The Alliance ‘Meet Alaska 2003’ 20 th Annual Conference A Capital Market Perspective

1. The Alliance ‘Meet Alaska 2003’ 20th Annual Conference A Capital Market Perspective on Alaskan Energy Issues Thomas A. Petrie, CFA January 22, 2003 PETRIE PARKMAN & Co.

2. Topics Commodity Market Environment U.S. Energy Policy Initiatives Capital Market Drivers Alaskan Energy Issues Conclusions PETRIE PARKMAN & Co. i

3. The Geopolitical Backdrop • Iraq • Venezuela • Saudi Arabia • OPEC Dynamics 2003-2007 • Russia • Iran PETRIE PARKMAN & Co. 1

4. Commodity Market Environment PETRIE PARKMAN & Co. 2

5. World Oil Production – “Hubbert’s Peak” Predicted production curve Results match Hubbert’s prediction Source: Deffeyes, K.S. (2001), Hubbert’s Peak PETRIE PARKMAN & Co. 3

6. OPEC Production and Capacity PETRIE PARKMAN & Co. 4

7. Commodity Market Environment PETRIE PARKMAN & Co. 5

8. U.S. Gas Rig Count vs. 12- Month Gas Strip Week Ending 1/17/03 1,100 $6.75 1,000 $5.75 900 800 $4.75 Gas Strip ($/Mcfe) U.S. Gas Rig Count 700 $3.75 600 500 $2.75 400 300 $1.75 01/03/97 03/14/97 05/23/97 08/01/97 10/10/97 12/19/97 02/27/98 05/08/98 07/17/98 09/25/98 12/04/98 02/12/99 04/23/99 07/02/99 09/10/99 11/19/99 01/28/00 04/07/00 06/16/00 08/25/00 11/03/00 01/12/01 03/23/01 06/01/01 08/10/01 10/19/01 12/28/01 03/08/02 05/17/02 07/26/02 10/04/02 12/13/02 Gas Rigs Gas Strip PETRIE PARKMAN & Co. 6

9. Lower – 48 Resource Pyramid (Technically Recoverable) … increasing development costs, increasing technology needs, and increasing uncertainty In general, movement down the pyramid involves decreasing concentration Cum Production 881 Reserves- 157 Reserve Appreciation-305 New Fields- 633 Tight Gas 230 Coalbed Methane 74 Shale 52 356 Tcf Unassessed Portion of Coalbed Methane, Shale and Tight Gas (300-500?) (in Tcf) Geopressured Brine – Up to 24,000 Gas in Place > 50% of new fields Gas Hydrates- Up to 300,000 Gas in Place PETRIE PARKMAN & Co. 7

10. U.S. Energy Policy • Alaska Initiatives Are Likely • Gas Development Initiatives Likely • LNG to Have a Role? • Conservation and Alternative Supply Measures Will Probably be Required to Achieve Actual Passage of an Energy Bill PETRIE PARKMAN & Co. 8

11. The Longer Term North American Gas Supply Solution North Slope LNG ? North Slope Gas Mackenzie Delta Gas LNG Everett Cove Point ? LNG to U.S. West Coast ? Elba Island LNG Baja Lake Charles LNG from Asia LNG LNG 9 PETRIE PARKMAN & Co.

12. Capital Markets Drivers- Post Enron & the Iraqi Confrontation • Global Economic Malaise • Partisan Politics Reigns – 2004 Presidential Campaign is Underway • Unsettled Regulatory Framework • Continuing Trend of Corporate Consolidation • Impaired Capital Formation PETRIE PARKMAN & Co. 10

13. Industry Consolidation Trends • Conventional resource maturity is a looming reality • Production shortfalls are causing majors to undertake significant shifts in their upstream strategies (i.e., focus on ROCE versus production growth) • BP / Apache transaction provides the “green light” for additional divestitures by other majors; regional buyers’ markets may develop • E&P property divestitures and geographic portfolio realignments likely to accelerate over the 2003-2005 period • For the foreseeable future, the independent sector will be characterized by continuing corporate consolidations alongside noteworthy property acquisition transactions PETRIE PARKMAN & Co. 11

14. North Slope Reconfiguration New Millennium Players Mid – ‘90’s Players British Petroleum ARCO Exxon Mobil Amerada Hess Phillips Unocal Chevron Amoco Oxy BP ConocoPhillips ExxonMobil Anadarko Pioneer Armstrong Burlington EnCana TotalFinaElf Unocal ChevronTexaco PETRIE PARKMAN & Co. 12

15. Why Capital Formation Is Impaired • A “crisis of confidence” continues to impact many if not most investment decisions • Extreme sensitivity to corporate governance and management compensation at a time of rapid and unpredictable change in rules and procedures • Commodity prices ( particularly oil ) are perceived as more likely to fall than rise, engendering concern about a related decline in energy equity values • Investors in recent new issues have not been particularly rewarded for the incremental risk • Reacting to the meltdown in the merchant power and pipeline businesses, rating agencies and lenders are behaving much more conservatively • A wide gap in the perception of value exists between company management and investors PETRIE PARKMAN & Co. 13

16. Alaskan Energy Issues • NPRA • ANWR • North Slope Gas Development • Emerging Role for Independents? PETRIE PARKMAN & Co. 14

17. ANWR • Highly Politicized ( “Environmental Poster Child” ) • Meritorious Arguments Lack Lower 48 Traction • Exploitation Time Frame Well Beyond Attention Span of Capital Market Decision Makers • Perception of Preferable Alternatives • Significant Congressional Action Unlikely ( Pre 2004 Election ) Absent a Major Supply Crisis PETRIE PARKMAN & Co. 15

18. North Slope Gas Development • Stage Set by a Looming Lower- 48 Supply / Concerns • Pipeline vs LNG Options? • Possible Bi-Partisan Political Support for the Pipeline Option (at a Price) • LNG Competitiveness vis a vis Pacific Basin Sources? • Canadian Gas Development Issues • Gas Pipeline Financing Incentives / (Wellhead Price Protection?) • Capital Availability PETRIE PARKMAN & Co. 16

19. Conclusions • The Petroleum sector is on the threshold of the most challenging operating environment seen since the 1970’s • Oil and gas companies need to be able to operate in and cope with a wide range of commodity price scenarios • Restoration of reliable North American gas supply will require timely execution of an Alaskan gas pipeline complemented by significant LNG projects • Capital markets are only now beginning to focus on the looming challenges facing the petroleum sector • Alaskan petroleum supply competitiveness faces noteworthy global pressures PETRIE PARKMAN & Co. 17