glori energy, inc. (glri)

GLRI is an energy technology company which acquires existing oil fields and

deploys its AERO system to increase oil production.

We are initiating research coverage on GLRI with an Outperform rating and

$12 price target. GLRI is an Energy Technology company which acquires existing

oil fields and deploys its AERO Enhanced Oil Recovery (EOR) technology to

increase oil production and also works with other oil companies to deploy AERO

systems. We believe GLRI's acquisition strategy and disruptive technology position

the company for strong growth.

■ GLRI’s Activated Environment for Recovery of Oil (AERO) technology

increases oil production and reserves at existing fields. GLRI estimates it

can increase total oil field production by ~50%+ and produce incremental barrels

of oil at <$10. This is far less than other EOR technologies which can cost up to

~$60+ per barrel.

■ Partnership with Statoil (STO, Not rated) provides foundation for AERO

technology but GLRI continues its work on improving the technology. Glori

has developed the AERO System using over 25 years of research and

development from STO and other partners.

■ GLRI’s acquisition strategy can provide cash flow before AERO is

deployed which reduces technology risk. GLRI can receive cash flow from its

oil fields prior to AERO deployment (assuming the oil field is operating).

Acquiring producing oil fields helps to reduce technology risk as GLRI can

continue to produce and sell oil even if the AERO system does not increase

production.

■ GLRI is well positioned for growth with recent acquisition of the Coke oil

field and solid cash balance. GLRI recently acquired the Coke oil field which is

producing ~500bopd and should provide significant cash flows prior to AERO

deployment in 1H:15. Additionally, we estimate GLRI has ~$38M in cash, which

should allow the company to make another acquisition in the intermediate term.

■ Initiating with a $12 price target. Our price target is based on a ~4x

EV/EBITDA multiple using our 2016 estimate. This is in line with GLRI’s

small-cap E&P comps which are currently trading at a ~4x multiple. We believe

GLRI’s multiple will likely expand as it deploys its AERO technology and

increases oil production.

April 22, 2014 Baird Equity ResearchEnergy Technology & Resource Management

Glori Energy, Inc. (GLRI)Deploying Disruptive Tech to Existing Fields: Initiating at Outperform

Ben Kallo, CFA

[email protected]

415.364.3345

Tyler Frank

[email protected]

415.364.3342

[Please refer to Appendix- Important Disclosuresand Analyst Certification]

INITIATING COVERAGE

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Stock Data

Rating: Outperform

Suitability: Higher Risk

Price Target: $12

Price (4/22/14): $7.96

Market Cap (mil): $236

Shares Out (mil): 29.6

Average Daily Vol (mil): 0.09

Dividend Yield: 0.0%

Estimates

FY Dec 2014E 2015E 2016E

Q1 (0.10) E (0.02) E

Q2 (0.10) E 0.03 E

Q3 (0.07) E 0.07 E

Q4 (0.05) E 0.11 E

Fiscal EPS (0.31) E 0.19 E 0.65 E

Fiscal P/E NM 41.9x 12.2x

Chart/Table Sources: Bloomberg and Baird Data

April 22, 2014 | Glori Energy Inc.

Investment Thesis GLRI is an energy technology company which increases oil field production and reduces oil field decline rates through its AERO system. GLRI’s Activated Environment for Recovery of Oil (AERO) System uses customized nutrients to stimulate microorganisms in oil reservoirs to increase oil extraction rates and free trapped oil. GLRI acquires existing oil fields and deploys its AERO system to increase oil production and also licenses its technology to third-party exploration and production companies. GLRI was founded in 2005 and is headquartered in Houston, TX. GLRI’s business model is focused on acquiring existing oil fields to increase oil production. GLRI acquires existing oil fields and deploys its AERO system to increase oil output and decrease the oil field’s annual decline rate. GLRI estimates the AERO system can increase oil production from ~30% to over 60% and decrease oil field decline rates by ~50%+. Overall, this can lead to 50%+ oil production over the life of an oilfield which could lead to significant returns on GLRI’s invested capital. GLRI’s AERO system is a potentially disruptive technology which can outperform alternative enhanced oil recovery (EOR) methods at a lower price point. GLRI mainly competes with other microbial enhanced oil recovery (MEOR) technologies as well as thermal injection, gas injection, and chemical injection EOR technologies. Although these technologies can be effective in increasing the output of oil fields, they can also be costly and may require significant investment in infrastructure and/or have high transportation costs. We believe the AERO system will successfully compete with other technologies as it can be deployed with low CAPEX, doesn’t typically require well drilling at existing waterflood oil fields, and uses off-the-shelf nutrients which are in abundant supply. FIGURE 1: AERO AVERAGE INCREASE IN OIL PRODUCTION ON NINE EXISTING WELLS

Source: Company Reports, Robert W. Baird & Co.

Data from nine responding oil wells across four projects has shown a 62% increase in oil production, ignoring natural decline. This data has been collected from nine responding wells and compares six months of production prior to AERO deployment with six months of production after deployment. Additionally, GLRI’s data has shown the AERO system can increase incremental oil recovery by 9%-12% of the reservoir’s original oil in place. Although we model a 30% increase in production, there is an opportunity for much higher production rates. The AERO system has a relatively low deployment cost and can be quickly implemented at oil fields. GLRI estimates the cost of its nutrients and other costs can range from $1 (for

Details

2Robert W. Baird & Co.


large deployments) to $5 per incremental barrel of oil produced, which is much less than traditional EOR costs of $25-$60 a barrel. Additionally, GLRI estimates it will deploy its AERO system within six months of purchasing an oil field, although deployment could take approximately one year if GLRI utilizes its Phoenix acquisition strategy. GLRI’s customers include independent oil and gas companies as well as international oil companies. GLRI had worked on active projects with more than 19 companies, including Merit Energy Company, Cenovus Energy Inc. T-C Oil Company, Enerplus Partnership, Petróleo Brasileiro S.A., Denbury Resources Inc., ConocoPhillips Company, Husky Oil Operations Limited, Plains Exploration and Production Company, and Riyam Engineering & Services LLC. Additionally, GLRI has collaborated on laboratory research and development with Shell International Exploration and Production, Inc. Partnership with Statoil (STO, Not rated) provides foundation for AERO technology but GLRI continues its work on improving the technology. Glori has developed the AERO System using over 25 years of research and development from STO and other partners. Glori utilized STO’s microbial research and improved upon it to develop its AERO technology. STO developed a similar system to AERO (AMERO) and Glori and STO still collaborate and share research, which helps the companies further develop their enhanced oil recovery systems. GLRI has also collaborated with The Energy and Resources Institute (TERI) in India, and the Winogradsky Institute of Microbiology in Moscow. Intellectual Property (IP) jointly developed with STO but all required IP is retained by GLRI. Importantly, all of the required IP for the AERO system is controlled or owned by GLRI. The AERO system has received several awards and recognition including winning the Energy Institute’s Innovation Award and was a World Oil 2013 Awards Finalist. Norne field a proof point of AMERO/AERO technology. STO deployed the AMERO/AERO technology at its Norne oil field located in the Norwegian Sea. The technology helped to increase oil production and slow the decline rate of the oil field, and STO believes the AMERO/AERO technology may increase total production by ~30M barrels of oil over the life of the oil field. Due to the success of the Norne field, Statoil will likely deploy the AMERO/AERO on future offshore oil fields, according to our conversations with representatives of the company. Importantly, AERO is more effective on offshore fields when deployed at the beginning stages of a field’s development as oil fields that have been seawater flooded may have a lower uptake. We believe the success of the Norne field increases GLRI’s ability to market its AERO system to other oil companies and increased AMERO deployments by Statoil should further validate the technology. Coke and Quitman fields “hand-picked” for high probability of success. GLRI purchased the Coke and Quitman fields on March 14 and the fields are currently producing ~500bopd from 28 wells. The main driver to purchase the field is the Coke Paluxy Formation, which spans ~1,200 acres and has a geological formation which is suited for the AERO system. GLRI estimates the field has ~73 mmbbl of oil in place, proved developed producing reserves of ~1.7MM Boe, and additional proved undeveloped reserves potential. GLRI handpicked the field due to the high probability of a successful AERO deployment. Deployment across 12 oil fields provides sufficient data to select oil fields with a high-probability of success. Importantly, the AERO system has been deployed on several types of geographies and land formations which have provided significant amounts of data for analysis. GLRI believes it has increased the probability of a successful AERO deployment to ~90% as it can select fields with highly suitable attributes. Strong pipeline should facilitate GLRI’s oil field acquisition strategy. Glori currently has >200 actionable reservoir targets being reviewed across three basins located in the Denver-Julesburg (DJ) Basin, East Texas, and Illinois, with a focused deal generation team commissioned for DJ Basin. GLRI’s acquisition strategy can provide cash flow before AERO is deployed. When GLRI acquires existing oil fields, the company can receive cash flow from the oil produced at the oil field prior to AERO deployment (assuming the oil field is operating). Acquiring producing oil fields helps reduce technology risk as GLRI can continue to produce and sell oil even if the AERO system does not immediately increase production.



