FlatStone Energy Partners Ltd. Presentation 2015 of the LatAm Energy LP Fund, Barbados, West Indies. FEP business plan focuses on the acquisition and development of Energy Assets : Oil and Gas (“O&G”), Infrastructure (“IFA”) and Renewable (“RE”) across Latin America (“LatAm”).
1. CONFIDENTIAL NOT FOR PUBLIC DISTRIBTUION
Investing across LatAm Energy &
Infrastructure Sectors 2015-16
August 18th 2015
Argentina Barbados Canada Colombia Mexico
2. Legal Disclaimer
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disclose to any and all persons, without limitation of any kind, (i) the tax treatment and tax structure of the private investment funds discussed herein (the “Funds”) and (ii) any of their transactions, and all materials of any kind (including opinions and other tax analyses) relating to such tax
treatment and tax
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restrictions on transferring interests; high fees and expenses; and a dependence on FlatStone, which will have exclusive authority to select and manage a Fund’s investments. Prospective investors should carefully consider all risks described in the applicable PPM in determining whether an
investment in a Fund is suitable. There can be no assurance that the investment objectives described herein will be achieved. Nothing herein is intended to imply that a Fund’s investment methodology may be considered “conservative,” “safe,” “risk free,” or “risk averse.” Economic, market and
other conditions could also cause a Fund to alter its investment objectives, guidelines and restrictions. Investment losses may occur.”
Pastperformanceis not indicativenor a guaranteeof futurereturns.
Certain information contained herein may be “forward-looking” in nature. Due to various risks and uncertainties, actual events or results or the actual performance of a Fund may differ materially from those reflected or contemplated in such forward-looking information. As such, undue
reliance should not be placed on such information. Forward-looking statements may be identified by the use of terminology including, but not limited to, “may,” “will,” “should,” “expect,” “anticipate,” “target,” “project,” “estimate,” “intend,” “continue” or “believe” or the negatives thereof or
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Additional information may be available upon request.
3. Agenda
• FlatStone Energy Partners Introduction
• FEP Business Plan & Corporate Strategy
• Methodology Selection process
• Global Energy Sector Outlook
• Macroeconomic Outlook 2016-18
• Fundamentals of LatAm focus
• Oil & Gas Framework
• Infrastructure Framework
• Renewables Framework
• Management & Directors
• Next Steps
4. FlatStone Energy Partners
• Founded in 2015 as a contrarian specialist operating fund advisor for Latin American
Energy & Infrastructure sectors.
• Senior management brings over 120 yrs. of full cycle E&P expertise, from due diligence to
successful production LatAm projects valued in excess of USD$5B.
• Offering exclusive access to a pipeline of low-risk in exploration and production assets in
Argentina, Colombia, Cuba, Guatemala, Ecuador and Peru valued in excess of USD$20B.
• Proven track record of deliveries across the world, converting exploration assets
successfully into production companies.
• Access to first level government officials, regulators, and other key decision makers in the
most prolific Basins across LatAm
• Established network of relationships with global financial institutions, facilitating Co-
investment and access to capital to finance deal flow of different sizes
5. FEP Corporate Strategy
FEP business plan focuses on the acquisition and development of Energy Assets either: Oil and Gas
(“O&G”), Infrastructure (“IFA”) and/or Renewable (“RE”) across Latin America (“LatAm”).
FEP primary objective is to fund the acquisition of low risk underdeveloped producing assets in
LatAm through participation interest and finance expansion aiming at increasing Cash-flows within 36
months timeline.
FEP secondary objective is to secure a Mexican partner NOC/MSC to JV on energy opportunities
with local key partners and provide access to capital, top specialist professionals and state of the art
technologies to unlock unique projects.
FEP plans to launch three funds between Q3 2015 and Q2 2016.
I. LatAm Oil & Gas Fund 1
II. Mexico Infrastructure Fund 1
III. LatAm Renewable Fund 1
6. • A strategic vision, innovative growth-oriented energy and infrastructure Latin
American private equity operating fund.
