NEW ENERGY
OPPORTUNITIES IN THE
GLOBAL ARENA
2004
Confidential - Property of Contango Capital
Management
1
The Energy Industry Is at a Major
Inflection Point Today
Three
Major
Investment
Themes
Environmenta
l and
Regulatory
Issues
Conventiona
l Energy
Supply and
Demand
Situation
Change
Occurring
in Energy
Industry
Power
Reliability
and
Quality
Demands
Portable
Power
Requirement
s
Three
Additional
Pressures
Industry
Innovation
in Short
Supply
Security
Concerns
Source: Contango Analysis
Confidential - Property of Contango Capital Management
2
Conventional Energy Supplies Are Peaking and
Developing Country Energy Demand Is Soaring
BP estimates that at the current global growth
rate, we will need:


Increasing gap in cost drivers


China and India alone will need
105.0
95.0
85.0
75.0
65.0
55.0
US/OECD IEA trend rate
1.7% per year with 5%
error
Current Supply Declining
at Current Depletion Rate
of 4.8% Per Annum
Global energy consumption profile shows
rapid migration to electricity
Confidential - Property of Contango Capital Management
14
13
20
12
20
11
20
10
20
09
20
08
20
07
20
06
20
20
05
45.0
35.0
04

Increase their per-capita consumption to the
level of South Korea (only 60% of U.S.)
Demand in these two countries alone reaches
119 mm bpd of oil (50% increase over current
global production of 80 mm bpd)
Estimated World Oil Demand and Current Supply
20
If China and India:


An additional 13mm bpd by 2010 at 15% per year
demand increase (Rate that Japanese demand
grew between 1965 and 1973)
03


Productivity is declining rapidly in the
development and production of oil
Operating costs are rising faster than inflation
20

An additional 7.25 mm bpd to meet demand in
2007
39mm bpd by 2010 with current 4.8% depletion
rate
20

Crude Oil Refiner Acquisition Cost – EIA
Graph & Data
Millions of Barrels of Oil Per
Day

Year
By 2014
Production Gap
is approx 50mm
bpd
Source: Barron’s and British Petroleum
3
The World is Dependent on a
Small Number of Oil Fields and
Those Fields Are Peaking in Production
000 Bbls/Day
(% Of
World Total)
4,000 +
Other Fields
36,200
(53%)
61 Fields Between
100,000 – 200,000 B/D
7,900
(12%)
29 Fields Between
200,000 – 300,000 B/D
6,400
(9%)
4,100
(6%)
13,900
(20%)
12 Fields Between
300,000 – 500,000 B/D
Dr. King Hubbert predicted in 1956 that U.S. oil
production would peak in about 1970 and
decline thereafter
U.S. peaked in 1972 at 11, 185, 000 bpd
14 Fields In Excess Of
500,000 B/D
Geologists using same methods estimate
world production peak between 2000 and 2012
Sources: Simmons & Company International & Hubbert’s Peak
4
Energy Is Oxygen
For the Digital Economy
Causes of Network Downtime
Router
Failure
12%
Operator
Error
7%
Heat
9%
Software
Glitches
23%
Cabling
3%
Power
Outages
16%
 Business is moving toward an
electronic medium
Disk Drive
Failure
15%
I/C & Card
Failure
15%
 Consumers around the world are
demanding a higher level of reliability
as a part of a higher standard of living
"Digital Economy" Power Density (W/sq.ft)
Source: Strategic Research Corporation
 Power Density in the “Digital
Economy” is as much as 12X of that of
the Industrial Equipment Economy
 Damage from Power Surges estimated
to be over $100B across all “Digital
Economy Sectors”
Internet D ata C enters
ISP 's
Search Engines
Online B ro kers
E-T ailers
Web H o sting
Semico nducto r F abs
Semico nducto r C leanro o m
0
50
100
150
200
Source: EPRI, Stephens Inc.; Jupiter Research
Confidential - Property of Contango Capital Management
250
5
Lack of Investment Is Choking
Electric Distribution System
 Investment of $56 Billion in
Transmission Assets needed between
2000 – 2010 in order to keep the Grid in
current condition
 Transmission Bottlenecks cost
consumers at least $500 million per
summer, according to the FERC
Growth Rate (%/year)
 In 1999 U.S. Utilities spent over $3 billion
to operate and maintain transmission
lines
Average Annual Growth Rates in US Transmission
Capacityand Summer Peak Demand for 1979-1999
and Projections for
1999 - 2009
3.5%
3.0%
Transmission
(GW-miles)
2.5%
2.0%

1.5%
1.0%
Summer Peak
(GW)
0.5%
0.0%
1979 - 1989 1989 - 1999 1999 - 2009
Time Period
 Bottom Line – Electric Utilities have and
will continue to under-invest in Electric
Grid Infrastructure
Confidential - Property of Contango Capital Management
Source: Eric Hirst, PhD, EEI 6
Portable Electronics Growth
Is Threatened by
Inadequate Power Sources
Growth in Portable Devices
History of Portable Power Sources
• Energy density requirements for powering portable electronic devices are not being met
• Lithium Ion is being challenged due to safety issues
• Technology is advancing at 5% or less in energy density improvement
• Huge breakthrough in battery technology has not occurred for over 10 years
• Lack of long runtime, light, and sizable power source is limiting portable electronic
innovation (Intel’s investment in fuel cells is an example of attempt to solve problem)
Confidential - Property of Contango Capital Management
Source: Motorola
7
Geopolitical Security Concerns Are
Squeezing Energy Prices

