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Information Memorandum in Relation to an $8.5m Equity
Capital Raising for Enerdrill Pty Ltd (ACN 147 416 215)
May 2012 | Private & Confidential
www.enerdrill.com.au
2
Disclaimer
This Information Memorandum (IM) is being distributed through Argonaut Capital Limited (ABN 18 099 761 547) (Argonaut),in its capacity as corporate and financial advisor to Enerdrill Pty Ltd (Enerdrill or the Company), solely to selected parties (Recipients) who have expressed an interest in considering an investment in Enerdrill, and who fall within the disclosure exclusions under sections 708(8), 708(10), 708(11) or 708(12) of the Corporations Act 2001(Cth) (the Act).
The IM is confidential. It is not intended for, and should not be distributed to, any person other than as permitted herein. By its acceptance, the Recipients agree that they will not transmit, reproduce or make available the IM to anyone other than their professional advisers without the prior consent of Enerdrill. Any disclosure to the advisers of the Recipients must be on a confidential basis, for the purpose only of assessing the IM as adviser to the Recipients.
The information contained in this IM or subsequently provided to the Recipients whether orally, electronically or in writing by or on behalf of Enerdrill or its respective employees, agents, advisers and consultants (Information) is provided on the terms and conditions of this notice.
The purpose of this IM is to provide the Recipients with summary information regarding the investment opportunity described in this IM and is not an offer. Any offers made will only be on the basis that the investor comes under an exclusion provided by section 708 of the Act.
Enerdrill, with the assistance of Argonaut, has prepared the IM and each Recipient must make its own independent assessment and investigation of the business opportunity and should not rely on any statement or the adequacy and accuracy of any information. Recipients should not treat the contents of this IM as advice relating to legal, taxation, valuation or investment matters and should consult its own advisers. Enerdrill and its advisers take no responsibility for the contents of the IM.
The IM contains forward looking statements that are based on assumptions made in good faith by Enerdrill in light of current circumstances. Neither Enerdrill, Argonaut nor any other party gives any assurance that any such assumption or projection will prove to be correct or that Enerdrill will not be affected in any substantial manner by other factors that are not known or foreseeable by Enerdrill, or are beyond its control.
The IM does not purport to contain all the information that a prospective lender or investor may require about any potential investment in Enerdrill or its underlying business. In all cases, before acting in reliance on any Information, the Recipient should conduct its own investigation and analysis in relation to the opportunity and should check the accuracy, reliability and completeness of the information and obtain independent and specific advice from appropriate professional advisers.
Enerdrill and Argonaut make no representation or warranty, express or implied, as to the accuracy, reliability, or completeness of the IM. Enerdrill and its respective directors, employees, agents, advisers and consultants shall have no liability (including liability to any person by reason of negligence or negligent misstatement) for any statements, opinions, information, or matters, express or implied arising out of, contained in or derived from, or any omissions from the IM, except liability under statute that cannot be excluded. By accepting this IM, you expressly agree to be bound by this disclaimer. If you do not accept the terms of this disclaimer, please return the IM to the person from whom it was received and take no further action in relation to its contents.
All financial figures referred to within this IM are in Australian dollars unless expressly stated otherwise.
All prices as at 9 May 2012
Table of Contents
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I. Executive Summary
II. Sector Overview
III. Enerdrill Overview
IV. Financial Projections
V. Timeline
VI. Risks
VII. Appendices
A. Rig Locations
B. Potential On-shore Wells
C. Mechanical Rig Overview
D. Unconventional Drilling
E. WA Domestic Gas Demand & Supply
F. Unconventional News Paper Article
G. Enerdrill Directory
Table of Contents
4
I. Executive Summary
II. Sector Overview
III. Enerdrill Overview
IV. Financial Projections
V. Timeline
VI. Risks
VII. Appendices
I. Executive Summary
The Opportunity
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I. Australia is entering a new era of onshore exploration driven by high O&G prices and advancements in production technologies
Increasing activity from over 25 local and foreign petroleum permit operators who invested c. $500m in exploration drilling during 2011, with strong growth forecast to continue
The Australian industry has been buoyed by the recent entry of multi-nationals like ConocoPhillips, BG, CNOOC, HESS and Mitsubishi
Australian unconventional projects are considered to lag the US by approximately a decade
― The number of active drilling rigs in North America has increased from <500 rigs in 1999 to approximately 2,000 today
II. The founders of Enerdrill identified a significant shortage of large onshore rigs (i.e. capable of drilling +3000m) in Australia
Rig scarcity is one of the primary bottlenecks constraining Australian onshore exploration
Only two permanent drilling rigs1 are currently operating in WA/NT, with waiting periods of c. 1 year for additional rigs
The shortage is likely to continue with high barriers to entry due to the significant up-front costs, local capability and the difficulty of sourcing rigs
III. Enerdrill boasts an industry leading & proven management team, which has collectively been involved with every onshore well drilled in WA since 2000
The team possesses a unique combination of skills and experience, including rig design & building, drilling operations & associated logistics, well design & engineering, and corporate & financial expertise
A preferred partner agreement with Bonnie Rock Transport (the industry leader in the provision of O&G logistics) has been entered into
1Ensign’s Rig-32 & Rig-7 used by Buru
Argonaut is selectively seeking investors for Enerdrill, a WA based start-up onshore Oil & Gas (“O&G”) drilling company with an initial focus in WA, NT and SA
I. Executive Summary
The Opportunity (Continued)
6
IV. Enerdrill currently owns 3 rigs - two mechanical drilling rigs & one workover rig
Rig-1 is a mobile self-propelled workover rig suited to performing remedial & restoration operations and can be easily upgraded to enable the drilling of CSG & CBM wells
Rigs 2 & 3 are heavy duty Mechanical Rigs capable of drilling to 4,000m & 5,200m respectively
― Rig-2 consists of a derrick & base with Rig-3 ancillary equipment being shared between the two rigs as required for the first year of operations
The rigs are pre-used and require refurbishment & fit-out of ancillary equipment prior to commencing operations
Rig-1 (workover rig) is expected to be operational by October 2012, and rigs 2 & 31 are planned to be drill ready by the end of 2012
Discussions for multi-well contracts are underway with potential clients
An independent valuation firm has assessed the current (ie: pre-debt and equity capital raising) fair value of the three rigs as being $7.2m
– This fair value assessment compares with the pre-money value of Enerdrill (based on the capital raising price) of $7.25m
V. Directors estimate the market value of Enerdrill’s rigs post refurbishment (December 2012) will be in the range of $18m to $20m
This is in line with Enerdrill’s projected enterprise value at that time (based on the capital raising price) of $18.5m ($16m equity and $2.5m net debt excluding working capital)
VI. The Base Case Financial Model projects attractive economics, with 4 year IRR of 45% and ROI of 321%2
The shortage of available rigs in Australia continues to support high daily rig rates & utilisation
