MART RESOURCES: A Nigeria Marginal Field Case Study Mr. Wade Cherwayko (Chairman & CEO) Asia O&G Assembly, Hong Kong, 25 April 2013 1
Disclaimer Information Certain statements contained in this presentation constitute forward-looking statements as such term is used inapplicable Canadian and US securities laws. These statements relate to analyses and other information that are based upon forecasts of future results, estimates of amounts not yet determinable and assumptions of management. In particular, statements concerning the timing of the drilling of the upcoming wells, the future success of such wells, the ability of the Company to successfully complete and commercially produce, transport and sell oil from such well, the maintenance of current production levels from existing wells and future wells, future crude oil pricing levels and the ability to of the Company to fund future drilling operations from future cash flow and events or projections referenced or implied herein should be viewed as forward-looking statements. All reserves estimates and estimates of future net revenue do not represent fair market value. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or are not statements of historical fact and should be viewed as forward-looking statements. Such forward looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Corporation to be materially different from any future results, performance or achievements expressed or implied by such forwardlooking statements. In particular, there is no assurance that the additional export capacity allocated to the Umusadege field and other fields in the area (collectively, the Cluster ) will be available. Total export capacity allocated to the Umusadege Field is subject to change depending upon production levels by other fields in the Cluster. There us no assurance that additional pipeline export volumes will be available to the Umusadege field co-venturers within the timeframes indicated or at the volumes indicated. Such risks and other factors include, among others, costs and timing of exploration and production development, availability of capital to fund exploration and production development; political, social and other risks inherent in carrying on business in a foreign jurisdiction, the effects of a recessionary economy and such other business risks as discussed herein and other publicly filed disclosure documents. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. Investors are cautioned that such forward-looking statements involve risks and uncertainties. There can be no assurance that such statements will prove to be accurate as actual results and future events could vary or differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forwardlooking statements contained in this news release. The forward-looking statements contained herein are expressly qualified by this cautionary statement. Forward-looking statements are made based on management s beliefs, estimates and opinions on the date hereof and the Company undertakes no obligation to update any forward-looking statements contained herein whether as a result of new information, future events or otherwise, except as required by applicable law. Reserves Disclosures All estimates of reserves and future net revenue are derived from Mart Resources Inc. s NI 51-101F1 having an effective date of December 31, 2011 and March 31, 2012 both of which which can be found at www.sedar.com Reserves: Reserves are volumes of hydrocarbons and associated substances estimated to be commercially recoverable from known accumulations from a given date forward by established technology under specified economic conditions and government regulations. Specified economic conditions may be current economic conditions in the case of constant price and un-inflated cost forecasts (as required by many financial regulatory authorities) or they may be reasonably anticipated economic conditions in the case of escalated price and inflated cost forecasts. Possible Reserves: Possible reserves are quantities of recoverable hydrocarbons estimated on the basis of engineering and geological data that are less complete and less conclusive than the data used in estimates of probable reserves. Possible reserves are less certain to be recovered than proved or probable reserves which means for purposes of reserves classification there is a 10% probability that more than these reserves will be recovered, i.e. there is a 90% probability that less than these reserves will be recovered. This category includes those reserves that may be recovered by an enhanced recovery scheme that is not in operation and where there is reasonable doubt as to its chance of success. RPS Energy only determines possible reserves when specifically requested to do so. Proved Reserves: Proved reserves are those reserves that can be estimated with a high degree of certainty on the basis of an analysis of drilling, geological, geophysical and engineering data. A high degree of certainty generally means, for the purposes of reserve classification, that it is likely that the actual remaining quantities recovered will exceed the estimated proved reserves and there is a 90% confidence that at least these reserves will be produced, i.e. there is only a 10% probability that less than these reserves will be recovered. In general