Strategic Acquisition of Preferred Sands Wisconsin Mine and Canadian Focused Operations. October 2017

Transcription

1 Strategic Acquisition of Preferred Sands Wisconsin Mine and Canadian Focused Operations October 2017

2 Disclaimers A preliminary short form prospectus containing important information relating to the securities described in this document has not yet been filed with the securities regulatory authorities in each of the provinces and territories of Canada. A copy of the preliminary short form prospectus and any amendment is required to be delivered to any investor that received this document and expressed an interest in acquiring the securities. There will not be any sale or any acceptance of an offer to buy the securities until a receipt for the final short form prospectus has been issued. This document does not provide full disclosure of all material facts relating to the securities offered. Investors should read the preliminary short form prospectus, final short form prospectus and any amendment, for disclosure of those facts, especially risk factors relating to the securities offered, before making an investment decision. General Advisory The information contained in this presentation dated October 17, 2017 does not purport to be all-inclusive or contain all information that readers may require regarding Source Energy Services Ltd. ( Source or the Company ) or Source s proposed acquisition (the Acquisition ) of the undertaking and all property, assets and rights owned by Preferred Sands of Canada, ULC, Preferred Sands of Wisconsin, LLC, Preferred Pipeline, LLC and Preferred Sands of Genoa, LLC and / or other affiliates thereof (collectively, the Sellers ) and used in connection with the business currently carried on by the Sellers consisting of mining and point of sale uncoated silica sand at the Blair II Facility (as defined herein), the terminalling and distribution of uncoated silica sand at their terminals located in Chetwynd, British Columbia and Fort Nelson, British Columbia and the selling, transporting, marketing, brokering or otherwise transacting in uncoated silica sand in the Province of British Columbia, the Province of Alberta and the Province of Saskatchewan. Prospective investors are encouraged to conduct their own analysis and review of Source, the Acquisition and of the information contained in this presentation. Without limitation, prospective investors should read the entire record of publicly filed documents relating to Source, consider the advice of their financial, legal, accounting, tax and other professional advisors and such factors they consider appropriate in investigating and analyzing Source. An investor should rely only on the information provided by Source and is not entitled to rely on parts of that information to the exclusion of others. Source has not authorized anyone to provide investors with additional or different information, and any such information, including statements in media articles about Source, should not be relied upon. In this presentation, unless otherwise indicated, all dollar amounts are expressed in Canadian dollars. An investment in the securities of Source is speculative and involves a high degree of risk that should be considered by potential investors. Source s business is subject to the risks normally encountered in the oil and gas industry and, more specifically, the frac sand sector of the oilfield services industry, and certain other risks that are associated with Source s stage of development. An investment in Source s securities is suitable only for those purchasers who are willing to risk a loss of some or all of their investment and who can afford to lose some or all of their investment. The securities of the Company have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the U.S. Securities Act ), or the securities laws of any state of the United States and may not be offered or sold within the United States, except pursuant to an exemption from the registration requirements of the U.S. Securities Act and applicable state securities laws. This document does not constitute an offer to sell or a solicitation of an offer to buy any of the securities described in this document within the United States. Forward-Looking Statements Certain statements contained in this presentation constitute forward-looking information or forward-looking statements (collectively, forward-looking statements ) within the meaning of applicable Canadian and United States securities laws relating to, without limitation, expectations, intentions, plans and beliefs, including information as to the future events, results of operations and Source s future performance (both operational and financial) and business prospects. In certain cases, forward-looking statements can be identified by the use of words such as expects, estimates, forecasts, intends, anticipates, believes, plans, seeks, projects or variations of such words and phrases, or state that certain actions, events or results may or will be taken, occur or be achieved. Such forward-looking statements reflect Source s beliefs, estimates and opinions regarding its future growth, results of operations, future performance (both operational and financial), and business prospects and opportunities at the time such statements are made, and Source undertakes no obligation to update forward-looking statements if these beliefs, estimates and opinions or circumstances should change. Forwardlooking statements are necessarily based upon a number of estimates and assumptions made by Source that are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies. Forward-looking statements are not guarantees of future performance. In particular, this presentation contains forward-looking statements pertaining, but not limited, to: the completion of the Acquisition and the anticipated benefits of the Acquisition, the terms of the Acquisition, changes to laws and regulations affecting Source s business; expectations regarding the price of proppants and sensitivity to changes in such prices; expectations regarding the supply of proppants; outlook for operations; expectations respecting future competitive conditions; industry activity levels; industry conditions pertaining to the frac sand industry; frac sand costs