sho canaccord presentationmay92012
TRANSCRIPT
c o r p o r a t e p r e s e n t a t i o nc o r p o r a t e p r e s e n t a t i o n
2012
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,certain statements contained in this corporate presentation constitute forward-looking statements or information (collectively "forward-looking statements") within the meaning of applicable securitieslegislation. 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 future performance. In addition, statements relating to "reserves" are deemed to be forward-looking statementsas they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and can be profitably produced in thefuture. Forward looking statements or information in this presentation include, but are not limited to, statements or information with respect to: the expected closing date and use of proceeds from thefinancing; potential reserves and future production with respect to current assets business strategy and objectives; development plans; exploration and drilling plans; reserve quantities and thediscounted present value of future net cash flows from such reserves; future production levels; wells drilled (gross and net); 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 andnatural gas prices; 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 tomarket oil and natural gas successfully to current and new customers; the impact of increasing competition; the ability to obtain financing on acceptable terms; and ability to add production andreserves through development and exploitation activities. Although Shona believes that the expectations reflected in the forward looking statements contained in this corporate presentation, and theassumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to placeundue reliance on forward-looking statements included in this corporate presentation, as there can be no assurance that the plans, intentions or expectations upon which the forward-lookingstatements are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties that contribute to the possibility that thepredictions, forecasts, projections and other forward-looking statements will not occur, which may cause Shona's actual performance and financial results in future periods to differ materially from anyestimates or projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things, the ability ofmanagement to execute its business plan; general economic and business conditions; the risk of instability affecting the jurisdictions in which Shona operates; the risks of the oil and natural gasmanagement to execute its business plan; general economic and business conditions; the risk of instability affecting the jurisdictions in which Shona operates; the risks of the oil and natural gasindustry, such as operational risks in exploring for, developing and producing crude oil and natural gas and market demand; the possibility that government policies or laws may change orgovernmental 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 ofShona to add production and reserves through acquisition, development and exploration activities; Shona's ability to enter into or renew leases; potential delays or changes in plans with respect toexploration or development projects or capital expenditures; the uncertainty of estimates and projections relating to production (including decline rates), costs and expenses; fluctuations in oil andnatural gas prices, foreign currency exchange rates and interest rates; risks inherent in Shona's marketing operations, including credit risk; uncertainty in amounts 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 the availability and cost of financing; andfinancial 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 financialoutlook or 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 cautionedthat reliance on such 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, Shonadoes not undertake 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 statementscontained in this corporate 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 encouragedto conduct 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.
Barrels of Oil Equivalent•Barrels 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 thewellhead.
Analogous Information•Certain noted drilling and completion data provided in this document may constitute "analogous information", such as mapping information obtained in geographical proximity to prospectiveexploratory lands to be held by Shona. Such information has been obtained from government sources, regulatory agencies or other industry participants. Management of Shona believes theinformation is relevant as it helps to define the reservoir characteristics in which Shona may hold an interest. Shona is unable to confirm that the analogous information was prepared by a qualifiedreserves evaluator or auditor or in accordance 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 tosuch lands to be held by Shona.
Investment Highlights
Production with stable cash flowDelivering a total of 14.0 million cubic feet per day (mmcfpd) of firm gas sales, with the potential to increase to 24.0 mmcfpd under current contracts
Diverse portfolio of oil and gas assetsOil exploration program with 3 blocks in Colombia and 1 block in Peru
Existing gas production in northwest Colombia’s Magdalena BasinExisting gas production in northwest Colombia’s Magdalena Basin
Fully funded development program with favourable ec onomicsRelatively low development costs, attractive terms
Assets on trend or in proximity to existing product ionMultiple oil targets with growth potential on all blocks
Corporate Strategy
Increase value of existing blocksIncrease cash flow with additional gas sales contracts from Esperanza Block
Complete evaluation of unexplored area of Esperanza Block
Confirm potential of heavy oil potential in Caguan Basin in 1st Qtr 2013
Further evaluate the potential of Boa Prospect on Block 102 with long term testing
Identify and evaluate additional opportunities util izing current cash flowSeek assets on trend or in proximity to existing production, with low development costs and attractive fiscal terms
Consider higher-risk exploration opportunities that would allow later “sell downs”
Evaluate merger and acquisition opportunitiesCombination of Equals
Liquidity Event
Value Proposition
Exploration targets with significant upside underpinned by existing gas production contracts
Experienced management teamproviding increased exposure to additional
opportunities over time
Overview of Assets
PROPERTY OPERATORSHONA W.I.
