corporate presentation...corporate presentation january 2021 tsxv: sou disclaimers 1 this...
TRANSCRIPT
TSXV : SOU
Corporate PresentationJanuary 2021
TSXV: SOU www.southernenergycorp.com
Disclaimers
1
This presentation contains information that may be considered to be forward-looking information within the meaning of applicable securities laws. Such forward-looking information relates to internal projections, expectations, estimates or beliefsrelating to future events or future performance . All statements contained herein, other than statements of historical fact, maybe forward-looking information. Forward-looking information is often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", “propose”, "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions. These statements are only predictions and actual events or results may differ materially. Although the recapitalized corporation believes that the expectations reflected in the forward-looking information contained in this investor presentation are reasonable, it cannot guarantee future results, levels of activity, performance or achievement since such expectations are inherently subject to significant business, economic,competitive, political and social uncertainties and contingencies. Therefore, investors should not unduly rely on the forward-looking information contained in this investor presentation as actual results may vary.
With respect to forward-looking information contained in this presentation, the recapitalized corporation has made assumptions regarding, among other things: the legislative and regulatory environment in the jurisdiction where it intends tooperate, the impact of increasing competition, costs related to exploration, drilling, seismic and the development of oil and gas properties will remain consistent with historical experiences, anticipated results of exploration and drilling activities and the price of oil and gas. The forward-looking information contained in this investor presentation involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information.
Actual results could differ materially from those anticipated in the forward-looking information contained in this presentation as a result of the following risk factors: volatility in the market prices for oil and natural gas, unanticipated changes in anyapplicable royalty regime, uncertainties associated with estimating resources and reserves, geological problems, technical problems, drilling and seismic problems, liabilities and risks including environmental liabilities and risks inherent in oil andnatural gas operations, fluctuations in currency and interest rates, incorrect assessments of the value of acquisitions, unanticipated results of exploration and development drilling and related activities, competition for capital, competition for acquisitions of reserves and resources, competition for undeveloped lands, competition for skilled personnel, unpredictable weather conditions, the impact of general economic conditions and political conditions, industry conditions including changesin laws and regulations including adoption of new environmental laws and regulations, the possibility of future financings and divestitures, expectations regarding future production and obtaining required approvals of regulatory authorities.
The forward-looking information contained in this investor presentation speaks only as of the date of this investor presentation and is expressly qualified, in its entirety, by this cautionary statement and the recapitalized corporation disclaims any intent or obligation to update publicly any forward-looking information, whether as a result of new information, future events or results or otherwise, other than as required by applicable securities laws. This information is confidential and is being presented to potential investors solely for information purposes. These materials do not and are not to be construed as an offering memorandum. An investment in securities involves a high degree of risk and potential investors are advised to seek their own investment and legal advice.
BOE Disclosure The term barrels of oil equivalent (“BOE”) may be misleading, particularly if used in isolation. A BOE conversion ratio of six thousand cubic feet per barrel (6Mcf/bbl) of natural gas to barrels of oil equivalence is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
US DisclaimerThis presentation is not an offer of the securities for sale in the United States. The securities have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an exemption from registration. This presentation shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any state in which such offer, solicitation or sale would beunlawful.
Non-GAAP MeasuresIn this presentation, certain key performance indicators and industry benchmarks such as netback are used to analyze financial and operating performance. These key performance indicators and benchmarks are key measures of profitability and provide investors with information that is commonly used by other oil and gas companies. These key performance indicators and benchmarks as presented do not have any standardized meaning prescribed by Canadian generally accepted accounting principles and therefore may not be comparable with the calculation of similar measures for other entities.
Information Regarding Disclosure on Reserves and ResourcesThe reserve and resource estimates contained herein are estimates only and there is no guarantee that the estimated reserves or resources will be recovered. Where discussed herein "NPV 10“ or similar expressions represents the net present value (net of capex) of net income discounted at 10%, with net income reflecting the indicated oil, liquids and natural gas prices and IP rate, less internal estimates of operating costs and royalties.
