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Chalker Energy Partners, LP 2007 IPAA Private Capital Conference

Chalker Energy Partners, LP 2007 IPAA Private Capital Conference. Houston, Texas January 2007. Background on Chalker?. Chalker I Formed in December 2003 Built an East Texas Focused Company Exceptional Operational & Geological Team Total Equity Commitment of $25MM from QEP II

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Chalker Energy Partners, LP 2007 IPAA Private Capital Conference

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  1. Chalker Energy Partners, LP2007 IPAA Private CapitalConference Houston, TexasJanuary 2007

  2. Background on Chalker? • Chalker I Formed in December 2003 • Built an East Texas Focused Company • Exceptional Operational & Geological Team • Total Equity Commitment of $25MM from QEP II • Sold to Forest Oil for $225MM, Closed 3/31/06 • Chalker II Up and Running

  3. The Chalker I Team Alan Smith President & CEO Tom Campbell EVP & COO Gary Hall VP – Geoscience Larry Tolleson VP – Operations Janie Isbell Sr. Engineering Tech Gayla Massey Sr. Executive Assistant

  4. Chalker I Strategy • Initially an Acquire/Exploit Approach in Tight Gas Sand Basins • Evolved into Drilling Strategy in East Texas • Focus in Cotton Valley Sands • Utilize Relationships & Local Knowledge to Access Opportunities • Leverage Engineering, Operational & Geological Strengths • Creative Deal Structures

  5. Why Tight Gas Basins & Multiple Pays? • Longer Life Assets with Predictable Reserves • Higher Margin Assets – Lower Operating Costs • Few Dry Holes Drilled – Basin Centered Gas, Stacked Pays • East Texas Stratigraphy - Rodessa - Cotton Valley A-D Sands - Pettet - Bossier - Travis Peak - Cotton Valley Lime • Technology has Enhanced Reserve Recoveries

  6. Focus Areas Panhandle 4 County Drilling Area East Texas South Texas

  7. Chalker I Results • Made 17 Producing Property Acquisitions - $17MM • Acquired 16,000 Net Acres in Cotton Valley - $6MM • Gained Access to Three Drilling Rigs • Drilled 42 Wells, 30 Operated, All Successful • Spent $46MM Through the Drill Bit, Avg F&D $1.40/Mcfe

  8. Lease PositionEast Texas

  9. Production – Base + UpliftActual Results 3 Rigs 1 Rig

  10. Reserves & Production Summary Production Proved Reserves 2004 YE15.7 Bcfe, 58% Gas 2005 YE112.8 Bcfe, 90% Gas 2004 2005 2006

  11. Chalker I Sale • Proved Up Acreage Thru the Drill Bit • Excellent Market Fundamentals • Simmons & Griffis Ran a Formal Process • Forest Preempted with Signed PSA on 2/9/06 • Sales Price - $225MM • Reserve Cost - $2.32/Mcfe (Announced) • Production Multiple - $19,900/Mcfed (Announced) • Outstanding Results • ROI – 7.4X • IRR – 331%

  12. Lessons Learned • We can Make Money in Up or Down Cycle – Must Adjust Acquisitions & Drilling Allocations • In Drilling Mode, Land Function Highly Critical • Deal Creativity is Very Important • Geographically Focused Asset Base Adds Significant Premium at Exit • Equity Partner Can & Did Add Value in Managing Leverage, Risk Management, Exit Deal Structure & As a Technical Sounding Board

  13. Chalker II Formation & Strategy • Smith is Chairman of Chalker II, Full-Time at Quantum • Doug Krenek Joined Chalker Team, April 1, 2006 as President & CEO • Equity Commitment of $50MM from QEP III, $7MM from Management and Other Investors • Continued Focus in East Texas & Other Tight Gas Basins in Texas • Leverage Off of Technical Knowledge in Focus Areas • Be Opportunistic!

  14. The Chalker II Team Alan Smith Chairman Doug Krenek President & CEO Gary Hall VP – Geoscience Larry Tolleson VP – Operations Bill Dukes VP - Land Janie Isbell Sr. Engineering Technician

  15. Chalker II Update • Closed Two Acquisitions - $50MM • $45MM Acquisition in Rusk County • $5MM Acquisition in North Texas • Total Net Acerage – 35,000 Acres • East Texas – 13,000 Acres • Houston County – 14,000 Acres • North Texas – 8,000 Acres • Current Production – 4.5 Mmcfed • Four Rigs Running in East Texas • 2007 Drilling Capex - $60MM

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