Natural Gas & LNG Fundamentals

Greg KistVice President, Marketing, Corporate & Government Relations

2

• Hedge up to 50% of production – currently focused on protecting AECO basis differentials

• Prefer downside protection through put options

• Diversify sales portfolio

• Take advantage of abundant takeaway capacity in operating region

• Develop pipeline strategy to get Montney gas to westcoast LNG facility

• Develop an LNG Export facility through JV with PETRONAS

Marketing & Risk Management Strategy

3

• Immediate environmental benefits

• Natural gas to play vital role in reducing overall emissions and

underpinning renewable energy

• New technology has allowed industry to access “hard-to-get-at” resources

• Significant demand growth potential in North America and globally

• New sources of demand emerging – transportation fuel

• Reason for optimism – IEA “Golden Age of Gas”

Future for Natural Gas

4

US Demand Growth

40

50

60

70

80

90

100

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec

Bcf/d

2007 2008 2009 2010 2011

Annualized Growth of 3% Y/Y

5

US Supply Growth

40

45

50

55

60

65

70

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec

Bcf/d

2007 2008 2009 2010 2011

6

• Slow economic growth in the US limits industrial demand

• Lower 48 gas development has led to supply growth outpacing demand

• Producer share prices driven by ability to grow and less on earnings

• North American prices are depressed relative to European and Asian.

Short Term Pricing Challenges

7

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

Jan-09

Mar-09

May-09

Jul-0

9

Sep

-09

Nov-09

Jan-10

Mar-10

May-10

Jul-1

0

Sep

-10

Nov-10

Jan-11

Mar-11

May-11

Jul-1

1

Sep

-11

Station #2 AECO Daily

Western Canadian Market

8

Canadian LNGNet benefit is enormous

• Alleviates supply demand imbalance – Compliments gas exports to the US

• Provides diversification benefits for producers and consumers

– Canadian producers diversify from single market, Asian consumers

reduce dependence on Middle East supply

• Job creation

– Upstream, downstream and construction

• Ensures investment in NEBC for 20+ years – 1 Bcf per day facility requires over 9 Tcf of gas

• Strong government support

– Building royalty and tax base for western provinces

9

Arbitrage too large to ignore

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011YTD

Average Price ($/MMBtu)

Japan Canada

Global LNG Market is Tightening

(mmtpa)

- Global LNG Supply/Demand

Potential to be 150 mmtpashort or ~20 bcf/d

10

Short-term : Post Fukushima has created 10-12 mtpa of incremental LNG demand

Mid to Long-term : Uncertain as Japan continues to debate post-Fukushima nuclear policy

Short-term : Post Fukushima has created 10-12 mtpa of incremental LNG demand

Mid to Long-term : Uncertain as Japan continues to debate post-Fukushima nuclear policy

mmtpa

-*

East Asia is Short LNG

Pacific LNG BalancePotential to be 80 mmtpa

short or ~10 bcf/d

11

Shifting the Fuel Mix in Japan

Japan LNG Imports

6,000

8,000

10,000

12,000

14,000

2000 2005 2010 2015 2020 2025 2030

Post-Fukushima

-Pre-Fukushima

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• Primary concern is balancing

peak power demand

• Upside for gas into power is

partly offset by rediverted gas

from industry

• Energy policy is being

reshaped with a likely

emphasis on energy efficiency

and renewables

Pre-Fukushima

MMcf/d

Post-Fukushima

Pacific Basin LNG Demand is Robust

-0

-50

-100

-150

-200

-250

-300

-2009 -2011 -2013 -2015 -2017 -2019 -2021 -2023 -2025

(mmtpa)-“Other” comprises Bahrain, Bangladesh, Indonesia, New

Zealand, Pakistan, Peninsular Malaysia, Vietnam, the Philippines,

Singapore and South Africa

-“Other” comprises Bahrain, Bangladesh, Indonesia, New

Zealand, Pakistan, Peninsular Malaysia, Vietnam, the Philippines,

Singapore and South Africa

-“JKT” drops from 86% of Basin demand in 2009 to 52%

in 2025

-China increases from 5% to 19% over the same period

-“JKT” drops from 86% of Basin demand in 2009 to 52%

in 2025

-China increases from 5% to 19% over the same period

JAPAN 2.0% CAGR

Pacific Basin LNG Demand by Country

JKT remains key, but China is the growth story, at least in this decadeJKT remains key, but China is the growth story, at least in this decade13

SOUTH KOREA 2.8% CAGR

TAIWAN 2.0% CAGR

INDIA 9.5% CAGR

CHINA 14.3% CAGR

OTHER

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• 80% PETRONAS – 20% Progress with PETRONAS operating

• Progress is one of few with equity interest in a LNG project

• Partnered with a leader in LNG development, shipping and marketing

• PETRONAS is involved in the full LNG value chain

• Major supplier to Japan, Korea and Taiwan

• Supplier/offtake relationships since 1983

• Developing new markets in China

LNG Export Joint Venture

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• One of the largest production facilities in a single location with 23.3 mmtpa

