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PetroFlow Energy Ltd.

Thu, 11 Dec 2008|



Appreciate the opportunity to tell you little bit about -- to flow in our bubble point technology. We -- young company. About three years old. The growing rapidly and thus far we've had some pretty good growth we started life on the Toronto venture exchange under the symbol Piaf. We here in the process. Being listed on the Toronto big board. We're also listed on the MX as PED hopefully will be able to get those two to -- Into PED in the near future. Like everybody else -- were down a little that we traded as high as nine dollars this year we're trading in the three dollar range now. We have between nine million shares outstanding can -- about a 150 million dollar market -- Quick overview of our company. Our meet -- reserves reported we had about fifteen million barrels total proved. -- preserve the current production. Is little over 3000 barrels a day on this report actually. I pulled up our report this morning and our production is a little over 3300 barrels a day. I'll tell you a lot more about that in a minute proved reserves as of -- year 550 million. Of that it's roughly 60% gas. 20% oil and 20% NGLs are gas is very high BTU gas and because of that. We have a nice net back on that we also. Are able to operate these wells with a fairly low offering cost. Our operating team and our management team are fairly well experienced. And we've all worked together in previous companies and we have started together. As I said about three years ago to form this company. And lastly -- -- gives gives you exposure to a new resource play. Likely one you've not heard much about but hopefully will look clear that -- a little bit today called -- -- watering play. About our team John Melton is our president and CEO. John sandy myself Lewis and Sally all work together. In a private company called TVC energy in the late eighties and I'm sorry in the late ninety's and 2000 time -- -- We -- kind of went our separate ways when John decided he needed retire for a couple of years. And then got back together when we've decided to -- -- flow energy. Duncan -- can't forget him he's -- CFO he's our lone Canadian. And -- he came on as when we merged into the Canadian -- Some of our accomplishments again we formed the company. By merging into the Canadian shelf -- -- energy in July of 05. We also acquired -- for excessive properties question. Some cold and methane. In San Juan basin and also some Permian oil production. In 2006. We acquired. A private company in Oklahoma called alt -- resources that was our entree into the hunt and play. At that time. The acquisition was it was quite large for us 260 million dollars we were brand new company and that was. Way bigger than we could handle so we brought and it's effectively capital provider. We had. An existing relationship with the Canadian realty trust called in -- energy. The basic structure of that transaction worked out as interior bought all of the existing production and paid for the acquisition. We got to keep all of the drilling rights to all new wells in the seven counting any -- -- And we carry in terror in those wells for 30% on every well. So they put up all that upfront money we put all of our money in the ground and carried him on the twelfth. In 07 we had. Completed about a year and a half of drilling in the hunt and and had more than doubled our reserves and get that got a few people interested in this. And then in 08 this year earlier in the year we end up selling. Power -- property and made about a 100% profit on that to reinvest that money back in Oklahoma. We've also raise about 32 million dollars at about it but this year average. Between that and our senior debt facility that provides all of our capital. We have eighty -- 110 million dollar -- base with two banks. Texas capital bank in Guaranty Bank both local banks here in in Dallas. And our outstanding so those today or roughly 75 million dollars. In Oklahoma we've drilled almost fifty wells. And or rather we have fifty wells producing and seven and completion and drilling stage. As I said we have three rigs running so we always have three and -- things. Our productions been fairly rapid again if you start from zero it's not hard on the percentage basis to grow that quickly but we've -- we have had -- production growth. All of this growth has been through the drill that. The acquisitions are netted out of this and so all of this -- you -- Growth that you see here is through our drilling program in Oklahoma. Now let me tell you a little bit about what this resource play is. And and how it works. Like any resource play. They they have similar characteristics they have very low geologic risk. You know you're gonna find out apartments when you drill -- well the trick is is how do you get the hydrocarbons. Once you figure that out either been an economic heard all or threshold or some technology breakthrough much like the Barnett. Which -- -- companies like southwestern. Then the risk that these plays becomes much more manageable. And the resource. Nature of it comes -- in play -- becomes much more than manufacturing time. Process. The -- become repeat -- -- predictable. And you can build a nice business model around now. -- -- in Oklahoma. Is. The total formation is huge area covers