Phoenix acquisition strategy increases the number of available oil fields and could enable lower acquisition prices. Under GLRI’s Phoenix acquisition strategy, GLRI will acquire low-producing or decommissioned/shut-in oil fields that have met its screening criteria and have significant oil in place. GLRI will seek to acquire the assets for minimal cost, and will redevelop the assets in order to deploy its AERO system. Although this strategy will take longer to redevelop the oil reservoir (approximately one year or longer prior to AERO implementation), the strategy could allow GLRI to acquire properties at much lower rates than purchasing reservoirs which are currently producing oil. GLRI has several sources of potential Phoenix acquisition targets including GLRI customers, public regulatory bodies, and local geologists. Potential to produce incremental oil at <$10 a barrel. Due to the low upfront costs of the AERO system, incremental oil can be produced at rates well below other enhanced recovery methods. GLRI estimates incremental oil can be produced for less than $10 a barrel, which is well below current WTI oil prices exceeding $90+ a barrel. Management experience should help in locating prime oil fields for acquisition. Management has over 100 years of combined experience in the oil, gas, energy, and financial sectors which should facilitate smooth execution of oil field acquisitions and AERO system deployments. Hicks Equity Partners, LLC and private equity firm Infinity Group could contribute up to $16.5M of additional capital. Hicks, Infinity Group, and other investors invested $8.5M through a private investment in the public equity (PIPE) of GLRI and have the option to purchase up to $16.5M of GLRI’s stock for 11 business days after the closing of the transaction, which occurred on April 14. We believe the investments help to validate the AERO technology as both firms committed to investing prior to GLRI’s reverse merger with Infinity Cross Border Acquisition Corp (INXB). FIGURE 2: BAIRD FINANCIAL ESTIMATES 2014E-2016E

Robert W. Baird & Co. Estimates

We estimates GLRI’s revenue will grow at a 173% CAGR from 2014 to 2016. The rapid increase in revenues will primarily be driven through the selling of oil produced at GRLI’s acquired oil fields. Additionally, we estimate gross margin will increase to 63.6% in 2015 and 64.6% in 2016 and could expand even further if GLRI’s AERO technology has a higher production increase than our 30% forecast. We are initiating with an Outperform rating and a $12 price target. Our price target is based on a ~4x EV/EBITDA multiple using our 2016 estimate. This is in line with GLRI’s small-cap E&P comps which are currently trading at a ~4x multiple (see attached comparative valuation table). We believe GLRI’s multiple will likely expand as it deploys its AERO technology and increases oil production.

M illions Except EPS 2016ERevenue $19.2 $68.5 $143.5

Gross profit ($M) $11.9 $43.6 $92.7

% Gross Margin 62.1% 63.6% 64.6%

Operating income ($M) ($0.6) $19.4 $50.5

% of revenue -2.9% 28.2% 35.2%

EBITDA $3.2 $33.4 $80.7

% of revenue 16.6% 48.7% 56.2%

GAAP Net Income ($9.2) $5.6 $19.1

% of revenue -47.9% 8.2% 13.3%

GAAP EPS ($0.31) 0.19$ 0.65$

2014E 2015E



AERO Technology Overview

FIGURE 3: GLRI’S AERO SYSTEM OVERVIEW

Source: GLRI Company Reports, Robert W. Baird & Co.



The AERO (Activated Environment for Recovery of Oil) system increases oil well production and reduces oil well decline rates. GLRI’s AERO System uses customized nutrients to stimulate microorganisms in oil reservoirs in order to increase oil extraction rates and free trapped oil. Glori acquires existing oil fields and deploys its AERO system to increase oil production and also licenses its technology to third-party exploration and production companies. GLRI estimates that its AERO system can increase oil production from 30% to over 60% and decrease annual oil field decline rates by up to 50%. Over the life of an oil field, GLRI believes it can achieve a production improvement of over 50%. AERO is typically used on existing oil fields after natural pressure and oil production begin to decline. GLRI’s AERO System adds nutrients to injection water in order to activate native microbes and increase oil production rates while increasing the life of the oil well. The AERO system is typically deployed after the effectiveness of conventional oil recovery methods begins to decline. When oil wells are first drilled into a reservoir, the natural pressure drives oil to the surface, which allows for easy extraction. Over time, the natural pressure decreases and the rate of production declines. When this occurs, oil producers typically use conventional oil recovery methods to increase oil production rates, including waterflooding. Conventional oil recovery methods, however, typically extract only one-third of the reservoir’s original oil in place, leaving significant amounts of oil in the reservoir. In order to extract additional oil, GLRI and other oil producers can deploy the AERO system. The AERO system stimulates microbes in the oil reservoir to reduce interfacial tension between water and oil. GLRI adds tailored nutrients to injection water typically used in the waterflooding process, which nurture the native microbes and supports their growth. In response, the native microbes increase the mobility of the oil by reducing the interfacial tension between the water used in the waterflooding/water drive process and the underground oil. Additionally, the microbes produce biomass, which changes the flow of water underground. The temporary biomass works to block existing waterways, which forces the injected water to travel alternative routes through the rock. This helps the water access additional oil and increases overall production. The biomass typically dissipates after all of the nutrients are consumed, which frees up the original passageways and has little environmental impact. The combination of reduced interfacial tension and new waterways can cause a significant increase in oil production. GLRI’s technology is primarily deployed on existing waterflood oil reservoirs but can also be used elsewhere. Waterflooding is a method of increasing oil extraction by injecting water into the reservoir in order to increase pressure and to displace oil, increasing the amount of oil extracted at the well. As time passes, waterflooding loses its effect and production declines. When this occurs, oil producers can utilize enhanced oil recovery (EOR) methods, including GLRI’s AERO system, to help increase oil production. Although AERO will likely be used primarily on existing waterflood oil fields, it can also be used on water drive fields (as seen with the Coke field), offshore oil fields (such as the Norne field) and as well as other types of oil fields. AERO is implemented through a two-step process including the Reservoir Analysis and Treatment Design Phase and Field Deployment Phase. GLRI’s two-step system helps to improve the likelihood of successful AERO deployment. First, samples of the considered reservoir are tested to ensure the proper conditions exist for the stimulation of native microbes and GLRI conducts geochemical characterization of the oil field’s water and oil. After reservoirs pass the sample screening, GLRI performs lab and field tests, including core flood experiments, to assess the level of microbial life, and creates custom nutrient formulas in the lab which help to activate the microbes. The Reservoir Analysis and Treatment Design Phase typically takes approximately two months to complete and GLRI will conclude this Phase prior to purchasing an oil field to ensure it is suitable for its AERO system. After the Analysis phase demonstrates the AERO system is viable for the targeted oil field, GLRI finalizes its project development plan and moves into the Field Deployment Phase. GLRI deploys its skid-mounted injection equipment (typically close to the waterflood water injection plant) and customized nutrients are injected into the waterflood flowlines. Traditionally, GLRI expects an increase in oil production in 2-3 months after the AERO system has been implemented. If GLRI is licensing the AERO system to a third-party, customers may continue to validate the results for several months before entering a long-term contract.