• Opportunities across 5 complementary operating units
– Exploration & Production (E&P)
– Infrastructure projects (IFA)
– Engineering Services (EPC)
– Oil field services (OFS)
– Pipeline & Utilities (MID)
• Created from the Top-Down
– Partners’ committee decision process
– Management-operators significantly invested
– Strategic focus on sub-sector opportunity areas
FEP Corporate Strategy
7. Fund Universe
LatAm O&G
LatAm Future
Basin
• Argentina
• Brazil
• Colombia
• Ecuador
• Peru
FEP selects from portfolio of opportunities valued USD$20 B in Oil & Gas across
most prolific, economic and strategically located basins:
Fund Strategies
• Cuba
• Guatemala
• Guyana
• Mexico
LatAm Prolific
Basin
Buy Out
Growth
Capital
Special
situation
Venture
Capital
8. Fund Project
Selection Criteria
Quantitative Factors
• Probability of success (LE)
• Proven reserves in ground
• Probable proven upside
• Cost of production
• Operating cost
• Future value of CF (NPV)
• Capital expenditure
• Netbacks
Qualitative factors
• Country risk
• Resource laws
• Royalty regime
• Logistics & Infrastructure
• Organizational alignment
• Complementary skillset
• Access to human capital
• Track record of success
9. Global Energy Sector
Outlook & Strategy
• Global Energy Sector is highly correlated with commodity prices
• Consensus increased pricing for commodity $65-90 BOE Q2/16
– Speeding economic growth, North America, Core Europe and LatAm
– Current pricing does not support CAPEX required to sustain supply
– Marginal demand increase Emerging Markets (India, LatAm, ASEAN)
– Consumers adoption of new technologies (Tesla) 5-10yrs.
– Increased complexity and volatility for commodity markets.
• Strategy, to selectively allocate assets in the least correlated industries to the underlying
commodity oil, and across regional market with highest margins at current level (LatAm)
– FEP provides turn-key solution for Mexican groups seeking to enter the sector
– LatAm/Mexico E&P offer the lowest OPEX/CAPEX highest netbacks
– LatAm renewables adoption provides opportunity to grow footprints
– LatAm benefits from increasing energy sector CAPEX
10. Global Energy Sector
Outlook
The curve, terms structure and volatility of Brent futures
indicate that we are at or near the bottom of the
commodity cycle -Full cycle cost, combined with the
logistics have priced out most OPEC oil from the main
consumer market in the US.
The Iranian crude will increase OPEC output until Q2
perhaps Q3 2016. Geopolitical tensions across MENA
and social unrest in Algeria, Iraq, Libya, Nigeria and
Venezuela will result in supply balancing out.
Future Curve
Volatility Term Structure
Source: Reuters Eikon, FlatStone Energy Inc.
11. Market Indicators
Next Business Cycle
Market trends indicate risk-on and inflow of
funds into commodities asset-swap to happen
within the next 36 months. (next business
cycle)
The chart on the right shows the inverse
correlation and trade between the BRENT
crude and the USD Dollar.->
Economic expansion is evident from the
strength the World MSCI Index and the
inverse correlation to the VIX.
European and Asian QE programs will
continue to fuel moderate Volatility in the
markets. ->
Source: Reuters Eikon, FlatStone Energy Inc.
12. Macroeconomic
Global Outlook
• Developed economies accelerating economic growth, emerging markets turning the corner during
the eventual recovery and commodity super-cycle
• Financial sector deleveraging with continuous recycling of monetary stimulus across Asia, Europe
and LatAm
• Economic rotation from developed to emerging markets, increasing internal consumption of goods
and services requiring energy inputs.
