Pipestone Announces That ISS and Glass Lewis Recommend Shareholders Vote “for” Proposed Combination With Strathcona to Create a Leading Canadian Energy Producer, and Sets Record Straight on Flawed and Misleading Arguments by GMT

  • Combining with Strathcona is superior to the status quo as it will give Pipestone shareholders the ability to participate in the upside of a much larger, more diversified producer that will benefit from scale, longer-life and better-positioned reserves, improved access to capital and a potential positive re-rating by markets
  • Pipestone’s extensive strategic review process considered all alternatives available to Pipestone, including the arguments and alternatives put forward by GMT, and determined that the combination with Strathcona Resources is in the best interests of Pipestone and the Pipestone shareholders
  • GMT’s efforts to derail a value-unlocking transaction are based on flawed assumptions and misleading arguments and create risk

CALGARY, Alberta, Sept. 17, 2023 (GLOBE NEWSWIRE) —  (PIPE – TSX) Pipestone Energy Corp. (“Pipestone” or the “Company”) today announced that leading proxy advisory firms Institutional Shareholder Services (“ISS”) and Glass, Lewis & Co., LLC (“Glass Lewis”) have both recommended that shareholders vote FOR the proposed arrangement (the “Arrangement”) with Strathcona Resources Ltd. (“Strathcona”) that would see Pipestone acquired by Strathcona to create one of Canada’s largest energy producers.

Pipestone also wishes to set the record straight on the flawed assumptions and misleading arguments made by Atlanta, Georgia-based GMT Capital Corp. (“GMT”) against this value-creating transaction. Shareholders of Pipestone (“Shareholders”) should be wary that there is nothing new in GMT’s speculative arguments in its dissident proxy circular, which focuses on short-term, cherry-picked data, nor does GMT have a value-enhancing plan for the standalone Company. GMT’s argument can be summarized as nothing more than “kill the deal and hope for the best.” But hope is not a strategy the directors of Pipestone (the “Board”) and Pipestone can support. Neither should Shareholders.

The determination of the independent committee (the “Special Committee”) of the Board came after an extensive and robust strategic review process that considered all alternatives available to Pipestone, including the arguments and options put forward by GMT, and was supported by the advice of Pipestone’s financial and legal advisors.

The 18-month review process that began in early 2022 evaluated over 75 potential counterparties. In February 2023 Pipestone received an initial proposal from Strathcona. The terms of the Strathcona proposal were improved through several revised proposals. The definitive arrangement agreement with Strathcona was signed on July 31, 2023, and includes support agreements from management and Riverstone Holdings LLC, a significant and highly sophisticated shareholder in Pipestone. It was clear to the independent and unconflicted members of the Special Committee that the Strathcona proposal was in the best interests of the Shareholders.

“We are pleased to see that sophisticated independent proxy advisors with no agenda but to provide objective investor guidance support our Board’s recommendation to shareholders” said Gord Ritchie, Chair of the Pipestone Board.

Pipestone believes the Arrangement offers numerous advantages for Shareholders. The all-share consideration will enable Shareholders to fully participate in the upside of a much larger and more diversified producer that is expected to benefit from scale at 185,000 boe/d; a well-positioned reserves base and much longer life at over 38 years; better access and lower cost to capital; extending our tax shelter by over two years; a potential positive re-rating by markets; and an ability for Pipestone shareholders to continue to participate in the upside of the combined company. The Special Committee and the Board have determined the Arrangement is in the best interests of Pipestone and the Shareholders and has the full, signed backing of Management of Pipestone.

“Management’s full support for the Arrangement is a result of our detailed operational knowledge of Pipestone and its reserves, the upside of participating in a large, diversified producer and the relative risk associated with being a standalone producer” said Dustin Hoffman, Chief Operating Officer and Interim President and Chief Executive Officer.

Throughout Pipestone’s thorough strategic review process, the Special Committee and the Board consistently compared the Strathcona transaction to the status quo as a standalone single-asset producer, and against other potential alternatives for the Company. Those included alternatives surfaced by the long and robust strategic review process and included those put forward by GMT.

