Gearing Up for Development of Unconventional Shale Oil and Gas

Vaca Muerta “Pure Play” - Gearing Up for Development of Unconventional
Shale Oil and Gas
November 2014
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Forward Looking Statement Advisory and Purchasers’
Rights of Action
This presentation includes forward looking statements relating to, among other things, (a) the future financial performance and objectives of
Azabache Energy Inc. (the “Corporation) and (b) plans and expectations for the operation of the Corporation. These forward-looking statements
are typically, but not always, identified by terminology such as “may,” ”will,” “should,” “expect,” “anticipates,” “plans,” “intends,” “believes,”
“estimates,” “projects,” “ predicts,” “seeks,” “potential,” “continue,” or other similar terminology. Forward looking statements are inherent
unreliable, and prospective investors should not rely on them. The forward looking statements are based on the Corporations’s current
expectations, assumptions, estimates and projections about future events. Actual results are subject to numerous risks and uncertainties that
could cause actual results to differ materially from those expressed in a forward-looking statement as a result of numerous risk factors. The
Corporation has no obligation to update or otherwise revise any forward looking statements after the date of this Presentation or to reflect the
occurrence of unanticipated events.
Estimates of unrisked prospective resources pursuant to different sources including internal management evaluation. There is no certainty that
any portion of the resource will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the
resources.
• Rights of Action for Damages or Rescission
– The following statutory rights of action for damages or rescission will only apply to a purchase of securities of Azabache Energy Inc. in the event
that the foregoing presentation is deemed to be an offering memorandum pursuant to applicable securities legislation in certain provinces of
Canada. These remedies, or notice with respect thereto, must be exercised, or delivered, as the case may be, by the purchaser within the time
limits prescribed by the applicable provisions of the provincial securities legislation. Purchasers should refer to the applicable securities legislation
for the complete text of these rights or consult with a legal adviser. Where used in this section, "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 a statement not misleading in light
of the circumstances in which it was made.
• Ontario
– Securities legislation in Ontario provides that purchasers of securities are entitled to rights of action for rescission or damages where an offering
memorandum and any amendment to it contains Misrepresentation. In accordance with Section 130.1 of the Securities Act (Ontario) (the "Ontario
Act"), in the event that an offering memorandum or any amendment thereto contains a Misrepresentation a purchaser who purchases securities
offered by such offering memorandum during the period of distribution has, without regard to whether the purchaser relied upon the
Misrepresentation, a right of action against the issuer and any selling security holder on whose behalf the distribution is made for damages, or,
while still the owner of the such securities purchased by that purchaser, for rescission; provided that: (a) if the purchaser elects to exercise the
right of rescission, the purchaser will have no right of action for damages against the issuer (b) the issuer will not be liable if it proves that the
purchaser purchased the securities with knowledge of the Misrepresentation; (c) in the case of an action for damages, the issuer will not be liable
for all or any portion of the damages that it proves do not represent the depreciation in value of the securities as a result of the Misrepresentation
relied upon; and (d) in no case will the amount recoverable in any action exceed the price at which the securities were offered.
– No action shall be commenced to enforce these statutory rights more than: (a) in an action for rescission, 180 days from the date of the
transaction that gave rise to the cause of action; or (b) in an action for damages, the earlier of: (i) 180 days after the plaintiff 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 of action.
– The right of action for rescission or damages described above is in addition to and without derogation from any other right the purchaser may
have at law.
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Opportunity
 Azabache has secured a land package comprising of 2 blocks with an aggregate of more than 124,000 acres
land in the Neuquén Basin;
 Recently drilled and tested a well in the Covunco Norte Sur Block confirming oil flow from the Vaca Muerta
formation;
 Estimated Oil in Place of approximately 5 billion barrels of oil and 11 TCF of gas, confirmed by Independent
Engineering Report;
 Investments for a 2.5 Year work program estimated at 59 Million dollars which includes drilling, fracturing and
3D seismic;
 Azabache operates the blocks with a 90% working interest
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Overview
 Who is Azabache Energy Inc.?
 Where does the Company operate?
 What assets?
 What is the prize?
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Who is Azabache Energy Inc.?
•
Azabache Energy Inc. is a Tier 2 company listed on the TSX-V;
•
The Company is a Canadian incorporated company founded Sept. 21, 2005;
•
The Company has interests in 3 properties in Argentina and 2 in Colombia;
•
There are 177.6 M shares outstanding with an enterprise value of $22.5 M;
•
Insiders and connected issuers own and/or control over 40% of shares;
•
The Company is streamlining its focus on Vaca Muerta.
