November 3, 2009 • Volume 2, No. 16

MIDSTREAMNEWS

Serving the marketplace with research, insight and transaction opportunities

Oxy buys Phibro for ~$250 MM, ups presence in commodities Midstream outlook presented at NESA forum

Also beefs up processing infrastructure at Elk Hills

Occidental Petroleum Corp. will purchase Phibro LLC from Citigroup Inc. at approximate net asset value. Phibro is primarily a trader in oil and gas, with assets of cash, marketable securities and readily saleable commodity positions; Oxy’s net investment in Phibro will be about $250 million. The purchase increases Oxy’s presence in global commodities trading, therefore, arguably, exposes the company to more risk. However, Phibro doesn’t use exotic derivatives – and Oxy’s net investment of $250 million is but 0.4% of Oxy’s Oxy pays book-value price and/or market capitalization. So, the ultimate risk is 0.7X five-year average Phibro earnings generally thought to be minimal. of $371 million. Phibro will become part of Oxy’s midstream segment which includes its existing trading business, LNG, pipeline, and power assets. The transaction is expected to close by year end, after which Oxy will support Phibro’s credit. Also, Oxy’s processing plant at the Elk Hills field is being expanded to compensate for flows from a new discovery in Kern County, Calif. OXY continues on page 10

Holly to buy Sinclair’s Tulsa refinery for $128.5 million Will sell some assets from existing Tulsa refinery to Plains for $40MM Holly Corp. has entered an agreement with a Sinclair Oil Corp. subsidiary to buy Sinclair’s refinery in Tulsa, Okla. The $128 million price comprises $54.5 million cash and $74 million in Holly common stock. The refinery has a 75,000 BPD processing capability and 2.3 million bbl storage. Holly will also buy the refinery’s ~500,000 bbl inventory, and the company plans to integrate the purchase with its existing 85,000 BPD Tulsa refinery. The company will enter a long-term agreement to Holly and Plains All American will provide up to 50,000 BPD gasoline and diesel to Sinclair, supplying its branded and continue to collaborate with storage unbranded marketing network throughout the opportunities. U.S. Midwest. As part of the same agreement as the refinery purchase, Holly Energy Partners LP, agreed to buy ~1.4 million bbl of additional storage at Sinclair’s Tulsa facility, as well as light products, asphalt and propane loading racks and a delivery pipeline. Holly subsidiaries will enter long-term HOLLY continues on page 9 contracts to supply storage, loading and delivery services.

Vitol acquires SemGroup’s general partner & 12.6 MM shares SemGroup Energy Partners reaches key bankruptcy settlement The Netherlands-based Vitol Inc. is purchasing a 100% interest in SemGroup Energy Partners GP LLC, and 12.6 million subordinated units in SemGroup Energy Partners LP. Financial terms haven’t been disclosed, and consummation remains subject to customary conditions and approvals. On October 26, SemGroup received court approval for a $122 million settlement, reportedly critical to ending the contentious 15-month bankruptcy. SemGroup collapsed in 2008 after the CEO lost billions on unauthorized sales of crude oil options. Troubled SemGroup continues to And since that October 8 news of the Vitol restructure. acquisition, an ex-SemGroup LP executive was charged by the U.S. Securities and Exchange Commission on October 23 with dumping stock in subsidiary SemGroup Energy Partners LP before the public learned the parent company was collapsing financially. SemGroup is a midstream service company with operations, assets and customers in the United States, Canada, Mexico and Wales. Vitol bought the stake from a hedge fund, Manchester Securities Corp., which had acquired it when SemGroup Energy’s former affiliate defaulted on a loan in June.

Crestwood Midstream Partners LLC presented to the 2009 NESA Energy Forum on October 8 an update on midstream mergers, acquisitions, and the Haynesville area project development. The M&A current outlook of the presentation noted higher capital costs, but access still remaining for investment grade MLPs – though they are not as dominant, due to capital costs, and with questions remaining about volumes and margins. The report shows buyers awaiting impact of lower rig counts on throughput volumes, and notes divergent views from Bentek and Tudor Pickering & Holt on forward gas prices. Investors are purportedly more interested in infrastructure shale plays, and feebased regulated transport – and less interested in gathering and processing, refining and fluids infrastructure, and storage. A current oversupply of natural gas has led to reduced drilling activity and is the predominant issue in the sector, with a 49% decline in rig count that could potentially drop supply by 5 BCFD from 2008-2010, as well as potentially significant volume declines from conventional areas. The report also cites the changing basis differentials impacting historical price relationships, due to REX and growing Marcellus supply, and Barnett/Carthage/ Haynesville volumes moving east likely driving down Gulf Coast basis differentials. The presentation forecasts that lower gas prices and higher oil prices will support improved processing margins in near term, MIDSTREAM continues on page 11

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MIDSTREAMNEWS

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Tuesday, November 3, 2009

Midstream News North American midstream gas infrastructure needs follow growing demand into the future The ongoing chatter about gas has become a dull roar, and it’s getting louder. North American gas supplies and markets per projected growth will require billions in additional pipeline, storage, and other midstream infrastructure investments through 2030, according to a recent Interstate Natural Gas Association of America study. Vast unconventional reserves continue to be brought into the midstream pipeline. Right now gas prices are so low that producers are drilling fewer wells – few enough that it’s benefiting oil producers, who use the same rigs and are finding less competition for them. That, among other conditions are favorable for oil drillers, and oil prices are on an upswing, with crude topping $80/bbl in recent days. Furthermore, a hearing organized by the Natural Gas Caucus, a group of U.S. House of Representatives members, took place October 20. Their agenda is pushing gas to the forefront of debates about domestic jobs, clean energy, and reducing our dependence on foreign oil and the OPEC cartel. Large reserve discoveries and their development continue to accompany the midstream sector through a bullish world market. And, while Enbridge Inc. says companies have overbuilt capacity from Canada to the United States with thoughts of oil sands production before crude prices fell, still new pipelines out of the oil sands are in the works to allow producers more access to global markets. And, British Columbia and northwest Alberta’s Horn River and Montney shale gas plays are on the rise. Gas is still of waxing interest worldwide. Chevron has developed streamlined steamflooding carbon dioxide injection to squeeze oil from the Kern River Field in California’s San Joaquin Valley, and will do the same at other aging legacy formations worldwide while keeping its investments to accommodate the growing gas markets – a good example of which is the forthcoming Western Australia Gorgon gas project. And now, Australia is booming with its unconventional coal-seam gas formations, driven by markets in the Southern and Eastern hemispheres. ConocoPhillips is also Down Under, involved in one of five facilities to convert that CSG to LNG. Unconventional plays keep tempting companies on other world stages, and midstream follows. Exxon Mobil Corp. has acquired unconventional acreage in Poland’s Podlasie and Lublin basins. ConocoPhillips will explore formations in the Baltic Basin. Production from these and other European plays feed demand on the European Union market while some regional players seek to grow more independent of Russian supplies. On the other hand, Gazprom’s activity in Western Europe increases as Petgas Trading Ltd., a subsidiary of Malaysia’s Petronas, enters ventures with the British-based arm of the Russian gas giant, involving the Dragon LNG terminal in south Wales. Back home, the INGAA study projects new infrastructure needs of 29,000-62,000 more miles of gas pipelines, and some additional 370 to 600 BCF storage; as well as some additional 6.6 to 11.6 million HP of transmission compression, up to 26,000 miles of gathering lines, as much as 38 BCFD more processing capacity, and about 3.5 BCFD of LNG import terminal capacity. This midstream development and traffic comes hand-in-hand with E&P growth and change. — By Gentry Braswell, MidstreamNews editor

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a tri-weekly report on gathering, purchases, pipelines, mergers, acquisitions, capital and performances in the midstream marketplace. In addition to the news, the report also carries listings of property (PP), override (RR) and midstream (G) assets for sale, along with lands (L) and prospects (DV). Anonymous listings are coded alpha-numerically. Clients interested in accessing only listingpackage information call (or email) PLS and provide the listing codes. Besides the MidstreamNews, PLS publishes a monthly recap of the e&p market in the Prospects & Properties and a&d market recaps in the A&D Transactions. Additional product details can be obtained by visit our website at www.plsx.com.

MIDSTREAMNEWS PLS, Inc. P.O. Box 4987, Houston, TX 77210 Phone: (713) 650-1212 Fax: (713) 658-1922 Website: www.plsx.com Managing Director of Research Brian Lidsky - [email protected]

Editor Gentry Braswell - [email protected]

Listings Ross Benoche - [email protected]

Graphic Design Kathy Clark - [email protected]

Advertising Beau Kelley - [email protected]

Publishing & Conferences Advisory Board Doug Jacobson, Chesapeake Energy Corp. John Gargani, Southwestern Energy Co. Robert Turnham, Goodrich Petroleum Corp. M. Lynn Bass, GasRock Capital, LLC Cathy Sliva, BlueRock Energy Capital, LTD Frank Pottow, Greenhill Capital Adrian Goodisman, Scotia Waterous Alan Smith, Quantum Resources Management David Marchese, Haddington Ventures, LLC

Dorado completes growth equity investment in Zephyr Dorado Energy Partners LP affiliate Dorado Gas Processing LLC has provided a capital injection to the Houston-based Zephyr Gas Services LP. Zephyr provides equipment rental, sales and service of treating and processing equipment to the natural gas industry. Zephyr designs and rents, under long-term contracts, turnkey Amine Plants, Natural Gas Coolers, Joule-Thomson Plants and other miscellaneous equipment including storage tanks. Existing Zephyr projects include facilities in Texas and Louisiana. Dorado Energy is a Houston-based private equity firm specializing in acquisitions and recapitalizations of middle-market companies with enterprise values between $10 and $50 million in the energy service industry.

