The New Energy Landscape:How to Navigate the New Normal

Cory EpsteinCommodity Risk ManagementBank of America Merrill Lynch

"Bank of America Merrill Lynch" is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation ("Investment Banking Affiliates"), including, in the United States, Merrill Lynch, Pierce, Fenner and Smith Incorporated is a registered broker dealer and member of FINRA and SIPC, and, in other jurisdictions, locally registered entities.

Investment, annuity and insurance products: Are Not FDIC Insured, May Lose Value, Are Not Bank Guaranteed, Are Not Insured by Any Federal Government Agency, Are Not Deposits, Are Not a Condition to Any Banking Service or Activity

This material is NOT a research report under U.S. law, NOT a research department product and is intended only for sophisticated investors/clients. It has been prepared by, and is a product of, a desk that supports out as impartial in relation to such activities.

These materials have been prepared by one or more subsidiaries of Bank of America Corporation for the client or potential client to whom such materials are directly addressed and delivered (the “Company”) in connection with an actual or potential mandate or engagement and may not be used or relied upon for any purpose other than as specifically contemplated by a written agreement with us. These materials are based on information provided by or on behalf of the Company and/or other potential transaction participants, from public sources or otherwise reviewed by us. We assume no responsibility for independent investigation or verification of such information (including, without limitation, data from third party suppliers) and have relied on such information being complete and accurate in all material respects.

The estimated values provided in the material are "as of" the date indicated and do not represent actual bids or offers by ML. Even though the material is based upon publicly available information and news sources that are generally believed to be reliable, there can be no assurance that actual trades could be completed at such value(s). Because these estimated valuations are based on underlying valuations obtained from third party sources we cannot make any representation as to the accuracy or completeness of the valuations. The material is not intended to be a comprehensive summary of all material news, information, events and risks relating to the companies or securities mentioned. ML does not make any representation or warranty as to the accuracy or completeness of this material, and, by accepting the material, you agree that ML shall not be responsible for any error or omission. References to past prices or quotes do not in any way imply that such prices or quotes will again be available or actionable. These estimates may not be representative of any theoretical or actual internal valuations employed by us for our own purposes, may vary during the course of any particular day and may vary significantly from the estimates or quotations that would be given by another dealer.

This material does not constitute an offer, or a solicitation of an offer, to purchase or sell any security or financial instrument, nor does the material constitute advice or an expression of ML's view as to whether a particular security or financial instrument is appropriate for you and meets your financial objectives. ML will not be liable for any investment decision based in whole or in part on the material. The reader is required to make its own investment decisions, using as necessary the advice of independent advisors or consultants. As a condition for providing these estimates, you agree that Merrill Lynch makes no representation and shall have no liability in any way arising there from to you or any other entity for any loss or damage, direct or indirect, arising from the use of this information. ML and its affiliates may trade for their own accounts as market maker, block positioner, dealer, specialist, arbitrageur or speculator in any of the securities of issuers mentioned in this material. When trading for proprietary accounts, ML and its affiliates may consider the material in their trading decisions, as appropriate. Principal transactions by ML and its affiliates are effected in accordance with applicable rules and regulations, and such transactions may affect the prices of the securities mentioned. Further, ML and its affiliates may from time-to-time perform investment banking or other services for, or solicit investment banking or other business from, any company mentioned in the material. This material may not be distributed outside the United States; and is intended solely for Global Markets institutional clients. The material is provided for informational purposes only and any distribution or copying of the material is prohibited.

We do not provide legal, compliance, tax or accounting advice. Accordingly, any statements contained herein as to tax matters were neither written nor intended by us to be used and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on such taxpayer. If any person uses or refers to any such tax statement in promoting, marketing or recommending a partnership or other entity, investment plan or arrangement to any taxpayer, then the statement expressed herein is being delivered to support the promotion or marketing of the transaction or matter addressed and the recipient should seek advice based on its particular circumstances from an independent tax advisor. Notwithstanding anything that may appear herein or in other materials to the contrary, the Company shall be permitted to disclose the tax treatment and tax structure of a transaction (including any materials, opinions or analyses relating to such tax treatment or tax structure, but without disclosure of identifying information or, except to the extent relating to such tax structure or tax treatment, any nonpublic commercial or financial information) on and after the earliest to occur of the date of (i) public announcement of discussions relating to such transaction, (ii) public announcement of such transaction or (iii) execution of a definitive agreement (with or without conditions) to enter into such transaction; provided, however, that if such transaction is not consummated for any reason, the provisions of this sentence shall cease to apply.

