Blackbird Energy Inc. and Pipestone Oil Corp. Announce a Strategic Merger and $310 Million in Equity and Debt Financings to Form a Premier High Growth Pure-Play Condensate Rich Montney Company


CALGARY, Alberta, Oct. 30, 2018 (GLOBE NEWSWIRE) — Blackbird Energy Inc. (“Blackbird”) (TSX-V: BBI) and Pipestone Oil Corp. (“Pipestone Oil”) are pleased to announce that they have entered into an agreement (the “Arrangement Agreement”) dated October 29, 2018 that provides for the combination of Blackbird and Pipestone Oil (the “Transaction”). Concurrent with the Transaction, Blackbird and Pipestone Oil have entered into agreements with certain of their existing shareholders who have committed to common equity financings totaling $111.0 million and Pipestone Oil has arranged $198.5 million of debt financing (collectively, the “Financings”). The Transaction and Financings will result in the strategic combination of two adjacent and contiguous Pipestone Montney land bases under a single well-capitalized, high growth company that will operate under the name Pipestone Energy Corp. (“Pipestone Energy”).

Pipestone Energy will be the operator of a pure-play condensate-rich Montney asset in the Pipestone area near Grande Prairie with proved plus probable reserves (“2P Reserves”) of ~165 MMboe (~36% condensate / oil + ~11% NGLs) and risked best estimate contingent resources (“2C Resources”) of ~221 MMboe (~36% condensate / oil + ~10% NGLs) booked on only ~58% of total lands, as evaluated by McDaniel & Associates Consultants Ltd. (“McDaniel”)(1). The McDaniel reserves and resource evaluations support sustained production potential of greater than 50,000 boe/d with an associated before-tax 2P Reserves NPV10% of ~$1.2 billion and before-tax 2C Resources NPV10% of ~$0.8 billion (in each case based on forecast pricing)(1). The Financings fully fund Pipestone Energy to achieve its planned 2019 restricted exit production rate of 14,000 to 16,000 boe/d, with diversified processing and egress solutions already in place.

The Transaction will be completed by way of an amalgamation of Blackbird and Pipestone Oil to create Pipestone Energy pursuant to a plan of arrangement (the “Arrangement”) under the Business Corporations Act (Alberta) with a pre-Arrangement continuance of Blackbird to Alberta. Pursuant to share conversion terms under the Arrangement, the issued and outstanding common shares of Blackbird (“Blackbird Shares”) will be converted to common shares of Pipestone Energy (“New Shares”) and effectively consolidated on a 10:1 basis (the “Consolidation”). Pipestone Oil’s sole shareholder Canadian Non-Operated Resources L.P. (“CNOR LP”) will be entitled to receive 103.75 million New Shares (equivalent to 1.0375 billion pre-Consolidation Blackbird Shares). Upon completion of the Arrangement and Financings, Blackbird shareholders would own approximately 45.1% of the New Shares to be outstanding (or approximately 50.8% on a fully diluted basis including all existing Blackbird dilutive securities).

The amalgamation of Blackbird and Pipestone Oil is intended to be tax-deferred for Canadian federal income tax purposes for shareholders of both entities and to qualify as a tax-free (or tax-deferred) reorganization for U.S. federal income tax purposes. As part of a share reorganization under the Arrangement, Blackbird’s minority interest in the Stage Completions Group of Companies will be transferred to a holding company (“Stage Holdco”) whose shares will be distributed to Blackbird’s shareholders.

Garth Braun, Chairman, CEO, and President of Blackbird, stated, “While on the cusp of a significant growth trajectory, we are pleased to provide our shareholders with this transformative opportunity that further de-risks Blackbird’s path to unlock the potential of our Pipestone Montney resource. This accretive transaction will accelerate value for our shareholders through an expanded high-graded inventory of top tier drilling locations, enhanced access to lower cost equity and debt capital and a world-class development team to continue the advancement of our premier condensate rich Montney asset in a socially and environmentally responsible manner. This next phase of development will see the combined company grow to a level where it will deliver meaningful free cash flow to our shareholder base. The combination of these two companies creates scale, diversified access to processing and a combined potential value that will be greater than the sum of the parts.”

