Energy December 2, 2015 Industry Report

Transcription

1 Canada Research Published by Raymond James Ltd. Energy December 2, 2015 Industry Report How These 4 Unconventional Tools Predict E&P Share Prices Recommendation As E&P names continue to trade near multi-year lows, we believe investors are asking two key questions: 1) What factors can predict long-term share price performance and what has historically explained the discrepancy? and; 2) What are the best ways to play the near-term volatility throughout the sector? We will explore these questions as we launch on 10 names which include: ARC Resources Ltd, Bellatrix Exploration Ltd, Bonavista Energy Corp, Bonterra Energy Corp, Freehold Royalties Ltd, Kelt Exploration Ltd, Painted Pony Petroleum Ltd, Penn West Petroleum Ltd, PrairieSky Royalty Ltd, and Yangarra Resources Ltd. Analysis Time to Re-evaluate: As the downturn has shown, conventional views and (simplified) tools that investors have traditionally used to decipher between energy companies have many flaws. Common metrics such as payout ratios, CFPS, production growth rates, and valuation metrics (EV/DACF and 2P NAV Valuations) do not truly demonstrate the profitability of a business and the long-term share price performance. Focus on PDP Value Creation: Ultimately, all the activities that an E&P company performs (land acquisitions, facilities, etc.) are to bring on a producing well. Not surprisingly, there is a strong relationship between share price performance and PDP (Proved-Developed-Producing) Equity Value Creation. Over the past 2 years, names that generated the greatest increase in PDP equity value have shown an average share price increase of 17% versus a share price decline of 43% for names with the largest decline PDP equity value (a difference of 6) versus the TSX up 1.6% over the same timeframe. If we combine the analysis in the context of leverage (on a Debt/PDP basis), profitability (change in PDP value relative to capex spending) and valuation (on an EV/PDP and EV/EVA (Economic Value Add)), we believe that there is significant empirical evidence to forecast the top performing names. 5-Point Checklist: We ve developed a 5-Point Checklist that we believe captures the variables that are the strongest factors in growing PDP equity value: 1) Management; 2) Asset Economics (leading indicator on profitability); 3) Growth/ROC; 4) Leverage; and 5) Valuation. How s Your Short Game? As much as the investment community propels the thesis of the long-term investing, the reality is most of us are evaluated on the short term performance over 3-6 month windows. Long-term, we believe PDP Equity Value Creation through high rate of return projects holds the strongest correlation to share prices; however, as many long-term investors know, the volatility throughout the time period can be hard to endure (especially waiting for yearly PDP reserve updates). For the short-term investor, different characteristics matter at different points in the cycle. Within, we highlight what those characteristics are today and how they can be used to time the longer-term goal. Jeremy McCrea CFA jeremy.mccrea@raymondjames.ca Michael Shaw CFA (Associate) michael.shaw@raymondjames.ca Please read domestic and foreign disclosure/risk information beginning on page 22 and Analyst Certification on page 21.

2 Canada Research Page 2 of 24 Energy Company Ticker(s) Current Target Price Dividend Total Return Suitability Rating Primary Secondary Price (6-12 months) Yield To Target Intermediate Oil & Gas Producers ARC Resources Ltd. ARX-TSX C$18.63 C$ % 35% M/INC OP2 Bellatrix Exploration Ltd. BXE-TSX BXE-NYSE C$2.36 C$ % H/GRW MP3 Bonavista Energy Corporation BNP-TSX C$2.45 C$4.25 5% 78% H/GRW OP2 Bonterra Energy Corp. BNE-TSX C$22.58 C$ % 41% H/INC OP2 Freehold Royalties Ltd. FRU-TSX C$11.78 C$ % 35% M/INC MP3 Kelt Exploration Ltd. KEL-TSX C$4.71 C$ % H/GRW SB1 Painted Pony Petroleum Ltd. PPY-TSX C$4.68 C$ % H/GRW SB1 Penn West Petroleum Ltd. PWT-TSX PWE-NYSE C$1.48 C$ % H/GRW MP3 PrairieSky Royalty Ltd. PSK-TSX C$25.78 C$ % 21% H/INC OP2 Yangarra Resources Ltd. YGR-TSX C$0.65 C$ % H/GRW OP2 Note: M/INC - Medium Risk/Income, M/GRW - Medium Risk/Growth, H/GRW - High Risk/Growth, H/INC - High Risk/Income, H/SPEC - High Risk/Speculation; SB1 - Strong Buy, OP2 - Outperform, MP3 - Market Perform, UP4 - Underperform, UR - Under Review, R - Restricted. Raymond James Ltd.

3 Energy Canada Research Page 3 of 24 Table of Contents Overview... 4 Potential Returns across the Sector The 47% Difference... 6 Our 5-Point Checklist for Investing in E&P... 8 Playing the Short Game: Is it Safe to Get Back into the Water? Appendix... 17

4 Canada Research Page 4 of 24 Energy Overview As E&P names continue to trade near multi-year lows with share prices down significantly over the past 18 months, we believe investors are asking 2 key questions: 1) What factors can predict long-term share price performance and what has historically explained the discrepancy? and; 2) What are the best ways to play the near-term volatility throughout the sector? First Step Debunking Traditional Methods As the downturn has shown, conventional views and tools that investors have historically used to decipher between energy companies have many flaws. Common metrics such as payout ratios, CFPS, production growth rates, and valuation metrics (EV/DACF and 2P NAV Valuations) have never truly demonstrated the profitability of a business. In addition, IFRS and NI standards allow a significant degree of flexibility in terms of disclosure and reporting, thus making comparisons across companies difficult. There is no denying it, investing in the Oil & Gas Sector is difficult and history has shown many unfortunate letdowns. Adding the technical aspects of the Oil & Gas sector, variable disclosure, and volatility in commodity prices and there is a considerable amount of data investors need to consider. Fortunately, we believe there are enough data points available through multiple sources (Government Agencies, GeoSCOUT, FRACdatabase, etc) and that through careful deliberation we are able to, early on, better predict which companies will perform in any commodity price environment. EV/DACF and/or EV/EBITDA Valuation: The most common valuation approach we see from investors is the EV/DACF (debt-adjusted cash flow) or EV/EBITDA approach (and a lesser extent, EV/boe/d). Although straightforward to calculate, the approach fails to capture a fundamental factor in energy the decline rate of production and the ability to recycle capital (i.e., return on investment). To demonstrate, as we see too often, Company A provides next year s production forecast, the investment community applies a netback (likely based on a strip commodity forecast) and then believes a company is inexpensive because its EV/DACF multiple is lower than its peer group. Take for example, two companies with an Enterprise Value of $1 billion and 2016E DACF of $200 million. On an EV/DACF basis, both companies trade at 5.0x EV/DACF. Without further information, an investor would be indifferent between the two companies. However, let s assume company A s cash flow is declining at 4 and Company B at 2 (similar to its production decline of which there is no standardized report). The PDP Reserve Value would reflect differing decline rates with a PDP reserve value likely at $400 million for Company A versus $700 million for Company B. On an EV/PDP basis, Company A trades at 2.5x its PDP Value versus 1.4x for Company B, a meaningful difference. Unfortunately, EV/PDP shares a similar failing as EV/DACF as it fails to indicate the efficiency (and speed) of which a company can create Economic Value Add a term that we discuss further within. However, it does begin to normalize the sector in terms of Upside Value. 2P Reserve NAV Valuation We believe 2P reserve analysis was useful for conventional reservoirs where it was helpful to know how many future follow-up wells could be drilled to drain a pool. For every producing well, there could typically be 4 future probable locations. However, as technology has unlocked unconventional reservoirs, future drilling inventories have expanded tremendously (look no further than Crown land sales that continue to fall). Overall, the constraints facing E&P companies today is not in the discovery of new resources that will add to several years of inventory already booked but rather the capital constraints needed to bring those resources to market. As more M&A transactions occur, we find more companies are placing transaction metrics based on a PDP reserve value + a number additional locations that they believe are superior to their own. We believe investors should be doing the same. In terms of 2P NAV valuation, we also believe the volatility of E&P share prices and external factors over the past 10 years have made investors more hesitant of any 2P values. In Canada, it seems every other year, there is a fundamental external factor that adversely affects 2P values beginning with the first Alberta royalty review in 2007, WTI price collapse in 2008, collapse in gas

