Examining The Current Demand And Transport Capabilities For Taking Canadian Crude To The

US Gulf Coast, East Coast And West Coast

Brian Freed bfreed@inergyservices.com Direct – 832.519.2273

Agenda

•  Company Introduction •  Analyzing the current capabilities of transporting crude

to the US coast •  Specifying the effects increased transportation to the

US coast will have on the WTI-WCS differential to establish future prices for Western Canadian crude

•  Quantifying the different netback received for marketing Western Canadian crude on the US Coast vs. the Midwest

2

3

Inergy – Crestwood Merger

Crestwood and Inergy to merge forming a $7 billion midstream partnership

  Crestwood Midstream Partners (NYSE: CMLP), Crestwood Holdings LLC, Inergy, L.P. (NYSE:NRGY) and Inergy Midstream, L.P. (NYSE:NRGM) have executed definitive agreements to create a fully integrated midstream partnership with a total enterprise value of over $7 billion

-  Deal announced May 6th; general partner close completed June 2013; MLP merger expected early Q4 2013

-  Transaction approved by the Boards of Directors and committees of independent directors of NRGY, NRGM and CMLP; subject to CMLP unitholder vote; no financing contingencies

  Unified strategy focused on servicing the midstream infrastructure needs of the most prolific shale plays in North America

-  Marcellus Shale, Bakken Shale, Eagle Ford Shale, Permian Basin, PRB Niobrara Shale, Utica Shale, Barnett Shale, Fayetteville Shale, Granite Wash, Haynesville Shale and Monterey Shale

  Diverse midstream assets and services along the midstream value chain with visible long-term growth potential

-  Complementary blend of long-term fee-based contracted cash flows with high-growth shale assets and organic expansion opportunities

Combined, Crestwood and Inergy provide an integrated midstream service offering that links fundamental energy supply with fundamental energy demand

4

Premier Shale Player

Pro Forma Asset Summary

•  1,300+ mmcf/d natural gas transportation capacity

•  2,000+ mmcf/d gathering capacity

•  400+ mmcf/d processing capacity

•  1,000+ miles of pipeline

•  7 processing plants

•  80+ Bcf of current storage capacity

•  1,000 BPD crude oil rail loading capacity

•  275 tractors and 531 trailers

•  Significant North American NGL Logistics business

Operations in virtually every premier shale play in North America

Steuben Gas Storage

Seymour LPG Facility West Coast Midstream

NGL Transportation Offices

Rail Terminal Tres Palacios

COLT Hub

Thomas Corners Gas Storage

Watkins Glen NGL Storage Facility Bath NGL Storage Facility

South Jersey Terminal

Gathering and Processing Assets Greenfield Development Targets

`

Stagecoach Gas Storage Seneca Lake Gas Storage PRBIC Hub

Linking Supply to Demand

Expect significant commercial and operating synergy by linking Crestwood producer relationships and access to supply at the wellhead with Inergy demand-side services and relationships

Natural Gas NGLs Crude Oil

Supply Demand

5

6

NGL and Crude Oil Business Overview

“Tailgate to Burner Tip” Solutions

  Provide assured flow and optimal value for producers and refiners/processors in the rich shale plays such as the Marcellus, Utica, Eagle Ford, Bakken and other shale plays

  Lowers cost and ensures supply logistics for the evolving needs of refinery, pet-chem, industrial, and end-use retail markets

  Combination of facilities and transport assets along with supply and logistics expertise creates synergistic results for NGL platform

Service Offerings

  Storage and terminalling   Transportation – pipelines, transport and

rail car fleet   Supply and logistics marketing services   Natural gas and NGL fractionation and

processing

Watkins Glen NGL Storage Facility

Bath NGL Storage Facility

South Jersey Terminal

Seymour LPG Facility West Coast Midstream

NGL Transportation Offices Rail Terminal

Tres Palacios

COLT Hub and PRBIC (a)

States with NGL supply and logistics operations

States with storage or terminal assets

__________________ (a)  Acquisition of 50% interest in PRBIC closed August 30 20123

7

COLT Terminal (Epping, ND)

BNSF RAILWAY

Truck Station

Tank Farm

Rail Loading

Pipeline to Ramberg/Beaver

Lodge

Scope of Facilities: - (8) truck bays - (5) 120 MB tanks @ Hub - (2) 8,700 ft unit-train loops - 21 miles of 10” pipe w/ 120 MB tank @ Ramberg/Beaver Lodge -Pipeline connection with Hiland, Summit, Enbridge & Tesoro

Gathering Pipeline

Connections

COLT Pictures

8

COLT - November to April

9

•  Rail – 120,000 bpd to 160,000 bpd –  Expanding from 14 to 20 loading arms –  Increasing pumps –  Adding 2 additional storage tracks (4 trains total)

