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I n v e s t o r P r e s e n t a t i o n
July 2012
1
Forward Looking Statements
In the interest of providing potential investors with information regarding Shona Energy Company, Inc. (“Shona"), including management's assessment of the future plans and operations of Shona, certainstatements contained in this corporate presentation constitute forward-looking statements or information (collectively "forward-looking statements") within the meaning of applicable securities legislation.
Forward-looking statements are typically identified by words such as"anticipate" "continue" "estimate" "expect" "forecast" "may" "will" "project" "could" "plan" "intend" "should" "believe" "outlook" "potential" "target" and similar words suggesting future events or futureanticipate , continue , estimate , expect , forecast , may , will , project , could , plan , intend , should , believe , outlook , potential , target and similar words suggesting future events or futureperformance. In addition, statements relating to "reserves" are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that thereserves described exist in the quantities predicted or estimated and can be profitably produced in the future. Forward looking statements or information in this presentation include, but are not limitedto, statements or information with respect to: the expected closing date and use of proceeds from the financing; potential reserves and future production with respect to current assets business strategy andobjectives; development plans; exploration and drilling plans; reserve quantities and the discounted present value of future net cash flows from such reserves; future production levels; wells drilled (gross andnet); capital expenditures; cash flow; debt levels; operating and other costs; royalty rates and taxes.
With respect to forward-looking statements contained in this corporate presentation, Shona has made assumptions regarding, among other things: future capital expenditure levels; future oil and natural gasprices; future oil and natural gas production levels; future exchange rates and interest rates; ability to obtain equipment in a timely manner to carry out development activities; ability to market oil and natural
f ll t t d t th i t f i i titi th bilit t bt i fi i t bl t d bilit t dd d ti d th h d l t dgas successfully to current and new customers; the impact of increasing competition; the ability to obtain financing on acceptable terms; and ability to add production and reserves through development andexploitation activities. Although Shona believes that the expectations reflected in the forward looking statements contained in this corporate presentation, and the assumptions on which such forward-lookingstatements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking statements included inthis corporate presentation, as there can be no assurance that the plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-lookingstatements involve numerous assumptions, known and unknown risks and uncertainties that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements willnot occur, which may cause Shona's actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied bysuch forward-looking statements. These risks and uncertainties include, among other things, the ability of management to execute its business plan; general economic and business conditions; the risk ofinstability affecting the jurisdictions in which Shona operates; the risks of the oil and natural gas industry, such as operational risks in exploring for, developing and producing crude oil and natural gas andmarket demand; the possibility that government policies or laws may change or governmental approvals may be delayed or withheld; risks and uncertainties involving geology of oil and natural gas deposits;the uncertainty of reserves estimates and reserves life; the ability of Shona to add production and reserves through acquisition development and exploration activities; Shona's ability to enter into or renewthe uncertainty of reserves estimates and reserves life; the ability of Shona to add production and reserves through acquisition, development and exploration activities; Shona s ability to enter into or renewleases; potential delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of estimates and projections relating to production (including declinerates), costs and expenses; fluctuations in oil and natural gas prices, foreign currency exchange rates and interest rates; risks inherent in Shona's marketing operations, including credit risk; uncertainty inamounts and timing of royalty payments; health, safety and environmental risks; risks associated with existing and potential future law suits and regulatory actions against Shona; uncertainties as to theavailability and cost of financing; and financial risks affecting the value of Shona’s investments. Readers are cautioned that the foregoing list is not exhaustive of all possible risks and uncertainties.
Any financial outlook or future oriented financial information in this corporate presentation, as defined by applicable securities legislation, has been approved by management of Shona. Such financial outlookor future oriented financial information is provided for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that reliance onsuch information may not be appropriate for other purposes.
The forward-looking statements contained in this corporate presentation speak only as of the date of this corporate presentation. Except as expressly required by applicable securities laws, Shona does notundertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in thiscorporate presentation are expressly qualified by this cautionary statement.
