energycapital09_1_09_FX_Energy_Inc

A Unique High Potential Oil and Gas Opportunity POLAND 1 Corporate Information • • • • • • • • NASDAQ Symbol: Market Cap: Shares outstanding Fully diluted 52 week price range 50 day avg. volume Institutional ownership Officer/director ownership FXEN $125-$170 million @ $3-$4/sh 42.4 million 45.1 million $1.95 - $8.68 135,000 shares/day 22.3% 7.1% fully diluted Corporate Headquarters FX Energy, Inc. 3006 Highland Drive Salt Lake City, Ut 84106 Ph: (801) 486-5555 website: www.fxenergy.com Contact Scott Duncan VP Investor Relations scottduncan@fxenergy.com FORWARD LOOKING STATEMENTS This report contains forward-looking statements. Forward-looking statements are not guarantees. For example, exploration, drilling, development, construction or other projects or operations may be subject to the successful completion of technical work; environmental, governmental or partner approvals; equipment availability, or other things that are or may be beyond the control of the Company. Operations that are anticipated, planned or scheduled may be changed, delayed, take longer than expected, fail to accomplish intended results, or not take place at all. In carrying out exploration it is necessary to identify and evaluate risks and potential rewards. This identification and evaluation is informed by science but remains inherently uncertain. Subsurface features that appear to be possible traps may not exist at all, may be smaller than interpreted, may not contain hydrocarbons, may not contain the quantity or quality estimated, or may have reservoir conditions that do not allow adequate recovery to render a discovery commercial or profitable. Forward looking statements about the size, potential or likelihood of discovery with respect to exploration targets are certainly not guarantees of discovery or of the actual presence or recoverability of hydrocarbons, or of the ability to produce in commercial or profitable quantities. Estimates of potential typically do not take into account all the risks of drilling and completion nor do they take into account the fact that hydrocarbon volumes are never 100% recoverable. Such estimates are part of the complex process of trying to measure and evaluate risk and reward in an uncertain industry. Forward-looking statements are subject to risks and uncertainties outside FX Energy's control. Actual events or results may differ materially from the forward-looking statements. For a discussion of additional contingencies and uncertainties to which information respecting future events is subject, see FX Energy's SEC reports or visit FX Energy's website at www.fxenergy.com. As used herein “bcf” means billion cubic feet and “tcf” means trillion cubic feet of gas standardized for calorific content and liquids. Cautionary Note to U.S. Investors – The United States Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. We may use certain terms and make certain disclosures in this presentation, such as P50, probable and potential reserves, that the SEC’s guidelines strictly prohibit us from including in filings with the SEC. Prepared: April 30, 2009; Printed: May 14, 2009 2 FX Performance SEC Proved Reserves (~ P90) year end 2008 • • $137 million; $3.25/share pre-tax 46 Bcfe $160 $140 $120 $100 $80 $60 $40 $20 $0 2003 Prove d Re serve s PV-10 Value (pre-tax millions) 68% cagr Poland US P50 (probabilistic most likely (~2P)) year end 2008 • • $221 million; $5.25/share pre-tax 80 Bcfe 2004 2005 2006 2007 2008 Proved Rese rve Volumes (BCFE) 50 40 Production: 52% compound annual rate 2005-08 • Further strong growth scheduled for 2009-2011 30 20 10 0 2003 34% cagr Poland US 2004 2005 2006 2007 2008 Finding and development costs • $2.17/mcfe (4-year average 2005-2008) 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2003 Production Volume s, Daily (MCFE) 52% cagr Poland US 2004 2005 2006 2007 2008 (e) 