blue rock energy capital at spe dallas 2-10-10

8/3/2019 Blue Rock Energy Capital at SPE Dallas 2-10-10

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February 10, 2010February 10, 2010


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II m a digital explorerm a digital explorer

stuck in analog roamstuck in analog roam

--Jimmy Buffett,Jimmy Buffett, EverybodyEverybodys On The Phones On The Phone


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EveryoneEveryones connecteds connected

but all alonebut all alone..

--Jimmy Buffett,Jimmy Buffett, EverybodyEverybodys On The Phones On The Phone

Thanks for supporting SPE Local Section MeetingsThanks for supporting SPE Local Section Meetings


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WHO WE ARE

The BlueRock partners have been investing together since 1993.

Tenneco Ventures Start-Up 1993-1996

Domain Energy IPO 1996-1998

Range Resources Merger 1998-2002

BlackRock Energy Capital Start-Up 2002-2007

BlueRock Energy Capital Name Change 2007

BlueRock Energy Capital II Start-Up June 2009


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WHO WE ARE

Cathy Sliva

Dave Stevens

Allen Shook

Scott Abel

Lucynda Herrin

Petroleum Engineer

Geologist / MBA

Petroleum Engineer / MBA

Petroleum Engineer

CPA

Texas A&M

LSU / U of H

UT / U of H

Texas A&M

Florida State

Over the past 17 years, BlueRock and its predecessors have completed

over 300 transactions for more than $300 million.


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R

I

S

K

R E W A R D

Proved

Producing

Portion

ofReserveBase

100%

0%

PrimeRate

(L+2%)

LowTeens

25%+

Banks/SeniorDebt

Mez

zanine

Private Equityand

Industry

FINAN

CE/INVE

ST


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MEZZANINE FINANCING

Websters Definition:

Mezzanine - French word meaning middle

- an intermediate story that projects in the form of balcony

Industry Definition:

Mezzanine -Anything Between Bank Debt and Equity

- VPPs, FPPs, stretch loans, project loans, etc.


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MEZZANINE REQUIREMENTS

PDPs as base collateral Lots of upside

Experienced/focused management

Back office expertise

Well defined project

Internal and 3rd party engineering

Hydrocarbons hedged

Audited financials Monthly reporting

Performance covenants


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MEZZANINE FINANCING TYPICAL DEAL STRUCTURE

Senior secured, non-recourse loan with coupon rate ranging from 10% to 13

Equity kicker in the form of an ORRI (4% to 5%) and an NPI ranging from

10% to 50%, or warrants

Rate of Return criteria (10% - 25%)

Generally $10 million and above

Limited or non-recourse

Acquisitions, Development, Monetizations, Re-Capitalization


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MEZZANINE LENDERS

BlueRock

GasRock

Macquarie

NGP Capital

PetroBridge

TCW

Wells Fargo


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WHERE INDEPENDENTS GET THEIR START


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WHAT WE DO

CAPITAL Reserve based investments,up to $5 million per initial project

PURPOSE Acquisitions, Development,Monetizations

STRUCTURE Financial Production Payment,(limited term ORRI)

LOCATION Anywhere in the U.S.A.


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DEAL STRUCTURE

VEHICLE Term ORRI equal to 85%-90%of net cash flow

TERMINATION At specified rate of return

EQUITY KICKER 1%-3% permanent ORRI

RATE OF RETURN 15%-20% (without perm. ORRI)

LENGTH up to 6 years

OPERATIONS producer maintains


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0

20

40

60

80

100

120

0 2 4 6 8 10 12

Year

DEAL EXAMPLE, EFFECTS OF PRICE / PRODUCTION CHANGES

Lease Operating Expenses

Royalties

BlueRockOwnership

Owner Profit

Production increase

10 yr. PV0 = Max.

