Forward Looking Statements

Corporate Presentation September 2011 1 Forward Looking Statements This presentation includes forward-looking statements, which are statements othe...
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Corporate Presentation September 2011

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Forward Looking Statements This presentation includes forward-looking statements, which are statements other than of historical fact, such as information regarding drilling potential and production forecasts. Factors that could cause actual results to differ materially from our expectations include exploration and development risks, commodity prices and operating hazards. A barrel of oil equivalent (boe), derived by converting gas to oil in the ratio of six thousand cubic feet of gas to one barrel of oil, may be misleading, particularly if used in isolation. A boe conversion is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. This slide is limited as to space in order to be readable if projected. Please review detailed risks and limitations statements at the end of this document.

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Board of Directors Dwayne Warkentin: President and Chief Executive Officer, Director Anthony J. Potter: Vice President Finance and Chief Financial Officer, Director _____________________________________________________________________ Ray Smith:

Chairman, Madalena Ventures Inc. and President and CEO, Bellatrix Exploration Ltd.

Barry Larson:

VP and COO, Parex Resources Inc. (formerly Petro Andina)

Michael J. Lock:

President, Upsilon Holdings Ltd.

Keith Macdonald:

President, Bamako Investment Management Ltd.

Jay Reid:

Partner, Burnet, Duckworth and Palmer LLP

Ving Woo:

Vice-President, Engineering and COO, Bellatrix Exploration Ltd.

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Madalena – TSXV (MVN) •

Corporate – No debt – Strong balance sheet – 260 MM common shares outstanding – basic – 273 MM fully diluted



Valued Asset Base – Focused exclusively on the Neuquén Basin, Argentina – Large acreage blocks close to key infrastructure – Mix of conventional and non-conventional targets – Lower risk development – high impact exploration – Strategic alliances

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Madalena in Argentina Know-How Canada Argentina International High Impact Multi-Targets

Prime Acreage

Conventional O&G Unconventional O&G Multi Stage

12 Twp’s Neuquén: I. Coiron Amargo II. Curamhuele III. Cortadera

Development Exploitation Exploration 5

Argentina Neuquén Basin • Source of 50% of country oil and gas production • Extensive pipeline and facility infrastructure • Highly developed service industry • Industry receptive Provincial Government • 3 prospective blocks acquired by Madalena in 2007 (280,000 acres gross, 135,000 net): COIRON AMARGO (35%) CURAMHUELE (90%) CORTADERA (40%)

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Neuquén Basin Established Infrastructure •

Established oil and gas pipeline network



Capacity available within existing network



Major center for services



Strong candidate to be one of the first major non-conventional resource areas to be developed outside North America



Madalena’s acreage located in both oil and gas window close to major pipelines and facilities

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Neuquén Basin Acreage •

Madalena active in the region since 2007



Exploration block 2007-2008 awards w GPN



Exploration block 2009-2010 awards w GPN



Exploration block Federal & Provincial



Exploitation block Federal & Provincial



Majors actively moving into Basin via farm-in to secure non-conventional acreage

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Madalena Opportunities Neuquén Basin

ve o r yP

La

r rge

Trapped Reservoirs • • • •

S. Blancas O&G L. Troncoso O&G Avile O&G Lotena Gas

Conventional Oil and Gas

V

s, e m olu

• • • • •

w Ne

e

n ni

N

rica e m .A

log o chn e rT

Mulichinco Gas Lotena Gas Quintuco Oil L. Agrio Oil Lajas Gas

Tight Sands

Source & Reservoir

• Vaca Muerta Oil • Vaca Muerta Gas

Shale Oil and Gas 9

Neuquén Basin Cross Section

S Gas

S

Oil

S

S Source Shales

Oil

Gas

Oil and Gas

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Vaca Muerta Shale Neuquén Basin

Major source (“Kitchen”), for Hydrocarbons in the Neuquén Basin: • Thickness: From 50-100m in the east to 500m thick in the west • Total Organic Carbon (TOC) excellent from 2-7% • Maturation window with oil in the east to gas in the west. (9,000 km2) • Focus of recent major company growth prospects • Curamhuele and Cortadera in thick gas fairway w/Apache, Exxon, YPF, Total • Coiron Amargo Block in rich oil window