• Market defense strategies at OPEC are unsustainable Saudi announced USD$40 B deficit forced to
cut CAPEX USD $100B, UAE cut gas subsidy and Ecuador selling crude 25% below cost
• Increased Geopolitical tensions across MENA due to high unemployment and budget cuts to fund
social programs across OPEC economies;
• Political dysfunction in Washington leads to shift in power towards a Republican led government
potential for tariffs and protectionist measures from OPEC strategies
• Fed announced rate increases ripple effect across the assets classes including commodities. Asset
swap USD for crude and other commodities is near.
14. European Recovery
The core European nations have begun a steady economic recovery. Expect the periphery
Eastern Europe to benefit from demand from core for durable goods such as vehicles and
commodities Oil & Gas from Russia within the next 36 months.
Decreasing European Sovereign Risk ->
Italian & Spanish 10yr Bond Yields
Source: Reuters Eikon, FlatStone Energy Inc.
15. The combination of underinvestment in the energy and infrastructure sectors across the LatAm region
and the projected demand growth driven by demographics, presents an historical opportunity for
sophisticated investors seeking predictable income and capital appreciation.
LatAm energy and infrastructure holds
the greatest potential for development
during the consolidation and expansion
phases of the next business cycle,
because:
• low cost prolific basins,
• geopolitical stability.
• access to human capital
LatAm Oil & Gas
Infrastructure
Source: Reuters Eikon, FlatStone Energy Inc.
17. Why LatAm
FEP investment thesis is that Latin America represents an attractive investment opportunity primarily due to the
following facts:
• The growing number of estate owned oil and utility companies divesting assets to focus on their core operations
providing an excellent pool of available opportunities;
• The opportunity to partner with local oil field service and engineering construction companies, that have
inherited formerly state owned assets,
• The availability of underdeveloped and underexploited small to medium sized fields, which have been divested
by large oil and gas companies due to asset rationalization and industry consolidation;
• The existence of significant numbers of underdeveloped and underexploited fields as a result of decades of
mismanagement by the National Oil Companies (“NOC’s”);
• The favorable trends across the regional economic fundamentals such as growth of middle class resulting on
increased demand for energy from demographic expansion and industry;
• The lowest cost in the Global Energy Sector over project lifecycle: Finding, development and acquisition
(“FD&A”), general administration (“G&A”) capital expenditure (“CAPEX”) and operation (“OPEX”);
• The lowest cost of transportation and access to the main consumer market of energy in the world the North
American Free Trade Area (“NAFTA”)
18. Today
Actual
LatAm
Source: TD Securities, Bloomberg, RBC GAM FlatStone Energy Inc.
20
40
60
80
100
120
Low-Cost
Conventional
Deepwater
GulfofMexico
Russia
Artic
U.S.
Shale-Oil
Ultra-
Deepwater
Oil-Sands–
SAGD
Oil-Sands-Mining
Upgrading
Oil-Sands–
Mining
BrentCrudeOilBreakevenPrice
(US$/bbl)
Russia
Kashagan
Fields
Production Cost
Region & Type
19. Oil & Gas Framework
• Focus on low risk exploration: underexploited proven reserves across prolific basins
• Geographical focus: economies of scale, lowers cost and synergies from regional footprint
• Cost control and discipline to complete the business cycle creating value at each stage
• Prioritize the use of lift-for-purpose technology to improve efficiency and create value
• Partner with top local teams of professionals preferably operating the assets, capable of getting things done in time,
utilizing modern methodologies and technology, seeking efficiencies on conventional oil
• Align management and investor interest through ownership structure and performance based compensation
• Build a lean organization with emphasis on managing the operations and expanding regional footprint
• Develop key relationships with local communities, government agencies to become the “partner of choice”
• Target selectively low-risk exploration opportunities and partner with their management
• Identify local opportunities to generate revenues locally from Natural Gas production (Colombia, Mexico)
20. LatAm O&G Fund1
Opportunities Pool
Production Low Risk Exploration P+50 Exploration & Production Other
• Cuba
• Peru
Fund Facts $100mm
Deal number: 2 to 4
Ticket size.: $30mm to 50mm
Target: Brownfield E&P
Equity: 10 to 60%
Role: Operator / Fund Mngr
Investment term: 3 to 7 yrs.
