Sequent Energy Management
Pete Tumminello - President, Sequent Energy Mgmt.
Sequent Overview
What We Are
• Core strength in physical logistics and optimization of transportation and storage
o Locational spreads (transportation capacity)
o 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
as well as by optimizing gas flows from supply basin to market center
• Leading manager of contractual storage and transportation assets in the Eastern part of
the U.S.
the U.S.
• A business growing our services and fee based activity with producers, power
generators, and commercial and industrial customers
generators, and commercial and industrial customers
• An organization of approximately 150 people supported by strong systems, processes
and controls
and controls
What We Are Not
• Holder of large outright speculative positions
o Modest risk limits (VaR, credit, basis)
• Financial market-maker
Customer & Asset Driven Business
• Marketing & Optimization Strategy
o Asset Management (AMA) - management, optimization and trading around physical assets
o Generation Services (gas-for-power)
o Producer Services Provider (PSP) - target producers and related counterparties, especially in the
Marcellus and Haynesville shale regions
Marcellus and Haynesville shale regions
• Asset Management
o Over 30 Asset Management Services transactions across the United States (over 70 material
contracted transactions)
contracted transactions)
o Sequent continues to grow asset management activities to the West
• Generation Services
o Currently contracts to serve gas-for-power to over 12,000 MWs (exclusive of the daily and shorter
term service also provided)
term service also provided)
o Strong reputation based on ability to serve immediate and daily needs of power plants
• Producer Services Provider
o Sequent’s strong reputation as Asset Manager easily transferrable to the other end of the pipe with
our Producer Clients
our Producer Clients
o Recognized for ability to provide more than just a “supply put”, offering access to key markets for
producers
producers
o Sequent has become a key player in the Marcellus and Haynesville shale regions
In any given year:
• Sequent has the ability to
capture value in a dynamic
environment
capture value in a dynamic
environment
• 2007 - more “normal” levels of activity
• 2008 - price volatility and transportation gains
• 2009 - basis collapsed, storage spreads strong
• 2010 - expanded regions and new fee based
services, MW-West transportation spreads
weaker - East transport stronger
services, MW-West transportation spreads
weaker - East transport stronger
Sequent Asset Portfolio
Portfolio Diversity
KEY - ASSETS FIRST
Portfolio benefits result from having
assets, producer supply and
power generation load
assets, producer supply and
power generation load
• Assets required to serve higher
margin intra-day gas demands of
power plants
margin intra-day gas demands of
power plants
• Power generation load -
committed gas sales with intra-
day gas supply requirements
allows Sequent to secure assets
competitively
committed gas sales with intra-
day gas supply requirements
allows Sequent to secure assets
competitively
• Producer supply - Securing
assets provides Sequent the
opportunity to compete for
producer supply that must be
transported to market
assets provides Sequent the
opportunity to compete for
producer supply that must be
transported to market
Growth in Fees & Services Business
*
*
*
*Forecast
Credit Management and Review
Aggressive credit management results in track record of performance
• System resource capabilities leveraged to closely monitor exposure levels and activity
• Active management of reviews for creditworthiness
• Active participation in transaction structuring and negotiation of terms
• Full utilization of market intelligence sources
• Real-time communication regarding counterparty status and exposures
• Immediate elevation of issues through communication with RMC, SCC and Treasury
Weighted Average Credit Rating of Portfolio (A)
Historic Intrinsic Value of Storage
Max Spread
2008 - $1.320
2009 - $1.455
2010 - $1.588
2011 - $1.072
Transportation Spreads - East
Transportation spreads in the East have narrowed due to additional supply
and new transportation
and new transportation
Transportation Spreads - West
West transportation spreads are also lower but still an opportunity for Sequent
Narrowed Storage Spreads
Key 2010 Results
Average Daily Natural Gas Pricing
December 2010
Transco NY
9.165
Transco Z5
7.982
Tetco M3
7.462
Tetco M1
4.296
FGT Z3
4.313
Henry Hub
4.219
SoCal
4.208
AECO
3.686
NWPL Rox
3.981
FL Cities
8.073
Sequent Portfolio Well Positioned
2011 Industry Outlook
• Economic recovery continues to be slow - natural gas growth to come from gas fired
power generation
power generation
• Volatility expected to remain low
• Gas demand driven by power market, weather events and price
• Gas supply driven by shale gas development boom
• LNG imports down and export of domestic LNG in the works
• Storage infrastructure build-up to be challenged - transport build-up will continue to occur
out of shale plays
out of shale plays
