Transitioning Coverage BUY $10.00 (GXO-T)Beacon Securities Ltd.| 66 Wellington Street West, Suite 4050, Toronto, Ontario, M5H 1H1 |416.643.3830 | Granite Oil Corp. (GXO-T) Hard As

Beacon Securities Ltd.| 66 Wellington Street West, Suite 4050, Toronto, Ontario, M5H 1H1 |416.643.3830 |www.beaconsecurities.ca

Granite Oil Corp.

(GXO-T)

Hard As A Rock

Transitioning Coverage

BUY (Unch) $10.00 $6.87

$10.00

46%

FYE Dec 31

Assumptions 2014A 2015E 2016E

WTI (US$/bbl) $0.00 $50.89 $60.00

AECO (CDN$/mcf) 2009E $2.94 $3.50

US$/CDN$ $1.00 $0.81 $0.81

Production

Crude oil & Liquids (bbl/d) - 5,569 3,831

Natural Gas (mmcf/d) 2009A 7.5 3.2

Total Production (boe/d) 3,964 6,819 4,371

Oil & Liquids Weighting 0% 82% 88%

Financial ($MM, except Per Share item)

Cash Flow $81.5 $44.8

CAPEX $84.6 $32.0

Net Debt $36.0 $30.08

Net Debt/CF 0.4x 0.7x

CFPS - Fully Diluted $1.35 $1.48

EPS - Fully Diluted $0.30 $0.29

P/CF 5.1x 4.7x

EV/DACF 5.6x 5.2x

EV/BOEPD $35,798 $54,501

Shares Outstanding, Basic (MM) 30.3

Shares Outstanding, Diluted (MM) 30.5

Insider Holdings, Basic 16%

Market Capitalization (MM) $208.2

Enterprise value (MM) $244.1

All prices in C$ unless otherwise stated

Stock Performance

52 Week Price Range $4.03 - $12.18

Valuation

Stock Data

About the Company

Ownership of Granite Oil shares leverages investors to a highly-focused,

exploitation-orientated company paying out free cash in the form of a

div idend.

Prev ious Close

12-month Target Price

Potential Return

Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May

3

4

5

6

7

8

9

10

11

12

13

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Source: FactSet Prices

Granite Oil Corp. (GXO-CA)

Volume (Thousands) Price (CAD)

Volume Granite Oil Corp.

June 4, 2015

Michael A. Zuk

(403) 910-5381

[email protected]

What Happened – Following the closing of the corporate split of

DeeThree Exploration into Granite Oil and Boulder Energy, we

are transitioning coverage of DeeThree into Granite. The

company survives as the 100% owner/operator of the AB Bakken

asset whereby a modest capitalization strategy, combined with

a dividend payout will be implemented.

Read Through – This analyst has covered DeeThree since its 2011

discovery well into the AB Bakken play and has been a

proponent of both the asset and the technical team’s ability to

literally crack open an entirely new play. With a distinct

exploration and growth focus, DeeThree refined its

drill/case/complete (D/C/C) approach as well delineated the

corners of the play without the help of industry competitors.

Production swiftly grew to a peak of 5,000 boepd in 4 years and

reserves of 17 mmboe against an OOIP pool of ~500 mmboe.

Now however, the strategy shifts to incrementally increasing

recoveries, while also rewarding shareholders with a dividend

along the way. Part of this is an implicit acknowledgment of the

finite running room along the play, but also the nature of the

play being conventional, not tight/unconventional. In such a

scenario, the fewer wells drilled (read-less capital) and higher

recoveries are actually preferred (versus tight oil plays that can

require 8-12 wells per section). Granite now enters the

maturation phase of its life cycle in the play where gas injection,

in combination with strategic horizontal well placement, is

moving the dial on recoveries (while also minimizing capital).

Followers of our research know we routinely question the true

cost to stay flat for any business model (on PDP and production)

– where companies with a dividend liability face an even higher

level of difficulty. We believe Granite fares well on this

consideration and both the robustness of the play economics

and the B/S strength provide downside protection in a

depressed part of the commodity cycle (more discussed herein).

