6-35 pad completion, Gold Creek, June 2019
Investor PresentationSeptember 2019
“Full cycle, fully engaged”
ADVISORIES
2
THESE MATERIALS CONTAIN CONFIDENTIAL INFORMATION AND ARE BEING FURNISHED ON A CONFIDENTIAL BASIS SOLELY FOR INFORMATION PURPOSES TO ASSIST RECIPIENTS IN MAKING THEIR OWN EVALUATION OF VELVET ENERGY LTD. ("VELVET" OR THE "COMCPANY") AND ITS BUSINESSAND ASSETS. BY ACCEPTING THESE MATERIALS, THE RECIPIENT AGREES WITH VELVET THAT NEITHER IT NOR ITS AGENTS, REPRESENTATIVES, DIRECTORS OR EMPLOYEES WILL COPY, REPRODUCE OR DISTRIBUTE TO OTHERS THESE MATERIALS, IN WHOLE OR IN PART, AT ANY TIME WITHOUT THE PRIOR WRITTEN CONSENT OF VELVET AND WILL KEEP CONFIDENTIAL ALL INFORMATION CONTAINED HEREIN.
Velvet has included in these materials information which it believes to be reliable for the purpose of describing Velvet and its business and assets. The document is based on information available when the materials were prepared. No representation or warranty, express or implied, is given by Velvet, its affiliates, directors, employees, shareholders, or advisors or any other person as to the accuracy or completeness of such information and no responsibility or liability is accepted for any errors, omissions or misstatements, negligent or otherwise, in such information. Velvet disclaims liability for any reliance upon any information or representation contained in these materials, for any omissions from the materials, and for any written or oral communications made by Velvet or its representatives. The materials are provided as a matter of convenience and any reliance or use of such information is done at the recipient's sole risk. Accordingly, none of Velvet, or its affiliates, directors, employees, shareholders or advisors shall be liable for any direct, indirect, or consequential loss or damage suffered by any person as a result of relying on any statement or omission in this document or any other information or communication received as a part of the due diligence process.
This document does not contain all of the information available with respect to Velvet. Its sole purpose is to assist the recipient in deciding whether to proceed with a further analysis of Velvet and it is assumed, and expected, that the recipient will conduct its own investigation and analysis of Velvet's operations, financial condition and prospects.
The information contained herein is for informational purposes only, and this document is not be construed under any circumstances to be an offering or solicitation for the sale of securities; a recommendation to purchase, sell, or hold any securities; an offering memorandum as contemplated by applicable securities laws.
Forward Looking Information and Future Oriented Financial Information advisory, Non-GAAP Measures and Oil and Gas Information can be found on pages 25 and 26.
VELVET ENERGY LTD. – KEY MESSAGES
Dominant land owner in the Montney oil window in Alberta / NEBC Converted raw land into 21,500 boe/d of light oil production in just over two years Replicating our full cycle approach at Gold Creek / Karr, Pouce and Flatrock
CROCI has consistently driven investment decisions Cumulative CROCI of 12.8%, despite backwardated oil and two organic basin
opening projects
Assured market access for products Egress for current and future oil and natural gas production from the WCSB
Historically 95% of our growth has been via the drill bit, but actively pursuing large scale Montney oil consolidation given generational lows in asset values
3
VELVET ENERGY LTD. OVERVIEW
