INVESTMENT RESEARCH I N V E S T M E N T DONNYCREEK ENERGY INC. RECOMMENDATION: BUY DCK-TSXV: $2.04 TARGET PRICE: $4.70

Transcription

1 INVESTMENT RESEARCH Jeffrey J. Fiell, CFA Vice President Research Analyst (403) I N V E S T M E N T R E S E A R C H DONNYCREEK ENERGY INC. RECOMMENDATION: BUY DCK-TSXV: $2.04 TARGET PRICE: $4.70 INITIATING COVERAGE A JUNIOR E&P WITH SENIOR E&P PROSPECTS July 31 Fiscal year-end FORECAST (2014E) CURRENT PREVIOUS % Recommendation BUY n/a Target Price $ nmf Target EV/DACF mulitple 8.7X -- nmf Production (boed) 1, nmf CFPS $ nmf Net Debt ($1.3) -- nmf SHARE STRUCTURE Q1/13A 2013E Shares O/S (basic, mm) Dilutiv es O/S (mm) Shares O/S (FD, mm) Management & Directors (basic) 14% 14% 52-w eek trading range (low /high) $0.35 $3.08 ENTERPRISE VALUE Q1/13A 2013E Market cap. ($mm, Q1/13 - av g price) $66.3 $83.2 Preferred shares Working Capital (surplus) ($24.5) ($11.3) Long Term Debt $2.3 $2.3 Enterprise Value (basic) $44.0 $74.2 FINANCIAL 2012A 2013E 2014E EV/DACF multiple nmf 13.0X 2.7X P/CF nmf 16.0X 3.7X CFPS (basic) ($0.01) $0.13 $0.55 Cash Flow (C$'000s) ($0.1) $4.7 $22.2 CapEx (E&D) $3.5 $28.1 $30.0 Net Debt/CF -- (1.9X) (0.1X) WTI oil ($US/bbl) $95.14 $94.16 $86.50 AECO-C ($C/mcf) $3.62 $2.44 $3.51 PRODUCTION 2012A 2013E 2014E Oil (bpd) NGLs (bpd) Natural gas (mmcfd) Equiv alent (6:1 boed) ,420 Massive contiguous land position in what is probably the hottest play in the WCSB right now. Undeveloped land value more than double current market capitalization based on recent land sales. First two Montney wells tested in-line with recent intermediate & senior producer wells. Management has a history of surfacing value quickly via merger transactions. Six high rate wells will be on production at Kakwa with centralized condensate extraction facilities operational by August Four vertical stratigraphic tests will be drilled at Wapiti to prove up the Montney in that area. Initiating coverage with a BUY recommendation and $ month target price, representing a 130%+ potential return given current trading levels. Please see disclosures on the last page February 11, 2013

2 TABLE OF CONTENTS Investment Summary...3 Leverage to the Hottest Play in Alberta...3 Undeveloped Land Value Alone Justifies Market Capitalization...3 Management Record of Value Realization...3 Valuation...3 Management & Directors...4 Operations Overview...6 Kakwa, AB Operating Area...7 Wapiti, AB Operating Area...9 Land Value Infrastructure Valuation Comparative Type-Curve Economics Net Present Value Upside Net Asset Value Forecast Recommendation & Target Price Cash Flow Component Net Present Value of Future Drilling Component Appendix 1 Summary of Equity Financings Jeffrey J. Fiell, CFA (403) Page 2 of 20