• Continued consolidation in E&P and merchant power sectors expected
• Rig count to continue shift more towards oil
• CFTC actions likely to increase collateral and compliance requirements
• Wholesale marketing space may see consolidation - we would like to be a consolidator
Fixed Payment Obligations
• Majority of assets
contracted for 1-3 year
terms
contracted for 1-3 year
terms
• Rolling over most
agreements at lower
fixed payments
agreements at lower
fixed payments
• Focus is more on
adding transportation
assets at lower rates
at/near intrinsic value
adding transportation
assets at lower rates
at/near intrinsic value
• Looking for suitable
storage in the West to
add to the portfolio
storage in the West to
add to the portfolio
Wholesale Services ROIC
Conservative Risk Profile
SG&A Cost Containment
EBIT Contribution
2011 Priorities and Objectives
2011 Theme - Improving Excellence
• Expected to deliver more than $53 million of EBIT
• Integrate Nicor wholesale business
• Continue deployment of working capital to the highest return assets
• Aggressively pursue new transportation capacity and grow by 8%-10%
• Significantly grow fuel supply to power generators
• Strategically enhance Sequent’s position in Canada & Pacific Northwest
• Develop asset strategies for Texas intrastate market
• Capitalize on areas of volatility - West/Midwest transport, East
constraints
constraints
• Expand producer services effort around shale gas development
• Renew material AMA’s & asset portfolio at lower fixed costs
• Extend Compass growth
Cautionary Statements and Supplemental Information
Forward-Looking Statements
Certain expectations and projections regarding our future performance referenced in this presentation, in other reports or statements we file with the SEC or otherwise release to the public, and on our
website, are forward-looking statements. Senior officers and other employees may also make verbal statements to analysts, investors, regulators, the media and others that are forward-looking.
Forward-looking statements involve matters that are not historical facts, such as statements regarding our future operations, prospects, strategies, financial condition, economic performance (including
growth and earnings), industry conditions and demand for our products and services. 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," "would," or similar expressions. Forward-looking statements contained in this presentation include, without limitation, statements regarding future earnings per share, dividend growth
and EBIT contribution, our priorities for 2011 and the proposed merger with Nicor Inc. Our expectations are not guarantees and are based on currently available competitive, financial and economic
data along with our operating plans. While we believe 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.
website, are forward-looking statements. Senior officers and other employees may also make verbal statements to analysts, investors, regulators, the media and others that are forward-looking.
Forward-looking statements involve matters that are not historical facts, such as statements regarding our future operations, prospects, strategies, financial condition, economic performance (including
growth and earnings), industry conditions and demand for our products and services. 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," "would," or similar expressions. Forward-looking statements contained in this presentation include, without limitation, statements regarding future earnings per share, dividend growth
and EBIT contribution, our priorities for 2011 and the proposed merger with Nicor Inc. Our expectations are not guarantees and are based on currently available competitive, financial and economic
data along with our operating plans. While we believe 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; the impact of changes in state and federal legislation and
regulation including changes related to climate change; actions taken by government agencies on rates and other matters; concentration of credit risk; utility and energy industry consolidation; the
impact on cost and timeliness of construction projects by government and other approvals, development project delays, adequacy of supply of diversified vendors, unexpected change in project costs,
including the cost of funds to finance these projects; the impact of acquisitions and divestitures; direct or indirect effects on our 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, including recent disruptions in the capital markets and lending environment
and the current economic downturn; general economic conditions; uncertainties about environmental issues and the related impact of such issues; the impact of changes in weather, including climate
change, on the temperature-sensitive portions of our business; the impact of natural disasters such as hurricanes on the supply and price of natural gas; acts of war or terrorism; and other factors
which are provided in detail 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 to update these
statements to reflect subsequent changes.
