Good morning and welcome to the Pine Cliff Energy Q4 year-end and results webcast. Before we start, I would like to remind participants that the comments made on this call may include discussion of forward-looking information. Refer participants to the cautionary statements on forward-looking information in our presentation, which can be found on our website. We're going to start the call with an overview from comments from Phil Hodge, President and CEO. Remind participants that they can register questions on the webcast. We'll then flip over to questions from the webcast. Also in the room with Phil is Austin Neudorff, Vice President, Finance and Controller; Dan Keenan, Vice President, Exploitation; Terry McNeill, Chief Operating Officer; and Kris Zack, Chief Financial Officer. With that, we'll turn it over to Phil.
Thank you, Kris. Good morning, everybody. Thanks for your time today. We appreciate it. We'll dispense with reading the press release or kind of rereading my President's letter, both of which you should have access to. I would like—we'll just start with some general comments and then get right into the questions that are already in the queue here. The one thing that we talked about at the board level yesterday was we've never had a stronger inventory here at Pine Cliff from a drilling perspective in the history of our—we're now going on 14 years. It raises a lot of really relevant questions, given all the uncertainty in the market right now as to how we allocate capital in 2025. We chose not to go with exact guidance for this year for what we're going to do on the CapEx side.
is a lot of uncertainty, as everybody on this call knows, with the tariffs, with the startup of LNG on the horizon. There is— with the kind of storage situation is kind of much improved over the last few months with the colder weather in both the U.S. and Canada, but still a lot of moving parts. From our perspective, it is really all about capital allocation and that discipline that I think that we have displayed over the last 13 years. How do we go forward? What is the proper way for us to allocate capital now with an extra variable in there with the deep drilling inventory that we have? Because there are some very good economic opportunities that we definitely would like to start to exploit in the back half of this year.
That is kind of the overall overreaching kind of discussion that has been kind of consuming our management team and the board level going forward. When we look at capital allocation, there is obviously debt repayment. There is the CapEx. There is the dividend. There are other operational decisions that have to be made on capital and the timing of that. All of that goes into the mix as to kind of where we want to go going forward. We want to keep our balance sheet strength for opportunities and transactions.
As many of you who have been shareholders for many years, you are well aware that our model has always been to opportunistically take advantage on a—when we can see accretive acquisitions, we have been able to successfully get those into the portfolio. We have grown from 100 barrels a day to now to 23,000 in the last 13 years.
We think there's going to be more opportunities in the back half of this year and into 2026. That is also in the back of our mind, making sure that we are in a position to take advantage of those opportunities should they present themselves. There is just a lot of uncertainty right now. This is not particular to Pine Cliff. This is going with every business owner across Canada right now. He's got a lot of uncertainty as to what the horizon is going to be. What does the back half of this year look like? What is the impact of tariffs? I mean, one of the questions we had here was to what extent do we think the tariffs are going to impact our business and with regard to the pricing?
It is very unique on the energy side, and that's why I think President Trump has already kind of lowered the tariff that he imposed upon the Canadian energy is currently at 10% versus the 25% across some of the other sectors. A big part of that is because our energy that we export to the U.S., which is about 8 BCF a day of gas and about over 4 million barrels a day of oil, are pretty integral to the U.S. system. It is not as easy to just find alternative sources on either the natural gas or the oil. There is a complicating factor with regard to the tariffs because the question is going to be who's going to bear the cost of that.
In many cases, I think it's going to be the consumers within the U.S., which is going to create an extra pressure on the President going forward because inflation is not what he's trying to do with the tariffs. There is that kind of backdrop across a lot of our decision-making. The guiding force for us is about cash flow per share growth, always has been. That, when we look at acquisitions, is the key factor, the key metric that we're looking at, and then also how we allocate our capital going forward. It is going to be something we are going to continue to watch very closely. We did highlight in the President's letter and press release the fact that we are moving forward with data center development. We have got multiple sites that we think would be very good locations for data centers. We announced the one.
We continue to work on potential other sites. I think that is going to be a good long-term diversification opportunity for us and for our natural gas production. I think the one extra piece I would add to this is that the capital allocation, when we talk about ways that we can increase the cash flow per share, there is always a kind of a give and take with that transaction. We have only got so much capital. It seems to be we have had some good last week in AECO pricing. We are starting to see the forward strip start to move up, not just the spot price, but also the forward strip for the rest of the year and into next year. We are starting to see winter pricing get around that $3 level, which is a very—that is a good level for us.
We have always talked about that being a price level where we generate a lot of free cash flow. The question is, how do we again optimize our position going into the back half of 2025 and into 2026? With that, I think we will get to some of these questions. One of the questions is about providing some detail around the strategic drilling opportunities that we are evaluating in the second half. Maybe I will turn that over to Terry McNeill to talk a little bit about that.