3 INVESTMENT SUMMARY We initiate coverage of Donnycreek with a BUY recommendation and $ month target price based on numerous positive factors as follows: LEVERAGE TO THE HOTTEST PLAY IN ALBERTA Donnycreek has the 20 th largest land exposure in the Triassic Montney formation in Alberta, currently totaling gross sections, or 110,448 net acres. Two examples of expanded activity include NuVista recently announcing a $95 million new equity issue and materially increasing its focus on the Montney while Paramount indicated it is spending 90% of its 2013 capital in the area, including a 200 mmcfd deep-cut gas facility (Clay Riddell, Chairman & CEO of Paramount, announced via Treherne Resources in an October 15, 2012 press release, a 12.28% stake in Donnycreek). Pembina Pipeline also expanded its deep-cut Cutbank gas processing complex and announced a major expansion to its Resthaven deep-cut gas plant (deep-cut explained at the bottom of page 11). UNDEVELOPED LAND VALUE ALONE JUSTIFIES MARKET CAPITALIZATION The weighted average bonus paid for land in the area recently was $2,014.55/acre. At $2,000/acre, Donnycreek s undeveloped land would be worth $220.9 million, or $5.42 per share, well in excess of its current market capitalization. MANAGEMENT RECORD OF VALUE REALIZATION Management has started and subsequently sold six junior public and private energy companies and will undoubtedly put Donnycreek up for sale after its Wapiti property is proved. The previous junior explorers were sold to Celtic Exploration, Wildstream Resources, Northrock Resources and Donnybrook Energy. The combined initial investment was $33.4 million and the combined transaction value was $110.5 million. VALUATION As mentioned above, Donnycreek s undeveloped land value is more than double its current market capitalization. But in setting our 12-month target price, we use a combination of a cash flow component and a fraction of our net present value of future drilling value. The cash flow component of $1.65 is based on a reasonable 3.0X EV/DACF target multiple while our NPV10 component of $3.05 is based on only 20% of our total NPV10 and assumes 75% land prospectivity and 75% drilling success. With our target price well in excess of its current price, and with Management s history of quickly surfacing value, we initiate coverage of Donnycreek with a $ month target price and a BUY recommendation. Jeffrey J. Fiell, CFA (403) Page 3 of 20

4 MANAGEMENT & DIRECTORS Exhibit 1 Donnycreek Board of Directors Name Ken Stephenson (2) David Patterson Randy Kwasnicia (1)(2) Colin Watt (1)(2) Principle Occupations During the Past Five Years Chairman & Director since November 4, 2011; Director Donnybrook Energy; Director Calvalley Petroleum; Director U.S. Oil Sands; President Kenaco Capital Services. Director since November 4, 2011; Chairman & Director Donnybrook Energy; Prior President & CEO Donnybrook Energy; Chairman & CFO Donner Metals. Director since November 4, 2011; Director Donnybrook Energy; President Bralin Management (private oil & gas, real estate investment company), Co-owner Excalibur Drilling ( ); Co-owner Paragon Drilling ( ). Director since November 4, 2011; Director Donnybrook Energy; President Squall Capital Corp.; President & CEO Lynden Energy Corp. (public). Malcolm F.W. Todd (1) Director since September 1, 2011; see Senior Management below (exhibit 2). Murray Scalf Director since November 4, 2011; see Senior Management below (exhibit 2) (1) (2) Member, Audit Committee Member, Compensation Committee Source: Company Reports Donnycreek was incorporated on September 1, On November 4, 2011, Donnybrook Energy Inc. (DEI:TSXV) spun-out 18.8 gross/net sections of non-core undeveloped/non-producing assets in the Deep Basin of Alberta and 1.8 net sections (24% interest) in central Alberta, plus $300,000 cash to Donnycreek. In exchange, Donnybrook received Donnycreek shares per DEI share (4,295,895 shares), which were subsequently passed through to Donnybrook shareholders as a return of capital valued at $1,584,662, and a promissory note in the amount of $2,188,342, which was paid back on the November 4, 2011 closing date. Under the terms of the Plan of Arrangement, Donnycreek exercised its right to purchase a further 9 gross sections of land at Kakwa (Deep Basin) from Donnybrook for $2,307,097 ($400/acre). Donnycreek and Donnybrook share the same Management and Board of Directors however there is no share ownership of one entity in the other, nor shared assets and/or joint ventures between the two. Current Management came together as a result of a joint venture between Prairie Pacific Energy Corp. (PRP:TSXV) and Denim Exploration Corp. (private). Jeffrey J. Fiell, CFA (403) Page 4 of 20

