Aaron Swanson, CFA aswanson@gmpsecurities.

com (403) 543-3563 April 16, 2014

R. Jason Konzuk, CA, CFA rjkonzuk@gmpsecurities.com (403) 543-3587

A Montney Cre
Report synopsis: The Montney gas resource play, which expands across northwestern Alberta into northeastern B.C., continues to see an increase in drilling activity, an improvement in type curves and a resulting step change in economics. Within this report, we look at five small to mid-cap Montney producers with the assets, upside and valuations, which justify our bullish stance on this play. Why Montney matters Horizontal wells in the Montney continue to dominate gas targeted drilling in Western Canada. Completions continue to improve resulting in a step change in well economics. Advantage Oil & Gas (BUY, $8.00 TP) Upper and lower Montney provide an inventory of low risk development while the middle Montney has the potential to double inventory. Three-year development plan should grow production at a 21% CAGR. Delphi Energy (BUY, $4.25 TP) Some of the most economic Montney gas wells in Western Canada. Debt levels have peaked, the company is undergoing significant transformation. Donnycreek Energy (BUY, $3.00 TP) Small cap, cheap way to play the Montney at Kakwa in Alberta. Expanding resource upside with Upper Montney wells. Painted Pony Petroleum (BUY, $14.75 TP) 7 TCFe of discovered gas in place across northeastern B.C. acreage. Well positioned to be either an LNG supplier or take-out candidate. Storm Resources (BUY, $6.75 TP) Top tier management team leads 4th iteration. Company is entering significant growth phase and looking to further consolidate the Umbach area of northeast B.C.
Prepared by GMP Securities L.P. See important disclosures on the last page of this report

Launching coverage on 5 Montney producers

B.C.

Alberta

Storm Umbach

Painted Pony Blair/Townsend/Cypress Advantage Glacier

Donnycreek Kakwa/Wapiti

Delphi Bigstone

2015E Valuation 2015E Production Company Advantage Oil & Gas Delphi Energy Donnycreek Energy Painted Pony Petroleum Storm Resources (boe/d) (% Gas) 27,134 97% 12,116 69% 3,726 48% 18,363 85% 8,526 80% Risked NAV ($/sh) (P/NAV) $8.51 0.7x $6.53 0.5x $4.37 0.5x $17.65 0.6x $8.42 0.6x EV/DACF EV/Prod'n Total D/CF (x) 6.9x 7.1x 3.1x 9.9x 10.3x ($/boe/d) $52,123 $53,885 $37,988 $72,671 $79,754 (x) 1.7x 1.6x 0.5x 1.9x 1.1x

Source: Company reports, geoSCOUT, GMP

Aaron Swanson, CFA aswanson@gmpsecurities.com (403) 543-3563

R. Jason Konzuk, CA, CFA rjkonzuk@gmpsecurities.com (403) 543-3587

WHY THE MONTNEY MATTERS

Spanning an area of roughly 150,000 km2 from west central Alberta into northeastern B.C., the Montney formation is currently the most dominant gas play in Western Canada. Early production from the Montney dates back to the 1950s, but focused drilling did not pick up until 2005 when producers began using horizontal wells to target Montney siltstones and tight sandstones. From a geological standpoint, the formation thickens from the eastern and northeastern erosional edge towards the west-southwest where the formation is up to 300 meters thick with three distinct intervals (lower, middle, upper). Vertical depths range from 500m 4,500m. It is important to understand that the Montney is not one play but many plays targeting various rock types from siltstone to very finegrained sandstone to relatively high permeability Coquina shell beds. The Montney formation was deposited over 10 million years in an arid climate similar to modern west coast Africa. It was deposited over many settings from offshore turbidite to distal and proximal shoreface environments, which is reflected in the numerous rock types and complexity of the reservoir. Generally speaking, as depth (and reservoir thickness) increases to the southwest, reservoir pressure increases and oil and liquid content decreases. Location of Montney Rock Types

