Published on November 10, 2014
1. 1 PrimelineCorporate Presentation November 2014 PrimelineEnergy Holdings Inc: Producing to China’s dynamic gas market and monetizing upside November 2014
2. 2 PrimelineCorporate Presentation November 2014 PEH -Producing to China’s dynamic gas market 1.Exposure to high growth, high price East China gasmarketfor investors via TSX-V listed PrimelineEnergy Holdings Inc.-with secured access to market. 2.We have completed a $700m+ regional production infrastructure hub –and allowing monetisation of future resource additions. 3.Production and cash flow since July 2014 in East China Sea from LS36-1 gas field, in partnership with CNOOC. 4.2015+ plan to monetiseadditional high margin hydrocarbon potential: net risked 2C NPV ~$200m at $12/boe–from both infield and exploration - represents upside to 3P NPV10 of $1.16/share. 5.Current valuation reflects neither operational progress to date nor upside potential.
3. 3 PrimelineCorporate Presentation November 2014 Exposure to high growth, high price East China gas market
4. 4 PrimelineCorporate Presentation November 2014 East China gas market -High growth, high price •China’s dynamic economic growth in the past 25 years has created the world’s 2ndlargest energy consumer. •China’s energy needs are presently met mostly by coal and oil (40% of which is imported) and, insignificantly, by gas. •Gas utilisation has become a focus of Chinese government energy policy, which favours an enhanced role for natural gas. •Much of the increased demand is now met by imported gas by LNG and long distance pipelines. •Prices in East China are strong and reflect the influence of the Far East LNG price and its position as the most populous/well developed part of the country, with a growing gas requirement.
5. 5 PrimelineCorporate Presentation November 2014 Gas sale contract access to 8 bcmpaZhejiang Gas Grid •LS36-1is a strategic gas field close to Zhejiang Province- population of 50 million; 4th largest economy in China, •Current gas utilisation of only about 2.8% of total energy mix. •Final gas sale contract -with supply to ~8 bcmpaZhejiang gas grid. NingboLNG
6. 6 PrimelineCorporate Presentation November 2014 East China Sea becoming a significant gas production basin •Proven petroleum province, defined exploration targets. •New E&P focus in Xihu Trough (Basin) in northern East China Sea, anchored on two existing fields: –Pinghu Field: onstream in 1998, 386 km 14” pipeline to Shanghai terminal; and –Chunxiao Field: onstream in 2006, 360 km 28” pipeline to Ningbo and 4 production platforms. Expansion development underway.
7. 7 PrimelineCorporate Presentation November 2014 Primeline’sStructure and our Petroleum Contracts •Primeline(PEH) has 75% and PrimelinePetroleum Corporation (“PPC”) has 25% of Contractors’ Rights respectively on two Petroleum Contracts in the East China Sea –Block 25/34 and Block 33/07. •PPC is 100% controlled by Mr. Victor Hwang, Chairman of PEH and our majority shareholder. •Block 25/34: Petroleum Contract for the development and production of the LS36-1 gas field (85 km2); Operator: CNOOC (51%), PEH/PPC (49%). •Block 33/07: Sevenyear exploration period ofthree phases (3, 2, 2 years) from Nov 2012. Minimum work program in phase 1: 600 km2of 3D and 2 wells; Operator: PEH. •Contractors are responsible for 100% of all exploration costs (PEH: 75% of the costs). •CNOOC has right to participate in up to 51% of any commercial development by paying pro rata development and operation costs. •Petroleum Contracts granted on very favourable fiscal terms.
