Canadian Shale Gas & LNG in a North American Context September - - PowerPoint PPT Presentation

Canadian Shale Gas & LNG in a North American Context

September 10, 2013

BMO Capital Markets Canadian Unconventional Natural Gas Plays North American Natural Gas Fundamentals North American Demand and LNG Alternatives Summary

1

BMO Financial Group and BMO Capital Markets

BMO Financial Group

Market Cap C$38 billion Total Assets C$525 billion LTM Revenue C$16.3 billion Employees 46,000 Key Operating Data Organization



Canada's first bank: established in 1817

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Offers broad range of retail banking, wealth management and investment banking services

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One of the largest diversified financial services providers in North America Tier 1 Capital Ratio 12.62%

BMO Capital Markets’ Capabilities BMO Capital Markets – Global Investment Banking Operations

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Note: BMO financials – as of October 31, 2012

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MERGERS & ACQUISITIONS

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Advised on $29 bn worth of E&P transactions in 2012 (ranked #1 in domestic E&P league tables) LOAN FINANCING

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125 professionals globally

Complete suite of advisory and corporate banking solutions

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Ranked #1 in domestic equity E&P league tables via 10 book-run transactions in 2012

`

ACQUISITIONS & DIVESTITURES

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Provider of premier in-depth A&D services in Canada and the United States

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13 professionals in Canada and 19 in the United States 3

BMO Global Energy Group

145+ Energy professionals with global reach

GUANGZHOU HONG KONG DELHI SHANGHAI TAIPEI BEIJING MELBOURNE RIO DE JANEIRO DUBLIN LONDON ZURICH VANCOUVER TORONTO SAN FRANCISCO NEW YORK MONTREAL MEXICO CITY LOS ANGELES CALGARY CHICAGO DENVER HOUSTON MILWAUKEE BOSTON ATLANTA PARIS

Key BMO Energy Offices Other BMO Offices

North America Based International Reach

Houston Corporate Finance A&D Lending Research M&A Commodities/Derivatives 17 16 12 6 1 10 Calgary Corporate Finance A&D Lending Research Commodity Traders 16 13 12 10 3 Toronto Energy ECM Energy Sales Energy M&A 3 3 4 New York Lending Energy Sales Commodity Traders 8 1 3 London Corporate Finance Lending Commodity Traders 16 1 2 Hong Kong Corporate Finance 1 Melbourne Corporate Finance 4 Delhi Corporate Finance 4

Asia India Australia Europe

ABU DHABI

Abu Dhabi Lending 1 Beijing Corporate Finance 4

4

Last Twelve Months

Rank Name Transactions Size

(#) (C$ mm)

1 BMO Capital Markets 6 $26,821 2 RBC Capital Markets 13 $21,587 3 Citi 2 $18,496 4 Goldman Sachs & Co 1 $17,900 5 Bank of America Merrill Lynch 2 $6,147 6 HSBC Bank 2 $2,526 7 TD Securities 7 $1,818 8 GMP Securities 10 $1,528 9 Credit Suisse 3 $1,309 10 Evercore Partners 4 $1,201 Other 49 $7,546

Advisor on Merger with WestFire Energy October 2012

$424 million

Leading Energy M&A Franchise

BMO Capital Markets is the #1 advisor to the Canadian energy sector

August 2011

$1.1 billion

Advisor

• n Montney Joint Venture

with PETRONAS November 2011

US$2.2 billion

Advisor on Acquisition of OPTI Canada Inc.

$611 million

Advisor on Acquisition of Wild Stream Exploration Inc. March 2012 May 2012

$1.9 billion

Advisor on sale to Pengrowth Energy February 2013

US$17.9 billion

Advisor on Acquisition of Nexen Inc.

Canadian Oil & Gas M&A

Source: Bloomberg (August 23, 2013): Canadian target or seller or acquirer; credit to acquirer or seller financial advisor only; announced and completed deals LTM; oil and gas E&P Advisor on Amended Proposal to Open Range August 2012

$183 million US$861 million

Advisor on Acquisition of Ute Energy November 2012 December 2012

$6.0 billion

Advisor on Sale to PETRONAS Pending

$510 million

Advisor on Sale of SE SASK Asset to TORC Oil & Gas

5

6

Combination of technical and financial expertise to provide clients with a full service platform



Strong synergies created by combining traditional investment banking with technically-focused A&D group

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Full platform of advisory and banking services offered within BMO Capital Markets

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Technical expertise allows BMO to effectively sell assets/corporations and support Investment Banking

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Extensive contact network of investment banking at C-suite levels supports technical expertise and business development contacts of the A&D group

M&A Platform Combines Financial and Technical Expertise

BMO Capital Markets Canadian Unconventional Natural Gas Plays North American Natural Gas Fundamentals North American Demand and LNG Alternatives Summary

7

Unconventional Natural Gas Plays

Source: Street Research

Muskwa

Duvernay Shale* Horn River* *Montney

Cardium Deep Basin Glauconite Colorado Group Cody Mowry Jonah Hillard-Baxter-Mancos Mancos Hermosa San Juan Lewis Gamon Niobrara Piceance Pierre Bend Barnett-Woodford Pearsall-Eagle Ford Permian Mississippi Lime Granite Wash Anadarko Barnett Woodford Woodford-Caney Excello-Mulky Haynesville Tuscaloosa Conasauga Devonian NewAlbany Utica Marcellus Antrim Michigan Basin Utica Shale Horton Bluff Fm Collingwood/Utica Unconventional/Tight Gas Resource Plays

