Blackrod SAGD Pilot Project Athabasca Oil Sands Area Scheme Approval No. 11522E Annual Performance Presentation Alberta Energy Regulator

December 9, 2013

Company Overview

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Corporate Profile

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• VP Operations Chris Hogue

• VP Exploration Ed Sobel

• Area Manager Heath Williamson

• Project Geologist Ari Babaganov

• Exploitation Engineer Mike Carteri

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Subsurface Agenda

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1. Background

2. Geology / Geoscience

3. Drilling & Completions

4. Artificial Lift

5. Well Instrumentation

6. Scheme Performance

Blackrod Subsurface

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1. Background

Blackrod Subsurface

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Approved Development Area as per ERCB Scheme Approval No. 11522E

BLACKPEARL OIL SANDS LEASE HOLDINGS

CORED WELLS

Well Pair 1 13-25-076-18W4

10-36-076-18W4 Well Pair 2

Project Summary

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• AER Scheme Approval No. 11522E

• Two(2) SAGD Pilot Well Pairs

• Portage area on Oil Sands Lease 7407060158

• Pilot site located in 02-36-076-18W4

• Target formation is the Lower Grand Rapids Unit 1 (L.GR1)

• Traditional SAGD recovery process

• BlackPearl is the 100% W.I. Owner

Blackrod Pilot Site

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Traditional SAGD Process

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Project Milestones – 13-25 WP1

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• Oct 2010 AER Scheme Approval No. 11522

• Dec 2010 Drill 13-25 WP1

• May 2011 Commission Pilot Facility

• Jun 2011 Commence Circulation Phase

• Sep 2011 Convert to SAGD Production Phase

• Apr 2012 Achieve Commercial Production Monthly Rate of 400 bbl/d

• Mar 2013 Perforate Producer Well

• Jun 2013 Achieve Peak Production Monthly Rate of 600 bbl/d

• Dec 2013 Produce 200,000 Cumulative Barrels

Project Milestones – 10-36 WP2

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• Feb 2012 AER Approval No. 11522C for 10-36 WP2 and facility expansion

• Feb 2013 Drill 10-36 WP2

• Oct 2013 Commission Phase 2 Pilot Facility Expansion

• Nov 2013 Commence Circulation Phase

• Q1 2014 Convert to SAGD Production Phase

Blackrod Subsurface

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2. Geology / Geoscience

Original Bitumen in Place

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• OBIPWP1 = A1 * h1 * So1 * Ø1 * Bo = (100 m * 800 m) * 22 m * 0.63 * 0.35 * 1.0 = 388,080 m3

• OBIPWP2 = A2 * h2 * So2 * Ø2 * Bo = (100 m * 1050 m) * 25 m * 0.63 * 0.34 * 1.0 = 562,275 m3

Where: OBIP = Original Bitumen In Place A = Drainage Area h = Thickness So = Oil Saturation Ø = Average Porosity Bo = Expansion Factor WP1= 1st Pilot Well Pair drilled at 13-25-076-18W4 WP2= 2nd Pilot Well Pair drilled at 10-36-076-18W4

Net Pay Map

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LOG CUTOFFS • Gamma Ray < 75 API • Resistivity > 20 Ohm.m • Porosity > 33%

Total L.GR1 SAGD Net Oil Pay

• Existing lease and access selected for Pilot surface location

• Bottom hole locations for both Pilot Well Pairs selected based on offsetting well control

Structure Map

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L.GR1 TOP L.GR1 BASE

Type Log

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LOG CUTOFFS • Gamma Ray < 75 API • Resistivity > 20 Ohm.m • Porosity > 33%

Representative Core

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100/15-25-076-18W4/00

304.0m

307.7m

307.7m

313.1m

CAPPING SHALE

L.GR1

L.GR1* Core Characteristics: • Oil saturation: 0.60 • Bitumen weight: 11% • Net pay thickness: 26 m • Porosity: 36% • Vertical permeability: 3024 mD • Horizontal permeability: 3450 mD • Kv/Kh: 0.88 • API Gravity: 9.8 (at 15.6 ᵒC)

L.GR2 L.GR3

* Based on 10 cores within Pilot Project Area

Cross Section Through 10-36 WP2

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• To maximize oil recoveries, 10-36 WP2 placed deeper and drilled longer than 13-25 WP1

Seismic

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W E

3D X-Line along 13-25 WP1 3D Seismic Area Coverage

Primary Cap Rock

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• MFS (Maximum Flooding Shale)

• Directly overlays Lower Grand Rapids formation

• Regionally extensive

• 3 m average thickness

• Mini Frac Analysis:

‒ Performed on the 13-25-076-18W4 OSE Core Hole

‒ Initial Breakdown Pressure = 8500 kPa

‒ Closure Pressure Gradient = 13.7 kPa/m

MFS Cap Rock Isopach Map

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MFS Cap Rock Base Structure Map

