Natural Gas Market Outlook—Changing Expectations

2 North American Gas Market Outlook Short Term Dynamics For Now, Domestic Supplies Have Responded to High Price and Demand… High prices have spurred record drilling levels and revived US supplies Growth comes from unconventionals—tight gas, shale gas, and cbm Domestic supply should rise through 2012 and hold a plateau through 2015 Regional Growth North American Supply by Region 5.0 bcfd growth in US supply

3 Key Increments of Growth Come From the Rockies and Mid-continent Regions… Rockies – Greater Green River and Uinta-Piceance basins providing strong growth for the region Gulf Coast – Tight gas production from the Travis Peak, Cotton Valley, Deep Bossier plays expected to grow Mid-Continent & Southwest – Significant supply growth due to the development of Barnett, Fayetteville and Woodford shales GoM – Independence Hub has provided a boost to the deepwater production. 14 deep water fields expected to come online in 2008 WCSB – Production declines due to Increase in costs, weakening US dollar and increased royalty rates. BC shales not included in base case forecast. Lisburne Powder River Basin CBM Barnett Woodford/Caney Fayetteville Bossier/Cotton Valley Jonah/Pinedale/ Wamsutter Uinta-Piceance Conasauga Woodford/Barnett Baxter Shale Commercial Potential/Emerging

4 US Shale Gas Supplies: New and Emerging Plays Shale Gas Forecast Improved technology and higher gas prices have led to strong growth from the shale plays. Significant upside from some newly announced plays—Haynesville, Marcellus, BC Horn River Technology, Price Proximity to Market, Tax Credits

New Shale Plays Have the Potential to Push Production Higher

6 Shale Gas Supplies: New and Emerging Plays Haynesville Shale Operators describing Haynesville as being one of the biggest plays in the region – too early to tell Shale present along the Texas-Louisiana border underlying the Cotton Valley sand Current operator announced net resource potential at tcf Acreage holders include Chesapeake, Petrohawk, Comstock, EXCO, El Paso Chesapeake drilled four vertical tests and three horizontal wells in Operators announcing plans to increase rigs Horizontal wells expected to cost US$5.5 million and recover bcfe No issues with infrastructure expected

7 Shale Gas Supplies: New and Emerging Plays BC Horn River Basin Shales Record lease sales in Favourable royalty structure. A 2005 study on Devonian shale potential put the resource at over 500 tcf of gas-in- place. Estimates of GIP per section double those of the Barnett, due to the thickness, rich organic content and pressure No water production and CO2 volume approximately 10% Apache, EOG and Nexen estimate recoverable gas resources of 18 to 31 tcf Well costs high. Initial breakeven estimates of US$ /mcf Challenges: Winter only access, lack of infrastructure, possible delays in permitting due to native landownership, and possible environmental concerns

8 Shale Gas Supplies: New and Emerging Plays Marcellus Shale Study estimates over 50 tcf recoverable reserves. Much higher than USGS estimate of 1.9 tcf. Range Resources controls 750,000 acres. Other operators include Chesapeake, Equitable, CNX Shale at a similar depth as Barnett (8,000 ft) and Barnett style slick water fracturing is effective Horizontal wells expected to cost US$ million. Recent wells have had good initial production rates of mmcfd Challenges Developing the gathering infrastructure could take time. Fragmented land ownership. Shale extends over large area and operators yet to delineate the core fairway Very few rigs with the required depth rating and limited equipment available for fracturing

What does the supply growth mean for pricing?

10 Demand from the Power Sector Will Put Pressure On North American Gas Supplies Rising Capital Costs Regulatory Uncertainty Environmental Legislation Rush to Build Gas Shrinking Reserve Margins and Strong Demand Growth Acceleration in Demand Growth, ?

11 But in the Mid-Term Demand Drivers are not Strong Weak US GDP growth expected to hold through start of ’09, structural issues associated w. the credit crisis and real estate weakness will forestall recovery. GDP growth of 1.8% expected for 2009 Capacity additions from wind (derated) and coal could meet much of expected generation growth Net Wind and Coal Power Capacity Additions

12 Meeting longer term US demand growth requires LNG…North America competes for flexible cargoes North America Attracts Flexible LNG in 2012……When Prices Increase to Global Levels

13 Competition For These Supplies is Fierce! Supply is struggling to keep pace with demand Supply lag factor is evident Slippages in projects under construction Probable and possible projects (i.e. those that are pre-FID) are being delayed Factors adversely impacting projects include: Overheated resource markets Moratoria on new LNG projects Requirement for additional exploration Technical challenges Unclear Government position on exports Permitting and approval processes Global LNG Supply Source: Wood Mackenzie FID = Final Investment Decision LNG OVERVIEW: SUPPLY

14 And Requires US Prices to Increase to Global Levels—and Reconnect With Oil Oil’s influence holds in Japan and the UK, although Japanese uncontracted prices fall as Pacific Basin LNG supplies climb US prices disconnect from global gas prices, and move toward coal by 2009, prices for both gas and coal move lower for 2010 Recovery and reconnection begins as the pressure from the power sector increases and domestic supply growth stalls in 2011 and 2012 Global Prices (2008$) Reconnecting to Global Markets, and Oil?

15 Carbon Legislation Could Push Gas Demand Higher Framework based on Lieberman-Warner Lack of alternative fuels and technology drive gas demand Tight emission credit markets drive capacity economics to favor gas Utilities are indifferent to gas price Industrial demand may be at risk dependent on global gas-intensive commodity markets