•  Tanks – 600,000 bbls working capacity to 1,080,000 bbls –  Adding 2 x 240,000 bbl tanks (1 fungible)

  Truck Racks – 64,000 bpd to 96,000 bpd –  Adding 4 additional truck racks

 Hiland Expansion – 32,000 bpd to 60,000+ bpd –  Looping the line for additional capacity and bi-directional service

 Meadowlark (Summit/Bear Tracker) – 40,000 bpd+ –  Completing connection at COLT

  Crude Trucking Services – available as needed ~5,000 bpd 10

COLT Terminal 2013 Expansions

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U.S. Coking Capacity by PADD

Capacity (Bbls per stream day) % of Capacity

PADD I 81,500 2.8%

PADD II 569,776 19.3%

PADD III 1,650,280 55.8%

PADD IV 75,600 2.6%

PADD V 579,500 19.6%

Total 2,956,656 Source: EIA (Delayed and Flex Coking capacity)

11

U.S. Coking Capacity by State

Source: EIA (Delayed and Flex Coking capacity)

0

100

200

300

400

500

600

700

800

900

1,000 A

laba

ma

Cal

iforn

ia

Del

awar

e

Illin

ois

Indi

ana

Kan

sas

Loui

sian

a

Mic

higa

n

Min

neso

ta

Mis

siss

ippi

Mon

tana

New

Je

rsey

Ohi

o

Okl

ahom

a Texa

s

Uta

h

Was

hing

ton

Wyo

min

g

32

496

55

211

102

64

600

30 67

105

47

27 58

38

913

9

83

20

Cap

acit

y (T

hous

and

bpd)

12

U.S. Coking Capacity by Company

Source: EIA (Delayed and Flex Coking capacity)

Capacity (Bbls per stream day) % of Capacity ACCESS INDUSTRIES   97,500   3.3%  BP HUSKY REFINING LLC   35,000   1.2%  BP PLC   260,100   8.8%  CHALMETTE REFINING LLC   30,000   1.0%  CHEVRON CORP   184,600   6.2%  CHS INC   35,100   1.2%  CVR ENERGY   25,000   0.8%  DEER PARK REFINING LTD PTNRSHP   89,000   3.0%  DELEK GROUP LTD   6,500   0.2%  EXXON MOBIL CORP   390,300   13.2%  HOLLYFRONTIER CORP   30,000   1.0%  HUNT CONSLD INC   32,000   1.1%  HUSKY ENERGY INC   23,000   0.8%  KOCH INDUSTRIES INC   81,000   2.7%  MARATHON PETROLEUM CORP   145,500   4.9%  MOTIVA ENTERPRISES LLC   235,000   7.9%  PBF ENERGY CO LLC   81,500   2.8%  PDV AMERICA INC   194,900   6.6%  PHILLIPS 66 COMPANY   317,376   10.7%  ROYAL DUTCH/SHELL GROUP   72,800   2.5%  SINCLAIR OIL CORP   20,000   0.7%  TESORO CORP   95,000   3.2%  TOTAL SA   52,600   1.8%  VALERO ENERGY CORP   311,500   10.5%  WRB REFINING LP   111,380   3.8%  TOTAL   2,956,656   100.0%  

13

U.S. Refinery Crude Oil Inputs

12

12.5

13

13.5

14

14.5

15

15.5

16

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Refinery Input - Yearly Average (MMBOD)

Source: EIA

•  Refinery inputs have nearly returned to pre-2008 global economic meltdown levels   2013 average (Jan – Aug) of 15.16 million barrels per day

14

U.S. Crude Oil Imports

Source: EIA

9.2

8.2

9.2 8.6

9.0 9.2 9.3 8.9 8.9 8.9 8.7 8.7

8.3 8.3 8.7 8.6 8.7 8.9

8.5 8.5 8.3 8.0 8.1

7.5 7.9

7.2 7.4 7.7 7.7 7.7

0  

1  

2  

3  

4  

5  

6  

7  

8  

9  

10  

Jan-­‐11

 

Feb-­‐11

 

Mar-­‐11  

Apr-­‐11  

May-­‐11  

Jun-­‐11

 

Jul-­‐1

1  

Aug-­‐11  

Sep-­‐11  

Oct-­‐11  

Nov-­‐11  

Dec-­‐11  

Jan-­‐12

 

Feb-­‐12

 

Mar-­‐12  

Apr-­‐12  

May-­‐12  

Jun-­‐12

 

Jul-­‐1

2  

Aug-­‐12  

Sep-­‐12  

Oct-­‐12  

Nov-­‐12  

Dec-­‐12  

Jan-­‐13

 

Feb-­‐13

 

Mar-­‐13  

Apr-­‐13  

May-­‐13  

Jun-­‐13

 