3 What Explains FX Success? High Potential: Large resources remain to be discovered in Poland • • Wells in Poland’s Permian Basin have large reserves and high production rates, typically 5-10 times larger than onshore U.S. Why? Poland was isolated until 1989, so there was only one explorer. Polish hydrocarbon resources are under-explored. Supply Constrained: Europe depends on Russia for gas supply – this is not a U.S. weather story and there is no gas bubble in Europe Great Economics: Prices, fiscal terms, concession terms and economics of production in Poland are better than in the U.S. These favorable conditions derive in large part from long term conditions, past and present, involving Russia and the West • • Poland’s former isolation from the West Russia’s increasing dominance as the primary supplier in the European gas market 4 Untapped Resource in Poland Iron Curtain Prevented Development Permian Basin extends across North Europe: Permian (Rotliegend) gas European fields in Poland are direct analogs to Permian Basin those found in the UK and Dutch sectors of the Southern North Sea and onshore Holland and Germany Geology doesn’t stop at the border; Poland is just under explored Only one company was exploring Poland during the 50 years it was behind the Iron Curtain FX today is exploring an area comparable to the west Texas Permian Basin of the 1940’s – and getting results with today’s seismic 60 Tcf 5 Tcf 150 Tcf 5 Russia Dominates Gas in Europe Europe imports 1/2 of gas needs from Russia Russian infrastructure cannot meet forecast demand without huge investment and lead time Poland uses 13.7 Bcm/year; Russia/Gazprom supplies 2/3 of needs • Domestic production: 440 mmcf/day (flat from 2004-2010) • Imports: 940 mmcf/day; 9.3 Bcm/year 6 Polish Gas Prices – Stronger than U.S. Long term upward price pressure – though global recession may give pause • • 2008 natural gas prices in Poland were well below EU average because they are subsidized; EU rules require an end to subsidies Gas prices in Poland long term should trend upward toward the European market average – or decline more slowly in a weak economy (to reduce subsidy) Long term growth in Polish gas consumption • • • Poland is a member of the EU and Kyoto; environmental forces favor gas vs. coal long term Gas is only 13% of primary energy – well below average for developed countries Coal provides more than 60% of primary energy consumption, 92% of electrical generation Henry Hub is below $5.00/mcf; Poland wholesale high methane tariff is over $8.00/mcf High Methane Tariff - PLN/1000m3 1,200 zł Poland Gas Prices vs US Henry Hub ($/Mcf) Adjusted for monthly exchange rates $16.00 1,000 zł 800 zł 600 zł 400 zł 200 zł 0 zł 1/1/03 6/9/07 6/30/03 6/24/04 6/19/05 6/14/06 12/6/07 6/3/08 12/27/03 12/21/04 12/16/05 12/11/06 11/30/08 5/29/09 $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $0.00 01/01/03 06/30/03 12/27/03 06/24/04 12/21/04 06/19/05 12/16/05 06/14/06 12/11/06 06/09/07 12/06/07 06/03/08 11/30/08 05/29/09 Polish US 7 Economics of Production: Better than U.S. FX cash margin in Poland is much larger than U.S. independents • • $3.01/mcf in Poland $1.18/mcf in U.S. $5.00 $4.50 $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $$0.71 $0.75 $0.04 FX Poland (1) $0.86 US Ind. (2) $3.01 $0.79 $1.18 Cash Margin Taxes LOE Royalty Why? Higher production rates, lower costs in Poland • • • • Low lifting costs: $0.75 vs. $1.68 Low income taxes: 19% vs. 40% Low royalties: 1% vs. 19% FX 4-year F&D costs: $2.17/mcfe $1.68 Polish economic policy aims to encourage investment $4.50/mcf 2009 US wellhead (hypothetical) $4.50/mcf 2009 FX Poland wellhead (forecast) (1) FX Poland assumptions a) 2009 wellhead: $4.50/Mcfe b) royalty rate: 0.83% c) 2009 LOE: $0.75/Mcf d) Polish income tax rate: 19% (2) - US Independent assumptions a) 2009 wellhead: $4.50/mcf b) royalty rate: 19% c) 2009 LOE: $1.68/Mcfe