Bridging the gap:

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Bridging the gap From EP Idea to
Capital Leslie Haines Editor-in-chief Oil and
Gas Investor SIPES-Houston October 18, 2007
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• Why use outside capital?
• Speedier growth
• Flexibility
• Better deal flow/more contacts
• Access to other sources
• Outsourced CFO
• Identify strategies-- Sounding board
• Negotiation
• Tax advantages if LP or LLC
• Credibility

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Perfecting the Search 4 Themes

• How much is available?
• Where do you find it?
• What structures are possible?
• EP Success stories

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Makes the World Go Round Between Private
Equity, Mezzanine Funds Hedge funds, 22
Billion raised in last 2 years!
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How much is available?Private Equity

• Year-end 2004 6 Billion
• Year-end 2006 17 Billion
• Year-end 2007 22.4 Billion
• Source COSCO

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New Capital Sources
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New Capital Sources
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New Capital Sources
Source Oil and Gas Investor This Week
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Where is it?

• Banks
• Mezzanine funds
• Private Equity
• Investment banks
• Drilling partnerships
• The public

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The Capital Pyramid
Tier 1 Institutional Aggregators General/Specific
Tier 2 Institutional Investors Pensions,
Endowments, Insurance Cos.
Financial Corp.
Industry Corp.
Tier 3 Individual Aggregators Mutual Funds,
Hedge Funds, Family Offices
Tier 4 Individual Investors High Net Worth
Angels
Source COSCO Capital Management LLC
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• Where/How do you find it?
• Oil and Gas Investor
• Oil and Gas Investor This Week
• Oil and Gas Finance Sourcebook
• Financial Intermediaries

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• Financing Alternatives
• for Early Stage or Private Company
• For Leasing/Seismic/Drilling
• Affluent individuals/Angels
• Industry partners
• Prospect brokers (PLS, Access)
• For Acquisition Follow-on Drilling
• Volumetric Production Payments (VPP)
• Bank Debt
• Mezzanine Debt
• Private Equity
• Joint Ventures

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• Alternatives for Growth Stage
• (Private or Public)
• Private placements
• Bank Debt
• Notes/Debentures
• 144A Equity or Debt
• IPO
• Sale of Company

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Structured Finance

• Mezzanine is Debt with enhanced yield
• ORRI
• NPI
• Stock or warrants
• (less dilutive than pure equity)

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Strategies getting funded

• Drill-bit growth/Resource plays
• Acquire and exploit
• Management reputation

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What do investors want?

• Strong management team technical, financial,
  operational skills
• Track Record Drilling success financial
  value creation
• Competitive Advantages Geographic focus, land
  position or technical niche
• Skin in the game

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Path to Success John Doe Partners LLC

• 1995-97 2 MM Principals sweat equity, angels,
• industry partners
• 1998 1 MM VPP
• 1998 5 MM Commercial bank debt
• 1999 8 MM Property-level JV w/ a fund
• 2000 12 MM Private equity from a fund
• 15 MM Project debt from fund
• 2003 38 MM Sale to public EP
• 2004 10 MM Start over-New equity!

2001
Result
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Tammanys Story

• 2002 Personal funds
• 2003 BlueRock advances 450K, gets ORRI
• Series of increasing mezz loans
• Today Tammanys net assets 30 MM

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Sell and restart Laredo Energy Chesapeake
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Some Recent Investments
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Some Recent Investments
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Some Recent Investments
Source Oil and Gas Investor This Week
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• Capital Providers are eager to hear your story
• Execution is more important than strategy
• Return is more important than growth
• Dollars are better than barrels

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