GROSS ACRES
NET ACRES
Esperanza Block(Colombia)
Shona (Geoproduction) 100% 60,002 60,002
COLOMBIA
VENEZUELA
Serrania Block
Serrania Block
Esperanza Block
Esperanza Block
Los Picachos Block
Los Picachos Block
Macaya Macaya Serrania Block(Colombia) Hupecol 37.5% 110,769 41,538
Los Picachos Block(Colombia) Hupecol 37.5% 52,771 19,789
Macaya Block(Colombia) Hupecol 37.5% 195,254 73,220
Block 102(Peru) Pluspetrol 36.5% 313,023 114,253
TOTAL 731,819 308,803
PERU
ECUADORECUADOR
BRAZIL
BOLIVIA
Macaya Block
Macaya Block
Block 102Block 102
Esperanza Location & Infrastructure
Pacific Rubiales(La Creciente field
60 MMCFPD)
Pacific Rubiales(La Creciente field
60 MMCFPD)
PromigasPromigas
7
OGX(Recently awarded block
w/ $24 MM work program); Surrounding
Esperanza
OGX(Recently awarded block
w/ $24 MM work program); Surrounding
Esperanza
Esperanza Block(Nelson discovery)Esperanza Block(Nelson discovery)
Cerro MatosoCerro Matoso
Esperanza Block
100% owned and operated by Geoproduction (wholly-owned subsidiary of Shona)
Significant gas discovery at Nelson: 164 billion cubic feet* (BCF) (gross)
Canaflecha Field
Canaflecha Field
Esperanza Block
Esperanza Block
Arianna FieldArianna Field
Katana FieldKatana Field
45 sq kmProgram (2007)
45 sq kmProgram (2007)
120 sq kmProgram (2010)
120 sq kmProgram (2010)
164 billion cubic feet* (BCF) (gross)
High value gas delivery contracts negotiated with production increasing over the next three years
Additional 30,000 acres being explored with 3D seismic
*Gross reserves as per Collarini Associates NI 51-101 compliant reserves report effective January 1, 2011
Nelson Field to commence production in December 2011
Nelson Field to commence production in December 2011
103 sq kmProgram (2009)
103 sq kmProgram (2009)
Stewart ProspectStewart
Prospect
Leads
Prospects
Production areas
Retained area
3D seismic programs
Palmer Prospects
Palmer Prospects
Additional leads
Additional leads
Colombia – Gas Transportation System
Cerro Matoso Contract (1):
Total of 19 MMCFPD for ten year term effectiveJanuary 1, 2012 as follows:
11.0 MMCFPD firm for 2012 and 2013
12.5 MMCFPD firm from January 2014 for the remainder of the 10 year term
Cerro Matoso Options:
During period of July 1, 2013 to Sept. 30, 2013 to
1The balance of the 19 MMCFPD is classified as interruptible for each of these periods.
During period of July 1, 2013 to Sept. 30, 2013 to elect to purchase up to and additional 3.5 MMCFPD firm effective January 1, 2014.
