Opportunity to invest in US E&P Sector with boots on the ground Investment Manager

1. CAPODIAN LLC
Presentation Table of Contents
Presentation Contents:
Section I: Slides 3-8 Introduction
Section II: Slide 9-14 Investment Objectives
Section III: Slides 15-24 Investment Process
Section IV: Slides 25-36 Process Management
Section V: Slide 37 Conclusion
Appendix 1: Slides 38-41 Available Investment
Appendix 2: Slides 42-43 Management Profiles
Contact: Slide 44 Contact Information
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2. Introduction: Capodian LLC (CIM)
WHY?
There is an extreme lack of liquidity in the U.S. E&P market, specifically in the “small independent operator” sector.
In the U.S., this sector has traditionally been overlooked. Many have started their investment activity here but swiftly moved ‘up-market’ due to
ample capital and the desire to gain mass and do larger transactions. What they neglected was the fact that because it is an underserved space,
returns were higher and easier to achieve. Recent events have exasperated the situation and present an excellent opportunity to provide capital to
the small, independent North American oil and gas producer.
A majority of small ‘exploration and production’ companies “micro E&P’s” are “one-company”-“one-project” concerns and once a project is harvested
the opportunity exists to fund the next. Capodian targets this micro E&P sector and encourages serial develop and harvest strategies. Capodian
has identified several specific oil and gas investment opportunities, it generally expects to invest in the following types of companies:
Small producers who have not had the experience working in the realm of institutional capital markets; Projects that offer drilling potential that is
conventional, and in known producing basins; Companies that focus within their geological, geographic or functional expertise; Companies that can
create additional value through exploitation of acquired properties, re-completions, and drilling of development wells using updated stimulation and
completion technology; and Companies with management possessing strong technical and operational backgrounds.
As oil and gas assets are depleting by nature, larger private and public E&P companies have a constant need to replace reserves through either
acquisition or drilling. As a result, successful projects of micro E&P’s are frequently sold up the chain to these larger players. The greatest challenge
for micro E&P’s is attaining the capital required to realize their full asset value and to create sufficient cash flow to make them candidates for
acquisition or more traditional funding, such as bank debt.
The relationships Capodian managers have developed will afford them the opportunity to assist these companies in moving to the “next level” and
thus can expect higher returns. Capodian will particularly target areas of personal familiarity where their experience can have the greatest impact on
the project.
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Introduction: Capodian LLC (CIM)
WHY NOW?
Domestic Upstream E&P Sector: Fundamentals
The U.S. domestic E&P sector will provide attractive investment opportunities as a result of a variety of factors. Domestic oil and gas consumption in
the US is relatively stable, and in the long term expected to grow annually through 2025 resulting in strong fundamental demand. The domestic E&P
business is a mature industry characterized by a declining rate of production from existing properties, more rapidly declining reserves, and increasing
marginal costs to find and produce oil and gas, driving the need for additional capital.
Clearly, commodity prices have taken a tumble from the highs achieved in early September 2008. This is an excellent time to begin investing in this
sector. In a February report, 1,104 rigs were drilling for natural gas - down 502 rigs from the mid September 1,606 record high. That’s a 30% decline
in ‘new production’ which will be delayed and put upward pressure on prices.
Further, the 2008/2009 winter was not particularly harsh. Yes, parts of the country were cold, but the south has had a milder than normal winter. With
overall production now in a downtrend any ‘normal’ weather will again change the consensus view of prices. The fact of the matter is that keeping up
with demand in times of normal winter, and summer weather is difficult and the current price a consensus reaction to a mild fall.
It is expected that a gas price rally will resume from the lows of this price drop assisted by a good, while not great, winter demand season, low
expectations which will create a market shift to a higher view and increased obstacles to production growth (Increased taxes on the industry and areas
closed to exploration.) A key factor is that overall gas demand is trending up – but it is difficult to extract that factor due to the lack of a truly cold winter.
