Tales From the Trenches
Tales From the Trenches June 10, 2014
PetroEdge Energy III LLC These materials are intended for the benefit and use of potential investors in consideration of the proposed transaction discussed herein and may not be reproduced, disseminated, quoted or referred to, in whole or in part, or used for any other purpose, without the prior written consent of PetroEdge Energy III LLC. (“PetroEdge” or the “Company”). These materials are based solely on information provided by the management of the Company. The projections used herein are based on a number of assumptions and are subject to significant economic and competitive uncertainties and contingencies that are beyond the control of the Company. These assumptions involve judgments with respect to future economic, competitive and regulatory conditions, financial market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the Company’s control. All assumptions made are subject to uncertainties that may result from changes in the economy, tax law, governmental regulations or other circumstances. As a result, some assumptions inevitably will not materialize and unanticipated events and circumstances may occur; therefore, the actual results achieved during the projection period will vary from the projections and the variations may be material and adverse. Failure of the Company to meet the forecasted performance levels could result in reduced or nonexistent economic returns to investors. There can be no assurance that the projections will be realized, and the actual results may be materially worse than those shown. The provision of these projections should not be regarded as a representation, warranty or prediction by the Company or its officers or directors that the projections are or will prove to be accurate. The financial projections should be read in conjunction with the historical financial information provided by the Company. This presentation does not constitute an offer to sell any securities of PetroEdge. Any offer of securities of the Company will only be made pursuant to a private placement memorandum and a related subscription agreement.
2
PetroEdge Resources IIILLC Table of Contents 1. PetroEdge Management 2. PetroEdge History a) PetroEdge Resources LLC b) PetroEdge Energy LLC c) PetroEdge Energy III LLC 3. Capital Structure Strategy
3
PetroEdge Energy III LLC Management Overview Proven Management Team with a Strong Track Record Successfully built three (3) and sold two (2) companies Each member of the management team has between 30 and 40 years of experience within their respective disciplines in the oil and gas exploration and production industry Beginning in 2004, the management team has been instrumental in the exploration and development of the Marcellus Shale and Eagle Ford northern extension Discovered 1.32 Tcf of gas and 37 million barrels of oil since 2004 Types of Capital Utilized PetroEdge has utilized the following types of capital Equity from high net worth individuals (Angel Investors) Mezzanine debt for development Stretch reserve secured based debt Conventional senior reserve secured based debt Preferred debt with equity component Traditional private equity 4
PetroEdge Energy III LLC Name
Position
Years in Industry
Larry Richard
President & CEO
32
Mark Malinski
Executive VP & CFO
31
Larry Buchanan
Executive VP – Operations
32
Dr. Jack Ward
Executive VP – Exploration & Production
35
Vice President Reservoir Engineering
28
Vice President Land
25
Stuart Cox
Robert Owen
Experience ‒Co-Founder of PetroEdge ‒Two successful sales transactions of PetroEdge for a Return on Equity of 2.03x ‒Global Business Manager of Halliburton’s Integrated Solutions Division ‒45 oil & gas development projects generating over 60% IRR ‒Co-Founder of PetroEdge ‒Over 17 years financial, operating, marketing and P&L experience with Pennzoil ‒CPA with 20 years of CFO experience in varying sized public and private companies ‒Extensive A&D experience ‒Co-Founder of PetroEdge ‒Extensive oil & gas well drilling and completion experience (over 110 wells in Appalachia) ‒Recognized industry expert in completion of nonconventional formations ‒Co-Founder of PetroEdge ‒Recognized expert in seismic inversion, seismic stratigraphy, AVO, and multicomponent interpretation ‒Extensive experience managing projects for independent and national oil companies and implementing field development strategies ‒Recognized expert in evaluation and development of unconventional reservoirs including the Marcellus, Bakken, Woodford, Eagleford, Niobrara and Haynesville shale and SPE distinguished lecturer ‒Experience managing projects for a major oil company ‒Experience with stimulation analysis and evaluation ‒Extensive experience in all land phases of the of the oil & gas industry ‒Experience in building land departments
