encap investments, l.p. ipaa private capital conference d. martin phillips april 19, 2004

ENCAP INVESTMENTS, L.P.ENCAP INVESTMENTS, L.P.

IPAA Private Capital IPAA Private Capital ConferenceConference

D. Martin PhillipsD. Martin Phillips

April 19, April 19, 20042004

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EnCap InvestmentsEnCap Investments

Privately owned investment firm Privately owned investment firm

Leading provider of growth capital to the Leading provider of growth capital to the independent sector of the U.S. oil and gas industry independent sector of the U.S. oil and gas industry since 1988 since 1988

Exclusive focus on oil and gas industry (upstream Exclusive focus on oil and gas industry (upstream and midstream)and midstream)

Currently investing 10Currently investing 10thth institutional fund and 4 institutional fund and 4thth private equity fund ($528 million) private equity fund ($528 million)

Targeting a new $700 million private equity fund Targeting a new $700 million private equity fund to close in June 2004to close in June 2004

OverviewOverview

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PRIVATE EQUITY OVERVIEWPRIVATE EQUITY OVERVIEW

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Private Private EquityEquity

Privately negotiated equity capital utilized as an Privately negotiated equity capital utilized as an alternative to traditional financing sourcesalternative to traditional financing sources

Primarily focused on corporate issuers (typically Primarily focused on corporate issuers (typically private)private)

Frequently structured as preferred or common Frequently structured as preferred or common stock or some combination thereofstock or some combination thereof

Seeks an annual rate of return of 20% or greaterSeeks an annual rate of return of 20% or greater Function of the relative risk profile of the Issuer and Function of the relative risk profile of the Issuer and

place within the capital structureplace within the capital structure Three to seven year investment cycleThree to seven year investment cycle IlliquidIlliquid

OverviewOverview

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Used to facilitate growth in connection with a pending Used to facilitate growth in connection with a pending

property or corporate acquisition or a development property or corporate acquisition or a development

opportunityopportunity

Strategic “reloading” of the balance sheet to create dry Strategic “reloading” of the balance sheet to create dry powder for future growthpowder for future growth

Typically fills a capital void left by the debt markets Typically fills a capital void left by the debt markets (including bank, mezzanine, and bond markets)(including bank, mezzanine, and bond markets)

Tapped by Issuers when public equity markets are not Tapped by Issuers when public equity markets are not availableavailable

Provides flexibility in structuring a dealProvides flexibility in structuring a deal

Adds a knowledgeable financial partnerAdds a knowledgeable financial partner

When and Why is it used?When and Why is it used?

When?When?

Why?Why?

Private Equity for the E&P Private Equity for the E&P IndustryIndustry

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Active Private Equity Active Private Equity ProvidersProviders

First Reserve *First Reserve * (Houston; $500MM)(Houston; $500MM)

QuantumQuantum (Houston; $300MM)(Houston; $300MM)

Energy Trust Energy Trust PartnersPartners

(Dallas; $115MM)(Dallas; $115MM)

YorktownYorktown (NYC; $585MM)(NYC; $585MM)

Warburg Pincus *Warburg Pincus * (NYC; $750MM)(NYC; $750MM)

GreenHill CapitalGreenHill Capital (NYC; $100MM)(NYC; $100MM)

EnCap InvestmentsEnCap Investments (Houston; $528MM)(Houston; $528MM)

CSFB Capital CSFB Capital Partners *Partners *

(Houston; $750MM)(Houston; $750MM)

Natural Gas Natural Gas PartnersPartners

(Dallas; $600MM)(Dallas; $600MM)

Kayne AndersonKayne Anderson (Houston; $225MM)(Houston; $225MM)

Riverstone Holdings Riverstone Holdings **

(NYC; $500MM)(NYC; $500MM)

Active Private Equity Providers Active Private Equity Providers to the E&P Industryto the E&P Industry

* Denotes large Energy focused fund; amount listed is estimated portion designated for * Denotes large Energy focused fund; amount listed is estimated portion designated for E&PE&P

