INTRODUCTION

This Management's Discussion and Analysis ("MD&A") is a review of the operations and financial position of Pine Cliff Energy Ltd. ("Pine Cliff" or the "Company") for the period ended December 31, 2020. This MD&A is dated and based on information available as at March 9, 2021 and should be read in conjunction with audited consolidated financial statements for the year ended December 31, 2020 and 2019 ("Financial Statements"). The Financial Statements have been prepared in accordance 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 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.

2020 AND FOURTH QUARTER 2020 HIGHLIGHTS

Highlights from 2020 and the fourth quarter of 2020 are as follows:

generated \$8.0 million of adjusted funds flow (\$0.02 per basic share) for the three months ended December 31, 2020 and \$8.8 million of adjusted funds flow (\$0.03 per basic share) for the year ended December 31, 2020, 59% and 48% higher than the respective periods in the prior year;
realized a natural gas price of \$2.73 per Mcf for the fourth quarter and \$2.28 per Mcf gas price for the year ended December 31, 2020, 8% and 6% higher than the respective periods in the prior year;
spent \$2.3 million on developmental drilling in 2020 and production averaged 19,130 Boe/d during the three months ended December 31, 2020, 2% higher than the 18,755 Boe/d produced during the prior quarter. Production averaged 19,006 Boe/d for the year ended December 31, 2020, 1% lower than the 19,142 Boe/d produced in 2019;
increased its 2020 proved plus probable reserves by 4.0 million barrels of oil equivalent ("MMBoe") prior to adjusting for 2020 production, largely as a result of 8.0 MMBoe of positive technical revisions, 1.2 MMBoe of extensions and a decrease of 5.1 MMBoe due to economic factors

SELECTED ANNUAL FINANCIAL INFORMATION

		Year ended December 31,
	2020	2019	2018
(\$000s, unless otherwise indicated)
FINANCIAL1
Commodity sales (before royalties)	103,170	105,006	107,385
Commodity sales (net of royalties)	96,897	99,431	100,063
Cash flow from operating activities	8,787	15,536	8,616
Adjusted funds flow2	8,729	5,879	10,513
Per share – Basic and Diluted (\$/share)	0.03	0.02	0.03
Loss for the year	(50,107)	(56,430)	(72,719)
Per share – Basic and Diluted (\$/share)	(0.15)	(0.18)	(0.24)
Total assets	288,899	323,735	354,215
Total non-current financial liabilities3	62,816	63,308	60,280
Total liabilities	326,216	313,225	293,241
Capital expenditures	7,518	8,379	10,665
Acquisitions	(6)	8,801	307
Dispositions	(829)	(1,542)	(285)
Net Debt2	63,050	64,038	56,819
Weighted average common shares outstanding (000s) -
Basic and Diluted	330,284	319,274	307,076
OPERATIONS
Production
Natural gas (Mcf/d)	104,277	105,725	111,110
Natural gas liquids (Bbl/d)	1,187	1,114	940
Crude oil (Bbl/d)	439	407	226
Total (Boe/d)	19,006	19,142	19,684
Total (Mcfe/d)	114,036	114,852	118,104
Realized commodity sales prices
Natural gas (\$/Mcf)	2.28	2.15	2.07
Natural gas liquids (\$/Boe)	23.11	31.92	53.33
Crude oil (\$/Bbl)	37.31	61.32	59.74
Total (\$/Boe)	14.83	15.03	14.95
Netback (\$/Boe)
Operating netback2	2.72	2.25	2.68
Corporate netback2	1.26	0.84	1.47
Netback (\$/Mcfe)
Operating netback2	0.45	0.38	0.45
Corporate netback2	0.21	0.14	0.25

¹ Includes results for acquisitions and excludes results for dispositions from the closing dates.

²This is a non-GAAP measure, see NON-GAAP MEASURES for additional information.

³Includes lease liabilities, due to related party, term debt and subordinated promissory notes.

MANAGEMENT DISCUSSION AND ANALYSIS 2020

	Three months ended December 31,			Year ended December 31,
	2020	2019	2020	2019
(\$000s, unless otherwise indicated)
FINANCIAL
Commodity sales (before royalty expense)	31,292	31,339	103,170	105,006
Cash flow from operating activities	2,666	4,039	8,787	15,536
Adjusted funds flow1	7,996	5,025	8,729	5,879
Per share – Basic and Diluted (\$/share)1	0.02	0.02	0.03	0.02
Loss	(3,822)	(7,987)	(50,107)	(56,430)
Per share – Basic and Diluted (\$/share)	(0.01)	(0.02)	(0.15)	(0.18)
Capital expenditures	1,307	5,446	7,517	8,379
Acquisitions	(11)	202	(6)	8,801
Dispositions	(613)	(1,443)	(829)	(1,542)
Net debt1	63,050	64,038	63,050	64,038
Weighted-average common shares outstanding (000s)
Basic	335,284	327,784	330,284	319,274
Diluted	335,284	327,784	330,284	319,274
OPERATIONS
Production
Natural gas (Mcf/d)	104,788	108,208	104,277	105,725
Natural gas liquids (Bbl/d)	1,270	1,216	1,187	1,114
Crude oil (Bbl/d)	395	410	439	407
Total (Boe/d)	19,130	19,661	19,006	19,142
Realized commodity sales prices
Natural gas (\$/Mcf)	2.73	2.52	2.28	2.15
Natural gas liquids (\$/Boe)	28.89	35.36	23.11	31.92
Crude oil (\$/Bbl)	43.46	59.91	37.31	61.32
Combined (\$/Boe)	17.78	17.33	14.83	15.03
Netback (\$/Boe)
Commodity sales	17.78	17.33	14.83	15.03
Processing and gathering	0.74	0.56	0.60	0.48
Royalty expense	(1.34)	(1.56)	(0.90)	(0.80)
Transportation expenses	(1.26)	(1.53)	(1.32)	(1.68)
Operating expenses	(9.84)	(10.64)	(10.49)	(10.78)
Operating netback (\$/Boe)1	6.08	4.16	2.72	2.25
General and administrative expenses	(0.76)	(0.66)	(0.72)	(0.73)
Interest and bank charges	(0.77)	(0.71)	(0.74)	(0.68)
Corporate netback (\$/Boe)1	4.55	2.79	1.26	0.84
Operating netback (\$ per Mcfe)1	1.01	0.69	0.45	0.38
Corporate netback (\$ per Mcfe)1	0.76	0.47	0.21	0.14

1 This is a non-GAAP measure, see NON-GAAP MEASURES for additional information.

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. 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
	Change	\$000s	\$ per share3
Realized crude oil price2	\$1.00	384	0.00
Realized natural gas price2	\$0.10	3,605	0.01

¹This analysis does not adjust for changes in working capital and uses corporate royalty rates from the year ended December 31, 2020.

²Pine Cliff has prepared this analysis using its Q4 2020 production volumes annualized for twelve months.

³Based on the Q4 2020 basic weighted average shares outstanding.

BENCHMARK PRICES

	Three months ended December 31,				Year ended December 31,
	2020	2019	% Change	2020	2019	% Change
Natural gas
NYMEX (US\$/Mmbtu)1	2.66	2.50	6	2.08	2.62	(21)
AECO Daily 5A (C\$/Mcf)2	2.63	2.46	7	2.22	1.75	27
Crude oil
WTI (US\$/Bbl)	42.66	56.96	(25)	39.40	57.03	(31)
Edmonton Light (C\$/Bbl)	50.24	66.57	(25)	45.32	68.82	(34)
Foreign exchange
US\$/C\$	1.303	1.320	(1)	1.340	1.327	1
1 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.

	Q4-2020	Q3-2020	Q2-2020	Q1-2020	Q4-2019	Q3-2019	Q2-2019	Q1-2019

Natural gas
NYMEX (US\$/Mmbtu)1	2.66	1.98	1.72	1.95	2.50	2.23	2.64	3.12
AECO Daily 5A (C\$/Mcf) 2	2.63	2.23	1.98	2.02	2.46	0.90	1.03	2.61
Pine Cliff realized natural gas price (C\$/Mcf)	2.73	2.18	2.03	2.19	2.52	1.55	1.69	2.84
Crude oil
WTI (US\$/Bbl)	42.66	40.93	27.85	46.17	56.96	56.45	59.81	54.88
Edmonton Light (C\$/Bbl) Pine Cliff realized oil price	50.24	49.83	29.77	51.44	66.57	68.41	73.85	66.44
(C\$/Bbl) Pine Cliff realized NGL	28.89	25.07	14.56	22.69	59.91	61.33	65.16	58.89
price (C\$/Bbl)	43.46	40.54	22.10	43.47	35.36	25.75	29.74	37.64
Foreign exchange
US\$/C\$	1.303	1.332	1.386	1.345	1.320	1.321	1.338	1.329

¹ 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.

In the three months and year ended December 31, 2020, the AECO daily benchmark was 7% and 27% higher compared to the same periods of 2019. While the price realized by the Company for natural gas production from Western Canada is still influenced by the Alberta price hub AECO, diversification projects to delivery points such as Dawn and TransGas into Saskatchewan have created the option to manage that influence. See "COMMODITY SALES" section for the diversification project premiums compared to AECO 5A.

The average benchmark for WTI crude decreased by 25% and 31%, for the three months and year ended December 31, 2020, as compared to the same periods in 2019, due to the novel coronavirus ("COVID-19") and governments at all levels in Canada and around the world taking stringent steps to contain the spread of the virus. These actions have resulted in significant disruption to global economic activity, resulting in a decrease in crude oil and natural gas liquids ("NGL") demand. With global crude oil being in oversupply, the Company experienced a significant decrease in benchmark crude oil pricing. Canadian crude prices are based upon refinery postings at Edmonton, Alberta and are linked to WTI through transportation tariffs to common markets and the foreign exchange rate.