Source: National Energy Board (NEB) Montney report published November 6, 2013

Aaron Swanson, CFA aswanson@gmpsecurities.com (403) 543-3563

R. Jason Konzuk, CA, CFA rjkonzuk@gmpsecurities.com (403) 543-3587

Alberta Montney cross-section thickens and deepens to the southwest

Source: ERCB/AGS Open File Report 2012-06 (October 2012), GMP

Based on a somewhat dated ultimate recovery potential study released on the Montney in 2012, between B.C. and Alberta, there is nearly 450 TCF of marketable gas from the Montney, enough to meet over 100 years of current Canadian gas demand. When we factor in the associated NGLs and oil, based on the expected case, there is nearly 80 billion barrels of equivalent marketable resource from the formation, making the Montney one of the largest hydrocarbon deposits in the world. Montney unconventional potential in B.C. and Alberta (as of 2012)
In Place Marketable Hydrocarbon Low Expected High Low Expected Natural gas (tcf) 3,197 4,274 5,405 316 449 NGL's (mmbbls) 87,360 126,931 176,783 1,540 2,308 Oil (mmbbls) 80,949 141,469 227,221 452 1,125 Barrel Equivalent (mmboe) 701,142 980,733 1,304,837 54,659 78,266 Source: National Energy Board (NEB) Montney report published November 6, 2013

High 645 3,344 2,430 113,274

Aaron Swanson, CFA aswanson@gmpsecurities.com (403) 543-3563

R. Jason Konzuk, CA, CFA rjkonzuk@gmpsecurities.com (403) 543-3587

Follow the money Montney drilling continues to attract majority of gas directed investment dollars In terms of producer capital allocation, the Montney formation is seeing by far the most capital allocation of all the natural gas resource plays in Western Canada. Assuming an average well cost of $6 million, we estimate 2013 saw over $4 billion in producer capital. From a pure licensing perspective, we estimate 2013 saw over 1,000 Montney gas wells licensed across Western Canada, nearly tentimes the amount of the next closest formation. In fact, licensing activity in the Montney was greater than the next nine formations combined. As a result of the increased drilling activity in the formation, we have witnessed a corresponding exponential increase in production from the formation. In the production exhibits below, we highlight hydrocarbon production exclusively from the Montney horizontal well bores. It is interesting to see how free condensate volumes have increased more recently, which we believe reflects the fact producer dollars are focused on the areas providing the highest liquids content. 2013 Western Canadian gas licensing activity Montney dominates
1050 875 700 2013 licenses YoY change 165% 130% 95% 60% 25% -10% -45%

2013 licenses

525 350 175 0

Source: geoSCOUT, GMP

Montney horizontal production history

3,000,000 Producing HZ wells 2,500,000 Gas Production (mcf/d) 2,500 3,000 40,000 Producing HZ wells 35,000 30,000
Gas production (mcf/d)

YoY change

3000 Oil production Condensate 2625 2250 1875 1500 1125 750 375 0
2003-01 2003-05 2003-09 2004-01 2004-05 2004-09 2005-01 2005-05 2005-09 2006-01 2006-05 2006-09 2007-01 2007-05 2007-09 2008-01 2008-05 2008-09 2009-01 2009-05 2009-09 2010-01 2010-05 2010-09 2011-01 2011-05 2011-09 2012-01 2012-05 2012-09 2013-01 2013-05 2013-09 2014-01 Horizotnal well count

Horizontal well count

2,000,000

2,000

Liquids production (bbl/d)

25,000 20,000 15,000 10,000 5,000 0

1,500,000

1,500

1,000,000

1,000

500,000

500

0
2003-01 2003-05 2003-09 2004-01 2004-05 2004-09 2005-01 2005-05 2005-09 2006-01 2006-05 2006-09 2007-01 2007-05 2007-09 2008-01 2008-05 2008-09 2009-01 2009-05 2009-09 2010-01 2010-05 2010-09 2011-01 2011-05 2011-09 2012-01 2012-05 2012-09 2013-01 2013-05 2013-09 2014-01

Source: geoSCOUT, GMP

Aaron Swanson, CFA aswanson@gmpsecurities.com (403) 543-3563

R. Jason Konzuk, CA, CFA rjkonzuk@gmpsecurities.com (403) 543-3587

WHATS DRIVING THE ACTIVITY?

