Tph report on us shale gas j vs jan 2010

E&P Upstream Joint Ventures

Danny Rathan – Director: A&D

January 20, 2010

1.2

LEADING UPSTREAM A&D CAPABILITIES REINFORCED WITH EXTENSIVE M&A EXPERIENCE, MIDSTREAM AND OILFIELD SERVICE INSIGHT, AND CAPITAL MARKETS EXPERTISE.

WE’RE NOT JUST UPSTREAM A&D, WE’RE UPSTREAM ADVICE.

THE FIRM’S MISSION IS TO BE THE PREMIER INTEGRATED ENERGY INVESTMENT AND MERCHANT BANKING BOUTIQUE, PROVIDING THE HIGHEST QUALITY ADVICE AND PROFESSIONAL SERVICES TO OUR INSTITUTIONAL AND CORPORATE PARTNERS.

“”

The Right Mix

Mar

cellu

s Buy-side: Enerplus JV with Chief for $406MMSell-side: 400,000 acre JV partnerSell-side for Quest Resources CorpBuy-side: Potential $500MM Private Equity investmentSell-side: Public company seeking JV partner

Buy-side: Enerplus JV with Chief for $406MMSell-side: 400,000 acre JV partnerSell-side for Quest Resources CorpBuy-side: Potential $500MM Private Equity investmentSell-side: Public company seeking JV partner

Hay

nesv

ille Sell-side: ZAP Minerals (Shelby County Haynesville)

Buy-side: Large public company seeking to establish E Tx positionPotential IPO of company with significant positionSell-side: E. Texas (Bossier Shale/Haynesville Lime focus)Regency/GE/Alinda Haynesville Expansion Project (midstream)

Sell-side: ZAP Minerals (Shelby County Haynesville)Buy-side: Large public company seeking to establish E Tx positionPotential IPO of company with significant positionSell-side: E. Texas (Bossier Shale/Haynesville Lime focus)Regency/GE/Alinda Haynesville Expansion Project (midstream)

Oth

ers Woodford Buy-side: Chesapeake assets ultimately purchased by BP

Various valuations for corporate parentVarious evaluation of midstream assets for Private EquityEagle Ford Sell-side: Pioneer seeking JV partner

Woodford Buy-side: Chesapeake assets ultimately purchased by BPVarious valuations for corporate parentVarious evaluation of midstream assets for Private EquityEagle Ford Sell-side: Pioneer seeking JV partner

TPH SHALE ASSIGNMENTS

2

Joint Ventures start with a handshake…

Source: Signal Corp Collection, National Archives at College Park MD

3

Shale Forecast by Basin

4

Source: Production Forecast = TPH Estimates

0

5

10

15

20

25

2008 2009 2010 2011 2012 2013

Tota

l Dai

ly P

rodu

ctio

n (B

cf/d

)

Eagle Ford Woodford Fayetteville Marcellus Haynesville Barnett

5.5 Bcf/d

6.3 Bcf/d

4.4 Bcf/d

2.8 Bcf/d2008 – 2013 CAGR:

28%

Marcellus

Haynesville

FayettevilleWoodford

Barnett

Eagle Ford

2008-2013 CAGR: 28%

9%10%

7%

4%

1%

2%67%

Est. prop. Of Shale production in US by

2013e 33%

Basin Opportunity PredictabilityMarcellusEagle FordFayettevilleHaynesvilleGOM ShelfSan Juan/RatonGOM DeepwaterWind River

ArkomaUintaGulf CoastPermian GasBarnettJonah-PinedaleWoodfordPowder River

East TX & North LASouth TexasDJ BasinAppalachiaAnadarkoPiceanceAntrim

Inventory

Δ

Gas Rigs (#)6/09 to 6/11

-10 20 50 80 110

Δ

Gas Production (bcf/d)6/09 to 6/11

-2 -1 0 1 2 3

US Basin Economics

5

Threshold Gas Price

(20% IRR)

=> High

<$6/mcf

>$8/mcf

=> Low=> Average

Source: TPH Estimates

-10 20 50 80 110

MarcellusEagle FordFayettevilleHaynesvilleGOM ShelfSan Juan/RatonGOM DeepwaterWind River

Growing Shale Horizontal Rig Count

Source: TPH RigData.Note: Shale rig data attained by utilizing regional, state and county data from TPH RigData for horizontal well orientation.

