Natural Gas An Energy Game Changer Ron Muhlenkamp

Natural Gas: An Energy Game Changer Ron Muhlenkamp & Company, Inc. Intelligent Investment Management © 2013. All rights reserved.

Natural Gas: An Energy Game Changer • Consumer • Environmentalist • Landowner • Investor

Natural Gas: An Energy Game Changer • Consumer

Natural Gas Crude Oil 1995– 3/17/2014 (Daily) Source: Bloomberg; Oil; Generic 1 st 'CO' Future, Natural Gas; Generic 1 st 'NG' Future delivery to Henry Hub

How Shale Gas Benefits the Homeowner Source: Muhlenkamp & Company, Inc.

Percent of Total U. S. Electricity Net Generation by Energy Source 2012 Source: U. S. Energy Information Administration; Electric Power Monthly, Tables 7. 2 b and 8. 2 b

Historical Natural Gas Consumption in the U. S. Source: Muhlenkamp & Company, Inc.

Working Gas in Underground Storage Compared with 5 -year Range Week ending March 7, 2014 Last 24 Months 5 -year average Note: The shaded area indicates the 5 -year range between the minimum and maximum values for the weekly series. Between 2009 -2014. Source: U. S. Energy Information Administration; Form EIA-912, “Weekly Underground Natural Gas Storage Report. ”

Energy Source

Source: Bloomberg

Other U. S. “Consumers” of Natural Gas • Utilities • Over-the-Road Trucking • Industry Feedstock • Manufacturers

Natural Gas: An Energy Game Changer • Consumer • Environmentalist

Chemical Composition of Selected Fuel Sources Source: Muhlenkamp & Company, Inc.

Land Usage: Favors Natural Gas for Power Generation Acres of land needed to produce the fuel to generate enough electricity to serve 1, 000 households for one year

Source: U. S. Energy Information Administration, Carbon Dioxide Emissions Coefficients Report

Source: U. S. Energy Information Administration, Monthly Energy Review. Note: Reflects total carbon dioxide emissions in metric tons by month.

U. S. energy-related CO 2 emissions in early 2012 lowest since 1992 Ron Muhlenkamp & Company Source: U. S. Energy Information Administration, Monthly Energy Review. Note: Reflects total carbon dioxide emissions in metric tons by quarter.

What about the Water? 1) Into well 2) Flow back 3) Water table 4) Burn Methane (CH 4) 5) Ethanol (C 2 H 6 O)

Water into the Well It takes 5 million gallons to frac 1 well which drains 80 acres ft 3 7. 5 Gals. 12 Inches ft Source: Muhlenkamp & Company, Inc. X = Acre 43, 560 ft 2 X 1 80 Acres 2. 3 Inches of Rain

Flow Back • Center for Sustainable Shale Development (CSSD) • Into subsequent wells

Water Table…

Burn Methane, CH 4 → CO + 2 H O 1 Billion ft → 11 Million Gallons of H O CH 4 + 2 O 2 2 3 Source: Muhlenkamp & Company, Inc. 2 2

Fracturing: What about the Water? $5 Million + 5 million gallons H 2 O = 88 Million Gallons of H 2 O → 83 Million Gallons of H O @ 6¢/Gallon 2 = Free Energy Source: Muhlenkamp & Company, Inc.

Ethanol: What about the Water? • ≈ 30% of U. S. corn crop is used for ethanol production • 25 -30” of rainfall are required to grow corn • Average corn yield of 1 acre of farmland ≈ 147 bushels • 1 bushel of corn ≈ 2. 77 gallons of ethanol • 677, 724 gallons of water ≈ 450 gallons of ethanol Source: Muhlenkamp & Company, Inc.

Fracturing vs. Ethanol: What about the Water? • Marcellus gas well uses 0. 16 gallons of water to generate the energy equivalent of 1 gallon of gasoline. • Ethanol requires 2, 259 gallons of water to produce the energy equivalent of 1 gallon of gasoline. Shale gas is 14, 000 times more water-efficient in the production of energy than corn ethanol. Source: Muhlenkamp & Company, Inc.

