The Society of Petroleum Engineers Overview

E. Murphy Markham IV Managing Partner EnCap L.P.

April 22, 2015 Table of Contents

I. Overview of EnCap Investments, L.P.

II. Private Equity Overview

III. Building an O&G Company with Private Equity

2 Overview of EnCap Investments L.P. EnCap Investments History

. Founded in 1988, EnCap is a leading provider of to the independent sector of the U.S. oil & gas industry

. Raised and managed aggregate capital commitments of over $27.5 billion across 19 funds from an investor base that consists of more than 300 institutional investors from over 15 countries

. strategy revolves around providing growth capital to early stage companies led by management teams with proven track records of value creation

. Capital provider to 220 oil & gas companies over the last 26 years

. 164 investments monetized/substantially realized with average returns of 48.0% IRR and 2.4x ROI which significantly exceeded our target returns of 25% IRR and 2.0x ROI across multiple hydrocarbon price cycles

. 54 current upstream and midstream portfolio companies operating in the most economically advantaged basins across the U.S.

4 EnCap Investments Organizational Overview

EnCap Investments - Upstream Oklahoma City EnCap Flatrock - Midstream . Core funds started in 1988 . 2nd business line started in 2008 . Two offices San Antonio, Texas Dallas Houston, Texas . 6 Investment Staff . 19 Investment Staff . 3 Technical Staff Houston . 21 Administrative Staff San Antonio . 3 Administrative Staff . 3 Investor Relations Staff Oklahoma City, Oklahoma Dallas, Texas . 2 Investment Staff . 10 Investment Staff . 1 Administrative Staff . 3 Administrative Staff Houston, Texas . 2 Investment Staff

5 EnCap Investments Strategic Focus

. Two dedicated “reserves-based” investment platforms: − EnCap Energy Capital Funds – 16 funds totaling over $21.5 billion in LP capital commitments that focus primarily on the upstream side of the oil & gas business − EnCap Flatrock Midstream Funds – 3 funds totaling approximately $6 billion in LP capital commitments specifically targeting opportunities in the midstream space

UpstreamUpstream MidstreamMidstream Downstream

TreatingTreating Intrastate Intrastate Storage InitialInitial Drilling Drilling Development Transportation Development Transportation StorageStorage Intrastate GeologicalGeological GatheringGathering Transportation

LeasingLeasing Completion Compression ProcessingProcessing IntrastateIntrastate Refining Intrastate/ LDC's ActivityActivity Optimization SalesSales Interstate Sales

EnCap Energy Capital / EnCap Flatrock Midstream Focus EnCap Upstream / EnCap Flatrock Midstream Focus

6 EnCap Investments Portfolio Companies

. EnCap currently has 54 portfolio companies operating in the most economically advantaged basins across the U.S.

Williston

International

Rockies Appalachia

O I L & G A S, L. L. C. Mid Continent

P A R T N E R S III West Texas

N. LA/E. Texas

OAK VALLEY RESOURCES

South Texas Gulf Coast/GOM

7 EnCap Investments LP Investors

Pension Funds Trusts / Foundations University Endowments

CalSTRS Howard Hughes Medical Inst. University of Texas (UTIMCO)

Texas Teachers MacArthur Stanford

New Mexico PERA Parkland Hospital Dartmouth

Michigan State Texas Children’s Hospital NYU

Canadian Pension Plan MIT Companies Corporate Pensions Notre Dame Liberty Mutual 3M University of Virginia

Lincoln National Life Abbott Labs University of Michigan

Travelers NFL Sovereign Wealth Funds

Nationwide Raymond James

Northwestern Mutual Raytheon Family Offices

8 EnCap Investments Time-Tested Model

Management EnCap Team •Capital •Experience / Track •Strategic guidance record •Risk management •Assets / Opportunities •Capital

NEWCO Growth Stage Mature Stage / Exit

. Provide growth capital to proven oil . Build oil & gas companies, focusing . Position as strategic acquisition & gas management teams on lower-risk projects predominantly target in the U.S. . Typically commit $200-$500 million; . Monetize during up-cycle and ability to upsize . Heavy EnCap influence on risk continue to build in down-cycle management, capital allocation, . Alignment of interest with and hedging policies . Exit proceeds split between EnCap management teams and management based on value . Capital funded as opportunities arise . EnCap is lead investor and maintains creation parameters and hard value is created board control . Target over 2.0x ROI / 25% IRR . Build production base and upside opportunity set . Re-back management team

