CALGARY, Alberta – (PIPE – TSX) Pipestone Energy Corp. (“Pipestone” or the “Company”) is pleased to provide an update on its production and operations, as well as report its year-end 2020 independent reserves evaluation prepared by McDaniel & Associates Consultants Ltd. (“McDaniel”) with an effective date of December 31, 2020 (the “McDaniel Report”).
Since inception, Pipestone has continued to demonstrate leadership in combining capital cost efficiencies with highly productive wells in the condensate-rich Alberta Montney play. This is reflected in the past year’s significant growth in reserve volumes and continued reduction in future development costs (“FDC”).
2020 Reserve Highlights:
- Pipestone delivered 71% growth in Proved Developed Producing (“PDP”) reserves with a strong recycle ratio of 2.0 times(1). This was achieved during a very challenging year for industry cashflows and capital spending with WTI averaging ~US$39 per barrel and significant volatility in condensate differentials.
- The Company also increased Proved plus Probable reserve volumes by 24% to 228 MMboe, while the associated FDC decreased 16% to $936 million.
Recent Operations Highlights:
- Record Production Volumes: Q4 2020 production averaged 17,734 boe/d (31% condensate, 44% total liquids), the highest quarterly production since inception, and January 2021 production averaged approximately 20,211 boe/d (33% condensate, 46% total liquids);
- 2020 Production Guidance Achieved: 2020 production averaged 15,570 boe/d (30% condensate and 43% total liquids) during our first full year of meaningful operations versus guidance of 15,000 – 16,000 boe/d;
- Lower Montney Test: In January 2021, Pipestone brought on-stream a new Lower Montney well at the 3-12 pad. The 100/05-14-71-8W6 well is 10 km north of our first Lower Montney test and achieved an IP30 rate of 3.3 MMcf/d of raw natural gas and 573 bbl/d of wellhead condensate with an average CGR of 175 bbl/MMcf. This well result is very encouraging and de-risks Lower Montney drilling in the surrounding acreage. This result will be factored into our stacked bench development approach going forward;
- Eastern Step Out Well: In December 2020, Pipestone brought on-stream the 100/03-16-71-7W6 well, previously drilled and completed in 2017, on our 14-4 pad, approximately 5 km east of our main gathering pipeline corridor. The well was drilled in the Montney ‘B’ formation with a short 1,800 metre lateral length. This well produced at an IP60 of 3.0 MMcf/d of raw natural gas and 329 bbl/d of wellhead condensate with an average CGR of 109 bbl/MMcf. These initial results are an important economic validation for our eastern acreage and additional wells from this pad are being incorporated into the development plan;(1) 2020 annual production volumes, capital expenditures and operating netbacks referenced throughout this press release are unaudited.
- Continued Capital Efficiency Gains: The most recent three well pad at 8-15, with an average lateral length of ~3,100 metres, achieved a new pacesetter cost for drilling and completions on a per metre and per tonne placed basis.
Operations Update:
Updated Pipestone Capital Program Map:
A photo accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/350664c8-dd36-4ddb-872f-b102dbf587e1
Production & Facilities:
During Q4 2020, production averaged 17,734 boe/d (31% condensate, 44% total liquids)(1), a quarterly record for Pipestone. During January 2021, production averaged approximately 20,211 boe/d (33% condensate, 46% total liquids)(1) based on field estimates as the six well 3-12 pad was gradually brought on production during the month. January 2021 is the first month Pipestone has exceeded the 20,000 boe/d milestone. In addition to the Lower Montney well previously mentioned at 3-12, the five new Montney B wells are producing at type curve expectations.
(1) See “Advisories” for a further breakdown of constituent production components.
The wellsite facilities for the drilled and completed three well 8-15 pad is currently under construction with expected start-up prior to the end of February.
Additionally, on January 15, 2021 Pipestone commissioned its water disposal and enhanced flow-splitting facility at 3-12. This facility increases Pipestone’s fluid handling capacity while removing existing bottlenecks within the Pipestone gathering system. The facility also enhances the Company’s flexibility to direct flow between different processing facilities and will reduce operating costs.
