Seven Generations Energy LTD.: Canada Research

Canada Research
Published by Raymond James Ltd.
Seven Generations Energy Ltd.
April 23, 2015

Company Report - Initiation of Coverage
VII-TSX
Kurt Molnar | 403.221.0414 | kurt.molnar@raymondjames.ca
Gordon Steppan CFA (Associate) | 403.221.0411 | gordon.steppan@raymondjames.ca
Braden Purkis (Associate) | 403.509.0518 | braden.purkis@raymondjames.ca
Intermediate Oil & Gas Producers
Outperform 2
C$24.00 target price
Current Price ( Apr-20-15 )
Total Return to Target
52-Week Range
Suitability
Stacking the Deck/Chess Analogy

Recommendation
We believe Seven Generations Nest project (along with Paramounts offsetting
lands at Musreau) may be among the very best E&P projects in all of North America.
We note that this core asset and inventory gives Seven Generations the potential to
be a positive outlier on proved producing F&D costs and cash netbacks. That is a
rare combination which makes this stock particularly leveraged to a return to higher
oil prices at some date in the future. We are initiating coverage of Seven
Generations with an Outperform rating and $24.00 target price.
Analysis
The very first piece of research we published upon joining Raymond James Ltd. was
a white paper defining what we saw as the most likely drivers of both the best and
worst E&P businesses. In that research piece (Finding Easy Alpha in E&P
Enlightenment, from November 14, 2013), we noted our belief that the first, and
most important hurdle, to success or failure of an E&P business was/is defined by
where their core project(s) rank vis--vis an idea called the toe of the boot. Pat
Carlson, the CEO of Seven Generations, was the person who introduced us to this
idea/visual/economic discipline.
We fundamentally believe the competitiveness of the asset (in terms of return on
invested capital) is the most important data point to define success or failure of an
E&P business in the mid- to long-term. But we also know it is not the only important
data point. We think there are effectively a family of data points that are most
critical to the construction of a superior E&P business and business plan. We would
summarize the incremental key focus points that Seven Generations has identified
as critical to sustain and expand their success as: 1) continuous innovation, 2) scale
and diversity of opportunity, and 3) vertical integration. We believe Seven
Generations has their priorities straight on all of these fronts in terms of order of
things to concentrate on, and order of things that may yet come.
We also think that Seven Generations remains at the relative early stages of
optimizing type curves via refinements to their drilling and completions efforts, so
the company still holds the potential for meaningful improvements. Combine this
with the fact that we believe the Lower Montney will move from resource
optionality to defined reserve potential with the fullness of time and this equity
looks particularly compelling.
C$18.88
27%
C$24.70 - C$14.25
High Risk
Market Data
Market Capitalization (mln)
Current Net Debt (mln)
Enterprise Value (mln)
Shares Outstanding (mln, f.d.)
10 Day Avg Daily Volume (000s)
Dividend/Yield
Key Financial Metrics
2014A
P/CFPS
12.9x
WTI (US$/bbl)
US$92.95
AECO Gas (C$/mcf)
C$4.34
Exchange Rate (US$/C$)
0.91
Production (boe/d)
31,136
Natural Gas %
42%
Debt/Cash Flow
0.5x
EV/EBITDA
10.9x
C$4,630
C$160
C$4,790
245.2
410
C$0.00/0.0%
2015E
2016E
11.5x
9.0x
US$51.77
US$59.26
C$2.56
C$2.87
0.80
0.83
57,250
74,285
44%
46%
2.3x
3.1x
10.0x
7.3x
Company Description
Seven Generations is an intermediate oil & gas
producer focussed on the Montney in West-Central
Alberta.
Valuation
Our standard sum-of-parts valuation approach builds out to our $24.00 target price.
Please see our Valuation & Recommendation section on page 15 for more details.
CFPS
1Q
Mar
2Q
Jun
3Q
Sep
4Q
Dec
Full
Year
Revenues
(mln)
2014A
C$0.25
C$0.31
C$0.48
C$0.41
C$1.46
C$691
2015E
0.43
0.38
0.44
0.38
1.64
764
2016E
0.46
0.51
0.53
0.59
2.09
971
Source: Raymond James Ltd., Thomson One
Please read domestic and foreign disclosure/risk information beginning on page 23 and Analyst Certification on page 22.
Raymond James Ltd. | 2100 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Canada Research | Page 2 of 27
Table of Contents
Investment Overview........................................................................................................................................... 3
The Hard Assets ................................................................................................................................................... 7
Valuation & Recommendation ............................................................................................................................ 15
Appendix: Financial Statements .......................................................................................................................... 16
Appendix: Management & Board of Directors .................................................................................................... 18
Risks ..................................................................................................................................................................... 21
Investment Overview
We will start off with acknowledging a certain personal pride in getting the opportunity to cover
Seven Generations Energy Ltd. (7G) as a public E&P company. We say this because the very first
piece of research we published upon joining Raymond James Ltd. was a white paper defining what
we saw as the most likely drivers of both the best and worst E&P businesses. In that research
piece (Finding Easy Alpha in E&P Enlightenment, from November 14, 2013), we noted our belief
that the first, and most important hurdle, to success or failure of an E&P business was/is defined
by where their core project(s) rank vis--vis an idea called the toe of the boot. Pat Carlson, the
CEO of 7G, was the person who introduced us to this idea/visual/economic discipline. In short, it is
a simple way to note that any commodity producer must have both an asset, and a business
model design, that allows them to generate the highest returns on invested capital no matter the
commodity price, or that their business model requires the lowest commodity price in the
industry to cover their cost of capital. We already had a bias to the idea of return on capital being
more important than rate of growth (or that rate of return on invested capital must define the
value/multiple/quality on rate of growth) but the premise of toe of the boot became a huge tool
for us to try to get our point of view across to investors. So we are very happy to finally be able to
give Seven Generations and Pat Carlson public credit for being the unnamed company and person
noted in our Finding Easy Alpha white paper in the section where we introduced the toe of the
boot principle.
This concept is so important to us (and 7G it seems) because we also are devotees to the idea of
conditional probabilities and Bayes Theory (an obscure idea getting more attention these days
due the critical acclaim given by the movie The Imitation Game, which tells the story how a man
named Alan Turing used Bayes Theory to crack the German Enigma code in WWII). In short, our
job is to regularly be among the most successful at identifying both the best and worst E&P
businesses. We think the single most important factor that will infer the sustained success or
failure of an E&P business is where their project ranks vis--vis the premise of the toe of the boot.
In short, if your project truly can display the highest marginal returns on invested capital, at any
given commodity price, then you will be a successful E&P (and presumably a good stock) unless
you do something else very wrong or unless you have very little inventory. Obviously, the
opposite would be true too. Even if the stock market gives you a low cost of capital, and even if
you do everything else right, if you spend capital on projects that generate returns on invested
capital that are lower than your cost of capital, then you are most likely to be a poor E&P
business. Growth in equity value in E&P is a function of free cash flow and the marginal returns on
invested capital achieved where the latter of these is most important to us due to the capital
intensity of the E&P business. Thus, the probability that an E&P company is a good one (and a
good stock) is increased greatly if we know their project economics are among the best at any
given level of commodity price. There are other factors/indicators that can also raise the
probability that an E&P company is most likely to be a good one, but there may be no factor
whose relevance is bigger than marginal return on invested capital in our view. Many simplified
versions of this idea (conditional probabilities/Bayes Theory) can be found on the web where one
of the easiest analogies follows:
The probability that any given person has a cough on any given day may be only 5%. But
if we know or assume that the person has a cold, then they are much more likely to be
coughing. The conditional probability of coughing given that you have a cold might be a
much higher 75%.
Source: Wikipedia
This example demonstrates how one piece of meaningful information can vastly change the
probabilities/predictability of an event. We would suggest the odds of us being right in correctly
calling a particular E&P a good or bad business without measuring their return on invested capital
first might be as little as the 5% in the example above. Alternatively, if we can definitively prove to
ourselves that their core project is truly superior then the odds of correctly calling it a good E&P
business might rise to 75%. But clearly, not all information is as useful in changing the odds. If we
are told the person in question is buying cough medicine, we might be inclined to believe the odds
they have a cough are higher, but perhaps they have already finished a cold and are restocking
cough medicine for future needs. Thus, buying cough medicine is new information, but its
relevance to whether we are likely coughing is less important than explicit knowledge a person in
question has a cold.
We are taking you through this process of discussion because we fundamentally believe the
competitiveness of the asset (in terms of return on invested capital) is the most important data
point to define success or failure of an E&P business in the mid- to long-term. But we also know it
is not the only important data point. We think there are effectively a family of data points that are
most critical to the construction of a superior E&P business and business plan. Apparently, the
folks at 7G agree with us too. When the company IPOd, the backbone of the marketing of the
business plan was the toe of the boot premise and the ranking of their best core asset (what 7G
calls the Nest) in terms of toe of the boot economics. That simple message and focus drove a
successful IPO at a time when commodity prices were selling off sharply, so the company plainly
had success at bringing investor interest and belief to the premise of both the toe of the boot and
the Nest. This was the backbone of a $932 million IPO equity raise.
In the months that have followed the IPO, 7G has become more detailed in the business plan they
are focused on, effectively listing a number of incremental critical path ideas that they seemingly
consider the most important (after toe of the boot) to heightening the likelihood of success for
the equity investor. The first incremental data point was securing firm access for sales of their
product. In this regard, 7G secured 500 mmcf/d of firm sales access on the Alliance pipeline by
2019. Over time, the equity market started to debate whether the associated take or pay contract
commitments with this firm access was a meaningful liability to worry about. In short, many
started to ask the question of whether 7G had committed too much too quickly, thus raising the
odds for a mistake pursuing growth in production volumes (to meet take or pay obligations) or
facing a liability for payment of volumes unfulfilled. We frankly take a different view on the
Alliance volume commitments and the associated take or pay obligation. We view the firm sales
capacity to be a critical asset with scarcity value as we expect many Canadian producers to face a
more difficult market for securing access for sales volumes (and growth in volumes) in the future
as Canadian pipeline systems find themselves increasingly full. In our view, there could be no
bigger crime for the 7G shareholder than for the company to have a project with superior
economics on toe of the boot and depth of inventory, but no secure access for sales and growing
production volumes. Certainly the take or pay obligation is a material volume of gas in a relatively