0

20

40

60

80

100

120

140

0

500

1000

1500

2000

2500

1/5/07 7/5/07 1/5/08 7/5/08 1/5/09 7/5/09

# of

Sh

ale

Rig

s

# of

Rig

s U

SA

Total Rig Count Haynesville Marcellus

6

Shale Gas Macro Picture

Shale Gas Plays are in demand

□

Repeatability

□

Scale

□

Lower breakeven prices

Rig counts remain high in core areas

□

Growing Marcellus & Haynesville

Marcellus and Haynesville “best” economics of “proven” shales

Eagle Ford excitement high

Shale Development will require substantial amount of capital

□

100,000 acres = 1,000 wells = $4 billion = ~$300MM/year (15 year program)

7

$50

$1,050

$2,050

$3,050

$4,050

$5,050

Jan-08 Jul-08 Dec-08 Jul-09 Dec-09

A&D Producing A&D Land Corporate

Frequency of US Joint Ventures

Source: JS Herold.

E&P Transactions -

Total $66,500 MM (08-09)

JV

$1,000

$2,000

$3,000

$4,000

$5,000

GDP-CHK

CHK-PXP

CHK-BP

CHK-STO

EXCO-BG

CRZO-Avista DNR-TalonKWK-ENI East-KKR

Chief-Enerplus

PDC-Lime Rock

Swift-HK & CRZO-

Sumitomo <$50MM

CHK-Total

$27 billion $13 billion $16.4 billion $10 billion (16%)

8

WLL-

Kaiser-

Francis

Lewis-BP

Joint Venture Transactions

Chesapeake –

Plains E&PNet Acres: 110,000

EXCO -

BGNet Acres: 42,000

Goodrich –

Chesapeake Net Acres: 10,250

Swift Energy –

PetrohawkNet Acres: 26,000

Carrizo -

SumitomoNet Acres: N/A

Denbury

-

TalonNet Acres: 11,640

Quicksilver -

ENINet Acres: 3,575

Triana

–

Morgan StanleyNet Acres: N/A

Rex –

Williams Net Acres: 22,000

Carizzo

–

AvistaNet Acres: 77,500

Chief –

EnerplusNet Acres: 116,000

East Resources -

KKRNet Acres: N/A

Chesapeake Statoil Net Acres: 585,000

Newfield -

HessNet Acres: 140,000

Chesapeake -

BPNet Acres: 135,000

9

Chesapeake -

TotalNet Acres: 67,500

Source: JS Herold and EIA

Lewis Energy –

BP Net Acres: N/A

Epsilon -

ChesapeakeNet Acres: 5,350

Bakken8%

Barnett13%

Fayetteville8%

Haynesville17%

Marcellus50%

Eagle Ford4%

Joint Ventures in Shale Plays

JV’s in Shale Plays by Value -

Total $11.6 billion (07-09)No. of JV’s in Shale Plays -

Total 24 (07-09)

Barnett5%

Fayetteville16%

Haynesville41%

Marcellus38%

10

Source: JS Herold.

