Pipestone Energy Corp. releases its year-end 2022 reserves update, including 32% year-over-year PDP reserves growth, and provides an operations update

Operational results and reserve updates are consistent with Pipestone’s previously announced strategy of an increased focus on enhancing shareholder returns, by moderating its forecast average annual growth rate to ~10% over the next three years and shifting its focus toward maximizing free cash flow⁽¹⁾ generation so as to deliver shareholder returns.
(1)   See “Advisory Regarding Non-GAAP Measures – Non-GAAP Measures” advisory.

Recent Corporate Highlights and Select Unaudited 2022 Results:

All financial and operating information in this press release for the fourth quarter and year ended December 31, 2022, such as production volumes, revenue, adjusted funds flow from operations⁽¹⁾, free cash flow⁽¹⁾, capital expenditures, net debt⁽¹⁾ and operating netback⁽¹⁾, are based on unaudited estimated results and have not been reviewed by the Company’s auditors. These estimates may be subject to change upon the completion of audited financial statements for the year ended December 31, 2022 and changes could be material. Pipestone anticipates filing its audited financial statements for the year ended December 31, 2022, on SEDAR on March 8^th, 2023.

• Record Production Volumes: Q4 2022 production achieved a corporate record averaging 33,816 boe/d (30% condensate, 42% total liquids), representing a 5% increase over Q3 2022, and an 18% increase over Q4 2021. Based on field estimates, January 2023 production averaged 34,600 boe/d (30% condensate, 40% total liquids). Pipestone has not brought any new wells on production since November 2022;

• 2022 Production Guidance Achieved: 2022 production averaged 31,090 boe/d (29% condensate, 41% total liquids) within the previously announced guidance range of 31,000 – 33,000 boe/d;

• Fourth Quarter 2022 Revenue: As a result of increased production volumes, the Company generated revenue of $185.4 million which represents a $48.1 million or 35% increase from Q4 2021 revenue of $137.3 million and an $11.0 million or 6% increase from Q3 2022 revenue of $174.4 million;

• Record Quarterly Free Cash Flow⁽¹⁾: During the fourth quarter, Pipestone generated $99.7 million of adjusted funds flow from operations⁽¹⁾ ($0.36 per fully diluted share), which, after $29.6 million in capital expenditures, resulted in $70.1 million of free cash flow⁽¹⁾ ($0.25 per fully diluted share);

• Significant Deleveraging: During Q4 2022, the Company reduced its net debt⁽¹⁾ by $62.8 million (~35%) from $180.2 million to $117.4 million, resulting in a year-end 2022 net debt⁽¹⁾ to 2022 cash flow ratio of 0.3x; and

• 2023 Production Guidance: The Company reaffirms its full year 2023 production guidance range of 34,000 – 36,000 boe/d, with 26 net wells expected to be brought on stream, including six wells from the 11-05 pad during the first quarter of 2023.(1)   See “Advisory Regarding Non-GAAP Measures – Non-GAAP measures” advisory.

Operations Update:

Development Map:

A chart accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/18b49eb0-8a8c-4f2e-9296-69c425769711

Production Update:

Based on field estimates, Pipestone delivered record quarterly production of 33,816 boe/d (30% condensate, 42% total liquids) during Q4 2022, resulting in full year 2022 production of 31,090 boe/d⁽¹⁾ (29% condensate, 41% total liquids) which is within the previously announced guidance of 31,000 – 33,000 boe/d. Positive momentum has continued into Q1 2023, with average January production of approximately 34,600 boe/d (30% condensate, 40% total liquids). The Company reaffirms its full year 2023 production guidance range of 34,000 – 36,000 boe/d, with 26 net wells expected to be brought on-stream, including six wells from the 11-05 pad during the first quarter of 2023.

Well Results:

During Q4 2022, Pipestone brought its two eastern most delineation wells on stream at the 9-14 pad, one in the Montney ‘B’ and one in the Lower Montney ‘D’ bench. Both wells are trending at or above type curve expectations and demonstrate the extent of highly economic resource potential in multiple development benches across the asset. The Montney ‘B’ well has achieved an IP90 of 4.3 MMcf/d raw gas + 283 bbls/d wellhead condensate (condensate-gas-ratio (“CGR”) of 66 bbl/MMcf). The Lower Montney ‘D’ well has achieved an IP90 of 3.9 MMcf/d raw gas + 391 bbls/d wellhead condensate (CGR of 100 bbl/MMcf). Until early February, the Lower Montney ‘D’ well was producing from only the first ~50% of its lateral length because of a bridge plug installed during its initial testing phase. Since the removal of this plug, the well has averaged 6.9 MMcf/d raw gas + 860 bbls/d wellhead condensate (CGR of ~125 bbl/MMcf) over the past seven days.