reserves are considered proved only if supported by actual production or formation testing. In certain instances proved reserves may be assigned on the basis of log and/or core analysis if analogous reservoirs are known to be economically productive. Proved reserves are also assigned for enhanced recovery processes which have been demonstrated to be economically and technically successful in the reservoir either by pilot testing or by analogy to installed projects in analogous reservoirs. Mart s reserves have been evaluated by RPS Energy Canada Ltd. ( RPS Energy ), an independent reserves evaluator. The reserves definitions used by RPS Energy conform to the reserves definitions set forth in Canadian National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities and its companion policy, which reserves definitions are set out below. Probable Reserves: Probable reserves (also called Probable Additional reserves) are quantities of recoverable hydrocarbons estimated on the basis of engineering and geological data that are similar to those used for proved reserves but that lack, for various reasons, the certainty required to classify the reserves are proved. Probable reserves are less certain to be recovered than proved reserves; which means, for purposes of reserves classification, that there is 50% probability that more than the Proved plus Probable Additional reserves will actually be recovered. These include reserves that would be recoverable if a more efficient recovery mechanism develops than was assumed in estimating proved reserves; reserves that depend on successful work-over or mechanical changes for recovery; reserves that require infill drilling and reserves from an enhanced recovery process which has yet to be established and pilot tested but appears to have favorable conditions for successful application. Oil Council : Asia O&G Assembly April 2013 2
MART Overview Mart is an independent international oil & gas company focused on production and development opportunities in the prolific Niger Delta region of Nigeria. Mart is publicly traded on the Toronto TSX Venture Exchange (MMT.V) with 356 million shares on issue and an estimated market cap. of C$550 million (at 21 April 2013). The Umusadege field ( Umusadege ) in Nigeria s Niger Delta region is Mart s core strategic asset which is being developed in partnership with Midwestern Oil and Gas Company Plc. (Operator) and Suntrust Oil Company Limited. Mart s net proved plus probable (2P) oil reserves in the Umusadege field at December 31, 2012 were 17.7 million barrels of oil ( bbls ), with a further 5.4 million bbls possible reserves. Mart s net petroleum sales revenue for the 12 months to December 31, 2012 was $161 million with net income of $58 million. In 2012 Mart declared dividends aggregating $0.20 per common share. Mart is well positioned for growth through further increases in Umusadege field reserves, gaining access to proven marginal fields to be awarded by the Nigerian government, and fields available via future IOC divestments. December 31, 2012 2P Reserves 17.7 mmbbls 12 months 2012 Petroleum Sales $161m Quarterly Dividend policy $0.05 per share Oil Council : Asia O&G Assembly April 2013 3
2012 Highlights UMU-9 combined flow test of 11,718 bopd from five zones Signed agreement with Shell for CSA via new export pipeline Reserves report December 31, 2012 17.7 MMbbls proved and probable Dividend policy announced to pay quarterly dividends of $0.05 per common share ($0.10 per share paid in Aug 2012, $0.05 per share paid in Oct 2012, $0.05 per share paid in Jan 2013) 2013: Recent Developments Central Production Facility 99% complete, commissioning in Q2 2013 UMU-10 well drilled to appraise new sands discovered in UMU-9. Combined test rates of >5,000 bopd from 4 zones (2 remain to be tested) UMU-11 expected to spud during 2Q 2013 to develop bypassed reservoirs in the eastern structure Quarterly dividend of $0.05 per share paid in April 2013 $100 million secured term loan facility arranged Updated Reserves 17.7 MMbbls Qtrly Dividend $0.05 per share Oil Council : Asia O&G Assembly April 2013 4
Nigeria Overview Nigeria has the largest oil & gas reserve base in Sub-Saharan Africa with an estimated 30+ Billion bbls of oil and 180 Tcf of Gas Nigerian oil production averages 2 million bbls per day with government initiatives to increase to 4 million Over 1,000 fields discovered with only 35% producing Long standing presence of Major Oil and Independent Companies provides industry stability Nigeria is 4th largest oil supplier to the USA at 7%* Attractive risk/reward profile: Numerous proven/undeveloped field opportunities Attractive Fiscal Regime High quality crude oil Established infrastructure for transportation and export * Source: IEA Oil Reserves (bbls) 30+ BILLION Nigerian oil Production (bopd) 2.3M Gas Reserves 180 TCF Long Standing STABILITY Oil Council : Asia O&G Assembly April 2013 5
