GENERAL ADVISORY STATEMENT

Transcription

1 APRIL 2018

2 GENERAL ADVISORY STATEMENT The information provided in this presentation is given as at January 17, 2018 and replaces and supersedes any prior investor presentation or other information to prospective purchasers. This presentation is for informational purposes only, is not complete, is based (in part) on information prepared for internal evaluation purposes, does not purport to contain all information that prospective investors may require, and may not contain certain material information about Karve Energy Inc. ("Karve" or the "Company ) or the oil and gas assets the Company acquired in the Provost/Veteran areas of East Central Alberta on August 15, 2017 (the Acquisition ), including important disclosures and risk factors associated with an investment in Karve. This presentation does not take into account the particular investment objectives or financial circumstances of any specific person who may receive it and does not constitute an offer to sell or a solicitation of an offer to buy any security in Canada, the United States or any other jurisdiction. The contents of this presentation have not been approved or disapproved by any securities commission or regulatory authority in Canada, the United States or any other jurisdiction, and Karve expressly disclaims any duty on Karve to make disclosure or any filings with any securities commission or regulatory authority, beyond that imposed by applicable laws. Prospective investors are encouraged to conduct their own analysis and reviews of the Company and of the information contained in this presentation. Without limitation, prospective investors should consider the advice of their financial, legal, accounting, tax and other advisors and such other factors they consider appropriate in investigating and analyzing the Company. Certain information contained in this presentation has been prepared by third party sources, which information has not been independently audited or verified by Karve. No representation or warranty, express or implied, is made by Karve as to the accuracy or completeness of the information contained in this document, and nothing contained in this presentation is, or shall be relied upon as, a promise or representation by Karve. See "Reader Advisories" beginning on slide 23 for other important disclosures regarding forward looking information, future orientated financial information and other financial matters, oil and gas information, defined terms and other important information. 2

3 CORPORATE SUMMARY Basic shares outstanding (7% insider ownership) Options (1)(3) Performance warrants (2)(3) Fully diluted shares (25% insider ownership) Current credit facility Net working capital (Decemeber 31, 2017) (4) Current production Source: Karve Energy Inc. 137 MM 13 MM 34 MM 184 MM $25 MM $11 MM 11,600 BOE/d Average production 470 BOE/d 596 BOE/d 1,244 BOE/d 2,054 BOE/d 5,602 BOE/d 10,078 BOE/d Liquids production 74 % 78 % 90 % 92 % 63 % 61 % Cash flow $ (0.6) MM $ (0.3) MM $3.1 MM $4.7 MM $6.5 MM (6) $20.1 MM (6) Net working capital (4) $34.2 MM $23.3 MM $14.4 MM $11.2 MM $15.6 MM $11.1 MM Karve sales price (Oil) (5) $49.97 /BOE $55.57 /BOE $58.85 /BOE $56.93 /BOE $51.45 /BOE $62.80 /BOE Royalties 6% 6% 6% 6% 7% 6% Operating expense $38.14 /BOE $29.74 /BOE $18.66 /BOE $14.72 /BOE $17.29 /BOE $14.64 /BOE Field netback $ (2.05) /BOE $12.57 /BOE $29.86 /BOE $32.77 /BOE $13.92 /BOE $23.24 /BOE Capital expenditures (7) $1.9 MM $10.5 MM $12.4 MM $8.0 MM $148.1 MM $24.0 MM Additional Hz wells on production 0Hz 10Hz 9Hz 5Hz 29Hz 24 Hz (1) Current Options outstanding with a weighted average exercise price of $1.52. (2) Performance warrant strike prices range from $1.50 to $4.60 with weighted average strike price of $2.90. (3) Amount required to fund option/performance exercise is $118.9 million. (4) Excluding derivative asset. (5) Karve oil sales price is approximately a $1.50 discount to Canadian light sweet (including transportation). (6) Adjusted funds flow from operations (excluding transaction costs and decommissioning expenditures). (7) Total net capital expenditures (including acquisitions). Sept. 30/16 Dec. 31/2016 Mar. 30/17 Jun. 30/17 Sept. 30/17 Dec. 31/17 3

