Natural gas: can it be a game-changer?Wednesday, April 28, 2010; 2:30 – 3:45 PM

Moderator:Tim Shanahan, Director, Energy & Minerals Initiative, The University of Western Australia

Speakers:Bill Albrecht President Occidental Oil and Gas Corporation USABill Albrecht, President, Occidental Oil and Gas Corporation, USA

Bill Koetzle, Manager, Legislative, Regulatory and Political Affairs, Chevron Corp.Timothy Murray, Managing Director, Guggenheim

Peter Gunnerman, Partner & Director, Advanced Refining Concepts

Natural gasCan it be a game changer?

Natural Gas: Fuel of the future. (March 29, 2010)

U.S. Natural Gas Reserves May Have Doubled, Secretary Chu Says. (April 06, 2010)

[Source: CNN Money, Bloomberg Business Week.]

Historical oil prices, 40 yearsNominal and inflation adjusted prices

Real Price

Source: U.S. Energy Information Administration, Short Term Energy Outlook, April 2010

Nominal Price

IEA’s 2008 mid-term report

Source: IEA

Oil reserves concentrate in politically unstable regions

Total proved reserves (2008): 1.26 trillion barrels

Latin America10%

North America6%

Asia Pacific3% Others

1%

Sources: BP Amocos, Milken Institute.

Middle East60%Former Soviet

Union10%

Africa10%

How Americans demand energy

Sources: U.S. Energy Information Administration

Alternative energy accounts for 7% of energy used in the U.S.

Solar1%Petroleum Nuclear power

2008

Biomass53%

Geothermal5%

Renewable energy

7%

37%Nuclear power

9%

Hydro34%

Wind7%

Coal24%

Natural gas

23%Source: Energy Information Administration.

How Americans use Petroleum and Natural Gas

Sources: U.S. Energy Information Administration

Natural GasCleanest of the major fossil fuels

The Pickens plan, circa 1938

Divert compressed natural gas from power plants to vehicles.

Source: Fortune Magazine, 1938.

Uncertainty has led to a collapse of carbon prices in the US…

CCX Carbon Financial Instruments (CFI) Daily Reports

Today$0.10

Source: Chicago Climate Exchange

…though prices have held steadier in a more policy-certain Europe

European Public Policies support a meaningfulsupport a meaningful carbon market. [Avg €13.30 in 2010]

Source: European Climate Exchange

Cap and trade worked for acid rain, but looksdoubtful for carbon Anticipating “Business as usual”

Source: World Resources Institute

World consumption of natural gasNon-OECD countries will lead consumption

Historical and projected natural gas consumption from 1980 to 2030

80

100

120

140

160

180OECD Non-OECD TotalTrillion cubic feet

Historical Projected

0

20

40

60

80

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 2025 2028Source: Energy Information Administration

Worldwide natural gas reservesPotential Reserves Including Shale Gas

(TCFE)Proven Reserves

(TCFE)

Europe2%

United States3%

Central & South America

7%

Mexico1%

Canada2%Asia

6%Africa

9%Central & South

America6%

Europe2%

United States11%

Mexico1%

Canada1%

Africa8%

Asia5%

(TCFE)(TCFE)

Eurasia19%

Middle East51%

Middle East48%

Eurasia18%

At the 2009 U.S. production rate, about 20 TCF per year, U.S. natural gas resource estimates could supply U.S. demand for 85 years

U.S. energy production by fuel30

Historical Forecast

15

20

25

Renewable

Petroleum

Natural GasCoal

Qua

drill

ion

BTU

CoalNatural Gas

Petroleum

Renewable

0

5

10

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Hydro

Nuclear

Source: EIA

Nuclear

Hydro

Natural Gas End Use120

U.S. Energy Consumption

Natural Gas End Use

Oil

NuclearHydro

Renewable

60

80

100

Qua

drill

ion

BTU

Electrical31%

Industrial31%

Other1%

Source: EIA

Coal

Natural Gas

0

20

40

1949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004

Q

Commercial15%

Residential23%

Ratio of Crude Oil Prices to Natural Gas PricesEnergy Equivalent Basis

Natural Gas is Cheap

4

5

6

7

0

1

2

3

Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Source: Bloomberg

Resource Area

Reserve Potential (TCF)

