ipaa │2009 Private Capital Conference Surviving and Prospering In Uncertain Times January 14, 2009

Overview of ESS Funds Group Energy Special Situations Funds est. late 2005 Two institutional funds - $340+ million Pursue middle-market, energy opportunities 13 investments since inception $150+ million uncommitted capital Fund managers: Jon Linker, Jeff Hewitt, Tim Sullivant

ESSF Strategy Invest in companies/projects - all energy sectors –Seek growth and value creation Sole manage small investments ($5 - $40 mm) Partner large deals ($30 - $150 mm); 5 co’s. Management track record and co-invest are key Structure, incentives create common objectives Equity-oriented - all financial structures possible

Our E&P Portfolio 10 entities with 8 management groups Highly-focused niche strategies

What Will 2009 Bring? “Every new beginning starts from some other beginning’s end …” Dan Wilson, Semisonic

Past 3 Cycles Lasted 4-6 Years Normalized OSX Index with Peak = 100 Peak-to-Trough value increase: 3x–4x Trough-to-Trough value increase % Peaks occurred at different points in cycle Public / Private values not always correlated Note: SLB stock price used for OSX proxy prior to March 97.

History Indicates Bottom May Be Near Past bottoms formed after 6 months of rationalization

Key E&P Challenges This Year Low commodity prices = uneconomic projects Live within internal cash flow (up to 75% less) –Banks cautious about new lending, for now –Equity availability limited Pressure to reduce balance sheet leverage Questions to consider –What projects do we pursue? –When will demand and prices rebound? –How do we plan for the future?

Where is Oil’s New Price Level?

What Will Establish the Gas Price?

Volatility is the Only Certainty

Looking to the Future Focus on Long-Term Value Creation Accumulate low-risk producing assets Build portfolio of future growth opportunities Prudently use leverage (leverage kills) Create sustainable corporate entity Back To Basics

Looking to the Future Minimize Operating Costs Diligently pursue cost reductions in all areas Ensure short-term viability Retain long-term upside Position company for future margin expansion Valuation multiplier benefits Back To Basics Focus on Long-Term Value Creation

Impact of Pricing, Fixed Costs Small price moves enormously impact cash flow Gas Price $ 9 33% Decline PUD2P & In Gas Price $ 8 Cash3P Provides FlowCF Total ~65% Decline $ 7 Proved Cash Flow In Cash Flow Gas Producing Price $ 6 Cash $ 6 Flow All Proved $ 5 Costs Producing $ 5 Cash Flow $ 4 Capital $ 4 and Total Capital and $ 3 Operating Operating Costs $ 3 OperatingCosts $ 2 Costs Operating $ 2 Costs $ 1

Looking to the Future Adjust to Higher Capital Costs Private equity targeting 25%+ return opportunities Mezzanine funds availability shrinking capital cost rising Fewer bank credit options higher spreads tighter terms Maximize available capital Back To Basics Focus on Long-Term Value Creation Minimize Operating Costs

Looking to the Future Eliminate Downside Risk Entering a new risk-reward paradigm Avoid high risk activities exploration blanket leasing Use conservative financial structures, hedging Back To Basics Focus on Long-Term Value Creation Minimize Operating Costs Adjust to Higher Capital Costs

Our Keys to Success Back To Basics Focus on Long-Term Value Creation Minimize Operating Costs Adjust to Higher Capital Costs Eliminate Downside Risk We may be returning to conditions similar to those experienced in the 1990’s