PETERS & CO. ENERGY CONFERENCE SEPTEMBER 9 11, 2014
Disclaimer FORWARD-LOOKING STATEMENTS: This presentation contains certain forward-looking statements and forward-looking information (collectively referred to as "forward-looking statements") within the meaning of applicable Canadian securities laws. All statements other than statements of historical fact are forward-looking statements. Forward-looking statements typically contain words such as "anticipate", "believe", "plan", "continuous", "estimate", "expect", "may", "will", "project", predict, targeting, seek, intend, could, potential, scheduled, "should", outlook or similar words suggesting future outcomes. In particular, this presentation contains forward-looking statements pertaining to our business plans and strategies; estimated cash flow of $80 - $100 million from existing production, potential oil and gas production levels for each of our core areas and corporate totals and the estimated project life of each project; estimated future drilling locations at Onion Lake; estimated initial production rates, capital costs and payout period for a typical Onion Lake primary well; expected oil recovery rates and CSOR for the Onion Lake thermal EOR project; estimated payout period and project life for the Onion Lake EOR project; anticipated capital costs of the Onion Lake thermal EOR project; oil recovery rates, anticipated peak production rates and project life for the Mooney ASP flood and estimated project life; drilling plans for the Phase 2 and 3 lands at Mooney as well as the expected timing to expand the ASP flood to the Phase 2 and 3 lands; estimated project life of the Blackrod SAGD oil sands project; expected timing for regulatory approval for the first phase of the Blackrod SAGD project and estimated capital costs of the first phase of development; sources and timing of financing our capital expenditure programs including potential joint venture arrangements to develop Blackrod; 2014 guidance included on page 21 of this presentation; net asset value amounts included on page 23 of this presentation; plans to reach production of 30,000 barrels of oil per day by 2020 and the potential of 100,000 barrels of oil per day within 15 years and the key milestones for the next 12 to 18 months. In addition, statements relating to "reserves" or resources are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and resources described exist in the quantities predicted or estimated and can be profitably produced in the future The forward-looking statements in this presentation reflect certain assumptions and expectations by management. The key assumptions that have been made in connection with these forward-looking statements include the continuation of current or, where applicable, assumed industry conditions, the continuation of existing tax, royalty and regulatory regimes, commodity price and cost assumptions, the continued availability of cash flow or financing on acceptable terms to fund the Company s capital programs, the accuracy of the estimate of the Company s reserves and resource volumes and that BlackPearl will conduct its operations in a manner consistent with past operations. Although management considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect. By their very nature, forward-looking statements involve inherent risks and uncertainties which could cause actual results to differ materially from those contained in forward-looking statements. These factors include, but are not limited to, risks associated with fluctuations in market prices for crude oil, natural gas and diluent; risks related to the exploration, development and production of crude oil, natural gas and NGLs reserves; general economic, market and business conditions; substantial capital requirements; uncertainties inherent in estimating quantities of reserves and resources; extent of, and cost of compliance with, government laws and regulations and the effect of changes in such laws and regulations from time to time; the need to obtain regulatory approvals on projects before development commences; environmental risks and hazards and the cost of compliance with environmental regulations; aboriginal claims; inherent risks and hazards with operations such as fire, explosion, blowouts, mechanical or pipe failure, cratering, oil spills, vandalism and other dangerous conditions; potential cost overruns; variations in foreign exchange rates; diluent supply shortages; competition for capital, equipment, new