short period of time, but we see many ways for 7G to manage this question:
The easiest answer is that 7G displays relatively early that growth in production volumes
will handily deliver on the volume commitment they have made to Alliance. Certainly to
date, well performance has been strong and arguably improving as 7G concentrates
their capital in their best drilling windows within the Nest and as completion and
production methods continue to evolve;
They could effectively syndicate some portion of their firm transportation, essentially
renting out some of their space for a finite period of time if the profile of their own
production growth suggests they may fall short of their 500 mmcf/d commitment. As we
noted above, we think firm access for sales will increasingly become a scarce asset, so
we believe that 7G would find itself in a sellers market if they want to rent some
portion of their firm sales capacity on Alliance;
Further to our point immediately above, 7G could actually sell rather than rent some
portion of this commitment (reducing their commitment from 500 mmcf/d to 400-450
mmcf/d) if they think they have structurally taken on more than they prefer, or they find
themselves in such a good sellers market that they are compelled to sell down some of
the take or pay so as to reduce the price of capacity retained at the same time they
reduce the pace of growth needed to be pursued;
We are also of the belief that there is a good likelihood that the Chicago market for gas
will be higher priced than AECO market as at 2016E, such that if 7G has any volume
shortfall from its own production at the time, they could similarly simply buy spot
volumes of gas at AECO to deliver under their take or pay to Alliance. Any producer with
volumes they cannot get to sales at that time would likely take a discounted price to get
some sales rather than none, and effectively contribute to 7G volume commitments to
Alliance if invited but with no other access to sales.
The above is a simple scenario analysis addressing the question of the size of take or pay
commitment 7G has assumed to backstop their toe of the boot asset. While the market has
concentrated on the potential liability or shortfall question, we think the market is putting too
little value on the premise of de-risking firm access to sales at the same time the market sees too
little optionality in the way that 7G can manage that risk if drill bit success or capital availability
puts in question their capacity to reach 500 mmcf/d of sales by 2019E. Finally, we also think the
combination of a sharp sell-off in commodity prices, combined with 7Gs current relative financial
strength increases the likelihood that 7G may pursue M&A in the coming months, using their
equity as currency. A meaningful piece of M&A that increases the materiality of the 7G inventory
of toe of the boot projects would rapidly chase away an equity market concern we frankly dont
share in the first place. But the analysis above is another way that 7G management displays their
discipline to critical conditional probabilities. Not owning firm sales capacity is a certain way for
7G and its shareholders to lose. Owning too much sales capacity of a product we expect to
enjoy growing scarcity value offers the company many ways to manage or mitigate their take or
pay commitments if their secure access becomes greater than they decide they want. Frankly, we
expect that continued success with the drill bit, and/or potential M&A speculation/success will
chase this discussion away but we like the discipline of logic coming from management. First own
the best, then secure access to sales if you see that as the next most critical risk to address.
7G has also become increasingly vocal about communicating other critical factors/data points
they will focus on to heighten their odds of being a premier E&P equity/businesses. We would
summarize the incremental key focus points that 7G has identified as incrementally critical to
sustain and expand their success as below:
Continuous innovation;
Scale and diversity of opportunity; and
Vertical integration (relates to scale above).
The recent CEO message to the shareholders from 7Gs 2014 year-end report expands upon Pat
Carlsons views on the incremental drivers of ongoing success. The first is the idea of continuous
innovation or improvement. Frankly, one of the dangers to being at the toe of the boot is
becoming complacent about your competitive position and assuming that the only thing between
you and future success is merely continuous repetition of what you are already doing: if you have
a big inventory and sit at the toe of the boot, then rationally your success must be assured. We
should only need to say the names Haynesville or Barnett Shale to convince you that this is not
necessarily true. Both of these projects continue to hold large future drilling inventories and both
have enjoyed improvements in marginal economics over the years through ongoing technological
improvements, but neither project innovated/improved as fast as the biggest and best of the
competitor basins. As a result, they lost their competitive position at the toe of the boot. Not
because their project eroded or shrank, but because the rate of change in other basins was bigger
and/or faster. 7G has thus identified this point as a critical success factor going forward. While
they will strive to either make the Nest bigger and/or add other Nest with comparable assets, a
key driver of sustaining a strong equity premise will demand continuous innovation in the quality
of marginal returns from the assets already captured. In short, 7G is fundamentally aware that
they probably face a greater risk of someone leap-frogging them in the toe of the boot, rather
than their own inventory or execution driving them backwards toward the instep of the boot.
Scale and diversity of opportunity have been silent issues for 7G up until recently. 7Gs
continuous addition of new lands outside their Nest core areas has been underway for some time
now. These areas have been acknowledged to offer lessor marginal returns than the Nest, yet
management has been compelled to add still more lands in these outlier areas, despite the fact
that these new lands/resources appear unlikely to challenge the Nest for toe of the boot anytime
soon. At first blush, this could be argued to be a strategic contradiction. Why use dear capital to
add arguably lessor inventory when you are already inventory rich in premier inventory why not
use that dear capital to just drill wells? Pat Carlsons recent message to shareholders directly
addressed this subject in that 7G plainly believes size (and diversity) matters. 7G believes that
critical mass is essential to attracting needed infrastructure expansion/growth/partnerships. If you
have both toe of the boot economics and scale, then your negotiating capacity and/or means to
pull infrastructure development and expansion to you is maximized. This is just another way to
pull flies to honey. Midstream and LNG infrastructure developers face the prospect of making
major capital commitments that are not portable and will need decades of operation to deliver
the kinds of returns on invested capital to make their large scale capital choices make sense. If a
producer of natural gas can offer a toe of the boot economic premise to their asset and a large
scale inventory, then they maximize their capacity to pull infrastructure capital investments to
them with the potential for multiple parties competing to provide the solution or a diversity of
solutions. In war, those with the defensive position can hold territory with fewer resources. If 7G
can pull infrastructure investments to its asset base (be it midstream and/or LNG) then their
position at the toe of the boot becomes more defendable/defensive, while also allowing for a
faster path to market share growth for the middle projects in their inventory. This understanding
has driven 7G to happily add to land inventory outside of the Nest. Even if relative commodity
price strips held their current relationships in the long-term, eventually the toe of the boot
projects/inventory will be exhausted, and only those with inventory of lessor projects in
businesses that are still prospering will be around to fill ongoing gas demand from perhaps higher
cost projects (that may also drive higher natural gas prices). Alternatively, should anything drive
up gas prices (higher demand or faster consumption of toe of the boot inventory) then 7G would
have preserved their potential ranking in the boot while already having access to critical
infrastructure that others may have to wait to see built or expanded. Scale with diversity
therefore gives 7G and its shareholders some protection from unexpected changes in relative
commodity price strips while also providing a scale of opportunity set that maximizes the diversity
of infrastructure plays/players that may wish to deal with 7G while simultaneously maximizing
7Gs options/negotiating position in such efforts.
The related subject to that of scale from above, is vertical integration. This effectively assumes
that 7G will seek the opportunity or optionality to get vertically integrated in infrastructure for
domestic consumption of gas and NGLs (pipes and plants) and/or similar infrastructure for
international markets in natural gas and NGLs (LNG and LPG). For many of 7Gs shareholders
this might be a controversial subject in that many US investors dont believe that E&Ps should
own their infrastructure. We think 7G will pursue a strategy to keep both sides of this theological
debate happy. We think that 7G will actively pursue the chance to get vertically integrated in
major infrastructure projects/expansions but also with the mindset to eventually monetize or
spin-out said downstream asset leverage after it has been built and confirmed to 7G a competitive
advantage to those that lack the resource scale to get vertically integrated or who ignore the
arguments for pursuit of said vertical integration. We think 7G sees vertical integration as a means
to an end, to further cement their toe of the boot advantage, their potential for further M&A
asset accumulation and then a potential future arbitrage windfall from crystallizing asset value
through a sale or spinout of such assets after they have served their competitive purpose as a
barrier to entry to less integrated E&P peers. We like this mindset and theory and note our
conviction in this thought process borne by Pat Carlsons words of temporary vertical
integration noted in his message to shareholders.
If you do enough things right, in the right order, you maximize the likelihood of inevitable
outcomes. This is why we introduced this piece with the idea of conditional probabilities and the
identification of the information/data that are the biggest relative drivers of a desired outcome.
Another way to address this concept is through reference to game theory. 7G cannot offer
guaranteed victory for its shareholders, but if they know the rules of the game and prioritize
those things that dually maximize their advantage and minimize their risks (or the damage done
by anything that doesnt go their way) they will have done all that they can do to heighten the
odds of being a superior E&P equity. In our view, success in E&P is rarely luck and rarely the result
of simple growth in production and cash flow. Rather, we see production and cash flow growth as
just one of the derivatives that flow from those that have superior strategy and the assets to go
with it. We cannot guarantee that 7G will be a successful E&P business and equity, but we do
suggest that they have put more strategic thought and intent to work towards that end than many
of their peers. We also believe that 7G has their priorities straight in terms of the order of things
to concentrate on and the order of things that may yet come. In our view, their Nest project
(along with Paramounts offsetting lands at Musreau) may well be among the very best E&P
projects in all of North America. Their fringe lands outside the Nest (aerially), along with the
incremental up and down their vertically stacked resource (including new layers of Montney)
provide scale and optionality that offer the appeal to attract new infrastructure and/or vertical
integration opportunities while also offering optionality/protection from unanticipated large scale
changes in current long-term commodity price strips. In short, a conscious and well thought out
strategy for both minimizing risks and maximizing rewards rather than targeting simple growth in
units of production or cash flow. Such a conscious intent is a strategic asset to 7G, and its
shareholders, on its own. Pat Carlson first impressed us with a simple picture and premise of toe
of the boot. He continues to impress us with added dimensions to his consideration of the E&P
chessboard.
The Hard Assets