AERO’s skid unit allows for a ~30-45 day supply of nutrients with minimal maintenance required and GLRI can also monitor the AERO systems remotely. When GLRI implements an AERO system it installs a skid unit, which typically includes a 30-45 day supply of concentrated nutrients and a pumping system that inserts the nutrients into the water injection system based on a specific protocol. Additionally, an air-injection system helps to facilitate the AERO process by injecting precise air amounts into the water and nutrient mix. The system is typically self-sustaining and only requires refilling of the nutrients approximately once a month. Additionally, GLRI can monitor the system remotely through a satellite or cellphone link to its monitoring center in Houston. Systems are monitored 24/7 and GLRI can use video feedback to assess the status of its equipment deployed in the field. Skid units and nutrients can be deployed with low upfront and minimal maintenance costs. We estimate the cost for GLRI’s skid units to be <$150k and the monthly supply of nutrients can cost below $5k. This lowers overall AERO deployment costs and should be attractive to potential customers who are looking for low cost and environmentally friendly EOR systems. The AERO system can be installed with minimal environmental footprint when utilizing the infrastructure of existing oil fields. The AERO system utilizes existing oil well infrastructure for waterflood fields which reduces upfront costs and lowers the environmental footprint. Additionally, GLRI’s data has shown the AERO system can increase incremental oil recovery by 9%-12% of the reservoir’s original oil in place. Potential to produce incremental oil at <$10 a barrel while significantly reducing average oil production costs. Due to the low upfront costs of the AERO system, incremental oil can be produced at very low costs, reducing the average cost per barrel of oil. Additionally, GLRI estimates incremental oil can be produced at $6 a barrel (excluding upfront costs) which is well below current WTI oil prices exceeding $95+ a barrel. The figure below provides an example of the reduction in the average price per barrel of oil after the AERO technology is installed on an existing oil well. If the AERO system caused a 50% increase in oil production for GLRI or a third-party oil producer with a $35.00/barrel production cost, the average cost per barrel would decrease to $25.33 (assuming a $6 cost for the incremental barrel produced by the AERO system).

FIGURE 4: AERO OIL PRODUCTION COST REDUCTION EXAMPLE

Source: GLRI Company Reports, Robert W. Baird & Co.



Acquisition Strategy Overview and AERO Field Tests GLRI’s acquisition strategy should provide significant opportunity for revenue expansion while generating cash flow prior to AERO deployment. GLRI’s primary business strategy is to acquire existing oil fields and deploy its AERO system. GLRI estimates the AERO system can increase oil production from ~30% to over 60% and decrease annual oil field decline rates by ~50%+. Additionally, when GLRI acquires existing oil fields, the company can begin to receive cash flow from the oil produced at the wells prior to AERO deployment (assuming the oil field is producing oil). Acquiring producing oil fields helps to reduce technology risk as GLRI can continue to produce and sell oil even if the AERO system does not increase production. GLRI recently acquired the Coke and Quitman fields, and has >200 actionable reservoir targets being reviewed across three basins located in the DJ Basin, East Texas, and Illinois. Coke and Quitman fields “hand-picked” for high probability of success. The Coke field is a water drive field where the oil is driven through the reservoir by an active underground aquifer. A benefit of a water drive field is there are no harmful chemicals injected into the oil reservoir. One of the drivers to purchase the field is the Coke Paluxy Formation, which spans ~1,200 acres and has a sandstone geological formation which is suited for the AERO system. The initial deployment of the AERO system is expected to occur by March 2015 as GLRI needs to receive unitization approval from the Railroad Commission of Texas. The fields are currently producing ~500bopd from 28 wells. The fields also have two additional producing horizons including Sub-Clarksville and Young. GLRI estimates the field has ~73 mmbbl of oil in place, proved developed producing reserves of ~1.7MM Boe, and additional proved undeveloped reserves potential. Additionally, the Coke and Quitman fields have estimated reserves to production ratio of ~19 years. GLRI purchased the Coke and Quitman fields on March 14 for ~$37.2M in cash and a ~$2M convertible note with a 6% interest rate. The note is payable to Petro-Hunt LLC and has option to be converted into 250k shares of common stock.

FIGURE 5: COKE FIELD LOCATION AND COKE PALAXY STRUCTURE MAP

Source: GLRI Company Reports, Robert W. Baird & Co

Norne field shows offshore potential of AMERO/AERO technology. STO deployed the AMERO/AERO technology at its Norne oil field located in the Norwegian Sea. The technology helped to increase oil production and slow the decline rate of the oil field, and STO believes the AMERO/AERO technology may increase total production by 30M barrels of oil over the life of the oil field. Due to the success of the Norne field, Statoil will likely deploy the AMERO/AERO future offshore oil fields, according to our conversations with representatives of the company. Importantly, AERO is more effective on offshore fields when deployed at the beginning stages of a field’s development as oil wells that have been seawater flooded may have a lower uptake. We believe the success of the Norne field increases GLRI’s ability to market its AERO system to other oil companies and increased AMERO deployments by Statoil should further validate the technology.



The Stirrup field pilot showed significant uplift in oil production on a mature waterflooded oil reservoir. In a field test in Morton County, Kansas, GLRI deployed the AERO system on the 26-year old Stirrup Upper Morrow ‘D’ oil reservoir. The Stirrup reservoir is a sandstone reservoir located at a 5,200 ft. depth with a porosity of ~15%, and permeability of ~75mD. Over the course of a year, AERO improved oil output by a ~750k gallons (~17.6k bbl). The majority of the gain came from oil well 12-2 which had a ~60% higher oil output. Additionally, prior to AERO deployment the wells studied were producing ~91% water which was reduced to 88% after AERO deployment. This is the longest running AERO project (excluding previous implementations done by Statoil). FIGURE 6: STIRRUP FIELD