Our peak production occurred in July 2008 at just under 58 Bcf per day. Consider the fact that in February 2007 average monthly demand was over
90 Bcf. In that month, which we can assume was the most strenuous on storage withdrawals, approximately 16 Bcf was able to be drawn from
storage. Not only is the supply/demand relationship tight, but also the ability to draw stored reserves.
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3. Introduction: Capodian LLC (CIM)
WHY NOW?
Finally, in evaluating the last four major cycles as shown below, there is further historical cause for anticipating a rebound in
prices. The time from market trough to trough has ranged from 56 months to 37 months while we are currently in month 29 from the last
trough. However, if we measure the time from the previous peak to its ensuing trough we find that it has steadily gotten shorter from 24
months to 13 months to 11 months. We are 12 months from the June 2008 peak and indications are that the market recovery from
downturns is shorter, most likely due to the supply constraints inherent in the U.S. Energy markets ability to produce sustainable long-lived
reserves.
HISTORICAL NATURAL GAS AND OIL PRICES
Identifying Four Major Cycles
16 160
14 140
12 120
10 100
$/MCF
$/BBL
8 80
6 60
4 40
2 20
- -
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
OIL GAS
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Introduction: Capodian LLC (CIM)
Capodian Summary
Target Investments ranging between $8MM and $40MM.
Provide capital to oil and gas companies positioned for growth and expansion.
Targeted Fund Return of 24+ percent.
Investment life will be 3 to 5 years
Highly Structured investment vehicles providing capital preservation and
exposure to equity returns.
Staffed by a team of professionals with management, land, exploration,
development, production and financial experience.
The principals have closed financings well in excess of $500MM.
The investment strategy emphasizes achieving high returns, however, investments in oil and gas development activity
is not without risk. CIM will mitigate the inherent risk to the maximum extent possible through structure, due diligence
and ongoing oversight.
Mitigating risk through deal structure will include a ‘protect and reward’ approach focusing on return of capital first,
then participation in the rewards of success. Further mitigation efforts require due diligence in assessing the
reasonableness of reserve estimates, the probability of drilling success, and land and legal confirmations.
Finally, by closely monitoring its investments, selectively hedging commodity price volatility and intervening early if a
project does not proceed as expected; CIM will act swiftly to preserve invested capital.
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4. Introduction: Business Philosophy
Capodian Business Philosophy
Structure transactions to ‘protect and reward’ focusing on return of capital first,
then participation in the rewards of success.
Offer the client company an alternative to typical industry deals.
Align Investor interest with company management.
Invest in management teams that understand the Capodian ‘opportunity
acceleration’ model for the creation of wealth.
Invest in management teams positioned for growth and expansion primarily
through the development of reserves.
Approach all transactions with a ‘trust and verify’ posture through extensive
due diligence policy.
Incorporate knowledge and experience of CIM managers with the portfolio
company management team.
Structure transactions to reward the fund for success with ample opportunity
for management team to achieve wealth.
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Introduction: Investment Objectives
Capodian Investment Objectives
Utilize Preferred Equity Structure whereby investors,
CIM managers, and operator function in partnership.
Position capital to achieve a minimum investor rate
of return of 24%.
Provide current yield of 9% to 11%.
Target capital gains of 20% to 50%.
Full cycle return of capital in three to five years.
Mitigate risks to maximum extent possible through
structure, due diligence and ongoing oversight.
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5. Objectives: Target Investments
Target Investments
Investment in United States oil & gas projects.
Oil and/or Gas drilling and development opportunities with an
available inventory of drill sites.
Investment commitments of $8MM to $40MM.
Investments involving as many as 30 drill sites to develop a project
area; or as few as 3 drill sites to prove the project concept for further
development.
The reserves are generally classified as P1 (Proved Producing,
Behind Pipe or Undeveloped) or P2 (Probable) drilling locations.
Provide Structured Returns of 24% to 50%+
(as adjusted for initial risk composition).
Company management team capable, knowledgeable and
understanding of the Capodian concept.