Acreage and Liquidity

Source: Company Reports; Factset data as of Sept. 1. 2009

-

100

200

300

400

500

600

0

1,000

2,000

3,000

4,000

5,000

6,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Acr

eage

/EV

(A

cres

/$M

M)

Liqu

idity

($

MM

)

Companies

Liquidity (Borrowing capacity+Cash) Acreage/EV (Acres/$MM)

Abundant Firepower Overweight in Shale Acreage

Several Joint Ventures announced and the others are considering

Completed a JV

11

JV Partnerships

Private

Private Equity

Small Cap

Mid Cap

Large Cap

Private

Private Equity

Small Cap

Mid Cap

Large Cap

Originator Partner

International International

Goodrich - Chesapeake

Chesapeake – Plains

Chesapeake – BP

Carrizo - Avista

Chesapeake – Statoil

Denbury - Talon

Quicksilv

er -ENI

Triana – Morgan StanleyEast Resources - KKR

Rex Energy - Williams

EXCO - BG

Chie

f -En

erpl

us

Newfield - Hess

PDC – Lime Rock

Swift Energy – Petrohawk

Carrizo

- Sumitomo

Chesapeake – Total

12

Source: JS Herold.

Lewis

- BP

Haynesville Development PositionsNet Acres (thousands)

Source: Company Filings, Investor Presentations, & TPH Research. Updated 11/1/2009.

0

100

200

300

400

500

600

Dev

on

Che

sape

ake

EnC

ana/

She

ll

Pet

roha

wk

EO

G

Fore

st

Pla

ins

E&

P

XTO

EX

CO

/BG

Ana

dark

o

Com

stoc

k

Goo

dric

h

Pen

n V

irgin

ia

St.

Mar

y

Ello

ra

Que

star

El P

aso

GM

X R

esou

rces

Com

mon

Cab

ot

Cla

yton

W

illia

ms

Enc

ore

Cla

ssic

Ber

ry

Completed a JV

13

‐

200 

400 

600 

800 

1,000 

1,200 

1,400 

1,600 

Chesapeake

Range 

East/KKR

Talisman

National Fue

ls 

Dom

inion*

StatOil Hydro

Atlas 

Equitable 

EXCO

Anadarko 

XTO  

Chief 

EOG 

Carrizo 

CNX Gas

Ultra 

Cabo

t 

Southw

estern 

Enerplus

Continen

tal

Rex Energy

New

field

Hess

Maratho

n

Que

st 

Epsilon 

Unit P

etroleum

Victory 

Penn

 Virginia 

Gastar

EV Ene

rgy Partne

rs

Ston

e 

PDC*

Marcellus Shale Acreage Positions

*Dominion states a range of 500-800 acres and PDC states a range of 10-40 acres.Source: Company filings, Tudor, Pickering, Holt & Company research update 11/1/2009.

Net Acres (thousands)

14

Completed a JV

-

100

200

300

400

500

Apa

che

TXC

O R

esou

rces

Lew

is E

nerg

y

Pion

eer

Con

ocoP

hill

ips

Enca

na

St.

Mar

y

Petr

ohaw

k

Mur

phy

Ana

dark

o

Lare

do

El P

aso

Swif

t En

ergy

Web

er E

nerg

y

Endu

ring

Ros

etta

Esco

ndid

o R

esou

rces

Com

mon

Ant

ares

Ene

rgy

Luca

s En

ergy

Reo

Star

Ene

rgy

Mag

num

Hun

ter

Eagle Ford Shale Acreage PositionsNet Acres (thousands)

Source: Company Filings, Investor Presentations, & TPH Research. Updated 11/1/2009.

15

Form

er T

XCO

(N

FD/A

PC)

Completed a JV

Rationale

Capital criteria

□

Non-availability of other funding sources

□

Inability to execute traditional A&D options

□

Bank covenant issues

□

Debt impact on credit rating

□

Tax optimization

Project commitments, leases & wells

Accelerate drill schedule

Strategic partnering - synergies/economies of scale

Gain these Benefits

For Sellers

1. Continued control over assets

2. Maintain upside potential

3. Ability to partially monetize assets

4. Diversification of risks

5. Cost sharing

For BuyersAccess/economics

Capital criteria

□

Defer capital in carry

Accelerate drill schedule

Strategic partnering - synergies/economies of scale

Broadening the gas value chain – marketing, capacity rights

International shales

Access to Technical Advances

□

Reducing drill days per well

□

Targeting and drilling in-zone

□

Extending the laterals/ more stages

□

Effective proppant placement

16

JV vs Equity Market Financing

17

JV Market Value

Equity Issuance Value

Estimated intrinsic developed

value of asset

Currentvalue of asset as

3P land value

Time

Value

JV value > intrinsic value

early in development

Internal intrinsic Value

At certain times equity issuance is >

than JV value

Decrease in Seller’s net value following either a JV or Equity issuance*

* No assumption of acceleration of value by capitalization

Marcellus:

