Corporate Presentation Summer 2016 Corporate Snapshot Cavalier - - PowerPoint PPT Presentation

Corporate Presentation

Summer 2016

_______________

• 1. See forward looking statement advisory for disclosure on reserves and resource information and definitions.
• 2. Hoole volumes are probable undeveloped reserves and economic contingent resources as per McDaniel report effective December 31, 2015.
• 3. Carbonates volumes are contingent resources (technology under development) as per McDaniel report effective October 31, 2011.
• Cavalier Energy was spun out of Paramount

Resources in 2011 comprising Oilsands and Carbonate bitumen assets

• Owned 100% by Paramount Resources
• Execution focused team
• Hoole Project has regulatory approval for

10,000 bbl/d from the Grand Rapids formation with potential for 115,000 bbl/d

• Completed acquisition of offsetting acreage

in July 2014

• In addition to Hoole there is significant

development potential from its portfolio of exploration lands − Includes carbonates properties adjacent to and on trend with the Laricina / Osum Saleski project, as well as McMurray clastics at Eagles Nest and Christina Lake

Cavalier Asset Portfolio Overview

Corporate Snapshot

1

Reserves and Contingent Resource Summary(1)

Reserves Contingent Resources Probable Low Best High Asset Undev. Estimate Estimate Estimate MMbbls MMbbls MMbbls MMbbls Hoole(2) 93 871 1,157 1,492 Saleski Carbonates(3)

• 380

567 Other Carbonate Leases(3)

• 111

184

Grand Rapids Formation Generating Significant Interest

• Industry peers have already applied for Grand

Rapids SAGD projects totaling over 450,000 bbl/d

• f production capacity(1):

– BlackPearl: 80,000 bbl/d (pilot achieved first oil in Q3 2011 and continues to operate at rates up to ~600kbpd from one well pair with an SOR of <3.0. Filed commercial application in May 2012, with approval expected in 2016) – Cenovus: 180,000 bbl/d (pilot achieved first oil in Q3 2011 commercial application approved in March 2014) – Koch: 40,000 bbl/d (10,000 bbl/d commercial application approved June 2014, still awaiting EPEA approval) – Laricina: 155,000 bbl/d (commercial application filed Q4 2011, project review on

• hold. Commercial demonstration project

commenced production in Q3 2013 and was suspended in Q1 2015)

Grand Rapids Industry Activity

2

Hoole is targeted to be a material 115,000+ bbl/d project located in the core of the Grand Rapids resource play with integration

• pportunities for the achievement of greater scale

_______________

• 1. All based on publicly available information.

Grand Rapids Resource Overview

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Key Attributes of the Grand Rapids

• Developable using proven SAGD drilling, completion and production techniques
• Laterally continuous sand body provides for repeatable surface development template
• Homogenous reservoir enables more predictable drilling and well production profiles
• Ostensibly no occurrence of top, middle or bottom water in core area; contributes to better reservoir performance and

steam oil ratios

• Competent extensive top seal
• Reservoir depth of ~250m permits use of established drilling and completion techniques

Grand Rapids Cross Section Grand Rapids Shore Face Sand

• Large, laterally continuous, homogeneous shore face

sand in the Grand Rapids formation is the cornerstone of Cavalier’s asset base

Cenovus’ Comparison of the Grand Rapids

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_______________ Source: Cenovus’ Grand Rapids project application.

Grand Rapids Project Comparison(1)

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Well Log Locations Map

Operator Laricina (1) Cenovus (2) Cavalier (3) BlackPearl (4) Project Germain Pelican Hoole BlackRod Effective Φ 34% 30% 33% 30% K 2 – 6 D 1 – 4 D 1 – 4 D 1 – 5 D D 200m 225m 250m 300m H (up to) 24m 25m 27m 26m Oil Saturation (Pay Zone) 75% 65% 65% 60% Rf 49% / 55%(3) 54% 52% 49% 2P Reserves(2) 389 MMbbls

• 93 MMbbls

182 MMbbls Contingent Resource(2) 934 MMbbls 1,500 MMbbls 1,157 MMbbls 566 MMbbls Project Status CDP Shutdown Pilot Suspended Project Approved Pilot Operating

_______________

• 1. All based on publicly available information.
• 2. See forward looking statement advisory for disclosure on reserves and resource information and definitions.
• 3. 49% of the producible bitumen-in-place under SAGD operations and 55% of the producible bitumen-in-place under SC-SAGD operations.