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Objectives: Opportunity Acceleration
The Capodian Advantage: Opportunity Acceleration
Capodian offers oil & gas producers the opportunity to accelerate
projects resulting in greater company value creation over time:
Project III
Company Value
-- Capodian Funded
-- Other Funding
Project II
Project I
Project I
Time
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6. Objectives: Target Returns
Target Returns
The Fund will target a Rate of Return of 24% or better primarily
targeting projects returning 20% to 50%.
Will focus its investment activity where there is FIRST a high degree
of confidence in the return of capital, with overall rate of return
considered secondary to that goal.
It is important to note that the “Target Rate of Return” for each Investment will be a
“structured” return where the various risk components are factored in to the return parameters.
The Manager will have the belief that each and every transaction should meet and likely exceed
the target rate.
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Objectives: Scope of Opportunities
Capodian Scope of Investment Opportunities
2.0 50%
PRIMARY FOCUS OF
1.8 CAPODAIN STRUCTERED 45%
INVESTMENT ACTIVITY
Initial Commitment Coverage
1.6 40%
Structured Return Target
1.4 35%
1.2 30%
1.0 25%
0.8 20%
0.6 15%
0.4 10%
0.2 5%
0.0 0%
Low Target High
Significant leasehold collateral Minimal leasehold collateral
Current Production Little/No current production
Low per well cost High per well cost
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7. Objectives: Structure
Primary Structure
Convertible Preferred
Highly Structured Preferred Equity, including protective rights, financial
controls, and future funding contingencies functioning like a structured debt
deal, however, avoiding Lender Liability and Bankruptcy issues.
Alternative Structure
Mezzanine Debt
Typical Senior Secured promissory note with equity kickers in the form of
warrants and/or Overriding Royalty Interests.
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Objectives: Terms
Structured Equity or Debt Terms
Coupon bearing instrument of 8% to 12%.
Equity in the form of Overriding Royalty Interest, Net profits Interest, Preferred
Stock or Warrants will be included to achieve return targets.
Payout from investments will usually be less than 4 years.
Transaction structure will create a fixed 3-5 year maturity date.
Financial control and review mechanisms to be put in place as condition to closing.
Development funds will be subject to performance review and issued on a cash call
basis.
Equity Rights and/or Negative Covenants will include increasingly aggressive
control and cash reclamation terms in the event of underperformance. Annual
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8. Process: Sourcing
Capodian managers have a well established network through a combined 50 years in the
energy industry. Their experience and established relationships span all major facets of
the upstream chain:
Experience: Relationships:
Land Acquisition Producers
Exploration/Prospecting Drillers & Service Entities
Reserve Engineering A&D Groups
Development/Exploitation Contract Engineers
Production/Operations Lawyers
Sales/Marketing Bankers
Banking Land Personnel
Deriviatives/Hedging Strategy Agents & Brokers
Mezzanine Lending
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Process: Sourcing
Target Companies
Capodian will target small producers who are generally "unsophisticated" in the realm
of institutional capital markets;
Companies that acquire and develop oil and gas wells within their geological,
geographic or functional expertise;
Companies that can create additional value through exploitation of acquired properties,
re-completions, and drilling of development wells using updated stimulation and
completion technology; and
Companies with management possessing strong technical and operational
backgrounds.
The relationships Capodian managers have developed will afford them the opportunity
to assist these companies in moving to the “next level” and thus can expect higher
returns.
Capodian managers will particularly target areas of personal familiarity where their
experience can have the greatest impact on the project.
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9. Process: Sourcing
Competition
Competition for these transactions will come from industry partners doing traditional
working-interest (“third for a quarter”) transactions and disparate small private equity
sources, often individuals. Our proposed structure will be attractive to producers when
compared to these options because:
The company retains a larger share of eventual proceeds,
Capodian will have the ability to rapidly fund follow-on transactions,
Capodian will provide an independent verification of the project without the threat of
losing the project to a competitor.
Availability
These types of transactions are plentiful in today’s market. The Capodian Managers
currently operate in this segment and have identified transactions which meet the criteria.
