Madalena Energy Inc. (MVN-CA) · owned oil company, Sinopec, Bridas, CNOC, Pan American Energy, Statoil, and a number of other multi-national entities which could be currently looking

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Madalena Energy Inc.

(MVN-T) and (MDLNF-OTC)

Unlocking Argentinian Value to

Fuel Domestic Growth

Initiating Coverage

BUY $1.00 $0.67

$1.00

49%

Realized Prices 2013E 2014E 2015E

Light Oil ($/bbl) $88.98 $85.65 $79.37

Natural Gas ($/mcf) $3.13 $4.00 $4.00

Production

Crude oil & Liquids (bbls/d) 516 1,005 1,666

Natural Gas (mcf/d) 3,471 3,927 6,179

Total Production (boe/d) 1,094 1,660 2,696

Oil & Liquids Weighting 47% 61% 62%

Financial ($MM, except Per Share item)

Revenue $18.4 $34.4 $52.0

Net Income -$2.2 $3.7 $16.4

DACF $4.9 $14.4 $33.9

CAPEX $42.2 $45.6 $30.2

Net Debt -$19.4 -$11.2 -$14.9

Net Debt/CF -4.0x -0.8x -0.4x

CFPS - Fully Diluted $0.01 $0.03 $0.08

P/CFPS 48.3x 19.2x 8.2x

EV/DACF 47.6x 17.7x 7.4x

EV/BOEPD $211,739 $153,358 $93,053

NAVPS $0.18 $1.39

Shares Outstanding, Basic (MM) 363.8

Shares Outstanding, Diluted (MM) 383.8

Insider Holdings, Diluted 4.5%

Market Capitalization (MM) $244

Enterprise value (MM) $232

52 Week Price Range $0.83-$0.24

Valuation

Prev ious Close

12-month Target Price

Potential Return

Stock Data

About the Company

Madalena Energy Inc. is a CDN based oil and gas company that

is domestically unlocking a light oil and LRNG play in Central

Alberta. Internationally Madalena Energy holds three large

exploration blocks within the Neuquen basin in Argentina where

it is focused on unlocking the lucrative Vaca Muerta and Lower

Agrio oil shale plays.

All prices in C$ unless otherwise stated

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Madalena Energy Inc. (MVN-CA)

Volume (Thousands) Price (CAD)

March 31, 2014

Kuno Ryckborst, MBA

(587) 350-6577

[email protected]

Ted Bobier, Associate

(587) 350-6574

[email protected]

Madalena Energy Inc. is a junior oil and gas company that

provides investors exposure to a unique set of world class

unconventional shale and tight sand assets within the Neuquén

basin alongside a large land base (155 net sections) of multi-

stacked horizontal plays in West-central Alberta. Madalena holds

key strategic land positions in the most active area for

unconventional oil and natural gas drilling in the world (outside of

North America) driven by the Vaca Muerta shale, Lower Agrio

shale and Mulichinco tight sand play.

As a high impact explorer and unconventional shale player,

management is focused on a delineation strategy to further

prove up an estimated 2.9 Billion boe (45% oil and liquids) of net

recoverable resources within the prolific Neuquén basin on an

impressive 34.8 Billion boe of initially in-place petroleum. This

P50 (best case) estimate as evaluated by Ryder Scott as a 3rd

party evaluator is the key prize to unlock for Madalena

shareholders.

Near-term production growth and cash flow growth will be

driven predominantly by implementation of horizontal

technology on multiple horizontal oil plays (both internationally

and domestically) including a high impact horizontal play in

Argentina within the prolific Sierras Blancas light oil zone of

interest, which is sourced out of the Vaca Muerta shale.

In 2014, Madalena is executing a steady program of high

impact international wells including a blend of 3 to 4 horizontal

wells in the Sierras Blancas targeting ~15 to 25 mmbbl pools,

Vaca Muerta and Lower Agrio shale delineation wells with multi-

stage frac completions, and re-entries to test sizeable resource

plays in the thick Mulichinco LRNG play (similar to the Montney

in Canada) and possibly the Lotena zone of interest. In

Canada, the company plans to also conduct additional

horizontal drilling (post break-up) across its large land base of

155 net sections.

Valuation/Recommendation:

We are initiating coverage of Madalena with a BUY

recommendation and a 12-month price target of $1.00. Our

target is based on a 50/50 weighting of 1x our NAVPS estimate,

and our 2015E multiples of 6.5x EV/DACF and $83,000/boepd,

respectively. Madalena currently trades at 7.4x and $93,000/boe

multiples for FY2015E.

mailto:[email protected]

mailto:[email protected]

March 31, 2014| Page 2 Kuno Ryckborst | 587.350.6577 | [email protected]

Ted Bobier, Associate | 587.350.6574 | [email protected]


Table of Contents Investment Thesis .......................................................................................................................... 3

Corporate Profile / Capital Structure ......................................................................................... 5

Management and Directors ....................................................................................................... 5

Potential Catalysts ........................................................................................................................ 6

Argentina Catalysts ............................................................................................................... 6

Domestic Catalysts ................................................................................................................ 7

Balanced Tranche of Two Dynamic Assets............................................................................... 8

Domestic ................................................................................................................................. 8

Delineating the Ostracod .................................................................................................... 8

Establishing an Ostracod Type Curve ............................................................................... 10

International - Unlocking the Big Prize in Argentina ........................................................ 10

Coiron Amargo .................................................................................................................... 11

Curamhuele Block ............................................................................................................... 12

Cortadera Block .................................................................................................................. 13

Country Risks – Serial Defaulter ................................................................................................. 14

2014 Forecast .............................................................................................................................. 15

Production ............................................................................................................................ 15

Capital Expenditures ........................................................................................................... 16

Cash Flow ............................................................................................................................. 16

Key Risks ....................................................................................................................................... 17

Valuation Summary .................................................................................................................... 19

EV/DACF and EV/boepd Valuation Multiples ................................................................. 19

NAVPS.................................................................................................................................... 19

Appendix A – Management and Directors ............................................................................ 23

Appendix B – Financial Statements ......................................................................................... 24




Investment Thesis Madalena Energy Inc. (Madalena) is one of the only small-cap companies

with significant leverage and torque to the evolving unconventional shale

and tight sand plays within the prolific Neuquén basin and is the only

Canadian public company with a key oil block within the first evolving sweet

spot of the Vaca Muerta (VM) shale. Madalena provides investors with a

balanced approach and exposure to both high impact horizontal plays

(both internationally and domestically) alongside massive upside on billion

barrel unconventional shale opportunities. This is the “home-run” event for

shareholders as the Argentina shale activity continues to attract the attention

of the world’s largest integrated E&P and international NOC’s as the most

active hot bed for unconventional activities outside of North America.

Madalena holds its Argentina unconventional and conventional assets in an

Argentinian subsidiary company called Madalena Austral S.A. (MASA) that

holds three lucrative early stage shale oil and natural gas (NG) assets and

holds its Canadian assets (155 net section in West Central Alberta) in its

parent company outside of Argentina

Current corporate field production is oscillating between 1,200 – 1,400 boe/d

(50% weighting to oil and liquids) of which ~50% is derived from ~5 (4.91 net)

local producing wells. We project that its high impact international horizontal

oil play in the Sierras Blancas light oil and the company’s Alberta based

horizontal Ostracod oil play will drive near-term production and cash flow

growth from systematically drilling 3 to 4 Sierras Blancas horizontals on its

Coiron Amargo block (Neuquén basin) and from continuing to drill horizontals

on its estimated ~50 well inventory for the Ostracod. We are forecasting

production growth of 52% from a $45.6 million capital spending budget in

FY2014 to drilling 9 (5.5 net) wells. This drilling program, if successful, should

increase our F2014 CFPS estimate to $0.03 per share from $0.01 per share in

FY2013.

