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October - Corporatre Presentation
 

October - Corporatre Presentation

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Western Oil Sands October 2006 corporate presentation

Western Oil Sands October 2006 corporate presentation

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    October - Corporatre Presentation October - Corporatre Presentation Presentation Transcript

    • This is Western Oil Sands Corporate Presentation October 2006
    • Caution to the Reader
      • The following discussion may contain forward-looking information, including information relating to reserves and resource estimations, production estimates and Western's future development and expansion plans. Forward-looking information typically contains statements with words such as “anticipate”, “estimate”, “expect”, “potential”, “could”, or similar words suggesting future outcomes. We caution readers and prospective investors of the Company’s securities to not place undue reliance on forward-looking information as by its nature, it is based on current expectations regarding future events that involve a number of assumptions, inherent risks and uncertainties, which could cause actual results to differ materially from those anticipated by Western. These risks include, but are not limited to, risks associated with the extraction, treatment and upgrading of mineable oil sands deposits; size and scope of expansions; risks surrounding the level and timing of capital expenditures required to fulfill the Project’s growth strategy; risks of financing these growth initiatives at commercially attractive levels; risks of being unable to participate in expansion and corresponding loss of voting rights in the AOSP; risks relating to the execution of the Project's optimization strategy; risks involving the uncertainty of estimates involved in the reserve and resource estimation process, uncertainty in the assessment of asset retirement obligations, uncertainty in the estimation of future income taxes, and uncertainty in treatment of capital for royalty purposes; risks surrounding health, safety and environmental matters; risk of commodity price and foreign exchange rate fluctuations; risks and uncertainties associated with securing the necessary regulatory approvals for expansion initiatives; risks surrounding major interruptions in operational performance together with any associated insurance proceedings thereto; and risks associated with identifying, negotiating and completing our other business development activities, both those that relate to oil sands activities and those that do not, either domestically or abroad. Risks associated with our international initiatives include, but are not limited to, political and economic conditions in the countries in which we intend to operate, risks associated with acts of insurgency or terrorism, changes in market conditions, political risks, including changes in law or government policy, the risks associated with negotiating with foreign governments and risks generally associated with international activity.
    • A Clear Vision
      • To create shareholder value through opportunity capture and development of large, world-class hydrocarbon resources.
    • Strategies in Focus
      • Primary focus: Deliver on operational excellence from existing assets and on the expansion plans of the world-class Athabasca Oil Sands Project
      • In-situ development utilizing technology enhancements
      • Evaluate and pursue various downstream initiatives to further upgrade heavy oil products
      • Kurdistan exploration program
      Relentless Drive for Creating Shareholder Value
      • 2 trillion barrels in place
      • 300 billion barrels recoverable
      • Approximately 60 billion barrels recoverable through surface mining
      • 9.7 billion barrels mineable on Western/Shell/Chevron leases
      Fort McMurray Edmonton Calgary A World-Class Resource Source: AEUB
    • Long Life Reserves (million bbls) Reserves Discovered P & P Resources Western Muskeg River Mine 1,551 - 310 Lease 13 (remainder) & 90 - 5,281 1,056 Lease 88 & 89 - 2,038 407 Lease 9 & 17 - 899 180 Total 1,551 8,218 1,953
    • Athabasca Land Position Existing AOSP (pre-2005): 110,522 Chevron Leases: 75,000 (unevaluated) Shell Leases Acquired in 2005: 90,144 (unevaluated) Western Lease: 8,225 (unevaluated) Total: 283,891 acres or 60,067 acres net to Western Mining Mining In-situ In-situ (Acres)
    • Athabasca Oil Sands Region Athabasca Oil Sands Project Leases acquired in 2005 – to be evaluated In-situ Lease – Western-operated Ells River Project
    • Muskeg River Mine
    • Production vs. Unit Cash Operating Costs (thousands of bbls/d, net to Western) $25.44 $20.58 $19.38 $26.12 $22.06 $20.71 $21.17 $23.44 26.5 33.0 32.8 25.9 32.0 23.6 27.1 35.6 (operating costs: Cdn$/processed bbl) For sensitivities on 2006 guidance see supplementary information 15.5
