Charles R. Blyth Fund Energy and Natural Resources

Components Oil Natural Gas Alternative Energy Mining and Natural Resources

Oil Current Crude Oil Price- $74.40 per barrel US Shale Output is forcing lower oil prices 30% decline since June With increasing production likely to fall further OPEC Uncertainty Nov. 27 meeting may spell a cutback in production Saudi Arabia indicates it plans on keeping prices low to make up for spending

Outside of OPEC Russia Predicted to have the largest shale oil reserves in the world Sanctions from the Ukraine Crisis Targets importation of technology 3 rd quarter profits for Russia’s Oil Companies were largely wiped out by low oil prices and speculation on the effects of sanctions Needs oil price of $93 per barrel to balance long-term budget Canada Keystone XL Pipeline is inching closer to being approved

Mergers and Acquisitions Halliburton to buy Baker Hughes for $34.6B According to Baker Hughes there would be $2B in synergies Combined company would have 34% of market while Schlumberger would have 29% Merger talks stalled on Friday Halliburton turned hostile and threatened with changing Baker Hughes Board Baker Hughes budged and talks resumed yesterday Anti-trust issues Halliburton willing to shed companies that generate $7.5B in revenue Will pay Baker Hughes $3.5B if it doesn’t go through

Natural Gas Reliance 49% of US households China’s dependence will go from 6%  10% Lower cost alternative to oil Weather Production in relation to oil

Expected Natural Gas Price Short Term Increase Predictions for colder weather in the US Long Term Decrease Overproduction due to large increases in oil production Lower crude oil prices

Political Effects France’s €1.5B divestment Russia-Ukraine Crisis Russia initially cut off supply to Ukraine $4.6B agreement recently made Europe is a large consumer of Russian natural gas Created a dependence Recent deal with China (~30B cubic feet)

M&A and Expansion Targa Resources Group & Atlas Energy announced merge in October (primarily for combination of land), creating a total valuation of $7.7B

Mining - Overview Product Base Metals Precious Metals Industrial Minerals A Derived Demand Manufacturing Short run concerns in China but strong worldwide growth of 10% through 2025 (McKinsey) Government Short-term: diminished spending Long-term: consistent level Construction Strong short and long run prospects 15% annual market growth in developing countries through 2020 (Accenture) Jewelry 5-6% annual growth through 2020 (McKinsey) ( ihs )

Mining – Major Players BHP Billiton Anglo-Australian Mining/processing Cap: $148B Rio Tinto Anglo-Australian Refining Cap: $100B Vale Brazilian Iron ore Cap: $50B Glencore Largest commodity trader Recent huge acquisition Cap: $100B Dual-listed corporations

Mining – M&A Outlook/Trends M&A Increasingly concentrated industry Declining volume and value of deals Glencore/Xstrata merger in 2013 Pickup in smaller acquisitions Simply too few big independent companies left (PwC)

Mining – M&A Outlook/Trends Industry trends Concerns Vulnerable to governments Increase in “Resource Nationalism” Taxes, leases, transport rights… Especially in developing nations with fragile politics Sustainability Rising costs due to safety concerns and environmental abatement policies Personnel and infrastructure Future shortage of qualified employees Copper and Zinc mine closures Positives Revenue growth alongside BRIC recovery New opportunities in China and Africa Essential products 25 year copper prices (Reuters)

Other Natural Resources Lumber Logging projected to grow with increased demand for residential construction Paper continues to shrink because of continued digitization Chemicals 2.4% growth in 2013, projected 3.8% in 2014 due to increase in exports to developing markets Growth of industrials increases the needs for chemicals

Forestry

Chemical Products

Alternative Energy

Gaining Traction Learning rates of wind and solar are 30% and 7.4% respectively Investment credits are greatly reducing alternative energy pricing, amongst other incentives Wind energy is about equal in cost with most expensive coal power plants in Europe ($80/MWH) Citi projects solar will drop to $80/MWh by 2020 Increasing regulations and carbon markets limit future of conventional energy $214B invested worldwide in renewable energy in 2013

Growth Factors/Catalysts APEC 2014 – US and China made a joint approach to stop emission from growing by US plans to emit up to 28% less carbon China plans to have solar power and windmill energy account for 20% of total energy production by EU plans to increase Europe’s electricity dependence on renewable sources to 35% by 2020 Germany’s New Energy Revolution Feed-in-tariffs guarantee fixed price for solar and wind producers Solar Investment Tax Credit and other tax incentives have reduced installation prices by half. Alternative energy mutual funds and exchange funds returned 41.6% from June 2013 to June 2014

Recent Investment/M&A SunEdison’s power plant subsidiary TerraForm to buy First Wind for $2.4B SunEdison to become world’s largest renewable energy development company Power production to about 2.2 gW SunEdison has grown about 90% each year since 2009