over sixteen million acres and it -- the state east west. I mentioned to you that we -- -- that into. Entered into this played by acquiring the private company alternate resources. With -- techs there were two other private companies and really the three of them were the only ones using this approach. Now with us replacing all tax we collectively your producing over 125 million today. And have drilled over 250 wells using this approach that -- called bubble point technology. And we have had no dry holes today. Now this is a fairly simple slide. But this is pretty much the meat of what we're doing and understand a little bit of time on this. The -- is an oil rose four it was discovered in the 20s30s. There's been several thousand wells drilled to it. All of those wells are depicted with the diagram well on the right. -- conventional vertical well once you can find the geologic trapped. Where the hydrocarbons had accumulated you drill a well you produce and movable hydrocarbons. Fairly straightforward. That's not what we're doing. Everywhere else in the -- and there is a fairly large component of what's called residual oil. If there's any engineers and -- out there you'll understand that residual oil really is the amount of oil that's left in the rest of war that's not movable. Actually every -- or have some residual -- its just you never hear anything about it because it's always assumed to be non productive. Typically there's actually more residual oil in the risen more than there is produce oil and that's the case in. Our technique is to drill long reach horizontal wells typically a dual lateral well into the residual oil zone. Put in a large submersible pump and initially pump lots of water. It's quite analogous actually too cold and methane production but on quite a bit larger scale. We would produce lot of water to 101000 barrels a day. When we do that depression -- -- or drops dramatically. As that happens the bubble point concept comes into play. The oil reaches its focal point and then any further pressure drops cause gas that's in it trapped oil to come out of solution and we produce the free gas. So actually. The gas is our target and it's actually held in place by the -- oil. That's what makes it a resource play that's what makes it per pupil and that's what makes predicted. This is what an average well looks like again if you if you have any seeking an experience this. Shape will look familiar to you this is a -- -- Again we start off the high water rates but they declined rapidly over time. Gas on the other hand starts off -- modest rates typically around a hundred -- of the -- but it will build over about a year or so to a peak. And then it will start to decline. In addition to that -- we usually get some amount of that oil. Combining the gas and oil together we average roughly 2.3 -- equivalent EU war for well. If you apply some economics -- that I'm not gonna go through all of these numbers. But just a couple of details these wells are have gotten a little bit more expensive though the over the year but hopefully that will go the other direction -- The cost about three million dollars to drill and complete. Again they recover roughly 2.3 -- equivalent. I mentioned earlier that the gas is very high BTU -- it averages over 12100 BT's. So we get when you add the NGL revenues into the gas revenue. We get a nice premium to a normal gas well in addition oil as light oil 43 -- -- So we get a good price for that as well. Our cost structure is also attractive. Combining our lease operating and RF and price of around for a four dollar for fifteen -- The chart at the bottom right of the page really it is just some fundamental economics at different price points. The Blue Line is rate of return the Red Line is PDT and again for this average well. Couple things all -- -- here these include. In the capex side of the equation. That incremental 30% that we pay on -- -- on him well. Even with that -- you can see it at different price points although we may need to adjust their plots. It stops -- six dollars on the low end but we're still making money down in this price environment today. I mentioned to you that our growth has been completely through the drill bit and and will primarily continue to be through the drill bit. Because of that and because of our ability to make money even at lower price targets. We can make money in this price environment were much less sensitive. To these commodity price swings -- it is if we were growing strictly through acquisitions. -- and resource play once you've figured out how it works. How it's for people and how you convert predicted the next part of the equation is how many times can you do it. On this slide again we -- -- central Oklahoma you can see again the outline of the -- And now we're showing you the seven counties which comprise our current operating agreement with and here in energy in our -- Today we have -- region over a 160 locations. In eight producing areas. I mention that we're drilling with three rates full time each -- can drill ten wells a year so that's thirty wells a year. 106 locations we have with those three rigs five -- drilling inventory out in front of us. All of that inventory is in existing areas where we've already proven this technique. It's already working and these are fundamentally step out locations. We