Rick Louden President & CEO Denali Oil & Gas Rick Louden President & CEO

Denali Oil & Gas Background Founded June, 2003 with a $50 million commitment from Quantum Energy Partners, Energy Trust and Walter Oil & Gas. Denali II funding commitment of $50 million in 2006. Focus on S. Texas tight gas below 12,000’ Drilled 17 exploratory wells, 48 development wells, four small acquisitions. Sold assets in 2004 and 2006 in multiple asset sales totaling $230 million. Currently producing 13 Mmcfed.

Denali Oil & Gas Fields Currently Producing and Fields Sold South Bearhead Creek Rapture S. Friar Ranch Robinson Lake Hardeman Slough Destino Finley Webb Las Hermanitas La Perla S. Escobas Haynes Exsun Shivers Deep Tierra Blanca Edinburg South Arrowhead Ranch

Denali Oil & Gas Investor Partners Bring Value to the Table Sounding Board and Brainstorming on key decisions and strategy Financial Expertise and Muscle Financial Strength and Staying Power

Planning Discussion with Quantum Energy Partners

Denali Oil & Gas Business Plan Primary focus on deep tight gas in South Texas. Create value through exploration and small acquisitions with significant drilling potential. Operate the majority of properties and reserves. Be patient, wait for exceptional opportunities.

Denali Oil & Gas Business Plan Starting Point Conditions Private Equity Funded Company Target 30%+ IRR and ROI of 3.0+ Don’t bet on rising oil and gas prices. Minimize risk. No rank wildcatting. Prudent level of borrowing. Conservative Acquisition analysis assumptions.

Denali Oil & Gas Strategy …….How do we generate 30%+ IRR and 3.0+ ROI without rising gas prices and without significant risk? Basin Characteristics? Wells with high initial rates and steep declines or wells with moderate initial rates and flatter declines?...........high initial rates generate higher IRR’s despite steeper declines. Exploration or acquisitions?........exploration minimizes upfront capital improving ROI and IRR if success rate is good.

Denali Oil & Gas Strategy Continued……….. Sell discoveries early or fully develop?.........selling fields early in life after minimum drilling further improves IRR and ROI , but sacrifices a portion of the future present value.

Denali Oil & Gas Strategy …….How do we generate 30%+ IRR & 3.0 ROI? Example: Ten well field, each well costs $4 million and has a PV10 of $6 million and ROI of 2.5. Capital Sale Value ROI Land & Seismic $ 1 - - Drill 3 wells $12 $30 2.5 Drill 7 PUD’s $28 $70 2.5 Total $41 $100 2.44

Denali Oil & Gas Strategy …….How do we generate 30%+ IRR & 3.0 ROI? Example: Ten well field, each well costs $4 million and has a PV10 of $6 million and ROI of 2.5. Capital Sale Value ROI Land & Seismic $ 1 - - Drill 3 wells $12 $30 2.5 Sell 7 PUD’s -- $21 - (at 50% of PV10) Total $13 $51 3.9

Denali Oil & Gas Business Plan Starting Point Conditions Private Equity Funded Company Target 30%+ IRR and ROI of 3.0+ Don’t bet on rising oil and gas prices. Minimize risk. No rank wildcatting. Prudent level of borrowing. Conservative Acquisition analysis assumptions.

Adjusted for Inflation 1985 - 2009 U.S. Gas Prices Adjusted for Inflation 1985 - 2009 ???

Denali Oil & Gas Business Plan Minimize Risk Top 10% Technical Team Wait for exceptional opportunities No Rank Wildcatting State of the Art Technologies

South Texas Wells less than 10,000’ deep Total Wells 361,030 309,919 Wells < 10,000’ TD

South Texas Wells deeper than 13,000’ 13,007 Wells > 13,000’ TD

Denali Oil & Gas Business Plan Minimize Risk Top 10% Technical Team Wait for exceptional opportunities No Rank Wildcatting State of the Art Technologies

Denali Oil & Gas State of the Art Technology

Denali Oil & Gas Results Denali I (2003 – 2006) Three small acquisitions ($9.1 Million), 4 exploration wells (3 successful and 1 dry hole), 35 development wells. $44 million of investor capital and $15 million debt. Sold in multiple transactions totaling $230 million. IRR = 214%, multiple = 4.5.

Rick Louden President & CEO Denali Oil & Gas Rick Louden President & CEO

Denali Oil & Gas Results Denali II (2006 – 2008) One acquisition, 13 exploration wells (6 successful and 7 dry holes), 13 development wells. $64 million of investor capital and $24 million debt. Current proved reserves of 70 Bcfe and probable reserves of 73 Bcfe. 100,000 net undeveloped acres in resource play with acreage going for $250-350 per acre.

Rick Louden President & CEO Denali’s S. Escobas Field Denali Oil & Gas Escobas Field Rick Louden President & CEO Fandango field

Escobas Field 89 BCF Fandango Field 429 BCF

South Escobas Type Log

Type Log Cont.

Rick Louden President & CEO Denali’s S. Escobas Field Denali Oil & Gas Escobas Field Rick Louden President & CEO Fandango field

Denali Oil & Gas Finding Costs Year Reserve Adds Finding Cost 2003 13 Bcfe $0.67/Mcfe 2004 28 Bcfe $1.06/Mcfe 2005 41 Bcfe $1.24/Mcfe 2006 35 Bcfe $1.08/Mcfe 2007 25 Bcfe $1.00/Mcfe 2008 30 Bcfe $1.44/Mcfe Total 172 Bcfe $1.17/Mcfe

Denali Oil & Gas Denali III Same Investor Group. $140 million commitment. Additional capital available for larger acquisition. Exploration and acquisitions with increased focus on identifying acquisitions. Partner with companies who have acreage and prospects in S. Texas, but are reallocating capital to other basins………through farmouts and joint ventures.

Experience . . . Focus . . . Innovation . . . Technology . . .