Review of the Upstream Transaction Market Through YTD 2011
A&D Overview
The Petroleum Club
Houston, Texas
February 8, 2011
IPAA/TIPRO
Leaders in Industry luncheon
THE PERFECT VENUE
AuctionAuction
$$4.3 4.3 BillionBillionSince 1993Since 1993
NegotiatedNegotiated
30,447Transactions30,447Transactions
$5 $5 BillionBillionSince 1999Since 1999
167 167 TransactionsTransactions
MULTIPLE DIVESTMENT SERVICES
Mid-Value Negotiated Transactions (MVN)
� Alternative to Auction for assets with:• Higher PDP/Upside Ratio• $10 – 50 Million with substantial reserves
� Operated & non-operated working interests
MVN Express
Custom Negotiated Transactions� Significant upside – Technically Comples� Geographically consolidated� $40 - >$1 Billion� Customized process required (“story to tell”)
MVN Express� Unconventional Leasehold Marketing� $5 – 20 Million� Short Cycle Marketing
Auctions� Geographically diverse properties� Operated & non-operated working interests� Premiums for royalties & minerals� Individual property values up to $20 MM+� Primarily PDP reserves (70%+)� Online and Hybrid (live + online)
$0 $200 $400 $600 $800 $1,000$0 $20 $40 $60 $80 $100
Auction
MVN & MVN Express
Negotiated
THE CLEARINGHOUSE TEAM
Land Manager
Acct Mgr
HoustonBusiness
Development
HoustonBusiness
Development
IT Manager
Shipping
ClientRegistration
Amber ColvinReceptionist
Ken OlivePresident & CEO
Accountant
Heather AdamsonAdmin Asst Vice President
Land
Office Manager
Ron BarnesExecutive Vice President
Business Development and Operations
David KnoxSr Vice President
Negotiated Transactions
Business AnalystDon MillikIT Analyst
DatabaseDeveloper
Receptionist
IT Analyst
Land Manager
Sr Geologist
Sr Eng Tech
Sr Engineer
Sr Geologist
Sr Eng Tech
Land Admin
Land Tech
Denver - BusinessDevelopment
EventCoordinator
Exec Asst
Development
OKC - BusinessDevelopment
(1) Houston
(2) Denver
(3) Oklahoma City(4) Dallas
Mgr–Evaluations& Exploitation
Mgr–NegotiatedTransactions
Eng TechLand Tech
Draftsman Sr Geologist
Sr DataTechnician
Sr Engineer
Land Admin
Sr Engineer
DataAdministrator
Sr Engineer
Mgr ClientServices
Mgr–NegotiatedTransactions
Mgr–NegotiatedTransactions
Draftsman
Sr Geologist
Sr Geologist
Geologist
Sr Eng TechSr Engineer
Dallas - BusinessDevelopment
EngineerLand Tech
Geologist
Sr Engineer
Engineer
Sr Engineer
Sr Geologist
Sr Engineer DataCoordinator
THE CLEARINGHOUSE TEAM
Land Manager
Acct Mgr
HoustonBusiness
Development
HoustonBusiness
Development
IT Manager
Shipping
ClientRegistration
Amber ColvinReceptionist
Ken OlivePresident & CEO
Accountant
Heather AdamsonAdmin Asst Vice President
Land
Office Manager
Ron BarnesExecutive Vice President
Business Development and Operations
David KnoxSr Vice President
Negotiated Transactions
Business AnalystDon MillikIT Analyst
DatabaseDeveloper
Receptionist
IT Analyst
Land Manager
Sr Geologist
Sr Eng Tech
Sr Engineer
Sr Geologist
Sr Eng Tech
Land Admin
Land Tech
Denver - BusinessDevelopment
EventCoordinator
Exec Asst
Development
OKC - BusinessDevelopment
(1) Houston
(2) Denver
(3) Oklahoma City(4) Dallas
Mgr–Evaluations& Exploitation
Mgr–NegotiatedTransactions
Eng TechLand Tech
Draftsman Sr Geologist
Sr DataTechnician
Sr Engineer
Land Admin
Sr Engineer
DataAdministrator
Sr Engineer
Mgr ClientServices
Mgr–NegotiatedTransactions
Mgr–NegotiatedTransactions
Draftsman
Sr Geologist
Sr Geologist
Geologist
Sr Eng TechSr Engineer
Dallas - BusinessDevelopment
EngineerLand Tech
Geologist
Sr Engineer
Engineer
Sr Engineer
Sr Geologist
Sr Engineer DataCoordinator
A&D Environment
SM
TODAY’S A&D ENVIRONMENT
� Industry is poised for significant asset rationalization
• Capital demands associated with unconventional and shale play developments are significant and immediate
• Oil/Gas price discrepancy is unprecedented and confusing the A&D marketplace
• Income from oil production providing good cash flow stream for many
• Starting to see some bank pressure on gas heavy producers
� Capital Availability – debt, equity or asset sales
• New equity raises were active in late 2011
• Debt is available• Debt is available
• Reserve-based bank lines have grown