regulation including changes related to climate change; actions taken by government agencies on rates and other matters; concentration of credit risk; utility and energy industry consolidation; the
impact on cost and timeliness of construction projects by government and other approvals, development project delays, adequacy of supply of diversified vendors, unexpected change in project costs,
including the cost of funds to finance these projects; the impact of acquisitions and divestitures; direct or indirect effects on our 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, including recent disruptions in the capital markets and lending environment
and the current economic downturn; general economic conditions; uncertainties about environmental issues and the related impact of such issues; the impact of changes in weather, including climate
change, on the temperature-sensitive portions of our business; the impact of natural disasters such as hurricanes on the supply and price of natural gas; acts of war or terrorism; and other factors
which are provided in detail 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 to update these
statements to reflect subsequent changes.
Supplemental Information
Company management evaluates segment financial performance based on earnings before interest and taxes (EBIT), which includes the effects of corporate expense allocations and on operating
margin. EBIT is a non-GAAP (accounting principles generally accepted in the United States of America) financial measure that includes operating income, other income and expenses. 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 operating 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. In addition, in this presentation, the company has presented its earnings per share excluding expenses incurred with respect to the proposed Nicor merger. As the
company does not routinely engage in transactions of the magnitude of the proposed Nicor merger, and consequently does not regularly incur transaction related expenses with correlative size, the
company believes presenting EPS excluding Nicor merger expenses provides investors with an additional measure of the company’s core operating performance. EBIT, operating margin and EPS
excluding merger expenses should not be considered as alternatives to, or more meaningful indicators of, the company's operating performance than operating income, net income attributable to AGL
Resources Inc. or EPS as determined in accordance with GAAP. In addition, the company's EBIT, operating margin and non-GAAP EPS may not be comparable to similarly titled measures of another
company. We also present certain non-GAAP financial measures excluding the effects of our proposed merger with Nicor. Because we complete material mergers and acquisitions only occasionally,
we believe excluding these effects from certain measures is useful because they allow investors to more easily evaluate and compare the performance of the Company's core businesses from period
to period. Reconciliations of non-GAAP financial measures referenced in this presentation are available on the company’s Web site at www.aglresources.com
margin. EBIT is a non-GAAP (accounting principles generally accepted in the United States of America) financial measure that includes operating income, other income and expenses. 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 operating 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. In addition, in this presentation, the company has presented its earnings per share excluding expenses incurred with respect to the proposed Nicor merger. As the
company does not routinely engage in transactions of the magnitude of the proposed Nicor merger, and consequently does not regularly incur transaction related expenses with correlative size, the
company believes presenting EPS excluding Nicor merger expenses provides investors with an additional measure of the company’s core operating performance. EBIT, operating margin and EPS
excluding merger expenses should not be considered as alternatives to, or more meaningful indicators of, the company's operating performance than operating income, net income attributable to AGL
Resources Inc. or EPS as determined in accordance with GAAP. In addition, the company's EBIT, operating margin and non-GAAP EPS may not be comparable to similarly titled measures of another
company. We also present certain non-GAAP financial measures excluding the effects of our proposed merger with Nicor. Because we complete material mergers and acquisitions only occasionally,
we believe excluding these effects from certain measures is useful because they allow investors to more easily evaluate and compare the performance of the Company's core businesses from period
to period. Reconciliations of non-GAAP financial measures referenced in this presentation are available on the company’s Web site at www.aglresources.com
Additional Information
Additional Information
In connection with the proposed merger, AGL Resources has filed with the SEC a Registration Statement on Form S-4 (Registration No. 333-
172084), as amended, which is publicly available, that includes a joint proxy statement of AGL Resources and Nicor that also constitutes a
prospectus of AGL Resources. AGL Resources and Nicor will mail the definitive joint proxy statement/prospectus to their respective stockholders of
record as of April 18, 2011. WE URGE INVESTORS TO READ THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS CAREFULLY, AS
WELL AS OTHER DOCUMENTS FILED WITH THE SEC, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT AGL
RESOURCES, NICOR AND THE PROPOSED TRANSACTION. The joint proxy statement/prospectus, as well as other filings containing information
about AGL Resources and Nicor, can be obtained free of charge at the website maintained by the SEC at www.sec.gov. You may also obtain these
documents, free of charge, from AGL Resources’ website (www.aglresources.com) under the tab Investor Relations/SEC Filings or by directing a
request to AGL Resources, P.O. Box 4569, Atlanta, GA, 30302-4569. You may also obtain these documents, free of charge, from Nicor’s website
(www.nicor.com) under the tab Investor Information/SEC Filings or by directing a request to Nicor, P.O. Box 3014, Naperville, IL 60566-7014.