All figures in USD unless otherwise specified
TSXV: SOU www.southernenergycorp.com
About Southern Energy
1) Market capitalization is calculated as of January 14, 2021 using a share price of CAD $0.035/share2) Includes CAD $8.1 MM of convertible debentures and CAD $17.5 MM of reserves-based lending bank debt3) Enterprise value is the sum of market capitalization, convertible debentures and bank debt4) Estimated working interest sales production capacity at January 1, 2021; Approximately 91% gas5) Based on reserve report by Netherland, Sewell and Associates, Inc., estimated at December 31, 2019 using average CDN engineering consultants January 1, 2020 price forecast
2
• Management and Board has extensive operating experience in the United States with a track record of creating shareholder value
• Positioned to premium commodity pricing in North America, NYMEX (Henry Hub), LLS
• Exposure to structural demand growth in U.S. power generation and Gulf Coast LNG
• Targeting growth in excess of 10,000 boe/d through consolidation and development
• Multiple recent accretive acquisitions provide stable production and cash flow base
• Assets characterized by multi-zone, large resource in place with low recovery
• Significant low-risk drilling inventory with optionality to both oil and gas projects
Company Profile
Capitalization CAD $
Trading Symbol (TSX-V) SOU.V
Common Shares Outstanding (Basic / FD) 220.8/ 307.7
Insider Ownership (Basic / FD) 21% / 35%
Market Capitalization (1) $7.7 MM
Convertible Debenture and Bank Debt (2) $25.6 MM
Enterprise Value (3) $33.3 MM
Metrics CAD $
Land > 34,000 acres
Production (4) ~ 2,400 boe/d
PDP Reserves (5) 6.3 MMboe
PDP NPV10 (5) $40.2 MM
Proved Reserves (5) 11.4 MMboe
Proved NPV10 (5) $65.3 MM
Southern Energy Assets – Global Gas Export Perspective
Magee
Southern US Office
Approved LNG Export Terminal 20+ Bcf/d export by 2025
TSXV: SOU www.southernenergycorp.com
Strong BaseAsset
Optimization
Additional Accretive PDP Acquisitions
Low-Risk Development Drilling and
Reserves Growth
• Accretive PDP acquisitions• Low risk, stable cash flow• Management & basin
experience• Technical advantage
• Operating cost savings • Production and lift
optimizations• Environmentally conscious
and safety driven approach
• Disciplined strategy• Low decline long life assets• PDP valuations• Synergistic with base• No value paid for extensive
upside
• Under-developed assets with low historic recovery from verticals
• Creation of large-scale reserve additions and drilling inventory
Timing driven by commodity environment:BUY LOW – DRILL HIGH
Access to Capital
The Business Plan
3
• Build a high margin asset base of sufficient scale with significant low risk drilling inventory that continues to generate free cash flow
• Southern will be attractive to patient, value shareholders, as well as LNG players seeking easily expandable, long-life gas assets
Focused on Value Creation: Real Shareholder Returns
Long-Term Sustainability
Exit Optionality
TSXV: SOU www.southernenergycorp.com
Investment Thesis
4
Why Invest in Southern Energy?