We have spent a great deal of time now on the strategic asset at 7G. We plainly view the business
model to be an outlier in game theory for lack of a better term. In short, we think they have
their priorities straight (and in the right order of importance). To this point, we have spent modest
time addressing the fundamental assets that brought the development of this larger strategy.
Exhibit 1: Montney Development History
Source: Seven Generations Energy Ltd.
The mosaic above gives a good snap shot of the development of the 7G land base over time. The
pink lands in the 2011-2012 map highlight what 7G eventually came to name the Nest, where
the Nest was/is a term of reference reserved for the very best of the 7G lands when it comes to
maximizing returns on invested capital. The lands in the Nest are prone to either/or both of
prolific gas rates along with very high liquids content with the bulk of said liquids being
condensate. As noted above, after capturing roughly two plus townships of land in the Nest, 7G
continued to accumulate Montney rights in the greater area with a focus on expanding to the
northwest and southwest. Generically, the additional lands captured from 2013 forward were
increasingly biased to Montney rights that could commonly be seen as leaner than the Nest and
with higher sour content. In the current commodity price strip scenario, these lands and future
drilling inventory would provide lesser returns than the Nest today, but as discussed in our lead in
on game theory and conditional probabilities, these additional lands offered both additional scale
(improving vertical integration opportunities) and diversity of inventory that we believe effectively
protects the 7G investor against currently unanticipated potential for a sea change in current
commodity price strips (i.e. the relative pricing of condensate and natural gas). 7G would highlight
that their Nest opportunity set alone will handily provide enough drilling inventory to drive 7G
production for the next 5 years at least such that the lands outside of the Nest have the
optionality for patience and the potential for being higher rate of return inventory at a future date
where relative natural gas pricing might also be much stronger. Finally, we will add a third
dimension to the maps noted above. To date, virtually all of the 7G inventory and drilling has been
defined within the Upper Montney, while the Lower Montney is a known resource, but with
largely unknown marginal economics in the current scenario. In the fullness of time we expect the
Lower Montney to go from being resource optionality to defined reserve potential, but where it
might rank on marginal economics is yet to be defined. Like the Upper Montney, we expect it to
be both overpressured and liquids rich. Given that it is deeper it can potentially store more
resource per section but will offer a technical trade off in terms of also likely being tighter rock
that might be tougher to drill and with the potential for lesser liquids/condensate than the Upper
Montney.
Exhibit 2: Seven Generations Reserves
To date, virtually all of 7Gs drilling has focused on the Nest. Not surprisingly then that is also the
focus of their current reserves as highlighted by the table and the map above. You will note the
early stage of development still of this opportunity set given the modest reserves booked as PDP.
This is a two sided coin, noting we are still in the earliest stages of development while
simultaneously also highlighting that much of 7Gs asset still sits in the lower categories of
reserves which also still require large amounts of future development capital. We are relatively
comfortable that 7Gs drilling activity (and that of their offsetting peers Paramount and NuVista)
have set up strong parameters for resource boundaries and makeup which helps to highly
mitigate this risk, but the investor should be explicitly aware that the PDP portion of the reserve
report is currently the smallest part of the reserve report wherein the balance of the report offers
some degree of greater technical risk and much greater degrees of needed incremental future
capital.
Exhibit 3: Production Results within the Nest
= Wells highlighted in table to the right
Source: Seven Generations Energy Ltd., Raymond James Ltd.
The map immediately above is a tighter focus on what 7G identifies as the Nest. Within the Nest
the company has actually defined a Nest 1 and a Nest 2, where the very best economics are in
Nest 2 which is where 7G will concentrate its drilling focus in the coming few years. The table
below the map identifies the average IP30s, IP90s and IP180s for drilling to date on the first 46
wells. We have also marked up the 7G map to highlight the best wells to date from the table on
the right, identifying the current hot spots for the very best IPs on a total boe/d basis.
Exhibit 4: With Condensate to Gas Ratios
CGR
(bbl/MMcf)
= Wells circled in table to the right
116
289
53
121
178
218
118
83
98
52
159
134
105
85
176
140
89
126
195
118
227
137
123
181
207
213
282
231
241
208
210
249
136
163
75
148
218
117
337
194
195
110
125
373
173
170
167
We have also taken the liberty of marking up the 7G data farm to specifically address the idea of
the best condensate wells. We have highlighted the best of these thus far, noting that the investor
should be aware that we expect that CGR ratios will moderate with time, so any well with a short
production data file and a high CGR needs to be adjusted in the investors eye when comparing
with wells that have greater vintage. Again, we simply added this data point to look at the Nest
with a potential different lens, given the fact that higher CGRs currently trump higher total boe/d
wells with lessor CGRs simply given the boe equivalency differences in the price decks for natural
gas and condensate.
Exhibit 5: Nest Gas & Condensate Type Curves
The data immediately above plainly shows why the focus on near-term capital spending is most
likely heavily weighted toward Nest 2 lands. Simply, both gas and condensate rates are higher in
Nest 2 versus Nest 1. Accordingly, unless Nest 1 capital costs could be reduced to something far
less than Nest 2, then Nest 2 is where the 7G smart money should go unless something changes
on relative performance curves.
Exhibit 6: Individual Well Economic Sensitivities
While Nest 2 is plainly the best current project in the inventory list, the value per well or value of
the inventory of wells is clearly in a state of flux given the near-term commodity price
volatility/weakness, and the bigger question of what level might commodity prices recover to. 7G
has provided a useful matrix of key measures for Nest 1 & 2 wells under a variety of commodity
price scenarios. The most important takeaways for the investor from this data is that we think
7Gs Nest 2 wells will compare favourably against virtually any E&P project in Canada on a profit
to investment or IRR basis regardless of the likely near-term commodity price scenarios and will
similarly rank as a superior project on time to payout or velocity of money as we like to call it. In
light of the aggressive capital spending program we expect 7G to follow this year and in the years
to come, the speed at which their invested capital is recycled and enters the free cash flow
window is a critical factor to consider in the likelihood for success as a superior E&P equity. We
think that 7G also remains at the relative early stages of optimizing type curves via refinements to
their drilling and completions efforts, so the company still holds the potential for meaningful
improvements in these stats, and even in the what if commodity price scenarios this really
doesnt change.
Exhibit 7: Continuing to Improve Cost Efficiencies
The final critical asset to focus on in the more immediate-term is the hedgebook. 7G has a hedge
position that is particularly well protected in calendar 2015, with the relative value of that asset
moderating in 2016 due to lessor amounts hedged, greater volume growth predicted and lower
strike prices on the hedges. With that said, 2015 is arguably the most important window for 7G in
terms of its own development, and most likely coincidentally the likely weakest period for spot
commodity prices so the value of the hedge positions defined below (roughly 42% for gas and 50%
for oil and condensate in calendar 2015) is tangible in both hard and strategic value.
Exhibit 8: Hedging Summary as of March 31, 2015
Valuation & Recommendation

