MARCH, 2021 - Pine Cliff Energy Ltd.
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MARCH, 2021
LEGACY ASSETS AND SHALLOW GAS
• Pine Cliff Energy Ltd. is a Canadian, Calgary based company.
• Pine Cliff’s shallow gas properties have many more years of
productive life remaining.
• Pine Cliff has already reduced variable operating costs
wherever possible by: Operating Cost Breakdown
• negotiating lower prices with our suppliers
• increasing area efficiencies 17%
• implementing labour and salary reductions 31%
• 54% of operating costs are large fixed costs and include:
• Municipal Taxes
• Regulatory Fees 6%
• Surface and Mineral Land Compensation 46%
• Pine Cliff is working with all stakeholders to review these Municipal Tax Operating Expenses
fixed costs to extend the productive life of these properties Regulatory Fees Surface & Mineral Compensation
for the benefit of all stakeholders.
• Pine Cliff continues to be up to date on all payments to
municipalities, surface lease compensation, and regulatory
agencies.
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COST REVIEW INITIATIVES
• While several initiatives are being pursued, there is not one single initiative that will maximize the
economic life of shallow gas or legacy assets economic.
• Regulatory Fees – Regulatory costs charged to oil and gas producers of Alberta have increased
dramatically over the past decade. Significant staff and red tape reductions have already been
announced by the Alberta Energy Regulator to reduce fees and additional changes are expected in
the future.
-3-
SURFACE LAND
• Surface Land is the single largest expense to our legacy and shallow gas assets comprising
approximately 30% of our overall expenses.
• In conjunction with the ongoing review on other large fixed costs, Pine Cliff is conducting a
detailed review of all surface leases to determine rates based on actual loss of use as compared to
the original lease footprint.
• Based on this review some landowners will receive a revised offer from Pine Cliff based on their
five year review schedule in their surface lease.
• The same rates and methodology will apply to
everyone in a given area. This may result in some
surface owners realizing increases while others
may realize decreases.
• In the event a net decrease is proposed, it will be
limited to no more than 50% of the previous
lease payment.
• For proposed annual changes under $200.00/year,
no changes would be proposed and the existing
lease terms will remain until the next subsequent
annual compensation review period.
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SURFACE LAND ANNUAL COMPENSATION REVIEW - METHODOLOGY
Pine Cliff’s revised compensation offers are intended to:
• Update the Annual Compensation Rates for Loss of Use and
Adverse Effect - In most cases the loss of use and adverse
effect rates were negotiated a long time ago when industry
activity and economics were significantly different for both the
producer and the landowner.
• Update Annual Compensation for Actual Loss of Use –
Historically compensation has been based on the gross lease
and access road size. Pine Cliff’s revised offers are based on
actual loss of use in recognition of the significantly smaller
footprint required on most of our minimum disturbance
leases. Pine Cliff is not changing the actual size of the lease.
Original vs. Actual Usage
Loss of Use Calculation Example:
Original Area of Disturbance
3.5 acres (2.5 acres with 1 acre access road)
Actual Usage
1.0 acre wellsite + 1.0 acre (50%) access road
$100/acre x 1.0 acre + 1.0 acre x 50% x $100/acre
Total Loss of Use = $150.00 Original Actual
-5-SURFACE OWNER RIGHTS AFTER RECEIVING OUR OFFER
• Both parties’ rights under the Surface Right Act remain unchanged and in the event this matter
remains unresolved either party may engage the Surface Rights Board for a formal hearing and
at their own cost.
-6-RECENT SURFACE RIGHTS BOARD DECISIONS
Additional Information:
Surface Rights Board – Dispute Resolution Information Sheet
https://surfacerights.alberta.ca/Portals/0/DRC_Mediation_Document_s_27_2019.pdf
Surface Rights Board - Section 27 Review of Rate of Compensation Information Sheet
https://surfacerights.alberta.ca/Portals/0/Documents/Sample_Evidence_Sheet_S27%20_2019.pdf
Related Surface Rights Board Decisions
https://www.canlii.org/en/ab/absrb/doc/2018/2018absrb459/2018absrb459.html?searchUrlHash=AAAAAQ
AsIHNlY3Rpb24gMzYoNSkgb2YgdGhlIEFjdCAgdW5qdXN0IGVucmljaG1lbnQAAAAAAQ&resultIndex=7
https://www.canlii.org/en/ab/absrb/doc/2018/2018absrb398/2018absrb398.html?searchUrlHash=AAAAAQ
AsIHNlY3Rpb24gMzYoNSkgb2YgdGhlIEFjdCAgdW5qdXN0IGVucmljaG1lbnQAAAAAAQ&resultIndex=24
https://www.canlii.org/en/ab/absrb/doc/2018/2018absrb155/2018absrb155.html?searchUrlHash=AAAAAQ
AsIHNlY3Rpb24gMzYoNSkgb2YgdGhlIEFjdCAgdW5qdXN0IGVucmljaG1lbnQAAAAAAQ&resultIndex=25
https://www.canlii.org/en/ab/absrb/doc/2018/2018absrb99/2018absrb99.html?searchUrlHash=AAAAAQAsI
HNlY3Rpb24gMzYoNSkgb2YgdGhlIEFjdCAgdW5qdXN0IGVucmljaG1lbnQAAAAAAQ&resultIndex=44
If you would like to be emailed copies of these decisions please contact Pine Cliff.
-7-SUMMARY
• Pine Cliff has been an active contributor to the local communities we operate in for many
years and we would like to continue for many years to come.
• Pine Cliff continues to be up to date on all payments to municipalities, surface lease
compensation, and regulatory agencies.
• Over 65% of the expenses Pine Cliff incurs remain in local communities including local labour
and operating supplies, land payments and property taxes, and contribute revenue for the
benefit of entire areas.
• The offer you have received is a preliminary offer based on a desktop review and we are more
than willing to discuss and negotiate with you to come to an agreement that is fair and
equitable to both parties.
-8-Asset Retirement Obligations
• Pine Cliff understands and has respected our ongoing obligation to abandon and reclaim
assets that will never be productive again. We have spent almost $8 million dollars over the
past three years on this work and will continue to do so.
Pine Cliff’s Annual Well Abandonment and
Reclamation Expenditures
Gross Net
2017 $2,503,126 $2,423,023
2018 $3,034,740 $2,739,097
2019 $2,312,832 $2,113,367
Totals $7,850,699 $7,275,487
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