THE SHALE GALE MARKET UPDATE & TRENDS IN MIDSTREAM INFRASTRUCTURE Beaver Creek Energy Conference

1. THE SHALE GALE MARKET UPDATE & TRENDS IN MIDSTREAM INFRASTRUCTURE Beaver Creek Energy Conference February 2013

2. Natural Gas Market Update

3. Review of Natural Gas Markets: The Slow Grind Higher 3 • 2013 is shaping up to be better than 2012 • Moderating supply growth, strengthening industrial demand • However, the threat of oversupply lingers • Storage is likely to end heating season above 2.1 Tcf • We are holding on to our 2013 forecast of $4.00/Mcf for now • There is potential for an H2 rebound • We expect a slow rise over the next few years to $5.00/Mcf Domestic natural gas inventories Source: EIA, Credit Agricole Securities (USA)

4. Robust Supply • Supply continues to grow despite a sharp drop in the natural gas rig count • Driven by shale gas production – 25% increase in 2012 (EIA) • Gulf of Mexico in terminal decline Adjusted US onshore natural gas rig count Domestic natural gas production: Form EIA-914 data Source: Baker Hughes, Credit Agricole Securities (USA) Source: EIA

5. Demand Creeps Higher Cheap gas spurred demand growth from power generation in 2012 Price rise to lower power burn in 2013  7% decline projected Solid industrial growth  chemicals, refining lead There is actually a winter this year Y-o-Y change in demand Monthly industrial demand for natural gas Source: EIA, Credit Agricole Securities (USA)

6. Long Term Points of Interest • LNG exports • May become a pawn in the political battle over the approval of the Keystone pipeline • Use as a transportation fuel • It’s happening, slowly • GTL proposal(s) • Not. Gonna. Happen. • The 2nd American Industrial Revolution • So far, it’s just talk

7. LNG Projects on the Drawing Board 7

8. II. Midstream Infrastructure

9. US Shale Plays

10. Technology has Changed the Game With the advent of multi-stage hydraulic fracturing, horizontal drilling and other technological innovations many unconventional reservoirs in the U.S. are now highly economical to produce at current commodity prices.

11. Shale Gas Production Growth Since 2005, shale gas production has grown at a 42% compounded annual growth rate

12. Shale Gas is Here to Stay • As of September 2012, U.S. shale gas production contributed about 35% of total U.S. dry production. • This share is projected to grow to 50% by 2040

13. Marcellus Shale • Between 2009 and 2011, Pennsylvania's natural gas production more than quadrupled due to expanded horizontal drilling combined with hydraulic fracturing • Drilling programs in the Marcellus have recently migrated to more liquids-rich areas due to the price premium of crude oil and natural gas liquids

14. Bakken: The Major Source of Shale Oil Since 2005, oil production in the Bakken has grown at a 35%annual growth rate since 2005, driven by fracking and robust commodity pricing North Dakota is now the fourth largest oil-producing state—trailing only Texas, Alaska, and California

15. Bakken Gas: a Stranded Asset? Associated natural gas production from oil production in North Dakota has more than doubled since 2005, largely due to associated natural gas from the growing Bakken oil production However, due to insufficient natural gas processing / pipeline capacity, over 35% of North Dakota's natural gas production (vs. a national average of less than 1%) in 2011 was flared or otherwise not marketed.

16. Midstream Infrastructure: Critical in Getting Gas to Market • Gathering / Compression : Systems that are directly connected to wellheads and draw natural gas to a central location (aided by compression) for processing / treating • Processing: Most wellhead gas does not meet the quality standards required by interstate pipelines, so it must be processed to remove contaminants and the heavier NGL components • Pipeline / Interconnections: Laterals to deliver marketable gas to interstate pipelines (or into storage) • Interstate Pipelines: Delivery to power plants and commercial / residential customers • Storage: Allows for accumulation / drawing of inventories to match seasonal demand

