OMFG..!!?? OUTLOOK FOR CRUDE OIL AND NATURAL GAS MARKETS:

OUTLOOK FOR CRUDE OIL AND NATURAL GAS MARKETS: OMFG..!!?? January 2, 215 Data and closing prices as of January 16, 215 Martin King, Vice President, Institutional Research Elaine C. Williams, CFA, Research Associate

CANADIAN OIL AND GAS EQUITIES WTF? Oil weighted equities down 32% from 214 peak and down 3% since start of 215; finished 214 down 14%. Gas weighted equities down 36% from 214 peak and down 4% since start of 215; finished 214 down 17%. Obviously, recovery in one or both commodities will lift equity valuations. When, is the key question. 12 11 1 9 8 7 6 FCC Can. Gas-Weighted Equity Index 1/1/ 211 = 1 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Source: FirstEnergy Capital Corp., Bloomberg 1/1/ 211 = 1 12 11 1 9 8 7 6 FCC Can. Oil-Weighted Equity Index Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Source: FirstEnergy Capital Corp., Bloomberg

WORLD CRUDE OIL MARKETS

CURRENT STATE OF THE MARKET Not good! Market has undergone a price collapse on par with that of the 28-9 meltdown. Current oversupply in the global market estimated at 1.5 to 2. million bbl/d. Onshore and offshore storage capacity starting to fill rapidly, driven by extensive price contango. Global demand growth is subdued; Asia and China remain concerns; Europe a basket case; U.S. only market seeing strong demand growth. OPEC still holding the line on no production cuts. Capex budgets being slashed worldwide. Current prices are at five and half year lows. Market still searching for a price bottom?

FIRSTENERGY WTI AND BRENT PRICE FORECASTS Let s first get the bad news out of the way. In early January, we further slashed our price expectations, looking at a longer and lower price recovery. Our oil price outlook for 215 has been reduced by more than US $4 per barrel since late November. Street and bank price forecasts also undergoing massive downgrades. US $/bbl $1 $9 $8 $7 $6 $5 $4 $3 Nymex WTI Price Outlook $92.91 $74.5 $84. $67.25 $54.5 29 211 213 215 217 219 Source: FirstEnergy Capital Corp., Bloomberg. US $/bbl $12 $11 $1 $9 $8 $7 $6 $5 $4 $3 ICE Brent Price Outlook $99.45 $79.5 $72.25 $59. $89. 29 211 213 215 217 219 Source: FirstEnergy Capital Corp., Bloomberg.

NYMEX CRUDE OIL PRICES US $/bbl $11 $1 $9 $11 $1 $9 $8 $7 $6 $5 213 Avg: $98.5 214 Avg: $92.91 215 YTD: $48.35 (to January 16, 215) 213 214 215 $8 $7 $6 $5 $4 Jan Feb Mar Apr May Jun Source: FirstEnergy Capital Corp., Bloomberg. Jul Aug Sep Oct Nov Dec Jan $4

BRENT CRUDE OIL PRICES US $/bbl $12 $11 $1 $12 $11 $1 $9 $8 $7 $6 $5 213 Avg: $18.7 214 Avg: $99.45 215 YTD: $5.31 (to January 16, 215) 213 214 215 $9 $8 $7 $6 $5 $4 Jan Feb Mar Apr May Jun Source: FirstEnergy Capital Corp., Bloomberg. Jul Aug Sep Oct Nov Dec Jan $4

TIMELINE OF THE 214-15 PRICE MELTDOWN 1H14: U.S. supply growth begins acceleration phase from already significant growth pace of 212 and 213; U.S. light crude oil imports backed out to near zero. Early June: First signs of unsold cargoes off West Africa; Atlantic Basin begins tipping into growing oversupply. July: Libyan supply begins recovery. Aug./Sep.: Increasing signs of unsold cargoes off West Africa; Brent curve begins tilting to steeper contango. Late Sep./early Oct.: Saudis hint at no response to falling prices. Nov. 27: OPEC inaction at ministerial meeting; further price collapse; Libyan supplies begin falling on escalating violence. Dec. 14/Jan. 15: OPEC ministers continue to emphasize no adjustment in production policy.

LET S BE CLEAR, OPEC WILL NOT RESPOND OPEC inaction at November meeting indicates a resolve to deal with oversupply and let the market, not OPEC, dictate the appropriate price balance. OPEC inaction is as much about defending marketshare in key consuming markets, as it is about undermining rival supply growth and bringing a business focus back to the cartel. Words and actions by leading cartel members (UAE, Kuwait, Saudi Arabia, and Qatar) are clear: no cuts, means no cuts. thou. bbl/d 32, 31, 3, 29, 28, OPEC Crude Oil Supply 211 212 213 214 32, Jan Mar May Jul Sep Nov Source: FirstEnergy Capital Corp, IEA. 31, 3, 29, 28, thou. bbl/d 1,5 1, 9,5 9, 8,5 8, Saudi Arabia Crude Oil Supply 211 212 213 214 1,5 1, Jan Mar May Jul Sep Nov Source: FirstEnergy Capital Corp, IEA. 9,5 9, 8,5 8,