Source: Society of Petroleum Engineers Paper 144205-PP



Services Overview Services segment provides opportunity for GLRI to deploy its AERO System on third-party oil fields and receive cash payments while collecting data for future deployments. In addition to acquiring its own oil fields for AERO deployment, GLRI can design, build, test prototype equipment and develop project specific AERO systems for third-party customers. GLRI customizes its AERO system to deploy at customer sites by conducting lab tests on the native microorganisms and creating customized nutrient formulas to help ensure the AERO deployment is successful. GLRI also provides warehousing for nutrients and chemicals and reservoir engineering. Demand for the AERO system stems around its potential for increased

oil production as well as its low deployment and upfront capital costs. GLRI typically service fee for deploying its AERO system. In addition to potentially increasing oil production, AERO has a low-risk of negatively affecting oil fields as it only inputs off-the-shelf nutrients into the injection water which should help attract customers over other EOR methods. GLRI uses direct sales channels to market its AERO system. GLRI’s AERO technology is typically piloted by customers prior to being deployed. A typical pilot process can take considerable time as is requires the deployment of the AERO system and time to monitor production uplift. That said, successful pilot deployments can lead to larger deployments of the AERO system at customer oil fields. As of December 31, 2013 GLRI’s business development group was comprised of four people based in Fort Worth and Houston, Texas. GLRI’s customers include independent oil and gas companies as well as international oil companies. GLRI had worked on active projects with more than 19 companies, including Merit Energy Company, Cenovus Energy Inc. T-C Oil Company, Enerplus Partnership, Petróleo Brasileiro S.A., Denbury Resources Inc., ConocoPhillips Company, Husky Oil Operations Limited, Plains Exploration and Production Company, Riyam Engineering & Services LLC. Additionally, GLRI has collaborated on laboratory research and development with Shell International Exploration and Production, Inc.

Financials FIGURE 7: BAIRD FINANCIAL ESTIMATES 2014-2016

Source: Robert W. Baird & Co. Estimates

Our initial estimates have GLRI’s revenue growing at a CAGR of 173% per annum from 2014 to 2016. The rapid increase in revenues will primarily be driven through selling oil produced at GLRI’s acquired oil fields. We estimate GLRI’s oil production revenue to increase 313% y/y in 2015, and 115% in 2016 as it acquires oil fields and deploys its AERO technology. The main factors in oil production revenue growth will be the acquisition of new oil fields and deployment of the AERO system. We forecast GLRI will deploy AERO on the Coke field, and

M illions Except EPS 2016ERevenue $19.2 $68.5 $143.5

Gross profit ($M) $11.9 $43.6 $92.7

% Gross Margin 62.1% 63.6% 64.6%

Operating income ($M) ($0.6) $19.4 $50.5

% of revenue -2.9% 28.2% 35.2%

EBITDA $3.2 $33.4 $80.7

% of revenue 16.6% 48.7% 56.2%

GAAP Net Income ($9.2) $5.6 $19.1

% of revenue -47.9% 8.2% 13.3%

GAAP EPS ($0.31) 0.19$ 0.65$

2014E 2015E

Source: GLRI Company Reports



Assumed Oil Price 90.00$ Oil Field Coke 2 3 4 5 6Acquisition Date 3/14/2014 11/1/2014 4/1/2015 9/1/2015 2/1/2016 6/1/2016Initial Production BOPD 500 500 500 600 750 750Initial Decline Rate 10% 10% 10% 10% 10% 10%AERO Start Date 3/1/2015 5/1/2015 10/1/2015 3/1/2016 8/1/2016 12/1/2016AERO Uplift 30% 30% 30% 30% 30% 30%AERO Decline Rate 5% 5% 5% 5% 5% 5%

we will likely see initial improvements by Q1-Q2:15. We estimate GLRI will make one or multiple additional acquisitions in Q4:14 to increase its oil production by an additional ~500 barrels per day (see acquisition schedule below). We estimate GLRI will sell oil at ~$90/barrel which is ~13.3% below the WTI May 14 contracts selling at $103.81 (as of April 15). Furthermore, we expect Services revenue to increase as its sales and marketing force grows and it is able to expand its footprint both in the U.S. and internationally. Additionally, we believe GLRI should be able to secure new partnerships as an increasing number of successful deployments should help further validate the AERO technology and increase customer awareness. FIGURE 8: BAIRD REVENUE GROWTH ESTIMATES, 2014-2016


We estimate GLRI will make acquisitions equating to output of 1,100bopd in 2015 and 1,500bopd in 2016 and model a 30% increase in production from AERO deployment. We believe GLRI will make an acquisition approximately every six months during 2015 and 2016 driven by its strong acquisition pipeline, although the timing and size of acquisitions will vary depending on the opportunities available. Additionally, we model a ~30% increase in production and a 50% in oil field decline rate from AERO deployment.

FIGURE 9: BAIRD ESTIMATED OILFIELD ACQUISITION SCHEDULE


We expect gross margin to increase as GLRI acquires oil fields and increases revenues from oil production. We are modeling gross margin of 62.1% in 2014 and believe gross margin will expand as GLRI deploys its AERO system and is able to lower the average cost per barrel of oil. We estimate gross margin will increase to 63.6% in 2015 and 64.6% in 2016 and could expand even further if GLRI’s AERO technology has a higher production increase than our 30% forecast. Operating margin should significantly increase as GLRI transitions from a pure services model to an oil production and services model. We estimate GLRI’s operating margin will expand from (2.9%)% in 2014 to 28.2% in 2015 and 35.2% in 2016 as the company increases revenue from oil production. As GLRI continues to expand the number of oil fields it owns and



operates, operating margin should continue to expand. We believe 2014 will be lower than 2015/2016 as the company works to prepare the Coke field for AERO deployment. R&D spending should continue to increase as GLRI continues to develop its AERO technology to be effective on additional geographies. We believe GLRI will increase its investment in R&D to further its technology and to maximize the amount of potential AERO deployment targets. As GLRI expands the types of land formations and geographies that are suitable for AERO deployment, the company should be able to sign additional service agreements and increase its pipeline of acquisition targets. EPS expected to significantly increase as revenue and margins expand. We believe GLRI’s EPS should increase as it increases its revenue and expands margins through the acquisition of oil fields. We estimate 2014 EPS of ($0.31) and believe EPS will grow to $0.19 in 2015 and $0.65 in 2016. That said, GLRI may issue additional shares to fund its acquisitions which could decrease our EPS estimates.

We are initiating with an Outperform rating and a $12 price target. Our price target is based on a ~4x EV/EBITDA multiple using our 2016 estimate. This is in line with GLRI’s comps which are currently trading at a ~4x multiple (see attached comparative valuation table). We believe GLRI’s multiple will likely expand as it deploys its AERO technology and increases oil production.

GLRI Valuation

In Millions 2016EEst. 2016 EBITDA $80.7Multiple 4xImplied EV $338.7

(-) Debt $29.3(+) Cash* $38.5(-) Minority Interest $0.0

Implied Market Cap $348.0Share Count** 29.6

Implied Share Price $12* Baird estimate of cash balance after reverse merger with INXB.