Bank of America Corporation and its affiliates (collectively, the "BAC Group") comprise a full service securities firm and commercial bank engaged in securities, commodities and derivatives trading, foreign exchange and other brokerage activities, and principal investing as well as providing investment, corporate and private banking, asset and investment management, financing and strategic advisory services and other commercial services and products to a wide range of corporations, governments and individuals, domestically and offshore, from which conflicting interests or duties, or a perception thereof, may arise. In the ordinary course of these activities, parts of the BAC Group at any time may invest on a principal basis or manage funds that invest, make or hold long or short positions, finance positions or trade or otherwise effect transactions, for their own accounts or the accounts of customers, in debt, equity or other securities or financial instruments (including derivatives, bank loans or other obligations) of the Company, potential counterparties or any other company that may be involved in a transaction. Products and services that may be referenced in the accompanying materials may be provided through one or more affiliates of Bank of America Corporation. We have adopted policies and guidelines designed to preserve the independence of our research analysts. These policies prohibit employees from offering research coverage, a favorable research rating or a specific price target or offering to change a research rating or price target as consideration for or an inducement to obtain business or other compensation. We are required to obtain, verify and record certain information that identifies the Company, which information includes the name and address of the Company and other information that will allow us to identify the Company in accordance, as applicable, with the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) and such other laws, rules and regulations as applicable within and outside the United States.

©2015 Bank of America Corporation. All rights reserved.

Notice to RecipientConfidential

1) Introduction

2) The New Energy Landscape

Crude Oil

US Natural Gas

3) How To Navigate the New Normal

The Case for Hedging Natural Gas

Hedging Strategy

4) Appendix

Bank of America Merrill Lynch CommoditiesTable of Contents

-100%

-50%

0%

50%

100%

150%

200%

250%

300%

350%

DJIA LIBOR DXY Cotton Copper WTI

Nat Gas

Relative Price Performance Since Jan09

Bank of America Merrill Lynch CommoditiesIntroduction

Commodities prices, more than any other product class, have experienced material volatility over the last several years. The graph below illustrates relative price performance since Jan09. Notice how 3M LIBOR, DJIA, and the Dollar Index (DXY) have been relatively stable compared to a sampling of commodities prices.

Not only have absolute commodities price levels risen, but volatility has as well.

Volatility across crude oil and natural gas is creating new winners and losers across industries, and even within certain sectors of the economy.

How are oil and gas producers responding to the new price environment?

What are oil and gas consumers doing to take advantage of the new price environment?

While the new energy environment has created financial losses and other issues for many companies, it has also created unique opportunities for those that can understand, weather, and anticipate the new normal.

Source: Merrill Lynch Commodities, Inc. Proprietary.

The New Energy Landscape:Crude Oil

Dec-1

1

Mar

-12

Jun-

12

Sep-

12

Dec-1

2

Mar

-13

Jun-

13

Sep-

13

Dec-1

3

Mar

-14

Jun-

14

Sep-

14

Dec-1

4

Mar

-15

$40$50$60$70$80$90

$100$110$120$130$140

Historical Price Mean - 1 St.Dev MeanMean +1 St.Dev

WTI Historical Prices

The New Energy LandscapeCrude Oil – How Did We Get Here?

Oil markets have seen a precipitous decline over the past few months as global supply has surged on US shale production and the return of Libyan exports while demand has waned and perceived geopolitical threats have not materialized. The biggest declines came after the OPEC meeting in late November in which the cartel decided not to cut production as it has done historically in times of oversupply as individual members fight for market share.

The staggering crude oil inventory build in the US – 109 million bbl over 18 weeks – has finally started to slow down as demand from refiners has picked up seasonally. Global inventories are still building, but the rate of builds has started to soften. This factor, combined with expectations of tighter global oil balances in the long-term, has led to a rally in global crude oil prices since mid-March.

Weekly rig count statistics, reported by Baker Hughes is perhaps the single most important lead indicator of where US oil output goes next. This count has decreased by over 806 since December, a dramatic decline. However, production is still growing and wells are becoming more efficient.

1

Source: Merrill Lynch Commodities, Inc. Proprietary (upper), Bank of America Merrill Lynch Research (lower).

Jun-

15

Aug-1

5

Oct-1

5

Dec-1

5

Mar

-16

May

-16

Jul-1

6

Oct-1

6

Dec-1

6

Feb-

17

May

-17

Jul-1

7

Sep-

17

Nov-1

7

Feb-

18

Apr-1

8

Jun-

18

Sep-

18

Nov-1

8$40

$50

$60

$70

$80

$90

$100

9 mo ago 6 mo ago 3 mo ago

WTI Forward Curves

The New Energy LandscapeCrude Oil – What Can We Expect Going Forward?

