RAILTRENDS CONFERENCE – CRUDE BY RAIL OUTLOOK STUART E. NANCE – VICE PRESIDENT - MARKETING

New York City, NY– November 22, 2013

What I will attempt to cover during this presentation……

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•  What is the future for Crude by Rail (“CBR”)?

•  Are these production forecasts worth looking at?

•  Where/how might the forecasts be wrong?

•  What is the Oil & Gas producers’ perspective on CBR?

My First Exposure to “Tank Cars” ~ 1985 – “Deep” East Texas 11/13/13 10:06 PMOld Railroad Tank Cars Make Great Culverts

Page 1 of 2http://www.farmshow.com/PrintArticle.php?a_id=406

Old Railroad Tank Cars Make Great Culverts

FARM SHOW Magazine » Old Railroad Tank Cars Make Great Culverts

If you need a large culvert to replace a small bridge or to make a crossing on a creek or other water way,you might want to consider using a railroad tank car.

Terry Smith, Diversified Rail Car, Camden, Arkansas, has sold rail carculverts for several years, mostly in the Texas-Arkansas-Louisiana-Mississippi area.

"An old tank car with the ends cut off makes an ideal culvert. They'remade of high quality steel at least half an inch thick. Some have 7/8-in.thick walls. They're stronger than corrugated culverts of comparable size,so they don't have to be handled so carefully," he adds.

Smith says tank car culverts are available in 7 to 10-ft. diameters and in lengths from 30 to 63 ft.

The ends are removed along with any plumbing or valves attached to the tank. Cutting off the dome ontop leaves about a 2-ft. hole that usually must be covered or welded shut by the buyer. "If you can put theculvert into place with the dome hole down, it doesn't need to be covered," Smith notes.

"My main customers are county road maintenance departments, farmers and timber companies. I've seencounties use one, or even two or three to replace old bridges. Those old bridges must be inspectedperiodically and are in constant need of repair to keep them safe. Farmers use the tanks to make crossingsin creeks and field ditches and to cross irrigation canals. Some actually put them together end to end andbury them to make underground irrigation canals or reservoirs. Some farmers have made runs as long asabout 200 ft. with them. If they're going to do that, we leave one end on the tank that will be the end of thecanal.

"Timber companies like them because they can use them to get logging trucks and big machinery intoareas where they're cutting. And if they don't want to leave them in place once a stand of timber has beenharvested and replanted, they can dig them out and move them to other areas to reuse," he says.

He says tank car culverts are priced comparably to corrugated culverts, but will last considerably longerbecause of the quality and volume of steel used in them. He says because the sides are smooth, a tank carculvert will allow as much as 25 percent more water flow than a comparably sized corrugated culvert.

"They don't need reinforcement when you're handling them, or support while they're being installed, ascorrugated culverts do.

"In fact, they can be pushed into place with a dozer. If they get clogged, you can clean them out with abackhoe. That would ordinarily damage a corrugated culvert."

Smith sells tank car culverts depending on the diameter and thickness of the tank. He says delivery isextra. He can usually arrange delivery within two weeks. "When someone calls me for a price, I give thema total for the culvert and delivery, so they know what their final cost is going to be."

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Crude by Rail – “Early Days” 2007 – Central WY

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Crude by Rail – “Early Days” 2007 – Central WY

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CBR Today - Plains Tampa, CO Facility – Nov 2013

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CBR Today - Plains Tampa, CO Facility – Nov 2013

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CBR Today - Plains Tampa, CO Facility – Nov 2013

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CBR Today – Musket Corp - Windsor, CO - 2013

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CBR Today – Musket Corp - Windsor, CO - 2013

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U.S. EIA – Drilling Productivity Report – October, 2013

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Key tight oil & shale gas regions

Six Regions account for ~ 90% of oil growth and virtually all gas growth 2011-12

www.eia.gov/petroleum/drilling/pdf/dpr-full.pdf

CAPP 2012 report – Refining Capacity – N America

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PADD Districts and Refinery Locations – Alternative View

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Historical US Crude Oil Production – US, TX & ND

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EIA’s Short Term Energy Outlook – Regional Oil Forecasts

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Forecast of Rockies Crude Oil Production – BENTEK

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Forecast of DJ Basin Production – BENTEK Energy

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Forecast of Powder River Basin Production - BENTEK Energy

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Oil Production Forecasts – What Could Go Wrong?

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•  Generally – Risk is to the downside – Forecasts are “too optimistic”

•  Oil Price – Absolute & “Relative” prices (spreads/arbs/vs. Nat Gas)

•  Regulations – uncertainty on potential new state/federal regs

•  Limits on Capital Available to E&P’s to support drilling

•  “Optimism Bias” in forecasts based on oil producer’s plans to grow

CBR is Here to Stay – a Producer’s Perspective

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•  CBR more flexible vs. PL – w/out long-term commitments.

•  Faster delivery to market vs. PL (days/weeks difference)

•  Less uncertainty on regulation vs. PL (e.g. Keystone XL)

•  CBR accesses diverse markets – East, West & Gulf Coast

•  Less credit intensity - PL line fill + “Ship or Pay” commits

CBR is Here to Stay – a Producer’s Perspective

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• Real time surveillance of CBR will evolve – quickly

• Shift from Truck àRail to Pipe à Rail

• Niche Opportunities – Wyoming Condensate – 2007

• Niche Opportunities – Utah Waxy Crude

High Pour Point Crude - Not PL Compatible Available supplies > local market demand - SLC

Additional Resources – Crude by Rail

Crude Oil Transloading Facility Report – Lipow Oil Associates http://www.lipowoil.com/contact (monthly updates)

Crude Oil Production Monitor - PADD IV - BENTEK Energy http://www.bentekenergy.com (monthly updates)

Short Term Energy Outlook/Drilling Rig Productivity Report-EIA

http://www.eia.gov/forecasts/steo/

http://www.eia.gov/petroleum/drilling/pdf/dpr-full.pdf

Genscape PetroRail Report –

http://www.genscape.com

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