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Organizational Chart
AZABACHE ENERGY
INC.
Colombia
Argentina
100 %
Colombia
Branch
OPERATOR
Canada
ARGENTA
ENERGIA S.A.
100 %
ESQUISTOS
DEL SUR S.A.
G&P
Provincial
Company
23.76 %
CARRIED
OPERATOR
66.24 %
100 %
La Mona
Exploratio
n block
100 %
Loma El
Divisadero
block
10 %
Shale Oil
Assets
Covunco
block
El Corte
block
Board of Directors
GLENN VAN DOORNE - CHAIRMAN OF THE BOARD
37 years of experience worldwide, former COO of Solana Resources Ltd., acquired by Gran Tierra Energy Inc.
Previously vice-president Exploration and Development of Hurricane Hydrocarbons Ltd. (now Petrokazakhstan),
Holds a Masters in Geology and Mineralogy
CLAUDIO LAROTONDA – PRESIDENT/CEO
Geologist, MBA, 27 years experience in USA, Argentina and Venezuela. Pioneered Astra’s first international
business in Venezuela and Geopark Ltd. In Argentina. Worked for Unocal as Senior Business Developer and
worked for Baker Hughes and YPF as Development Geologist.
DOMINIC DACOSTA - DIRECTOR
Attorney with the law firm Dacosta Ordoñez Abogados in Colombia since 2011 and Director of Petroleos del Mar,
Latco Drilling S.A., Gasoducto Movil de Colombia S.A. E.S.P, Integral de Servicios Tecnicos S.A. and Geoespectro
S.A.S. Law degree, studies in international law at Pontificia Universitá S. Tommaso D'Aquino and a postgraduate
degree in business law from Universidad Externado de Colombia.
RODGER GRAY - DIRECTOR
20 + years of experience as a stockbroker and officer of an IDA member firm. Graduated from Laurentian
University. President and Chief Executive Officer of Toll Cross Securities Inc., a Toronto based, full service brokerdealer specializing in the junior resource sector. Previously acted as a Director and Vice-President, Investment
Banking - Institutional Equities with First Associates Investments Inc. and prior thereto, as President of St. James
Securities Inc. .
LUIS MIGUEL MORELLI - DIRECTOR
Law degree from Universidad Externado de Colombia and a Masters in Comparative Jurisprudence from New York
University. Former governor of Santander (Department of Colombia located in the central northern part of the
country). Key network in the Caribbean. 19 years of experience in the oil industry. Worked for Ecopetrol and for
Occidental the Colombia Inc (Oxy). Former Director of Solanas Resources Limited, and actual Director of Alange
Corporation.
Management Team
MARC BOUCHARD - CHIEF FINANCIAL OFFICER
34 years of international experience in finance and accounting. Graduate of McGill University in Economics and
Finance. Chairman of Toll Cross Securities Inc. Previously, held both public and private company CFO positions with
Teleglobe, Bell Canada, Fonorola and Shearson Lehman Brothers Asia Inc.
DANIEL GORDON - VICE PRESIDENT CORPORATE DEVELOPMENT
Lawyer and Civil Engineer; 23 years experience in various Latin American countries, working for Astra, acquired Oxy
Argentina and YPF. Pioneered Repsol activities in Venezuela, Guyana, Suriname and Trinidad and Tobago.
MARIA ESTER LARA - SENIOR GEOPHYSICIST
Seismic interpreter with 25+ years of national and international experience in hydrocarbon exploration and
development. PhD in Geophysics with experience in large companies (Repsol YPF, ARCO, PDVSA, Chevron Texaco)
and junior independents (Geopark, Unitec), 20+ professional papers and multiple professional awards.
BILL HOGENSON – SENIOR GEOLOGIST – ADVISOR
Senior Geologist with 31+ years of international experience in hydrocarbon exploration and development. Worked for
Exxon, Amoco, Maxus, Unocal, amongst large independent and integrated companies. Pioneered Santos Energy and
Zone Energy in the US. Wrote and Co-authored various papers on Oil and Gas Exploration.
RON PANCHUK - CORPORATE SECRETARY/LEGAL ADVISOR
27 years of experience as a legal consultant and commercial negotiator primarily for international oil and gas
companies in Canada, USA and Middle East
History (I)
2006 – Initial development of Loma El Divisadero block;
2007 – Obtain Covunco Norte y Sur Block as well as El Corte block;
2008 - Confirms oil flow at Loma El Divisadero;
2009 – Confirms gas production at OA-x1 well in Covunco;
2010 – Workover on Ojo de Agua x.1 well, 2D seismic La Mona;
2011 – Renegotiated and extended the Covunco and El Corte leases;
2012 – Drilled the Cvo.x-2 well in Covunco; Argentina nationalizes Repsol and
issues Decree 1277 to nationalize oil programs;
2013 – Province of Neuquen issues decree returning Covunco property to
Company. Colombian government withholds drilling permit for La Mona;
2014 – Completed the fracture stimulation of Cvo.x-2, proving oil in place.
