1. Professional Logistics Group
Oil & Natural Gas:
The Evolving Freight
Transportation Impacts
Prepared for
BMO Equity Research
January 14, 2013
1

2. About PLG Consulting
» Boutique consulting firm specializing in logistics, engineering, and supply chain
§ Established in 2001
§ Over 80 clients and 200 engagements
§ Significant shale development practice since 2010
» Headquarters in Chicago USA, with team members throughout the US and with “on the
ground” experience in:
§ North America / Europe / South America / Asia / Middle East
» Consulting services
§ Strategy & optimization
§ Assessments & benchmarking
§ Transportation assets & infrastructure
§ Logistics operations
§ M&A/investments/private equity
» Specializing in the logistics of
§ Oil & gas
§ Chemicals & plastics
§ Wind energy & project cargo
§ Bulk commodities (minerals, mining, agricultural)
§ Industrial & consumer goods
2

3. The Shale Development
Gold Rush
» Other recent energy “boom” events with major transportation impacts
» Common characteristics
§ New technology breakthroughs and/or dramatic market shifts
§ Speed to market is paramount
§ Rush of capital and new players
§ Continuous change and evolution in both technology and markets
§ Logistics and related infrastructure of greater importance in shale development, and
therefore a major platform for competition and strategy 3

4. Hydraulic Fracturing and
Horizontal Drilling
4

5. Hydraulic Fracturing
Equipment Staging Area
Frac Tanks/Fluid Storage
Data Van
Chemical Trucks
Blender
Pump Trucks
Sand Storage
Unit
Source: JPTOnline.org 5

6. North American Shale Plays
6

7. Shale Driving Growth in Natural
Gas and Crude Oil Production
» 1,762 rigs in operation as of January 4, 2013
U.S.
Monthly
Crude
Oil
Produc@on
» Rush of capital into the industry
7500
Million
Barrels/Day
Oct-­‐2012
» 700% increase in shale gas production since 2007 7000
6500
6820
» Domestic oil production at 14-year high (6.8MM bbl/d) 6000
5500
5000
» “Unconventional” becomes “conventional” by 2015 4500
4000
3500
3000
Oct-­‐99
May-­‐00
Dec-­‐00
Jul-­‐01
Feb-­‐02
Sep-­‐02
Apr-­‐03
Oct-­‐06
May-­‐07
Dec-­‐07
Jul-­‐08
Feb-­‐09
Sep-­‐09
Apr-­‐10
Jun-­‐04
Jun-­‐11
Mar-­‐99
Mar-­‐06
Jan-­‐98
Jan-­‐05
Jan-­‐12
Nov-­‐03
Nov-­‐10
Aug-­‐98
Aug-­‐05
Aug-­‐12
GAS OIL THERMAL
Source: EIA 2012
Source: EIA 2012
Source: Baker Hughes 2013 7

8. Natural Gas & Petrochemical
Supply Chain
Petrochemical
Refined
Crude Processing Polymers
Products
Olefins
Polybutadiene Polypropylene Polyethylene
Chemical
Ethylene Propylene Butylene
NGLs Feedstocks
New “game Petrochemicals
changing” N.A. cost
advantage due to
Manufacturing
shale development Many
Power Aromatics Ammonia Others Intermediates become
consumer and
Generation industrial products
Natural
Gas
Industrial
Use
Process
Consumer
Product Use
Consumers
Logistics Flow
8

9. Potential Plastics Supply Chain
Lordstown HDPE Calculated Cost
Assembly
2500
Plant
2000
Component 1500
$/Ton
Manufacturing Resin Cracker 1000
Plants
500
0
Gas Wells
Sources: CMAI, TopLine Analytics, and Alembic analysis, 2012
» Low cost natural gas and NGLs with local processing would give this region a
tremendous material and manufacturing cost advantage
» Oversupply of ethane expected to continue indefinitely
9

