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Corporate PresentationStrong Asset Base
Attractive OpportunitiesPrudent Financial Management
TSX: NAE.un December 2009
Peter Imlay AssociatesResourceOne Conference San Francisco, CA
2
Disclaimers
Forward Looking Statements
This document contains statements that constitute “forward-looking information” or “forward-looking statements” (collectively “forward-looking information”) within the meaning of applicable securities legislation. This forward-looking information includes, among others, statements regarding: business plans for drilling, exploration and development; estimates of production and operations performance; forecasted commodity price estimates of future sales; estimated amounts and timing of capital expenditures; estimates of operating costs and unit operating costs; business strategy and plans or budgets; estimated timing and results of new development; and other expectations, beliefs, plans, goals, objectives, assumptions, information and statements about possible future events, conditions, results of operations or performance.
Various assumptions were used in drawing the conclusions or making the forecasts and projections contained in the forward-looking information contained in this presentation. Forward-looking information is based on current expectations, estimates and projections that involve a number of risks, which could cause actual results to vary and in some instances to differ materially from those anticipated by NAL and described in the forward-looking information contained in this document. Undue reliance should not be placed on forward-looking information. The material risk factors include, but are not limited to: the risks of the oil and gas industry, such as operational risks in exploring for, developing and producing oil and natural gas, market demand and unpredictable facilities outages; risks and uncertainties involving geology of oil and gas deposits; the uncertainty of estimates and projections relating to production, costs and expenses; potential delays or changes in plans with respect to exploration or development projects or capital expenditures; risk that adequate pipeline capacity to transport the natural gas to market may not be available; fluctuations in oil and gas prices, foreign currency exchange rates and interest rates; the outcome and effects of any future acquisitions and dispositions; safety and environmental risks; uncertainties as to the availability and cost of financing and changes in capital markets; competitive actions of other industry participants; changes in general economic and business conditions; the possibility that government policies or laws may change or governmentalapprovals may be delayed or withheld; changes in tax laws; changes in royalty rates; and the results of NAL’s risk mitigation strategies, including insurance; and NAL’s ability to implement its business strategy. Readers are cautioned that the foregoing list of risk factors is not exhaustive. Additional information on these and other factors which could affect NAL’s operations or financial results are included in NAL’s most recent Annual Information Form and Annual Financial Report. In addition, information is available in NAL’s other reports on file with Canadian securities regulatory authorities.
Forward-looking information is based on the estimates and opinions of NAL’s management at the time the information is released.
Boe Conversion
Throughout this press release, the calculation of barrels of oil equivalent (boe) is calculated at a conversion rate of six thousand cubic feet (mcf) of natural gas for one barrel (bbl) of oil and is based on an energy equivalence conversion method. Boes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf:1 bbl is based on an energy equivalence conversion method primarily applicable at the burner tip and does not represent a value equivalence at the wellhead.
All dollar amounts in Canadian dollars, unless otherwise stated.
3
NAL Overview
TSX listed since 1996 NAE.UNPrice (Dec. 1, 2009) $12.77Units outstanding (MM) 112.3Market capitalization $1.4BEnterprise Value $1.8BMonthly distribution (per unit) $0.09Current yield 8.5%
4
Fundamental Change and Repositioning
• Attracting new management / technical capability
• Adding resource focused assets and opportunities
• Exploiting low risk oil plays
• Positioning future gas prospects
• Maintaining financial capability / flexibility
• Completing value adding acquisitions
5
Long-term Volume Growth
0
5,000
10,000
15,000
20,000
25,000
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
BO
E/D
Organic Acquisitions
NAL Unit Ownership
Note: As at September 30, 2009
68%
Canadian
25%
U.S.
7% Other
39%Institutional
59%Retail
Consistent Foreign Ownership
Increasing Institutional Presence
Manulife owns < 2%
Institutional presence continues to increase through broader participation beyond Canada and the U.S.
