StockPotentials December 22, NOVUS ENERGY INC.

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1 . StockPotentials December 22, NOVUS ENERGY INC.. Recent Price (December 21, 2010) $ Week High-Low $1.20-$0.73 Shares O/S Market Cap million $188.1 million 50-day Average Volume 910, day Average Volume 513,900 Year-End December 31 Symbol Website TSX-V: NVS Financial Data (C$ millions) Year to 12 Mos. to Selected Income/Cash Flow Dec. 31/09 Sep. 30/10 Revenues $4.962 $ EBITDA ($3.418) $0.618 EBIT ($15.384) ($12.006) Interest Expense ($0.090) ($0.042) Net Income ($15.956) ($13.957) Cash Flow From Operations ($3.833) $0.130 Capital Expenditures ($11.922) ($48.006) Selected Balance Sheet Cash $ $ Net New Financing $ $ Property Value (Book) $ $ Equity $ $ Total Assets $ $ Key Ratios EBITDA-Interest Coverage (x) nmf Price/Revenue (x) 6.63x 8.48x Price/EBITDA (x) nmf nmf Property Value Per Share ($) $0.37 $0.52 Cash Per Share ($) $0.18 $0.09 Revenue Per Share ($) $0.14 $0.10 Book Equity Per Share ($) $0.59 $0.64 eresearch Analysts: Eric Eng, B.A., MBA Bob Weir, B.Sc., B.Comm., CFA Note: Report was prepared with public information only. eresearch Corporation 56 Temperance Street, Suite 501 Toronto, ON M5H 3V5 Telephone: Toll Free: Source: PROFILE Novus Energy Inc. ( Novus or the Company ) is involved in the acquisition, exploration, development, and production of petroleum and natural gas reserves in western Canada, particularly in Alberta and Saskatchewan. The Calgary-based company holds a 100% interest in Novus Energy (Acquisition) Inc., which owns two subsidiaries: Coyote Resources Inc. and Titan Oilfield Services Inc. INVESTMENT CONSIDERATIONS 1. Strengths Large original-oil-in-place (OOIP) with over 2 billion barrels. Improved financials: no debt, and positive cash flow and EBITDA. Low operating costs result in good netback production and strong potential for increasing the Internal Rate of Return (IRR). Experienced and able management team. 2. Challenges The Company is small and operates in a competitive environment where there are many other players that have stronger financial resources; the challenge includes: competing for new properties, obtaining adequate financing, and increasing property value. Although cash flow improved significantly in 2010, the Company still relied on external funds to finance its maintenance capital expenditures. The fluctuation of commodity prices could have a negative impact on the value of future cash flow. eresearch Corporation

2 HIGHLIGHTS Novus formerly was Regal Energy Ltd. ( Regal ), whose shares traded over $14 per share in The impact of falling commodity prices and the credit crisis significantly affected Regal s stock price, and trading was as low as $0.30 per share during Q3/2009. In August 2009, Regal changed its name to Novus Energy Inc. and effected a 10-for-1 share consolidation. In September 2009, new management was appointed. Under its new management, led by Hugh G. Ross, the Company has achieved some remarkable milestones: - Completed $30 million financing in November 2009, issuing 46.2 million subscription receipts (SR) at a price of $0.65 per SR. Each SR holder could receive one common share of Novus Energy. - Acquired Ammonite Energy Ltd. for $22.5 million, paid by new shares of Novus in December Acquired four Dodsland-area properties totaling $7 million in Acquired a private company for $17 million, paid by issuing new shares of Novus in February Completed a $25 million financing in May 2010, by issuing 22.7 million shares at $1.10 per share. - Made an additional 14 acquisitions and farm-in agreements in the Dodsland area (the Company s focus) in 2010 for $11 million, totaling net sections. - Commenced the second phase of its drilling program in October 2010 in Dodsland, where 15 gross wells (15 net) will be drilled, completed, and placed on production prior to year end. In November 2010, the Company entered into an agreement with a Canadian chartered bank, setting up new credit facilities of $28 million. The new facilities, to be comprised of a $22 million revolving operating demand loan and a $6 million acquisition/development demand loan, will replace the existing $5 million credit facility. Significant Development: December 6, 2010 Sproule Associates Limited, an independent engineering and geological firm, provided Novus with a Contingent Resource Assessment for the Company s Dodsland, Saskatchewan area - Viking light oil assets. The summary is as follows: Contingent Resources Low Estimate Best Estimate High Estimate DPIIP P90 P50 P10 mmb mmb mmb mmb Novus Working Interest Land Novus Option Lands Total Resources Average Recovery Factor 2.10% 4.30% 8.40% n/a Note 1: DPIIP = Discovered Petroleum Initially-In-Place Note 2: mmb = million barrels BUSINESS STRATEGY The Company focuses on acquiring OOIP properties with a low recovery factor and then improves them. - Increased recovery factor could be achieved by applying horizontal multi-fracture technology. - Focus on light oil. - Improve horizontal multi-stage frac-ing technology to reduce costs and uncover additional reserves. The Company emphasizes low geological risk reserves with large development drilling technology. Improve larger scale drilling program by focusing on having core areas with large land positions, operational and infrastructure control. The Company s current focus is in Alberta and Saskatchewan. eresearch Corporation ww.eresearch.ca Page 2

