Pipestone Energy Corp. Enters into Agreement to be Acquired by Strathcona Resources Ltd. in an All-Share Transaction, Creating a New Public Canadian Oil & Gas Champion
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The Pipestone Board and management team view this transaction as being in the best interests of Pipestone shareholders. The Company has grown its production rapidly since inception, developing an economically attractive asset base. This all-share combination provides Pipestone shareholders with a meaningful ownership stake in a large, low-decline rate, oil-weighted producer with more than 35 years of highly economic development inventory and significant tax shelter to optimize future growth.
- Continued Ownership Stake in a Highly Differentiated Producer: The combined company will have three core areas, each with meaningful scale and inventory, and a balance of heavy oil, condensate / NGLs and natural gas production. The combined company will be strongly positioned against other large oil-weighted Canadian producers on production growth rate, netback, reserve life and free cash flow generation;
- Achieves the Size and Scale Required for Market Relevance: The Combination is a compelling opportunity to create the fifth largest liquids producer in
Canadameasured by production and reserves, significantly increasing market relevance, which is expected to garner incremental institutional investor interest and drive increased long-term value for Pipestone shareholders;
Pursuant to the Transaction, Strathcona and Pipestone will be amalgamated to form a new corporation, which will continue as "Strathcona Resources Ltd." ("AmalCo"). Following completion of the Transaction, existing Pipestone shareholders will receive approximately 9.05% of the pro forma equity in AmalCo on a fully-diluted basis (approximately 8.87% basic), equating to an exchange ratio of 0.067967 AmalCo shares per Pipestone share. Existing Strathcona shareholders, comprised of Waterous Energy Fund ("WEF") (99.7%) and Strathcona employees (0.3%), will own the balance. The exchange ratio implies an initial market capitalization of approximately
Pro forma for the Transaction, Strathcona will be the fifth largest oil producer in
Strathcona will be led by
1. 2P Reserve Life Index of 38 Years:
- Longest 2P reserve life of any business >150,000 boe / d in
- Best-in-class 1-year and 3-year avg. PDP recycle ratios of approximately 3.5x
- Well defined and delineated resource base with minimal technical risk
Summary of Pro Forma Reserves (as of
Before Tax NPV10 (C$Bn)
Reserve Life Index (Years)3
Proved Reserves (1P)
Proved Plus Probable Reserves (2P)
2. Opportunity to Grow Business Organically to >325,000 boe / d:
- Opportunity to grow production by approximately 75% in as few as eight years (up to 8% compound annual growth rate)
- Staged approach to growth, taking advantage of the most capital-efficient projects first:
- ~220,000 boe / d within existing facility capacity
- ~285,000 boe / d including debottlenecking projects and brownfield expansions
- ~325,000 boe / d including well-defined greenfield opportunities
- Opportunity for additional growth through further acquisitions
3. Full-Cycle4 WTI Oil Breakeven of Less than
- Low base corporate decline rate of
- Premium realized pricing in Cold
Lake Thermalversus Athabascaoil sands, driven by lower blending costs, higher crude oil quality, and lower transportation costs
- Premium realized pricing (net of transportation costs) in Lloydminster Heavy Oil versus local markets, driven by 50,000 bbls / d capacity owned and operated Hamlin rail terminal, delivering undiluted crude to the
US Gulf Coast
- Low cost, liquids-rich (~45% liquids) Montney assets provide short-cycle growth and a natural hedge to condensate and natural gas prices
C$6.4 billionin pro forma tax pools (including ~C$3 billionwhich may be utilized immediately); Strathcona does not expect to pay cash taxes before 2026
Based on, among other things, the unanimous recommendation of a special committee composed of independent directors (the "Special Committee"), and after consultation with its outside financial advisors and legal advisors, the Board of Directors of Pipestone has approved the Transaction and has determined that: (i) the Transaction is fair to shareholders of Pipestone; (ii) the Transaction and entry into the Arrangement Agreement by Pipestone are in the best interests of Pipestone; and (iii) it will recommend that shareholders of Pipestone vote in favour of the Transaction.