The supply and demand dynamics for certain NGL components such as ethane, propane, butane, and condensate in the recent past has impacted the relationship between the price of NGLs and the price of oil. The fluctuations in the NGL price correlate with changes in the Edmonton Light oil price.

SALES VOLUMES

	Three months ended December 31,				Year ended December 31,
Total sales volumes by product	2020	2019	% Change	2020	2019	% Change
Natural gas (Mcf)	9,640,494	9,955,128	(3)	38,165,490	38,587,518	(1)
NGLs (Bbl)	116,822	111,863	4	434,358	406,788	7
Crude oil (Bbl)	36,375	37,713	(4)	160,599	148,617	8
Total Boe	1,759,946	1,808,764	(3)	6,955,872	6,986,658	-
Total Mcfe	10,559,676	10,852,584	(3)	41,735,232	41,919,948	-
Natural gas weighting	91%	92%	(1)	91%	92%	(1)

		Three months ended December 31,		Year ended December 31,
Average daily sales volumes by product	2020	2019	% Change	2020	2019	% Change
Natural gas (Mcf/d)	104,788	108,208	(3)	104,277	105,725	(1)
NGLs (Bbl/d)	1,270	1,216	4	1,187	1,114	7
Crude oil (Bbl/d)	395	410	(4)	439	407	8
Total (Boe/d)	19,130	19,661	(3)	19,006	19,142	(1)
Total (Mcfe/d)	114,780	117,966	(3)	114,036	114,852	(1)

		Three months ended December 31,			Year ended December 31,
Average daily sales volumes by area	2020	2019	% Change	2020	2019	% Change
Central (Boe/d)	10,042	10,021	-	9,894	9,513	4
Southern (Boe/d)	7,517	7,898	(5)	7,527	7,857	(4)
Edson (Boe/d)	1,571	1,742	(10)	1,585	1,772	(11)
Total (Boe/d)	19,130	19,661	(3)	19,006	19,142	(1)

Pine Cliff's sales volumes decreased by 3% to 19,130 Boe/d (114,780 Mcfe/d) and 1% at 19,006 Boe/d (114,036 Mcfe/d) for the three months and year ended December 31, 2020, as compared to the same period in 2019. The nominal decrease in production is from natural production declines, offset by incremental production from the facility optimization and the 2020 drilling and recompletion programs.

Pine Cliff is projecting 2021 production volumes of 18,000 – 18,500 Boe/d (108,000 – 111,000 Mcfe/d), weighted approximately 91% towards natural gas.

	Three months ended December 31,			Year ended December 31,
(\$000s)	2020	2019	% Change	2020	2019	% Change
Natural gas	26,337	25,125	5	87,139	82,908	5
NGL	3,374	3,955	(15)	10,040	12,985	(23)
Crude oil	1,581	2,259	(30)	5,991	9,113	(34)
Total commodity sales	31,292	31,339	-	103,170	105,006	(2)
% of revenue from natural gas sales	84%	80%	4	84%	79%	5

Realized prices

	Three months ended December 31,				Year ended December 31,
\$ per unit	2020	2019	% Change	2020	2019	% Change
Natural gas (\$/Mcf)	2.73	2.52	8	2.28	2.15	6
NGL (\$/Bbl)	28.89	35.36	(18)	23.11	31.92	(28)
Crude oil (\$/Bbl)	43.46	59.91	(27)	37.31	61.32	(39)
Total (\$/Boe)	17.78	17.33	3	14.83	15.03	(1)
Total (\$/Mcfe)	2.96	2.89	3	2.47	2.51	(1)

Commodity sales in the three months ended December 31, 2020, of \$31.3 million were consistent with the \$31.3 million in the same period of 2019, due to lower production being offset by higher realized natural gas prices. Commodity sales for the year ended December 31, 2020, decreased \$1.8 million to \$103.2 million from \$105.0 million in the year ended December 31, 2019, with the decrease attributable to lower realized crude oil and NGL prices.

Pine Cliff's realized natural gas price was \$2.73 per Mcf in the three months ended December 31, 2020, 8% higher than the \$2.52 per Mcf realized in the corresponding period of the prior year, correlating with the AECO 5A reference price increase of 7% resulting from the expectation of lower natural gas supply due to reduced natural gas drilling arising from COVID-19. Pine Cliff's realized natural gas price was \$2.28 per Mcf for the year ended December 31, 2020, 6% higher than the \$2.15 per Mcf realized in the prior year. Pine Cliff's realized natural gas price was 4% higher and 3% higher than the AECO 5A benchmark in the three months and year ended December 31, 2020 respectively, both a result of Pine Cliff's fixed price physical natural gas sales contracts and marketing diversification to non-AECO markets during the relevant periods.

For the three months and year ended December 31, 2020, Pine Cliff's realized NGL price was \$28.89 per Bbl and \$23.11 per Bbl, compared to \$35.36 per Bbl and \$31.92 per Bbl in the corresponding periods of the prior year. For the three months and year ended December 31, 2020, Pine Cliff's realized crude oil price was \$43.46 per Bbl and \$37.31 per Bbl, compared to \$59.91 per Bbl and \$61.32 per Bbl in the corresponding periods of the prior year. Pine Cliff's realized crude oil prices in the three months and year ended December 31, 2020 were 87% and 82% of Edmonton Light compared to 90% and 89% in the corresponding periods of the prior year. Pine Cliff's realized NGL prices in the three months and year ended December 31, 2020 were 58% and 51% of Edmonton Light compared to 53% and 46% in the corresponding periods of the prior year. This decrease in NGL prices is consistent with the reduction in realized crude oil prices.

The disruption to global economic activity due to the spread of the COVID-19 global health pandemic resulted in a reduction of global demand for crude oil and a decrease in the world price for crude oil.

ROYALTY EXPENSE

	Three months ended December 31,				Year ended December 31,
(\$000s)	2020	2019	% Change	2020	2019	% Change
Total royalty expense	2,354	2,826	(17)	6,273	5,575	13
\$ per Boe	1.34	1.56	(14)	0.90	0.80	13
\$ per Mcfe	0.22	0.26	(14)	0.15	0.13	13
Royalty expense as a % of commodity sales	8%	9%	(11)	6%	5%	20

For the three months ended December 31, 2020, total royalty expense decreased by 17% to \$2.4 million from \$2.8 million in the corresponding period of the prior year. Royalty expense as a percentage of commodity sales decreased to 8% in the three months

ended December 31, 2020, compared to a 9% in the corresponding period of the prior year which included an adjustment due to lower annual gas cost allowance.

For the year ended December 31, 2020, total royalty expense increased by 13% to \$6.3 million from \$5.6 million in the corresponding period of the prior year. Royalty expense as a percentage of commodity sales increased to 6% during the year ended December 31, 2020, compared to 5% in the corresponding period of the prior year. The increase in royalty expenses as a percentage of commodity sales for the year ended December 31, 2020 is primarily due to an increase in natural gas prices.

Pine Cliff anticipates royalty expenses to average 9.5% of commodity sales in 2021.

TRANSPORTATION COSTS

	Three months ended December 31,			Year ended December 31,
(\$000s)	2020	2019	% Change	2020	2019	% Change
Total transportation costs	2,221	2,775	(20)	9,172	11,743	(22)
\$ per Boe	1.26	1.53	(18)	1.32	1.68	(21)
\$ per Mcfe	0.21	0.26	(18)	0.22	0.28	(21)

For the three months and year ended December 31, 2020, total transportation costs decreased by 20% and 22% to \$2.2 million and \$9.2 million from \$2.8 million and \$11.7 million in the corresponding periods of the prior year. The lower transportation expenses are related to the Company delivering a lower proportion of its natural gas to non-AECO markets.

Pine Cliff anticipates transportation expenses to average \$1.32 per Boe (\$0.22 per Mcfe) in 2021.

OPERATING EXPENSES

	Three months ended December 31,			Year ended December 31,
(\$000s)	2020	2019	% Change	2020	2019	% Change
Operating expenses	17,319	19,242	(10)	72,968	75,304	(3)
Less: Processing income	(1,295)	(1,007)	29	(4,151)	(3,331)	25
Net production expenses	16,024	18,235	(12)	68,817	71,973	(4)
\$ per Boe	9.10	10.08	(10)	9.89	10.30	(4)
\$ per Mcfe	1.52	1.68	(10)	1.65	1.72	(4)

Net production expenses decreased by 12% and 4% to \$16.0 million and \$68.8 million for the three months and year ended December 31, 2020, as compared to \$18.2 million and \$72.0 million in the corresponding periods of the prior year, primarily as a result of realizing cost savings from field optimization initiatives in 2020, a 50% waiver of 2020 administration fees payable to the Alberta Energy Regulator, and receipt of \$0.3 million from the federal government's Canada Emergency Wage Subsidy program ("CEWS") allocated to field labour costs. On a per Boe basis, operating costs decreased to \$9.10 per Boe and \$9.89 per Boe for the three months and year ended December 31, 2020 compared to \$10.08 per Boe and 10.30 per Boe in the corresponding periods of 2019.

Pine Cliff anticipates operating expenses to average \$10.18 per Boe (\$1.70 per Mcfe) in 2021, net of processing and gathering income.

GENERAL AND ADMINISTRATIVE EXPENSES ("G&A")

	Three months ended December 31,			Year ended December 31,
(\$000s)	2020	2019	% Change	2020	2019	% Change
Gross G&A	2,011	2,275	(12)	7,275	7,871	(8)
Add: non-recurring transaction costs	-	-	-	-	15	(100)
Less: overhead recoveries	(666)	(1,076)	(38)	(2,278)	(2,807)	(19)
Total G&A expenses	1,345	1,199	12	4,997	5,079	(2)
\$ per Boe	0.76	0.66	15	0.72	0.73	(1)
\$ per Mcfe	0.13	0.11	15	0.12	0.12	(1)

G&A increased by 12% to \$1.3 million in the three months ended December 31, 2020, as compared to \$1.2 million in the corresponding period of the prior year. The increase in G&A during the three months ended December 31, 2020 is primarily a result of lower overhead recoveries. G&A decreased to \$5.0 million for the year ended December 31, 2020 as compared to \$5.1 million in the corresponding period of the prior year and reflects the receipt of CEWS for two months during the second quarter in the amount of \$0.2 million, offset by a reduction in overhead recoveries.