as a portion oftotalwellcosts, logistics costs as a proportion of frac sand landed costs and Source s objectives, strategies and competitive strengths. By their nature, forward-looking statements involve numerous current assumptions, known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Source to differ materially from those anticipated by Source and described in the forwardlooking statements. With respect to the forward-looking statements contained in this presentation, assumptions have been made regarding, among other things: Source s ability to successfully complete the Acquisition and integrate the assets forming part of the Acquisition; production estimates at the Blair II Facility; proppant market prices; future oil, natural gas and natural gas liquids prices; future global economic and financial conditions; demand for oil and gas and the product mix of such demand; levels of activity in the oil and gas industry in the areas in which Source operates; the continued availability of timely and safe transportation for Source s products, including without limitation, rail accessibility; the maintenance of Source s key customers and the financial strength of its key customers; the maintenance of Source s significant contracts or their replacement with new contracts on substantially similar terms and that contractual counterparties will comply with current contractual terms; operating costs; that the regulatory environment in which Source operates will be maintained in the manner currently anticipated by Source; future exchange and interest rates; geological and engineering estimates in respect of Source s resources; the recoverability of Source s resources; the accuracy and veracity of information and projections sourced from third parties respecting, among other things, future industry conditions and product demand; demand for horizontal drilling and hydraulic fracturing and the maintenance of current techniques and procedures, particularly with respect to the use of proppants; Source s ability to obtain qualified staff and equipment in a timely and cost-efficient manner; the regulatory framework governing royalties, taxes and environmental matters in the jurisdictions in which Source conducts its business and any other jurisdictions in which Source may conduct its business in the future; future capital expenditures to be made by Source; future sources of funding for Source s capital program; Source s future debt levels; the impact of competition on Source; and Source s ability to obtain financing on acceptable terms; and, where applicable, each of those assumptions set forth in the footnotes provided herein in respect of particular forward-looking statements. A number of factors, risks and uncertainties could cause results to differ materially from those anticipated and described herein including, among others: the effects of competition and pricing pressures; risks inherent in key customer dependence; effects of fluctuations in the price of proppants; risks related to indebtedness and liquidity, including Source s leverage, restrictive covenants in Source s debt instruments and Source s capital requirements; risks related to interest rate fluctuations and foreign exchange rate fluctuations; changes in general economic, financial, market and business conditions in the markets in which Source operates; changes in the technologies used to drill for and produce oil and natural gas; Source s ability to obtain, maintain and renew required permits, licenses and approvals from regulatory authorities; the stringent requirements of and potential changes to applicable legislation, regulations and standards; the ability of Source to comply with unexpected costs of government regulations; liabilities resulting from Source s operations; the results of litigation or regulatory proceedings that may be brought against Source; the ability of Source to successfully bid on new contracts and the loss of significant contracts; uninsured and underinsured losses; risks related to the transportation of Source s products, including potential rail line interruptions or a reduction in rail car availability; the geographic and customer concentration of Source; the ability of Source to retain and attract qualified management and staff in the markets in which Source operates; labour disputes and work stoppages and risks related to employee health and safety; general risks associated with the oil and natural gas industry, loss of markets, consumer and business spending and borrowing trends; limited, unfavourable, or a lack of access to capital markets; uncertainties inherent in estimating quantities of mineral resources; sand processing problems; and the use and suitability of Source s accounting estimates and judgments. Statements relating to Mineral Resources are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the Mineral Resources described exist in the quantities predicted or estimated and that the Mineral Resources described might be able to be profitably produced in the future. Although Source has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in its forward-looking statements, there may be other factors, including those described under the heading Risk Factors in the short form prospectus to be filed with securities regulators in each of the provinces and territories in Canada in connection with the proposed offering, Source s final prospectus dated April 6, 2017 (the IPO Prospectus ) and those described in Source s management discussion and analysis of the historical financial position and results of Source for the three and six month periods ended June 30, 2017, dated August 2, 2017 (the Interim MD&A ), that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will materialize or prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. The forward-looking statements contained in this presentation are expressly qualified by this cautionary statement. Readers should not place undue reliance on forward-looking statements. These statements speak only as of the date of this presentation. Except as may be required by law, Source expressly disclaims any intention or obligation to revise or update any forward-looking statements or information whether as a result of new information, future events or otherwise. 2

