Valuation Review

May 10, 2013

Oil & Gas Company Valuation

Primary Valuation MethodologyPrimary Valuation Methodology Secondary Valuation MethodologySecondary Valuation Methodology

Discounted Cash Flows: Net Asset Value(applicable for all assets)

Discounted Cash Flows: Net Asset Value(applicable for all assets) Price / Cash Flow MultiplePrice / Cash Flow Multiple

Enterprise Value / EBITDA MultipleEnterprise Value / EBITDA Multiple

Price / Earnings MultiplePrice / Earnings MultipleEnterprise Value / Resource Multiple(most applicable for pre-production assets)Enterprise Value / Resource Multiple

(most applicable for pre-production assets)

Enterprise Value / Production MultipleEnterprise Value / Production Multiple

1

Discounted cash flow analysis used for all oil sands valuation projectsDiscounted cash flow analysis used for all oil and gas valuation projects

2

Primary Valuation Methodologies

DiscountedCash Flows(NAV)

Most net asset values (NAVs) are calculated by taking the present value (using an appropriate discount rate) of after-tax cash flows and adjusting balance sheet items such as other assets and hedges, and deducting reported net debt

Financial forecast developed based on existing reserves plus a reasonable expectation of reserve additions

Discount rates of 7% to 10% typically employed depending on operational, development and geopolitical risk

A risk factor (0-100%) can be applied to the net present value to reflect the projects chance of success using parameters such as the geological and geophysical interpretation

NAV also includes other assets and liabilities Other assets can include cash and early-stage development assets (which cannot be valued on a DCF basis)

Liabilities can include debt, environmental obligations and other off balance sheet liabilities

NAV approach is the preferred methodology to value long-term projects Market-observed NAV trading multiple reflects operational and financial risks from an investors perspective

Enterprise Value / Resources

Attempts to measure the value of barrels still in the ground

Although ubiquitous, EV / Resource multiple does not account for key considerations such as timing of production, cash costs, capex, etc. which are all essential value drivers

Considerable judgment must be applied

This metric is often used to value early-stage exploration assets / companies and/or as a crude value benchmark in preliminary analyses

Primary metric used to benchmark pre-production oil sands and shale play transactions where resources estimates are available

3

Secondary Valuation Methodologies

Price / Cash Flow

Price / Cash Flow multiple is more important for established, producing companies However, Price / Cash Flow focuses on near-term performance only

Trading multiple to Cash Flow reflects a number of cash flow characteristics Sustainability, growth, risk, capital efficiency, etc.

This methodology does not explicitly account for the value of development assets as they do not provide near-term cash flow

NAV methodology explicitly accounts for the value of these assets

Enterprise Value / EBITDA

EV / EBITDA is similar to Price / Cash Flow but is capital structure neutral and does not reflect the differing tax status of companies

Important metric for companies that have large cash or debt balances Must use caution when comparing companies across differing tax jurisdictions

Like Price / Cash Flow, this methodology does not explicitly account for the value of development assets as they do not provide near-term EBITDA

Price / Earnings

Price / Earning multiple is more important for large, diversified companies that are valued as a whole (as opposed to asset-by-asset)

Similar to Price / Cash Flow but generally viewed as inferior from a valuation perspective because it reflects accounting impacts rather than cash flow impacts

Includes DD&A and other non-cash items which do not reflect underlying cash flow generation ability of assets

Like Price / Cash Flow, this methodology does not explicitly account for the value of development assets as they do not provide near-term Earnings

Enterprise Value /

Production

EV / Production multiple is more important for established, producing companies with reasonably long-lived assets Benchmarks how expensive the company is with respect to current production Must use caution when comparing companies with different future production profiles and per-barrel profitability

Like Price / Cash Flow, this methodology does not explicitly account for the value of development assets as they do not provide near-term Earnings

4

Other Valuation Considerations

Commodity Price and Exchange Rate

Assumptions

The forward looking commodity price and exchange rate assumptions employed by a particular acquirer are important drivers in establishing value

Stage of Development

Trading multiples reflect the inherent risk associated with exploration, permitting, development, and the transition to full-scale production

Reserve / ResourceQuality

Companies with higher-quality reserves / resources are more likely to trade at premium multiples due to their ability to produce at lower cash costs and to survive throughout the commodity price cycle

Reservoir quality drives capex and opex and therefore project economics

Recovery Technology

Matching the right extraction tool with the right reservoir Certain combinations are more economic than others

Growth / Upside

Potential

Companies with strong growth profiles are often awarded premium multiples Exploration potential (above existing reserves and resources) attracts premium valuations Scalable assets are also afforded higher multiples

Financing Risk

A company exposed to significant financing risk (e.g., for development capex) will typically trade at a discount to peers that are fully-financed or more likely to receive funding

