Company Mantra: The Lakeview Gusher, San Joaquin Basin, Kern County, CA circa 1910

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1 What s Old Is New

2 Company Mantra: 2 The Lakeview Gusher, San Joaquin Basin, Kern County, CA circa 1910

3 Forward Looking Statements This presentation contains forward-looking statements, including without limitation those statements regarding Citadel s ability to exploit mining concessions The statements and discussions contained in this presentation that are not historical facts constitute forward-looking statements, which can be identified by the use of forwardlooking words such as "believes," "expects," "may," "intends," "anticipates," "plans," "estimates" and analogous or similar expressions intended to identify forward-looking statements Citadel wishes to caution the reader of this presentation that these forward-looking statements and estimates as to future performance, estimates as to future valuations and other statements contained herein regarding matters that are not historical facts, are only predictions, and that actual events or results may differ materially Citadel cannot assure or guarantee you that any future results described in this presentation will be achieved, and actual results could vary materially from those reflected in such forward-looking statements We assume no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this presentation, other than as may be required by applicable law or regulation Reserve and Resource Disclosure: Securities and Exchange Commission ( SEC ) rules prohibit a publicly-reporting oil and gas company from including oil and gas resource estimates in its filings with the SEC, except proved, probable and possible reserves that meet the SEC s definition of such terms Estimates of non-proved and non-probable reserves included herein are not based on SEC definitions and guidelines and may not meet specific definitions of reserves or resource categories within the meaning of the SPE/SPEE/WPC Petroleum Resource Management System. 3

4 Executive Summary: What s Old Is New Citadel: A Pure Play California Oil and Gas E&P company Founder & CEO: Armen Nahabedian, a fourth generation oil and gas explorer o Family s discoveries have had significant impact in California o Blended experience with a proven track record entered business analyzing prospects while managing drilling operations and strategy OTCBB: COIL 23.5MM shares issued (28.5MM including options) 2 Rig-ready projects in the Salinas and San Joaquin Basins o Access to unrisked resource potential of over 100 million barrels of oil 4 Partners: Combining Expertise & Opportunity Sojitz Energy Ventures (SEV), Joint Venture partner on both rig-ready projects o $50 billion Japanese trading conglomerate o Vast technical and analytical resources for the projects Nahabedian Exploration Group (NEG) ( the family oil business ) o Previous experience creating substantial shareholder value for publicly traded entities o Highly successful deals with Australian Stock Exchange listed companies o Interests aligned: All executives of NEG are substantial shareholders in Citadel Citadel and its partners have contributed over $7MM dollars in direct financial costs associated with the prospects currently held for development by Citadel

5 The Family Business Four Generations of California Oil Exploration Success Notable family discoveries totaled over 200mmboe o North San Ardo 2005 o South Belridge 2003 o Knights Landing 1993 o Pastoria Creek 1988 o Panama Lane 1986 o Landslide1985 Distinct competitive advantages from given local expertise o Preferred access to new leases coming to market o Proven permitting abilities o Constant market surveillance o Good working relationship with Occidental Petroleum (OXY) At NEG, Citadel CEO was personally responsible for drilling and completing multiple prospects over the last 10 years with proven track record of success Citadel retains prospect generation resources of NEG and has right of first refusal on any prospects developed by NEG for two years 5

6 Disciplined Geographic Focus California s Oil Renaissance is in its Nascent Stage Driven by technological innovation o Reprocessing of vintage seismic data combined with new, hi-resolution 3-D seismic o Comingling of multiple hydrocarbon bearing zones o Horizontal drilling applied to conventional targets o Advances in thermal recovery for heavy oil Premium Prices: Supply imbalance between California refiners and global markets means local production garners a $10 to $20 per barrel premium to other U.S. markets Limited small-cap opportunities to capitalize on this trend Larger independents are aggressively entering region o Potential to drive future M&A activity and ultimately exit strategy California regulatory environment o Rapidly improving new leadership at Division of Oil, Gas & GeoResources (DOGGR). o Permitting now taking days vs. 180 days Older Fields and Field Extensions represent low hanging fruit as technology and higher commodity prices allow the industry to unlock previously uneconomic zones The best place to find oil is where it s already been found! 6