Reservoir Development Comparison

Grand Rapids vs. McMurray Development

• The extensiveness and homogeneity of the Grand Rapids shoreface sand reservoir provides for project development

predictability and allows for the achievement of significant scale (with associated economic advantages) − Similar to CNRL Primrose which is a Clearwater/Grand Rapids development − This type of development is very rare in the context of oil sands in situ projects, especially those based on estuarine/fluvial channel systems

• For example, the Cenovus Foster Creek project is one of a very limited number of large, continuous McMurray

channel sands developments

• Most McMurray channel projects are characterized by heterogeneous and non-laterally continuous channel

reservoirs, which can result in less efficient and less predictable development (and sometimes significant

• perational challenges)

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Primrose Project Atypical McMurray Project (Foster Creek) Typical McMurray Project (Great Divide) Hoole Project

Significant Resource Base with Attractive Economics

• Probable reserves of 93 MMbbls and best estimate economic

contingent resources of 1,157 MMbbls

• Targeting the laterally continuous and homogeneous Grand

Rapids formation

• Use of proven SAGD technology is expected to result in strong
• perating netbacks across a wide range of oil prices
• Proximal to high grade road networks, power and gas

infrastructure and substantial announced bitumen takeaway and diluent return capacity

• Multi phase project with estimated total production capacity of

115,000+ bbl/d

• Growth opportunities through strategic acquisitions

Development Stage Project with Expected Near Term Production

• Regulatory approval received in June 2014 for 10,000 bbl/d

Phase 1

• Delineation drilling for Phase 1 completed in 2010 (80 wells)
• Environmental modeling complete and water source/disposal is

selected.

• Front end engineering and design work completed
• Risk mitigation strategy being implemented through construction
• f modularized components built off-site
• Ability to truck production volumes for Phase 1 until area pipeline

infrastructure is built

Hoole Project Overview

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_______________

• 1. Hoole volumes as per McDaniel report effective December 31, 2015.

See forward looking statement advisory for disclosure on reserves and resource information and definitions.

Hoole, A Shovel Ready Project, has resource to support 115,000+ bbl/d of production located in the core of the Grand Rapids resource play

Hoole Phase 1 Central Plant 3D Model Rendering:

Hoole Phase 1

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Phase 1 Capital Requirements ($MM)(1)

• Phase 1 capital costs are estimated to be ~ $11,000 per

stream day barrel of steam (CWE)2 Facilities/Infrastructure $300 - $350 Drilling & Completions $ 80 - $ 90 Total $380 - $440

• This capital cost intensity of approximately $38,000/bbl/d
• f Bitumen assumes an SOR of 3.5; stronger reservoir

performance reduces this number

• Construction cost risk can be mitigated through the

incorporation of modularized components built off site

Hoole Phase 1

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Phase 1 sized for steam capacity; capital cost intensity of ~ $11,000 per bbl of steam, or ~ $38,000

• f bitumen based on conservative cumulative SOR

_______________

• 1. Management’s estimate based on FEED engineering and Class 3 Estimates, originally estimated in Q2 2013 dollars, updated to Q3 2016 dollars to account for market conditions
• 2. Cumulative steam oil ratios (“CSOR”) is the cumulative ratio of steam injected (in cold water equivalent “CWE”) to oil produced from a SAGD well pair or Project over the life of the scheme.
• 3. Gas Oil Ratio.

