Unconventional Gas AND Oil:A Game Changer in Global Competitiveness

Randy WoelfelCEO NOVA ChemicalsNovember 29, 2012

A Game Changer in Global Competitiveness

NOVA Chemicals

• Headquartered in Calgary, Alberta, Canada

• 100% owned by International Petroleum Investment Company (IPIC)

• 2011 Revenue: $5.2 billion (USD)

• Number of Employees: 2,450 worldwide

• Focused on ethylene and polyethylene products and markets

• Two large olefin manufacturing centers in Canada

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• Joffre, Alberta – 2800 KTA ethylene and 1100 KTA polyethylene

• Sarnia, Ontario – 820 KTA ethylene and 585 KTA polyethylene

• Two smaller styrenic facilities in the United States

North American Unconventional Oil and Gas

Shale gas discoveries are adding significant volumes to global energy supplies

New “fracking” methods have made shale development economical

• High market value of natural gas liquids (NGLs) further motivates extraction

Bakken

Antrim

Montney

Horn River

Joffre, Alberta

Oil Sands

Utica

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• Bias towards wet deposits

NOVA Chemicals is located near two large NGL rich unconventional shale sources and the oil sands

• Joffre, Alberta is near the Bakken Oil and Montney Gas Development and the Oil Sands

• Sarnia, Ontario is near the Marcellus and Utica Gas Developments

Source: U.S. Energy Information Administration (EIA) based on data from various published studies. Canada and Mexico plays from AIR. May 9, 2011

MarcellusWoodford

Barnett

Eagle Ford Haynesville

Fayetteville

Sarnia, Ontario

Utica

“Natural gas is up now — way up — and it's changing how we think about energy throughout the world.”

TIME Magazine, Mar 2011

Shale gas is the largest, most impactful recent

event affecting oil and gas“The production of shale gas has rejuvenated the

natural gas industry in North America.”EIA, Jul 2012

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“Shale gas will revolutionize the industry—and change the world—in the coming decades. It will alter geopolitics. And it will slow the transition to renewable energy.”

WSJ; May 2010

“North America is at the forefront of a sweeping transformation in oil and gas production that will affect all regions of the world…”

IEA, Nov 2012

The convergence of multiple factors have made

North America the first mover for shale

Abundant supply: Supportive regulatory environment:

• 831 TCF of Shale in NA

• 10 major basins spread across the continent

• Limited fracking bans

• Access to land for drilling and infrastructure

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Supporting resources:

Strong demand response:• Plentiful water supplies

• Mature, knowledgeable and responsible industry

• Established infrastructure

• Rising oil prices

• Energy independence push

• Coal to natural gas switching

Note: Reserve estimates are likely to change from year to year as new information is available and are meant to be directionalSource: EIA; ICF, “North American Midstream Infrastructure Through 2035” (June 2011)

Shale will be the catalyst for long-term

natural gas supply growth

75

100

125

Canada and L-48 natural gas production by source(Bcf / day)

Shale gas

~13.5

Bcf/day

~51.4

Bcf/day

7 Source: Wood Mackenzie

0

25

50

2000 2005 2010 2015 2020 2025 2030

0.3% 18.6% 36.8% 43.8% 45.8% 47.2%1.9%Shale percentageof total

Tight gas

CBM

Conventional

Shale basins double the gas available in

North America versus the view in 2008

NortheastMarcellus 141

Antrim 20

Gulf CoastHaynesville 75

Eagle Ford 21

Mid-continentFayetteville 32

Woodford 22

REGION SHALE PLAY

TRR

(TCF)

Bakken

Antrim

Montney

Horn River

Joffre, Alberta

Oil Sands

Utica

8Note: Reserve estimates are likely to change from year to year as new information is available and are meant to be directionalSource: EIA; ICF, “North American Midstream Infrastructure Through 2035” (June 2011)

