canadian shale gas & lng 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 billionTotal Assets C$525 billionLTM Revenue C$16.3 billion Employees 46,000

Key Operating Data

Organization

Canada's first bank: established in 1817 Offers broad range of retail banking, wealth

management and investment banking services 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

ADVISORY SERVICES Acquisitions & Divestitures Mergers & Acquisitions Strategic Advisory Fairness Opinions Takeover Defense Share Buybacks Valuation Analysis

TREASURY SERVICES Cash Management Risk Management Asset Management Foreign Exchange Trade Finance

DISTRIBUTION & TRADING Institutional Sales Trading Equity Research Fixed Income Research Investor Marketing Investor Conferences Account Sponsorship Retail Distribution

CORPORATE FINANCE Initial Public Offerings Follow-on Offerings Convertible Securities Mezzanine Lending High-Yield Debt Investment-Grade Debt Corporate Lending Securitization Private Placements

AUSTRALIAMELBOURNE

EUROPEDUBLIN | LONDON | LUGANO | MUNICH | ZURICH | PARIS

NORTH AMERICAATLANTA | BOSTON | CALGARY | CHICAGO | DALLAS | DENVER | HOUSTON |

LOS ANGELES | MEXICO CITY | MONTREALNEW YORK | SAN FRANCISCO | TORONTO | VANCOUVER

SOUTH AMERICARIO DE JANEIRO

Note: BMO financials – as of October 31, 2012

ASIAABU DHABI | BEIJING | DELHI | GUANGZHOU | HONG KONG | SHANGHAI | TAIPEI

2

Investment & Corporate Banking Financial Solutions

MERGERS & ACQUISITIONS

Provider of premier M&A services to public and private clients of varying sizes

Over 50 professionals globally

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

LOAN FINANCING

Arranger, underwriter and provider of syndicated loan financing for M&A, leveraged finance, bridge facilities, project finance and general corporate purposes

125 professionals globally

Complete suite of advisory and corporate banking solutions

EQUITY CAPITAL MARKETS

Equity underwriter for public and private companies through IPOs, follow-on common share and trust offerings, preferred shares, private placements and convertible debentures

Over 19 professionals globally

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

`

ACQUISITIONS & DIVESTITURES

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

13 professionals in Canada and 19 in the United States

3

BMO Global Energy Group

145+ Energy professionals with global reach

GUANGZHOU

HONG KONGDELHI

SHANGHAI

TAIPEI

BEIJING

MELBOURNE

RIO DE JANEIRO

DUBLINLONDON

ZURICHVANCOUVER TORONTO

SAN FRANCISCO NEW YORK

MONTREAL

MEXICO CITY

LOS ANGELES

CALGARY

CHICAGODENVER

HOUSTONMILWAUKEE

BOSTON

ATLANTA

PARIS

Key

BMO Energy Offices

Other BMO Offices

North America Based International Reach

HoustonCorporate FinanceA&DLendingResearchM&ACommodities/Derivatives

17161261

10

CalgaryCorporate FinanceA&DLendingResearchCommodity Traders

161312103

TorontoEnergy ECMEnergy SalesEnergy M&A

334

New YorkLendingEnergy SalesCommodity Traders

813

LondonCorporate FinanceLendingCommodity Traders

1612

Hong KongCorporate Finance 1

MelbourneCorporate Finance 4

Delhi Corporate Finance 4

AsiaIndia

AustraliaEurope

ABU DHABI

Abu DhabiLending 1

BeijingCorporate Finance 4

4

Last Twelve MonthsRank Name Transactions Size

(#) (C$ mm)

1 BMO Capital Markets 6 $26,8212 RBC Capital Markets 13 $21,5873 Citi 2 $18,4964 Goldman Sachs & Co 1 $17,9005 Bank of America Merrill Lynch 2 $6,1476 HSBC Bank 2 $2,5267 TD Securities 7 $1,8188 GMP Securities 10 $1,5289 Credit Suisse 3 $1,309

10 Evercore Partners 4 $1,201Other 49 $7,546

Advisor on Merger withWestFire 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 billionAdvisor

on Montney Joint Venture with PETRONAS

November 2011

US$2.2 billionAdvisor on Acquisition of

OPTI Canada Inc.

$611 millionAdvisor on Acquisition of Wild Stream Exploration

Inc.

