.. 1 f:/JOB/PROSPECTS/C6074 CONNECTING ALASKA GAS TO MARKETS Russell H. Jacobs Vice President & Director Purvin & Gertz, Inc. Meet Alaska 2003 Anchorage, Alaska January 24, 2003 Meet Alaska 2003 Anchorage, Alaska January 24,

.. 2 f:/JOB/PROSPECTS/C6074 PURVIN & GERTZ, INC.  Employee–owned consultant firm, founded in 1947  Independent of any holding company,engineering firm, process licensor or any Arctic gas project developer or stakeholder  Extensive experience on frontier, Arctic and other gas projects  In a position to provide well- founded, objective views and advice Source:

.. 3 f:/JOB/PROSPECTS/C6074 DRIVERS FOR ALASKA GAS DEVELOPMENT  Concerns over current and future gas supply with consequent increase in price  Strong long-term gas demand outlook  Drive to monetize stranded gas assets with impressive economic potential  Strong stakeholder support

.. 4 f:/JOB/PROSPECTS/C6074 STAKEHOLDERS BROADLY DEFINED  Alaska producers  Other “commercial” players (e.g. transportation companies, project suppliers)  Large energy users (Alaska and nationwide)  Governments (Federal, State, Local) Source:

.. 5 f:/JOB/PROSPECTS/C6074 MARKET DRIVERS  Long term future U.S. gas demand growth about 1.5% per year (economic growth, electricity sector, competitive pricing)  Canada around 2% annually, additionally supported by intensive industrial growth in West  A large conventional resource base that can be developed but still needs new incremental sources of supply Source:

.. 6 f:/JOB/PROSPECTS/C6074 LOWER 48 GAS DEMAND BY END USE 2002

.. 7 f:/JOB/PROSPECTS/C6074 SUPPLY CONSIDERATIONS  Future Demand Further Outstrips Conventional Supply  Costlier New “Conventional” Production  New Economic Supplies are Essential

.. 8 f:/JOB/PROSPECTS/C6074 INCREMENTAL SOURCES OF GAS MUST BE DEVELOPED Lower 48 Supply

.. 9 f:/JOB/PROSPECTS/C6074 Why Alaska Gas? $US/MMBtu (Constant 2003 $) at a Henry Hub Price Equivalent  LNG (varies from $4.00):  low/medium reserve uncertainty  Medium/high transportation costs  Mackenzie Delta gas (>$3.00):  medium reserve uncertainty  high transportation costs  Alaska gas (>$3.00):  low reserve uncertainty  high transportation costs  Other  Scotian Slope (deeper water) and Grand Banks (too expensive)  Offshore East Coast, CA, BC (out-of- bounds)  Mexico (constitution/high local demand)  Hydrates (too speculative)  Arctic Islands (too far)  Canadian coalbed methane (interesting potential/not enough)

.. 10 f:/JOB/PROSPECTS/C6074 WHAT PRICES ARE REQUIRED? Constant 2003 U.S. Dollars per MMBtu at Henry Hub

.. 11 f:/JOB/PROSPECTS/C6074 WHAT ARE THE RISKS?  The most sensitive quantifiable risk elements to the economics of Arctic gas development are market price and project costs  Less sensitive factors are return on equity, the cost of debt and the debt-equity ratio  Other “qualitative” risks include politics, regulatory and environmental processes (uncertainty, delays, costs), and social (expectations of benefits)

.. 12 f:/JOB/PROSPECTS/C6074 POTENTIAL MARKET IMPACTS  4 or more BCFD from Alaska has the potential to cause severe but temporary market dislocations  Same order of magnitude as all incremental supply growth out of Western Canada but in one big lump  Mitigating measures would likely be undertaken to encourage the development of major incremental markets  Additional pipeline capacity required within Western Canada as well as takeaway capacity toward California, Midwest, and U.S. Northeast

.. 13 f:/JOB/PROSPECTS/C6074 CONCLUSIONS  Strong gas demand coupled with an uncertain lower 48 supply outlook remain the fundamental drivers for Arctic gas development  Challenges will be overcome and economic projects in both Alaska and Mackenzie Delta areas will be developed within the next ten years.  Expanded opportunities for energy goods and service industries in Alaska on the horizon Source:

. I NTERNATIONAL E NERGY C ONSULTANTS “Purvin & Gertz is an independent, employee owned, international energy consulting firm providing sound and objective strategic, commercial, and technical advise to the energy sector.”

.. 15 f:/JOB/PROSPECTS/C6074  Neither this analysis nor any part of this analysis shall be provided to third parties without the written consent of Purvin & Gertz. Any third party in possession of this analysis may not rely upon its conclusions without the written consent of Purvin & Gertz. Possession of this analysis does not carry with it the right of publication.  Purvin & Gertz conducted this analysis utilizing reasonable care and skill in applying methods of analysis consistent with normal industry practice. All results are based on information available at the time of review. Changes in factors upon which the review is based could affect the results. Forecasts are inherently uncertain because of events or combinations of events that cannot reasonably be foreseen including the actions of government, individuals, third parties and competitors. NO IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE SHALL APPLY.  Some of the information on which this analysis is based has been provided by others. Purvin & Gertz has utilized such information without verification unless specifically noted otherwise. Purvin & Gertz accepts no liability for errors or inaccuracies in information provided by others. ABOUT THIS PRESENTATION