Woodford 22

SouthwestBarnett 43

Barnett-Woodford 32

Rocky Mountain Mancos 21

West Coast Monterey Uncertain

Canada Multiple 424

Total 831

MarcellusWoodford

Barnett

Eagle Ford Haynesville

Fayetteville

Sarnia, Ontario

Utica

Shale gas unlocks vast new supplies at historically low production costs

Shale gas enters on the low end of the cost curve

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Note: Associated, other shales, tight gas, and coalbed methane figures include both U.S. L-48 and Canada productionSource: Credit Suisse (Apr 2012); Rystad Energy; Wood Mackenzie, “North America Gas Long-Term View” (Dec 2011); EIA, “Annual Energy Outlook - Early Release” (Jan 2012); NEB

40 60 8020 120100

New natural gas supply has dramatically changed the price relative to oil

40

60

Oil to gas ratioUSD per bbl / USD per MMbtu

• Historical oil-to-gas ratio of ~6-8x largely represented the ratio in energy content

• Shale gas, however, has driven a radical departure from historical

10

0

20

1995 2000 2005 2010

radical departure from historical norms

• Incremental volumes of natural gas are getting cheaper, while incremental drilling of oil is getting more expensive

Source: Bloomberg

Increasing shale production has created pressure for regulation

THERE ARE NUMEROUS CONCERNS ABOUT FRACKING… …THAT HAVE GENERATED MEDIA ATTENTION

Water safety

Unsafe drilling

practices

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Water usage

and drought

Carbon impacts

of extraction

Surface

disruption

While fracking has increased regulatory attention, production will continue

• Current fracking bans are temporary or in locations with minimal resources

• Few significant changes are currently being considered

• Gas sources from multiple geographic areas should ensure sufficient supply

• Increased costs will trigger some consolidation within the industry

Short term: minimal impact Long term: minimal impact

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being considered

• New proposed restrictions are limited in scope/impact

•Fluid disclosure requirements, permitting process, etc.

consolidation within the industry

• Consolidation will leverage experience and scale to create cost advantages

ANNUAL SPENDING HAS INCREASED… …TO EXPAND NG INFRASTRUCTURE

Shale is disrupting traditional flows and requires dramatic infrastructure changes

• 670K kilometers of gas gathering lines will be needed

- 38 lateral pipeline projects planned

• 58K kilometers of gas transmission pipelines will be needed

- 26 new pipeline projects planned

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- 26 new pipeline projects planned

• 43 Bcfd of gas pipeline capacity will be added by 2035

- 43 expansion projects planned

Source: INGAA Foundation, Inc. N.A. Natural Gas Infrastructure Through 2035; Pipeline and Gas Journal

Major shifts in NG supply locations require greater spending on expansion projects

Key drivers Bcf/d growth (%)

• Global LNG demand

• Export policy

• 8 (500+%)

• NGV subsidies • 1 (800+%)

• Coal to gas price ratio • 9 (40%)

New supplies will go to export, power, and industrial demand

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• Coal to gas price ratio • 9 (40%)

• Coal to gas price ratio • 7 (30%)

Commercial:

• Heating conversions to NG

• Offset by energy efficiency

• ~1 (10%)

Residential:

• New home NG heating

• Offset by energy efficiency

• ~0 (Flat)

Source: EIA April 2012; Canada NEB Nov. 2011; Bain

NGL feedstock dynamics have dramatically

shifted North American competitiveness

• In 2004 and 2008, North America was a high cost region

• Western Europe is a proxy for ROW naphtha producers

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naphtha producers

• Today, North American cash costs are second only to Middle East ethane

Source: IHS Chemical, NOVA Chemicals

…and North America’s petrochemical industry is responding to belief of a long-term opportunity

• Low ethane prices are resulting in a shale based ethylene and polyethylene growth revolution

• Substantial growth planned from 2015 to 2020

• Growth is ethane based and

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• Growth is ethane based and could double the use of ethane in North America over 10 years

• Announced potential is 13 MT polyethylene

- Representing capacity growth of ~40% by 2020

Executive Summary

• Shale gas and oil discoveries are adding significant volumes to global energy supplies

• New “fracking” methods have made shale gas drilling economical; high market value of NGLs further motivates extraction, with a bias towards high NGL/oil deposits

• In North America, abundance of economical supply could drive sustained low

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• In North America, abundance of economical supply could drive sustained low natural gas prices for at least the next decade

• The Middle East will retain its cost advantage in petrochemicals; but North America will clearly be second – and highly competitive versus future Middle East and Asian expansion

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