Capital Form 2006 - Oil and Gas Investor

HERE’S THE MONEY:
CAPITAL FORMATION 2006
MAY 2006
A supplement to

HERE’S THE MONEY:
CAPITAL FORMATION 2006
MAY 2006
A supplement to

A supplement to:
1616 S. Voss, Suite 1000
Houston, Texas 77057-2627
713-993-9320
Fax: 713-840-8585
www.OilandGasInvestor.com
Editor-In-Chief
LESLIE HAINES
Ext. 6428, lhaines@hartenergy.com
Executive Editor
NISSA DARBONNE
Ext. 6429, ndarbonne@hartenergy.com
Director, Custom Publishing
MONIQUE A. BARBEE
EXT. 6456, mbarbee@hartenergy.com
Senior Financial Editor
BRIAN A. TOAL
303-797-2037, batoal@aol.com
Contributing Editors
BERTIE TAYLOR, TARYN MAXWELL,
GARY CLOUSER
Art Director
MARC CONLY
Graphic Designer
JAMES GRANT
Production Manager
JO POOL
Ext. 6404, jpool@hartenergy.com
HERE’S THE MONEY:
CAPITAL FORMATION 2006
CONTENTS
LIVING ABUNDANTLY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
A FULL MENU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
What is the optimal type of capital structure to fund an exploration and production
company? It depends on the company.
LENDING LEAPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Lots of market liquidity plus strong oil and gas fundamentals as well as mushrooming
M&A activity are driving energy lending to new highs.
DEPLOYING CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
As E&P activity in the oil patch keeps growing, so do the options for capital
funding.
A BORROWER’S BUFFET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Regional banks find that when cash is aplenty, it’s the borrower who gets to call
the shots.
For additional copies of this publication,
contact AMY CARRUTH at
(713) 993-6441.
Group Publisher, Electronic Content
CLIFF JOHNSON
cjohnson@hartenergy.com
Group Publisher, Newsletter Division
DAVID GIVENS
dgivens@hartenergy.com
Associate Publisher
SHELLEY LAMB
Ext. 6430, slamb@hartenergy.com
Regional Sales Manager
BOB McGARR
Ext. 6426, bmcgarr@hartenergy.com
Regional Sales Manager
KAREN DAUGHERTY
Ext. 6438, kdaugherty@hartenergy.com
Vice President & Group Publisher
ROBERT C. JARVIS
Ext. 6425, bjarvis@hartenergy.com
Hart Energy
Publishing, LP
Sr. Vice President & CFO
KEVIN F. HIGGINS
Executive Vice President
FREDERICK C. POTTER
President &
Chief Executive Officer
RICHARD A. EICHLER
Copyright 2006, Oil and Gas Investor/
Hart Energy Publishing LP, Houston, Texas.
THE ALLURE OF MEZZANINE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Opportunities for drilling oil and gas in the United States have never been better.
TAKING AIM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
For E&P companies with a decidedly international focus, the London AIM
exchange is a welcoming place to raise capital.
PRIVATE EQUITY LIKES INNOVATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Private venture capital funds are becoming more interested in funding oil and gas
technology for commercialization, not research.
CHEVRON AND SHELL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
The technology ventures subsidies of Shell and Chevron are attempting to bridge
the gap between needed R&D funding in the oil and gas industry and private
equity funding to help companies commercialize technology products.
FINDING CAPITAL: A DIRECTORY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
Here is a list of firms that can arrange capital for E&P
companies, from start-up to large-cap.
E&P START-UPS ABOUND . . . . . . . . . . . . . . . . . . . . . 60
Easier access to capital aids in new-company formation.
ABOUT THE COVER:
Cover illustration by Brenda Vang.
MAY 2006 1

LIVING ABUNDANTLY
AN INTRODUCTION
They say money doesn’t grow on trees,
but it seems to be doing so in the oil
patch these days. Cash flows for operators
are abundant, even if natural gas
prices have come off their lofty perches
seen in December. At press time, crude oil topped
$75 per barrel on the Nymex.
Private capital providers in particular are still raking
in investment dough, even after a fruitful 2004
and 2005. Investors can’t seem to get enough
exposure to energy.
Since last fall, a lot of money has flowed into private
capital coffers. Natural Gas Partners raised
more than $1.5 billion for funding E&P, midstream
and technology ventures. Sowood Capital
Management closed Sowood Commodity Partners
Fund IV with $1.24 billion. This spring, ArcLight
Capital Partners managed to close ArcLight Energy
Partners Fund III with commitments of more than
$2 billion in less than three months. Some 90
investors came onboard.
At the same time, Quantum Energy Partners III
has funded start-up Sequoia Resources LP with
backing of $19 million, and Energy Spectrum
Capital invested $30 million in Forrest Drilling Co.
LLC, a start-up driller that’s building five new rigs.
And on and on it goes.
This type of moneyed atmosphere may give
some savvy investors and knowing E&P executives
and bankers pause, and rightly so. But at the same
time, given proper due diligence, the right deal
structure and good assets, there is tremendous
potential out there.
RESERVE RISK
BANK DEBT
Prime
Rate
Energy Investment Risk Reward
VPP & “B” LOANS
A study of recent M&A deals reveals the dollar
value of proved undeveloped locations and possible
reserves continues to grow. Companies are eager to
fund drilling on such locations.
This is our fourth annual special report on capital
formation. It will bring you up to date on who has
the capital and on what terms. Be sure to let us
know of any banks or other capital sources of
which energy executives should be aware. In this,
our 25th anniversary year, we are delighted to continue
our mission of bringing the E&P and financial
worlds together.
REVOLVER
MEZZANINE
Low Teens
REWARD
(Interest Rate)
—Leslie Haines,
Editor-In-Chief
PRIVATE EQUITY
& INDUSTRY PARTNERS
25% +
To assist in your capital-formation education, reference these articles that
appeared in Oil and Gas Investor since last year’s Capital Formation report.
➢ Mezzanine Money—A review of
three mezzanine funding providers
and their recent E&P deals
(January).
➢ Crowded Capital Markets—A
cover story detailing how much
Wall Street is open to energy
deals, featuring comments from
Lehman Brothers, JP Morgan,
Citigroup and others (December).
➢ London-Listed—U.S.-based producers
are finding fresh capital on the
London Stock Exchange’s new
Alternative Investment Market
(November).
➢ Upstream Against the Tide—Energy
bankers are coming up with new
approaches to stem the tide
of slackened loan demand
(November).
➢ Private E&P Capital—A cover story
featuring comments from investment
bankers, intermediaries and
fund managers that have dramatically
stepped up private E&P
financings (October).
➢ High Time for an IPO—As the climate
for energy companies heats,
these E&P companies have gone
to market, with a sidebar on how
Rule144A capital-raising works
(August).
➢ Private Paths to Profit—Profiles
of how three private-capital
providers funded new companies
(July). ■
HERE’S THE MONEY: CAPITAL FORMATION 2006 • OIL AND GAS INVESTOR MAY 2006 3

CHECKLIST
A FULL MENU
What is the optimal type of capital structure to fund an exploration and production
company? It depends on the company.
BY LESLIE HAINES, EDITOR-IN-CHIEF
Choosing the right kind of capital is a
matter of striking the right balance
between risk and reward, and matching
the type of capital structure to the assets
involved and to the borrower’s and
investors’ long-term goals.
Those building a company should probably raise
equity, while those planning a project should probably
stick to debt or joint-venture financing,” said T.
Prescott Kessey and William E. Weidner of COSCO
Capital Management LLC, in “Capital Formation
2003,” a supplement to Oil and Gas Investor.
Cash flow from operations—This is the most typical
form of capital used by companies of all sizes, because it is
close at hand and comes without covenants or restrictions.
It is limited in scope, however, and may not be enough.
Friends, family, industry partners—This type of
equity is easy to raise, yet it, too, is limited. This capital
may or may not come with seasoned people who can
offer advice, contacts and counsel to management.
Commercial banks—In the next stage of growth,
companies turn to banks and use their assets as collateral.
Covenants kick in and an interest rate must be paid.
“A company’s longer-term objectives (grow, go public,
sell) should guide bank and other financing decisions,”
said David Hunt, managing director of Citigroup, at the
Independent Petroleum Association of America’s Private
Capital conference in January. “While the cost of equity is
fairly expensive for young companies, the cost of bank
debt for them is not highly differentiated from [the cost
for] larger, more established E&P companies.”
Private equity—Companies in the early stages that
need more capital, and may want additional advice and
contacts, select private equity. This capital demands a
higher return than a bank, and frequently seeks a board
seat or tighter covenants. An exit plan is usually required.
External equity helps when you want to diversify risk, and
need to cover the G&A of the business as it grows and
you are spending more money on seismic, drilling or
acquisitions, when you want to limit personal liability.
Mezzanine capital—If a company cannot meet the
requirements of a bank, or wants diversity in its funding
sources, this type of capital can be appropriate. This capital
falls between equity and bank debt. It usually does not
seek meaningful control of the borrower, but does own
equity after an agreed payout is reached.
Public equity—this capital depends on the somewhat
fickle stock-market window of opportunity and usually
takes many months to access, with strict documentation
procedures, but is the least expensive form of equity. ■
WKSI EXPLAINED
In July, the Securities and Exchange
Commission issued final rules governing
registration procedures and relaxed certain
liability provisions for offering-related
communications. These rules should facilitate
the capital-formation process.
In particular, the SEC has defined the
WKSI (“wicksee”), or well-known, seasoned
issuer. This will be a boon to public
companies that have made offerings and
met all SEC filing requirements in the past.
According to a special report provided
to its oil and gas clients by law firm Akin,
Gump, Strauss Hauer & Feld LLP, a company
qualifies as a WKSI if it:
➢ meets the registrant eligibility requirements
of SEC forms S-3 or F-3;
➢ is required to file reports under the
Securities Exchange Act of 1934 (i.e., is
publicly traded);
➢ is current and timely in satisfying its
SEC filing obligations;
➢ has a worldwide market value of outstanding
common equity (voting and
non-voting) held by non-affiliates (the
“public float”) of $700 million or more
as of a date within 60 days of the
determination date, or has issued at
least $1 billion aggregate principal
amount of non-convertible debt and
equity securities (other than common
equity) during the preceding three
years in registered primary offerings for
cash (that is, not exchange offers), as
of a date within 60 days of the determination
date; and
➢ is not an ineligible issuer, an assetbacked
issuer, a registered investment
company or a business-development
company.
A WKSI is eligible to conduct an offering
for any kind of security on an automatically
effective shelf registration statement,
without an SEC staff review, under certain
conditions.
In December, Coker & Palmer
Investment Securities closed an offering
for Denver-based Delta Petroleum Corp.,
a qualified WKSI, in less than 48 hours, says
partner Michael Bodino. This streamlined
offering system made for a fast and efficient
way to obtain additional capital for
Delta, he says. The entire transaction took
place without a road show.
4 MAY 2006 WWW.OILANDGASINVESTOR.COM

MULTINATIONAL BANKS
LENDING LEAPS
Lots of market liquidity plus strong oil and gas fundamentals as well as mushrooming
M&A activity are driving energy lending to new highs.
BY BRIAN A. TOAL, SENIOR FINANCIAL EDITOR
Source: Reuters Loan Pricing Corp., New York
Conventional wisdom suggests that
amid $60-plus oil and between $7 and
$8 gas prices, producer cash flows
surge to such levels that the notion of
accessing bank credit is superfluous.
Last year, however, proved just the converse of
that wisdom. Oil and gas loan volume soared to a
nine-year high of $121 billion, surpassing that sector’s
$88 billion in credit flow for 2004 and its $56
billion in loan volume for 2003.
“Looking across all industries, syndicated lending
in 2005 totaled about $1.5 trillion,” says Meredith
Coffey, senior vice president and director of analytics
for Reuters Loan Pricing Corp. in New York.
Oil and gas loan volume shot up to $121 billion last year, the highest in nine years
The firm collects, analyzes and publishes loan-data
activity on all industries. Its data on the oil and gas
industry includes aggregate loan volume across five
sectors—E&P, oil services, pipelines, refining and
integrated oils.
“Last year, as today, banks had a lot of capital to
put to work, plus there was demand from cash-rich,
non-bank investors such as mutual funds and hedge
funds that invest in loans,” she explains. “So there
was a lot of liquidity in the market and for that reason,
very large loan deals could get done.”
Secondly, the spreads or margins on loans last year
remained near record lows and were very attractive
to borrowers, notes Coffey.
“Also in 2005, lower-rated companies—firms not
as high a credit quality as we’ve seen in recent
years—were able to begin tapping the loan market.”
Lastly, there were some structural changes in
lending—longer tenors on loans in general along
with looser covenants, she adds.
“We saw both banks and non-bank investors willing
to back companies more highly leveraged than
in the past. In short, there was more willingness to
lend—and on more favorable terms,” says Coffey.
Following these trends in the overall market, the
energy sector last year took the opportunity to
undertake a lot of refinancing activity, says Diana
Diquez, oil and gas market analyst for Reuters Loan
Pricing Corp.
“A lot of companies tapped the loan market for
longer terms, often higher commitment amounts
and lower spreads than in the past,” she said.
For leveraged oil and gas borrowers—credits
below a BBB- rating and with an interest rate of at
least 1.5% over the London Interbank Offering Rate
(Libor)—the average drawn spreads on loans syndicated
to banks last year dropped to Libor plus 220
basis points from Libor plus 245 the prior year.
Another dominant driver was oil and gas lending
last year.
“M&A activity jumped to around $18 billion,
almost double the $9.4-billion volume we saw in
2004 and very close to the $22-billion mark hit in
2001,” says Diquez.
In tandem with this, the market saw a remarkable
shift within the energy-lending arena.
“For the past nine years, investment-grade lending
has always been higher than non-investment-grade
lending,” she says. “However, in 2005, the dollar
value of investment-grade credits was relatively flat
with 2004’s level of $46 billion while non-investment-grade
lending jumped 81%, to $75 billion,
versus a prior-year level of $41 billion.”
These events were caused by “strong fundamentals
in the oil and gas industry, a perception of sustainable
high commodity prices and continued high
asset values, plus a very friendly borrowing environment
that allowed more leveraged borrowers to
access the loan market to fund drillbit growth and
acquisitions,” explains Diquez. “Indeed, most of last
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MULTINATIONAL BANKS
year’s M&A activity involved leveraged
borrowers.”
The outlook for energy lending
this year appears just as sanguine.
“If one looks at the overall syndicated
loan market, we’re actually on
pace to top last year’s $1.5 trillion
loan volume,” says Coffey. “There’s
still lots of liquidity in the overall
market. And in the oil and gas sector,
the big change from previous
years is the sheer magnitude of
M&A activity that’s going on,
which we expect will continue.”
Source: Reuters Loan Pricing Corp., New York
Last year, oil and gas non-investment-grade lending outpaced investment-grade lending.
REFINANCINGS DOMINANT
Leading the explosion in lending to the oil and gas
sector last year was JPMorgan Chase & Co.
According to Reuters Loan Pricing Corp., the bank
lead-arranged 85 sector credits totaling $38.8 billion.
Comparatively, it arranged 99 energy loans in 2004
worth more than $29 billion and 58 sector credits in
2003 totaling nearly $15.7 billion.
“The primary driver for the dollar-volume growth
in lending in 2005 was refinancings, with oil and gas
companies expanding, extending and redoing their
credit facilities on more favorable terms, with
respect to both pricing spreads and covenants,” says
Murphy Markham, group head of oil and gas banking
for JPMorgan Chase in Dallas.
Also, there was a ballooning of acquisition-related
financings in the upstream that required a significant
increase in the borrowing capacity of independents,
he says.
“In addition, lenders witnessed a relatively new
wave of leveraged recapitalizations within the sector,
aimed at allowing the financial sponsors of many
producers to take some money off the table,” says
Markham.
Another trend that boosted last year’s energylending
activity was the increased willingness on the
part of banks to do stretch or term-B loans, or second-lien
notes, which effectively increase the borrowing
capacity of E&P companies to exploit their
existing assets, says Markham.
“What we’ve been trying to do since our July
2004 merger with Bank One Corp. is to aggressively
expand our client base in the small- to mid-cap E&P
sector,” says Markham. The bank added 18 new
upstream credit relationships last year.
“Our strategy is to bring to bear on this sector a
complete banking platform that combines the broad
commercial and investment-banking capabilities of
JPMorgan with the heritage, more down-market
commercial banking expertise of Bank One.”
Indicative of this strategy is what the bank did last
summer and fall for Whiting Petroleum Corp. when
that Denver operator sought to acquire assets from
Celero Energy.
“To make the deal happen, we fully underwrote
an $850-million borrowing-base credit facility, provided
all the necessary commodity hedges for the
transaction, then assisted management with putting
the right capital structure in place,” says Markham.
“This included joint-bookrunning a $288-million,
follow-on equity offering to pay down the acquisition-debt
financing and a $250-million high-yield
offering that allowed the company to take five-yearmaturity
bank debt and extend it out to 10 years in
the public market.”
Another multi-pronged financing is that the bank
last fall arranged a two-tiered, $650-million credit
for Exco Resources, a then-private Dallas-based
operator, to make a leveraged recapitalization of the
company—this one aimed at management buying
out its existing equity holders and replacing those
backers with new equity sponsors.
Weeks later, the operator indicated it wanted
to acquire Oneok, an Oklahoma utility, for $645 million.
“To achieve this, we helped Exco form a new
separate entity, TXOK Resources, which we capitalized
with a $325-million revolver and a $200-
million second-lien note that we sold to the institutional
market,” says Markham. “The remainder
of the new company’s capitalization came in the
form of private equity provided by T. Boone
Pickens and Exco.”
JPMorgan this past February, through its capitalmarkets
arm, was lead-bookrunner on a $699-million
IPO for Exco Resources. The proceeds were
used to pay down that company’s accumulated debt.
The last step occurred in March, when the company
put together a $750-million borrowing-base facility
for Exco Resources, which provides the producer
sufficient liquidity for future growth.
“This is a great example of our desire to be a onestop-financing
provider,” says Markham.
HERE’S THE MONEY: CAPITAL FORMATION 2006 • OIL AND GAS INVESTOR MAY 2006 7