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3 Midstream News Arena Resources contracts to transport FuhrmanMascho crude production Arena Resources Inc. finalized a contract to transport most of its crude oil production from its Fuhrman-Mascho property in Andrews County, Texas. The gathering system will connect about 70% of the current daily production by the end of this year, and additional tank batteries will be added as rapidly as possible. Some 95% of the Fuhrman-Mascho will be transported by pipeline upon project build out; what remains will continue to be trucked. Arena Resources Inc. operates in Texas, Oklahoma, Kansas and New Mexico. The company estimates a savings of $1/bbl in transportation charges through this contract.

TEAK Midstream launched with $100 MM startup The Irving, Texas-based Natural Gas Partners has provided a $100 million startup investment for the Dallas-based TEAK Midstream LLC to acquire and develop midstream assets in key gas producing areas of the United States. TEAK is led by Chris Aulds and James Wales – whom are two of the original three Crosstex Energy Inc. founders – where they were instrumental in growing that company from a $4 million startup in 1996 to a $3 billion publicly traded company when they left it in 2007. TEAK aims to provide midstream services such as gathering, transmission, treating, processing, compression, marketing and price risk management, initially focusing on gas production in Texas, Louisiana, Oklahoma and Mississippi – with further expansion per a customer-need basis. Prior to service at Crosstex, Aulds was with Comstock Natural Gas; Victoria Gas Corp.; and Mobil Oil Corp. And prior to his service at Crosstex, Wales was with Sunrise Energy Services Inc. as a founder; Lear Petroleum subsidiary Producers Gas Co.; Triumph Natural Gas, Inc.; and Union Carbide. An affiliate of NGP Energy Capital Management, Natural Gas Partners manages $7.3 billion in a family of funds that invests private equity capital in oil and gas production and oilfield service companies.

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Tuesday, November 3, 2009

MIDSTREAMNEWS

Note from Brian Lidsky– Managing Director of Research Investors and Washington are taking notice of the required buildout of natural gas infrastructure related to the North American shales. The shales are increasingly recognized as a “game changer” for North American energy needs. In Washington, the newly formed Natural Gas Caucus, a group of U.S. House of Representative members, will hopefully factually promote the benefits of natural gas versus coal as a policy issue. In this issue of Midstream News, PLS highlights Oxy’s fortunate buy of Phibro LLC for a mere 0.7X average earnings over the last five years of $371 million. Holly Corp. buys a second Tulsa refinery from Sinclair Oil for $128 MM and Netherland-based Vitol acquires significant control of SemGroup who has been embattled in a contentious 15 month bankruptcy proceeding. Other highlights include an excellent market presentation by Crestwood Midstream Partners who raised $500 MM from Kayne Anderson, Blackstone, GSO Capital Partners and management with a goal to acquire and invest in midstream assets. Other news covered include Conoco’s plans to shed $10 billion in assets including midstream and the rejection of FP&L’s $1.5 billion, 300 mile natural gas pipeline running down the east coast of Florida. For the industry as a whole, the market is gaining confidence as indicated by increasing momentum of M&A activity and financings, both upstream and midstream. This is good news. For the midstream sector, the Alerian MLP Index (an indicator of market health) has sharply corrected from its early 2009 meltdown where yields touched more than 12% and are now in the 8% range. To put this in perspective, back in 2001 with the Enron bankruptcy and midstream crisis, the index yield dropped from about 7% to 8.25%. At the peak of commodity prices in July 2008, the yield was in the 7% territory. On a cash flow basis, forward multiples as indicated by M&A deals for the natural gas pipeline and gathering/processing sectors are in the 6.0X range.

El Paso reopens gathering and processing business unit Having left the segment in January 2005, El Paso Corp. announced October 19 an executive committee realignment to re-enter the gathering and processing business. Current Executive Vice President/CFO Mark Leland will become the company’s executive vice president and president of its midstream group; he will be responsible for a newly created midstream business unit. Leland was formerly the COO of GulfTerra Energy Partners LP which was El Paso’s former midstream master LP. “The North American natural gas industry is undergoing a period of rapid evolution, presenting new opportunities for synergies among our existing pipeline and E&P business and a midstream unit,” said Doug Foshee, El Paso chairman/president/CEO. “We intend to reenter the midstream business at a measured pace.” Though having continued to grow with El Paso Corp. re-realigns, after divesting much of what can still be categorized as “mid- a midstream portion in 2005. stream” such as pipeline infrastructure, nevertheless, in its FY2005 annual report to the Securities Exchange Commission, El Paso stated it had: “Completed or announced the divestiture of substantially all our remaining operations in our midstream power and other businesses, for total proceeds of approximately $2.4 billion ($2 billion through December 31, 2005). The net effect of these sales activities resulted in substantial losses in 2005. “During the past several years we have sold nearly $12 billion of assets to reduce debt and improve liquidity. These businesses were either not core to our long-term objectives or were performing below the expectations we had for them at the time we made the investment. “These divestitures have resulted in significant financial losses through asset impairments, realized losses on asset sales and reduction of income from the businesses sold. We have sold substantially all of our power and midstream assets and in 2006 we expect to be substantially complete with the divestiture of our non-core activities,” the 2005 report read. “As of December 31, 2005 our Field Services segment conducted our remaining midstream activities, which consisted principally of two processing plants that support our Exploration and Production segment activities in the Rocky Mountain area. These facilities had operational capacity of 49 MMCFD. In January 2006, these plants were transferred to our Exploration and Production segment. As a result, our Field Services segment will cease to be a business segment in 2006.”

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MIDSTREAMNEWS

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Tuesday, November 3, 2009

A&D News Crosstex acquires Phillip Morris NGL plant for $42 MM Crosstex Energy LP acquired the Eunice NGL processing plant and idle fractionation facility from Phillip Morris for about $42 million, including about $18 million of assumed debt. Crosstex already managed these south central Louisiana assets, under an operating lease with Phillip Morris. Crosstex estimates the acquisition improves its adjusted cash flow by about $12 million/year by eliminating the lease expense. The Eunice plant processes gas, separating NGL to produce dry, pipeline quality gas; the plant has a 190,000 bbl above-ground NGL storage capacity, interconnected with Crosstex’s Cajun-Sibon pipeline and Riverside fractionation system that separates ethane, propane, isobutene, butane and gasoline. The Eunice and Riverside fractionation facilities are connected with Crosstex’s underground storage unit at Napoleonville as well as to pipeline distribution systems for the sale Assets are plugged into Crosstex’s of NGL products in the Napoleonville and Cajun-Sibon pipeline and Riverside Mississippi River markets. The Eunice site fractionation system. contains a truck and rail offload terminal for gathering NGL for fractionation from U.S. eastern and western markets. The idle fractionation facility at Eunice can be restarted if necessary to alleviate fractionation constraints at Mont Belvieu, Texas, an industry NGL hub. Crosstex is a Dallasbased midstream gas company, operating about 3,300 miles of pipeline, 10 processing plants, and three fractionators. Currently it provides services for about 6% of marketed U.S. daily production.

Kinder Morgan will buy GMX assets for $36 million Sale comprises a 40% interest in gas gathering and compression system Kinder Morgan Energy Partners LP will buy a 40% interest in GMX Resources Inc. gas gathering and compression business for $36 million. The infrastructure being purchased provides gathering services to GMX in its Cotton Valley Sands and Haynesville/Bossier Shale horizontal developments in East Texas. GMX subsidiary Endeavor Pipeline Inc. will continue to be the operator of the system. Salt water assets and other poly pipelines will not be part of the transaction, remaining wholly in the possession of Endeavor Pipeline. Right now, gas is gathered from about 130 wells via the company’s 120 miles of pipelines and 22,500 HP of owned compression. KMP is the largest U.S. pipeline partnership by market value and announced October 21, that its Q3 profit increased 9%, and that cash flow for investor payouts went up because of increased pipeline fees and higher gas volumes.