Using our standard sum-of-parts valuation methodology we derive a target price of $24.00 and
therefore are initiating coverage with an Outperform rating. We view the Kakwa Musreau as a
special project in the basin and we note that this core asset and inventory gives 7G the potential
to be a positive outlier on proved producing F&D costs and cash netbacks. That is a rare
combination which makes this stock particularly leveraged to a return to higher oil prices at some
date in the future. While the company is not the most oil levered in our coverage universe, we
expect them to have a PDP F&D cost that is 40-50% of typical oil levered peers while offering
netbacks that are 70% of those oil levered peers. So in short, few stories will have greater
leverage to improving liquids pricing when it comes to rate of change in return on invested capital
and rate of change in free cash flow. That makes the purchase of the stock at these levels
particularly compelling, in our view, because of the equity leverage imbedded to any material
improvements in oil prices. At the time of publishing of this report a material block of stock is
coming out of lock up which offers the potential for larger liquidity in the near-term which may
also provide a short-term buyers market which should be a one-time opportunity.
Exhibit 9: Seven Generations Sum-of-Parts Valuation

2014 Reserve Value
2014 Reserves (mmboe)
Quality Adjustment
Adjusted 2014 Reserves (mmboe)
Cash Flow Factor ($/boe)
Reserve Value Factor $/boe (1.35:1)
Current 2014 Reserve Value
2014 Exit Net Debt ($mn)
Future Capital ($mn)
Dilution Proceeds ($mn)
Current Value of 2014 Assets ($mn)
Fully Diluted Units (mn)
Per Unit (FD) Value
788.6
100%
788.6
$25.64
$18.99
$14,979.6
($160.2)
($8,892.0)
$155.5
$6,082.9
283.6
$21.45
2015E Value Add

2015 Gross Capex ($mn)
Less: Land, Seismic & Facilities ($mn)
Drilling Spending ($mn)
Average Cost per Well ($mn)
Forecast 2015 Net Wells
Success Factor
Forecast Successful Wells
Average Reserves/Well (boe)
2015 Forecast Depletion (mmboe)
Wells to Offset Depletion
Net Growth Wells
Net Reserve Growth (mmboe)
Forecast Revisions (mmboe)
Acquisitions (mmboe)
Forecast Net Reserves Growth (mmboe)
Value Add ($mn)
Change in Net Debt ($mn)
2015 Value Add ($mn)
2015 Net Risk Adj. Equity Value Add (100% )
Fully Diluted Shares (mn)
Per Share (FD) Value
Sum of the Parts Valuation
2014 Reserve Value
G&A/Interest Burden
2015E Value Add
2016E Value Add
2 yrs of Dividends
Target Equity Value
$1,335.0
($430.0)
$905.0
$13.00
69.6
95%
66.1
1,400,000
20.9
14.9
51.2
71.7
0.0
0.0
71.7
$25.64
$18.99
$1,361.7
($887.3)
$474.5
$474.5
283.6
$1.67
$mn
$6,082.9
($192.2)
$474.5
$473.8
$0.0
$6,838.9
2016E Value Add

2016 Gross Capex ($mn)
Less: Land, Seismic & Facilities ($mn)
Drilling Spending ($mn)
Average Cost per Well ($mn)
Forecast 2016 Net Wells
Success Factor
Forecast Successful Wells
Average Reserves/Well (boe)
2016 Forecast Depletion (mmboe)
Wells to Offset Depletion
Net Growth Wells
Net Reserve Growth (mmboe)
Forecast Revisions (mmboe)
Acquisitions (mmboe)
Forecast Net Reserves Growth (mmboe)
Value Add ($mn)
Change in Net Debt ($mn)
2016 Value Add ($mn)
2016 Net Risk Adj. Equity Value Add (90% )
Fully Diluted Units (mn)
Per Unit (FD) Value
$1,280.0
($380.0)
$900.0
$13.00
69.2
95%
65.8
1,400,000
27.1
19.4
46.4
65.0
0.0
0.0
65.0
$25.64
$18.99
$1,233.9
($707.5)
$526.4
$473.8
283.6
$1.67
Per Unit
$21.45
($0.68)
$1.67
$1.67
$0.00
$24.12
Appendix: Financial Statements

Exhibit 10: Seven Generations Financial Summary
2014A
2015E
2016E
Commodity Price Assumptions

