1. Natural Gas In the Production Growth Vortex Energy Finance Discussion Group Denver November 11, 2008 David Pursell *Important Disclosures on page 33 of this document.*

2. 22 Natural Gas 12 Month Strip

3. 3 Futures – Are They Accurate?

4. 4 Thoughts On Price Price range □ 2001 :  Marginal Cost Supply ~$3.50/mcf  Marginal Consumption ~$8 to $10/mcf □ 2008  Marginal Cost Supply ~$8/mcf  Marginal Consumption ~$10 to 12/mcf (assuming economy OK) □ LNG □ 2001 – N/A □ 2008 - $12/mcf (moving target with oil) 4

5. 5 Thoughts On Price – Long Term US Can grow demand…we have supply growth. □ Economic expansion required Power demand is THE driver of natural gas demand growth □ Need gas-fired backup (large capacity margin) to back stop alternatives (wind, solar, and hydro). □ Transportation fuels…I cant make the math work Carbon Legislation – should greatly benefit power generation demand □ Gas >> Oil >> Coal □ Concerns:  Overall tax/cost of retail electricity may hinder economic growth  Demand side management (incentive to consume less) will be integral part of plan. 5

6. 66 GOM Production “I can hardly remember how I built my bankroll, but I can't stop thinking about the way I lost it." Mike….Rounders

7. 77 Onshore Supply Growth! “Ohhhh, man I wish I could go back in time. I'd take state.” Uncle Rico – Napoleon Dynamite

8. 8 Gas Storage – Back to Normal 8

9. 9 Shale Plays Improving Mix 9

10. 10 Implications for Rig Count 10

11. Capital Market Issues E&P companies can’t / won’t outspend cash flow □ Raise Equity….nope □ Debt…good luck □ Sell assets…not so much □ Cut spending/rig count…most likely Pipeline companies □ How to fund new pipes? □ Basis issues harder to solve via more pipes □ Need to solve via lower production in near term 11

12. 12 Rigcount By Operator Type

13. 13 Shale Comparison 13 Source: CHK

14. 14 Basin Breakeven Analysis

15. Basis Differentials 15

16. 16 Demand – Can Improve Long Term 16

17. 17 Demand and Basis Risk Northeast US □ Natural Gas Demand ~8.5bcf/day over past eight years. □ Growth Prospects? □ Rockies Express = more gas □ Shale Development in West Virginia and Kentucky = more gas Does the region need the Marcellus? Risk to basis? 17

18. 18 Natural Gas – Power Generation US GDP and Total Power Generation Load US Natural Gas Demand driven by electricity sector expansion and growth

19. 19 Got Shale? Rationale – Transition in Public Company E&P Mindset □ 10 years ago - hard to find, but easy to produce  Exploration focus  Seismic / Geology driven □ Now - easy to find, but hard to produce  Shale plays – going to the source rock/formations  Presence of gas not a big risk  Engineering risk increase 19

20. 20 Resource Triangle Source: Holditch

21. 21 Marcellus Shale Resource

22. 22 Marcellus Shale “According to the map we've only gone 4 inches.” Harry…Dumb and Dumber

23. 23 Haynesville Shale The Good □ Takes “froth” out of the Marcellus Shale The Bad □ Pulls some of the necessary capital resources away from the region The Ugly □ Creates a large amount of supply-side/production growth focus 23

