Energy Sector Overview Investment Management Seminar February 2011 Addison Maier and Ross Tilden

1.Increasing Oil Prices- Recovery in developed nations plus continued demand growth in emerging markets, combined with slow growing supply drives oil higher 2.Leverage to Unconventionals – Largest forecasted growth source of new supply (15% annually), limited geopolitical risk, proven reserves in the ground 3.Devon Energy-Leading E&P company with a strong balance sheet, high margins, attractive relative valuation, and proven reserves

Sector Overview RELATIVE PERFORMANCE ENERGY-USE TRENDS SNAPSHOT RECENT TRENDS  13% of U.S. market cap  Cyclical sector driven by commodity prices  Rising oil prices => higher margins and revenues  Serves industrial, residential, commercial, and transportation-related end markets  Subsectors :  Integrated Oil &Gas  Exploration and Production  Equipment and Services  Alternatives/Other Projected Energy Demand Demand for oil continues to outstrip supply Energy has outperformed S&P500 by >200% since 1998 Significant leverage to improving economic conditions Benefits from rising commodity prices New capital being allocated to unconventional liquids Shift to cleaner sources of energy (nat gas and renewables) Significant leverage to improving economic conditions Benefits from rising commodity prices New capital being allocated to unconventional liquids Shift to cleaner sources of energy (nat gas and renewables)

OIL & GAS TRENDS AND DRIVERS OUTLOOK SOURCES & USES GLOBAL PROGRESS DRIVES DEMAND DEMAND OUTSTRIPPING SUPPLY Demand: emerging markets and global recovery Non-OECD GDP growth 4.4% through 2035 Transportation accounts for 80% of growth Supply: refining constraints and credit crunch effects Risks: geopolitical, regulatory, renewables, new supply, event/catastrophe Demand: emerging markets and global recovery Non-OECD GDP growth 4.4% through 2035 Transportation accounts for 80% of growth Supply: refining constraints and credit crunch effects Risks: geopolitical, regulatory, renewables, new supply, event/catastrophe Oil Demand: industrial and transportation sectors Supply: dominated by OPEC, 42% of crude oil production Supply growth driven by unconventionals (15% annually for 25 years) Natural Gas Demand: residential and industrial sector Supply: United States and Russia

Revenue upside with increased exploration and production activity Large projects delayed to 2011 Leverage to unconventionals Risk: Greater regulation stemming from Macondo Revenue upside with increased exploration and production activity Large projects delayed to 2011 Leverage to unconventionals Risk: Greater regulation stemming from Macondo INCREASE IN GLOBAL UPSTREAM CAPEX SNAPSHOT VALUATION Example companies: Baker Hughes, Halliburton, Schlumberger, Transocean, Pioneer Drilling  Equipment: manufacturing pipelines, drills, wells, and rigs  Services: testing, repairing, constructing, and operating well sites  Drivers: Increased E&P CAPEX, Improving margins, Increased global petroleum consumption, Large unconventional growth  Risks: Lower petroleum prices, North American rig oversaturation E&S 1-yr.5-yr. avg10-yr. avg P/E Revenue Growth17%10%15% EPS growth-43%0%

 The explosive growth for coal demand from EMs is not an investable theme  Saturated Developed Markets  Coal Electricity generation in EMs dominated by sovereigns  Significant environmental impact and regulation  Gov’t subsidies could provide tailwinds  Higher oil prices attract capital  The explosive growth for coal demand from EMs is not an investable theme  Saturated Developed Markets  Coal Electricity generation in EMs dominated by sovereigns  Significant environmental impact and regulation  Gov’t subsidies could provide tailwinds  Higher oil prices attract capital TRENDS SNAPSHOT VALUATION  Coal: explosive growth in demand in EMs  Keys: increasing gov’t regulation, natgas relatively cheap, major growth not investable  Renewables: Solar, Wind, and Nuclear  Keys: reliant on gov’t help, expensive, nuclear not investable Example Companies: AES Corp., NRG, First Solar Alternatives/Other Other 1-yr.5-yr. avg10-yr. avg P/E Revenue Growth0%6%4% EPS growth30%13%-2% Alternatives 1-yr.5-yr. avg10-yr. avg P/E Revenue Growth0%48%73% EPS growth17%132%117%