3 Disclaimers (Continued) Scientific and Technical Information Certain scientific or technical information regarding Source s Northern White frac sand mine and related closed-loop wet processing plant located in east-central Barron County near the town of Sumner, Wisconsin (the Sumner Facility ), Source s Northern White frac sand mine and related closed-loop wet processing plant, which includes three washing circuits, dry processing plant and unit train capable loadout facility, located near Blair, Wisconsin (the Blair I Facility ) and the Sellers Northern White frac sand mine and related closed-loop wet processing plant, dry processing plant and loadout facility located in or around Blair, Wisconsin and all related or associated assets and real property (the Blair II Facility ) in this presentation is summarized or extracted from the following technical reports prepared by APEX Geoscience Ltd., respectively: Sumner Facility: Technical Report, Indicated and Inferred Resource Estimate for Source Energy Services Silica (Frac) Sand Deposit in Wisconsin, United States dated December 16, 2015 (the Sumner APEX Report ) prepared by D. Roy Eccles, M. Sc P. Geol, Steven Nicholls, BA.Sc, MAIG and Rachelle Hough, B. Sc. P. Geol.; Blair I Facility: Technical Report, Geological Introduction to Source Energy Services Silica (Frac) Sand Properties in Trempealeau County, Wisconsin, United States, and a Maiden Inferred Resource Estimate for the Highway 53 Property dated February 12, 2017 (the Blair I APEX Report ) prepared by D. Roy Eccles, M. Sc P. Geol, Steven Nicholls, BA.Sc, MAIG and Rachelle Hough, B. Sc. P. Geol.; and Blair II Facility: Technical Report, Indicated and Inferred Resource Estimates For Source Energy Services Ltd. s Blair Property, Wisconsin dated October 16, 2017 (the Blair II APEX Report ), prepared by D. Roy Eccles, M.Sc., P. Geol., Warren Black, M.Sc., G.I.T. and Steven Nicholls, BA.Sc, MAIG. The authors of these technical reports are independent of the Company and are Qualified Persons in accordance with National Instrument Standards of Disclosure for Mineral Projects ( NI ). Source has not based its production decisions and ongoing mine production on Mineral Reserve estimates, preliminary economic assessments, pre-feasibility studies or feasibility studies. As a result, there may be an increased uncertainty of achieving any particular level of recovery of minerals or the cost of such recovery. Historically projects without any Mineral Reserves have increased uncertainty and risk of failure. Mineral resources are not mineral reserves and do not have demonstrated economic viability. There is no guarantee that all or any part of the mineral resources described in this presentation will be converted into a mineral reserve. Readers are cautioned not to rely solely on the summary of such information contained in this presentation, but should read the Sumner APEX Report, the Blair I APEX Report and the Blair II APEX Report which are available for review on Source s profile on SEDAR located at ( and any future amendments to such reports. Readers are also directed to the cautionary notices and disclaimers contained herein and therein and which will be set out in the short form prospectus to be filed with securities regulators in each of the provinces and territories in Canada in connection with the proposed offering. The scientific and technical information in this presentation has been updated with current information, where applicable. Unless otherwise indicated, all mineral resource estimates contained in such scientific and technical information have been prepared in accordance with NI and the Canadian Institute of Mining, Metallurgy and Petroleum Classification System ( CIM ) Estimation of Mineral Resources and Mineral Reserves Best Practice Guidelines dated November 23, 2003 and CIM amended and adopted Definition Standards for Mineral Resources and Mineral Reserves dated May 20, Without limiting the foregoing, such scientific and technical information uses terms that comply with reporting standards in Canada and certain estimates are made in accordance with NI NI is a rule developed by the Canadian Securities Administrators that establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects. IFRS and Non-IFRS Measures This presentation refers to certain financial measures that are not determined in accordance with IFRS such as Adjusted EBITDA and Adjusted Gross Margin. See this presentation, the Interim MD&A and IPO Prospectus for a description of these Non-IFRS measures and a reconciliation to the most relevant IFRS measure for the noted periods. These financial measures do not have standardized meanings prescribed by IFRS and Source s method of calculating these measures may differ from the method used by other entities and, accordingly, they may not be comparable to similar measures presented by other companies. These financial measures should not be considered as an alternative to, or more meaningful than, net income (loss), gross margin and other measures of financial performance as determined in accordance with IFRS as an indicator of performance, but Source believes these measures are useful to both management and investors in providing relative performance and measuring changes in respect of Source as well as measuring Source s financial performance in the context of the capital spending necessary to maintain and grow its assets. Investors are cautioned not to consider these non-ifrs measures in isolation or place undue reliance on ratios or percentages calculated using these non-ifrs measures. These non-ifrs measures should be read in conjunction with Source s unaudited condensed interim consolidated financial statements of Source as at June 30, 2017, and for the three and six month periods ended June 30, 2017 and 2016 (the Interim Financial Statements ), together with the notes thereto, the Interim MD&A and the IPO Prospectus, each of which can be found under Source s SEDAR profile and in the short form prospectus to be filed with securities regulators in each of the provinces and territories in Canada in connection with the proposed offering. Presentation of Financial Information This presentation contains pro forma financial and other disclosure relating to Source, assuming, and after giving effect to, the completion of certain financings and the Acquisition. Readers are cautioned that the Sellers financial information was prepared in accordance with U.S. GAAP and reconciled to IFRS. Such unaudited pro forma consolidated financial information has been prepared using certain of Source s financial statements as well as the Sellers carve-out financial statements. In preparing such unaudited pro forma consolidated financial information, Source has had limited access to the books and records of the Sellers and is not in a position to independently assess or verify the information provided by the Sellers. Such information is not intended to be indicative of the results that would actually have occurred, or the results expected in future periods, had the events reflected herein occurred on the dates indicated. Actual results may differ from those presented in the unaudited pro forma consolidated financial information. The information contained in the unaudited pro forma consolidated financial information is therefore subject to the limitations and the disclaimers set forth in the notes to such information and in the short form prospectus to be filed with securities regulators in each of the provinces and territories in Canada in connection with the proposed offering. Undue reliance should not be placed on such information. 3