We see a number of factors behind the Montney formations dominance in Western Canadas gas drilling game. It is our belief that much of the success surrounding the Montney relates to, like most things, time and money. Producers have had nearly a decade of active horizontal drilling in the formation to establish areas that work and those that dont. Billions have been spent through the learning process to establish what we have today - more concentrated areas of activity and some of the most robust well economics in Western Canada. Key areas have been de-risked as producers are now focusing on improving type curves and well economics through various changes in drilling and completion techniques. Given where we see the Montney in the play life cycle we feel this is an opportune time to get exposure as an investor. Factors driving Montney development 1) Zeroing in on areas that work Activity is more focused on areas with higher liquids content In the exhibit below (left) we show a chronological map of Montney horizontal licensing activity across B.C. and Alberta (this includes both oil and gas wells). What is clearly evident is how the play has become concentrated in a handful of areas as opposed to the early days when drilling activity was much more dispersed. The figure on the right hand side displays free condensate yields from Montney horizontal gas locations (we omitted the oil wells to provide a better indication of true free liquids yields), with the point being there is a clear correlation between licensing activity and liquids yields in the formation. Montney oil and gas licensing activity more concentrated
2014 2013 2012 2011 2010 2009 2008 pre-2008

Montney gas producers and free condensate yields (IP60)

> 100 bbl/mmcf 50-100 bbl/mmcf 30-50 bbl/mmcf 20-30 bbl/mmcf 10-20 bbl/mmcf < 10 bbl/mmcf

Source: geoSCOUT, GMP

Aaron Swanson, CFA aswanson@gmpsecurities.com (403) 543-3563

R. Jason Konzuk, CA, CFA rjkonzuk@gmpsecurities.com (403) 543-3587

2) Economics are undergoing a major transformation Now that producers have de-risked the most prospective Montney areas, the focus has shifted to improving the type curves and economics. Generally speaking, a number of producers are moving to a ball-drop completion technique, which has not only reduced completion costs, it has resulted in a material improvement to production type curves and ultimately economics. In the table below we display the impacts of four different Montney plays where the producers have recently shifted to a new completion method. The new completions are significantly increasing production rates, which is transferring to an improvement in well economics, with the average payout cut by more than half. Delphis Montney wells at Bigstone have undergone the most significant transformation as the old wells (gelled oil fracs) were marginally profitable and took over 4 years to pay out, compared to the new wells (hybrid slickwater fracs), which are massively economic, with an estimated payout of 6 months. Impact of new completion techniques on well performance and economics
Old
Well Perfromance

DEE - Bigstone
New

% change 19% 48% 956% -89%

Old

PPY - Townsend
New

% change 60% 0% 116% -63%

Old 2,678 35 $3.0 32

SRX- Umbach
New

% change 58% 3% 100% -53%

Old 3,176 0 $3.1 43

AAV- Glacier
New

% change 62% N/A 28% -47%

IP 30 (mcf/d) Liquids yield (bbl/mmcf)

Economics

4,689 73 $1.6 53

5,581 108 $16.6 6

4,381 14 $4.5 38

7,024 14 $9.7 14

4,244 36 $5.9 15

5,147 0 $4.0 23

BT NPV (10) ($mm) Well Payout (months)

