CALGARY, Alberta – (PIPE – TSX) Pipestone Energy Corp. (“Pipestone” or the “Company”) is pleased to report its second quarter 2022 financial and operational results, and to provide an update on its operations.
SECOND QUARTER 2022 CORPORATE HIGHLIGHTS:
- The Company generated record revenue of $210.4 million, which represents more than a two and a half times increase over Q2 2021 revenue of $82.3 million, and a 37% increase from Q1 2022 revenue of $153.5 million;
- In Q2 2022, Pipestone achieved record average quarterly production totaling 30,770 boe/d (28% condensate, 41% total liquids), representing a 32% quarterly increase over Q2 2021 production of 23,336 boe/d (31% condensate, 46% total liquids), and a 12% increase over Q1 2022 production of 27,581 boe/d (29% condensate, 43% total liquids). In April 2022, the Company achieved its highest single month production rate to date averaging 35,830 boe/d. Subsequently, production volumes in the quarter were negatively impacted by planned third-party processing facility outages including a 24 day turnaround at the Veresen Midstream Hythe Plant, and an 11 day turnaround at the Keyera Wapiti Plant;
- The Company realized a record operating netback(1) of $41.97/boe, an increase of 114% over Q2 2021 and an 11% increase over Q1 2022. Excluding the realized loss on commodity risk management contracts of $10.51/boe, the Company’s field operating netback(1) for Q2 2022 was $52.48/boe;
- The Company also achieved record adjusted funds flow from operations(1) of $110.4 million ($0.58 per share basic and $0.39 per share fully diluted), more than tripling its adjusted funds flow from operations(1) of $35.5 million in Q2 2021, while representing a 28% or $24.1 million increase from Q1 2022 adjusted funds flow from operations(1) of $86.3 million;
- Total capital expenditures, including capitalized G&A, were $77.8 million during the three months ended June 30, 2022. The Company continued its 2022 capital program with 10 wells drilled and 9 wells completed in the quarter;
- In Q2 2022, the Company generated record free cash flow(1) of $32.6 million, representing 30% of its adjusted funds flow from operations(1) (as compared to the three months ended June 30, 2021 – free cash flow deficit of $12.1 million). In executing its return of capital to shareholders plan, the Company utilized $14.0 million or 43% of the free cash flow(1) to repurchase common shares during the quarter, with the remainder allocated to deleveraging its balance sheet. The Company anticipates that it will continue to produce free cash flow(1) throughout the remainder of 2022 which it will direct towards further deleveraging and share repurchases;
- As previously announced, the Company commenced its inaugural Normal Course Issuer Bid (“NCIB”) in Q4 2021. In the quarter ended June 30, 2022, Pipestone purchased 2,826,100 common shares for cancellation at a weighted average price of $4.95 per share for a total consideration of $14.0 million including related commissions and fees. Subsequent to the quarter, and up to the date of this release, the Company has purchased an additional 1,300,000 common shares for cancellation at a weighted average price of $3.80 per share. Since the commencement of the NCIB program, the Company has purchased a total of 6,559,800 common shares at a weighted average price of $4.50 per share. Pipestone intends to continue to utilize its NCIB throughout 2022 as part of its commitment to providing shareholder returns; and
- The Company realized robust returns on invested capital, with Q2 2022 annualized ROCE(1) and CROIC(1) of 44% and 41%, respectively, as compared to Q2 2021 annualized ROCE(1) and CROIC(1) of 14% and 19%, respectively.
(1) See “Advisory Regarding Non-GAAP Measures – Non-GAAP measures” advisory.
