NOVEMBER 2019 - Karve Energy
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NOVEMBER 2019
GENERAL ADVISORY STATEMENT
The information provided in this presentation is given as at November 21, 2019 and replaces and supersedes any prior investor
presentation or other information to prospective purchasers. This presentation is for informational purposes only, is not complete, is
based (in part) on information prepared for internal evaluation purposes, does not purport to contain all information that prospective
investors may require, and may not contain certain material information about Karve Energy Inc. ("Karve" or the "Company“) or the oil
and gas assets the Company disposed of in the Battle River Disposition on June 14, 2018 (the “Disposition”) or acquired through High
Ground Energy on July 15, 2019 (the “Acquisition”), including important disclosures and risk factors associated with an investment in
Karve. This presentation does not take into account the particular investment objectives or financial circumstances of any specific
person who may receive it and does not constitute an offer to sell or a solicitation of an offer to buy any security in Canada, the
United States or any other jurisdiction. The contents of this presentation have not been approved or disapproved by any securities
commission or regulatory authority in Canada, the United States or any other jurisdiction, and Karve expressly disclaims any duty on
Karve to make disclosure or any filings with any securities commission or regulatory authority, beyond that imposed by applicable
laws. Prospective investors are encouraged to conduct their own analysis and reviews of the Company and of the information
contained in this presentation. Without limitation, prospective investors should consider the advice of their financial, legal,
accounting, tax and other advisors and such other factors they consider appropriate in investigating and analyzing the Company.
Certain information contained in this presentation has been prepared by third-party sources, which information has not been
independently audited or verified by Karve. No representation or warranty, express or implied, is made by Karve as to the accuracy or
completeness of the information contained in this document, and nothing contained in this presentation is, or shall be relied upon as,
a promise or representation by Karve. See "Reader Advisories" beginning on slide 27 for other important disclosures regarding
forward-looking information, future orientated financial information and other financial matters, oil and gas information, defined
terms and other important information.
2CORPORATE SUMMARY
Basic shares outstanding (7% insider ownership) 141 MM
(1)(3)
Options 13 MM
Performance warrants (2)(3) 32 MM
Fully diluted shares (25% insider ownership) 186 MM
Current credit facilities $100 MM
Net working capital (net debt) (September 30, 2019)(4) ($55) MM
Current production 9,800 BOE/d
Mar. 31/18 Jun. 30/18 Sept. 30/18 Dec. 31/18 Mar. 31/19 Jun. 30/19 Sept. 30/19
Average production 10,417 BOE/d 10,225 BOE/d 7,325 BOE/d 8,745 BOE/d 8,093 BOE/d 8,134 BOE/d 9,426 BOE/d
Liquids production 64 % 61 % 70 % 75 % 73 % 69 % 67 %
(6) (6) (6) (6) (6) (6) (6)
Cash flow $23.5 MM $21.8 MM $21.9 MM $8.4 MM $19.3 MM $21.2 MM $21.5 MM
Net working capital (net debt) (4) $7.8 MM $34.1 MM $3.1 MM ($25.0) MM ($25.3) MM ($21.2) MM ($55.3) MM
Karve sales price (Oil) (5) $63.88 /BOE $74.08 /BOE $74.91 /BOE $35.83 /BOE $60.26 /BOE $67.60 /BOE $63.64 /BOE
Royalties 5% 6% 8% 8% 8% 8% 8%
Operating expense $15.89 /BOE $15.87 /BOE $15.50 /BOE $15.33 /BOE $14.87 /BOE $13.93 /BOE $13.97 /BOE
Field netback $25.83 /BOE $26.99 /BOE $33.43 /BOE $10.26 /BOE $27.17 /BOE $28.93 /BOE $25.41 /BOE
(9)
Capital expenditures (7) $25.7 MM -$12.4 MM
(8)
$51.7 MM $35.3 MM $19.1 MM $15.4 MM $23.2 MM
Additional Hz wells on production (10) 24 Hz 4 Hz 44 Hz 19 Hz 12 Hz 14 Hz 10 Hz
Cumulative Hz wells on production (10) 100 Hz 104 Hz 148 Hz 167 Hz 179 Hz 193 Hz 203 Hz
(1) Current Options outstanding with a weighted average exercise price of $1.58.
