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Corporate Banking and Investment Capital Markets Symposium Hosted By: MOGA Senior Debt & Second Lien Bank Financing May 18, 2006 Doug Liftman Managing.

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Presentation on theme: "Corporate Banking and Investment Capital Markets Symposium Hosted By: MOGA Senior Debt & Second Lien Bank Financing May 18, 2006 Doug Liftman Managing."— Presentation transcript:

1 Corporate Banking and Investment Capital Markets Symposium Hosted By: MOGA Senior Debt & Second Lien Bank Financing May 18, 2006 Doug Liftman Managing Director BNP Paribas

2 Corporate Banking and Investment 2 1. E&P Bank Lending Overview 2.Second Lien Bank Facilities 3.About BNP Paribas Table of Contents

3 Corporate Banking and Investment 1. E&P Bank Lending Overview

4 Corporate Banking and Investment 4 Energy Industry Capital Provider Risk & Return Paradigm Institutional Second Liens & High Yield Debt Bank Debt Bank Overadvances & Second Liens Mezzanine Capital Convertible Debt Private and Public Equity 5-10% 10-15% 20-30% 30% + Total Returns Controlled Risks Uncontrolled Risks PDP Reserves Proven Reserves Exploration Activity Engineering and Operations Risks Geological and Geophysical Risks Management Sponsorship Capitalization Hedging R/P F&D

5 Corporate Banking and Investment 5 Energy Bank Lending Parameters Lend against proven reserve value - primarily PDP Third party reserve estimates - usually risked Loan value determined by advance rates Cash flow model validates the analysis Conservative price deck historically employed relative to strip prices Full value given to price hedges

6 Corporate Banking and Investment 6 BNP Paribas utilizes the following advance rate guidelines to determine the borrowing base. PDP Reserves50-70% PDNP Reserves30-50% PUD Reserves20-40% BNP Paribas currently uses the following base case commodity price assumptions. Tristone Capital publishes quarterly a comprehensive review and summary of active oil and gas lender price decks. Current Engineering Metrics WTI Crude PriceBase Case 2006 46.00$ 2007 42.00$ 2008 and beyond 38.00$ Gas PriceBase Case 2006 6.75$ 2007 6.25$ 2008 and beyond 5.50$

7 Corporate Banking and Investment 7 Current Bank Market Conditions Strong commodity prices bolster producer cash flows Higher cash flows used to pay down debt Hot Sector syndrome - high capital inflows Significant loan appetite in the market Default rates non-existent Bank spreads under pressure - too much capital Private equity is the new major source of capital formation in E&P today Significant M&A activity Second Lien Facilities can optimize equity returns

8 Corporate Banking and Investment 2. Second Lien Bank Facilities

9 Corporate Banking and Investment 9 BNP Paribass Role in Second Lien Term Loan Market BNP Paribas opened the Second Lien E&P market in 2003 with Quicksilver facility Have arranged and agented the majority of the subsequent Second Lien Facilities done in the bank market Most recently – Petrohawk (3 rd issue since November 2004) and Energy XXI Have attracted bank and institutional participants Established ability to navigate intercreditor issues True underwriting capacity

10 Corporate Banking and Investment 10 Second Lien Fundamentals Structure based upon conventional RBL parameters Engineering Review Cash Flow Analysis (Bank Price Deck) Asset Coverage Test (PV/Total Debt) Financial Covenants Semi-Annual Redetermination Transaction Criteria Management Reserve Integrity Hedging Capitalization Standardized Documentation

11 Corporate Banking and Investment 11 Two Second Lien Markets Bank Debt Enhancement Product Provided by Banks & Long Term Institutional Holders Pricing Range: LIBOR + 4 to 5% Basic Covenant Package PV/Debt Coverage Covenant Debt/EBITDA Limitation Prepayment Flexibility Institutional Debt Maximization Objective Paper is Liquid and Trades with Reasonable Frequency Premium Pricing for Larger Loan Capacity: LIBOR + 5% (and higher) Covenant Package Less Onerous Higher Prepayment Penalty

