NATURAL GAS VEHICLES: AN OVERVIEW OF MARKET GROWTH AND OPPORTUNITY IN THE TRUCKING, FUELING, AND TECHNOLOGY SECTORS RESOURCES FOR THE FUTURE –––OCTOBER 10, 2012 CHESAPEAKE ENERGY CORPORATION Founded in 1989 with a $50,000 investment by our co-founder and CEO – Aubrey McClendon Leader in production › Largest gross producer of U.S. natural gas (#2 on net basis) › Top 15 producer of U.S. liquids Leader in drilling › #1 driller in the world of horizontal wells and horizontal shale wells › Most active driller in the U.S. − 100operated drilling rigs (#2 most active operates 60, #3 operates 56) Leader in identifying and capturing world-class unconventional natural gas and liquids resources › In past 5 years, discovered 5 of America’s best unconventional plays Leader in technological innovations in unconventional reservoirs › #1 inventory of shale core rock data and built industry’s only proprietary core analysis facility Leader in vertical integration into midstream and oilfield service operations America’s Champion of Natural Gas CHK’S 10 KEY PLAYS Low-risk, U.S. onshore asset base; not exposed to economic, geopolitical or technological risks internationally or in the Gulf of Mexico Once our asset sales are complete we will exclusively focus on 10 leading plays in which we have a #1 or #2 position 3 THE BIG 4 U.S. NATURAL GAS SHALE PLAYS: WORLD CLASS DISCOVERIES WORLD GAS FIELDS BY RECOVERABLE RESERVES 1400 600 500 500 400 300 235222 200 138123110 958173 100 706848474645444242 0 Source: Tudor Pickering –Pickering Tudor Source: May ‘12 Breakeven Gas Price ($/mcf) $0 $1 $2 $3 $4 $5 $6 $7 $8 $9 NATURAL GAS SUPPLIES NATURAL TO APPROACH IN “JUST THE TIME” INVENTORY BASIN ECONOMICS –ECONOMICS BASIN OF RATE 10% FOR PRICE GASREQUIRED of the gas growth forward. going of the gas growth of is ~17% oil and liquids-rich plays Gas from produced the total of thethe total gas stack. account ~35% These for plays Niobrara Fracture Vertical Permian Niobrara High Resistivity Monterey Oil gas liquids High gas liquids Low gas Dry Bakken Wolfcamp Midland Utica Condensate New Mexico Vertical Bone Spring Eagle Ford Oil California TPH Medium-term Gas Gas TPH Price Medium-term Uinta Oil Gas TPH Price Long-term Barnett Combo Gas Prices Current MS Lime DJ Basin Eagle Ford Condensate Marcellus SW PA GOM deep gas Cleveland Tonkawa Avalon Wolfcamp Delaware Marcellus NE PA Anadarko -Woodford Wet Haynesville Core Marcellus Central Barnett Core Granite Wash Anadarko -Woodford Pinedale Economics * $100/bblassume crude Fayetteville Arkoma -Woodford Jonah Haynesville Non -Core Arkoma Barnett Non -Core South Texas Powder River Anadarko Anadarko -Woodford Dry Piceance Eagle Ford Gas East Texas Conventional Niobrara Low Resistivity Appalachia Gas • • • and and gathering system infrastructure existing a pre- by bolstered are subsequent wells whichmeans the production” “heldby signals price respond to quickly enable to supplies basin willrealities These economics and come. to years fuelfor pricedtransportation confidence a low- in consumers have help large willenergy The economics basin These fieldsare largely RETURN 5 5 VERTICAL VS. HORIZONTAL DRILLING vs. Vertical Wells Horizontal Wells Our ability to drill subsequent wells form one padsite allows new natural gas supplies to come online and achieve scale much quicker.6 NATURAL GAS UTILIZATION SUMMARY Macroeconomic Factors are Affecting Energy Prices in the U.S. › Greater global consumptions of crude oil › Emerging economies vying for limited resources Recoverable Domestic Supplies of Natural Gas are at All-Time Highs › Shale gas has significantly increased U.S. supply › Productive capacity of shale places continued downward pressure on natural gas prices Chesapeake has Achieved Significant Fuel Savings from CNG Vehicles › Lower fuel costs › Surprising resale value for used CNG vehicles Auto Manufacturers are Providing More Options › Big 3 OEMs are developing production vehicles running on CNG › Heavy-duty and vocational truck manufacturers are increasing market share Infrastructure Development is Keeping Pace › Fuel marketers are joining the game for both light- and heavy-duty refueling › Pricing economics are attractive for retailers and consumers alike › Innovation continues on fuel delivery options 7 AMERICA ON THE BOTTLE U.S. consumes 23% of the world’s oil, 19 mm bbls/day, of which 11 mm bbls/day is imported By 2020, the IEA predicts world oil consumption will increase 60% › This does not take production decreases into account › This means we will need 4 more Saudi Arabias… where will they be? To keep pace with demand and depletion, the world must add 64 million barrels of production per day by 2020: › This growth will require $350 billion per year in drilling capex on new projects › Yet, OPEC only spent $390 billion in total on new projects from period 2000-2007; where will required funding come from with rising OPEC social costs? › The U.S. is exporting $1 mm per minute to import oil, that’s $500 billion per year and $5 trillion per decade – can we afford that drag on our economy? Let’s get off the foreign oil bottle in the next 10 years! HOW WILL AMERICA DEAL WITH $5/GALLON GASOLINE OR DIESEL? Current domestic and international challenges will likely keep upward pressure on the price of diesel in 2012 and Will Israel Attack Iran? beyond January 25, 2012 › Refinery constraints in 2012 – 2015 › Diesel exports have increased by 28% since 2010 › Geopolitical issues, particularly associated with Iran − Israel vs. Iran – Strait of Hormuz Action – both economic and military conflict – likely to occur in 2012 − Saudi Arabia and other countries – developing petroleum- based manufacturing economies Exports vs. internal consumption? Chinese vehicle › Global oil consumption growing at a steady pace, especially in Mideast, China, India and all of SE Asia ownership per capita is equal to where the U.S. 10 year curve for oil = ~$100 per bbl was in 1919 yet its 10 year curve for U.S. natural gas = $25 per bbl equivalent overall oil consumption is How can Americans resist a $75 per bbl ($1.80/gallon) already 50% of U.S. and discount on fuel costs? 12% of world’s FUEL PRICE DIFFERENTIAL FORECAST Source: TIAX Report : “U.S. and Canadian Natural Gas Vehicle Market Analysis,” May 2, 2011 NATURAL GAS VEHICLES ARE AN ANSWER TO RISING FUEL PRICES Price of Oil vs. Natural Gas *( Energy Feedstock Ratio: CNG 8:1, LNG 7:1) Forward Spread Pre-2005 Historical Spread 2005-2010 Avg. Spread If NYMEX is $4.00/mcf $/bbl 7:1 Btu ratio $/mcf 1:1 Btu ratio 1.5:1 Btu ratio 7:1 Btu ratio $160 $16 › CNG will be $1.50/dge ($0.50) › LNG will be $2.00/dge ($0.57) $140 $14 If NYMEX is $8.00/mcf › CNG will be $2.00/dge ($1.00) NYMEX WTI $120 $12 NYMEX Henry Hub › LNG will be $2.50/dge ($1.14) If NYMEX is $12.00/mcf $100 $10 › CNG will be $2.50/dge ($1.50) › LNG will be $3.00/dge ($1.71) $80 $8 $60 $6 This is why AT&T, UPS, $40 $4 Verizon, Waste Management, etc. are $20 $2 switching to natural gas –––they can save $0 $0 millions on fuel costs 11 Source: Bloomberg (as of 3/9/12) GASOLINE AND DIESEL PRICING FACT: Changes in the price of Natural Gas have a much smaller effect on pump prices compared to changes in the price of Crude Oil on gasoline and diesel prices. Source: U.S. Energy Information Administration CNG SALES PROFITABILITY IS THE KEY DRIVER FOR INFRASTRUCTURE DEVELOPMENT On July 24, 2012 the NYMEX spot price for natural gas closed at $3.02/MMBtu. These low commodity prices are a boon for CNG retail profit margins. Pump price of $1.99/gge Pump price of $2.45/gge INPUT COST INPUT COST Natural Gas (divide by $0.38 Natural Gas (divide by $0.38 8.0) 8.0) Transport Costs & Fees $0.25 Transport Costs & Fees $0.25 Electricity Costs per GGE $0.15 Electricity Costs per GGE $0.15 Maintenance per GGE $0.26 Maintenance per GGE $0.26 Federal and State Taxes $0.25 Federal and State Taxes $0.25 Fuel Card Fees per GGE $0.03 Fuel Card Fees per GGE $0.03 Retailer Profit Margin $0.70 Retailer Profit Margin $1.14 CNG at the Pump $1.99 CNG at the Pump $2.45 WHERE IN THE WORLD? NATIONAL FLEETS WITH NGVS NATURAL GAS TRANSPORTATION SUPPLY CHAIN SYNERGIES: IMPRESSIVE WEB OF OPPORTUNITIES FOR ALL STAKEHOLDERS Technological Innovation Infrastructure BuyBuy----InInInIn End User Utilization Robust Market For State Fleet Vehicles Technology Technology Technology Technology Retailers Retailers Retailers Retailers Fleets Fleets Fleets Fleets States States States States Oklahoma is an Example of Collaborative Infrastructure Growth Current as of August 22, 2012 17 ADDITIONAL STRATEGIC GROWTH MARKETS 18 HD-CNG VS. LNG Clean Energy and Pilot-Flying J Shell and TravelCenters of America › 19 locations completed › At least 100 TA locations › Willing to add L/CNG to locations with fuel › Agreement allows for LNG and CNG commitment › Motivated by requests from existing › Seeking liquefaction sources customers CNG 400 miles LNG 550 miles Dual Fuel 550+ miles SourceSource: U.S. Department of Energy, Energy Information Administration, 19 U.S. LNG Markets and Uses: June 2004 (recreated by TIAX) THE FOUNDATION FOR NATURAL GAS TRUCKING AT TRAVEL STOPS IS BEING BUILT TODAY; HOWEVER, MORE IS NEEDED FOR EXPEDITED ADOPTION Map: Clean Energy’s America’s Natural Gas Highway 111ststst Mover: 2nd Mover: • CHK, Clean Energy, and Pilot Flying J • Shell and TravelCenters of America/Petro • ~ 100 LNG Travel Stop Stations • ~ 100-200 LNG/CNG Travel Stop Stations (above) 20 Source: Clean Energy Fuels Corporation HD NATURAL GAS ENGINE AVAILABILITY Manufacturer Engine HPHPHP &