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IPAA Austin, Texas October 28, 2004 HALLWOOD PETROLEUM, LLC

IPAA Austin, Texas October 28, 2004 HALLWOOD PETROLEUM, LLC. JOHNSON COUNTY, TEXAS Unconventional Barnett Shale. Barnett Shale gas is an unconventional resource Johnson County has long been known to have Barnett Shale This Barnett Shale was known to contain gas

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IPAA Austin, Texas October 28, 2004 HALLWOOD PETROLEUM, LLC

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  1. IPAA Austin, Texas October 28, 2004 HALLWOOD PETROLEUM, LLC

  2. JOHNSON COUNTY, TEXAS Unconventional Barnett Shale • Barnett Shale gas is an unconventional resource • Johnson County has long been known to have Barnett Shale • This Barnett Shale was known to contain gas • Missing Viola and Forestburg frac barriers • Six wells targeted the Barnett Shale • Yielding two marginal producers and a few shut in wells

  3. OBJECTIVES In the Johnson County Barnett • Produce gas without Ellenburger water • Cut costs • Improve on results • Cut costs • Improve on results • Repeat these steps one as often as possible. . . . .

  4. HALLWOOD’S APROACH THROUGH 2002 • Acquired approximately 25,000 net acres • Drilled four exploratory wells • Designed completions that avoided conventional wisdom • Avoided Ellenburger water in three out of four wells • Established commercial gas production • Built our own infrastructure

  5. TIMELINE THROUGH 2003 • First gas sales February 2003 • Continued drilling vertical wells to evaluate shale • Evaluated various frac techniques • Each design built upon the last, both good and bad • Micro polymer, foamed gel, slick water • Varying rates, sand concentrations, sand sizes • Varied perforating strategies

  6. SUBSEA DEPTH WEST EAST

  7. THICKNESS

  8. 30/60/90 DAY PRODUCTION VERTICAL WELLS From first to most recent drilling

  9. FRAC STATISTICS HORIZONTAL WELLS

  10. HORIZONTAL COMPLETIONS

  11. 30/60/90 DAY PRODUCTION HORIZONTAL WELLS

  12. HORIZONTAL COMPLETIONS

  13. TOTAL ACREAGE Godley Cleburne Lakeview 1 Rio Vista Harrison 1

  14. Unconventional resources may occur where there is no infrastructure. • No markets

  15. HALLWOOD ENERGY CORPORATION Compressor Station Construction

  16. PIPELINE FACILITY Cleburne Facility • Facility is Operating at 70 MMCFD • Designed for 140 MMCFD and suction 40 psi Godley Facility • Facility is Operating at 40 MMCFD • Designed for 50 MMCFD and suction 30 psi Rio Vista Facility • Facility is Operating at 25 MMCFD • Designed for 50 MMCFD and suction 30 psi • Entire system to run at 80-200 psi at wellhead.

  17. HALLWOOD ENERGY CORPORATION North Half of Northern Acreage EOG EOG Godley #1 Lightfoot #1 R Smith #1 Buffalo Ridge #1 Mary Ann #1 Buffalo Ridge #2 Williams #1 Tucker #1 Cooper #1 Cody Hunter #3 Williams #2 Cooper #2 Kennon #1 Cleburne Compressor Station Brown #1 City of Cleburne #2H & #3H Worthington SWD City of Cleburne #1 CEDF #1 Ponderosa Pine Power Plant Lake Marti

  18. HALLWOOD SWD, INC. Cleburne Disposal Site HEC Office Next SWD Well Ponderosa Pine Power Plant Worthington 1 SWD City of Cleburne #1

  19. Unconventional resources may occur where there is no infrastructure. • No markets • No water disposals

  20. CLEBURNE DISPOSAL FACILITY

  21. CLEBURNE DISPOSAL FACILITY Fully Automated for fresh water loading or salt water disposal BBLS

  22. Unconventional resources may occur where there is no infrastructure. • No markets • No water disposals • An uninformed public

  23. An uninformed public - positives • Lease forms that are simple, yet fair to everyone • Equitable bonus and royalty terms • An opportunity to educate

  24. An uninformed public - negatives • The education process can be frustrating and time consuming • We may be viewed as the stereotypical JR Ewing • Visions of Jeb Clampett • The neighborhood real estate attorney begins practicing oil and gas law

  25. Unconventional resources may occur where there is no infrastructure. • No markets • No water disposals • An uninformed public • An hour drive to the nearest bull plug salesman

  26. UNCONVENTIONAL GAS MEANS CONTINUING EDUCATION • Lower vertical drilling costs • Lower horizontal well costs

  27. DRILLING COMPARISON Vertical – Air vs Mud

  28. DRILLING COMPARISON Horizontal – Air vs Mud

  29. UNCONVENTIONAL GAS MEANS CONTINUING EDUCATION • Lower vertical drilling costs • Lower horizontal well costs • Evaluate perforating strategies • Optimize horizontal well spacing • Optimize horizontal frac volumes

  30. We should not be surprised when doing the same as we have always done yields the same results we have always gotten. We must innovate. We must continue to improve.

  31. IPAA Austin, Texas October 28, 2004 HALLWOOD PETROLEUM, LLC

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