5
PetroEdge Resources LLC
PetroEdge Resources LLC Company Highlights Formed PetroEdge December 2004 Primary focus on developing unconventional gas reserves in the Appalachian Basin Capital Structure Initially funded with $1.32M of equity Secured mezzanine debt for drilling development Converted mezzanine debt to preferred debt with equity component for drilling development and acreage leasing Stretch reserve secured based debt Conventional senior reserve secured based debt Acquired 94,232 net acres spanning New York to West Virginia Drilled 104 vertical and 3 horizontal wells in 3 years During our course of development Devonian siltstone formations we independently identified the the Marcellus and drilled and completed our first Marcellus Shale targeted well in March 2006 41 were first generation Marcellus Shale wells 7 101 of the 104 wells were drilled in West Virginia 7
PetroEdge Resources LLC Company Highlights 90,000,000
80,000,000
70,000,000
60,000,000
50,000,000
40,000,000
30,000,000
20,000,000
10,000,000
-
Foundation
Mezzanine
Preferred Debt
Refinance 39,400,000
Senior Stretch Debt
22,500,000
Senior Debt Mezzanine Debt Angel Equity
Operating Co 39,400,000
20,000,000
20,000,000
1,600,000
1,600,000
31,200,000 1,600,000 Angel Equity
1,600,000 Mezzanine Debt
Senior Debt
8
Senior Stretch Debt
Preferred Debt
8
PetroEdge Resources LLC Company Highlights
Generated Reserve Value: Proved Resources – 117.1 Bcfe Proved & Possible Resources – 65.5 Bcfe Additional reserve potential of 314 Bcfe from 684 resource locations Total Reserve Exposure of 480 Bcfe July 2008 PetroEdge sold to Quest Resources
Development Areas
9 9 5
PetroEdge Energy LLC
PetroEdge Energy LLC Company Highlights
Formed and funded in July 2008 Capital Structure Funded with private equity partner All of the leasehold acquisition and drilling development capital was funded by equity for 2008 - 2012 July 2008 natural gas prices were $13.10 per Mcf and at exit natural prices were $3.69 per Mcf PetroEdge focused solely on North Central West Virginia Acquired 32,015 net acres 225 gross, 100 net drilling location 6,000’ average lateral lengths Drilled 4 Horizontal Marcellus wells At the time of sale 2 producing wells, 2 waiting completion 11
PetroEdge Energy LLC Company Highlights
90,000,000 80,000,000 70,000,000 60,000,000 50,000,000 40,000,000
30,000,000 20,000,000 10,000,000 -
PetroEdge Energy LLC
Management
2,388,800
Private Equity
79,612,000
Private Equity
Management
12
PetroEdge Energy LLC Company Highlights PetroEdge acreage was 31% in wet gas trend and 37% in high yield dry gas area Development plan was based on 6000’ average lateral length Generated Reserve Value of: Proved Reserves – 18.13 Bcfe Probable & Possible Reserves – 671.1 Bcfe Total Reserve Exposure of 763.4 Bcfe December 2012 PetroEdge sold to Statoil
15
PetroEdge Energy III LLC
PetroEdge Energy III LLC Company Highlights
Formed and funded in July 2013 Capital Structure Funded by Post Oak Energy Capital and Golden Saks Investment Partners as private equity partners All leasehold acquisition and drilling development capital to date funded by equity PetroEdge focused on Northern Eagle Ford formation Acquired 17,000 net acres to date 125 gross, 100 net drilling location 6,500’ average lateral lengths Drilled 1 Horizontal Eagle Ford Well Drilling program for 2014 – 5 wells Drilling program for 2015 – 24 wells Funding for the for the drilling program planned as a combination of equity and conventional senior secured reserve based debt 15
PetroEdge Energy III LLC Company Highlights
120,000,000 100,000,000 80,000,000 60,000,000
40,000,000 20,000,000 Senior Debt
PetroEdge Energy III LLC 36,000,000
Management
2,388,000
Private Equity
79,612,000
Private Equity
Management 16
Senior Debt
PetroEdge Energy III LLC Company Highlights
Brazos