MULTINATIONAL BANKS
Murphy Markham of JPMorgan
Chase & Co. says the company
tries to expand its client base in
the small to mid-cap E&P sector.
Not neglecting its strategy of
growing its franchise among smallercap
E&P companies, the bank last
year sat down with the management
of Canaan Resources, a private
Oklahoma City start-up looking for
bank financing.
“We started out by providing a
very low borrowing-base facility, but
as the company began to make
acquisitions, that credit quickly grew
to $8.5 million,” he says.
INTEGRATED APPROACH
Continuing its growth in energy
lending, Bank of America last year
lead arranged 72 credits worth $23.2
billion, up from a 2004 volume of 38
oil and gas loans totaling $15.7 billion
and a 2003 pace of 34 facilities worth nearly
$7.9 billion.
“In the E&P sector, we saw in 2005 a lot of loan
repricing and the extension of tenors as borrowers
took advantage of shrinking spreads and a very
aggressive bank market,” says Marion Leman, principal,
energy corporate and investment banking for
Banc of America Securities in
Houston.
“Secondly, both private and
public independents were very
active in the M&A market which
really spurred bank-financing
activity,” he says. “Overall, we
probably added 15 new credit relationships,
not only in the upstream
but also the midstream and oil-service
sectors.”
With an integrated approach to
energy financing, the bank early
last year led a $1.25-billion credit
facility for Chesapeake Energy,
then participated in a $1.5-billion
acquisition loan to the producer
for its buyout of Columbia Natural
Resources. The lender’s capitalmarkets
arm later took out those
facilities with a $724-million
equity offering, a $575-million
convertible preferred transaction, a
$690-million convertible notes
issue and a $500-million bond deal.
In the smaller-cap end of the
upstream, Bank of America last
year also provided Riata Energy a
$90-million credit which allowed
that private Amarillo, Texas-based
operator—soon to become publicly traded—to
advance drilling in West Texas’ Permian Basin and
Colorado’s Piceance Basin.
“Subsequently, again through Banc of America
Securities, we led a $244-million private-equity
placement for the producer under Rule 144A,
which permitted the company to repay debt and
expand its acreage positions and drilling programs in
those basins,” says Leman.
Following the same financing strategy, the lender
last fall led a $150-million credit facility for
Houston-based Geomet Inc., a private coalbedmethane
producer in Alabama’s Cahaba Basin and
the Appalachian Basin, then arranged in February a
$130-million 144A private placement of equity that
enabled that independent to repay debt and accelerate
drilling activity.
“While we’re currently in the market syndicating
a $7.5-billion credit for ConocoPhillips related to its
acquisition of Burlington Resources—and have just
completed the repricing and extension of a $2-billion
facility for Devon Energy—we’re very much
interested in expanding within the small-cap E&P
space,” says Leman. “This means a willingness to
provide loans at the $10-million-plus level for strong
management teams seeking long-term growth,
2005 U.S. Oil & Gas Lead Arrangers
Rank Bank Holding Company Lead Arranger
Volume ($MM)
# of
Deals
Market
Share
1 JPMorgan 38,824 85 32%
2 Bank of America 23,211 72 19%
3 Citigroup 12,651 25 10%
4 Wachovia Corp 8,782 27 7%
5 BNP Paribas SA 7,284 28 6%
6 Lehman Brothers 6,250 5 5%
7 Credit Suisse First Boston 3,200 7 3%
8 Wells Fargo & Co 3,193 19 3%
9 Royal Bank of Scotland Plc 3,100 5 3%
10 UBS AG 1,660 5 1%
11 Mitsubishi UFJ Financial Group Inc 1,360 7 1%
12 Barclays Bank Plc 1,287 5 1%
13 Merrill Lynch & Co Inc 1,250 1 1%
14 RBC Capital Markets 1,207 7 1%
15 Harris Nesbitt 1,145 6 1%
16 Goldman Sachs & Co 1,075 3 1%
17 SunTrust Bank 987 5 1%
18 Fortis Bank 825 5 1%
19 Scotia Capital 500 3 0%
20 Deutsche Bank AG 425 2 0%
21 HSBC Banking Group 411 1 0%
22 Societe Generale 411 1 0%
23 DnB NOR Bank ASA 310 2 0%
24 Toronto Dominion Bank 300 1 0%
25 WestLB AG 278 1 0%
26 HVB Group 255 1 0%
27 PNC Bank 185 4 0%
28 General Electric Capital Corp 145 2 0%
29 ABN AMRO Bank NV 125 1 0%
30 Calyon Corporate & Investment Bank 75 1 0%
Source: Reuters Loan Pricing Corp.
8 MAY 2006 WWW.OILANDGASINVESTOR.COM

MULTINATIONAL BANKS
whether through the drill bit or acquisitions or a
combination of both. “Importantly, we really don’t
have a minimum threshold, as far as loan size. In
fact, we’ve been in credit relationships that began at
the $5-million level and grew to several hundred
million dollars.”
The bank is no less interested in the service sector,
adds Leman. In this year’s first quarter, it acted as
financial advisor to Houston-based Helix (formerly
know as CalDive), structuring the financing for that
company’s pending $1.4-billion acquisition of
Dallas-based Remington Oil and Gas.
Similarly, the lender has been active in the midstream.
Last year, it advised Copano Energy LLC, a
Houston-based gas gatherer and processor, on the
purchase of ScissorTail Energy, a private Oklahoma
midstream company, which required a $500-million
acquisition financing and private-equity and publicdebt
offerings, each $225 million.
“Looking ahead, we’re off to a fast start in
financing for 2006, particularly with the
ConocoPhillips/Burlington transaction, along with
new credits for XTO Energy and Concho
Resources,” adds Leman. “Right now, a lot of companies
are upsizing their credit facilities in preparation
for an active M&A year.”
EYEING IPOs
One of the top three lead arrangers of oil and gas
loans last year was Citigroup. According to Reuters
Loan Pricing Corp., the financial giant last year
arranged 25 credits in the energy sector totaling
$12.65 billion. The prior year, it arranged 23 energy-related
loans worth nearly $15.2 billion versus a
2003 pace of 11 energy credits totaling close to
$4.2 billion.
“Since the end of 2004, we’ve been very focused
on expanding in the small- and mid-cap E&P
space,” says David E. Hunt, head of energy and
utilities banking for Citigroup in Houston. “We
see good credit opportunities based on the
risk/reward profile and quality of companies in that
space, both public and private producers.”
In terms of adding new upstream lending relationships
last year, the bank participated in a $540-
million credit for Mariner Energy, a $750-million
facility for Plains Exploration, a $1-billion loan for
Pogo Producing and a $2.5-billion credit for
Chesapeake Energy.
Citigroup, however, is increasing its focus on
arranging syndicated loans, particularly for emerging
private producers that will be evolving into
public entities near term.
Last year, it arranged a five-year, $500-million faceamount
loan for then-AREP Oil & Gas—now NEG
Oil & Gas LLC—a private Dallas-based producer
focused on producing properties in the Midcontinent
and Gulf Coast regions. The facility basically refinanced
and consolidated various assets held by several
related upstream entities the company controlled.
“What this did was set the stage for the emergence
of a new publicly traded entity, for which an
S-1 has been filed, that will ultimately be called
National Energy Group Inc.,” explains Hunt.
Focusing on a similar growth relationship this
year, Citigroup is in the process of co-lead-arranging
a standard bank loan plus an institutional, second-lien
credit facility, collectively totaling $425
million, for a private Denver-based operator. The
combined credits will allow the producer to close
on an M&A transaction that will give it greater
critical mass and position it to ultimately pursue
strategic options, which could include an IPO.
“Right now, we’re in the process of arranging
$100- to $500-million credit facilities for three
other private E&P companies, with part of the
lending strategy being that these companies will be
going public sometime within the next six months
to a year,” says Hunt.
This doesn’t mean that Citigroup won’t consider
smaller loan commitments in the range of $20- to
$30 million.
“The size of the credit isn’t that important,” he
points out. “What is important in
the credit relationship is that the
borrower has a growth trajectory
that will eventually allow us the
opportunity to use our other
financing capabilities, including
leading capital-markets transactions.”
He says that a hot upstream
M&A market plus the emergence
of private-equity-sponsored E&P
entrants last year helped offset the
loss of existing credit relationships
through industry consolidation.
“These two factors also helped
mitigate the decline we witnessed David Hunt of Citigroup says the
in outstandings as many producers,
overwhelmed with strong ties based on the risk/reward pro-
company sees credit opportuni-
cash flows and not enough spending
opportunities, chose instead
file and quality of companies.
to pay down net debt,” Hunt says.
What is the lending outlook for this year?
“Credit activity in the energy space should be
reasonably robust,” says Hunt. “Many producers
are going to pursue the LLC (limited liability company)
model that Linn Energy brought to market
this January (see the April issue of Oil and Gas
Investor) which should help drive acquisition-related
bank financings.” ■
HERE’S THE MONEY: CAPITAL FORMATION 2006 • OIL AND GAS INVESTOR MAY 2006 9

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MARKETS OVERVIEW
DEPLOYING CAPITAL
As E&P activity in the oil patch keeps growing, so do the options for capital funding.
BY BERTIE TAYLOR, EDITOR, OIL AND GAS INVESTOR THIS WEEK
The oil patch is still buzzing with new E&P
activity—a trend that lasted throughout last
year and forced many capital providers to
keep in step. High commodity prices and
growing oil and gas demand are continuing
to draw new funds to the energy market, keeping the
M&A game going and showing investors that energy is
still a hot market. In turn, capital providers have grown
more flexible in their deal terms, creative at finding lending
niches and determined to keep loan volumes high.
David Ratzker, vice president, corporate finance, for
New Jersey-based Cornell Capital, says capital from nontraditional
sources such as private equity and hedge funds,
combined with record cash flow, has created record activity
levels that have driven up input costs for acquisitions,
drilling and completion services and facilities.
“This cost inflation, however, has been more than offset
by the increased commodity prices, providing ongoing
opportunity for attractive returns in the sector,” he says.
Cornell recently completed a $12.5-million preferred
share offering for Colorado-based Torrent Energy to fund
its Coos Bay program and a $2.5-million financing for
Ignis Petroleum Group in Dallas.
Cornell also provided Calgary-based Triangle
Petroleum with $15 million in financing. Triangle issued
a 5% convertible debenture, and the proceeds will fund
exploration and general corporate purposes.
Returns for investors have been stellar, so there has
been more capital available in the market for energy-related
investments, agrees Michael Bodino, a partner heading
up the new energy group in Louisiana for Coker &
Palmer, a securities firm in Jackson, Miss.
“Not only that, but the higher average commodity
prices have helped make many projects economic or at
least enabled capital to be directed toward improving the
economics of many projects that were marginally economic
in a $3 gas environment,” says Bodino.
Since joining the firm last year, Bodino’s team has participated
in several investment banking transactions. It comanaged
a $100-million private investment in public
equity (PIPE) for Delta Petroleum in September, with JP
Morgan; as well as private placements for Cano
Petroleum and Storm Cat Energy Corp.
In January of this year, it led a $36-million equity
offering for Delta, following the SEC’s December
approval of the so-called WKSI rule, whereby a “wellknown
stock issuer” does not have to file the usual documentation
with the SEC to make a deal.
Late last year, most capital providers realized the bulk
of U.S. producers were flush with cash. The E&P scramble
was not for funding, but for prospects, so commercial
bankers found they had to work hard to make their services
more attractive to borrowers.
“There was plenty of capital to go around,” says
Mickey Coats, senior vice president of Tulsa-based BOK
Financial Corp. “I think the competition for senior debt
financing was as fierce as I have ever seen it in 2005.
Banks were so hungry for loan volume that the competition
drove rates down and covenants were loosened. It
was certainly a borrowers’ market.”
Tim Murray, managing director of Guggenheim
Partners, says, “Commercial banks are again at the aggressive
end of their lending spectrum. Mezzanine firms have
retooled and are funding start-ups in competition with the
private-equity firms, and E&P firms are again in favor
with the public markets.”
Murray adds that while capital availability has always
been cyclical in the E&P sector, what has changed in the
past 10 years is the ability to insure against price volatility
via hedging.
“Prior to the prevalence of hedging, lenders suffered
large losses through the commodity cycles. The boombust
cycles and resulting loan losses discouraged new capital-provider
entrants and moderated the aggressiveness of
existing lenders,” says Murray.
He also gives credit to technology, opportunity and
people for the streak of successful E&P start-ups last year.
“Start-ups require entrepreneurs with industry expertise
willing to take risks. The industry consolidation in
2005 and prior years provided a steady supply of experienced
management teams. The availability of capital
emboldened these teams to take risks,” he says.
HEIGHTENED COMPETITION
Tom Hedrick, managing director for Wells Fargo Energy
Advisors, adds, “There’s so much money out there, that
competition is very intense among mezzanine and private-equity
players for management teams with a decent
track record or a sound project.”
Cameron O. Smith, senior managing director of
New-York based COSCO Capital Management LLC,
says investors and managers are showing
real discipline.
“I don’t see the types of foolhardy capital destruction
we saw in the 1980s. That’s good for all of us,” he says.
Investors have shown interest in drilling stories and
12 MAY 2006 WWW.OILANDGASINVESTOR.COM

MARKETS OVERVIEW
$550 million
$875 million
$1.3 billion
$148 million
$250 million
$1.24 billion
New Capital
Company: Fund $ Amount Type of Fund Investment Goal
Energy Spectrum Capital: Energy
$353 million Equity Initial investments between $20- and $30 million
Spectrum Partners IV LP
FirstMerit Commercial Energy Group
NA
Equity Reserve-based and project financing to independents in the Appalachian,
Illinois and Michigan basins. Seeks deals between $500,000 and $40 million
Foundation Energy Co. LLC
GasRock Capital LLC
Greenhill & Co. Inc.: Greenhill Capital
$21 million
NA
Equity
Mezzanine
Direct investments in U.S. onshore oil and gas properties
Project debt investments or acquisitions between $5- and $50 million or larger
Partners II LP
$875 million Equity
Kayne Anderson Capital Advisors LP
Lime Rock Partners: Lime Rock
Resources/Lime Rock Partners III LP
NGP Energy Capital Management:
Natural Gas Partners VIII LP
NGP Energy Capital Management: NGP
Energy Technology Partners LP
NGP Energy Capital Management: NGP
Income Co-Investment Opportunities
Fund II LP
Sowood Capital Management LP:
Sowood Commodity Partners Fund IV LP
Source: Oil and Gas Investor This Week
Equity
Equity
Equity
Equity
Equity
Equity
acquisition strategies, which has heightened competition
among lenders. The projects that attract capital include
companies with mature management and property sets
that have upside, or proved undeveloped and proveddeveloped-nonproducing
assets, Coats adds.
Looking ahead, Glynn Roberts, president of Houstonbased
producer Northstar Interests Inc., expects competition
between capital providers, including competition
between lending niches, to grow.
“I believe this bodes well for E&P companies. The
industry is attracting capital in large doses and it needs a
home. Eventually, the abundance of capital will cause
some providers to do deals where they are not adequately
compensated for their risk,” he says.
Smith adds, “Heightened activity means more competition
for capital, goods and services, most particularly
including personnel. This time around, the upswing
comes as there has never been a better developed capital
structure, more mature operators/managers, better/more
efficient technologies, and a greater amount of landscape
that is commercially attractive.”
Competition among providers has grown so intense
that select firms are rumored to now be more lax in
their professional standards, says one energy-banking
professional. Some firms have stooped to “causing ripples
in the industry by stealing clients to make a name
for themselves.”
Murray says, “Without a significant commodity-price
correction to expose the riskier players, increased competition
may be a fact of life in the capital markets for an
extended period of time. Obviously, this competition
amongst capital providers is a bullish development for
upstream firms requiring flexible and inexpensive capital
to pursue their strategies.
Middle-market energy investments
Early- to mid-stage North American E&P companies with investments
from $10- to $75 million
Privately negotiated investments in the oil-service, oil-service
technology and E&P sectors
Investing capital in the E&P, midstream, oilfield-service and technology-related
energy sectors
Investing capital in technology-related energy sectors.
Investing capital to buy royalty, net profits and other interests in
properties and other energy-related assets
Projects in energy, natural resources, soft commodities, grains,
industrial assets and metals
“As in all of the previous cycles, competition will
stretch the market until a number of deals fail and rational
activity will return.”
On the other hand, the competition has resulted in
more styles of available investment capital for new projects,
Cornell’s Ratzker says. Privately placed term notes
and debt issues with equity kickers should continue to
provide institutional investors with predictable income at
adequate spreads and commodity exposures, and industry
participants with a longer source of financing that’s well
matched to reserve life and with lower interest-rate risk.
“Producers with longer average reserve lives may find
this an attractive financing alternative,” he adds.
Ratzker says private equity is more abundant than
ever, and offers one of the simplest means of funding for
management with a good track record and the desire to
take on a shareholder with access to plenty of capital.
“[Also,] committed equity facilities have become
increasingly popular among junior energy companies.
They allow participants to raise capital by selling shares to
the sponsor at different stages of the project based upon
current share price, thereby lowering overall cost of
equity. The sponsor [can] acquire shares at different prices
in tranches, allowing it to get the shares at a lower cost
while mitigating risk exposure,” he says.
ATTRACTIVE PROJECTS
The projects many capital providers expect will
draw hefty backing this year include drilling in
unconventional reservoirs.
“These days, it’s hard to find plays that are undervalued
or under-explored,” Hedrick says. “In every basin, a
dominant aggregator has emerged.”
Bodino says he has seen the gamut of capital needs
14 MAY 2006 WWW.OILANDGASINVESTOR.COM