• Private equity sponsor firms have ample capital to place and can be formidable buyers
� Attention is on liquids rich resource plays� Repeatable and predictable development� Securing leasehold positions is the priority� Balancing act while trying to live within cash flow� All-in economics can be challenging – JV arrangements are an answer
NATURAL GAS FUTURES
Source: NYMEX
OIL FUTURES
Source: NYMEX
U.S. A&D ACTIVITYD
ea
l Co
un
t
400
500
600
700
800
$40
$50
$60
$70
$80
$90
$100
$ B
illi
on
s
Total U.S. Upstream Transaction Volume
Source: IHS Herold
De
al C
ou
nt
0
100
200
300
$0
$10
$20
$30
$40
2007 2008 2009 2010 2011
Transaction Value - Asset Transaction Value - Corporate
Deal Count - Asset Deal Count - Corporate
DECOUPLING OF OIL AND GAS PRICING
Source: NYMEX
US RIG COUNT – OIL, GAS, HORIZONTAL and TOTAL
� Total rig count: 2,008 as of 1/27/2012
� Five-year high: 2,031 on 9/12/2008
� Five-year low: 876 on 6/12/2009
Source: Baker Hughes
ASSET VALUATIONS AND METRICS
SM
ACQUISITION VALUATIONS TODAY
� PDP reserves are highly sought after
� PDNP and PUD reserves are receiving value if currently economic
� Buyers will pay for upside if drilling is economically viable at current prices
� 2X PDP continues to be a ceiling for many buyers
� Exceptions exist: Resource plays, infill, redrills, recompletions, etc. (strategic acquisitions)
� NYMEX strip (“hedgeable”) prices are routinely used in forecastsNYMEX strip (“hedgeable”) prices are routinely used in forecasts
� Most bidders have accepted future strip as the standard
� Required to be competitive in acquisitions
� Metrics determined by production profile of asset
� Vary materially by basin
� Still ample buyers of gas assets
� Cash flow metric rules of thumb are unchanged
� Any metric using a gas-to-oil conversion ratio can be deceptive (reserves or daily production)
TRANSACTION METRICS VS SPOT PRICE - OIL
20% 15% 16% 15% 19%
TRANSACTION METRICS VS SPOT PRICE - GAS
57%
37%40%
37%31% 43%
YTD AVERAGE OIL METRIC – ASSET TRANSACTIONS
Denbury Permian
sale to Quantum
($0.9 Billion)
ExxonMobil GOM
sale to Energy XXI
($1.0 Billion)
Texas American
sale to Bill Barrett
($150 Million)
Source: IHS Herold & Harts A-D CenterStrategic Oil and Liquid Rich Deals Bring a Premium
YTD AVERAGE GAS METRIC – ASSET TRANSACTIONS
Source: IHS Herold & Harts A-D Center
Dominion Marcellus sale to Consol
($3.5 Billion)
40
50
60
70
80
AUCTION SALES – WORKING INTERESTS – CASH FLOWC
as
h F
low
(m
on
ths
)
January 2010 thru December 2011
0
10
20
30
E T
EX
AS
GU
LF
CO
AS
T
MID
CO
NT
OT
HE
R
PE
RM
IAN
RO
CK
IES
SA
N J
UA
N
S T
EX
AS
Ca
sh
Flo
w (
mo
nth
s)
GAS OIL•# in bar indicates number of lots sold
71 32 15 12 18 27 13 44 2 2 26 319 12 20 21
60
80
100
120
140
AUCTION SALES – ROYALTY INTERESTS – CASH FLOWC
as
hfl
ow
(m
on
ths
)
January 2010 thru December 2011
0
20
40
60
E T
EX
AS
GU
LF
CO
AS
T
MID
CO
NT
OT
HE
R
PE
RM
IAN
RO
CK
IES
SA
N J
UA
N
S T
EX
AS
Ca
sh
flo
w (
mo
nth
s)
GAS OIL•# in bar indicates number of lots sold
13 211 20
Mid-Value Negotiated
Custom Negotiated
AuctionMid-Value Negotiated
Custom Negotiated
CURRENT ENGAGEMENTS
Mid-Value Negotiated Express
Upland Exploration, Inc.Upland Exploration, Inc.
Mid-Value Negotiated
Custom Negotiated
Auction
Auction
Force 5 Energy, LLC
Mid-Value Negotiated
CONTACTS
Company Headquarters – Houston
Ken Olive – President & CEORon Barnes – EVP, Business Development and OperationsDave Knox – Sr. VP Negotiated Transactions
Main Phone: 281-873-4600Main Fax: 281-873-0055
Client Relations Managers
Houston Region: Kevin Townsend Houston Region: Kevin Townsend Phone: 832.601.7610 Fax: 832.601.7641
Denver Region: John Klee
Phone: 303.263.1946 Fax: 303.744.8220
Dallas Region: Chase MorrisPhone: 214.696.6400 Fax: 214.563.6252
Oklahoma Region: Bob DawsonPhone: 405.341.9658 Fax: 405.330.7931
www.ogclearinghouse.com
Mid-Value Negotiated
Custom Negotiated
AuctionMid-Value Negotiated
Custom Negotiated
CURRENT ENGAGEMENTS
Mid-Value Negotiated Express
Upland Exploration, Inc.Upland Exploration, Inc.
Mid-Value Negotiated
Custom Negotiated
Auction
Auction
Force 5 Energy, LLC
Mid-Value Negotiated
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