Denali Oil & Gas

1. Denali Oil & Gas Rick Louden President & CEO

2. Denali Oil & GasBackground • Founded June, 2003 with a $50 million commitment from Quantum Energy Partners, Energy Trust and Walter Oil & Gas. Denali II funding commitment of $50 million in 2006. • Focus on S. Texas tight gas below 12,000’ • Drilled 17 exploratory wells, 48 development wells, four small acquisitions. • Sold assets in 2004 and 2006 in multiple asset sales totaling $230 million. • Currently producing 13 Mmcfed.

3. Denali Oil & GasFields Currently Producingand Fields Sold South Bearhead Creek Rapture S. Friar Ranch Robinson Lake Hardeman Slough Destino Finley Webb Las Hermanitas La Perla S. Escobas Haynes Exsun Shivers Deep Tierra Blanca Edinburg South Arrowhead Ranch

4. Denali Oil & GasInvestor Partners Bring Value to the Table • Sounding Board and Brainstorming on key decisions and strategy • Financial Expertise and Muscle • Financial Strength and Staying Power

5. Planning Discussion with Quantum Energy Partners

6. Denali Oil & GasBusiness Plan • Primary focus on deep tight gas in South Texas. • Create value through exploration and small acquisitions with significant drilling potential. • Operate the majority of properties and reserves. • Be patient, wait for exceptional opportunities.

7. Denali Oil & GasBusiness Plan Starting Point Conditions Private Equity Funded Company • Target 30%+ IRR and ROI of 3.0+ • Don’t bet on rising oil and gas prices. • Minimize risk. • No rank wildcatting. • Prudent level of borrowing. • Conservative Acquisition analysis assumptions.

8. Denali Oil & GasStrategy …….How do we generate 30%+ IRR and 3.0+ ROI without rising gas prices and without significant risk? • Basin Characteristics? Wells with high initial rates and steep declines or wells with moderate initial rates and flatter declines?...........high initial rates generate higher IRR’s despite steeper declines. • Exploration or acquisitions?........exploration minimizes upfront capital improving ROI and IRR if success rate is good.

9. Denali Oil & GasStrategy Continued……….. • Sell discoveries early or fully develop?.........selling fields early in life after minimum drilling further improves IRR and ROI , but sacrifices a portion of the future present value.

10. Denali Oil & GasStrategy …….How do we generate 30%+ IRR & 3.0 ROI? Example: Ten well field, each well costs $4 million and has a PV10 of $6 million and ROI of 2.5. Capital Sale Value ROI Land & Seismic $ 1 - - Drill 3 wells $12 $30 2.5 Drill 7 PUD’s $28 $70 2.5 Total $41 $100 2.44

11. Denali Oil & GasStrategy …….How do we generate 30%+ IRR& 3.0 ROI? Example: Ten well field, each well costs $4 million and has a PV10 of $6 million and ROI of 2.5. Capital Sale Value ROI Land & Seismic $ 1 - - Drill 3 wells $12 $30 2.5 Sell 7 PUD’s -- $21 - (at 50% of PV10) Total $13 $51 3.9

12. Denali Oil & GasBusiness Plan Starting Point Conditions Private Equity Funded Company • Target 30%+ IRR and ROI of 3.0+ • Don’t bet on rising oil and gas prices. • Minimize risk. • No rank wildcatting. • Prudent level of borrowing. • Conservative Acquisition analysis assumptions.

13. U.S. Gas Prices Adjusted for Inflation 1985 - 2009 ???

14. Denali Oil & GasBusiness Plan Minimize Risk • Top 10% Technical Team • Wait for exceptional opportunities • No Rank Wildcatting • State of the Art Technologies

15. South TexasWells less than 10,000’ deep Total Wells 361,030 309,919 Wells < 10,000’ TD

16. South TexasWells deeper than 13,000’ 13,007 Wells > 13,000’ TD

17. Denali Oil & GasBusiness Plan Minimize Risk • Top 10% Technical Team • Wait for exceptional opportunities • No Rank Wildcatting • State of the Art Technologies

18. Denali Oil & GasState of the Art Technology Denali

19. Denali Oil & GasResults Denali I (2003 – 2006) • Three small acquisitions ($9.1 Million), 4 exploration wells (3 successful and 1 dry hole), 35 development wells. • $44 million of investor capital and $15 million debt. • Sold in multiple transactions totaling $230 million. • IRR = 214%, multiple = 4.5.

20. Denali Oil & Gas Rick Louden President & CEO

21. Denali Oil & GasResults Denali II (2006 – 2008) • One acquisition, 13 exploration wells (6 successful and 7 dry holes), 13 development wells. • $64 million of investor capital and $24 million debt. • Current proved reserves of 70 Bcfe and probable reserves of 73 Bcfe. • 100,000 net undeveloped acres in resource play with acreage going for $250-350 per acre.

22. Denali’s S. Escobas Field Denali Oil & Gas Escobas Field Rick Louden President & CEO Fandango field

23. Escobas Field89 BCF Fandango Field429 BCF

24. South Escobas Type Log

25. Type Log Cont.

26. Denali’s S. Escobas Field Denali Oil & Gas Escobas Field Rick Louden President & CEO Fandango field

27. Denali Oil & GasFinding Costs YearReserve AddsFinding Cost 2003 13 Bcfe $0.67/Mcfe 2004 28 Bcfe $1.06/Mcfe 2005 41 Bcfe $1.24/Mcfe 2006 35 Bcfe $1.08/Mcfe 2007 25 Bcfe $1.00/Mcfe 2008 30 Bcfe$1.44/Mcfe Total 172 Bcfe $1.17/Mcfe

28. Denali Oil & GasDenali III • Same Investor Group. • $140 million commitment. Additional capital available for larger acquisition. • Exploration and acquisitions with increased focus on identifying acquisitions. • Partner with companies who have acreage and prospects in S. Texas, but are reallocating capital to other basins………through farmouts and joint ventures.

29. Experience . . . Focus . . . Innovation . . . Technology . . .