MOGA/IPAACapital Markets UpdatePrivate Equity Overview

May 18, 2006

2 EnCap Investments L.P.

University of Texas – 2006 NCAA Champs

3 EnCap Investments L.P.

EnCap Investments L.P.

Privately negotiated equity capital utilized as an alternative to traditional financing sources

Primarily focused on corporate issuers (typically private)

Frequently structured as preferred or common stock or some combination thereof

Seeks an annual rate of return of 25% or greater Function of the relative risk profile of the Issuer

Three to five year investment cycle

Illiquid

Private Equity Overview

4 EnCap Investments L.P.

EnCap Investments L.P.Risk Spectrum

Private Equity

6% - 8% Target IRR 25%+ 50%+

BankLoan

WildcatFunding

Engineering Risk Geological & Geophysical RiskPDPReserves

ProvedReserves

Exploration

Mezzanine

Bank Debt

5 EnCap Investments L.P.

EnCap Investments L.P.

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

When is Private Equity Used

6 EnCap Investments L.P.

EnCap Investments L.P.

Private Equity is a form of risk capital that is 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

Flexibility in structuring an investment vs. inflexibility and fickleness of public equity and debt capital markets

Private equity providers remain hungry for deal flow

Private Equity Benefits

7 EnCap Investments L.P.

EnCap Investments L.P.

Dramatic increase in institutional appetite in oil and gas

Pool of private equity for oil and gas has expanded significantly – more players, larger funds

However, traditional players have been cautious; pace of investment relatively slow

Most of the deals being done today are start-ups; therefore, substantially about people

Current Private Equity Trends and Observations

8 EnCap Investments L.P.

EnCap Investments L.P.

First Reserve * (Houston; $1.5MM)

Quantum (Houston; $345MM)

Energy Trust Partners (Dallas; $300MM)

Yorktown * (NYC; $585MM)

Warburg Pincus * (NYC; $500MM)

GreenHill Capital * (NYC; $350MM)

EnCap Investments (Houston; $1.5B)

Avista Capital * (Houston; $750MM)

Natural Gas Partners (Dallas; $1.3B)

Kayne Anderson (Houston; $550MM)

Lime Rock Partners * (Houston; $525MM)

Riverstone Holdings * (NYC; $1.3B)

Active Private Equity Providers to the E&P Industry

* * Denotes large energy focused fund; amount listed is estimated portion designated for E&P

9 EnCap Investments L.P.

Lots of “re-cycles” with existing management teams (on the heels of successful exits)

Trend toward larger up-front commitments, particularly with “re-cycles” and proven money-makers

All seeking opportunities to back established money-makers, but open-minded to “un-proven” teams with solid experience and good ideas

With abundance of capital and increased competition for investment opportunities, entry into business never been easier

Current Private Equity Trends and Observations

EnCap Investments L.P.

10 EnCap Investments L.P.

EnCap Investments L.P.

Greater competition amongst private equity providers resulted in more favorable deal terms

Shift to more common rather than preferred

Still structured with APO promote

Somewhat lower return hurdles to trigger back-in

Bigger slice of the pie to management team if “hit a homerun”

Current Private Equity Trends and Observations

11 EnCap Investments L.P.

EnCap Investments L.P.

Historically, preponderance of private equity invested in companies with acquire and exploit growth and value creation strategies

Shift to more drilling-oriented investments due to over-heated state of M&A market and ferocious competition from public E&P companies

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

Current Private Equity Trends and Observations

12 EnCap Investments L.P.

EnCap Investments L.P.

Private Equity14%

Public 81%

Private 5%

Acquirers of Private Equity Backed Companies

Public companies acquired 81% of the private equity-backed companies in the A&D market over the last two years, while private companies and private equity purchased the balance.

Buyer Number of Total

Category Transactions Volume ($MM)

Public 51 $16,019

Private Equity 9 1,545

Private Co. 3 160

Total 63 $17,724

Source: Richardson Barr & Co.

13 EnCap Investments L.P.

EnCap Investments L.P.

