Todays Shale Themes:

Broadening Plays, Increasing Prices, Expanding JVs

Ward Polzin, CFA
September 1 2010 1,

Recent M&A Market: Oil vs Gas vs Shale

Transaction Volume ($BN)
(Total Volume $BN) $80 $70 $60 $50 $40 $30 $20 $10 $0 2005 2006 2007 2008 2009 2010YTD $13 $12 $ $11 $28 $17 $7 $3 $14 $15 $48 $33 $74 Conventional Oil Conventional Gas Shale

$10

$ $11 $11 $11 $

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

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

# of Transactions
(# of Transactions) 70 60 50 40 30 20 10 0 2005 2006 2007 2008 2009 2010YTD 28 26 28 20 11 4 44 36 30 20 14 18 6 18 30 Conventional Oil 59 54 Conventional Gas Shale Shale JV

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

Shale Market Deal Flow

Antrim 9% Barnett 15%

Bakken 9%

Fayetteville 8% Haynesville 13% Woodford 5% Eagle Ford 6% Marcellus 35%

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

Shale JV Deal Count

Cumulative Shale JV Volume = $19 BN
8 7 6

D Deal Count

5 4 3 2 1 0 Q208 Barnett Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q2 10 Q3 10 Woodford Fayetteville Marcellus Haynesville Eagle Ford

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

Why JVs?
Buyer
Access the Resource Repeatability, scale, lower breakeven prices Operational Shale Experience Total, Statoil, ENI, BG, BP, etc Strong Relative Economics Growing rig counts validate Predictable returns (at a program level) Attracts all types Independents Foreign PE Independents, Foreign,
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Seller
Accelerate value Capital intensive Maintain control and upside Capitalize on existing operations Partial monetization Take some money off the table Cost and risk mitigation Define the play

Originator: The Right Expectations

Ownership Sold Ownership 0% 50% 100% $/Acre

Consideration Mix Upfront Cash Upfront Cash 0% Operator Carry Operator Carry 0% 50% 100% $/Acre 50% 100% $/Acre

Drilling Carry Duration (years) Carry Duration 0 Operatorship Options Operatorship 0% 50% 100% $/Acre 2 4+ $/Acre

Partner Larger than Originator

International International

Large Cap

Large Cap

Originator

Mid Cap

Mid Cap

Partner

Small Cap

Small Cap

Private Equity

Private Equity

Private

Private

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Source: JS Herold.

Joint Venture Value Enhancement

$/Acre

Acreage
Tracts in Core area C

NRI
Low Royalty R l

Lease Terms
HBP Future Expiry

Scale
Contiguous area Favorable f F bl for development

De-Risked
Horizontal Production P d i 3D Seismic Core Analysis

Midstream
Short-term gathering Long-term plan L l

Operator
Successful Track R T k Record d

New Extensions
Haynesville S th Southwest i t Sh lb San A t into Shelby, S Augustine, N ti Nacagdoches d h Rock quality Marcellus West Virginia Regulatory openness Geology good enough Eagle Ford Northwest Oil economics offset shallower and thinner zone Bakken North, South, West Frac technology

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Second Target
Haynesville - Bossier S th Southern portion of play ti f l Better than Haynesville in extreme south Marcellus - Utica Northern portion of play May be primary target deeper into NY Eagle Ford - Olmos, Escondido, Pearsall Pearsall Northwestern portion Deeper so higher pressure? Olmos, Escondido - Southern portion of play Early days, small areal extent at this time Bakken Three Forks Throughout play Equal to the Bakken, where present
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Haynesville Expansion
1. North
E Tx: Limit defined by XCO and PVA dry holes in Southern Marion & Northern Harrison N La: 3+ horz wells in Caddo Pine Island Field; 24 MMcf/d Improving Results Original Core Haynesville Pinch-out Dry Hole Limited Productivity

2. East
STR and ECA/RDS in Woodardville Field

3. South

Tier 2 / 3 Tier 1 Tier 3

E Tx: Shelby Trough extending well into Nacogdoches & San Augustine; EOG, DVN, & ECA N La: FST well in Sabine Pa (Bossier completion); CRK Toledo North Field Reservoir deepens significantly to the S & SE Low Reservoir Quality

4. West
Haynesville Shale not present in Minden Field, Rusk Co. Multiple Hz wells not completed due to reservoir quality along Shelby/Panola border

Tier 2 Tier 1
Shelby Trough Limited Activity

Bossier Shale
Results concentrated in Southern region of Haynesville play Initial results indicate similar performance to Haynesville completions Best Haynesville H ill IP to date Best Bossier IP to date

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Marcellus Expansion
NY: waiting on EIS Lower porosity and thinner Utica potential NYC aquifer politically offlimits ffli i

Deep thick and highly pressured Higher liquids content but less thickness and pressure High thermal maturity gas cooked off?