North American Shale Basins Commentary



North America has a proliferation of unconventional / tight gas resource plays



3 plays are dominant in Canada



Montney



Horn River



Duvernay

8

Canadian Unconventional Natural Gas Plays

Source: Wood Mackenzie

West Coast Natural Gas Plays

YUKON NORTHWEST TERRITORIES ALBERTA BRITISH COLUMBIA SASKATCHEWAN MANITOBA

Liard Basin Horn River Montney Duvernay

Cordova Embayment Western Canada Sedimentary Basin

Horn River: Resource Potential: ~100 tcf Current Production: ~0.6 bcf/d Montney: Resource Potential: ~130 tcf Current Production: ~2.5 bcf/d Duvernay: Evolving liquids-rich gas opportunities with promising early stage results

9

Initial Production EUR/Well Condensate NGL (Deep Cut) Capital ROR mmcf/d bcf bbl/mmcf bbl/mmcf $mm % Montney 3 - 10 3 - 8 0 - 60 7 - 70 4.5 - 8.5 20 - 100+ Horn River 5 - 12 6 - 14 0 - 2 12 - 18 0 - 25 Duvernay 2 - 6 3 - 7 3 - 300+ 80 - 120 10 - 15 50 - 100+ 2 - 5

1,000 623 563 400 381 355 340 225 199 195 172 156 145 141 125

• 200

400 600 800 1,000 1,200

(1)

1,281 1,024 1,011 841 694 688 303 266 264 256 201 195 195 190 180 200 400 600 800 1,000 1,200 1,400 531 450 313 266 245 203 156 148 139 141 138 116 113 84 72 100 200 300 400 500 600

Western Canada Unconventional Gas Plays – Top Land Holders

Top 15 Key Acreage Holders

Source: Public Disclosure, GeoSCOUT

Horn River (Dry Gas) Montney (Moderately Liquids-rich) Duvernay (Liquids-rich) Net Sections Net Sections Net Sections

Producers participating in west coast LNG projects Producers participating in west coast LNG projects Producers participating in west coast LNG projects

10

Montney Gas Production – Alberta and British Columbia

Q2 Canadian Montney production proximal to west coast LNG – 2.4 Bcf/d

Montney Production Profile

Well Location Map 

June 2013 production – 2.49 Bcf/d



June 2013 well count – 3,144

700 1,400 2,100 2,800 3,500 4,200 0.0 0.5 1.0 1.5 2.0 2.5 3.0 2007 2008 2009 2010 2011 2012 2013 Well Count Natural Gas Production (Bcf/d) Montney Production Montney Well Count 

Montney production has grown rapidly over the last 5 years Top 5 Producers #1 Encana - 612 mmcf/d #2 Shell – 287 mmcf/d #3 Arc – 267 mmcf/d #4 Murphy – 185 mmcf/d #5 Progress/Petronas – 147 mmcf/d

11

Top 5 Acreage Holders

1,281 1,024 1,011 841 694

200 400 600 800 1,000 1,200 1,400

Net Acres

Horn River Gas Production – British Columbia

Q2 Canadian Horn River production proximal to west coast LNG – 0.6 Bcf/d

Horn River Production Profile

Well Location Map

75 150 225 300 0.0 0.2 0.4 0.6 0.8 2008 2009 2010 2011 2012 2013 Well Count Natural Gas Production (Bcf/d) Horn River Production Horn River Well Count 

May 2013 production – 0.60 Bcf/d



May 2013 well count - 205



Horn River production surpassed 0.5 bcf/d in 2013



Currently > 200 wells producing Top 5 Producers #1 Encana - 205 mmcf/d #2 Nexen – 145 mmcf/d #3 Quicksilver – 82 mmcf/d #4 Apache – 42 mmcf/d #5 Penn West – 34 mmcf/d

12

Top 5 Acreage Holders

531 450 313 266 245

100 200 300 400 500 600

Net Acres

Duvernay Gas Production - Alberta

Q2 Canadian Duvernay production proximal to west coast LNG – 18 MMcf/d

Duvernay Production Profile

Well Location Map

10 20 30 40 0.0 5.0 10.0 15.0 20.0 2011 2012 2013 Well Count Natural Gas Production (MMcf/d) Duvernay Production Duvernay Well Count 

June 2013 production – 18.0 MMcf/d



June 2013 well count – 21



Early stage development for the Duvernay play



Current producing well count is low (~21 wells)



Many wells drilling or coming on production (~64 wells)

13

Top 5 Acreage Holders

1,000 623 563 400 381

200 400 600 800 1,000 1,200

Net Acres

2 4 6 8 10 12 12 24 36 48 60 72 Daily Gas Rate (MMcf/d)

Month

Montney Horn River Duvernay

Multi-stage fracs in unconventional reservoirs create large initial production rates with large initial declines followed by flattening production profiles

Shale Gas – Production Profile by Play

14

Shale Gas Type Well

Type Curve Parameters

IP EUR MD TVD

• Avg. Hz. Length # of Stages

Interstage Spacing

(M M cf/d) (Bcf) (m) (m) (m) (m)

Montney 5.0 5.1 3,600 2,100 1,500 12 125 Horn River 10.3 13 4,650 2,550 2,000 16 125 Duvernay 4.4 3.7 5,000 3,400 1,625 13 125

