Global Energy Outlook: Fossil Fuels - CoBank

Global Energy Outlook: Fossil FuelsEnergy & Water Executive ForumE. Russell BrazielRBN Energy, LLCAugust 29, 2012Colorado Springs, CO

Global Energy Outlook: Fossil FuelsNaturalGas» Ask not what the global energymarket can do for us…» Ask what we can do for theglobal energy market.70Natural Gas Production and Price$12.0065$10.0060$8.00Bcf/d55504540ProductionPriceNGLs$6.00$4.00$2.00$0.00PriceCONFIDENTIAL ‐ RBN Energy – 20122

Shale Technologies >>>Interdependent Fossil Fuel Markets» Producers have shifted drilling to liquids rich gas andcrude oil plays; dry gas declines have been offset byincreases in wet & associated gas production» The average liquids content of gas production isincreasing; NGL production is growing faster thandemand» Crude oil production from shales (tight oil) isincreasing dramatically; most production is light,super‐light, or condensate» NGL and crude oil supplies are growing faster thanmidstream infrastructure can keep up» Surplus supplies of natural gas, NGLs and crude oilwill move directly offshore and into derivativeoffshore marketsCONFIDENTIAL ‐ RBN Energy – 20123

Massive Growth in Natural Gas ProductionBcf/d Residue Gas Production7065605550454035Current Gas Production Levels At All Time HighsBcf/d64.464.264.063.863.663.463.263.030CONFIDENTIAL ‐ RBN Energy – 2012Source: BENTEK4

The Great Divide: Oil versus GasNatural Gas $/MMbtu$14.00$12.00$10.00$8.00$6.00$4.00$2.00 Natgas Henry HubWTI Crude Oil$0.002006 2007 2008 2009 2010 2011 2012$160$140$120$100$80$60$40$20$0Crude Oil $/BblCONFIDENTIAL ‐ RBN Energy – 2012Source: ICE/CME‐NYMEX5

Typical Rates or Return by BasinHorn ‐1%MontneyWCSB16%‐2%PinedalePrice Assumptions:• Gas = 12 month forward average curvefor each regional pricing point (pricerange $2.45-$2.86/Mcf)• Oil = 6 month WTI +/- differential (pricerange $84.40-$100.43/barrel)• NGLs = weighted average $/barrel,based on current Mt. Belvieu pricesand the typical composition in eachregion (range $23.79-$45.22 barrel)11%60%BakkenNiobraraMarcellus52%1%PiceanceGranite47%Uinta 28% Wash 90% MississippiLime67%Permian‐1% ArkomaWoodford85%12%Cana ‐2% HaynesvilleEagle Ford Woodford68%41%3%Dry Gas PlaysWet Gas PlaysOil PlaysSource: BENTEKCONFIDENTIAL ‐ RBN Energy – 2012Note: Anadarko Average IRR For Granite Wash, Cana, Mississippian & Cleveland Sands6

U.S. Rig Counts: Crude vs. Gas1,8001,6001,4001,2001,000800600» Crude rig count has increasedfrom 200 in mid‐2009 to 1,408today» Natural gas rig count increasedfrom 700 mid‐2009 to 1,000 in2010, but has now declinedback to 486400200020052006200720082009201020112012» Natural gas well productivityhas tripled in the past 5 years,so the production impact offewer rigs has been mutedOilGasCONFIDENTIAL ‐ RBN Energy – 2012Source: Baker Hughes 8/24/127

Southwestern Energy’s Rig Productivity Gains338%150.6106%113%463.3‐53%178211.634.4Drill Time(Days)Wells/Year PerRig30 Day Ave.Init. Prod Rate(MMcfd)IP AdditionsPer Rig Per Yr.(MMcf/d)CONFIDENTIAL ‐ RBN Energy – 20128

Natural Gas, NGL & Crude Oil Outlook» Assumptions» Natural Gas» Natural Gas Liquids» Crude OilCONFIDENTIAL ‐ RBN Energy – 20129

Assumptions – Crude & Natural Gas$/Bbl$120$100$80$60$40$20$0Crude oilNatural Gas$10.00$9.00$8.00$7.00$6.00$5.00$4.00$3.00$2.00$1.00$‐$/MMbtuCONFIDENTIAL ‐ RBN Energy – 2012Source: Bentek10

Other Assumptions: 2013‐17» No substantive changes in energy policy orregulatory constraints on ‘shale technologies’ –i.e., Fracing» Reasonable health of the global economy» Continued demand for increasing volumes ofboth LNG and LPG imports from far eastmarkets» Switching from coal fired to gas firedgeneration in the U.S. limited to currentlyannounced projects» U.S. government permits exports of LNG» No significant adoption of either LNG or LPGvehicles in the U.S.CONFIDENTIAL ‐ RBN Energy – 201211