Experience• Highly experienced management team• Extensive operations experience in southeastern U.S. core area• Management and Board have significant personal investment
Financial Support• Strong institutional investor support• Cash flow resilient in low price environment• Focused on being a low-cost operator
Premium Commodity Pricing• Access to the best commodity pricing in North America• Exposure to operational U.S. Gulf Coast LNG• Unique amongst Canadian-listed energy companies
Accretive Acquisition Strategy• Complementary, accretive acquisitions at attractive metrics• Target low decline, under-developed assets with scale• Team continues to execute strategy
Future Development Opportunities• Organic growth from low-risk, multi-zone, infill drilling inventory • Held by production lands offer oil and gas drilling optionality• Horizontal Cotton Valley re-development in northern Louisiana
TEAM HAS SPENT 7 YEARS OPERATING IN THE U.S. GULF COAST AREA
SOUTHERN IS 21% INSIDER OWNED (NON-DILUTIVE BASIS)
~ 2,400 BOE/D OF LOW DECLINE PRODUCTION
95% WORKING INTEREST
HENRY HUB BASIS IS TYPICALLY THE HIGHEST PRICE GAS IN NORTH AMERICA
LLS CRUDE TRADES AT A PREMIUM TO WEST TEXAS INTERMEDIATE
PREVIOUSLY CLOSED AN ACQUISITION OF 1,000 BOE/D IN CORE AREA
ACQUISITION COST OF 1X PDP NPV10 USING THIRD PARTY EVALUATION
STACKED PAY WITH 12 PRODUCING FORMATIONS IN CORE AREA
HORIZONTAL DRILLING POTENTIAL WITH 60+ HZ LOCATIONS AT GWINVILLE
TSXV: SOU www.southernenergycorp.com
U.S. Gulf Coast Gas Demand to Increase 20+ Bcf/d in Next 5 years
5
Positioning Southern for the Future Southern LNG Exposure
A
B
C DE
F
Source: Cheniere, Platts, EIA, TSI, BMO, Jefferies, Morgan Stanley
The U.S. Gas Depletion Story: 2020 and Beyond• Unprecedented production of 100+ Bcf/d with annual decline rate of > 27%• 2016 – 2019 US shale gas growth largely unprofitable – unable to create FCF• Producers currently focused on fiscal responsibility and FCF - not growth• US production declined 8 Bcf/d YoY; Marcellus shale sweet spot exhaustion• Pre-Covid 19 data suggests US was shifting into undersupply in Q1 ’20• Conventional assets deemed non-core in portfolios as companies reduce debt
Structural Demand From Increasing U.S. Natural Gas Exports• LNG exports reaching > 11 Bcf/d in Q1 ‘21 (pre-Covid peak of ~ 9 Bcf/d)• Warm 2019 winter in Europe and Asia temporarily affecting pricing / demand • Second wave of LNG projects adding another 10+ Bcf/d of exports by 2025• Pipeline exports to Canada and Mexico to exceed 10 Bcf/d by 2025
Increasing Market Share for Clean Gas-Fired Power Generation• Continued coal and nuclear power retirement (currently 20% market share)• 10 years ago coal provided 45% of power generation market share - now 11%• Renewables have 11% of market share (solar / wind only 30% of that) • Every 1% of market share gain for gas creates 0.8+ Bcf/d of new demand
Associated Gas Supply Becoming Capital Constrained• Constrained to self-funded growth opposed to equity/debt funded growth• Volatile oil prices and increased capital discipline will result in less oil drilling• Permian likely entering extended period of low growth to steady decline
U.S. gas prices heading higher on meaningful supply / demand shift;This has already caused US gas prices to double in past 5 months to ~ US$3/MMBTU
LNG Terminal
Primary Sales Point
Southern Assets
Existing Pipelines
SOU Focus Area
Acquisition Assets
Legend Project Company Capacity Timeline
Corpus Christi Cheniere 2.1 Bcf/d Active
Freeport Freeport LNG 2.5 Bcf/d Active
Sabine Pass Cheniere 3.7 Bcf/d Active
Cameron Intl. Consortium 3.5 Bcf/d Active
Lake Charles Energy Transfer 1.8 Bcf/d FID 2020
Driftwood Tellurian 3.5 Bcf/d First LNG 2024
A
B
C
D
E
F
TSXV: SOU www.southernenergycorp.com
