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Low gas prices? No problem for Pine Cliff

CEO Philip Hodge explains why his company can weather lower prices - and why it's poised to capitalize on that weakness

Jul 22, 2014

by Max Fawcett

Gas prices might be under pressure due to near-record levels of storage injection, but Pine Cliff Energy (TSXV:PNE) is one company that is more than equipped to withstand it. In an interview with BNN’s Andy Bell, CEO Philip Hodge said that Pine Cliff’s break-even point is around $2 – plenty of breathing room, in other words. How come? Because it’s focused on buying low-cost, low-decline dry gas assets that other companies are selling off right now, whether because they’re refocusing on core areas and trying to squeeze out every last bit of capital efficiency or because they’re over-leveraged and need to pay off some debt. “The entire concept behind Pine Cliff was that if you kept a strong balance sheet, our view is that we’d get some really good opportunities to buy natural gas assets,” Hodge says. “And our assets are the kind that generate cash flow even in a low-gas environment, so there’s a lot of torque to the upside.”

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And while it closed a $100 million purchase last week, Hodge says it isn’t necessarily done looking for deals. “We’ve got ongoing discussions with several players that have got assets in southern Alberta and elsewhere in the western basin, and we’ll keep talking to them. When they think the time is right to dispose of non-core assets, we’ll definitely be there to hopefully transact.” The company’s advantageous cost structure combined with its capacity for additional acquisitions made it a top pick for Rob Lauzon, the managing director of western Canada for Middlefield Capital, who was on BNN’s Market Call last week. “It doesn’t cost a lot to take this methane out of the ground,” he said of the company’s dry-gas assets, which comprise 97 per cent of its portfolio. “At $4 AECO, they can make some good money. And a lot of companies don’t want this type of gas any more – there’s less sex appeal – so they can do some nice acquisitions over the next year.”

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