17. Critical to Extracting Value-Added Products from “Wet Gas” 17 Source: Tudor, Pickering, Holt & Co

18. A typical “Barrel” of NGL Looks Like This: 18 • Propanes and heavier components (propanes+), make up ~60% of the NGL stream, and pipeline specs mandate it has to be removed from the wet gas produced at the wellhead. • Ethane is “discretionary” meaning producers/ processors can opt to keep it in the stream or remove it, depending on economics. • Leaving ethane in the dry gas stream is called “ethane rejection”(think of this from the processors’ standpoint). The amount of Btus is always the same - it’s just whether liquid or gaseous that’s different. Source: Tudor, Pickering, Holt & Co

19. Ethane Recovery vs. Ethane Rejection 19

20. The Market for Processing is Self-Correcting 20 Source: Tudor, Pickering, Holt & Co

21. Projected Investments for Required Midstream Buildout

22. Investment Trends • Producer owns exploration / drilling rights for a certain area but wants to preserve capital for exploration / drilling • Third parties, including private equity, are becoming the primary investors in infrastructure platforms • Many platforms are joint ventures between the producer and a third party

23. Midstream Investment Criteria First and foremost is needed a predictable stream of production. This requires: Good Well Economics: A handy Rule-of-Thumb: The breakeven price = (2 x Capex) / EUR Low to Moderate Technical Risk Geology and technology needs to be well understood to insure continued investment. Additionally there needs to be a significant upside potential from both a geologic and a technical standpoint. Reasonable development schedule A predictable production profile and reasonable schedule of capital invested has a direct correlation to the midstream provider’s rate of return.

24. Rule-of-Thumb to approximate a Required Breakeven Price Not Perfect, but a reasonable “Quick & Dirty” approximation. A real life example:

25. Midstream Investment Criteria First and foremost is needed a predictable stream of production. This requires: Good Well Economics: A handy Rule-of-Thumb: The breakeven price = (2 x Capex) / EUR Low to Moderate Technical Risk Geology and technology needs to be well understood to insure continued investment. Additionally there needs to be a significant upside potential from both a geologic and a technical standpoint. Reasonable development schedule A predictable production profile and reasonable schedule of capital invested has a direct correlation to the midstream provider’s rate of return.

26. Commercial Arrangements Midstream business provides steady, generally predictable cash flows Producer and Gatherer will enter into a contract, where producer is required to build out gathering / processing / pipeline delivery infrastructure in return for contract for gas throughput. For dry gas gathering / processing, contract features vary, but generally are characterized by fee-based arrangements, with fixed fee paid per unit of natural gas gathered and additional fees paid for other services (treating, processing). Additional features may include: Dedicated Acreage requirements, Minimum volume / take or pay requirements Contract tenors vary, typically in the 8-10 year range For wet gas processing, contract features may include product or revenue sharing arrangements, generally a Percent of Proceeds from the NGL products, and processor’s discretion with respect to “ethane rejection”

27. Risk Characteristics Summary • Construction Risk – building on time to accommodate production activity – contracts may include penalty clauses • Indirect Commodity Price Risk – what are breakeven costs for producer? • Capital Availability for Growth • Dependabilty of Reserve Base • Offtaker Risk • Management / Operational Risk • Regulatory / Political Risk – will vary by location

28. Midstream Players • Traditional Large / Publicly Traded Players – Integrated Diversified Players with Midstream Operations • Kinder Morgan • Williams Companies / Williams Partners • El Paso Pipeline partners • Targa Resources Partners • Enterprise Products Parnters (natural gas liquids) • Rose Rock Midstream • Western Gas Partners • Dominion / Caiman Joint Venture • Spectra Energy Corporation • Private Equity • Active investors in the sector. Buying midstream assets from integrated players who are divesting to allow capital to be re-invested in E&P growth • Includes large diversified Private Equity Players as well energy-specific funds • Includes platforms established as strategic joint ventures between a private equity firm and a producer with targets to grow their • Spin-outs / divestitures of larger / integrated players

29. Private Equity Firms Active in Midstream Acquisitions Large - Diversified KKR Texas Pacific Blackstone Kelso Warburg Pincus Energy Industry Focused ArcLight Capital Partners Tenaska Capital Partners Global Infrastructure Partners Denham Capital Partners First Reserve Corporation Haddington Ventures Riverstone / Kaiser (Sage) Macquarie Highstar Capital Encap Flatrock Kayne Anderson NGP Energy Capital Management Energy Spectrum Capital

30. III. Panel Discussion 30

31. Panel Discussion Topics