In the US market, Private Investing largely targets transactions requiring commitments in
excess of $50 Million.
We anticipate a robust market for the Capodian investment strategy in the current
commodity environment where developing reserves is the most likely avenue for companies
of this size.
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Process: Initial Review
Initial Review Material Supplied by Company
Corporate Overview
A summary of the company’s history, present condition and future objectives.
Current financial condition.
Reserve Report
Preferably a ‘Third-Party’ engineering study detailing gross and net reserves,
operating expense, production taxes, capital costs and future cash flows.
Use of Proceeds
A detailed schedule of capital expenditures over the investment period of the
project including drilling expenses and immediate capital needs.
Profiles of Key Management Personnel; References.
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10. Process: Initial Review
Initial Review Material Supplied by Company
Field Summary
A summary of current property interests and/or interests to be acquired including
cumulative production to date, number of wells drilled, lease positions, current
daily production rate, etc.
Delivery Points
Information on natural gas and crude marketing arrangements.
Development Plan
A description of the development activity to take place including the number of
wells, time to drill and complete, transportation and marketing costs, etc.
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Process: Initial Assessment
Initial Review Assessment
Capodian will model the transaction and make the following determinations:
Does the opportunity fit the Investors criteria?
Is the plan viable under existing market conditions?
Does the management team represent a good risk?
Under what structure and terms would Capodian invest?
Capodian will verbally communicate ‘general’ structural parameters to the
company
Technical and Operational Review
Upon agreement of ‘general terms’ a Technical Review follows
Technical staff meet to for a an in-depth review of the company’s engineering,
geology, operations, land, and intended development activity.
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11. Process: Terms & Closing
Term Sheet Issued
Term Sheet issued following positive technical review
Non-binding document addressing the size of the investment and terms and
conditions used to consider the investment.
Upon review and acceptance, the company enters exclusive negotiations with
Capodian
Move to Close
Due Diligence
Engineering: Verify engineering via third party audit of reserves.
Financial: Review and evaluate accounting and reporting process.
Land: Review title and any other pertinent land issues.
Environmental: “Phase I” environmental report assessing any risk.
Management: Professionally conducted background checks.
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Process: Close & Post‐Close
Closing
Documentation and Execution
Post-Closing Administration
Daily Drilling/Activity Reports
Bi-Weekly Update Calls
Monthly Reports:
Actual and Forecasted Production
Recap of drilling activity to date – as compared to plan
Immediate development activity
Actual Historical Financials and Forecasted Cash Flow
Quarterly Board Meetings and Financial Reports
Semi Annual Reserve Report updated (may be done annually)
Annual Audited Financial Statements
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12. Process: Management Structure
Management Structure
Capodian LLC (“CIM” or the “Manager"), a Texas Limited Liability Corporation
will be the sole agent under a management agreement with the Investors.
Capodian majority owner is Anthony C. Schnur.
The Manager will establish a Board of Advisors composed of selected
representatives of the Investors. The Board of Advisors will advise the Manager
and be available at least quarterly for periodic updates on the investments.
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Process: Portfolio Building
Building a Portfolio
Committed Capital: The Manager will target and present to investors transactions
totaling approximately $100 million in 2009. It is the intent of the Manager to
develop an understanding of investor preferences and over time narrow the
investment selection process to those of general appeal.
Diversification: The Manager will work to introduce Investors to transactions in
both Oil and natural Gas, and in various U.S. basins in an effort to diversify the
overall U.S. exposure of the Investors.
Portfolio Parameters: The Manager will endeavor to achieve minimum
annualized returns of 24% while diligently pursuing investments that have a high
degree of likelihood to return invested capital.
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13. Management: Reporting
Reporting
Reports to Board of Advisors: The Manager will meet with the Board of Advisors
on a quarterly basis to review and discuss the Manager's investment activities,
portfolio positions and outlook.
Reports to Investors: The Manager will furnish audited financial statements
annually to all Investors. On a quarterly basis, each Investor will be furnished with
an un-audited financial overview of each investment.
