Long-Haul Gas Pipelines Revisited, Third Edition August 23, 2013

Transcription

1 Long-Haul Gas Pipelines Revisited, Third Edition August 23, 2013 Becca Followill Senior Managing Director James Carreker Research Analyst Please refer to important disclosures on slides of this presentation.

2 Introduction Long Haul Pipelines Revisited For the third year we are publishing our review of long-haul interstate natural gas pipelines, to be followed soon by a review of regional interstate gas pipelines. These reviews have been driven by investor concern and questions around gas pipeline risk given changing gas flows, a much more proactive FERC, and whether companies are earning an adequate return on investment. More detailed changes from last year s report are included on the next page, but the key new takeaways are: Throughput rose 2.8% but on U.S. gas supply/demand that was +5%. From 09-12, throughput is +7.3%, but there are major haves and have nots, with the bulk of pipes either up double digits or down double digits. Higher throughput does not equal higher ROEs. In 2012, the average pipeline ROE fell another ~100 bp from 2011 to 11.9%. Since 2008, the average ROE is down ~360 bp, or 23%, driven by Section 5s (forced rate reviews) and pressure on western pipes. Almost two-thirds of the pipes showed a drop in ROE for Aggregate EBITDA ticked down for the third consecutive year, -0.8% vs From 09-12, EBITDA is down 2.5%. EBITDA changes were basically at two ends of the spectrum. The top five pipes over the same period saw EBITDA +42%; the bottom five pipes saw EBITDA -40%. This year we added an analysis of capital spending, and the results were not particularly impressive. From 10-12, the 24 pipes spent ~$10B of capex, yet EBITDA fell 2.5%. Page 11 shows a lot more detail, as we parsed the data to remove noise like Section 5s and weakness in western pipes. Even the pipes that appear to just be spending maintenance capex have invested at ~28x EBITDA. Normally we would expect pipes to recover maintenance capex through rates, but because many are earning at or above their allowed ROEs, that is difficult. With Section 5s weeding out a lot of the overearning pipes and earned ROEs more in line with allowed ROEs, we hope that pipes will now be able to go in for more frequent rate cases to ensure they are earning adequate returns on invested capital. 2

3 Major Changes vs. Last Year Overall ranking: The tables below depict this year s five highest and lowest ranked pipelines in 2012 vs Highlighted companies denote an addition to the highest/lowest ranking in We measured overall ranking by assigning equal weights to ROE, contract life and throughput trends Highest Rank 2011 Highest Rank 2012 Lowest Rank 2011 Lowest Rank Gulfstream Natural Gas Gulfstream Natural Gas Tallgrass Interstate El Paso Natural Gas Kern River Gas Florida Gas Transmission El Paso Natural Gas Transwestern Pipeline Florida Gas Transmission Northen Border Pipeline Transwestern Pipeline Northern Natural Gas Northern Border Pipeline Kern River Gas Panhandle Eastern Tallgrass Interstate Tennessee Gas Pipeline Texas Eastern Transmission Southern Star Central Gas Southern Star Central Gas Source: USCA ROEs: The tables below show 2012 vs ROEs. Highlighted companies denote an addition to the highest/lowest ranking in Interesting that two of the top five ROE earning pipes have already gone through Section 5 reviews. Also note that the lowest ROE ranked pipes have all been impacted by changing gas flows in the U.S Highest ROEs 2011 Highest ROEs 2012 Lowest ROEs 2011 Lowest ROEs Natural Gas Pipeline 26.0% Natural Gas Pipeline 29.2% Transwestern Pipeline 2.9% Transwestern Pipeline 3.8% Gulfstream Natural Gas 26.5% Gulfstream Natural Gas 27.8% Rockies Express 5.0% Rockies Express 4.5% Columbia Gulf 23.8% Northern Border 25.5% Panhandle Eastern 3.0% El Paso Natural Gas 6.6% Northern Border 22.6% Great Lakes 24.3% El Paso Natural Gas 7.6% Tennessee Gas Pipeline 8.3% Great Lakes Gas 13.2% Alliance Pipeline 20.9% Trunkline Gas 7.7% Southern Natural Gas 8.5% Source: USCA Throughput and Contract Expirations: Long-haul throughput increased by 2.8% in 2012 vs. 4.1% in Not much change in contract life, moving to a weighted average 2019 expiration vs last year. 3

4 Summary Ranking Pipeline Quality Pipeline *Pending sale to SEP Ticker(s) Rate Base ($mm) EBITDA ($mm) Est ROE ROE Rank Change in Throughput 2012 vs 2009 Change in Thruput Rank Weighted Avg Contract Exp Contract Expiration Rank Gulfstream Natural Gas WPZ/SEP $1,390 $ % % Kern River Gas BRK.A $1,443 $ % % Florida Gas Transmission ETP/KMI $4,010 $ % % Northern Border Pipeline TCP/OKS $825 $ % % Tennessee Gas Pipeline KMP $2,897 $ % % Southern Natural Gas EPB $2,336 $ % % Transcontinental Pipeline WPZ $3,487 $ % % Texas Eastern Transmission SE* $2,931 $ % % Columbia Gulf Transmission NI $264 $ % 3-0.2% Trunkline Gas Co ETP $587 $ % % Gas Transmission Northwest TCP/TRP $670 $ % % Northern Natural Gas BRK.A $1,860 $ % 8 0.7% Rockies Express TEP GP/SRE/PSX $5,460 $ % % ANR Pipeline TRP $1,188 $ % % Texas Gas Transmission BWP $1,767 $ % % Northwest Pipeline WPZ $1,596 $ % % Alliance Pipeline ENB/VSN $606 $ % % Great Lakes Gas Transmission TRP/TCP $617 $ % 7-1.6% Natural Gas Pipeline Co KMI/Private $1,255 $ % % Southern Star Central Gas Private $677 $ % % Panhandle Eastern ETP $1,224 $ % % Transwestern Pipeline ETP $1,988 $ % % El Paso Natural Gas KMP $1,663 $ % % Tallgrass Interstate Gas TEP $495 $51 4.1% % $41,237 $6, % 7.3% Rank Higher Quality Lower Quality 4 Source: FERC Filings, U.S. Capital Advisors

