Energy So Many Issues, So Little Time

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1 Energy So Many Issues, So Little Time A Presentation to the CFA Society of Dallas-Fort Worth February 23, 2011 Dan Pickering *Disclaimers on page 18 of this document.

2 History of Tudor, Pickering, Holt & Co. The mission of Tudor, Pickering, Holt & Co. is to be the premier integrated energy investment and merchant banking boutique, providing advice and professional services to our institutional and corporate partners Our History Our Expertise Recent Recognitions The firm was founded in early 2004 by Dan Pickering and David Pursell, who had a vision for a strong technical research firm: Pickering Energy Partners, Inc. Combined with Bobby Tudor, former partner at Goldman Sachs who had the vision of a premier energy investment banking firm: Tudor, Pickering & Co. Maynard Holt, also a Goldman alumni, joined as a named partner in 2008 completing Tudor, Pickering, Holt & Co. Diversified lines of business designed to deliver extensive energy industry and advisory expertise (*) : Asset Management Investment Banking Research Securities Acquisitions & Divestitures Private Equity Equity analysts covering 100+ energy companies Private Equity fund, TPH Partners, established in 2008 Broader energy Asset Management efforts launched in late 2010 *Tudor, Pickering, Holt & Co. affiliates include: (1) Tudor, Pickering, Holt & Co. Securities, Inc., a FINRA registered broker-dealer; (2) TPH Asset Management, LLC, an SEC registered investment t advisor; (3) TPH Partners, LLC, the firm s private equity affiliate, and; (4) Tudor, Pickering, Holt & Co. International, LLP, authorized and regulated by the Financial Services Authority. Recognition Research: #1 Oil and Gas E&P Best Industry Knowledge 1 Research: #1 Energy Best Stock Recommendation 1 Source Greenwich Associates 2010 Greenwich Associates 2010 Research: #1 Energy Most Greenwich Associates 2010 Detailed Financial Analysis 1 Leading US Energy M&A Dealogic 2010 Transactions (1) Source: Greenwich Associates (2) Source: Dealogic 2

