EXPERTISE QUALITY INCOME TSX: EGL.UN. EAGLE ENERGY TRUST Investor Presentation January 2016

Transcription

1 EXPERTISE QUALITY INCOME TSX: EGL.UN EAGLE ENERGY TRUST Investor Presentation January 2016

2 Advisories Advisory Regarding Forward Looking Statements: This presentation includes statements that contain forward looking information ( forward-looking statements ) in respect of Eagle Energy Trust s expectations regarding its future operations, including Eagle s investment and business strategy, and forecast estimates for Eagle s capital budget, production, drilling plans, operating costs, funds flow from operations, commodity split, debt to trailing cashflow, corporate payout ratios, annual distribution, tax pools, estimated field netback, hedging and reserves and resources. These forward looking statements involve estimates and assumptions including those relating to timing to drill and bring wells on production, production rates, operating and capital costs, marketability of crude oil, natural gas and natural gas liquids, future commodity prices, future currency exchange rates, anticipated cash flow based on estimated production, size of reserves and reservoir performance, among other things. These estimates and assumptions necessarily involve known and unknown risks, delays, challenges and other uncertainties inherent in the oil and gas industry including those relating to geology, production, drilling, technology, operations, human error, mechanical failures, transportation, processing problems and poor reservoir performance, among others things, as well as the business risks discussed in the Trust s annual information form dated March 19, 2015 under the headings Risk Factors and Advisory-Forward-Looking Statements and Risk Factors. The forward-looking statements included in this presentation should not be unduly relied upon. Actual results may differ from the forward-looking information in this presentation, and the difference may be material and adverse to the Trust and its unitholders. No assurance is given that the Trust s expectations or assumptions will prove to be correct. Accordingly, all such statements are qualified in their entirety by reference to, and are accompanied by, the information and factors discussed throughout this presentation. These statements speak only as of the date of this presentation and may not be appropriate for other purposes. The Trust 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. Eagle s annual information form dated March 19, 2015 contains important detailed information about Eagle and its trust units. Copies of the annual information form may be viewed at and on Eagle s website at Advisory Regarding Non-IFRS financial measures: Statements throughout this presentation make reference to the terms funds flow from operations, field netbacks, and corporate payout ratio, which are non-ifrs financial measures that do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers. Investors should be cautioned that these measures should not be construed as an alternative to earnings (loss) calculated in accordance with IFRS. Management believes that these measures provide useful information to investors and management since they reflect the quality of production, the level of profitability, the ability to drive growth through the funding of future capital expenditures and the sustainability of distributions to unitholders. Funds flow from operations is calculated before changes in non-cash working capital and abandonment expenditures. Management considers funds flow from operations to be a key measure as it demonstrates Eagle s ability to generate the cash necessary to pay distributions, repay debt, fund decommissioning liabilities and make capital investments. Management believes that by excluding the temporary impact of changes in non-cash operating working capital, funds flow from operations provides a useful measure of Eagle s ability to generate cash that is not subject to short-term movements in non-cash working capital. Field netback is calculated by subtracting royalties and operating expenses from revenue. Corporate payout ratio is calculated by dividing capital expenditures plus unitholder distributions by funds flow from operations. Advisory Regarding Oil and Gas Measures and Estimates This presentation contains disclosure expressed as barrel of oil equivalency ( boe ) or boe per day ( boe/d ). All oil and natural gas equivalency volumes have been derived using the conversion ratio of 6Mcf of natural gas: 1 bbl of oil. Equivalency measures may be misleading, particularly if used in isolation. A conversion ratio 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. In addition, given that the value ratio based on the current price of oil as compared to natural gas is significantly different from the energy equivalent of six to one, utilizing a boe conversion ratio of 6 Mcf: 1 bbl would be misleading as an indication of value. The estimated values of the future net revenues of the reserves disclosed in this presentation do not represent the market value of such reserves. There is no assurance that such price and cost assumptions will be attained and variances could be material. The recovery and estimates of reserves provided in this presentation are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual reserves may be greater than or less than the estimates provided. 2