Target rate: +25% IRR
Preferred rate: 8%
Strategy:
Buyout/Growth Cap
Investment min: USD$ 1mm
Guatemala
• Colombia
• Ecuador
• Peru
21. Upstream Value Cycle
Source: E&Y Portfolio Management in O&G, FlatStone Energy Inc.
OPEC market defense strategy provides a zero
risk on commodity floor shifting X upward on
assets non-correlated to the O&G
E&P risk on pure
Greenfield
± 75% ±400 %
FEP
E&P
B.Field
± 25%
ROCE
∆ value
± 400%
22. Fund Structure
Fund Risk
• Exploration & Production Medium
• Oil Field Services Low
• Infrastructure Low
• Other Low
FEP fund asset allocation is designed to provide predictable cash-flows, low
volatility and capital growth over the time.
Fund Allocation
Oil Field
Services
Infrastructure
Upstream
Other
23. Infrastructure Framework
• Related energy infrastructure investments to create value added and generate predictable cash-flows
• Drives value creation through distinctive sourcing, deep operational engagement, and active stakeholder
management.
• Invests in core infrastructure projects with strong market positions, high barriers to entry, limited supply elasticity
and medium to long cash-flows
• Generate inflation protected income streams linked to CPI index and offering economic growth potential.
• Make strategic investments in energy related logistics and infrastructure to support low risk and steady growth
• Identify and develop key midstream and/or downstream assets which allows FEP to :
Remove bottlenecks in the life-cycle process related to logistics and market access
Become an integrated key player in the whole value chain
Achieve a higher netback for our own production
24. Mexico Infrastructure Fund
Opportunities Pool
Cogeneration CFE Midstream PEMEX Transmission CFE Other
• Pipelines
• Storage
• Cogeneration
• HVPL
Fund Facts $100mm
Deal number: 4 to 8
Ticket size.: $30mm to 50mm
Target: Greenfield/Brownfield
Equity: 10 to 30%
Role: Operator / Fund Mngr
Investment term: 5 to 10 yrs.
Target rate: +15% IRR
Preferred rate: 8%
Strategy: Buy Out/ Growth C
Investment min: USD$ 1mm
25. Renewables Framework
• Offsets carbon footprints for energy infrastructure investments to create sustainable long term value through
carbon tax credits required under new environmental regimes
• Drives organization forward through implementation of new and proven technologies, fostering positive
community value, engagement, and pro-active stakeholder management.
• Invests in projects with longer cash-flow potential and solidifies market positions, raising competitors barriers to
entry, limited supply elasticity and increasing margins from higher cost to consumer market
• Generates protected income streams through government guarantees and incentives offering lower capital cost.
• Make strategic investments in low impact energy trends mitigating risk to the infrastructure investment units.
• Identify and develop key midstream and/or downstream assets which allows FEP to :
Mitigate downside risk for life-cycle process related to market demand and trends
Become an integrated key player in the energy value chain
26. LatAm Renewables Fund
Opportunities Pool
40%
30%
20%
10%
Solar Wind Geothermal Biomass
Fund Facts $100mm
Deal number: 3 to 4
Ticket size.: $30 mm to 50mm
Target: Greenfield/Brownfield
Equity: 10 to 40%
Role: Sponsor/Fund Mngr
Investment term: 4 to 10 yrs.
Target rate: +12% IRR
Preferred rate: 8%
Strategy: Buy-out/Growth C
Investment min: USD$ 1mm
27. Leandro Carbone, Partner & CEO FlatStone E+P Management Ltd.
Mr. Carbone was formerly the CEO for Andes Energia plc. (LON:AEN) bringing over 20 years of experience in
leading Oil & Gas projects. As a founding partner of FlatStone Energy Partners Ltd. and CEO of FlatStone E+P
Management, Leandro is responsible for overall upstream strategy and operational planning for projects across the
LatAm at FEP.