Pipestone Energy Corp. – Financial and Operating Highlights
|Three months ended June 30,
||Six months ended June 30,
|($ thousands, except per unit and per share amounts)||2022
|Sales of liquids and natural gas||$||210,380||$||82,319||$||363,910||$||153,804|
|Cash from operating activities||129,599||33,732||193,611||51,829|
|Adjusted funds flow from operations(1)||110,438||35,498||196,755||63,740|
|Per share, basic||0.58||0.19||1.03||0.33|
|Per share, diluted(4)||0.39||0.13||0.69||0.23|
|Free cash flow (deficit)(1)||32,648||(12,055||)||41,006||(30,102||)|
|Income (loss) and comprehensive income (loss)||82,095||(1,190||)||109,147||(2,144||)|
|Per share, basic||0.43||(0.01||)||0.57||(0.01||)|
|Per share, diluted(4)||0.29||(0.01||)||0.39||(0.01||)|
|Annualized cash return on invested capital (CROIC)(1)||41||%||19||%||37||%||17||%|
|Annualized return on capital employed (ROCE)(1)||44||%||14||%||39||%||12||%|
|Net debt (end of period)(1)||191,563||208,027|
|Net debt to annualized adjusted fund flow from operations for the trailing period(1)||0.4x||1.5x||0.5x||1.6x|
|Available funding (end of period)(1)||87,623||16,586|
|Amount purchased under NCIB||14,049||–||21,230||–|
|Common shares purchased under NCIB (000s)||2,826||–||4,311||–|
|Common shares outstanding (000s) (end of period)||188,437||191,548|
|Weighted-average basic shares outstanding (000s)||190,224||191,466||190,862||191,180|
|Weighted-average diluted shares|
|Other natural gas liquids (NGLs) (bbls/d)||4,137||3,211||4,000||2,980|
|Total NGLs (bbls/d)||12,565||10,556||12,197||10,155|
|Crude oil (bbls/d)||79||83||56||87|
|Natural gas (Mcf/d)||108,754||76,180||101,590||73,369|
|Condensate and crude oil (mix of total production)||28||%||32||%||28||%||33||%|
|Total liquids (mix of total production)||41||%||46||%||42||%||46||%|
|Average realized prices(3)|
|Condensate (per bbl)||133.44||76.56||127.61||70.96|
|Other NGLs (per bbl)||61.18||26.32||58.44||26.54|
|Total NGLs (per bbl)||109.65||61.27||104.93||57.93|
|Crude oil (per bbl)||128.74||68.79||121.61||63.97|
|Natural gas (per Mcf)||8.50||3.31||7.13||3.49|
|Revenue (per boe)||75.13||38.76||68.89||37.82|
|Realized loss on commodity risk|
|management contracts (per boe)||(10.51||)||(5.09||)||(7.89||)||(4.72||)|
|Royalties (per boe)||(5.96||)||(0.24||)||(5.14||)||(0.92||)|
|Operating expense (per boe)||(12.88||)||(11.11||)||(12.01||)||(10.89||)|
|Transportation expense (per boe)||(3.81||)||(2.72||)||(3.89||)||(2.67||)|
|Operating netback (per boe)(1)||41.97||19.60||39.96||18.62|
|Adjusted funds flow netback (per boe)(1)||39.44||16.72||37.25||15.67|
(1) See “Advisory Regarding Non-GAAP Measures – Non-GAAP measures advisory.
(2) For a description of the boe conversion ratio, see “Oil and Gas Measures – 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 income and comprehensive income and adjusted funds flow from operations per share in the 2022 period presented includes 92,439,513 common shares that are issuable at the discretion of convertible preferred shareholders as of June 30, 2022 for no additional proceeds to the Company (June 30, 2021 – 86,667,329 common shares issuable). The convertible preferred shares have a total convertible value of $78.6 million at June 30, 2022 (June 30, 2021 – $73.7 million) and are convertible on a conversion ratio equal to the quotient of (i) the liquidation preference of $1,000 per convertible preferred share, subject to adjustment, divided by (ii) the conversion price of $0.85 per share. The impact of other dilutive instruments is also factored into this calculation as applicable.
A chart accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/06e1c83d-32f6-4e35-93f1-9bdc4781fa44
Drilling & Completions Update:
During the second quarter, Pipestone rig released six wells on the 2-32 pad, and four of a total six planned wells on the 14-19 pad. The Company plans to drill an additional 9.5 net wells during 2022.
