Timothy Knobloch and Benjamin Thomas
James Engineering, Inc.
Marietta, Ohio
The Merger and Acquisition Report
2006
Materials Presented
Materials are drawn from public sources: press releases, SEC reports, etc.
Materials should be viewed as “approximately” correct.
Materials are not being recommended as a basis for decision making, but
are presented as useful market information.
The Perfect Storm Continues???
Last transmission from the Andrea Gail
“She’s comin’ on boys,and she’s comin’ on strong”
Captain
Billy Tyne
Presentation Outline
• Price Drivers• Pricing Yardsticks• Prime Rate, Gas Price, and Oil and Gas
Asset Prices• Review of Recent Mergers and
Acquisitions• Comparison of Recent Mergers and
Acquisitions Price Drivers and Pricing Yardsticks
Price DriversFactors Influencing Asset
Values • Asset Size• Cash Flow • Daily
Production• Net Reserves• Geographic
Location • Well Count • Risk
• Miles of Pipeline
• Operated vs. Non Operated Interests
• Developed and Undeveloped Acreage
• Distribution of Reserves
Pricing YardsticksPrice Determination Methods
Quick Look Multiples
• Dollars paid per mcfeq
• Dollars paid per mmcfdeq
• Multiple of Annual Cash flow
Reserve Based Methods
• % of Discounted Net Cash Flow
• Discounted Net Cash Flow Hurdle Rates
• Profit to Investment Ratio
• Payout
Avg. Prime Lending Rate vs Time
3456789
1011
1990 1992 1994 1996 1998 2000 2002 2004 2006
Years
Prim
e R
ate,
%
Current Rate 8.00%
Nymex Strip, $/Mcf
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.001
16 31 46 61 76 91
106
121
136
151
166
181
196
211
226
241
256
271
286
301
316
331
346
361
376
391
406
421
436
Years
$/M
cfe
Nymex Natural Gas Futures
12 Month Strip Avg. Price
97 98 99 00 01 02 03 04 05 06
P r o v e d R e s e r v e V a l u e s , $ / M c f e A p p a l a c h i a v s U S O n s h o r e G a s
$ 1 . 1 8$ 1 . 2 3
$ 0 . 3 9
$ 0 . 5 8
$ 1 . 3 5
$ 1 . 7 5
$ 1 . 0 5$ 0 . 9 7
$ 0 . 7 1
$ 1 . 0 9
$ 1 . 8 0
$ 1 . 5 4
$ 0 .0 0
$ 0 .2 0
$ 0 .4 0
$ 0 .6 0
$ 0 .8 0
$ 1 .0 0
$ 1 .2 0
$ 1 .4 0
$ 1 .6 0
$ 1 .8 0
$ 2 .0 0
2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5
Y e a r
$/M
cfe
C o u r te s y o f R i c h a r d s o n B a r r & C o .
Example: @ $1.5/mcfe
10 bcfe = $15 Million
Proved Reserve Values, $/McfeAppalachia vs US Onshore Gas
$1.75
$1.35
$1.18$1.23
$0.39
$0.58
$1.80
$1.54
$1.05$0.97
$1.09
$0.71
$3.90 $3.68$4.24
$8.92
$6.42
$5.40
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
$1.80
$2.00
2000 2001 2002 2003 2004 2005
Year
$/M
cfe
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
Av
era
ge
Nym
ex
Str
ip $
/mm
btu
Courtesy of Richardson Barr & Co.
P r o d u c t i o n M u l t i p l e s , $ M M / m m c f e / dA p p a l a c h i a v s U S O n s h o r e G a s
$ 1 4 . 1
$ 5 . 1
$ 2 . 8
$ 4 . 7$ 4 . 2
$ 9 . 5
$ 1 1 . 9
$ 9 . 6
$ 5 . 4
$ 4 . 4$ 4 . 0$ 4 . 1
$ 0 .0
$ 2 .0
$ 4 .0
$ 6 .0
$ 8 .0
$ 1 0 .0
$ 1 2 .0
$ 1 4 .0
$ 1 6 .0
2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5
Y e a r
$MM
/mm
cfe/
d
C o u r te s y o f R i c h a r d s o n B a r r & C o .
Example: @ $10MM/mmcfe/d
Gross: 1,000 mcfe/d Net (50%): 500 mcfe/d = $5 MM
P r o d u c t i o n M u l t i p l e s , $ M M / m m c f e / dA p p a l a c h i a v s U S O n s h o r e G a s
$ 4 .2$ 4 .7
$ 2 .8
$ 5 .1
$ 9 .5
$ 1 4 .1
$ 4 .1 $ 4 .0 $ 4 .4
$ 5 .4
$ 9 .6
$ 1 1 .9
$ 5 .4 0
$ 6 .4 2
$ 8 .9 2
$ 4 .2 4$ 3 .6 8$ 3 .9 0
$ 0 . 0
$ 2 . 0
$ 4 . 0
$ 6 . 0
$ 8 . 0
$ 1 0 . 0
$ 1 2 . 0
$ 1 4 . 0
$ 1 6 . 0
2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5
Y e a r
$M
M/m
mc
fe/d
$ 1
$ 2
$ 3
$ 4
$ 5
$ 6
$ 7
$ 8
$ 9
$ 1 0
Ny
me
x S
trip
$
/mm
btu
C o u r te s y o f R i c h a r d s o n B a r r & C o .
