Level 13, Gold Fields House, 1 Alfred Street, Sydney NSW 2000, Australia PO Box R204, Royal Exchange NSW 1225, Australia Telephone (61 2) 9247 4605 Facsimile (61 2) 9251 2410 Company information is available on: petsec.com.au A A N N N N O O U U N N C C E E M M E E N N T T PETSEC ENERGY LTD ACN 000 602 700 23 May 2012 Petsec Energy Ltd 2012 AGM Presentation Petsec Energy Ltd (ASX: PSA / OTC ADR: PSJEY) Attached is a copy of the presentation to be delivered today by Petsec Energy Ltd’ s Chairman and Managing Director Mr. Terry Fern at the 2012 Annual General Meeting of members of Petsec Energy Ltd, held at the Museum of Sydney, corner Bridge and Phillip Streets, Sydney. A copy of the presentation will also be made available on the Company’ s website, www.petsec.com.au. For further information, please contact: Paul Gahdmar Company Secretary & Group Financial Controller Petsec Energy Ltd Tel: 612 9247 4605 Fax: 612 9251 2410 Petsec Energy Ltd is an independent oil and gas exploration and production company listed on the Australian Stock Exchange. It has operations in the shallow waters of the Gulf of Mexico and state waters of the Louisiana Gulf Coast region of the USA, and exploration activities in Shale Oil projects in Canada and the USA. For personal use only
Transcript
Level 13, Gold Fields House, 1 Alfred Street, Sydney NSW 2000, AustraliaPO Box R204, Royal Exchange NSW 1225, Australia
Telephone (61 2) 9247 4605 Facsimile (61 2) 9251 2410Company information is available on: petsec.com.au
AANNNNOOUUNNCCEEMMEENNTT
PETSEC ENERGY LTDACN 000 602 700
23 May 2012
Petsec Energy Ltd2012 AGM Presentation
Petsec Energy Ltd (ASX: PSA / OTC ADR: PSJEY)
Attached is a copy of the presentation to be delivered today by Petsec Energy Ltd’sChairman and Managing Director Mr. Terry Fern at the 2012 Annual General Meetingof members of Petsec Energy Ltd, held at the Museum of Sydney, corner Bridge andPhillip Streets, Sydney.
A copy of the presentation will also be made available on the Company’s website,www.petsec.com.au.
For further information, please contact:
Paul GahdmarCompany Secretary & Group Financial ControllerPetsec Energy LtdTel: 612 9247 4605Fax: 612 9251 2410
Petsec Energy Ltd is an independent oil and gas exploration and production company listed on theAustralian Stock Exchange. It has operations in the shallow waters of the Gulf of Mexico and statewaters of the Louisiana Gulf Coast region of the USA, and exploration activities in Shale Oil projects inCanada and the USA.
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SHALE OIL –CATALYST FOR GROWTH
PETSEC ENERGY LTD2012 ANNUAL GENERAL MEETING
23 MAY 2012
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FORWARD LOOKING STATEMENT DISCLAIMERThis presentation contains predictions, estimates and other forward lookingstatements that are subject to risk factors associated with the oil and gasindustry. Although the company believes that the expectations reflected inthese statements are reasonable, it can give no assurance that its expectationsand goals will be achieved. Important factors that could cause actual results todiffer materially from those included in the forward looking statements include,but are not limited to, commodity prices for oil and gas, currency fluctuations,the need to develop and replace reserves, environmental risks, drilling andoperating risks, risks related to exploration and development, uncertaintiesabout reserve estimates, competition, loss of market, government regulation,economic and financial conditions in various countries, political risks, projectdelay or advancement, and approvals and cost estimates.All references to dollars in this presentation are to US currency, unlessotherwise stated.
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CONTENTS
CORPORATE PROFILE
PETSEC ASSETS – USA
2011 KEY ACHIEVEMENTS
2011 OPERATIONS/FINANCIALS
IMPACT OF SHALE GAS
STRATEGY for GROWTH 2011 – 2013
SHALE OIL
2012 EXPLORATION AND DEVELOPMENT PROGRAMME
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CORPORATE PROFILE
Petsec Energy is an independent oil and gas exploration and production company operating in the shallow waters of the Gulf of Mexico (“GoM”) and Louisiana Gulf Coast region of the USA for conventional oil and gas, and in Canada and the USA for Shale Oil.
