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IPAA Capital Markets SeminarJuly 21, 2008

Tim MurrayManaging Director

GUGGENHEIM PARTNERS1301 McKinney, Suite 3105Houston, TX 77010(713) 300-1300 main(713) 300-1339 fax

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• Introduction of Guggenheim Partners

• Mezzanine Lending Basics

• Energy Finance Market

• Credit Crisis Impact

• Representative Transactions

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• A private, global diversified financial services firm with $120+ BN under management

• Wealth Management, Investment Management, Capital Markets

• 500+ professionals worldwide, 70 in Investment Management

• Houston Energy Office opened in September 2005• 7 professionals, including 3 petroleum engineers

• Invested in 41 deals for an aggregate $2.1 BN • Total IRR of 25.5% as of March 31, 2008

• Syndicated over $1.2 BN senior and second lien debt

• Raised $230 MM of co-investment equity

• Raising an Energy Opportunities Fund

• Provide senior and mezzanine debt plus equity • Blend of financial and technical expertise is unique

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Energy Financing Risk ProfilesEnergy Financing Risk Profiles

50+

5

10

15

20

25

30

35

40

45

PDP PDNP PUD Probable Possible

---------- Development/Exploitation ------------(Engineering Risk)

---------- Exploration -----------(Geologic/Geophysical Risk)

Traditional Commercial Bank Loans

Traditional Commercial Bank Loans

0

Tar

get R

ate

of R

etu

rn, %

Reserve Risk

Secured Loans, Mezzanine Debt, and Second Lien Loans

Secured Loans, Mezzanine Debt, and Second Lien Loans

Project EquityProject Equity

Equity- Linked and Equity SecuritiesEquity- Linked and Equity Securities

WildcatDrillingWildcatDrilling

Targeted Investment Types for Guggenheim Energy Opportunities Fund

50+

5

10

15

20

25

30

35

40

45

PDP PDNP PUD Probable Possible

---------- Development/Exploitation ------------(Engineering Risk)

---------- Exploration -----------(Geologic/Geophysical Risk)

Traditional Commercial Bank Loans

Traditional Commercial Bank Loans

0

Tar

get R

ate

of R

etu

rn, %

Reserve Risk

Secured Loans, Mezzanine Debt, and Second Lien Loans

Secured Loans, Mezzanine Debt, and Second Lien Loans

Project EquityProject Equity

Equity- Linked and Equity SecuritiesEquity- Linked and Equity Securities

WildcatDrillingWildcatDrilling

Targeted Investment Types for

Guggenheim Energy

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Mezzanine DebtHigh advance rates against PDP, often all PUD reserves

Advances against AFEs during development, borrowing base control also

First or second lien on development, non-recourse to company

Asset coverage/tail test, but few/no financial covenants

Fees up front and prepayment fees, plus an equity kicker (ORRI or NPI)

Fixed interest spread, 100-500 bp over bank debt (liquidity discount for large deals)

Advancing term loans

Monthly cash flow sweep to amortize

Hedging required

Commercial Bank DebtTraditional advance rates against mostly PDP, some PDNP+PUD (20-30%)

Borrowing base controls advances

First lien on collateral, recourse to the company

Covenants: TNW, CR, interest coverage, max debt/ebitda

Minimal fees

Pricing grid based on usage

Revolver and term loan

Hedging optional

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Mezzanine DebtFlexible use of proceeds

High advance rate against proven reserves

First or second lien on development assets but non-recourse to the company

Asset coverage/tail test, but few/no financial covenants

Hedging required

Fees up front and prepayment fees, plus an equity kicker (ORRI or NPI)

Fixed interest spread, 100-300 bp over bank debt (liquidity discount for large deals)