3 Strategy Eagle is created to provide investors with a sustainable business while delivering stable production and overall growth through accretive investments and acquisitions. Expertise Eagle s trusted management team brings an average of 25 years of experience to the oil and gas sector. Quality Eagle owns stable petroleum producing assets in Canada and the U.S. Income Eagle strives to deliver sustainable monthly distributions to unitholders. 3

4 Acquisition of Maple Leaf (1) On November 19, 2015, Eagle entered into an agreement to acquire the shares of Maple Leaf Royalties Corp. ( Maple ) and convert into a corporation by way of a plan of arrangement (the Arrangement ). A special meeting of Eagle s unitholders will be held on January 25, 2016 to approve the Arrangement, with closing expected to occur shortly thereafter. Acquisition Highlights: Adds approximately 235 boe/d of royalty interest production (30% oil and liquids) and 161 boe/d of working interest production (30% oil and liquids) to Eagle s 2016 average production. Adds estimated total net proved reserves of 0.94 million boe. Total net proved plus probable reserves of 1.09 million boe. No additional debt, capital expenditures or overhead needed to manage the incremental production and cash flow. Note: 1) For more information, see Eagle s news release issued on November 20, 2015, Eagle Energy Trust Announces the Acquisition of Maple Leaf Royalties Corp. and Conversion to a Dividend-Paying Corporation. 4

5 Conversion into a Dividend Paying Corporation (1) Conversion Highlights: Giving effect to the acquisition, Eagle Energy Trust converts into a TSX-listed corporation called Eagle Energy Inc., with the same Board of Directors and executive officers. Eagle expands its shareholder base with existing unitholders holding approximately 82% of the newly formed corporation with the new symbol EGL (formerly EGL.UN) on the TSX. The board s existing policy of declaring the dividend amount monthly will remain unchanged. Payments will be in the form of dividends to shareholders rather than distributions to unitholders. For Canadian tax purposes, Eagle unitholders with an adjusted cost base above the market price of the newly formed corporation s shares received may be able to claim a capital loss (2). Estimated combined Canadian tax pools of $194 million. Notes: 1) For more information, see Eagle s news release issued on November 20, 2015, Eagle Energy Trust Announces the Acquisition of Maple Leaf Royalties Corp. and Conversion to a Dividend-Paying Corporation. 2) Unitholders should consult their own legal and tax advisors as to the tax consequences in their particular circumstances. 5

6 Corporate Profile (1) Current Estimated Production 3,600 boe/d 2016 Full Year Production Guidance 3,400 to 3,800 boe/d Production Split 88% oil, 2% NGLs, 10% gas 2016 Ending Debt to Trailing Cashflow 3.1x (2) 2016 Corporate Payout Ratio 88% (2) Distribution $0.18 per unit (3) US Tax Pools CDN Tax Pools $US 175 million $CA 194 million Notes: 1) Including the January 2016 proposed acquisition of Maple Leaf. 2) Based on forecast pricing of $US per barrel WTI oil, $US 3.16 per Mcf NYMEX gas, $CAD 2.57 per Mcf AECO and $US per barrel of NGL (NGL price is calculated as 35% of the WTI price). 3) Eagle has reduced its distribution by 50% to $0.015 per unit per month ($0.18 annualized), beginning with the distribution declared in December

7 Market Data Ticker Units Outstanding (basic) TSX: EGL.UN 34.8 million 52 Week Range $ $3.40 Recent price $0.98 (1) Average daily trading volume (30 day) Market Cap 123,843 units $34 million Directors & Officers Ownership 2.8% basic, 10.1% fully diluted (2) Equity Research Acumen Capital Partners Paradigm Capital Scotiabank Global Notes: 1) TSX closing price on January 8, ) Average exercise price of options = $