Phase 1 Development Philosophy

• Use proven execution strategies and methods – Phase 1

to use steam only, with allowances to easily add solvent in the future

• Surface facilities designed for conservative cumulative

SORs(2), GORs(3) and liquids handling assumptions

• Utilize largest modularized size for evaporator and

corresponding drum boilers

• Limit field construction activities throughout plant site by

utilizing modularization wherever feasible

• Provides data and better information for optimizing future

phases

• Standalone and not expandable, but designed to

integrate with future phases

Hoole Full Field Notional Development Plan

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Management has a track record of delivering large scale projects on time and on budget

• Phase 2A, 2B and 2C capital costs estimated at $1.0 to 1.2 billion each (including facilities, drilling and completions)(1)
• The Hoole development plan is subject to financing, market conditions and other factors. A generic full field development

schedule is shown below.

______________ 1. Management’s estimate based on PRE-FEED engineering and Class 4 Estimates, estimated in 2013, updated in Q3 2016 to reflect market conditions

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12

Phase 1 10,000 bbl/d Phase 2A ~32k bbl/d Phase 2B ~32k bbl/d Phase 2C ~32k bbl/d

First Steam Application Approval First Steam First Steam First Steam Application Approval Application Approval

Exploration Portfolio

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_______________

• 1. Carbonates volumes as per McDaniel report effective October 31, 2011; Eagles Nest volumes as per McDaniel report effective April 30,
• 2010. See forward looking statement advisory for disclosure on resource information and definitions.
• 2. All based on publicly available information.

Platform for Long Term Growth in Resource and Production Potential

• Best estimate of over 1.6 Bbbls DEBIP

and 4.5 Bbbls UEBIP(1) across six primary project areas, five of which have had no delineation carried out by Cavalier or Paramount ‒ Eagles Nest provides additional upside with DBIP of 0.4 Bbbls and UDBIP of 1.6 Bbbls(1)

• Multiple play types including

Carbonates, Wabiskaw and McMurray channels

• Eagles Nest located immediately north /

northwest of BP / ViBrant Petroleum’s 2.7 Bbbls best estimate contingent resource Terre de Grace Project and Athabasca’s 2.1 Bbbls contingent resource Birch Project(2)

• Small, but highly prospective block

located immediately south of Devon’s 105,000 bbl/d Jackfish Project(2)

• Control over pace of development with

100% ownership of 239 sections of land

Exploration Assets(1)

Exploration portfolio provides resource growth potential through delineation of 100% owned leases

Carbonate Assets

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Cavalier’s Carbonates Assets Growth Potential in an Emerging Resource Play

• Over 128,000 acres within the Carbonate portfolio located on the

highly prospective Grosmont Carbonate Trend – Holdings are located adjacent to the regional projects of Laricina, Osum and Husky and proximate to those of several majors including Shell, ConocoPhillips and Suncor – Cavalier’s leases, other than Saleski, have had very little delineation carried out on them historically

• At Saleski, Cavalier has drilled 11 delineation wells, cased
• ne well for testing and shot five seismic lines

‒ Best estimate 1.6 Bbbls DEBIP and 4.5 Bbbls UEBIP with best estimate contingent resource of 492 MMbbls(1)

• Advancement / selection of optimal extraction technologies by

industry peers will set the pace for Cavalier’s development of its Carbonates portfolio following Hoole advancement

• Ongoing development of new technologies by industry peers also

expected to improve economics and recovery factors

_______________

• 1. Carbonates volumes are contingent resources (technology under development) as per McDaniel report effective October

31, 2011. See forward looking statement advisory for disclosure on resource information and definitions.