5 Exhibit 2 Donnycreek Senior Management Name Management Position Previous Malcolm F.W. Todd President & CEO 25+ years oil & gas experience; current President & CEO Donnybrook Energy; past President Prairie Pacific Energy Corp. (public); past President & CEO Prairie Exploration Inc. (private). Murray Scalf Chief Operating Officer 25+ years oil & gas experience; current COO Donnybrook Energy; current President & Director Dunleath Investments Ltd., past President Dorado Energy Inc. (private); past President Denim Exploration Corp. (private) past president Denim Energy Inc. (private); past President Dorchester Energy Inc. (public). Terry Skilnick Geologist 12+ years oil & gas experience; current Geologist Donnybrook Energy; past Geologist Dorado Energy (private), past Geologist Denim Exploration Corp. (private); past Geologist Denim Energy Inc. (private); past Geologist Dorchester Energy Inc. (public). Robert H.O. Todd Chief Financial Officer 25+ years oil & gas experience; current CFO Donnybrook Energy; past CFO Prairie Exploration Inc. (private); past CFO Prairie Pacific Energy Corp. (public). Source: Company Reports Donnycreek s President, Malcolm Todd, has a finance/business background and started Prairie Pacific in 2003 with Donnycreek s CFO Robert Todd. PRP was sold to Northrock Resources Ltd. (current subsidiary of TAQA North Ltd., former subsidiary of Unocal Corporation). They then formed Prairie Exploration Inc. (private) which sold to Donnybrook Energy in Murray Scalf (land background), Terry Skilnick (geology background), Randy Kwasnicia and Ken Stephenson started Dorchester Energy Inc. (DEI:TSXV) in 1996 and sold it to form the early stage Celtic Exploration Ltd. (CLT:TSX). Denim Energy Inc. (private) was formed concurrently to Dorchester and also sold to Celtic in Denim Exploration Corp. (private) was formed in 2003 and sold, like Prairie Pacific, to Northrock Resources in The Scalf team then formed Dorado Energy Inc. (private) which was sold to Wildstream Exploration in Management therefore has a history of value creation given 6 start-ups totaling $33.4 million in initial investment relative to $110.3 million in transaction value, for a 3.3X initial investment value creation (from the DCK presentation). Jeffrey J. Fiell, CFA (403) Page 5 of 20

6 OPERATIONS OVERVIEW Exhibit 3 Donnycreek Areas of Operation Source: Company Reports The vast majority of Donnycreek s land is prospective for Triassic Montney highly liquids-rich gas production and up-hole formations of Bluesky, Wilrich and Fahler. The assets are concentrated in the deep basin of Alberta, including gross sections at Wapiti, gross sections at Kakwa, 33 gross sections at Chicken. An additional 7.5 sections are prospective for Mannvile gas production at Delia-Michichi in central Alberta. The compelling factor in owning Donnycreek is the sheer magnitude and concentration of its land holdings in an area that many believe to be the hottest emerging play in the WCSB. There is very little crown land remaining in the area however Donnycreek will undoubtedly acquire additional acreage contiguous to its Wapiti property as competitors are unlikely to consider single and two section blocks as efficient purchases. Donnycreek believes it will acquire an additional 100+ lone sections contiguous to Wapiti that will serve to fill in most of its land holes. Activity in the area has been very busy with recent land sales ranging between $1,035 and $3,826 per acre (see land section below). Players in the immediate area include Sinpoec/Daylight, Seven Generations, Perpetual/Tourmaline (just sold properties), Paramount, Encana, NuVista, ConocoPhillips, CIOC, Celtic and CNRL. Jeffrey J. Fiell, CFA (403) Page 6 of 20

7 KAKWA, AB OPERATING AREA Exhibit 4 Kakwa Operating Area & Regional Montney Deposition Source: Company Reports All Donnycreek operating blocks are characterized by superior reservoir properties: located in dolomitized siltstone, resulting in higher permeability. located in the over-pressured western half of the Montney deposition, resulting in increased productivity and recoverable resource. located in the thickest part of the Montney deposition resulting in a higher density of well-bores per section and increased EUR s. There are two Montney plays at Kakwa, the upper middle and the lower middle Montney s. The lower middle Montney is characterized by very high condensate content per unit of gas production, which makes this particular play the most economic out of all Donnycreek s land blocks. We have modeled NGL content of 150 bbls/mmcf for the lower and 45 bbls/mmcf for the upper Montney. With condensate prices well above gas prices on an energy equivalent basis, we calculate a $9.8 million NPV10 on the lower and an $8.6 million NPV10 on the upper (see Valuation Comparative Type-Curve economics section below). Jeffrey J. Fiell, CFA (403) Page 7 of 20