Advancing term loans

Monthly cash flow sweep to amortize

No management input or control

Private EquityFocused strategy and use of proceeds

Equity investment a function of target return and leverage assumed

No collateral, but could have a liquidation preference

Performance covenants only

Hedging encouraged

Management must deliver a preferred return before backing in for their promote

No amortization

Equity investor controls most major decisions, including replacing management

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50

60

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80

90

100

110

120

130

140

2008 2009 2010 2011 2012Bank Average NYMEX StripTristone Capital Q2/08 Survey and NYMEX (7/17/2008)

$/B

bl

8

5.00

6.00

7.00

8.00

9.00

10.00

11.00

2008 2009 2010 2011 2012

Bank Average NYMEX StripTristone Capital Q2/08 Survey and NYMEX (7/17/2008)

$/M

M B

tu

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• Commercial Banks

Banks are challenged to maintain and grow loans with new and aggressive competition, restrictive loan policies, and declining loan yields. Some banks continue to aspire to be investment banks.

• Investment Banks

Investment Banks are expecting a more moderate M&A market and less receptive public markets in the energy sector. Some investment banks aspire to be commercial banks.

• Private Equity

A record levels of private equity capital is competing for limited management teams in a moderating M&A market with high commodity pricing and rising F&D costs. Current investors may be challenged to realize the same level of returns as the predecessor funds.

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• Mezzanine Firms

New entrants and retooled teams have increased to more than a dozen firms, up from 3 or 4 survivors in 2001-02. Pressure to build portfolios has resulted in some of the same mistakes being made all over again.

• Institutional Loan Investors

A record volume of Term B and Second Lien loan product was bought by hedge funds, mutual funds, and CLOs in 2006 and first half of 2007. For deals in the $100 million range that accessed this market, loan pricing was bid down and covenant-lite structures were over-subscribed overnight. Today, some firms that were heavily engaged in leveraged lending with a mark-to-market balance sheet are liquidating energy loans to meet investor demands for redemptions.

• Clients

Energy clients have never enjoyed such an abundance of capital. The challenge is to stay focused on your strategy and not pursue an idea just because you can raise the capital.

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Equity Mezzanine Senior

Energy-Focused Private Equity FundsAvista Capital; Carlyle / Riverstone; DB Zwirn;

EnCap Investments; Energy Spectrum; First Reserve; Greenhill Capital; Kayne Anderson; Lime Rock Partners;

Pine Brook Road Partners; Post Oak Partners; Quantum Energy; Natural Gas Partners; SCF Partners;

Warburg Pincus; Yorktown Partners

Energy-Focused Private Equity FundsAvista Capital; Carlyle / Riverstone; DB Zwirn;

EnCap Investments; Energy Spectrum; First Reserve; Greenhill Capital; Kayne Anderson; Lime Rock Partners;

Pine Brook Road Partners; Post Oak Partners; Quantum Energy; Natural Gas Partners; SCF Partners;

Warburg Pincus; Yorktown Partners

Power & Infrastructure/Alternative AssetsArcLight Capital; D.E. Shaw; First Reserve; Haddington Ventures;

MetalMark Capital; Quantum Infrastructure Fund

Power & Infrastructure/Alternative AssetsArcLight Capital; D.E. Shaw; First Reserve; Haddington Ventures;

MetalMark Capital; Quantum Infrastructure Fund

Energy “Mezzanine” FirmsGasRock;GE Energy; Laminar Direct; Macquarie;

NGP Capital Resources; Petrobridge; Prospect Energy; TCW; Wells Fargo Energy Capital; Goldman Sachs E&P Capital

Energy “Mezzanine” FirmsGasRock;GE Energy; Laminar Direct; Macquarie;

NGP Capital Resources; Petrobridge; Prospect Energy; TCW; Wells Fargo Energy Capital; Goldman Sachs E&P Capital

Stretch Senior Debt ProvidersAmerican Capital; CIT; Foothill;

Fortress Capital; SilverPoint;

Stretch Senior Debt ProvidersAmerican Capital; CIT; Foothill;

Fortress Capital; SilverPoint;