• High Quality Oil Sands Asset Base
• Approved Project at Hoole
• Significant Upside in Bitumen Carbonates
• Strong Execution Focused Team
• Highly Experienced, Successful & Patient Shareholder

In Summary

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Cavalier is a private pure play in situ oil sands company with a very strong management team and a highly experienced shareholder

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Appendix A Management and Director Biographies and Shareholder Information

Highly Experienced and Successful Shareholder

• Paramount is TSX listed with a market capitalization of ~$1.5 billion; insider ownership ~ 50%

– Founded in 1974 by Clayton Riddell, Chairman and CEO

• Strong history of creating shareholder value
• Paramount has spun-out two public entities: Perpetual Energy and Trilogy Energy which have a combined market cap of

~$900 million  Paramount currently holds ~15% interest in Trilogy

• Proven, successful explorer and partner in oil sands, demonstrated by ~$1.0B in value realized over the past decade

(excluding Cavalier): – Acquired, successfully delineated and then sold leases in the southern Athabasca region which form the backbone of what today is MEG Energy’s successful Christina Lake Project – Partnered with North American Oil Sands Corp. (“NAOSC”) to combine and further delineate oil sands leases and to grow the asset base; ultimately becoming a shareholder of NAOSC through the contribution of Paramount’s interests in the properties – Statoil acquired NAOSC in 2007 for $2.2 billion; Paramount owned ~30% of NAOSC generating $680 million in cash proceeds – Sold Paramount’s delineated Surmont project to MEG Energy in 2007 for $300 million including $150 million in cash and 3.7 million MEG shares

• Service agreement in place between Paramount and Cavalier covering the provision of a wide range of services by

Paramount including drilling and completions, land, marketing, accounting, human resources and community relations

Cavalier’s Current Shareholder Paramount Resources

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Paramount, Cavalier’s current shareholder, has a proven track record of creating significant value in the oil sands across multiple transactions over the past decade

Management Team and Board of Directors

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Cavalier’s executive team has a proven track record of creating value for shareholders and significant experience bringing large scale oil projects on stream

Directors Current Role Public Company Directorships James Riddell Executive Chairman

• President and Chief Executive Officer, Paramount

Resources, Chief Executive Officer, Trilogy Energy

• Big Rock Brewery, Paramount Resources, Trilogy Energy,

Marquee Energy and Strategic Oil and Gas Clayton Riddell

• Executive Chairman, Paramount Resources
• Paramount Resources, Perpetual Energy, and Trilogy Energy

Mitchell Shier

• General Counsel, Corporate Secretary & Manager, Land,

Paramount Resources

• Trilogy Energy and Alaris Royalty

Bernard Lee

• Chief Financial Officer, Paramount Resources

Management Experience William Roach, Ph.D., P.Eng. Chief Executive Officer and Director

• Dr. Roach has 30 years of experience, more recently as President & CEO of UTS Energy between 2004 and the company’s sale to

Total in October 2010. Before then he held various positions with Husky Energy (where he oversaw all operational activities for the $2.3 billion White Rose east coast offshore project) as well as British Borneo and Royal Dutch Shell Martin Sandell, P.Eng. Chief Operating Officer

• Mr. Sandell has 35 years of experience and was formerly VP Engineering at UTS Energy until its sale in October 2010. He previously

held senior engineering positions with Husky Energy and British Borneo Philip Moore, CFA Chief Financial Officer

• Mr. Moore has 15 years of experience in capital markets, most recently as Managing Director, Investment Banking of Paradigm
• Capital. Prior thereto he held Director positions at Cormark Securities and BMO Nesbitt Burns

Jina Abells Morissette, LLB General Counsel & Corporate Secretary

• Ms. Morissette has 15 years of legal experience in the oil and gas industry. Prior to joining Cavalier in 2012, she held similar

positions at SilverBirch Energy from October 2010 through to its sale in April 2012 and UTS Energy from 2004 through to its sale in October 2010 and prior to that was Senior Legal Counsel of Husky Energy from 1999 to 2004 William Robinson, P.Geol. VP, Geoscience

• Prior to joining Cavalier in 2012, Mr. Robinson had approximately 10 years experience with Paramount Resources overseeing the

exploration and delineation of its oil sands assets Jeff Peterson, MSc., P.Eng. VP, Reservoir Engineering