call this phase one. Phase one is important on several levels one it encompasses. Again our fundamental original acquisition and our agreement with -- terror. But it also coincides. If you are able to pick up one of our investor packets in the other room. There's we -- we are covered in the states by. Cooper and in Canada by Jennings capital octagon capital. They're analyst reports obviously give some price target projections. And the scope of that growth is on this slide here in phase one in these eight producing areas and 160 locations. Now we -- face to face to was just doing the same approach drilling horizontal wells in the -- in Oklahoma but not in these seven counts. We have begun our first area outside to the east of these you know -- -- he counting. We're testing our first well there. The nice part about face to is we don't have that capital premium to pay and with our partner and here we are doing this heads up. In -- first Gary we have a 9% working interest so we pay ninety we get ninety. We've also announced where we will be closing. An acquisition of operating rights and three other -- and prospective areas to the west. Where we will have effectively -- 7% working interest heads up in those areas. Our goal with phase two is to be able to ramp up to three additional rigs in twelve to eighteen months now market dependent. In addition to that three rigs were going to maintain in phase one. Again I encourage you to look at our share target projections in phase one and we hope to be able to -- Double that drilling pace in twelve to eighteen months in face to. With better economics on -- per well basis again because we won't be pain that promote. It's more details about faced him. Because we're such a small company and growing rapidly. At least in 2008. We made the decision to publish third party independent reserve's quarterly. Obviously most people just do that annually. We felt like -- shareholders needed the public information. A little bit more frequently than twelve months. This is -- meet your report our third quarter report will be forthcoming. But -- major report showed again total proved reserves of about 550 million dollars. Proved and probable reserves of about 850 million dollars I'll make a comment here. That of those roughly -- and sixty locations. Only half of them are in the proved or probable category. Roughly the other half. It would be possible for us as CC -- doubly definitions. Now one other comment. This is a midyear report -- thirty. SEC style also flat case price scenario. Jean thirty seems like teen years ago now but. You recall back in it was a 140 dollars barrel and thirteen dollars and -- CF so you know obviously these prices are a little bit high. Fewer normalize it back I think that we published some some numbers -- Running our same reserves essence of September 26 price decked. And our total proved reserves -- be roughly 370 million dollars. And it proved and probable would be roughly 560. Million dollars. This is a very complicated slide and tells you primarily that -- We're fairly focused in our cash flow in Oklahoma. Our budget this year will be roughly seventy million dollars and we do expect to maintain that budget for next year that is primarily maintaining that -- -- Well schedule. Doing a little bit of nest net asset value per share homework for you I'm actually gonna just. Tell you forget those numbers again -- -- to run a fairly higher prices but you if you were to substitute the 370 or the 516 and for the -- -- proved and probable. You come up with around nine dollars a share. Proved or around fourteen dollars this year proved and probable. For our net asset value per share numbers again we're trading in the threes today not unlike a lot of other companies. But the point obviously is that we feel we're -- very good value based on an -- And that will continue to grow. In summary. We're new companies have grown rapidly. We already have about fifteen and a half million girls total proved equivalent and 500 million dollars and PV ten value. We're producing now over 3300 barrels a day equivalent. We have very nice production that's very rich gas in line well. We're an organic growth company we're growing exclusively through the drill that. We're trading as -- showed here quite a discount turn that asset value. And we give you exposure and where the really the only public company that gives you exposure. To the -- resource play and finally your management team has done this before with demonstrated success in past and effort. I believe we will be breaking out in the -- room. I will leave you with one final thought I've talked about phase one which is -- seven counties in Oklahoma and phase two is just an expansion on that thing. We do have a phase three. The bubble point technology is not something that will be limited to the -- -- war. That is a physical phenomenon that we believe that we can exploit. In -- any other Reza wars. Wherever. We're gonna try hands and do -- close to home first but we're already looking. -- other -- words in other states where we can employ this approach. To try and target a set of hydrocarbons. That have been largely overlooked -- almost exclusively overlooked throughout the industry. Appreciate your time and and consideration. Thank you.

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