5 Energy Canada Research Page 5 of 24 prices in 2010 and 2011, wide Canadian differentials throughout 2013, and, finally, the WTI price collapse in With this volatility, it seems investors have become more cautious around basing investment decisions on 2P NAVs that rely too heavily on the status-quo. Ultimately, investors should be focused on actual profitability (as reported by PDP reserve figures) as opposed to forecasted profitability that 2P reserve and 2P NAV valuations are based upon. Unfortunately, most company s disclosure of reserves is still only provided in the context of 2P reserves (i.e., acquisitions, break-down of value/contributions in AIFs, etc.). As such, most investors continue to base current year profit and rates of return on 2P forecasted reserve data given the lack of disclosure of PDP reserve figures. Like we said, investing in oil & gas is not easy. One flaw we see quite often regarding 2P reserve profitability is combining the recycle ratio (netback / 2P FD&A costs) and a company s RLI (Reserve Life Index) to capture rate-of-return. We see investors routinely use easily accessible data, which, more often than not, provides inaccurate conclusions. To begin, investors will typically take the 2014 field netback and compare this to the P Reserve F&D cost. The 2014 year netback is based on a combination of several years of production with typically the prior year s new production making up only a minor portion. A gasweighted company with a field netback of $15/boe, that is now drilling oil wells at much higher FD&A costs will likely show negative rates of return as its netback will still be greatly influenced by its gas production weighting. To truly understand this year s economics, we would need to see the field netback of these new oil wells to calculate a proper rate of return. Investors rarely see such disclosure however. A second factor relates to finding, development and acquisition (FD&A) costs. Once again, given limited disclosure, FD&A costs are reported and press released typically on 2P reserves. However, we believe these figures have consistently underestimated the true (and full-cycle) costs of bringing a well on-production. As an example of reserve and profit flexibility under NI , we highlight Legacy Oil & Gas Inc. (recently bought by Crescent Point). In 2014, Legacy reported field netbacks of $48.70/boe with 2P FD&A costs (incl. FDC) at $26.70/boe implying a recycle ratio of 1.8x (or a profit of $22/boe). If we look at the PDP FD&A costs at $63.60/boe, the actual recycle ratio is 0.8x (or a loss of $15/boe). An argument could be made that part of Legacy s total costs were partially acquisition related (that included land inventory) but for an entity with multiple years of inventory already (with an EV that didn t reflect the amount of locations as well), these land acquisition costs ultimately still need to be reflected in the true full-cycle costs of the business. If we step back for a moment and apply this same logic to another industry, consider a coffee chain expanding into a new city. The number of new potential locations for the coffee chain are plentiful and it is nearly just a matter of capital required to open a new coffee location (much like an E&P business regarding the number of new locations in a resource play). Assuming there is a possibility to open 50 new coffee stores over the next 5 years, most investors would still look at the coffee chain s return on investment based on the actual new store openings and how the new store s cashflow is actually performing. Unfortunately, in the E&P sector, most investors would equivalently be measuring the current year s return on investment based on the projected future cash flow from the unopened coffee stores (which would be the case under a 2P analysis). Like any industry, actual costs and revenue can be substantially different than the projected forecasts and by using 2P reserve analysis, by taking future drilling locations and associated revenue and applying it to the current year, poor performing locations in the actual year can be covered up by better projected locations in the future.

6 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Canada Research Page 6 of 24 Energy Potential Returns across the Sector The 47% Difference Although we believe the sector could substantially benefit from better reporting and disclosure standards, the flexibility and simplified approach we see investors take to investing in Canadian E&P businesses does allow the industry to have significant opportunity for alpha. As the following chart shows, over the course of any 6 month window, there are names that outperform and also underperform and the difference between the two groups over any rolling 6 month window has averaged 47%. For reference, Exhibit 1 measures the relative performance of top third and bottom third performing names out of 40 mid-cap E&P names. For example, an investor constructing a portfolio on January 1, 2014 would have the maximum return by buying DEE, PPY, BIR, CR, TVE, RRX, NVA, RMP, LTS, POU, PMT, and KEL and would have shown a return over the next 6 months (January 1 to June 30, 2014) of 81%. Compare this to the poorest performing names over the same time period (TBE, ARX, LRE, TET, CPG, BNE, PGF, BTE, SGY BWT, BNP and BXE) and this group had a return of only 17%, a difference of 62% between the two groups. Once again, over the last three years, the average relative performance between the top third and bottom third performing names (which changes weekly) has averaged 47%. Exhibit 1: Rolling 6 Month Share Performance of the Top, Middle and Bottom Performing Names % 6 Month Share Price Performance of the Top, Middle and Bottom Performing Names 9 Less than 6 Mths 7 5 Average: 47% Difference Between Top and Bottom Performing Groups Top 3rd Performing Names (over next 6 month window) Middle 3rd Performing Names (over next 6 month window) Bottom 3rd Performing Names (over next 6 month window) Source: Bloomberg, Raymond James Ltd. Attributes that Constitute the Top and Bottom Performing Names Some Stats The obvious question is what attributes make up the best performing names, how do these attributes (and names) change week-over-week, and what are long-term fundamental factors that investors can still use if they wish to avoid short term trading and volatility. First a few stats: Of the 156 weeks analyzed above, names who outperformed the most over any 6 month period (i.e., were in the top third performing group of names the most) were: Raging River (116 weeks), Advantage (85 weeks), Storm (90 weeks), Spartan (75 weeks) and Whitecap (72 weeks). Generally, long-term investors could rely on these names outperforming their peers over any 6 month window. For short-term investors, there are many opportunities to play underperforming names. For example, throughout different time periods, Penn West actually belonged in the best performing group for 8 weeks total; LTS (2 weeks); and TBE (4 weeks).