• Mr. Peterson has 15 years of engineering experience. Prior to joining Cavalier in 2012 he held various roles including Team Lead,

Saleski Development and Senior Reservoir Engineer, Germain at Laricina Energy where he was the co-inventor of a steam and solvent process currently in the patent review stage

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Appendix B Forward Looking Statements Advisory

Certain statements in this presentation constitute forward-looking information under applicable securities legislation. Forward-looking information typically contains statements with words such as "anticipate", "believe", "estimate", "expect", "plan", "intend", "propose", or similar words suggesting future outcomes or an outlook. Forward looking information in this presentation includes, but is not limited to:

• expected production volumes and the timing thereof;
• planned exploration and development expenditures, and the timing thereof;
• exploration, development and expansion plans and strategies for Cavalier’s properties;
• anticipated capital and financing requirements and access to capital;
• project economics, and comparisons to other oil sands projects, estimated production profiles and scope and the timing thereof;
• planned Hoole development schedules and costs, including cash flow profiles;
• reserves and resource estimates and the discounted net present value of future net revenues from such reserves and resources (including the forecast prices, costs and the timing
• f expected production volumes and future development capital);
• predicted recovery factors including steam oil ratios and cumulative steam oil ratios;
• construction and startup timelines and schedules;
• anticipated development activity in areas where Cavalier assets are located;
• expected pipeline capacity and ability to transport production when pipeline capacity is not available;
• business strategies and objectives;
• perating and other costs and strategies to reduce or mitigate such costs; and
• expected regulatory review and approvals and the timing and the outcome thereof.

Such forward-looking information is based on a number of assumptions which may prove to be incorrect. The following assumptions have been made, in addition to any other assumptions identified in this presentation:

• future crude oil, bitumen and natural gas prices;
• general economic and business conditions;
• the ability of the Company to obtain required capital to finance its exploration, development and operations;
• the ability of the Company to successfully obtain equipment, services, supplies and personnel in a timely manner to carry out its activities;
• the ability of the Company to market its production;
• estimates of input and labour costs for an oil sands project;
• the ability of the Company to secure adequate product transportation and storage;
• the ability of the Company to successfully apply oil sands technology and to capitalize on improvements thereto;
• the ability of the Company to obtain project success including obtaining production volumes, steam oil ratios, capital and operating costs consistent and timing with expectations;
• the timely receipt of required regulatory approvals and the scope of such approvals;
• estimated timelines being met in respect of the development of the Hoole oil sands properties;
• access to capital markets and other sources of funding; and
• currency exchange and interest rates.

Forward Looking Statements Advisory

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Although the Company believes that the expectations reflected in such forward looking information is reasonable, undue reliance should not be placed on it, as the Company can give no assurance that such expectations will prove to be correct. Forward-looking information is based on current expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by the Company and described in the forward looking information. These risks and uncertainties include, but are not limited to:

• fluctuations in crude oil, bitumen and natural gas prices, foreign currency exchange rates and interest rates;
• the uncertainty of estimates and projections relating to future revenue, future production, costs and expenses including project cost overruns;
• the ability to secure adequate product processing, transportation and storage;
• perational risks in exploring for, developing and producing bitumen, and the timing thereof;
• the ability to obtain equipment, services, supplies and personnel in a timely manner;
• potential disruption or unexpected technical difficulties in designing, developing, expanding or operating the Company’s projects;
• risks and uncertainties involving the geology of bitumen, crude oil and gas deposits;
• the uncertainty of reserves and resource estimates;
• changes to the status or interpretation of laws, regulations or policies;
• the receipt, timing and scope of governmental or regulatory approvals;
• title defects;
• aboriginal land claims;
• the ability to obtain financing at an acceptable cost to meet current and future obligations including costs of anticipated projects;
• environmental compliance and requirements;
• general business, economic and market conditions;
• the effects of weather; and
• ther risks and uncertainties described elsewhere in this presentation and in Paramount’s other filings with Canadian securities authorities, including Paramount’s Annual

Information Form. The foregoing list of risks is not exhaustive. Additional information concerning these and other factors which could impact Cavalier and Paramount are included in Paramount’s most recent Annual Information Form. The forward-looking information contained in this presentation is made as of the date hereof and, except as required by applicable securities law, Cavalier and Paramount undertake no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise.

