Investor Presentation September 2019 6-35 pad completion, Gold - - PowerPoint PPT Presentation

6-35 pad completion, Gold Creek, June 2019

Investor Presentation

September 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 BUSINESS AND 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

• perations, 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
• pening 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
• ffice
• 10 Full time employees in various field
• ffices

4

DEEP BASIN

MONTNEY

53,000 acres 62,000 acres 237,000 acres 397,000 acres

FLATROCK POUCE COUPE GOLD CREEK 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 TOTAL OOIP (BnBBLS) 5.9 2.6 2.5 1.9 2.5 15.4 Inventory Locations (#) 634 402 138 238 229 1641 Oil EUR/well (mmbls) 350 350 711 350 350 380 Recoverable Oil (MMbbls) 222 141 98 83 80 624 Recovery Factor (%) 3.8% 5.4% 3.9% 4.4% 3.2% 4.1% Booked 2P Locations (#) 146 9 23 37 215 % 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-14 Dec-14 May-15 Oct-15 Mar-16 Aug-16 Jan-17 Jun-17 Nov-17 Apr-18 Sep-18 Feb-19 Jul-19 Corporate Production (BOED)

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

CROCI(%) 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 marginal cost of production Hedging program sustained returns Converting Gold Creek land into PDP Discovered liquids-rich Ellerslie First oil at Gold Creek 2012 2013 2014 2015 2016 2018 2019E 2017

7

2020E

DIFFERENTIATED BY PROACTIVELY ASSURING ACCESS TO MARKET FOR OUR PRODUCTS

8

N.A. Gas Demand Centre

VEL 5-year synthietic pipe 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 GoM US$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
• ptimize 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 Integrated Mid Cap Small 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/d Successful 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 RISK MANAGEMENT

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 Richness

Pouce Coupe Montney Gold Creek Montney Flat Rock Montney

5.9 BnBbl 1.9 2.5

FLATROCK POUCE COUPE KARR SIMONETTE GOLD CREEK

MONTNEY 352,000 acres

Organic Growth at Velvet = taking high quality prospects from identification to exploitation

2.6

LSW Montney

13

2.5

Karr/Simonette Montney

VELVET’S OIL WINDOW ACREAGE & MONTNEY INVENTORY

14

FLATROCK 53,000 ac POUCE COUPE 62,000 ac GOLD CREEK 187,000 ac KARR/SIMONETTE 50,000 ac

Velvet Montney Oil Position: 352,000 acres

Montney Prospect Zone Inventory

Gold Creek D23 634 LSW 402 Karr/Simonette D3 138 Pouce Coupe D1a 238 Flatrock D1a 229

Total 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 LXE KEL BIR VII NVA

COMPLETIONS EVOLUTION

15 15

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

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

Calendar Day Production (BOE/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

100 200 300 400 500 600 700 800 900 1 2 3 4 5 6 7 8 9 10 11

Sales Oil Production (bbl/d) Producing Months

Phase 4 - Producing Day Oil Rates

TYPE CURVE Average (7 Wells)

GOLD CREEK– OIL PRODUCTION PHASE 4 WELLS

18

20000 40000 60000 80000 100000 120000 140000 160000 180000 200000 30 60 90 120 150 180 210 240 270

Cumulative Oil (bbls) Producing Days

Phase 4 - Producing Day Cumulative Oil

TYPE CURVE AVERAGE (7 Wells)

NEW 2019 GOLD CREEK WELLS – OIL PRODUCTION TO-DATE

19

100 200 300 400 500 600 700 800 10 20 30 40 50 60 70 80

Oil Production (bbl/d) Days on Production TYPE AVERAGE

New 06-35 and 04-01 Pad Wells

TYPE CURVE ECONOMICS

IRR vs. Price Sensitivities2 EUR, IRR and Payout1,2

1: Economics assume $55 USD WTI and $6.25 USD MSW differential 2: 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 EUR Sales Gas (mmcf/d ; bcf) 1.6 1.61 Oil (bbl/d ; mbbl) 500 312 C3+ (bbl/mmcf ; mboe) 38 61 Total (boe/d ; mboe) 818 641 % Oil 61% 49% Metrics DCET Cost $mm 7.3 Payout yrs 1.4 RoR % 75 NPV10 $mm 4.8 F&D $ per boe 11.40

20

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 Production (boe/d) Month Total 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 PINE CREEK MCLEOD

VEL OWNED PLANTS VEL OWNED COMPRESSORS

EDSON PLANT GROUP

FINANCIAL & OPERATING RESULTS

• 8-year production CAGR of 26%, notably crude
• il 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

mboe

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 Annual EBITDA ($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

3.38x 3.10x 1.13x 2.41x 2.33x 2.66x 3.49x 3.18x 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 Total Debt / EBITDA (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 presentation includes 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, funds from operations, operating netbacks, working capital and cash on cash returns; anticipated sustaining capital requirements; Velvet's tax pools and future taxability; future production and the expected 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; drilling inventory and opportunities; expected drilling and completion costs; infrastructure and transportation plans; Velvet’s planned capital expenditure program and the nature of the expenditures;

• perating and transportation costs; forecasted commodity prices and factors affecting natural gas prices; management’s assessment of future potential and expectations with respect to natural

gas 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 current estimates 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 not necessarily 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 of general 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; dependence upon 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 if any 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 an

• utlook 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 a

number of assumptions including the assumptions discussed above and assumptions with respect to drilling and operating costs, capital expenditures, production levels, commodity prices, rates of return, 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 the FOFI 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 objectively

• determinable. 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. Velvet

and 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 and

• pinion. 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 future

results. 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 any forward-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 with the 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 internally estimated 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 such volumes 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 of reserves 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 of aggregation. 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 (6 mcf: 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 the

• wellhead. 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 6:1

basis 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 the reservoir 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 held

• r 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 presented
• herein. 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's reserves report for drilling locations that have associated proved and/or probable reserves, as applicable. Unbooked locations are internal estimates based on prospective acreage and an assumption 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 if drilled 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 analogous developments located in close proximity thereto. Such type curves and well economics are useful in understanding management's assumptions of well performance in making investment decisions in 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 of the 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 other purposes. 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 accompanied by 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 be

• discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion thereof.