Investor Presentation January 2018 - Velvet Energy · PDF fileVELVET DIFFERENTIATORS 4 Convergence of best‐in‐class geoscience and completion engineering Accountable and engaged

InvestorPresentation

January2018

Fullcycle,fullyengaged

KenWoolner,P.Eng.President&CEO

ADVISORYREGARDINGFORWARDLOOKINGSTATEMENTS

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This presentation contains certain forwardlooking information and statements with respect to Velvet Energy Ltd. (Velvet or the Company), includingexpectations, beliefs, plans, goals, objectives, assumptions, information and statements about future events, conditions, results of operations,performance, Velvets planned capital expenditure program and the nature of the expenditures, drilling plans, expected drilling and completion costs,expected average production, the expected splits among crude oil, NGLs and natural gas, forecasted commodity prices and factors affecting natural gasprices, forecasted general and administrative expenses, interest expenses, revenue, operating income, operating netbacks, funds from operations andyearend bank debt, managements assessment of future potential, including years of drilling inventory and expectations with respect to natural gasdemand and supply in North America.. These forwardlooking statements are based on assumptions and are subject to numerous risks and uncertainties,certain of which are beyond the Companys control, including the impact of general economic conditions; industry conditions; volatility of commodityprices; currency exchange rates; imprecision of reserve estimates; environmental risks; competition from other explorers; stock market volatility; oil andnatural gas development and transportation; actions by governmental authorities, including changes in government regulation, royalties and taxation;dependence upon compressors, gathering lines, pipelines and other facilities, certain of which the Company does not control; shortage or lack ofavailable of pipeline capacity or other transportation facilities; weather conditions, natural disasters and fires; and ability to access sufficient capital. Wecaution that the foregoing list of risks and uncertainties is not exhaustive. The use of any of the words anticipate, continue, estimate, expect,may, will, should, believe, plans, and similar expressions are intended to identify forwardlooking information or statements

Statements relating to reserves or resources are deemed to be forwardlooking statements as they involve the implied assessment, based on currentestimates and assumptions that the reserves and resources can be profitably produced in the future. Readers are cautioned that disclosure of any welltest results is not necessarily indicative of longterm performance.

Velvets actual results, performance or achievement could differ materially from those expressed or implied by these forwardlooking statements. Noassurance can be given that any events anticipated herein will transpire or occur and such forwardlooking statements included in this presentationshould not be unduly relied upon.

In addition, the reader is cautioned that historical results are not necessarily indicative of future performance. The forwardlooking statementscontained herein are made as of the date of this presentation and the Company does not intend, and does not assume any obligation, to update orrevise any forwardlooking statements, whether as a result of new information, future events or otherwise, unless expressly required by applicablesecurities laws.

Certain information set out herein may be considered as financial outlook within the meaning of applicable securities laws. The purpose of thisfinancial outlook is to provide readers with disclosure regarding Velvets reasonable expectations as to the anticipated results of its proposed businessactivities for the periods indicated. Readers are cautioned that the financial outlook may not be appropriate for other purposes.

VELVETENERGYLTD. AGEOSCIENCEDRIVEN,ORGANICGROWTHCOMPANY

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Velvetisanorganicgrowthcompany.Weapplybestinclassgeoscienceandcommercialskilltobuildlargeand

contiguoustractsoflandin,andadjacentto,oilwindowsourcerocks.Stateoftheartprospecting,drilling,completions,and

productionmethodsallowustogeneratetopdecileeconomicreturns

KenWoolner,P.EngPresident&CEO

VelvetEdsonCore

550netsections

GoldCreekMontney

245netsections

VelvetExplorationPortfolio*

>650netsections

*Notshownonmap

VELVETDIFFERENTIATORS

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Convergenceofbestinclassgeoscienceandcompletionengineering Accountableandengagedindecisionmakingprocess Resourceunlockedandoptimizedthroughapplicationofstateofthe

arttechnology

People

Assets

Returns

AccesstoCapital

DominantplayerintheoilandliquidswindowoftheDeepBasin 35%liquidsweightingandgrowingthrough3yearplan 1,500netundevelopedsectionsoflandinliquidsfairway

Strongtrackrecordoftopdecilereturnsandorganicgrowth Riskmanagementcentraltofullcyclereturnphilosophy

Solidfoundationofequityshareholders Strategicrelationshipswithequityandtermdebtproviders

RECENTACCOMPLISHMENTS

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Corporateproductionexit2017at21,000boe/d

AchievedfirstproductionintheblackoilwindowoftheMontneyatGoldCreek

Haveaddedsignificantliquidityvianewfinancingactivityin4Q17 Superiorliquiditythrough2018

Fullyfunded2018capitalprogramof$291mm

3yeardevelopmentplanmorethandoublesproductionby2020

ProactivelymanagingWCSBbasisriskbymovingourgasexposuretoHenryHub Priceprotectionon77%ofCAL18netgassales

Firmservicearrangementsinplacetobring3yearplanvolumestomarket

MANAGEMENT&DIRECTORS

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KenWoolner,P.Eng,President&CEO