Thinner but rich lower interval

Structural complexity increases towards the thrust belt

Thick and deep enough

Local thicker regions extend into Southern West Virginia

Quality variable along eastern margin

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Eagle Ford Expansion

Promising Oil Rates Shallow, limited pressure, Less reservoir drive Pearsall overlap = l additional potential Significant Si ifi t leasing activity Reservoir quality concerns

Limited Activity Deep, high potential trend

Deeper and drier gas Condensate improves returns Poorer Reservoir quality

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Bakken Expanding

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Unconventional Resource Value Progression

Development Model Verified Discounted Development Valuation
Valu Increase ue es
$/Acre
$14,000 $14,000 $12,000

Barnett , Haynesville: $/Acre Buyer

$19,000 $19 000 $20,000 $33,000

Seller Exco Chesapeake

~ $20,000$35,000/acre

BG Total

Chesapeake IP

Marcellus Core, Eagle Ford Core: Buyer Mitsui Reliance Reliance Seller Anadarko Atlas Pioneer

Type Curve Established

~ $10,000$15,000/acre

Marcellus SW PA, Eagle Ford Ext: $/Acre

$5,000 $3,500 $4,000

Buyer Ultra Consol BP

Seller NCL Dominion Lewis

Wells, E l St W ll Early Stage $/Acre Valuation

~ $3,000$5,000+/acre

Asset Risk Decreases

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Haynesville Acreage Values

$2,500 $2 500 5,000/acre

$15,000 30,000/acre

$8,000 $12,000+/acre

Tier 1 = 2x-3x lesser areas

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Source: TPH Estimates of current market conditions

Marcellus Acreage Values

$?/acre $4,000 $8,000/acre $5,000 $10,000/acre $10,000+/acre

Deal costs have doubled h d bl d in 6 months

$1,000 $4,000/acre

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Eagle Ford Acreage Values

Largecontiguouspositionsinthecoreofthegasregionhavebeenashighas$10,000acre,comparedto $500$1,000/acredealsinMaverickBasinandotherfringeareasalongthenorthernlimit.Therecent strategicpartnershipbetweenPioneerandReliancesetsanewlevelintheEagleFord.
Magnum Hunter & Hunt Oil Petrohawk Black Hawk
53K acres, $3000/acre, 1Q2010 27K acres JEA Gonzales & Lavaca Co., 2Q2010

Shell Maverick
150K acres, $500/acre, 1Q 2010

Chesapeake
400K acres, $1400/acre

Goodrich
35k net acres; $1675/acre

Petrohawk Hawkville Petrohawk Red Hawk

90K acres, $200/acre, 1Q2010

Pioneer Reliance JV
95k net acres; $12,000/acre

APC/NFX - TXCO
380K acres, $800/acre, 4Q 2009

Petrohawk Swift JV
13K acres, $3000/acre, 4Q2009

Talisman - Common Shell - Dimmitt

100k acres, one ranch, up to $10k/acre incl. options/drilling 37K acres, $9700/ $9700/acre, 2Q2010

BP - Lewis
40K acres, $4500/acre, 4Q 2009

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Source: HPDI, Investor Presentations, TPH.

Bakken Acreage Values

$5,000 6,000+/acre $500 1,500/acre $5,000 7,000/acre $5,000 , 7,000/acre

$ , $6,000 8,000/acre

$ , $1,800 5,000/acre

$5,000 6,000/acre

$500 2,000/acre

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Shale Play Lease Value Comparison

16,000 14,000 14 000 12,000 10,000 8,000 6,000 4,000 2,000 0

Marcellus Type Curve Haynesville Established Eagle Ford Condensate Type Curve Not Established Risk Increased

Price ($/acre)

Bakken Eagle Ford Oil Niobrara

21 $/Acre value represent approximate highest $/acre paid in 2Q 2010 for each play

Shale Forecast by Basin

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Total Daily Production (Bcf/d) y n

20

2.8 Bcf/d fd
15

4.4 Bcf/d
10

6.3 Bcf/d
5

5.5 Bcf/d
0
2008 2009 2010 2011 2012 2013

Eagle Ford

Woodford

Fayetteville

Marcellus

Haynesville

Barnett

22
Source: Production Forecast = TPH Estimates

Rockies are Well Positioned

Best pure play oil shale to date is the Bakken E Expanding North, S th and W t di N th South d West New plays in Montana Many new plays being tested in the Rockies Niobrara greatest buzz Mowry, Heath, etc Non - Rockies Oil portion of broader gas shale play: Eagle Ford, Marcellus, Barnett Oily portion of broader gas plays: Anadarko (Cleveland, Granite Wash, etc) California - Monterey Looking for shales in older basins Permian

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