Understand Risk

Innovate Solutions

Execute Safely

Alternative Shipping PerspectivesPresented by:

Jarrett Zielinski

President & CEO of TORQ Energy Logistics

2

SummaryCrude By Rail

• CBR has proven itself to be a cost-effective, rapidly-deployable, attractive transportation solution for upstream producers

and downstream consumers

• North American CBR volume has surged more than 50-fold since 2009, currently transporting nearly 700,000 bbl/day

– Growth was led by development primarily in the Bakken play

– Canada has lagged the U.S. by ~12 to 24 months, but has witnessed tremendous growth in 2012

Tremendous Growth of CBR

U.S. and Canada Originated CBR Carloads

Source: Equity research.

3

Significant Increase in CBR Infrastructure Investment

• Significant capital is being invested in CBR including upstream loading and downstream unloading terminals

• Terminal investments are quickly evolving from small-scale pilot facilities to large-scale commercial facilities capable of handling multiple unit trains

Significant Increase in Infrastructure Spending to Support CBR Growth

Note: All capacity figures denoted in ‘000s bbl/d.

Source: Equity research and company reports.

4

CBR Infrastructure Investment

‘000s b

bl/d

‘000s b

bl/d

‘000s b

bl/d

‘000s b

bl/d

‘000s b

bl/d

‘000s b

bl/d

5

Rail Infrastructure Capable of Handling Increased Volumes (Cont’d)

• Infrastructure investment into transloading loading and off-loading capability has been substantial in the last several years

CBR Infrastructure Investment

Transloading Facilities and Capacity c. 20101

Source: Draft Supplemental Environmental Impact Statement – Keystone XL Project.

Transloading Facilities and Capacity c. 20131

6

Potential Long-Haul Pipeline Expansions2Current Long-Haul Crude Oil Pipelines Out of Western Canada

Enbridge Pipelines

Other Major Pipelines

TransCanada Keystone

Kinder Morgan Express

Kinder Morgan Trans Mountain

ExxonMobil Pegasus

Burnaby

Salt Lake City

Edmonton

Hardisty

Houston

MontrealClearbrook

Western

Corridor

Platt Express

Keystone

Rangeland

SpearheadMustang

Cushing

St.Paul

Enbridge Mainline

Anacortes

Kitimat

Port Arthur

Guernsey

Flanagan

Sarnia

Chicago

Wood

RiverPonoka

Company Pipeline Route Capacity

(bbl/d)

Enbridge Enbridge System Edmonton / Hardisty, AB to Flanagan, IL

/ Toledo, OH / Sarnia, ON

2,320,000

TransCanada Keystone Hardisty to Wood River / Patoka, IL and

Cushing, OK

591,000

Kinder Morgan Trans Mountain Edmonton to Burnaby, BC 300,000

Kinder Morgan Express Hardisty to Wood River, IL 280,000

Plains All American Rangeland Sundre, AB to Guernsey, WY 83,000

Inter Pipeline Bow River Hardisty to Milk River, AB 30,000

Total 3,604,000

Current Pipeline Capacity1 Planned Long-Haul Crude Oil Pipelines Out of Western Canada1

Company Pipeline Expected Start-up Capacity

(bbl/d)

Enbridge Mainline Expansion 1 2014 120,000

TransCanada Keystone XL 2015-16 830,000

Enbridge Mainline Expansion 2 2015 230,000

TransCanada Mainline Conversion 2017-18 800,000

Kinder Morgan TMX Expansion 2018-2019 590,000

Enbridge Northern Gateway 2017+ 525,000

Total 3,095,000

1 Source: Equity research and company reports.2 Source: Canadian Association of Petroleum Producers.

Pipeline Infrastructure for

Canadian Crude Oil Exports

Source: Company reports, Canadian Association of Petroleum Producers and Equity Research.1 Enbridge Mainline Expansion 1 – Current: Received regulatory approval.2 TransCanada Keystone XL – May 2012: A new Presidential Permit application was filed. September 2012: Submitted an environmental report to the Nebraska Department of Environmental Quality. January 2013:

Revised route was supported by the Governor of Nebraska. Current: The U.S. Department of State is continuing its review and will issue a final EIS followed by the national interest determination.3 Enbridge Mainline Expansion 2 – January 2013: Announced further expansion of the Canadian mainline system which involves increased pumping horsepower. Current: Preparing regulatory application.4 TransCanada Mainline Conversion – April 2013: Held a binding Open Season that ran from April 15, 2013 to June 17, 2013. Current: Reviewing Open Season results followed by the preparation of the regulatory

application for the NEB (if the Open Season is determined to be successful).5 Kinder Morgan TMX Expansion – May 2013: Received approval of its tolling methodology and principles. Current: Plan to submit a facilities application with the NEB in the fall of 2013.6 Enbridge Northern Gateway – May 2013: NEB public hearing concluded. June 2013: Final oral arguments for the project were heard. Current: The Regulator will issue its recommendation on the project by December

29, 2013 with a final decision to be made by the Governor in Council.

Crude Oil Production vs.

Pipeline Takeaway Capacity

• Even if all proposed pipelines were built, takeaway needs from Western Canada are still forecast to significantly exceed

pipeline capacity by 2020

• If no new proposed pipelines are built by 2020, production would exceed pipeline capacity by ~5 MMbbl/d

Pipeline Constraints Have been Favorable for CBR

Western Canada Crude Exports and Pipeline Capacity

7

-

2.0

4.0

6.0

8.0

10.0

2011 2012 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Pro

du

cti

on

(M

Mb

bl/d

)

Total Exisitng Capacity Mainline Expansion 1

TransCanada Keystone XL Enbridge Mainline Expansion 2

TransCanada Mainline Conversion Kinder Morgan TMX Expansion

Enbridge Northern Gateway Risked West Can Crude Exports (CIBC Est.)

Unrisked West Can Crude Exports (CIBC Est.)

1

2 3

6

4 5

Excess production

with no new

proposed pipelines:

5 MMbbl/d

Not

Appro

ved

Appro

ved

or

In P

lace

8

North American shale oil production has “boomed” in recent years

• In the United States, production growth has been relatively concentrated from the Eagle Ford and the U.S. Bakken

– Eagle Ford production growth has led the charge with ~340,000 bbl/d of growth1 (~100% y-o-y growth)

– Additional growth has come from the U.S. Bakken with ~240,000 bbl/d of growth (~50% y-o-y growth) and the Permian Basin with ~186,000 bbl/d

of growth (~17% y-o-y growth)

• In Canada, growth has been relatively widespread

– The Saskatchewan Bakken stands out as having been the biggest growth contributor, although this has been outshone by the Cardium in recent

history

-

100

200

300

400

500

600

700

Pro

du

cti

on

(Mbbl/d)

Montney - Gas Montney - Oil Deep Basin Hz Horn River

Bakken Duvernay Shaunavon Cardium

Viking Amaranth Glauconite Nikanassin

Montney Oil

Bakken

Cardium

Viking

CarbonatesSeal

Canadian Tight Oil Production by PlayU.S. Oil Production by Play

-

250

500

750

1,000

1,250

1,500

1,750

2,000

2,250

2,500

2,750

3,000

Pro

du

cti

on

(M

bbl/d)

Granitewash Niobrara

Permian Mississippi Lime

US Bakken Emerging Plays

Woodford Barnett

Fayetteville Haynesville

Marcellus PA Eagleford Permian

U.S. Bakken

Eagleford

Shale Oil Growth

1 Wellhead liquids only (excludes processed NGLs).

9

Canadian Production is Forecasted to Continue to Increase

• Future oil production forecasts vary greatly between sources

– The Canadian Association of Petroleum Producers (“CAPP”) forecasts Western Canadian conventional oil production in

2020 of ~1.4 MMbbl/d, while some equity research estimates are more aggressive with oil production forecast for ~1.7

MMbbl/d

• The majority of Canadian oil production growth is driven by Oil Sands

– CAPP forecasts oil sands growth to 2.6 MMbbl/d in 2016, moving to 3.4 MMbbl/d by 2020

– Corporate targets however, forecast growth to 5.0 MMbbl/d by 2020

Oil Sands Growth ForecastOnshore Canadian Oil Production (Non-Oil Sands)

-

1.0

2.0

3.0

4.0

5.0

6.0

2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

To

tal

Pro

du

cti

on

(M

Mbbl/d)

Producing Construction ApprovedSubmitted Disclosed CAPP TotalUnrisked Forecast

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Pro

du

cit

on

(M

bbl/d)

Non Resource Play Oil Production Resource Play Oil Production

Cardium Shaunavon

Bakken CAPP Forecast

Historical Forecast

Source: Equity research and company reports.