During period of Sept. 1, 2011 to June 30, 2013, Cerro Matoso has the option to take up to an additional 27 MMCFPD
Cerro Matoso has two months to commit to purchase the additional volumes, if they fail to do so, Shona is free to market the additional volumes to third parties
E2 Contract:
Sell 3 MMCFPD firm, 2 MMCFPD interruptible for total 5 MMCFPD
7 year term
Esperanza Block: Monetization
ASSET ECONOMIC IMPACTSUPPLY CAPABILITY
$16MM annual after-tax cash flow for 10 yrs
$6MM incremental annual after-tax
cash flow for 8 yrs
Current Development with existing firm contracts
14 MMCFPD
Increase in current contracts5 MMCFPD
Colombia Esperanza
Block
cash flow for 8 yrs
$23MM incremental annual after-tax cash flow
+ 100 BCF Possible ReservesDefined prospects
Potential $30MM incremental annual after-tax cash flow
TBD30,000 Acres to be Evaluated
Further Nelson Field Development
(with $10MM CAPEX) 21 MMCFPD
Prolific Andean Foreland Basin
Shona’s oil prospects are located within the Andean Foreland Basin – a region of significant oil discovery
Efficient oil generation and migration systems
COLOMBIA
VENEZUELA
Serrania,Los Picachos,
& Macaya Blocks
Serrania,Los Picachos,
& Macaya Blocks
Llanos BasinLlanos Basinsystems
Excellent quality reservoirs
Low relief structures trap oil
Over 3 billion barrels of recoverable oil have been found in these basins
All these basins continue to be actively explored
PERU
ECUADORECUADOR
BRAZIL
BlocksBlocks
Maranon Basin
Maranon Basin
Block 102Block 102
Oriente BasinOriente Basin
Putumayo Basin
Putumayo Basin
Existing Oilfields
Southern Colombian Heavy Oil Belt
Serrania Serrania
Macaya Block
Macaya Block
LlanosBasin
Rubiales Field Rubiales Field Serrania Block
Serrania Block
Heavy Oil Belt
Heavy Oil Belt
Los Picachos Block
Los Picachos Block
Caguan BasinOrito Field
> 230 MMBLS produced; 1,919 bopd
Orito Field > 230 MMBLS
produced; 1,919 bopd
Capella Field 2.5 billion bbl
OOIP
Capella Field 2.5 billion bbl
OOIP
Rubiales Field 167,343 bopdRubiales Field 167,343 bopd
Putumayo Basin
Exploration Blocks
Production AreaSerrania Block
Heavy Oil Belt
Natural Reserves
Serrania, Los Picachos & Macaya
Working interests:Shona 37.5%Hupecol (operator) 50%Houston American Energy 12.5%
358,794 gross acres, 134,547 net acres
Macaya Shona-Hupecol-
Macaya Shona-Hupecol-
CedrelaCanacolCedrelaCanacol
PortofinoMonterricoPortofino
Monterrico
OmbuSinochem -
Canacol
OmbuSinochem -
Canacol
Los PicachosShona –
Hupecol - HAE
Los PicachosShona –
Hupecol - HAE
SerraniaShona –
Hupecol - HAE
SerraniaShona –
Hupecol - HAECapella FieldCapella Field
acres
Licenses: 6 years of exploration, 24 years of production
Serrania licensed in 2008Macaya and Los Picachoslicensed in 2011
Royalties:0 to 5,000 BOPD 8%5,001 to 125,000 BOPD 8-20% Macaya
Los Picachos
Shona-Hupecol-HAE
Shona-Hupecol-HAE
DurilloEmeraldDurillo
Emerald
CeibaEmerald
CeibaEmerald
TamarinCanacolTamarinCanacol
CAG 5Metapetroleum -
Talisman
CAG 5Metapetroleum -
TalismanHeavy Oil BeltHeavy Oil Belt
CAG 6Metapetroleum -
Talisman
CAG 6Metapetroleum -
Talisman
CanacolCanacol
Serrania Targets
Serrania Block
Serrania Block
In management’s opinion, acreage contains one of largest undrilled 4-way closure structures in northern South America – 150 MMBO recoverable potential