3 Selected TPH Advisory Engagements Top Energy Advisors (1) Notable Engagements 2010 to Current Firm # Deals 2010 to Current Firm $ Value Pending Active January 30, 2011 $1.27 billion December 16, 2010 $500 million November 30, 2010 $330 million November 29, 2010 $200 million November 23, 2010 $1.05 billion November 15, 2010 $1.41 billion Tudor Pickering Holt & Co 33 Barclays Capital 47,793 RBC Capital Markets 21 Goldman Sachs 43,625 Barclays Capital 20 Tudor Pickering Holt & Co 41,857 Jefferies & Company 19 Deutsche Bank 30,399 MLP Structuring Advisor Financial Advisor to Special Committee Acquisition of 33% interest in Chesapeake s s Niobrara joint venture Acquisition of Springridge Gathering System Acquisition of interests in Gulfstream Natural Gas System Sale of Eagle Ford Shale assets Sale of Bakken Shale assets Acquisition of interests in Elba Express and SNG Bank of America Merrill Lynch 19 Citi 30,111 JPMorgan 17 JPMorgan 28,021 Goldman Sachs 15 Credit Suisse 25,595 October 28, 2010 $782 million October 10, 2010 $2.16 billion September 21, 2010 $957 million September 20, 2010 $500 million September 14, 2010 $168 million August 9, 2010 $2.1 billion August 9, 2010 $230 million July 30, 2010 Deutsche Bank 15 Jefferies & Company 20,891 Bank of America Merrill Lynch 20,650 Credit Suisse 12 Morgan Stanley 17,820 Citi 10 Acquisition of Piceance Basin midstream assets Acquisition of 33% interest in Chesapeake s Eagle Ford joint venture Merger with Penn Virginia GP Holdings, L.P. Convertible Perpetual Preferred Stock Acquisition of interest in Venice Energy Services Company Merger with Inergy, LP Acquisition of interest in Versado System Sale to undisclosed buyer July 29, 2010 $498 million July 27, 2010 $458 million July 26, 2010 $222 million July 20, 2010 $695 million July 6, 2010 $256.7 million June 30, 2010 June 24, 2010 $1.15 billion June 17, 2010 $394 million May 11, 2010 $600 million May 10, 2010 $600 million Acquisition of Wattenberg Gathering System Sale to Hess Corporation Acquisition of OFS Energy Services, LLC Sale to ExxonMobil Sale of Pressure Pumping & Wireline businesses to Patterson-UTI Spin-off of QEP Resources Eagle Ford Joint Venture with Reliance Acquisition of interest in Southern Natural Gas Company Acquisition of 49.9% of Midcontinent Express Pipeline Chesapeake Energy convertible preferred investment May 7, 2010 $125 million April 30, 2010 $92 million April 4, 2010 $1.5 billion March 31, 2010 $420 million March 25, 2010 $963 million February 1, 2010 $254 million January 26, 2010 $201 million January 19, 2010 $12 billion January 2010 $70 million November 2, 2009 $500 million Acquisition of 45% equity interest in Select Energy Services Acquisition of interest in Haynesville joint venture Merger with SandRidge Energy Acquisition of West Texas assets and Coast Straddle plants Acquisition of interests in Elba Island LNG & Elba Express Acquisition of the Granger Gathering System and Plants Repurchase of incentive distribution rights Acquisition of interstate gas pipeline, midstream assets and interests Deep Water Gulf of Mexico Joint Venture Investment into Valerus Compression Services September 9, 2009 $120 million September 3, 2009 $63 million August 19, 2009 $406 million July 28, 2009 $530 million July 27, 2009 $215 million July 20, 2009 $1.2 billion July 13, 2009 $233 million July 10, 2009 $107 million April 9, 2009 March 3, 2009 $1.2 billion Sale to FMC Technologies Acquisition of interest in Haynesville joint venture Acquisition of Marcellus Shale interests Acquisition of natural gas liquids business Acquisition of interest in CIG Alberta Clipper joint funding arrangement Sale of Australia assets Acquisition of Uintah Basin midstream assets Financial Advisor Merger with Magellan Midstream Holdings February 27, 2009 $1.1 billion February 27, 2009 $45 million January 22, 2009 $200 million November 11, 2008 $210 million November 7, 2008 $6 million September 29, 2008 September 17, 2008 November 3, 2008 October 2008 July 9, 2008 $736 million C$350 million Haynesville joint venture Credit Facility Convertible preferred shares Acquisition of Powder River Basin midstream assets West Virginia Marcellus Acquisition of interests in joint venture Merger with FusionGeo Marcellus divestitures Strategic Advisor CIG and SNG Sale to ION Geophysical July 1, 2008 $550 million June 10, 2008 $620 million April 30, 2008 $1.8 billion April 21, 2008 $2.9 billion April 2008 February 26, 2008 January 2, 2008 November 15, 2007 $575 million October 2007 $888 million September 2007 $705 million Acquisition of BE&K Acquisition of East Texas Cotton Valley properties Acquisition of Bois d Arc Energy Merger with Grey Wolf Sale to Chroma Oil & Gas Acquisition by KRG Merger with Crusader Energy Structuring Advisor/ Initial Public Offering Acquisition of drilling rigs Acquisition of SAOU and LOU (1) Source: Dealogic: United States Oil & Gas Exploration & Development/Field Equipment & Services/Diversified/Pipeline and Utility & Energy Gas pending and completed transactions announced from 1/1/2010 to 2/20/

4 Hot Buttons Things Changing Almost Daily Middle East Unrest The Internet is Everywhere Rational Middleman in Egypt No Middleman in Libya ~2.5mmbbls/day Egypt/Libya Oil s Importance Keeps Volumes Safer WATCH SAUDI Brent WTI Price Gap Canada Crude Line Bakken Volumes Cushing Storage Tight Refinery Turnaround Season $15+/bbl Differential Too Wide Tighter By Summer But Not Gone 4

