Updating Commodity Price Forecast And A Detailed Discussion On Crude Macro

Transcription

1 Updating Commodity Price Forecast And A Detailed Discussion On Crude Macro With the close of 3Q15, we are updating our commodity price forecast. The difference between actuals and our estimates are laid out below. We have also taken this opportunity to revise our price deck, bringing it closer in-line with the strip. Exhibit 1. Quarterly Commodity Price Table 3Q15e 3Q15A Diff % 2Q15A Diff % Exchange rate ($/US$) $0.810 $ % $ % WTI (US$/Bbl) $50.00 $ % $ % Edmonton Differential (CAD$/Bbl) $3.00 $ % $ % Edmonton Par (C$/Bbl) $58.73 $ % $ % NYMEX (US$/mmbtu) $3.50 $ % $2.74 0% AECO Differential (C$/Mcf) $1.32 $ % $0.68-3% AECO (C$/Mcf) $3.00 $2.91-3% $2.68 9% Source; Beacon Securities Ltd. Estimates, Bloomberg Both spot crude prices and the strip have closely tracked our forecast since the beginning of the year, but given our bearish tone over the next 6-12 months, we have elected to reduce our WTI forecast US$5.00/bbl in 4Q15 and US$7.50/bbl in We have taken the same approach to Nymex natural gas, reducing 4Q15 and 2016 by US$1.00/mmbtu. This is a much more substantial move than our crude oil revision, but strong supply in the US and calls for a mild winter (i.e. El Nino) imply storage could reach Tcf with relative ease, and little in the way of a structural reprieve (i.e. LNG) until Exhibit 2. Updated Commodity Price Table PRICING 2015E 2016E Commodity price assumptions Q1 Q2 Q3 Q4e 2015E Q1e Q2e Q3e Q4e 2016E Exchange rate ($/US$) $0.807 $0.814 $0.765 $0.760 $0.786 $0.760 $0.760 $0.760 $0.760 $0.760 WTI (US$/Bbl) $48.57 $57.93 $46.50 $50.00 $50.75 $50.00 $50.00 $55.00 $55.00 $52.50 Edmonton Differential (CAD$/Bbl) $6.89 $2.10 $5.63 $4.00 $4.66 $4.00 $4.00 $4.00 $4.00 $4.00 Edmonton Par (C$/Bbl) $53.29 $69.08 $55.19 $61.79 $59.88 $61.79 $61.79 $68.37 $68.37 $65.08 NYMEX (US$/mmbtu) $2.87 $2.74 $2.74 $2.75 $2.77 $3.00 $2.75 $3.00 $3.25 $3.00 AECO Differential (C$/Mcf) $0.81 $0.68 $0.67 $0.62 $0.70 $0.95 $0.87 $0.95 $1.03 $0.95 AECO (C$/Mcf) $2.74 $2.68 $2.91 $3.00 $2.83 $3.00 $2.75 $3.00 $3.25 $3.00 Source; Beacon Securities Ltd. Estimates, Bloomberg July 6, 2015 Page 1

2 Exhibit 3a. Crude Oil Forecasts Source; Beacon Securities Ltd. Estimates, Bloomberg Exhibit 3b. Natural Gas Forecasts Source; Beacon Securities Ltd. Estimates, Bloomberg July 6, 2015 Page 2

3 In Exhibit 4, we present changes to our cash flow estimates and by derivative, our new target prices. Readers will note that our forecast remains below consensus and engineer s price deck our conservatism implies a return to target can be achieved via operational strength, not necessarily a return predicated on a commodity bounce. Exhibit 4. Updated Estimates Table 2015e CF/boe 2016e CF/boe 2015 CF 2016 CF 2015 CFPS 2016 CFPS Target Old Target New Rating BBI n/a n/a $ % n/a n/a $9.2-19% n/a n/a $ % $0.45 $0.40 SPEC. BUY BIR $ % $ % $ % $ % $1.14-5% $ % $12.50 $10.50 BUY BXO $ % $ % $52.1-4% $ % $1.50-4% $ % $11.50 $10.50 BUY GXO $ % $ % $69.7-1% $42.3-6% $1.53-1% $1.36-6% $11.00 $10.00 BUY KCK $ % $ % $19.8-5% $32.8-8% $0.33-5% $0.53-8% $4.75 $4.00 BUY RRX $ % $ % $ % $ % $0.81-7% $ % $12.00 $10.50 BUY SKX $ % $ % $15.5-1% $ % $0.52-1% $ % $3.00 $2.50 SPEC. BUY Source; Beacon Securities Ltd. Estimates Differentials have narrowed as of late, which in combination with a weak CAD, means realized pricing for Canadian producers is stronger than some expect. In 3Q15 however, differentials gapped out due to refinery outages in PADD II cash flow for medium and heavy producers will likely be weaker. Exhibit 5. What The Diff? Source; Bloomberg July 6, 2015 Page 3

4 Exhibit 6. Days Inventory Headed Higher Source; Bloomberg US Rig Activity and Crude Prices In the past we have spoken about a 0.93 correlation between rig count and crude oil prices, after one applies a 4.5 month delay to the data. In other words, crude prices can precede rig activity with a normalized high degree of certainty, but over the last 10 weeks this correlation has broken down entirely. Exhibit 7 and Exhibit 8, on the next page, illustrates this well we believe the mood in the field is markedly more bearish than it used to be; whereas we would have expected to see rig activity climb up with $60/bbl oil, we now think producers are saving excess cash flow for what could be a difficult winter. July 6, 2015 Page 4

5 Exhibit 7. Correlating US Rig Activity and Crude Price (WTI) Source; Bloomberg, Baker Hughes Exhibit 8. Rigs Are Slow Learners, Or Are They? Source; Bloomberg, Baker Hughes July 6, 2015 Page 5

