Natural Gas Outlook and Drivers

Natural Gas Outlook and Drivers November 2012

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Presentation Outline Natural Gas Driven by the quest for NGLs and Oil Not enough demand Expect low prices NGLs Production rising An infrastructure play Product must be exported to balance the market Oil N. America reaching new production heights An infrastructure play Will dramatically change US dependence on foreign oil Conclusions & Implications 3

70.0 65.0 U.S. Natural Gas Production Up Year over Year But, Growth Has Slowed Due to Transition to Liquids 2012 Forecast Average: 63.7 Bcf/d 2011 Avg: 61.7 Bcf/d Bcf/d 60.0 55.0 2010 Avg: 57.2 Bcf/d 2009 Avg: 55.2 Bcf/d 50.0 45.0 6.0 4.0 2.0 0.0 YOY Growth Bcf/d 40.0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2009 2010 2011 2012 YTD 2012 Forecast Source: History - BENTEK Supply/Demand Balance History Forecast BENTEK US Forward Curve Quarterly, 2012.09.24 4

The Shale Revolution Drives Down Prices $16.00 $14.00 Henry Hub ($/MMBtu) $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $0.00 $8.87 $6.74 $6.93 $8.85 $3.92 $4.37 $3.97 $2.60 Henry Hub $/MMBtu Yearly Average 5

Gas, Oil and NGL Price Comparison: MMBTU Equivalent $30.00 $30.00 $/MMBtu Equivalent $25.00 $20.00 $15.00 $10.00 Value Gap $25.00 $20.00 $15.00 $10.00 $5.00 $5.00 $0.00 $0.00 CAPP WTI HH MB NGL Source: ICE, EIA 6

Plays With High Returns Attract Drilling Rigs 36/+11 42/+14 CALIFORNIA 7/+4 OTHER ROCKIES 28/-2 2/-1 Rig Increases Dry Gas Focused Areas 6/-2 31/+22 214/+133 POWDER RIVER WIND RIVER GREEN RIVER 13/-10 PICEANCE UINTA SAN JUAN PERMIAN 470/+251 Rig Increases Liquids-Rich/Oil Focused Areas WILLISTON 43/+25 D-J ANADARKO 219/+96 103/+65 6/-23 ARKLA 75/-34 43/-50 30/-99 FT WORTH OTHER MIDCONTINENT EAST TX 260/+200 70/+11 TX GULF EAGLE FORD ILLINOIS 9/+1 ARK FAYETTEVILLE 16/-21 ARK WOODFORD 95/+11 24/+9 MICHIGAN 14/+3 AL-MS-FL LA GULF TX GULF 6/+0 27/+23 Rig Declines Source: BENTEK, October 2012 UTICA OFFSHORE 3/-9 OTHER APPALACHIAN 70/-6 42/+24 MARCELLUS DRY MARCELLUS WET 2006 +716 Active rig count: October 5, 2012 / Change in rig count from Jan. 1, 2010 7

Associated Gas Is it enough? 38 rigs 53 rigs 7 rigs 8

Northeast Production Potential 15.5 Bcf/d by 2017 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Barnett Northeast Production Profile (Bcf/d) Incremental 10.8 Bcf/d by 2017! Growth Estimates Include 50% Cut in Rig Count in NE PA from 2011 highs Legacy Production Wet Marcellus Lean Marcellus Utica Marcellus 9

Lycoming, Bradford, Susquehanna Backlog Gets Worked Off with 50% Slow Down in Drilling 1,400 1,200 1,000 800 600 400 200 0 Bradford Centre Clearfield Clinton Columbia Luzerne Lycoming Potter Sullivan Susquehanna Tioga Wayne 10

U.S. Dry Gas Production Forecast to Grow 12.8 Bcf/d from 2011 to 2017 80.0 70.0 60.0 50.0 +2.3 Bcf/d Per Year 61.5 54.0 55.2 57.1 47.5 48.6 50.9 63.9 64.2 67.1 68.9 72.2 74.3 40.0 30.0 +2.1 Bcf/d Per Year 20.0 10.0 0.0 11

Starting Winter at Record High Inventories 4,200 3,900 3,600 U.S. Storage Inventories Storage on November 2 = 3.9 Tcf 125 Bcf over 2011 238 Bcf over 5 YA Bcf 3,300 3,000 2,700 2,400 2,100 1,800 1,500 5 Year Avg 2011 2012 Forecast Source: BENTEK Storage Analytic Report and Data Warehouse, Market Call Note: Storage Forecast as of September 2012 12

