MEETING THEENERGY NEEDSOF OUR COUNTRY

A VIEW FROMWASHINGTON, D.C.Petroleum IndustryAppreciation DayAugust 28, 2002

59% Growth/20 Years

Figure 8: World Oil Supply and Demand Forecast1995-2020

DEMAND

OPEC SUPPLY

NON-OPEC SUPPLY

Source: DOE/EIA

NATIONALENERGYPOLICY

May, 2001

America must have an energy policy that plans for the future, but meets the needs of today. I believe we can develop our natural resources and protect our environment.

-President George W. BushTo meet our energy challenge, we must put to good use the resources around us and the talents within us.

-Vice President Dick CheneyMay, 2001

Were going to be out ofcrude oil about the year 2000or shortly thereafter.

What happens then?Ecologist/ZoologistKenneth E. F. Watt1970

The diagnosis of the U.S. energy crisis isquite simple: demand for energy is increasing,while supplies of oil and natural gas arediminishing. Unless the U.S. makes a timelyadjustment before world oil becomes veryscarce and expensive in the 1980s, the nationseconomic security and the American way of lifewill be gravely endangered.Carter AdministrationNational Energy Plan1970s

Source: DOE/EIA

Coal 22.8%

Natural Gas23.7%

Other 7.0%

Nuclear8.0%

Oil 38.5%

Figure 4: U.S. Energy Consumptionby Source, 2000

1970-2020

Petroleum

Natural Gas

Coal

Non-Hydro& Others

Hydro

Nuclear

History

Projection

Figure 2: Energy Consumption by Fuel

Source: DOE/EIA

Figure 9: Renewable Energy Forecastfor Electric Generation, 1998 - 2020

Wind

Solar

Source: DOE/EIA

1990

1995

2000

2005

2010

2015

YEAR

1999 NPC Reference Case

1992 NPC High Case

1992 NPC Low Case

Actual

A C T U A L

F O C U S P E R I O D

E X T E N D E D V I E W

U.S.Natural Gas DemandComparison of 1992 and 1999 NPC Study Results

1999 NPC Range of Outcomes

TRILLION CUBIC FEET

15

20

25

30

35

ACTUAL

FOCUS PERIOD

EXTENDED VIEW

Total 829 Trillion Cubic Feet

Source: Potential Gas Committee

Rocky Mountain235 Tcf, 28%

Pacific57 Tcf, 7%

Mid-Continent135 Tcf, 16%

Gulf Coast259 Tcf, 32%

Atlantic119 Tcf, 14%

North Central24 Tcf, 3%

Figure 16: 2000 Estimates of Potential Gas Resources

U.S. Lower-48 Natural Gas Reserves Subject to Access Restrictions

* Approximately 29 TCF Of The Rockies Gas Resources Are Closed To Development And 108 TCF Are Available With Restrictions.

Surface Use/Seasonal Restrictions

Sheet1

Wildlife RestrictionsJanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember

Big Game Winter Range

Sage Grouse Lek

Sage Grouse Nesting

Mountain Plover Breeding

Mountain Plover Nesting

Raptor Nesting

a) Borrowing Owl

Archaeology Weather Restriction

Section 7 Prairie Dog Avoidance

Typical 8000' Well

Typical Deep Horizontal Well

&C&"Times New Roman,Bold"&20CD/WII Wildlife Restrictions

&L&"Times New Roman,Regular"&8&F&D

Sheet2

Sheet3

Endangered Species, Wilderness, and Other Restrictions

Federal Lands

Access to the Resource...

Source: EOG Resources

Natural Gas: Increasing Decline Rates

May 2002

Source: EOG Resources

NATURAL GAS

Fuel of Choice

Abundant

EnvironmentallyAcceptable

Ninety-eight percent (98%)of transportation is fueledby oil. More than 55%of oil consumed in theUnited States is importedfrom other countries.

Oil imports have risenfrom a low of 32%(1982) to over 56%currently. Source: Independent Petroleum Associationof America - US Petroleum Statistics 2000

NATIONALENERGY LEGISLATIONANDINDEPENDENTPRODUCERSISSUES

ACCESS ISSUESAn assessment of impediments to onshoreleasing (House)Funding for the timely processing of leases,permits and inspections (Senate)A requirement to eliminate unwarranteddenials and stays of federal leases (House)Exemption of held by production acreagefrom lease acreage caps (Senate)

ACCESS ISSUESLimitation of cost recovery of onshoreactivities by government (House)Authority to open limited areas of the ArcticNational Wildlife Refuge to oil and natural gasexploration and development (House)A credit against royalties for preparingenvironmental analysis (House)A coalbed methane study (Senate)

INCENTIVESLimited royalty incentives for water depths400 meters and deeper (House)Offshore subsalt lease suspensions (Houseand Senate)A study of the impact of other incentivesfor the offshore (House)A study on the impact of financial incentiveson offshore/onshore production (Senate)

ROYALTY ISSUESA permanent royalty-in-kind program(House)Requirement to reduce royalties whenprices are low for onshore and offshoremarginal oil and natural gas wells(House)

ENVIRONMENTAL ISSUESA requirement for greenhouse gasemissions reporting (Senate)A requirement for the EPA to assessthe environmental risk of hydraulicfracturing and make a regulatory determination regarding whether federal regulation is necessary (Senate)

