1. www.geohelp.ab.ca The Cow and the Ostrich - Predicting gas prices Dave Russum Geo-Help Inc. Canadian Institute Conference, June 2003

2. www.geohelp.ab.ca Qualifications Not an expert on price! Geologist – spent 25+ years exploring and developing resources Four years assessing Canadas gas resources/reserves/production Developed a detailed, independent and up-to- date assessment of Canada's gas supply Geo-Help provides consulting and information services to the upstream oil and gas industry

3. www.geohelp.ab.ca The Irony of Predicting Future Natural Gas Price Predictions are destined to be wrong if you believe them The more recognised the expert the more likely to be wrong Focus on short term guarantees price will continue to bounce off an upward sloping floor and ceiling Price cannot be viewed in isolation

4. www.geohelp.ab.ca Irony of Future Price Prediction – Long term Prices will climb Lots of money spent finding new gas Consumer reduces consumption Leads to high supply and low demand Price collapses Consumer happy but cynical, investors unhappy! Prices will tank Little investment in future supply Consumer increases consumption Leads to low supply and high demand Price escalates Consumer unhappy and cynical, investors prosper CONCLUSION: Status quo is safe

5. www.geohelp.ab.ca Natural Gas In Canada – Where are we today? SUPPLY: Exploration Remaining Reserves DEMAND: Production, Exports FUTURE? Kyoto? Weather? NAFTA? OPEC? LNG? Politics? Terrorism? N.Am Economy? Storage volumes? Greenspan? Avg Prices 19862002 100Tcf 60Tcf 7Bcf/d 17Bcf/d (39 Years) (9 Years)

6. www.geohelp.ab.ca Present I believe Canadas gas production has peaked WCSB produces 97% of all Canadas Gas Over 50% of all sales gas is exported to US The price for WCSB gas is controlled by supply and demand issues in the United States North Americas gas industry mature compared to rest of world

7. www.geohelp.ab.ca Canadas Resources and Reserves Ultimate Resources Total Conventional + Unconventional Discovered Raw Gas Sales Gas Remaining Unproduced Remaining Reserves ? 15000 Tcf 60 Tcf Rate of Conversion: Accessibility Technology Price Investor commitment 592Tcf1000s Tcf 340Tcf 204Tcf

8. www.geohelp.ab.ca WCSB Conventional Gas 25%(?) re-invest in domestic E&P Balance to: –oilsands, –acquisitions, –international, –shareholders No chance of reversing production trend unless this changes

9. www.geohelp.ab.ca Understanding Remaining Resources – Accessible and Economically Available Accessible Accessible with restrictions Inaccessible <$6.00Cdn /mcf PresentFutureExclude >$6.00Cdn /mcf Future Exclude

10. www.geohelp.ab.ca Predicting future accessible resources PresentPost 2010>2025 Available now and future Available post 2010 (Post 2025?)

11. www.geohelp.ab.ca Undiscovered GIP WCSB CGPC vs. GSC Estimate (Excludes Appreciation) CGPC 1998 & GSC 1991 Data PresentPost 2010>2025 104 Tcf vs. 77 Tcf 23 Tcf vs. 54 Tcf 7 Tcf vs. 80 Tcf CGPC 133 Tcf vs. GSC 258-49=211 Tcf

12. www.geohelp.ab.ca Canada Facts The 3 rd largest producer of Natural Gas The 2 nd largest exporter of Natural Gas 1% of the proven Natural Gas reserves in the World (18 th place) The 3 rd lowest R/P (9.8) after UK (6.2) and US (9.2). Albertas R/P is 7.9, (25 in 1986)

13. www.geohelp.ab.ca World Gas Reserves (BP, 2001) North America: 5% of Reserves 30% of Production 30% of Consumption Total 5476 Tcf

14. www.geohelp.ab.ca Canadian Annual Marketed Gas Production by Area (Bcf – CAPP Data) WCSB (97%)

15. www.geohelp.ab.ca Alberta 2002 vs. 2001 (AEUB 2003) 20022001Change Production (Actual) 4.8Tcf5.1Tcf-4.4% Production (est. last yr) 5.3Tcf-9.5% Remaining Res. (Year end) 40.2Tcf40.5Tcf-1% R/P (yrs)8.47.9+0.5 Production Forecast 2011 4.4Tcf4.8Tcf-8.4%

16. www.geohelp.ab.ca Future Marketable Gas Unconventional (Bcf/Yr) Assume: 1Bcf/d by 2009 (10,000 Wells?) 2.2Bcf/d 2016

17. www.geohelp.ab.ca Future Marketable Gas East Coast (Bcf/Yr) Sable Deep Panuke?

18. www.geohelp.ab.ca Future Marketable Gas Territories (Bcf/Yr) MacKenzie Pipeline 1 to 1.8 Bcf/d

19. www.geohelp.ab.ca Future Marketable Gas Saskatchewan (Bcf/Yr) Assume 3% Growth/Yr

20. www.geohelp.ab.ca Future Marketable Gas British Columbia (Bcf/Yr) Assume 3% Growth/Yr

21. www.geohelp.ab.ca Future Marketable Gas Excluding Alberta Conventional (Bcf/Yr)

22. www.geohelp.ab.ca Future Marketable Gas Canada (Bcf/Yr) 3% Decline to 2005 5% Decline after

23. www.geohelp.ab.ca Future Marketable Gas Prediction (Bcf/Yr) Alberta Demand Rest of Canada Export to US $ $$$

24. www.geohelp.ab.ca Facts US demand exceeds US supply Canada has filled the gap to date Canada has a high COF&D Canada has rapidly depleted its low cost, easily accessible natural gas Upward pressure on prices

25. www.geohelp.ab.ca Future with no changes Canadas production has peaked Future gas will be more expensive to produce and take considerable time to bring to market With higher prices LNG transport from offshore becomes economically viable LNG may eventually set a price cap for our gas

26. www.geohelp.ab.ca How we can change the Future? Future predictions that require hockey stick reversals to current trends need to be scrutinised with extreme care. Currently very little long term planning, investment or R&D by Industry or Government Canada needs a realistic natural gas plan

27. www.geohelp.ab.ca Solutions Possibilities: –Reduce exports –Set a floor price for exports? –Introduce incentives for real exploration –Massive increase in R&D –Nationwide plan to encourage conservation

28. www.geohelp.ab.ca Prediction AECO Gas price $Cdn/mmbtu (Historic Prices, GLJ, 2003) ActualPrediction Decade of volatility

29. www.geohelp.ab.ca Prediction 2003 - 2013 Decade of wildly fluctuating prices Average price will climb steadily Reality of situation will encourage: –LNG –Development of higher cost gas –Conservation –Energy alternatives Will eventually halt price rise but stabilise at much higher prices

30. www.geohelp.ab.ca The Challenge: More long-term planning, long-term investment, more real Exploration and R&D VS. A significant decline in gas production with implications for the North American energy picture

31. www.geohelp.ab.ca Thank you For more information contact: Dave Russum Geo-Help Inc dave@geohelp.ab.ca www.geohelp.ab.ca