HOUSTON. The View from. By: Dan Steffens, President INSIDE THIS ISSUE

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1 The View from HOUSTON Energy Prospectus Newsletter: "The View from Houston January 2, 2015 Issue: 100 By: Dan Steffens, President Dan Steffens is the President of Energy Prospectus Group (EPG), a networking organization based in Houston, Texas. He is a 1976 graduate of Tulsa University with an undergraduate degree in Accounting and a Masters in Taxation. Mr. Steffens began his career in public accounting, becoming licensed as a CPA in After four years in public accounting, he transitioned to the oil & gas industry with the bulk of his time (18 years) spent with Amerada Hess Corporation (HES). He served as the Hess United States E&P Division Controller from 1994 to INSIDE THIS ISSUE 4 Sweet 16 Growth Portfolio 6 Small-Cap Growth Portfolio 8 High Yield Income Portfolio 10 EPG Disclaimer Seek and ye shall find. At EPG we are seeking out the best energy stocks and we bring those companies to the attention of our members. Happy New Year! Low oil prices today may be setting up the E&P companies in our model portfolios for solid full-year results. However, it will be rough sledding for the first half of the year. On Thanksgiving Day, 2014 Saudi Arabia decided to maintain their crude oil output of approximately 9.5 million barrels per day. They ve taken this action despite the fact that they know the world s oil markets are currently over-supplied by an estimated 1.5 million barrels per day and the severe financial pain it is causing many of the other OPEC nations. By now you are all aware this has caused a sharp drop in global crude oil prices and has a dark cloud hanging over the energy sector. I believe this will be a relatively short-lived dip in the long history of crude oil price cycles. Oil prices have always bounced back and this is not going to be an exception. To put this in prospective, the world currently consumes about 93.5 million barrels per day of liquid fuels, not all of which are made from crude oil. Some products refined from oil go directly into the manufacture of many of the things we use each day. About 17% of the world s total fuel 1

2 supply comes from natural gas liquids ( NGLs ) and biofuels. One of the facts that drive the Bears opinion that oil prices will go lower during the first half of 2015 is that demand does decline during the first half of each year. Since most humans live in the northern hemisphere, weather does have an impact on demand. I agree that this fact will play a part in keeping oil prices depressed for the next few months. However, low gasoline prices in the U.S. are certain to play a part in the outlook for this year s vacation driving season. Ecuador, which relies on crude for about a third of its revenue, may cut next year's budget by as much as $1.5 billion and seek additional financing if prices don't stabilize, the Finance Ministry has said. Oil's collapse has also threatened to push Russia, the world's second-largest crude exporter, into recession as its currency is headed for its steepest annual slide since The economy, which relies on crude sales for almost half its budget, may shrink as much as 5 percent next year if oil averages $60 a barrel, according to the central bank. The commonly held belief is that Saudi Arabia is doing this to put a stop to the rapid growth of production from the U.S. shale oil plays. Others believe it is their goal to crush the Russian and Iranian economies. If the oil price remains at the current level for a few months longer it will do all of the above. My forecast models for 2015 assume that crude oil prices will remain depressed during the first quarter, then slowly ramp up and accelerate as next winter approaches. I believe that by December, 2015 we will see a much tighter oil market and significantly higher crude oil prices. In a December 24, 2014 article in The National, Steven Kopits managing director of Princeton Energy Advisors states that In permitting low oil prices, the Saudis seek to bring the market back into equilibrium. At present, our calculation of breakeven system-wide is in the $85 $100 a barrel range on a Brent basis. Mark Mobius, an economist and regular guest on Bloomberg TV, Brent oil prices are now hovering below $60 a barrel. In my opinion, this is quite a bit lower than Saudi Arabia thought the price would go when they decided not to cut production and it may lead to an Emergency OPEC meeting during the first quarter. But for now, I am assuming that Saudi Arabia is willing to let the other OPEC members suffer until the next scheduled OPEC meeting in June. Venezuela's President Nicolas Maduro vowed an economic "counter-offensive" to steer the OPEC nation out of recession as it struggled with low oil prices and the world's fastest growing inflation. EPG Coming Events Our luncheons in Houston and Dallas give EPG members and their guests an opportunity to meet the top management of some of the most promising small and mid-cap energy companies that we track. Members and guests need to register on our website. Our luncheons are free for EPG members and just $40 for non-members that register through our website or $50 at the door. We are talking to several companies about hosting a Houston luncheon in January, so check the EPG Calendar for updates. Click here to register for these events. 2