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us where we needed to be. Their timely solutions and commitment to
going ‘above and beyond’ really set them apart from their peers. I highly
recommend Wells Fargo Energy Capital.”
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BlackWell Energy
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Potential for energy

MARKETS OVERVIEW
ranging from project acceleration to asset acquisition, but
the main activity needing financing is the pursuit of
unconventional resources. This is because investors take
comfort in the fact that there is no binary outcome since
the resources are in place, but the downside in many of
these plays results from determining the project’s economic
viability, he says.
“We have watched project economics improve during
the past 10 years in such plays as the Cotton Valley,
Barnett Shale and Pinedale Anticline. We expect that the
evolution of completion methods will improve the economics
of many of the emerging plays,” Bodino says.
He is also seeing a growing interest in enhanced oilrecovery
projects, since higher average oil prices can support
secondary and tertiary recovery projects. He has not
seen a significant amount of capital raised for exploration
efforts, although exploratory activity has increased because
of companies’ free cash flows, he adds.
Hedrick says some of the less-favored plays would also
include the offshore, as many companies are choosing to
exit. In addition, some E&P areas south of I-10 in
Louisiana and Mississippi are losing steam, he says.
Smith says, “The point is that experience, coupled
with new technology and capital, points the way to new
resources under all changing circumstances. The question
is, simply, who is prepared to stake his claim first.”
This year, Smith expects financing terms to be drawn
out longer, whether by access to the public market or
providing flexibility to stay invested for greater than the
current 10 years.
Bodino anticipates seeing a number of fully registered
financings this year, including more IPO activity and
follow-on offerings.
“We expect an active M&A market to facilitate some
of the public and private transactions. The PIPE market
has been the vehicle of choice for many smaller companies,
and we expect that trend to continue through
2006,” he says.
Many oil and gas executives have earned the
power to call more of their own investment shots
this year. “Many management teams today have put
enough chips in the bank where they don’t necessarily
need private equity if they don’t want it,”
Hedrick says. “If they want to do a project, they
can fund it themselves, or they can choose to simply
quit. The folks with capital will eventually need
to find new management teams to work with, by
looking at the younger professionals.” ■
Some Recent Investments
FUNDED COMPANY RECENT DEAL/GOAL SOURCE
Blacksand Energy LLC
Canaan Resources LLC
Cobalt International Energy LP
Cordillera Energy Partners II LLC
Crusader Energy II LLC
Coronado Resources LLC
Escondido Resources LP
Fairfield Energy Ltd.
Prime Offshore LLC
Genesis Gas & Oil LLC
Rockford Energy Partners II LLC
Sequoia Resources LP
Slate River Resources LLC
SouthView Energy LLC
Tecton Energy LLC
Source: Oil and Gas Investor This Week
Commitments of up to $50 million to recapitalize the company
and fund development projects onshore California
$150 million to acquire onshore long-life gas reserves
$500 million to focus on E&P in the deepwater Gulf of Mexico
and other global basins
$176 million to focus on E&P in the Rockies, San Juan Basin,
Midcontinent, East Texas and Permian Basin
$80.8 million to develop natural gas resources in unconventional
reservoirs in the Midcontinent and Eastern U.S.
$52 million to develop assets in the Anadarko Basin and the
Golden Trend areas of Oklahoma, as well as in the Texas panhandle
and North Texas
An undisclosed amount to focus on E&P in South Texas
$200 million of private equity to fund E&P activity
Formed a $70 million limited partnership. GE also financed the
completion of a 48-mile gas pipeline from Prime’s fields in the
South Padre Island area offshore Texas
$70 million to pursue coalbed-methane projects and other unconventional
reserves in the Rockies
$50 million to acquire long-life reserves in Oklahoma and the
Texas Panhandle
$19 million to focus on E&P in the South Texas and Gulf Coast areas
$30 million for three consecutive years to focus on unconventional
gas in the Rockies and development projects in the Uinta and
Piceance basins in eastern Utah and western Colorado
$50 million to acquire domestic oil and gas assets through financing
exploitation and development drilling in the $2- to $20 million range
$30 million to fund E&P in unconventional resource gas plays in
the Rockies and Canada
Kayne Anderson Capital Advisors, Jefferies
Capital Partners and Wells Fargo Energy Capital
Canaan Natural Gas Partners Fund IX LP and
associated entities
Carlyle/Riverstone and Goldman Sachs Capital
Partners
EnCap Investments LP
Greenhill Capital Partners LLC, Lime Rock
Partners and Cosco Capital Mgmt. LLC
David D. Le Norman, other ex-Crusader I management
and Kayne Anderson Energy Fund II
EnCap Investments Fund V and Wells Fargo Bank
A syndicate of investors led by Warburg Pincus
and including SGAM/4D Global Energy
Development Capital Fund and Kern Energy
Partners I Fund
GE Commercial Finance Energy Financial
Services
Greenhill Capital Partners LLC, Citigroup Private
Equity and Cosco Capital Management LLC
Quantum Energy Partners III LP
Quantum Energy Partners III LP
Lime Rock Partners
Jefferies Capital Partners
Quantum Energy Partners
16 MAY 2006 WWW.OILANDGASINVESTOR.COM

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REGIONAL BANKING
A BORROWER’S BUFFET
Regional banks find that when cash is aplenty, it’s the borrower who gets to call the shots.
BY TARYN MAXWELL, EDITOR, A&D WATCH
In today’s energy space where high commodity
prices have left companies flush with cash, the
borrower is king. “It’s a borrower’s market,” says
Mickey Coats, executive vice president and managing
director of energy for Tulsa-based Bank of
Oklahoma Financial Corp. “They know the competition
among banks is fierce for loan volume today.
They’re holding out for better and better terms.”
As companies accrue more cash and continue to proceed
with caution in their activities, banks have been left
sitting high and dry with plenty of customers who are
paying back their loans and few with a need for the debt
bankers would love them to access.
“Even though the E&P companies’ borrowing bases
are up, they just aren’t taking out money,” says Danny
Campbell, executive vice president of energy lending for
Midland, Texas-based Community National Bank.
“They have the ability to access our money, but they
just don’t need it. Their cash flow and deposits are up.”
Even if companies were accessing more bank debt,
many bankers think there aren’t many quality A&D
opportunities in the market for their customers to
deploy the capital—one of the more common uses of
bank debt in recent years.
“People are looking for places to invest cash and are
finding it difficult,” Coats says. “There are more sources
of capital and corporate cash flow than there are places
to invest these funds.”
Charles Spradlin, senior vice president for the oil and
gas department of Kilgore, Texas-based Citizens Bank,
says a lot of the producing oil and gas assets on the market
are high-priced and low-quality.
“Our customers have to be more selective in what
they buy,” he says. “Finding quality production to
buy is more difficult than it used to be. There is plenty
of money out there and more players involved than
ever before.”
Given the run-up in energy prices and the recordhigh
earnings of energy companies, banks that have
never dealt with energy companies are starting to enter
the space, opening offices in Dallas, Denver or Houston.
“We are seeing regional banks that previously didn’t
play in the energy space entering the market,” says
Dorothy Marchand, senior vice president and manager
of energy lending for Houston-based Compass Bank. “If
you start with a portfolio of zero, you have to offer
some pretty aggressive terms on loans.”
New players are not the only ones offering aggressive
terms. Banks are
dealing with the
increased competition
in a variety of
ways, from changing
their loan terms to
financing deals they
wouldn’t have considered
before, some
by simply raising
their price decks.
“We’ve made some
adjustments on borrowing
base amounts
in light of the Danny Campbell of
increased commodity Community National Bank says
prices because of discrepancies
in prices deposits are up.
E&P companies’ cash flow and
being received and
our price decks,”
Marchand says. “We have also made more policy exceptions
on lending against non-producing assets.”
Though the competition is tough, the banks
have not lost sight of the cycles that permeate the
energy industry.
“We only do these things at an acceptable time in the
cycle,” says Murray Brasseux, executive vice president
and manager of energy banking for Compass. “We’re
happy to stretch to do some things in an environment
where that’s appropriate.”
In the current “hot” environment, commercial banks
are adding more service and supply credits to their loan
portfolios. Citizens Bank, for one, has met the increased
competition by widening its spectrum on what it will
accept as collateral for its loans.
“In certain cases the bank has actually financed
putting rigs together,” Spradlin says. “We have
some rigs as collateral now for the first time. We
look at this carefully on a case-by-case basis. Many
banks found out the hard way they shouldn’t lend
on drilling rigs because historically that has been a
major cause of foreclosure on bank energy loans.
In past oil price downturns, drilling came to a
sudden halt. Drilling rigs lost 75% of their value
almost overnight.”
Spradlin noted that loaning on production is safer
because most production will continue to profit, even
if oil prices go down.
18 MAY 2006 WWW.OILANDGASINVESTOR.COM

REGIONAL BANKING
“But, we don’t expect to see that happening,”
he says.
In addition to using debt to fund the acquisition of
oil and gas production, Citizens Bank customers continue
to use credit to fund development drilling,
Spradlin says.
Community National Bank has seen its loans to the
service and supply industry spike to about 30% of its
energy business.
“Traditionally, the service side has looked for mezzanine
financing, equity investments, or they have
used their own cash flow,” Campbell says. “Now
there is a big effort to replace, upgrade and purchase
new equipment because demand and prices are up.
When prices are down, there isn’t a huge demand for
financing service equipment. Now, with prices up,
there’s a push to make everything these companies
own fully operational.”
As production has increased and access to equipment
has become increasingly scarce, financing service-side
acquisitions for E&P customers has become a way to
stay competitive and keep existing customers happy,
Campbell says.
“We’ve financed the purchase of drilling rigs and
pulling units for some of our customers that are small
producers,” Campbell says. “Small operators have a difficult
time getting access to equipment from service and
supply companies, and the equipment is mandatory for
them to keep their operations running. They can’t make
money if they can’t pull anything out of the ground.”
Because many banks have taken a hit on serviceside
loans in the past, Campbell says finding banks to
participate in Community National’s service loans was
challenging.
“The bigger banks remember 1986 when they had
most of the rigs they’d financed sitting on the ground, so
it was tough getting other banks to participate with us in
rig loans,” he says. “The head of energy lending for
most banks was eager to participate, but the head of
credit would always say no simply because the loan
involved a rig.”
Though Guaranty Bank traditionally focuses on the
small- to mid-cap independent producer and the midstream
business, it has seen a recent increase in customers
who need to finance equipment.
“Our customers have found significant shortages
where equipment is concerned, so we will provide
financing for them to acquire equipment in conjunction
with our oil and gas lending,” says Buzz Gralla, managing
director of energy banking for Guaranty in Houston.
“We’ve seen more of that in the last six months as shortages
of equipment have restricted the activities of our
clients. To the extent we need to finance equipment,
we will accommodate our E&P clients.”
Other banks won’t even consider altering their plan
to include service and supply equipment.
“Any kind of heavy financing on drilling equipment
is something we won’t do,” says Compass’ Brasseux. “I
know things look great now, and they have at other
times too, but having an investment in drilling equipment
is a tough place to be when the market turns.”
Bank of Oklahoma’s Coats categorizes a rig loan as
his “least favorite deal.”
“We won’t do a rig loan at all,” he says.
While some banks have found
financing their E&P customers’ new
service-side needs has been the best
way to stay competitive, others have
re-engineered their traditional loan
reserve-backed structures to make
them more aggressive players in the
energy-lending space.
“We have become more aggressive
in terms of some types of loans we
will do,” says Mark Fuqua, senior
vice president and manager of energy
banking for Dallas-based Comerica
Bank. “We have to turn around
answers much quicker. We’ve elected
to do loans with a non-traditional
component to them, whether they
have a mezzanine component or
they’re higher yield. Some of our
loans now have a higher percentage
against collateral or a higher percentage
on non-producing assets than
they would have had in the past. We
make those decisions very carefully
with primary emphasis placed on the
management team.”
Fuqua says he sees more E&P companies
making acquisitions with
increased upside than in the past. He
says that while lending is still driven by
acquisitions, a much bigger component
of each loan is now for drilling.
In the past, companies were buying
assets with a proved developed producing
(PDP) component of 80%.
Now, 30% of acquisitions’ value is
PDP, so companies have to put more
equity into their acquisitions or banks
have to be willing to lend for a higher
percentage of non-producing assets.
“For a long time, the economics
were more favorable for companies to simply acquire
assets, do some development drilling and flip them to
someone else,” Fuqua says. “Now the economics are
much more favorable for companies to actually do
some exploration on their assets, which is great
because they are actually creating more assets rather
than just allowing the same assets to keep changing
Charles Spradlin of Citizens
Bank says in certain cases, the
bank has accepted rigs as
collateral.
Mark Fuqua of Comerica Bank
says the bank provides loans
with a nontraditional component
to them.
HERE’S THE MONEY: CAPITAL FORMATION 2006 • OIL AND GAS INVESTOR MAY 2006 19

COSCO CAPITAL MANAGEMENT LLC
sales, arranging secondary placements of
their securities, and selectively providing
investor relation services.
CORPORATE BACKGROUND:
COSCO Capital Management LLC
for over a decade has been the
foremost specialist for value creation
within private energy finance, fulfilling its
mission to “develop sound, sustainable,
and profitable relationships between the
financial and operational segments of
the energy business”.
For energy companies, COSCO helps
managements recognize and focus on
their particular competitive advantages.
During the past five years, alone, COSCO
has advised over ninety such energy
clients, defining market niches, assisting
with investment strategies and execution,
effecting mergers and acquisitions or
Through its affiliate, Private Energy
Securities, Inc. (member NASD, SIPC),
COSCO has consistently arranged private
capital financings tailored for energy
companies throughout North America and
abroad. As distinct from other placement
agents, COSCO, itself, invests in every
equity mandate it sponsors. Again, over
the past five-plus years, COSCO has
assisted energy companies to access
approximately $870MM of private capital
(see below for representative activity over
the past 12 months).
Finally, since its inception in January
1992, COSCO has regularly assisted professional
investors with new investment
strategies or with existing or pending
energy investments. Since 2000, as an
example, it has assisted buy-side clients to
purchase or sell approximately $400MM
of portfolio companies or assets.
Unlike its peers, most of its personnel
first enjoyed careers within the energy
business before joining COSCO. Its
founder, in fact, built, ran, and sold private
and public E&P companies in the U.S.
and Canada for over 15 years. Two of
COSCO’s three managing directors have
COSCO managing directors Cameron O. Smith, left,
William E. Weidner, middle, and Lane W. McKay, right.
master’s degrees in geology. Its third
managing director presided over 30+
M&A transactions in a 3-year period, on
his way to building, taking public, and
selling what is now the second largest
property and casualty insurance company
in Canada.
In addition to its own members, COSCO
has also built up a strong network of
Colleagues, who are under contract to
assist it to source and investigate new
investment opportunities. COSCO’s
current Colleagues are based in Oklahoma
City, Tulsa, Dallas, Houston, Calgary,
London, Sydney, and Caracas.
COSCO SERVICES:
Capital Formation. COSCO specializes
in recognizing early in their development
energy company managements who are
DEALS
US$450+ Million in Energy Private Placements and Transactions in Last 12 Months
March 2006
February 2006
June-Nov. 2005
October 2005
October 2005
(Calgary AB)
(Calgary AB)
(Calgary AB)
(Traverse City MI)
(Tulsa OK)
$22,594,500 (C)
Line of Equity
First Closing
Jog Capital Inc,
BlackRock, et al
Exploration & development
of oil and gas properties
in Alberta
$35,278,873 (C)
Common Equity
Quantum Energy Partners,
et al
Development drilling in
Saskatchewan
$52,077,000 (C)
Principally a Line
of Equity
The Huff Alternative
Fund, L.P. & Others
Exploration and
development in Alberta
$91,600,000
Sale of Company
Enerplus Resources
Fund
Advised re M&A alternatives
& arranged sale of the company
$80,800,000
Equity Units
Greenhill Capital Partners, LLC,
& Lime Rock Partners
Exploration and development
of unconventional reserves in
Mid-Continent and Appalachia
July 2005
June 2005
May 2005
May 2005
April 2005
(Calgary AB)
(Jackson MS)
(Calgary AB)
(Kansas City MO)
(Denver CO)
$8,000,000 (C)
Units of Common Stock
and Warrants
Wellington Management
Co. LLC
Oil and gas development and
exploration in Queensland,
Australia
$72,199,908
Volumetric Production
Payment
AIG Financial Products
Corp.
To accelerate PUD drilling
in MS and LA, et al.
$17,800,000 (C)
Common Equity
Greenhill Capital
Partners, LLC
To fund drilling and acquisitions
in Alberta and Saskatchewan
$70,700,000
Equity Units
Greenhill Capital Partners, LLC
& Citigroup Investments Inc.
Development of coalbed
methane and other unconventional
resources in the Rockies
$20,000,000
Line of Equity
(LLC Units)
Alder Wood Partners, L.P.
Coalbed Methane exploration
and development (Arkoma)