(2) Performance warrant strike prices range from $1.50 to $4.60 with a weighted average strike price of $2.88.
(3) Amount required to fund option/performance exercise is $114.5 million.
(4) Excluding derivative asset/liability.
(5) Karve oil sales price is approximately a $1.50 discount to Canadian light sweet (including transportation).
(6) Adjusted funds flow from operations (excluding transaction costs and decommissioning expenditures).
(7) Total net capital expenditures (including acquisitions and dispositions).
(8) June 30, 2018 capital expenditures includes proceeds of the $30 million divestiture of non core assets.
(9) The corporate acquistion of High Ground Energy Inc. is not included in capital expenditures.
(10) Gross well counts.
Source: Karve Energy Inc.
See "Reader Advisories Oil and Gas Information"
3FINANCIAL PERFORMANCE – PRODUCTION & FUNDS FLOW
Funds flow remained consistent
Production increased due to due to lower commodity prices,
acquisition of High Ground Energy offset by higher production
Inc. volumes in Q3.
Source: Karve Energy Inc
See “Reader Advisories Oil and Gas Information”
4FINANCIAL PERFORMANCE – NETBACK & OPEX
Netback decreased due Continued reduction in operating
to lower commodity expenses due to operating
pricing in Q3. efficiencies and optimization of
High Ground Acquisition assets.
Source: Karve Energy Inc
See “Reader Advisories Oil and Gas Information”
5VIKING OIL FAIRWAY
Halkirk / Alliance / Brownfield
Monitor/Altario
Kerrobert
Veteran / Hamilton Lake
Dodsland
Source: Karve Energy Inc
See “Reader Advisories Oil and Gas Information”
6PRODUCTION HISTORY
Field Estimated Production
~9,800 BOE/d
Source: Karve Energy Inc – (Field Estimated Production)
See “Reader Advisories Oil and Gas Information”
7ASSET OVERVIEW
Halkirk/Alliance/
Brownfield
Monitor/Altario
Veteran/
Hamilton Lake
8KARVE RESULTS VS SPROULE TYPE CURVE
Source: Karve Energy Inc.
See “Reader Advisories Oil and Gas Information”
9KARVE TYPE WELL DRILLING ECONOMICS – SPROULE TIER 5
Sproule Tier 5 - 100% CROWN - $7 US DIFFERENTIAL
WTI FX WTI Capex EUR BT NPV 10 IRR Payout
$US/bbl $US/CDN $CDN/bbl $M/Well Mbbl $M % Months
45 0.77 58.44 890 50 157 21% 38
50 0.77 64.94 890 50 319 33% 28
55 0.77 71.43 890 50 491 48% 20
60 0.77 77.92 890 50 695 70% 17
65 0.77 84.42 890 50 864 91% 13
Source: Karve Energy Inc.
See “Reader Advisories Oil and Gas Information”
10VETERAN / HAMILTON LAKE ASSET OVERVIEW
Karve Land
Viking Petroleum Unit
Veteran Waterflood
Veteran Waterflood Exp.