Primarily driven by oil supply/demand dynamics Less volatile than other subsectors Significant exposure to oil & nat gas Global economic recovery has positive read- thru Leverage to bullish oil view is more attractive elsewhere Primarily driven by oil supply/demand dynamics Less volatile than other subsectors Significant exposure to oil & nat gas Global economic recovery has positive read- thru Leverage to bullish oil view is more attractive elsewhere INTEGRATEDS MILDLY CORRELATED TO OIL SNAPSHOT VALUATION  Engaged in all stages: exploration, production, refinement, and distribution of oil & gas  Typically have global operations  Drivers: economic recovery, resources in the ground, unconventional strategies, improving refining margins  Risks: event-driven, poor execution on unconventional plays, slowing EM growth Integrated Example Companies: BP, Chevron, Royal Dutch Shell, ConocoPhillips, Exxon Mobil Integrated Oil&Gas 1-yr.5-yr. avg10-yr. avg P/E Revenue Growth29%6%14% EPS growth-70%0%4%

Highly correlated to price of oil Bullish oil view leads us to view oily names positively Area poised for high potential growth Exploration potential Deep-resource names Highly correlated to price of oil Bullish oil view leads us to view oily names positively Area poised for high potential growth Exploration potential Deep-resource names RESOURCE CAPTURE = HIGHER VALUATIONS SNAPSHOT VALUATION  Engaged in exploration and extraction of crude petroleum and natural gas. Do not engage in refining or distribution activities.  All major players are investing heavily in Unconventionals  Drivers: exposure to new supply, oil and gas prices  Risks: regulatory, geopolitical, strategy execution Example Companies: Anadarko, Apache, Devon, Chesapeake E&P1-yr.5-yr. avg10-yr. avg P/E Revenue Growth-33%16%23% EPS growth-22%2%5%

OUR FAVORITE COMPANY – DEVON ENERGY ENTERPRISE VALUE per FLOWING BARREL WHY DEVON? RECYCLE RATIO (CASH MGN./EXPLORATION COSTS) RELATIVE VALUATION / PAST PERFORMANCE Recently repositioned as one of the biggest players in unconventionals Permian basin, Cana – shale gas Jackfish – Canadian oil sands P/E below LT avg., historically stable revenue and EPS growth, strong 2011 guidance 6-8% forecasted production growth Leading E&P company with a strong balance sheet, high margins, attractive relative valuation, and proven reserves

Investment Thesis Strategic Repositioning Focusing on high-growth N.A. onshore unconventionals Synergies driven by midstream operations (13,000 miles of pipeline) Strong, Flexible Balance Sheet Paid down $1.7B in total debt LT debt at 17% of total capital BBB+ rated (Investment Grade) $3.5B Share Repurchase Program underway $1B already bought back, $2.5B remaining Expected Completion in September 2011 Low-cost producer with attractive relative valuation Industry-leading recycle ratio and margins Below industry average P/E and EV/EBITDA Risks Sustained low natgas prices, regulatory (environment), continued slow global growth

Valuation Picture P/E - basedCurrentPotentialImplied Upside P/E on 2011E E Earnings $ 6.08 Stock Price $ $ % EV/EBITDA - basedCurrentPotentialImplied Upside EV/EBITDA6.00x7.20x Mkt. Cap $ 38,972,176,000 $ 47,456,611,200 + Debt $ 5,624,000,000 - Cash $ (2,174,000,000) EV $ 42,422,176,000 $ 50,906,611,200 EBITDA $ 7,070,362,667 Stock Price $ $ % CONCLUSION: POISED TO RIP!