opportunities for growth: sequent energy management

Opportunities for Growth:Sequent Energy Management

Doug SchantzPresident, Sequent Energy Management

Opportunities for Growth:Sequent Energy Management

Doug SchantzPresident, Sequent Energy Management

2007 Analyst ConferenceMarch 22, 2007

New York

2007 Analyst ConferenceMarch 22, 2007

New York

2007 Analyst Conference -Sequent2

Business Model – “How We Make Money”Business Model – “How We Make Money”

What We Are:• A company with a core strength in physical logistics and optimization of

transportation and storage• Locational spreads (transportation capacity)• Physical storage spreads (cash, futures, time)

• A business that adds and creates value by understanding and meeting customers’ needs as well as by optimizing gas flows from supply basin to market center

• Service provider (asset management, producer & peaking services)• Leading manager of contractual storage and transportation assets in the

Eastern part of the U.S.• An organization of 130 people supported by strong systems, processes and

controls

What We Are:• A company with a core strength in physical logistics and optimization of

transportation and storage• Locational spreads (transportation capacity)• Physical storage spreads (cash, futures, time)

• A business that adds and creates value by understanding and meeting customers’ needs as well as by optimizing gas flows from supply basin to market center

• Service provider (asset management, producer & peaking services)• Leading manager of contractual storage and transportation assets in the

Eastern part of the U.S.• An organization of 130 people supported by strong systems, processes and

controls


Business Model – “How We Make Money”Business Model – “How We Make Money”

What We Are Not:

• Holder of large outright speculative positions• Modest risk limits (VaR, credit, basis)

• Financial market-maker

What We Are Not:

• Holder of large outright speculative positions• Modest risk limits (VaR, credit, basis)

• Financial market-maker


Dynamic ModelDynamic Model

Asset Management

Storage

Asset Management

Transportation

Proprietary Storage

Proprietary Transportation

Optimization / Trading

Services (Producer,

Peaking, etc.)

Asset Management

Storage

Asset Management

Transportation

Proprietary Storage

Proprietary Transportation

Optimization / Trading

Services (Producer,

Peaking, etc.)

Sequent’s business model includes a portfolio of assets and services that enable it to capture value in a variety of market conditions.

In any given year:

• The proportion of segments changes with market conditions

• Sequent has the ability to capture value in a dynamic environment

Sequent’s business model includes a portfolio of assets and services that enable it to capture value in a variety of market conditions.

In any given year:

• The proportion of segments changes with market conditions

• Sequent has the ability to capture value in a dynamic environment

For example:

• 2005 – heavy transportation activity

• 2006 – heavy storage activity

For example:

• 2005 – heavy transportation activity

• 2006 – heavy storage activity


Pipelines & StoragePipelines & Storage

EganEgan JISHJISHMossBluffMossBluff

Pipeline Capacity• Business conducted on 55 pipelines

• Significant transport on:Transco TETCO GulfSouthFGT ANR SonatDominion Columbia TennesseeE. Tenn. Northwest Texas GasSabine

Pipeline Capacity• Business conducted on 55 pipelines

• Significant transport on:Transco TETCO GulfSouthFGT ANR SonatDominion Columbia TennesseeE. Tenn. Northwest Texas GasSabine

Storage Capacity• More than 88 Bcf of capacity under

management

• Includes 5 Bcf of salt-dome storage at Egan, Moss Bluff and Jefferson Island

Storage Capacity• More than 88 Bcf of capacity under

management

• Includes 5 Bcf of salt-dome storage at Egan, Moss Bluff and Jefferson Island


Material Asset Management TransactionsMaterial Asset Management Transactions

Egan JISH

Saltville

PipelinesPipelines Boise, Idaho

MossBluff

Material Asset Management Transactions

A Strategic Portfolio of Contractual Storage and Transportation AssetsA Strategic Portfolio of Contractual Storage and Transportation Assets


A Story of GrowthA Story of GrowthEBIT ($ millions)

0102030405060708090

100

2001 2002 2003 2004 2005 2006

Sales Volume (Bcf / day)

0.0

0.5

1.0

1.5

2.0

2.5

2001 2002 2003 2004 2005 2006

Counterparties

0

50

100

150

200

250

300

2001 2002 2003 2004 2005 2006

Pipelines

0

10

20

30

40

50

60

2001 2002 2003 2004 2005 2006


A Story of Growth (cont.)A Story of Growth (cont.)