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Chesapeake at odds with residents over right of way A three-quarter mile gas pipeline planned by Chesapeake in Cow Town has incensed neighbors and inspired activity in the Texas legislature that would provide higher thresholds of legal protection. The state Department of Transportation won’t allow Chesapeake Energy Corp. to build the 16-inch line connecting two Barnett Shale wells along Interstate 30, because there are not feeder roads on that stretch. Chesapeake filed condemnation suits against several homeowners in 2009. So far, Chesapeake’s chosen alternate pipeline location is along Carter Avenue, and would involve the front yards of more than 30 homes. The City of Fort Worth indicates Residents, regulators, local government, Chesapeake has apparently done appropriate due diligence thus far regarding its site selec- and Chesapeake are at loggerheads. tion; Chesapeake indicates the Carter Avenue route is the most logical; TXDOT has suggested Chesapeake build a feeder road in order to build the line on the interstate. Chesapeake Energy Corp., in an October 13 statement, said it expects 2009 production of 815-825 BCF – beyond its August 3 forecast of 805-815. The company anticipates its 2010 production at 882-902 BCF, ahead of its prior projection of 865-885.

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3-Vertical Wellbores. Need Completions HAYNESVILLE SHALE COMPLETION /$ Need Laterals & Frac Completions. ~40% OPERATED WI; ~30% NRI (Lease) Wells Should Come On: 5.0-10.0 MMCFeD Individual Well Reserves: 5.0-6.5 BCFe Pipeline Infrastructure in Place SELLER NEEDS CAPITAL TO COMPLETE PLS HAS SIGNIFICANT DATA ON DEALS

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Tuesday, November 3, 2009

MIDSTREAMNEWS

Kinder Morgan authorized to increase pressure on three lines Intercontinental Exchange Texas Gas Transmission completes repairs, will operate at standard pressure

will be more strictly regulated

Kinder Morgan Energy Partners LP will increase maximum pressure design from 0.72 to 0.8 of specified-minimum and minimum-yield-strength pressure on segments of the Kinder Morgan Louisiana, Midcontinent Express and Rockies Express pipelines. Approval as sought by KMP from the Pipeline and Hazardous Materials Safety Administration enables the three major pipelines to serve their full current-contracted capacity levels. Boardwalk Pipeline Partners LP’s Texas Gas Transmission LLC has completed renovations on its Fayetteville and Greenville Laterals, and will begin operating them at 0.72 of specified-minimum and minimum-yield-strength pressure. The company will continue to seek authority from the Pipeline and Hazardous Materials Safety Administration to operate at higher operating pressures. The Fayetteville Lateral comprises 165 miles of 36-inch pipeline originating in Conway County, Ark., interconnecting with the Texas Gas mainline in Coahoma County, Miss. The Greenville lateral consists of 95 miles of 36inch pipeline originating at the Texas Gas Pressure permissions will increase mainline near Greenville, Miss., extending to transport capacity among U.S. pipeline Kosciusko, Miss. networks. The Kinder Morgan Louisiana Pipeline is a 133-mile line that transports to multiple connects from the Cheniere Sabine Pass LNG terminal in Louisiana. KMP will increase to the 0.8-design pressure along the entire line. The pipeline has a 3.2 BCFD capacity, fully subscribed by Chevron and TOTAL for 20 years. The 500-mile Midcontinent Express Pipeline begins in southeast Oklahoma, crosses northeast Texas, northern Louisiana and central Mississippi, and ends in Alabama. Of this line, 267 miles of it will increase – from Paris, Texas, to Delhi, La., boosting firm deliverable capacity to 1.4 BCFD on that portion The Rockies Express Pipeline connects the Rocky Mountains region with Midwest and beyond and will increase to the 0.8-design pressure, from the Cheyenne Hub in Colorado to the Lebanon Hub in Ohio, boosting firm deliverable capacity on the pipeline to 1.8 BCFD. Construction is being completed on the final 195 miles of the 1,679-mile Rockies Express which will terminate in Clarington, Ohio. It is expected to be in service by Nov. 1, at which time KMP intends to request operation of that portion at the 0.8 design as well. The Rockies Express is a joint venture among KMP, Sempra Pipelines and Storage, and ConocoPhillips.

The U.S. Commodity Futures Trading Commission may cinch up regulation to include 17 natural gas and power contracts on the Intercontinental Exchange Inc. The commission indicated in an Oct. 5 letter of intent, that 13 gas financial basis contracts and four power contracts “appear to satisfy several of the statutory criteria for a significant price discovery determination.” As they are currently traded on the

Vitol acquires SemGroup’s general partner

CONTINUED from page 1

The purchase of the SemGroup general partner, accounting for a 2% stake, and the subordinated shares, accounting for 36%, gives Vitol a 38% stake in the partnership and operational control, allowing it to manage the assets of the oil transportation company. The remaining shares are publicly traded. Vitol reported $190 billion in 2008. It is a global leader in supply, marketing, and distribution petrochemical goods and commodities, a strategic market maker in global carbon emissions trading, and moves more than 5 MMBbl oil and gas daily, with storage terminals comprising more than 30 MMBbl. The company’s U.S. principal is Houston based.

Dataroom Document Services Call (713) 650-1212 today to discuss potential opportunities.

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Gas fund reacts by reducing market exposure. Intercontinental Exchange which is an exempt commercial market, if they are determined by the commission to be performing such a “significant price discovery determination,” the exempt commercial market must come into regulatory compliance, subjecting the contracts in question to the commission’s position limit and emergency authorities, as well as large trader reporting requirements, among others. The commission used the new rule to regulate the ICE Henry Hub swap in July. The financial basis contracts involved are: PG&E Citygate; Waha; Malin; Houston Ship Channel; Dominion-South; AECO; Permian; TCO; San Juan; TETCO-M3; Zone 6-NY; Chicago; NGPL TxOk; Mid-C Peak; Mid-C Peak Daily; Mid-C Off-Peak; Mid-C Off-Peak Daily. The rule became effective in April. Comments on this evaluation were due October 21. In 2008, the U.S. Congress took actions to restrict energy investment for concerns of speculators driving up fuel prices. This provision, with the “significant price discovery function” language, came in the 2008 farm bill. The “Enron Loophole” denotes a provision in the Commodity Futures Modernization Act of 2000, exempting certain markets from oversight by the commission. In reaction to this, the United States Natural Gas Fund filed a statement October 13 with the U.S. Securities Exchange Commission which in turn caused the fund’s shares to tumble: “Due to current and anticipated new regulatory restrictions and limitations that have been and may be imposed by the Commodity Futures Trading Commission, the NYMEX and the Intercontinental Exchange, Inc., the accountability levels and position limits applicable to the Futures Contracts in which UNG invests are anticipated to change,” the filing read. “UNG’s management has determined that UNG may need to invest a larger portion, or potentially all, of its investments in Other Natural Gas-Related Investments in order to continue to meet its investment objective and comply with these regulatory changes.”

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MIDSTREAMNEWS

American Superconductor Pipelines for Tres Amigas Superstation will connect Eastern, Western and Texas Interconnection Superconductor Electricity Pipelines’ superconductor power cable system was chosen by American Superconductor Corp. for the 14,400-acre Tres Amigas Project in Clovis, N.M. The Tres Amigas Project intends to unite America’s three power grids – the Eastern Interconnection, the Western Interconnection, and the Texas Interconnection (ERCOT). Among them, power transmission is accomWestern plished with AC lines, but transfer Interconnection between any two interconnections can only be accomplished through special power electronic conversion stations. Eastern Interconnection Usually, this is achieved by converting current in one grid at a substation, then reconverting before reaching the adjacent grid. Multiple transmission lines from each of the interconnections will feed power to and from Texas Tres Amigas through multiple converters, each Interconnection UNITING THE ELECTRIC GRID connected by superconductor cables. Tres First system toAmigas, connect America’s three power grids (Eastern which will be a balancing authority, will help ensure the flow of power from multiple Interconnect, Western Interconnect and Texas Interconnect) generation sources on all three grids, to customers in the United States, Canada and Mexico. Enhances the capacity, reliability and efficiency of America’s ™

•

•

power grids

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Media Inquiries: Andi Dobi [email protected]

Design Develop & Deliver Your Company Message

Advanced Marketing and Media Solutions

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Tuesday, November 3, 2009

There is no time like the present to think about your corporate mission and brand awareness. Whether you're a private or public company with a need for deal flow and/or needing to produce an annual report or other quarterly shareholder communiqués - branding and messaging is your life blood. PLS’ Media Group brings together dynamic media capabilities, target marketing services and a depth of oil and gas experience to deliver corporate messages (or needs) to clients, investors, the financial marketplace and/or the industry as a whole. PLS can leverage its staff of writers, analysts and graphic designers to provide your firm with a variety of branding, multimedia and corporate messaging materials.

