Denali Oil & Gas

Rick Louden
President & CEO
1

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.

Denali Oil & Gas

Fields Currently Producing
and Fields Sold
South
Bearhead
Creek

Raptur
e
S. Friar Ranch

Hardeman
Slough

Destino
Finley Webb
La
Perla
Haynes
Exsun
Tierra
Blanca
Arrowhead
Ranch

Robinson Lake

Las Hermanitas
S. Escobas
Shivers Deep
Edinburg South

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

Planning Discussion with

Quantum Energy Partners

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.

Denali Oil & Gas

Business Plan

Starting Point Conditions

Private Equity Funded Company
Target 30%+ IRR and ROI of 3.0+
Dont 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 IRRs despite
steeper declines.

Exploration or

acquisitions?........exploration minimizes

upfront capital improving ROI and IRR if success

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.

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 PUDs

$28

$70

Total $41

$100 2.44

2.5
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 PUDs
-- $21
(at 50% of PV10)

11

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+
Dont bet on rising oil and gas prices.
Minimize risk.
No rank wildcatting.
Prudent level of borrowing.
Conservative Acquisition analysis assumptions.
12

U.S. Gas Prices

Adjusted for Inflation
1985 - 2009

???

13

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
15

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
17

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.

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Denali Oil & Gas

Rick Louden
President & CEO
20

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

Denalis S.
Escobas
Field

Denali Oil & Gas

Escobas
Field
Rick Louden
President & CEO

Fandango
field
22

Escobas Field

89 BCF
Fandango Field

429 BCF

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South Escobas Type Log

Type Log Cont.

Denalis S.
Escobas
Field

Denali Oil & Gas

Escobas
Field
Rick Louden
President & CEO

Fandango
field
26

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

Total 172 Bcfe

$1.17/Mcfe

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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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