VII. Enerdrill is now selectively seeking investors to participate in an $8.5 million3 equity raising to fund the refurbishment and fit-out of the Rigs, the acquisition of a mini-camp, and the provision of working capital through to the establishment of commercial operations
The financial model is available upon request
An online data-room has been prepared for potential investors
1Rigs 2 & 3 will share equipment during the first year of operations
2Using Base Case assumptions, see page 26 for key assumptions 3Dermot O’Keefe has an option to acquire 250,000 shares at the capital raising price of $1 per share
Acquired Rig-1
Located at BRT’s site in Dampier, WA
Acquired Rig-2
Located at BRT’s site in Dongara, WA
Acquired Rig-3
Presently located in Edmonton, Alberta
Secured premises in Mandurah for rig rebuilds
Arranged $3.5 million senior secured debt facility
c.$1.6m presently drawn to fund recent acquisition of Caterpillar generator sets and pumps package
Balance available upon Enerdrill securing drilling contracts
Assembled highly experienced Board of Directors
Appointed Managing Director
Appointed key advisers
Entered into preferred partner agreement with Bonnie Rock Transport
Commenced discussions with various potential clients across multiple basins
Responses submitted to formal request for tenders
In bilateral discussions with other operators
Identified and commenced discussions with key team members
Verbal commitment given in relation to several key roles
I. Executive Summary
Achievements To Date
7
Key Upcoming Activities
TJ/d
Enerdrill Key Achievements to Date
Raise $8.5m via the current equity capital raising
Acquire balance of equipment
Move rigs and equipment to Enerdrill’s Mandurah base
Rigs 1 & 2 to be transported via truck
Rig-3 and other equipment to be shipped (via Enerdrill chartered vessel from Tacoma USA to Bunbury in August/September 2012)
Secure drilling contracts
Formally appoint key team members
Balance of team to be recruited following key appointments
Complete the refurbishment of rigs
Put back-end systems (billing, inventory, accounting etc) in place
Secure permanent head office and yard
Commence drilling operations
Table of Contents
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I. Executive Summary
II. Sector Overview
III. Enerdrill Overview
IV. Financial Projections
V. Timeline
VI. Risks
VII. Appendices
Global O&G prices have risen substantially since 2003, driven by:
Continually increasing global demand for both oil and gas
The decline in production from many of the world’s large conventional fields
A lack of discoveries of large new conventional fields
A resulting focus on lower quality and/or more expensive conventional fields such as those found offshore in deep water
A large increase in exploration for, and production of unconventional fields, which have higher associated production costs
In Australia, domestic gas prices have increased markedly in recent years
In WA, gas prices increased from c. $2 per Gigajoule (“Gj”) in 2006, to c. $8/Gj today
On the east coast, prices have increased from c.$3/Gj to c. $6/Gj
Domgas price increases have largely been driven by the increase in exports of domestically produced gas to international LNG markets (primarily Japan)
LNG prices are currently c. $15/Gj
Domgas prices have effectively become linked to global energy prices due to the alternative of exporting Australian gas at higher prices
US gas prices have declined steeply since September 2008 ($12/Gj to $2/Gj), largely because of the enormous increase in shale gas production
Gas is not currently exported from US, resulting in substantial domestic oversupply
Various US LNG export terminals are now in planning, and are expected to reduce domestic oversupply (and result in a higher Henry Hub price)
US LNG exports (which are still >3 years from meaningful volumes) are expected to reduce global gas prices somewhat, although Asian demand is projected to absorb new supply until at least 20181
Drilling activity has increased as a result of higher O&G prices and the trend towards unconventional fields, which require far more wells
II. Sector overview
Higher Oil & Gas Prices Driving Drilling Activity
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The continued increase in global demand for oil & gas has seen a supply side response involving the development of higher cost fields (deep water offshore and unconventional onshore), which has seen the marginal cost of production and prices increase
0
4
8
12
16
20
1999 2001 2003 2005 2007 2009 2011
1 Morgan Stanley report, “Australia Oil & Gas”, 2 May 2012 – available in Dataroom
0
20
40
60
80
100
120
140
1998 2000 2002 2004 2006 2008 2010 2012
LNG Price (Japan / Aus contracts)
Oil Price (Brent Crude)
$A
$US
The unconventional industry has revolutionised the North American energy sector with the search for prospective acreage now a global one
Inspired by the US shale & tight gas boom in recent years, Australian companies and an increasing number of international O&G operators have commenced the evaluation process of Australian unconventional fields
― Mitsubishi’s commitment of $152m to earn 50% of Buru’s Canning Basin permits
― ConocoPhillips US$110m commitment to New Standard to farm-in to a 75% share of the Goldwyer shale project
― BG’s1 $130m commitment to Drillsearch for a 60% interest in one of Drillsearch’s tenements in the Cooper Basin plus an option over shares equivalent to 9.9% of the company
400 Tcf of recoverable gas with the focus of the local industry over the next decade determining how much can be commercially produced
Cooper & Perth basins are best understood and have existing conventional production infrastructure and pipelines
Other prospective basin’s include Canning, Georgina & Beetaloo, but less is known about rock quality, and infrastructure is virtually absent
It is hoped that Australian shales can be successfully fracced using the same technologies employed in the US
II. Sector Overview
Australian Unconventional Oil & Gas Snapshot
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Players in Australian Basins With Shale & Tight Gas Potential2
Basin Locations
1 QGC through its wholly owned subsidiary BG 2 US Energy Information Agency & Geoscience Australia
Cooper Basin Canning Basin Perth Basin Beetaloo
Beach Energy (BPT) New Standard (NSE) AWE (AWE)/Origin (ORG) HESS
Drillsearch (DLS) Buru Energy (BRU) Norwest Energy (NWE) Falcon O&G
Icon Energy (ICN) Emerald (EMR) Transerv (TSV)
Senex Energy (SXY) Oil Basins (OBL) Empire O&G (EGO)
Santos (STO) Mitsubishi Bharat
Strike Energy (STX) ConocoPhillips
Permian age Ordovician age Permian / Triassic Cambrian
3.7m acres 30m acres 1.4m acres 6.2m acres
2000-4000m depth 1000-5000m depth 1000-5200m depth 2000-4500
Moderate overpressure Normal pressure Normal pressure Normal pressure
Risked gas 85Tcf Risked gas 230 Tcf Risked gas 60 Tcf Risked gas 64 Tcf
Basin
Play extent
Overview
Enerdrill’s Initial Area of Focus
The rig capacity shortage is expected to continue amidst escalating exploration and development. With only 2 rigs permanently located in WA/NT and 10 Australia wide capable of drilling +3,000m wells, operators are being forced to try and source rigs internationally (a slow and expensive process)
New Standard Energy - from New Guinea3
ICON Energy - from North America
Full field development of unconventional projects requires continuous drilling to offset high initial per well decline rates
Multiple rigs (potentially between 4 & 8) may be required on a full-time basis for +20 years to develop a single field
Development of one or more unconventional fields in WA or NT would result in a step change in rig demand
II. Sector Overview
Rig & Company Locations
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B
C
E F
G
D
I
Note: Only 3,000m+ rigs shown 1Sourced from Ensign Energy Services 2Please refer to Appendix A for further details 3Currently in transit (Darwin)
A
Rig scarcity continues to be the primary bottleneck to exploration growth
Current +3,000m Rig Locations1,2
Canning Basin
Carnarvon Basin
Perth Basin
Otway Basin