24. 24 Haynesville Shale Activity Overview 24 Source: Company Filings, Investor Presentations. 24 GDP – Vertical wells Hall 5 No. 1 (50% WI non-op) Caddo Parish; Central Pine Island Field Completion Phase Taylor Sealey No. 1 (100% WI) Panola/Rusk Counties; Minden Field IP ~ 2.6 MMcfe/d (22/64 choke) Lutheran Church No. 4 (100% WI) Panola/Rusk Counties; Beckville Field IP ~ 1.6 MMcfe/d ECA (50% Shell) Sabine Parish: IP ~ 8 MMcf/d Red River Parish*: IP ~ 15 MMcf/d *T-R: 13N-9W Current Players Berry (4,500 Net) Cabot (135,000 Gross) Chesapeake (440,000 Net) & Plains E&P (110,000 Net) Comstock (53,000 Net) Devon (483,000 Net) Ellora (70,600 Net) El Paso (42,500 Net) EnCana/Shell (370,000 Net) Encore (21,200 Net) EXCO (107,000 Net) Forest (91,000 Net) GMX Resources (38,500 Net) Goodrich (60,500 Net) J-W Operating (Acreage n/a) Penn Virginia (60,000 Net) Petrohawk (300,000 Net) Questar (28,000 Net) XTO (100,000 Net) CHK (20% Plains E&P) Caddo Parish; T-R: 15N-15W 1) Feist 28-#01 (section 28) IP ~ 2.6 MMcf/d (9/64 choke) 11,596 ft. TVD 2) Milton Crow 27-1H (section 27) IP ~ 14 MMcf/d (24/64 choke) 11,744 ft. TVD PVA – 5/30/08 Announcement Fogle #5-H (100% WI) Harrison County; South section IP ~ 8 MMcf/d 11,378 ft. TVD, 3,861 ft. lateral HK – 1H 08 Announcements Elm Grove Plantation #63 (100% WI) Bossier Parish; T-R: 16N-11W, sec 9 IP ~ 16.8 MMcf/d (26/64 choke) 11,005 ft. TVD, 3,880 ft. lateral Hutchinson 9-6 (91% WI) Caddo Parish; T-R: 15N-12W, sec 9 IP ~ 16.7 MMcf/d (22/64 choke) 11,222 ft. TVD COG – 11 Vertical wells Rusk County; Minden Field IP ~ 650-2,300 Mcf/d 11,596 ft. TVD Trawick: 3.3 MMcf/d test County Line test - 4Q 08

25. 25 Haynesville Shale Resource Summary

26. 26 Shale Development Issues Macro Environment/Credit Markets Matter Pipeline Infrastructure – Who builds the pipelines? Onshore Production Growth: □ Implications to overall gas price □ Implications to basis differential Growth Companies (i.e., deficit spenders) looking for partners/sell assets Location Matters – Shale plays have lots of good and bad acreage 26

27. 27 Emerging Shales Canada □ Utica (Eastern Canada) □ Montney-Doig – NE BC □ Horn River Basin – NE BC United States □ Haynesville □ Marcellus  Lots of other shales in Appalachia □ Utica (NY) □ Pearsall – S. TX □ Some shales in Rockies…but basis differential an issue 27

28. 28 Not All Shales Work Palo Duro Canyon □ Texas Panhandle New Albany Shale – Indiana □ Antrim look-alike…except no natural fractures West Texas Barnett □ Too early to stick a fork in….but results les than impressive Mississippi / Alabama Shales – still early but… □ Lots of wells with no positive well news 28

29. 29 2009 Free Cash Flow at Different Commodity Prices

30. 30 Gating Items - People - Revenge Of the Nerds! Horizontal Drilling □ Proper Azimuth □ Optimum Length Completion – Hydraulic Fracture…can’t boilerplate □ Multiple Stages, Simultaneous Fracturing □ Slickwater vs. Gelled Fracs □ Regionally Specific □ Surfactant, 100 mesh, proppant transport etc. Well Spacing - will drive ultimate recovery □ Depends on Completions and Reservoir □ Fracture Mapping with Micro-seismic helps Reservoir Modeling difficult □ Natural fracture spacing/orientation □ Isotherm, gas-in-place, free gas porosity “No one will really be free until nerd persecution ends.” Gilbert – Revenge of the Nerds

31. Change! Gas Market Implications Carbon Tax (er….Legislation) is Coming □ Natural Gas should benefit  Lower carbon than oil and coal □ Drilling  Wait and see □ Magnitude of Tax?  Skeptic says taxing fossil fuels last great gov’t revenue source □ Demand side management  Expect legislation to encourage lower consumption 31 "Oh, uh, there won't be any money, but when you die, on your deathbed, you will receive total consciousness." So I got that goin' for me, which is nice Caddyshack - Carl Spackler

32. 32 Conclusion Formula for success: “Rise early, work hard, strike oil.” J. Paul Getty Formula for success - 2008: “Rise early, work hard, buy acreage.” Formula for success - 2009: “Rise early, work hard, survive.” 32

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