Largest Holder of Montney Light Oil Acreage in Alberta 29,500 boe/d (47% liquids) Repeatable organic growth model Egress from Canada a differentiator
Montney Light Oil Growth 21,500 boe/d (54% liquids) focused in
Gold Creek / Karr New development areas at Pouce and
Flatrock 352,000 net Montney acres
Harvesting Deep Basin Ellerslie base 8,000 boe/d (30% liquids) today Harvest asset while growing Montney oil 397,000 net acres
80 Full time employees in Calgary head office
10 Full time employees in various field offices
4
DEEP BASIN
MONTNEY
53,000 acres
62,000 acres
237,000 acres
397,000 acres
FLATROCK
POUCECOUPE
GOLDCREEK
KARR /SIMONETTE
PINE CREEK
EPG
McLEOD
NOTINE
THE VELVET MONTNEY OIL OPPORTUNITY
GOLD CREEK KARR / SIMONETTE
POUCE COUPE
FLATROCK
5
Gold Creek D23 Gold Creek LSW Karr/Simonette Pouce Coupe Flatrock TOTALOOIP (BnBBLS) 5.9 2.6 2.5 1.9 2.5 15.4Inventory Locations (#) 634 402 138 238 229 1641Oil EUR/well (mmbls) 350 350 711 350 350 380Recoverable Oil (MMbbls) 222 141 98 83 80 624Recovery Factor (%) 3.8% 5.4% 3.9% 4.4% 3.2% 4.1%Booked 2P Locations (#) 146 9 23 37 0 215% Booked (%) 23% 2% 17% 16% 0% 13%
* Company estimates
DIFFERENTIATED AS AN ORGANIC GROWTH COMPANY
Velvet’s commercial approach secures large contiguous land blocks, advances an integrated geological model, including 3D seismic and geoscience to high grade prospects
Strong track record of converting raw land into production and cash flow Have repeated this organic cycle at Edson,
Gold Creek/Karr and Pouce
Over 95% of our production has been added via the drill bit
Recent Edson disposition proceeds were re-invested into oil-weighted Montney The disposed gas-weighted Edson
production has been replaced with oil-weighted Montney production
Historical capital efficiency of $13-16/mboe/d and industry leading CROCI
Our growth to 29,500 boe/d has been funded with PSS equity, term debt, bank debt and funds flow
6
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Jan-
12
Jun-
12
Nov
-12
Apr-
13
Sep-
13
Feb-
14
Jul-1
4
Dec-
14
May
-15
Oct
-15
Mar
-16
Aug-
16
Jan-
17
Jun-
17
Nov
-17
Apr-
18
Sep-
18
Feb-
19
Jul-1
9
Corp
orat
e Pr
oduc
tion
(BO
ED)
Velvet Energy Ltd. Production Growth
2011 2012 2013 2014
2015 2016 2017 2018
2019 2017 - Montney 2018 - Montney 2019 - Montney
Edson asset sale mid-2019
0.0%
5.0%
10.0%
15.0%
20.0%
$- $20 $40 $60 $80 $100 $120
CRO
CI(%
)
WTI Oil ($US/bbl)
CROCI
CROCI = Adjusted EBITDA / Average (Gross PP&E + Gross E&E)
ORGANIC GROWTH YIELDS COMPETITIVE FULL CYCLE RATES OF RETURN
12.8% average CROCI since inception Consistently generate top decile CROCI, even in years where we capitalize resource plays as we shift
from exploration to development Montney at Gold Creek in 2017 Ellerslie at Edson in 2013
In 2020, Velvet achieves 50% liquids and generates 14.5% CROCI on strip pricing
~US$100/bbl oil price environment
Shale sets marginalcost of production
Hedging program sustained returns
Converting Gold Creekland into PDP
Discovered liquids-rich
Ellerslie
First oil at Gold Creek
2012
2013
20142015
2016
20182019E2017
7
2020E
DIFFERENTIATED BY PROACTIVELY ASSURING ACCESS TO MARKET FOR OUR PRODUCTS
8
N.A. Gas Demand Centre
VEL 5-year synthieticpipe to GoM at
US$1.19/mmbtu
Synthetic Pipe to the Gulf Basis positions on 100,000 mmbtu/d via NYMEX-AECO financial hedges through 2023 Represents current wedge of net PDP gas sales Combined AECO/NYMEX swaps and basis hedges are
$40mm in-the-money
Strategy: Synthetic pipe to highly liquid North American demand
centre at Henry Hub Avoid illiquid and less transparent hubs that may serve to
shift basis risk on regional S/D dynamics (Dawn, Sumas)
