Member SIPC

IPAA Leaders in Industry Luncheon“Trees Don’t Grow to the Sky” U.S. Deal Flow in the Current Oil Price Environment

January 7, 2015

William A. Marko Managing DirectorJefferies LLC

Jefferies Energy Group Has a Leading Global Market Share

In last 6 years, completed 230 transactions for more than $325 Billion

Our practice is the largest dedicated to oil and gas by any Bank in the world─ Focus on upstream, midstream and service─ 35 technical professionals, we go deeper technically than anyone

1

Sale of Gulf of Mexico Deepwater Assets to Freeport-McMoRan

Copper & Gold Inc.Joint Financial Advisor

May 2014Pending

Energy

$1,400,000,000UndisclosedSale of Chevron’s Beaumont Crude

Oil and Refined Products Terminal to

Phillips 66Exclusive Financial Advisor

June 2014

Sale of Utica and Marcellus assets to American Energy – Utica and

American Energy – MarcellusSole Financial Advisor

June 2014Energy

$1,750,000,000

and Unnamed Private Company

Sale of Onshore U.S. Assets to Linn Energy, LLC

Joint Financial Advisor

June 2014Energy

$2,300,000,000

Sale of Permian Basin Assets toAmerican Energy – Permian

BasinSole Financial Advisor

June 2014Energy

$2,500,000,000

February 2014

Convertible Notes OfferingJoint Bookrunner

$750,000,000

Energy

Acquisition of Granite Wash assetsfrom LINN Energy, LLC

Sole Financial Advisor

October 2014Energy

$1,950,000,000Credit Facilities to Finance

Acquisition of Marcellus Shale assets

Joint Lead Arranger

$1,200,000,000

August 2014Energy

Sole Financial Advisor to the Conflicts Committee of KMP and

KMR

August 2014

Kinder Morgan, Inc.’s acquisition of Kinder Morgan Energy Partners,

Kinder Morgan Management and El Paso Pipeline Partners

Energy

$71,700,000,000

Sale of Powder River Basin assets to

Chesapeake Energy Corporation

Sole Financial Advisor

July 2014Energy

$450,000,000+ Powder River Basin Assets

In September 2014 I discussed the fact that industry was running at full speed─ Rig count plateauing about 1,900─ Oil price at ± $90/Bbl and natural gas price at $4.00 per MMBtu─ Vast majority of companies running as many rigs as possible

limited by people, capital, execution capability

Many companies complaining about capital efficiency and the need to do better─ Still challenged by execution efficiency─ Have more acreage than they can possibly ever drill

It felt like we were heading to a bubble

Now the bubble has burst

Running at the Redline Now a Thing of the Past

2

Saudi Arabia defending its market share inside and outside of OPEC─ It can hold its breath for a long time─ This also hurts Russia, Venezuela, Iran, which is not a bad thing

We are now participants in a grand experiment to see how much U.S. production changes based on the level at which pricing stabilizes─ Will depend upon how quickly companies live within cash flow─ Will also depend upon how and where rigs are cut and how long

it takes for production to be impacted

Prepare to live in $60-70/Bbl oil in the near term

Hopeful long term is $70-80/Bbl oil

Absent any disruptions in Middle East or wild swings in Chinese or other demand

Oil Price Uncertainty – Fasten Your Seatbelts, it is Going to be a Bumpy Ride

3

Sovereign Wealth

Fund Size

$66 B

$62 B

$1 B

$1 B

NA

$77 B

$18 B

$757 B

$5 B

$256 B

$773 B

$548 B

Estimated Oil Price Needed to Balance Budgets

Source: Libyan government; Angolan Ministry of Finance; International Monetary Fund; Arab Petroleum Investments Corp.; Deutsche Bank.

Qatar

UAE

Kuwait

Libya

Saudi Arabia

Angola

Iraq

Ecuador

Nigeria

Algeria

Venezuela

Iran

$65

$70

$75

$90

$93

$98

$106

$117

$119

$121

$121

$140

December 31st Brent Crude Price: $56.42 / Bbl

4

Falling Oil Price Should Not Have Been a Big Surprise But the Current Size of the Fall Certainly Is

YE 2014 YE 2013

YE 2012 YE 2011

Feb-15 Feb-16 Feb-17 Feb-18 Feb-19 Feb-20$0.00

$25.00

$50.00

$75.00

$100.00

Feb-14 Feb-15 Feb-16 Feb-17 Feb-18 Feb-19$0.00

$25.00

$50.00

$75.00

$100.00

Feb-13 Feb-14 Feb-15 Feb-16 Feb-17 Feb-18$0.00

$25.00

$50.00

$75.00

$100.00

Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17$0.00

$25.00

$50.00

$75.00

$100.00

5

Natural gas is not necessarily the safe port in the storm

Price has broken through $3.00 per MMBtu

We were fortunate last year with a very cold winter and record high storage draws