The information contained in this corporate presentation does not purport to be all-inclusive or to contain all information that a prospective investor may require. Prospective investors are encouraged toconduct their own analysis and reviews of Shona, and of the information contained in this corporate presentation. Without limitation, prospective investors should consider the advice of theirfinancial, legal, accounting, tax and other advisors and such other factors they consider appropriate in investigating and analyzing Shona.
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Forward Looking Statements
For the purposes of the following, “Misrepresentation” means an untrue statement of a material fact, or an omission to state a material fact that is required to be stated, or that is necessary to make astatement not misleading in light of the circumstances in which it was made. If this presentation contains a Misrepresentation, a purchaser in Ontario who purchases securities of Shona has, without regardto whether the purchaser relied on the Misrepresentation, a statutory right of action for rescission or, alternatively, for damages against Shona, provided that no action shall be commenced to enforce a rightof action more than (a) in the case of an action for rescission, 180 days after the date of the transaction that gave rise to the cause of action; or (b) in the case of any action, other than an action forrescission, the earlier of (i) 180 days after the purchaser first had knowledge of the facts giving rise to the cause of action, or (ii) three years after the date of the transaction that gave rise to the cause ofactionaction.
Shona will not be liable if it proves that the purchaser purchased the securities with knowledge of the Misrepresentation. In an action for damages, Shona will not be liable for all or any portion of thosedamages that it proves do not represent the depreciation in value of the securities as a result of the Misrepresentation. In no case will the amount recoverable exceed the price at which the securities weresold to the purchaser. Investors should refer to the applicable provisions of the securities legislation of their respective provinces or territories for the particulars of these rights or consult with a legal advisor.Forecast capital expenditures are based on Shona’s current budgets and development plans which are subject to change based on commodity prices, market conditions, drilling success, potential timingdelays and access to cash, cash flow, available credit and third party participation. Shona’s capital budget has been prepared based upon anticipated costs for equipment and services which are subject tofluctuation based upon market conditions, availability and potential changes or delays in capital expenditures.
Additionally, forecast capital expenditures do not include capital required to pursue future acquisitions. Anticipated production growth has been estimated based on (i) the proposed drilling program with asuccess rate based upon historical drilling success and an evaluation of the particular wells to be drilled and has been risked, and (ii) current production and anticipated decline rates. Although the forward-looking information contained herein is based upon assumptions which Management believes to be reasonable, Shona cannot assure investors that actual results will be consistent with this forward-lookinginformation.
“Best Estimate” is considered to be the best estimate of the quantity that will actually be recovered. It is equally likely that the actual remaining quantities recovered will be greater or less than the bestestimate. If probabilistic methods are used, there should be at least a 50 Percent probability (P50) that the quantities actually recovered will equal or exceed the best estimate.“High Estimate” is considered to be an optimistic estimate of the quantity that will actually be recovered. It is unlikely that the actual remaining quantities recovered will exceed the high estimate. Ifprobabilistic methods are used there should be at least a 10 percent probability (P10) that the quantities actually recovered will equal or exceed the high estimateprobabilistic methods are used, there should be at least a 10 percent probability (P10) that the quantities actually recovered will equal or exceed the high estimate.“Low Estimate” is considered to be a conservative estimate of the quantity that will actually be recovered. It is likely that the actual remaining quantities recovered will exceed the low estimate. If probabilisticmethods are used, there should be at least a 90 percent probability (P90) that the quantities actually recovered will equal or exceed the low estimate.“Mean Estimate” is the statistical mean resource value for each exploration prospect. The statistical mean is dependent on the estimated probabilistic distribution of recoverable resources and is not thesame as the “best estimate” or P50 resource volume. These values can be arithmetically summed to obtain a total mean estimate for a group of prospects.“Management Estimates” means the evaluation conducted by qualified reserves evaluators of the Shona technical team, effective 01 January 2012.“Prospective Resources” are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects.Prospective resources have both an associated chance of discovery and a chance of development. Prospective Resources are further subdivided in accordance with the level of certainty associated withrecoverable estimates assuming their discovery and development and may be subclassified based on project maturity. Unless otherwise indicated herein, the Prospective Resources set out in thispresentation are unrisked, meaning that they are not risked for chance of development or chance of discovery.Estimates of unrisked Prospective Resources are pursuant to Management Estimates. There is no certainty that any portion of the resources will be discovered. If discovered, there is no certainty that it willbe commercially viable to produce any portion of the resources. If a discovery is made, there is no certainty that it will be developed or, if it is developed, there is no certainty as to the timing of suchdevelopment.
