Uge investor presentation_update_march_2012-_final

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Uge investor presentation_update_march_2012-_final

  1. 1. Underground Energy Corp.Unlocking Shale Oil Opportunities in California & NevadaTSX-V:UGECorporate PresentationMarch 2012
  2. 2. California Focused with Nevada Upside  Currently 71,015 net acres under lease in California and Nevada  31,884 net acres prospective for oil primarily CALIFORNIA from prolific Monterey shales in Santa Maria and San Joaquin Basins • Initial focus is conventional oil recovery from NEVADA naturally fractured Monterey targets San Francisco • 2 producing wells (80 bopd), multiple drill ready sites and exploration prospects • Management’s initial estimates of 6 MMbbls 2P reserves / 20.8 MMbbls prospectiveAsphaltea Las Vegas resources at Zaca1 • GLJ assigned 2 billion bbls OOIP and 109 MMbbls of prospective recoverable resources Los Angeles at Asphaltea2 Zaca • Initial 5-10 well drilling program underway  7,887 net acres of non shale prospects in the San Joaquin Basin Underground leases  31,286 net acres in 6 prospects in Nevada 1. Management estimates which also include a review by an internal qualified reservoir engineer 2 2. Source: GLJ Petroleum Consultants, effective date June 1, 2011
  3. 3. A Team Built for California Oil Management Independent Board Members Michael Kobler – Founder, Chairman, Bruce Berwager – Chief Operating Officer Randy Aldridge - Director President & CEO 32 years international oil & gas experience; 35 years international oil experience; 35 years oil & large infrastructure projects Chevron, Unocal, Conoco, Warren President of Koch Pipelines & Koch globally and in California; former COO and Director of Venoco; Petroleum Canada; Koch Oil Co., True Energy Founder and former CEO 20+ years shale experience of OSUM Oil Sands in CA, TX, PAPeter Ballachey – Founder, CFO & Corporate Simon Clarke – VP Corporate Development Harland Johnson - Director Secretary 20+ years capital markets experience; 45 years technical and management 35 years international financial experience; RailPower, Director of Invico Energy and upstream experience in Trinidad & Brazil: Canadian Pacific, RailPower, BC Rail Argus Metals, ExxonMobil and affiliates and CFO at OSUM Oil Sands Founder of OSUM Oil Sands Dana Brock – VP Engineering David Hoyt – VP Exploration & Development Andrew Squires - Director33 years California energy and infrastructure 40+ years in exploration and development 23 years heavy oil experience; experience; ARCO, Unocal, Radian and geology and geophysics; 25 years in California Petro-Canada, Dome, Amoco, Paramount; OSUM Oil Sands with ARCO, TXO, Warren, Foothill current Senior VP OSUM Oil Sands Randy Ray – Chief Geophysicist Kim Wolfe – Regulatory Mgr. & Compliance Douglas Urch - Director36 years in western US; expert in integrated 13 years oil & gas experience in CA and Santa 30+ years international experience; seismic and geological interpretation ; Barbara permitting and regulatory; CFO Bankers Petroleum and previously CFO BreitBurn, Encana, PanCanadian Venoco, Greka, SCS of Rally Energy  California-based team with proven track record of creating significant shareholder value • Founders of OSUM Oil Sands Corp. ($2.0 billion private oil sands company based in Calgary, AB) California-based • Operations team with proven track record of finding and growing reserves & production in California Note: Refer to the Appendix for detailed description of the Companys management team and board of directors 3
  4. 4. Capital Structure Snapshot UGE $0.25 Listed on the TSX Venture Exchange February 23, 2012 Closing Share Price 204.2 million $51.1 million Basic Shares Issued and Outstanding Market Capitalization (on Basic Shares) 337.9 million $16.0 million Fully Diluted Shares Outstanding Cash Balance at December 31, 2011 16.5% $31.0 million Insider Ownership Working Capital at December 31, 2011 25.9% $35.1 million Institutional Ownership Enterprise Value (on Basic Shares) 57.6% $37.0 million Retail Ownership Potential Proceeds from Dilutive Securities 4