On a per Boe basis, G&A for the three months ended December 31, 2020, increased 15% to \$0.76 per Boe from \$0.66 per Boe in the corresponding period of the prior year, primarily due to lower overhead recoveries. On a per Boe basis, G&A for the year ended December 31, 2020 decreased 1% to \$0.72 per Boe from \$0.73 per Boe in the prior year.

Pine Cliff anticipates G&A expenses to average \$0.87 per Boe (\$0.14 per Mcfe) in 2021.

SHARE-BASED PAYMENTS

	Three months ended December 31,			Year ended December 31,
(\$000s)	2020	2019	% Change	2020	2019	% Change
Total share-based payments	168	180	(7)	737	1,116	(34)
\$ per Boe	0.10	0.10	-	0.11	0.16	(31)
\$ per Mcfe	0.02	0.02	-	0.02	0.03	(31)

Share based payments decreased by 7% and 34% for the three months and year ended December 31, 2020 compared to the corresponding periods of 2019 primarily as a result of the decrease in the fair value of the stock options granted in 2020. The Company has an equity settled stock-based compensation plan. Stock options are granted to certain officers, directors, employees and consultants, with the number, term and vesting period of the options granted being determined at the discretion of the Company's board of directors to a maximum of 10% of the outstanding Common Shares.

During the year ended December 31, 2020, Pine Cliff granted 8,656,850 stock options to purchase Common Shares at a weighted average exercise price of \$0.14 (December 31, 2019 – 13,137,907 at an average exercise price of \$0.18). As at December 31, 2020, the Company had 25,561,498 stock options outstanding, representing 7.6% of Common Shares outstanding (December 31, 2019 – 25,828,738 representing 7.9% of Common Shares outstanding).

DEPLETION, DEPRECIATION, AND IMPAIRMENT

	Three months ended December 31,			Year ended December 31,
(\$000s)	2020	2019	% Change	2020	2019	% Change
Total depletion and depreciation	11,032	11,644	(5)	45,411	46,864	(3)
\$ per Boe	6.27	6.44	(3)	6.53	6.71	(3)
\$ per Mcfe	1.04	1.07	(3)	1.09	1.12	(3)
Impairment	-	-	-	7,900	8,200	(4)
Total depletion, depreciation, and impairment	11,032	11,644	(5)	53,311	55,064	(3)
\$ per Boe	6.27	6.44	(3)	7.66	7.88	(3)
\$ per Mcfe	1.04	1.07	(3)	1.28	1.31	(3)

Depletion and depreciation expense for the three months and year ended December 31, 2020, totaled \$11.0 million and \$45.4 million compared to \$11.6 million and \$46.9 million in the corresponding periods of the prior year. The decrease for the year is a result of a lower depletable base. Depletion and depreciation per Boe will fluctuate from one period to the next depending on changes in reserves and the amount and success of capital expenditures. Depletion is calculated using total proved and probable reserves and reserves estimates are subject to revision.

Property, Plant and Equipment ("PP&E") Impairment Assessment

As at December 31, 2020, the Company had four CGU's being the Southern CGU, Central Gas CGU, Edson CGU, and Coal Bed Methane CGU. The Company reviewed each CGU's property and equipment at December 31, 2020 for indicators of impairment and determined that an indicator related to future commodity prices was present. The company prepared estimates of both the value in use ("VIU") and fair value less cost to sell ("FVLCS") of each of the Company's CGUs. When it is determined that any CGU carrying value exceeds it recoverable amount, that CGU is considered impaired and an impairment expense is reported that equals this excess.

		\$C to US\$ Foreign	Edmonton Light Crude Oil	AECO Gas
Year	WTI Oil (US\$/Bbl)1	exchange rate1	(Cdn\$/Bbl) 1	(Cdn\$/MMBtu) 1
2021	47.17	1.30	55.76	2.78
2022	50.17	1.31	59.89	2.70
2023	53.17	1.31	63.48	2.61
2024	54.97	1.31	65.76	2.65
2025	56.07	1.31	67.13	2.70
2026	57.19	1.31	68.53	2.76
2027-2035	62.63	1.31	69.95	3.02
Thereafter	+2.0%/yr	1.31	+2.0%/yr	+2.0%/yr

The following table outlines forecast benchmark prices and exchange rates used in the Company's impairment test as at December 31, 2020:

¹Source: Average of three independent consultant price forecasts, effective January 1, 2021 (McDaniel & Associates Consultants Ltd., GLJ Petroleum Consultants Ltd. and Sproule Associates Limited).

The recoverable amounts of each of the Company's CGU's at December 31, 2020 were estimated at their FVLCS, based on the net present value of discounted future cash flow from operating activities from oil and gas reserves as estimated by the Company's independent reserves evaluator at December 31, 2020. The FVLCS used to determine the recoverable amounts are classified as Level 3 fair value measurements as certain key assumptions are not based on observable market data, but rather, the Company's management's best estimates.

The Company used a pre-tax 15% discount rate for the December 31, 2020 impairment test which took into account risks specific to the CGU's and inherent in the oil and gas business. The impairment testing concluded that the FVLCS for the Company's CGU's at December 31, 2020 is greater than the carrying amounts and therefore no impairment was recorded in the fourth quarter of 2020. An impairment of \$7.9 million was recorded for the period ending March 31, 2020.

At March 31, 2020, an impairment test was conducted on Pine Cliff's PP&E in response to the economic impact of the global COVID-19 pandemic and the global oversupply of crude oil and the impact on commodity prices (refer to Note 4 "Novel Coronavirus COVID-19" in the Financial Statements). The Company prepared estimates of both the FVLCS and VIU of each of the Company's CGUs. When it is determined that any CGU carrying value exceeds its recoverable amount, that CGU is considered impaired and an impairment expense is reported that equals this excess.

The following table outlines forecast benchmark prices and exchange rates used in the Company's impairment test as at March 31, 2020:

		\$C to US\$ Foreign	Edmonton Light Crude Oil	AECO Gas
Year	WTI Oil (US\$/Bbl)1	exchange rate1	(Cdn\$/Bbl) 1	(Cdn\$/MMBtu) 1
2020 (9 months)	32.50	1.43	32.14	1.85
2021	43.35	1.38	49.45	2.30
2022	52.02	1.33	62.69	2.44
2023	58.37	1.33	71.02	2.49
2024	59.53	1.33	72.44	2.54
2025	60.72	1.33	73.89	2.59
2026-2035	67.13	1.33	81.69	2.87
Thereafter	+2.0%/yr	1.33	+2.0%/yr	+2.0%/yr

¹Source: Average of three independent consultant price forecasts, effective April 1, 2020 (McDaniel & Associates Consultants Ltd., GLJ Petroleum Consultants Ltd. and Sproule Associates Limited).

The recoverable amounts of each of the Company's CGU's at March 31, 2020 were estimated at their FVLCS, based on the net present value of discounted future cash flow from operating activities from oil and gas reserves as estimated by the Company's independent reserves evaluator at December 31, 2019, adjusted for production and future pricing changes during the three months ended March 31, 2020. The fair value less costs to sell used to determine the recoverable amounts are classified as Level 3 fair value measurements as certain key assumptions are not based on observable market data, but rather, the Company's management's best estimates

The Company used a pre-tax 15% discount rate for the March 31, 2020 impairment test which took into account risks specific to the CGU's and inherent in the oil and gas business.

The following CGU was impaired as at March 31, 2020:

CGUs	2020	2019
Edson	7,900	-
Total Impairment	7,900	-

During the year ended December 31, 2019, an impairment test was conducted following decreases in the outlook for future natural gas prices since the time of Pine Cliff's previous impairment test at December 31, 2018. The Company reviewed each CGU's property and equipment at June 30, 2019 for indicators of impairment and determined that an indicator related to the decrease in future commodity prices was present. The company prepared estimates of both the FVLCS and VIU of each of the Company's CGUs. When it is determined that any CGU carrying value exceeds its recoverable amount, that CGU is considered impaired and an impairment expense is reported that equals this excess.

The following table outlines forecast benchmark prices and exchange rates used in the Company's impairment test as at June 30, 2019:

		\$C to US\$ Foreign	Edmonton Light Crude Oil	AECO Gas
Year	WTI Oil (US\$/Bbl)1	exchange rate1	(Cdn\$/Bbl) 1	(Cdn\$/MMBtu) 1
2019 (6 months)	59.92	1.32	71.55	1.39
2020	63.57	1.28	74.26	1.91
2021	66.67	1.25	77.10	2.37
2022	69.30	1.25	80.52	2.66
2023	71.98	1.25	84.31	2.79
2024-2033	81.56	1.25	95.81	3.25
Thereafter	+2.0%/yr	1.25	+2.0%/yr	+2.0%/yr

¹Source: Average of three consultant price forecasts, effective July 1, 2019 (McDaniel, GLJ Petroleum Consultants Ltd. and Sproule Associates Limited).

The recoverable amounts of each of the Company's CGU's at June 30, 2019 were estimated at their FVLCS, based on the net present value of future cash flows from oil and gas reserves as estimated by the Company's independent reserves evaluator at December 31, 2018, adjusted for production and future pricing changes during the six months ended June 30, 2019. The fair value less costs to sell used to determine the recoverable amounts are classified as Level 3 fair value measurements as certain key assumptions are not based on observable market data, but rather, the Company's management's best estimates.