OPEC BREAKEVENS AND FISCAL POSITIONS All cartel members (and Russia) are well underwater for balancing budgets, but key OPEC countries have lots of foreign reserves to ride out low prices for several years. Source: OilPrice.com Source: OilPrice.com

OPEC S GEOPOLITICAL WILDCARDS All of these countries are more price negatives than price positives. Any improvement from one or all will delay any price recovery that is coming. Iraq is of particular concern. thou. bbl/d 3,75 3,5 3,25 3, 2,75 2,5 Iraq Crude Oil Supply 211 212 213 214 3,75 3,5 3,25 Jan Mar May Jul Sep Nov Source: FirstEnergy Capital Corp, IEA. 3, 2,75 2,5 thou. bbl/d 1,75 1,5 1,25 1, 75 5 25 Libya Crude Oil Supply 211 212 213 214 1,75 1,5 1,25 1, 75 5 25 Jan Mar May Jul Sep Nov Source: FirstEnergy Capital Corp, IEA. thou. bbl/d 3,8 3,6 3,4 3,2 3, 2,8 2,6 2,4 Iran Crude Oil Supply 211 212 213 214 3,8 3,6 3,4 3,2 3, 2,8 2,6 2,4 Jan Mar May Jul Sep Nov Source: FirstEnergy Capital Corp, IEA.

MARKET FORCES NOW FULLY SHAPING PRICE/REBALANCING With OPEC taking a back seat to balancing the market and rescuing prices, the key adjustments will now have to come via price signals on the most price sensitive supply growth country: the United States. The U.S. has just posted in 214 its greatest oil supply growth year on record. Eagle Ford and Permian plays have been the primary drivers of the 214 supply growth phase; now drivers of lower supply? thou bbl/d 1,6 1,2 8 4 (4) U.S. Monthly YoY Oil Supply Growth Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Source: FirstEnergy Capital Corp., U.S. DOE/EIA. Permian/Eagle Ford/Bakken Liquids Supply thou. bbl/d 5, 4, 3, 2, 1, Bakken Eagle Ford Permian Jan-9 Jul-1 Jan-12 Jul-13 Jan-15 Source: FirstEnergy Capital Corp., U.S. DOE/EIA.

U.S. SHALE OIL SUPPLY Rigs 25 2 15 1 Bakken Liquids Production vs. Rig Count 5 Rigs (LHS) Production (RHS) Jan-7 Jan-9 Jan-11 Jan-13 Jan-15 Source: FirstEnergy Capital Corp., U.S. DOE/EIA. thou. bbl/d 1,4 1,2 1, 8 6 4 2 Eagle Ford Liquids Production vs. Rig Count Rigs 35 3 25 2 15 1 5 Rigs (LHS) Production (RHS) Jan-7 Jan-9 Jan-11 Jan-13 Jan-15 Source: FirstEnergy Capital Corp., U.S. DOE/EIA. thou. bbl/d 2, 1,75 1,5 1,25 1, 75 5 25 Permian Liquids Production vs. Rig Count Rigs 6 5 4 3 2 1 Rigs (LHS) Production (RHS) Jan-7 Jan-9 Jan-11 Jan-13 Jan-15 Source: FirstEnergy Capital Corp., U.S. DOE/EIA. thou. bbl/d 2,25 2, 1,75 1,5 1,25 1, 75 5 25 U.S. Breakevens: Eagle Ford/Permian/Bakken US $/bbl $1 Bakken $9 $75 $8 $67 $7 $61 $6 $5 $4 $3 Eagle Ford $43 $85 $64 Permian $75 $68 $64 Lo Hi Avg. Lo Hi Avg. Lo Hi Avg. Source: Reuters.

THIS IS GOING TO TAKE TIME FOR BIGGER IMPACTS It will take time for adjustments to grip the U.S. oil supply growth machine. We see supply deceleration emerging in the next few months, but rig productivities are also likely to rise in near term. thou. bbl/d 1,6 1,4 1,2 1, 8 6 4 2 (2) U.S. Crude Oil Supply Growth 1,131 1,465 859 28 (1) 85 28 21 212 214 216 218 bbls/d/rig 45 4 35 3 25 2 15 1 5 thou. bbl/d 2, 1,5 1, 5 U.S. Oil Rig Productivity vs. Oil Price Jan-1 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Source: FirstEnergy Capital Corp., U.S. DOE/EIA. U.S. YoY Supply Change by Quarter 212 Q1 213 Q3 215 Q1 216 Q3 Source: FirstEnergy Capital Corp., IEA. Rig Productivity (LHS) Nymex US$/mmbtu $11 $1 $9 $8 $7 $6 $5 $4