Source: geoSCOUT, company reports, GMP

3) Montney is seen as the leading formation for LNG feedstock To date, the National Energy Board has received eleven applications for west coast LNG export licenses, for a total capacity of 21.2 bcf/d. Of the eleven, eight have been approved, with combined export capacity of 15.1 bcf/d, while the remaining four, which are still in the regulatory process, could add an incremental 5.1 bcf/d. While many of the project proponents already possess the upstream assets required for their facilities, four projects with a combined capacity of 4.0 Bcf/d (Woodfibre LNG Export Pte. Ltd., Jordan cove LNG L.P., Triton LNG L.P., and Kitsault Energy Ltd) lack the dedicated resources to supply their LNG projects, hinting these companies will be in the market for supply. LNG export license applications
Project KM LNG Operating General Partnership BC LNG Export Co-operative LLC LNG Canada Development Inc Pacific Northwest LNG Ltd WCC LNG Ltd Prince Rupert LNG Exports Ltd Woodfibre LNG Export Pte. Ltd. Jordan Cove LNG L.P. Triton LNG L.P. Kitsault Energy Ltd. Aurora Liquefied Natural Gas Ltd. Company/Ownership Apache/Chevron Haisla Nation/LNG Partners LLC Shell/PetroChina/Mitsubishi Corp/Korea Gas Corp Petronas - Progress/JAPEX/PetroluemBRUNEI Imperial Oil Resources Ltd/ExxonMobil Canada Ltd British Gas Group (BG) Pacific Oil & Gas Ltd Veresen Inc Altagas Pacific Partnership/Indemiitsu Kosan Co Ltd Kitsault Energy Ltd. CNOOC/INPEX Gas BC Ltd Export License Approved Approved Approved Approved Approved Approved Approved Approved Under Review Under Review Under Review Capacity (BCF/D) 1.3 0.2 3.2 2.6 3.9 2.8 0.3 0.8 0.3 2.6 3.2 21.2

Source: National Energy Board, GMP

Aaron Swanson, CFA aswanson@gmpsecurities.com (403) 543-3563

R. Jason Konzuk, CA, CFA rjkonzuk@gmpsecurities.com (403) 543-3587

ADDING FIVE NAMES TO OUR MONTNEY PORTFOLIO

In addition to the seven producers with material Montney gas exposure currently under coverage (ARX, BIR, CR, CQE, NVA, POU, RTK), we are increasing our Montney coverage portfolio to include an additional five names, each operating within a distinct area along the greater Montney fairway. The new names include: Advantage Oil and Gas, (AAV-T), Delphi Energy (DEE-T), Donnycreek Energy (DCK-V), Painted Pony Petroleum (PPY-T) and Storm Resources (SRX-V). We see the addition of these five names as key to rounding out our Montney gas coverage list and believe each name carries a unique characteristic, appealing to a wide breadth of investor demand. As we established early in this report, the roughly 150,000 km2 of Montney prospective land extending from west central Alberta to northeastern B.C. is extremely diverse and offers a number of different play types. We do not believe it is accurate to group all Montney producers in one basket, as economics are varied and producers are in different stages of the de-risk to exploitation lifecycle. There is no question surrounding the momentum of Montney producers year-to-date, with the group returning an average of 33%. Montney producers year to date share performance
60% 50% 40% 30% 20% 10% 0% -10% -20% -30%
AAV DEE DCK PPY SRX Average

Source: Bloomberg

Aaron Swanson, CFA aswanson@gmpsecurities.com (403) 543-3563

R. Jason Konzuk, CA, CFA rjkonzuk@gmpsecurities.com (403) 543-3587

MONTNEY SCORECARD
Breakdown of covered companies Montney plays
AAV
Montney Play / Area Glacier Upper Montney $5.50 $3.65 0.7x 26 858 0 0% 0.82

AAV
Glacier Middle Montney $6.60 $4.56 0.7x 26 704 39 19% 0.78

AAV
Glacier Lower Montney $5.80 $4.92 0.8x 24 704 10 6% 0.90

DEE
Bigstone Upper/ Middle Montney $9.20 $13.73 1.5x 9 1,090 108 39% 1.23

DCK

PPY

SRX

ARX

BIR

CR

CQE
Simonette Upper Montney $7.50 $5.34 0.7x 28 921 30 15% 0.98

NVA

NVA

POU

POU

Well costs NPV PIR Payout IP (30) IP (30) liquids content IP (30) liquids content EUR