U.S.  C

rude

 Oil  Im

ports  (M

MBO

D)  

10-­‐20   20-­‐30   30-­‐40   40-­‐50   50-­‐60   60+   Total  Imports  

•  U.S. crude oil imports have declined nearly 1.3 million barrels per day or 14.5% since 2011

 40+ API imports have declined by nearly 310,000 bpd (60%) to about 210,000 bpd

 30 – 40 API imports are down 800,000 bpd, averaging 2,980,000 bpd in 2013

15

2013 U.S. Crude Oil Imports

Source: EIA

•  U.S. crude oil imports have averaged nearly 7.62 million barrels per day in 2013

 PADD III (Gulf Coast) accounts for nearly 50% of total U.S. imports

0.84;  11%  

1.81;  24%  

3.65;  48%  

0.29;  4%   1.03;  13%  

PADD  I   PADD  II   PADD  III   PADD  IV   PADD  V  

U.S. Crude Imports by PADD January – June 2013 Daily Average (MMBOD, % of Total Imports)

0.86;  24%  

1.27;  35%  

1.48;  40%  

0.04;  1%  

10-­‐20   20-­‐30   30-­‐40   40-­‐50  

PADD III Crude Imports by API January – June 2013 Daily Average (MMBOD, % of Total Imports)

16

Heavy Crude (<30 API) Imports

Source: EIA

•  U.S. heavy crude oil imports have remained fairly flat since 2011

 2013 average of nearly 4.5 million barrels per day

 20 – 30 API crude accounts for about 75%

0  

1  

2  

3  

4  

5  

6  

Jan-­‐11

 

Feb-­‐11

 

Mar-­‐11  

Apr-­‐11  

May-­‐11  

Jun-­‐11

 

Jul-­‐1

1  

Aug-­‐11  

Sep-­‐11  

Oct-­‐11  

Nov-­‐11  

Dec-­‐11  

Jan-­‐12

 

Feb-­‐12

 

Mar-­‐12  

Apr-­‐12  

May-­‐12  

Jun-­‐12

 

Jul-­‐1

2  

Aug-­‐12  

Sep-­‐12  

Oct-­‐12  

Nov-­‐12  

Dec-­‐12  

Jan-­‐13

 

Feb-­‐13

 

Mar-­‐13  

Apr-­‐13  

May-­‐13  

Jun-­‐13

 

Heavy  Crude

 Impo

rts  (M

MBO

D)  

10-­‐20   20-­‐30  

17

Heavy Crude (<30 API) Imports by PADD

Source: EIA

•  PADD I & V account for 16% of heavy imports – nearly 0.7 million barrels per day

0.15  0.13   0.13  

0.36  0.38   0.38  

0.00  

0.05  

0.10  

0.15  

0.20  

0.25  

0.30  

0.35  

0.40  

0.45  

2011   2012   2013   2011   2012   2013  

MMBO

D  

10-­‐20  API   20-­‐30  API  

PADD V Heavy Crude Imports 2011 – 2013 (Jan – June) Daily Average

(MMBOD)

0.04   0.05   0.04  

0.16  0.14   0.14  

0.00  

0.02  

0.04  

0.06  

0.08  

0.10  

0.12  

0.14  

0.16  

0.18  

2011   2012   2013   2011   2012   2013  

MMBO

D  

10-­‐20  API   20-­‐30  API  

PADD I Heavy Crude Imports 2011 – 2013 (Jan – June) Daily Average

(MMBOD)

18

Crude Oil Pipeline Network

Source: CAPP

Portland

Montréal

Québec City Saint John

Sarnia

Cushing

St. Paul

Salt Lake City

Houston Freeport

New Orleans St. James

Seaway Reversal & Twin Line

Crane

El Paso

Edmonton

Burnaby Anacortes

Kinder Morgan TM Expansion (TMX)

Pony Express TransCanada Keystone

Alberta Clipper Expansion

Trans Mountain

Enbridge

Mid

Hardisty

Centurion Pipeline

Magellan Houston to El Paso (former Longhorn)