Two fault trap prospects on Los Picachos and Macaya concessionsMacaya concessions
Serrania targets Mirador formation; production potential should be similar to the Capella Field (located 7 miles south with potential recoverable reserves of 200 MMBLS of 10 °°°°-12°°°° oil
Exploration drilling expected to commence in Q1 2013
Located in prolific Peruvian Maranon Basin
Working Interests:Shona 36.5%Pluspetrol (operator) 51%Andean Oil and Gas 12.5%
313,023 gross acres, 114,253 net acres
Block 102
Forestal 65 MMBOForestal
65 MMBO
Macusari Trend
Macusari Trend
Carmen 30 MMBOCarmen
30 MMBO
BoaBoa
AnacondaAnaconda
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%
Prospects:
Boa, Anaconda, Andoas Norte
Initiating long-term production testing of the Boa prospect in Q2 2012
Huayuri Sur 50 MMBO
Huayuri Sur 50 MMBO
Dorissa80 MMBODorissa
80 MMBO
Capahuari Trend
Capahuari Trend
Capahuari Sur 175 MMBO
Capahuari Sur 175 MMBO
Andoas NorteAndoas Norte
Capahuari Norte 24 MMBO
Capahuari Norte 24 MMBO
Block 102 Targets
Capahuari and Macusari Trends
3 Prospects
Boa: 3D seismic with possibility similar to Carmen. Currently
Macusari Trend
Macusari Trend
Carmen 30 MMBOCarmen
30 MMBO
BoaBoa
AnacondaAnaconda
Capahuari Capahuari Huayuri Sur 50 MMBO
Huayuri Sur 50 MMBOsimilar to Carmen. Currently
evaluating Boa Oeste-1X
Anaconda: 2007 2D seismic data closure; 50± MMBO potential
Andoas Norte: 2007 2D seismic data closure; 20± MMBO potential light oil target
Dorissa80 MMBODorissa
80 MMBO
TrendTrend
Capahuari Sur 175 MMBO
Capahuari Sur 175 MMBO
Andoas NorteAndoas Norte
Capahuari Norte
24 MMBO
Capahuari Norte
24 MMBO
50 MMBO50 MMBO
Peru Block 102: Macusari Trend
SW
Macusari Trend
MQUEST Inter. — tem
Shona Assets: Monetization
ASSET ECONOMIC IMPACTSUPPLY CAPABILITY
Colombia Esperanza
Block
$16MM annual after-tax cash flow for 10 yrs
$6MM incremental annual after-tax
cash flow for 8 yrs
$23MM incremental
Current Development with existing firm contracts
14 MMCFPD
Increase in current contracts5 MMCFPD
Further Nelson Field Development
(with $10MM CAPEX) Block $23MM incremental annual after-tax cash flow
+ 100 BCF Possible ReservesDefined prospects
Potential $30MM incremental annual after-tax cash flow
TBD30,000 Acres to be Evaluated
(with $10MM CAPEX) 21 MMCFPD
Peru Block 102
Colombia: Serrania, Los Picachos and
Macaya Blocks
Boa, Anaconda, Andoas Norte and other leads TBD – Moderate Potential
TBD – Significant PotentialSerrania Anticline, Serrania
fault Trap, Los Picachos fault Trap and other Leads
2012 Goals
Complete resource evaluation of the Esperanza block with 3D seismic of the remaining 30,000 acres. Field work in progress.
Accelerate monetization of the Esperanza concession through additional gas sales
Commence drilling at Serrania in Q1 2013Commence drilling at Serrania in Q1 2013
Long term production testing of the Boa prospect in Peru’s Block 102
Create additional exploration opportunities
Evaluate participation in potential sector consolid ation activities
Capitalization & Financial Highlights
Common Shares 234,767,840
Voting 180,594,389
Non-voting 54,173,451
F/D Shares Outstanding 305,248,082
Cash at December 31, 2011 $21,143,000
Insider ownership 41% (46% F.D.)
