Pipestone Energy Corp. Reports Increased Year-End Reserves, Including a 585% Increase in PDP Reserves
February 25, 20205:00 AM Globe Newswire
CALGARY, Alberta – (PIPE – TSX-V) Pipestone Energy Corp. (“Pipestone Energy” or the “Company”) is pleased to report its year-end 2019 independent reserves evaluation prepared by McDaniel & Associates Consultants Ltd. (“McDaniel”) with an effective date of December 31, 2019 (the “McDaniel Report”).Year-End 2019 Reserve Results:Key Highlights from the Year-End 2019 McDaniel Report include:Proved Developed Producing (“PDP”) reserves increased by 585% from 2.7 MMboe to 18.5 MMboe and achieved a Finding & Development (“F&D”) cost of $8.39/boe, driving a 2019 PDP recycle ratio of 1.8x;Total Proved (“1P”) reserves increased by 24% from 90.8 MMboe to 112.5 MMboe and achieved a 1P F&D cost of $3.34/boe, driving a 2019 1P recycle ratio of 4.5x;Total Proved + Probable (“2P”) reserves increased by 12% from 164.0 MMboe to 183.6 MMboe and achieved a 2P F&D cost of ($5.24)/boe;Decrease in 1P Future Development Capital (“FDC”) of 8% from $860 million to $790 million, and a ~19% decrease in 2P FDC from $1,375 million to $1,114 million;Go-forward estimated Undeveloped 1P F&D cost (FDC / Undeveloped Reserves) of $8.95/boe and Undeveloped 2P F&D cost of $7.28/boe reflect the forecast efficiency of future reserve development;Increase in 1P NPV10% of $0.4 billion to $1.3 billion, which is a 51% increase from year-end 2018(1) 1P NPV10% of $0.8 billion and an increase in 2P NPV10% of $0.5 billion to $1.9 billion, which is a 38% increase over year-end 2018(1) 2P NPV10% of $1.4 billion; andIncrease in 2P NAVPS utilizing a 10% discount rate at Strip Pricing (as at February 6th, 2020) to $5.01 per share, which is a 57% increase from the Jan 4, 2019 2P NAVPS at Strip Pricing (as at March 14th, 2019) of $3.19 per share.Pipestone Energy’s 2019 capital program focused on the efficient pad development of its condensate-rich Montney resource with 10 wells drilled, 16 wells completed, and 20 new wells brought on production. The 2019 capital program also included the completion of the in-field gathering system capable of handling ~33,000 boe/d of production. Based on achieved capital cost savings, the Company’s forecasted drill, complete, equip, and tie-in (“DCE&T”) well costs have decreased from $9.7 million at the beginning of 2019 to $7.1 million (for a 2,500-metre lateral length well), which is reflected in reduced 1P and 2P FDC costs, despite an increase in booked volumes. These capital cost savings have been achieved through a combination of reduced time to drill wells, improved completion efficiencies and logistics, and optimized well facility designs. All reported F&D costs outlined in this press release are calculated including year over year changes to FDC.December 31, 2019January 4, 2019 2P Reserve Volumes (Gross Interest)AmountWeightAmountWeightChangeTight OilMbbls53Nil34Nil56%CondensateMbbls63,50035%57,02835%11%Other NGLsMbbls23,35413%17,97111%30%Total Natural Gas LiquidsMbbls86,85447%74,99946%16%Shale GasMMcf580,06953%533,42254%9%TotalMboe183,585100%163,936100%12%Proved Developed ProducingMboe18,52910%2,7042%585%Proved Developed Non-ProducingMboe6,7894%10,6947%-37%Proved UndevelopedMboe87,17747%77,36647%13%Total ProvedMboe112,49561%90,76455%24%ProbableMboe71,09139%73,17245%-3%Total Proved + ProbableMboe183,585100%163,936100%12%Reserves Before-Tax NPV10%(1)Proved Developed$MM$36019%$17012%112%Total Proved$MM$1,26866%$83960%51%Total Proved + Probable$MM$1,918$1,3942P NAV per share – 3C Price Deck(1)(4)$/sh$8.54$6.7826%2P NAV per share – Flat Price Deck(2)(4)$/sh$5.152P NAV per share – Strip Price Deck(3)(4)$/sh$5.01$3.19(5)57%(1) Calculated using a Three Consultant Average (“3C Price Deck”) commodity price forecasts as of January 1, 2020, which includes McDaniel, Sproule Associates Limited and GLJ Petroleum Consultants. (2) Flat Price Deck utilizes US$55 per barrel WTI, C$1.75 per GJ AECO, and $0.75 CADUSD exchange rate with no future inflation. (3) Strip Price deck utilizes the WTI, AECO and CADUSD futures