Valuation and Recommendation – We have established a $10.00

target and BUY rating for Granite Oil.

mailto:[email protected]

June 4, 2015 | Page 1 Michael A. Zuk | 403.910.5381 | [email protected]

Granite Oil Corp.

Overview Today, Granite is producing around ~3,900 boepd (~90% liquids) and

holds corporate reserves of 17 mmboe. As is typical for all companies

under coverage, we focus our analysis only on the key assets that will

see capitalization within a two-year time frame.

Before we provide an asset overview of the AB Bakken stand alone,

we believe a brief discussion of the strategic rationale behind the

corporate split is merited.

We have long held that DeeThree unjustifiably traded at a discount to

its peers despite its top decile efficiencies (see Exhibit 1). We believe

management is clearly trying to send the same message by

separating and crystallizing value into two separate entities. We are in

favour of the transaction for a number of reasons;

1) AB Bakken was increasingly becoming more of an engineering

project than an E&D project (every 1% increase in recoveries was 5

mmbbl @ $20 PDP NPV/boe was effectively ~$1/sh), so the

management/capitalization strategy between assets was diverging.

The Belly River play grew at 15% per quarter last year while the Bakken

was basically only seeing maintenance capital. Now we get to see

what each can do on their own.

2) Our biggest critique of the divvy model is ‘What does it truly cost the

producer to stay flat?’ Most forecast efficiencies they have never

achieved historically then do tuck-in acquisitions to show ‘growth’.

Granite will be a uniquely pure EOR (enhanced oil recovery) story with

no real option to acquire, ergo this is a real dividend company

managing declines and paying out excess cash.

a. To keep production flat @22% decline, starting production of 3,900

boepd and adding at $15,000/boepd, means it should cost ~$13MM

against $30MM in CF at US$50/bbl. Less $11MM in dividends and the

company is still left with ~$6MM FCF.

b. To keep PDP reserves flat they need to replace 1.4 mmboe

(3,900*365) @ $12/bbl F&D or $17MM. Less $11MM in dividends and the

company is left with $2MM FCF.

c. So, Granite can effectively stay flat at $50/bbl with FCF of $2-6MM.

This of course assumes NO growth, NO increase in price deck, NO

improvement on declines, and NO improvement on drilling

efficiencies (even though last well was well above modeled IP30 250


Granite Oil Corp.

bbl/d - see June 1 press release 760 bbl/d IP5 and 14% below

budgeted D/C/C cost).

d. Granite is also intentionally under-levered at the outset so interest

expense/debt obligations won’t obscure sustainability (0.7x D/CF).

3) We expect an eventual valuation uptick from the market because

investors that were skeptical of one asset can effectively just play the

one they like. Similarly, an acquirer can now look at either entity

without having to manage the other. We think FCF from the AB

Bakken was helping fund the Belly River – now that ~$11MM is getting

returned to investors which should get a lower equity cost of capital.

Recall most div-co’s trade at 8-9x P/CF, while DeeThree was at ~5x.

Many investors want to get paid to wait – now they can with Granite.

Exhibit 1. Large Valuation Gap Despite Similar Efficiencies

Source: Company reports


Granite Oil Corp.

4) Without the ‘safety net’ of one asset supporting the other to keep

corporate production growing, we also get more clarity into true half-

cycle efficiencies for each of Boulder and Granite. We think

management knows this implicitly and wouldn’t maneuver like this if

the bulk of the E&D-risk/infrastructure-spending wasn’t already done

and past tense. Below we highlight just half-cycle efficiencies for

DeeThree since acquiring the Belly River asset. The takeaway being

that while still experimenting and ‘learning’ each play, DeeThree

achieved addition costs of $40,000/boepd and had a half-cycle

corporate time-to-payout of 2.5 years (not unlike RRX at 2.1 years!)

With 93% of capital earmarked for strictly drill-bit growth we think the

best is yet to come.

Exhibit 2. Consistent Recycling of Capital


5) Strong board overlap on both entities means the team that got

DeeThree where it is today won’t be gone. We keep emphasizing

management importance in times such as these, and neither asset is

left with an unknown commodity.


Granite Oil Corp.

