The Alliance ‘Meet Alaska 2003’ 20 th Annual Conference A Capital Market Perspective on Alaskan Energy Issues Thomas A. Petrie, CFA January 22, 2003 PETRIE PARKMAN & Co.

Commodity Market Environment U.S. Energy Policy Initiatives Capital Market Drivers Alaskan Energy Issues Conclusions PETRIE PARKMAN & Co. i Topics

The Geopolitical Backdrop Iraq Venezuela Saudi Arabia OPEC Dynamics Russia Iran PETRIE PARKMAN & Co. 1

Commodity Market Environment PETRIE PARKMAN & Co. 2

Predicted production curve Results match Hubbert’s prediction Source: Deffeyes, K.S. (2001), Hubbert’s Peak World Oil Production – “Hubbert’s Peak” PETRIE PARKMAN & Co. 3

OPEC Production and Capacity PETRIE PARKMAN & Co. 4

5 Commodity Market Environment

PETRIE PARKMAN & Co. 6 U.S. Gas Rig Count vs. 12- Month Gas Strip Week Ending 1/17/ ,000 1,100 01/03/9703/14/9705/23/9708/01/9710/10/9712/19/9702/27/9805/08/9807/17/9809/25/9812/04/9802/12/9904/23/9907/02/9909/10/9911/19/9901/28/0004/07/0006/16/0008/25/0011/03/0001/12/0103/23/0106/01/0108/10/0110/19/0112/28/0103/08/0205/17/0207/26/0210/04/0212/13/02 U.S. Gas Rig Count $1.75 $2.75 $3.75 $4.75 $5.75 $6.75 Gas Strip ($/Mcfe) Gas RigsGas Strip

Lower – 48 Resource Pyramid (Technically Recoverable) Cum Production 881 Reserves- 157 New Fields- 633 Reserve Appreciation-305 Tight Gas 230 Coalbed Methane 74 Shale Tcf Unassessed Portion of Coalbed Methane, Shale and Tight Gas ( ?) Geopressured Brine – Up to 24,000 Gas in Place Gas Hydrates- Up to 300,000 Gas in Place In general, movement down the pyramid involves decreasing concentration … increasing development costs, increasing technology needs, and increasing uncertainty > 50% of new fields (in Tcf) PETRIE PARKMAN & Co. 7

U.S. Energy Policy Alaska Initiatives Are Likely Gas Development Initiatives Likely LNG to Have a Role? Conservation and Alternative Supply Measures Will Probably be Required to Achieve Actual Passage of an Energy Bill PETRIE PARKMAN & Co. 8

The Longer Term North American Gas Supply Solution PETRIE PARKMAN & Co. 9 North Slope Gas Mackenzie Delta Gas North Slope LNG ? LNG to U.S. West Coast ? LNG from Asia Baja Lake Charles Elba Island Cove Point Everett ? LNG

Capital Markets Drivers- Post Enron & the Iraqi Confrontation Global Economic Malaise Partisan Politics Reigns – 2004 Presidential Campaign is Underway Unsettled Regulatory Framework Continuing Trend of Corporate Consolidation Impaired Capital Formation PETRIE PARKMAN & Co. 10

Industry Consolidation Trends Conventional resource maturity is a looming reality Production shortfalls are causing majors to undertake significant shifts in their upstream strategies (i.e., focus on ROCE versus production growth) BP / Apache transaction provides the “green light” for additional divestitures by other majors; regional buyers’ markets may develop E&P property divestitures and geographic portfolio realignments likely to accelerate over the period For the foreseeable future, the independent sector will be characterized by continuing corporate consolidations alongside noteworthy property acquisition transactions PETRIE PARKMAN & Co. 11

North Slope Reconfiguration PETRIE PARKMAN & Co. 12 Mid – ‘90’s Players New Millennium Players British Petroleum ARCO Exxon Mobil Amerada Hess Phillips Unocal Chevron Amoco Oxy BP ConocoPhillips ExxonMobil Anadarko Pioneer Armstrong Burlington EnCana TotalFinaElf Unocal ChevronTexaco

A “crisis of confidence” continues to impact many if not most investment decisions Extreme sensitivity to corporate governance and management compensation at a time of rapid and unpredictable change in rules and procedures Commodity prices ( particularly oil ) are perceived as more likely to fall than rise, engendering concern about a related decline in energy equity values Investors in r ecent new issues have not been particularly rewarded for the incremental risk Reacting to the meltdown in the merchant power and pipeline businesses, rating agencies and lenders are behaving much more conservatively A wide gap in the perception of value exists between company management and investors Why Capital Formation Is Impaired PETRIE PARKMAN & Co. 13

Alaskan Energy Issues NPRA ANWR North Slope Gas Development Emerging Role for Independents? PETRIE PARKMAN & Co. 14

ANWR Highly Politicized ( “Environmental Poster Child” ) Meritorious Arguments Lack Lower 48 Traction Exploitation Time Frame Well Beyond Attention Span of Capital Market Decision Makers Perception of Preferable Alternatives Significant Congressional Action Unlikely ( Pre 2004 Election ) Absent a Major Supply Crisis PETRIE PARKMAN & Co. 15

North Slope Gas Development Stage Set by a Looming Lower- 48 Supply / Concerns Pipeline vs LNG Options? Possible Bi-Partisan Political Support for the Pipeline Option (at a Price) LNG Competitiveness vis a vis Pacific Basin Sources? Canadian Gas Development Issues Gas Pipeline Financing Incentives / (Wellhead Price Protection?) Capital Availability PETRIE PARKMAN & Co. 16

Conclusions The Petroleum sector is on the threshold of the most challenging operating environment seen since the 1970’s Oil and gas companies need to be able to operate in and cope with a wide range of commodity price scenarios Restoration of reliable North American gas supply will require timely execution of an Alaskan gas pipeline complemented by significant LNG projects Capital markets are only now beginning to focus on the looming challenges facing the petroleum sector Alaskan petroleum supply competitiveness faces noteworthy global pressures PETRIE PARKMAN & Co. 17