ManagementExperience /

Expertise

Companies with proven management / executive teams attract higher valuations on the basis of past track records

Credible operating teams attract significant value in the currently competitive market for talent

5

Oil Sands SAGD Example

In the following pages we undertake a simplified example valuing of a pure-play oil sands companyoperates in Canadian oil sandssingle asset companySAGD project in the Athabasca fairway representing generic project parameters average annual production and cash costs as compared to current views of costs

In a bidding scenario, the purpose of completing the valuation analysis as contemplated in these slides is to establish a market value bid price

this does not reflect acquirers views on several factors which may affect the acquirers ability to pay including: commodity prices and other forecasts synergies (e.g., operating, tax, economies of scale, etc.) upside

6

Resource EstimateExploration

Development / Construction

ProductionEngineering

Ramp UpRegulatory Approval

Macro Factors (Commodity Price, FX Rates, Inflation, Taxes/Royalties)

Oil Sands Asset Market Value Over Time

Early stage excitement is followed by a recognition of development realities;successful progression to production provides value step change

Typical Life Cycle of an Oil Sands Company

Valu

e

Time

Key

Valu

e D

rive

rs

Drilling success / excitementProspectivity / scale of land package

Resource scale & qualityDegree of delineationReservoir properties and mapping

Environmental studiesRegulatory applicationBuild out of teamFacilities designProject economicsAbility to book reserves

Execution within budgets & timelinesContinued build out of teamExpansion and optimization plans / studiesResource expansion / upgrades

Performance vs. expectationsEfficient / effective logistics

Operational performanceNext leg of growth

$89.65$70.02

$58.32$33.69

$15.79 $2.04 $1.80$11.70 $10.08

$14.55

$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

Cum

ulat

ive

Ope

ratin

g N

etba

ck

(C$/

bbl)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2013 2016 2019 2022 2025 2028 2031 2034 2037 2040

Bitu

men

Pro

duct

ion

(bbl

/d)

Production

Oil Sands Project Illustrative Economics (30,000 bbl/d SAGD) (1)

($9,000)

($6,000)

($3,000)

$0

$3,000

$6,000

($900)

($600)

($300)

$0

$300

$600

2013 2016 2019 2022 2025 2028 2031 2034 2037 2040

Cum

ulative Free Cash Flow

(C$ m

m)

Ann

ual C

ash

Flow

and

Cap

ex (C

$ m

m)

Project Netbacks (C$/bbl) NPV Sensitivity (100%)

Cash Flow After-Tax

1. Sample 30,000 bbl/d SAGD project with 300 mmbbl of recoverable resource in the Athabasca region and a 3.0x SOR. GLJ January 2013 Price deck, $40,000/bbl/d initial capital intensity and $9/bbl non-energy opex (2%/year inflation).

7

Assumption Sensitivity After-Tax NPV Sensitivity (C$ mm)

After-Tax NPV: C$869 mm

Discount Rate +/- 2.00%

WTI +/- 10.00%

Exchange Rate +/- 5.00%

Light-Heavy Differential +/- 10.00%

Initial Capex +/- 10.00%

Phase 1 Delay - 2 years

Non-Energy Operating Costs +/- 10.00%

Energy Operating Costs +/- 10.00% $840

$822

$742

$792

$753

$748

$611

$566

$898

$916

$869

$946

$985

$1,002

$1,120

$1,283

Note: Cash flow and netbacks on real basis; netbacks over the life of the project 2. Bitumen value at site is calculated as bitumen blend value less cost of condensate at site.

AT IRR (%) 19%

AT NPV10 (C$ mm) $869

AT NPV10 (C$/bbl) $2.90

$3.29

$2.60

$2.37

$2.17$2.08

$2.89

$1.27

$1.01

$0.83

$0.20

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

C B D E A F G J I HCompany

Integrated Pure Play0.9x

0.9x

0.8x0.8x

0.7x

0.8x

0.6x

0.5x

0.3x0.3x

0.0x

0.1x

0.2x

0.3x

0.4x

0.5x

0.6x

0.7x

0.8x

0.9x

1.0x

D E A B C F G J H ICompany

Integrated Pure Play

Oil Sands Company Trading MetricsPrimary Valuation Methodology

Price / Street NAV (x) EV / Resources (C$/bbl)

Producing projects command a P / NAV premium over projects under development

8

7.5x

6.1x5.8x

4.8x 4.7x

9.8x9.5x

7.3x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

B E D A C I J F G HCompany

Integrated Pure Play

Oil Sands Company Trading MetricsSecondary Valuation Methodology

Price / Cash Flow (x) Price / Earnings (x)