3 recently said he sees Brent rebounding to $90/bbl by the end of Boone Pickens made a similar prediction during a recent interview on CNBC. Click HERE for a link to Boone s interview. If not for very smart engineers at the major oilfield service firms, the price of oil would be in the $200/bbl range today. Conventional oil production peaked in 2005 and it has been on decline ever since. Horizontal drilling and improved completion technologies (primarily hydraulic fracturing) have allowed oil to be produced from tight formations. However, it is sub-economic to drill new wells in all but the very best areas of the major shale plays at today s oil price. It will take oil prices even higher than $100/bbl to develop shale oil outside of North America. Since 2005, only North America has been able to add meaningful crude oil supply. Proof that conventional oil production is on decline can be seen in the chart. Outside of Canada and the United States (including the Gulf of Mexico), the rest of the world s crude oil production netted to a decline of a million barrels per day from December, 2010 to December, More than half of the OPEC nations are now on decline. We ve been able to supplement our fuel supply during the last ten years with biofuels, but that is limited since we need the farmland for food supply. I believe the current low crude oil price could be overkill and result in the next Energy Crisis by early Enjoy these low gasoline prices while they last. The upstream U.S. oil companies that I follow closely are all announcing 20% to 50% cuts in capital spending for A decline in the active rig count has started and we may see up to a 40% decline in the onshore rigs drilling for oil within six months. We will start seeing the impact on oil supply at the same time the annual increase in demand kicks in. Our model portfolio companies are all expected to report year-over-year increases in production in 2015, but at a much slower pace of growth than the last few years. A study released by Credit Suisse two week ago shows that U.S. independents expect capitalexpenditure (Capex) cuts of onethird against production gains of 10 per cent next year. This would imply production growth of 600,000 bpd of shale liquids (including NGLs), and perhaps another 200,000 bpd from Gulf of Mexico deepwater projects. At the same time, U.S. conventional onshore production continues to fall. I have seen estimates of 500,000 to 700,000 bpd of conventional oil declines within twelve months. If these forecasts are accurate, U.S. oil production growth would be barely positive this year and headed for a material downturn in North American unconventionals (oil sands, shale and other tight formations) have been almost all of net global supply growth since If unconventional growth grinds to zero and conventional growth is falling outright, the supply side heading into 2016 looks highly compromised. At today s oil price, only the Sweet Spots in the North American Shale Plays and the Canadian Oil Sands generate decent financial returns to justify the massive capital requirements needed to continue development. Global deepwater exploration is rapidly coming to a halt. Were demand growth muted, this might not matter. Demand for liquid fuels goes up year-after-year. It even increased in 2008 during the Great Recession and ramped up sharply during 2009 and 2010 despite a sluggish global economy. Low fuel prices are increasing demand today and my guess is that, with U.S. GDP growth now forecast at 5% in 2015, we could see demand for fuels increase by close to 1.5 million barrels per day this year. The current IEA forecast is for oil demand to increase by 900,000 bpd in If this play out, the oil markets will be heading into a significant squeeze in the first half of I m old enough to remember the last extended period of low oil prices that occurred from 1985 to In 1985, when oil prices collapsed similar to what s happening now, the world had 13 million bpd of spare capacity, with 7 million bpd in Saudi Arabia alone. OPEC was wellpositioned to comfortably meet any 3

