1 Denali Oil & Gas Rick Louden President & CEO. 2 Denali Oil & Gas Background Founded June, 2003 with a $50 million commitment from Quantum Energy Partners,

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Denali Oil & GasDenali Oil & Gas

Rick LoudenRick Louden

President & CEOPresident & CEO

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Denali Oil & GasDenali Oil & GasBackgroundBackground

• Founded June, 2003 with a $50 million commitment Founded June, 2003 with a $50 million commitment from Quantum Energy Partners, Energy Trust and from Quantum Energy Partners, Energy Trust and Walter Oil & Gas. Denali II funding commitment of Walter Oil & Gas. Denali II funding commitment of $50 million in 2006.$50 million in 2006.

• Focus on S. Texas tight gas below 12,000’Focus on S. Texas tight gas below 12,000’

• Drilled 17 exploratory wells, 48 development wells, Drilled 17 exploratory wells, 48 development wells, four small acquisitions.four small acquisitions.

• Sold assets in 2004 and 2006 in multiple asset Sold assets in 2004 and 2006 in multiple asset sales totaling $230 million.sales totaling $230 million.

• Currently producing 13 Mmcfed.Currently producing 13 Mmcfed.

Denali Oil & GasFields Currently Producingand Fields Sold

Finley Webb Las Hermanitas

Destino

La Perla

S. EscobasHaynesExsun

Tierra BlancaArrowhead

Ranch

Shivers Deep

Edinburg South

S. Friar Ranch

Rapture

Hardeman Slough

South Bearhead

Robinson Lake

Creek

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Denali Oil & GasDenali Oil & GasInvestor PartnersInvestor Partners

Bring Value to the TableBring Value to the Table

• Sounding Board and Brainstorming on key Sounding Board and Brainstorming on key decisions and strategy decisions and strategy

• Financial Expertise and MuscleFinancial Expertise and Muscle

• Financial Strength and Staying PowerFinancial Strength and Staying Power

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Planning Discussion withQuantum Energy Partners

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Denali Oil & GasDenali Oil & GasBusiness PlanBusiness Plan

• Primary focus on deep tight gas in Primary focus on deep tight gas in South Texas.South Texas.

• Create value through exploration and Create value through exploration and small acquisitions with significant small acquisitions with significant drilling potential.drilling potential.

• Operate the majority of properties and Operate the majority of properties and reserves.reserves.

• Be patient, wait for exceptional Be patient, wait for exceptional opportunities.opportunities.

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Starting Point Conditions Starting Point Conditions Private Equity Funded CompanyPrivate Equity Funded Company

– Target 30%+ IRR and ROI of 3.0+ Target 30%+ IRR and ROI of 3.0+

– Don’t bet on rising oil and gas prices.Don’t bet on rising oil and gas prices.

– Minimize risk.Minimize risk.

• No rank wildcatting.No rank wildcatting.

• Prudent level of borrowing.Prudent level of borrowing.

• Conservative Acquisition analysis Conservative Acquisition analysis assumptions.assumptions.

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Denali Oil & GasDenali Oil & GasStrategyStrategy

…… ……..How do we generate 30%+ IRR and How do we generate 30%+ IRR and 3.0+ ROI without rising gas prices and 3.0+ ROI without rising gas prices and without significant risk?without significant risk?

• Basin Characteristics? Basin Characteristics? Wells with high initial Wells with high initial rates and steep declines or wells with moderate rates and steep declines or wells with moderate initial rates and flatter declines?...........initial rates and flatter declines?...........high high initial rates generate higher IRR’s initial rates generate higher IRR’s despite despite steeper declines.steeper declines.

• Exploration or Exploration or acquisitions?........acquisitions?........exploration minimizes exploration minimizes upfront capital improving ROI and IRR if success upfront capital improving ROI and IRR if success rate is good.rate is good.

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ContinuedContinued………..………..

• Sell discoveries early or fully Sell discoveries early or fully develop?.........develop?.........selling fields early in life after selling fields early in life after minimum drilling further improves IRR and ROI , minimum drilling further improves IRR and ROI , but sacrifices a portion of the future present but sacrifices a portion of the future present value. value.

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…………..How do we generate 30%+ IRR & 3.0 ROI? How do we generate 30%+ IRR & 3.0 ROI?

Example: Ten well field, each well costs $4 million Example: Ten well field, each well costs $4 million and has a PV10 of $6 million and ROI of 2.5.and has a PV10 of $6 million and ROI of 2.5.

CapitalCapital Sale ValueSale ValueROIROI

Land & SeismicLand & Seismic $ 1$ 1 -- --

Drill 3 wellsDrill 3 wells $12$12 $30$30 2.52.5

Drill 7 PUD’s Drill 7 PUD’s $28$28 $70$70 2.52.5

TotalTotal $41$41 $100$100 2.442.44

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…………..How do we generate 30%+ IRRHow do we generate 30%+ IRR & 3.0 ROI?& 3.0 ROI?

Example: Ten well field, each well costs $4 Example: Ten well field, each well costs $4 million and has a PV10 of $6 million and ROI of million and has a PV10 of $6 million and ROI of 2.5.2.5.