Drilling & Completions:
Pipestone continues to demonstrate cost reductions in its drilling and completions program. During Q4 2020, the Company completed six wells on its 3-12 pad for an average cost of $3.1 million (2,650 metre lateral length & 2.4 T/M proppant loading). Including the pad-site facilities, all-in DCE&T costs for this pad are $5.4 million per well.
Our most recent pad at 8-15 drilled in late 2020 had an average lateral length of 3,094 metres at a drilling cost of $2.2 million per well. The three wells were completed in January utilizing a proppant intensity of 2.5 T/M for a capital cost of $3.2 million per well. The 8-15 pad is a new pacesetter for Pipestone at a drilling cost of $378 per metre drilled ($711 per lateral meter), and a completion cost of $438 per tonne of proppant placed. Going forward, Pipestone expects to increase the average lateral length of its development wells to approximately 3,000 metres from a previous typical well length of approximately 2,500 metres.
Year-End 2020 Reserve Results:
Key Highlights from the Year-End 2020 McDaniel Report include:
- Proved Developed Producing (“PDP”) reserves increased by 71% from 18.5 MMboe to 31.7 MMboe and achieved a Finding & Development (“F&D”) cost of $5.40/boe, driving a 2020 PDP recycle ratio of 2.0x;
- Total Proved (“1P”) reserves increased by 19% from 112.5 MMboe to 134.0 MMboe and total Proved + Probable (“2P”) reserves increased by 24% from 183.6 MMboe to 227.7 MMboe;
- Decrease in 1P FDC of 19% from $790 million to $640 million, and a ~16% decrease in 2P FDC from $1,114 million to $936 million; F&D costs for these categories are not applicable because of the decrease in FDC;
- Go-forward estimated Undeveloped 1P F&D cost (FDC / Undeveloped Reserves) of $6.33/boe ($8.95/boe at YE 2019) and Undeveloped 2P F&D cost of $5.03/boe ($7.28/boe at YE 2019) reflect the significant reductions in well costs achieved during 2020; and
- Utilizing a 10% discount rate at a flat price deck (US$50/bbl WTI, C$2.50/GJ AECO, $0.785 CADUSD, no inflation), Pipestone estimates a Proved Developed NAVPS of $0.41 per share, a 1P NAVPS of $2.14 per share, and a 2P NAVPS of $3.66 per share.
December 31, 2020(1) | December 31, 2019(2) | ||||||||
2P Reserve Volumes (Working Interest) | Amount | Weight | Amount | Weight | Change | ||||
Condensate / Oil | Mbbls | 65,323 | 29 | % | 63,553 | 35 | % | 3 | % |
Other NGLs | Mbbls | 30,382 | 13 | % | 23,354 | 13 | % | 30 | % |
Total Natural Gas Liquids | Mbbls | 95,705 | 42 | % | 86,907 | 47 | % | 10 | % |
Shale Gas | MMcf | 791,801 | 58 | % | 580,069 | 53 | % | 37 | % |
Total | Mboe | 227,672 | 100 | % | 183,585 | 100 | % | 24 | % |
Proved Developed Producing | Mboe | 31,735 | 14 | % | 18,529 | 10 | % | 71 | % |
Proved Developed Non-Producing | Mboe | 1,258 | 1 | % | 6,789 | 4 | % | -81 | % |
Proved Undeveloped | Mboe | 100,984 | 44 | % | 87,177 | 47 | % | 16 | % |
Total Proved | Mboe | 133,977 | 59 | % | 112,495 | 61 | % | 19 | % |
Probable | Mboe | 93,695 | 41 | % | 71,091 | 39 | % | 32 | % |
Total Proved + Probable | Mboe | 227,672 | 100 | % | 183,585 | 100 | % | 24 | % |
(1) Volumes calculated using the 3 Consultant (“3C”) Average Price Deck as of January 1, 2021. The 3C Price Deck includes pricing forecasts from McDaniel, GLJ Petroleum Consultants, and Sproule.
(2) Volumes calculated using the 3C Average Price Deck as of January 1, 2020.
2020 Independent Reserves Evaluation:
McDaniel conducted an independent Reserves Evaluation effective December 31, 2020, which was prepared in accordance with definitions, standards, and procedures contained in the Canadian Oil and Gas Evaluation Handbook and NI 51-101. The Reserves Evaluation was based on a 3C forecast pricing and foreign exchange rates at January 1, 2021 as outlined in this press release.
