Today’s Shale Themes:Broadening Plays, Increasing Prices, Expanding JV’s

September 1 2010

Ward Polzin, CFA

September 1, 2010

Recent M&A Market: Oil vs Gas vs ShaleTransaction Volume ($BN)

(Total Volume $BN)

$74

$70

$80 Conventional Oil Conventional Gas Shale

(Total Volume $BN)

$48

$40

$50

$60

$13 $12 $11 $10 $11

$28

$17 $15 $11

$14

$33

$11 $20

$30

$40

$

$3 $10 $ $11

$7 $

$0

$10

2005 2006 2007 2008 2009 2010YTD

Source: J.S. Herold as of 8/13/10. Includes transactions greater than $50 million in which United States is the primary country. TPH estimates of shale transaction value.

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Recent M&A Market: Oil vs. Gas vs. Shale

# of Transactions

(# of Transactions)

595460

70Conventional Oil Conventional Gas Shale Shale JV

28 28

44

3630 30

40

50

28 26 28

20 20 1814 14

11

30

18

30

12 20

30

4 6

0

10

2005 2006 2007 2008 2009 2010YTD

Source: J.S. Herold as of 8/13/10. Includes transactions greater than $50 million in which United States is the primary country. TPH estimates of shale transaction value.

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Shale Market Deal Flow

BarnettAntrim15%

Bakken9%

9%

Fayetteville8%

WoodfordHaynesville

13% Woodford5%

Eagle Ford

13%

Eagle Ford6%

Marcellus35%35%

4Source: J.S. Herold as of 8/13/10. Includes transactions greater than $50 million in which United States is the primary country. Excludes XOM-XTO. TPH estimates of shale transaction value.

Shale JV Deal CountCumulative Shale JV Volume = $19 BN

8

6

7

3

4

5

Deal

Cou

nt

1

2

3 D

0

Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q2 10 Q3 10

Barnett Fayetteville Marcellus Haynesville Eagle Ford Woodford

5

Barnett Fayetteville Marcellus Haynesville Eagle Ford Woodford

Source: J.S. Herold as of 8/13/2010. Includes transactions greater than $50 million in which United States is the primary country.

Why JVs?

Buyer Seller

Access the Resource

□ Repeatability, scale, lower

breakeven prices

Accelerate value

□ Capital intensive

Maintain control and upsidebreakeven prices

Operational Shale Experience

□ Total, Statoil, ENI, BG, BP, etc

Maintain control and upside

□ Capitalize on existing operations

Partial monetization

Strong Relative Economics

□ Growing rig counts validate

□ Predictable returns (at a program

□ Take some money off the table

Cost and risk mitigation

□ Define the play

level)

Attracts all types

□ Independents Foreign PE□ Independents, Foreign, PE

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Originator: The Right Expectations

Ownership Sold

Ownership $/Acre

0% 100%50%

Consideration Mix – Upfront Cash

Upfront Cash $/Acre

0% 100%50%

0% 100%50%

Operator Carry

Operator Carry $/Acre

0% 100%50%

0% 100%50%

Drilling Carry Duration (years)

Carry Duration $/Acre

0 4+2

Operatorship Options

Operatorship $/Acre

0% 100%50%

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Partner Larger than Originator

International International

Large Cap Large Cap

Mid Cap Mid CapOriginator Partner

Small Cap Small Cap

Private Equity Private Equity

Private Private

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Source: JS Herold.

Joint Venture Value Enhancement

$/Acre

AcreageTracts inC

NRILow

R l

Lease Terms

ScaleContiguous area F bl f

MidstreamShort-term gathering

L l

OperatorSuccessful

T k R d

De-RiskedHorizontal P d iCore area Royalty HBP

Future Expiry

Favorable for development

Long-term plan Track RecordProduction3D Seismic

Core Analysis9

New Extensions

Haynesville

S th t i t Sh lb S A ti N d h□ Southwest into Shelby, San Augustine, NacagdochesRock quality

Marcellus

□ West VirginiaRegulatory opennessGeology good enough

Eagle Ford

□ NorthwestOil economics offset shallower and thinner zone

Bakken

□ North, South, WestFrac technology

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Second Target

Haynesville - Bossier

S th ti f l□ Southern portion of playBetter than Haynesville in extreme south

Marcellus - Utica

□ Northern portion of playMay be primary target deeper into NY

Eagle Ford - Olmos, Escondido, Pearsall

□ Pearsall – Northwestern portion Deeper so higher pressure?

□ Olmos, Escondido - Southern portion of playEarly days, small areal extent at this time

Bakken – Three Forks

□ Throughout playEqual to the Bakken, where present

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Haynesville Expansion1. North

□ E Tx: Limit defined by XCO and PVA “dry holes” in Southern Marion & Northern Harrison

□ N La: 3+ horz wells in Caddo Pine Island Field;

Limited Productivity

Dry Hole

Improving Results

2—4 MMcf/d

2. East

□ STR and ECA/RDS in Woodardville Field

3. South Tier 2 / 3

Original Core

Haynesville Pinch-out

□ E Tx: “Shelby Trough” extending well into Nacogdoches & San Augustine; EOG, DVN, & ECA

□ N La: FST well in Sabine Pa (Bossier completion); CRK Toledo North Field

□ Reservoir deepens significantly to the S & SE

Tier 1

Tier 3

4. West

□ Haynesville Shale not present in Minden Field, Rusk Co.