New gas pipe to GoMUS$1.85/mmbtu
ENB main line toll of $5-7/bbl
Spearhead toll US$2.67/bbl
VEL physical market access to Cushing at
costs inside MSW forward market
Velvet awarded 7,500 bbl/d of capacity on Spearhead pipeline for 7-year term commencing May 1, 2019
Strategy: Physical egress at tolls inside forward MSW prices Marketing Agreement with third party allows VEL to
optimize revenue amongst selected grades of Canadian crude
Physical Oil Takeaway
8
CONFLUENCE OF FACTORS DRIVE M&A STRATEGY
Confluence of factors create value enhancing M&A scenario
Dislocation in private / public multiples Historic low energy weight in market
indices Stranded balance sheets and banking
relationships Made in Canada egress risks and ongoing
uncertainty Strategic advantage for private companies
to transact vs. visceral public market responses
Velvet M&A focus has historically been on land capture Iron Bridge hostile takeover in 2018
consolidated land footprint at Gold Creek Current environment supports
consolidation of PDP and land in the Montney oil window of Alberta and BC
9
3.0x
4.0x
5.0x
6.0x
7.0x
8.0x
9.0x
10.0x
11.0x
12.0x EV / Forward DACF(x)
Senior IntegratedMid CapSmall Cap
Source: Peters & Co
HISTORY OF VELVET
10
2017
Closed C$336 million equity line with Warburg Pincus, 1901 Partners, Trilantic Capital; $70 million equity draw
2016
2015
2014
2013
2012
2011
Acquired Vero Energy Deep Basin assets for $209 million;$110 million equity draw
Ellerslie discovery; $50 million equity draw
Acquired Lightstream assets in West Pembina for $72 million; $106 million equity draw; Reached 10,000 boe/d in 2Q
Closed new C$100 million equity line; Built and filled 54 mmcf/d fit-for-purpose gas and NGL plant at Zeta in 3Q
15-7 Montney oil well at Gold Creek; Doubled Gold Creek acreage to 195 sections; Closed US$125 million Senior Secured 2nd Lien financing
2018
Two successful horizontal wells at Gold Creek; First oil in June 2017; 20,000 boe/d at end 2Q; CPPIB new equity investor at $150mm; +US$50mm in 2nd lien notes
19 Montney oil wells in 2018 yield organic growth to 30,000 boe/dSuccessful unsolicited acquisition of Iron Bridge, adding 49,600 net acres at Gold Creek; CPPIB $75 million equity investment
10,000
20,000
30,000
Production (boe/d)
2019 1901 Partners $32 million equity investment; YE2018 2P reserve value of $2.0 billion (NPV10%BT on IQRE pricing)
10
STRONG GOVERNANCE: MANAGEMENT & DIRECTORS
Ken Woolner, P.Eng, President & CEO
Jeremy Kwasnecha, P.Eng, VP, Midstream & Marketing
Scott James, P.Eng, VP, Capital Execution
Tyler Williscroft, P.Eng, VP, Production
Chris Theal, CFA, CIM, Chief Financial Officer
Peter Henry, CA, VP, Finance
David Stobbe, CPA, VP, Accounting
Ken Woolner, P.Eng, President & CEO
John Brussa, Partner, Burnet, Duckworth & Palmer LLP
Vincent Chahley, Independent Businessman
Robert E. Hougie, 1901 Partners LP
Jacob Strauss, Warburg Pincus
Harvey Doerr, Independent Businessman
Roger Smith, Independent Businessman
Christopher R. Manning, Trilantic Capital Partners
David B. Krieger, Warburg Pincus
Kevin Godwin, Canada Pension Plan Investment Board
Debbie Stein, Independent Businessperson
MANAGEMENT
BOARD OF DIRECTORS
11
VELVET TECHNICAL DIFFERENTIATION
RISKMANAGEMENT
12
Petrophysicist (1)
Geomodeller (1)
Microseismic/geomechanics expert (1)
Reservoir Engineer (2)Geophysicist (3)
Geologist (6)
All geotechnical work is carried out in-house
VELVET’S MONTNEY PORTFOLIO
Montney dual zone play development at Gold Creek Pouce Coupe under delineation with proven results Significant resource captured at Flatrock, awaiting