March 2012May 2012

$1.9 billionAdvisor on sale to

Pengrowth Energy

February 2013

US$17.9 billionAdvisor 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 millionAdvisor on Acquisition of

Ute Energy

November 2012December 2012

$6.0 billionAdvisor on Sale to

PETRONAS

Pending

$510 millionAdvisor 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

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

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

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




Summary

7

Unconventional Natural Gas Plays

Source: Street Research

Muskwa

Duvernay Shale*

Horn River*

*Montney

CardiumDeep Basin

Glauconite

Colorado Group

Cody

MowryJonah

Hillard-Baxter-Mancos

MancosHermosa

San Juan

Lewis

Gamon

Niobrara

Piceance

PierreBend

Barnett-Woodford

Pearsall-Eagle FordPermian

Mississippi LimeGranite Wash

Anadarko

Barnett

WoodfordWoodford-Caney

Excello-Mulky

Haynesville

Tuscaloosa

Conasauga

Devonian

NewAlbanyUtica

MarcellusAntrim

Michigan Basin

Utica Shale Horton Bluff Fm

Collingwood/Utica

Unconventional/TightGas 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


Source: Wood Mackenzie

West Coast Natural Gas PlaysYUKON NORTHWEST TERRITORIES

ALBERTA

BRITISH COLUMBIA

SASKATCHEWANMANITOBA

Liard Basin Horn

River

Montney

Duvernay

CordovaEmbayment

Western CanadaSedimentary Basin

Horn River: Resource Potential: ~100 tcfCurrent 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 RORmmcf/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 0 - 2 12 - 18 0 - 25Duvernay 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)

1,2811,024 1,011

841694 688

303 266 264 256 201 195 195 190 180

0200400600800

1,0001,2001,400

531450

313 266 245203

156 148 139 141 138 116 113 84 72

0100200300400500600

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

Sec

tions

Net

Sec

tions

Net

Sec

tions

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

0

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

Wel

l Cou

nt

Nat

ural

Gas

Pro

duct

ion

(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 Holders1,281

1,024 1,011841

694

0200400600800

1,0001,2001,400

Net

Acr

es

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

0

75

150

225

300

0.0

0.2

0.4

0.6

0.8

2008 2009 2010 2011 2012 2013

Wel

l Cou

nt

Nat

ural

Gas

Pro

duct

ion

(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 Holders531

450

313266 245

0

100

200

300

400

500

600

Net

Acr

es

Duvernay Gas Production - Alberta

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

Duvernay Production Profile

Well Location Map

0

10

20

30

40

0.0

5.0

10.0

15.0

20.0

2011 2012 2013

Wel

l Cou

nt

Nat

ural

Gas

Pro

duct

ion

(MM

cf/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 563400 381

0

200

400

600

800

1,000

1,200

Net

Acr

es

0

2

4

6

8

10

12

0 12 24 36 48 60 72

Dai

ly G

as R

ate

(MM

cf/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 ParametersIP 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




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

NYM

EX

Nat

ural

Gas

Pric

e (U

S$/

mm

btu)

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

0

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 oilAlaska

36% Shale gas

Coalbed methane

Tight gas

Associated with oilAlaska

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


U.S. Unconventional Production

Source: EIA

Total US shale gas production growth is flattening

Marcellus production is increasing while Haynesville production is declining

0

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

Cou

nt

Nat Gas Rotary Rig Count Dry Gas Production


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

0

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

Pro

duct

ion

(bcf

/d)

Eastern Canada Coal Bed Methane Western Canada UnconventionalWestern 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)


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

Supp

ly C

osts

($/m

cf)

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




Summary

24

13.0

8.7

18.920.7

11.48.0

19.5

24.9

13.2

8.7

20.022.1

12.8

8.7

20.3 21.6

0

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: EIANote: 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

$/(m

mbt

u)

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 2013U

S$/M

Mbt

u

LNG Premium (NYMEX)

LNG Premium (AECO)

--

$5

$10

$15

$20

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

US$

/MM

btu

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 capacityRobust 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 out in time(a) Delays in Australian

projects(b) Development

challenges faced in other 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 MackenzieNote: 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 LNGGlobal 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) $1.73LNG - 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) $7.74Illustrative 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

GreenfieldBrownfieldSedimentary BasinsGas PipelinesGas Pipelines (Proposed)Cdn projects shaded

LegendKenai 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) Totalmmtpa 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 offtake with E.ON (5 mtpa)

Total 115.3 15.4 18.2 48.5Source: Company Disclosure, NEB, PIRA, Platts, Wood MackenzieNote: 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


LNG (1) Outlet Gas Field Gas (2) Totalmmtpa 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 KitimatLNG 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 $2.4Source: Company Disclosure, NEB, PIRA, Platts, Wood MackenzieNote: 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

PrinceRupert

Fort St. John

Station 2

Terrace

Prince George

Fort Nelson

PIPELINESSpectra – West coast AllianceTCPL – NOVAGroundbirch

SHALE GAS PLAYSMontney FairwayHorn 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 LNGRelative 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 BasinExpansions

Atlantic BasinOther Greenfield Australia Expansion Canada LNG US Brownfield LNG

FLNG East African LNG Australian GreenfieldLNG Venezuela LNG Russian LNG

Source: Street Research, Wood Mackenzie

$/mmbtu16.0

14.0

12.0

10.0

8.0

6.0

4.00 31 60 91 121 152 182 213 244 274 305

mtpa

Canada

34

BMO Capital Markets




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 futureincreased 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 forwardChevron / 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 obstaclePacific 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)

38

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

39

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 withthe 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)

40

North American LiquefactionCanada 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”

41

North American LiquefactionCanada 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

42

Canadian LNG Required Gas – Select Projects

Canadian LNG ProjectsProject Feed Gas Requirements (1) Resource vs. Required Gas

Daily Total (25 Yr) Fill (2) Commentarybcf/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.