What Is a Tcf?U.S. Shale Basins

U.S. natural gas supply

l (TCF)

Marcellus 262

Haynesville 251

Barnett 44

Fayetteville 42

Antrim 20

N

A Tcf (one billion Mcf) is enough natural gas to:

Heat 15 million homes for one year

Generate 100 billion kilowatt-hours of electricity

New Albany 19

Woodford 11

Non-Shale 1,051

Total U.S. 1,700

Fuel 12 million natural gas fired vehicles for one year

Source: EIA estimates, Ground Water Protection Council, ALL Consulting

Highlights

Natural gas - alternate sources of methane

• Sources: Landfills, Wastewater Treatment Facilities, Industrial, Agricultural •Lower capital investment projects. Possibility ofprivate – public partnerships. • Immediate reduction in highly active GHG emission(CH4 @ 20 X of CO2)• Related technology investments opportunitiesi f d d filt ti din areas of advanced gas filtration, gas recovery and heat recovery technologies.•Local and regional impact

The United States currently has about 509 operational LFG energy projects. The LFG electricity generation projects have a capacity of 1,563 megawatts (MW)

By TrajectoryBy Natural Gas BasinShale Basins in Red

U.S. rig count

Shale Basins in Red

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

(68%)

49%

S. Texas16%

E. Texas10%

Appalachian12%

Permian3%

SW Wy3%

Offshore3%

Other6%

Source: Baker Hughes, as of April 2010

0

200

400

600

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10

Directional Horizontal Vertical

Anadarko11%

Ft. Worth8%Arkoma

8%

Uinta-Piceance4%

La-Miss Salt Basins15%

U.S. producers heavily focused on shale basins

$11.40 $11.61

$13.45

$12.00

$14.00

Average Well Two Year N t l

Natural gas basin breakeven analysis

$3.31$3.65

$4.48$4.10 $4.16 $4.44 $4.38 $4.32 $4.42

$4.76$5.13

$5.59 $5.72 $5.83$6.39

$6.97 $6.80

$8.07

$5.48$5.87

$6.37 $6.44$6.85 $6.86 $7.01 $7.14 $7.30

$7.94$8.45

$9.15$9.65 $9.75

$10.45

$2 00

$4.00

$6.00

$8.00

$10.00Marginal Well Natural

Gas Strip:

$5.27 as of April

14, 2010

$0.00

$2.00

Pineda

le

E. Tex

as Free

stone

Appala

chia

CBMFaye

ttevil

le

Haynesv

ille (7

.5mm/d

ay IP

)Jam

es Lim

e

Marcellu

s Hori

zonta

lCore

Barnett

Barnett

Tier 1

Barnett

Tier 2

Woo

dford

CoreCart

hage

Field

Wolf

camp (

Permian

)

Woo

dford

Fringe

Picean

ceGulf

Coa

stNE BC Sh

ale

Gulf of

Mexi

co Sh

elf

Source: Tudor Pickering Holt

U.S. fuel consumption by sourceU.S. consumption of alternative fuels

U.S. transportation fuels

Milli

on G

asol

ine

quiv

alen

t Gal

lons

200

300

400

500

600

700

800

900

1,000

Diesel23.9%

Alternative Fuels0.5%

M Eq

0

100

200

2003 2004 2005 2006 2007

CNG Electricity Ethanol (E85) Hydrogen LNG LPG Biodiesel

Gasoline75.6%

CNG and LNG are a growing part of U.S. alternative fuel consumption although total U.S. alternative fuel consumption is still a very small piece of the pie Source: EIA

• Are upstream-focused small businesses, averaging fewer than 20 employees• Drill 90% of US oil and gas wells

Independent oil and gas producers

Drill 90% of US oil and gas wells• Produce 80% of US natural gas and 65% of US crude oil• Hold 90% of the leases in the Gulf of Mexico• Prior to credit crunch, invested 150% of cash flow back into US oil and gas

development• Will bear the brunt of proposed Obama Administration budget proposals

• Repeal the (1913) law for expensing of Intangible Drilling Cost (IDC) will reduce domestic drilling by 20-40%• Repeal of Percentage Depletion (1926) law will jeopardize marginal well production – 20% of US oil and 12% of US gas• Repeal of passive loss exclusion will penalize independents who raise capital through partnerships with other independents