1. Sequent Energy: Going To the Next Level
Douglas N. Schantz President, Sequent Energy Management

2. What We Promised for 2003 Deliver EBIT target of $15 MM
Projected 2003 EBIT of $23-25 MM
Land third party asset management deal
Executed four asset management/ peaking transactions
Develop new business systems and controls
Openlink Endur System has been selected
Build a deeper bench of key commercial and support personnel
Office move in mid-2003; IT depth and execution
Hired 20 experienced people over the year
2003 Analyst/Investor Conference

3. 2002/2003 Comparison 2002 2003 Volumes through Q3 (Bcf/day) 1.29 1.72
Full year EBIT (2003 projected) $
9.1M $
23-25 M
Number of counterparties, end of Q3 94
157
Number of employees, end of Q3 42 62

4. Focus Territory Detroit New York Chicago Atlanta Henry Hub Katy
2003 Analyst/Investor Conference

5. 2003 Price History
2003 Analyst/Investor Conference

6. Changes in Supply/Demand Balances
U.S. Gas Balances
2003 Injection Season
2003 Analyst/Investor Conference

7. Sequent’s Opportunity Lies in AN Uncertain Future
Source: National Petroleum Council September 2003 Report.
2003 Analyst/Investor Conference

8. Vanishing Industry Participants
Top Marketers in 2002
Top Marketers in 2003
Enron BP
Mirant
Reliant
Duke
Dynegy
Sempra
Aquila
El Paso
AEP
Coral
Axia (Koch)
Conoco
Texaco
Cook Inlet
PG&E
Williams
Dominion
Exxon Mobil BP
Mirant
Sempra
ConocoPhillips
Coral (Shell)
ChevronTexaco
Cinergy
Tenaska
El Paso
Nexen
Encana
Williams
Oneok
Reliant
Aquila
Anadarko
Entergy-Koch
Amerada Hess
Western Gas Resources
2003 Analyst/Investor Conference

9. Sequent Activities Producer Services Pipeline segmentation
Production Area
Storage
Market Area
Storage
End Use Customers
Producer Services
Pipeline segmentation
Locational arbitrage
Short- and Long-term
Time value arbitrage
Pipeline Segmentation
Locational arbitrage
Asset management
Delivered” commodity
Delivered Commodity
Peaking Services
Affiliated customer supply optimization
Asset optimization
Deal origination
2003 Analyst/Investor Conference

10. Top Ten Suppliers At September 30, 2003
Producer Services - Overview
Top Ten Suppliers At September 30, 2003
Supplier
Exxon/Mobil
Dominion
MMS
Devon BP BG
Amerada Hess
Occidental
Denbury Resources
Apache
Total Purchases
$137.8
Provide basic production area services to small- and large-cap producers
Wellhead aggregation
Imbalance management
Pipeline management
Structured pricing products
Extract sustainable margin as credit worthy buyer
2003 Analyst/Investor Conference

11. Production Area Storage - Overview
Currently leasing 2 Bcf of high-deliverability storage in Southern Louisiana
Interconnected with 8 pipelines
Full capacity can be withdrawn in 10 days
Allows Sequent to arbitrage numerous time spreads available in the market
Cash market vs prompt futures
Balance of month cash vs prompt futures
Prompt futures vs forward futures
Pipe to pipe basis arbitrage
Peaking sales
Distress buys
2003 Analyst/Investor Conference

12. How Sequent Makes Money From Storage
Louisiana
Parameters
Landry
Parish
Allen
Parish
Capacity: Bcf
Injection: ,000/d
Withdrawal: 200,000/d
Term: thru 10/31/04
Acadia Parish
Jefferson Davis
Parish
ANR
Tennessee
TETCO
Florida Gas
Texas Gas
Columbia Gulf
Trunkline
Conoco
Lafayette
Parish
Iberia
Parish
Vermilion
Parish
Arbitrage Types
Cameron Parish
Cash market vs. prompt futures
Balance of month cash vs. prompt futures
Prompt futures vs. forward futures
Pipe to pipe basis arbitrage
Peaking sales
Distress buys
Gulf of Mexico
Example: Cash market to prompt month arbitrage
Cash market = $4.00
Prompt month = $4.40
Sequent buys physical at $4.00 and injects
Sequent sell futures at $4.40
.40 spread
Injection & storage (.22) cost
.18 margin
2003 Analyst/Investor Conference

