Energy Funds
717 Texas Avenue, Suite 3100 Houston, Texas 77002 Tel 713.493.2000
www.kaynecapital.com
Kayne Anderson
Energy Funds
Resource Plays are Transforming the U.S Oil & Gas Industry
TECHNOLOGICAL ADVANCEMENTS HAVE CHANGED THE GAME
Kayne Anderson
Energy Funds
Kayne Anderson
Energy Funds
1,400
90%
1,200
80%
1,000
70%
60%
800
50%
600
40%
30%
400
20%
200
Horizontal 1
Vertical
Directional
Horizontal 1
Vertical
Directional
Jan-13
Jan-11
Jan-09
Jan-07
Jan-05
Jan-03
Jan-01
Jan-99
Jan-97
Jan-95
Jan-93
Jan-13
Jan-11
Jan-09
Jan-07
Jan-05
Jan-03
Jan-01
Jan-99
Jan-97
Jan-95
Jan-93
0%
Jan-91
Jan-91
10%
The use of horizontal drilling has exploded since 2006 and now accounts for 63% of all drilling activity
4
Kayne Anderson
Energy Funds
100
10
1
0
10
Years
Vertical
Horizontal
Kayne Anderson
Energy Funds
2013 Avg.
(240 Mboe)
BOE/d
2012 Avg.
(195 Mboe)
2011 Avg.
(165 Mboe)
100
10
0
50
100
150
Days
200
250
300
Kayne Anderson
Energy Funds
Source: ITG
Success from horizontal drilling technology in oil weighted resource plays has changed the outlook for
domestic oil production from that of precipitous decline to substantial growth.
7
Kayne Anderson
Energy Funds
Source: ITG
Improved well productivity and associated gas production from liquids rich plays will likely continue to
dilute the supply side impacts from a decline in gas drilling.
8
Kayne Anderson
Energy Funds
Source: ITG
Kayne Anderson
Energy Funds
Unconventional Valuations
Kayne Anderson
Energy Funds
11
Kayne Anderson
Energy Funds
12
Kayne Anderson
Energy Funds
o
o
o
o
PW (%)
10.0%
15.0%
20.0%
25.0%
30.0%
40.0%
1
Acreage Valuation
Well
PW ($000) Spacing1
$10,084
426.7
$7,915
426.7
$6,399
426.7
426.7
$5,277
$4,413
426.7
$3,173
426.7
EUR (Mboe)
D&C Cost ($000)
Working Interest (%)
NRI (%)
400.0
$6,000
100.0%
75.0%
$10,084
133%
3.6x
$6,760
129%
3.0
$/acre
$23,635
$18,551
$14,997
$12,368
$10,344
$7,438
Acreage Valuation
Well
PW ($000) Spacing1
$6,760
64.0
$5,388
64.0
$4,400
64.0
$3,654
64.0
$3,071
64.0
$2,219
64.0
$/acre
$105,632
$84,190
$68,752
$57,092
$47,977
$34,679
PW (%)
10.0%
15.0%
20.0%
25.0%
30.0%
40.0%
1
13
Kayne Anderson
Energy Funds
# of Acres
Well Spacing (acres/well)1
# of Potential Drilling Locations
# Wells Drilled per Rig per Year 2
50,000
64.0
781
20.0
1
2
14
Kayne Anderson
Energy Funds
15
Kayne Anderson
Energy Funds
16
Kayne Anderson
Energy Funds
Kayne Anderson
Energy Funds
Private equity helps finance A to B and B to C opportunities, however A to B situations require a more complex
understanding of the reserves
Private Equity
Valuation
Working interest
and royalty funds
Life of a Company
Risk Profile:
High
Medium
Low
Risk Type:
Engineering
Geologic
Drilling
Operational
Operational
Commodity Price
Fund Type:
Private
Venture
Private
Mezzanine
Tranche B
Expected IRR:
30-50%
15-30%
10-15%
Investment
Horizon:
2-6 years
2-4 years
7+ years
18
Kayne Anderson