Clean Energy Fuels contracts with Los Angeles Clean Energy Corp. announced October 15, it will provide CNG fueling stations at the Ontario International Airport in Los Angeles, with a 10-year contract. The company will build and maintain a new compressed natural gas fueling station. The airport-adjacent public access station will provide around-theclock support to new CNG-powered courtesy shuttles, buses and taxi fleets. At full build out, CNG fuel requirements at the new station are expected to top 800,000 gallons per year. The transportation services to be fueled are courtesy shuttle service Boone Pickens’ Clean Energy proceeds with vision of total energy conversion. between terminals, daily parking lots, and the Consolidated Rental Car Facility. Plans call for the conversion of the entire fleet of shuttle buses to CNG by 2011, and the airport has mandated all permitted taxi operators convert 100% to alternative fuel in the next two years. The station will also be constantly available to CNG-powered vehicles in the surrounding communities. The Ontario International Airport is a medium-hub facility 35 miles east of downtown L.A., owned and operated by Los Angeles World Airports, an arm of the city government. Natural gas produces up to 23% less greenhouse gas emissions than diesel in heavy duty vehicles, and up to 30% percent than gasoline fuel in light and medium duty vehicles. Clean Energy is partnering thus far with 21 major metropolitan and international airports to help implement such progressive fuel policies. The company has been providing CNG and LNG to the LAX fleet since 1997. The company’s customer base comprises, refuse, transit, ports, shuttle, taxi, trucking, airport and municipal fleet markets, consisting of more than 17,200 vehicles at 184 locations in the United States and Canada. The company owns and operates two LNG production plants, in Willis, Texas, and in Boron, Calif., with a combined capacity of 260,000 LNG gallons per day, designed to expand to 340,000 LNG gallons per day. The company also owns and operates a landfill gas facility in Dallas that produces renewable methane gas or biogas for delivery to the nation’s pipeline network.

Beau Kelley

Director of Media Group

(713) 600-0111 or (403) 294-1906 [email protected] www.plsx.com

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Tuesday, November 3, 2009

A&D News

GULF COAST EAST TEXAS GATHERING SYSTEM

8-Mile Gas Pipeline. MARSHALL/HARRISON AREA Near Penn Virginia Well. MultiPay East Texas Reservoirs. Cotton Valley, Travis Peak. Haynesville Development Possible. Pipeline Capacity: 10,000 MCFD Multiple Line Right-Of-Way. High Pressure Line. Interconnects w/ Two Main ETX Lines. SUBJECT TO PRIOR SALE CONTACT SELLER FOR MORE INFO

PIPELINE

G 1425PL

LAMPASAS CO., TX PIPELINE

12.5-Miles Pipeline Project Needed. COPPERAS COVE Excavation Has Begun. Completion Expected In 90 Days. SEEKING PROJECT PARTICIPANTS 100% WI Possible For Pipeline. Active w/ New Production. Needs Max Capacity: 12 MMCFD Potential Cash Flow: $270,000/Mn Proved Reserves In Area. Operator Has Drilling Plan. GENERATOR HAS MORE INFO

G 6389PL

MIDSTREAMNEWS

PIPELINE PROJECT

Carbon dioxide pipeline sought by Midwestern Governors Assoc. The Midwestern Governors Association has announced a goal to site and permit at least one interstate CO2 pipeline from power plants in the Midwest to Gulf Coast oil fields for underground storage. This goal was stipulated during the Midwestern Energy Infrastructure Accord, and would transport from capture-ready plants in Indiana, Illinois, and Kentucky, for use in enhanced oil recovery via CO2 injection, which increases existing wells production by making the formation easier to pump, therefore, more lucrative. Denbury Resources Inc. last summer Industry dialogue about transport and announced its feasibility study for a 500-mile injection of CO2 grows. CO2 pipeline to link the proposed plants to oil fields in Mississippi, finding it could accomplish the ~$1 billion project profitably – provided at least three commercial-scale gasification plants in the region contributed CO2. Denbury says four proposed gasification facilities have signed conditional agreements to supply CO2 to the pipeline, including one near Rockport, Ind., and Owensboro, Ky., one in Christian Co., Ill., and one in Jefferson Co., Ill. Per those conditional agreements, each of those plants would capture between half and 90% of their CO2 emissions, according to Greenwire.com. Denbury is already working on a 24-inch 300-mile Green Pipeline to move CO2 from Texas plants to Texas oil fields. The 12-state Midwest generates 71% of its electricity from coal plants – 95% in Indiana – therefore, is a potentially lucrative area for carbon capture and sequestration.

Increase Deal Flow and Business Opportunities. Call PLS at (713) 650-1212 to subscribe or access www.plsx.com for more information.

STONEHENGE is a asset-backed midstream company that offers considerable engineering, operating and financial resources that can be applied to the midstream needs of natural gas producers. Our mission is to support customers in the production of natural gas and natural gas liquids by: • Maximizing the value received for the produced gas • Responding quickly to new facility needs • Maintaining industry-best online times • Maintaining an inventory of processing equipment to accelerate project development We have technical and financial backing from three proven companies: • Energy Spectrum Capital, a leading private equity firm • Kahuna Ventures, a full-service midstream engineering consulting firm • Kahuna Operating, a midstream facility operator Chuck Wilkinson, President Direct: 720-889-9933 [email protected] Richard Carl, Director, Business Development Direct: 720-889-9953 [email protected] Mike Brinkmeyer, Director, New Ventures Direct: 720-889-9940 [email protected]

PLS Fax: (713) 658-1922

www.StonehengeEnergy.com

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MIDSTREAMNEWS

8

Tuesday, November 3, 2009

A&D News

GULF COAST

Local governments at odds over Trans-Alaska pipeline

SABINE PH., LA PROJECT

Battle is over oil pipeline tax assessment Legal bills are mounting up, in a battle between three communities and the three oil companies that own the 800-mile system, according to the Fairbanks Daily News-Miner. The Fairbanks North Star Borough mayor has asked for a reserve of $765,000 following a six-week court battle, to cover the cost of the trial which involves the 2006 assessment. And appeals and subsequent years’ assessments are expected. The other two communities involved are Some say Trans-Alaska will eventually the North Slope Borough and the city of fall victim to decreasing flows. Valdez. All three have successfully encouraged state assessors to increase the pipeline’s valuation, which leaves its owners on the hook for higher property tax. Under Fairbanks’ tax cap, the extra revenue amounts to lowered taxes for homes and businesses. While the valuation of the pipeline has tripled since 2006, the Alyeska Pipeline Services CEO said oil flowing through the Trans-Alaska Pipeline is in a steep decline, down some 66% from its 1988 peak.

Central Valley announces open season for storage services Central Valley Gas Storage LLC has scheduled a non-binding open season, from October 12 through November 12, for firm storage services that will begin April 1, 2012. Central Valley is a Nicor Inc. subsidiary aimed at developing a market area underground storage facility in the Sacramento River valley of north-central California, planning to provide up to 8 BCF of working gas capacity. The facility will interconnect with the Pacific Gas and Electric transmission system. Central Valley is currently in negotiations with several interested parties to finalize storage agreements. The facility will begin injections in 2010 and offer initial service in 2011.

6,900-Acre Block. 1-Well Drilled. TA’d. AUSTIN CHALK SARATOGA & WILCOX. 5,500-6,900 Ft. Great Horizontal Potential. Significant Crude Oil & Upside Potential. Natural Fracturing Confirmed On 3-D. Potential To Materially Grow Acreage. 40% OPERATED WI; 80% Available. Estimated IP: 60 BOPD & 3,000 MCFD Several High-Rate Tests In Area. Will Need $3.5 MM Pipeline Development Est Reserves: 5.0 MMBO & 115 BCF PLS IS SOURCING BUYERS/PARTNERS Seeking Strategic Development Partner.

AUSTIN CHALK

DV 4827

SOUTHWEST LOUISIANA PROJECT

>6,000-Acres. MULTIPAY INTERVALS 3-D Seismic & Core Samples. LOOKING FOR PARTNER/OPERATOR 40%-80% OPERATED WI 2-Wells Made: 2.0-3.0 MMCFD Solid Oil Potential. Infrastructure In Place. Reserve Potential: 140-150 BCFe

MULTIPAY

DV 2553

MIDCONTINENT TULSA CO., OK GATHERING SYSTEM

ShutIn Pipeline With Equipment. 10 Sq Miles. OKLAHOMA SYSTEM Significant CBM Exploration Within Acreage. Shallow Coal Seam Gas Production. Low Pressure-Stripper Plant-Sales Lines. CBM/PIPE 100% OPERATED WI FOR SALE ShutIn Pipeline: Raw Unleased Acreage Suitable To: Production & Pipeline Buyer Optimal Scenario: Buy Pipeline & Drill SELLER HAS SOLID RIGHT OF WAYS

NYMEX Natural Gas Futures Near-Month Contract Settlement Price, WTX Intermediate Crude Oil Spot Price & Henry Hub Natural Gas Spot Price

Dollars per Million Btu

$12

G 5617PL

NYMEX Natural Gas Settlement Price WTI Spot Price Henry Hub Spot Price

$8

NYMEX Closing Dates $4

7/29/09

8/27/ 09

9/28/ 09

10/28/09

Note: The West Texas Intermediate (WIT) crude oil price, in dollars per barrel, is converted to $/MMBtu using a conversion factor of 5.80 MMbtu per barrel. The dates marked by vertical lines are the NYMEX near-month contract settlement dates. Source: Natural gas prices, NGI’s Daily Gas Price Index (http://intelligencepress.com), WTI price, Reuters News Service (http://www.reuters.com)

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10/28/09

10/91/09

10/12/09

10/5/09

9/28/09

9/21/09

9/14/09

9/7/09

8/31/09

8/24/09

8/17/09

8/10/09

8/3/09

7/27/09

7/20/09

7/13/09

7/6/09

6/29/09

$0

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9

Tuesday, November 3, 2009

MIDSTREAMNEWS

CPV’s 800 peaking plant gets approval Governor Arnold Schwarzenegger signed legislation clearing one of the final roadblocks on the Sentinel Standby Power Project in Desert Hot Springs. The design is to supply electricity during times of peak summer demand, protecting the Los Angeles region against blackouts, operating complimentary to renewable energy projects. The region to be serviced by the Sentinel is wind-generation-intensive – with 600 MW of operational wind power and 150 MW under development – therefore, it requires such a complimentary facility as the Sentinel because of the California governor moves gas-electric intermittent nature of wind as a power source. The quick-start power plant is designed project forward. to use eight GE LMS-100 turbines, designed each to start in 10 minutes. Construction of the power plant is expected to start in 2010, pending final certification. Competitive Power Ventures Holdings LLC’s asset management division has more than 4,300 MW of conventional generation under management, and is currently expanding its expertise into ethanol plant management.