worthy of receiving private corporate
equity or with projects suitable for mezzanine
debt. Often this capital is sourced
from those same professional investors to
which COSCO has provided advisory
services. COSCO’s selection of clients is
first and foremost influenced by the fact
it invests in every equity financing it
arranges. This also has the benefit of
establishing immediate credibility for its
clients. COSCO ensures that each client
has a realistic appreciation of its own
value in the private marketplace and
understands the full range of financing
structures acceptable to the Private Capital
community. COSCO assists clients to
prepare necessary descriptive documents
and marketing materials, arrange meetings
with financing candidates likely to
appreciate them and their business
plans, negotiate term sheets and agreements,
and close financings on terms
fair to all stakeholders.
Advisory. COSCO provides financial,
investment / divestiture, and investor
relations services to both oil and gas
companies and professional investors,
alike. For investors, advice includes consultation
on investment strategies and
execution, specific due diligence, and
intelligence regarding peer competition.
Clients have included Warburg Pincus,
Morgan Stanley Private Capital (now
Metalmark), Lime Rock Partners, and
Emerging Markets Partnership, among
others. For private and public energy
companies, COSCO provides sound
financial and business advice designed to
focus managements on their own competitive
advantages, business opportunities,
and financing potential. For the latter,
COSCO can also provide a full range of
investor relations services. For familyowned
companies, it has personal
experience with generational succession
planning. Advisory clients within the
Industry have included Ausam Energy,
Shell Canada, Arena Energy, Crutcher
Standing, from left, are Scott Kessey, Cameron Smith, Bill Weidner, and Lane McKay.
Seated, from left, are Craig Campbell, Reva White, Warren Shimmerlik, and Sharon Younger.
Tufts Resources, Novus Petroleum, and
Momentum Energy, among many others.
Mergers & Acquisitions / Divestitures,
Secondary Placements. Because its
personnel and Colleagues are located in
almost all of the principal energy centers
of North America, as well as many key
international hubs, COSCO is well
positioned to match industry clients with
acquisition, divestiture, or merger candidates.
COSCO’s experience in structuring
deals and in raising capital is often crucial
in completing successful transactions.
Also, because COSCO has close working
relationships with almost all of the closedend
Private Capital Funds and many of the
open-end mutual and hedge funds in the
U.S., Canada, and abroad, it is particularly
adept in arranging secondary placements
of public and private energy securities, as
well as entire energy portfolios.
Principal Investing. COSCO participates
as a minority investor in each equity
financing it leads. Currently, it has a portfolio
of 20 investments, having realized
a 9.0:1 ROI on its seven investments
monetized to date. In 2005, COSCO
entered into a money management
relationship with two private co-investors
based in New York and Vermont. As
a consequence, depending on the size of
a financing, COSCO now anticipates
participating in up to ten percent of each
of its future equity mandates.
Education. From the outset, COSCO has
worked diligently to inform both the energy
industry and investors about the mores
and virtues of Private Capital. In 1997, it
founded the Private Capital for Energy
Forum TM , which it has hosted seventeen
times in New York, Calgary, and Houston.
Over eighty Private Capital Sources and
another sixty or so Capital Beneficiaries
have now made presentations at these
Forums. Starting in spring 2005, COSCO
has also begun publishing the COSCO
Private Capital Energy Index Report TM ,
which tracks the investing activities and
predilections of a representative crosssection
of the Private Capital community
focused on Energy. This and other articles
on private capital contributed by COSCO
personnel regularly appear in Oil and Gas
Investor and other Industry periodicals, and
COSCO is widely quoted in non-industry
publications, most recently Business Week,
Worth, and Private Equity International.
Cameron O. Smith
Senior Managing Director New York NY 212-889-0206 cos@coscocap.com
William E. Weidner
Managing Director Avon CT 860-677-6345 wew@coscocap.com
Lane W. McKay
Managing Director Calgary AB 403-237-9462 lwm@coscocap.com
T. Prescott Kessey
Principal Houston TX 713-654-8080 tpk@coscocap.com
Warren M. Shimmerlik
Principal New York NY 212-247-5200 wms@coscocap.com

REGIONAL BANKING
Select Regional Bankers’ Loan Guidelines
Bank 2006 Price Deck PDP% PUD% Loan Range
(Gas/Oil)
Citizens Bank, Kilgore, Texas $6/$50 80% varies Up to $7.5 million
Sterling Bank, Houston $6.50/$45 90% 10% $1- to $20 million
Community National Bank, $6/$40 80% 20% $1- to $5 million
Midland, Texas
Comerica Bank, Dallas $7/$45 75% 25% $10- to $50 million
Guaranty Bank, Houston $6.50/$45 65% 25% onshore, $10- to $90 million
35% offshore
Bank of Oklahoma $8.46/$65.61 60% 0% $1- to $30 million
Compass Bank, Houston $6.50/$45 100% 20%-30% $2- to $35 million
American National Bank, Denver $7/$50 65% 0% $500,000 to $15 million
hands. The pie is bigger for everyone.”
Bank of Oklahoma has started participating in syndicated
deals as a way to stay competitive, Coats says.
“Before, we preferred to be the sole bank or to be
included in a club deal of three or four banks,” he
says. “Syndicated deals get us thinner pricing, but they
give us loan volume. It’s still business, still loan volume
on the books, and if we’re successful at selling
our hedging products, we can usually get back up to a
normal rate of return.”
Coats has noticed banks becoming more aggressive
on borrowing base numbers and how they price
their loans.
“They’re willing to have fewer loan covenants,”
he says. “We’re at the more aggressive end of our
personal spectrum, but we’re holding pretty true to
our value system.”
Coats says many banks are also becoming more
aggressive through the percentage they’re willing to loan
based on non-producing reserves.
“Historically, a bank’s loan losses have very seldom
been because of a production loan,” he says. “So if
you’re going to stretch anywhere, why not stretch on
production?”
Even as other banks all around them stretch and bend
their traditional rules to stay competitive in an energy
landscape where money is rarely an object, some banks
refuse to change their ways.
“Our behavior is staying the course,” says Todd
Berryman, senior vice president and energy division
manager for Denver-based American National Bank.
“We haven’t changed any of our policies. We would
raise our price deck, but that’s the only change we
would make.”
Although commodity prices seem endlessly bullish,
some bankers have long memories of the last time the
industry found itself riding the wave of a boom it
thought could never end.
“Many of us remember the early 1980s and
1990s when the industry struggled with huge product
price collapses,” says Dan Steele, senior vice
president of the energy-lending group for Houstonbased
Sterling Bank. “Veteran commercial bankers
have no incentive to relive these nightmares, so
structures and guidelines have remained relatively
unchanged. Loan margins represent the biggest
change encountered in the industry. As borrowers’
liquidity and leverage have improved, loan spreads
have also shrunk.”
In spite of the influx of creative deals, many bankers
still close their eyes at night and dream of a traditional
path to growth: finding great management teams needing
small, production-based loans that will grow to
become their next big client.
“My dream is to continue to find clients that we can
grow with and good management teams who can
become our next $90-million loan,” says Guaranty’s
Gralla. “It’s the most fun dealing with tremendous people
who have a vision and an entrepreneurial spirit.”
Bank of Oklahoma’s Coats also believes in the power
of a good management team.
“Our favorite kind of loan is an oil and gas production
loan with primarily PDP properties where we can
engineer the property set,” he says. “It’s very important
to have the people behind it. I do subscribe to the theory
that we can make just about anything work if we
have the right people.”
Marchand and Brasseux try to offer their customers
products that encourage long-term relationship banking.
“We’ll do smaller deals because we know a $5-million
deal will grow quickly when you’re working with a
high quality management team that you can watch build
a company,” Marchand says.
Berryman says American National is also willing
to offer customers smaller loans for the chance to
grow with them.
“My favorite kind of deal is with a closely held
E&P,” he says. “Most of our customers are smaller E&P
companies. They’re extremely well run, and it’s an
opportunity for us to provide value. Other banks may
not be interested in smaller loans, but we like them.”
Citizens Bank’s Spradlin has seen his bank’s small
loans become his biggest customers.
“Sometimes the weakness of a loan is really the
strength of it, and vice versa,” he says. “All customers
have to start somewhere. We made many very small
loans in the 1990s, and those customers are some of our
most loyal today.” ■
22 MAY 2006 WWW.OILANDGASINVESTOR.COM

THE MEZZANINE MARKET
THE ALLURE OF MEZZANINE
Opportunities for drilling oil and gas in the United States have never been better.
BY SCOTT JOHNSON, MANAGING DIRECTOR, GASROCK CAPITAL LLC
Most established oil and gas companies
are generating profits and
cash flow at record levels, and for
smaller companies, financing is
more readily available than at any
time in memory.
Mezzanine financing is frequently a most attractive
alternative for early-stage companies, both
public and private.
Applied broadly, mezzanine financing generally is
taken to mean “stretch” debt, such as debt that has
advanced beyond normal senior debt levels, provided
by a traditional bank loan with a higher target
return required than for senior debt, often with an
element of equity participation. Debt that is fully
convertible into equity is not considered mezzanine.
The term mezzanine is an analogy to the levels in a
commercial building, where the mezzanine level is located
between the ground floor, which equates to equity,
and the upper floor(s), which equate to senior debt.
Outside the oil and gas sector, mezzanine finance
most typically refers to subordinated debt, which
may or may not include equity participation.
In the oil and gas world, mezzanine usually refers
to senior first-lien debt that finances specific project
assets, usually with an overriding royalty, net profits
interest, and/or warrants as equity participation.
Second-lien mezzanine debt, which is junior to bank
debt, is also available for larger transactions.
ALTERNATIVES FOR SMALLER
COMPANIES
Despite the abundance of available capital today, not
every combination of management and business plan
will attract financing. There are two primary financing
routes to rapid growth for early-stage companies.
These are first, the combination of a small amount
of equity with a larger amount of mezzanine debt
financing and second, a large amount of equity,
along with some bank debt financing.
Other alternatives are available, but usually do not
result in as rapid growth. For example, “bootstrapping”
with a small amount of equity, together with
bank debt, often results in constrained growth
because increased bank funding must await a full
engineering assessment of new proved producing
wells. The alternative of putting drilling prospects
together and bringing in a larger oil company as a
joint venture partner to provide drilling money generally
results in a smaller participation percentage, so
that it may take a number of years to build critical
mass, unless the projects turn out to be home runs.
The combination of a large amount of private equity
plus some bank debt is often an especially attractive choice
for managements with “superstar” track records and business
plans that will require between $50- and $100 million
initially and likely more within about a year. If
exploration is a substantial portion of the business plan,
then an equity investor may be the only potential source
of funding from the financial sector. With this kind of
backing, a management can build a substantial company
in a relatively short period of time. The downside is that
the equity investor will typically take about 80% of the
equity and control when and how to exit the investment
through a sale of the company or other action.
Most start-up management teams do not have the
superstar track record private equity firms seek, especially
a history of having built and sold a company at a large
profit. In addition, managements often strongly resist giving
up a majority of their company and control to an
investor. For these reasons, the combination of a small
amount of equity, derived from the managers or individual
investors, together with a large amount of mezzanine
financing, often offers compelling advantages.
Oil and gas mezzanine finance is in its golden age.
With higher prices, today it seems nearly every development
drilling project offers attractive economics when
financed with mezzanine debt. Even areas with long-life
reserves and low drilling risk such as Appalachia offer sufficient
returns to make mezzanine financing attractive.
In this environment, the amount of equity needed in
combination with mezzanine finance is much less than in
the past. Often $2- or $3 million of equity investment is
adequate in combination with between $25- and $50 million
of mezzanine debt. The focus is on the selection of a
quality development project and a management competent
to execute the plan, rather than on whether the management
has had the opportunity to make a fortune in the past.
With the right capital source, a mezzanine financing
deal can begin at a size as little as $2 million and can
grow to as much as $50- to $100 million or more. The
cost of mezzanine finance is considerably less than equity
and allows management to retain a far larger share of the
economic return as well as control of their company.
24 MAY 2006 WWW.OILANDGASINVESTOR.COM

THE MEZZANINE MARKET
KINDS OF PROJECTS
Oil and gas mezzanine financing is primarily focused
on development drilling. Midstream projects such as
pipelines, gathering systems, processing facilities and
storage are also attractive. For drilling projects,
proved undeveloped and behind-pipe reserve targets
are the bread and butter of mezzanine finance, but
lower risk probable reserve targets may also be
included. Acquisitions often include some producing
reserves, but a large portion of undeveloped reserves
is needed to generate the returns required by mezzanine.
Target internal rates of return (IRRs) usually
range from the mid-teens to the low 20s. Targeted
rate of investment (ROI) is typically in the range of
1.3 to 1.7, substantially lower than the ROI of 3.0
or more that private equity firms typically seek.
Since ROI is a measure of the actual future dollars
returned to the investor in relation to the investment
(and conversely the remaining number of dollars
available to management), it is in some respects a
more meaningful measure of capital cost than IRR,
at least to many manager/owners. Some financial
commitment by the E&P company sponsors is
required and should be significant to them, but need
not be significant relative to the size of the project.
COMPARATIVE ANALYSIS
Let’s look at financing options relating to an actual
field and the impact different types of financing
would have on the value created and retained by the
management. This example is based on a real situation,
but the company is called by the fictitious
name of Mythos Inc. Mythos owns a largely undeveloped
field with the following characteristics:
Type Well
Field
Net Reserves 572 MMcf Producing Wells 3
Cost to drill $650,000 PDP PV10 $4.4 million
R/P ratio 8.5
Production 400 Mcf/day
Life 25+ years Drilling locations 72
Total drilling cost $47 million
IRR (drill & hold) 37%
Potential sale price $78 million (30 months)
Mythos can chose from bank debt, industry joint venture,
institutional private equity and mezzanine debt.
Bank debt—We assume a 7% interest rate and an
advance rate equal to 60% of the PDP PV10 value
(proved developed reserves). Semiannual borrowing
base redeterminations lead to additional advances
during time, but because of the lower advance rate,
a lower commodity price forecast and slower value
redeterminations, the desired pace of drilling is
If only managing capital flow
were this easy.
Since the beginnings of oil and gas in the Gulf South, Whitney Bankers have been helping investors and
businesses to explore and expand. We’ve become specialists in creating and maintaining strong relationships
with our clients, and we continue to offer a wealth of knowledge, a far-reaching network of contacts and
resources, and all of the financial products necessary for competitiveness in the oil and gas business. To give
us the opportunity to help your business, contact a Whitney Banker today.
New Orleans: Bob Stone 504.299.5034 or Trudy Nelson 504.586.7512
Houston: John Lane 713.951.7100
Member FDIC
whitneybank.com
HERE’S THE MONEY: CAPITAL FORMATION 2006 • OIL AND GAS INVESTOR MAY 2006 25

