Energy Corporation of America

DUG East Conference

Pittsburgh, Pennsylvania
November 4, 2010
 Energy Corporation of America
Background

 Private Corporation
• Approximately 25 stockholders plus our employees
 Beginning and Expertise in Appalachian Operation
• 1976 – Significant discovery

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ECT Drilling Operations

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 Significant Assets

 >5,250 Oil and Gas Wells

 10 Appalachian Gathering Systems, >5,000 Miles

 >1 million acres in Appalachia, 85% HBP

 ~650 BCF Proved Reserves

 > 5,000 Marcellus Horizontal Drilling Locations

 >20 TCF Probable Reserves in Marcellus

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ECA Appalachian Acreage Map

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 ECA Operations

 Appalachian Basin for over 45 years

• Onshore Texas Gulf Coast
o Eagle Ford Shale
• Northern Rocky Mountains
• Austral Asia
 Not a culture of significant exploration success
 Conventional drilling from New York to Kentucky
• Good at „crummy rocks‟ before „unconventional‟
• Forced to develop a low cost culture

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 Marcellus Shale Intrigue

 2005 rekindled interest due to Barnett Success

• Leased roughly 250,000 acres at low cost
• Completed over 1,500 Devonian Shale Wells
• Completed 175 Marcellus Shale Wells
 Marcellus Shale – Steep Learning Curve
• Miss on Type Decline Curve
• Vertical vs. Horizontal
 Created Appalachian Shale Summit

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 A Capital Dilemma

 ECA uses its own capital to drill

• No outside drilling capital in quarter century
 ECA’s Dilemma
• How prolific would the Marcellus Shale prove?
• Arrested or accelerated development?
• How much patience?

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 Why Form A Royalty Trust?

 Capital Alternatives
• Incremental Bank Debt
• Mezzanine Debt
• Equity/Selling Acreage

 Royalty Trust
• Successful Prior Experience as a Royalty Trust Sponsor
o 1993 Public Term Royalty Sponsor (NGT)
o 2005 Private Term Royalty Sponsor

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 Royalty Trust Advantages

 Retain Advantages of a Private Corporation and

access public capital markets
 Public Reporting
• One initial „public company‟ filing report
• No reporting requirement for ensuing 20 years
 Cost of non-recourse capital 10%
• Much less than any other form available
 Retain ownership and operations of properties
 Properties revert to ECA after 20 years

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 About a Royalty Trust

 First We Had to Select the Properties

 Marcellus Advantages…
• A new, very „hot‟ area
• Prolific producers
• Consistent Reservoir -- No dry holes
• Ready access to markets
• Known & manageable drilling & completion costs
• Very low operating costs
 Marcellus Disadvantages…
• New play caused uncertainty for reservoir engineering
• Unconventional plays EUR‟s
• Uncertainty over potential lateral length

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Marcellus Activity Map

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ECT Water Transfer Facilities

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 About a Royalty Trust

 Next we had to select the Investment Bankers

• Our partners in the Transaction

 Selection of Excellent Lead Manager from prior successful

experience
• Relationships count
• Excellent Prior Results

 Interviewed for other Managers with good success

• Retail Marketing Capability Important

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 Trust Structure

 Mission: Structure a trust beneficial to BOTH the

Unitholders and ECA – Win/Win
 Unique Structure
• 1/3rd PDP and 2/3rd PUD
• Pure “Royalty”
o Acts like a pre-loaded MLP
• Defined horizontal lateral length
• Reduced risk
o Hedges
o Subordination
• Sponsor retained ownership

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 Why ECT Worked

 Structure and Execution

 Attractive Assets
• Results exceed forecast
 Pure Royalty
 Retail product sized to fit market demand
• Enables Unitholders the opportunity to invest in a Yield Security
that provides upside unit price potential and downside protection

 ECA’s retained ownership after IPO

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 ECT Well Performance

10,000

MCF/d

1,000

Producing Well Average

Ryder Scott Type Curve

100
0 30 60 90 120 150 180
Days
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 The Results

 Results…

• Distributions have exceeded targets

• Units have traded up 15% in first 4 months

• ECA received ~$3.20/MCF for gas reserves sold

• Or ECA received $55,000/acre for land contributed

• ECA will operate the properties at no cost for 20 years after

which the properties revert to ECA

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 ECA Marcellus Trust I

 Lessons learned…
• Win/Win not only a good deal, it‟s profitable
• Access to public markets works for Private Companies
• Royalty trust are a retail product
• Market size is limited
• Public offerings are a lot of work
• Excellent properties -- A Must
• Excellent investment bankers are essential
• Corporate commitment is a key sales tool
• A pure royalty is a much easier sale
• Low Cost Corporate Culture

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 ECA Marcellus Trust I

 What we could have done better

• ECA knew the quality of the wells and should have hedged
more gas

• Retail vs. Institutional Markets

• Compensation Structure

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 ECA Marcellus Trust I

 Conclusions

• Royalty Trusts are a lot of work, but WORTH IT

• Would we do it again?

It‟s all in the name – ECA Marcellus Trust I

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Energy Corporation of America

DUG East Conference

Pittsburgh, Pennsylvania
November 4, 2010