The Company used a pre-tax 15% discount rate for the June 30, 2019 impairment test which took into account risks specific to the CGU's and inherent in the oil and gas business.

The following CGU was impaired as at June 30, 2019:

CGU	2019
Southern	8,200
Total Impairment	8,200

Exploration and Evaluation Assets ("E&E") Impairment Assessment

In accordance with IFRS, an impairment test is performed if the Company identified an indication of impairment. An E&E asset shall be assessed for impairment before reclassification to PP&E if the Company determines technical feasibility and commercial viability of extraction. At December 31, 2020 and 2019, the Company determined that no indicators of impairment existed on its E&E assets and therefore no impairment test was performed for E&E assets transferred to PP&E.

	Three months ended December 31,				Year ended December 31,
(\$000s)	2020	2019	% Change	2020	2019	% Change
Interest expense and bank charges	1,352	1,279	6	5,182	4,757	9
\$ per Boe	0.77	0.71	8	0.74	0.68	9
\$ per Mcfe	0.13	0.12	8	0.12	0.11	9
Non cash:
Accretion on decommissioning provision	1,363	1,560	(13)	5,455	6,262	(13)
Accretion on subordinated promissory notes	27	295	(91)	105	534	(80)
Total finance expenses	2,742	3,134	(13)	10,742	11,553	(7)
\$ per Boe	1.56	1.73	(10)	1.54	1.65	(7)
\$ per Mcfe	0.26	0.29	(10)	0.26	0.28	(7)

FINANCE EXPENSES

Finance expenses decreased by 13% and 7% to \$2.7 million and \$10.7 million for the three months and year ended December 31, 2020, as compared to \$3.1 million and \$11.6 million in the corresponding periods of the prior year, primarily a result of a decrease in accretion expenses related to the decommissioning provision and subordinated promissory notes. Please refer to the "DEBT, LIQUIDITY AND CAPITAL RESOURCES" section for additional information.

DEFERRED INCOME TAX

For the years ended December 31, 2020 and 2019, deferred income tax expenses amounted to \$nil.

As at December 31, 2020, the Company did not record a future income tax asset (December 31, 2019 - \$nil) as it is not currently probable that Pine Cliff can utilize its tax pools against taxable profit. As at December 31, 2020, a deferred income tax asset has not been recognized on \$87.4 million (December 31, 2019 - \$76.3 million) of deductible temporary differences as it is not probable that future taxable earnings will be available against which the Company can utilize the benefits.

The Company had the following tax pools, including non-capital loss carry-forwards, at December 31, 2020:

Category of tax pool	Rate of Utilization (%)	2020
Undepreciated capital costs	7 - 100	26,584
Canadian oil and gas property expenditures	10	199,174
Canadian development expenditures	30	8,476
Canadian exploration expenditures	100	167
Share issue costs	20	58
Non-capital losses carried forward 1	100	158,236
Capital losses carried forward2		5,462
		398,157

¹Non-capital losses expire between the years 2030 and 2040.

²The capital losses carried forward can only be claimed against taxable capital gains.

As at December 31, 2020, the unused non-capital losses expire between 2030 and 2040, and the unused capital losses have no expiry date. The deductible temporary differences do not expire under tax legislation. Pine Cliff has approximately \$398.2 million in tax pools as at December 31, 2020 (December 31, 2019 - \$400.3 million), available for future use as deductions from taxable income.

CAPITAL EXPENDITURES, ACQUISITIONS AND DISPOSITIONS

	Year ended December 31,
(\$000s)	2020	2019
Exploration and evaluation	37	398
Property, plant and equipment	7,480	7,981
Capital expenditures	7,517	8,379
Acquisitions	(6)	8,801
Dispositions	(829)	(1,542)
Total	6,682	15,638

Capital expenditures on PP&E of \$7.5 million during the year ended December 31, 2020 were directed towards drilling three gross (0.3 net) Ellerslie natural gas wells and seven (7.0 net) natural gas well recompletions for \$2.3 million and facility maintenance and other optimization capital of \$5.2 million.

DECOMMISSIONING PROVISION

The total current and long-term decommissioning provision of \$235.0 million was estimated by management based on the Company's working interest and estimated costs to remediate, reclaim and abandon its wells, pipelines, and facilities and estimated timing of the costs to be incurred in future periods.

At December 31, 2020, the estimated total undiscounted and uninflated amount required to settle the decommissioning liabilities was \$247.5 million (December 31, 2019 - \$239.7 million). The discounted and inflated amount required to settle the decommissioning liabilities of \$235.0 million has been calculated assuming a 2.00% inflation rate (December 31, 2019 – 1.95%) and discounted using an average risk-free interest rate of 2.30% (December 31, 2019 – 2.57%). These obligations are currently expected to be settled based on the useful lives of the underlying assets, some of which extend beyond 30 years into the future.

DEBT, LIQUIDITY AND CAPITAL RESOURCES

Letter of Credit Facility

As at December 31, 2020, the Company had a \$2.6 million letter of credit facility ("LC Facility") with a Canadian bank which is supported by a performance guarantee from Export Development Canada. The LC Facility is for issuing letters of credit to counterparties and is available on a demand basis. Letters of credit issued under the LC Facility incur an issuance fee of 4% per annum. The LC Facility does not contain any financial covenants. As at December 31, 2020, the Company had \$2.5 million in letters of credit issued against its LC Facility (December 31, 2019 - \$2.6 million).

Due to Related Party

On October 1, 2019, Pine Cliff amended and restated its \$6.0 million subordinated promissory note to the Company's Chairman of the Board. This amended and restated promissory note matures on December 31, 2024 ("Related Party Note"), bears interest at 6.5% per annum and is payable monthly. The Related Party Note is secured by a \$6.0 million floating charge debenture over all of the Company's assets and is subordinated to any and all claims in favor of the holder of the Term debt, as defined herein. Interest paid on the Related Party Note for the year ended December 31, 2020 was \$0.4 million (December 31, 2019 - \$0.4 million).

On August 5, 2020, the Company entered into an agreement to establish a \$4.0 million borrowing facility (the "Facility") with the Company's Chairman of the Board (the "Lender"), whereby the Lender provides up to \$4.0 million of borrowings at an interest rate of 6.5% per annum, payable monthly. The term (the "Term") of the Facility expires on the later of: (i) March 31, 2021; or (ii) the date of full repayment of any outstanding borrowings. Amounts can be drawn, repaid and redrawn by the Company at any time during the Term and borrowings under the Facility are payable on demand to the Lender on 60 days written notice. The Facility can be cancelled at any time by the Lender on 60 days written notice, while the Term may also be extended by mutual consent of the Company and the Lender. At December 31, 2020, there was no amount drawn on the Facility. Interest paid on the Facility for the year ended December 31, 2020 was \$0.007 million.

On October 1, 2019, Pine Cliff amended and restated its \$6.0 million subordinated promissory notes. These amended and restated subordinated promissory notes mature on December 31, 2024 ("\$6 Million Notes"), bear interest at 6.5% per annum and are payable monthly. The \$6 Million Notes are issued to a shareholder and a relative of that shareholder, owning directly or by discretion and control, greater than 10% of the Common Shares. The \$6 Million Notes are secured by a \$6.0 million floating charge debenture over all of the Company's assets and are subordinated to any and all claims in favor of the holder of the Term debt.

Term Debt

On October 1, 2019, Pine Cliff entered into a credit facility with Alberta Investment Management Corporation ("AIMCo"), acting on behalf of its clients, to repay its \$30 million promissory notes maturing September 30, 2020 ("2020 Notes") and its \$19 million promissory notes maturing July 31, 2022 ("2022 Notes") and replace them with a non-revolving term credit facility ("Term debt"). The Term debt consists of a first tranche with a principal amount of \$30 million that matures on December 31, 2024 (the "2024 Tranche") and a second tranche with a principal amount of \$19 million that matures on July 31, 2022 (the "2022 Tranche"), (collectively the "Refinancing "). Interest on the 2024 Tranche is payable at a rate of 9.75% per annum until September 30, 2021 and thereafter such interest rate will increase by 1% per annum up to 12.75% and interest is payable on the 2022 Tranche at a rate of 7.05% per annum. All or a portion of the principal amount outstanding can be repaid at any time, but without any penalty or premium after September 30, 2022 with respect to the 2024 Tranche and, July 13, 2021 with respect to the 2022 Tranche. A total of 7.5 million Common Share purchase warrants (the "Warrants") were issued in connection with the Refinancing, with each Warrant entitling the holder to purchase one Common Share of Pine Cliff for \$0.20565, until September 30, 2022. On September 1, 2020, AIMCo exercised its right and purchased 7,500,000 Common Shares in return for a cash payment of \$1.5 million. The Refinancing security consists of floating demand debentures totaling \$150.0 million and a general security agreement with first ranking over all current and acquired properties.

The fair value of the Refinancing was determined on drawdown to be 10.1%, using the effective interest rate method, by discounting future payments of interest and principal with the residual value allocated to the Warrants. The value of the Term debt accretes up to the principal balance of each tranche at maturity.

Liquidity and Capital Resources

Pine Cliff's approved capital budget for 2021 is \$13.2 million, including \$1.5 million for abandonments and reclamation and before acquisitions and dispositions. Pine Cliff anticipates funding its capital budget from adjusted funds flow. Budgeted future capital expenditures related to drilling are largely discretionary in nature and Pine Cliff is able to adjust the nature, amount and timing of most planned capital expenditures to changes in the business and commodity price environment.

The Company's capital comprises shareholders' equity, Term debt, subordinated promissory notes, due to related party and working capital. Pine Cliff manages the capital structure and makes adjustments considering economic conditions and the risks of the underlying assets. The Company carries a working capital deficiency as cash balances are used to fund ongoing operations. However Pine Cliff has and will continue to manage its working capital needs through its physical diversification program, adjusting timing of capital expenditures, executing asset dispositions and issuing equity when practical.