Gas Prone

Oil Prone

Block I: Coiron Amargo 156 Sections

1. Conventional: • •

Sierras Blancas Light Oil & Gas (8+ structures identified) Lotena Gas (Gas Pools on east and west sides of block)

2. Tight Sands: • •

Quintuco (oil shows on block, producing pools nearby) Lajas (gas prone deep zone)

3. Shale Oil: • •

Vaca Muerta (110 – 150 m thick oil saturated section over entire block) Adjacent to YPF shale oil discovery (YPF est. technically recoverable resources of 150 million boe *)

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Block I: Coiron Amargo Land area: 100,077 acres or 405 km² (156 mi²) •





Primary zones: - Sierras Blancas light oil - Vaca Muerta shale oil Secondary zones: - Lotena fractured gas - Quintuco oil potential

Borde Mocho Sierra Blancas 3 MM boe Borde Montuos Sierras Blancas 12 MM boe Bandurria Quintuco Disc 2 MM boe

High working interest: 35%



High productivity wells offsetting Coiron Amargo Vaca Muerta producing discoveries on offsetting blocks.

Charco Bayo Sierras Blancas 300 MM boe Loma Jarillosa Sierras Blancas

311 boepd

Close proximity to prolific oil and natural gas pools following fault structure





Entre Lomas Quintuco

560 200 boepd boepd

240 boepd

Charco del Palenque Sierras Blancas Disc La Jarilla Loma Montosa 6 MM boe Puesto Silva Oeste Lotena 1 MM boe

337 boepd

643 boepd 216 boepd

Loma De La Lata Sierras Blancas 1,700 MM boe Lindero Atreves Lotena 35 MM boe

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Block I: Coiron Amargo

Conventional: Sierras Blancas/ Lotena •

Five Sierras Blancas structures drilled to date



100% drilling success rate



Development a combination of vertical and horizontal wells: 30 - 40 well development



Gathering facility to be constructed in northern portion of block

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Block I: Coiron Amargo Conventional Sierras Blancas Sierras Blancas Horizontal Wells Average Production Profile Coiron Am argo Area OIL 37 API, Average GOR 1,400 scf/bbl 800 Est imat ed Recovery: 600 mboe/ well

700

T o p Q ua rt ile H . We ll; IP 7 0 0 bo pd:

Y e a r 1: 16 5 m bbls , Y e a r 2 : 7 0 m bbls

600 500

400

300

200 100

A v g H . We ll; IP 4 7 0 bo pd:

Y e a r 1: 10 5 m bbls , Y e a r 2 : 5 5 m bbls

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

M o nt hs Avg /H-well

Top Quartile

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Block I: Coiron Amargo Vaca Muerta Activity in Shale Oil Window •

Madalena has drilled 5 wells into Vaca Muerta formation



VM formation 350 – 475 ft thick with hydrocarbon indications from each well



CAS X-1 well flowed without any fracture stimulation treatment



CAS X-1 well to be fracture stimulated using 3 stage frac



YPF Loma La Lata block vertical 30 day IP rates of 200 to 640 boepd



YPF est. technically recoverable resources of 150 million boe * from 330 km2 area

311 boepd

CAN X-1 to 4

200-640 boepd 337 boepd CAS X-1

216 boepd

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Block I: Coiron Amargo Shale Oil: Vaca Muerta Logs

Drilling log from CAN X-2 well: • 115 m gross thickness • 40 m high grade Characteristics: – – – – – –

High GR High resistivity Good SP Response Over-Pressured Excellent oil shows while drilling TOC 7%, Type II

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Shale Oil: Vaca Muerta Production Vaca Muerta Vertical Producer IP 480 BOPD, Cum to Date 720,000 BBLS OIL (10 km North of Coiron Amargo) 800

300

250

40m Thick High Grade Section

700

200

400

150

300 100 New Operator

200

50 100 Acidize and Fracture Stimulate

-

19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10

BOPD

500

Cumulative Oil mbbls

600

bopd

Cum mbbls

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Block II: Curamhuele 88 Sections

Land area: 56,000 acres or 227 km² (88 mi²)

