Highlands Natural Resources September...
Transcript of Highlands Natural Resources September...
Highlands Natural ResourcesSeptember 2016
AGM Presentation
Producing oil and gas today with significant growth opportunities for the future
Highlands Natural Resources
Q4 2017 Market Update
Disclaimer
This presentation, which has been prepared by Highlands Natural Resources PLC (the “Company”), has not been approved in any jurisdiction by a securitiesregulator or person authorised under applicable financial services legislation and does not constitute or form part of any offer for sale, or solicitation of anyoffer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of or be relied on in connection with, or act as any inducement toenter into, any contract or commitment whatsoever or otherwise in evaluating the merits of investing in any securities. The material in this presentation isgeneral information intended for recipients who understand the risks associated with investment. It does not take account of whether an investment,course of action or associated risks are suitable for the recipient.
In addition, this presentation includes forward-looking statements that reflect the Company’s current views with respect to future events and financialperformance. These views are based on a number of assumptions and are subject to various risks. Such forward-looking statements are not guarantees offuture performances and no assurance can be given that any future events will occur, that any projections will be achieved or that the Company’sassumptions will prove to be correct. Actual results may differ materially from those projected, and the Company does not undertake to revise any suchforward-looking statements to reflect future events or circumstances.
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An Exciting Time For The East Denver Project
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Drilling of Wildhorse and Powell (Completed 7 Sept)
Significant Additional Development Potential
Hydraulic Fracturing of Whildhorse and Powell (Completed 16 Oct)
Producing 637 Boepd, production rising steadily as flowback progresses
East Denver Niobrara Project Overiew• Secured a land position in a
proven shale O&G field• ~25 miles east of Denver, CO• Excellent access to services
• First two horizontal wellscompleted in October 2017• Pad-based operations• “Zipper frack” treatment• 2-mile laterals• 110 stages of hydraulic fracturing
• P50 NPV10 of US$96.6 toUS$124.6 million for 24 wells 1
• Acreage is offset by wellsranking among the bestproducers in the DJ Basin 2
• Succeeded in spacingapplications and initial permits
• Additional permitting underwayfor full-field development
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L o c a t o r M a p W i t h N e a r b y P r o d u c t i o n 3
(1) P50 NPV 10 from RPS Knowledge Reservoir Competent Persons Report dated 6 January, 2017(2) All ten second generation extended lateral wells in the LBR rank in the top 5% of horizontal Niobrara wells in the DJ Basin based on 6-month cumulative oil production as of 31 March 2017(3) Map generated by Highlands Natural Resources with data from the Colorado Oil and Gas Conservation Commission(4) Radius reflects expected 6-month production based on type curves in RPS Knowledge Reservoir Competent Persons Report dated 6 January, 2017
Other Owners
HNR Farm Ins
Conoco
HNR Wells4
Start of Oil & Gas Production at East Denver
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Daily combined flowback rates from Powell and Wildhorse (as of 10 November, 2017)
Highlands estimates December net revenues of ~$1.1 million (RPS CPR type curve)
Flowback Overview
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Flowback Progress Summary East Denver Oil – Light & Sweet
• Combined production of 637 Boepd as of 10 November• In line with expectations• Rising quickly as flowback process continues
• Conservative choke of 23/64” • Maintains reservoir pressure and extends longevity• Will gradually open choke to increase O&G flow rates
• Light sweet oil: API of ~40, low sulfur = premium price• Netback pricing of USD ~$55/Bbl1
Wildhorse Data (10 November, 2017)
• Flowing 276 Boepd from Niobrara B formation• 259 barrels of oil per day• 107 thousand cubic feet of natural gas per day• 8.8% of fracture fluid recovered
• Began flowing on 10/28; 13 days into flowback process
Powell Data (10 November, 2017)
• Flowing 361 Boepd from Niobrara C formation• 335 barrels of oil per day• 156 thousand cubic feet of natural gas per day• 12.2% of fracture fluid recovered
• Began flowing on 10/26; 15 days into flowback process
First Truckload (200 Bbl) Sold on 4 Nov. to Suncor
(1) Based on commodity pricing and deducts as of 10 November
East Denver Drilling Plan
7Note: well spacing is illustrative only to represent drilling in pairs of Niobrara B and C, does not reflect actual permitted spacing between horizontal wellbores
Highlands intends to fully develop the East Denver asset with up to 24 wells using pad drilling
Wildhorse
