Centaurus Energy Inc.

Jose Penafiel - President and CEO Alejandro Penafiel - Interim CFO

Steven Azarbad - Maglan Capital Chris Jones - Haywood

Good morning to everyone, and thank you for calling in and giving us an opportunity to let you know how things have progressed with Madalena Energy with our focus on Argentina. And so first of all, I would like to discuss what is happening with Argentina being in the news quite a bit and this is because we are living through historic juncture in its history as a country something that is extremely relevant for the wider Latin American region.

In October, Macri's correlation led by the 12 party had extremely significant positive results in the mid-term elections. These are the most significant mid-term election since 1985, and the message is very clear, the message is Macri's political movements and policies are here to stay in Argentina.

He will have a working situation in Congress to be able to deepen his reforms but I think the overarching message is, we will see continuity. It is likely that he will be reelected, and we can confidently believe that we will have six more years the opportunity for this administration to continue to deepen its reforms which aim to open up the economy, create a competitive situation internally where it tracks capital from foreign countries and continues to open the capital markets aspect in Argentina, continues to deepen the labor reform where we will see an increased advantage for business in lowering costs, and is also going to focus on tax reform which is something that that is already proposed.

But in general even before that it has a drop on affecting how companies deal with this specific operation. So in that sense I think a lot of the issues with Argentina has been - is great resources, is great assets, they are good management teams but the macro situation has largely affected how investors view specific opportunities and really we haven't had this type of situation in the last decade in the half, I think even in the years in the mid-2000s where you had the opening up of opportunities in the oil and gas sector to the devolution of the authority to the provincial governments that became the regulator Federal government - the current opportunity and the current business environment.

So I think that is the important message. Obviously, we see this trickling down.

We see price controls listed with regards to the price agreement for the sales of crude. We have also benefited from the current oil market where we've seen prices go up about 60, and that has trickled out tangibly and we are now receiving an additional $2.70 for our Madalena crude and we will see prices continue to escalate in the coming months.

It's important to note that when you are deregulating a market I think you know we would all like to see a perfect situation where automatically you go to market pricing, - in Argentina's place we are going to see a progressive increment. So we believe that this increment will be between $1 and $2 a month until we get to market.

The markets are neutral which is what we produced in our Puesto Morales impression, Brent plus one which is what meaningful and in general the price of gas remains strong anywhere between $4.30 per million BTU to $5 per million BTU. So in that sense, despite these latest months that has seen the price drop we can be optimistic on how we move forward with that pricing area.

Then off the ground with the operations, we've executed our plan of maintaining production. We have also continued with operations with regards to low hanging fruits to increase production.

Currently we are producing at a stable 2200 Boe a day. We continue to work on our budget and work programs last year in a situation where we have positive cash flow and that we have also made important strides with regards to building a project that will then play into our Q1/Q2 fallout of our Coiron Valle our second most important Neuquén Basin asset.

In CASE which is our joint venture with Pan American Energy I'm pleased to announce that we successfully cased our second well and have been able to drill 1500 meter lateral into the Vaca Muerta and are currently trying to secure frac, crews and equipment to complete the well in January. So we are optimistic.

We think this well will be another producer and continue to delineate our Vaca Muerta play in the Coiron Amargo Sur Este block. We continue to see positive results with regards to our CAS.x-15 re-entry well which we built earlier in the year.

To remind everyone this was a 900 meter lateral that stimulated frac and initiated with 30-day average of approximately 420 barrels a day. It continues to produce.

We are currently at approximately 140 barrels a day, and I'm pleased to say that it looks like this production is stabilizing and we have a lot of pressure on it to 3 millimeter choke. So I think it speaks volumes with regards to getting the base for type well that we can produce there, which is that I think on track with what we’re seeing in the area in adjacent blocks with wells that have been drilled by shale.

So that I think is very promising and obviously plays in to the fact that we have 77 million barrels of resources there that's why 35%, and that in itself I think it is something that speaks to the tremendous value for our company and we will continue update the margins to our shareholders as we have additional resilience with regard to the CASE block. In Coiron Amargo Norte our JV with Pluspetrol.

We have also had - results so since A) when we entered as new management we have seen an increase from 20 metric cubes to 80 metric cubes of production. This is largely due to insistence - that the operator said ESP's and carry-out the pulling campaigns.

So we're pleased to announce that that is going well and we expect to embark on a project of electrification of that succession which will allow us to set additional ESP's at lower cost and hopefully eventually by Q2/Q3 and we should be up around 120 cubic meters. So that is also something to look forward too for next year in Norte, in our Surubi concession we continue to produce staggering - it is our highest netback and we continue to look for opportunities to increase production and currently our focus is on setting an additional surface pump and we need some downhole tools to be able to accomplish that which would allow increased fluid volume which would in turn also allow us to increase the production well.