1. Conventional: • •

Yapai X-1001: L. Troncoso and multiple stacked Avile formations to be tested L. Troncoso and Avile: Previous oil tests on block

2. Tight Sands: • •

L. Agrio: Existing oil well on block Mulichinco: Existing gas well on block, large trend in area

3. Shale Gas: •

Vaca Muerta: 200 – 400 m over block, majors have entered surrounding blocks

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Block II: Curamhuele & Block III: Cortadera Conventional Formations Troncoso

12-28 MMbbls OOIP*/Section

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Eolian

25 Porosity (%)

Troncoso – Eolian: • Avg. 18 m thick • Porosity: 10-22% • Perm up to 550 md • Thickness can double

Fluvial

20 15 10 5 0 1

3

4

5

6

7

8

9

10 11 12 13 14 15

Avile

7-22-66 MMbbls OOIP*/Section

30 25 Porosity (%)

Avile - Eolian: • 10-35 m thick, average 18 m. • Porosity: 10-27% • Perm up to 1800 md

2

20 15 10 5 0 1

2

3

4

5

6

7

8

9

10

11

12

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Block II: Curamhuele & Block III: Cortadera Tight Sands Mulichinco 30

25-60 BCF OGIP*/Section

25 Porosity (%)

Mulichinco-Alluvial Fan: • 30-50 m thick • 200 m gross in stacked sequences • Porosity 5-7%, fracture perm • Yapai X-1 liquids rich gas well • Cortadera CorS X-1 will test zone • Est. >25+ BCF OGIP*/ Section

20 15 10 5 0 1

2

3

4

5

Lower Agrio: • Shallow marine formation • 100+ m gross thick • Porosity 4-7%, fracture perm • Curamhuele X-1 light oil well

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Block II: Curamhuele - Yapai X-1 Mulichinco Tight Gas Volcano

Filo Morado Facilities

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Block II: Curamhuele Thrust Play Targets: L. Troncoso/Avile/Mulichinco Yapai X-1001

Existing Yapai X-1

NW

SE 1000 0 Upper Tro ncoso

Rayoso Eva porites Lower Tron coso Upper Agrio Avile

Lower Agrio

‐1000 ‐2000

Mulichinco Vaca Muerta

‐3000 ‐4000 ‐5000 23

Block II: Curamhuele Thrust Play Type Wells Curamhuele Thrust Play Average well Production Profile Estimate Filo Morado, (1987) Cumulative Prod 32 mmbbls oil, 170 bcf, 4 mmbbls NGL's= 64 mmboe

38 API Gravity excl NGL 1,800 1,600

Top Qtl Well Avg: IP 2,080 BOPD, 2,150 mbbls Oil, Gas 10 bcf. 1.4MMBOE first 3 years 1,400

Average Well: IP 1,130 BOPD, 950 mbbls Oil, 5 bcf, 0.8 MMBOE first 3 years

BOEPD

1,200 1,000 800 600 400 200 1

2

3

4

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20

Years Top Qtl boepd

Avg boepd

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Block III: Cortadera 193 Sections

Land area: 124,000 acres or 500 km² (193 mi²)

1. Conventional: •

L. Troncoso and Avile: Field work shows very good thickness and reservoir quality in area outcrops

2. Tight Sands: •

Mulichinco: gas tests offsetting block

3. Shale Gas: •

Vaca Muerta: majors have entered surrounding blocks

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Block III Cortadera: CorS X-1 Location Tight Gas and Shale Gas

CorS X-1 well cased targeting both tight gas and shale gas • Primary targets: – Mulichinco: 206m thick – Vaca Muerta: 708m thick • Secondary targets: – Quintuco: 617m thick • Thrust play well with conventional O&G and tight gas targets yet to be drilled

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Block II: Curamhuele & Block III: Cortadera Vaca Muerta Shale Gas • • • • •

Hydrocarbon thickness: 50-300+m Porosity: 4-7% Cortadera CorS X-1 to test Vaca Muerta Area of near term resource drilling N. American examples: – Horn River (150m thick, > 3-7% poro, 150-300 BCF OGIP*/Section) – Barnett (100-300 BCF OGIP*/Section) – Marcellus (50-100m thick, 6% poro, 70-150 BCF OGIP*/Section)