8 2016 Guidance and Budget Highlights A Continued Focus on Sustainability and Financial Liquidity in Light of Ongoing Commodity Price Uncertainty A 37% year-over-year decrease in the 2016 capital budget to $10.2 million ($US 7.0 million for its operations in the United States and $0.9 million for its operations in Canada) A corporate payout ratio of under 100% at a WTI price as low as $US per barrel of oil. A 50% reduction in the monthly distribution to $0.015 per unit per month. Based on the forecast key variables, including oil prices and US/Canada foreign exchange rates, Eagle believes this distribution level can be sustainable while staying within acceptable bands of its key performance metrics. A 23% or $3.0 million reduction in year-over-year general and administrative expenses production guidance of 3,400 to 3,800 boe/d (pro-forma Maple Leaf acquisition; excludes 235 boe/d of royalty interest production). 41% undrawn on its existing $US 80 million credit facility at the end of (1) 2016 year-end projected debt to trailing cash flow of approximately 3.1x. (1) Note: 1) The above metrics are based on the following assumptions: $US per barrel WTI oil, $US 3.16 per Mcf NYMEX gas, $CAD 2.57 per Mcf AECO gas, a foreign exchange rate of $US 1.00 equal to $CAD 1.33, and a monthly distribution of $0.015 per unit ($0.18 annualized). 8

9 2016 Guidance & Budget Summary 2016 Guidance (including Maple Leaf) Capital Budget (1) Working Interest Production (2) Operating Costs per Month Funds Flow from Operations (3) $10.2 MM 3,400 to 3,800 boe/d $2.2 to $2.6 MM $20.2 MM Debt to Trailing Cash Flow 3.1x Field Netback (excluding hedges) $21.25/boe Notes: (1) Consists of $US 7.0 million for Eagle s operations in the United States and $0.9 million for Eagle s operations in Canada. (2) Consists of 88% oil, 2% natural gas liquids ( NGLs ) and 10% gas. These numbers are working interest production numbers only and excludes 235 boe/d of royalty interest production from Maple Leaf. (3) Based on the following assumptions: (a) (b) (c) (d) average working interest production of 3,600 boe/d (the mid-point of the guidance range); pricing at $US per barrel WTI oil, $US 3.16 per Mcf NYMEX gas, $CAD 2.57 per Mcf AECO and $US per barrel of NGL (NGL price is calculated as 35% of the WTI price); differential to WTI is $US 3.10 discount per barrel in Salt Flat, $US 3.50 discount per barrel in Hardeman, $CAD discount per barrel in Dixonville and $CAD discount per barrel in Twining; average operating costs of $2.4 million per month ($US 0.9 million per month for Eagle s operations in the United States and $1.2 million per month for Eagle s operations in Canada), the mid-point of the guidance range; and (e) foreign exchange rate of $US 1.00 equal to $CAD

10 2016 Guidance & Capital Budget Eagle s drilling program is expected to exceed a 30% rate of return at $US WTI flat oil pricing capital budget of $10.2 million: Texas and Oklahoma ($US 7.0 MM) Salt Flat Property 3 (3.0 net) horizontal oil wells Seismic processing, facilities, pump changes Hardeman Property 2 (2.0 net) vertical wells Seismic processing, pump installs Alberta ($0.9 MM) Dixonville Property (Non-operated) Pipeline and facilities Twining Property Facility Capital Note: 1) The capital budget excludes corporate and property acquisitions, which are evaluated separately on their own merit. 10

11 2016 Guidance & Sustainability Benchmarks 2016 Guidance (including Maple Leaf) Notes Basic Payout Ratio 37% (1) Plus: Capital Expenditures 51% Equals: Corporate Payout Ratio 88% (2) Debt to Trailing Cash Flow 3.1x Notes: (1) Eagle calculates its Basic Payout Ratio as follows: Unitholder Distributions Funds flow from Operations = Basic Payout Ratio (2) Eagle calculates its Corporate Payout Ratio as follows: Capital Expenditures + Unitholder Distributions Funds flow from Operations = Corporate Payout Ratio 11

