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

Jul 22, 2018

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  • InvestorPresentation

    January2018

    Fullcycle,fullyengaged

    KenWoolner,P.Eng.President&CEO

  • ADVISORYREGARDINGFORWARDLOOKINGSTATEMENTS

    2

    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

    3

    Velvetisanorganicgrowthcompany.Weapplybestinclassgeoscienceandcommercialskilltobuildlargeand

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

    productionmethodsallowustogeneratetopdecileeconomicreturns

    KenWoolner,P.EngPresident&CEO

    VelvetEdsonCore

    550netsections

    GoldCreekMontney

    245netsections

    VelvetExplorationPortfolio*

    >650netsections

    *Notshownonmap

  • VELVETDIFFERENTIATORS

    4

    Convergenceofbestinclassgeoscienceandcompletionengineering Accountableandengagedindecisionmakingprocess Resourceunlockedandoptimizedthroughapplicationofstateofthe

    arttechnology

    People

    Assets

    Returns

    AccesstoCapital

    DominantplayerintheoilandliquidswindowoftheDeepBasin 35%liquidsweightingandgrowingthrough3yearplan 1,500netundevelopedsectionsoflandinliquidsfairway

    Strongtrackrecordoftopdecilereturnsandorganicgrowth Riskmanagementcentraltofullcyclereturnphilosophy

    Solidfoundationofequityshareholders Strategicrelationshipswithequityandtermdebtproviders

  • RECENTACCOMPLISHMENTS

    5

    Corporateproductionexit2017at21,000boe/d

    AchievedfirstproductionintheblackoilwindowoftheMontneyatGoldCreek

    Haveaddedsignificantliquidityvianewfinancingactivityin4Q17 Superiorliquiditythrough2018

    Fullyfunded2018capitalprogramof$291mm

    3yeardevelopmentplanmorethandoublesproductionby2020

    ProactivelymanagingWCSBbasisriskbymovingourgasexposuretoHenryHub Priceprotectionon77%ofCAL18netgassales

    Firmservicearrangementsinplacetobring3yearplanvolumestomarket

  • MANAGEMENT&DIRECTORS

    6

    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%

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    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

    8

    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

    9

    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

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    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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