Company enters negotiations to sell the Colombina operations.
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History II - Major’s interest in AZA’s assets
Prior to Decree 1277, (July 2012), in consideration for a 60% Working Interest
(WI) and the operatorship of the Covunco and El Corte JV`s ( 25% AZA, 15%
G&P), a Major Company (“the Major”) agreed the following:
•
$20 M up-front payment;
•
Fund a $238 M work program, $130 M evaluation plan + $108 M
development, with the following ramps-off:
 After initial $40 M work program, the Major may elect to continue
to next evaluation phase or exit, paying a $29 M penalty;
 After an additional $40 M work program, the Major may elect to
continue to next evaluation phase or exit, paying a $23 M penalty;
 Following a further $50 M work program, the Major may elect to
continue to commercial phase or exit, paying a $16 M penalty;
 In all cases when the Major elects to exit, it has to return to AZA
the 60% WI and the operatorship.
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Capital
• Through 2012, the Company raised $72.5 M through the issuance of 124.5 M
shares;
• Market cap of $130 M prior to the Repsol nationalization;
• Stock price dropped from a high of $1.05 to $0.185 after the Repsol
nationalization and Decree 1277 in July 2012;
• The Company has raised $7.7 M in equity and $4.2 M in convertible debt to
fund its last two years of operations. Current shares outstanding of 177.6 M;
• Current estimates call for $70 M in capital to meet capital programs and
operating expenses for the next 3 years.
• Next 12 months call for drilling one vertical well, fracture stimulating two
existing wells and shooting 300 km2 of 3D seismic.
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Current Operations and Plans
• Operational focus is on Vaca Muerta; elects
• Currently have entered into exclusive arrangement to sell Colombian assets.
The exclusivity expires November 26th;
• Company has streamlined operating costs and is using consultants on a
contract basis to complete geology studies;
• Have successfully re-negotiated extension of our leases and commitments for
Covunco and El Corte;
• Currenty negotiating with the Province of Mendoza to exchange Lomo El
Divisadero for producing assets;
• Retained unconventional “fracking” expert to oversee future development of
Vaca Muerta properties.
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Neuquen Basin Potential – Vaca Muerta Shale
 U.S. Energy Intelligence Agency (EIA) report
places Argentina (Vaca Muerta Fm in
Neuquen Basin as the main source) as the
3rd largest recoverable shale gas resources
in the world (774 TCF).
 In December 2010, YPF announced the
discovery of 4.5 Tcf of shale gas in the Loma
de la Lata Field. The company followed up
this major find, equivalent to roughly onethird of Argentina’s proved gas reserves, by
discovering an estimated 150 million barrels
of technically recoverable shale oil in the
region.
 In February 2012, A third party audit
increased YPF’s current estimate of the
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volume of technically recoverable
hydrocarbons in its Vaca Muerta acreage to
22.8 billion boe.
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Covunco - El Corte Existing Wells
CN.x-1 (YPF 1941) ABANDONED
•TORDILLO. Failed test.
Abandoned well.
Two way closure. Poor 2D coverage
CAz .x-1
(ALBERTA
Out of
CE.x-2
ENERGY 1997) NOT TESTED
OA.x-1
(YPF 1987)
LAJAS 1.85 MMcf/d 42 psi. 30 lt/h 50% Oil
•VACA MUERTA. Weak gas, light oil
shows. No trap
Trap?
Suitable for fractured reservoirs
(YPF 1969 & AZA 2010)
•VACA MUERTA . Gas and 12% Oil
• Subtle FBC? Or Nose & Cuyo fan?
•AZA WORKOVER – Lajas. Little gas and low salinity water
(Formation water?)
CN.x-2 (YPF 1978) TEMPORARY
ABANDONED
OA.x-2
•MULICHINCO. 25 lt/h Oil
Water Cl 23.7 gr/lt
•AGRIO. PT- 12 hs, 1.77 MMcf/d, 242 psi
Extremely sharp compressive structure.
Well might penetrate the fault
CN.x-3
(YPF 1980 ALBERTA ENERGY 1999 & AZA 2010)
TORDILLO.
FT- 5.33 MMcf/d 796 psi. 10-20% light OIL. PT- 228.2
Mcf/d BHP 679 psi
AUQUILCO.
