ELSWICK ENERGY LTD. JUNE 2017 STRATEGIC ALTERNATIVES PROCESS

Transcription

1 ELSWICK ENERGY LTD. JUNE 2017 STRATEGIC ALTERNATIVES PROCESS

2 OPPORTUNITY OVERVIEW Elswick Energy Ltd. ( Elswick or the Company ) has retained National Bank Financial Inc. ( NBF ) as their exclusive financial advisor to assist in a strategic alternatives process. The desired structure is a corporate transaction that will include the sale of all the Company s common shares and all of the Company s assets, liabilities and tax pools OFFERING HIGHLIGHTS CORPORATE OVERVIEW This offering provides an opportunity to acquire a high quality asset base focused on the Midale formation within the Mississippian light oil Fairway in southeast Saskatchewan Q average production of 223 bbl/d (100% Oil) (1) 99% operated production with significant ownership of mineral rights Low decline rate of 6% Legend Company Lands Company Wells Area Wells Water Inj. Wells Gas Pipeline Company Fee Title Lands Company Facilities Unit Boundary Oil Pipeline Midale T6 $26.96/bbl operating netback ($33.42/bbl excluding hedging) (2) Over 3,560 net acres of 100% working interest acreage 1,120 net acres of 100% working interest owned fee title land Reserve Report completed by Sproule effective November 30, 2016 Weyburn T5 3,242 mboe (86% oil) of Proved + Probable reserves (54% Proved); BT NPV 10 of $60.1 million (3) Additional drilling opportunities exist across the asset base with less than 50% of identified inventory booked Elswick Large OOIP of 44.7mmbbl; recovery factor to date of <3.5% CTD Reserves have been booked conservatively below a total 10% WF with simulation studies indicating recoveries greater than 20% of OOIP Successful waterflood in place at Weyburn with approvals in place to implement waterflood at Midale Significant waterflood potential across asset base T4 Strategic infrastructure in place 100% working interest in facilities at South Elswick, Weyburn and Midale producing areas Strong environmental position with 3.2 LLR rating R13 R12 R11 R10W2 CORPORATE HIGHLIGHTS Capitalization Shareholder Equity 1) Q1 production based on average from January 1 to March 31, ) Operating cost and netback calculated based on January to March 31, 2017 lease operating statements; includes realized gains or losses from hedging 3) Based on Sproule's Reserve Report effective November 30, 2016 using the Sproule November 30, 2016 price forecast 4) Tax pools as at November 30, 2016 Shares (mm) Class A Shares 100 Class B Shares 251 Total Shares Outstanding 351 Credit Facility Net Debt Feb. 28, 2017 $mm Working Capital Deficit $0.2 Bank Debt $18.1 Total Net Debt $18.3 PRODUCTION, FINANCIALS, AND TAX POOL SUMMARY Q Production (1) Financials (2) Liability Rating Total % Oil Op. & Trans. Costs Netback Annualized NOI LLR (bbl/d) (%) ($/bbl) ($/bbl) ($mm) # % $14.88 $26.96 $ Tax Pools (4) CEE CDE COGPE UCC Losses Total ($mm) ($mm) ($mm) ($mm) ($mm) ($mm) $1.2 $18.4 $1.2 $3.1 $2.4 $26.3 2

3 Netback Components ($/bbl) OPERATING SUMMARY OPERATING HIGHLIGHTS HISTORIC FINANCIAL & OPERATING SUMMARY (2) Q production of 223 bbl/d from the Midale Marly and Vuggy zones (1) Primary producing area at Weyburn with 130 bbl/d, other producing areas include Elswick and Midale with 54 bbl/d and 37 bbl/d respectively; the remaining 2 bbl/d of production is from non-operated wells Production is forecast to remain fairly flat with low risk waterflood development and additional implementation Low cost structure provides strong torque to improving commodity prices Q operating costs of $13.47/bbl 2016 annual NOI of $2.1 million at a realized average oil price of $46.40/bbl AVERAGE PRODUCTION SUMMARY BY AREA (1) Q Q Q Q FY 2016 Q Production (bbl/d) Oil Total % Oil 100% 100% 100% 100% 100% 100% Revenue ($/bbl) Oil $33.65 $48.67 $49.26 $55.34 $46.40 $57.70 Total $33.65 $48.67 $49.26 $55.34 $46.40 $57.70 Royalties ($4.70) ($7.39) ($8.06) ($12.18) ($7.94) ($9.40) Gain (Loss) on Derivatives $4.45 $0.80 ($0.88) ($5.25) ($0.03) ($6.46) Transporation ($1.44) ($1.38) ($1.35) ($1.34) ($1.38) ($1.41) Operating Expense ($10.26) ($10.53) ($16.38) ($13.43) ($12.55) ($13.47) NOI (Including Derivatives) $21.70 $30.18 $22.59 $23.14 $24.49 $26.96 NOI (Excluding Derivatives) $17.25 $29.38 $23.47 $28.39 $24.53 $33.42 NETBACK SUMMARY ($/BBL) (2) FY 2016 Q boe/d 2 boe/d $70.00 $60.00 Hedging Losses Royalties Operating & Transportation Costs Operating Netback 41 boe/d 62 boe/d 37 boe/d 54 boe/d $50.00 $ boe/d 130 boe/d $30.00 $20.00 LEGEND $10.00 Weyburn Midale Elswick Non-Operated Other $0.00 Q Q Q Q FY 2016 Q ) Q1 production based on average from January 1 to March 31, ) As per Company lease operating statements 3