Cooper Basin
Beetaloo Basin
Officer Basin
J
Bowen Basin
H
# = Current Rig Location
21 23 25
12
17 18 4
10 9
8
8 8
5
3 5 3
3
2012 2013 2014
Cooper Basin Canning Basin Perth Basin MacArthur Basin Georgina Basin Beetaloo Basin
Forecast demand of c. 9-10 rigs required in WA & NT during 2013-14
Enerdrill currently expects only 44 rigs (Including Enerdrill’s Rig-2 & 3 sharing equipment) to be available for use in WA & NT by 2013
Majority of +3000m rigs are situated in the Cooper basin and will not be available to service other basins due to long term contracts already underway
The opportunity for Enerdrill is to provide rigs to satisfy some of the unmet demand
With increasing levels of activity, demand is expected to continue to significantly outstrip supply of available rigs
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II. Sector Overview
Potential Onshore Wells 2012 - 2014
Potential Wells To Be Drilled In Enerdrill’s Areas of Initial Focus1,2
WA 16
SA 21
NT 13
WA 27
SA 23
NT 14 NT 16
WA 27
SA 25
50
64
68
1Based on publicly available information and Argonaut & Enerdrill estimates. 2Refer to appendix B for more details
3 Assumes the average rig drills 6 wells per year and has 75% utilisation (e.g.WA 2013, (27/6)/75%=6) 4 Ensign Rig-32 & 7, Old Century 14 and Enerdrill Rig-2 & 3 (sharing equipment)
Estimated Required Rigs3 NT 3 3 4
WA 4 6 6
SA 4 5 6
Total 11 14 16
Table of Contents
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I. Executive Summary
II. Sector Overview
III. Enerdrill Overview
IV. Financial Projections
V. Timeline
VI. Risks
VII. Appendices
Highly respected team, with strong industry relationships & over 100 years combined relevant experience. Collectively, one or more Directors has been involved in all onshore O&G wells drilled in WA since 2000
III. Enerdrill Overview
Enerdrill Board
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John has worked at all levels of rig operations, including overseeing full rig design & assembly and refurbishing pre-used rigs
Over 25 years hands-on experience in the O&G industry, with extensive experience managing drilling operations
Previously Drilling Manager for Buru Energy where his role included:
Developing the drilling campaign including well / casing designs for future frac programs
Tender for and select all third party services
Setting up all internal systems for logistics, personnel movements, stock ordering & control
Managing rig operation for the drilling campaigns including DST’s, well tests, MWD and LWD
Prior to Buru, roles included Re-fit Supervisor at OPC, Semi-sub at Kan Tan IV, Company Man at Chartwell NZ, Operations Managers at Greymouth and Rig Manager at NRG Drilling
Skills and qualifications include rig design & building, mechanical fitter, diesel mechanic, ASME IX welding qualifications and certified HSE supervisor & rigger
Co-Founder of Enerdrill
Prominent and highly respected figure in the onshore oil & gas transportation and logistics industry, with over 35 years experience
Founder and Managing Director of Bonnie Rock Transport (“BRT”)
BRT is an oilfield trucking and logistics company employing around 120 staff with bases in Perth, Dongara, Dampier, Derby, Broome and Chinchilla (QLD).
BRT provides oilfield trucking, camp manufacture and catering, rental services and bulk transportation services
BRT has a preferred supplier agreement in place with Enerdrill
Founding partner of Energy Trucking, which provided O&G logistics infrastructure such as supply bases in Northern WA, and specialized transport services to the energy sector
Co-Founder of Enerdrill
Jim Currie Director
John Wells Managing Director
III. Enerdrill Overview
Enerdrill Board
15
Managing Director of Add IPS, a Perth based O&G well engineering and consultancy business. Add IPS has been involved with the drilling of many onshore O&G wells in WA over the last 15 years
Add IPS was formed from the acquisition of IPServices (Australasia) Pty Ltd (“IPS”) - a company founded by Dermot - by Add Energy in 2010
Dermot has over 20 years of drilling and completion experience gained internationally with a number of large operators
Previously worked for WAPET and Woodside in senior technical and offshore supervisory positions, and Premier Oil as Global drilling manager responsible for well engineering in 8 countries
Dermot has been issued with 250,000 options over shares in Enerdrill, exercisable at $1 each, on or before 07/11/2012
Co-founded Argonaut in 2002 and has over 20 years experience in capital markets
Managing Director & CEO of Argonaut, a Perth and Hong Kong based investment bank with expertise in the resources & resource services sectors
Previously a Director of IPS, an Oil & Gas services company
Significant experience and expertise in the arrangement and execution of transactions in the O&G sector
Co-founder of Latent Petroleum, the operator of the Warro Gas Field (Perth Basin). Negotiated Alcoa’s involvement with Latent
Working in corporate finance and principal investments at Argonaut, Jon’s focus is on the energy & energy services sectors
With Eddie Rigg, responsible for the management of Argonaut’s principal investment portfolio (>70% energy exposure)
Acted as corporate advisor to various energy related companies, including Transerv Energy, Latent Petroleum, IPS, Merredin Energy and Pacific Energy
Alternate Director to Eddie Rigg
Dermot O'Keeffe Chairman
Eddie Rigg Director
Jon Biesse Alternate Director
It is anticipated that another Director will be appointed to the Enerdrill Board as a representative of new shareholders
Highly respected team, with strong industry relationships & over 100 years combined relevant experience. Collectively, one or more Directors has been involved in all onshore O&G wells drilled in WA since 2000
Model DSI M-760-21 ($6.3m to be spent on refurb & fit-out)
Draw-works1 Rigmaster 1,200 Hp, powered by C27 Caterpillar
Mud Pumps2 MP-1000 – 3 x 1000hp, with maximum of 651 gallons per minute (gpm)
Derrick / Mast DSI-M760, 142ft high and static hook load of 760,000lbs with 12 lines
Depth 5,200m (Slim hole 5,500m)
Transportation The client will be liable for all transportation costs (provided by BRT) Truckloads to mobilise; Rig 25, tubulars 6 and campsite 12
Personnel3,4
Estimated Day Rates
• Drilling – $57,500 • Standby – $51,750 Contracts based on a schedule of day rates , ensuring that Enerdrill is not exposed to operator underperformance, technical failure or down time
Capabilities Conventional & Unconventional Drilling 5
Directional drilling - Allows for the alteration of the drill bits dip and orientation to maximize the ability to cut across pay zones
Multi lateral drilling - Allows for more than one borehole to be drilled from a single well
Horizontal drilling - Higher productivity as it provides numerous access points to targeted pay zones
Slim hole technology - Results in fewer materials being used reducing costs, slim holes leave a smaller economic footprint
Fast rig up/down - Cost savings in mob/demob to operators
Sling shot sub base - Aids in efficient and safer rig up/down
Top drive capable - Tesco hydraulic unit
Easily upgraded if required
III. Enerdrill Overview
Rig-3 Snapshot
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Enerdrill Rig-3 Overview
1Primary hoisting machinery 2Device designed to circulate drilling fluid under high pressure down the drill string 3Represents all those Individuals operating the rig during a single shift. There are typically two shifts per rig 4Total employees from both shifts and admin total 65 5Whilst capable, other (smaller) rigs are better suited to Coal Seam Gas drilling
• 1 Mechanic
• 1 Electrician
• 4 Derrickman
• 4 Lead Floorman
• 2 Safety Man
• 8 Roughneck
• 4 Leasehand
• 1 Toolpusher
• 1 Nightpusher
• 2 Driller
• 2 Assistant Driller
• Suspension - $0
Enerdrill Rig-3
Suitable for deep well drilling, capable of depths of up to 5,200m, with greater depths attracting higher day rates
With the capability to drill to 5,200m, Rig-3 will likely spend a large portion of the time in the Perth Basin where greater drilling depths are required
Greater depth capabilities attract higher day rates
