ENERCAPITA. Annual Update 2016

Transcription

1 ENERCAPITA Annual Update 2016

2 PAGE 1 ENERCAPITA ANNUAL UPDATE 2016 OVERVIEW AND UPDATE Enercapita ( the Company ) was established in February, 2014 and is part of a group of alternative funds with over $600M in AUM operating in farmland, small, medium enterprise private equity, non-bank lending and energy was a transformational year for the Company as Enercapita had tremendous success executing our business plan of acquiring low decline, predictable, low cost and predominantly operated oil and natural gas production. Given the low commodity prices throughout 2016, many companies were forced into selling high quality assets at historically low valuations. As a company, Enercapita was fortunate to be well capitalized throughout These factors enabled Enercapita to acquire high quality assets through 10 separate transactions and consciously shift our production weighting from natural gas towards oil, which provides a higher netback per barrel. Since the close of our last significant acquisition in September, 2016, the Company s focus has been on evaluating our existing asset base and prioritizing organic growth opportunities within our portfolio. At this time, Enercapita has decided to limit the capital raise for the Company to approximately $165M in aggregate. This will provide approximately $40M for capital expenditures and strategic acquisitions in Enercapita expects to exit 2017 in excess of 4,500 boe/d of production and 2017 net operating income is forecast to be $23.5M, based on a US$55 WTI oil price. This provides a highly resilient preferred unit distribution coverage of approximately two times. The Company s cash flows remain well protected through commodity price hedges. These financial hedges are structured to provide further cash flow upside through costless collars and participating floor products. The approach at Enercapita is unchanged. We remain fiscally disciplined. We steadfastly protect our balance sheet and we focus on the mandate of maximizing free cash flow and shareholder value. Should you have any questions about the fund or any of the information contained in this report, please contact any of the Trustees and we will be pleased to update you further. Greg Tisdale Craig Hruska Greg Tooth Mike Cook Stephen Johnston CEO/Trustee Chairman/Trustee Trustee Trustee Trustee TABLE OF CONTENTS 1 OVERVIEW AND UPDATE 4 ACQUISITIONS 4 DISTRIBUTIONS 2 FINANCIAL HIGHLIGHTS 4 COMPANY FUNDS FLOW 4 HEDGING POSITION 3 KEY HIGHLIGHTS 4 MER 5 REPORT ON OPERATIONS

3 PAGE 2 ENERCAPITA ANNUAL UPDATE 2016 OVERVIEW AND UPDATE Financial ($000s) Oil and natural gas sales $ 25,826 $ 6,010 Net Operating Income (1) $ 9,634 $ 1,861 Funds Flow (2) $ 4,331 $ (945) Distributions paid or declared $ 8,201 $ 3,238 Acquisitions $ (75,035) $ (18,669) Development capital expenditures $ (6,294) $ (1,179) Year End Positive Working Capital $ 11,621 $ 24,467 Operating Average daily production Crude oil and NGLs (bbls/d) 1, Natural gas (Mcf/d) 5,147 3,264 Total (boe/d) 2, Average realized price Crude oil and NGLs ($/bbl) $ $ Natural gas ($/Mcf) $ 2.34 $ 2.66 Total ($/boe) $ $ Netback ($/boe) Oil and natural gas sales $ $ Realized hedging gain $ 2.56 $ 6.75 Royalties $ (4.29) $ (1.39) Operating Expenses $ (16.15) $ (19.32) Transportation Expenses $ (3.58) $ (2.33) Total ($/boe) $ $ 7.31 Benchmark Pricing WTI (US$/bbl) $ $ Foreign Exchange (US$/C$) $ 0.76 $ 0.78 AECO (C$/mcf) $ 2.18 $ 2.70 Share Information (000s) Preferred LP Units 141,517 65,113 Common A LP Units 77,740 35,761 Common B LP Units 63,836 29,352 Common C LP Units 4,250 2,140 Total Common LP Units 145,826 67,253 (1) Net operating income includes oil and natural gas sales, realized hedging gains (losses), royalties, operating expenses and transportation expenses (2) Funds flow is a non-gaap measure which includes net operating income, interest income (cost), general and administration costs and transaction costs

