WORLD CRUDE OIL AND NATURAL GAS MARKETS: LET’S TALK ABOUT PRICE UPSIDE May 3, 2016 Data and closing prices as of April 29, 2016

Martin King, Vice President, Institutional Research FirstEnergy Capital Corp. 1

CANADIAN OIL/GAS & SERVICES EQUITIES PERFORMANCE • Gas weighted up 34% YTD; down 47% FCC Can. Services Weighted Equity Index 1/1/ 2014 = 100 from 2014 peak. 130 • Oil weighted up 10% YTD; down 39% 110 from 2014 peak. 90 • Services up 5% YTD; down 66% from 70 2014 peak. 50 • WTI up 24% YTD; down 57% from 2014 30 peak; Natural gas down 7% YTD; down Jan-14 Aug-14 Mar-15 Oct-15 May-16 Source: FirstEnergy Capital Corp., Bloomberg 65% from 2014 peak. FCC Can. Oil Weighted Equity Index

FCC Can. Gas Weighted Equity Index 1/1/ 2014 = 100

1/1/ 2014 = 100

130 120 110 100 90 80 70 60 50

130 120 110 100 90 80 70 60 50 40 Jan-14

Aug-14

Mar-15

Source: FirstEnergy Capital Corp., Bloomberg

Oct-15

May-16

Jan-14

Aug-14

Mar-15

Source: FirstEnergy Capital Corp., Bloomberg

Oct-15

May-16 2

CRUDE OIL MARKETS THE WORST IS OVER

3

CRUDE OIL MARKETS – STARTING TO SEE DAYLIGHT

• After 19 months of relentless pressure, the crude oil market is finally starting to look cautiously constructive for price improvement. • The price lows for this lengthy cycle have been put in (Jan/Feb 2016). • Fundamentals have shifted enough that we can speak of a true rebalancing for the market, possibly as soon as 3Q16. • We see the current upswing in prices as having a solid foundation, but further near term upside is limited and possibly capped around US$50 for WTI (US$55 Brent). Nymex WTI Near Month Crude Oil Prices US$/bbl $110 $90 $70

2014

2015

2016

$50 $30 $10

$110 $90 $70 $50 $30 $10

Jan Mar May

Jul

Source: FirstEnergy Capital Corp., Bloomberg.

Sep Nov Jan

ICE Brent Near Month Crude Oil Prices US$/bbl $120 $100 $80

2014

2015

2016

$60 $40 $20

$120 $100 $80 $60 $40 $20

Jan Mar May

Jul

Sep Nov Jan

Source: FirstEnergy Capital Corp., Bloomberg.

4

WTI PRICE HISTORY US$/bbl $150 $135 $120 $105 $90 $75

US$26.21 on Feb. 11, 2016. Lowest price since May 6, 2003.

$60 $45 $30 $15 $0 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 Source: FirstEnergy Capital Corp., Bloomberg.

5

BRENT PRICE HISTORY US$/bbl $150 $135 $120 $105 $90

US$28.94 on Jan. 15, 2016. Lowest price since February 6, 2004.

$75 $60 $45 $30 $15 $0 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 Source: FirstEnergy Capital Corp., Bloomberg.

6

IS THE CURRENT PRICE RECOVERY FOR REAL?

• Yes. Low prices are making a difference – it has just taken a good deal of time. • The fundamentals are truly becoming constructive for the first time in nearly two years. • Non-OPEC supply is turning seriously negative in 2016, with additional losses looking more likely for 2017. • Global demand has been responding to lower prices after the soft demand of the recent winter; low prices have staved off the worst effects of the economic slowdown in 4Q15/1Q16. • Inventories have been very slow to rollover in the U.S., but have largely topped out in the rest of the world; U.S. looking at inventory draws for the balance of the summer and fall. • Suggests a much tighter balance for 2H16 and heading into 2017; current market is likely far less oversupplied than is widely believed. • Doha meeting was a waste of time and completely inconsequential to prices (higher or lower). 7

SUPPLIES ARE ROLLING OVER – UNITED STATES

• Capex cuts, low drilling, declines, and shut-ins have all taken a toll on U.S. supplies. • Upside on total supplies from GOM tie-ins is fading; 2H16 and 2017 looking at steady losses. • Supply loss momentum is accelerating, not slowing. U.S. Lower 48 Onshore Crude Oil Supply thou. bbl/d

Rigs 1,700 1,500 1,300 1,100 900 700 500 300 100

2014

Source: FirstEnergy Capital Corp., U.S. DOE/EIA.

2015

2016

2014 2016

1,700 1,500 1,300 1,100 900 700 500 300 100

332

Jan-1 Mar-25 Jun-17 Sep-9 Dec-2

U.S. Lower 48 Crude Oil Production 9,500 8,500 7,500 6,500 5,500 4,500

2013

2013 2015

Source: FirstEnergy Capital Corp., Baker-Hughes.

thou. bbl/d

8,500 8,000 7,500 7,000 6,500 6,000 5,500 5,000 4,500

2012

U.S. Crude Oil Directed Drilling

5 Yr Hi-Lo

2015

8,425

Jan-1 Mar-25 Jun-17 Sep-9

2016 9,500 8,500 7,500 6,500 5,500 4,500

Dec-2

Source: FirstEnergy Capital Corp., US DOE/EIA.

8

SHALE REGIONS STILL HEADING LOWER U.S. Oil Rig Productivity vs. Oil Rig Count bbls/d/rig

700 600 500 400 300 200 Productivity 100 Oil Rigs 0 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Rigs

2,000 1,500 1,000 500 0

Source: FirstEnergy Capital Corp., U.S. DOE/EIA.

• Productivity gains are still present, but there is now too little drilling for these gains to offset declines; supply losses to accelerate as a result. • Permian and Eagle Ford taking the biggest hits after generating the biggest gains. U.S. Crude Oil Supply Growth

United States Shale Oil Supply

thou. bbl/d

thou. bbl/d

6,000 5,000 4,000 3,000 2,000 1,000 0

Bakken Haynesville Niobrara Utica

Eagle Ford Marcellus Permian

2010 2011 2012 2013 2014 2015 2016

Source: FirstEnergy Capital Corp., U.S. DOE/EIA.