3 OPERATIONAL DATA Novus Energy Inc. 3 months ended September 30 9 months ended S Operational Data Production Oil and liquids (bbls/d) Gas (mcf/d) 3,278 1,584 2,879 Oil equivalent (boe/d) 1, Average realized prices Oil and liquids ($/bbls) Gas ($/mcf) Oil equivalent ($/boe) Average daily production (ADP) for Q3/2010 increased by 288% to 1,339 boe/d compared to 345 boe/d recorded in the same period in ADP for the nine months of 2010 was up by 195% to 961 boe/d from 326 boe/d in Current production is approximately 1,475 boe/d, weighted approximately 65% towards oil and liquids. The Company expects to meet its forecast 2010 exit rate of 2,000 boe/d with 70% of production (oil and liquids). In Q3/2010, Novus drilled seven gross successful Viking horizontal oil wells (3.5 net) in its core Dodsland area. All of these wells are now on production. Total operating costs for Q3/2010 were $15.15/boe compared to $18.82/boe in Q3/2009. Operating costs for the fourth quarter are expected to decline further with upcoming production additions from additional Dodsland area wells. Average realized prices improved by 88.8% and 56.7% for Q3/2010 and the first nine months of 2010, respectively. FINANCIAL DATA (1) Income and Cash Flow Income and Cash Flow Year Year 12 months (C$ millions) Dec-08 Dec-09 Sep-10 Revenues EBITDA (3.418) EBIT (2.269) (15.384) (12.006) Net Income (3.086) (15.956) (13.957) Cash Flow From Operations (0.049) (3.833) Capital Expenditures (2.203) (11.922) (48.006) Change in Working Capital Change in Investments (2.293) (0.222) Change in Equity Change in Debt (1.655) (3.577) (0.227) After almost no growth in revenues in 2009, revenue jumped considerably for the 12 months ended September 2010, reaching over $14.6 million compared to just $4.92 million in 2008 and $4.96 million in The increase reflects considerably higher realized prices and significantly higher production. eresearch Corporation ww.eresearch.ca Page 3