leases, pipeline capacity and skilled personnel; uncertainties inherent in the SAGD bitumen and ASP recovery processes; credit risks associated with counterparties; the failure of the Company or the holder of licenses, leases and permits to meet requirements of such licenses, leases and permits; reliance on third parties for pipelines and other infrastructure; changes in royalty regimes; failure to accurately estimate abandonment and reclamation costs; inaccurate estimates and assumptions by management; effectiveness of internal controls; the potential lack of available drilling equipment and other restrictions; failure to obtain or keep key personnel; title deficiencies with the Company s assets; geo-political risks; risks that the Company does not have adequate insurance coverage; risk of litigation and risks arising from future acquisition activities. Further information regarding these risk factors and others may be found under "Risk Factors" in the Annual Information Form. Undue reliance should not be placed on these forward-looking statements. Readers are cautioned that the actual results achieved will vary from the information provided herein and the variations could be material. Readers are also cautioned that the foregoing list of assumptions, risks and factors is not exhaustive. Consequently, there is no assurance by the Company that actual results achieved will be the same in whole or in part as those set out in the forwardlooking statements. Furthermore, the forward-looking statements contained in this document are made as of the date hereof, and the Company does not undertake any obligation, except as required by applicable securities legislation, to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained herein are expressly qualified by this cautionary statement. CONTINGENT RESOURCES: Contingent resources are defined in the COGE Handbook as those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but are not currently considered to be commercially recoverable due to one or more contingencies. Contingencies may include factors such as economic, legal, environmental, political and regulatory matters or a lack of markets. In the case of the contingent resources assigned to BlackPearl s three core projects the contingencies include: at Blackrod the requirement for more evaluation drilling, as required by regulatory process, to define the reservoir characteristics to assist in the implementation and operating of the SAGD process, the absence of submission of an application to expand the commercial SAGD development and the uncertainty of timing of production and development; at Onion Lake the absence of approval to extend the SAGD development area, the requirement for more evaluation drilling to define the reservoir characteristics of the resource to assist in the implementation and operating of the SAGD recovery process, the uncertainty of company commitment for expansion of the commercial SAGD development and the uncertainty of timing of production and development; and at Mooney the requirement for more evaluation wells to further define reservoir and fluid characteristics, further establishment of increased production response from the ASP flood in Phase One, which began July 2011 and the uncertainty of timing of producing and development of the entire field. There is no certainty that it will be commercially viable to produce any of the contingent resources. These volumes when totalled are the arithmetic sums of the Best Estimate Resources for Blackrod, Mooney and Onion Lake. Best estimate (P50) is a classification of estimated resources described in the COGE Handbook as being considered to be the best estimate of the quantity that will be actually recovered. It is equally likely that the actual remaining quantities recovered will be greater or less than the best estimate. If probabilistic methods are used, there should be at least a 50% probability that the quantities actually recovered will equal or exceed the best estimate. Please refer to our Annual Information Form for a more detailed discussion of these contingencies. BOE s: All references to BOEs are based on a 6 to 1 conversion ratio. BOEs may be misleading, particularly if used in isolation. A BOE conversion of 6 Mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. NON-GAAP MEASURES: This presentation uses the terms Funds flow from operations and funds flow which represent cash flow from operating activities (a GAAP measure) before asset abandonment costs and working capital adjustments. This presentation also uses debt/capitalization ratios (long-term debt/long-term debt + shareholders equity) and debt/ebitda ratios (long term debt/earnings before deduction of non-cash items). either of these ratios have standardized meaning prescribed by GAAP. 2
