AGENDA 9:00 9:05 am Welcome 9:05 9:20 am The 7G Strategy 9:20 9:45 am Capital Investments - 2018 and Beyond 9:45 10:05 am Unlocking 7Gs Large High Quality Resource 10:05 10:20 am Innovation 10:20 10:45 am Improving Efficiencies, Lowering…
7G CORPORATE PROFILE 7G Capitalization & Key Corporate Statistics Ticker symbol - TSX VII Share Price(1) 20.18 Basic Market Cap(1) 7.2 billion Net Debt(2)(4) 1.9 billion Enterprise Value 9.1 billion Available Funding(3)(4)…
The 7G Strategy Marty Proctor, President & Chief Executive Officer 4
SERVING OUR STAKEHOLDERS Employees Environment Communities Shareholders & Capital Providers Supply & Service Providers Partners Government & Regulators Driven by our Level 1 Corporate Policy 5
7G IS DESIGNED TO DELIVER Cash flow Profitable Industry-leading Financial self- sufficiency growth returns sustainability Targeting a 7% to 14% 10% to 15% Strong balance balanced budget production CAGR ROCE target sheet in 2019…
OUR TEAM IS ALIGNED AND DEDICATED TO DELIVERING RESULTS 7
7G - LEVERAGE TO INDUSTRY-LEADING RETURNS Give me a lever long enough, and a fulcrum on which to place it, and I will move the world. -Archimedes Return on Free Cash Capital Flow Financial Low Sustainability Supply Cost…
LARGE, EXPANDING INVENTORY IN THE SWEET SPOT OF THE MONTNEY Current Acreage & Inventory: 800 Sections of Montney rights 1,400 Nest locations Nest 1 500 locations(1) Nest 2 700 locations(1) Nest 3 200 locations(1) 900 Wapiti…
Breakeven HHub Price (/mcfe) 30% 0.00 2.00 3.00 4.00 5.00 6.00 1.00 Montney - Nest 2 Montney - Attachie Eagle Ford Wet Tier 1 VII Montney - Doe US Play Montney Montney - Dawson Montney - Gundy NE Marcellus…
CAPITAL INVESTMENTS DRIVING HIGHER NETBACKS Capital Efficiency (/boe/d) vs. Netback (/boe) 7Gs peer leading netbacks 23 Future reduction of Basin-leading condensate central processing VII 21 production capex and line of site to…
MARKET ACCESS INITIATIVES LEAD TO HIGHER NETBACKS Market Access Initiatives 7G Realized Gas Prices 4.50 4.00 3.50 Average Price - C/Mcf 3.00 2.50 2.00 1.50 1.00 0.50 0.00 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17…
7G: GROWING ON A PER SHARE BASIS Production per Share(1) Funds Flow per Share(1) 800 4.50 Production per Share (boe/d per MM Shares) 700 4.00 Funds Flow per Share (/sh) 3.50 600 3.00 500 2.50 400 2.00 300 1.50…
LONGER TERM: GROWING INTO GOLD CREEK Processing Capacity & Corporate Production (mboe/d) Track record of infrastructure investments to facilitate profitable growth 510 MMcf/d of owned and operated natural gas processing capacity…
REINVESTING FUNDS FLOW 2018 2019 2020 and Beyond Free cash flow allocated to Funding infrastructure Targeting a cash flow neutral further growth, dividend, debt Growth into 2019 budget at WTI 55/bbl reduction or share buybacks…
A BUSINESS THAT DELIVERS RETURNS Historical & Forecast Return on Capital Employed 15.0% 7G targeted ROCE of 10% to 15% 10.0% ROCE % 5.0% 0.0% -5.0% 2015 2016 2017E 2018E 2019E VII US Small/Mid Caps Cdn Large…
The 7G Plan Funded organic production growth of 100,000 boe/d over the next 5 years Targeting a 2019 capital investment budget equal to funds flow 10% to 15% return on capital employed target Targeting a debt to funds flow…
Capital Investments - 2018 & Beyond Chris Law, Chief Financial Officer Chris Feltin, Vice President Corporate Planning 18
2018 BUDGET: SETTING THE STAGE FOR FREE CASH FLOW VISIBILITY 2018 Production Guidance(1) (boe/d) 200,000 210,000 55% - 60% liquids 12.5% - 17.5% annual growth 2019 Production Outlook(1) 2018 Capital Program(1) (boe/d) (MM)…
2018 BUDGET: PRODUCTION VII Historical & Forecast Production (Mboe/d) 250 2018 investment sets the stage 200 for continued growth in 2019 150 Targeting all-in growth to be funded within cash flow by 2019 and beyond 100…