Six Years of Operating History Has Formed Growth Strategy
6
• Management expects to establish a dominant production base through acquisitions during weak pricing environment
• Target production of > 10,000 boe/d over 18 - 24 months• Pursuing multiple follow on acquisitions while focusing on cash flow per
share growth• Opportunities range from 1,500 – 15,000 boe/d• Accumulate large, low risk drilling inventory capable of organic growth
when commodity prices dictate
Buy Low – Drill High
• Low decline, low risk assets, with a stable production base, complementary to Southern’s existing assets
• Operated, high WI assets with control of infrastructure• Under-developed conventional & quasi-conventional assets
containing a significant inventory of drilling locations• Opportunity to realize material OPEX savings through field
synergies and facility optimization
Evaluation Criteria
Focus Area
Southern Field Office
Core Areas
TSXV: SOU www.southernenergycorp.com
Environment, Social & Governance
7
Core Values at Southern – Not Buzz WordsEnvironment
• Actively engaged with Mississippi state regulators to help design best practices and policies for air emissions and freshwater usage
• Meet or exceed recent EPA Standards to reduce gas emissions• Maintain a thorough asset integrity program designed to mitigate risk
of environmental damage
Safety• Strong corporate safety culture with highly experienced and trained
field personnel• No lost time incidents for employees or contractors since Management
began operations in the southeastern U.S. in 2013
Social• Southern supports employees who are active in their communities in
the form of time or financial resources and encourages ongoing community involvement
Governance• Southern maintains clear controls and oversight with a diverse and
independent board that is well aligned with shareholders• All Board Committees and Chairs are independent• Regular engagement with shareholders, employees and stakeholders
TSXV: SOU www.southernenergycorp.com
Leadership Team
8
Management Team Board of Directors
Ian Atkinson, M.Sc., P. Eng. – President & CEOAthabasca Oil, Morpheus, Renaissance and Talisman
Ian Atkinson, P. Eng., ICD.DFormer founder and EVP of Athabasca OilFormer VP Engineering of MorpheusDirector of Chronos Resources
Calvin Yau, CA, CPA – VP Finance & CFOMolopo, Waldron and Daylight
Bruce Beynon, P. Geol.Former EVP, Exploration and Corporate Development of Baytex EnergyFormer President of Raging River Exploration
Chris Birchard – VP GeoscienceAthabasca Oil, Bellamont, Espoir and Devon
Michael KohutCFO of Hammerhead Resources, Chairman of Big Rock BreweryDirector of Chronos Resources
Erin Buschert – VP LandCrescent Point, TriStar, ARC and Talisman
Tamara MacDonald, ICD.DFormer SVP Corporate and Business Development of Crescent PointDirector of Equinor Canada and Spartan Delta Corp.
Jim McFadyen – VP OperationsAthabasca Oil, Galleon, Fairborne and Renaissance
Andrew McCreath, CFAPortfolio Manager at Forge First Asset Management Inc.The Market Commentator on BNN Bloomberg TV
Gary McMurren, P.Eng. – VP EngineeringAthabasca Oil, Galleon, ARC and Talisman
C. Neil Smith, P.Eng., MBAFormer Chief Operating Officer of Crescent Point
R. Steven Smith, CA, CPAFormer Director and Chief Financial Officer of Broadview EnergyDirector of Karve Energy
Strong technical expertise combined with a modern approach to data and workflow creates proven early mover advantage
Proven track record of success and value creation through acquisitions, joint ventures and organic growth
Board of Directors bring substantial technical, financial and capital markets expertise and experience
Management has 6+ years operating experience in the southeastern U.S.