Paul Wanklyn, President and CEO of Pipestone Oil, stated, “The assets of Blackbird and Pipestone Oil are a perfect fit and we are excited to bring them together at this early stage as it will afford many operational synergies as the company moves into large scale development. The significant financing commitment that existing shareholders have made in connection with this combination speaks to the high-quality nature of the assets and their support of our business plan and management team. We look forward to building value for Blackbird and Pipestone Oil shareholders in a prudent and efficient manner in the years to come.” Rick Grafton, co-founder of Grafton Asset Management, stated, “The significant financial commitment we have made underscores the confidence level we have in the long-term value creation that Pipestone Energy can deliver to its shareholders.”

(1) The McDaniel reserves and resource evaluations are effective August 1, 2018, utilizing the McDaniel July 1, 2018 price deck, which has been prepared in accordance with the COGE Handbook and NI 51-101.

Key Investment Highlights of Pipestone Energy

  • A pure-play Pipestone Montney company with the single largest condensate-rich acreage position in the sweet spot of the over-pressured window of the fairway
    • Over 98,000 net acres of Montney lands within the very rich gas condensate window at Pipestone;
    • Up to four separate Montney development horizons tested on Pipestone Energy’s lands or in close proximity contribute to over 175 meters of average Montney thickness across the land base;
    • Pipestone Oil currently has ~9,000 boe/d of restricted production behind pipe from nine wells, based on 2P Reserves type curves, with an additional six wells scheduled to be completed by year end 2018; and
    • The land base is well delineated with 31 horizontal wells across the property.
  • Type curve forecasts are supported by strong initial test results and offsetting production validated by industry’s successful delineation efforts
    • McDaniel’s Very Rich Gas Condensate 2 (“VRGC2”) Pipestone Montney B and C type curves, which are representative of the near-term development plans, generate half-cycle IRRs of ~55% to >95% with payout periods of ~17 months to ~13 months(1); and
    • Strong initial test results with rates of 900 to 3,100 boe/d (average ~1,800 boe/d) and condensate gas ratios of up to ~300 bbl/MMcf (average ~170 bbl/MMcf)(2).
  • Decades of drilling inventory established with significant reserves and resource recognition
    • Management has identified 1,450 potential drilling locations in four Montney development horizons;
    • 2P Reserves of ~165 MMboe (~$1.2 billion before tax NPV 10%) and 2C Risked Resource of ~221 MMboe (~$0.8 billion before tax NPV 10%) with 555 drilling locations booked;
    • Only two out of four prospective layers have been booked as either reserves or resource; and
    • Completing an exploratory Lower Montney well with initial test results expected before year end 2018.
  • Committed funding to achieve forecast 2019 exit production rate of 14,000 to 16,000 boe/d
    • The integrated development plan for the combined asset base contemplates total capital expenditures of ~$220 to $260 million for Q4 2018E and 2019E, including ~$100 million for field gathering, well site facilities, and water handling;
    • The planned capital expenditures are fully funded by the Financings and forecast cash flow from operations; and
    • Based on forecast exit 2019 production rates and an estimated operating netback of $28(1) per boe, Pipestone Energy forecasts run-rate annualized net operating income of $145 to $165 million.
  • Positioned for significant long-term growth and free cash flow generation
    • On a combined basis, Pipestone Energy will have firm access to natural gas processing and egress solutions to support production of greater than 30,000 boe/d by 2022E; and
    • The McDaniel reserves and resource evaluations support sustained production potential of greater than 50,000 boe/d from two Montney development intervals, with additional upside from the Montney A and Lower Montney.
Flat US$65/bbl WTI, C$1.90/GJ ($2.00/Mcf) AECO, $0.775 CADUSD (the “Pricing Assumptions”). Assumes a 2,500 meter lateral length.
Represents production over the last 24 hours of a production test.

Strategic Rationale for Blackbird Shareholders

The Transaction would have significant benefits for Blackbird shareholders resulting from increased scale and access to capital as well as ownership in a pro forma company with a high-graded development inventory that is well positioned to execute on a development plan that would more efficiently unlock the value of its Pipestone Montney assets.