CAPEX REDUCTIONS ARE STARTING TO PILE UP Oil directed rig counts are starting to drop rapidly on capex cuts, but unclear how quickly this will translate into slowing, and eventually, falling supply (Bakken is looking vulnerable). U.S. E&Ps more highly levered than Canadians, also more highly hedged for 215; high yield energy debt market is imploding quickly. Impending supply coming on-stream from the GOM, up to 12 thousand bbl/d, not price sensitive at this stage. Rigs 1,8 1,5 1,2 9 6 3 U.S. Gas and Oil Rig Counts Gas Directed Rigs Oil Directed Rigs Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Source: FirstEnergy Capital Corp., Baker-Hughes. 1,8 1,5 1,2 9 6 3 Rigs 1,7 1,6 1,5 1,4 1,3 1,2 1,1 U.S. Crude Oil Directed Drilling 212 213 214 215 Jan-2 Mar-27 Jun-19 Sep-11 Dec-4 Source: FirstEnergy Capital Corp., Baker-Hughes. 1,7 1,6 1,5 1,4 1,3 1,2 1,1

WHY ARE NEAR TERM PRICES SO LOW? Physical oversupply is huge and the market is impatient. Market searching for that price and point where enough pain has been inflicted and real change is starting to take place; we may be close but not quite there? Fall in near term prices has also forced the rest of the mid term price curve lower and closer to U.S. marginal costs. Inventories will build more, so near term prices could move even lower. WTI and Brent Forward Price Curves US $/bbl $8 $75 $7 $65 $6 $55 $5 $45 $4 As of Jan. 16, 215 Nymex WTI ICE Brent M1 M1 M19 M28 M37 M46 M55 Source: FirstEnergy Capital Corp., Bloomberg. $12 $11 $1 $9 $8 $7 $6 $5 Nymex and Brent Calendar Strip Prices US$/bbl Brent Calendar 216 Brent Calendar 217 WTI Calendar 216 WTI Calendar 217 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Source: FirstEnergy Capital Corp., Bloomberg. $12 $11 $1 $9 $8 $7 $6 $5

WHAT ABOUT OTHER SUPPLIERS? CANADA Canadian supplies heavily geared to oil sands growth. Not much slowing near term, but longer term expansions and new projects could be put on hold. LTO supply likely to take a hit similar in spirit to U.S. thou. bbl/d 3 2 1 (1) Canadian Crude Oil Supply Growth 234 25 222 145 13 135 28 21 212 214 216 218 Source: FirstEnergy Capital Corp., IEA. 5 4 3 2 1 AB Light/Medium Crude Oil Production thou. bbl/d 28 21 212 214 216 218 Souce: FirstEnergy Capital Corp., National Energy Board. thou. bbl/d 3,5 3, 2,5 2, 1,5 1, 5 Oilsands Production Growth Synthetic Bitumen 28 21 212 214 216 218 Souce: FirstEnergy Capital Corp., National Energy Board.

WHAT ABOUT OTHER SUPPLIERS? BRAZIL AND RUSSIA Brazil front loaded for offshore growth in 215. Russian supply will suffer from lower prices, sanctions and natural declines. Primary key to Non-OPEC supply growth has been Canada and U.S. thou. bbl/d 25 2 15 1 5 (5) Brazil Crude Oil Supply (42) 29 172 7 68 1 28 21 212 214 216 218 Source: FirstEnergy Capital Corp., IEA. thou. bbl/d 8 6 4 2 (2) (4) (6) (8) thou. bbl/d 3 2 1 (1) (2) Non-OPEC Supply Excl. Canada/U.S. Russia Crude Oil Supply 159 48 (14) (155) 5 (11) 28 21 212 214 216 218 Source: FirstEnergy Capital Corp., IEA. 4 28 51 (222) 13 312 28 21 212 214 216 218 Source: FirstEnergy Capital Corp., IEA.

CAN DEMAND SAVE THE DAY? There is much talk that lower prices will spur demand growth and help to rebalance the market; true, but will also take a good deal of time. Many emerging economies are raising fuel taxes and/or reducing fuel subsidies in light of oil price decline; retail prices not seeing that big of a decline in these countries. World Oil Demand Growth mm bbl/d 4. 3. 2. 1. 1.2.7 1. 1.. (1.) (2.) 28 21 212 214 216 218 Source: FirstEnergy Capital Corp., IEA. Outside of U.S., economic growth remains muted. U.S. demand growth alone is not sufficient to rebalance the market; a strong recovery in emerging markets is also needed.