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South America

Technically Recoverable Shale Gas Resources

Source: EIA World Shale Gas Resources, April 2011

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Unconventional fields: Neuquén's potential

Shale gas world class targets Haynesville Lithology

Siliceous Marl

Average Mature TOC (%)

3 to 4%

Barnett

Marcellus

Woodford

Vaca Muerta

Siliceous Shale

Siliceous Shale

Chert

Siliceous Marl

4 to 5%

4 to 7%

4 to 8%

3 to 5%

Eagleford

Horn River Chert

Calcareus Shale

3 to 6%

4 to 8%

Net Thickness (Ft)

225 to 300

150 to 250

75 to 150

75 to 150

300 to 1300

125 to 450

120 to 280

Maturity (Ro)

1.7 to 2.8

1.3 to 2.1

1.3 to 2.4

1.2 to 2.8

1.4 to 1.8

1.6 to 2.7

0.7 to 1.8

Pressure Gradient (ppg) 13.5 to 17.3

9.6 to 10.6

11.6 to 13.5

9.6 to 10.6

9.4 to 17.3

10.6 to 13.5

9.6 to 14.5

Porosity (%)

4 to 8%

7 to 9%

5 to 6%

7 to 12%

4 to 10%

4 to 10%

50 to 200

100 to 200

40 to 70

50 to 200

100 to 1000

100 to 1500

Well IP (mcfd peak month) 8 to 25

3 to 7

4 to 10

2 to 6

2 to 12

5 to 8

2 to 17

GIP*/Sq Mi (GCF)

150 to 250

100 to 150

75 to 125

75 to 150

300 to 800 (BBN)

175 to 250

80 to 250

EUR**/Well (GCF)

8 to 12

3 to 4.5

3 to 6

2.5 to 5

8 to 20

4 to 10

2 to 6

Permeability (nD)

7 to 9% 100 to 500

* Gas in place ** Estimated Ultimate Recovery

The geological features of the Neuquén Basin are similar to the shale gas fields in North America. In particular, the Vaca Muerta (Neuquén) is most similar to the Eagleford and Haynesville formations. Source: Gas y Petroleo del Neuquen

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Madalena 3 Block Summary • • • • • • • • •

Gross 12 Twp, Net 6 Twp, all with proven hydrocarbons and all with identified ready to drill targets All blocks are in Neuquén Basin, with superior access and services Multiple target formations: Large Conventional & Unconventional Multiple play types: Stratigraphic/Structure Traps, Broad Resource Plays Multi products: Oil, Gas, Condensate, LPG All discoveries qualify for Gas Plus, Oil Plus Steady increase in product prices Energy shortages mean increasingly expensive imports: bodes well for incentives and growth in domestic E&P Majors moving into area will accelerate the ramp up of services for unconventional plays

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Madalena 2011 (Q3/Q4) Activity Block I - Coiron Amargo: • Test Vaca Muerta oil resource play • Transition from exploration to development thru additional drilling and construction of central gathering facility • Convert exploration license to 25 year production lease Block II - Curamhuele: • Test L. Troncoso and multiple stacked Avile formations in Yapai X-1001 • Deepen existing well to test thick Vaca Muerta shale resource potential • Establish early production and cash flow from block Block III - Cortadera: • Test multiple formations (tight gas and shale gas) in CorS X-1 well • Prove up resource potential within tight sand and shale play

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Madalena Future Activity Q3 Testing of Curamhuele Yapai X-1001 well

Q3/Q4 Fracture stimulation of Vaca Muerta in Coiron Amargo CAS X-1 well

Q4 Testing of Cortadera CorS X-1 well

2011

Q3 Begin construction of Coiron Amargo central gathering facility

2012 Deepen existing well on Curamhuele block to Vaca Muerta formation

2012- 2013 Development of discovered structures on Coiron Amargo block

2012- ?? Appraisal and development of shale oil on Coiron Amargo block

2012

Q4 Complete construction of central gathering facility

Q1 Acquire additional seismic on Cortadera block

2012 - 2013 Appraisal of conventional and non-conventional opportunities on Curamhuele and Cortadera blocks