delineation 15.4 billion barrels of oil in place
Velvet Exploration & Development Portfolio
Conceptual Exploratory Development Exploitation
Play Maturity
Data
Ric
hnes
s
Pouce CoupeMontney
Gold CreekMontney
Flat RockMontney
5.9BnBbl
1.9
2.5
FLATROCK
POUCECOUPE
KARR
SIMONETTE
GOLDCREEK
MONTNEY 352,000 acres
Organic Growth at Velvet = taking high quality prospects from identification to exploitation
2.6
LSWMontney
13
2.5
Karr/SimonetteMontney
VELVET’S OIL WINDOW ACREAGE & MONTNEY INVENTORY
14
FLATROCK53,000 ac
POUCE COUPE62,000 ac
GOLD CREEK187,000 ac
KARR/SIMONETTE50,000 ac
Velvet Montney Oil Position:352,000 acres
Montney Prospect Zone Inventory
Gold Creek D23 634LSW 402
Karr/Simonette D3 138Pouce Coupe D1a 238Flatrock D1a 229Total 1,641
Velvet has acquired 352,000 acres of Montney land within the light oil window in
Alberta and BC at various stages of maturity; each position is offset by active
Montney operators that continue to delineate and prove up the normally
pressured light oil window
VELVET
LXEKELBIR
VIINVA
COMPLETIONS EVOLUTION
1515
VELVET 2019 & Forward
• ~7000 ft Laterals • 1600 – 1800 lb / ft Proppant• 150+ Stages• 40 ft Spacing
VELVET 2016
• 2600 – 6000 ft Laterals • 500-1100 lb / ft Proppant• 30-60 Stages• 100 ft Spacing
Velvet 2017 / 2018
• 8000 – 10,000 ft Laterals • 1600 – 1850 lb / ft Proppant• 110 – 180 Stages• 60 ft Spacing
• ~150,000 bbl Fluid/Well• Cemented annular coil • Slick Water Fluid, no Surfactant• All 40/70 proppant• 7” INT x 4 ½” LINER • Targeting >75% produced water in fracture stimulations
• 10,000 – 80,000 bbl Fluid/Well• Open Hole Ball Drop• Slick Water Fluid w/ Surfactant• 20/40 with 30/50 Proppant• 7” INT / 5 ½” x 4 ½” LINER • No produced water recycled
• 135,000 – 185,000 bbl Fluid/Well• Cemented annular coil• Slick Water Fluid / phasing out surfactant• 30/50 transitioning to 40/70 Proppant • 5 ½” x 4 ½” Tapered monobore and 4 ½” straight monobores• Transition to produced water up to 50% being utilized
MONTNEY PRODUCTION GROWTH
Montney production has grown to ~21,500 BOE/d in 2 years through the drill bit
Velvet Montney Historical Production By Vintage
16
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
22,000
01-2017 04-2017 07-2017 10-2017 01-2018 04-2018 07-2018 10-2018 01-2019 04-2019 07-2019
Cale
ndar
Day
Pro
duct
ion
(BO
E/d)
2016 2017 2018 2019
2019 Current: 21,500 BOE/d
GOLD CREEK – ACTIVITY UPDATE
2019 Activity To-date
7 Wells on Production Mid - Montney D2A wells 6700’ laterals
3 Wells Drilled Mid - Montney D2A wells 6700’ laterals Frac in Sept, on prod Q4/2019
Proposed 4Q2019 Activity
DCET 3 wells from existing 6-35 pad 3 Mid - Montney D2A wells 6700’ laterals On production Q1/2020
17
Phase 4
6-35 Pad
4-1 Pad
0
100
200
300
400
500
600
700
800
900
1 2 3 4 5 6 7 8 9 10 11
Sale
s O
il Pr
oduc
tion
(bbl
/d)
Producing Months
Phase 4 - Producing Day Oil Rates
TYPE CURVE Average (7 Wells)
GOLD CREEK– OIL PRODUCTION PHASE 4 WELLS
18
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
200000
0 30 60 90 120 150 180 210 240 270
Cum
ulat
ive
Oil
(bbl
s)
Producing Days
Phase 4 - Producing Day Cumulative Oil
TYPE CURVE AVERAGE (7 Wells)
NEW 2019 GOLD CREEK WELLS – OIL PRODUCTION TO-DATE
19
0
100
200
300
400
500
600
700
800
0 10 20 30 40 50 60 70 80
Oil
Prod
uctio
n (b
bl/d
)
Days on Production
TYPE AVERAGE
New 06-35 and 04-01 Pad Wells
TYPE CURVE ECONOMICS
IRR vs. Price Sensitivities2EUR, IRR and Payout1,2
1: Economics assume $55 USD WTI and $6.25 USD MSW differential2: C$1.50/GJ AECO; FX 1.33 $CDN/$USD; Liquids: C3/C4/C5+ pricing = 0.20/0.35/0.90 of WTI. $0.20/mcf transport, HV=1110 BTU/scf.