  • The strategic combination provides shareholders with continued exposure to a stronger world-class Montney growth story
    • Significantly bolsters high-graded drilling inventory within the economic sweet spot of the play; and
    • Material operating synergies to be realized through more efficient development of interlocking lands.
  • A de-risked financing strategy accelerates the path to increase production, cash flow and value
    • Improved cost of capital versus stand-alone scenarios to access required development funding;
    • The development plan to reach forecast 2019 exit production of 14,000 to 16,000 boe/d is fully funded by committed equity and term debt and forecast funds from operations; and
    • The pro forma exit 2019 forecast is expected to be significantly accretive to Blackbird’s stand-alone forecast on a production and cash flow per share basis.
  • Compelling value to enhance exposure to the Pipestone Montney resource play
    • ~305% increase (3 to 14 MMboe) in proved developed reserves (~70% per fully diluted share after the Financings);
    • ~171% increase (29 to 79 MMboe) in total proved reserves (~14% per fully diluted share after the Financings); and
    • ~180% increase (59 to 165 MMboe) in total 2P Reserves (~17% per fully diluted share after the Financings).
  • Improved business flexibility, size, liquidity, access to capital and diversified exposure to processing and egress helps lift pro forma market positioning
    • Equity and debt capital providers have demonstrated a significant commitment to the larger scale, combined company; and
    • The Transaction increases the number of alternatives available to process and sell petroleum products produced from Blackbird’s assets.
  • Experienced management team and strong governance
    • To ensure continuity of leadership, the new seven member board of Pipestone Energy includes two Blackbird nominees, including Garth Braun, Chairman, CEO, and President of Blackbird; and
    • The management team of Pipestone Energy has the requisite experience to continue to develop the combined asset base in an efficient, economic, ethical, safe and environmentally responsible manner.

Board of Directors and Management Team of Pipestone Energy

Pipestone Energy will be led by Paul Wanklyn, President and Chief Executive Officer and Bob Rosine, Chief Operating Officer. Certain employees of both companies will have roles in Pipestone Energy.

The board of directors of Pipestone Energy will be comprised of the following seven members: two Blackbird nominees, Garth Braun (Chairman, CEO, and President of Blackbird) and Bill Lancaster (President of GMT Exploration Company LLC); three Pipestone Oil nominees, Geeta Sankappanavar (Co-Founder & President of Grafton Asset Management), Robert Tichio (Partner at Riverstone Holdings LLC), and Paul Wanklyn (President and CEO of Pipestone Energy); and two additional independent nominees (one of whom will serve as the Chairperson of the Pipestone Energy board of directors). Richard Grafton will serve as a strategic advisor to the board of directors. In connection with the Transaction, Pipestone Energy will enter into a nomination agreement with CNOR LP providing for nomination rights for three directors as of the date of closing of the Transaction, which initially will be Geeta Sankappanavar, Robert Tichio, and Paul Wanklyn, with such number of director nominees subject to continued Pipestone Energy shareholding requirements for CNOR LP.

Key Attributes of Pipestone Energy and Preliminary Guidance

Capitalization and Preliminary Guidance

Capitalization (Prior to the Proposed 10:1 Share Consolidation)
Common Shares Outstanding (B)
Listed Warrants Outstanding (MM)
Estimated Adjusted Net Debt (Cash) as at September 30, 2018 ($MM)(1)
Capital Expenditures
Q4 2018E ($MM)
$110 to $120
2019E ($MM)
$110 to $140
Forecast Production and Netback
Average 2019E (boe/d)
3,000 to 3,500
Exit 2019E (boe/d)
14,000 to 16,000
Exit 2019E Estimated Liquids Weighting (%)
35-40% Condensate + 5-10% NGLs
Operating Netback ($/boe)(2)
Includes estimated transaction costs and proceeds from the Financings, and does not include any proceeds from the exercise of Blackbird dilutive securities.
Based on the Pricing Assumptions.

Select Pipestone Energy Type Curve Parameters and Economics 

Pipestone Energy Montney VRGC2 Type Curves
Montney B   Montney C
DC&T Cost ($MM) $9.7 $9.7
Raw Gas EUR (Bcf) 4.2 3.4
Condensate EUR (Mbbls) 392 313
Average Horizontal Length (m) 2,500 2,500
Frac Intensity (t/m) 2.5 2.5
Montney B Montney C
Payout (months) 13 17
Before-tax IRR (%) 96% 58%
Before-tax NPV 10% ($MM) $9.8 $6.3
 Based on the Pricing Assumptions.