5 Let s Start With The Big Kahuna s Oil Economy!! Demand Can Grow Faster Than Supply Opportunities Are In Hard Spots Price Must Ration Demand Demand Risks Increasing Near-Term Price is Anybody s Guess Natural Gas Forget Oil/Gas BTU Parity Shale = Domestic Oversupply $4/mcf Not Sustainable No 2011 Recovery er Likely Thank God For Coal $6/mcf Long-Term $90/bbl Long-Term 5

6 The Global Oil Demand Reality 1990 to to 2010E 2010E to 2020E OECD Total 1.4% -0.4% US 1.2% -0.4% No Growth Europe 1.0% -0.6% Non-OECD Total 1.5% 3.6% China 6.5% 7.4% India 6.5% 3.7% Middle East 4.4% 4.2% Growth World Overall 1.4% 1.3% Some Growth Source: IEA, TPH IEA says ~2%/year through mmbbls/day = impossible 6

7 Some Oil Observations US Drilling Frenzy A Mere Drop In The Bucket Demand Matters When Was The Last Time You Thought About: OPEC Geopolitical Stuff $50/bbl Oil Still A Great 5-10 Year Story 7

8 Some Nat Gas Observations Unconventional Gas Is No Longer Unconventional Horizontal + Fracturing = Game Changer Shale Is KING For The Next Decade Too Much Gas Supply 2011 = More Tough Sledding $4/mcf Price Doesn t Work Long-Term The Gas Professor The Old Assumptions Don t Work Anymore 8

9 Too Much Gas! US Wellhead Supply Forecast [Onshore] Updated Forecast 5,000 4,500 (bcf/d) Natural Gas Production ,000 3,500 3,000 2,500 2,000 1,500 1,000 Rig Count 30 12/99 12/00 12/01 12/02 12/03 12/04 12/05 12/06 12/07 12/08 12/09 12/10 12/11 12/12 12/ Historical Production Old Production Forecast Current Forecast Historical Rigcount Old Rigcount Forecast Current Rigcount 9

10 Shale More Production Than Expected Exit Rate From Shale Sha ale Gas Prod duction, bcf/ /day Surprises During 2009/2010 More Rigs Leases Hedges Joint Ventures More Wells/Rigs 15 Original More Rigs Efficiency Gains New Study (Current Study) 10

11 Non-Shale Just One Little Surprise Exit Rate From Non-Shale Onshore Non-Sh hale Gas Produc ction, bcf/day Surprises During 2009/2010 Granite Wash! 38 Original Study Anadarko Basin Other New (Current Study) 11

12 Why $4/mcf Gas Can t Be Sustained 100% Breakeven Prices at 10% BFIT IRR and Cumulative Production 90% 2013 Est Cum Production % of total 80% 70% 60% 50% 40% 30% Gas Production (Bcf/d) 20% 10% $5/mcf $6/mcf $6.50/mcf $8/mcf 0% 12 Marcellu Eagle Ford Haynesvillee Fayetteville Shale San Juan/ Raton Wind Rive Woodford Conv Arkoma Unita GOM Shel Other CO WY UT Permian NM GOM Deepwate Permian Texa Californi Other NE KS Barnet s r f r a tt Pinedale/ Jonah Woodford Shale Gulf Coast Southeast US DJ Basin E.TX / N. LA Other TX & OK Fayetteville Conv South Texa Powder Rive Appalachiaa Antrim Anadarko s r Piceancee Other ND SD MT s

13 M&A Drivers / Thoughts $100 Billion Marketplace Energy Steadier Than Non-Energy Shale / Horizontal Has Changed The US Early In US Asset Realignment Longer Cycle = More Enthusiasm Deals Bigger Toward Tops / Bottoms Asset Scarcity International / NOC s Are Awake 13

14 Wall Street s View On Energy Bullish Oil / Bearish Gas Still Pretty Big Rally Now What? Oily Stocks Discounting High Prices Already Trying To Bull Up On Gas How Much Good News Is Too Good? People Want To Believe 14