The recommendations that Shareholders vote “FOR” the Arrangement by the independent proxy advisory firms ISS and Glass Lewis underscore the Board’s recommendation. The job of ISS and Glass Lewis is to review transaction terms and process in detail and offer proxy voting guidance to investment managers, mutual funds, pension funds, and other institutional investors.

Responses to GMT’s Flawed and Misleading Arguments

Pipestone disagrees with GMT’s arguments for many reasons, which are further detailed here, but chiefly among them, GMT does not properly take into account the risks of Pipestone remaining a standalone entity, or the benefits of participating in the upside of a much larger, more diversified producer, and depends upon a series of flawed and unsupported assumptions to support its subjective beliefs, feelings and arguments.

1. Exchange Ratio

GMT argues that the exchange ratio is dilutive. That assertion is based on flawed and inadequate analysis based on single-point estimates that fail to take into account long-term value and business sustainability. Independent reserve metrics are a more appropriate measure of relative value as they take into account longevity of reserve life and its economic viability. Based on 2P Net Asset Value, Pipestone contributes only 8.8% to the pro forma company while Pipestone shareholders receive a larger, 9.05% of the pro forma company, making the exchange ratio attractive to Pipestone shareholders.

Further, even focusing on GMT’s single-point estimates, GMT fails to take into account three important elements in its analysis. First, reserve life index (a measure of how long production can be sustained) for Strathcona is 38 years compared with 18 years for Pipestone standalone. Second, the pro forma company delivers significantly more profit for each barrel of oil equivalent as measured by Strathcona’s operating netback of $35.30/boe vs. Pipestone standalone of $19.51/boe (based on Q2 2023 on an unhedged basis). Finally, oil-sands peers like the pro forma company historically traded at ~2.0x EV/DACF premium to Montney-based peers, delivering higher shareholder value for the same dollar of DACF.

In addition, GMT’s estimated market value of Pipestone is based on GMT’s internal “estimates” of Pipestone’s 2025 EBITDA and is flawed in numerous respects: (1) this analysis ignores the fact that Pipestone will be a significant cash tax payer in 2025, which will likely influence its EBITDA multiple, (2) the assumed EBITDA multiple is significantly in excess of trading multiple of Pipestone’s small-cap Montney peers, and (3) Pipestone’s multiple has historically lagged its Montney peers due to the technical challenges associated with its asset base and its concentrated shareholder ownership.

2. Opportunities as a Standalone Company

GMT argues that there are ways to increase the value of Pipestone as a standalone company. In fact, the Board and Management have examined all of these, and determined that the Strathcona transaction is superior.

To take just one example, GMT argues that H2S is not a significant issue. In fact, contrary to GMT’s speculation that significant reserves could be added with additional technical work, blending and building incremental sour gas processing is already incorporated into management’s plan. Pipestone’s independent reserves evaluator, McDaniel & Associates Consultants Ltd., has already assigned reserves to approximately 80% of its acreage, negating GMT’s assertion that the Company has not properly delineated its lands.

The risks and capital expenditures inherent in building out significant infrastructure are better undertaken by companies of scale and a diversified asset base as opposed to a single asset company. Pro forma the combination, the business will have several decades of high-quality drilling locations across a diverse asset base, significantly reducing technical risk.

3. Combination is Superior to a Sale

Just like GMT, Pipestone management and Board also believe there will be an improvement in the energy markets and an all-equity combination, and not a sale for cash, allows Pipestone shareholders a full, continued participation in the market upside. However, unlike management and the Board, GMT fails to provide any concrete solutions or account for any risks facing Pipestone as a standalone company, even in improved energy markets. 

The combination allows Pipestone shareholders full exposure to improving energy markets, but from a position of strength. First, the pro forma company will have a substantially more diversified asset base, significantly reducing Pipestone’s single-asset risk. Second, Pipestone shareholders transition to being part of a company with substantial scale and significant relevance in capital markets and with institutional investors. Third, the pro forma company will have greater access to capital at lower cost to address Pipestone standalone challenges.

