here - Emerging Equities Inc.

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Bow Valley Square III, Suite 269, 255 – 5th Avenue S.W.
Website: www.emergingequities.ca
Phone: 403-216-8200
April 19, 2012
Arsenal Energy Inc.
Initiating Coverage
Peter Linder (403) 216-8209
AEI: TSX
Email: [email protected]
“Huge Upside Over the Next 12 to 18 Months”
Recommendation:
Market Data
Last Price (April 18th, 2012)
52 Week High
52 Week Low
Share Capital - MM
Shares Outstanding - Basic
Shares Outstanding - FD**
Capitalization - $MM
Est. Net Debt - April 1st, 2012
Market Value
Enterprise Value
Operations
Oil & NGL - BOPD
Natural Gas - MCF per Day
BOE per Day 6:1
Reserves (P+P) - MMBOE's***
Net Undeveloped Land (acres)
Financials - $MM
Revenue (Net of Royalties)
Net Earnings
Cash Flow
DACF
Net Debt
Capital Expenditures (excl. A&D)
Net Asset Value*** - FD**
EPS - FD**
CFPS - FD**
DACF per share - FD**
Market Valuations
P/E - Basic
P/CF - FD**
Net Debt/Cash Flow
EV per avg. BOEPD - $M
EV/DACF
Price Realizations - Assumptions
WTI - U.S.$ per barrel
Natural Gas - C$ per MCF
Exchange Rate (C$/U.S.$)
STRONG BUY
12 Month Target:
$0.55
$0.88
$0.49
156.3
170.8
2010A*
1588
3,032
2,093
10.47
64,141
2011A*
1823
2,439
2,230
15.72
71,878
2012E
3140
5,160
4,000
$53.0
$86.0
$86.0
2013E
3,686
4,134
4,375
$36.2
-$6.3
$17.9
$18.9
$18.8
$26.0
$1.30
-$0.05
$0.13
$0.14
$47.7
-$2.5
$29.3
$30.2
$55.8
$40.5
$1.55
-$0.02
$0.18
$0.19
$76.2
$7.9
$45.3
$47.0
$55.5
$45.1
$89.3
$13.0
$55.5
$57.3
$58.9
$58.9
$0.05
$0.27
$0.28
$0.08
$0.32
$0.34
nmf
6.9x
1.1x
$70.9
7.9x
nmf
4.3x
1.9x
$80.7
6.0x
10.8x
2.1x
1.2x
$35.4
3.0x
6.6x
1.7x
1.1x
$33.1
2.5x
$77.54
$4.13
$0.97
$95.00
$3.65
$1.01
$100.00
$2.00
$1.00
$100.00
$2.75
$1.00
$1.38
Highlights

In today’s market, Arsenal stands out in its
Canadian junior oil and gas producer peer
group with the following attractive investment
factors:
 Experienced and successful management
team
 Strong, visible production growth for
several years at least, from projects offering
low risk/high return opportunities,
 Very high weighting to light oil
reserves/production,
 Relatively low valuations such as a large
share price discount to its net asset value,
 Low multiple to its cash flow per share and
the shares trading at relatively low values
for its daily production and reserves.

We are initiating coverage of Arsenal Energy
Inc. with a STRONG BUY recommendation
and 12 month target price of $1.38, which
translates to 5.0x our 2012E DACF, based on
$0.28 cash flow per share fully diluted, and a
5.8x EV/2012E DACF.
-* for year ended December 31, 2011
-**FD share calculations assume all options.
***Reserves – AJM Deloitte
-Market and Enterprise Values are based on total basic shares outstanding.
-Net Debt includes all debt and working capital.
-DACF is debt adjusted cash flow.
-Oil price assumptions adjusted for corporate differential and natural gas liquids
pricing.
-Expected Market Valuations based on AET-T closing price April 18th, 2012.
Actual Market Valuations based on weighted average historical AEI-T stock price.
Chart: www.globeinvestor.com
Arsenal Energy Inc.
(AEI: TSX)
Background
Arsenal is a junior oil and gas producer focused on oil with properties predominantly in North Dakota
and Alberta, with a non-core gas property at Desan in Northeast B.C.
