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After 4 years at $100/bbl the price of oil crashed during 2 nd half of 2014 On January 12, Goldman Sachs said WTI could drop to $40/bbl

Energy Prospectus Group Let’s take a look at the Big Picture. What is the long-term outlook for energy supply / demand?

Primary Energy Consumption by Region BP Energy Outlook 2035 “Global energy consumption will rise by 41% from 2014 to 2035, with most of the demand coming from rapidly growing emerging economies.”

More than half of the world’s people live in China & India

Energy Demand by Fuel Type BP Energy Outlook 2035 “Twenty years from now oil, gas and coal will still be 80% of global energy supply”

Where have new oil supplies come from? The United States and Canada are the only countries with meaningful supply growth since All of it from unconventional resource plays. Conventional Crude Oil Production did peak in 2005

U.S. Energy Supply

U.S. Will Never be “Independent” Imports will be 32% of fuel supply in EIA

U.S. Oil Production Heading Up Crude Oil Consumption is about 15 MM Bbls per day

Demand for Liquid Fuels is “Relentless” 95% of oil demand Electricity is not the problem: We have more than enough coal, natural gas, nuclear, hydro, solar and wind to generate all the electricity we need The problem is we can’t find a replacement for hydrocarbon based liquid transportation fuels

Why did oil prices fall? Supply currently exceeds demand Today supply exceeds demand by ~1.5 million barrels per day Demand growth forecast for 2015 lowered for Asian and the oil-exporting countries Oil inventory build counter-seasonally in October Libyan oil exports rose during 3 rd quarter ISIS Terrorists did not impact oil supply Spike in U.S. Dollar Saudi Arabia refused to cut output on Nov. 27

Oil Supply today is 94.1 MMBOPD Supply expected to be 95.4 MMBOPD by end of 2015 Oil Demand from IEA “Oil Market Report” 12/12/2014

Oil Supply today is 94.1 MMBOPD Lower Fuel Costs will Stimulate Demand

U.S. Oil Inventories are high

Spike in U.S. Dollar

Spike in U.S. Dollar + low gas prices May cause consumers to be less concerned with mileage on their next car or truck purchase

Liquid Fuels Supply / Demand

Geopolitical Risk Premium will remain part of equation The world is still very dependent on the Middle East and North Africa for oil supply The U.S. spends $Billions each year to keep the oil flowing

Iraq oil is VERY IMPORTANT  OPEC Gulf States exported 23% of Global Oil Supply and 43% of OECD Oil Supply in  Importance of the region cannot be overstated  If ISIS creates a regional “Civil War” oil prices will spike  Three Scenarios 1. Iraq breaks-up with fighting over control of oil fields 2. ISIS is “contained” but terrorists attacks may increase and keep Iraq oil reserves from being developed 3. “Arab Spring” dawns in Saudi Arabia: Any attack on oil facilities will cause big spike in oil prices

Middle East / North Africa Crude Oil Supply Disruptions

How can you say that after the big drop in price recently?

Capital is needed $Trillion was spent in 2014 on supplies

The Oil Majors are spending more to produce less oil

Full Cycle Economics require $70/bbl WTI to Breakeven for the U.S. Tight Oil Plays Source: WoodMackenzie, Barclays Research

Horizontal wells in the Shale Plays decline rapidly

Shale Play = Very Light Oil

Global Offshore Production by Water Depth 1960 to 2040 We are counting on Deep Water and Ultra Deep Water oil supplies in the future. Ultra Deep Water wells cost more than $100 million.

Upstream companies are slashing CapEx, so U.S. production should begin to fall by the 3 rd quarter U.S. now consumes over 15 Million Bbls per day of crude oil and produces about 9.2 Million Bbls per day Large inventory of wells waiting on completion should keep production rising for a few more month At today’s oil price, drilling will only continue in the “Sweet Spots” of the major U.S. Shale Plays The U.S. is not the only regions where drilling and completion activities are being cancelled. There are very few areas were drilling is economic at today’s oil price Most of the OPEC countries’ production is on decline

Falling Rig Count means > Falling production within a few months > Steep drop in demand for oilfield services > Layoffs in the energy sector > Bad news for Texas, OK & ND economies

Are we heading back to being dependent on OPEC?

Crude Oil Prices Oil is too important to stay low for long Oil accounts for 1/3 of global primary energy supply and 95% of transportation fuels There are no easy substitutes for oil. From 2005 to 2013 global production increased by only ~6 MM bbls per day, of which 1.8 MMBPD were NGL’s (non-crude) Global demand is approaching 94 MM BOPD. Demand goes up by more than 1 million bbls per day each year Much of Shale Oil is really NGLs Most of the new supplies are “unconventional” and VERY EXPENSIVE – The Age of “Cheap Oil” is over Saudi Arabia now in control of Brent pricing

Saudi Arabia and/or Russia agree to cut production OPEC “emergency meeting” Big drop in U.S. active rig count, which will reduce production growth Middle East violence threatens supply Increasing demand for liquid fuels Improved Chinese economy

Natural Gas U.S. Market has Abundant Supply Outlook for Natural Gas Prices Short-term: We may see $4.00/mcf if we get another very cold winter Long-term: Bearish outlook through end of 2015 LNG exports in 2016 should help stabilize natural gas prices

There are much different markets for oil and natural gas Crude oil trades on a Global Market Crude oil transportation system (pipelines and ships) easily moves oil to various markets Increasing production from U.S. Shale Plays is a small part of global oil supply Natural Gas Trades in Regional Markets North American natural gas is now the lowest priced source of energy in the world, giving the U.S. and Canada an economic advantage

Natural Gas Prices International Markets much higher than U.S. Map shows November 2014 prices for LNG

U.S. Shale Gas

Increasing Demand for Ngas in the U.S. Demand going up by approximately a TCF / Year and Canada will have less gas for the U.S. (Global Natural Gas Market ~65 Tcf per year)

Natural Gas Storage Winter started with less gas in storage Mild December hurt chance at price spike

U.S. will be net exporter of natural gas within three years

What is it going to take to lift U.S. Natural Gas Prices? The natural gas supply-demand gap in U.S. needs to close (cold winters help) LNG exports ramping up after 2015 Supply/Demand should be tighter heading into 2016 Reduced “Associated Gas” for Eagle Ford and Permian Basin

Keep your portfolio heavily weighted to oil companies that have strong balance sheets and are well hedged Look for chance to buy oilfield service firms that will benefit from horizontal drilling in the U.S. Shale Plays Midstream MLPs: Demand for gathering, processing, transportation, storage and frac sand still strong in the Big Three plays

Q & A

Stay Focused on Growth Sweet 16 Growth Portfolio

Baytex Energy Corp. (BTE) Market Cap = $6 Billion Mid-Cap E&P Based in Canada Base production in Western Canada (70% Heavy Oil) Recently acquired Aurora Oil & Gas Ltd. 22,350 net acres in “Sweet Spot” of Eagle Ford Shale Added over 16,000 BOPD at closing in late June Guidance is now 90,000 Boepd for 4 th quarter Common Stock for over 7% annual yield (monthly div.) Forecasts:2013A Earnings per share$1.31 $1.71 $2.62 Cash flow per share $5.06 $5.78 $7.89 Production (boepd)57,196 75,100 95,000 YOY Production Growth 6% 31% 26%

Baytex Energy Corp. (BTE) Market Cap = $6.9 Billion

Baytex Energy Corp. (BTE)

Gathering systems, processing facilities, pipelines and storage Demand very high in all shale plays Very low Commodity Price Risk Most revenues locked in by long-term contracts Midstream MLPs offer lower yield but strong capital appreciation