Still a great deal of potential supply─ New wells in Utica dry gas─ Potential from SCOOP, Haynesville, more Marcellus, other areas

Industry continues to improve efficiencies so cost of supply decreasing in the best areas

One potential bright spot - Some near term demand increases─ Switching from coal for power generation─ First LNG exports in 2015 with more to follow─ Natural gas fed manufacturing starting to come online─ Feels like we live in $3.00 - 4.00 per MMBtu and hope for +$4.00

per MMBtu in the future

Natural Gas Price Weakness – The One-Two Punch

6

ARC Test – to be used when considering choices and the best choices adhere to all three premises

Affordable

Reliable

Clean

Good Examples─ Natural gas switching from coal for power generation─ Solar/wind with natural gas supplemented power generation

Bad Examples─ Germany pushing solar and wind while shutting in nukes,

banning fracking and increasing coal use for power generation─ Solar or wind powered automobiles

Energy Supply Sources

7

Market Update

NYMEX WTI spot trading below $60 for the first time in over five years and the range of price expectations amongst buyers / investors has widened

─Driven by oversupplied markets and weak demand, despite backdrop of highly elevated geopolitical tensions

Forward expectations for gas prices remained relatively stable over the past few years

M&A activity was in full rebound in 2014, prior to recent downturn, where recent volatility has resulted in a significant slow down

3 Year Historical Commodity Pricing Range

Equity Performance (% of 52 Week High)

Average North American E&P M&A Volume ($B)

US Energy HY Index (%)

10-Year Average 2010 - 2012 2014 December Annualized

$85.6$102.4

$91.0

$16.6

S&P 500 S&P E&P Index Alerian MLP Index

98.5%

71.9%85.1%

10-Year Average (Pre - 2007)

2011 -2013 Average Current

9.28%

6.40%

9.54%

Henry Hub Spot ($ / MMBtu)

$1.82

$3.26

$7.92

$4.49

WTI NYMEX Spot ($ / Bbl)

36 Month Forward ($ / Bbl)

$52.69

$60.01

$110.53

$105.31

Current (January 2, 2014)

8

Collapsing Oil Prices Have Triggered a Sell-Off in Oil and Gas Equities

WTI has fallen by nearly 50% since June 1; $327 B removed from the market value of largest 40 companies over the same period

Industry implications – anticipated behavior in the event of prolonged weakness

─ Tighter capital discipline: more project deferrals, JVs with cost carries, opex cuts

─ Exploration: budgets reduced in 2015, notably on frontier; focus shift to mature, lower-risk plays

─ Tight oil: rigs dropped in new or marginal plays, retrenchment to sweet-spots to maintain production growth

─M&A: a flush of assets onto an opportunity-rich market; potential for distressed sellers / countercyclical buyers

Market Capitalization Changes since June 1, 2014 (1)

(1) Source: Bloomberg Financial, as of 1/2/2015.

Small Caps Mid Caps Large Caps Majors

ShellExxonMobil

ChevronSuncor

EOGTotal

DevonCNRL

BPEni

HuskyCenovusPioneer

NewfieldStatoilCallon

ChesapeakeEncana

ContinentalDenburyTriangle

ExcoNorthernSanchez

Quicksilver

(4.5)%(8.9)%(9.0)%(11.7)%(12.6)%

(17.2)%(17.3)%(17.9)%(19.1)%

(22.1)%(24.0)%(24.4)%(25.8)%(26.1)%

(29.1)%(30.4)%(31.0)%

(35.6)%(44.7)%

(53.0)%(58.9)%(60.1)%(62.1)%

(69.6)%(92.0)%

9

Source: Bloomberg, Capital IQ and Jefferies internal estimates.(1) Analysis assumes current pricing as of 12/31/2014 and historical pricing as of 12/31/2013.

12-Month Price Performance by Size

12-Month Price Performance by Oil Commodity Mix

12-Month Price Performance by Leverage (Total Debt / 2014E EBITDA)

12-Month Price Performance by Focus Area

Recent E&P Market Performance (1)