Conventional: Gas/Condensate; Oilo Operated in USA Gulf of Mexico since 1991o Drilling success: 96 wells / 75 successful / 78% successo Discovered reserves: > 500 Bcfeo 31 December 2011: 5 fields / 15.4 Bcfe net (2P) reserves / PV10 US $39 milliono Prospect inventory: 10 prospects / 400 – 750 Bcfe (67 – 125 MMboe) potentialo 2012 estimated production: 2 Bcfe from existing producing fieldsUnconventional: Shale Oilo Regional studies and technical evaluation underway in four areaso Leasing initiated in two areaso Confirmation drilling completed in one area (Alberta, Canada) – good oil shows,
extensive well logging and testing of cores for unconventional oil potential
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CAPITAL STRUCTURE & SHARE PRICE PERFORMANCE
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Share price performance: PSA vs. S&P/ASX200 Energy
Capital Structure (1 May 2012)
Market listing ASX: PSA . OTC ADR: PSJEY
Shares/Options on issue 235.7 million / 4.0 million
Market capitalisation A$36.5 million
Cash at 1.05.12 US$36.7 million
Oil & gas reserves (2P) ‐ 31.12.11 15.4 Bcfe
PV10 reserves (2P) ‐ 31.12.11 US$39 million
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BOARD OF DIRECTORS
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Terry Fern, Chairman & CEO Over 35 years experience in petroleum & minerals exploration, development and financing Bachelor of Science Degree, University of Sydney
David Mortimer AO, Non-Executive Director Over 35 years experience in corporate financeBachelor of Economics Degree (First Class Honours), University of SydneyEx CEO of TNT Limited Group and Chairman of Leighton Holdings. Current Chairman of Australia Post
Michael Harvey, Non-Executive DirectorOver 30 years experience in the establishment and successful growth of E&P companies in South East Asia and the Gulf of Mexico, USABachelor of Business Administration in Finance Degree, Texas A&MEx Shell, Huffington, CEO Gryphon Exploration Inc. Current Chairman and CEO of Stonegate Production Company, which was an early entrant to the Eagle Ford shale oil play in Texas.
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MANAGEMENT TEAM
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Patrick WebbVice President – Business Development and Land of Petsec Energy Inc.
Over 35 years of experience in the oil & gas industryBachelor of Business Administration Degree, University of Texas, Austin and a Master of Business Administration – Finance, Texas A&M UniversityEx EOG Resources, Forest Oil, Square Mile Energy, Saxet Petroleum, Enervest & Mariner Energy
Paul Gahdmar Company Secretary & Group Financial Controller
Over 20 years of experience in the oil & gas industry Master of Business and Technology Degree, University of New South Wales; Diploma in Investor Relations, Australasian Investor Relations AssociationEx Australian Oil and Gas Corporation
Ron Krenzke Executive Vice President Exploration of Petsec Energy Inc.
Over 35 years of experience in the oil & gas industryBachelor of Science Degree, Texas A&M UniversityEx Mobil, Amerada Hess, VP Exploration Gryphon Exploration Company
Ross KeoghPresident of Petsec Energy Inc. & Group Chief Financial Officer
Over 30 years of experience in the oil & gas industryBachelor of Economics Degree, Macquarie UniversityEx Total Oil Company & Bridge Oil Limited
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USA ASSETS:GULF of MEXICO, LOUISIANA & TEXAS
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Prolific oil and gas producing region1,094 fields / 34.5 billion barrels / 437 trillion cubic feet gas (Source: BOEMRE)High industry drilling success – 53% successful; 41,892 wells drilled with 22,322 productive
Net Reserves (2P): 15.4 Bcfe (Ryder Scott: 31 Dec 2011) / PV10 US $39 millionProducing Fields: 5 Net Daily Production: ~ 5 MMcf gas and 35 bopd oil per day
(Marathon curtailed: 40 MMcfe/day to current 10 MMcfe/day gross)
Main Pass 270 Main Pass 18/19 Chandeleur 31/32 Marathon
2012 Production (net)o ~ 2 Bcfe Revenue ~ US $6 million
2011 KEY ACHIEVEMENTS:Marathon Field Reserve Increase > 100%
Atchafalaya Bay, LouisianaDiscovered October 2010 est. reserves 70 Bcfe# 2 well drilled August 2011, doubled size of field.Estimated reserves (2P): 150 to 200 BcfePSA share: 8.0% W.I. (NRI: 5.84%); 8 to 12 Bcfe2 existing wells – capable of producing 50 MMcfe/day (gross), ~ 8 bbls condensate/1 MMcf gas3rd well spud 4th March 2012 (107 day well)Further development wells planned 2012 / 2013New pipeline to provide additional field production capacity + 60 MMcfe/day , completion July 2012
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Large Gas/Condensate Discovery : Deep Geologic Section > 18,000 feet
Marathon rig & production facilities
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2011 KEY ACHIEVEMENTS:Successful Settlement of US Term Debt
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Petsec completed the settlement of US$29.2 million term loan in May 2011
The term loan extinguished by:o Payment of US$12.1 million in cash; and o Conveyance of a 2.5% W.I. in Main Pass 270; a 2.0% W.I. in the
Marathon Field; and 25% W.I. in 10 non-producing leases in the GoM
US$11.4 million gain on discharge of the term loan
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China Oil Interests Sold in June 2011
Petsec sold its 100% share of the subsidiary which held its China oil interests to Horizon Oil for:o Cash consideration of A$38 million; plus o 15 million options over Horizon Oil Limited shares with a 3 year term
