1. 0 IPAA Private Capital Conference January 18, 2007 Managing Leverage in a Volatile Commodity Environment Tim Murray Managing Director

2. 1 Agenda Energy Investment Strategy Managing Leverage in a Volatile Commodity Environment Representative Transactions Mid-Continent Independent Gulf Coast Acquisition Public Independent Private Partnership

3. 2 Energy Investment Strategy  Guggenheim has been actively investing in Energy since 2001  Early successes include:  Mission ResourcesDebt for Equity Swap  Abraxas PetroleumGlobal Recapitalization  Petroleum Development Startup capital for CBM development  In September 2005, we opened the Houston office:  Desired a local industry presence and industry expertise  Now have 10 professionals located in the Houston office  Since opening the doors, we have closed 15 transactions aggregating more than $1.1 BN of debt and $16 MM of equity. Approximately 1/3 of the underwritten commitments closed were syndicated to other institutions. Transactions include:  Seven exploration and production companies  Five oilfield service deals including two drilling contractors, a seismic contractor, a coiled tubing service firm, and a compressor manufacturer/service company  Two mezzanine deals in the offshore Gulf of Mexico  One midstream company

4. 3 Energy Investment Strategy  Guggenheim is interested in opportunities in all segments of the domestic energy industry, especially in the upstream, midstream, and service sectors  Guggenheim can provide traditional senior debt, subordinated and mezzanine debt for public or private companies. Minimum return hurdle approximates LIBOR + 4%  While we prefer to lead financings, we are open to participating with other institutions as well  Minimum transaction size of interest is $10 MM (or potential to grow to that level), and our comfortable hold level is $80 MM or less  Guggenheim seeks underwriting opportunities up to $250 MM, and is proficient at arranging and managing large syndications  We also seek opportunities to selectively invest equity, especially in situations which complement a debt financing  Engineering support for upstream transactions is provided by our in house engineering staff and outside consultants. Hedging capability is currently outsourced, but transparent to the client

5. 4 Energy Investment Strategy Prospective clients and financial institutions consider Guggenheim an attractive financial partner:  We are more flexible than most other financial institutions – very private and managed by a small management team without stifling regulatory oversight  Our credit and investment approval process is very efficient  Clients deal directly with Managing Directors or Managing Partners, who are the final decision makers  Our support staff in New York is very efficient and can close quickly once terms are agreed upon  We are excellent financial partners – responsive, straight forward, and imaginative problem solvers  Guggenheim has a very capable team–we have significant industry knowledge and connections in Houston and financial structuring expertise in New York  We have extensive relationships and familiarity with both the commercial bank and institutional syndication markets  With a healthy risk appetite, we have the willingness and experience to structure appropriate solutions for the more challenging capital requirements

6. 5 Managing Leverage in a Volatile Commodity Environment  Price Hedging: perhaps single greatest risk in a leveraged deal can be insured  Amortization: reducing leverage through monthly cash sweep or scheduled payments instills discipline and quickly reveals discrepancies between projections and reality  Equity Support: greater willingness to assume more risk when the owner has “skin in the game” and/or ability to invest additional capital  Equity Backstop: second best thing to skin in the game is a properly structured call/put arrangement to inject equity with the occurrence of certain events  Choose the Right Partner: While a financial institution is very focused on the character of management, management should be confident their chosen financial partner understands their business and is committed to it through good times and bad

7. 6 Managing Leverage in a Volatile Commodity Environment  Balancing Financial and Operating Leverage: High financial leverage should be matched with low “operating leverage” (high PDP component, long and predictable decline characteristics, low operating cost, well defined drilling targets, ownership of service assets to reduce cost and control the pace of capital deployment)  Deal Structures:  Acquisitions funded with stock or contingent payments based on realization of some upside  Predicated strictly on PDP (all other categories represent cushion/upside)  Liquidity to manage small or short duration upsets  Bridge components with well-defined take outs (but fully amortizing capability)

8. 7 Situation:  The principals of the company desired to unwind an out-of-the-money hedge position and to monetize a portion of their equity in the subsidiary  The company’s current hedge position was $7 MM out-of-the-money  The company’s properties are comprised of long-live, stable decline production  92% Proved Developed Producing  63% natural gas, 37% oil and liquids  Financial institutions had presented volumetric production payment proposals to the company, but the proposals did not provide any flexibility for the company’s continued development plans Mid-Continent Independent

