CALGARY, Alberta – (PIPE – TSX-V) Pipestone Energy Corp. (“Pipestone Energy” or the “Company”) is pleased to report its Q3 2020 financial and operational results, as well as provide an update to its development program and corporate guidance for 2021.
“I am extremely proud of the efforts of our team as we continue to safely navigate the global pandemic and its impact on oil prices,” said Paul Wanklyn, President and CEO. “The recently completed financing was an important step in enabling Pipestone Energy to resume its growth in production and cashflow in order to achieve critical mass. We have modified our capital spending profile to reflect some of the continued challenges our industry faces but we retain significant flexibility to accelerate our development pace in response to higher future commodity prices. The revised plan will continue to generate top-decile growth in both production and cashflow, while delivering strong full cycle returns on capital invested. Starting in 2022, Pipestone Energy is positioned to generate material free cash flow annually in excess of forecast maintenance and growth capital.”
THIRD QUARTER 2020 CORPORATE HIGHLIGHTS
- In September 2020 the Company successfully closed its convertible preferred share financing which provided net proceeds of $66.9 million, after all related transaction costs. The proceeds were used to immediately pay down existing bank debt and create additional available liquidity that will fund the Company’s development program;
- Production averaged 13,701 boe/d (comprised of 31% condensate and 48% total liquids) for the three months ended September 30, 2020, despite an unplanned third-party processing facility outage at the Keyera Wapiti Plant which spanned 38 days from August 17th to September 24th;
- As a result of modestly improved commodity pricing from Q2 2020, the Company generated revenue and adjusted funds flow of $31.7 million and $6.4 million, respectively, during the three months ended September 30, 2020. Adjusted funds flow does not include any accrual for the business interruption insurance claim filed by the Company in relation to the 38-day unplanned outage at the Keyera Wapiti gas plant; and
- During September 2020 the Company re-started its drilling program with 2 wells drilled and rig-released from the 3-12 pad. In the first week of October 2020 the Company rig-released 2 additional wells from the 3-12 pad that were in progress at September 30, 2020. Total drilling expenditures were $7.1 million for the quarter.
Pipestone Energy Corp. – Financial and Operating Highlights
|Three months ended September 30,
||Nine months ended September 30,
|($ thousands, except per unit and per share amounts)||2020||2019||2020||2019|
|Sales of liquids and natural gas||$||31,700||$||7,808||$||90,097||$||13,725|
|Cash from (used in) operating activities||660||(6,626||)||31,552||(20,188||)|
|Adjusted funds flow from (used in) operations (1)||6,359||(2,734||)||29,410||(13,820||)|
|Per share, basic (2)||0.03||(0.01||)||0.15||(0.07||)|
|Per share, basic and diluted (2)||(0.06||)||(0.01||)||(0.08||)||(0.00||)|
|Working capital (deficit) surplus (end of period)||(25,478||)||20,893|
|Bank debt (end of period)||120,477||156,983|
|Net debt (end of period) (1)||136,411||144,326|
|Shareholders’ equity (end of period)||356,355||382,687|
|Available funding (end of period) (1)||$||87,692||$||32,655|
|Annualized cash return on invested capital (CROIC) (%) (1)||6.2||%||NMN (5)||7.9||%||NMN (5)|
|Annualized return on capital employed
(ROCE) (%) (1)
|(1.3||%)||NMN (5)||0.0||%||NMN (5)|
|Shares outstanding (end of period) (2)||190,572||189,627|
|Weighted-average basic shares outstanding (2)||190,468||189,627||190,150||187,949|
|Weighted-average diluted shares outstanding (2)||190,468||189,627||190,150||187,949|
|Crude oil (bbls/d)||126||96||106||69|
|Other natural gas liquids (NGL) (bbls/d)||2,196||139||1,923||82|
|Total NGL (bbls/d)||6,461||1,155||6,257||613|
|Natural gas (Mcf/d)||42,683||7,298||50,876||4,011|
|Total (boe/d) (3)||13,701||2,467||14,842||1,351|
|Condensate and crude oil (% of total production)||32||%||45||%||30||%||44||%|
|Total liquids (% of total production)||48||%||51||%||43||%||50||%|
|Crude oil – WTI (C$/bbl)||$||54.48||$||74.52||$||51.39||$||75.82|
