Sequent Energy
Doug Schantz
President, Sequent Energy
Forward-Looking Statements
Statements in this presentation that are not historical facts, including statements regarding our estimates, beliefs, expectations,
intentions, strategies or projections, may be “forward-looking statements” as defined in the Private Securities Litigation Reform
Act of 1995. Forward-looking statements involve matters that are not historical facts and because these statements involve
anticipated events or conditions, forward-looking statements often include words such as "anticipate," "assume," “believe,” "can,"
"could," "estimate," "expect," "forecast," “future,” “goal,” "indicate," "intend," "may," “outlook,” "plan," “potential,” "predict,"
"project,” "seek," "should," "target," "will," "would," or similar expressions. Our expectations are not guarantees and are based on
currently available competitive, financial and economic data along with our operating plans. While we believe that our
expectations are reasonable in view of the currently available information, our expectations are subject to future events, risks and
uncertainties, and there are several factors - many beyond our control - that could cause results to differ significantly from our
expectations. Such events, risks and uncertainties include, but are not limited to, changes in price, supply and demand for natural
gas and related products, impact of changes in state and federal legislation and regulation, actions taken by government
agencies on rates and other matters, concentration of credit risk, utility and energy industry consolidation, costs and timelines of
construction projects may be affected by government and other approvals, development project delays, adequacy of supply of
diversified vendors, unexpected changes in project costs including the cost of funds to finance these projects, impact of
acquisitions and divestitures, direct or indirect effects on AGL Resources' business, financial condition or liquidity resulting from a
change in our credit ratings or the credit ratings of our counterparties or competitors, interest rate fluctuations, financial market
conditions and general economic conditions, uncertainties about environmental issues and the related impact of such issues,
impacts of changes in weather upon the temperature-sensitive portions of the business, impacts of natural disaster such as
hurricanes upon the supply or price of gas, acts of war or terrorism, and other factors which can be found in our filings with the
Securities and Exchange Commission. Forward-looking statements are only as of the date they are made, and we do not
undertake any obligation to update these statements to reflect subsequent changes.
intentions, strategies or projections, may be “forward-looking statements” as defined in the Private Securities Litigation Reform
Act of 1995. Forward-looking statements involve matters that are not historical facts and because these statements involve
anticipated events or conditions, forward-looking statements often include words such as "anticipate," "assume," “believe,” "can,"
"could," "estimate," "expect," "forecast," “future,” “goal,” "indicate," "intend," "may," “outlook,” "plan," “potential,” "predict,"
"project,” "seek," "should," "target," "will," "would," or similar expressions. Our expectations are not guarantees and are based on
currently available competitive, financial and economic data along with our operating plans. While we believe that our
expectations are reasonable in view of the currently available information, our expectations are subject to future events, risks and
uncertainties, and there are several factors - many beyond our control - that could cause results to differ significantly from our
expectations. Such events, risks and uncertainties include, but are not limited to, changes in price, supply and demand for natural
gas and related products, impact of changes in state and federal legislation and regulation, actions taken by government
agencies on rates and other matters, concentration of credit risk, utility and energy industry consolidation, costs and timelines of
construction projects may be affected by government and other approvals, development project delays, adequacy of supply of
diversified vendors, unexpected changes in project costs including the cost of funds to finance these projects, impact of
acquisitions and divestitures, direct or indirect effects on AGL Resources' business, financial condition or liquidity resulting from a
change in our credit ratings or the credit ratings of our counterparties or competitors, interest rate fluctuations, financial market
conditions and general economic conditions, uncertainties about environmental issues and the related impact of such issues,
impacts of changes in weather upon the temperature-sensitive portions of the business, impacts of natural disaster such as
hurricanes upon the supply or price of gas, acts of war or terrorism, and other factors which can be found in our filings with the
Securities and Exchange Commission. Forward-looking statements are only as of the date they are made, and we do not
undertake any obligation to update these statements to reflect subsequent changes.