8. 8 PrimelineCorporate Presentation November 2014 We have completed a $700m+ infrastructure hub
9. 9 PrimelineCorporate Presentation November 2014 LS36-1: Infrastructure hub is completed and producing All development work completed and production started: •Platform facility •Development wells: 4 •Subsea pipeline: 126.9km •Onshore terminal: •Sale gas pipeline •Terminal to grid: 32 km
10. 10 PrimelineCorporate Presentation November 2014 Onshore Processing Terminal Storage CO2 Processing Gas Processing Slug Catcher Operation & Fire-fighting Central Control Burner Loading Zone Office & Living Lab
11. 11 PrimelineCorporate Presentation November 2014 Production/cashflowsince July 2014 in East China Sea from LS36-1
12. 12 PrimelineCorporate Presentation November 2014 •Development completed for LS36- 1 gas field, secured market access and built regional production infrastructure hub. •High impact exploration to add additional resources in the immediate vicinity and the rest of the Block anchored around the producing LS36- 1 facility. Block 25/34(85 km2) & Block 33/07 (5,877 km2) 737 km2of existing 3D seismic data Newly acquired 600km2of 3D seismic
13. 13 PrimelineCorporate Presentation November 2014 LS36-1: Reserves •Two discovery wells, DST tested at 9.8 MMcfdand 12.6 MMcfd •Phase 1 four producers drilled and completed in April 2013 •Flow test finished in May 2014, production since July 2014 •McDaniel and Associates’ Proved + Probable (2P) reserves estimates at July 2014 of 14.9 Mmboe(Gas: 68.1 bcf, Liquids: 3.6 MMbbl) Natural Gas Reserves Property Company Company Gross Gross Net Reserve Category MMcf MMcf MMcf Total Proved Reserves 52,148 19,164 20,611 Probable Reserves 15,940 5,858 5,813 Proved Plus Probable Reserves 68,088 25,022 26,424 Possible Reserves 19,430 7,141 7,095 Proved + Prob. + Poss. Reserves 87,518 32,163 33,519 (1)Company Gross reserves are based on Company working interest share of the reserves. (2)Company Net reserves are based on Company share of total Cost and Profit Oil and, due to repayment of past costs, are greater than Company Gross. (3)Based on gas/boeconversion of 6 to 1 and LPG/boeconversion of 1 to 1.
14. 14 PrimelineCorporate Presentation November 2014 LS36-1: Budget and Project Finance •Total Investment Budget circa US$ 727M including Development Capex circa US$ 608M, some will be spent after production •Primeline’sshare of Capex (PEH+PPC 49%: US$ 297M; PEH 36.75%: US$ 223M) has been fully carried by CNOOC to date •China Development Bank (CDB) and EXIM Bank confirmed to provide US$274 million project finance for PEH and PPC’s full share of their LS36-1 development costs LS36-1 Development Total Investment Budget As approved in Nov2011 RMB M Convert to US$M Exploration Investment 469.4 73.9 Spent underBlock 25/34 so far Development Cost 3,861.3 608.1 Abandonment Cost 284.5 44.8 Total 4,615.2 726.9 Assuming US$/RMB 6.3495 As in Nov. 2011
15. 15 PrimelineCorporate Presentation November 2014 Valuation has not yet reflected impressive operational progress Agreement signed Fabrication Jacket installed Dev. Drilling completed ODP approved Production started
16. 16 PrimelineCorporate Presentation November 2014 2015 programme to monetise high margin hydrocarbon potential
17. 17 PrimelineCorporate Presentation November 2014 Additional high margin resources –will be drilling from 2015 on •McDaniel’s net risked 2C would give an NPV ~$200m at $12/boe–from both infield and exploration offers upside to McDaniel’s 3P estimated NPV10 of $1.16/share for the producing reservoir alone. •Substantial possible reserves and prospective resources in the field itself, through “phase 2 development drilling”. •Significant potential in nearby prospects that have been defined by 3D seismic data. First well in this play resulted in new discovery in June 2010; additional wells to be drilled. •Additional hydrocarbon potential supported by existing 2D seismic evaluation along the trend to north adds 2-4 times more gas potential in same play type. •600 sq. km of additional 3D seismic has been shot across this play fairway, data is being processed, available in November 2014.
18. 18 PrimelineCorporate Presentation November 2014 Prospective Resources–McDaniel July 2014 ProspectiveResources -Natural Gas Prospective Resources -Unrisked(1) Risked (2) Resources Chance of Success Prospect Low Medium Mean High Mean MMcf MMcf MMcf MMcf MMcf % LS36-1 Paleocene-M1-0 2,725 5,513 6,370 11,087 4,644 73 LS36-1 Paleocene-M1-1South 1,759 3,965 4,779 8,931 3,484 73 LS36-1 Paleocene-M2 5,046 14,464 18,934 38,513 11,360 60 LS36-1 Paleocene-M3 14,187 31,725 37,210 67,032 26,047 70 LS36-1 Paleocene-L1 8,351 23,772 32,862 69,109 16,431 50 LS36-1 Paleocene-L2 2,379 5,363 6,444 11,822 2,577 40 LS30-8 Paleocene-M2 9,136 27,070 36,195 73,148 7,601 21 LS36-1 Development Area (Sub total) 43,584 111,871 142,794 279,641 72,145 LS30-3 Paleocene-M1-1 14,631 32,007 38,820 71,810 10,870 28 LS30-3 Paleocene-M1-2 43,387 178,831 315,221 727,991 88,262 28 LS29-2 Paleocene-M1-2 19,016 47,306 60,442 117,561 14,506 24 LS29-3 Paleocene-M1-2 7,090 22,601 32,984 70,620 7,124 22 LS35-1 Paleocene-M1-2 14,592 38,521 51,441 105,723 7,407 14 Block 33/07 (Sub total) 98,715 319,266 498,907 1,093,706 128,170 Total (3) 142,299 431,137 641,701 1,373,347 200,314 (1)There is no certainty that any portion of the prospective resources will be discovered. If discovered, there is no certainty that it will be economically viable or technically feasible to produce any portion of the resources. (2) These are partially risked prospective resources that have been risked for chance of discovery, but have not been risked for chance of development. (3)Total based on an arithmetic aggregation of all the Prospect/Zones and as such there is >90 % chance of exceeding the overall Low Total and <10 % chance of exceeding the overall High Total.