8 Exhibit 5 Kakwa Regional Drilling Results Source: Company Reports Exhibit 5 above shows regional Montney test results as well as Donnycreek s two drilled and tested Montney wells. Test results have been as high as 23.9 mmcfd plus 3,372 bpd of condensate, or 7,355 boed (7 Generations). Donnycreek s first two wells have tested at high rates too: W6 (25% interest + 10% GORR on remaining 75% interest BPO, 10% GORR on 50% interest APO) on production since December 1, 2012 and tested at 8.29 mmcfd plus 1,150 bpd of condensate (2,532 boed) during a 96 hour frac fluid flow-back and a 24 hour flow test. The well is currently producing at a restricted 1,207 boed W5 (50% interest, Contact Exploration 25%, Questerre Energy 25%) tested at 4.97 mmcfd plus 974 bpd of condensate, or 1,802 boed, but is shut-in as the 3 rd well, W5 is currently drilling off the same surface location as Completion operations are expected to be mid-march. Donnycreek will drill two more wells before fiscal year-end July 31, 2013 and another before year-end It will also build permanent condensate extraction facilities ($4.0 million net) such that condensate can be trucked directly to the sales line and thus not experience deep cut plant interruptions at Pembina Musreau. Jeffrey J. Fiell, CFA (403) Page 8 of 20

9 WAPITI, AB OPERATING AREA Exhibit 6 Wapiti Operating Area & Regional Drilling Results Rock ( W6)(1) 7.7 MMcf/d bbl/d Tourmaline (10-34) 6.1 MMcf/d + condensate Tourmaline (06-31) 6.7 MMcf/d + condensate NuVista (09-22) 10.0 MMcf/d bbl/d NuVista (08-15) 4.4 MMcf/d bbl/d NuVista (16-21) 9.5 MMcf/d bbl/d Daylight (11-31) 7.0 MMcf/d bbl/d Daylight (07-29) 9.1 MMcf/d bbl/d Source: Company Reports Donnycreek s working interest at Wapiti is 75% (Deventi Land Corp. 25%). Murray Scalf and Ken Stephenson are both on the Board of Directors of Deventi. The impressive gross sections assembled were acquired in a series of crown land sales for prices much lower than recent regional land sales. Donnycreek will acquire over 100 more sections in one and two section parcels, and will probably acquire lands for less than large blocks as producers do not consider single and double section parcels economically viable to drill without further contiguous running room. The Montney at Wapiti is thought to be less rich in condensate than at Kakwa and therefore our modeled type-curve economic indicators are inferior to Kakwa, but robust nevertheless. Donnycreek will drill four vertical stratigraphic test wells in H2/13 to prove-up the Montney here. Jeffrey J. Fiell, CFA (403) Page 9 of 20

10 LAND VALUE Exhibit 7 Regional Recent Land Transactions Source: Company Reports It is quite rare for a relative new-comer junior producer to assemble such a large contiguous land position in such an active play area as the overpressured western Montney formation, especially considering the size and quality of competing producer s in the area. NuVista recently issued $95 million in new equity and materially increased its focus by greatly expanding its capital budget directed at the Montney play at Wapiti. And after speaking to Paramount Resources recently, 90% of its entire 2013 capital budget will be spent in the area (including a 200 mmcfd deep-cut gas and NGL plant at Musreau). As shown above, recent land sales have resulted in a $2,014.55/acre weighted average bonus paid. In using a $2,000/acre land value, Donnycreek s land value alone would amount to $5.42 per share. Donnycreek is the 20 th largest land owner in the area according to corporately disclosed documents. CNRL is the largest (1.0 million acres), followed by Encana (1.0 mmillion acres), Progress/PETRONAS (0.82 million acres, Celtic/ExxonMobil (0.55 million acres) and ARC (0.44 million acres). Jeffrey J. Fiell, CFA (403) Page 10 of 20

11 INFRASTRUCTURE Exhibit 8 Regional Gas Infrastructure Source: Company Reports Due to the recent industry activity in drilling the liquids-rich Montney, deep-cut facilities are lacking but plans are for new facilities to be built such as at Pembina s Cutbank expansion and its Resthaven project, plus Paramount s Musreau plant, in addition to various pipeline expansions. Donnycreek will be building its own small central condensate extraction facility at Kakwa for a net $4.0 million and which should be operational by August 1, Until then, well-site extraction is being employed. Note: deep-cut simply refers to an expanded/intensified refrigeration process that allows for a higher NGL yield than shallow-cut gas plants. Jeffrey J. Fiell, CFA (403) Page 11 of 20