Asset Overview - AB Bakken As a private entity in November 2008, DeeThree acquired 220,000

acres (343.75 sections) in the greater Lethbridge, Alberta area, which

included 500 boepd of primarily shallow gas production. The lands

were a freehold lease from a senior industry producer, but Granite

now retains 100% control of regional infrastructure, which includes 200

km of natural gas pipelines and various compression and gas

processing facilities. Partly a function of both good fortune and good

planning, Granite/DeeThree also obtained deep rights to the

acreage, which includes more prospective oil-prone

Mississippian/Devonian targets such as the Banff, Bakken, and

Wabamun zones. Today, Granite retains rights to 396,300 net acres

(619 sections) of land of which >100 sections have been mapped

internally for Alberta upper Bakken prospectivity and production from

the area has grown to ~3,900 boepd. Granite holds a conservative

inventory of 150-200 locations.

In Exhibit 2, we show the Alberta Bakken prospective fairway, which

covers a large portion of Granite’s land base. We would note the play

is under-pressured to the east (higher porosity/permeability), but more

mature to the west, where horizontal multistage fraccing has been

pivotal in unlocking tighter rock. Geologically, one could look at the

majority of the AB Upper Bakken trend being a pool – now it’s an

engineering exercise replacing voidage and maximizing recoveries

while minimizing capital spent (more on voidage replacement

discussed later).


Granite Oil Corp.

Exhibit 3. AB Bakken Core Area

Source: geoScout, Beacon Securities Ltd. Estimates

DeeThree/Granite has drilled and had economic success in 49

horizontal wells into the play and remains the most experienced

producer drilling in the AB Bakken. The company has found a

particularly commercial clay-free siltstone, named the Upper Bakken,

which occurs at ~1,200 meters depth, 9-12% porosity and is ~14 meters

thickness on the eastern flank, tapering to the west as the rock

becomes more unconventional in nature and requires horizontal

drilling. In the stratigraphic table presented in Exhibit 4, we highlight

that producers are also actively licensing and producing from the

Banff (limestone), Middle Bakken/Exshaw (clay bearing-siltstone),

higher pressured Big Valley formation (limestone), and Wabamun

group (limestone).


Granite Oil Corp.

Exhibit 4. Alberta Bakken Stratigraphy

Source: EUB, Company reports


Granite Oil Corp.

If one looks at simple organic project efficiency over time, we see the

company testing and proving commercial quantities of oil in 2011 and

gradually refining it’s drilling and completion techniques, ultimately

bringing the play up to 5,000 boepd. We note the graduated increase

in the purple line (capital efficiency) over time with the concurrent

drawdown in virgin pressure and a bias from management to drill

longer/bigger frac wells. Now however, we would suggest with well

costs as low as $2.4MM D/C/C (previously $3.5MM), newer wells

intentionally being brought on-stream at ~300 boepd (versus 600

boepd) and the benefit of gas injection dampening pool declines

(~20% by year end); an all-in project efficiency of <$20,000/boepd is

well within reach.

Exhibit 5. AB Bakken Capital Efficiency



Granite Oil Corp.

In 2013, DeeThree also began an EOR program to maintain and

increase reservoir pressure downhole. The project has to-date been

successful and today the company has three distinct areas under gas-

injection. One of the benefits of natural gas injection is the source

cost; which in this case is simply (carbon-dioxide-rich, lessor-market-

value) produced AB Bakken gas being sent through the company’s

wholly owned compressor station into five injector wells (instead of

being sold to market). As graphically shown below, initial injection of

1.5 mmcf/d has been beneficial in keeping oil volumes flat. DeeThree

is aiming for recoveries of at least 20% off of secondary recovery gas

flood, which could be an incremental ~79 mmbbls. Recall, DeeThree

only has 17 mmboe booked on the play as at December 2014,

against third-party engineering estimates of 480 mmbbls OOIP.

Exhibit 6a. A Little Gas Goes a Long Ways



Granite Oil Corp.

We have also compiled a very rudimentary voidage-replacement-

ratio (VRR) analysis. Our calculation excludes pressure/depth

considerations but nevertheless does compare ‘BOE’s’ leaving the

pool, versus those entering the pool. Directionally we believe this

shows the effect of Granite’s three injection wells working quite well;

arresting the decline in pool production and improving the VRR to

>30%. Currently, Granite has five gas injectors pumping (versus the

three used in our analysis) and the current VRR is estimated to be 70%

by company estimates (with the ultimate goal being 90-100%).