6 US Rig Productivity Mainstream media typically focuses on the gross production decline of ~300,000 bbl/d, which is quite true but it neglects two important facets; firstly, how quickly fracklog (which we estimate at +4,000 wells) can replace lost production when/if breakeven prices are met, and secondly, the marginal productivity of US rigs continues to improve as producers refine their craft. Exhibit 9. Crude Picture Mixed Signals Source; Bloomberg, EIA, Baker Hughes July 6, 2015 Page 6

7 Exhibit 10. Absolute Production Per Rig Trending Up Source; Bloomberg, EIA, Baker Hughes Productivity per rig continues to trend up on an absolute basis, but even more importantly, when one adjusts the data for rig-activity by basin, the marginal rig productivity is increasing at an increasing rate. Sweet spots are indeed being drilled. Exhibit 11. Rig Activity Weighted Average Productivity Per Rig July 6, 2015 Page 7 Source; Bloomberg, EIA, Baker Hughes

8 Financial Players Exhibit 12 looks at all non-commercial speculative activity since the beginning of 2014 (individual investors, traders, hedge funds, large financial institutions et al) and we see open interest is still fairly high (blue-right axis) but non-commercial shorts (green-left axis) have reduced their position markedly. With little in the way of upward sentiment, shorts could be fearing something we don t see. Exhibit 12. Non-Commercial Longs/Shorts Trimming Positions Source; CFTC Exhibit 13. Longs/Short Ratio Reversing? Source; CFTC July 6, 2015 Page 8

9 Longer Term Thesis In Tact We are biased to reiterate much of our thesis from prior commodity pieces, which portends longer term supply destruction in the North American oil market but the timeline is moving further and further out; 1) Sweet spots are finite and quickly depleted at low prices and make no mistake, all producers are drilling their best prospects now. 2) Deep in-the-money hedges (think +$80/bbl) are also finite, and whether it is the end of 2015 or 2016, eventually real world economics are going to layer in and dampen the return on an otherwise financially economic play. 3) Most capital cost savings we are seeing are borrowed efficiencies with the systemic downturn in rig activity once oil ratchets up, we expect service providers to do the same and try and recapture margins that were lost in the interest of keeping market share. Conclusion As it relates to the energy investor, we believe a flight to quality is fully merited in this environment. Our universe is structured around names that score highly on at least three out of our four key questions and can still add to the equity account in a tumultuous commodity price environment, but risk in the sector is still high. There still will be relative winners and losers along that continuum, but none of our covered names are likely to run into leverage problems and growth will likely only be dictated by their cost structure and free cash flow emanating from engine (again, varies by name). Exhibit 14. Comp Sheet Rating Yield Target 4Q15e Production 4Q15/16e YoY Production per Share Growth 2015 Liquids Weighting EV/boe 2014 FDC/boe Total Cap/boe 2015e CF/boe Investor Recycle Ratio 24-month Trailing Corporate Time-topayout (years) 2015e Available Bank Capacity BBI S. BUY n/a $ n/a 100% n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a BIR BUY n/a $ ,790 16% 14% $3.69 $6.83 $10.52 $ x % 3.5x 1.2x 47% BXO BUY n/a $ ,354 28% 78% $11.74 $8.24 $19.98 $ x n/a 19% 2.0x 1.8x 66% GXO BUY 5% $ ,662 12% 86% $15.91 $6.01 $21.93 $ x n/a 62% 0.6x 2.1x 35% KCK BUY n/a $4.00 3,741 22% 54% $8.25 $8.32 $16.57 $ x % 2.7x 3.0x 73% RRX BUY n/a $ ,621 22% 96% $28.33 $13.15 $41.48 $ x % 0.7x 2.7x 16% SKX S. BUY n/a $2.50 2,688 15% 64% $5.23 $5.18 $10.41 $ x n/a 74% 0.9x 0.5x 17% Average 1.2x 3.9x 44% 1.7x 1.9x 43% Source; Beacon Securities Ltd. Estimates As we illustrate in Exhibit 15a/b below, we believe a sector rotation may be coming as volume is decreasing in consumer staples and technology, while recent news in healthcare may have investors exiting the space. Materials and energy are two of the most depressed sectors, while volumes are surprisingly strong these would be our guess for the next movers in a generalist sector shift. 2015e D/CF EV/PDP NPV e Debt/PDP July 6, 2015 Page 9

10 Exhibit 15a. Due For A Sector Rotation? Source; FactSet Exhibit 15b. Due For A Sector Rotation? Source; FactSet July 6, 2015 Page 10