19. 19 PrimelineCorporate Presentation November 2014 Additional resources in lower zones •Current Producers are in M1-1 an M1-2 sands. •Additional gas in other sands and in lower tight reservoir, M11 M12 M2 M31 M32 L1 L2 Cross-section of LS36-1
20. 20 PrimelineCorporate Presentation November 2014 Reserve additions via Phase 2 drilling from platform Existing wells shown in black 30-8 Exploration Prospect Wells LS36-1 M2 & M3 wells LS36-1 M10well LS36-1 M11Sth well LS36-1 M11SW well •8 locations and well tracks selected as candidates for reserve additions
21. 21 PrimelineCorporate Presentation November 2014 M10Untested Sand •Designed as deviated well targeted to thick M10section •Well penetrates entire M10stratigraphic section •M10 GIIP calculates with Prospect Range of: P90: 6.8 P50: 13.3 P10: 26.0 Bcf LS36-1 M10 Top M103D Horizon Shaded to show M10Isochore Isochore Thickness
22. 22 PrimelineCorporate Presentation November 2014 LS36-1 Field and Nearby Prospects •New 600 sq. km 3D seismic in 2014 to expand coverage in the gas play –acquisition completed in May 2014; processing in progress; interpretation nearly completed. •Additional 3D seismic may be required for the remainder of the exploration area where we have identified leads through 2D seismic. •Future 3D work will cover the oil play prospects. •Exploration drilling in 2015 after interpretation of new 3D seismic.
23. 23 PrimelineCorporate Presentation November 2014 Lishui Gas Play LS35-1 LS30-3 LS29-2 LS35-3 LS30-3-1 LS35-3-1 Discovery LS36-1 Platform
24. 24 PrimelineCorporate Presentation November 2014 Development-led exploration •Block covers majority of the Lishui Basin which has: Primeline’sexploratrionwells which led to the new discovery seven regional wells in and around the basin have hydrocarbon shows or flows only two wells inside the Lishuibasin are completely dry 737 km2of existing 3D seismic data Newly acquired 600km2of 3D seismic
25. 25 PrimelineCorporate Presentation November 2014 Conclusions
26. 26 PrimelineCorporate Presentation November 2014 •Market access to one of the most dynamic but energy short provinces in China •High gas price region. •Long term close relationship with CNOOC. •Management with proven track record & operational expertise. •One of the very few offshore gas developments in China -has given us a world class $700m+ infrastructure hub. •Phase 1 development generating annualised PEH EBITDA of circa US$50m once we are in full production ($75m in first year including exploration cost recovery). •Significant catalysts for 2015 and beyond -5,877 km2concession with TCF plus of upside exploration potential to share infrastructure and 2 wells expected in 2015. Valuation reflects neither progress to date nor upside potential
27. 27 PrimelineCorporate Presentation November 2014 Appendices Supplementary Technical and Operational Data Board of Directors Management and Technical Team Corporate Structure
28. 28 PrimelineCorporate Presentation November 2014 LS36-1: Development schedule 200920102011201220139#11#123456789#11#123456789#11#123456789#11#123456789#11#123456789#11#123456789Gas Sales AgreementCompilation of ODPDevelopment Agreements & ExecutionRevisions of the ODP & EIA approvalBasic DesignFabrication & installation of JacketFabrication & installation of TopsidesFabrication & laying of Subsea PipelineLaying of Gas Sales PipelineConstruction of TerminalDrilling & completionJoint commissioningFirst GasDevelopment ActivityMilestoneDevelopment Programme2008Critical PathFirst production date2014ActivityAgreement in principleFrameworkAgreement
29. 29 PrimelineCorporate Presentation November 2014 LS36-1: Development milestones Commercial Agreements Oct 2008 Gas Sale Agreement-in-principle signed, subsequent Framework and Amendment Agreements signed in 2011 and 2012 End 2009 Overall Development Program completed March 2010 Development Agreements signed Design and Construction Nov 2010 Engineering design commenced Jul 2011 Procurement and fabrication commenced March 2012 Site installationcommenced June 2013 Mechanical Completionof platform, terminal & offshore pipeline July 2014 Development completedand production commenced Project Finance May2010 Loan Memorandum signed Nov2012 Revised Loan Memorandum signed Nov 2014 CDB/EXIMProject Finance confirmed
