1. AAPG Annual Convention
Perfecting the Search
for Drilling Capital
Leslie Haines
Editor-in-chief
Oil and Gas Investor
AAPG Annual Convention
DPA Luncheon Speaker
April 2006

2. Why use outside capital?
Speedier growth
Flexibility
Better deal flow/more contacts
Access to other $ sources
Outsourced CFO
Identify strategies-- Sounding board
Negotiation
Tax advantages if LP or LLC
Credibility

3. Perfecting the Search 4 Themes: How much is available?
Where do you find it?
What structures are possible?
E&P Success stories

4. $ Makes the World Go Around
Between Private Equity,
Mezzanine Funds
& Hedge funds,
$8.5 Billion raised in last 2 years!

5. New Capital Company: Fund $ Amount Fund Type Investment Goal
Energy Spectrum Capital: Energy Spectrum Partners IV LP
$353MM
Equity
Initial investments of $20- to $30 million
FirstMerit Commercial Energy Group NA
Reserve-based and project financing to independents in the Appalachian, Illinois and Michigan basins. Seeks deals between $500,000 and $40 million
Foundation Energy Co. LLC
$21MM
Direct investments in U.S. onshore oil and gas properties
GasRock Capital LLC
Mezzanine
Project debt investments or acquisitions of between $5- and $50 million or larger
Greenhill & Co. Inc.: Greenhill Capital Partners II LP
$875MM
Middle-market energy investments

6. New Capital Company: Fund $ Amount Fund Type Investment Goal
Kayne Anderson Capital Advisors LP
$550MM
Equity
Early- to mid-stage North American E&P companies with investments from $10- to $75 million
Lime Rock Partners: Lime Rock Resources/Lime Rock Partners III LP
$875MM
Privately negotiated investments in the oil-service, oil-service technology and E&P sectors
NGP Energy Capital Management: Natural Gas Partners VIII LP
$1.3B
Investing capital in the E&P, midstream, oilfield-service and technology-related energy sectors.
NGP Energy Capital Management: NGP Energy Technology Partners LP
$148MM
Investing capital in technology-related energy sectors.

7. New Capital Company: Fund $ Amount Fund Type Investment Goal
NGP Energy Capital Management: NGP Income Co-Investment Opportunities Fund II LP
$250MM
Equity
Investing capital to buy royalty, net profits and other interests in properties and other energy-related assets.
Sowood Capital Management LP: Sowood Commodity Partners Fund IV LP
$1.24B
Projects in energy, natural resources, soft commodities, grains, industrial assets and metals.
Source: Oil and Gas Investor This Week

8. The Capital Pyramid Tier 1: Institutional Aggregators Tier 2:
General/Specific
Tier 2:
Institutional
Investors
Pensions, Endowments, Ins. Cos.
Financial
Corp.
Industry
Corp.
Tier 3: Individual Aggregators
Mutual Funds, Hedge Funds, Family Offices
Tier 4: Individual Investors
High Net Worth “Angels”
Source: COSCO Capital Management LLC

9. For Leasing/Seismic/Drilling: For Acquisition & Follow-on Drilling:
Financing Alternatives
for Early Stage or Private Company
For Leasing/Seismic/Drilling:
Affluent individuals/Angels
Industry partners
Prospect brokers
For Acquisition & Follow-on Drilling:
Volumetric Production Payments (VPP)
Bank Debt
Mezzanine Debt
Private Equity
Joint Ventures

10. Alternatives for Growth Stage
(Private or Public)
Private placements
Bank Debt
Notes/Debentures
144A Equity or Debt
IPO
Sale of Company

11. Laredo Energy & Chesapeake
Sell and restart:
Laredo Energy & Chesapeake

12. Where/How do you find it?
Oil and Gas Investor
Oil and Gas Investor This Week
Oil and Gas Finance Sourcebook
Financial Intermediaries

13. What do investors want?
Strong management team — technical, financial, operational
Track Record: Drilling success & financial value creation
Competitive Advantages: Geographic focus, land position or technical niche
Skin in the game

14. What do investors want? Acquire and exploit Management reputation
Drill-bit growth
Acquire and exploit
Management reputation

15. Path to Success John Doe Partners
$2 MM Principals’ sweat equity, angels,
industry partners
1998 $1 MM VPP
1998 $5 MM Commercial bank debt
1999 $8 MM Property-level JV w/ a fund
2000 $12 MM Private equity from a fund
2001 $15 MM Project debt from fund
2003 $38 MM Sale to public E&P
2004 $10 MM Start over!

16. Some Recent Investments
Funded Company
Recent Deal/Goal
Source
Blacksand Energy LLC
Commitments of up to $50 million to recapitalize the company and fund development projects onshore California
Kayne Anderson Capital Advisors, Jefferies Capital Partners and Wells Fargo Energy Capital.
Canaan Resources LLC
$150 million to acquire onshore long-life gas reserves
Canaan Natural Gas Partners Fund IX LP and associated entities
Cobalt International Energy LP
$500 million to focus on E&P in the deepwater Gulf of Mexico and other global basins.
Carlyle/Riverstone and Goldman Sachs Capital Partners
Cordillera Energy Partners II LLC
$176 million to focus on E&P in the Rockies, San Juan Basin, Midcontinent, East Texas and Permian Basin.
EnCap Investments LP
Coronado Resources LLC
$80.8 million to develop natural gas resources in unconventional reservoirs in the Midcontinent and Eastern U.S.
Greenhill Capital Partners LLC, Lime Rock Partners and COSCO Capital Mgmt. LLC

17. Some Recent Investments
Funded Company
Recent Deal/Goal
Source
Crusader Energy II LLC
$52 million to develop assets in the Anadarko Basin and the Golden Trend areas of Oklahoma, as well as in the Texas panhandle and North Texas
David D. Le Norman, other ex-Crusader I mgmt. and Kayne Anderson Energy Fund II
Escondido Resources LP
An undisclosed amount to focus on E&P in South Texas
EnCap Investments Fund V and Wells Fargo Bank
Fairfield Energy Ltd.
$200 million of private equity to fund E&P activity
A syndicate of investors led by Warburg Pincus and including SGAM/4D Global Energy Development Capital Fund and Kern Energy Partners I Fund
Prime Offshore LLC
Formed a $70 MM limited partnership. GE also financed the completion of a 48-mile gas pipeline from Prime’s fields in the South Padre Island area offshore Texas.
GE Commercial Finance Energy Financial Services
Genesis Gas & Oil LLC
$70MM to pursue coalbed-methane projects and other unconventional reserves in the Rockies.
Greenhill Capital Partners LLC, Citigroup Private Equity and COSCO Capital Management LLC

18. Some Recent Investments
Funded Company
Recent Deal/Goal
Source
Rockford Energy Partners II LLC
$50 million to acquire long-life reserves in Oklahoma and the Texas Panhandle
Quantum Energy Partners III LP
Sequoia Resources LP
$19 million to focus on E&P in the South Texas and Gulf Coast areas.
Slate River Resources LLC
$30 million for three consecutive years to focus on unconventional gas in the Rockies and development projects in the Uinta and Piceance basins in eastern Utah and western Colorado.
Lime Rock Partners
SouthView Energy LLC
$50 million to acquire domestic oil and gas assets through financing exploitation and development drilling in the $2- to $20 million range
Jefferies Capital Partners
Tecton Energy LLC
$30 million to fund E&P in unconventional resource gas plays in the Rockies and Canada.
Quantum Energy Partners
Source: Oil and Gas Investor This Week

19. Capital Providers are eager to hear your story
Execution is more important than strategy
Return is more important than growth
Dollars are better than barrels