CALGARY, Alberta, Nov. 14, 2019 (GLOBE NEWSWIRE) — Pipestone Energy Corp. (“Pipestone Energy” or the “Company”) is pleased to report its Q3 2019 financial and operational results, provide an update on its production ramp-up, as well as an accelerated completion program within its capital guidance. The Company has filed its unaudited financial statements and related management’s discussion and analysis (“MD&A”) for the quarter ended September 30, 2019 on SEDAR. A conference call has been scheduled for Thursday, November 14 at 9:00 a.m. Mountain Daylight Time (11:00 a.m. Eastern Daylight Time) for interested investors, analysts, brokers and media representatives.
“I am extremely pleased to report that Pipestone Energy started production operations North of the Wapiti River into the new Keyera compression facility and Tidewater plant in September, earlier than originally forecast”, stated Paul Wanklyn, President and Chief Executive Officer.
“When we announced the formation of Pipestone Energy Corp, one year ago, we made some bold promises to our investors. Since that time, we have met or exceeded all of our expectations including;
- An ambitious development program to deliver a ten-fold production increase in 2019 with exit guidance of 14,000 to 16,000 boe/d. We remain on-track to meet or exceed this goal. During October, we estimate our sales production averaged approximately 11,400 boe/d, approximately half of which came from condensate and NGLs. This was produced despite normal third-party start-up challenges causing intermittent run-times at both facilities and restricted production. While only 14 wells have produced for more than 30 days since commissioning, producing wells are performing at our expectations.
- Our team has also done an exceptional job in stewarding capital throughout the year. Completion operations at our recent 9-14 pad achieved pacesetter performance at an average cost of $4.0 million per well for a 3,000-metre lateral. Pipestone infrastructure projects were also completed at lower than budgeted cost which, combined with the realized DCET cost efficiencies, has afforded Pipestone the opportunity to accelerate the completion of six wells on the 6-24 pad from Q1 2020 into the 4th quarter of 2019, while remaining within our capital guidance ceiling of $155 million.
In summary, our team has done an excellent job in achieving our key development milestones in 2019. Our initial production comes from three pad-sites approximately 10 kilometres apart, giving us high confidence in the quality of the resource across our core area. All aspects of the business plan remain on track to meet or exceed expectations including the generation of compelling full-cycle returns on capital in the next 12 months.”
THIRD QUARTER 2019 CORPORATE HIGHLIGHTS
- The Company commenced production ramp-up into the Keyera Corporation (“Keyera”) Pipestone Compressor Station and Tidewater Midstream and Infrastructure Ltd. (“Tidewater”) Pipestone Gas Plant with average production of ~4,700 boe/d (46% condensate, 53% total liquids) over the full month of September. Subsequent to the end of the third quarter, field estimates of sales production for the month of October are approximately 11,400 boe/d (43% condensate, 50% total liquids), which includes approximately 450 boe/d attributable to partial month production from legacy wells into the Gold Creek facility south of the Wapiti River. For the month of October, condensate-gas-ratios (“CGR”) as measured at the wellhead, averaged 152 bbl/MMcf from the 3-1 pad, and 82 bbl/MMcf from the 15-14 pad. During its first 20 calendar days of production, the CGR from the 6-24 pad averaged 237 bbl/MMcf. These early results are in-line with the Company’s expectations and support the medium-term development focus north of the 3-1 pad along Pipestone Energy’s completed in-field gathering system;
- During Q3, the Company entered into a $30 million midstream transaction with Tidewater. The transaction will provide the capital required to construct the East Battery. The initial $14 million of capital received by Pipestone Energy from the sale of the equipment to Tidewater in mid-August was allocated to accelerate a three-well completion program at the 9-14 pad in the Eastern portion of the acreage position in late Q3 2019. The approximately $16 million remaining balance will be funded by Tidewater in installments as construction commences after break-up in mid-2020;
- During Q3, Pipestone Energy successfully completed 3 wells (3 net) with an average lateral length of approximately 3,000 metres at its 9-14 pad-site. These wells were completed utilizing limited entry (“XLE”) high intensity plug and perf designs with proppant loading of 2.5 T/M and are scheduled to be brought on-stream in early 2020. The completion costs incurred in Q3 2019 with respect to these wells were $4.0 million per well;
- In early September, drilling operations commenced at the 6-24 pad-site. A total of six wells are being drilled on the 6-24 pad this fall. Two wells were drilled, and rig released in September, the remaining four wells are expected to be drilled in Q4 2019. Afterwards, the rig will be moved to the 6-30 pad and commence drilling out another six well pad, two of which are estimated to be rig released prior to year end. Completion of the six new wells on the 6-24 pad are being accelerated into Q4 2019 from Q1 2020 within the previously disclosed 2019 capital guidance ceiling of $155 million; and
- Pipestone Energy continued its robust commodity price risk management program, which is primarily designed to reduce cash flow volatility, enhance certainty regarding funding availability for the Company’s capital expenditure program, and service debt.
