CALGARY, Alberta – (PIPE – TSX-V) Pipestone Energy Corp. (“Pipestone Energy” or the “Company”) announces reduced guidance in response to current commodity prices, an update on capital efficiencies achieved and encouraging early production results from its 6-24 pad. A conference call is scheduled for Thursday, March 12 at 9:00 a.m. Mountain Daylight Time (11:00 a.m. Eastern Daylight Time) for interested investors, analysts, brokers and media representatives.
“As a company, Pipestone Energy has responded quickly and appropriately to the decline in oil prices by materially decreasing capital spending in 2020 with minimal impact to full year production guidance. This demonstrates the quality of our asset base and the sustainability of the Company’s business model. As rapidly as we responded to the decrease in commodity prices, Pipestone Energy is well situated to resume its growth trajectory as pricing recovers.” stated Paul Wanklyn, President and CEO of Pipestone Energy.
2020 CAPITAL PROGRAM AND OPERATIONS UPDATE
In response to the dramatic decline in crude oil pricing, as a result of the COVID-19 virus’ negative impact on global demand and the failure of OPEC and Russia to reach an agreement on production cuts, Pipestone Energy is proactively protecting its balance sheet by reducing its forecasted annual capital spending program from $145 – $155 million to $55 – $65 million. The capital reduction results in a modest change to Pipestone Energy’s 2020 previous production guidance from 18,000 – 20,000 boe/d to 17,000 – 18,000 boe/d. Exit production guidance is also reduced from 20,000 – 22,000 boe/d to 16,000 – 17,000 boe/d, as a direct result of the deferral of one pad (6 wells) being brought on production this year. At a revised forecast price deck of US$40 per barrel WTI and C$1.75 per GJ AECO, the Company expects to generate corporate cash flow of $55 – $65 million. Through a combination of swaps and collars, the Company has ~3,200 bbl/d of CAD denominated WTI oil hedged at ~C$79 per barrel during H1 2020, which represents more than 60% of its forecast after-royalties condensate production for that period.
The focus of Pipestone Energy’s development in 2020 is concentrated in areas with the highest projected condensate content and deliverability. During 2020, the Company will bring 12 new wells on production from 2 pads. The first pad at 6-24 was completed in December 2019, with some carry-over expenditures into Q1 2020 and brought on initial production earlier this month. The final well of six is currently being drilled on the 6-30 pad, with completion operations scheduled for Q2 2020 and projected on-stream timing of Q3 2020. Once drilling has finished on the 6-30 pad next week, the Company plans to suspend drilling operations. In 2020, Pipestone Energy is deferring approximately $70 million in drilling & completion related capital, approximately $15 – 18 million of infrastructure and miscellaneous capital and expects to realize between $2 – 3 million in aggregate cost savings on DCE&T capital incurred due to expected efficiencies.
Pipestone Energy’s previous 2020 Capital Guidance was predicated on a single drilling rig being utilized continuously for the full year. To the extent oil prices recover in H2 2020, the Company has the optionality to resume drilling operations and accelerate its development trajectory by utilizing two rigs per pad and deploying two frac crews for completions as Pipestone Energy did successfully in December 2019. Utilizing two drilling rigs and two completion crews per pad significantly shortens cycle times, allowing for a timely response to improving market conditions. Preservation of Pipestone Energy’s strong balance sheet is paramount to our go forward strategy and we will continue to allocate capital to those projects that yield the highest possible returns.
As of December 31, 2019, Pipestone Energy was drawn ~$163 million on its Reserve Based Loan (“RBL”) and had adjusted working capital (incl. cash) deficit of $6 million. As of this release, the Company has a net draw of approximately $153 million on its RBL. The RBL has current available capacity of $225 million and includes a $25 million (increase) accordion feature, subject to mutual consent of the lenders.
Initial Production Results from 6-24 Pad:
In early March 2020, Pipestone Energy began bringing on newly completed wells from its 6-24 pad. As of this release, 3 of the 6 new wells have been brought on production, with the remaining wells to be brought on in the coming weeks. The average first 5 day production rates per well through permanent facilities are 1,530 bbls/d of wellhead condensate and 4.2 MMcf/d of raw natural gas(1), which results in a condensate-gas-ratio (“CGR”) of 365 bbl/MMcf. The next pad to be placed on production is 6-30 (6 wells) in early Q3 2020, which is located directly north of the 6-24 pad.