Note: All fund sizes are estimatesNote: All fund sizes are estimates

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Private EquityPrivate Equity

Private Equity is a form of risk capital that is Private Equity is a form of risk capital that is consistently available to support the growth of consistently available to support the growth of independents regardless of market conditionsindependents regardless of market conditions

Diverse sources of private equity provide Diverse sources of private equity provide opportunities to find a capital partner with a opportunities to find a capital partner with a similar strategy and risk profilesimilar strategy and risk profile

Flexibility in structuring an investment vs. Flexibility in structuring an investment vs. inflexibility and fickleness of public equity and inflexibility and fickleness of public equity and debt capital marketsdebt capital markets

Private equity providers remain hungry for Private equity providers remain hungry for deal flow.deal flow.

ConclusionsConclusions

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David Miller PartnerGary Petersen PartnerMarty Phillips PartnerBob Zorich Partner

INVESTMENT INVESTMENT STAFFSTAFF

Wynne Snoots Mng. Dir.Brent BechtolVice Pres.Jason DeLorenzoVice Pres.Mitch HovendickVice Pres.Jason McMahonVice Pres.Sean Smith Vice Pres.Doug SwansonVice Pres.Jonathan ShepkoAssoc.Travis Winfrey Assoc.Stacy Durbin Analyst

ADMINISTRATIVE STAFFADMINISTRATIVE STAFF

Bobby Haier CFODonna Wright ControllerAudrey White Sr. Acct.John Stricker Sr. Acct.

PRINCIPALSPRINCIPALS

OrganizationOrganization


Offices in Houston and DallasOffices in Houston and DallasIndependent once again!Independent once again!

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EnCap Funds ManagementEnCap Funds Management

10 institutional funds since 198810 institutional funds since 1988

Over $1.8 billion raised since Over $1.8 billion raised since

inceptioninception 3 Producing Property Acquisition Funds (1988 3 Producing Property Acquisition Funds (1988

- 1996)- 1996)

3 Mezzanine Funds (1988 - 1993)3 Mezzanine Funds (1988 - 1993)

4 Equity Funds (1994 - 2003)4 Equity Funds (1994 - 2003)

Currently raising EnCap Energy Capital Fund Currently raising EnCap Energy Capital Fund V ($700 MM)V ($700 MM)

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EnCap Industry EnCap Industry PartnersPartners

Laredo Energy – drill bit Laredo Energy – drill bit growthgrowth

Ovation Energy – Ovation Energy – acquire/exploitacquire/exploit

Sawtooth Energy – mgmt. Sawtooth Energy – mgmt. playplay

Medicine Bow – mgmt. Medicine Bow – mgmt. playplay

Nautilus – acquire/exploitNautilus – acquire/exploit Plantation – mgmt. playPlantation – mgmt. play Petrohawk – mgmt. playPetrohawk – mgmt. play Stroud – acquire/exploitStroud – acquire/exploit Tempest – mgmt. playTempest – mgmt. play

NCX – drill bit growthNCX – drill bit growth 3 Tec – mgmt play3 Tec – mgmt play BreitBurn – acquire/exploitBreitBurn – acquire/exploit Plains Resources – mgmt Plains Resources – mgmt

playplay Bargo – acquire/exploitBargo – acquire/exploit Cordillera – mgmt. playCordillera – mgmt. play Matrix – acquire/exploitMatrix – acquire/exploit Copano – midstream Copano – midstream

growth growth AROC – acquire/exploitAROC – acquire/exploit

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$10-75 million investment size$10-75 million investment size

Management teams with proven track Management teams with proven track

record and open to opportunistic exitrecord and open to opportunistic exit

Equity contribution by management Equity contribution by management

(“skin in the game”)(“skin in the game”)

Focused value creation strategyFocused value creation strategy

Investment FocusInvestment Focus

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LLC or Limited Partnership is the most tax LLC or Limited Partnership is the most tax efficient for management structureefficient for management structure