Pipestone Energy Corp. – Financial and Operating Highlights
|Three months ended September 30,||Nine months ended September 30,|
|($ thousands, except per unit and per share amounts)||2019||2018||2019||2018|
|Sales of liquids and natural gas||$||7,808||$||–||$||13,725||$||1,569|
|Cash used in operating activities||(6,626||)||(361||)||(20,188||)||(378||)|
|Funds flow from (used in) operations (1)||(2,734||)||(512||)||(13,820||)||100|
|Per share, basic and diluted (2)||(0.01||)||(0.01||)||(0.07||)||0.00|
|Per share, basic and diluted (2)||(0.01||)||(0.03||)||(0.00||)||(0.05||)|
|Working capital (end of period)||20,893||10,332|
|Bank debt (end of period)||156,983||52,187|
|Shareholders’ equity (end of period)||382,687||85,661|
|Available funding (end of period) (3)||$||32,655||$||16,560|
|Cash return on invested capital (CROIC) (%) (3)||NMN (7)||NMN (7)||NMN (7)||NMN (7)|
|Return on capital employed (ROCE) (%) (3)||NMN (7)||NMN (7)||NMN (7)||NMN (7)|
|Shares outstanding (end of period) (2)||189,627||52,782|
|Weighted-average basic shares outstanding (2)||189,627||52,782||187,949||52,782|
|Weighted-average diluted shares outstanding (2)||189,627||52,782||187,949||52,782|
|Condensate and crude oil (bbls/d)||1,112||–||600||97|
|Natural gas liquids (NGL) (bbls/d)||139||–||82||–|
|Natural gas (Mcf/d)||7,298||–||4,011||–|
|Total (boe/d) (4)||2,467||–||1,351||97|
|Condensate and crude oil (% of total production)||45||–||44||100|
|Total liquids (% of total production)||51||–||50||100|
|Crude oil – WTI (C$/bbl)||$||74.52||$||79.52||$||75.82||$||83.62|
|Condensate – Edmonton Condensate (C$/bbl)||68.24||80.30||70.21||83.37|
|Natural gas – AECO 5A (C$/GJ)||0.96||1.19||1.49||1.43|
|Average realized prices (5)|
|Condensate and crude oil (per bbl)||65.17||–||66.36||59.50|
|NGL (per bbl)||12.57||–||19.43||–|
|Natural gas (per Mcf)||1.46||–||2.21||–|
|Revenue (per boe)||34.40||–||37.21||59.50|
|Royalties (per boe)||(1.85||)||–||(1.95||)||(4.19||)|
|Operating expenses (per boe)||(15.29||)||–||(15.27||)||(9.80||)|
|Transportation (per boe)||(5.65||)||–||(7.26||)||–|
|Operating netback (per boe) (3)||11.61||–||12.73||45.51|
|Funds flow netback (per boe) (3)||$||(12.04||)||$||–||$||(37.48||)||$||3.73|
All defined terms are references to Pipestone Energy Corp.’s Q3 2019 Management Discussion & Analysis.