2018 BUDGET: PRODUCTION 2018 Quarterly Production Estimates 1H18 Growth Flat to 2017 Exit High level of completions activity Highest quarters for planned downtime for offset frac operations in 1H18 Assumes no reliability gains from…
2018 BUDGET: CAPITAL INVESTMENT Capital Investment (MM) 2018 capital investment: 1,800 1.675 - 1.775 Bn 1,600 5% increase over 2017 1,400 8 10 drilling rigs 1,200 1,000 2 3 frac spreads 800 15% increase in staff levels to execute…
2018 BUDGET: CAPITAL INVESTMENT Capital Investment by Area Capital Activity (MM) Nest Development 1,275 - 1,325 Delineation 125 - 150 Water Infrastructure 75 - 80 Gold Creek Facility 145 - 155 NGL Pipeline 25 - 30 Other 30…
2018 BUDGET: CAPITAL EFFICIENCIES IN LINE WITH HISTORICAL Capital Efficiencies Capital efficiencies have been improving since 2014 Transition from infrastructure investing to production additions All-in capital efficiencies…
IMPROVING LEVERAGE THROUGH TIME Net Debt to Funds Flow (actual & estimates)(1)(2) 3.0x 3.0x 2018 2022 100,000 boe/d funded organic growth in 5 years 2.5x Stable to declining leverage ratios at US50 55/bbl WTI Ability to control…
LAYERS OF INVESTMENT: ALREADY PRODUCING FREE CASH FLOW Layers of Capital Investment(1)(2) Free Cash Flow above sustaining capital for past 5 years Strategic investments in growth and infrastructure to enhance value of the…
LONGER TERM: GROWING INTO GOLD CREEK Processing Capacity & Corporate Production (Mboe/d) Track record of infrastructure investments to facilitate profitable growth 510 MMcf/d of owned and operated natural gas processing capacity…
Unlocking 7Gs Large High Quality Resource Chris Law, Chief Financial Officer Glen Nevokshonoff, Chief Operating Officer Lynne Chrumka, Director Geosciences Morteza Nobakht, Manager Reservoir Engineering 28
SUMMARY Type curve review Nest 2 update Nest 1 update Nest 3 new type curve Vertical spacing pilot New well design Upside opportunities 29
THE TOP MONTNEY CONDENSATE PRODUCER Highest average condensate per well in the Montney Among the highest producing well counts and over a decade of core future drilling locations Targeting high rate, high margin wells leads to…
NEST 2 UPDATE Performance consistent with expectations 31
NEST 2 BY VINTAGE: CONSISTENT IMPROVEMENT IN WELL RESULTS Condensate Mbbls Raw Gas MMcf 2017 production consistent with anticipated well results for both gas and condensate Higher intensity completions (30% increase in stages…
NEST 1 UPDATE Strong results in Nest boundary pad and offsetting wells 33
NEST 1 UPDATE Nest 1 / Nest 2 boundary pad (Pad 17) and offsetting producer wells are producing at rates significantly above existing Nest 1 type curve Modern well design test for Q1 2018 and additional development will…
NEST 1 TYPE CURVE UPDATE Condensate bbls/d Raw Gas Mcf/d Potential for future upward type curve revision: Applying learnings from well design and other innovations in Nest 2 to Nest 1 Positive offsetting well results and…
NEST 1 / NEST 2 BOUNDARY PAD Condensate bbl/d Raw Gas Mcf/d 7G high intensity well design in pad located on the boundary of Nest 1 and Nest 2 Condensate rate significantly outperforms Nest 2 type curve; gas rate is slightly…
OFFSETTING OPERATOR WELLS VS NEST 1 TYPE CURVES 3 offset wells northeast of Nest 1 plotted against Nest 1 type curve Volatile Oil bbl/d Raw Gas Mcf/d Strong condensate and gas rates from offset operator wells directly to…
NEST 3: NEW TYPE CURVE BAND BASED ON STRONG WELL RESULTS New type curve band High gas rate, flatter CGR compared to Nest 2 Well control across type curve band, best well in middle of acreage with high tonnage slick water…