**Share count does not include outstanding warrants of ~5.75M shares at $10 per share.

Source: Baird Estimates



Other Enhanced Oil Recovery Technologies Unique technology provides minimal direct competition in the enhanced oil recovery sector. GLRI’s patented technology uses off-the-shelf nutrients and GLRI controls the quality of the injection water to increase the activities of microbes. Other EOR technologies typically inject foreign microbes and/or substrates along with the nutrients which make them more expensive to deploy, present challenges with sourcing substrates, and can be damaging to the environment. GLRI’s AERO technology is uniquely positioned as it the lowest-cost EOR technology in the market, requires the least amount of capital investment for deployment, and has a low risk to the production of the reservoir. Thermal injection increases oil output but requires significant upfront capital. Thermal injection EOR methods are typically applied to viscous and heavy crude reservoirs. The most popular methods of thermal EOR are steam injection and in-situ combustion. During the thermal steam injection process, high temperature pressurized steam is injected into an oil well in order to increase the temperature of the oil and reduce its thickness. This allows for easier oil displacement and increased oil extraction. With in-situ combustion, air is injected into the well and oil is ignited, which generates heat and combustion gases. This helps to heat and loosen trapped oil in the well and also increases recovery. According to the World Petroleum Organization, thermal injection/combustion is the most frequently used EOR method. That said, thermal injection requires significant upfront capital and energy for pressure pumps and the equipment to generate high-temperature steam or air. Gas injection has been effective but can take considerably longer to increase production. Gas injection is typically used on light oil reservoirs in both sandstone and carbonates. CO2 and hydrocarbon gas are both options for gas injection enhanced recovery and the majority of CO2 projects are found in the Permian Basin and West Texas. Gases are pumped into existing oil wells which help to increase oil production. There are two main drawbacks of CO2 injection including capital costs and uplift time. It is estimated CO2 projects can take 12-24 months before an increase in oil production as the CO2 has to be pumped through the entire oil reservoir before having an effect. Additionally, CO2 has to be piped to the oil reservoir, which can require significant upfront costs and time to build a pipeline. There are currently over 100+ commercial CO2-EOR projects throughout the world. Chemical injection has had less success than other EOR methods and can be expensive for incremental oil production. In chemical flooding, oil producers add large amounts of chemicals to water which is injected into the oil reservoir. Typically polymers are used, as well as surfactants which can help to increase oil recovery. That said, chemical injection requires mass amounts of chemicals to be transported to the oil reservoir and can be hard to source in many locations. Competition GLRI’s success will be largely based on its ability to acquire oil fields and sell the oil produced as opposed to competing with other EOR technologies. Due to GLRI’s unique technology and acquisition strategy, we believe the company’s success will largely be dependent on its ability to cost effectively acquire oil fields and sell the produced oil into the marketplace. We believe GLRI will become more competitive with other E&P companies as it deploys its AERO system which should allow GLRI to produce incremental barrels of oil at a low cost. That said, we have provided information about other EOR technology companies below. Denbury Resources, Inc. (DNR, Outperform) – DNR focuses on enhanced oil recovery through the use of CO2 flooding. The company operates in the Rocky Mountain and Gulf Coast regions and acquires properties to deploy its CO2 injection system to improve oil well production. Additionally, DNR provides CO2 to industrial customers. As of March 2013, DNR had ~451 MMBOE of estimated proved oil and gas reserves. The company has >1400 employees, was founded in 1951, and is headquartered in Plano, Texas.

Micro-Bac International, Inc. (Private) – Micro-Bac provides microbial products for the wastewater and petroleum industries. Micro-Bac competes with GLRI primarily through its Para-Bac product lines, which include Microbial Enhanced Oil Recovery products to alter



formation flow features of oil reservoirs and increase production of oil wells. Micro-Bac also provides environmentally friendly products for cleaning up oil spills, managing agri-business and animal processing facility waste, reducing paraffin build-up in oil wells, and other industrial clean-up projects. Micro-Bac was founded in 1982 and is headquartered in Round Rock, Texas.

Titan Oil Recovery (Private) - Titan specializes in Microbial Enhanced Oil Recovery products, which include specially formulated nutrients into oil reservoirs to increase oil production and to increase the life of oil fields. Titan has >300 well applications across 30 oil fields. Titan’s corporate office is located in Beverly Hills, California.

Management Stuart Page - Chief Executive Officer Mr. Page has served as Glori’s CEO and board member since March 2007 and also assumed the role of President in June 2011. Prior to Glori, Mr. Page was Vice President of IHS Energy, an information services company, where he was instrumental in leading mergers and acquisitions activity. Prior to IHS Energy, Mr. Page held senior positions with Baker Atlas, McKinsey and Co., SCF Partners and Qittitut Consulting. Mr. Page has extensive experience in the oil and gas industry and has served 25+ years in the upstream energy sector. Mr. Page received a MBA from Harvard Business School and B.A. and M.A. in engineering science from Oxford University. Victor M. Perez - Chief Financial Officer Mr. Perez joined Glori in August 2011 and has held various roles in finance and banking for 24+ years. Prior to joining Glori, Mr. Perez served as CFO of Allis-Chalmers Energy Inc., a NYSE exchange listed company with nearly 3800 employees, from 2004 to 2011 and also served as Vice President and Chief Financial Officer of Trico Marine Services from 1995 to 2003. Before Trico, Mr. Perez was the Vice President of Corporate Finance with Offshore Pipelines, Inc. from 1990-1995. Mr. Perez holds a MBA from the University of Texas and a B.A. in economics from Virginia Tech. Dr. Michael Pavia - Chief Technology Officer Dr. Pavia joined Glori as CTO in May 2013 bringing over 20 years of experience in pharmaceutical research and discovery. Prior to Glori, Dr. Pavia was Entrepreneur-in-Residence at the venture capital firm Oxford Bioscience Partners from 2002-2010. Prior to Oxford, Dr. Pavia was the CTO at Millennium Pharmaceuticals, where he applied new technologies to improve drug discovery and productivity process. Dr. Pavia currently serves on the boards of Azevan Pharmaceuticals Inc., and Selventa, Inc. He holds a PhD in organic chemistry from the University of Pennsylvania and a B.A. degree in chemistry from Lehigh University. Thomas Holland - Senior Vice President, Acquisitions & Production Mr. Holland joined Glori in December 2013. Prior to Glori, Mr. Holland had a successful career at ARCO from 1975 to 2000 where he held various positions including Vice President, Commercial, for ARCO Permian, U.S. Land Operations Manager, and Land Manager positions in the Alaska, California and Rocky Mountain business units. After ARCO, Mr. Holland formed Westwin Energy, LLC and raised capital to acquire oil in the Permian Basin where he and his team got oil production up to ~2,000 barrels per day. Westwin was sold in 2004, at which point he formed Petrus Exploration, which used 3D seismic information to sell oil prospects along the Gulf Coast and in 2011 Petrus Exploration’s production was acquired by an independent oil company. Mr. Holland holds a B.B.A. in Petroleum Land Management from the University of Oklahoma Willaim Bierhaus II - Senior Vice President, Business Development Mr. Bierhaus joined Glori in March of 2010 after a successful 28-year career at Halliburton Energy Services Inc. Most recently, Mr. Bierhaus served as the Global Manager of Business Development and Marketing-Cementing and managed business development activities in over 70 countries for Halliburton. Mr. Bierhaus holds a B.A. in civil engineering from Purdue University and is a member of the Society of Petroleum Engineers (SPE).



Kenneth Nimitz - Senior Vice President, Operations Mr. Nimitz joined Glori as Senior Vice President of Operations in January 2012. Prior to Glori, Mr. Nimitz was the Regional Vice President Americas from 2009-2012 at Neptune Marine Services Limited, a supplier of engineered services to the renewable energy, oil and gas sectors. While at Neptune, he created the five-year strategic growth plan for the US Gulf of Mexico market. Before Neptune, Mr. Nimitz built an 18-year career with Schlumberger Limited and obtained the position of GeoMarket Operations Manager. Mr. Nimitz holds an MBA from Duke University and a B.A in mechanical engineering from the Massachusetts Institute of Technology.

