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International Frontier Resources — The Next Energy Leader in Mexico

Overview

International Frontier Resources Corporation (TSXV:IFR,OTCQB:IFRTF) is a Canadian-based oil and gas company with a proven track record for advancing projects. IFR is currently focused on the development of oil and gas assets in Mexico’s premier Tampico-Misantla Basin. The company represents a limited number of opportunities to invest in a publicly-traded company in Mexico’s oil and gas sector.

Unprecedented Opportunity: Mexico’s Energy Reform and Exceptional Assets

Mexico’s Energy Reform and world-class oil field assets represent one of the largest, unprecedented energy investment opportunities in the world today.

Mexico ranks as the third largest oil producer in the Western Hemisphere and holds the region’s fourth largest oil reserves. For nearly 80 years, state-owned PEMEX was the only player in country’s oil and gas industry. That monopoly came to end in 2013 when the government initiated Energy Reform legislation allowing for foreign investment in the country’s oil and gas sector.

Historical underinvestment in the sector has left Mexico’s rich oil fields largely unexplored and untapped, according to Steve Hanson, CEO of International Frontier Resources, the first Canadian company to gain a foothold in Mexico’s onshore oil fields. “After investigating the opportunity, we quickly realized the quality of the assets in Mexico are on par with those in Texas or Alberta in the 1970s with some fields exhibit pay zones at levels rarely seen anymore,” said Hanson.

Hanson believes foreign investment and more efficient recovery techniques including horizontal drilling will unlock the huge potential for growth in Mexico’s onshore oil fields. As an example of the opportunity Hanson points out that in 2008, Texas produced 4.8 billion barrels of oil. Through an increase in horizontal drilling and new techniques that production figure has grown to 12.2 billion barrels. Mexico produces 2.7 billion barrels per year and needs massive capital investment to grow its reserves and production.

 

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Securing First Mover Advantage with Mexican Partnership

IFR is leveraging the extensive operational experience and strategic partnerships to build a strong foundation in Mexico.

IFR has partnered with Grupo Idesa, one of the largest petrochemical companies in Mexico. In operation for more than 60 years, the company produces and sells petrochemicals into a range of Mexican and international industries. Together the companies have formed Tonalli Energia, a 50/50 venture which holds the Tecolutla Block in the world class petroleum province of the Tampico-Misantla Basin. The concession was awarded to Tonalli Energia during onshore bid round 1.3 under Mexico’s oil and gas energy reform.

Tonalli is participating in onshore bid round 2.3 under Mexico’s oil and gas energy reform. Fourteen onshore blocks averaging 185 square kilometers are up for bid and contain 25 oil and gas fields representing 251 million barrels of prospective exploration resources and 328 barrels of remaining original extraction volumes. Eight are in the state of Veracruz including one block in the Tampico-Misantla Basin which offsets the Tecolutla Block. Mexico Comision Nacional de Hidrocarburos (CNH) will announce the concession awards in July 2017.

Investment Highlights

  • First mover advantage in one of the largest energy investment opportunities in the world.
  • Industry-leading joint venture Tonalli Energia, a 50/50 partnership, combines IFR’s Canadian geoscience, engineering, and finance with Grupo Idesa’s Mexican regulatory, engineering, and logistics team.
  • Initial Asset: Tecolutla Block, a vastly underdeveloped mature field in world-class Tampcio-Misantla Basin.
  • Development underway in 2017 with near-term production and cash flow.
  • Large ownership position by board, management and key shareholders; 29 percent of shares.
  • Experienced management and technical team members with a proven track record of success; drilled over 100+ horizontal multi-stage frac wells in Alberta.
  • Well-funded for next stage of growth, including participation in Mexico’s onshore bid round 2.3 to be announced in July 2017.

Key Asset: Tecolutla Block in Mexico’s Tampico-Misantla Basin

Tecolutla provides IFR with a strategic operating presence in the Tampico-Misantla Basin and a solid foothold into Mexico’s Energy Reform.

International Frontier’s key asset is the Tecolutla Onshore Oil and Gas Development Block which comprises 7.2 square kilometers in the Tampico-Misantla Basin located in the state of Veracruz, along the Gulf coast of Mexico. Veracruz is home to IFR-partner IDESA’s port, petrochemical and trucking facilities. The regional oil field services hub of Poza Rica is located 60 kilometers from Tecolutla.

