Our Energy Challenges

Future Currents: Where the Global Energy Sector Will Flow

Robert RapierThe Wealth SummitMay 2014Jim FinkOutlineBiographyPhilosophy on money and energy investing2013/Q1 2014 in reviewIs natural gas still cheap?Shale oil continues to boomA word on coal, nuclear, and renewablesA peek at my portfolio

2Robert Rapier BioMS in chemical engineering from Texas A&M> 20 years in the energy business

Roles in oil and natural gas production, refining, petrochemicals, renewable energyFive patents grantedWorked in Germany, Scotland, and the NetherlandsBased in Hawaii, but on assignment in ArizonaInvestor for >30 years

The Hats I WearChief Technology Officer and Executive Vice PresidentConduct due diligence Develop technologiesPresently working with Advanced Green Innovations in Arizona

PublicationsThe Energy Strategist/The Energy LetterMLP Profits/MLP Investing InsiderPersonal Finance

2. Merica International

3. Freelance writer/commentatorManaging Editor, Energy Trends InsiderGuest columns in Washington Post, Forbes, Wall Street Journal, The EconomistTV appearances on 60 Minutes, The History Channel, and PBS1. Investing Daily

4Author of Power Plays

Published in 2012Laymans guide to energyOverview of energy optionsHistory of US energy policyDue diligence primerTES Philosophy andPortfolio Review6My Money PhilosophiesSpend less than I earnMinimize personal debtInvest in businesses I understandInvest in profitable but out of favor businessesUnderstand the risk level Avoid investments that are overly dependent on government subsidies and/or mandatesIdentify long-term trends and invest for the long termHave an exit strategy7A Few Energy PhilosophiesEnergy is nearly as important to society as is food and waterThere is no economic, scalable substitute for oilOil prices will continue to be driven by growth in developing countriesA long natural gas boom is underwayCoal and nuclear power face headwinds Investing in advanced biofuel companies is a good way to lose money

8TES 2013 in ReviewPurged 27 holdover companies, including royalty trusts and several foreign companiesAverage return of companies after selling was -5.7%Added 27 companies from across the energy spectrumAverage annualized return of new buys was 28% versus 22 percent advance for the Energy Select Sector SPDR (NYSE: XLE)Kept 18 companies from previous regimeAverage annualized return of holdovers was 28%Full performance summary in December 27 TES story Counting Our Blessings

9Q1 2014 ReportEnergy Select Sector SPDR down 1%S&P 500 up 1%TES portfolios up 1.8%12 TES Best Buys up 7.6%Two in the red and six returning double digitsMajor moves in Q1 by American Railcar (NYSE: ARII), up 52%, and First Solar (NYSE: FSLR) up 30%10Current Best Buys* I own shares in this company

112014 Investment Landscape12The Case for Natural Gas13Global Shale Basins

14Shale Gas Resources

15North American Shale Basins

16Gas Production Surges

17Rigs Shift to More Lucrative Oil

18The Long Term Natural Gas Drivers19LNG ExportsTwo dozen liquefied natural gas (LNG) export license applications under review at DOETotal capacity of all licenses applications is 35.6 billion cubic feet per day (Bcfd)This is equivalent to just over half the natural gas production in the US in 2012Thirteen companies have applied to the Federal Energy Regulatory Commission (FERC)2 West Coast, 2 East Coast, 9 Gulf Coast18 Bcfd total proposed capacityCheniere Energy Partners LP (NYSE MKT: CQP) scheduled to start exporting LNG in Q4 2015

20EPA Phase-out of MercuryMercury and Air Toxics Standards (MATS) Designed to limit emissions of mercury and other toxic substances; implementation in 2015 and 2016

Source: EIA, Annual Energy Outlook 2014

21EPA Curb on Carbon EmissionsProposed limit of 1,100 lb CO2/MWh for new power plantsCoal-fired power without expensive carbon sequestration unable to meet this standardAverage emission rates in the US from coal-fired generation are: 2,249 lbs/MWh of carbon dioxideAverage emissions rates in the US from natural gas-fired generation are: 1135 lbs/MWh of carbon dioxideEPA: EIA projections show that natural gas is likely to be the most widely-used fossil fuel for new construction of electric generating capacity through 2020

22Natural Gas Vehicles

23A Relevant DigressionI am currently working to help commercialize a natural gas conversion kit for heavy trucking and power generationEmbedded at Advanced Green Innovations in PhoenixThey have developed the world's first non-invasive diesel to natural gas engine conversion kit that provides full diesel power and torque -- www.zhro.com

24The Short Term Natural Gas Drivers25Understanding Gas InventoriesUS natural gas consumption is seasonalDuring injection season, gas is stored under pressure in depleted oil or gas reservoirs, in natural aquifers, or in salt cavernsInjection season lasts from ~April 1st to ~mid-NovemberInventories are then drawn down through the winterAbnormally cold or warm winters can have a lingering on natural gas prices