Company Overview
Corporate Profile Common shares Market Cap Shares Outstanding Basic Fully Diluted Average Trading Volume (3 months) Properties $0.75 billion 336 million 355 million 655,000 3 Core Areas All Heavy oil and oil sands Potential to increase production 10x from existing inventory Peace River Athabasca Cold Lake Blackrod Mooney Onion Lake A L B E R T A S A S K A T C H E W A N Reserves and Resources (1) (mmboe) NPV 10 BT ($mm) 2P Reserves Contingent Resource (best estimate) 291 631 $3,194 $2,101 Note: (1) Source: Sproule Unconventional Limited ( Sproule ) reserve and contingent resource evaluation (best estimate) reports effective December 31, 2013 (see Cautionary Statement on Contingent Resources in the Disclaimer section of the presentation) 4
Key Considerations Existing Production - Currently producing 9,000 b/d - Production from all three core areas - Generates $80 - $100 mm in annual cash flow Committed Management Team Strong Financial Position - Management owns 9.4% of the Company (10.7% on a fully diluted basis) - 20+ years experience as a technical team in heavy oil/oil sands - $150 mm credit facility unutilized (June 30, 2014) - Next stage of development is fully funded Large Heavy Oil/Oil Sands Resource Base - 2P reserves of 291 mm barrels and contingent resources of 631 mm barrels - Potential to produce 100,000+ b/d for over 20 years 5
Development Stages First five years (2009 2014) Grew conventional production from 5,000 to 10,000 b/d Developed a base of cashflow to tackle larger projects Laid the foundation for the next stage of growth thermal Undertook pilots on both our thermal projects to validate the thermal SAGD process before committing large amounts of capital Next stage of growth (2014 forward) Commercialize our two thermal SAGD projects Production potential of 100,000+ b/d First phase of Onion Lake thermal is under construction Blackrod pilot has validated commerciality Funding for development to be determined 10,000 8,000 6,000 4,000 2,000 0 Production (bbl/d) 2009 2010 2011 2012 2013 Production Potential (1) (bbl/d) 100,000 Onion Lake Blackrod 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 Note (1): Source: Sproule Unconventional Limited ( Sproule ) reserve and contingent resource evaluation (best estimate) reports effective December 31, 2013 (see Cautionary Statement on Contingent Resources in the Disclaimer section of the presentation) 6
Operations Overview
BlackPearl s Operating Philosophy Common characteristics of BlackPearl s core assets Onion Lake Mooney Blackrod Proven development and exploitation model Identify Land capture and delineate reserve / resource High working interest Exploitable with proven technology Significant resource base (2P + 2C) Validate Test, optimize and pilot Development supported by successful analogues / pilots Existing production Commercialize Full-scale development and production optimization BlackPearl has successfully employed and continues to employ this strategy on each of its core assets 8
Onion Lake Conventional Development Key Metrics Onion Lake Area Map Production Oil quality Regulatory stage Current (1) Potential (2) 2P reserves (3) 2C resources (3) ( API) (boe/d) (boe/d) (mmboe) (mmboe) 11 Approved 3,915 5,000 10.5 1.5 Well-delineated over 300 wells drilled to date Significant upside with 120 future drilling locations in the 2P case and an additional 35 locations in the 2C case assigned by Sproule (3) Typical well: IP 40 60 bbl/d Estimated capex of $0.6 million per well Payout in 12 18 months Plan to continue conventional development over the next 3 to 5 years 1 mile AB SK Company Lands Heavy Oil Pay Wells Thermal Development Area Conventional heavy oil property with stable production and cash flow Note: (1) Current production represents production for the three months ended June 30, 2014 (2) Potential production represents peak production. (3) Source: Sproule reserve and resource evaluation (best estimate) reports effective December 31, 2013 (see Cautionary Statement on Contingent Resources in the Disclaimer section of the presentation).. 9
