0. IPAA Capital Markets Seminar July 21, 2008
Tim Murray
Managing Director
GUGGENHEIM PARTNERS
1301 McKinney, Suite 3105
Houston, TX 77010
(713) main
(713) fax

1. Introduction of Guggenheim Partners
Mezzanine Lending Basics
Energy Finance Market
Credit Crisis Impact
Representative Transactions

2. Houston Energy Office opened in September 2005
A private, global diversified financial services firm with $120+ BN under management
Wealth Management, Investment Management, Capital Markets
500+ professionals worldwide, 70 in Investment Management
Houston Energy Office opened in September 2005
7 professionals, including 3 petroleum engineers
Invested in 41 deals for an aggregate $2.1 BN
Total IRR of 25.5% as of March 31, 2008
Syndicated over $1.2 BN senior and second lien debt
Raised $230 MM of co-investment equity
Raising an Energy Opportunities Fund
Provide senior and mezzanine debt plus equity
Blend of financial and technical expertise is unique

3. PDP PDNP PUD Probable Possible Target Rate of Return, % Reserve Risk
Energy Financing Risk Profiles
50+ 5 10 15 20 25 30 35 40 45
PDP
PDNP
PUD
Probable
Possible
Development/Exploitation
(Engineering Risk)
Exploration
(Geologic/Geophysical Risk)
Traditional Commercial Bank
Loans
Target Rate of Return, %
Reserve Risk
Secured Loans, Mezzanine Debt,
and Second Lien Loans
Project Equity
Equity -
Linked and Equity Securities
Wildcat
Drilling
Targeted
Investment Types for
Guggenheim Energy
Opportunities Fund

4. Mezzanine Debt
High advance rates against PDP, often all PUD reserves
Advances against AFEs during development, borrowing base control also
First or second lien on development, non-recourse to company
Asset coverage/tail test, but few/no financial covenants
Fees up front and prepayment fees, plus an equity kicker (ORRI or NPI)
Fixed interest spread, bp over bank debt (liquidity discount for large deals)
Advancing term loans
Monthly cash flow sweep to amortize
Hedging required
Commercial Bank Debt
Traditional advance rates against mostly PDP, some PDNP+PUD (20-30%)
Borrowing base controls advances
First lien on collateral, recourse to the company
Covenants: TNW, CR, interest coverage, max debt/ebitda
Minimal fees
Pricing grid based on usage
Revolver and term loan
Hedging optional

5. Private Equity Focused strategy and use of proceeds
Equity investment a function of target return and leverage assumed
No collateral, but could have a liquidation preference
Performance covenants only
Hedging encouraged
Management must deliver a preferred return before backing in for their promote
No amortization
Equity investor controls most major decisions, including replacing management
Mezzanine Debt
Flexible use of proceeds
High advance rate against proven reserves
First or second lien on development assets but non-recourse to the company
Asset coverage/tail test, but few/no financial covenants
Hedging required
Fees up front and prepayment fees, plus an equity kicker (ORRI or NPI)
Fixed interest spread, bp over bank debt (liquidity discount for large deals)
Advancing term loans
Monthly cash flow sweep to amortize
No management input or control

6. $/Bbl
Tristone Capital Q2/08 Survey and NYMEX (7/17/2008)

7. $/MM Btu
Tristone Capital Q2/08 Survey and NYMEX (7/17/2008)

8. Commercial Banks
Banks are challenged to maintain and grow loans with new and aggressive competition, restrictive loan policies, and declining loan yields. Some banks continue to aspire to be investment banks.
Investment Banks
Investment Banks are expecting a more moderate M&A market and less receptive public markets in the energy sector. Some investment banks aspire to be commercial banks.
Private Equity
A record levels of private equity capital is competing for limited management teams in a moderating M&A market with high commodity pricing and rising F&D costs. Current investors may be challenged to realize the same level of returns as the predecessor funds.

9. Mezzanine Firms
New entrants and retooled teams have increased to more than a dozen firms, up from 3 or 4 survivors in Pressure to build portfolios has resulted in some of the same mistakes being made all over again.
Institutional Loan Investors
A record volume of Term B and Second Lien loan product was bought by hedge funds, mutual funds, and CLOs in 2006 and first half of For deals in the $100 million range that accessed this market, loan pricing was bid down and covenant-lite structures were over-subscribed overnight. Today, some firms that were heavily engaged in leveraged lending with a mark-to-market balance sheet are liquidating energy loans to meet investor demands for redemptions.
Clients
Energy clients have never enjoyed such an abundance of capital. The challenge is to stay focused on your strategy and not pursue an idea just because you can raise the capital.

10. Guggenheim Energy Energy Capital Provider Spectrum
Equity Mezzanine Senior
Guggenheim Energy
Energy “Mezzanine” Firms
GasRock;GE Energy; Laminar Direct; Macquarie;
NGP Capital Resources; Petrobridge; Prospect Energy; TCW;
Wells Fargo Energy Capital; Goldman Sachs E&P Capital
Resource Funds/Asset Aggregators
Merit Energy; Quantum Resources; Celero;
EnerVest; LimeRock; Sheridan Resources
Stretch Senior Debt Providers
American Capital; CIT; Foothill;
Fortress Capital; SilverPoint;
Power & Infrastructure/Alternative Assets
ArcLight Capital; D.E. Shaw; First Reserve; Haddington Ventures;
MetalMark Capital; Quantum Infrastructure Fund
Traditional Energy Banks
Amegy Bank; Bank of America;
Bank of Oklahoma/Texas; Bank of Scotland;
BNP Paribas; Capital One; Citigroup;
Comerica Bank; Compass Bank;
Deutsche Bank; Fortis; Frost Bank;
GE / Merrill Lynch; Guaranty Bank;
JPMorgan; Texas Capital; RBS; UBOC;
US Bank; Wachovia; Wells Fargo;
WestLB; Whitney Bank
Energy-Focused Private Equity Funds
Avista Capital; Carlyle / Riverstone; DB Zwirn;
EnCap Investments; Energy Spectrum; First Reserve;
Greenhill Capital; Kayne Anderson; Lime Rock Partners;
Pine Brook Road Partners; Post Oak Partners;
Quantum Energy; Natural Gas Partners; SCF Partners;
Warburg Pincus; Yorktown Partners