THE MEZZANINE MARKET
constrained by the bank’s willingness
to extend additional funds
over time.
Industry partner—We assumed a
promote equal to a one-eighth
carry through all 72 wells.
Alternatively, we could have
assumed a third for a quarter promote
through several wells, followed
by a requirement that
Mythos finance future wells.
Under such a scenario, however,
results are heavily dependent on
the terms of the later financing, so
that the simpler assumption
seemed preferable. We did assume
Mythos is carried on all of its capital
expenditures “to the tanks.”
The pace of drilling is not constrained,
and the resulting joint
venture partner’s IRR is calculated
at 31%. This relatively modest figure demonstrates
that, if anything, the partner might demand
more attractive terms, which would have made this
alternative appear less attractive than under our
assumptions.
Private equity—We assume this investor will contribute
$28 million to Mythos. In addition, the
company uses a modest amount of bank debt. The
company initially receives 14% of the equity for its
Energy Capital and Advisory Services
C. John Thompson
Office: 713-666-7717
Cell: 713-248-7850
john@vectorec.com
Over $65 million in energy capital
placed in 2005.
Specialize in acquisitions and project
financing, with specific expertise in
structuring and funding Volumetric
Production Payments (VPPs).
Over 35 years of experience in the
energy capital business.
www.vectorec.com
Carl M. Carter III
Office: 713-662-0135
Cell: 713-504-0963
carl@vectorec.com
Internal rates of return and net present value management for Mythos.
contribution of the field assets. At that level, the
equity investor’s valuation equals about $2.34 per
thousand cubic feet of reserves and $8,000 per
thousand cubic feet per day of production.
Through options, the management can claw back
to 34% of the equity. In other words, the “promote” to
the private equity partner is about 20%. After an
assumed sale, the equity investor’s IRR is calculated
at 50% with an ROI of 3.4. These assumptions
are realistic.
Mezzanine financing—Mythos receives a $47 million
facility with a 10% coupon rate. The overriding
royalty interest is 5% commencing immediately.
There is a 2% advance fee paid as funds are
advanced. The cash flow is split 90% to repay principal
and interest with 10% to cover the overhead of
Mythos until the debt is repaid, at which point only
the royalty remains. The mezzanine provider earns
an 18.5% IRR. The ROI is 1.5 over 4.5 years without
a sale. In the event of a sale in 2.5 years, the
mezzanine provider would earn 23%.
SPLITTING THE PROFITS
With each of these assumptions, we can look at results
of a model and see how the various players make out
under different circumstances. In the chart below,
Mythos management’s achieved IRR and net present
value (NPV) are shown. Because the amount of Mythos
equity value contributed at the outset was moderate,
the IRRs to management are high in all the cases.
It is clear, however, that mezzanine finance generates
a dramatically higher NPV to management—it is
more than double that with any of the alternatives.
The chart shows the economic comparison even
more clearly. In the bank financing case,
26 MAY 2006 WWW.OILANDGASINVESTOR.COM

THE MEZZANINE MARKET
An economic comparison of various financing groups.
management retains a high percentage of the value
created, but the aggregate field value is lower
because of constraints on the drilling program. With
an industry partner or private equity, the maximum
field potential is achieved, but management retains
only a minority percentage of the total value created,
perhaps in the 20% to 30% range.
By contrast, in the case of mezzanine financing, full
field value is created and management retains more than
80% of the total profit created in
the field. In terms of the aggregate
future value, management
retains $58 million in the case of
mezzanine finance, while the
next best management result is
with bank debt, where management
retains $26 million of
profits.
Results under various future
commodity price assumptions
and different degrees of project
success render similar results. As
gas price ratchets up or down,
the mezzanine finance case dramatically
outperforms the other
alternatives under a range of
prices. Retained management
profits vary more significantly
with production results, but in
all cases where production is at
least 50% of the projected level,
management still fares better
with mezzanine than under the
other alternatives.
Limited Recourse Project
Financing
Coupon
Overriding Royalty
Alternative Equity Kickers
Advances
Repayment
CONCLUSION
Mezzanine is an attractive alternative
for financing of development
projects by smaller and early-stage
companies. In some cases, even larger
companies that do not wish to utilize their
equity funds or full recourse debt may find
mezzanine appealing. Mezzanine funding
supports accelerated growth of development
projects by early-stage companies
with advances often two to three times
what is available from the banks. Although
the cost is significantly higher than bank
funding, it remains substantially lower than
the cost of equity financing and applies to
only the specific project or assets, which
are financed. Importantly, mezzanine
finance does not require the sale of any
share of the equity ownership in the company,
does not involve giving a board seat
to a funding source and does not give control
of the company to a third party. Mezzanine
financing also allows managements to capture and
retain a larger share of the value that they create.
GasRock Capital LLC is an energy mezzanine investment
firm formed in 2005. Scott Johnson is also managing
director of Weisser, Johnson & Co., which is the manager of
GasRock Capital. He co-founded Weisser, Johnson in 1991
with Frank Weisser. ■
Mezzanine Investment Structure
• Non-recourse to sponsors or other company assets not
being financed
• Often first lien on project assets
• Second lien, junior to the banks, on larger deals with debt
in excess of $50 million
• Usually 9% to 12%
• May be higher of fixed-rate or floating rate (LIBOR +)
• Royalty sized as required to meet target return
• Sizing based on economic model
• May began immediately or after loan repaid
• Could be between 2% to 10%+ depending on economics
• Net profits interest and/or warrants may be used instead of
royalty or in addition to a royalty
• Based largely on PDP value
• May equal or exceed PV10
• Low risk drilling may not require any PDP
• Typically a sponsor pays for leases and seismic
• Proceeds applied to approved development plan
• Initial commitment is often two to three times the amount
available from banks
• Additional advances for batches of wells based on
early success
• Sweep of cash flow to pay interest and principal
• Typically 80% to 90%
• Structured to accommodate overhead
• Three to 4 year maturity
• Early repayment allowed without penalty
30 MAY 2006 WWW.OILANDGASINVESTOR.COM

Brass LNG Limited
10 mpta
Development
of LNG Project,
Nigeria
Financial Advisor
Ongoing
Gazprom
15 mpta
Development
of Shtokman LNG Project,
Russia
Financial Advisor
Ongoing
ConocoPhilips
$7,500mm
Acquisition Facilities for the
acquisition of Burlington
Resources
Senior Managing Agent
April 2006
by LMA SA
€150mm
Euro-denominated
trade receivable
securitization
Arranger
& Liquidity Provider
January 2006
Newfield Exploration
Company
$1,000mm
Bank Credit Facilities
December 2005
Chesapeake Energy
$2,500mm
Bank Credit Facilities
December 2005
PetroQuest Energy, Inc.
$40mm
Bank Credit Facilities
November 2005
$475mm
Senior Credit Facilities
October 2005
Documentation Agent
Co-Documentation
Agent
Syndication Agent
Mandated Lead Arranger
Bookrunner & Agent
Rosetta Resources, Inc.
$325mm
Bank Credit Facilities
September 2005
Bronco Drilling
$100mm
Equity Offering (IPO)
Common Stock
August 2005
Range Resources
$114mm
Follow-on Equity Offering
June 2005
Bois d'Arc Energy LLC
$175mm
Equity Offering (IPO)
Common Stock
May 2005
Co-Agent
Co-Manager
Co-Manager
Co-Manager
Calyon
Energy Finance
A Global Commitment
Calyon Houston - Energy Group
1301 Travis Street - Suite 2100
HOUSTON - TEXAS 77002
Tel. 713-890-8601
Fax 713-890-8668
www.calyon.com

For us, knowing which opportunities to
pursue or avoid is a matter of experience.
For our oil and gas clients,
it’s a matter of trust.
EXCO Resources,
Inc.
EXCO Resources,
Inc.
$40 Million
Private Placement
“PIPE”
$697 Million
Initial Public Offering
$350 Million
Bridge Loan
$10 Million
Private Placement
“PIPE”
has merged with
EBS Oil & Gas
Lead Placement Agent
March 2006
Co-Manager
February 2006
Facility Participant
September 2005
Lead Placement Agent
January 2006
Financial Advisor
December 2005
$262 Million
Initial Public Offering
$101 Million
Follow-On Offering
$283 Million
Initial Public Offering
$223 Million
Initial Public Offering
$293 Million
Initial Public Offering
Co-Manager
January 2006
Co-Manager
January 2006
Co-Manager
January 2006
Co-Manager
December 2005
Co-Manager
November 2005
$113 Million
Follow-On Offering
$97 Million
Follow-On Offering
$124 Million
Follow-On Offering
$34 Million
Follow-On Offering
Bought Transaction
$80 Million
Credit Facility
Co-Manager
November 2005
Co-Manager
May 2005
Co-Manager
November 2005
Sole Manager
October 2005
Lead Agent
March 2005
$31 Million
Private Placement
“PIPE”
$124 Million
Initial Public Offering
$167 Million
Follow-On Offering
$600 Million
Follow-On Offering
$84 Million
Initial Public Offering
Lead Placement Agent
September 2005
Joint Lead Manager &
Financial Advisor
September 2005
Co-Manager
September 2005
Co-Manager
September 2005
Lead Manager
July 2005
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$250 Million
Senior Subordinated
Notes
$288 Million
Follow-On Offering
$217 Million
Senior Subordinated
Notes
$114 Million
Follow-On Offering
$150 Million
Senior Subordinated
Notes
Co-Manager
September 2005
Co-Manager
September 2005
Co-Manager
April 2005
Co-Manager
June 2005
Co-Manager
March 2005
$104 Million
Follow-On Offering
$176 Million
Initial Public Offering
$293 Million
Follow-On Offering
has merged with
International
Coal Group
$467 Million
Follow-On Offering
Co-Manager
May 2005
Co-Manager
May 2005
Co-Manager
May 2005
Financial Advisor
March 2005
Co-Manager
February 2005
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PUBLIC EQUITY
TAKING AIM
For E&P companies with a decidedly international focus, the London AIM exchange is a
welcoming place to raise capital.
BY MICHAEL E. HUMPHRIES, EXECUTIVE VICE PRESIDENT, FERRIS, BAKER WATTS
Raising equity risk capital to pursue international
exploration and production
opportunities has always been a challenge
for small- and mid-cap E&P companies,
especially when those opportunities
may be in politically unstable parts of the world, such as
West Africa, Russia and Latin America. With few notable
exceptions, U.S. equity markets and energy private equity
firms have not been willing to assume the risks inherent in
funding companies pursuing international strategies.
During the past few years, companies have found a ready
group of investors via the London Stock Exchange’s
Alternative Investment Market (AIM).
During the past two years, the AIM has become
the market of choice for small to mid-cap E&P companies
seeking equity capital, and especially for risk
capital for international E&P.
Companies are finding a large pool of sophisticated
institutional investors who are more than willing to
assume the risks inherent in drilling exploration wells
offshore Nigeria, rehabilitating old producing fields in
Russia or participating in frontier exploration. These
investors are hedge funds looking for emerging market
and/or commodity cycle risk investments, or traditional
mutual and pension funds seeking an element of
high-risk exposure in their energy portfolios. These
investors see the potential of realizing significant multiples
on their investment through success with the
drill bit or development plays with low entry and
operating costs providing significant returns through
high oil prices.
The underlying strength of the AIM has also motivated
a number of established Canadian and Australian
public companies, such as First Calgary, Centurian
Energy and Hardman Resources, to list their shares in
London. Oil and gas companies represent about US
$17.8 billion or 16% of total AIM capitalization.
Why AIM?
The reasons why AIM is becoming popular can be
summarized as:
• the ease of the listing process and timetable;
• a broad investor base that understands oil and gas
and accepts emerging market risk;
ABOUT AIM
The London Stock Exchange
launched the Alternative
Investment Market (AIM) in 1995
as a market for smaller, growing
companies. Today, more than
2,000 companies are listed on
AIM, with an aggregate market
cap of almost US$20 billion.
Many are natural resources
companies. For companies that
do not yet meet the criteria for
listing on the main London Stock
Exchange, the AIM offers all the
benefits of a public listing. Share
prices are visible across the
exchange’s network of 90,000
terminals worldwide.
Companies that already
trade on the New York Stock
Exchange, Nasdaq or Toronto
Stock Exchange, and which
have international business, may
be admitted to the AIM via
the AIM Designated Markets
Route, a process that simplifies
and fast-tracks the admissions
procedure.
Admission criteria
• No minimum number of shares
to be in public hands
• No trading record required
• No prior shareholder approval
for transactions*
• Admission documents not prevetted
by the London Stock
Exchange nor by U.K. securities
regulators in most cases
• Nominated advisor required at
all times
• No minimum market capitalization
*Not applicable to reverse
takeovers or disposal resulting in a
fundamental change of business.
Source: Londonstockexchange.com/aim
34 MAY 2006 WWW.OILANDGASINVESTOR.COM

PUBLIC EQUITY
The Simultaneous Onshore-Offshore Placement Structure benefits E&P issuers.
• a highly liquid market comprising traditional
institutional investors and hedge funds;
• reserve valuations allow value to be assigned to 2P
(possible) reserves;
• 89 peer group companies have established valuation
metrics; and
• a company- and investor-friendly regulatory
structure.
Investors are interested in AIM-listed oil and gas
companies for a number of reasons, including:
• prevailing market views on future world oil
prices;
• the high level of market liquidity in currently
traded E&P stocks;
• significant investor interest in emerging markets
and exploration “blue sky;” and
• the absence of comparable investment opportunities
on U.S. or Canadian stock exchanges.
The U.S. small- and mid-cap E&P sector is dominated
by companies with exposure to regional oil or gas
plays where equity values are driven largely by the forward
curve for U.S. gas prices. Historically, Canada has
been the market where internationally focused E&P
companies sought equity capital, but in
recent years even Toronto, with few exceptions,
has become fixated with the North
American natural gas price story.
In addition, the time and cost associated
with a U.S. listing and ongoing
Sarbanes-Oxley compliance, the stringent
SEC reserve classifications that apply to
U.S.-listed companies, coupled with
revised reserve reporting standards in
Canada, have left exploration-focused
E&P companies with only one true risk
capital market—AIM.
There have been some highly publicized
exploration failures by AIM-listed E&P companies,
such as BowLeven, Wham Energy
and Regal Petroleum. As a result, the London
Stock Exchange recently issued its Guidance
Note for Mining, Oil and Gas Companies,
which is guidance for companies and their
advisors about what and how technical information
should be presented to investors. This
illustrates how the AIM operates. It is a largely
self-regulated market, which remains one
of its key attractions to international E&P companies.
The AIM has not seen U.S. asset-based E&P companies
looking to raise capital, possibly as a result of failed
investments with U.S. asset plays during the last downturn
in the commodity cycle. Thus, the AIM remains
focused on the lure of international E&P.
CASE STUDY
The ability of a start-up E&P company to access capital
and see rapid growth on AIM can be illustrated by
Equator Exploration Ltd. (EEL). Formed in 2000 to
exploit deepwater exploration opportunities in the
Gulf of Guinea offshore West Africa, Equator
Exploration went public on AIM in December 2004,
listing at £1 per share, raising US$116 million and
with an initial market cap of US$219 million.
The company used this funding to acquire seismic
data, bid in the Joint Development Zone licensing
round and farm-in to a highly prospective block offshore
Nigeria. Equator Exploration received a high
level of interest in its stock and this, coupled with the
level of market interest in West Africa in general, propelled
its stock above £2 by December.
FBW Natural Resource Placings On AIM
COMPANY NAME DATE PLACING AMOUNT RAISED (MILLION)
Equator Exploration Ltd. February 2006 Secondary Offering $250
Aurelian Oil & Gas Ltd. January 2006 Pre-AIM IPO Private Placement $55
Equator Exploration Ltd. December 2005 Pre-AIM IPO Private Placement $60
Diamond Fields International Ltd. November 2005 Private Placement $5
International Ferro Metals Ltd. October 2005 Initial Public Offering $141
Mart Resources Inc. September 2005 Pre-AIM IPO Private Placement $29.2
Titanium Resources Group August 2005 Initial Public Offering $75
36 MAY 2006 WWW.OILANDGASINVESTOR.COM

PUBLIC EQUITY
To begin funding an aggressive drilling program
and participate in the Nigeria deepwater licensing
round, Equator Exploration took advantage of its
stock price to raise US$60 million at £2 per share,
taking its market cap to US$456 million. Spurred by
drilling success and strong market interest, it was back
in the market in February, raising a further US$250
million, this time at £3.50 per share.
Today, the company has a market cap of US$1.06
billion, based on its attractive portfolio of deepwater
exploration and shallow-water exploitation assets in
the Gulf of Guinea and a broad investor base of U.S.
and European institutional and hedge funds. Being
listed on AIM “has enabled Equator Exploration to
access capital from 25 of the world’s largest U.S./U.K.
hedge funds and institutional investors,” says Wade
Cherwayko, Equator’s chief executive officer.
THE SOOP STRUCTURE
U.S. investors have invested in Equator Exploration
and several other AIM-listed natural resource companies
through Washington, D.C.-based Ferris, Baker
Watts. Last year, partly in response to growing U.S.
investor interest in AIM E&P companies, FBW developed
an investment structure whereby AIM-listed
companies meeting certain criteria can market and sell
securities directly into the U.S.—but exempt from
SEC registration.
Known as Simultaneous Onshore-Offshore
Placement (SOOP), shares can be distributed in the
U.S. via private placement under Rule 144A.
Companies can market their shares to qualified institutional
buyers, accredited investors and non-U.S.
persons. They receive shares electronically via
CREST, the London Stock Exchange’s trading system,
and can trade immediately.
SOOP broadens distribution beyond Europe to
U.S. shareholders without the time and expense of a
regular U.S. registration. Investors receive immediate
liquidity and access to emerging-market E&P
companies; issuers gain direct access to the world’s
institutional investment capital.
Since August, FBW has used this structure to
raise about US$615 million for international oil and
gas and mining companies and it is working on
several forth-coming E&P-related IPOs that will
debut on AIM.
Michael E. Humphries is executive vice president of Ferris,
Baker Watts, based in the Washington, D.C. area. ■
HERE’S THE MONEY: CAPITAL FORMATION 2006 • OIL AND GAS INVESTOR MAY 2006 37