6
2009 Overview Nottingham Gas Plant
7
Page 8
Breaker Energy Transaction Summary
• Breaker meets all of NAL’s key acquisition screening criteria:– Concentrated assets – 3 properties = 75% of value– 95% operated, high working interest (90%+)– Maintains ~ 50% gas /50% liquids balance– Low risk development profile adding more than 190
resource play locations– Accretive on cash flow, production, reserves and net
asset value on a per unit basis– Adds $270 million in tax pools
• Transaction metrics are competitive– $57,200/boe/d (6,800 boe/d) – $16.90 / P+P boe (23 MMboe – conservative estimate)
• Deal expected to close on or about Dec. 10, 2009
Page 9
Breaker Assets Complementary to NAL
Source: GeoScout, NAL reports
10
2009 Updated Full Year Guidance
Production (boe/d) 23,500 - 24,000
Capital Expenditures ($MM) 135
Wells Drilled (Gross/Net) 78 / 37
Operating Costs ($/boe) 11.30 – 11.60
Royalties (%)* 17.5 – 18.5
*Excluding New Alberta Incentive Program
11
2009 - Delivering Strong Relative Performance
2009 OBJECTIVE PERFORMANCE
Deliver 2009 Guidance Strong H1/09 – increased guidance
Financial Flexibility
Live within cash flow Distribution linked to commodity prices ($0.09/month)
Payout + capital ratio is 105 - 110%
Renew $450MM bank line Completed mid-year review
Completed $86MM equity deal Solid institutional / retail support
Add Opportunities
Increase land holdings Purchased Cardium oil acreage
Target Acquisitions Alberta Clipper acquisitionCardium JV partnershipSpearpoint farm-in
NAL Relative Performance YTD2009 To Date Total Return - Trust & Dividend Corp. Peers
84%74%72%
57%52%49%
43%41%37%35%34%31%30%
20%18%16%8% 7% 6% 4% 0%
105%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
A B C NAE.UND E F G H AverageI J K L M N O P Q R S T
Source: Bloomberg.Priced as at 01DEC09
12
13
2009 Operating PlanSylvan Lake Horizontal Frac
Concentrated Core Areas
14
Sylvan Lake, Alberta
Pine Creek, Alberta
Southeast Saskatchewan
Southeast Alberta
Monkman, B.C.
Trutch, B.C.
Beg, B.C.
• Year-round access• Volume 80% operated• Strong infrastructure position• Significant opportunity on developed land• Spearpoint adds 900,000 gross acres• Joint Venture adds 100,000 gross acres
Current Estimated Acreage (000’s)
Developed
Gross Net
1,231 452Undeveloped
Gross Net
1,242 419
15
2009 Q4 Operational Focus
• 8 (6 net) Cardium horizontal oil wells using multistage fracs in AB
• 11 (5 net) horizontal Mississippian oil wells in SE Sask
• $35 million in Q4/09 capital budget to capture opportunities andmaximize incentive impacts
• Exploration drilling 10% of full year program
• Have catalogued an inventory of approximately 1,200 multi-zone deep and shallow gas/oil prospects that will continue to build with the recent announcement of Breaker Energy
• 24 geoscientists including geologists, geophysicists, Geo-techs working the extensive land base that the Trust may access with recent deals
16
2009E Production Balanced
Crude Oil NGL Natural Gas
48%
68.5 Mmcf/d
44%
10,200 bbl/d
1,900 bbl/dSaskatchewan BCOntario Alberta
2%
11%
35%
52%
Note: Based on mid-point of full year guidance of 23,500 boe/d.
8%
17
2009E Capital Allocation By Area
($MM)
Sylvan Lake 60
Saskatchewan 25
Alberta Other 30
NEBC & Non-Op 12
Plant & Facilities 4
Land & Seismic 4
Total 135
Maximum flexibility - 90% of capital program operated
18
SE Saskatchewan – Broadening Our Horizons
• Focus on Mississippian oil reservoirs using 3D seismic& Hz drilling
• 11(5 net) wells in Q4 2009
• 80+ sections of Bakken lands –evaluating options
• Nottingham gas plant expansion: late ‘09 start up
7 wells3 wells
1 well
8 wells
3 wells
14,000+ boe/d of managed production with significant operating infrastructure
19
Horizontal Cardium Oil Play
Parameters
• 2,000 meters TVD – 1,000 meter Hz
• Reserves/well: - 150 – 200 Mboe
• Capital/well ($MM) – 3.2 DCT
• Capital efficiency: $15-$20/boe
• Light sweet oil – no water
• Spacing 2 to 4 wells per section
• NPV BT15 at $2.0-$2.8 million per well
• Includes AB Royalty Incentive at 5% rate in year one
• Excludes AB drilling incentive of $600,000/well
• Compared to vertical wells:
• 2x the capital delivers 3-4x production and reserves
A Sand
B Sand
• Shoreface Bar
• 3 to 6 m clean sand
• Conglomerate lag
• Thinner
• More chert
• Higher perm
20
• 150 gross (100 net) sections of Cardium oil prospective acreage
• Garrington area resource well understood through vertical delineation