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MFS Cap Rock Base Depth Map

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Secondary Cap Rock

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• Joli Fou formation

• 45 m above Lower Grand Rapids formation

• Regionally extensive

• 20 m average thickness

• Mini Frac Analysis:

‒ Performed on the 01-36-076-18W4 OSE Core Hole

‒ Initial Breakdown Pressure = 12,750 kPa

‒ Closure Pressure Gradient Range = 19.4 kPa/m*

* As per AER approved Application No. 1741982

Joli Fou Cap Rock Isopach Map

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Joli Fou Cap Rock Base Structure Map

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Joli Fou Cap Rock Base Depth Map

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Blackrod Subsurface

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3. Drilling and Completions

Blackrod Pilot Well Network

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13-25 WP1 – Injector

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13-25 WP1 – Producer (SAGD Phase)

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13-25 WP1 – Downhole Modifications

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• Injector Well:

‒ No modifications

• Producer Well:

‒ Downhole modifications required due to climbing differential pressure and reduced inflow starting in Q3 2012

‒ Two (2) acid stimulations performed in Dec 2012 and Feb 2013 both with marginal and short-lived improvement

‒ Perf job completed in Mar 2013 with significant and lasting improvement

‒ New “Ultra Temp” ESP installed in Sep 2013

10-36 WP2 – Injector

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10-36 WP2 – Producer (Circ. Phase)

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Blackrod Subsurface

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4. Artificial Lift

Electrical Submersible Pump

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• Fluid production via high temperature Electrical Submersible Pump (ESP) on 13-25 WP1 and plans to run ESP on 10-36 WP2 following circ. phase

• ESP advantages:

‒ Operate and lift fluids at controlled downhole pressures

‒ Maintain continuous fluid production

• Variable Flow Drive (VFD) utilized to control pump speed and production rates

• No issues with previous or current ESP

Blackrod Subsurface

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5. Well Instrumentation

13-25 WP1 – Instrumentation Overview

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13-25 WP1 – Obs Wells

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• Toe Obs Well:

‒ 103/13-25-076-18W4

‒ 8.5 m North of WP1

‒ RTD gauges to monitor temperature above, below, and within L.GR1

‒ Evidence of steam chamber front detected in Mar 2012

• Heel Obs Well:

‒ 102/14-25-076-18W4

‒ 17.7 m South WP1

‒ RTD gauges to monitor temperature above, below, and within L.GR1

‒ P/T gauge to monitor pressure & temperature within L.GR3 aquifer

‒ Evidence of steam chamber front detected in Aug 2012

10-36 WP2 – Instrumentation Overview

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10-36 WP2 – Obs Wells

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• Toe Obs Well:

‒ 100/07-36-076-18W4

‒ 17.5 m West of WP2

‒ Thermocouples to monitor temperature above, below, and within L.GR1

‒ P/T gauge to monitor pressure & temperature within L.GR3 aquifer

• Heel Obs Well:

‒ 100/02-36-076-18W4

‒ 16.1 m East of WP2

‒ RTD gauges to monitor temperature above, below, and within L.GR1

‒ P/T gauge to monitor pressure & temperature within L.GR3 aquifer

Groundwater Monitoring Wells

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• 100/03-36-076-18W4 GWM:

‒ Directionally drilled from 14-25 lease

‒ PCP to sample/analyze non-saline L.GR3 H2O as per AENV requirements

‒ P/T gauge to monitor pressure & temperature within L.GR3 aquifer

• 100/14-25-076-18W4 GWM:

‒ Directionally drilled from 14-25 lease

‒ PCP to sample/analyze non-saline L.GR3 H2O as per AENV requirements

‒ P/T gauge to monitor pressure & temperature within L.GR3 aquifer

• 100/15-25-076-18W4 GWM:

‒ PCP to sample/analyze non-saline Viking H2O as per AENV requirements

‒ P/T gauge to monitor pressure & temperature within Viking aquifer

Blackrod Subsurface

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6. Scheme Performance

13-25 WP1 Performance as of Oct 31, 2013

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• Two (2) years of SAGD Production Phase

• Observation Wells indicate growing steam chamber

• Current performance is favourable and in line with internal simulated SAGD models

• Oil production currently averaging 55 m3/d

• Ongoing assessment of operating parameters to optimize crude bitumen recovery from the L.GR1 reservoir

13-25 WP1 Oil Production as of Oct 31, 2013

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• Cumulative Production = 30,500 m3

• Recovery = 7.8% of OBIP

• CSOR including Circ. Phase = 4.6

• CSOR during Prod. Phase only = 4.2

• ISOR = 3.6

• Average Rate during Prod. Phase = 39 m3/day

• Max Rate during Prod. Phase = 96 m3/day

13-25 WP1 Steam Injection as of Oct 31, 2013

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• Average Steam Chamber Pressure = 2650 kPa