Investor Meetings: The Manager will hold annual meetings offering Investors the
opportunity to review and discuss the Manager's investment activities. Capodian
personnel will also make themselves available to Investors during the year as
necessary.
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Management: Timing
Timing of Investment Decisions
Investment Proposal: The Manager will produce and provide an Investment
Overview to the Investors. With-in five business days of this submittal a Question
and Answer (Q&A) session will be held.
Consideration Period: Five business days following the Q&A session will be the
Determination Date by which all investors must make a Go/No-Go decision for the
investment.
Unanimous Decision: In the case of agreement with all Investors to proceed,
standard documents will be drawn, signed and funds placed in escrow for closing.
Split Decisions: In the case of a Split Decision, Investors who have opted to
invest will have another five business days to determine if they want to proceed
with the investment on higher ratio amongst the remaining investors.
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14. Management: Timing
Timing of Closing and Funding
Closing: The Manager will conduct closing preparation within 60
days from the date of approval by Investors.
Funding: Transaction Funding will occur at closing.
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Management: Financial Transparency
Income and Expense Transparency
Income: The Manager’s fees received will be charged to the Investment company as an
expense. Interest Income, Capital Gains, Overrides, etc., will be paid to the Investors.
Expenses: The Management Fee(s) and Incentive Fees (discussed later) will be the sole
source of revenue of the Manager. From the Management Fee, the manager will pay all
ordinary operating expenses of the Manager for salaries, rent and similar expenses
(including travel and maintenance of the Manager offices) in connection with the
investigation of investment and disposition opportunities for the investments and monitoring
of the Investments.
Manager Audit: Capodian management believes in total transparency. Investors will have
the right to audit the manager to ensure compliance with all agreements. Manager will also
provide a “State of the Manager” overview as part of the Annual Investment Review
Process.
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15. Management: Financial Control
Financial Controls
Capital Control
CAPODIAN
Capital Draw CAPITAL LOCKBOX
Escrow DRAW (Investor Viewing Access)
CLIENT COMPANY
Investor Capodian ACCOUNT
Account Account (Capodian Viewing Access)
Operating
Expense
Interest Mgmt G & A CLIENT'S NATURAL GAS
& Royalties Fees
PURCHASER PAYMENTS
Production Taxes
Client Company
Revenue CLIENT'S OIL
CLIENT COMPANY PURCHASER PAYMENTS
REVENUE LOCKBOX
(Investor Viewing Access)
Requires Investor To Transfer By Written Instruction at Closing
Requires Capodian To Transfer Dual Consent Investor & Capodian
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Management: Investor Commitments
Initial and Drawdown Requirements
Investor Commitment: Once an Investor Commits to a particular transaction,
that Investor is committing to an “Initial Drawdown” and potentially “Subsequent
Drawdowns.” By agreement, penalties will be enforced for unmet Subsequent
Drawdowns; those penalties to inure to the benefit of the remaining Investors.
Initial Drawdown: The initial drawdown for each Investor will include such
Investor's proportionate share of the Investment which will include: (i) Company
capital required, (ii) Manager’s Structure Fee; and (iii) the legal and administrative
cost to close the transaction.
Subsequent Drawdowns: Commitments are expected to be drawn down as
needed during the Commitment Period, with not less than 5 business days' prior
written notice.
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16. Management: Investor Commitments
Tax and Withdrawal Considerations
Tax Considerations: The Investments will most likely be treated as Equity in a
Limited Liability Corporation for federal income tax purposes and each Investor will
be taxable on its share of income, regardless of the amount of distributions to the
Investors. Tax implications resulting from Investments in the fund may be different
for specific investors and as such should be reviewed by each prospective investor
and its investment, tax or other advisors, accountants, and legal counsel.
Withdrawals and Transfers: Interests in Investments will not be assignable or
transferable without the prior written consent of the Manager. Further, an Investor
may not withdraw any amount from the Investment except as those amounts
agreed in accordance with the terms and conditions of the transaction.
