Major Trends & Opportunities in the

Energy Sector

Joseph R. Dancy SMU’s Dedman School of Law & Cox School of Business

Manager, LSGI Venture Fund L.P.

LSGI Advisors Inc.

Crude Oil Global Demand Growth is Relentless

• International Energy Agency forecasts demand will grow roughly 1.4 million barrels per day in 2014

• Global market of roughly 91 million barrels per day

• Global demand in 2014 will again set records

LSGI Advisors Inc.

Demand Growth is Persistent

LSGI Advisors Inc.

• Both developed & developing economies driving growth

• Crude oil use correlates closely with economic growth

• Global demand grew in 15 of the last 17 years

U.S. Crude Production is Booming!

• Massive production increases centered on two states: Texas and N. Dakota

• U.S. production increased roughly by 1 million barrels per day in 2012 and 2013

• IEA forecasts non-OPEC production growth of 1.7 million barrels per day in 2014 LSGI Advisors Inc.

Transportation Issues Abound

LSGI Advisors Inc.

Production Sustainability Issues • Decline curve for unconventional

wells is very steep, question of total reserves and deliverability

• All liquids are not equal: Natural gas liquids heating content 60-70% that of crude oil, limits on refinery feedstock

• IEA Study: Finding & developmental cost for unconventional shale plays are relatively high impacting return on investment

LSGI Advisors Inc.

Supply Gains are Costly

• IEA Report: Capital expenditures increased from $250 billion in 2000 to $700 billion in 2012, production and reserve gains disappointing

LSGI Advisors Inc.

Arab Spring now the Arab Winter

• Iran • Libya • Syria • Nigeria • Yemen • Egypt • Sudan • Venezuela • Iraq (?)

LSGI Advisors Inc.

Production & Export Issues in:

Oil Prices have been Stable

LSGI Advisors Inc.

• Brent crude oil trading range in 2013 was narrowest since 2006

• Supply gains from unconventional resources offsetting production interruptions in N. Africa, Middle East, and OPEC

2013

We expect more of the same in 2014

Natural Gas This winter has been brutal!

LSGI Advisors Inc.

Massive Draws!

Storage Inventory Plummets

LSGI Advisors Inc.

Record 2014 Refill Forecast

LSGI Advisors Inc.

But Injections May Fall Short

LSGI Advisors Inc.

Five year average end of season storage

Will Storage Meet Increased Demand?

LSGI Advisors Inc.

Previous record draws

2014 Estimates

Prices are Trending Upward

LSGI Advisors Inc.

Storage Refill Issues

LSGI Advisors Inc.

• Infrastructure to transport • Infrastructure to process • Well & field deliverability • Tech & efficiency improvements • Peaker plant demand • Gas to coal switching • Gas price needed to fill storage

We expect higher natural gas prices, possibly surprisingly so, this summer and fall

An Energy Revolution! . . . and the Equity Market Yawns

LSGI Advisors Inc.

LSGI Advisors Inc.

Stock Selection May be the Key

Companies growing production and reserves, located in politically secure areas of the world, should do very well

LSGI Advisors Inc.

Presented to: The Pipeline Opportunities Conference

Houston, Texas March 25, 2014