The volatile Middle East will garner an
increasing share of the global hydrocarbon
market since OPEC controls 77% of the
global oil reserves and currently
comprises only 32% of global production

The nature of interdependency and lack of
investment in both the U.S. and Western
European electric and natural gas
infrastructure raise considerable system
failure risks

Modern militaries require reliable power
sources for weaponry, computers, and
other equipment, especially when crossing
large, sparsely populated distances at high
speeds (a la the run-up to Baghdad in
2003)

Internal political strife in Saudi Arabia

Arafat’s death
Sources: EIA & World Sites Map Collection website
Confidential - Property of Contango Capital Management
8
Environmental and Other Regulatory Issues
Are Creating Pressures and Opportunities
In the Global Energy Markets

Air and water quality are major issues
with increasingly global importance

The pressure from U.S. and Global
environmentalists continues to escalate

Concern over global warming is more
likely to continue over the next 10 years

Declines of oil and natural gas reserves
place greater emphasis on dirtier fuels to
meet demand (i.e. coal)

Any U.S. energy legislation will have an
impact on the current capital structure in
the energy market

Re-election of Bush portends passage of
an Energy Bill in 2005
Atmospheric Concentrations of
Carbon Dioxide Since 1750
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9
Energy Industry Requires
Charting a New Investment Approach
We drilled our way out of the last energy crisis;
no major oil and gas fields to be found now
This crisis needs to be answered from the
demand side
Example – New technologies to squeeze more
kilowatt hours out of a molecule of gas
Reliability and Application historically drive
change in the energy industry
Conventional Approach – the Upstream,
Midstream, Downstream sectors
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10
Why Fuel Cells?
Advantages
Choke Points
Fuel cells act as a battery replacement,
often at a much lower weight and higher
power density than existing technology
Fuel cells act as an efficient generation
technology, solving the problem of Btu
cost
Fuel cells provide a reliable power
source that can work with and permit
wider use of other forms of renewable
energy, such as solar and wind
Hydrogen storage or production
technologies
 Weight
 Cost
 Amount of energy or runtime
for the fuel cell
Conversion device
 Cost
 Life
 Ambient operating temperature
Fuel cells and hydrogen are efficient at
converting natural gas into electricity
Rechargeable, Lead Acid Batteries
(Gel Cells)
Jadoo SuREII
Hydride Cartridge
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11
First Markets, First Profits
 Mid-wattage (20 to 300 Watts) portable markets





Pro video camera power
Covert camera power
Military solutions
Medical systems
Pipeline monitoring stations
 Back-up Power




Telecom back-up
Data center back-up
Remote powering of homes / commercial sites
Developing country power
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12
Where Will Hydrogen Take Us?
 Hydrogen is a storage medium
 Fuel cells will serve as batteries first, then migrate to
generation
 Fuel cells must come down in cost and up in reliability
and life
 Fuel cells will eventually decrease the amount of
hydrocarbons needed per capita through:
 Ability to store wind and solar energy on site and bring reliability
to renewable energy
 Higher efficiency
Confidential - Property of Contango Capital Management
13
Funding Issues for
Alternative Energy Companies
The Collapse of Energy Trading and Merchant Companies
2000
 Enron
 Reliant
 Dynegy
 Aquilla
 Williams
 El Paso
2004
Enron
Reliant
Dynegy
Aquilla
Williams
El Paso
• Sudden collapse of the U.S. and European
Energy Merchant sector reduced a significant
source of innovation and energy venture
investments
• Energy ideas and entrepreneurs are now
scattered across the landscape. No clear
funding alternatives
• Erosion of venture investment domain
expertise has created a barrier to venture
funding. Lack of expertise slows the velocity
of venture capital
• 1970’s status quo revisited – Slow-moving oil
majors, utilities, and financial institutions
again dominate the energy business
The Source of over $1 billion in Energy Venture Funding no longer
exists in the market.
Confidential - Property of Contango Capital Management
14
The Solution:
Formation of Funds Focusing on Alternative Energy Technology
Contango Capital is looking for technologies that solve the
energy storage issue, provide a cheap and storable energy
source, and/or reduce the cost of hydrocarbons.
Contango Capital divides the industry into:
 Reliability / Portable Power Solutions
 Cost of the Btu, synthetic or real
hydrocarbon Btu
Confidential - Property of Contango Capital Management
15
Contango Capital’s Investment Strategy
 Contango Capital
invests in companies
that are:
Three years or fewer from
commercialization (low rate
production product launch,
revenues)
Targeted to specific,
identified markets
Focused on enterprise
solutions, not incumbent
utility solutions
Contango Capital focuses on achieving liquidity
Positioned to deliver
multiple value propositions
1.
Purchase by larger company
2.
Investment going public – Current public market
valuations average 15X revenues for the energy
technology industry
events for investors through:
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Disclaimer
This material should not be construed as an offer to sell
or a solicitation as an offer to sell any security in any
jurisdiction where such an offer or solicitation would be
illegal. We are not soliciting any action based on this
material. This material is for general information
purposes only. It does not constitute a personal
recommendation or take into account the particular
investment objectives, financial solutions, or needs of
individual investors. Before acting on any advice or
recommendation in this material, individuals should
consider whether it is suitable for their particular
circumstances and, if necessary, seek professional
advice.
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17