Share price at December 31, 2011 $0.61
52 week range at December 31, 2011 $0.40 - $1.25
Market cap at December 31, 2011 $143.2 million
Management
James L. Payne, Chairman, Chief Executive Officer & Co-Foun der, MBA, Geophysical Engineer
Ex-Chairman, President and CEO of Nuevo Energy Company, October 2001 to May 2004
Ex-Vice Chairman of Devon Energy Corporation, September 2000 to January 2001
Ex-Chairman, President and CEO of Santa Fe Energy and successors, 1989 to 1999
International and Domestic Exploration and Operating career of 23 years with Chevron
Currently a director of Nabors Industries, Inc.
John R. Womack, President & Co-FounderJohn R. Womack, President & Co-Founder
Ex-Director of Land and Worldwide Negotiations at Nuevo Energy Company
Ex-President of Petrolera Santa Fe Energy, Santa Fe’s wholly-owned subsidiary operating in Argentina
Ex-Vice President of Land and Business Development at Santa Fe Energy
Larry D. Leavell, Chief Operating Officer
Ex-President of Devon Energy – Indonesia; Ex-Officer on the Indonesia Petroleum Association Board of Directors
Ex-Corporate Manager (HSE, Heavy Oil Upgrading, Marketing, International Production Manager) for Santa Fe Energy, over30-year career
Michael S. Wilkes, Chief Financial Officer and Controller
Served as Controller of Shona Energy Company since 2008
Ex controllers of Nuevo Energy and Santa Fe Energy and successors
Management (continued)
Shetal Mentlewski, Vice-President of Administration and L egal, Corporate Secretary
Serves Director of Corporate Development / Environmental Affairs in addition to above mentioned roles
Ex-Engineer for Halliburton Kellogg Brown & Root and Marathon Oil Company
Received J.D. from South Texas College of Law and B.S. in Chemical Engineering from Texas A&M University
David K. Gian, Treasurer
Ex-Business Development and Sales Manager, Oil States Industries
Received MBA from Acton MBA in 2006 and B.S. in International Business from Baylor UniversityReceived MBA from Acton MBA in 2006 and B.S. in International Business from Baylor University
Ricardo Mendieta, Vice–President, Colombia
Ex- Operations Vice - President for Latin America of Halliburton (Technology and consulting Div)
Ex Vice – President for Latin America of ION Geophysical Corporation
Previously worked in different international positions with Ecopetrol, Baker, Shell - TNO and Occidental
Served as Shona Energy (Colombia) Limited’s Country Manager in Colombia since July 2007
Board of Directors
Ted M. Anthony, Director
Managing partner of Babineaux, Poche’, Anthony & Slavich, LLC, as well as General Counsel of Geoproduction
Former managing partner of Perret Doise, APLC, as well as a petroleum engineer for Marathon Oil Company, Inc.
On the Board of Directors of Louisiana Reserve Development Corporation
Gregory D. Elliott, Director
Former President of Geoproduction
President of Workstrings, LLC and Superior Inspection Services
Petroleum engineer with 15 years experience working with Chevron prior to founding Workstrings in 1997.
Edgar G. Hotard , DirectorEdgar G. Hotard , Director
General Partner of HAO Capital and Chairman of the Monitor Group China and Senior Advisor to the Monitor Group
Former President & COO of Praxair Industries
On the Board of Directors of Global Industries and Albany International Corp.
James L. Payne, Chairman
See management
Gary R. Petersen, Director
On the Board of Directors of several EnCap portfolio companies and is a member of the board of Plains All American, Inc. and EVEnergy Partners
Member of the Independent Petroleum Association of America and the Houston Producers’ Forum
Jordan R. Smith, Director
Former President and CEO, Ramshorn Investments, Ltd., the exploration and production subsidiary of Nabors International, Ltd.
Former exploration executive for Chevron, Forest Oil Corporation, Wolf Oil and Energetics Inc.
Former Director of Clayton Williams Energy and Delta Petroleum Corp.
Questions?Questions?