2,000 1,600 1,200 800 400 0 (400) (800)

1,714 949 Forecast 335 480 (667) (205) 2009

2011

2013

2015

2017

2019

Source: FirstEnergy Capital Corp., IEA.

9

WILL THIS PRICE RALLY DEFEAT ITSELF?

• Concerns are that the latest price rally may trigger a resurgence in U.S. supply growth – we see this as being unlikely at this stage. • Capex programs largely finalized for 1H16 and some for all of 2016. • Capital remains scarce, difficult to rehire drilling crews, focus is on reducing debt, reserve based lending is at a low point; high yield debt market is in tatters; prices need to stabilize for longer. • More active E&P hedging is likely to cap the back end of the price curve (2H16/2017), but will not generate more supply; vital development in shifting to backwardation? WTI Forward Pricing Curves US$/bbl $60 $55 $50 $45 $40 $35 $30 $25

Dec. 29, 2015 Jan. 29, 2016 Mar. 29, 2016 Apr. 29, 2016

M1 M7 M13 M19 M25 M31 M37 M43 M49 M55 Source: Bloomberg.

Brent Forward Pricing Curves US$/bbl $60 $55 $50 $45 $40 $35 $30 $25

Dec. 29, 2015 Jan. 29, 2016 Mar. 29, 2016 Apr. 29, 2016

M1 M7 M13 M19 M25 M31 M37 M43 M49 M55 Source: Bloomberg.

10

CANADIAN CRUDE OIL SUPPLIES – SLOWING GROWTH

• Canada is one of the few regions still looking at supply growth in 2016/17. • Front end loaded by oilsands, but supply growth momentum has decelerated. • Market has sufficient pipe and rail capacity to 2020 due to supply deceleration.

Canadian Crude Oil Production thou. bbl/d

4,400 4,200 4,000 3,800 3,600 3,400 3,200 3,000

Dashed line indicates forecast.

Jan Mar May Jul

4,400 4,200 4,000 3,800 3,600 3,400 3,200 3,000

Sep Nov

Oilsands Production Growth thou. bbl/d

350 300 250 200 150 100 50 0 (50)

278

Forecast 98

2009

2014 2016

Source: FirstEnergy Capital Corp., National Energy Board.

Canadian Crude Oil Supply Growth thou. bbl/d

2013 2015

2011

Source: FirstEnergy Capital Corp., IEA.

2013

125 74

2015

75

2017

125

2019

3,500 3,000 2,500 2,000 1,500 1,000 500 0

Synthetic Bitumen Forecast 2009 2011 2013 2015 2017 2019

Souce: FirstEnergy Capital Corp., National Energy Board.

11

OTHER NON-OPEC SUPPLIERS

• Early 2016 price collapse has forced the hand of many NOCs and IOCs to reduce costs and reduce spending; impacts are now only starting to emerge, but could become larger into 2017. • Desperation has set in for some countries and regions.

North Sea Crude Oil Supply Thou. b/d thou. bbl/d

200 200 1000 0 (200) (100) (200) (400) (300) (400) (600)

140 Forecast 10 140 (118) (86) 10 (306)

(150)

2008 2011

2012 2015

2014 2017

2016 2019

Source: FirstEnergyCapital Capital Corp., Source: FirstEnergy Corp., IEA.IEA.

Non-OPEC Supply Excl. Canada/U.S.

Brazil Crude Oil Supply

thou. bbl/d

thou. bbl/d

1,000 750 500 250 0 (250) (500) (750) (1,000)

Forecast

250 445 475 200 375 150 (452) 100 (110) 50 0 (397) (50) 2009

2010 2013

(90)

(203) Forecast

(384) 2006 2009

(86)

2011

2013

Source: FirstEnergy Capital Corp., IEA.

2015

2017

2019

231

181

Forecast 88 88 35 32

2009

2011

2013

Source: FirstEnergy Capital Corp., IEA.

2015

2017

2019 12

OPEC CRUDE OIL SUPPLIES Saudi Arabia Quarterly Crude Oil Supply mm bbl/d

10.8 10.6 10.4 10.2 10.0 Forecast 9.8 9.6 9.4 2014 Q1 2015 Q1 2016 Q1 2017 Q1 Source: FirstEnergy Capital Corp., IEA.

• OPEC is still about gaining market share for the likes of Saudi, Kuwait, UAE, Iran, and Iraq. • No active supply management is forthcoming; price remains the balancing mechanism. • Iran’s return has been fairly smooth so far, and prices have not crumbled.

Iran Quarterly Crude Oil Supply mm bbl/d

4.0 3.8 3.6 3.4 3.2 3.0 Forecast 2.8 2.6 2014 Q1 2015 Q1 2016 Q1 2017 Q1 Source: FirstEnergy Capital Corp., IEA.

OPEC Crude Oil Supply thou. bbl/d

2013

2014

2015

33,000 32,500 32,000 31,500 31,000 30,500 30,000

2016 33,000 32,500 32,000 31,500 31,000 30,500 30,000

Jan Mar May Jul Sep Nov Source: FirstEnergy Capital Corp, IEA.

13

U.S. CRUDE OIL INVENTORIES – I AM SO FAT! U.S. Crude Oil Stocks at Cushing, OK. mm bbls 80 70 60 50 40 30 20 10

5 Yr. Hi-Lo

2015

Effective Capacity

66.0

2016 80 70 60 50 40 30 20 10

Jan-1 Mar-11 May-20 Jul-29 Oct-7 Dec-16 Source:  FirstEnergy Capital Corp., US DOE/EIA.

• Current price rally needs support from a rollover of U.S. crude inventories – imminent?! • Cushing operating at close to maximum limits. • PADD 3 has shown more flexibility than most imagined, preventing a price collapse.

