“A Tale of Two Storms”

Mark StultzVice President, Policy & U.S. Regulatory AffairsMarch 19, 2009

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Copyright© BP Energy Company. All rights reserved. Contents may not be reproduced except for internal purposes. BP is not responsible for any inaccuracies in and assumes no liability for the information and data contained herein and nothing contained herein should be considered financial or other advice. Contents of this presentation do not necessarily reflect the Company’s views.

Disclaimer

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Storm #1

• Hurricane Ike made landfall near Baytown, Texas, on September 13, 2008, as a strong Category 2 hurricane.

• Hurricane Ike was the third most destructive hurricane to ever make landfall in the United States, moving directly over various Houston energy headquarters.

• Ike caused significant destruction to electric transmission and distribution lines, and these damages delayed the restart of major processing plants, pipelines, and refineries.

• As a result of the production disruptions, per-day natural gas production fell by 68% in September 2008 compared with the previous month

− 70% compared with September 2007

Information obtained from EIA

4

Storm #2

• Global financial credit crisis emerged in September 2008:− September 7, 2008 - Federal

Housing Finance Agency (FHFA), announced takeover of Fannie Mae & Freddie Mac

− September 14, 2008 - Lehman Brothers filed for bankruptcy

− October 3, 2008 - Emergency Economic Stabilization Act of 2008 (bailout) was enacted into law.

− From January to February 27, 2009 represented the worst start to a year in the history of the S&P 500 with a drop in value of 18.62%

− March 09, 2009 - Dow Jones Industrial hits 6547.05

− October 9, 2007 Dow Jones was 14164.53

5

Dow Jones Industrial Average

October 9, 2007 -14,164.53-

March 9, 2009 -

6547.05-

Dow Jones (3/21/1999 – 3/17/2009)

Storm #2

6

Gas Volumes Traded

0

5

10

15

20

25

30

35

2003 2004 2005 2006 2007 2008

Tota

l P

hysic

al S

ale

s(B

cf/

d)

Source: Platt’s Gas Daily

Louis Dreyfus

Note: Constellation declined to report 4Q 2008 volumes as its gas marketing business prepares for an acquisition by Macquarie Group.

Gas Volumes Traded

32.5

7

A Financial and Credit Crisis Snapshot

As expected, there is an inverse directional relationship between equity prices and levels of credit default swaps.

• As concerns with the financial sector have

grown over the last 12 months, equity prices have trended downward.

• The cost to insure against a company default using traded credit default swaps grew exponentially over this same period of time, but some stabilization is apparent.

5 Year CDS Levels – Last 12 months

Equity Prices – Last 12 months

8

Credit Risk Mitigation

• Natural Balancing Factors

− Much of NAGP’s credit exposure is with counterparties in industries that are either less sensitive or benefit from the current environment

− Utilities – Cost-recovery mechanisms and heavy regulation provide for more stable cash flow and less price sensitivity.

− E&P – “Right-way risk” in the E&P sector allows for increased risk appetite as the value of the company’s assets are positively correlated with future hydrocarbon prices.

• Mitigation Tools

− NAGP Credit will continue to monitor industry dynamics and pursue mitigation as appropriate using the following:

− Credit Insurance

− CDS protection

− Contingent Credit Default Spreads

− Trading constraints

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Trading Impacts

• A Changing Landscape

− Lehman’s gas and power trading unit, Eagle Energy Partners, purchased by EDF Trading. Coal and other former Lehman traders now at Barclays.

− Tenaska’s 50/50 joint venture partner in Tenaska Marketing Ventures, AIG, bailed out by U.S. government.

− UBS exits energy trading globally, including U.S. gas and power.

− Merrill Lynch purchased by Bank of America.

− Break-up of Constellation

− Investment or I-Banks retreat to traditional regulation

• Fewer Counterparties and Reduced Market Liquidity

• A Drive to Cleared Products, Platforms and Exchanges

• Reduced Volatility (“chirping crickets”)

• A Preference for the Shorter-Term; Less Out-year Speculation

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Increased Regulatory Scrutiny/Evolving Federal Policy

• New position and accountability limits (possibly including any international exchanges accessing U.S. traders)

• Increased reporting

• Mandatory exchange and/or OTC clearing?

• Pending CFTC review of commercial hedge exemptions and category definitions

• Potential agency/regulatory consolidation

11

Two Market Storms

The financial crisis will continue to have wide-ranging ramifications on markets including the energy industry.

• Liquidity

• Capital Projects and Infrastructure Funding

• Supply

• Working Capital Funding

• Economy

• Prices

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Extraordinarily weak supply/demand balance

• Production up year-over-year (“YOY”) despite ~700 MMcfd shut-in in the Gulf of Mexico

• Gas storage levels may set records this year

• LNG imports low, but flat YOY

• Demand (weather-adjusted) is down materially; power and industrial demand down (economy impact)

• Rig counts responding to lower prices

• Canadian exports to US down

Market Storm #2

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US Gas Prices, Production and Rig Count

EIA and Baker Hughes Rig Count

Hurricane Ike

14

Total US Storage as of 03/06/09: 1681 Bcf

0

500

1000

1500

2000

2500

3000

3500

4000

7-Nov

21-Nov

5-Dec

19-Dec

2-Jan

16-Jan

30-Jan

13-Feb

27-Feb

13-Mar

27-Mar

10-Apr

24-Apr

8-May

22-May

5-Jun

19-Jun

3-Jul

17-Jul

31-Jul

14-Aug

28-Aug

11-Sep

25-Sep

9-Oct

23-Oct

5 yr Avg

2006/2007

2007/2008

2008/2009

Bcf

U.S. Natural Gas Storage Inventories

Source: EIA

Storage levels as of March 6, 2009 are 270 Bcf higher than last year and 200 Bcf higher than the 5 yr average