Portfolio Company Life Cycle (3 - 5 Year Average Life)

9 Historical Oil Price Movements & EnCap Fund History

. EnCap has navigated through multiple O&G cycles since inception in 1988

Legend Global Financial Crisis Fund IX $150 78% Decline $5,155 EnCap Fund Inception Strong Shale Non-OPEC $135 Oil Price Decreases Greater Than 30% Production, Short Term Demand Concerns, Demand Growth in Asian, OPEC Pushes to Maintain $120 Weaker Dollar, Production Stagnates and Market Share Saudi Spare Capacity Declines Fund VIII TBD Decline $105 $3,608 Hurricane Katrina & Rita Strategic Petroleum Reserve $90 9.8MMBbl Release 33% Decline EFM III 9/11, PDVSA Strike, Iraq War & $3,061 $75 Series of OPEC Cuts ~4.2MM Bbl Arab Spring; Production Falls due to Four Fund VII Civil War Disrupts $60 Iran & Iraq OPEC Quota Increases in 2000 $2,551 Libyan Ouput

Inflation Weighted ($/BbL) Weighted Inflation Increase Production 45% Decline - Iraq Invades Kuwait; with End of War EFM II Kuwait Demands Increase in $1,786 $45 33% Decline production ceiling; produces Asian Financial Crisis Fund VI well above quota 49% Decline $1,525 56% Decline WTI Non WTI $30 Fund V $825 Fund IV EFM I $15 Mezz Mezz $528 Reserve Reserve Reserve Fund II $792 Fund I Fund II Fund II & III Fund I $115 Asian Demand Recovers After 1997 Fund I $59 Fund III $104 Fund III $50 $16 $52 $29 $480 Crisis; OPEC 10% Quota Increase

$- $21

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Source: Goldman Sachs & Wall Street Research 10 Adaptability is Key to Success

. Throughout its history, EnCap and its portfolio companies have adapted to changing market dynamics by shifting strategies and allocating capital to the most economically attractive opportunities . Adaptability to dynamic market environment over time creates value Fund IV (2001 Vintage) Fund V (2004 Vintage) Fund VI (2006 Vintage) Fund VII (2007 Vintage) Fund VIII (2010 Vintage) Fund IX (2013 Vintage) 23% 34% 36% 38% 37% 36% Oil/Liquids Gas 62% 63% 66% 64% 64% 77%

18% 16% 10% 11% 27% Hz Drilling & Advanced 36% Completion Techniques Conventional Drilling 64% 73% 82% 84% 90% 89%

22% 16% 18% 17%

Acquire & Exploit 46% 43% Low-Risk Drilling 54% 57%

78% 84% 82% 83%

Note: Charts are based on invested capital for realized and unrealized portfolio. Oil/Gas mix is based on proved reserve volumes and targeted acreage plays at a 20:1 MCF/BO ratio. Classification of individual deals within each fund as Horizontal/Vertical Drilling or Acquire & Exploit/Low Risk Drilling is based on where the majority of capital 11 has been spent. Charts exclude midstream & royalty focused investments EnCap Investments Focus on Economics

. EnCap plans to continue investing in the most economically advantaged basins across the U.S.

WTI Breakeven Prices(1) Lower 48 Shale Plays

STACK (1-mile lateral): $33.54

Utica (Wet Gas): $36.01

Marcellus (SW Liq. Rich): $39.30

Eagle Ford (Liquids Rich): $51.64

Wolfcamp (N. Midland): $53.71

Eagle Ford (Oil): $53.84

Cana (SCOOP Cond.): $56.27

Utica (Cond.) $63.04

Wolfcamp (S. Midland): $65.92

Current EnCap Focus Area

(1) WTI Breakeven Prices to develop (10% IRR) ($/Bbl) at $3.60 gas; Source: Wall Street research, EnCap Investments and Jefferies 12 EnCap Investment Strategy/Philosophy

. Equal emphasis on capital preservation and value creation (more detail on next slide)

. Back management teams that have proven track records and possess like-minded approach to risk management

. Board control in large majority of investments

. Capital generally advanced in tranches as attractive opportunities are presented and portfolio company performs consistent with plan

. Proved reserve value substantially underpins invested capital

. Dual objective: . Strive for returns commensurate with strategy and appetite for risk (2.0x ROI and 25% IRR target returns) . Build long-term relationships with proven management teams