GLOBAL INVENTORY IMPACTS We still see large inventory builds taking place for 215 and 216; this will act as a drag on the price recovery. Will take time for U.S. supply slowdown to feed back to global balances. million bbl/d 96 94 92 9 88 Demand Supply thou. b/d 2, 1,5 1, 5 (5) (1,) (1,5) (2,) Global Inventory Swing by Quarter Source: FirstEnergy Capital Corp., IEA. 212 213 214 215 216 Q1 Q2 Q3 Q4 86 2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 21 211 212 213 214 215 216 1 (1) Implied Stock Change (2)

CANADIAN OIL PRICE DIFFERENTIALS Price differentials should stay tight on combined availability of pipe and rail transportation capacity. Upper limit set by the blended transport cost of pipe and rail. WTI vs. Canadian Crude Oil Prices US $/bbl $2 WCS Ed Light Syn. $1 $ ($1) ($2) ($3) ($4) ($5) Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Source: FirstEnergy Capital Corp., Bloomberg. US $/bbl $3 $25 $2 $15 $1 $5 $ WTI-WCS Price Differential $25.34 $2.66 $16. 28 21 212 214 216 218 Source: FirstEnergy Capital Corp., Bloomberg. US $/bbl $2 $15 $1 $5 $ WTI-Ed Light Price Differential $15.5 $1.71 $6.78 28 21 212 214 216 218

THIS MAY TAKE A GREAT DEAL OF TIME Some tentative signs that the market is nearing a bottom for this price cycle, but no guarantees. Reaching the point of verifiable U.S. supply deceleration will take several more months at a minimum, while inventories are still likely to grow in the U.S. and globally. Getting a supply and demand response will happen in the course of time, but clearing up the physical oversupply and reducing inventories will be a protracted affair. 1985-86, 28-9, 214-15 WTI Price Crashes 11 1 9 8 7 6 5 4 3 2 1 19 37 55 73 91 19 127 145 163 Days After Peak Price Source: FirstEnergy Capital Corp., Bloomberg. 1985-86 Meltdown 28-9 Meltdown 214-15 Meltdown 28-9 and 214-15 Brent Price Crashes 11 1 9 8 7 6 5 4 3 2 1 19 37 55 73 91 19 127 145 163 Days After Peak Price Source: FirstEnergy Capital Corp., Bloomberg. 28-9 Meltdown 214-15 Meltdown

SHAPE OF THE PRICE RECOVERY AND DRIVERS We see a longer and slower price recovery than in prior price crashes. Market is having to deal with supply driven overhang, not a demand driven overhang. Price is the adjustment mechanism this time around, not OPEC as in 28-9. Oil demand dealing with slow economies, not economic recovery as in 29. Longer term investment will be slowed worldwide and will eventually tighten market. OPEC capacity is the concern. $16 $14 $12 $1 $8 $6 $4 $2 $ WTI Price Crashes and Recoveries US $/bbl 1985-86 28-9 214-15 M-12 M M+12 M+24 M+36 Source: FirstEnergy Capital Corp., Bloomberg. US $/bbl $16 $14 $12 $1 $8 $6 $4 $2 $ Brent Price Crashes and Recoveries 28-9 214-15 M-12 M M+12 M+24 M+36 Source: FirstEnergy Capital Corp., Bloomberg.

WHAT S DIFFERENT THIS TIME AND WHAT S NOT? What is the same? Price signals and markets still work demand will eventually grow faster and supply will eventually decelerate and fall; speed of adjustment is the question. What is different? No OPEC supply response! Demand is more geared to emerging economies than ever; no U.S. led demand bailout. U.S. has to reintegrate its import patterns back into global market to help clean up oversupply. E&Ps living with faster signals from capital markets. OPEC marketshare issue is about preserving its role in emerging economies; U.S. cannot affect this directly. Many OPEC members in tough financial shape. Global/Oil geopolitics very tenuous.

WHAT TO WATCH FOR. Numerous factors will help to signal the slow process of price recovery and can be readily tracked: Capex reductions, especially for U.S.-based E&Ps. Weekly U.S. crude oil production. Weekly U.S. drilling permit data and where (Permian, Eagle Ford, Bakken, other?). Weekly drilling stats and where. Monthly Russian crude oil production. Media reports concerning West African cargoes; how much sold and how fast? Signs of forward curves flattening and emergence of backwardation in WTI and Brent forward curves. Geopolitical developments in Libya/Iran/Iraq. Equity markets setting up for recovery.

CRUDE OIL MARKET CONCLUSIONS Current price crash may not yet have reached bottom. U.S. supply deceleration and decline is key to more sustained price recovery; will take a good deal of time. As U.S. growth slows, it will eventually import more oil and help reduce and rebalance the Atlantic Basin oversupply. OPEC will stand firm on production decision; just biding its time for supply and demand changes to take place. Global oil demand growth to remain tepid on sub-par economic growth; positive price effects more minimized. Price recovery to be slower and lower than in previous price cycles; Iran and Iraq the price spoilers in 215? Upside for Canada is that it will have more marketshare in U.S. and for re-exports via GOM; have the pipe and rail capacity to do this; in an even better position one year from now and will be coming at a time of rising prices.