Nigeria s Marginal Field Program Initiated in 2001 to fuel the growth of Independent Nigerian E&P companies (over 130 fields identified for the program) 24 marginal fields allocated to indigenous companies in 2003 Considerably improved fiscal terms from historical 20% royalty and 85% profit tax Reduced royalty based on a sliding scale and lower profit tax Reduced royalties: Sliding-scale royalties to government Sliding-scale royalties to original field owners Umusadege is one of Nigeria's best performing marginal fields What is a Marginal Field? Fields owned by major international oil companies and state oil company (NNPC) which have remained non-producing for over 10 years Fields not under development due to marginal economics for major oil operators and high fiscal terms Exploration discoveries but no appraisal activities One of the most successful Nigerian Marginal Fields Umusadege Field Identified for Marginal Field Programme 130 Fields Oil Council : Asia O&G Assembly April 2013 6
Typical Economic Sharing Under the terms of the Umusedage RSA*, Mart funds 100% of all capital expenditure. Mart is entitled to 65% of distributable funds as Cost Oil until it has fully recovered the capital spend. Mart is entitled to 50% of the remaining distributable funds as Profit Oil, giving a total of 82.5% during cost recovery phase. After full recovery of capital costs Mart is entitled to 50% of distributable funds. Before Cost Recovery 17.5% 17.5% **65% After Cost Recovery 50% 50% Distributable funds are defined in the RSA as revenue less royalties, abandonment operating costs, NDDC, G&A and taxes. * RSA = Risk Service Agreement ** % of profit allocated for Mart s Capital Cost Recovery Oil Council : Asia O&G Assembly April 2013 7
Field Location & Export infrastructure Umusadege Field Shell Export Pipeline Forcados Terminal Agip Export Pipeline Brass River Terminal Oil Council : Asia O&G Assembly April 2013 8
Umusadege Field History Marginal field award Development drilling to increase production to > 12,000 bopd 1974 2003 2008 2008-2011 2012 Umusadege s Significant Oil Reserves First Commercial Oil Production Field discovery in UMU-1 Expansion of Central production facilities to 35,000 bpd Field Extension with UMU-9 & UMU-10, discovering an additional 6 reservoir sands Oil Council : Asia O&G Assembly April 2013 9
Umusadege Field Development Existing Development Future Exploration UMU-3 UMU-4 UMU-1 UMU-5 Mart s Work Program Outlook UMU-6,7,8 UMU-9,10 Exploration in West & East Horizontal development drilling Future Development Wells Existing Wells Vertical infill development drilling Oil Council : Asia O&G Assembly April 2013 10
Umusadege Exploration Prospectivity in Umusadege Exploration Drilling Up to 33 stacked sands 4-way dip closure, potential for larger structure with fault seal (3 way dip closure) Hydrocarbon expected to be oil in shallow sands and either oil or gas-condensate in deeper sands UMU-West West Strong geophysical interpretations tied to the main field interpretation Sands have been continuous across field delineation wells, and expected to continue regionally Proven Hydrocarbon system with successful drilling campaign Existing Wells East UMU-East Oil Council : Asia O&G Assembly April 2013 11
Completion Strategy Multizone testing 4+ zones per well completed Oil Council : Asia O&G Assembly April 2013 12
Ongoing Development Deviated drilling from pads Horizontal development Oil Council : Asia O&G Assembly April 2013 13
BOPD www.martresources.com Umusadege Field Production Profile 16,000 14,000 UMU-9 Producing Days Calendar Days UMU-8 12,000 10,000 8,000 6,000 4,000 UMU-1 UMU-5 UMU-6 UMU-7 Future production gains will be realized by : Increased pipeline capacity Production from existing wells can be increased significantly when pipeline capacity is increased Development drilling 2,000 Exploration potential 0 Note: Mart s share of production is dependent on stages of cost recovery as prescribed under the RSA (ranging from 50-82.5%) Oil Council : Asia O&G Assembly April 2013 14
Umusadege Work Program 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Field Development UMU-10 Well Development Wells, including Horizontal drilling (Rigs 1&2) Pipeline Exploration Drilling UMU-Exploration (Rig1) Oil Council : Asia O&G Assembly April 2013 15
Managing Local Relationships Historically, many oil companies have mismanaged relationships with the local communities. This has lead to many difficulties in oilfield operations and the relationships upon which they are built. Challenge: Sustainable pursuit of opportunities in Nigeria Resolutions: Form integrated field development teams from Mart and local partners, Midwestern and Suntrust Build a strong partnership with a local Nigerian oil company The Joint Venture operations maintain more than 85% Nigerian workforce Engage local communities in our operations, providing employment and educational opportunities Increasing Local Content by using local service companies, laboratory services, and personnel Oil Council : Asia O&G Assembly April 2013 16
Regulatory framework and approval processes Marginal field award was in 2003, however the final development approval was received in 2006. Quite a significant delay to operations and initial production! Challenge: Managing relationships with local governments, and obtaining timely approvals for field development Resolution: Patience, and more patience Challenge: Managing investor expectations during the approval delays Resolution: Continue technical evaluations and maintain positive outlook by consistently communicating investment potential and upside Oil Council : Asia O&G Assembly April 2013 17