11 On the following pages, we present updated estimates for all companies currently under coverage. Birchcliff Energy Ltd. P/CF: 3.0 P/CF: 5.2 P/CF: Oct-15 EV/DACF: 4.5 EV/DACF: 7.8 EV/DACF: 6.1 Debt adj. target price multiple: (0.2) Debt adj. target price multiple: #DIV/0! Debt adj. target price multiple: #DIV/0! E 2016E 1Q 2Q 3Q 4Q Q 2Q 3QE 4QE 2015E 1QE 2QE 3QE 4QE 2016E DAILY PRODUCTION Liquids (B/d) 5,339 5,282 5,456 5,621 5,425 5,760 5,370 5,375 5,715 5,555 5,894 6,059 6,242 6,681 6,221 Natural gas (MMcf/d) BOE production per day (6:1) 31,748 31,178 34,235 37,704 33,734 38,416 38,489 38,525 40,790 39,060 41,981 43,082 44,301 47,228 44,163 Commodity price assumptions Exchange rate (C$/US$) $0.91 $0.92 $0.92 $0.88 $98.24 $0.81 $0.81 $0.76 $0.76 $0.79 $0.76 $0.76 $0.76 $0.76 $0.76 WTI (US$/Bbl) $ $90.76 $ $50.75 $ $52.50 Natural Gas (US$/mmbtu) $4.72 $4.58 $3.95 $3.83 $4.46 $2.87 $2.74 $2.74 $2.75 $2.77 $3.00 $2.75 $3.00 $3.25 $3.00 Company average liquids price (C$/Bbl) $96.80 $ $93.59 $70.16 $90.42 $47.29 $63.30 $50.89 $57.50 $54.68 $57.51 $57.52 $64.11 $64.12 $60.97 Company average gas price (C$/Mcf) $6.10 $4.81 $4.37 $3.91 $79.24 $2.98 $2.86 $3.09 $3.18 $3.03 $3.25 $3.00 $3.25 $3.50 $3.25 UNIT VALUES ($/BOE) Total sales Royalties (incl ARTC) (4.43) (3.35) (2.63) (1.84) (2.99) (0.83) (0.61) (0.92) (0.98) (0.84) (0.99) (0.94) (1.03) (1.08) (1.02) Transportation (2.48) (2.46) (2.42) (2.40) (2.44) (2.58) (2.46) (2.46) (2.46) (2.49) (2.50) (2.50) (2.50) (2.50) (2.50) Operating expense (5.21) (5.25) (5.06) (5.33) (5.22) (5.11) (4.53) (4.50) (4.50) (4.65) (4.50) (4.50) (4.50) (4.50) (4.50) Operating netback G & A expense (1.89) (1.91) (1.44) (2.02) (1.81) (1.70) (1.75) (1.69) (1.60) (1.68) (1.59) (1.53) (1.47) (1.38) (1.49) Interest expense (1.70) (1.70) (1.50) (1.42) (1.57) (1.43) (1.69) (1.47) (1.38) (1.49) (1.37) (1.33) (1.28) (1.21) (1.29) Current tax Other (cash expenses) Cash flow netback ($/BOE) Total cash costs ($/BOE) (8.80) (8.86) (8.00) (8.77) (8.60) (8.24) (7.97) (7.66) (7.48) (7.83) (7.45) (7.36) (7.26) (7.09) (7.28) Earnings ($/BOE) (1.01) (1.19) Total revenue ($MM) Cash flow ($MM) Net income ($MM) (3.479) (4.174) Net capital spending ($MM) Net debt ($MM) D/CF - trailing 1.5x 1.7x 1.7x 2.2x 1.8x 4.2x 3.5x 3.8x 3.1x 3.5x 3.0x 3.2x 2.6x 2.2x 2.7x Weighted average shares outstanding Weighted average shares fully diluted EPS basic $0.27 $0.19 $0.20 $0.12 $0.78 ($0.02) ($0.03) $0.01 $0.05 $0.01 $0.04 $0.02 $0.07 $0.11 $0.24 Diluted EPS $0.24 $0.17 $0.17 $0.10 $0.68 ($0.02) ($0.02) $0.01 $0.04 $0.01 $0.04 $0.02 $0.06 $0.09 $0.21 CFPS basic $0.61 $0.52 $0.50 $0.41 $2.04 $0.24 $0.30 $0.28 $0.33 $1.16 $0.34 $0.33 $0.40 $0.47 $1.54 Diluted CFPS $0.60 $0.49 $0.48 $0.40 $1.98 $0.24 $0.30 $0.28 $0.33 $1.14 $0.34 $0.32 $0.40 $0.46 $1.53 Source; Beacon Securities Ltd. Estimates July 6, 2015 Page 11