(YPF 1984) ABANDONED
•QUINTUCO. 180 Mcf/d
AZA LONG
FT- 512 Mcf/d (Algal limestones within the gypsum)
TEST (Tordillo) - Stabilized production 270 psi
RATE: 869,700 scf/d C1 91% vol
OIL RATE: 1.3 m3/d 56-57 ºAPI
GAS
Extremely sharp compressive structure.
Well might penetrate the fault. Suitable
for fractured reservoirs
Cvo.x-1 (ALBERTA ENERGY 1997)
•BARDA NEGRA. (fractured
limestones) FT- 6 MMcf/d
PT- 4.2 Mcf/d
ZN.x-1 (YPF 1969)
•MULICHINCO. 742 Mcf/d
Water Cl 0.4-0.9 gr/lt
•TORDILLO. FT- 113 Mcf/d. PT- just
water after fracture? (Cl 28.5 gr/lt)
Structural nose, no closure
ZN.x-2
FWC
(YPF 1984)
•AGRIO. 130 lt/h 50% Oil
VMB time map
•MULICHINCO. 4% Oil.
•96% Water Cl 10-12 gr/lt
•LOS MOLLES. 485 Mcf/d.
Structural nose
OA.x-3
Pve.x-1 (YPF 1983)
SD.x-1 (YPF 1961)
•LOS MOLLES. Gas cut mud
•VACA MUERTA 312 Mcf/d
Homoclinal
Two way closure
(YPF 1984) ABANDONED
•MULICHINCO & AGRIO.
Water Cl 0.4 gr/lt
Too shallow
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Azabache Leverage in the Neuquen Basin
Covunco Norte-Sur and El Corte Blocks
Best Ranked Shale Oil
Acreage: 275 km2
El Corte
Covunco
Norte Sur
Cvo.x-2 (2012)
Pilot well
 Operates and owns 90%
WI in both blocks with GYP
(the provincially owned Co.)
having a 10% carried
interest.

Gaffney, Cline and
Associates 2014 report
estimates a mean of 5
Billioon bbls oil in place
(“undiscovered”).

Recovery factors for shale
oil range between 3-7% in
North America
4 Km
C.I. :25m
VACA MUERTA BASE STRUCTURAL MAP
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Cvo.x-2 – Hydraulic Frac Parameters and Results
13 3/8” @52 m
9 5/8” @466,8 m
Cement Top @ 650 m
 OIL FLOW
Maximum Natural Flow: 100 bbls fluid , 24 bbls of 37 API light oil with
a 2,200 scft/bbl GOR
.
 OVERPRESSURE
1642 - 1642.3 m
1654 -1654,5 m
STAGE 3
1672 - 1672,7 m
Static reservoir pressure 3536 psi at 1945 m depth (10.7 PPG , 31%
overpressure increasing at 75 psi/month will possible stabilize at 4200
psi)
 ROOM FOR EXTENSIVE FRACKING
1914.5 - 1915 m
1933 - 1933.5 m
1945 - 1945.5 m
Plug at 1960 m
1974.5 - 1975 m
1990.5 - 1991 m
STAGE 2
The results obtained from the Production Logging Tool suggest that
the fracture was effective at the upper perforation of 2nd stage level
(87% volume was tested from shale interbedded with limestones. )
GCA reports that formation was understimulated
5 ½” @2.186 m
TD 2190 m
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Short-Medium Term Goals
 INCREASE PRODUCTIVITY
 Produce CVOx2 well with artificial lift
 Fracture and re-fracture existing wells
 Acquire up to 306 km2 3D seismic data
 Optimize drilling and completion
 WELL CONSTRUCTION COST REDUCTION
 Local Proppant Sourcing
 Operational efficiency optimization
 Start Building Alliances
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2.5 - Year Work Program (59 MM$)

Cvo x-2 well test & initial production
0.6 MM$
306 sqkm Seismic acquisition and processing
9.5 MM$
 3 drilled & fracked vertical wells
32.5 MM$
 2 unconventional re-fracks.
12.0 MM$
 G&A
4.4 MM$
total
59.0 MM$
These figures include 21% VAT.
This work program will evaluate both blocks unconventional potential
towards a 200+ MMBls and 400 BCF recoverable hydrocarbons.
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Summary
 Large land package, 90% owned and operated;
Proved Oil Production with 6.7 B bbls of Oil in Place;
Large resource package with recovery factor of 3 to 7%;
Infrastructure available - idle pipelines, roads, service contractors;
Business friendly provincial government;
Macro-economic situation in Argentina improving with favourable pro-business government
changes in 2015.
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