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TCW Energy Group TCW Asset Management Company MOGA Capital Markets Update Patrick Hickey Senior Vice President May 2006.

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Presentation on theme: "TCW Energy Group TCW Asset Management Company MOGA Capital Markets Update Patrick Hickey Senior Vice President May 2006."— Presentation transcript:

1 TCW Energy Group TCW Asset Management Company MOGA Capital Markets Update Patrick Hickey Senior Vice President May 2006

2 TCW Energy Group 1 Table of Contents Market Perspectives Mezzanine Market Overview TCW Overview Conclusions

3 TCW Energy Group 2 Energy Product Prices

4 TCW Energy Group 3 Energy Capital Markets

5 TCW Energy Group 4 Trends in the E&P Markets After a period of debt reduction and share buybacks, E&P companies are spending more of free cash flow on drilling Public and private valuations are up Volumetric Production Payments are back Substantial private capital flowing into industry Public venture markets are active: AIM, Canadian Jrs. Seller’s expectations are forcing buyers to bid aggressively for assets “Land rush” in unconventional gas plays Equity markets are rewarding predictable and visible reserve and production growth Clear winners: “Resource Plays”

6 TCW Energy Group 5 Implications….. Market environment has created a windfall for many Hedging is necessary to support valuations and acquisition prices Value creation going forward likely to be based more on field enhancement/drill bit than market timing/arbitrage Companies have been afforded the opportunity to innovate (improved completion methods) Access to/Quality of services is key concern Large independents re-positioning their asset profile with a focus on long-lived reserves and low risk drilling Capital providers forced to be flexible Non-traditional financing sources tend to “loosen” market discipline and exit when times get tough High commodity prices can mask underlying problems – “point of caution”

7 TCW Energy Group 6 TCW Version of Mezzanine Broadly defined: high yield senior to preferred equity Flexible: Not tied to a particular structure Partner-like, long term orientation Current pay plus kicker (royalty, warrants, cash flow participation, PIK) Low to mid-teens rate of return: fees, coupon, kicker Amortization provides exit; call protection Secured by assets and/or shares Minimal Covenants: Make bet on management team and assets Alternative to equity

8 TCW Energy Group 7 US - E&P Mezzanine Finance Providers 28 Players have entered the E&P Mezzanine market, only 10 remain MG 1990 1992 1998199620001994 20021982 198819861984 TCW RIMCO ENCAP Torch Enron Cambrian Beacon KCS Stratum Koch Wells Fargo Tenneco/Range Deutsche Bank Cargill Aquila Mirant Duke Shell Macquarie Goldman Sachs Williams Petrobridge 2004 Source: Wells Fargo Prudential Black Rock RBS Constellation Laminar

9 TCW Energy Group 8 Oil and Gas Risk/Return Profile Equity Pref. Equity Mezzanine VPP Senior Debt TCW Sweet Spot 30% + 25% 15% 10% 6% Risk Return PDP PDNP PUD PROB/POSS Exploration Prospects Engineering RiskGeological/Geophysical Risk TCW’s focus is on engineering and development risk, not geological and exploration risk

10 TCW Energy Group 9 Mezzanine Debt Applications Fills void in capital structure between equity and senior debt Small to mid-sized companies that cannot access the public markets Isolate assets in a separate non-recourse project financing Accelerate development drilling program Acquisition, monetization, or recapitalization Reduces the amount of equity required, thereby increasing the leverage and ultimately the equity returns Mezzanine Debt is a viable alternative when designing the optimal capital structure

11 TCW Energy Group 10 Mezzanine Debt Applications Use of mezzanine capital can lower capital costs, increase equity returns, and increase ownership Equity 60% 100% Equity Only All in Capital Cost 14% Equity & Mezzanine All in Capital Cost 10% Lower Capital Costs Higher Equity Return Greater Ownership Equity 30% 100% 80% 60% Equity 30% Mezzanine 15% Bank Debt 6% Equity 30% Bank Debt 6%

12 TCW Energy Group 11 TCW Energy & Infrastructure Group Among leading providers of institutional capital for the energy sector in North America Niche investor exclusively focused on energy and infrastructure sectors 24-year track record; by far the longest in the industry 12 funds with more than $6 billion of capital and 175 portfolio investments Invested in 16 countries on 5 continents 20 professionals (6 engineers) Recent funds raised for investment: – TCW Energy Fund X - $734 million unlevered fund for mezzanine and equity investments in US, W. Europe and Australia – TCW Global Project Fund II - $700 million leveraged fund for high yield senior investments on a global basis – TCW Global Project Fund III - $1.5 billion leveraged fund for investment grade senior loans on a global basis In 2005, the TCW Energy Group invested $894 million in 27 separate transactions in 10 countries.

13 TCW Energy Group 12 EIG Product Platform Mezzanine and Non- Control Equity Special Situations High Yield Senior Senior Debt GPF III GPF II Fund X & Cogen Client JVs & Separate Accounts Enhanced Market Penetration Benefiting All Products

14 TCW Energy Group 13 TCW Overview Established in 1971 The TCW Group, Inc. is an indirect subsidiary of Société Générale, S.A. Approximately $123 billion committed or under management as of December 31, 2005 Over 1,625 institutional and private clients Staff of over 600 individuals, including over 355 professionals Offices: TCWSG Asset Management Los AngelesParis New YorkLondon HoustonTokyo Singapore Hong Kong

15 TCW Energy Group 14 Conclusions Producers have choices when choosing a capital provider – Stability and partnership orientation are key TCW is bullish on prices long term New pricing environment, combined with hedging, has created new opportunities Consolidation should continue as companies utilize excess cash flow and access private equity Market appears to have accepted new higher levels for commodity prices Mezzanine capital will continue to be a viable alternative

16 TCW Energy Group 15 TCW E&P Contacts Kurt Talbot713-615-7426 Managing Patrick Hickey713-615-7410 Senior Vice Curt Taylor713-615-7410 Senior Vice

17 TCW Energy Group 16

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