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Energy Investment Energy Lender Price Survey

Research
Q1/09 Overview

We are pleased to present Tristone Capital’s Quarterly Energy Lender Price Survey, a
commodity pricing poll of energy reserve-based lenders. Our survey of energy
lenders’ price forecasts covers a broad spectrum of regional, U.S. national and
international banks that engage in energy reserve-based lending. The data provided
for the Q1/09 Survey indicates that the banks are swiftly adjusting their price
forecasts as prices have declined.

This quarter’s survey includes 46 Participating Banks.

Base Case Results

For 2009, the Q1/09 Survey indicates an average Base Case WTI oil price forecast of
$46.61/Bbl and an average Base Case Henry Hub gas price forecast of $5.39/MMBtu.
The five-year trend shows an increasing forward price deck for both oil and gas, with
average 2013 oil and gas price forecasts of $57.64/Bbl and $5.97/MMBtu,
respectively. Modest escalation of both oil and gas prices after 2013 is common, but
prices are capped at an average of $59.13/Bbl and $6.08/MMBtu, respectively. The
average discount rate used by Participating Banks is 9%. Operating costs on average
are escalated 0.5% per year.

1st Quarter 2009 Price Survey: Mean of 46 Participating Banks – Base Case

Oil ($/Bbl) - WTI Gas ($/MMBtu) - Henry Hub


2009 46.61 5.39

2010 51.76 5.71

2011 55.23 5.91

2012 56.93 5.95

2013 57.64 5.97

2014+ 0.4% 0.3%

Cap 59.13 6.08

LOE Esc 0.5% 0.5%

Discount Rate 9% 9%

Please see the back page


for important disclosure
information

All prices in US$ unless otherwise stated


Energy Lender Price Survey – Q1/09

This quarter’s results represent a 34% and 21% decrease from Q4/08 front-year oil and gas prices,
respectively, as well as a shift from backwardation to contango on both the oil and gas price forecasts.

Decline in Front-Year Pricing from Q4/08 – WTI Crude Oil ($/Bbl)

$80.00

$70.00
( $ /Bbl)

$60.00
-34% -24% -14% -8% -7%

$50.00
Q4/08 WTI Base Case Results
Q1/09 WTI Base Case Results
$40.00
2009 2010 2011 2012 2013

Decline in Front-Year Pricing from Q4/08 – HH Gas ($/MMBtu)

$7.50

$7.00

$6.50
($ /MMBtu)

-21% -14% -8% -6% -5%


$6.00

$5.50
Q4/08 HH Base Case Results
$5.00 Q1/09 HH Base Case Results

$4.50
2009 2010 2011 2012 2013

Tristone Capital LLC 2 January 30, 2009


Energy Lender Price Survey – Q1/09

Current Oil Pricing – Base Case ($/Bbl)

$20 $40 $60 $80 $100


2008

2009
$35.00 $46.61 $65.00

2010

$40.00 $51.76 $65.00

2011
$45.00 $55.23 $70.00

2012
$45.00 $56.93 $70.00

High
2013
Mean
$45.00 $57.64 $70.00
Low

Current Gas Pricing – Base Case ($/MMBtu)

$2.00 $4.00 $6.00 $8.00 $10.00


2008

2009
$4.00 $5.39 $6.50

2010
$4.50 $5.71 $7.13

2011

$5.00 $5.91 $7.34

2012
$5.00 $5.95 $7.50

High
2013
Mean
$5.00 $5.97 $7.50
Low

Using a 60/40 blended gas/oil weighting, we compared the average Base Case against NYMEX futures
pricing as of January 28, 2009, as shown on the next page. When compared with NYMEX futures pricing,
the average Base Case results were 100% of NYMEX futures in 2009, gradually trending downward to
83% by 2013. Thus, banks appear to be using an outlook that is much more conservative than what we
observe in the market.

Tristone Capital LLC 3 January 30, 2009


Energy Lender Price Survey – Q1/09

Base Case Q1/09 vs. NYMEX as of January 28, 2009 - Blended (Gas:Oil = 60:40)

$9.50
$9.00
$8.50
$/MMBtu (Blended)

$8.00
$7.50
$7.00
$6.50
$6.00
$5.50
$5.00
2009 2010 2011 2012 2013
Base Case (Mean) 1Q/09 NYMEX Futures

Quarter-to-Quarter Trends

Compared to last quarter’s Survey, the front-year pricing for oil and gas prices has decreased by 34% and
21%, respectively. The amount of price decrease is much lower in the later years as forecasts for oil prices
in 2013 decrease by 7% and gas prices decrease by 5% versus last quarter’s survey.