13. Transportation Management - Overview
Currently managing about 1 Bcf/day of firm transportation
Contained in asset management agreements
Short-term capacity releases from pipelines
Allows Sequent to arbitrage many locational spreads available in the market
Excess transport
Pipeline segmentation
Create value through our understanding of the arbitrage opportunities available on the gas pipeline grid
2003 Analyst/Investor Conference

14. Transportation Management - Segmentation
Understanding all capacity entitlements is a critical component to successful optimization efforts.
Zone 6
Pipeline
Transco
Path
South Texas
to New York
(Zone 1 to Zone 6)
Zone 5
Zone 4
Zone 3
Zone 2
Zone 1
2003 Analyst/Investor Conference

15. Delivered Commodity - Overview
Mid–marketing
Expanding standardized product offering to customer base
Trading
Active day and intra-day trading
Larger bid-offer spreads
Focus is on portfolio optimization, not speculation
2003 Analyst/Investor Conference

16. Market Demand for Sequent’s Products and Services
Municipal
Utilities
Large
Industrials
LDC’s
Power
Generators
Pipelines
Commodity
Sales X
Asset
Management
Contract
Restructuring
2003 Analyst/Investor Conference

17. Asset Management - Overview
Currently have asset management agreements in place with four non-affiliated utilities
Some agreements include managing the supply
Value is created by monetizing storage and transport assets
2003 Analyst/Investor Conference

18. Gas Assets Managed* Transport MDQ Dth/Day Storage MSQ, Dth
Cove Point , ,000
Sonat , ,200,000
ANR ,000 11,300,000
Columbia Gas 229, ,050,000
Columbia Gulf ,
Dominion 114, ,500,000
Transco ,000 11,670,000
Tennessee , ,900,000
East Tennessee 46,
*Does not include assets managed for industrials and municipal utilities or assets acquired for Sequent’s own account
2003 Analyst/Investor Conference

19. Asset Management – Load Duration Curve Example
Obligation
Serve all load on a firm basis
under any weather condition.
Opportunity
Monetize all upstream assets when
not required to serve LDC load.
2003 Analyst/Investor Conference

20. Peaking Sales - Overview
Currently serving two peaking agreements that provide delivered commodity options
Demand charges paid
Sequent uses excess storage and transport available from utilities to back the service
Value is created when better sourcing alternatives are utilized
2003 Analyst/Investor Conference

21. New Origination - Overview
Embarking on strategy to accumulate earnings accretive products and services
Asset management agreements
Contract purchases from exiting merchants
Peaking transactions
Structured commodity sales
Transactions are valued intrinsically; extrinsic optionality is an upside
Expect to close origination transactions per year
2003 Analyst/Investor Conference

22. New Origination - Intrinsic & Extrinsic Value Description
Definitions:
Intrinsic value is transportation and storage value that can be readily hedged in a forward market.
Extrinsic Value is the transportation and storage value that cannot be readily hedged in a forward market. Forward market conditions and cash market conditions dictate these opportunities.
Intrinsic
Extrinsic
Transportation
Management
excess transport
segmenting
option to strand transport and
purchase delivered supply
Storage
time spread
futures to futures arbitrage
cash to futures arbitrage
2003 Analyst/Investor Conference

23. Customer Relationships Credit Worthy Counterparty
Details Are Important to Our Customers and To Us
Operational
Expertise
Flexible Product
Offering
Customer Relationships
Credit Worthy Counterparty
Risk Processes
2003 Analyst/Investor Conference

24. Sequent Energy Management Counterparty Exposures by
S&P Equivalent Credit Rating
S&P Equivalent
Credit Rating
11/10/03 %
AAA
9.90 4%
AAA Group
AA+
3.90 2% AA
2.46 1%
AA-
17.97 7%
AA Group
24.33
10% A+
12.15 5% A
31.41
12% A-
39.69
16%
A Group
83.25
33%
BBB+
47.05
19%
BBB
67.75
26%
BBB-
15.56 6%
BBB Group
130.36
51%
BB+
0.96 0% BB
4.70
BB Group
5.66
CCC+
0.01
CCC Group
Total
253.51
100%
111 Counterparties with $ of exposure
Top 20 represent 61% of this exposure
Average portfolio credit rating is BBB
2003 Analyst/Investor Conference