Exporting Oil from Nigeria Exports are done through main export pipelines operated by the major IOCs. Small and mid-sized operators are allocated a combined export volume in clusters of 3-5 operators. Negotiating position with the major IOCs to manage the export capacities and allocations is not strong. Metering downstream is done by the IOCs and pipeline losses are allocated back to the clusters. These losses can often be a significant volume of the injected export oil. The equipment for the cluster s oil exports are operated by the major IOCs, and equipment failure and repair time can lead to complete shut-downs and downtime in oil exports Challenge: Obtain necessary export capacity to enable full field production potential Resolution: Development multiple export routes to increase capacity and provide redundancy Challenge: Manage significant pipeline losses through IOC Resolutions: Pro-active discussions with the pipeline operators and government to reconcile metering records Reliable multiphase metering at the field and injection points Oil Council : Asia O&G Assembly April 2013 18
Oilfield Equipment Availability Oilfield development in Nigeria has been active for decades and has been dominated by the major oil companies operating large fields. The availability of service rigs, drill rigs, and other specialized equipment is often limited for new players and small operators. Challenge: Marginal field operators need to find reliable and available equipment and services for field development Resolutions: An Early Production System (EPS) was used for the first phase of production while the main Central Production Facility was being constructed A dedicated service rig was contracted and brought into the country specifically to work on Mart s assets Mart started its own drilling subsidiary (NRG drilling) to bring a high spec drilling rig into Nigeria full time for Umusadege development Oil Council : Asia O&G Assembly April 2013 19
Supporting local content & partnerships www.martresources.com Government initiatives to attract investment Indigenous allocations in the 1990s Marginal field allocations & licensing rounds Provide opportunities for the creation of an indigenous independent oil & gas sector Indigenous partnerships Provide local knowledge & expertise Socially responsible investment Community development programmes Healthcare Projects Infrastructure projects Power and water projects Use of community contractors Employment & training Treat local communities as stakeholders to ensure security Growth for indigenous service companies Job creation Oil Council : Asia O&G Assembly April 2013 20
C$M www.martresources.com Earnings & Funds Flow from Operations * $180 $160 $140 $120 $100 $164 Earnings & Funds flow from Operations for 2012: Petroleum sales $161M Funds flow from operations $138M $80 $60 $146 $161 $138 Petroleum Sales Funds Flow from Operations $40 $20 $- $58 $48 2010 2011 2012 * The Company defines Funds Flow from Operations as net petroleum sales less royalties, community development and production costs. Oil Council : Asia O&G Assembly April 2013 21
Average Netback per Barrel $120 $100 $80 $60 $15.90 $12.80 Royalties & NDDC paid per barrel (US$) Production costs per barrel (US$) $40 $20 $74.70 Operating netback per barrel before taxes (US$) $0 2012 Oil Council : Asia O&G Assembly April 2013 22
Mart Share of Umusadege Net Reserves (MMbbl) www.martresources.com Umusadege Reserves Growth (Net, Mart Share) 30 25 20 5.0 5.4 Reserves growth : Ongoing field appraisal Exploration wells 15 10 5 17.7 Cumulative Production Possible Proved & Probable 0 2009 2010 2011 2012 As at March 31, 2012 Oil Council : Asia O&G Assembly April 2013 23
C$M www.martresources.com NPV of Reserves per share (after tax) $2.50 $2.00 Further upside in reserves to come : $1.50 Exploration drilling in 2013 could add significant reserves if successful $1.00 $0.50 Possible Proved & Probable Share price (y/e) Share price (current) $- 2009 2010 2011 2012 Oil Council : Asia O&G Assembly April 2013 24
$/Share www.martresources.com Mart s Growth Story 2.50 2.00 DIVIDEND POLICY ANNOUNCED PIPELINE DISTRUPTIONS PRODUCTION RESUMED APRIL 17, 2013 1.50 1.00 0.50 UMUSADEGE DEVELOPMENT DRILLING & INFRASTRUCTURE PROGRAMME UMU-6 COMBINED TEST FLOWS 14,000+ BOPD UMU-9 DISCOVERY CONFIRMS EASTERN EXTENSION TO FIELD Umusadege field development delivering shareholder growth : Increased production & reserves = earnings & growth Exploration drilling in 2013 could add significantly to Umusadege reserves 0.00 Dividend policy of 5 cents per quarter funded from operating cash flow Oil Council : Asia O&G Assembly April 2013 25
Mart Share Price v. TSX Index Oil Council : Asia O&G Assembly April 2013 26
Mart s Near-Term Value Drivers Continued success in the Umusadege field exploration & development Asset acquisitions & partnerships in the Niger delta East & West Prospect drilling (2013-2014) Reserves & Production growth by development drilling (2013 & ongoing) Production & Export capacity expansion (2013) Tie in to SPDC export pipeline Expansion into new fields & assets Securing interest in new marginal fields awarded by Nigerian Government Oil Council : Asia O&G Assembly April 2013 27
THANKYOU! CONTACT DETAILS : Mr Wade Cherwayko (CEO & Chairman) E: wade.cherwayko@martresources.com UK Correspondence Office: Unit 5, Chelsea Wharf 15 Lots Road, London England SW10 0QJ Tel: +44 (0) 207 3517937 28