Arsenal was founded in November 2000 and became public in January 2001. Since then, the company
has merged with several other junior producers. The company has an ambitious $45.0 million capital
spending program for 2012, virtually all focused on oil development. However, the company will
likely pare back its 2012 program to about $30 million ($25 million for North Dakota and $5 million
for eastern Alberta) if the current large US$30 per barrel(bbl) oil price discount to WTI received by
North Dakota’s producers continues beyond the next couple of months. This is due to a constraint in
pipeline (P/L) capacity in Bakken producing regions and equates to a field price of about $76/bbl. As
more pipeline take-away capacity from the region is achieved, the price discount will steadily decline.
By 2015 we expect all North American oil to be priced very similar to Brent crude, which today is well
over US$120/Bbl.
Arsenal has a significant inventory of drilling locations that have the potential to take the company’s
current production (75% oil) of 3,500 barrels of oil equivalent per day (Boe/d) to over 7,000 Boe/d by
2015. Of the total 166.0 gross locations (108.0 net) identified, 72.0 gross, 15.0 net locations are in
North Dakota, 14.0 net locations are in eastern Alberta and 80.0 net locations are in the Deep Basin of
west central Alberta.
Arsenal’s asset base offers an excellent mix of low to medium risk high impact projects. In eastern
Alberta, it has a stable production base of 1,800 Boe/d (approximately 1,600 Boe/d of liquids and 2.0
MMcf/d of gas) generating decent operating margins of $25 per Boe today and likely $35 to $40 next
year as the realized oil price discount steadily declines. In North Dakota, where current production is
1,000 bbl/d, the company has a multi-year inventory of Bakken and Three Forks locations offering
virtually no geological risk and high returns. These are Arsenal’s “bread and butter” plays albeit very
rewarding and expensive, the real excitement to the Arsenal story is their resource plays at Princess
(Glauconite oil) in southeast Alberta, and in the Columbia Deep Basin (Cardium, Wilrich, and Gething
liquids rich gas) in west central Alberta.
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April 19, 2012
Arsenal Energy Inc.
(AEI: TSX)
Core Areas of Operation
Figure 1 – Core Areas of Production
Alberta
Desan
Gas
600 boe/d
Saskatchewan
Evi
Light Oil
200 boe/d
Columbia
Deep Basin
1,800 boe/d
Light Oil
1,000 boe/d
Source: Arsenal Energy Inc.
Arsenal today holds a total of 71,878 net acres of undeveloped land.
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April 19, 2012
Arsenal Energy Inc.
(AEI: TSX)
North Dakota, USA
This region is prospective for sweet light oil and has become extremely active in recent years and the
activity level will become even more heated as more pipeline take-away capacity becomes available.
This area is largely limited to big players with deep pockets as the well costs are in the $9.0 to $10.0
million range, but the prize is significant, as discussed below. Arsenal is in the fortunate position of
getting into the play at the early development stage, and for a junior company, they amassed a solid
drilling inventory for many years to come.
Arsenal holds 7,210 net mineral acres in North Dakota: Stanley (4,123 net acres), Lindahl (676 net
mineral acres) and Rennie Lake/Black Slough (2,411 net mineral acres). Of the current 1,000 Bbl/d
production, about 90% comes from Stanley.
Figure 2 – Arsenal’s Bakken / Three Forks Land Position
The Bakken formation which spans southern Manitoba and Saskatchewan through northern Montana
and North Dakota could contain 3.0 to 4.3 billion barrels of recoverable oil, according to the U.S.
Geological Survey. This represents one of the largest potential oil reserves in the world. Current North
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April 19, 2012
Arsenal Energy Inc.
(AEI: TSX)
Dakota oil production has passed 500,000 bbl/d, which most coming from the Bakken and Three Forks
formations. At Stanley, Arsenal has 16.0 gross sections with an average working interest of over 50%,
varying from 3.13% to 80.27%, and is completely surrounded by U.S. majors including Amerada, Hess,
EOG Resources, and Whiting Petroleum. The Stanley property is on the northwest end of the Parshall
field, one of the most prolific regions of the Williston Basin Bakken.
Figure 3 – Stanley, North Dakota – Bakken Production
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April 19, 2012
Arsenal Energy Inc.
