1. The Commercial Card Game: Why You and Your Suppliers Should say, “Deal Me In” Trish Herskovitz Senior Vice President Treasury Management Texas Sales Manager Texas Sales Manager TEXPO 2011 Gary McGinnity Assistant Treasurer Union Drilling Inc. Kristy Furlow Senior Vice President Regional Sales Manager – Texas and Louisiana

2. Agenda Commercial Card Trends Commercial Card Transaction Basics Card Transaction Benefits – Buyers Card Transaction Benefits – Suppliers The Union Drilling Card Experience Q & A

3. Trends – Declining B2B Check Volumes The typical organization today makes only 57% of its B2B payments by paper check, down from 74% in 2007 and 81% in 2004. Source: 2010 Association for Financial Professionals (AFP) Electronic Payment Survey.

4. Trends – Electronic Payments on the Rise The percentage of noncash payments that were electronic (vs. checks) rose from 68% in 2006 to 78% in 2009. Electronic payments include ACH, credit card, debit card and prepaid card. Source: 2010 Federal Reserve Payments Study

5. Trends – Steadily Rising Card Spending Purchasing Card Spending in North America (in $ billions) In the past decade, purchasing card spending has quadrupled from about $40 billion annually to more than $160 billion a year. Source: Purchasing Card Benchmark Survey Results 2010, RPMG Research Corporation

6. Merchant Card Issuer Card Issuer Acquirer Processor Associations VISA/MC Associations VISA/MC Cardholder 1 2 7 8 14 13 11 5 4 3 6 9 12 PLAYERS: Merchant Card Holder Merchant Acquirer=Merchant Bank Association = VISA or MC Processor Card Issuer 10 15 Basics – Commercial Card Transaction Flow

7. Basics – Understanding Interchange Interchange is a transfer fee between issuers and acquirers used to maximize the growth of the payment network for the benefit of all participants. The current Interchange Reimbursement Fee (IRF) rate structure includes rates that vary by card product, processing technology and merchant category in order to reflect the economics and operational characteristics of a transaction.

8. Buyer Benefits | Process Efficiency/Cost Savings The average administrative cost (including sourcing, purchasing and payment activities) of a traditional purchase order based process was reported to be $93, compared to around $22 for a purchasing card transaction (a per-transaction savings of about $71). Source: 2010 Purchasing Card Benchmark Survey, RPMG Research Corporation. Purchase Order Purchasing Card

9. Buyer Benefits | Rebates/Rewards Rewards: Air fare, hotel stays, gift cards Rebates: Based on level of spend Variables in rebate calculations –Issuing bank –Card brand –Merchant –Level of detail the vendor sends with the transaction (i.e., Level 3) –Size of transaction

10. Buyer Benefits | Float Gains Commercial card cycle standard is 30 calendar days with a 25 calendar-day grace period before payment is due. Card payments provide an additional 25-55 calendar days of payment float. Due to extended payment float, balances remain in your account longer in order to offset service fees, pay down debt or earn interest.

11. Buyer Benefits | Overall Cost Savings Total Dollar Amount of Monthly Check Disbursements $1,000,000.00 Total Number of Monthly Checks Written250 Percentage of Total Disbursement Dollars moving to Commercial Card25.00% Percentage of Total Number of Check Transactions converting to Comm'l Card25.00% Average Savings of Commercial Card Transaction* $31.00 Rebate/Reward0.50% Average Days of Payment Float Extension Due to Commercial Card40 Interest Expense Savings/Interest or Credit Earned4.50% Total Estimated Monthly Commercial Card Spending $250,000.00 Total Estimated Monthly Number of Commercial Card Transactions62.5 Annual Float Benefit $11,095.89 Annual Transactional Savings $23,250.00 Annual Rebate/Rewards Benefit $15,000.00 Total Annualized Benefit of using a Commercial Card $49,345.89 Sample Commercial Card Benefits Calculation *National Association of Purchasing Card Professionals and Palmer & Gupta P-Card Benchmark Survey Report estimate the Purchase Order process to cost anywhere between $50 - $250. The Commercial Card transaction process is estimated to cost $19 per charge.

12. Buyer Benefits| Fraud Risk Mitigation Nine out of ten organizations (90%) that experienced attempted or actual payments fraud in 2009 were victims of check fraud. 88% reported that they believed “increased use of electronic payments for B2B transactions” was an important strategy for mitigating potential payment fraud risks. Source: 2010 Payments Fraud and Control Survey, Association for Financial Professionals (AFP).

13. Buyer Benefits | Fraud Risk Mitigation Issuing bank or the merchant typically bears card fraud related loss Payment disputes – Time to review transactions prior to money leaving your account Card insurance coverage – employee loss provisions

14. Buyer Benefits | General Ledger Integration Accounts Payable needs to enter general ledger codes for all purchases into accounting system. Online general ledger integration tools provide that capability for card transactions Expense reporting capabilities for cardholders – available through some G/L integration tools

15. Buyer Benefits | Single-Use Cards aka “ghost” cards Card number assigned for purposes of a single transaction only Number can only be used for a transaction of a particular dollar amount to a particular vendor Allows for secondary approval, which adds a control in the purchasing process

16. Supplier Benefits | Attract/Retain More Business Card acceptance can be a central component in a preferred vendor relationship. Similar to how today it is impacting retail businesses such as fast-food restaurants, card acceptance can drive new sales for wholesale businesses. Nearly half of respondents (49%) in a national survey* said that over the past five years their suppliers that accept purchasing cards have increased share of business with their organization to a greater extent than suppliers that do not accept cards. 2010 Purchasing Card Benchmark Survey, RPMG Research Corporation *.

