1. 1 The Honorable Suedeen G. Kelly Commissioner, Federal Energy Regulatory Commission IPAA 2004 Mid-Year Meeting June 14, 2004 “A FERC Perspective on Natural Gas Issues”

2. 2 Rig Count Responds to Higher Prices Sources: OMOI analysis, Baker Hughes, Platts Gas Daily, some underlying data from Banc of America Securities Rig Count versus Gas Price U.S. Gas Drilling and Gas prices, 6-Month Lag The rig count levels off at around 1,000 rigs with a muted response to higher prices. Although utilization is at 75% to 80%, additional drilling will be limited by the quality of prospects. Much of the drilling is lower risk- development versus exploration. Exploration as a Percentage of Total Drilling Capital

3. 3 Reserves added per well have declined since 2000. 3-D seismic contributed to growth in proved reserves per well during the 1990s. Similar growth rates may be difficult to repeat in the near-term. Proven Undeveloped Reserves (PUDs) have increased. –Converting PUDs to proved developed producing reserves (PDPs) requires capital and typically one to two years. –Represent a backlog of prospects but also entail higher risk. Reportedly, 75% of El Paso’s revisions involved PUDs. Supply Is Not Rebounding; The Nature of Proven Reserves May Be Changing Sources: OMOI analysis, EIA, some underlying data from Banc of America Securities Drop in Proved Reserves Added Domestic PUD and Replacement Percentages

4. 4 Returns are lower for independents with neither downstream nor international operations and for majors too big to grow domestically and unable to compete internationally with the super majors. May lead to more consolidation. Only the super majors, on average, earn attractive returns given risk. The majors and independents have difficulty recovering their cost of capital. The domestic industry is struggling with balancing financial returns and production growth. Higher Prices Have Improved Financial Returns but Sustainable Domestic Investment is Limited Sources: OMOI analysis, percentage return on capital data from CERA (1993-2002) and Bloomberg, L.P. (2003) Percentage Return on Capital Each bar represents one year from 1993–2004 1993–2003 Average

5. 5 Traditional vs. NEPA Pre-Filing Process Announce Open Season Announce Open Season Develop Study Corridor Develop Study Corridor Conduct Scoping Conduct Scoping 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Review Draft Resource Reports & Prepare DEIS Issue Draft EIS Issue Draft EIS File At FERC Issue Order Issue Order File At FERC Prepare Resource Reports Prepare Resource Reports Issue Final EIS Issue Final EIS (months) Traditional - Applicant Traditional - FERC NEPA Pre-Filing - Applicant NEPA Pre-Filing - FERC

6. 6 Kern River Expansion Project 716 miles of pipeline looping through CA, NV, UT, WY 3 New Compressors $1.2 Billion 885.6 MMcf/day of additional capacity –Doubles Kern River’s capacity from 845.5 MMcf/day to 1.7 Bcf/day Map is Non-Public Internet

7. 7 Cheyenne Plains Pipeline Project Map is Non-Public Internet

8. 8 How Much Natural Gas Is Out There? 8 LNG supply growing Multiple LNG supply proposals announced Long term LNG supply outlook robust Global LNG Supply WORLD PROVED RESERVES 2002: 6,270 TCF NORTH AMERICA RESERVES 4% Source: Cedigaz, NPC Existing Under Construction Proposed Global LNG Supply Facilities

