Calima Energy (ASX:CE1) Presentation, FNN Online Investor Event, June 2021

Company Presentations

Calima Energy Limited (ASX:CE1) Chairman Glenn Whiddon talks about its production projects in Alberta Canada following the acquisition of Blackspur Oil which together with its gas position in the Montney project provide the company with tremendous upside to oil and gas prices.

Thank you all for your time today. I'm the chairman of Calima Energy. I've been involved with Calima for a number of years now. I have to say where we're sitting today, we're in the strongest position we've been in this company.

I think if we can move to slide starts with the new Calima. We have built a position in Canada. We have three major assets. One the Montney, which is a large wet gas play in Northern BC. Then we have two other assets, Brooks and Thorsby, which are to the north and south of Calgary. We've focused on Canada because it's the T1 jurisdiction. We focused on Canada because it's got a history of oil and gas production, and we're focused on Canada because we can find some of the best people to work with. Where we're sitting today, is we have a tremendous asset base that we can generate significant free cash flow, and that we can ramp ourselves up with a rising energy price. The assets that we've acquired through the transaction with Blackspur, which was completed about a month ago, when we raised $38 million. The T1 assets, they break even at $26 a barrel.

They've got strong talk. When the oil price runs, we make bucket loads of money. And with the oil price at $68 a barrel, and our business that we've acquired together with Blackspur, is making significant free cash flow, and it will continue to make a lot of free cash flow. However, on the downside, the oil price needs to fall to $26 a barrel, or we actually lose money. Or shut in operations. I'm a great believer that the oil price is going to go for a run. It already has since we bought this business and I'm actually looking at oil prices hitting over a hundred dollars a barrel, which is what Goldman Sachs and others are predicted. When that does, an oil prices hit those levels, this business is going to be valued at five, six, seven, eight times multiples then where we're sitting today. One of the things you'll see in this presentation, we've modelled oil analysis at $60 WTI.

When we first agreed to buy Blackspur, the WTI price in the US was $45. We did sensitivities of $45, $50 and $55. Since we bought the business, the oil prices rallied. We've done sensitivities at $50, $60, and $70. Now with oil at $68 a barrel going north, we're going to be doing our sensitivities that $60, $70, and $80. You'll see some real upside in this business. The other thing that we bought that we love about Canada, is that it's got a history of oil and gas production. They've always been competitive. They've always been low cost and they've been producing oil and gas for over a hundred years. One of the things we like about it is the industry, the people, the infrastructure is all there. They understand oil and gas and are in a T1 jurisdiction. I think most importantly for us, we've got upside to the LNG story through our modelling assets. Shell is building a large LNG export facility on the BC coastline in Kitimat. That has changed the whole dynamics of the Montney.

You can go to the next slide. Thank you. Just to give you a corporate snapshot. We're currently trading on the ASX under the code CE1. We have a lot of shares on issue. We've got 10.3 billion shares on issue in that because we raised $38 million, a 0.7% recently. There's a lot of questions of why did we do that? Why did we suffer such dilution to raise that money? We did it because one, we're buying some of the best assets around. And two, we fundamentally believe that the oil price was going to rally strongly. On that basis, we felt that it was worth paying extra for a T1 asset that would always give us a hedge on the downside, but give us tremendous leverage and talk on the upside.

At the moment, our shares are trading at 0.8c to 0.9c market cap of about $80, $90 million. But as I said, I can see that rallying very strongly over the next few months. We've got a bit of stock overhanging at one. Some of the traders that puts talk of placement of 0.7 and wanting to sell it at one, so we've got a large line of stock on the offer 0.1, but that will be cleared out as the oil price continues to rally. I think a reflection of our business is, we have a line of credit from the National Bank of Canada. We have a $25 million line of credit that allows us to draw down funding, to expand our production base. You probably would have read over the last few days that we've actually announced a three well drilling program. We'll be using our line of credit for that. That line of credit is it a 4% cost of funds. It's no hedge money at 10% or 12%. It's a line of credit at 4%, from a quality Canadian bank that understands oil and gas and understands our business and the strength of our assets. At the moment that line of credit is actually drawn around $12-$13 million. And that will peak sometimes at $18, $20 and come back to $12 or $13, but the objective is, in 2022, to pay off all our credit facilities. One of the things our business will do is generate tremendous cash flow. Even at 3000 barrels a day, our breakeven is at $26. Now OPEC said it reduce a barrel of oil is less than $10 Canadian. Then the difference between the $10 and the $26 is royalties and other taxes, but we have tremendous leverage, is the upside.