Reserves and Resources

NPV 10% (before-tax)(1)
Proved Reserves
2P Reserves
2C Resources
(1) Based on McDaniel reserves and resource evaluations effective August 1, 2018, utilizing the McDaniel July 1, 2018 price deck.

Processing and Egress Solutions

Pipestone Energy will have firm access to 60 MMcf/d of natural gas gathering, compression and processing through the Keyera Wapiti Gas Plant beginning in Q4 2019E, with an option to increase to 90 MMcf/d at the company’s election, and firm access to 20 MMcf/d through the planned Tidewater Pipestone Gas Plant beginning in Q3 2019E, ramping to 30 MMcf/d by 2021E.

Pipestone Energy has secured diversified transportation and egress capacity on the TransCanada and Alliance pipeline systems to materially match its processing commitments and growth plans, while delivering production beyond congested AECO markets. Pipestone Energy will also maintain preferred access to the Tidewater gas storage facility.

The Financings

Pursuant to the terms of the Financings, an aggregate of $111 million of equity will be raised by Blackbird and Pipestone Oil on a committed basis, with the new directors and officers of Pipestone Energy anticipated to contribute an additional amount up to $4.4 million, all on a non-brokered, private placement basis. Blackbird has entered into subscription agreements with GMT Exploration Company LLC and certain funds and accounts managed by its principal shareholder GMT Capital Corp. (“GMT”), pursuant to which GMT will invest ~$26 million in Blackbird Shares on a subscription receipt basis at a pre-Consolidation price of $0.34 per subscription receipt (the “GMT Private Placement”). GMT currently holds ~11% of the Blackbird Shares. It is anticipated that on the closing of the Transaction, insiders of Pipestone Energy will subscribe for up to $4.4 million of New Shares at a price of $3.40 per share. The GMT Private Placement and the private placement to insiders are each subject to the approval of the TSX Venture Exchange (the “TSX-V”). Pipestone Oil has a commitment from CNOR LP to invest $85 million in common shares of Pipestone Oil on or prior to closing of the Transaction (the “CNOR Commitment”). Closing of each of the GMT Private Placement and the CNOR Commitment is conditional on the closing of the Transaction. Proceeds of the GMT Private Placement and the CNOR Commitment will be used for Pipestone Energy’s 2019 capital expenditure program. No finders fees or commissions will be payable with respect to the equity financings. The number of New Shares issuable to CNOR LP pursuant to the Arrangement was determined with reference to $0.34 per Blackbird Share.

In conjunction with the Transaction, Pipestone Oil has been provided a binding commitment letter and term sheet for a $198.5 million two-year first lien credit facility (the “Credit Facility”), which will be used to fund a portion of the 2019 capital expenditure program and repay existing indebtedness. The Credit Facility is comprised of a $10.0 million revolving credit facility, a $20.0 million letter of credit facility, and a $168.5 million term loan (“Term Loan”). The Term Loan is available in tranches between the anticipated Transaction closing date and Q1 2020 to fund capital expenditures and to repay existing indebtedness. The interest rate on the revolving and letter of credit facilities is Prime + 300 bps, and payable in cash on a monthly basis. The Term Loan carries a swapped floating-to-fixed interest rate of 9.75%, which is funded through a payment-in-kind interest reserve tranche of $9.0 million. The Credit Facility is not subject to any scheduled borrowing base redeterminations or financial covenants. The closing of the Credit Facility financing, including the execution of a definitive credit agreement, is expected to occur concurrently with Transaction closing, anticipated to be in early January 2019.

Support for the Transaction

The Blackbird board of directors has unanimously approved the Transaction, determined that the Transaction is in the best interest of Blackbird, and has recommended that the holders of Blackbird Shares vote in favour of the Transaction. Cormark Securities Inc. has provided an opinion to the Blackbird board of directors that, based upon and subject to the assumptions, limitations and qualifications set forth therein, the consideration to be received by the holders of Blackbird Shares pursuant to the Arrangement is fair from a financial point of view to the holders of Blackbird Shares. BMO Capital Markets has provided an opinion to the Blackbird board of directors that, based upon and subject to the assumptions, limitations and qualifications set forth therein, the consideration to be received by the holders of Blackbird Shares pursuant to the Arrangement is fair from a financial point of view to the holders of Blackbird Shares. All of the directors and officers of Blackbird, and Blackbird’s principal shareholder GMT, have entered into agreements with Pipestone Oil pursuant to which they have agreed to vote their Blackbird Shares in favour of the Transaction, representing approximately 16.9% of the issued and outstanding Blackbird Shares.