- partial conversion

Shell Ho-Ho

Express

Guernsey

Platte

Spearhead South Flanagan South

Spearhead North Expansion

Clearbrook Superior

Wood River

ExxonMobil Pegasus

Capline Enb/Energy Transfer Eastern Gulf Crude Access

Bakken Expansion

Cromer

TransCanada Keystone XL

Kitimat Enbridge Gateway

ang

ago

Lima Must

Patoka

TransCanada Gulf Coast

Enbridge Line 9 Reversal

Southern Access Expansion TransCanada Energy East

Flanagan Chic

Port Arthur

19

North American Rail Network

20

CN Rail Network

Source: CAPP

21

Crude By Rail Investment

22

March 25, 2013 Ramond James chart

Western Canadian Rail Terminals

Source: CAPP, RBN, Company News Releases

Lloydminster

Unity Hardisty

Tilley

Bromhead

Regina

Athabasca Deposit

Fort McMurray

Peace River Deposit

Cold Lake

Deposit

Cromer Woodnorth

Wilmar NorthgateBakken-Three Forks

Estevan Stoughton

Dollard Shaunavon

Potential

Unit Train

Existing Manifest Train

Torquay Lower

Shaunavon

Oil sands Deposits and Oil Plays

Bakken

Whitecourt Cardium

Edmonton

Cheecham

Existing & Proposed

RBN Energy estimates that by 2015 rail terminal capacity to load heavy bitumen “dilbit” crude in Western Canada will be about 800 Mb/d. Unload terminals hoping to receive that

crude on the Gulf Coast will have about 1 MMb/d capacity by 2015.

23

Shipping Raw Bitumen by Rail

24 Source: RBN Energy

•  Fantastic Pricing analysis done by RBN energy (http://www.rbnenergy.com/how-rail-beats-pipeline-transport-for-heavy-crude-from-alberta-to-the-gulf)

•  $88/Bbl (assumes $4/Bbl to a recent price for Mexican Maya crude) •  Rail costs include loading, unloading, freight, tank car leasing •  Raw bitumen can not be shipped on a pipeline, so there is no pipeline alternative,

but cost in future slides will compare barrel for barrel of bitumen

Shipping Dilbit by Rail or Pipeline

25 Source: RBN Energy

•  Assumes 28% diluent to make pipeline quality dilbit (so 1.28 bbls of shipping cost) •  Dilbit price assumes $84 Cushing WCS price - $4 pipeline tariff to USGC •  Diluent assumes $102/Bbl (recent price for natural gasoline at Edmonton, Alberta) a cost of

$28.56 but only netting back $22.4/Bbl because it is sold at the Gulf as 0.28 Bbl of dilbit •  Pipeline cost from Hardisty Alberta to the Gulf Coast including terminal and gathering fees.

That cost is estimated at $18.50/Bbl, but because the producer must also ship 0.28 Bbl of diluent for every bitumen Bbl, the true pipeline cost goes up by 28 percent to $23.68/Bbl

Shipping Railbit

26 Source: RBN Energy

•  Assumes 17% diluent to make railbit (so 1.17 bbls of shipping cost), which can move by rail in coiled & insulated cars, but not via pipeline

•  Diluent price is the same as before ($102/Bbl) but the railbit price at the USGC is estimated at $84/Bbl – midway between the raw bitumen price and the dilbit price

•  Because there is less diluent carried with railbit and the railbit price is higher than dilbit, the realized producer price at the Gulf for the bitumen equivalent railbit Bbl is about $7/Bbl higher than the dilbit price from the previous slide

Netback Conclusions

27 Source: RBN Energy

•  Crude sales price excludes diluent – so true crude oil netback •  Best pricing is shipping raw bitumen •  Unit trains of less diluted railbit is the next best pricing option •  Pipeline spec dilbit is most ecomomicaly schipped via pipeline •  Further facilities need to be developed and tank cars delivered handle the

expanding crude by rail opportunities

Projected Rail Transport Costs Differences

Hardisty, AB

Hardisty to Pacific Northwest Results in approx. $3.50/bbl Rail cost savings

CN to CN locations from Hardisty to USGC result in Approx. $1/bbl rail savings

Baseline Rail Costs from last slides were to non-CN served Gulf Coast Markets

No Material Pricing differences

WTI – WCS Pricing

($60)  

($40)  

($20)  

$0    

$20    

$40    

$60    

$80    

$100    

$120    

$140    

$160    

WCS  Dif  to  WTI   Light  Crude  Oil  Futures  (Front  Month)  [USD/BBL]   Argus  Monthly  Average  Price  -­‐  WCS  

30

Heavy Crude (<30 API) Imports by PADD

Source: EIA

•  PADD III accounts for nearly 50% of all U.S. heavy imports

 PADD III heavy imports have declined as new U.S. supply has come on-line

0.18;  4%  

1.36;  31%  

2.13;  48%  

0.23;  5%   0.51;  12%  

PADD  I   PADD  II   PADD  III   PADD  IV   PADD  V  

U.S. Heavy Crude Imports by PADD January – June 2013 Daily Average

(MMBOD, % of Total Imports)

0.98   0.97  0.86  

1.54  1.40  

1.27  

0.00  

0.20  

0.40  

0.60  

0.80  

1.00  

1.20  

1.40  

1.60  

1.80  

2011   2012   2013   2011   2012   2013  

10-­‐20  API   20-­‐30  API  

PADD III Heavy Crude Imports 2011 – 2013 (Jan – June) Daily Average

(MMBOD)