Mark Stultz
Vice President, Policy & U.S. Regulatory Affairs
March 19, 2009

Disclaimer
Copyright© BP Energy Company. All rights reserved.
Contents may not be reproduced except for internal purposes. BP is not responsible for any inaccuracies in and assumes no liability for the information and data contained herein and nothing contained herein should be considered financial or other advice. Contents of this presentation do not necessarily reflect the Company’s views.
2

Storm #1
•
Hurricane Ike made landfall near
Baytown, Texas, on September
13, 2008, as a strong Category 2 hurricane.
•
Hurricane Ike was the third most destructive hurricane to ever make landfall in the United
States, moving directly over various Houston energy headquarters.
•
Ike caused significant destruction to electric transmission and distribution lines, and these damages delayed the restart of major processing plants, pipelines, and refineries.
•
As a result of the production disruptions, per-day natural gas production fell by 68% in
September 2008 compared with the previous month
− 70% compared with
September 2007
3
Information obtained from EIA

Storm #2
•
Global financial credit crisis emerged in September 2008:
− September 7, 2008 - Federal Housing
Finance Agency (FHFA), announced takeover of Fannie Mae & Freddie Mac
− September 14, 2008 - Lehman
Brothers filed for bankruptcy
− October 3, 2008 - Emergency Economic
Stabilization Act of 2008 (bailout) was enacted into law.
− From January to February 27, 2009 represented the worst start to a year in the history of the S&P 500 with a drop in value of 18.62%
− March 09, 2009 - Dow Jones Industrial hits 6547.05
− October 9, 2007 Dow Jones was
14164.53
4

Dow Jones Industrial Average
Dow Jones (3/21/1999 – 3/17/2009)
October 9, 2007
-14,164.53-
Storm #2
March 9, 2009
-6547.05-
5

Gas Volumes Traded
35
Gas Volumes Traded
30
25
20
32.5
15
10
5
Louis Dreyfus
0
2003
Source: Platt’s Gas Daily
2004 2005 2006 2007 2008
Note: Constellation declined to report 4Q 2008 volumes as its gas marketing business prepares for an acquisition by Macquarie Group.
6

A Financial and Credit Crisis Snapshot
Equity Prices – Last 12 months
As expected, there is an inverse directional relationship between equity prices and levels of credit default swaps.
•
As concerns with the financial sector have grown over the last 12 months, equity prices have trended downward.
•
The cost to insure against a company default using traded credit default swaps grew exponentially over this same period of time, but some stabilization is apparent.
5 Year CDS Levels – Last 12 months
7

Credit Risk Mitigation
•
Natural Balancing Factors
− Much of NAGP’s credit exposure is with counterparties in industries that are either less sensitive or benefit from the current environment
−
Utilities
– Cost-recovery mechanisms and heavy regulation provide for more stable cash flow and less price sensitivity.
− E&P – “Right-way risk” in the E&P sector allows for increased risk appetite as the value of the company’s assets are positively correlated with future hydrocarbon prices.
•
Mitigation Tools
− NAGP Credit will continue to monitor industry dynamics and pursue mitigation as appropriate using the following:
−
Credit Insurance
− CDS protection
−
Contingent Credit Default Spreads
− Trading constraints
8

Trading Impacts
•
A Changing Landscape
− Lehman’s gas and power trading unit, Eagle Energy Partners, purchased by EDF Trading. Coal and other former Lehman traders now at Barclays.
− Tenaska’s 50/50 joint venture partner in Tenaska Marketing Ventures,
AIG, bailed out by U.S. government.
−
UBS exits energy trading globally, including U.S. gas and power.
− Merrill Lynch purchased by Bank of America.
− Break-up of Constellation
−
Investment or I-Banks retreat to traditional regulation
•
Fewer Counterparties and Reduced Market Liquidity
•
A Drive to Cleared Products, Platforms and Exchanges
• Reduced Volatility (“chirping crickets”)
•
A Preference for the Shorter-Term; Less Out-year Speculation
9

Increased Regulatory Scrutiny/Evolving
Federal Policy
•
New position and accountability limits (possibly including any international exchanges accessing U.S. traders)
•
Increased reporting
•
Mandatory exchange and/or OTC clearing?
•
Pending CFTC review of commercial hedge exemptions and category definitions
•
Potential agency/regulatory consolidation
10

Two Market Storms
The financial crisis will continue to have wide-ranging ramifications on markets including the energy industry.
•
Liquidity
•
Capital Projects and Infrastructure Funding
•
Supply
•
Working Capital Funding
•
Economy
•
Prices
11

Market Storm #2
Extraordinarily weak supply/demand balance
• Production up year-over-year (“YOY”) despite ~700 MMcfd shut-in in the Gulf of Mexico
• Gas storage levels may set records this year
• LNG imports low, but flat YOY
• Demand (weather-adjusted) is down materially; p ower and industrial demand down (economy impact)
• Rig counts responding to lower prices
• Canadian exports to US down
12

US Gas Prices, Production and Rig Count
EIA and Baker Hughes Rig Count
Hurricane
Ike
13

