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Pipestone Energy Corp. Releases Year-End Reserves With Strong Year-Over-Year Reserve Volume Growth, and Provides an Operational Update Highlighting Record Production and Continued Capital Efficiency Gains


Pipestone Energy Cor

iCrowdNewswire   Feb 10, 2021  3:48 PM ET

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:

Recent Operations Highlights:

Operations Update:

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:

    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
 


Contact Information:

Paul Wanklyn
President and Chief Executive Officer
(587) 392-8407
paul.wanklyn@pipestonecorp.com








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