WTI Oil (US$/bbl)
$92.95
$51.77
$59.26
Canadian Par (C$/bbl)
$94.73
$56.59
$63.58
NYMEX Gas (US$/mcf)
$4.27
$2.81
$3.11
AECO Gas (C$/mcf)
$4.34
$2.56
$2.87
FX (US$/C$)
$0.91
$0.80
$0.83
Oil & NGL ($/bbl)
$61.63
$50.66
$49.11
Natural Gas ($/mcf)
$4.50
$3.16
$3.37
18,049
31,784
40,077
78.5
152.8
205.2
31,136
57,250
74,285
42%
44%
46%
Realized Price
Production
Oil & NGL (bbl/d)
Natural Gas (mmcf/d)
Total (boe/d 6:1)
% Gas
Netback ($/boe)
Total Sales
$47.06
$36.57
$35.82
Royalties
$4.57
$2.93
$2.87
Operating
$4.77
$5.00
$5.00
Transport
$3.06
$3.00
$3.00
$34.66
$25.64
$24.95
Field Operating Netback

Cash Flow ($mln)
$328
$448
$572
CFPS ($/share, basic)
$1.65
$1.83
$2.33
CFPS ($/share, diluted)
$1.46
$1.64
$2.09
Basic
198.7
245.2
245.2
Diluted
224.7
273.6
273.6
Weighted Average Shares Outstanding (mln)
Capital Spending ($mln)

Land & Seismic
$49
$20
$20
Drilling, Completions & Other
$742
$905
$900
Well Equipment & Facilities
$323
$410
$360
$6
$0
$0
Other
Acquisitions/Dispositions
Total Capex
$0
$0
$1,111
($9)
$1,335
$1,280
$160
$1,047
$1,755
Net debt ($mln)

Net Debt
Source: Seven Generations Ltd., Raymond James Ltd.
Exhibit 11: Seven Generations Income Statement and Balance Sheet

2014A
2015E
2016E
Income Statement Summary

Total Revenue (incl. Hedges)
$691
$764
$971
Royalties
$52
$61
$78
Opex + Transport
$89
$167
$217
G&A
$20
$58
$24
DD&A
$159
$313
$407
Interest
$64
$30
$80
Other
$91
$0
$0
Taxes
Net Income
$72
$51
$63
$144
$83
$103
$922
$922
$922
Balance Sheet Summary

Current Assets
Derivative (current)
Net PPE
$138
$138
$138
$2,050
$3,071
$3,945
Other
$5
$5
$5
$3,115
$4,136
$5,010
$268
$268
$268
$0
$0
$0
Long Term Debt
$814
$1,701
$2,409
Other Liabilities
$53
$53
$53
Total Assets
Current Liabilities
Derivative (current)
Future Income Taxes

Total Liabilities
$69
$120
$183
$1,204
$2,142
$2,913
Total Share Capital
$1,911
$1,994
$2,097
Total Liabilities & Equity
$3,115
$4,136
$5,010
Source: Seven Generations Ltd., Raymond James Ltd.
Appendix: Management & Board of Directors