Thanks, Phil. As Phil had indicated right off the top, our inventory has really never been better. You'll see it in our reserves report with our reserves bookings. I believe we have 18 booked block locations in Sundre now. Those locations are the same ones that one of the top plays of Tourmaline and Whitecap are quite involved in. Our team was able to, through the lands we acquired in the Certus acquisition, do some strategic land swaps to be able to increase our working interest and consolidate our interest around our owned and operated infrastructure. A lot of that work was done in 2024, and our team did a fantastic job consolidating the land base and setting up the locations to drill. We've got an excellent inventory of top quality wells.
The wells, based on the current forward strip, pay out in about a year, give or take, depending on commodity prices. They are very, very low payout and excellent wells. We are excited about the overpressured block in the Sundre, Caroline area. Also, there is the emerging Basal Quartz play that is just north of Drumheller. There are several private equity companies that are out there actively developing the play. We have an excellent land base and light bookings on our reserve. We have a lot of infrastructure that we control in that area. Those are the two biggest emerging plays that we have, and we are very, very excited about both of them. Our previous inventory, the Pekisko, is still booked inventory that we still have, and we are still very, very much excited about it.
At this point in time, both the Basal Quartz and the Glauconite wells pay out in 12 months, give or take. They are very, very quick payout, lucrative wells, high rate of return, even at today's commodity prices. Those are the opportunities that we have in front of us.
Thanks, Terry. Just to add to that, the one thing that was highlighted in our reserve report that some of you have already commented on and some of the analysts have commented on is that even though we did not drill a well in 2024, we actually had an increase in our proved plus probable reserves even after taking into account the production for last year, which is pretty impressive. As Terry said, we have now added locations. There are booked locations in both the Glauconite oil and also in the Basal Quartz area. These are areas that we are pretty excited to get to. One of the questions we have is, how do you free up cash flow to take advantage of those opportunities? Like I said, we have our cash flow coming in, and luckily it seems to be, in the last couple of weeks, it has been rising.
We have to measure that against, okay, how do we look at debt repayment for the year? How do we look at kind of drilling? We have the dividend commitment that we continue to watch very closely and monitor and assess. There are a few levers that we can pull. For us, again, the test is, what do we think is the best path to increase cash flow per share for our shareholders? It is not just about this quarter or next quarter. It is about, how do we do that for the years to come? We have another question here about the Canadian dollar and the US dollar affecting your business. Maybe I will pass that over to Kris.
Yeah, thanks, Phil. The Canadian dollar is obviously—there's a lot of uncertainty in the market right now with respect to commodity prices. AECO prices are higher than they were at this point in time last year and continue to move, creep up a little bit higher here. WTI prices are lower. Fortunately, when the U.S. dollar or when WTI moves down, generally we get some offsetting impact by a weaker Canadian dollar. We're seeing that a bit in the numbers. It's not a perfect offset. Oil prices are still weaker than where they were at this point in time last year, but it certainly helps.
Thanks, Kris. Another question we had here is about the storage situation in Canada and whether or not there's regular announcements on storage levels in Canada like there is in the U.S. There isn't any. The U.S., for those who don't follow it, every Thursday typically is when they announce what their storage levels are. It is very clear, and everybody waits for that announcement. Canada is an ongoing monitoring, but it is very transparent. If you're on the TC Energy website, you can see where storage are, and you can actually see on an hourly basis what is the storage draws or injections that are going on at that time. I highlighted it in my email that went out, and I think everybody probably on this call is probably a subscriber to our quarterly email. The storage has dropped a lot in the last little bit.
A lot meaning it's now, we went into this winter with the highest storage level we've ever had. I mean, we were actually testing the maximum limits of what our storage was, which is not good for pricing, which is why AECO was as weak as it was. We've had a cold winter. This is after two abnormally warm winters. This winter is much more on the normal to cold side. Because of that, we've seen a really quick reduction in natural gas storage to the point that it's now below the five-year high in Canada and heading below right now on a trajectory that would take it below the five-year average, which is pretty amazing given where we started at. That's all in the backdrop of having LNG Canada starting up this summer, which will be a big draw.
It could be, depending on how fast it ramps up, early indications are that could be as high as 1 BCF a day in the summer months, ramping up to close to 2 BCF a day by the end of the year. The United States is already ahead of us in that context because their storage is already under their five-year average, which is why NYMEX has had as much strength as it has over the last month here. There is no specific, like I said, no specific announcement on the storage, but it is a very readily accessible data that you can get. We've got a question just about our liquidity level. This is something that we watch very closely, and maybe I'll hand it over to Kris. I mean, when we talk about the payout ratio, that's something that we watch very closely.
