CALGARY, Alberta – (PIPE – TSX) Pipestone Energy Corp. (“Pipestone” or the “Company”) is pleased to report its fourth quarter and full year 2021 financial and operational results, and to provide an update to its corporate guidance for 2022 and provide a three-year outlook.
FOURTH QUARTER 2021 CORPORATE HIGHLIGHTS
- In Q4 2021, Pipestone achieved record average quarterly production totaling 28,623 boe/d (30% condensate, 44% total liquids), representing a 16% quarterly increase over Q3 2021, and a 61% increase over Q4 2020. Full year 2021 production for the Company totaled 24,584 boe/d (31% condensate, 45% total liquids), achieving previously announced guidance of 24,000 – 26,000 boe/d, representing a 58% year-over-year growth in average daily production volumes;
- As a result of its continued production growth combined with improving commodity prices during the quarter, the Company generated record revenue of $137.3 million, nearly tripling revenue from Q4 2020 of $45.9 million and increasing revenue from Q3 2021 by 37% or $37.1 million;
- The Company realized continued improvement in operating netback(1) to a corporate record of $25.06/boe, an increase of 14% over Q3 2021 and a 148% increase over Q4 2020. Excluding the realized loss on commodity risk management contracts of $8.45/boe, the Company’s operating netback(1) for Q4 2021 was $33.51/boe;
- The Company also achieved record adjusted funds flow from operations(1) of $58.9 million ($0.31 per share basic and $0.21 per share fully diluted), representing more than a 5-fold increase to adjusted funds flow from operations(1) when compared to $11.1 million in Q4 2020 and an increase of 35% or $15.2 million from Q3 2021 adjusted funds flow from operations(1) of $43.7 million;
- The Company generated strong returns on invested capital, with Q4 2021 annualized ROCE(1) and CROIC(1) of 22.8% and 26.1%, respectively, as compared to Q4 2020 annualized ROCE(1) and CROIC(1) of 1.7% and 8.1%;
- As previously announced, in Q4 2021, the company commenced its inaugural Normal Course Issuer Bid (“NCIB”) and purchased 949,100 common shares for cancellation at a weighted average price of $3.60 per share for a total consideration of $3.4 million, including related commissions and fees. Subsequent to year-end, and up to the date of this release, the Company has purchased an additional 792,600 shares for cancellation at a weighted average price of $4.64 per share. Pipestone intends to continue to utilize its NCIB throughout 2022 as part of its commitment to providing shareholder returns.(1) See “Non-GAAP measures” advisory
Pipestone Energy Corp. – Financial and Operating Highlights
|Three months ended December 31,||Year ended December 31,
|($ thousands, except per unit and per share amounts)||2021||2020||2021||2020|
|Sales of liquids and natural gas||$||137,264||$||45,853||$||391,295||$||135,950|
|Cash from operating activities||71,810||10,086||157,864||41,638|
|Adjusted funds flow from operations (1)||58,927||11,088||166,358||40,498|
|Per share, basic||0.31||0.06||0.87||0.21|
|Per share, diluted (4)||0.21||0.04||0.59||0.15|
|Income (loss) and comprehensive income (loss)||51,307||(1,846||)||67,920||(17,277||)|
|Per share, basic||0.27||(0.01||)||0.35||(0.09||)|
|Per share, diluted (4)||0.18||(0.01||)||0.24||(0.09||)|
|Adjusted EBITDA (1)||63,667||15,108||183,882||56,053|
|Free cash flow (1)||19,777||(32,652||)||(20,633||)||(64,113||)|
|Working capital deficit (end of period)||(44,515||)||(48,603||)|
|Adjusted working capital deficit (end of period) (1)||(32,552||)||(37,163||)|
|Bank debt (end of period)||171,866||133,466|
|Net debt (end of period) (1)||204,418||170,629|
|Undrawn credit facility capacity (end of period)||107,712||90,948|
|Available funding (end of period) (1)||$||75,160||$||53,785|
|Shareholders’ equity (end of period)||423,639||355,058|