per JP Morgan est. @ 3/26/09 d) US income tax rate of 40% 8 Poland: a Stable Growing EU Country Size: About the size of Germany, France, Spain or New Mexico Population: 38 million people; well educated, multi-lingual, culturally homogeneous; (Germany has 80 million; France has 60 million) Politically stable: Poland is a member of the European Union (EU) and NATO Economy: GDP forecast +0.7% in 2009, +2.2% in 2010; Poland’s economy is a little bigger than Austria’s or Norway’s, but only 1/8th the size of Germany’s economy; expected to adopt Euro in 3-4 years 9 FX Has Local and North Sea Expertise FX maintains strong relationships in Poland, built over many years Jerzy Maciolek, Director, VP International Exploration – best explorer in Poland • Brilliant explorationist and the driving force behind FXEN in Poland • Received Gulf Oil President’s award for outstanding research • Geophysical degrees from Mining and Metallurgical Academy, Krakow, Poland Zbigniew Tatys, Head of Warsaw Office – the top production man in Poland • 20 year career with POGC; former General Director of POGC’s Upstream E&P Division Richard Hardman, CBE, Director – the leading figure in North Sea exploration • 40 year international exploration career; VP Exploration for Amerada Hess 1983-2002 • Responsible for key Amerada N. Sea discoveries – Valhall, Scott, S. Arne • Awarded CBE; served as: Chairman, PESGB; Pres., Geological Society; Pres., AAPG Europe Jack Scott, Petroleum Engineer – directly analogous SNS Rotliegend experience • Rotliegend experience with Ranger Oil (UK) and Pennzoil (Netherlands) • 35 years of international experience 10 FX Energy’s Strategy in Poland Build Revenue and Reserves • Fences concession: a known production area with lower risk • FX has a successful 5-year track record • Large revenue growth set for 2009/2010 Fences High Potential Exploration • Growing production revenue will support increased high potential exploration in large under-explored concessions • Seek industry partners to share early stage financial risk Main gas distribution lines in red 11 The Fences Concession POGC’s Paproc field 267 Bcf – disc. 1982 Fences POGC Gas Fields POGC’s Radlin field 390 Bcf – disc. 1985 Rotliegend gas potential • Gas fields discovered in the 1980’s show area potential • POGC had moved on to other plays elsewhere in Poland • Seismic advances from North Sea Rotliegend lowered risk • FX saw high potential without “wildcat” risk • FX holds 49%; POGC holds 51% and operates 100 km Fences concession: 850,000 Acres Surrounding POGC’s 390 Bcf Radlin Gas Field 12 Strong Reserves and Production Growth SEC Proved reserves value is $3.25/share ($137 million) pre-tax PV10% at 12/31/2008 P50 (~2P) reserves value is $5.25/share ($221 million) pre-tax PV10% at 12/31/2008 P-50 Reserves PV-10 Value (pre-tax millions) $250 $200 $150 $100 $50 $0 2003 2004 2005 2006 2007 2008 Production Volumes, Annual (MMCFE) 3,000 2,500 2,000 Poland US 67% cagr 52% cagr 1,500 1,000 500 0 2003 2004 2005 2006 2007 2008 Poland US P-50 Reserve Volumes (BCFE) 100 80 60 40 20 0 2003 2004 2005 2006 2007 2008 Production Revenues, Annual (millions) $16,000 $12,000 46% cagr Poland US $8,000 $4,000 $0 52% cagr Poland US 2003 2004 2005 2006 2007 2008 13 Production Growth Forecast Daily Production (Mcfe) Net to FX Energy 00 ,0 20 2008: FX net production • 4.6 mmcfe/day 00 ,0 15 Kromolice 2 2009: Roszkow production to start • 7.5 mmcf/d additional net to FX Kromolice 1 Starting 4Q2010 Sroda 4 2010: Sroda-4, Kromolice-1&-2 to start • 7.0 mmcf/day additional net to FX 00 ,0 10 Roszkow Starting 2H09 (Future production rates shown are estimated initial allowable plateau rates) 0 00 5, Zanieymsl 2008 daily production Wilga Kleka US 14 0 Big Wells Zaniemysl-3 Roszkow-1 Sroda-4 Kromolice-1 Kromolice-2 Well Names Initial Proved Initial P50 Porosity Net pay Zaniemysl-3 30 Bcf 50 Bcf 23% 50 meters Roszkow-1 