Patrick Carlson, Chief Executive Officer and Director Mr. Carlson has served as Chief Executive
Officer and a Director of the company since its inception in May 2008. He was also President of
the company from May 2008 until May 2014. Previously, he was the President, Chief Executive
Officer and a director of North American Oil Sands Corporation from October 2001 until June 2007
and was the President of Krang Energy Ltd. from December 2001 to July 2005. Mr. Carlson
received a Bachelor of Science in Chemical Engineering from the University of Calgary (1975). Mr.
Carlson is a Professional Engineer and an active member of the Association of Professional
Engineers and Geoscientists of Alberta (APEGA). In 2008, Mr. Carlson received the ICD.D
designation from the Institute of Corporate Directors.
Marty Proctor, President and Chief Operating Officer Mr. Proctor has served as President and
Chief Operating Officer of the company since May 2014. Previously, he was Chief Operating
Officer of Baytex Energy Corp. from December 2010 until May 2014 and Chief Operating Officer of
Baytex Energy Ltd. from January 2009 until December 2010. Mr. Proctor has over 25 years of
experience in the Canadian and international oil and natural gas industries. Prior to joining Baytex
Energy Ltd., he was Senior Vice President responsible for upstream operations for Statoil Hydro
Canada. Prior to that, Mr. Proctor was Senior Vice President of North American Oil Sands
Corporation and Vice President of Murphy Oil Company. Earlier in his career, he held technical
and management positions with Maxx Petroleum, Central Resources (USA), BP Resources Canada
and Husky Oil. Mr. Proctor received a Bachelor of Science in Petroleum Engineering (1984) and a
Master of Science in Petroleum Engineering (1985), both from the University of Alberta. Mr.
Proctor is a Professional Engineer, a practicing member of APEGA, and is a member of the
Canadian Heavy Oil Association and the Society of Petroleum Engineers.
Christopher Law, Chief Financial Officer Mr. Law has been with the company since 2008 and has
managed all of the bank and high yield debt and equity financings that the company has done
since 2011, including the IPO, raising a total of nearly three billion dollars. Mr. Law has over a
decade of industry experience with diverse roles in finance/treasury, corporate planning and
corporate development and holds a Bachelor of Arts in Economics (with distinction) from the
University of Victoria and a Master of Business Administration in Finance and Corporate Strategy
from the University of Calgary.
Randy Evanchuk, Executive Vice President Mr. Evanchuk was Executive Vice President,
Production, Construction and Marketing of the company from May 2012 until August 2014 when
he was appointed Executive Vice President responsible for corporate HS&E. He has more than 30
years of oil and natural gas industry experience in various business and technical roles. Prior to
joining the Company he served as Vice President, New Ventures at Sinopec Daylight Energy Ltd.
and at Murphy Oil Corporation as Manager Special Projects and Planning where he lead the
economic evaluation and long range planning for Murphys BC Montney projects. Mr. Evanchuk
also has extensive marketing and midstream experience where he served as a senior executive at
Canrock Pipeline, a predecessor to Spectra Midstreams unregulated business and at AltaGas
Services. He received a Bachelor of Civil Engineering Honours degree from the Royal Military
College of Canada (1975) and is a Professional Engineer and an active member of APEGA.
Steve Haysom, Senior Vice President Mr. Haysom has been with the company since July 2008
and currently serves as Senior Vice President. Previously, Mr. Haysom served as Vice President,
Exploration and Chief Geoscientist of the company. He is responsible for mergers and acquisitions
and stakeholder relations. Prior to joining the company he served as Vice President, Exploration
for Northpine Energy Ltd. from August 2005 until June 2008 and Senior Geologist for Krang Energy
Ltd. from September 2002 until July 2005. He is a Petroleum Geoscientist with over 18 years of
expertise in both conventional reservoir exploration geology and resource play development
geology. Mr. Haysom received a Bachelor of Science (Honours) in Geology from Saint Marys
University (1994) and is a Professional Geologist and a member of APEGA.
Susan Targett, Vice President, Land Ms. Targett has served as Vice President, Land of the
company since July 2008. Previously, Ms. Targett was Vice President, Land for Artemis Exploration
Ltd. and prior to that served in a variety of positions at Tom Brown Resources Limited, Ranger Oil
Limited and Pembina Resources Ltd. Ms. Targett has extensive experience in land negotiations,
contracts, regulatory issues and stakeholder communications and is a graduate of Mount Royal
College in Petroleum and Mineral Resource Land Management (1981). Ms. Targett is also an
active member of the Canadian Association of Petroleum Landmen (1981) with the designation of
Professional Landman (P. Land, 1992).
Glen Nevokshonoff, Vice President, Development Mr. Nevokshonoff has been with the
company since October 2008 and has served as Vice President, Development since June 2013. Mr.
Nevokshonoff is a professional geologist with 14 years of experience in shallow gas, carbonates
and deep basin reservoirs in Canada, the United States and internationally. He previously worked
as a resource-trained geologist at Encana Corporation and its predecessor, Alberta Energy
Company Ltd., and has held senior geologist positions at intermediate exploration and production
companies. Mr. Nevokshonoff holds a Bachelor of Science (Honours) in Earth and Ocean Science
from the University of Victoria (2000) and is a Professional Geologist and a member of APEGA.
Merlyn Spence, Vice President, Construction and Marketing Mr. Spence has served as Vice
President, Construction and Marketing of the company since December 2012. Mr. Spence has
over 32 years of engineering and marketing experience in the oil industry. Previously, he was
General Manager, Engineering for Murphy Exploration and Production Company in Houston,
Texas with primary responsibility for the engineering development in the Eagle Ford field of South
Texas. Prior thereto he was the General Manger, Engineering for Murphy Oil Company in Calgary
with primary responsibility for the development of Murphys Montney assets in BC. Mr. Spence
was also President of Kentrin Corporation from August 1997 until November 2007. Mr. Spence
received an Honours degree in Civil Engineering from the Royal Military College of Canada (1976).
He is a Professional Engineer and an active member of APEGA and the Society of Petroleum
Engineers.
Barry Hucik, Vice President, Drilling Mr. Hucik has served as Vice President, Drilling since August
2008. Mr. Hucik has over 32 years of experience in the oil and natural gas drilling industry. Prior to
joining the company in 2008, Mr. Hucik held positions as a Senior Drilling Superintendent for
Talisman Energy Ltd., Canadian Natural Resources Ltd., Rio Alto Exploration and Cabre Exploration
Ltd. Mr. Hucik has spent a vast majority of his career drilling wells in the Deep Basin/Foothills of
Alberta and northeast BC. He received a Diploma of Technology from the Southern Alberta
Institute of Technology (1979) and is a Certified Engineering Technologist and member of the
Association of Science and Engineering Technology Professionals of Alberta.
Randall Hnatuik, Vice President, Business Development Mr. Hnatuik has served as Vice
President, Business Development of the company since September 2014. Mr. Hnatuik is a
professional engineer with more than 25 years of experience in the oil and gas industry. He
previously held various positions at Encana Corporation, culminating in the position of Advisor,
Business Development. Mr. Hnatuik received a Bachelor of Science in Mechanical Engineering
from the University of Saskatchewan (1985) and has been a member of APEGA since 1987. Mr.
Hnatuik is also a Certified Professional Coach, holding a Certified Professional Coach Certificate
from the Demers Group (2010).
Kevin Johnston, Vice President Accounting Kevin recently left his role as Manager, Consolidated
Reporting at a competitor to join the company. Kevin holds a Bachelor of Commerce (Honours)
from the University of Calgary and a Masters of Professional Accounting from the University of
Saskatchewan. Kevin is a Chartered Accountant and was awarded the Governor General's Gold
Medal for the highest standing in Canada for the CICA Uniform Final Evaluation (UFE) exam in
2005. Including his time at a large international accounting and audit firm, Kevin brings over a
decade of accounting experience in the energy industry.
Board of Directors
Kent Jespersen, Chairman of the Board and Director Mr. Jespersen has served as Chairman of
the Board and a Director of the company since its inception in May 2008. Mr. Jespersen has been
the Chair and Chief Executive Officer of LaJolla Resources International Ltd. since 1999. He has
also held senior executive positions with NOVA Corporation of Alberta, Foothills Pipe Lines Ltd.,
and Husky Oil Limited before assuming the Presidency of Foothills Pipe Lines Ltd. and later, NOVA
Gas International Ltd. (NOVA). At NOVA, he led the non-regulated energy services business
(including energy trading and marketing) and all international activities. Mr. Jespersen is a
Director of TransAlta Corporation, Axia NetMedia Corporation, PetroFrontier Corp., MATRRIX
Energy Technologies Inc. and CanElson Drilling Ltd. Mr. Jespersen was also Chairman of the Board
and a Director of North American Oil Sands Corporation. Mr. Jespersen received a Bachelor of
Science in Education (1969) and a Master of Science in Education (1970), both from the University
of Oregon.
Pat Carlson, Chief Executive Officer and Director See description above.
Michael Kanovsky, Director Mr. Kanovsky has served as a Director of the company since its
inception in May 2008. Mr. Kanovsky co-founded Northstar Energy Corp.s parent in 1978 and
Bonavista Energy in 1997. Mr. Kanovsky is President of Sky Energy Corporation, a position he has
held since 1993, and also serves as a Director of Bonavista Energy Corporation, Pure Technologies
Ltd., TransAlta Corporation and Devon Energy Corporation. Mr. Kanovsky received a Bachelor of
Applied Science with Honours in Mechanical Engineering from Queens University (1970) and an
MBA from Ivey School of Business, Western University (1973). Mr. Kanovsky is a Professional
Engineer.
Kevin Brown, Director Mr. Brown has served as a Director of the company since September
2010. Mr. Brown is co-Chief Executive Officer and Director of ARC Financial Corp. He has been
with ARC Financial Corp. since April 1989 and currently represents the ARC Energy Funds on the
Boards of Unconventional Resources Canada, LP, Unconventional Resources, LLC, and Kanata
Energy Group. Mr. Brown received a Master of Arts in Economics (1984) and a Bachelor of Science
in Chemical Engineering (1982), both from the University of Alberta.
Jeff van Steenbergen, Director Mr. van Steenbergen has served as a Director of the company
since its inception in May 2008. Mr. van Steenbergen is a co-founder and the Managing Partner of
KERN Partners Ltd. He joined KERN Partners Ltd. in 2001. Mr. van Steenbergen also serves as a
Director for Steelhead LNG Corp., Altex Energy Ltd., Cobalt International Energy L.P., Magma
Global Ltd., Fairfield Energy Limited and Osum Oil Sands Corp. He has 37 years of diverse Canadian
and global energy sector experience. Mr. van Steenbergen received a Bachelor of Applied Science
with honors in Civil Engineering from Queens University (1977) and a Master of Business
Administration in International Business and Finance from Dalhousie University (1988). He is a
Professional Engineer and a member of the Association of Professional Engineers of Nova Scotia.
Jeff Donahue, Director Mr. Donahue has served as a Director of the company since May 2012.
Mr. Donahue is Vice President, Natural Resources Principal Investing of CPPIB, and is responsible
for developing and leading CPPIBs private equity activities focused on the natural resources
industries including oil and natural gas, mining and agricultural lands. Mr. Donahue also serves as
director on behalf of CPPIB for Black Swan Energy, Laricina Energy, Quantum Utility Generation
and Teine Energy. Prior to joining CPPIB, Mr. Donahue was Vice President, Strategy and Business
Development at BHP Billiton PLC in London. Previously, he had a range of senior corporate
development roles at Enron Corp. and spent several years as both an investment banker and
consultant to natural resource companies. Mr. Donahue received a Bachelor of Arts from Harvard
University (1984) and a Master of Business Administration from the University of Chicago (1990).
Kaush Rakhit, Director Mr. Rakhit has served as a Director of the company since its inception in
May 2008. Mr. Rakhit has been the President of Rakhit Petroleum Consulting Ltd. since September
1990 and the President of Canadian Discovery Ltd. since December 2004. He also held the position
of Vice-President, New Initiatives with Trident Exploration Corp. from March 2006 to May 2008.
Mr. Rakhit currently serves as a director of Kinwest Resources 2008 Inc., Matrix Solutions Inc.,
Canadian Discovery Ltd., Coda Petroleum Inc. and Petrofeed Inc. Mr. Rakhit received a Bachelor of
Science in Earth Sciences from the University of Waterloo (1983) and a Master of Science in
Petroleum Hydrogeology from the University of Alberta (1987). Mr. Rakhit is a Professional
Geologist and an active member of APEGA.
Dale Hohm, Director Mr. Hohm has served as a Director of the company since May 2014. Mr.
Hohm has been engaged by KERN on a part-time basis as a Senior Advisor since September 2014.
Mr. Hohm served as the Chief Financial Officer of MEG Energy Corp. from March 2004 to July 2013
and served as a Director of Lone Pine Resources Inc. from November 2011 to January 2014. Before
entering the energy sector, Mr. Hohm worked in the audit and assurance practice of Deloitte LLP,
where he earned his Chartered Accountant designation. Mr. Hohm received a Bachelor of
Commerce degree from the University of Alberta (1980).
W.J. (Bill) McAdam, Director Mr. McAdam was President and Chief Executive Officer of Aux
Sable in the United States and Canada from 2000 to year end 2013 when he retired from Aux
Sable. Prior to joining Aux Sable, Mr. McAdam held progressively more senior positions with
Imperial Oil and Exxon Chemical from 1974 to 1994 in the Engineering, Refining, Fertilizer,
Petrochemicals, Planning and Natural Gas Liquids businesses in Sarnia, Toronto, New York,
Edmonton and Calgary. He began working with Aux Sable in 1995 during its development phase
until 1998, and was President of Mapco Canada Energy Inc. from 1998 until 1999. He joined Aux
Sable in late 1999 to lead the start-up and development of the Aux Sable business in conjunction
with the construction and commissioning of the $3.5 billion Alliance pipeline/Aux Sable rich gas
system in December, 2000. Mr. McAdam also serves as a director for Canexus Corporation. Mr.
McAdam received a Bachelor of Science in Chemical Engineering from Queens University (1974)
and a Master of Business Administration from McMaster University (1980). He has served on
several industry association boards over his career.
Risks
Risks to Seven Generations Include:
1. Cash flow exposure to fluctuations in energy prices. In this case the company is specifically
exposed to lower oil prices (WTI and Edmonton Par) and gas prices (HHub and AECO pricing).
2. Foreign exchange rates, more specifically the relationship between the Canadian and US dollar.
3. Due to the nature of its operations, Seven Generations also faces risks associated with weatherrelated interruptions, dry holes, restricted access to facilities, unplanned pipeline shutdowns, and
unexpected production delays.
4. The company is exposed to the risk that there could be unexpected increases in decline rates
specific to its wells or plays. It is also exposed to potentially lower corporate production volumes,
resulting in lower cash flow. Some of the companys operations are in unexplored/less explored
areas and the risk for dry holes or lower production wells could be higher. For Seven Generations,
this specifically relates to the Lower Montney.
5. Unexpected cost overruns or increasing costs of drilling/completing wells and infrastructure.
6. Change in government policies (local, provincial and federal); specifically as it relates to royalty
rates and the treatment of oil and gas production.
7. Interest rate fluctuations could also negatively impact net income and cash flow.
8. Some of Seven Generations acreage is non-operated in nature; therefore the company is at risk
of changes in corporate direction by the operator. The company is also at risk of higher funding
requirements if operators in the area increase the number of wells to drill.
Company Citations
Company Name
Baytex Energy Corp.
BP
Canadian Natural Resources Ltd
Canexus Corporation
Devon Energy Corporation
Exxon Mobil Corp.
Husky Energy Inc.
Imperial Oil Limited
MEG Energy Corp.
Murphy Oil Corp.
NuVista Energy Ltd.
Paramount Resources Ltd.
Talisman Energy Inc.
Ticker
BTE
BP.L
CNQ
CUS
DVN
XOM
HSE
IMO
MEG
MUR
NVA
POU
TLM
Exchange
TSX
LSE
TSX
TSX
NYSE
NYSE
TSX
TSX
TSX
NYSE
TSX
TSX
NYSE
Currency
C$
p
C$
C$
US$
US$
C$
C$
C$
US$
C$
C$
US$
Closing Price
22.85
480.00
40.13
1.83
65.28
86.88
27.25
54.60
23.47
49.27
8.37
36.95
7.90
RJ Rating
3
3
3
3
2
3
3
3
2
4
2
1
3
RJ Entity
RJ LTD.
RJ Europe
RJ LTD.
RJ LTD.
RJ & Associates
RJ & Associates
RJ LTD.
RJ LTD.
RJ LTD.
RJ & Associates
RJ LTD.
RJ LTD.
RJ LTD.
Notes: Prices are as of the most recent close on the indicated exchange and may not be in US$. See Disclosure section for rating definitions.
Stocks that do not trade on a U.S. national exchange may not be registered for sale in all U.S. states. NC=not covered.
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compensation levels for analysts at competing investment dealers.
Analyst Stock Holdings: Effective September 2002, Raymond James equity research analysts and associates or members of their
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positions five days after the rating has been lowered to Underperform.
The views expressed in this report accurately reflect the personal views of the analyst(s) covering the subject securities. No part of said
person's compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this
research report. In addition, said analyst has not received compensation from any subject company in the last 12 months.
RATINGS AND DEFINITIONS

