Oil & Gas Underwriting Analyzing the Return Potential

Develop an understanding of cash flow economic models used to analyze the return potential for investing in oil and gas opportunities Input parameters (key drivers of results) Output parameters (cash flow and economic metrics) Proper application of cash flow economic models Property Level – before financing or deal structure Offering Level - fully loaded, net to investor Risk assessment Oil & Gas Underwriting – Analyzing the Return

Acreage Position Sponsor submits project for due diligence review Identify type of project – Drilling project – Producing property acquisition – Mineral rights acquisition Identify acreage position and ownership rights of Sponsor Review acreage position – Identify producing and prospective formations from offset wells – Determine if oil, natural gas or both Ownership details BCS Energy Services4

Acreage Position Ownership – Surface ownership – Leasehold (subject to terms of OGL) Working Interest (expense bearing interest) Revenue Interest (Working Interest less royalty) Overriding Royalty Interest (non-expense bearing interest) – Mineral rights (minerals owned directly) Royalty Interest Examples – Property Level – Leasehold Working Interest 100% Expense Royalty(20%) ORRI( 5%) Revenue Interest 75% Revenue – Mineral rights Royalty 20% BCS Energy Services5

Reserves & Economic Cash Flow Projection Property Level Economics Input Parameters Revenues – Oil, Gas, NGL volumes (adjusted from production to sales volumes) – Oil, Gas, NGL prices (adjusted from reference prices to wellhead realized prices) Expenses – Operating expenses – Production/ad valorem taxes – Capital investment D&C, facilities, pipeline, leasehold Ownership – Interests to be evaluated Working interest (expense bearing) Revenue interest Overriding royalty interest Changes in ownership due to deal terms BCS Energy Services6

Develop Production Profile for Well(s) Type Curve Development - Offset Wells Typically used in unconventional and repeatable conventional reservoirs Evaluate reserves and production profile for offset producing wells to determine range of expected results for future drilling Select offset wells producing in target reservoir Review drilling and completion operations for analogy to planned development Consider impact of multiple factors: – Type of reservoir – Type of reservoir fluid – Type, vintage of offset wells drilled – Location and orientation of wells drilled – Distance from planned development BCS Energy Services7

Develop Production Profile for Well(s) Decline Curve Analysis Normalize production from offset wells to time zero Calculate average production based on composite volume and no. of wells vs. time Use decline curve analysis on normalized average production to generate type curve Compare type curve IP, decline profile, EUR to min/max offset performing wells for reasonableness BCS Energy Services8

Type Curve Projection Type curve projection represents estimated production profile and reserves for single well Modify application of type curve for development plan May have multiple type curves and applications Production profile developed from type curve on undeveloped acreage or from decline analysis of historical production for producing wells BCS Energy Services9

Oil and Gas Price Environment Nymex Oil Prices Historically high oil price environment Market in backwardation with long term average prices ~$80-85 per barrel Supported in near-term by oil supply/demand, fiscal policy and geopolitical issues Potential upside/downside risk will track economic conditions with continued volatility in market prices Nymex Gas Prices Lowest gas price environment since early 2000’s Excess supply with large inventory and deliverability due to shale gas development suppressing natural gas prices Expect near-term prices in $4.00/MMBtu range with seasonal or weather related spikes at times No significant near-term increase in pricing due to fundamentals Price Realization Oil: Adjust for gravity, quality, transportation differentials Gas: Adjust for BTU, gathering, transportation, processing and marketing NGL: Adjust for liquids composition, transportation and marketing Actual I Projected BCS Energy Services10 Reference Nymex Oil Prices Reference Nymex Gas Prices

Reserves & Economic Cash Flow Projection Expenses – Operating expenses – direct costs to produce wells (vary by type, depth and operating environment) Pumper$ 500 Utilities 1,000 Chemicals 750 Field and well expenses 750 Repair and maintenance expenses 500 Salt water disposal 2,000 Operator administrative charge – fixed cost per well/month 900 Total Operating Expense (per month)$6,400 Range $25,000 – Production/ad valorem taxes Oil production/severance taxVaries by State, percentage of revenue or unit of production Gas/NGL production/severance taxVaries by State, percentage of revenue or unit of production Ad Valorem property taxesVaries by State, County, tax jurisdictions – Capital investment – direct costs to drill wells (vary by type, depth and operating environment) Drilling and completion cost Production facilities Pipeline Leasehold Authority for Expenditure (AFE) – Operator’s pre-drill cost proposal for working interest owners participation election BCS Energy Services11

Reserves & Economic Cash Flow Projection BCS Energy Services12 Property Level Economics (Pre-Tax)

Reserves & Economic Cash Flow Projection Fully Loaded, Net to Investor Economics Property level economics LESS Sponsor deal structure – Sponsor deal structures vary depending on Type of oil and gas investment – drilling, acquisition, other parameters Sponsor cost structure (administrative costs and third-party expenses) – Investment mark-upSponsor mark-up on leasehold, D&C AFE, acquisition or capital costs – Administrative Costs Annual fee of ~1% of capital contributions – Third-party ExpensesAnnual costs of ~ % of capital contributions Sponsor return (sharing arrangement) – Partnership sharing arrangement BPOAPO1APO2 Sponsor10%20%30% Investor90%80%70% – Carried working interestInvestor pays disproportionate amount of capital costs for development BCS Energy Services13

Reserves & Economic Cash Flow Projection BCS Energy Services14 Fully Loaded, Net to Investor Economics (Pre-Tax)

Oil & Gas Underwriting Analyzing the Return Potential BCS Energy Services15 Net to Investor EL Property Level EL Economic life of Net to Investor cash flow impacted by level of fees and expenses

Reserves & Economic Cash Flow Projection Reserve Reports and Reserve Definitions Reserve Reports Typically prepared by Sponsor or third-party independent petroleum engineers Independent Firms Large international – Netherland, Sewell; Ryder Scott; Cawley Gillespie; others Mid-size domestic – many Small domestic – many Reserve Categories PROVED RESERVESReasonable certainty to be commercially recoverable from known reservoirs, defined economic conditions Proved Developed 90% probability actual quantities > 1P estimate Producing Non-ProducingDeveloped: Quantities expected to be recovered from existing wells and facilities Proved Undeveloped Undeveloped: Quantities expected to be recovered from through future investments Total Proved (1P) PROBABLE RESERVESGeoscience and engineering data indicate to be probably recoverable from reservoirs (mid case) Probable Developed 50% probability actual quantities > 2P estimate Probable Undeveloped Proved + Probable (2P) POSSIBLE RESERVESGeoscience and engineering data indicate may be possible to recover from reservoirs (high case) Possible Developed 10% probability actual quantities > 3P estimate Possible Undeveloped Proved + Probable + Possible (3P) RESOURCES ContingentDiscovered, sub-commercial ProspectiveUndiscovered BCS Energy Services16

Reserves & Economic Cash Flow Projection Generalized Risk Assessment BCS Energy Services17

Oil & Gas Underwriting Analyzing the Return Potential Understand the relationship between: – Cost of investment – Expected return – Risk assessment BCS Energy Services18

QUESTIONS?