IP30 EURSales Gas (mmcf/d ; bcf) 1.6 1.61
Oil (bbl/d ; mbbl) 500 312C3+ (bbl/mmcf ; mboe) 38 61
Total (boe/d ; mboe) 818 641% Oil 61% 49%
MetricsDCET Cost $mm 7.3
Payout yrs 1.4RoR % 75
NPV10 $mm 4.8F&D $ per boe 11.40
20
0
100
200
300
400
500
600
700
800
900
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Prod
uctio
n (b
oe/d
)
MonthTotal Sales Type Oil
$0$2,000$4,000$6,000$8,000$10,000$12,000$14,000$16,000$18,000$20,000
0%20%40%60%80%
100%120%140%160%180%200%
$45 $50 $55 $60 $65 $70 $75
NPV
($m
)
IRR(
%)
WTI Oil Price ($US/bbl)Type Curve IRR Type Curve NPV
HARVESTING LIQUIDS RICH ELLERSLIE INVENTORY IN EDSON
21
Edson capex directed at harvesting inventory into equity-owned plants
Prioritize Extended Reach Horizontal Ellerslie wells Maintain optionality on development
pace to coincide with improved natural gas fundamentals
397,000 net acres
Play Current Inventory(G / N)
Deep Basin
Ellerslie (65% ERH) 503 / 341
Notikewin / Falher (19% ERH) 68 / 47
Wilrich Bayfill (43% ERH) 93 / 71
Wilrich Shoreface (38% ERH) 138/ 90
Bluesky 62 / 43
Rock Creek 51 / 31
Total Deep Basin 915 / 623
PINECREEK
MCLEOD
VEL OWNED PLANTS
VEL OWNED COMPRESSORS
EDSON PLANT GROUP
FINANCIAL & OPERATING RESULTS
8-year production CAGR of 26%, notably crude oil growth has outpaced at 41%
1P/2P reserve growth of 55% driven by Montney resource development at Gold Creek, Karr and Pouce
EBITDA growth has kept pace with production at 26%, despite executing business plan in a consistently backwardated oil market and egress challenged gas market
22
-
50,000
100,000
150,000
200,000
250,000
300,000
PDP Reserves 1P Reserves 2P Reserves
mbo
e
Reserves
2012 2013 2014 2015 2016 2017 2018
EBITDA
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
2012 2013 2014 2015 2016 2017 2018 2019E
Annu
al E
BITD
A ($
000)
*0%5%10%15%20%25%30%35%40%45%50%
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2011 2012 2013 2014 2015 2016 2017 2018 2019E 4Q19E
(boe
/d)
Production
Crude Oil NGL Gas Liquids weight
PSS Equity, $704
2nd Lien Notes, $224
Bank Draw, $180
Velvet Capital Structure
3.38x3.10x
1.13x
2.41x 2.33x2.66x
3.49x3.18x
0.00x
0.50x
1.00x
1.50x
2.00x
2.50x
3.00x
3.50x
4.00x
2011 2012 2013 2014 2015 2016 2017 2018 2019E
Tota
l Deb
t / E
BITD
A (x
)
FINANCIAL HIGHLIGHTS
$704 mm in PSS equity from four shareholders, including CPPIB
US$175mm 2nd lien notes due 2023 held by two world class institutional debt investors
Underutilized C$275mm syndicated borrowing base with four Canadian chartered banks
Full cycle return driven business
23
Total Debt to EBITDA **
* Bank draw as at September 1, 2019** Total Debt to Annualized 4th quarter EBITDA
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
2012 2013 2014 2015 2016 2017 2018 2019E 2020E
%
CROCI
*
VELVET ENERGY LTD. – SUMMARY
24
Seasoned executive team that has built and sold successful E&P companies
Convergence of best-in-class geoscience and completion engineering
Accountable and engaged in decision making process Resource unlocked and optimized through application of
state-of-the-art technology
People
Assets
Full Cycle Returns
Strong Balance Sheet and Supportive Sponsors
Dominant player in the Montney oil window of the Western Canadian Sedimentary Basin (550 net sections)
1,750 total net sections of Crown land in Alberta and NEBC 47% liquids weighting and growing to >50% in 2020 Industry leading IP rates in Montney oil window
Strong track record of top decile full cycle cash on cash returns Third-party recognition of top decile return projects in our portfolio – Edson and Gold Creek Cost control and market access integral to business plan Risk management central to full cycle return philosophy
Solid foundation of PE support + addition of CPPIB Strategic relationships with equity and term debt
providers 2-year revolver supports liquidity through plan Sufficient unutilized capacity on our bank line High impact tax pools
Organic Growth
Operate 100% of our drilling program Control infrastructure through direct equity interest or
midstream partnerships Organic growth derived from Montney oil portfolio at Gold
Creek/Karr, Pouce, Flatrock
FORWARD LOOKING INFORMATION AND FUTURE ORIENTED FINANCIAL INFORMATION
25
