BTU -VSE.
Brian Findlay - Ph. 604 - 681- 3364
Grant Twanow - Ph. 403 - 244-1952
May, 15 1999
Highlights of a conference call arranged by Dan Treacher with Director Brian Findlay and Chief Operations Officer Grant Twanow of Black Tusk Energy
Gentleman before we begin I would like your permission to tape this phone call and I want you to be aware that I may likely make a transcript and give copies to other parties.
Verbal permission was given by Brian Findlay and Grant Twanow.
DAN: "To start, tell us a little about BTU's history."
GRANT: "I'll let Brian handle that."
BRIAN: "Black Tusk Energy was originally called Avenue Industries. Three years ago it was a shell company. It had no assets and a lot of liabilities. I reorganized the company and we made our initial investment in the oil and gas industry with Berkley Petroleum at $2,300,000. We got very little in return for that investment and decided to look around to for some talented people to head up the company. Grant Twanow and Tim Samek showed some interest in trying to get out of a large oil and gas company and into a small junior company. Basically they wanted an opportunity to develop projects that they had access to. Unfortunately it didn't work out to well with Tim and Grant and Tim ultimately left the company. Grant's now involved in running all aspects of our oil and gas operations in Alberta. We are pleased with his results and he has brought some good properties to the company. This has allowed the company to now generate reasonably good cash flow after basically a year and a half of development. Grant's got several other projects he wants to develop in the near term which should give us in the vicinity of a 1000 bbls of oil per day equivalent before the end of this year."
BRIAN: "Do you have anything further to say on that Grant"
GRANT: "Would you like a little brief history on my background first?"
DAN: "Actually that was my second question, as to your background, education and Brian has already answered part of the how and why you became involved in Black Tusk but if you would like to elaborate on that?"
GRANT: "I began my education in the oil industry by taking a petroleum technology course at the Southern Alberta Institute of Technology here in Calgary.. However I graduated in 1986 and began working with a petroleum wire-line company, when it became apparent that 1986 was to be a downturn in the industry. With that in mind, I made the decision to upgrade my education at the University of Wyoming. The reason for going out of the country pertains to the fact that in Canada we offer chemical engineering but we do not have a true petroleum industry school.
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At that time the University in Wyoming was ranked fourth in the United States. I believe the United States has a monopoly on the oil industry which in turn makes the University of Wyoming really fourth in the world. Upon my return I started working with Schlumberger of Canada in the petroleum well logging industry. That is where I first got exposure to open hole well logging and all facets of the industry from the drilling perspective. After that I went to Sask oil which eventually changed its name to Wascana I worked different asset teams and eventually found myself in a kind of exploitation area of the company. I worked on projects in Saskatchewan, Alberta, BC as well as touching base in South America and Africa. From there I went to Northstrom Energy which now calls itself Pacific Northstrom.
I worked on every major asset their corporation held in the reservoir engineering department. Later on, after some changes were made I headed up that department. My role in Northstrom became specific to any major project oversees or locally that needed a specialty team to come in and assess for up hole potential or for up hole potential, re-activation, water-flooding or optimizing oil pools. I would be called in with a hand picked team to re-evaluate and come up with new ideas about exploiting. It was during this period that I decided to become a part of Black Tusk.
I am ambitious and want more then to just hold a position within a corporation, with Black Tusk I have that opportunity. The strategy of Black Tusk bleeds through from where I left off at Norstrom. Take existing proven developed fields and high grading them by exploiting up hole potential and optimizing. That concept has worked out very well here at Black Tusk we picked up the Brazeau River off of Chevron which is the same neck of the woods I was working for Northstrom. That whole area of the Brazeau River is owned by Northstrom and Chevron and I have an extensive knowledge in that area. We picked up the Brazeau River and Nisku I property for an exceptional price. Then we went up hole in the Blue Ridge Zone which is our 3-27 well. You have probably seen our news release showing we are doing about 25 to 30 meters a cube a day pumping right now and that should move up to about 40 with a new engine on our pump jack. That was a very exciting up hole completion for us and turned out very well . Other up-hole work that we are preceding with in that area would be the Shunda Horizon Zone. That pretty well sums up the strategy of Black Tusk."
DAN: "I understand Grant that you are more interested in incentive options than collecting a high paying salary."
GRANT: Pretty much. I like to work that way. I believe in what I've got more than I want a salary.. I know there are some good properties out there and if you can get them for a good price there is some really decent up-hole opportunities around the province.
