99 years of continuous quality service wyoming pipeline authority meeting august 26 th 2003 michael...

99 Years of Continuous Quality Service

Wyoming Pipeline Authority Meeting

August 26th 2003

Michael Walsh President &Chief Operating Officer

Jerry Morris VP Bus. Dev. & Strategic Planning

Donny King Project Manager Bus. Dev.

Michael Walsh

President and Chief Operating Officer

Organizational Overview

AIG Highstar

Southern Star

Central Pipeline

Southern Star is wholly owned by AIG Highstar

Organizational Overview

Western Frontier Pipeline Company, LLC

2

4

•AIG Highstar Portfolio (March 2003)

–Eight investments: average size $42MM; 84% energy, 16% transportation

–Energy: natural gas storage, interstate natural gas pipeline, power generation, waste-to-energy

–Transportation: logistics, asset management, and construction materials

AIG Highstar Fund Summary

3

AIG Highstar Capital, L.P. (“AIG Highstar”) Fund Summary

•Private equity fund formed to make structured equity investments in infrastructure projects and operating companies

•$406 million in capital commitments (approx. $330 million committed as of March 2003)

•Limited partners include multi-national corporations, financial services companies, and industry-focused funds

5

•Sponsored by AIG and managed by AIG Global Investment Corp. (AIGGIC)

–AIG is one of the world’s leading U.S.-based international insurance and financial services organization

–AIG Global Investment Group, AIGGIC’s parent, has $329 billion in assets, including over $53 billion of external client assets, under management.*

AIG Highstar Fund Summary

* Source: AIG Global Investment Corp. and its affiliates. AIGGIG is a holding company whose subsidiaries and investment affiliates provide asset management services (the "AIGGIG Companies"). The assets under management for AIGGIG refers to assets advised or sub-advised by AIGGIG Companies. Assets sub-advised to third party managers are not included in this report, but will be available upon request.

Jerry Morris

VP Bus. Dev. & Strategic Planning

Organizational Overview

AIG Highstar

Southern Star

Central Pipeline

Southern Star is wholly owned by AIG Highstar

Organizational Overview

Western Frontier Pipeline Company, LLC

2

Operational Overview

Southern Star Central Pipeline is a FERC-regulated interstate natural gas pipeline company providing transportation and storage services in seven states in the central U.S., including major metropolitan areas in Kansas and Missouri

Transportation capacity of approximately 2.3 Bcf/day On-system working gas storage capacity of 43 Bcf Assets:

– 6,076 miles of mainline, branch, and storage pipelines

– 41 compressor stations 223,916 HP

– 8 on-system storage fields

– 31 Pipeline Interconnects Headquartered in Owensboro, Kentucky

– 457 total employee complement 15 Operating Districts

– 330 field employees

Overview

Operational Overview

Southern Star Central Pipeline Map

7

Organizational Overview

AIG Highstar

Southern Star

Central Pipeline

Southern Star is wholly owned by AIG Highstar

Organizational Overview

Western Frontier Pipeline Company, LLC

2

S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E

Western Frontier History• Filed with FERC October 2001

• Design 540,000 Dth/day

• Cheyenne Hub to Mid-Continent

• 400 Mile 30” Pipeline

• Financial Distress of Previous Parent Forced Project to be Shelved

• FERC Filing Withdrawn in June 2002

• AIG Highstar Acquired Southern Star Central & Western Frontier in November 2002

• Financial Capabilities now Stronger than Ever

• Open Season Announced August 18th 2003

99 Years of Continuous Quality Service S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E

Reasons For Suspending the Project

– Recession

– Cautious Capital Markets

– Enron debacle

– Williams Communications demise

– Williams overall financial woes

Current Status

– Western Frontier is Back

– Financially Capable of Implementing Project with Market Support

99 Years of Continuous Quality Service S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E

Challenges Drilling Timing - Environmental Constraints Issuance of Drilling Permits – originally a 75 day process currently taking

175 days Producers Subscribing to Capacity in today’s market for 10 year terms State Commissions Lack of Risk Management Services FERC Certification Process

99 Years of Continuous Quality Service S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E

Opportunities Wyoming Pipeline Authority (WPA)

– Production Aggregator

– Risk Management State of Wyoming

– 700-750 MMcfd Royalty Gas Potential

• State Lands (2 Section in Every Range)

• 50% of all Federal Royalty

• Severance Tax In-Kind (Legislative Action Required)

• AdValorem Tax In-Kind (State Constitutional Amendment Required) Competitive Pipeline Alternative in the Rockies Gas Price Volatility Nation Wide Declining Supply Deliverability in the Mid-continent & Canada Tremendous Production Growth Potential in the Rockies Substantial Work Already Completed on Western Frontier

Energy Information Administration Natural Gas Monthly October 2000 Quote for Rocky Mountain Region “Expanding coal-bed methane production has outpaced the development of long-haul capacity to carry the gas to end-use markets. Capacity constraint problems exiting the production areas have resulted in the region having the lowest average natural gas spot prices in the nation.”