Source: EIA, Annual Energy Outlook 2014

26

Natural Gas Inventories27

Natural Gas Inventories1995-96 Gas prices rise 168%28

Natural Gas Inventories2000-01 Gas prices rise above $10/MMBtu29

Natural Gas Inventories2002-03 Gas prices rise above $15/MMBtu30

Natural Gas Inventories2011-12 Gas prices fall below $2/MMBtu31

Natural Gas Inventories2013-14 Largest gas withdrawal on record32A Long, Cold WinterNatural gas inventories are 53 percent below normal

33A Long, Cold WinterInventories not expected to recover before 2016

Prices crashed34From my presentation last year:Natural gas is cheap35Natural gas highlightsHenry Hub spot price on May 31, 2013 was $4.02 per million BtuHenry Hub spot price on April 29, 2014 was $4.83 per million Btu an increase of just over 20 percentAdded Cabot Oil and Gas (NYSE: COG) to the Growth Portfolio on 3/13/13Nations 12th largest gas producerTotal return to date of 19.2 percent Added Chesapeake Energy (NYSE: CHK) to the Aggressive Portfolio on 5/13/13Nations 2nd largest gas producerTotal return to date of 43.5 percentAdded Devon Energy (NYSE: DVN) to the Growth Portfolio on 9/25/13Nations 4th largest gas producerTotal return to date of 19.1 percent

36Top 20 US Gas Producers

Denotes portfolio holding37Disconnects Create OpportunityCabot Oil and Gas

COG drops based on short-term factorsI pick up shares at $3538Natural gas takeawaysNatural gas in the early stages of a long-term growth phaseShort-term investors should exercise more caution, as gas producers have surged recentlyDownside risk short-term would be an unusually mild summer followed by a mild winter100% of natural gas-weighted portfolio holdings have been winners to date

39The Shale Oil Boom Continues40

Global OpportunityDeveloping Regions Want Oil

42Shale Oil Resources

43Shale Oil Rising

44Top US Oil ProducersGraphic source: The Economist

45Notable Portfolio Holdings4 of the Top 5 US oil producers 3 of the Top 4 Bakken oil producers Continental Resources (NYSE: CLR)Whiting Petroleum (NYSE: WLL)EOG Resources (NYSE: EOG) also top producer in Eagle Ford FormationTop producer in the Permian BasinOccidental Petroleum (NYSE: OXY)

46Coal and Nuclear Power47Global Coal Consumption

48Nuclear Woes

49Nuclear and coal industries will be driven by growth in India and China, but will face plenty of headwinds50Opportunities in Renewable Power51Rapid Growth in Wind and Solar

52Exponential Growth

53Growth in Context

54Renewable TakeawaysI believe solar power is destined to become our most important source of powerRapid capacity growth will continue in several renewable segmentsOpportunities exist, but most companies are richly valued and rely on government supportInvestors should choose entry points cautiouslyNotable portfolio holding is First Solar (NASDAQ: FSLR)After returning 88 percent in under seven months, we advised investors to take some profits

My PortfolioMy Overall AllocationEnergy stocks 29.0 percentHealth care mutual funds 20.4 percentVanguard PRIMECAP Fund (VPMCX) 8.2 percentFidelity Low-Priced Stock Fund (FLPSX) 7.3 percentVanguard Morgan Growth Fund (VMRGX) 6.5 percentInternational mutual funds 6.7 percentTechnology mutual funds 4.9 percent

1 year portfolio return through 4/24/2014 is 31.4 percent

My Energy HoldingsConocoPhillips (NYSE: COP) 15 percent of portfolioPhillips 66 (NYSE: PSX) 7.5 percent of portfolioDevon Energy (NYSE: DVN) 3.2 percent of portfolioAcquired shares on 11/6/13 at an average price of $59.69; gain to date ~ 18 percent Cabot Oil and Gas (NYSE: COG) 3.3 percent of portfolioAcquired shares on 2/28/14 at $35; gain to date ~ 12 percent

2013 RemovalsPetrobras (NYSE: PBR)Heavy-handed government intervention; sold for small profitBerry Petroleum (NYSE: BRY)Merger arbitrage situation; sold for small profitWestport Innovations (NASDAQ: WPRT)Lost faith in management; sold for 12 percent lossThank You!RR Selected PublicationsBiofuels in Achieving Sustainability: Visions, Principles, and Practices. Vol. 1. published in 2014.Power Plays: Energy Options in the Age of Peak Oil published in 2012The Potential of Algae and Jatropha as Biofuels Sources in Global Economic and Environmental Aspects of Biofuels published in 2012The Global Energy Picture for The Economics of Alternative Energy Sources and Globalization published in 2011Diesel Production Processes for Advances in Energy Research published in 2011Bioenergy/Biofuels in Sustainable Development in the Forest Products Industry published in 2010Renewable Diesel in Biofuels, Solar and Wind as Renewable Energy Systems: Benefits and Risks published in 2008