The Infrastructure Pie: Where is the Capital Needed?

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1 The Infrastructure Pie: Where is the Capital Needed? Bobby Tudor Tudor, Pickering, Holt & Co. September 15, 2014

2 The Current State of Play in Infrastructure Investment The Shale revolution has driven massive new infrastructure investment in North America That capital has been broadly allocated across the Infrastructure chain The sources of the capital have been broad, and the costs have been low Attractive risk adjusted returns continue to attract low cost capital Both public and private investors continue to have huge appetite The big question is whether the next five years will be as attractive as the past five 2

3 Deal Volume ($Bn) Deal Count ($ in billions) Historical Infrastructure Investment M&A Volume Midstream, Power and Downstream Infrastructure companies have experienced ~00 Bn of M&A volume since 2010 Midstream Power and Utilities Downstream Deal Count Capital Expenditures Midstream, Power and Downstream Infrastructure companies have spent over 00 Bn in capital expenditures since 2010 Midstream Power and Utilities Downstream $181 $9 $163 $160 $120 $80 $99 $39 $ $91 $36 $85 $3 $31 $134 $ $104 $4 $87 $120 $96 $148 $112 $118 $126 $ $ YTD Source: Dealogic, Company filings, FactSet and Wall Street estimates. Note: Deal count denotes number of transactions with >0 MM in deal value. $15 $39 1 $ $39 $46 9 $13 $ A 2011A 2012A 2013A 2014E 3

4 How Has Infrastructure Capital Been Allocated? Midstream Infrastructure Allocation ( ) ($ in billions) Close to $100 Bn has been allocated to midstream infrastructure with Natural Gas pipelines receiving an increasing piece of the pie NGL Pipelines Frac/Dock Processing/Splitting Natural Gas Pipelines Gathering Systems $19 $4 $8 $7 $7 $1 $3 $3 $7 Source: Dealogic and TPH Research

5 How Will Infrastructure Capital Be Allocated? Midstream Infrastructure Forecast ( ) ($ in billions) ~$70 Billion will be allocated to midstream infrastructure in the next 5 years with a consistent emphasis on gathering and processing facilities NGL Pipelines Frac/Dock Processing/Splitting Natural Gas Pipelines Gathering Systems 4 Source: Dealogic and TPH Research. $8 $16 $14 $9 $8 $4 $3 $3 $1 $1 $1 $1 $1 $0 $

6 Where Will Infrastructure Capital Be Allocated? Projected Infrastructure Investment By Region ( ) ($ in billions) Central Midwest Northeast $ Natural Gas Crude NGL $4 $11 $14 $7 $7 Natural Gas Crude NGL ~$70 Billion will be allocated to midstream Southwest infrastructure in the next 5 years with a $115 $82 consistent emphasis on gathering and $37 processing facilities 7 Natural Gas Crude NGL Southeast $1 $1 Natural Gas Crude NGL Natural Gas Crude NGL Southwest Central Southeast Northeast Midwest Offshore 6% 6% 16% 44% Offshore 7% 21% Projected Total Investment ( ): 13 Billion Source: INGAA. $11 $14 Natural Gas Crude NGL 6

7 Spark Spread as % of CONE Spark Spreads ($/MWh) What are Power & Utilities Markets Moving Towards? U.S. Electric & Gas Utility Capex ($B) ($ in billions) Total Spark Spreads As % of Cost of New Entry (CONE) U.S. Electric and Gas Utility Capital Expenditures 100% ERCOT-H PJM-MAAC PJM-RTO PJM-NI Hub 75% of CONE Electric - Diversified Electric - T&D Gas Utilities Electric - Generation Electric - Gas, Rnwbls, Env'tl $93 90% 80% 70% 60% $90 $80 $70 $71 $9 $85 $10 $86 $11 $12 $15 $88 $12 $12 $84 $11 $10 50% $40 $74 $75 $13 $11 $10 $19 $30 2 $17 $15 $13 0 $10 $30 $30 $30 $11 $ E 2015E 2016E Source: Bloomberg, SNL, TPH. 7

8 $ in Billions Fund Count ($ in billions) How Have These Investments Been Funded? Infrastructure Capital Markets Activity ( YTD) Debt and Equity capital markets have raised over $400 Billion since 2010 Infrastructure Fundraising Activity ( YTD) Infrastructure funds have grown year over year since 2010 and have raised over $140 Billion Midstream Power and Utilities Downstream $45 Funds Raised Number of Funds 70 $104 $12 $40 60 $84 $82 $7 $4 $46 $45 $43 $88 $39 $73 $7 $34 $35 $ $15 $ $41 $ $31 $33 $48 $44 $32 $10 10 $ YTD YTD Source: PreQin and Dealogic: United States Oil & Gas Pipeline and Utility & Energy Diversified, Gas, Electric Power, Waste Management, Water Supply, Hydroelectric Power, Nuclear Power pending and completed M&A transactions announced 1/1/2010 to 9/2/

9 Open Issues in Infrastructure Investing Are the best opportunities behind us? What happens in a rising interest rate environment? Will natural gas come back? What are the potential game changers? 9

10 Keith Fullenweider Vinson & Elkins LLP

11 Inflection Reflection Report for American Petroleum Institute, IHS Global Inc., December

12 MLP Initial Public Offerings Key: Industry at IPO. Exploration and Production Refining Midstream and Other Services Wholesale Distribution Shipping/Maritime Other Fertilizer Coal Propane Timber General Partner/Holding Co. TOO PVG HPGP BGH NSH OSP AHD NMM AHGP CPLP VLP ARCX MEP DLNG SRLP PAGP LNCO NRGM WNRL MEMP WGP OCIP MCEP ALDW OCIR MGG QELP RRMS DKL WPT EPE ETE EPB SSW CEP VNR RNF LRE SXE MPLX QEPM FISH HMLP VTTI NRGP ATN ENP OILT LGP PSXP RIGP TUG DPM EROC CMLP TRGP KMI SDLP TEP WLKP USDP LPG XTEX XTXI BWP EXLP BKEP QRE AMID SMLP EMES VNOM CNNX CCP VLP SPH ETP MMP MMLP NRP USS CPNO WPZ GLP BBEP EVEP SEP CQP RNO OXF GSJK SUSP NGL KNOP HCLP NSLP FELP JPEP GLOP SHLX FFP MRP EPR EOT NPL NS PPX STON TLP RGP NGLS WES NKA TLLP NTI SXCP PBFX DM WGP SFL KPP PRF EEP UAN GTM FGP APU GEL EPD TCP NRGY MWE HEP TGP CLMT DEP PSE ACMP GMLP EQM CVRR ENBL AM BCU HWY PCL TPP TNH KMP OKS CRO SGU CNO TIMBZ PAA ARLP APL PVR SXL KSP HLND LINE LGCY WMZ PNG UAN PDH USAC CELP MXLP * Years * In Registration Corporate IPO 12

13 Overall Themes Sources of Capital for the Infrastructure Build Out What will be the relative contribution of MLPs, Producers, Private Equity and Infrastructure Funds and Direct Investment by Institutional Investors? Where does private capital have a competitive advantage relative to MLPs? What is the outlook/market impact for US exports, and how will it impact the build out? How would a rising interest rate environment impact the development of NAM infrastructure? What are the key risk areas that may negatively impact what looks like a very bright future for NAM infrastructure? 13