9. 8 Solution:  Guggenheim structured a five-year, $31 million credit facility which was used to:  Refinance bank debt  Unwind the company’s out-of-the-money hedge position  Execute a new hedge program  Make a $16.3 MM distribution to the principals  Guggenheim advanced 55% on proved PV 10% value (based on 90% of NYMEX strip prices) and approximately 5x annual cash flow  A $5 million equity call guarantee was put in place to ensure funding for the planned development program  The company hedged 85% of expected natural gas production for two years and 95% of expected oil production for four years  Additional gas hedges will be layered on as gas prices firm Mid-Continent Independent

10. 9 Situation:  Guggenheim had an opportunity to back a management team in the acquisition of some large sour gas fields divested from a major oil company  The deal with the management team fell through just before closing, so we took on a partner and closed the acquisition  We formed a virtual oil company to manage the assets, outsourcing the field and gas plant operations, accounting, legal, land, and engineering  Gross daily production averages over 53 MMCF, 5.6 MBBLs of oil and liquids, and 375 long tons of sulfur  Independent engineered reserves of 13.6 Proved and 7.1 MMBOE Probable  91% Proved Developed Producing  R/P ratio of 10 years  Production has been increased over 25% since June 1, 2006 closing  Guggenheim is intimately involved with daily operations Gulf Coast Acquisition

11. 10 Solution:  Guggenheim invested equity and structured senior and subordinated debt to:  Facilitate the acquisition of the Gulf Coast assets  Execute a hedge program  Finance transition costs as we assumed operations  Finance the acquisition of minority interests  Completed workovers and drilled 2 new wells  Debt was advanced 60% on proved PV 10% value (derived from NYMEX strip prices) and approximately 4x annual cash flow  To mitigate exposure to commodity price fluctuation, ~75% of expected oil and natural gas production was hedged for the first two years  We used a combination of Puts and Collars to effectively manage risk while minimizing capital outlay  To offset some of the costs of the positions, we sold a oil Call Swaption in year three Gulf Coast Acquisition

12. 11 Situation:  Company was nearing full utilization on its existing bank line  Additional capital was required to:  Repurchase stock owned by a late co-founder’s estate  Purchase some high yield bonds at a future call date  Continue to grow its business  Attract equity investors for its pending IPO (closed May 2006)  The company’s reserve base is comprised of mature Gulf Coast and mid-continent production with a long and predictable life  65% Proved Developed Producing  70% oil and liquids, 30% natural gas  Company owns and operates their own drilling and workover rigs  Company has actively employed an ongoing hedging program as part of its business strategy for many years Public Independent

13. 12 Solution:  Guggenheim structured a $140 MM credit facility consisting of a $50 MM borrowing base Revolver, and a $90 MM Term Loan B to:  Refinance outstanding bank debt under the Term B  Repurchase $10 million worth of company stock  Provide an unfunded Revolver  Guggenheim advanced 40% on proved PV 10% value (derived from NYMEX strip prices) and approximately 4x annual cash flow  Company is required to maintain a rolling two-year hedging program on 50% - 85% of expected production  Company utilizes a combination of collars and three-ways to manage its exposure to commodity price fluctuations Public Independent

14. 13 Private Partnership Situation:  Principals with a successful track record raised approximately $7.5 MM of equity in their fourth fund formed to acquire non-operated oil and gas interests  Partnership sought a financing partner to provide capital for acquisition  A responsive financial partner was desired that could close quickly in auction situations and permit distributions to the partners  Partnership’s initial acquisitions were comprised of mature, non-operated Gulf Coast and Rocky Mountain production  90% Proved Developed Producing  57% oil and liquids, 43% natural gas  Numerous small interests with no significant value concentration

15. 14 Private Partnership Solution:  Guggenheim structured a $50 MM senior secured reducing revolver with a 4 year maturity subject to an annual borrowing base determination  Guggenheim advanced 60% on PV10 value (derived from 90% of NYMEX pricing).  Partnership is required to employ an ongoing hedging program  85% oil production hedged  60% gas production hedged  Total production hedged increases gradually until maturity.  Partnership uses costless collars to manage commodity risk.

16. 15 IPAA Private Capital Conference January 18, 2007 Tim Murray Managing Director GUGGENHEIM PARTNERS 1301 McKinney, Suite 3105 Houston, TX 77010 (713) 300-1300 main (713) 300-1339 fax