15 Energy Subsector Returns Something s Always Working YTD 2011 To op Performers Refining 42% Coal 37% Natural Resource/ Resource/ Gas Shale E&P Shale E&P 86% 90% 98% Crude Oil 57% Refining 75% Refining 82% Refining E&Cs E&Cs 123% 32% 109% Resource/ Shale E&P 104% Midstream 24% Coal 83% Natural Gas -24% Convent l E&P -29% Coal Refining Refining 116% 45% 34% Crude Oil 78% E&Cs 43% Offshore/ Land Drillers 17% MLPs 34% Resource/ Shale E&P 12% Coal 63% Coal 59% E&Cs 84% Majors 20% Oil Service/ Equip 65% Resource/ Shale E&P -30% Oil Service/ Equip 77% Oil Service/ Equip 37% Oil Service/ Equip 16% m Dwellers Offshore/ Offshore/ Global Coal Midstream S&P 500 Midstream Midstream Coal Majors Land Drillers Land Drillers Energy -21% 10% 9% 17% 12% -60% 9% -30% -3% 9% Midstream -36% S&P % Offshore/ Land Drillers 5% MLPs 8% S&P 500 3% Coal -18% MLPs 6% E&Cs -61% Natural Gas -2% Resource/ Shale E&P -3% Coal 3% Crude Oil -5% Botto Natural Gas -74% E&Cs -38% Crude Oil 4% Natural Gas -1% MLPs 1% Natural Gas -44% S&P 500 4% Refining -63% Refining -16% Natural Gas -20% Natural Gas -13% (1) Source: Bloomberg (2/17/2011) 15

16 Quick Hits Energy Policy At The State Level Gas Cars Won t Matter This Cycle LNG Exports Getting Real Attention Macondo/Moratorium Is Lingeringi Horizontal Is The New Vertical Wall Street Hates Gas But Industry Is Buying Like Wild Frac Assets Ample By YE 2011 What Is The 2011 Oil Surprise? 16

17 Time for Q&A 17

18 Disclosure Statement About the Firm Tudor, Pickering, Holt & Co. does not provide accounting, tax or legal advice. In addition, we mutually agree that, subject to applicable law, you (and your employees, representatives and other agents) may disclose any aspects of any potential transaction or structure described d herein that are necessary to support any U.S. federal income tax benefits, and all materials of any kind (including tax opinions and other tax analyses) related to those benefits, with no limitations imposed by Tudor, Pickering, Holt & Co. The information contained herein is confidential (except for information relating Tudor, Pickering, Holt & Co., LLC is an integrated energy to United States tax issues) and may not be reproduced in whole or in part. investment and merchant bank, providing high quality advice and services to institutional and corporate clients. Tudor, Pickering, Holt & Co. assumes no responsibility for independent Through the company s broker-dealer, Tudor, Pickering, verification of third-party information and has relied on such information being Holt & Co. Securities, Inc., the company offers securities complete and accurate in all material respects. To the extent such information and investment banking services to the energy community. includes estimates and forecasts of future financial performance (including estimates of potential cost savings and synergies) prepared by, reviewed or The firm, headquartered in Houston, Texas, has discussed with the managements of your company and/ or other potential approximately 80 employees and an office in Denver, transaction participants or obtained from public sources, we have assumed that Colorado. such estimates and forecasts have been reasonably prepared on bases reflecting the best currently available estimates and judgments of such managements (or, Contact Us with respect to estimates and forecasts obtained from public sources, represent Houston (Research, Sales and Trading): reasonable estimates). These materials weredesignedforusebyspecificpersons Houston (Investment Banking): familiar with the business and the affairs of your company and Tudor, Pickering, Denver (Sales): Holt & Co. materials. Denver (Investment Banking): Under no circumstances is this presentation to be used or considered as an offer to sell or a solicitation of any offer to buy, any security. Prior to making any trade, you should discuss with your professional tax, accounting, or regulatory advisers how such particular trade(s) affect you. This brief statement does not disclose all of the risks and other significant aspects of entering into any particular transaction. ti 18