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Management: Manager’s Fees and Expenses
Managers Compensation: Management Fee
Structure Fee of 1.0% to 2.0% of funds committed, paid as drawn.
Management Fees of 1.0% to 3.0% of revenue generated during the life of the
Investment.
Annual Engineering Fee of 0.25% of Invested Amount, but not less than $20,000
per year charged to company.
From the Management Fee, the manager will pay all ordinary operating expenses
of the Manager in connection with the Fund's investments.
The Management Fee will commence as of the date of the initial closing based on
total The Manager may elect, at its sole discretion, to reduce and/or return any
amount of the management fee it deems appropriate at any time.
Managers Compensation: Incentive Fee
Manager to receive Incentive Fees based on performance (discussed later.)
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17. Management: Manager’s Fees and Expenses
Organizational Start-Up Expenses:
The Investors will pay to the Manager's up to $500,000 for activities in establishing
Base Documents, securing office space and initiate the acivitiy of the Management
Company. These expenses will include legal, tax consulting and related activity
specific to the establishment of Capodian LLC and Preferred Equity and Mezzanine
Base Documents. One-Half of the final amount paid will be credited back to the
investors against the Manager’s Structure Fee’s over the course of the first year of
operation. If organizational expenses exceed $500,000, the Manager will pay all
amounts in excess of $500,000.
Extraordinary:
From the Management Fee(s), the Manager will pay all legal expenses to protect
the Fund's investments unless, however, any proceeding or proceedings involving
a single Portfolio Investment is estimated to cost an amount greater than 15% of
the Investment’s annual Management Fee. In such a case the Manager may elect
to charge the Company (and expect Funding of) an ‘extraordinary legal fee’ in an
amount equal to the difference in 15% of the Management Fee and actual
applicable legal charges.
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Management: Fees and Expenses
Incentive Fee
The Manager will receive an “Incentive Fee” based on the performance of each Investment.
The Incentive Fee will be calculated as follows:
The Incentive Fee is 0% on an annualized Fund Return of 15% or less,
The Incentive Fee is 3% of the nominal cash value of an annualized investment Return in excess of
15.0%, up to 24.9%,
The Incentive Fee is 5% of the nominal cash value of a Fund Return greater than 25.0% up to 36.9%,
The Incentive Fee is 8% of the nominal cash value of a Fund Return greater than 37.0%,
For illustration purposes we outline the incentive payment reaching the 24% threshold amount,
and reaching a 57% return Incentive Fee will be calculated as follows: (see next slide)
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18. Management: Waterfall Illustration
Incentive Fee: Deal Returning 24% IRR To Investor
IINVESTMENT METRICS INVESTOR METRICS COMPANY METRICS MANAGER METRICS
Investment 16,974,791 Investment: (16,974,791) 2% of First 15% 361,000 -0- of First 15% 0
Revenue 10,164,794 Interest Income 1,762,500 15% of 15%-25% 190,647 3% of 15%-25% 47,662
Capital Expense (16,560,000) Capital Return 16,974,791 24% of 25%-37% - 5% of 25%-37% -
Company Exp (4,321,132) Gain 2,064,639 37% of 37%+ - 8% of 37% + -
Exit / Cash Out 15,685,579 Incentive Income 47,662
Fee Income 542,792
Cash Available 4,969,241 Total Return 3,827,139 Company Gain 551,648 Manager Total 590,454
Incentive Fee: Deal Returning 57% IRR To Investor
IINVESTMENT METRICS INVESTOR METRICS COMPANY METRICS MANAGER METRICS
Investment 16,974,791 Investment: (16,974,791) 2% of First 15% 361,000 -0- of First 15% 0
Revenue 10,164,794 Interest Income 1,762,500 15% of 15%-25% 238,329 3% of 15%-25% 59,582
Capital Expense (16,560,000) Capital Return 16,974,791 24% of 25%-37% 700,598 5% of 25%-37% 145,958
Company Exp (4,321,132) Gain 8,022,918 37% of 37%+ 2,386,789 8% of 37% + 516,063
Exit / Cash Out 25,452,868 Incentive Income 721,603
Fee Income 542,792
Cash Available 14,736,530 Total Return 9,785,418 Company Gain 3,686,717 Manager Total 1,264,394
INCENTIVE STRUCTURE: The proposed incentive structure is designed to promote active investment management and
the maximization of value for each investment.