    • 2006 Guidance
      • Production: 26,000 to 27,000 bbls/d
      • Capital Expenditures: $250 million
      AOSP Growth: $137 million Business Development: $42 million AOSP Base Project Improvement Capital: $71 million
    • Continuous Expansions Muskeg River Mine
      • Three mining expansion phases of 100,000 bbls/d each
      • First bitumen production from Expansion 1 anticipated in 2010
      • 100,000 bbls/d net to Western in 8 to 10 years from evaluated lands
      • Undeveloped acreage acquisitions could support subsequent expansions
      Athabasca Oil Sands Project Leases acquired in 2005 – unevaluated In-situ lease – Western operated Fort McKay Lands
    • Production Ramp-up - Western’s share MRM Current Operations + Production Optimization Initiatives MRM Expansion 1 MRM Expansion 2 MRM Expansion 3 (thousands of bbls/d) Western Potential Share > 100,000
    • Production Growth – Mining and In-situ Base > 100,000 bbls/d 150,000 to 200,000 bbls/d Expansions 1 to 3 Western’s share of production Expansions 4 to 6 and in-situ Today +5 +10 +15
    • Scotford Upgrader
    • Modeling Assumptions – Expansions WTI $55 $65 Strip Production (mbbls/d) 100 100 100 Capital Expenditures* Expansion #1 (Cdn$/annual bbl) 200 250 300 Operating Costs (Cdn$/bbl) $18 - $20 $19 - $21 $19 - $23 FX (US/Cdn) $0.84 $0.88 $0.88 Production Enhancements 3% compounded increase in expansion volumes for first 10 years * $Cdn/annual barrel of production. Estimates currently under review by AOSP Project team in light of current market conditions.
    • Strategic Risk Management Activities Put options purchased (bbls/d) 20,000 20,000 20,000 Avg. put strike price (US$/bbl) 52.50 54.25 50.50 Call options sold (bbls/d) 10,000 15,000 15,000 Avg. call strike price (US$/bbl) 92.50 94.25 90.50 2007 2008 2009 Period
      • Western has insulated itself, to a large extent, from commodity price volatility during the 1st expansion construction period
      • Average cost of program is US$3.74 per put bbl – payment is deferred until the applicable option period
      • Strategic risk management activities continually under evaluation
    • Expansion Financing Capability Debt to Total Cap Ratio (%) Debt Usage (millions)
      • Assumptions:
        • Heavy diff. 30%, NG 6.5:1, Includes hedging program
        • *See supplementary information for strip pricing detail
      Debt Usage - $55 WTI Debt to Total Cap - $55 WTI Debt Usage - $65 WTI Debt to Total Cap - $65 WTI Debt Usage – Strip WTI (as at July 5*) Debt to Total Cap – Strip WTI (as at July 5*)
    • Net Asset Value per share (Cdn$/share) NAVs represent year ending figures
      • Assumptions:
        • Pre-tax NAV’s
        • Discount rates: 8% base operation, 10% expansions
        • 1% return on cash balances
        • Heavy diff. 30%, Natural Gas: 6.5:1
    • Natural Gas (Cdn $/mcf) -$0.10 +$0.10 Sensitivity Analysis: NAV per share Steady State, Strip WTI (July 5*) WTI (US $/bbl) FX (Cdn/US) Variable Opex per barrel (Cdn $) -$1.00 +$1.00 +10% -10% -$0.10 +$0.10 -$0.01 +$0.01 Expansion Capex (Cdn $) * See supplementary information for strip pricing detail
    • Strategies in Focus
    • In Focus: In-Situ/Technology
      • Technology and cost structure for in-situ is different than a bitumen mining operation – requires a different business model
      • Unlock potential of in-situ through technology differentiation
      • Continue to make prudent and systematic business decisions to add to our asset base over time
    • In Focus: Downstream Integration
      • Continue to evaluate various downstream initiatives to integrate existing and future production – both mineable and in-situ
      • Full integration to upgraded and refined products
      • Continue to assess downstream options including further blending and refining
      • Reduce impact of heavy to light differentials
      • Full service marketing department
    • Kurdistan Oil Opportunity
    • The EPSA
      • Initial four-year work commitment
      • Minimal contractual commitment - US$45 million over first four years
      • Geological, geophysical and seismic programs
      • Exploratory drilling commitments
      • Exploration success provides development opportunity to optimize structure and add significant reserves
    • Why Kurdistan?
      • Aligns with our vision and growth strategy
      • Low cost, early entry opportunity
      • Highly prospective exploration area
      • High-quality, low-cost, long life reserves
      • Large, undeveloped, unexplored resource base
      • Potential to provide Western with another world class asset
      • Opportunity to create further significant shareholder value
    • Kurdistan: A Unique Opportunity Source: 2004 Arab Oil & Gas Directory
      • Numerous undeveloped large fields and unexplored areas