4 Executing on Source s Growth Initiatives Current Proposed Acquisition adds 1.0 mmtpa of production capacity and strategically located terminals 5.5 Source Production Capacity 3 Million Metric Tonnes per Annum (mmtpa) Generates Adjusted EBITDA 1 of $16.2 million in 1H/17, up from negative $3.8 million in 1H/16 Realizes Adjusted Gross Margin 2 per Metric Tonne (MT) of $31.96 in Q2/17, up from negative $4.92 in Q2/16 Acquires Blair I Facility, adding 1.3 mmtpa of processing capacity Completes $175 million initial public offering Completes $130 million senior note offering Improvement in WCSB activity levels results in 64% increase in Source s Q4/16 sales volumes year-over-year More than Doubling Capacity Since IPO to Satisfy Growing Demand Expands WCSB terminal network Adopts last mile model Increases production capacity to 2.0 mmtpa Begins distributing own sand through terminal network Introduces Sahara frac sand system Begins development of Sumner Facility & Weyerhaeuser Facility Develops first mine in Wisconsin First terminal established in Red Deer Sumner & Weyerhaeuser Blair I Weyerhaeuser Expansion 4 Proposed Acquisition 1 - See Non-IFRS Measures and related reconciliations in the Interim MD&A. Compares to net income (loss) of ($10.8) million in 1H/17 and ($21.9) million in 1H/ See Non-IFRS Measures and related reconciliations in the Interim MD&A. Compares to Gross Margin per MT of $25.17 in 1H/17 and negative $19.81 in 1H/16. 3 Assumes the Acquisition is completed. 4 - Assumes 0.5 mmtpa expansion of Weyerhaeuser Facility is completed in Q > BUILDING A LEADING PROPPANT LOGISTICS COMPANY 4