Madalena’s current share price is backstopped by its existing Alberta/

Argentina based current production, ~$30 million in cash and no debt, and

does not fully recognize the potential value from its lucrative Argentinian

shale and unconventional assets. Led by a world class shale oil play in

Argentina known as the VM shale, these three blocks together hold ~34.8

Billion bbls (51% oil and liquids) of estimated original hydrocarbons in place

net to Madalena as vetted by a Dec. 31, 2012 Ryder Scott Resource Report

which is NI51-101 compliant. An active drilling and completions program set

into motion during the latter part of last year has begun to delineate and

further prove-up 2.9 billion boe of recoverable resources (P50 best estimate

case).




The primary end goal for Madalena is to exit to a major E&P or NOC and

unlock significant value for shareholders. With this ultimate end goal in mind

at all times the relatively new management team of Madalena continues to

build MASA while coming out of what appears to be the bottom part of the

macro cycle in Argentina. We see likely suitors for MASA being one of the

majors in the Neuquén Basin (Royal Dutch Shell (RDS.A-US), Total SA (TOT-US),

Chevron Corp. (CVX-US), Exxon/Mobil Corp. (XOM-US), Wintershall GmbH

(subsidiary of BASF), YPF (Yacimientos Petroliferos Fiscales), Argentina’s state

owned oil company, Sinopec, Bridas, CNOC, Pan American Energy, Statoil,

and a number of other multi-national entities which could be currently

looking to enter the Neuquén basin shale plays. Despite the grave political

and economic history, there has been a flurry of industry investments made

by the majors (i.e. Shell publically commits on Dec. 10, 2013 to triple its FY2014

investment in VM shale from US$170 to $500 million most of which is being

invested in the two oil blocks adjacent to Madalena’s Coiron Amargo block;

Chevron commits US$928 million to its joint venture with YPF that will have 35

rigs operating directly offsetting Madalena’s Coiron Amargo acreage; YPF

announced that it raised US$500 million in five year bonds at 8.875% in Dec.

2013 to meet its near-term capex commitments; YPF also commits US$1.2

billion on Mar. 4, 2014 to add 15 to 65 existing rigs to develop the VM shale

making it the second most active Latin American driller after Mexico).

Wintershall also recently signed a deal just north of Madalena’s oil acreage

for an up to $3.34 Billion in investment to gain a less than 12,000 net acre

position in the VM shale and Petronas is rumoured to be looking to cut a

billion plus dollar deal with state run YPF on acreage near Madalena’s.

In the longer term, we view the company’s Alberta operations to represent

the surviving entity, or spinco, for shareholders. In this regard, we expect that

management will continue to delineate existing, and explore new,

hydrocarbon prospects on ~155 net sections of land that it assembled in the

greater Paddle River area of central Alberta. In addition to the Ostracod, this

land position is also potentially prospective for Viking light oil, as well as LRNG

from the Nordegg, Notikewin/Wilrich, Rock Creek and Duvernay formations.

Although exploration is still in its infancy, we expect a scalable resource base

that will provide sufficient running room in the mid-term.

Its large exploration acreage (150 net sections) in the greater Paddle River

area with multi-formation potential together with the likely sale of MASA and

re-investment of the net proceeds back into Canada is what make

Madalena a compelling investment.

We are initiating coverage of Madalena with a BUY recommendation and a

12-month price target of $1.00. Our target is based on a 50/50 weighting of 1x

our NAVPS estimate, and our 2015E multiples of 6.5x EV/DACF and

$83,000/boepd, respectively.




Corporate Profile / Capital Structure Madalena has a strong balance sheet with an estimated current net cash

position of ~$30 million and availability under its undrawn revolving borrowing

base facility of $13 million. Between cash in the bank, cash flow from

production and other financial gains between jurisdictions, management has

sufficient capital to meets its 2014 capital requirements ($45.6 million). We are

forecasting FY2014 net cash position of $11.2 million, which together with a

current market capitalization of $247 million from ~383.8 million common

shares outstanding (FD), equates to an enterprise value of ~$232 million.

Exhibit 1: Capital Structure

Source: Company reports, Beacon Securities Ltd.

Management recently raised $23 million on a bought deal basis at $0.70 per

share (Feb. 11, 2014) that enables the company to meet its 2014 capital

commitments in Argentina and Canada without the need for immediate

debt capital under a defined cost structure.

Madalena shares are listed on the Toronto Stock Exchange under the symbol

MVN-T, and also traded over-the-counter in the US under the symbol MDLNF.

The shares have performed well over the past 52 weeks, we believe in part

due to a movement by the world’s majors (Shell, Total, Chevron, Exxon/Mobil,

Wintershall, Apache and Repsol) to invest significant exploration dollars to

unlock a world class light oil resource play known as the VM shale in

Argentina. Along with the company’s exciting new domestic exploration light

oil play in central Alberta, investor interest in Madalena has re-surfaced,

driving up the share price as illustrated in the price/volume graph on the front

page herein.

Management and Directors Madalena is led by President and CEO Kevin Shaw (P.Eng. MBA) who along

with a full cycle operating team of four, joined the company back in Nov. 27,

2012. Mr. Shaw has a diverse background that is comprised of oil and gas

experience (ExxonMobil / Imperial Oil, Colt Worley Parsons and Trimox Energy

Inc. blended with capital markets experience (Wellington West Capital




Markets which sold to National Bank in Canada in 2011 and another

investment banking boutique.

Combined with a diverse board of directors led by Chairman Mr. Ray Smith,

current President and CEO of Bellatrix Exploration Ltd. (BXE-T), and strong

international experience by directors like Barry Larson (current VP and COO

of Parex Resources in Columbia and ex-Petro-Andina in Argentina) and Keith

MacDonald (currently sits on boards like Surge Energy), the company has the

leadership to execute the best corporate strategy and path forward for

shareholders. The management/operations team has notable experiences

with past companies like YPF, GyP (Neuquén state run provincial company),

Chevron Canada Resources, Renaissance Energy, Petro-Canada Inc., Home

Oil Company Ltd., Santos in Australia and Online Energy Inc. (acquired by

Madalena when the new team came in) in the required areas to create

value for shareholders. We refer the reader to Appendix B for more detailed

biographies on the executive team.

Potential Catalysts

Argentina Catalysts

Expect results within the next couple weeks from a second (CAN 15(h))

high impact horizontal well of a multi-well horizontal program targeting

the Sierras Blancas light oil reservoir which is sourced from the VM. CAN

15(h) is currently being drilled in one of the largest of the six independent

Sierras Blancas conventional light oil pools identified on the Coiron

Amargo block. Madalena's first horizontal Sierras Blancas well (CAN xr-

2(h)), which is one of the best wells drilled to date in the Neuquén basin,

tested at 2,238 boe/d (80% oil) on a 12mm choke at 1,304 psi and has

produced approximately 50,000 boe/d (not including associated solution

gas) in its first two months under a restricted flow via temporary facilities.