Acquired 17,000 net acres to date 125 gross, 100 net drilling location 6,500’ average lateral lengths Drilled 1 Horizontal Eagle Ford Well Drilling program for 2014 – 5 wells Drilling program for 2015 – 24 wells
Bryan
College Station
Burleson
Current Total Reserve Potential of: Gas – 75 Bcfe Oil – 30,000,000 bbls
17
Capital Structure Strategy
PetroEdge Energy III LLC Capital Structure Strategy Capital Structures – Why? Factors to consider when evaluating types of capital for your business Start-ups generally require an equity orientated partner Ongoing businesses generally have the ability to structure their capital with a wider array of choice Company Strategy Exploration orientated - grass roots development Types of wells to be drilled PDP purchase Development of remaining reserves Types of operations to be conducted Development of existing assets Development of remaining reserves Types of operations to be conducted 19
PetroEdge Energy III LLC Capital Structure Strategy Continued Types of Capital Utilized and benefits of each PetroEdge has utilized the following types of capital Equity from high net worth individuals (Angel Investors) Generally smaller size equity commitments Allow a new management team to get started Highest cost of capital compared to other forms listed here Mezzanine debt for development Bridge between convention debt and equity Cost of this capital is less expense than equity Stretch reserve secured debt A hybrid of conventional senior reserve-secured debt Cost of this capital is less expense than mezzanine debt Generally used for development drilling
20
PetroEdge Energy III LLC Capital Structure Strategy Continued Conventional senior reserve secured debt The least costly of form of debt Preferred debt with equity component Similar to mezzanine debt More flexible with its uses – acreage acquisition, drilling, G&A, reserve acquisition Cost of capital generally is between mezzanine debt and equity Private equity partner More flexible capital – non-recourse The highest cost of capital compared to the other types listed Generally requires management participation Form partnership with private equity partner Mutually agreed company direction and exit strategy Ability to work together Private equity partner can only fund only one portfolio company per play 21
PetroEdge Energy III LLC These materials are intended for the benefit and use of potential investors in consideration of the proposed transaction discussed herein and may not be reproduced, disseminated, quoted or referred to, in whole or in part, or used for any other purpose, without the prior written consent of PetroEdge Energy III LLC. (“PetroEdge” or the “Company”). These materials are based solely on information provided by the management of the Company. The projections used herein are based on a number of assumptions and are subject to significant economic and competitive uncertainties and contingencies that are beyond the control of the Company. These assumptions involve judgments with respect to future economic, competitive and regulatory conditions, financial market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the Company’s control. All assumptions made are subject to uncertainties that may result from changes in the economy, tax law, governmental regulations or other circumstances. As a result, some assumptions inevitably will not materialize and unanticipated events and circumstances may occur; therefore, the actual results achieved during the projection period will vary from the projections and the variations may be material and adverse. Failure of the Company to meet the forecasted performance levels could result in reduced or nonexistent economic returns to investors. There can be no assurance that the projections will be realized, and the actual results may be materially worse than those shown. The provision of these projections should not be regarded as a representation, warranty or prediction by the Company or its officers or directors that the projections are or will prove to be accurate. The financial projections should be read in conjunction with the historical financial information provided by the Company. This presentation does not constitute an offer to sell any securities of PetroEdge. Any offer of securities of the Company will only be made pursuant to a private placement memorandum and a related subscription agreement.