Model Dreco Slingshot sub base
Draw-works1 CAT 3406 – C diesel engines 2 x 400hp
Mud Pumps2 To be shared with Rig-3 for the first year of operations
Depth 4,000m (Slim hole 4,500m)
Derrick / Mast R&H-ST 133, 133 ft high and static hook load of 390,000lbs with 10 lines
Estimated Day Rates
• Drilling – $47,500 • Mobilisation – $45,500
Personnel As per Rig-3
Transportation As per Rig-3
Capabilities As per Rig-3
III. Enerdrill Overview
Rig-2 Snapshot
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Fit for purpose Mechanical Drilling Rig – specifically designed & equipped to operate in Australia’s remote onshore O&G basins
Enerdrill Rig-2 Overview
1Primary hoisting machinery 2Device designed to circulate drilling fluid under high pressure down the drill string 3Currently being used by Buru in the Canning Basin
Typical Onshore Rig Operation
• Suspension - $0
Ensign Rig-32 (equivalent to Enerdrill Rig-2)
Enerdrill Rig-2 has similar specification to Ensign’s Rig-323, albeit Rig-2 will be newer and better fit for purpose
Rig-32 has operated almost continually for the past 9 years
Note: Only the Base and Derrick have been bought. Rig 2 & 3 will share ancillary equipment over the first year of operations
III. Enerdrill Overview
Rig-1 & Mini-Camp Snapshot
Fully integrated offering with multiple drilling services and capabilities
Generator & Mini-Camp Accommodation
Rig Site Mini-Camp Overview
Camp Building1
∎ Toolpusher shack
∎ Safety office
∎ 4 Man Sleeper (ensuite) Mechanic, Electrician, Tesco, Spare
∎ 4 Man Sleeper (ensuite) Co Man, Geologist, Engineer,
Toolpusher
∎ Dual office – Mud Engineer & well site Geologist
∎ Generator
∎ Waste treatment
Service Building
∎ Mechanic workshop
∎ Electrician workshop
∎ Tool-house
∎ Spare parts storage
∎ Boilermakers workshop
Work-over Rig-1 Overview
Enerdrill Work-over Rig-1
Model Ideco BIR 300 series H35-KD 350hp Detroit , to be upgraded for drilling capability
Description The work-over rig is a mobile self-propelled rig suited to drilling CSG & CBM wells and performing remedial & restoration operations including;
Deepening
Plugging and abandoning
Clean outs
Pulling and resetting liners
Restoring or increasing production rates of producing wells
Once upgraded capable of drilling to 1,500m
No additional employees needed as staff will be sourced from those that are rostered off Rig-2 & 3
1Those Trades that do not stay on-site will reside at the operators main base camp at the operators expense. All expenses such as food & water supplied to the mini-camp will also be at the cost of the operator
Note: CSG = Coal Seam Gas CBM = Coal Bed Methane
III. Enerdrill Overview
Bonnie Rock Transport Overview
19
Rig Transportation BRT Locations
Enerdrill has a preferred partner agreement with BRT, and will work closely with BRT to deliver outstanding customer service
Perth
Dongara
Dampier
Derby
Broome
Chinchilla
Bonnie Rock Transport was founded by Enerdrill Director Jim Currie in 1994, and is a leading provider of heavy duty transportation and logistics to the energy and mining industry throughout Australia
Provides oilfield trucking, camp manufacture & catering, rental and bulk transportation services
— Fully integrated service offering including heavy chiller / freezer haulage, the design, construction & catering of temporary and permanent on-site accommodation, building of road access to new sites and mobilising / demobilising of drill rigs
— 10 O&G exploration accommodation camps
Facilities to carry out repairs & modifications
Employing around 120 staff with bases in Perth, Dongara, Dampier, Derby, Broome and Chinchilla
Revenue > $50m per annum
BRT is an approved supplier to most participants in the onshore WA O&G sector
All costs and liabilities of transportation are at the expense of the oil & gas operator
III. Enerdrill Overview
Bonnie Rock Transport Overview
20
BRT offers a fully integrated transportation & logistics service to the onshore O&G industry
Accommodation Camp Road Train
BRT Mobilisation Of Weatherford Rig 826 Rig Transportation
Operations
It is expected that during the first year of operations Rig-2 & Rig-3 will share ancillary equipment (mud tanks, mini-camp etc). Only one of the two rigs will operate at any point in time, with equipment to be moved between rigs as required
Rig-3 is expected to spend extensive time in the Perth Basin where a greater drilling depth is required. Rig-2 likely to be primarily used in Northern Australia (i.e. Canning and Beetaloo Basins)
Rig-1 expected to be in full operation by October 2012
It is anticipated that an additional set of equipment for Rig-3 will be purchased early 2014 for c.$5m. This is likely to be funded from a combination of retained earnings and debt
― Following the purchase of equipment, Rig-2 & Rig-3 will have their own equipment and will be operating independent of each other
Growth
It is expected that any future purchase(s) of rigs would be funded from debt and a mixture of retained earnings & an equity raising
21
Rig-1 is expected to be operational by October, with Rigs 2 and 3 targeted to be drill ready in December 2012
Indicative Timeline of Rig Operations
III. Enerdrill Overview
Operations Timeline
Operations Quarter ending 30-Jun-12 30-Sep-12 31-Dec-12 31-Mar-13 30-Jun-13 30-Sep-13 31-Dec-13 31-Mar-14 30-Jun-14 30-Sep-14 31-Dec-14 31-Mar-15 30-Jun-15
Rig-2 & Rig-3 Order and Delivery
Rig-2 & Rig-3 Operations - Shared Equipment
Rig-2 Operations continue
Rig-3 Equipment added
Rig-3 Available for Operations
Rig-1 (Work-over Rig) Available for Operations
Growth Rig Order & Delivery
Growth Rig(s) Available for Operations
The Directors expect to secure key staff from their extensive industry network and contacts
Discussions are underway with key operational staff
Hiring to commence in Q3 2012
Rig-2 and Rig-3 workers to be shared initially
Once Rig-3 is operating with its own equipment, the Company’s crew and day rate workers will be doubled
Rig-1 staff to be sourced from Rig-2 / 3 pool where possible
3 Administration staff can typically manage up to 5 rigs
Additional admin resource required as the number of rigs (and associated headcount) increases beyond 5
Admin staff typically perform multiple roles, such as:
MD also responsible for Health, Safety & Environment, and compliance
CFO also manages payroll and accounts functions, and performs Company Secretary role
Administrative staff assists with payroll and accounts, and acts as receptionist and PA to MD
III. Enerdrill Overview
Staffing Requirements
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Enerdrill Personnel Requirements
Administration Total # Required
Managing Director 1
CFO / Company Secretary 1
Admin / PA 1
Total Administration 3
Enerdrill Rig- 2 / 3 # Per Shift Total # Required
Crew
Derrickman 4 8
Lead Floorman 4 8
Roughneck 8 16
Leasehand 4 8
Safety man 2 4
Total Crew 22 44
Dayrate Workers
Toolpusher 1 2
Night Pusher 1 2
Driller 2 4
Assistant Driller 2 4
Electrician 1 2
Mechanic 1 2
Welder 1 2
Total Dayrate 9 18
Total Rig - 2 / 3 31 62
Enerdrill Rig-1 (Work-over) # Per Shift Total # Required
Crew
Derrickman 2 4
Lead Floorman 2 4
Roughneck 2 4
Leasehand 2 4
Total Crew 8 16
Dayrate Workers
Toolpusher 1 2
Driller 1 2
Total Dayrate workers 2 4
Total Rig-2 10 20
Enerdrill Total 31 65
III. Enerdrill Overview
Enerdrill Competitors
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Company
Overview
Ensign is a Canadian based fully integrated, world leading onshore drilling and well servicing provider for crude oil, natural gas and geothermal wells
Since inception in 1987, Ensign has accumulated an extensive equipment fleet of 344 rigs 1 (168 Canada, 117 US, 59 International) and c. 8,800 employees
Services include contract drilling, directional drilling, underbalanced drilling2, rental equipment, well servicing and production & manufacturing
MB Century is a ‘one stop shop’ drilling contractor providing oil, gas & geothermal services to Australia, New Zealand and South East Asia
MB Century is a division of privately owned MB Petroleum based in Oman. MBPS is an international drilling company and the largest oilfield service provider in the Middle East.