Barrels of Oil EquivalentBarrels of oil equivalent (boe) is calculated using the conversion factor of 6 Mcf (thousand cubic feet) of natural gas being equivalent to one barrel of oil. Boes may be misleading, particularly if used inisolation. A boe conversion ratio of 6 Mcf:1 bbl (barrel) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at thewellheadwellhead.Analogous InformationCertain noted drilling and completion data provided in this document may constitute "analogous information", such as mapping information obtained in geographical proximity to prospective exploratory landsto be held by Shona. Such information has been obtained from government sources, regulatory agencies or other industry participants. Management of Shona believes the information is relevant as it helpsto define the reservoir characteristics in which Shona may hold an interest. Shona is unable to confirm that the analogous information was prepared by a qualified reserves evaluator or auditor or inaccordance with the COGE Handbook and therefore, the reader is cautioned that the data relied upon by Shona may be in error and/or may not be analogous to such lands to be held by Shona.
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Corporate History & Overview
• Shona Energy Company, Inc. (“Shona”) – based in Houston, founded in January 2005, focused on oil & gas exploration and development in Colombia and Peru
Esperanza development and exploration block in Colombia with production, reserves and resource potential to support expanded gas marketing efforts in Colombia
3 exploration blocks in Colombia located in the country’s prolific heavy oil belt
1 exploration block in Peru located in the prolific Maranon Basin
• Shona is a registered British Columbia company listed on the TSX Venture Exchange under the symbol “SHO” and on the OTCQX International under the symbol “SHOAF”
• We have an experienced management team that has produced significant shareholder value throughout their careers d i d d t B d f Di t ith i t t di tl li d ith h h ldand an independent Board of Directors with interests directly aligned with shareholders
• Our shareholder base is reasonably concentrated with several large shareholders
J 1 2012 N t R * EBITDAJanuary 1, 2012 Net Reserves*P1 64 BCF
P2 31 BCF
P3 78 BCF
Total 173 BCF
EBITDA2011 ($10.8 million)
2012 (proj.) $16 million
Total 173 BCF
*Per Collarini Associates January 01, 2012 Reserves Report4
Capitalization Structure & Financial Highlights
Common Shares 232,675,283
Preferred Shares 190,796
Warrants 40,145,993
Stock Options 7,880,000
As of June 01, 2012:
Share Price (CAD) $0.31
52 Week Range (CAD) $0.20 - $0.75
Market Capitalization (CAD) $72.1 million
Cash at March 31 2012 (USD) $16 9 millionCash at March 31, 2012 (USD) $16.9 million
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Value Creation & Growth Strategy
Esperanza Block – ColombiaExisting firm gas sales of 14 mmcfd going to 15.5 mmcfd on January 01, 2014Expanded marketing opportunities under evaluation supported by reserves and resource baseExpanded marketing opportunities under evaluation supported by reserves and resource base
− Additional 30 mmcfd available from existing wells, development and low-risk exploration projects− Supplementary reserves and deliverability from prospects identified in 3-D seismic programs
Strategic Financial PlanningPrudent and conservative expenditure programCommon stock buyback programPotential restructuring of debt
Serrania Los Picachos and Macaya Blocks ColombiaSerrania, Los Picachos and Macaya Blocks – ColombiaFault trap look-alike prospect to offsetting Capella Field (2.2 billion barrels OOIP)Very large, four-way closureAnticipated drilling in 2013
Block 102 – PeruFocus exploration activity on trends having larger reserve potential
Corporate DevelopmentMerger and acquisitionsNew projects
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Overview of Assets
VENEZUELA
Esperanza Block
Esperanza Block
PROPERTY OPERATOR SHONA W.I.