4 PAGE 3 ENERCAPITA ANNUAL UPDATE KEY HIGHLIGHTS Grew production from 698 boe/d in 2015 to 2,061 boe/d in 2016 Increased proved plus probable reserve value (PV10, before tax) by 435% from $39.4M at Dec. 31, 2015 to $210.8M at Dec. 31, 2016 Increased proved plus probable reserve volumes by 281% from 4,125 Mboe at Dec. 31, 2015 to 15,725 Mboe at Dec. 31, 2016 Completed 10 acquisitions for cash consideration of $75M Reduced operating costs by 16% from $19.32/boe in 2015 to $16.15/boe in 2016 Strong equity support with $76.5M raised in 2016 Remained financially disciplined with $11.6M of positive working capital at Dec. 31, 2016 and an undrawn $25M bank line RESERVE VALUATION prepared by Sproule Associates Limited Dec. 31, 2016 Dec. 31, 2015 Change Company Gross Reserve Volumes (Mboe) Proved Developed Producing 8,022 2, % Total Proved 11,331 3, % Total Proved plus Probable 15,725 4, % Company Gross Reserve Values (NPV10 of before tax cash flow - $M) Proved Developed Producing $ $ % Total Proved $ $ % Total Proved plus Probable $ $ %

5 PAGE 4 ENERCAPITA ANNUAL UPDATE 2016 CAPITAL RAISED At December 31, 2016, Enercapita Energy (Trust and LP) had raised $141.6M ACQUISITIONS TO DATE The portfolio gives investors exposure to ~3,950 boe/d of production (as of March 31, 2017) with a 10% decline rate, a 53%/47% oil/gas ratio and average netbacks of greater than $15/boe (assuming US$ 55 WTI) ACQUISITIONS & CAPITAL BUDGET Enercapita plans to invest $40M in 2017 through a combination of strategic acquistions and organic capital projects. With this investment, we expect to exit 2017 at over 4,500 boe/d of production. COMPANY FUNDS FLOW (1) For the year ended December 31, 2016, the Company's funds flow was $4.3M. In 2017, Enercapita's forcast funds flow is $16M. DISTRIBUTIONS For the year ended December 31, 2016, distribution expense totalled $8.2M. Approximately $1.0M of distribution expense was incurred on undeployed capital due to timing differences on capital invested/raised and cash on hand at year end. CASH POSITION At December 31, 2016, Enercapita had $15.2M of cash on hand ($11.6M positive working capital) and an undrawn $25M credit facility. HEDGING POSITION Enercapita's cash flows remain well protected through commodity priced hedges and are structured to provide further upside through costless collars and participating floor products. Currently, Enercapita has 55% of forecast 2017 oil production hedged at approximately C$70.00/bbl and 56% of forecast 2017 natural gas production hedged at over $3.00/Mcf. Enercapita has in excess of 30% of forecast production hedged for 2018 and MANAGEMENT EXPENSE RATIO Run rate MER is 2.0% of the asset value of the fund. MER totalled $1.9M in (1) Funds flow is a non-gaap measure which includes net operating income, interest income (cost), general and administration costs and transaction costs

6 PAGE 5 ENERCAPITA ANNUAL UPDATE 2016 REPORT ON OPERATIONS Through a combination of strategic acquisitions of high quality oil weighted assets and an efficient capital plan to add production volumes at attractive metrics, Enercapita exited 2016 at over 3,000 boe/d. The acquired assets are in Enercapita s core areas and include substantial low cost upside opportunities as well as a significant undeveloped land base. Further opportunities exist to add production through additional waterflood projects and uphole recompletion projects. The acquisitions were funded with cash on hand. With a $40M capital budget in 2017, Enercapita plans to exploit its asset base, continue to complete strategic acquisitions and exit the year in excess of 4,500 boe/d. Enercapita is in a strong financial position and remains disciplined protecting our cash flows and distributions through our ongoing hedging program. This strong financial platform positions Enercapita well in this uncertain commodity price environment. The Company s conservative business model of acquiring proven, low decline production and concurrently hedging production has produced the desired cash flow and yield stability. This approach has protected our cash flow and balance sheet, while positioning the Fund to be opportunistic in adding high quality assets in this depressed commodity price environment. Attributes of the Portfolio March 31, 2017 production of 3,950 boe/d 53% light oil and liquids Low decline rate of approximately 10% with low risk, predictable production profile Low operating costs of ~$15/ bbl and royalties of ~13% Strong netbacks of approximately $15/boe based on West Texas Intermediate oil price of US$ 55/bbl High working interest and operatorship Large original oil in place pools with expected improved recovery factors through primary and water flood optimization Ownership and control of key facility infrastructure Opportunities to lower operating costs further Significant undeveloped land position for future development