This well is expected to be producing through permanent facilities

imminently.

With an inventory of horizontal locations to be drilled on the Coiron

Amargo block, Madalena plans to drill 3 to 4 high impact Sierras Blancas

horizontal wells during F2014 and is fully funded to do so with the recent

Feb. 2013 financing of $23 million.

Moving the VM shale delineation forward, as Madalena is in the process

of completing technical assessment work to plan upcoming completions

work (multi-stage fracing operations or alternative stimulation activities)

and testing operations on both its CAS.x-15 and CAS.x-14 oil wells

targeting the southern portion of the Coiron Amargo block. The CAS.x-14

well showed ~105 metres of oil shale on well logs with the CAS.x-15 well

having ~115 metres of oil shale.




Madalena is also working on potentially testing (via re-entry work in

existing vertical wellbores) certain gas horizons on its Coiron Amargo

block given offsetting work by other major E&P players to the south of

Coiron Amargo. For example, Pan American energy is putting US$180

million into select NG horizons to the south of Coiron Amargo. As much as

the focus is on the oil plays in the Sierras Blancas and the VM shale, the

Coiron Amargo block is also prospective for large-in-place NG plays like

the Lotena, Lajas and Los Molles shale, none of which are included in

Madalena’s current Ryder Scott resource assessment.

On its Cortadera Block, Madalena with its new incoming partner (YPF or

possibly Pluspetrol) expect to re-enter the previously drilled CorS.x-1 VM

shale discovery well; it had already discovered TCF's of NG in the Vaca

Shale well. The partners intend to move up-hole to evaluate a possible

200 meter thick tight NG zone known as the Mulichinco formation. This is

the same zone that is currently being drilled to the east of Cortadera by

Total SA and Wintershall from applying modern day multi-stage frac

technology via horizontal wells. Madalena (37.8% W.I.) and its partner

have until Oct. 26, 2014 to meet this commitment and Madalena has

carries on this re-entry with its partner. This high impact re-entry is

expected to be conducted in Q2 post-closing of the YPF-Apache deal.

Madalena is also running seismic at Curamhuele in Q1/FY2014 and

continues to have ongoing joint venture assessment work with RBC in

respect to its 90% W.I. in the Curamhuele block where it holds ~79 net

sections. The block itself has significant upside with three high impact

plays including the VM shale, Lower Agrio shale (oil) and thick Mulichinco

tight sand play across the block. Progression of these plays across the

block has the potential to unlock significant value, which is not currently

valued in the share price.

Management is also following Chevron’s activities directly offsetting

Madalena’s Curamhuele block, as this is Chevron’s second area of focus

in the VM at a block called El Trapia. Chevron’s first area of focus in the

VM is where it made a US$1.2 Billion dollar deal with YPF in the Loma de

Lata area offsetting Madalena’s Coiron Amargo block. This is where

Chevron expects to ramp up to ~80,000 boe/d over the next few years.

Chevron’s second area of focus is adjacent to Curamhuele which could

provide significant upside to Madalena at Curamhuele from an active

exploration and appraisal program through 2014.

Domestic Catalysts

Currently tying-in the company’s 5th successful Ostracod horizontal which

is expected to match the type curve expectations for the play;

Post spring break-up the company plans to drill additional horizontal wells

in FY2014 across its 155 net section acreage.

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Balanced Tranche of Two Dynamic Assets

Domestic

Madalena currently has ~155 net sections in the greater Paddle River core

area, in central Alberta that offers multi-formation potential. The current focus

is to steadily develop its ~58 net section Ostracod light oil and associated NG

play that alone, has an estimated development inventory of ~50 locations.

Management also has 146 net sections that target an emerging LRNG play

yielding liquids at ~100 to 130 bbls/mmcf from the conventional Nordegg

Formation, and ~136 net sections NG and liquids play targeting the Notikewin

and Wilrich Formations within bread and butter Mannville channel trends.

Additional call option opportunities exist as the company also controls rights

on much of its land position that is also potentially prospective for Viking light

oil, and LRNG (or oil) from both the Rock Creek and Duvernay shale (100 net

sections) formations that lies between the Pembina and Kaybob areas that

are actively being de-risked by industry today.

Exhibit 2: Canadian and Argentinian Assets

Source: Company reports

Delineating the Ostracod

Management continues to delineate the Ostracod play where it has

identified a fairway of hydrocarbon charged sandbars (Reference Exhibit 3)

in a marine shore face geotechnical environment. The lithology is coarse to

fine grain sandstone that exhibits ~13.7% porosity and permeability of

~5.33md. Given that it is still a relatively new horizontal multi-stage frac

resource play, the objective across Madalena’s 58 net sections is to continue

to develop in and around the company’s existing defined pools while

stepping out to extend the overall play fairway, adding to the company’s




inventory of horizontal development locations. . Hydrocarbons are recovered

by drilling up to ~1,400 meter horizontal legs at vertical depths between 1,500

to 1,700 meters target depths and executing multi-stage fracs (typically

anywhere from 9 to 16 stages).

The Ostracod appears to be gassier towards the North East part of the

fairway and becomes oilier in composition as it trends down-dip in an S/SW

direction. The majority of Madalena’s sections appear to be in the oilier

portion of the fairway. Management expects several Husky Energy (HNE-T)

wells at the north-end of its acreage to be tied-in to Madalena’s production

facilities that will confirm its thesis of possible higher NG rates than the 67% oil

and liquids weighting that Madalena has encountered to date.

Exhibit 3: Ostracod Trend at Paddle River


The first sandbar yielded 5 (4.92 net) strong wells (avg. IP30 of 300 boe/d

weighted 67% to oil and liquids and IP30 day rates which average between

200 boe/d to just over 500 boe/d) and provides ample near-term running

room with these sections being developed on a 4 wells per section spacing.

We estimate the first sand bar trend to hold approximately 15 of the 58 net

sections currently de-risked. The 6th Ostracod well was a step-out exploration

well that tested a second hydrocarbon charged sandbar at West Cove,

which only brought oil and gas to surface at marginal rates to date, thus far.

This is still early stage exploration but does suggest scalability via a

combination of step out and infill development drilling.

Management intends to drill additional horizontal wells post spring break-up

across its development and exploration land base.




Establishing an Ostracod Type Curve

As illustrated in Exhibit 3 below, the early stage type curve for the Ostracod,

based on 4 producing horizontal wells at Paddle River, AB, begins with an

IP30 of 300 to 370 boe/d weighted ~58% to oil and liquids. In our model, we

project first year production declines of ~53%, followed by ~10% in year two

and all subsequent years. An estimated EUR per well of 280 mboe suggests a

NPV (10%, BT) of ~$3.5 million based on drilling, completion and tie-in (D/C/T)

costs of ~$3.6 million per well. This includes allocation for a single well battery

until such a time where more infrastructure is required/constructed. In order

to bring on-stream the horizontals drilled to date and to allow for future

development drilling, Madalena has spent capital throughout 2013 to

upgrade central battery sites and twin and debottleneck select pipeline

systems in the area. Based on our price deck assumptions, these wells should

generate operating netbacks of ~$43/boe based on $3.50/GJ AECO-C and

$87/bbl Edm. Par oil prices. This compares to management’s estimates cited

in Exhibit 4 below.