GROSS ACRES
NET ACRES COLOMBIA
VENEZUELA
Serrania Block
Serrania Block
L Pi hL Pi hEsperanza Block
(Colombia)Shona
(Geoproduction) 100% 60,002 60,002
Serrania Block(Colombia) Hupecol 37.5% 110,769 41,538
PERU
ECUADORECUADOR
Los Picachos Block
Los Picachos Block
Macaya Block
Macaya Block
Los Picachos Block(Colombia) Hupecol 37.5% 52,771 19,789
Macaya Block(Colombia) Hupecol 37.5% 195,254 73,220
Block 102 %
PERU
BRAZILBlock 102Block 102
Block 102(Peru) Pluspetrol 36.5% 313,023 114,253
TOTAL 731,819 308,803
BOLIVIA
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Esperanza Block - Overview
Proven exploration concept with 3D seismic and AVO anomalies
January 1, 2012 Net Reserves*P1 64 BCF
P2 31 BCFP2 31 BCF
P3 78 BCF
Total 173 BCF
Potential 100 BCF (unrisked) on existing prospects that have AVO anomalies
Currently evaluating five areas identified y gin the 2012 seismic program which have AVO anomalies
Will make a gas marketing decision inWill make a gas marketing decision in Q3 2012 based on updated reserve potential
*Gross reserves as per Collarini Associates NI 51-101 compliant reserves report effective January 1, 20128
Esperanza Block – Time Structure Map
3D seismic indicates that the Nelson structure has an aerial extent of 1 600Kite or Palmer Extension aerial extent of 1,600 acres
Three wells capable of 25 MMCFPD for five years
Kite or Palmer Extension(7 BCF)**
Nelson-4Development Well
Nelson-5Development Well
y
Five wells should allow for full field development of 40 MMCFPD, depending
dditi l
Nelson-2Discovery Well
Nelson-3Confirmation Well
on additional gas sales contracting
Palmer prospects show similar seismic characteristics asAVO Outline
Palmer Prospect(30 BCF)**
Nelson Field
Nelson-1Development Well
characteristics as Nelson field
Nelson Field(163 BCF)*
*Gross reserves as per Collarini Associates NI 51-101 compliant reserves report effective January 1, 2012**Management estimates based upon area of AVO (seismic ) anomaly
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Esperanza Block – Technical Details
Nelson-2 Seismic, Log, and Pressure Plot
Nelson-2 Discovery well • Tested 8 5 MMCFPD from two upper intervals (48 ft of pay) 36/64” choke FTP 2 520 psi• Tested 8.5 MMCFPD from two upper intervals (48 ft. of pay), 36/64 choke, FTP 2,520 psi• Calculated potential flow (“CAOF”) of 77 MMCFPD• 135’ net pay in 470’ gas column• 22-26% porosity, 600-700 millidarcies• Confirmed 3D seismic Type III gas AVO and flat spot, confirmed height of the gas column
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Esperanza Block – Reserve Potential(Post 2012 Seismic Program)
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Esperanza Block – Infrastructure & Marketing Alternatives
Project Potential Sales TimelineProject Increase Timeline
Additional Sales to Current Customers 5 mmcfd 2012
Micro LNG Plant 17 mmcfd 18-24 thmonths
Proposed Promigas Pipeline Loop 20 mmcfd 18-24
months
Co-Gen or Power Generation 26 mmcfd 18-24
monthsGeneration months
End-User Pipeline TBD 18-24 months
Export ?? 18-24 months
Large End-Users ?? 18-24 months
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Esperanza Block – Monetization
RESERVES, BCF ECONOMIC IMPACTPROJECTE i ti C t t
Producing Fields
70 BCF
Existing Contracts14 mmcfd (52 BCF)
Add’l Contracts5 mmcfd (18 BCF)
$16 MM/year CF
$6 MM/year CF
Producing Fields
120 BCF or 30 mmcfd
Micro LNG Plant (17 mmcfd)and/or
Pipeline Loop (20 mmcfd)and/or
End-User Pipeline (TBD mmcfd)
$32 MM/year CF
Prospect InventoryPalmer
N. Tablon-11Others
Co-Gen (26 mmcfd)and/or
Power Plant (TBD mmcfd)and/or
Export (?? mmcfd)and/or
$22 MM/year CF
100 BCF or 20 mmcfd
2012 Seismic Program
and/orLarge End-User (?? mmcfd)
TBD TBD(TBD) BCF
*Assumes future gas sales at $5.00/mcf and 10 year contracts13
Esperanza Block – Growth Profile
100
Cumulative Capital Expenses
30405060708090
$MM
USD 14mmcfd
5mmcfd
30 fd
0102030 30mmcfd
20mmcfd
A f t l t800.0
1000.0
D
Cumulative Cash Flow*
