petrocapita 2015 annual investor update

Annual Update 2015

PETROCAPITA ANNUAL UPDATE 2015

Petrocapita was established in January 2010 and is part of a group of alternative funds with over $300 Million in assets under management operating in farmland, private equity, non-bank lending and energy.

Since inception, we have had success at raising and deploying approximately $38 Million in capital at attractive valuation metrics. We have secured a signifi cant asset base and have acquired and constructed infrastructure processing facilities separately valued at $50.3 million (refer to Reserves and Midstream Assets Valuation, below). We have a high quality operating team adept at managing in all cost and price environments and remain fi nancially well positioned with no bank debt and assets generating positive netbacks even at the current historically low product prices.

2015 was a challenging year for the energy industry. Oil prices began a serious decline in Q3 2014 and continued to do so throughout 2015.

In response to these lower prices, management began the process of consolidating its ownership of the oil and gas properties of Petrocapita and building out the infrastructure necessary to operate profi tably in a lower oil price environment. Fixed fi eld costs were reduced with staffi ng reductions and variable fi eld costs were also reduced through measures which included the purchase of fl uid hauling equipment which resulted in an approximate 30% drop in fl uid transportation costs. In 2015 Petrocapita acquired 64 gross (42.4 net) wells and undeveloped land with either a minimal cash outlay or vendor take-back fi nancing on favorable terms. Additionally, Petrocapita continued the acquisition and construction of infrastructure facilities begun in 2013 by adding additional produced water disposal facilities and taking over full ownership of an oil cleaning and blending facility in which it previously held a minority interest. The addition of these transportation, oil treating and disposal assets continue to assist in reducing Petrocapita’s fi eld operating costs. In addition, beyond Petrocapita’s own hauling, treating and disposal volumes there is still substantial surplus capacity to allow for the

OVERVIEW AND UPDATE

generation of revenue from the transport, treating and disposal of third party fl uids.

The focus on infrastructure development for Petrocapita began in 2013 and continued in both 2014 and 2015. We intend to continue to build out a diversifi ed portfolio of infrastructure/mid-stream assets, primarily by way of acquisition at the current highly attractive prices. We continue to believe that the integration of such assets together with a core base of production will result in increasing profi tability, which is particularly benefi cial in a low price environment.

In the medium term we remain convinced that the cost of the marginal barrel of production must set the price curve for the entire production base and that this combined with a shortage of investment capital for drilling, capital expenditures reduction in excess of 60%, and a global decline rate in excess of 5% will drive a return to higher energy prices and better profi tability for western Canadian energy producers in the medium term.

Therefore, our approach at Petrocapita is unchanged. We remain fi nancially disciplined and free of bank debt to protect our balance sheet. We remain focused on accretive transactions as we continue to aggregate a portfolio of high quality, heavy oil midstream and production assets while also maintaining our focus on maximizing free cash fl ow moving forward.

Sincerely on behalf of the Petrocapita team:

Greg MarrTrustee

Alex LemmensTrustee

Richard MellisTrustee

This annual update contains forward-looking information within the meaning of applicable Canadian securities laws and readers are encouraged to refer to the detailed disclosure concerning forward-looking information under the heading “Forward-Looking Information” at the end of this document.


FINANCIAL HIGHLIGHTS

2015 2014

Financial ($000s)

Revenues 3,659.7 10,344.0

Operating Netback (1) 424.7 2,975.4

Distributions (including DRIP) 847.7 3,363.7

Acquisitions (4,100.6) -

CAPEX (1,224.5) (1,747.4)

Netback ($/bbl)

Heavy oil realised price 35.97 73.33

Water disposal sales 0.68 2.45

Royalties (2.66) (12.64)

Operating expenses (26.11) (35.85)

Transportation expenses (3.63) (5.49)

Operating netback 4.25 21.80

Benchmark Pricing

WTI (US$/bbl) 48.80 93.00

WCS(US$/bbl) 35.12 73.60

Heavy oil differential 28% 21%

Foreign exchange (US$/C$) 1.28 1.10

Share Information (000’s)

Preferred units 0.0 33,538.0

Common units 1,109,732.0 5,843.4

Total units 1,109,732.0 39,381.4

(1) Operating netback is calculated as revenues less expenses for royalties, production, transportation and disposal processing.

Important Note: In this Annual Update the term “netback” is used in various places. Netback is a metric commonly used in the oil and natural gas industry. It assists management in better analyzing profi tability of operations at the fi eld level.Petrocapita calculates netback as revenue less expenses for royalties, production, transportation and disposal processing. The term “netback” does 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.