Exhibit 4: De-risked Ostracod Type Curve at Paddle River, AB

Source: Company reports.

International - Unlocking the Big Prize in Argentina

Internationally, Madalena controls three large land positions in the Neuquén

Basin of Argentina where it holds (i) 35% W.I. representing 54.6 net sections in

the Coiron Amargo Block; (ii) 38% W.I. representing 77 net sections in the

Cortadera Block; and (iii) 90% W.I. representing 79 net sections in the

Curamhuele Block. Madalena initially entered the Neuquén Basin back in

2006 to 2008 timeframe originally for conventional exploration opportunities

and long before any industry player was looking at or technically assessing

the unconventional shale’s and tight sand plays within the basin. The new

management team has begun to refocus Madalena’s Argentina strategy on




both the implementation of horizontal technology on prolific conventional

light oil plays alongside a delineation strategy on the big shale and tight sand

“prize”. Activity has started to ramp up w.r.t. drilling activities as of 2H/2013

and will continue throughout FY2014.

The Neuquén basin is a ~178,750 km2 triangular shaped basin situated directly

east of the Andes Mountains in West central Argentina. Discovered in the

~1920’s, the basin is home to multi-stacked hydrocarbon reservoirs with many

underexploited conventional oil and gas opportunities as well as three source

rock shale players in the VM shale, Lower Agrio shale and Los Molles shale,

alongside a number of tight sand plays which are ideal for vertical and

horizontal multi-stage frac technology. The Neuquén basin is home to the

most active shale play on the international circuit today (outside of North

America) known as the VM shale. The VM is the world’s fourth largest oil

shale, and second largest NG shale resource play. Net to Madalena, the VM

is estimated to hold ~25.49 net billion barrels of POIP (~50% oil and liquids) of

which 1,986.1 mmboe is classified as contingent recoverable under a

resource report prepared by Ryder Scott Petroleum Consultants effective

Dec. 31, 2012. This represents 73% of the total resources net to Madalena

using Ryder Scott’s P50 best estimate evaluation figure.

Coiron Amargo

Madalena’s Coiron Amargo (35% WI) is the company’s most delineated

block within the Neuquén basin to date and is located within the shallower oil

part of the basin and is within the first “sweet spot” of industry activity near

YPF’s / Chevron’s Loma De La Lata area. The company has drilled 12 gross

wells into, or through, the VM shale while also targeting the deeper Sierras

Blancas sandstone formation targeting prolific light oil pools. We view this

block as the first “gem” in Madalena’s portfolio, given that it is situated in the

sweet spot of the oil window and is surrounded by multiple billion plus dollar

deals for the VM shale. Plus, management has identified up to six large oil

pools to date within the Sierras Blancas formation which bring high impact

horizontal plays to the table targeting light oil pools up to 25 mmbbls in size.

We believe that neighbouring activity by large industry players offset to

Madalena’s Coiron Amargo acreage provides Madalena with significant

negotiating leverage and it is expected acreage prices with the greater

Loma de Lata / Coiron Amargo area will continue to increase over time

given the industry ramp up of activity which is currently being witnessed.

Chevron recently committed ~$1.25 billion to developing the VM shale with

YPF at both Loma La Lata Norte and Loma Campana properties. Loma La

Lata directly offsets Madalena’s Coiron Amargo block to the east where joint

production volumes from the VM shale were reported in March 2014 to be

20,000 boe/d from 161 wells producing shale oil and NG. The YPF/Chevron




joint venture is projecting production to grow ~80,000 boe/d by F2017. This

growth will be driven from its commitment to run ~34 rigs, with 15 additional

rigs coming to the region with the 19 rigs currently operating. Drilling days

have reduced significantly from 43.2 to 24.6 days which has reduced the well

cost to $7.6 million per well from $11 million in 2011 (source: Bloomberg).

Exhibit 5: Coiron Amargo Block Surrounded by the Major Oil Companies


Similarly, Shell also recently announced the tripling their 2014 CAPEX to $500

million from $170 million by drilling horizontal wells into the VM shale and Shell

has already has success directly offset to Madalena’s blocks drilling the VM

with horizontal technology. Both of Shell key VM blocks are also adjacent to

Madalena’s Coiron Amargo Block and represent its key exploration focus in

the basin. Shell also controls a third Block named the Aquila Mora, but that is

situated further to the north. Major E&P Wintershall also recently announced

a large VM deal to the north of Coiron Amargo in this evolving area of the

shale’s which could see up to $3.35 Billion in gross investment on a less than

24,000 gross acre block whereby Wintershall is taking a less than 12,000 net

acre position. Madalena has a net acreage position at Coiron Amargo of

35,000 net acres and per acreage prices in this area have seen prices up to

~$11,000 / acre.

Curamhuele Block

Madalena’s Curamhuele Block (90%W.I.) is highly prospective for Lower Agrio

shale (oil), VM shale (oil and LRNG), and tight Mulichinco sandstone (LRNG).

This Block is still classified as predominantly exploratory in nature despite

having two wells on the block which have tested the Lower Agrio shale

formation at 150 bbls/d unstimulated (no multi-stage fracs), and the

Mulichinco tight sand formation at 10 mmcf/d and 500 bbls/d of 51 degree

condensate unstimulated (no multi-stage fracs). As part of its capital




commitments, management is currently shooting seismic, and conducting

the engineering and planning work associated with two high impact re-entry

wells on the block (one for the Lower Agrio shale and one for the LRNG

Mulichinco zones of interest). Both of these high impact re-entries could

prove to be material events to Madalena and prove-up significant

discoveries and resources across the block. With the latest financing,

Madalena is funded to conduct these two re-entries but may also bring a

partner into the block, which would then free up this ear marked capital to

ramp drilling activities elsewhere on the company’s domestic or international

assets.

At Chevron’s El Trapial block, which is adjacent to Madalena’s Curamhuele

block, Chevron is also targeting the VM shale with plans to drill four

exploration wells in FY2014 with reports out of Buenos Aires that Chevron has

already drilled and tested a VM discovery well. The El Trapial block is known

for holding a legacy oil field but it is also perspective for VM shale across the

acreage. Here, the VM shale is more NG driven with the potential for large

volumes of liquids contained in the transition zone. With industry starting to drill

a number of exploration and appraisal wells in not only the VM shale but also

the Lower Agrio and Mulichinco zones of interest, management sees the

potential for its Curamhuele block to be further de-risked by adjacent block

activity enhancing Madalena’s position and value within the basin.

Management hired RBC Capital markets to advise them with respect to

possibly sourcing and negotiating a joint venture agreement in an attempt to

accelerate its exploration activities. With industry activity starting to heat up

around the Curamhuele block the key question for Madalena’s

management is whether to give up what could become very valuable

acreage (upon further prove-up by the offsetting industry activity) or drill

ahead on its re-entry program as outlined above and look to conduct a J.V.

partner (or transact) post re-entry program. Given the company has a strong

balance sheet, it has the flexibility to weigh both options and proceed

accordingly in interests of shareholders.