  5. 5. Recent Achievements Assembled a quality asset base with multiple prospects: 39,729 net acres in California and 31,286 net acres in Nevada to-date Closed $25.5 million brokered private placement, completed RTO & commenced trading on the TSX-V Acquired & processed approx. $3 million in seismic over the past 9 months Completed transition to a production-ready company Initial production of 80 bopd Secured 5-10 well initial drilling contract Drilling commenced at Zaca late-February 2012 5
  6. 6. Growth Strategy  Grow primarily through the drill bit  Aggressively drill prospects to ramp-up production Enhance  Apply advanced drilling, completion and recovery technologies to maximize recoveryShareholder Value  Convert prospects to drill-ready projects  De-risk portfolio through: • G&G technical assessments Build • Advanced 2D/3D seismic techniques • Appraisal drilling and formation evaluation  Aggregate additional quality prospective acreage UGE Today  Proven management team  Strong, committed investor base Platform  Quality asset portfolio under lease with a mix of lower risk assets and high impact resource opportunities Time 6
  7. 7. Monterey Shale Formation Significant Monterey Shale Basins World Class Source Rock  Over 290 billion barrels of oil generated1 World Class Reservoir Rock San Joaquin Basin  Has produced over 2.5 billion barrels1  High organic content of 4-5%  Extremely thick shale packages of 500-3,500 ft  Compared to other US shale plays:  Bakken: 20-150 ft Santa Maria Basin  Eagle Ford: 75-300 ft  Niobrara: >150 ft Monterey is the source and reservoir rock for most of theVentura & Santa Barbara Channel Los Angeles major oil fields discovered in Underground Monterey prospects California Los Angeles Basin 1. Source: California DOGGR and USGS 7
  8. 8. Key Monterey Players Largest Monterey land holder in State (LA,  Actively drilling in San Joaquin, Santa Maria and Ventura and San Joaquin basins) Salinas basins – 214,000 net acres 10-15 exploratory wells per year planned  Joint 500 mile seismic shoot in San Joaquin with through 2015 to test shale prospects Oxy – first half complete  Announced two 2011 Monterey discoveries 200,000 acres and 520 drilling targets de-risked for oil-prone shale development • Sevier (90 MMboe) • Salinas Valley (44 MMboe) $1.5 billion capex budget for California (195 shale wells in 2011 – IPs of 300+)  2012 plan 50-75, largely vertical, Monterey wells Now Producing approx. 50,000 bopd from  Recent take private offer at $12.50 per share Monterey and equivalent shales ($1.4 billion enterprise value) Other players 8
  9. 9. Monterey Shale Type CurvesBOPD1000 Oxy Monterey Type Curve (100+ wells) Horizontal Wells EUR = 645 Mbbls 100 Zaca Field Vertical Well Normalized Monterey Type Curve (61 wells) 10 Vertical Wells EUR = 540 Mbbls 1 0 12 24 36 48 60 72 84 96 108 120 132 144 156 168 180 192 204 216 228 240 252 Months1. Source: Occidental Petroleum Corporation, Minerals Management Service, DOGGR 9
  10. 10. Oil Pricing Comparison California (CA) MWSS begins$120.00 trading at a $120.00  CA imports 62% of crude oil (~ 1 MM bopd) by sea premium to WTI (Alaskan North Slope, Latin America, Asia, Middle East)$110.00 $110.00  CA is not connected to other US oil supply or markets$100.00  CA oil prices currently more reflective of world prices $100.00 (e.g. Brent) than WTI $90.00  Significant rig availability with low servicing costs and year– $90.00 round access to CA projects $80.00 $80.00 $70.00 $70.00 $60.00 $60.00 $50.00 $50.00 $40.00 Western Canada Select- 20.6 API $40.00 WCS MWSS Midway Sunset- 13.0 API $30.00 WTI West Texas Intermediate- 39.6 API $30.00 $20.00 $20.00 Jan-09 Jan-10 Jan-11 Jan-12
  11. 11. Santa Barbara County & Santa Maria Basin Foxen Canyon Trend Santa Maria 207 Santa Barbara County All American Pipeline Cat Canyon Asphaltea Prospects 251 Orcutt North 209 28 73 Gato Ridge South 54 Barham Zaca Los Alamos Monterey Fields Ranch Refinery 35 Lompoc 52 Underground leases 3 miles Estimated Ultimate Oil Recoveries (MMBO) 11