RESERVES AND MIDSTREAM ASSETS VALUATION

Petrocapita’s principal properties are located in 10 fi elds in two regions in the Lloydminster area of operations: the Lloydminster fi eld in Alberta and nine fi elds in Saskatchewan. Its processing facilities include wellsite processing equipment at some 155 wells, 4 operating produced water disposal facilities (2 each in Alberta and Saskatchewan), 4 produced water and disposal facilities approved or in process of approval (1 in Alberta and 3 in Saskatchewan) and a central processing and disposal facility in Saskatchewan (“treater”).

2014 2015Total MSTB NPV 10% ($000) MSTB NPV 10% ($000)Total Proved 870 22,668 1,043 44,417 Probable Undeveloped 1,418 54,979 3,081 58,058Proved & Probable 2,288 77,647 4,124 102,475Midstream (1)

Total Proved 0 8,608 0 31,854Probable Undeveloped 0 28,470 0 18,458Proved & Probable 0 37,078 0 50,312Oil Reserves (2)

Total Proved 870 14,060 1,043 12,563Probable Undeveloped 1,418 26,590 3,081 39,600Proved & Probable 2,288 40,650 4,124 52,163

(1) Midstream / Processing – Company Gross as evaluated by Chapman Petroleum Engineering Ltd. (“Chapman”) as part of the annual independent third party valuation of reserves, resources and processing as at December 31, before tax and discounted at 10%. The estimated values do not necessarily represent fair market values and have been derived by Chapman utilizing various assumptions, including an assumed 73% value weighted utilization as between disposal facilities and the treater of which approximately 70% are estimated third party volumes in the December 31, 2015 valuation and an assumed 44% utilization for disposal facilities only of which approximately 87% are estimated third party volumes in the December 31, 2014 valuation.

(2) Oil Reserves – Company Gross per NI 51-101 as evaluated by Chapman Petroleum Engineering Ltd. as part of the annual independent third party valuation of reserves, resources and processing as at December 31, before tax, excluding Processing, and discounted at 10%

RESERVES AND MIDSTREAM ASSETS HISTORY

Petrocapita has consistently grown reserves valuations even during the last 24 months when many large operators have actually experienced signifi cant reserve value declines. The overall value of its asset base has also continued to grow – a testament to the midstream investment strategy and the sharp and constant focus on operating costs.

4,5004,0003,5003,0002,5002,0001,5001,000

5000

PDP PDNP PUD PRB2010 2011 2012 2013 2014 2015

120,000

100,000

80,000

60,000

40,000

20,000

0

2010 2011 2012 2013 2014 2015 PDP PDNP PUD PRB

Reserves* Reserves and Midstream Assets(MSTB) ($000s)

*Reserves reported by Chapman as of Dec. 31 each year


CAPITAL RAISED

At December 31, 2015, Petrocapita had raised $38.2 million with an additional $1.1 million raised in Q1 2016.

GOING PUBLIC TRANSACTION

Early in 2015, Petrocapita recognized that maintaining the high yield preferred unit distribution, as well as pursuing a liquidity opportunity for investors by outright sale of the oil and gas assets was not prudent in the pricing and asset markets existing at the time. Consequently, in accordance with the terms of the Declaration of Trust, and in the absence of an appropriate market to sell its assets, Petrocapita opted to convert all investors to common unitholders providing them approximately 99.5% ownership of the Trust (effectively eliminating all of managements equity participation) and to have those common units listed on the Canadian Securities Exchanges (“CSE”). The units commenced trading on the CSE at market opening on Thursday, November 19, 2015 under the symbol “PCE.UN”.

ACQUISITIONS COMPLETED

In 2015, Petrocapita acquired a 100% interest in an operational salt water disposal facility and 7 gross (7.0 net) oil wells in the Lloydminster area of Alberta; increased to 100% its working interest in 46 gross oil wells in which it previously held working interests of between 25% and 50% (increasing its net well count with respect to those 46 wells from 20.1 net wells to 46.0 net wells), and purchased one gross (1.0 net) additional oil well from the same vendor; acquired 11 gross (9.4 net) oil wells in Saskatchewan; and purchased six fl uid haul trailers.

ACQUISITIONS PENDING

Non-binding letters of intent have been sent to various distressed operators to acquire land, wells and facilities at highly accretive metrics. To date none have advanced beyond this stage, but any would enhance Petrocapita’s production, reserves and processing capacity.

