Corporate Banking and Investment IPAA Oil & Gas Investment Symposium Overadvance & Second Lien Bank Financing April 18, 2005 Bart Schouest Managing Director BNP Paribas

Corporate Banking and Investment 2 1. E&P Bank Lending Overview 2.Overadvance and Second Lien Bank Facilities 3.About BNP Paribas Table of Contents

Corporate Banking and Investment 1. E&P Bank Lending Overview

Corporate Banking and Investment 4 Energy Industry Capital Provider Risk & Return Paradigm Institutional Second Liens & High Yield Debt Bank Debt Bank Overadvances & Second Liens Mezzanine Capital Convertible Debt Private and Public Equity 5-10% 10-15% 20-30% 30% + Total Returns Controlled Risks Uncontrolled Risks PDP Reserves Proven Reserves Exploration Activity Engineering and Operations Risks Geological and Geophysical Risks Management Sponsorship Capitalization Hedging R/P F&D

Corporate Banking and Investment 5 The Energy Capital Dynamics Seed Capital Private and Public Equity Mezzanine Debt Public and Institutional Debt Bank Financing Least Prevalent Most Prevalent Most Expensive Least Expensive

Corporate Banking and Investment 6 Energy Bank Lending Parameters Lend against proven reserve value - primarily PDP Third party reserve estimates - usually risked somewhat Loan value determined by advance rates Cash flow model validates the analysis Conservative price deck historically employed Value given to price hedges

Corporate Banking and Investment 7 Current Bank Market Conditions Strong commodity prices bolster producer cash flows. Higher cash flows used to pay down debt “Hot Sector” syndrome - high capital inflows Significant loan appetite in the market Default rates non-existent Bank spreads under pressure - too much capital Historically, much closer relationship between bank price decks versus cash and/or futures markets. Sharp upward volatility of hydrocarbon prices has changed the relationship - banks hold a reversion to the mean mentality Strong producer cash flows have masked the price deck divergence issue Private equity is the new major source of capital formation in E&P today. Overadvance and Second Lien Facilities can optimize equity returns Second Liens are preferred versus High-Yield issuance +Lower placement costs +Lower minimum issuance size +Prepayment flexibility -But, more covenanted

Corporate Banking and Investment 3. Overadvance and Second Lien Bank Facilities

Corporate Banking and Investment 9 Two Basic Bank Products Beyond Traditional Conforming Loans Overadvances Short Term Accommodation Sale of Certain Acquired Assets Development Plan Bridge to Capital Transaction Escalating Rate Rigid Structure Commonly Provided Second Lien Permanent Facility (3-5 yrs) Fixed Rate or Floating Margin Covenanted Structure Growing Bank Participation, Complemented by Certain Institutional Players Not for Every Producer

Corporate Banking and Investment 10 Optimal versus Bank Second Lien Candidate Characteristics Well-defined reserve base Attractive reserve metrics - R/P; PDP/Proven Ratio Articulated development plan Economic conversion strategy Operational control / influence Appetite for hedging Strong management Underpinning of junior capital

Corporate Banking and Investment 11 Two Basic Second Lien Products Bank Debt Enhancement Product Provided by Banks & Long Term Institutional Holders Pricing Range: LIBOR + 4 to 7% Basic Covenant Package PV/Debt Coverage Covenant Debt/EBITDA Limitation Prepayment Flexibility Institutional Debt Maximization Objective Paper is Liquid and Trades with Reasonable Frequency Premium Pricing for Larger Loan Capacity Deeper Covenant Package Higher Prepayment Penalty

Corporate Banking and Investment 12 Bank Second Lien Advantages Increased availability versus conventional bank debt. Longer maturity profile than standard overadvance bank facilities. “Relationship Lending” versus Institutional Second Lien or High Yield Options. Ability to enhance equity returns by reducing lower-tiered capital contributions - private equity. Lower issuance costs versus capital market alternatives. Can easily be upsized if needed in the future. Flexible and economic prepayment versus institutional and public market capital issuance.

Corporate Banking and Investment 13 Basic Bank Second Lien Terms Amount - $15 - $100 MM Maturity - 3 to 5 years Pricing - LIBOR +  4 - 7% Covenants Asset Coverage Ratio Debt Service Coverage PDP / Proven Ratio Timing - 2 to 6 weeks

Corporate Banking and Investment 14 BNPP Experience Opened the Second Lien E&P market in 2003 with Quicksilver facility. Have arranged and agented the majority of the subsequent Second Lien Facilities done in the bank market. Most recently - Petrohawk and Black Stone Have attracted bank and institutional participants. Established ability to navigate intercreditor issues. True underwriting capacity.