Onion Lake Thermal EOR Development Key Metrics Net pay in the Lower Cummings Formation on a portion of the Onion Lake lands is 10 m 24 m, making it suitable for thermal development Other similar thermal projects in Saskatchewan include CNRL Tangleflags, Husky Pikes Peak and Husky Lashburn (typically smaller than those in AB but very prolific projects) Existing production at Onion Lake provides a high degree of confidence on success of thermal EOR development (mobile oil vs oil sands) Successful 2 well thermal pilot undertaken in prior years Regulatory approval received for a 12,000 bbl/d Thermal EOR development project: 100% working interest Production Oil quality Regulatory stage Current Potential (1) 2P reserves (2) 2C resources (2) ( API) (boe/d) (boe/d) (mmboe) (mmboe) 11 Approved 0 12,000 80 28 Recovery rates in excess of 50% anticipated, with a CSOR of 2.5 3.0 Payout between 3-5 years; over 25+ year project life Total estimated capex of $400 million; to be built in 2 stages, with the first stage estimated to cost $210 million Regional analogue map 6 miles CNRL Tangleflags Lloydminster BlackPearl Onion Lake Husky Bolney Husky Celtic Husky Paradise Hill Husky Pikes Peak Husky Lashburn Company Lands Company Wells Area Wells Thermal EOR development has the potential to add 12,000 bbl/d of production Note: (1) Potential production represents peak production. (2) Source: Sproule reserve and resource evaluation (best estimate) reports effective December 31, 2013 (see Cautionary Statement on Contingent Resources in the Disclaimer section of the presentation). 10
Production Rate Steam Oil Ratio Production Rate Steam Oil Ratio Onion Lake Thermal EOR Development (cont d) Comparison 1 Lashburn Currently producing 9,800 boe/d, with SOR of ~ 2.3 Comparison 2 Tangleflags Producing since the late 1980s, with SOR of 3.0 4.0 Projected eventual recovery of 70% of the OOIP 900 800 700 Lashburn (Pikes Peak South) Overview Normalized Average Production Per Well For 15 New Well Pairs plus 1 Wedge Well (1) 9 8 7 6000 5000 Tangleflags Overview Historical Field Production From Core Wells (1) Avg Cal Day Oil (bopd) Inst SOR (bw/bo) 12 10 600 6 4000 8 500 400 300 Norm Avg Cal Day Oil Per Well (bopd) Norm Avg Inst SOR Per Well (bw/bo) 5 4 3 3000 2000 6 4 200 100 2 1 1000 2 0 0 Month 1 Month 13 Month 25 0 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 0 Successful thermal developments at Lashburn (Husky) and Tangleflags (CNRL) illustrate Onion Lake potential Note: (1) Source: Company data. 11
Onion Lake Thermal EOR Development (cont d) Development Plan Phase 1 of commercial development is under construction Phased Thermal Development at Onion Lake Modified SAGD process utilize existing infrastructure 6,000 b/d design 12 HZ producers, 19 new vertical injectors, up to 16 existing vertical wells Close proximity to existing infrastructure Company Lands Heavy Oil Pay (>10 m) Phase 1 Wells Phase 2 and 3 Wells Central Processing Facility Plans to spend ~ $400 MM on the Onion Lake Thermal EOR; first phase is ~ $210 MM 12
Mooney Alkali Surfactant Polymer (ASP) Flood Overview Key to unlocking upside value has been the implementation of an ASP (1) (polymer) flood Phase 1 initiated in Q3 2011 Peak production of 2,500 bbl/d anticipated in 2014 from Phase 1 49 wells - 25 injectors; 24 producers Expect oil recovery factor to increase from ~ 4-5% to ~ 30-35% Key Metrics 5000 4500 4000 3500 Mooney Phase 1 Mooney Total Production Oil quality Regulatory stage Current Potential (2) 2P reserves (5) 2C resources (5) ( API) (boe/d) (boe/d) (mmboe) (mmboe) 16 Approved (3) 3,519 (4) 8,000 15 35 Field Calendar Day Production Mooney Field Calendar Day Production (bopd) Pilot has recovered approximately 25% to date Favourable royalty treatment for EOR approved projects <10% royalty during the initial years (pre-payout) 3000 2500 2000 1500 1000 500 Phase 2 Wells Phase 1 ASP Flood Response 40+ year project life 0 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Note: Successful ASP flood implementation boosted production profile at Mooney and unlocked incremental value (1) Alkali Surfactant Polymer. (2) Potential production represents peak production. (3) AER approval received for Phase 1 and Phase 2 of commercial ASP flood development. 13 (4) Includes 2,086 bbl/d from ASP flood area and 1,433 bbl/d from non-flood areas 3 months ended June 30, 2014. (5) Source: Sproule reserve and resource evaluation (best estimate) reports effective December 31, 2013 (see Cautionary Statement on Contingent Resources in the Disclaimer section of the presentation).