($mm) ($mm) (ratio) (months) (boe/d) (bbls/mmcf) (% ) (mmboe)

Blair & Parkland Townsend Kakwa Upper / Umbach - Middle & Middle Upper Lower Middle Montney Montney Montney Montney $10.00 $7.20 $5.00 $5.25 $9.88 $6.59 $5.91 $5.65 1.0x 0.9x 1.2x 1.1x 19 22 15 10 855 150 47% 0.88 893 14 8% 1.21 860 36 18% 0.88 767 25 13% 1.04

Septimus Pouce Upper, Coupe - Middle and Lower Lower Montney Montney $6.00 $4.70 $4.06 $3.91 0.7x 0.8x 32 11 597 6 3% 0.90 906 30 15% 0.90

Musereau / Kakwa Karr / Gold 100 Bilbo South Bilbo North Creek bbls/mmcf Montney Montney Montney Montney $9.00 $9.00 $8.00 $8.00 $9.51 $7.00 $5.37 $12.25 1.1x 0.8x 0.7x 1.5x 14 21 23 8 1,270 105 39% 0.89 1,318 73 30% 0.93 1,083 50 23% 0.74 1,333 100 38% 0.91

denotes new coverage

Source: geoSCOUT, Company reports, GMP

Ranking Montney plays

IP30 (boe/d ) 1,400 1,200 IP(30) boe/d 1,000 800 600 400 200 0 IP(30) boe/d Average IP30 liquids (bbls/mmcf) 160 140 IP(30) bbls/mmcf 120 100 80 60 40 20 0 IP(30) Liquids Average

Profit - Investment Ratio 1.6x 1.4x Profit Investment Ratio 1.2x 1.0x 0.8x 0.6x 0.4x 0.2x 0.0x PIR Average

Payout Period (months) 30 25 Payout (months) 20 15 10 5 0 Payout Average

Source: geoSCOUT, Company reports, GMP

Aaron Swanson, CFA aswanson@gmpsecurities.com (403) 543-3563

R. Jason Konzuk, CA, CFA rjkonzuk@gmpsecurities.com (403) 543-3587

New names offer a taste for every palate

All the companies covered in this report have primary assets producing natural gas out of the Montney formation, however, in many ways this is where the similarities both start and end. Of the five companies, 2014 production estimates range from over 20,000 boe/d, down to the 1,500 boe/d range and cover various stages of the company (and play) lifecycle. Additionally, production varies from 100% gas to a 50/50 mix of gas and NGLs Forecast production and gas weighting
30,000 2014 24,000 2015 % gas (2014E) 80% 100%

Average annual production (boe/d)

18,000

60%

12,000

40%

6,000

20%

AAV

PPY

DEE

SRX

DCK

0%

Source: Company reports, GMP Securities

NEW NAMESFROM 30,000FT

Advantage Oil & Gas What we like: Well-delineated Montney resource, with 83 wells drilled in upper Montney and 21 wells into the lower Montney. Recent middle Montney success offers potential to double resource on the play and add a liquids component. Fully funded development plan should result in a 21% production CAGR over next three years. Cautionary notes: Significant delineation of middle Montney remains, with only nine wells drilled to date into two of three potential layers. Delphi Energy What we like: New completion techniques appear to be a game changer with wells showing $16 million NPV potential. Already up the learning curve investors are now paying for execution and face less reservoir risk. 2013 was a year for operational improvements, we see 2014 as the year Delphi significantly improves its financial position. Cautionary notes: New corporate type curve appears to be reflective of some of the companys best performing Bigstone Montney wells.