12 VALUATION COMPARATIVE TYPE-CURVE ECONOMICS Exhibit 9 Estimated Well Economics Select Input Parameters Capital cost $9,500,000 $9,500,000 $9,500,000 IP30 (boed) 1, , % Liquids 47.4% 21.3% 15.3% EUR (boe) 499, , ,695 Economic Indicators Source: Integral Wealth Securities Middle MNTY Kakwa IRR 91.1% 45.5% 19.6% P/I (@ 10% disc.) 104.0% 90.9% 31.8% NPV (10%, p.t., $000s) $9,802.9 $8,565.9 $3,000.7 NPV/boe $19.64 $9.02 $3.95 Cash netback/boed (1st y r) $41.30 $23.97 $23.70 F&D cost ($/boe) $19.04 $10.00 $12.51 Recy cle ratio 2.2X 2.4X 1.9X Onstream cost ($/boed) $12,483 $11,898 $21,106 Pay back (months) The price forecast we used in generating the above economic indicators for the three Montney plays of Donnycreek starts at $83.50/bbl Edmonton Par, $3.50/mcf AECO gas and a 4% premium to Edmonton Par condensate price, then escalated 2% per year over a 15-year period. Due to condensate being priced as high as it is relative to gas prices, the Middle Montney play at Kakwa offers the most attractive economics of the three with a 91.1% IRR and a $9.8 million NPV per well. Wapiti is expected to be less liquids-rich and therefore offers the lowest economic indicators, yet with a 19.6% IRR and $3.0 million NPV10 per single well but still robust economics. The Upper Montney offers more efficient finding costs as the EUR s are expected to be almost double that of the middle Montney due to greater pay thickness and porosities. Upper MNTY Kakwa Middle MNTY Wapiti Jeffrey J. Fiell, CFA (403) Page 12 of 20

13 NET PRESENT VALUE UPSIDE Exhibit 10 Estimated Net Present Value by Play-type Play-type Middle Montney (Hz) - Kakw a AB ,017 13,108 $19.64 $257,505 $6.31 Upper Montney (Hz) - Kakw a AB ,922 24,953 $9.02 $225,011 $5.52 Middle Montney (Hz) - Wapiti AB ,695 87,189 $3.95 $344,380 $8.44 Total prospects ,250 $826,896 $20.27 Source: Integral Wealth Securities Un-risked Loc's (Gross) Prospective Loc's (Net) EUR / Loc Res. Upside (mboe) NPV / BOE Exhibit 9 above illustrates the enormous upside the Montney represents to Donnycreek shareholders. We calculate a total $20.27 per share of NPV10 value according to our assumptions, including the assumption of a 75% land prospectivity factor and a 75% chance of drilling success. (boe) NPV Upside ($000's) NPV / Share Upside NET ASSET VALUE Exhibit 11 Estimated Net Asset Value as at October 31, 2012 ($000) 0% 10% 15% 20% Prov ed Producing 8,370 6,916 6,364 5,895 Non-producing 1,411 1,182 1,093 1,017 Undev eloped 7,756 5,656 4,918 4,318 Total Prov ed 17,537 13,755 12,376 11,230 Total Probable 14,221 10,346 8,990 7,889 Total Prov ed + Probable 31,758 24,101 21,366 19,119 Net undev eloped land 16,567 16,567 16,567 16,567 Long term debt (2,279) (2,279) (2,279) (2,279) Current assets 25,228 25,228 25,228 25,228 Current liabilities (706) (706) (706) (706) Other assets/liablilities Total balance sheet items 38,810 38,810 38,810 38,810 Net asset v alue - basic 70,569 62,911 60,176 57,929 Options ex ercise proceeds 1,188 1,188 1,188 1,188 Net asset v alue - fully diluted 71,757 64,100 61,364 59,117 Net asset v alue per basic share $1.73 $1.54 $1.48 $1.42 Net asset v alue per fully diluted share $1.68 $1.50 $1.43 $1.38 Source: Integral Wealth Securities Our calculated net asset value begins with year-end reserves (July 31, 2012) and mechanically updates for production additions via capital expenditures, net acquisitions if any and the October 31, 2012 GLJ Associates long term commodity price outlook. The reserves assigned at year-end only considered the Delia-Michichi central Alberta property and also assumes only a $150/acre undeveloped land value. As previously discussed, undeveloped land amounts to $5.42 per share given recent land transactions. Jeffrey J. Fiell, CFA (403) Page 13 of 20