13 EnCap Investment Strategy/Philosophy (cont.)

. Capital preservation . Board control in vast majority of situations; control our capital in all situations . Limited use of leverage . Incremental advancement of capital over time as portfolio companies demonstrate success and establish “hard value” underpinning our invested capital . Prudent hedging of producing properties, especially in acquisition situations . Value creation . Back seasoned management teams that fit a well-established profile

. Strong technical and operational skills; demonstrable track record of value creation; well-defined business plan; aligned interests; common understanding of risk management . Recognize viable acquisition/drilling opportunities and optimize allocation of capital to create value . Create asset base with ultimate buyer in mind and recognize favorable timing for exit

14 Private Equity Overview Private Equity Overview

. Privately negotiated equity capital utilized as an alternative to traditional financing sources . Takes many different forms and is typically used in conjunction with: . Acquisitions: Used to facilitate growth in connection with a pending property or corporate acquisition or a development opportunity . Recapitalizations: Strategic “reloading” of the balance sheet to create dry powder for future growth . Start-ups: early stage companies seeking capital, advice, and contacts . Frequently structured as preferred or common stock or some combination thereof . Seeks an annual return of 25% or greater . Three to seven year investment cycle (illiquid) . Control consistent with ownership

16 Risk Spectrum

5% - 8% Target IRR 25%+ 50%+

Bank Wildcat Loan Funding Bank Debt

Mezzanine

Private Equity

PDP Engineering Risk Geological & Geophysical Risk Exploration Reserves

17 Sources of Private Capital

Private Capital Pyramid

$ $ Individual Aggregate Commitments Institutional Capital Aggregators Available

Institutional Investors (Pensions, Endowments, Insurance Cos.)

Individual Aggregators (Mutual Funds, Hedge Funds, Family Offices)

Individual Investors (High Net Worth “Angels”)

Source: COSCO Capital Management LLC

18 Private Equity Benefits

. Investment structure provides flexibility and insulation from the fickleness of public equity and debt capital markets

. Consistently available to support the growth of independents regardless of market conditions

. Diverse sources of private equity provide opportunities to find a capital partner with a similar strategy and risk profile

. Private equity providers remain hungry for deal flow

. Strong institutional demand for oil and gas private exposure

19 Unprecedented Private Equity Capital Focused on U.S. E&P

Source: RBC Richardson Barr database. Note: Certain figures above may represent RBC estimates. Acquisitions & Divestitures Play Major Role in Private Equity

Source: RBC Richardson Barr proprietary database. Note: Certain figures above may represent RBC estimates. (1) Represents gross values (including debt and co-investors).

Private Equity Industry 2014 Rankings

. EnCap ranks #11 on list of total funds raised over the last five years among all private equity providers and recently closed Fund X at $6.5 billion which would move us up in the rankings

Private Equity Capital Raised Over Last Five Years ($ in Billions) Rank Firm Headquarters Capital Raised 1 Washington DC $30.7 2 New York $27.2 3 New York $24.6 4 New York $22.3 5 TPG Fort Worth $18.8 6 CVC Capital Partners London $18.1 7 General Atlantic Greenwich $16.6 8 Los Angeles $14.1 9 Clayton Dublier & Rice New York $13.5 10 Advent International Boston $13.2 11 EnCap Investments Houston $12.4 …20 Lone Star Funds Dallas $9.7 …37 Energy Capital Partners Short Hills $6.5

22 Current Market Trends

. Significant commodity price decline

. Oil down >50% in last six months

. Gas down ~35% in last six months . Declining prices challenging drilling economics and causing rig count decline across U.S.

. Total U.S. rig count down ~1,000 in last six months . Service costs beginning to come down in response to lower prices but will take time

. Operators renegotiating terms with shorter time spans and lower costs (up to ~30%) . Public markets have sold off significantly . Expect soft M&A market for 2015 – currently wide bid/ask spread for assets . After a record setting first nine months of 2014, equity and debt markets are now much tighter

23 Go Forward Opportunity Set

. Current market provides uncertainty but opportunity will exist through the cycle . We will remain focused on backing the best management teams in the most economic areas . Go-forward strategies must offer best value creation opportunities:

. Low risk drilling

. Well-positioned acquisitions and JVs

. Distressed assets

. Over the long term, technology and cost efficiencies will continue driving the opportunity set . Could be opportunities to access quality leadership in the form of new teams

. Industry consolidation and/or financial handcuffs effectively removed . Talent, adaptability of management teams will ultimately drive value