Management does not affirm or update earnings guidance during private and one-on-one meetings with investors, but only
updates or confirms earnings guidance through public disclosure and filing with the commission. Earnings guidance is only
effective as of the date it is given. The company further disclaims any duty to update its guidance.
updates or confirms earnings guidance through public disclosure and filing with the commission. Earnings guidance is only
effective as of the date it is given. The company further disclaims any duty to update its guidance.
Non-GAAP Measures
Company management evaluates segment financial performance based on earnings before interest and taxes (EBIT), which
includes the effects of corporate expense allocations. EBIT is a non-GAAP (accounting principles generally accepted in the
United States of America) financial measure. Items that are not included in EBIT are financing costs, including debt and interest
expense and income taxes. The company evaluates each of these items on a consolidated level and believes EBIT is a useful
measurement of our performance because it provides information that can be used to evaluate the effectiveness of our
businesses from an operational perspective, exclusive of the costs to finance those activities and exclusive of income taxes,
neither of which is directly relevant to the efficiency of those operations.
includes the effects of corporate expense allocations. EBIT is a non-GAAP (accounting principles generally accepted in the
United States of America) financial measure. Items that are not included in EBIT are financing costs, including debt and interest
expense and income taxes. The company evaluates each of these items on a consolidated level and believes EBIT is a useful
measurement of our performance because it provides information that can be used to evaluate the effectiveness of our
businesses from an operational perspective, exclusive of the costs to finance those activities and exclusive of income taxes,
neither of which is directly relevant to the efficiency of those operations.
Operating margin is a non-GAAP measure calculated as revenues minus cost of gas, excluding operation and maintenance
expense, depreciation and amortization, and taxes other than income taxes. These items are included in the company's
calculation of operating income. The company believes operating margin is a better indicator than operating revenues of the
contribution resulting from customer growth, since cost of gas is generally passed directly through to customers.
expense, depreciation and amortization, and taxes other than income taxes. These items are included in the company's
calculation of operating income. The company believes operating margin is a better indicator than operating revenues of the
contribution resulting from customer growth, since cost of gas is generally passed directly through to customers.
We also use EBIT and operating margin internally to measure performance against budget and in reports for management and
the Board of Directors. Projections of forward-looking EBIT and operating margin are used in our internal budgeting process,
and those projections are used in providing forward-looking business segment EBIT and operating margin projections to
investors. We are unable to reconcile our forward-looking EBIT and operating margin business segment guidance to GAAP
earnings per share because we do not predict the future impact of unusual items and mark-to-market gains or losses on energy
contracts. The impact of these items could be material to our operating results reported in accordance with GAAP.
the Board of Directors. Projections of forward-looking EBIT and operating margin are used in our internal budgeting process,
and those projections are used in providing forward-looking business segment EBIT and operating margin projections to
investors. We are unable to reconcile our forward-looking EBIT and operating margin business segment guidance to GAAP
earnings per share because we do not predict the future impact of unusual items and mark-to-market gains or losses on energy
contracts. The impact of these items could be material to our operating results reported in accordance with GAAP.
EBIT and operating margin should not be considered as alternatives to, or more meaningful indicators of, the company's
operating performance than operating income or net income as determined in accordance with GAAP. In addition, the
company's EBIT or operating margin may not be comparable to similarly titled measures of another company.
operating performance than operating income or net income as determined in accordance with GAAP. In addition, the
company's EBIT or operating margin may not be comparable to similarly titled measures of another company.
Reconciliation of non-GAAP financial measures referenced in this presentation are available on the company’s website at
www.aglresources.com under the Investor Relations section.
www.aglresources.com under the Investor Relations section.
Review of 2007
• 2007 was the return to relative normalcy in the physical business
– No significant weather driven events
– Pre-hurricane level storage and transport spreads
• Sequent has consequently returned to its pre-hurricane
baseline earnings trend
baseline earnings trend
• Competition intensified with the entry of investment banks
and others
and others
• Futures market driven largely by hedge funds
• LNG imports and power generation demands were up
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Changing Business Environment
A spike in spreads, volatility, and weather in late 2005 & in 2006 lead to enhanced value generation opportunities …
…but recently the market has been moving back to more traditional levels.