12 2016 Sensitivities 2016 Average WTI (Production = 3,600 boe/d) $US 45 (F/X 1.38) $US 50 (F/X 1.33) $US 55 (F/X 1.28) Cash Flow $18.6 $20.2 $21.1 Corporate Payout Ratio 97% 88% 82% Leverage 3.5x 3.1x 2.9x 2016 Average Production (boe/d) WTI = $US 50 / F/X ,400 3,600 3,800 Cash Flow $18.6 $20.2 $21.7 Corporate Payout Ratio 95% 88% 82% Leverage 3.4x 3.1x 2.9x Assumptions: (1) Assumes that the Maple Leaf Arrangement will be completed and 7.6 million shares will be issued to acquire Maple Leaf in January (2) Annualized distributions are assumed to be $0.18 per unit per year. (3) Operating costs are assumed to be $2.4 million per month (mid-point of guidance range). 12

13 Exercising Fiscal Prudence and Discipline in a Low Commodity Price Market We intend to continue to monitor and realign our business to operate near or within our cash flow. Strong Balance Sheet Stable Production Capital Discipline Sustainable Distributions with Growth Potential 13

14 Our Properties Eagle owns stable, oil producing properties with development and exploitation potential located in Canada (Alberta) and in the US (Texas and Oklahoma). Twining Field Properties, AB: Located in the Pekisko oil pool formation at the Twining field in East-Central Alberta 92 gross (48 net) producing wells Approximately 41,502 gross (32,650 net) acres Dixonville Properties, AB: Non-operated Located 50 kms northwest of Peace River 110 gross (55 net) producing oil wells 80 gross (40 net) water injectors 18,000 acres Salt Flat Properties, TX: Located in Salt Flat field in Caldwell County, TX 56 gross (42 net) producing wells 19 gross (13 net) non producing wells 3,300 (2,700 net) acres Hardeman Properties, TX & OK: Located in Hardeman Basin in Hardeman County, TX, and Greer, Harmon and Jackson Counties, OK 47 gross (37 net) producing wells 14 gross (13 net) non-producing 79,000 acres 14

15 CDN Properties Twining Field (Alberta) Pekisko Type Log Lower MNVL Upper Pekisko Middle Pekisko Layer 1 Lower Pekisko Layer 2 Layer 2B Layer 2C Layer 3 Layer 4 Approx. 70 km from Three Hills, AB Banff 80% working interest in the largest Pekisko oil pool in the Western Canadian Sedimentary Basin Production of approximately boe/d (64% light oil and natural gas liquids) 92 gross (48 net) producing wells 30 API medium/light oil, 4 md permeability and 7-8% average porosity Approximately 41,502 gross acres (32,650 net) 15

16 CDN Properties Twining Field (Alberta) The largest Pekisko oil pool in the WCSB Increase to Eagle s inventory of quality prospects during this low commodity price environment Significant upside potential 10 horizontal wells drilled to date with over 30 additional drilling locations Waterflood in certain areas of the field has the potential to double recovery factors in the area Low declines, long reserve life Decline rate below 5% Reserve life index Total Proved 2.1 Mmboe (1) Total Proved Plus Probable 7.2 Mmboe (1) Source: IHS public data Note: 1) Per Coda Petroleum Inc. s independent reserves evaluator with an effective date of March 31,

17 CDN Properties Dixonville (Alberta) 50 km from Peace River 50% non-operated working interest in a horizontal oil waterflood in the Montney C Formation operated by Spyglass Resources Corp. Primary development started in 2004 with full scale waterflood by horizontal wells (110 producers, 80 injectors) 30 API Oil, 18 md permeability and 16-26% average porosity Approximately 18,000 acres 17

18 CDN Properties Dixonville (Alberta) A premier waterflood in Western Canada Low decline property Low abandonment liabilities due to long life asset Long-term potential Decline rate below 10% Reserve life index Total Proved - 15 years Total Proved Plus Probable - 22 years Refurbished, optimized gathering system Pipeline remediation program, including poly liner installation in emulsion gathering system Source: IHS public data Low maintenance and capital costs Maintenance capital below $1 million per year to Eagle Operating costs of $16 to $18/boe 18