Cortadera Block

Together with YPF (52% W.I.) and Gyp (11% W.I.), this represents the least

delineated block of the three, currently having only drilled one 4,500 meter

well (CorS.X-1) that tested both tight shale formations VM and Quintuco with

520 and 577 meter thicknesses, respectively. Rider Scott recognized 546.3 and

502.7 mmboe prospective recoverable resources. The block is also

perspective for the Mulichinco (tight NG sandstone) and Lower Agrio (tight

sand play predominately in this area) plays although no resources were

assigned.




Madalena expects to re-entry the previously drilled CorS.x-1 VM shale

discovery well, where the partnership has already discovered TCF's of NG,

and moved up-hole to evaluate a 200 meter thick tight NG zone in the

Mulichinco. This is the same zone which is being drilled by Total SA and

Wintershall to the east of Cortadera via horizontal multi-stage frac

technology. Madalena (37.8% W.I.) and its partner have until Oct. 26,

2014 to meet this commitment and Madalena has carries on this re-entry with

its partner. This high impact re-entry is expected to be conducted post-

closing of the YPF-Apache deal, which is expected to be conducted in

Q2/FY2014.

Country Risks – Serial Defaulter Argentina has a gloomy past that has seen the country default seven times

since 1816 (independence from Spain), most recently in 2001. The latest

default turned violent when Argentina froze its citizen’s bank accounts in

order to stop a run on cash withdrawals. This triggered a deep, long lasting

recession that has left the economy in shambles. Argentina is still sorting out

legal settlements today with some of its 2001 bondholders. The inability for

the country to borrow from abroad due to its basket of ongoing legal

disputes and long default history caused a run on its federal reserve.

Argentina was forced to repay foreign held maturing obligations from its

federal reserve by issuing lower yielding bonds. Together, these events

helped initiate the Jan. 2014 devaluation of the peso. This devaluation

triggered further losses for existing bond holders.

The economic bottom appears to have hit, as Argentina finally appears

committed to enhancing its oil and NG business in an attempt to grow out of

its persistent economic strife. Argentina will need ~$300 billion to develop its

VM oil shale over the next six-years in order to make the country self-sufficient

by 2020 with respect to its own oil production. Leading the charge is

Argentina’s State owned oil company YPF that is planning to invest ~$37

billion through 2018. The VM represents the world’s fourth-largest shale oil,

and the second-largest shale NG deposit, which is estimated to support oil

production for 40+ years.

Also, Argentina’s recent rectification of its 2012 nationalization of YPF SA from

Repsol by paying out a $6 billion re-imbursement drastically improved the

landscape for foreign oil and gas companies. This was a crucial settlement as

10+ majors have since approached YPF to invest in, or joint venture with, the

state owned oil and NG Company to de-risk and develop its world reserves.

Led by a resurgence of many majors to the oil and natural gas sector,

concerns with investing in Argentina have subsided materially over the past

year. The country is still as per its recent Jan. 2014 devaluation of the Peso






against the US Dollar. However, the country’s leadership looks poised to

transition the country to a more business-friendly stance, including less

restrictive financial measures. Attracting larger resource based international

companies to return and invest is a trend we believe can continue.

2014 Forecast Management has not yet provided production guidance to the marketplace

to date. However we expect the FY2014E budget to be comprised of a mix of

high impact development and exploration wells including up to 4 (1.4 net)

high impact Sierras Blancas horizontals, plus several appraisal wells to further

advance management’s understanding of the shale’s (VM and Lower Agrio)

and tight sand plays (Mulichinco, Lajas, Lotena) across its three Argentinian

exploration blocks. With 1 (1 net) CEE Nordegg well plus 1 (1 net) Ostracod

well planned for FY2014E. Its near term production growth strategy is focused

on adding producing barrels and resulting cash flow from its international

horizontal play in the Sierras Blancas and domestic horizontals in the

Ostracod. We expect that management will begin putting out production

guidance after production levels reach a critical mass level post further

development drilling has been conducted.

Production

Domestically, Madalena was able to place 4 of the 5 (4.92 net) Ostracod

wells drilled in F/2013 on-stream, which enabled it to average an estimated

1,094 boe/d and is estimated to exit the year at ~1,300 boe/d. This is a large

bump in production since late 2012 where the company was at ~120 boe/d.

Exhibit 6: Production History and Growth Forecast from F2012A to F2015E

Source: Company reports, GLJ Petroleum Consultants Ltd., Beacon Securities Ltd.




Our projected production estimates for FY2014 of 1,965 boe/d (~2,000 boe/d

exit rate) is based on a modest drilling budget of $24.6 million as detailed in

the Capital Expenditure section below.

Capital Expenditures

Domestically, we project Madalena to spend $17.4 million in FY2014. This was

comprised of drilling 3 (2.5 net) Ostracod and 1 (1 net) Nordegg wells. This

could increase materially if the $15 million in capital expenditures currently

earmarked for the Curamhuele is re-directed domestically (discussed below).

Internationally, we project Madalena to spend $11.2 million in capital

commitments in Argentina where it is actively exploring a conventional light

oil play targeting the Sierras Blancas formation. Madalena is committing to

spend $6.3 million drilling 4 (1.4 net) Sierras Blancas wells at Coiron Amargo. Its

first Sierra Blancas well (CAN.xr-2(h)) tested some of the best flow rates in the

Neuquén Basin at 2,238 boe/d (80% oil) at its maximum rate. A second well

result (CAN-15(h)) targeting the largest of the six separately identified Sierras

Blancas oil pools is expected within the next few weeks (spudded in Jan.

2014).

We further project management to spend $4.9 million drilling 2 (0.7 net) VM

shale wells also at Coiron Amargo. We do not project any capex at

Cortadera because it will be carried by Apache/YPF that is exploring the up-

hole Quintuco formation. We currently have budgeted Madalena to spend

$15 million at Curamhuele however this could change should a potential joint

venture deal not materialize. In this case, the $15 million targeted for the

Curamhuele Block could well be re-allocated domestically to drilling

additional Ostracod and Nordegg wells.

Cash Flow

Madalena has a strong balance sheet with a net cash position of ~$30 million

and availability under its undrawn revolving borrowing base facility of $13

million. Management has sufficient capital to meets its near-term capital

requirements ($45.6 million) including $11.2 million (possibly $26.2 million) in

Argentinian commitments. We are forecasting FY2014 net cash position of

$11.2 million, which together with a current market capitalization of $230

million from ~383.8 million common shares outstanding (FD), equates to an

enterprise value of ~$232 million. With the recent $23 million equity raise,

Madalena can fund the drilling of its Ostracod wells and still show potential

suitors that they can handle their working interest obligations in Argentina for

FY2014.




Madalena’s Argentinian oil revenues are in US$, plus all pesos received are

converted at the central bank daily rate. Therefore, as the peso devalues

Madalena actually receive more pesos. The company is further sheltered to

the recent devaluation of the peso given that all cash is held in C$ and US$

denominated accounts at North American financial institutions. All of its

Argentinian operational invoices are paid on an as-needed basis and monies

are transferred to cover operations from wither its US$ and C$ cash holdings.

In addition, should a potential sale of MASA occur, it would likely be

executed at US$ outside of Argentina. We conclude that the recent peso

devaluation is a non-event to Madalena given the way the company is

structured. We actually view this as net positive for Madalena from an

operational aspect with a now lower cost base, current cash positions

maintained in North American and transferred into country on an add

needed basis, and US$ pricing on its Argentinian oil.