(AEI: TSX)
Arsenal has 12 wells producing in Stanley, with the oldest on production for three years and currently
producing 100 bbl/d. These wells typically IP at 1,100 bbl/d and decline to 600 bbl/d within two
months. The IP60 of the company’s best well was 800 bbl/d and the worst well is still strong at 400
bbl/d. The average annual production for all of Arsenal’s Bakken wells at Stanley for each of the first
three years are; 265 bbl/d, 150 bbl/d and 100 bbl/d, respectively. Average recoverable reserves per well
average 533,000 Bbls.
The economics for these Bakken wells are solid with a finding and development (F&D) cost of
$18.75/Boe, a 2.75x recycle ratio and a before tax rate of return of 26%. Clearly, once the pipeline
bottleneck for North Dakota oil is resolved next year, the economics for this play will significantly and
permanently improve.
As shown in Figure 4 below, under a $45.0 million 2012 capital budget scenario, Arsenal plans to drill
five wells (3.24 net) at Stanley. These are shown as dashed red horizontal well paths in Figure 4.
Figure 4 – Stanley, North Dakota – Bakken Resource Development
The Anthony Robert well was drilled and cased a few weeks ago, and then the rig was moved to the
Wade Morris well. Arsenal is the operator for both wells with an 80.27% working interest. These two
wells alone should add a least 500 bbl/d to the company’s Q4-2012 production. In May 2012, the nonoperated Amundson well (20.31%WI) is expected to spud with well results in June.
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April 19, 2012
Arsenal Energy Inc.
(AEI: TSX)
With the current and near-term negative outlook for North Dakota oil price differentials, there is a
possibility that Arsenal will defer the remaining two wells until 2013.
At Lindahl, Arsenal has five gross sections with both Bakken and Three forks formations.
Figure 5 – Lindahl – Bakken & Three Forks
The company doesn’t operate this property and has small working interests varying between 6.25% and
15.23%. Three gross (0.31 net) wells are planned at Lindahl in 2012, which should generate 80 bbl/d
net to the company in the first year of production.
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April 19, 2012
Arsenal Energy Inc.
(AEI: TSX)
Southeast Alberta
Chauvin
Arsenal bought the Chauvin field in August 2008 which produces medium gravity oil from the Sparky,
GP, Rex, and Colorado formations. At the time of purchase, the remaining proved plus probable (2P)
reserves amounted to 750,000 bbls. Approximately 360,000 bbls have been produced since the
acquisition. With minor capital investment; including one new injector well, one well restart, one well
re-completion, and one new drill well there are still over 580,000 bbls of booked reserves to produce
out.
Provost
Arsenal produces approximately 550 Boe/d medium gravity oil from the Cummings formation in
Provost with 250 bbl/d coming from the pool illustrated in Figure 6a below. This asset was purchased
in November 2011.
Figure 6a – Provost Cummings Y Pool Waterflood
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Arsenal Energy Inc.
(AEI: TSX)
Figure 6b – Provost Cummings Y Pool Waterflood
Source: Arsenal Energy Inc
It was assumed that the oil production from this pool will steadily decline, however Arsenal has already
shown that this pool responds to water injection. The west side of the pool which has not historically
been waterflooded has additional upside. The resulting future production from this field will exceed
the 2010 remaining booked reserves of 807,000 bbls (2P).
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Arsenal Energy Inc.
(AEI: TSX)
Princess
At Princess (100%WI), Arsenal has identified several exploration plays and waterflood projects
targeting Glauconite oil (25 degree API) and Basal Manville oil. As shown on the map below,
Arsenal’s current 2012 capital program includes drilling two Glauconite horizontal development wells
that will be completed with 10-stage fracs.
Figure 7 – Princess Glauconite Hz Development Project
Cored Glauconite Channel
12m Net Pay
16% Porosity
Legend
Q2 2012 Drilling Locations
Additional Drilling locations
Vertical
Producers
IP Rate: 26 Bbl/d
The first Glauconite oil well was licensed for Q2-2012 at a total well cost of $2.2 million. This project
offers solid returns with an F&D cost of $13.80/Boe, NPV10 of $1.71 million, ROR of 48.4% and a
3.1x recycle ratio. This project actually generates an even better rate of return than a typical Bakken
play.