KEY ATTRIBUTES OF PORTFOLIOSASKATCHEWAN

Medicine Hat

Saskatoon

Regina

ALBERTA

Calgary

Fort McMurray

Grande Prarie

Edmonton

CRANE LAKE

TURTLEFORDLloydminsterLANDROSEMAIDSTONEEDAM

DEE VALLEY

NORTHMINSTER

LASHBURNDULWICH

LLOYDMINSTER

OIL OIL & GAS BITUMEN

large reserve base with signifi cant undeveloped multi-zone oil potential

large number of temporarily suspended oil wells that can be re-activated quickly and inexpensively as they become economic with oil price improvements

high working interest ownership

infrastructure assets in transportation, processing and disposal

focused land position

low and sustainable drilling and development costs

opportunity to accretively add to asset base in a low cost environment

9 salt water disposal facilities, 1 treating facility


NETBACK IMPROVEMENT

Petrocapita is planning to commence the upgrade of its treater in the latter part of Q2 or Q3 2016 which, once complete, is estimated to result in cost savings at the operating level (ie. increase in Petrocapita’s netback) of approximately $6.74 per barrel.

2015 YE 2017 Low Price Forecast(1) 2017 Improved Price Forecast (2)

Average realized price 35.97 35.97 73.33

Heavy oil revenue 3,659.7 3,659.7 7,333.7

Operating netback 424.7 1,099.1 4,398.4

Average daily production (bbl/day) 274 274 274

Netback per bbl

Realized price 35.97 35.97 73.33

Water disposal sales 0.68 0.68 2.45

Price increase from treating facilities 6.74 6.74

Royalties (2.66) (2.66) (8.80)

Operating expenses (26.11) (26.11) (26.11)

Transportation expenses (3.63) (3.63) (3.63)

Operating Netback 4.25 10.99 43.98

(1) 2015 pricing plus additional netback realized after the treater upgrade(2) 2014 pricing plus additional netback realized after the treater upgrade

In addition, after upgrade of its central treating and disposal facility (the majority interest of which was acquired in 2015), this facility would be capable of cleaning oil to pipeline specifi cations and blending with lighter oils to offset the realized price to WCS differential and ultimately, much of the WTI to WCS differential.

Beginning in June 2015, management began the process of consolidating its ownership of the oil and gas properties of Petrocapita and building out the infrastructure necessary to operate profi tably in a low oil price environment. Fixed fi eld costs were reduced with staffi ng reductions and variable fi eld costs were also reduced through measures which included the purchase of fl uid hauling equipment which resulted in an approximate 30% drop in fl uid transportation costs.

The table above contains forward-looking information and readers are strongly encouraged to refer to the detailed disclosure under the heading “Forward-Looking Information” at the end of this document. The material assumptions used to develop such forward-looking information are set forth in the table above. This forward-looking information is effective as of May 8, 2016 and has been presented to assist the readers in understanding the magnitude of the positive impact to Petrocapita’s aggregate operating netback, in differing commodity price environments, resulting from the impact of upgrading the treater and processing Petrocapita’s production through it. Readers are cautioned that the information may not be appropriate for other purposes.

Set forth in the table below is the aggregate, as well as per bbl, netback anticipated to be realized for 2017 under both a low commodity price and higher commodity price scenario based upon the assumptions set forth in the table respecting production, pricing, expenses (including royalties) and assuming successful upgrade of the treater.


REPORT ON OPERATIONS

Petrocapita has been successful in maintaining positive netbacks even in this current extreme low price environment. The primary driver for this achievement has been a strict “shut-in” policy and driving down both operating and head offi ce costs per barrel.

12,000

10,000

8,000

6,000

4,000

2,000

02010 2011 2012 2013 2014 2015

Op Cost Royalties Operating Netbacks

2010 2011 2012 2013 2014 2015

100

80

60

40

20

0

Op Cost Royalties Operating Netbacks

($000s) ($/bbl)

TEAM UPDATES

Greg Marr, CPA, CA is Chief Financial Offi cer. Greg has over 25 years of experience in the oil and gas industry having worked in various capacities with several private and public within the sector including as CFO.

Doug Forrest is Operations Superintendent – Alberta. Doug has over 18 years of experience in heavy oil operations and service business management all in the Lloydminster area of Alberta.

Colin MacIntosh is Operations Superintendent – Saskatchewan. Colin has over 25 years of experience in heavy oil operations in the Lloydminster area with a focus on construction and management of infrastructure facilities.

Joann Macloed is Administration Manager – Lloydminster. Joann has 15 years of experience in heavy oil operations

including managing logistics of fl uid transport, production accounting and offi ce management.

Maria de Francesco, has been engaged as Financial Accounting Supervisor to assist in generating fi nancial reports and statements of operations segregating oil and gas activities from infrastructure activities.