FUNDING TECHNOLOGY
PRIVATE EQUITY LIKES
INNOVATION
Private venture capital funds are becoming more interested in funding oil and gas technology
for commercialization, not research.
BY GARY CLOUSER, CONTRIBUTING EDITOR
The strength of many technology companies
is engineering and technology, not
fundraising and commercialization, which
is the growing role of private equity and
venture capital firms. As energy prices soar,
so too is the funding available to E&P-oriented technology
companies.
Ten years ago, Dirk McDermott, a geophysicist and
investment manager, concluded there was a lack of funding
for energy technology, so he created the Denverbased
Altira Group.
“It was difficult to convince investors early on,
because no one really thought of venture capital in the
energy industry,” McDermott remembers. “Today,
the industry has changed dramatically. Energy technology
investment is something of keen interest.
Recent entrants into the marketplace are a good
source of co-investment dollars that will help to further
legitimize our investment dollars.”
Altira focuses exclusively on technology. It does
not invest in oil and gas production or power.
“An investment in us is both a technology investment
and an energy investment, combining the upside potential
of technology and robustness of energy in a venture
capital investment,” says McDermott.
The company invests heavily in technologies that are
focused on E&P, but it is also making investments in
clean energy and power.
“We have a clear
understanding that
all of these sectors
will be critical to
the future of energy,”
he says. “The
Dirk McDermott of Altira Group
says investment in the company
is one of technology and
energy.
natural resource
area, dominated by
oil and gas, has the
largest economics of
the industry and still
today, accounts for
at least 50% of our
investments.”
Altira will invest
in any growth stage
in a company, but is
particularly adept at
working with companies
introducing new technologies into the market.
The firm is investing from its fourth fund. It targets
opportunities in first institutional equity rounds with
initial investments between $1 million and $7 million.
The company currently is raising Altira Technology
Fund V. The targeted size of that fund has not yet been
announced, but McDermott says it will be “significantly
larger” than the $64-million Fund IV.
Once an investment us made, Altira typically takes a
Select Lime Rock Partners Oil Service Technology Investments
COMPANY INVESTMENT DATE HEADQUARTERS FOCUS
Roxar August 1999 Stavanger, Norway Reservoir modeling software and reservoir monitoring
and multiphase metering systems
Sensa February 2000 Southhampton, UK Fiber optic-based reservoir management solutions
Caledus January 2004 Aberdeen, UK SlimWELL well construction products and services
Reservoir Exploration April 2004 Lysaker, Norway Multi-component sea-floor seismic acquisition services
Technology
Twister February 2005 Rijswijk, Netherlands Supersonic separator natural gas processing solutions
V-Tech July 2005 Kristiansand, Norway UniTong power tong to connect and disconnect drill
pipes and other tubulars
38 MAY 2006 WWW.OILANDGASINVESTOR.COM

FUNDING TECHNOLOGY
seat on the board of directors of a portfolio company.
“We expect to be actively involved with the management
and in the operations of the company, but we
do not try to take a management role. That’s why we
invest in great management teams,” McDermott says.
LIME ROCK PARTNERS
Lime Rock Partners of Westport, Conn., is investing
Lime Rock Partners III LP, a $450-million fund. The
firm has already invested or committed about twothirds
of the capital in the fund. When combined with
its first two funds, Lime Rock Partners has $850 million
under management for investment in three sectors of
the energy industry: E&P; conventional oil service; and
oil service technology.
Jonathan Farber and John Reynolds, both formerly of
Goldman Sachs, founded Lime Rock Partners in 1998.
The firm’s basic strategy has remained the same during its
eight years—providing growth capital to high-growth,
usually smaller energy companies, including those
focused on oil service technologies.
“We think we can add value as more than just a capital
provider to a company that is far along in the development
of a core technology, but is seeking to form a real
company underneath it,” Farber says. “We invested in
Twister, for instance, a Netherlands-based developer of
supersonic gas separation technology. Twister was incubated
and remains majority-owned by Royal Dutch
Shell, which didn’t need outside capital. But it chose
Lime Rock as its investment partner because we could
help Twister develop a broader commercialized strategy
and entrepreneurial culture.”
NGP’S NEW TECHNOLOGY FUND
The NGP Energy Technology Partners Fund (NGP
ETP) of $148 million is part of the $3.6-billon of capital
managed by NGP Energy Capital Management.
Since 1988, through the family of Natural Gas
Partners’ private equity funds, the Irving, Texas-based
company has invested in more than 85 companies
operating in the oil and gas production, midstream and
oilfield service sectors.
The new fund, however, marks the company’s
first separate pool for energy technology.
“The energy technology fund is a logical extension
of NGP’s franchise as the leading provider of capital for
the energy industry. It is clear that the energy industry is
in an era where the development and application of technical
innovation is growing in importance in the oil and
gas, power and alternative energy sectors,” says Ken
Hersh, chief executive officer of NGP Energy Capital
Management.
Philip Deutch, who joined the company after
having been a managing director of Perseus LLC,
manages NGP ETP.
“The time is right to create a unique capital source
dedicated to the specialized needs of the energy technology
sector. This is one of the most dynamic investment
arenas in the world today,” Deutch says. “As
more attention is focused on global energy issues,
sophisticated analysis makes clear that the world needs
energy from a variety of sources, including oil and gas,
nuclear, wind, solar and coal. No one energy source is
likely to alleviate the need for the other.”
Developing technology to reverse the
trend of rising finding and operating costs
for the oil and gas industry is also a growing
priority.
“It is clear, for those of us who have
been investing in energy technology,
that oil and gas technologies have not
received the attention from the private
equity world that they deserve given
their importance,” Deutch says. “There
are few, if any, funds that focus on
investing $5 million to $20 million in
companies with revenues of $10 million
to $20 million and above. That’s what
we do.”
NGP ETP intends to focus on
companies that present attractive riskreward
profiles and investments will be
made with a long-term perspective, in
partnership with management.
“The aim is not to invest in the hype
of the new, new thing (in the parlance of venture capital),
but in companies with existing products and revenues
and compelling business plans,” Deutch stresses.
NGP’s technology fund does not have a rigid formula
concerning the ratio for oil and gas technology, electricity
and alternative energy.
“The best investments will be funded, but if we had
to estimate, we suspect a 33-33-33 split among the three
areas is very possible,” Deutch says.
In March, the company announced its first investment,
a $10-million equity deal with an alternative energy company
that is a leader in hybrid electric vehicle technology.
CENTRE PARTNERS’ FIRST FORAY
Centre Partners, a New York and Los Angeles-based private
equity firm, and its Dallas affiliate, Centre Southwest
Partners, entered the energy sector by investing $24 million
in equity to acquire a majority interest in Gray
Wireline Services.
“As the fastest-growing independent provider of
cased-hole electric wireline services in North America,
Gray provides a tremendous platform to continue to
expand into new geographies and to extend into complementary
oilfield services business lines,” says Scott
Perekslis, a managing partner with Centre Partners.
The company, which was founded in 2004, seeks
middle-market investment opportunities in the south-
Jonathan Farber of Lime Rock
Partners says he thinks the
company can add value as
more than just a capital
provider.
HERE’S THE MONEY: CAPITAL FORMATION 2006 • OIL AND GAS INVESTOR MAY 2006 39

FUNDING TECHNOLOGY
western U.S., with a particular focus on the energy,
industrial manufacturing, services and distribution, and
consumer products sectors.
J. Kent Sweezey and David Jaffe, who worked
together for 18 years at Donaldson, Lufkin and
Jenrette, head Centre Southwest. The affiliate prefers
investments in the oil service and equipment sector.
“We like the notion of a more consistent cash flow
business without the commodity and reinvestment risk of
E&P. We also believe the independent energy services
segment has particularly attractive consolidation opportunities,”
Sweezey says.
FINANCIAL ADVISORY FOCUS
Indicative of the heightened interest in funding oilfield
service companies is the growth of Parks Paton Hoepfl &
Brown (PPHB), a unique investment banker whose four
partners all started their careers in the oil services industry.
The Houston company, in an advisory role, has been
involved in nearly $1.5 billion in oil service company
transactions, most of which involved more capital to
commercialize technical advances.
Two former CIBC World Markets colleagues,
Allen Parks and Joe Hoepfl, founded the firm in 2003.
They have since been joined by Len Paton and
Raymond L. Brown Jr.
Parks, who spent 16 years with Dual Drilling Co., rising
to the rank of chief financial officer, says he and
Hoepfl recognized funding the oil service industry was an
“underserved market.”
“We provide the deal knowledge of a large investment
firm along with deep knowledge of the sector to clients
who will typically be less than $100 million in deal size,”
Parks says. “We are classic investment bankers in that we
represent the issuer or seller to find the best source of capital
or buyer, respectively. We are paid to know and stay
abreast of the ever-changing capital markets.”
PPHB advised IDM Equipment, in which Lime Rock
Partners acquired a stake, and its
“Quicksilver Drilling Systems,” in which
all components requiring elevation are
raised by hydraulic cylinders and a single
skid incorporates several drilling systems.
PPHB also acted as the exclusive
financial advisor to Cherington Capital,
which along with the company’s managers,
acquired RockBit International,
since renamed Ulterra Drilling Co. The
company manufacturers polycrystalline
diamond crystal (PDC) drill bits and
measurement-while-drilling tools.
Cherington Capital is a Boston-based
private equity firm focused on recapitalization
and leveraged buyout of middle
market companies. It recently has been
involved in the funding of two other
high-tech oil service companies,
Superior Wellhead Inc. and Pacific
Consolidated Industries (PCI). Superior
Wellhead manufactures surface wellhead equipment
and PCI manufactures onsite liquid, and gaseous oxygen-
and nitrogen-generating systems used in the
oil/gas industry for air separation in extreme and
remote environments using cryogenic technology. ■
Philip Deutch of NGP Energy
Capital Management says
energy technology is one of
the most dynamic investment
arenas.
COMMITTED TO TECH FUNDING
Here are some examples of private
equity funds making greater commitments
to oil and gas technology, often
through investments in oil service companies,
equipment manufacturers and
vendors. Such companies have moved
to the forefront in technology
advances after many E&P companies
slashed their research budgets after
the last commodity price plunge in the
late 1990s.
➢ Altira Group, the first private equity
fund developed exclusively to fund
E&P technologies, is raising its fifth
energy technology fund. It is planning
its largest fund after having
raised an aggregate of more than
$100 million in its first four rounds.
➢
➢
➢
Lime Rock Partners, since its founding
in 1998, has invested 11% of its
capital in oil service technology
companies and has made two
technology investments in Lime
Rock Partners III LP, a $450-million
private equity fund.
NGP Energy Capital Management
(formerly Natural Gas Partners), a
$3.6-billion firm that invests in all sectors
of the oil and gas industry, last
fall created a new $148-million NGP
Energy Technology Partners Fund.
Centre Partners’ new affiliate,
Centre Southwest Partners, entered
the energy sector with a $24-million
investment and indicated it was the
first of many energy-related funds
➢
to be announced.
Energy Spectrum Capital, founded
in 1996 to make direct investments
in the energy industry, made a $30-
million investment in a start-up contract
drilling company, Forrest
Drilling Co., to be headed by Steve
Hale, former president of Bronco
Drilling Co. Energy Spectrum
Capital, since inception, has raised
in excess of $1 billion in private
equity capital from institutional
investors to invest in the upstream,
midstream, services and power
sectors of the energy industry.
Based in Dallas, Energy Spectrum
Capital has sponsored more than
30 portfolio companies. ■
HERE’S THE MONEY: CAPITAL FORMATION 2006 • OIL AND GAS INVESTOR MAY 2006 41

FUNDING TECHNOLOGY
CHEVRON AND SHELL
The technology ventures subsidies of Shell and Chevron are attempting to bridge the gap
between needed R&D funding in the oil and gas industry and private equity funding to
help companies commercialize technology products.
BY GARY CLOUSER, CONTRIBUTING EDITOR
R&D had historically been a function
of the major oil producing companies.
In the late 1990s, however,
when commodity prices and profits
plunged, many of the major producers
abandoned, or at least greatly curtailed, their
research spending. That role was increasingly left to
oilfield service and supply companies and specialized
vendors. In recent years, the high commodity
prices for oil and natural gas have resulted in a
growing number of private equity or venture capital
funds showing interest in companies specializing
in E&P technology. The capital providers, however,
are unwilling to take on the risks and time commitment
for research. The capital providers are instead
funding existing companies to assist in the commercialization,
or rollout, of new products and
technologies.
Chevron Technology Ventures is selective,
probably funding three to six new projects
a year, from about 500 funding requests
or applications.
That is where the role of Chevron Technology
Ventures and Shell Technology Ventures has
emerged. If someone, or a company, has a technology
idea, but has yet to convert it into a proven
product, it often comes to one of the venture
groups. Once that product exists, the company
then often seeks additional capital, frequently private
equity, or VC funds, to help it market or
commercialize that product.
Like Shell Technology Ventures, Chevron
Technology Ventures is always on the lookout for
the next big technology-advancing product. It
seeks to invest in technology start-up companies
whose innovations could help Chevron find and
produce more oil, run its refineries more cost
effectively, manage information more efficiently
and fund alternative energy technology. Like financial
venture capital funds, the two ventures want to
be profitable, in additional to serving a R&D role,
although neither company will discuss the profitability
of their technology venture fund.
Chevron Technology Ventures was created in
1999 and has three funds totaling $170 million
under management. The company works to leverage
the billions of venture capital dollars spent in
technology development outside of the traditional
oil and gas industry by helping venture-backed
companies target applications that would benefit
the industry and attracting co-investment in companies
and technologies that can impact on
Chevron global energy business, says George
Coyle, venture executive.
While the company invests a large amount of
money, it pales in comparison to Chevron’s inhouse
expenditures on technology and R&D,
Coyle says, without offering details to how much
the company spends on energy technology
and related information technology. Chevron
Technology Ventures is selective, probably funding
three to six new projects a year, from about 500
funding requests or applications. The earliest, or
seed, stage is a high-risk proposition, but usually
requires smaller amounts of capital than in the
commercialization stage, Coyle says.
The company lists three criteria that all projects
must pass:
• does it have the potential to be financially and
technically successful;
• does it have the potential to improve
Chevron’s assets or business performance, or
have technology transfer possibilities; and
• are other venture capital funds willing to coinvest
in the project?
Shell Technology Ventures prefers to invest in
companies that are in a market penetration/growth
stage. It will, however, consider investment in
technologies in the prototype development phase,
but such research stage funding would have to
clearly differentiate itself.
Ricardo Rodriguez, manager of investments for
Shell Technology Ventures, says the lifespan for a
technology project there usually is from three to
42 MAY 2006 WWW.OILANDGASINVESTOR.COM

FUNDING TECHNOLOGY
seven years before it exits the project. That is
roughly the same timeframe as a VC fund will be
involved in a project, but it is at a different stage of
that technology’s development. Shell Technology
Ventures and Chevron Technology Ventures say
they regard private equity and VC funds as partners.
Rodriguez says Shell Technology Ventures, like
the VC funds, however, is looking for good ideas
that will make it money and does not treat funding
of third-party projects as a lost-leader or as R&D
expenses. The company is a profitable investment
organization, he says, declining to give specifics on
profit or the size of its budget and number of projects.
He did say Shell Technology Ventures funding
is in the “hundreds of millions of dollars” and
that in the last few years, its spending has “grown
dramatically.”
Shell Technology Ventures can enhance the
portfolio company’s ability to field-test new technologies
and assist cutting-edge companies in
advancing through a traditionally slow development
process, Rodriguez says. The company seeks
to be a catalyst, whose role is to accelerate the
introduction of new E&P technologies to the
industry, and will seek exit when it adds no further
value. Shell Technology Ventures manages its portfolio
of investments in accordance with venture
capital practices to maximize the use of scarce
resources, while ensuring investment discipline and
profitable exits when technology adoption is
achieved. Innovators retain entrepreneurial control
and business agility while leaning on Shell’s global
experience to get their technologies quickly to
market. Rodriguez says innovators working with
Shell Technology Ventures can:
• get to market faster;
• conduct comprehensive field trails;
• leverage Shell’s domain experience;
• access complementary technologies;
• market to an existing customer base; and
• receive seed and growth funding.
Shell Technology Ventures is seeking investment
opportunities in these E&P related areas:
• advanced drilling;
• artificial lift;
• earth modeling;
Active Investment Portfolio
POWER & ENERGY
UPSTREAM
DIVERSIFIED TECHNOLOGY
LIMITED
PARTNERSHIPS
DIRECT INVESTMENT
Source: Chevron
HERE’S THE MONEY: CAPITAL FORMATION 2006 • OIL AND GAS INVESTOR MAY 2006 43

When was the last time
you met with a banker
who really understood the
energy business?
The Energy Group of Texas Capital Bank specializes in
oil and gas reserve-based loans to independents and is led
by a team of experienced bankers and petroleum engineers
who understand your business. Call us today to find out
how we can help with your lending needs.
Dallas
Chris Cowan
Executive Vice President & Manager
214.932.6739
chris.cowan@texascapitalbank.com
Houston
Jonathan Gregory
Senior Vice President & Manager
713.439.5914
jonathan.gregory@texascapitalbank.com
Member FDIC
NASDAQ: TCBI

