Pine Cliff Energy : 2021 Second Quarter Report

	Long term
TSX: PNE	Value Focus
WWW.PINECLIFFENERGY.COM

Q2-2021 Report

PRESIDENT'S MESSAGE TO SHAREHOLDERS

I hope all of Pine Cliff's shareholders and families are healthy and that the worst of the COVID pandemic is finally behind us. I also hope that you are pleased with our Q2 2021 financials as it was the third strong quarter in a row for Pine Cliff. The first two quarters of 2021 represent the best two back to back adjusted funds flow quarters we have had since Q2 2017, 16 quarters ago.

Highlights from Pine Cliff's second quarter ended June 30, 2021 include:

• generated $34.2 million from commodity sales for the three months ended June 30, 2021, 57% higher than the $21.7 million generated for the three months ended June 30, 2020;
• generated $9.5 million of adjusted funds flow ($0.03 per basic share) for the three months ended June 30, 2021 and $19.5 million ($0.06 per basic share) for the six months then ended, $10.7 million and $19.4 million higher than the amounts generated for the comparable periods in 2020; and
• net debt decreased by 28% or $17.8 million from $63.0 million on December 31, 2020, to $45.3 million as at June 30, 2021 and is Pine Cliff's lowest net debt level since the third quarter of 2015.

Repayment of Term Debt

On July 28, 2021, Pine Cliff repaid $12.0 million of the $19.0 million tranche of Term Debt due July 31, 2022.

Update on Drilling Program

On July 22, 2021, the Company spudded the first of two gross (2.0 net) Pekisko horizontal oil wells in the Three Hills area of Central Alberta. The cost to drill, complete and equip both wells is expected to total $5.6 million and both are expected to be on production by the end of the third quarter.

Storage Outlook

We are currently experiencing the highest summer prices for natural gas in North America than we have in nine years. This is due to many factors, including increased power demand throughout North America, increased LNG and Mexico exports from the United States, and an insufficient supply response from producers to match this demand. The "scorecard" in the ongoing battle between natural gas supply and demand is seen in global storage levels. Unlike last year where we entered the fall withdrawal season with essentially full storage in Canada, the United States and Europe, storage in all three of those markets are currently below their five year averages. In the upcoming months there will be increasing focus on the storage numbers, not just where the peak numbers are in October after injection season ends, but also how low the markets believe they will be next spring after withdrawal season. As of today, we are selling our AECO gas at $3.90 per Mcf and the strip forward price for the 2021/2022 winter season is $4.29 per Mcf.

Capital Allocation

Our funds flow of $27.5 million in the past nine months is more than the total funds flow in the previous 13 quarters combined. We have now reentered the phase of capital allocation for Pine Cliff. When we started Pine Cliff in 2012, the allocation of capital was simple. We wanted to grow to a size that would allow us to run a return of capital model efficiently. We started with 100 Boe/d of production, and in the following four years grew that production base to over 20,000 Boe/d with drilling and eight acquisitions. We felt that we had reached the critical mass size that we needed to consider returning capital to shareholders but then natural gas prices started a decline that lasted until Q4 2020. During that time period, we lowered costs, replaced our bank debt with term debt, added a new 10% shareholder in AIMCo and sold some non-core assets.

Our repayment of $12.0 million of term debt last month is significant. Not only does it lower our net debt to the lowest number since 2015, but it is the first step in returning capital to our shareholders. Just like a mortgage on your house, every time we lower the debt, your shares now own a larger percentage of our entire enterprise value, which is simply the addition of our debt and our market capital (outstanding shares times stock price).

We anticipate that we will continue to lower our debt in 2021, although we are always looking for potential acquisitions that could delay this reduction. We think we have shown our discipline on acquisitions over the years and this has been rooted in the basic fundamental truth that management is aligned with our shareholders. When you have a management team that owns as much stock as we do, investors can feel comfortable that we will only do a deal that we think makes our shares more valuable after the deal than before. This same test is used on all our capital allocation decisions, including our drilling program. If we believe spending money on drilling will increase our per share value, then we proceed. If not, we don't.

After debt repayment, acquisitions and drilling, the other possible uses of capital include share buybacks and dividends. Building a return of capital model is not easy to do based on a volatile commodity, but we believe we have focused on the right assets to allow us to succeed. All oil and gas assets have a natural decline in production, but we have one of the lowest decline rates of any oil and gas company in Canada. This low decline means that we do not have to spend as much each year as other producers to replace production. So the percentage of our funds flow that is "free funds flow" is one of the highest in the industry. We will continue to assess all of these capital allocation alternatives in the coming quarters, but be assured, that all decisions will be based on the test of what we think will deliver the highest overall rate of return to our shareholders.

Pine Cliff was built to thrive in a good natural gas price environment. We are now thriving. Thank you for your continued support as shareholders and stay safe and healthy.