Production Profile Growth

10

Introduction to Crude Gravity and Type

• The American Petroleum Institute (API) measures the “weight” or quality of crude oil

on the API gravity scale. On this continuum, higher gravity equals lighter oil

• Light Oil

– Flows easily through wells / pipelines and can be refined into a large

quantity of transportation fuels (gasoline, diesel, jet fuel)

– Less viscous (heating not required for transport)

– Best suited for pipeline transportation

• Heavy Oil

– Very carbon-rich and requires additional pumping in order to flow it

through wells and pipelines

– More complex refining process is required and generates fewer natural

gasoline and diesel fuel components

– Can be mixed with lighter oils to fit refinery specifications

• Bitumen

– Semi-solid hydrocarbon mixture

– Either diluted (blended) with condensate to produce diluted bitumen (dilbit,

railbit), or upgraded (chemical process involving the addition of hydrogen /

removal of carbon) to create Synthetic crude

– Most viscous (heating or diluent required for transport)

Source: Crude Monitor, Equity research, American Petroleum Institute. Crude Prices as of July 9, 2013.

Light Oil / SyntheticIncludes Light Louisiana Sweet (LLS), West Texas Intermediate

(WTI), Edmonton Par, Synthetic, Brent

Brent $108.00 vs. Ed. Par $106.00

MediumIncludes Midale, Mixed Sour Blend, Peace River Sour

HeavyIncludes Bow River North, Bow River South, Fosterton, Lloyd

Blend (LLB), Lloyd Kerrobert (LLK), WCS, Cold Lake, Blended

Bitumen

Maya $91.50 vs. WCS $77.90 and Bow River $77.15

Extra-Heavy / Bitumen

45.4˚

31.1˚

30.2˚

22.3˚

21.5˚

10.0˚

0.1˚

6.5˚

Le

astV

isco

us

Mo

st

Vis

co

us

111Crude Oil Profiles

11

Canada and U.S. Market Demand1 (Mbbl/d)

1 Source: CAPP, CA Energy Commission, EIA and Statistics Canada.2 Source: CAPP.

North American Crude

Oil Demand Profile

12

Destinations

Destinations Exist for CBR

• The Midwest region is currently Canada’s largest market due to its close proximity, large size and established pipeline network

• Market penetration to U.S. coasts is still limited, but refiner interest remains strong

– Large refiners in PADD III (U.S. Gulf Coast) continue to add heavy oil refining capacity, processing more expensive waterborne crudes,

primarily Maya

– Producers and refiners that ship by rail can take advantage of Brent-linked pricing by railing directly to the Gulf Coast

• Imports from Venezuela, Mexico, Columbia and Brazil account for collectively 88% of all heavy imports into the region

– Mexican and Venezuelan production continue to decline, creating room for increased Canadian oil demand

US Imports of Heavy Oil (<27 API)Canadian Heavy Oil (<27 API) Imports by PADD

1 Source: EIA, CAPP.

13

Multiple Potential Destinations Exist for CBR (Cont’d)

• Rail transportation is employed to take advantage of regional price differentials

• CBR allows producers and marketers to send oil to the highest price area

• It is difficult for smaller producers to secure credit for the long-term take-or-pay pipeline commitments required to pipeline oil cost-effectively

– Short term pipeline tolls can be prohibitively expensive

• Gulf Coast refineries equipped for heavy oil will be able to utilize cheaper domestic oil, pushing out heavier imports from Mexico, Venezuela and Saudi

Arabia

• PADD I and PADD V are currently not pipeline connected

– As Alaskan production declines, PADD V will need further domestic production that is providable by rail

– Eastern imports of water-borne crudes will be replaced by cheaper domestic production

• Coker capacity throughput (ability to process heavy oil) is most evident in PADD III, but growing in PADD II and PADD I

Source: EIA: Refinery Capacity Report June 2013.