Exhibit 6b. A Little Gas Goes a Long Ways



Granite Oil Corp.

As a close analog, one can also look to the Swanson River oil pool in

Alaska which, like Granite’s pool, is 100% operated by one owner and

under-saturated. The Swanson pool happens to be similar in size at 435

mmbbl OOIP but remarkably, 53% of the oil in a place has been

recovered with no new producers added in the last ~40 years! This is

important for the investor as it underpins the diverging strategy Granite

will now be taking to add value year-over-year – less capital, with

sustained (or increasing) pressure will be the goal in managing

declines. We are looking for increases in overall pool recoveries, and

the value of PDP NPV to increase (which is also price deck

dependent) to add value to the equity account, NOT solely absolute

production growth.

Exhibit 6c. A Little Gas Goes a Long Ways

Source: Company reports, Alaska Oil and Gas Conservation Commission


Granite Oil Corp.

Using public data available for DeeThree/Granite’s horizontal wells,

we highlight more recent wells in darker grey, while the bold blue line

denotes the cumulative production of the average productive curve

– in 2.5 years producing over 100,000 boe. We view these results as

particularly strong considering the company’s third-party engineers

have assigned approximately ~240,000 boe/well.

Exhibit 7. DeeThree/Granite AB Bakken Wells – Cumulative Production


For the sake of continuity in our company-to-company analysis we re-

visit per-well economics as it applies to the AB Bakken project, but

would make the important distinction that Granite not only plans to

artificially constrain IP30 rates so as to better manage pool declines,

but gas injection will also have a beneficiary impact on tail-end

declines. Put simply, our type curve which is largely premised off of

actual data coming from older wells will be less insightful going

forward.


Granite Oil Corp.

Very recently, Granite has opted to drill shorter lateral horizontals

which have dramatically reduced the all-in cost per operation. In

2011, initial wells into the play were anywhere from 500-1,600 meters

laterally with typically 15-18 frac stages for all-in D/C/C costs of $5-6

million. 2012-2014 techniques employed >3,000 meter lateral length,

>20 stage fracs for all-in costs of ~$3.5 million per well. New, shorter

wells are being budgeted at $2.8MM per well, while we note the

company’s most recent well was put on-stream for $2.4MM, 14%

below budget. Granite plans to drill 6-7 wells in 2015 – 4 more

producers within the EOR area and 2-3 step out wells (only 6 net wells

should be necessary to stay flat).

In Exhibit 8, we detail our base case type curve for the AB Upper

Bakken play which starts at an IP30 of 350 boepd for all-in capital costs

of $2.8 million. We graphically show a 25% higher and lower sensitivity,

with each respective payout and volumes required to reach payout.

Our commodity price assumptions are $50/bbl oil and $3/mcf natural

gas (realized well-head prices), with a $7/bbl pricing differential

applied to AB Bakken oil as it tends to be of heavier API gravity.

Exhibit 8. AB Bakken Type Curve



Granite Oil Corp.

Below we highlight an IP30 sensitivity, with our base case producing an

NPV of $1.51 million, a 31% IRR and time-to-payout of 2.9 years. Our

internal modeling suggests DeeThree’s wells are still economic down

to $31.82/bbl (well head price).

Exhibit 9. AB Bakken Type Curve Sensitivity

Source: Beacon Securities Ltd. Estimates

Below one can see sensitivity tables for the AB Bakken play. A $5/bbl

increase in crude pricing can increase NPV’s by $0.6 million and

reduce payouts by six months. Similar to the other plays in the basin

right now, we expect the slowdown in industry rig activity to reduce

capital costs 10-20%, which is why we have included a sensitivity for

such a possibility. Exhibit 10b displays crude oil and natural gas

sensitivities for the project.

Exhibit 10a. Oil Price Sensitivities



Granite Oil Corp.

Exhibit 10b. Combined Oil/Gas Price Sensitivities



Granite Oil Corp.

