Centaurus Energy Inc.

Thank you, Sylvie. Good morning.

And thank you for joining us for Madalena Q1 earnings call. We are very pleased with the progress the company is making on unlocking the potential of its shale acreage.

In recent days, there have been significant developments on both of our core unconventional blocks, CASE and Curamhuele. As we previously announced, the first of a four well horizontal program was spud in the first week of May by our partner Pan American Energy.

It’s been extremely significant milestone as this marks the beginning of the development phase in the block. Based on our resource report from GLJ, Madalena has 90 million barrels of net resources in CASE, and the current drilling program will drive significant value growth as we begin to convert those resources into reserves.

The program is fully funded by the $40 million limit recourse loan from Pan American. Regarding Curamhuele, the company has received approval from the Province of Neuquen on its extension request for an additional two years for the expiration period.

This will allow the company sufficient time to test the Vaca Muerta formation vertically as we continue farm out discussions. As previously stated, if acceptable terms cannot be reached on a farm out, the company will move forward with the vertical drilling program funded from its existing facilities.

The company is excellently positioned with one of the largest divisions in the Vaca Muerta play outside the majors, totalling around 80,000 net acres. Regarding our results, the low Brent pricing at the end of 2018 and beginning of 2019 pushed the Argentine crude market to the lowest level seen in the company’s history, the realized price of $48.35 per barrel with a significant drag on the company’s results in Q1.

However, this low pricing will be limited to the quarter as the oil price has rebounded significantly. The company performed the successful workover on three well in Surubi that resulted in an increase of approximately 60 barrels a day.

And additional workover was performed in the PL-18 well in Palmar Largo to replace the tubing string and gas lift system. A rigless stimulation has been planned in the next four to six weeks, and a third workover is planned later this year to accommodate long lead items and rig avability.

On the M&A side, we continue to actively pursue additional conventional production assets with drilling up side as part of our dual pronged strategy to have both unconventional and conventional source of growth. We continue to see volatility in the peso and elevated levels of inflation.

And we expect to continue to see dynamics as investors focus on upcoming presidential elections in October.

Good morning, Jose. Alejandro Penafiel, Vice President of Growth and Capital.

Good morning. Madalena remains in a strong position and we are focused on growing the company’s production and reserves.

The company’s negative net income this quarter is a direct result of the significant drop in realized pricing. The $48.35 per barrel realize was a drop of $11.53 from Q1, 2018 last year and a drop of $8.15 from Q4, 2018 last quarter.

As mentioned by Jose, this effect was temporary as prices have since rebounded strongly. Another drive that contributed to the non-recurring costs related to the workovers in the North Western basin assets of approximately $583,000 that were not capitalized.

The last driver negatively impacted the quarter were volumes that were produced, but were not delivered for sales due to heavy rains in north that reduced truck frequency. We expect this quarter to be an outlier due to non-recurring drivers mentioned.

We now open the call to questions.

I have a few questions, please. The first one is with regards to your net backs.

As you mentioned, they've trunked substantially in the first quarter as a result of the lower oil price, as well as your workover activities up north. You mentioned that these were one-off things and results will improve in Q2.

Now, we’re now half way through Q2. So what pricing are you seeing for oil?

What is driving substantially reduced gas price? And what net backs are you currently seeing?

So to answer the first part of your question, we’re seeing kind of average realized pricing in the mid 50s at the moment. So I think subject to changes as we get further into the quarter, I expect netbacks to rebound to around the $10 level over the quarter.

So I think that’s again something that we saw that is a one-off unfortunately from the delayed effect of having your average monthly pricing from that different Brent that caused lower price realization. We also had a cost that weren't capitalize from the workovers in the north that also impacted that.

So those are the main items I wanted to address.

And what is driving substantially reduced gas prices in the country?

So, in terms of gas prices, you have strong seasonality. So you were basically coming out of the end of summer and in early fall when you have lower demand for gas in terms of heating.

So we should see the gas price come up in this quarter and more in Q3. Overall, we also think that there is going to be a downward trend in gas pricing, because of all of the drilling in Vaca Muerta where we’ve seen much stronger increases in gas production as a typical with shale then with oil.

So for example, from 2018 beginning of the year to the end of the year, you saw growth from Vaca Muerta in the liquids of about 150%. You saw increase in gas of almost 300%.

So you’re seeing stronger growth there, and also part of that is driven by set controls Fortin de Piedra projects and some of the other projects. So I think generally we will keep pushing our strategy towards liquids focus, since we see more value there and continue to see that downward pressure on gas with the seasonality effects that I mentioned earlier.

I wanted to ask you next about your production growth, a big percentage of your costs are fixed. As we know, I believe the number is about 70%, correct me if I'm wrong.

So if we want to see an improvement in profitability from the conventional asset base, we need to have higher production. Could you give us an update on your initiatives to grow your conventional asset base?

Both organic opportunities, are you pursuing within your existing portfolio in addition to the acquisitions, or acquisitions your main focus here?

We have both focuses. So we are always actively pursuing acquisitions opportunistically.

And we also see potential in our own inventory. So we still have Lotena as a target in our can concession with Vista and Surubi, and in Palmar Largo we see further opportunities, especially in Palmar Largo on the workover side and then we also see potential for additional PUD to be drilled that we're evaluating.

We certainly see opportunity in Puesto Morales, and we have recently reviewed our existing wells and plays there, and we think there's definitely opportunity in Loma Montosa. So we are working hard to make sure that we high grade these opportunities appropriately, and we'll continue to go after acquisition opportunities as well.

