Highwood's Clearwater Position
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Highwood Oil Company Ltd. Corporate Presentation February 2020 Recent Developments Highwood Oil Company Ltd. (“Highwood” or the “Company”) is an emerging intermediate oil producer with operations in Alberta and Saskatchewan listed on the TSX-V under the trading symbol “HOCL” ▪ Agreement to divest majority of non-core Red Earth assets to an arms length private company Red Earth Disposition ▪ Disposed current production of approximately 950 bbl/d of oil ▪ Consideration of $8.0 million in cash, a 5% GORR, and 10% ownership in the acquiror ▪ Disposition materially improves operational focus and liability profile ▪ 90% of pro-forma production is concentrated in the Clearwater play ▪ Transaction reduces corporate decommissioning obligations by 87% or ~$32 million (pro- forma $4.5 million at September 30/19) ▪ Focus of capital spending plan on growing production & reserves in the Clearwater property 2020 Guidance ▪ $10.0 – 15.0 million capital spending program ▪ Majority of activity targets low-risk infill drilling with immediate cash flow visibility ▪ Compliment infill drilling with select step-out wells to further delineate Clearwater position ▪ Post disposition, Highwood emerges as the only public, pure play Clearwater producer Corporate Outlook ▪ 196 (99 net) sections in the heart of the Clearwater play ▪ Targeting net Clearwater production of 1,300 bbl/d by year-end 2020 (1,550 bbl/d of corporate production, weighted 100% oil) ▪ Pipeline provides a diversified cash flow base with a mix of E&P and midstream revenue ▪ $5.0 million of annual cash flow ownership in the Wabasca River Pipeline ▪ Highwood is well positioned to pursue organic growth and opportunistic acquisitions in the Clearwater play Highwood will continue to focus its efforts throughout 2020 on delineating its Clearwater lands in a capital-efficient manner, while mainly pursuing infill and pad drilling development opportunities offsetting positive initial production results 2 Highwood Growth Execution History ▪ Founded in 2012 as a private company under the name Predator Oil ▪ Recently went public through a reverse take-over of a capital pool company in Q1 2019 ▪ The Company has executed 6 materially accretive acquisitions and 3 highly profitable dispositions since inception in 2012 ▪ Team has provided positive returns to shareholders since inception in Highwood and other midstream and upstream entities TIMELINE – BALANCING ORGANIC LAND CAPTURE AND M&A Equal Canada Mosaic West Wabasca River Pipeline Red Earth Transaction – 800 boe/d Central – 2,350 boe/d 100% WI Acquisition Divestiture – 950 bbl/d Acquired Equal Energy’s Mannville gas acquired Flows 5,000+ bbl/d onto Plains Non-core asset divestiture of 2012 2018 2020 Canadian assets in 2012; 2017 through receivership Rainbow Pipeline (75% 3rd party substantially all Red Earth sold majority of the process; disposed of the volumes) with capacity up to production and liability. Pro- acquired asset base asset in 2017 20,000 bbl/d. Assets include 6 forma LMR of 4.8 pipeline connected batteries Red Earth Clearwater Land Saskatchewan Asset – 1,250 boe/d Acquisition and Development Transaction – 230 bbl/d Active Capital deployed to mitigate decline – Acquired 196 gross (99 net) Very accretive acquisition of ~230 2019 2014 and increase production; cleaned up Clearwater sections; sold 4% GORR bbl/d of light sweet crude oil and abandoned well bores to improve 2017 in September 2018, covering ~90% produced from 7 gross (5.5 net) wells LMR of Clearwater lands. Drilled 14 in the Tilston formation wells to year end 2019 3 Corporate Overview Market Summary – HOCL.V Core Properties 1 2020 Guidance WABASCA 2020 Exit Production bbl/d 1,550 PIPELINE Capital Expenditures MM $10 - 15 Operating Costs $/boe $8.50 - 9.50 Upstream Netback $/boe $27.00 - 29.00 CLEARWATER 2020 Field Net Op Income MM $21 Core Assets CLEARWATER ▪ Largely unbooked, economic, high growth & value potential ▪ Current Gross Production of 1,500 bbl/d (100% liquids; 50% WI) ▪ 196 gross (99 net) sections WABASCA RIVER PIPELINE SASKATCHEWAN ▪ Stable and diversified cash flow generated from 3rd party volumes ▪ ~$5.0 million annual cash flow AB SK Complementary Non-Core Assets ▪ Saskatchewan - Tilston light oil play with ~150 bbl/d of production ▪ Red Earth (100 bbl/d and 50 bbl/d of royalty production), Peace River Arch (50+ net sections Montney/Doig), Whitecourt/Carson (100+ net sections Beaverhill Lake/Duvernay) 1) 2020 Guidance is pro-forma the Red Earth Disposition highlighted on Slide 2, anticipated to close on or around April 2020. Estimated operating results based WTI US$53.00/bbl, WCS differential US$17/bbl, Edm differential 4 US$6.00/bbl and FX 1.33 CAD/USD Clearwater Oil Resource Fairway Landscape CLEARWATER