10. Shale Gas Will Drive Steel
Manufacturing Comeback in US
» Shale gas boom makes direct-reduced iron steel
economical
§ DRI plants viable with growth in shale gas
§ Not new technology, but preferable with lower cost natural gas
§ DRI process uses natural gas in place of coal to produce iron
§ Cost of production 20% lower per ton
» U.S. Jobs and International Investment
§ Steel production in the U.S has shrunk 3.4% since 2008
– Compare to 14% growth in steel production internationally
§ At least five new DRI steel plants being considered in the U.S.
§ Both domestic and international firms investing in the technology
§ Initial investments create up to 500 jobs and 150 permanent
employees
» Reciprocal Growth
§ Increased demand for U.S. steel creates greater demand for U.S. gas
§ Joint venture between Nucor Corp. and Encana Corp. commits $3
billion to development of new gas wells to support DRI plants
§ DRI-derived steel of higher quality than that created from recycled
scrap, further driving demand
10

11. Shale Gas Development Impact on
Fertilizer Market
» Natural gas as ammonia feedstock for fertilizer
§ Ammonia produced from cheap natural gas is used in fertilizers
§ Reducing the cost of natural gas drives down ammonia and, by
extension, fertilizer costs
§ Cheap U.S. natural gas means billions in investment for new
domestic fertilizer plants
» Natural gas glut could be panacea for American
farmer’s fertilizer needs
§ Increased demand for corn, soybeans has driven fertilizer costs
higher
§ Excess natural gas supply can be utilized to produce greater volumes
of fertilizer more economically
» New technology helps reduce natural gas waste
§ Mobile ammonia plants being developed could allow ammonia (for
use in fertilizer) to be produced at well heads
§ Mobile plants capture natural gas that would otherwise be burned off
§ Reducing fertilizer costs would help drive agricultural commodity
prices lower by reducing capital requirements for American farmers
11

12. Shale Gas Development Impact on
Fertilizer Market (continued)
» Natural gas is a feedstock for ammonia production
§ Ammonia produced from natural gas is used in fertilizer production
§ Reducing the cost of natural gas drives down ammonia and, by
extension, fertilizer costs
» Cheap U.S. natural gas means billions in investment for
new domestic fertilizer plants, displacing imports
– Orascom’s Iowa Fertilizer Company new plant in Wever, Iowa
– CHS’ new plant in Spiritwood, North Dakota
– Ohio Valley Resources new plant in Spencer County, Indiana
– Yara’s new plant in Belle Plaine, Saskatchewan
– North Dakota Grain Growers Association’s new plant to be located
in the Williston Basin
– CF Industries’ expansions at Donaldsonville, Louisiana and Port
Neal, Iowa
– PotashCorp’s resumption of ammonia production at Geismar,
Louisiana
– Expected announcement from Agrium, with plant likely in either
Kentucky or Missouri
» If announced plant constructions are completed, imports
of nitrogen-produced fertilizers could be reduced to “near
zero” by 2018
12

13. Hydraulic Fracturing Materials
Inputs and Logistics – Per Well
Source to Transloading to
Materials Waste Water
Transloading Wellhead Site
~500 Total
Proppants 40 160 Truckloads
OCTG (Pipe) 5 20
Chemicals 2 8
Clean Water/ Oil/Gas/NGLs
Local source ~1,000
Cement
Truck, Rail,
47 Total ~1,200 Total
Pipeline
Railcars Truckloads
13

14. Correlation of Operating Rig Count
with Sand and Crude Shipments
120,000
2500
OperaEng
On
Shore
Rigs
All
Sand
Carloads
Petroleum
Carloads
100,000
1,972
1,948
2000
1,911
1,864
1,814
1,798
1,695
1,691
1,691
Opera@ng
Onshore
Rigs
1,665
80,000
1,604
Sand
Carloads
1,467
1500
1,270
1,299
60,000
1,073
939
1000
886
40,000
500
20,000
0
Quarterly
Data
0
2007
Avg.
2008
Avg.
2009
2010
2011
2012
2013
STCC 14413 (sand) and 13111 (petroleum) Data sources: US Rail Desktop, Baker Hughes
14

15. All Sand Handled by Railroad
40,000
35,000
30,000
Carloads
25,000
BNSF
UP
20,000
NS
CN
15,000
CPRS
CSXT
10,000
KCS
5,000
0
2008
2009
2010
2011
2012
Quarterly
Data
STCC 14413 Source: US Rail Desktop 15

