ENERCOM S The Oil & Gas Conference August 14, 2012 Denver, CO

Transcription

1 ENERCOM S The Oil & Gas Conference August 14, 2012 Denver, CO 1

2 The data contained in this presentation that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Exchange Act. Such statements may relate to capital expenditures, drilling and exploitation activities, production efforts and sales volumes, proved, probable, and possible reserves, operating and administrative costs, future operating or financial results, cash flow and anticipated liquidity, business strategy, property acquisitions, and the availability of drilling rigs and other oil field equipment and services. These forward-looking statements are generally accompanied by words such as estimated, projected, potential, anticipated, forecasted or other words that convey the uncertainty of future events or outcomes. Although we believe the expectations and forecasts reflected in these and other forward-looking statements are reasonable, we can give no assurance they will prove to have been correct. These statements are based on our current plans and assumptions and are subject to a number of risks and uncertainties such as potential litigation as further outlined in our most recent 10-K and 10-Q. Therefore, the actual results may differ materially from the expectations, estimates or assumptions expressed in or implied by any forward-looking statement made by or on behalf of the Company. Cautionary Note to U.S. Investors The SEC has recently modified its rules regarding oil and gas reserve information that may be included in filings with the SEC. The newly applicable rules allow oil and gas companies to disclose not only proved reserves, but also probable and possible reserves that meet the SEC s definitions of such terms. We disclose proved, probable and possible reserves in our filings with the SEC. Our reserves as of June 30, 2011 were estimated by DeGolyer & MacNaughton, W.D Von Gonten & Co. ( Von Gonten ), and Lee Keeling and Associates, Inc. ( Keeling ), independent petroleum engineering firms. In this presentation, we make reference to probable reserves. These estimates are by their nature more speculative than estimates of proved reserves and are subject to greater uncertainties, and accordingly the likelihood of recovering those reserves is subject to substantially greater risk. Please see Appendix. 2

3 Four Factors for Repeating Success and Building Value per Share Every Day Innovative Engineering Building Value per Share Staff Fully Aligned with Shareholders Known Oil Fields Redeploying Internal Cashflows 3

4 Name/Title Background Achievements Robert Herlin CEO & Chairman Sterling McDonald Chief Financial Officer Daryl Mazzanti VP-Operations Edward Schell General Manager for Drilling and Unconventional Development Co-founded EPM in 2003 using $8.3 MM in capital (multiple raises). B.S. and M.E. Chemical Engineering, Rice University. MBA, Harvard Joined EPM B.S. and MBA (University of Tulsa) Joined EPM mid-2005 B.S. Petroleum Engineering, Univ. of Oklahoma Joined EPM in 2006 B.S. in Petroleum Engineering, University of Texas 30 years leadership experience in M&A, development, operations and finance in public and private sectors. Former CFO for PetroAmerican Services, PetroStar Energy and Treasurer for Reading & Bates Corporation. Former Manager of US Business Development for Anadarko. Former Production Manager, Austin Chalk for Anadarko/UPRC responsible for 1200 wells, staff of 65 and 25,000 BOEPD of production. Innovator in horizontal drilling 30 years experience in oil & gas industry. Management positions in drilling, operations and business development with Anadarko Petroleum. Drilled 800 wells, 200 of them horizontal and 2/3 rd in unconventional reservoirs. 4

5 Total Value, $MM $500 Transformed $8.3 MM Investment into $461 MM PV10 + WC $72 MM $461 MM $400 $375 MM $300 $200 $100 $0 $13.6 MM Initial Investment Cash Proved Reserves Probable Reserves Total Value -$100 Notes: (1) Delhi PV10 values based on report from independent reserve engineers, DeGolyer & MacNaughton, and includes proved and probable reserves as of 6/30/2011 at SEC pricing of $94.81/bbl. (2) Giddings properties are being evaluated for monetization. LLS at $ on 8/7/2012 5

6 MMBoe 25 Reserves (84% Oil) $M $16,000 $14,000 Revenue (Years ended June 30) 9 months 20 $12, $10,000 $8, $6,000 5 $4,000 $2,000 0 $0 Proved PUD Probable 6