FIRSTENERGY WTI AND BRENT PRICE FORECASTS

FIRSTENERGY CANADIAN CRUDE OIL PRICE FORECASTS

NORTH AMERICAN NATURAL GAS MARKETS

CURRENT STATE OF THE MARKET Prices have softened over the first half of current heating season; December a bust third warmest in 3 years. Gas storage cushion is growing with each passing day; even colder weather now will not create extremes of low storage as happened last season. U.S. domestic supply expansion remains very robust; solid supply growth happening in Canada as well. Structural demand growth is taking longer to take hold, but is expanding nevertheless. Negative sentiment from oil complex has hung over gas market for months. Capex reductions from oil price collapse only having marginal impact on natural gas so far. Market setting up for an oversupplied injection season in 215; even weaker prices?

NYMEX NATURAL GAS PRICES US $/mmbtu $7. $6. $5. $4. $3. 213 Avg: US $3.73 214 Avg: US $4.26 215 YTD: US $2.98 (to Jan. 16, 215) $7. $6. $5. $4. $3. $2. 213 214 215 $2. $1. $1. Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Source: FirstEnergy Capital Corp., Bloomberg.

AECO NATURAL GAS PRICES Cdn $/mcf $1. $9. $8. $7. $6. $5. $4. $3. $2. $1. $. Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Source: FirstEnergy Capital Corp., Enerdata. 213 Avg: $3.18 214 Avg: $4.47 215 YTD: $2.82 (to Jan. 16, 215) 213 214 215 $1. $9. $8. $7. $6. $5. $4. $3. $2. $1. $.

FIRSTENERGY NATURAL GAS PRICE FORECASTS Sharply lowered our price outlook (again) to reflect increasing gas storage overhang on poor December heating loads. U.S. domestic supply growth remains very robust. 215 could be similar to 212 in that prices will have to be low enough to incentivize power generation to clean up excess gas supplies and prevent storage blowout. US$/mmbtu $6. $5. $4. $3. $2. $1. $. Nymex Natural Gas $4.26 $4.4 $5. $3.63 $2.63 29 211 213 215 217 219 Source: FirstEnergy Capital Corp., Bloomberg. Cdn $/mcf $6. $5. $4. $3. $2. $1. $. AECO Natural Gas $4.47 $4.52 $5.21 $3.61 $2.28 29 211 213 215 217 219 Source: FirstEnergy Capital Corp., Bloomberg.

U.S. GAS SUPPLY GROWTH IS STILL RAMPANT U.S. domestic supply growth has been running 5 to 6 bcf/d higher than a year ago. No sign of slowdown. Nearly all growth has been courtesy of Marcellus/Utica. U.S. Weekly Dry Marketable Gas Supply bcf/d 74 72 7 68 66 64 62 212 213 214 215 74 72 7 68 66 64 62 Jan Mar May Jul Sep Nov Source: FirstEnergy Capital Corp., Bloomberg. U.S. Weekly Marcellus/Utica Dry Gas Supply bcf/d 2 18 16 14 12 1 8 6 4 212 213 214 215 2 18 16 14 12 1 8 6 4 Jan Mar May Jul Sep Nov Source: FirstEnergy Capital Corp., Bloomberg. U.S. Weekly Supply Less Marcellus/Utica bcf/d 6 59 58 57 56 55 54 53 212 213 214 215 6 59 58 57 56 55 54 53 Jan Mar May Jul Sep Nov Source: FirstEnergy Capital Corp., Bloomberg.

UNLIKE OIL, U.S. GAS SUPPLY GROWTH WILL CONTINUE U.S. gas supply is set to expand much further in 215. Primary driver is the tie in of Marcellus/Utica supplies; only constraint remains pace of pipeline takeaway additions. Finding costs remain sub-us$2.5 in Marcellus/Utica. Lower rig counts have made little difference in most plays as rig productivities have risen substantially. bcf/d 6. 5. 4. 3. 2. 1.. U.S. Natural Gas Supply Growth 4.3 2.9 1. 3.6 4.2 3.9 4.1 3.5 28 21 212 214 216 218 Source: FirstEnergy Capital Corp., US DOE/EIA. Historical/ Marcellus/Utica Supply bcf/d 24 21 18 15 12 9 6 3 Pipe Capacity Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: FirstEnergy Capital Corp., U.S. DOE/EIA.