• Cochrane trend well mapped with lower vertical well density
• Pine Creek Cardium is a combination of low risk offsets and trend mapping
Potential Gross Locations (~65% WI):
• Existing NAL acreage in Garrington and Pine Creek – 150 locations
• JV Partnership Agreement at Cochrane– 50 locations
• Spearpoint acreage in Garrington and Pine Creek– 75 locations
Horizontal Cardium Oil Running Room
Hz Drilling Rig North of Cochrane, AB
21
Garrington – Horizontal Cardium Performance
0
25
50
75
100
125
150
175
200
225
250
1 2 3 4 5 6 7 8 9 10 11 12Months On Production
Prod
uctio
n (b
oe/d
)
Avg Of Actuals To Date
Original Hz Forecast
Typical Vertical Well
10# of Wells 8 5 5 5 5 3 3 3 25
22
Sylvan Lake – Focus Area For 2009
• Cardium in-fill of existing pools and extensions –200 future locations
• Existing infrastructure is being upgraded to accommodate increased throughput
• Significant stacked gas opportunities in the Mannville being evaluated
Cardium Hz
2009 Drills
2008 Drills
23
Pine Creek – Extending the Cardium Play
Cardium oil/gas
Other – gas
8-22 Cardium Hz – 100% WI- 500m section good gas and oil shows- first month production 630 boe/d
• Spearpoint land adds significant trend acreage to the existing Cardium play
• Multi-zone gas opportunities have significant option value
• Gathering and processing capacity is available through NAL facilities and third party systems
• Hz Cardium oil
• Mississippian/Bakken/Tilston oil
• Mannville stacked gas
• BC gas in Sukunka, Trutch, Beg
• Shallow gas / CBM
24
• Increasing opportunities in all core areas
• Broadening use of technology in tight reservoirs
• Balanced risk profile
• 1,200+ prospects identified to date -growing significantly with the Spearpointfarm-in
Diversified Portfolio of Potential Opportunities
25
Financial Information
26
2009 Financial Assumptions
Base Case*
WTI ($US/bbl) 78.00
AECO ($C/GJ) 4.40
FX (CAD/US) 1.05
Bank Interest Rate (%) 4.00
* In all cases, forecasts are based on year-to-date actual prices as at Oct. 31, 2009 and the presented flat forecast pricing for the remaining two months in 2009.
27
2009 Financial Forecast
Base Case
Funds From Operations ($MM) 230
Distributions ($MM)* 120
Capital Expenditures ($MM)** 131
FFO ($ per unit) 2.15
Distributions ($ per unit) 1.12
Basic Payout Ratio (%) 52
Payout with Capital (%) 108
Payout with Capital & DRIP (%) 103
* Assumes monthly distribution of $0.09 per unit effective March 2009.
** Assumes recovery of $4 million for Alberta Royalty Drilling Credit.
*** All figures exclude impact of Breaker Energy transaction.
28
2009 Balance Sheet Forecast
Base Case*
Net Bank Debt at Year-end ($MM) 165
Convertibles at Year-end ($MM) 195
Total Debt at Year-end ($MM) 360
Net Debt/Cash Flow (x) 0.7
Total Debt/Cash Flow (x) 1.6
* All figures exclude impact of Breaker Energy transaction.
29
Strong Balance Sheet - Available Credit Lines
Committed Bank Lines $450 MM
Bank Debt as at Nov. 30, 2009 $133 MM
Available Credit $317 MM
Convertible Subordinated Debentures $195 MM
* All figures exclude impact of Breaker Energy transaction.
30
2009 Hedging Program Contributing Value
• Board approval – up to 60% of net production• Counterparties – all Canadian Chartered banks• Crude oil hedges:
– 38% of 2010 oil volumes hedged– 20% with swaps – average floor of ~$US83.80/bbl
– 80% with collars – average floor of ~$US64.50/bbl
– average ceiling of ~$US76.30/bbl
• Natural gas hedges:– 43% of 2010 – floor C$6.00/Mcf AECO
• Interest rates – locking in low rates (3–5 years)• Currency - hedged Cdn $ at $1.22 U.S. for Q4/09
31
Future DirectionSylvan Lake Horizontal Frac
32
Fundamental Change At NAL
Year-end 2006 March 31, 2009
People: Senior Managers 10 12 – 75% New
Growth:
Volume (boe/d) 19,444 23,984
P+P reserves (MMboe) 58.2 77.4
Reserve Life Index (years) 8.5 8.8
Organic Reserves Replacement 25% 116%
Tax Pools ($MM) 494 954
Opportunities:
Net developed & undeveloped land (‘000 acres) 393 871
Exploration Capital 0% 10%-15%
Technical focus
Typical trust model – buy and exploit
Toward an E&P model – develop internal
growth opportunities/resource plays
33
Toward 2011 – A Yield Oriented Entity
• Add size/opportunities in 2009 – 2010
• Safe harbour available - $967MM
• Capture ongoing investor demand for yield
• Retain competitive payout with dividends
• Maintain financial capability/flexibility
34
Why is NAL Attractively Positioned to Add Value?