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Management: Distributions
Income Distributions
Income Distributions, such as Interest Income, and Royalty Income
will be distributed to the investors on a monthly basis.
Capital Gain Distributions
Any Capital Gains generated due to the liquidation of a Portfolio
Investment will be paid out to the investors within 30 days after the
end of the Calendar Quarter in which it occurs. The Manager’s
Incentive Fee for that Investment will also be calculated
coincidentally and paid at that time.
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19. Conclusion:
Capodian combines experience, knowledge and networks to attract and
consummate profitable transactions.
The Capodian managers have on-the-ground experience in engineering
assessment, operations, field development, oil & gas accounting, financial
management, and valuation & structures to ably operate a portfolio of oil field
investments.
Capodian is a well thought and informed opportunity to invest in energy
commodities in North American and take advantage of the tight capital markets
where intelligent money can reap handsome rewards.
Capodian takes it’s reputation seriously.
Honesty, Integrity and Stewardship
are the fundamental mission of the company –
all else is secondary.
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Appendix 1 : Available Investment
Investment Opportunity
A company in Houston is in need of development capital to exploit P1 reserves. The
company has an immediate inventory of 9 drilling locations, 4 of which they would like to drill
and then sell. The Capital Budget Requirement $18.0 million.
Investment Structure
Capodian and it’s Investors agree to fund the company in return for Convertible Preferred
Shares. Other Terms and conditions are as follows:
Preferred Equity Commitment $18,000,000
Initial Draw $10,600,000
Preferred Interest Rate 9.00%
Common Equity Issuance Hurdles:
2% at Closing
12% after Preferred Achieves a 15% IRR
24% after Preferred Achieves a 25% IRR
37% after Preferred Achieves a 37% IRR
Management Fee (on Revenue) 2.0%
Structure Fee (On Draws) 2.0%
Engineering Fees/Yr. $20,000
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20. Appendix 1 : Available Investment
Capodian funds the necessary capital to develop the assets, on a net of operating cash flow basis, thereby
limiting it’s exposure and ensuring company proceeds are reinvested. The company kicks off development,
begins to achieve substantial growth in cash flow and once the development program complete, proceeds to
re-purchase the preferred, according to the agreed Hurdle Rates
Income Statement:
Annual Projected Income Statement
(In Thousands of Dollars)
INC & EXP 2009 2010 2011 Total
Operating Revenue
Production Revenue 0 8,658 1,506 10,164
Total Revenue 0 8,658 1,506 10,164
Expenses
LOEs / Production Cost 0 543 99 16,049
Production Taxes 0 741 125 11,688
Production Expenses 0 1,285 224 27,737
Net Income from Ops 0 7,374 1,282 8,656
Corporate Expenses
Manager Fee 212 173 30 415
G&A / Closing Fees 1,187 1,875 175 3,237
Interest Expense 318 1,214 135 1,667
Total Corporate Exp 1,505 3,089 310 5,319
Net Inc Before Taxes (1,505) 4,285 972 3,753
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Appendix 1 : Available Investment
Following the development the company is estimated to be able to sell the property for a conservative $40
million U.S. With $54 million in Producing Reserves and an additional $13 Million in P1, yet undrilled value,
$40 million is a fair estimate even in this market.