GeoffMacDonald,P.Geol,VicePresident,Exploration

JeremyKwasnecha,P.Eng,VicePresident,Operations

ScottJames,P.Eng,VicePresident,Drilling&Completions

GeorgeGervais,P.Eng.,MBA, ExecutiveVicePresident

ChrisTheal,CFA,CIM,ChiefFinancialOfficer

PeterHenry,CA,VicePresident,Finance

KenWoolner,P.Eng,President&CEO

JohnBrussa,Partner,Burnet,Duckworth&PalmerLLP

VincentChahley,IndependentBusinessman

RobertE.Hougie,1901PartnersLP

JacobStrauss,WarburgPincus

HarveyDoerr,IndependentBusinessman

RogerSmith,IndependentBusinessman

ChristopherR.Manning,TrilanticCapitalPartners

DavidB.Krieger,WarburgPincus

KevinGodwin,CanadaPensionPlanInvestmentBoard

MANAGEMENT

BOARDOFDIRECTORS

Firmservice&longtermplanning

Innovativerisksharingmidstreampartnerships

Focusoncontrollablesthroughtheentirevaluechain

Scaleaffordscostsavingsandleveragestechnologygains

Grassrootsplaygeneration Dataintensiveanalysis Constantrefining&integrationof

G&Gmodel

TargethurdlerateIRRs Marginmaximizationvs.price

taker

EMPLOYEEENGAGEMENTINVALUECREATION

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PROFITABLYconvertingundevelopedlandtoPDPprovidesgreatestopportunityforvaluecreation

TECHNICALDIFFERENTIATION

MARKETACCESS COSTCONTROL

HEDGINGSTRATEGYRATEOFRETURN

INVESTING

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

24.0%

10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00 100.00

CFRO

I(%)

AverageAnnualWTIOilPrice(US$/bbl)

VelvetCFROIvs.WTIOilPrice

ORGANICGROWTHYIELDSCOMPETITIVEFULLCYCLERATESOFRETURN

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ConsistentlygeneratetopdecileCFROI,eveninyearswherewecapitalizeresourceplaysasweshiftthemfromexplorationtodevelopment MontneyatGoldCreekin2017 EllerslieatEdsonin2013

Ourhalfcycleinvestmentgoforwardgeneratesstrongreturnsforourshareholders By2020,Velvetapproaches50/50liquids/gasandgenerateshighercashoncashreturnsinthe

backdropofachallengingAECOmarketandUS$50/bblWTIoilmarket

2014

2012

20132016

2019E

2018E2015

2017E

~US$100/bbloilpriceenvironment

CFROI=(CF+FinancingExpense)/Average(TA CL+Accum DD&A+E&Eexpense)Velvet3yearplanassumesDecember4,2017BoD meeting

ShalesetsmarginalcostofproductionHedgingprogram

sustainedreturns

ConvertingGoldCreeklandintoPDP

Discoveredliquidsrich

EllerslieFirstoilatGoldCreek

TRACKRECORDOFORGANICGROWTH

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94%ofcurrentproductionhasbeenaddedviathedrillbit

DisciplinedacquisitionstrategythattargetshurdlerateofreturnonMultipleonInvestedCapital(MOIC)

Vero2011 Lightstream2014 McLeod2017

ContinuetoimproveEdsonE&Dcapexefficiencyto$13k13.5k/boe/din2018

DailyProduction Corporate

2011 2012 2013 2014 2015 2016 2017E 2018E

Capex($mm) $39.5 $242.8 $110.7 $245.4 $108.3 $150.2 $236.2 $291.1

EBITDA($mm) $24.4 $37.3 $87.3 $85.4 $84.6 $76.1 $144.5

EdsonWellsdrilled(G/N) 5/4.7 11/7.1 26/20.1 30/23.3 20/13.1 26/18.3 33/24.9 24/18.1

MontneyWellsdrilled(G/N) 0.0 1/1.0 0/0.0 3/3.0 1/1.0 1/1.0 10/10.0 18/18.0

2PFD&A cost($/boe)* $33.51 $15.73 $13.22 $14.52 $14.33 $9.85

Noteonacquisitions:2012capexincluded$195mmnetacquisitions;$85mmin2014*FD&AincludeschangeinFDC

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CorporateProd

uctio

n(BOED

)

VeroAcq 2012 2013 LTSAcq 2014 2015 2016 2017 Montney

VELVETEXPLORATION&DEVELOPMENTPORTFOLIO

OurbasebusinessintheEllersliehasbeenrecognizedasthelowsupplycostplayintheDeepBasinbythirdparties

WhilewecontinuetoexploittheEllerslie,wearealsoaddingandadvancingprospectsacrosstherisk/entrycostspectrum:

Strongresultsfromstackdrillingin1H2017 Commercialitydemonstratedandreserves

bookedintheMontneyatGoldCreek Newareasbeingacquired&evaluated Lowcostcaptureofhigherriskprospects

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