Reserves included herein are stated on a company gross basis (working interest before deduction of royalties without the inclusion of any royalty interest) unless otherwise noted. In addition to the information disclosed in this news release, more detailed information will be included in Pipestone Energy’s annual information form for the year ended December 31, 2020, which will be available on the Company’s website at www.pipestonecorp.com and on SEDAR at www.sedar.com on or before March 31, 2021.
Company Gross (before royalties) Working Interest Reserves
2020 Year-End Reserves (Working Interest)(1) | ||||
Natural Gas | Total | |||
Tight Oil | Shale Gas | Liquids(2) | Company | |
Reserve Category | (Mbbl) | (MMcf) | (Mbbl) | (Mboe) |
Proved | ||||
Developed Producing | 26 | 116,852 | 12,234 | 31,735 |
Developed Non-Producing | – | 4,308 | 540 | 1,258 |
Undeveloped | – | 341,324 | 44,096 | 100,984 |
Total Proved | 26 | 462,484 | 56,870 | 133,977 |
Total Probable | 11 | 329,317 | 38,798 | 93,695 |
Total Proved + Probable | 37 | 791,801 | 95,668 | 227,672 |
(1) Volumes calculated using the 3C Average Price Deck as of January 1, 2021.
(2) Natural Gas Liquids includes condensate volumes. Booked 2P condensate volumes are 65,287 Mbbls as at December 31, 2020.
Company Net Present Value of Future Net Revenue Using 3C Price Forecast(1):
Before Income Taxes | |||||||||||||||
$C Millions | Discount Factor (% / Year) | ||||||||||||||
Reserve Category | 0% | 5% | 10% | 15% | 20% | ||||||||||
Proved | |||||||||||||||
Developed Producing | $405 | $344 | $299 | $266 | $241 | ||||||||||
Developed Non-Producing | $18 | $15 | $13 | $12 | $11 | ||||||||||
Undeveloped | $1,166 | $803 | $576 | $425 | $321 | ||||||||||
Total Proved | $1,589 | $1,612 | $888 | $703 | $573 | ||||||||||
Probable | $1,316 | $776 | $503 | $352 | $260 | ||||||||||
Total Proved + Probable | $2,904 | $1,938 | $1,391 | $1,055 | $833 |
(1) Calculated using the 3C Average Price Deck as of January 1, 2021.
Future Development Capital and F&D Costs:
FDC reflects McDaniel’s best estimate of what it will cost to bring Pipestone Energy’s proved and probable developed and undeveloped reserves on production. Changes in forecasted FDC occur annually as a result of development activities, acquisition and disposition activities, changes in capital cost estimates based on improvements in well design and performance, and changes in service costs. Undiscounted 2P FDC at December 31, 2020 decreased by $178 million relative to December 31, 2019, to total $936 million. The year-over-year decrease is driven primarily by capital efficiency improvements related to drilling and completions activities.
Total Proved | ||||
Total Proved | + Probable | |||
Year | (C$MM) | (C$MM) | ||
2021 | $143 | $143 | ||
2022 | $127 | $127 | ||
2023 | $154 | $154 | ||
2024 | $114 | $114 | ||
2025 | $103 | $124 | ||
Remainder Thereafter | $0 | $274 | ||
Total FDC Undiscounted | $640 | $936 | ||
Total FDC Discounted (10%) | $518 | $681 | ||
2020 F&D Costs | Recycle Ratio | ||||
Proved Developed Producing | ||||
Reserve Additions | Mboe | 18,889 | ||
2020 Capital Expenditures (Estimated) | $MM | $102 | ||
F&D per boe | $/boe | $5.40 | ||
2020 Operating Netback (Estimated)(1) | $/boe | $10.95 | ||
Recycle Ratio | 2.0x |
|||
Total Proved | ||||
Reserve Additions | Mboe | 27,165 | ||
2020 Capital Expenditures (Estimated) | $MM | $102 | ||
2020 Change in FDC | $MM | ($150 | ) | |
F&D per boe | $/boe | ($1.75 | ) | |
2020 Operating Netback (Estimated) (1) | $/boe | $10.95 | ||
Recycle Ratio | n.m. |
|||
Proved + Probable | ||||
Reserve Additions | Mboe | 49,770 | ||
2020 Capital Expenditures (Estimated) | $MM | $102 | ||
2020 Change in FDC | $MM | ($178 | ) | |
F&D per boe | $/boe | ($1.52 | ) | |
2020 Operating Netback (Estimated) (1) | $/boe | $10.95 | ||
Recycle Ratio | n.m. |
(1) 2020 Operating Netback (unaudited) is calculated as revenue less realized hedging gains / (losses), less royalties, and less operating and transportation costs. Operating Netback is a non-GAAP measure, see “Advisories” for further details.