7 $M $6,000 Quarterly Revenue $M $1,400 Quarterly Net Income to Common $5,000 $1,200 $4,000 $1,000 $3,000 $800 $2,000 $600 $400 $1,000 $200 $0 $0 7

8 Ms Lime Drilling Began May ,000 gross (11,940 net) acres in JV 45% non-op share of JV held by EPM net potential oily drilling locations S Lopez Field Producing Vertical redevelopment of previous waterflood, 100% oil Delhi Field - Producing CO 2 EOR - 100% oil 10.9 MMBO Proved 5.8 MMBO Probable 41% of 2P is developed producing Note: all reserves as of 6/30/2011 Giddings Field Producing Horizontal wells in naturally fractured Austin Chalk, Georgetown, Buda plus Woodbine potential. 2.7 MMBOE Proved, 15% developed and 47% oil & NGL 8

9 13.8 MMBOE Proved Reserves $MM $400 SEC Pretax PV10 $375.3 $350 5% 11% $300 $266.0 $250 $200 $150 84% $100 $50 $35.8 Oil NGL Natural Gas $

10 Application of Strengths to Grow Oil Production, Reserves and Value

11 Phase 1: Form the Base Acquired and farmed-out Delhi, commenced EOR. Phase 2: Positioning for Growth Delhi net proceeds reinvested into shale gas and oil projects. Breakeven cash flow and no earnings. Phase 3: Invest for Growth Delhi and Giddings cash flow reinvested into oil projects and GARP technology. Growing operating cash flow and earnings. Phase 4: Consistent Growth Ongoing development drilling to grow production, reserves and cash flow. Grow the franchise. Negative cash flow and no earnings. 11

12 Oil Weighted Onshore US Engineering Driven HZ Drilling Potential Repeatable Results Known Oil & Gas Fields Grow Value Per-Share 12

13 Our Foundation Asset CO 2 Enhanced Oil Recovery

14 Gross cum production Low-Risk Cash Flow for Reinvestment into Growth Assets 192 MMBO Current production ~5,300 BOPD (qtr ended 6/30) Jackson Dome 6/30/2011 Reserves 10.9 MMBO Proved 5.8 MMBO Probable (41% of 2P producing) 30% of 2P from royalty interest & free of exp. Projected EOR recovery (% of OOIP) Unit size 13% Proved (PV10: $334 MM) 4% Probable (PV10: $ 73 MM) 13,366 acres Delhi Tax preferences Acquired by EPM in 2003 Farm-out to DNR in mid-2006 Upside Potential Severance tax holiday Acquired for $2.8 MM Invested $2.5 MM Subsequently added royalty interests for $1.5 MM Received $50 MM + EOR Development + Reversionary interest More OOIP Higher EOR % recovery Utilization of lower cost (CO 2 + water) injection process 14

15 7.4% Royalty Interest EPM receives 7.4% of gross revenues No Cap Ex or Op Ex forever Exempt from state severance tax until project payout of all actual costs plus capital cost Royalty interest = 30% of total Delhi reserves volumes Delhi crude priced at LA Light Sweet (premium to WTI) 23.9% Reversionary Working Interest Calendar YE 2013 payout = projected net field cumulative cash flow of $200 million Net field cash flow = revenue minus field Op Ex (including CO 2 ) After payout, EPM bears pro-rata CapEx and Op Ex and will own proportional field assets, reserves and purchased CO 2 EPM projected to bear ~$12.7 MM total CapEx for proved reserves APO Free Cash Flow 15

16 Denbury plans to invest $64 MM in 2012 to expand flood. Develop three patterns, build additional facilities. 2012E Activity 2009 Activity 2010 Activity 2011 Activity 2011 Activity expansion Source: Denbury Resources Inc. Fall Analyst Meeting, November 14,

17 $MM $80 $70 $60 $50 $40 $30 $20 $10 $- $(10) Calendar Royalty Reversionary WI Note: Based on report from independent reserve engineers, DeGolyer & MacNaughton, and includes proved and probable reserves as of 6/30/2011 at SEC pricing of $94.81/bbl. LLS at $ on 8/7/