Yours truly,

Phil Hodge

President and Chief Executive Officer

August 4, 2021

Please refer to the attached Management's Discussion and Analysis for Reader Advisories regarding forward looking information, non-GAAP measures, oil and gas measurements, definitions and is subject to the same cautionary statements as set out therein.

MANAGEMENT DISCUSSION AND ANALYSIS Q2 - 2021

INTRODUCTION

This Management's Discussion and Analysis ("MD&A") is a review of the operations and current financial position of Pine Cliff Energy Ltd. ("Pine Cliff" or the "Company") for the period ended June 30, 2021. This MD&A is dated and based on information available as at August 4, 2021 and should be read in conjunction with the unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2021 ("Financial Statements"), the audited annual consolidated financial statements for the year ended December 31, 2020 ("Annual Financial Statements") and the annual management's discussion and analysis for the year ended December 31, 2020 ("Annual MD&A"). The Financial Statements have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" using accounting principles consistent with International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board using Generally Accepted Accounting Principles ("GAAP"). Additional information relating to the Company, including the Company's Annual Information Form, may be found on www.sedar.com and by visiting Pine Cliff's website at www.pinecliffenergy.com.

Pine Cliff's head office is based in Calgary, Alberta, Canada. Common shares of the Company ("Common Shares") are listed for trading on the Toronto Stock Exchange ("TSX") under the symbol "PNE".

READER ADVISORIES

This MD&A contains financial measures that are not defined under IFRS and forward-looking statements. Please refer to the sections titled "NON-GAAP MEASURES" and "FORWARD LOOKING INFORMATION".

Other Measurements

All amounts herein are presented in Canadian dollars unless otherwise specified. All references to $CAD or $ are to Canadian dollars and monetary references to $US are to United States dollars.

Natural gas liquids ("NGL") and oil volumes are recorded in barrels of oil ("Bbl") and are converted to a thousand cubic feet equivalent ("Mcfe") using a ratio of one (1) Bbl to six (6) thousand cubic feet. Natural gas volumes recorded in thousand cubic feet ("Mcf") are converted to barrels of oil equivalent ("Boe") using the ratio of six (6) thousand cubic feet to one (1) Bbl. This conversion ratio is based on energy equivalence primarily at the burner tip and does not represent a value equivalency at the wellhead. The terms Boe or Mcfe may be misleading, particularly if used in isolation.

2021 HIGHLIGHTS

Highlights from the three and six months ended June 30, 2021 are as follows:

• generated $34.2 million from commodity sales for the three months ended June 30, 2021, 57% higher than the $21.7 million generated for the three months ended June 30, 2020;
• generated $9.5 million of adjusted funds flow ($0.03 per basic share) for the three months ended June 30, 2021, and $19.5 million ($0.06 per basic share) for the six months ended June 30, 2021;
• net debt decreased by 28% or $17.8 million from $63.0 million on December 31, 2020, to $45.3 million as at June 30, 2021 and is Pine Cliff's lowest net debt level since the third quarter of 2015; and
• produced an average of 18,095 Boe/d and 18,200 Boe/d in the three months and six ended June 30, 2021, a decrease of 5% compared to the same periods in 2020.

• PINE CLIFF ENERGY LTD.

	MANAGEMENT DISCUSSION AND ANALYSIS	Q2 - 2021
	Three months ended June 30,	Six months ended June 30,
	2021	2020	2021	2020
($000s, unless otherwise indicated)
FINANCIAL1
Commodity sales (before royalty expense)	34,163	21,497	69,682	47,134
Cash flow from operating activities	8,171	539	16,642	2,176
Adjusted funds flow2	9,494	(1,229)	19,494	(76)
Per share - Basic and Diluted ($/share)2	0.03	(0.00)	0.06	(0.00)
Loss	(744)	(14,164)	(1,424)	(34,175)
Per share - Basic and Diluted ($/share)	(0.00)	(0.04)	(0.00)	(0.10)
Capital expenditures	1,556	2,175	1,924	3,997
Net debt2	45,292	69,273	45,292	69,273
Weighted-average common shares outstanding
Basic and diluted	336,802	327,784	336,183	327,784
OPERATIONS
Production
Natural gas (Mcf/d)	99,528	104,611	99,398	104,510
Natural gas liquids (Bbl/d)	1,166	1,075	1,283	1,153
Crude oil (Bbl/d)	341	458	352	497
Total (Boe/d)	18,095	18,968	18,200	19,068
Realized commodity sales prices
Natural gas ($/Mcf)	3.03	2.03	3.08	2.11
Natural gas liquids ($/Boe)	42.83	14.56	43.40	18.90
Crude oil ($/Bbl)	69.90	22.10	64.87	33.63
Combined ($/Boe)	20.75	12.57	21.15	13.58
Netback ($/Boe)
Commodity sales	20.75	12.57	21.15	13.58
Processing and gathering	0.60	0.46	0.58	0.50
Royalty expense	(2.28)	(0.59)	(2.14)	(0.79)
Transportation	(1.37)	(1.37)	(1.36)	(1.37)
Operating	(10.20)	(10.48)	(10.54)	(10.50)
Operating netback ($/Boe)2	7.50	0.59	7.69	1.42
General and administrative	(0.93)	(0.58)	(0.98)	(0.71)
Interest and bank charges	(0.80)	(0.72)	(0.79)	(0.73)
Corporate netback ($/Boe)2	5.77	(0.71)	5.92	(0.02)
Operating netback ($ per Mcfe)2	1.25	0.10	1.28	0.24
Corporate netback ($ per Mcfe)2	0.96	(0.12)	0.99	(0.00)