99 Years of Continuous Quality Service S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E

Don’t Let This be the Quote of the Future!

Donny King

Project Manager Business Development

Northeast

Gulf Coast

West CoastRocky

Mountain

Southwest

Mid-continent

Offshore

50.8

15.7

24.2

12.4

27.7

40.6

3.2

Alaska

8.8

Total U.S. Natural Gas Proved Reserves: 183.4 Tcf

Dry Natural Gas Reserves as of 12/31/01(trillion cubic feet)

Source: EIA

99 Years of Continuous Quality Service S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E

Rockies Production Growth “Production in Wyoming totals about 4.2 Bcfd now

and if environmental and regulatory delays can be cleared, could grow to in excess of 6 Bcfd over the next 5 years”

Wyoming state budget is “heavily dependent upon revenues received from mineral production produced from state & federal lands. During the past 5 years, natural gas production has grown almost 50% in the state, with limited additions to the infrastructure to export growing production”

Source: WPA GD 7/9/03

Sacramento Basin

San Joaquin Basin

Uinta/Piceance Basin

Williston Basin

Western CanadaSedimentary Basin

Green River Basin

San Juan Basin

Raton

Permian Basin

Powder River Basin

Denver-Julesberg Basin

Hugoton

South Texas Basin

Anadarko/ Arkoma

Illinois Basin

Gulf Coast Basin

East Texas/North Louisiana Basins

Black Warrior Basin

Michigan Basin

Appalachian Basin

Scotian Basin

3,000

6,000

9,00012,000

15,000

0

= Direction of Flow

= Bi-directional

Capacity (in Million Cubic Feet per Day) as of June 2002

Source: Energy Information Administration, GasTran Gas Transportation Information System

Major Natural Gas Producing Basins and Pipeline Transportation Corridors to Market Areas

99 Years of Continuous Quality Service S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E

Hugoton Kansas Field Production

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

Jan-

70Ja

n-71

Jan-

72Ja

n-73

Jan-

74Ja

n-75

Jan-

76Ja

n-77

Jan-

78Ja

n-79

Jan-

80Ja

n-81

Jan-

82Ja

n-83

Jan-

84Ja

n-85

Jan-

86Ja

n-87

Jan-

88Ja

n-89

Jan-

90Ja

n-91

Jan-

92Ja

n-93

Jan-

94Ja

n-95

Jan-

96Ja

n-97

Jan-

98Ja

n-99

Jan-

00Ja

n-01

Jan-

02

Dai

ly G

as P

rodu

ctio

n (M

cf/d

ay)

Gas

Forecast

10 % annual decline

Anadarko Basin ProductionKansas, Oklahoma, Texas

-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000Ja

n-80

Jan-

81Ja

n-82

Jan-

83Ja

n-84

Jan-

85Ja

n-86

Jan-

87Ja

n-88

Jan-

89Ja

n-90

Jan-

91Ja

n-92

Jan-

93Ja

n-94

Jan-

95Ja

n-96

Jan-

97Ja

n-98

Jan-

99Ja

n-00

Jan-

01Ja

n-02

Jan-

03

Dai

ly G

as P

rodu

ctio

n (M

cf/d

ay)

-

20,000

40,000

60,000

80,000

100,000

120,000

Num

ber o

f Wel

ls

Gas

Forecast

Wells

5 % annual decline

Mid-Continent Production•Richard Sharples, President of Anadarko Energy Services on the status of Mid-continent supplies:

“The Mid-continent is so mature that it doesn’t matter how much you drill, you won’t increase production”

From Gas Daily Friday, February 16, 2001

99 Years of Continuous Quality Service S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E

May-August 2003 Gas Daily Price Comparison

Average Cheyenne Hub: $4.59

Average Kern River: $4.63

Average Williams (OK): $5.16

Average Differential (Kern vs. Cheyenne Hub): $0.04

Gas Daily Midpoint Price Comparison: May-August 2003 - Kern River, Williams (Oklahoma), Cheyenne Hub