CONTACTS

Alex Lemmens Trustee 587.349.9764 [email protected]

Richard Mellis Trustee403.510.3770 [email protected]

Greg Marr Trustee 587.887.1536 [email protected]

#2210, 8561 8A Ave SWCalgary, Alberta, T3H 0V5Tel: +1.587.887.1541www.petrocapita.com

FORWARD LOOKING INFORMATION:

Certain statements and information contained in this update constitute forward-looking statements and forward-looking information as de-fi ned under applicable securities legislation (collectively, “forward-looking statements”). These forward-looking statements relate to future events or Petrocapita’s future performance. All statements other than statements of historical fact are forward-looking statements. The use of any of the words “anticipate”, “plan”, “contemplate”, “continue”, “estimate”, “expect”, “intend”, “propose”, “might”, “may”, “will”, “shall”, “project”, “should”, “could”, “would”, “believe”, “predict”, “forecast”, “pursue”, “potential” and “capable” and similar expressions are intended to identify forward-looking statements. In particular, and without limitation, these statements contain forward-looking statements pertaining to pending acquisitions, netback trends, reserves and valuation of Petrocapita’s disposal facilities and treater (“facilities”). These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those antici-pated in such forward-looking statements. Although management believes that the expectations conveyed by any forward-looking statements are reasonable, no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this update should not be unduly relied upon. In addition, this update may contain forward-looking statements attributed to third party industry sources. With respect to forward-looking statements contained in this update, assumptions have been made regarding, among other things: future crude oil prices; the magnitude of Petrocapita’s water disposal margins; the magnitude of Petrocapita’s operating expenses (including royalties); the magnitude of increase in positive netback which may be realized by Petrocapita through upgrading its central treating facility; the ability of Petrocapita to increase future production levels; the level of future utilization of Petrocapita’s facilities; the magnitude of net future revenues derived from utilization of Petrocapita’s facilities; the duration over which future revenues may be derived from Petrocapita’s facili-ties; the ability of Petrocapita to maintain reasonably stable operating and general administrative expenses. The forward-looking statements contained in this update involve signifi cant risks and uncertainties and should not be read as guarantees of future performance or results. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to, the risks related to: volatility in market prices and demand for crude oil; general economic, market and business conditions; diffi culties encountered in the development and production of Petrocapita’s reserves; diffi culties encountered in the construction, upgrading and/or operation of Petrocapita’s facilities; the loss of key personnel; the failure to realize the benefi ts of upgrading Petrocapita’s central treat-ing facility; the inability to generate suffi cient cash fl ow from operations to meet current and future obligations; the inability to obtain required debt and/or equity capital on acceptable terms or at all; changes in tax law or other adverse regulatory, royalty or tax changes; diversion of management to manage unforeseen business or operating issues; current global fi nancial conditions.

Information and statements in this update relating to valuation of Petrocapita’s facilities have been prepared by a third-party engineering fi rm and are based on various estimates and assumptions, many of which have been referred to above. Estimates of future net revenues associ-ated with Petrocapita’s facilities as prepared by different engineers, or by the same engineers at different times, may vary. Petrocapita’s actual future net revenues associated with its facilities will vary from estimates thereof and such variations could be material. In addition, information and statements in this update relating to “reserves” are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated, and that the reserves described can be profi tably produced in the future. There are numerous uncertainties inherent in estimating quantities of oil and natural gas and the future cash fl ows attributed to such reserves. The reserves and associated cash fl ow information set forth in this update are estimates only. In general, estimates of economically recoverable oil and natural gas and the future net cash fl ows therefrom are based upon a number of variable factors and assumptions, such as historical production from the properties, production rates, ultimate reserve recovery, timing and amount of capital expenditures, marketability of oil and natural gas, royalty rates, the assumed effects of regulation by governmental agencies and future operating costs, all of which may vary materially. For these reasons, estimates of the economically recoverable oil and natural gas reserves attributable to any particular group of properties, classifi cation of such reserves based on risk of recovery and estimates of future net revenues associated with reserves prepared by different engineers, or by the same engineers at different times, may vary. Petrocapita’s actual production, revenues, taxes and development and operating expenditures with respect to its reserves will vary from estimates thereof and such variations could be material.

Readers are cautioned that the risk factors set forth above should not be construed as exhaustive. Additional information on risks, uncertain-ties and factors that could affect the foregoing forward-looking information and/or Petrocapita’s operations or results therefrom is included in its fi lings with the securities commissions which have been fi led under Petrocapita’s profi le on SEDAR (www.sedar.com).

Although the forward-looking statements contained in this update are based upon what Petrocapita’s management believes to be reasonable assumptions, Petrocapita cannot assure investors that actual results will be consistent with such information. Forward-looking statements refl ect management’s current beliefs and are based on information currently available to Petrocapita. Petrocapita cautions readers not to place undue reliance on Petrocapita’s forward-looking statements. The forward-looking statements are made as of May 8, 2016 and Petrocapita assumes no obligation to update or revise such information to refl ect new events or circumstances, except as may be required by applicable securities laws.

This update is for information only and does not constitute, nor should it be construed as, an offer to sell or a solicitation to buy securities of Petrocapita.

© Petrocapita Income Trust

petrocapita 2015 annual investor update

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