Holly to buy Sinclair’s Tulsa refinery

CONTINUED from page 1

Holly intends to use existing third-party pipelines and build new ones as needed to link the Sinclair refinery with Holly’s existing Tulsa refinery, which Holly purchased from Sunoco in June, and is about two miles away. In another deal, Plains All American Pipeline has acquired from Holly six tanks, three receiving pipelines and related assets including a manifold system and about 400,000 bbl of crude oil for $40 million. The assets and contract rights are related to Holly’s existing Tulsa refinery. Per this agreement Holly also entered a 15-year lease and throughput agreement. Plains and Holly have agreed to collaborate toward storage opportunities. Houston-based Plains All American Pipeline is engaged in the transportation, storage, terminalling and marketing of crude oil, refined products, LNG and other gas-related products; and is also engaged in development of natural gas storage facilities. Dallas-based Holly has integrated refinery facilities in the Southwest and the Rockies. The company operates through its subsidiaries a 100,000 BPSD refinery in Artesia, N.M., an 85,000 BPSD refinery in Tulsa, and a 31,000 BPSD refinery in Woods Cross, Utah. A Holly subsidiary owns about 41% interest in Holly Energy Partners, which owns or leases about 2,700 miles of NGL and crude pipelines in Texas, New Mexico, Utah and Oklahoma, as well as storage and terminals.

LNG News Kinder Morgan moving biodiesel through Pipeline Kinder Morgan Energy Partners LP began transporting blended 2% biodiesel through its 115-mile Oregon Pipeline between Portland and Eugene, after running successful tests. KMP’s Oregon line is one of but only a few U.S. pipelines able to regularly transport blended biodiesel. As this pipeline doesn’t carry jet fuel, there is no potential for product “trailback” into would-be subsequent jet fuel batches. KMP is pushing LNG envelope in the U.S. Northwest. The first batch of about 100,000 bbl of blended 2% biodiesel was made with a blending system that injects blended 99% biodiesel into ultra-low sulfur diesel at KMP’s Willbridge terminal. Other terminals are expected also to be fitted for delivering blended 2% biodiesel to the pipeline. Other related KMP projects at the company’s Pacific Northwest Facilities include blending of biodiesel at the truck-loading rack at Willbridge and into barges at the Linnton terminal in Portland. KMP’s Southeast operations at Plantation Pipe Co. became in June the first pipeline in the country to transport biodiesel for commercial purposes.

Holly Corporation:

Holly Overview

• • • •

Holly’s refineries operate in Southwest, Rockies & Mid-Continent markets 216,000 bpsd of refining capacity* Refineries directly connected to Domestic or Canadian crude trading hubs Owns 100% of GP and 7.3 million LP units of Holly Energy Partners (NYSE: HEP)

Holly Energy Partners: • • • •

Over 2,700 miles of refined product & crude pipelines 11 Terminals & 3 loading rack facilities in 7 states (3 terminals co-owned) Approximately 3 million bbls of refined product & crude oil storage 70% interest in Rio Grande Pipeline Company, a joint venture with BP, moving LPG’s from West Texas into Mexico • 25% interest in Salt Lake pipeline, a joint venture with Plains, delivering crude oil into the Salt Lake valley

Holly Refineries/ HEP Truck Racks

WOODS CROSS

TULSA REFINERY NAVAJO REFINERY

*Tulsa refinery acquired from Sunoco on June 1, 2009; excludes additional capacity of Sinclair’s Tulsa refinery Source: Holly Corporation, Acquisition of Sinclair’s Tulsa Refinery Presentation

PLS Fax: (713) 658-1922

Alon Refinery HEP Terminals HOC Terminals Third Party Terminals Product Pipelines: HEP UNEV Centurian Intermediate Road Runner Third Party Crude

Florida Power & Light pipeline proposal rejected The Florida Public Service Commission unanimously ruled Oct. 6 that the utility had not shown the $1.5 billion, 300-mile underground pipeline proposal would be cost effective. The line would have run down the eastern side of Florida, from Bradford Co., tying into power plants in Cape Canaveral and Riviera Beach. The pipeline would have been in service by 2014. Following the decision, the utility is re-evaluating the project and its gas needs in the region. Also in October, Florida Power & Light powered up the nation’s largest photovoltaic plant, which uses more than 90,000 photovoltaic panels to turn the sunlight into power for more than 3,000 homes. This plant is one of three new large-scale renewable solar power plants the utility is building in Florida, which combined will total 110 MW of capacity by the end of 2010.

www.plsx.com

MIDSTREAMNEWS

Tuesday, November 3, 2009

LNG News Kenai LNG plant extends Tokyo gas and electric contacts ConocoPhillips Co. and Marathon Oil have filed for an extension for their jointly owned Kenai Liquefied Natural Gas facility export license. The extension will add two years to longstanding agreements with Tokyo Electric Power Co. and Tokyo Gas Co. The supply-side liquefication plant located in Nikiski, Alaska, is the only LNG export plant in North America. ConocoPhillips owns 70%, Marathon owns 30%. According to Dow Jones, neither Tepco nor Tokyo Gas have decided on supply sources to succeed the Alaskan LNG product contract, for their gas-receiving terminals near Tokyo; Tepco has bought 918,000 metric tons per year of LNG via the Kenai plant since 1969, per a contract that was to expire March 31. The renewal would extend the export license through March 2011.

Oxy buys Phibro for ~$250 million

CONTINUED from page 1

Elk Hills is one of the largest U.S. fields and a former U.S. National Strategic Petroleum Reserve; it was acquired by Oxy in 1998, and the company believes the field’s multi-pay zone discovery, announced last summer, comprises between 150 and 250 million gross BOE reserves. Of that, about two-thirds is estimated to be gas and most of it is among traditional formations. The field is located near McKittrick at the west end of Elk Hills. As of the announcement of the discovery last summer Oxy had drilled six wells to delineate the field, and planned to drill another 17 this year. The company’s majority interest in the giant Elk Hills field is a key factor in the company’s position as the largest natural producer and thirdlargest oil producer in California. Oxy’s midstream, marketing and related earnings were $154 million for the first nine months of 2009, compared with $350 million for the same period this year; that decline reflects lower margins in the gas processing business, according to Q3 reports. Overall, however, the company achieved year-over-year Q3 production growth of nearly 7%, and 8% in the first nine months of 2009. Higher worldwide crude prices resulted in an increase in the company’s Q3 net income of 36% over Q2 2009. “Our Kern County discovery has made a significant contribution to this production growth. Kern County gross production run rates grew from 7,700 BOED around the end of Q1, to 17,300 BOED at the end of Q2, and to approximately 26,000 BOED at the end of Q3,” CEO Ray Irani said.

Oxy - Third Quarter 2009 Earnings – Midstream Segment Variance Analysis –3Q09 vs. 3Q08 • Core Results for 3Q09 of $77 mm vs. $66 mm in 3Q08 – Increase due to higher margins in the marketing business, partially offset by lower NGL realized prices in the gas processing business. ($ in millions) $63

$9 $4

$66

$77

$39

10 OGE reaches agreement for renewable wind credits OG&E reached a settlement agreement on its application for approval of the OU Spirit wind farm pending before the Oklahoma Corporation Commission. The company, OCC staff, the state attorney general’s office, Oklahoma Industrial Energy Consumers and the OG&E Shareholders Association agreed to ask the commission to approve settlement terms which authorize OG&E to begin recovering the costs of the new wind farm when it goes into production and assigns to OG&E’s customers the proceeds from the sale of renewable energy credits to the University of Oklahoma. The OU Spirit is a 101 MW electric gathering facility under construction near Woodward, expected to be complete in December. OGE Energy Corp. is the parent company of Oklahoma Gas and Electric Co. and Enogex LLC, a midstream gas pipeline business.