BMO Capital Markets North American Natural Gas Fundamentals Canadian Unconventional Natural Gas Plays North American Demand and LNG Alternatives Summary

15

• $4

$8 $12 $16 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Historical Spot Price Forward Curve BMO Equity Research 10 Year Average $4.39 / mmbtu $4.50 / mmbtu $5.78 / mmbtu $3.58 / mmbtu

NYMEX Natural Gas Price (US$/mmbtu)

North American Natural Gas Market Fundamentals

Natural Gas Price Outlook

Source: FactSet and BMO Capital Markets Equity Research



As is now well known, the emergence of unconventional natural gas has significantly shifted down the supply cost curve and increased production



Given the size of resource opportunity and lack of current export capability, gas prices are expected to remain trapped in the $3- $5/mcf range for the next several years

Hurricane Katrina Financial crisis World oil prices spike Shale gas production starts to increase rapidly Very mild winter 16

10 20 30 40 50 60 70 80 90 100 1990 2000 2010 2020 2030 2040 bcf/d Shale gas Coalbed methane Tight gas Associated with oil Alaska 36% Shale gas Coalbed methane Tight gas Associated with oil Alaska 36%

Natural Gas Fundamentals

U.S. Dry Natural Gas Production by Source

Source: EIA



Shale gas production has increased substantially and currently represents ~36% of U.S. dry gas production U.S. production has currently plateaued

17

Natural Gas Fundamentals

U.S. Unconventional Production

Source: EIA



Total US shale gas production growth is flattening



Marcellus production is increasing while Haynesville production is declining 5 10 15 20 25 30 2000 2000 2001 2002 2002 2003 2004 2004 2005 2006 2006 2007 2008 2008 2009 2010 2010 2011 2012 2012 2013 (bcf/d) Rest of U.S. Bakken (ND) Eagle Ford (TX) Marcellus (PA and WV) Haynesville (LA and TX) Woodford (OK) Fayetteville (AR) Barnett (TX) Antrim (MI, IN, and OH)

18

40 45 50 55 60 65 70 75 300 500 700 900 1,100 1,300 1,500 1,700 2008 2009 2010 2011 2012 2013 Monthly Production (bcf/d) Rig Count Nat Gas Rotary Rig Count Dry Gas Production

Natural Gas Fundamentals

U.S. Production and Rig Count

Source: Bloomberg, Baker Hughes, DOE



Flat US total production is in contrast to sharply falling rig counts



Higher efficiency of drilling rigs and completions (more production per rig)



Tie in of existing wells and optimization of infrastructure

19

2 4 6 8 10 12 14 16 18 20 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Production (bcf/d) Eastern Canada Coal Bed Methane Western Canada Unconventional Western Canada Conventional New Market Opportunity Case

2012 Average 13.7 bcf/d 2030E Average 16.3 bcf/d 1.0% CAGR 2012 - 2030 1.8% CAGR 2012 - 2030 (8.7%) CAGR 2012 - 2030 6.9% CAGR 2012 - 2030 (3.5%) CAGR 2012 - 2030

13%

Canadian Natural Gas Production Forecast

Source: CAPP June 2013

Canadian Natural Gas Production Forecast (2013 Projection)

Unconventional gas represents 13% of total current Canadian production

Production to increase with LNG export in place

20

2 3 4 5 6 7 8 9 10 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec (bcf/d) 2013 2008

• Approx. 4 bcf/d decline (55%) in net U.S. natural gas

imports from Canada (June 2008 vs. June 2013)

Natural Gas Fundamentals

Net U.S. Natural Gas Imports from Canada



Canadian exports to the U.S. have decreased dramatically over the last 5 years (55%)



Cleary new export markets (LNG) are required for Canadian production

Source: EIA

21

Natural Gas Supply

North American Natural Gas Supply Costs ($/mcf)



Unconventional shale plays have proliferated throughout North America



At $4.0 / mcf, 13 shale gas plays could economically deliver (half cycle) ~800 tcf of recoverable gas at PV10



This translates to an 80 year supply at current shale gas rates or 30 years at current North American production rates



Montney is very competitive compared to other plays



Duvernay is expected to be very competitive due to high liquids content

Source: BMO Capital Markets Equity Research

Supply Costs ($/mcf)

22

Canadian Unconventional Gas Opportunities



There are several opportunities to acquire to land / production in Canadian unconventional plays Montney



Canadian Natural Resources



Canbriam – Private Company



UGR – Private Company



Painted Poiny



Canadian Spirit



Birchcliff



Advantage Horn River



Devon



Quicksilver



Spoke Resources – Private Company



Ramshorn Duvernay



Talisman



Penn West



Athabasca



Longview

23

BMO Capital Markets North American Natural Gas Fundamentals North American Demand and LNG Alternatives Canadian Unconventional Natural Gas Plays Summary

24

13.0 8.7 18.9 20.7 11.4 8.0 19.5 24.9 13.2 8.7 20.0 22.1 12.8 8.7 20.3 21.6 5 10 15 20 25 30 Residential Commercial Industrial Electric Power (bcf/d) 2011 2012 2013 2014

Natural Gas Consumption



Increased consumption due to a structural shift toward generating more electricity from natural gas-fired power plants from coal fired power plants



Other factors include weather, relatively low natural gas prices, and higher Industrial consumption



2012 gas consumption for power generation was an unusual increase versus previous years



