North American Natural Gas Markets

1. North American Natural Gas Markets January 7th 2010 J. Cameron Bailey CFA President and Chief Executive Officer

2. Natural Gas Price Increases – When? Not If! • Supply • Old Supply – Decline Rates? • New Supply • Drilling Activity – Key Driver • Drilling Efficiencies • Production Additions • Demand • Base Demand • Weather – Major Impact Acquire and Exploit

3. Historical Decline Rates US Production Declining by 30 - 35% per annum

5. US Natural Gas Production – Gas Drilling Activity Acquire and Exploit

6. US Natural Gas Directed Rig Count – Future Supply? Source: Baker Hughes

7. US Natural Gas Production – Declining? USProduction Source: Bentek

8. US Production - Declining When? Source: Bentek Acquire and Exploit

9. Understanding the Natural Gas Investment Cycle Concept Land Acquisition Permits Rig Count – Baker Hughes Rig Count Completions Pipeline Construction & Tie-in Production – Daily Estimates Six Month Delay? Acquire and Exploit

10. Delayed Production Response – Natural Gas Drilling Activity in Texas New well permits are down 73% but there still remained a large inventory of wells to complete Well completions have dropped off which will be followed by production declines Source: Railroad Commission of Texas

11. Texas - Natural Gas Production - Declining Source: Railroad Commission of Texas

12. Canadian Gas Drilling Rig Count – Future Supply? Lowest levels witnessed in 10 years Acquire and Exploit Source: Baker Hughes

13. Canadian Gas Production - Declining Canadian gas production is declining leaving less for exports to the US Acquire and Exploit Source: NEB

14. Canadian Gas Export to the United States Source: Bentek

15. LNG – Higher Prices = Supply Acquire and Exploit Source: Bentek

16. The Growing US Supply Deficit US Average Demand Diminishing decline from improving rig count

17. US Natural Gas Production Model - Prediction Acquire and Exploit

18. Production Decline Analysis – 757 Rigs Acquire and Exploit

19. US Production Forecast - +20 Rigs Per Month Acquire and Exploit

20. Total US Natural Gas Demand – Recession? More affected by weather than recession Source: Bentek 2009

21. Recession and Demand? – Industrial Demand Industrial demand is off 1.3 bcf/d Y/Y but has recovered Acquire and Exploit Source: Bentek 2009

22. Recession and Demand? – Power Demand Power Demand continues to be strong. Acquire and Exploit Source: Bentek 2009

23. Natural Gas Inventories – Awash in Gas ? Surplus inventories are quickly diminishing with cold weather Acquire and Exploit Source: EIA

24. Forecast Gas Storage Levels – 757 Rigs Operating and Average Gas Demand Not enough gas production to fill storage in 2010 Acquire and Exploit

25. Change in Natural Gas Inventory – Supply/Demand Balance Acquire and Exploit Source: EIA

26. Drilling Rig Efficiency – Improving? No Change in Drilling Times Acquire and Exploit

27. Conclusions • The low pace of drilling activity cannot be sustained • Further evidence of declining US production necessary before belief of supply shortages. • Price response will anticipate supply shortages • Weather is the biggest factor as to when supply shortages will emerge. Acquire and Exploit

28. Production Forecast - Assumptions Acquire and Exploit