172084), as amended, which is publicly available, that includes a joint proxy statement of AGL Resources and Nicor that also constitutes a
prospectus of AGL Resources. AGL Resources and Nicor will mail the definitive joint proxy statement/prospectus to their respective stockholders of
record as of April 18, 2011. WE URGE INVESTORS TO READ THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS CAREFULLY, AS
WELL AS OTHER DOCUMENTS FILED WITH THE SEC, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT AGL
RESOURCES, NICOR AND THE PROPOSED TRANSACTION. The joint proxy statement/prospectus, as well as other filings containing information
about AGL Resources and Nicor, can be obtained free of charge at the website maintained by the SEC at www.sec.gov. You may also obtain these
documents, free of charge, from AGL Resources’ website (www.aglresources.com) under the tab Investor Relations/SEC Filings or by directing a
request to AGL Resources, P.O. Box 4569, Atlanta, GA, 30302-4569. You may also obtain these documents, free of charge, from Nicor’s website
(www.nicor.com) under the tab Investor Information/SEC Filings or by directing a request to Nicor, P.O. Box 3014, Naperville, IL 60566-7014.
The respective directors and executive officers of AGL Resources and Nicor, and other persons, may be deemed to be participants in the solicitation
of proxies in respect of the proposed transaction. Information regarding AGL Resources’ directors and executive officers is available in the joint
proxy statement/prospectus contained in the above referenced Registration Statement and its definitive proxy statement filed with the SEC by AGL
Resources on March 14, 2011, and information regarding Nicor directors and executive officers is available in the joint proxy statement/prospectus
contained in the above referenced Registration Statement and its definitive proxy statement filed with the SEC by Nicor on April 19, 2011. These
documents can be obtained free of charge from the sources indicated above. Other information regarding the interests of the participants in the
proxy solicitation are included in the definitive joint proxy statement/prospectus and other relevant materials filed with the SEC. This communication
shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, or a solicitation of any vote
or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the
requirements of Section 10 of the Securities Act of 1933, as amended.
of proxies in respect of the proposed transaction. Information regarding AGL Resources’ directors and executive officers is available in the joint
proxy statement/prospectus contained in the above referenced Registration Statement and its definitive proxy statement filed with the SEC by AGL
Resources on March 14, 2011, and information regarding Nicor directors and executive officers is available in the joint proxy statement/prospectus
contained in the above referenced Registration Statement and its definitive proxy statement filed with the SEC by Nicor on April 19, 2011. These
documents can be obtained free of charge from the sources indicated above. Other information regarding the interests of the participants in the
proxy solicitation are included in the definitive joint proxy statement/prospectus and other relevant materials filed with the SEC. This communication
shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, or a solicitation of any vote
or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the
requirements of Section 10 of the Securities Act of 1933, as amended.