Strathcona Resources and Pipestone Energy have entered into a definitive agreement, pursuant to which Strathcona will acquire all of the issued and outstanding common shares of Pipestone for 100% share consideration. Upon closing of the Transaction, Strathcona will become a public reporting issuer in Canada.

Strategic Transaction Rationale for Pipestone Shareholders:

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 Canada measured 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;

Dustin Hoffman, Pipestone COO and interim CEO, stated,
“The acquisition of Pipestone by Strathcona reflects the successful culmination of growing and delineating our asset base over the past four years. This all-share transaction delivers shareholders ongoing exposure to one of the largest, well diversified, upstream producers in North America, which has the capacity to grow its production meaningfully over the next decade.”

Gord Ritchie, Chairman of the Board of Directors of Pipestone, commented, 
“We are excited to be combining Pipestone with Strathcona, creating a new Canadian oil and gas champion with long-life reserves, significant growth potential, and low sustaining breakevens. We are proud to have grown Pipestone from 152 boe / d to 35,162 boe / d in just four short years, and now the combination with Strathcona allows Pipestone shareholders to share in future growth and value creation for decades. This transaction is the culmination of a thorough strategic review conducted by the special committee of the board of the directors of Pipestone which concluded that the combination with Strathcona created the strongest value creation opportunity for Pipestone shareholders versus both the status quo and other available alternatives.”

Transaction Overview

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 C$8.6 billion1, which, when combined with approximately C$2.9 billion in pro forma debt outstanding on closing of the Transaction, equates to an initial enterprise value of approximately C$11.5 billion.

Pro Forma Company Overview

Pro forma for the Transaction, Strathcona will be the fifth largest oil producer in Canada, with current production of approximately 185,000 boe / d (70% oil / condensate, 78% total liquids), across three concentrated core areas: Cold Lake Thermal (55,000 bbls / d), Lloydminster Heavy Oil (55,000 bbls / d) and Montney (75,000 boe / d).

Strathcona will be led by Adam Waterous (Executive Chairman), Rob Morgan (President and Chief Executive Officer), Connor Waterous (Senior Vice President and Chief Financial Officer), and Strathcona’s experienced executive team. WEF intends to be a long-term shareholder in Strathcona and has no intention to divest of any of its AmalCo shares in connection with the Transaction.

Adam Waterous, Executive Chairman of the Board of Directors of Strathcona and Chief Executive Officer of WEF, remarked,
“Over the last six and half years we have built Strathcona from 5,000 boe / d to 185,000 boe / d through a combination of organic growth and complementary acquisitions. In doing so we have employed a value investing strategy to grow per share intrinsic value while maintaining a margin of safety. We are excited to continue building Strathcona within the public markets and believe that now is an attractive time to be growing an oil and gas business in Canada.”

Rob Morgan, President and Chief Executive Officer of Strathcona, remarked, 
“We are excited about the acquisition of Pipestone, which fits hand-in-glove with our existing condensate-rich Alberta Montney properties and provides a natural hedge to the natural gas and condensate consumed in our Cold Lake Thermal and Lloydminster Heavy Oil operations. We look forward to welcoming Pipestone’s public shareholders as our new partners and growing per share value for them.”

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