2
PetroEdge Resources IIILLC Table of Contents 1. PetroEdge Management 2. PetroEdge History a) PetroEdge Resources LLC b) PetroEdge Energy LLC c) PetroEdge Energy III LLC 3. Capital Structure Strategy
3
PetroEdge Energy III LLC Management Overview Proven Management Team with a Strong Track Record Successfully built three (3) and sold two (2) companies Each member of the management team has between 30 and 40 years of experience within their respective disciplines in the oil and gas exploration and production industry Beginning in 2004, the management team has been instrumental in the exploration and development of the Marcellus Shale and Eagle Ford northern extension Discovered 1.32 Tcf of gas and 37 million barrels of oil since 2004 Types of Capital Utilized PetroEdge has utilized the following types of capital Equity from high net worth individuals (Angel Investors) Mezzanine debt for development Stretch reserve secured based debt Conventional senior reserve secured based debt Preferred debt with equity component Traditional private equity 4
PetroEdge Energy III LLC Name
Position
Years in Industry
Larry Richard
President & CEO
32
Mark Malinski
Executive VP & CFO
31
Larry Buchanan
Executive VP – Operations
32
Dr. Jack Ward
Executive VP – Exploration & Production
35
Vice President Reservoir Engineering
28
Vice President Land
25
Stuart Cox
Robert Owen
Experience ‒Co-Founder of PetroEdge ‒Two successful sales transactions of PetroEdge for a Return on Equity of 2.03x ‒Global Business Manager of Halliburton’s Integrated Solutions Division ‒45 oil & gas development projects generating over 60% IRR ‒Co-Founder of PetroEdge ‒Over 17 years financial, operating, marketing and P&L experience with Pennzoil ‒CPA with 20 years of CFO experience in varying sized public and private companies ‒Extensive A&D experience ‒Co-Founder of PetroEdge ‒Extensive oil & gas well drilling and completion experience (over 110 wells in Appalachia) ‒Recognized industry expert in completion of nonconventional formations ‒Co-Founder of PetroEdge ‒Recognized expert in seismic inversion, seismic stratigraphy, AVO, and multicomponent interpretation ‒Extensive experience managing projects for independent and national oil companies and implementing field development strategies ‒Recognized expert in evaluation and development of unconventional reservoirs including the Marcellus, Bakken, Woodford, Eagleford, Niobrara and Haynesville shale and SPE distinguished lecturer ‒Experience managing projects for a major oil company ‒Experience with stimulation analysis and evaluation ‒Extensive experience in all land phases of the of the oil & gas industry ‒Experience in building land departments
5
PetroEdge Resources LLC
PetroEdge Resources LLC Company Highlights Formed PetroEdge December 2004 Primary focus on developing unconventional gas reserves in the Appalachian Basin Capital Structure Initially funded with $1.32M of equity Secured mezzanine debt for drilling development Converted mezzanine debt to preferred debt with equity component for drilling development and acreage leasing Stretch reserve secured based debt Conventional senior reserve secured based debt Acquired 94,232 net acres spanning New York to West Virginia Drilled 104 vertical and 3 horizontal wells in 3 years During our course of development Devonian siltstone formations we independently identified the the Marcellus and drilled and completed our first Marcellus Shale targeted well in March 2006 41 were first generation Marcellus Shale wells 7 101 of the 104 wells were drilled in West Virginia 7
PetroEdge Resources LLC Company Highlights 90,000,000
80,000,000
70,000,000
60,000,000
50,000,000
40,000,000
30,000,000
20,000,000
10,000,000
-
Foundation
Mezzanine
Preferred Debt
Refinance 39,400,000
Senior Stretch Debt
22,500,000
Senior Debt Mezzanine Debt Angel Equity
Operating Co 39,400,000
20,000,000
20,000,000
1,600,000
1,600,000
31,200,000 1,600,000 Angel Equity
1,600,000 Mezzanine Debt
Senior Debt
8
Senior Stretch Debt
Preferred Debt
8
PetroEdge Resources LLC Company Highlights
Generated Reserve Value: Proved Resources – 117.1 Bcfe Proved & Possible Resources – 65.5 Bcfe Additional reserve potential of 314 Bcfe from 684 resource locations Total Reserve Exposure of 480 Bcfe July 2008 PetroEdge sold to Quest Resources
Development Areas
9 9 5
PetroEdge Energy LLC
PetroEdge Energy LLC Company Highlights