MARCELLUS/UTICA PIPELINE ADDS Near term pipe adds guarantee more supply; still 8 to 1, completed wells waiting for tie in. Company Pipeline Project State/Province/Region Capacity (bcf/d) Primary Direction In Service Date 214 Pipe Capacity Adds Leaving Marcellus/Utica Region (Does not include intra) 3.3 Tallgrass REX backhaul/zone 3 East to West OH-MO 1.2 West Jun-15 Williams Transco Virginia Southside VA, NC.27 Intra Sep-15 National Fuel Gas Northern Access PA-Canada.35 North Nov-15 NiSource Columbia Quickink Expansion OH.5 Intra Nov-15 Spectra TETCO Uniontown to Gas City PA-IN.43 West Nov-15 Kinder Morgan TGP Niagara Expansion PA-NY.16 North Nov-15 NiSource TCO East Side Expansion PA-NJ.31 North Nov-15 Spectra TETCO OPEN OH-Gulf.55 South Nov-15 Williams Transco Leidy SE Reversal PA, NJ.53 North Dec-15 Kinder Morgan TGP Utica backhaul OH-Gulf.35 South Dec-15 TransCanada ANR Lebanon Lateral Phase 2 OH.29 Intra Dec-15 215 Pipe Capacity Adds Leaving Marcellus/Utica Region (Does not include intra) 3.88 Boardwalk Texas Gas Transmission Ohio-Louisiana OH-LA.5 South Jun-16 Williams Transco Rock Springs MD.19 Intra Aug-16 NiSource Big Pipe Gathering PA.1 Intra Oct-16 Energy Transfer Rover OH-Midwest 1.63 West Oct-16 Williams/Cabot Constitution PA-NY.65 North Nov-16 Spectra Algonquin Incremental Market NY-MA.34 Intra Nov-16 Dominion Iroquois South to North NY-Canada.28 North Nov-16 Spectra TETCO Gulf Market I PA-Gulf.35 South Nov-16 Dominion New Market NY.11 Intra Nov-16 Dominion Clarington WV.25 Intra Nov-16 NiSource TCO Leach-Columbia-Rayne Xpress PA-KY 1.5 South Nov-16 Kinder Morgan TGP Connecticut Expansion MA-CT.7 Intra Nov-16 Tallgrass REX Clarington West OH-MO 2.4 West Nov-16 216 Pipe Capacity Adds Leaving Marcellus/Utica Region (Does not include Intra) 7.31 Source: FirstEnergy Capital Corp., Reuters.

U.S. SHALE AND ASSOCIATED GAS SUPPLIES The expected slowdown in U.S. oil and liquids focused drilling will have an impact on associated gas supplies, but will also take time. These supplies have not been a significant new source of supply, so will play a smaller role in rebalancing gas market. Primary growth driver remains Marcellus/Utica shales. U.S. Total Marketable Gas incl. Shale Gas bcf/d 9 8 7 6 5 4 3 214 vs. 213: +3.6 bcf/d 215 vs. 214: +4.2 bcf/d 216 vs. 215: +3.5 bcf/d Jan-14 Jan-15 Jan-16 Jan-17 Source: FirstEnergy Capital Corp., U.S. DOE/EIA. Other Shale Bakken Eagle Ford Utica Marcellus Haynesville Woodford Fayetteville Barnett Antrim Non-Shale 16 14 12 1 8 6 4 2 U.S. Associated Natural Gas Supply bcf/d Eagle Ford Bakken Permian 214 vs. 213: +2.4 bcf/d 215 vs. 214: +2.3 bcf/d 216 vs. 215: +1.4 bcf/d Jan-14 Jan-15 Jan-16 Jan-17 Source: FirstEnergy Capital Corp., U.S. DOE/EIA.

GAS RIG COUNTS AND RIG PRODUCTIVITY Marcellus/Utica drilling unlikely to be affected by oil price downturn given gas focus of Producers in these plays. Rig productivity likely to rise further as E&Ps in other plays rationalize spending and high grade drilling prospects. Potential for increased gas drilling focus given major shift in returns profile of oil/liquids versus natural gas. 5. 4. 3. 2. 1.. U.S. Gas Rig Productivity vs. Gas Price mmcf/d/rig Rig Productivity (LHS) Nymex Jan-1 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Source: FirstEnergy Capital Corp., U.S. DOE/EIA. US$/mmbtu $6. $5. $4. $3. $2. $1. $. Rigs 125 1 75 5 25 U.S. Natural Gas Rig Count by Basin Eagle Ford Barnett Haynesville Permian Fayetteville Marcellus/Utica Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Source: FirstEnergy Capital Corp., Baker Hughes.

CANADIAN NATURAL GAS SUPPLY mmcf/d 15,5 15, 14,5 14, 13,5 13, 12,5 12, WCSB Daily Natural Gas Supply Jan Feb Apr May Jul Source: FirstEnergy Capital Corp. 212 213 214 215 15,5 15, 14,5 14, 13,5 13, 12,5 12, Sep Oct Dec Our price outlook should slow supply growth by 216. 214 was best supply growth year since 21! Most recent growth has come via shales in B.C. and Alberta. Canadian supply at highest level in four years as 1H14 spending has resulted in strong gains in 2H14. Still more growth for 1H15. Capex reductions may not have that much impact in first half of this year. 5 25 (25) (5) (75) (1,) (1,25) WCSB Natural Gas Supply Growth 275 15 (11) (2) 1 152 29 211 213 215 217 219 Source: FirstEnergy Capital Corp., company pipeline postings.