7 RRX:128% BIR:5% POU:-12% BXE:-1% BNE:-9% PPY:-12% WCP:32% TOU:24% PEY:46% SGY:-33% CQE:-26% CPG:-28% PMT:-1% ERF:-13% RMP:53% FRU:-15% ARX:3% PWT:-78% VET:1 BNP:-51% ZAR:-55% NVA:26% LTS:-88% CR:-9% TBE:-68% TET:-73% PGF:-26% SGL:-87% DEE:32% BTE:-55% LRE:-69% -4% -5% -6% -13% -15% -28% -29% -29% -33% -43% -44% -55% -55% -68% -69% -72% -86% -88% -92% -92% -93% 44% 4 27% 23% 21% 12% 75% 95% Energy Canada Research Page 7 of 24 Overall, the average number of weeks any name is in the top performing group is only 35 (or 22% of the time). Essentially, most weeks, RRX would be in the portfolio of the top performing names but occasionally, that name should have been swapped out for PWT or LTS. Overall, as we discuss below, different attributes matter at different points in time and we believe with our 5-Point Checklist, we can decipher what matters most for long and shortterm investors. Long-Term Investors: PDP Equity Value Growth through Economic Value Add PDP NAV/sh Performance: As we show below, there is a strong relationship between share price performance and PDP Equity Value Creation, which we define as the growth in PDP reserve value, less net debt (divided by outstanding shares). As shown, over the past two years, names who have generated the greatest increase in the PDP NAV/sh have shown an average share price increase of 17% versus a decline of 43% for names with the largest decline in PDP NAV/sh a 6 difference. We believe PDP Equity Value Creation versus equity value seen on the balance sheet is more closely tied to share price performance as depreciation (and earnings) are calculated on a unit/production method based on 2P reserves (versus PDP Reserves). Exhibit 2: Change in PDP NAV/sh Value (YE YE 2014) and Subsequent Share Price Performance (YE YE 2014) Change in PDP NAV/sh Value (YE YE 2014) and Subsequent Share Price Performance (YE YE 2014) Average Share Price Return: 17% Average Share Price Return: -15% Average Share Price Return: -43% Change in PDP NAV/sh Value Share Price Change: Dec 31, Dec 31, 2014 *Excludes names with less than $20 million in cash flow in 2012 Source: Bloomberg, Raymond James Ltd., Company Reports As the chart shows in Exhibit 2, although share price performance can be affected by many different factors, ultimately, all parts of the E&P business cycle are implemented to grow PDP reserve value which share prices reflect long-term. Essentially, this is what we believe investors are most willing to pay for and that it is management s ability in actually bringing resources from deep in the ground to surface at attractive rates of returns that creates value (i.e., how much Economic Value Add is being created each year). The skill in acquiring new inventory we believe is no longer rewarded as much as it might have 10 years ago. Our definition of Economic Value Add is probably best illustrated with an example. If a company is drilling 10 Montney wells with an average NPV/well at $10 million (after adjusting for capex costs), the company will essentially create $100 million in Economic Value Add (EVA). This is what investors (and share prices) should reflect versus simply production growth. Unfortunately, forecasted Economic Value Add is not provided in any guidance and is also difficult to forecast given limited disclosure. That said, we believe the tools at our disposal provide enough of a picture to determine which companies have the potential for most PDP Equity Value growth through Economic Value Add (which ultimately will be rewarded through share price performance). Our 5-Point Checklist is the basis of determining the potential Economic Value Add and supports our valuation methodology.

8 Canada Research Page 8 of 24 Energy Our 5-Point Checklist for Investing in E&P We highlight a brief summary of our 5-Point Checklist for investing in E&P with further details describing how each factor influences PDP NAV/sh growth and ultimately share price performance. Exhibit 3: 5-Point Checklist Summary Item Importance 1. Leadership Management Insider Buying 2. Asset Base Well Economics Size / Run Room Asset Risk Profile Infrastructure Trusted and Experienced mgmt teams attract confidence and typically show the ability to create greater value. No "Skeletons in the Closet", Conviction of corporate strategy and current valuation. Leading indicator on profitably. Capturing the value of a dollar invested and how quickly funds can be reinvested. One good well doesn't define a play. Repeatability, consistency and multiple years of inventory are required. Variability in type-curves, degree of difficulty, and new exploratory pools/fields increase risk (and capital cost). Inability to access to pipeline/facilities or seasonality (winter access) can impact growth. 3. Growth / Rate of Return 2-Yr CAGR: CFPS & PPS Growth Production guidance and quarter results can be an early proxy/indicator on how PDP NAV/sh will change by YE. PDP NAV/Sh Growth PDP Recycle 4. Leverage Leverage Margin / Hedging Equity Dilution 5. Valuation Valuation Ultimately, all company activities are for the purpose and final goal of growing and creating PDP value. Change in PDP Value Y/Y (+field CF) vs. the capital used. One of the most accurate measures of profitability. Overleveraged names run risks of scaled back capex programs, equity dilution or asset sales. High field margins and hedges will reduce CFPS and PDP Value volatility and value. Large land packages, JV opportunities, strategic infrastructure, etc are all potential sources of funding. Investors need to 'pay up' for top quality companies but it does help to get a quality name at a discount. Catalysts Source: Raymond James Ltd. Catalysts can drive new investors into names as risk becomes reduced, especially regarding new pools/plays.