Mooney Expansion of ASP Flood Mooney Detailed Area Map Phase 3 Phase 2 Phase 1 Phase 2 Company Lands 1 mile Future Development Future Development Company Wells Area Wells Expansion Plans Phase 2 Drilled two wells in Q1 2014 to complete ASP flood pattern Plan to expand ASP flood to these lands in early 2015 Regulatory approval received Phase 3 6 wells drilled to date 4 to 6 additional wells planned Expansion of ASP flood to these lands likely in 2016 14
Blackrod SAGD Oil Sands Project Key Metrics Blackrod Area Map Stage of Oil Reg. Current Potential 2P 2C Qualty Approval Prod. (1) Prod. Reserves (2) Resources (2) [ API ] [bbl/d] [bbl/d] [mmbbl] [mmbbl] 9 Filed 306 80,000 182 566 Located in the Athabasca Oil Sands region Lower Grand Rapids Formation at a depth of approximately 300 metres 10 28 metres of continuous net pay Homogenous shoreface reservoir is predictable 100% owned and operated 30+ year project life Undertook 2 pilot wells to de-risk the project and better understand the operating characteristics SAGD Pilot 1 mile Company Lands Bitumen Pay > 10 m Shale Channel Company Wells Area Wells Application Resource Area Note: (1) Current production represents production from the pilot well pair for the three months ended June 30, 2014. (2) Source: Sproule reserve and resource evaluation (best estimate) reports effective December 31, 2013 (see Cautionary Statement on Contingent Resources in the Disclaimer section of the presentation). (3) Potential production represents production from 3 phases of development included in Sproule reserve and resource evaluation reports effective December 31, 2013 15
Blackrod SAGD Pilot Progress First Pilot Well Pair Produced >240,000 barrels of oil to date Reached production rates of 400 bbl/day, isor ~3 Confirmed the SAGD process works in this reservoir Tested alternative production techniques to establish best operating parameters Second Pilot Well Pair Commercial prototype Well pair is longer (950m) and deeper in the reservoir compared to the first well pair Started steaming in Nov/13, converted to production in Mar/14 Currently producing ~275 bbl/day and continues to ramp-up Expected to reach 500 600 bbl/day in 9 12 months Refine operating strategies to optimize productivity BlackRod Second Pilot SAGD Well Pair 600.0 500.0 400.0 300.0 200.0 100.0 0.0 14 12 10 8 6 4 2 0 Piloting a second well pair remains the focus at Blackrod for 2014 while awaiting regulatory approvals Oil Prod (bopd) isor (bw/bo) 16
Blackrod Commercial Development Overview 80,000 bbl/d commercial development application filed in Q2 2012 Application approval expected in 2014 Project to be built in phases, with the first phase planned for 20,000 bbl/d; two additional phases of 30,000 bbl/d each to follow Phase 1 capital cost estimate of ~$800 million ($37,500 $42,500/bbl) May seek a JV arrangement to accelerate development Phased Development at Blackrod 1 mile Company Lands Thermal Pay (>10 m) Phase 1 Wells Phase 2 and 3 Wells Central Processing Facility Shale Channel BlackPearl will opportunistically pursue a JV to accelerate development of 80,000 bbl/d Blackrod project Note: (1) Source: Sproule reserve and resource evaluation (best estimate) reports effective December 31, 2013 (see Cautionary Statement on Contingent Resources in the Disclaimer section of the presentation). 17
Financial Summary
Conservative Financial Policies Ensure material development projects are fully funded at the outset Maintain prudent mix of debt and equity Target Debt to EBITDA of 1.0x 1.5x over the longer term While BlackPearl has historically been unhedged, we have begun to hedge a portion of our oil production as we transition our capital spending to the construction of multiple phases of our larger development projects 19
Balance Sheet Strength Funding Sources ($ millions) 06/30/14 Unutilized Credit Facilities 150 Working Capital 22 Estimated 2014 Funds Flow from Operations 40% 30% 20% 10% 0% Debt/Capitalization (1) 2014 F 2 1.5 1 0.5 0 80-85 Debt/EBITDA (1)(2) 2014 F Funding our Projects Onion Lake Thermal Phase 1 of the project is under construction and is fully funded through a combination of equity, bank lines and cash flow Phase 2 of 6,000 bbl/d can be funded through an expanded bank facility and increased cash flow Blackrod Phase 1 designed for 20,000 bbl/d; capital cost of ~$800 million Find a JV partner for the project to accelerate development Primary Development (Mooney, John Lake, Onion Lake) On-going development should be funded from cash flow Note: (1) Non-GAAP measure. (2) Based on the midpoint of BlackPearl s Q2 2014 guidance estimates for the year. 20