Assumes future gas sales at $5.00/mcf and 10 year contracts
0.0
200.0
400.0
600.0
MM
$U
SD 14mmcfd
5mmcfd
30mmcfd
20mmcfd
TBD
*After Tax, Before Financing and Capital14
Prolific Andean Foreland Basin
Shona’s oil prospects are located within the Andean Foreland Basin – a region of significant oil discovery
COLOMBIA
VENEZUELA
SerraniaSerrania− Efficient oil generation and migration
systems− Excellent quality reservoirs
L li f t t t il
COLOMBIASerrania,Los
Picachos, & Macaya Blocks
Serrania,Los
Picachos, & Macaya Blocks
Putumayo Basin
Putumayo Basin
Llanos BasinLlanos Basin
− Low relief structures trap oil− Over 3 billion barrels of recoverable oil
have been found in these basins− All these basins continue to be
ECUADORECUADOR
Oriente BasinOriente Basin
BasinBasin
− All these basins continue to be actively explored
PERUBRAZIL
Maranon Basin
Maranon Basin
Existing Oilfields
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Southern Colombian Heavy Oil Belt
Macaya Macaya
LlanosBasin
Serrania Block
Serrania Block
Heavy Oil Belt
Heavy Oil Belt
Los PicachosLos Picachos
BlockBlockRubiales FieldRubiales Field
Los Picachos Block
Los Picachos Block
Caguan Basin
Orito Field > 230 MMBO
Orito Field > 230 MMBO Capella Field Capella Field > 230 MMBO
produced> 230 MMBO
produced 2.2 BBO OOIP2.2 BBO OOIP
Exploration BlocksProduction AreaSerrania BlockHeavy Oil Belt
Putumayo Basin
Natural Reserves
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Caguan Basin Assets – OverviewSerrania, Los Picachos & Macaya Blocks
• Working Interests: Shona 37.5%, Hupecol (Operator) 50.0%, Houston American Energy 12.5%
• Large acreage position on trend with Capella Field
358,794 gross acres
134,547 net acres
• Serrania Licensed in 2008 and Los Picachos and MacayaSerrania Licensed in 2008 and Los Picachos and Macaya Licensed in 2011: 6 years exploration, 24 years production
8% royalty up to 5,000 BOPD up to 20% at 125,000 BOPD
• Application pending for suspension of License terms due to security concerns
• Exploratory well planned 2013
• Significant potential
In management’s opinion acreage contains one of largestIn management s opinion, acreage contains one of largest undrilled 4-way closure structures in northern South America with 150 MMBO potential
Serrania targets Mirador formation; production potential should be similar to the Capella Field which has potential recoverable reserves of 200 MMBLS of 10°- 12°API oil
Two fault trap prospects with 50 MMBO potential (each) on Serrania and Los Picachos Blocks
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Caguan Basin Assets – SeismicSerrania Fault Trap Prospect
Line Y-1973-08 Line S-2009-08
Capella Field Serrania Fault Trap Prospect
Mirador SS
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Caguan Basin Assets – SeismicSerrania Four-Way Closure Prospect
Line S-2009-02
Serrania Four-way Closure Prospect
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Caguan Basin Assets - Summary
If Successful, It Has Major Upside PotentialIn management’s opinion, more than 250 MMBO gross recoverable potential
Additional 300,000 gross acres with significant upside
Low royalty with no X-factor
Low “Ante”Approximately $5MM total (net to Shona) for two exploration wells
Synergy with Capella Field DevelopmentLarger reserve base helps justify construction of a pipeline to the area
Reduced CapEx and OpEx through sharing of service companies
Major Value Creator for ShonaSignificant long-life reserves
Constant cash flow
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Prolific Andean Foreland Basin
Shona’s oil prospects are located within the Andean Foreland Basin – a region of significant oil discovery
COLOMBIA
VENEZUELA
− Efficient oil generation and migration systems
− Excellent quality reservoirsL li f t t t il
COLOMBIA
Putumayo Basin
Putumayo Basin
Llanos BasinLlanos Basin
− Low relief structures trap oil− Over 3 billion barrels of recoverable oil