Although Arsenal will likely proceed with at least one Glauconite oil well in Princess this year, the final
decision will depend on the expected realized oil price given the current large differential to WTI.
In west Princess, also acquired in November 2011, Arsenal holds 7.5 sections, of which three sections
are prospective for Basal Manville oil.
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April 19, 2012
Arsenal Energy Inc.
(AEI: TSX)
Figure 8 – Princess: Basal Mannville
This property has been on production since 2000, with total primary production to date of
approximately 1.1 MMBbl from the Basal Mannville. Current production is 142 bbl/d. Arsenal
estimates the pool’s remaining recoverable oil with waterflood to be 1.5 MMBbl, assuming a 10%
recovery factor from the pools 15.0 MMBbl of OOIP. Arsenal’s management believe that production
here could jump to 350 bbls/d, and recoverable reserves to increase to 20%, which equals another 1.3
MMBbl from the three pools identified as separate waterflood projects at a total cost of $1.0 million.
To support the concept of doubling recoverable reserves via waterflood, Enerplus Corp. has an analog
oil pool almost immediately to the east of Arsenal’s property (three sections away), that has been
booked at a 20% recovery factor and has produced 3.0 MMbbls representing a 15% recovery factor to
date.
Arsenal’s first waterflood project application is now before the ERCB and subject to Board approval,
water injection should start this August, with initial oil production response by the end of 2012. The
second and third applications to the Board will likely come in early 2013 and 2014, respectively.
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April 19, 2012
Arsenal Energy Inc.
(AEI: TSX)
Deep Basin: Columbia Area
In addition to Arsenal’s various excellent oil projects noted in this report which provide solid returns at
a low risk, the company purchased (at Crown lands sales) 17,300 net acres at Columbia in the Deep
Basin. As shown below, these lands are prospective for liquids rich Cardium (34.0 net locations)
Wilrich (46.0 net locations), and Gething (23.0 net locations). Fairborne surrounds Arsenal’s newly
acquired lands and recently has had significant drilling success.
Figure 9 – Columbia Area Play Overview
The Cardium play has over 5.0 m of net pay, liquids production of 50.0 bbls/MMcf and recoverable
reserves of 3.9 Bcf of gas and 227 Mbbl of liquids. Initial production (IP30) for these Cardium wells is
about 400 Boe/d with a first year average rate of 222 Boe/d. With an F&D cost of $7.17/Boe, this play
generates a recycle ratio of 3.0x. A Cardium well costs approximately $6.0 million to drill and
complete.
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Arsenal Energy Inc.
(AEI: TSX)
Along with the huge project inventory at Arsenal’s disposal, the real hidden gem for the company is
their Wilrich gas play. High impact Wilrich liquids rich gas plays (also $6.0 million per well) are
receiving rapidly growing attention by industry. This interest will escalate significantly when natural
gas prices recover.
As shown in Figure 10 below, recently drilled Wilrich wells came on at 3.0 to 5.0 MMcf/d with 75 to
125 bbls/d of liquids.
Figure 10 – Wilrich Deep Basin Gas
Arsenal believes their Wilrich lands have similar geology to Encana’s play at Leland. Encana’s well
came on at 4.6 MMcf/d plus liquids, with average net pay of 6.2 m.
No Cardium or Wilrich wells are in Arsenal’s 2012 capital program, but as natural gas prices improve,
the Deep Basin will become a much bigger focus for Arsenal.
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Arsenal Energy Inc.
(AEI: TSX)
Production Forecast
As shown in Figure 11 below, annual production has grown rapidly since the new management team
took over in 2007. In addition, the company has maintained an oil ratio of total production at 75% or
higher.
Figure 11 – Actual and Forecasted Production
Source: Emerging Equities Inc. Capital Markets
For 2012 we have assumed a significant production increase of 79% to 4,000 Boe/d (75% oil) partly
due to the 1,500 Boe/d acquisition late last year and Arsenal’s forecast capital program to be
approximately $45.0 million. If the CAPEX program is cutback, so will the 2012 average production
rate. Nevertheless, the amount not spent in 2012 will likely be added to Arsenal’s 2013 capital
program.