This was due to hot weather and fuel switching from coal to natural gas 2011 - 2014 Year Average Natural Gas Consumption

Increased natural gas consumption for power generation took off in 2012

Source: EIA Note: 2013 data includes a projection from July – December

25

• $1.0

$2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0

• $1.00

$2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 Jan/10 May/10 Sep/10 Jan/11 May/11 Sep/11 Jan/12 May/12 Sep/12 Jan/13 May/13 $/(mmbtu)

Weighted Average Coal Henry Hub

Gas becomes economic for coal to gas fuel switching Gas prices above equivalency in April / May 2013

Coal to Gas Price Equivalency



Coal to gas fuel switching economics dominated H2 2011 and all of 2012



Current coal prices are ~8.9% lower than 2011



Current prices would indicate that coal and gas are close to equivalent from fuel cost perspective

Source: BMO Capital Markets Research

26

Spread

Rising and strong spread between North American and Asian market gas prices driving interest in North American LNG projects

Implied LNG and NYMEX Gas Price Comparison

North American vs. Asian (LNG) Gas Prices

Note: Implied LNG price calculated as Japanese Customs Cleared crude oil price (JCC) * 14.5% Source: Bloomberg

($10) ($5)

• $5

$10 $15 $20 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 US$/MMbtu LNG Premium (NYMEX) LNG Premium (AECO)

• $5

$10 $15 $20 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 US$/MMbtu NYMEX Implied LNG AECO

Asian vs N.A. price premium ~$12 / mmbtu Large gap between LNG and N.A. gas prices

27

• 20

40 60 80 100 120 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 bcf/d Existing Under Construction Proposed Demand

LNG Supply “Tightness” Expected to Develop

Market tightening ~ 2016 – 2018 as demand nears capacity Robust pipeline of liquefaction projects announced; not all will be built

• 3. The inability of some projects to maintain stable and

reliable supply is likely to tighten the market in the near term and is a material concern in the long term 1 2 3

• 2. New supply is drifting
• ut in time

(a) Delays in Australian projects (b) Development challenges faced in

• ther regions
• 1. Post-Fukushima Asian

requirements and strong emerging markets are increasing demand and tightening the market 119 Bcf/d 67 Bcf/d

Source: PIRA, Wood Mackenzie Note: Supply reflects liquefaction capacity available; does not account for projects that may decline due to depletion of upstream resource

Global LNG Supply and Demand – Major Drivers and Implications Un-satisfied Demand Sweet spot for LNG development

28

Canadian LNG Global Setting & Initial Opportunity Views

Illustrative Comparison (C$/mcf)

(Canada vs. Asia)

Regional & North American LNG Transportation Distances ~15 Days ~8 Days Canadian West Coast to East Asia ~9 - 10 Days U.S. East/Gulf Coasts to East Asia ~24 Days Asian Importers Regional Exporters North American LNG



Highly unlikely that non LNG linked North American producers will materially benefit from the price arbitrage



Asian and Indian buyers saying they no longer want liquids-based (JCC) based pricing for LNG – tools to challenge linked pricing:

• Canada and U.S. LNG projects
• Japan to launch LNG futures trading on Tokyo Commodity Exchange in 2014
• Establishment of an Asian natural gas trading hub

Source: PIRA

Domestic Market Market Price (Spectra Station 2) (1) $2.69 Pipeline Cost to Station 2 (2) ($0.05) Field Gathering & Processing (2) ($0.91) Netback (Well Head) $1.73 LNG - Asia Market Price (LNG Asia Delivered Ex-Ship) (3) $15.17 Transport to Asia (B.C. Coast to Asia) (4) ($1.52) Liquefaction Processing (5) ($4.00) Pipeline Toll from Plant Gate to B.C. Coast (2) ($1.00) Gathering & Processing (2) ($0.91) Netback (Well Head) $7.74 Illustrative Value Upside $6.01

• 1. Bloomberg July 2013 monthly average.
• 2. BMO estimate.
• 3. Japanese Customs Cleared (JCC) * 14.5%, Bloomberg June 2013 monthly average.
• 4. Platts shipping calculator.
• 5. Cheniere Energy Sabine Pass, plus premium reflecting higher Canadian costs.

29

North American Liquefaction Projects

• Douglas Channel

LNG

• Kitimat LNG
• LNG Canada

Oregon LNG Jordan Cove Lake Charles Cameron LNG Excelerate Freeport LNG Sabine Pass Gulf Coast LNG Cove Point Corpus Christi

Greenfield Brownfield Sedimentary Basins Gas Pipelines Gas Pipelines (Proposed) Cdn projects shaded

Legend

Kenai LNG

• Pac NW LNG
• P Rupert LNG
• WCC LNG
• AltaGas /Idemitsu JV

Gulf LNG Liquefaction Golden Pass Main Pass Goldboro ST LNG Project CE FLNG LNG Direct Rail Elba Island LNG Woodfibre LNG Discovery LNG Magnolia LNG ` `



46 bcf/d (345 mmtpa) of North American LNG projects annouced



Brownfield projects have time and cost advantage over greenfield projects

30

Project Location Ownership Start Year Capacity Cost Estimate (Liquefaction Only) Status / Notes

