Intervention energy

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Intervention energy

  1. 1. EnerCom -- February 2011
  2. 2. <ul><li>IE at a glance </li></ul><ul><li>One of the largest private, non-operating E&P companies focused on the Bakken and Three Forks/Sanish resource play </li></ul><ul><ul><li>Acreage: 45,000 net (20,000 “current core ”) </li></ul></ul><ul><ul><li>Pure-play focus on acquiring Bakken and Three Forks/Sanish acreage and participating with our pro-rata working interests </li></ul></ul><ul><ul><li>We are not operators -- we simply seek to team with the best possible partners </li></ul></ul><ul><ul><li>Goal is to create a diversified well portfolio with imbedded optionality </li></ul></ul><ul><li>Founded in February 2007 </li></ul><ul><ul><li>Seed funding by five Goldman Sachs alums </li></ul></ul><ul><ul><li>Bootstrapped financing by design; no institutional funding to date </li></ul></ul><ul><ul><li>Member syndicate now ~30 friends/co-workers of seed investors </li></ul></ul>Introduction
  3. 3. <ul><li>Accidental early accretion evolving into consistent and straightforward mission </li></ul><ul><ul><li>Create and optimize lease option portfolio largely focused on Bakken and Three Forks/Sanish resource play </li></ul></ul><ul><ul><li>Arbitrage difference between inherent option value per acre and market clearing price --- public comps increasingly exploiting this ‘trade’ </li></ul></ul><ul><ul><li>Actively manage and trade assets to high grade lease ‘option’ portfolio, reducing ‘theta’ risk by getting acres under the drill bit </li></ul></ul><ul><ul><li>Identify and exploit other technology-driven, high-return opportunities </li></ul></ul><ul><li>Uniquely qualified leadership team and engaged member syndicate capable of developing a leading private non-operator in the Bakken </li></ul><ul><ul><li>Local roots and relationship network = proprietary deal flow </li></ul></ul><ul><ul><li>Deep experience in commodities, hedging and option portfolio management </li></ul></ul><ul><ul><li>Key investors and advisors are senior and prior members of: </li></ul></ul><ul><ul><ul><li>Goldman, Farallon, Ospraie, SAC, Moore Capital, TPG </li></ul></ul></ul>Introduction
  4. 4. <ul><li>Why can career traders and finance guys build out a non-op E&P company? </li></ul><ul><li>IE first and foremost manages an options portfolio that happens to be in the oil and gas space (we’re geeks, not nerds) </li></ul><ul><li>IE is a focused play on the Bakken/Three Forks - the most compelling and explosive North American oil discovery in decades </li></ul><ul><li>Technology and analytics are driving the play, not traditional oil calculus </li></ul><ul><li>The non-operator business model is highly scalable given the world-class economics and rapid development in the Bakken/Three Forks resource play </li></ul><ul><li>Pure comp NOG was the first NYSE listed company in history to reach $1B market cap with < 10 employees </li></ul><ul><ul><li>One of the most operationally leveraged (legal) business models in history </li></ul></ul><ul><li>A few smart, highly focused guys making the right decisions alongside the right capital partners can create enormous value </li></ul>Introduction
  5. 5. Williams County - Activity Explosion 10 years in 30 seconds Time lapse of oil production in Williams County Animation slowed to show dramatic expansion of footprint and production in 2009+ Source: DrillingInfo, Feb 2011 << CLICK ON THE GRAPHIC AT LEFT TO BEGIN ANIMATION
  6. 6. Company Snapshot Significant progress in 2010 Introduction *December 2010 figures represent best estimates at this time as production data lags from operators; ND production is IE estimate. -December 2011 are modeled estimates as of January 2011 and assume no further acreage acquisition and full development as currently anticipated. **HD-WOC-HBP = Acreage “Held-By-Drilling + “Waiting On Completion” + “Held-By-Production” STATIC ACREAGE ROLL FORWARD Data Point Apr-10   Dec-10 Dec-11 IE Total Net Acres Leased (ND/MT) 31,000   45,000 45,000 Net 'Core' Bakken/Three Forks Acreage 11,000 17,000 17,000 Gross Producing Wells 6 30 200 Net Producing Wells 0.15 0.73 8.20 Daily Production (BOEPD)* 30 275 1,600 Annualized EBITDAX ($80/bbl wellhead) $7.7mm $44.9mm Acres HD-WOC-HBP** 131 1,730 9,500 ND Daily Production (BOEPD)* 285,000 350,000 ND Rig Count 107 160
  7. 7. Downspacing <ul><li>BEXP (and others) have shown that multiple wells can be drilled in close proximity without adversely affecting neighboring well performance </li></ul><ul><li>Increased frac stages by the same operator in side-by-side wells also demonstrate the clear correlation between frac count and well production </li></ul><ul><li>BEXP has commented that frac stages cost $80k but currently add ~20k BOE in P1 reserves at a cost of $4/BOE >> Frac stages likely to increase </li></ul>Investment Highlights