$/Acre Buyer Seller

$1,285 Avista Carrizo

$1,500 Williams Rex

$3,500 Enerplus Chief

Unconventional Resource Value Progression

Firm Concept

PDP Established

Development Model Verified

~ $1,000- $5,000/acre

~ $10,000- $15,000/acre

~ $15,000- $25,000/acre

Value

Fayetteville:

$/Acre Buyer Seller

$11,800 XTO Contango

$9,340 XTO Southwestern

$14,074 BP Chesapeake

Barnett / Woodford:

$/Acre Buyer Seller

$22,000 Chesapeake Residents

$16,600 Williams Aspect

$19,444 BP Chesapeake

Asset Risk Decreases

18

Valuation Depends on Tier

Acreage within shale plays is differentiated by reservoir quality and commerciality

Initially in a shale development the core areas are unknown

□

Barnett tiers well defined by extensive well control

□

Haynesville has advanced substantially recently

□

Marcellus tier definition becoming clearer

Tier 1

Tier 2

Tier 3

> 20 MMcf/d

10-20 MMcf/d

< 10 MMcf/dInitial production rates simplest measure to define tiers

Initial productivity and economic returns may be 2-2.5x in the core

Fluid content and surface issues such as regulatory conditions can also impact the definition of core areas

Haynesville Shale Tiers

Marcellus Shale Tiers

>8 MMcf/d

4-8 MMcf/d

<4MMcf/d

19

Joint Venture Value Enhancement

AcreageTracts inCore area

NRILow

Royalty

Lease Terms

HBPFuture Expiry

ScaleContiguous area Favorable for development

MidstreamShort-term gathering

Long-term plan

$/Acre

OperatorSuccessful

Track Record

De-RiskedHorizontal Production3D Seismic

Core Analysis20

A Typical JV Structure

Consideration split between Bonus and Drilling Carry

Drilling Carry: partner pays disproportionate share of Originator’s D&C Capex

Other expenses, seismic, midstream, LOE, and Revenue per WI

Assumption of certain governing parameters for 100,000 gross acre position

□

WI split: 50%

Partner/ 50% Seller

□

Entry bonus of $2,000/acre (50% cash); $2,000/acre

in carry portion

Total consideration of $4,000/acre

Total JV Value of $200MM

□

Partner funds 50% of Seller drilling and completion expenses

Partner’s drilling capex commitment during carry phase (50% WI plus 50% of Seller’s 50% share = 75%)

□

Duration of drilling carry to be ~3 years, thereafter heads-up

21

$0

$100

$200

$300

$400

$500

0

100

200

300

400

500

2010 2014 2018 2022 2026 2030 2034 2038 2042 2046 2050

Production Annual CapitalNet Production

(MMcfe/d)

Annual Net Capital($MM)

Development Pace

□

Same locations

□

1 rigs in 2010, 4 rigs in 2011, 6 rigs in 2012, 8 rigs thereafter

□

11 year program

Total Capex exposure $3.3Bn, Seller’s share $1.6Bn

Seller Capex requirement 2010-2012 - $151 MM

100,000 Acre Marcellus Development PlanAccelerated JV Development Pace

Production Forecast

Seller 25% D&C capex contribution

Seller 50% D&C capex contribution

Development Pace

□

875 locations

□

1 rig in 2010, 2 rigs in 2011, 3 rigs thereafter

□

26 year program

Total Capex exposure $3.3Bn

Seller’s Capex requirement 2010-2012 - $274MM

Base Case Development Plan –

Junior or Small Cap

Net Production Forecast

$0

$100

$200

$300

$400

$500

0

100

200

300

400

500

2010 2014 2018 2022 2026 2030 2034 2038 2042 2046 2050

Production Annual CapitalNet Production

(MMcfe/d)

Annual Net Capital($MM)

(1) Pre-tax, pre-G&A.