5 Overview and Methodology What s in this Report? A review of throughput trends, contract expirations, and ROEs for 24 long-haul, interstate gas pipelines. There are ~70 interstate gas pipelines in the U.S., and we broke them down into two groups: Long-haul and Regional. So this is the first of a two-part series. An alphabetical list of the 24 pipelines is on the next page. The Regional Pipeline piece will be published within the next month. Slides 7-12: Summarizes the key measures for the group and ranks the companies by metric. Slides 13-37: Individual company reviews with a map, detail on contract expirations, financial metrics and rate case status. Methodology ROEs: We used FERC Form 2 data and followed, to the extent possible, the methodology the FERC uses when announcing Section 5s. A big caveat: there are so many nuances to rates and so many line items contained in these Form 2s that it is unlikely our ROEs will match exactly what the companies or FERC might be calculating but their trends should be correct, and the ROEs should be in the ballpark (within 1-2%). Contract Expirations: We used FERC data again. Many companies have contracts that expired prior to 2013, but almost all those contracts have notice periods ranging from 30 days to five years in order to terminate the contract. We adjusted contract expiration dates to reflect notice periods. Throughput: FERC data, per Form 2s (excluding storage and gathering volumes). Capital Spend: FERC data, per Form 2 cash flow statements. 5

6 Pipelines Included in this Report Alliance Pipeline (ENB 50%/VSN 50%) Northwest Pipeline (WPZ) ANR Pipeline (TRP) Panhandle Eastern (ETP) Columbia Gulf Transmission (NI) Rockies Express (TEP GP 50%/SRE 25%/PSX 25%) El Paso Natural Gas (KMP) Southern Natural Gas (EPB) Florida Gas Transmission (ETP 50%/KMI 50%) Southern Star Central Gas (Private) Gas Transmission Northwest (TCP 70%/TRP 30%) Tallgrass Interstate Gas (TEP) Great Lakes Gas Transmission (TRP 54%/TCP 46%) Tennessee Gas Pipeline (KMP) Gulfstream Natural Gas (WPZ 50%/SEP 50%) Texas Eastern Transmission (SE*) Kern River Gas (BRK.A) Texas Gas Transmission (BWP) Natural Gas Pipeline Co (Private 80%/KMI 20%) Transcontinental Pipeline (WPZ) Northern Border Pipeline (TCP 50%/OKS 50%) Transwestern Pipeline (ETP) Northern Natural Gas (BRK.A) Trunkline Gas Co (ETP) 6 *Pending sale to SEP

7 Pipeline Throughput Trends Haves and Have Nots Pipeline Throughput (mmcf/d) 1 Year Growth Growth '12 vs. '09 Tennessee Gas Pipeline 4,730 5,170 6,369 7, % 55.8% Northern Border Pipeline 1,952 2,499 2,686 2, % 41.6% Transcontinental Pipeline 6,721 6,873 7,708 8, % 33.5% Florida Gas Transmission 2,250 2,287 2,368 2, % 19.3% Kern River Gas 2,249 2,326 2,325 2, % 17.8% Southern Natural Gas 2,378 2,544 2,504 2, % 15.8% Rockies Express 1,978 2,258 2,292 2, % 14.0% Gulfstream Natural Gas 1,052 1,177 1,185 1, % 13.7% Texas Eastern Transmission 4,248 4,482 4,949 4, % 12.7% Alliance Pipeline 1,601 1,600 1,564 1, % 11.8% Texas Gas Transmission 2,759 3,050 3,168 2, % 4.5% Trunkline Gas Co 1,870 1,819 2,037 1, % 4.0% Northern Natural Gas 2,528 2,603 2,514 2, % 0.7% Columbia Gulf Transmission 2,455 2,324 2,871 2, % -0.2% ANR Pipeline 5,077 4,959 5,256 5, % -0.8% Great Lakes Gas Transmission 2,007 2,221 2,301 1, % -1.6% Southern Star Central Gas % -7.9% Transwestern Pipeline 1,662 1,605 1,518 1, % -10.3% Gas Transmission Northwest 2,217 2,240 1,896 1, % -10.6% Panhandle Eastern 1,851 1,541 1,545 1, % -13.9% Northwest Pipeline 2,241 1,842 1,745 1, % -19.5% El Paso Natural Gas 4,091 3,522 3,109 3, % -22.4% Natural Gas Pipeline Co 5,388 4,532 4,383 4, % -23.1% Tallgrass Interstate Gas % -29.4% Total/Average 64,742 64,899 67,565 69, % 7.3% Chart to the left shows pipeline throughputs over the past four years. Modest increase in 2012, +2.8% on U.S. supply/demand that was +5%. Taking a longer-term view, the bulk of pipe throughputs are either up double digits or down double digits, with not much in between. Fastest growing pipes: From 09-12, the highest throughput increases were for pipes exposed to the Marcellus or Bakken (Tennessee, N. Border, Transco) or those with expansions (Florida Gas, Kern River, Southern Natural). Biggest decliners: Generally pipelines serving the west (Tallgrass, EPNG, Northwest Pipeline, Transwestern) or those serving the Midwest who have seen volumes displaced by Rockies Express (NGPL, Panhandle). 7 Source: FERC Filings, U.S. Capital Advisors

8 Contract Expiration Trends Consistent with 2012 Pipeline Cumulative Contract Expirations Through Weighted Average Gulfstream Natural Gas 0% 0% 0% 0% 0% 2% Florida Gas Transmission 1% 1% 8% 9% 10% 25% Trunkline Gas Co 15% 28% 29% 37% 39% 51% Northwest Pipeline 4% 16% 16% 19% 25% 60% ANR Pipeline 19% 38% 50% 58% 64% 75% Southern Natural Gas 0% 0% 0% 55% 60% 69% Kern River Gas 16% 16% 16% 38% 41% 68% Transcontinental Pipeline 8% 20% 26% 55% 60% 65% Rockies Express 3% 5% 10% 10% 10% 77% Gas Transmission Northwest 19% 26% 38% 52% 52% 56% Panhandle Eastern 11% 23% 52% 58% 65% 73% Texas Eastern Transmission 2% 45% 53% 58% 60% 77% Tennessee Gas Pipeline 8% 32% 48% 54% 62% 78% Columbia Gulf Transmission 16% 34% 39% 50% 52% 70% Texas Gas Transmission 8% 20% 31% 34% 40% 99% Northern Natural Gas 29% 35% 42% 48% 70% 90% Northern Border Pipeline 20% 31% 57% 65% 69% 74% Transwestern Pipeline 19% 39% 73% 74% 77% 84% Tallgrass Interstate Gas 8% 19% 41% 59% 74% 96% Southern Star Central Gas 48% 50% 62% 66% 74% 95% Alliance Pipeline 2% 2% 87% 89% 89% 100% El Paso Natural Gas 35% 50% 76% 78% 83% 91% Natural Gas Pipeline Co 31% 40% 55% 81% 91% 95% Great Lakes Gas Transmission 12% 69% 85% 91% 94% 97% Total/Average 14% 27% 41% 52% 57% 74% Chart to the left shows the pipes contract expirations, sorted from longest weighted average contract life to the shortest. Weighted average contract life for the group is 2019 fairly short. Compares with weighted average life of 2018 last year. Note we adjusted contract expiration dates to reflect contracts that expired prior to 2013, but have notice periods of up to five years. 8 Source: FERC Filings, U.S. Capital Advisors