Mr. Carbone successful career in Oil & Gas started at TOTAL (NYSE:TOT) where he led the Business
Development efforts for the French E&P across the LatAm, his team regional discoveries propelled the company
from a major into a super-major. Leandro extensive career in the upstream and midstream includes senior
management roles at private and public companies among them; Petrolifera Petroleum (Gran Tierra), Antrim
(TSX:AEN), Crown Point (TSX-V:CWV) and President Petroleum.
Mr. Carbone brings a solid track record of leading significant discoveries across the LatAm most prolific Basins
including Argentina, Colombia, Ecuador and Peru. Leandro has also played instrumental roles in facilitating
transactions for acquisition and divestiture strategies implemented by major public companies around the world
including Gran Tierra (NYSE:GTE).
Mr. Carbone is an executive member of the Investment Selection Committee at FEP. Leandro is a citizen of
Argentina and Italy and lives with his wife and family in Buenos Aires. Leandro holds a Petroleum Engineering
Degree from Instituto Tecnologico de Buenos Aires.
Management &
Directors
28. Edgar Bueno, Partner & President FlatStone E+P Management Ltd.
Mr. Edgar Bueno was formerly the E&P Director for Grand Vision Energy and brings almost 20 years in the
Exploration & Production. As a founding partner of FlatStone Energy Partners Ltd. and President of
FlatStone E+P Management, Edgar is responsible for developing the regional development strategy and
mapping the local exploration opportunities across the LatAm for FEP.
Mr. Bueno successful career in the upstream and midstream includes management roles at the Colombian
Environmental Protection Ministry, National Hydrocarbon Agency (ANH) and the National Oil Company
(Ecopetrol) providing insider perspective on the regulatory environment for private investors.
Mr. Bueno has an extensive track record of leading successful exploration and evaluation programs across
the LatAm most prolific basing including Colombia, Cuba, Guatemala, Ecuador, Mexico, Paraguay and
Peru. Edgar has held senior management roles at several prominent private and public companies
including Amerisur Resources Plc (AIM:AMER), Emerald Energy, PetroBras (NYSE:PBR) and Sherritt
International (TSE:S).
Mr. Bueno is an executive member of the Investment Selection Committee at FEP. Edgar is a citizen of
Colombia and lives with his family in Bogota. Edgar holds a Geologist Degree from the Santander
University in Colombia.
Management &
Directors
29. Eduardo Rodriguez Jr, Partner & President, FlatStone Energy Inc.
As founder and head of Capital Markets, Eduardo is responsible for the overall corporate, financial and investment
banking strategy for FEP. Over his 20 year Canadian business career, Eduardo has held a number of management
consulting and investment banking roles in Canada and LatAm.
Before FEP Eduardo was VP of Global Energy Markets at a boutique investment bank in Canada having worked
previously for: RBC Dominion Securities (NYSE: RY) and TD Securities “Waterhouse” (NYSE:TD). Mr. Rodriguez
is regarded as an expert on the subject of LatAm Investments, contributing regularly to leading publications on
Mexican Energy Reform.
Eduardo’s energy and resource advisory expertise includes: deal origination, due diligence, acquisition and
divestiture, financing structures, IPO’s, special purpose entities, strategic planning and takeover strategies among
other types of value added solutions to equity and debt financing in the public and private capital markets.
Mr. Rodriguez is an executive member of the Investment Selection Committee at FEP. Eduardo is a dual citizen of
Canada and Mexico living in Vancouver with his wife and family. He holds a Bachelor of Business Administration
from Universidad Ibero-Americana in Mexico, City and is a candidate to an MBA from Simon Fraser University.
Management &
Directors
30. Norman Mackenzie, Head of Advisory Board FEP
Mr. Mackenzie was formerly the Chairman of C&C Energy Canada (Now Pacific Rubiales) bringing over 40 years
of experience in leading Oil & Gas projects around the world. As the Head of the Advisory Board at FlatStone
Energy Partners Ltd. Norman is responsible for providing strategic overview and guidance to E&P projects across
the LatAm for FEP.