So that's something that we're working on, that should be completed by Q1 next year which would allow us to increase our production in about 200 barrels a day. In regards to the restructuring and what we've done, I think conceptually the idea is to convey look, we've been here six months, we restructure - for more than half we are still working on the field OpEx.

We are very close to reaching agreements with the unions to reduce the headcount in the fields which in Curamhuele case will represent a $7 per barrel increase in our netback so these are things that we're working on. We are always looking for efficiencies and trimming but at this point we've turned the page and we are now looking forward to growth.

Right now, restructuring has been largely completed - but now we're looking to the future and seeing how could grow production and in that sense we are currently evaluating opportunities that come onto the market. These are reviewed and evaluated in an optimistic way.

We have looked at two or three opportunities and our focus is on the quality of course the assets and our ability to optimize and capture these at an attractive price. And so we will continue that exercise into next year and - opportunities that make sense to the company, and in due course we hope that our market and our shareholders know of significant opportunities that we are able to actually complete.

So that's also something to look out for. We continue to prepare for our listing on the mid-well in Q1 and assume to have the pieces that we will benefit from additional volumes because of the focus that the current government has on attracting foreign capital and creating a good environment is reinforced by the election results and the current reform that are been proposed by Macri.

So that's something I think will be very exciting and will give us a platform for a wider install base. So that again is moving along well.

We've also been engaging in discussions with regulatory authority of [Madalena] with regards to making sure that we are able to double list without becoming a reporting burden on the company, and because the government is promoting capital markets in the Madalena platforms in discussion with the rate productive. So again you know we are very pleased with how things are going and with this I will pass the floor to Alejandro to give you further updates.

Hello everyone, thank you for being on the call. We're very excited about the progress we're making with the company and I think we're on a much stronger financial footing.

So wanted to make a few comments regarding the financial statements and earnings that have been released. I think it's important to point out in terms of crude pricing as the government's policy in Argentina has been to steadily allow the oil price to move down from it subsidized artificially high price down to market.

There have been some market dislocations and so we received a much lower price than would be typical in terms of the discount to Brent which we expect the market to eventually settle at. So our realized price on a BOE basis was $48.14 down from $49.90 last quarter, so that represent about 600,000 less in revenues.

We also had a nonrecurring costs and expenses related to workovers on the concession in Coiron Amargo Norte with Pluspetrol as our partner there with the operator. So as Jose mentioned in his comments earlier that was part of the operations that have been going on in that block to increase our production.

So taking into account the lower netback from the reduced oil revenue of lower price as well as those one-off costs the company was still able to have positive funds from continuing operations and it's still in a positive working capital position. We expect the oil price to be significantly higher in Q4, but especially in Q1 as the market begin to rebalance and shift into a market differential to Brent pricing.

Also we’re pleased that we’re able to increase the company netback despite a decrease in realized pricing. And we believe that’s a fruit of the restructuring that’s been able to take effect and we’ll start to see the increased cash generation of the company be visible in the financial statements likely starting with the Q1 statement from those results.

I think with that we'll be opening the call to questions.

Nice quarter, good to see the restructuring kind of taking hold, and things are moving forward. Wanted to speak about a number of issues, the first of which for the company's commitments and the corresponding going concern language, when do you expect the company's commitments to be resolved and when do you expect the going concern language to finally go away.

It's something that we see as eminent. These rely on perfection of our renegotiations that are already in draft form and we expect to have those in definite form for the next three weeks.

And expect to have the going concern note removed by Q1 2018.

When you say Q1 you mean in Q4 - I mean also the Q4 numbers, the year end number should have the going concern language removed is that what you meant?

Even if we perfect being in Q1 we can remove the note at a subsequent event and this is something that we discussed in detail with EY.

No, I mean like, since we are in Q4 and you expect the language to be removed - the commitments to be resolved before year end shouldn't the year end numbers have the going concerned language removed?

Yes, that what we - the definitive documents were to be executed in Q1 we would still have a subsequent event that would enable us to remove those effectively for Q4.

I know that will be based on the mind of many investors including ourselves. Now shifting over to the growth side of the equation which is what I think the company is in a position to do it going forward.

I mean how do you think about the company's strategy given, I mean at the conventional and the unconventional - our strategy for the company going forward?

So there is three focuses we have our existing asset base, we have inventory which becomes attractive with better prices. So our renegotiation of the commitments will allow optionality so with economics work for Loma Montosa play we can go after that.