9 Pipelines ROEs Continued Notching Down Pipeline Est ROE 1 Year Avg ROE Change '10-'12 Natural Gas Pipeline Co* 44.9% 43.1% 41.0% 28.8% 26.0% -2.8% 31.9% Gulfstream Natural Gas 8.9% 11.7% 19.9% 27.6% 26.5% -1.1% 24.7% Northern Border Pipeline 17.2% 12.1% 21.4% 25.2% 22.6% -2.6% 23.1% Great Lakes Gas Transmission* 20.3% 23.3% 25.8% 24.0% 13.2% -10.7% 21.0% Columbia Gulf Transmission 24.0% 6.6% 12.6% 14.3% 23.8% 9.5% 16.9% Alliance Pipeline 15.8% 16.2% 17.7% 20.9% 11.4% -9.5% 16.7% Kern River Gas 35.4% 23.6% 19.3% 14.6% 14.8% 0.2% 16.2% Gas Transmission Northwest 11.1% 12.2% 14.3% 13.4% 14.4% 0.9% 14.0% Tallgrass Interstate Gas* 27.0% 29.1% 23.4% 12.1% 4.1% -8.0% 13.2% Texas Eastern Transmission 16.0% 15.8% 13.9% 11.7% 11.6% 0.0% 12.4% Northern Natural Gas* 22.4% 21.8% 12.0% 12.2% 12.4% 0.3% 12.2% Florida Gas Transmission 14.9% 13.1% 15.1% 8.2% 9.9% 1.7% 11.1% Southern Star Central Gas 8.2% 11.2% 11.1% 9.6% 9.4% -0.2% 10.0% Southern Natural Gas 11.4% 9.6% 11.6% 8.4% 10.0% 1.6% 10.0% Northwest Pipeline 12.0% 11.2% 10.3% 10.0% 9.3% -0.7% 9.8% Tennessee Gas Pipeline 10.1% 11.0% 9.7% 8.1% 11.6% 3.4% 9.8% Texas Gas Transmission 9.4% 6.5% 9.3% 8.8% 10.8% 1.9% 9.7% Transcontinental Pipeline 9.4% 9.0% 10.1% 8.6% 8.5% -0.2% 9.1% ANR Pipeline 9.2% 8.2% 9.8% 8.8% 8.1% -0.7% 8.9% Trunkline Gas Co 7.6% 11.2% 8.5% 8.5% 7.7% -0.9% 8.2% El Paso Natural Gas 10.0% 11.1% 7.9% 6.5% 7.6% 1.1% 7.3% Panhandle Eastern 11.8% 9.6% 5.6% 8.6% 3.0% -5.7% 5.7% Rockies Express 6.0% 2.6% 3.2% 4.4% 5.0% 0.5% 4.2% Transwestern Pipeline 9.4% 7.2% 4.6% 3.7% 2.9% -0.8% 3.7% Total/Average 15.5% 14.0% 14.1% 12.8% 11.9% -1.0% 12.9% * Pipelines have undergone Section 5 Source: FERC Filings, U.S. Capital Advisors Chart to the left shows long haul pipeline estimated ROEs over the past five years. Overall ~100 bp decline in average ROE to 11.9% from 12.8% in 2011, primarily driven by drops at Great Lakes due to their Section 5 and Alliance due to shorter hauls. 15 of the 24 pipelines (63%) saw a lower ROE in 2012 vs Columbia Gulf was the only pipe to see a marked increase in ROE. Since 2008, ROEs are down ~360 bp, or 23%, driven by Section 5s and pressure on western pipes due to the economy as well as new capacity. For the four pipes that have undergone Section 5s (forced rate reviews) in recent years (shown with asterisks), their ROEs are down 1,660 bp on average, or 55%, from peak earnings during the period. Higher throughput Higher ROEs: Note that six pipelines each saw throughput up at least 10% in 12, yet only half realized higher ROEs. 9

10 Pipeline EBITDAs Two Ends of the Spectrum Pipeline EBITDA ($mm) 1 Year Change Change '09-'12 Columbia Gulf Transmission $42 $51 $57 $ % 70.0% Florida Gas Transmission $376 $370 $521 $ % 50.6% Texas Gas Transmission $206 $278 $265 $ % 41.4% Rockies Express $427 $532 $579 $ % 35.5% Northern Border Pipeline $178 $221 $231 $ % 30.8% Southern Natural Gas $298 $342 $349 $ % 19.3% Transcontinental Pipeline $568 $611 $620 $ % 9.4% Tennessee Gas Pipeline $505 $462 $474 $ % 9.2% Gulfstream Natural Gas $217 $233 $235 $ % 8.5% Texas Eastern Transmission $458 $487 $448 $ % 2.8% Kern River Gas $318 $304 $311 $ % 2.8% Southern Star Central Gas $113 $112 $109 $ % 1.0% Northwest Pipeline $279 $276 $283 $ % -2.3% Gas Transmission Northwest $154 $163 $153 $ % -3.0% ANR Pipeline $240 $248 $246 $ % -12.7% Panhandle Eastern $158 $134 $152 $ % -21.1% Trunkline Gas Co $138 $113 $115 $ % -23.5% Alliance Pipeline $200 $194 $189 $ % -24.1% El Paso Natural Gas $340 $276 $259 $ % -24.3% Northern Natural Gas* $452 $326 $324 $ % -27.2% Transwestern Pipeline $197 $171 $153 $ % -31.2% Great Lakes Gas Transmission* $219 $201 $186 $ % -47.1% Natural Gas Pipeline Co* $634 $537 $385 $ % -47.3% Tallgrass Interstate Gas* $103 $91 $60 $ % -50.1% Total/Average $6,820 $6,731 $6,706 $6, % -2.5% * Pipelines have undergone Section 5 Aggregate pipeline EBITDA ticked down for the third consecutive year. Despite throughput that is up 7.3% from 09-12, EBITDA is down 2.5% over the same period. Over the period, five companies saw EBITDA up >20%, while nine companies saw EBITDA down >20%. Those top five companies increased EBITDA by $511mm (42%) in the last three years; the bottom nine decreased EBITDA by $836mm (34%). Note four of bottom five pipes have undergone Section 5s. Excluding the Section 5 pipes, collective pipeline EBITDA is up $410mm, or 7.6% since Source: FERC Filings, U.S. Capital Advisors