Traditional Energy BanksAmegy Bank; Bank of America;

Bank of Oklahoma/Texas; Bank of Scotland;BNP Paribas; Capital One; Citigroup;

Comerica Bank; Compass Bank;Deutsche Bank; Fortis; Frost Bank;

GE / Merrill Lynch; Guaranty Bank; JPMorgan; Texas Capital; RBS; UBOC;

US Bank; Wachovia; Wells Fargo; WestLB; Whitney Bank

Traditional Energy BanksAmegy Bank; Bank of America;

Bank of Oklahoma/Texas; Bank of Scotland;BNP Paribas; Capital One; Citigroup;

Comerica Bank; Compass Bank;Deutsche Bank; Fortis; Frost Bank;

GE / Merrill Lynch; Guaranty Bank; JPMorgan; Texas Capital; RBS; UBOC;

US Bank; Wachovia; Wells Fargo; WestLB; Whitney Bank

Guggenheim Energy Guggenheim Energy

Resource Funds/Asset AggregatorsMerit Energy; Quantum Resources; Celero; EnerVest; LimeRock; Sheridan Resources

Resource Funds/Asset AggregatorsMerit Energy; Quantum Resources; Celero; EnerVest; LimeRock; Sheridan Resources

Energy Capital Provider SpectrumEnergy Capital Provider Spectrum

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• The Leveraged Finance capital markets experienced a major correction in the second half of 2007 through the first quarter of 2008.

• Record forward calendar of committed transactions built through the first half of the year with aggressive structures and pricing weighed upon new issue underwritings

• Problems started in the Leveraged Loan market following the collapse of structured vehicles that were a major driver of liquidity

• Formation of new CLOs effectively stalled following sub-prime and asset-backed crisis and inability to syndicate AAA tranches and source equity

• Energy credit availability since 2Q 2007, while more constrained in the second half of 2007 in sympathy with the broader market, remains one of only a few select industry sectors successfully accessing the leveraged markets across the credit spectrum

• Since mid-December 2007, energy issuance has comprised the majority of the high yield calendar/high yield primary issuance

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0

200

400

600

800

1000

1200

1400

Jun-07 Aug-07 Oct-07 Jan-08 Mar-08 Jun-08

BB Index B Index CCC Index Energy Index

1,056

614

419

418

Merrill Lynch High Yield desk

427

249

199182

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• Fixed Income Market: during the first quarter, the 10 year note declined about 60 bps, while 3-month LIBOR declined approximately 200 bps.

• Leveraged Loan Market: institutional issuance totaled $27 billion during the 1Q 2008, down 80% from the $138 billion issued during the 1Q 2007

Key Interest Rate Activity 1Q-2008

Source: Bloomberg

2.3%2.5%2.7%2.9%3.1%3.3%3.5%3.7%3.9%4.1%4.3%4.5%4.7%4.9%5.1%

12/31

01/03

01/08

01/11

01/16

01/21

01/24

01/29

02/01

02/06

02/11

02/14

02/19

02/22

02/27

03/03

03/06

03/11

03/14

03/19

03/24

03/27

10-Year Note

3-Month LIBOR

New Issue Spread for B+/ B Rated Loans and Average Senior Leverage

Source: S&P/ Leveraged Commentary & Data

200

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450

Jan-

03M

ar-0

3M

ay-0

3Ju

l-03

Sep-

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ov-0

3Ja

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Mar

-04

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-04

Jul-0

4Se

p-04

Nov

-04

Jan-

05M

ar-0

5M

ay-0

5Ju

l-05

Sep-

05N

ov-0

5Ja

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-06

Jul-0

6Se

p-06

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ar-0

7M

ay-0

7Ju

l-07

Sep-

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Mar

-08B+/B

New

Iss

ue S

prea

d

1.5x 2.0x 2.5x 3.0x 3.5x 4.0x 4.5x 5.0x

Seni

or L

ever

age

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Milagro Exploration• Background