The Company also completed its 12-36 eastern step-out well, two delineation wells southeast off the 9-14 pad, and the six wells located at its 2-32 pad. Pipestone plans to complete an additional 7.5 net wells during the remainder of 2022.
New Well Results:
During Q2 2022, Pipestone brought on stream four wells on the 2-25 padsite, which are piloting reduced inter-well spacing of 200m, as compared to the offset 15-25 pad spacing at 300m. Additionally, this pad includes the Company’s first well landed in the uppermost Montney ‘A’ zone. Over the first 30 days on production, these wells are producing at or above type curve expectations, with the wells averaging 4.5 MMcf/d raw gas + 551 bbl/d wellhead condensate (condensate gas ratio of ~123 bbl/MMcf). The Montney ‘A’ well is performing in-line with the Montney ‘B’ wells on both an absolute rate and condensate gas ratio basis.
During July 2022, production testing began on two delineation wells that were drilled southeast off the 9-14 pad, including a well landed in each of the Montney ‘B’ and Montney ‘D’ zones. The Company is encouraged by the preliminary test results. The Montney ‘B’ well has been flowing for ~8 days, at an average rate of 3.6 MMcf/d raw gas + 315 bbl/d wellhead condensate (condensate gas ratio of ~88 bbl/MMcf), with an average H2S reading of 3%. This result is in-line with our type curve expectations for this area and de-risks a significant portion of the asset that is currently unbooked. The Montney ‘D’ (Lower Montney) well flowed up casing for 24 hours, at an average rate of 4.8 MMcf/d raw gas + 708 bbl/d wellhead condensate (condensate gas ratio of ~148 bbl/MMcf) at a flowing pressure of ~10,000 kPa, with an H2S content range of 11 – 15%. Further testing and diagnostic work for the well is ongoing. Of note, Pipestone’s in-field gathering system is licensed for up to 8% H2S, as compared to a current field average H2S content of ~4.5%; the Company is currently producing wells with higher sour gas content by utilizing lower H2S Montney wells and sweet fuel gas to blend at various padsites, a strategy which will be replicated in the future on the 9-14 pad.
2022 Production Outlook:
During July 2022, which included 2 days of the planned turnaround at the Keyera Wapiti Gas Plant, corporate production averaged ~33,000 boe/d. During Q3 2022, the Company expects production to average 31,000 – 33,000 boe/d, which includes a 24-day planned turnaround at the Tidewater Gas Plant in September. The expansion of the 8-15 compressor (from 90 MMcf/d to 120 MMcf/d) is still expected to be in-service during Q4 2022, supporting forecast average fourth quarter volumes in excess of 37,000 boe/d. Pipestone is pleased to reconfirm its full year 2022 production guidance of 31,000 – 33,000 boe/d.
|Price Forecast||US$95 WTI | $5.00 AECO | $0.80 CAD||US$90 WTI | $4.00 AECO | $0.80 CAD|
|Full Year Production (boe/d)||31,000 – 33,000||40,000 – 42,000||46,000 – 48,000|
|AT Cash Flow (C$ MM)||$380 – $420||$510||$445|
|Capex (C$ MM)||$225 – $235||$250||$200|
|Free Cash Flow (C$ MM)||$155 – $185||$260||$245|
|NCIB Purchases ($MM||$50 – $60||$50||$50|
|(Net Debt) / Net Cash ($MM)||($95) – ($75)
|LTM Debt / Cash Flow (x)||0.2x||n.a.||n.a.|
Second Quarter 2022 Financial Results Conference Call
Second quarter results are expected to be released before market open on August 10, 2022. A conference call has been scheduled for August 10, 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:
Please use the following participant registration URL to register for the Q2 2022 Financial Results Conference Call: https://register.vevent.com/register/BI24d63769265843a3b052eaaec478af62
This link will provide each registrant with a toll-free dial in number and a unique PIN to connect to the call.