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Raymond James Energy Group Energy Outlook: Oil: Shaky Short-Term, Bullish Long-Term Gas: Bad Short-Term, Questionable

Raymond James Energy Group Energy Outlook: Oil: Shaky Short-Term, Bullish Long-Term Gas: Bad Short-Term, Questionable Long-Term. September 2010. Collin.Gerry@RaymondJames.com. Raymond James Energy Group (800) 945-6275 . 2010 Energy Themes. Short-Term Oil Highly Volatile

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Raymond James Energy Group Energy Outlook: Oil: Shaky Short-Term, Bullish Long-Term Gas: Bad Short-Term, Questionable

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  1. Raymond James Energy GroupEnergy Outlook: Oil: Shaky Short-Term, Bullish Long-Term Gas: Bad Short-Term, Questionable Long-Term September 2010 Collin.Gerry@RaymondJames.com Raymond James Energy Group (800) 945-6275

  2. 2010 Energy Themes Short-Term Oil Highly Volatile Trading with Broader Markets Long-Term Oil Looks Bullish Oil to Gas Price Disconnect Continues Too Much Gas at $5/Mcf Pricing Regardless, U.S. Drilling Activity will be Robust 2

  3. Stock Market Is Now Driving Oil Prices(This Is Very Unusual) 3

  4. 2010 Oil Demand Has Been StrongBut What about 2011? 4

  5. Longer Term, Oil Demand Moves Higher 5

  6. All Demand Eyes are on China(20 million autos = 350,000 b/d oil demand)* *Assumes 30 MPG & 8,000 miles/year/car 6

  7. Non-OPEC Supply Declines are the Real Story 7

  8. How Big is U.S. Deepwater Moratorium? 8

  9. Where will non-OPEC Growth come from? 9

  10. OPEC Cut Big; Now Ramping Back Up 10 10

  11. What About OPEC’s Excess Capacity? 11

  12. We Aren't Buying Stated OPEC Excess Capacity(As of August 2010) 12

  13. What is Real OPEC Capacity? 13

  14. Oil Moves Higher Over the Next Decade • Non-OPEC supply stagnating/falling • U.S. deepwater shutdown is BIG • We are worried about the global economy • Excess OPEC capacity should fall • Market must eventually ration available oil • How will global money printing impact oil? 14

  15. Cautious Macro Outlook Weighs on Oil Forecast 15

  16. $5/Mcf U.S. Gas for 5 Years? U.S. supply can grow at $5/Mcf U.S. LNG imports surge at $5/Mcf Gas to coal switching occurs at $5/Mcf Next few years look ugly 16

  17. Why Have We Been Bearish On Gas?Technology Driving Huge Supply Growth! 17

  18. Shale Plays Are Much More Productive 18 18

  19. Haynesville IP Rates Dwarf Barnett 19 19

  20. % Horizontal Screaming Higher 20

  21. Why Keep Drilling in a $4 Gas World? • Oil count not dependent on gas • “Oily” gas plays surging • Granite Wash, Eagle Ford, Etc… • Some gas plays work at $4 (Marcellus) • Leasehold drilling (~15%) • Pre-funded drilling programs • Hedging 21

  22. Increasingly Bearish on Gas 22 22

  23. What Does This Mean for U.S. Rig Count? 23

  24. Higher Oil Count Offsets Lower Gas 24

  25. International Rig Count Also Growing 25

  26. Offshore Fleet and Utilization 26

  27. Wave of Newbuilds in 2011 27

  28. GOM Was Home to High Spec Floaters 28

  29. Conclusion • U.S. natural gas prices will remain ugly • U.S. average rig count will remain strong • Increasing oil offsets lower gas • $5/Mcf gas is not a disaster • Sub $4/Mcf needed to slow gas rig count • Invest in oil for the long term • More of a stock-pickers market today 29

  30. Disclaimer • Important Investor Disclosures. • Stock Ratings: Within our four-tiered rating system, Strong Buy means that the stock is expected to appreciate and produce a total return of at least 15% and outperform the S&P 500 over the next six months; Outperform means the stock is expected to appreciate and outperform the S&P 500 over the next 12 months; Market Perform means the stock is expected to perform generally in line with the S&P 500 over the next 12 months and is potentially a source of funds for more highly rated securities; and Underperform means the stock is expected to underperform the S&P 500 or its sector over the next six to 12 months and should be sold. • Out of approximately 519 stocks in the Raymond James coverage universe, 52% have Strong Buy or Outperform ratings, 35% are rated Market Perform and 12% are rated Underperform. Within those rating categories, 25% of the Strong Buy- or Outperform-rated companies either currently are or have been Raymond James Investment Banking clients within the past three years; 17% of the Market Perform-rated companies are or have been clients and 9% of the Underperform-rated companies are or have been clients. • Analyst Holdings and Compensation: Equity analysts and their staffs at Raymond James are compensated based on a salary and bonus system. Several factors enter into the bonus determination including the analyst’s success in rating stocks versus an industry index, support effectiveness to the retail and institutional sales forces, traders, and investment bankers, institutional research votes, as well as overall productivity and revenue generated in covered stocks. • Raymond James Relationships: Raymond James & Associates may make a market in stocks mentioned in this report and may have managed/co-managed a public/follow-on offering of these shares or otherwise provided investment banking services to companies mentioned in this report in the past three years. • RJA or its officers, employees, or affiliates may (1) currently own shares, options, rights or warrants and/or (2) execute transactions in the securities mentioned in this report that may or may not be consistent with this report's conclusions.  • Disclosure information, as well as more information on the Raymond James rating system and suitability categories, is available at www.rjcapitalmarkets.com/SearchForDisclosures_main.asp. Copies of research can be obtained by contacting any Raymond James & Associates or Raymond James Financial Services office (please see www.rjf.com for office locations) or by sending a written request to the Equity Research Library, Raymond James & Associates, Inc., Tower 3, 6th Floor, 880 Carillon Parkway, St. Petersburg, FL 33716. • Additional information is available on request. • This document may not be reprinted without permission. 30

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