U.S. Crude Oil Inventories mm bbls 550 525 500 475 450 425 400 375 350 325 Jan-1

5 Yr Hi-Lo

2015

540.6

Mar-25 Jun-17

Source: FirstEnergy Capital Corp., US DOE/EIA.

Sep-9

U.S. Crude Oil Stocks PADD 3 2016 550 525 500 475 450 425 400 375 350 325

Dec-2

mm bbls 290 270 250 230 210 190 170 150 Jan-1

5 Yr Hi-Lo

2015

285.6

Mar-25 Jun-17

Sep-9

2016 290 270 250 230 210 190 170 150 Dec-2

Source: FirstEnergy Capital Corp., US DOE/EIA.

14

GLOBAL OIL DEMAND World Oil Demand Growth mm bbl/d

4.0 3.0 2.0 1.0 0.0 (1.0) (2.0)

1.7 0.9

2009

2011

2013

Source: FirstEnergy Capital Corp., IEA.

1.5

2015

1.0

2017

2019

Emerging Economy Oil Demand Growth mm bbl/d

2.5 2.0 1.5

1.2

1.3 1.3

1.0

1.1 1.0 1.0

0.5 0.0 2009

2011

Source: FirstEnergy Capital Corp., IEA.

2013

2015

2017

2019

• Global demand is still holding up well as low prices staved off worse of economic slowdown in 4Q15/1Q16. • Emerging economies are looking for more demand upside not less, but will take time to show up in the hard data. • China doing far better than anyone expected, despite concerns over economic shift. • India and other Asia doing well, and recovery in Russia. • Trouble spots remain Brazil and other Latin America. • U.S. demand looking strong again, mild recovery in Europe.

15

GLOBAL INVENTORIES

• The mix of supply and demand we expect means that the market should be balanced by mid-2016; looking at some inventory draws in 2H16; if OPEC is unable to ramp up further, then draws could be more pronounced as Non-OPEC supply losses become more severe. • A shift to backwardation and the current shallow contango will slow inventory builds and eventually generate inventory withdrawals; will help to dampen price upside for now in 2H16, but set the market up for a much more balanced to undersupplied market in 2017. Global Inventory Swing by Quarter

OECD Inventory Change thou. bbl/d

2013

2014

2015

2016

2017

thou. bbl/d

2013

2014

2015

2016

2017

2,500 2,000 1,500 1,000 500 0 (500) (1,000) (1,500) (2,000)

1,000 500 0 (500) (1,000) (1,500) Q1

Q2

Source: FirstEnergy Capital Corp., IEA.

Q3

Q4

Q1

Q2

Q3

Q4

Source: FirstEnergy Capital Corp., IEA.

16

THOSE PESKY MISSING BARRELS

• Market has been obsessed with perceived oversupply as proxied by missing barrels. • Oversupply is actually smaller than most think. • Revisions are trending in the direction of a tighter market. Global Crude Oil Demand, Supply and Inventory Swings million bbl/d 98 96 94

IEA Missing Barrels in Recent Forecasts mm bbl/d

2.5 2.0 1.5 1.0 0.5 0.0 (0.5)

Nov. 2015 Jan. 2016 Mar. 2016

Dec. 2015 Feb. 2016 Apr. 2016

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 Source: FirstEnergy Capital Corp., IEA.

Demand Supply

92

Forecast

90 88 86 3

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2011 2012 2013 2014 2015 2016 2017

2

Implied Stock Change

1 0 (1) (2)

Source: FirstEnergy Capital Corp., IEA.

17

CANADIAN PRICE DIFFERENTIALS

• Canadian price differentials have been remarkably stable for nearly a year – we expect more of the same going forward. • Improved pipeline capacity, plenty of rail capacity, and slowing supply suggest that there is ample capacity to move more barrels to market, perhaps up to 2020. • We see light-heavy price spreads capped at US$15 due to rail costs. • Canada continues to see improved market access into the U.S. and more market capture as U.S. supplies decline. WTI vs. Canadian Crude Oil Prices US$/bbl $10 $5 $0 ($5) ($10) ($15) ($20) ($25) ($30)

WCS

Ed Light

Syn.

Jul-14 Dec-14 May-15 Oct-15 Mar-16 Source: FirstEnergy Capital Corp., Bloomberg.

WTI-WCS Price Differential US$/bbl $30 $25 $20 $15 $10 $5 $0 2009

WCS @ Discount

$20.97 $13.23 $14.25 $13.56

Forecast 2011

2013

Source: FirstEnergy Capital Corp., Bloomberg.

2015

2017

2019 18

THE LOONIE RISES AGAIN

• The resurgence in oil prices (and expectations of more) have boosted the C$ to a one year high. • Bottom line impact for Producers is a negative given this lowers C$ price realizations. • Softer stance by the Fed has undercut U.S. dollar, also allowing for additional C$ upside and for other currencies. • $0.85 Loonie end of year or sooner? • Loonie’s move this year has shaved off C$8-9 at WTI at US$45. Canada-U.S. Dollar Exchange Rate US$/C$ 0.95 0.90 0.85 0.80 0.75 0.70 0.65 Jan-14

Canada-U.S. Dollar Exchange Rate US$/C$ 1.10 1.00 0.90 0.80 0.70 0.60 0.50 0.40

Aug-14 Mar-15

Source: Pacific Exchange Rate Center

Oct-15 May-16

2009

$0.91 $0.78 $0.77

$0.91

Forecast 2011

2013

2015

2017

2019

Source: FirstEnergy Capital Corp., Bloomberg.

19

CRUDE OIL MARKET CONCLUSIONS

• Market is looking far better positioned for a true constructive price improvement in 2016, than at any point in 2015. • Market tilting into modest (or severe) undersupply in 2H16 and into 2017, US$50s and US$60s (WTI) very doable for 2017. • This is a market still driven on price rebalancing; there will be no OPEC supply management for the foreseeable future. • Non-OPEC supply losses could be severe in 2H16 and 2017. • Demand growth reacting with a lag and still improving; a move to US$50 will not crimp demand; prices likely have to head back close US$60+ before demand slows again. • Canada one of the few regions still able to grow supply and capture market share in the U.S. • More optionality in terms of Canadian supply outlets will still be needed post-2020; supply growth will not come to a halt. • There is price upside for 2H16 and 2017! • Price and fundamentals still work, but has taken longer without the usual OPEC bailout.