Capital Efficiency Improvements:
Drilling costs continue to improve with each development pad as Pipestone Energy continues to optimize its drilling designs and programs. The first 5 of 6 wells being drilled on the 6-30 pad have an average lateral length of 2,400 metres and achieved average realized drilling cost of approximately ~$2.0 million per well (sixth well is drilling) as compared to the Company’s $2.3 million type well cost. The fifth well at 6-30 was a pacesetter for the company, which achieved a spud to TD time of <10 days, and a drilling cost of $1.6 million.
On the recently tied-in 6-24 pad, Pipestone Energy achieved its target equipping cost of $0.8 million per well, down from its previous estimate of $1.2 million. As a result of further pad facility design improvements, the Company has set a further improved target of $0.6 million per well at future pad-sites.
In aggregate, we expect the all-in DCE&T cost on the 6-30 pad to achieve a corporate record $6.5 million per well (2,400m lateral and ~2.5 T/M proppant loading), which compares to Pipestone Energy’s type well cost of $7.1 million (2,500m lateral and 2.5 T/M proppant loading).
Fourth Quarter and Full Year 2019 Key Highlights:
Production for the three months and year ended December 31, 2019 was 14,885 boe/d(1) (comprised of 36% condensate and 43% total liquids) and 4,762 boe/d (comprised of 38% condensate and 45% total liquids), respectively, despite third-party processing facility challenges, including curtailment and intermittent run-times, experienced through-out the quarter. The Company successfully exceeded its 2019 exit guidance of 14,000 – 16,000 boe/d with ~17,000 boe/d (1) average production in December.
The Company realized significant cost savings on its 2019 capital program, allowing it to accelerate the 06-24 completions into 2019 within its capital guidance. Net capital spending in 2019, including acquisitions and net of dispositions, was $148.4 million.
Fourth Quarter and Year-End 2019 Financial Statements
Upon the finalization of its analyses and implementation with respect to IFRS 16 – Leases, the Company expects to file its fourth quarter and year-end 2019 audited financial statements, accompanying Management’s Discussion and Analysis, and Annual Information Form before March 31, 2020.
In response to the current commodity price weakness which has been exacerbated by threats of the spread of the COVID-19 virus slowing the world economy, and OPEC and Russia’s failure to reach agreement on production cuts, Pipestone Energy has decided to significantly reduce its 2020 capital spending program. Despite this, Pipestone Energy is well positioned to deliver a combination of year-over-year production growth and generate top-decile returns on capital employed, while maintaining a solid balance sheet with sufficient available liquidity. This year’s development expenditures are concentrated around what are the most condensate-rich results realized to date by the Company and will be weighted approximately 85% to half-cycle DCE&T expenditures. The 2020 capital program will still deliver substantial year-over-year production growth of 20% from Q4 2019 to Q4 2020, despite the substantial pullback in the capital program.
(1) As compared to the previously disclosed estimate of ~15,100 boe/d (Jan 16, 2020 news release), Pipestone Energy experienced a large unexpected build in its condensate inventory at the Keyera Wapiti Plant, which resulted in ~310 bbl/d lower than anticipated condensate sales volumes in December. Liquids production refers to production of condensate and other NGLs and tight oil. Our production of tight oil comprised ~1% of our production for the year-ended 2019 and less than 1% of our production for the three months ended December 31, 2019. All production that is not liquids production is of the product type shale gas. We refer to condensate separately from other NGLs as the price of condensate is significantly higher than other NGLs.
|Conference Call March 12, 2020
9:00 a.m. MT (11:00 a.m. ET)
|Pipestone Energy will host a conference call on March 12, 2020, 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 7376048 when prompted.
An archived recording of the conference call will be available shortly after the event and will be available until March 19, 2020. To access the replay please dial toll free in North America (855) 859-2056 or International (630) 652-5852 and enter 7376048 when prompted. The conference call will also be archived on the Pipestone Energy Corp website.at www.pipestonecorp.com.
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. Additionally, the Company is highly committed to be an environmental steward by reducing emissions from its operations through the use of bi-fuel and other carbon reducing strategies. Pipestone Energy shares trade under the symbol PIPE on the TSX Venture Exchange. For more information, visit www.pipestonecorp.com.