For more detail on why Pipestone believes GMT’s numerous arguments are flawed and misleading arguments, click here.

What is GMT’s Real Agenda?

Shareholders should ask themselves:

  • What is GMT’s true agenda? And is it aligned with the interests of the other Shareholders?
  • Has GMT articulated an actionable vision and strategy for Pipestone?
  • Why would GMT cherry-pick inadequate metrics to cast the transaction in the most unflattering light possible?

The Special Committee and the Board have determined the Arrangement is in the best interests of Pipestone and the Shareholders, and has the full support of Management.

Pipestone thanks Shareholders for the strong support they have shown so far by voting FOR the Arrangement and encourages all Shareholders to vote FOR the Arrangement before 10:00 a.m. (Calgary time) on Monday, September 25, 2023. Details on how to do so can be found below.


Shareholders must vote before 10:00 a.m. (Calgary time) on Monday, September 25, 2023

On August 28, 2023, Pipestone filed a management information circular and related meeting materials (the “Meeting Materials”) in connection with the special meeting of Shareholders (the “Meeting”). The Meeting is scheduled to be held 10:00 a.m. (Calgary time) on September 27, 2023 and will be held in a virtual-only format that will be conducted via live audio webcast accessible at https://web.lumiagm.com/218234565.

The sole purpose of the Meeting is for the Shareholders to consider and, if deemed advisable, approve the Arrangement. Further details regarding the Meeting are set forth in the Circular.

The Board of Pipestone has approved the Arrangement and recommends that Shareholders vote FOR the Arrangement at the Meeting.

Copies of the Meeting Materials are available on www.pipestonestrathcona.com and under Pipestone’s SEDAR+ profile at www.sedarplus.ca.


Pipestone has retained Kingsdale Advisors as its proxy solicitation agent and strategic shareholder and communications advisor in connection with the Meeting. Shareholders with questions are encouraged to contact Kingsdale Advisors by email or at one of the numbers below:

North America (Toll-Free): 1-877-659-1824
Outside of North America (Collect Calls): 416-623-2514
Email: [email protected]
Visit: www.pipestonestrathcona.com


Voting QR Code

A photo accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/e6a40fcd-75b2-45e3-80d5-328bf1ccd290

Details on how to vote can also be found in the Circular under “Voting Information”. All Shareholders are encouraged to vote in advance of the Meeting by proxy, whether or not a Shareholder is intending to attend the Meeting in person (virtually).

Pipestone Company Contact

Dustin Hoffman, Chief Operating Officer and Interim President and Chief Executive Officer
(587) 392-8423
[email protected]   

Media Contact

Martin Cej, Partner
Longview Communications and Public Affairs
(403) 512-5730
[email protected]

Advisory Regarding Non-GAAP Measures

Non-GAAP Measures

This news release includes references to financial measures commonly used in the oil and natural gas industry. The term “debt adjusted cash flow” (“DACF”) is not defined under International Financial Reporting Standards IFRS, which has been incorporated into Canadian GAAP, as set out in Part 1 of the Chartered Professional Accountants Canada Handbook – Accounting, are not separately defined under GAAP, and may not be comparable with similar measures presented by other companies. Management believes the presentation of the non-GAAP measures provide useful information to investors and shareholders as the measures provide increased transparency and the opportunity to better analyze and compare performance against prior periods.

DACF (Debt Adjusted Cash Flow)

DACF is calculated as funds from operations (“FFO”), adding back interest on debt and realized gains/losses on risk management contracts. Debt adjusted cash flow is a useful measure for investors because it provides a representation of cash flow generated prior to the effects of hedging activities and debt servicing costs, and therefore is comparable to, among other things, the total enterprise value of a business as a valuation metric.