4 EBITDA improved significantly, becoming a positive $0.62 million for the 12 months ended September 2010 from a negative $3.42 million in The improvement in EBITDA reflects significant growth in revenues, as production and prices increased and operating costs declined. Cash flow from operations also improved substantially. For the 12 months ended September 30, 2010, cash flow increased to over $0.13 million from negative $3.83 million in This is significant because: (1) it demonstrates the Company s ability to finance its capital expenditures with internally-generated cash flow; and (2) it helps to improve the Company s ability to obtain financing for its future expansion. In 2009, Novus raised over $40 million through equity issuances and, for the 12 months ended September 2010, the Company raised over $52 million in new equity. This demonstrates management s skills with respect to accessing the capital market. All the funds raised were intended to be used in the acquisition of new properties in the Dodsland area and for Ammonite Energy Ltd. (2) Balance Sheet Selected Balance Sheet As at As at As at (C$ Millions) Dec-08 Dec-09 Sep-10 Cash and Equivalent Total Current Assets Net New Financing Current Portion of LT Debt Total Current Liabilities Property Book Value Long-term Debt & Capital Leases Shareholders' Equity Total Assets The balance sheet has become stronger as the Company paid off all of its debt by the end of Currently, the Company has no debt. The book value of property almost doubled by the end of September 2010 from December 2009 (more than tripled since 2008). The increase in property value reflects some major acquisitions made by the Company in the Dodsland area. New acquisitions increase the Company s oil and natural gas reserves. Liquidity remained solid at September 2010 as Novus had approximately $14.62 million in cash and positive working capital of $14.4 million. Credit Facilities In November 3, 2010, the Company obtained $28 million in new credit facilities from a Canadian chartered bank to replace a $5 million facility. The new facilities are operational in December 2010, and consist of a $22 million revolving operating demand loan and a $6 million acquisition/development demand loan. eresearch Corporation ww.eresearch.ca Page 4

5 (3) Key Financial Ratios Financial Ratios Year Year 12 months Dec-08 Dec-09 Sep-10 Debt/Capital (%) 9.6% 0.0% 0.0% EBITDA-Interest Coverage (x) Neg Neg Current Ratio (x) Property Per Share (Book) $1.89 $0.37 $0.52 Cash Per Share $0.00 $0.18 $0.09 Revenue Per Share $0.69 $0.14 $0.10 Book Equity Per Share $1.62 $0.59 $0.64 The Company currently has no leverage, as it paid off its debt in The current ratio of 1.92x is reasonably strong. Revenue Per Share and Book Equity Per Share declined in 2009 compared to 2008, reflecting new share issuance. MANAGEMENT AND DIRECTORS Hugh G. Ross President, CEO, and Director Ketan Panchmantia Vice President, Finance and CFO Greg Groten Vice President, Exploration Jack Lane Vice President, Operations Julian Din Vice President, Business Development Michael H. Halvorson Director Harry L. Knutson Director A. Bruce Macdonald Director Larry C. Mah Director Al J. Kroontje Director CEO: Hugh Ross has been involved in the oil & gas industry for more than 20 years, and has held CEO positions with notable firms such as Gentry Resources Ltd. (acquired by Crew Energy Inc.) and Stratic Energy Corp. (acquired by EnQuest plc). FIVE-YEAR STOCK CHART eresearch Corporation ww.eresearch.ca Page 5

6 CORPORATE INFORMATION Novus Energy Inc. 1200, 520 5th Avenue S.W. Calgary, Alberta T2P 3R7 Phone: ; Fax: Website: eresearch Analysts: Eric Eng, B.A., MBA Bob Weir, B.Sc., B.Comm., CFA Analyst Affirmation: I, Eric Eng, and I, Bob Weir, hereby state that, at the time of issuance of this research report, I do not own, directly or indirectly, any shares of Novus Energy Inc. NOTE: eresearch reports on Novus Energy Inc. and other companies are available FREE on our website at must REGISTER to gain access to these reports. eresearch Corporation eresearch was established in 2000 as Canada's first equity issuer-sponsored research organization. Our various research packages allow corporate management to choose the form of research coverage that best meets their company s needs. We are a primary source for professional investment research, focused primarily on small- and mid-cap companies. Our research and analysis is of institutional quality, and has the potential to reach millions of global investors through our extensive electronic distribution network. StockPotentials Reports eresearch Disclaimer: The reports are written on companies that eresearch believes have interesting prospects, are smaller in size and, therefore, have little or no following on the Street, and which would benefit from the exposure that eresearch can provide through the dissemination of the reports via our extensive electronic distribution network. eresearch wrote this report from publicly-available information. Neither a Target Price nor a Recommendation concerning the shares of the Company is provided. eresearch does not receive a fee for the preparation and publication of StockPotentials reports, and Novus Energy Inc. did not pay eresearch a fee for the preparation and publication of this report. eresearch Corporation ww.eresearch.ca Page 6