SUCCEEDING WITH PRIVATE EQUITY How Does Private

SUCCEEDING WITH PRIVATE EQUITY

How Does Private Equity Help Your Team Succeed?

Assisting the management team in executing their business plan.

Overview • Private equity provider responsibilities. • Management team due diligence. • My experiences with private equity. – Crow Creek Energy – day to day business. – Crow Creek Energy II – significant transaction. • Lessons learned.

Your Private Equity Provider Should: • • Provide equity capital at a market rate. Serve as a force multiplier. Assist with banking contacts and documents. Provide expertise in hedging commodities and interest rates. • Act as respected business reference with third parties.

Finding The Right Private Equity Provider • Know the business style of potential private equity providers. Check references. • Some teams want engineering and geological feed back. Some don’t. • Some private equity providers like a lot of data and frequent contact. Some don’t. • Private equity should have an alignment of interests with team.

Crow Creek Energy • • Tulsa based company. Formed October 2002. Patrick Hall, CFO. Mike Rollins, VP Engineering. David Hoffman, VP Land. M. Storm, President, CEO. NGP committed $15, 000 equity. Management committed $1, 000.

Business Model • Mid-Continent Focus – Arkoma/Anadarko Basins. • Acquisitions with upside potential, PUD’s and workovers. • Acquire acreage and drill for resource plays. • Low overhead, small staff. • Seven office and two field employees. • Leverage equity with debt.

Private Equity Provider – Natural Gas Partners • Great reputation in industry. • Several NGP portfolio companies in Tulsa for reference. • Track record of profitable portfolio company sales. • More acquisition oriented than drilling.

Properties • Made four acquisitions in Oklahoma. Cash flow funded drilling. • Developed resource plays that create multiple PUD’s for every well drilled. • Acquired 22, 000 acres and drilled 25 horizontal CBM wells in Arkoma Basin. • Acquired 12, 000 acres, drilled four wells, made Granite Wash Field discovery in Washita County. • Exited with 42 BCFE, 6. 5 MMCFED.

Exit • Sold as a C Corp to Penn Virginia Oil & Gas 6/06 for $71. 5 MM. • Took down $9. 3 MM in NGP equity. • NGP ROI of 5: 1. • Management ROI of 13: 1.

CCE II • Formed CCEII October 2006 with NGP. • Business model similar to first Company. Bias toward larger PDP acquisitions. • NGP $25 MM in equity. Management $3. 75 MM in equity. • First deal – January 2007. Encana mid-continent properties acquisition for $9. 5 MM. • Financed half equity, half debt from BOK.

Encore Transaction • April 10 th Encore mid-continent package data room. • Liked the properties, areas we knew well and had worked before. • Deep Springer in Verden Field, 5. 0 -10. 0 BCF per well 80 acre infill. • Bromide and Big Four in Golden Trend 2. 0 BCFD and 200 mbo on 40 acre infill. • Barnett Shale infill in Tarrant County, 2. 5 to 3. 5 BCF/well. • Large non-op position throughout Anadarko and Arkoma. • Deal size estimated at $275 MM to $325 MM.

We Have Issues • Deposit more than our entire equity commitment. • NGP remaining equity commitment $20 MM. Need $170 MM. • Must assemble and syndicate a $250 MM credit facility in six weeks. • Complete enviro and land due diligence on 200 wells. • Hedge 100% of production for two to three years before close. • Must add technical and support staff, get new offices. • Small start up. Seller might balk at our size. • Presented to Board May 2 nd.

NGP Gets Flexible • • • NGP raises their equity commitment to $170 MM. Crow Creek bids $300 MM for Encore. Negotiate in Ft. Worth with Encore. May 16 th signed PSA for a June 29 th close. Paid deposit of $30 MM.

Getting Busy • Need to secure remaining financing to close in six weeks. • Want fully under written revolving facility. $30 MM riding on it. • Two days of bank meetings. • Term sheets due May 29 th. Wachovia wins lead, BNP Paribas and Merrill Lynch take co lead roles. • June 13 th syndication meeting in Houston. • Eight other banks join in syndicate. 100% oversubscribed.

Pressure Builds • Due diligence continues on 200 operated wells with value of $240 MM. • NGP runs hedging program through due diligence. • CCE II spends $2. 5 MM pre-closing to buy puts. • Hedge 100% production through 12/09. • Bank group signs off on due diligence. • Close June 29 th for $285 MM after adjustments.

First six months • At closing Encore showed total proved 122 BCFE and 25 MMCFED. • 12/31/07 total proved 156 BCFE and 29 MCFED. • Three new wells on line last 60 days adding 7 MMD and 400 BOPD net.

What’s ahead? • 2008 drilling budget $80 MM. • Two to three operated rigs in Verden, Golden Trend, Barnett, and Woodford. • Participate in non-op increased densities in Oklahoma. • Will drill operated Woodford shale prospect in Southern OK. • Bidding on other mid continent acquisitions.

Lessons Learned • Private equity provider should add value in day to day business and transactions. • Work together with management team to compete for and close transactions. • Support management team in two critical areas.

Banking • Former bankers at NGP speak the bankers language. • Helped us negotiate the best term sheet for credit facility. • Bank contacts narrowed group that could deliver term sheet needed. • Prepared bank books while we focused on due diligence. • Coordinated syndication meetings. • Assisted in preparation and negotiation of bank documents.

Hedging • Staff dedicated to understanding the gas markets and pricing. • Trading every day in the market for various portfolio companies. • Sound hedging strategies based on market analysis. • Executed large number of trades with multiple counterparties quickly.

How Has NGP Helped Us Succeed? • By doing the things we don’t do as well as they do, allowing our team to focus on doing what we do best.