4 GUIDANCE Capital Program (1) Drilling and completion capital Waterflood & facility capital Abandonment Total capital expenditures Forecast Average production (BOE/d) Exit production (BOE/d) Liquids production (%) Base decline rate (%) Royalty (%) Operating costs ($/BOE) Field netback ($/BOE) (2) Cash flow ($MM) (2) 2018E (2) 100 Wells $91 MM $14 MM $7 MM $112 MM 2018E 11,500 12,400 63% 13% 7% $16.50 $24.00 $ Cash flow sensitivity WTI + / US$1.00 +/ ($CDN) $3.4 MM AECO + / CDN $0.10 $0.8 MM FX + / CDN$0.01 $1.2 MM Hedging (average) TYPE Volume Price Jan. 1, 2018 Dec. 31, 2018 Fixed Price 500 bbls/d $70.77 $CAD/bbl Jan. 1, 2018 Dec. 31, 2018 Put/Floor 1,500 bbls/d $64.00 $CAD/bbl Mar. 1, 2018 Dec. 31, 2018 Put/Floor 1,000 bbls/d $70.00 $CAD/bbl (1) Acquisitions are considered on an individual basis and are considered to be outside of the organic growth capital program. (2) Based on strip pricing on November 24, Source: Karve Energy Inc. 4

5 KARVE ENERGY INC. Source: IHS AccuMap; Karve Energy Inc 5

6 CORPORATE PRODUCTION Current Production - ~11,600 BOE/d (63% liquids) August 15, ~8,600 BOE/d (58% liquids) Cold weather impact Current field estimated production of ~11,600 BOE/d (63% liquids); 28% increase since acquisition (~8,600 BOE/d) 6

7 KARVE LEGACY HZ VIKING WELLS DRILLED Viking Oil Fairway Karve Land OMEGA North Unit Viking Petroleum Unit Karve Viking HZ Wells OMEGA South Unit Source: IHS AccuMap; Karve Energy Inc 7

8 KARVE LEGACY RESULTS VS SPROULE TYPE CURVE Source: Karve Energy Inc. 8

9 KARVE LEGACY TYPE WELL DRILLING ECONOMICS Sproule Tier 5 100% CROWN WTI FX EDM Par Capex EUR BT NPV 10 IRR Payout $US/bbl $US/CDN $CDN/bbl $M/Well Mbbl $M % Months % % % % % 11 Source: Karve Energy Inc. 9

10 VETERAN & CONSORT ASSET OVERVIEW Karve Land Viking Petroleum Unit Karve Viking HZ Wells Water Injector Management identified over 500 locations (200 metre spacing) Several productive sands with significant undeveloped upside; up to 15 metres of Viking pay Management estimates OOIP in excess of 10 MMbbl per section (~ 2 MMbbl/metre) Offsetting competitor currently downspacing to 100 metre and 125 metre interwell spacing Competitor interwell trial areas Source: IHS AccuMap; Karve Energy Inc 10

11 VETERAN UNIT RESULTS c c c c c c c Source: Karve Energy Inc. 11

12 MONITOR ASSET OVERVIEW Karve Land Karve Viking HZ Wells Viking Oil Rights Only Horizontal Viking wells drilled by previous operator in early 2014; completed with 14 or less stages per well Karve has identified 500+ locations (200 metre spacing) on primary depletion Prime candidate for waterflood implementation; in excess of 8 MMbbl per section Source: IHS AccuMap; Karve Energy Inc 12

13 MONITOR AREA RESULTS c c c c c c c Source: Karve Energy Inc. 13

14 VIKING HORIZONTAL DRILLING RESULTS TO DATE TCPL Pipeline Maintenance Source: Karve Energy Inc. 14

15 KARVE AREA COMPARISON Source: Karve Energy Inc. 15

16 ALLIANCE/HALKIRK ASSET OVERVIEW Karve Land Brownfield Gas Unit No wells drilled by operator since early 2014; full mile wells with 15 or less stages Karve has identified over 350 half mile (650m) Viking locations (200 metre spacing) on primary depletion Prime candidate for waterflood implementation and expansion Competitor waterflood Offsetting competitor waterflood has shown a positive response Source: IHS AccuMap; Karve Energy Inc 16

17 LAND SUMMARY 1,200,000+ gross acres of land (88% WI) Only 23 sections expiring in the next 5 years ~173,000 acres of fee acreage Working interest in 14 Units; royalty interest in 6 more Karve Working Interest Land Karve Fee Title Source: IHS AccuMap; Karve Energy Inc 17

18 FACILITY AND INFRASTRUCTURE OVERVIEW Brownfield Gas Unit Kessler Viking Gas Unit Karve Land North Provost Gas Unit Unit Boundaries Pipeline Infrastructure Provost Viking Sand Gas Unit Sullivan Lake Gas Unit No. 1 Large network of operated infrastructure providing control over production in the area; significant maintenance capital spent over last 3 years with vast improvement in pipeline integrity 8 large gas plants with significant unused capacity; total gross capacity of 175 MMcf/d (including all facilities) Source: IHS AccuMap; Karve Energy Inc 18