Valuation
The table below illustrates actual and projected cash flows (Figure 12) and cash flow per share (Figure
13) for Arsenal through to 2013. For 2012, cash flow will continue to be negatively affected by very
weak natural gas prices and a very high oil price differential to WTI crude. Nevertheless, the forecast
jump in production should deliver annualized 2012 cash flow of $45.3 million. Arsenal’s strong
production growth, significant exposure to oil, combined with our forecast 2013 WTI price of $100/bbl
(with a conservative $20/bbl realized price differential to WTI) and $2.75Mcf gas would generate an
estimated 2013 cash flow of $55.5 million.
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April 19, 2012
Arsenal Energy Inc.
(AEI: TSX)
Figure 12 – Actual and Forecast Cash Flow
Figure 13 - Actual and Forecast Cash Flow per share fully diluted
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April 19, 2012
Arsenal Energy Inc.
(AEI: TSX)
Emerging Equities Inc. uses market based valuations from publicly traded companies and corporate
transactions in the oil and gas sector and takes the arithmetic average of all selected metrics. Arsenal’s
recent stock price of $0.55 looks very compelling using these market metrics, and current company
data.
Figure 14 – Arsenal’s Valuation Metrics
Description
Cash Flow Multiple (5.5x @ $31.06 Netback and 4000 boepd)
Flowing Barrel Metric ($75k)
Est. P+P 2011 Reserves Value (@$18.64 per boe)
Est. P+P 2011 Reserves Value (@$18.64 per boe; incl. land)
Est. Proven 2011 NAV (@$26.02 per boe; incl. land)
Est Fully Diluted 2011 NAV (incl. land) AJM Deloitte
Arithmetic Mean
$
$
$
$
$
$
$
Valuation
1.13
1.43
1.39
1.50
1.30
1.53
1.38
In every respect, Arsenal’s current share price can be considered great value, particularly since it has
fallen in recent weeks. The stock is trading at only 2.0x our 2012E debt adjusted cash flow (DACF)
based on $0.28 per share fully diluted, and 3.0x EV/2012E DACF. Growth stories like Arsenal in
better markets usually trade at a premium. Given the metrics forecast for 2012, a range of share prices
are presented in Figure 15 below with implied metrics at a range of prices given estimated unbooked
reserves after the 2012 risked capital program. Again, Arsenal’s current price of $0.55 per share is a
very attractive entry point.
Figure 15 – Arsenal’s Implied Metrics at Implied Stock Prices
Share Price
$
EV per Flowing Barrel (4000 boepd) $
Reserve Value (EV/2P)
$
EV multiple (@$31.06 netback)
1.10 $
60,906 $
15.5 $
5.4
Implied Metrics @ Share Price Scenarios
1.25 $
1.38 $
1.55 $
67,311 $
72,862 $
80,120 $
17.1 $
18.5 $
20.4 $
5.9
6.4
7.1
1.70
86,525
22.0
7.6
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April 19, 2012
Arsenal Energy Inc.
(AEI: TSX)
Recommendation and Conclusion
We strongly believe that now is an ideal time for investors to buy Arsenal shares for the following
reasons:
1)
2)
3)
4)
5)
Arsenal’s share price has recently been beaten up due to the oil and gas sector being out of favor
largely due to record low natural gas prices and record high oil price differentials to WTI and
Brent crudes. Arsenal’s field prices for both oil and gas will start to rise later this year and with
higher realized oil and gas prices next year compared to current levels, we expect market
sentiment for this sector to improve later this summer/fall.
Arsenal’s exposure to the right commodity with about 75% weighting to oil and NGL’s.
The stock offers very compelling valuations, trading at only 2.0x our 2012 estimated DACF and
at a 63% discount to its year-end NAV, and 60% discount to average transaction valuations for
corporate transactions.
In Emerging Equities Inc.’s (EEI’s) opinion, today’s market value of Arsenal’s North Dakota
assets alone are worth considerably more than where the stock is currently trading.