5 Demonstrated Ability to Generate Attractive Margins Source Gross Margin per Metric Tonne 1 Estimated Annual Canadian Proppant Demand 2 $150 Adjusted Gross Margin / MT Gross Margin / MT Estimated Annual Canadian Proppant Demand Estimated Range of Canadian Proppant Demand 10.0 $130 $ th Percentile Proppant Intensity (Q Data) 8.0 $ per Metric Tonne $90 $70 $50 $30 Flat Proppant Intensity (Q Data) Million Metric Tonnes $ ($10) 0.0 ($30) ($50) Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17E Q4/17E Q1/18E Q2/18E Q3/18E Q4/18E E 2018E 1,2 Slide Notes > TIGHTENING INDUSTRY FUNDAMENTALS DRIVING MARGIN IMPROVEMENT 5

6 Transaction Highlights Expanding Platform with Complementary Asset Base Producing CN connected mine with 1.0 mmtpa capacity in close proximity to Source s Blair I Facility Large scale proppant terminal in Chetwynd, BC fills gap in Source s terminal network Canadian domestic deposit provides potential additional product line Immediate Value Enhancement Opportunity Opportunity to enhance margins on acquired assets by redirecting volumes through Source s integrated mine to wellsite model Low cost mine with potential to realize cost savings by integrating with existing Source production Strategic Distribution Terminal in Active Northern Montney Leading upstream players operating in region include ARC Resources, Encana and Tourmaline Identified opportunities with customers to place majority of volumes in Canada at attractive margins Reduces trucking distance to active play, reducing cost Financially Prudent Expected purchase price of approximately US$80 million cash consideration 1 Deleveraging transaction via $90 million equity financing with remainder funded from credit facilities Market capitalization and float increase to $521mm and $281mm from $431mm and $191mm respectively 2 Highly Accretive Expected significant cash flow per share 3 accretion in 2018 Expected to be immediately accretive on several key operational metrics 1, 2, 3 Slide Notes > ACQUISITION ALIGNED WITH SOURCE S STRATEGIC FOCUS 6

7 Key Asset Overview Blair II Facility 790 acre owned and operated Northern White sand mine in Wisconsin million MT of Indicated Mineral Resources million MT of Inferred Mineral Resources 1 On-site wet and dry processing facilities with 1.0 mmtpa of production capacity 12,150 MT of on-site silo storage CN-rail connected with 240 rail car capacity Chetwynd Terminal Large scale proppant terminal located west of Dawson Creek, BC Approximately 720,000 MT annual throughput capacity 6,500 MT of silo storage and 20,000 MT of bin storage CN-rail connected with 60 rail car capacity Potential to expand facility to accommodate receipt of unit trains Peace River Sand Deposit Exploration rights on over 3,600 acres of land in Peace River Valley Footprint surrounds one of Canada s leading domestic sand mines Potential CN-rail connection provides logistics advantage versus trucking Production payment agreement capped at US$20 million Peace River Deposit Footprint 1 Slide Notes 7