Source: IHS AccuMap; Karve Energy Inc
See “Reader Advisories Oil and Gas Information”
11VETERAN WATERFLOOD REVIEW
Cum INJ 5.7 MMstb
Cum Oil 2.4 MMstb
Daily Oil ~500 bbl/d
WCT ~45%
Decreasing GOR
GOR 500 scf/bbl
Source: IHS AccuMap; Karve Energy Inc
See “Reader Advisories Oil and Gas Information”
12VETERAN WATERFLOOD REVIEW CONT’D
Horizontal drilling &
increased waterflood
Primary Decline
~ 6% Recovery Factor
Waterflood Decline
~ 15% Recovery Factor
Source: IHS AccuMap; Karve Energy Inc
See “Reader Advisories Oil and Gas Information”
13VETERAN WATERFLOOD REVIEW CONT’D
Increasing oil production
Nov 2017 Prod = 14 bbl/d
Aug 2019 Prod = 64 bbl/d
Decreasing Gas/Oil Ratio
Source: IHS AccuMap; Karve Energy Inc
See “Reader Advisories Oil and Gas Information”
14HALKIRK / ALLIANCE / BROWNFIELD ASSET OVERVIEW
Karve Land
Brownfield Gas Unit
Active waterflood
Pot. 2019 Expansion
2.5 section active waterflood; 2 to 4 section waterflood expansion planned for 2019
Source: IHS AccuMap; Karve Energy Inc
See “Reader Advisories Oil and Gas Information”
15HALKIRK / ALLIANCE / BROWNFIELD WATERFLOOD
Karve Land
Active Waterflood
Pot. 2019 Expansion
1
2
1
2
1
2
Waterflood pilot with 1 vertical injector implemented in 2011; second vertical added in 2012
Expanded to include 3 horizontal injectors; response increasing production in offsetting producing wells by 2-5 times
Source: IHS AccuMap; Karve Energy Inc
See “Reader Advisories Oil and Gas Information”
16HALKIRK / ALLIANCE / BROWNFIELD WATERFLOOD – GROUP 2 PERFORMANCE
Daily Oil
300 bbl/d
GOR
6,000 scf/bbl
Daily Oil
~4 bbl/d
Source: IHS AccuMap; Karve Energy Inc
See “Reader Advisories Oil and Gas Information”
17HALKIRK / ALLIANCE / BROWNFIELD WATERFLOOD – GROUP 1 PERFORMANCE
Daily Oil Cum INJ 473 Mstb
250 bbl/d
Decreasing GOR
Cum Oil 85 Mstb
Daily Oil ~25 bbl/d
GOR 400 scf/bbl
WCT ~30%
Source: IHS AccuMap; Karve Energy Inc
See “Reader Advisories Oil and Gas Information”
18MONITOR WATERFLOOD EXPANSION
9.5 sections approved for waterflood; additional section to be added by YE 2019
▪ 18 wells currently injecting; 4 additional wells to be converted to injection by YE 2019
Source: IHS AccuMap; Karve Energy Inc
See “Reader Advisories Oil and Gas Information”
19MONITOR WATERFLOOD EXPANSION
Additional 25.5 sections of future waterflood expansion potential within Monitor; total of 35 sections
Source: IHS AccuMap; Karve Energy Inc
See “Reader Advisories Oil and Gas Information”
20CORPORATE WATERFLOOD RESULTS
Karve 92 WFLD Area Wells (Incl. Veteran, Throne, Ham Lake etc.)
WFLD EUR ~80+ Mstb
Source: IHS AccuMap; Karve Energy Inc
See “Reader Advisories Oil and Gas Information”
21KARVE WATERFLOOD POTENTIAL
~2,000 gross sections of
land
▪ Over 130 sections of
waterflood potential
(6% of total land
base)
▪ 30 sections under
waterflood by YE
2019
Over 1 billion barrels of
Original Oil in-Place
Low RF to date of less
than 2% with forecast
recoveries to exceed
20%
Source: IHS AccuMap; Karve Energy Inc
See “Reader Advisories Oil and Gas Information”
22KARVE WATERFLOOD POTENTIAL
Over 700 gross undrilled
locations within future
waterflood areas and over
1,000 total locations.