11 Capital Spending Where s the Rate Recovery? Pipeline Capex ($mm) Total Capex '10-'12 ($mm) Expanders Florida Gas Transmission $1,544 $573 $57 $2,174 Texas Eastern Transmission $531 $503 $752 $1,785 Transcontinental Pipeline $361 $397 $479 $1,238 Tennessee Gas Pipeline $245 $679 $219 $1,143 Southern Natural Gas $262 $175 $65 $502 Western Pipes Kern River Gas $157 $227 $62 $446 Northwest Pipeline $117 $115 $132 $363 El Paso Natural Gas $79 $83 $63 $225 Transwestern Pipeline $30 $29 $43 $101 Gas Transmission Northwest $10 $16 $21 $47 Section 5s Northern Natural Gas $139 $93 $112 $345 Natural Gas Pipeline Co $68 $52 $50 $170 Tallgrass Interstate Gas $29 $16 $7 $52 Great Lakes Gas Transmission $14 $12 $3 $29 Others ANR Pipeline $53 $97 $111 $261 Rockies Express $171 $35 $36 $242 Panhandle Eastern $80 $81 $52 $214 Southern Star Central Gas $61 $40 $72 $173 Trunkline Gas Co $43 $50 $60 $153 Alliance Pipeline ($2) $11 $132 $141 Texas Gas Transmission $74 $22 $24 $120 Columbia Gulf Transmission $33 $36 $29 $98 Northern Border Pipeline $10 $30 $27 $67 Gulfstream Natural Gas $18 $14 $7 $39 Source: FERC Filings, U.S. Capital Advisors $4,128 $3,389 $2,612 $10,129 Category Total Capex EBITDA EBITDA Change in Change in Implied EBITDA '10-'12 ($mm) '09 ($mm) '12 ($mm) EBITDA ($) EBITDA (%) Multiple Expanders $6,842 $2,205 $2,565 $ % 19.0x Western Pipes $1,183 $1,288 $1,141 ($147) -11.4% nm Section 5s $597 $1,408 $831 ($578) -41.0% nm Others $1,508 $1,920 $2,116 $ % 7.7x Total $10,129 $6,820 $6,653 ($168) -2.5% nm New this year to the piece is a review of pipeline spending how much has been spent and what are the returns? The results are not particularly impressive. Because there are many dynamics, we grouped the pipes into four categories Expanders (pipes with meaningful expansions), Western Pipes (who have been impacted by excess capacity), Section 5s, and Others. With the exception of the Expanders, we assume that the bulk of capex spend is for maintenance. In aggregate, the group spent $10B from 10-12, while EBITDA fell 2.5%. But you need to parse it down by category. The five expanders, or 21% of the pipes, spent $6.8B, or 68% of the total capex. The implied build EBITDA multiple is 19x. Normally we would expect pipes to recover maintenance capex through rates, but because many of these pipes are earning at or above allowed ROEs, that is difficult. Western pipes spent $1.2B, while EBITDA fell 11%. Section 5 pipes spent $600mm, while EBITDA fell 41%. The Other pipes spent $1.5B at a reasonable ~8x EBITDA multiple. But excluding the minimal Rockies Express spend and associated EBITDA ramp up, Other pipes invested $1.3B at a ~28x EBITDA multiple. 11

12 Pipeline Rate Case Status Pipeline Last Rate Next Rate Case/Review Case/Review El Paso Natural Gas In progress na Southern Star Central Gas In progress na Transcontinental Pipeline In progress na Great Lakes Gas Transmission Florida Gas Transmission Transwestern Pipeline Gas Transmission Northwest Tallgrass Interstate Gas Transmission Tennessee Gas Pipeline Natural Gas Pipeline Co Columbia Gulf Transmission Northwest Pipeline Southern Natural Gas ANR Pipeline 1997 na Panhandle Eastern 1997 na Texas Eastern Transmission 1998 na Trunkline Gas Co 2001 na Texas Gas Transmission 2005 na Kern River Gas 2009 na Northern Natural Gas 2009 na Northern Border Pipeline 2012 na Alliance Pipeline na na Gulfstream Natural Gas na na Rockies Express na na 54% or more of the long-haul gas pipelines will be filing rate cases or cost and revenue studies over the next few years. With so many moving pieces in the pipeline industry right now changing flows, shorter hauls, pipeline repurposing we think the industry is moving toward more frequent rate cases or negotiated settlements. In addition, with rapidly growing Marcellus gas turning conventional long-pipeline flows on their head, we think there will be a gradual evolution in the way pipelines are contracted. We could see entirely new rate structures evolve to meet these changing dynamics. In the past, rate cases were frequently litigated. Now, they are generally settled with shippers. They now also usually contain a provision for the pipeline to file a rate case within a certain time frame. More details on each company s rate status is included on the individual company summary pages. 12 Source: FERC Filings, Company Reports, U.S. Capital Advisors

13 Individual Pipelines 13

14 Alliance Pipeline (ENB/VSN) Alliance is one of the newer long-haul pipelines built in North America. The pipeline began commercial operations in Dec Alliance Pipeline Throughput (Mmcf/d) 1,609 1,601 1,600 1,564 1,790 % Change -0.5% -0.1% -2.3% 14.5% Rate Base ($mm) $900 $800 $698 $570 $606 ROE 15.8% 16.2% 17.7% 20.9% 11.4% Revenue/mcf ($) $0.50 $0.49 $0.49 $0.52 $0.44 The pipeline is unusual in that it is a wet system, transporting unprocessed gas that contains both gas and associated liquids. The line terminates at a major NGL extraction and fractionation facility, Aux Sable. EBITDA ($mm) $210 $200 $194 $189 $ % Change -4.7% -3.0% -2.3% -19.9% % of Parent EBITDA (ENB) 4.4% 3.4% 3.5% 2.9% 2.4% Weighted Average Contract Expiration

15 ANR Pipeline (TRP) Operates under rates approved by FERC in a 1997 settlement. No obligation to file a rate case. ANR Pipeline Throughput (Mmcf/d) 5,417 5,077 4,959 5,256 5,037 % Change -6.3% -2.3% 6.0% -4.2% Rate Base ($mm) $1,352 $1,345 $1,274 $1,262 $1,188 ROE 9.2% 8.2% 9.8% 8.8% 8.1% Revenue/mcf ($) $0.28 $0.30 $0.31 $0.30 $0.30 EBITDA ($mm) $243 $240 $248 $246 $210 % Change -1.1% 3.3% -0.9% -14.6% % of Parent EBITDA (TRP) 5.9% 5.9% 6.3% 5.1% 5.0% Weighted Average Contract Expiration

