An INDEPENDENT energy consulting company since 1996 No affiliation with any marketer, broker, agent, utility, pipeline or producer.

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2 An INDEPENDENT energy consulting company since 1996 No affiliation with any marketer, broker, agent, utility, pipeline or producer. More than two decades of experience in the natural gas and electric industries Specialize in natural gas and electricity buying advice for businesses and the development and implementation of proactive purchasing plans. Publications, Seminars, & Consulting Services

3 Cost Categories for Business Customers Utility 7% P/L 8% DEREGULATED Commodity 85% Based on the Henry Hub, located in Louisiana The most volatile price component

4 06/90 01/91 08/91 03/92 10/92 05/93 12/93 07/94 02/95 09/95 04/96 11/96 06/97 01/98 08/98 03/99 10/99 05/00 12/00 07/01 02/02 09/02 04/03 11/03 06/04 01/05 08/05 03/06 10/06 05/07 12/07 07/08 02/09 09/09 04/10 11/10 06/11 01/12 Natural Gas Monthly NYMEX Expirations $ $ $ $ What has changed The long-term price trend change for natural gas is going to be more heavily driven by the cost of other commodities crude oil, NGLs, and coal. $8.000 $6.000 $4.000 $2.000 $-

5 Fundamentals Supply & Demand Weather Competing Fuels Technicals Support/Resistance Charts Financial Economy Psychology Bull/Bear Markets

6 Trillion cubic feet per year Source: Early Release: EIA Annual Energy Outlook 2012 NOTE: Imports have disappeared Since 2000, shale gas production has increased 17-fold and is now about 30% of U.S. production. Shale gas production increases from 5 Tcf in 2010 to 13.6 Tcf in 2035.

7 Estimates will continue to change as new wells provide additional data and technologies change Long-term productivity remains untested Only portions of plays are tested Unknowns of stacked plays

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9 Ongoing advancements in technologies Multi-stage fracturing process increases productivity No fears over a supply shortfall Source: Wood Mackenzie Long Term View April 2011 From ExxonMobil LDC Forum Presentation: Fall 2011 Chicago

10 Productive portion comparisons Marcellus Shale: 95,000 square miles Barnett Shale (Texas): 5,000 square miles

11 Lies beneath the Marcellus Shale Stacked plays Still many unknowns Estimated to hold as much as 25 billion barrels of oil May be the largest domestic discovery of oil in 50 years

12 Associated Natural Gas: Gas that is produced as a byproduct of crude oil production Producers have moved drilling rigs from natural gas to crude oil plays due to economics Drilling for crude oil has increased natural gas supply levels through the production of associated gas The amount of associated gas being produced has been greatly underestimated

13 6/1/1990 6/1/1991 6/1/1992 6/1/1993 6/1/1994 6/1/1995 6/1/1996 6/1/1997 6/1/1998 6/1/1999 6/1/2000 6/1/2001 6/1/2002 6/1/2003 6/1/2004 6/1/2005 6/1/2006 6/1/2007 6/1/2008 6/1/2009 6/1/2010 6/1/2011 6/1/2012 1,800 Drilling Rig Counts 1,600 Crude Oil Drilling Rig Count Natural Gas Drilling Rig Count 1,400 1,200 Oct 2008: Price of natural gas: $7.50 per MMBtu Apr 2012: Price of natural gas: $2.50 per MMBtu Crude $103/barrel = $17.76 per MMBtu 1, Source: Baker Hughes

14 Dry gas vs. wet gas Natural Gas Liquids (NGLs) Wet natural gas contains impurities and hydrocarbons NGLs are stripped away and sold separately based on crude oil prices NGLs include ethane, propane, normal butane, isobutane, pentane, and natural gasoline Natural gas production curtailments are taking place in the most inefficient and drier natural gas plays, which contain little or no NGLs

15 Revenue supplements NGLs Associated natural gas production Break-even prices have fallen Expenses have fallen (lower rig rental rates, less labor needed, falling real estate prices) Higher well productivity levels (more gas from single rig, higher reserve finds) Improved efficiencies (average time to drill to total depth has fallen by more than 25% in past two years)

16 Disconnection between rig count, production levels and price Investors want active companies Backlog of wells ready to come on-line Supply exists and will be produced at the right price New attitudes toward the market Producers say they will increase spending at $5 and cut spending at $3.50 per MMBtu One year ago, they said they would increase spending at $6 and cut spending at $4 per MMBtu Producers are hedging 2013 supplies Supply is positive for consumers