Experienced and successful management team with a history of creating shareholder value
TSXV: SOU www.southernenergycorp.com
$0.01
$0.03
SOU(Pre-Acq)
SOU(Pro-Forma)
1,550
2,550
SOU(Pre-Acq)
SOU(Pro-Forma)
$8.80
$6.00
SOU(Pre-Acq)
SOU(Pro-Forma)
Corporate Cash Flow ($/share) (1)
Recent Accretive Acquisition – Executing on Strategy
1) Netback and Cash Flow based on 2019 flat pricing at $62/bbl WTI and $2.90/MMBTU HH as at April 25, 2019
9
Production (boe/d) Operating Cost ($/boe)
• Significant accretion to both operating and corporate cash flow
• Pro-forma PDP reserves increase of > 45%• Mature wells with decline rate of < 5%
• Field synergies drove further 25% operating cost reduction
• Costless production optimization increased production over 20%• Immediately re-negotiated a $0.27/Mcf transportation fee reduction on sales gas• Moved a company-owned compressor to one of the assets to reduce rental charges by a
further $11K/month• Existing SOU field staff immediately took over operations, reducing labor costs by >
$12K/month
Extracting Further Acquisition Value
600
800
1,000
1,200
1,400
1,600
4/1/2019 7/1/2019 10/1/2019
Gros
s Ra
w P
rodu
ctio
n (b
oe/d
)
THEN:
NOW:Change of Operatorship
Current Production: > 1,250 boe/d
TSXV: SOU www.southernenergycorp.com
Mechanicsburg
Gwinville
Greens Creek
• Liquids rich (> 30 bbl/MMcf oil & NGL)• Field covered by 53 mi2 3D• 10 - 12 infill Cotton Valley locations • Large gas resource; OGIP: > 300 Bcf
Core Southern Energy Asset Base
1) CMS assets covering 31,000 acres are > 97% held by production2) Estimated working interest sales production capacity at January 1, 2021; Approximately 91% gas3) Based on reserve report by Netherland, Sewell and Associates, Inc., estimated at December 31, 2019 using average CDN engineering consultants January 1, 2020 price forecast
10
Mississippi Alabama
Black Warrior Basin
Mechanicsburg
Gwinville
Williamsburg
Magee
Mount Olive
WilliamsburgSouthern Field Office
Field Location
• Multi-zone development upside• Field covered by 48 mi2 3D• 60+ horizontal Selma Chalk
locations (OGIP: > 600 Bcf)
• Low cost Hosston recompletions• Infill Hosston drilling opportunities• Cotton Valley potential
575boe/d
550boe/d
150boe/d
• Field production > 10 MMbbl• High quality oil - 40° API• 4 - 10 vertical Hosston / Cotton
Valley locations
• High deliverability gas wells• Infill Eutaw drilling
opportunities
• Infill drilling opportunities• Recent large oil discoveries on trend• 65 - 75 vertical Cotton Valley
locations
45boe/d
800boe/d
170boe/d
Magee
> 34,000Acres (> 80% HBP (1))
~ 2,400boe/d (2)
$40.2$MM PDP PV10 (3)
< US$5.40/boe Lifting/Processing Cost
Greens Creek
MountOlive
Base decline ~ 12%All core lands are Held By Production
TSXV: SOU www.southernenergycorp.com
$-
$0.50
$1.00
$1.50
$2.00
$2.50
$-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
Tota
l Mon
thly
Net
Ope
ratin
g Co
sts (
$US/
Mcf
e)
Tota
l Mon
thly
Net
Ope
ratin
g Co
sts (
US$
)
Southern Energy Assets - Historical OPEX Trend
Monthly OPEX Per Unit OPEX
Average Monthly OPEX Prior to 2017 CMS Acquisition: ~ $1.50/Mcfe lifting Average Monthly OPEX
for last 12 months prior to 2019 Acquisition : $1.20/Mcfe lifting cost
Average Monthly OPEX post June 2019 Acquisition: < $0.85/Mcfe lifting cost
Cost Control – Our Highest Priority
Operating Costs:Following the acquisition of the Central Mississippi assets in February 2017, Southern has dropped operating expenses on the assets by ~ 20% on a per unit basis (including production decline); over 35% on a monthly absolute basis