11. The Leveraged Finance capital markets experienced a major correction in the second half of 2007 through the first quarter of 2008.
Record forward calendar of committed transactions built through the first half of the year with aggressive structures and pricing weighed upon new issue underwritings
Problems started in the Leveraged Loan market following the collapse of structured vehicles that were a major driver of liquidity
Formation of new CLOs effectively stalled following sub-prime and asset-backed crisis and inability to syndicate AAA tranches and source equity
Energy credit availability since 2Q 2007, while more constrained in the second half of 2007 in sympathy with the broader market, remains one of only a few select industry sectors successfully accessing the leveraged markets across the credit spectrum
Since mid-December 2007, energy issuance has comprised the majority of the high yield calendar/high yield primary issuance

12. 1,056
614
427
419
418
249
199
182
Merrill Lynch High Yield desk

13. Fixed Income Market: during the first quarter, the 10 year note declined about 60 bps, while 3-month LIBOR declined approximately 200 bps.
Leveraged Loan Market: institutional issuance totaled $27 billion during the 1Q 2008, down 80% from the $138 billion issued during the 1Q 2007

14. Milagro Exploration Background Transaction Update
Petrohawk Energy Corporation announced intention to sell its Gulf Coast Division, a significant portion of which were former Mission Resources assets and personnel
Guggenheim teamed with former Mission Resources management team, now Milagro Exploration, to bid on the divestiture
Attractive opportunity: 266 BCFE of proved reserves (68% developed) with 400 BCFE upside
Transaction
Milagro bid $825 MM funded with $260 MM of senior (L+2.25%) and $200 MM of second lien debt (L+6.25%), $27 MM of Management equity and $250 MM of new private equity, plus a $125 MM subordinated seller note (12% PIK)
80% of PDP volumes were hedged prior to closing
Update
Proved reserves increased through drilling and the senior borrowing base increased by $60 MM to $375 MM
Seller note repurchased for $100MM, funded with increase in senior revolver and second lien term loan
Oil and Gas Investor Magazine named this “Financing Deal of the Year for 2007”

15. North Texas Development
Background
Client was awarded a substantial farm-in opportunity from a Major to develop Cleveland Sand acreage in North Texas
Attractive “resource play” opportunity with minimal geological risk
Improved completion techniques made for very attractive economics in the play
Well known management team with very strong track record
Transaction
Guggenheim committed $37 MM Advancing Term Loan (P+2.2%) to drill and complete 16 wells under the farm-in agreement
Upside participation came in the form of an ORRI (2% BPO, 8% APO)
Update
First 8 wells came in at or above expectations, after which Guggenheim was refinanced under the client’s traditional senior bank facility
Realized proceeds to date have generated better than a 20% IRR
Guggenheim’s ORRI is currently generating more than $80,000 per month

16. Bakken Shale Development
Background
Private equity sponsored team sought to acquire and develop Bakken Shale assets while minimizing management dilution
Guggenheim’s mezzanine facility allowed management team to leverage private-equity dollars to more efficiently acquire and develop assets
Strong management and operating team with experienced equity sponsor
Transaction
$50 MM Advancing Term Loan (L+6.5% with 4% ORRI BPO/10% NPI APO) to finance drilling and completion costs
$10 MM equity co-investment to participate as a working interest partner
Update
Mezzanine facility accelerated drilling program with 8 wells drilled and completed
Client was able to acquire and develop a larger acreage position by utilizing mezzanine capital for drilling and completion costs.

17. A leveraged loan too far…
Private company focused on unconventional gas in multiple areas in North America and International. Company is leveraged 4 times EBITDA and experiencing liquidity problems.
Reserve replacement in 2005: downward revisions (13%) exceed additions; excluding reserve divestitures and acquisitions and price effect, proved reserves decline 5.5%. Proved reserve replacement in prior year was also not achieved.
New management team hired as founder/major shareholder left the business.
Company is acquired for about $3.00/MCFE Total Proved. The acquisition is funded with senior debt, a Second Lien term loan (42%), and equity (58%). Debt is approximately equal to SEC total proved PW10% at $10/MMBTU and $61/BBL.
Asset coverage covenant includes 50% credit for Probable reserves.
Second Lien term loan flexed down ½% to L+5 1/4%, but still oversubscribed four times over within a week of launch in March 2006.

18. A leveraged loan too far…
$400 MM Debt l

19. Will the tide continue to rise?
A rising tide lifts all boats…
It’s only when the tide goes out that you discover who’s been swimming naked.

20. IPAA Capital Markets Seminar July 21, 2008
Tim Murray
Managing Director
GUGGENHEIM PARTNERS
1301 McKinney, Suite 3105
Houston, TX 77010
(713) main
(713) fax