NEW NEST 3 TYPE CURVE Condensate bbl/d Raw Gas Mcf/d New type curve band based on well control across band and 250 producing days Higher gas rate compared to Nest 2 Lower condensate type curve compared to Nest 2 with a…
NEST 3 TYPE CURVE VS 10-16 PAD RESULTS Condensate bbl/d Raw Gas Mcf/d 7G high intensity well design drilled in middle of Nest 3 lands Condensate rate approaching Nest 2 type curve after 150 days; gas rate nearly double Nest 2…
COMPARISON OF SINGLE WELL ECONOMICS (US50/BBL WTI & US3.00/MMBTU HH) Nest 3 Newly delineated Nest 3 band provides similar economic outcome as Nest 2 Approximately 50 bbls/MMcf condensate-gas ratio plus 50 bbls/MMcf NGLs for combined…
COMPARISON OF NEST TYPE CURVES: CONDENSATE-GAS RATIOS Condensate Gas Ratio (bbls/MMcf) Condensate gas ratio (CGR) Nest 1 Nest 3 Type Curves a function of phase behaviour in the reservoir Higher pressure, higher gas…
VERTICAL SPACING PILOT & NEW WELL DESIGN 43
2017 VERTICAL SPACING TEST: 12 WELLS PER SECTION IN 3 LAYERS Traditional spacing: 12 wells per section in two layers 6 wells laterally in 2 layers within the Upper Montney (100m) 2017 spacing test: 12 wells per section 4 wells…
PRODUCTION RESULTS FROM VERTICAL SPACING TEST Stack vs. Standard Spacing Condensate (bbl/d) Stack vs. Standard Spacing Raw Gas (Mcf/d) Wells not normalized to stage counts outperformance possibly attributable to higher intensity…
2017 SPACING TEST: 12 WELLS PER SECTION IN 3 LAYERS 50m Upcoming Nest 1 test in CURRENT: 268m 268m Q4 2017 will use 12 wells / section traditional lateral spacing 2 rows x 6 pattern 45m (6 wells per section / 134m 268m 268m…
TESTING WELL DESIGNS Open hole completion: Cemented liner completion: High tonnage, wider stage spacing Multiple clustered perforations per stage Potential for under-stimulated rock between Closely spaced stages to maximize…
PRELIMINARY COMPARISON CEMENTED LINER VS. OPEN HOLE Both wells 40 stages x 160 tonnes/stage: cemented liner has 3 clusters of perforations Cemented liner with multiple perforations per stage versus open hole completion 45 days of…
COMPARING ALBERTA & BC LOWER MONTNEY Thickness 7Gs Lower Montney is similar in thickness to BC Lower Montney turbidite Pressure 7Gs Lower Montney results are showing higher pressure than BC Lower Montney turbidite Liquids 7Gs Lower…
LIQUIDS RICH WAPITI FUTURE DEVELOPMENT R7 R6 R5W6 Wapiti Wapiti Offset Offset Operator -Raw Operator RawGas Gas Type TypeCurves Curves 4 New Competitor Wells (Q2/17) 9000 1,891 Boe/d Offset Operator 2017 High Intensity 8000 T…
DELINEATION OF DEEP SOUTHWEST CGR of 40 50 bbls/MMcf 300 250 CGR (bbls/MMcf) 200 150 100 50 0 0 50 100 150 200 250 Producing Hours Encountered 2x higher CGR than closest offset Upper Montney 7-day flow test: 8…
FOCUS ON INNOVATION SUBSURFACE DRILLING COMPLETIONS OPERATIONS MARKETING TECHNICAL Integrated Well monitoring - Real-Time 24/7 Super Pads Securing strategic Reservoir Model Real Time Engineering pipeline capacity Operations…
SUBSURFACE INNOVATION Optimize Completion Design to Maximize Resource Recovery Real time frac optimization DAS monitors real time proppant distribution DAS/DTS monitors real time flow per stage Courtesy of Halliburton 59
IMPROVING CYCLE TIMES & INCREASING CAPITAL EFFICIENCIES Significant improvements with parallel activities: over 50 days reduced in average well spud to production in 2017 Multiple wells per pad have significant cost savings on both…
7G LEADING HIGH INTENSITY PAD DEVELOPMENT Why Batch Development Typically 4 to 12 wells are brought online concurrently Benefits Improved logistics (services, trucks, etc) Concurrent operations (drilling, completions,…
DRILLING EFFICIENCIES Drilling Cost vs. Depth Initiatives Real time operations center Underbalanced drilling Increased lateral displacement Faster vertical-to-horizontal turn Benefits Dissemination of learning across rig…