|Annualized cash return on invested capital (CROIC) (1)||26.1||%||8.1||%||18.9||%||7.5||%|
|Annualized return on capital employed (ROCE) (1)||22.8||%||1.7||%||14.9||%||0.5||%|
|Shares purchased under NCIB (000s)||949||–||949||–|
|Shares outstanding (000s) (end of period)||191,446||190,799|
|Weighted-average basic shares|
|Weighted-average diluted shares|
|outstanding (000s) (4)||282,530||274,758||281,656||274,401|
|Other Natural Gas Liquids (NGLs) (bbls/d)||3,978||2,235||3,346||2,002|
|Total NGLs (bbls/d)||12,459||7,728||10,907||6,628|
|Crude oil (bbls/d)||44||93||74||102|
|Natural gas (Mcf/d)||96,718||59,479||81,620||53,039|
|Total (boe/d) (2)||28,623||17,734||24,584||15,570|
|Condensate and crude oil (% of total production)||30||%||31||%||31||%||30||%|
|Total liquids (% of total production)||44||%||44||%||45||%||43||%|
|Crude oil – WTI (C$/bbl)||$||97.19||$||55.41||$||85.10||$||52.39|
|Condensate – Edmonton Condensate (C$/bbl)||100.17||55.86||85.88||49.82|
|Natural gas – AECO 5A (C$/GJ)||4.50||2.52||3.45||2.12|
|Average realized prices (3)|
|Condensate (per bbl)||95.68||50.31||81.49||44.94|
|Other NGLs (per bbl)||44.30||18.03||34.61||15.55|
|Total NGLs (per bbl)||79.27||40.97||67.11||36.06|
|Crude oil (per bbl)||89.13||43.54||70.45||37.46|
|Natural gas (per Mcf)||5.17||2.99||4.10||2.42|
|Revenue (per boe)||52.12||28.10||43.61||23.86|
|Realized (loss) gain on commodity risk|
|management contracts (per boe) (5)||(8.45||)||(1.34||)||(6.34||)||2.46|
|Royalties (per boe)||(2.58||)||(1.25||)||(1.60||)||(0.73||)|
|Operating expenses (per boe)||(13.01||)||(12.22||)||(11.52||)||(11.18||)|
|Transportation (per boe)||(3.02||)||(3.17||)||(2.77||)||(3.46||)|
|Operating netback (per boe) (1) (5)||25.06||10.12||21.38||10.95|
|Adjusted funds flow netback (per boe) (1)||$||22.37||$||6.80||$||18.54||$||7.11|
|(1)||See “Non-GAAP measures” advisory.|
|(2)||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 total liquids include oil and natural gas liquids (including condensate, butane and propane).|
|(3)||Figures calculated before hedging.|
|(4)||Weighted-average number of diluted shares outstanding for the purpose of calculating diluted per share amounts in the 2021 periods presented includes 89,506,903 common shares that are issuable at the discretion of preferred shareholders as of December 31, 2021 for no additional proceeds to the Company. The preferred shares have a total convertible value of $76.1 million at December 31, 2021 and are convertible at $0.85 per common share. The impact of other dilutive instruments is also factored into this calculation as applicable.|
|(5)||Realized (loss) gain on commodity risk management contracts reclassified to be included under operating netback for 2021, prior period figures have been adjusted to conform with current presentation.|
UPDATED 2022 GUIDANCE AND THREE-YEAR DEVELOPMENT PLAN (1)
A graph accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/2626937c-f533-44b7-9bdf-35ecc608e713
As a result of successful Central Block delineation, strong capital program execution and a supportive commodity price environment, Pipestone has revised its 3-year business plan to modestly increase capital spend within cashflow(2) that results in additional production growth through 2024 and beyond. To facilitate this growth, the Company has secured incremental raw gas processing capacity, which it expects to be available in Q3 2023, facilitating a new production upper boundary of approximately 46,000 boe/d. In aggregate over the three years, Pipestone forecasts to spend $555 million on capital, while generating $1,150 million in cash flow(2) (utilizing an US$80 WTI | C$3.50 AECO price deck), resulting in approximately $600 million of free cash flow(2), which equates to approximately 40% of the Company’s current fully diluted market capitalization.