14 FORECAST Exhibit 12 Forecast Model E E C$000s CURRENT PREVIOUS % r CURRENT PREVIOUS % r Recommendation BUY n/a Target price $ nmf $4.70 $3.45 MULTIPLES Target EV/DACF multiple 41.7X -- nmf 8.7X -- nmf Current EV/DACF multiple 13.0X -- nmf 2.7X -- nmf Current P/CFPS multiple 16.0X -- nmf 3.7X -- nmf PRODUCTION Oil (bblsd) 0 -- nmf nmf NGLs (bblsd) nmf nmf Gas (mmcfd) nmf nmf Equiv alent (6:1) nmf 1, nmf COMMODITY PRICES WTI oil price (US$) $ nmf $ nmf Edmonton light oil price (C$) $ nmf $ nmf Henry Hub gas price (US$) $ nmf $ nmf AECO spot gas price (C$) $ nmf $ nmf Corp. oil price realization $ nmf $ nmf Corp. NGL price realization $ nmf $ nmf Corp. gas price realization $ nmf $ nmf Corp. equiv. price (C$, 6:1) $ nmf $ nmf Netback (cash flow /boed) $ nmf $ nmf FINANCIAL Rev enue 6, nmf 28, nmf Cash flow from operations 4, nmf 22, nmf CFPS (basic) $ nmf $ nmf Net Income 2 -- nmf 3, nmf EPS (basic) $ nmf $ nmf CapEx (E&D) 28, nmf 30, nmf Net debt (end of period) (9,030) -- nmf (1,271) -- nmf Av erage shares O/S (basic) 36, nmf 40, nmf Source: Integral Wealth Securities Donnycreek has a July 31 fiscal year-end and its latest fiscal period reported was October 31, 2012 (Q1/13). As a result, we value Donnycreek based on 2014 results, which will account for the full year effect of its first four Montney wells at Kakwa and partial year cash flow from two further wells at Kakwa. Jeffrey J. Fiell, CFA (403) Page 14 of 20

15 RECOMMENDATION & TARGET PRICE Donnycreek only just completed its fiscal 2013/2014 budgets but has not yet publicly disclosed the results, however we believe our inputs and results will be similar to corporate guidance when publicly available. We forecast 1,420 boed for fiscal 2014 assuming an $86.50/bbl WTI price and a C$3.50/mcf AECO gas price. These inputs result in $22.2 million in cash flow, or $0.55 per share. Our $ month target prices is based on the aggregate of a normal cash flow target multiple component plus a partial net present value of future drilling component. CASH FLOW COMPONENT For a junior producer that is only beginning drilling in a complex zone as the Montney, we view a 3.0X EV/DACF target multiple as an indicative proxy for a junior explorer such as Donnycreek. Our 3.0X target multiple encapsulates: A small-cap liquidity discount. The risky nature of expensive, high working interest wells in the Montney. The fact Management are not all that well known to the institutional marketplace. A 3.0X target EV/DACF target multiple yields a $1.65 per share cash flow component to our target price. NET PRESENT VALUE OF FUTURE DRILLING COMPONENT We assign only 20% of our calculated total present value of a five-year development plan when setting the net present value of future drilling component to our 12-month target price. The 20% of our calculated NPV10 results in $3.05 of added value for a combined value with the $1.65 cash flow component to set a $ month target price. We believe Donnycreek will be set up for sale over the next year and, with land values as high as they are, and with the Montney proved at Kakwa and Wapiti (in H2/13), we initiate coverage of Donnycreek with a BUY recommendation and a $ month target price. Jeffrey J. Fiell, CFA (403) Page 15 of 20

