BP & Interstate Municipal Gas Agency Natural Gas Market Overview and

1. BP & Interstate Municipal Gas AgencyNatural Gas Market Overview and Risk Management DiscussionApril 30th, 2008

2. Market Overview

3. Market Overview • Near term supply outlook from traditional Canadian sources • Higher valued crude oil- NG staying home for syn-crude production • US Rockies and non-conventional supply availability set to grow • Significant supply growth in near term possible if pipeline capacity in place 1bcf/day to Mid-Continent 1.8/day to East Ohio in early 2009 • Tight sands/coal bed methane • LNG import capabilities growing, but must compete in global market • US market currently trading at a significant discount to Europe • Asian demand competing with Europe • Independence Hub shut-in currently 28bcf, expected to reach 40bcf • Economic conditions, both in the U.S. and Global demand, has driven money into commodities across the board • Demand destruction will be sector specific • Storage level slightly below 5 yr avg 1.25 tcf, total storage capacity closer to 4 tcf now versus traditional 5 yr ago 3.5 tcf • Drilling can shift more to oil vs. gas if oil price remains at a premium to nat gas

4. Market Overview Continued • Longer term supply outlook from traditional Canadian sources • McKenzie Delta Gas • Alaska delayed again (BP/ConocoPhillips forge ahead with Denali) • Carbon Tax- Uncertainty around the use of coal in power generation • Longer term projects are turning to coal, due to uncertainty around tax and emission requirements associated with coal • LNG liquefaction capabilities growing, projects continue to be announced but delays • Questions around longer term geo-political stability surrounding LNG as a supply source

5. The Weak US$ Effect on Commodity Prices • The US$ is trading at a greater and greater discount to other world currencies, (vs.Euro shown) • As US currency weakens, commodities offer a hedge opportunity • RH graph shows Euro/US$ exchange rate vs. CRB commodities index in gold • Some effects of the weak US$ • Investment $$ move to commodities as hedge to currency risk • OPEC’s income is reduced, compelling to keep production low and increase price • Higher oil prices worsen US current account deficit, putting more downward pressure on dollar

6. Rigs vs. Henry Hub vs. Production Bcfd & $US/MMbtu Rigs August and September 2007 Forecasts from EIA STEO Sources: Baker Hughes, EIA

7. Canadian Supply: Rigs • In Canada: • Service costs out of line with commodity price • Costs up 50% - 200% • E & P companies scale back 2007 gas drilling plans • Budgets diverted to higher return crude projects • Slowdown for service companies

8. Competing Fuel Prices

9. Everett Cove Point Elba Island Lake Charles Energy Bridge U.S. LNG Imports by Terminal Nymex currently trading at a significant discount to European gas Source: DOE, Office of Fossil Energy

10. Risk Management Discussion

11. What is Risk Management Risk Management is Trading Uncertainty for Certainty Risk Management Prices in a Defined Range Known Unknown Strictly Confidential – for BP client use only

12. Risk Management with a Strategic Vision • Price risk management is best applied: • Consistently • Under guidelines of a corporate mandate • With knowledge of the underlying market BP has the ability to equip you with the knowledge and information you need to formulate a long-term strategic risk management program, and the customized financial products you need to execute such a program.

13. Company Objectives: Budgets Cash Flow Returns Prudence Volatility Competitive Advantage A Framework for Energy Risk Mgt. Develop Market Outlook Create Benchmarks And Review Assess Corporate Risk Profile, Develop Policy Quantify Risk Develop Strategy • Define: • Acceptable Benchmarks • Assessment • Criteria • Assess market factors • Supply • Demand • Liquidity • Other Market Factors Things to Consider • Product Types • Volume • Term • Liquidity • Flexibility • Internal Control • Contracts • Risks include • Price • Credit • Operational • Interest Rate • FX • Regulatory

14. Hedging Example- 3 Year Rolling Purchase Plan

15. 1/3/1/3 – 2/3 Portfolio Approach to Hedging In a Falling Market Fixed Price = loser Options = winner Index = winner In a Rising Market Fixed Price = winner Options = winner Index = loser *At all times you have 67% of the expected hedge volumes mitigated to the market, while 67% is participating in a falling market. 1/3 Fixed Price Gas Requirements 1/3 Index 1/3 Options

16. Financial Risk Management Discussion

17. Leading Energy Risk Management Provider Strictly Confidential – for BP client use only

18. BUY SWAPS or ENHANCED COLLARS BUY CAPS BUY BASIS BALANCE PORTFOLIO: Execute underweighted Floor, Swap or Collar Increasing Price BUY SWAPS BUY COLLARS Increasing Volatility Hedge Product Decision Matrix Price and Volatility can guide decisions as to which hedge product to apply. Strategy assumes an ongoing price risk management program and a market that has a mean-reverting nature:

19. Natural Gas Structured Products Strictly Confidential – for BP client use only

20. Market Price Your Price Cap Floor $14.00 Cap Price $10.85 Floor Consumer Costless Collar- Nymex Nov08-Mar09 Description End user limits their upside price exposure Commonly structured as value neutral Details Buy Cap / Sell Floor Current Market 11.85 End user chooses a range: opportunity given on the downside is used to fund the cost of the upside price protection Current Swap 11.85/MMBtu • Scenarios • If market price is above $14.00, end user pays $14.00 • If market price is between $10.85 and $14.00, end user pays market • If market price is below $10.85, end user pays $10.85 Strictly Confidential – for BP client use only

21. 50% Participating Swap- Nov08-Mar09 • Description • Provides price protection from rising prices while offering flexibility to participate in downside movements • Details • Maximum cost of gas known today • Costless structure • Ability to participate if market fundamentals change • Only receive 50% of downward market move • Can set % of participation Market Price $13.30/MMBtu Price Your Price Current Swap $11.85/MMBtu Time 50% volume 50% volume • Scenarios • If market price is above $13.30, end user price is $13.30 • If market price falls or stays below $13.85, 50% of volume is priced at $13.30 and remaining 50% priced at market Trade Ideas Strictly Confidential – for BP client use only

22. Market Price Your Price Cap 1 Cap 2 Floor 1 $ 14.25 Sell Cap 1 Price $ 11.85 Buy Cap 2 $9.50 Sell Floor Consumer Three-Way Collar- Nov08-Mar09 Description End user limits their upside price exposure below a Costless Collar End user participates in a range of downward price movements. End user gives up protection in well above-market prices to gain a lower initial upside price protection Structured as value neutral. Details Sell Cap 1/ Buy Cap 2 / Sell Floor Current Swap is $11.85 End user receives additional premium for selling a call which creates better initial range economics vs the costless collar Current Swap $11.85/MMBtu • Scenarios • If market price is above $14.25, end user price is market price minus $2.40 • If market price is between $11.85 and $14.25 end user pays $11.85 • If market price is between $9.50 and $11.85, end user pays market price • If market price is below $9.50, end user pays $9.50 Trade Ideas Strictly Confidential – for BP client use only

23. Market Price Your Price Cap 1 Cap 2 Floor 1 $ 14.00 Sell Cap 1 Price $ 11.40 Buy Cap 2 $8.75 Sell Floor Leveraged- Consumer Three-Way Collar- Nov08-Mar09 Description End user limits their upside price exposure below a Costless Collar End user participates in a range of downward price movements. End user gives up protection in well above-market prices to gain a lower initial upside price protection Structured as value neutral. Details Sell 1x Cap 1/ Buy 1x Cap 2 / Sell 2x Floor Current Swap is $11.85 End user receives additional premium for selling a call which creates better initial range economics vs the costless collar Current Swap $11.85/MMBtu • Scenarios • If market price is above $14.00, end user price is market price minus $2.60 • If market price is between $11.40 and $14.00 end user pays $11.40 • If market price is between $8.75 and $11.40, end user pays market price • If market price is below $8.75, end user pays $8.75 on two times the volume Trade Ideas Strictly Confidential – for BP client use only

24. At-the-Money Call Spread Nov08-Mar09 Objective • End user limits their upside price exposure with protection starting at lower call strike • End user participates in all downward price movements. • End user gives up protection in well above-market prices to gain a lower initial upside price protection End user Collar Mechanics: • Sell Cap 1/ Buy Cap 2 • End user pays $.50 for coverage between $11.85 and $13.40 Sell cap 1 $13.40 Buy cap 2 $11.85 Current swap $11.00 • Scenarios • If market price is above $13.40, end user price is market price minus $1.55 • If market price is between $11.85 and $13.40 end user pays $11.85 • If market price is below $11.85, end user pays market price Trade Ideas Strictly Confidential – for BP client use only

25. Call Spread w/$.50 of Retention Nov08-Mar09 Objective • End user limits their upside price exposure with protection starting at lower call strike • End user participates in all downward price movements. • End user gives up protection in well above-market prices to gain a lower initial upside price protection End user Collar Mechanics: • Sell Cap 1/ Buy Cap 2 • End user pays $.50 for coverage between $12.35 and $14.25 Sell cap 1 $14.25 Buy cap 2 $12.35 Current swap $11.85 • Scenarios • If market price is above $14.25, end user price is market price minus $1.90 • If market price is between $12.35 and $14.25 end user pays $12.35 • If market price is below $12.35, end user pays market price Trade Ideas Strictly Confidential – for BP client use only

26. Risk Management Structures Delivered Transactions immediately executable from the Financial Products Desk: • Collar • Bounded Swap Collar • Range Forwards • Participating Collar • Three Way • Double Down • Extendable • Index w/Floor • Heat Rate Swaps & Options • Straddles • Tiered Volume Restructure • Weather Contingent GD Option • Time Spread • Binary Options • Call Swaption • Put Swaption • Deferred Premium Structures • Swap • Basis Swap • Index Swap • Swing Swap • Participating Swap • European Call • European Put • Asian Call • Asian Put Transactions are easily tailored for client needs: Varied volumes by period; Varied Strikes for month; Settlement adjustments; etc… All structures are priced NPV per appropriate discounting per counterparty credit status