Life Cycle of Bonavista

The Junior Phase

Bonavista began as a junior oil and natural gas company in 1997 but progressed through this stage in only two and a half years, becoming an established intermediate player by 2000. Most analysts define the junior stage as the period between start up and 15,000 boe per day with annual production growth of 40% to 80% being achievable. As a junior, Bonavista outpaced this benchmark by doubling production each year, growing from 2,700 boe per day in 1997 to an exit rate of 15,000 boe per day in 1999; our investors enjoyed an increase in their investment from $0.75 per share to $8.15 per share.

The Intermediate Phase

Over the next four years, Bonavista continued to grow production at a meaningful pace resulting in 20% to 40% production growth annually. The size of our asset base and efficiency of our overall operations boosted earnings significantly, resulting in an average return on equity of over 35%. Driven by high levels of profitability, Bonavista was approaching a taxable position and, along with the cost-of-capital advantages, conversion to an energy trust became an attractive option. It became clear that there would be increased value to our investors by converting to a trust, particularly in light of the more tax-efficient distribution model a trust would offer.

The Energy Trust Phase

In July 2003, Bonavista converted into an energy trust, maintaining consistent philosophy and operating strategies. Bonavista's operating model continued to emphasize profitability through disciplined spending habits which in turn maximized capital efficiency and total shareholder return. We remained focused on cost effective reserve and production additions that enabled us to extract maximum value from our high quality asset base and, in turn, generate sustainable distributions. In 2007, Bonavista began to transition its asset base in response to the Canadian Federal Government's October 2006 decision to levy income taxes on royalty trust distributions beginning in 2011. Regardless of legal structure, we believed there would be continued growth in investor demand for income producing investments. Furthermore, with our history of operating under the royalty trust structure, we found value in the additional discipline over capital reinvestment decisions that a regular distribution policy required. Conversely, to remain a competitive investment option in 2011 and beyond, we believed that an enhanced growth profile would become necessary. To accommodate this enhanced growth profile, we began to transition our asset base by growing our inventory of organic growth opportunities and improving our capital investment efficiencies through strategic property acquisitions and the application of new technologies to our extensive land base.

The Dividend Paying Corporation Phase

On January 1, 2011, Bonavista converted to a dividend paying corporation with an underlying business model designed to provide sustainable annual production growth. Coupled to a dividend, the business model provides both growth and income. Technology has been a defining factor of this phase. Technological advances in drilling and completion techniques such as horizontal extended reach drilling and multi-stage fracturing have increased efficiencies, improved economics and resulted in minimal surface disturbance.

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