(1) See “Additional subtotal – Funds flow from operations” under “Critical Accounting Judgments, Estimates and Policies” in the Q3 2019 Management Discussion & Analysis and see Advisories for further details.
(2) The number of common shares has been adjusted retrospectively to reflect the 10:1 share consolidation, as well as the 0.5996 exchange ratio, as part of the Corporate Acquisition.
(3) See “Non-GAAP measures” in the Q3 2019 Management Discussion & Analysis and see Advisories for further details.
(4) For a description of the boe conversion ratio, see “Basis of Barrel of Oil Equivalent”.
(5) Figures calculated before hedging.
(6) IFRS 16, Leases, was adopted on January 1, 2019 using the modified retrospective approach; therefore, comparative information was not restated. See “Critical Accounting Judgments, Estimates and Policies”.
(7) NMN – not meaningful number at this time as Pipestone Energy was at a pre-production stage.
2019 CAPITAL PROGRAM AND OPERATIONS UPDATE
Pipestone Energy is forecast to complete the previously disclosed scope of its 2019 capital program well under its capital guidance range of $145 to $155 million. As a result, the Company has elected to accelerate the completion of six wells on its 6-24 pad from Q1 2020 into December 2019 with approximately $20 million of the capital costs to be incurred prior to year-end. These wells will be equipped and brought on production during Q2 2020. The resulting net capital guidance for 2019 remains within the top-end of our previously announced 2019 guidance at approximately $155 million. The Company expects to release its 2020 production, cash flow and capital guidance in late January 2020.
Pipestone Energy Montney Operated Horizontal Well Status Summary
|Dec 31, 2019
|North of Wapiti River (1)
(Keyera Wapiti & Tidewater Pipestone Processing Facilities)
|Drilled + Completed||26||32|
|Tied-In / Available for Production||20||20|
|South of Wapiti River (1)
(CNRL Gold Creek Processing Facility)
|Drilled + Completed||9||9|
|Tied-In / On-Production||8||8|
(1) Tied-In / Available for Production is a subset of the Drilled + Completed category which is a subset of the Drilled category.
(2) Excludes the 12-36 delineation well.
Initial Production Results:
In late August 2019, Pipestone Energy completed installation of the necessary facilities to produce from the 15-14 (10 wells) and 3-1 (9 wells) pads. The single 5-26 well, which is located on the 6-24 pad, was tied-in and available for production in late October, resulting in 20 wells currently on or available for production North of the Wapiti River. Beginning in mid-September, Pipestone Energy commenced initial start-up production from wells located North of the Wapiti River at both the 15-14 and 03-01 pad-sites. September production from these two pads averaged ~4,700 boe per calendar day for the full month (comprised of 46 percent condensate and 53 percent total liquids). The start-up of these pad-sites coincided with the commissioning of the Keyera Pipestone Compressor Station and the Tidewater Pipestone Sour Gas Plant. Normal start-up challenges experienced during the commissioning of these third-party processing facilities resulted in disruptions and limitations to Pipestone Energy’s production and had caused shrinkage rates in excess of typical plant operating conditions.
In October 2019, based on field estimates, total Company sales volumes averaged approximately 11,400 boe/d (comprised of 43 percent condensate and 50 percent total liquids), approximately 450 boe/d was attributable to production from South of the Wapiti River which was restarted mid-October. North of the Wapiti River production in October continued to be affected by significant third-party facility downtime and other capacity restrictions. The early results observed by Pipestone Energy are in-line with the Company’s expectations and support the medium-term development focus north of the 3-1 pad along Pipestone Energy’s completed in-field gathering system.
All 20 tied-in wells North of the Wapiti River have been tested and produced since start-up, but at no point have all the tied-in wells produced simultaneously. Based on the observed production performance to date, the Company is re-affirming its 2019 exit guidance of 14,000 – 16,000 boe/d for average December production.