Valuation As we have done for other companies under coverage, we illustrate

Granite’s comparative posture on metrics we believe are important to

the investor. We would be remiss not to point out the obvious that

Granite is the only name in our universe which pays a dividend to all

basic shareholders, which should imply a premium versus its non-

dividend paying peers but oddly this is not the case (and therein lies

the opportunity for the investor). Most year-over-year comparisons are

moot but on relative valuation we see the company presenting good

value. Granite trades at a 1.6x investor recycle ratio (remember higher

the better) versus the peer group average of 1.2x and trades modestly

below its peers on EV/PDP (average 2.1x). The decision by DeeThree’s

board of directors and management to leave Granite intentionally

under-levered is also prudent in our opinion, as higher interest burden

only adds to the difficulty a dividend producer has, while having more

unutilized credit capacity also means the balance sheet can

withstand short term commodity price vacillations. Outside of our

universe, in amongst a peer group of 8 dividend producers (all <25,000

boepd), Granite currently provides a yield of 5% versus its peers at

8.4%.

Exhibit 11. Relative Valuation

Source: Beacon Estimates

In Exhibit 12, we display our standard valuation methodology but

would note several key differentiators. Because Granite has made the

corporate strategy decision to payout $0.36/year/sh in the form of a

dividend (which could otherwise be used for growth with presumably

a higher ROI) we account for these two years of payments to investors

as part of our valuation. Also, as we pointed out above, recent wells

have been put on-stream for all-in costs of $2.4MM D/C/C which is

below what we are modelling ($2.8MM), while we also believe our


Granite Oil Corp.

per-well recovery assumptions of 225,000 boe per well may also be

conservative given the company is using 240,000 bbl per well in its

type curve and 2014 bookings also exclude much of the benefit we

expect from the ongoing EOR gas injection. This gives room for positive

revisions in future years in the form of increased recoveries per-well,

very little of which is being accounted for in our current target.

Exhibit 12. Sum-of-the-Parts Valuation

2014 Reserve Value

2014 Reserves (mmboe) 17.0

Quality Adjustment 0%

Adjusted 2015 Reserves (mmboe) 17.0

Cash Flow Factor ($/boe) $30.96

Reserve Value Factor $/boe (1.4:1) $22.11

Current 2014 Reserve Value $375.9

2014 Exit Net Debt ($MM) ($45.0)

Future Capital ($MM) ($102.2)

Dilution Proceeds ($MM) $1.2

Current Value of 2014 Assets ($MM) $229.9

Fully Diluted Shares (MM) 30.5

Per Share (FD) Value $7.54

2015E Value Add

2015 Gross Capex ($MM) $84.6

Less: Land, Seismic & Facilities ($MM) ($13.4)

Drilling Spending ($MM) $71.2

Average Cost per Well ($MM) $2.80

Forecast 2015 Net Wells 25.4

Success Factor 95%

Forecast Successful Wells 24.1

Average Reserves/Well (boe) 225,000

2015 Forecast Depletion (mmboe) 2.5

Wells to Offset Depletion 11.1

Net Growth Wells 13.1

Net Reserve Growth (mmboe) 2.9

Forecast Revisions (mmboe) 0.0

Acquired Reserves (Net of Depr., mmboe) 0.0

Forecast Net Reserves Growth (mmboe) 2.9



Value Add ($MM) $65.1

Change in Net Debt ($MM) $0.0

2015 Value Add ($MM) $65.1

2015 Net Risk Adj. Equity Value Add ($MM, 90%) $58.6



2016E Value Add

2016 Gross Capex ($MM) $32.0

Less: Land, Seismic & Facilities ($MM) ($4.0)

Drilling Spending ($MM) $28.0

Average Cost per Well ($MM) $2.80

Forecast 2013 Net Wells 10.0

Success Factor 95%

Forecast Successful Wells 9.5

Average Reserves/Well (boe) 225,000

2016 Forecast Depletion (mmboe) 1.6

Wells to Offset Depletion 7.1

Net Growth Wells 2.4

Net Reserve Growth (mmboe) 0.5

Forecast Revisions (mmboe) 0.0

Acquired Reserves (Net of Depr., mmboe) 0.0

Forecast Net Reserves Growth (mmboe) 0.5



Value Add ($MM) $12.0

Change in Net Debt ($MM) $5.9

2016 Value Add ($MM) $17.9

2016 Net Risk Adj. Equity Value Add ($MM, 75%) $13.4



Sum of the Parts Value

$MM Per Share

2014 Reserve Value $229.9 $7.54

Interest/G&A Expense ($26.7) ($0.87)

2015E Value Add $58.6 $1.92

2016E Value Add $13.4 $0.44

2 yrs of dividends $16.4 $0.54

Fair Value Estimate $291.6 $9.56

Source; Beacon Securities Ltd. Estimates


Granite Oil Corp.

