CALGARY – (PIPE – TSX-V) Pipestone Energy Corp. (“Pipestone Energy” or the “Company”) is pleased to provide an update to our operations as well as the release of our 2020 guidance and development plan.
“I am very pleased to announce that Pipestone Energy produced approximately 17,700 boe/d during December 2019, well in excess of the top-end of our 2019 exit guidance. Well performance has been strong and in-line with our type curve expectations. Our 2020 capital program is 85% weighted to DCE&T expenditures with development concentrated in areas where we expect to realize the highest condensate yields. Exit 2020 production is forecast to grow by approximately 20% over exit 2019, while maintaining a strong balance sheet with a target exit debt to last twelve months EBITDA ratio of less than 1.5x.” stated Paul Wanklyn, President and CEO. “This year’s development places us firmly on a path to fill our installed in-field infrastructure capacity of 33,000 boe/d and generate attractive returns on capital employed over the foreseeable future.”
Q4 and Exit 2019 Production Volumes:
Based on field estimates, Pipestone Energy production averaged 17,700 boe/d (~37% liquids) during December 2019, successfully exceeding its exit 2019 production guidance of 14,000 to 16,000 boe/d. Average Q4 2019 volumes were approximately 15,100 boe/d (~41% total liquids).
On-stream performance of the new 3rd party infrastructure in late Q3 2019 through Q4 2019 was intermittent while commissioning, leading to significant variability and pad production restrictions. Notwithstanding the infrastructure challenges, aggregate performance from the 20 new wells brought on during 2019 are meeting type curve expectations. On the 3-1 pad (9 wells), over the first 90 days of production (“IP90”), the average well produced ~1,045 boe/d (sales) with a raw gas condensate-gas-ratio (“CGR”) of 108 bbl/MMcf with consistent liquids yields in the Montney ‘B’ and ‘C’. On the 15-14 pad (10 wells), the average well IP90 production rate was ~910 boe/d (sales). The 15-14 pad was the first pad brought on-stream and was disproportionately affected by the 3rd party infrastructure start-up. The average well has produced ~975 boe/d (sales) over the latest 30 producing days. The 15-14 pad has a higher CGR gradation between the Montney benches as compared to the 3-1 pad. The Montney ‘B’ wells (5) on this pad have liquids ratios performing at type curve expectations, with an average IP90 raw gas CGR of 82 bbl/MMcf, while the Montney ‘C’ wells (4) averaged 35 bbl/MMcf over the same period. Thus far, gas productivity from the 15-14 pad Montney ‘C’ wells are outperforming type curve expectations. The single producing well on the 6-24 pad, which was completed in early 2017 utilizing a low intensity frac design, averaged ~1,260 boe/d (sales) over its first 45 producing days with a cumulative raw gas condensate-gas-ratio (“CGR”) of ~160 bbl/MMcf. The focus of Pipestone Energy’s 2020 development program will be in the northwest area and adjacent to our existing gathering systems offsetting the Company’s highest liquids yields observed to date.
In December, the Company has successfully completed six wells drilled at its 6-24 pad-site using Pipestone’s limited entry or “XLE” design, with an average lateral length of 2,600 metres, and an average proppant loading of 2.9 T/M. These wells were completed at an average total cost of $4.0 million per well. All six wells will be tied-in and on-stream at the end of Q1 2020. An optimized equip & tie-in design on the 6-24 pad is estimated to reduce facility costs from $1.2 million to $0.8 million per well. As a result of these savings, Pipestone Energy is reducing its type well capital cost from $7.5 million to $7.1 million going forward (for a 2,500-metre lateral length well). These incremental cost savings further demonstrate the Company’s track record of reducing well costs while increasing frac intensity; total well costs have been improved by $2.6 million from the initial type well estimate of $9.7 million (~27% savings) since early 2019.
On the 6-30 pad, the Company set surface casing for six new wells during December 2019 and is currently drilling the second well on the pad. Drilling is expected to finish by the end of Q1 2020, with completions to follow during Q2 2020.