19 CORPORATE RESERVE SUMMARY Increased Total Proves plus Probable reserves by >1,000% vs the year end 2016 report Corporate reserves of 29.6 MMBOE (55% liquids) with BT of $385.6 MM Total Proved reserves of 20.4 MMBOE represents 69% of Total Proved plus Probable Excluding acquisitions, increased TP+P reserves by 380% to 9.3 MMBOE Source: Sproule Associates Limited Reserves Reports Karve Energy Inc. as at December 31, 2017, based on the Sproule Associates Limited Dec, 2017, price deck and calculated in compliance with NI

20 CORPORATE RESERVE SUMMARY WI Oil BTAX Wells WI Oil WI Gas WI NGLs Equiv NPV10% FDC Booked Reserves Category (Mbbl) (MMcf) (Mbbl) (MBOE) ($M) ($M) Gross(Net) Proved Proved Developed Producing 6,674 53, , ,156 Proved Developed Non Producing , Proven Undeveloped 3, ,748 51,708 77, (98.3) Total Proved 10,370 54, , ,841 78, (98.3) Probable Developed Producing 2,035 25, ,660 62,589 Probable Developed Non Producing Probable Undeveloped 2, ,416 62,481 24, (26.6) Total Proved plus Probable 14,752 80,043 1,465 29, , , (124.9) Note: Totals may not add due to rounding. Total of 126 gross (124.9 net) locations recognized by Sproule Total FDC of $102.5 MM associated with all operations Source: Sproule Associates Limited Reserves Reports Karve Energy Inc. as at December 31, 2017, based on the Sproule Associates Limited Dec, 2017, price deck and calculated in compliance with NI

21 DEVELOPMENT PLAN 2018 capital budget of $112 MM Initial drilling and growth will be focused within the Veteran and East Provost assets Drill and complete ~100 horizontal Viking wells in 2018 Spend $14 MM on waterflood initiation, new facilities and infrastructure Initiate pilot waterflood in Monitor Expand existing flood in North Hamilton Lake Facility expansion in new drilling areas; new battery in Monitor and associated emulsion infrastructure Karve current LLR of 1.35 ARO capital forecast of ~$7 MM for 2018 Focus on reduction of inactive well and facility liabilities 2018 forecast average production of 11,500 BOE/d (63% liquids) Exit production of 12,400 BOE/d Source: Karve Energy Inc 21

22 OFFICERS: DIRECTORS: Bob Chaisson Chief Executive Officer Don Engle Chairman and Independent Director Derek Kreba President Bob Chaisson Karve Energy CEO Ken McNeill Executive Vice President, Corporate Development Howard Crone Independent Director Shane Helwer Vice President, Finance and Chief Financial Officer Daryl Gilbert JOG Capital Representative Silas Ehlers Vice President, Exploration James (Pep) Lough Independent Director Clifford Brown Vice President, Engineering Dave Pearce Azimuth Capital Management Justin Crawford Vice President, Operations Mitch Putnam 32 Degrees Capital CORPORATE INFORMATION: Steve Smith Independent Director Banker ATB Financial Sony Gill Corporate Secretary Auditor Pricewaterhouse Coopers LLP CONTACT: Legal counsel McCarthy Tétrault LLP Evaluation engineer Sproule Associates Limited Bob Chaisson, CEO Registrar & transfer agent Computershare Trust Company Karve Calgary head office Shane Helwer, VP Finance and CFO Suite 1700, AVE SW (Bow Valley 2) shane.helwer@karveenergy.com 22