12 Corporate Banking and Investment 12 Bank Second Lien Advantages Increased availability versus conventional bank debt Longer maturity profile than standard overadvance bank facilities Relationship Lending versus Institutional Second Lien or High Yield Options Ability to enhance equity returns by reducing lower-tiered capital contributions - private equity Lower issuance costs versus capital market alternatives Can easily be upsized if needed in the future Flexible and economic prepayment versus institutional and public market capital issuance

13 Corporate Banking and Investment 13 Basic Bank Second Lien Terms Amount - $15 - $100 MM Maturity - 3 to 5 years Pricing - LIBOR + 4 - 5% Covenants Asset Coverage Ratio Debt Service Coverage PDP / Proven Ratio Execution Timing - 2 to 6 weeks

14 Corporate Banking and Investment 3. About BNP Paribas

15 Corporate Banking and Investment 15 BNP Paribas 3 rd largest bank in the world by total assets - over $1 Trillion Highly rated with S&P (AA) and Moodys (Aa2) Extensive International Network with more than 500 offices in 87 countries BNP Paribas global activities are organized into four core businesses: Corporate and Investment Banking Private Equity Retail Banking Private Banking and Asset Management BNP Paribas Energy practice consistently ranks as the firms single largest industrial sector from a revenue standpoint

16 Corporate Banking and Investment 16 BNP Paribas Energy & Commodity Finance Group BNP Paribas has a global approach to the Energy sector: Corporate Lending Commodity Derivative capabilities Capital Markets activities Global Team of 500 dedicated energy specialists in Houston, Paris, New York, Geneva, London and Singapore Senior Bank Debt Second Lien Facilities VPPs Crude Oil and Gas Price Hedging Commodity Futures BNP Paribas provides its Energy-related clients with a full range of products. We are market leaders in the Energy industry for : We also offer a full compliment of public market debt and equity capabilities globally

17 Corporate Banking and Investment 17 BNP Paribas Houstons office focuses on the upstream sector Primarily oriented toward independent producer financings Approximately $7 Billion portfolio Over 125 clients Seamless financing for commodity derivative products Demonstrated international transaction capabilities Our commitment to all sectors of the Energy Industry is demonstrated in BNP Paribas rankings in the U.S. energy banking league tables BNP Paribas Commitment to the Upstream Sector

18 Corporate Banking and Investment 18 League Table Rankings 2005

19 Corporate Banking and Investment 19

20 Corporate Banking and Investment 20 This presentation is only an expression of our interest in connection with the proposed transaction and nothing contained in this presentation should in any way be construed as an offer or a commitment by BNP Paribas to extend or to provide any financing of any type, either on behalf of itself or any other entity. This presentation has been prepared by BNP PARIBAS for informational purposes only. Although the information in this presentation has been obtained from sources which BNP PARIBAS believes to be reliable, we do not represent or warrant its accuracy, and such information may be incomplete or condensed. This presentation does not constitute a prospectus and is not intended to provide the sole basis for any evaluation of the securities discussed herein. All estimates and opinions included in this presentation constitute our judgement as of the date of the presentation and may be subject to change without notice. Changes to assumptions may have a material impact on any recommendations made herein. BNP PARIBAS or its affiliates may, from time to time, have a position or make a market in the securities mentioned in this presentation, or in derivative instruments based thereon, may solicit, perform or have performed investment banking, underwriting or other services (including acting as adviser, manager or lender) for any company, institution or person referred to in this presentation and may, to the extent permitted by law, have used the information herein contained, or the research or analysis upon which it is based, before its publication. BNP PARIBAS will not be responsible for the consequences of reliance upon any opinion or statement contained herein or for any omission. This presentation is confidential and is being submitted to selected recipients only. It may not be reproduced (in whole or in part) to any other person without the prior written permission of BNP PARIBAS. Any U.S. person receiving this presentation and wishing to effect a transaction in any security discussed herein, must do so through a U.S. registered broker dealer. BNP Paribas Securities Corp. is a U.S. registered broker/dealer. © 2005 BNP PARIBAS. All rights reserved.

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