9 Energy Canada Research Page 9 of 24 Management All items in our 5-Point Checklist are ultimately intertwined but all are nearly fully controlled by management to change if improvements are required. Management teams who have shown their experience through success and growth appear to be rewarded with lower costs of capital (and higher multiples). In terms of quantifiable attributes, we look for (but not limited to): Track-Record of growing PDP NAV/sh: We fully acknowledge the difficulties with changing commodity prices but a past track-record is always encouraging. Strong technical teams with the ability to adapt and utilize new technologies, a focus on their strengths (i.e., economies of scale and knowledge), and successful acquisitions are all key. Ensuring adequate levels of hedging: Investors looking to call the commodity typically will invest in larger-cap, more liquid names. Management teams who recognize this and hedge the commodity price until they see well payout (at a minimum) should be rewarded. Insider Buying / Ownership: Given the limited disclosure provided by many E&P companies, we see insider buying as an indication that there are no skeletons in the closet. Obviously, stock options are a large part of compensation and the selling is to be expected and there are periods of blackouts due to M&A work, as with any businesses. Reserve Engineers: Not all reserve engineers perform reserve evaluations equally (or have the same price forecast). For comparison purposes, the majority of E&P names use either GLJ Petroleum Consultants, McDaniel & Associates Consultants Ltd., Sproule - Worldwide Petroleum Consultants, or InSite Petroleum Consultants Ltd. Asset Economics Rock quality is one of the greatest factors contributing to Economic Value Add, return on invested capital, and ultimately PDP NAV/sh growth. Unfortunately, it is one of the hardest items to compare among companies given no standards across companies in terms of price decks (including quality discounts), IRR calculations, well costs, PDP, and 2P reserve cut-off time frames and whether these assumptions are projected, historical or historical results with omitted data. Like we said, investing in Oil & Gas is not easy. In general, the analysis of well economics across plays can be quite challenging. Even comparing the results of 2 companies on an adjacent section of land can be drastically different. Overall, as our research shows within, we base a great deal of our analysis on GeoSCOUT and TOUR reports which can be leading indicators of well profitability that will eventually be reflected in quarterly and AIF statements. In terms of quantifiable attributes, we look for (but not limited to): Well Economics: What is the profit/investment ratio (i.e., a dollar invested creates how much additional dollars) and how quickly can those dollars be re-invested back into the ground. For clarity, our well economics are based on a long-term flat price deck of C$76/bbl and $3.00/mcf AECO, accounting for different royalty regimes/calculations/credits, and pricing differentials. The cost of a well is composed of drilling, completion, equip and tie-in costs. Overall, we look for names that have a profit/investment ratio greater than 1.0x and paybacks less than 18 months. Size / Running Room: One good well doesn t define a play and valuations. Generally, conventional pools will have better perm/porosity than unconventional reservoirs (and likely better economics); however, the running room will generally be much shorter. We look for names with 5-10 years of drilling inventory as history as shown that investors typically don t pay for much more. Asset Risk Profile: Although dry wells are almost a relic of the past, the variability and consistency of results from new resource plays/fields will remain an important factor. In our Risked undrilled upside calculations, our risking factor is determined by a number of variables including consistency in results, likely repeatability, engineer booking practices (booked but undrilled locations), potential for cost overruns, etc. Infrastructure: Whether related to winter access only, spring break-up, service center accessibility, and/or pipeline availability (firm vs interruptible), the ability to get production to market plays an important part on the ability to recycle capital back into the ground.

10 RRX:128% PEY:46% BIR:5% ARX:3% VET:1 ERF:-13% FRU:-15% CPG:-28% BNP:-51% PPY:-12% LRE:-69% BNE:-9% TOU:24% WCP:32% DEE:32% RMP:53% TBE:-68% SGY:-33% BTE:-55% BXE:-1% TET:-73% NVA:26% CR:-9% POU:-12% CQE:-26% PGF:-26% -$1.57 -$0.04 -$0.08 -$0.11 -$0.13 -$0.15 -$0.19 -$0.21 -$0.21 -$0.27 -$0.29 -$0.31 -$0.40 -$0.41 -$0.48 -$0.59 $0.63 $0.37 $0.25 $0.19 $0.18 $0.10 $0.09 $0.08 $0.04 $0.02 Canada Research Page 10 of 24 Energy Growth Strong well economics don t matter if the play isn t being developed. A company could have the best return on capital but if there is little development relative to the base PDP value, especially in regards to the implied Upside investors are paying up for (EV-PDP Value), the share price is likely to see minimal impact. A few key items we look for: PDP NAV/sh Growth: As discussed, all the activities an E&P company will perform are designed to ultimately bring a producing well on-stream. Raw land goes through six different classifications starting with Total Petroleum Initially-In-Place, Discovered Petroleum Initially- In-Place, Contingent Resources, Probable (2P) Reserves, Proved Reserves, Proved-Non- Producing Reserves to finally Prove-Developed-Producing Reserves. Long-term, companies who grow the PDP NAV/sh the greatest will likely see the greatest share price impact. Quarterly CFPS/PPS Growth: PDP reserve updates are but once a year but quarterly CFPS/PPS growth can serve as an early indicator of PDP growth. Companies who are exceeding guidance have possibly experienced stronger well results that should help show higher reserve estimates/positive technical revisions. Likewise for CFPS, better realized pricing and/or lower op costs will influence PDP reserve values. That said, quarterly misses should be taken in the context of the impact to PDP reserves (i.e., the present value of a 3 month delay in cash flow from the shut-in production from infrastructure outages should barely budge the overall Enterprise Value of a company). PDP Recycle Ratio: We d like to introduce a new concept called the PDP NPV recycle ratio. The ratio compares the change in PDP reserve value y/y (adding back field cash flow) to give us a proxy on how much Economic Value Add was created in the context of how much capital was spent, including acquisitions (i.e., $1.00 dollar spent created how many additional dollars of real value creation). Commodity prices will be influential and asset dispositions will enhance returns but these cannot go on forever. We believe this will provide one of the best profit indicators available for investors and captures the full-cycle return of the business in the creation of producing reserves. We highlight the Economic Value Add from for every dollar invested. For example, from , Raging River spent $548 million in capital/acquisitions and grew its PDP Value from $152 million to $674 million. Adding back field cash flow, the company created $895 million in Economic Value Add or $0.63 for every $1.00 invested. We highlight the top NPV recycle ratios for the sector and, not surprisingly, names with the greatest return on capital are up 9% compared to names with the lowest return, down 22%, a 31% difference. For reference and noise purposes, we have excluded names who sold assets for more than 5 of their 2 year capital spending profile (i.e., PWT, PMT, LTS, and ZAR). Exhibit 4: NPV Recycle Ratio for years and Share Price Return Return on $1.00 of Invested Capital (NPV Recycle Ratio) for years and Share Price Return (Dec 31, Dec 31, 2014) $2.00 $1.50 Average Share Price Return: 9% Average Share Price Return: -6% Average Share Price Return: -22% $1.00 $0.50 $0.00 -$0.50 -$1.00 -$1.50 Return on $1.00 of Invested Capital -$2.00 -$2.50 Share Price Change: Dec 31, Dec 31, 2014 Source: Bloomberg, Raymond James Ltd., Company Reports