And then that also plays into the fact that until we have that price environment and cost environment, we will continue to look for opportunities to increase our existing production and pud inventory that make economic sense. And then the third focus is on the unconventional and with that our primary focus is the CAS.x exploration and future development with our pilot program with Pan American which we expect to activate next year.

And with Curamhuele specifically looking for a partner to be able to drill two horizontal wells to prove up initially the lower Agrio formation which again will increase our reserve base and start to create real value in that box.

How do you think of that - funding for the unconventional strategy. I mean are you looking to use company capital, are you looking for partners, I mean how do you methodically go through the vast inventory of properties on the balance sheet to go out there kind of - get going on these projects?

So we’re fully financed. We have $100 million facility with $40 million faculty for $100 million program with Pan American on the CAS.x fund.

So we’re fully financed to that. And for the additional unconventional CapEx that we’ll require for example for Curamhuele, we will be looking to incorporate a new partner that will invest and earn working interest in that blog which will fund the exploratory wells that we need to start developing that asset.

And then on the conventional side we have ample capital to be able to go after either our own projects if and when the price and cost environment is economic and go after the acquisition that I have just mentioned.

I mean like what sort of - is the company receiving any interest on Curamhuele?

We've had several expressions of interest from majors, it’s a very attractive block that change the gas and condensate window, and with the heightened tension and interest general from big players and small players I think it's one of the most attractive blocks now in Argentina outside of YPF's Holdings. So this is something that is already gaining traction and really our emphasis is to be able to find the right partner and the right terms for our company.

So we're very confident that we will be able to do a very attractive deal that will enable us to develop that property.

And then on the conventional side, what you’re looking for I guess on the acquisition side and how we think about financing those types of acquisitions?

On the conventional side we’re looking opportunistically for mostly marginal assets that are coming on to the market by some of the large independent in Argentina and some majors that are refocusing their attention on Vaca Muerta and all the opportunities that we’re looking at are financeable with our own facilities that are existing. And in the event that these would surpass our current financial capabilities we are in discussions with partners that would come in JV with us and we're also looking at financing on the target through either debt or off-taking arrangements and new players that are keen to come into the Argentine market.

What sort of - what are you looking for - we’re talking about 1000 barrels a day, 2000 barrels a day what sort of blocks are out there that I guess the company is looking for?

Number one, we’re looking to make money. I think that's - and we have a minimum ROI that we’re looking for which is about 30%.

We’re seeing a lot of smaller blocks coming on ranging from 500 barrels up to 3,000/4,000 barrels a day. I think that's the most important category with regards to volume of opportunities, but again we look at things opportunistically.

So as long as we think that the transaction will allow us to create value for the company and create cash flow and also have a solid asset base that we can then develop through additional drillings, we'll look at it. But in general the range that I just gave you is what we’re focusing on.

What you're targeting in production over the next couple of years. I mean how are you thinking about this from a production growth standpoint, I mean whether organically or through acquisition?

Well I think in the next I would say 18 to 24 months we would like to jump production to around 5,000 barrels a day that’s our near term target.

Is that inclusive of like production from Coiron Amargo or you just thinking about that generally?

That’s including our existing production and also including Coiron Amargo.

When are you expecting to be able to put forth results on the second shale well in Coiron Amargo assume that you frac it in January what are you looking for from a timing standpoint?

So we think that once we start flow back so once the well is fraced and begins to be tested and we start getting flow back and clean out the frac fluid that we inject to stimulate the - we would want to see a 30 day result and we've taken average to release similar to what we did with the CAS.x-15 re-entry. So I think Q1 is when we expect the lease results on that well.

Just a quick follow up on Steven's last question on the second shale well. I know you guys are completing the well with a higher intensity frac in a longer horizontal lateral.

What kind of rates do you guys are looking for out of this well and what would be considered a successful drill? Thanks.

I think this is an exploratory well, it is a well that will be completed in the non-fracture zone of our CAS.x block. I think it's - we’re all looking for production that will support 500,000 to 700,000 cumulative production, I would expect the well to hopefully come in at an initial rate - the 30-day average rate of around 600 barrels a day with the current ranks of lateral but again this is something that is exploratory.

So we see this more as a proof of concept and delineating rather than maybe assuming that we’re going to get the best productivity which would assume that we already test five or six wells and start to fine-tune on completing third in our development.

I have a nap in front of me, is this a large step-out well from the first shale well or is it in close proximity?

There is a significant distance between our first well and the second well and the second well is going into a part of the formation that doesn’t have any natural fractures. So it's a different animal.

No thanks.

Well thank you everyone for calling in and listening. We are again excited about what's going on with Madalena and Argentina, and I was happy to chat with persons that are interested in what we’re doing and we look forward to next quarter.