COMPLETIONS EFFICIENCIES 2017 Completions, Stages & Tonnage per Day Initiatives Pump-down technology & optimization Activity time tracking Level-loaded schedule Pad designs maximize concurrent activity Testing limited-entry…
FACILITIES EFFICIENCIES: PLUG-AND-PLAY CASSETTES Cassette Well Module Single well production module Benefits Sand separator Reduces tie in time Design flexibility to install larger separators for higher liquid yielding wells…
DEVELOPMENT: BATCH DEVELOPMENT Normalized Pad Production (mboe/d) Batch Production Additions Average pad production approx. 7 mboe/d Higher well count pads 10 mboe/d Near-term focus on finding ways to shorten spud to production…
DEVELOPMENT: BATCH DEVELOPMENT Pad Additions Since April 2016 Batch process results in saw- tooth growth profile Minor timing shift in on-stream date can have a material impact on (Alliance 14-day scheduled outage)…
CONDENSATE GAS RATIOS (CGR): VARIABILITY TO BE EXPECTED Condensate Production & CGR Historical variability in CGR due to batch drilling and pad location Gas and condensate decline separately, resulting in anticipated slow…
WATER MANAGEMENT STRATEGY TO REDUCE OPERATING COSTS Operating Costs Re-use of injected frac water: Successful test in re-using lower salinity water in Q3 Testing re-using higher salinity water in Q4 2018 infrastructure Disposal…
IMPROVING EFFICIENCIES, LOWERING COSTS Improved cycle times through batch process, concurrent activities and realized efficiencies lead to quicker payback and higher returns Year over year decrease in drilling times and drilling…
Delivering to Premium Markets Tim Stauft, Senior Vice President, Market Access Charlotte Raggett, Vice President Midstream Business Development Lyle Strom, Director Marketing 71
MARKETING & RISK MANAGEMENT PHILOSOPHY Move the Gas - Value creation primarily through liquids production Sufficient Processing & Moving the gas ensures capture of higher value liquids barrels Takeaway Capacity Ensure adequate…
TOTAL REVENUE EXPOSURE Revenue by Product US40/bbl WTI US50/bbl WTI US60/bbl WTI 29% 33% 38% 54% 58% 61% 10% 9% 9% Assumptions: 1) USD/CAD for each WTI scenario: 40/bbl 0.75, 50/bbl 0.78, 60/bbl 0.81 2) NYMEX HH price…
GROWING LOCAL SUPPLY AND IMPORTS NEEDED TO MEET C5+ DEMAND Canadian Condensate Supply and Demand 1,200 Forecast 1,000 Thousand Barrels per Day 800 600 Imports 400 200 - 2010 2012 2014 2016 2018 2020 2022 2024…
7G PRODUCT BREAKDOWN HISTORICAL SALES US VS CANADA NGL Sales by Market Q3 2017 90 80 70 60 Mbbl/d 50 40 30 20 10 0 Canada US Ethane (C2) Propane (C3) Butane (C4) Condensate (C5+) Maximized local condensate…
CAPACITY FOR PROFITABLE GROWTH Firm Natural Gas Transportation & Processing Capacity 1,200 Volume/Capacity - MMcf/d (Raw Gas) 1,000 800 600 400 200 0 H2 2017 2018 2019 2020 Alliance - Chicago NGPL - Henry Hub…
NATURAL GAS MARKET ACCESS Source: ARC Financial Note: 1) Volumes represent 2020 commitment levels 2) Transportation commitments are not additive Enhancing realizations through a portfolio approach to natural gas marketing…
CREATING VALUE THROUGH GAS MARKETING DIVERSIFICATION 7G Natural Gas Pricing Before & After Transport Netbacks 2018 Pricing (C/Mcf) 4.50 4.00 3.91 3.70 3.79 3.63 3.50 3.41 3.00 2.50 2.62 2.24 2.54 2.49 2.44 2.40 2.00 1.92…
MARKET ACCESS INITIATIVES Pursuing various opportunities to access new markets for natural gas Gas to liquids (methanol, diesel, gasoline, DME) Power Generation (Alberta & US coal to gas switching) LNG & NGL Exports…
Infrastructure That Enhances Returns Chris Law, Chief Financial Officer Jordan Johnsen, Vice President Operations 80
7G INFRASTRUCTURE SUMMARY Significant midstream assets: Approximately 1.15 billion value (60% of Q3 net debt) Ownership provides high netbacks and operating flexibility Blend of central processing, distributed processing and…