20

FIRSTENERGY CRUDE OIL PRICE FORECAST (AND CHANGES?) FirstEnergy Crude Oil Price Outlook West Texas

Brent

US$/bbl Average

Old $48.76

NEW $48.76

Old $53.60

NEW $53.60

Q1 Q2 est. Q3 est. Q4 est.

$29.56 $34.10 $40.33 $45.00

$33.63 $40.00 $42.00 $46.00

$30.18 $35.60 $42.08 $47.25

$35.21 $41.75 $43.75 $48.25

Average est.

$37.25

$40.41

$38.78

$42.24

Q1 est. Q2 est. Q3 est. Q4 est.

$49.00 $53.00 $56.00 $62.00

$49.00 $53.00 $56.00 $62.00

$51.50 $55.50 $58.50 $64.50

$51.50 $55.50 $58.50 $64.50

Average est.

$55.00

$55.00

$57.50

$57.50

2018

Average est.

$66.25

$66.25

$69.25

$69.25

2019

Average est.

$74.00

$74.00

$77.00

$77.00

2015 2016

2017

Notes: All historical averages computed using weekday data only. Source: FirstEnergy Capital Corp., Bloomberg; est. refers to forecasted value.

21

FIRSTENERGY CANADIAN CRUDE OIL PRICE FORECAST FirstEnergy Canadian Crude Oil Price Outlook Synthetic Crude

Edmonton Light

W. Canada Select

Cdn$/bbl Average

Old $62.70

Current $62.70

Old $56.94

Current $56.94

Old $44.73

Current $44.73

Q1 Q2 est. Q3 est. Q4 est.

$43.58 $47.70 $53.97 $58.05

$48.08 $56.31 $55.43 $58.91

$38.27 $42.18 $48.74 $53.00

$41.46 $51.07 $50.28 $53.90

$20.68 $27.69 $35.68 $39.11

$27.34 $34.02 $37.38 $40.10

Average est.

$50.82

$54.68

$45.55

$49.18

$30.79

$34.71

Q1 est. Q2 est. Q3 est. Q4 est.

$59.04 $62.50 $65.06 $70.11

$59.04 $62.50 $65.06 $70.11

$54.12 $57.69 $60.33 $65.51

$54.12 $57.69 $60.33 $65.51

$41.82 $48.07 $53.23 $55.17

$41.82 $48.07 $53.23 $55.17

Average est.

$64.18

$64.18

$59.41

$59.41

$49.57

$49.57

2018 Average est.

$73.62

$73.62

$69.10

$69.10

$58.64

$58.64

2019 Average est.

$79.97

$79.97

$75.59

$75.59

$65.46

$65.46

2015 2016

2017

Notes: All historical averages computed using weekday data only. Source: FirstEnergy Capital Corp., Bloomberg; est. refers to forecasted value.

22

NATURAL GAS MARKETS A WINTER/SPRING TO FORGET, BUT A SUMMER TO REMEMBER?

23

NATURAL GAS MARKETS – THE WORST IS RIGHT NOW

• One of the warmest (El Nino) winters on record has left record high storage and the lowest prices in nearly two decades; solid U.S. supply growth in 2015 made matters only worse. • Current low prices are starting to have more of a pronounced negative impact on supplies – just seeing the beginnings now. • Demand getting a boost from low prices and structural change out in power generation. • Worst pricing is right now (or very recent), will reverse higher. • Canadian markets facing toughest challenges since mid-1990s. AECO Natural Gas Prices

Nymex Near Month Natural Gas Prices US$/mmbtu

$7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00

2014

Jan Mar May Jul

Source: FirstEnergy Capital Corp., Bloomberg.

2015

2016

Sep Nov Jan

$7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00

C$/mcf $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00

2014

Jan Mar May Jul

2015

2016 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00

Sep Nov Jan

Source: FirstEnergy Capital Corp., Enerdata.

24

NYMEX PRICE HISTORY US$/mmbtu $16.00 $14.00 $12.00

US$1.639 on March 3, 2016. Lowest price since February 26, 1999.

$10.00 $8.00

`

$6.00 $4.00 $2.00 $0.00 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Source: FirstEnergy Capital Corp.,. Bloomberg.

25

AECO PRICE HISTORY C$/mcf $15 $14 $13 $12 $11 $10 $9 $8 $7 $6 $5 $4 $3 $2 $1 $0

C$0.85 on March 31, 2016. Lowest price since October 4, 1997.

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source FirstEnergy Capital Corp., NGX.

26

THE PAST WINTER WAS CRAZY WARM

• The most recent winter cost the market close to 1,000 bcf of U.S. storage demand; only normal month was January (barely). • Second warmest winter on record for the United States (top five for Canada). • Second lowest cumulative withdrawal in modern times for U.S.; lowest on record for Canada since 1980s. • March 2016 storage exit for U.S. highest on record; second highest on record for Canada. U.S. HDDs 1931-2016 (Nov-Mar) HDDs 4,500

2014/15

U.S. Winter Storage Withdrawals bcf 3,500 3,000 1,610 2,500 2,000 1,500 1,000 500 0

2013/14

2011/12 2015/16

4,000 3,500 3,000

Source: FirstEnergy Capital Corp., U.S. NOAA.

1970

1996

1960

1968

1958

1985

1951

1947

1945

1942

1987

1939

1949

2005

1954

2006

2,000

2012

2,500

1,509

2,977 1,315 1,441

2002 2004 20062008 20102012 2014 2016 Source: FirstEnergy Capital Corp., U.S. DOE/EIA.