|Condensate – Edmonton Condensate (C$/bbl)||51.74||68.24||47.81||70.21|
|Natural gas – AECO 5A (C$/GJ)||2.15||0.96||1.99||1.49|
|Average realized prices (4)|
|Crude oil (per bbl)||44.94||61.87||35.66||55.07|
|Condensate (per bbl)||48.24||65.51||42.67||67.83|
|Other NGL (per bbl)||16.41||12.57||14.57||19.47|
|Total NGL (per bbl)||37.42||59.11||34.03||61.38|
|Natural gas (per Mcf)||2.28||1.46||2.20-||2.21|
|Revenue (per boe)||25.15||34.40||22.15||37.21|
|Royalties (per boe)||(0.87||)||(1.85||)||(0.53||)||(1.95||)|
|Operating expenses (per boe)||(10.26||)||(15.29||)||(10.77||)||(15.27||)|
|Transportation (per boe)||(3.80||)||(5.65||)||(3.57||)||(7.26||)|
|Operating netback (per boe) (1)||10.22||11.61||7.28||12.73|
|Adjusted funds flow netback (per boe) (1)||$||5.05||$||(12.04||)||$||7.23||$||(37.48||)|
|1)||See “Advisories Regarding Non-GAAP Measures” section of the MD&A dated November 11, 2020 and within this press release 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 that closed on January 4, 2019.|
|3)||For a description of the boe conversion ratio, see “Basis of Barrel of Oil Equivalent”. References to crude oil in production amounts are to the product type “tight oil” and references to natural gas in production amounts are to the product type “shale gas”. References to liquids include oil and natural gas liquids (including condensate, butane and propane).|
|4)||Figures calculated before hedging.|
|5)||NMN – not meaningful number at this time as Pipestone Energy had minimal production throughout the majority of 2019.|
|6)||Prior period production and average realized price figures have been adjusted to conform with current period presentation.|
UPDATED THREE-YEAR DEVELOPMENT PLAN (1)
Pipestone Energy has modified its three-year development plan to reflect a moderated growth profile in 2022 and 2023. This program is expected to generate free cash flow starting in 2022, while realizing positive returns on capital employed and continuing to organically grow production. The revised outlook includes a substantially smaller outspend of cash flow in 2021 and lower peak draws against the Company’s $225 million reserve based loan (“RBL”) than previously forecast, in addition to significant net debt reduction through 2022 and 2023.
|Full Year Production (boe/d)||24,000 – 26,000||33,000 – 35,000||37,000 – 40,000|
|Cash Flow (C$ million) (2)(3)||$120 – $130||$195||$220|
|Capex (C$ million) (4)||$145 – $155||$160||$165|
|Free Cash Flow(3)||($25)||$35||$55|
|YE Net Debt (C$ million) (3)||$200||$165||$110|
|YE RBL Draw (C$ million)||$175||$145||$90|
|LTM Debt / CF (x)||1.6x||0.8x||0.5x|
|1)||3-year plan as at November 2020, derived by utilizing, among other assumptions, historical Pipestone Energy production performance and current capital and operating cost assumptions held flat for illustration only. Budgets and forecasts beyond 2021 have not been finalized and are subject to a variety of factors and as a result forecast results for 2022 and 2023 may change materially. Where a range is not provided, guidance and forecast values represent the mid-point estimate.|
|2)||Price assumptions: 2021 = US$42 WTI; $2.50 AECO; $0.75 CAD | 2022+ = US$44 WTI; $2.50 AECO; $0.75 CAD.|
|3)||See “Advisories Regarding non-GAAP Measures”. Net debt excludes convertible preferred shares as there is no cash settled liability and includes adjusted working capital deficit.|
|4)||Capex includes all anticipated DCE&T, infrastructure and other capital expenditures, but excludes capitalized G&A.|
2021 Capital Program and Guidance
In 2021, Pipestone Energy will execute a continuous one-rig drilling program focused on development along the North-South gathering system. The Company expects to drill 23 and complete 21 new wells next year, with total forecast capital spending of $145 – $155 million (reduced from $210 million forecast previously), approximately 90% of which will be on drilling, completion, and equip & tie-in costs (“DCE&T”). Based on results achieved to date, the forecast average DCE&T cost per well in 2021 has been reduced from $6.0 million per well to $5.7 million, reflecting continued strong capital cost performance, including the average cost of $5.3 million per well on the recent 6-30 pad.