4 Production (boe/d) C$MM RESERVE SUMMARY RESERVE HIGHLIGHTS Sproule Reserve Report effective November 30, ,242 mboe (86% oil) of P+P reserves; BT NPV10 of $60.1 million PDP represents 72% of Total Proved volumes and 74% of Total Proved value Total Proved represents 54% of P+P volumes and 59% of P+P value 14 drilling locations identified, of which <50% are currently booked Significant resource in place with low risk to additional waterflood recovery which has not been significantly booked Waterflood potential at Elswick has been booked conservatively in the P+P and 3P categories No waterflood reserves booked at Midale P+P future development capital of $6.1 million; 3P of $8.7 million SUMMARY OF RESERVE VOLUME AND VALUE (1) Company Interest Reserves BT NPV Oil Total % of P+P 10% % of P+P mbbl mbo e % $ mm % Proved Developed Producing 1,007 1,261 39% $ % Proved Non-Producing % $0.0 0% Proved Undeveloped % $9.3 15% Total Proved 1,416 1,760 54% $ % Probable 1,367 1,483 46% $ % Proved + Probable 2,783 3, % $ % FUTURE DEVELOPMENT CAPITAL ($MM) (1) RESERVE VOLUMES (MBOE) & VALUE ($MM) (1) $3.0 P+P FDC Possible FDC LEGEND Proved Developed Producing Capital Costs ($mm) $2.0 $1.0 $ FORECAST PRODUCTION (1) Proved Undeveloped Proved Non-Producing Probable 1,483 46% % 1,261 39% 13 0% P+P Reserves: 3,242 mboe FORECAST NET DEBT REDUCTION BASED ON 3P CASH FLOWS (1) $ % $9.3 16% $ % P+P NPV10: $60.1 mm 1,600 PDP PDNP PUD Probable Possible $18.0 $16.0 The Company transitions to a cash position in 2019 in a 3P production scenario and 2020 in a P+P production scenario 1, $14.0 $12.0 $10.0 $ Q Production: 223 boe/d (2) $6.0 $4.0 $ ) Based on Sproule Reserve Report effective November 30, 2016 using the Sproule November 30, 2016 price forecast 2) Q1 production based on average from January 1 to March 31, 2017 $ P+P AT Cash Flow 3P AT Cash Flow P+P FDC 3P FDC 3P CF Case Exit Net Debt P+P CF Case Exit Net Debt 4

5 MIDALE FORMATION OVERVIEW MIDALE SUMMARY MIDALE OVERVIEW Elswick s lands contain 44.7 mmbbl OOIP in the Midale with 1.5 mmbbl cumulative oil produced resulting in a <3.5% recovery factor to date Waterflood potential across asset base would significantly enhance recoveries Regionally, the Midale Beds were deposited in tidally-influenced tidal flat to Legend Company Lands Company Wells Area Wells Water Inj Wells Company Fee Title Lands Cumulative Water Production Cumulative Oil Production Proposed Water Inj Wells Midale T6 restricted inner shelf environments in the Williston Basin of southeast Saskatchewan The Midale Beds are traditionally subdivided into the Midale Marly and Midale Vuggy based on localized stratigraphy Micro-fracturing network enhances formation permeability Weyburn T5 Elswick T4 MIDALE TYPE SECTION R13 R12 R11 R10W2 MIDALE SCHEMATIC CARTOON Three Fingers Upper Marly Middle Marly Lower Marly Three Fingers Upper Marly Middle Marly Lower Marly Vuggy Vuggy FRBR FRBR 5