We have reserves. We're not an exploration play. We're not out there going to announce that we're going to drill a well, and we're going to bring the rig to site and then we've actually spotted the well and then we're at 400 meters and stuff. We're a development company, developing proven and probable reserves. Our 2P reserves numbers are 22 million barrels. We're not as sexy as some of the others, but we will be generating tremendous cash flow. We will have the ability to pay dividends, distributions, share buybacks, over the coming 12 months. On the Montney we actually have a contingent resource of just under 200 million barrels, which is gas fated where our Brooks and Thorsby assets are oil.

Next slide, please. I'm excited about this. I've put in a lot of the family money into this. One of my friends and family took placements at 0.7 and so forth. I saw a couple of people listening today are shareholders, but we've got a very de risk asset base. The assets that we bought from Blackspur, they had spent over $200 million on these assets. They got caught out in sort of a perfect storm during COVID when the oil price fell. Banks were reducing their risk to the smaller junior oil and gas sector, and we took a bit of a punt. When we contracted to buy this business in November last year, the oil price was $45. In January, we put down a million dollar non-refundable deposit to buy this business. We fundamentally believe that this business was so good and so strong, we were willing to risk a million dollars and we've been proven right so far.

As I said, the business generates tremendous free cash flow. We've got exposure to the LNG industry. Many of you may recall in Queensland, what happened when they built three LNG export facilities. Sunshine Gas, Queensland Gas, Arrow, went through the roof. We went into Canada years ago and drove through wells, spent $50 million. We got the timing wrong, because of the unconventional growth and the unconventional industry in the US sent gas prices from $3, $54, down to 50 cents. We still have that LNG, that Montney asset, which will deliver some real value in going forward because gas prices today are above $3. We've got great net backs, as I said, and most importantly, here we have a really skilled management team. When we bought the assets, we bought the assets because of the quality of the management team. The team in Canada is first rate. They know that business. They're committed to it and they actually set it up from scratch.

Next slide, please. We've got a couple pieces, a couple of strategies that we're going to deliver on. We're currently producing around 3000 barrels a day. The release the other day was about 2,818. We've done some work overs, tied it up, and improved some of the productivity from the Wells. We're doing 3000 barrels a day now. The objective is to get to 5,500 barrels a day. We've told the market initially we would like to achieve that by the end of 2022. We will achieve 5,500 barrels a day within 12 months, and hopefully we'll achieve 5,500 barrels a day within six to eight months. With oil prices at $68 a barrel, we can drill a well and get our money back within six months. We can recycle our capital over and over again. Oil price runs to a hundred dollars barrel, we will recycle our capital in less than three months. We have a business that generates tremendous cash flow. In the longer term, we're going to look at developing the Montney asset together with partner. We've got facilities and infrastructure. We've got a plant and infrastructure there that would cost us $80 million to replace. It's on care and maintenance at the moment, but that's got capacity for 11,000 barrels a day of oil. On the upside, we have reserved growth that we can look at in terms of existing acreage. We obviously have the Montney and you'll see that we're actually going to do bulk on acquisitions to consolidate our position.