1P / 2P Future Undeveloped F&D Costs(1) | |||
Proved Undeveloped | |||
1P Future Development Capital | $MM | $640 | |
Proved Undeveloped Reserves | Mboe | 100,984 | |
1P F&D | $/boe | $6.33 | |
Proved + Probable | |||
2P Future Development Capital | $MM | $936 | |
Proved + Probable Undeveloped Reserves | Mboe | 185,981 | |
2P F&D | $/boe | $5.03 |
(1) Excludes FDC in the PDNP category, which was ~$0.8 million as at December 31, 2020.
Pre-Tax Net Asset Value – Excludes Unbooked Land Value:
As at December 31, 2020 | ||||||
3C Price | Flat Price | |||||
$C Millions | Forecast | Deck(1) | ||||
2P Reserves, Before-Tax NPV10% | $1,391 | $1,211 | ||||
(-) Abandonment Obligations (Estimated) | ($9) | ($9) | ||||
(-) Mark-to-Market of Hedges(2) | ($6) | ($6) | ||||
(-) Net Debt (Estimated)(3) | ($170) | ($170) | ||||
= Implied Net Asset Value | $1,206 | $1,026 | ||||
Fully Diluted Shares Outstanding (millions)(4) | 280 | 280 | ||||
Net Asset Value per Share ($/share) | $4.30 | $3.66 |
Note: The above Net Asset Value excludes any additional land value for ~86 net sections of unbooked undeveloped land.
(1) Flat Price Deck utilizes US$50 per barrel WTI, C$2.50 per GJ AECO, and $0.785 CADUSD exchange rate with no future inflation.
(2) Hedges include commodity price hedges as at December 31, 2020.
(3) Net debt represents bank debt and the addition of working capital and is a non-GAAP measure. See “Advisories” for further details
(4) Assumes full dilutive impact of all outstanding warrants, stock options, RSUs, and PSUs, as well as the estimated convertible preferred share balance as at December 31, 2020.
Q4 2020 and Full Year 2020 Financial Results Conference Call March 10, 2021 9:00 a.m. MT (11:00 a.m. ET) |
Pipestone Energy will host a conference call on March 10, 2021, 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 7587763 when prompted.
An archived recording of the conference call will be available shortly after the event and will be available until March 19, 2021. To access the replay please dial toll free in North America (855) 859-2056 or International (630) 652-5852 and enter 7587763 when prompted. The conference call will also be archived on the Pipestone Energy Corp website.at www.pipestonecorp.com. |
Pipestone Energy Corp.
Pipestone Energy is an oil and gas exploration and production company focused on developing its large contiguous and condensate-rich Montney asset base in the Pipestone area near Grande Prairie. Pipestone is fully funded to grow its production from 15.6 Mboe/d in 2020 to 34 Mboe/d (midpoint) in 2022, while maintaining a conservative leverage profile. Beginning in 2022, the Company expects to generate annual free cash flow above growth and maintenance expenditures. Pipestone Energy is committed to building long term value for our shareholders while maintaining the highest possible environmental and operating standards, as well as being an active and contributing member to the communities in which it operates. Pipestone Energy shares trade under the symbol PIPE on the TSX. For more information, visit www.pipestonecorp.com.
Pipestone Energy Contacts:
Paul Wanklyn President and Chief Executive Officer (587) 392-8407 paul.wanklyn@pipestonecorp.com |
Craig Nieboer Chief Financial Officer (587) 392-8408 craig.nieboer@pipestonecorp.com |
Dan van Kessel VP Corporate Development (587) 392-8414 dan.vankessel@pipestonecorp.com |