6 Injection and Production (bbl/d, mcf/d) WATERFLOOD RESPONSE SUMMARY WEYBURN WATERFLOOD UNIT At Weyburn, water injection commenced on April 1, 2012 Analysis of the data indicates a clear flattening of decline rates and reduction in gas-oil ratio in response to water injection Annual declines decreased from ~18% pre-waterflood to ~4% post-waterflood implementation Expected recovery under waterflood of greater than 20%, currently booked (estimated) at 6% based on CTD plus P+P Plans are in place to implement water injection at Midale Waterflood approval obtained at Midale for source and injection wells T5 Internal plans to waterflood at Elswick Legend Company Lands Company Wells Area Wells Cumulative Water Production Cumulative Oil Production Water Inj. Wells R12W2 WATERFLOOD RESPONSE WEYBURN WATERFLOOD SCHEMATIC 1,800 1, ,400 1,200 1, Well Count CD Avg. Oil CD Avg. Water Inj. CD Avg. Water CD Avg. Gas Producing Wells 6

7 PROCESS OVERVIEW National Bank Financial Inc. ( NBF ) has been engaged by Elswick Energy Ltd. ( Elswick or the Company ) to conduct a strategic alternatives process for the Company Interested parties are not to contact the Company directly. All communications, inquiries and requests for information relating to Elswick should be made directly to a National Bank Financial Inc. representative listed below CONFIDENTIALITY AGREEMENT ( CA ) Return signed CA to Ryan Hoogendam: Ryan Hoogendam, Investment Banking National Bank Financial Inc. Phone: ryan.hoogendam@nbc.ca A Confidentiality Agreement ( CA ) will be made available on NBF s website at TECHNICAL QUESTIONS/DATA REQUESTS All questions and data requests should be forwarded to Ryan Hoogendam PROPOSAL INSTRUCTIONS AND DUE DATE TECHNICAL PRESENTATIONS/VIRTUAL DATA ROOM ACCESS Upon receipt of a CA, NBF will provide access to all available confidential information and the opportunity to schedule a technical presentation with Elswick PROCESS TIMELINE Data room will open June 15 Management presentations will begin the week of June 19 Non-binding proposals due July 6 Bid instructions will be provided to parties that sign a CA June 2017 Sunday Monday Tuesday Wednesday Thursday Friday Saturday Data Room Opens Management Presentations Management Presentations July 2017 Sunday Monday Tuesday Wednesday Thursday Friday Saturday Non-Binding Management Presentations Proposals Due Proposal instructions and a firm date for receipt of nonbinding proposals will be forwarded in due course to interested parties who have executed a CA National Bank Financial Inc. 1800, th Avenue S.W. Calgary, AB F: (403) INVESTMENT BANKING CONTACTS Blair C. Ward Managing Director, Investment Banking Ph: (403) E: blair.ward@nbc.ca Ryan Hoogendam Associate, Investment Banking Ph: (403) E: ryan.hoogendam@nbc.ca Rahim Daredia, P. Eng Director, Engineering Ph: (403) E: rahim.daredia@nbc.ca Sam Gibson Analyst, Investment Banking Ph: (403) E: sam.gibson@nbc.ca Ian Berman, P. Geo Director, Geology Ph: (403) E: ian.berman@nbc.ca Doug Buhr Analyst, Investment Banking Ph: (403) E: douglas.buhr@nbc.ca 7

8 DISCLAIMER National Bank Financial Inc. ( NBF ) has been retained by Elswick Energy Ltd. ( Elswick ) to act as its financial advisor in respect to a potential transaction (the Transaction ). This document is delivered on behalf of Elswick by NBF. All information contained in or enclosed with this document (unless otherwise stated herein) or otherwise received as part of any due diligence process has been provided by Elswick and has not been independently verified. No representation or warranty, express or implied, is given by Elswick, NBF, their respective directors, employees, partners or advisors or any other person as to the accuracy or completeness of such information and no responsibility or liability is accepted for any errors, omissions or misstatements, negligent or otherwise, in such information. Accordingly, none of Elswick, NBF or their affiliates, directors, employees or advisors shall be liable for any direct, indirect, or consequential loss or damage suffered by any person as a result of relying on any statement or omission in this document or any other information or communication received as a part of the due diligence process. This document does not contain all of the information available with respect to Elswick or otherwise necessary to evaluate the Transaction. Its sole purpose is to assist the recipient in deciding whether to proceed with a further analysis of Elswick and it is assumed, and expected, that each recipient will conduct its own investigation and analysis of Elswick s operations, financial condition and prospects. The information contained herein is for informational purposes only, and this document is not to be construed under any circumstances to be an offering or solicitation for the sale of securities; a recommendation to purchase, sell, or hold any securities; an offering memorandum as contemplated by applicable securities laws; or an obligation by Elswick to enter into any proposed transaction. Elswick may modify the offering procedure at any time, to accept any proposal prior to the closing date for proposals, to alter the dates of the offering procedure, or to withdraw from the process altogether without ascribing any reason thereto and without any liability to any interested party. 8