Additional Keyera Wapiti Gas Plant Capacity:
In response to growing production expectations, on January 14th, 2020, the Company exercised its option to secure an additional 30 MMcf/day of Priority 1 natural gas gathering, compression, and processing capacity at the Keyera Wapiti Plant beginning in Q4 2020. The additional compressor required to expand the existing 8-15 compressor station will be supplied by Keyera and a significant portion of the facilities work necessary to expand the site was pre-built in 2019. This agreement secures a total of 90 MMcf/d of priority one access to the Keyera Wapiti plant in addition to its existing 30 MMcf/d of priority one access through the Tidewater Pipestone plant for a total of 120 MMcf/d beginning in Q4 2020. Pipestone’s gas plant take-or-pay commitment with Keyera will increase with this additional capacity to 72 MMcf/d in April 2021, from 24 MMcf/d currently. This represents an important step in the continued growth of Pipestone Energy.
|Full Year Production||18,000 boe/d||–||20,000 boe/d|
|% Liquids||40 – 45%||–||40 – 45%|
|Exit Production (1)||20,000 boe/d||–||22,000 boe/d|
|Capital Spending||$145 million||–||$155 million|
|Cash Flow (2)||$125 million||–||$135 million|
- Exit production defined as December 2020 average production.
- Cash flow is net of general & administrative and estimated interest costs. Incorporates the following price deck to forecast cash flow: US$57.50 WTI, C$1.75/GJ AECO. Cash Flow is a non-GAAP measure, please see the Advisory Regarding Non-GAAP measures for further details.
Pipestone Energy’s 2020 budget aims to deliver significant year-over-year production growth while maintaining a strong balance sheet. The Company remains focused on efficient capital deployment with a measured growth trajectory that is expected to result in peer leading corporate returns. The focus of Pipestone Energy’s development in 2020 is concentrated in areas of the acreage with the highest projected liquids content and deliverability, while maximizing efficiencies by taking advantage of existing pads and infrastructure.
With the 2019 construction of its in-field gathering system capable of handling ~33,000 boe/d, Pipestone Energy’s capital program is primarily weighted to half-cycle development economics until this capacity is reached. The 2020 capital budget is comprised of ~85% drilling, completion and equip & tie-in expenditures. Included in the remaining capital are downhole frac and production diagnostic tools to better understand and optimize the Company’s completion approach going forward. As well, incremental in-field water management and other infrastructure optimization projects are being executed.
Expected Development Activity Summary:
|# Wells Drilled
|# Wells Completed||# New Wells on Production||DUCs at Year End|
- The Company drilled six surface holes on the 6-30 pad in Q4 2019, with all six wells to be rig released in 2020.
- Six fracs on the 6-24 pad were pumped in Q4 2019, with approximately 20% of the completion capital incurred in early Q1 2020.
The Company continues to implement a robust risk management program to reduce the volatility of its expected cash flows. At the mid-point of its guidance range, Pipestone Energy has approximately 49% of its net after-royalties production hedged for 2020. The weighted average 2020 crude oil swap price is approximately C$79 per barrel and for AECO natural gas is approximately $1.78/Mcf, with hedged gas volumes weighted towards the more volatile summer months of April – October.
Pipestone Energy is well positioned to deliver a combination of attractive year-over-year production growth while generating robust returns on capital employed and maintaining a solid balance sheet. This year’s development expenditures are concentrated around the most condensate-rich results realized to date and weighted 85% to half-cycle DCE&T expenditures. At the mid-point, projected exit production represents growth of ~20% over 2019 exit production, which puts the Company firmly on the path to fill its installed in-field infrastructure capacity of 33,000 boe/d over the next two years.
Pipestone Energy Corp.
Pipestone Energy Corp. is an oil and gas exploration and production company with its head office located in Calgary, Alberta. The company is focused on developing its pure-play condensate-rich Montney asset in the Pipestone area near Grande Prairie, Alberta. Pipestone Energy is committed to building long term value for our shareholders and values the partnerships that it is developing within its operating community. Pipestone Energy shares trade under the symbol PIPE on the TSX Venture Exchange. For more information, visit www.pipestonecorp.com.