U.S. IMPORTS OF CANADIAN NATURAL GAS As U.S. domestic supply has grown, Canada has become increasingly pushed out of its traditional markets. Major marketshare erosion in Northeast, likely to go net negative during summer months starting in 216 or 217. Losing further share in Midwest on pipe reversals coming from Marcellus/Utica (REX reversal). Expect further export erosion to 217. mmcf/d 9, 8, 7, 6, 5, 4, 3, 2, Canadian Net Gas Exports to the U.S. 213 214 215 Jan-1 Mar-25 Jun-17 Sep-9 Dec-2 Source: FirstEnergy Capital Corp. 9, 8, 7, 6, 5, 4, 3, 2, bcf/d 1. 8. 6. 4. 2.. U.S. Net Gas Imports from Canada 5.4 5.1 5.1 4.54.14. 4.7 28 21 212 214 216 218 Source: FirstEnergy Capital Corp., U.S. DOE/EIA.

DEMAND GROWTH CAN HELP REBALANCE (FASTER THAN OIL) bcf/d 4. 3. 2. 1.. (1.) (2.) U.S. Natural Gas Demand Growth 2.7 1.8 2.22.4 1.9 2.3 1.7 28 21 212 214 216 218 Source: FirstEnergy Capital Corp., US DOE/EIA. We expect low prices of 215 will spur more power demand growth. Emission restrictions starting in April forcing coal retirements, more nuke retirements, and capacity build out. U.S. demand growth has been robust in recent years as lower prices have spurred expanding demand base. Gains have not been weather dependent. bcf/d 5. 4. 3. 2. 1.. (1.) (2.) (3.) (4.) U.S. Power Gen. Gas Demand Growth 4.1 (2.6). 2.8.7 1.6 1.1 28 21 212 214 216 218 Source: FirstEnergy Capital Corp., US DOE/EIA.

U.S. STORAGE OUTCOMES We expect that demand growth can sop up excess gas supplies in 215, but it will still take the entire injection season to bring massive storage surplus back to earth. bcf 4,25 4, 3,75 3,5 3,25 3, 2,75 U.S. End-October Storage Outcomes 3,894 3,817 3,829 3,864 3,59 21 211 212 213 214 215 216 217 Source: FirstEnergy Capital Corp., US DOE/EIA. bcf 1, 75 5 25 (25) (5) (75) (1,) U.S. Gas Storage Surplus/Deficit Year-over-Year Deficit/Surplus Deficit/Surplus to 5-Year Average Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: FirstEnergy Capital Corp., US DOE/EIA. Market has generally been finding comfort with October storage levels around 3,8 bcf. Record storage rebuild of 214 eventually provided no support for prices on rapidly rising U.S. supply.

U.S. GROWING GAS EXPORT POTENTIAL U.S. will have increasing demands placed on its domestic supply growth from rising export opportunities to Mexico and LNG. Pipe adds already in place to Mexico, just need the demand to grow (power and industrial). Four U.S. LNG export plants already under construction for nearly 7 bcf/d of export potential by end 218. bcf/d 8 7 6 5 4 3 2 1 U.S. Annual LNG Exports 2.2..1 1.1 4.8 7.1 29 211 213 215 217 219 Source: FirstEnergy Capital Corp., US DOE/EIA. bcf/d 6. 5. 4. 3. 2. 1.. U.S. Net Gas Exports to Mexico 2.7 1.7 1.8 2. 4. 3.4 4.7 28 21 212 214 216 218 Source: FirstEnergy Capital Corp., U.S. DOE/EIA.

U.S. LNG EXPORT PROJECTS POWERING AHEAD United States LNG Export Projects/Proposals Fully Approved or Approved and Under Construction Project Owners Capacity (mmcf/d) Status Sabine Pass Cheniere 2,4 Under Construction, finish late 215 (T 1 & 2), mid-late 217 (T 3 & 4). Freeport LNG Freeport LNG 1,8 Under Construction; early 218 completion. Dominion Cove Point Dominion 8 Under Construction; mid-218 completion. Cameron LNG Sempra 1,7 Under Construction; late 217 early 218 completion. Total 6,7 Likely to Receive Approval Corpus Christi Cheniere 2,1 FERC approved; pending DOE approval. Jordan Cove Energy Jordan Cove Energy 1,2 FERC EIA approval; pending DOE approval. Lake Charles Energy Transfer 2, DOE approved; pending FERC approval; early 219 completion? Oregon LNG Oregon LNG Partners 1,25 DOE approved; FERC pending. Total 6,55 Grand Total 13,25 Source: FirstEnergy Capital Corp., Waterborne Energy Inc., Reuters.