4 New Profiles The following reports were posted to the website since our last newsletter: Updated Net Income and Cash Flow Forecasts for several of the Sweet 16 companies and those on our Watch Lists A table of our Fair Value estimates for each Sweet 16 company compared to First Call s 12-month price targets Company Profiles Abraxas Petroleum (AXAS) Approach Resources (AREX) Diamondback Energy (FANG) EnerJex Resources (ENRJ) Gran Tierra Energy (GTE) Memorial Production Partners (MEMP) Rosetta Resources (ROSE) Southcross Energy Partners (SXE) Triangle Petroleum (TPLM) increase in demand. Today, just about all of the world s discretionary spare capacity resides in Saudi Arabia and amounts to an estimated 2 million bpd. Lou Powers, an EPG member and author of The World Energy Dilemma (see www. thewoldenergydilemma.com), has told me that Saudi Arabia will have difficulty maintaining production at over 10 million bpd for an extended period. If we do swing to a supply shortage, Saudi Arabia may find itself in the position of needing to run the taps full out for much of In such an event, the world will be headed right back into an oil shock and we will see much higher oil prices than $100/bbl. Low oil prices will hurt the unhedged upstream companies, but low oil & gas prices will hurt the oilfield services sector the most as much of their work is tied to the active rig count. I m expecting the onshore active rig count to drop by 40% by mid However, the lower rig count will tell the markets that lower supply is just ahead and we will see NYMEX oil futures begin to move up. Oil price will need to firm up for several months before the upstream companies commit to higher spending levels. That said, the high quality drillers like Helmerich & Payne (HP), Patterson-UTI Energy (PTEN) and Precision Drilling Corp. (PDS) will be fine since a lot of their high end rigs will keep working on long-term contracts. By 2016, they will have gained market share. Keep in mind that in all prior oil price cycles, these high quality onshore drillers have rewarded equity investors with big gains when commodity prices rebounded. North America and deepwater are the only places with meaningful production upside. If crude oil prices move below $60/bbl and stay there for even six months it could prove catastrophic to non-opec supply. At some point, OPEC action may become necessary. But perhaps not by the Saudis. Russia s position (as an oil exporting nation) is comparable to Saudi Arabia s. Either could cut production by a meaningful quantity, but the Russians need the incremental revenue more. Saudi Arabia would be right to argue that any calls for production cuts should be directed to Moscow. OPEC could cut production to prop up prices and increase revenues. But for now, a better strategy (for Saudi Arabia) would be to hang back, deflect criticism, and let events play out. If the Russians are thinking clearly, Moscow will cut first. - Steven Kopits the managing director of Princeton Energy Advisors. The best news for all of us is that Russia will soon run out of money to fund their aggression in Eastern Europe and Iran may be quite willing to put an end to their nuclear enrichment program a few months from now. I believe this is the real reason for what Saudi Arabia is doing. We should find out in a few months. Sweet 16 Growth Portfolio Big selloffs in the energy sector do the most damage in the early innings and they tend to hit the small-caps a lot harder than the larger companies. It makes sense in that the larger companies have more production they can depend on for operating cash flows and they have stronger balance sheets. The Sweet 16 is a collection of upstream companies that have production and proven reserve growth locked in. When commodity prices improve, this group will draw a lot of attention. In the meantime, these companies are all prime takeover targets for the majors and large-cap E&Ps. Most of the majors were late to the party on the shale plays. This is their chance to swoop in to acquire companies on the cheap that hold large acreage blocks in the Bakken, Eagle Ford, Marcellus, Permian Basin 4