12 Blackbird Energy Inc. P/CF: (8.3) P/CF: (20.0) P/CF: Oct-15 EV/DACF: (2.4) EV/DACF: (14.6) EV/DACF: 5.0 Debt adj. target price multiple: 7.6 Debt adj. target price multiple: 4.8 Debt adj. target price multiple: (0.3) E 2016E Q1 Q2 Q3 Q Q1 Q2E Q3E Q4E 2015E Q1E Q2E Q3E Q4E 2016E DAILY PRODUCTION Liquids (B/d) Natural gas (MMcf/d) BOE production per day (6:1) ,684 1,558 1,441 1,733 1,604 Commodity price assumptions Exchange rate (C$/US$) $0.91 $0.92 $0.92 $0.88 $0.91 $0.81 $0.81 $0.76 $0.76 $0.79 $0.76 $0.76 $0.76 $0.76 $0.76 WTI (US$/Bbl) $ $98.24 $ $50.75 $ $52.50 Natural Gas (US$/mmbtu) $4.72 $4.58 $3.95 $3.83 $4.27 $2.87 $2.74 $2.74 $2.75 $2.77 $3.00 $2.75 $3.00 $3.25 $3.00 Company average liquids price (C$/Bbl) $88.19 $84.30 $71.61 $39.18 $70.70 $31.12 $54.08 $40.19 $59.79 #DIV/0! $59.79 $59.79 $66.37 $66.37 $63.07 Company average gas price (C$/Mcf) $4.92 $4.92 $5.04 $4.19 $4.77 $5.07 $2.68 $2.91 $3.00 $3.41 $3.00 $2.75 $3.00 $3.25 $3.00 UNIT VALUES ($/BOE) Total sales Royalties (incl ARTC) (8.43) (21.40) (4.03) (3.32) (10.07) (5.56) (9.73) (7.23) (2.99) (6.51) (1.54) (1.48) (1.64) (1.69) (1.59) Transportation Operating expense (68.73) (232.58) (42.87) (53.12) (108.04) (139.81) (40.00) (40.00) (10.00) (60.25) (10.00) (10.00) (10.00) (10.00) (10.00) Operating netback (24.36) (43.17) (20.63) (18.53) (5.56) 4.35 (7.04) G & A expense (91.02) (226.44) (122.01) (182.85) (160.21) (592.59) (586.08) (695.65) (711.66) (641.40) (4.22) (4.51) (4.83) (4.01) (4.37) Interest expense Current tax Other (cash expenses) Cash flow netback ($/BOE) (115.38) (269.61) (129.34) (181.19) (180.05) (598.15) (581.73) (702.70) (664.86) (632.79) Total cash costs ($/BOE) (159.75) (459.02) (164.88) (235.97) (268.25) (732.41) (626.08) (735.65) (721.66) (701.64) (14.22) (14.51) (14.83) (14.01) (14.37) Earnings ($/BOE) (131.04) (586.05) (496.09) (303.91) (968.52) (365.84) (440.84) (417.38) (557.82) Total revenue ($MM) Cash flow ($MM) (0.476) (1.623) (0.706) (0.764) (3.569) (0.646) (0.635) (0.646) (0.598) (2.526) Net income ($MM) (0.541) (3.527) (2.708) (6.024) (1.046) (0.399) (0.406) (0.375) (2.226) Net capital spending ($MM) - - (4.126) (0.050) Net debt ($MM) (0.074) (0.055) (40.206) (27.028) (27.028) (23.954) (23.369) (13.222) (12.124) (12.124) (3.890) (5.829) (7.986) (2.863) (2.863) D/CF - trailing 0.0x 0.0x 14.2x 8.8x 7.6x 9.3x 9.2x 5.1x 5.1x 4.8x NA NA NA NA NA Weighted average shares outstanding Weighted average shares fully diluted EPS basic ($0.00) ($0.02) ($0.01) $0.00 ($0.03) ($0.00) ($0.00) ($0.00) ($0.00) ($0.01) $0.00 $0.00 $0.00 $0.00 $0.01 Diluted EPS ($0.00) ($0.02) ($0.01) $0.00 ($0.02) ($0.00) ($0.00) ($0.00) ($0.00) ($0.01) $0.00 $0.00 $0.00 $0.00 $0.01 CFPS basic ($0.00) ($0.01) ($0.00) ($0.00) ($0.02) ($0.00) ($0.00) ($0.00) ($0.00) ($0.01) $0.01 $0.01 $0.01 $0.01 $0.03 Diluted CFPS ($0.00) ($0.01) ($0.00) ($0.00) ($0.02) ($0.00) ($0.00) ($0.00) ($0.00) ($0.01) $0.01 $0.01 $0.01 $0.01 $0.03 Source; Beacon Securities Ltd. Estimates Boulder Energy Ltd. P/CF: 3.3 P/CF: Oct-15 EV/DACF: 6.4 EV/DACF: 3.6 Debt adj. target price multiple: 2.5 Debt adj. target price multiple: E 2016E Q2 Q3E Q4E 2015E Q1E Q2E Q3E Q4E 2016E DAILY PRODUCTION Liquids (B/d) 5,001 6,500 6,650 4,561 7,669 7,651 8,115 8,544 7,997 Natural gas (MMcf/d) BOE production per day (6:1) 6,702 8,167 8,354 5,835 9,628 9,606 10,185 10,721 10,038 Commodity price assumptions Exchange rate (C$/US$) $0.81 $0.76 $0.76 $0.79 $0.76 $0.76 $0.76 $0.76 $0.76 WTI (US$/Bbl) $50.75 $ $52.50 Natural Gas (US$/mmbtu) $2.74 $2.74 $2.75 $2.77 $3.00 $2.75 $3.00 $3.25 $3.00 Company average liquids price (C$/Bbl) $64.67 $51.19 $57.79 $57.30 $58.79 $58.79 $65.37 $65.37 $62.24 Company average gas price (C$/Mcf) $2.70 $2.91 $3.00 $2.84 $3.30 $3.05 $3.30 $3.55 $3.30 UNIT VALUES ($/BOE) Total sales Royalties (incl ARTC) (10.29) (10.63) (11.92) (11.00) (11.70) (11.63) (12.90) (12.98) (12.33) Transportation (2.87) (2.00) (2.00) (2.25) (2.00) (2.00) (2.00) (2.00) (2.00) Operating expense (9.08) (9.50) (9.50) (9.38) (9.50) (9.50) (9.50) (9.50) (9.50) Operating netback G & A expense (2.02) (1.73) (1.69) (1.80) (1.50) (1.49) (1.39) (1.32) (1.42) Interest expense (2.19) (1.62) (1.59) (1.77) (1.55) (1.61) (1.49) (1.43) (1.52) Current tax Other (cash expenses) Cash flow netback ($/BOE) Total cash costs ($/BOE) (13.29) (12.85) (12.79) (12.95) (12.55) (12.60) (12.38) (12.25) (12.44) Earnings ($/BOE) (0.66) Total revenue ($MM) Cash flow ($MM) Net income ($MM) (0.403) Net capital spending ($MM) Net debt ($MM) D/CF - trailing 2.0x 2.2x 1.9x 2.7x 1.9x 1.9x 1.5x 1.4x 1.6x Weighted average shares outstanding Weighted average shares fully diluted EPS basic ($0.01) $0.01 $0.05 $0.06 $0.05 $0.05 $0.11 $0.12 $0.34 Diluted EPS ($0.01) $0.01 $0.04 $0.05 $0.05 $0.05 $0.11 $0.12 $0.32 CFPS basic $0.38 $0.34 $0.41 $1.50 $0.46 $0.46 $0.58 $0.62 $2.12 Diluted CFPS $0.38 $0.34 $0.41 $1.50 $0.46 $0.46 $0.58 $0.62 $2.12 Source; Beacon Securities Ltd. Estimates July 6, 2015 Page 12