Drilling & Completions:
Pipestone Energy is currently drilling 6 wells on the 6-24 pad with the final well expected to rig release in late November. Drilling operations are going extremely well with new pacesetter results on one of the wells, which achieved a drill cost of $1.85 MM and a spud to rig release time of 13.3 days. Following the 6-24 pad, the rig will move to the 6-30 pad to commence drilling 6 wells, 2 of which should be rig released prior to year end.
Pipestone Energy successfully completed 3 wells (3 net) with an average lateral length of approximately 3,000 metres at its 9-14 pad-site. These wells were completed utilizing high intensity XLE plug and perf designs with proppant loading of 2.5 T/M and will be brought on-stream in early 2020. The completion costs excluding capital related to science oriented special analysis and extended flow test capital were $4.0 million per well.
Completions operations on the 6-24 pad are expected to commence in early December. These wells will be completed utilizing a similar frac design to the 9-14 pad, and with an average of 7,500 tonnes per well. Operations are expected to be finished by mid-December with remaining work, including initial flowback operations, to resume in early January.
During and subsequent to the third quarter, the Company took advantage of recent increases in future Canadian natural gas pricing (“AECO”) to layer on a meaningful hedge position for Q4 2019 and 2020, weighted towards the typically volatile summer months. Pipestone Energy has 35,000 gigajoules (“GJ”) per day hedged at a weighted average swap price of C$1.60 per GJ for next summer, which compares favourably to April to September 2019, where AECO averaged ~C$1.14 per GJ. These gas hedges, coupled with 3,300 barrels per day of oil hedged for 2020 at approximately CAD $79 per barrel, are expected to reduce cash flow volatility and support the Company’s development objectives for 2020.
Since closing the successful merger with Blackbird on January 4th, 2019, the Company has met all of the critical development and capital expenditure milestones required to achieve its 2019 exit production guidance of 14,000 to 16,000 boe per day for December 2019. The commissioning of the third-party processing facilities and the September start-up of the North of the Wapiti River production ahead of schedule reaffirms this guidance.
The Company’s 2019 net capital investment program continues to be on-track, on-time, and has been achieved under budget. Based on this performance, Pipestone Energy is accelerating six completions at its 6-24 pad-site into December 2019 from Q1 2020. The planned capital expenditures to be incurred in 2019 towards these six completions is approximately $20 million. The resulting net capital guidance for 2019 remains within the top-end of our previously announced 2019 guidance at approximately $155 million. The 2019 capital program has been focused on drilling, completing, and tying-in condensate-rich Montney wells, and on the build-out of the required infrastructure that will enable Pipestone Energy to grow efficiently in future years. Based on the infrastructure build-out completed in 2019, Pipestone Energy has the capacity to grow its production to approximately 33,000 boe/d without incurring additional significant infrastructure expenditures. Consequently 2020 capital guidance, which is expected to be released by the end of January 2020, will be primarily weighted towards drilling and completion activity.
Pipestone Energy is in the initial stage of executing a multi-year development strategy that is focused on generating top decile, full-cycle investment returns and exceed cashflow generation hurdles based on a flat future price deck of US$55 per bbl WTI crude oil. Given its current outlook on commodity prices, and the actions taken to capture these prices through its hedging program, Pipestone Energy is confident it can meet its future development objectives.
|Conference Call November 14, 2019|
|9:00 a.m. MT (11:00 a.m. ET)|
|Pipestone Energy will host a conference call on November 14, 2019, starting at 9:00 a.m. MT (11:00 a.m. ET). To participate please dial toll free in North America (866) 953-0776 or International (630) 652-5852 and enter 3363228 when prompted.|
|An archived recording of the conference call will be available shortly after the event and will be available until November 21, 2019. To access the replay please dial toll free in North America (855) 859-2056 or International (404) 537-3406 and enter 3363228 when prompted. The conference call will also be archived on the Pipestone Energy Corp website at www.pipestonecorp.com.|