Denali Oil & Gas

Rick Louden
President & CEO

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Denali Oil & Gas
Background

• Founded June, 2003 with a $50 million commitment

from Quantum Energy Partners, Energy Trust and
Walter Oil & Gas. Denali II funding commitment of
$50 million in 2006.
• Focus on S. Texas tight gas below 12,000’

• Drilled 17 exploratory wells, 48 development wells,

four small acquisitions.
• Sold assets in 2004 and 2006 in multiple asset
sales totaling $230 million.
• Currently producing 13 Mmcfed.
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Denali Oil & Gas
Fields Currently Producing
and Fields Sold

South
Bearhead
Creek

Raptur
e
S. Friar Ranch Robinson Lake

Hardeman
Destino Slough
Finley Webb Las Hermanitas

La S. Escobas
Perla
Haynes
Exsun
Shivers Deep
Tierra
Blanca Edinburg South
Arrowhead
Ranch
Denali Oil & Gas
Investor Partners

Bring Value to the Table

• Sounding Board and Brainstorming on key
decisions and strategy
• Financial Expertise and Muscle

• Financial Strength and Staying Power

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Planning Discussion with
Quantum Energy Partners

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Denali Oil & Gas
Business Plan

• Primary focus on deep tight gas in South

Texas.
• Create value through exploration and
small acquisitions with significant
drilling potential.
• Operate the majority of properties and
reserves.
• Be patient, wait for exceptional
opportunities. 6
Denali Oil & Gas
Business Plan

Starting Point Conditions

Private Equity Funded Company
– Target 30%+ IRR and ROI of 3.0+

– Don’t bet on rising oil and gas prices.

– Minimize risk.
• No rank wildcatting.

• Prudent level of borrowing.

• Conservative Acquisition analysis assumptions.7

Denali Oil & Gas
Strategy

…….How do we generate 30%+ IRR and

3.0+ ROI without rising gas prices and
without significant risk?
• Basin Characteristics? Wells with high initial
rates and steep declines or wells with moderate
initial rates and flatter declines?...........high
initial rates generate higher IRR’s despite
steeper declines.

• Exploration or
acquisitions?........exploration minimizes
upfront capital improving ROI and IRR if success 8
rate is good.
Denali Oil & Gas
Strategy

Continued………..

• Sell discoveries early or fully

develop?.........selling fields early in life after
minimum drilling further improves IRR and ROI ,
but sacrifices a portion of the future present
value.

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Denali Oil & Gas
Strategy

…….How do we generate 30%+ IRR & 3.0 ROI?

Example: Ten well field, each well costs $4 million
and has a PV10 of $6 million and ROI of 2.5.

Capital Sale Value ROI

Land & Seismic $1 - -

Drill 3 wells $12 $30 2.5

Drill 7 PUD’s $28 $70 2.5

Total $41 $100 2.44 10

Denali Oil & Gas
Strategy

…….How do we generate 30%+ IRR & 3.0 ROI?

Example: Ten well field, each well costs $4
million and has a PV10 of $6 million and ROI of
2.5.
Capital Sale Value ROI

Land & Seismic $1 - -

Drill 3 wells $12 $30 2.5

Sell 7 PUD’s -- $21 -

(at 50% of PV10)
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Total $13 $51 3.9

Denali Oil & Gas
Business Plan

Starting Point Conditions

Private Equity Funded Company
– Target 30%+ IRR and ROI of 3.0+

– Don’t bet on rising oil and gas prices.

– Minimize risk.
• No rank wildcatting.

• Prudent level of borrowing.

• Conservative Acquisition analysis assumptions.

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U.S. Gas Prices
Adjusted for Inflation
1985 - 2009

???

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Denali Oil & Gas
Business Plan

Minimize Risk
• Top 10% Technical Team

• Wait for exceptional opportunities

• No Rank Wildcatting

• State of the Art Technologies

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South Texas
Wells less than 10,000’ deep

Total Wells 361,030

309,919 Wells < 10,000’ TD

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South Texas
Wells deeper than 13,000’

13,007 Wells > 13,000’ TD

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Denali Oil & Gas
Business Plan

Minimize Risk
• Top 10% Technical Team

• Wait for exceptional opportunities

• No Rank Wildcatting

• State of the Art Technologies

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Denali Oil & Gas
State of the Art Technology

Denali

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Denali Oil & Gas
Results

Denali I (2003 – 2006)

• Three small acquisitions ($9.1 Million), 4
exploration wells (3 successful and 1 dry hole),
35 development wells.
• $44 million of investor capital and $15 million
debt.
• Sold in multiple transactions totaling $230
million.
• IRR = 214%, multiple = 4.5. 19
Denali Oil & Gas

Rick Louden
President & CEO

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Denali Oil & Gas
Results

Denali II (2006 – 2008)

• One acquisition, 13 exploration wells (6
successful and 7 dry holes), 13 development
wells.
• $64 million of investor capital and $24 million
debt.
• Current proved reserves of 70 Bcfe and
probable reserves of 73 Bcfe.
• 100,000 net undeveloped acres in resource
play with acreage going for $250-350 per acre.21
 Denali’s S.
Escobas
Field
Denali Oil & Gas
Escobas
Field
Rick Louden Fandango
President & CEO
field
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Escobas Field
89 BCF

Fandango Field
429 BCF 23
South Escobas Type Log
Type Log Cont.
 Denali’s S.
Escobas
Field
Denali Oil & Gas
Escobas
Field
Rick Louden Fandango
President & CEO
field
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Denali Oil & Gas
Finding Costs

Year Reserve Adds Finding Cost

2003 13 Bcfe $0.67/Mcfe

2004 28 Bcfe $1.06/Mcfe

2005 41 Bcfe $1.24/Mcfe

2006 35 Bcfe $1.08/Mcfe

2007 25 Bcfe $1.00/Mcfe

2008 30 Bcfe $1.44/Mcfe

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Total 172 Bcfe $1.17/Mcfe
Denali Oil & Gas
Denali III

• Same Investor Group.

• $140 million commitment. Additional capital

available for larger acquisition.
• Exploration and acquisitions with increased
focus on identifying acquisitions.
• Partner with companies who have acreage
and prospects in S. Texas, but are
reallocating capital to other basins………
through farmouts and joint ventures.
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Experience . . .
Focus . . .
Innovation . . .
Technology . . .

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