11 PMT:-1% POU:-12% LTS:-88% TET:-73% TBE:-68% SGY:-33% DEE:32% BIR:5% LRE:-69% BXE:-1% PWT:-78% SGL:-87% BNE:-9% CR:-9% BNP:-51% BTE:-55% RMP:53% ERF:-13% WCP:32% PGF:-26% ZAR:-55% TOU:24% PEY:46% VET:1 CPG:-28% CQE:-26% ARX:3% RRX:128% FRU:-15% NVA:26% PPY:-12% -24% 62% 62% 6 57% 56% 53% 53% 53% 49% 48% 46% 46% 45% 44% 43% 42% 4 38% 34% 33% 33% 32% 29% 23% 1 1 9% 9 184% 181% Energy Canada Research Page 11 of 24 Leverage We re a strong proponent of reasonable amounts of leverage to enhance the PDP NAV/sh growth. That said, we believe the amount of leverage that has been generally deployed in sector versus the amount of PDP reserves that are hedged (versus near-term production) is remarkably high (especially considering the amount of volatility Canadian commodity prices have experienced over the past 10 years). Our Checklist considers 3 key points: Debt/PDP vs. Debt/CF; Debt/EBITDA: While most lending institutions will look at debt on the basis of PDP reserve coverage, investors continue to use D/CF (and/or Debt/EBITDA) as a key measure of leverage. Much like our topic on Debunking Traditional Methods, cashflow and EBITDA don t account for the natural decline in production (and cashflow). A name that has a decline of 4 versus 2 is much more at risk, despite both companies potentially having a similar Debt/CF ratio. As seen in the chart below, measuring leverage on a Debt/PDP basis vs. Debt/CF provides a much better indication of future share price performance. Continuing on our theme measuring share price performance from , names with the highest leverage at the start of 2012 on an Debt/PDP basis were down 31% compared to names with the lowest leverage that were up 9% - a 4 difference. As investors can start to see, our 5-Point Checklist begins to aggregate names under a number of these factors related to share price performance (i.e., high PDP NAV/sh growth rates, high return on capital, low leverage levels, etc). Exhibit 5: Debt/PDP $Value at YE 2012 and Subsequent Share Price Return ( ) Debt/PDP Value at YE 2012 and Subsequent Share Price Return ( ) Average Share Price Return: -31% Average Share Price Return: -24% Average Share Price Return: 9% Debt/PDP Value (Engineer Reported Value) Share Price Change: Dec 31, Dec 31, 2014 Source: Bloomberg, Raymond James Ltd., Company Reports Hedging: Despite the volatility in commodity prices, we still feel most management teams are reluctant to put hedges in place, perpetually believing commodity prices need to be higher to justify full-cycle economics. We find shorter-term investors also prefer the torque with unhedged entities and will often complain about inevitably hedging losses that are occasionally reported. The reality is we believe nearly all companies are under-hedged relative to the value of their PDP Reserves. At most, a few companies have hedged more than 5 of current year s production; however, this quickly falls off in subsequent years. Overall, the more companies can hedge their PDP value and their capital decision, which was based on the commodity prices at the time the well was drilled, the company, will hold a much lower risk profile. Field and Cashflow Margins: Companies with greater cash flow margins will clearly be less prone to volatile commodity swings. Unfortunately, disclosures on PDP reserve value margins are non-existent and we rely heavily on current quarterly margins as a proxy. Equity Dilution: Companies with large undeveloped land packages and/or infrastructure may have alternative options before needing to raise dilutive equity.

12 Canada Research Page 12 of 24 Energy Valuation Overall, our 5-Point Checklist for E&P investing is designed to determine which names will ultimately grow their PDP NAV/sh the greatest through Economic Value Additions (EVA) in the context of leverage and valuation. The last point is the most difficult in determining why a multiple will expand or contract and, maybe more importantly, what should investors be measuring a multiple of anyways? We ll highlight traditional valuation methods we ve seen throughout the years and why each lead to the wrong conclusion. For clarity, we define Upside as the Enterprise Value less the PDP reserve value (EV-PDP), net of monetization of unrealized hedging gains and marketable securities. Historical Valuation Methods and How they Can Misrepresent Valuation P/CF Doesn t account for leverage or decline profile EV/boe/d Doesn t account for commodity mix and different price values EV/DACF; EV/EBITDA Doesn t account for decline profile EV/2P NAV Doesn t account for equity dilution to fund 2P reserve assumptions EV/PDP Doesn t account for growth and asset economics (but getting more useful) Upside/Capex Spending Doesn t account for well economics and profitability Upside/Economic Value Add We believe this method provides the greatest indication of how much upside an investor is truly paying for in terms of valuation. With most companies able to sell PDP reserves at face value, we look at the Upside gap between the Enterprise Value and the PDP reserve value and try to understand how quickly a company can back-fill this gap. Going back to Company A ($400 million PDP value) and Company B ($700 million PDP value) in our first example, each with a $1 billion EV, the upside investors are paying for in Company A is $600 million and $300 million for Company B. Assuming both names are creating $100 million in Economic Value each year, it will take 6 years to fill the gap for Company A while only 3 years for Company B. The analysis is important as it can capture names with better well economics (dollar in the ground creates how many additional dollars), and names with underutilized balance sheets that can spend in excess of cashflow. Overall, given the constraints of only covering a portion of names in our sector, we ll still highlight the Upside/EVA approach in our initial coverage list, and continue to make adjustments to this as our coverage universe changes, we ll also still use our traditional hybrid approach based on the latest PDP reserve estimate (adjusted for the current commodity strip and any acquisitions/dispositions YTD including any equity dilution) plus Risked Upside. Essentially, once we establish a base value, the upside we believe investors should pay for is based on a reasonable drilling program over the foreseeable future, accounting for available cashflow, dividends and leverage profile. The present value of the future drilling locations (and associated NPV/well) make up our sum-of-the-parts valuation that we believe an investor should be willing to pay for. For further context, we discount all future cashflows and well locations at a 1 discount, however given asset risk profile, management s historical success rate and leverage profile, some names will enjoy a lower discount rate (i.e., higher implied multiple). As such, we make minor adjustments to account for these varying factors. Adding it All Together (PDP Growth, Rate of Return, Leverage and Valuation) As we have shown throughout our report, our 5-Point Checklist has a number of strong correlations to share price performance. Essentially, names which are growing their PDP NAV/sh the greatest, through high rate of return projects, while starting and maintaining reasonable levels of leverage, and where valuation isn t overly expensive are the names that are likely to be the strongest performers.

