now our ninth AGM. So it's been -- and this is an unusual one, obviously. It's too bad we can't get together and see a lot of our shareholders, who I know make a point of coming to our AGM each year. But this was the best we could do in the circumstances. I also would like to welcome Jacqueline. I'm looking forward to working with her. I think she will be an excellent addition to the Board. I'm going to keep my comments very brief today. We're not going to have a presentation to work off of, although I would recommend that anybody who wants to see an updated presentation to go to our website at pinecliffenergy.com. You'll see an updated presentation that we put out there. And there's some interesting slides that we've put back in because the last couple of years, being exposed to AECO was not something that natural gas companies were happy to have. So we were focused very much on diversification of our markets, trying to get product to -- outside of AECO. Well, that's changed a lot since -- even in the last year since we last talked. And so the -- having the AECO exposure right now is something that's been very helpful from a cash flow standpoint. And it's interesting times that we're living in. The oil collapse price really had -- is having a dramatic impact on how much associated gas. So a lot of the drilling that happens in the shale plays in the United States for oil, they have a lot of gas that gets produced at the same time. Well, now that the drill -- we have the -- we're setting record lows for the rig counts in both Canada and the U.S. So there is less and less production that is coming online of oil. And then because of that, obviously, a lot less gas production. In Canada, it's a little -- it's not as much focused on the oil, but we are seeing a reduced amount of natural gas production that's associated with the liquids production in the areas like the Montney and Northeast BC and Northwest Alberta. So it's an interesting time for Pine Cliff. We're seeing the strengthening of the forward AECO prices that we haven't seen in several years. For the shareholders, you're well aware that we're about 91% dry gas. In 2020, our expectation is we're going to be between 65% and 70% exposed to the AECO price, which has been, again, quite strong here recently. And we're -- as we look into 2021, we did some cost -- some price analysis and sensitivity that's in the presentation, the updated presentation. It's very difficult to try to predict what the -- what assumptions you should make on the liquids pricing. But we've done -- we've been looking at forward strip, try to do that and then try to give some sense of kind of where we can expect our cash flow to be at various AECO prices. Right now, the forward strip for 2021 is around the $2.50 for the year from an Mcf standpoint, and that is -- that's the highest we've seen in a few years. So we've -- it's been a difficult past couple of years. We've navigated it as best we can by making sure our balance sheet was in a position that wasn't going to cause us any extra anguish. We now have -- we've removed -- put our bank debt from about $155 million at its peak in 2015 down to 0. And we've done what we can on the operating to lower our operating costs wherever possible. And I think that's going to serve us well going forward. Our production has been very consistent, and that's a testament to our field staff. They've done a great job of keeping our decline rate one of the lowest in the industry. So our decline rate is less than 9% on our production. And therefore, we do not have to spend much money to keep our production flat or even to show some growth in it. So it's -- our focus on the CapEx, for our capital expenditure program right now is looking -- we're spending more time looking at some of the natural gas prospects in our inventory than on the oil prospects. The oil wells have performed very well, better than our expectations, internal expectations were. And we can -- we've never shut in those oil wells, and we've seen some recent strengthening in the oil price, which is improving the economics of the production. So right at this moment, our production is kind of at, I would call it, a Goldilocks, just kind of right. Oil prices are not so high that we're seeing associated gas come back on but yet, they're high enough that we're generating positive economics on the wells that we did drill, the Pekisko wells. So we will continue to navigate through 2020. The gas prices are better. They're not as strong as 2021. We're kind of looking at a $2 AECO price for the remainder of the year, maybe a bit better. That's been, like I said, much stronger than the last couple of summers. But it's still not at the levels that we think are probably going to be at the AECO standard kind of going forward. There's a lot of government initiatives. I mentioned that in my last letter out to the shareholders to introduce more equity into kind of a lot of our fixed costs. So we hope to see some benefits on the municipal taxes and on the regulatory fees where we have -- where we've been advocating for a couple of years now that the way they're allocated is not equitable, and we're hoping to see some changes. And I'm pretty comfortable that we will see some of those. We're actually going out to a lot of -- almost all of our surface landowners, same thing, looking for a more equitable partnership going forward. And we've had really good response from the landowners that we've approached to date. They understand the situation. They understand that the times are much different than when the -- than many of the wells were drilled. And they've -- and we've, again, had really good response. So I thank them for that. And we -- and there's the abandonment reclamation program that was announced by the federal government that's being implemented by each of the provinces. We hope to participate in that. And we've got applications in and we're working with our service providers to hopefully access some of that funding. So again, it's a little difficult to go through a detailed presentation without having the visual aids to -- available to you. But what I would recommend and suggest and welcome would be that if any of the shareholders would like to talk about Pine Cliff or about the industry, in particular, please reach out and call me. You've got -- our contact information is on the website. There -- it's also on many of the press releases that we sent out. I'd be more than happy to talk to you. I've talked to a lot of shareholders and prospective shareholders in the last couple of months through this as we've gone through the COVID pandemic. The -- it's -- we look at it quite favorably as we look forward on Pine Cliff. Probably the -- probably more optimistic about the prospects of our company than we have in a couple of years because of the natural gas price finally coming around to a price that we think is more sustainable for the industry. So with that, I think we will -- I'll conclude my comments. And again, welcome at -- after the meeting at any time if anybody would like to give me a call to please do so.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

Thank you.

Thanks for your help.