Energy Prospectus Group Today’s topics: IEA’s “Oil Market Report” What will balance the global oil market? OPEC + Russian Agreement to FREEZE How much oil will Iran bring to mkt? U.S. Natural Gas Market Houston American Energy John Boylan, CEO

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Oil is VERY IMPORTANT Crude oil is relatively unique as an asset class because it is a depleting resource that is: Directly related to standard of living Consumed in enormous volumes Each day the global economy uses about 95 million bbls of liquid fuels Demand is expected to SPIKE to 96.5 million bbls per day in the 3rd quarter Constant renewal of supply requires ongoing investment of LOTS OF CAPITAL We have already consumed the low hanging fruit

IEA: Oil Market Report Global Market heading back to balance Oversupply of 1.5 MM bbls per day today will shrink to near zero by the 3rd quarter Big spike in demand coming in Q3 OPEC production down 90,000 BOPD in Feb OECD inventories down in Feb., but floating storage has increased Non-OPEC production is falling OPEC supply disruptions + Iran growth is slow Nigeria, Iraq and Libya have real problems

OPEC: Supply Risks are real

IEA: Oil Market Report U.S. production to fall 530,000 BOPD in 2016 Brazil & Columbia also on decline Total Non-OPEC decline estimated at 750,000 BOPD (up from 600,000 in February report) “Clear signs that market forces are working their magic and higher cost producers are cutting output.” OPEC / Russia agreement to freeze production will have little real impact

IEA: Oil Market Report Iran will only increase production by 300,000 barrels per day this year. “It is clear that Iran will need billions of dollars of investment to reach their production potential and let's face it, with prices this low and major oil companies cutting spending, the cash just is not there. We believe this is a historic time to position for an energy sector recovery. Bust cycles do not last forever.” – Phil Flynn, PRICE Futures Group

Demand for oil is “Relentless”

Demand for Gasoline Increasing in United States

Demand for Gasoline Increasing even faster outside the U.S.

IEA: Conclusion “…we present an essentially unchanged picture for the overall oil supply/demand balances. For the first half of 2016, the implied surplus of supply over demand remains high at 1.9 mb/d in 1Q and 1.5 mb/d in 2Q. To the extent the oil price is forward-looking, comfort will be taken from our view that in the second half of 2016 the gap between supply and demand narrows significantly to 0.2 mb/d in both 3Q and 4Q.”

Oil Prices Heading Up

Oil Price Forecast

Oil Price Forecast Oil Prices used in EPG Forecast models 1st Quarter $30 2nd Quarter $35 3rd Quarter $40 4th Quarter $50 2017 $60 Natural Gas: $1.70 to $2.70 for 2016

U.S Active Rig Count

Four Oil Basins have accounted for 95% of U.S. Oil Production Growth

The Permian Basin is the only area not on decline at 12/31/2015

Drilling Activity Outside of the U. S Drilling Activity Outside of the U.S. Major oil projects all over the world have been cancelled, which puts future supply at risk 22 Major Oil Projects have been cancelled

Natural Gas Crude oil is priced and traded on a GLOBAL MARKET Natural gas is priced and traded on REGIONAL MARKETS

U.S. Gas Market will be tighter in 2016

Natural Gas Demand Ramping Up

What happens next? Oil & Gas Prices: The fundamentals will win out in the long run, but in the short run they are frequently trumped by emotions (and speculative traders) Investors are always looking ahead: Rapidly dropping active rig count Shrinking oil production + increasing demand Whenever you see everyone agreeing that one course is certain, you should take time to consider the fact that they might be wrong, especially if “everyone” is being lead by Goldman Sachs

John P. Boylan President & CEO