Source: IHS AccuMap; Karve Energy Inc
See “Reader Advisories Oil and Gas Information”
23RESERVE SUMMARY - KARVE INTERNAL MECHANICAL UPDATE (INCL HGEI)
WI Oil BTAX Wells
WI Oil WI Gas WI NGLs Equiv NPV10% FDC Booked
Reserves Category (Mbbl) (MMcf) (Mbbl) (MBOE) ($M) ($M) Gross(Net)
Proved
Proved Developed Producing 6,388 26,598 397 11,218 233,156 - -
Proved Developed Non-Producing 33 198 3 69 943 30 -
Proven Undeveloped 10,765 17,514 297 13,981 152,517 290,352 305 (300.4)
Total Proved 17,186 44,310 697 25,268 386,616 290,382 305 (300.4)
Probable Developed Producing 1,785 9,320 132 3,471 57,407 - -
Probable Developed Non-Producing 39 259 4 86 1,426 - -
Probable Undeveloped 5,175 9,040 164 6,846 121,499 60,600 77 (75.2)
Total Proved plus Probable 24,186 62,928 997 35,671 566,948 350,982 382 (375.6)
Note: Totals may not add due to rounding.
▪ Reserves as per Karve Internal mid-year technical update (Sproule June 30, 2019 price deck and August 1, 2019
effective date)
▪ Total of 382 gross (375.6 net) locations recognized by Karve internal mechanical update.
▪ Total FDC of $350.9 MM associated with all development
242019 PRO FORMA BUDGET AND OPERATIONS
Current field estimated production of ~9,800 BOE/d; 6,318 bbl/d liquids, 21.0 MMcf/d gas (includes
acquisition of High Ground)
Maintain a cash-flow budget
▪ Total capital program of $80.0 MM (excluding A&D), down from $98.7 MM approved on May 8th,
2019; reduction due to commodity price volatility
▪ Incl. the drilling of 30 gross (and completing 52 gross) Hz Viking oil wells for $44.4 MM
▪ Remaining $35.6 MM to be spent on waterflood, facility and abandonment initiatives
▪ Expanding the Bulwark and Monitor waterflood an additional 7.5 sections to increase overall
recoveries, corporate reserves and mitigate base declines
Pro forma Karve LLR of 2.18 estimated as at October 2019
▪ ARO capital forecast of ~$3.7 MM for 2019
▪ Focus on reduction of inactive well and facility liabilities
Source: Karve Energy Inc
See “Reader Advisories Oil and Gas Information”
25OFFICERS: DIRECTORS:
● Bob Chaisson Chief Executive Officer ● Don Engle Chairman and Independent Director
● Derek Kreba President ● Bob Chaisson Karve Energy CEO
● Ken McNeill Executive Vice President, Corporate Development ● Howard Crone Independent Director
● Shane Helwer Vice President, Finance and Chief Financial Officer ● Daryl Gilbert JOG Capital Representative
● Silas Ehlers Vice President, Exploration ● James (Pep) Lough Independent Director
● Clifford Brown Vice President, Engineering ● Dave Pearce Azimuth Capital Management
● Justin Crawford Vice President, Operations ● Mitch Putnam 32 Degrees Capital
CORPORATE INFORMATION: ● Steve Smith Independent Director
● Bankers ATB Financial, CIBC & Scotiabank ● Sony Gill Corporate Secretary
● Auditor Pricewaterhouse Coopers LLP CONTACT:
● Legal counsel Stikeman Elliott LLP
● Evaluation engineer Sproule Associates Limited ● Bob Chaisson, CEO 587-393-8308
● Registrar & transfer agent Computershare Trust Company bob.chaisson@karveenergy.com
● Karve Calgary head office 587-393-8301 ● Shane Helwer, VP Finance and CFO 587-393-8302
● Suite 1700, 205 5 AVE SW (Bow Valley 2) shane.helwer@karveenergy.com
26READER ADVISORIES
FORWARD LOOKING STATEMENTS
• Certain information with respect to Karve Energy contained herein contains forward‐looking statements or forward‐looking information under applicable securities legislation.