Forward Looking Statements Advisory

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Oil and Gas Measures and Definitions: This presentation contains disclosure of certain results of (i) an updated independent evaluation of the Company’s bitumen reserves and resources from the Grand Rapids formation within the Company’s Hoole oil sands property as of December 31, 2015 by McDaniel & Associates Consultants Ltd. ("McDaniel") (ii) an independent evaluation of the Company's Saleski and

• ther carbonate bitumen assets as of October 31, 2011 by McDaniel (collectively, the “McDaniel Evaluations”).

“Proved reserves” are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves. “Probable reserves” are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves. "Contingent resources" are those quantities of bitumen resources estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but are classified as a resource rather than a reserve due to one or more contingencies, such as the absence of regulatory applications, detailed design estimates or near term development plans. There is no certainty that it will be commercially viable to produce any portion of the contingent resources. For Cavalier, contingencies which must be overcome to enable the reclassification of bitumen contingent resources as reserves include finalization of plans for the development of the Hoole oil sands properties, submission

• f a regulatory application, and intent to proceed by the Company evidenced by a development plan with major capital expenditures. "Economic contingent resources" are those contingent

bitumen resources that are currently economically recoverable based on specific forecasts of commodity prices and costs. There is no certainty that it will be commercially viable to produce any portion of the economic contingent resources. “Contingent Resources (Technology Under Development)” are those quantities of bitumen estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but are classified as a resource rather than a reserve due to one or more contingencies, such as the absence of regulatory approvals, detailed design estimates or near term development plans. There is no certainty that it will be commercially viable to produce any portion of the Contingent Resources. For the Saleski property and the Other Carbonate Leases, because of the lack of demonstrated commercial SAGD production within carbonate reservoirs, the recoverable resources assigned are contingent upon successful application of SAGD to the subject reservoir or a reasonable analog. The successful implementation of SAGD technology in carbonate reservoirs is a significant contingency associated with these assignments that separate them from typical McMurray clastic SAGD contingent and prospective resources, where the technology has been proven

• effective. In addition to the technical contingency, additional contingencies applicable to the carbonate resources include being in the early evaluation stage, the economic viability of

development and the absence of regulatory approvals. The economic status of these resources are undetermined. "Best estimate" is considered to be the best estimate of the quantity of resources that will actually be recovered. It is equally likely that the actual remaining quantities recovered will be greater or less than the best estimate. Those resources that fall within the best estimate have a 50 percent confidence level that the actual quantities recovered will equal or exceed the

• estimate. "Low estimate" is considered to be a conservative estimate of the quantity of resources that will actually be recovered. It is likely that the actual remaining quantities recovered will

exceed the low estimate. Those resources at the low end of the estimate range have the highest degree of certainty – a 90 percent confidence level – that the actual quantities recovered will equal or exceed the estimate. "High estimate" is considered to be an optimistic estimate of the quantity of resources that will actually be recovered. It is unlikely that the actual remaining quantities of resources recovered will meet or exceed the high estimate. Those resources at the high end of the estimate range have a lower degree of certainty – a 10 percent confidence level – that the actual quantities recovered will equal or exceed the estimate. The volume of economic contingent resources disclosed represents the Company’s share of recoverable volumes before the deduction of royalties.