30. 30 PrimelineCorporate Presentation November 2014 Jacket Installation July 2012 Development Drilling completed April 2013 Topside lifted April2013, installation completed June 2013 Development in Images
31. 31 PrimelineCorporate Presentation November 2014 LS36-1: Wells LS36-1-2 LS36-1-1 A3 A1M A5 M1-0 Mapped Area Proposed Horizontal Well A2H A4PP Top M1-2 / M1-1 Merged & M1-0 (Patch) Contoured to GWC (5m CI)
32. 32 PrimelineCorporate Presentation November 2014 LS36-1: Production well design A3 A5 A2H A1M •Horizontal and Multi-Lateral Gas Production wells increase potential gas rates, especially in tight gas reservoirs, and increase effective drainage area. •A3 drilled as a Vertical well to allow evaluation of deeper intervals. Completed over M1-2 interval. •A1M drilled as 3 branch Multi-Lateral well in M1-1. •A2H drilled as 2 branch Multi-Lateral well in M1-2. •A5 drilled as Deviated well to M1-1 reservoir.
33. 33 PrimelineCorporate Presentation November 2014 Board of Directors VictorHwang|ChairmanandPresident Mr. Hwang is Executive Director of the publicly listed Hong Kong Parkview Group Ltd., a division of the family controlled ChyauFwuCorporation. Parkview's core business includes property development, shipping transportation and hospitality. He is also President of Parkview International London Ltd -the company that sold the Battersea Power Station site in Central London for £400M (US$780M) in late 2006. Mr. Hwang holds a BSc in Business Administration and has significant business and political relationships in China. MingWang|DirectorandCEO (seeManagementandTechnicalTeamslide) BrianChan|Director Mr.Chan has extensive experience in international banking and commerce. His responsibilities include the formulation and implementation of corporate and business strategies with respect to the Company's East China Sea Project. In addition, Mr.Chan is General Manager and Director of the Hong Kong Parkview Group Ltd. He is a Certified Accountant. AlanJohnson|Non-ExecutiveDirector Mr.Johnson has over 30 years’ oil industry experience with various companies particularly in management and operations in Africa, Russia and China. He was Chief Operation Officer for the Cluff Group of Companies 1996-2000. He joined Glencore in 2000 as senior upstream oil manager for Glencore worldwide, looking after projects including a 280,000 bblpd production venture and exploration involvement in Africa and South America.
34. 34 PrimelineCorporate Presentation November 2014 Board of Directors PeterKelty|Non-ExecutiveDirector Mr.Kelty has extensive experience in restructuring and financing major Asian regional corporations as well as advisory work for European and US multi-nationals. Mr. Kelty is a Certified Public Accountant and a member of the Illinois State Bar. He holds a Masters degree in Business Administration with a major in Accounting and is a Doctor of Jurisprudence. YunshiCao | Non-Executive Director Mr. Cao has over 30 years’ oil industry experience in China. He recently retired from CNOOC where he was General Counsel, Company Secretary and Senior Vice President of CNOOC Ltd. (NYSE:CEO). Mr. Cao was closely involved In the listing of CNOOC Ltd., its subsequent operations and fund raisings. Mr. Cao was in charge of CNOOC legal Department and negotiated all the petroleum contracts with international companies since 1982. Vincent Lien | Non-Executive Director Mr.Lien has over 20 years’ experience in the banking industry, specialising in corporate finance and capital management in Hong Kong, the PRC, Singapore and South-east Asia. Mr.Lien held various senior positions at several major multinational banking institutions including Swiss Bank Corporation and Bankers Trust & Company. He was the managing director in the financial institutions & public sector division of ABN AMRO Bank. Mr.Lien is currently a director of various companies including the Maritime & Port Authority of Singapore, Up Energy Development Group Limited and Focus Media Network Limited. Mr.Lienobtained a Bachelor’s degree in Business Administration from the University of New Brunswick in 1986.