The Company defines and computes its net debt as follows:

		Year ended December 31,
(\$000s)	2020	2019
Due to related party1	6,000	6,000
Subordinated promissory notes1	6,000	6,000
Term debt2	49,000	49,000
Trade and other payables	27,275	27,514
Less:
Trade and other receivables	(14,863)	(13,597)
Cash	(7,878)	(8,661)
Prepaid expenses and deposits	(2,484)	(2,218)
Net debt3	63,050	64,038

¹The due to related party and subordinated promissory notes are due on December 31, 2024.

²The term debt for net debt are presented at the principal amount with \$19.0 million due on July 31, 2022 and \$30.0 million due on December 31, 2024.

³This is a non-GAAP measure, see NON-GAAP MEASURES for additional information.

	Year ended December 31,
Net debt-to-adjusted funds flow calculation:	2020	2019
Cash provided by operating activities	8,787	15,536
Increase (decrease) in non-cash working capital	(1,561)	(11,586)
Decommissioning obligations settled	1,503	1,929
Adjusted funds flow1	8,729	5,879
Net debt1	63,050	64,038
Net debt-to-adjusted funds flow	7.2	11.0

¹This is a non-GAAP measure, see NON-GAAP MEASURES for additional information.

At December 31, 2020, approximately 97 percent of the Company's net debt is long-term and only 3 percent of the net debt is due within the next twelve months. The prolonged period of low commodity prices, in particular natural gas pricing in 2019 and crude oil and NGL pricing in 2020, has reduced the Company's adjusted funds flow and limited the availability of new capital to reduce debt.

The Company remains focused on developing its Central Alberta Pekisko property while identifying and pursuing opportunities to further reduce the net debt to adjusted funds flow ratio. The Company continuously monitors changes in forecasted adjusted funds flow as a result of changes to forward commodity prices and will make adjustments to planned capital expenditures as appropriate.

Pine Cliff will continue to focus on additional opportunities to enhance shareholders' long term value which could include additional asset acquisitions or dispositions.

Share Capital

Share capital	March 9, 2021	December 31, 2020	December 31, 2019
Common Shares	335,596,261	335,284,193	327,784,193
Stock options	23,744,933	25,561,498	25,828,738
Warrants	2,850,000	2,850,000	10,350,000

COMMITMENTS AND CONTINGENCIES

As at December 31, 2020, the Company has the following commitments and other contractual obligations:

	2021	2022	2023	2024	2025	Thereafter
(\$000s)
Trade and other payables	27,275	-	-	-	-	-
Term debt1	-	19,000	-	30,000	-	-
Due to related party	-	-	-	6,000	-	-
Subordinated promissory notes	-	-	-	6,000	-	-
Future interest	5,120	4,861	4,380	4,605	-	-
Lease obligations	1,237	1,046	870	226	56	-
Transportation3	8,442	6,806	5,179	4,347	3,903	6,152
Total commitments and contingencies	42,074	31,713	10,429	51,178	3,959	6,152

¹Principal amount.

²Firm transportation agreements.

QUARTERLY TRENDS AND SELECTED FINANCIAL INFORMATION

	2020			2019
(\$000s, unless otherwise indicated)	Q4	Q3	Q2	Q1	Q4	Q3	Q2	Q1
FINANCIAL
Total revenue	30,233	24,701	21,463	24,651	28,513	19,468	21,106	30,344
Cash flow from operating activities	2,665	3,945	539	1,637	4,039	(2,931)	6,503	7,925
Adjusted funds flow1	7,996	809	(1,229)	1,153	5,025	(3,922)	(2,047)	6,823
Adjusted funds flow per share –
basic and diluted (\$/share) 1	0.02	0.00	(0.00)	0.00	0.02	(0.01)	(0.01)	0.02
Loss	(3,822)	(12,110)	(14,164)	(20,011)	(7,987)	(17,739)	(24,179)	(6,525)
Loss per share – basic and diluted (\$/share)	(0.01)	(0.04)	(0.04)	(0.06)	(0.02)	(0.05)	(0.08)	(0.02)
Capital expenditures	1,307	2,213	2,175	1,822	5,446	1,123	815	995
Acquisitions	(11)	10	(75)	70	202	(7)	8,604	2
Dispositions	(613)	(181)	(30)	(5)	(1,443)	(14)	(85)	-
Net debt1	63,050	69,312	69,273	65,532	64,038	63,745	58,162	51,820
Weighted average common shares
outstanding:
Basic and diluted	335,284	330,230	327,784	327,784	327,784	327,784	314,130	307,076
PRODUCTION VOLUMES
Natural gas (Mcf/d)	104,788	103,304	104,611	104,412	108,208	104,488	105,965	104,186
Natural gas liquids (Bbl/d)	1,270	1,171	1,075	1,231	1,216	1,195	1,063	981
Crude oil (Bbl/d)	395	367	458	536	410	423	399	396
Average sales volumes (Boe/d)	19,130	18,755	18,968	19,169	19,661	19,033	19,123	18,741
Average sales volumes (Mcfe/d)	114,780	112,530	113,808	115,014	117,966	114,198	114,738	112,446
PRICES AND NETBACKS
Total commodity sales (\$/Boe)	17.78	14.34	12.57	14.58	17.33	11.48	12.35	19.01
Operating netback (\$/Boe)1	6.08	1.90	0.59	2.25	4.16	(0.97)	0.18	5.68
Corporate netback (\$/Boe)1	4.55	0.47	(0.71)	0.65	2.79	(2.24)	(1.18)	4.04
Total commodity sales (\$/Mcfe)	2.96	2.39	2.10	2.43	2.89	1.91	2.06	3.17
Operating netback (\$/Mcfe)1	1.01	0.32	0.10	0.38	0.69	(0.16)	0.03	0.95
Corporate netback (\$/Mcfe)1	0.76	0.08	(0.12)	0.11	0.47	(0.37)	(0.20)	0.67

1 This is a non-GAAP measure, see NON-GAAP MEASURES for additional information.

Over the past eight quarters, Pine Cliff's revenues, cash flow from operating activities, adjusted funds flow, and earnings (losses) have fluctuated primarily due to changes in commodity prices and sales volumes. Earnings (losses) also fluctuate with non-cash expenditures, including depletion, depreciation, impairments and deferred income taxes. Selected highlights for the past eight quarters are presented below:

Average sales volumes decreased in the first quarter of 2019 compared to the previous quarter in 2018 due to natural production declines and production downtime due to cold weather, partially offset by production from the current drilling and recompletion projects. Average sales volumes increased in the second quarter of 2019 compared to the first quarter of 2019 mainly due to less downtime due to cold weather and sales volumes from the May 2019 Acquisition. Average sales volumes decreased in the third quarter of 2019 compared to the second quarter of 2019 mainly due to shut-ins due to low natural gas prices. Average sales volumes increased in the fourth quarter of 2019 compared to the third quarter of 2019 mainly due to no shut-ins and one gross (1.0 net) well that was drilled and placed on production during the fourth quarter of 2019. Average sales volumes in the first quarter of 2020 were lower than the fourth quarter in 2019 due to natural production decline and downtime due to inclement weather conditions. Sales volumes in the second quarter of 2020 were higher than the preceding quarter due primarily to better weather conditions offset by natural production declines. The third quarter sales volumes were lower than the second quarter of 2020 primarily due to natural production declines. The fourth quarter 2020 sales volumes were higher than the third quarter of 2020 primarily due seven gross (7.0 net) natural gas well recompletions conducted and placed on production during the fourth quarter.
Adjusted funds flow decreased from the first quarter of 2019 to the third quarter of 2019, mainly as a result of lower commodity prices and changes to sales volumes. Adjusted funds flow increased from the third quarter of 2019 to the fourth quarter of 2019, mainly as a result of higher commodity prices and increases in sales volumes. The first and second quarters of 2020 had lower adjusted funds flow than the fourth quarter of 2019 primarily due to lower commodity prices and changes to sales volumes. The third quarter of 2020 had increased adjusted funds flow compared to the previous quarter in 2020 due to better commodity pricing. The fourth quarter of 2020 had higher adjusted funds flow than the third quarter of 2020 due to a combination of higher realized commodity pricing and increased production volumes.
Losses increased from the first quarter of 2019 to the second quarter of 2019 mainly as a result of lower commodity prices and an impairment charge, slightly offset by lower royalty expenses. Losses decreased from the second quarter of 2019 through the fourth quarter of 2019 mainly as a result of no impairment charges in the third or fourth quarters of 2019 and fluctuations in sales volumes and commodity prices. Losses in the first quarter of 2020 were higher than the fourth quarter of 2019 due to in impairment charge. Losses in the second and third quarters of 2020 were lower than the first quarter due to no impairment charges, but still impacted by fluctuating price and volumes. Losses in the fourth quarter of 2020 were lower than the third quarter of 2020 due to increased production and higher commodity prices.
Total revenues decreased from the first quarter of 2019 to the third quarter of 2019, mainly as a result of lower commodity prices and changes to sales volumes. Total revenues increased from the third quarter of 2019 to the fourth quarter of 2019, mainly as a result of higher commodity prices and increases in sales volumes. Total revenues from the first quarter of 2020 decreased relative to the fourth quarter of 2019, due to lower realized commodity pricing and lower average production. Total revenues decreased from the first quarter of 2020 to the second quarter of 2020 primarily due to lower realized commodity prices and production decline. Total revenues increased from the second quarter of 2020 to the third quarter due to better realized commodity prices. Total revenues for the fourth quarter of 2020 were higher than third quarter of 2020 due to a combination of increased production and higher realized commodity prices.

OFF BALANCE SHEET TRANSACTIONS

Pine Cliff was not involved in any off-balance sheet transactions during the periods presented, nor has it entered into any such arrangements as of the effective date of this MD&A.