Certain statements contained in these materials including, expectations, beliefs, plans, goals, strategies, objectives, assumptions, information and statements about future events, conditions,results of operations and performance are prospective in nature and constitute forward-looking statements. The use of any of the words "anticipate", "continue", "estimate", "expect", "may","will", "should", "believe", "plans", and similar expressions are intended to identify forward-looking information or statements. In particular, and without limiting the foregoing, this presentationincludes forward-looking statements with respect to: future debt, EBITDA, capitalization, FCCR, borrowing capacity and other financial and leverage metrics; future cash flow, free cash flow, fundsfrom operations, operating netbacks, working capital and cash on cash returns; anticipated sustaining capital requirements; Velvet's tax pools and future taxability; future production and theexpected splits among crude oil, NGLs and natural gas production; hedging plans and strategies; drilling plans; future well economics, type curves, recovery factors, EURs, IIRs and payouts; drillinginventory and opportunities; expected drilling and completion costs; infrastructure and transportation plans; Velvet’s planned capital expenditure program and the nature of the expenditures;operating and transportation costs; forecasted commodity prices and factors affecting natural gas prices; management’s assessment of future potential and expectations with respect to naturalgas demand and supply in North America. Statements relating to "reserves" or "resources" are deemed to be forward-looking statements as they involve the implied assessment, based on currentestimates and assumptions that the reserves and resources can be profitably produced in the future. Readers are cautioned that disclosure of any well test results or initial production rates is notnecessarily indicative of long-term performance.
These forward-looking statements are based on assumptions and are subject to numerous risks and uncertainties, certain of which are beyond the Company’s control, including the impact ofgeneral economic conditions; industry conditions; volatility of commodity prices; currency exchange rates; imprecision of reserve estimates; environmental risks; competition from other explorers;stock market volatility; oil and natural gas development and transportation; actions by governmental authorities, including changes in government regulation, royalties and taxation; dependenceupon compressors, gathering lines, pipelines and other facilities, certain of which the Company does not control; shortage or lack of available of pipeline capacity or other transportation facilities;weather conditions, natural disasters and fires; and ability to access sufficient capital. Accordingly, no assurance can be given that any of the forward looking statements will transpire or occur, or ifany of them do so, what benefits will be derived therefrom. In addition, the reader is cautioned that historical results are not necessarily indicative of future performance.
This presentation also contains future oriented financial information ("FOFI") within the meaning of applicable securities laws. The FOFI has been prepared by management of Velvet to provide anoutlook of Velvet's anticipated future financial results and performance including cash flow, free cash flow, funds from operations and cash on cash returns. The FOFI has been prepared based on anumber of assumptions including the assumptions discussed above and assumptions with respect to drilling and operating costs, capital expenditures, production levels, commodity prices, rates ofreturn, royalty rates and finding and development costs. Management does not have firm commitments for all of the costs, expenditures, prices or other financial assumptions used to prepare theFOFI or assurance that such operating results will be achieved and, accordingly, the complete financial effects of all of those costs, expenditures, prices and operating results are not objectivelydeterminable. The actual results of operations of Velvet and the resulting financial results will likely vary from the amounts set forth in this presentation, and such variation may be material. Velvetand its management believe that the FOFI has been prepared on a reasonable basis, reflecting the best estimates and judgments, and represent, to the best of management's knowledge andopinion. However, because this information is highly subjective and subject to numerous risks, including the risks discussed above, it should not be relied on as necessarily indicative of futureresults.