Based on our sum-of-the-parts valuation, we derive a 12-month target price of

C$10.00 for the company.

Exhibit 13. Sum-of-the-Parts Valuation – Waterfall Chart

Source; Beacon Securities Ltd. Estimates, *value is net of forecast debt/options


Granite Oil Corp.

Exhibit 14. Snapshot

Granite Oil Corp. P/CF: 3.6 P/CF: 5.2 P/CF: 4.8

3-Jun-15 EV/DACF: 4.4 EV/DACF: 5.8 EV/DACF: 5.3

Debt adj. target price multiple: 1.0 Debt adj. target price multiple: 0.4 Debt adj. target price multiple: 0.7

Q1 Q2 Q3 Q4 2014 Q1 Q2E Q3E Q4E 2015E Q1E Q2E Q3E Q4E 2016E

DAILY PRODUCTION

Liquids (B/d) 7,308 8,583 10,061 10,090 9,021 9,779 5,500 3,500 3,588 5,569 3,690 3,787 3,879 3,966 3,831

Natural gas (MMcf/d) 12.4 13.0 12.3 16.5 13.5 15.1 9.0 3.0 3.1 7.5 3.1 3.2 3.3 3.3 3.2

BOE production per day (6:1) 9,372 10,744 12,110 12,842 11,279 12,296 7,000 4,000 4,101 6,819 4,215 4,322 4,424 4,521 4,371

Commodity price assumptions

Exchange rate (C$/US$) $0.91 $0.92 $0.92 $0.88 $0.91 $0.81 $0.81 $0.81 $0.81 $0.81 $0.81 $0.81 $0.81 $0.81 $0.81

WTI (US$/Bbl) $107.96 109.84 102.14 73.02 $98.24 $48.57 50.00 50.00 55.00 $50.89 $55.00 60.00 60.00 65.00 $60.00

Natural Gas (US$/mmbtu) $4.72 $4.58 $3.95 $3.83 $4.27 $2.87 $3.25 $3.50 $3.75 $3.34 $4.00 $3.75 $4.00 $4.25 $4.00

Company average liquids price (C$/Bbl) $89.61 $95.50 $88.32 $69.04 $84.85 $47.95 $48.73 $42.73 $48.90 $47.47 $54.90 $61.07 $61.07 $67.25 $61.22

Company average gas price (C$/Mcf) $6.00 $5.02 $4.39 $3.84 $4.81 $2.84 $2.75 $3.00 $3.25 $2.96 $3.50 $3.25 $3.50 $3.75 $3.50

UNIT VALUES ($/BOE)

Total sales 75.93 79.52 77.65 63.16 73.58 47.89 58.09 68.11 69.61 56.78 52.78 56.54 56.80 61.38 56.97

Royalties (incl ARTC) (18.74) (18.84) (16.25) (13.78) (16.67) (9.01) (9.20) (11.49) (13.11) (10.05) (14.70) (16.22) (16.28) (17.91) (16.31)

Transportation (1.69) (1.92) (1.98) (2.97) (2.19) (3.25) (3.00) (2.20) (2.20) (2.87) (2.20) (2.20) (2.20) (2.20) (2.20)

Operating expense (10.18) (11.00) (9.77) (7.45) (9.48) (7.37) (8.00) (7.50) (7.50) (7.57) (7.50) (7.50) (7.50) (7.50) (7.50)

Operating netback 45.32 47.76 49.64 38.97 45.25 28.26 37.89 46.92 46.79 36.29 28.38 30.62 30.82 33.77 30.96

G & A expense (2.22) (1.99) (1.44) (2.45) (2.02) (2.14) (3.72) (2.31) (2.25) (2.59) (2.24) (2.16) (2.09) (2.04) (2.13)