2008 as of 3/25/08
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Back to Baseline Growth
Compound Annual
Growth Rates
Operating Margin
2001 - 2008 = 25%
2004 - 2008 = 13%
EBIT
2001 - 2008 = 28%
2004 - 2008 = 14%
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What Hasn’t Changed
• Physical business model remains the same
• Growth continues on a more normal trend
– Continuing to attract and retain customers
– Deal flow remains strong
– Expanding business geographically
(West & into Canada) and growing other
segments (power generation & retail)
(West & into Canada) and growing other
segments (power generation & retail)
• Credit metrics remain strong
• Solid team of talented employees
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Business Model - “How We Make Money”
What We Are:
• A company with a core strength in physical logistics and
optimization of transportation and storage
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
meeting customers’ needs as well as by optimizing gas flows from
supply basin to market center
– Service provider (asset management, producer & peaking services)
• A leading manager of contractual storage and transportation assets
in the Eastern part of the U.S.*
in the Eastern part of the U.S.*
• An organization of 140 people supported by strong systems,
processes and controls
processes and controls
What We Are Not:
• Holder of large outright speculative positions
– Modest risk limits (VaR, credit, basis)
• Financial market-maker
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* Sequent is consistently ranked among the Top 20 natural gas marketers (based on volumes) in Gas Daily quarterly rankings.
Dynamic Model
Sequent’s business
model includes a portfolio
of assets and services
that enable it to capture
that enable it to capture
value in a variety of
market conditions.
market conditions.
In any given year:
• The proportion of
earnings from each
segment changes with
market conditions
earnings from each
segment changes with
market conditions
• Sequent has the ability
to capture value in a
dynamic environment
to capture value in a
dynamic environment
For example:
• 2005 - - heavy transportation activity
• 2006 - - heavy storage activity
• 2007 - - more “normal” levels of activity
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Maintaining Strong Credit Metrics
Weighted average portfolio
credit rating of A-
credit rating of A-
As of February 29, 2008
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Update on Growth Initiatives
Initiative from Last Year | Status Update |
Move west and into Canada | Successfully established western and Canadian business providing incremental value |
More penetration of the power generation business | Renewed and added significant deals |
Contract additional salt dome storage capacity | Continue to add more high-cycle capacity at reasonable rates with more coming through 2011 |
Contract key West to East transportation corridors | Opportunistically adding to and re-balancing positions to take advantage of market opportunities and long-term biases |
Aggressively expand producer services activities | Continued to add incremental supply along with resources to support Wholesale business and emerging retail /commercial & industrial (C&I) business |
Set up and build commercial and industrial marketing effort | Acquired Compass Energy Services in October 2007 and continue to look for opportunities to expand and enhance this business line with its more “annuity-like” stream of earnings |
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Growth Opportunities
West & Canada
Retail
C&I
Proprietary
Storage
Power
Generators
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2008 Outlook
• Winter looks to be very close to normal overall so far
– 10-year average, not the 30-year average
• LNG imports are at the lowest levels since 2003
– Many are becoming more negative on future prospects
• Tremendous infrastructural build-up over the next 24 months
– Large amounts of new Rockies and Shale supplies
– Significant increases in storage capacity
• Watching low water levels in the Southeast
• Power generation requirements continue to rise with no end in sight
• Many new initiatives at the FERC
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2008 Initiatives
• Continue to add and retain key customers and assets across
North America
North America
– Extension of affiliated asset management agreements
– Power, power and more power
• Add transportation capacity that directly accesses premium
market areas
market areas
• Build the commercial and industrial marketing business to
critical mass and materiality
critical mass and materiality
• Assist more producers in optimizing the optionality associated
with their production and pipeline agreements
with their production and pipeline agreements
• Value shop for additional storage capacity
• Focus on containing costs and increasing process efficiencies
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