Riverstone-backed Pipeline Oil wraps up merger with Blackbird

Calgary-based oil and gas companies Blackbird Energy Inc (TSX-V: BBI) and Pipestone Oil Corp have completed their merger, creating Pipestone Energy Corp.

The deal, announced in October, included $310 million in equity and debt financings.

Pipestone Oil was an affiliate of Canadian Non-Operated Resources LP (CNOR), which is backed by U.S. energy private equity firm Riverstone Holdings and other investors.

CNOR will own about 54.7 percent of Pipestone Energy shares, with former Blackbird shareholders holding the rest.

Pipestone Energy, led by President and CEO Paul Wanklyn, is expected to begin trading this week on the TSX Venture Exchange under the symbol PIPE.

PRESS RELEASE

Blackbird Energy Inc. and Pipestone Oil Corp. Announce the Closing of 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 – January 4, 2019

Blackbird Energy Inc. (“Blackbird”) (TSX-V: BBI) and Pipestone Oil Corp. (“Pipestone Oil”) are pleased to announce that they have closed their previously announced business combination (the “Transaction”), which was completed by way of a plan of arrangement (the “Arrangement”). Concurrent with the Transaction, Blackbird and Pipestone Oil have closed equity financings totaling $111.0 million with certain existing shareholders and Pipestone Oil has arranged $198.5 million of debt financing (collectively, the “Financings”). The closing of the Transaction and Financings results 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” or the “Company”).

Garth Braun, former Chairman, CEO, and President of Blackbird, stated, “We are delighted to complete the merger with Pipestone Oil and wish to thank our shareholders, employees, and stakeholders for their support. We believe this Transaction will deliver significant growth and value creation in a highly challenged time for our domestic energy industry. As a pro forma company, Pipestone Energy will have significant scale, diversified access to processing and a combined potential value that we believe is far greater than the sum of the parts.”

Paul Wanklyn, President and CEO of Pipestone Energy, stated, “We are very pleased to have closed the Transaction and Financings, and look forward to focusing on the execution of our development plan. 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. The innovative debt structure, led by National Bank Financial, and including Bank of Montreal, provides flexible development capital to fund our capital program, alongside the equity commitments, through 2019. We look forward to building value for Pipestone Energy shareholders in a prudent and efficient manner in the years to come.”

It is expected that the common shares of Pipestone Energy (the “Pipestone Energy Shares”) will commence trading on the TSX Venture Exchange (“TSX-V”) under the trading symbol “PIPE” within two to three business days following the date of this press release and the issuance of a bulletin by the TSX-V regarding completion of the Arrangement. Blackbird’s existing common share purchase warrants (“Warrants”) will continue as obligations of Pipestone Energy and will retain the trading symbol “BBI.WT”.

The Transaction was completed by way of a series of amalgamations involving Blackbird, a wholly-owned subsidiary of Blackbird and Pipestone Oil to create Pipestone Energy pursuant to the Arrangement made effective today under the Business Corporations Act (Alberta), which followed a pre-Arrangement continuance of Blackbird to the Province of Alberta. Pursuant to share conversion terms under the Arrangement, the issued and outstanding common shares of Blackbird (the “Blackbird Shares”) were converted to Pipestone Energy Shares and effectively consolidated on a 10:1 basis (the “Consolidation”). In connection with the Arrangement, Pipestone Oil’s sole shareholder, Canadian Non-Operated Resources L.P. (“CNOR L.P.”) received 103,750,000 Pipestone Energy Shares in exchange for its Pipestone Oil shares, which made the Transaction a reverse take-over carried out in accordance with TSX-V Policy 5.2 – Changes of Business and Reverse Takeovers. Upon completion of the Arrangement and equity financings, former Blackbird shareholders own approximately 45.3% of the Pipestone Energy Shares issued and outstanding (or approximately 50.8% on a fully diluted basis including all pre-existing Blackbird dilutive securities), and CNOR L.P. owns approximately 54.7% of the Pipestone Energy Shares. The Transaction closed with the conditional approval of the TSX-V and remains subject to final approval of the TSX-V which requires the filing of customary closing documents.

As part of a share reorganization under the Arrangement, Blackbird’s minority interest in the Stage Completions Group of Companies was transferred to a holding company (“Stage Holdco”) whose shares have been distributed to former holders of Blackbird Shares.