Quarter-over-Quarter Pricing Trends – Base Case

Oil ($/Bbl) - WTI Gas ($/MMBtu) - Henry Hub


% Increase/ % Increase/
Q4/08* Q1/09** Q4/08* Q1/09**
(Decrease) (Decrease)
2009 70.39 46.61 -34% 6.81 5.39 -21%

2010 68.10 51.76 -24% 6.61 5.71 -14%

2011 64.51 55.23 -14% 6.44 5.91 -8%

2012 61.99 56.93 -8% 6.30 5.95 -6%

2013 61.98 57.64 -7% 6.27 5.97 -5%

2014+ 0.4% 0.4% nmf 0.2% 0.3% nmf

Cap 62.98 59.13 -6% 6.06 6.08 0%


*48 Participating Banks
**46 Participating Banks

Tristone Capital LLC 4 January 30, 2009


Energy Lender Price Survey – Q1/09

Since starting the Tristone Capital Energy Lender Price Survey in Q2/05, the Participating Banks’ oil and
gas price decks have continually increased in the extended years from the previous quarter’s results. With
Q4/08 being the first exception to this trend, Q1/09 decks continue to decrease from last quarter’s results.

Quarter-to-Quarter Base Case Pricing Trends - Blended (Gas:Oil = 60:40)

$10.00

$9.00
$/MMBtu (Blended)

$8.00

$7.00

$6.00

$5.00

$4.00
2006 2007 2008 2009 2010 2011 2012 2013
Q2/05 Q2/06 Q2/07 Q1/08

Q2/08 Q3/08 Q4/08 Q1/09

Sensitivity Case Results

The Q1/09 Survey also includes a Sensitivity Case, which represents the lenders’ low or conservative
price decks. Of the 46 Participating Banks, 37 banks provided a Sensitivity Case, which averaged an 18%
discount to Base Case lending policies for both oil and gas for 2009.

1st Quarter 2009 Price Survey: Mean of 37 Participating Banks – Sensitivity Case

Oil ($/Bbl) - WTI Gas ($/MMBtu) - Henry Hub


2008 38.29 4.41
2009 42.43 4.65
2010 45.17 4.81
2011 46.31 4.85
2012 46.78 4.88
2013+ 0.6% 0.5%
Cap 47.79 4.95
LOE Esc 0.4% 0.4%
Discount Rate 9% 9%

Tristone Capital LLC 5 January 30, 2009


Energy Lender Price Survey – Q1/09

Current Oil Pricing – Sensitivity Case ($/Bbl)

$20.00 $40.00 $60.00 $80.00


2008

2009

$30.00 $38.29 $55.00

2010

$30.00 $42.43 $65.00

2011
$30.00 $45.17 $65.00

2012
$30.00 $46.31 $65.00

2013 High
$30.00 $46.78 $65.00 Mean
Low

Current Gas Pricing – Sensitivity Case ($/MMBtu)

$2 $3 $4 $5 $6 $7 $8
2008

2009

$3.25 $4.41 $6.05

2010

$3.50 $4.65 $6.50

2011

$3.75 $4.81 $6.50

2012

$3.75 $4.85 $6.50

Low
2013
Mean
$3.75 $4.88 $6.50
High

Tristone Capital LLC 6 January 30, 2009


Energy Lender Price Survey – Q1/09

Historical Forward Strip Pricing

Over the last 48 months, volatile fluctuations in oil and gas prices and NYMEX futures contracts have
resulted in large changes in the Energy Lenders’ price expectations. The following graphs represent
yearly averages for both oil and gas NYMEX futures prices. As shown below, prices for both oil and gas
have varied drastically, especially within the last four quarters.