Raymond James Ltd. (Canada) definitions: Strong Buy (SB1) The stock is expected to appreciate and produce a total return of at least
15% and outperform the S&P/TSX Composite Index over the next six months. Outperform (MO2) The stock is expected to appreciate and
outperform the S&P/TSX Composite Index over the next twelve months. Market Perform (MP3) The stock is expected to perform
generally in line with the S&P/TSX Composite Index over the next twelve months and is potentially a source of funds for more highly
rated securities. Underperform (MU4) The stock is expected to underperform the S&P/TSX Composite Index or its sector over the next
six to twelve months and should be sold.
Raymond James & Associates (U.S.) definitions: Strong Buy (SB1) Expected to appreciate, produce a total return of at least 15%, and
outperform the S&P 500 over the next six to 12 months. For higher yielding and more conservative equities, such as REITs and certain
MLPs, a total return of at least 15% is expected to be realized over the next 12 months. Outperform (MO2) Expected to appreciate and
outperform the S&P 500 over the next 12-18 months. For higher yielding and more conservative equities, such as REITs and certain MLPs,
an Outperform rating is used for securities where we are comfortable with the relative safety of the dividend and expect a total return
modestly exceeding the dividend yield over the next 12-18 months. Market Perform (MP3) Expected to perform generally in line with the
S&P 500 over the next 12 months. Underperform (MU4) Expected to underperform the S&P 500 or its sector over the next six to 12
months and should be sold. Suspended (S) The rating and price target have been suspended temporarily. This action may be due to
market events that made coverage impracticable, or to comply with applicable regulations or firm policies in certain circumstances,
including when Raymond James may be providing investment banking services to the company. The previous rating and price target are
no longer in effect for this security and should not be relied upon.
Raymond James Latin American rating definitions: Strong Buy (SB1) Expected to appreciate and produce a total return of at least 25.0%
over the next twelve months. Outperform (MO2) Expected to appreciate and produce a total return of between 15.0% and 25.0% over
the next twelve months. Market Perform (MP3) Expected to perform in line with the underlying country index. Underperform (MU4)
Expected to underperform the underlying country index. Suspended (S) The rating and price target have been suspended temporarily.
This action may be due to market events that made coverage impracticable, or to comply with applicable regulations or firm policies in
certain circumstances, including when Raymond James may be providing investment banking services to the company. The previous
rating and price target are no longer in effect for this security and should not be relied upon.
Raymond James Europe rating definitions rating definitions: Strong Buy (1) Expected to appreciate, produce a total return of at least
15%, and outperform the Stoxx 600 over the next 6 to 12 months. Outperform (2) Expected to appreciate and outperform the Stoxx 600
over the next 12 months. Market Perform (3) Expected to perform generally in line with the Stoxx 600 over the next 12 months.
Underperform (4) Expected to underperform the Stoxx 600 or its sector over the next 6 to 12 months. Suspended (S) The rating and
target price have been suspended temporarily. This action may be due to market events that made coverage impracticable, or to comply
with applicable regulations or firm policies in certain circumstances, including when Raymond James may be providing investment
banking services to the company. The previous rating and target price are no longer in effect for this security and should not be relied
upon.
In transacting in any security, investors should be aware that other securities in the Raymond James research coverage universe might
carry a higher or lower rating. Investors should feel free to contact their Financial Advisor to discuss the merits of other available
investments.
Suitability Categories (SR): Total Return (TR) Lower risk equities possessing dividend yields above that of the S&P 500 and greater
stability of principal. Growth (G) Low to average risk equities with sound financials, more consistent earnings growth, at least a small
dividend, and the potential for long-term price appreciation. Aggressive Growth (AG)
Medium or higher risk equities of companies in
fast growing and competitive industries, with less predictable earnings and acceptable, but possibly more leveraged balance sheets. High
Risk (HR) Companies with less predictable earnings (or losses), rapidly changing market dynamics, financial and competitive issues,
higher price volatility (beta), and risk of principal. Venture Risk (VR) Companies with a short or unprofitable operating history, limited or
less predictable revenues, very high risk associated with success, and a substantial risk of principal.
RATING DISTRIBUTIONS
Coverage Universe Rating Distribution*
RJL
RJA
RJ LatAm RJ Europe
Strong Buy and Outperform (Buy)
65%
54%
50%
Market Perform (Hold)
33%
40%
Underperform (Sell)
2%
6%
Investment Banking Distribution