  8. 8. Unit Economics <ul><li>Unitization creates leverage for IE -- we enjoy the benefits of partnering with major operators simply by sharing acres in a legally defined drilling unit </li></ul>Investment Highlights BEXP’s Heen 26-35H Well Drilling unit = 1,280 acres Wellhead IE lease covers 80 net acres 80 / 1280 = 6.25% of unit Bakken development is within drilling units established by the state of North Dakota. As long as you have leased acreage within a drilling unit, you participate in the well with all other leased interests on a pro-rata basis . As a leasehold owner of 6.25% of the drilling unit (the “working interest”), IE will pay for 6.25% of all related drilling and development costs of the well and get 6.25% minus royalties related to the IE lease of all future revenues from this well and any others drilled within the unit and zone . CRITICAL POINT: Once a unit becomes HBP, it creates a 30+year, zero cost option for IE to participate pro rata in future activity (surface to basement)
  9. 9. Unit Economics <ul><li>The Heen 26-35 1-H Well is a solid performer, with a peak 24hr IP of 3,425bbl and 2,194 MCF </li></ul><ul><li>Initial 28d production = 32,581 BBLS Oil or 1,163/day (excludes 1/6 * 25,865 MCF Gas = 154 BOE/day flared) </li></ul><ul><ul><li>Gross economic value of first two months oil production: ~$4.0mm </li></ul></ul>Investment Highlights STATISTICS AND INITIAL PRODUCTION FOR HEEN 26-35 WELL ( source: NDIC) Notable sidebar: BEXP flared approximately $300k in gas during its first two months of production. Improved infrastructure will allow even more efficient capture of this valuable byproduct
  10. 10. Unit Economics <ul><li>Groundwork is already being laid to take advantage of downspacing </li></ul>Investment Highlights Based on current estimates, downspacing appears to be an effective strategy of better draining the reservoir
  11. 11. Unit Economics <ul><li>Cash-on-cash analysis for IE’s participation in the Heen Well, based on BEXP estimated EUR and typical decline curve </li></ul><ul><li>Initial economics are highly compelling with unlevered IRR of 53% </li></ul><ul><li>Additional well (with no lease cost) shows an unlevered IRR of 89% </li></ul><ul><ul><li>No capital is required from IE until future wells commence </li></ul></ul><ul><ul><li>Technology advances should improve future well F&D costs </li></ul></ul>Investment Highlights Projected Unit Economics for actual IE position in Heen Well Projected Unit Economics for IE option on additional Heen wells
  12. 12. <ul><li>In IE’s core counties, max average monthly oil production has increased with strong regularity, showing a 5-yr CAGR of 44% or roughly 230bbls per month </li></ul>Technology As A Driver Investment Highlights 2010 2009 2008 2007 2006 Collapse of global markets forced temporary pullback in capex and production in 2009 Source: DrillingInfo, Feb 2011, based on composite results of all 2,036 wells drilled in core counties during prior 60 mos Dramatic improvements in technology may be driving even more significant results
  13. 13. Compelling Returns <ul><li>Outstanding unlevered returns can be generated by the ‘mean performer’ 1,280 acre Bakken well, where the tech-driven current average 30d IP is1,025bbl/day (source: Seeking Alpha research) </li></ul><ul><li>As shown below, compelling unlevered returns are available well above the current ~$1,500 per acre clearing price </li></ul><ul><li>HOWEVER, given the high probability of future downspacing in most units, any analysis must include a blending of returns generated by subsequent wells in a given unit (yellow shading below) once it becomes HBP for 30+ years </li></ul>Investment Highlights
  14. 14. Partner Profile <ul><li>IE has diversified holdings among the top operators in the Bakken </li></ul><ul><li>70% of acres are operated by 5 Bakken heavyweights (BEXP, Hess, Oasis, Continental & Whiting) </li></ul>Non-Op Portfolio Diversification
  15. 15. Lease Expiration IE Options Portfolio Mentality Drilling pipeline / HBP acreage already represents nearly 2,700 net acres We add approximately 175 net acres to HBP per week Expected actual expiry during 2011: 850 acres (<2%), nearly all non-core
  16. 16. <ul><li>Rather than chase ‘hot’ properties, IE has historically targeted out-of-the-money lease options with high likelihood of flipping to HBP </li></ul>Lease Acquisition Cost IE Metrics $1,000 per acre lease parity cost line $2,000 per acre lease parity cost line Gross lease price paid Net lease acres acquired Year of lease expiry