14.9x14.8x

14.0x

9.9x 9.8x 10.7x

0.0x

3.0x

6.0x

9.0x

12.0x

15.0x

18.0x

C E D A B F I J G HCompany

Integrated Pure Play

EV / EBITDA (x) EV / Production (C$000s/boe/d)

7.0x5.8x 5.4x 5.4x 4.4x

25.8x

9.2x6.6x 6.5x

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

B E C D A G J F I HCompany

Integrated Pure Play

nmf

$133

$98 $96 $94$63

$362

$236

$167

$108$75

$0

$70

$140

$210

$280

$350

$420

B D E A C H G I F JCompany

Integrated Pure Play

nmf

nmf

9

0.20x

0.30x

0.40x

0.50x

0.60x

0.70x

0.80x

0.90x

1.00x

1.10x

1.20x

Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13

Senior Oil Sands Long Run Average (Since 2003)

Oil Sands Sector Trading Performance

P / NAV multiples are below the long-term average;Strong correlation between oil price and share price movements

Relative Trading Performance (2011 to Date) Oil Sands P / Street NAV Multiples (2011 to Date) (1)

Source: FactSetNote: Senior Oil Sands Index is an equally weighted index, including COS, CVE, CNQ, IMO, MEG and SU; Senior Oil Sands Index within the relative trading performance chart excludes COS and MEG1. Based on BMO Capital Markets Equity Research estimates.

US$120/bbl

US$60/bbl

Spot WTI

10

Long Run Average = 0.93x

Current = 0.76x

85.7

128.4

68.4

104.6

50.0

60.0

70.0

80.0

90.0

100.0

110.0

120.0

130.0

140.0

150.0

Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13

Senior Oil Sands Index S&P 500 TSX Oil & Gas Index WTI

Transaction Date May-06 Oct-06 Dec-08 Jul-11 Jul-06 Apr-07 Dec-07 Aug-09 Mar-10 Mar-10 May-10 Sep-10 Nov-10

Transaction Size (C$ mm) $2,400 $3,692 $735 $1,973 $310 $2,208 $1,304 $3,950 $668 $919 $817 $405 $2,124

WTI (US$/bbl) $71 $60 $40 $98 $75 $66 $87 $70 $82 $80 $74 $74 $82

$1.02

$0.81

$1.08

$1.24

$1.00

$0.81 $0.79

$1.07

$0.46

$0.91

$0.81

$1.71

--

$0.50

$1.00

$1.50

$2.00

$2.50

Shell / BlackRock ConocoPhillips /EnCana

Nexen / OPTI CNOOC / OPTI KNOC / Newmont Statoil / NA OilSands

BP / Husky PetroChina /AOSC(1)

Devon / BP - KirbyAssets

BP / ValueCreation - TDG

Interest*

CIC / Penn West -Seal

CNRL / Enerplus -Kirby*

PTTEP / Statoil -Kai Kos Dehseh

40%(2)*

$3.97

Oil Sands Transactions Metrics

Variance in transaction values depends on stage of development of the assets and other asset-specific factors; $/bbl metrics often used by buyers to assess market value for pre-production assets

In Situ Transactions > $300 mm

Note: Recoverable Resource defined as 2P Reserves + best estimate of contingent resource where disclosure available; * denotes transactions that include only 2P + contingent resource 1. $1.9 bn initial deal at $0.63/bbl; transaction value and multiple include the right of the option to acquire remaining 40% interest in MacKay and Dover for C$2 bn; does not include rate of attractive PetroChina financing terms.2. Transaction value adjusted for BMO estimate of C$200 mm in CAPEX attributable to the acquired share in pilot project.

Pre-Production Average:$0.98/bbl

Producing Average: $1.72/bbl

11

Oil Sands Company Illustrative Value Range

Triangulation of valuation using multiple methodologies drives better decision making

12

Pre-Production Pure Play ($/share) Producing Pure Play ($/share)

Fundamental Analysis En Bloc Perspectives

DCF P / NAV + 30% Premium

EV / bbl Trading +

30% Premium

EV / bbl Precedent

Transactions

Selected Metrics

Discount Rate: 10% - 8%

0.5x - 0.8x + 30% premium

$0.80/bbl - $1.30/bbl +

30% premium

$0.80/bbl - $1.70/bbl

$9.69

$6.30$4.12 $3.40

$13.83

$10.08

$6.07 $6.10

Fundamental Analysis En Bloc Perspectives

DCF P / NAV + 40% Premium

EV / bbl Trading +

40% Premium

EV / bbl Precedent

Transactions

Selected Metrics

Discount Rate: 10% - 8%

0.6x - 0.9x + 40% premium

$1.50/bbl - $2.00/bbl +

40% premium

$2.00/bbl - $3.00/bbl

$10.75

$9.03

$5.33$5.00

$12.81$13.55

$7.60$8.25

Disclaimer

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