RJL
RJA
RJ LatAm RJ Europe
46%
45%
24%
0%
0%
50%
29%
17%
10%
0%
0%
0%
25%
0%
2%
0%
0%
* Columns may not add to 100% due to rounding.
RAYMOND JAMES RELATIONSHIP DISCLOSURES

Raymond James Ltd. or its affiliates expects to receive or intends to seek compensation for investment banking services from all
companies under research coverage within the next three months.
Company Name
Disclosure
Raymond James Ltd - the analyst and/or associate has viewed the material operations of Seven
Company Name
Disclosure
Generations Energy Ltd.
Raymond James Ltd - within the last 12 months, Seven Generations Energy Ltd. has paid for all or a
material portion of the travel costs associated with a site visit by the analyst and/or associate.
Raymond James Ltd. has managed or co-managed a public offering of securities within the last 12
months with respect to Seven Generations Energy Ltd.
Raymond James Ltd. has provided investment banking services within the last 12 months with respect
to Seven Generations Energy Ltd.
Raymond James Ltd. has received compensation for investment banking services within the last 12
months with respect to Seven Generations Energy Ltd.
STOCK CHARTS, TARGET PRICES, AND VALUATION METHODOLOGIES

Valuation Methodology: The Raymond James methodology for assigning ratings and target prices includes a number of qualitative and
quantitative factors including an assessment of industry size, structure, business trends and overall attractiveness; management
effectiveness; competition; visibility; financial condition, and expected total return, among other factors. These factors are subject to
change depending on overall economic conditions or industry- or company-specific occurrences.
Target Prices: The information below indicates our target price and rating changes for VII stock over the past three years.
Valuation Methodology: Our valuation methodology effectively looks at paying a fair price for a given business model where we
will pay up to a given target price that will still offer us a risk adjusted 1.8-2.0:1 investor recycle ratio over the time taken to
consume the companys opportunity capture.
RISK FACTORS
General Risk Factors: Following are some general risk factors that pertain to the projected target prices included on Raymond James
research: (1) Industry fundamentals with respect to customer demand or product / service pricing could change and adversely impact
expected revenues and earnings; (2) Issues relating to major competitors or market shares or new product expectations could change
investor attitudes toward the sector or this stock; (3) Unforeseen developments with respect to the management, financial condition or
accounting policies or practices could alter the prospective valuation.
Risks - Seven Generations Energy Ltd.
1. Cash flow exposure to fluctuations in energy prices. In this case the company is specifically exposed to lower oil prices (WTI and
Edmonton Par) and gas prices (HHub and AECO pricing).
2. Foreign exchange rates, more specifically the relationship between the Canadian and US dollar.
3. Due to the nature of its operations, Seven Generations also faces risks associated with weather-related interruptions, dry holes,
restricted access to facilities, unplanned pipeline shutdowns, and unexpected production delays.
4. The company is exposed to the risk that there could be unexpected increases in decline rates specific to its wells or plays. It is also
exposed to potentially lower corporate production volumes, resulting in lower cash flow. Some of the companys operations are in
unexplored/less explored areas and the risk for dry holes or lower production wells could be higher. For Seven Generations, this
specifically relates to the Lower Montney.
5. Unexpected cost overruns or increasing costs of drilling/completing wells and infrastructure.
6. Change in government policies (local, provincial and federal); specifically as it relates to royalty rates and the treatment of oil and gas
production.
7. Interest rate fluctuations could also negatively impact net income and cash flow.
8. Some of Seven Generations acreage is non-operated in nature; therefore the company is at risk of changes in corporate direction by
the operator. The company is also at risk of higher funding requirements if operators in the area increase the number of wells to drill.
Additional Risk and Disclosure information, as well as more information on the Raymond James rating system and suitability
categories, is available for Raymond James at rjcapitalmarkets.com/Disclosures/index and for Raymond James Limited at
www.raymondjames.ca/researchdisclosures.
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Seven Generations Energy LTD.: Canada Research

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Seven Generations Energy LTD.: Canada Research

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Canada Research

Published by Raymond James Ltd.

Seven Generations Energy Ltd.

April 23, 2015

Stacking the Deck/Chess Analogy

Source: Raymond James Ltd., Thomson One

Canada Research | Page 2 of 27

Seven Generations Energy Ltd.

Seven Generations Energy Ltd.

Canada Research | Page 3 of 27

Canada Research | Page 4 of 27

Seven Generations Energy Ltd.

Seven Generations Energy Ltd.

Canada Research | Page 5 of 27

Canada Research | Page 6 of 27

Seven Generations Energy Ltd.

Seven Generations Energy Ltd.

The Hard Assets

Exhibit 1: Montney Development History

Source: Seven Generations Energy Ltd.

Canada Research | Page 7 of 27

Canada Research | Page 8 of 27

Seven Generations Energy Ltd.

Source: Seven Generations Energy Ltd.

Seven Generations Energy Ltd.

Canada Research | Page 9 of 27

Exhibit 3: Production Results within the Nest

= Wells highlighted in table to the right

Source: Seven Generations Energy Ltd., Raymond James Ltd.

Canada Research | Page 10 of 27

Seven Generations Energy Ltd.

Exhibit 4: With Condensate to Gas Ratios

= Wells circled in table to the right

Source: Seven Generations Energy Ltd., Raymond James Ltd.

Seven Generations Energy Ltd.

Exhibit 5: Nest Gas & Condensate Type Curves

Source: Seven Generations Energy Ltd.

Canada Research | Page 11 of 27

Canada Research | Page 12 of 27

Seven Generations Energy Ltd.

Exhibit 6: Individual Well Economic Sensitivities

Source: Seven Generations Energy Ltd.

Seven Generations Energy Ltd.

Exhibit 7: Continuing to Improve Cost Efficiencies

Source: Seven Generations Energy Ltd.

Canada Research | Page 13 of 27

Canada Research | Page 14 of 27

Seven Generations Energy Ltd.

Exhibit 8: Hedging Summary as of March 31, 2015

Source: Seven Generations Energy Ltd.

Seven Generations Energy Ltd.

Canada Research | Page 15 of 27

Valuation & Recommendation

Exhibit 9: Seven Generations Sum-of-Parts Valuation

2015E Value Add

Source: Seven Generations Energy Ltd., Raymond James Ltd.

2016E Value Add

Canada Research | Page 16 of 27

Seven Generations Energy Ltd.

Appendix: Financial Statements

Commodity Price Assumptions

Canadian Par (C$/bbl)

NYMEX Gas (US$/mcf)