Market Dynamics and Opportunity

Enhanced Oil Recovery market could reach $1.3T by 2015. According to the U.S. Energy Information Administration (EIA), U.S. crude oil production was 7.45M barrels per day in 2013 and will increase to 9.16M in 2015. Additionally, the EIA estimates total world production of global petroleum and other liquids will reach 93M barrels per day in 2015, up from 90.33 in 2013, while total consumption will increase to 92.97M barrels per day up from 90.38 in 2013. The EIA also estimates total global petroleum production will grow to ~110.3M barrels per day in 2040. Moreover, a 2010 report by SBI Energy forecasts the enhanced oil recovery market will grow to over $1.3T by 2015.

GLRI estimates the annual incremental production opportunity for U.S. oil producers is $10B+. This estimate is based on a U.S. Department of Energy Idaho National Laboratory study which showed that waterflooding accounted for ~4M barrels of oil per day. GLRI estimates the AERO system is suitable for ~50% of waterflood sandstone oil fields and if its AERO system caused a 30% increase in production in these oil reservoirs, the market would be greater than $10B (assuming an oil price of $80/barrel).

Global proved oil reserves reached over 1,651B+ barrels at YE:2012 which is enough to meet ~52+ years of global production. Enersis S.A. (ENI, Not rated) estimates global proved oil reserves of ~1,651B barrels while British Petroleum (BP, Not rated) estimates 1,669B barrels as of the end of 2012. This is enough oil for over ~52.9 years at current production levels and has increased from ~48.3 years ten years ago. Additionally, BP estimates reserves have increased ~350B barrels over the past 10 years (~26%) as more reserves have been located and some estimates have been revised upward. The increasing amount of oil reserves should help facilitate long-term growth for GLRI as the industry continues to grow and seeks out methods to extract additional oil from producing oil fields.

FIGURE 10: GLOBAL OIL RESERVES (MILLION BARRELS)

Source: Eni 2013 World Oil and Gas Review



North America currently holds ~12% of global oil reserves with ~204B barrels which should provide ample opportunity for GLRI’s acquisition strategy. North America continues to hold significant oil reserves which should provide sufficient opportunities for GLRI to acquire oil fields and develop new partnerships and client relationships. Additionally, Latin America has witnessed a strong increase in oil reserves which could benefit GLRI through increased service agreements or potential acquisitions if the company expands its operations in the region. We believe GLRI could be well positioned to capture market share in Latin America through its relationship with BR Petrobras (PBR, Not rated). Since 2005, Latin America’s oil reserves have increased by nearly ~218B barrels of oil.

FIGURE 11: GLOBAL OIL RESERVES AND GROWTH


The majority of oil reserves in North America are owned by small companies which should facilitate a smoother acquisition process. We believe this will benefit GLRI as smaller companies may be quicker to adopt the AERO system due to its low upfront capital costs and potential to significantly increase oil production. Smaller companies should also enable faster closing processes for GLRI’s acquisition strategy. Additionally, GLRI’s history of working with Royal Dutch Shell plc (RDS.A, Not rated), Husky Energy (HSE, Not rated), and Kinder Morgan (KMP, Not rated), and Merit Energy Company (Private) should help GLRI to obtain additional service agreements in the United States and internationally.



FIGURE 12: GLOBAL OIL RESERVES BY TYPE OF COMPANY


Majors include: ExxonMobil, Shell, BP, Chevron, Total, Eni, ConocoPhillips. NOCs include: ADNOC, Bahrain NOC, Bashneft, CBNOOC, CNPC/PetroChina, CPC Taiwan, Dubai Petroleum, Ecopetrol, EGPC, Gazprom, INOC, Israel NOC, KazMunaiGaz, KNOC, KPC, Lybian NOC, MEDCO Energy, MOGE, Morocco NOC, Mubadala Abu-Dhabi, NIOC, NNPC, Novatek, Oil India, ONGC, Pakistan Oil Field, Pakistan Petroleum, PDO, PdVSA, Pemex, Pertamina, Petrobras, Petronas, PetroVietnam, PGNiG, PTTEP, QP, Rosneft, Saudi Aramco, Sinopec, SOCAR Azerbaijan, Sonangol, Sonatrach, Statoil, Surgutneftegas, Syria Petroleum, Tatneft, Turkmengas, Uzbekneftegas. North America has historically been a net petroleum importer which should provide a market for GLRI’s oil production. North America has historically been a net importer of petroleum and consumed ~5M barrels per day more than it produced in 2012. That said, the gap between production and consumption has narrowed each year since 2008, when North America consumed ~8.8M barrels of petroleum more than it produced. Global petroleum consumption has increased from 84.7M barrels per day in 2008 to 89.4M barrels per day in 2012, an increase of 4.6%. Importantly, global demand for petroleum continues to increase and we believe this will benefit GLRI as producers look for alternative oil recovery methods to increase oil production rates.

FIGURE 13: HISTORICAL OIL SUPPLY AND PETROLEUM CONSUMPTION 2008-2012 (MILLION BARRELS PER DAY)

Source: U.S. EIA, Robert W. Baird & Co.

23.923.0 23.5 23.3 22.9

15.1 15.5 16.1 16.717.9

0.0

5.0

10.0

15.0

20.0

25.0

30.0

2008 2009 2010 2011 2012

North America Oil Supply North America Petroleum Consumption

84.784.9

87.5

88.7

89.4

85.7

84.9

87.587.9

89.8

82.0

83.0

84.0

85.0

86.0

87.0

88.0

89.0

90.0

91.0

2008 2009 2010 2011 2012

World Oil Supply World Petroleum Consumption



The United States continues to be a net importer of crude oil and petroleum and offers a large market for GLRI’s oil production. As of January, the U.S. remained a net importer of crude oil with imports averaging 5.2M barrels per day. Imports have declined ~42.9% since January 2000 when they have averaged 9.1M barrels per day. We believe the U.S. provides a strong market for GLRI’s oil production and enables the company to quickly sell the oil produced from its fields. FIGURE 14: U.S. NET IMPORTS OF CRUDE OIL AND PETROLEUM, JAN. 2000 TO JAN. 2014 (MILLION BARRELS PER DAY)

U.S. EIA estimates, Robert W. Baird & Co.

In 2013, the U.S. EIA estimates ~90.3M barrels of petroleum and other liquids were produced each day. OPEC was the largest producer at ~36.3M barrels per day, followed by North America at ~19.3M barrels per day. Importantly, the US EIA sees production increasing y/y as companies expand production capacity and seek to capitalize on increasing oil prices. We believe this will drive AERO system demand.

FIGURE 15: GLOBAL PETROLEUM AND OTHER LIQUIDS PRODUCTION 2013 (LEFT) AND 2012-2015E (RIGHT) (MILLION BARRELS PER DAY)

Source: U.S. EIA estimates, Robert W. Baird & Co.

Although volatile, West Texas Intermediate oil prices are expected to remain above $85 a barrel for the foreseeable future. The U.S. EIA is forecasting the average WTI oil price to slowly decline from $100.82/barrel in February 2014 to $88.00 a barrel in December 2015, according to the March 2014 Short Term Energy Outlook. That said, in the longer term, oil prices are expected to significantly increase.

OPEC Countries,

36.3

North America, 19.3

Russia and Caspian Sea,

13.3

Latin America, 4.9

North Sea, 2.9

Other Non-OPEC, 13.6

90.3M

9.1

13.4

5.2

0.02.04.06.08.0

10.012.014.016.0

Jan-

2000

Sep-

2000

May

-200

1

Jan-

2002

Sep-

2002

May

-200

3

Jan-

2004

Sep-

2004

May

-200

5

Jan-

2006

Sep-

2006

May

-200

7

Jan-

2008

Sep-

2008

May

-200

9

Jan-

2010

Sep-

2010

May

-201

1

Jan-

2012

Sep-

2012

May

-201

3

Jan-

2014



FIGURE 16: WEST TEXAS INTERMEDIATE (WTI) CRUDE OIL PRICE (2013-2015E)

Source: U.S. EIA, Robert W. Baird & Co.