5 Sweet 16 Growth Portfolio Company Name Primary Product Stock Symbol Share Price EPG Fair Value Estimate Percent Undervalued 12/31/14 BAYTEX ENERGY OIL BTE.TO $19.32 $ % CARRIZO OIL & GAS OIL CRZO $41.60 $ % CONCHO RESOURCES OIL CXO $99.75 $ % CIMAREX ENERGY OIL XEC $ $ % CONTINENTAL RESOURCES OIL CLR $38.36 $ % DEVON ENERGY OIL DVN $61.21 $ % EOG RESOURCES OIL EOG $92.07 $ % DIAMONDBACK ENERGY OIL FANG $59.78 $ % GULFPORT ENERGY CORP GAS GPOR $41.74 $ % MATADOR RESOURCES OIL MTDR $20.23 $ % NEWFIELD EXPLORATION OIL NFX $27.12 $ % OASIS PETROLEUM OIL OAS $16.54 $ % RANGE RESOURCES GAS RRC $53.45 $ % ROSETTA RESOURCES OIL ROSE $22.31 $ % SM ENERGY OIL SM $38.58 $ % WHITING PETROLEUM OIL WLL $33.00 $ % and Utica. For example, Oasis Petroleum (OAS) holds over 500,000 Top Tier net acres in the core of the Williston Basin. Over 85% of their acreage is now held by production and most of it has both Bakken and Three Forks potential. This is the kind of package that is very attractive to a large E&P company. At the beginning of each year I like to make a few changes to the Sweet 16. For 2015 I am adding three companies that are heavily weighted to oil and which appear to be prime takeover targets. I was planning to add more exposure to natural gas, but the slow start to winter has depressed natural gas prices. If we do get a colder than normal January, I may add a couple of high quality gassers since I believe the North American natural gas market will improve as we begin to ramp up LNG exports late this year. The companies which have the most exposure to natural gas are Range Resources (RRC), Gulfport Energy (GPOR) and SM Energy (SM). Bonanza Creek Energy (BCEI), Sanchez Energy (SN) and Unit Corp. (UNT) are just being dropped down to our Small-Cap Growth Portfolio. They can all survive a year of low oil prices and I am expecting all of them to generate double digit production and proven reserve growth in Additions for 2015 Baytex Energy Corp. (BTE and BTE. TO) is being moved into the Sweet 16 primarily because their 23,000 net acres Sugarkane Field is all in the Tier One liquids rich part of the Eagle Ford Shale. The company s current production is approximately 90,500 boe per day, with 85% being crude oil and natural gas liquids. This is a large company with 432 million boe of 2P reserves. Baytex was in our High Yield Income Portfolio. On December 8th the company announced that they were reducing their monthly dividend to $0.10, down from $0.24 per share (paid in Canadian dollars). I would much rather see them investing in more Eagle Ford wells than paying a dividend, but the announcement caused a sharp selloff. The share price has since rebounded from the 52- week low of $ First Call s target price is now $31.28, but I can see a lot more upside for us in this one if I m right about crude oil prices rebounding in the second half of

6 Despite a reduced capital program in 2015, Baytex expects to deliver modest organic production growth. Approximately 75% of their capital program will be directed towards the Eagle Ford. The remainder will be spent on their heavy oil operations in Canada. Baytex expects to drill over 100 new wells in Diamondback Energy (FANG) is being promoted from our Small-Cap Growth Portfolio. It is a pure play on the Permian Basin, where they have generated strong production growth. Production was up more than 150% YOY in 2014 and I am forecasting another 45% YOY growth in Their high btu gas sells at a premium to Henry Hub prices and they have approximately 53% of their forecast crude oil production hedged at an average price of $88.14/bbl. First Call s price target is $83.58/share. Rosetta Resources (ROSE) is moving back to the Sweet 16, which I announced in the updated profile we sent out on Christmas Day. Recent profiles on all three of the additions can be found on the EPG website. Rosetta is primarily an Eagle Ford company with another core area being developed in the Permian Basin. They generated over 30% YOY production growth in 2014 and should layer on another 20% in Over 50% of their 2015 crude oil production is hedged with a fixed price SWAP at $89.81/bbl. Approximately 60% of their natural gas is hedged at $3.86/ Mmbtu. If you have any questions about the three additions or any of the Sweet 16, post them to the EPG website and I will promptly respond. Disclosure: I have long positions in ALV.TO, BBEP, BTE, CLR, CRK, DDRI, DVN, GST, HCLP, LINE, LNCO, LSTMF, MEMP, MWE, NFX, OAS, PBG.TO, PWE, ROSE, RRC, SN, TOG.TO and TXP.TO. I do not intend on buying or selling any securities mentioned in this newsletter within 72 hours of the publication date on page one. I am not receiving compensation from any of the companies mentioned in this newsletter. See the DISCLAIMER on the last page of this newsletter for more details. Small-Cap Portfolio Small-caps have more risk than the mid-caps in our Sweet 16, but they also have more potential. I believe by staying focused on the fundamentals we can increase our chances of making profitable investments. The last time oil prices sank like they have recently (2008), it was the smallcaps that came roaring back as the oil markets tightened up. They do have more risk simply because of their size, but they all seem to be grossly oversold at this point. As you can see, the three companies dropped from the Sweet 16 (BCEI, SN and UNT) have been added to the portfolio. Other than the promotions of FANG