Reserve Report Highlights
Pine Cliff’s independent reserve report was prepared by McDaniel & Associates Limited (“McDaniel“) in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (“NI 51-101“) with the effective date of December 31, 2019.
Pine Cliff conducted a $10.3 million capital program in 2019 (excluding acquisitions and dispositions but including $2.5 million of major maintenance and other capital expenses, $5.5 million in development drilling, $0.4 million in seismic costs and $1.9 million in abandonment expenditures). Development capital included two gross (2.0 net) Pekisko oil drills.
In May 2019, Pine Cliff executed a strategic acquisition to acquire oil and natural gas assets in the Ghost Pine area of Central Alberta for net cash consideration of $8.8 million, after closing adjustments (the “Acquisition“). The Acquisition added eight gross (8.0 net) booked Pekisko oil locations in Pine Cliff’s 2019 Reserve Report.
Highlights of the McDaniel reserve report include:
- Despite a decrease of 8.3 MMBoe from economic factors on a proved plus probable basis (“P+P“), Pine Cliff increased its 2019 P+P reserves by 3.2 MMBoe prior to adjusting for 2019 production, largely as a result of 4.4 MMBoe of positive technical revisions and 7.0 MMBoe from the Acquisition;
- Remaining P+P reserves of 57.8 MMBoe (88% natural gas) at December 31, 2019 decreased by 3.8 MMBoe (6%) from 61.6 MMBOE (92% natural gas) at December 31, 2018, mainly as a result of economic factors;
- Approximately 80% of total reserve volumes are classified as total proved (“1P“) reserves and approximately 20% are classified as probable reserves; and
- Net present value for P+P reserves of $127.1 million, discounted at 10%, a decrease of $23.7 million, or 16%, from December 31, 2018, mainly as a result of decreases in forecast commodity prices.
New and Revised Reserves Evaluation Practices
For Pine Cliff’s 2019 year-end reserves report, Pine Cliff has included all abandonment, decommissioning and reclamation costs (“ADR“) for inactive wells and has also included inactive well operating costs (“IWC“) in order to provide greater transparency and accuracy of current values and future cash flows. This change was made based on new guidelines added to the Canadian Oil and Gas Handbook (“COGEH”) in 2019, which recommends including ADR and IWC as best practices. McDaniel’s evaluation of Pine Cliff’s net present value of future net revenue discounted at 10% before tax (“NPV10”) at December 31, 2019 for ADR related to 1P and P+P reserves was $69.4 million and $69.5 million respectively, an increase of $12.1 million and $17.0 million compared to equivalent ADR measures at year-end 2018.
Pine Cliff’s Reserves
McDaniel has used a three consultant average price (McDaniel, GLJ & Sproule) forecast, resulting in a price forecast of $2.04 and $2.32 per Mcf for AECO natural gas and US$61.00 and US$63.75 per Bbl for WTI oil in 2020 and 2021 respectively.
Summary of Remaining Working Interest Reserves, as of December 31, 2019
|Light, Medium and Heavy Oil||Natural Gas Liquids||Natural Gas and Coal Bed Methane||Oil Equivalent|
|Total Proved plus Probable||2,508.1||4,668.3||303,508.9||57,761.2|
Summary of Net Present Values of Future Net Revenue, Before Income Taxes, as of December 31, 2019
Discounted at (% per year)
|Total Proved plus Probable||25.0||119.6||127.1||116.4|
Reconciliation of Gross Reserves by Principal Product Type, as of December 31, 2019
|Light, Medium, and Heavy Oil||Natural Gas Liquids||Natural Gas and Coal Bed Methane||Oil Equivalent|
|Proved||Proved plus Probable||Proved||Proved plus Probable||Proved||Proved plus Probable||Proved||Proved plus Probable|
|December 31, 2018||764.4||1,084.7||3,056.4||4,074.7||266,732.1||338,519.2||48,276.1||61,579.2|
|December 31, 2019||1,623.2||2,508.1||3,372.8||4,668.3||246,877.2||303,508.9||46,142.2||57,761.2|
Pine Cliff’s Board of Directors has approved a 2020 capital budget of $10.2 million that is expected to be funded from adjusted funds flow. Pine Cliff intends to spend approximately $2.6 million drilling one (1.0 net) Pekisko oil well in Central Alberta, $1.0 million drilling two (0.2 net) wells in the liquids rich Edson area of Alberta, $4.6 million on facilities and major maintenance capital and $2.0 million on abandonments and reclamation. Pine Cliff will monitor its capital spending throughout the year and may modify expenditures depending on commodity prices to target spending within adjusted funds flow.
Based on the $3.6 million development capital budget, Pine Cliff is budgeting 2020 annual production volumes to range from 18,500 to 19,000 Boe per day, weighted 91% to natural gas. Pine Cliff’s fourth quarter 2019 production averaged 19,660 Boe per day, weighted 92% to natural gas.
Pine Cliff will continue to consider additional opportunities to enhance its shareholders’ long term value which may include further asset acquisitions or dispositions, although maintaining a strong balance sheet will remain a prime focus.
About Pine Cliff
Pine Cliff is an oil and natural gas company with a long-term view of creating shareholder value. Pine Cliff’s current focus is on acquiring, developing and operating long life assets that are cash flow positive in a low commodity price environment. Further information relating to Pine Cliff may be found on www.sedar.com as well as on Pine Cliff’s website at www.pinecliffenergy.com.