17. Supplier Benefits | Get Paid Faster Total float on check payment – typically 5 to 7 days Total float on a card transaction – typically 36 to 72 hours

18. Supplier Benefits | Get Paid Faster Negotiated terms can also speed payments Best strategy for buyers to persuade suppliers to accept card transactions: Offer to shorten payment terms. Improved cash flow (e.g., net 15 terms instead of net 30) and strengthened customer relationship can help offset fees related to card acceptance (i.e., interchange).

19. Supplier Benefits | Ease Collections Management Take late payments over the phone Take payment by phone and enable further shipments; reduce “credit holds”

20. Supplier Benefits | Improve Payment Processing Efficiency Today’s tools allow suppliers to accept card payments online in an automated fashion. Click a button and money is in your account.

21. Supplier Benefits | Single-Use Cards Ghost cards reduce Payment Card Industry Data Security Standard (PCI DSS) exposure. PCI DSS was established in 2004 by five major credit card companies to protect against card-data breaches. If a single-use card number is stolen, it can’t be used for any transaction beyond the single transaction for which it was established (i.e., to a particular vendor for a particular amount).

22. Union Drilling – Company Profile Fort Worth, TX-based provider of contract land drilling services and equipment Serves U.S. oil and natural gas producers, primarily those operating in the Appalachian Basin (including Marcellus Shale), Arkoma Basin, Permian Basin and Fort Worth Basin Fleet of 71 drilling rigs 1,200+ employees 8 divisional locations across the U.S. 2005: company doubled in size through acquisitions, went public 2010 revenue: $192.5 million

23. Union Drilling – T & E Program Before 2009, “Corporate Credit Card” for travel & entertainment and some emergency purchasing Card users included: ▪ Rig managers (“tool pushers”) – 24/7 operation ▪ Divisional managers ▪ Corporate executives ▪ Truck drivers ▪ Mechanics Rig-to-rig traveling sales environment

24. Union Drilling – Adding a Purchasing Card In 2009, company established Purchasing Card Program Transitioned to a new card provider Converted to a new T&E card program and added a Purchasing Card for divisional purchasing agents Began using purchasing card with key vendors of rig supplies in each division

25. Union Drilling – State of the Program 300+ T&E cards issued 16 Purchasing Cards About $500K in monthly spend 80/20 spending breakdown –80% spend on Purchasing Card –20% spend on T&E Card

26. Union Drilling – Control Benefits Purchasing Department introduced a company-wide Purchasing Card Program Eliminated invoicing for small-dollar purchasing for rigs All card purchases reviewed/approved by Divisional Managers and Director of Purchasing Greater accountability (i.e., Why buying so many socket sets?) and eliminated monthly cut-off issues More timely and greater visibility into purchases $2K single purchase limit

27. Union Drilling – Other Key Benefits Cost Savings – Elimination of Accounts Payable data entry, check-related costs, invoices for $5 purchases Rewards - $60,000 a year at current spend levels Improved vendor relations/customer service – Immediate payment vs. 45-60 days Extended disbursement float

28. Union Drilling – General Ledger Integration ERP conversion (Oracle) Conversion to updated commercial card general ledger interface tool – required new coding system Eliminated dual entry and reduced clerical error with automation of interface

29. Union Drilling – Special Challenges, Advice High employee turnover –Card issuance fees –Need for employee- departure control procedures – Finance, HR, IT Trust (and verify) –Employee agreements A DVICE : Start slow and build the program –Vendor Acceptance - no issues with MasterCard, Visa –Internal Acceptance - no problem/fewer POs

30. Card Benefits – A Recap BuyersSuppliers Process efficiency/cost savingsAttract/retain business Float gainsGet paid faster Rebates/rewardsEase collections management G/L integrationImprove payment processing efficiency Fraud risk mitigation

31. Questions Gary McGinnity Assistant Treasurer Union Drilling Inc. gmcginnity@uniond.com gmcginnity@uniond.com (817) 546-4305 Trish Herskovitz Senior Vice President Treasury Management Texas Sales Manager Capital One Bank trish.herskovitz@capitalonebank.com trish.herskovitz@capitalonebank.com (214) 855-1633 Kristy Furlow Senior Vice President Regional Sales Manager Texas and Louisiana Capital One Merchant Services kristy.furlow@capitalonebank.com kristy.furlow@capitalonebank.com (225) 242-3947 This presentation is for informational purposes only, does not constitute the rendering of legal, accounting or other professional services by Capital One, N. A. or any of its subsidiaries or affiliates, and is without any warranty whatsoever. © 2011 Capital One. Member FDIC. All rights reserved.