13 Granite Oil Corp. P/CF: 2.9 P/CF: 3.7 P/CF: Oct-15 EV/DACF: 3.7 EV/DACF: 4.2 EV/DACF: 4.9 Debt adj. target price multiple: 1.0 Debt adj. target price multiple: 0.6 Debt adj. target price multiple: E 2016E Q1 Q2 Q3 Q Q1 Q2 Q3E Q4E 2015E Q1E Q2E Q3E Q4E 2016E DAILY PRODUCTION Liquids (B/d) 7,308 8,583 10,061 10,090 9,021 9,779 5,705 3,350 3,662 5,601 3,784 3,900 4,011 4,116 3,954 Natural gas (MMcf/d) BOE production per day (6:1) 9,372 10,744 12,110 12,842 11,279 12,296 6,910 3,350 3,662 6,522 3,784 3,900 4,011 4,116 3,954 Commodity price assumptions Exchange rate (C$/US$) $0.91 $0.92 $0.92 $0.88 $0.91 $0.81 $0.81 $0.76 $0.76 $0.79 $0.76 $0.76 $0.76 $0.76 $0.76 WTI (US$/Bbl) $ $98.24 $ $50.75 $ $52.50 Natural Gas (US$/mmbtu) $4.72 $4.58 $3.95 $3.83 $4.27 $2.87 $2.74 $2.74 $2.75 $2.77 $3.00 $2.75 $3.00 $3.25 $3.00 Company average liquids price (C$/Bbl) $89.61 $95.50 $88.32 $69.04 $84.85 $47.95 $62.02 $39.19 $45.79 $49.85 $51.79 $51.79 $58.37 $58.37 $55.20 Company average gas price (C$/Mcf) $6.00 $5.02 $4.39 $3.84 $4.81 $2.84 $2.68 $2.92 $3.00 $2.86 $3.00 $2.75 $3.00 $3.25 $3.00 UNIT VALUES ($/BOE) Total sales Royalties (incl ARTC) (18.74) (18.84) (16.25) (13.78) (16.67) (9.01) (14.67) (11.37) (13.28) (11.41) (13.98) (13.98) (15.76) (15.76) (14.90) Transportation (1.69) (1.92) (1.98) (2.97) (2.19) (3.25) (2.67) (2.60) (2.60) (2.92) (2.60) (2.60) (2.60) (2.60) (2.60) Operating expense (10.18) (11.00) (9.77) (7.45) (9.48) (7.37) (7.31) (7.50) (7.50) (7.39) (7.50) (7.50) (7.50) (7.50) (7.50) Operating netback G & A expense (2.22) (1.99) (1.44) (2.45) (2.02) (2.14) (7.35) (2.76) (2.52) (3.65) (2.50) (2.40) (2.30) (2.24) (2.36) Interest expense (1.05) (1.63) (0.93) (1.19) (1.20) (1.19) (2.19) (1.28) (1.14) (1.46) (1.13) (1.11) (1.04) (0.97) (1.06) Current tax Other (cash expenses) Cash flow netback ($/BOE) Total cash costs ($/BOE) (13.45) (14.62) (12.14) (11.09) (12.70) (10.70) (16.85) (11.54) (11.17) (12.50) (11.13) (11.00) (10.85) (10.71) (10.92) Earnings ($/BOE) Total revenue ($MM) Cash flow ($MM) Net income ($MM) Net capital spending ($MM) Net debt ($MM) D/CF - trailing 1.1x 0.7x 0.7x 1.0x 1.0x 1.6x 0.7x 0.9x 0.8x 0.6x 1.2x 1.1x 1.0x 0.9x 1.0x Weighted average shares outstanding Weighted average shares fully diluted EPS basic $0.11 $0.21 $0.24 $0.33 $0.89 $0.02 $4.78 $0.12 $0.14 $3.43 $0.06 $0.06 $0.09 $0.09 $0.30 Diluted EPS $0.10 $0.21 $0.23 $0.29 $0.86 $0.02 $4.56 $0.12 $0.13 $3.21 $0.06 $0.06 $0.09 $0.09 $0.30 CFPS basic $0.43 $0.51 $0.59 $0.48 $2.02 $0.31 $0.57 $0.39 $0.43 $1.56 $0.31 $0.32 $0.38 $0.39 $1.40 Diluted CFPS $0.42 $0.49 $0.57 $0.46 $1.95 $0.30 $0.57 $0.38 $0.42 $1.53 $0.30 $0.32 $0.37 $0.38 $1.36 Source; Beacon Securities Ltd. Estimates Kicking Horse Energy Inc. P/CF: 7.8 P/CF: 7.7 P/CF: Oct-15 EV/DACF: 