Arsenal’s excellent and diverse asset base, including their enormous resource plays both in
North Dakota and the Deep Basin, management, and its’ Board of Directors have several
alternatives to provide shareholders an attractive return. These choices include, but are not
limited to, organic growth, including the joint venture or farm out of Cardium Wilrich lands,
sale of the U.S. assets, convert to a dividend paying company, and/or a merger or sale of the
entire company. Depending on the course of action selected by the management and the Board
of Directors, the shareholders could receive a price north of $1.50 per share.
EEI is initiating coverage of Arsenal Energy Inc. with a STRONG BUY recommendation and 12
month target price of $1.38, which translates to 5.0x our 2012E DACF, based on $0.28 per share fully
diluted, and a 5.8x EV/2012E DACF. However over the next few years, assuming the company
delivers the strong operational results we expect, the company will earn a multiple expansion. We
would not be surprised if the share price reaches over $2.00 by Q4-2012 or Q1-2013.
History has proven junior oil weighted producers that are still in the early stage of proving up a major
new play (the Wilrich in particular), coupled with strong initial drilling results, quickly surface on the
radar screens of many potential buyers who will pay a premium price.
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Arsenal Energy Inc.
(AEI: TSX)
Appendix - Management Biographies
Tony van Winkoop - President and CEO
Tony joined Arsenal in July, 2006 and was appointed President and CEO in July 2007. He has a B.Sc in
Geological Engineering from the University of Saskatchewan with 25 years of multidisciplinary oil and
gas experience. After 8 years with a major international company, Tony co-founded Venator Petroleum
in 1988. As VP of exploration he helped build the company from no production to 1600 boe/d. He
joined Prime West, when the company purchased Venator, in 2000. As General Manager of
Development he built and oversaw Prime West’s development project inventory.
J. Paul Lawrence, CA – Vice President, Finance and CFO
Mr. J. Paul Lawrence was appointed Vice President Finance and CFO of Arsenal in May 2008. Mr.
Lawrence has gained a wealth of experience with over 30 years in the oil and gas industry in both
private and public companies in the areas of mergers and acquisitions, corporate finance, investor
relations, tax and financial reporting.
Prior to joining Arsenal, Paul served as Vice President Finance and CFO for Clearwater Energy Inc.,
Silverwing Energy Inc., Lexxor Energy Inc. and Quadron Resources Ltd.
Paul attended the University of Calgary Executive Development Program in 1998. He is a member of
the Canadian, Alberta and Ontario Institutes of Chartered Accountants and the Financial Executives
Institute. He served as a director of Lexxor from 1995 until February 2001, a director of Country Hills
Golf Club from 1998 to 2004 and a director of the Financial Executives Institute-Calgary Chapter from
2005 to 2007.
Gjoa Taylor – Vice President Land
Gjoa Taylor joined Arsenal in March of 2008. Ms Taylor has 20 years of experience as a Professional
Landman including positions with Imperial Oil, Crestar Energy, and most recently at PrimeWest
Energy as Manager, Negotiations. In addition, Ms. Taylor has served as a Director on the Canadian
Association of Petroleum Landmen (CAPL) and remains actively involved in CAPL committees. Ms.
Taylor received a BA in Law with a minor in Petroleum Land Management from the University of
Calgary in 1995.
Ron Forth, P.Eng – VP Engineering
Ron joined Arsenal in September 2008 as VP Engineering. He graduated from the University of Alberta
in 1981 with a B.Sc in Mechanical Engineering and has over 25 years of industry experience. Prior to
joining Arsenal, Ron held positions at Petro-Canada, AEC/EnCana, and Primewest Energy/Taqa North
specializing in Reservoir Engineering. In his career, Ron has worked as a technical specialist and in
management roles on a variety of development and A&D projects across Canada and in the US, ranging
from shallow gas/CBM to deep tight gas resource plays, conventional and heavy oil. He is the author of
two technical papers, serves on SAIT Petroleum Technology Advisory Committee, APEGGA member.
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Arsenal Energy Inc.
(AEI: TSX)
Leo Nolte, RET – VP Drilling and Completions
Leo joined Arsenal Energy in May 2010. He graduated from the Southern Alberta Institute of
Technology in 1980 with a degree in Chemical Engineering Technology. He has 30 plus years of
industry experience with a majority in drilling and completions. Through his career he has held both
technical and management positions at various companies including Crocotta Energy, Primewest
Energy Trust, Cypress Energy, CS Resources and Gulf Canada Resources.