Immediately following the June 2019 acquisition, per unit operating costs for the company have dropped a further ~ 30%:
• Existing field operations team took over the new assets, removing all redundant labour costs from prior operator
• Moved an existing company compressor to the new assets to eliminate $11k/month in rental compression charges
• Negotiated a $2k/month saving on a process skid on the new assets
• These initiatives have achieved ~ 25% absolute monthly operating cost reductions on the acquired assets
11
TSXV: SOU www.southernenergycorp.com
Mississippi’s Largest Gas Field
Scalable Large Resource Assets - Gwinville Field Example
12
Currently Producing
with low Rf
Historic producing
horizons with potential for
improved recovery
Bcf MMbbl
Wilcox 0.7 -
Selma 136 0.2
City Bank 10 < 0.1
Tuscaloosa 1,100 11
Rodessa 110 0.6
Sligo 48 0.2
Hosston 2.0 < 0.1
Cotton Valley
Gas test
Haynesville
Significant Liquids Upside
Potential
• 1+ Tcf OGIP in Selma Chalk, current recovery ~ 15%
• Multi-zone production of 1.5 Tcf, 12 MMbbl, current decline < 8%, with additional upside potential
• At least 3 stacked horizons to be accessed with horizontal drilling and modern completion designs, following on the early success of previous operator
• Significant potential below the Tuscaloosa from zones which have produced more than 750 Bcf and 80 MMbbl from immediately offsetting fields
• Owned and operated infrastructure with expandable capacity
Significant Underdeveloped Gas Resource
Future HZ Location• Field is covered by proprietary 3D seismic• Delineated from vintage vertical wells• EOG and Penn Virginia drilled 25 Gen-1
HZ’s between 2005 – 2010• Targeted Upper Selma, Lower Selma and
the City Bank across the entire field • SOU’s first location will be a direct offset
to an under-stimulated Gen-1 HZ
Future HZ
3 - 4+ TCF OGIP
Low recovery, large location inventory
Multi-Stacked HZ Potential
Well IRR’s > 50% at $3/MMBTU Henry Hub
TSXV: SOU www.southernenergycorp.com
Low Risk, Multi-Zone Gas Resource Development
13
1,000
10,000
100,000
2014 2015 2016 2017 2018 2019 2020
Gas R
ate
(Mcf
/d)
Gwinville136 Bcf CTD
Baxterville135 Bcf CTD
• The Baxterville field has undergone a successful HZ conversion and is a direct analog to the Gwinville Field
‒ Gen-2 horizontal wells in the middle of the pool producing > 7 MMcf/d IP30
‒ Southern plans to increase the number of stages and proppant loading to optimize completion design
• Both fields have nearly identical cumulative production, aerial size, pay thickness and reservoir quality
• Gwinville Field has two porosity units in the Selma Chalk that will be developed
Similar Pool Characteristics
Baxterville Selma Chalk Production
3 HZ wells more than doubled field production
14 stage, 1200 lb/ftHZ IP30 7.3 MMcf/d
Vertical well tested570 Mcf/d13X HZ Multiplier Lower Selma
vertical wellIP: 770 Mcf/d
Upper Selma vertical wellIP: 1.0 MMcf/d
Baxterville Gwinville
City Bank vertical well IP: 800 Mcf/d
Future Multi-well Pads
TSXV: SOU www.southernenergycorp.com
Defined plan to build Cotton Valley oil assets in a regional fairway using Southern’s ‘early mover’ advantage
Significant Oil Potential in Regional Cotton Valley Fairway
• Trend is less developed with drilling as the play moves east from Texas
• Similar ‘macro’ trapping elements exist throughout the trend
• Several recent and significant light oil discoveries along this trend
• Proven vertical production in Mississippi with low-cost completions