Forward Looking Statements Advisory

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Oil and Gas Measures and Definitions (cont’d): “Discovered Exploitable Bitumen In Place” or “DEBIP” is the estimated volume of bitumen, as of a given date, which is contained in a subsurface stratigraphic interval of a known accumulation that meets or exceeds certain reservoir characteristics, such as minimum continuous net pay, porosity and mass bitumen content. For the Hoole oil sands property, the presence of these characteristics is considered necessary for the commercial application of known recovery technologies. For the Saleski property and the Other Carbonate Leases, these volumes have been constrained to areas that have a minimum thickness of 10 meters of substantially clean, continuous predominantly bitumen-saturated carbonate with log porosity meeting a minimum of 10 percent and bitumen saturation greater than 50 percent, respectively and with both competent top and lateral reservoir containment. These carbonate bitumen resources are constrained to one mile in area around known data points that penetrate the zone and possess definitive geophysical log data. Discovered Exploitable Bitumen in Place for the Saleski property and the Other Carbonate Leases may be assigned outside of the one mile area if reservoir continuity between offsetting delineation is expected. The technology required to economically produce bitumen from carbonate formations is currently in the development stage and has not been proven on a commercial scale. There is no certainty that it will be commercially viable to produce any portion of the resources from the Hoole oil sands property, the Saleski property or the Other Carbonate Leases. “Undiscovered Exploitable Bitumen In Place” or “UEBIP” is the volume of petroleum estimated, as of a given date, to be contained in accumulations yet to be discovered. These resources are mapped using known data points penetrating the zone and possess definitive geophysical log data along with seismic data and regional mapping. There is no certainty that any portion

• f the resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the resources.

This presentation contains disclosure of certain results of an independent evaluation of discovered bitumen in place (“DBIP”) and undiscovered bitumen in place (“UDBIP”) prepared by McDaniel dated July 20, 2010 for the Eagles Nest area of Northern Alberta. McDaniel prepared a report that provides estimates for volumes of DBIIP and UDBIP for the assets in the Eagle’s Nest area (the “Report”). As a result of this assessment, McDaniel has estimated the DBIP and UDBIP resource to be about 0.4 million barrels and 1.6 million barrels, respectively. The Report, effective April 30, 2010, was prepared in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (“NI 51-101”) and the Canadian Oil and Gas Evaluation Handbook as published by the Society of Petroleum Evaluation Engineers (Calgary Chapter) and the Petroleum Society of Canada (the “COGE Handbook”). There is no certainty that the Company’s assets located at Eagle’s Nest will produce any portion of the volumes currently classified as “discovered resources” or “undiscovered resources”. The primary contingencies which currently prevent the classification of the discovered or undiscovered resources disclosed above as reserves consist of: current uncertainties around the specific scope and timing of the development of the Eagle’s Nest assets; uncertainty regarding the presence, extent or quality of cap rock; lack of regulatory approvals for such projects; the uncertainty regarding marketing plans for production from the subject areas; improved estimation of project costs; commodity price fluctuations, timing, costs estimates and final approval of the Board

• f Directors. The term “Discovered Bitumen in Place” (equivalent to discovered resources) is that quantity of petroleum that is estimated, as of a given date, to be contained in known

accumulations prior to production. The recoverable portion

• f

discovered bitumen in place includes production, reserves, and contingent resources; the remainder is

• unrecoverable. “Undiscovered Bitumen in Place” (equivalent to undiscovered resources) is that quantity of bitumen that is estimated, as of a given date, to be contained in accumulations

yet to be discovered. The definition is taken from the COGE Handbook. DBIP is currently the most specific resource category assignable to the Eagle’s Nest assets. McDaniel was unable to classify the discovered resources into one of the subcategories because development projects could not be defined for the discovered resource volumes at this time. It is yet to be determined what recovery process will be applied in Eagle’s Nest due to current uncertainty of cap rock integrity. There is no certainty that it will be commercially viable to produce any portion of those discovered resources. Discovered resources do not constitute, and should not be confused with, reserves.

Forward Looking Statements Advisory

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