North American Natural Gas Markets July 27 th 2009 J. Cameron Bailey CFA President and Chief Executive Officer.

North American Natural Gas MarketsJuly 27th 2009

J. Cameron Bailey CFA

President and Chief Executive Officer

F

FEI:

TSX

July

27,

200

9

Historical Decline Rates

US Production Declining by 35% per annum

F

FEI:

TSX

July

27,

200

9

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Gas Directed Rigs

Horizontal Gas Rigs

US

Gas

Dir

ecte

d Ri

g Co

unt

Natural Gas Directed Rig Count

The drop in rig count will soon have a greater impact on production

We estimate up to a six month delay of

well drilling top producing a well.

Source: Baker Hughes

F

FEI:

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July

27,

200

9

US Production US Natural Gas Production - Declining

Source: Bentek 4/1

/09

4/5/0

9

4/9/0

9

4/13/0

9

4/17/0

9

4/21/0

9

4/25/0

9

4/29/0

9

5/3/0

9

5/7/0

9

5/11/0

9

5/15/0

9

5/19/0

9

5/23/0

9

5/27/0

9

5/31/0

9

6/4/0

9

6/8/0

9

6/12/0

9

6/16/0

9

6/20/0

9

6/24/0

9

6/28/0

9

7/2/0

9

7/6/0

9

7/10/0

9

7/14/0

9

7/18/0

9

7/22/0

9

7/26/0

955,000

55,500

56,000

56,500

57,000

57,500

58,000

Nat

ural

Gas

Pro

ducti

on m

mcf

/d

F

FEI:

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July

27,

200

9

8-Jan18-Ja

n28-Ja

n7-Fe

b

17-Feb

27-Feb9-M

ar

19-Mar

29-Mar8-A

pr

18-Apr

28-Apr

8-May

18-May

28-May

7-Jun

17-Jun

27-Jun

7-Jul

17-Jul

27-Jul

6-Aug

16-Aug

26-Aug

5-Sep

15-Sep

25-Sep5-O

ct

15-Oct

25-Oct4-N

ov

14-Nov

24-Nov

4-Dec

14-Dec

24-Dec

0

100

200

300

400

500

600

700

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Canadian Gas Drilling Rig Count

Acquire and Exploit

Lowest levels witnessed in 10 years

F

FEI:

TSX

July

27,

200

9

Jan-04

Apr-04

Jul-04

Oct-04

Jan-05

Apr-05

Jul-05

Oct-05

Jan-06

Apr-06

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

13.0

13.5

14.0

14.5

15.0

15.5

16.0

16.5

17.0

17.5

Cana

dian

Nat

ural

Gas

Pro

ducti

on (b

cf/d

) Canadian Gas Production - Declining

Acquire and Exploit

Canadian gas production is declining leaving less for exports to the US

F

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July

27,

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9

US Wellhead Prices vs US Natural Gas Rig Count

Acquire and Exploit

Jan-2000

May-2000

Sep-2000

Jan-2001

May-2001

Sep-2001

Jan-2002

May-2002

Sep-2002

Jan-2003

May-2003

Sep-2003

Jan-2004

May-2004

Sep-2004

Jan-2005

May-2005

Sep-2005

Jan-2006

May-2006

Sep-2006

Jan-2007

May-2007

Sep-2007

Jan-2008

May-2008

Sep-2008

Jan-2009

May-2009

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

Natural Gas Rig Count

Natural Gas Prices

F

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July

27,

200

9

The Growing US Supply Deficit

15-Nov-2

008

3-Dec-

2008

21-Dec-

2008

8-Jan-2009

26-Jan-2009

13-Feb-2009

3-Mar-

2009

21-Mar-

2009

8-Apr-2

009

26-Apr-2

009

14-May

-2009

1-Jun-2009

19-Jun-2009

7-Jul-2

009

25-Jul-2

009

12-Aug-2

009

30-Aug-2

009

17-Sep-2009

5-Oct-

2009

23-Oct-

2009

10-Nov-2

009

28-Nov-2

009

16-Dec-

2009

3-Jan-2010

21-Jan-2010

8-Feb-2010

26-Feb-2010

16-Mar-

2010

3-Apr-2

010

21-Apr-2

010

9-May

-2010

27-May

-2010

14-Jun-2010

35,000

40,000

45,000

50,000

55,000

60,000

65,000

Natural Declines

700 Rigs

1000 Rigs

1400 Rigs

Mm

cf/d

16.2 bcf/d

US Demand

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July

27,

200

9

Forecast Gas Storage Levels – 700 Rigs Operating

Acquire and Exploit

1-Jul-2

009

10-Jul-2

009

19-Jul-2

009

28-Jul-2

009

6-Aug-2009

15-Aug-2009

24-Aug-2009

2-Sep-2009

11-Sep-2009

20-Sep-2009

29-Sep-2009

8-Oct-

2009

17-Oct-

2009

26-Oct-

2009

4-Nov-2

009

13-Nov-2

009

22-Nov-2

009

1-Dec

-2009

10-Dec

-2009

19-Dec

-2009

28-Dec

-2009

6-Jan-2010

15-Jan-2010

24-Jan-2010

2-Feb-2010

11-Feb-2010

20-Feb-2010

1-Mar-

2010

10-Mar-

2010

19-Mar-

2010

28-Mar-

2010

6-Apr-2010

15-Apr-2010

24-Apr-2010

3-May

-2010

12-May

-2010

21-May

-2010

30-May

-2010 -

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

Wor

king

Gas

Sto

rage

Leve

ls (m

mcf

)