INN reported on the huge potential of Mexico’s onshore basins, specifically the Tampico-Misantla Basin, which IHS Markit analysts say “may well mirror America’s model super basin — the ever-resilient Permian Basin.”

The Tampico-Misantla Basin hosts some impressive oil fields including the Ezequiel Ordóñez field, which had an average initial production rate of 8,100 barrels a day per from each of its five first wells. The Poza Rica oil field is estimated to hold 3.8 billion barrels of oil while the Chicontepec tight oil field is thought to contain 81 billion barrels. The Tecolutla Block lies within the Golden Lane, a past-producing region in the basin with multi-zone potential.

“Between the remaining reserves in existing fields, conventional exploration potential, and opportunities in shale and other tight reservoirs, the basin offers something for everyone — a diversity of upstream opportunities for large and small companies, national oil companies and investors,” said Robert Fryklund, chief upstream strategist at IHS Markit. More than 200 existing onshore fields are earmarked for upcoming bid rounds, and 150 PEMEX block farm-outs are set aside for joint ventures.

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The Tecolutla Block was awarded to Tonalli Energia in May 2016, as part of bid round 1.3 of Mexico’s oil and natural gas mature fields concessions. The 35-year license agreement with CNH includes an incremental royalty of 31.22 percent. The average royalty for the 25 blocks signed for Round 1.3 is 47.22 percent. The agreement requires Tonalli to execute a minimum work program that includes exploration studies, seismic, workovers, recompletion and drilling activities during a one to two-year appraisal period.

The Tecolutla Block hosts the El Abra formation, a carbonate oil reservoir, at a depth of 2,340 meters. The Tecolutla oil field remains significantly underdeveloped with only seven vertical wells drilled by Pemex between 1956 and 1972, with well performance ranging from 256 to 453 barrels per day.

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Drilling to begin in 2017

IFR is one of the first companies to establish a footprint for growth in the Tampico-Misantla Basin and will greatly advance development of Tecolutla in 2017.

International Frontier’s technical team believes historical operations at Tecolutla, like most of those in the region, were not sufficiently suited for optimal well performance. Using existing well control and the data from PEMEX’s recently conducted 3D seismic survey, the company has re-evaluated the oil field and believes that horizontal drilling and workovers will lead to daily production yields that greatly exceed the historical peak production of 900 barrels per day.

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Tonalli Energia will commence drilling at Tecolutla in summer 2017 beginning with a vertical well followed by the first of five horizontal wells in the fall. Horizontal wells can produce abut 3 to 4 times the volume of vertical wells.

IFR Growth Strategy and Funding

  • Achieve first oil production from Tecolutla in 2017.
  • Maximize reserves and production on Tecolutla.
  • Expand land base in current and future onshore bid rounds.
  • Leverage first mover advantage to obtain joint ventures with Pemex and other partners.
  • Increase financial capacity with strategic and institutional investors.

International Frontier is well-financed to complete its 2017 development plans at Tecolutla and to participate in the 2.3 bid round auction. The company raised over C$5 million in an over subscribed private placement completed in March, 2017. IFR has the potential to be cash flow positive and self-funding on Tecolutla.

International Frontier is the first Canadian oil and gas company to be backed by Export Development Canada (EDC) in Mexico. In January, the company secured an Account Performance Security Guarantee (APSG) facility of US$882,050 from EDC. ” With the energy reforms taking place in Mexico right now, we believe there are tremendous opportunities to be had in that sector, and IFR has just proven that Canadian companies have what it takes to compete and win in the market,” said Mark Senn, Regional Vice-President, Western Region, EDC. ” As an approved EDC partner, IFR has access to further Government of Canada guarantees on loans for reserve based lending, facilities and development.

Management

Steve Hanson–President & Chief Executive Officer

Steve Hanson has over 20 years of finance and corporate development experience. He has been President of Discovery Management Services Ltd. since 2002, a venture capital consulting firm assisting early-stage companies in the development of short and long-term financing strategies. Hanson served as Chairman and Managing Director of Van Arbor Asset Management, an award winning equity money management firm from 2004 until 2008, which he founded in 2003. Van Arbor Asset Management was bought by ZLC Private Investment Management in 2008. In 2009, he served as President and CEO of PanAsian Petroleum, an Oil and Gas Company that during his tenure was acquired by Ivanhoe Energy. In 2011/2012, Hanson was a Director of Lion Petroleum Corp., a private Oil and Gas Company focused on East Africa bought by Taipan Resources. He has served on numerous private and public company boards.