Key Risks

Investing in junior market capitalized oil and natural gas producers carries

with it greater than average risk given all of the risk factors outlined below.

Exploration and Production Risks – Exploration for oil and natural gas involves

a high degree of risk and there can be no assurance that there will be new

commercial discoveries. Future exploration may involve unprofitable efforts

from dry wells and from wells that are productive but do not produce

sufficient revenues to return a profit after drilling, operating and other costs.

Some external factors such as weather conditions or technical failures could

result into unexpected business interruptions and monetary losses. Oil and

natural gas exploration carries with it the potential for failure despite the

expertise and proven technology relied upon today. It is possible to drill dry,

or uneconomic wells. In the current situation where the company is still in the

early stages of de-risking its Ostracod light oil and NG play, management is

risking ~$4 million per well to validate its play concept.

Internationally, management is allocating large sums of capital to

delineating large-in-place unconventional resource shale plays (VM and

Lower Agrio) and tight sand plays (Mulichinco, Lajas, Lotena) across its three

Argentinian exploration blocks. For a company of Madalena’s market cap,

we view both the risk and prize as significant.

Execution Risk - Although part of our investment thesis supports potential for

share price appreciation driven by drilling success, a possible sale of its

Argentinian subsidiary company Madalena Austral S.A. (MASA), there is a

possibility that none of these events will occur. This, however, has been

management’s strategy and it has played an integral role in the success of

de-risking and building other oil and natural gas projects in the past. We




remind the reader that past performance is not indicative of future

execution.

Commodity and Currency Prices – Oil and natural gas prices are determined

based on both global and domestic demand, supply and other factors,

including geo-political events, all of which are beyond the control of the

Company. If world oil prices and domestic natural gas prices were to decline,

certain wells or other projects may become uneconomic leading to a

reduction in the future volume of the Company’s production.

In addition, The Argentina Peso underwent a double digit devaluation

relative to the US$ due to a run on its federal reserve. Although Madalena’s

costs are in Peso’s, much of its cash and revenues are held in C$ and US$,

respectively. All of these factors could result in a material decrease in

Madalena’s future net production revenue, potentially causing a reduction in

exploration, development and acquisition activities.

Financing Risks – Exploring and developing for prospectus hydrocarbons

requires a combination of debt and equity capital. We have assumed

normal market conditions will prevail over our projection period. However, we

remind the reader that there is no certainty that Madalena can raise capital

when required, which would have negative implications on our projections.

Moreover, any additional equity financing will be dilutive the common

shareholders and any debt financing may restrict future financings and

operating activities.

Reserves, Resource Estimates and Production Risks – There are a number of

uncertainties inherent in estimating quantities of oil and natural gas reserves

and the future cash flows attributed to such reserves. Estimates of

economically recoverable oil and natural gas reserves and the resulting

future net revenues are all based on a number of variable factors and

assumptions which may vary materially from actual results. Reserves may be

subject to upward or downward revision based on production history,

exploration and development results, commodity prices, royalty rates,

expected capital expenditures, future operating costs, government

regulations and other factors. Upward or downward revisions are often

required due to changes in well performance, prices, economic conditions,

and governmental restrictions. Furthermore, the Company’s actual crude oil

and natural gas reserves and production, and therefore its operating cash

flows and results of operations, will vary from estimates and such variations

could be material.




Valuation Summary We use a 50/50 weighting of the following two valuation methodologies to

arrive at a target price:

1. Combined Enterprise Value per Debt Adjusted Cash Flow (EV/DACF), and

Enterprise Value per flowing daily barrel equivalent (EV/boepd) multiples

2. NAVPS comprised of a Base NAVPS and Risked Upside NAVPS component

EV/DACF and EV/boepd Valuation Multiples

We derived a $0.60 per share target by applying 6.5x EV/DACF and

$83,000/boepd multiples based on our FY2015E estimates. These multiples

could improve in the near-term should management not close on a joint

venture arrangement that it is currently seeking on its Curamhuele Block. This

would cause a re-allocation of $15 million earmarked for Curamhuele to its

domestic drilling program. Madalena’s shares currently trade at 7.4x and

$93,000/boe multiples for FY2015E.

NAVPS

Base NAVPS: The Base NAVPS is based on independent third party evaluation

of its domestic reserves that reported 3,894 mboe (weighted 46% to oil and

liquids) of 2P reserves as prepared by McDaniel & Associates in accordance

with N51-101 effective Dec. 31, 2012. The NPV of the 2P reserves was $33.7

million (10%, BT). We derive at a Base NAVPS for Madalena of $0.18 per

share, broken down as $0.04 per share for its proven reserves, $0.03 per share

for its Probable reserves, $0.03 per share for its 2P reserves in Argentina, plus

$0.08 per share in cash.

Risked Upside NAVPS: The Risked Upside NAVPS includes our estimated NPV

(10%, BT) after taking into consideration the several years of future exploration

and development costs from drilling 7.2 net and 14.4 PUD domestic locations,

plus a significant amount of its in Argentinian land value on a per acre metric.

The Argentinian assets (i.e. the Vaca Muerta shale and other unconventional

tight sands) were valued as a perspective petroleum initially in place

resource report as prepared by Ryder Scott (Dec. 31, 2012), and not 2P

reserves. Although the resource report estimated on a total resource base of

34.8 mmboe, it shows 2,861.9 mmboe as recoverable on a best P50 estimate.

Given the nature of the Neuquén Basin, industry is transacting off a $/acre

metric for land value and buying shale assets for its recoverable resource

upside potential.




Three separate comparable transactions (around Coiron Amargo) done in

2013 by Chevron, Wintershall and Dow Chemicals, provide an independent

market value on Vaca Muerta acreage at $10,245, $7,300 and $10,900 per

acre, respectively. Applying the average of these deals to only the 34,951

net acres currently held at Coiron Amargo (35% W.I.) would value

Madalena’s Vaca Muerta shale acreage alone at $0.91 per share un-risked.

The Coiron Amargo block should fetch the higher of the three exploration

blocks, as it is in the sweet spot next to YPF’s Loma La Lata, Shell’s block to the

south and PetroBras Argentina’s recent discovery to the north.

Similarly, assuming $4,000/acre for its Curamhuele Block (90% W.I.) values the

prospective Lower Agrio shale, VM shale, and tight Mulichinco sandstone

formations at $0.56 per share un-risked. With the Curamhuele block being

where Madalena’s Coiron Amargo block was less than 2 years ago (i.e. in the

exploration and appraisal stage), it is quite possible to see the per acre

valuation of the Curamhuele block rise over time. If success is had by

Chevron at El Trapai, this could significantly enhance the overall value of the

Curamhuele block which could move Madalena’s valuation higher in the

marketplace. Even though Madalena is planning to drill forward and/or JV

at Curamhuele, this value could also be unlocked by an outright sale of the

block.

For the Cortadera block (~46,657 net acres) if one assumes it could fetch

$750 per acre if sold, which equates to $0.10 per share un-risked. Given that

this block this represents the least delineated block of the three, Rider Scott

only recognized 546.3 and 502.7 mmboe prospective recoverable resources.

The block is also perspective for the Mulichinco (tight NG sandstone) and

Lower Agrio (tight shale) plays although no resources were assigned.