• Shallower depths in Louisiana and Arkansas allow for horizontal development
• Over-pressured plays in Louisiana enhance horizontal drilling results
Low Risk, Prolific Light Oil Trend
14
TSXV: SOU www.southernenergycorp.com
Proven Oil Potential within Core Asset Base
15
CNVL Penetrations
CNVL Production
Shallow Production
Central Mississippi Cotton Valley (CNVL) Focus Area
Historic exploration:• Majority of wells drilled before 1985• Pre-2000 drill times up to 12 months
Recently:• Successful oil development below historic
shallow production• Drilling time down to < 30 days
SOU Acquisition:• Access to HBP land to test two of the largest
productive structures west of Williamsburg• Existing infrastructure for oil and gas
processing and takeaway
Cotton Valley Oil Success
Recent Development (1)
1) Collins NE and Glade Crossing fields only
Reduced drilling costs allow for deeper CNVL drilling opportunities
Williamsburg
• 2 CNVL penetrations• 1 producer – EUR 2.3 Bcf, 43 Mbbl• Under-stimulated; Flowing up 4.5”
Gwinville
• 2 CNVL penetrations• 1980 perf, 8 ft flare
Collins / Seminary
• Most recent CNVL drilling• > 10.5 MMbbl, > 13.4 Bcf;• 1,000 bbl/d, 1.6 MMcf/d• Producing from the same interval
as Williamsburg
Glade Crossing
• 8 recent CNVL producers• > 2.0 MMbbl, 5.5 Bcf since 2015• 1,850 bbl/d, 4.7 MMcf/d• Implementing waterflood scheme
0
2
4
6
8
10
12
14
16
18
20
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Wel
l Cou
nt
Gros
s CD
Rate
(bbl
/d)
Oil - CD Well Count
TSXV: SOU www.southernenergycorp.com
Analog WellSOU Key
WellMultiple HZ tested IP’s> 1,500 boepd 200 bopd5 bopd
Low Risk Cotton Valley Horizontal Oil Play
16
Fully Delineated Prospect
High Quality Vertical Conversion Play:• Immediate focus area contains more than 200
historic vertical wells • All historic wells penetrate and define the
target zone• Interpretation supported by 2D seismic• SOU plans low risk HZ infill drilling to re-
develop play to full potential• Estimate > 40 MMbbl OOIP and > 160 Bcf OGIP• Early mover on initial ~ 10,000 acres• 50,000+ prospective acres on trend
• Southern has identified a low risk horizontal infill oil play in a member of the Cotton Valley Formation• Competitor has recently drilled several horizontal wells in the same zone, similar structure with excellent results
Cotton Valley Focus Area
More prolific historic vertical well production
than analog play:• Seven wells with test rates from
25 – 200 bopd• Cumulative oil production of ~
400 Mbbl oil, 3.3 Bcf gas• High quality oil: 53 – 64⁰ API• Moderately over-pressured at
> 0.5 psi/ft• Recovery factor < 1%
~ 9,000 ftTVD
TSXV: SOU www.southernenergycorp.com
The Southern Energy Difference
17
Key Attributes U.S. Unconventional E&PAs
set C
hara
cter Corporate Decline Rates Low (~10%) High (>40%)
Large Inventory of Undeveloped Resources Yes Yes
Capital Intensity Low High
Ope
ratin
g Ef
ficie
ncy Harvest Mature Production Efficiently Yes No
Unit Operating Costs Low LowOnly during flush production
G&A Overhead Costs Low HighShale development model requires more human capital
Barriers to Entry Driven By Scale & Capital Complexity & Capital
Fina
ncia
l M
anag
emen
t Delevering Yes NoSignificant reinvestment required to offset high declines
Sustaining Capital Low High
Acquisition Metrics Low (~1x PDP) High
TSXV: SOU www.southernenergycorp.com
Summary – Predictable Growth Strategy
18
• Target large scale growth through consolidation at current commodity pricing • Optionality for low risk drilling in under-developed, low-decline assets