Gas Demand from Power Up 4.7 Bcf/d (24%) in 2012 Bcf/d 40.0 37.5 35.0 32.5 30.0 27.5 25.0 22.5 20.0 17.5 15.0 12.5 10.0 Highest weekly avg. burns ever! 5 Yr. Avg. 2011 2012 13

Natural Gas Demand Driven by Capturing Market Share Demand Change, Bcf/d 14.0 12.0 10.0 Natural Gas Demand Growth Scenarios Through 2017 8.0 6.0 4.0 2.0 Transportation GTL LNG Power Import Declines Mexican Exports Industrial Res/Com Scenario Risks: 1. Risk of changes in Energy Policy 2. Power Infrastructure Slow to Build Out 3. World Markets Shift Lowering Incentive for LNG 4. Price levels shift to discourage Industrial Demand www.bentekenergy.com 0.0 14

U.S. NG Balance Continues to Tighten 75.0 70.0 65.0 60.0 U.S. Supply/Demand Balance 13% 12% 18% 55.0 50.0 45.0 22% Change: 2005-2011 Canadian Imports: -3.5 Bcf/d LNG Imports: -1.0 Bcf/d Dry Production US Demand US Production Forecast US Demand Forecast 15

Proposed U.S. Export Projects Total 18.8 Bcf/d of Capacity 1.6 1.2 0.8 0.4 0.0 (0.4) (0.8) Net LNG Exports (Bcf/d) First Ex Q1 2016, Net Ex Q3 2016 16

NYMEX Forward Curve Expectations $6.00 $5.50 $5.00 Forward Curve October 30, 2012 BENTEK Forecast October 31, 2012 $4.50 $/MMBtu $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 17

Presentation Outline Natural Gas Driven by the quest for NGLs and Oil Not enough demand Expect low prices NGLs Production rising An infrastructure play Product must be exported to balance the market Oil N. America reaching new production heights An infrastructure play Will dramatically change US dependence on foreign oil Conclusions & Implications 18

Gas Rigs Plummet as Producers Turn to Oil and Liquids Active Rig Count 3,500 3,000 2,500 2,000 1,500 1,000 500-70 60 50 40 30 20 10 - Dry Gas Production (Bcf/d) Gas Seeking Rigs Oil Seeking Rigs Dry Gas Production 19

U.S. NGL Production to Increase 49% over the next Five Years 4.0 Raw Mix Production, MMb/d 3.5 3.0 2.5 2.0 1.5 1.0 0.5 1.2 Million Barrel per day Change in Raw Mix Supply 0.0 2005 2007 2009 2011 2013 2015 2017 PADD I PADD III PADD II PADD IV PADD V www.bentekenergy.com 20

U.S. Gas Processing Capacity Set to Increase by 21% Thru 2015 0.5 0.4 0.6 0.4 0.6 4.8 2.9 0.9 0.5 0.2 3.7 2015 15.3 Bcf/d *As of 9/11/2012 21

U.S. Fractionation Capacity Set to Increase by 44% Thru 2014 10 60 473 844 19 2014 1,406 Mb/d *As of 9/11/2012 22

Infrastructure Is Required To Maintain NGL Growth Announced Increases Through 2014 13 NGL Pipeline Projects & 27 Fractionator Expansions Announced 60 Mb/d +60 +475 Pipeline Capacity Fractionation Capacity (Mb/d) +840 23

Residue Gas from Liquids Plays Expected to Account for 50% of NG Growth Through 2017 25 20 15 10 Lean gas production growth supported by dry Marcellus economics and well inventory Bcf/d 5 0-5 Associated gas production growth supported by 15.3 Bcf/d of proposed processing Wet & Oil Cumulative Gas Growth Lean Cumulative Gas Growth 24

US Now a Net Exporter of Refined Products 5,000 4,000 Thousand Barrels/d 3,000 2,000 1,000 0-1,000-2,000 Imports Exports 25

Presentation Outline Natural Gas Driven by the quest for NGLs and Oil Not enough demand Expect low prices NGLs Production rising An infrastructure play Product must find export market to balance Oil N. America reaching new production heights An infrastructure play Will dramatically change US dependence on foreign oil Conclusions & Implications 26

Unconventional Oil Plays Turning The Corner Bakken +1067 +429 Niobrara +250 +125 Anadarko +275 +118 Utica +131 +54 Growth 2011 2016 4.1 MMb/d Growth 2017 2022 1.4 MMb/d Permian +783 +379 +1218 Eagle Ford +176 Source: BENTEK Crude Awakening Part 6; BENTEK Crude Oil PADD Balances 27