7GS INFRASTRUCTURE FOOTPRINT Integrated processing, gathering and distribution infrastructure across entire land base 82
SUPER PADS: LIFT, EFFICIENCY, REDUNDANCY Super Pad Schematic Innovative field-distributed pads Efficient gathering of single-phase GAS & C5+ (2-phase) products in segregated systems Benefits: High pressure gas for artificial lift…
ARTIFICIAL LIFT Gas lift is the primary artificial lift system deployed by 7G High pressure gas is re-injected down the backside of a well to improve productivity Gas lift benefits: Lift system is installed prior to putting the…
STRATEGIC GATHERING SYSTEM INTERCONNECT Portion of Q4 acceleration capital, anticipated to be completed by Q2 2018 Total project cost is roughly 20 million Creates option to divert up to 70MMcf/d of rich gas volumes from south…
Financial Strength Chris Law, Chief Financial Officer Brian Newmarch, Vice President Capital Markets 86
FINANCIAL STRENGTH BASED ON SOLID FUNDAMENTALS LOW LEVERAGE AND APPROPRIATE USE OF DEBT LIQUIDITY IN PLACE TO SUPPORT BUSINESS PLAN Trailing debt to funds from operations of 1.8x 1.4 billion undrawn, covenant-based revolver with…
PROFITABLE GROWTH THROUGH THE COMMODITY CYCLE Historical Historical Funds Funds From From Operationsand Operations andOperating Operating Netbacks Netbacks (/boe) (/boe)vs. vs.Oil Oilprices prices 45.00 120 40.00 100…
FULL CYCLE PROFIT MARGIN Funds from operations per boe less DD&A per boe Funds from operations less DD&A is a proxy for the full cycle impact of capital expenditures; a positive spread indicates returns above invested capital…
IMPROVING LEVERAGE THROUGH TIME Net Debt to Funds Flow (actual & estimates)(1)(2) 3.0x 3.0x 2018 2022 100,000 boe/d funded organic growth in 5 years 2.5x Stable to declining leverage ratios at US50 55/bbl WTI Ability to control…
TERM DEBT MATURITIES Debt Maturity Schedule CMM 2,200 2,000 1,800 US450 MM 6.875% 1,600 C1,400 MM Credit Facility (undrawn) 1,400 1,200 US425 MM 6.750% 1,000 800 600 US700 MM 5.375% 400 200 0 2018 2019 2020 2021…
CURRENT RATINGS PERSPECTIVES Improving Credit Ratings Over Time Key Ratings Factors Moody's S&P Strengths INVESTMENT GRADE RATING Strong leverage metrics Ba1 BB+ Solid cash margins Non Investment Grade Ba2 Corporate Rating…
ROLLING 3 YEAR HEDGING PROGRAM Liquids Hedging (bbl/d) Natural Gas Hedging (MMbtu/d & GJ/d) 35,000 250,000 30,000 59.18 3.77 200,000 25,000 58.00 20,000 150,000 3.68 15,000 100,000 10,000 56.58 2.44 2.44 5,000 50,000 3.44…
2018 2020 HEDGING PROGRAM Locking-in Corporate Returns Hedged Volumes (BOE/d) Hedged Revenues (CMM) 80,000 300.0 70,000 Annual Totals 250.0 2018 956 MM 60,000 2019 690 MM 200.0 2020 203 MM 50,000 40,000 150.0 30,000 100.0 20,000…
INTEREST COVERAGE ON HEDGING AND BASE REVENUE STREAM Hedged revenue (CMM) & interest coverage on existing term debt 250.0 8.0x 7.0x 200.0 6.0x Hedging Interest Coverage Hedged Revenue CMM 5.0x 150.0 4.0x…
Stakeholder Service Susan Targett, Executive Vice President, Corporate 97
OUR CODE OF CONDUCT Stakeholder Differentiation We believe that companies have only the rights given to them by society. While people have a natural entitlement to basic rights, corporations are an instrument created by society to…
STAKEHOLDER DIFFERENTIATION Employees Environment Communities Shareholders & Capital Supply & Providers Service Providers Partners Government & Regulators Driven by our Level 1 Corporate Policy 99
FOUR KEY STAKEHOLDER QUESTIONS Water use How do your operations affect fresh water supplies Natural habitat preservation How do your operations impact wildlife and their habitat Climate change How do your operations impact…
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