LNG (1) Outlet Gas Field Gas (2) Total

mmtpa bcf/d bcf/d C$B

West Coast - Larger Scale Projects LNG Canada Kitimat (Cenovus Site) Shell / KOGAS / Mitsubishi / CNPC 2019 24.0 3.2 3.8 $24.0 NEB approved; CEA underway Pacific Northwest LNG Prince Rupert (Lelu Island) PETRONAS / JAPEX 2018 19.7 2.6 3.1 $10.0 NEB application filed; FID (2014); CEA underway; FEED study awarded WCC LNG Kitimat / Prince Rupert Exxon / Imperial 2021 30.0 4.0 4.7 TBA NEB application submitted Kitimat LNG Kitimat (Bish Cove) Chevron / Apache 2017 10.0 1.3 1.6 $9.5 NEB approved; Chevron took lead role in Dec 2012 Prince Rupert LNG Prince Rupert (Ridley Island) BG Group 2020 21.6 2.9 3.4 TBA Feasibility stage (2013/14); FID (2015); CEA filing & NEB application submitted Subtotal 105.3 14.0 16.6 43.5 East Coast Goldboro LNG Nova Scotia Pieridae Energy 2018 10.0 1.3 1.6 $5.0 NEB application pending; 20-year

• fftake with E.ON (5 mtpa)

Total 115.3 15.4 18.2 48.5

Source: Company Disclosure, NEB, PIRA, Platts, Wood Mackenzie Note: Mcf equivalent of LNG per day (48.7 mcf / tonne)

• 1. LNG produced at plant outlet.
• 2. Estimated feed gas requirement at the well head (48.7 mcf / tonne, 8% liquefaction loss, 8% field processing loss).

Canadian LNG Competitive Landscape – Large Scale (>1 bcf/d) Proposed Projects

Large scale announced Canadian LNG projects total 115 mmtpa or 15.3 bcf/d

31

Canadian LNG Competitive Landscape – Smaller Scale (<1 bcf/d) Proposed Projects

Project Location Ownership Start Year Capacity Cost Estimate (Liquefaction Only) Status / Notes

LNG (1) Outlet Gas Field Gas (2) Total

mmtpa bcf/d bcf/d C$B

West Coast - Smaller Scale Projects AltaGas / Idemitsu Kosan JV Prince Rupert AltaGas / Idemitsu Kosan 2017 2.0 0.3 0.3 TBA Feasibility study expected to be completed by 2014; considering FLNG Douglas Channel Energy Kitimat LNG Partners / Haisla / Golar / Unnamed Asian 2015 1.8 0.2 0.3 $0.5 NEB approved; Golar offtake and up to 25% ownership; FID Q3-13 LNG Direct Rail Hart, B.C. Adastra Energy TBA 1.5 0.2 0.2 $1.9 Initial consultation, preliminary planning Woodfibre Squamish B.C. Pacific Oil & Gas TBA 2.1 0.3 0.3 TBA Has 35% interest in Jiangsu Rudong regas facility in China Fortis to twin existing right of way and Spectra to provide 25 cm pipe support Discovery Campbell River, B.C. Quicksilver 2019 TBA TBA TBA TBA Regulatory process to begin before the end of 2013 Total 7.4 1.0 1.2 $2.4

Source: Company Disclosure, NEB, PIRA, Platts, Wood Mackenzie Note: Mcf equivalent of LNG per day (48.7 mcf / tonne)

• 1. LNG produced at plant outlet.
• 2. Estimated feed gas requirement at the well head (48.7 mcf / tonne, 8% liquefaction loss, 8% field processing loss).
• 3. BMO research estimate.

(3)



Small Canadian LNG projects account for ~6% of the total announced Canadian LNG volumes

32

Western Gas Prince Rupert Fort St. John Station 2 Terrace Prince George Fort Nelson PIPELINES Spectra – West coast Alliance TCPL – NOVA Groundbirch SHALE GAS PLAYS Montney Fairway Horn River Kitimat Vanderhoof BG Group Pacific Trails (Chevron) Coastal Gas (Shell) Summit Lake

West Coast B.C. LNG Supporting Pipelines

Dawson Creek Hudson Hope North Montney

$18.5 bn of proposed pipelines to transport ~11 bcf/d

33

Canadian LNG Relative Comparison

Supply Cost (Regional)

Canadian projects generally cost competitive relative to other global developments

Middle East Expansion Nigeria LNG Atlantic Basin Expansion Iranian LNG Trin/Egypt/Yemen Pacific Basin Expansions Atlantic Basin Other Greenfield Australia Expansion Canada LNG US Brownfield LNG FLNG East African LNG Australian Greenfield LNG Venezuela LNG Russian LNG

Source: Street Research, Wood Mackenzie

$/mmbtu 16.0 14.0 12.0 10.0 8.0 6.0 4.0 31 60 91 121 152 182 213 244 274 305 mtpa

Canada

34

BMO Capital Markets North American Natural Gas Fundamentals North American Demand and LNG Alternatives Canadian Unconventional Natural Gas Plays Summary

35

Summary

Canadian Unconventional Gas



3 Dominant plays in Canada – Montney, Horn River, and Duvernay



Economically competitive with other North American plays



Opportunities exist to acquire significant positions in each of these plays North American Liquefaction Gaining Momentum



Recent years have seen the announcement of numerous LNG liquefaction projects both in Canada and the U.S.