16. Sand Mining Overcapacity:
New Reality
» Proppant processing and
shipping activity in Western and
West Central Wisconsin
counties
§ Chippewa
§ Barron
§ Trempealeau
§ Jackson
§ Monroe
§ Crawford
» New announced projects
§ Superior Silica Sand – Clinton, WI
§ $35MM main line rehabilitation by CN
§ U.S. Silica – Sparta, WI
§ Smart Sand – Oakdale, WI
§ Pattison – Prairie du Chien, WI
» Minnesota areas also active
§ Southeastern border along Mississippi
River
§ Western Twin Cities
» Established Illinois companies
seeing significant upturns in
volumes and financial returns
Source: Federal Reserve Bank of Minneapolis, July 2012; PLG analysis 16

17. Changes in Rail Shipment Pricing
Q3 2011 vs. Today - Sand
» Since Q3 2011, have seen an overall rail price increase of 10 - 14% in
public pricing (varies by corridor)
» In the 600-1,300 mile range, rates vary from $0.045 - $0.074 per ton-mile
for manifest shipments
» Shippers who are willing to ship unit trains and make volume commitments
have realized significant savings with longevity over public pricing
» Western carriers are driving single line hauls to Eagle Ford via pricing
differentials
» Canadian and Eastern carriers are aggressively working to grow their
markets by providing very competitive pricing and securing sand
originations
§ CN/Superior Silica Sands – Poskin, WI
» Major sand providers are establishing “in the play” transloading facilities to
provide ready access to product
§ U.S. Silica - East Liverpool, OH
Source: PLG analysis 17

18. Sand Railcar Market Conditions
» New-build market has run its course
§ Much smaller backlog
– 3Q 2011: 10,000 cars, ten month wait
– Today: no significant wait
§ Significant drop off from ~14,000 new cars per year
– 2013 closer to 2,000-3,000 new cars
§ No new spec building by lessors – all deal specific now
§ Normalized pricing: older cars less expensive than new
§ Some new cars going into storage
» Lease market also post-peak
§ Available inventory from multiple directions
– Lessors, builders, oversubscribed shippers
§ Existing 286K cars available now
§ Cars with sub-optimal specs (grain, <286K, cement) are being
phased out of frac sand fleet
§ Creditworthiness an important criteria
» Long-term horizon
§ Some signs of activity in cement market, may help offset
remaining surplus of sand cars
§ Optimism in industry that sand car demand will strengthen in
2013
18

19. Processed Sand Total Delivered Cost
» Benchmark cost with well-executed » Potential for significant cost add-
performance ons caused by strategic and
§ Example unit train movement from Wisconsin to tactical issues
Texas with total delivered cost of approx. $180/ton
§ Logistics drives ~60% of total delivered sand cost § Sub-optimal logistics network design or
infrastructure
- Manifest service (rail)
- Multi-carrier vs. single line haul (rail)
- Equipment/driver shortages
§ Poor planning and/or execution
- Rail and/or truck demurrage costs
– Performance penalties
§ Uncompetitive sand price
§ Poor sand quality
Source: PLG analysis 19

20. Shale Play Product Flows Outbound
» Natural Gas
§ Majority via pipelines, some trucks
» Natural Gas Liquids (NGLs)
§ Requires processing (fractionation)
§ 3-9 gallons/MCF (thousand cubic feet)
– Ethane 63%
– Propane 22%
– Butane 8%
– Pentane 5%
– Other 2%
» Crude Oil
§ Bakken play as a model
§ Surging Permian and Eagle Ford development
§ Strong potential for Utica play (currently 2-3 years
behind Bakken)
20

21. Bakken Oil Production - History
600000
~682,000 BPD
October 2012
500000
400000
Barrels Per Day
300000 First outbound unit
train shipment
December, 2009
200000
100000
0
1952 1962 1972 1982 1992 2002 2012
Source– North Dakota Industrial Commission July 2012
North Dakota Department of Mineral Resources July 2012
Year 21

22. Bakken Oil Production - Forecast
Today
Source: North Dakota Oil and Gas Division May 2012 22

23. Bakken vs. Peer Crude Oils
» Bakken oil is a light, sweet crude with low
sulfur content and low viscosity
§ Requires less downstream processing
§ Equal in quality to benchmark WTI
§ Higher gas, jet, and distillate yield than peer crudes
Source: RBN Energy 2012
» Already a “game changer” in global oil
market
§ Bakken and WTI trading at ~$20/bbl less than Brent
§ Increased unit train receiving capacity (St. James,
LA, Pt. Arthur, TX, Cushing, OK, Albany, NY,
Philadelphia, Bakersfield, CA, St. John, NB,
Anacortes, WA, Ferndale, WA) coming on line to
displace waterborne crudes
§ Some analysts forecasting Canada and US crude
oil self-sufficiency and prices well below global
levels by 2017
Source: EIA 2012
23