(3 bcf/d) at Bintulu, Malaysia

• Largest LNG ship operator with 29 ships

• Currently developing three LNG projects

• Egypt LNG

• Dragon LNG

• Gladstone LNG

• Reputable and reliable LNG supplier

PETRONAS – an LNG Major

16

• Detailed Feasibility Study (DFS) for technical phase launched

- Awarded to KBR of Houston

- 9-month DFS phase

- Includes site selection

- Initial design for 2 trains each capable of 3.7 mmtpa or

0.5 bcf/d each

• DFS for Permitting & Regulatory phase and Market Assessment expected to be

awarded mid-November

LNG Export Joint Venture

DFS Phase sets Foundation for LNG

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Feasibility Phase

DFS

Feasibility Phase

DFSDFS

Execution PhaseDevelopment Phase

-PreFEED--PreFEEDPreFEED -FEED--FEEDFEED

OBJECTIVES

Feasibility Study Phase aims to

ascertain technical feasibility and

commercial viability of the proposed

LNG export facility by

1.Identifying potential site for LNG

project

2.Developing a basis of design to be

taken as an input to Pre-FEED

3.Identifying and preliminarily planning

stakeholder (govt, First Nations. etc)

engagement

4.Identifying marketing strategy, target

market (buyers) and pricing

5.Assessing economic potential of the

project

OBJECTIVESOBJECTIVES

Feasibility Study Phase aims to

ascertain technical feasibility and

commercial viability of the proposed

LNG export facility by

1.Identifying potential site for LNG

project

2.Developing a basis of design to be

taken as an input to Pre-FEED

3.Identifying and preliminarily planning

stakeholder (govt, First Nations. etc)

engagement

4.Identifying marketing strategy, target

market (buyers) and pricing

5.Assessing economic potential of the

project

Key Activities 2011 2012 2013 2014

Month A S O N D J F M A M J J A S O N D J F M A M J J A S O N D Q1 Q2 Q3 Q4

DFS

(Technical)

DFS

(Commercial)

Regulatory &

Permitting

Milestones

Pre-FEED

& FEED

Upstream

-Site

Selection-LNG Plant Dev.

-Technical Review-Contracting Process

-Contracted Works

-Internal Activities

-Permitting

Roadmap

-Consultant

-Pre-screening

-Market Study

-Commercial Review

-Tax Study

-Economic Evaluation

-Permitting Activities-Identify

Stakeholders -Biophysical Eff.

-Initial

Engagement

-DFS Report Completion

-& Stage Gate

-ExComm

-Meeting 1

-ExComm

-Meeting 2

-ExComm

-Meeting 3

-ExComm

-Meeting 4

-Pre-FEED

-FEED

-Stage Gate

-FID

-RESERVE CERTIFICATIONS

Q3 2014 to end 2018September 2012 to July 2013 to Q3 2014-Sept 2011 to end August 2012

Market & Pricing

• Domestic gas market and pricing

• Export market (LNG) and pricing

• Preliminary marketing strategy

Finance & Valuation

• Financing options, tax

• Project economics valuation

Market & Pricing

• Domestic gas market and pricing

• Export market (LNG) and pricing

• Preliminary marketing strategy

Finance & Valuation

• Financing options, tax

• Project economics valuation

DFS Deliverables

TECHNICAL REGULATORY & PERMITTING

Environmental & Stakeholder

• To identify environmental permitting requirements, key milestones and processes

• To identify and develop stakeholder (first nations, government agencies) engagement plans

Legal & Regulatory

• Roadmap to securing export license from NEB and other regulatory requirements for business

Environmental & Stakeholder

• To identify environmental permitting requirements, key milestones and processes

• To identify and develop stakeholder (first nations, government agencies) engagement plans

Legal & Regulatory

• Roadmap to securing export license from NEB and other regulatory requirements for business

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-Other internal scope

Plant Engineering

• To assess technology options optimal to gas and climatic conditions

• To develop a Basis of Design

with CAPEX estimate of ±30%

Site Selection

• To analyze 3 to 4 sites and recommend one site for LNG Plant

Plant Engineering

• To assess technology options optimal to gas and climatic conditions

• To develop a Basis of Design

with CAPEX estimate of ±30%

Site Selection

• To analyze 3 to 4 sites and recommend one site for LNG Plant

COMMERCIAL

• Project risk assessment

• Organization, schedule and budget for PreFEED and FEED

• Setting up business entity

• Project risk assessment

• Organization, schedule and budget for PreFEED and FEED

• Setting up business entity

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• EXPLORATION & PRODUCTION

– Progress has the expertise in the North Montney

– First mover in the North Montney

• LIQUEFACTION

– Shared learnings from Gladstone and other projects– PETRONAS has technical expertise

• SHIPPING

– PETRONAS controls the world’s largest LNG shipping fleet

• GASIFICATION & OFFTAKE– Existing long term supply agreements with the major LNG importers – Japan, Taiwan, South Korea, China

LNG Export Joint VentureCaptures the Full LNG Value Chain

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Pipeline to the West Coast

• Develop pipeline capacity to deliver 0.5 bcf per day by 2017/2018

• Expandable to handle up to 1 bcf per day

• Site to be determined through DFS phase

• Alternatives:

• Standalone project-specific pipeline

• Common carrier

• Well-capitalized pipe companies

Prince Rupert