Powell
Citadel
Hagar Land Position Overview:
Drilling And Spacing Unit (DSU)
Completed and Producing
Approved Permit
Permit Application In-Process
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2
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# Pad Number
Pad drilling enables greatest cost and operational efficiencies, advancing permits for 8 wells/pad
CoconoPhillips
Renegade Oil & Gas
Building Long-Term Relationships
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Highlands is working to create value with a group of industry-leading firmsEa
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Raisa is a vehicle of EnCap Investments L.P. which has invested US$19.7 Bn in 240 energy companies to date
Shale Development With Private Equity
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Leveraging East Denver Returns Through Carried Interest and Reversion
CAPEXPhase 1 Project
Interest1
Phase 2 Project Interest2
Minimizes CAPEX
Amplifies Initial Interest
Retains Majority of Long-Term
Interest
Current HNR Position
Highlands currently pays 51.25% for a 57% share of project income, increasing to 70%1
US$150 - US$200 billion in capital currently allocated to energy private equity fundsHNR has already tapped this market twice for a combined commitment of up to $58.5 million3
Significant interest from additional 3rd party funding sources on favorable terms1: Initial net revenue interests prior to reversions; 2: Net revenue interests after achieving reversion triggers; 3: Assumes 24 wells drilled (partners participate in maximum available wells)
Illustrative Transaction
Market Overview
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Highlands provides LSE investors with access to the U.S. “Shale Revolution”
(1) U.S. Energy Information Administration (EIA) data, 7 June, 2017
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HNR is positioned to capitalize on multiple short and long-term opportunities in the current commodity price environment
United States
Russia
Saudi Arabia
A Scalable Opportunity
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DJ Basin Niobrara Map By Sub-Field (Red = Prospective1)
(1) Red color indicates Niobrara resistivity above 50 Ohms, a key indicator of prospectivity for the Niobrara formation(2) Approximate acreage count within the DJ Basin sub-fields outlined on the map(3) Assumes 160 acres per well, equivalent to 8 wells per 1,280 DSU(4) Based on public data from IHS and COGCC(5) Assumes $5 million AFE per well(6) Publicly disclosed DJ Basin capital budgets of NBL, APC, PDC, XOG, WLL, SRCI and EOG. Note that EOG’s 2017 budget focuses on Codell formation wells, but is included for illustrative purposes.
Denver
Lowry Bombing
Range
Wattenberg
WattenbergExtension
Silo
Fairway
Hereford
Illustrative infill drilling opportunity
Existing development (wells and permits)
• Total acres prospective for Niobrara: ~2.2 million2
• Implied potential horizontal wells: ~13,7003
• Existing horizontal Niobrara wells: ~4,1004
• Remaining drillable locations: ~9,600• Implied development potential remaining: US$48 Bn5
• Combined 2017 budget of top operators: ~US$3.8 Bn6
• Implies a significant capital budget deficit
Key Development Statistics For DJ Basin Niobrara
• HNR has demonstrated the ability to partner with larger operators seeking to farm-out drilling activity
• East Denver land partners receive significant incentives• Royalties• Back-in opportunities
• In exchange for economic incentives and drilling commitments, HNR can secure additional acreage at a low up-front cost
Growth Opportunity Summary
Repeatable and Scalable With Current Team
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Breakeven Oil Prices (WTI, $/Bbl): U.S. Onshore Resource Plays1
(1) Raymond James Equity Research, 26 March, 2016
The Right Team at the Right Time
The HNR team is well positioned to capitalize on this growth strategy in U.S. shale:• Geology: identifying attractive (often overlooked) shale prospects• Land: securing land positions in creative ways with low up-front cost • Finance: funding oil & gas operations on promoted terms with back-in economics• Engineering: designing and optimizing horizontal wells• Operations: executing logistically complex drilling and completions programs
Portfolio Risk-Return Spectrum
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Risk
Pote
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etu
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Helios Two Montana Natural Gas and Helium Prospect
Developing a diversified portfolio of high-potential projects
East Denver Niobrara
Horizontal DrillingFarm-In
Near term cash flows from East Denver supports long-term development of additional opportunities
DT Ultravert Market Update
• In August 2017 a federal jury ruled in favor of two Oklahoma well operators whowere victims of well bashing• Awarded US$220,000 for damages to vertical parent well• Bashing classified as “subsurface trespass” and “creating private nuisance”• Vertical wells were bashed by a modern horizontal well