Historical Forward Strip - Oil

$110.00

$100.00

$90.00
Jan-08
Oct-08
$80.00
Jun-07
$/Bbl

$70.00
Jan-07 Jan-09

$60.00
Jan-06

$50.00

$40.00
Jan-05
$30.00
2006 2007 2008 2009 2010 2011 2012
Source: w w w .nymex.com

Historical Forward Strip - Gas

$11.00

$10.00

$9.00
Jan-08
$8.00 Jun-07
Oct-08
Jan-06
Jan-09
$/MMBtu

$7.00
Jan-07
$6.00

$5.00
Jan-05
$4.00

$3.00

$2.00
2006 2007 2008 2009 2010 2011 2012
Source: w w w .nymex.com

Tristone Capital LLC 7 January 30, 2009


Energy Lender Price Survey – Q1/09

Reserve Based Lending Scenario

In order to show the impact of year-to-year changes in the Base Case price decks on Advance Rate
amounts, we analyzed a discounted cash flow model for a U.S. onshore property acquisition using general
assumptions. The objective is to calculate the change in the Advance Rate amounts (i.e. lending funds)
using a typical acquisition project. The following assumptions were utilized in the model:

Purchase Price: $100 MM


Proved Reserves: 7 MMBoe (75% PDP, 2% PDNP, 13% PUD, 10% PROB)
Percent Oil: 60%
R/P: 13 years
Acquisition IRR: 11%
Percent Hedged: 80% of PDP through 2013 @ 1/28/2009 NYMEX Pricing

Using the assumptions above, the Base Case price decks from the Q1/09 survey were used to calculate a
discounted cash flow (using PV9 from bank average). With a 60% Advance Rate and 20% upside
limitation, the amount loaned to a possible acquirer would be ~$54 MM.

Lending Scenario – Q1/2009 Price Deck

Lending Amount
($M)

PDP $77,396 Advance Rate


PDNP 1,121 Amount ($M) (60%)
PUD 11,789
Total $90,306 $54,183

Using the same assumptions, but using the Base Case price decks from Q4/08, the amount loaned to a
possible acquirer would be ~$59 MM. The decrease in Base Case pricing from Q4/08 to Q1/09 results in a
9% decrease in Advance Rate amounts.

Lending Scenario – Q4/2008 Price Deck


Lending Amount
($M)

PDP $83,348 Advance Rate


PDNP 1,332 Amount ($M) (60%)
PUD 14,006
Total $98,686 $59,212

Tristone Capital LLC 8 January 30, 2009


Energy Lender Price Survey – Q1/09

Participating Banks

Allied Irish Bank Frost Bank

Amegy Bank Guaranty Bank

American National Bank ING Capital LLC

BancFirst Key Bank NA

Bank of Scotland Macquarie Bank

Bank of Texas Mizuho Corporate Bank

Bank of the West RBC Capital Markets

BMO Financial Group Regions Bank

BNP Paribas Société Générale

Calyon - Americas Standard Bank

Canadian Western Bank Sterling Bank

Capital One Bank Sumitomo Mitsui Banking Corp

CIT Energy TD Securities

Citibank, N.A. Texas Capital Bank

Comerica Bank The Royal Bank of Scotland

Commonwealth Bank of Australia Unicredit Group

Community National Bank Union Bank of California

Compass Bank US Bank

Coppermark Bank Wachovia Securities

DNB NOR Wells Fargo

DZ Bank West Texas National Bank

First Interstate Bank Western National Bank

First National Bank of Midland Whitney Bank

Tristone Capital LLC 9 January 30, 2009


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Tristone Capital S.A. Ltd.
Alejandro M. de Aguado 2853, P.B. “B”
C1425CEA Buenos Aires, Argentina
Tel 54 11 4809 3223
Fax 54 11 4808 9114

Chairman, President & CEO Direct US Sales Direct


George F.J. Gosbee 403-303-8652 Tyler Davis 203-637-9397
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Tristone Capital Inc. This report was prepared by Tristone Capital Inc. and is being distributed in Canada by Tristone Capital Inc.,
the United States by Tristone Capital Co. and Tristone Capital (USA) Inc. and in the European Economic Area by Tristone Capital
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Although the information contained in this report has been obtained from sources that Tristone Capital Inc (“Tristone”) and / or its
affiliates believes to be reliable, we do not guarantee its accuracy, and as such, the information may be incomplete or condensed.
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securities mentioned herein as principal or agent. Accordingly, this report is not being held out as impartial research.
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are subject to change without notice. The information contained herein is for information purposes only and is not
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