TAX REFORMSAmortization of delay rental paymentsover 24 months beginning with the monthexpenses incurred (Senate) $ 672 millionPermits delay rental costs to be expensed(House) $1,294 million over 10 yearsAllows the expensing of geological andgeophysical expenditures (House) $2,083 millionAmortization of G&G costs over 24 monthsbeginning with the month expenses incurred(Senate) $675 million

TAX REFORMSNatural gas gathering lines treated as7-year property for both regular andminimum tax purposes (includingdepreciation methods (House) $87 millionSame, but AMT depreciation methodsstill applicable (Senate) $87 million

TAX REFORMSProvides a marginal oil and gas wellproduction credit equal to $3/bbl ofoil and $.50/mcf of natural gas. Thecredit would begin to phase in at $18/bblof oil and $2.00/mcf of gas. Theproduction credit would be applicableagainst minimum tax and could be carriedback 10 years (House) No Revenue Effect

TAX REFORMSSame, except that no 10-year carry-back for unused credits. General one-year carryback would apply, except nocarryback permitted to a taxable yearending on or before date of enactment.Also, no language permitting applicationof credit against minimum tax (Senate) No Revenue Effect

TAX REFORMSTemporarily suspends 65 percent taxable income limitation on percentage depletion for marginal production through 12/31/06 (House) $ 862 millionExtension of suspension of 100 percent netincome limitation (from the property) formarginal production through 12/31/06 (House) $123 millionProvides five-year NOL carryback for lossesattributable to operating mineral interestsof independent oil and gas producers (House) $1,071 million

TAX REFORMSExtends and expands Section 29 productiontax credit (House) $ 2,661 millionProvides a $3.00 per barrel non-inflationadjusted credit for the production of qualifiednonconventional source fuels from new wellsdrilled or placed in service prior toJanuary 1, 2002 (Senate) $ 1,875 million

TAX REFORMSTemporarily repeals the AMT preference item for IDCs through 12/31/04 for independent producers (House) $ 24 millionTemporarily allows for EOR tax credit against AMT through 12/31/04 (House) $ 241 millionCountercyclical tax credit for Alaska natural gas with a recapture when the price exceeds 150 percent of the trigger price 3 years after the credit was triggered. The trigger price is $3.25/mcf on 1/01/10 at the AECOC Hub in Alberta, Canada (Senate) No Revenue Effect

TIMELINE OF ACTIONSept. 3Congress ReconvenesSept. 7 Rosh HashanahSept. 11Special Session in NYSept. 16Yom KippurSept. 16Target for StaffAgreements on Oil and Gas IssuesSept. 23Target for Member Agreementson Oil and Gas IssuesSept. 30Target for Agreementon BillOct. 4Target AdjournmentDateNov. 5ElectionDayLame DuckSession?

StatusConference issues are intertwined politically.Momentum is toward passage of a bill.Time is short with many hard decisions to be made quickly.

PLEASE CONTACTYOURSENATORS ANDREPRESENTATIVES

A Changing Paradigm

Informing the Electorate In 1980, 60% watched the evening news on the major networks. In 1996 only 25% still did.In 1976, 67% of Americans regularly read daily newspapers. Only 30% of those under 30 do today.In 1997, only 14% of Americans went online. In November 2000, nearly 50% were online.

Closest Margins in Recent HistoryControl of House decided by 5,959 votesSenate control decided by 0.09% of votes in WashingtonPresidency decided by 0.01% of votes in FloridaLess than 10,000 votes total made the difference in control of government.

Traditional political tools no longer work.

The Electorate

Chart17

0.270.310.620.71

Union Households

Working Women

Issue Voters

Shareholders

Sheet1

Union Households27%

Working Women31%

Issue Voters62%

Shareholders71%

Sheet1

Shareholders

Union Households

Working Women

Issue Voters

Electorate by Demographic Group

Sheet2

Union Households1.42

Non-Union Households0.9

Sheet2

0

0

Registration/Turnout Ratio

Sheet3

Have you heard from your employer or labor?

Who Is Most Credible?"Which organization do you feel can provide the most credible political information on issues and elections affecting your job, company and industry?"LaborUnions16%Nat'lPolitical Party27%Employer23%None Of These23%Don't Know/Refused11%LaborUnions22%Nat'lPolitical Party29%Employer28%None Of These17%Don't Know/Refused4%October 2000April 2002

Do you want to hear from your employer?16%11%6%15%51%31%29%14%12%17%Strongly want more infoSomewhat want more infoSomewhat doesn't trust employerStrongly doesn't trust employerNot Sure/RefusedWants More Information27%Doesn't Trust Employer22%*Wants More Information59%*Doesn't Trust Employer26%October 2000April 2002* Due to Rounding

The Prosperity ProjectFour steps to successIdentify issues that matter to your businessTell your employees how the issues affect themInform your employees where incumbents and candidates stand on these issuesHelp your employees register and get them to the polls

EMPLOYERS MUSTFOLLOW THROUGH WITH...Voter Registration DrivesAbsentee Ballot AcquisitionGet Out the Vote Drives

QUESTIONSCOMMENTS?