27

CURRENT STORAGE IS LOOKING BLOATED TO SAY THE LEAST U.S. Working Natural Gas Storage bcf 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500

5 Yr. Hi-Lo

2015

2,557

Jan-1 Mar-25 Jun-17 Sep-9

2016 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 Dec-2

Canada Working Natural Gas Storage

593.9

Jan-1

U.S. End March Storage Outcomes 2,473 2,478

2002 2004 2006 2008 2010 2012 2014 2016

Source: FirstEnergy Capital Corp., US DOE/EIA.

2015

Mar-25 Jun-17

Sep-9

2016 900 800 700 600 500 400 300 200 100 0 Dec-2

Source: FirstEnergy Capital Corp.

Source: FirstEnergy Capital Corp., U.S. DOE/EIA.

bcf 3,000 2,500 2,000 1,500 1,000 500 0

5 Yr. Hi-Lo

bcf 900 800 700 600 500 400 300 200 100 0

Canada End March Storage Levels bcf 700 600 500 400 300 200 100 0

585

577

2002 2004 2006 2008 2010 2012 2014 2016 Source: FirstEnergy Capital Corp. Canadian Enerdata.

28

IN CONTRAST, A PRICE RECOVERY COULD BE VERY QUICK

• Despite the apparent immense price negatives from record high storage, there are numerous reasons to believe that prices cannot just stabilize, but rally into 2H16, perhaps strongly in the event of a hot summer. Why? • U.S. supply is showing signs of a significant rollover. • Delays in getting pipeline infrastructure added in sufficient quantities in the U.S. Northeast. • Structural demand growth is improving, especially in power generation. • Exports of U.S.-sourced gas are rising. • Looking for a major storage injection deceleration by the summer; current set of prices are insufficient to generate needed supply adds to balance out market and are encouraging strong demand growth. 29

U.S NATURAL GAS SUPPLY – REVERSING COURSE U.S. Weekly Dry Marketable Gas Supply bcf/d 76 74 72 70 68 66 64 62 Jan

2013

Mar

2014

May

Jul

Source: FirstEnergy Capital Corp., Bloomberg.

2015

Sep

2016 76 74 72 70 68 66 64 62

Nov

• E&P slowdown is starting to take a toll, along with low prices. • U.S. supply losses could end up being even more steep than we are projecting. • Market and forward curve still not appreciating the extent to which the supply slowdown could force a rebalancing.

U.S. Monthly Natural Gas Production

2013 2015

bcf/d 78 76 74 72 70 68 66 64 Jan

Mar

May

2014 2016

Jul

Source: FirstEnergy Capital Corp., U.S. DOE/EIA.

Sep

U.S. Natural Gas Supply Growth 78 76 74 72 70 68 66 64

Nov

bcf/d 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2009

Forecast 4.2

4.6

3.7

3.2

4.1

0.2 2011

2013

2015

Source: FirstEnergy Capital Corp., US DOE/EIA.

2017

2019 30

U.S. NATURAL GAS SUPPLY BY BASIN

• Associated gas supply is taking the biggest hit of all sources due to capex cutbacks for oil/gas. • Most plays will be flat to declining except for Marcellus/Utica. • Marcellus/Utica can grow, but drilling has been reduced substantially and many E&Ps do not have the funding to complete DUCs; Northeast spot prices have been exceptionally weak. • Pipe add delays in Northeast are starting to add up. United States Natural Gas Supply by Basin Forecast Change % Change (0.01) -5.3% (0.40) -8.9% (0.02) -0.8% 0.17 10.3% (0.97) -19.9% 3.19 32.1% 0.90 312.6% 0.91 27.6% 0.21 38.7% 0.99 30.9% 4.96 15.8%

2015 0.24 3.64 2.51 1.93 3.67 15.47 2.88 4.93 0.96 5.52 41.76

Change % Change (0.01) -5.1% (0.45) -10.9% (0.28) -9.9% 0.09 4.9% (0.23) -6.0% 2.36 18.0% 1.70 143.9% 0.71 16.7% 0.20 26.9% 1.32 31.3% 5.40 14.9%

2016 0.23 3.12 2.38 2.04 3.64 16.94 3.94 4.46 1.00 5.93 43.68

Forecast

Antrim Barnett Fayetteville Woodford Haynesville Marcellus Utica Eagle Ford Bakken Other (Permian) Total Shale

2014 0.26 4.09 2.79 1.84 3.91 13.12 1.18 4.22 0.76 4.20 36.36

Change % Change (0.01) -4.6% (0.52) -14.3% (0.13) -5.3% 0.11 5.7% (0.04) -1.0% 1.47 9.5% 1.06 36.7% (0.47) -9.5% 0.04 3.8% 0.41 7.5% 1.92 4.6%

2017 0.23 2.86 2.29 2.03 3.68 20.52 6.27 4.11 1.00 5.89 48.86

Change % Change (0.00) -1.3% (0.26) -8.4% (0.09) -4.0% (0.01) -0.7% 0.04 1.1% 3.57 21.1% 2.33 59.1% (0.36) -8.0% 0.01 0.7% (0.04) -0.8% 5.18 11.9%

Non-Shale

34.11

(0.80)

-2.3%

32.46

(1.65)

-4.8%

30.72

(1.74)

-5.3%

28.78

(1.94)

-6.3%

Total U.S. Gas

70.47

4.16

6.3%

74.22

3.75

5.3%

74.41

0.19

0.3%

77.65

3.24

4.4%

Source: FirstEnergy Capital Corp., U.S. DOE/EIA.

31

THE NEGATIVES FOR SUPPLY

• Capex reduction has been substantial and one of the largest on record. • U.S. is incapable of supporting natural gas supply growth with current rig count. • Marcellus/Utica is the only growth zone, but needs pipes. 500 450 400 350 300 250 200 150 100 50 0 Jan-2

2013 2015

2014 2016

87 Mar-27 Jun-19 Sep-11

Source: FirstEnergy Capital Corp., Baker-Hughes.

Dec-4

US$ billion

$180 $160 $147.9 $140 $115.3 $120 $100 $80.9 $80 $60 $39.8 $48.2 $40 $20 $0 2013

2014

2015

2016

2017

Source: FirstEnergy Capital Corp., Bloomberg.