Next slide, please. Valuation. We're trading at three and a half times, EV to 2P multiples. It's at a substantial discount to our Canadian and Aussie peers. The Canadian peers have actually rallied. They're probably trading at an average of seven and eight times now. Gear, Surge, Cardinal. These are companies also that have an oil waiting like us, not a gas waiting. As you may know, despite people talking about barrels of oil, equivalent of production, there's a huge revenue differential between that. Normally when you convert oil, or gas to oil, you do it at a 6:1 ratio. However, the price differential between oil and gas is, gas is currently at $3 and oil is at $68. The price differential is about 22 times 21 times, yet the conversion ratio is a six times. Always look when you're investing in oil and gas companies, at the barrel of oil equivalent and look at the gas component of that barrel oil equivalent versus oil component. You want a company that's oil weighted, not gas weighted, and we're oil weighted. We are 70% oil. Which means that 70% of our sales of barrel oil equivalent are generating $60, $65, $68 a barrel WTI.

Next slide, please. This slide kind of says it all. As I said, I've mentioned earlier, this is the sensitivity at $50, $60 and $70 WTI. Currently all our models that we're using at the moment are $60 WTI. Currently at 3000 barrels a day of production. We would generate $25 million of EBITDA on an annual basis. At 5,500 barrels a day, as you'll see in the green section, will generate $58 million in EBITDA. Beauty of the organism is once you've drilled the wells, once you paid off your capital, and everything other than your royalty optics is free cash flow and money in the bank. We're not going out there. We don't have to keep digging up oil or crush your transport and so forth. Once you've got that well groomed, once you down hole pump and it's connected to infrastructure, the leverage and the free cash flow is just absolutely fabulous. Oil prices getting up to $68 at $70 WTI, this business when we're generating five 5,500 barrels a day, would generate $73 million Canadian of EBITDA. Again, really leveraged. Our market cap, as I said, is around $80 to $90 million today, depending on where the share price strikes.

Next slide, please. As I said, the management board who reasonably bought this business and merged with Blackspur was the people, Jordan, Braydin, Mark Freeman, the guys in Canada, Mike Dobovich and so forth. First-class team that the business has been run by from Canada. We in Australia, the capital markets arm, we provide the compliance, the ASX listing and so forth. We have a first class Canadian zone. We're not trying to run this business from Australia until the Canadians know how to run their operations. We are running the capital markets. We are running the accounts managed, but they are running the business, and they have delivered on this time and time again. We're putting out an operations update next Wednesday/Thursday, and you'll see the revenue we've generated for the first month. And you'll see the EBITDA for the first month of ownership. And I think you'll all be quite impressed.

Next slide, please. I know I only have 2 minutes left and I get a bit excited on the Brooks and Thorsby. As I mentioned, Blackspur spent over $200 million building out their infrastructure and their asset base over a seven year period. They got caught in a perfect storm. That was to our benefit and also to theirs because many of the Blackspur shareholders took Calima shares as a part of the transaction. Many of the original shareholders, including management, shareholders today are Calima.

Next slide. Green areas here are licensed areas. You can see the facilities and infrastructure. I think the key here is, on the Brooks we have 11.6 million barrels of 2P reserves. And most importantly, we have 35 Brook locations that we can go and drill and bring into production very quickly. There's also 147 locations that have been identified. They still need further working done, but 35. We're drilling three wells now, we're going to drill another three later on. We're virtually going to drill one well a month for the next 24 months. That is to increase the production base to 5,000 barrels a day and further.

Next slide, thank you. Thorsby again, 10 million barrels of 2P reserves. We have infrastructure facilities, largely scenario. We're going to be drilling Thorsby wells. I think the intention is we can start commencing those wells in July.

Next slide. The Montney is a world-class base, and Canada's actually got the third largest reserves in the world. Marcella Siegel, Foot Bark as you all know in the US. The Montney used to deliver a majority of the hydrocarbon molecules to the US years and years ago. However, when the US became self-sufficient, the Montney became irrelevant. Or not as relevant as it is today. Gas prices going up. We got to be delivering gas again to the LNG industry and into the US distribution system, because the Anchorage is already connected to the pipeline.

Next slide. Where we are today is we're a cashflow generating company with operations in Canada with a first class management team and a first-class jurisdiction. And we will be delivering results that will, I think, impress every shareholder over the next 24 months. Thank you.