|1)||3-year plan as at March 2022, 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 2022 have not been finalized and are subject to a variety of factors and as a result, forecast results for 2023 and 2024 may change materially. Where a range is not provided, guidance and forecast values represent the mid-point estimate. Each US$10 per barrel change in WTI prices equates to an ~$40 million change in 2022 free cash flow, and each C$0.50 per GJ change in AECO natural gas price equates to an ~$20 million change in 2022 in free cash flow.|
|2)||See “Non-GAAP measures”.|
|3)||Capital expenditures are gross of capitalized G&A.|
Modified 2022 Capital Program and Guidance
For 2022, largely as a result of processing capacity constraints and increased lift gas utilization, Pipestone is reducing its production guidance range by 8% to 31,000 – 33,000 boe/d (from 34,000 – 36,000 boe/d). Production was disrupted for 18 full days in January and February at the Keyera Wapiti Gas Plant, as a result of both weather-related and mechanical issues. Opportunities to recover the calendar year production will be restricted during Q2 and Q3, as all three midstream plants Pipestone is connected to are planning major plant turnarounds. Additionally, interruptible processing capacity availability is expected to be more limited during H2 2022, as other area operators grow production volumes. By Q4 2022, the Company expects to be fully utilizing its currently available processing capacity, and expects to average approximately 37,000 boe/d over the quarter. Production is forecast to grow to 40,500 boe/d (midpoint) in 2023 as planned new processing capacity becomes available in Q3 of that year, resulting in exit volumes of approximately 45,000 boe/d, which based on the revised processing limitations are expected to be maintained through 2024.
Pipestone is also increasing its 2022 capital guidance range to $210 – $220 million (up from $180 – $200 million). This revised capital program is funded well within cashflow(2) and will further delineate Pipestone’s asset while accelerating Pipestone’s growth into 2023. The expanded capital program will include: a) Increased infrastructure expenditures, including a pipeline to the 6-33 step-out pad; b) Increased drilling and completion activity in H2 2022; and c) Completion and long-term test of the drilled, but uncompleted Montney delineation well at 12-36 during Q2 2022. Including the additional capital, Pipestone still forecasts to generate $130 – $140 million of free cash flow(2) in 2022.
Long-Term Development Trajectory
The previously released year-end 2021 McDaniel 2P reserve report includes 149 undeveloped locations, which supports growth to approximately 45,000 boe/d and that could be held flat until 2032. Pipestone has internally identified an additional 160 Tier 1 (Tier 1 = <12-month payout at US$80 WTI | $3.50 AECO) net unbooked locations on its Central and Eastern acreage blocks, that would support further growth to a risked plateau of approximately 55,000 boe/d by exit 2025, with a plateau period of approximately 10 years. To achieve this production level, Pipestone will have to continue to contract incremental processing capacity. The Company estimates there to be approximately 250 MMcf/d of currently available or planned sour gas processing expansions in the Pipestone area that could be in-service by 2025.
A graph and map accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/53ecac4e-9438-4358-9371-0c0a74fc4bec
2022 Free Cash Flow Allocation
Pipestone has pivoted from being a net consumer of capital to a net generator of free cashflow. As previously announced, Pipestone’s first priority for its free cashflow in 2022 is to deleverage the business, with a corporate debt target of less than $100 million, which equates to <1.0x D/CF at a US$45 WTI | $2.00 AECO ($100 million debt balance equates to a run-rate 2022E debt / cashflow of 0.3x at US$80 WTI | $3.50 AECO). Pipestone expects to achieve this target by mid-year. In conjunction with de-leveraging, Pipestone has commenced an NCIB to repurchase up to 5% of its basic shares or approximately 10 million shares over a 12-month period from commencement in November 2021. After de-leveraging and executing on its NCIB, Pipestone expects to generate additional free cash flow in 2022 that will be available for additional debt re-payment and/or shareholder returns or additional capital to expand the business.
Since November 26, 2021, Pipestone has repurchased approximately 1.7 million common shares under its 5% NCIB, at an average price of $4.07 per share. Over the remainder of 2022, Pipestone expects to repurchase approximately 8.5 million additional common shares, resulting in a projected year-end fully diluted common share balance of approximately 272.8 million.
During 2023 and 2024, Pipestone expects to be able to purchase approximately 13.0 million common shares per year under an NCIB program. The expected increase of repurchases over 2022 is a result of the expected conversion in fall 2022 of all the Convertible Preferred Shares. At the current share price of $5.68, share repurchase during this two-year period would total approximately $147.7 million, and Pipestone’s year-end 2024 fully diluted shares outstanding would be 246.8 million, down approximately 12% from today.
Pipestone has filed its Year-End 2021 Audited Financial Statements, MD&A, and 2021 Annual Information Form on SEDAR, as well as posted these documents on its website.