Global LNG market participants have been seeking out new sources of supply to fulfill existing obligations and to meet future increased demand – North America is quickly emerging as one of these sources as the recent shale gas boom has left the continent awash in natural gas; not long ago North America was planning on importing LNG

• 11 projects announced in Canada (122.7 mmtpa, 16.4 bcf/d), some of which are integrated greenfield developments tied to

upstream assets



Several other, as yet unannounced, projects also being developed

• 17 major projects announced in the U.S. (218.4 mmtpa, 29.1 bcf/d), a number of which are brownfield developments which will

leverage existing regasification facilities Canada an Attractive LNG Supply Source



Close proximity to end-use market



Shipping time from Canada to Asia comparable with Australian LNG



Significantly closer than the U.S.



Better ability to participate in integrated projects

36

Appendix A

Recent North American LNG Developments

Conoco (Freeport)



DOE recently approved Conoco’s Freeport LNG application – the first approval in 2 years



Many other projects are waiting on DOE decisions before moving forward Chevron / Apache (Kitimat LNG)



Chevron entered the Canadian LNG game by taking out EnCana and EOG in the Kitimat LNG project – Chevron will operate the facility with Apache as its partner operating the production



Crude-linked pricing remains primary obstacle Pacific Oil & Gas (Woodfibre)



Pacific Oil & Gas also announced a new project at Squamish, BC



200 mmcf/d facility on Howe Sound



Fortis and Spectra will build required pipeline



This is a brownfield site with an existing deep water port AltaGas / Idemistu JV



AltaGas partnered 50/50 on a joint venture with Idemistu, to explore LNG export opportunities with potential all-in investment in the $2-5 bn range (feasibility study currently underway) PETRONAS / JAPEX (Pacific Northwest LNG)



Progress (PETRONAS) announced the selection of TransCanada to build its pipeline to Prince Rupert (remember TransCanada is also building the pipeline for Shell to Kitimat) BG Group (Prince Rupert LNG)



Canadian Environmental Assessment Agency currently reviewing BG Group’s proposed 3.3 bcf/d Prince Rupert LNG export project proposal (construction to commence in 2016 with Phase 1 completion targeted by 2021)

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Other Potential Canadian LNG Projects

Grassy Point Project(s) – Expressions of Interest (EOI) Process



March 2013 BC government sought expressions of interest for LNG projects on Crown land at Grassy Point near Prince Rupert



Proponents required to:



Identify financial capacity, LNG experience, and natural gas source plan



Provide project description, aboriginal and community engagement and consultation, and potential to work with other companies/projects



Eligible EOIs received from:



Nexen/CNOOC/INPEX/JGC



Woodside Petroleum



SK E&S



Imperial Oil Resources/ExxonMobil



Eligible EOI undergoing evaluation by government to determine how many projects Grassy Point can accommodate Quicksilver (Discovery)



Quicksilver purchased Elks Falls industrial site in Campbell River, B.C. (Vancouver Island) from Catalyst Paper to develop LNG export facility



Regulatory process expected to begin before the end of 2013

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Canadian LNG Considerations



Federal Department of Transport working on report regarding shipping and infrastructure (radar and other) needs to facilitate more shipping capacity



Potential “black swans” (for example, Russia building natural gas pipe to South Korea)



BC government proposing LNG-funded Prosperity Fund



$100 to $260 billion to be generated from LNG royalties and business taxes



Intended to wipe out BC debt and eliminate sales tax



Increasing aboriginal assertion of ownership rights and entitlements (including right of consent)



Local west coast (Kitimat) First Nations groups supportive of LNG development



“The Haisla people look forward to a long partnership with Kitimat LNG. The economic opportunity that comes with the project will benefit our people for a very long time.”

• Chief Councilor Dolores Pollard (Haisla Nation)



Significant new-build electrical supply will be required to support the NEBC projects



Christy Clark is adamant that her province will “not allow the lack of power supply to stand in the way of further important steps in LNG.”

• Christy Clark (B.C. Premier)

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North American Liquefaction Canada vs. United States

Canadian Liquefaction Developing as Integrated Model



Canadian liquefaction development primarily occurring in NEBC; a relatively shallow and less liquid market than the U.S. GOM



Announced west coast liquefaction projects are expected to require ~19 Bcf/d of feed gas which is in excess of B.C’s current production by 4-5x – EOI projects could push excess much higher



In order to secure supply for Canadian liquefaction projects, liquefaction parties are moving into the upstream by way of joint ventures with Canadian producers and/or outright asset purchases



Potential to provide higher heat content gas; a characteristic that is preferred in certain markets, including Japan Political Environment



Energy export is more “politically charged” in the U.S. relative to Canada



The U.S. is traditionally an energy importer vs. Canada as an exporter



Potential U.S. LNG exports receiving push back from special interest groups – Many issues dealt with by DOE in Freeport permit



December 2012 – DOE commissioned NERA report which concluded that LNG exports are of a net benefit to the U.S.



May 2013 the DOE released Freeport NFTA export permit and confirmed:



Non-FTA export decisions on a case-by-case basis



DOE to take “measured approach” to granting permits



Will assess cumulative impact each successive request will have on public interest (including U.S. gas supply/demand)



Permits not to be issued unless developer shows there are / will be facilities to handle exports and gas supply (commercial maturity test)



Secretary of Energy, Ernest Moniz, saying DOE “will expeditiously work through the remaining (LNG permit) applications”

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North American Liquefaction Canada vs. United States (cont’d)

The U.S. Gas Market is Deeper & More Liquid than Canada’s



The U.S. market is significantly larger and more liquid than the Canadian market, in particular in the Gulf of Mexico (GOM) region where the majority of north American liquefaction projects are being proposed



GOM region (Texas, Louisiana and federal offshore) production is ~35 Bcf/d vs. 3 Bcf/d in B.C. Existing Regas Infrastructure Allows for Brownfield Development in the U.S.