Common or Preferred EquityCommon or Preferred Equity

Fund equity as needed for acquisitions and/or Fund equity as needed for acquisitions and/or development in conjunction with a prudent level of development in conjunction with a prudent level of bank debtbank debt

Increasing management participation linked to Increasing management participation linked to performanceperformance

Board representation or controlBoard representation or control

3 to 7 year investment horizon3 to 7 year investment horizon

Typical Investment StructureTypical Investment Structure

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EnCap Recent ActivityEnCap Recent Activity

In response to current market conditions, In response to current market conditions, EnCap has monetized a significant portion EnCap has monetized a significant portion of its portfolio over the last 12 monthsof its portfolio over the last 12 months

Liquidated public securitiesLiquidated public securities

Sold Laredo Energy I to Chesapeake Energy in Sold Laredo Energy I to Chesapeake Energy in October 2003 after 18 month investment periodOctober 2003 after 18 month investment period

Sold Plantation Petroleum to Forest Oil in Sold Plantation Petroleum to Forest Oil in December 2003 after 18 month investment December 2003 after 18 month investment periodperiod

Sold Cordillera to Patina in October 2003Sold Cordillera to Patina in October 2003

Response to current environmentResponse to current environment

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EnCap Recent ActivityEnCap Recent Activity

Over last 12 months, EnCap has Over last 12 months, EnCap has committed $300MMcommitted $300MM

Laredo II – committed $38 MMLaredo II – committed $38 MM Plantation II – committed $30MMPlantation II – committed $30MM Nautilius – committed $35MMNautilius – committed $35MM Medicine Bow - committed $67MMMedicine Bow - committed $67MM Stroud – committed $27MMStroud – committed $27MM Petrohawk – committed $38.3MMPetrohawk – committed $38.3MM NGL Ventures – committed $50MMNGL Ventures – committed $50MM

Response to current environmentResponse to current environment

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EnCap Recent Activity EnCap Recent Activity

Plantation is managed by Tom Meneley Plantation is managed by Tom Meneley and Bill Wallsand Bill Walls

Plantation IPlantation I

Acquired Maynard Oil Company in July 2002 for Acquired Maynard Oil Company in July 2002 for $98MM with a $38MM equity investment from $98MM with a $38MM equity investment from EnCap and Liberty EnergyEnCap and Liberty Energy

In December 2003, Plantation sold Maynard to In December 2003, Plantation sold Maynard to Forest Oil CompanyForest Oil Company

Plantation IIPlantation II

Formed in November 2003Formed in November 2003

EnCap and Liberty backed management to acquire EnCap and Liberty backed management to acquire properties in Southeast New Mexico for $20MM.properties in Southeast New Mexico for $20MM.

Plantation I & Plantation IIPlantation I & Plantation II

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EnCap Recent Activity EnCap Recent Activity

Laredo Energy is managed by Glen Hart and Laredo Energy is managed by Glen Hart and Graham WhalingGraham Whaling

Laredo Energy ILaredo Energy I

EnCap Fund IV invested $20MM in a partnership EnCap Fund IV invested $20MM in a partnership structure with Laredo I in December 2001.structure with Laredo I in December 2001.

In October 2003, Chesapeake Energy purchased In October 2003, Chesapeake Energy purchased Laredo I for $110MM.Laredo I for $110MM.

Laredo Energy IILaredo Energy II

Formed in November 2003Formed in November 2003

EnCap backed management to acquire Lobo Trend EnCap backed management to acquire Lobo Trend properties from Chevron for $23MM.properties from Chevron for $23MM.

Laredo Energy I & Laredo Energy IILaredo Energy I & Laredo Energy II

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What Sets EnCap Apart?What Sets EnCap Apart?

Track RecordTrack Record

ExperienceExperience

Technical ExpertiseTechnical Expertise

FlexibilityFlexibility

Value-Added PartnershipValue-Added Partnership


IPAA Private Capital IPAA Private Capital ConferenceConference

D. Martin PhillipsD. Martin Phillips

April 19, April 19, 20042004

encap investments, l.p. ipaa private capital conference d. martin phillips april 19, 2004

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