8 Expanding Platform with Complementary Asset Base Significant Platform Expansion 1 Acquisition Pro Forma Contribution Chetwynd Terminal Fills Gap in Network 1,2,5 Production Capacity (mmtpa) Terminal Capacity 2,3 (mmtpa) Source Pro Forma Source Pro Forma Inferred Mineral Resources 4 (Million MT) ,800 Rail Car Fleet 2, Sumner Blair I Blair II Source Pro Forma 1, 2, 3, 4, 5 Slide Notes > SIGNIFICANT EXPANSION TO SATISFY INCREASING DEMAND IN CANADA 8

9 Immediate Value Enhancement Opportunity Opportunity to increase margins by redirecting volumes through Source s terminal network Blair II Facility Monthly Sales Volumes 1 000s MT Blair II Facility Sales Volumes by Destination 1 6-Months Ended June 30, Canadian In-Basin Volumes Mine Gate Volumes Destined for Canada and the U.S. 2 10% Source sells substantially all product inbasin in Canada % 0 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 1, 2 Slide Notes > SOURCE CAN ENHANCE MARGINS THROUGH INTEGRATED MINE TO WELLSITE PLATFORM 9

10 Proximity of Production Assets Creates Operational Flexibility Geographic Footprint of Blair I & II Facilities Blair I Facility Potential Operational Synergies: Staffing Finished Product Storage Optimization Spare Equipment Inventory Approximately 3,300 Feet Between Rail Yards Blair II Facility 10

11 Strategically Located Terminal in Northern Montney Strategically located Chetwynd Terminal fills gap in Source s logistics network Identified opportunities to place majority of volumes in Canada at attractive margins Acquisition defers previously planned Taylor, BC terminal and associated capital expenditures Key Upstream Operators Chetwynd Terminal Proximity to Montney Acreage Holders 1 1 Slide Notes > CAPITALIZING ON INCREASING MONTNEY GROWTH AND PROPPANT INTENSITY 11

12 Current and Pro Forma Montney Service Capability Chetwynd Terminal allows Source to efficiently service northern Montney region Reduces risk of potential near term capacity shortfall at Wembley Terminal Current Montney Service Footprint Source Rail Terminals Competitor Terminals Pro Forma Montney Service Footprint 1 Source Rail Terminals Competitor Terminals Chetwynd Terminal Chetwynd Terminal Wembley terminal is over 140km drive from northern Montney region Wembley & Grande Prairie Terminals Wembley & Grande Prairie Terminals 1 Slide Notes > MATCHING TERMINAL CAPACITY WITH GROWING DEMAND 12

13 Financial Overview Expected US$80 million cash consideration, subject to closing and post-closing adjustments, with the following financing structure: Approximately C$90 million common equity financing Raised through bought public offering and concurrent private placement Balance of purchase price to be funded from credit facilities Credit facilities are expected to be increased to C$70 million prior to closing Structure results in immediate reduction in leverage ratios Source will also be entering into a production payment agreement on the Canadian domestic deposit Transaction is anticipated to be accretive to Source shareholders Expected significant cash flow per share accretion in 2018 Immediately accretive on production capacity, sales volumes, indicated resources and inferred resources per share > ACCRETIVE TRANSACTION DELEVERAGES BALANCE SHEET 13

14 Combination Summary Pro Forma Combination Summary Operational Metrics Proposed Acquisition Pro Forma 1 Combination 2 Production Capacity mmtpa ,4 Terminal Capacity mmtpa Indicated Mineral Resources mm MT Inferred Mineral Resources mm MT 94.1 & Rail Car Fleet # 1, ,300 Financial Metrics for Six Months Ended June 30, 2017 Revenue per MT C$ $ $91.48 Adjusted Gross Margin per MT C$ 8 $29.39 $27.88 Capitalization 10 Market Capitalization C$mm $431 - $ Float C$mm $191 - $ Total Debt / Shareholders' Equity x 0.6x - 0.5x 13 Enterpise Value / Production Capacity C$ / MT $139 $101 6,7 6,7,9 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13 Slide Notes 14