Majors Large Cap Mid Cap MLP Small Cap

(11)%(21)%

(39)%

(57)%(49)%

< 20% Oil 20% - 39% Oil 40% - 59% Oil 60% - 79% Oil 80% - 100% Oil

(32)%(40)%

(33)% (35)%

(52)%

< 1.0x 1.0x - 1.9x 2.0x - 2.9x 3.0 - 4.0x > 4.0x

(11)%(26)%

(45)%(59)% (55)%

10

Permian Appalachia Diversified Eagle Ford Bakken

(10)%

(29)%(36)%

(54)%

(38)%

Company 2014 2015E Change

Atlas Resource Partners $ 190 $ 200

Clayton Williams Energy 389 400

Energy XXI 705 680

Energen Resources 1,350 1,300

Total SA 26,000 25,000

PDC Energy 637 557

ConocoPhillips 16,875 13,500

Rosetta Resources 1,200 950

Stone Energy 895 700

Concho Resources 2,600 2,000

Sanchez Energy 1,150 875

Apache 5,440 4,000

Halcón Resources 1,100 775

Antero Resources 3,700 2,400

Swift Energy 395 250

Continental Resources 4,550 2,700

Oasis Petroleum 1,425 800

Breitburn Energy 375 200

Denbury Resources 1,100 550

Goodrich Petroleum 350 175

LINN Energy 1,550 730

2015 E&P Capital Spending Outlook

Source: Company investor presentations, press releases and earnings call transcripts.

11

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

5%

3%

(4%)

(4%)

(4%)

(13%)

(20%)

(21%)

(22%)

(23%)

(24%)

(26%)

(30%)

(35%)

(37%)

(41%)

(44%)

(47%)

(50%)

(50%)

(50%)

(53%)

WTI Oil Breakeven Price @ $3.60 / MMBtu Natural Gas ($ / Bbl)

Source: Wall Street research.

Utica-Wet Gas

Marcellus Shale - Super Rich

Eagle Ford - Liquids Rich

Wolfcamp - N. Midland (Horizontal)

Cana - SCOOP Condensate

Bone Spring (1st / 2nd) - NM

Utica - Condensate

Wolfcamp - S. Midland (Horizontal)

Bakken Shale

Uinta - Green River

Wolfcamp - N. Delaware (Horizontal)

Mississippian Horizontal - West

Uinta - Wasatch (V)

Granite Wash - Liquids Rich Horiz.

$36.01 $39.30

$42.77 $50.41 $51.64

$53.60 $53.71 $53.84

$56.27 $57.72 $57.97

$61.61 $63.04

$64.77 $65.92

$67.80 $68.72

$70.70 $72.02 $72.40

$75.95 $76.40 $77.36 $77.40

$79.35 $82.80 $83.47

$84.97

$50 $60 $70

12

Eagle Ford Type Curve Map

13

High Disparities in Eagle Ford Costs

Source: Publicly available information.

Execution is the Paramount Consideration, Especially Today

14

Eagle Ford Well Costs By Operator

Oper

ator

1

Oper

ator

2

Oper

ator

3

Oper

ator

4

Oper

ator

5

Oper

ator

6

Oper

ator

7

Oper

ator

8

Oper

ator

9

Oper

ator

10

Oper

ator

11

Oper

ator

12

Oper

ator

13

Oper

ator

14

Oper

ator

15

Oper

ator

16

$-

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

$-

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$1,854

$1,742

$1,657

$1,533 $1,494

$1,256 $1,250

$1,150 $1,125 $1,100 $1,080 $1,038 $1,036

$917

$795

$625

$9.2 $8.4

$7.3 $7.7 $6.7

$7.5 $6.6 $6.9

$9.0

$6.6 $5.9 $5.5 $5.8 $5.5

$6.3

$2.8

$ / Lateral FootD&C Capex ($MM)

Most Recent Permitting Data Suggests a Structural Downward Shift in Activity

Source: HPDI as of December 31, 2014.

Total 2014 U.S. Lower 48 Permit Issuance

5,427 5,433

6,6916,969

7,346

6,647

7,076

7,598 7,545

8,745

5,7515,392

(34%)

15

Year End Active Rigs by Play

Permian (Hz .) Eagle F o rd Permian (Vt.) Bakk en Marc e llus Niobra ra Woodford Utic a Haynes v ille Ba rne tt

223

232

219

196

93

41 45

33 39 41

293

228

232

183

85

49 51

38 41

33

367

200

163 179

77

58

56

49

40

24

Dec-12Dec-13Dec-14

Impact of New Oil Pricing Environment Not Fully Reflected in Current Rig Counts

Source: Wall Street Research; Baker Hughes North America Rotary Rig Count as of January 2, 2015.

Play Permian (Hz.)

Eagle Ford

Permian (Vt.)

Bakken Marcellus Niobrara Woodford Utica Haynesville

Barnett

16

2015E vs. 2014 Rig Count by Basin

Source: Spears & Associates, Drilling and Production Outlook.