• Positive operating / financial performance
• Extensive Cardium oil resource play in Alberta
• Solid Mississippian oil business in S.E. Sask
• Significant gas upside potential in portfolio
• Positioned to maximize value from Government royalty programs
• Strong balance sheet / available lines / hedging
• Momentum through recently completed transactions
• Credible team and financial partner
35NAE.UN - TSX
Nottingham Gas Plant
36
Appendix
37
Summary of Transactions YTD
Alberta Clipper• Corporate deal - $115 million, 3,100 boe/d, 8.6 MM P+P
Reserves, 65% gas (Trust 50%) – closed June 1
Cardium JV Partnership Agreement• Exclusive agreement with a senior player to
access 150+ sections of land in central Alberta
• 3 year/$50 million minimum commitment (65% Trust)
Spearpoint Energy• Exclusive agreement with a senior player to access 1,400 sections
of land in Alberta
• Targeting the Cardium in Garrington and Pine Creek - adds 70 horizontal oil opportunities – 5 Hz wells planned for H2/09
38
Experienced Management Team
Andrew WiswellPresident & CEO
Keith SteevesVP Finance & CFO
Marlon McDougallVP Ops & COO
John KanikDirector, Marketing
Tracy WoodController
Jim Van CampSaskatchewan BU
Lance BergSylvan Lake BU
Brent GrebinskiAlberta BU
Tim BrandenborgNon-Operated BU
John KoyanagiVP Business Dev.
Clayton ParadisManager, IR
David AllenDirector, E&P
Alex TworoMgr. A&D Geology
Deric OrtonDirector, Land
39
Strategic Partnership with Manulife
Manulife
• Direct oil & gas investor since 1990
• Long term investment horizon
• Desire to increase investment with Trust
Terms of Agreement:
• Calgary management runs business
• No management or acquisition fees
• Shared G&A costs
• Independently controlled Trust board
• Long term contract - 90 day trust exit option
Benefits:
• Broader technical/financial capability
• Capital market view & investment discipline
• Financial partner in transactions
NAL Resources Management
(manages 41,000 boe/d)
80% of assets are common80% are operated
Trust
24,000
boe/d
Manulife
17,000
boe/d
40
Stable RLI
• McDaniels independently evaluated reserves • Conservatively booked reserves• Consistent P+P RLI of 8 to 9 years
Source: Company Reports
0
1
2
3
4
5
6
7
8
9
10
2000 2001 2002 2003 2004 2005 2006 2007 2008
RLI
(yea
rs)
41
2009 Sensitivities on FFO
Impact on FFO
($MM) $/unit
WTI ($US/bbl) $5.00 10.4 0.10
AECO ($C/GJ) $0.50 7.3 0.07
FX (CAD/US) $0.01 1.3 0.01
Prime Rate 1.0% 1.6 0.02
Production (bbl/d) 100 0.9 0.01
Production (mmcf/d) 1 0.4 <0.01
Note: Excludes impact of hedge contracts. Also, as pricing moves further from base case pricing, the sensitivity relationships weaken.
42
Current Tax Pools
$ MM
Canadian Exploration Expense 44
Canadian Development Expense 243
Canadian Oil & Gas Property Expense 340
Undepreciated Capital Costs 216
Other (including loss carry forwards) 93
Total 936
43
Broadened Bank Syndicate
Credit Available ($MM)
Bank of Montreal* 145
Royal Bank of Canada 105
CIBC 75
Bank of Nova Scotia 75
Alberta Treasury Branch** 25
Union Bank of California** 25
*Includes $10 million of working capital facility**Includes new capacity added in 2008
44
Crude Oil Hedge PositionsCrude Oil Hedge Contracts as at 11/04/2009
Q4-09 Q1-10 Q2-10 Q3-10 Q4-10
US$ Collar Contracts
$US WTI Collar Volume (b/d) 300 3,700 3,500 2,600 2,400
Bought Puts – Average Strike Price ($US/bbl)
$62.67 $62.51 $62.94 $64.90 $65.10
Sold Calls – Average Strike Price ($US/bbl)
$71.85 $73.61 $73.96 $76.42 $76.88
US$ Swap Contracts
$US WTI Swap Volume (b/d) 1,700 700 1,200
Average WTI Swap Price ($US/bbl) $61.94 $75.36 $75.67
Cdn$ Collar Contracts
$Cdn WTI Collar Volume (b/d) 1,500 300
Bought Puts – Average Strike Price ($Cdn/bbl)
$102.07 $66.00
Sold Calls – Average Strike Price ($Cdn/bbl)
$137.63 $80.17
Cdn$ Swap Contracts
$Cdn WTI Swap Volume (b/d) 1,300
Average WTI Swap Price ($Cdn/bbl) $92.55
Total Volume (b/d) 4,800 4,700 4,700 2,600 2,400
Note: All counterparties are Canadian banks in our syndicate.
