resolute natural resources january 18, 2007 houston, texas

ResoluteNatural Resources

January 18, 2007Houston, Texas

Resolute Natural Resources

Company Overview


3

Company Overview: Formation

An acquisition, exploitation and exploration company formed by Resolute’s management team and Natural Gas Partners VII, L.P. (“NGP”) in January, 2004.

The management team consists of the key individuals who led HS Resources, Inc., including Nick Sutton who was the CEO and a co-founder of HS Resources.

NGP is part of NGP Energy Capital Management, the premier investment franchise in the energy sector with $3.65 billion of

investment capital under management.


4

Company Overview: Resolute Strategy

Focus on domestic onshore basins where we have the opportunity to extract incremental production from mature fields.

Exploit the management team’s proven track record in managing operationally intensive projects.

Establish significant regional positions to capture the economies of scale that accrue to the dominant producer.

Create value by applying leading-edge technologies.


5

Company Overview: Primary Areas of Activity

Development & Exploitation: Operator of three federal units which comprise the Greater Aneth Field in the

Paradox Basin of Southeastern Utah. Assets acquired from Chevron and ExxonMobil. Net proved reserves of 67 million barrels, 98% light sweet crude oil. Net production of approximately 5,500 barrels per day.

Exploration: In excess of 108,000 acres in two emerging resource plays. 47,000 acres targeting Floyd Shale in the Black Warrior Basin in Alabama. 61,000 acres targeting a shale formation in the Northern Rockies.

Gas Trading & Marketing: Own 40% of Odyssey Energy Services. Odyssey purchases and sells physical natural gas in the western and

southwestern United States. Resolute’s partner in Odyssey is Wachovia.


Greater Aneth Field


7

Greater Aneth Field: Acquisitions Acquired in two separate transactions

Chevron assets acquired in November, 2004. ExxonMobil assets acquired in April, 2006.

Resolute partnered with the Navajo Nation Oil and Gas Company NNOG is an energy company wholly-owned by the Navajo Nation. Greater Aneth Field is primarily located on Navajo tribal land. NNOG purchased a non-operated interest in the assets.

Reserves and production (at acquisition) Chevron: net proved reserves of 17.2 MMBoe and average net daily

production of approximately 1,900 Boe per day. ExxonMobil: net proved reserves of 34.5 MMBoe and average net daily

production of approximately 3,200 Boe per day.


8

Greater Aneth Field: History Located in the Paradox Basin of

southeastern Utah.

Discovered in 1956 and developed by Texaco, Mobil and Conoco.

Original oil in place estimated at 1.44 billion barrels with 405 million barrels produced to date (28.1% recovery).

Production is 98% oil; primarily from the Desert Creek at 5,600 ft.

Production peaked at 100,000 barrels per day in 1958 and is now approximately 10,000 barrels per day.


9

Greater Aneth Field: Attractive Attributes

Large resource base: Remaining gross proved reserves of 124 million barrels brings total

recovery to 36.7%. Each incremental 1% increase in recovery efficiency equates to an

incremental 8 million barrels net to Resolute. Long term option on technology and oil prices.

Under-exploited asset: Resolute’s Greater Aneth properties have been controlled by major oil

companies since discovery. Resolute is the first independent to control operations in the field. The major oil companies had severely curtailed investment of human

and financial capital in the field. Property plays to Resolute’s strengths:

Mature, technology starved, operationally intensive asset plays to skills developed by Resolute personnel in long operating history in other mature areas such as the D-J Basin.


10

Operational enhancements: Conforming producing and injecting zones. Returning shut-in or temporarily abandoned wells to production or injection. Injector well cleanouts to increase injection capacity. Right-sizing pumps to decrease back pressure on reservoir.

Horizontal infill drilling: 40 acre infill locations utilizing horizontal laterals from existing well bores. More than 80 identified locations, net proved reserves of 6.2 million barrels. Target rates of return exceed 50%.

Aneth CO2 flood:

Implement a CO2 flood project for the Aneth Unit. Expected to add gross proved reserves of 13 MMBoe. Target rate of return in excess of 40%.