  12. 12. Zaca Extension Project  Santa Barbara County, California 10 0 10 20 30 40 50 miles San Francisco Modesto  80% WI (Operator) Merced County  7,750 gross acres (6,200 net acres) Stanislaus County San Joaquin Basin  Monterey targets (analog to Asphaltea) Madera County  Zaca field (32 MMbbls recovered to date) Challenger Fresno  Average vertical well IP’s 205 BOPD and County EUR of 540 Mbbls oil San Benito Fresno County  6 MMbbls 2P Reserves1 Burrel  20.8 MMbbls Prospective Resources1, Tulare  Includes: Kings County County • 1 producing test well (15-20 bopd) • Existing 2D seismic coverage re- Petroleum Basin processed and new seismic swath Producing Oil Field Devil’s Den Buttonwillow acquired December 2011 Producing Gas Field • 20-30 initial drilling locations  Underground Property San Luis Obispo County Bakersfield Additional structures identified by seismic Highlighted Property  Permitted pad locations chosen Santa Maria Basin Kern County  Drilling of step out extension wells to Asphaltea commence late February 2012 Santa Rita Zaca Santa Barbara County Santa Barbara1. Management estimates which also include review by an internal qualified reservoir engineer 12
  13. 13. Underground’s Zaca Assets• Historic recovery rates 6.8% • Primary recovery techniques only• Potential to increase recovery rates further Permitted Site B Permitted Site D • Latest seismic techniques • Deviated / horizontal drilling • Possible EOR • Thermal testing 1964-1967 • Waterflooding 1953-1954 Existing Oil Well Underground Energy Lease Boundary Zaca Oil Field Recognized Boundary Existing Zaca Field Probable Geologic Structure Identified by Seismic Possible Geologic Structure Identified by Seismic Existing Seismic Line circa 1986 New Seismic Line circa 2011 Permitted Pad Locations Initial Well Locations 13
  14. 14. Zaca Well Economics Zaca Field – All Historic WellsTypical Well All Wells Infill Wells Normalized Type Curve (61 wells) 250 Type Curve Type CurveWell Depth (MD feet) 4,500-6,500 4,500-6,500 200Dry Hole Well Costs ($M) $800-$1,300 $800-$1,300 150Completion Cost ($M) $200-$400 $200-$400 100Total Well Cost ($M) $1,000-$1,700 $1,000-$1,700 50UGE Interest (WI / NRI) 80% / 62.6% 80% / 62.6% 0 0 60 120 180 240 300 360Initial Prod Rate (BOPD) 205 70 Zaca Field – Infill Wells Drilled 1971 to PresentCum. Production (MBO) 535 375 Normalized Type Curve (18 wells) 250NPV @10% BT ($M)1 $ 12,025 $ 8,163 200IRR (%) 231% 90% 150Payback (years) 0.42 1.13 100 50 0 0 60 120 180 240 300 3601. Economics are internal estimates using NYMEX Futures Strip Prices as of Jan.30, 2012 with $14.74 deduction for diluent, gravity, location 14
  15. 15. Asphaltea Project  Santa Barbara County, California 10 0 10 20 30 40 50 miles San Francisco Modesto  100% WI (Operator) Merced County  5,850 acres Stanislaus County San Joaquin Basin  2 billion bbls OOIP / 109 MMbbls Madera County Prospective Resources1 Challenger Fresno • Assumes 4.8% recovery rate – analog County fields 10-15% San Benito Fresno County  Monterey shale oil targets Burrel • Highly fractured, conventional structures Tulare • Close to infrastructure and existing Kings County County Monterey production  Analog fields: Zaca (32 MMboe), Cat Canyon Petroleum Basin (251 Mmboe), Orcutt (209 Mmboe) Producing Oil Field Devil’s Den Buttonwillow  Includes: Producing Gas Field • 30+ miles of seismic acquired in Q2 and Underground Property San Luis Obispo County Bakersfield Q4 2011 being processed Highlighted Property • 26 permitted wells Santa Maria Basin Kern County  Near term plan: • Process and interpret seismic Asphaltea Santa Rita Zaca Santa Barbara County • First well targeted mid 2012 Santa Barbara1. Source: GLJ Petroleum Consultants, effective date June 1, 2011 15
