1. S&P 500 Energy Sector Luke DiTomas Alex Foisel Ian McLeod February 10, 2009

2.  Size and Composition  Industry Analysis  Economic Analysis  Financial Analysis  Valuation Analysis  Recommendation Agenda

3.  The energy sector in the SIM portfolio is currently underweight when compared to the S&P 500 by 6.04% Portfolio Weights S&P 500 WeightSIM Weight Size and Composition

4. S&P 500 and Sector Performance * As of January 30, 2009  The energy sector:  Contains 39 stocks  3 rd largest market cap*  4 th best YTD return: (3.16%)*  6 th best YTD return in 2008: (36.74%) Size and Composition

5. Top Stocks  Top 10 energy stocks based on S&P 500 Index Weight †  ConocoPhillips is currently held in the SIM portfolio*  BP is currently the only other energy stock in the SIM portfolio † As of February 6, 2009 Size and Composition

6.  Natural gas transmission & distribution  This industry classification includes establishments engaged in both the transmission and distribution of natural gas, but not in distribution to end users  Pipe lines, except natural gas  This industry classification includes establishments engaged in the gathering system and transportation via pipeline of refined and semi-refined products  Oil & gas field machinery & equipment  This category covers establishments primarily engaged in the manufacturing of machinery and equipment for use in oil and gas fields  Petroleum (Integrated)  This category covers establishments primarily engaged in the exploration, production, refinement, transportation and sale of crude oil and natural gas  Petroleum (Producing)  This industry classification includes establishments engaged in the exploration, developing and producing natural gas, crude oil and natural gas liquids  Coal  This industry includes establishments primarily engaged in mining operations producing bituminous coal, anthracite, and lignites Sector Composition Size and Composition

7. Energy Stocks  BP- Petroleum (Integrated)  Engages in the exploration, production, transportation, and sale of crude oil and natural gas  ConocoPhillips- Petroleum (Integrated)  Operates as an integrated energy company which explores, produces and markets crude oil, natural gas and natural gas liquids  Pengrowth Energy Trust- Petroleum (Producing)  Engages in the acquisition, ownership and management of working interests and royalty interests in oil and natural gas properties  Stock price quotes and market caps as of February 9, 2009 Size and Composition

8. Industry Analysis Source: EIA  Mature phase of life cycle  Global economy influence  Foreign & domestic economies  Global recession  Credit crisis  OPEC  Controls 40% of world’s crude oil  Government factors  Volume controls  Price regulation  Imposition of taxes and subsidies  External factors  Threat to entry  Intensity of rivalry  Supplier bargaining power  Buyer bargaining power  Substitutes  Inputs: crude oil, labor, equipment / outputs: fuels, plastics Industry

9. Industry Analysis Cont.  Threat to entry (Low)  High start-up costs  Economies of scale  Multiple permits and licenses needed for exploration of oil  Oil exploration requires large amounts of cash reinvested in the business each year  Intensity of rivalry (High)  Heightened government control has restricted access to new upstream resources  Oil and gas are facing growing competition from other fuel sources  Increasing difficulties in extracting the remainder of the world’s oil will lead companies to strive for greater efficiencies - hence increasing rivalry  Increasing security of supply and transport costs has pushed companies to build plants closer to major demand centers Industry

10. Industry Analysis Cont.  Supplier bargaining power (Moderate)  Foreign governments require permits and licenses in order to conduct drilling/extraction  Facilities need specialized parts and equipment to ensure proper functioning  Vertical integration has reduced the reliance of input suppliers  Buyer bargaining power (Low)  Commodity traders effect oil prices, shifting price power away from buyers  Demand by foreign countries is expected to increase  Substitutes (Moderate)  Although there is movement towards alternative energies, there hasn’t been a sustainable energy source which could be a true substitute for oil  Oil is one of the main commodities that drives the US/global economy Industry

11.  Exploration & Development  Hydrocarbon Production  Shipping  Refining & Blending  Storage  Distribution  Market Business Segmentation Exploration & Developmen t Hydrocarbo n Production Shipping Refining & Blending Storage Distribution Market Exploration & Development Hydrocarbon Production Shipping Refining & Blending Storage Distribution Market Value Chain Source: UTC Energy Investment Industry

12. Rise in Future Crude Oil Prices  Subsiding global recession  Rise in crude oil prices and demand  Turnaround in company earnings and job numbers  The dollar’s rally ends  Demand in China and India  Growing rapidly from continued industrialization  Factories expected to pump up crude oil demand  OPEC crude oil pricing goals  OPEC countries need $60 to $80 per barrel  To balance budgets and invest in social programs  Further supply cuts Industry