BMO Capital Markets has provided an oral opinion to the Special Committee, and
Pipestone shareholders, including certain directors and all of the officers of Pipestone, holding an aggregate of greater than 39% of the Pipestone Shares have entered into voting support agreements with Strathcona, pursuant to which such Pipestone shareholders have agreed, among other things, to vote their Pipestone shares in favour of the Transaction and to vote against any alternative or competing transaction.
Strathcona and Pipestone have entered into the Arrangement Agreement to effect the Transaction through a plan of arrangement under the Business Corporations Act (Alberta). The Transaction requires the approval of at least 662/3% of the votes cast by Pipestone shareholders, present in person or represented by proxy, at a special meeting of Pipestone shareholders to be called to consider the Transaction (the "Pipestone Shareholder Meeting") and, if applicable, a majority of the votes cast by Pipestone shareholders after excluding the votes cast by those persons whose votes may not be included pursuant to Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions.
Pursuant to the Arrangement Agreement, the completion of the Transaction will also be subject to, among other things, (i) the approval of the Court of King's Bench of Alberta, (ii) the receipt of approval under the Competition Act (
The Arrangement Agreement includes non-solicitation covenants by Pipestone, which are subject to certain "fiduciary out" provisions that allow the Pipestone Board of Directors to change its recommendation with respect to the Transaction and/or to accept transactions financially superior to the Transaction, subject to the right of Strathcona to match such proposals. The Arrangement Agreement provides for mutual non-completion fees of
Further information regarding the Transaction, Strathcona and AmalCo will be contained in a management information circular to be prepared, filed and mailed by Pipestone in due course in connection with the Pipestone Shareholder Meeting, which is expected to be held late in the third quarter of 2023. The Transaction is expected to close early in the fourth quarter of 2023.
A copy of the Arrangement Agreement with respect to the Transaction will be filed on Pipestone's profile at www.sedarplus.ca and will be available for viewing on Pipestone's website at www.pipestonecorp.com and Strathcona's website at www.strathconaresources.com.
Additional information regarding Strathcona is included in the company's presentation on its website at www.strathconaresources.com. Further forward-looking guidance and return of capital program details will be provided upon closing the Transaction.
Strathcona and Pipestone will be hosting a joint conference call on
BMO Capital Markets is acting as exclusive financial advisor to the Special Committee of Pipestone. Raymond James Ltd. provided a fairness opinion to the Pipestone Board of Directors. McCarthy Tétrault LLP is acting as Pipestone's legal advisor for the Transaction.
CIBC Capital Markets, Scotiabank and Mizuho Securities USA are acting as financial advisors to Strathcona in connection with the Transaction.
TD Securities, RBC Capital Markets, Scotiabank, CIBC Capital Markets, and BMO Capital Markets are serving as Co-Lead Arrangers and Joint Bookrunners, and ATB Capital Markets is serving as documentation agent, on AmalCo's expanded credit facilities.
Blake, Cassels & Graydon LLP is serving as legal advisor to Strathcona in connection with the Transaction, and Stikeman Elliott LLP is serving as legal advisor to WEF in connection with the Transaction.
Strathcona Resources is one of
Pipestone is an oil and gas exploration and production company focused on developing its large contiguous and condensate rich Montney asset base in the
This news release contains certain forward-looking statements and forward-looking information (collectively "forward-looking information") within the meaning of applicable securities laws, which are based on the Strathcona's current internal expectations, estimates, projections, assumptions and beliefs. The use of any of the words "believe", "estimate", "anticipate", "expect", "plan", "predict", "outlook", "target", "project", "plan", "may", "could", "will", "shall", "should", "intend", "potential" and similar expressions are intended to identify forward-looking information. These statements are not guarantees of future performance, and involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information.