13.2 EV/DACF: 9.4 EV/DACF: 6.2 Debt adj. target price multiple: 3.2 Debt adj. target price multiple: 2.4 Debt adj. target price multiple: E 2016E Q1 Q2 Q3 Q Q1 Q2 Q3E Q4E 2015E Q1E Q2E Q3E Q4E 2016E DAILY PRODUCTION Liquids (B/d) ,685 1,983 1,987 1,667 2,165 2,207 2,246 2,408 2,257 Natural gas (MMcf/d) BOE production per day (6:1) , ,924 3,034 3,734 3,741 3,115 4,098 4,182 4,260 4,583 4,282 Commodity price assumptions Exchange rate (C$/US$) $0.91 $0.92 $0.92 $0.88 $0.91 $0.81 $0.81 $0.76 $0.76 $0.79 $0.76 $0.76 $0.76 $0.76 $0.76 WTI (US$/Bbl) $ $98.24 $ $50.75 $ $52.50 Natural Gas (US$/mmbtu) $4.72 $4.58 $3.95 $3.83 $4.27 $2.87 $2.74 $2.74 $2.75 $2.77 $3.00 $2.75 $3.00 $3.25 $3.00 Company average liquids price (C$/Bbl) $ $ $95.41 $65.82 $88.78 $47.75 $63.24 $41.19 $47.79 $49.70 $51.79 $51.79 $58.37 $58.37 $55.21 Company average gas price (C$/Mcf) $6.74 $5.67 $4.85 $4.11 $5.34 $3.29 $3.30 $3.54 $3.62 $3.44 $3.50 $3.25 $3.50 $3.75 $3.50 UNIT VALUES ($/BOE) Total sales Royalties (incl ARTC) (4.06) (6.59) (5.21) (3.07) (4.30) (2.12) (2.09) (1.91) (2.13) (2.05) (2.24) (2.19) (2.44) (2.48) (2.34) Transportation (8.10) (4.57) (3.71) (6.40) (5.98) (6.64) (4.56) (4.50) (4.00) (4.69) (4.00) (4.00) (4.00) (4.00) (4.00) Operating expense (7.18) (13.06) (12.84) (8.09) (9.61) (7.68) (7.37) (8.00) (8.00) (7.80) (8.00) (8.00) (8.00) (8.00) (8.00) Operating netback G & A expense (15.21) (10.64) (7.75) (8.32) (10.15) (4.46) (2.45) (2.25) (2.24) (2.63) (2.09) (2.03) (1.97) (1.83) (1.98) Interest expense (0.93) (0.32) (1.39) (2.03) (1.64) (1.72) (1.72) (1.74) (1.77) (1.75) (1.68) (1.73) Current tax Other (cash expenses) (0.63) (0.49) (0.17) (0.28) (6.61) (1.65) Cash flow netback ($/BOE) Total cash costs ($/BOE) (22.35) (23.42) (20.46) (17.34) (20.09) (13.53) (11.85) (11.89) (11.97) (12.15) (11.83) (11.80) (11.72) (11.51) (11.71) Earnings ($/BOE) (13.78) (10.15) (7.77) (4.65) (1.86) (5.40) (3.29) (3.94) (1.49) Total revenue ($MM) Cash flow ($MM) Net income ($MM) (1.299) (1.758) (2.144) (1.598) (0.639) (6.139) (1.213) (1.500) (2.329) Net capital spending ($MM) Net debt ($MM) (2.913) D/CF - trailing 0.7x NA 0.8x 3.0x 3.2x 5.4x 2.3x 2.2x 1.9x 2.7x 2.1x 2.2x 1.7x 1.6x 2.0x Weighted average shares outstanding Weighted average shares fully diluted EPS basic $0.05 $0.06 $0.08 ($0.05) $0.11 ($0.03) ($0.04) ($0.03) ($0.01) ($0.10) ($0.02) ($0.02) $0.00 $0.01 ($0.04) Diluted EPS $0.05 $0.05 $0.07 ($0.02) $0.11 ($0.03) ($0.03) ($0.02) ($0.01) ($0.09) ($0.02) ($0.02) $0.00 $0.01 ($0.04) CFPS basic $0.11 $0.09 $0.07 $0.07 $0.33 $0.03 $0.09 $0.09 $0.11 $0.33 $0.11 $0.11 $0.14 $0.16 $0.53 Diluted CFPS $0.11 $0.08 $0.07 $0.07 $0.32 $0.03 $0.09 $0.09 $0.11 $0.33 $0.11 $0.11 $0.14 $0.16 $0.53 Source; Beacon Securities Ltd. Estimates July 6, 2015 Page 13

