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Pipestone Energy Corp. Announces a Midstream Transaction to Fund the Acceleration of a Three Well Completion Program to Delineate Its Eastern Montney Acreage


CALGARY, Alberta, July 23, 2019 (GLOBE NEWSWIRE) — (PIPE – TSX-V) Pipestone Energy Corp. (“Pipestone Energy” or the “Company”) is pleased to announce it has entered into a strategic midstream transaction (the “Midstream Transaction”) with Tidewater Midstream and Infrastructure Ltd. (“Tidewater”). The initial capital to be received by Pipestone Energy from Tidewater pursuant to the Midstream Transaction will be deployed to accelerate a three-well completion program at its 9-14-71-07W6 (“9-14”) well pad. The Midstream Transaction includes the physical extension of a pre-existing infrastructure arrangement with Tidewater.

MIDSTREAM TRANSACTION

Pipestone Energy has entered into an agreement with Tidewater to finance the construction of its East Battery (5-14-71-07W6), which will service the 9-14 well pad. The East Battery is designed to handle 30 MMcf/d of raw gas compression, 5,400 bbl/d of condensate production and associated water disposal. The raw gas and condensate will be transported through the existing Tidewater-owned gathering system and into the Tidewater Pipestone Sour Gas Plant which is scheduled to be completed in September 2019.

Paul Wanklyn, CEO of Pipestone said, “We are very pleased with this transaction from a strategic and financial standpoint as it allows us to advance our completion activities and facility construction in a highly prospective area significantly eastward from our current development activity. This transaction expands the current agreement with Tidewater to include all the significant functional units supporting Pipestone’s continued development in Tidewater-directed gas and condensate production. We are highly confident in Tidewater’s ability to advance their Pipestone plant infrastructure and the expanded relationship will benefit both companies in the future.

Key Terms of the Midstream Transaction:

  • Pipestone Energy has entered into a 10-year integrated compression, gathering and processing agreement;
  • Tidewater to purchase existing East Battery tangible equipment from Pipestone Energy for approximately $14 million (“Tranche A”), which is being funded on-closing scheduled for August 15th, 2019.;
  • Tidewater to provide up to an additional approximately $16 million to fund the remaining capital required to complete the East Battery over the next 12 months (“Tranche B”);
  • Pipestone Energy to construct the facility, and will contract operate the East Battery once commissioned;
  • In conjunction with this transaction, Pipestone Energy has relinquished its purchase options for the Tidewater Sour Gas Plant and associated gas gathering system; and
  • Pipestone Energy has also made a commitment to the second phase of Tidewater’s Pipestone Sour Gas Plant for 20 MMcf/d of processing, contingent on: a) Tidewater reaching a final investment decision by December 31, 2019, and b) Tidewater commissioning this second phase by Q2 2022.

Transaction Rationale:

  • Proceeds from Tranche A will allow Pipestone Energy to accelerate the completion of three drilled uncompleted wells on its 9-14 pad in Q3 2019, which otherwise were not expected to be completed until mid-2020;
  • Provides non-dilutive capital to construct the East Battery on an accelerated timeline;
  • Tidewater is a strategic partner and is expected to be a long-term owner of the assets given the integration with their existing gathering and processing facilities.

2019 CAPITAL PROGRAM REVISION

In conjunction with the Midstream Arrangement, the Company has elected to accelerate the completion of three wells, which have been landed in two of the four prospective Montney zones, located on the 9-14 pad, which is approximately six miles east of the current development corridor. Pipestone Energy will utilize a high intensity plug and perf fracture program on these delineation wells. The proceeds from Tranche A are expected to fully fund the completion expenditures and as such on a net basis will not change the Company’s 2019 capital expenditure guidance range of $145 – $165 million. The information garnered from completing and testing the 9-14 pad will enhance the Company’s understanding of its extensive acreage base and improve its ability to optimize the East Battery facility design and location. The 9-14 pad is not expected to contribute meaningfully to the Company’s production until mid-2020.

A photo accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/ab8db023-c7f5-4e87-808b-dc470de44e6d

Pipestone Energy Montney Operated Horizontal Well Status Summary

Current 
(July 2019)
Sept 30, 2019
(Estimate)
Dec 31, 2019
(Estimate)
North of Wapiti River (1)
(Keyera Wapiti & Tidewater Pipestone Processing Facilities)
Drilled 27 29 36
Drilled + Completed 23 26 26
Tied-In / Available for Production 20 20
South of Wapiti River (1)
(CNRL Gold Creek Processing Facility)
Drilled + Completed 9 9 9
Tied-In / On-Production 8 8 8
  1. Tied-In / Available for Production is a subset of the Drilled + Completed category which is a subset of the Drilled category.

PIPESTONE ISSUES LONG TERM INCENTIVE AWARDS

Pipestone is pleased to report that the board of directors of Pipestone Energy have approved the issuance of 192,647 restricted share units (“RSUs”) and 288,970 performance share units (“PSUs”) to certain officers of the Company under the long term incentive plan for the Company (the “LTIP”). The RSUs are subject to vesting as to one-third on each anniversary of the award date and the PSUs are subject to vesting in July 2022. All of the RSUs and PSUs were issued at the current trading price of PIPE’s shares on the TSX Venture Exchange (“TSXV”) and are subject to forfeiture in certain circumstances.

The Company has made an application to the TSXV pursuant to TSXV Policy 4.4 – Incentive Stock Options for approval of the LTIP. The LTIP and the grants approved to date are subject to TSXV and shareholder approval. Following the completion of these grants to certain officers, Pipestone Energy has the following long-term incentive awards outstanding, all of which are governed by the LTIP: (a) 12,696,438 legacy pre-amalgamation Blackbird Energy Inc. stock options entitling the holders thereof to acquire 1,269,643 Common Shares (as a result of the 10:1 share consolidation pursuant to the amalgamation of Blackbird Energy Inc. with Pipestone Oil Corp. to form Pipestone Energy on January 4, 2019); (b) 96,000 new Options entitling the holder thereof to acquire 96,000 Common Shares; (c) 468,970 PSUs entitling the holders thereof to acquire up to 937,940 Common Shares; and (d) 518,981 RSUs entitling the holders thereof to acquire 518,981 Common Shares, all subject to the terms thereof and the LTIP, are outstanding.

SECOND QUARTER 2019 RESULTS CONFERENCE CALL

Pipestone expects to release its second quarter 2019 results and updated operational report before market open on Thursday, August 8th, 2019 with a conference call scheduled for 9:00 AM Mountain Time (11:00 AM Eastern Time) for interested investors, analysts, brokers and media representatives.

Conference Call August 8, 2019 
9:00 a.m. MT (11:00 a.m. ET)Pipestone Energy will host a conference call on August 8, 2019, 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 2595762 when prompted.

An archived recording of the conference call will be available shortly after the event and will be available until August 15, 2019. To access the replay please dial toll free in North America (855) 859-2056 or International (404) 537-3406 and enter 2595762 when prompted. The conference call will also be archived on Pipestone Energy’s website at www.pipestonecorp.com.



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