Q4 2021 and Full Year 2021 Financial Results Conference Call
Fourth Quarter and Full year 2021 results are expected to be released before market open on March 9, 2022. A conference call has been scheduled for March 9, 2022 at 9:00 a.m Mountain Time (11:00 a.m Eastern Time) for interested investors, analysts, brokers, and media representatives.
Conference Call Details:
Toll-Free: (866) 953-0776
International: (630) 652-5852
Conference ID: 5089085
Pipestone Energy Corp.
Pipestone 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 expects to grow its production to 32 Mboe/d (midpoint) in 2022 and to approximately 55 Mboe/d by exit 2025, while generating significant free cash flow and de-leveraging the business. Pipestone 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 has achieved certification of all its production from its Montney asset under the Equitable Origin EO100TM Standard for Responsible Energy Development. Pipestone shares trade under the symbol PIPE on the TSX. For more information, visit www.pipestonecorp.com.
Pipestone Energy Contacts:
President and Chief Executive Officer
Chief Financial Officer
|Dan van Kessel
VP Corporate Development
Advisory Regarding Non-GAAP Measures
Pursuant to section 5(4) of NI 52-112, quantitative reconciliation of the non-GAAP measure for the current and comparative period to the most directly comparable financial measure cannot be incorporated by reference because this document is an earnings new release. As such, include a quantitative reconciliation table for cash flow, free cash flow, operating netback, adjusted funds flow netback, net debt, available funding, adjusted working capital, CROIC and ROCE below. Additionally, pursuant to section 7(2)(d) of NI 52-112, a description of any significant difference between the non-GAAP financial measure that is forward-looking and the equivalent historical non-GAAP financial measure must be included in proximity to the first instance of the non-GAAP financial measure that is forward-looking information. As such, this information should be included in respect of forecast cashflow on page 5. Additionally, for this forward-looking non-GAAP measure, the following must be included: (i) the news release discloses an equivalent historical non-GAAP financial measure; and (ii) the forecast cashflow that is forward-looking information is presented with no more prominence in the document than that of the equivalent historical non-GAAP financial measure.
This news release includes references to financial measures commonly used in the oil and natural gas industry. The terms “adjusted funds flow from operations”, “cash flow”, “free cash flow, “operating netback”, “adjusted funds flow netback”, “net debt”, “adjusted working capital”, “available funding”, “adjusted EBITDA”, “CROIC”, and “ROCE” are not defined under International Financial Reporting Standards (“IFRS”), which have been incorporated into Canadian GAAP, as set out in Part 1 of the Chartered Professional Accountants Canada Handbook – Accounting, are not separately defined under GAAP, and may not be comparable with similar measures presented by other companies. The reconciliations of these non-GAAP measures to the nearest GAAP measure are discussed in the Non-GAAP measures section of Pipestone’s management’s discussion and analysis (“MD&A”) for the year ended December 31, 2021 dated March 9, 2022, a copy of which is available electronically on Pipestone’s SEDAR profile at www.sedar.com.
Management believes the presentation of the non-GAAP measures provide useful information to investors and shareholders as the measures provide increased transparency and the opportunity to better analyze and compare performance against prior periods.
Adjusted funds flow from operations
Pipestone uses “adjusted funds flow from operations” (cash from operating activities before changes in non-cash working capital and decommissioning provision costs incurred), a measure that is not defined under IFRS. Adjusted funds flow from operations should not be considered an alternative to, or more meaningful than, cash from operating activities, income (loss) or other measures determined in accordance with IFRS as an indicator of the Company’s performance. Management uses adjusted funds flow from operations to analyze operating performance and leverage and believes it is a useful supplemental measure as it provides an indication of the funds generated by Pipestone’s principal business activities prior to consideration of changes in working capital.
The following table reconciles cash from operating activities to adjusted funds flow from operations:
|Three months ended
|Cash from operating activities||71,810||10,086||157,864||41,638|
|Change in non-cash working capital||(12,814||)||1,002||8,341||(1,158||)|
|Decommissioning provision costs incurred||(69||)||–||153||18|
|Adjusted funds flow from operations||58,927||11,088||166,358||40,498|
“Cash flow” is a non-GAAP measure that is calculated as cash from operating activities plus changes in non-cash working capital and decommissioning provision costs incurred, and is not defined under IFRS. Cash flow should not be considered an alternative to, or more meaningful than, cash from operating activities, income (loss) or other measures determined in accordance with IFRS as an indicator of the Company’s performance. Management uses cash flow to analyze operating performance and leverage and believes it is a useful supplemental measure as it provides an indication of the funds generated by Pipestone’s principal business activities prior to consideration of changes in working capital.