24. Bakken Crude No Longer
“Stranded” Due to Logistics
Crude by Rail ND Production Crude by Rail
» Change in past 14 months Share (bpd) (bpd)
§ November 2011:
Dec. 2010 15% 273,800 41,070
– 2012 Bakken discount vs. WTI have ranged from $8-12 bbl
– Undervalued due to logistics constraints “stranding” the oil
Dec. 2011 23% 470,290 108,167
§ January 2013:
– Bakken vs. WTI near even to ~$4 discount due to improved June 2012 40% 610,000 244,000
logistics
» Significant expansion of crude by rail August 2012 48% 635,127 317,564
terminal capacities in 2011- 2012
October 2012 50% 682,393 341,197
» Crude by rail now a major market factor Bpd = Barrels per Day
Source: North Dakota Industrial Commission, PLG analysis
» Tank car availability/lead time - major short
term entry barrier
§ Current order backlog runs to 2Q 2014
§ Major purchases by oil majors and midstream
companies
§ Extremely tight market with very high lease rates
24

25. Crude Oil by Rail Volume Growth
50,000
45,000
40,000
35,000
Carloads
30,000
BNSF
UP
25,000
CPRS
20,000
CN
CSXT
15,000
KCS
10,000
NS
5,000
0
2008
2009
2010
2011
2012
Quarterly
Data
Source - US Rail Desktop
25

26. Crude Oil by Rail – North
Dakota Terminals
(Existing and planned by December 2012)
Loading Capacity Rail
Facility Location
(Barrels per Day) Carrier
Musket Corp Dore 60,000 BNSF
Savage Services Trenton 60,000 BNSF
Red River Supply Williston 10,000 BNSF
Hess Oil Tioga 60,000 BNSF
Plains All American Manitou 65,000 BNSF
Bakken Transload (Plains) Ross 10,000 (65k Q2 2013) BNSF
EOG Stanley 65,000 BNSF
Basin Transload Zap 20,000 BNSF
Bakken Oil Express Dickinson 100,000 BNSF
Enserco Gascoyne 10,000 BNSF
Rangeland Epping 65,000 BNSF
Enbridge Berthold 10,000 (70k Q2 2013) BNSF
Great Northern Fryburg 65,000 BNSF
BNSF Total Capacity 600,000
Global Stampede 60,000 CP
Dakota Plains New Town 40,000 CP
US Development Van Hook 35,000 CP
CP Rail Total Capacity 135,000
Total Crude by Rail Capacity 735,000
26
Source: PLG analysis

27. North Dakota Class I Railroads and
Crude Oil Terminals
27

28. Shale Related Rail Traffic Still Small
Relative to Coal Volumes
Rail
Shipments:
Coal,
Sand
&
Crude
2,500,000
2,000,000
Carloads
1,500,000
1,000,000
Sand
Crude
500,000
Coal
0
2008
2009
2010
2011
Sand
2012
Quarterly
Data
Source: US Rail Desktop 28

29. Crude Oil Pipelines – Existing
and Future
Source – CAPP Report 2011
29

30. Bakken Area Outbound Pipelines
Current Capacity ( Q1 2013) - 440,000 bpd
Announced pipeline capacity expansions
Company Project BBL's/day Expected in
Name Capacity service date
Enbridge Berthold Expansion 145,000 1Q 2013
Sandpiper 225,000 2015
Plains All American Bakken North 50,000 1Q 2013
Saddle Butte High Prairie 150,000 1Q 2014
Oneok Partners Bakken Express 200,000 2015 Bakken Express
‘postponed’ November
30, 2012 due to lack of
Trans Canada Bakken Marketlink 100,000 2015 subscription
Keystone XL 830,000 2015?
Total New Pipelines: 1,500,000
NEW pipeline capacity expected operational:
2013 195,000
2014 150,000
2015 325,000
TBD (K XL) 830,000
Bpd = Barrels per Day Source: PLG analysis, North Dakota Governors Pipeline Summit 2012 – presentation materials
30