DEVELOPMENT AREAS Clearwater activity has strongly increased since the first half of 2017 ▪ Highwood, Spur, Deltastream, CVE and CNRL have all been active T90 ▪ Well configurations, spacing, and lengths all evolving Golden Evi Rangeland Midstream building a new 85km pipeline (COD H2/20) T88 ▪ Providing the first pipe connection egress to the play Play is being developed with ESG atop of mind T86 ▪ Sweet produced gas is reused to power surface operations Cadotte ▪ Decreased land use with up to 10 wells off of one surface Godin T84 ▪ No stimulation – no water used for fracturing T82 IRR & PAYOUT BY NORTH AMERICAN PLAY 250% 5.0 T80 Canadian Plays U.S. Plays Payout Pelican Doucette T78 200% 4.0 T76 150% 3.0 Payout Marten Hills Nipisi T74 IRR IRR (%) 100% 2.0 T72 50% 1.0 Nixon T70 Canal 0% 0.0 T68 T66 Craigend Newbrook T64 Jarvie Edwand CLEARWATER PRODUCTION GROWTH T62 40 400 Pre-2015 2015 2016 2017 2018 2019 Total Wells T60 30 300 Production in the Clearwater R17 R15 R13 R11 R9 R7 R5 R3 R1W5 R24 R22 R20 R18 R16 R14 R12W4 WellCount(#) 20 play now exceeds 25,000 bbl/d 200 Legend: Baytex Crestwynd Harvest Rolling Hills Plains Pipeline 10 100 Production (Mboe/d) Production Cardinal/Summerland Deltastream Mancal Spur Planned Rangeland Pipeline Cenovus ISH Obsidian Turnstone Operator Batteries 0 0 Jan.16 Jul.16 Jan.17 Jul.17 Jan.18 Jul.18 Jan.19 Jul.19 CNRL Highwood Perpetual 5 Sources: Corporate Estimates, geoSCOUT, PETRINEX , XI Technologies Highwood’s Clearwater Position The Clearwater oil play is one of the most significant discoveries made over the last 10 years Highwood Nipisi Drilled fourteen 4 to 8 leg wells ▪ 14-22o API oil, 100-4,500 Cp viscosity 12 wells on production Area players have been active in Clearwater delineation efforts ▪ North: Highwood, Spur, Deltastream, CNRL, Cenovus North ▪ South: Highwood, Spur, Crestwynd ▪ >185 wells are on-stream and >50 upcoming licenses(1) Highwood Craigend Highwood Jarvie Drilled one 4 leg well Clearwater play economics are top-decile to industry Drilled two 4 leg in Feb 2020 wells in 2018 ▪ Unstimulated, multi-pad & multi-lateral hztl (up to 8 legs) ▪ Year-round access, close proximity to major highways ▪ Shallow and repeatable resource at TVDs of 600-850m South ▪ Quick cycle times (four-leg well: ~14 drilling days) Highwood’s expansive land position provides investors the greatest exposure to the Clearwater within the public markets ▪ 196 gross (99 net), minimal land expiries ▪ North / South: ~47% / ~53% split HOCL GROSS PRODUCTION GROWTH ▪1 North - Primary project: Lower (75%) & Upper (25%) 2,000 14 sands Production Well Count ▪ 53 multi-laterals drilled (incl. 12 by HOCL) 12 1,600 ▪ Continued drilling into Q1 2020 with 20+ additional wells 10 surveyed / ready to license by HOCL Well Count(#) 1,200 2▪ South – Secondary Exploration: Lower (50%) Sand 8 ▪ 33 multi-laterals drilled (incl. three by HOCL); 2 Jarvie, 1 6 Production(bopd) 800 Craigend 4 ▪ HOCL: 10+ wells surveyed / ready to license; capital program 400 for 2 to 4 wells in 2020 2 0 0 Dec.18 Jan.19 Feb.19 Mar.19 Apr.19 May.19 Jun.19 Jul.19 Aug.19 Sep.19 Oct.19 Nov.19 Dec.19 1) As per geoSCOUT data, as at December 2018 6 2) Defined as “peak” 30-day rate post clean-up North Clearwater Acreage: Nipisi Assets Spur Nipisi Project Area Activity Highwood Q1 Capital Program 9 Lower Clearwater Wells Drilled 2 Lower Clearwater 13 Upper Clearwater Wells ▪ 53 wells drilled to date in Main Highways Wells from Mid Jan to Mid Feb 4 to 6 legged wells Peak Rates 40-310 bopd Nipisi/Mistue • 13 Upper Clearwater • 40 Lower Clearwater ▪ Two operators to date have been Spur and Highwood (50% WI) Highwood 12-18 Well 3m lower than Clearwater ▪ Oil viscosities range from 100 to Highwood 9-18 Well producers to north more than 5000 cP (30C) with 20m structurally lower Extended play 1 km south majority around 100-1000 cP Extended play 5km west Performing as expected Performing as expected Nipisi ▪ Peak rates range from 40 to 310 bopd with best rates and highest quality oil found in the Lower Clearwater Highwood ▪ Highwood has drilled and completed 14 Lower Clearwater wells to date (50% working Highwood Nipisi interest). 14 Lower Clearwater wells drilled and 12 wells on ▪ Highwood has a slated capital production (Feb 2020) program of 12-16 multilateral Spur Mitsu Peak Rates 45-260 bopd 19 Lower Clearwater Wells wells (6 legs) in the area subject 3 to 8 legged wells 4 to 6 legged wells to performance and oil pricing Peak Rates 40-180 bblsd Mitsue HOCL Lands (50% WI) 7 South Clearwater Acreage: Jarvie Newbrook Main Highways 10 Crestwynd HZ Wells Perryvale 4 to 6 legs per well Ish HZ Stage Fracked Wells Peak Rates 80-210 bopd Jiles Bolloque Jarvie 15 Spur & 2 Highwood HZ Wells Meanook 3-6 legs per well 1 new Rolling Hills new well Peak Rates 70-210 bopd Production cleaning up 2 Crestwynd