Energy Funds
Private equity is typically used to accelerate a companys reserve and production growth
Production Rate
PDP
PUD
PROB
Time
8% IRR
Bank
Financing as
% of PDP
30%
IRR
PDP
PUD
PROB
50%
IRR
Private Equity
Financing
19
Kayne Anderson
Energy Funds
Private Equity
20
Kayne Anderson
Energy Funds
Kayne Anderson
Energy Funds
TEAM LEADERSHIP
Executive
Leadership
Danny Weingeist
Bob Sinnott
Managing Partner
Managing Partner
President/CEO of Kayne Anderson
Chuck Yates
Mike Heinz
Partner
Partner
Finance/ /STRUCTURING
Structuring
FINANCE
Engineering / Operations
ENGINEERING
OPERATIONS
James Broach
Greg Davis
David Iverson
Giff Wilkerson
Kevin Brophy
Mark Teshoian
David Habachy
Patrick Lissonet
Tray Black
Buddy Clarke
Heather Hafemann
Todd Burgamy
Jack Foster
Managing Director
Senior Vice President
Managing Director
Vice President
Engineering Associate
Vice President
Associate
Akin Gump
ARCO
Exxon
Goldman Sachs
Manti Resources
JP Morgan
Netherland Sewell
Lehman Brothers
Vastar
Stephens
22
Kayne Anderson
Energy Funds
Investment strategy
o
Diversified portfolio, although portfolio companies are not necessarily geographically diversified
Investment structure
o
Targeted gross ROI of 2.0x to 2.5x and gross IRR of 20% to 30%
23
Kayne Anderson
Energy Funds
Williston Basin
Canyon Midstream (EF V & EF VI)
Kraken (EF V)
Sagebrush II (EF IV & EF V)
Utica Shale
Canyon Midstream (EF V & EF VI)
Grenadier II (EF VI)
A-1 Carbonate
Beacon (EF IV)
Axia (EF IV & EF V)
Niobrara/Uinta/Powder River
Axia (EF IV & EF V)
Three Forks (EF V)
Granite Wash/Tonkawa/Cleveland
Great Plains (EF IV)
Plano (EF IV)
Plymouth (EF IV)
Trail Ridge (EF IV)
Corlena II (EF V)
Abo/Devonian/Strawn/Grayburg/W. TX Miss.
Pedernales (EF III)
Adventure II (EF V)
KA Henry (EF V)
Alamo II (EF V)
Raptor II (EF V)
Mississippian/Woodford/St. Louis
Calyx I & II (EF IV)
Plymouth (EF IV)
KA Vess (EF V)
Marcellus Shale
Grenadier (EF III)
Great Plains (EF IV) /
Endless Mountain (EF V)
Devonian Shale
Hayden Harper (EF IV)
Fayetteville Shale
Riverbend (EF IV)
Barnett Shale
Beacon (EF IV)
Cotton Valley
Cross Creek (EF III)
Pearsall Shale
Momentum (EF V)
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Kayne Anderson
Energy Funds
$12,000
$11,000
Wolfberry/Wolfcamp
Eagle Ford
$10,000
Bakken
$9,000
$8,000
Utica
Barnett
$7,000
$6,000
Haynesville
Marcellus
$5,000
Fayetteville
Bone
Spring
$4,000
Cleveland Sand
$3,000
Niobrara
Miss.
$2,000
$1,000
KAEFs Targeted Zone
$0
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
$9.0
$10.0
$11.0
$12.0
Kayne Anderson
KEY TAKEAWAYS
Energy Funds
Tremendous
Investment
Opportunity in
Energy
E&P industry requires trillions of dollars of capital to fully develop the resource plays
Why Kayne
Anderson?
Companies will continue to sell non-core assets to help fund resource play development
programs
Conservative bias
o
Kayne Anderson
Energy Funds
Q&A