The run-up in prices conceals a stubbornly weak underlying fundamental balance – Initially, the oil market surplus was reflected in large increases in crude inventories, placing downward pressure on crude oil prices. Now, we can expect to see petroleum products building as refineries ramp up after maintenance.

Due to continuing weakness in the fundamental balance, the BAML Research team sees potential for a double-dip in prices by the end of 3Q15. The Research team anticipates a dip in WTI to $50/bbl as refinery maintenance kicks in again in September before recovering to $57/bbl by year-end.

We see WTI prices for 2016 capped on increased hedging activity in North America and maintain our 2016 WTI crude oil price forecast of $57.

Many large E&Ps have mentioned delaying rig completions as the strong contango incentives delays, especially with cost declines coming in / expected from service areas as many contracts expire and producers move to spot pricing (materially lower). With shale value being predominantly skewed to the first few years of production, management teams are acknowledging the benefit of deferring wells.

2

Source: Bank of America Merrill Lynch Research (upper), Merrill Lynch Commodities, Inc. Proprietary (lower).

The New Energy Landscape:US Natural Gas

NYMEX Natural Gas Historical Prices

The New Energy LandscapeNatural Gas – How Did We Get Here?

The US natural gas market has had a phenomenal turnaround over the past year. In the winter of 2014, a polar vortex created a yawning inventory gap which boosted prices above $6/MMBtu. This winter has seen an inventory glut which has pushed prices below $2.50/MMBtu.

Prices are now at levels last seen in 2012 and could see further weakness going into the summer given high output, particularly in the Northeast. BAML Research has a 2015 average forecast of $2.85/MMBtu.

However, the longer term outlook for US natural gas production is decidedly negative. Associated gas supply in places like the Eagle Ford is expected to fall as producers cut capex. Northeast production will decline into year end in response to the 50% drop in NGL prices. By the end of 2015, the combination falling production and strong demand growth will likely eliminate the slack in gas balances. This rebalancing could set the market up for a meaningful price recovery and we expect prices to average $3.90/MMBtu in 2016.

3

Source: Merrill Lynch Commodities, Inc. Proprietary (upper), Energy Information Administration (lower).

The New Energy LandscapeNatural Gas – What Can We Expect Going Forward?

(2008-2012) Supply driven bear market Large shifts in natural gas supply curve driven by new shale gas supplies Limited structural demand growth Production growth (~2.4 BCF/D per annum) much greater than structural demand growth (~0.5 BCF/D p.a.) Increasing amounts of price-induced fuel switching and declining imports needed to balance the market

(2013-2014) Balanced S&D (Range bound, with volatility) YOY supply growth ramps in 2014 with infrastructure build-out and increasing drilling efficiencies Structural demand growth emerges; decreasing amounts of price-induced fuel switching needed to balance the

market Power burn becomes increasingly elastic in reaction to near term forwards and cash price fluctuations; this is a

temporary phenomenon as incremental coal retirements will reduce switching flexibility Short-term, demand induced price spike seen Winter 2013-2014; 30 year winter created large storage hole placing

floor under summer 2014 prices; reveals inelasticity of demand during extreme weather periods

(2015-2018) Rapid Structural Demand Growth Unprecedented structural demand growth driven by:

New industrial demand (2-3 BCF/D) Coal plant retirements and conversions to natural gas (2-6 BCF/D) Transportation fuel demand (1 BCF/D) LNG exports (2-6 BCF/D) Pipeline exports to Mexico (3-5 BCF/D)

Based on current drilling economics, supply should be able to keep pace with demand during this time period at prices similar to forward curve. However, as winter 13-14 revealed, any increase in inelastic demand decreases switching ability and creates for higher volatility and price level

4

The New Energy LandscapeNatural Gas – Increased Demand Drives Higher Prices

Huge growth in production has not led to huge growth in inventories.

LNG export capacity will increase dramatically in coming years.

$100+ billion of capital investment in gas-burning facilities have been announced.

We expect industrial demand to increase by ~0.5 Bcfd per year for at least the next five years as these projects are completed.

New infrastructure and increased Mexican gas demand will increase exports to Mexico

Coal retirements will create incremental demand for natural gas and reduce elasticity of demand

Electric generation coal capacity has been reduced in recent years and this trend is expected to continue over the next few years. Relatively low natural gas prices and EPA rules such as Mercury and Air Toxics Standards (MATS) are spurring coal plant retirements.

Coal to gas switching Has helped balance the natural gas market in recent years But going forward, coal retirements will likely reduce the market’s ability to balance supply and demand.