Recent Acquisitions and Mergers
• Great Lakes Acquires Pine Mountain
• NCL Appalachian Partners Acquires Equitable’s Pennsylvania and Ohio Assets
• EnerVest Acquires Belden and Blake– Comparison to Capital C/TPG
• Chesapeake Acquires CNR/Triana – Comparison to Triana/Nisource
Great Lakes Acquires Pine Mtn Price Drivers
• Asset Size $219 MM• Cash Flow $? MM per year• Daily Production, Net 14.8 mmcfdeq• Net Reserves: 40% PDP 205 bcfe • Geographic Location VA, WV• Well Count 1,872*• Miles of Pipeline 277• Acreage 417,000 (1550 loc)*cbm, royalty interest – 1,317 wells wi/royalty – 519 wells, wi only-39 wells
Great Lakes Acquires Pine Mtn.
Pricing Yardsticks• Dollars paid per mcfeq ($219MM/205 bcfe)
$1.07 per mcfeq of reserves
• Dollars paid per mmcfdeq($219MM/14.8 mmcfdeq)
$14.8 million per producing million
• Multiple of Annual Cash flow ($219MM/?) Unknown – cashflow not available from
public data sources
NCL Appalachian Partners Acquires
Equitable PA/OH AssetsPrice Drivers• Asset Size $147 MM
• Annual Cash Flow $ ? MM• Daily Production 10 mmcfd • Net Reserves: 90% PDP 66 bcfe • Geographic Location PA, OH• Well Count 1,200 • Miles of Pipeline 400 • Acreage **220 proven and probable locations
NCL Appalachian Partners Acquires
Equitable PA/OH Assets Pricing Yardsticks
• Dollars paid per mcfeq ($147MM/66 bcfe) $2.22 per mcfeq of reserves
• Dollars paid per mmcfdeq($147MM/10 mmcfdeq)$ 14.7 million per producing million
• Multiple of Annual Cash flow ($147MM/$?MM) Unknown – cashflow not available from public data
sources
EnerVest Acquires Belden and Blake Aug 2005
Price Drivers• Asset Size $309 MM*• Annual Cash Flow $50 MM(SEC 8K) • Daily Production 48 mmcfdeq• Net Reserves: 77% PDP 285 BCFE • Geographic Location OH, PA, NY, MI• Well Count 3,650 • Miles of Pipeline 1,268• Acreage 712,267 (gross) • *$116MM Cash + $192MM Debt• ** Gas prices hedged through 2013
Enervest Acquires Belden and Blake Aug 05 Price Drivers
• Dollars paid per mcfeq ($309MM/285BCFE)$1.08 per mcfeq of reserves
• Dollars paid per mmcfdeq ($309MM/48mmcfdeq)$6.4 million per producing million
• Multiple of Annual Cash flow($309MM/$50MM)6.2
Belden and Blake Acquisition Buyer
ComparisonCapital C EnerVest 2004 2005
• Asset Size $352$352 $309$309• Cash Flow, mm/yr $60 $50• Daily Prod, mmcfdeq 45 48• Net Reserves, bcf 355** 285**• Well Count, operated 3,400 3,650• Acreage 1,118,512712,267• $/mcfeq $0.99 $1.08• $MM/mmcfdeq $7.8 $6.4
Chesapeake Buys Columbia Natural Resources
Price Drivers• Asset Size $2,950 MM*• Annual Cash Flow $?MM • Daily Production 125 mmcfed • Net Reserves 70% PDP 1,100 BCFE** • Geographic Location OH, PA, NY, WV,KY• Well Count 8,200 • Miles of Pipeline – 100% 6,500 • Acreage (9435 locations) 4,100,000* $2,200MM Cash +$750MM Hedging
Liabilities**1.4 tcfe prob/poss (1316 pud, 6286 poss, 1833 prob)
Chesapeake Acquires Columbia Natural Resources
Pricing Yardsticks• Dollars paid per mcfeq ($2950MM/1100BCFE)
$2.06 per mcfeq of reserves (1.4 TCF Prob-Poss)
• Dollars paid per mmcfdeq ($2950MM/125 mmcfdeq)$18.2 million per producing million
• Multiple of Annual Cash flow ($2950MM/$?MM)Unknown – cashflow not available from public data sources
CNR Acquisition Buyer Comparison
Triana Chesapeake 08/2003 10/2005
• Asset Size, $MM $800 $2,950• Cash Flow, $mm/yr $97 $?• Daily Prod, mmcfdeq 145 125• Net Reserves, bcf 1,100 1,100
• Well Count, operated 8,200 8,200• Acreage 4,000,0004,100,000• $/mcfeq $0.73 $2.06• $MM/mmcfdeq $5.5 $18.2
BuyerSeller
Asset Size$MM
Daily Prod
mmcfd
Res.BCFE
% PDP
$MMPer
Mmcfd
$
PerMcfe
Range ResourcesPine Mountain
$219 14.8 205(40%)
14.8 $1.07
NCL App PartnersEquitable– OH, PA
$147 10 66(90%)
14.7 $2.22
EnervestBelden Blake
$309 48 285(77%)
6.4 $1.08
ChesapeakeCNR
$2,950
125 1,100(70%)
18.2 $2.06
Acquisition Summary
The Merger and Acquisition Report
What do we know?• Every transaction is unique.• Every transaction is supported by
a reserve report.• Every transaction is supported by
a team of professional advisors.•Asset Preparation•Asset Presentation•Asset Placement
Thank you.
Timothy Knobloch and Benjamin Thomas
James Engineering, Inc.
Marietta, Ohio
The Merger and Acquisition Report
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