2014 Guidance 2014 Estimates (1) 2014 Capital Spending Average Production (boe/d) 9,000-9,500 Funds flow from operations ($ millions) 80-85 Onion Lake Primary 7% Other 4% John Lake 3% Blackrod 2% Capital expenditures ($ millions) 280-300 Year-end debt ($ millions) 130-140 Year-end working capital ($ millions) 0-5 Mooney 14% Undertaking our largest capital spending program in our history Onion Lake Thermal 70% The Onion Lake thermal project will account for 70+% of 2014 capital spending Note: (1) Pricing assumptions used for 2014 include a WTI oil price of $99.00/bbl, a WCS oil price of $82.90/bbl and a FX of Cdn$ = US$0.92. (2) Funds flow from operations represents cash flow from operating activities before working capital adjustments and decommissioning expenditures. 21
Managing Heavy Oil Differentials Volatility in Heavy Oil Prices WTI/WCS differentials range from 14% - 40% in 2013 Differentials 20 25% in 2014 (YTD) Expansion of rail transportation, together with refining and pipeline expansions has reduced volatility in 2014 As our spending transitions to our thermal projects, we want to reduce the volatility in our cash flows and, accordingly, we have begun to hedge a portion of our 2014 production We have recently entered into the following derivative commodity contracts Risk Management (1) Unhedged 57% Transportation (2) Hedged 43% Subject of Option Volume Term Reference Strike Price Contract Traded Oil 2,500 bbls/d Jul 1, 2014 to Dec 31, 2014 CDN$ WCS CDN$ 82.10/bbl Swap Oil 1,000 bbls/d Jul 1, 2014 to Dec 31, 2014 Oil 500 bbls/d Jul 1, 2014 to Dec. 31, 2014 CDN$ WCS CDN$ 82.00/bbl Swap CDN$ WCS CDN$ 86.00/bbl Swap Rail 48% Pipe 52% Notes: (1) Percentages based on the mid-point of our production guidance for 2014 (2) YTD to June 30, 2014 22
Per Share Attractive Valuation $14.00 $12.00 $10.00 Contingent Resource Shares are currently trading at 1P valuation, no value assigned to our probable reserves and contingent resources $8.00 $6.00 $4.00 Probable Reserves Current share price attributes no value to our Blackrod SAGD project and less than 25% of our Onion Lake thermal project value (1) $2.00 $0.00 Proved Reserves Current share price $2.23 (August 29, 2014) Note: (1) Source: Sproule reserve and resource evaluation (best estimate) reports effective December 31, 2013 (see Cautionary Statement on Contingent Resources in the Disclaimer section of the presentation). (2) Share count used for per common share calculations is 335,438,225 which were outstanding as of June 30, 2014. 23
Junior Oil Sands How are we Different BlackPearl is a Canadian heavy oil / oil sands producer with a combination of investment attributes that make it a unique opportunity: 1. Experienced management team that has successfully built, operated and sold significant heavy oil / oil sands operations before a) 3 rd oil sands company taking assets from prospects to commercial projects b) Historical production growth rate of 15 20% per annum 2. Currently producing ~9,000 bbl/d (1) and generating meaningful cashflow ($75 $100 million annually) 3. Three core project areas each currently producing and each with significant thermal / secondary expansions underway or planned over the next five years. 4. Regulatory approval received or near for all core projects 5. Plan to reach 30,000 bbl/d by 2020 with the potential to reach 100,000 bbl/d within the next 15 years from proven, well delineated reservoirs 6. Strong balance sheet with the next phase of development fully funded Peace River Mooney Oil Sands Areas Athabasca Cold Lake A L B E R T A Blackrod Onion Lake S A S K A T C H E W A N Note: 1. All amounts herein are BlackPearl s net working interest before royalties unless otherwise noted 24
Key Milestones Next 12 to 18 Months Regulatory approval for first 20,000 bbl/day phase at Blackrod Development financing decisions for our Blackrod thermal project Expansion of the ASP flood at Mooney First oil from Phase 1 of the Onion Lake Thermal EOR Development 300 250 200 150 100 50 0 10,000 8,000 6,000 4,000 2,000 0 2P Reserves (mmbbl) 2009 2010 2011 2012 2013 Production (bbl/d) 2009 2010 2011 2012 2013 25