Services include workover & well services, well testing, coiled tubing, nitrogen & pumping services, drilling fluids, mud logging, wireline services, steam-field design & construction and project management
Australian Rig Locations
Key Metrics
Market Capitalisation $2.1b Market Capitalisation n/a
Net Debt $0.4b Net Cash n/a
Enterprise Value $2.5m Enterprise Value n/a
P/E P/E
Location Type Canning 1x +3000m Rig Cooper 4x +3000m Rig
1x Workover Rig Bowen 1x +3000m Rig
6x CSG Rig Other 2x CSG Rig
1x Workover Rig
Total 6x +3000m Rig 8x CSG Rig 2x Workover Rig
Location Type Canning (or en route) 2x +3000m Rig3 Cooper 1x +3000m Rig
Other Asia Pacific Countries 6x +3000m Rig 1x CSG rig
Total 9x +3000m Rig 1x CSG Rig
FY12 FY13
8.7x 8.0x
FY12 FY13
n/a n/a
1Excludes workover rigs 2Underbalanced drilling involves maintaining a downhole pressure that is less than the reservoir pressure, thus allowing formation fluids to flow into the wellbore during drilling operations. 3 Century Rig 14 is currently located in Darwin and is in transit to Buru’s Canning Basin project
III. Enerdrill Overview
Enerdrill Peers
24
Company
Overview
Weatherford is one of the largest oilfield service companies operating in more than 100 countries and employs more than 50,000 people world wide
Services include drilling evaluation completion, production and intervention cycles of oil & natural gas for both onshore and offshore wells
Weatherford is listed on both the New York Stock Exchange (NYSE) and Swiss Exchange (SIX)
Established in 1996, Hunt Energy is a South Australian based O&G drilling company
Hunt Energy has completed projects for Central Petroleum, Beach, Eastern Star Gas, Linc Energy, Adelaide Energy and Karoon Gas ,amongst others
Australian Rig Locations
Key Metrics
Market Capitalisation $10.4b Market Capitalisation n/a
Net Debt $7.5b Net Cash n/a
Enterprise Value $17.9b Enterprise Value n/a
P/E P/E
Location Type Bowen 1x +3000m Rig
Total 1x +3000m Rig
Location Type Stacked in Adelaide 1x <3000m Rig Cooper 1x <3000m Rig
Total 2x <3000m Rig
FY12 FY13
11.3x 8.2x
FY12 FY13
n/a n/a
Table of Contents
25
I. Executive Summary
II. Sector Overview
III. Enerdrill Overview
IV. Financial Projections
V. Timeline
VI. Risks
VII. Appendices
Rig-2 Charges
Drilling - $47,500 per day
Standby - $42,500 per day
Suspension - $0 per day
Rig-2 Utilisation
Drilling – 60%
Standby – 15%
Suspension – 25%
Rig-3 Charges
Drilling - $57,500 per day
Standby - $51,750 per day
Suspension - $0 per day
Rig-3 Utilisation
Drilling – 60%
Standby – 15%
Suspension – 25%
Depreciation based on straight line method over 10 years
Post-capital raising equity value of $16.0m (fully diluted)
Dividend payout ratio 100%1
$1m minimum cash balance
35% drilling utilisation for Rig 2 & 40% utilisation for Rig 3 during first 12 months of operations (due to shared equipment)3
1
2
5
6
7
3
4
8
9
26
IV. Financial Projections
Base Case Financial Projections
The Base Case assumes only existing rigs are operated (no new rig acquisitions) and surplus cash is paid as dividends
Key Assumptions
1Reinvestment of surplus cash for growth is probable – refer to Growth case 2Includes interest income 3Total drilling utilisation of 75% and Standby rate of 10%= 85% total utilisation
Income Statement (FY) Cashflow Statement (FY)
2013 2014 2015
Revenue2 $m 10.4 17.4 30.1
Operating Costs $m (7.5) (11.1) (18.0)
Capex $m (10.8) (5.0) -
Cashflow Before Funding $m (7.9) 1.4 12.1
Funding $m 12.3 5.0 -
CFADS $m 3.4 4.8 9.1
Debt Service $m (0.7) (1.7) (2.8)
Cash Flow Available to Equity $m 2.7 3.2 6.3
Dividends $m (1.6) (3.1) (6.2)
Profit & Loss (FY) 2013 2014 2015
Revenue $m 10.4 17.4 30.1
Operating costs $m 7.5 11.1 18.0
EBITDA $m 2.8 6.3 12.1
EBITDA Margin % 27.4% 36.2% 40.1%
EBIT $m 2.2 5.3 10.4
EBIT Margin % 21.5% 30.2% 34.5%
NPAT $m 1.1 3.5 7.0
NPAT Margin % 11.1% 20.1% 23.2%
(15.0)
(10.0)
(5.0)
-
5.0
10.0
15.0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Net Operating Cashflow Principal Repayment Interest Expense
Maintenance & Growth Capex Initial Capex Cashflow Available to Equity
IV. Financial Projections
Base Case Financial Projections
Cashflow is projected to be strong and debt levels low, resulting in considerable cash available for dividends or reinvestment
Cash Flow Available For Debt Service3
Cashflow Profile ($m)1,2
Earnings Multiples Based On Capital Raising Price
$m
1Net operating cashflow = Revenue minus operating costs (pre-tax cashflow) 2Cashflow available to equity takes into account funding and tax (post-tax cashflow) 3Projected DSCR (Debt Service Coverage Ratio) is at 30th June for each year
27
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
-
2.0
4.0
6.0
8.0
10.0
12.0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Ratio $m
Cash flow available for debt service (CFADS)
Interest
Principal
DSCR3.4x
4.1x 4.6x
1.6x 1.9x
2.3x
EV/EBITDA EV/EBIT P/E
2014 2015
59% 52%
45%
46%
80% 70% 60% 50%
452%
365%
278%
191%
80% 70% 60% 50%
55% 48%
41%
32%
80% 70% 60% 50%
51% 44%
37%
28%
80% 70% 60% 50%
IV. Financial Projections
Sensitivity Analysis – Base Case
28
The key sensitivities are the day rate and utilisation achieved
The Base Case assumes 60% (plus 15% standby)1 utilisation and day rates of $47,500 (Rig-2) and $57,500 (Rig-3)
IRR (4 Year)2,3
Return On Investment (4 Year)2,3
Drilling Utilisation
Rig-3 $52,500 Rig-2 $43,370
Daily Rate
Drilling Utilisation Drilling Utilisation Drilling Utilisation
Daily Rate
1Drilling Utilisation 60% + standby of 15% = 75%
2Drilling utilisation does not include standby utilisation which is fixed at 15% and has a day rate of 90% of the selected drilling utilisation rate 3Pre tax basis
Drilling Utilisation
Rig-3 $55,000 Rig-2 $45,450
Rig-3 $57,500 Rig-2 $47,500
Rig-3 $52,500 Rig-2 $43,370
Rig-3 $55,000 Rig-2 $45,450
Rig-3 $57,500 Rig-2 $47,500
396%
315%
234%
153%
80% 70% 60% 50%
507%
414%
321%
229%
80% 70% 60% 50%
Drilling Utilisation
Drilling Utilisation
Case 1 Case 2 Case 3- Base Case
Case 1 Case 2 Case 3- Base Case
4.1x 4.5x
5.0x 5.6x
80% 70% 60% 50%
3.1x 3.4x
3.7x 4.1x
80% 70% 60% 50%
3.4x 3.7x
4.0x 4.4x
80% 70% 60% 50%
3.7x 4.1x
4.6x 5.1x
80% 70% 60% 50%
IV. Financial Projections
Sensitivity Analysis – Base Case