35. 35 PrimelineCorporate Presentation November 2014 Management & Technical Team MingWang|DirectorandCEO Dr.Wang holds a PhD in Geology from Imperial College, London. He joined Primelinein January 1994 and was appointed as Vice President of Exploration in December 1996. Since then he has been responsible for all technical and commercial operations for Primeline, including the successful drilling operation of the LS36-1-1 discovery well. Dr.Wang was appointed CEO in 2006. He has extensive knowledge of, and contacts within, China's petroleum industry. StuartJoyner|ChiefFinancialOfficer Mr. Joyner joined from Sound Oil where he was CFO since 2013 and has 20 years' experience in the oil and gas sector. Prior to industry, he spent 18 years in investment banking for Investec and Credit Suisse, where he headed sector coverage and previously Morgan Stanley, Dresdner Kleinwort and NatWest Securities. He was highly ranked as an analyst and specialist salesperson in the Exteland Institutional Investor surveys. AndrewBiggs|SeniorVicePresidentandGeneralCounsel Mr. Biggs is qualified as a solicitor in England and in Hong Kong. Between 1981 and 1998, he was a partner with international law firm Richards Butler, both in Hong Kong and London. Mr. Biggs specialised in corporate finance transactions and was involved in many of the early H-share listings of mainland Chinese companies on the HK Stock Exchange. In 1998, Mr. Biggs joined Parkview Group as the Corporate Affairs Director and in 2007 was appointed general counsel of Primelineand in such capacity he has overseen all legal aspects of Primeline’soperations.
36. 36 PrimelineCorporate Presentation November 2014 Management & Technical Team AlanSoulsby|TechnicalDirector Mr.Soulsby graduated from Oxford University with a degree in Physics in 1970 followed by a Masters in Geophysics. He has had a wide and varied career in the petroleum industry with over 35 years’ international exploration experience, including managing Exploration Consultants Ltd. for a number of years and managing many large integrated exploration and evaluation projects. He has acted as Technical Director for Primeline since 1994 and was responsible for the initial block selection and the exploration programme which led to the LS36-1 discovery and ongoing evaluation work. BrianThurley|E&PCoordinator Mr.Thurley graduated from Imperial College and has over 35 years’ G&G experience in international oil and gas exploration and production projects. He was International Exploration Manager for Monument Oil and Gas, technical director for Burren Energy, and technical advisor for Bayfield Energy. Mr. Thurley joined Primeline in April 2014 to work with Alan Soulsby to manage the exploration program and production of the LS36-1 gas field. MarkNorman|ProjectDirectorandGeneralManager,ChinaOffice Mr.Norman has over 25 years’ experience in project management and has expertise in the delivery of complex projects. He spent 15 years as a commercial manager for contracting organisations in the UK before moving to work on the successful delivery of a series of major projects worldwide. In June 2012, Mr Norman was appointed Project Director for Primeline’s Shanghai office and Vice President in the Lishui Operating Company -the operator of the LS36-1 development -and in May 2014, General manager of Primeline Shanghai Office.
37. 37 PrimelineCorporate Presentation November 2014 Corporate Structure Trading Symbols Outstanding Shares Fully Diluted Shares Fully Diluted Proceeds Corporate Debt Auditor Major shareholder PEH -TSX Venture Exchange 112,791,018 123,016,068 7.2M (C$) C$0.67 average strike price 8.0M (C$) Interest free from Chairman at end June Price Waterhouse Coopers LLP MrVictor Hwang (approx. 55%) Contact Dr Ming Wang Chief Executive Officer [email protected] Andrew Biggs SeniorVice President [email protected] StuartJoyner Chief Financial Officer [email protected]
38. 38 PrimelineCorporate Presentation November 2014 Disclaimer This information contains certain forward-looking statements within the meaning of applicable securities laws. Forward-looking statements are often characterized by words such as “plan”, “expect”, “project”, “intend”, “believe”, “anticipate”, “estimate” and other similar words, or statements that certain events “may” or “will” occur, including without limitation statements related to intended work programs and associated timelines. Forward-looking statements are based on the opinions and estimates of management at the date the statements are made and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected or anticipated in the forward-looking statements. Such risks and uncertainties include the inherent risks involved in the exploration for and development of crude oil and natural gas offshore, the uncertainties involved in interpreting drilling results and other geological and geophysical data, fluctuating energy prices, the possibility of cost overruns or other unanticipated costs or delays, the risks associated with negotiating with foreign governments and country risk associated with conducting operations in the People’s Republic of China and other factors, many of which are beyond the control of PrimelineEnergy Holdings Inc. (“Primeline”, or the “Company”). Primelinecannot and does not assure that actual results will be consistent with such forward-looking statements. Forward-looking statements are made as at the date of preparation of this presentation and are subject to change. Primelineassumes no obligation to revise or update them to reflect new circumstances, except as required by law. Prospective investors should not place undue reliance on forward-looking statements.