30 Bcf 55 Bcf 23% 34 meters Sroda-4 19 Bcf 32 Bcf 19% 33 meters Kromolice-1 20 Bcf 34 Bcf 20% 48 meters Kromolice-2 21% 35 meters 15 Steady Production Zaniemysl field production history 12.00 9,000 8,000 10.00 7,000 Gas Production Rate (MMscf/d) 8.00 6,000 5,000 6.00 4,000 4.00 3,000 • 2005: Initial proved reserves estimated at 24.0 Bcf • 2006-2008: produced and sold 8.1 Bcf 2.00 2,000 1,000 • 2009: Initial proved reserves estimated at 30.6 Bcf (22.4 Bcf remaining) May/2007 May/2008 Nov/2006 Nov/2007 Aug/2008 Aug/2007 Sep/2007 Nov/2008 Oct/2006 Oct/2007 Feb/2007 Feb/2008 Mar/2007 Mar/2008 Sep/2008 Oct/2008 Apr/2007 Apr/2008 Jul/2007 Jul/2008 Dec/2006 Dec/2007 Dec/2008 Jan/2008 Jan/2007 Jun/2007 Jun/2008 - - Gas Rate Gas Cumulative Gas Cumulative (MMscf) 16 Fences Concession – Core Area Plans Plawce East Plawce Kromolice-1 Kromolice-2 Winna Gora-1 Sroda-4 Sroda-5 Zaniemysl Sroda-6 Acquired 3D Planned 3D Roszkow-1 Kleka-11 Core Area – focus on production and high potential new targets • Build production facilities for already tested wells: Roszkow, Sroda-4, Kromolice-1, Kromolice-2 • Develop more drilling targets on Rotliegend structures • Plawce East: stratigraphic potential up to 250 bcf gross • Plawce (tight gas): potential up to 500 bcf gross Stable Platform Area 17 Plawce Area: Tight Gas Play Siekierki wells drilled in 70’s/80’s Trzek and Siekierki wells North boundary of Fences concession • Long gas columns in tight Rotliegend reservoir; never produced Plawce well 2007 Trzek well drilled to test tight gas potential with hydraulic fracturing • Aurelian O&G (UK) reports plans for two horizontal wells with fracs in 2H09 Tight Rotliegend gas field analogs in UK offshore and German onshore Plawce-1 drilled in 1984 • Tight gas column of 107 meters; never produced Plawce could be a tight gas play with potential up to 500 Bcf in place Plawce East could be a conventional reservoir with up to 250 Bcf in place potential 18 Plawce East Plawce East Plawce East could have good porosity/permeability downdip from the tight Plawce horst • Possible fault related cementation or different burial history High potential • Stratigraphic trapping area could be 20 sq. km. with potential up to 250 Bcf of gas in place 2009 drilling possible • Currently working on depth mapping and optimal location Structural feature would be the preferred target, but proof of stratigraphic closure would be the prize 19 Explore for Large Reserve Potential FX concession areas: mostly 100% Leads and prospects identified Edge N.W. Seeking industry participation in early stage exploration Kutno Warsaw South FX Leasehold: Fences Block 287 Block 229 Block 246 N.W. Warsaw S. Block 255 Kutno Edge Fences Block 229 Block 246 Block 287 million acres km2 gross net gross 0.85 0.41 3,452 0.21 0.21 863 0.23 0.23 941 0.24 0.24 975 1.36 1.36 5,510 0.64 0.64 2,581 0.24 0.19 957 0.71 0.71 2,856 3,567 0.88 0.88 5.36 4.87 21,702 FX net interest 49/24.5% 100% 100% 100% 100% 100% 82% 100% 100% 20 Northwest Concessions 1.36 million acres; FX holds 100% Ca2/Reef and Rotliegend potential 25-30 km from POGC’s BMB and LMG fields, which together contain a reported 125 mmbo plus 500 Bcf recoverable from Ca2 Ostrowiec farmout to POGC • FX will retain 51% and operates • POGC earns 49% by drilling Ostrowiec well Ostrowiec farmout block NW 21 Ostrowiec Structure Map Ostrowiec Well: drilling to start 2Q09 • 2-D seismic defined • Potential 30 sq. km., 120m high, Ca2/ Rotliegend at 4100 meters • Potential for up to 1 Tcfe oil and gas in place 22 NW Top Rotliegend Robust Rotliegend nose on 100% acreage 2009 2-D drillsite seismic planned Rotliegend Nose Ostrowiec farmout block NW 23 Warsaw South Concessions 880,000 thousand acres; FX operates and holds 100% (82% in block 255) Ca1/Reef, Carboniferous and Rotliegend potential Machnatka prospect possible 2009 drilling • 2-D defined Ca1/reef prospect at 3100 meters • 