FUNDING TECHNOLOGY
• enhanced oil recovery;
• exploration;
• flow assurance;
• hydrocarbon processing and conversion;
• novel well construction;
• production stimulation;
• remote (automated) field operations;
• and “smart” fields and wells.
The company has also helped some technologies
developed for other industries develop commercial
applications in the E&P industry such as:
• fiber optics and wireless communications from
the telecommunications industry;
• advanced gauges and sensors from the commercial
and industry sector;
• composite materials from the aerospace industry;
• 3-D visualization tool and numerical simulators
from the software and financial industries; and
• subsea expertise from the defense industry and
submarine contractors.
“Technology must be seen as a solution to
increasing cost and not as an additional burden. At
least two large oil companies and several venture
capital firms are well down this path and the results
are very encouraging,” says Tom Bates, a managing
director for Lime Rock Partners.
In addition to low R&D expenditures, the oil and
gas industry has a relatively low presence in the venture
capital world, says Bates, who is a former president
of the Discovery Group of Baker Hughes and
past president of Weatherford Enterra. Aggregate
venture capital directed to oil and gas activities from
all sources began the year at about $150 million.
According to recent statistics, the energy
industry only represented 1% of total venture
capital and private equity disbursements from
1999 through 2004.
Any uptick in technology funding starts from a
low point. According to recent statistics, the energy
industry only represented 1% of total venture capital
and private equity disbursements from 1999
through 2004. This compares unfavorably to the
nearly 8% weighting that oil and gas has in the S&P
500, says Bates. ■
ENERGY BANKING
The energy industry is changing fast.
Why use a bank that doesn’t realize that?
©Compass Bank 2006
Your company’s needs have changed, and we’ve noticed. Backed by years of experience in the fast-paced energy industry, the
Compass Energy Banking Group has the flexibility and know-how to help your business continue on its path of success. From
specialized lending products to the investment of excess cash balances for your company. We can even provide tailored financial
planning advice for your executives. We always have our ear to the ground to better prepare you for what's coming in the future.
Which is just a little better. To learn more give us a call.
Murray Brasseux 713.968.8271 • Dorothy Marchand 713.968.8272
Member FDIC
HERE’S THE MONEY: CAPITAL FORMATION 2006 • OIL AND GAS INVESTOR MAY 2006 45

FINANCE: A DIRECTORY
Although not exhaustive, the firms noted here are among known providers and/or arrangers of capital to the upstream energy
industry. They include commercial banks, investment banks, capital intermediaries and advisors, and private-capital sources.
Firms are listed once although they provide multiple types of capital. The codes that follow describe services each firm provides:
I = Investment Banking; C = Commercial Banking; M = Mezzanine; P = Private Equity/Debt; and A = Arranger/Advisor.
CAPITAL SOURCES
AIG Financial Products Corp. (P)
Russell Sherrill
(713) 831-6100
sherrill@aigfpc.com
Acumen Capital Fin. Partners (I)
Michael Stuart
(403) 571-0311
mstuart@acumencapital.com
A.G. Edwards (I)
T. Frank Murphy
(314) 955-2371
murphytf@agedwards.com
Allied Irish Bank (C)
Mark Connelly
(212) 515-6773
mark.k.connelly@aibny.com
Altira Group (P)
Dirk McDermott
(303) 592-5500
dmcdermott@altiragroup.com
Amegy Bank (C)
Stephen Kennedy
(713) 235-8870
skennedy@amegybank.com
American Nat’l Bank (C)
Todd Berryman
(303) 394-5424
tberryman@anbbank.com
Ammonite Capital Partners (A)
G. Warfield Hobbs
(203) 972-1130
skiphobbs@ammoniteresources.com
ANZ Investment Bank (M&I)
Brian D. Knezeak
(212) 801-9139
bknezeak@anz.com
ARC Financial Corp. (P)
Kevin Brown
(403) 292-0680
kbrown@arcfinancial.com
ArcLight Capital Partners (P)
Daniel Revers
(617) 531-6300
drevers@arclightcapital.com
BB&T Capital Markets (I)
David Holmes
(804) 787-8268
dholmes@bbandt.com
Banc of America Securities (I)
M. Scott Van Bergh
(212) 847-5103
scott.vanbergh@bofasecurities.com
Bank of America (C)
Dan Condley
(713) 247-6559
william.d.condley@bankofamerica.com
Bank of Oklahoma (C)
Michael M. Coats
(918) 588-6409
mcoats@bokf.com
Bank of Scotland (C)
Richard Butler
(713) 651-1870
richard_butler@bankofscotland.com
Bank of Texas (C)
Michael Delbridge
(214) 987-8826
mdelbridge@bokf.com
Bank of Toyko Mitsubishi (C)
Kelton Glasscock
(713) 655-3888
kglasscock@btmna.com
Bank of the West (C)
Don McDonald
(303) 260-7635
dmcdonald2@bankofthewest.com
Barclays Capital (C)
John Sullivan
(888) 227-2275
john.sullivan@barcap.com
Bear Stearns (I)
Wayne Stoltenberg
(214) 979-7948
wstoltenberg@bear.com
BlackRock Energy Capital (M)
Cathy Sliva
(281) 376-0111
csliva@blackrockenergy.com
Blackstone Group, The (P)
David Foley
(212) 583-5559
foley@blackstone.com
BNP Paribas (C)
Barton Schouest
(713) 982-1100
bart.schouest@americas.bnpparibas.com
Bovaro Partners (A)
Joe Valais
(410) 347-0817
jvalis@bovaropartners.com
Brittany Capital Group Inc. (A)
Raymond Mendez
(212) 265-6046
rm@britcap.com
C.K. Cooper & Co. (I)
Alex Montano
(949) 477-9300
agmontano@ckcooper.com
Calyon Securities (USA) (I&C)
Dennis Petito
(713) 890-8601
dennis.petito@us.calyon.com
Canaccord Capital Corp. (A)
Dave Kaiser
(604) 643-7459
david_kaiser@canaccord.com
Carlyle/Riverstone (P)
John Lancaster Jr.
(212) 993-0088
john@riverstonellc.com
CapWest Resources (C)
Mark McKinney
(432) 617-1310
markm@westernnb.com
Cherington Capital (P)
Charles Cherington
(617) 497-8282
charles@cherington.com
CIBC World Markets (I)
Art Korpach
(403) 260-0504
art.korpatch@cibc.ca
HERE’S THE MONEY: CAPITAL FORMATION 2006 • OIL AND GAS INVESTOR MAY 2006 47

CAPITAL SOURCES
Citibank TX NA (C)
Dale Wilson
(713) 954-9562
dale.t.wilson@citigroup.com
Citigroup (C)
David E. Hunt
(713) 654-2829
david.e.hunt@citigroup.com
Citigroup (I)
Andrew Safran
(212) 816-8345
andrew.safran@citigroup.com
Citizens Bank (C)
Charles Spradlin
(903) 984-8671
llong@kilgore.net
Clarus Securities Inc. (I)
Alex Wylie
(416) 343-2797
awylie@clarussecurities.com
Coker & Palmer (I)
Michael Bodino
(504) 799-3565
bodino@cokerpalmer.com
Comerica Bank (C)
Mark Fuqua
(214) 969-6562
mark_fuqua@comerica.com
Community National Bank (C)
Danny Campbell
(432) 685-8479
dcampbell@cnbtx.com
Compass Advisors (I)
Paul Rapisarda
(212) 702-8671
pr@ca-llp.com
Compass Advisors (I)
Bob Israel
(212) 702-8669
ri@ca-llp.com
Compass Bank (C)
Dorothy Marchand
(713) 968-8272
dorothy.marchand@compassbank.com
Concert Capital (P)
Bob Smith
(713) 336-7475
shirley.isbell@ccrlp.com
Constellation Comm. Grp (M&P)
Mark Smith
(713) 344-2889
mark.smith@constellation.com
Coppermark Bank (C)
Bob Holmes
(405) 945-8100
bholmes@coppermarkbank.com
Cornell Capital (I)
Brian Keane
(201) 985-8300
bkeane@cornellcapital.com
COSCO Capital Management (A)
Cameron Smith
(212) 889-0206
cos@coscocap.com
Credit Suisse First Boston (I)
Osmar Abib
(713) 890-1400
osmar.abib@csfb.com
D.A. Davidson & Co. (I)
Thomas Hayes
(406) 268-3084
thayes@Dadco.com
D.B. Zwirn & Co. (P)
Todd A. Dittmann
(713) 292-5501
tdittman@dbzco.com
Dahlman Rose & Co. (P)
Van Levy
(713) 651-0118
vlevy@dahlmanrose.com
Deutsche Bank (C)
Mitch Cox
(832) 239-3100
mitch.cox@db.com
Deutsche Bank Securities (I)
Michael V. Johnson
(212) 250-0417
michael.v.johnson@db.com
Dillard Anderson Group, The (A)
Max Dillard
(281) 873-6100
mdillard@dillardanderson.com
Dominick & Dominick Secs (I)
David Prestwich
(416) 369-6922
dprestwich@dominick.ca
DnB NOR Bank (C)
Nils Fykse
(212) 681-3872
nils.fykse@dnbnor.no
Dundee Securities Corp. (A)
Ali Bhojani
(403) 268-7433
abhojani@dundeesecurities.com
DZ Bank (C)
Richard Hagemann
(212) 745-1400
richard.hagemann@dzbank.de
Emerging Equities Inc. (A)
Keith Carter
(403) 216-8200
kcarter@eei.to
Emerging Markets Fin. Int’l (I)
John H. Works Jr.
(720) 932-8866
johnworks@emfi.biz
EnCap Investments LP (P)
Marty Phillips
(713) 659-6100
mphillips@encapinvestments.com
Energy Capital Solutions (I)
J. Russell Weinberg
(214) 219-8201
rweinberg@nrgcap.com
Energy Spectrum Advisors (P&A)
James P. Benson
(214) 987-6103
jim.benson@energyspectrum.com
Energy Spectrum Capital (P)
Sidney L. Tassin
(214) 987-6100
sidney.tassin@energyspectrum.com
Eschelon Energy Partners (P)
Thomas Glanville
(713) 546-2621
tsg@eschelonenergypartners.com
First Diversified Fin. Serv. (A)
Phil Davis
(281) 340-2020
pdavis@fdfs.com
Ferris Baker Watts (I&P)
Dick Prins
(410) 659-4385
prins@fbw.com
48 MAY 2006 WWW.OILANDGASINVESTOR.COM

October 2002 January 2003 July 2003
Midstream and
propane MLP
Coalbed methane
E&P company in the
Black Warrior Basin
E&P company
active in TX,
CO and
Appalachia
$10 million $10 million $10 million
August 2003
January 2004 July 2004 August 2004
September 2004
E&P company
focused on the
Appalachian Basin
E&P company
in the DJ Basin
Independent
natural gas
marketing and
distribution company
E&P company
focused in the
offshore Gulf
of Mexico
South Texas focused
E&P company
$8 million
$20 million $5 million Up to $19 million
$17 million
October 2004 May 2005 May 2005
May 2005
October 2005
Gulf of Mexico
based jack-up rig
and liftboat services
company
Coalbed methane
E&P company in the
Rocky Mountain
region
Central Alberta
focused
E&P company
E&P company
focused in the
Gulf of Mexico Basin
Coalbed methane
E&P company in the
Mid-Continent
and Eastern U.S.
$20 million Up to $50 million Up to $14 million
Up to $17 million
Up to $38 million
Greenhill Capital Partners has committed $240 million
to the energy sector over the past three years
V. Frank Pottow
Managing Director
(212) 389-1515
fpottow@greenhill-co.com

CAPITAL SOURCES
First Albany Capital (I)
James Hansen
(713) 237-4400
jim.hansen@fac.com
First Assoc. Investments Inc. (I)
Charlie Pennock
(416) 864-2059
cpennock@firstassociates.com
First Reserve Corp. (P)
Hardy Murchison
(713) 227-7890
hardymurchison@firstreserve.com
FirstEnergy Capital Corp. (I)
W. Brett Wilson
(403) 262-0600
wbwilson@firstenergy.com
Fortis Capital (M,P)
Darrell Holley
(214) 953-9307
darrell.holley@fortiscapitalusa.com
Foundation Energy (P)
Eddie Rhea
(972) 934-8385
erhea@foundationenergy.com
Fraser Mackenzie Ltd. (I)
Richard Goldstein
(416) 955-4777
rgoldstein@frasermackenzie.com
Friedman Billings Ramsey (I)
Patrick Keeley
(703) 469-1221
pkeeley@fbr.com
Frost Bank (C)
Andrew Merryman
(713) 388-7025
andy.merryman@frostbank.com
Galway Group/Cornerstone (I)
H.J. (Hal) Miller
(713) 952-0186
hmiller@galwaylp.com
GasRock Capital LLC (M)
Frank Weisser
(713) 300-1400
fweisser@gasrockcapital.com
GE Capital (P)
John A. Cleveland
(303) 893-9876
john.a.cleveland@ge.com
Gladstone Capital (I)
John J. Mahar
(212) 580-8553
jjmahar@gladcap.com
GMP Securities (I)
Thomas Budd
(403) 543-3036
tomb@gmpsecurities.com
Goldman Sachs (I)
Bill Montgomery
(713) 276-3500
NA
Goldman Sachs E&P Cap. (P)
John K. Howie
(713) 658-2682
john.howie@gs.com
Greenhill Capital Partners (P)
V. Frank Pottow
(212) 389-1515
fpottow@greenhill-co.com
Growth Capital Partners (I)
John MacNabb
(281) 445-6611
jmac@growth-capital.com
Guaranty Bank (C)
Arthur (Buzz) Gralla
(713) 890-8865
arthur.gralla@guarantygroup.com
Guggenheim Partners (P)
Tim Murray
(713) 300-1331
Tim.Murray@guggenheimpartners.com
Harris Nesbitt (I)
Charles H. Prioleau
(713) 546-9791
charlie.prioleau@harrisnesbitt.com
Haywood Securities (I&A)
Bill Kanters
(403) 509-1991
NA
Hibernia National Bank (C)
Spencer Gagnet
(504) 533-5717
spencer.gagnet@hibernia.com
Hibernia Southcoast Capital (I)
Stan Ellington
(504) 528-9174
sellington@hibernia.com
HM Capital Partners (P)
Joe Colonetta
(214) 740-7342
jcolonnetta@hmtf.com
Howard Weil (I)
Lester F. Alexander III
(504) 852-2675
lesa@howardweil.com
HVB Bank (C)
Roger Eustance
(212) 672-5834
NA
IFM Resources
Suresh Chugh
001-609-252-9327
suresh@ifmresources.com
Jefferies & Co. (I)
Danny Conwill
(504) 681-5706
dconwill@jefco.com
Jennings Capital Inc. (A)
Rob Jennings
(403) 292-0970
NA
Johnson Rice & Co. (I)
Greg Miner
(504) 525-3767
gminer@jrco.com
JPMorgan (C)
Murphy Markham
(214) 290-2290
murphy_markham@bankone.com
JPMorgan Partners (P)
Christopher Behrens
(212) 899-3650
christopher.behrens@jpmorganpartners.com
JPMorgan Securities (I)
Doug Petno
(212) 622-6774
douglas.b.petno@jpmorgan.com
Kayne Anderson Cap. Advisors (I)
Robert V. Sinnott
(310) 284-5508
rsinnott@kayne.com
Kayne Anderson Cap. Mrkts (M)
Danny Weingeist
(713) 665-7351
dweingeist@kayne.com
HERE’S THE MONEY: CAPITAL FORMATION 2006 • OIL AND GAS INVESTOR MAY 2006 51

The bank of energy
has an extensive knowledge of the industry
is a powerful ally through economic swings
executes complex transactions with agility and expertise
customizes financing around your specific needs
puts its full energy behind each and every deal.
SM
Invest in you
Energy Capital Services
Dallas - (214) 922-4200 Calgary, Canada Branch * - (403) 264-2700
Carl Stutzman, Senior Vice President
James G. Chepyha, Vice President
Randall L. Osterberg, Senior Vice President
Dustin Gaspari, Vice President
Damien Meiburger, Senior Vice President
Mezzanine Finance **
Michael Ross, Vice President, (213) 236-6061
©2003 Union Bank of California, N.A. Member FDIC
*Union Bank of California, N.A., does not accept deposits from the public in Canada and is not a member institution of the Canada Deposit Insurance Corporation.
**Mezzanine loans are made pursuant to a Department of Corporations California Finance Lenders License by UnionBanCal Equities, Inc., an affiliate of Union Bank of California, N.A.