29
Attractive valuation metrics with capital raising priced at 3.4x FY14 EV/EBITDA & 4.6x FY14 P/E
FY15 multiples are projected to be substantially improved again, at 1.6x EV/EBITDA and 2.3x P/E
EV / EBITDA (FY14F)1
P/E (FY14F)1
Drilling Utilisation
Day Rate
Drilling Utilisation
$50,000 Day Rate
1Drilling utilisation does not include standby utilisation which is fixed at 15% and has a day rate of 90% of the selected drilling utilisation rate
Drilling Utilisation
Drilling Utilisation
2.9x 3.2x 3.4x
3.8x
80% 70% 60% 50%
Rig-3 $52,500 Rig-2 $43,370
Rig-3 $55,000 Rig-2 $45,450
Rig-3 $57,500 Rig-2 $47,500
Rig-3 $52,500 Rig-2 $43,370
Rig-3 $55,000 Rig-2 $45,450
Rig-3 $57,500 Rig-2 $47,500
4.5x 5.0x
5.6x 6.3x
80% 70% 60% 50%
Drilling Utilisation
Drilling Utilisation
Case 1 Case 2 Case 3- Base Case
Case 1 Case 2 Case 3- Base Case
Acquisition of 2 Rigs for $25m each with operations commencing in Jan 15 Each rig funded via $15m debt
and $10m cash from placement at $2 per share
Dividend payout ratio 0%
2013 2014 2015
Revenue $m 10.4 17.4 45.4
Operating costs $m 7.5 11.1 23.4
EBITDA $m 2.8 6.3 22.0
EBITDA Margin % 27.4% 36.2% 48.4%
EBIT $m 2.2 5.3 17.8
EBIT Margin % 21.5% 30.2% 39.2%
Tax $m 1.0 1.4 4.7
NPAT $m 1.1 3.2 10.9
NPAT Margin % 11.1% 17.9% 23.3%
Growth Rig Day Rates
Drilling - $57,500 per day
Standby - $51,750 per day
Suspension - $0 per day
Growth Rig Utilisation
Drilling – 60%
Standby – 15%
Suspension – 25%
30
IV. Financial Projections
Growth Case Financial Projections
The Growth Case assumes 2 new rigs1 are purchased for $25m each in March Q 2014, and begin full operation a year later
Key Assumptions
3 1
2
Income Statement (FY)
Cashflow Graph ($m)
4
1Option of 1 to 3 ‘growth’ rigs in model available from Argonaut
(80.0)
(60.0)
(40.0)
(20.0)
-
20.0
40.0
60.0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Net Operating Cashflow Principal RepaymentInterest Expense Maintenance & Growth CapexInitial Capex Cashflow Available to Equity
$m
Key Debt Metrics
2013 2014 2015
Net Debt / (cash) $m 1.8 31.7 22.1
Interest Cover x 27.2x 1.28x 11.7x
429% 382%
335% 287%
80% 70% 60% 50%
49% 46%
42% 38%
80% 70% 60% 50%
459% 408%
358% 308%
80% 70% 60% 50%
54% 50%
46% 42%
80% 70% 60% 50%
52% 48%
44% 40%
80% 70% 60% 50%
IV. Financial Projections
Sensitivity Analysis – Growth Case
31
Growth Case also projects attractive returns, with 4 year IRR of 46% and ROI of 358%
IRR (4 Year)1,2
Return On Investment (4 Year)1,2
Drilling Utilisation
Rig-3 $52,500 Rig-2 $43,370
Daily Rate
Drilling Utilisation Drilling Utilisation
Daily Rate
1Drilling utilisation does not include standby utilisation which is fixed at 15% and has a day rate of 90% of the selected drilling utilisation rate 2Pre tax basis
Drilling Utilisation
Rig-3 $55,000 Rig-2 $45,450
Rig-3 $57,500 Rig-2 $47,500
Rig-3 $52,500 Rig-2 $43,370
Rig-3 $55,000 Rig-2 $45,450
Rig-3 $57,500 Rig-2 $47,500
399% 355%
311% 267%
80% 70% 60% 50%
Drilling Utilisation
Drilling Utilisation
Case 1 Case 2 Case 3- Base Case
Case 1 Case 2 Case 3- Base Case
The capital raising is to be completed via a placement of 8.5 million ordinary shares in Enerdrill to institutional and sophisticated investors, at a price of $1 per share to raise $8.5 million
3.4x FY14F EV/EBITDA & 4.6x FY14F P/E
1.6x FY15F EV/EBITDA & 2.3x FY14F P/E
The purpose of the capital raising is to fund the refurbishment of Rigs 2 & 3, acquire additional equipment including a mini-camp, repay existing debt, establish operations, and provide working capital
A $3.5 million working capital debt facility has been established with NAB. NAB has been be granted first ranking security over all of Enerdrill’s assets
Argonaut’s capital raising fee is equivalent to 6% of the total raising Includes 12 months corporate advisory fees
Argonaut intends to reinvest 100% of its capital raising fee plus up to an additional $250,000 as part of the capital raising
Post the capital raising, Argonaut will own 2 million shares, equivalent to 12.5% of the issued capital
Argonaut’s mandate is available for review in the online data-room
18.8%
18.8%
12.5%
50.0%
Jim Currie
John Wells
Argonaut
New Shareholders
Argonaut owns 1.25m ordinary shares prior to the capital raising (issued @ $0.20 per share)
John Wells and Jim Currie each own 3 million ordinary share prior to capital raising
c.$2.1m of loans ($1.6m NAB & $463k BRT, Wells & Currie) to be repaid from capital raising proceeds
Costs of the issue of $550,000 are netted off against fully paid shares on the balance sheet
IV. Financial Projections
Capital Raising
32
Enerdrill is now selectively seeking investors to raise $8.5 million via a placement of equity at $1 per share
Sources & Uses of Funds
Capital Structure
Key Shareholders1
Existing shares on issue4 7.25m
Shares offered @ $1 per share 8.50m
Dermot O’Keeffe Options ex @ $1 on or before 07 Nov 2012 0.25m
Pro-forma shares on issue 16.00m
Post money, diluted equity value ( @ $1 per share) $16.00m
Sources Uses
Capital Raising (including options)3 $8.75m Rig Refurbishment $7.20m
Working Capital Facility $3.50m Mini camp $1.00m
Loan repayment $2.06m
Costs of the issue $0.55m
Working Capital $1.44m
Total Sources $12.25m Total Uses $12.25m 1Post capital raising 2Assets held at cost (have not been re-valued) 3Dermot O’Keeffe has the option to acquire 250,000 shares at the capital raising price of $1, on or before 7 November 2012 4An independent valuation has determined the current (pre-money) fair value of Enerdrill’s rigs to be $7.2m, or equivalent $0.993 per share
Capital Raising Overview
Argonaut Disclosure
Balance Sheet 10 May 2012 Pro-Forma
Assets
Cash $4,700 $5,891,700
Other Current Assets $40,620 $40,620
Non Current Assets $2,930,369 $2,930,369
Liabilities
Debt $2,063,000 -
Net Assets $912,689 $8,862,689
Share Capital And Reserves
Fully Paid Shares $877,602 $8,827,602
Retained earnings $35,087 $35,087
Total Share Capital and Reserves $912,689 $8,862,689
Table of Contents
33
I. Executive Summary
II. Sector Overview
III. Enerdrill Overview
IV. Financial Projections
V. Timeline
VI. Risks
VII. Appendices
V. Timeline
Indicative Timing
34
Indicative Timing
The Board of Enerdrill anticipates a timeline of approximately 6 months from completing the raising to full operational status