16 Columbia Gulf Transmission (NI) Filed rate case Oct. 28, 2010, requesting $50mm rate increase. New rates were placed into effect May 2011, subject to refund. Columbia filed a negotiated settlement with the FERC on Sept. 9, FERC approved the black box settlement on Dec. 1, Settlement provides for a moratorium on the filing of a rate case for rates effective before Apr. 1, Columbia Gulf must file a cost and revenue study no earlier than Apr. 1, 2014 and no later than May 1, Columbia Gulf Transmission Throughput (Mmcf/d) 2,714 2,455 2,324 2,871 2,450 % Change -9.5% -5.3% 23.5% -14.7% Rate Base ($mm) $288 $263 $263 $274 $264 ROE 24.0% 6.6% 12.6% 14.3% 23.8% Revenue/mcf ($) $0.14 $0.13 $0.13 $0.13 $0.16 EBITDA ($mm) $83 $42 $51 $57 $71 % Change -49.7% 23.1% 11.2% 24.1% % of Parent EBITDA (NI) 5.6% 3.0% 3.4% 4.0% 4.3% Weighted Average Contract Expiration

17 El Paso Natural Gas (KMP) Filed rate case Sept. 2010, requesting $1.88B rate base ($1.86B prior), ROE of 12.15% and 61% equity component for ~$100mm or 20% rate increase. New rates became effective Apr. 1, 2011 subject to refund. The FERC subsequently issued an order requiring EPNG to decrease its rates. An ALJ issued a decision in June The initial decision is currently being reviewed by FERC. EPNG is pursuing settlement discussions with shippers. El Paso Natural Gas Throughput (Mmcf/d) 4,756 4,091 3,522 3,109 3,176 % Change -14.0% -13.9% -11.7% 2.1% Rate Base ($mm) $1,838 $1,830 $1,821 $1,792 $1,663 ROE 10.0% 11.1% 7.9% 6.5% 7.6% Revenue/mcf ($) $0.34 $0.39 $0.40 $0.45 $0.42 EBITDA ($mm) $323 $340 $276 $259 $257 % Change 5.4% -19.0% -6.0% -0.7% % of Parent EBITDA (KMP) 11.8% 12.4% 8.9% 8.0% 6.8% Weighted Average Contract Expiration

18 Florida Gas Transmission (KMI/ETP) Operating under rates approved in a Feb. 24, 2011 settlement. Settlement provides that Florida Gas file a rate case no later than Nov. 1, 2014, but not before Jan. 1, Florida Gas Transmission Throughput (Mmcf/d) 2,147 2,250 2,287 2,368 2,685 % Change 4.8% 1.6% 3.5% 13.4% Rate Base ($mm) $1,799 $1,821 $1,895 $4,224 $4,010 ROE 14.9% 13.1% 15.1% 8.2% 9.9% Revenue/mcf ($) $0.64 $0.62 $0.62 $0.80 $0.79 EBITDA ($mm) $371 $376 $370 $521 $566 % Change 1.2% -1.6% 40.7% 8.7% % of Parent EBITDA (ETP) 13.3% 12.4% 13.3% 16.1% 12.9% % of Parent EBITDA (KMI) 6.8% 6.8% 8.4% 9.3% 6.8% Weighted Average Contract Expiration

19 Gas Transmission Northwest (TCP/TRP) On Aug. 2011, filed a petition with the FERC requesting approval of a settlement with shippers and regulators. In Nov. 2011, the FERC approved the settlement, effective Jan. 1, The settlement includes a moratorium on the filing of future rate proceedings until Dec. 31, Gas Transmission Northwest Throughput (Mmcf/d) 2,180 2,217 2,240 1,896 1,982 % Change 1.7% 1.1% -15.4% 4.5% Rate Base ($mm) $820 $777 $733 $714 $670 ROE 11.1% 12.2% 14.3% 13.4% 14.4% Revenue/mcf ($) $0.27 $0.27 $0.26 $0.30 $0.27 EBITDA ($mm) $156 $154 $163 $153 $149 % Change -1.4% 6.1% -6.3% -2.5% % of Parent EBITDA (TCP) 63.6% 71.7% 64.3% 53.4% 61.0% % of Parent EBITDA (TRP) 1.1% 1.1% 1.2% 1.0% 1.1% Weighted Average Contract Expiration

20 Great Lakes Gas Transmission (TRP/TCP) Called in for Section 5 rate proceeding Nov Settlement approved and effective May 1, 2010; maximum reservation rates reduced 8% (~$20mm/yr). Settlement rates effective through at least Nov. 30, Must file rate case no later than Nov. 1, Great Lakes Gas Transmission Throughput (Mmcf/d) 2,157 2,007 2,221 2,301 1,974 % Change -7.0% 10.7% 3.6% -14.2% Rate Base ($mm) $774 $731 $693 $653 $617 ROE 20.3% 23.3% 25.8% 24.0% 13.2% Revenue/mcf ($) $0.36 $0.39 $0.32 $0.30 $0.25 EBITDA ($mm) $215 $219 $201 $186 $116 % Change 1.9% -8.3% -7.1% -37.8% % of Parent EBITDA (TRP) 2.8% 2.9% 2.8% 2.1% 1.5% % of Parent EBITDA (TCP) 57.6% 67.1% 52.0% 42.8% 31.2% Weighted Average Contract Expiration

21 Gulfstream Natural Gas (WPZ/SEP) Operates under rates approved by FERC in Required Gulfstream to file a cost and revenue study three years after their Phase III facilities went into service. Gulfstream filed the Cost and Revenue Study on Nov. 1, Gulfstream Natural Gas Throughput (Mmcf/d) 814 1,052 1,177 1,185 1,196 % Change 29.3% 11.9% 0.7% 0.9% Rate Base ($mm) $1,495 $1,536 $1,511 $1,439 $1,390 ROE 8.9% 11.7% 19.9% 27.6% 26.5% Revenue/mcf ($) $0.68 $0.65 $0.62 $0.63 $0.63 EBITDA ($mm) $173 $217 $233 $235 $235 Public notice of the filing was issued on June 25, 2012, allowing for protests to be filed on or before July 2, No protests or adverse comments were filed. % Change 25.4% 7.3% 0.9% 0.3% 21 % of Parent EBITDA (WPZ) 4.9% 6.3% 5.9% 4.9% 5.0% % of Parent EBITDA (SEP) 51.3% 51.1% 50.8% 50.7% 44.6% Weighted Average Contract Expiration

22 Kern River Gas (BRK.A) Several expansions through the years, with the most recent adding 145 mmcf/d in April Long, drawn-out rate case initially filed in 2004 settled in late Kern River Gas Throughput (Mmcf/d) 2,285 2,249 2,326 2,325 2,649 % Change -1.6% 3.4% -0.1% 14.0% Rate Base ($mm) $1,442 $1,369 $1,299 $1,526 $1,443 ROE 35.4% 23.6% 19.3% 14.6% 14.8% Revenue/mcf ($) $0.52 $0.45 $0.42 $0.42 $0.39 EBITDA ($mm) $386 $318 $304 $311 $327 % Change -17.7% -4.4% 2.5% 4.9% % of Parent EBITDA (BRK.A) na na na na na Weighted Average Contract Expiration