□ Multiple Hz wells not completed due to “reservoir quality” along Shelby/Panola border

Tier 2

Tier 1“Shelby Trough”

Low Reservoir Quality

Bossier Shale

□ Results concentrated in Southern region of Haynesville play Best

H ill

Limited Activity

Best □ Initial results indicate similar performance to

Haynesville completionsHaynesville IP to date

Bossier IP to date

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Marcellus Expansion

NYC aquifer –politically

ffli i

NY: waiting on EIS

Lower porosity

Utica potential

offlimitsand thinner

Deep thick and highly

pressured

High thermal maturity – gas cooked off?

Higher liquids content but less thickness and

pressure

Structural complexity

increases towards the thrust belt

Thinner but rich lower interval

Thick and deep enough

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Quality variable along eastern

marginLocal thicker

regions extend into Southern West Virginia

Eagle Ford Expansion

Promising Oil Rates

Shallow, limited

pressure, Less reservoir drive

Pearsall l Si ifi t overlap =

additional potential

Significant leasing activity

Reservoir quality

concerns

Limited Activity

Deeper and

Deep, high potential trend

Condensate improves returns

Deeper and drier gas

Poorer Reservoir quality

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Bakken Expanding

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Unconventional Resource Value Progression

Development Model Verified

Barnett , Haynesville:

$/Acre Buyer Seller

$19 000 BG Exco~ $20,000-

$35,000/acre

Marcellus Core, Eagle Ford Core:

$19,000 BG Exco

$20,000 Chesapeake IP

$33,000 Total Chesapeake

Discounted Development Valuation

es

Type Curve Established~ $10,000-

$15,000/acre

$/Acre Buyer Seller

$14,000 Mitsui Anadarko

$14,000 Reliance Atlas

ue In

crea

se

Marcellus SW PA, Eagle Ford Ext:

$/Acre Buyer Seller W ll E l St

$12,000 Reliance PioneerValu

$/Acre Buyer Seller

$5,000 Ultra NCL

$3,500 Consol Dominion

$4,000 BP Lewis

Wells, Early Stage~ $3,000-

$5,000+/acre$/Acre Valuation

Asset Risk Decreases 16

Haynesville Acreage Values

$2 500 –

$15,000 –30,000/acre

$2,500 5,000/acre

$8,000 -$12,000+/acre Tier 1 = 2x-3x lesser

areas

Source: TPH Estimates of current market conditions

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Marcellus Acreage Values

$?/acre

$10,000+/acre$4,000 -$8,000/acre

$5,000 -$10,000/acre

Deal costs h d bl d have doubled in 6 months

$1,000 -$4,000/acre

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Eagle Ford Acreage ValuesLarge contiguous positions in the core of the gas region have been as high as $10,000 acre, compared to $500‐$1,000/acre deals in Maverick Basin and other fringe areas along the northern limit.  The recent strategic partnership between Pioneer and Reliance sets a new level in the Eagle Ford.

Petrohawk – Black Hawk53K acres, $3000/acre, 1Q2010

Magnum Hunter & Hunt Oil27K acres JEA Gonzales & Lavaca Co., 2Q2010

Shell – Maverick150K acres, $500/acre, 1Q 2010

Goodrich35k net acres; $1675/acre

Chesapeake400K acres, $1400/acre

Petrohawk HawkvillePioneer –Reliance JV95k net acres; $12,000/acre

Petrohawk – Red Hawk90K acres, $200/acre, 1Q2010

Petrohawk – Swift JV13K acres, $3000/acre, 4Q2009

APC/NFX - TXCO380K acres, $800/acre, 4Q 2009

Talisman - Common37K $9700/ 2Q2010

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Source: HPDI, Investor Presentations, TPH.

BP - Lewis40K acres, $4500/acre, 4Q 2009

Shell - Dimmitt100k acres, one ranch, up to $10k/acre incl. options/drilling

37K acres, $9700/acre, 2Q2010

Bakken Acreage Values

$5,000 –6,000+/acre

$5,000 – 7,000/acre

$5,000 –7,000/acre

$500 –1,500/acre

,

$6,000 –$ ,8,000/acre

$1,800 –

$5,000 –6,000/acre

$ ,5,000/acre

$500 –2,000/acre

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Shale Play Lease Value Comparison

MarcellusHaynesville

14 000

16,000Type CurveEstablished

Eagle Ford Condensate

12,000

14,000 Type CurveNot EstablishedRisk Increased

Bakken8,000

10,000

e ($

/acr

e)

Eagle FordOil

Niobrara4,000

6,000Pric

0

2,000

0

$/Acre value represent approximate highest $/acre paid in 2Q 2010 for each play

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Shale Forecast by Basin

25

20

25

n (B

cf/d

)

f d

10

15

y Pr

odu

ctio

n

4.4 Bcf/d

2.8 Bcf/d

5

Tota

l Dai

ly

5.5 Bcf/d

6.3 Bcf/d

02008 2009 2010 2011 2012 2013

Eagle Ford Woodford Fayetteville Marcellus Haynesville Barnett

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Source: Production Forecast = TPH Estimates

Rockies are Well Positioned

Best pure play oil shale to date is the Bakken

E di N th S th d W t□ Expanding North, South and West

□ New plays in Montana

Many new plays being tested in the Rockies

□ Niobrara – greatest buzz

□ Mowry, Heath, etc

Non - Rockies

□ Oil portion of broader gas shale play: Eagle Ford, Marcellus, Barnett

□ Oily portion of broader gas plays: Anadarko (Cleveland, Granite Wash, etc)

□ California - Monterey□ California Monterey

□ Looking for shales in older basins – Permian

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