Pursuant to the terms of the equity financings, an aggregate of $111 million of equity was raised by Blackbird and Pipestone Oil, all on a non-brokered, private placement basis. Blackbird entered into the previously announced subscription agreements with GMT Exploration Company LLC (“GMT Exploration”) and certain funds and accounts managed by its principal shareholder GMT Capital Corp. (“GMT Capital”), pursuant to which GMT Capital and GMT Exploration invested an aggregate of $26,010,000 in Blackbird Shares, following the conversion of an equal number of subscription receipts, at a pre-Consolidation price of $0.34 per subscription receipt (the “GMT Private Placement”). GMT Capital previously held approximately 11% of the Blackbird Shares and following the closing of the equity financings and the Transaction now holds less than 10% of the Pipestone Energy Shares. The GMT Private Placement is subject to the final approval of the TSX-V, which requires the filing of customary documents with the TSX-V. The 76,500,000 Blackbird Shares issued pursuant to the GMT Private Placement have been exchanged for 7,650,000 Pipestone Energy Shares pursuant to the Arrangement. The GMT Private Placement was approved by the shareholders of Blackbird at a special meeting of shareholders on December 19, 2018 in connection with the approval of the Arrangement and other matters. In addition, CNOR L.P. invested $85 million in common shares of Pipestone Oil prior to closing of the Transaction (the “CNOR Commitment”). Proceeds of the GMT Private Placement and the CNOR Commitment will be used for Pipestone Energy’s 2019 capital expenditure program, with a portion of the CNOR Commitment having been used for Pipestone Oil’s Q4 2018 capital expenditure program. The number of Pipestone Energy Shares issued to CNOR LP pursuant to the Arrangement was determined with reference to $0.34 per Blackbird Share, and such 103,750,000 Pipestone Energy Shares are subject to the escrow provisions of TSX-V Policy 5.4 – Escrow, Vendor Considerations and Resale Restrictions. No finders’ fees or commissions were payable with respect to the equity financings. A previously announced potential private placement to certain insiders of Pipestone Energy at a price of $3.40 per share did not proceed as of the date of this announcement.

After giving effect to the Arrangement, pursuant to which each former shareholder of Blackbird (the Blackbird Shares closed at $0.24 per share on the TSX-V on January 3, 2019) received 0.1 of one Pipestone Energy Share and one share of Stage Holdco for each Blackbird Share previously held, Pipestone Energy has approximately 189.6 million Pipestone Energy Shares outstanding and 175.2 million Warrants. Pursuant to automatic adjustment provisions, each Warrant is now exercisable for 0.1 of one Pipestone Energy Share and one Stage Holdco Class A common share at an exercise price of $0.30 per Warrant until the Warrants expire in accordance with their terms on May 19, 2021 (subject to future adjustment in accordance with their terms).

The Pipestone Energy management team is led by Paul Wanklyn as President and CEO, Bob Rosine as Senior VP & COO, Dave Allen as VP Geoscience, Darcy Erickson as VP Operations, Dan van Kessel as VP Corporate Development, and Eva Kiefer as interim CFO.

The Pipestone Energy board of directors is comprised of Gordon Ritchie as Chairman, Garth Braun, Bill Lancaster, John Rossall, Geeta Sankappanavar, Robert Tichio, and Paul Wanklyn.

Operations Update

Drilling:

During Q4 2018, Pipestone Energy drilled 4 Montney development wells to support its exit 2019 growth, as well as 1 exploratory well on the far eastern portion of its acreage to test the emerging volatile oil window in the Montney and preserve 9 sections that were nearing expiry. On the 3-1 pad, the Company has drilled 3 of its planned 5 wells, with the third well representing a pacesetter for Pipestone Energy in terms of speed and cost. Estimated average drilling costs for the last two wells on this pad at rig release were $2.2 million, or ~12% under our budget of $2.5 million.

Completions:

At its 15-14 pad the Company completed a 6 well cube in three separate layers, including its first Lower Montney well, during the fourth quarter. These wells were all completed utilizing plug and perf technology and averaged 202 perforation clusters at 12 meter spacing. Frac sand volumes averaged ~6,200 tonnes per well, resulting in an average proppant loading of 2.5 tonnes per meter. Pipestone Energy is estimating an average completion cost of $4.7 million per well, a savings of ~19% relative to the average budgeted cost of $5.8 million. Our team was able to capitalize on the benefits of pad style, multi-well operations and to optimize costs through better logistics, water and sand management, and equipment utilization. Our location close to the Grande Prairie service hub contributes to our ability to optimize costs based on the speed of delivery of services to the work site.

Infrastructure:

Pipestone’s raw gas gathering system and well site production facilities are under construction and proceeding on budget, with completion expected in Q3 2019. Initial engineering design work is underway to link the east-west (Tidewater) and north-south (Keyera) in-field gathering systems for added flexibility in order to optimize natural gas and condensate deliveries to our midstream service providers.

Updated Capitalization and Guidance

The Company is providing updated guidance with respect to capital expenditures, with some capital shifting from Q4 2018E to 2019E, without modifying the total five quarter forecast spending range. Capital guidance for Q4 2018 is lower due to capital cost savings generated from drilling and completions efficiencies and a delay in the construction of the infield gathering system because of warmer than expected weather in late November / early December. The estimated capital cost savings from Q4 2018E are not expected to alter the potential range of five quarter capital expenditures at this time. Pipeline construction is now actively underway, and the initial pipeline delay will not impact production start-up timing to the Keyera or Tidewater facilities.

(See data and notes here.)

Further Information

Paul Wanklyn

President and Chief Executive Officer

(403) 228-8684

paul.wanklyn@pipestonecorp.com

Dan van Kessel

VP Corporate Development

(403) 228-8688

dan.vankessel@pipestonecorp.com

Website: www.pipestonecorp.com