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Average US Natural Gas Wellhead Prices

2 2.09 2.2

3.843.35

2.92

5.085.62

6.715.91

6.32

10.62

5.87

0

2

4

6

8

10

12

14

16

Energy Information Administration

1997 1999 2001 2003 2005 2007 July 2008

December2008

1998 2000 2002 2004 2006

16

Average World Crude Prices

17.3910.82

16.82

28.723.73 24.14 26.52

31.65

52.55

67.74 69.91

July 137.11

March 1342.91

0153045607590

105120135150

1997 1999 2001 2003 2005 2007 2009Energy Information

Administration

17

Oil, Coal, Natural Gas and Propane Daily

Slide obtained from FERC website. Questions can be sent to

MarketOversight@ferc.gov

18

U.S. Steel P roduction

3000

4000

5000

6000

7000

8000

9000

10000

Month

US

Pro

du

cti

on

(K

ton

s)

90%

92%

94%

96%

98%

100%

102%

104%

106%

% o

f 12

Mo

nth

Tra

ilin

g A

vg

RecessionUS Steel ProductionIndustrial Manufacturing Index

U.S. Steel Production

Source: World Steel Association, Federal Reserve

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Petrochemical Utilization

40%

45%

50%

55%

60%

65%

70%

75%

80%

85%

90%

95%

100%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Avg (03-07) 2008Source: Hodson Report

20

0

5

10

15

20

25

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Bcf

d

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

2008 2009 YOY Change

U.S. Industrial Gas Consumption

EIA Short-Term Energy Outlook, Mar. 09

Forecast

21

-6%

-4%

-2%

0%

2%

4%

6%

8%Q

2 20

00

Q3

2000

Q2

2001

Q3

2001

Q2

2002

Q3

2002

Q2

2003

Q3

2003

Q2

2004

Q3

2004

Q2

2005

Q3

2005

Q2

2006

Q3

2006

Q2

2007

Q3

2007

Q2

2008

Q3

2008

An

nu

al A

vera

ge

Electricity demand Real GDP

Power Demand Growth: Turning Negative

EIA Jan. 09*Electricity demand not weather-normalized

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Natural Gas Price History / Futures & NYMEX Natural Gas Forward

$0

$2

$4

$6

$8

$10

$12

$14

$16

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

$/M

MB

tu

June 30, 2008

Jan 31, 2008

Dec 31, 2008Mar 3, 2009

Actual

NYMEX Forward

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$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

$22

$24

$26

$28

$30

Jan-

00M

ay-

00

Sep

-00

Jan-

01M

ay-

01

Sep

-01

Jan-

02M

ay-

02

Sep

-02

Jan-

03M

ay-

03

Sep

-03

Jan-

04M

ay-

04

Sep

-04

Jan-

05M

ay-

05

Sep

-05

Jan-

06M

ay-

06

Sep

-06

Jan-

07M

ay-

07

Sep

-07

Jan-

08M

ay-

08

Sep

-08

Jan-

09M

ay-

09

Sep

-09

Jan-

10M

ay-

10

Sep

-10

Jan-

11M

ay-

11

Sep

-11

Jan-

12M

ay-

12

Sep

-12

$/M

MB

tu

HH/NYMEX FO NYH #6 1% HO #2 NYH WTI* Source: various

Prices as of Mar. 17, 2009

Historical Forward

North America Natural Gas Relative to Competing Fuels

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Rig Count

Slide obtained from FERC website. Questions can be sent to

MarketOversight@ferc.gov

25

$0

$1

$2

$3

$4

$5

$6

$7

$8

$92

000

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

$/M

MB

tu

20082007

2006

2005

2004

2003

2002

2000

Source: EIA-Annual Energy Outlooks

2009

Historical Price Forecasts

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

$/M

MB

tu

Source: EIA-Annual Energy Outlooks

Actual Wellhead

Prices 20082007

2006

2005

2004

2003

2002

2000

2009

26

48

50

52

54

56

58

60

62

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Bcf

d

-4.00

-3.00

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

2008 2009 YOY Change

Forecast

EIA Short-Term Energy Outlook, Mar. 09

Total U.S. Production Outlook: 2009

27

-

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

$/M

MB

tu

Range of spot price outlooks

Historical Henry Hub prices

NYMEX forward curve

Source: various

Historical Forecast

View of gas demand, competing fuels, indigenous gas supply costs, production, and LNG imports will influence long-term outlook of gas prices – many moving parts!

Long-Term Henry Hub Spot Price Outlooks

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Forward View – 2009

• Financial sector expected to continue slow stabilization with the high degree of government intervention, but more losses and write-downs are likely

• Macro-economic weakness and related consumer response will continue to be key concern

• Financial strength of customers and counterparties will remain important, with an increased focus on robust risk management, liquidity, and refinancing risk

• Contractual tools such as margining rights and risk-transfer mechanisms such as credit insurance will see increased use

• Depressed enterprise values will drive increased consolidation and investment in all sectors

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Energy Insights

• North American market works: price works to balance supply and demand

• Unconventional gas production expected to make up larger share of total supply

• Significant investment in new infrastructure necessary to move supply to markets: industry participation is critical

• Pricing relationships as we know them will evolve with changing regional infrastructure

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THANK YOU

Q&A