U.S. Coker Capacity

40%

94%

90%

79%

87%

74%

90%

89%

73%

84%

-

200

400

600

800

1,000

1,200

1,400

1,600

11 12 13 11 12 13 11 12 13 11 12 13 11 12 13Cru

de

Oil

Vo

lum

e (

Mb

bl/d

)

Throughput Capacity

PADD I PADD II PADD III PADD IV PADD V

Coking Capacity

SummaryCrude By Rail

• Ability to access many different markets from the same load point and flexibility to switch final destination on relatively short notice

• Speed to market (5-10 days for rail vs. 30-50 days for pipe)

• Shipping heavier bitumen by rail can be less expensive than pipe, depending on viscosity and the amount of diluent required

• Improved overall economics as CBR allows the flexibility to ship to refineries with highest prices for specific crude types

• Expansion of capacity can be achieved quickly and is relatively inexpensive when compared with pipe

• Intermediate and junior producers are unable to commit to long term take-or-pay pipeline tolls required to transport oil through a pipeline in

a cost-effective manner; CBR provides them with a flexible, cost effective alternative

14

Comparative Transportation Features – Rail vs. Pipeline

Selection Attributes Railroad Pipeline

Market Access / Optionality Diverse; Flexible; On-Demand Less flexible; Requires Long-Term Commitments

Capital Investment Required Low Very High

Development Lead Time Low High

Speed to Market Quicker (5 - 10 days) Slower (30-50 days)

Product Quality Retention High (complete separation) Low (dilution, trans-mixing)

Backhaul Opportunities High (diluent option) Limited (10-20 year fixed commitments)

Scalability High (start manifest; grow into unit) None

Existing Infrastructure Plentiful (existing rights of way) Limited (or full)

Economic Proposition Improved (overall cost plus differential) Constant (take-or-pay)

Source: Association of American Railroads (AAR), Surface Transportation Board (STB), street research and Torq.

Advantages of CBR To Producers

Specific Gravity KG/Gallon 0.993 0.966 0.921 0.871 0.835

Crude Density API 11˚ 15˚ 22˚ 31˚ 38+˚

Barrels Per Car3

bbl/car 550 575 600 650 700

Rail Cost

Trucking $/bbl $2.65 $2.56 $2.43 $2.20 $2.14

Onloading $/bbl $1.75 $1.75 $1.75 $1.75 $1.65

Rail $/bbl $12.73 $12.17 $11.67 $10.77 $10.00

Offloading $/bbl $2.25 $2.25 $2.25 $2.25 $2.25

Car Rental ($1,500/mo) $/bbl $2.80 $2.68 $2.56 $2.37 $2.20

Total Rail Cost $/bbl $22.17 $21.40 $20.66 $19.34 $18.23

Pipeline Cost

Trucking $/bbl $2.65 $2.56 $2.43 $2.20 $2.14

Firm Cost by Pipe4

$/bbl $12.25 $12.00 $11.75 $11.50 $11.25

Diluent Source / Ship (Firm) $/bbl $10.39 $10.29 NA NA NA

Total Pipeline Cost (Firm) $/bbl $25.29 $24.84 $14.18 $13.70 $13.39

Trucking $/bbl $2.65 $2.56 $2.43 $2.20 $2.14

Interruptible Cost by Pipe4

$/bbl $17.50 $17.25 $17.00 $16.50 $16.25

Diluent Source / Ship (Interruptible) $/bbl $15.21 $15.11 NA NA NA

Total Pipeline Cost (Interruptible) $/bbl $35.36 $34.91 $19.43 $18.70 $18.39

Incremental Rail Costs (Firm)5

$/bbl ($3.12) ($3.44) $6.48 $5.64 $4.85

Incremental Rail Costs (Int.)5

$/bbl ($13.19) ($13.51) $1.23 $0.64 ($0.15)

Illustrative Differential $/bbl ($10.00) ($10.00) ($10.00) ($10.00) ($10.00)

Net Benefit (Firm) $/bbl ($13.12) ($13.44) ($3.52) ($4.36) ($5.15)

Net Benefit (Interruptible) $/bbl ($23.19) ($23.51) ($8.77) ($9.36) ($10.15)

Economic Profile of CBR

15

Transportation Economics Not As Simple as Pipeline Tolls

• Heavy oil crude by rail is more economic than light oil crude by rail

• When large differentials persist, producers receive the increased price at an alternative destination in addition to the difference in transportation

costs

• Illustrative economics presented to the right demonstrate heavy oil’s long-term advantage when compared to long-term pipeline tolls

• This advantage is compounded when compared with short term pipeline agreements which can be much more expensive than long-term pipeline

commitments (below)

Illustrative Economics For Various Crude Types1Illustrative Heavy Oil Pipeline Costs

Source: Torq Transloading internal analysis.1 10-20 year commitment.2 150% of firm commitment.