Missis-sippian

Granite Wash

Barnett

Woodford

Fayetteville

Haynesville

Canada

DJ / Niobrara

Utica

Eagle Ford

Williston

Permian

Marcellus

(27.7)%

(22.7)%

(19.6)%

(18.7)%

(18.2)%

(16.2)%

(11.1)%

(10.8)%

(9.0)%

(8.8)%

(8.7)%

(7.1)%

(5.8)%

17

2014 High Yield Market Performance

2014 Equity Market Performance (1)

2014 E&P Capital Markets Environment

Source: Bloomberg Financial as of 1/2/2015.(1) Bakken index: CLR, EOX, NOG, OAS, TPLM, WLL; Permian Index: AREX, CPE, CXO, FANG, EGN, LPI, PXD, RSPP, XEC; Appalachia Index: AR, COG, ECR, GPOR, RRC, RICE.

Dec-13 Mar-14 Jun-14 Sep-14 Dec-142.0%

4.0%

6.0%

8.0%

10.0%

US High Yield Energy Index BB Index B Index

Yie

ld t

o W

ors

t (%

)

9.54%

6.96%

5.17%

Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15

-60.0%

-30.0%

0.0%

30.0%

60.0%

S&P 500 36 Mo. Fwd. WTI NYMEX Bakken Index Permian Index Appalachia Index S&P E&P Index

Rela

tive P

erf

orm

an

ce (

%)

12 M ∆ 6 M ∆

+12% +4%

-8% -19%

-10% -33%

-29% -35%

-29% -31%

-38% -56%

18

North American Onshore E&P Deal Volume Since 2010 ($B) (1)

E&P M&A Market Review

Source: IHS Herold and Jefferies estimates as of 12/31/2014.(1) Includes North American onshore corporate and asset-level transactions greater than $100 MM USD.

Prior to recent downturn, M&A set for full rebound in 2014, but oil price collapse has halted activity

M&A activity driven by portfolio reshaping Focus had also shifted to transactions with more production and less drilling

risk Current M&A market “frozen” by volatility in commodity prices and cost of

capital Buyers less affected by current weakness likely to take advantage of

“buyers” market

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42010 2011 2012 2013 2014

$-

$10

$20

$30

$40

$50

-

10

20

30

40

50

$15.6

$29.9

$16.9

$31.2

$15.9 $15.3

$33.0

$25.8 $28.7

$11.5

$40.4 $42.8

$7.6 $8.8 $10.3

$21.4

$17.8

$28.4 $28.4

$16.4

Deal V

olu

me D

eal C

ount

19

North American Onshore E&P Deal Volume in Q4 2014 ($B) (1)

E&P M&A Market Review

Source: IHS Herold and Jefferies estimates as of 12/31/2014.(1) Includes North American onshore corporate and asset-level transactions greater than $100 MM USD.

October November December $-

$5

$10

$15

$20

-

5

10

15

20

$13.2

$1.8 $1.4

Deal V

olu

me D

eal C

ou

nt

20

Deal Flow Hunters and Prey

High Value EquityLow Debt

Low Value EquityHigh Debt

Low CashHigh Cost

High CashLow Cost

OilPrice

Chapter 11

RestructuringDebt/Fire Sales

Sell Oil Assets

Sell Gas Assets

Solid Cash Flow

Find JVPartners

Ability to Cut Capital & Grow

Lots of Equity

Lots of Cash

POTENTIAL SELLERS

POTENTIALBUYERS

21

Big private equity are geared up to hunt for opportunities─ More than $50 B in equity raised─ Combined with leverage this provides more than $100 B in

purchasing power

Could be an opportune time for the majors for mergers or major acquisitions─ Generally have lots of cash─ Historically have completed mergers in low price environments─ They are wrestling with execution of what they already own,

and they will focus on costs

Most companies will need to live within available cash flows─ Large capital program reductions─ Pressure on how to manage big portfolios

Internationals renewing interest in North America ─ Seeking acquisitions that come with people (corporate or asset)─ Some still interested in JVs with top tier operators ─ Many have said they are looking for "bargains"

What Does All This Mean for U.S. Upstream Deal Flow?

22

Watch for capitulation by sellers─ Most desperate may need to sell oil properties at the bottom─ Sellers will hold out as long as possible while considering uses of

asset sale funds (service debt, reinvest capital)─ If natural gas price does not remain too weak, could be a good

time to sell natural gas assets

Buyers will need to be very disciplined and focused in order to most effectively screen and evaluate deals─ Know the strengths and weaknesses and areas of most

competitiveness─ Move fast in a briskly changing environment─ Be able to sort through a seemingly endless number of

opportunities to clearly identify the most attractive

Companies should be prepared for an “open window” in M&A markets

Private capital markets are least impacted by recent events especially longer hold periods – don’t have to live quarter to quarter

What Does All This Mean for U.S. Upstream Deal Flow? (Cont’d)

23