• Average Surface Steam Temperature = 240 ᵒC

• Wellhead Steam Quality = 95 – 100%

• Instantaneous steam chamber pressures well below max steam chamber pressure of 3900 kPa*

• Operational flexibility required to optimize SAGD Pilot efficiencies and crude oil production

* As per AER approved Application No. 1741982

13-25 WP1 Performance Plot

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10-36 WP2 Performance

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• Circulation Phase commenced Nov 4, 2013

• AER will be kept notified of 10-36 WP2 progress

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Surface Operations Agenda

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1. Facilities

2. Measurement & Reporting

3. Water Source

4. Disposal

5. Environmental

6. Compliance Statement

Blackrod Surface Operations

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1. Facilities

Pilot Facility Overview

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Pilot Facility Plot Plan

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Pilot Facility Plot Plan (cont.)

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Pilot Facility Performance

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• No issues with bitumen treatment, water treatment, or steam generation

• Pilot Facility downtime associated with scheduled shut-downs & Well Pair work-overs

• Generated steam, produced bitumen, produced water, and produced gas volumes reported to Petrinex

• Purchased gas volumes reported to Petrinex

• Flared gas volumes reported to AENV and Petrinex

• SO2 & Nox emissions and ambient air quality data submitted to AENV both monthly and annually as per terms of EPEA Approval 00264736-00-00

• GHG emissions reporting not required for Blackrod Pilot Facility as per terms of EPEA Approval 00264736-00-00

Pilot Facility Modifications

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• Phase 2 Pilot Facility Expansion* constructed in Q2/Q3 2013 and commissioned in Oct 2013

• Circulation Phase on 10-36 WP2 commenced on Nov 4, 2013 with no facility related issues

* As per AER approved Application No’s. 1718974, 1754889

Blackrod Surface Operations

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2. Measurement & Reporting

Blackrod MARP

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• BlackPearl remains compliant with AER Directive 017 as well as Directive 042 as per the terms of our approved MARP (Measurement, Accounting, and Reporting Plan)

• In Jul 2013, BlackPearl received AER Approval for a wholly new Blackrod Pilot MARP Application which incorporates the 10-36 Well Pair

• Annual MARP update to be submitted on Feb 28, 2014

Process & Flow Diagram

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Process & Flow Diagram (cont.)

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Blackrod Surface Operations

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3. Water Source

Blackrod Water Source(s)

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• 1F1/14-24-076-18W4 L.GR3 WSW:

‒ Non-saline (~3700 TDS)

‒ AENV Water Act Licence No. 00308617-00-01

‒ Approved for 350 m3/day

‒ Production volumes reported to AENV and Petrinex

‒ 100/14-24-076-18W4 monitoring well 20 m North of 1F1/14-24 WSW

‒ No issues with soft water treatment process

• 1F1/15-25-076-18W4 Grosmont Member D WSW

‒ Saline (~12,800 TDS)

‒ Supplemental softening equipment incorporated and commissioned in Q4, 2012

‒ No issues with supplemental saline water softening process

Blackrod Surface Operations

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4. Disposal

Blackrod Disposal

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• Produced Water:

‒ 100/02-25-076-18W4 Class 1b Disposal Well

‒ AER Scheme Approval No. 11703A

‒ Disposal into Grosmont Members B, A

‒ Maximum wellhead injection pressure of 6300 kPa

‒ This well continues to operate on vacuum with no pressure at the wellhead

‒ Disposal volumes reported to Petrinex

• Waste:

‒ Waste fluids (i.e. sewage, sludge, etc.) trucked out to third party disposal facilities

Blackrod Disposal

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Blackrod Surface Operations

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5. Environmental Issues

Blackrod Environmental

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• No environmental issues to date

• BlackPearl remains compliant with the terms of AENV Approval No. 264736-00-00:

‒ CPP (Caribou Protection Plan)

‒ Air Monitoring

‒ Groundwater Monitoring

‒ Soil Monitoring

‒ Etc.

Blackrod Surface Operations

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6. Compliance

Blackrod Compliance

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• To the best of BlackPearl’s knowledge, the Blackrod SAGD Pilot Project is currently in full compliance with all conditions and regulatory requirements related to AER Scheme Approval No. 11522E

Blackrod Future Plans

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1. SAGD Commercial Development

SAGD Commercial Development

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• 80,000 bbl/d (12,720 m3/d) to be developed in phases, with the first phase planned for 20,000 bbl/d; two additional phases of 30,000 bbl/d each to follow

• Commercial SAGD Application No. 1728831 submitted in Q2 2012 currently under AER review

• SIR2 Responses are currently under AER review

• BlackPearl is expecting that the Blackrod SAGD Commercial Project will receive AER approval in late Q1 2014

Appendices

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1. Pressure & Temperature Data • SAGD Producer Well • SAGD Injector Well • Heel & Toe Observation Wells