Oil & Gas in Alberta Backgrounder

Current Oil and Gas Projects

January 2022 – WTI Oil prices steadily increase through January 2022 ending the month at over US $88 /bbl
February 9, 2022 – Crescent Point Energy Corp (CPG-TSX) announces sale of non-core Canadian assets producing ~10,554 bbl oil equivalent per day (Q4)
Market conditions create purchaser interest – CPG using 80 / 20 rule with respect to managing assets – Valuations at 2 – 3 X CF
February 2022 – WTI Oil prices consistently over US $90 /bbl
February 24 2022 – Russia invades the Ukraine
Mid-February Argo Gold signs CA with CPG, makes initiative to identify assets available or purchase and then continues to sign CA’s and do due diligence
March 2022, April 2022, May 2022 – Argo Gold retains multiple consultants for oil & gas project due diligence and to identify oi & gas opportunities
June 2022 – Two oil & gas opportunities identified with intent to sign LOI’s

Oil is 90% of the transportation industry in the United States (2020). The EV initiative is great but the transformation reality is multiple decades.
Coal-fired electric power plants are being transformed to Natural Gas. US Electrical Power is now 40% natural gas and 40% coal.
Natural Gas heats 60% of US homes. 25% of US homes use electrical heat.
The Oil & Gas sector – transportation, heat and electricity – is important to people’s daily lives and reasonable prices are important for economic activity
Poor public perception of sector, low prices and COVID resulted in under-investment and challenges for expanding production now
US oil & gas inventories are well below 5-year averages
Decreasing Western world oil & gas production increases the world’s reliance on
OPEC (36%) and Russia (10%) & gas prices and supply concerns. The Canadian oil & gas industry and is a world leader in environmental standards

Oil & Gas Valuations & Opportunity

Companies trading at 2 – 5 X cash flows and get no credit for long life assets or reserves
2020 sector FCF of ~ US $126 B to anticipated 2022 sector FCF of ~ US 834 B with anticipated investment ratio of 20% to 30% (Rystad)
Q1 2022 oil prices provided first opportunity for companies to sell non-core assets
Long life, low decline and low risk assets available that require minimal capital
Many producing assets provide optimization opportunities such as low-cost workovers, re-activations and re-completions
Opportunity to increase production by implementing waterfloods and drilling additional wells
Abundant oil & gas exploration and development opportunities after a 7-year slowdown
Oil & Gas exploration almost immediately becomes development and production resulting in CASH FLOW

Western Canada Sedimentary Basin Cross-section Location (diagonal black line)

Tectonic activity resulted in burial to generate oil and migrate it up-dip
Hydrocarbons are expelled from source rock and move into reservoir rocks
80% tar sands – remaining 20% a unique opportunity for junior producers