5

Source: Energy Information Administration (upper and lower).

Source: Bloomberg.

The New Energy LandscapeNatural Gas – Wind Generation Hedges Have Flattened the Curve

Due to positive economics for new wind generation, supported by the Production Tax Credit (“PTC”) which expired at the end of 2014, Texas has experienced a large number of filings for development of new wind farms.

Due to a lack of liquidity in the back of the power curve, BofAML believes that many of the buyers of wind generation are hedging via gas sales to offset a portion of the risk for their purchased power. This has resulted in pressure on the back of the gas curve, significantly flattening the curve over the past 2 years.

A typical wind hedge spans ~10 to ~12 years , beginning in 2015-2017 and represents ~35% of the nameplate capacity.

Once this hedging pressure is removed, demand side fundamentals should bid the curve in order to elicit a production response.

6

How to Navigate the New Normal:The Case for Hedging Natural Gas

How to Navigate the New NormalThe Case for Hedging Natural Gas

The volatility in prices has been staggering. Individual price spikes can be severe, and financial risk management provides a means of insulating your business from this sort of volatility.

The current environment is very compelling for natural gas consumers. Many clients are initiating hedging programs with their first ever trades or adding layers to existing hedge portfolios. We are also seeing interest in long-dated hedges from our clients who consume material amounts of gas. This activity isn’t confined to just a single sector. Utilities, municipalities, energy distributers, chemical companies, fertilizer manufacturers, ethanol producers, and others who know natural gas very well are seeing value in the current pricing.

So, why look at hedging gas now? Aren’t we the “Saudi Arabia” of gas with all of our shale production? Yes, our production has definitely ramped up. In fact, between 2008 and 2012, production grew about 2.5 bcf/day per annum while demand only grew about 0.5. This is one reason why prices fell so much; natural gas companies’ exploration and drilling programs outpaced a sluggish US economy. However, we are finding at least as many new ways to consume natural gas as we are to produce it. Also, last winter, the coldest in 30 years, reminded us that no matter how much gas we produce, we can only store so much. The fact is that demand growth, combined with LNG export potential, is catching up with supply.

NYMEX Natural Gas Historical Prices

7

Source: Merrill Lynch Commodities, Inc. Proprietary (upper), Bank of America Merrill Lynch Research (lower).

How to Navigate the New Normal:Hedging Strategy

How to Navigate the New NormalHedging Strategy – Winning or Losing?

If you are looking at hedging as winning or losing, you are missing the point. Hedges are not bets. They are valuable budgeting and forecasting tools. A hedge defines a price, lending certainty where there is none.

Assume you hedge 50% of your consumption at $3.00 If the floating price rises to $6.00, you are happy that your hedge is in the money and will gain you $3.00

that month. Your average cost is $4.50. If the price falls to $0.00, you are upset that your hedge is out of the money and will cost you $3.00 that

month. Your average cost is $1.50. The point to take away from this is that, whatever happens in the market, you have hedged 50% of your

consumption at $3.00.

8

100%Floating

Price

100% Fixed Price

?

RISK CONTINUUM

How to Navigate the New NormalHedging Strategy – How Much Do You Hedge?

In considering how much to hedge, many begin at 50% fixed /50% floating and adjust up or down according to additional risks or risk mitigants they find in their business.

Leverage – Higher leverage implies greater sensitivity to costs and less margin for error. Ability to pass on prices – The less you can pass prices fluctuations through, the more you need risk

management. Budget performance – Past budget surprises may make protection against similar occurrences more

important. Margins – Thin margins mean less room for price movement. Price Outlook – What is your outlook for prices? Are you appropriately positioned?

9

3

align:right;flow:left

Appendix

Merrill Lynch Commodities, Inc.BAML Research ForecastsForecasts as of May 28, 2015

10

Source: Bank of America Merrill Lynch Research.

Bank of America Merrill Lynch CommoditiesKeeping Our Clients Informed

Solid foundation backed by our experienced commodity research team led by Francisco Blanch

Research Report Offerings

- Commodity/Energy Strategist – Quarterly comprehensive view of driving forces in the market

- Global Energy Weekly – Covers the most up-to-date factors in the energy markets

- Global Commodity Paper – Strategic view on commodities as an asset class and their interaction with traditional asset classes, such as equities and bonds

- Physical Metal Exchange – Comprehensive view of fundamental details on the base and precious metals

- Metals Update – Views and analysis on short-term issues effecting the markets

Our clients can count on insightful and timely analysis. We are their eyes and ears in the market so that they can devote research time to other

pursuits. We keep them updated daily and weekly as well as when critical events occur

11