May 2012 June 2012
S M T W T F S S M T W T F S
1 2 3 4 5 1 2
6 7 8 9 10 11 12 3 4 5 6 7 8 9
13 14 15 16 17 18 19 10 11 12 13 14 15 16
20 21 22 23 24 25 26 17 18 19 20 21 22 23
27 28 29 30 31 24 25 26 27 28 29 30
July 2012 August 2012 S M T W T F S S M T W T F S
1 2 3 4 5 6 7 1 2 3 4
8 9 10 11 12 13 14 5 6 7 8 9 10 11
15 16 17 18 19 20 21 12 13 14 15 16 17 18
22 23 24 25 26 27 28 19 20 21 22 23 24 25
29 30 31 26 27 28 29 30 31
September 2012 October 2012 S M T W T F S S M T W T F S
1 1 2 3 4 5 6
2 3 4 5 6 7 8 7 8 9 10 11 12 13
9 10 11 12 13 14 15 14 15 16 17 18 19 20
16 17 18 19 20 21 22 21 22 23 24 25 26 27
23 24 25 26 27 28 29 28 29 30 31
30 30
November 2012 December 2012 S M T W T F S S M T W T F S
1 2 3 4 5 6 1
7 8 9 10 11 12 13 2 3 4 5 6 7 8
14 15 16 17 18 19 20 9 10 11 12 13 14 15
21 22 23 24 25 26 27 16 17 18 19 20 21 22
28 29 30 31 23 24 25 26 27 28 29
30 30 31
Work Stream Indicative Date
Working capital debt facility established 10 May
IM and Model released 15 May
Due Diligence / Online Dataroom Available
16 May - 24 May
Submission of offers to participate in equity raising 25 May
Execution of shareholder agreement and subscription agreement 29 May
Raising completed 31 May
Rig-1 Work-over rig ready for operations 3 September
All trades sourced 31 October
Rig-2 / Rig-3 ready for operations 31 December
Note: Timetable is subject to change without notice. The Capital Raising may be closed early, pending receipt of sufficient commitments
The Dataroom contains, amongst other things, key contracts and agreements including draft Shareholder Agreement & Subscription Agreement, key service provider contracts and consulting agreements
New investors will be required to execute both the Shareholder Agreement and Subscription Agreement
It is anticipated that an additional Director will be appointed to the Enerdrill Board to represent new shareholders
Table of Contents
35
I. Executive Summary
II. Sector Overview
III. Enerdrill Overview
IV. Financial Projections
V. Timeline
VI. Risks
VII. Appendices
VI. Risks
Key Risks
36
Volatility of oil & gas prices
O&G supply/demand dynamics may change, which can materially impact prices, and therefore the level of drilling activity
Cost Inflation
Escalation of costs (in excess of prices) may erode the financial viability of operations. This is particularly relevant in WA and NT, where the resources boom is putting pressure on the supply and prices of labour and equipment
Movements in foreign exchange rates
Currency fluctuations can impact capital costs, operating costs and revenue (indirectly via movements in AUD O&G prices), therefore impacting on Enerdrill’s financial performance
Environmental regulations
O&G drilling activity is subject to stringent environmental regulations. Further tightening of these regulations may reduce the future demand for drilling rigs
Native title and heritage issues
Subject to extensive Native Title and heritage approvals. Receipt of such approvals can significantly delay project timelines
Natural disasters
Drilling often occurs in harsh environments such as the desert and the tropics. Natural disasters such as fires, cyclones and floods may adversely impact operations
General Risk Factors
VI. Risks
Key Risks (cont.)
37
Rigs are unable to be made drill ready on budget or on time
Achievement of the targeted timeline to operations will require capable management of the various work streams and costs. Material over-runs could impact Enerdrill’s financial performance and industry reputation
Operational underperformance
Enerdrill has not yet proven the ability of its rigs to operate to the standard required. An inability to deliver the expected level of performance could adversely affect Enerdrill’s reputation and financial performance
Reduction in demand for Drilling Rigs
Industry-wide constraints are creating project delays, cost pressures and staffing challenges. These issues may cause drilling programs to be delayed or even cancelled, resulting in reduced demand (utilisation) and ultimately in reduced revenue
Increase in rig supply of drilling rigs (competition)
Enerdrill may face increased competition from other drilling companies entering the Australian market , or from existing operators redeploying underutilised rigs from their international operations (such as North America, where gas prices are depressed) . This may result in reduced utilisation and or day rates
Enerdrill believes this is not an issue in the short to medium term as the Australian market currently doesn’t have the depth or long term contracts required for international drillers to justify the high costs of importing equipment, building a local team, and certifying rigs to Australian standard
Uneven revenues driven by progress of projects and funding capability of clients
The majority of expected future drilling programs are yet to be committed, and the scale and timing of drilling activity remains uncertain and subject to change
Ability to attract and retain high quality staff & contractors
There is currently a shortage of skilled labour in the oil and gas sector. There is a risk that Enerdrill may find it difficult to attract staff with the requisite skills
Shale gas is ultimately not commercially successful in Australia
The shale gas industry is still unproven in Australia, with only two shale specific wells having been drilled to date. If Australian shales are unable to be produced commercially on a meaningful scale, exploration expenditure, and associated drilling activity, may reduce significantly
Key person risk
Enerdrill’s success relies on certain key people, initially being John Wells and Jim Currie. If one of more key people cease association with the Company, Enerdrill’s operational performance could be materially impacted
Health, Safety & Environment incidents
O&D drilling is an inherently risky activity, both in terms of human safety, and the potential for environmental catastrophes. Negative outcomes can include the loss of life and/or uncontrolled oil spills in environmentally sensitive environments, resulting in significant costs and reputational damage.