And are these conventional opportunities, is anything being done to advance them this year specifically in 2019? Or is your sole focus this year on essentially drilling those initial Vaca Muerta wells?

Our main focus is on the Vaca Muerta wells, but we are making good progress. And at the moment, can't give any guidance with regards to this year.

But I think assuming we continue to make levels of progress that we've seen that there could be some opportunities we go after on the conventional side this year.

With regards to your cash, I've noticed that 87% of it was deposited with banks in Argentina and held in Argentine pesos. What is the logic behind keeping it in pesos, considering significant devaluation?

Are you just trying to essentially match your local expenses, or why it is held in pesos?

So, typically what we generally do is we try to keep our cash position as lean as possible to reduce absolute exposure generally to local currency inflation issues. We typically have a 60-40 split in terms of 60% in peso cost and 40% in dollar costs, because of the workovers that we did, we had an increase in percentage of our Argentine peso percentage.

And so we always try to best match our treasury with our percentage and mix of U.S. dollar and Argentine peso short term liability.

So that was the reason for the change. So we don't expect any additional exposure or any material currency translation, or exchange rate losses.

So, I think we've generally seen that our treasury management system is effective, especially we saw that last year when you had the spat of volatility that many of other of our peers were caught wrong-footed that we didn’t have any material issues there.

My next question is with regards to your convertible debentures that are maturing next month. What is the plan for that?

So the plan for the convertible debentures, are those will be repaid at maturity in cash.

And is there a premium associated with it?

No, I don’t believe there's a premium associated with that. So they mature on June 30th and there is -- I don’t believe there's any premium with that.

And do you expect to use your credit facilities to repay them?

We don’t expect to use our credit facilities. We expect to pay -- we pay them from cash flow.

And finally, could you clarify for me please what was the impact of adopting IFRS 16 on your income statements?

IFRS 16 in terms of the changes in terms of trimming of leases had no material impact. There was an increase of $79,000 in terms of liabilities that associate with our office lease in Buenos Aires.

So since the office lease is not very expensive, so just $5,000 a month, there is no real material impact but just that $79,000 increase is in liabilities from the balance sheet.

In other words, you do not lease any processing equipment compression, anything like that?

There is no long-term leases so we do have some lease equipment, but all of it are below on -- in terms of less than 12 months, which make it not relevant for IFRS 16.

I am looking at your website this morning and I go to the Investor Centre and go to the Financial Reports. And the most recent piece of data that’s posted is the Q2 back in August.

When I go to your news room, the most recent piece of news is posted is August, and then both for Q2. So there is no Q3, Q4 and in fact no Q1 that we are discussing this morning.

So I would suggest that maybe you might be in default of securities regulations like your website is just inadequate and can you please explain?

Thank you. We appreciate your comments.

We’re actually pulling up the website as we speak. And I see that what you’re saying is incorrect, and there are actually...

I’m looking at it right now...

But I appreciate your comments, and we’ll definitely look into it. I’m looking right now and I’m seeing, for example, condensed interim consolidated financial statements for the three months ended March 31, 2019 and 2018…

Under which tab…

I am sorry, you've had trouble navigating our website, and we'll…

I'm not having any difficulty, sir. I'm right on it, everything's fine.

But we'll definitely look into it, so I appreciate it. Thank you very much.

Good morning, gentlemen. Question regarding Curamhuele.

Can you talk about the strategy or the logic behind the two year extension for exploratory activities? And then also, I think there have been some recent pronouncements regarding the El Trapial block, immediately adjacent to Curamhuele that's controlled by Chevron.

And I'm wondering if you could speak to the pronouncements regarding the drilling, and how you think it affects the likelihood of finding a partner for Curamhuele development?

So the three year extension is, as I mentioned, extremely important, because we have now extended the exploratory period until 2021. And this gives us more time to focus on executing our vertical drilling program to test Curamhuele, and it also allows us a longer window to continue to look for the right partner.

And so in that sense, it's something we've been working for since we took over management a couple years ago. And so it's a process that has been successful and we're happy to show that we can work with the regulatory authorities and that we’ve really regained credibility as a company.

And obviously, they are also excited the point of view of the province and the regulatory authorities on testing Vaca Muerta and Curamhuele. So, we're very pleased that that's happening.

With regards to Chevron’s program, they recently announced that they're mobilizing a rig that should be in place in June, July to execute their $200 million CapEx program. It's my understanding that they've gone ahead and put down vertical sections that they will answer to kick off the lateral portion of those wells.

This is extremely significant for Curamhuele, because they are drilling these wells very close to where our blocks meet. Curamhuele is adjacent to El Trapial.

And in general, Chevron has expressed first of all that Argentina is one of their four core countries. So basically, they're focusing on Australia, Kazakhstan, the Permian Basin and then Argentina.

And secondly within Argentina, the crown jewel from my understanding is El Trapial where they have majority working interest and they also operate, because their success in Loma Campana with YPF has been in a block where YPF has been operating and drilling. And so they really see this as their premier project here in Argentina where they will be controlling the operation, so this bodes well for Curamhuele and for Madalena, and effectively what they will be doing is de-risking our acreage for us.

Does Madalena have a data sharing agreement with Chevron?

No, we do not.

Well, again, thank you very much. We appreciate everyone calling in.

We appreciate your questions. And we look forward to the next quarter.

Thank you.