The U.S. Energy Information Administration believes WTI spot prices will rise from ~$97/barrel in 2013 to ~$139/barrel in 2040. Along with increasing demand, the EIA believes WTI spot prices will increase ~43.3% through 2040. We believe prices will continue to rise as oil demand continues to increase in both developing and developed countries. This puts GLRI in an advantageous position to capture increasing economics as GLRI’s oil fields should have long production lives (10+ years) and it can produce incremental oil for <$10.

FIGURE 17: U.S. EIA WTI OIL PRICE FORECAST, 2011A TO 2040E

U.S. EIA estimates, Robert W. Baird & Co.

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

$220

Jan 2013 Jul 2013 Jan 2014 Jul 2014 Jan 2015 Jul 2015

Historical spot price STEO price forecast NYMEX futures price


Investment Thesis

GLRI’s business model is focused on acquiring existing oil fields to increase oil production.

GLRI acquires existing oil fields and deploys its AERO system to increase oil output and decrease the

oil field’s annual decline rate. GLRI estimates the AERO system can increase oil production from

~30% to over 60% and decrease oil field decline rates by ~50%+. Overall, this can lead to 50%+ oil

production over the life of an oilfield which could lead to significant returns on GLRI’s invested capital.

GLRI’s AERO system is a potentially disruptive technology which can outperform alternative

enhanced oil recovery (EOR) methods at a lower price point. GLRI mainly competes with other

microbial enhanced oil recovery (MEOR) technologies as well as thermal injection, gas injection, and

chemical injection EOR technologies. Although these technologies can be effective in increasing the

output of oil fields, they can also be costly and may require significant investment in infrastructure

and/or have high transportation costs. We believe the AERO system will successfully compete with

other technologies as it can be deployed with low CAPEX, doesn’t typically require well drilling at

existing waterflood oil fields, and uses off-the-shelf nutrients which are in abundant supply.

Partnership with Statoil (STO, Not rated) provides foundation for AERO technology but GLRI

continues its work on improving the technology. Glori has developed the AERO System using

over 25 years of research and development from STO and other partners. Glori utilized STO’s

microbial research and improved upon it to develop its AERO technology. STO developed a similar

system to AERO (AMERO) and Glori and STO still collaborate and share research which helps the

companies further develop their enhanced oil recovery systems. GLRI has also collaborated with The

Energy and Resources Institute (TERI) in India and the Winogradsky Institute of Microbiology in

Moscow.

Intellectual Property (IP) jointly developed with STO but all required IP is retained by GLRI.

Importantly, all of the required IP for the AERO system is controlled or owned by GLRI. The AERO

system has received several awards and recognition including winning the Energy Institute’s

Innovation Award and was a World Oil 2013 Awards Finalist.

Coke and Quitman fields “hand-picked” for high probability of success. GLRI purchased the

Coke and Quitman fields on March 14 and the fields are currently producing ~500bopd from 28 wells.

The main driver to purchase the field is the Coke Paluxy Formation which spans ~1,200 acres and has

a geological formation which is suited for the AERO system. GLRI estimates the field has ~73 mmbbl

of oil in place, proved developed producing reserves of ~1.7MM Boe, and additional proved

undeveloped reserves potential. GLRI handpicked the field due to the high probability of a successful

AERO deployment.

Deployment across 12 oil fields provides sufficient data to select oil fields with a

high-probability of success. Importantly, the AERO system has been deployed on several types of

geographies and land formations which have provided significant amounts of data for analysis. GLRI

believes it has increased the probability of a successful AERO deployment to ~90% as it can select

fields with highly suitable attributes.

Strong pipeline should facilitate GLRI’s oil field acquisition strategy. Glori currently has >200

actionable reservoir targets being reviewed across three basins located in the Denver-Julesburg (DJ)

Basin, East Texas, and Illinois, with a focused deal generation team commissioned for DJ Basin.

GLRI’s acquisition strategy can provide cash flow before AERO is deployed. When GLRI

acquires existing oil fields, the company can receive cash flow from the oil produced at the oil field

prior to AERO deployment (assuming the oil field is operating). Acquiring producing oil fields helps

April 22, 2014 | Glori Energy, Inc.


reduce technology risk as GLRI can continue to produce and sell oil even if the AERO system does

not immediately increase production.

Potential to produce incremental oil at <$10 a barrel. Due to the low upfront costs of the AERO

system, incremental oil can be produced at rates well below other enhanced recovery methods. GLRI

estimates incremental oil can be produced for less than $10 a barrel which is well below current WTI

oil prices exceeding $90+ a barrel.

We are initiating with an Outperform rating and a $12 price target. Our price target is based on a

~4x EV/EBITDA multiple using our 2016 estimate. This is in line with GLRI’s small-cap E&P comps

which are currently trading at a ~4x multiple (see attached comparative valuation table). We believe

GLRI’s multiple will likely expand as it deploys its AERO technology and increases oil production.

Risks & Caveats

Exposure to commodity price volatility risk. Crude oil prices are volatile and any production volume

that is unhedged remains exposed to price fluctuations in the oil market. This could lead to significant

changes in expected revenue and cash flows, and could impact capital expenditures on existing

projects or expected oil field acquisitions.

Regulatory changes and environmental issues. Changes in hydraulic fracturing regulations could

substantially harm Glori’s business if inclusive of oil recovery operations. Additionally, climate change

legislation could affect demand for Glori’s products, restrict drilling activity, or add unexpected

operating costs.

Customer concentration risk. Glori derives a significant portion of its revenue from a small group of

customers. If Glori were to lose multiple customers and be unable to acquire new customers, its

business could be materially impacted. During 2013, four E&P companies including Cenovus Energy

Inc., ConocoPhillips Company, T-C Oil Company, LLC and Merit Energy Company, exceeded 10% of

GLRI’s total annual service revenue.

Severe weather and adverse operating conditions. Glori recently acquired the Coke oilfield in

Texas and plans to acquire oilfields in areas that have historically had harsh weather. Severe weather

could cause operational delays, increased costs, and/or drilling interruptions.

Technology risk. Glori’s AERO System has not been tested on the oil fields it will acquire. If Glori’s

AERO system does not work as intended, it could have to sell the oil fields or continue to produce oil

without enhanced recovery rates, lowering expected returns. Additionally, AERO has been utilized on

a limited number of oil reservoirs, which provides limited information about the effectiveness of the

technology.

Business concentrated in the U.S. Glori currently plans to acquire oil fields located within the

United States. A sudden decrease in U.S oil demand could lower demand for Glori’s oil and/or lower

the price received.

Increasing competition in the enhanced oil recovery market. New enhanced oil recovery

participants could come to market with products that result in higher oil recovery at cheaper prices

than Glori. Additionally, competitors could compete with Glori in the purchasing oil fields which could

increase acquisition costs or decrease the amount of buying opportunities.

Company Description



GLRI is an energy technology company which acquires existing oil fields and increases oil

field production through the deployment of its AERO system. GLRI’s Activated Environment for

Recovery of Oil (AERO) System uses customized nutrients to stimulate microorganisms in oil

reservoirs to increase oil extraction rates and free trapped oil. GLRI acquires existing oil fields and

deploys its AERO system to increase oil production and also licenses its technology to third-party

exploration and production companies. GLRI was founded in 2005 and is headquartered in Houston,

TX.