23 Natural Gas Pipeline Co (Private/KMI) Called in for Section 5 rate proceeding in Nov FERC approved settlement Jul. 29, 2010; settlement provided for reduction in fuel surcharges, with an estimated $100mm/yr impact. As a result, KMI took a $430mm pre-tax, non-cash impairment charge for their 20% interest in NGPL. Settlement provided that NGPL must submit a cost and revenue study on or before Jun. 1, NGPL will not file a rate case prior to Apr Natural Gas Pipeline Co Throughput (Mmcf/d) 5,260 5,388 4,532 4,383 4,142 % Change 2.4% -15.9% -3.3% -5.5% Rate Base ($mm) $1,371 $1,316 $1,304 $1,352 $1,255 ROE 44.9% 43.1% 41.0% 28.8% 26.0% Revenue/mcf ($) $0.34 $0.34 $0.38 $0.39 $0.38 EBITDA ($mm) $647 $634 $537 $385 $334 % Change -2.1% -15.2% -28.3% -13.3% % of Parent EBITDA (KMI) 4.7% 4.6% 4.9% 2.7% 1.6% Weighted Average Contract Expiration

24 Northern Border Pipeline (TCP/OKS) Operates under rates approved by FERC in a Jan rate case settlement. Moratorium on Section 4 or 5 rate cases expired Jan. 1, Required to file rate case on or before Dec. 31, In Dec. 2012, the FERC approved a settlement between Northern Border and its customers that reduced pipeline rates by 11% effective Jan. 1, Northern Border is precluded from filing a new rate case before Jan. 1, Northern Border Pipeline Throughput (Mmcf/d) 2,319 1,952 2,499 2,686 2,764 % Change -15.9% 28.1% 7.5% 2.9% Rate Base ($mm) $1,015 $972 $907 $865 $825 ROE 17.2% 12.1% 21.4% 25.2% 22.6% Revenue/mcf ($) $0.34 $0.35 $0.32 $0.31 $0.31 EBITDA ($mm) $211 $178 $221 $231 $233 % Change -15.4% 24.1% 4.7% 0.7% % of Parent EBITDA (TCP) 61.4% 59.4% 62.2% 57.7% 68.1% % of Parent EBITDA (OKS) 11.5% 11.0% 13.0% 9.2% 9.0% Weighted Average Contract Expiration

25 Northern Natural Gas (BRK.A) Northern Natural Gas Throughput (Mmcf/d) 3,125 2,528 2,603 2,514 2,545 % Change -19.1% 3.0% -3.4% 1.2% Rate Base ($mm) $1,804 $1,791 $1,890 $1,874 $1,860 Called in for Section 5 rate proceeding in Nov ROE 22.4% 21.8% 12.0% 12.2% 12.4% FERC terminated the Section 5 proceeding in May Revenue/mcf ($) $0.63 $0.70 $0.61 $0.60 $ , citing a material decrease in revenues. EBITDA ($mm) $421 $452 $326 $324 $329 % Change 7.3% -28.0% -0.4% 1.6% 25 % of Parent EBITDA (BRK.A) na na na na na Weighted Average Contract Expiration

26 Northwest Pipeline (WPZ) During the first quarter of 2012, filed a Stipulation and Settlement Agreement with the FERC for an increase in their rates. Received FERC approval during the second quarter of The new rates, which are 7.4% higher than current rates, became effective Jan. 1, Northwest Pipeline Throughput (Mmcf/d) 2,414 2,241 1,842 1,745 1,803 % Change -7.2% -17.8% -5.3% 3.3% Rate Base ($mm) $1,449 $1,500 $1,536 $1,615 $1,596 ROE 12.0% 11.2% 10.3% 10.0% 9.3% Revenue/mcf ($) $0.49 $0.53 $0.62 $0.68 $0.67 EBITDA ($mm) $279 $279 $276 $283 $272 % Change 0.1% -0.9% 2.4% -3.7% % of Parent EBITDA (WPZ) 15.7% 16.1% 13.9% 11.9% 11.6% Weighted Average Contract Expiration

27 Panhandle Eastern (ETP) Last rate case filed May 1992, with settlement effective April Panhandle Eastern Throughput (Mmcf/d) 1,917 1,851 1,541 1,545 1,594 % Change -3.4% -16.7% 0.2% 3.2% Rate Base ($mm) $1,003 $1,071 $1,060 $1,036 $1,224 ROE 11.8% 9.6% 5.6% 8.6% 3.0% Revenue/mcf ($) $0.52 $0.56 $0.62 $0.63 $0.58 EBITDA ($mm) $166 $158 $134 $152 $125 % Change -4.9% -15.3% 13.4% -17.9% % of Parent EBITDA (ETP) 11.9% 10.5% 9.7% 9.4% 5.7% Weighted Average Contract Expiration

28 Rockies Express (TEP GP/SRE/PSX) Rockies Express is the newest long-haul pipelines built in the U.S. The 1,700-mile pipeline became fully operational in Nov Rates are negotiated with long-term contracts. Rockies Express Throughput (Mmcf/d) 1,558 1,978 2,258 2,292 2,254 % Change 27.0% 14.2% 1.5% -1.7% Rate Base ($mm) $2,432 $6,242 $6,085 $5,748 $5,460 ROE 6.0% 2.6% 3.2% 4.4% 5.0% Revenue/mcf ($) $0.65 $0.70 $0.84 $0.86 $0.86 EBITDA ($mm) $298 $427 $532 $579 $579 % Change 43.5% 24.5% 8.9% 0.0% % of Parent EBITDA (TEP GP) na na na na na % of Parent EBITDA (SRE) 3.0% 4.0% 6.2% 4.5% 5.6% Weighted Average Contract Expiration

29 Southern Natural Gas (EPB) On May 2, 2013, SNG filed a customer settlement, and the FERC approved the settlement on July 12. Under the settlement, customers must extend all firm service agreements through Aug. 31, 2016, and SNG cannot file a rate case to be effective earlier than Sept. 1, The settlement includes a two-phase rate reduction which will reduce rates by $34mm effective Sept. 1, 2013, and an additional $14mm effective Nov. 1, SNG must file a new rate case to be effective no later than Sept. 1, Southern Natural Gas Throughput (Mmcf/d) 2,402 2,378 2,544 2,504 2,754 % Change -1.0% 7.0% -1.6% 10.0% Rate Base ($mm) $1,938 $1,962 $1,934 $2,360 $2,336 ROE 11.4% 9.6% 11.6% 8.4% 10.0% Revenue/mcf ($) $0.57 $0.57 $0.59 $0.62 $0.58 EBITDA ($mm) $322 $298 $342 $349 $356 % Change -7.3% 14.8% 2.1% 1.9% % of Parent EBITDA (EPB) 197.3% 39.0% 37.3% 35.8% 33.5% Weighted Average Contract Expiration