Free cash flow
“Free cash flow” is a non-GAAP measure that is calculated as cash from operating activities plus changes in non-cash working capital less capital expenditures incurred, and is not defined under IFRS. Free cash flow should not be considered an alternative to, or more meaningful than, cash from operating activities, income (loss) or other measures determined in accordance with IFRS as an indicator of the Company’s performance. Management uses free cash flow to analyze operating performance and leverage and believes it is a useful supplemental measure as it provides an indication of the funds generated by Pipestone’s principal business activities, inclusive of ongoing capital expenditures, prior to consideration of changes in working capital.
Operating netback and Adjusted funds flow netback
“Operating netback” is calculated on either a total dollar or per-unit-of-production basis and is determined by deducting royalties, operating and transportation expenses from liquids and natural gas sales adjusted for realized gains/losses on commodity risk management contracts.
“Adjusted funds flow netback” reflects adjusted funds flow from operations on a per-unit-of-production basis and is determined by dividing adjusted funds flow by total production on a per-boe basis. Adjusted funds flow netback can also be determined by deducting G&A, transaction costs, cash financing expenses, adding financing income and adjusting for realized gains/losses on interest rate risk management contracts on a per-unit-of-production basis from the operating netback. Refer to “Financial and Operating Results” section above for further details.
Operating netback and adjusted funds flow netback are common metrics used in the oil and natural gas industry and are used by Company management to measure operating results on a per boe basis to better analyze and compare performance against prior periods, as well as formulate comparisons against peers.
“Net debt” is a non-GAAP measure that equals bank debt outstanding plus adjusted working capital. The Company does not consider its convertible preferred share obligation to be part of net debt as this represents a non-cash obligation that will ultimately be settled by conversion into Pipestone common shares and reclassified from a liability to share capital on the Company’s statement of financial position. Net debt is considered to be a useful measure in assisting management and investors to evaluate Pipestone’s financial strength.
Available funding and Adjusted working capital
“Available funding” is comprised of adjusted working capital and undrawn portions of the Company’s reserve based loan. The available funding measure allows management and others to evaluate the Company’s short-term liquidity. Adjusted working capital is comprised of current assets less current liabilities on the Company’s consolidated statement of financial position and excludes the current portion of risk management contracts and lease liabilities.
Adjusted EBITDA, CROIC and ROCE
“Adjusted EBITDA” is calculated as profit or loss before interest, income taxes, depletion and depreciation, adjusted for other non-cash and extraordinary items including unrealized gains and losses on risk management contracts, realized losses on interest rate risk management contracts, share-based compensation and exploration and evaluation expense. Adjusted EBITDA is used to calculate CROIC. Adjusted EBIT is calculated as adjusted EBITDA less depletion and depreciation. Adjusted EBIT is used to calculate ROCE.
The following table reconciles income (loss) and comprehensive income (loss) to adjusted EBITDA:
|Three months ended
|Income (loss) and comprehensive income (loss)||51,307||(1,846||)||67,920||(17,277||)|
|Deferred income tax expense (recovery)||15,315||(454||)||22,524||(5,253||)|
|Unrealized (gain) loss on interest rate risk management contracts||(671||)||(192||)||(1,677||)||678|
|Realized loss on interest rate risk management contracts||271||262||1,038||1,361|
|Unrealized (gain) loss on commodity risk management contracts||(27,979||)||(965||)||84||4,523|
“CROIC” is determined by dividing adjusted EBITDA by the gross carrying value of the Company’s oil and gas assets at a point in time. For the purposes of the CROIC calculation, the net carrying value of the Company’s exploration and evaluation assets, property and equipment and ROU assets, is taken from the Company’s consolidated statement of financial position, and excludes accumulated depletion and depreciation as disclosed in the financial statement notes to determine the gross carrying value.
“ROCE” is determined by dividing adjusted EBIT by the carrying value of the Company’s net assets. For the purposes for the ROCE calculation, net assets are defined as total assets on the Company’s consolidated statement of financial position less current liabilities at a point in time.
CROIC and ROCE allow management and others to evaluate the Company’s capital spending efficiency and ability to generate profitable returns by measuring profit or loss relative to the capital employed in the business.