New twist for private equity – opportunity for portfolio companies to go public

Valuations compelling versus cash sale

Seed capital currently able to sweep chips via sale of secondary shares

Plus, company has access to more aggressive form of capital

Continue to take advantage as long as window stays open

Arbitrage partially achieved historically through strategic sale to public company buyers

Current Private Equity Trends and Observations

14 EnCap Investments L.P.

EnCap Investments L.P.Summary

Expanding pool of private equity capital

Shift from acquire and exploit strategy to resource play strategy

Multiple exit opportunities Most often through the sale to public E&P companies Shorter cycles

Significant returns for management and private equity providers

Opportunity for repeat management teams

15 EnCap Investments L.P.

EnCap Investments L.P.

A leading provider of capital to the independent sector of the U.S. oil and gas industry since 1988

Focus on the upstream and midstream sectors of the oil and gas industry

Manage aggregate capital commitments of approximately $2.5 billion

Provide growth capital to companies with acquire and exploit and/or lower-risk drilling strategies. Avoid pure exploration risk.

Oil and gas industry is cyclical. Cyclicality creates opportunity. EnCap has invested across four or five distinct cycles.

EnCap Overview

16 EnCap Investments L.P.

EnCap Investments L.P.

Partner with seasoned management teams with solid value creation strategies Acquire and exploit Lower-risk drilling Midstream

Invest $20 million to $100 million of equity alongside management

Work with management to build the company into a larger independent’s “strategic acquisition”

Exit when the opportunity presents itself

What We Do

17 EnCap Investments L.P.

EnCap Investments L.P.

Backed 115 different companies/management teams helping them create value for themselves and our institutional investors

Generally have 20-30 portfolio companies at various stages of strategy execution

Geographically dispersed in traditional oil and gas provinces

Predominantly all North America, generally all US with the ability to invest up to 15% internationally

Who do we do business with?

18 EnCap Investments L.P.

EnCap Investments L.P.

Demonstrate a proven ability to create value

Articulate their strategy in a way which makes you feel comfortable about their ability to manage risk

Technically proficient team that gives confidence in their ability to execute their strategy

Sufficient focus in their strategy to improve chances for success

Experienced in the key technologies utilized to successfully execute their strategy

Have an interest in developing a working relationship with their financial partner and in aligning all of our interests

What attributes in a management team do we look for?

19 EnCap Investments L.P.

EnCap Investments L.P.

Terms can be negotiated but generally management can back into 20-25% interest in the Company out of the Private Equity partners’ profits in excess of performance hurdle

Lower performance hurdles equates to lower equity earn-in percentages

Higher performance hurdles equates to higher equity earn-in percentages

Example ($’s in millions)

How do you make money?

Management Investment $5Private Equity Capitalization $50Debt Outstanding at time of sale $50

Sales Proceeds to Management Proceeds to Private EquityProceeds Management ROI Private Equity ROI

$200 $30 6.0 x $120 2.4 x

$300 $62 12.4 x $188 3.8 x

$400 $95 19.0 x $255 5.1 x

20 EnCap Investments L.P.

EnCap Investments L.P.

We end up with about 80% of our management teams signing up to establish a new company with us after a sale

40% of our current management teams are teams we have done business with successfully in the past

We continue to add teams at the rate of 6-8 per year

Our management teams averaged making $35MM per team on the 10 companies sold last year

Are we a good partner?

21 EnCap Investments L.P.

EnCap Investments L.P.

Plantation Petroleum I Assisted the Company in the acquisition of a publicly held company EnCap invested $30 million in common and preferred stock The Company increased production, reduced costs, and later sold to Forest Oil

Company EnCap has since made two additional investments with the Plantation management

team

Laredo Energy I EnCap committed $20 million to this start-up entity with a focus on the Lobo Trend Initial strategy of acquire and exploit but struggled to make acquisitions in the

competitive environment Management and EnCap shifted Laredo to more of a drilling oriented company After the successful sale to Chesapeake, EnCap and Management have partnered an

additional three times in continuance of the drilling strategy

Portfolio Company Examples

EnCap Investments L.P.

Houston Office1100 Louisiana

Suite 3150Houston, Texas 77002

(713) 659-6100

Dallas Office3811 Turtle Creek Blvd

Suite 1080Dallas, Texas 75219

(214) 599-0800