13 Energy Canada Research Page 13 of 24 For clarity on the table below, we measured each name in terms of growth, rate of return, and leverage (at YE 2012), and assigned a relative rank (top third, middle third, or bottom third) for each category. For example, Raging River (not covered) ranked in the top third for all categories resulting in an average score of 1.0. Its share price performance from YE YE 2014 of 128% as a result shouldn t be a surprise. As shown below, the names who had the lowest total average score (<=1.3), had an average share price performance of 19% versus names with the highest scores (>=2.3) had an average return of -42%, with the difference between the two groups of 61%. Unfortunately, due to survivorship bias (quality names bought, over leveraged names bankrupt/take-unders), we believe the actual performance between the two groups could be wider. Unfortunately, we don t have the ability to review valuation on the expected (Upside/EVA) back from 2012, however we believe our scorecard is improved by looking at this metric today. Our initiating reports detail these values with Kelt and Painted Pony ranking among the highest. Exhibit 6: Adding it All Up Scorecard Growth + Return + Leverage + Valuation Ticker Share Performance Total Growth Rate of Return Leverage YE Total PDP NAV/sh PDP NPV Share Average Growth Recycle Ratio Debt/PDP $ Return Score 2014/2012 Rank YE 2012 Rank RRX 128% % 1 $ PEY 46% % 1 $ % 1 PPY -12% % 1 $ % 1 VET % 2 $ % 1 CPG -28% 1.3-5% 2 $ % 1 ARX 3% % 2 $ % 1 FRU -15% % 2 $ Average 19% % 1.6 $ % 1.0 WCP 32% % 1 -$ % 2 ERF -13% % 2 $ % 2 BIR 5% % 1 $ % 3 BXE -1% % 1 -$ % 3 BNE -9% $ % 2 BNP -51% % 2 $ % 2 TOU 24% % 1 -$ % 2 RMP 53% % 2 -$ % 2 SGY -33% $ NVA 26% % 3 -$ % 1 CQE -26% 2.0-4% 2 -$ % 1 Average 1% 1.8 9% 1.6 -$ % 2.1 BTE -55% % 3 -$ % 2 POU -12% % 1 -$ % 3 PWT -78% % % 2 DEE 32% % 3 -$ % 3 PGF -26% % 3 -$ ZAR -55% % % 2 LRE -69% % 3 -$ % 3 TBE -68% % 3 -$ % 3 PMT -1% 2.7-6% % 3 CR -9% % 3 -$ % 2 TET -73% % 3 -$ % 3 LTS -88% % Average -42% % 2.7 -$ % 2.6 Source: Bloomberg, Raymond James Ltd., Company Reports

14 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Absolute Share Price Performance Relative Performance between Groups Contango Canada Research Page 14 of 24 Energy Playing the Short Game: Is it Safe to Get Back into the Water? As much as analysts, investors, and management teams promote the thesis of the long-term investing, the reality is most of us are evaluated on short term performance as well. Long-term, we fundamentally believe PDP Equity Value Creation through high rate of return projects holds the strongest correlation to share price; however, as many long-term investors know, the volatility throughout the time period can be hard to endure. How Timing Matters As we continue to meet investors each year, the range of investment thesis, tools, and views are tremendous and broad. In reality, the views can all be right but, more often than not, only at certain times. For example, the investor who promotes the thesis of cheap valuation on an EV/DACF basis would have found these names outperformed the more expensive names 68 of the 156 weeks (or only 45% of the time) over any rolling 6 month window (as shown below). On average, the share prices of names with a lower EV/DACF (rolling consensus 12-month) have outperformed premium names by an average of 4% over the past 3 years. However there is a measurable difference in performance when share prices are performing well (bull markets) as lower EV/DACF valuations outperformed, whereas in bear markets, premium EV/DACF valuations outperform. Exhibit 7: EV/DACF (Consensus rolling 12mth Forecast) vs. 6 Month Average Share Price Performance EV/DACF (Consensus 12-Month Outlook) vs. 6 Month Share Price Performance by Group WTI 12 Mth Strip NYMEX12 Mth Strip Less than 6 Mths Avg: -4% -1-4 Difference (right axis) in Share Price Performance of Most/Least Expensive Most Expensive Names (and next 6 mth share price performance) -6 Middle Expensive Names (and next 6 mth share price performance) Least Expensive Names (and next 6 mth share price performance) Source: Bloomberg, Raymond James Ltd. This highlights one of the most difficult aspects of investing in the E&P sector short term different fundamental factors are more important throughout different commodity and sentiment periods. As we highlighted in Exhibit 1, there are outperformers and underperformers over any rolling 6 month window. Our goal is to understand which attributes the top performing names had relative to the bottom performing names controlling for many different factors. Without getting into too much detail (for competitive purposes), our algorithm runs probability testing, based on the similar historical environments (e.g. shape of the commodity strip, consensus sentiment factors, etc.), to determine short term performance. We highlight a few factors below that we have built into our algorithm. Given the wide use of metrics such as D/CF and EV/DACF (and real-time consensus data), we find many of these metrics have a self-fulfilling influence on short term on share prices.

15 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Absolute Share Price Performance Relative Performance between Groups Contango Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Absolute Share Price Performance Relative Performance between Groups Contango Energy Canada Research Page 15 of 24 When do High Leverage Names Perform Best? On average, lower leverage names have outperformed higher leveraged names by 16% over any rolling 6 month window over the past 3 years. As shown, one of the only time periods to be invested in higher D/CF names was in January 2014, where over the next 6 months (heading to the peak of the energy market in June 2014), high leverage names outperform. As seen however, low D/CF names greatly outperformed the high leverage names for the approximately 3 months leading up to January 2014 and it was likely high leverage names were playing catch-up. In the current cycle, we would be cautious of playing a rebound in high leverage names. Exhibit 8: D/CF (Consensus rolling 12mth Forecast) vs. 6 Mth Average Share Price Performance D/CF (Consensus 12-Month Outlook) vs. 6 Month Share Price Performance by Group 4 2 WTI 12 Mth Strip NYME 12 Mth Strip -2 6 Less than 6 Mths Avg: 16% Difference (right axis) in Share Price Performance of Top/Bottom Groups Lowest D/CF Names (and next 6 mth share price performance) -6 Middle D/CF Names (and next 6 mth share price performance) Highest D/CF Names (and next 6 mth share price performance) Source: Bloomberg, Raymond James Ltd. When do Cashflow Margin Names Perform Best? Similar to leverage, high cashflow margin names have outperformed low margin names by 5% over any 6 month window, especially during bear market periods. Exhibit 9: CF Margin (Consensus rolling 12mth Forecast) vs. 6 Mth Share Price Performance Cashflow Margin (Consensus 12-Month Outlook) vs. 6 Month Share Price Performance WTI 12 Mth Strip NYME 12 Mth Strip Less than 6 Mths Avg: 5% Difference (right axis) in Share Price of Highest/Lowest Groups Highest Cashflow Margin (and next 6 mth share price performance) Middle Cashflow Margin (and next 6 mth share price performance) Lowest Cashflow Margin (and next 6 mth share price performance) Source: Bloomberg, Raymond James Ltd.