FINANCIAL INSTRUMENTS

Financial instruments and fair value measurement

Financial instruments of the Company consist of cash, trade and other receivables, trade and other payables, due to related party, subordinated promissory notes and term debt. The carrying values of cash, restricted cash, trade and other receivables and trade and other payables approximate their respective fair values due to the short time before maturing. The carrying values of due to related party, subordinated promissory notes and term debt approximate their respective fair values due to their interest rates reflecting current market conditions.

Assets and liabilities that are measured at fair value are classified into levels, reflecting the method used to make the measurements. Level 1 fair value measurements are based on quoted prices that are available in active markets for identical assets or

liabilities as of the reporting date. Active markets are those in which transactions occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Pine Cliff has no level 2 or level 3 financial instruments. Assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement within the fair value hierarchy level.

RISK MANAGEMENT

The Company is exposed to both financial and non-financial risks inherent in the oil and gas business. Financial risks include: commodity prices, interest rates, equity price, foreign exchange, credit availability and liquidity. Financial risks can be managed, at least to a degree, through the utilization of financial instruments. Certain non-financial risks can be mitigated through the use of insurance and/or other risk transfer mechanisms, good business practices and process controls, while others must simply be borne. All risks can have an impact upon the financial performance of the Company.

Market Risk

Market risk is the risk that the fair value or future cash flow from operating activities of the Company's financial instruments will fluctuate because of changes in market prices. Components of market risk to which Pine Cliff is exposed are discussed below.

Commodity Price Risk

The Company is exposed to commodity price risk since its revenues are dependent on the prices of crude oil, NGL, natural gas. Commodity prices have fluctuated widely during recent years due to global and regional factors including, but not limited to, supply and demand, inventory levels, weather, economic changes and geopolitical factors and instability. Changes in oil, NGL's and natural gas prices may have a significant effect, positively or negatively, on the ability of the Company to meet its obligations, capital spending targets and expected operational results. A material decline or extended period of low oil, NGL or natural gas prices could result in a reduction of net production revenue. The economics of producing from some wells may change because of lower prices, which could result in reduced production of oil, NGL's or natural gas and a reduction in the volumes of Pine Cliff's reserves. Management may also elect not to produce from certain wells at lower prices.

Physical Sales Contracts

At December 31, 2020, the Company had the following physical natural gas sales contracts in place:

		Physical Delivery	Fixed Sale Price	Fixed Sale Price
Contractual Term	Delivery Point	Quantity (GJ/day)	(\$CAD/GJ)1	(\$CAD/Mcf)1,2
January 1, 2021 to March 31, 2021	AECO	2,500	\$2.63	\$2.76
January 1, 2021 to October 31, 2021	TransGas3	6,000	\$3.11	\$3.26
April 1, 2021 to October 31, 2021	AECO	7,500	\$2.10	\$2.21

¹ Prices reported are the weighted average prices of the periods.

² Price has been converted from \$/GJ to \$/Mcf by multiplying by 1.05.

³ Subsidiary of SaskEnergy, Saskatchewan.

At March 9, 2021, the Company had the following additional physical natural gas sales contracts in place:

		Physical Delivery	Fixed Sale Price	Fixed Sale Price
Contractual Term	Delivery Point	Quantity (GJ/day)	(\$CAD/GJ)	(\$CAD/Mcf)1, 2
April 1, 2020 to October 31, 2021	AECO	14,000	\$2.56	\$2.68
April 1, 2021 to October 31, 2021	Dawn	5,000	\$3.24	\$3.40

¹ Prices reported are the weighted average prices of the periods.

² Price has been converted from \$/GJ to \$/Mcf by multiplying by 1.05.

Interest Rate Risk

The Company is principally exposed to interest rate risk to the extent it draws on variable rate debt. On July 28, 2019, the Company's syndicated credit facility (the "Credit Facility") with three Canadian Financial Institutions expired and was not renewed. Borrowings under the Credit Facility had interest at the Canadian prime rate plus 1.5% to 4.0% or the bankers' acceptance rates plus 2.5% to 5.0%, depending, in each case, on the rolling 12 month ratio of consolidated debt to EBITDA, plus applicable standby fees. EBITDA was calculated as earnings (loss) excluding depreciation, depletion, impairment and accretion, share based payments, interest, taxes and other non-cash items.

All of the Company's debt is with due to related party, subordinated promissory notes and Term debt. They are all fixed rate debt and are not exposed to interest rate risk.

Equity Price Risk

Equity price risk refers to the risk that the fair value of investments will fluctuate due to changes in equity markets for each company. Equity price risk is also influenced from the estimated realizable value of investments that the Company holds.

Foreign Exchange Risk

The Company and its share price are exposed to risk on foreign exchange rates because the commodity prices it receives are indirectly determined in reference to United States dollar denominated commodity prices. The Company manages this risk by monitoring the foreign exchange rate and evaluating its effect on cash flow from operating activities. Pine Cliff has not entered into any derivative financial instruments to manage this risk at this time.

Credit Risk

Credit risk is the risk that a third party will not complete its contractual obligations under a financial instrument and cause the Company to incur a financial loss. Pine Cliff's maximum exposure to credit risk is the sum of the carrying values of its trade and other receivables and cash, which are a reflection of management's assessment of the associated maximum exposure to such credit risk.

To mitigate the credit risk on its cash, the Company maintains its cash balances with a major Canadian chartered bank. To mitigate the credit risk on trade and other receivables, Pine Cliff assesses the financial strength of its counterparties and endeavors to enter into relationships with larger purchasers with established credit histories.

The Company's trade and other receivables balance at December 31, 2020 of \$14.9 million (December 31, 2019 – \$13.6 million), is primarily with oil and gas marketers, joint venture partners and crown royalty credits with the Province of Alberta. Amounts due from these parties have generally been received within 30 to 60 days. When determining whether amounts that are past due are collectible, management assesses the creditworthiness and past payment history of the counterparty, as well as the nature of the past due amount. The Company generally considers amounts greater than 90 days to be past due. As at December 31, 2020, there was \$1.1 million (December 31, 2019 - \$1.0 million) of trade and other receivables over 90 days. Pine Cliff assesses its trade and other receivables quarterly to determine if there has been any impairment. During the year ended December 31, 2020, the Company recorded \$0.5 million (December 31, 2019 - \$0.9 million) of bad debt expense against trade and other accounts receivables.

Liquidity Risk

Liquidity risk is the risk that Pine Cliff will not be able to meet its financial obligations as they become due. Pine Cliff manages its liquidity risk through actively managing its capital, which it defines as cash, debt and equity. Capital management strategies include continuously monitoring forecasted and actual cash flow from operating, financing and investing activities and opportunities to issue additional equity. Pine Cliff actively monitors its credit and working capital to ensure that it has sufficient available funds to meet its financial requirements at a reasonable cost. Management believes that funds generated from these sources currently will be adequate to settle Pine Cliff's financial liabilities. If required, Pine Cliff will also consider additional short-term financing or issuing equity in order to meet its future liabilities. Any of these events could affect Pine Cliff's ability to fund ongoing operations.

RISK FACTORS

Certain activities of the Company are affected by factors that are beyond its control or influence. Additional risks and uncertainties that management may be unaware of, or that they determine to be immaterial may also become important factors which affect the Company. Along with the risks discussed in this MD&A, other business risks faced by the Company may be found under "Risk Factors" in the Company's most recent Annual Information Form which is available under the Company's profile at www.sedar.com or by contacting the Company.

Environmental

All production phases of oil, NGLs and natural gas are subject to environmental regulation pursuant to a variety of Canadian federal, provincial and municipal laws and regulations (collectively, the "Environmental Regulations"). Environmental Regulations provide that wells, facility sites and other properties and practices associated with the company's operations be constructed, operated, maintained, abandoned, reclaimed and undertaken in accordance with the requirements set out therein. In addition, certain types of operations, including exploration and development projects and changes to certain existing projects, may require the submission and approval of environmental impact assessments or permit applications. Environmental Regulations impose, among other things, costs, restrictions, liabilities and obligations in connection with the generation, handling, use, storage, transportation, treatment and disposal of hazardous substances and waste and in connection with spills, releases and emissions of various substances in the environment. They also impose restrictions, liabilities and obligations in connection with the management of water sources that are being used, or

whose use is contemplated, in connection with oil and gas operations. The complexities of changes in Environmental Regulations make it difficult to predict the potential future impact to Pine Cliff.

Compliance with Environmental Regulations requires expenditures. Pine Cliff's future capital expenditures and operating expenses could increase as a result of, among other things, developments in the Company's business, operations, plans and objectives and changes to existing, or implementation of new, Environmental Regulations. Failure to comply with Environmental Regulations may result in, among other things, the imposition of fines, penalties, environmental protection orders, suspension of operations, and could adversely affect the Company's reputation. The costs of complying with Environmental Regulations may have a material adverse effect on Pine Cliff's business, financial condition, results of operations and cash flows from operating activities. The implementation of new Environmental Regulations or the modification of existing Environmental Regulations affecting the oil and natural gas industry generally could reduce demand for crude oil and natural gas as well as shift hydrocarbon demand toward relatively lower carbon sources, increase compliance costs, lengthen project implementation times, and have an adverse effect on Pine Cliff's business, financial condition, results of operations and cash flows.

Fiscal Environment

Resource industries are subject to payments to various levels of government, predominantly corporate income taxes to the federal and provincial governments and royalties to provincial governments. In recent years, while the corporate income tax regime has been stable, the royalty regime has not been. A series of changes have had at times both positive and negative effects, but have certainly served to emphasize the materiality of this risk. There is potential for additional future changes to the taxation and royalty regime in Alberta and Saskatchewan and corresponding changes in other jurisdictions where Pine Cliff may operate has created uncertainty surrounding the ability to accurately estimate future taxation and royalties, resulting in additional volatility and uncertainty in the oil and gas market. As a single company, Pine Cliff has no ability to mitigate this risk other than through geographic diversification.

