Future Currents: Where the Global Energy Sector Will Flow

1. Future Currents: Where the Global Energy Sector Will Flow Robert Rapier The Wealth Summit May 2014

2. Outline • Biography • Philosophy on money and energy investing • 2013/Q1 2014 in review • Is natural gas still cheap? • Shale oil continues to boom • A word on coal, nuclear, and renewables • A peek at my portfolio

3. Robert Rapier Bio • MS in chemical engineering from Texas A&M • > 20 years in the energy business • Roles in oil and natural gas production, refining, petrochemicals, renewable energy • Five patents granted • Worked in Germany, Scotland, and the Netherlands • Based in Hawaii, but on assignment in Arizona • Investor for >30 years

4. The Hats I Wear 1. Investing Daily • Publications • The Energy Strategist/The Energy Letter • MLP Profits/MLP Investing Insider • Personal Finance 2. MericaInternational • Chief Technology Officer and Executive Vice President • Conduct due diligence • Develop technologies • Presently working with Advanced Green Innovations in Arizona 3. Freelance writer/commentator • Managing Editor, Energy Trends Insider • Guest columns in Washington Post, Forbes, Wall Street Journal, The Economist • TV appearances on 60 Minutes, The History Channel, and PBS

5. Author of Power Plays • Published in 2012 • Layman’s guide to energy • Overview of energy options • History of US energy policy • Due diligence primer

6. TES Philosophy andPortfolio Review

7. My Money Philosophies • Spend less than I earn • Minimize personal debt • Invest in businesses I understand • Invest in profitable but out of favor businesses • Understand the risk level • Avoid investments that are overly dependent on government subsidies and/or mandates • Identify long-term trends and invest for the long term • Have an exit strategy

8. A Few Energy Philosophies • Energy is nearly as important to society as is food and water • There is no economic, scalable substitute for oil • Oil prices will continue to be driven by growth in developing countries • A long natural gas boom is underway • Coal and nuclear power face headwinds • Investing in advanced biofuel companies is a good way to lose money

9. TES 2013 in Review • Purged 27 holdover companies, including royalty trusts and several foreign companies • Average return of companies after selling was -5.7% • Added 27 companies from across the energy spectrum • Average annualized return of new buys was 28% versus 22 percent advance for the Energy Select Sector SPDR (NYSE: XLE) • Kept 18 companies from previous regime • Average annualized return of holdovers was 28% • Full performance summary in December 27 TES story “Counting Our Blessings”

10. Q1 2014 Report • Energy Select Sector SPDR down 1% • S&P 500 up 1% • TES portfolios up 1.8% • 12 TES “Best Buys” up 7.6% • Two in the red and six returning double digits • Major moves in Q1 by American Railcar (NYSE: ARII), up 52%, and First Solar (NYSE: FSLR) up 30%

11. Current Best Buys * I own shares in this company

12. 2014 Investment Landscape

13. The Case for Natural Gas

14. Global Shale Basins

15. Shale Gas Resources

16. North American Shale Basins

17. Gas Production Surges

18. Rigs Shift to More Lucrative Oil

19. The Long Term Natural Gas Drivers

20. LNG Exports • Two dozen liquefied natural gas (LNG) export license applications under review at DOE • Total capacity of all licenses applications is 35.6 billion cubic feet per day (Bcfd) • This is equivalent to just over half the natural gas production in the US in 2012 • Thirteen companies have applied to the Federal Energy Regulatory Commission (FERC) • 2 West Coast, 2 East Coast, 9 Gulf Coast • 18 Bcfd total proposed capacity • Cheniere Energy Partners LP (NYSE MKT: CQP) scheduled to start exporting LNG in Q4 2015

21. EPA Phase-out of Mercury • Mercury and Air Toxics Standards (MATS) • Designed to limit emissions of mercury and other toxic substances; implementation in 2015 and 2016 Source: EIA, Annual Energy Outlook 2014