23 READER ADVISORIES FORWARD LOOKING STATEMENTS Certain information with respect to Karve Energy contained herein contains forward looking statements or forward looking information under applicable securities legislation. These forward looking statements or information are based on assumptions and are subject to numerous risks and uncertainties, certain of which are beyond Karve s control, and which may prove to be incorrect. Although Karve believes that the expectations reflected in such forward looking statements or information are reasonable, undue reliance should not be placed on forward looking statements and information because Karve can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified in this presentation, assumptions have been made regarding, among other things: the impact of general economic conditions, industry conditions, the ability to find, replace and expand oil and natural gas reserves through acquisition, development or exploration; the timing and costs of pipeline, storage and facility construction and expansion and the ability of Karve to secure adequate product transportation, volatility of commodity prices, field production rates and decline rates, estimated reserves life, costs for drilling and other capital expenditures will be similar to current industry amounts, currency exchange rate fluctuations, the regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which Karve operates, imprecision of reserve estimates, the success that the Company will have in drilling its prospects and the results from such prospects, including initial production rates, reserve additions and related matters, competition from other explorers, stock market volatility, and ability to access sufficient capital. In addition, forward looking statements or information are based on current expectations, estimates and projections that involve a number of risks and uncertainties. As a result, Karve s actual results, performance or achievement could differ materially from those anticipated by Karve and expressed or implied by, these forward looking statements or information and, accordingly, no assurance can be given that any events anticipated by the forward looking statements or information will transpire or occur. In addition, the reader is cautioned that historical results are not necessarily indicative of future performance. The forward looking statements or information contained in this presentation are made as of the date hereof and Karve does not intend, and does not assume any obligation, to update or revise these forward looking statements exceptas required by applicable securities laws. The forward looking statements or information contained in this presentation and all subsequent forward looking information or statements, written or oral, attributable to the Company or persons acting on its behalf are expressly qualified by these cautionary statements. OIL AND GAS ADVISORIES The estimates of Karve s and the Acquisition s June 30, 2017 reserves set forth in this presentation have been prepared by Sproule Associates Ltd. ("Sproule"), an independent qualified reserves evaluator, as of June 30, 2017 in accordance with National Instrument Standards of Disclosure for Oil and Gas Activities ("NI ") and the Canadian Oil and Gas Evaluations Handbook (the COGE Handbook ) and using Sproule's forecast prices and costs as at May 1, Barrel of oil equivalent ( BOE ) amounts may be misleading, particularly if used in isolation. A BOE conversion ratio has been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel (6:1). This conversion ratio of six thousand cubic feet of natural gas to one barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value. Any references herein to initial production rates are not determinative of the rates at which such wells will continue production and decline thereafter or the ultimate recovery associated with such wells. Additionally, such rates may also include "load" fluids used in well completion stimulation. Readers are cautioned not to place reliance on such rates in calculating the aggregate production of the Company. This presentation discloses drilling locations in two categories: (i) proved and probable locations; and (ii) unbooked locations. Proved plus probable ( 2P ) drilling locations are based on the Company's most recent independent reserves evaluation as prepared by Sproule as of June 30, Unbooked locations are internal estimates based on prospective acreage and an assumption as to the number of wells that can be drilled per section based on industry practice and internal review. Of the gross and net drilling locations identified herein, some of the gross and net locations are proved plus probable locations, and some of the gross and net locations are unbooked locations. Unbooked locations do not have independently attributed reserves or resources. Unbooked locations have been identified by management as an estimation of our multi year drilling activities based on evaluation of applicable geologic, seismic, engineering, production and reserves information. There is no certainty that Karve will drill all unbooked drilling locations and if drilled there is no certainty that such locations will result in additional oil and gas reserves, resources or production. The drilling locations on which Karve actually drills wells will ultimately depend upon the availability of capital, regulatory approvals, seasonal restrictions, oil and natural gas prices, costs, actual drilling results, additional reservoir information that is obtained and other factors. In this presentation, Karve has referred to OOIP, meaning original oil in place, which is equivalent to discovered petroleum initially in place for the purposes of this presentation. OOIP is the quantity of petroleum that is estimated, as of a given date, to be contained in known accumulations prior to production. The recoverable portion of original oil in place includes production, reserves and contingent resources; the remainder is unrecoverable. A recovery project cannot be defined for these volumes of original oil in place at this time. There is no certainty that it will be commercially viable to produce any portion of the resources. Estimates of the net present value of the future net revenue from Karve's reserves do not represent the fair market value of Karve's reserves. The estimates of reserves and future net revenue from individual properties or wells may not reflect the same confidence level as estimates of reserves and future net revenue for all properties and wells, due to the effects of aggregation. Where discussed herein "NPV" represents the net present value (including capital expenditures) of net income discounted at the percentage indicated, with net income including revenues from the indicated oil, liquids and natural gas prices and estimated production rates, less internal estimates of transportation expenses, royalties and operating costs. This presentation contains certain oil and gas metrics, including recycle ratios, rates of return ("ROR") and EURs, which do not have standardized meanings or standard methods of calculation and therefore such measures may notbe comparable to similar measures used by other companies and should not be used to make comparisons. Such metrics have been included herein to provide readers with additional measures to evaluate the Company's performance; however, such measures are not reliable indicators of the future performance and future performance may not compare to the performance in previous periods and therefore such metrics should not be unduly relied upon. A summary of the calculations of such metrics are as follows: Recycle ratio is calculated by dividing the netback by the proved and proved plus probable finding and development cost on a per bbl basis ROR is calculated as the discount factor applied to future cash flows at which the NPV is calculated to be zero EUR is the estimated raw quantity of gas or oil that is potentially recoverable or has already been recovered from a well The recovery and reserve estimates of reserves provided in this document are estimates only, and there is no guarantee that the estimated reserves will be recovered. Actual reserves may eventually prove to be greater than, or less than, the estimates provided herein. All evaluations and reviews of future net revenue are stated prior to any provision for interest costs or general and administrative costs and after the deduction of royalties, development costs, production costs, well abandonment costs and estimated future capital expenditures for wells to which reserves have been assigned. This presentation contains references to type well production and economics, which are derived, at least in part, from available information respecting the well economics of Karve's assets and other companies and, as such, there is no guarantee that Karve will achieve the stated or similar results, capital costs and return costs per well. 23