• These forward‐looking statements or information are based on assumptions and are subject to numerous risks and uncertainties, certain of which are beyond Karve’s control, and which may prove to be incorrect. Although Karve believes that
the expectations reflected in such forward‐looking statements or information are reasonable, undue reliance should not be placed on forward‐looking statements and information because Karve can give no assurance that such expectations
will prove to be correct. In addition to other factors and assumptions which may be identified in this presentation, assumptions have been made regarding, among other things: the impact of general economic conditions, industry conditions,
the ability to find, replace and expand oil and natural gas reserves through acquisition, development or exploration; the timing and costs of pipeline, storage and facility construction and expansion and the ability of Karve to secure adequate
product transportation, volatility of commodity prices, field production rates and decline rates, estimated reserves life, costs for drilling and other capital expenditures will be similar to current industry amounts, currency exchange rate
fluctuations, the regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which Karve operates, imprecision of reserve estimates, the success that the Company will have in drilling its prospects and the
results from such prospects, including initial production rates, reserve additions and related matters, competition from other explorers, stock market volatility, and ability to access sufficient capital. In addition, forward‐looking statements or
information are based on current expectations, estimates and projections that involve a number of risks and uncertainties. As a result, Karve’s actual results, performance or achievement could differ materially from those anticipated by Karve
and expressed or implied by, these forward‐looking statements or information and, accordingly, no assurance can be given that any events anticipated by the forward‐looking statements or information will transpire or occur. In addition, the
reader is cautioned that historical results are not necessarily indicative of future performance.
• The forward‐looking statements or information contained in this presentation are made as of the date hereof and Karve does not intend, and does not assume any obligation, to update or revise these forward‐looking statements except as
required by applicable securities laws. The forward‐looking statements or information contained in this presentation and all subsequent forward‐looking information or statements, written or oral, attributable to the Company or persons
acting on its behalf are expressly qualified by these cautionary statements.
OIL AND GAS ADVISORIES
• Barrel of oil equivalent (“BOE”) amounts may be misleading, particularly if used in isolation. A BOE conversion ratio has been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel (6:1). This conversion ratio
of six thousand cubic feet of natural gas to one barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on
the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.
• Any references herein to initial production rates are not determinative of the rates at which such wells will continue production and decline thereafter or the ultimate recovery associated with such wells. Additionally, such rates may also
include "load" fluids used in well completion stimulation. Readers are cautioned not to place reliance on such rates in calculating the aggregate production of the Company.
• This presentation discloses drilling locations in two categories: (i) proved and probable locations; and (ii) unbooked locations. Proved plus probable (“2P”) drilling locations are based on the Company's most recent reserves evaluation as
prepared by Karve August 1, 2019. Unbooked locations are internal estimates based on prospective acreage and an assumption as to the number of wells that can be drilled per section based on industry practice and internal review. Of the
gross and net drilling locations identified herein, some of the gross and net locations are proved plus probable locations, and some of the gross and net locations are unbooked locations. Unbooked locations do not have independently
attributed reserves or resources. Unbooked locations have been identified by management as an estimation of our multi‐year drilling activities based on evaluation of applicable geologic, seismic, engineering, production and reserves
information. There is no certainty that Karve will drill all unbooked drilling locations and if drilled there is no certainty that such locations will result in additional oil and gas reserves, resources or production. The drilling locations on which
Karve actually drills wells will ultimately depend upon the availability of capital, regulatory approvals, seasonal restrictions, oil and natural gas prices, costs, actual drilling results, additional reservoir information that is obtained and other
factors.
• In this presentation, Karve has referred to “OOIP”, meaning original oil in place, which is equivalent to discovered petroleum initially in place for the purposes of this presentation. OOIP is the quantity of petroleum that is estimated, as of a
given date, to be contained in known accumulations prior to production. The recoverable portion of original oil in place includes production, reserves and contingent resources; the remainder is unrecoverable. A recovery project cannot be
defined for these volumes of original oil in place at this time. There is no certainty that it will be commercially viable to produce any portion of the resources.
• Estimates of the net present value of the future net revenue from Karve's reserves do not represent the fair market value of Karve's reserves. The estimates of reserves and future net revenue from individual properties or wells may not
reflect the same confidence level as estimates of reserves and future net revenue for all properties and wells, due to the effects of aggregation. Where discussed herein "NPV" represents the net present value (including capital expenditures)
of net income discounted at the percentage indicated, with net income including revenues from the indicated oil, liquids and natural gas prices and estimated production rates, less internal estimates of transportation expenses, royalties and
operating costs.