BUT NOT SO FAST. OIL S HAUNTING IMPACT ON GAS Although the U.S. LNG export opportunity looks to be massive, lower crude oil prices have collapsed spot and contract prices of LNG. Lasting low and slow price recovery for crude oil will impact the economics of exporting LNG from North America; cheap North American gas going up against formerly expensive LNG; could impact utilization rates for U.S. export terminals. US $/mmbtu $2 $16 $12 $8 $4 $ Asia Landed LNG Prices $16.29 $12.95 $11.57 $8.58 29 211 213 215 217 219 Source: FirstEnergy Capital Corp., Bloomberg. US $/mmbtu $24 $21 $18 $15 $12 $9 $6 $3 Global LNG Netbacks India Japan Spain UK Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Source: FirstEnergy Capital Corp., Waterborne Energy Inc. $24 $21 $18 $15 $12 $9 $6 $3

U.S. AND GLOBAL LNG SUPPLY POTENTIAL With Australian supplies finally ramping up (but no new projects slated), U.S. export plants form the vast majority of LNG supply growth potential to 22. U.S. could be the second largest supplier of LNG by 22 behind Australia and ahead of Qatar. Primary impediments remain landed price of the LNG and growth in destination markets; China still looks strong. U.S. Annual LNG Export Capacity (Year End) bcf/d 14 12 1 8 6 4 2 Corpus Christi T1&2 Jordan Cove T1&2 Sabine Pass T5&6 Cove Point T1 Cameron T1&2 Freeport T1&2 Sabine Pass T3&4 Sabine Pass T1&2 Existing Re-Export 212 214 216 218 22 Source: FirstEnergy Capital Corp., Reuters. U.S. bcf/d 6 5 4 3 2 Global LNG Supply and Capacity LNG Production LNG Capacity 29 211 213 215 217 219 Source: FirstEnergy Capital Corp., Waterborne Energy Inc. 6 5 4 3 2

WHAT ABOUT CANADIAN LNG EXPORTS? There are about 2 contenders for LNG exports from Canada, but only a few will make it (or none?). Pacific NW was leading contender until announced deferral by Petronas; not clear if this is short term to further grind down costs from providers or a true multi-year delay. Costs, future LNG prices and Canadian issues all uncertain. Canadian LNG exports via the U.S. West Coast? Maybe. Canada LNG Export Proposals Project Partners Location Capacity Approval to Potential mmcf/d Export? On Stream Comments Pacific Northwest LNG LNG Canada Prince Rupert LNG Petronas, Sinopec, Japex, Petroleum Brunei, Indian Oil Corp. Shell Canada, KOGAS, Mitsubishi, PetroChina BG, Spectra Energy, Prince Rupert Port Authority Prince Rupert 2,6 Yes (25 YR) Kitimat 3,2 Yes (25 YR) Prince Rupert 3, Yes (25 YR) mid-219 221 221 FID decision has been deferred until mid-215? Has pipeline, site, and export permits in place. Has pipeline proposal in place. Has filed EIA with B.C. agencies. Has estimated cost up to US $4 billion. FID in 217? BG has extensive LNG marketing experience. Deferred until 217/18? Kitimat LNG Chevron Canada Kitimat 1,3 Yes (2 YR) Potential merger candidate with Shell-led project?

Cost of gas (US$/mmbtu) OVERSEAS GAS PRICING IS FACING DOWNWARD PRESSURE Lower crude oil price outlook is pressuring overseas LNG prices. Big price netback that was counted on to support Canadian LNG projects is much smaller and in jeopardy. US $/mmbtu $2 $16 $12 $8 $4 $ Asia Landed LNG Prices $16.29 $12.95 $11.57 $8.58 29 211 213 215 217 219 Source: FirstEnergy Capital Corp., Bloomberg. Estimated Netbacks for Generic BC LNG Export Project Netbacks @ 3.5% Net Income Royalty - Post Capital Cost Payout (Pre 237) Realized price (US $ mmbtu) $3.14 $9. $1. $11. $12. $13. $14. $2.5 $1.69 $2.65 $3.62 $4.58 $5.55 $6.51 $3. $1.21 $2.17 $3.14 $4.1 $5.7 $6.3 $3.5 $.72 $1.69 $2.65 $3.62 $4.58 $5.55 $4. $.24 $1.21 $2.17 $3.14 $4.1 $5.7 $4.5 ($.24) $.72 $1.69 $2.65 $3.62 $4.58 $5. ($.72) $.24 $1.21 $2.17 $3.14 $4.1 Source: FirstEnergy Estimates

NATURAL GAS MARKET CONCLUSIONS Robust U.S. supply growth in 215 to tilt market to oversupply again; lower prices needed to incentivize power demand to prevent October storage blowout. Little immediate impact expected on associated gas from oil drilling slowdown; more impact in 216. Bulk of U.S. supply gains being powered by mostly price insensitive Marcellus/Utica additions. Longer term demand growth in power, industrial and exports to Mexico and LNG, should help to tighten market against supply growth, pushing prices higher. Canadian exports still facing longer term pressure; B.C. LNG export outlet still very uncertain. Remaining winter weather wildcard? Plenty of cold will certainly help to fight off the worst of our price bearish expectations for 215. Industry will adapt again to survive and thrive.

FIRSTENERGY NATURAL GAS PRICE/FX FORECASTS lkljklsd

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