The forward-looking statements and information and FOFI contained in this presentation are made as of the date hereof and Velvet undertakes no obligation to update publicly or revise anyforward-looking statements or information, whether as a result of new information, future events or otherwise.
NON-GAAP MEASURES
This presentation contains various terms which do not have a standardized meaning prescribed by Canadian generally accepted accounting principles and therefore may not be comparable withthe calculation of similar measures by other companies including, without limitation, "operating netback", "cash on cash return", "cash flow", "free cash flow", "operating netback", "total debt" and"EBITDA".
OIL AND GAS INFORMATION
26
We have included estimated reserves, estimated ultimate recovery and recovery rates in this presentation that have been evaluated by Velvet's independent reserves evaluator and/or internallyestimated by Velvet. Such estimates may not have been prepared in accordance with National Instrument 51-101 ("NI 51-101") and there is no certainty that Velvet will ultimately recover suchvolumes from the wells it drills. Estimates of the net present value of the future net revenue from Velvet's reserves do not represent the fair market value of such reserves. The estimates ofreserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties due to the effects ofaggregation.
BOE Advisory
We use the term boe (barrels of oil equivalent) throughout this presentation. Boe's may be misleading, particularly if used in isolation. The conversion ratio of six thousand cubic feet per barrel (6mcf: 1 bbl) of natural gas to barrels of oil equivalent is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at thewellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1basis may be misleading as an indication of value.
Analogous Information
Certain information in this presentation may constitute "analogous information" as defined in NI 51-101. Management of Velvet believes the information is relevant as it may help to define thereservoir characteristics and production profile of lands in which Velvet may hold an interest. Such information is not an estimate of the production, reserves or resources attributable to lands heldor to be held by Velvet and there is no certainty that the production, reserves data and economic information for the lands held or to be held by Velvet will be similar to the information presentedherein. The reader is cautioned that the data relied upon by Velvet may be in error and/or may not be analogous to such lands held or to be held by Velvet.
Drilling Locations
This presentation discloses drilling locations in two categories: (i) booked locations; and (ii) unbooked locations. Booked locations are proved locations and probable locations derived from Velvet'sreserves report for drilling locations that have associated proved and/or probable reserves, as applicable. Unbooked locations are internal estimates based on prospective acreage and anassumption as to the number of wells that can be drilled per section based on industry practice and internal review. There is no certainty that Velvet will drill all unbooked drilling locations and ifdrilled there is no certainty that such locations will result in additional oil and gas reserves, resources or production.
Type Curves
This presentation contains type curves and well economics. The type curve information presented is based on Velvet's historical production, in addition to production history from analogousdevelopments located in close proximity thereto. Such type curves and well economics are useful in understanding management's assumptions of well performance in making investment decisionsin relation to development drilling and for determining the success of the performance of development wells; however, such type curves and well economics are not necessarily determinative ofthe production rates and performance of existing and future wells.
Oil and Gas Metrics
This presentation contains a number of metrics commonly used in the oil and natural gas industry, such as "IRR" "EUR", "F&D" and "FD&A" costs, "Payout", "RoR", "EUR", "recycle ratio" and "TEV".These terms do not have a standardized meaning and may not be comparable to similar measures presented by other companies, and therefore should not be used to make such comparisons.Readers are cautioned that the information provided by these metrics, or that can be derived from the metrics presented in this presentation, should not be relied upon for investment or otherpurposes.
These materials also include estimated resource in place values that have been internally estimated by Velvet which have not been prepared in accordance with NI 51-101 and are not accompaniedby a discussion of the significant positive and negative factors relevant to the estimated amounts. There is no certainty that such reserves exist or that the noted volumes or resources will bediscovered. If discovered, there is no certainty that it will be commercially viable to produce any portion thereof.