1

TRENDS IN ENERGY LENDING

7 August 2008

2

3

FIRST QUARTER 2008 BANK INDUSTRY PERFORMANCE

• Deteriorating real estate portfolios – loan loss provisions 4 times 1st quarter 2007

• Shrinking profits - especially largest banks• Lower non-interest revenues: trading and loan sales• Charge-offs climbed to a five-year high• Past due loans increased 24% from 4th quarter 2007• Of banks that paid dividends, half were lowered

4

REPERCUSSIONS

• Banks’ underwriting standards have tightened– Reasons: market liquidity/capital pressure,

economic outlook, risk appetite, loan performance and the financial condition of some banks.

– The impact of this tightening is seen in loan pricing, covenants, collateral, guarantor requirements, and equity requirements.

– Standards that have eased…..maturity and amortization.

5

INDICATIONS OF STRESS

• Stock price of top 20 energy banks –

DOWN 29% LTM (vs. 9% down for DJA)

• Cost of external debt capital for banks – LIBOR + 300 bps (more for troubled banks)

6

ENERGY SEGMENT – STILL DESIRABLE

Estimated Energy Loan Commitments - Largest Energy Banks

Bank 12/31/06 12/31/07

Citigroup $25 B $31 B

Bank of America $19 B $24 B

JP Morgan Chase $18 B $26 B

BNP Paribas* $ 8 B $14 B

Wachovia $ 6 B $ 7 B

• Includes impact of currency fluctuation

7

IMPACT OF ENERGY PRICES

• Positive: Lender price decks are climbing – Median prices for oil and gas*

• 2008: $70.00/$7.00• 2009: $67.75/$6.75• 2010: $61.25/$6.50• 2011: $60.00/$6.25• 2012: $60.00/$6.15

• Negative: Calculated exposure for commodity hedges has ballooned due to price volatility - exacerbates capital allocation issues.

* Tristone Capital, Inc. Energy Lender Price Survey, Q3/08

8

IMPACT OF BANKS’ STRESS ON ENERGY CLIENTS

• Certain formerly stout players in the lending market have scaled back both lending and hedging

• Very active secondary senior loan market• Push-back on stretch deals due to capital allocation issues• Lower hold limits on loans• Failed syndications• Fewer transactions fully underwritten • Structures becoming more conventional• Interest margin up +/- 25 bps; up-front fees higher

9

OTHER…..

• Impact of new entrants in energy lending market uncertain.

• Semgroup bankruptcy – bad timing.

10

OPPORTUNITIES

• For well-capitalized banks……get your phone calls returned.

• Improve position in credits at attractive prices.

• Enhanced cross-sell opportunities.

• Banks with hedging capacity desired.

• Rewards for stepping up: sharing of bond economics and equity issuance fees.

11

FUTURE

• Some old names will exit/merge/go away.

• Competition will be somewhat abated.

• More banks per credit facility.

12

QUESTIONS

• Will banks’ capital crunch slow down oil and gas acquisitions?

• Where does it end?

• Who will be left?

13