45
Natural Gas Hedge Positions
Natural Gas Hedge Contracts as at 11/04/2009
Q4-09 Q1-10 Q2-10 Q3-10 Q4-10
Collar Contracts
AECO Collar Volume (GJ/d) 1,685
Bought Puts – AECO Average Strike Price ($Cdn/GJ)
$8.90
Sold Calls – AECO Average Strike Price ($Cdn/GJ)
$11.44
Swap Contracts
AECO Swap Volume (GJ/d) 32,663 30,000 30,000 31,000 14,337
AECO Average Price ($Cdn/GJ) $5.57 $8.86 $5.60 $5.62 5.67
Total Volume (GJ/d) 34,348 30,000 30,000 31,000 14,337
Note: All counterparties are Canadian banks in our syndicate.
46
Interest Rate Hedge Positions
Financial Interest Rate Contracts as at 08/06/2009
Swap Contracts Notional (Cdn $MM)
Term (years)
Floating Rate(Receive)
Fixed Rate (Pay)
December 23, 2008 39 3 CAD-BA-CDOR 3 month 1.5864%
January 30, 2009 22 4 CAD-BA-CDOR 3 month 1.3850%
January 30, 2009 22 5 CAD-BA-CDOR 3 month 1.5100%
March 5, 2010 14 3 CAD-BA-CDOR 3 month 1.8750%
March 5, 2010 14 4 CAD-BA-CDOR 3 month 1.9850%
March 19, 2010 14 3 CAD-BA-CDOR 3 month 1.8500%
March 30, 2010 14 4 CAD-BA-CDOR 3 month 1.9300%
Total Notional (Cdn $) 139
Note: All counterparties are Canadian banks in our syndicate.
47
Foreign Exchange Hedge Positions
Foreign Exchange Contracts as at 11/04/2009
Term Notional Per Month (US $MM)
Exchange Rate (USD to CAD)
01OCT09 – 30NOV09 6 1.2743%
01DEC09 – 31DEC09 5.5 1.1134%
01JAN10 – 31DEC10 4.5 1.1206%
Note: All counterparties are Canadian banks in our syndicate.
48
Exceptional Relative Valuation2010E EV/DACF
Source: CIBC WM – priced as at 03DEC09
2.0x
3.0x
4.0x
5.0x
6.0x
7.0x
8.0x
9.0xA B C D
NAE
.UN E F G H I
Ave
rage J K L
EV/D
ACF
49
Sell-side Research
Market PerformFirstEnergy CapitalJill T. Angevine
OutperformMacquarie CapitalLeon Knight
BuyTD SecuritiesGreg Shaw
Analyst Firm Recommendation
Gordon Tait BMO Capital Markets Restricted
Kyle Preston CanaccordAdams Buy
Robert Pare CIBC World Markets Outperform
Menal Patel National Bank Financial Restricted
Jeff Martin Peters & Co. Sector Outperform
Kristopher Zack Raymond James Outperform
Fergal Kelly RBC Capital Markets Outperform
Jeremy Kaliel Scotia Capital Sector Outperform
50
Corporate Information
MANAGEMENT
Andrew Wiswell President & CEO
Keith Steeves VP Finance & CFO
Marlon McDougall VP Operations & COO
John Koyanagi VP Business Development
INVESTOR RELATIONS
Clayton Paradis Manager, Investor Relations
Local: (403) 294-3620Toll-free: (888) 223.8792E-mail:[email protected]
TRUSTEE AND TRANSFER AGENT
Computershare Trust Company of Canada
AUDITOR
KPMG
ENGINEERING CONSULTANTS
McDaniel & Associates
LEGAL COUNSEL
Bennett Jones
STOCK EXCHANGE LISTING & SYMBOL
Toronto Stock Exchange NAE.UN
EXECUTIVE OFFICE1000 – 550 6th Avenue SW, Calgary, Alberta, T2P 0S2
Website: www.nal.ca