9. 9 Existing Terminals with Approved Expansions A. Everett, MA : 1.035 Bcfd (Tractebel – DOMAC) B. Cove Point, MD : 1.0 Bcfd (Dominion – Cove Point LNG) C. Elba Island, GA : 1.2 Bcfd (El Paso – Southern LNG) D. Lake Charles, LA : 1.2 Bcfd (Southern Union – Trunkline LNG) Approved Terminals 1. Hackberry, LA : 1.5 Bcfd, (Sempra Energy) 2. Port Pelican: 1.6 Bcfd, (Chevron Texaco) 3. Bahamas : 0.84 Bcfd, (AES Ocean Express)* 4. Gulf of Mexico: 0.5 Bcfd, (El Paso Energy Bridge GOM, LLC) 5. Bahamas : 0.83 Bcfd, (Calypso Tractebel)* Proposed Terminals and Expansions – FERC 6. Freeport, TX : 1.5 Bcfd, (Cheniere / Freeport LNG Dev.) 7. Fall River, MA : 0.8 Bcfd, (Weaver's Cove Energy/Hess LNG) 8. Long Beach, CA : 0.7 Bcfd, (SES/Mitsubishi) 9. Corpus Christi, TX : 2.6 Bcfd, (Cheniere LNG Partners) 10. Sabine, LA : 2.6 Bcfd (Cheniere LNG) 11. Corpus Christi, TX : 1.0 Bcfd (Vista Del Sol/ExxonMobil) 12. Sabine, TX : 1.0 Bcfd (Golden Pass/ExxonMobil) 13. Logan Township, NJ : 1.2 Bcfd (Crown Landing LNG – BP) 14. Lake Charles, LA: 0.6 Bcfd (Southern Union – Trunkline LNG) 15. Bahamas : 0.5 Bcfd, (Seafarer - El Paso/FPL ) 16. Corpus Christi, TX: 1.0 Bcfd (Occidental Energy Ventures) 17. Providence, RI : 0.5 Bcfd (Keyspan & BG LNG) 18. Port Arthur, TX: 1.5 Bcfd (Sempra) Proposed Terminals – Coast Guard 19. California Offshore: 1.5 Bcfd, (Cabrillo Port – BHP Billiton) 20. Louisiana Offshore : 1.0 Bcfd (Gulf Landing – Shell) 21. So. California Offshore : 0.5 Bcfd, (Crystal Energy) 22. Louisiana Offshore : 1.0 Bcfd (McMoRan Exp.) 23. Gulf of Mexico: n/a (Compass Port - ConocoPhillips) Planned Terminals and Expansions 24. Brownsville, TX : n/a, (Cheniere LNG Partners) 25. Mobile Bay, AL: 1.0 Bcfd, (ExxonMobil) 26. Somerset, MA : 0.65 Bcfd (Somerset LNG) 27. Belmar, NJ Offshore : n/a (El Paso Global) 28. Altamira, Tamulipas : 1.12 Bcfd, (Shell) 29. Baja California, MX : 1.0 Bcfd, (Sempra & Shell) 30. Baja California - Offshore : 1.4 Bcfd, (Chevron Texaco) 31. California - Offshore : 0.5 Bcfd, (Chevron Texaco) 32. St. John, NB : 0.5 Bcfd, (Canaport – Irving Oil) 33. Point Tupper, NS 1.0 Bcf/d (Bear Head LNG - Access Northeast Energy) 34. Pleasant Point, ME : 0.5 Bcf/d (Quoddy Bay, LLC) 35. St. Lawrence, QC : n/a (TCPL and/or Gaz Met) 36. Lázaro Cárdenas, MX : 0.5 Bcfd (Tractebel/Repsol) 37. Gulf of Mexico : 1.0 Bcfd (ExxonMobil) 38. Mobile Bay, AL: 1.0 Bcfd (Cheniere LNG Partners) 39. Cherry Point, WA: 0.5 Bcfd (Cherry Point Energy LLC) 40. Cove Point, MD : 0.8 Bcfd (Dominion) 41. Puerto Libertad, MX: 1.3 Bcfd (Sonora Pacific LNG) 42. Offshore Boston, MA: 0.8 Bcfd (Northeast Gateway – Excelerate Energy) *US pipeline approved; LNG terminal pending in Bahamas Existing and Proposed North American LNG Terminals June 2004 A C 1 3 5 2 4 32 7 27 15 6 24 28 9 19 8 26 22 21 33 35 34 36 20 29 30 11 37 10 12 17 13 B 31 25 14 39 40 16 38 23 18 D 41 US Jurisdiction FERC US Coast Guard 42

10. 10 US Natural Gas Balance