CapitalCapital Sale ValueSale ValueROIROI

Land & SeismicLand & Seismic$ 1$ 1 -- --

Drill 3 wellsDrill 3 wells $12$12 $30$30 2.52.5

Sell 7 PUD’s --Sell 7 PUD’s -- $21$21 - - (at 50% of PV10) (at 50% of PV10)

TotalTotal $13$13 $51$51 3.93.9

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Starting Point Conditions Starting Point Conditions Private Equity Funded CompanyPrivate Equity Funded Company

– Target 30%+ IRR and ROI of 3.0+ Target 30%+ IRR and ROI of 3.0+

– Don’t bet on rising oil and gas prices.Don’t bet on rising oil and gas prices.

– Minimize risk.Minimize risk.

• No rank wildcatting.No rank wildcatting.

• Prudent level of borrowing.Prudent level of borrowing.

• Conservative Acquisition analysis Conservative Acquisition analysis assumptions.assumptions.

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0

2

4

6

8

10

12

$/mmbtu

Prices Adjusted For Inflation

???

U.S. Gas Prices Adjusted for Inflation1985 - 2009

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Minimize RiskMinimize Risk

• Top 10% Technical TeamTop 10% Technical Team

• Wait for exceptional opportunitiesWait for exceptional opportunities

• No Rank WildcattingNo Rank Wildcatting

• State of the Art TechnologiesState of the Art Technologies

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309,919 Wells < 10,000’ TD309,919 Wells < 10,000’ TD

Total Wells 361,030Total Wells 361,030

South TexasSouth TexasWells less than 10,000’ deepWells less than 10,000’ deep

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13,007 Wells > 13,000’ TD13,007 Wells > 13,000’ TD

South TexasSouth TexasWells deeper than 13,000’Wells deeper than 13,000’

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Minimize RiskMinimize Risk

• Top 10% Technical TeamTop 10% Technical Team

• Wait for exceptional opportunitiesWait for exceptional opportunities

• No Rank WildcattingNo Rank Wildcatting

• State of the Art TechnologiesState of the Art Technologies

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Denali Oil & GasDenali Oil & GasState of the Art TechnologyState of the Art Technology

Denali

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Denali Oil & GasDenali Oil & GasResultsResults

Denali I (2003 – 2006)Denali I (2003 – 2006)

• Three small acquisitions ($9.1 Million), 4 Three small acquisitions ($9.1 Million), 4 exploration wells (3 successful and 1 dry hole), exploration wells (3 successful and 1 dry hole), 35 development wells.35 development wells.

• $44 million of investor capital and $15 million $44 million of investor capital and $15 million debt.debt.

• Sold in multiple transactions totaling $230 Sold in multiple transactions totaling $230 million. million.

• IRR = 214%, multiple = 4.5.IRR = 214%, multiple = 4.5.

2020




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Denali Oil & GasDenali Oil & GasResultsResults

Denali II (2006 – 2008)Denali II (2006 – 2008)

• One acquisition, 13 exploration wells (6 One acquisition, 13 exploration wells (6 successful and 7 dry holes), 13 development successful and 7 dry holes), 13 development wells.wells.

• $64 million of investor capital and $24 million $64 million of investor capital and $24 million debt.debt.

• Current proved reserves of 70 Bcfe and Current proved reserves of 70 Bcfe and probable reserves of 73 Bcfe.probable reserves of 73 Bcfe.

• 100,000 net undeveloped acres in resource 100,000 net undeveloped acres in resource play with acreage going for $250-350 per acre.play with acreage going for $250-350 per acre.

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Denali’s S. Escobas Field

Escobas Field

Fandango field

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Fandango Field

429 BCF

Escobas Field

89 BCF

South Escobas Type Log

Type Log Cont.

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Denali’s S. Escobas Field

Escobas Field

Fandango field

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Denali Oil & GasDenali Oil & GasFinding CostsFinding Costs

YearYear Reserve AddsReserve Adds Finding CostFinding Cost

20032003 13 Bcfe13 Bcfe $0.67/Mcfe$0.67/Mcfe






TotalTotal 172 Bcfe172 Bcfe $1.17/Mcfe$1.17/Mcfe

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Denali Oil & GasDenali Oil & GasDenali IIIDenali III

• Same Investor Group.Same Investor Group.

• $140 million commitment. Additional capital $140 million commitment. Additional capital available for larger acquisition.available for larger acquisition.

• Exploration and acquisitions with increased Exploration and acquisitions with increased focus on identifying acquisitions. focus on identifying acquisitions.

• Partner with companies who have acreage Partner with companies who have acreage and prospects in S. Texas, but are and prospects in S. Texas, but are reallocating capital to other basins………reallocating capital to other basins………through farmouts and joint ventures. through farmouts and joint ventures.

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Experience . . .Experience . . . Focus . . . Focus . . .

Innovation . . . Innovation . . . Technology . . . Technology . . .

1 Denali Oil & Gas Rick Louden President & CEO. 2 Denali Oil & Gas Background Founded June, 2003 with a $50 million commitment from Quantum Energy Partners,

Documents

denali oil gas strategy

denali oil gas fields

gas prices

walter oil gas

denali oil gas rick

denali oil gas background

texas tight gas

deep tight gas