31. Bakken Production vs. Outbound
Logistics: 2012–2014 Projection
Total
Excess
Year ND Production Pipeline Rail Terminal Rail Carrier ND Refinery Outbound &
Logistics
Forecast (Bpd) Capacity* Capacity Capacity Consumption Refinery
Capacity
Capacity
2012 700,000 440,000 730,000 1,200,000 60,000 1,230,000 530,000
2013 790,000 635,000 800,000 1,300,000 60,000 1,495,000 705,000
2014 860,000 785,000 850,000 1,350,000 60,000 1,695,000 835,000
* Excludes Keystone XL Bpd = Barrels per Day Source: PLG Analysis
31

32. Crude Oil by Rail vs. Pipeline
» Current pipeline options ~ 30-45% lower
cost vs. rail
» Near-term offsetting rail advantages:
§ Site permitting, construction is much quicker and easier
§ Much lower capital cost and scalable
§ Shorter contracts
§ Transit to destination - 5-7 days via unit train vs. 30+
days via pipeline (between Bakken and US Gulf Coast)
§ Origin and destination flexibility/opportunistic to new
$16.00
$14.70
$14.00
market niches $11.50
$10.50
Dollars Per Barrel
$12.00
» Long-term challenges that will affect rail
$10.00
volumes and margins:
$8.00
$6.50
$6.00
§ Pipeline expansions
$4.00
$2.00
§ Bakken-WTI price equilibrium
$-­‐
Pipeline to Rail to Pipeline to Pt Rail to Pt
§ Any significant narrowing of price differential between Cushing Cushing Arthur Arthur
Brent and WTI
Source: PLG analysis
32

33. Crude Oil Logistics – Near
Term Outlook
» Logistics capacity exceeds production and will
continue to keep pace in future
» Crude by rail cost premium of .5x – 2.0x is not
currently deterring volume moves
» Crude by rail is a key outbound logistics mode
near-term; pipeline share of outbound Bakken
production will grow annually and volume will
settle out by direction (rail: east-west; pipeline:
north-south)
» Expected Seaway pipeline 250,000 bpd
expansion in 1st quarter 2013 will relieve much
Cushing congestion and likely will put additional
pressure on railroad pricing to compete with
expanded pipeline economics and availability
» No pipelines are likely to replace rail in the
Bakken supply chain to the East and West coasts
33

34. Looking Ahead: Key Questions for
Oil & Gas Supply Chain
NGL and Natural Gas Pipelines
» Shale play dynamics Dawn
§ Influenced by supply/demand market fluctuations
§ Crude vs. dry gas vs. NGL
§ Potential environmental concerns Mariner West
Nexus
Mariner East
» Where are the destinations for further ATEX
processing? ?BlueGrass?
§ Crude oil refineries – sweet vs. sour processing
§ NGL fractionation
§ Petrochemical manufacturing investments Source: RBN Energy, LLC
§ Increased CNG demand RBN Energy – 2012
§ Crude, NGL, and LNG exports
» Will transportation services, assets, and
infrastructure continue to meet demand?
§ Pipeline locations and capacity
§ Road and rail infrastructure
§ Waterway availability
§ Fleet assets
§ Terminals and storage
Source: Waterborne Energy Inc. Data in $US/MMBtu 34

35. Professional Logistics Group
Thank You!
For follow up questions and information, please contact:
Taylor Robinson, President
+1-508-982-1319 / trobinson@prologisticsgroup.com
Graham Brisben, CEO
+1-708-386-0700 / gbrisben@prologisticsgroup.com
Jean Arndt, Vice President
+1-630-505-0273 / jarndt@prologisticsgroup.com
Jeff Dowdell, Senior Consultant
+1-732-995-6696 / jdowdell@prologisticsgroup.com
Gordon Heisler, Senior Consultant
+1-215-620-4247 / gheisler@prologisticsgroup.com
Jeff Rasmussen, Senior Consultant
+1-317-379-5715 / jrasmussen@prologisticsgroup.com
This presentation is available at:
WWW.PROLOGISTICSGROUP.COM 35