24 OIL AND GAS ADVISORIES CONTINUED Certain type curves referred to in this document represent estimates of the production decline and ultimate volumes expected to be recovered from wells over the life of the well. The type curves disclosed herein are Sproule type curve and management generated type curves based on a combination of historical performance of analogous wells and management's expectation of what might be achieved from future wells. The type curves represent what management thinks an average well will achieve. Individual wells may be higher or lower but over a larger number of wells management expects the average to come out to the type curve. Over time type curves can and will change based on achieving more production history on older wells or more recent completion information on newer wells. OTHER ADVISORIES All dollar amounts are referenced in Canadian dollars, except when noted otherwise. This presentation contains the terms funds from operations, operating netback, field netback, and production per share which do not have a standardized meaning prescribed by Generally Accepted Accounting Principles ( GAAP ) and therefore may not be comparable with the calculation of similar measures by other companies. The Company uses these measures to help evaluate its performance. Funds from operations is calculated as cash provided by operating activities, adding the change in non cash working capital, decommissioning obligation expenditures and accretion of deferred financing costs. Funds from operationsisusedto analyze the Company's operating performance and leverage. Operating netbacks are determined by deducting royalties, operating expenses and transportation expenses from oil and gas revenue. Operating netbacks are not intended to represent operating profits nor should they be viewed as an alternative to cash provided by operating activities, profit or other measures of financial performance calculated in accordance with GAAP. Field netback per BOE is calculated as the Company's oil and gas sales, less royalties, operating expenses and transportation costs per barrel of oil equivalent. DEFINED TERMS MM millions WI working interest HZ horizontal m metre WFLD waterflood km kilometre WTI West Texas Intermediate FX foreign exchange rate BT before tax PDP proved developed producing IRR internal rate of return P+PDP proved developed producing plus probable developed producing FDC formation density log LLR licensee liability rating ARO asset retirement obligation GORR gross over riding royalty bbl barrels CAGR compound annual growth rate bbl/d barrels per day Mbbl thousand barrels MMbbl million barrels Mcf thousand cubic feet BBbbl billion barrels Mcf/d thousand cubic feet per day BOE/d barrels of oil equivalent per day Tcf trillion cubic feet MMcf million cubic feet MBOE thousand barrels of oil equivalent MMBOE million barrels of oil equivalent 24

25 APPENDIX

26 KARVE OVERVIEW The Karve team has significant experience within the Viking fairway in Alberta and Saskatchewan including its last 3 companies: Plenty (Meridian) Halkirk (Cutpick Energy); and Kerrobert (Beaumont) Large OOIP with low recovery factors Low decline on base asset Source: IHS AccuMap; Karve Energy Inc 26

27 THE ACQUISITION Total acquisition price = $118.0 MM (effective January 1, 2017) Acquisition metrics: $18,150 per BOE/d (based on 6,500 BOED/d) $7.02 per BOE (P+PDP) 4.6 times cash flow (based on H annualized NOI) 1.1 MM acres of land at 92% WI; less than 20 sections expire within the next 5 years 164,000 Acres of fee title lands 863 km 2 of proprietary 3D seismic 6,500 BOE/d (June 2017 Field Estimates) Production (2,800 bbl/d liquids) Cum Gas production of 1.4 Tcf (1.1 Tcf from the Viking) Cum Oil production of 50 MM bbls (only 19 MM bbls from the Viking) Over 1.0 BBbbls of OOIP in the Viking alone 16.8 MMBOE Reserves (P+PDP), BTNPV@10% = $115.3 MM (based on Sproule Report) Only $360,000 of FDC assigned within the acquisition report Over 1,000 Viking HZ drilling locations identified by management No development capital spent since late 2014 Vast operated infrastructure network 175 MMcf/d gas processing capability with third party processing revenue 33 oil batteries; ~4,000 km of working interest pipelines 27