U.S. Energy Market Trends for 2006 Living in a High Priced Environment Presented to CFA Society of Oklahoma Oklahoma City and Tulsa, OK December 7, 2005 Peter Fasullo En*Vantage, Inc

2 Who is En*Vantage, Inc.? Located in Houston, Texas, En*Vantage, Inc. was founded in 1999 to provide strategic, executive management, project development, marketing, trading and risk management advisory services to a wide range of clients and to invest in assets and businesses within the energy. En*Vantage is also the managing partner for the San Juan Basin Partnership, which produces over 1.0 million per day of equity coal seam natural gas from reserves located in the New Mexico San Juan Basin. Each of the En*Vantage's Principals has senior management experience with Fortune 500 companies. This experience allows us to offer energy companies solutions and services that are grounded from a practical and fundamental standpoint in a time efficient manner. Over the course of the past six years we have advised approximately 100 public and private clients on a wide range of energy related topics.

3 Today’s Energy Environment  The US is not an island: energy complex is highly integrated and becoming more interdependent around the world.  Energy demand growth is stretching available supplies.  “Just in time” approach, while efficient from a capital perspective, increases vulnerability to supply disruptions.  Weather and geopolitical events merely exacerbate a tight energy environment.  High prices exist for all forms of energy, with frequent price shocks.  All of the above will continue to impact energy prices in 2006.

4 Preconceived Notions about Oil and Energy in General Just a few years ago, the U.S. and the world was lulled into a false sense of security about crude oil availability and the consequences of unbridled consumption.  Energy efficiency and conservation were a thing of the past.  Oil supplies can be found cheaply and efficiently.  Oil prices could be held in check, that is supplies could support demand growth without price consequences.

5 The Wake-Up Call has Sounded  Demand for light-premium refined products is growing too fast relative to the world’s available refining capacity.  Little cushion exist for the timely production of light-sweet crudes, like WTI, which produces the highest yields of light- premium products.  Crude oil is not a homogenous or a fungible commodity.  Any cushion that might exist in world oil supply is generally a poorer quality feedstock  Upgrading (refining) capacity is insufficient to handle poorer quality crude oils worldwide.  Price is needed to control and impede demand.

6 Spare Production Capacity versus Price

7 Upward Trend in Oil (WTI) Prices is Not Over, Yet

8 How about Natural Gas?  Despite accelerated drilling for natural gas in North America, supply growth has been non-existent for a number of years.  Supply disruptions caused by the hurricanes highlights US vulnerabilities to easily access incremental supplies.  Natural Gas infrastructure is currently putting constraints on managing local supply/demand issues in the U.S.  Natural Gas is trending from a continental commodity to a globally based commodity. US will need to compete for LNG.  Market demand for Gas is being more dominated by the electric generation and residential/commercial sectors.

9 Natural gas has become more valuable relative to crude oil, with price spikes more frequent.

10 Against historical norms, current gas inventories are adequate, but winter temps above normal the past 4 yrs.

11 For most of 2005, gas prices closely followed crude. Currently gas prices have detached from crude.

12 Existing U.S. Natural Gas Regional Pipeline Infrastructure and Gas Flows

13 Pipeline infrastructure is not keeping pace with regional gas supply and demand balances.

14 Summary: Outlook for 2006  See crude prices (WTI) in the $55 to $65 range.  Still susceptible to supply disruptions.  Prices will need to stay high to control demand  Natural gas prices at Henry Hub are currently overvalued  Fear of winter weather and the lack of incremental gas supplies causing concerns.  By mid-year, Gulf of Mexico production affected by the storms should be back on line just in time for the next hurricane season.  See gas to crude price ratio in the 80% to 90% range or about $7.50 to $9.50 at Henry Hub.  Gas basis for Mid-Continent should narrow from current levels, but remain wide against historical norms.