30 Southern Star Central Gas (Private) Operating under rates approved by FERC in a Nov settlement. Southern Star was required to file a new rate case to become effective no later than Dec. 1, Southern Star Central Gas Throughput (Mmcf/d) % Change -1.7% -0.9% -7.3% 0.2% Rate Base ($mm) $606 $596 $610 $637 $677 ROE 8.2% 11.2% 11.1% 9.6% 9.4% Revenue/mcf ($) $0.58 $0.67 $0.65 $0.70 $0.72 On May 31, 2013, Southern Star filed a rate case with the FERC, requesting a $85mm rate increase, assuming EBITDA ($mm) $95 $113 $112 $109 $114 a 13.9% ROE and a $639mm rate base. % Change 19.6% -1.0% -2.3% 4.4% 30 % of Parent EBITDA (Private) na na na na na Weighted Average Contract Expiration

31 Tallgrass Interstate Gas Transmission (TEP) Called in for Section 5 rate proceeding in Nov Settlement document filed May 5, Settlement stated that Tallgrass reduce its fuel surcharges by 27%, effective June 1, 2011; reduction translated to a total 30% reduction in fuel as of Jan. 1, Estimated impact of ~$8mm/yr. Settlement provided for a one-year rate moratorium (from settlement date) on filing a rate case. Tallgrass must file a cost and revenue study within four years of the effective date of the settlement. On Aug. 6, 2012, Tallgrass filed with the FERC to abandon 432 miles of pipeline for the purpose of converting to crude oil service. Tallgrass Interstate Gas Throughput (Mmcf/d) % Change -11.0% -1.8% -16.4% -14.1% Rate Base ($mm) $403 $395 $367 $363 $495 ROE 27.0% 29.1% 23.4% 12.1% 4.1% Revenue/mcf ($) $0.54 $0.63 $0.61 $0.65 $0.71 EBITDA ($mm) $100 $103 $91 $60 $51 % Change 3.1% -11.6% -34.1% -14.4% % of Parent EBITDA (TEP) na na na na na Weighted Average Contract Expiration

32 Tennessee Gas Pipeline (KMP) Filed rate case Nov. 2010, requesting $2.65B rate base (prior $1.49B), 13.5% ROE and 55% equity component, for overall revenue increase of 24%, or $203mm. Tennessee Gas Pipeline Throughput (Mmcf/d) 4,962 4,730 5,170 6,369 7,370 % Change -4.7% 9.3% 23.2% 15.7% In Dec. 2011, FERC approved a black box rate case settlement, which became effective Jun. 1, Rate Base ($mm) ROE $2, % $2, % $2, % $3, % $2, % Revenue/mcf ($) $0.39 $0.41 $0.37 $0.36 $0.37 Must file new rate case to be effective no earlier EBITDA ($mm) $449 $505 $462 $474 $551 than Apr. 2014, but no later than Nov % Change 12.5% -8.5% 2.5% 16.4% % of Parent EBITDA (KMP) 16.4% 18.4% 14.9% 14.6% 14.6% Weighted Average Contract Expiration

33 Texas Eastern Transmission (SE*) Operates under rates approved by FERC in a 1998 settlement. * Pending sale to SEP Texas Eastern Transmission Throughput (Mmcf/d) 3,915 4,248 4,482 4,949 4,789 % Change 8.5% 5.5% 10.4% -3.2% Rate Base ($mm) $2,077 $2,121 $2,454 $2,678 $2,931 ROE 16.0% 15.8% 13.9% 11.7% 11.6% Revenue/mcf ($) $0.63 $0.55 $0.57 $0.53 $0.54 EBITDA ($mm) $448 $458 $487 $448 $471 % Change 2.3% 6.3% -8.0% 5.1% % of Parent EBITDA (SE) 15.4% 19.7% 17.9% 15.1% 16.9% Weighted Average Contract Expiration

34 Texas Gas Transmission (BWP) Last rate case in No obligation to file a rate case. In conjunction with their proposed Bluegrass NGL pipeline, in May 2013, BWP filed an abandonment application with the FERC to convert a portion of Texas Gas to NGL service. Texas Gas Transmission Throughput (Mmcf/d) 2,371 2,759 3,050 3,168 2,882 % Change 16.4% 10.6% 3.9% -9.0% Rate Base ($mm) $1,058 $1,822 $1,859 $1,788 $1,767 ROE 9.4% 6.5% 9.3% 8.8% 10.8% Revenue/mcf ($) $0.34 $0.36 $0.39 $0.37 $0.39 EBITDA ($mm) $165 $206 $278 $265 $292 % Change 24.8% 34.8% -4.5% 9.9% % of Parent EBITDA (BWP) 35.0% 41.4% 42.3% 42.9% 40.2% Weighted Average Contract Expiration

35 Transcontinental Pipeline (WPZ) Last rate case filed Aug and settled Nov Agreed to file a rate case no later than Aug. 31, 2012 with new rates effective Mar On Aug. 31, 2012, Transco filed a rate case with the FERC for new rates effective Mar. 1, The filing requested a $3.5B rate base (prior $2.9B) and $1.29B cost of service (prior $0.96B). The company has reached an agreement in principle but has not yet filed a settlement agreement. Transcontinental Pipeline Throughput (Mmcf/d) 7,043 6,721 6,873 7,708 8,970 % Change -4.6% 2.3% 12.2% 16.4% Rate Base ($mm) $3,056 $3,006 $3,040 $3,482 $3,487 ROE 9.4% 9.0% 10.1% 8.6% 8.5% Revenue/mcf ($) $0.41 $0.42 $0.44 $0.40 $0.36 EBITDA ($mm) $571 $568 $611 $620 $621 % Change -0.5% 7.5% 1.6% 0.2% % of Parent EBITDA (WPZ) 32.2% 32.9% 30.7% 26.0% 26.5% Weighted Average Contract Expiration

36 Transwestern Pipeline (ETP) Sept. 2006, filed rate case with settlement approved April Was required to file new rate case by Oct but instead filed a proposed settlement with the FERC, which was approved on Oct. 31, Settlement provided for the continued use of current rates with the exception of certain San Juan Lateral fuel rates which were reduced over a three-year period beginning in Apr Must file a new rate case by Oct. 1, Transwestern Pipeline Throughput (Mmcf/d) 1,777 1,662 1,605 1,518 1,490 % Change -6.5% -3.4% -5.4% -1.8% Rate Base ($mm) $1,222 $2,037 $2,022 $1,978 $1,988 ROE 9.4% 7.2% 4.6% 3.7% 2.9% Revenue/mcf ($) $0.31 $0.41 $0.41 $0.40 $0.40 EBITDA ($mm) $163 $197 $171 $153 $136 % Change 20.9% -13.4% -10.6% -11.2% % of Parent EBITDA (ETP) 11.7% 13.1% 12.3% 9.4% 6.2% Weighted Average Contract Expiration