19 US Properties Salt Flat (Texas) Light oil producing o 35 API oil from the Edwards limestone formation, located in the Salt Flat field in Caldwell County, South Central Texas Acquired an 80% working interest in 2010 Low cost development technology Eagle is redeveloping the pool using low cost horizontal well drilling technology to capture additional oil: Eagle has drilled over 55 horizontal wells Completed numerous successful production enhancement and operating cost reduction projects Shot a comprehensive 3D seismic program in 2014 Additional location opportunity Eagle continues to identify additional locations and optimizations to capture additional recovery 19

20 US Properties Hardeman (Texas & Oklahoma) Light oil producing o 45 API oil from the Chappel and Atoka Conglomerate formations located in Hardeman County, Texas and Greer, Harmon and Jackson Counties, Oklahoma 79,000 gross acres of land ~50 producing wells, gathering systems and associated assets Low risk, low cost, high opportunity Eagle will drill low risk development wells and deploy capital to reduce operating costs, while processing newly acquired seismic data to define future drilling opportunities 20

21 2014 Year-End Reserves (1) Excellent year over year reserve performance Total proved plus probable reserves of approximately 16 million boe (71% proved, 61% proved producing) PV10 value on total proved reserves of approximately $216 million or $5.10/unit Proved reserve life index of 14 years based on the mid-point of 2015 average working interest production guidance Reserves by Category (Mboe) PV10 Value ($ MM) McDaniel & Associates Price forecast (as of Jan 1, 2015) WTI Crude Oil Year $US/bbl 2015 $ $ $ $ $ $ % 61% 8% 2% PDP PDNP PUD Probable $62 $24 $180 $11 PDP PDNP PUD Probable Note: 1) Per McDaniel and Associates Consultants Ltd., Eagle s independent reserves evaluator, with an effective date of December 31,

22 2014 Year-End Reserves Highlights +88% Strong increase in proved developed producing (PDP) reserves +29% Increase in net present value of PDP reserves (discounted at 10%) +4% Increase in total proved reserves volumes 145% Stability reflected in total proved reserves replacement ratio 265% Excellent total proved plus probable reserves replacement ratio 22

23 Hedging Program Eagle has 990 barrels of oil per day ( bbl/d ) hedged in Q at an average price of $US 74.98/bbl Eagle s hedging program in 2016 is well above its peers (1) BOE/D % of production hedged (based on mid-point production guidance) 1,000 bbl/d of oil hedged at an average WTI price of $US 59.16/bbl 1,430 Mcf/d (240 boe/d) of natural gas hedged at $CAD 2.97/Mcf Eagle also hedged the differential between the Edmonton Light Sweet oil price and the WTI oil price at $US 3.65 per barrel on 1,000 bbl/d for Q Avg Oil Price = $US 74.98/bbl 2016 Avg Oil Price = $US 59.16/bbl 2016 Avg Gas price = $CAD 2.97/Mcf Note: 1) Source: Company Reports; National Bank of Canada, Producer Q3 Hedge Positions issued on December 4,

24 Management Experience Eagle s management team has an average of 25 years of experience Years Richard Clark Corporate Finance Law - Shiningbank Energy Trust General Counsel Corporate Finance Law Eagle - President & CEO Wayne Wisniewski Petroleum Engineering- Anders Energy, Occidental Petroleum Pennzoil E&P BP - Various Senior Leadership Engineering and Operations Roles Eagle - COO Kelly Tomyn Controller - Various Junior O&G Companies CFO - Various Junior O&G Companies Eagle - CFO Eric McFadden Co-head Investment Banking, Calgary - Scotia Capital Windpower Development - CEO EVP, Business Development - Superior Plus Eagle - VP, Capital Markets & BusDev Scott Lovett Senior Reserves Evaluator - GLJ Petroleum Consultants Business Development - Shiningbank Energy; Enerplus Business Development, COO - Native American Res. Ptnrs Eagle - VP, Corporate & BusDev Jo-Anne Bund Corporate Securities Lawyer at a Boutique Oil and Gas Firm Senior Legal Counsel - Alberta Securities Commission Corporate Securities Lawyer at a National Law Firm In-House Corporate Counsel Eagle - General Counsel & Corporate Secretary 24