Advance Rate


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DEAL MATH (example)

ASSUMPTIONS: 150 bopd$50 oil$65,000 per month LOE100% WI, 80% NRISeverance Tax = 4.6%30.4 days per month

1. (150 bopd x 30.4 x $50 x 80% x 95.4%) = $174,010 monthly revenue

2. ($65,000 LOE / $174,010 revenue) = 37% of revenue

3. 37% + 10% cushion = 47% of 80% NRI = 38% NRI to Producer

4. 53% of 80% NRI = 42% ORRI to BlueRock


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ADVANTAGES AND DIFFERENTIATION

More capital than a bank (risking, price decks) Non-Recourse no personal or corporate guarantees Producer retains upside Small deal size (up to $5 million)

No 3rd party engineering required Hedging not required Minimal closing costs, no hidden fees Simple deal structure and documentation

Were E&P professionals who understand your business


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THE IDEAL CUSTOMER

Experienced Operator

Specific Focus

Area, Trend, Niche

Administrative expertise, processes

Uncomplicated Corporate structure

Integrity


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INFORMATION REQUIREMENTS

Letter of Intent if acquisition (a deal in hand) Property and deal description, The Story Internal engineering/economic evaluation of properties Use of proceeds

Production history, decline curves, state reports Purchase statements, prior 12 months Lease Operating Expense history, prior 24 months Company financial statements

Resumes and References


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True StartTrue Start--Ups a problem, unless all overheadUps a problem, unless all overheadcovered from other sourcescovered from other sources

New PartnersNew Partnersgood and badgood and bad

Financing into a New AreaFinancing into a New Areajust another layerjust another layerof risk, and already plenty of risk in oil/gasof risk, and already plenty of risk in oil/gasfinancingfinancing


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CAsCAs,, NDAsNDAs at first meeting a big turnat first meeting a big turn--offoff extraordinaryextraordinaryopportunityopportunity yea right (should not be in engineeryea right (should not be in engineerss vocabvocab))

Initial Package can be short and simple, but needs to reflectInitial Package can be short and simple, but needs to reflectunderstanding and respectful of lenderunderstanding and respectful of lenders needs (sees needs (seeextraordinaryextraordinary above)above)

Always have internal engineering with historical and projectedAlways have internal engineering with historical and projectedcashflowscashflows ready, solid backup data in userready, solid backup data in user--friendly formatfriendly format


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Focus on current production (PDP) FIRST, THEN UpsideFocus on current production (PDP) FIRST, THEN Upside

Use brokers/agents, Inv. Bankers, etc. cautiouslyUse brokers/agents, Inv. Bankers, etc. cautiouslyeducateeducateand then trust yourselfand then trust yourself

Understand how NPV, IRR is calculatedUnderstand how NPV, IRR is calculated

Use a range of price decks, ridiculously high is ok, as long asUse a range of price decks, ridiculously high is ok, as long asalso have a ridiculously low and midalso have a ridiculously low and mid--range deckrange deck


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Finance guys are really smart too (seeFinance guys are really smart too (see

extraordinaryextraordinary above), most in our business have aabove), most in our business have a

technical background, or have been intechnical background, or have been in o/go/g longlongenough to understand basic engineering and geologyenough to understand basic engineering and geology

most are also friendly, helpful, and understanding,most are also friendly, helpful, and understanding,

butbut..

Trend towardTrend toward Nervous NedNervous Ned and notand not Proud PeteProud Pete

confident but cautiousconfident but cautious


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..NEVER EVER go to a meeting at with a..NEVER EVER go to a meeting at with a

finance shop, bank, mezzanine lender etcfinance shop, bank, mezzanine lender etc

WITHOUT :WITHOUT :


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BLUEROCK CONTACTS

Cathy Dave Scott Allen

Sliva Stevens Abel Shook

Phone 281-376-0111, ext. 303

www.bluerockenergycapital.com

20445 State Highway 249Three Chasewood Park, Suite 160

Houston, TX 77070
http://uerockenergycapi/http://www.bl/

blue rock energy capital at spe dallas 2-10-10

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