The U.S. currently has 17 Bcf/d of LNG regasification infrastructure that is almost completely unutilized (~5% in 2011)



In addition to greenfield development, the majority of existing regas terminals are developing liquefaction capabilities and leveraging existing storage and regulatory approvals (brownfield)



Canada has only one regas facility that could facilitate brownfield development (Canaport – New Brunswick) U.S. Liquefaction Developing With Long-Term Agreements



LNG buyers entering into long-term arrangements to guarantee access to LNG



Not obligated to take LNG, thus protected against Henry Hub price volatility – But still pay on use-or-pay facilities agreements



Facilities are being underpinned by long-term tolling/processing agreements (i.e., Cheniere SBP, Sempra Cameron)



Upstream participants not economically integrated in U.S. liquefaction model

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Canadian LNG Required Gas – Select Projects

Canadian LNG Projects

Project Feed Gas Requirements (1) Resource vs. Required Gas Daily Total (25 Yr) Fill (2) Commentary bcf/d tcf Announced LNG Canada 3.8 34.5

Shell et al have the ability to source significant gas from their existing WCSB operations

Pacific Northwest LNG 3.1 28.3

With PETRONAS' acquisition of Progress this facility looks to be well supplied

WCC LNG 4.7 43.2

Significant upstream holdings through existing Imperial lands and recent Celtic acquisition

Kitimat LNG 1.6 14.4

The combined upstream resources of Chevron and Apache should be adequate

Prince Rupert LNG 3.4 31.1

No upstream resource identified to date

AltaGas / Idemitsu Kosan 0.3 2.9

Idemitsu CEO publicly stated that the company is looking for Canadian reserves for its LNG project

Douglas Channel 0.3 2.6

MOU for gas supply from third party (not equity gas)

Goldboro LNG 1.6 14.4

Although in a JV with Contact Exploration, has nowhere the gas supply required

Other / Potential (3) Nexen (CNOOC) / Inpex / Japan Gas 1.9 17.3

Expected gas to be supplied through partnership with Inpex and Japan Gas

Woodside 1.9 17.3

No upstream resource identified to date

SK E&S 1.9 17.3

No upstream resource identified to date

Total 24.5 223.3

• 1. Estimated well head gas assuming 8% liquefaction loss and 8% field processing loss.
• 2. BMO estimate of liquefaction feed gas requirements vs. resource currently held.
• 3. Assumed project size of 12 mmtpa.

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Is There Enough Gas?



The continent is “awash” in natural gas with the U.S. and Canada having 1,916 and 535 tcf of remaining resource, respectively



Illustratively, U.S. and Canada could sustain production rates of 53 and 16 bcf/d for 100 years, respectively



Given that western Canada’s proven resource only accounts for ~10% of the total (57 tcf, or 6 bcf/d over 25 years) LNG exports will be relying on probable / undiscovered resources to meet the potential demand



Geological plays such the Montney, Duvernay, and Horn River have been identified by industry as the likely sources of feed-gas for LNG – With 132 tcf of resource the Montney could sustain production levels of 14 bcf/d for 25 years Western Canada Natural Gas Resources

Source: Ziff Energy Group

98% 1% 1%Shale Gas 77% 14% 9%

Tight Gas

31 % 10% 59%

Shale Gas 260 Tcf Remaining 261 Tcf Ultimate Potential Horn 101 Tcf; Duvernay Rich 14 Tcf; Liard 140 Tcf Tight Gas 149 Tcf Remaining 163 Tcf Ultimate Potential Conventional Gas 121 Tcf Remaining 293 Tcf Ultimate Potential

CBM

Coalbed Methane 5 Tcf Remaining 7 Tcf Ultimate Potential

5% 63% 32%

Undiscovered Resource Proved Reserve / Resource Produced 189 Tcf

Remaining Resource 535 Tcf 44

Is There Enough Gas?



Overall, it is not a question of do we have the gas, but rather what gas (plays) will be developed to meet the demand



Factors such as heat content and proximity will largely influence which plays are developed for LNG export

Source: Ziff Energy Group 62% 26% 4% 8% 30% 33% 1% 12% 24% 22% 64% 3% 4% 7% 34% 13% 8% 14% 31%

Alaska 200 Tcf Remaining 217 Tcf Ultimate Potential Canada 535 Tcf Remaining 724 Tcf Ultimate Potential Rockies 296 Tcf Remaining 561 Tcf Ultimate Potential Appalachia 430 Tcf Remaining 459 Tcf Ultimate Potential

61% 3% 8% 28%

Pacific 56 Tcf Remaining 77 Tcf Ultimate Potential

9% 18% 1% 15% 57%

Mid-Continent / Permian 280 Tcf Remaining 635 Tcf Ultimate Potential

29% 16% 5% 50%

Pacific 56 Tcf Remaining 77 Tcf Ultimate Potential Undiscovered Conventional & Tight Gas Shale Gas CBM Proved Reserve Produced 1.389 Tcf

Remaining Resource 1,916 Tcf

North American Natural Gas Resources

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5 10 15 20 25 30 35 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 bcf / d Domestic Canadian Production Kitimat LNG Douglas Channel Pacific Northwest LNG Prince Rupert LNG LNG Canada WCC LNG Goldboro LNG AltaGas / Idemitsu Kosan LNG Direct Rail Woodfibre Domestic Canadian Consumption