17 U.S. Natural Gas Production and Imports billion cubic feet per day (bcf/d) annual change (bcf/d) Federal Gulf of Mexico production (right axis) U.S. net imports (right axis) U.S. non-gulf of Mexico production (right axis) Total marketed production (left axis) Marketed production forecast (left axis) Source: Short-Term Energy Outlook, September 2012

18 Weekly injections/withdrawals are a measurement of supply and demand Expectations vs. reality create a volatile market environment on Thursdays

19 U.S. Working Natural Gas in Storage billion cubic feet 5,000 4,000 deviation from average Forecast 210% 180% 3, % 2, % 1,000 90% 0 60% -1,000 30% -2,000 0% -3,000 Jan 2008 Jan 2009 Jan 2010 Jan 2011 Jan 2012 Jan % Note: Colored band around storage levels represents the range between the minimum and maximum from Jan Dec Source: Short-Term Energy Outlook, September 2012

20 Storage Inventories Currently 3,402 Bcf (395 Bcf higher than last year) Ending inventories are projected to exceed 4,000 Bcf. Maximum practical storage capacity is estimated to be 4,340 Bcf. It will be the smallest summer build since 1991 Limits on storage capacity will limit overall injections Physical system constraints occur when storage gets too full

21 Most growth from the electric power sector Near-term: Increased coal-to-natural gas fuel switching because of price Long-term: Coal-fired plant retirements could drive a 4-6 Bcf/day rise in demand from the electric power sector through 2018 Unknowns: Compliance timing and requirements with new EPA rules Additional demand growth from LNG and pipeline exports

22 Source: Goldman Sachs Equity Research

23 Natural gas has become a competitive fuel choice for electric generation Gas peaking units in the Southeast outcompete most base load coal units Central Appalachian (CAPP) $57/ton = $2.85/MMBtu Long-term: Coal-fired plant retirements could drive a 4-6 Bcf/day rise in demand from the electric power sector between

24 Source: Dominick Chirichella

25 LNG Exports LNG exports should begin in 2015 By 2020, 2-4 Bcf/day is projected to be exported LNG export costs from Gulf of Mexico Europe: Henry Hub Price + $3.80 ($2.60 in liquefaction costs + $1.20 for shipping) Japan: Henry Hub Price + $5.30 ($2.60 in liquefaction costs + $2.70 for shipping) $12-$18 per MMBtu overseas due to price link to crude oil

26 U.S. becomes an LNG exporter in 2015.

27 Weather: Flip a coin! Summer heat Winter cold Hurricanes Economic recovery and industrial demand Natural Gas Vehicles: Lack of infrastructure Anticipated political actions

28 U.S. Natural Gas Consumption billion cubic feet per day (bcf/d) Production still expected to outpace year-over-year increases in demand annual change (bcf/d) Electric power (right axis) Residential and comm. (right axis) Industrial (right axis) Other (right axis) Total consumption (left axis) Consumption forecast (left axis) Source: Short-Term Energy Outlook, September 2012

29 Price downside limited due to fuel switching A lack of storage capacity could depress near-term spot market prices No concerns over supply meeting demand

30 A change in the perception of the future balance between supply and demand Structural permanent shifts in demand Electric generation Coal plant retirements / Coal displacement LNG exports Speculators will likely decide when the bottom is in (watch for herd mentality)

31 EIA 2010: $4.39 per MMBtu (Actual) 2011: $4.04 per MMBtu (Actual) 2012: $2.58 per MMBtu 2013: $3.22 per MMBtu Long-term projections 2013: $2.75-$4.00/MMBtu 2014: $3.50-$4.25/MMBtu 2015: $4.00-$4.50/MMBtu After 2015: $5-$6/MMBtu

32 Changes in the outlook for crude oil prices Economic data becomes increasingly positive Non-OPEC countries experience large and persistent supply disruptions Changes in the outlook for coal commodities Coal prices tumble causing natural gas demand to significantly decline Restrictive EPA policies that support a faster transition to natural gas-fired electric generation Changes in the outlook for NGLs Economics of NGL supplements declines

33 Natural Gas Fracking issues (earthquakes, water supply) Technologies of waterless fracking implemented Economics of accessing stacked plays declines Draft EPA Fracturing Study to determine the potential impact of fracking fluids on drinking water, human health and the environment to be released at end of 2012 Legislation which dramatically alters the number of players participating in futures market trading LNG export market doesn t evolve as anticipated

34 Valerie Wood Verona, WI Tel: (608) Industry info at