N. America Supply/Demand RegionsProductionProduction (Bcf/d)(Bcf/d)10.018.0 16.0 30.0 5.0 2.016.04.5 9.814.0 1.825.0 4.09.6 7.014.0 12.0 9.4 1.63.5 6.012.0 20.0 9.2 1.410.0 3.0 1.2 5.010.09.015.0 2.5 8.8 8.08.01.0 4.02.0 8.610.0 6.06.01.5 8.40.8 3.00.61.0 4.0 8.20.4 2.05.00.5 2.0 8.00.2 1.00.0 7.80.0Southeast Midcontinent Southwest RockiesNortheast Texas and Producing Offshore MarketOffshoreSoutheastCONFIDENTIAL ‐ RBN Energy – 2012Source: Bentek13

Northeast Pipeline and Frac Crew ConstraintsBuild Large Backlog of WellsNon Producing Well Inventory1,2001,0008006004002000Bradford Lycoming TiogaSusquehanna Clearfield Other CountiesCONFIDENTIAL ‐ RBN Energy – 201214

Natural Gas DemandBcf/d9080706050403020100LNG ExportPowerResidential, Commercial, Industrial» Industrial demand increasing as25 new industrial plants comeonline» Residential/Commercialdemand will increase relative to2012 assuming normal weather» 4.0 Bcf/d of demand increasesfrom power sector» Growth in 2017+ from LNGExportsCONFIDENTIAL ‐ RBN Energy – 2012Source: Bentek15

Flow Analysis –Intra‐Regional to 2022Bcf/d2.01.51.00.5‐Rox to PacNWBcf/d6.04.02.0‐WCA to MCMBcf/d3.01.0(1.0)ECA to NEBcf/d6.04.02.0‐ROX TO MCPROX TO MCMBcf/d2.0‐(2.0)MCM to NEBcf/d2.51.50.5(0.5)(1.5)TX to SW10.05.0Bcf/d‐(5.0)SE to NECONFIDENTIAL ‐ RBN Energy – 2012Source: Bentek16

Wet (High BTU) Gas IncreasingDry Natural Gas Production, Bcf/d9080706050403020100Production from Wet Gas PlaysProduction from Dry Plays% from Wet Plays100%90%80%70%60%50%40%30%20%10%0%% Wet Gas Production» Liquids rich productiongrows rapidly asprocessing andtransportation capacityincreases come online» The average liquidscontent of gas productionis increasing» Consequently NGLproduction growssignificantly» Marcellus keeps dry gasproduction flat orincreasing slightlyCONFIDENTIAL ‐ RBN Energy – 2012Source: BENTEK17

U.S. NGL Production from Gas Processingto Increase by 1.2 MMb/d by 2017Mb/d3,4003,2003,0002,8002,6002,400» 13 NGL Pipeline Projects, +2.0 MMb/d» 86 Gas Processing Plants, +12.8 Bcf/d» 27 Fractionator Expansions, +1.4 MMb/dPADDIV+5960 Mb/dPADD II+254PADD I+3942,2002,000PADD III+455EthanePropane/ButaneNatural GasolinePetchemFuel/Latin Am.Canada/DiluentCONFIDENTIAL ‐ RBN Energy – 2012Source: BENTEK18

U.S. Oil Production 8.7 MMb/d in 2017‘000s b/d10,0009,0008,0007,0006,0005,0004,0003,0002,0001,00003,0801960‐2007 2008‐2011 2012‐2022CONFIDENTIAL ‐ RBN Energy – 2012Source BENTEK19

U.S. Crude Oil Production GrowthProduction (‘000 b/d)Production (‘000 b/d)1,600 2,500 1,4001801,400 160500 1,2002,000 400 1401,2001,000400 1201,000 1,500 300100 800300 8001,000 200 600 8020060060100400400100 50020000‐Eagle Anadarko Williston Niobrara Permian Utica FordPowder RiverDJCONFIDENTIAL ‐ RBN Energy – 2012Source BENTEK20

Increases in Crude Oil Supply: 2011 to 2017Canada+1,400» U.S. Refinerswill have acrude costadvantagerelative toworld pricesBakkenPermianAnadarko+900+300+1,100Rockies$Niobrara+270Cushing$+1,000Eagle FordLLS$Utica+150Brent$CONFIDENTIAL ‐ RBN Energy – 201221

Quality of U.S. Crude Production37Future Quality of U.S.Crude Oil Production1.4800U.S. Net Product ExportForecast361.2400API Gravity35343332API Gravity1.00.80.60.4Sulfur, wt. %MBPD0‐400‐800GasolineDistillate31Sulfur, wt. %0.2‐1,200Source: Turner, Mason & Company 2012 NORTH AMERICAN CRUDE OIL OUTLOOKCONFIDENTIAL ‐ RBN Energy – 201222

U.S. Surpluses of Fossil FuelsNaturalGasNGLsCONFIDENTIAL ‐ RBN Energy – 201223

E. Russell Braziel3333 Allen Parkway, Suite 1807Houston, TX, 77019Office: 888‐400‐9838Direct: 903‐881‐9260rbraziel@rbnenergy.comwww.rbnenergy.com@rustybrazielrbnenergy.com24