% gas

Aaron Swanson, CFA aswanson@gmpsecurities.com (403) 543-3563

R. Jason Konzuk, CA, CFA rjkonzuk@gmpsecurities.com (403) 543-3587

Donnycreek Energy What we like: Appear to have a top quality land position in one of the most liquids-rich areas of the Montney gas fairway. Majority of drilling activity has focused on the Middle Montney interval, while the most recent well successfully tested the Upper Montney, resulting in a potential doubling of the companys drilling inventory. Has the largest contiguous land base in the Montney prospective Wapiti area. Early well results suggest there is much more work to be done here but, if successful, we believe this is the ticket to the company being acquired. Cautionary notes: Small cap producer in a capital-intense play (wells cost upwards of $10 million), meaning until the company reaches a higher critical mass, access to capital will be important to play development. Painted Pony Petroleum What we like: LNG upside: 7.0 tcfe of contingent resource and a clear line of sight to the West Coast. Type curves have seen a material improvement with the recent switch to ball-drop completion technology. Operational momentum clearly in Painted Ponys favour as the company recently increased 2014 average production guidance by nearly 15% on the back of initial production rates from four new wells. Cautionary notes: LNG projects and timelines are uncertain and 5-year growth plan may be scaled back if the company does not have required capital. Storm Resources What we like: Proven management team with a history of value creation over the previous 3 iterations of Storm. Potential to be a consolidator in the Umbach area; acquired Montney assets from Yoho in January 2014. Conservative reserve bookings leave considerable unbooked upside reserve bookings are currently based on 8% of Storms Umbach land position. Cautionary notes: Well economics are driven by liquids yields, which exhibit significant variability. Good news is liquids rates are trending in the right direction.

Aaron Swanson, CFA aswanson@gmpsecurities.com (403) 543-3563

R. Jason Konzuk, CA, CFA rjkonzuk@gmpsecurities.com (403) 543-3587

HOW THEY STACK UP

Within this section of the report, we compare the five new companies to their gas-weighted peers on four metrics: 1) Growth Both production and cash flow per share 2) Operating measures Cash flow netbacks and cost structure 3) Valuation Cash flow, production and NAV-based 4) Balance sheet Debt relative to cash flow and debt relative to production Growth: Our comparative metrics for growth include production per share and cash flow per share. Our average projected production per share growth for the gas-weighted small to mid-cap names sits just over 20% (2014). Ignoring Donnycreeks over threefold projected increase, amongst the new names, we are forecasting production per share to increase by an average of 25%, with Painted Pony leading the way. Given the continued improvements in Montney type curves, we foresee growth rates expanding from our current estimates. Given the recent increase in natural gas prices (when compared to 2013 levels) cash flow per share growth is much more pronounced. On average, we are forecasting the groups cash flow to rise 80% in 2014, with our new names increasing by an average of 85%. Comparative growth metrics production and cash flow
80%
2014E 2015E

150%

2014E 2015E

Production per share growth (%)

60%
CFPS Growth (%)

100%

40%

50% 20%

0%

DCK

KEL

PPY

CQE

BIR

DEE

RTK

SRX

PNE

AAV

CTA

CR

NVA

0%

DCK

KEL

PNE

AAV

DEE

PPY

CQE

NVA

BIR

SRX

RTK

CTA

CR

Source: Company disclosures, GMP

Netbacks and cost structure: Low-cost structure and strong realised pricing help drive asset profitability. Therefore, it should come as no surprise those companies with a higher weighting to liquids and low-cost structure are forecast to have the strongest cash flow netbacks. The average forecast 2014 cash flow netback for the group is $23.15/boe, with our new names falling right in line. Given the relatively low finding costs in the Montney, we believe these producers will continue to deliver strong recycle ratios.