7 PAGE 6 ENERCAPITA ANNUAL UPDATE 2016 CONTACTS Craig Hruska Chairman/Trustee Duane Masse COO chruska@enercapita.com dmasse@enercapita.com Greg Tisdale CEO/Trustee Trevor Duncan VP Business Development gtisdale@enercapita.com tduncan@enercapita.com Mike Cook Trustee Shawn Tomlinson VP Finance mcook@enercapita.com stomlinson@enercapita.com Stephen Johnston Trustee Bob Gau Fund Accountant sjohnston@enercapita.com bgau@enercapita.com Greg Tooth Trustee Nicole Babla Investment Administrator gtooth@enercapita.com nbabla@enercapita.com Investment Office: 2210, A Avenue SW Operations Office: 600, 435 4th Avenue SW Calgary, AB T3H 0V5 Calgary, AB T2P 3A8 CORPORATE PARTNERS Bank: National Bank of Canada Evaluation Engineers: Sproule Associates Limited Auditor: KPMG LLP Legal Counsel: Norton Rose Fulbright Blakes

8 ENERCAPITA DISCLAIMER This update is for information only and does not constitute, nor should it be construed as, an offer to sell or a solicitation to buy securities of Enercapita. This update may contain statistical data, market research and industry forecasts that were obtained from government or other industry publications and reports or based on estimates derived from such publications and reports. Government and industry publications and reports generally indicate that they have obtained their information from sources believed to be reliable, but do not guarantee the accuracy and completeness of their information. While Enercapita believes this data to be reliable, market and industry data is subject to variations and cannot be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any statistical survey. Enercapita has not independently verified any of the data from independent third party sources referred to in this update or ascertained the underlying assumptions relied upon by such sources. This update includes forward-looking information and forward-looking statements (collectively, forward-looking information ) with respect to Enercapita. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases including, but not limited to, expects, does not expect, is expected, anticipates, does not anticipate, plans, estimates, believes, does not believe or intends, or stating that certain actions, events or results may, could, would, might or will be taken, occur or be achieved) are not statements of historical fact and may be forward-looking information. This information represents predictions and actual events or results may differ materially. Forward-looking information contained in this update include, but are not limited to, statements with respect to: pending acquisitions; restarting of shut in production; the upside of recently acquired assets and hedging. Forward-looking information is based on a number of factors and assumptions which have been used to develop such information but which may prove to be incorrect. Although Enercapita believes that the expectations reflected in the forward-looking information is reasonable, it cannot guarantee future results, levels of activity, performance or achievement since such expectations are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies. Forward-looking information is based on the current expectations, estimates and projections of Enercapita and involve a number of known and unknown risks and uncertainties which would cause actual results or events to differ materially from those presently anticipated, many of which are beyond the control of Enercapita. Factors which could cause actual results, events, circumstances, expectations or performance to differ materially from those expressed or implied in forward-looking information include, but are not limited to, volatility in market prices and demand for crude oil and natural gas and hedging activities related thereto; risks related to the exploration, development and production of oil and natural gas reserves; general economic, political, market and business factors and conditions; interest rates fluctuations; statutory and regulatory developments; unexpected judicial or regulatory proceedings; catastrophic events; and other factors. Enercapita does not undertake any obligation to publicly update or revise any forward-looking statements except as required by applicable securities laws. In addition, information and statements in this update relating to reserves are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated, and that the reserves described can be profitably produced in the future. There are numerous uncertainties inherent in estimating quantities of oil and natural gas and the future cash flows attributed to such reserves. The reserve and associated cash flow information set forth in this update are estimates only. In general, estimates of economically recoverable oil and natural gas and the future net cash flows therefrom are based upon a number of variable factors and assumptions, such as historical production from the properties, production rates, ultimate reserve recovery, timing and amount of capital expenditures, marketability of oil and natural gas, royalty rates, the assumed effects of regulation by governmental agencies and future operating costs, all of which may vary materially. For these reasons, estimates of the economically recoverable oil and natural gas reserves attributable to any particular group of properties, classification of such reserves based on risk of recovery and estimates of future net revenues associated with reserves prepared by different engineers, or by the same engineers at different times, may vary. Enercapita s actual production, revenues, taxes and development and operating expenditures with respect to its reserves will vary from estimates thereof and such variations could be material. Disclosure provided in this update for barrels of oil equivalent (boe) and thousand cubic feet of gas equivalent (Mcfe) may be misleading, particularly if used in isolation. A boe conversion ratio of six Mcf to one bbl and a Mcfe conversion ratio of one bbl to six Mcf are based on an energy equivalency conversion method primarily applicable at the burner tip and do not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of oil as compared to natural gas is significantly different from the energy equivalency conversion ratio of six to one, utilizing a boe conversion ratio of six Mcf to one bbl and a Mcfe conversion ratio of one bbl to six Mcf would be misleading as an indication of value. Enercapita Energy Trust