7 The Projects 7 What s Old Is New

8 General Project Locations Indian Rancho Grande 8

9 Project Indian: Overview 688 acres under lease from OXY in San Benito County Analogous to North San Ardo oilfield o Discovered by Chevron in 1950 o Re-discovered by NEG in 2005 with Salinas Energy PG&E Power Shallow heavy oil 13 degree API 60% working interest 47.4% NRI Project Indian MMBbls of gross oil in place Expected 20% recovery Gross CAPEX $1.5 million PG&E Gas Transmission Line 5-15 well pilot cyclic steam project Proof of concept expected by mid Proximity to local utilities improves economics o Electric power for pumps o Natural gas for steam 9

10 Project Indian: California Heavy Oil Background The Majority of California Oil Production is Heavy Heavy oil characterized as less than 18 degrees API, immobile without stimulation Thermal recovery (steam injection) is the primary stimulation technique o Steam created using natural gas increases recovery by 15-50% of (OOIP) 60% of California daily oil production (~300,000 barrels per day) is heavy Low natural gas prices + high oil prices = attractive thermal economics 10

11 Rancho Grande & Surrounding Oil Fields Rancho Grande Area ~52,000 gross acres leased OXY currently redeveloping adjoining acreage 11

12 Rancho Grande: Overview ~52,000 gross acres under lease paid for by Sojitz Citadel can participate on a 1/3-for-1/4 basis (industry standard), prospect-by-prospect 15 locations permitted, another 20 permits pending 2D and 3D seismic coverage of prospects to support extensive well control Expect first drilling in 4Q2012 Shallow objectives: 20+ Prospects o 50+ MMBbls o 7,000 feet or less Deeper objectives: 5 Prospects o 100+ MMBbls o 15,000 20,000 feet First four wells total CAPEX of $2 million o 2 shallow (up to 2,000 feet) o 2 mid-depth (up to 7,000 feet) Rancho Grande 12

13 Rancho Grande: Current Prospect Inventory 1,000 7,000 Feet Area Formation Section Unrisked Potential Description 1 Vedder Oil Pool 19 & MM BOE Horizontal Redevelopment of Vedder pool to the south in Sections 28,29,30, 31. 1b Monterey 19 & MM BOE Horizontal development of Monterey formation Pulv Chert Zone at 7,500'. 2 Olcese Pool 19 & 20 2 MM BOE Vertical development of Olcese Pool at 7,500 feet. 2b Santa Margarita 19 & MM BOE Horizontal development of Santa Margarita pool at 3,500 feet - updip from w ell. 3 Olcese Channel Sand MM BOE Seismically definded faulted anticlinal closure in Middle Miocene Olcese channels sand. 4 Valv Channel Sand MM BOE Standard w ell tested 500 Bopd from upper portion. Seismic show s the channel into Section Vedder & Eocene Sand 5,11,12,14 15 MM BOE Negotiating lease 6 Santa Margarita 4 & MM BOE Fault-stratigraphic trap updip from Santa Margarita oil show s. 7 Olcese Sands 27 & MM BOE Stratigraphic trap in thick Middle Miocene Olcese Sands present in and w ells. 8 Santa Margarita MM BOE Anticlinal closure in Santa Margarita and deeper Miocene sandstones. 9 Vedder Sands 4 10 MM BOE 3D Seismic and w ell control defined anticlinal closure at 10,000 feet. 10 Reserve Sands 34 & 35 2 MM BOE 3D Seismic show s fault trap w ith over 100 feet untested closure. 11 Vedder Sands 34 & MM BOE Untested Veddersand anticlinal closure w ith 3D Seismic and w ell control. 12 Reserve Sands 2 4 MM BOE 3D Seismic and w ell data indicate 2-30 locations updip from 63-2 w ell w ith over 500 feet of pay. 13 Santa Margarita 35 2 MM BOE Updip development at a depth of 1,300-2,000 feet. 14 Vedder Sands 1,2,10, MM BOE Fault trap updip from Arco Tejon 1-2 deep test w ell. 3D Seismic show s NE-SW trending reverse fault. 15 Shallow Vedder Sands 7,12,13 5 MM BOE Anticlinal closure beneath Tuis Creek basalts at 5,000 feet. 16 Olcese Sands 10,11 5 MM BOE 3D Seismic show s faulted NW trending anticlinal arch w ith amplitude anomalies. 17 Olcese Sands 11 5 MM BOE 3D Seismic show s faulted NW trending anticlinal arch w ith amplitude anomalies. 18 Santa Margarita 23 & MM BOE Sub-Thrust anticlinal closure beneath the south dipping Pleito Thrust Fault. 19 Vedder Sands 8,9,16, MM BOE Sub-Thrust anticlinal closure beneath the south dipping Pleito Thrust Fault. 20 Reserve Sands MM BOE Stratographic pinchout, 3D Seismic show s local domal closure. 21 Santa Margarita MM BOE East plunging anticline defined by 3D Seismic. Stacked amplitude anomalies. 22 Vedder Sands 19 & MM BOE Westerly continuation of the sub-thrust anticlinal fold beneath the south dipping Pleito Thrust. 23 Vedder Sands MM BOE Westerly culmination of the Section 8 anticline, w est of the Grapevine Fault. 13