U.S. Natural Gas Storage Inventories
Bcf
4000
3500
3000
2500
Total US Storage as of 03/06/09: 1681 Bcf
2000
1500
1000
500
5 yr Avg
2006/2007
2007/2008
2008/2009
0
7-
N ov
21
-N ov
5-
D ec
19
-D ec
2-
Ja n
16
-Ja n
30
-Ja n
13
-F eb
27
-F eb
13
-M ar
27
-M ar
10
-A pr
24
-A pr
8-
M ay
22
-M ay
5-
Ju n
19
-Ju n
3-
Ju l
17
-Ju l
31
-Ju l
14
-A ug
28
-A ug
11
-S ep
25
-S ep
9-
O ct
23
-O ct
Storage levels as of March 6, 2009 are 270 Bcf higher than last year and
200 Bcf higher than the 5 yr average
Source: EIA
14

Average US Natural Gas Wellhead Prices
16
14
12
10
10.62
8
6.71
5.08
5.62
5.91
6.32
5.87
6
4
3.84
3.35
2.92
2
2.09
2.2
2
0
1997 1998 1999 2000 2001 2002 2003 2004 2005
Energy Information Administration
2006 2007 July
2008
December
2008
15

Average World Crude Prices
150
135
120
105
90
75
67.74 69.91
July
137.11
60
45
30
15
17.39
10.82
16.82
28.7
23.73 24.14
26.52
31.65
52.55
March 13
42.91
0
1997 1999 2001 2003 2005 2007 2009
Energy Information Administration
16

Oil, Coal, Natural Gas and Propane Daily
Slide obtained from FERC website. Questions can be sent to MarketOversight@ferc.gov
17

U.S. Steel Production
U.S. Steel Production
Source: World Steel Association, Federal Reserve
106% 10000
9000
104%
102%
8000
7000
6000
5000
Recession
US Steel Production
Industrial Manufacturing Index
4000
94%
92%
3000
Fe b-
95
A ug
-9
5
Fe b-
96
A ug
-9
6
Fe b-
97
A ug
-9
7
Fe b-
98
A ug
-9
8
Fe b-
99
A ug
-9
9
Fe b-
00
A ug
-0
0
Fe b-
01
A ug
-0
1
Fe b-
02
A ug
-0
2
Fe b-
03
A ug
-0
3
Fe b-
04
A ug
-0
4
Fe b-
05
A ug
-0
5
Fe b-
06
A ug
-0
6
Fe b-
07
A ug
-0
7
Fe b-
08
A ug
-0
8
Fe b-
09
Month
90%
100%
98%
96%
18

Petrochemical Utilization
100%
95%
90%
85%
80%
75%
70%
65%
60%
55%
50%
45%
40%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: Hodson Report Avg (03-07) 2008
19

U.S. Industrial Gas Consumption
25
20
15
10
5
0
Forecast
EIA Short-Term Energy Outlook, Mar. 09
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
-3.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2008 2009 YOY Change
20

Power Demand Growth: Turning Negative
EIA Jan. 09
*Electricity demand not weather-normalized
2%
0%
-2%
-4%
-6%
8%
6%
4%
Electricity demand Real GDP
21

Natural Gas Price History / Futures &
NYMEX Natural Gas Forward
$16
$14
Actual NYMEX Forward
$12
$10
$8
$6
$4
$2
$0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
June 30, 2008
Jan 31, 2008
Dec 31, 2008
Mar 3, 2009
22

$20
$18
$16
$14
$12
$10
$8
$6
$28
$26
$24
$22
$4
$2
$0
North America Natural Gas Relative to
Competing Fuels
Historical Forward
$30 y-00 y-01 y-02 y-03 y-04 y-05 y-06 y-07 y-08 y-09 y-10
HH/NYMEX FO NYH #6 1% HO #2 NYH y-11 y-12
WTI
* Source: various
Prices as of Mar. 17, 2009
23

Rig Count
Slide obtained from FERC website. Questions can be sent to MarketOversight@ferc.gov
24

Historical Price Forecasts
Actual
Wellhead
Prices
25

Total U.S. Production Outlook: 2009
62
60
58
56
54
52
50
48
Forecast
EIA Short-Term Energy Outlook, Mar. 09
4.00
3.00
2.00
1.00
0.00
-1.00
-2.00
-3.00
-4.00
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2008 2009 YOY Change
26

Long-Term Henry Hub Spot Price Outlooks
Source: various
10.00
9.00
8.00
7.00
Historical Forecast
6.00
5.00
4.00
3.00
2.00
1.00
Range of spot price outlooks
Historical Henry Hub prices
NYMEX forward curve
-
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
View of gas demand, competing fuels, indigenous gas supply costs, production, and
LNG imports will influence long-term outlook of gas prices – many moving parts!
27

Forward View – 2009
•
Financial sector expected to continue slow stabilization with the high degree of government intervention, but more losses and write-downs are likely
•
Macro-economic weakness and related consumer response will continue to be key concern
•
Financial strength of customers and counterparties will remain important, with an increased focus on robust risk management, liquidity, and refinancing risk
•
Contractual tools such as margining rights and risk-transfer mechanisms such as credit insurance will see increased use
•
Depressed enterprise values will drive increased consolidation and investment in all sectors
28

Energy Insights
•
North American market works: price works to balance supply and demand
•
Unconventional gas production expected to make up larger share of total supply
•
Significant investment in new infrastructure necessary to move supply to markets: industry participation is critical
•
Pricing relationships as we know them will evolve with changing regional infrastructure
29

Q&A
30