18 $M $900,000 $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $ Remaining PV10 Cum Pretax Notes: Residual PV10 is the PV10 of remaining cash flows from given year to project end. Includes proved and probable reserves from independent report of 6/30/2011 at SEC pricing of $94.81/bbl. LLS at $ on 8/7/

19 Impact of Additional EOR Recovery on EPM Share Price LLS Oil Price Impact on EPM Share Price $/ FD Share $14 $13 $12 PV10* vs Gross Oil Recovery (flat pricing) 2P $ / diluted share $20 $16 PV10* vs 2012 LLS Oil Price 2P PV10 3% inflation 2P PV10 SEC Flat $11 $10 $9 $8 1P $ Gross Recovery in MMBO (8/7/2012) $12 $8 $4 $- $ $- $20 $40 $60 $80 $ LLS Oil Price * From independent report of 6/30/2011 including proved and probable reserves at SEC pricing of $94.81/bbl. Escalated pricing analysis begins with 6/30/11 SEC price. Diluted shares include 5.5 MM options and warrants without effect of exercise proceeds. 19

20 Growing Per-Share Value

21 Fits selection criteria: Oil-prone, horizontal drilling, onshore U.S., IRR>30%, known oil field, accessible, running room, repeatable Kay County, Oklahoma 24,000 gross (11,940 net to JV) acres 45% share of JV 25 net probable drilling locations (8 more potential) Horizontal drilling in area previously developed with vertical wells RRC and DVN active in Kay County Drilling and completion cost per well ~$3MM, including water disposal Running room with multi-year development JV increasing its leasehold through pending bolt-on acquisitions Investment sink for Delhi cash flow develop ~3-5 barrels of oil reserves from 1 barrel of Delhi production and fully utilize intangible drilling tax deduction 1 st Ms Lime well drilled and waiting on frac, 2 nd well drilling, 1 st SWD well completed 21

22 Joint venture acreage in oil-prone area, east of the Nemaha ridge. Multi-year visible growth potential for reinvesting early Delhi free cash flow. SD, PQ Spyglass, Vitruvian, Orion, Century CHK, Chaparral, Eagle, SDR CHK, SDR, Vitruvian, PQ D E V O N Calyx, Pablo, Range, Redfork, Spyglass, Territory E P M DVN & Sinopec H K Devon, Calyx, Pablo, PQ, Range, Ram, SDR, Spyglass, Century, Territory, Vitruvian 22

23 Mississippian Lime is well defined by old vertical wells Numerous vertical logs show thick, continuous pay Interpretation of well data and logs shows geologic continuity with offset wells Vertical average EURS: EPM Vitruvian Bowling 2-32H IP 500+ Bopd Spyglass Bird Creek 1A-15H IP 210 Bopd Kay County: 97 MBOE Osage County: 80 MBOE Cowley County: 60 MBOE Horizontal Results: Vitruvian Bowling 2-32H IP: 500+ Boepd, ~3,000' lateral Spyglass Shaw 1A-8H IP: 500+ Boepd, 2,228' lateral Range Resources Type Curve EUR Now 600 MBoe Pablo Gilbert 1H-32 IP 657 Bopd Spyglass Shaw 1A-8HZ 2,228' Miss Lime Hz 500+ Bopd Territory Beast 1-27H IP Bopd 23

24 BOEPD Assumptions: EUR: 268 MBOE (75% oil) $3 MM drilling and completion cost Includes SWD facilities Rich gas is minor element Commodity prices: WTI $85/Bbl (before $5 differential) Natural gas rising from $2.50 to $4.00/MMBtu by 2014 (then flat) IRR > 30% at base case EUR Range recently upped their Kay County well estimates to 600 MBOE for 4,000 laterals % 300% 200% 100% Estimated Mississippian Lime Type Curves by Operator Range 485 MBOE SDR 450 MBOE EPM JV 268 MBOE Month EPM assumes a declining GOR, thus initial BOE decline rate appears higher and with more Ms Lime Sensitivity IRR vs Wellhead Oil Price EPM Base Case 267 MBOE Industry 400 MBOE 0% $40 $50 $60 $70 $80 $90 $100 $110 24