37 Trunkline Gas Co (ETP) Last rate case filed Jan. 1996, with settlement effective May On Jul. 26, 2012, Trunkline filed with the FERC to abandon certain segments of the pipeline and convert them to crude oil service. Trunkline Gas Co Throughput (Mmcf/d) 1,758 1,870 1,819 2,037 1,945 % Change 6.4% -2.7% 12.0% -4.5% Rate Base ($mm) $716 $658 $641 $639 $587 ROE 7.6% 11.2% 8.5% 8.5% 7.7% Revenue/mcf ($) $0.31 $0.32 $0.29 $0.27 $0.28 EBITDA ($mm) $111 $138 $113 $115 $105 % Change 24.7% -18.4% 2.0% -8.1% % of Parent EBITDA (ETP) 7.9% 9.1% 8.1% 7.1% 4.8% Weighted Average Contract Expiration

38 IMPORTANT DISCLOSURES ANALYST CERTIFICATION We, Becca Followill and James Carreker, do hereby certify that the recommendations and opinions expressed in this presentation accurately reflect our personal views about any and all of the subject securities or issues discussed herein. Furthermore, no part of our compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed herein. As of the date of this presentation Becca Followill does hold shares, within a managed account, of Kinder Morgan Inc (KMI - $37.12 Hold - $34PT) referenced herein. Becca Followill does not own shares directly of KMP or KMR. Neither we nor any member of our households serves as an officer, director or advisory board member of any company that is subject to this presentation. Employees of U.S. Capital Advisors LLC ( USCA or the Firm ) not involved in the preparation of this report may have investments in securities or derivatives of securities of companies mentioned in this report, and may buy, sell, or trade them in ways different from, or in a manner inconsistent with, the recommendations and opinions expressed in this report. IMPORTANT DISCLOSURES Analysts compensation is not based on investment banking revenue and the analysts are not compensated by the subject companies. In the past 12 months, USCA has not received investment banking or other revenue from the companies mentioned in this report. However, within the next three months USCA may attempt to seek compensation for investment banking services from the companies mentioned within this report. Opinion Key: USCA uses a Buy, Overweight, Hold, Underweight and Sell rating system. BUY - The stock has among the best combination of risk/reward and positive company specific catalysts within the sector. Stock is expected to trade higher on an absolute basis and be a top performer relative to peer stocks over the next 12 months. OVERWEIGHT - The stock has above average risk/reward and is expected to outperform peer stocks over the next 12 months. HOLD - The stock has average risk/reward and is expected to perform in line with peer stocks over the next 12 months. UNDERWEIGHT - The stock has below average risk/reward and is expected to underperform peer stocks over the next 12 months. SELL - The stock's risk/reward is skewed to the downside with possible negative company specific catalysts or excessive valuation. The stock is expected to trade lower on an absolute basis and be among the worst performers relative to peer stocks over the next 12 months. 38

39 IMPORTANT DISCLOSURES Risks that may impede achievement of price target(s): Industry wide risks include but are not limited to environmental and regulatory for both pipeline and E&P, aging infrastructure and availability of midstream infrastructure to accommodate new production. Competition for and availability of service crews and drilling rigs. Commodity prices, the economic outlook, access to capital markets. Interest rates. Asset recontracting. Cost overruns. Price Target Methodology: C-Corps For C-Corps, our price targets are, generally, based on a traditional sum of the parts analysis. For traditional pipes and midstream assets, we value at 7-12x EBITDA multiples (usually current year unless it doesn t represent a good run rate). LP units are marked to current market. GP values are determined using a discounted cash flow of projected distributions and then tax effected. For companies with E&P assets, we perform a discounted cash flow analysis where we produce out proved developed producing reserves, put in capital to develop proved undeveloped reserves within the 5-yr SEC window and estimate development plans for probables and possibles using current and projected rig counts, EURs and decline curves. MLPs For MLPs, we average three different valuations as we have yet to find one pure way to value MLPs that captures the many nuances current yield, growth, GP IDRs, equity to fund growth, etc. For all three methods, we start with six-year projections of LP distributions and assume a terminal growth rate. The three valuation methods Traditional CAPM, Growth Adjusted Cash Yield, and GP Adjusted Distribution Discount Model each yield a different cost of equity, which is then used as the discount rate against the projected distributions and terminal growth rates. Traditional CAPM is a straight forward traditional use of the Capital Asset Pricing Model. Growth Adjusted Cash Yield uses projected yield plus an adjustment for expected long-term distribution growth. GP Adjusted Distribution Discount Model uses average annual forecasted distributions for both the GP and LP for the next three years divided by the average number of forecasted LP units over the next three years divided by the current LP unit price. In our view, this method helps account for the higher cost of capital associated with GP IDRs. 39

40 IMPORTANT DISCLOSURES Distribution of Ratings (as of August 23, 2013): Recommendation Count Percent Investment Banking Relationship Count Percent Overweight/Buy 32 55% Overweight/Buy 2 6% Hold 25 44% Hold 0 0% Underweight/Sell 1 2% Underweight/Sell 0 0% Historical Ratings and Price Targets may be found by clicking the link below: USCA Rating and Price Target History A list of common terms and abbreviations may be found by viewing our Glossary. Copyright 2013 U.S. Capital Advisors LLC, all rights reserved. This information is confidential and may not be disclosed, copied or disseminated, in whole or in part, without the prior written permission of USCA. This communication is based on information which USCA believes is reliable; however, the Firm does not represent or warrant its accuracy. The viewpoints and opinions expressed in this communication represent the views of the authors as of the date of this report. These viewpoints and opinions may be subject to change without notice and USCA will not be responsible for any consequences associated with reliance on any statement or opinion contained in this communication. This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who may receive it and for this reason, this message should not be considered as an offer or solicitation to buy or sell any securities. 40 Securities offered through USCA Securities LLC, member FINRA/SIPC. Investment Advisory Services offered through USCA RIA LLC. Municipal advisory services offered through USCA Municipal Advisors LLC.

41 Contact Information Sales Team Trading Team David King Managing Partner Barry Guinn Senior Managing Director Rae Lees Managing Director Bart Barnett Managing Director Brad Stammen Managing Director Leslie Rich Director Rachel Zick Director Gil Beer Director Clint Turner Director Research Team Becca Followill Senior Managing Director Dan Fidell Managing Director Cameron Horwitz Director Denise Cardozo Research Assistant James Carreker Research Analyst Zachary Rollins Analyst Sarika Patel Research Analyst Kyle Landau Analyst