22. EPA Curb on Carbon Emissions • Proposed limit of 1,100 lb CO2/MWhfor new power plants • Coal-fired power without expensive carbon sequestration unable to meet this standard • Average emission rates in the US from coal-fired generation are: 2,249 lbs/MWh of carbon dioxide • Average emissions rates in the US from natural gas-fired generation are: 1135 lbs/MWh of carbon dioxide • EPA: “EIA projections show that natural gas is likely to be the most widely-used fossil fuel for new construction of electric generating capacity through 2020”

23. Natural Gas Vehicles

24. A Relevant Digression • I am currently working to help commercialize a natural gas conversion kit for heavy trucking and power generation • Embedded at Advanced Green Innovations in Phoenix • They have developed the world's first non-invasive diesel to natural gas engine conversion kit that provides full diesel power and torque -- www.zhro.com

25. The Short Term Natural Gas Drivers

26. Understanding Gas Inventories • US natural gas consumption is seasonal • During “injection season”, gas is stored under pressure in depleted oil or gas reservoirs, in natural aquifers, or in salt caverns • Injection season lasts from ~April 1st to ~mid-November • Inventories are then drawn down through the winter • Abnormally cold or warm winters can have a lingering on natural gas prices Source: EIA, Annual Energy Outlook 2014

27. Natural Gas Inventories

28. Natural Gas Inventories 1995-96 Gas prices rise 168%

29. Natural Gas Inventories 2000-01 Gas prices rise above $10/MMBtu

30. Natural Gas Inventories 2002-03 Gas prices rise above $15/MMBtu

31. Natural Gas Inventories 2011-12 Gas prices fall below $2/MMBtu

32. Natural Gas Inventories 2013-14 Largest gas withdrawal on record

33. A Long, Cold Winter • Natural gas inventories are 53 percent below normal

34. A Long, Cold Winter • Inventories not expected to recover before 2016 Prices crashed

35. From my presentation last year: “Natural gas is cheap”

36. Natural gas highlights • Henry Hub spot price on May 31, 2013 was $4.02 per million Btu • Henry Hub spot price on April 29, 2014 was $4.83 per million Btu – an increase of just over 20 percent • Added Cabot Oil and Gas (NYSE: COG) to the Growth Portfolio on 3/13/13 • Nation’s 12th largest gas producer • Total return to date of 19.2 percent • Added Chesapeake Energy (NYSE: CHK) to the Aggressive Portfolio on 5/13/13 • Nation’s 2nd largest gas producer • Total return to date of 43.5 percent • Added Devon Energy (NYSE: DVN) to the Growth Portfolio on 9/25/13 • Nation’s 4th largest gas producer • Total return to date of 19.1 percent

37. Top 20 US Gas Producers Denotes portfolio holding

38. Disconnects Create Opportunity • Cabot Oil and Gas COG drops based on short-term factors I pick up shares at $35

39. Natural gas takeaways • Natural gas in the early stages of a long-term growth phase • Short-term investors should exercise more caution, as gas producers have surged recently • Downside risk short-term would be an unusually mild summer followed by a mild winter • 100% of natural gas-weighted portfolio holdings have been winners to date

40. The Shale Oil Boom Continues

41. Global Opportunity

42. Developing Regions Want Oil

43. Shale Oil Resources

44. Shale Oil Rising

45. Top US Oil Producers Graphic source: The Economist

46. Notable Portfolio Holdings • 4 of the Top 5 US oil producers • 3 of the Top 4 Bakken oil producers • Continental Resources (NYSE: CLR) • Whiting Petroleum (NYSE: WLL) • EOG Resources (NYSE: EOG) – also top producer in Eagle Ford Formation • Top producer in the Permian Basin • Occidental Petroleum (NYSE: OXY)

47. Coal and Nuclear Power

48. Global Coal Consumption

49. Nuclear Woes

50. Nuclear and coal industries will be driven by growth in India and China, but will face plenty of headwinds