and ROSE there have been no other changes. On December 18, Comstock Resources (CRK) announced a $307 million capital program for In response to low oil prices, the Company plans to suspend its oil directed drilling activity in its Eagle Ford shale properties in South and East Texas and in the Tuscaloosa Marine shale in Mississippi. Comstock has released its rig in the Tuscaloosa Marine shale and will postpone its drilling activity there until oil prices improve. Comstock currently has four operated rigs drilling on its Eagle Ford shale properties. The Company will release two of these rigs in early 2015 and will move the other two rigs to North Louisiana to start up a drilling program on its Haynesville shale natural gas 6

7 properties. Comstock believes that improved completion technology, including longer laterals, will provide strong returns on drilling projects at current natural gas prices. After three years of natural gas production declines, 2015 will mark a turnaround for the Company`s natural gas production. The Company will continue to assess the oil and natural gas markets throughout 2015 and will adjust its drilling program to reflect the appropriate mix of oil and natural gas wells in order to maximize returns. Comstock does hold some very good Haynesville leasehold, but the market may react negatively to this strategy if natural gas prices stay low. Note that I do believe the outlook for North American natural gas prices will look much better twelve months from now. Most of their good Haynesville acreage is HBP, so CRK can adjust their drilling program if necessary. Comstock has budgeted to drill 19 (18.6 net) horizontal wells in The Company expects to spend $161 million for drilling 14 (14.0 net) Haynesville/Bossier shale natural gas wells and $34 million for drilling five (4.6 net) wells on its East Texas and South Texas Eagle Ford shale acreage. The 2015 budget includes $49 million for completion costs of 13 (11.9 net) Eagle Ford shale wells that were drilled in 2014 but will be completed in 2015 and $63 million on facilities, recompletions and for other capital projects. Comstock plans to refrac ten of its existing Haynesville shale producing wells as part of the 2015 program. Comstock estimates that the drilling program will generate Company-wide oil production of 3.5 to 3.9 million barrels in 2015 and natural gas production of 55 to 60 Bcf. My forecast model (which can be downloaded from the EPG website) and my valuation have been updated assuming the Company carries out this program. Based on my forecast, Comstock s cash flow per share in 2015 will be approximately $5.50/ share. All of the companies in the portfolio have seasoned management teams. They know how to survive during periods of lower commodity prices and they are nimble enough to do so. Abraxas Petroleum (AXAS) also announced a reduced capital budget for The Company has elected to reduce their 2015 drilling budget to approximately $54 million from $200 million. The reduction in 2015 capital spending comes primarily from the Eagle Ford where the Company will now release the rig after the drilling of the R. Henry 1H well. Abraxas is also postponing its planned 2015 Permian Basin development until commodity prices recover. Despite the approximately 72% reduction in capital expenditures yearover-year, Abraxas anticipates average yearly volumes will still increase approximately 26% over 2014 expected volumes. Following the expected initial decline from flush production volumes associated with Small-Cap Growth Portfolio Company Name Primary Product the Company s 2015 exit rate, management projects the Company s production base and associated declines to stabilize considerably. Notably, management projects the Company can maintain production in outer years at 2015 average volumes with a similar $60 million capital program. Based on their revised production guidance, I have updated my forecast model. On December 16, Approach Resources (AREX) announced a $180 million capital program for The company projects 10% to 14% production growth in Based on my forecast model, operating cash flows will cover a large percentage of their capital program. Approach has 64% of their forecast oil production for 2015 hedged at an average price of $82.38/ bbl. You can find the amount of production that each of our portfolio companies has hedged at the bottom of the forecast models housed on our website. Stock Symbol Share Price 12/31/14 EPG Fair Value Estimate Percent Undervalued ABRAXAS PETROLEUM OIL AXAS $2.94 $ % APPROACH RESOURCES OIL AREX $6.39 $ % BONANZA CREEK OIL BCEI $24.00 $ % CALLON PETROLEUM OIL CPE $5.45 $ % COMSTOCK RESOURCES OIL CRK $6.81 $ % GASTAR EXPLORATION OIL GST $2.41 $ % GRAN TIERRA ENERGY OIL GTE $3.85 $ % LAREDO PETROLEUM HOLDINGS OIL LPI $10.35 $ % PETROQUEST ENERGY OIL PQ $3.74 $ % SANCHEZ ENERGY OIL SN $9.29 $ % TRIANGLE PETROLEUM OIL TPLM $4.78 $ % UNIT CORP OIL UNT $34.10 $ % 7

