New Equity Sources for Private Energy Companies January 19, 2006 Hedge Funds

New Equity Sources for Private Energy Companies 2 Hedge Fund Overview Hedge funds are unregulated private investment funds that seek to profit from non-traditional opportunities using alternative investment strategies. Hedge funds have a variety of investment strategies, some of which use leverage and derivatives while others are more conservative and employ little or no leverage. This flexibility, which includes the use of hedging strategies, enables hedge funds the ability to best manage investment risks. Hedge fund investors include endowments, pension funds, mutual funds and wealthy individuals. While the number and size of hedge funds are small relative to mutual funds, their growth reflects the importance of this alternative investment category for institutional investors and wealthy individual investors. Typical Characteristics of Hedge Funds

New Equity Sources for Private Energy Companies 3 There are approximately 8,350 hedge funds that have an estimated $1.4 trillion under management worldwide and are growing at about 20% per year. Source: Hedge Fund Association Hedge Fund Overview

New Equity Sources for Private Energy Companies 4 PIPEs Overview Private Investments in Public Equity, or “PIPEs”, transactions have increasingly become a popular investment vehicle for hedge funds and a preferred financing strategy for small and mid cap companies over the last five years. PIPE transactions are privately issued equity or equity-linked securities that are sold to accredited investors by public companies. PIPE investors have traditionally included hedge funds, however they have broadened to include mutual funds, private equity funds, venture capital funds, buyout funds and wealthy individuals. PIPE issuers range in size from small OTC Bulletin Board companies to large-cap NYSE-traded companies. The PIPE investment structure is ideal for hedge funds because it allows them to establish substantial positions without having a big impact on the stock price. In 2005, approximately 1,585 PIPE transactions were completed for total proceeds raised of approximately $22.1 billion.

New Equity Sources for Private Energy Companies 5 Over the past five years, public companies have raised $98.1 billion in 6,889 transactions (representing an average of $19.6 billion annually in 1,378 transactions). PIPEs Overview Source: Private Raise

New Equity Sources for Private Energy Companies 6 Over the past two years, energy related companies have raised the most capital from investors in PIPE transactions. Energy Resources and Related comprised 11.1% and 16.9% of total PIPE transactions completed in 2004 and 2005, respectively. PIPEs Overview Source: Private Raise

New Equity Sources for Private Energy Companies 7 The substantial increase in the number of hedge funds over the past five years has increased competition for quality deal flow. Hedge funds find it necessary to consider alternative opportunities to deploy substantial amount of capital that they have under management. Numerous hedge funds are venturing outside of the traditional investments in public companies and looking towards more of what has traditionally been defined as private equity investments in private illiquid companies and other private equity funds. –Hedge fund managers have participated in private equity transactions in the past and are increasingly doing so as competition for public transactions increases. –It is important to note that most multi-strategy hedge funds typically have 5-10% of their total capital under management set aside to invest opportunistically. Hedge Funds Focus on Private Equity

New Equity Sources for Private Energy Companies 8 Hedge funds offer issuing companies quick execution and delivery of capital in a timely manner. Hedge funds typically do not require control positions in companies. Hedge funds are interested in private equity transactions for a couple of reasons: –They have substantial discretionary capital that needs to be deployed and they need to find new investment arenas in which they can generate returns. –As many traditional hedge fund strategies have become crowded in the last few years, managers are seeking to invest in less competitive areas and in areas where they can generate returns. Source: Hedge.Funds World 12/15/05 Hedge Funds Focus on Private Equity

New Equity Sources for Private Energy Companies 9 The following is a list of selected hedge funds that consider, or have previously made, investments in private energy companies: Advisory Research Amaranth Angelo Gordon & Co. Centaurus Cerberus D.B. Zwirn Elliott Advisors Hedge Funds Focus on Private Equity HBK Laminar Direct Capital (DE Shaw) Laurus Funds Reservoir Capital Ritchie Capital Touradji

New Equity Sources for Private Energy Companies 10 Fund Size – $38.3 million Oversubscribed Offering – The initial Fund size was targeted at $15-$20 million. After successful marketing in New York, Dallas and Houston, the Fund size was increased to $38.3 million (200% + oversubscribed). Investor Base: –The investors in the Fund are energy, specifically oil and gas exploration and production, knowledgeable. –The Fund’s largest investor is an $8.0 billion hedge fund based out of New York City that historically has not made investments in private companies. Hawk Energy Fund I Case Study

New Equity Sources for Private Energy Companies 11 ECS has raised $358 million of private equity in 24 transactions and $237 million of debt capital in 6 transactions over the past three years. ECS has advised on 8 M&A transactions totaling over $1 billion since inception. ECS knows the private equity and debt markets very well and has worked with virtually every capital provider over the last few years. As a result of the significant experience of ECS with energy capital providers, we believe that we are well positioned to continue to assist energy companies in arranging private equity. Overview of Energy Capital Solutions Energy Capital Solutions (“ECS”) is a Dallas-based energy focused investment banking firm founded in 2001 that raises equity and debt capital and provides M&A advisory services for public and private energy companies.

New Equity Sources for Private Energy Companies 12 ECS has completed thirty private capital transactions since May 2002 Class A Convertible Preferred Stock $7,250,000 Canary Resources Inc The undersigned acted as Placement Agent. August 2005 September 2005 The undersigned acted as Placement Agent. Secured Term Note $9,500,000 New Century Energy Corporation New Century Energy Corporation New Century Energy Corporation

New Equity Sources for Private Energy Companies 13 ECS has completed thirty private capital transactions since May 2002 March 2005 $50,000,000 Revolving Credit Facility In connection with two acquisitions and the recapitalization of the Company The undersigned acted as financial advisor to the Company with respect to the debt financing.

New Equity Sources for Private Energy Companies 14 ECS has completed thirty private capital transactions since May 2002