Operational

This category encompasses a number of risks. Wells may produce at lower initial production rates than planned, or face steeper decline rates. Operating costs can increase due to such considerations as unanticipated workovers or higher than expected costs associated with corrosion. Pine Cliff follows prudent industry practices with respect to insurance where practicable and as guided by external experts, but cannot fully insure against all risks. With respect to non-insurable operating risks, the Company has attempted to design business process controls and accountability to identify problems at the earliest possible occasion and implement solutions. However, investors must appreciate that operational risk is very much a characteristic of the business, and can never be entirely eliminated.

Regulatory Risks

Regulatory risk is the risk of loss or lost opportunity resulting from the introduction of, or changes in, regulatory requirements or the failure to secure regulatory approval for upstream or downstream development projects. The implementation of new regulations or the modification of existing regulations could impact the Company's existing and planned projects as well as result in increased compliance costs, adversely impacting Pine Cliff's financial condition, results of operations and cash flows.

The oil and gas industry in general and the Company's operations in particular are subject to regulation and intervention under federal, provincial, territorial, state and municipal legislation in Canada in matters such as, but not limited to: land tenure; permitting of production projects; royalties; taxes (including income taxes); government fees; production rates; environmental protection controls; protection of certain species or lands; provincial and federal land use designations; the reduction of greenhouse gases and other emissions; the export of crude oil, natural gas and other products; the transportation of crude-by-rail or marine transport; the awarding or acquisition of exploration and production, oil sands or other interests; the imposition of specific drilling obligations; control over the development, abandonment and reclamation of fields (including restrictions on production) and/or facilities; and possibly expropriation or cancellation of contract rights. Changes to government regulation could impact the Company's existing and planned projects or increase capital investment or operating expenses, adversely impacting Pine Cliff's financial condition, results of operations and cash flows from operating activities.

Reserves

Petroleum and natural gas reserves are used in the calculation of depletion, impairment and impairment reversals and are depleted on a unit of production basis at a rate calculated by reference to proved and probable reserves determined in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities which incorporate the estimated future cost of developing and extracting those reserves. Reserve estimates and their resulting cash flows are based on engineering data, probability assessments of reserve recoveries, future prices and costs, future production rates, discount rates and the timing and extent of future capital expenditures, all of which are subject to many uncertainties and interpretation. Management expects that over time its reserve estimates will be revised, either upward or downward, based on updated information such as the results of future drilling, production costs, testing and production levels and changes to forward oil, NGL and natural gas prices.

Safety

The operation of Pine Cliff's properties is subject to hazards of finding, recovering, transporting and processing hydrocarbons including, but not limited to: blowouts; fires; explosions; gaseous leaks; migration of harmful substances; oil spills; corrosion; acts of vandalism; and other accidents or hazards that may occur at or during transport to or from commercial or industrial sites. Any of these hazards can interrupt operations, impact the Company's reputation, cause loss of life or personal injury, result in loss of or damage to equipment, property, information technology systems, related data and control systems, cause environmental damage that may include polluting water, land or air, and may result in fines, civil suits, or criminal charges against Pine Cliff, any of which may have a material adverse effect on Pine Cliff's business, financial condition, results of operations, cash flows, and reputation.

Staffing

Pine Cliff functions in a very competitive environment for professional staff, and this staff is key to the Company's ultimate success. Recognizing this, Pine Cliff's board of directors approved a competitive compensation program including bonuses based on the annual adjusted funds flow performance of the Company, benefits and a stock option program to provide for long-term incentives and to retain staff.

To date, Pine Cliff has found that it has been able to attract qualified individuals to complement its existing team and to build strength in areas where required.

CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATES

The timely preparation of the Financial Statements in conformity with IFRS requires Pine Cliff management to make judgments, assumptions and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities. Management believes that the most critical accounting policies that may have an impact on the Company's financial results are those that specifically relate to the accounting for its oil and gas interests, including amounts recorded for depletion and the impairment test which are both based on estimates of proved and probable reserves, production rates, oil prices, future costs and other relevant assumptions. Actual results could differ materially from such judgments or estimates.

Novel Coronavirus COVID-19

In March 2020, the World Health Organization declared COVID-19 a global pandemic, prompting many countries around the world to close international borders and order the closure of institutions and businesses deemed non-essential. At the same time, the Organization of Petroleum Exporting Countries ("OPEC"), and certain other countries, increased the planned supply of crude oil in an attempt to control market share. The sudden decrease in global crude oil demand due to COVID-19 coupled with a planned increase in supply significantly reduced crude oil prices.

In subsequent months, agreements have been made between OPEC, Russia and other crude oil producing countries around the world that have reduced global crude oil production and brought the oversupply closer into balance with demand. While crude oil prices have effectively recovered from the historic lows observed earlier in 2020, support from future demand remains uncertain. Efforts to reopen local economies and international borders around the globe resulted in varying degrees of virus outbreak. Many countries have re-imposed restrictions as regions experience a second wave of COVID-19, with some experiencing higher degrees of infection than during the first wave. Vaccination programs have begun around the world with the pace of such vaccinations dependent upon the supply access and logistics organized by the individual countries.

In addition to the impact on commodity prices and commodity sales, the effects of COVID-19 have created uncertainties in the crude oil and natural gas industry, including increased counterparty risk and decreased valuation of long-lived crude oil and natural gas assets. At December 31, 2020, Pine Cliff has incorporated the anticipated impacts of COVID-19 in its estimates and judgements in preparation of these financial statements.

Judgements

Cash Generating Units

CGUs are defined as the lowest grouping of integrated assets that generate identifiable cash inflows that are largely independent of the cash inflows of other assets or groups of assets. The classification of assets into CGUs requires significant judgement and interpretations with respect to the integration between assets, the existence of active markets, external users, share infrastructures and the way in which management monitors Pine Cliff's operations.

Impairment indicators

Judgements are required to assess when impairment indicators exist and impairment testing is required. When assessing the recoverability of petroleum and natural gas properties, each CGU's carrying value is compared to its recoverable amount, defined as the greater of its FVLCS and VIU. In determining the recoverable amount of assets, in the absence of quoted market prices, impairment tests are based on reserve estimates, market value of undeveloped lands and other relevant assumptions.

Estimates

Reserves

Exploration and evaluation assets

The application of the Company's accounting policy for E&E expenditures requires judgement in determining whether it is likely that future economic benefit exists when activities have not reached a stage where technical feasibility and commercial viability can be reasonably determined. Factors such as drilling results, future capital programs, future operating expenses, as well as estimated reserves are considered. In addition, management uses judgement to determine when E&E assets are reclassified to PP&E.

Decommissioning provision

Decommissioning, abandonment and site reclamation expenditures will be incurred by the Company at the end of the operating life of the Company's facilities and properties. Decommissioning expenditures are uncertain and cost estimates can vary in response to many factors including, but are not limited to, changes to relevant legal requirements, the emergence of new restoration techniques, experience at other production sites, and changes to the credit-adjusted risk-free discount rate and expected inflation rate. The expected timing and amount of expenditures can also change, for example, in response to changes in reserves or changes in laws and regulations or their interpretation. As a result, there could be significant adjustments to the provisions established which would affect future financial results.

Share-based payments

All equity-settled, share-based awards issued by the Company are recorded at fair value using the Black-Scholes option-pricing model. In assessing the fair value of equity-based compensation, estimates have to be made regarding the expected volatility in share price, option life, dividend yield, risk-free rate and estimated forfeitures at the initial grant date.

Contingencies

By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. The assessment of contingencies inherently involves the exercise of significant judgement and estimates of the outcome of future events.

CONTROL ENVIRONMENT

Disclosure controls and procedures

Disclosure controls and procedures ("DC&P"), as defined in National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, are designed to provide reasonable assurance that information required to be disclosed in the Company's annual filings, interim filings or other reports filed, or submitted by the Company under securities legislation is recorded, processed, summarized and reported within the time periods specified under securities legislation and include controls and procedures designed to ensure that information required to be so disclosed is accumulated and communicated to management, including the Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO"), as appropriate, to allow timely decisions regarding required disclosure. The CEO and the CFO of Pine Cliff evaluated the effectiveness of the design and operation of the Company's DC&P. Based on that evaluation, the CEO and CFO concluded that Pine Cliff's DC&P were effective as at December 31, 2020.

Internal control over financial reporting

Internal control over financial reporting ("ICFR"), as defined in National Instrument 52-109, includes those policies and procedures that:

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets of Pine Cliff;
are designed to provide reasonable assurance that transactions are recorded as necessary to permit preparation of Financial Statements in accordance with generally accepted accounting principles and that receipts and expenditures of Pine Cliff are being made in accordance with authorizations of management of Pine Cliff; and
are designed to provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the Financial Statements.

The CEO and CFO have designed, or caused to be designed under their supervision, ICFR as defined in National Instrument 52-109 of the Canadian Securities Administrators, in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Financial Statements for external purposes in accordance with IFRS. The control framework the Company used to design its ICFR was in accordance with the Committee of Sponsoring Organizations of the Treadway Commission "COSO 2013".

The Company's CEO and CFO have evaluated, or caused to be evaluated under their supervision, the effectiveness of the Company's internal controls over financial reporting at the financial period end of the Company and concluded that such internal controls over financial reporting are effective. It should be noted that while Pine Cliff's CEO and CFO believe that the Company's internal controls and procedures provide a reasonable level of assurance and are effective, however they do not expect that these controls will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that its objectives are met.