Aaron Swanson, CFA aswanson@gmpsecurities.com (403) 543-3563

R. Jason Konzuk, CA, CFA rjkonzuk@gmpsecurities.com (403) 543-3587

Comparative netbacks and cash costs

$20 $40 100% $16
2014E Cash costs ($/boe)

Interest G&A Transport

$30
Cashflow netbacks ($/boe)

75%
Gas weight (%)

$12

$20

50%

$8

$10

25%

$4 $0 DCK CTA BIR KEL RTK NVA CR AAV SRX PPY CQE DEE PNE STE $0 AAV CTA PNE CQE BIR SRX KEL PPY NVA DEE CR RTK STE DCK 2014E 2015E Gas Weight 0%

Source: Company disclosures, GMP

Valuations: When comparing the relative valuations of the five companies with the larger peer group, we note that on average the Montney producers tend to trade at higher multiples. Painted Pony and Storm have of the three highest EV/DACF multiples in the group. The same can be said when looking at the valuation multiple from a production metric standpoint. Given the Monteny resource potential, operational momentum, and recent type curve improvements seen in the play, we do feel any sort of premium valuation multiple is justified. On average, our junior-intermediate gassy names trade at a 2014 EV/DACF multiple of 9.2x; this falls to 7.5x in 2015 on the back of a strong group growth profile. On average, our new Montney names trade at a slight premium in 2014 (9.8x), but given the better than average projected growth profiles, they trade at a slight discount in 2015 (7.4x). Comparative valuation metrics
16.0x 14.0x 12.0x
EV/DACF EV/boe/d 2014E
2014E 2015E

$120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0

2014E 2015E

10.0x 8.0x 6.0x 4.0x 2.0x 0.0x CTA PNE BIR AAV CQE CR DCK DEE RTK STE NVA PPY SRX KEL

PNE STE CTA CQE AAV DEE

CR

BIR RTK PPY NVA DCK KEL SRX

Source: Company disclosures, GMP

Aaron Swanson, CFA aswanson@gmpsecurities.com (403) 543-3563

R. Jason Konzuk, CA, CFA rjkonzuk@gmpsecurities.com (403) 543-3587

What are you paying for from a NAV basis? From a standpoint of resource upside potential, our new Montney producers are trading at a premium to their Base NAV (outside of DCK, but we believe this discount is due to the recent results from their Wapiti Montney play), meaning the market is giving these names value for their unbooked upside. In terms of relative value to Risked NAV, Delphi appears most attractive as the stock is trading at a slight premium to its Base NAV, which only includes 21 non-producing East Bigstone locations (representing roughly 2.5 years of drilling activity), signifying the reserve report is not aggressive by any means. Current share price relative to their NAVs
$18.00 Risked Upside NAV Base NAV Current Price $18.00

$13.50

$13.50

$9.00

$9.00

$4.50

$4.50

$0.00 PPY AAV SRX DEE DCK

$0.00

Source: Company disclosures, GMP

Balance sheet: Generally speaking, balance sheet strength amongst our gas-weighted juniors and intermediates is pretty healthy, thanks to strong first quarter pricing. On average, the group is carrying a trailing 2014 D/CF ratio of 1.2x, with our new names falling in line with this average. On a utilization basis, the new Montney names have drawn roughly 70% of their bank line, although we suspect lending lines will be expanded given the fact reserve reports have recently been updated. Comparative balance sheet metrics
2.0x
2014E 2015E

-$5,000 $0 $5,000 NVA $10,000 $15,000 CQE DEE CTA BIR RTK 100% 80% 60% Bank line utilization 40% 20% 0% CR DCK SRX AAV KEL

1.5x

1.0x
D/CF

Net debt/boe/d

PPY

STE

0.5x

0.0x

PNE KEL DCK NVA PPY SRX

BIR

STE CQE AAV CTA

CR

DEE RTK

-0.5x

$20,000 120%

Source: Company disclosures, GMP

Curent Price ($/share)

NAV/share

Aaron Swanson, CFA aswanson@gmpsecurities.com (403) 543-3563

R. Jason Konzuk, CA, CFA rjkonzuk@gmpsecurities.com (403) 543-3587

1 GMP

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