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DAN: "This one is for Brian and I feel of significant interest to potential investors of BTU. BTU'S sister company was involved with a wild cat well that didn't work out and the stock plummeted. In my opinion with over 25,000,000 shares on the market the stock trading at .03 a very limited amount of cash in the bank it was yelling loud and clear rollback and name change . Tell us why you didn't do just that. It looks like the investors who listened to you with regards to holding their stock will have the opportunity to get far more then their original investment back."
BRIAN: "The only way we could see to accomplish that was to make a complete change of business
We decided as you can tell by the press release that it is going to be an Internet business which do require a large float to accommodate the world wide following on these. That should all be resolved and back trading by the end of the month. I feel that there should be an appreciable increase in the share price at that time."
DAN: "Have you ever been involved with a company that has had a rollback, name change or just plain lost all of the investors capital. We are only talking about the time period that you were on board."
GRANT: " No, I haven't "
BRIAN: "I have been involved with company's that have had to consolidate but that was only when I first became involved not after I had been involved"
DAN: "During the recent downturn in oil prices BTU announced that it felt the stock was undervalued and the company would buy up 5% of the common stock on the open market. Did you actually buy and how much."
BRIAN: "Approximately 380,000 shares were bought back at an average .35 a share ."
DAN: "Give us a brief summary of where you feel BTU is with regard to its short term game plan and what kind of revenue increase can the investor see over say the next 6 months."
GRANT: "I'll handle that one. I see in the next month production up to about 400 boe a day with what we have right now. The property produces an extemely light crude and we receive a quality adjustment I would say net revenue on that crude will be somewhere between $18 and $20 net Canadian a barrel."
DAN: "I understand this company has low overhead, what is your estimation and now that you are starting to produce revenue do you see that changing in the near term."
GRANT: "I always believed that if you keep things low and farm out a lot of your work you can keep your GNA very minimal. The actual GNA ,Brian you can handle that question."
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BRIAN: "Our GNA I don't believe will be increasing in any significant way in the near future. The projects that we are bringing on will have certain costs related to them but any increase in GNA will be offset by an increase in revenue. There is a very limited number of employees associated with this company and I would say that $25,000 a month would be a reasonable number spread over the accounting, salaries, everything that is associated with the company. Grant, you were looking at the numbers the other day what did you estimate?"
GRANT: "About $300,000 a year which is less then half of our completion."
BRIAN: "We are significantly lower then most other companies."
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DAN: "I have read the geological report on the proposed Shunda gas well and like most investors do not feel qualified to comment on just how positive they appear. Tell me on a scale of one to ten how you interpret that report and elaborate a little please."
GRANT: "Now that report, we managed to get Richard Brandley to do the work, as he is one of the best people in the world for evaluating drill cuttings. I was led onto him through Poco Petroleum he was at one time a geologist there . Poco is one of the biggest Shunda players in the area and actually have a well offset to our property . Poco told us to give him a call and he freed up some time and compared all the drill cuttings in the area of all the good quality gas wells to our well. Now, when you tie them in with the logs and see where the zone is we definitely have a zone appearing underneath on that section of land and when he looked at the drill cuttings and compared them, it was a night and day difference between a mediocre well and our land .We compared very well with the best Shunda wells in the area. We re-logged our 3-27 well over the Shunda and it came up great also. I would look at that combination and give it a rating of eight out of ten for quality and for professionalism on that report and the risk on the Shunda well I feel is very low. I really see it as a development more then an exploratory well with a very high chance
of success."
Note: I had my cousin who is a geologist and owns a few small producing wells, look over this confidential report and then query Grant. My cousin is a sceptic when it comes to small oil companies but he begrudgingly had to admit that he was surprised by Grant's knowledge (being that Grant is only in his early thirties) and he conclusion was - "It looks like a no-brainer and that is one hell of a big pay zone." "That is sure one sweet little well they have, with a forty-three gravity you could just about put it right into your car!"
DAN: "How expensive will the wells be and will you have to go to market for additional funding?"
GRANT: "Where we are lucky here is that I own the road in and we have a lease there. I am going to pad drill it right beside so we have no road construction either. The lease construction will be very minimal and because we are just twinning another well the cost will be considerably lower. I am
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looking at about $1,500,000 to get well drilled and completed. Considering our cash flow and the cash we have in the bank, we really don't need to raise money to drill it. We can not drill it today it is to wet up there right now, I'm looking at either a late summer drill or early fall. We definitely have enough money to drill this on our own, however there might be some way of financing a small portion of it. Brian you might want to touch base with that."