Canadian Production Expected to Grow 1.6 MMb/d Mb/d 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 972 Mb/d 615 Mb/d Alberta - In Situ Alberta - Non Oil Sands Manitoba Eastern Canada Alberta - Mined British Columbia - Other Saskatchewan Source: NEB 28

6% Decline in Waterborne Imports Since 2005 16,000 14,000 12,000 10,000 80% 70% 60% 50% MB/d 8,000 6,000 4,000 2,000-40% 30% 20% 10% 0% Domestic Production Non-Canadian Imports Canadian Imports % Non Canadian Imports Source: EIA 29

Gateway 525 450 New Infrastructure to Reshape North American Oil Markets Canada +1,227 Bakken +837 344 33 Anadarko +254 Niobrara +200 50 +132 Utica 698 Permian +858 Seaway 700 350 345 Refinery Expansion Source: Petroleum Project Tracker Not All Projects Shown Note: 2011 Average to 2017 Average (MB/d) +916 200 Eagle Ford Refinery Closure Rail Barge Dock Terminal 30

Gas Rig Count Bottomed in October Beginning to Creep Higher as Oil Rig Counts Fall on Constraints 2,500 2,000 # Active Rigs 1,500 1,000 500 0 Grand Total Oil Gas Source RigData and BENTEK: Lower 48 States, 11/9/2012 31

Waterborne Imports Will Account For 6%of US Supply by 2020 MB/d 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000-80% 70% 60% 50% 40% 30% 20% 10% 0% Domestic Production Non-Canadian Imports Canadian Imports % Non Canadian Imports Source: EIA 32

Current Lack of Crude Export Market Will Continue to Leave WTI and Brent Separated ($8) ($3) ($12) ($5) $15 $14 $96 $72 ($4) ($1) YTD 2012 Avg. 2017 Source: BENTEK Crude Awakening; BENTEK Crude Oil PADD Balances $14 $5 Brent Premium $15 $20 33

Conclusions and Takeaways Natural Gas Production is pushing daily highs. We begin winter at record storage inventories, need winter to materialize to balance immediate market. Natural Gas production to slow then resume growth as higher oil prices, uncompleted wells, technological and efficiency gains allow E&Ps to respond to market conditions. Liquids production growth dependent on pipeline capacity expansions, demand growth and exports of purity products. While Power growth has been impressive, US MMBTUs need to find global outlets to balance. Henry Hub prices remain under downward pressure with market rallies stifled by supply response. Henry struggles to break $5.00 through 2017. 34

BENTEK Energy BENTEK is an energy market analytics company focused on the natural gas, liquids, crude oil and power sectors. Suzanne Minter sminter@bentekenergy.com Contact Any Analyst at 303.988.1320 DISCLAIMER. THIS REPORT IS FURNISHED ON AN AS IS BASIS. BENTEK DOES NOT WARRANT THE ACCURACY OR CORRECTNESS OF THE REPORT OR THE INFORMATION CONTAINED THEREIN. BENTEK MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE USE OF ANY INFORMATION CONTAINED IN THIS REPORT IN CONNECTION WITH TRADING OF COMMODITIES, EQUITIES, FUTURES, OPTIONS OR ANY OTHER USE. BENTEK MAKES NO EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANT- ABILITY OR FITNESS FOR A PARTICULAR PURPOSE. RELEASE AND LIMITATION OF LIABILITY: IN NO EVENT SHALL BENTEK BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFIT) ARISING OUT OF OR RELATED TO THE ACCURACY OR CORRECTNESS OF THIS REPORT OR THE INFORMATION CONTAINED THEREIN,WHETHER BASED ON WARRANTY, CONTRACT, TORT OR ANY OTHER LEGAL THEORY. 35

IRR Sensitivities to Changes in Oil Prices (plays with oil production) 120.00% 100.00% 80.00% 60.00% 40.00% 20.00% Anad-Cleve Anad-Miss Bakken Cana-Wood Eagle Ford Oil Eagle Ford Wet Granite Wash Niobrara Permian Pinedale Uinta 0.00% $50 $60 $70 $80 $90 $100 $110 36

IRR Major Basin Economics Shifts Positive as Gas Prices Rise Above $3, Even with Weak NGL Prices 80% 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% $2 $3 $4 $5 Note: Oil $80 NGL 30% of Crude 37