Greater Aneth Field: Adding Value at Aneth


Managing Leverage in a Volatile Commodity Price Environment


12

Managing Leverage:

As with most aspects of management, there are competing schools of thought when it comes to the proper amount of leverage in an energy company.


13

Managing Leverage:A conservative view of financial management

“Neither a borrower nor a lender be, do not forget, stay out of debt …” Polonius (aka the Skipper)


14

Managing Leverage:A more contemporary view of financial management

“[Leverage] is good, [leverage] is right, [leverage] works..” Gordon Gecko – legendary energy banker


15

Managing Leverage:Recent Experience

E&P Company Leverage

1.8x2.0x

1.6x 1.6x

.9x 1.0x

.0x

.5x

1.0x

1.5x

2.0x

2.5x

2001 2002 2003 2004 2005 2006

Year

Debt/

FW

D E

BIT

DA

2002 2006 % Change

Net Debt ($MM) $42,264 $71,997 70%

LTM EBITDA ($MM) $18,087 $62,818 247%Market Value of Equity ($MM) $77,232 $269,564 249%SEC Pre Tax PV10 ($MM) $84,844 $380,472 348%Proved Reserves (Bcfe) 105,318 128,982 22%Production (Bcfe) 8,923 10,498 18%

Net Debt/LTM EBITDA 2.3 1.1Net Debt/ SEC PV 10 50% 19%Net Debt/Bcfe $0.40 $0.56


16

Managing Leverage: Keys to Managing Leverage

Leverage can be differentiating factor in competitive acquisition market.

Decisions on appropriate leverage should be holistic: Make sure assets are

“leverage-friendly” Diversify your funding sources Manage commodity price risk

using the right mix of tools

Getting it wrong can lead to an early exit in a volatile market.

Leverage Friendly Assets

Other

Price RiskManagement

Capitalization


17

Managing Leverage: What are “leverage-friendly” assets?

Long life, stable decline profile: Sweet spot – not too short or too long Sufficient history to make capital providers comfortable

Bias toward PDP reserves: PDP reserves produce cash flow Balance upside vs. ability to leverage

“Hedgeable” commodity: Certain commodities introduce hedging complications Predictable, manageable or hedgeable basis differentials

Favorable cost structure: Cash flow from production sufficient to fund development costs

and also reduce leverage


18

Managing Leverage: Capitalization

Diversify your funding sources: Sources of debt capital for energy companies has expanded dramatically. Markets are very aggressive – “Yield cures a lot of sins”.

Senior bank debt: Cheaper and more flexible – also most conservative. Traditional bank borrowing base is a form of price risk exposure.

Second lien loans: Greater tolerance for leverage than bank market. Focus on strip prices as opposed to internal price deck. No re-determinations or amortization. Higher cost of capital – more difficult to amend.

Other sources: Private placements High yield bond market Private mezzanine providers


19

Managing Leverage: Price Risk Management We don’t subscribe to theory that investors desire price risk exposure

Investors seek a superior return on capital relative to the risk Return is driven by increasing per share production and reserves Tail and undeveloped reserves will always provide some element of price

exposure

The “right” level of price risk mitigation depends on the assets and the capital structure

Match the right price risk management tool to the need

Hedging is not a one time event Monitor your hedge position relative to assets and market conditions Be careful to avoid “day trader” syndrome


20

Managing Leverage: The Resolute Experience

The Aneth assets fit the leverage-friendly profile Predominantly PDP assets when acquired Long operating history with stable, predictable decline Production is light sweet crude oil sold at a contractual differential to

NYMEX Assets were acquired using roughly 15% equity and 85% debt

Traditional bank revolver $125 million second lien facility placed with institutional investors

75% - 90% of PDP production is hedged through 2010 Downside protection ranges from low $60’s/barrel in 2007 to $70/barrel

in 2009 and 2010. Utilizing a mix of swaps, puts, and put spreads

Significant price risk mitigation purchased prior to closing on each transaction

resolute natural resources january 18, 2007 houston, texas

Documents

net production

energy company

texas slide

natural gas partners

physical natural gas

exploration company

resolute strategy focus

gas company nnog