16 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Absolute Share Price Performance Relative Performance between Groups Contango Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Absolute Share Price Performance Relative Performance between Groups Contango Canada Research Page 16 of 24 Energy When do Gas-Weighted Names Perform Best? On average, gas weighted names have outperformed oil weighted names by 4% over any rolling 6 month window and, loosely, we believe this is generally due higher well economics for gasweighted plays throughout Western Canada. Of interest, the time period in which oil-weighted names outperformed was when the contango for WTI (12 month contract vs near month contract) was significantly higher than the gas contango (June 2013-Oct 2013). The current contango is relativity the same for both commodities at ~2. Exhibit 10: % Gas Weighting (Consensus rolling 12mth Forecast) % Gas (Consensus 12-Month Outlook) vs. 6 Month Share Price Performance by Group WTI 12 Mth Strip NYMEX12 Mth Strip 5 Difference (right axis) in Share Price Performance of Top/Bottom Groups Highest Gas Weighting (and next 6 mth share price performance) 4 Highest Gas Weighting (and next 6 mth share price performance) Avg: 4% Less than 6 Mths -3-4 Source: Bloomberg, Raymond James Ltd. When do High CFPS Growth Names Perform Best? Regardless of bull or bear markets, names that were expected to grow CFPS the greatest (based on consensus estimates) have outperformed low CFPS names by an average of 2. As we indicated in our long-term approach to investing, stronger play economics should lead to higher PDP growth (and CFPS growth). Exhibit 11: CFPS Growth Expectations (Consensus rolling 12mth Forecast) CFPS Growth (Expected Change to 12-Month y/y) vs. 6 Month Share Price Performance WTI 12 Mth Strip NYME 12 Mth Strip Less than 6 Mths Avg: Difference (right axis) in Share Price of Highest/Lowest Growth. Greastest CFPS Growth (and next 6 mth share price performance) Middle CFPS Growth (and next 6 mth share price performance) Lowest CFS Growth (and next 6 mth share price performance) Source: Bloomberg, Raymond James Ltd.