Corporate Banking and Investment 3. About BNP Paribas

Corporate Banking and Investment 16 BNP Paribas 7th largest bank in the world - over $1 Trillion asset base. Highly rated with S&P (AA) and Moody’s (Aa2). Extensive International Network with more than 500 offices in 87 countries. BNP Paribas’ global activities are organized into four core businesses: Corporate and Investment Banking Private Equity Retail Banking Private Banking and Asset Management, BNP Paribas’ Energy practice consistently ranks as the firm’s single largest industrial sector from a revenue standpoint.

Corporate Banking and Investment 17 BNP Paribas’ Energy & Commodity Finance Group BNP Paribas has a global approach to the Energy sector: Corporate Lending Commodity Derivative capabilities Capital Markets activities Global Team of 500 dedicated energy specialists in Houston, Paris, New York, Geneva, London and Singapore. Senior Bank Debt Second Lien Facilities VPP’s Crude Oil and Gas Price Hedging Commodity Futures BNP Paribas provides its Energy-related clients with a full range of products. We are market leaders in the Energy industry for: We also offer a full compliment of public market debt and equity capabilities globally.

Corporate Banking and Investment 18 BNP Paribas Houston’s office focuses on the upstream sector. Primarily oriented toward independent producer financings. Approximately $6 Billion portfolio. Over 100 clients. Seamless financing for commodity derivative products. Demonstrated international transaction capabilities. Our commitment to all sectors of the Energy Industry, is demonstrated in BNP Paribas’ No. 4 ranking in the U.S. energy banking league tables. BNP Paribas’ Commitment to the Upstream Sector

Corporate Banking and Investment 19 League Table Rankings The league tables confirm BNP Paribas’ standing as a top arranger of syndicated loans in the US, globally and in the Energy Industry RankBank Holding Company VolumeDeals 1JP Morgan62,027,700, Bank of America48,074,000, Citigroup39,793,500, BNP Paribas21,642,350, Wachovia Securities21,280,000, Royal Bank of Scotland Plc20,675,750, Barclays Bank Plc18,650,000, Harris Nesbitt11,312,824, Bank of Tokyo-Mitsubishi10,840,750,00010 SunTrust Bank8,375,500, Wells Fargo & Company8,286,499, ABN AMRO Bank N.V.7,808,750, Fortis Bank6,256,000, Scotia Capital6,167,824, Calyon5,650,000, Morgan Stanley5,000,000, Union Bank of California4,828,000, UBS AG4,815,000, U.S. Bancorp4,807,000, RBC Capital Markets3,795,000, U.S. Oil & Gas Agent Only Source: Loan Pricing Corp

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Corporate Banking and Investment 23 This presentation is only an expression of our interest in connection with the proposed transaction and nothing contained in this presentation should in any way be construed as an offer or a commitment by BNP Paribas to extend or to provide any financing of any type, either on behalf of itself or any other entity. This presentation has been prepared by BNP PARIBAS for informational purposes only. Although the information in this presentation has been obtained from sources which BNP PARIBAS believes to be reliable, we do not represent or warrant its accuracy, and such information may be incomplete or condensed. This presentation does not constitute a prospectus and is not intended to provide the sole basis for any evaluation of the securities discussed herein. All estimates and opinions included in this presentation constitute our judgement as of the date of the presentation and may be subject to change without notice. Changes to assumptions may have a material impact on any recommendations made herein. BNP PARIBAS or its affiliates may, from time to time, have a position or make a market in the securities mentioned in this presentation, or in derivative instruments based thereon, may solicit, perform or have performed investment banking, underwriting or other services (including acting as adviser, manager or lender) for any company, institution or person referred to in this presentation and may, to the extent permitted by law, have used the information herein contained, or the research or analysis upon which it is based, before its publication. BNP PARIBAS will not be responsible for the consequences of reliance upon any opinion or statement contained herein or for any omission. This presentation is confidential and is being submitted to selected recipients only. It may not be reproduced (in whole or in part) to any other person without the prior written permission of BNP PARIBAS. Any U.S. person receiving this presentation and wishing to effect a transaction in any security discussed herein, must do so through a U.S. registered broker dealer. BNP Paribas Securities Corp. is a U.S. registered broker/dealer. © 2005 BNP PARIBAS. All rights reserved.