25. Sequent Energy Management Counterparty Exposures by Industry Type
2003 Analyst/Investor Conference

26. Sequent Systems Initiative
Openlink ENDUR chosen for Sequent’s Energy Trading and Risk Management system after thorough evaluation process
Sapient engaged as project manager to assist Openlink in design and implementation
AGLR technology organization has been actively involved in this process
Extensive contractual provisions negotiated with both vendors (Openlink and Sapient)
Go live date scheduled for summer 2004
2003 Analyst/Investor Conference

27. Sequent Energy Management Risk Control
In order for Executive Management to effectively capture and monitor risks identified and quantitatively measured, a sound Risk Management framework is required.
Organization & People Well defined risk management organization structure
Methodologies Consistent and approved valuation and risk measurement methodologies
Limits & Controls Appropriate risk limits to communicate the Company’s
risk appetite
Reporting A comprehensive and consistent framework for
communicating risk taking activities across the
organization
Policies Comprehensive policies to communicate strategies,
approved activities, risk tolerances, and control
processes and procedures
Systems & Data integrated systems and consistent and reliable data are
the backbone of an effective risk management program
2003 Analyst/Investor Conference

28. Risk-Adjusted Performance Indicators
Value at Risk *
VaR: Maximum expected variation in the portfolio's value within a given degree of confidence, over a specific holding period.
VaR Details:
95% confidence interval
Sequent’s VaR model is based on weighted historical price changes
2003 Analyst/Investor Conference

29. Risk-Adjusted Performance Indicators
Wholesale Services - Sharpe Ratio
Summary of Results:
The Sharpe Ratio for Sequent Wholesale Services is 2.12 for the 2003 year-to-date period ending September 2003.
The decrease in the value is attributed primarily to lower profitability.
The decreasing trend of this ratio is expected to reverse as we move out of the shoulder/fall season and into the winter season when we usually see increased profitability.
The Sharpe Ratio is the difference between the return to an investment and a benchmark return, divided by the standard deviation of that difference.
Inputs to the Sharp Ratio:
Operating Income: Wholesale Services
Average Monthly Capital Deployed: Wholesale Services
90-Day Treasury Bill Rates
Sharpe Ratio - Benchmarks
Mutual Funds: Trading Systems
Sharpe > Sharpe > 0
Sharpe > 1 “Pretty Good” Sharpe > 2 “Very Good”
Sharpe >2 “Outstanding” Sharpe >3 “Outstanding”
2003 Analyst/Investor Conference

30. Risk-Adjusted Performance Indicators
Risk Adjusted Return On Capital (RAROC) - Wholesale Services
RAROC is a risk-adjusted performance measure. The metric measures the profitability of a firm based on economic capital.
Preliminary work on RAROC includes the following inputs & results:
Operating Income (Wholesale Services)
Market Risk (Average 10-day VaR x 4)
Credit Risk
Operational Risk (1/2 VaR x 4)
Results: 8-month average = 17.5%
References: Keers, Greg. “Risk Adjusted Capital Allocation For Energy Project Appraisal.”
Crouhy, Michel. Risk Management
Standard & Poor’s. “Debt Treatment of Contingent Capital for Energy Trading and Marketing.” 20 March 2003.
2003 Analyst/Investor Conference

31. Sequent Energy Management Net Assets and Dividend History
2003 Analyst/Investor Conference

32. Sequent Energy Management Working Capital and NYMEX Settled Prices
2003 Analyst/Investor Conference

33. 2004 Outlook Sequent will move to the next level
Significant increase in activity
Geographical diversity across the eastern half of the United States
Expand into additional service activities
Implement new end-to-end business system
Leverage the current Sequent infrastructure
Develop a higher sustainability of margins
Less driven by weather events
Origination activities will be a significant contributor
2003 Analyst/Investor Conference

34. Projected Gross Margin
2004 Plan
Projected Gross Margin
Contribution
Projected Volumetric
Share by Pipeline
2003 Analyst/Investor Conference