  16. 16. Asphaltea Well Economics 350Parameter Typical Well OXY Shale Oil Well Type Curve 300 (Modeled UGE Curve)Well Depth (MD feet) 7,000-9,000 250Dry Hole Cost ($M) $1,900-$2,300 200 BOPDCompletion Cost ($M) $900-$1,200 150Total Well Cost ($M) $2,800-$3,500 100 50UGE Interest (WI / NRI) 100% / 81.25% 0Initial Prod Rate (BOPD) 250-300 0 60 120 180 240 300 360Cum. Production (MBOE) 648 Months $20 140%NPV @ 10% BT ($M)1 $19,044 $18 Asphaltea Individual Well Economics NPV @ 10% ($MM) Oil Price Sensitivity 120%IRR (%) 1 164% $16 $14 100% NPV10 IRR (%)Payback (years) 1 0.8 $12 80% $10 IRR 60%Sensitivity at 25% Higher Capex and $80/bbl $8 $6 40%NPV @ 10% BT ($M) $15,554 $4 20% $2IRR (%) 107% $0 0%Payback (years) 0.9 $10 $20 $30 $40 $50 $60 $70 $80 1. Economics are internal estimates based on Jan. 30, 2012 NYMEX Futures strip prices (see deck in the Appendix) 16
  17. 17. Asphaltea Development Profile1,2 Unrisked peak production of 22,300 boepd in 2020 with attractive well economics and conservative horizontal/deviated development well type curves Overall unrisked project before tax NPV 10% of $2.2 billion Asphaltea Prospect Unrisked Development Profile to 2025 22,500 $4,000 South Prospect South Prospect 20,000 North Prospect North Prospect $3,500 Cumulative Free Cash Flow Cumulative Free Cash Flow 17,500 $3,000 Daily Gross Production (boepd) - 91% Oil Cumulative Free Cash Flow ($USMM) 15,000 $2,500 12,500 $2,000 10,000 $1,500 7,500 $1,000 5,000 $500 2,500 $0 0 ($500) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Calendar Year 1. Recoverable resource volumes are from GLJ Petroleum Consultants, effective date June 1, 2011 17 2. Economics are internal estimates based on Oct. 21, 2011 NYMEX Futures strip prices
  18. 18. Other California Assets Devil’s Den San Francisco 10 0 10 20 30 40 50 miles  Kern County, California Modesto Merced  65% WI (Operator), 6,795 gross acres (4,417 net acres) County  Shallow Monterey (Diatomite) and Tumey shale oil targets Stanislaus County San Joaquin Basin  Analog fields: McKittrick (350 MMboe), Cymric (543 MMboe) Madera Challenger County  Madera and Merced Counties, California Challenger Fresno  70.49% WI (Operator),11,219 gross acres (7,887 net acres) County  Zilch, Blewett, Vaqueros/Temblor sands; and Kreyenhagen San Benito Fresno County & Moreno shale gas targets Burrel Burrel  Fresno County, California Kings Tulare  80% WI, 10,656 gross acres (8,525 net acres) County County  Zilch & Vaqueros sand, Monterey & Kreyenhagen oil targets  1 producing well (65 bopd)  Analog fields: Helm (46 MMboe), Raisin City (47 Mmboe)Petroleum Basin ButtonwillowProducing Oil Field Devil’s Den Buttonwillow  Kern County, CaliforniaProducing Gas Field  80% WI (Operator), 1,445 gross acres (1,156 net acres)Underground Property San Luis Obispo Bakersfield  Monterey/McClure shale, 44X and Randolph sand oil CountyHighlighted Property targets  Analog fields: North Shafter (10 MMboe), Rose (4.8 MMboe) Kern County Santa Rita Santa Maria Basin  Santa Barbara County, California Asphaltea  80% WI (Operator), 1,217 gross acres (974 net acres) Santa Rita Zaca Santa Barbara County  Monterey shale & Point Sal sand oil targets Santa Barbara  On trend with Lompoc Field (52 MMbbls) 18
  19. 19. Nevada Assets  “Early mover” advantage by building a strong Bull Run land position ahead of the curve Deadman Winnemucca Elko Creek  Complex geology, but existing discoveries have had very high production rates  Emerging shale oil potential (Bakken-like) Blackburn  Key competitors will help prove up plays - West Cabot (COG), EOG (EOG), SM Energy (SM),Reno Callon (CPE), PetroHunt RAILROAD VALLEY 46.2MMBO Trap  Deadman Creek– 2D and 3D seismic Springs Flat Top Coaldale purchased, interpretation begun  Blackburn – 2D and 3D seismic purchased, interpretation begun  Coaldale – Offset exploratory well drilling Las Vegas  Bull Run – Surface geological mapping underway Underground leases 19
  20. 20. Initial Exploration and Development Plan Activity 1Q12 2Q12 3Q12 4Q12 Net Cost ($MM) Acquire & Process Seismic $1.3 (30 mi 2D) Zaca Drilling 4 Monterey Shale Wells XX $5.4 Design & Build Facilities $1.8 Process Seismic $0.1 (50 mi 2D) Asphaltea Drill & Test 1 Monterey Shale $3.2 Well Acquire & Process Seismic $0.5 (50 mi 2D) Devil’s Den Drill and Test 2 Tumey Shale $2.4 Wells Acquire & Reprocess Seismic $0.5 Buttonwillow/ (16 sqmi 3D, 30 mi 2D) Burrel/MVA Continue Leasing at MVA $0.5 $15.7 Seismic Drilling Other1. Management estimates which also include review by an internal qualified reservoir engineer 20