Risks Specific to Enerdrill
Contact Details
38
If you are interested in pursuing this opportunity and receiving additional information in relation to the capital raising, please contact Jon Biesse or Eddie Rigg of Argonaut
Eddie Rigg
Managing Director & CEO
direct line +61 8 9224 6804
mobile +61 (0) 418 942 304
email [email protected]
Jon Biesse
Director, Corporate Finance
direct line +61 8 9224 6815
mobile +61 (0) 402 100 450
email [email protected]
Logan Robertson
Analyst, Corporate Finance
direct line +61 8 9224 6837
mobile +61 (0) 409 209 025
email [email protected]
Table of Contents
39
I. Executive Summary
II. Sector Overview
III. Enerdrill Overview
IV. Financial Projections
V. Timeline
VI. Risks
VII. Appendices
0m
1,000m
2,000m
3,000m
4,000m
5,000m
6,000m
Perth Canning Beetaloo Cooper Georgina MacArthur Galilee
Appendices A
Current Location of Rigs Capable of Drilling +3,000m
40
Name Type Depth (m) Location
A Rig #7 Telescopic Double 3,660 Canning Basin
B Australia 932 Telescopic Double 3,660 Canning Basin
C Australia 965 ADR Triple 5,490 Cooper
D Australia 1005 Workover 4,580 Cooper
E Australia 916 Electric Triple 4,270 Cooper
F Australia 930 ADR Triple 3,660 Cooper
G Australia 918 Mechanical Double 3,050 Cooper
H Rig # 3 Century 3,000 Cooper
I Rig 826 Weatherford 5,000 Bowen Basin
J Rig #14 Century 5,000 Darwin1
Maximum Basin Depth
Enerdrill Rig-2 Max Depth
Majority of +3000m rigs are situated in the Cooper Basin and will not be available to service other basins due to long term contracts
Current Location of Rigs Capable of Drilling +3,000m
Enerdrill Rig-3 Max Depth
1In transit to Canning Basin
41
Appendices B
List Of Potential Onshore Wells (Non-CSG) in WA, NT & SA from 2012 to 2014
Note: P&A’s = Plug & Abandons 1Market capitalisation as at 1-May-12
Operator Mkt Cap ($m)1 Cash ($m) Basin State Depth (m) Well's 2012 Well's 2013 Well's 2014 Comments
Oil Basins Limited 22.5 0.3 Canning Basin WA 1200 1 2 2 Currently after Rig # 7 - will lose permit if not drilled
Grant Oil n/a n/a Canning Basin WA 2500 0 2 3
New Standard (Conoco) 138.8 22.9 Canning Basin WA 3500 3 5 5 Contracted MBC Rig #14 coming in from New Guinea
Buru 604.5 29.7 Canning Basin WA 3600 8 8 8 Using Rig #32 and Rig #7 at present
AWE / Origin 850.6 166.5 Perth Basin WA 3800 3 4 4 Negotiations underway with Enerdrill, also ~30 P&A's over 3 years
Empire Oil & Gas 75.9 10.2 Perth Basin WA 4000 1 2 2 Used Rig #826 for it's two wells in 2011
Transerv (Alcoa) 37.8 1.7 Perth Basin WA 4200 0 3 2 In discussions with Enerdrill. Argonaut is a 9% shareholder
Warrego n/a n/a Perth Basin WA 4200 0 1 1
Norwest Energy 52.4 4.6 Perth Basin WA 4000 n/a n/a n/a Awaiting approval for further exploration
Armour Energy 77.3 4.3 MacArthur Basin NT 2000 8 8 8 Arrangement with AJ Lucas. Recently listed on ASX after $75m raising
Hess (Falcon) 19,900.0 351.0 Beetaloo Basin NT 3600 0 3 3 Discussions underway with Enerdrill
Central Petroleum 114.8 7.7 Georgina Basin NT 2500 3 2 3 Looking at engaging Hunt Rig #2 for drilling of its 3 wells in 2012 /13
Baraka 31.1 10.6 Georgina Basin NT 1500 2 1 2 Joint venture with Petro Frontier
Santos 12,300 3300.0 Cooper Basin SA 2600 4 5 6 Currently using Ensign Rig #930 & #916
Strike Energy 104.4 3.6 Cooper Basin SA 2600 0 1 1 Drilling more wells (2,3,3 respectively) however Beach is operating
Cooper Energy 144.9 64.3 Cooper Basin SA 2600 2 5 4 Drilling to start June quarter in 2012
Beach 1,619.5 58.5 Cooper Basin SA 3200 6 6 6 Currently using Ensign Rig #930 & #916
Drillsearch 408.3 33.6 Cooper Basin SA 3200 5 2 4 In 2011 secured the BG/QGC $130m shale & tight gas JV farm-in
Senex 812.9 90.5 Cooper Basin SA 3200 3 5 5 Previously used Ensign Rig # 48 for its 2011 drilling program
Icon Energy 100.8 14.0 Cooper Basin SA 3200 1 n/a n/a Secured the Ensign # 65 rig from North America for June 2012
Total / Average 3,060 50 64 68
Appendices C
Mechanical Rig Overview
# PARTS
1 Mud tank
2 Shale shakers
3 Suction line (mud pump)
4 Mud pump
5 Motor or power source
6 Vibrating hose
7 Draw-works (winch)
8 Standpipe
9 Kelly hose
10 Goose-neck
11 Traveling block
12 Drill line
13 Crown block
14 Derrick
15 Monkey board
16 Stand (of drill pipe)
17 Pipe rack (floor)
18 Swivel
19 Kelly drive
20 Rotary table
21 Drill floor
22 Bell nipple
23 Blowout preventer (BOP) Annular
24 Blowout preventers (BOPs)
25 Drill string
26 Drill bit
27 Casing head
28 Flow line
Rig-3 & Accommodation Camp Mechanical Rig Diagram
Drilling Operations
Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14
Drill vertical well & core
Assess core, mobilise frac gear
Frac vertical wells
Observe & test gas flows
Book contingent resource
Evaluate results, design pilot
Drill horizontal well
Multi-stage fraccing & flow test
Appendices D
Unconventional Drilling Overview
43
Shale & tight gas production can be described as more akin to a mining operation due to the almost continual drilling required to offset declining production rates
Hydraulic Fraccing stages
Wellhead
Wellbore Protective Steel Casing
Target Formation
Avg. D
ep
th: 2
,00
0 m
– 4,5
00
m
Vertically Stimulated zones
Unconventional Exploration To Production Typical Shale / Tight Sands Well
Evaluation phase: It is typical for a number of wells to be drilled, employing different completion and fracturing techniques to see which works best
Production phase: The rapid decay rates require that in order to meet a baseload production profile numerous wells are required with continual drilling of replacement wells
30-40 Days
Trade-off Between Costs & Flow Rates Against Scale
Total potential reserve size
Cost per unit of gas
Volume of gas per volume of rock
1,0000 10 1 0.1 0.00001 Permeability (md)
Conventional Tight Shale
+40 Days
Demand growth will depend on prices both for the gas and the commodities being produced. Gas consumption in Western Australia is dominated by mineral processing, mine site and electricity generation. All sectors expect significant growth over the next ten years
Carbon tax from July 2012 is expected to stimulate further demand for gas fired power generation
Demand and supply forecasts indicate a potential gas shortfall of 400 to 600 TJ/day by 2015 in WA alone
The combination of growth and replacement production indicate a need to source at least 1,100 TJ/day of new domestic production by 2020
Appendices E
Domestic Gas Demand & Supply
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WA’s Domestic Gas Demand & Supply Outlook
TJ/d
Demand
Supply
Source: Beach Energy investor presentation
Appendices F
WA Onshore Gas News Paper Article
45
Onshore Gas Article By Western Australian Business News ( 3 May 2012 )
Appendices F
WA Onshore Gas News Paper Article
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Onshore Gas Article By Western Australian Business News (Cont.)
Appendices G
Enerdrill Directory
Registered Office: L3, 1 Outridge Cres
Subiaco East WA 6008
Postal Address: PO Box 1335
Midland WA 6936
Board of Directors Role Phone Email
Dermot O'Keeffe Chairman +61 407 072 738 [email protected]
John Wells Managing Director +61 458 567 001 [email protected]
Jim Currie Director +61 418 950 921 [email protected]
Eddie Rigg Director +61 418 942 304 [email protected]
Jon Biesse Alternate Director +61 402 100 450 [email protected]
Legal Advisor Banker Corporate Advisor Company Secretary & Accountant
Hardy Bowen National Australia Bank Argonaut Capital Limited Montague Partners
Level 1, 28 Ord Street 100 St Georges Terrace Level 30, Allendale Square L3, 1 Outridge Cres
West Perth WA 6005 Perth WA 6000 77 St Georges Terrace Subiaco East WA 6008
Phone: 08 9211 3600 Phone: 0 8 9212 7766 Perth WA 6000 Phone: 08 9489 3399
Note: Enerdrill is currently looking for a permanent head office, and is operating out of BRT in the meantime
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