IPAA Austin, Texas October 28, 2004 HALLWOOD PETROLEUM, LLC IPAA Austin, Texas October 28, 2004 HALLWOOD PETROLEUM, LLC

Barnett Shale gas is an unconventional resource Johnson County has long been known to have Barnett Shale This Barnett Shale was known to contain gas Missing Viola and Forestburg frac barriers Six wells targeted the Barnett Shale Yielding two marginal producers and a few shut in wells Barnett Shale gas is an unconventional resource Johnson County has long been known to have Barnett Shale This Barnett Shale was known to contain gas Missing Viola and Forestburg frac barriers Six wells targeted the Barnett Shale Yielding two marginal producers and a few shut in wells JOHNSON COUNTY, TEXAS Unconventional Barnett Shale JOHNSON COUNTY, TEXAS Unconventional Barnett Shale

Produce gas without Ellenburger water Cut costs Improve on results Cut costs Improve on results Repeat these steps one as often as possible..... Produce gas without Ellenburger water Cut costs Improve on results Cut costs Improve on results Repeat these steps one as often as possible..... OBJECTIVES In the Johnson County Barnett OBJECTIVES In the Johnson County Barnett

Acquired approximately 25,000 net acres Drilled four exploratory wells Designed completions that avoided conventional wisdom Avoided Ellenburger water in three out of four wells Established commercial gas production Built our own infrastructure Acquired approximately 25,000 net acres Drilled four exploratory wells Designed completions that avoided conventional wisdom Avoided Ellenburger water in three out of four wells Established commercial gas production Built our own infrastructure HALLWOOD’S APROACH THROUGH 2002 HALLWOOD’S APROACH THROUGH 2002

First gas sales February 2003 Continued drilling vertical wells to evaluate shale Evaluated various frac techniques Each design built upon the last, both good and bad Micro polymer, foamed gel, slick water Varying rates, sand concentrations, sand sizes Varied perforating strategies First gas sales February 2003 Continued drilling vertical wells to evaluate shale Evaluated various frac techniques Each design built upon the last, both good and bad Micro polymer, foamed gel, slick water Varying rates, sand concentrations, sand sizes Varied perforating strategies TIMELINE THROUGH 2003

SUBSEA DEPTH WEST EAST

THICKNESS

30/60/90 DAY PRODUCTION VERTICAL WELLS From first to most recent drilling

FRAC STATISTICS HORIZONTAL WELLS

HORIZONTAL COMPLETIONS DAYS ONMMCF CEDF 13042,231 Childress 13019,294 McAnier ,467 Buffalo Ridge 2H3085,270 Falvel 2H30103,699 Lakeview 1H30124,876 Godley 2H30157,451 Williams 3H30196,491

30/60/90 DAY PRODUCTION HORIZONTAL WELLS

HORIZONTAL COMPLETIONS DAYS ONMMCF CEDF # ,981 Childress # ,131 McAnier # ,334 Buffalo Ridge132357,787 Falvel #2H122420,467 Lakeview 1H102464,981 Godley 2H57269,395 Williams 3H30196,491

TOTAL ACREAGE Cleburne Godley Rio Vista Lakeview 1 Harrison 1

No markets Unconventional resources may occur where there is no infrastructure.

HALLWOOD ENERGY CORPORATION Compressor Station Construction

Cleburne Facility  Facility is Operating at 70 MMCFD  Designed for 140 MMCFD and suction 40 psi Godley Facility  Facility is Operating at 40 MMCFD  Designed for 50 MMCFD and suction 30 psi Rio Vista Facility  Facility is Operating at 25 MMCFD  Designed for 50 MMCFD and suction 30 psi –Entire system to run at psi at wellhead. PIPELINE FACILITY

HALLWOOD ENERGY CORPORATION North Half of Northern Acreage Ponderosa Pine Power Plant Lake Marti City of Cleburne #1 CEDF #1 Worthington SWD City of Cleburne #2H & #3H Cooper #2 Cooper #1 Williams #1 Cleburne Compressor Station Kennon #1 Williams #2 Buffalo Ridge #2 Buffalo Ridge #1 Lightfoot #1 Tucker #1 Brown #1 Cody Hunter #3 Mary Ann #1 Godley #1 EOG R Smith #1

HALLWOOD SWD, INC. Cleburne Disposal Site Next SWD Well City of Cleburne #1 HEC Office Ponderosa Pine Power Plant Worthington 1 SWD

No markets No water disposals No markets No water disposals Unconventional resources may occur where there is no infrastructure.

CLEBURNE DISPOSAL FACILITY

BBLS Fully Automated for fresh water loading or salt water disposal

No markets No water disposals An uninformed public No markets No water disposals An uninformed public Unconventional resources may occur where there is no infrastructure.

Lease forms that are simple, yet fair to everyone Equitable bonus and royalty terms An opportunity to educate Lease forms that are simple, yet fair to everyone Equitable bonus and royalty terms An opportunity to educate An uninformed public - positives

The education process can be frustrating and time consuming We may be viewed as the stereotypical JR Ewing Visions of Jeb Clampett The neighborhood real estate attorney begins practicing oil and gas law The education process can be frustrating and time consuming We may be viewed as the stereotypical JR Ewing Visions of Jeb Clampett The neighborhood real estate attorney begins practicing oil and gas law An uninformed public - negatives

No markets No water disposals An uninformed public An hour drive to the nearest bull plug salesman No markets No water disposals An uninformed public An hour drive to the nearest bull plug salesman Unconventional resources may occur where there is no infrastructure.

Lower vertical drilling costs Lower horizontal well costs Lower vertical drilling costs Lower horizontal well costs UNCONVENTIONAL GAS MEANS CONTINUING EDUCATION UNCONVENTIONAL GAS MEANS CONTINUING EDUCATION

DRILLING COMPARISON Vertical – Air vs Mud

DRILLING COMPARISON Horizontal – Air vs Mud

Lower vertical drilling costs Lower horizontal well costs Evaluate perforating strategies Optimize horizontal well spacing Optimize horizontal frac volumes Lower vertical drilling costs Lower horizontal well costs Evaluate perforating strategies Optimize horizontal well spacing Optimize horizontal frac volumes UNCONVENTIONAL GAS MEANS CONTINUING EDUCATION UNCONVENTIONAL GAS MEANS CONTINUING EDUCATION

We should not be surprised when doing the same as we have always done yields the same results we have always gotten. We must innovate. We must continue to improve.

IPAA Austin, Texas October 28, 2004 HALLWOOD PETROLEUM, LLC IPAA Austin, Texas October 28, 2004 HALLWOOD PETROLEUM, LLC