Forward-looking information in this news release includes, but is not limited to: the Transaction, including the terms and expecting timing for completion thereof; the business, operations and assets of AmalCo following completion of the Transaction, including expected production (aggregate and by area), and the composition thereof, recycle ratios, decline rates and break-even pricing; expectations with respect to the pricing for, and costs of, AmalCo's production; the estimated quantity of AmalCo's reserves, including the estimated future net revenues before taxes therefrom; expectations with respect to opportunities to increase AmalCo's production following completion of the Transaction, including the strategies therefor, including debottlenecking projects, brownfield and greenfield expansions, and acquisitions, and the timing thereof; AmalCo's tax pools, including the characteristics thereof, and the expected timing for AmalCo being required to pay cash taxes; the expected senior executive team of Strathcona; the estimated market capitalization and enterprise value of AmalCo following completion of the Transaction; the pro forma ownership of AmalCo by
The forward-looking information in this news release is based on certain assumptions that Strathcona has made in respect thereof as at the date hereof regarding, among other things: the ability of Strathcona and
Although Strathcona believes the expectations and material factors and assumptions reflected in the forward-looking information herein are reasonable as of the date hereof, there can be no assurance that these expectations, factors and assumptions will prove to be correct. The forward-looking information is not a guarantee of future performance and is subject to a number of known and unknown risks and uncertainties that could cause actual events or results to differ materially, including, but not limited to: the ability of Strathcona and
Strathcona believes the expectations reflected in the forward-looking information in this news release are reasonable, but no assurance can be given that these expectations will prove to be correct, and readers should not place undue reliance on such forward-looking information. Such forward-looking information is made as of the date of this news release and Strathcona does not undertake any obligation to publicly update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. The forward-looking information contained herein is expressly qualified in its entirety by this cautionary statement.
Barrels of Oil Equivalent
This news release contains references to "boe" (barrels of oil equivalent) and "MMboe" (one million barrels of oil equivalent). Strathcona has adopted the standard of six thousand cubic feet of gas to one barrel of oil (6 Mcf: 1 bbl) when converting natural gas to boe. Boe and MMboe may be misleading, particularly if used in isolation. The foregoing conversion ratios are based on an energy equivalency conversion method primarily applicable at the burner tip and do not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of oil as compared to natural gas is significantly different from the energy equivalent of 6:1, utilizing a conversion on a 6:1 basis may be misleading.
Production and Reserves Information
The production and reserves estimates in this news release are based on Strathcona's internal evaluation and were prepared by a member of Strathcona's management. The production and reserves information regarding the Transaction presented in this news release is based on: (i) in respect of Strathcona, (A) the report prepared by Sproule Associates Limited dated
The net present value of future net revenues attributable to reserves included in this news release do not represent the fair market value of such reserves. There is no assurance that the forecast prices and costs assumptions will be attained, and variances could be material.
All references to "crude oil" in this news release include light and medium crude oil and heavy oil on a combined basis. All references to "liquids" in this news release include crude oil and natural gas liquids on a combined basis.
Oil and Gas Metrics
This news release contains metrics commonly used in the oil and natural gas industry, including "recycle ratio" and "reserve life index". These terms do not have a standardized meaning and may not be comparable to similar measures presented by other companies, and therefore should not be used to make such comparisons. Readers are cautioned as to the reliability of oil and gas metrics used in this news release. Management uses these oil and gas metrics for its own performance measurements and to provide investors with measures to compare AmalCo's projected performance over time; however, such measures are not reliable indicators of AmalCo's future performance, which may not compare to Strathcona's and
"Recycle ratio" is calculated as operating netback divided by finding and development (F&D) costs.
"Reserve life index" is calculated by dividing the applicable reserves by expected pro forma production following completion of the Transaction.
1 Based on the closing share price of Pipestone's shares on the Toronto Stock Exchange on
2 See oil and gas advisories for further information on reserves assumptions.
3 Based on current pro forma production of 185,000 boe / d.
4 After all corporate costs (interest, G&A, ARO) and sustaining capital.
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SOURCE Strathcona Resources Ltd.
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