21 April 2016
Pine Cliff is natural gas producer that has grown, primarily through acquisitions, from 100 BOED in 2012 to over 23,000 BOED in 2016. Our production is 92% dry gas and we have one of the lowest production decline rates in the industry at less than 12%.
There were three motivations. (1) I really believed that building a company with a natural gas countercyclical acquisition strategy would create a lot of value and would be well suited to my personal background in mergers, acquisitions and financings. (2) It gave me a chance to invest a significant amount of my own money in the company and I have always liked companies with high insider ownership as I believe it strongly aligns management with investors. Insiders still own approximately 14% of Pine Cliff. (3) It gave me a chance to work with George Fink. George and I had known each other for about a decade but I knew that I could learn a lot from someone who has created as much shareholder value as he has over the years at Bonterra Energy, Comaplex Minerals and other companies he has been involved with. Having George as my Chairman has proven to be one of the highlights of the job.
The key challenges for Pine Cliff in 2016 is dealing with the low commodity prices. We are fortunate that we are one of the lowest cost operators in the basin and have a very lean organization (approximately 30 employees in head office). However, even with a corporate breakeven price of less than $2.00/mcf, prices in 2016 have dipped below that level. In 2015 our focus was on acquisitions and we doubled the size of our production base and reserves but in 2016 we are spending more time focusing on lowering our operating costs even further.
We think that the last acquisition we made was the best one of the nine acquisitions we have completed. It was highly accretive on a per share basis for cash flow, production and reserves. It lowered our corporate breakeven price to less than $2.00 mcf and materially increased our drilling inventory for when natural gas prices are higher. It also gave us further critical mass by doubling our production that made us one of the 15 largest natural gas producers in Canada and was a stepping stone for us to list on the TSX in March of this year.
Our team has been built to focus on the acquisition and operation of assets with a very specific profile: low cost, low decline natural gas assets that will provide strong cash flow in a rising natural gas environment. We have looked at over 300 opportunities since 2012 and have executed on nine of them. By having that specific focus we have been able to work quickly through possible transactions and know exactly what our acceptable bid level will be.
It has been a buyers’ market for most of the last four years with high quality assets being offered for sale by companies that are looking to strengthen their balance sheet in a weakening commodity environment. The number of natural gas buyers with access to capital has been limited which has allowed us to buy assets at attractive entry points.
We have really focused on attracting shareholders that have a longer term perspective on investing and the commodity markets and that like the high insider ownership model we have built. Having Mr. Fink as our Chairman has really helped those efforts. This has allowed us access to capital to fund our deals (we have done five financings since 2012, all of which were oversubscribed) at a time when equity capital has been hard to come by.
What is the biggest challenge facing their company in 2016 and what do they think their answer will be for 2017?
|Phil Hodge spoke at the 2016 Canada Assembly on May 26th|
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