Date: February 5, 2014

Casey Whelan

Natural Gas: A Star Performer in the Past, Great Potential for the Future

Natural Gas: Physical Overview

Natural Gas: Financial Overview

Lower Natural Gas Prices have Stimulated Demand

• Industrial – i.e. Fertilizer industry which left the country over last twenty years is returning (over $10B in new investment)

• Electric Generation -- Retired electric generators replaced with natural gas generation (headwinds: renewables and low load growth)

• Export Markets – Three LNG projects approved … plus Mexico

Future Demand - Industrial

As of 2013– 170 New Gas Consuming Projects Online– 0.7 Bcf/d of demand capacity

By 2020– 400 New projects proposed or scheduled– 6 Bcf/d of demand capacity

• 4.2 Bcf/d is petro-chemical– Gas to Liquids (GTL)– Methanol– Fertilizer

– Not all capacity is expected to materialize– Best estimate is ~ 2 Bcf/d growth by 2018

Future Demand - Power

Future Demand - Exports

• Capacity expanding from 5.4 Bcf/d at present to 9.6 Bcf/d by 2018– 3.2 Bcf/d of expansion will come from Texas

• Conservative estimate of Mexican demand growth is 2.7 Bcf/d – 17 MW of new power demand accounts for 1.4 Bcf/d of this estimate

Source: Bentek

Wide spread between natural gas and liquid fuel prices creates opportunities

• CNG fueling for on-road trucks– 5x growth in engine production in 2014

• LNG fueling for on-road trucks, off-road trucks (mining), rail and marine– Drilling Rigs increasingly have dual fuel capability

• GTL opportunities with natural gas feedstock– Lots of talk ….

CNG and LNG willdisplace liquid

fuels.

Fuel choices will be

driven by economics

and environmental

considerations.

LNG/CNG Demand Growth

Quantifying Structural Demand Growth

Demand Source

Industrial

Power Generation

Exports

2015

1.5 Bcf/d

2 Bcf/d

3 Bcf

2018

2.25 Bcf/d

3.5 Bcf/d

6-10 Bcf/d

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 $-

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

$10.00

$3.89 $4.27 $3.22 $5.39 $6.14 $8.62 $7.23 $6.86 $9.03 $3.99 $4.39 $4.04 $2.79 3.910173913043484.084833333333334.084833333333334.088166666666674.147666666666674.19125

Average Calendar NYMEX Settlements and Future Calendar Strip Prices

Futures

Historical and Future Prices

Average Settlements– 2000-2008: $6.07– 2009-2013: $3.82– 2014-2018: $4.12

Natural Gas Drilling Economics

Natural Gas: Feeding the Beast

Driver• Increasing Decline

Rates

• Increasing Production

• Production in non typical locations

Consequence• More drilling

required to replace production

• More investment required in drilling and mid/down stream activities

• New mid/down stream investment required

Summary/Observations

• Supply has expanded dramatically, driving prices down• Demand has and will continue to respond “low” prices

and “high” spreads• Prices remain low and stable in the future. Expectation

is that future demand can be met with available resources

• Supply side will need large and increasing investments to replace declines and meet increasing demands

• It’s a good time to be in the Natural Gas business