Kent Sawatzky – VP Production
Kent Sawatzky joined Arsenal in January 2011. He began working in the oil and gas industry after
receiving a Bachelor of Science degree in Chemical Engineering from the University of Calgary in
1985. Through his career he has held a combination of technical and management positions with
Amoco Canada, NOVA Gas Transmission, Alliance Pipeline, PrimeWest Energy/Taqa North, and
Perpetual Energy. Kent is a professional engineer and member of the Association of Professional
Engineers, Geologists, and Geophysicists of Alberta (APEGGA).
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Arsenal Energy Inc.
(AEI: TSX)
DISCLAIMER
The information contained herein is for information purposes only and this report is not to be construed
as an offer to sell or a solicitation of an offer to buy any securities. The information and opinions herein
have been compiled or derived from sources which we believe to be reliable but we cannot guarantee
their accuracy or completeness and no representation or warranty, expressed or implied, is made as to
their accuracy or completeness. Emerging Equities Inc. does not assume any liability whatsoever for
any loss arising from the use of this report or its contents. Emerging Equities Inc. may have acted as
financial adviser and/or underwriter during the past 12 months for certain of the issuers mentioned
herein and may have received and may receive remuneration for such services. Emerging Equities Inc.
and /or its officers, directors, employees may, from time to time, acquire, hold or sell a position in the
securities mentioned herein as principal or agent. This report is intended for distribution only in those
jurisdictions where Emerging Equities Inc. is registered as an advisor or a dealer in securities. Any
distribution or dissemination of this report in any other jurisdiction is strictly prohibited.
INVESTMENT RATINGS
__________________________________________________________________________________________________________________________
Risk: Based upon several different parameters including but not limited to stock price volatility, asset
diversification, geographical location, exploration orientation, EEI assigns a risk profile to each
recommendation as either Medium risk or High risk. Potential Return: Based on a 12- month period
unless otherwise stated, potential return is a function of relative cash flow multiples, relative net asset
value, cash flow and production growth potential, as well as capital composition.
Potential Return
Risk
Ratings Distribution
STRONG BUY:
30% or more
Medium
100%
STRONG SPECULATIVE BUY
30% or more
High
0%
SPECULATIVE BUY:
20% or more
High
0%
BUY:
20% or more
Medium
0%
HOLD:
10% or more
Medium
0%
REDUCE:
10% or less
Medium
0%
RESTRICTED:
Involved in Investment banking
___________________________________________________________________________________
ANALYST DISCLOSURE
Yes or No
At the date of the Research Report, does the Analyst hold a position in the stock?
No
Has the Analyst received, directly or indirectly, compensation in exchange for expressing the
specified recommendations?
No
The Analyst certifies that the views expressed in this report are his own.
Yes
Is EEI a market maker for the Company or income trust?
No
Does Emerging Equities beneficially own more than 1% of any class of the issuer’s common
stock (as of the most recent month end)?
No
Does any director, officer, employee of EEI or member of their household serve as a director
or officer or advisory capacity to the issuer? (If so, list name):
No
20
April 19, 2012
Arsenal Energy Inc.
(AEI: TSX)
Yes or No
No
Does EEI or the analyst have any material conflicts with the issuer? If so, explain:
Has EEI received remuneration for investment banking and/or related services from the issuer
during the past 12-months?
No
Has EEI provided the issuer with non-investment banking securities-related services in the
past 12-months?
No
Has EEI managed or co-managed an offering of securities by the issuer in the past 12months?
No
Has the analyst viewed the material operations of the issuer? If so, explain:
No
Note: EEI may receive or intends to seek compensation for investment banking services from all
issuers under research coverage within the following three months.
DISSEMINATION OF RESEARCH REPORTS
____________________________________________________________________________________________________________________________
EEI endeavors to disseminate all Research Reports equally and in a fair manner. New research reports
are posted on our website at http://www.eei.to. Concurrently, new research reports are sent
electronically to our clients. Research is also disseminated by mail. Please direct any questions you may
have to Emerging Equities Inc. at (403) 216-8200.
21
April 19, 2012

here - Emerging Equities Inc.

Transcription

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