CAPITAL SOURCES
KeyBanc Capital Markets (I)
Brian Akins
(317) 464-1581
bakins@keybanccm.com
Ladenburg Thalman & Co. (I)
Peter H. Blum
(212) 409-2120
phblum@ladenburg.com
Laminar Direct Capital LP (M&P)
Todd A. Overbergen
(713) 292-5402
overberg@laminardirect.com
Lane Capital Markets (I)
John Lane
(203) 255-0341
jdlane@lanecapitalmarkets.com
Laredo National Bank (C)
Delbert Pierson
(713) 967-7252
djpierson@lnb.com
Leede Financial Markets Inc. (A)
Michael Zwack
(403) 531-6868
rmzwack@leedefinancial.com
Legg Mason (A&I)
John R. Honovich
(215) 446-8162
jrhonovich@leggmason.com
Lehman Brothers Inc. (I)
Gregory Pipkin
(713) 236-3954
gpipkin@lehman.com
Lime Rock Partners (P)
Jonathan Farber
(203) 293-2752
jf@lpartners.com
LoneStar Securities (A)
Joseph Ireland
(972) 701-8620
irelandj@lonestarsecurities.com
Macquarie Bank Ltd. (M&C)
Paul Beck
(713) 986-3601
paul.beck@macquarie.com
Macquarie Sec. (USA) (I,P&A)
Robert J. Brooks
(281) 236-1848
bob.brooks@macquarie.com
McFarland, Grossman & Co. (I&A)
Clifford McFarland
(713) 464-7770
cmcfarland@mcfarlandgrossman.com
Meagher Dunn Capital (A)
Bill Dunn
(303) 721-6354
bdunn@meagheroil.com
Merrill Lynch (I)
Chris Mize
(713) 759-2500
christopher_mize@ml.com
Metalmark Capital LLC (I)
John Moon
(212) 761-8089
john.moon@metalmarkcapital.com
Mitchell Energy Advisors (A)
Michael Mitchell
(469) 916-7484
mmitchell@mitchellenergypartners.com
Mizuho Corporate Bank (C)
C. Scott Wilson
(713) 499-4802
Scott.Wilson@mizuhocbus.com
Morgan Keegan (I)
Kevin Andrews
(713) 840-3600
kevin.andrews@morgankeegan.com
Morgan Stanley Cap. Partners (I)
Michael Dickman
(212) 761-7236
michael.dickman@morganstanley.com
Municipal Energy Resources (P)
Robert Murphy
(713) 888-3300
robert.murphy@munienergy.com
NGP Energy Capital Mngt. (P)
Kenneth A. Hersh
(203) 972-1440
inquiries@ngpenergycapital.com
Natural Gas Partners (P)
Kenneth A. Hersh
(972) 432-1440
inquiries@ngptrs.com
NGP Capital Resources (P&M)
John Homier
(713) 752-0062
info@ngpcrc.com
NGP Energy Technology Partners (P)
Philip J. Deutch
(202) 536-3920
inquiries@ngpetp.com
Neidiger, Tucker, Bruner Inc. (I)
Anthony Petrelli
(303) 825-1825
tpetrelli@ntbinc.com
Northern Securities Inc. (I)
Andrea Matthews
(416) 644-8119
ammatthews@northernsi.com
Octagon Capital Corp. (I)
Jean-Pierre Colin
(416) 304-7783
jpcolin@octagoncap.com
Oppenheimer & Co. (A&I)
Stanley B. Stern
(212) 668-8020
NA
Orion Securities (I)
Dan Cristall
(403) 218-6660
dcristall@orionsecurities.ca
Parks Paton Hoepfl & Brown (I)
W. Allen Parks
(713) 621-8100
aparks@pphb.com
Peters & Co. Ltd. (I)
Michael Tims
(403) 261-4850
mtims@petersco.com
Petrie Parkman & Co. (I)
Sylvia Barnes
(713) 650-3383
sbarnes@ppchouston.com
Petrobridge Investment Mgmt. (M)
Rob Lindermanis
(713) 490-3861
robl@petrobridge.net
PetroCap Inc. (A)
John Sears
(214) 871-7967
jrsears@petrocap.com
PetroGrowth Advisors (A)
Grant Swartzwelder
(972) 432-1470
grant@petrogrowth.com
HERE’S THE MONEY: CAPITAL FORMATION 2006 • OIL AND GAS INVESTOR MAY 2006 53

$86,951,712
$37,477,846
Sole
Investor
Volumetric
Production
Sole
Investor
Volumetric
Production
Payment
Payment
$72,199,908
Sole
Investor
Volumetric
Production
Payment
For more information, please contact the Energy Group
AIG Financial Products Corp. 50 Danbury Road Wilton, CT 06897-4444 203-222-4720

CAPITAL SOURCES
PetroInvest (A)
Steven D. King
(713) 667-5692
sking@petroinvest.com
Petroleum Place Energy Adv. (I)
George Gosbee
(403) 294-9541
ggosbee@tristonecapital.com
Premier Capital Ltd. (A)
J.W. Brown
(214) 273-7209
jbrown@precap.com
Pritchard Capital Partners (A)
Tommy Pritchard
(985) 809-7000
tpritch@pritchardcapital.com
Prospect Energy Corp. (M&P)
John Barry
(212) 448-1858
jbarry@prospectstreet.com
Prosperity Bank (C)
Richard Giesecke
(214) 521-4800
richard.giesecke@prosperitybank.com
Prudential Capital Group (P)
Randall Kob
(214) 720-6200
NA
Quantum Energy Partners (P)
S. Wil VanLoh Jr.
(713) 225-4800
swv@quantumep.com
Quest Capital Corp. (I)
Michael Atkinson
(604) 689-1428
NA
Randall & Dewey Inc. (A&I)
David Rockecharlie
(281) 774-2000
drockecharlie@randew.com
Raymond James & Assoc. (I)
Howard House
(713) 278-5252
howard.house@raymondjames.com
RBC Capital Markets (I)
Jason T. Meek
(713) 403-5620
jason.meek@rbccm.com
Red Oak Capital Mgmt (P)
James M. Whipkey
(713) 963-0099
whipkey@redoakcap.com
Research Capital Corp. (I)
Andrew Selbie
(416) 860-7615
andrew.selbie@researchcapital.com
Riverstone Holdings LLC (P)
John Lancaster
(212) 993-0076
john@riverstonellc.com
Rivington Capital Advisors (P)
Scott Logan
(303) 225-0900
slogan@rivingtoncap.com
Roundrock Capital Partners (M)
Peter Vig
(214) 661-3185
pvig@roundrockcapital.com
Royal Bank of Canada (C)
Joe Cunningham
(713) 403-5600
joe.cunningham@rbccm.com
Royal Bank of Scotland (C&M)
Jim McBride
(713) 221-2400
jim.mcbride@rbos.com
RZB Finance (P)
Stephen Plauche
(713) 260-9697
splauche@rzbfinance.com
Sandefer Capital Partners (P)
Jeff Sandefer
(512) 495-9925
jsandefer@sandefer.com
Sanders Morris Harris (I)
Ric Saalwachter
(713) 220-5138
ric.saalwachter@smhgroup.com
Saw Mill Capital (P)
John Shaia
(914) 741-9094
jshaia@sawmillcapital.com
Sayer Securities Ltd. (A)
Al Tambosso
(403) 266-6133
alan.tambosso@sayersecurities.com
SCF Partners (P)
Andrew Waite
(713) 227-7888
awaite@scfpartners.com
Scotia Capital (I)
Mark Ammerman
(713) 759-3441
mark_ammerman@scotiacapital.com
Simmons & Co. Int’l (I)
Matt Simmons
(713) 236-9999
msimmons@simmonsco-intl.com
Societe General (C)
Jim Allred
(713) 759-6300
NA
Soft Rock Investments (M)
Roger Eustance
(203) 762-9710
rgeustance@hotmail.com
SouthView Energy LLC (P)
Jack Schanck
(281) 774-2140
jschanck@southviewenergy.com
Southwest Securities (I)
C. (Al) Buis
(214) 859-6414
cabuis@swft.com
Sovereign Bank (M)
Rusty Stehr
(214) 242-1896
rstehr@banksov.com
Sowood Cap. Mngmt. LP (P&M)
Carl Tricoli
(713) 229-0068
carl.tricoli@sowood.com
Sowood Comm. Prtns Fds (P&M)
Paul Jordan
(617) 603-3436
paul.jordan@sowood.com
Sprott Securities Inc. (I)
Craig Bridgman
(403) 750-7204
cbridgman@sprott.ca
Standard Bank Americas (C,M&P)
Roderick L. Fraser
(212) 407-5166
roderick.fraser@standardnewyork.com
Stellar Energy Advisors (A)
John McCallum
44 7493-1977
johnmccallum@stellarlimited.com
Sterling Bank (C)
Dan Steele
(713) 507-7206
dan.steele@banksterling.com
Sterne, Agee & Leach (I)
W. Barry McRae
(205) 949-3555
bmcrae@sterneagee.com
HERE’S THE MONEY: CAPITAL FORMATION 2006 • OIL AND GAS INVESTOR MAY 2006 55

CAPITAL SOURCES
Stifel Nicolaus & Co. Inc. (I,A&P)
Edward P. Russell
(314) 342-2152
russelle@stifel.com
Stonington Corp. (A)
Bill Foster
(212) 551-3550
wdf@wforster.com
SunTrust Rbnsn Hum. (I,C,M&P)
Jim Warren
(404) 588-7824
jimwarren.suntrust.com
TCW (M)
Patrick Hickey
(713) 615-7413
patrick.hickey@tcw.com
TCW Energy & Infrastructure (C,M)
Kurt Talbot
(713) 615-7400
Kurt.talbot@tcw.com
TD Securities (I&C)
Don Warmington
(713) 653-8202
donald.warmington@tdsecurities.com
Texas Capital Bank (C)
Terry O. McCarter
(214) 932-6716
terry.mccarter@texascapitalbank.com
Texas State Bank (C)
Keri W. Herrin
(713) 561-0426
k.herrin@txstbk.com
Tortoise Energy Infra. Corp. (M&P)
Dave Schulte
(913) 981-1020
dschulte@tortoiseadvisors.com
Transformation Cap. Advisors (A)
Thomas Collier
(281) 392-7807
tom.collier@Transformationco.com
Tristone Capital Inc. (I)
George Gosbee
(403) 294-9541
ggosbee@tristonecapital.com
UBS Investment Bank (I)
Stephen Trauber
(713) 331-4688
stephen.trauber@ubs.com
UFJ Bank Ltd. (C)
Clyde Redford
(713) 652-3190
clredford@sbcglobal.net
Union Bank NA (C)
Mike Robberson
(405) 782-4238
mike.robberson@ubokc.com
Union Bank of California (C)
Carl Stutzman
(214) 992-4200
carl.stutzman@uboc.com
Upstream Energy Capital (I)
Jack S. Steinhauser
(303) 840-2011
jsteinhauser@upstream.bz
US Bank (C)
Charles S. Searle
(303) 585-4209
charles.searle@usbank.com
Vector Energy Capital LLC (A)
Carl Carter
(713) 662-0135
carl@vectorec.com
56 MAY 2006 WWW.OILANDGASINVESTOR.COM

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CAPITAL SOURCES
Vulcan Capital Management (P)
Ford F. Graham
(212) 980-9520
fgraham@vulcancapital.com
Wachovia Securities (I)
James Kipp
(713) 346-2700
james.kipp@wachovia.com
Warburg Pincus LLC (P)
Jeffrey Harris
(212) 878-0638
jharris@warburgpincus.com
Waterous & Co. (I&A)
Adam R. Waterous
(403) 261-4240
awaterous@waterous.com
Weisser, Johnson & Co. (A)
Frank Weisser
(713) 659-4600
fweisser@weisserjohnson.com
Wellington West Capital Inc. (I)
Kevin Hooke
(204) 925-2250
kevinh@wellwest.com
Wells Fargo (C)
Kyle Hranicky
(214) 721-6415
NA
Wells Fargo Energy Capital (M)
Mark Green
(713) 319-1327
mark.m.green@wellsfargo.com
WestLB (C)
Adam Dexter
(713) 963-5234
adam_dexter@westlb.com
West Texas National Bank (C)
Sid Smith
(432) 685-6520
ssmith@wtnb.com
Western National Bank (C)
Wesley D. Bownds
(432) 570-4181
wesley@westernb.com
Whitney Bank (C)
Robert C. Stone
(504) 299-5034
rstone@whitneybank.com
Williams de Broe Plc (A)
Jonathan Gray
(207) 898-2525
jonathan.gray@wdebroe.com
Wolverton Securities Ltd. (I&A)
Kay Eyton
(403) 263-8800
kayeyton@wolverton.ca
Wunderlich Securities Inc. (I&A)
James Harwood
(901) 251-2233
jhartwood@wundernet.com
Yorktown Partners LLC (P)
Peter Leidel
(212) 515-2100
NA
58 MAY 2006 WWW.OILANDGASINVESTOR.COM

CAPITAL SOURCES
Vulcan Capital Management (P)
Ford F. Graham
(212) 980-9520
fgraham@vulcancapital.com
Wachovia Securities (I)
James Kipp
(713) 346-2700
james.kipp@wachovia.com
Warburg Pincus LLC (P)
Jeffrey Harris
(212) 878-0638
jharris@warburgpincus.com
Waterous & Co. (I&A)
Adam R. Waterous
(403) 261-4240
awaterous@waterous.com
Weisser, Johnson & Co. (A)
Frank Weisser
(713) 659-4600
fweisser@weisserjohnson.com
Wellington West Capital Inc. (I)
Kevin Hooke
(204) 925-2250
kevinh@wellwest.com
Wells Fargo (C)
Kyle Hranicky
(214) 721-6415
NA
Wells Fargo Energy Capital (M)
Mark Green
(713) 319-1327
mark.m.green@wellsfargo.com
WestLB (C)
Adam Dexter
(713) 963-5234
adam_dexter@westlb.com
West Texas National Bank (C)
Sid Smith
(432) 685-6520
ssmith@wtnb.com
Western National Bank (C)
Wesley D. Bownds
(432) 570-4181
wesley@westernb.com
Whitney Bank (C)
Robert C. Stone
(504) 299-5034
rstone@whitneybank.com
Williams de Broe Plc (A)
Jonathan Gray
(207) 898-2525
jonathan.gray@wdebroe.com
Wolverton Securities Ltd. (I&A)
Kay Eyton
(403) 263-8800
kayeyton@wolverton.ca
Wunderlich Securities Inc. (I&A)
James Harwood
(901) 251-2233
jhartwood@wundernet.com
Yorktown Partners LLC (P)
Peter Leidel
(212) 515-2100
NA
58 MAY 2006 WWW.OILANDGASINVESTOR.COM

NEW E&P COMPANIES
E&P START-UPS ABOUND
Easier access to capital aids in new-company formation.
BY BERTIE TAYLOR, EDITOR, OIL AND GAS INVESTOR THIS WEEK
In the face of those who thought the E&P sector
couldn’t grow any more, it did last year.
Robust commodity prices, strong investor
interest and increasing consumer energy needs
all kept the oil and gas business in full swing,
which prompted several new start-ups and service
expansions last year.
“Although people want to make the oil business
complex, it is really pretty simple,” says Vic Hughes,
chief executive of The Woodlands, Texas-based producer
Deep Bossier Energy.
“It comes down to land, brains and money,
[though] not in that order.”
Hughes says the availability of money last year
sparked many of the new start-ups, and he expects
even more capital to flood the market this year. “Even
though there is a lot more money around, the industry
is more disciplined than during the last boom—in the
early 1980s. The late 1980s beat the crazy speculation
out of most of us.”
“Lots of capital will always encourage start-ups
and perhaps more than any other factor.”
—Glynn Roberts,
Northstar Interests Inc.
Glynn Roberts, president of Houston-based producer
Northstar Interests Inc., says, “Lots of capital
will always encourage start-ups and perhaps more than
any other factor.
“The reality is that entrepreneurs are much
more willing to quit good jobs if they can depend
on access to outside capital, something more than
their personal savings…
“We hired a young engineer recently from a large
company and had to pay a signing bonus in addition
to a six-figure salary. I believe the availability of capital
is much more important to a start-up than high
energy prices.”
Though M&A activity was fast and furious last
year, starting new ventures continues to capture the
interest of investors and E&P executives. Some
financiers say this is partly because of how the market
continued to reward the oil and gas business through
high commodity prices.
Jeffrey Harris, a senior managing director with
New York-based private-capital provider Warburg
Pincus, says, “The large number of E&P start-ups in
2005 reflects the robust hydrocarbon pricing environment,
which has enhanced the profitability of the
business in the short term, and the relatively large
amount of capital available for start-ups that is trying
to capture that profitability.”
An attractive IPO market for the oil and gas sector
also bolstered start-up activity last year, Harris adds.
The profitability of the oil and gas sector stayed
strong last year, in spite of rising service and supply
costs. Analysts at Houston-based investment bank
Simmons & Co. International attribute this to the way
rising commodity prices and unhedged revenues eased
the pressure of rising cost structures.
Since 2001, about 75% of E&P revenue growth
was the result of commodity pricing and net realizations
while production accounted for only 25%, the
analysts report.
“The 2005 start-ups also reflect the abundance of
management teams that have had prior success and
were employed by acquired companies, and the
availability of exit paths for management and
investors due to the acquisition appetite of larger
companies,” says Harris.
Hughes adds, “The chairmen of big oil companies
can keep their jobs forever, even after death, as long as
they protect the balance sheet and replace reserves. If
they do that every year, 100 years from now there will
still be an ExxonMobil.”
Expected trends this year include more E&P startups,
as long as commodity prices can keep them afloat.
Observers say several of the future start-ups will be
initiated by employees from companies that were sold
last year or will be this year, such as Vintage
Petroleum Corp.
The projects that will draw the larger capital investments
this year are ones that have strong reserve
potential, which increasingly in the U.S. are unconventional
oil and gas, or the “equivalent of land,”
Hughes says. (For a sample issue of Oil and Gas Investor
This Week, call 713-260-6441.) ■
60 MAY 2006 OIL AND GAS INVESTOR • HERE’S THE MONEY: CAPITAL FORMATION 2006

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