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Forward Looking Information and Statements The information in this presentation contains certain forward-looking statements. These statements relate to future events or our future performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "approximate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe", "would" and similar expressions. These statements involve substantial known and unknown risks and uncertainties, certain of which are beyond the Corporation’s control, including: the impact of general economic conditions; industry conditions; changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced; fluctuations in commodity prices and foreign exchange and interest rates; stock market volatility and market valuations; volatility in market prices for oil and natural gas; liabilities inherent in oil and natural gas operations; uncertainties associated with estimating oil and natural gas reserves; competition for, among other things, capital, acquisitions, of reserves, undeveloped lands and skilled personnel; incorrect assessments of the value of acquisitions; changes in income tax laws or changes in tax laws and incentive programs relating to the oil and gas industry ; geological, technical, drilling and processing problems and other difficulties in producing petroleum reserves; and obtaining required approvals of regulatory authorities. The Corporation’s actual results, performance or achievement could differ materially from those expressed in, or implied by, such forwardlooking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur or, if any of them do, what benefits that the Corporation will derive from them. These statements are subject to certain risks and uncertainties and may be based on assumptions that could cause actual results to differ materially from those anticipated or implied in the forward-looking statements. The Corporation’s forward-looking statements are expressly qualified in their entirety by this cautionary statement. The forward-looking information and statements contained in this presentation speak only as of the date hereof, and the Corporation assumes no obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable laws. Except as required by law, the Corporation undertakes no obligation to publicly update or revise any forwardlooking statements. Investors are encouraged to review and consider the additional risk factors set forth in the Corporation's Annual Information Form which is available on SEDAR at www.sedar.com.

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Oil and Gas Disclosures All amounts in this presentation are stated in Canadian dollars unless otherwise specified. In accordance with Canadian practice, reserve and similar volumes and production volumes and revenues are reported on a gross basis, before deduction of royalties, unless otherwise stated. Where applicable, natural gas has been converted to barrels of oil equivalent ("BOE") based on 6 Mcf:1 BOE. The BOE rate is based on an energy equivalent conversion method primarily applicable at the burner tip and does not represent a value equivalent at the wellhead. Use of BOE in isolation may be misleading. This presentation may also contain references to Original Oil-In-Place (‘OOIP”) and Original Gas-In Place (‘OGIP”) (collectively "PIIP“) and the term "recoverable", which are not and should not be confused with references to oil and gas reserves. PIIP is that quantity of petroleum that is estimated to exist originally in naturally occurring accumulations. It includes that quantity of petroleum that is estimated, as of a given date, to be contained in known accumulations, prior to production, plus those estimated quantities in accumulations yet to be discovered. PIIP is comprised of Discovered PIIP and Undiscovered PIIP Discovered PIIP is that quantity of petroleum that is estimated, as of a given date, to be contained in known accumulations prior to production; therefore, the estimates may differ materially from estimates prepared in accordance with the Canadian Oil and Gas Evaluation Handbook (“COGE Handbook”) and National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101”). *Analogous Information Certain information in this document may constitute "analogous information" as defined in National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities ("NI 51-101"), including, but not limited to, the reservoir data, resource estimates, production and decline rates and economics information relating to the areas in geographical proximity to exploratory lands held by Madalena or other shale plays in development in North America. Such information has been obtained from government sources, regulatory agencies or other industry participants. Management of Madalena believes the information is relevant as it helps to define the reservoir characteristics and the reserves and production potential in which Madalena holds an interest. Such information includes resource estimates using categories such as Original Oil-In-Place and Original GasIn Place which are not derived from the Canadian Oil and Gas Evaluation Handbook ("COGE Handbook") and have therefore not been prepared in accordance with NI 51-101. Madalena is also unable to confirm that the analogous information was prepared by a qualified reserves evaluator or auditor. Such information is not an estimate of the resources attributable to lands held or to be held by Madalena and there is no certainty that the reservoir data, resource estimates, production and decline rates and economics information for the lands held by Madalena will be similar to the information presented herein. The reader is cautioned that the data relied upon by Madalena may be in error and/or may prove not be analogous to the lands be held by Madalena.

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