Ben Kallo, CFA 415-364-3345

Tyler Frank 415-364-3342

Model Date: 4/21/2014

Year-End: December

Income Statement (in thousands) 2012A 2013A Q1:14E Q2:14E Q3:14E Q4:14E 2014E 2015E 2016E

Production Revenue 0 0 0 3,553 3,504 6,150 13,207 54,513 117,466

Services Revenue 2,181 3,219 780 1,200 1,800 2,220 6,000 14,000 26,000

Revenue 2,181 3,219 780 4,753 5,304 8,370 19,207 68,513 143,466

Services COGS 291 448 672 829 2,239 5,225 9,704

Oil COGS, LOE, and Severance Taxes 0 0 0 1,358 1,339 2,350 5,047 19,735 41,101

Gross Profit 0 0 489 2,948 3,293 5,191 11,921 43,553 92,661

Operations SG&A 3,901 4,511 702 713 732 753 2,900 3,042 3,331

Corporate SG&A 3,411 4,279 1,053 1,054 1,034 1,088 4,229 4,755 5,430

R&D 1,459 1,682 390 390 400 421 1,600 2,404 3,250

Depreciation, depletion and amortization 560 603 150 969 955 1,677 3,751 13,998 30,149

Total Operating Expenses 9,331 11,075 2,295 3,126 3,121 3,939 12,481 24,199 42,160

Operating Income (EBIT) (8,642) (10,172) (1,806) (178) 172 1,252 (560) 19,353 50,501

EBITDA (8,082) (9,569) (1,656) 791 1,127 2,929 3,191 33,351 80,651

Other expense (income) 3,298 437

Interest expense (income) 0 0 1,014 2,681 2,283 2,657 8,636 13,733 21,054

Pre-Tax Income (11,940) (10,609) (2,820) (2,859) (2,112) (1,405) (9,196) 5,620 29,447

Income tax expense (benefit) 0 0 0 0 0 0 0 0 10,307

0

Net Income (11,940) (10,609) (2,820) (2,859) (2,112) (1,405) (9,196) 5,620 19,141

Accretion of redeemable preferred stock and preferred stock dividends (9,736) (14,317)

Net Income (loss) applicable to common stockholders (21,676) (24,926) (2,820) (2,859) (2,112) (1,405) (9,196) 5,620 19,141

Basic shares 3,060 3,201 29,583 29,583 29,583 29,583 29,583 29,583 29,583

Diluted shares 3,060 3,201 29,583 29,583 29,583 29,583 29,583 29,583 29,583

EPS (7.08) (7.79) (0.10) (0.10) (0.07) (0.05) (0.31) 0.19 0.65

Source: Company reports, Robert W. Baird Estimates

Please refer to Appendix - Important Disclosures and Analyst Certification.

Glori Energy, Inc (GLRI)


Ben Kallo, CFA 415-364-3345

Tyler Frank 415-364-3342

Model Date: 4/21/2014

Year-End: December

Balance Sheet (in thousands) 2012A 2013A

2013 Pro Forma (Baird

Estimates)

Cash & cash equivalents 18,707.0 20,867.0 38,500.0

Accounts receivable, net of allowance for doubtful accounts of $80 231.0 307.0 307.0

Prepaid expenses and other current assets 172.0 71.0 74.0

Inventory 45.0 24.0 24.0

Oil COGS, LOE, and Severance Taxes

Total Current Assets 19,155.0 21,269.0 38,905.0

Property and equipment, at cost, net of accumulated depreciation, depletion and amortization 5,040.0 2,810.0 42,763.0

Deferred offering costs 378.0 378.0

Deferred loan costs and other 282.0 162.0 602.0

Total Non-Current Assets 5,322.0 3,350.0 43,743.0

Total Assets 24,477.0 24,619.0 82,648.0

Accounts payable 368.0 534.0 534.0

Deferred revenue 995.0 1,753.0 1,753.0

Accrued expenses 454.0 417.0 570.0

Derivative Liabilities 2,329.0 0.0 0.0

Warrant liabilities 701.0 13,905.0 0.0

Current portion of long-term debt 2,906.0 3,499.0 7,949.0

Total Current Liabilities 7,753.0 20,108.0 10,806.0

Long-term debt, less current portion 4,973.0 1,771.0 21,321.0

Other long-term liabilities 276.0 449.0 1,198.0

Long-term debt, including current maturities

Total Non-Current Liabilities 5,249.0 2,220.0 22,519.0

Total Liabilities 13,002.0 22,328.0 33,325.0

Warrants 6,342.0

Temporary Equity 64,109.0 78,669.0 0.0

Common Stock 1.0 1.0 28.0

Additional Paid-in Capital 87,981.0

Accumulated Deficit (52,635.0) (76,379.0) (45,028.0)

Shareholder's Equity 11,475.0 2,291.0 49,323.0

Total Liabilities & Equity 24,477.0 24,619.0 82,648.0

Glori Energy Inc, (GLRI)


Appendix - Important Disclosures and Analyst Certification

Covered Companies Mentioned

All stock prices below are the April 21, 2014 closing price.

Denbury Resources Inc. (DNR - $17.34 - Outperform)(See recent research reports for more information)

Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q26

7

8

9

2012 2013 2014

Rating and Price Target History for: Glori Energy, Inc. (GLRI) as of 04-21-2014

Created by BlueMatrix

Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q28

12

16

20

24

2012 2013 2014

01/20/12I:O:$22

02/24/12O:$24

07/13/12O:$20

11/13/12O:$19

01/18/13O:$21

02/04/13O:$23

04/19/13O:$22

01/17/14O:$20

02/21/14O:$19

Rating and Price Target History for: Denbury Resources Inc. (DNR) as of 04-21-2014

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1 Robert W. Baird & Co. Incorporated makes a market in the securities of GLRI, DNR, PBR, STO and INXB.

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safety. Company characteristics may include: stable earnings, conservative balance sheets, and an established history of revenue andearnings. A - Average Risk - Growth situations for investors seeking capital appreciation with an emphasis on safety. Companycharacteristics may include: moderate volatility, modest balance-sheet leverage, and stable patterns of revenue and earnings. H -Higher Risk - Higher-growth situations appropriate for investors seeking capital appreciation with the acceptance of risk. Companycharacteristics may include: higher balance-sheet leverage, dynamic business environments, and higher levels of earnings and pricevolatility. 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IncorporatedOther DisclosuresThe information and rating included in this report represent the Analyst’s long-term (12 month) view as described above. The researchanalyst(s) named in this report may at times, discuss, at the request of our clients, including Robert W. Baird & Co. salespersons andtraders, or may have discussed in this report, certain trading strategies based on catalysts or events that may have a near-term impacton the market price of the equity securities discussed in this report. These trading strategies may differ from the analysts’ published pricetarget or rating for such securities. Any such trading strategies are distinct from and do not affect the analysts’ fundamental long-term (12month) rating for such securities, as described above. In addition, Robert W. Baird & Co. 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Any ratings and recommendations contained in such additional orresearch supplemental products are consistent with the Analyst’s long-term ratings and recommendations contained in more broadlydisseminated standard research reports.UK disclosure requirements for the purpose of distributing this research into the UK and other countries for which Robert W.Baird Limited holds an ISD passport.This report is for distribution into the United Kingdom only to persons who fall within Article 19 or Article 49(2) of the Financial Services



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