NON-GAAP MEASURES

This MD&A uses the terms "adjusted funds flow", "operating netbacks", "corporate netbacks" and "net debt" which are not recognized measures under IFRS and may not be comparable to similar measures presented by other companies. The Company uses these measures to evaluate its performance, leverage and liquidity. These measures should not be considered as an alternative to, or more meaningful than, IFRS measures including earnings (loss), cash flow from operating activities, or total liabilities.

Adjusted Funds Flow

The Company considers adjusted funds flow a key performance measure as it demonstrates the Company's ability to generate the funds necessary to repay debt and fund future growth through capital investment. Adjusted funds flow and adjusted funds flow per Common Share and per Boe or Mcfe should not be considered as an alternative to, or more meaningful than, cash flow from operating activities presented on the statement of cash flow which is considered the most directly comparable measure under IFRS. Adjusted funds flow is calculated as cash flow from operating activities before changes in non-cash working capital and decommissioning obligations settled. Adjusted funds flow per Common Share is calculated using the same weighted average number of Common Shares outstanding as in the case of the earnings per Common Share calculation for a reporting period. Adjusted funds flow per Boe or Mcfe is calculated using the sales volumes reported for a reporting period. Pine Cliff's method of calculating this measure may differ from other companies, and accordingly, it may not be comparable to measures used by other companies.

	Three months ended December 31,				Year ended December 31,
(\$000s)	2020	2019	% Change	2020	2019	% Change
Cash flow from operating activities	2,666	4,039	(34)	8,787	15,536	(43)
Adjusted by:
Change in non-cash working capital	4,570	127	3,498	(1,561)	(11,586)	87
Decommissioning obligations settled	760	859	(11)	1,503	1,929	(22)
Adjusted funds flow	7,996	5,025	59	8,729	5,879	48
Adjusted funds flow (\$/Boe)	4.55	2.79	63	1.26	0.84	50
Adjusted funds flow (\$/Mcfe)	0.76	0.47	62	0.21	0.14	50
Adjusted funds flow – basic and diluted
(\$/Common Share)	0.02	0.02	-	0.03	0.02	50

Operating and Corporate Netback

The Company considers operating netback to be a key indicator of profitability relative to current commodity prices. Operating netback and operating netback per Boe and per Mcfe are calculated as the sum of commodity sales and processing and gathering income, less royalties, transportation and operating expenses on an absolute and a per Boe or per Mcfe basis, respectively. Company management uses operating netback on a per Boe basis in operational and capital allocation decisions.

The Company considers corporate netback to be a key indicator of overall results. Corporate netback on an absolute dollar and corporate netback per Boe and per Mcfe are calculated as operating netback, less G&A and interest expense.

Pine Cliff uses these measures to assist in understanding the Company's ability to generate positive cash flow from operating activities at current commodity prices and it provides an analytical tool to benchmark changes in operational performance against prior periods. Readers are cautioned, however, that these measures should not be construed as an alternative to other terms such as earnings (loss) determined in accordance with IFRS as a measure of performance. Pine Cliff's method of calculating these measures may differ from other companies, and accordingly, it may not be comparable to measures used by other companies.

	Three months ended December 31,				Year ended December 31,
	2020	2019	\$ Change	2020	2019	\$ Change
(\$ per Boe, unless otherwise indicated)
Commodity sales	17.78	17.33	0.45	14.83	15.03	(0.20)
Processing and Gathering	0.74	0.56	0.18	0.60	0.48	0.12
Royalty expense	(1.34)	(1.56)	0.22	(0.90)	(0.80)	(0.10)
Transportation costs	(1.26)	(1.53)	0.27	(1.32)	(1.68)	0.36
Operating expenses	(9.84)	(10.64)	0.80	(10.49)	(10.78)	0.29
Operating netback	6.08	4.16	1.92	2.72	2.25	0.47
General and administrative	(0.76)	(0.66)	(0.10)	(0.72)	(0.73)	0.01
Interest and bank charges	(0.77)	(0.71)	(0.06)	(0.74)	(0.68)	(0.06)
Corporate netback	4.55	2.79	1.76	1.26	0.84	0.42
Operating netback (\$ per Mcfe)	1.01	0.69	0.32	0.45	0.38	0.07
Corporate netback (\$ per Mcfe)	0.76	0.47	0.29	0.21	0.14	0.07

Net Debt

The Company considers net debt to be a key indicator of leverage. Net debt is calculated as the sum of due to related party, subordinated promissory notes, term debt and trade and other payables less trade and other receivables, cash, prepaid expenses and deposits. See "DEBT, LIQUIDITY AND CAPITAL RESOURCES" section for table.

Net debt is not a recognized measure under IFRS and Pine Cliff's method of calculating this measure may differ from other companies, and accordingly, it may not be comparable to measures used by other companies.

FORWARD-LOOKING INFORMATION

Certain statements contained in this MD&A include statements which contain words such as "anticipate", "could", "should", "expect", "seek", "may", "intend", "likely", "will", "believe" and similar expressions, statements relating to matters that are not historical facts, and such statements of our beliefs, intentions and expectations about developments, results and events which will or may occur in the future, constitute "forward-looking information" within the meaning of applicable Canadian securities legislation and are based on certain assumptions and analysis made by us derived from our experience and perceptions. Forward-looking information in the MD&A and Annual MD&A includes, but is not limited to: expected production levels, expected processing and gathering income, expected operating costs, expected transportation costs, expected interest costs, royalty and G&A levels; future capital expenditures, including the amount and nature thereof; future drilling opportunities and Pine Cliff's ability to generate reserves and production from the undrilled locations; oil and natural gas prices and demand; expansion and other development trends of the oil and natural gas industry; business strategy and guidance; expansion and growth of our business and operations; amounts due to related party, subordinated promissory notes and due pursuant to term debt and repayment thereof; maintenance of existing customer, supplier and partner relationships; supply channels; accounting policies; risks; Pine Cliff's ability to generate cash flow from operating activities and adjusted funds flow; and other such matters.

All such forward-looking information is based on certain assumptions and analyses made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances. The risks, uncertainties and assumptions are difficult to predict and may affect operations, and may include, without limitation: foreign exchange fluctuations; equipment and labour shortages and inflationary costs; general economic conditions; industry conditions; changes in applicable environmental, taxation and other laws and regulations as well as how such laws and regulations are interpreted and enforced; the ability of oil and natural gas companies to raise capital; the effect of weather conditions on operations and facilities; the existence of operating risks; volatility of oil and natural gas prices; oil and gas product supply and demand; risks inherent in the ability to generate sufficient cash flow from operating activities to meet current and future obligations; increased competition; stock market volatility; opportunities available to or pursued by us; and other factors, many of which are beyond our control. The foregoing factors are not exhaustive.

Actual results, performance or achievements could differ materially from those expressed in, or implied by, this forward-looking information and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking information will transpire or occur, or if any of them do, what benefits will be derived there from. Except as required by law, Pine Cliff disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise.

Undrilled locations consist of drilling and recompletion locations booked in the independent reserve report dated February 10, 2021 prepared by McDaniel & Associates Consultants Limited and unbooked drilling and recompletion locations. Unbooked drilling and recompletion locations are internal estimates based on evaluation of geologic, reserves and spacing based on industry practice. There is no guarantee that Pine Cliff will drill these locations and there is no certainty that the drilling or completing of these locations will result in additional reserves and production or achieve expected internal rates of return. Pine Cliff activity depends on availability of capital, regulatory approvals, commodity prices, drilling costs and other factors.

Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of oil, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.

The forward-looking information contained in this MD&A is expressly qualified by this cautionary statement.

AI assistant

BZAM LTD. — Management Reports 2021

47394_rns_2021-03-09_9843e3a9-958c-483c-a2f0-83b1dc56f29c.pdf

INTRODUCTION

READER ADVISORIES

Other Measurements

2020 AND FOURTH QUARTER 2020 HIGHLIGHTS

SELECTED ANNUAL FINANCIAL INFORMATION

MANAGEMENT DISCUSSION AND ANALYSIS 2020

SENSITIVITIES

BENCHMARK PRICES

Quarterly Benchmark Prices

SALES VOLUMES

Realized prices

ROYALTY EXPENSE

TRANSPORTATION COSTS

OPERATING EXPENSES

GENERAL AND ADMINISTRATIVE EXPENSES ("G&A")

SHARE-BASED PAYMENTS

DEPLETION, DEPRECIATION, AND IMPAIRMENT

Property, Plant and Equipment ("PP&E") Impairment Assessment

Exploration and Evaluation Assets ("E&E") Impairment Assessment

FINANCE EXPENSES

DEFERRED INCOME TAX

CAPITAL EXPENDITURES, ACQUISITIONS AND DISPOSITIONS

DECOMMISSIONING PROVISION

DEBT, LIQUIDITY AND CAPITAL RESOURCES

Letter of Credit Facility

Due to Related Party

Term Debt

Liquidity and Capital Resources

Share Capital

COMMITMENTS AND CONTINGENCIES

QUARTERLY TRENDS AND SELECTED FINANCIAL INFORMATION

OFF BALANCE SHEET TRANSACTIONS

FINANCIAL INSTRUMENTS

Financial instruments and fair value measurement

RISK MANAGEMENT

Market Risk

Commodity Price Risk

Physical Sales Contracts

Interest Rate Risk

Equity Price Risk

Foreign Exchange Risk

Credit Risk

Liquidity Risk

RISK FACTORS

Environmental

Fiscal Environment

Operational

Regulatory Risks

Reserves

Safety

Staffing

CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATES

Novel Coronavirus COVID-19

Judgements

Cash Generating Units

Impairment indicators

Estimates

Reserves

Exploration and evaluation assets

Decommissioning provision

Share-based payments

Contingencies

CONTROL ENVIRONMENT

Disclosure controls and procedures

Internal control over financial reporting

NON-GAAP MEASURES

Adjusted Funds Flow

Operating and Corporate Netback

Net Debt

FORWARD-LOOKING INFORMATION

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BZAM LTD. Management Reports 2021