  21. 21. Initial Development Profile $6,000,000 600  Dec 2012 exit WI production: 510 bopd 528 bopd  Dec 2012 exit annualized operating cash flow: $9.1 MCumulative Operating Cash Flow $5,000,000 500 WI Production bopd $4,000,000 400 $3,000,000 300 $2,000,000 200 $1,000,000 100 $- 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 1. Economics are based on management estimates of production pre-royalty and based on Jan. 30, 2012 NYMEX Futures strip prices 21
  22. 22. Company Timeline 2010 2011 2012 $6MM pre-IPO equity financing Farm-in on EQ Energy 28,984 acres, NevadaSanta Barbara Countypermitting expertise added Entered into San Joaquin / Santa Maria AMIs Development agreement California/Monterey operational with Titan on Mustang Flats expertise added Closed RTO and started trading on TSX-V Secure drilling rig for Land-use permit granted for initial 2012 program Closed Panther initial 26 Asphaltea wells Acquisition of 2,390 acres acquisition in Nevada, second lease Commence step out drilling at Zaca at Asphaltea (3,400 acres) Monterey/Nevada geological GLJ Reserve Report due expertise added Initial seismic shoot at Asphaltea GLJ report – Seismic 2.3billion bbls oil shot at Zaca / initially in place Asphaltea Closed $25.5 million Commence drilling at financing Asphaltea / Devil’s Den Complete interpretation of Asphaltea seismic 2D / 3D seismic and geological analysis of San Joaquin assets 22
  23. 23. Contact InformationUnderground Energy Corp. President & CEO – Mike Kobler3rd Floor mike.kobler@ugenergy.com7 W. Figueroa Street Phone: (805) 845-4700, x18Santa Barbara, CA,93101-5109 CFO – Peter Ballachey peter.ballachey@ugenergy.comTel: 805.845.4700 Phone: (805) 845-4700, x17Fax: 805.845.1177www.ugenergy.com COO – Bruce Berwager bberwager@ugenergy.com Phone: (805) 845-4700, x11 VP Corp Development – Simon Clarke simon.clarke@ugenergy.com Phone: (604) 551-9665 23
  24. 24. Cautionary and Forward Looking Statements AdvisoryUnderground Energy Corp. (Underground Energy) is a British Virgin Island holding company that owns Underground Energy, Inc., a Delaware corporation which isan exploration and production company focused on unlocking oil from shale plays, principally in the Western US. Underground Energy is traded on the TSXVenture Exchange under the trading symbol "UGE.“Statements in this presentation contain forward-looking information and forward-looking statements within the meaning of applicable securities laws (collectively,"forward-looking information"). Forward-looking information is frequently characterized by words such as "plan", "expect", "project", "intend", "believe", "anticipate","estimate" and other similar words, or statements that certain events or conditions "may" or "will" occur. In particular, forward-looking information in thispresentation includes, without limitation, statements with respect to: (i) the closing and closing date of the Companys proposed acquisition of oil and gas leases inCalifornia; (ii) the Companys planned seismic operations to be conducted on such oil and gas leases; and (iii) the prospectivity of such oil and gas leases for oiland gas and the anticipated drilling, completion and production results therefrom. Readers are cautioned that assumptions used in the preparation of forward-looking information may prove to be incorrect.Although we believe that the expectations and assumptions reflected in the forward-looking information are reasonable, there can be no assurance that suchexpectations or assumptions will prove to be correct. In particular, assumptions have been made that: (i) Underground will be able to obtain equipment andregulatory approvals in a timely manner to carry out exploration and development activities; (ii) Underground will have sufficient financial resources with which toconduct its planned capital expenditures; and (iii) the current tax and regulatory regime will remain substantially