• Includes results from acquisitions and excludes results for disposition from the closing date
  2This is a non-GAAP measure, see "NON-GAAP MEASURES" for additional information

• PINE CLIFF ENERGY LTD.

MANAGEMENT DISCUSSION AND ANALYSIS Q2 - 2021

SENSITIVITIES

Pine Cliff's results are sensitive to changes in the business environment in which it operates. The following chart shows the Company's sensitivity to key commodity price variables and interest rates on variable rate debt. The sensitivity calculations are performed independently showing the effect of the change of one variable; all other variables are held constant.

Business environment sensitivities		Impact on annual adjusted funds flow1
	Change2	$000s	$ per share4
Realized natural gas price3	$0.10	3,269	0.01
Realized NGL price3	$1.00	383	0.00
Realized crude oil price3	$1.00	112	0.00

• This analysis does not adjust for changes in working capital and uses corporate royalty rates from the six months ended June 30, 2021.

• Sensitivity pricing changes are based on a change in realized prices for natural gas of $0.10/Mcf and $1.00 Bbl for both crude oil and NGLs, as defined herein.
  3 Pine Cliff has prepared this analysis using its Q2 2021 production volumes annualized for twelve months. 4 Based on the Q2 2021 basic weighted average shares outstanding.

BENCHMARK PRICES
	Three months ended June 30,	Six months ended June 30,
	2021	2020	% Change	2021	2020	% Change
Natural gas
NYMEX (US$/Mmbtu)1	2.83	1.72	65	2.76	1.84	50
AECO Daily 5A (C$/Mcf)2	3.08	1.98	56	3.11	2.00	56
Crude oil
WTI (US$/Bbl)	66.07	27.85	137	61.96	37.01	67
Edmonton Light (C$/Bbl)	77.28	29.77	160	71.93	40.60	77
Foreign exchange
US$/C$	1.231	1.386	(11)	1.249	1.365	(9)

• Mmbtu is the abbreviation for millions of British thermal units. One Mcf of natural gas is approximately 1.02 Mmbtu.
  2 AECO prices are quoted in $/Gigajoule. Price has been converted from $/GJ to $/Mcf by multiplying by 1.05.

Quarterly Benchmark Prices

Pine Cliff's financial results are influenced by fluctuations in commodity prices, dollar exchange rates and price differentials. The following table shows select market benchmark average prices and foreign exchange rates in the last eight quarters to assist in understanding the volatility in prices and foreign exchange rates that have impacted Pine Cliff's business.

	Q2-2021	Q1-2021	Q4-2020	Q3-2020	Q2-2020	Q1-2020	Q4-2019	Q3-2019
Natural gas
NYMEX (US$/Mmbtu)1	2.83	2.69	2.66	1.98	1.72	1.95	2.50	2.23
AECO Daily 5A (C$/Mcf) 2	3.08	3.14	2.63	2.23	1.98	2.02	2.46	0.90
Pine Cliff realized natural
gas price (C$/Mcf)	3.03	3.14	2.73	2.18	2.03	2.19	2.52	1.55
Crude oil
WTI (US$/Bbl)	66.07	57.84	42.66	40.93	27.85	46.17	56.96	56.45
Edmonton Light (C$/Bbl)	77.28	66.58	50.24	49.83	29.77	51.44	66.57	68.41
Pine Cliff realized NGL
price (C$/Bbl)	42.83	43.87	28.89	25.07	14.56	22.69	35.36	25.75
Pine Cliff realized oil price
(C$/Bbl)	69.90	60.09	43.46	40.54	22.10	43.47	59.91	61.33
Foreign exchange
US$/C$	1.231	1.266	1.303	1.332	1.386	1.345	1.320	1.321

• Mmbtu is the abbreviation for millions of British thermal units. One Mcf of natural gas is approximately 1.02 Mmbtu.
  2 AECO prices are quoted in $/Gigajoule. Price has been converted from $/GJ to $/Mcf by multiplying by 1.05.

• PINE CLIFF ENERGY LTD.