Andy Fisher–Chief Operating Officer & Independent Director

Andy Fisher has over twenty-five years of intensive and varied experience in the oil and gas industry including acquisition and divestments, corporate finance, strategic and operational planning to joint venture management, contracts and negotiations. He was Founder and Executive Vice President of Arcan Resources Ltd and grew Arcan from zero BOE / day with no assets to approximately 4,000 BOE / day with a large future drilling inventory. Arcan was sold to Aspenleaf Energy Ltd., backed by ARC Financial Corp, a Canadian energy-focused private equity manager, and Ontario Teachers’ Pension Plan, in June 2015 in a transaction valued at approximately C$300 Million. Formerly Vice President International Contracts and Negotiation of Pacalta Resources Ltd, Fisher was the third employee of Pacalta and experienced growth of Pacalta from a junior E&P Company with approximately 100 BOE / day of production to a company with approximately 45,000 BOE / day of production in Ecuador and hundreds of employees. Pacalta was sold to Alberta Energy Company (predecessor to EnCana) in 1999 in a transaction valued at approximately C$1 Billion.

Tony Kinnon–Chairman & Vice President of Business Development

Tony Kinnon has 20 years of experience in the financial services industry focusing on valuation, structuring and raising capital for energy companies. Based in Calgary, Alberta his professional roles include Managing Director, Energy Banking at PI Financial, and Director of Public Venture Capital at both Macquarie Private Wealth and Richardson Partners.

Pat Boswell–Chairman Emeritus

Pat Boswell Founded International Frontier in 1995 and prior thereto was the Executive Vice-President of Hardy Oil & Gas Canada Limited, a wholly owned subsidiary of Hardy Oil & Gas PLC, a company listed on the London Stock Exchange. He has over 38 years’ experience in the international oil & gas industry.

Dr. Gary Lyons– Vice Chairman & Independent Director

Dr. Gary Lyons holds a MD degree from the University of Pittsburg and a PhD from the University of Minnesota. He was a founder and Director of Nugget Oil Corporation which was founded in Minneapolis in 1970 and moved its headquarters to Corpus Christi in 1980. He has been involved in the oil & gas industry for over 36 years.

Ignacio Quesada–Independent Director

Ignacio Quesada is a Managing Director with Alvarez & Marsal in Mexico City. He brings 20 years of experience in strategy, operations improvement and financial solutions. His primary areas of concentration are the energy and financial sectors, strategy development, supply chain management, and financial evaluation. Quesada has worked with clients across a range of industries, including oil and gas, financial services, private equity and government institutions. Prior to joining A&M, he was CFO of PEMEX where he contributed to the development of new business collaboration schemes including the performance contracts and JVs between PEMEX and private sector companies. Before PEMEX, he worked as Chief of Staff to the Minister at the Treasury and at the Social Development Ministers. During that time, he participated in the Anti-Money Laundering Initiative, United Nations high-level task force for financial instruments for climate change, the task force for the AH1N1 crisis, and the development of new payment schemes for the social programs.

Collin Mills, Independent Director

Collin Mills beings over 30 years of experience in strategic and tactical operations with an extensive and diverse background in power generation. He has established and led high-performance teams to achieve significant business goals in Mexico, Canada and Australia. Mills’ background includes a number of executive roles with TransAlta Corporation, one of Canada’s largest publicly traded power generators and marketers of electricity and renewable energy. During his tenure, he held key positions including Director General and Chairperson or the Board of TransAlta Mexico. With TransAlta Mexico, his responsibilities included business development, equipment commissioning and operations of the corporation’s Chihuahua 260 MW and TransAlta Campeche 250 MW combined cycle power stations. Both facilities achieved ISO9001 certification and were awarded “Clean Industry Status” by the Mexican Federal Environmental Authority. He also led negotiations with the Mexican National Power Company (CFE) for the strategic divestiture of TransAlta’s Mexican assets to InterGen. Mills also held positions on the Mexico Energy Association Board and the Canadian Chamber of Commerce in Mexico. Most recently, he worked for Synergy Corporation as Manager, Thermal Generation in Western Australia, overseeing a workforce of more than 350 employees.

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