17 Energy Canada Research Page 17 of 24 Appendix Although we don t cover all E&P names in the sector, we highlight current consensus estimates for the universe. For further details on any differences in our coverage, please see our initiating reports and current research at Raymond James Ltd. Valuation We highlight valuation metrics based on current EV/PDP values (i.e., current EV updated for new equity, and announced acquisitions and divestitures (where provided)) versus engineer PDP reserve values at YE We also compare how this valuation has changed from YE 2014 to the current share price today, as well as the 3-year average. In addition, we compare the Upside currently implied in the Enterprise Value today relative to expected 2016 consensus cashflow to provide an idea (assuming 10 cashflow re-investment and similar play economics) on how quickly this Upside gap could be back-filled. Exhibit 12: Valuation Metrics Valuation EV/PDP (PDP Engineer $Value (BT1) Valuation - Based on YE 2014 PDP Eng. Value Difference: Current & 2014 Difference Between Current & 3-Year Avg Upside at YE / Expected CF for Following Year EV/DACF EV/PDP EV/PDP Difference EV/PDP EV/PDP Difference Cur. Upside / YE14 Ups/ YE13 Ups/ Consensus 2016 Company Ticker Current TickerCurrentYE 2014Cur. vs Ticker Yr Avg Curr vs. 3-Yr Ticker $mm 2016 CF 2015 CF 2014 CF Ticker EV/DACF Seven Generations Energy Lt VII 7.3x AAV 2.4x 2.0x 21% AAV 1.3x 0.9x 1.1x 1.1x 112% FRU $ x 9.3x 9.2x FRU 10.5x PrairieSky Royalty Ltd. PSK 4.8x RRX 2.5x 2.2x 16% WCP 2.1x 1.8x 1.9x 1.9x 4% VII $ 3, x 8.0x TET 10.2x Paramount Resources Ltd. POU 2.7x WCP 2.0x 1.9x 4% CR 1.8x 1.7x 2.7x 2.1x VET $ 3, x 7.8x 6.7x PNE 9.9x Raging River Exploration Inc. RRX 2.5x SRX 2.5x 2.6x -4% PMT 2.2x 2.6x 1.8x 2.2x -1% RRX $ 1, x 3.9x 4.7x LTS 9.9x Tourmaline Oil Corp. TOU 2.5x VII 7.3x 8.1x -1 NVA 2.6x 2.1x 1.2x 2.0x -1% POU $ 1, x 7.1x 13.6x LRE 9.6x Storm Resources Ltd SRX 2.5x SPE 1.5x 1.7x -11% PEY 2.5x 2.0x 1.7x 2.1x -4% ARX $ 3, x 6.6x 6.8x RRX 8.4x Vermilion Energy Inc. VET 2.4x PSK 4.8x 5.5x -12% VET 2.9x 2.8x 2.4x 2.7x -1 WCP $ 2, x 3.5x 3.8x SPE 8.4x Advantage Oil& Gas Ltd. AAV 2.4x LTS 0.9x 1.1x -14% ARX 2.8x 2.6x 2.2x 2.5x -11% AAV $ x 3.2x 1.8x WCP 8.3x Freehold Royalties Ltd. FRU 2.3x PEY 2.0x 2.4x -16% DEE 2.3x 1.6x 1.8x 1.9x -17% TET $ x 4.4x 10.5x ARX 8.3x Granite Oil Corp. GXO 2.3x TOG 1.4x 1.6x -16% RE 2.2x 0.9x 1.6x 1.6x -2 GXO $ x VET 8.2x ARC Resources Ltd. ARX 2.3x CJ 1.0x 1.2x -2 PGF 2.0x 0.9x 1.5x 1.5x -25% PEY $ 2, x 5.2x 5.9x PMT 8.1x Perpetual Energy Inc. PMT 2.2x BIR 1.0x 1.3x -21% FRU 3.4x 3.5x 2.7x 3.2x -28% SRX $ x 4.1x 6.6x BNE 7.5x Crew Energy Inc. CR 2.1x BXE 1.0x 1.3x -22% ERF 1.7x 1.3x 1.1x 1.4x -31% TOU $ 3, x 5.8x 7.9x CJ 7.4x Peyto Exploration Developm PEY 2.0x TVE 1.9x 2.4x -23% TOU 4.9x 4.4x 4.2x 4.5x -44% CR $ x 3.7x 2.6x PEY 7.1x Whitecap Resources Inc. WCP 2.0x CR 2.1x 2.7x -23% LTS 1.5x 1.8x 1.9x 1.7x -46% SPE $ x 2.7x AAV 7.0x NuVista Energy Ltd. NVA 1.9x ARX 2.3x 3.0x -24% LRE 1.6x 1.6x 1.8x 1.7x -46% KEL $ x 4.8x 9.5x KEL 6.9x Tamarack Valley Energy Ltd TVE 1.9x VET 2.4x 3.2x -25% ZAR 1.3x 1.2x 1.3x 1.3x -46% NVA $ x 5.2x 5.3x GXO 6.8x Kelt Exploration Ltd. KEL 1.6x PWT 0.6x 0.8x -26% BXE 1.6x 1.8x 2.1x 1.8x -47% TVE $ x 2.3x 2.3x TOG 6.7x Delphi Energy Corp. DEE 1.6x TET 1.5x 2.0x -27% BIR 1.5x 1.8x 2.7x 2.0x -48% PNE $ x 5.2x 4.2x ZAR 6.4x Spartan Energy Corp. SPE 1.5x ERF 1.0x 1.3x -27% YGR 1.7x 1.7x 1.6x 1.7x -48% DEE $ x 3.6x 4.7x PWT 6.4x Trilogy Energy Corp. TET 1.5x DEE 1.6x 2.3x -29% CPG 2.5x 2.8x 3.1x 2.8x -51% TOG $ x 2.5x 3.3x SGY 6.2x RMP Energy Inc. RMP 1.4x NBZ 0.8x 1.2x -3 BNE 2.7x 2.7x 2.7x 2.7x -52% BNE $ x 5.0x 6.1x CR 6.2x Crescent Point Energy Corp. CPG 1.4x PMT 2.2x 3.2x -3 TBE 2.4x 2.6x 1.9x 2.3x -54% CPG $ 3, x 3.6x 5.3x SRX 6.2x Pine Cliff Energy Ltd PNE 1.4x CPG 1.4x 2.0x -31% BNP 1.7x 1.8x 2.5x 2.0x -55% PPY $ x 5.3x 5.6x POU 6.2x TORC Oil & Gas Ltd. TOG 1.4x LRE 0.9x 1.3x -32% SGY 2.2x 1.7x 2.4x 2.1x -57% RMP $ x 3.0x 4.3x CPG 5.9x Painted Pony Petroleum Ltd. PPY 1.3x SGY 0.9x 1.3x -32% RMP 3.8x 2.2x 4.1x 3.4x -59% BTE $ x 3.7x 6.6x VII 5.8x Bonterra Energy Corp. BNE 1.3x YGR 0.9x 1.3x -33% PWT 1.3x 1.5x 1.8x 1.5x -59% RE $ x 1.7x 2.1x TOU 5.7x Rock Energy Inc. RE 1.3x TBE 1.1x 1.6x -33% POU 7.2x 7.6x 6.4x 7.1x -62% BXO $ x BIR 5.5x Baytex Energy Corp. BTE 1.2x FRU 2.3x 3.5x -33% TET 3.4x 3.9x 4.7x 4.0x -63% PGF $ x 2.8x 3.9x BXE 5.4x Boulder Energy Ltd. BXO 1.2x KEL 1.6x 2.5x -33% PPY 2.6x 4.8x 4.5x 4.0x -66% BIR $ x 1.5x 2.6x PPY 5.2x Pengrowth Energy Corporatio PGF 1.1x TOU 2.5x 3.8x -34% BTE 3.7x 4.4x 4.5x 4.2x -72% TBE $ x 1.3x 3.0x BTE 5.1x Twin Butte Energy Ltd. TBE 1.1x ZAR 0.7x 1.0x -34% CQE 2.3x 2.0x 2.6x 2.3x -75% GXE $ 4 0.1x 1.9x 1.7x NVA 5.1x Birchcliff Energy Ltd. BIR 1.0x PGF 1.1x 1.8x -38% CKE 1.3x 1.5x 1.2x 1.3x -76% BXE -$ x 0.9x 1.5x NBZ 5.0x Gear Energy Ltd. GXE 1.0x BNP 0.9x 1.4x -39% ERF -$ x 1.2x 2.6x ERF 5.0x Bellatrix Exploration Corp BXE 1.0x NVA 1.9x 3.4x -42% CJ -$ x 1.2x TVE 4.8x Cardinal Energy Ltd. CJ 1.0x BNE 1.3x 2.3x -44% YGR -$ x 0.6x 1.4x DEE 4.6x Enerplus Corporatin ERF 1.0x RE 1.3x 2.2x -44% SGY -$ x 1.5x 3.7x PGF 4.5x Lightstream Resources Ltd. LTS 0.9x POU 2.7x 4.9x -46% BNP -$ x 1.8x 3.2x BNP 4.4x Long Run Exploration LRE 0.9x BTE 1.2x 2.3x -5 NBZ -$ x 0.9x JOY 4.3x Surge Energy Inc. SGY 0.9x PNE 1.4x 2.8x -5 LRE -$ x 1.1x 1.9x TBE 4.1x Bonavista Energy Corp BNP 0.9x GXE 1.0x 2.1x -5 LTS -$ x 0.5x 1.9x GXE 3.8x Yangarra Resources Ltd. YGR 0.9x PPY 1.3x 2.8x -51% CQE -$ x 1.3x 3.5x BXO 3.6x Northern Blizzard Resources NBZ 0.8x JOY 0.5x 1.1x -51% ZAR -$ x 0.3x 1.7x RE 3.5x Zargon Oil & Gas Ltd. ZAR 0.7x RMP 1.4x 3.1x -55% JOY -$ x 0.6x YGR 3.4x Penn West Petroleum Ltd. PWT 0.6x CQE 0.6x 1.5x -62% CKE -$ x 2.0x 0.7x CQE 3.2x Cequence Energy Ltd. CQE 0.6x CKE 0.3x 1.5x -79% PWT -$ 1, x -1.4x 1.7x RMP 3.2x Journey Energy Inc. JOY 0.5x CKE 2.3x Chinook Energy Inc. CKE 0.3x 1) EV/PDP calculated by basic O/S and net debt at YE, PDP Engineer Value (BT1) at YE. Current data updated for YTD equity dilution and Acq/Div 2) Consensus Estimates for PrairieSky and Perpetual don't yet reflect estimates prior to current M&A/Equity annoucnements 3) 'Upside' defined as the difference between the Enterprise Value at YE (or Current EV) and the PDP Reserve Value at YE. 4) Paramount includes current value for Trilogy and MEG shares. Advantge not historically adjusted for Longview shares Source: Bloomberg, Raymond James Ltd.