13.  Crude oil producers  Crude oil is becoming scarcer  Price of crude oil too low to support the income needs of producing countries  Alternative energy  Start-up phase  High costs  Hard to access more capital  Expensive to implement  Lack of demand given lower crude oil prices  Traditional energy has more benefits  Cheaper source  Fossil fuels readily available  Easy to use  Easily transportable Rise in Crude Oil Prices Cont. Industry

14. Alternative Energy  Solar  Advantages:  Always there with no pollution being created  Disadvantages:  Low efficiency (15%) which can only be compensated for by large collecting areas  Very high initial costs  Lack of adequate storage materials (batteries)  High cost to the consumer  Wind  Advantages:  None on large scale; supplemental power in windy areas  Disadvantages:  Relatively low efficiency (30%)  Disruption of migratory birds (note this is what killed the recently proposed Columbia River Gorge wind turbine project)  Unreliable and its strength depends on local weather patterns, temperature, time of year and location  Equipment is very expensive compared to other energy sources and initial expense is high Industry

15.  Biomass  Advantages:  Theoretically inexhaustible fuel source  Alcohols and other fuels produced by biomass are efficient, viable, and relatively clean-burning  Disadvantages:  Could contribute a great deal to global warming and create pollution if directly burned  Still an expensive source, both in terms of producing the biomass and converting it to alcohols  On a small scale there is most likely a net loss of energy Alternative Energy Cont. Industry

16. Crude Oil Prices vs. Energy Sector Economic Crude Oil Prices

17. Regression: Crude Oil Prices and Energy Sector Economic

18. Yen/Euro Cross vs. Crude Oil Prices Economic Crude Oil Prices Yen/Euro Cross

19. Regression: Yen/Euro Cross and Crude Oil Prices Correlation: 0.7919 R-square: 0.6272 Economic

20. Financial  All growth rates represent a 3, 5, or 10-year trailing average EPS Growth Rates

21. Financial 10-Year EPS Growth Rate

22. Revenue Growth Rates Financial  All growth rates represent a 3, 5, or 10-year trailing average

23.  All margins represent a 5-year trailing average Pre-Tax Margins Financial

24.  All cash flows represent 12-month calendar years Energy Sector Free Cash Flow

25. Sector Weight by SIC Code Sector Segmentation  Segmented the sector based on SIC code  Established in 1937, The Standard Industrial Classification (abbreviated SIC) is a United States Government system for classifying industries by a four-digit code  Segmented sector by SIC code:  Natural gas Transmission &Distribution- 7 stocks  Pipe Lines, Except Natural Gas- 2 stocks  Oil & Gas Field Machinery & Equipment- 12 stocks  Petroleum (Integrated)- 12 stocks  Petroleum (Producing)- 10 stocks  *Petroleum stocks make up over 56% of sector  Coal- 3 stocks Valuation

26. Valuation Analysis  Price/Earnings Ratio  Energy sector mean: 12.3  S&P 500 mean: 18.2  Earnings are very correlated to oil prices  Gasoline sold for 37% less in Q408 than Q407  OPEC production cuts  Met apx. 67% of the total 4.2 million barrel-per-day- cut  Additional exploration costs  Real GDP explains about 93% of the demand for petroleum products  Price/Earnings/Growth Ratio  Energy sector mean: 1.4  S&P 500 mean: 1.3  Additional OPEC production cuts  Analyst/U.S. Government oil price predictions  Consensus 2009 price per barrel- apx. $60  Optimistic analysts- $100 per barrel Price/Earnings Ratio Price/Earnings/Growth Ratio Valuation

27. Valuation Analysis Cont. Price/EBITDA Return on Equity Valuation  Price/EBITDA  Energy sector mean: 5.8x  S&P 500 mean: 8.5x  Decrease in EBITDA margins  Return on Equity  Energy sector mean: 22.1%  S&P 500 mean: 17.0%  Increased revenue arising from higher petroleum product prices flowed through to profit  10-year revenue growth rate for 6 largest oil refiners- 17.99%

28.  Period of consolidation  Lower volumes  Wedge formation  Upside breakout imminent  Constant highs, higher lows  20 & 50-day moving averages  Broken to the upside  Creation of new support levels  Relative strength index (RSI)  Upward trend developing  Moving average convergence divergence (MACD)  Narrow gap  ADX directional movement index  Crossover signals a buy Technical Analysis Source: Stockcharts.com Valuation

29. Recommendation  Current SIM Weight: 8.05%  Current S&P 500 Weight: 14.09%  Currently underweight 604 basis points  Underweight the sector by 209 basis points relative to the S&P 500  An increase in current SIM Weight of 3.95%  Why not underweight more?  Energy prices near bottom  Valuation looks very cheap  Increase in global energy demand  Why not overweight?  Short-term demand for oil could further contract  Recession could extend longer than expected Recommendation