Source: Marcellus. Gas. org

Examples of Typical Shale Fracturing Mixture Makeup Source: AXPC

Natural Gas: An Energy Game Changer • Consumer • Environmentalist • Landowner

Natural Gas in Pennsylvania Round I

Source: sjvgeology. org

Source: Oil and Gas Field Atlas of The Butler Quadrangle

Source: Oil and Gas Field Atlas of The Butler Quadrangle

Natural Gas in Pennsylvania Round II

6 Laterals (wells) seen here Range Resources (Dry Gas): 1) Average distance of lateral in 2013: 5, 000 feet 2) Currently drill with 25 fracture stages

Source: Oil and Gas Field Atlas of The Butler Quadrangle

Total Disturbance during drilling, including access road, drilling pad and required pipeline infrastructure: • Horizontal (yellow) develops 1, 000 acres per pad with 1% surface disturbance • Vertical (purple boxes) on 1, 000 foot spacing develop 23 acres per well with 19% total surface disturbance (old industry method) Source: Range Resources; Pennsylvania’s Marcellus Gas Play Its History, Potential, and Challenges, 8/31/11

es cr 0 A 64 nit 1 U 10 Laterals (wells) seen here Range Resources (Dry Gas): 1) Average distance of lateral in 2013: 5, 000 feet 2) Currently drill with 25 frac stages Source: Muhlenkamp & Company

Source: National Geographic

Source: Range Resources

Source: Range Resources: October 29, 2013; Company Presentation

U. S. Natural Gas Pipeline Network

October 29, 2013; Company Presentation

Source: Range Resources

October 29, 2013; Company Presentation

Per Acre Estimate of Pre-Tax Cumulative Dollars Received by the Landowner Over the Life of a Typical Marcellus Shale Dry Gas Well in Southwestern Pennsylvania* * Typical Marcellus Shale dry gas well pad as of 8/1/13: assumes 58 year well life, 80 acre spacing, 6 Bcfe EUR (Estimated Ultimate Recovery) per well, 8 wells total, $4/MMBtu Dry Gas Price. © Muhlenkamp & Company, Inc. 2013

Estimate of Pre-Tax Cash Flows to the Landowner from a Typical Marcellus Shale Dry Gas Well in Southwestern Pennsylvania* * Typical Marcellus Shale dry gas well pad in SW Pennsylvania as of 8/1/13 ** EUR = Estimated Ultimate Recovery © Muhlenkamp & Company, Inc. 2013

Natural Gas: An Energy Game Changer • Consumer • Environmentalist • Landowner • Investor

Natural Gas Crude Oil 1995– 3/17/2014 (Daily) Source: Bloomberg; Oil; Generic 1 st 'CO' Future, Natural Gas; Generic 1 st 'NG' Future delivery to Henry Hub

Source: Examiner. com; 12/6/12

Source: Bloomberg

America’s Natural Gas Highway® The Clean Energy Solution Natural Gas: Diesel Replacement for America’s Trucking Corridors Source: Clean Energy Fuels; http: //www. cleanenergyfuels. com/buildingamerica. html

What’s Next Changing Supply/Demand Dynamics Natural Gas Liquids (NGLs) • Emphasis on products downstream of ethylene. • Liquefied Petroleum Gas (LPG) exports continue to increase with U. S. playing a key role. Crude Oil North American production continues to grow mostly from unconventional resources. • U. S. refined product exports continue to grow, enabled by increasing crude oil supplies. Natural Gas • Markets will grow substantially, including power generation, and Liquefied Natural Gas (LNG) exports. • Shut-in wells ready to respond to increases in prices, likely assuring low prices for years to come.

Natural Gas Exploration & Production Cabot Oil & Gas Chesapeake Energy Range Resources Rex Energy Southwestern Energy Oil & Gas Services Halliburton Company Schlumberger LTD Baker Hughes Distribution Clean Energy Engine Conversion Westport Innovations Fuel Systems American Power Group LNG Plant Construction Chicago Bridge Fluor Corp. KBR Inc. Feedstock U. S. chemical companies

Questions and Responses Muhlenkamp & Company, Inc. Intelligent Investment Management

The comments made by Muhlenkamp & Company are opinions and are not intended to be investment advice or a forecast of future events. Muhlenkamp & Company, Inc. Intelligent Investment Management

Muhlenkamp & Company, Inc. Intelligent Investment Management © 2013. All rights reserved.