22

$1.3

$0.9

$46 $91

$137 $137 $137 $137 $137

2010 2011 2012 2013 2014 2015 2016

Stand Alone vs. JV Development

$34 $137 $180 $182 $182 $182 $182

$11

$46

$94 $182 $182 $182 $182

$46

$182

$274

$365 $365 $365 $365

2010 2011 2012 2013 2014 2015 2016

(dollars in millions)

Stand Alone Capex/Cumulative FCF Accelerated JV Capex/Cumulative FCF(dollars in millions)

Stand Alone ValueGross Asset Value: $1.4 Bn

Joint Venture ValueGross Asset Value: $2.3 Bn

$1.4

Seller

JV Partner

Seller Cumulative Free Cash Flow

Project Cumulative Free Cash Flow

End of Carry Period

23

Recent Upstream Joint Ventures

Source: J.S. Herold, TPH Estimates.*Note: Haynesville portion of the deal only, including production.

24

Date TV Net AmountAnnounced Developer Partner ($MM) Acres Location Purchased Description

1/19/2010 Epsilon Chesapeake $100 5,000 Marcellus 50% $930/acre cash -

$11,000/acre carry

1/4/2010 Chesapeake Total $2,250 67,500 Barnett 25% -$11,852/acre cash

-$21,481/acre carry

12/15/2009 Carrizo Sumitomo $16 NA Barnett 13% NA

12/10/2009 Lewis Energy BP N/A N/A Eagle Ford 50%

11/2/2009 Swift Energy Petrohawk $39 26,000 Eagle Ford 50% - $2,000/acre cash

- $1,000/acre carry

11/2/2009 PDC Lime Rock $57 57,500 Marcellus 50% NA

10/14/2009 Newfield Hess N/A 140,000 Marcellus 50% NA

8/19/2009 Chief Enerplus $406 116,000 Marcellus 30% - $1,400/acre cash

- $2,100/acre carry

6/30/2009 EXCO BG $798* 42,000* Haynesville 50% - $11,780/acre cash

- $7,220/acre carry

6/22/2009 Rex Energy Williams $33 22,000 Marcellus 50% - $1,500/acre carry

6/9/2009 East Resources KKR $350 N/A Marcellus N/A Substantial minority; est. at

$2,000-2,500/acre

6/2/2009 Triana Morgan Stanley N/A N/A Marcellus N/A - $1,000-1,500/acre

5/18/2009 Quicksilver Eni $280 3,575 Barnett 27.5% - $2.13/Mcfe; $16,500/Mcfe/Day

5/14/2009 Denbury Talon $270 11,640 Barnett 60% - $1.00/Mcfe; $5,900/Mcfe/Day

JV Considerations

25

JV Considerations

Operations Legal Governance

Scope of Operations/AMI

Operatorship

Term

Valuation determination

Due diligence

Cash vs Carry

Carry expenses – D&C

Carry Period

Development plan

Capital Management

Cash distributions

Escrow accounts

Midstream operations

Acquired Interests – depths

Title transfer timing

Ownership rights

AMIs – New acreage

JEA/JDA/JOA

Purchase and Sale Agreement

Indemnification

Health, Safety & Regulatory

Representations and Warranty issues

Consents

Service agreements

Break-up fees

Liquidated damages

Transferability

Corporate Structure (LLC, LP or C corp)

Corporate Jurisdiction

Board members

Manager vs. committee

Decision-making body

Voting Powers

Outsourcing services

Defaults

Arbitration

Joint Ventures can have spectacular results

Source: NASA

26

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About the Firm

Disclosure Statement

27