Forecast Gas Storage

Gas Storage - Five Year Average

2.7 TCF Storage

Not enough gas to fill storage

F

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July

27,

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9

Natural Gas - Investment Cycle

ConceptLand AcquisitionPermitsRig Count – Baker Hughes Rig CountCompletionsPipeline Construction & Tie-inProduction – Daily Estimates

Acquire and Exploit

Six MonthDelay?

F

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July

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200

9

Delayed Production Response – Natural Gas Drilling Activity in Texas

Acquire and Exploit

1-Jan-08

1-Feb-08

1-Mar-

08

1-Apr-0

8

1-May

-08

1-Jun-08

1-Jul-0

8

1-Aug-0

8

1-Sep-08

1-Oct-

08

1-Nov-0

8

1-Dec-

08

1-Jan-09

1-Feb-09

1-Mar-

09

1-Apr-0

9

1-May

-09

1-Jun-09

0

200

400

600

800

1000

1200

1400

Permits

Completions

Wel

l Acti

vity

New well permits are down 73% but there still remained an inventory of Barnett Shale wells to complete

F

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July

27,

200

9

Delayed Production Response – Natural Gas Drilling Activity in Barnett Shales

Acquire and Exploit

1-Jan-08

1-Feb-08

1-Mar-

08

1-Apr-0

8

1-May

-08

1-Jun-08

1-Jul-0

8

1-Aug-0

8

1-Sep-08

1-Oct-

08

1-Nov-0

8

1-Dec-

08

1-Jan-09

1-Feb-09

1-Mar-

09

1-Apr-0

9

1-May

-09

1-Jun-09

0

100

200

300

400

500

600

Completions

Permits

Wel

l Acti

vity

F

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July

27,

200

9

Shale Gas Plays – Texas Barnett Shale

• 10,539 Wells on Production since 2004• 21% of Texas production • 2008 Drilling Permits issued were 4,145

representing 75% of all drilling activity in Texas• Well permits have decreased 73% YOY• Texas Production represents 33% of US total

production.

Acquire and Exploit

F

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July

27,

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9

Texas - Natural Gas Production

Acquire and Exploit

1-Jan-08

1-Feb-08

1-Mar-

08

1-Apr-0

8

1-May

-08

1-Jun-08

1-Jul-0

8

1-Aug-0

8

1-Sep-08

1-Oct-

08

1-Nov-0

8

1-Dec-

08

1-Jan-09

1-Feb-09

1-Mar-

09

1-Apr-0

9

1-May

-09

1-Jun-09

16.0

17.0

18.0

19.0

20.0

21.0

22.0

Texa

s Dai

ly G

as P

rodu

ction

(bcf

/d)

F

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July

27,

200

9

0

20,000

40,000

60,000

80,000

100,000

120,000

2005

2006

2007

2008

2009

US D

eman

d m

mcf

/d

Total US Demand

More affected by weather than recession

Source: Bentek 2009

F

FEI:

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July

27,

200

9

14000

15000

16000

17000

18000

19000

20000

21000

20052006200720082009Poly-nomial (2009)Av-erage Poly-nomial (Aver-age )

MMCF/D

Recession and Demand? – Industrial Demand

Acquire and Exploit

Industrial demand is off 1.3 bcf/d which is 2.7% of total demand

F

FEI:

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July

27,

200

9

0

5000

10000

15000

20000

25000

30000

35000

40000

2005

2006

2007

2008

2009

Average

mm

cf/d

Recession and Demand? – Power Demand

Acquire and Exploit

The loss of Industrial demand has been more than made up by the increase in Power demand

F

FEI:

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July

27,

200

9

LNG and Canadian Imports

Acquire and Exploit

1/1/2

008

1/15/2

008

1/29/2

008

2/12/2

008

2/26/2

008

3/11/2

008

3/25/2

008

4/8/2

008

4/22/2

008

5/6/2

008

5/20/2

008

6/3/2

008

6/17/2

008

7/1/2

008

7/15/2

008

7/29/2

008

8/12/2

008

8/26/2

008

9/9/2

008

9/23/2

008

10/7/2

008

10/21/2

008

11/4/2

008

11/18/2

008

12/2/2

008

12/16/2

008

12/30/2

008

1/13/2

009

1/27/2

009

2/10/2

009

2/24/2

009

3/10/2

009

3/24/2

009

4/7/2

009

4/21/2

009

5/5/2

009

5/19/2

009

6/2/2

009

6/16/2

0090

2,000

4,000

6,000

8,000

10,000

12,000

Canadian ImportsLinear (Canadian Imports)LNG

mm

cf/d