Historical/Forecast Marcellus/Utica Supply

U.S. Natural Gas Rig Count No. of Rigs

U.S. Independent E&P Capex

500 450 400 350 300 250 200 150 100 50 0

bcf/d 33 30 27 24 21 18 15 12 9 6 3 0 Jan-13

Forecast Jan-14

Jan-15

Jan-16

Source: FirstEnergy Capital Corp., U.S. DOE/EIA.

Jan-17

Jan-18 32

CANADIAN NATURAL GAS SUPPLIES WCSB Daily Natural Gas Supply mmcf/d 16,500 16,000 15,500 15,000 14,500 14,000 13,500 13,000 12,500

2013

2014

2015

2016 16,500 16,000 15,500 15,000 14,500 14,000 13,500 13,000 12,500

Jan Feb Apr May Jul Sep Oct Dec Source: FirstEnergy Capital Corp.

WCSB Natural Gas Supply Growth mmcf/d

900 600 300 0 (300) (600) (900) (1,200)

526

450 350 250

(300)

Forecast 2009 2011 2013 2015 2017 2019

• After posting a very solid gain in 2015, 2016 adds are starting to slow down as declines and very slow drilling start to bite. • Gas rig count is at its lowest level since 1992. • Very low prices of late are prompting some shut-ins, but limited so far. • Upstream constraints may surface again this year, helping to curb supply from the Deep Basin (Montney). • We see YoY supply losses starting to mount in 2H16; could be more in 2017.

Source: FirstEnergy Capital Corp., company pipeline postings.

33

U.S. NATURAL GAS DEMAND – STRUCTURAL GROWTH U.S. Natural Gas Demand Growth bcf/d 4.0 3.0 2.0

1.5

2.1

2.7

Forecast 1.5

1.0

2.0

0.4

0.0 (1.0) 2009 2011 2013 2015 2017 2019 Source: FirstEnergy Capital Corp., US DOE/EIA.

U.S. Power Gen. Gas Demand Growth bcf/d 5.0 4.0 3.0 2.0 1.0 0.0 (1.0) (2.0) (3.0)

4.2

Forecast 2.8

(0.1)

0.7 1.1 (1.1)

2009 2011 2013 2015 2017 2019

Source: FirstEnergy Capital Corp., US DOE/EIA.

• Focus is now on structural growth in demand in 2016. • We expect power generation to post very strong gains in 2016; more new build gas, coal retirements and low prices (initially), should increase gas power burn. U.S. Daily Power Generation Gas Burn bcf/d 40 35 30 25 20 15 10 Jan

2013

Mar

2014

May

Jul

2015

Sep

2016

Nov

Jan

Source: FirstEnergy Capital Corp., Bloomberg.

34

U.S. NATURAL GAS EXPORTS U.S. Net Gas Exports to Mexico bcf/d 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2009

2.9

3.6

4.0 4.3 4.6

2.0 Forecast 2011

2013

2015

2017

2019

Source: FirstEnergy Capital Corp., U.S. DOE/EIA.

U.S. Annual LNG Exports bcf/d 7 6 5 4 3 2 1 0 2009

Forecast 5.4

3.0 1.5 0.1 2011

2013

Source: FirstEnergy Capital Corp., US DOE/EIA.

0.6

2015

2017

2019

• There is still plenty of upside for exports of gas to Mexico. • Only limiting factor has been the speed at which industries and power are tied in. • We have trimmed outlook for LNG exports on weak prices, slow uptake of initial exports, oversupply post-2016, and subdued demand growth. • Modest improvement in oil prices should keep spot based Henry Hub more competitive against oil-linked LNG prices. • Panama Canal expansion opens June 2016. 35

OCTOBER STORAGE OUTCOMES

• Putting it all together, strong demand against flattening to potential decline in U.S. supply, means much tighter market in 2H16. • We do not see storage rising back above 4,000 bcf as being likely by October, despite high starting point of March. • Low prices now have ensured supply retrenchment and have locked in demand growth for the summer; hot summer could severely crimp market ($3+ pricing?) • Forward pricing curve provides little financial incentive to inject. U.S. End October Storage Levels bcf 4,250 4,000 3,750 3,500 3,250 3,000 2,750

3,826 3,953

Canada End October Storage Levels bcf 1000

821

800

837

600 400 200 0 2002 2004 2006 2008 2010 2012 2014 2016

Source: FirstEnergy Capital Corp., US DOE/EIA.

2002 2004 2006 20082010 2012 2014 2016 Source: FirstEnergy Capital Corp. Canadian Enerdata.

36

CANADIAN CONSIDERATIONS

• Upstream maintenance will hamper supply gains in 2016. • North Montney Pipeline now being delayed to later 2017; dependent on Pacific Northwest LNG project going ahead; lack of expansion will further crimp supply growth.

37

AND STILL MORE CANADIAN CONSIDERATIONS

• Turnback capacity, though not unexpected, is occurring a bit sooner than expected; something else to soften demand for WCSB gas. TransCanada Long Haul to Short Haul Conversion Contracts Contract Number 1349 29244 38826 5019 36057 43857 47823 1741 46964 49993 1085 49379 1066 33045 34490 2776 6673 12430 22754 44283 48912 1048 2744 1049 1052 1045 47285

Service Requester Enbridge Gas Distribution Inc. Enbridge Gas Distribution Inc. Enbridge Gas Distribution Inc. Enbridge Gas Distribution Inc. Enbridge Gas Distribution Inc. Enbridge Gas Distribution Inc. Enbridge Gas Distribution Inc. Gaz Metro Limited Partnership Gaz Metro LImited Partnership Gaz Metro LImited Partnership Gaz Metro LImited Partnership Gaz Metro Limited Partnership 1425445 Ontario Limited Vermont Gas Systems, Inc. Vermont Gas Systems, Inc. Union Gas Limited Union Gas Limited Union Gas Limited Union Gas Limited Union Gas Limited Union Gas Limited Union Gas Limited Union Gas Limited Union Gas Limited Union Gas Limited Union Gas Limited Union Gas Limited