BRIAN: " What Grant and I have been talking about , with regards to funding the well, is from other companies we are associated with by selling a them 5% interest in the well by incurring 10% of the cost and in-turn generating up to 50% of the cost by selling up to a 25% interest. Thus when the well is completed we will receive 75% of the revenue."
( I can hear an uplift in Grant's voice and can visualize a smile forming on his face as he makes the following statement)
GRANT: "With this well you see, we have a pipeline GOING RIGHT TO THE LEASE ALREADY PAID FOR AND WE ARE THE OPERATORS!!" The pipeline goes to a collection plant that Chevron has with the capacity for us and we have negotiated a phenomenal deal for the project, almost half of what our competitors are paying at Petro Canada. To have an opportunity such as that lowers your risk and lowers your overhead considerably."
DAN: "If as you say this is more a development well then an exploratory well and you are so confident that its a winner ,why would you sell any interest at all?"
BRIAN: "The plan is to keep a positive cash flow and offset any potential possible financial problems and that's the reason we are willing to sell part of the Shunda well even though we feel it is has very limited risk.. We also have our eye on other properties and intend to insure we have the ability to acquire them."
GRANT: "I want to set a conveyor belt of exploitable properties coming in . We're looking at properties by Amico, Petro Canada Murphy and Mobil .We intend to keep some fresh projects coming in a the conveyor belt fashion. We have another property in the Kaybob South Area but that requires further joint venture work."
DAN: "Would you sell this stock to your poor old grandmother, if you get my meaning and if she bought it would you sleep well at night if she put her life savings into it."
GRANT:' "OH! YEAH! My dad he - I made him get into it! He kept saying are you sure about this? So yes, I would in a heart beat!"
DAN: "Do you have or will you be hiring an agency to promote the company."
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BRIAN: "No at this time we have not " "We are not going to get involved with the promotion of the stock until we feel the company is ready for it . Right now , is a time for our friends and associates to get involved. The company is as you know just getting going. Two months ago we didn't have any revenues. We have talked to several different groups that are involved with promotion but we haven't made a definite decision of which ones we want to go with but at the present time we are
committed to anyone Dan."
Corporate Questions:
DAN: "How much stock would you estimate is in the hands of insiders."
BRIAN: "There is roughly 16,000,000 issued and I would say roughly 12,000,000 is in the hands of those close to the deal."
DAN: "Not necessarily insiders but this could include friends, family ?"
BRIAN: "As well as Brokers that have their clients involved and are supportive of what we are doing."
DAN: "I see Incentive Stock options - 825,000@ .40
- 300,000@ .55
- 125,000@ .60
"Are you aware of any other exercisable options at a lower level ?"
BRIAN: "There is nothing lower then that!"
DAN: "Brian I see you recently put up some of your own capital to be a part of a private placement at .50. Tell us the why's and why fore's."
BRIAN: "That was to complete our 3-27 and I believe in this company so I don't feel it to be at risk"
DAN: "What is your estimate on your current bank balance?"
BRIAN: "Somewhere in the vicinity of $1,000,000. I don't have an exact number as we have some payables we have yet to get in from the wells we just completed."
DAN: I see your main liability is listed as a $3,000,000 non convertible debenture. Is that your main liability?"
BRIAN: "Yes, that's correct."
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DAN: "Brian in a recent conversation I was informed by you that you estimated the stock at having over a $1.50 cash value , I must be missing, something can you tell me how you come up with that figure.?"
BRIAN: "That would include our producing well and the proposed Shunda well"
DAN: "Are you going to hedge your position by foreword selling?"
GRANT: "We're in an excellent position for the oil and gas market. We have not hedged any oil yet but when it has another little rebound back up to about $18.00 to $20.00 American I will. I would like to try to do that for up to 50%. But, actually that will be for all of us to discuss at the appropriate time. Our gas is unmarketed , Scorpion is our partner in the Brazeau River and Nisku I Pool. Their gas is in a trans Canada contract but we are not.. In November of this year when we get into production our gas comes free from a Chevron contract in the Brazeau River and our new drill has no contracts associated with it. When it comes down to marketing we are in a good position in that we are open. Open to do business as to where we to lock it in to with regards to foreword selling.
DAN: "What is the in your opinion the most negative aspect that comes to
mind about Black Tusk?"
GRANT: "That's a difficult one to answer. The only thing I can think of is that we don't have a president that has a track record. I am the CO and our president is currently a nominee . Then I suppose it depends on how you look at it. I personally see it as a positive we have a low GNA because we have a small staff and you can see that would be dramatically affected if we had a big name filling the presidents position. I honestly can't think of anything else."
DAN: "I would like to end this conversation by thanking you both for answering all the questions I had with candor."
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