and exercise price of 37 cents/shareUS$29.8 million gain on disposal of the interests
Sale proceeds to fund expansion and transition of Petsec’s existing USA oil & gas operations to onshore areas of the USA and the rapidly expanding shale oil industry in North America
2011 KEY ACHIEVEMENTS:Sale of China Oil Interests
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2011 OPERATIONS: GULF of MEXICO
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Net Reserves (31.12.11): o 15.4 Bcfe; PV10 US$39m2011 Production: 2.3 Bcfeo Main Pass 270 A-3 well ceased producing in
Apr 2011 due to influx of sando Marathon gas / condensate Field production
constrained by limited sales pipeline capacity
Marathon Field development, Louisiana Gulf Coasto In Aug 2011, 2nd Marathon well confirms
productive reservoirs found in 1st well and extended known pays across structure
Mobile Bay and Main Pass 20 fieldso Plug & abandonment work completed by
Oct 2011
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2011 OPERATIONS: SHALE OIL
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Transitioned from conventional gas exploration to unconventional oil exploration
Established strategic alliances to capture shale oil expertise
Commenced regional studies and technical evaluation in four areas in North America
Leasing initiated in two areas
In Feb 2012, the Company agreed to participate in a shale oil project in Alberta, Canada. Initial well drilled – extensively logged, good oil shows, cores being tested to determine unconventional oil potential
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2011 FINANCIALS
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Cash at 31.12.11: US$41.6m (No Debt)Production: 2.3 BcfeAvg Gas Sales Price: US$5.69/Mcfeo US$6.00/Mcf hedged (37% of gas
production) & US$4.40/Mcf spot o US$104.25/bbl oil/condensate
Net Revenue: US$13.0m EBITDAX: US$1.6mNet Profit after Tax: US$14.0mo One time accounting gains: US$41.2m
(term loan settlement & sale of China interests)
o Asset Impairments: US$20.2m (impact of low gas prices & downward reserve revisions at certain fields)
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2011 FINANCIALS: KEY FACTORS
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Lower productiono Natural field decline and lower than anticipated well performance at certain fields o Limited drilling since 2008 (3 wells only) – lack of reserves replacemento Marathon Field curtailed since mid-Jul 2011 due to pipeline constraintso Main Pass 270 A-3 well shut-in since Apr 2011
Lower US natural gas priceso Major oversupply of gas from unconventional shale gas drilling – high levels of storageo Weak US industrial demand post GFCo Recognition of asset impairments (US$20.2m)
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IMPACT OF US SHALE GAS: An Oversupply Of Gas & Decline In Price
75% fall in gas price – from an average US $9.16/Mcf in 2008 to current US $2.29/Mcf
NYMEX 1 & 3 year forward strip prices at 21 May 2012 – US $3.14/Mcf & US $3.64/Mcf
U.S. working gas in storage at 11 May 2012 was 40.8% above 5 year average (EIA)
Success of shale gas horizontal wells / fraccing – oversupply of natural gas
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PSA SHARE PRICE FOLLOWEDTHE DECLINE IN US GAS PRICES
IMPACT OF US SHALE GAS: Technology Now Used To Extract Oil From Shale
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Advances in horizontal drilling and fraccing technology derived from shale gas development are now being used to extract oilProduction of oil from shale has increased from 5,000 bopd in 2005 to 275,000 bopd in 2010 USGS estimates 3 trillion barrels of oil is recoverable from US shale oil basins
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STRATEGY FOR GROWTH 2011 – 2013
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NEW BUSINESS PLANo Focus operations in North America
o Change target commodity from gas to oil
o Move from the Gulf of Mexico to Gulf Coast and onshore USA and Canada
o Redirect exploration activity from small gas prospects to large oil and gas/condensate prospects and unconventional shale oil plays
ELIMINATE DEBTSELL NON CORE ASSETS TO FUND NEW BUSINESS PLAN
o Unconventional: USA/CanadaShale oil Target reserves
100 MMbbl oil (4P)
o Conventional: USALarge oil & gas/condensate prospects Target reserves
100 Bcfe (2P)
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STATUS OF 2011 – 2013 BUSINESS PLAN
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CORPORATE: o Eliminated US$29.4m debt (May 2011) – now debt freeo A$38m raised from disposition of China interests (Jun 2011)o 15.4 Bcfe (2P) net reserves / PV10: US$39 million (31/12 /11)
CONVENTIONAL: Oil & gas / condensateHigh potential prospects; deep section; drill-readyTarget : 100 Bcfe (2P)
o 10 mapped prospects• Gross potential: 400 - 750 Bcfe (67 - 125 MMboe); 20 - 200 Bcfe each
o Marathon gas/condensate field discovery > 18,000 ft • 2 wells in production, 3rd well drilling ahead, new pipeline to increase
production
• Estimated gross reserves (2P): 150 - 200 Bcfe
• PSA net reserves (2P): 8 – 12 Bcfe
UNCONVENTIONAL:Shale oilTarget: 100 MMbbl (4P)
o JV’s with experienced shale oil partnerso Regional studies – 4 study areas selectedo Determination of “ Sweet Spots” in 2 areas with estimated
potential > 2,000 bbl oil recoverable/acre o Leasing initiated in 2 areas o Drilled confirmation well in one area – Alberta, Canada
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CATALYST FOR GROWTH: WHY SHALE OIL?