unchanged. Certain or all of the forgoingassumptions may prove to be untrue.Forward-looking information is based on the opinions and estimates of management at the date the statements are made, and is subject to a variety of risks anduncertainties and other factors (many of which are beyond the control of Underground) that could cause actual events or results to differ materially from thoseanticipated in the forward-looking information. Some of the risks and other factors could cause results to differ materially from those expressed in the forward-looking information include, but are not limited to: operational risks in exploration, development and production; delays or changes in plans; competition for and/orinability to retain drilling rigs and other services; competition for, among other things, capital, acquisitions of reserves, undeveloped lands, skilled personnel andsupplies; risks associated to the uncertainty of reserve and resource estimates; governmental regulation of the oil and gas industry, including environmentalregulation; geological, technical, drilling and processing problems and other difficulties in producing reserves; the uncertainty of estimates and projections ofproduction, costs and expenses; unanticipated operating events or performance which can reduce production or cause production to be shut in or delayed;incorrect assessments of the value of acquisitions; the need to obtain required approvals from regulatory authorities; stock market volatility; volatility in marketprices for oil and natural gas; liabilities inherent in oil and natural gas operations; access to capital; and other factors. Readers are cautioned that this list of riskfactors should not be construed as exhaustive.The forward-looking information contained in this presentation is expressly qualified by this cautionary statement. Underground does not undertake any obligationto update or revise any forward-looking statements to conform such information to actual results or to changes in our expectations except as otherwise required byapplicable securities legislation. Readers are cautioned not to place undue reliance on forward-looking information.BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1 bbl has been used and is based on an energy equivalency conversionmethod primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. 24
  25. 25. Notes to Disclosure1. Prospective resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. Prospective resources have both an associated chance of discovery and a chance of development. There is no certainty that any portion of the prospective resources will be discovered and, if discovered, there is no certainty that it will be commercially viable to produce any portion of those resources. Prospective resources are undiscovered resources that indicate exploration opportunities and development potential in the event a commercial discovery is made and should not be construed as reserves or contingent (discovered) resources. Prospective resources in this presentation are reported on an unrisked, company interest basis.2. The reserve and resource estimates in respect of the prospective resources for the Zaca Field for Underground were prepared on October 27, 2011 with an effective date of November 1, 2011 and prepared in accordance with COGE Handbook and National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities ("NI 51-101") by a member of management of Underground who is a "qualified reserves evaluator" as defined under NI 51-101.3. The "best estimate" is considered to be the best estimate of the quantity that will actually be recovered. In terms of prospective resources, it is equally likely that the actual quantities recovered will be greater or less than the best estimate. In terms of discovered reserves, the “best estimate” is the combination of the proved plus probable reserves. If probabilistic methods are used, there should be at least a 50 percent probability that the quantity actually recovered will equal or exceed the best estimate.4. The significant positive factors that are relevant to the managements estimate of the reserves and prospective resources include production in close proximity to the assets and oil and gas shows in wells drilled in close proximity to the assets. A significant negative factor that is relevant to managements estimate of prospective resources is that seismic attribute mapping in the areas can be indicative but not certain in identifying resources.5. Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.6. The estimates of reserves and resources for individual properties may not reflect the same confidence level as estimates of reserves and resources for all properties, due to the effects of aggregation.7. Historical production data for both Zaca and Lompoc is based upon a report titled "California Monterey Reservoir Study Project", prepared by Spivak, Mannon, Brigham, Surdam, Coombs, and Sageev and dated September 11, 1985 and the records of the California Division of Oil and Gas and Geothermal Resources obtained by the Company on August 24, 2011. 25
  26. 26. Appendix
  27. 27. Management TeamMike Kobler, Chairman, CEO and President  35 years international project management and engineering experience  Founder of successful OSUM Oil Sands Corp., Calgary  Founder and President, UCM Civil Engineering Consulting Firm focused on large infrastructure construction projects in CaliforniaBruce Berwager, COO - Masters Petroleum Eng, P.Eng  32 years international oil and gas exploration, development, operations management and engineering roles with Chevron, Unocal, Conoco, Venoco and others  20+ years experience with Shale in California (Monterey), Texas (Barnett & Wolfcamp), Pennsylvania (Marcellus)  Former Director and COO of Venoco, SVP and GM for California Ops-Warren ResourcesPeter Ballachey, CFO and Corporate Secretary - CA, MS  35 years experience including 16 years senior financial CFO roles in Canada and USA  Former CFO of OSUM Oil Sands Corp., CalgarySimon Clarke, VP Corporate Development and Director, LLB  Over 20 years capital markets experience  Founder, Board Observer and Advisor to OSUM Oil Sands Corp  Managing Director Invico Energy II Fund, Director of Argus Metals Corp., Director of Underground Energy, Inc.David Hoyt, VP Exploration & Development – CPG, RPG  Over 35 years exploration and development geology and geophysics project management and interpretation experience with ARCO, TXO, Warren, Foothill and as an independent consultant  Extensive academic and Industry experience in California, Nevada, AlaskaRandy Ray, Chief Geophysicist – BS, MS  36 years experience in Western US and an expert in integrated seismic and geological interpretation  Professional Geologist, Texas and WyomingKim Wolfe, Regulatory Manager and Compliance Officer – Paralegal, NP  13 years oil and gas experience with Venoco, Greka, Tracer in land, legal and compliance roles  California and Santa Barbara permitting and regulatory expert 27
  28. 28. Independent DirectorsRandy Aldridge – Independent Director  35 years international oil experience: Chairman- Koch Pipelines, President- Koch Petroleum Canada, President-Koch Oil Co., Chairman-True Energy Corp.  Board Member, Energy Holdings international Inc. and Husky/BP Toledo Refinery LLCHarland Johnson – Independent Director  45 years technical and management experience in the upstream petroleum industry for Exxon Corporation and its affiliates  Formerly Presidente, Divisão de Exploração e Produção, Esso Brasileira de Petróleo Limitada; and President, Exxon Trinidad Limited  BSc (Honors) Chemistry, U of Alberta. PhD Metallurgy, U of AlbertaAndrew Squires – Independent Director  23 years experience in heavy oil and oil sands at Petro-Canada, Dome, Amoco, Paramount  Sr. Vice-President, OSUM Oil Sands Corp.Douglas Urch – Independent Director  Over 30 years oil & gas experience at RallyEnergy, Mohave Exploration, Sunshine Oilsands, Barrington Petroleum, TriGas Exploration and Ryerson Oil & Gas  EVP, Finance and CFO Bankers Petroleum Ltd.  Director and Audit Committee Chairman at Petrodorado EnergySam Charanek – Advisor to the Board  15 years of capital markets and finance experience with a focus on international oil and gas strategies  Co-founder of Pan Orient Energy, Canacol Energy, Excelsior Energy (now Athabasca), PetroDorado Energy and Mena Hydrocarbons  Advised Zodiac Exploration, Gallic Energy and ArPetrol Energy and Sunshine Oilsands 28