3 Assuming standard GP or C&I 25,500 gallon tank car.4 Includes destination tankage and transfer costs.5 Denotes undiluted heavy crude in C&I tank cars.

Firm1

Interruptable2

Pipeline Transportation Costs

Pipeline Toll Field - Hardisty $/bbl Dilb it $2.25 $3.50

Pipeline Toll Hardisty - USGC $/bbl Dilb it $8.00 $12.00

Pipeline Storage $/bbl Dilb it $1.00 $1.00

Line Fill 40 days $/bbl Dilb it $1.00 $1.00

Dilbit Pipe Total $/bbl Dilbit $12.25 $17.50

70% Bitumen $/bbl Dilb it $8.58 $12.25

30% Diluent $/bbl Dilb it $3.68 $5.25

Bitumen Pipe Total $/bbl Bitumen $12.25 $17.50

Diluent cost per bbl of Bitumen $/bbl Bitumen $5.25 $7.50

Shipping cost per bbl of Bitumen $/bbl Bitumen $17.50 $25.00

Sourcing Cost

Diluent Transport Mt Belvieu - Edmonton $/bbl Diluent $10.00 $15.00

Diluent Transport Edmonton - Field $/bbl Diluent $2.00 $3.00

Total Diluent Transportation ($/bbl) $/bbl Diluent $12.00 $18.00

bbl Diluent / bbl Bitumen 0.43 0.43

Diluent Sourcing Cost $/bbl Bitumen $5.14 $7.71

Total Transport Cost $/bbl Bitumen $22.64 $32.71

Safety of CBR

Recent developments fractured public confidence and offset historically low rate of incidents for railroads:

Numerous explosive derailments:

i) Lac Megantic, QC (Bakken crude, human error, mechanical failure)

ii) Plaster Rock, NB (crude oil, propane and butane)

iii) Gainford, AB (LPG not Crude)

iv) Pickens County, Alabama (Bakken crude)

v) Casselton, ND (Bakken crude)

Review of crude types – light vs. heavyi) Light crude (i.e. Bakken) – lower flash point, greater presence of light ends (i.e. propane, butane), greater flammability

ii)Heavy crude – high flash point, less presence of light ends, lower flammability

Tank Cars

All DOT-111 tank cars built to transport Packing Groups I and II crude oil and ethanol, ordered since October 2011 adhere to the AAR Tank Car Committee’s latest standards which include:

i) a thicker, more puncture-resistant shell or jacket;

ii) extra protective head shields at both ends of tank car, and

iii) additional protection for the top fittings.

16

Safety of CBR

• Today, roughly 92,000 DOT-111 tank cars are used to

move flammable liquids, such as crude and ethanol,

with approximately 14,000 of those tank cars built to

the latest industry safety standards of 2011.

• The roughly 14,000 newer tank cars that today comply

with higher industry-imposed safety standards from 2011

also might require some upgrades.

17

Safety of CBR

18

Safety of CBR

19

Safety of CBR

• Risk in all modes of transportation

– Size of release to be considered

i) Railcar failure – higher incident rate

ii) Pipeline failure – higher spill rate

• According to an IEA study, while North American railroads

have rate of incidents from 2004 to 2012, North

American pipelines have spilled three times as much

oil as railroads over the same period.

20

Safety of CBR

SAFETY MUST REMAIN PRIORITY #1 FOR ENTIRE INDUSTRY

21

Map of Torq Transloading Terminals

22

About TORQ Energy Logistics

• Industry leader in

safety

• Total current CBR

volume from Torq

terminals: 40,000

bbl/day

• Total current

approximate CBR

volumes from

Canadian terminals:

200,000 bbl/day

• Total planned CBR

capacity of Torq

terminals: 128,600

bbl/day

• 120 truck fleet.

Unity