Drilling & Completions Update:

Pipestone successfully executed on all of its planned Q4 2022 development activities. During the quarter, the Company drilled six wells on the 11-05 pad, which were subsequently completed in late 2022 through January 2023. These wells are being equipped and will be on production by the beginning of March. The 11-05 pad includes the longest wells drilled since inception, with two wells drilled southeast off the pad at a lateral length of approximately 4,500 metres. Increasing lateral length allows the Company to minimize its surface footprint while simultaneously driving positive drilling cost efficiencies. Pipestone currently has two rigs drilling four wells on the 2-31 pad and four wells on the 2-25 pad. Both pads will be completed during Q1 2023 with expected on-stream timing of Q2 2023.

Delineation Activity:

Recently, competitors have demonstrated strong results in the Montney volatile oil window offsetting the Company’s southeastern acreage. In February, Pipestone will spud the first of two planned delineation wells off the 11-09 pad in the southeast portion of the Company’s acreage position, with frac operations to follow immediately in Q1 of 2023. An existing well on the 11-09 pad, which was drilled and completed by Pipestone’s predecessor company in 2018, achieved a last 24-hour test rate of 2.6 MMcf/d raw gas + 855 bbls/d wellhead condensate (CGR of 329 bbl/MMcf).

2022 Independent Reserves Evaluation⁽¹⁾:

• Pipestone delivered 32% growth in Proved Developed Producing (“PDP”) reserves from 41 MMboe in 2021 to 53 MMboe in 2022 and achieved a finding & development (“F&D”) cost of $10.16/boe, coupled with a full year 2022 operating netback⁽¹⁾ of $40.96/boe (exclusive of hedging losses) which drives a 2022 PDP F&D recycle ratio⁽²⁾ of 4.0x;
• Total Proved (“1P”) reserves volumes are flat year-over-year at ~160 MMboe, with 100% of the Company’s 2022 production replaced. Since December 31, 2019, the Company has grown its 1P reserves volume from 112 MMboe to 160 MMboe (+47 MMboe / +42%), replacing 168% of production over that same period;
• Total Proved plus Probable (“2P”) reserves volumes decreased year-over-year from 275 MMboe to 230 MMboe (-45 MMboe / -16%). As announced in November 2022, this reduction is attributable to both lower expected absolute productivity and lower expectations for initial and terminal CGRs on the go-forward development wells. Also as previously announced, the majority of Pipestone’s Proved Undeveloped locations at year-end 2022 carry a modified lower CGR (VRGC1) type curve, with a reduction in the number of higher CGR (VRGC2 & VRGC3) type curve booked locations remaining⁽³⁾;
• Going forward, estimated undeveloped 1P F&D cost (future development capital (“FDC”) divided by Proved Undeveloped reserves) is $11.68/boe and Undeveloped 2P F&D cost is $9.20/boe; and

• Updated 1P and 2P net asset value per share (“NAVPS”)⁽⁴⁾ of $4.61 and $6.70 per basic share, respectively, utilizing a 10% discount rate at the year-end 3-consultant (“3C”) average forecast pricing. These NAVPS⁽⁴⁾ values reflect a premium of 54% and 123%, for 1P and 2P respectively, over the current share price⁽⁵⁾ of $3.00.

Year-End 2022 Reserve Results:

2022 Independent Reserves Evaluation:

The McDaniel Report was prepared in accordance with definitions, standards, and procedures contained in the Canadian Oil and Gas Evaluation Handbook and NationaI Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities. The McDaniel Report was based on 3C average forecast pricing and foreign exchange rates at January 1, 2023, 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’s annual information form for the year ended December 31, 2022, 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, 2023.

Company Gross (before royalties) Working Interest Reserves:

Company Net Present Value of Future Net Revenue Using 3C Average Pricing Forecast ⁽¹⁾:

FDC and F&D Costs:

FDC reflects McDaniel’s best estimate of the future cost to bring Pipestone’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, 2022 increased by $488 million relative to December 31, 2021, to total $1,477 million. The year-over-year increase in FDC incorporates capital cost inflation expectations, increased average completion scope, as well as incremental facilities capital to improve base production performance and reduce long-term operating costs.

Annual Reserve Reconciliation

Pre-Tax Net Asset Value – Excludes Unbooked Land Value:

Note: The above net asset value excludes any additional land value for approximately 50 net sections of unbooked undeveloped land, which represents approximately 35% of the Company’s total land base.

Q4 2022 and Full Year 2022 Financial Results Conference Call

Fourth quarter and full year 2022 results are expected to be released before market open on March 8, 2023. A conference call has been scheduled for March 8, 2023 at 10:00 a.m Mountain Time (12:00 p.m Eastern Time) for interested investors, analysts, brokers, and media representatives.

Conference Call Details:

Please use the following participant URL to register for the Q4 2022 financial results conference call: https://register.vevent.com/register/BIf2529ca87a7949c8bece6d62670b175b. This registration link can also be found on the Company’s website. This link will provide each registrant with a toll-free dial-in number and a unique PIN to connect to the call.

Pipestone Energy Corp.

Pipestone 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 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 has achieved certification of all its production from its Montney asset under the Equitable Origin EO100^TM Standard for Responsible Energy Development. Pipestone shares trade under the symbol PIPE on the TSX. For more information, visit www.pipestonecorp.com.