SulphCo works with majors for placement of technologies SulphCo Inc. is negotiating with an undisclosed major international oil company, for a placement and validation agreement for desulferization unit at the company’s refinery. The company is also in discussions with two other major international oil companies regarding its desulferization technologies, which include its proprietary Sonocracking™ technology, refinery diesel and trans-mix diesel finishing, as well as other sulfur reduction applications. SulphCo has also been working with Austria’s largest oil-producing, refining and marketing company, OMV, to evaluate various refinery diesel finishing applications using Sonocracking technology. The company has also executed a letter of intent with Laguna Development Corp., moving toward the installation of its desulferization technology at Laguna’s New Mexico trans-mix facility. The Houston-based company’s Sonocracking technology uses ultrasound to alter the molecular structure of crude oil and crude products in order to increase the quality by modifying and reducing sulfur and nitrogen content, improving processing gas and reducing density and viscosity.

Midstream 3Q08

Gas Processing

Marketing MTM Adj.

Source: Third Quarter 2009 Earnings Conference Call

www.plsx.com

Power Generation

All Others

3Q 09

PLS can put its experience, marketing and publishing resources to work to sell your assets.

Call (713) 650-1212

Call PLS To Place Your Listing: (713) 650-1212

11

MIDSTREAMNEWS

Tuesday, November 3, 2009

Air Products will build hydrogen production plant Air Products and Chemicals Inc., has signed a long-term supply contract to build a hydrogen production plant at Monsanto Co.’s Roundup facility in Luling, La. The plant is set to be on-stream January 2012. Air Products will build a steam methane reformer producing more than 100 MMSCFD of hydrogen, to be connected to its East Gulf Coast pipeline network that supplies refineries with hydrogen needed to make cleaner burning transportation fuels, as well as to meet the hydrogen needs of the local oil and gas industry. The facility will also produce additional hydrogen via a clean up of a hydrogen-rich off-gas feed coming from Monsanto. Monsanto will use steam from the methane reformer process to benefit the Roundup production plant. Besides the Luling facility, there have been previously announced steam methane reformer facilities at Garyville and Baton Rouge, announced by Air Products to enhance its East Gulf Coast pipeline system. Those have anticipated on-stream dates of October 2009 and April 2010. “We have enhanced our SMR design to target minimal loss of heat to the environment, which in turn reduces natural gas usage requirements to make hydrogen. These efforts and other productivity improvements support the company’s overall goals of reducing energy consumption and emissions,” said Tom Wendahl, Air Products’ East Gulf Coast Area Tonnage Gases manager. Air Products East Gulf Coast hydrogen pipeline system reaches currently more than 175 miles, between Baton Rouge and Chalmette, with 15 hydrogen production source points feeding the system. Air Products has a second, larger hydrogen pipeline system comprising more than 300 miles, from the Houston Ship Channel to Lake Charles, La. – as well as hydrogen pipeline networks in Southern California, Sarnia, Ontairo and Edmonton, Alberta, and Rotterdam, Netherlands.

Midstream outlook presented at NESA forum

CONTINUED from page 1

with higher margins offsetting impact of lower volumes, with NGL fractionation capacity tight until new facilities are built; and that shale and resource play infrastructure development will drive investor interest, with Marcellus and Haynesville leading the way, and midstream JVs and new-build pipelines drawing attention. Crestwood expects that improving equity and credit markets will drive cost of capital down, attract new investors and increase M&A activity.

Natural Gas Pipeline M&A Deals EBITDA Multiples Q1 2002 to Q2 2003 Average LTM: 7.6x Average Forward: 6.9x

20.0x 20.0x 18.0x 18.0x

July 2008 – Peak commodity prices

Dec. 2, 2001 – Enron files for bankruptcy, triggering the collapse of the merchant energy sector

16.0x 16.0x

12.0x 12.0x

2.0% 2.0%

September 2008 – Lehman Brothers files for bankruptcy

July 2002 to November 2002 – Dynegy, El Paso and Williams lose investment grade ratings and divest of premier pipeline assets such as Northern Natural, Alliance Pipeline and Texas Gas Pipeline

14.0x 14.0x

0.0% 0.0%

4.0% 4.0%

6.0% 6.0%

10.0x 10.0x 8.0% 8.0%

8.0x 8.0x 6.0x 6.0x

10.0% 10.0%

4.0x 4.0x 12.0% 12.0% 2.0x 2.0x 0.0x 0.0x 2000

14.0% 14.0%

2001 2001

2002

LTM Multiple

2004

2003 2003

2005 2005

2006

2007

2008 2008

2009

Forward EBITDA Multiple Alerian Index Natural Gas Pipeline Forward EBITDA Multiple MLP Alerian MLP Index Yield

Natural Gas Pipeline LTM EBITDA Multiple

Source: Alerian MLP website, J.S. Herold, Wall Street research and public filings

Gathering/Processing M&A Deals EBITDA Multiples Q1 2002 to Q2 2003

20.0x 20.0x

Average LTM: Average Forward:

18.0x 18.0x 16.0x 16.0x 14.0x 14.0x

0.0%

July 08 Peak commodity prices

6.1x 6.1x

2.0%

Sept. 2008 Lehman Brothers files for bankruptcy

December 2, 2001 – Enron files for bankruptcy, triggering the collapse of the merchant energy sector

12.0x 12.0x

4.0%

6.0% 6.0%

10.0x 10.0x 8.0% 8.0%

8.0x 8.0x

Independent Appraisals Due Diligence Reviews Property Tax Appeals Property Tax Appraisals Purchase Price Allocations Sales & Use Tax Reverse Audits

Kevin Jones • [email protected] 469-298-1594 • www.keatax.com

PLS Fax: (713) 658-1922

6.0x 6.0x

10.0% 10.0%

4.0x 4.0x 12.0% 12.0% 2.0x 2.0x 0.0x 0.0x 2000 2000

14.0% 14.0% 2001 2001

2002 2002

LTM Multiple

2003 2003

2004 2004

2005 2005

2006 2006

2007 2007

2008 2008

2009 2009

Forward EBITDA MultipleForward EBITDA Alerian Index MLP Index Yield Gathering & Processing MultipleMLPAlerian

Gathering & Processing LTM EBITDA Multiple

Source: Alerian MLP website, J.S. Herold, Wall Street research and public filings

www.plsx.com

MIDSTREAMNEWS

12

Tuesday, November 3, 2009

Briefs

International News

• The Federal Energy Regulatory Commission has approved park and loan services for the Quest Midstream Partners’ KPC Pipeline. This allows for holding and loaning of gas for customers on the pipeline. The KPC is a 1,120-mile interstate gas pipeline which transports from Oklahoma and western Kansas to the metro Wichita and Kansas City markets. Quest Midstream Partners LP was formed by Quest Resource Corporation to acquire and develop transmission and gathering assets in the midstream natural gas and oil industry, owning more than 2,000 miles of gathering pipelines and more than 1,000 miles of interstate transmission pipelines in Oklahoma, Kansas, and Missouri. • At 6 p.m., November 3, a public hearing hosted by the South Dakota Public Utilities Commission will take place, regarding the siting permit for the state’s portion of a the Keystone XL Project crude pipeline proposed by TransCanada Keystone Pipeline LP. The hearing may be listened to at www.puc.sd.gov. The project will transport crude beginning in Hardisty, Alberta, and ending in Port Arthur and the east Houston area. • The Flint Hills Resources’ Sat Gas Unit No. 1 at its Corpus Christi, Texas refinery was restarted October 18, after being closed for maintenance. • Gas production at ExxonMobil’s Sable Offshore Energy Project off the Nova Scotia coast returned to normal October 20. They had been running at reduced rates. Spectra Energy Corp. operates the U.S. and Canada Maritimes units on Sable Island, and the Northeast Pipeline system which brings onshore, offshore and LNG-sourced gas to North American markets from Atlantic Canada.

Enbridge may expand Alliance pipeline towards Horn River

Comprehensive Services for Independent Oil and Gas Producers

The unconventional gas fields in northeastern British Columbia and northwest Alberta, expected to become major supply sources, are driving development. Enbridge Inc., reportedly may expand the Alliance pipeline as much as 300 MMCFD to ship gas from the new shale plays including Horn River and Montney to Midstream companies continue to see the United States. dollar signs in unconventional formations. Producers including Apache Corp., Encana Corp., EOG Resources, and Nexen, all have eyes on Horn River wells which may hold upwards of 60 TCF. Alliance currently ships 1.3 BCFD on the Alliance from Fort St. John to Chicago. Traditionally seen as an oil pipeline operator, Enbridge has become increasingly growth oriented with respect to gas transport.