Interest expense (1.05) (1.63) (0.93) (1.19) (1.20) (1.19) (0.62) (1.02) (0.88) (0.97) (0.83) (0.78) (0.73) (0.67) (0.75)

Current tax 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Other (cash expenses) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Cash flow netback ($/BOE) 42.05 44.15 47.27 35.36 42.03 24.96 33.55 43.58 43.66 32.75 25.31 27.68 28.00 31.05 28.08

Total cash costs ($/BOE) (13.45) (14.62) (12.14) (11.09) (12.70) (10.70) (12.34) (10.83) (10.63) (11.13) (10.57) (10.44) (10.32) (10.22) (10.38)

Earnings ($/BOE) 10.29 18.55 18.94 23.96 18.52 1.59 9.02 15.24 15.29 7.59 3.91 5.38 5.58 7.47 5.63

Total revenue ($MM) 59.858 78.792 92.576 97.190 328.416 50.231 37.004 25.065 26.264 138.564 20.019 22.237 23.118 25.530 90.903

Cash flow ($MM) 35.536 43.167 52.720 41.772 173.195 27.623 21.374 16.039 16.473 81.509 9.599 10.887 11.396 12.917 44.799

Net income ($MM) 8.682 18.133 21.106 28.312 76.233 1.761 5.749 5.610 5.769 18.888 1.484 2.117 2.272 3.109 8.982

Net capital spending ($MM) 72.312 74.288 84.985 64.964 296.549 37.060 27.500 10.000 10.000 84.560 8.000 8.000 8.000 8.000 32.000

Net debt ($MM) 155.517 116.064 148.329 171.347 171.347 180.784 45.000 40.694 35.953 35.953 36.086 34.932 33.268 30.084 30.084

D/CF - trailing 1.1x 0.7x 0.7x 1.0x 1.0x 1.6x 0.5x 0.6x 0.5x 0.4x 0.9x 0.8x 0.7x 0.6x 0.7x

Weighted average shares outstanding 81.932 84.654 88.832 86.860 85.592 88.974 89.440 30.300 30.300 59.512 30.300 30.300 30.300 30.300 30.300

Weighted average shares fully diluted 84.741 87.772 91.958 90.671 88.810 90.687 91.795 30.361 30.361 60.553 30.361 30.361 30.361 30.361 30.361

EPS basic $0.11 $0.21 $0.24 $0.33 $0.89 $0.02 $0.06 $0.19 $0.19 $0.32 $0.05 $0.07 $0.07 $0.10 $0.30

Diluted EPS $0.10 $0.21 $0.23 $0.29 $0.86 $0.02 $0.06 $0.18 $0.19 $0.30 $0.05 $0.07 $0.07 $0.10 $0.29

CFPS basic $0.43 $0.51 $0.59 $0.48 $2.02 $0.31 $0.24 $0.53 $0.54 $1.37 $0.32 $0.36 $0.38 $0.43 $1.48

Diluted CFPS $0.42 $0.49 $0.57 $0.46 $1.95 $0.30 $0.23 $0.53 $0.54 $1.35 $0.32 $0.36 $0.38 $0.43 $1.48

2014 2015E 2016E

Beacon Securities Ltd.| 66 Wellington Street West, Suite 4050, Toronto, Ontario, M5H 1H1 |416.643.3830 |www.beaconsecurities.ca

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investors in all countries.

As at May 31, 2015 #Stocks Distribution

Buy 47 65.7% Buy Total 12-month return expected to be > 15%

Speculative Buy 15 20.9% Speculative Buy Potential 12-month return is high (>15%) but given elevated risk, investment could result in a material loss

Hold 3 4.5% Hold Total 12-month return is expected to be between 0% and 15%

Sell 0 0.0% Sell Total 12-month return is expected to be negative

Under Review 5 9.0% Under Review Currently undergoing a change of analyst coverage

Total 70 100.0%

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Transitioning Coverage BUY $10.00 (GXO-T)Beacon Securities Ltd.| 66 Wellington Street West, Suite 4050, Toronto, Ontario, M5H 1H1 |416.643.3830 | Granite Oil Corp. (GXO-T) Hard As