25 Mirando sandstone within previous waterflood Moving into development phase after extensive research and testing for re-injection of produced water Developing BOPD per well of long life, low decline production at a cost of ~$550K per well, or $35K to $70K per net BOPD 3 test producers drilled to date confirming oil cut and capability of high fluid rate production and injection Goal and upside is in expanding from current ~38 drilling locations 25

26 8,154 net acres Net production ~190 BOEPD, current and average for fiscal 2012 Proved undeveloped reserves in 9 drilling locations Reserves in Georgetown, Austin Chalk and Buda formations Exposure to new Woodbine oil play in retained 1,100 net acres and royalty interest in 900 net acres Transitional asset, candidate for harvest ~44% oil and NGL content by volumes 26

27 Innovation for Increasing Recovery

28 Reestablishes economic production of the Tail Supplements & enhances existing rod pump Mobilizes remaining fluid to rod pump inlet Successful applications in Giddings Field Three commercial installations completed demonstrating success Fee/participation for service model 28

29 BEFORE: Conventional Rod Pump Either fluid level eventually drops to a level where rod pump or gas lift are no longer effective, or Fluid production in gas well builds and eventually shuts off gas production This can leave substantial volumes of oil and gas unrecovered (the Tail ) AFTER: GARP Adds substantial new reserves at low cost Benefit = up to 25% incremental recovery Benefit = extends life of lease(s) Cost $75K - $150K per application Patented 29

30 MCF or BblS per DAY 100 GIDDINGS FIELD, TX (AUSTIN CHALK) HZ WELL GARPTM installed 10 1 Average pdn 9/14/ /3/ /23/2011 2/11/2012 4/1/2012 5/21/

31 Conservative, Strong and Aligned

32 EPM AREX REN WRES DNR PQ 60% Debt to Market Cap $MM $25 Liquidity Sources & Uses 50% 40% 49% 48% 43% 42% 4 FQFQCFFO $20 $15 + FQ4 CFFO Credit Line 30% 20% 10% 15% $10 $5 3/31/12 W/C 0% 0% $- Resources FQ4 Capex 32

33 2012 $ S. Texas Oil Expansion 2014 $ 2013 $ Free Cash Flows to be Redeployed New Mississippian Lime Oil Project 2015 $ GARP 33

34 Total Value, $MM $500 $461 MM $400 $300 $231 MM Gap to NAV $230 MM $200 $100 $0 -$100 Investment Cash Proved PV10 Delhi (1) Probable PV10 Delhi (1) Proved PV10 Giddings (2) Proved PV10 Lopez LLS at $ on 8/7/2012 Total Value Market Cap (8/7/2012) (3) Notes: (1) Delhi PV10 values based on report from independent reserve engineers, DeGolyer & MacNaughton, and includes proved and probable reserves as of 6/30/2011 at SEC pricing of $94.81/bbl. (2) Giddings properties are being evaluated for monetization. (3) Market capitalization based on MM shares outstanding. 34

35 Total Value Per Share $16 $14 $13.89 $12 $10 $8 $5.57 Gap to NAV $8.32 $6 $4 $2 $0 -$2 Investment Cash Proved PV10 Delhi Probable PV10 Delhi Proved PV10 Giddings Proved PV10 Lopez Total Value Share Price (8/7/2012) Note: Per-share values are based on 33.2 MM diluted shares. PV10 from 6/30/11 reserves report, Delhi at $94.81/bbl. LLS at $ on 8/7/

36 Cashflow Annuity & debt free = continued growth w/o shareholder dilution $230 MM value gap between intrinsic and market value (before inclusion of Ms Lime, Lopez & GARP) Premium oil focused reserves (84% oil on Gulf Coast, mostly LLS priced) New exposure to oily Mississippian Lime Play (excellent economics) GARP upside (harvesting the tails ) Balance sheet aligned with business strategy (conservative, internally funded) Employees beneficially own 20% of diluted shares totally aligned with accretive growth per share 36