  17. 17. IE Comps Validate Non-Op Model     Total Bakken Wells   Net Bakken   Date Gross Net Net BOEPD Acreage Mkt Cap NOG 122,000 $1.62 BIO   End 2010 300+ 3,670     End 2011 8,200   ( GHS estimates for YE 2010 & 2011 BOEPD) VYOG         24,000 $238 mio   End 2010 15 0.48 200     End 2011 35 6.5 2,150   (Company estimates for gross/net wells; GHS for BOEPD estimates) TPLM         13,000 $165 mio   End 2010 3 0.46 29     End 2011 20 5.3 500   Company estimates for gross/net wells; Canaccord for BOEPD est (assumes 3.1 net completed) ANFC         3,700 $44 mio   End 2010 4 0.02 3     End 2011 n/a n/a n/a   Company estimates for gross/net wells; IE est on 2 producing wells   IE         20,000 n/a   End 2010 30 0.73 275     End 2011 200 8.2 1,600   Company estimates for gross net/net wells & BOEPD estimates
  18. 18. Capital Markets Activity <ul><li>Non-op public comps recognize the critical role of dry powder and have actively tapped the public markets throughout the prior year. Market reception has been strong as the investing public has come to embrace the Bakken-focused non-op model. </li></ul><ul><li>Investors have rushed to grow their positions in the smaller, more rapidly expanding names in particular; both VYOG and TPLM have seen ~300% market cap increases in less than 12 months. </li></ul>Comparable Companies Firm Date Type Synopsis           Mkt Cap % CHG NOG 4/15/2010 Equity Offering $82.6 mio (750k share over-allotment) at $15.00/share   $725 mio     6/1/2010 Debt Financing Moved revolver to Macquarie from CIT     -Borrowing base minimum $25 mio; maximum $100 mio     11/18/2010 Equity Offering $201 mio raised (1.34 mio share over-allotment) at $20.25/share     2/4/2011 Closing Price  $26.76           $1,620 mio 123% VYOG 4/16/2010 Reverse Merger VYOG evolves out of ANTF (formerly World Poker Tour) $63 mio     9/23/2010 Debt Financing $15 mio senior secured notes (2-yr max term) at 12%   2/1/2011 Unit Offering $50mm units; 1 common share, ½ warrant at 50% premium     2/4/2011 Closing Price  $5.24           $238 mio 278% TPLM 3/11/2010 Private Placement $9.24 mio via 28 mio shares at $0.33/share     $41 mio     7/30/2010 Private Placement $0.88 mio via 2 mio shares at $0.43/share     8/10/2010 Equity Offering Announces $50 mio equity offering     11/4/2010 Equity Offering $62.6 mio raised (1.62 mio share over-alloment) at $5.50/share     -Offering coincided with reverse 1-for-10 stock split   1/31/2011 Shelf Filing $300 mio mixed shelf filing   2/4/2011 Closing Price  $7.32           $165 mio 302% ANFC 12/20/2010 Private Placement $11 mio raised (1 mio share over-allotment) at $1.00/share       2/4/2011   Closing Price $1.65           $44 mio  
  19. 19. Views on the Future <ul><li>“ Expanding the Edges” </li></ul><ul><li>Land rush is really a drilling/HBP stampede </li></ul><ul><li>AFE Adversity / Opportunity </li></ul><ul><li>Top Lease Wedges </li></ul><ul><li>Technology Transfers – don’t forget ‘oil is where you find it’ </li></ul><ul><li>Continuing Consolidation </li></ul><ul><ul><li>Acreage and opportunity scarcity </li></ul></ul>What We’re Watching… <ul><li>Spearfish </li></ul><ul><li>Tyler </li></ul><ul><li>Madison 3.0 </li></ul><ul><ul><li>Original Vertical Holes </li></ul></ul><ul><ul><li>Vertical Infill w/ Waterfloods </li></ul></ul><ul><ul><li>Horizontal Infills w/ advanced bits and steering ability </li></ul></ul>Bullish on the Basin… It’s Not Just The Bakken <ul><li>Flaring – currently 25% of daily production </li></ul><ul><li>Take-away Capacity -- Doubts and Differentials </li></ul><ul><li>Water – Forget about whiskey </li></ul><ul><li>Frac’ing – Supply and Suspicion </li></ul>Challenges
  20. 20. What’s next for Intervention Energy? <ul><li>Anticipating $40mm - $50mm in AFE’s during 2011 </li></ul><ul><li>Looking at ~1,600 boepd by FYE 2011 </li></ul><ul><ul><li>Annualized Dec 2011 EBITDAX of ~$45mm </li></ul></ul><ul><ul><li>With a bit of hard work, good luck and great partners, we can become a ‘real company’ by this time next year </li></ul></ul><ul><li>Actively exploring financial alternatives </li></ul><ul><ul><li>Considering potential partnership(s) with large balance sheets </li></ul></ul><ul><ul><li>Always open to making new friends </li></ul></ul><ul><li>Our goals </li></ul><ul><ul><li>Continue to build the leading private Bakken-focused non-op company </li></ul></ul><ul><ul><li>Optimize alternatives and outcomes for our investors </li></ul></ul><ul><li>More info on us at: www.interventionenergy.com </li></ul>

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