43

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 Gas260 Tcf Remaining261 Tcf Ultimate PotentialHorn 101 Tcf; Duvernay Rich 14 Tcf;Liard 140 Tcf

Tight Gas149 Tcf Remaining163 Tcf Ultimate Potential

Conventional Gas121 Tcf Remaining293 Tcf Ultimate Potential

CBM

Coalbed Methane5 Tcf Remaining7 Tcf Ultimate Potential

5%

63%

32%

Undiscovered ResourceProved Reserve / ResourceProduced 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%

Alaska200 Tcf Remaining217 Tcf Ultimate Potential

Canada535 Tcf Remaining724 Tcf Ultimate Potential

Rockies296 Tcf Remaining561 Tcf Ultimate Potential

Appalachia430 Tcf Remaining459 Tcf Ultimate Potential

61%

3%

8%

28%Pacific56 Tcf Remaining77 Tcf Ultimate Potential

9%

18%

1%15%

57%Mid-Continent / Permian280 Tcf Remaining635 Tcf Ultimate Potential

29%

16%

5%

50%

Pacific56 Tcf Remaining77 Tcf Ultimate Potential

UndiscoveredConventional & Tight GasShale GasCBMProved ReserveProduced 1.389 Tcf

Remaining Resource 1,916 Tcf

North American Natural Gas Resources

45

0

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 ChannelPacific Northwest LNG Prince Rupert LNG LNG CanadaWCC LNG Goldboro LNG AltaGas / Idemitsu KosanLNG 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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LNG (1) Outlet Gas (2) Field Gas (3) Totalmmtpa 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 pendingCameron Louisiana Sempra 2017 12.0 1.6 1.9 $6.0 FTA approved, NFTA pendingJordan Cove Oregon Veresen 2017 6.0 0.8 0.9 $5.4 FTA approved, NFTA pendingOregon LNG Oregon Oregon LNG 2017 9.6 1.3 1.5 $6.3 FTA approved, NFTA pendingCorpus Christi Texas Cheniere 2017 13.5 1.8 2.1 $10.0 FTA approved, NFTA pendingExcelerate Texas Excelerate Energy 2018 10.0 1.3 1.6 $4.8 FTA approved, NFTA pending; FloatingGulf Coast LNG Export Texas Gulf Coast LNG 2018 21.0 2.8 3.3 $12.0 FTA approved, NFTA pendingElba Island LNG Georgia EPB/Shell TBA 2.5 0.3 0.4 TBA FTA approved, NFTA pendingGulf LNG Liquefaction Co. Mississippi El Paso TBA 11.5 1.5 1.8 TBA FTA approved, NFTA pendingCE FLNG Louisiana CE FLNG 2018 8.0 1.1 1.3 TBA FTA approved, NFTA pendingGolden Pass Texas Qatar Petroleum TBA 15.6 2.1 2.5 $10.0 FTA approved, NFTA pending

ST LNG Project Texas Pangea LNG (NorthAmerica) Holdings 2017 8.0 1.1 1.3 TBA FTA approved, NFTA pending

OtherMagnolia 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; FloatingTotal / Average 218.4 29.1 34.4 $78.9Source: Company Disclosure, NEB, Wood Mackenzie, PIRA, Platts1. 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

0

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 PassFreeport Excelerate Lake Charles Gulf LNG Liquefaction Co.Golden Pass Corpus Christi Gulf Coast LNG Export Jordan CoveOregon LNG Cove Point Main Pass CambridgeCE 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)

48

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These materials are confidential and proprietary to, and may not be reproduced, disseminated or referred to, in whole or in part withoutthe prior consent of BMO Capital Markets (“BMO”). These materials have been prepared exclusively for the BMO client or potential clientto which such materials are delivered and may not be used for any purpose other than as authorized in writing by BMO. BMO assumesno responsibility for verification of the information in these materials, and no representation or warranty is made as to the accuracy orcompleteness of such information. BMO assumes no obligation to correct or update these materials. These materials do not contain allinformation that may be required to evaluate, and do not constitute a recommendation with respect to, any transaction or matter. Anyrecipient 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 ofMontreal and its subsidiaries BMO Nesbitt Burns Inc. in Canada, BMO Capital Markets Corp in the U.S. and BMO Capital Markets Ltd inthe 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 beused or relied upon, for the purposes of avoiding any tax penalties and (ii) may have been written in connection with the “promotion ormarketing” of the transaction or matter described herein. Accordingly, the recipient should seek advice based on its particularcircumstances from an independent tax advisor.

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canadian shale gas & lng presentation

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