LNG Export Relative to Status Quo (Canada)

Significant new production required to support LNG developments

Source: Wood Mackenzie

Illustrative Canadian Natural Gas Supply / Demand Balance (100% Project Completion)

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Project Location Ownership Start Year Capacity Cost Estimate (Liquefaction Only) Status / Notes

LNG (1) Outlet Gas (2) Field Gas (3) Total

mmtpa bcf/d bcf/d C$B

Non - FTA Approved Sabine Pass Louisiana Cheniere 2016 27.0 3.6 4.3 $10.0 FTA & NFTA approved (2.2 bcf/d), under construction Freeport Texas Conoco, Micheal Smith 2018 21.0 2.8 3.3 $10.0 FTA & NFTA approved (1.4 bcf/d) Lake Charles Louisiana BG, Southern Union 2018 15.0 2.0 2.4 TBA FTA & NFTA approved (2.0 bcf/d) Non - FTA In Process (4) Cove Point Maryland Cove Point LNG 2017 5.8 0.8 0.9 TBA FTA approved, NFTA pending Cameron Louisiana Sempra 2017 12.0 1.6 1.9 $6.0 FTA approved, NFTA pending Jordan Cove Oregon Veresen 2017 6.0 0.8 0.9 $5.4 FTA approved, NFTA pending Oregon LNG Oregon Oregon LNG 2017 9.6 1.3 1.5 $6.3 FTA approved, NFTA pending Corpus Christi Texas Cheniere 2017 13.5 1.8 2.1 $10.0 FTA approved, NFTA pending Excelerate Texas Excelerate Energy 2018 10.0 1.3 1.6 $4.8 FTA approved, NFTA pending; Floating Gulf Coast LNG Export Texas Gulf Coast LNG 2018 21.0 2.8 3.3 $12.0 FTA approved, NFTA pending Elba Island LNG Georgia EPB/Shell TBA 2.5 0.3 0.4 TBA FTA approved, NFTA pending Gulf LNG Liquefaction Co. Mississippi El Paso TBA 11.5 1.5 1.8 TBA FTA approved, NFTA pending CE FLNG Louisiana CE FLNG 2018 8.0 1.1 1.3 TBA FTA approved, NFTA pending Golden Pass Texas Qatar Petroleum TBA 15.6 2.1 2.5 $10.0 FTA approved, NFTA pending ST LNG Project Texas Pangea LNG (North America) Holdings 2017 8.0 1.1 1.3 TBA FTA approved, NFTA pending Other Magnolia LNG (Lake Charles) Louisiana LNG Limited 2017 8.0 1.1 1.3 $4.4 FTA approved (0.54 bcf/d) Main Pass Louisiana Freeport McMoRan TBA 24.0 3.2 3.8 TBA FTA approved; Floating Total / Average 218.4 29.1 34.4 $78.9

Source: Company Disclosure, NEB, Wood Mackenzie, PIRA, Platts

• 1. LNG produced at plant outlet.
• 2. Mcf equivalent of LNG per day (48.7 mcf / tonne).
• 3. Estimated feed gas requirement at the well head (48.7 mcf / tonne, 8% liquefaction loss, 8% field processing loss).
• 4. In order of non-FTA application processing per DOE.

U.S. LNG Competitive Landscape – Major Project Development

47

20 40 60 80 100 120 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 bcf / d Domestic U.S. Production Kenai Cameron Sabine Pass Freeport Excelerate Lake Charles Gulf LNG Liquefaction Co. Golden Pass Corpus Christi Gulf Coast LNG Export Jordan Cove Oregon LNG Cove Point Main Pass Cambridge CE FLNG ST LNG Project Elba Island LNG Magnolia LNG (Lake Charles) Domestic U.S. Consumption

LNG Export Relative to Status Quo (U.S.)

The U.S. would have to increase production in order to meet LNG exports, should they occur

Source: U.S. Energy Information Administration

Illustrative U.S. Natural Gas Supply / Demand Balance (100% Project Completion)

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Disclaimer

These materials are confidential and proprietary to, and may not be reproduced, disseminated or referred to, in whole or in part without the prior consent of BMO Capital Markets (“BMO”). These materials have been prepared exclusively for the BMO client or potential client to which such materials are delivered and may not be used for any purpose other than as authorized in writing by BMO. BMO assumes no responsibility for verification of the information in these materials, and no representation or warranty is made as to the accuracy or completeness of such information. BMO assumes no obligation to correct or update these materials. These materials do not contain all information that may be required to evaluate, and do not constitute a recommendation with respect to, any transaction or matter. Any recipient of these materials should conduct its own independent analysis of the matters referred to herein. “BMO Capital Markets” is a trade name used by the BMO Investment Banking group, which includes the wholesale arm of Bank of Montreal and its subsidiaries BMO Nesbitt Burns Inc. in Canada, BMO Capital Markets Corp in the U.S. and BMO Capital Markets Ltd in the U.K. BMO does not provide tax or legal advice. Any discussion of tax matters in these materials (i) is not intended to be used, and cannot be used or relied upon, for the purposes of avoiding any tax penalties and (ii) may have been written in connection with the “promotion or marketing” of the transaction or matter described herein. Accordingly, the recipient should seek advice based on its particular circumstances from an independent tax advisor.

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