15 Highly Strategic Transaction Further Consolidates the Canadian Market Proximity of Production Assets Creates Operational Flexibility Expands Terminal Footprint Without Capital Build Process Bolsters Low Cost Rail Fleet Operations Secures High Quality Local Sand Opportunity in the WCSB 15

16 Slide Notes Slide 5 (Demonstrated Ability to Generate Attractive Margins) ) See Non-IFRS Measures and related reconciliations in the Interim MD&A and IPO Prospectus. 2) Estimated Canadian Proppant Demand and related assumptions and qualifications provided at pages 20 and 21 of the IPO Prospectus. Slide 6 (Transaction Highlights) ) Subject to closing and post-closing adjustments. 2) See Slide 14 and related Slide Notes. 3) Defined as cash flows provided by operating activities excluding net changes in non-cash working capital, divided by basic shares outstanding. Slide 7 (Key Asset Overview) ) According to the Blair II APEX Report. Slide 8 (Expanding Platform with Complementary Asset Base) ) Assumes the Acquisition is completed. 2) Includes Source s planned Fox Creek and Edson expansions. Assumes planned Taylor terminal is deferred due to acquisition of the Chetwynd Terminal. 3) Source is also acquiring a terminal in Fort Nelson with capacity of 0.4 mmtpa which has been excluded from the Pro Forma figure. 4) According to the Sumner APEX Report, the Blair I APEX Report and the Blair II APEX Report. 5) Lampman, SK terminal not pictured. Slide 9 (Immediate Value Enhancement Opportunity) ) Non-brokered volumes only. Sellers monthly sales volumes and Sellers sales volumes by destination provided above derived from the Sellers historical accounting and other books and records of the Sellers. Source has had limited access to the books and records of the Sellers and is not in a position to independently assess or verify the information provided by the Sellers. A portion of the U.S. mine gate volumes was sold to customers who may have subsequently shipped frac sand into Canada. See Presentation of Financial Information. 2) Includes volumes delivered to U.S. terminals. Slide 11 (Strategically Located Terminal in Northern Montney) ) Based on data provided by geoscout as of October 10, Slide 12 (Current and Pro Forma Montney Service Capability) ) Assumes the Acquisition is completed. Slide 14 (Combination Summary) ) Assumes the Acquisition is completed. 2) Assumes 0.5 mmtpa expansion of Weyerhaeuser Facility is completed in Q ) Includes Source s planned Fox Creek and Edson expansions. Assumes planned Taylor terminal is deferred due to acquisition of the Chetwynd Terminal. 4) Source is also acquiring a terminal in Fort Nelson with capacity of 0.4 mmtpa which has been excluded from the Pro Forma figure. 5) According to the Sumner APEX Report, the Blair I APEX Report and the Blair II APEX Report. 6) Converted to Canadian dollars using the 6-month average exchange rate for the period ended June 30, 2017 of $ U.S. dollars per Canadian dollar. 7) Based on brokered and non-brokered volumes. 8) See Non-IFRS Measures and related reconciliations in the Interim MD&A. 9) Adjusted Gross Margin represents, for the period presented, net sales of US$35.8 million less cost of goods sold (excluding depreciation, depletion and amortization) of US$24.9 million based on Sellers financial information. See Presentation of Financial Information. 10) Based on 50,316,715 common shares outstanding and 1,300,154 Class B shares that are redeemable for common shares on a one to one ratio at the option of the holder outstanding as at August 2, 2017 and assuming share price of $8.35. Assumes 10,785,000 common shares issued at price of $8.35 per common share for gross proceeds of $90 million in connection with the Acquisition. 11) Based on market capitalization as described in note 10, less shares held by insiders. 12) Total debt as of June 30, 2017 and calculated as face value of Notes plus finance lease obligations and other debt. Pro Forma shareholders equity calculated as Shareholders Equity per the Interim Financial Statements plus 10,785,000 common shares issued at $8.35 per common share less fees and expenses. 13) Enterprise value defined as market capitalization as described in note 10 plus total debt as described in note 12 plus noncontrolling interests less cash. 16