Sequent's Percent of Margin from Non-affiliates

0%

20%

40%

60%

80%

100%

2001 2002 2003 2004 2005 2006

Cash Payments to Affiliates ($ millions)

02468

1012141618

2001 2002 2003 2004 2005 2006

Storage Capacity Under Management (Bcf)

0

20

40

60

80

100

2001 2002 2003 2004 2005 2006

Reservoir Salt

Full-Time Employees

0

20

40

60

80

100

120

140

2001 2002 2003 2004 2005 2006


Analysis of 2006 and Bridge to 2007Analysis of 2006 and Bridge to 2007(amounts in $ millions)

2006 Reported EBIT 90$

Less: Physical Inventory Rollout Value from 2005 (16) Less: Total Storage Hedge Gains (41) Less: Total Transportation Hedge Gains (12) Less: Better than Expected Storage Spreads (10) Plus: LOCOM Adjustments 21

2006 Baseline EBIT 32$

Plus: Physical Inventory Rollout Value from 2006 13 Less: Unavailable Storage Capacity at Jan 1st (5) Plus: New Commercial Activity Impacting 2007 5 Plus: Decrease in SG&A Costs from Prior Year 5


Additional Commercial Activity 0-10

2007 EBIT Range $50 - $ 60

(amounts in $ millions)

2006 Reported EBIT 90$

Less: Physical Inventory Rollout Value from 2005 (16) Less: Total Storage Hedge Gains (41) Less: Total Transportation Hedge Gains (12) Less: Better than Expected Storage Spreads (10) Plus: LOCOM Adjustments 21


Plus: Physical Inventory Rollout Value from 2006 13 Less: Unavailable Storage Capacity at Jan 1st (5) Plus: New Commercial Activity Impacting 2007 5 Plus: Decrease in SG&A Costs from Prior Year 5


Additional Commercial Activity 0-10

2007 EBIT Range $50 - $ 60


Credit MetricsCredit Metrics

Credit Exposure by Industry

Natural Gas Utility32%

Electric Utility & Diversified

39%

Banking4%Oil & Gas

4%

Natural Gas Pipelines

13%

Manufacturing3% Chemical

5%

Credit Exposure by Industry

Natural Gas Utility32%

Electric Utility & Diversified

39%

Banking4%Oil & Gas

4%

Natural Gas Pipelines

13%

Manufacturing3% Chemical

5%

Credit Exposure Rating Tiers

AA+ to AA-11%

A+ to A-29%

BBB+ to BBB46%

AAA8%BBB-

4%

BB+ & below2%

Credit Exposure Rating Tiers

AA+ to AA-11%

A+ to A-29%

BBB+ to BBB46%

AAA8%BBB-

4%

BB+ & below2%

Weighted average portfolio credit rating of A-

As of January 31, 2007As of January 31, 2007


Growth InitiativesGrowth Initiatives

• Move west and into Canada

• More penetration of the power generation business

• Contract additional salt dome storage capacity

• Contract key West to East transportation corridors

• Aggressively expand producer services activities

• Set up and build commercial and industrial marketing effort

• Move west and into Canada

• More penetration of the power generation business

• Contract additional salt dome storage capacity

• Contract key West to East transportation corridors

• Aggressively expand producer services activities

• Set up and build commercial and industrial marketing effort


Geographic Footprint ExpansionGeographic Footprint Expansion

2007/20082007/2008Current FootprintCurrent Footprint

44


Sequent Beyond 2007Sequent Beyond 2007

• “Song Remains the Same” – the business model is sound

• Growth in “baseline earnings” of about 10% / year • Opportunity to earn more with high volatility

• Leverage investments in systems and processes• “Economies of scale” benefit in mid and back office

• Focus on bench strength will provide headroom• Provide AGL Resources with substantial market

intelligence

• “Song Remains the Same” – the business model is sound

• Growth in “baseline earnings” of about 10% / year • Opportunity to earn more with high volatility

• Leverage investments in systems and processes• “Economies of scale” benefit in mid and back office

• Focus on bench strength will provide headroom• Provide AGL Resources with substantial market

intelligence


Questions?Questions?

opportunities for growth: sequent energy management

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