1. Investing in Growing Oil and Gas and Midstream Energy Companies
Presentation to the IPAA Private Capital Conference
January 19, 2006
Investing in Growing Oil and Gas and Midstream Energy Companies

2. GasRock Capital LLC Development drilling projects and midstream gas
“Mezzanine” debt with royalty or other participation
Start-ups to large companies
Engineering risk rather than exploration
$5 to $50 million +

3. Focus Knowledge Investment Focus
Oil and gas development drilling projects and acquisitions
Typically at least a small amount of PDP reserves to start
Substantial PDNP and PUD development opportunity
Some types of exploitation (Probable) may be acceptable
Very low risk PUD development projects may not require initial PDP
Midstream gas
Gathering, processing, pipelines
Other toll based business
Focus
Knowledge

4. Targeted Risk Profile
Target
Investments

5. What We Want Usually some PDP Development project risk
Initial collateral value comparable to first advance
Exceptions for some projects like coal seam gas
Development project risk
Significant PUD drilling opportunity; not exploration
Also mid-stream gas assets
Total return: more than bank debt, less than equity
Coupon usually 9% to 11%
Royalty in adequate size to reach target return, based on risk
Some owner / sponsor investment
Needs to be significant to the individuals, not to the project
Lien on the assets
Typically first lien; will accept second lien in larger deals

6. What You Get Early stage capital Fast growth Non-recourse Control
No fixed minimum equity investment
Focused on quality project, not long track record
Fast growth
Substantial development capital
Much larger and faster advance than bank
Non-recourse
Debt and liens in project company only
Other assets/projects unencumbered
Control
Generally no sale of equity (e.g. majority)
No board seats or control of acquisitions or divestitures
Nearly all of the upside
GasRock usually keeps ORRI only
After debt paid, nearly all cash flow reverts to sponsor

7. Typical Investment Structure
First lien debt
Coupon
ORRI
Advances
Repayment
Pay off any other debt with proceeds
Lien on all assets in the project
Usually 9-11%
Floating rate with fixed minimum rate
Current pay; will consider funding early coupons if needed
Royalty sized as required to meet target return
Sizing based on project economic model
May begin immediately or after loan repaid
Based primarily on PDP value
May equal or exceed PV10
Typically sponsor pays for leases, seismic
Proceeds applied to approved development plan
“Sweep” of cash flow to pay interest and principal
Typically 80%-90%
Structured to accommodate overhead
3 to 4 year maturity
Early repayment allowed; no penalty

8. Benefits of Project / Mezzanine Finance
“Project financing allows companies to grow rapidly without giving up a big share of their economics or control of their future.”
Accelerated Funding
Often two to three times bank advance
Faster increase as wells come on
Much faster project growth
Reasonable Cost
Higher than bank debt; lower than equity
Applies only to specific project assets
Prepay at any time
Retained Control
No sale of a share of ownership
No board seat
No control over sale of company, IPO, etc. + +

9. Choose Experience and Knowledge
Our four transaction leaders average 24 years of experience
Engineering knowledge results in speedy evaluations
Greater surety of closing, without change in terms
Appreciation of potential results in
Aggressive terms
Patience for results
Experience helps in crafting unique structures tailored to specific needs

10. Choose People You Can Trust
Project financing is relatively hands-on
Pick someone you can live with
Shared perspective from history working on behalf of operators
Reasonable and balanced approach
Reputation for persistence and creativity

11. How We Are Different Ability to start small (under $5 million)
Yet can grow large ($50+ million)
Long on energy deal experience
Creative, responsive, and quick

12. Portfolio Company First GasRock Deal Closed in 28 days
Initial funding about one-third
Balance for development
Workovers
Recompletions
Drilling

13. Case Study: Mythos, Inc. Owns a largely undeveloped field Type Well:
Net reserves: 572 MMCF
Cost to drill: $650k
R/P ratio: 8.5
Life: 25+ years
IRR: 35%
ROI: 4.5
Payout: 2.5 years

14. Case Study: Mythos, Inc. Some PDP Undeveloped acreage
3 wells drilled so far
PV10: $4.4 million
Production: 400 MCFD
Undeveloped acreage
72 locations
42+ BCFE net reserve potential
$47 million, two-year drilling program
Project Economics
Field level IRR: 37% develop and hold
76% develop and sell
Sale price: $87.4 million in 30 months

15. Mythos: Options for Growth
Bank debt
Industry joint venture
Private equity
Mezzanine

16. Mythos: Bank Debt 7% interest rate Advance equals 60% of PDP
Semi-annual borrowing base re-determination
Slower drilling

17. Mythos: Industry Partner
One eighth carry through all 72 wells
Carried on all CAPEX (“to the tanks”)
No constraint on pace of drilling
Partner IRR is 31%

18. Mythos: Private Equity
Raise $20 million of institutional equity
Plus a little bank debt
Mythos contributes PDP for 14% of equity
PDP valuation at $8000 per mcfe/d of production; $2.34/mcf
Mythos can ‘claw-back’ to 34% of equity
Assumed sale after 30 months
Results in equity investor IRR 50%; ROI 3.4

19. Mythos: Mezzanine $47 million facility 10% coupon 5% ORRI
2% advance fee
90% sweep of field profit
Mezzanine earns 18.5% IRR
ROI is 1.5 over 4.5 years without sale
23% IRR with sale in 2.5 years

20. Case Study: Results to Management

21. Case Study: Sharing the Profit
Management retains a larger share of the profit with mezzanine financing as compared to alternatives.

22. Management Profit versus Gas Price

23. Management Profit versus Production Results

24. Summary Accelerate funding and development
Avoid dilution of equity ownership
Maintain control
Capture a larger share; finish strong!

25. Contacts Houston Frank M. Weisser 713-425-7052 Scott W. Johnson
Scott W. Johnson
David R. Taylor
Marshall Lynn Bass
1 Houston Center
1221 McKinney
Suite 3180
Houston, TX
Fax