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Industrial Products

SCORT ConferenceMonday, September 23, 2013Columbus, OH

Jim WilsonMarketing Director – Metals & Construction

Industrial Products

Who we are…

• One of Seven Class 1 Railroads in the United States• Employ ~31,000 People• Operations in 22 States + District of Columbia

– Primarily Eastern United States– 20,000+ miles of rail operations– 36,000+ miles of track

• Own or Lease 4,074 Locomotives and 86,290 Freight Cars

• $11.0B in Revenue (2012)• 7.1M Rail Shipments (includes Trailers & Containers)

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Industrial Products

What I’ll cover…

• Railroads Involvement in the Emerging Energy Market – Focus on Marcellus & Utica Shale

• Why Rail Makes Sense• NS’s Observations of the Shale Plays• What NS is Doing to Keep Pace

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Industrial Products

Shale Plays in the United States

Industrial Products

Marcellus/Utica Inputs – 2012

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State New Wells

Rail Cars Truck Equivalents

PA 1,264 54,352 217,408

OH 348 14,964 59,856

WV 339 14,577 58,308

Total 1,951 83,893 335,572

Shale Wells - Raw Material Opportunities

Commodity Units/Well Carloads Rail OpportunityFresh Water 5 million Gallons 167 0Brine Water 1 Million Gallons 33 0

Sand 3,500 Tons 35 35Drill Cuttings 1,100 Tons 11 1

Pipe 15,000 Feet 5 5Other (barites, crane mats, cement,

stone, fuel) N/A 8 2

Total N/A 259 43

43 Rail Cars per Well, but Increasing

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Utica Output Growth – Potential by 2017

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NGL Production YE 2012 ~ 57Mb/d

1.2% of U.S. ProductionBy YE 2017,

Production to Reach480 Mb/d

Source: Bentek

40% Ethane

60% Other NGL’s

288 Mb/d Production 150,000 Annual Carload Rail Equivalent

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The Railroads’ Involvement

• In 2012, 83,000+ Rail Shipments of Inbound Products– At 7% annual growth = 115,000+ Rail Shipments by 2017

• By 2017, Potential of 150,000 Rail Shipments of Outbound Products

• Overall, Potential of 265,000 Rail Shipments Annually by 2017– 1 Rail Car = 4 Truck Loads

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Industrial Products

Why Rail Is Important

• 1,000,000+ Trucks Off The Road– Alleviates Highway Congestion– Minimizes Wear & Tear on Highway Infrastructure– Reduces Carbon Emissions– Rail Infrastructure is Already Present for Traffic

Growth to Meet the Needs of the Country

• Shipments By Rail Safer Than Highway

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Railroad Investments Drives Safety

• From 1980 through 2012, US freight railroads reinvested $525 billion back into their networks- More than 40% of every revenue dollar

* Capital Spending + maintenance expenses on infrastructure and equipment** Total train accidents per million train-milesSource: AAR, FRA

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0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

1988 1991 1994 1997 2000 2003 2006 2009 2012

Truck

Railroad

HazMat Incidents By Year & Mode

Data Source: US Dept. of Transportation

Railroads now have 5% of the hazmat incidents that trucks have, despite roughly equal hazmat ton-mileage

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2

4

6

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All Private

Industry

Injuries and Illnesses Per 200,000 Employee Hours

RRs Mining

Barges

Farming

Construction

Manufacturing

GroceryStores

Trucking

Air Transportation

Source: BLS

Rail Industry Comparisons

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NS’s Observations

• Inbound: Supply Chain Evolution– Rail-to-Truck Transloading– Vertical & Horizontal Storage– Unit Train Operations

• Outbound: Still in Infancy– Fractionation Plants Being Constructed– Gathering Systems Still Being Built– Future will be Same as Inbound

• Supply Chain Evolution

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Industrial Products

NS’s Observations

• Utica Shale – Little to No Information– Well Results Reported Only Every April– 2012 Only Had 50+ Wells Reported

• Rig Counts No Longer Germaine– Multi-Well Pad Drilling– Improved Drilling Technology

• Focus on Cost Control

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Industrial Products

What NS is Doing

• Focused Sales & Marketing Efforts• Vigorous Industrial Development• Coordination with Outside Entities

– ORDC– Short Lines & Regional Railroads

• Continued Infrastructure Investment• Equipment Acquisition & Refurbishment• Route/System Optimization

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Thank You