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US Shale Development Challenges

The Shale ExchangeOctober 29, 2014

Dave SpigelmyerPresident

Marcellus Shale Coalition

Shale Gas Global Opportunity

NorthAmerica1,931trillioncubicfeet

Shale Gas Revolution Across the U.S.

Source: Energy Information Administration

Marcellus Shale Coalition

About Us Approximately 300 members

strong Producers, midstream, suppliers

Our Focus Long-term development Maintain high standards Addressing landowner,

government and public issues Benefits to our regions future

Our Legacy

We recognize that to succeed in business, we not only embrace these principles, we live by them each and every day. This will be our legacy. We provide the safest possible workplace for our employees, with our

contractors, and in the communities in which we operate;

We implement state-of-the-art environmental protection across our operations;

We continuously improve our practices and seek transparency in our operations;

We strive to attract and retain a talented and engaged local workforce;

We are committed to being responsible members of the communities in which we work;

We encourage spirited public dialogue and fact-based education about responsible shale gas development; and

We conduct our business in a manner that will provide sustainable and broad-based economic and energy-security benefits for all.

JobsRevenue

Opportunity

Economic Benefits

PA Jobs, PA Workers

PA Department of Labor and Industry

237,741 employees in Marcellus and related industries as of 2013 Q4*

Core industries were up 15,825 (+129.8%).

Core Industry occupations Crude Petroleum & Natural Gas Extraction ($110K) Natural Gas Liquefied Extraction ($101K) Drilling Oil and Gas Wells ($86K) Support Activities of O&G Operations ($75K) O&G Pipeline & Related Structures ($83K) Pipeline Transportation of Natural Gas ($85K)

$90,000 average core industry wage ($40,900 higher than PA avg.)*

*Source: Marcellus Shale Fast Facts, PA Department of Labor and Industry

PA Jobs, PA Workers

PA Department of Labor and Industry Despite a recession and sluggish national economy,

ancillary industries have grown by 8% since 2009

Ancillary Industries Non-residential site preparation contractors ($53K) Trucking (general freight, specialized freight) ($44-$51K) Commercial & industrial machine and equipment repair ($54K) Water Supply, Sewage treatment facilities, and infrastructure

construction ($58-$70K) Environmental Consulting, Engineering Services ($68-$79K)

$64,910 average ancillary industry wage ($15,840 higher than PA avg.)*

*Source: Marcellus Shale Fast Facts, PA Department of Labor and Industry

Revenue for Pennsylvania

Paid by Natural Gas Industry

Overall taxes since 20061 > $2.1 billion

Road construction investments since 20082 > $1 billion

Royalty payments to state in 20113 $177 million

Permitting and enforcement fees to increase DEP personnel since 2009 4 $40.5 million

Impact Fee in first two years 5 $630 million

1 Fox News, July 23, 20132 On-going Survey of Marcellus Shale Coalition Members3 Pennsylvania Department of Conservation and Natural Resources, 20134 Pennsylvania Department of Environmental Protection, 20135 Pennsylvania Public Utility Commission (2007-2011 grandfathered wells plus 2012 assessment)

LegendMarcellus Shale Formation

Wet Gas Region

Wet Gas Region

Sources: Pace Global; Equitable Resources, MarkWest, Atlas Energy, Range Resources, and Caiman Energy.

Composition in Wet Gas Region

Methane, 74.2%Ethane, 15.6%

Propane, 5.5%Iso Butane,

0.7%Normal

Butane, 1.4%Iso Pentane,

0.5%Normal

Pentane, 0.5%

Hexanes+, 1.1%

Liquids, 25.3%

Source: Pace Global; NiSource Gas Transmission and Storage Presentation to WVONGA Spring Meeting May 6, 2010 p.5

The Ethane Factor

The Road Ahead

ChallengeMaintain a competitive regulatory and

economic playing field

OpportunityBuild infrastructure, develop new markets

Consumer Opportunities

Winter of 2008: $13.71 at the wellheadToday: ~$6.00

The Marcellus Shale produces over 16 billion cubic feet of natural gas per day.