• Petrohawk Energy Corporation announced intention to sell its Gulf Coast Division, a significant portion of which were former Mission Resources assets and personnel

• Guggenheim teamed with former Mission Resources management team, now Milagro Exploration, to bid on the divestiture

• Attractive opportunity: 266 BCFE of proved reserves (68% developed) with 400 BCFE upside

• Transaction• Milagro bid $825 MM funded with $260 MM of senior (L+2.25%) and $200 MM

of second lien debt (L+6.25%), $27 MM of Management equity and $250 MM of new private equity, plus a $125 MM subordinated seller note (12% PIK)

• 80% of PDP volumes were hedged prior to closing

• Update• Proved reserves increased through drilling and the senior borrowing base increased

by $60 MM to $375 MM

• Seller note repurchased for $100MM, funded with increase in senior revolver and second lien term loan

• Oil and Gas Investor Magazine named this “Financing Deal of the Year for 2007”

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North Texas Development• Background

• Client was awarded a substantial farm-in opportunity from a Major to develop Cleveland Sand acreage in North Texas

• Attractive “resource play” opportunity with minimal geological risk

• Improved completion techniques made for very attractive economics in the play

• Well known management team with very strong track record

• Transaction• Guggenheim committed $37 MM Advancing Term Loan (P+2.2%) to drill and

complete 16 wells under the farm-in agreement

• Upside participation came in the form of an ORRI (2% BPO, 8% APO)

• Update• First 8 wells came in at or above expectations, after which Guggenheim was

refinanced under the client’s traditional senior bank facility

• Realized proceeds to date have generated better than a 20% IRR

• Guggenheim’s ORRI is currently generating more than $80,000 per month

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Bakken Shale Development• Background

• Private equity sponsored team sought to acquire and develop Bakken Shale assets while minimizing management dilution

• Guggenheim’s mezzanine facility allowed management team to leverage private-equity dollars to more efficiently acquire and develop assets

• Strong management and operating team with experienced equity sponsor

• Transaction• $50 MM Advancing Term Loan (L+6.5% with 4% ORRI BPO/10% NPI APO) to

finance drilling and completion costs

• $10 MM equity co-investment to participate as a working interest partner

• Update• Mezzanine facility accelerated drilling program with 8 wells drilled and completed

• Client was able to acquire and develop a larger acreage position by utilizing mezzanine capital for drilling and completion costs.

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A leveraged loan too far…• Private company focused on unconventional gas in multiple areas in North America

and International. Company is leveraged 4 times EBITDA and experiencing liquidity problems.

• Reserve replacement in 2005: downward revisions (13%) exceed additions; excluding reserve divestitures and acquisitions and price effect, proved reserves decline 5.5%. Proved reserve replacement in prior year was also not achieved.

• New management team hired as founder/major shareholder left the business.

• Company is acquired for about $3.00/MCFE Total Proved. The acquisition is funded with senior debt, a Second Lien term loan (42%), and equity (58%). Debt is approximately equal to SEC total proved PW10% at $10/MMBTU and $61/BBL.

• Asset coverage covenant includes 50% credit for Probable reserves.

• Second Lien term loan flexed down ½% to L+5 1/4%, but still oversubscribed four times over within a week of launch in March 2006.

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A leveraged loan too far…

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2002 2003 2004 2005 2006 2007 2008 2009 2010

EBIT

DA

, MM

$

Total Proved EBITDA 3P EBITDA

$400 MM Debt

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A rising tide lifts all boats…

Will the tide continue to rise?

It’s only when the tide goes out that you discover who’s been swimming naked.

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IPAA Capital Markets SeminarJuly 21, 2008

Tim MurrayManaging Director

GUGGENHEIM PARTNERS1301 McKinney, Suite 3105Houston, TX 77010(713) 300-1300 main(713) 300-1339 fax