8 Gastar Exploration (GST) reduced their 2015 capital budget to $173 million from $257 million. Their focus this year will be on the stacked pays in central Oklahoma and the Utica shale in Appalachia. Liquidity was about $200 million on September 30 and they should generate approximately $110 million from operations this year. Since our last newsletter I have updated all of the forecast models for this group. If you have any questions, please post them on the EPG Forum. High Yield Income Portfolio Our Income Portfolio is focused on finding energy sector stocks and MLP units that offer high yield with a reasonable level of risk. The energy sector MLPs in the portfolio have a track record of increasing their distributions to unit holders yearafter-year, which is a great way to stay ahead of inflation. It is a good idea to check each MLP s website and look at their distribution history before investing. There has been a lot of speculation recently that Breitburn Energy Partners (BBEP) and LINN Energy (LINE) will be forced to cut distributions to unit holders this year because of lower oil prices. So far, there has been no indication from either company that they intend to do so. On December 23, Stifel downgraded BBEP to "hold". Analyst Brian Brungardt commented that Breitburn s ability to fund its reduced organic capex spending while funding the near-term shortfall in distributable cash flows ( DCF ) coverage will be challenged. That being said, we believe the situation is manageable. We believe the near-term issues are largely the result of bad timing in which BBEP acquired debt from the QRE deal without sufficient time to term out a portion of its credit facility nor sufficient time to integrate and grow the combined cash flows. We continue to believe the long-term outlook is attractive with the partnership s diversified geographic footprint, according to the analyst note. On December 15, LINN Energy announced the closing of the sale of its entire position in the Granite Wash and Cleveland plays located in the Texas Panhandle and western Oklahoma to privately held institutional affiliates of EnerVest, Ltd. and FourPoint Energy, LLC at a contract price of $1.95 billion. The MLP previously closed asset sales in the Permian Basin for $350 million. LINN intends to use combined net proceeds from these sales to repay in full a $1.3 billion term loan, which is the only remaining interim financing from its $2.3 billion acquisition from Devon Energy Corporation (DVN) which closed on August 29, 2014, and reduce borrowings under its revolving credit facility. Upon closing of the Granite Wash sale and repayment of the term loan, lenders under the Company's credit facilities will complete the semiannual redetermination and increase LINN's borrowing base to $4.5 billion and reaffirm the $1.4 billion borrowing base for LINN's wholly owned subsidiary, Berry Petroleum Company, LLC ("Berry"). As a result of the redetermination, the maximum credit amount under LINN's credit facility will be restored to $4.0 billion while the commitment amount under Berry's credit facility will remain unchanged at $1.2 billion. The maturity date for the LINN and Berry credit facilities, along with LINN's outstanding $500 million term loan, is April Following repayment of the term loan and a portion of the indebtedness under its revolving credit facility with proceeds from these asset sale transactions, LINN has pro forma liquidity of approximately $2.4 billion as of September 30, There is obviously no way to know for sure if BBEP or LINE will need to adjust their distributions. In my opinion, all of the speculation about these two is based on the fact that they have a lot of moving parts, primarily related to the large mergers completed last year. We should know a lot more after they release 4th quarter results and their yearend-reserve reports. They both have a high percentage of their 2015 production hedged at good prices. Updated forecast models for BBEP and LINE are available under the MLP tab on our website. Since the last newsletter, we have published updated profiles on Memorial Production Partners LP (MEMP) and Southcross Energy Partners LP (SXE). We will publish 8