An estimated 27 new wells will be brought on production in 2021, including 6 wells from the in-progress 3-12 pad (completion in Q4 2020) and 3 wells from the 8-15 pad, which is currently drilling. Pipestone Energy’s production guidance range for 2021 remains unchanged at 24,000 – 26,000 boe/d. Given its concentrated asset base, existing multi-well pads, and in-field infrastructure, Pipestone Energy maintains the optionality to accelerate its development activity in response to an improving macro environment.
Drilling & Completions
Pipestone Energy commenced drilling 6 wells on the 3-12 pad in early September, with the final well rig released in mid-October. This pad demonstrates continued operational success, achieving a pacesetter average spud to rig release time of 14 days and average cost to drill was ~$1.9 million per well. The 6 wells averaged 2,650 meters in lateral length and were approximately 10% under budget. The 3-12 pad will be completed during November 2020, with equipping activities to proceed shortly thereafter and is expected to be on-stream in early January 2021.
During October, the Company began drilling the first of 3 wells on the 8-15 pad, which have an average lateral length of ~3,000 metres. These wells are expected to be completed in early January 2021 and are targeted to be on-stream in March 2021. Once drilling is complete at 8-15, Pipestone Energy expects to finish drilling 1 well (of 6) on an additional pad prior to year end.
Production & Well Results
During the third quarter, average third-party plant run-times for the Company were adversely impacted by the extended 38-day outage at the Keyera Wapiti gas plant during August and September. Since resuming processing in the final week of September, the Keyera Wapiti gas plant runtime has been greater than 95%. In early October, the compression capacity at 8-15 was increased from 60 MMcf/d to 90 MMcf/d of raw gas in order to handle growing production volumes through 2021. Based on field estimates, October 2020 production averaged approximately 18,000 boe/d (46% liquids, including 34% condensate).
During Q3 2020, Pipestone Energy intermittently brought 6 new wells from its 6-30 pad on-stream. Thus far, 5 wells on the pad have reached an IP30, with average condensate production over that period of ~519 bbl/d and raw gas production of ~2.3 MMcf/d, resulting in an average CGR of 225 bbl/MMcf. The 6-24 pad has now achieved an IP90 on all 6 new wells, with average condensate production over that period of ~558 bbl/d and raw gas production of ~3.4 MMcf/d, resulting in an average CGR of 164 bbl/MMcf.
Pipestone Energy remains committed to focusing on minimizing its emissions from operations through state-of-the-art facilities design. This includes the use of in-field fuel gas to partially displace diesel on drilling rigs and frac fleets. Pipestone Energy’s pad-sites are also designed for zero flaring during normal operating conditions. The Company expects to release its inaugural ESG report during 2021.
RISK MANAGEMENT UPDATE
Pipestone Energy continues to implement its robust commodity price hedging program to reduce volatility in expected future cash flows. Currently for full year 2021, the Company has ~41,750 GJ/d of AECO natural gas hedged at a weighted-average price of ~C$2.35/GJ, and 5,000 GJ/d for full year 2022 at ~C$2.49/GJ. Additionally, ~2,750 bbl/d of Canadian Dollar WTI is hedged at a weighed-average price of ~C$57/bbl. With the recent strengthening in Edmonton condensate pricing relative to WTI, Pipestone Energy has swapped 3,000 bbl/d of differentials in Q1 2021 at a net premium of ~US$0.17/bbl.
Q3 2020 Conference Call
A conference call has been scheduled for November 11th, 2020 at 9:00 a.m. Mountain Daylight Time (11:00 a.m. Eastern Daylight Time) for interested investors, analysts, brokers, and media representatives.
Conference Call Details:
Toll-Free: (866) 953-0776
International: (630) 652-5852
Conference ID: 4555285
An archived recording of the conference call will be available shortly after the event and will be available until November 18, 2020. To access the replay please dial toll free in North America (855) 859-2056 or International (404) 537-3406 and enter 4555285 when prompted.
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. 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.
Pipestone Energy Contacts:
President and Chief Executive Officer
Chief Financial Officer
|Dan van Kessel
VP Corporate Development