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00

$18.00

$20.00

3/31

/200

0

4/30

/200

0

5/31

/200

0

6/30

/200

0

7/31

/200

0

8/31

/200

0

9/30

/200

0

10/3

1/20

00

11/3

0/20

00

12/3

1/20

00

1/31

/200

1

2/28

/200

1

3/31

/200

1

4/30

/200

1

5/31

/200

1

6/30

/200

1

7/31

/200

1

8/31

/200

1

9/30

/200

1

10/3

1/20

01

11/3

0/20

01

12/3

1/20

01

1/31

/200

2

2/28

/200

2

3/31

/200

2

4/30

/200

2

5/31

/200

2

6/30

/200

2

7/31

/200

2

8/31

/200

2

9/30

/200

2

10/3

1/20

02

11/3

0/20

02

12/3

1/20

02

1/31

/200

3

2/28

/200

3

3/31

/200

3

4/30

/200

3

5/31

/200

3

6/30

/200

3

7/31

/200

3

($12.00)

($10.00)

($8.00)

($6.00)

($4.00)

($2.00)

$0.00

$2.00

Cheyenne Hub

Williams (OK)

Differential (CHY v WNG)

Data from 3/31/00 - Present

CHY Average Price - $3.34WNG Average Price - $4.13CHY v. WNG Average Differential - ($.80)

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

Cheyenne Hub

Kern River

Williams (OK)

99 Years of Continuous Quality Service S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E

Insert map

• 540-1,000 MDth/day

• Cheyenne Hub to Mid-Continent

• 400 Mile P/L

• Targeted In-Service date 2006-2007

• Mid-continent Hub 6.8 Bcfd of interstate takeaway capacity

S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E

• 540,000 - 1,000,000 Dth/day

• Cheyenne Hub to Mid-Continent

• 400 Miles 30”-36” P/L

• 30,000-60,000 HP

• 100% LF Rate Range to pipeline hub is $0.25-0.35

• Anticipated Fuel at 1% or Less

• Targeted In-Service 2006-2007 Timeframe

• Mid-continent Hub 6.8 Bcfd of interstate takeaway capacity

Project Activities Completed– Pipeline Route Established

– Aerial Photography

– Detailed Land Survey

– Biological and Archeological Study

– Over 26% of Right-of-Way Acquired

– Station Site Acquired

Project Activities Underway– Project Engineering Review and Estimate Refinement

– Non-binding Open Season August 18th- October 10th

– Western Frontier Website Available – www.sscgp.com/westernfrontier

99 Years of Continuous Quality Service S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E

•540,000 Dth/day

•Echo Springs/Wamsutter to Cheyenne Hub

•186 Miles 30” P/L

•41,000 HP

•Greater Green River Takeaway Capacity

•Targeted In-Service Date of 2006-2007

99 Years of Continuous Quality Service S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E

Conclusions Gas Market will Remain Tight in Near Term Leaves Market Vulnerable to Price Volatility If Environmental & Regulatory delays can be cleared Wyoming

Production could Grow from the current 4.2 Bcfd to in excess of 6 Bcfd over the next 5 years

New Infrastructure will be required to get this gas to Market New Infrastructure should help stabilize cash flow for funding producer

drilling investments and the State of Wyoming budgeting activities. Western Frontier Project Situated to meet Market Needs Quickly &

Efficiently with Market Support

Why Western Frontier?

– Mid-Continent Supply Basins Declining

• Anadarko 5% Annually

• Hugoton 7-10% Annually

• Supply Diversification Necessary

– Rockies Supply Prolific needs Additional Market Access

– Basin Diversification

• Cheyenne Hub

• Denver Julesburg (DJ) Basin

– Average Differential Between Rockies-Cheyenne Hub and Mid-Continent Inception to Present= $0.80

– Dynamic Operating Hub - Additional Infrastructure Needed out of Cheyenne Hub

– Diverse Market Access Providing Liquidity

– Market Growth

• Oklahoma Intrastate Market

• Southwest Missouri

99 Years of Continuous Quality Service S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E

Contact Information

Jerry Morris – (270) 852-4660

Jerry.L.Morris@SSCGP.com

Donny King – (270) 852-4663

Donny.W.King@SSCGP.com

Dale Sanders – (270) 852-4666

Dale.T.Sanders@SSCGP.com

99 Years of Continuous Quality Service S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E