9 High Yield Income Portfolio Primary Stock Share Estimated Annual Company Name Product Symbol Price Annual Yield Dividend 12/31/14 CALLON PETROLEUM COMPANY OIL CPE-PA $ % $5.00 ENERJEX RESOURCES - Pfd Series A OIL ENRJ-P $ % $ GASTAR EXPLORATION - Pfd Series A GAS GST-PA $ % $ GASTAR EXPLORATION - Pfd Series B GAS GST-PB $ % $ BREITBURN ENERGY PARTNERS LP MLP BBEP $ % $2.08 LINN ENERGY (Upstream) MLP LINE $ % $2.90 MEMORIAL PRODUCTION PARTNERS MLP MEMP $ % $2.20 VANGUARD NAT RES (Upstream) MLP VNR $ % $2.52 EMERGE ENERGY SERVICES LP MLP EMES $ % $5.52 HI CRUSH PARTNERS LP MLP HCLP $ % $2.50 MARKWEST ENERGY PARTNERS MLP MWE $ % $3.56 PLAINS ALL AMERICAN PIPELINE MLP PAA $ % $2.64 SOUTHCROSS ENERGY PARTNERS MLP SXE $ % $1.60 PLAINS ALL AMERICAN PIPELINE MLP PAA $ % $2.64 SOUTHCROSS ENERGY PARTNERS MLP SXE $ % $1.60 updated profiles on Plains All American Pipeline (PAA) and Vanguard Natural Resources (VNR) next week. Baytex Energy (BTE) was moved to the Sweet 16, effective January 1 On December 5 Hi-Crush Partners LP (HCLP) was upgraded to Outpreform by Robert W. Baird On December 10 Emerge Energy Services LP (EME) announced its first shipments of Northern White sand from its new 2.5 million ton per year Arland Dry Plant in Barron County, Wisconsin. Check under the MLP and Watch List tabs on our website for updated forecast models and profiles on the companies in the High Yield Income Portfolio. Final Thoughts In less than six months the price of WTI crude oil has fallen by more than 46%, closing out 2014 at $53.27/ bbl. A drop like this is a shock to the entire energy sector. Plus, no one has a high level of confidence in where oil prices will stabilize and how the price will move in Several companies have already announced significant reductions in their capital programs and we will see a lot more of that. As an investor, I definitely want to see management taking the steps necessary to weather the storm. If crude oil stabilizes in the $50-$55 range the well managed E&P companies will survive. Remember that cash lifting costs (including production taxes) are also coming down and are now in the $10-$12 per boe range for most of our model 9

10 portfolio companies. Cash flows from production operations are still quite good. As most of you know, we had a lot of problems with our website during the 4th quarter. In mid-december, I moved the website to a new webhosting service and we increased security. This week I committed to a significant upgrade of the EPG website. Programmers at our new web-hosting company will begin working on it next week and my goal is to have it tested and up and running by the end of January. We will be adding a lot more features to the website that will increase the value of your membership. This will not have an impact on the EPG Forum, which is another website. Today we have 530 EPG members. Our members live in 38 states and eight countries. I believe our network is a valuable asset for all of us and I thank you for your support. Our goal is not to tell you what to invest in, but to give you a lot of good choices. Not all of the stocks we discuss in this newsletter or on the website are going to go up, but the majority of them have since 2001 when I launched EPG. If you stay focused on owning companies that have strong fundamentals and growth locked in, I believe you will have an edge in the market. Thank you for your support. Keep an eye on the macroenvironment, but look closely at the details before you invest in anything and good luck! Dan Steffens, President Energy Prospectus Group EPG Disclaimer The analysis and information in this newsletter and the reports & financial models on our website are for informational purposes only. No part of the material presented in this NEWSLETTER and/or reports on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed herein constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the PUBLISHER (Energy Prospectus Group, a division of DMS Publishing, LLC) and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. Investors should always consult an investment professional before making any investment. Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results. Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the PUBLISHERS, editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided. The analysis provided is based on both technical and fundamental research and is provided ''as is'' without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed. The information contained in the NEWSLETTERS is provided by Energy Prospectus Group, a division of DMS Publishing, LLC. Employees and affiliates of Energy Prospectus Group may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. PUBLISHER will indicate whether he has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice. Index returns are price only and do not include the reinvestment of dividends. The S&P 500 is a stock market index containing the stocks of 500 large-cap corporations, most of which are US companies. The index is the most notable of the many indices owned and maintained by Standard & Poor's, a division of McGraw-Hill Energy Prospectus Group 10