Chevron signs Apache and KUFPEC at Wheatstone LNG Chevron Australia has inked an agreement with Apache Corp. subsidiary Apache Julimar and Kuwait Foreign Petroleum Exploration Co. subsidiary KUFPEC Australia, on Chevron’s Wheatstone LNG project. Apache and KUFPEC will provide gas from their Julimar and Brunello fields in northwestern Australia – to supply 25% of the inlet gas to trains one and two of the Wheatstone plant. Australia LNG infrastructure still Apache will assume a 16.25% equity interest; KUFPEC an 8.75% equity interest; expanding rapidly. Chevron remains the operator. The Wheatstone project as an LNG hub aims to unlock resources in the Carnarvon Basin to establish a new source of Australian LNG in the Asia-Pacific market. The facility will be located at Ashburton North on mainland Western Australia. In July, Chevron announced the award of a major front-end engineering and design contract for the project’s first phase, and a final investment decision is expected in 2011.

Gazprom’s globally ambitious LNG designs continue Gazprom officials have said the company expects a 10% share gain of the U.S. gas market in the next decade. The Russian company plans to ship 80% to 90% of the fuel from its Shtokman project to North America, according to the Houston-based head of the company’s energy trading unit. Shtokman will produce an estimated 1 BCFD of LNG beginning in 2014, with an additional 2 BCFD by 2016 and another 1 BCFD by 2018. On October 1, Gazprom’s U.S. arm announced it has begun trading and marketing in North America – the first direct activity in the domestic market by the Russian gas giant – with more than 350 MMCFD physical supply. Gazprom expects more deals are expected with U.S. companies in coming months. The company struck a deal October 20 with French utility EDF, by which Gazprom will supply 50 MMCFD to EDF in Britain, and EDF will supply the same amount to Gazprom in the United States, Reuters reported. In addition to the Arctic’s Shtokman project planned, the Eastern Russia Sakhalin 2 project will play an LNG role in Gazprom’s U.S. market designs. Currently, Russian LNG enters North America via Baja California, then into California via pipeline – though right now, U.S. prices are ostensibly redirecting those cargoes to Europe and Asia.

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13

Tuesday, November 3, 2009

MIDSTREAMNEWS

International News

APPALACHIA

Qatar Airways makes first LNG-fueled commercial flight

KENTUCKY EOR PROJECT

11,500-Acres. GREEN & TAYLOR CO. 500 Ft. Below Silurian Laurel Formation. Working On Water Encroachment. 30+ Miles Seismic - Deeper Potential. D&M And Plat & Sparks Engineering. 100% OPERATED WI; 84.5% NRI SEEKING INDUSTRY PARTNER Estimated OOIP: 234 MMBO ~22 MMBO Produced Historically. 50+ Miles Of Pipeline In Place. CALL PROJECT MANAGER FOR INFO

EOR

The October 12 flight was fueled by 50-50 blend of synthetic gas to liquids kerosene and conventional oil-based kerosene fuel was used in the Qatar Airways’ Airbus A340-800 aircraft, powered by a Rolls-Royce Trent 556 engine. Shell Oil developed and produced the fuel mixture used in the six-hour flight from London to Qatar. Airbus predicts that in 2030, up to 30% of jet fuel will be of some similar alternative composition. Such fuel burns with lower sulfur dioxide and particulate emissions. Qatar is the world’s leading exporter of LNG, and will become the world’s leading producer of GTL kerosene in 2012. Shell and Qatar Petroleum are building the Pearl GTL plant with an annual capacity of about 1 million tons.

Conoco plans to sell ~$10 B in assets including midstream

DV 2544

Buckeye, buying three tanks and two pipelines in Chicago/St. Louis areas

15-Mile Line. NonOperated WI Available. OPERATOR SEEKS CAPITAL

G 9090PL

PIPELINE

ROCKIES MONTANA PROSPECT & PROJECT

27,000-Acres. WILLISTON BASIN MULTIPAY Obj 1: Bakken Formation. 7,200-7,500 Ft. Obj 2: Heath Formation. 4,900-5,200 Ft. Obj 3: Judith River. 500-1,150 Ft. WILLISTON 75% OPERATED WI; 75% NRI (Lease) Total Est Rsrvs: 19 MMBO & 38.5 BCF Pipelines & Infrastructure Options In Place SUMMARY PACKAGE OF LARGE DEAL CALL PLS FOR INDIVIDUAL OFFERINGS

DV 2521PKG

RIO BLANCO CO., CO PROPERTIES

14-Gas Wells. 2,720-Acres. ~10 Mile Gas Gathering System. Various WI & NRI For Sale. Gross Prod: 64 MCFD (Before ReWork) Seller Added New Pump Production Bumped To 90-110 MCFD MOTIVATED WITH ASKING PRICE

NEW DATA

ConocoPhillips announced October 7 it will increase its quarterly dividend by 6%, and sell $10 billion worth of assets in the next two years. The dispositions will occur across the company’s exploration & production, and refining & marketing portfolios. Proceeds from the dispositions will be targeted to debt service. Buckeye Partners LP announced October 22 an agreement to buy from ConocoPhillips three refined-product storage and distribution tank terminals and two refined-product pipelines and associated storConocoPhillips streamlines capital age tanks in the Chicago and St. Louis areas. expenditures. This purchase gives Buckeye greater access to important markets and refinery operations in the Midwest. Buckeye owns and operates a large independent refined-petroleum products terminal, operates and maintains about 2,400 miles of pipeline, owns a major storage facility in northern California, and markets refined petroleum products. Financial terms of the agreement weren’t disclosed. ConocoPhillips capital expenditures in 2010 are expected to be about $11 billion, down from $12.5 billion this year. The company also announced a quarterly dividend of 50 cents per share, payable December 1 to stockholders of record at the close of business October 30. This represents an increase of about 6% in the dividend rate for the company’s common stock. ConocoPhillips has increased the dividend every year since the formation of the company in 2002. 5

KENTUCKY PIPELINE PROJECT

ConocoPhillips 2009 Capital Program 2009 By Segment

PP 9307DV

2009 By Region

2%

9%

16%

Experienced. Capable. Knowledgeable. Flexible. Ready To Work. For over 25 years, we have been helping independent producers acquire, develop, exploit and service producing properties.Mezzanine capital can be an attractive part of your project financing plan. Let us show you why Five States is your best business partner.

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ENERGY CAPITAL, LLC

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214.560.2571 www.fivestates.com

6%

15%

54% 82%

E&P R&M Other YTD (June) spend of $6.0 Billion, of which: • 81% for E&P • 17% for R&M

16%

Americas Asia Pacific Europe Middle East & Africa Russia & Caspian

Source: ConocoPhillips’ Barclays Capital 2009 Energy & Power Conference presentation

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MIDSTREAMNEWS

14

Tuesday, November 3, 2009

International News

CapitalMarkets The latest news articles online: Falling dollar fueling rising oil price Stallion Oilfield Services files pre-packaged Chapter 11 Quantum raises $2.5 billion, up 90% from last fund $21 billion of oil and gas deals announced 3Q09 IPAA responds to senate cap-and-trade legislation Compton sells units and overriding royalties Resaca and Cano to merge in all-stock deal Cano reports FY09 results

Philippines DOE expects $5 B in midstream investments The Philippines Department of Energy says the country’s planned 3,600 MW gas power plants, among other projects, might catch the eye of natural gas development investors. Other gas-related infrastructure planned in the Republic of the Philippines includes a proposed gas transmission network in Luzon, for transport from Malampaya to multiple sectors. Right now, the Southeast Asia country has three gas-fired plants that are sourcing power from the $4.5 billion Malampaya deepwater gas-to-power project. Other investment opportunities cited by the Philippines DOE include the construction of pipeline projects, gas and infrastructure in industrial zones and buildings for district cooling systems, the transport sector, and LNG terminals. The government is seeking establishment of some 423 km of transmission pipeline and 504 square km of distribution pipeline for generation, transmission and other commercial use.

Trico Shipping to offer $400 million in principal notes Subject to market conditions, Trico Marine Services, Inc. announced its shipping subsidiary will offer $400 million aggregate principal amount of senior secured notes due 2014. The company intends to use the proceeds from the offering for debt service, to repay about $367 million outstanding on behalf of Trico Supply and its subsidiaries. Trico is Kuwait’s leading international freight forwarding, consolidator, and logistics service provider.

Hicks completes $582 MM acquisition of Resolute SandRidge to buy Crusader out of bankruptcy Supreme Court rejects Interior’s royalty appeal Edge files for Chapter 11; Lines up buyer for assets

Regional Spot Prices for Natural Gas Spot Prices ($ per MMBtu)

Thu 22-Oct

Fri 23-Oct

Mon 26-Oct

Tue 27-Oct

Wed 28-Oct

Henry Hub

4.98

4.88

4.52

4.52

4.59

New York

5.44

5.21

4.89

4.97

5.02

Teton and RAM warned of NASDAQ delisting

Chicago

5.23

5.15

4.72

4.77

4.78

Sterling raises $103 million; finds buyer for U.S. assets

Cal. Comp. Avg.*

5.35

5.16

4.83

5.01

5.12

Petroflow hedges gas production

Future ($ per MMBtu)

$483 million tender offer for Parallel launched

November Delivery

4.947

4.787

4.513

4.557

4.289

December Delivery

5.617

5.484

5.212

5.282

5.066

Beechwood Capital and RedHawk combine Enterprise raises $1.5 billion

*Avg, of NGI’s reported average for: Malin, PG&E citygate and Southern California Border. Source: NGI’s Daily Gas Price Index (http://www.intelligencepress.com)

ENERGY

Estimated Average Wellhead Price Apr-09

May-09

Jun-09

Jul-09

Aug-09

Sep-09

Price ($ per Mcf)

3.43

3.45

3.45

3.43

3.14

2.92

Price ($ per MMBtu)

3.33

3.35

3.35

3.33

3.05

2.84

FINANCE

Search & Seek– Access our online library for past and/or present publications. Not a client? For more information call PLS at (713) 650-1212

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Note: Prices were converted from $ per Mcf to $ per MMBtu using an average heat content of 1,029 Btu per cubic foot. Source: Energy Information Administration, Office of Oil and Gas.