• This presentation contains certain oil and gas metrics, including recycle ratios, rates of return ("ROR") and EURs, which do not have standardized meanings or standard methods of calculation and therefore such measures may not be
comparable to similar measures used by other companies and should not be used to make comparisons. Such metrics have been included herein to provide readers with additional measures to evaluate the Company's performance; however,
such measures are not reliable indicators of the future performance and future performance may not compare to the performance in previous periods and therefore such metrics should not be unduly relied upon. A summary of the
calculations of such metrics are as follows:
• Recycle ratio is calculated by dividing the netback by the proved and proved plus probable finding and development cost on a per bbl basis
• ROR is calculated as the discount factor applied to future cash flows at which the NPV is calculated to be zero
• EUR is the estimated raw quantity of gas or oil that is potentially recoverable or has already been recovered from a well
• The recovery and reserve estimates of reserves provided in this document are estimates only, and there is no guarantee that the estimated reserves will be recovered. Actual reserves may eventually prove to be greater than, or less than, the
estimates provided herein. All evaluations and reviews of future net revenue are stated prior to any provision for interest costs or general and administrative costs and after the deduction of royalties, development costs, production costs, well
abandonment costs and estimated future capital expenditures for wells to which reserves have been assigned.
• This presentation contains references to type well production and economics, which are derived, at least in part, from available information respecting the well economics of Karve's assets and other companies and, as such, there is no
guarantee that Karve will achieve the stated or similar results, capital costs and return costs per well.
27OIL AND GAS ADVISORIES – CONTINUED
• Certain type curves referred to in this document represent estimates of the production decline and ultimate volumes expected to be recovered from wells over the life of the well. The type curves disclosed herein are Sproule type curve and
management‐generated type curves based on a combination of historical performance of analogous wells and management's expectation of what might be achieved from future wells. The type curves represent what management thinks an
average well will achieve. Individual wells may be higher or lower but over a larger number of wells management expects the average to come out to the type curve. Over time type curves can and will change based on achieving more
production history on older wells or more recent completion information on newer wells.
OTHER ADVISORIES
• All dollar amounts are referenced in Canadian dollars, except when noted otherwise.
• This presentation contains the terms “funds from operations”, “operating netback”, “field netback”, and “production per share” which do not have a standardized meaning prescribed by Generally Accepted Accounting Principles (“GAAP”) and
therefore may not be comparable with the calculation of similar measures by other companies. The Company uses these measures to help evaluate its performance.
• Funds from operations is calculated as cash provided by operating activities, adding the change in non-cash working capital, decommissioning obligation expenditures and accretion of deferred financing costs. Funds from operations is used to
analyze the Company's operating performance and leverage.
• Operating netbacks are determined by deducting royalties, operating expenses and transportation expenses from oil and gas revenue. Operating netbacks are not intended to represent operating profits nor should they be viewed as an
alternative to cash provided by operating activities, profit or other measures of financial performance calculated in accordance with GAAP.
• Field netback per BOE is calculated as the Company's oil and gas sales, less royalties, operating expenses and transportation costs per barrel of oil equivalent.
DEFINED TERMS
• MM millions
• WI working interest
• HZ horizontal
• m metre
• WFLD waterflood
• km kilometre
• WTI West Texas Intermediate
• FX foreign exchange rate
• BT before tax
• PDP proved developed producing
• IRR internal rate of return
• P+PDP proved developed producing plus probable developed producing
• FDC formation density log
• LLR licensee liability rating
• ARO asset retirement obligation
• GORR gross over-riding royalty
• bbl barrels
• CAGR compound annual growth rate
• bbl/d barrels per day
• Mbbl thousand barrels
• MMbbl million barrels
• Mcf thousand cubic feet
• BBbbl billion barrels
• Mcf/d thousand cubic feet per day
• BOE/d barrels of oil equivalent per day
• Tcf trillion cubic feet
• MMcf million cubic feet
• MBOE thousand barrels of oil equivalent
• MMBOE million barrels of oil equivalent
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