Cash Flow:
Annual Projected Statement of Cash Flows
(In Thousands of Dollars)
CASH FLOW 2009 2010 2011 Total
Net Income Before Taxes (1,505) 4,285 972 3,753
Plus: Advance from Investor 10,600 7,400 0 18,000
Less: Capital Expenditures (7,400) (9,160) 0 (16,560)
Plus: Sale of Property 0 0 40,000
PROCEEDS FROM SALE:
Less: Investors Equity 0 0 (31,009) (31,009)
Less; Managers Incentive 0 0 (1,607) (1,607)
Less; Company Owners Adv. 0 0 (8,356) (8,356)
Net Cash Flow Before Taxes 1,695 2,525 0 4,220
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21. Appendix 1 : Available Investment
Capodian will require two maturity points in it’s Convertible Preferred structure, one being a hard
maturity date, and secondly threshold dates at which time certain rights may be escalated and
enforced, over 36 months or less. Similarly, the Mezzanine structure will have coverage and
other covenants as well as a hard maturity date.
Resulting Metrics of “Available” Investments:
Payout Term (months) 17
Investor IRR% 88.6%
Investor Ave Annual Yield 10.91%
Cash Over Investment $15,61,2103
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Appendix 2: Management Team
Anthony C. Schnur, Managing Director
Mr. Schnur has 20 years of extensive experience in the oil and gas and financial management
industries. He has held various roles including CFO of Llano Operating Corporation, Interim
CEO and Finance Director (CFO) of NT Energy plc. Areas of responsibility have included the
financial accounting, procedures and reporting, treasury and credit management functions. He
has participated in strategic development planning of company oil and gas assets, lease
acquisition and maintenance; securing and managing company credit and funding; as well as
the management of Accounting, Human Resources and IT functions.
Mr. Schnur was principal of a private oil and gas capital advisory company specializing in
corporate strategy and planning. His services encompassed capital restructuring, including
successful of work-outs, acquisitions and divestitures, arranging debt finance and providing
financial management and control. In these positions he placed over $40 million in
commitments and divested $30 million in assets. Previous experience includes Director of
Structured Transactions at Aquila Energy Capital Corporation, where assisted in the
structuring and sale of Aquila Inc.’s energy mezzanine loan portfolio. As a transaction
originator, Mr. Schnur closed eight mezzanine transactions totaling $152 million and reviewed
over 150 transactions as potential areas of interest for Aquila. Mr. Schnur earned an MBA
from Case Western Reserve University, Weatherhead School of Management majoring in
Marketing and Corporate Finance. And holds a B.S. in Business Administration from Gannon
University, Dahlkemper School of Business.
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22. Appendix 2: Management Team
[Name Withheld], Director
Individual is currently employed and will be available at a time suitable to review their experience and commitment to Capodian.
He has over 25 years of extensive and diverse experience in the oil and gas industry including
business development, divestitures and acquisitions, commercial finance, engineering and
oilfield valuation, due diligence, and field operations management. Currently acts as an
independent petroleum consultant specializing in business development, advisory and
property valuations. Under contract to generate drilling and production business opportunities
and assisted CEO with set-up of a new public E&P company
Prior to starting his consulting practice, he served as Director, Divestment Services for
Madison Energy Advisors; Director of Concert Capital Resources where he assisted in the
execution of a successful liquidation of a $375 million structured finance portfolio. He also has
experience as an Asset Analyst for Aquila Energy Capital, where he drew on field operations
experience to advise/consult with underwriters in the development and review of
documentation and credit agreements for highly structured oil and gas project finance
packages; developed and implemented the process to monitor activity on loans with a
combined value of $500 million and made recommendations to management regarding
continued funding, exit and foreclosure. Developed a strategies to move forward and
maximize returns via liquidations, where deemed necessary. Prior experience also includes
Sr. Engineering Analyst with Kerr McGee. and spent 15 years at Sonat Exploration, in
offshore production operations and the production and reservoir engineering departments. He
holds a B.S. in Petroleum Services Technology from Nicholls State University.
43 CAPODIAN LLC
DRAKE’S WELL
TITUSVILLE, PA
AUGUST 27, 1859
SPINDLETOP
BEAUMONT, TX
JANUARY 10, 1901
44 CAPODIAN LLC