16 APPENDIX 1 SUMMARY OF EQUITY FINANCINGS SHARES TOTAL ISSUE CLOSING DATE ISSUE TYPE PRICE ('000s) ('000s) Nov ember 4, 2011 Common 6,486.5 $0.37 $2,400.0 December 22, 2011 Common 1,314.1 $0.75 $985.6 Flow Thru 4,236.0 $0.85 $3,600.6 December 29, 2011 Common 90.0 $0.75 $67.5 Flow Thru $0.85 $782.0 January 23, 2012 Common $0.75 $194.9 June 15, 2012 Flow Thru (1st tranche) 2,384.0 $0.85 $2,026.4 Conv ert. Deb. (1st tranche) $1,580.0 June 20, 2012 Flow Thru (2nd tranche) $0.85 $524.3 Conv ert. Deb. (2nd tranche) $1,200.0 October 15, 2012 Common 15,665.5 $1.60 $25,064.7 Flow Thru 2,108.5 $1.90 $4,006.2 TOTAL ISSUES 34,081.2 $42,432.1 Source: Company Reports Jeffrey J. Fiell, CFA (403) Page 16 of 20

17 THIS PAGE INTENTIONAL LEFT BLANK Jeffrey J. Fiell, CFA (403) Page 17 of 20

18 THIS PAGE INTENTIONAL LEFT BLANK Jeffrey J. Fiell, CFA (403) Page 18 of 20

19 THIS PAGE INTENTIONAL LEFT BLANK Jeffrey J. Fiell, CFA (403) Page 19 of 20

20 TORONTO Temperance St. Toronto, ON M5H 3V5 T F CALGARY Suite 1510, th Avenue SW Calgary, AB T2P 3E7 T F John Gibson CEO/Investment Banking (416) jg@integralwealth.com Jeffrey J. Fiell, CFA Vice President Research Analyst (403) jeffrey.fiell@integralwealth.com Avi Dalfen Diversified Industries Investment Banking (416) avi.dalfen@integralwealth.com Dan Martin, CFA Oil & Gas Investment Banking (403) dan.martin@integralwealth.com Adrian Turchet Mining Investment Banking (416) adrian.turchet@integralwealth.com Ed Pennock, CFA Institutional Sales (416) ed.pennock@integralwealth.com Paul Klemke Oil & Gas Investment Banking (403) paul.klemke@integralwealth.com Stephen Hughes Oil & Gas Institutional Sales (403) stephen.hughes@integralwealth.com Russ Minor Trading (416) russ.minor@integralwealth.com DISCLOSURES: 1) Jeffrey Fiell is an employee of Integral Wealth Securities and certifies that the recommendations and opinions expressed in this research report/sales literature accurately reflect his views on the issue discussed herein. 2) The particulars contained herein were obtained from sources that we believe to be reliable, but are not guaranteed by us and may be incomplete. The opinions expressed are based upon our analysis and interpretation of these particulars and are not to be construed as a solicitation or offer to buy or sell the security mentioned herein. 3) Integral endeavors to make reasonable efforts to disseminate research to all eligible clients in a timely manner, through either physical or electronic distribution, such as , or by posting to Integral s proprietary website. 4) The compensation of research analysts is intended to reflect the value of the services they provide to the clients of Integral. As with most other employees, the compensation of research analysts is impacted by overall profitability of the firm, which may include revenues from investment banking activities of the firm s Corporate Finance department. Research analysts compensation is not, directly related to any specific corporate finance transaction. Issuers are not permitted to pay any expenses associated with a visit to its material operations by the research analyst. 5) Currently Integral does not own, control or beneficially direct more than 1% of the equity issue of this security. 6) The analyst or any individual directly involved in the preparation of this research report does not hold or are short andy of the issuers securities directly or through derivatives. 7) Integral has not provided advisory and corporate finance arrangements with the Company and has received commissions within the last 12 months. 8) Integral has not served in any advisory capacity to the Company on an on-going basis, where it has been compensated. 9) Integral has and may continue to maintain a position in the Company from time to time. The firm is not a market maker in any equity related security of the subject issuer. 10) Integral hereby states that, there has been no involvement or influence directed in any shape or form for the approval of this research report by the investment banking department. 11) Valuation re. Target Price see applicable section. The rating system is based on the stock s expected absolute total return over the next 12 months. Generally, Buy is expected to produce a total return of 25% or greater, Hold a total return of 0% to 25% and Sell a negative return. The distribution of the recommendations that falls within each category for the last three months is available on request by ing to the writer of the report. 12) Integral has not participated in a buy-back or repurchase agreement in the issuers equity within the last 12 months. 13) No employee, Director or Officer of Integral receives any form of remuneration from the Company directly or indirectly. 14) No employee, Director or Officer of Integral is currently or has previously served on the Company Board of Directors. 15) The research analyst has not visited or reviewed physical, material operations of the issuer.