as of February 6, 2020. WTI Pricing (US$ per barrel); 2020: $52.44, 2021: $50.90, 2022: $50.74, 2023+: $50.98 | AECO Pricing (C$ per Mcf); 2020: $1.77, 2021: $1.89, 2022: $1.98, 2023: $2.06. (4) 2P NAV per Share calculated as 2P Reserves NPV10% – abandonment liabilities– net debt + proceeds from dilutive securities, including publicly traded warrants (see “Pre-tax Net Asset Value” for further details). (5) Strip Price Deck as of March 14, 2019. WTI Pricing (US$ per barrel); 2020: $58.77, 2021: $56.67, 2022: $55.11, 2023: $54.41 | AECO Pricing (C$ per Mcf); 2020: $1.65, 2021: $1.70, 2022: $1.82, 2023: $2.05.2019 Independent Reserves Evaluation:McDaniel conducted an independent Reserves Evaluation effective December 31, 2019, which was prepared in accordance with definitions, standards, and procedures contained in the Canadian Oil and Gas Evaluation Handbook and NI 51-101. The Reserves Evaluation was based on a 3C forecast pricing and foreign exchange rates at January 1, 2020 as outlined in this press release.Reserves included herein are stated on a company gross basis (working interest before deduction of royalties without the inclusion of any royalty interest) unless otherwise noted. In addition to the information disclosed in this news release, more detailed information will be included in Pipestone Energy’s annual information form for the year ended December 31, 2019, which will be available on the Company’s website at www.pipestonecorp.com and on SEDAR at www.sedar.com on or before March 31, 2020.3C Price Forecast:WTIEdmontonHenry HubAECOForeign3C PriceCrude OilLight OilNatural GasNatural GasExchangeForecast(US$/bbl)(Cdn $/bbl)(US$/MMBtu)Cdn$/MMBtu(US$/Cdn$) 2020 2019 2020 2019 2020 2019 2020 2019 2020 20192020$61.00$64.60$72.64$75.84$2.62$3.13$2.04$2.31$0.760$0.7822021$63.75$68.20$76.06$80.17$2.87$3.33$2.32$2.74$0.770$0.7972022$66.18$71.00$78.35$83.22$3.06$3.51$2.62$3.05$0.785$0.8032023$67.91$72.81$80.71$85.34$3.17$3.62$2.71$3.21$0.785$0.8072024$69.48$74.59$82.64$87.33$3.24$3.70$2.81$3.31$0.785$0.8082025$71.07$76.42$84.60$89.50$3.32$3.77$2.89$3.39$0.785$0.8082026$72.68$78.40$86.57$91.89$3.39$3.85$2.96$3.46$0.785$0.8082027$74.24$79.98$88.49$93.76$3.45$3.92$3.03$3.54$0.785$0.8082028$75.73$81.59$90.31$95.68$3.53$4.01$3.09$3.62$0.785$0.8082029$77.24$83.22$92.17$97.60$3.60$4.09$3.16$3.69$0.785$0.808Thereafter+2%/Yr+2%/Yr+2%/Yr+2%/Yr+2%/Yr+2%/Yr+2%/Yr+2%/Yr$0.785$0.808Company Gross (before royalties) Working Interest Reserves2019 Year-End Reserves (Gross Interest) Natural GasTotalTight OilShale GasLiquids(1)CompanyReserve Category(Mbbl)(MMcf)(Mbbl)(Mboe)ProvedDeveloped Producing3968,3397,10018,529Developed Non-Producing–20,6203,3526,789Undeveloped–268,89042,36287,177Total Proved 39 357,848 52,814 112,495Total Probable14222,22134,04071,091Total Proved + Probable 53 580,069 86,854 183,585(1) Natural Gas Liquids includes condensate volumes. Booked 2P condensate volumes are 63,500 Mbbls as at December 31, 2019.Company Net Present Value of Future Net Revenue Using 3C Price Forecast(1):Before Income Taxes$C MillionsDiscount Factor (% / Year)Reserve Category 0% 5% 10% 15%20%ProvedDeveloped Producing$314$267$234$209$191Developed Non-Producing$165$142$126$115$105Undeveloped$1,649$1,202$908$705$559Total Proved$2,128$1,612$1,268$1,029$856Probable$1,644$993$649$451$329Total Proved + Probable$3,772$2,605$1,918$1,480$1,184(1) Calculated using the 3C Price Deck as of January 1, 2020.Reserve Reconciliation:NaturalNatural GasCompanyTight OilGasLiquids(1)TotalCompany Gross(Mbbl)(MMcf)(Mbbl)(Mboe)Proved Developed ProducingOpening Balance – December 31, 2018289,8471,0362,704Extensions––––Economic Factors(2)(430)(42)(116)Transfers–64,3626,71117,438Technical Revisions31707211359Production(17)(6,147)(816)(1,857)Opening Balance – December 31, 20194068,3397,10018,529Total ProvedOpening Balance – December 31, 201828296,07641,39190,764Extensions–76,43512,13724,876Economic Factors(2)(499)(51)(136)Transfers–8,445(646)762Technical Revisions31(16,462)799(1,914)Production(17)(6,147)(816)(1,857)Opening Balance – December 31, 201940357,84852,814112,494Proved + ProbableOpening Balance – December 31, 201834533,42274,999163,936Extensions–66,28410,76221,809Economic Factors(3)(712)(73)(194)Transfers–9,159(987)539Technical Revisions39(21,935)2,970(648)Production(17)(6,148)(816)(1,857)Opening Balance – December 31, 201953580,06986,854183,585(1) Natural Gas Liquids includes condensate volumes. Booked 2P condensate volumes are 63,500 Mbbls as at December 31, 2019.Reserve Life Index:In 2019, Pipestone Energy’s 1P Reserve Life Index (“RLI”) was 16.2 years and 2P RLI was 26.5 years. The RLI was determined by dividing 1P and 2P reserves by the mid-point of the Company’s 2020 production guidance range of 18,000 to 20,000 boe per day (~35-40% condensate, ~5-7% other NGLs and ~53-60% shale gas), contingent upon the execution of a $145 to $155 million capital program.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, 2019 decreased by $261 million relative to January 4, 2019, to total $1.1 billion. The year-over-year decrease is driven primarily by capital efficiency improvements related to drilling and completions activities.Pipestone Energy’s 2020 capital budget mid-point of $150 million is 12% higher than the 2P FDC forecasted for 2020, while the total 2P FDC, undiscounted, is ~7 times the Company’s 2020 capital budget.Total ProvedTotal Proved+ ProbableYear(C$MM)(C$MM)2020$134$1342021$168$1682022$223$2232023$149$1492024$117$154Remainder Thereafter$0$286Total FDC Undiscounted$790$1,114Total FDC Discounted (10%)$637$8232019 F&D Costs | Recycle Ratio Proved Developed ProducingReserve AdditionsMboe 17,6822019 Capital Expenditures (Estimated)$MM$148.4F&D per boe$/boe$8.392019 Operating Netback (Estimated)$/boe$15.03Recycle Ratio1.8x Total ProvedReserve AdditionsMboe 23,5872019 Capital Expenditures (Estimated)$MM$148.42019 Change in FDC$MM($69.5)F&D per boe$/boe$3.342019 Operating Netback (Estimated)$/boe$15.03Recycle Ratio4.5x Proved + ProbableReserve AdditionsMboe 21,5062019 Capital Expenditures (Estimated)$MM$148.42019 Change in FDC$MM($261.2)F&D per boe$/boe($5.24)2019 Operating Netback (Estimated)$/boe$15.03Recycle Ration.a1P / 2P Future Undeveloped F&D Costs(1) Proved Undeveloped1P Future Development Capital$MM$780.0Proved Undeveloped ReservesMboe 87,1771P F&D$/boe$8.95Proved + Probable2P Future Development Capital$MM$1,104.1Proved + Probable Undeveloped ReservesMboe 151,5702P F&D$/boe$7.28(1) Excludes FDC in the PDNP category, which was ~$10 million as at December 31, 2019.Pre-Tax Net Asset Value – Excludes Unbooked Land Value:As at December 31, 20193C PriceFlat PriceStrip$C MillionsForecastDeck(1)Feb 19, 20192P Reserves, Before-Tax NPV10%$1,918$1,205$1,175(-) Abandonment Obligations (Estimated)($7)($7)($7)(-) Mark-to-Market of Hedges(2)($2)($20($2)(-) Net Debt (Estimated)(3)($170)($170)($170)(+) Proceeds from Dilutive Securities(4)$58$58$58= Implied Net Asset Value$1,797$1,084$1,054Fully Diluted Shares Outstanding (millions)(5)210.3210.3210.3Net Asset Value per Share ($/share)$8.54$5.15$5.01Note: The above Net Asset Value excludes any additional land value for 86 net sections of unbooked undeveloped land.(1) Flat Price Deck utilizes US$55 per barrel WTI, C$1.75 per GJ AECO, and $0.75 CADUSD exchange rate with no future inflation. (2) Hedges include floating-to-fixed interest rate swaps as at December 31, 2019. (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 exercise of all outstanding warrants and stock options for cash proceeds. (5) Assumes full dilutive impact of all outstanding warrants, stock options, RSUs, and PSUs.Pipestone Energy Corp.Pipestone Energy Corp. is an oil and gas exploration and production company with its head office located in Calgary, Alberta. The company is focused on developing its pure-play condensate-rich Montney asset in the Pipestone area near Grande Prairie, Alberta. Pipestone Energy is committed to building long term value for our shareholders and values the partnerships that it is developing within its operating community. Pipestone Energy shares trade under the symbol PIPE on the TSX Venture Exchange. For more information, visit www.pipestonecorp.com.