Call PLS To Place Your Listing: (713) 650-1212

15

MIDSTREAMNEWS

Tuesday, November 3, 2009

Pricing Natural gas inventories continue to set new records Dollar down and gasoline up Inventories were at 3,759 BCF as of October 23, setting a new record high in each of the storage regions and exceeding the five-year average by 12.4%. The two prior reporting weeks have set record highs also, of 3,734 and 3,658 BCF. Before this year, the all-time storage high was 3,565 BCF reported October 2007. Due to the global recession, increased production and record-high storage, gas markets worldwide are oversupplied and will likely so remain for another year. And gasoline prices are increasing at a time of year when they usually go down. The flagging dollar is largely attributable. U.S. gasoline typically gets cheaper in Q4 after refineries on October 1 switch to a cheaper winter blend.

Crestwood Midstream Partners Presentation Midstream M&A Current Outlook M&A environment remains challenged, but showing some improvement • Capital costs are higher, but investment grade MLPs still have access • Questions remain about volumes & margins • Premium assets continue to attract premium prices, but low relative to 2007-2008

Landscape of midstream players/buyers changing • MLPs not as dominant due to cost of capital • Financial sponsors looming larger as cost of capital disadvantage not as great, and access to transaction leverage improves

Bid/ask spread remains wide • Buyers awaiting impact of lower rig counts on throughput volumes • Divergent views on forward gas prices: Bentek vs. Tudor Pickering Holt

Investors desired asset mix changing • More desireable: infrastructure shale plays, fee-based regulated pipes • Less desireable: gathering & processing; refining & pet chem. infrastructure; storage

Midstream Fundamentals Update Current oversupply of natural gas resulting in reduced drilling activity is the biggest issue • 49% decline in rig count may drop supply 5 BCFD from 2008-2010 • Volume declines from conventional areas could be significant

Narrow basis differentials will impact historical price relationships and affect new pipeline project returns

Briefs • The Houston-based Mid-America Pipeline LLC has filed a federal lawsuit against Wilson Excavating, seeking damages from the Nebraska excavating firm. A liquid fuels pipeline in eastern Nebraska was damaged and more than 70,000 gallons leaked in 2007. Damages may exceed $2 million, according to the Associated Press. The lawsuit says the Yutan, Neb.-based Wilson caused the leak while trying to extricate beaver dams. • About 40 miles southeast of Galveston on the night of October 20, the 166-foot offshore supply vessel AET Endeavor collided with the 820-foot Liberian-flagged tanker vessel Krymsk. The U.S. Coast Guard responded, containing the 18,000-gallon spill by mid-morning October 21. Clean up was complicated by five-foot swells and 40-knot winds. The collision was far enough offshore that it wasn’t expected to affect normal tanker traffic near the coast. • An underground Dow Chemical pipeline leak led to the evacuation of at least 60 homes in Freeport, Texas. The leak involves a urethane product; Dow said the leak was found on the morning of October 25, and plant workers Monday were sent about the neighborhoods nearby to advise residents to relocate to hotels for what likely will be several days. Freeport is about 60 miles south of Houston.

• REX and growing Marcellus supply changes market area dynamics • Barnett/Carthage/Haynesville volumes moving east drives down Gulf Coast basis differentials

Lower gas prices and higher oil prices will support improved processing margins in near term • Higher margins will somewhat offset impact of lower volumes • NGL fractionation capacity is tight until new facilities are built

Shale and resource play infrastructure development will drive investor interest • Marcellus and Haynesville lead the way • Midstream JVs and new build pipelines drawing attention

Midstream Capital Markets Update Improving equity and credit markets will drive cost of capital lower, attract new investors and increase M&A activity Aggregate MLP index up 60% YTD 2009 • Midstream MLPs up 54% (yield -626 bps); E&P MLPs up 70 % (yield -909 bps)

~$5.1 billion public market equity raised YTD 2009 vs. $4.8 billion (2008) and $8.8 billion (2007) Institutional term loan market has reopened; High yield market has been strong

Current Natural Gas Stocks by Region Current Stocks 10/23/09

One-Week Prior Stocks 10/16/09

Implied Net Change from Last Week

Estimated Prior 5-Year (2004-2008) Average

Percent Difference From 5 Year Average

East Region

2,058

2,041

17

1,949

5.6

West Region

513

506

7

446

15.0

Producing Region

1,188

1,187

1

951

24.9

Total Lower 48

3,759

3,734

25

3,345

12.4

All Volumes in BcF

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The TOTAL 1031 Exchange Solution

PLS Fax: (713) 658-1922

866.397.1031 www.accruit.com [email protected]

Source: Energy Information Administration: Form EIA-912, “Weekly Underground Natural Gas Storage Report,” and the Historical Weekly Storage Estimates Database. Row and column sums may not equal totals due to independent rounding.

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ecial Holiday Expo! Sp S’ PL at s er ak m ay Pl Celebrate with

Ready, Set, Conference!

Date Change

Americas Downtown December 2, 2009 @ Hilton 0 Lamar St., Houston, TX 77010 Hot Topics Include:

160

Eagle Ford, Haynesville & Bakken • Market Trends • Drilling & Service Costs • Capital Markets Network at Playmakers, an industry forum focused on the exploration and production. This symposium is a unique opportunity to conference with today's leading explorationists, energy executives, land managers, legal advisors, service company professionals, investment advisors and capital providers.

Participating Speakers:

2008 Participants Include:

• Bobby Tudor‒ Chairman & CEO, Tudor Pickering Holt & Co. LLC

Bobby Tudor

• Danny Weingeist‒ Co-Managing Partner, Kayne Anderson Energy Funds • John Weinzierl‒ Managing Director, Natural Gas Partners

Danny Weingeist

• Nikolai Lyngo‒ VP, Business Development North America, StatoilHydro, USA E&P • William S. Schneider‒ President, Venoco Inc. • Cory L. Loegering‒ Sr. Vice President, Deepwater, Mariner Energy Inc.

Nikolai Lyngo

• Frank A. Lodzinski‒ President, GeoResources, Inc. • Scott Schaeffer‒ Senior Tax Attorney, BP • Jeffrey Scofield‒ Director, Lime Rock Partners

John Weinzierl

• Ramona Hovey‒ Sr. VP Products & Services, DrillingInfo Inc. • Brent Abrahm‒ President & CEO, Accruit • Ronyld W. Wise‒ Managing Director, PLS, Inc.

Ronyld W. Wise

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Apache Corp Baker Hughes Inc Booz & Co Caddo Minerals Callon Petroleum Co CGGVeritas Cobalt International Compass Resources Corp. Craton Energy Corp. Diversity Petroleum LP Doughtie Exploration Co. DTE Energy Trading Inc. El Paso E&P Co. Energy Capital Solutions LLC Energy Partners Ltd. Energy XXI EnRisk Services Inc. Evolution Petroleum Corp. Fairway Minerals Corp. Forest Oil Corp. Fronterra Geosciences GeoSpectrum Inc. Ginger Oil Co. Guggenheim Partners LLC Halliburton Hercules Offshore Inc. Hess Corporation Hilcorp Energy Co. Hurd Enterprises Ltd. INEXS Inc. King Royalty Corp. Landmark Resources Inc. LandTemp Inc.

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Linn Energy LLC Llano Group Macquarie Bank Ltd. Manhattan Petroleum Inc. Maritech Resources Inc. Maxwell Resources Corp. Milagro Exploration New Century Exploration Inc Noble Royalties Inc NuTech Energy Alliance Nytex Petroleum LLC Parks & Luttrell Interests LLC Penergy Inc PetroCap Inc Petroleum Development Corp. PetroQuest Energy Inc Phoenix Exploration Co Precision Drilling Corp Primexx Operating Corp. Quantum Energy Partners LP Quantum Resources Mgmt. Riley Exploration Rio Delta Natural Gas Rippy Energy RoundRock Capital Group Rowan Drilling Co Inc Sanchez Oil & Gas Corp Sojitz Energy Venture Inc St Mary Land & Exploration Stallion Oilfield Services Tristream Energy LLC Yuma Expl & Prod Co. And More Networkers...

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