Formed and funded in July 2008 Capital Structure Funded with private equity partner All of the leasehold acquisition and drilling development capital was funded by equity for 2008 - 2012 July 2008 natural gas prices were $13.10 per Mcf and at exit natural prices were $3.69 per Mcf PetroEdge focused solely on North Central West Virginia Acquired 32,015 net acres 225 gross, 100 net drilling location 6,000’ average lateral lengths Drilled 4 Horizontal Marcellus wells At the time of sale 2 producing wells, 2 waiting completion 11
PetroEdge Energy LLC Company Highlights
90,000,000 80,000,000 70,000,000 60,000,000 50,000,000 40,000,000
30,000,000 20,000,000 10,000,000 -
PetroEdge Energy LLC
Management
2,388,800
Private Equity
79,612,000
Private Equity
Management
12
PetroEdge Energy LLC Company Highlights PetroEdge acreage was 31% in wet gas trend and 37% in high yield dry gas area Development plan was based on 6000’ average lateral length Generated Reserve Value of: Proved Reserves – 18.13 Bcfe Probable & Possible Reserves – 671.1 Bcfe Total Reserve Exposure of 763.4 Bcfe December 2012 PetroEdge sold to Statoil
15
PetroEdge Energy III LLC
PetroEdge Energy III LLC Company Highlights
Formed and funded in July 2013 Capital Structure Funded by Post Oak Energy Capital and Golden Saks Investment Partners as private equity partners All leasehold acquisition and drilling development capital to date funded by equity PetroEdge focused on Northern Eagle Ford formation Acquired 17,000 net acres to date 125 gross, 100 net drilling location 6,500’ average lateral lengths Drilled 1 Horizontal Eagle Ford Well Drilling program for 2014 – 5 wells Drilling program for 2015 – 24 wells Funding for the for the drilling program planned as a combination of equity and conventional senior secured reserve based debt 15
PetroEdge Energy III LLC Company Highlights
120,000,000 100,000,000 80,000,000 60,000,000
40,000,000 20,000,000 Senior Debt
PetroEdge Energy III LLC 36,000,000
Management
2,388,000
Private Equity
79,612,000
Private Equity
Management 16
Senior Debt
PetroEdge Energy III LLC Company Highlights
Brazos
Acquired 17,000 net acres to date 125 gross, 100 net drilling location 6,500’ average lateral lengths Drilled 1 Horizontal Eagle Ford Well Drilling program for 2014 – 5 wells Drilling program for 2015 – 24 wells
Bryan
College Station
Burleson
Current Total Reserve Potential of: Gas – 75 Bcfe Oil – 30,000,000 bbls
17
Capital Structure Strategy
PetroEdge Energy III LLC Capital Structure Strategy Capital Structures – Why? Factors to consider when evaluating types of capital for your business Start-ups generally require an equity orientated partner Ongoing businesses generally have the ability to structure their capital with a wider array of choice Company Strategy Exploration orientated - grass roots development Types of wells to be drilled PDP purchase Development of remaining reserves Types of operations to be conducted Development of existing assets Development of remaining reserves Types of operations to be conducted 19
PetroEdge Energy III LLC Capital Structure Strategy Continued Types of Capital Utilized and benefits of each PetroEdge has utilized the following types of capital Equity from high net worth individuals (Angel Investors) Generally smaller size equity commitments Allow a new management team to get started Highest cost of capital compared to other forms listed here Mezzanine debt for development Bridge between convention debt and equity Cost of this capital is less expense than equity Stretch reserve secured debt A hybrid of conventional senior reserve-secured debt Cost of this capital is less expense than mezzanine debt Generally used for development drilling
20
PetroEdge Energy III LLC Capital Structure Strategy Continued Conventional senior reserve secured debt The least costly of form of debt Preferred debt with equity component Similar to mezzanine debt More flexible with its uses – acreage acquisition, drilling, G&A, reserve acquisition Cost of capital generally is between mezzanine debt and equity Private equity partner More flexible capital – non-recourse The highest cost of capital compared to the other types listed Generally requires management participation Form partnership with private equity partner Mutually agreed company direction and exit strategy Ability to work together Private equity partner can only fund only one portfolio company per play 21