According to Morningstar Inc, the Marcellus is expected to account for nearly one-fourth of all U.S. production by 2015.

Despite fewer rigs, natural gas production continues to rise due to drilling efficiencies, technology and innovation.

MARCELLUS SHALE: PRODUCTION

INFRASTRUCTURE IS CRITICAL

THANK YOU

Analysis of Pa. unconventional well impact fee and comparison with severance tax models from other states

2011 2012 2013 est. 2014 Comment

Gas prod - mcf 1,066,013,143 2,041,584,982 3,107,330,706 4,291,600,000 Pa. gas production only

PUC price $4.042 $2.789 $3.652 $4.401 This is NYMEX price, representing a delivered price at a market hub--not a wellhead priceSale price basis to NYMEX $ - $(0.129) $(0.644) $(2.000)

Avg. basis for Leidy Hub & TGP 300 Z4 - Avg. for June, July, August 2014 is ($2.30)/dth

Est. gathering fee/mcfe $(0.75) $(0.75) $(0.75) $(0.75)

Gathering cost from wellhead to first interstate pipeline delivery point

Net price/mcf $3.292 $1.910 $2.258 $1.651 This is an est. wellhead price, which is the basis for severance tax in most statesWellhead revenue $millions 3,509 3,899 7,017 $7,085

Pa. impact fee revenue - $millions $204.210 $202.472 $225.752 $221.250 2014 est. assumes spudding of 1,200 horizontal wells

Impact fee - % of revenue 5.82% 5.19% 3.22% 3.12%

Equivalent flat severance tax rate to generate same revenue as impact fee

Estimated revenues from Pa. shale gas using models from other states

Ohio HB 375 - no tax 1st 2 years; 2.5% thereafter 2011 2012 2013 est. 2014

Impact fee revenue - $millions $- $12.125 $36.232 $51.751 Impact fee - % of revenue 0.00% 0.31% 0.52% 0.73%

Arkansas - 1.5% 1st 3 years; 5% thereafter

Impact fee revenue - $millions $48.802 $57.304 $121.122 $137.767 Impact fee - % of revenue 1.39% 1.47% 1.73% 1.94%

Louisiana - no tax 1st 2 years; 5% thereafter

Impact fee revenue - $millions $- $24.250 $72.463 $103.502 Impact fee - % of revenue 0.00% 0.62% 1.03% 1.46%

W.Va. - 5% + $0.047/mcf

Impact fee revenue - $millions $209.122 $285.022 $497.519 $555.974 Impact fee - % of revenue 5.96% 7.31% 7.09% 7.85%

Texas - 3.75% 1st 10 years; 7.5% thereafter

Impact fee revenue - $millions $131.599 $146.229 $263.152 $265.704

Impact fee - % of revenue 3.75% 3.75% 3.75% 3.75%

Notes:- Assumes all dry gas production at 1,000 btu (1 mcf = 1 dth)- Assumes that all tax structues were imposed effective 1/1/2011 on Pa. unconventional well gas production

CompetitiveChallenges Lackofpredictability&certainty

Act13 LegislativeClimate

Direneedforinfrastructurebuildout NEPATakeaway SWPAEthaneSolutions

Minimalavailabilityofundergroundinjectionwellshighwastewatertreatmentcosts

Severancetaxationv.ImpactFee

Marketopportunity

Site Construction

Drilling Phase Midstream

Hydraulic Fracturing

Reclaimed/Completed Site

Regulatory Framework

12 PA Regulations 10 PA Regulations

11 PA Regulations

18 PA Regulations

18 PA Regulations

Preparing our WorkforceDistribution of New Hires 2013

Market Opportunities

Electricity generation, heating

Combined heat and power applications

Light and heavy duty transportation applications

Feedstock for industries and other liquids use

Rebirth of manufacturing

Exports

Focus: Heightened Communicationsand Grassroots Engagement

MSC members and their partners

Local governments

Legislators

Downstream markets

Chambers, conservation community, landowners

The Public

Building a grassroots network.

THANK YOU!