Contract Start Date 1989-Nov-01 2006-Apr-01 2009-Nov-01 1994-Nov-01 2009-Nov-01 2012-Feb-01 2015-Nov-01 1990-Oct-01 2013-Oct-01 2015-Oct-01 1988-Nov-01 2014-Nov-01 1989-Jan-01 2007-Nov-01 2008-Apr-01 1993-Apr-01 1996-Nov-01 1999-Nov-01 2003-Nov-01 2012-Nov-01 2016-Jan-01 1989-Nov-01 1993-Nov-01 1989-Jan-01 1989-Apr-01 1989-Jan-01 2013-Dec-19

Contract End Date 2018-Oct-31 2018-Oct-31 2018-Oct-31 2022-Oct-31 2022-Oct-31 2022-Oct-31 2017-Oct-31 2022-Oct-31 2017-Oct-31 2017-Oct-31 2018-Oct-31 2017-Oct-31 2022-Oct-31 2022-Oct-31 2022-Oct-31 2018-Oct-31 2018-Oct-31 2018-Oct-31 2018-Oct-31 2018-Dec-31 2018-Dec-31 2022-Oct-31 2022-Oct-31 2018-Oct-31 2018-Oct-31 2018-Oct-31 2018-Oct-31

Service Type FT FT FT FT FT FT FT-NR FT FT-NR FT-NR FT FT-NR FT FT FT FT FT FT FT FT FT FT FT FT FT FT FT

Primary Receipt Empress Empress Empress Empress Empress Empress Empress Empress Empress Empress Empress Empress Empress Empress Empress Empress Empress Empress Empress Empress Empress Empress Empress Empress Empress Empress Empress

Current Primary Contract Delivery Demand Enbridge CDA 40,093 Enbrldge CDA 15,000 Enbridge CDA 8,375 Enbrldge EDA 76,131 Enbridge EDA 42,226 Enbridge EDA 451 Enbridge EDA 166,000 GMIT EDA 180,000 GMIT EDA 130,000 GMIT EDA 31,255 GMIT NDA 12,397 GMIT NDA 3,100 KPUC EDA 4,000 Philipsburg 12,000 Philipsburg 6,500 Union CDA 3,699 Union CDA 1,979 Union CDA 1,004 Union CDA 40,000 Union CDA 8,145 Union CDA 1,500 Union EDA 50,426 Union EDA 8,675 Union NCDA 9,211 Union NCDA 1,545 Union NDA 49,645 Union NDA 9,000 Total (GJ/d) Total mmcf/d

2016 Anticipated 2017 Anticipated Conversion Conversion Quantity (GJ/d) Quantity (GJ/d) 40,093 15,000 8,375 7,613 26,313 451 166,000 82,200 24,800 130,000 31,255 2,397 3,100 3,000 12,000 6,500 3,699 1,979 1,004 40,000 8,145 1,500 49,337 8,675 887 661 44,401 9,000 601,853 570.7

Total 2016+2017 mmcf/d Source: TransCanada Pipelines.

126,532 120.0

690.7

38

MORE CANADIAN CONSIDERATIONS Alberta Working Natural Gas Storage bcf 600 500 400 300 200 100 0

600 Notional Capacity= 470 bcf 500 421.6 400 300 200 5 Yr. Hi-Lo 2015 2016 100 0

Jan-1

Mar-25 Jun-17

Sep-9

$0.20

$0.00 ($0.50) ($1.00) ($1.50) ($2.00)

($0.45)

($0.42)

Forecast ATP at Discount to AECO ($1.67) 2009 2011 2013 2015 2017 2019

Source: FirstEnergy Capital Corp., Bloomberg, Enerdata.

AECO-Nymex Price Differential US$/mmbtu

AECO-Station 2 Price Differential

$1.00

Forecast

$0.80

$0.70

$0.60

$0.51

$0.40 $0.20 $0.00 2011

C$/mcf $0.50

Dec-2

Source: FirstEnergy Capital Corp.

2009

AECO-ATP (CREC) Price Differential

2013

2015

Source: FirstEnergy Capital Corp., Bloomberg, Enerdata.

2017

2019

C$/mcf $0.00 ($0.20) ($0.40) ($0.60) ($0.80) ($1.00) ($1.20)

Forecast ($0.34)

($0.48)

Station 2 at ($0.84) Discount to AECO ($0.90) 2009 2011 2013 2015 2017 2019

Source: FirstEnergy Capital Corp., Bloomberg, Enerdata.

39

WHAT ABOUT LNG MARKETS?

• Warm winter in Northern Hemisphere has left plenty of LNG in storage, softening demand and prices. • Bigger concerns over Asian and European demand on slower economies; China is still a growth engine for LNG, but cannot offset all losses related to Japan’s nuke restarts and re-contracting at lower prices. • New supply adds this year and strong supply growth into 2020 has global LNG market looking oversupplied. • Buyers have been more aggressive with sellers. Global LNG Netbacks US $/mmbtu

$21 $18 $15 $12 $9 $6 $3

Asia Landed LNG Prices US $/mmbtu

India Spain Japan UK

Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Source: FirstEnergy Capital Corp., Waterborne Energy Inc.

$21 $20 $18 $16 $15 $12 $12 $8 $9 $6 $4 $3 $0

$16.25 $10.26 $7.21 $9.01 $6.70

Forecast 2009

2011

2013

2015

2017

2019

Source: FirstEnergy Capital Corp., Bloomberg.