Starting with our Base NAVPS of $0.18 per share, we derived at $1.22 per

share in additional value that represents the Risked Upside NAVPS

component. Combining our Base NAVPS with our Risked Upside NAVPS

determines our Total Risked NAVPS of $1.39 per share ($2.00 per share un-

risked).

Combining our $0.60 and $1.39 per share valuations with a 50/50 weighting,

we derive at our target price of $1.00 per share.

Looking at the valuation of Madalena’s shale acreage from a different

perspective, if we take the 3rd party valuation metric from the provincial state

run company within the Neuquén basin (GyP) which claims the VM shale

alone could be worth an estimated $8,000/acre as an average blended

number for oil, dry gas, and liquids rich gas shale’s, this would value

Madalena’s net acreage at approximately $1.1 Billion (or ~$2.77 per share).




At this point we have decided not to value Madalena’s acreage on a flat

$8,000/acre basis.

Exhibit 9: NAVPS

Base Case

(10%. BT

NAVPS

Base Case

($mm) ($/sh)

Base NAVPS (NPV 10%, BT)

Canada

Proved $13.51 $0.04

Probable $9.38 $0.03

2P Reserves (10%, BT) $22.89 $0.06

Argentina (Stated in $USD)

Proved $5.44 $0.01

Probable $5.45 $0.01

2P Reserves (10%, BT) $10.89 $0.03

Net Debt ($30.03) ($0.08)

Base NAVPS (10%, BT) $63.8 $0.18

Net Acres $/AcresWorking

InterestNet Wells

Net NPV

(10%, BT -

$MM)

Unrisked CoS (%) Risked

Ostracod - - 85% 21.6 $2.98 $0.18 85% $0.15

Land (net acres) 37,120 $150 $0.02 85% $0.01

Nordegg - - 80% 2.4 $4.40 $0.03 80% $0.02

Land (net acres) 93,440 $150 $0.04 80% $0.03

Coiron Amargo Block 35%

Land (net acres) 34,951 $9,481 - - $0.91 65% $0.59

Cortadera Block 38%

Land (net acres) 46,657 $750 - - $0.10 50% $0.05

Curamhuele Block 90%

Land (net acres) 50,595 $4,000 - - $0.56 65% $0.36

Risked Upside NAVPS (10%, BT) 24.00 $1.82 $1.22

Base NAVPS + Risked Upside (10%, BT) $2.00 $1.39

Fully Diluted Shares Outstanding (mm) as at Dec. 31, 2013 363.8

Current Price / NAVPS 0.5x

Target Price / NAVPS 0.7x

2P Base / Risked / Unrisked NAV Breakdown


(MVN-V)

Risked Resource Upside NAVPS (10%, BT)

$0.18 $0.18 $0.18

$1.22

$2.00

$0.00

$0.50

$1.00

$1.50

$2.00

2P Base NAV Risked Upside NAV Unrisked Upside NAV

Unrisked Upside NAV

Risked Upside NAV

2P Base NAV

Target Price

Current Price

Source: Beacon Securities Ltd., Company reports.




Recommendation We are initiating coverage of Madalena Energy Inc. (MVN-T) with a BUY

recommendation and a 12-month price target of $1.00. Our target is based

on a 50/50 weighting of 1x our NAVPS estimate; and our 2015E multiples of

6.5x EV/DACF and $83,000/boepd, respectively. Madalena currently trades

at 7.4x and $93,000/boe multiples for FY2015E.

Madalena shares offer investors material upside potential of 49% to our $1.00

per share target driven in the near term by meaningful Argentina drilling

catalysts, and forecasted production growth of 52% from a $45.6 million

capital spending budget in FY2014 that will include the drilling of 9 (5.5 net)

wells.

The company is embarking on a transformational year as they work to unlock

its 2.9 Billion boe unconventional shale and tight sand “prize” for investors.

Meanwhile in Canada, management continues to delineate and explore the

~58 net section Ostracod light oil play with a “batting average” of 5 for 6 in

terms of its exploration/horizontal success rate to date (i.e. 5 successful

horizontals and 1 marginal horizontal). In addition, Madalena holds large

exploration acreage in the greater Paddle River area with multi-stacked

reservoirs in addition to the new Ostracod play.

Madalena closed its $23 million equity financing in Feb. 2014, which

strengthened the balance sheet and provides management with sufficient

capital to drill forward in both jurisdictions while maintaining flexibility for

shareholders to continue to assess JV partnership(s), or other transaction, in its

Argentinian subsidiary assets. Industry continues to de-risk the hydrocarbon

rich Neuquén Basin and as it does, the major oil companies will be looking to

get a foothold in the crown jewel- the VM shale and emerging Lower Agrio/

Mulichinco plays. This landscape appears similar to Alberta’s rich and capital

intensive oil sand deposits back in 2000, where developing the VM shale is

going to be for the majors in the not too distant future.

Our investment thesis is this could be lucrative for Madalena shareholders

given that management is focused on unlocking shareholder value across its

large-in-place unconventional shale and tight sand resources.




Appendix A – Management and Directors Exhibit 10: Management Team and Board of Directors

Kevin D. ShawPresident and

CEO

Mr. Shaw holds significant oil & gas industry experience as an Engineer, Manager and Officer, working for both

large and small-cap E&P's, as well as extensive experience in the capital markets and consulting services sides

of the energy sector. Prior to joining Madalena, Kevin most recently headed up the energy team at Casimir

Capital and held the position of Managing Director & Head of Global Energy Research, responsible for

coverage and/or advisement on over 30 domestic and international E&P companies. Prior to Casimir, Kevin

worked with Wellington West Capital Markets as a Senior Oil & Gas Research Analyst, and Partner, and was a

key member of Wellington West's successful Energy business prior to Wellington's sale to National Bank of

Canada in the summer of 2011. Prior to holding executive positions within the Capital Markets, Mr. Shaw has

also held oil and gas positions heading up large operational & engineering consultant teams for major E&P's as

an Alliance Manager for Colt WorleyParsons, was a Vice President, Operations for a public jr. E&P (Trimox Energy

Inc.), and has held various technical & managerial roles with ExxonMobil (via Imperial Oil). Kevin is a

Professional Engineer and holds a B.Sc. in Mechanical & Petroleum Engineering from the University of Calgary

and an MBA from the Haskayne School of Business.

Thomas Love

Vice-President,

Finance and

CFO

Mr. Love is a Chartered Accountant with 36 years of experience in the oil and gas industry. Prior to being the

Chief Financial Officer and a Director of Online Energy Inc., Mr. Love was the Chairman and Chief Financial

Officer of Trimox Energy Inc. and Moxie Exploration Ltd. and President and Chief Executive Officer of Moxie

Petroleum Ltd. Prior thereto, Mr. Love was Vice-President, Finance, Chief Financial Officer and Director of

Westward Energy Ltd. Mr. Love articled with Clarkson, Gordon & Co. (now Ernst & Young).

Steve DabnerVice-President,

Exploration

Mr. Dabner has over 27 years of experience in the oil and gas industry. Prior to co-founding Online Energy Inc. in

2009, Mr. Dabner was President and Chief Executive Officer of Trimox Energy Inc. and Moxie Exploration Ltd. and

Vice-President, Exploration and Chief Financial Officer of Moxie Petroleum Ltd. Prior thereto he held positions of

increasing responsibility with Cimarron Petroleum Ltd. and Home Oil Company Ltd.