      • Proven oil reserves: 115 billion barrels (approx. 75 billion barrels undeveloped)
      • Proven and probable reserves up to 220 billion barrels
      • Natural gas reserves: 110 tcf
      • 73 oil fields discovered, only 15 have been brought into production
      • Established oil export routes: to Mediterranean via Turkey, directly to Persian Gulf
    • EPSA Contract Area With Neighboring Fields
      • EPSA area: approximately 3,700 square kilometres, offsetting discovered fields
      • Common surface oil seeps and large structures
      • Multiple other large geological features have been identified
      • Risk adjusted potential for EPSA area is approximately 1.7 billion barrels of oil equivalent
    • Initial Seismic Program
    • Potential Net Asset Value per Share – Example Only (Cdn$/share)
      • Assumptions:
        • Pre-tax NAV’s, year-end value
        • Capital intensity - $300/annual barrel on AOSP expansions
        • Discount rates: 15% on Zagros Initiative
        • 1000 MMbbl field, max producing 230 mbbls/d
    • Next Steps
      • EPSA signed by Kurdistan Regional Government in Suli
      • Unified government to ratify EPSA
      • Field programs planned and underway including seismic
      • Drilling to commence within 12 months
    • It’s All About Creating Shareholder Value
      • AOSP is our primary asset and core focus
      • AOSP expansions and development of the growing resource base of mineable lands
      • Significant upside potential with in-situ oil sands
      • Pursue technology initiatives to unlock additional value
      • Downstream integration to increase product yield
      • Kurdistan exploration program
    • Offering investors a combination of assets and management capable of delivering exceptional shareholder value and sustainable growth. www.westernoilsands.com
    • Expansion 1 Update
      • Extensive assurance processes
      • Strong owner presence team
      • Substantially higher escalation and contingency factors
      • Scope enhancements to increase reliability
      • Continued capital cost pressures due to heated market environment
      • Seek Board approval for first mining expansion phase in late 2006
    • Expansion 1 – Path Forward 2006 2007 2008 2009 2010 Project Timeline Upgrader Hearing Mine Expansion Hearing FID Commissioning & Start-up
      • Jackpine Mine regulatory approval in place
      • Significant construction activities underway by early 2007
      • Purchasing of long lead time items underway
    • July 5 th Strip WTI
    • 2006 Sensitivities Impact on Cash Flow Annual ($ millions) Per share ($ basic) Change Impact on Earnings Annual ($ millions) Per share ($ basic) * Western’s share: increase of 1,000 bbls/d (Project share, AOSP = 5,000 bbls/d increase) Sensitivity Case 0.86 10.02 21.75 56.00 30,000 - 0.12 0.04 5.93 US/Cdn 0.01 Foreign Exchange - 0.40 - 0.60 $0.10/Mcf Natural Gas Price 0.05 7.36 0.07 10.97 $1.00/bbl Non-Gas Operating Costs 0.04 6.87 0.06 10.25 US$1.00 Oil Price 0.07 11.90 0.12 19.49 1,000 bbls/d * Production
    • Insurance Update
      • Coverage
        • Delays in achieving guaranteed production levels
        • Coverage included: loss of revenues, expenses for equipment modification, repair/replacement of equipment, debt service, cost overruns
      • Claim status: Cost Overrun & Project Delay
        • $200 million policy limit
        • Claimable amounts exceed $500 million
        • Main arbitration hearing scheduled expected to occur in 2007
      • Fire & Freeze Damage and Loss of Profits – Joint Venture
        • Western received $19.4 million from certain Section III insurance underwriters
        • Western is attempting to finalize a contingent settlement for $24.6 million from insurance underwriters that also subscribed to Section IV
      • Total amounts claimed by Western approximate $244 MM
    • Operating and Financial Results Three Months Ended June 30 2006 2005 - 34,899 Turnaround Costs 810,214 661,499 Long-term Financial Liabilities (12,900) 55,828 Net Capital Expenditures 0.18 (0.14) Net Earnings (Loss) per share (basic) ($/share) 28,650 (22,787) Net Earnings (Loss) 0.42 (0.13) Cash Flow per share (basic) ($/share) 68,019 (20,833) Cash Flow 84,063 (8,199) EBITDAX 148,167 95,633 Net Revenue Financial ($thousands, except as indicated) 44,503 22,614 Synthetic Crude Sales 32,757 15,540 Bitumen Production Operating (bbls/d)
    • Balance Sheet ($ thousands) As at June 30, 2006 As at Dec. 31, 2005 Current Assets 78,087 123,426 Capital Assets 1,428,355 1,352,605 Deferred Charges and Other 14,783 16,063 1,521,225 1,590,520 Current Liabilities 143,965 104,699 Long-term Liabilities Debt 532,750 565,655 Other 171,309 206,764 Shareholders’ Equity Share Capital 551,742 548,747 Contributed Surplus 4,640 3,474 Retained Earnings (Deficit) 116,819 161,181 1,521,225 1,590,520