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A recent federal judgement created liabilities for operators who bash parent wells
Situation Overview Bashing Illustration
DT Ultravert Market Update• Precedent set by the Oklahoma case:
• May extend to tens of thousands of existing wellbores located nearby permits• Also legitimizes claims from potentially thousands of existing victims of
bashing
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DTU offers a tested and proven solution to far-field diversion and well protection&
HNR has 4 patents allowed and 15 patents pending for DTU Technology
Highlands’ Technology Positioning
DTU Technology• 4 US patents allowed• 15 patents pending• Successful field tests• SLB and CFW
Marketing• Focus on victims of
well bashing• Significant press and
media attention• Secure additional
DTU deployments
Commercialization• Licensing:
• Operators• Service Co’s
• HNR deployments• Revenue share
Successful DT Ultravert Tests in Piceance Basin, CO
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N i t r o g e n P u m p i n g E q u i p m e n t a n d C r e w H N R a n d S L B S u p e r v i s i n g N i I n j e c t i o n
W e l l h e a d s O n L o c a t i o n L o c a t i o n O v e r v i e w
Helios Two Update• Highlands discovered helium and methane in two formations under its Helios
Two play in SE Montana• 105,444 acres in Custer, Carter and Fallon Counties• Eagle Formation and Muddy Formation proved to contain helium and methane
• Helios two potentially offers high returns• CPR published 6 January, 2017 maintains unrisked “best estimate” NPV10 of US$341
million for natural gas development project of the Muddy Formation
• Highlands’ next step will be commercial testing of both the Eagle and MuddyFormations• Eagle Formation test involves a nitrogen-based foam frack to stimulate rock and
assess commercial methane and helium production rates• Muddy test entails rapid de-watering of the formation to determine available
methane and helium flow rates
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Helium is an increasingly scarce and valuable commodity, recently placed on the EU’s Critical Raw Materials List – pricing now exceeds US$119 per Mcf 1 (up 11.4% YoY)
(1) US Bureau of Land Management FY 2018 Crude Helium Auction results, 20 July 2017
Helios Two Location
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Gas Flaring from Helios Well 5-52 16-22
Helios Two Location Overview
Night Operations at Helios Two
Next Steps• Focusing on East Denver with plans to announce IP flow rates for Powell and
Wildhorse in the near term• Promising initial flowback results have risen to 637 Boepd (rising daily)• HNR is already selling multiple truckloads of oil on a daily basis• 2,645 barrels of oil sold as of 10 November
• Together with our financial partners, Highlands will prepare for additional drillingat East Denver in the spring of 2018• Cash flow from production to be recycled into additional wells• Aim to build production profile as rapidly as possible
• In parallel, Highlands continues to advance the commercialisation and patentprotection of DT Ultravert• Increasing focus on victims of well bashing in light of recent court judgements• Advanced discussions with operators in multiple shale basins for DTU deployments• Goal is to trigger “tipping point” of broad market adoption
• Helios Two milestones to include commercial testing of Eagle and Muddyformations• Concepts that may offer excellent timing as helium market enters scarcity crisis• High upside opportunity
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Corporate Snapshot
20(1) As of 10 November,2017
O R D I N A R Y
S H A R E S
12,000,000
3,500,000
S H A R E H O L D E R N A M E
ROBERT PRICE
RENEGADE OIL & GAS
DIVERSION TECHNOLOGIES 1,900,000
CURRENT ISSUED SHARECAPITAL HEADROOM SHARES CURRENT SHARE PRICE1 MARKET CAP1
104,659,065 11,304,617 34.63p £36.24m
Corporate Overview
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Exposing shareholders to a diversified portfolio of high potential resource projects
(1) Primary and secondary placings as well as proceeds from all warrants exercised through 10 November 2017, before costs(2) P50 NPV 10 from RPS Knowledge Reservoir Competent Persons Report dated 6 January 2017(3) Unrisked NPV 10 of from RPS Knowledge Reservoir Competent Persons Report dated 6 January 2017(4) NPV10 from RPS Knowledge Reservoir Independent Opinion Report dated 6 January 2017
Funds raised since November 20141: £14.8 million
DT Ultravert4
• 4 US patents allowed• 15 patents pending• Fed. court judgment• Successful field tests• SLB and CFW• NPV10: US$78-$135M
Helios Two3
• Commercial testing• Methane and helium
discovery• 105,485 acres leased• NPV10: US$340M+
East Denver Niobrara2
• Producing 637 Boepd• Up to 22 more wells• 3rd Party Funding• Offset by excellent
producing wells• NPV10: up to $125M
Additional• Exploration
projects• Expansion of
existing projects
Leveraging significant 3rd party financing and cash to advance key projects