14 Raging River Exploration Inc. P/CF: 6.7 P/CF: 9.8 P/CF: Oct-15 EV/DACF: 7.3 EV/DACF: 10.2 EV/DACF: 7.3 Debt adj. target price multiple: 0.7 Debt adj. target price multiple: 0.7 Debt adj. target price multiple: E 2016E Q1 Q2 Q3 Q Q1 Q2 Q3E Q4E 2015E Q1E Q2E Q3E Q4E 2016E DAILY PRODUCTION Liquids (B/d) 9,427 9,500 10,278 12,059 10,323 12,870 12,856 12,857 13,121 12,927 14,042 14,712 15,324 16,058 15,040 Natural gas (MMcf/d) BOE production per day (6:1) 9,805 9,961 10,679 12,548 10,755 13,310 13,347 13,348 13,621 13,407 14,570 15,260 15,892 16,648 15,599 Commodity price assumptions Exchange rate (C$/US$) $0.91 $0.92 $0.92 $0.88 $0.91 $0.81 $0.81 $0.76 $0.76 $0.79 $0.76 $0.76 $0.76 $0.76 $0.76 WTI (US$/Bbl) $ $98.24 $ $50.75 $ $52.50 Natural Gas (US$/mmbtu) $4.72 $4.58 $3.95 $3.83 $4.27 $2.87 $2.74 $2.74 $2.75 $2.77 $3.00 $2.75 $3.00 $3.25 $3.00 Company average liquids price (C$/Bbl) $93.75 $ $92.79 $70.00 $88.31 $46.93 $62.20 $50.19 $55.79 $53.80 $58.79 $58.79 $65.37 $65.37 $62.25 Company average gas price (C$/Mcf) $5.69 $4.41 $3.74 $3.60 $4.36 $2.73 $2.59 $2.91 $3.00 $2.81 $3.00 $2.75 $3.00 $3.25 $3.00 UNIT VALUES ($/BOE) Total sales Royalties (incl ARTC) (8.27) (9.63) (8.89) (5.33) (7.87) (4.83) (5.86) (4.90) (5.44) (5.26) (5.73) (5.73) (6.37) (6.37) (6.07) Transportation (2.01) (1.99) (1.95) (1.30) (1.78) (1.35) (1.39) (1.35) (1.35) (1.36) (1.35) (1.35) (1.35) (1.35) (1.35) Operating expense (12.50) (11.99) (11.75) (11.45) (11.89) (11.36) (10.69) (11.00) (11.00) (11.01) (10.75) (10.75) (10.75) (10.75) (10.75) Operating netback G & A expense (1.47) (1.43) (1.39) (1.44) (1.43) (1.37) (1.30) (1.34) (1.31) (1.33) (1.25) (1.18) (1.12) (1.07) (1.15) Interest expense (1.03) (1.19) (0.91) (0.71) (0.94) (0.63) (0.83) (0.95) (0.99) (0.85) (1.00) (1.01) (0.95) (0.87) (0.96) Current tax (7.88) (7.45) (6.51) (1.82) (5.65) Other (cash expenses) Cash flow netback ($/BOE) Total cash costs ($/BOE) (22.87) (22.06) (20.56) (15.42) (19.92) (13.36) (12.82) (13.29) (13.30) (13.19) (13.00) (12.94) (12.83) (12.69) (12.86) Earnings ($/BOE) Total revenue ($MM) Cash flow ($MM) Net income ($MM) Net capital spending ($MM) Net debt ($MM) D/CF - trailing 0.6x 0.4x 0.5x 0.7x 0.7x 0.9x 0.5x 0.7x 0.6x 0.7x 0.6x 0.6x 0.5x 0.4x 0.5x Weighted average shares outstanding Weighted average shares fully diluted EPS basic $0.14 $0.17 $0.17 $0.13 $0.62 $0.00 $0.06 $0.03 $0.05 $0.14 $0.06 $0.06 $0.09 $0.10 $0.31 Diluted EPS $0.13 $0.15 $0.16 $0.12 $0.57 $0.00 $0.06 $0.03 $0.04 $0.13 $0.06 $0.06 $0.09 $0.09 $0.30 CFPS basic $0.28 $0.31 $0.32 $0.32 $1.24 $0.18 $0.25 $0.19 $0.22 $0.83 $0.25 $0.26 $0.32 $0.33 $1.16 Diluted CFPS $0.27 $0.30 $0.31 $0.31 $1.19 $0.17 $0.23 $0.18 $0.22 $0.81 $0.24 $0.26 $0.31 $0.33 $1.14 Source; Beacon Securities Ltd. Estimates Striker Exploration Corp. P/CF: (5.0) P/CF: 2.3 P/CF: Oct-15 EV/DACF: (6.8) EV/DACF: 3.6 EV/DACF: 3.7 Debt adj. target price multiple: (3.7) Debt adj. target price multiple: 0.9 Debt adj. target price multiple: E 2016E Q2 Q3 Q Q1 Q2 Q3E Q4E 2015E Q1E Q2E Q3E Q4E 2016E DAILY PRODUCTION Liquids (B/d) ,004 1,465 1,751 1,726 1,736 1,862 1,890 1,916 1,990 1,915 Natural gas (MMcf/d) BOE production per day (6:1) , ,066 2,384 2,726 2,688 2,715 2,898 2,940 2,980 3,094 2,978 Commodity price assumptions Exchange rate (C$/US$) $0.92 $0.92 $0.88 $0.91 $0.81 $0.81 $0.76 $0.76 $0.79 $0.76 $0.76 $0.76 $0.76 $0.76 WTI (US$/Bbl) $98.24 $ $50.75 $ $52.50 Natural Gas (US$/mmbtu) $4.58 $3.95 $3.83 $4.27 $2.87 $2.74 $2.74 $2.75 $2.77 $3.00 $2.75 $3.00 $3.25 $3.00 Company average liquids price (C$/Bbl) $81.74 $85.72 $57.26 $60.51 $46.15 $62.13 $46.19 $52.79 $51.19 $54.79 $54.79 $61.37 $61.37 $58.17 Company average gas price (C$/Mcf) $4.93 $5.15 $3.57 $4.79 $2.94 $2.86 $3.10 $3.18 $3.02 $3.00 $2.75 $3.00 $3.25 $3.00 UNIT VALUES ($/BOE) Total sales Royalties (incl ARTC) (4.53) (7.92) (8.93) (8.46) (6.43) (6.77) (6.54) (7.33) (6.76) (7.50) (7.40) (8.26) (8.36) (7.89) Transportation (0.70) (0.63) (0.75) (0.75) (0.71) (0.75) (0.75) (0.75) (0.75) (0.75) Operating expense (27.12) (35.82) (13.86) (16.80) (11.35) (13.71) (13.00) (13.00) (12.70) (12.00) (12.00) (12.00) (12.00) (12.00) Operating netback G & A expense (21.70) (145.92) (11.71) (23.54) (3.91) (5.48) (4.74) (4.81) (4.69) (4.56) (4.44) (4.34) (4.18) (4.37) Interest expense (3.40) 1.64 (1.04) (1.03) (0.64) (0.60) (0.45) (0.57) (0.57) (0.57) (0.72) (0.77) (0.80) (0.72) Current tax Other (cash expenses) (17.34) (14.42) Cash flow netback ($/BOE) (122.33) (6.19) (13.51) Total cash costs ($/BOE) (52.22) (180.10) (26.61) (41.37) (15.90) (19.80) (18.19) (18.37) (17.95) (17.13) (17.16) (17.10) (16.98) (17.09) Earnings ($/BOE) (58.79) (468.74) (70.76) (102.22) (7.55) (12.84) (3.63) (1.65) (6.24) (2.93) (3.40) (1.10) Total revenue ($MM) Cash flow ($MM) (1.611) (0.830) (2.236) Net income ($MM) (0.825) (6.174) (9.491) (16.490) (2.082) (2.785) (0.910) (0.409) (6.186) (0.764) (0.910) (1.192) Net capital spending ($MM) Net debt ($MM) (18.659) D/CF - trailing 5.3x 2.9x NA NA 0.5x 0.5x 1.2x 0.8x 0.9x 1.2x 1.4x 1.1x 1.2x 1.4x Weighted average shares outstanding Weighted average shares fully diluted EPS basic ($0.86) ($0.50) ($0.48) ($1.98) ($0.08) ($0.10) ($0.03) ($0.01) ($0.21) ($0.02) ($0.03) $0.00 $0.01 ($0.04) Diluted EPS ($0.86) ($0.50) ($0.25) ($1.82) ($0.05) ($0.07) ($0.02) ($0.01) ($0.15) ($0.02) ($0.02) $0.00 $0.01 ($0.03) CFPS basic $0.22 ($0.13) ($0.04) ($0.27) $0.14 $0.13 $0.12 $0.13 $0.52 $0.13 $0.13 $0.17 $0.18 $0.61 Diluted CFPS $0.22 ($0.13) ($0.04) ($0.25) $0.14 $0.13 $0.12 $0.13 $0.52 $0.13 $0.13 $0.17 $0.18 $0.61 Source; Beacon Securities Ltd. Estimates July 6, 2015 Page 14