24 Economics Will Drive Investment Decisions

. Economics are more challenged today in many areas AREA TYPESingle CURVE Well Single ECONOMICS Well Single Well . However, economics are influenced by more IRRs (@ IRRs (@ IRRs (@ than just commodity price $50/$3.00) - $50/$3.00) - $70/$4.00) - . Service costs coming down (20 – 30%) – varies Primary Focus 100% 75% 85% by area but will reset the economics in each play Area(s) Capex Capex Capex . Potential opportunity to pick up good leases Utica 10% 27% 55% . Quality reserves with sound economics that Marcellus 10% 19% 52% will improve with lower costs . Ability to negotiate improved lease terms Ft. Worth Basin 17% 38% 76% due to less competition STACK 14% 37% 73% . May not drill economic opportunities at $50/oil if not under any time pressure Midland Basin 8% 18% 34% . Top quartile areas are the least impacted by CBP 8% 20% 43% price reduction and first areas to regain activity (ie will continue to be the areas of interest in normalized environment) . Will not bet on an increase in prices to make decisions

Note: Type curves based on individual EnCap portfolio companies. Not representative of entire areas. 25

Building an O&G Company with Private Equity How do you Make Money in this Business? About more than buying low and selling high… . Quality Assets

. Drilling success

. Reserve category shifting

. Premium for size

. Public/private market arbitrage

. “Stars align”

. Being someone’s “strategic acquisition”

. Running room . Captured sufficient land & drilling opportunities . Repeatability of proven concept

27 What makes a Quality Asset? Hard to generalize, but… . Operated – control your destiny

. High value/production per wellbore

. Long life

. Abundance of upside opportunities . Multiple pay horizons, infill drilling, field extensions…

. High margin . Low transportation costs/differentials (infrastructure) . High btu gas/sweet crude . High net revenue interest (NRI)

. Bottom line: is someone else going to want to buy it from you?

28 Managing Risk is Key to Money Making Proposition

. Limit downside risk through: . Prudent hedging of producing assets . Prudent use of bank leverage . Having excess capital available for company to access

. Asset and project diversification

. Monitor performance results . Drilling look-backs . Budget vs. actual

. Advance capital incrementally as proof of concept materializes and/or attractive opportunities present themselves

29 Managing Risk (cont.)

. Disciplined approach to hydrocarbon pricing

. “Engineerable” reserve value underpinning invested capital

. Structure/governance . Substantial influence via governance, covenants . In the event of underperformance, have the ability to step in and “right the ship”

. Sweep chips when the timing is right . “Don’t ruin a good PUD by drilling it”

30 Managing for an Exit

. As you approach timing for an exit… . Increasing production . Maximizing offset locations/category shifting . Identify as much upside as possible . Some smaller bolt on acquisitions & asset rationalization

. Pay attention to capital markets; unique exit opportunities may present themselves

. However, typically sell to larger independents (serial acquirers) . Public E&P companies continue to be rewarded for growth . Can’t drill fast enough to replace, much less grow, reserves and production . Plus, rising F&D costs make acquisition economics more compelling . Large public E&P companies driving M&A market; virtually nothing below their radar screen

31 When to Sell

. Monitor A&D market in the play for attractive exit opportunity: . Exiting is more of an art form than science as timing is everything…

32 E&P Food Chain

Well Private Small Mid Large Owners Operators Caps Caps Independents Majors

33 What does PE look for in a Management Team?

. Honesty, integrity and forthrightness

. Strong technical and operational backgrounds

. Track record of value creation – i.e. “Proven Moneymakers”

. Well-defined business plan with viable, creative value creation strategies consistent with experience

. Adaptability

. Shared view of risk management

. Receptive to “partnership” relationship

. Entrepreneurial mindset

34 What do Teams look for in a PE Provider?

Economic Considerations: . Terms . Capital available (size of provider) . Required management contribution (skin in the game)

Relationship Considerations: . Cultural “fit” . Track record / reputation . Understanding of the industry (seen both up and down cycles)

. How did they respond over the last 18 months? . Source of deal flow

35 How do Management Teams Make Money?

. EnCap generally contributes 95%+ of equity capital

. Multi-tiered back-in arrangement positions management to earn a blended ~20%+ of total equity proceeds

. Capital structure incorporates senior bank debt in addition to private equity

. Since 2008, EnCap has sold 42 companies resulting in over $4.0 billion of distributed wealth to our management teams

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37 E. Murphy Markham IV Managing Partner EnCap Investments L.P.

3811 Turtle Creek Blvd., Suite 1000 Dallas, Texas 75219 (214) 599-0800 www.encapinvestments.com

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