NARUC 2015 Summer Committee Meetings. Natural Gas for BaseLoad Power A Natural Gas Producers Perspective. New York City.

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1 NARUC 2015 Summer Committee Meetings New York City July 13, 2015 Natural Gas for BaseLoad Power A Natural Gas Producers Perspective Jim Tramuto Vice President Governmental & Regulatory Strategies

2 XOM CHK APC COG DVN COP BP EQT AR CVX BHP EOG RRC ECA UPL CNX WPX TLM RDS/A LINE NBL SM QEP OXY XEC APA RICE CLR PXD MRO NFX XCO SD About Southwestern US Lower 48 Gas Production Sorted by 1Q15 (MMcf/d) 4,000 3,500 3,000 is 4 th overall as of 1Q15 2,500 1Q15 2,000 1,500 1,000 1Q14 1Q13 1Q12 1Q11 1Q10 1Q Strategy built on the Formula: The Right People doing the Right Things, wisely investing the cash flow from the underlying Assets will create Value +. 1 Source: Public company reports, Southwestern Energy

3 Abundant Supply 981 2,215 2,543 4,000 Proved Reserves Estimates of U.S. Recoverable Natural Gas Non-shale Gas Resources (trillion cubic feet) Potential Shale Gas Resources 2,102 2,100 2,836 Total Resource (Uncategorized) 3,600 3,545 3,933 3,350 3,600 3,105 3,000 2,688 2,853 2,543 2,836 3,350 2,000 1,532 1,414 1,268 1,312 2,074 2,170 1,235 1,619 1,981 2,335 2,266 2,203 2,100 2,102 1, Potential Gas Committee EIA CERA, MIT NPC, INGAA ICF 2

4 Continuous Improvement Fayetteville Shale Notes: Finding and development costs exclude revisions and capital investments in our sand facility, drilling rig related and ancillary equipment Days to Drill ,657 3,619 Lateral Length 4,100 4,836 4,819 4,528 5,440 5,356 Well Cost ($ in millions) $2.9 $3.0 $2.9 $2.8 $2.8 $2.5 $2.4 $2.6 $2.39 $1.44 F&D Cost ($ per Mcf) $ % +105% -11% -52% +815% +608% $0.80 $1.11 $1.04 $2.53 $1.14 Production (in Bcf) ,545 Reserves (in Bcf) 3,117 4,345 5,104 2,988 5,069 4, Northeast Appalachia 25.6 Days to Drill Lateral Length 4,982 4,752 Well Cost ($ in millions) $7.0 $7.0 $2.98 F&D Cost ($ per Mcf) Production (in Bcf) 254 Reserves (in Bcf) 3, ,223 4,070 3,805 $6.2 $ , $5.9 $ % +25% $1.03 $0.85 $

5 Abundance = Affordability Henry Hub Spot Natural Gas Price (2011$/MMBtu) $14 $12 Actual Projected $10 Projection Range: AEO 2009 AEO 2015 $8 AEO 2015 $6 $4 CERA 2012 WoodMac2012 ICF 2013 $2 $ Source: EIA Annual Energy Outlook: 2009, 2010, 2011, 2012, 2013, 2014, 2015 Henry Hub Spot prices (Actual prices: 2000 to 2014) 4

6 Spot Price Response Over Time 20 Natural Gas Spot Price: Henry Hub Pre-shale Development Hurricane Katrina Typical Winter Run-up to Financial Crisis Shale Development Cold Winter Very Mild Winter Extreme Winter Typical Winter 2 0 5

7 Goal of Long-Term Arrangements A long-term gas contract is not an attempt to beat the spot market on any one day. Rather, a long-term gas contract should be considered as part of a portfolio strategy designed to deliver price stability and predictability for a portion of a utility s gas needs, while providing the producer with a stable and credit-worthy customer. 6

8 Why Long-Term Arrangements? LTAs are a tool to manage fuel price exposure - adding stability and certainty to utility fuel costs and consumer rates LTAs are a tool to enhance supply security LTAs provide utilities incentive to engage in risk reduction on behalf of their customers by providing the utilities the ability to earn a return on investment or providing pre-approval of purchasing options Rules or guidance on LTAs can help ensure a gaspurchasing portfolio that minimizes customer risk by encouraging a variety of market transactions and structures 7

9 Pathways for Long-Term Hedging Recent Louisiana model covers all three: 1) Soliciting bids through a request for proposal process 2) Entering into bilateral negotiations for a longterm contract or reserve investment 3) Relying on long-term financial hedges or futures contracts 8

10 Final Thought Utilities follow the lead of their PUC s on acceptable purchasing practices; therefore it is very important for the PUC s to send strong signals on the acceptance of Long-Term Contracts. 9

11 Contact Information James A. Tramuto Southwestern Energy Company Vice President Governmental & Regulatory Strategies Energy Drive Spring, Texas Office Fax Cell 10

12 NARUC 2015 Summer Committee Meetings New York City July 13, 2015 Natural Gas for BaseLoad Power A Natural Gas Producers Perspective Jim Tramuto Vice President Governmental & Regulatory Strategies