Delivering commercial insight to the global energy industry Wood MackenzieEnergy Rockies Development Activity and Trends IPAMS – May 2007

Delivering commercial insight to the global energy industry 2 Agenda  Rockies Overview  Reserves  Production  Basin Updates  Key Issues and Trends  Costs and Rig Count  Regulation  Price Differentials

Delivering commercial insight to the global energy industry 3 Rockies oil reserves on the rise  From 2003 to 2005, the Rocky Mountains region proved oil reserves profile has grown from 1.6 to over 2 billion barrels - an increase of over 26%  At the beginning of 2006, the Rockies proved oil reserves accounted for nearly 12% of total L48 reserves  Arguably one of the limiting factors to the potential of this resources continues to be local prices differentials and supply competition from out of region crudes

Delivering commercial insight to the global energy industry 4 Steady growth in Rockies gas reserves  The Rockies region proved gas reserves profile has grown from 46 tcf to 61 tcf in just 5 years – an increase of over 32%  Over the same period, the total Lower 48 proved reserves increased by 28 tcf – Rockies contributed 52% of those additional reserves  The Rockies profile continues to rise – at the end of 2005, the Rockies represented about 31% of total L48 proved reserves, up from 27% at the end of 2000

Delivering commercial insight to the global energy industry 5 If these historical trends continue? A statistical forecast

Delivering commercial insight to the global energy industry 6 Oil production rising in the Rockies, as US continues to decline  Rockies annual oil production has increased by over 31 million barrels over the last three years  In contrast, US production has fallen by nearly 10% over the same period  Rockies now accounts for over 9% of total US production (on-shore + off-shore)

Delivering commercial insight to the global energy industry 7 Rockies gas production compares favorably to other regions CAGR = 4.6 %  The Rocky Mountains gas production has increase by nearly 31% from 10.4 bcfd in 2000 to 13.6 bcfd in 2006  Rockies region is a major contributor to US supply and now accounts for nearly 25% of total US onshore output  Growth driven by unconventional production:  Tight gas in the Greater Green River and Uinta-Piceance basins  CBM in the Powder River and Raton basins

Delivering commercial insight to the global energy industry 8 Unconventionals are fundamental to Rockies future production  Unconventional resources accounted for about 74% of Rockies gas production in 2000  Last year, that portion had risen to 82% and could be as much as 88% by 2011  Tight gas is increasing by 30% from 2007 through 2011  CBM shows growth of 6% through 2011  This profile is based on commercial unconstrained 2P production

Delivering commercial insight to the global energy industry 9 Greater Green River becomes the largest producing basin in 2008  Steady growth of 0.9 bcfd projected between 2007 and 2011  Driven by giant tight gas projects: Pinedale, Jonah, Wamsutter  Production from these projects expected to provide 67% of basin production by 2011  Development of emerging plays could contribute to further production growth: Vermillion, Atlantic Rim CAGR = 5.3% CAGR = 5.1 %

Delivering commercial insight to the global energy industry 10 Uinta-Piceance is the fastest growing basin in the region  The Uinta-Piceance Basin shows the largest production growth in the Rockies – increasing by 1.4 bcfd through 2011  Growth primarily from the Mesaverde tight gas play in the Piceance Basin’s Valley and Highland regions.  In the Uinta Basin, production growth driven by ongoing expansion of Natural Buttes tight gas field CAGR = 5.1 % CAGR = 18%

Delivering commercial insight to the global energy industry 11 Powder River has strong growth on smaller volumes  Production from the Powder River Basin expected to grow by 260 mmcfd through 2011  Growth from the Powder River driven by ongoing development of the Big George coals  Current litigation surrounding disposal of CBM has potential to impact development CAGR = 5.1 % CAGR = 9%

Delivering commercial insight to the global energy industry 12 Lots of activity in other basins  San Juan  Production in 2007 around 4.3 bcfd – largest producing basin  Overall gas production declines by 4% through 2011  Production from CBM relatively flat reflecting infill drilling of Fruitland coalbeds Denver-Julesburg  2007 production of around 678 mmcfd – majority tight gas from Wattenberg  Marginal growth of 4% through 2011  Reflects large volume of development projects and workovers Raton  CBM Production of around 360 mmcfd in 2007  Expected to grow by 16% through 2011  Reflects accelerated development of the Raton and Vermejo coals

Delivering commercial insight to the global energy industry 13 Key Issues and Trends

Delivering commercial insight to the global energy industry 14 Rig count cycles and costs

Delivering commercial insight to the global energy industry 15 Regulation still the largest obstacle to development A number of ‘battles’ ongoing regarding disposal of CBM water in the Powder River  Development would be severely restricted if regulation passed  Economic Impact from stopping drilling could result in billions of lost revenue Lengthy regulatory process continues to hinder development  Atlantic Rim CBM – Initial development proposal submitted in May Final ROD submitted to Washington in March 2007  Jonah Field – three years to issue ROD relating to the Jonah Infill Drilling Project Extent of regional opposition to industry  State government: In Colorado, six energy bills pending or recently approved  The extent of opposition apparent when comparing with other onshore regions  Wide range of organizations opposed to oil and gas development: Opposition to proposed drilling in the Wyoming Range includes the United Steelworkers Union

Delivering commercial insight to the global energy industry 16 Rockies Oil Differentials – a trend with a complicated explanation

Delivering commercial insight to the global energy industry 17 Rockies Gas Differentials – Long-run view

Delivering commercial insight to the global energy industry 18 Rockies Gas Differentials – Short-run view

Delivering commercial insight to the global energy industry 19 Rockies Differentials – Is it really all about Rockies Express?

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