Brent FosterVice-President,

Engineering

Mr. Foster is a registered Professional Engineer, with 30 years of experience in exploitation and development of

oil and gas pools in the Western Canadian Sedimentary Basin and the Cooper Basin in South Australia. Prior to

being the VP, Engineering at Online Energy Inc, Mr. Foster was previously the Vice-President, Engineering &

COO, Blue Mountain Energy Ltd. and Vice-President, Engineering, Hadrian Energy Corp. Mr. Foster started his

career with Rigel Oil and Gas Ltd. and Home Oil Company Ltd.

Robert StantonVice-President,

Operations

Mr. Stanton is a Professional Engineer who has acquired over 30 years of well-rounded engineering and

operational experience. Previously, Mr. Stanton was Vice-President, Operations at Online Energy Inc. . Prior

thereto, Mr. Stanton worked for a number of energy companies including, Oiltec Resources Ltd., Pinnacle

Resources Ltd., Jordan Petroleum Ltd., Transwest Energy Inc., Triton Canada Resources Ltd., Canadian

Worldwide Energy Ltd., Petro-Canada Inc., and Vice-President, Engineering and Operations, Result Energy Inc.

John WittnebelManager,

Geology

Mr. Wittnebel is a registered professional geologist with over 33 years of experience in the oil and gas industry.

Prior to being the Exploration Manager at Online Energy Inc., Mr. Wittnebel was Vice-President, Exploration at

Result Energy Inc. and throughout his career has held positions of increasing responsibility with Chevron

Canada Resources, Renaissance Energy/Husky Energy and Encal Energy/Calpine Canada. Mr. Wittnebel has

wide ranging Canadian and international exploration and development expertise involving, among other

things, horizontal drilling of conventional and unconventional reservoirs

Ruy Riavitz

Country

Manager,

Argentina

Mr. Riavitz is a Chemical Engineer with over 16 years of experience, both technical and managerial, in the oil

industry in Argentina. He started his career with YPF as a reservoir engineer. Subsequently, he joined PA

Consulting Group evaluating energy assets in the US and South America. He then worked at HIDENESA,

Neuquen's state-owned oil company and the predecessor to G&P, forming the first joint ventures to explore in

the province. Mr. Riavitz joined Madalena Austral in 2009 as Operations Manager and become the Country

Manager in January 2012.

Raymond G. SmithChairman of the

Board, Director

Mr. Smith joined the Board of Directors of Madalena in October of 2005 and became Chairman in early 2006.

Mr. Smith is also President and CEO of Bellatrix Exploration Ltd. since January 2009 and has been a Director of

Bellatrix since March 2005. Mr. Smith is a Professional Engineer with a broad range of experience from a career

which has spanned over 40 years in the Western Canada Sedimentary Basin, the United States of America,

Tunisia and Argentina. Mr. Smith was previously the President, CEO and Chairman of Cork Exploration Inc.,

Chairman, President and Chief Executive Officer of Meridian Energy Corporation and President and Chief

Executive Officer of Corsair Exploration Ltd.

Barry Larson Director

Mr. Larson has over 30 years of oil and gas industry experience, 15 of which have been in foreign operations. Mr.

Larson is the Vice President Operations and Chief Operating Officer of Parex Resources Inc. He held the same

position with Petro Andina Resources Inc. from 2005 - 2009. Mr. Larson was a resident of Argentina from 1994 –

1997 where he received extensive operating experience as Manager Drilling then Manager of Operations with

Chauvco Resources and Chauvco Argentina and later as Vice President of Operations for Chauvco Resources

International. Mr. Larson was a co-founder and Vice President of Aventura Energy Inc. from August 1999 to May

2004, a company that operated in Argentina as well as Trinidad & Tobago.

Keith Macdonald Director

Mr. Macdonald graduated from the University of Calgary in 1978 with a Bachelor of Commerce in Accounting.

Articling with a predecessor to KPMG LLP, he received the Chartered Accountant designation in 1980. Over his

career, he founded and was President of New Cache Petroleums Ltd. and has served as a director of several

public companies. Currently, he is the President and CEO of EFL Overseas, Inc. and a director and

chair/member of Audit Committee of Zapata Energy Corporation, Bellatrix Exploration Ltd., Cirrus Energy

Corporation, Holloman Energy Corporation, WCSB Oil and Gas Royalty Income 2010 Management Corp.,

Rocky Mountain Dealerships Inc., Cordy Oilfield Services Inc. and Stratabound Mineral Corp. During the past five

years, Mr. Macdonald has been the President of Bamako Investment Management Ltd., a private holding and

consulting company.

Jay Reid Director

Mr. Reid joined the Board of Madalena in February 2009 and is currently a Partner at the Calgary based law firm

of Burnet, Duckworth & Palmer LLP. He has practiced corporate and securities law since 1990, and currently

serves as a director and/or corporate secretary for a number of publicly and privately listed issuers. Mr. Reid

provides advice to issuers, underwriters, financial advisors, boards of directors and special committees on a

variety of transactions. Mr. Reid has successfully secured listings for companies on the New York Stock Exchange,

the Toronto Stock Exchange, TSX Venture Exchange and NASDAQ (National Market).

Ving Y. Woo Director

Mr. Woo has been a member of the Board of Directors of Madalena since March 2006. He is currently Vice

President, Engineering and Chief Operating Officer at Bellatrix Exploration Ltd. Mr. Woo is a Professional

Engineer with over 40 years of industry experience; throughout his career Mr. Woo has worked in many

capacities within management and the operational departments of several junior and intermediate oil and

gas companies.

Management Team

Board of Directors

Source: Company reports.




Appendix B – Financial Statements Exhibit 11: Summary of Historical and Projected Financials

All amounts in CDN 2012A 2013E 2014E 2015E

Production

Light Oil (bbl/d) 32 211 480 802

Natural Gas (mcf/d) 369 3,471 3,927 6,179

NGL (boe/d) 20 134 160 376

Total Avg (boe/day) 258 1,094 1,660 2,696

Income Statement (000)

Revenue $6,177 $18,367 $34,370 $52,011

Expenses $13,929 $18,120 $27,163 $29,820

Net Earnings ($8,865) ($2,229) $3,747 $16,424

Cash Flow Statement (000)

Operating ($2,605) $4,864 $14,366 $33,876

Financing $59,251 $27,275 $23,000 $0

Investing ($34,581) ($46,387) ($45,822) ($30,160)

Changes in Cash & Cash Equivalents $22,065 ($14,248) ($8,456) $3,716

CFPS - Fully Diluted ($0.01) $0.01 $0.03 $0.08

Balance Sheet (000)

Current Assets $41,403 $30,093 $28,321 $37,994

Property and Equipment $0 $54,863 $90,630 $104,418

Other $35,760 $42,617 $42,617 $42,617

Total Assets $107,779 $127,572 $161,568 $185,029

Current Liabilities $11,377 $10,931 $17,099 $23,056

Long-term Liabilities $3,955 $4,006 $4,006 $4,006

Shareholders' Equity $92,386 $112,635 $140,462 $157,967

Total Liabilities and Equity $107,779 $127,572 $161,568 $185,029 Source: Company reports and Beacon Securities Ltd.

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