Consolidating and developing high quality low risk conventional assets in under-exploited basins in U.S. Gulf Coast states
• Track record of substantial acquisition and organic growth in previous companies• More than 6 years of operating experience in these basins
Capitalizing on management’s technical experience in the area to enhance asset values
• Consolidate large scale natural gas assets connected to Henry Hub pricing• Assets offer optionality to develop oil that attracts a premium to WTI pricing
Focusing on accretive PDP acquisition of conventional assets with exposure to premium commodity pricing
Positioning Southern to return significant value to shareholders in a responsible, respectful and environmentally efficient manner
U.S. Gulf Coast focused energy company with a goal to create shareholder value by:
Southern Energy Focus on efficient, sustainable, per share growth
TSXV: SOU www.southernenergycorp.com
Appendix
19
TSXV: SOU www.southernenergycorp.com
Hedging Summary
Hedging Position:
• As at January 2021:
• Calendar 2021 average natural gas hedge price of ~ $2.45/MMBTU (~ 44% of current natural gas production base)
Natural Gas:
Deal Type Term Start Date End Date Volume (MMBtu/d) Index StrikeSwap Option Cal21 01-Jan-21 31-Dec-21 1,500 NYMEX HH $ 2.575 Swap Option Cal21 01-Jan-21 31-Dec-21 3,600 NYMEX HH $ 2.402
20
TSXV: SOU www.southernenergycorp.com
Selma Chalk HZ Development
21
100
1,000
10,000
0 12 24 36 48 60
Gas R
ate
(Mcf
/d)
Months
Typical advancements in horizontal well completion design leading to significantly improved results
Gen-1: 3 - 4 stages, 400 - 800 lb/ftGen-2: 12 - 14 stages, 800 - 1,200 lb/ftGen-3: 20+ stages, 2,000+ lb/ft
Type Curve Development
Economics
WTI ($/bbl) $60.00 $60.00
HenryHub ($/MMBTU) $2.90 $3.50
IRR (%) 44% 73%
NPV10 ($MM) $2.4 $3.8
Payout (years) 1.9 1.3
P/I Ratio (x) 0.68x 1.07x
Recycle Ratio (x) 2.5x 3.1x
Southern HZ Gen-3 Type Curve
Assumptions
EUR – Gas (Bcf) 4.3
EUR – Oil (Mbbl) 9.0
Net Revenue Interest (%) 79%
Drilling Cost ($MM) $1.7
Completion Cost ($MM) $1.7
Tie-in / Equip Cost ($MM) $0.1
Total Capex ($MM) $3.5
• Current Selma Chalk drilling inventory of 60+ horizontals• > $150 MM of PUD NPV10 value to SOU at > $3/MMBTU Henry Hub• Similar scale of upside potential in the City Bank Formation• Pad drilling of stacked zones will put downward pressure on future
development costs
1P Reserve Impact
TSXV: SOU www.southernenergycorp.com
Project Economics
1) Using flat price forecast of $60/bbl WTI, $2.90/MMBTU HH
22
Southern Project Economics HorizontalSelma Chalk
VerticalCotton Valley
HorizontalCotton Valley Play
Significant gas upside above $2.90/MMBTU HH Multi-year drilling inventory in identified oil bearing structures
IP 30Oil (bbl/d) 11 160 510
Gas (Mcf/d) 5,700 280 1,800
EUROil (Mbbl) 9 225 572
Gas (Bcf) 4.3 0.4 2.0
Liquids EUR 1% 78% 65%
DCET Type Curve Cost ($MM) $3.5 $3.5 $6.8
Operating Netback (1) ($/boe) $12.00 $29.00 $27.60
IRR (1) 44% 38% 90%
Payout (1) 1.9 years 2.2 years 1.2 years
F&D ($/boe) $4.75 $11.90 $6.80
Recycle Ratio 2.5 2.4 4.1
Capital Efficiency (1st year) ($/boe/d) $6,350 $20,550 $12,200
Comments
• > 2 Tcf OGIP (~ 15% recovery factor) and 200+ HZ well drilling inventory in identified Selma Chalk pools
• Unquantified potential in City Bank expected to yield similar results
• Structural closure of the Cotton Valley estimated at 14,000 acres
• Resource potential is significant
• Recent offsetting oil pool development
• 30,000+ acres high-graded with vertical production history
• Analog HZ wells with IP30 > 1,500 boe/d