  29. 29. History of Monterey Shale 1895: 1st Monterey production in state at t 1 Midway Sunset field 1901: Union discovers Monterey Fractured play at Orcutt Field, several more Monterey t 2 fields developed in Santa Maria Basin from 1901 - 1942 t 4 t 5 1970’s-1990’s: Majors discover large Offshore Monterey Fractured fields-Hondo, Pt. Arguello, t 6 t 3 Pt. Pedernales, Sacate, Pescado, S. Ellwood fields t 1t2 1980’s:Shell/Chevron/Mobil develop t 4 Monterey Diatomite with vertical frac’d wells at Belridge and Lost Hills fields 1990’s: EOG develops diagenetic fractured t 5 Monterey at Rose and N. Shafter fields t 3 7 1998: Oxy begins development of Monterey t 6 matrix at Elk Hills field 2005-11: Oxy explores and develops 7 7 Monterey equivalent formations in Ventura and Los Angeles Basins 29
  30. 30. Monterey Play Types UE’s Initial Monterey Prospects are Naturally Fractured, Conventional Structures Cat Canyon-Gato Ridge South Belridge 147 MMBO Zaca Extension 540 MMBO 21 MMBO Cuyama Elk Hills North Shafter 230 MMBO 17 MMBO Pt. Pedernales Hondo Orcutt Asphaltea 86 MMBO 90 MMBO 427 MMBO 209 MMBO Closures 103 MMBO Monterey Formation San Andreas Fault OFFSHORE-ONSHORE MONTEREY OUTBOUND BASINS ONSHORE SAN JOAQUIN INBOUND BASIN Fracture Dominated Matrix Dominated 135 Miles Fracture Dominated • Outward basins – Structural traps – Hondo, Pt. Pedernales, Orcutt, Cat Canyon, Asphaltea – cleaner shales • Inward basins – Diagenetic traps – Rose, North Shafter Matrix Dominated: Mostly Diatomite – Belridge, Lost Hills, Elk Hills, Cymric, McKittrick Dual Porosity: Matrix, micro-fractures and fractures – S. Ellwood, Midway-Sunset 30
  31. 31. US Shale Oil Comparison Formation Gross Matrix Matrix Total Organic Play Depth (ft) Thickness (ft) Porosity (%) Permeability (md) Content (%) Bakken 7,000-11,000 20-150 3-12 0.005-0.2 2-18High Profile US Oil-Prone Eagle Ford 8,0000-14,000 75-300 3-15 <0.0001-0.003 4.7 Shale Plays Niobrara 2,000-8,000 >150 4-8 na 5 Monterey (SMV) 3,500-10,000 500-3,500 5-30 0.0001-2 4-5 California Monterey(SJV) 5,000-13,000 500-5,000 15-30 0.0001-2 0.1-4Resource Shale Plays Tumey 3,000-19,000 200-700 5-10 0.001 0.9-3.2 Kreyenhagen 3,000-19,000 400-2,400 5-10 <0.0001-1 4-12 Moreno (Gas) 4,000-14,000 100-11,000 na na 0.5-4 Nevada Chainman/Pilot > 8,200 400-2,400 5-10 Fracture Enhanced 1.5-11.7Emerging Shale Plays Paleozoic >8,200-15,000 2,000-3,000 Fracture Enhanced Fracture Enhanced 4.4-25 Key Attributes of Commercial Resource Plays  TOC in excess of 1%  T-MAX of 450⁰F  Enhanced Permeability from Interbedded Sand/Carbonates or Natural Fractures 31
  32. 32. Local Pricesbased on NYMEX Futures Strip NYMEX Futures Strip Prices as of January 30, 2012 Crude Oil Prices Natural Gas Prices WTI @ Current Current SMV NYMEX Local Gas Local Gas Cushing Differential Differential Crude Oil Henry Hub Price Price Oklahoma MWSS (1) SMV (2) Forecast Differential vs WTI vs MWSS % of Year $US/bbl $US/bbl $US/bbl $US/bbl $US/mmbtu HH Nymex $US/mmbtu Dec. 2012 $100.43 +$6.68 $(4.65) $102.46 $3.51 118% $4.14 2013 $97.50 +$6.68 $(4.65) $99.53 $3.99 118% $4.71 2014 $93.68 +$6.68 $(4.65) $95.71 $4.31 118% $5.09 2015 $90.75 +$6.68 $(4.65) $92.78 $4.56 118% $5.38 2016 $89.19 +$6.68 $(4.65) $91.22 $4.82 118% $5.69 2017 $88.49 +$6.68 $(4.65) $90.52 $5.11 118% $6.03 2018 $88.66 +$6.68 $(4.65) $90.69 $5.41 118% $6.38 2019 $89.00 +$6.68 $(4.65) $91.03 $5.71 118% $6.74 2020 $89.80 +$6.68 $(4.65) $91.83 $6.04 118% $7.13 2021+ $90.00 +$6.68 $(4.65) $92.03 $6.35 118% $7.491. MWSS is an abbreviation for Midway Sunset, the benchmark for California heavy oil at 13˚ API 322. SMV is an abbreviation for Santa Maria Valley crude oil at 15˚ API

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