14 Executives & JV Partners

15 Experienced Management Team Armen Nahabedian: CEO, President & Director Fourth generation California oil and gas explorer 10-year executive in family business (NEG) Served in the United States Marine Corps in Operation Iraqi Freedom Managed highly profitable JVs with public companies Phil McPherson: CFO & Director 11-year sell-side Small Cap E&P research analyst, most recently at Global Hunter Securities Zack s 5-star Analyst 2005, 2006 & 2007, WSJ Best on the Street analyst in 2011 Widely recognized expert in California oil investments Bachelors in Economics from East Carolina University Daniel Szymanski: Chairman 20-year industry veteran, including assignments with Tenneco, Chevron and OXY Served as Manager of Business Development at OXY headquarters in Los Angeles Since 2008 has been an industry consultant and partner in seismic data firm BS in Geology, University of Wisconsin and MS in Geophysics from Purdue 15

16 Sojitz Joint Venture: Overview Sojitz Corporation Tokyo-based trading company Operates in construction, forestry, chemicals, mining, textiles and petroleum Formed in 2004 by the merger of Nissho Iwai Corp and Nichimen Corporation 2011 revenue of $48.3 billion and net income of $192 million Over 16,000 employees and 91 offices world wide. Texas Gulf Coast & Gulf of Mexico oil focus Joint Venture Sojitz pays 90% of land acquisition costs Targeting 250,000 acres over next 24 months Citadel has first right of refusal to earn from 25% % on a prospect-by-prospect basis Promoted on industry standard third for quarter basis on exploration wells only Heads up on all developmental wells Sojitz Operator experienced operating team with a successful track record 16

17 Past Joint Ventures: Case Study #1 NEG & Orchard Petroleum Joint Venture January 2003 NEG contributed interest in projects to Orchard Petroleum in exchange for common stock Successfully drilled 2 exploratory wells at South Belridge as operator for JV o Those wells discovered 15 million barrels recoverable o Resulting in Orchard s stock increasing by 10x Eventually taken private for ~$185MM 17

18 Past Joint Ventures: Case Study #2 NEG & Salinas Energy Joint Venture December 2005 NEG contributed interests in projects to Salinas in exchange for common stock Salinas a shell company trading on Australian Stock Exchange Successfully drilled 4 exploratory wells at North San Ardo as operator for JV o First well had an initial production rate of nearly 1,000 Boepd o Resulted in Salinas s stock increased by a factor of 5 x Company then merged with Neon Petroleum 18

19 Conclusion Citadel: A Pure Play California Oil and Gas E&P company Partners: Combining Expertise & Opportunity California s Oil Renaissance is in its Nascent Stage Four Generations of California Oil Exploration Success 688 acres under lease from OXY in San Benito County ~52,000 gross acres under lease paid for by Sojitz ~ MMBOE unrisked potential oil in place The best place to find oil is where it s already been found! 19

20 Questions What s Old Is New Armen Nahabedian, CEO avn@citadelexploration.com Phil McPherson, CFO pjm@citadelexploration.com (949)