Forward-Looking Information

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 Pipestone’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: statements regarding the anticipated benefit of the Arrangement, particularly that the Arrangement will offer advantages to the Shareholders; the expectation that the consideration payable to the Shareholders on completion of the Arrangement will enable the Shareholders to participate in the update of a much larger and more diversified producer that will benefit from scale; the expectation that the combined entity will have longer-lasting and better positioned reserves and better access to capital; the expectation that the combined entity will benefit from tax shelters and a potential positive re-rating by markets; the expectation the exchange ratio delivers more value to the Pipestone shareholders; the expectation that the Arrangement will allow for 100% continued exposure for existing Shareholders to the energy markets; the expectation the pro form company will have a substantially more diversified asset base allowing for reduction of Pipestone’s single-asset risk and the expectation the pro forma company will have greater access to capital at lower cost to address Pipestone’s standalone challenges.

Pipestone 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. 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 Arrangement may not be completed and may not obtain the required shareholder approval; Strathcona, Pipestone and the combined entity may fail to realize, or may fail to realize in the expected timeframes, the anticipated benefits resulting from the Arrangement; risks related to the integration of Strathcona’s and Pipestone’s existing businesses, including that the Shareholders may be exposed to additional business risks not previously applicable to their investment, as the business mix and operations of the combined entity will be different than that of Pipestone; if the Arrangement is not completed, Shareholders will not realize the anticipated benefits of the Arrangement and Pipestone’s future business and operations could be adversely affected; the combined entity’s ability to realize the anticipated growth opportunities and synergies from integrating the respective businesses of Strathcona and Pipestone following completion of the Arrangement; the ability of the combined business to utilize and apply, or carry forward, tax losses and other tax attributes in the future; discrepancies between actual and estimated production of the combined entity. Such forward-looking information is made as of the date of this news release and Pipestone 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.

Production and Reserves Information

The production and reserves estimates in this press release are based on Pipestone’s internal evaluation and were prepared by a member of Pipestone’s management who is a qualified reserves evaluator in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities. The growth potential of Pipestone and the pro forma entity are based on: (i) in respect of Strathcona, (a) the report prepared by Sproule Associates Limited dated February 23, 2023 evaluating the petroleum and natural gas reserves and contingent resources attributable to certain of the assets of Strathcona as at December 31, 2022, (b) the report prepared by McDaniel & Associated Consultants Ltd. (“McDaniel”) dated February 1, 2023 evaluating the bitumen reserves and contingent resources attributable to certain of the assets of Strathcona as at December 31, 2022, and (c) the report prepared by McDaniel dated February 14, 2023 evaluating the heavy oil reserves and contingent resources attributable to certain of the assets of Strathcona as at December 31, 2022, and (ii) in respect of Pipestone, report prepared by McDaniel dated February 13, 2023 evaluating the crude oil, natural gas and natural gas liquids reserves attributable to Pipestone’s properties as at December 31, 2022. Such estimates constitute forward-looking statements, which are based on values that Pipestone’s management believes to be reasonable. For further information regarding the reserves of Strathcona and Pipestone, see the Meeting Materials and the annual information form of Pipestone dated March 8, 2023 for the year ended December 31, 2022, a copy of which is available on Pipestone’s SEDAR+ profile at www.sedarplus.ca, respectively.

Oil and Gas Metrics

This press release metrics commonly used in the crude oil and natural gas industry, including “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 press release. Management of Pipestone uses these oil and gas metrics for its own performance measurements and to provide investors with measures to compare Pipestone’s projected performance over time, including following completion of the Arrangement; however, such measures are not reliable indicators of Pipestone’s future performance, which may not compare to Strathcona’s and Pipestone’s performance in previous periods, and therefore should not be unduly relied upon. “Reserve life index” is calculated by dividing the applicable reserves by expected production.

Barrels of Oil Equivalent

This press release contains references to “boe” (barrels of oil equivalent). Pipestone 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 boes. Boe may be misleading, particularly if used in isolation. The foregoing conversion ratio is 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.

About 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 EO100TM Standard for Responsible Energy Development. Pipestone shares trade under the symbol PIPE on the Toronto Stock Exchange. For more information, visit www.pipestonecorp.com.

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