WORLD OIL AND NORTH AMERICAN NATURAL GAS OUTLOOK November 2006

PETROLEUM INDUSTRY FUNDAMENTALS Depletion is relentless. Explorationists seek largest and most profitable deposits first. Production rises initially, peaks and irreversibly declines. United States crude oil production rose 50 percent from 1945 to 1970, peaked and declined almost 50 percent since. 1

OIL SUMMARY CONCLUSIONS World crude oil production is peaking and will decline irreversibly. Security and stability concerns are growing in exporting countries – Saudi Arabia, Russia, Venezuela, Iraq, Iran, Nigeria – which account for over 40 percent of world crude oil supply. Liquids from the growing international natural gas industry will supplement crude oil supplies. High prices are required to constrain consumption. There is no such thing as scarcity and no such thing as surplus. There is only price. 100,000 barrel per day supply change moves the price $1 per barrel. Transportation is the dominant growing use for oil. High cost oil will be replaced with cheaper natural gas and other substitutes in stationary fuel use in developing economies as occurred in OECD countries in the last oil crisis. The world oil industry will continue to operate essentially at capacity with permanent major price volatility. 2

GAS SUMMARY CONCLUSIONS North American natural gas production has already peaked. LNG imports will grow. Canadian imports will decline. Total supply will decline. High prices will drive substitution of lower cost fuels in industrial and power generation use. Nuclear power expansion is the logical long- term solution. 3

4 Million Barrels Per Day Oil Equivalent Petroleum38% Natural Gas24% Coal24% Renewables8% Nuclear6% Petroleum41% Natural Gas23% Coal22% Renewables6% Nuclear8% World United States United States % of World Energy Consumption Petroleum Natural Gas Coal Renewables Nuclear 25% 23% 21% 18% 31% United States % of World Population 6% Oil & GasTexas % of USWorld Production253 Consumption174 WORLD AND UNITED STATES ENERGY CONSUMPTION 2003

5 WORLD CRUDE OIL DISCOVERY RATES Billion Barrels Annual Discovery Annual Production

UNITED STATES CRUDE OIL DISCOVERY RATE Lower 48 States Onshore Billion Barrels Oil fields larger than 100 million barrels Annual Discovery Annual Production 6

CRUDE OIL PRICE WTI Or Equivalent 2004 $ Per Barrel Era of Plenty & U.S. Control Era of Scarcity & Price Rationing $36 Average $13 Average Era of Transition & OPEC Control U.S. Production Peaked World Production Peaking Price?

8 WORLD CRUDE OIL PRODUCTION Arabian Light Price (Right Scale) Million Barrels Per Day $/Barrel Production (Left Scale) Actual Forecast

9 WORLD PETROLEUM PRODUCTION Million Barrels Per Day Other Non-OPEC Crude Oil Eastern Europe Crude Oil OPEC Crude Oil NGL ** Other * * alcohols, coal liquefaction, and gas to liquids ** condensate, natural gasoline, butanes, propane, and ethane Actual Forecast EIA Forecast

10 OIL EXPENDITURES RELATIVE TO GLOBAL ECONOMIC ACTIVITY Percent of Global Gross Domestic Product Crises of 1970’s & 1980’s OIL EXPENDITURES Current at $60 per Barrel Oil

WORLD PETROLEUM USE BY SECTOR Million Barrels Per Day Transportation51% Residential & Commercial 10% Industrial & Power27% 12%Raw Material World United States Transportation67% Residential & Commercial 7% Industrial & Power10% 16%Raw Material 11

UNITED STATES PETROLEUM PRODUCTION AND CONSUMPTION Million Barrels Per Day Production Consumption 12

OIL AND GAS IMPORT COST Billions of Dollars 13

14 CHINA & INDIA PROJECTED ECONOMIC GROWTH 8% per yr Cumulative Percent

ENERGY COST ENERGY CONSUMED FOR ENERGY PRODUCTION Oil 1970 Energy Consumed Percent Of Gross Energy Input Oil 1985 Oil From Oil Sands LNG Ethanol From Corn Gas to Liquids 15

16 U.S. NATURAL GAS CONSUMPTION, PRODUCTION AND PRICE Billion Cubic Feet Per Day $/MMBTU Production Consumption Average Wellhead Price (Right Scale) Imports & Other Actual Forecast LNG

UNITED STATES NATURAL GAS PRODUCTION 17 Bcfd Tight Coalbed Associated Offshore Onshore Lower 48 Conventional (Non-Associated) Price Controls Section 29 Tax Credits Actual Forecast LNG Canadian Imports

UNITED STATES NATURAL GAS DRILLING AND PRODUCTION 18 Average Wellhead Price $/MMBTU Gas Well Completions Gas Production Bcfd Total Production Well Completions Average Wellhead Price

UNITED STATES NATURAL GAS DRILLING PRODUCTIVITY 19 Average First Year Production Per New Well - Mcfd

20 UNITED STATES NATURAL GAS CONSUMPTION Billion Cubic Feet Per Day Bcf/d Residential & Commercial Boiler Fuel & Other Fuel Use Act $/MMBTU Average Wellhead Price (Right Scale) Actual Forecast