Conditions and Blackbird Shareholder Meeting

Completion of the Arrangement will be subject to the approval of the holders of Blackbird Shares at a meeting to be called to consider the Arrangement (the “Blackbird Meeting”), by: (i) a majority of not less than 66⅔ percent of votes cast in person or by proxy; and (ii) a “majority of the minority” vote to be held in accordance with Policy 5.9 of the TSX-V. As a result of the GMT Private Placement, GMT’s shares will be excluded from the majority of the minority vote.

In addition to shareholder approval, the Arrangement is also subject to the receipt of certain regulatory, court and TSX-V approvals and certain other closing conditions customary in transactions of this nature, including under the Competition Act (Canada). The Arrangement is an “Arm’s Length Transaction” as contemplated by TSX-V Policy 5.2.

The Arrangement Agreement includes customary provisions relating to non-solicitation and a fiduciary-out in the event a financially superior offer is received by either Blackbird or Pipestone Oil, subject to the other party’s right to match such superior offer. The Arrangement Agreement also provides for mutual non-completion fees in the amount of $12 million in the event that the Arrangement is not completed or the Arrangement Agreement is terminated by either party in certain circumstances.

Further details regarding the Arrangement will be contained in an information circular (the “Information Circular”) to be sent to Blackbird securityholders in connection with the Blackbird Meeting. The Information Circular is expected to be mailed to holders of Blackbird Shares within the next two to three weeks with the Blackbird Meeting to be held thereafter and the Transaction is anticipated to be closed in early January 2019. All holders of Blackbird Shares are urged to read the Information Circular once available as it will contain additional important information concerning the Arrangement. A copy of the Arrangement Agreement and the Information Circular and related documents will be filed with Canadian securities regulators and will be available on Blackbird’s profile at

Effect on Outstanding Blackbird Options and Public Warrants

Convertible securities of Blackbird not exercised before closing will remain outstanding following completion of the Transaction, and will be automatically adjusted for the conversion of Blackbird Shares to New Shares and effective Consolidation under the Arrangement to thereafter be exercisable for 0.1 of a New Share following completion. In accordance with the warrant indenture governing Blackbird’s publicly-listed warrants, a warrant holder who duly exercises warrants after closing of the Transaction will also receive, in addition to New Shares, one Stage Holdco share for every warrant exercised.


Cormark Securities Inc., as Lead, and BMO Capital Markets are acting as financial advisors to Blackbird with respect to the Transaction. Bennett Jones LLP is acting as Blackbird’s legal advisor.

Peters & Co. Limited is acting as the exclusive financial advisor to Pipestone Oil with respect to the Transaction. National Bank Financial is acting as strategic advisor to Pipestone Oil and the Lead Arranger and Sole Bookrunner with respect to the Credit Facility. CIBC World Markets acted as a strategic advisor to the CNOR LP board of directors. Osler, Hoskin & Harcourt LLP is acting as Pipestone Oil’s legal advisor.

Conference Call and Webcast

Blackbird and Pipestone Oil will host a conference call and webcast to discuss the proposed merger today. The details of the conference call and webcast are below.

An updated corporate presentation (Link: Presentation) highlighting the strategic combination of Blackbird and Pipestone Oil is available on Blackbird’s website at and Pipestone Oil’s website at

Conference Call October 31, 2018
8:30 a.m. MDT (10:30 a.m. EDT)
Blackbird and Pipestone Oil will host a conference call tomorrow, October 31, 2018, starting at 8:30 am MDT (10:30 am EDT). To participate please dial toll free in North America 1-866-470-2346 or international 1-409-217-8310 and enter 6676599 when prompted. Alternatively, to listen to the conference call online, please enter in your web browser.
An archived recording of the conference call will be available shortly after the event by accessing the webcast link above. The conference call will also be archived on Blackbird’s website at and Pipestone Oil’s website at


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