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Advances in horizontal drilling and multi-stage fraccingof horizontal wells in the US has made extracting oil from shale commercially viableShale oil play is emerging – large areas of open land available to lease at modest pricesSignificant shale oil potential in the US o USGS estimates > 3 trillion bbl of oil recoverablePotential to acquire large oil resources (>100 MMbblrecoverable – 50,000 acres @ 2,000 bbl/acre) within bounds of Petsec Energy’s current working capital of $40 million. Potential to increase value of investment by an order of magnitude by establishing an oil resource with a limited drilling programme ( $500-1,000/acre cost vs $5,000-10,000/acre sale).Shale oil expertise available through director Mike Harvey, personal relationships & strategic alliances
Shale Oil offers Petsec Energy highest exposure to large potential reserves for the least risk and capital
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SHALE OIL CATALYST FOR GROWTH:WHY NORTH AMERICA?
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Large reserves potential: o USGS estimates > 3 trillion bbl of
oil recoverable from shaleExtensive lease availability:o Many shale basins o Private mineral ownership -
capacity to secure large areasLargest market for oil: o Net imports of 9.6 MMbbl oil per
day
Forefront of shale oil technology:o Exploration, drilling, fraccing and
developmentBest oil and gas infrastructure
o Extensive network of pipelines
Highly liquid transaction market for funding and exit
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PETSEC ENERGYSHALE OIL OBJECTIVES: 2011-2013
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Develop a portfolio of oil resource opportunities in 4-5 areas.
Acquire leases over the core areas to secure a net 50,000 acres
Drill a limited number of test wells both vertical and horizontal to confirm the play and to establish a net resource of 100 MMbbl recoverable ( 50,000 acres @ 2,000 bbl/acre) – sufficient size to attract a large E&P company
Monetise through farm-out or sale
Target Resource: 100 MMbbl (4P)
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SHALE OIL VALUE CREATION PROCESS
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SHALE OIL COST ESCALATION: IMPORTANCE OF BEING EARLY AND QUIET
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2007 Fayetteville Shale – US $50/acre to US $2,000/acre within 6 months of positive results, reduced activity due to gas economics
2008 Haynesville Shale – US $100/acre to US $20,000/acre within 3 months of Chesapeake results, reduced activity due to gas economics
2008 Marcellus Shale – US $10/acre to US $4,000/acre within 6 months, play continues to expand in liquids rich areas
2009 Eagle Ford Shale – US $100/acre to US $4,000/acre within 3 months of Petrohawk announcements, costs continue to rise to > US $10,000/acre unproven
2010 Bakken Shale – State leases selling for up to US $3,600/acre after multi-stage frac results announced, play continues to expand
2010 Niobrara Shale – US $100/acre to US $4,000/acre within 3 months after EOG test, play continues to expand
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POTENTIAL FOR HIGH RETURNS:RECENT SHALE OIL TRANSACTIONS
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BUYER / SELLER SHALE ACRES(in thousands)
US$ BILLION US$/ACRE
Marathon / Hillcorp Eagle Ford 141 3.5 25,000
KNOC / Anadarko Eagle Ford 97 1.6 16,000
Reliance / Pioneer Eagle Ford 95 1.2 12,000
CNOOC / CHK Eagle Ford 200 2.2 11,000
Statoil / Brigham Bakken 375 4.4 11,700
BHP / Petrohawk Eagle Ford 1,000 12.1 12,000
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2012 EXPLORATION & DEVELOPMENT PROGRAMME
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Conventional: Gas/CondensateMarathon Field
# 3 well: o Spud 4th March 2012 TD 19,000’o Est. 107 days to drill, log & caseNew pipeline to accommodate well flows of the order of 60 MMcfe/day, completion July 2012Further development wells 2012/13