have been found in these basins− All these basins continue to be
ECUADORECUADOR
Block 102Block 102
Oriente BasinOriente Basin
BasinBasin
− All these basins continue to be actively explored
PERUBRAZIL
Maranon Basin
Maranon Basin
Block 102Block 102
Existing Oilfields
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Block 102 - Overview and Targets
Working Interests: Shona 36.5%, Pluspetrol g , p(Operator) 51%, Andean Oil & Gas 12.5%
Located in prolific Peruvian Maranon Basin313,023 gross acres114 253 net acres114,253 net acres
Licensed in 2006: 7 year exploration term and 30 year oil production term
Royalties:0 to 5,000 BOPD 5%5,001 to 100,000 BOPD 5-20%
Entered into the fourth exploration period to conduct a 3-D seismic program in the Capahuari and Macusari trends
Future explorationFuture explorationFocus activity on Capahuari and Macusaritrends with higher reserve potential
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Shona Energy Company Summary of Current Situation
Producing gas asset in Colombian Lower Magdalena BasinOpEx is low and will decrease dramatically on a unit basis with any new production
Solid 7-10 year contracts for 14 mmcfd increasing to 15.5 mmcfd in two years
Initiating aggressive gas marketing solution by the end of July
Three blocks with oil potential in the Colombian Caguan Basin Minimal capital requirements to get to development phases
If successful, development capital should be easily financed
One block with oil potential in the Peruvian Maranon BasinExploration focus on geological trends with larger reserve potential
Synergy with offsetting block having large infrastructure and oil pipeline
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Why Invest?
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Why Invest?
Value CreationValue Creation
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Why Invest?
Value Creation Through Exploration
D t t d t EDemonstrated success at Esperanza
Significant exploration potential following 2012 3-D seismic on Esperanza
Exposure to a potential major oil discovery at minimal capital cost
Maranon Basin in Peru provides modest to large reserve potential
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Why Invest?
Value Creation Through Exploration
D t t d t EDemonstrated success at Esperanza
Significant exploration potential following 2012 3-D seismic on Esperanza
Exposure to a potential major oil discovery at minimal capital cost
Maranon Basin in Peru provides modest to large reserve potential
Value Creation Through Marketing
Current asset base capable of supporting 3x production levels with minimum capital investment
Current asset base and prospect inventory capable of supporting 5x production levels with additional capital investment
2012 seismic survey can provide possible upside
Capital used for increased gas sales are high ROR projects
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Why Invest?
Value Creation Through Exploration
D t t d t EDemonstrated success at Esperanza
Significant exploration potential following 2012 3-D seismic on Esperanza
Exposure to a potential major oil discovery at minimal capital cost
Maranon Basin in Peru provides modest to large reserve potential
Value Creation Through Marketing
Current asset base capable of supporting 3x production levels with minimum capital investment
Current asset base and prospect inventory capable of supporting 5x production levels with additional capital investment
2012 seismic survey can provide possible upside
Capital used for increased gas sales are high ROR projects
Value Creation Through Investment
Consolidation of South American E&P companies
With existing Cash Flow and Balance Sheet, able to do smaller M&A activity and/or new projects
Reduce equity base through Corporate Buyback of Stock
Potential for restructuring debtPotential for restructuring debt
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Questions?
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