MARCH, 2021 - Pine Cliff Energy Ltd.

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.

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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
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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.

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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.

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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.

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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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