ipaa │2009 Private Capital Conference

1. ipaa│2009 Private Capital Conference Surviving and Prospering In Uncertain Times January 14, 2009

2. Overview of ESS Funds Group • Energy Special Situations Funds est. late 2005 • Two institutional funds - $340+ million • Pursue middle-market, energy opportunities • 13 investments since inception • $150+ million uncommitted capital • Fund managers: Jon Linker, Jeff Hewitt, Tim Sullivant

3. ESSF Strategy • Invest in companies/projects - all energy sectors • Seek growth and value creation • Sole manage small investments ($5 - $40 mm) • Partner large deals ($30 - $150 mm); 5 co’s. • Management track record and co-invest are key • Structure, incentives create common objectives • Equity-oriented - all financial structures possible

4. Our E&P Portfolio• 10 entities with 8 management groups• Highly-focused niche strategies

5. What Will 2009 Bring? “Every new beginning starts from some other beginning’s end …” Dan Wilson, Semisonic

6. Past 3 Cycles Lasted 4-6 Years Normalized OSX Index with Peak = 100 • Peak-to-Trough • value increase: 3x–4x • Trough-to-Trough • value increase +35-70% • Peaks occurred at different points in cycle • Public / Private values not always correlated Note: SLB stock price used for OSX proxy prior to March 97.

7. History Indicates Bottom May Be Near • Past bottoms formed after 6 months of rationalization

8. Key E&P Challenges This Year • Low commodity prices = uneconomic projects • Live within internal cash flow (up to 75% less) • Banks cautious about new lending, for now • Equity availability limited • Pressure to reduce balance sheet leverage • Questions to consider • What projects do we pursue? • When will demand and prices rebound? • How do we plan for the future?

9. Where is Oil’s New Price Level?

10. What Will Establish the Gas Price?

11. Volatility is the Only Certainty

12. Looking to the Future • Focus on Long-Term Value Creation • Accumulate low-risk producing assets • Build portfolio of future growth opportunities • Prudently use leverage (leverage kills) • Create sustainable corporate entity BackToBasics

13. Looking to the Future • Minimize Operating Costs • Diligently pursue cost reductions in all areas • Ensure short-term viability • Retain long-term upside • Position company for future margin expansion • Valuation multiplier benefits Focus on Long-TermValue Creation BackToBasics

14. Impact of Pricing, Fixed Costs• Small price moves enormously impact cash flow

15. Looking to the Future • Adjust to Higher Capital Costs • Private equity targeting 25%+ return opportunities • Mezzanine funds availability shrinking capital cost rising • Fewer bank credit options higher spreads tighter termsMaximize available capital Focus on Long-Term Value Creation BackToBasics MinimizeOperatingCosts

16. Looking to the Future • Eliminate Downside Risk • Entering a new risk-reward paradigm • Avoid high risk activities exploration blanket leasing • Use conservative financial structures, hedging Focus on Long-TermValue Creation Adjust toHigherCapital Costs BackToBasics MinimizeOperatingCosts

17. Our Keys to Success Focus on Long-Term Value Creation Adjust to HigherCapital Costs BackToBasics MinimizeOperatingCosts EliminateDownsideRisk We may be returning to conditions similar to those experienced in the 1990’s

18. www.essfunds.com