The payout ratio is essentially all the money that you bring in and then all the money that you send out. Obviously, we've had our dividend since 2022. We treat that like a variable dividend. We obviously, in a perfect world, continue to hold it or increase it, but we've reduced it before where we didn't feel it was in the best interests of the business. We've also increased it a couple of times. That is an important toggle or lever that we have if we're looking at how do we access cash flow if we need it, if we see better opportunities to use that cash flow in the longer term. Again, I think most of our shareholders do take a longer term around why they own Pine Cliff.
You've got the longer-term prospects around where we think natural gas is going in Western Canada and having that exposure to it. I don't know, Kris, if you want to add anything.
Yeah, no, I think I would just reiterate, Phil, thank you, that we continue to be very sensitive to the fact that we need to run a balanced budget over the course of the year. In 2024, we managed to keep our payout ratio below 100% by pulling different levers and managing through things like strategic dispositions and hedging. We will continue to look at all of those options to be able to protect the liquidity on the balance sheet.
Thanks, Kris. Yeah, I mean, from our perspective, again, all the decisions we're making on capital allocation are long-term. It is not—we've been around now for—this is our 14th year. We think we're going to be around a long time to come in what we believe is going to be a much better natural gas environment here in Western Canada. The fact that we've stabilized our cash flow and our balance sheet with adding oil and liquids production, that has turned out to be very prudent. I think one of the things we're quite happy with was the transaction that we did in December of 2023. That production that we added, which was over 5,000 barrels a day, about 50% of it, which was liquids, has been very consistent all through 2024 and still remains over 5,000 barrels a day.
That is, again, we continue to look for resilient assets within drilling inventory that we can add. As I started this call off, our drilling inventory has never been stronger in the history of Pine Cliff. We are very fortunate that we now have got some very economic drilling locations that Terry touched upon in his question. One of the questions is about AIMCo. The question was if the AIMCo board change will impact the holding of the company stock. AIMCo has been a fantastic shareholder for us for many years now.
They have now been, so for those of you who are not aware, AIMCo is the Alberta Investment Management Corporation, which manages about CAD 160 billion. They are one of the biggest pension funds in Canada. They have been with us now for over eight years as a shareholder and own over 10% of our stock. We have ongoing discussions with them.
Every indication is that they're very happy to be a shareholder. They continue to be very supportive. We do not think that any of the changes that have happened at the board level with AIMCo will have any negative impact on their shareholdings in Alberta. In fact, from taking one step back, the Alberta government is— one of the reasons they made some of the changes, or at least they seem to have indicated, is they'd like to see a bit more focus on Canadian investment by AIMCo. That is why they closed some of their international offices, which I think would be positive for us because if we see opportunities in the future that we could— if equity is part of that solution, then we hopefully have got a partner who's going to be supportive in those transactions. Another question is, what is our hedging position today?
I'll pass that over to Kris.
Yeah, thanks, Phil. Our hedging position, we continue to build out and add positions opportunistically. At the end of the year or at the time of the report that we published last night on gas, if you use the fourth quarter 2024 volumes as a benchmark, we're about 35% hedged on natural gas at an average price of CAD 2.91 in Mcf. That's Canadian. That's certainly helpful to our gas exposure. On the oil side, we're around 31% of our Q4 2024 volumes hedged at just about $69 a barrel. Again, certainly helping at the margin with our cash flow.
Thanks, Kris. I think that covers all of the questions that we've currently got in the queue. I think most of the shareholders are well aware that if there are any other follow-up questions or comments, that they're welcome to send emails to the management team, and we'll get back to you as soon as we can. We appreciate the ongoing support from the shareholders. It is a tumultuous time. This is one of the—it's always been volatile. We've always had different stresses and tailwinds and headwinds that are competing with each other. This one's a bit unique. We haven't had the tariff—this is a new circumstance that we're dealing with. It's still too early.
I get asked about the tariffs quite frequently, and it's just too early to say what the impact is going to be on Pine Cliff specifically or even on a broader base, the natural gas energy sector in Canada. Time will tell. Are these tariffs going to be here for a long period of time? How is it going to be? Are the prices, or sorry, are the tariffs going to be impact really picked up by the end consumer, or will that be borne in any way by the producers? We're all kind of guessing, and I guess we'll keep a close eye on all of that. It comes back to us. It's all about the cash flow per share. What are the impacts on that?
If there's capital allocation decisions that we have to make in response to kind of that uncertainty, those are the decisions we have to make. I mean, as I've often highlighted to those who follow our story, management owns a lot of stock. We are totally aligned with the shareholders. Every decision we make is trying to increase cash flow and the value of our shares. We are very close to it. We watch it, and we discuss it on an ongoing basis. This is no different than at any time during the past 13 years. It's just a little different circumstances, and we will continue to make decisions that we think are prudent for the shareholders. Thank you to everybody for their time today. Very much appreciate it. Look forward to talking to you again in the future.