15 mbbl mbbl mbbl Commodity Price Update Appendix I. US Crude Oil Inventory Update US Crude Oil Stocks 550, , , , , , ,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: EIA US Gasoline 2012 Stocks YTD 250, , , , , , , ,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: EIA YTD US Distillate Stocks 190, , , , ,000 90,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: EIA YTD July 6, 2015 Page 15

16 mbbl/d mbbl mbbl Commodity Price Update US Heating Oil Stocks 55,000 45,000 35,000 25,000 15,000 5,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: EIA YTD US Residual Fuel Oil Stocks 47,500 42,500 37,500 32,500 27,500 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: EIA YTD US Crude Oil Imports 12,000 11,000 10,000 9,000 8,000 7,000 6,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: EIA YTD July 6, 2015 Page 16

17 Per cent mbbl/d mbbl/d Commodity Price Update US Gasoline Imports 1,500 1,300 1, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: EIA YTD US Gasoline Daily Demand 10,500 10,000 9,500 9,000 8,500 8,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: EIA YTD US Refinery Utilization Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: EIA YTD July 6, 2015 Page 17

18 Disclosure Requirements Does Beacon, or its affiliates or analysts collectively, beneficially own 1% or more of any class of the issuer's equity securities? Yes No Does the analyst who prepared this research report have a position, either long or short, in any of the issuer s securities? Yes (RRX) No Does Beacon Securities beneficially own more than 1% of equity securities of the issuer? Yes No Has any director, partner, or officer of Beacon Securities, or the analyst involved in the preparation of the research report, received remuneration for any services provided to the securities issuer during the preceding 12 months? Yes No Has Beacon Securities performed investment banking services in the past 12 months and received compensation for investment banking services for this issuer in the past 12 months? Yes No Was the analyst who prepared this research report compensated from revenues generated solely by the Beacon Securities Investment Banking Department? Yes No Does any director, officer, or employee of Beacon Securities serve as a director, officer, or in any advisory capacity to the issuer? No Yes Are there any material conflicts of interest with Beacon Securities or the analyst who prepared the report and the issuer? Yes No Is Beacon Securities a market maker in the equity of the issuer? Yes No Has the analyst visited all of the head offices of the issuers and viewed their operations in a limited context? Yes No (Calgary office) Did the issuer pay for or reimburse the analyst for the travel expenses? Yes No All information contained herein has been collected and compiled by Beacon Securities Limited, an independently owned and operated member of the Investment Industry Regulatory Organization of Canada (IIROC). All facts and statistical data have been obtained or ascertained from sources, which we believe to be reliable, but are not warranted as accurate or complete. All projections and estimates are the expressed opinion of Beacon Securities Limited, and are subject to change without notice. Beacon Securities Limited takes no responsibility for any errors or omissions contained herein, and accepts no legal responsibility from any losses resulting from investment decisions based on the content of this report. This report is provided for informational purposes only and does not constitute an offer or solicitation to buy or sell securities discussed herein. Based on their volatility, income structure, or eligibility for sale, the securities mentioned herein may not be suitable or available for all investors in all countries. As at September 30th, 2015 #Stocks Distribution Buy 54 72% Buy Total 12-month return expected to be > 15% Speculative Buy 13 17% Speculative Buy Potential 12-month return is high (>15%) but given elevated risk, investment could result in a material loss Hold 3 4% Hold Total 12-month return is expected to be between 0% and 15% Sell 0 0% Sell Total 12-month return is expected to be negative Under Review 5 7% Under Review Currently undergoing a change of analyst coverage Total % Dissemination Beacon Securities distributes its research products simultaneously, via , to its authorized client base. All research is then available on via login and password. Analyst Certification The Beacon Securities Analyst named on the report hereby certifies that the recommendations and/or opinions expressed herein accurately reflect such research analyst s personal views about the company and securities that are the subject of the report; or any other companies mentioned in the report that are also covered by the named analyst. In addition, no part of the research analyst s compensation is, or will be, directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report.