Natural Gas & LNG Fundamentals. Greg Kist Vice President, Marketing, Corporate & Government Relations

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1 Natural Gas & LNG Fundamentals Greg Kist Vice President, Marketing, Corporate & Government Relations

2 Marketing & Risk Management Strategy Hedge up to 50% of production currently focused on protecting AECO basis differentials Prefer downside protection through put options Diversify sales portfolio Take advantage of abundant takeaway capacity in operating region Develop pipeline strategy to get Montney gas to westcoast LNG facility Develop an LNG Export facility through JV with PETRONAS 2

3 Future for Natural Gas Immediate environmental benefits Natural gas to play vital role in reducing overall emissions and underpinning renewable energy New technology has allowed industry to access hard-to-get-at resources Significant demand growth potential in North America and globally New sources of demand emerging transportation fuel Reason for optimism IEA Golden Age of Gas 3

4 US Demand Growth Annualized Growth of 3% Y/Y Bcf/d Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec

5 US Supply Growth Bcf/d Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec

6 Short Term Pricing Challenges Slow economic growth in the US limits industrial demand Lower 48 gas development has led to supply growth outpacing demand Producer share prices driven by ability to grow and less on earnings North American prices are depressed relative to European and Asian. 6

7 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $ Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Western Canadian Market Station #2 AECO Daily

8 Canadian LNG Net benefit is enormous Alleviates supply demand imbalance Compliments gas exports to the US Provides diversification benefits for producers and consumers Canadian producers diversify from single market, Asian consumers reduce dependence on Middle East supply Job creation Upstream, downstream and construction Ensures investment in NEBC for 20+ years 1 Bcf per day facility requires over 9 Tcf of gas Strong government support Building royalty and tax base for western provinces 8

9 Arbitrage too large to ignore Average Price ($/MMBtu) YTD Japan Canada 9

10 Global LNG Market is Tightening (mmtpa) - Global LNG Supply/Demand Potential to be 150 mmtpa short or ~20 bcf/d 10

11 East Asia is Short LNG mmtpa Pacific LNG Balance Short-term : Post Fukushima has created mtpa of incremental LNG demand Mid to Long-term : Uncertain as Japan continues to debate post- Fukushima nuclear policy Potential to be 80 mmtpa short or ~10 bcf/d -* 11

12 Shifting the Fuel Mix in Japan MMcf/d 14,000 12,000 10,000 Japan LNG Imports Primary concern is balancing peak power demand Upside for gas into power is partly offset by rediverted gas from industry 8,000 6,000 Post-Fukushima Post-Fukushima Pre-Fukushima -Pre-Fukushima Energy policy is being reshaped with a likely emphasis on energy efficiency and renewables 12

13 LNG Export Joint Venture 80% PETRONAS 20% Progress with PETRONAS operating Progress is one of few with equity interest in a LNG project Partnered with a leader in LNG development, shipping and marketing PETRONAS is involved in the full LNG value chain Major supplier to Japan, Korea and Taiwan Supplier/offtake relationships since 1983 Developing new markets in China 13

14 PETRONAS an LNG Major One of the largest production facilities in a single location with 23.3 mmtpa (3 bcf/d) at Bintulu, Malaysia Largest LNG ship operator with 29 ships Currently developing three LNG projects Egypt LNG Dragon LNG Gladstone LNG Reputable and reliable LNG supplier 14

15 LNG Export Joint Venture Detailed Feasibility Study (DFS) for technical phase launched - Awarded to KBR of Houston - 9-month DFS phase - Includes site selection - Initial design for 2 trains each capable of 3.7 mmtpa or 0.5 bcf/d each DFS for Permitting & Regulatory phase and Market Assessment expected to be awarded mid-november 15

16 DFS Deliverables TECHNICAL Plant Engineering To assess technology options optimal to gas and climatic conditions To develop a Basis of Design with CAPEX estimate of ±30% REGULATORY & PERMITTING Environmental & Stakeholder To identify environmental permitting requirements, key milestones and processes To identify and develop stakeholder (first nations, government agencies) engagement plans COMMERCIAL Market & Pricing Domestic gas market and pricing Export market (LNG) and pricing Preliminary marketing strategy Site Selection To analyze 3 to 4 sites and recommend one site for LNG Plant Legal & Regulatory Roadmap to securing export license from NEB and other regulatory requirements for business Finance & Valuation Financing options, tax Project economics valuation -Other internal scope Project risk assessment Organization, schedule and budget for PreFEED and FEED Setting up business entity 16

17 LNG Export Joint Venture Captures the Full LNG Value Chain EXPLORATION & PRODUCTION Progress has the expertise in the North Montney First mover in the North Montney LIQUEFACTION Shared learnings from Gladstone and other projects PETRONAS has technical expertise SHIPPING PETRONAS controls the world s largest LNG shipping fleet GASIFICATION & OFFTAKE Existing long term supply agreements with the major LNG importers Japan, Taiwan, South Korea, China 17

18 Pipeline to the West Coast Develop pipeline capacity to deliver 0.5 bcf per day by 2017/2018 Expandable to handle up to 1 bcf per day Site to be determined through DFS phase Alternatives: Standalone project-specific pipeline Common carrier Well-capitalized pipe companies Prince Rupert 18