Mr. Mackenzie successful career in the upstream includes founding and senior management roles at several E&P
companies across the MENA and LatAm regions. Among his successes are Scimitar Hydrocarbons Ltd, he
founded and he served as Chairman from 1990 to 1995 and as a director until the company merged with Rally
Energy Ltd in 2002.
Mr. Mackenzie founded and served as director of C&C Energy Canada Ltd. from its inception in 2005 to the closing
of the IPO in 2010 and from the IPO in 2010 to 2012 as director of C&C Energia Ltd. C&C Energy Canada Ltd.
acquired by Pacific Rubiales (TSE: PRE) for USD$500 million in 2012.
Mr. Mackenzie is an non-executive member of the Investment Selection Committee at FEP. Norman is a citizen of
Canada and lives with his family in Calgary. Norman holds a B.A. in Economics and Law from The University of
Cape Town in South Africa in 1969.
Management &
Directors
31. Jonathan Brathwaite, LLB. Director & Legal Counsel FlatStone Group
Jonathan is seasoned international tax lawyer specializing cross border tax structures and advisory for
international businesses, investment funds and private clients he specializes in cross border corporate, trust and
captive insurance solutions. As well as a deep international tax law understanding Jonathan has managed
professional teams to deliver complex financing advisory. Jonathan is also Chairman of a working group, rewriting
the Barbados Mutual Fund legislation and contributing to the soon to be introduced Barbados International Stock
Exchange. Jonathan has an his LLB from University of Wolverhampton and an MSc Mathematical Finance from
University of London, Imperial College.
Colin Daniels, BBA, FCA, FCGA. Director & Financial Consultant FlatStone Group
Colin has worked in Barbados, Bermuda, Canada and the Cayman Islands. He is a Fellow of the Certified
General Accountant Association of Canada having gained his designation in 1990. He was elected to fellowship in
2004.
Previously he was board member of a Qualified Insurance Company (QIC) in Barbados and a Captive Insurance
Company in the Cayman Islands. Colin chaired both the audit and investment committees of the QIC.
Colin was Council member of the Institute of Chartered Accountants of Barbados until May 2013 and chaired the
legislative committee. Colin has served as President of CGA Bermuda, a member of the board of CGA Barbados
and member of the International Forum for CGA Canada.
Management &
Directors
32. • Project Acquisition Selection
• Focus on sub-sector growth areas E&P/FD&A
• Outsourcing opportunities inside the LatAm/Mexico
• Complementary services across energy value chain
• Turn-key provider of E&P qualification Mexico R1+
• Project Organic growth
• $30 million in combined net income across regional operations within 36 mo.
• $200 million in new capital expenditure over next 18 months
• LatAm FD&A decreases low OPEX CAPEX = Growth
• 75% creates opportunities for reinvestment
• $500+ million in Oil & Gas potential reserves in balance sheet 2016-18
• $1B+ in Mexican OFS/EPC contracts targeted for 2016-18
FEP Strategic Plan
Highlights
33. • Leading team of E&P and finance professionals with track record of delivery $5B
• Exclusive access to a portfolio of world class LatAm E&P opportunities $20B
• Turnkey solutions to challenges of the LatAm energy & infrastructure sectors
• Focused LatAm regional strategic operational plan offers:
I. Unlimited operational scalability in Energy & Infrastructure sector
II. Economies of scale and lower general admin cost (G&A)
III. Incremental operational cost savings (OPEX)
IV. Lower capital expenditure projects (CAPEX)
V. Increased operating margins E&P (Netbacks)
• Funds are designed to provide predictable income and capital appreciation.
• Lowest cost for project acquisition and development in the Western world.
• LatAm highest potential for development during the consolidation and expansion phases
of the next business cycle
Why Investing
with FEP