25 Value Proposition Why Invest in Eagle? Strong balance sheet Stable production base Capital discipline Experienced management team Sustainable monthly income 25

26 APPENDIX 26

27 Management Richard Clark, B.A. (Econ), LLB, Director, President and Chief Executive Officer 19 years in the legal profession as a founding partner at a boutique oil and gas law firm, then 10 years at a Canadian national law firm, specializing in corporate finance, securities, M&A and venture capital Extensive experience in the royalty trust sector Wayne Wisniewski, P.E., MBA, Chief Operating Officer (Houston) 30 years of oil and gas engineering and operations experience Last 13 years of career spent in a senior operations and engineering management role in the Houston office of a major international E&P company Kelly Tomyn, CA, Chief Financial Officer Former VP Finance and CFO for numerous public & private companies with over 25 years of financial experience with E&P companies Former controller for Shiningbank Continued.. 27

28 Management Continued Scott Lovett, M.Sc., MBA, P.Eng, Vice President, Corporate & Business Development Over 18 years experience in the oil and gas industry, including reservoir evaluations, acquisitions and divestments, business planning and strategic analysis Eric McFadden, Vice President, Capital Markets & Business Development Over 25 years of experience in the corporate finance, capital markets, management and business development industries, including eleven years in the energy industry Jo-Anne Bund, B.A., LLB, General Counsel and Corporate Secretary 19 years of experience in corporate finance, securities, and M&A, including with a national law firm, with a securities regulator and as in-house corporate counsel 28

29 Board of Directors David Fitzpatrick, P.Eng., Chairman President and Chief Executive Officer, Veresen Midstream Former Chief Executive Officer of Shiningbank Bruce Gibson, CA, Chair of Audit Committee Former Chief Financial Officer of Shiningbank Warren Steckley, P.Eng., Chair of Reserves and Governance Committee Former President and Chief Operating Officer, Barnwell of Canada, Former Director of Shiningbank Richard Clark, B.A. (Econ), LLB, Director President and Chief Executive Officer of Eagle; Former Director of Shiningbank 29

30 Production History Current working interest production of 3,600 boe/d 2016 production guidance is 3,400 to 3,800 boe/d (including 161 boe/d of working interest production, but excluding 235 boe/d of royalty interest production from the proposed acquisition of Maple Leaf) 4,000 3,500 Average WI Production per Quarter (boe/d) 3,000 2,500 2,000 1,500 1, Q1/11 Q2/11 Q3/11 Q4/11 Q1/12 Q2/12 Q3/12 Q4/12 Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Guidance Production 1,269 1, ,023 2,169 2,400 2,825 2,986 2,928 3,022 3,052 2,994 3,010 3,341 2,859 1,929 2,995 3,034 3,607 3,600 Notes: 1) Q4/14 production is after the Permian asset disposition and before the Dixonville asset acquisition. 2) 2016 guidance on the chart is the mid-point of the full year 2016 guidance range and includes working interest production from the proposed acquisition of Maple Leaf. 30

31 Contact Kelly Tomyn, Chief Financial Officer Tel: (403) Eric McFadden, Vice President, Capital Markets & Business Development Tel: (587) Richard W. Clark, President and Chief Executive Officer Tel: (403) Eagle Energy Inc. Eagle Hydrocarbons Inc. 2710, th Avenue SW 3005, 333 Clay Street Calgary, AB T2P 2V6 Houston, TX info@eagleenergytrust.com TSX: EGL.UN 31