12-15 sq. km.; potential 150 Bcfe gross in place • May bring in a partner Machnatka Prospect Warsaw South 24 Edge Concessions 880,000 thousand acres; FX operates and holds 100% Ca2/reef, Devonian and Rotliegend leads Unislaw IG well flowed oil Tuchola IG well had oil saturated cores over 300 meters Tuchola IG Edge Concession Unislaw IG 25 Kutno Concessions Kutno mega-structure • • • • Massive 35,000 acre / 140 sq. km. Rotliegend structure at 19,000 feet / 6,000 meters Well defined on 2-D seismic Potential up to 19 Tcf gas in place FX holds 100%; seeking industry participation 26 Exploration Summary FX strategy is to build production and revenue in the Fences area to support exploration throughout Poland for higher risk, higher reward opportunities Ostrowiec to spud 2Q09, with gross potential up to 1 Tcfe of oil and gas in place • In the success case, the unrisked FX net recoverable interest could be as high as $18 per share. Machnatka, Warsaw South area, possible 2009 well; gross potential up to 150 Bcfe Plawce East, a stratigraphic play in the Fences Area, has gross potential up to 250 Bcf Additional prospects where we are looking for industry support - the Edge play and Kutno Project Area Fences Northwest Warsaw South Edge Leads Plawce East Plawce Ostrowiec Machnatka Unnamed Leads Ca2 leads Devonian lead Kutno Kutno Gross Potential (Bcfe) 250 500 1,000 150 1,100 1,200 100 19,000 Table shows leads with gross unrisked potential hydrocarbons in place Risks include leads that may not develop into drillable prospects or that may not get drilled, or that are drilled and fail to find producible hydrocarbons Only a portion of hydrocarbons in place are recoverable through commercial operations FX interest may be significantly less than 100% at drill time 27 FX Balance Sheet Balance Sheet Data ($mm) Current Assets Property, net Other Assets Total Assets 12/31/08 $26.7 26.9 1.2 $54.8 03/31/09 $12.1 25.0 1.2 $38.3 $4.3 25.0 1.8 7.2 $38.3 $25 million RBS reserve-based credit facility fully drawn; expansion available based on 12/31/08 reserves $8 million in working capital at 03/31/2009 Plus 2009 discretionary cash flow Current liabilities $12.8 Long term debt 25.0 Other long term liab. 1.9 Stockholders equity 15.1 Total $54.8 2009 capital budget to match cash flow and working capital 28 Near Term Upside Potential Potential for substantial reserves increase • FX pre-tax PV10: Proved = $3.25/share; P50 = $5.25/share • Add 2009/2010 drilling potential Kromolice-2 – commercial Ostrowiec – start drilling 2Q09 Machnatka – drilling planned 2H09 Plawce East – possible 2009 well Other Fences wells possible Substantial revenue increase anticipated • • • • 2008: 4.6 mmcfe/day average daily production 2009: 7.5 mmcfe/day additional from Roszkow hookup 2010: 7.0 mmcfe/day additional from 3 more already drilled and tested wells Forecast EBITDAX growth will support expanding exploration program 29 Strategic Summary Large resources remain to be discovered in Poland • The Permian Basin extends across Europe, from the UK to Poland • Poland’s isolation from the West for 50 years left the Basin under explored • FX’s discoveries to date, with high production rates and high per well reserves, are tangible evidence of the opportunity and potential FX holds a key strategic position in Poland • • • • Growing production/revenue base to support exploration The right team with technical and local expertise Established relationships in Poland Several million acres of high potential land – increasing interest from industry The supply/demand/price environment in Poland is very favorable for gas • Poland – and the EU – are heavily dependent on Russian gas • Gazprom and Russia appear intent on maximizing the value of Russian controlled gas • No bubble; not dependent on U.S. weather, the U.S. economy, or U.S. gas prices FX has significant upside potential – and gaining momentum 30