Mr. Rob Morgan of Strathcona Resources reports

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

Strathcona Resources Ltd. and Pipestone Energy Corp. have entered into a definitive agreement, pursuant to which Strathcona will acquire all of the issued and outstanding common shares of Pipestone for 100-per-cent 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/NGL (natural gas liquids) 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 chief operating officer and interim chief executive officer, 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 break-evens. We are proud to have grown Pipestone from 152 barrels of oil equivalent per day 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 per cent of the pro forma equity in AmalCo on a fully diluted basis (approximately 8.87 per cent basic), equating to an exchange ratio of 0.067967 AmalCo share per Pipestone share. Existing Strathcona shareholders, comprising Waterous Energy Fund (WEF) (99.7 per cent) and Strathcona employees (0.3 per cent), will own the balance. The exchange ratio implies an initial market capitalization of approximately $8.6-billion, which, when combined with approximately $2.9-billion in pro forma debt outstanding on closing of the transaction, equates to an initial enterprise value of approximately $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 per cent oil/condensate; 78 per cent total liquids), across three concentrated core areas: Cold Lake thermal (55,000 barrels per day), Lloydminster heavy oil (55,000 bbl/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."

Mr. 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."

Pro forma investment highlights -- long life, high growth, low break-even

1. 2P reserve life index of 38 years:

• Longest 2P reserve life of any business greater than 150,000 boe/d in Canada;
• Best-in-class one-year and three-year average PDP (proved developed producing) recycle ratios of approximately 3.5 times;
• Well-defined and delineated resource base with minimal technical risk.

2. Opportunity to grow business organically to greater than 325,000 boe/d:

• Opportunity to grow production by approximately 75 per cent in as few as eight years (up to 8-per-cent compound annual growth rate);
• Staged approach to growth, taking advantage of the most capital-efficient projects first:
  • Approximately 220,000 boe/d within existing facility capacity;
  • Approximately 285,000 boe/d, including debottlenecking projects and brownfield expansions;
  • Approximately 325,000 boe/d, including well-defined greenfield opportunities.
• Opportunity for additional growth through further acquisitions

3. Full-cycle 4 WTI (West Texas Intermediate) oil break-even of less than $40 (U.S.) per barrel:

• Low base corporate decline rate of less than 25 per cent (approximately 15 per cent for oil), leading to low sustaining capital requirements;
• Premium realized pricing in Cold Lake thermal versus Athabasca oil 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 bbl/d capacity owned and operated Hamlin rail terminal, delivering undiluted crude to the U.S. Gulf Coast;
• Low-cost, liquid-rich (approximately 45 per cent liquids) Montney assets provide short-cycle growth and a natural hedge to condensate and natural gas prices;
• Approximately $6.4-billion in pro forma tax pools (including approximately $3-billion, which may be utilized immediately); Strathcona does not expect to pay cash taxes before 2026.

Support for the transaction -- Pipestone board recommendation, fairness opinions and voting support agreements

Based on, among other things, the unanimous recommendation of a special committee composed of independent directors and after consultation with its outside financial advisers and legal advisers, 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 Raymond James Ltd. has provided an oral opinion to the board of directors of Pipestone that, in each case, as of the date thereof and subject to the stated assumptions, limitations and qualifications, the consideration to be received by the shareholders of Pipestone pursuant to the transaction is fair, from a financial point of view, to the shareholders of Pipestone.

Pipestone shareholders, including certain directors and all of the officers of Pipestone, holding an aggregate of greater than 39 per cent 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.

Additional transaction details

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 66-2/3rds per cent 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 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 (Canada); (iii) approval of the Toronto Stock Exchange with respect to the listing of AmalCo's shares; and (iv) other customary closing conditions.

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 $25-million in the event the transaction is not completed or is terminated by either party in certain circumstances.

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.

Further information and conference call

A copy of the arrangement agreement with respect to the transaction will be filed on Pipestone's profile on SEDAR+ and will be available for viewing on Pipestone's website and Strathcona's website.

Additional information regarding Strathcona is included in the company's presentation on its website. 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 Tuesday, Aug. 1, 2023, at 8 a.m. Mountain Time (10 a.m. Eastern Time), to discuss the announced transaction.

Advisers

BMO Capital Markets is acting as exclusive financial adviser to the special committee of Pipestone. Raymond James provided a fairness opinion to the Pipestone board of directors. McCarthy Tetrault LLP is acting as Pipestone's legal adviser for the transaction.

CIBC Capital Markets, Scotiabank and Mizuho Securities USA are acting as financial advisers 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 adviser to Strathcona in connection with the transaction, and Stikeman Elliott LLP is serving as legal adviser to WEF in connection with the transaction.

About Strathcona Resources Ltd.

Strathcona Resources is one of North America's fastest-growing oil and gas producers with operations focused on thermal oil, enhanced oil recovery and liquid-rich natural gas. Strathcona is built on an innovative approach to growth achieved through the consolidation and development of long-life oil and gas assets.

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 its 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 EO100 Standard for Responsible Energy Development. Pipestone shares trade under the symbol PIPE on the Toronto Stock Exchange.

We seek Safe Harbor.