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Pipestone Energy First Quarter 2021 Results

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   |    Wednesday,May 12,2021

Pipestone Energy Corp. reported its Q1 2021 financial and operational results, as well as provide an update on its operations.

Pipestone continues to efficiently grow its highly economic condensate-rich Montney asset. The Company is well on track to deliver its 2021 production guidance of 24,000 to 26,000 boe/d. The increase in natural gas and condensate prices, coupled with improving capital efficiencies and strong well results, positions Pipestone to deliver significant annual free cash flow for shareholders beginning in Q4 2021 and beyond.

Pipestone also generated strong returns on invested capital during the quarter, with annualized ROCE and CROIC of 10.9% and 16.5% respectively, demonstrating the high-quality nature of the Company’s asset base.

Highlights:

• Record average quarterly production of 21,595 boe/d (32% condensate, 46% total liquids), a 22% quarterly increase over Q4 2020 and a 54% increase over Q1 2020;
• Improvement in operating netback to a corporate record of $17.54/boe, an increase of 74% over Q4 2020 and a 29% increase over Q1 2020;
• The Company generated record revenue of $71.5 million and record adjusted funds flow from operations of $28.2 million ($0.15 per share basic and $0.10 per share fully diluted);
• Pipestone commenced its 2021 capital program with 7 wells drilled and rig-released and 6 wells completed during the first quarter of 2021. Total capital expenditures, including capitalized G&A, were $46.3 million during the three months ended March 31, 2021; and
• Subsequent to March 31, 2021, Pipestone successfully redetermined its reserve-based loan (“RBL”) and maintained its borrowing capacity at $225.0 million on a fully conforming basis. The revolving period of the RBL was extended to May 30, 2022 with an additional one-year term out period thereafter. The next redetermination is now scheduled for November 30, 2021.

Ops Highlights:

• Sustained Production Growth: Based on field estimates, April 2021 production averaged ~22,850 boe/d (31% condensate, 44% total liquids), with no new wells brought on production since the three well 8-15 pad in February. The Company expects to bring 18 additional wells on production during 2021, including three wells on the 6-13 pad in May, and six wells on the 15-25 pad in July. The 6-13 pad includes one additional Lower Montney well, following up on the recently disclosed Lower Montney success at 3-12.Construction and commissioning of the production facilities and pipeline connecting Pipestone’s 6-30 pad to the Veresen Midstream 16-28 battery and compressor station remains on-track for a Q4 2021 start-up, which will add an additional 50 MMcf/d plus associated liquids of processing capacity for Pipestone;

• Strong Well Results: The six well 3-12 pad has achieved an IP90 of 490 bbl/d wellhead condensate and 4.3 MMcf/d raw gas (condensate gas ratio, or “CGR”, of 114 bbl/MMcf), with the previously disclosed step-out Lower Montney ‘D’ well performing in-line with the average Montney ‘B’ well performance. The three well 8-15 pad has achieved an average per well IP60 of 754 bbl/d wellhead condensate and 3.3 MMcf/d raw gas (CGR of 236 bbl/MMcf). The condensate yields at 8-15 are significantly higher than previously seen in the southwest corner of our land base. Pipestone is following up the success on its 8-15 pad with two southeast directed wells on the six well 15-25 pad, located approximately three miles to the north of 8-15;
• Peer Leading Capital Program Performance: The six well pad at 15-25 achieved an average drilling cost of $2.1 million per well with a pad average lateral length of 2,914 metres (~$752 per lateral metre), in-line with the previous pacesetter pad. Additionally at 15-25, Pipestone drilled its longest lateral since inception, measuring 3,772 metres at a cost of $2.3 million (~$617 per lateral metre). At the 6-13 pad, the Company completed three wells, piloting 3.5 tonnes per metre of proppant intensity with an average lateral length of 2,633 metres for $3.3 million per well. At ~$358 per tonne of proppant placed, this pad represents the new pacesetter on a dollars per tonne placed basis.

Increase to Credit Facility

Pipestone has closed a renewal and expansion of its unsecured letter of credit (“LC”) facility with Export Development Canada’s (“EDC”) performance security guarantee (“PSG”) program. Effective May 11, 2021, the capacity of this facility is $22.5 million, an increase from $15.0 million. Pipestone currently has LCs outstanding of just under $15 million. The Company expects to increase its total committed LCs over the next 12 months to accommodate the inclusion of additional processing and transportation LCs related to the gas handling arrangement with Veresen Midstream.