40

U.S AND GLOBAL LNG SUPPLY GROWTH U.S. Annual LNG Exports Global LNG Supply Projects Under Construction Project # of Trains Australia Pacific T1 (Australia) 1 GLNG T1 (Australia) 1 Sabine Pass T1 (USA) 1 Gorgon T1 (Australia) 1 Australia Pacific T2 (Australia) 1 GLNG T2 (Australia) 1 Sabine Pass T2 (USA) 1 Gorgon T2 (Australia) 1 Petronas FLNG (Malaysia) 1 MLNG T9 (Malaysia) 1 Gorgon T3 (Australia) 1 Ichthys T1 (Australia) 1 Sabine Pass T3 (USA) 1 Wheatstone LNG T1 (Australia) 1 Prelude FLNG (Australia) 1 Sabine Pass T4 (USA) 1 Ichthys T2 (Australia) 1 Wheatstone LNG T2 (Australia) 1 Elba Island T1-6 (USA) 6 Rotan FLNG (Malaysia) 1 Cameroon FLNG (Cameroon) 1 Cameron LNG T1 (USA) 1 Cove Point LNG (USA) 1 Freeport LNG T1 (USA) 1 Cameron LNG T2 (USA) 1 Elba Island T7-8 (USA) 2 Freeport LNG T2 (USA) 1 Cameron LNG T3 (USA) 1 Yamal LNG T1 (Russia) 1 Freeport LNG T3 (USA) 1

Total Total Bcf/d Source: Fi rs tEnergy Capi tal Corp., IHS Energy.

36

Annual Capacity MMtpa Bcf/Year 4.5 216 3.9 187 4.5 216 5.2 250 4.5 216 3.9 187 4.5 216 5.2 250 1.2 58 3.6 173 5.2 250 4.2 202 4.5 216 4.5 214 3.6 173 4.5 216 4.2 202 4.5 214 1.5 72 1.5 72 1.2 58 4.0 192 5.3 252 4.4 212 4.0 192 1.0 48 4.4 212 4.0 192 5.5 264 4.4 212

117.3

5,637 15.44

Start Up Q1 2016 Q1 2016 Q1 2016 Q1 2016 Q2 2016 Q3 2016 Q3 2016 Q3 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q2 2017 Q2 2017 Q3 2017 Q3 2017 Q2 2017 Q4 2017 Q2 2018 Q2 2018 Q3 2018 Q4 2018 Q4 2018 Q1 2019 Q1 2019 Q1 2019 Q3 2019 Q3 2019 Q4 2019 Q2 2020

Current Status Under Construction Under Construction Under Construction Under Construction Under Construction Under Construction Under Construction Under Construction Under Construction Under Construction Under Construction Under Construction Under Construction Under Construction Under Construction Under Construction Under Construction Under Construction In FEED Under Construction Under Construction Under Construction Under Construction Under Construction Under Construction In FEED Under Construction Under Construction Under Construction Under Construction

bcf/d 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0

Mar. 2016 Forecast Jan. 2016 Forecast 7.6 6.3 5.4

8.2

3.7 3.0 1.51.8 0.6 0.9

2009 2011 2013 2015 2017 2019 Source: FirstEnergy Capital Corp., U.S. DOE/EIA.

U.S. Annual LNG Export Capacity (Year End) bcf/d 12 10 8 6 4 2 0 2012

Corpus Christi T1&2 Sabine Pass T5&6 Cove Point T1 Cameron T1&2 Freeport T1&2 Sabine Pass T3&4 Sabine Pass T1&2 Existing Re-Export

2014

2016

2018

2020

Source: FirstEnergy Capital Corp., Reuters.

41

CANADIAN LNG – HOW LONG MUST WE SUFFER?

• The collapse of LNG prices has left Canadian LNG export projects in limbo and looking uneconomic. • Douglas Channel LNG (small scale) now cancelled. • Shell project FID deferred to late 2016; possibility of even further deferral (cancellation?). • Pac. NW LNG still waiting on federal cabinet approval; unclear what is happening with final settlement with First Nations; Petronas very impatient with entire process. • Growing possibility that no LNG projects get FID this side of 2020.

Canada LNG Export Proposals Project

Partners

Pacific Northwest LNG

Prince Rupert Petronas, Sinopec, Japex, Petroleum Brunei, Indian Oil Corp. Kitimat Shell Canada, KOGAS, Mitsubishi, PetroChina

LNG Canada

Location

Capacity mmcf/d

Potential On Stream

2,600 2021? 3,200

2022? 42

NATURAL GAS MARKET CONCLUSIONS

• One of the warmest winters on record has left record amounts of gas in storage – prices at near 20 years lows as a result. • U.S. supplies now only starting to feel the pinch of lower prices and reduced capex budgets – could be headed sharply lower. • Canadian supplies likely to retrench into 2H16. • Gas demand holding up well on structural changes and current low prices; power generation demand at record breaking levels. • North American market looking at solid rebalancing in 2H16 and higher prices. • Overseas markets looking to be oversupplied and facing subdued demand trends; will curb initial growth in U.S. LNG exports. • With supply in downtrend and prices firming up, major concern is that 2017 could be overly tight in the case of a normal winter or extremely tight in the case of colder than average winter. • U.S. supplies may not be able to grow fast enough in 2017 – will need Canadian supplies as back up to balance the market; more exports, not less to U.S. in 2017/18. 43

FIRSTENERGY NATURAL GAS PRICE OUTLOOK FirstEnergy Natural Gas Price Outlook Nymex US$/mmbtu Old NEW $2.63 $2.63

AECO C$/mcf Old NEW $2.70 $2.70

2015

Average

2016

Q1 Q2 est. Q3 est. Q4 est. Average est.

$2.30 $2.30 $2.75 $3.25 $2.65

$1.98 $2.00 $2.58 $3.25 $2.45

$2.43 $2.29 $2.92 $3.56 $2.80

$1.82 $1.57 $2.36 $3.32 $2.27

2017

Q1 est. Q2 est. Q3 est. Q4 est. Average est.

$3.25 $3.00 $3.25 $3.50 $3.25

$3.25 $3.00 $3.25 $3.50 $3.25

$3.48 $2.98 $3.31 $3.64 $3.35

$3.18 $2.64 $2.96 $3.33 $3.03

2018

Average est.

$3.75

$3.75

$3.82

$3.44

2019

Average est.

$4.00

$4.00

$4.07

$3.61

Notes: All historical averages computed using weekday data only. Source: FirstEnergy Capital Corp., Bloomberg, Enerdata; est. refers to forecasted value.

44