The document discusses the transformative impacts of shale development on freight transportation, particularly in the oil and natural gas sectors, highlighting advances in hydraulic fracturing and horizontal drilling since 2009. It details the growth in U.S. oil and natural gas production, the associated supply chain effects, investments in infrastructure, and the influence on various industries, including steel and fertilizers. Additionally, it notes the shifting dynamics of the logistics market due to evolving demand and ongoing developments in natural gas liquid and petrochemical supplies.

1. 1
Oil & Natural Gas:
The Evolving Freight
Transportation Impacts
Prepared for
July 30, 2013 Jackson Hole, WY
GE Capital Q3 All
Employee Meeting
Logis&cs
Engineering
Supply
Chain
CIT
Rail Resources Conference

2. 2
» Boutique consulting firm specializing in logistics, engineering,
and supply chain
§ Established in 2001
§ Over 100 clients and 250 engagements
» Headquarters in Chicago USA, with team members
throughout the US and with “on the ground” experience in:
§ North America / Europe / South America / Asia / Middle East
» Consulting services
§ Strategy & optimization
§ Assessments & benchmarking
§ Transportation assets & infrastructure
§ Logistics operations
§ M&A/investments/private equity
» Key industry verticals
§ Oil & gas
§ Chemicals & plastics
§ Wind energy & project cargo
§ Bulk commodities (minerals, mining, agricultural)
§ Industrial manufactured goods
§ Private equity
About PLG Consulting

3. 3
The Shale Development
Revolution – Big Picture
Disruptive
Technologies
• Hydraulic Fracturing
• Horizontal Drilling
Continuous
Evolution
• Constant Change
• Rapid Change
Market Dynamics
• Supply & Demand
• Customers
• Price
• Logistics
3

4. 4
Hydraulic Fracturing and
Horizontal Drilling
» Rapid evolution of drilling technology
§ Fracking first used in 1947
§ Revolutionary advances since 2009
§ Time required for drilling 15,000+ ft. well cut in half in last
two years (nine days vs. 18)
§ Dramatic increase in efficiency per rig, making rig count
alone no longer a significant indicator of production
§ Hydraulic fracturing/horizontal drilling yields 3-10x the
initial production rate of conventional wells
» US uniquely positioned for the techniques
§ Private mineral rights
§ Drilling intensity (wells per acre)
§ 90% of rig fleet equipped for horizontal drilling
» Rapid ROI for E&P companies
§ Typical well earns back capital cost in 1-2 years
§ Depending on play productivity, “break even” point of
$40-85/bbl
§ Liquid plays providing highest returns
Source: L. Maugeri, Harvard Kennedy School; RBN; PLG analysis

5. 5
Representative Productivity Gains –
Fayetteville Shale Play
Source: Southwestern Energy investor presentation, June 2013

6. 6
Shale Driving Growth in Natural
Gas and Crude Oil Production
Source: Baker Hughes 2013
GAS OIL THERMAL
Source: Baker Hughes
U.S. Crude Oil Production
Source: EIA
April 2013
7.35 MM bpd
» 1,759 rigs in operation in USA as of June 21, 2013
» Dramatic production growth
§ 700% increase in gas production since 2007; forecast to grow 9
Bcf/d from 2012-2018
§ Domestic oil production at 21 year high; forecast to reach 10MM
bbl/d by 2018
» IEA projects US to surpass Saudi Arabia in oil
output, Russia in gas output by 2020

7. 7
US Shale Plays
Gas:
Marcellus
Haynesville
Barnett
Oil:
Bakken
Eagle Ford
Permian Basin
Most Active Plays
Utica (NGLs)
Niobrara
Mississippi Lime
Emerging Plays

8. 8
Shale Development Supply Chain
and Downstream Impacts
Feedstock (Ethane)
Byproduct (Condensate)
Home Heating (Propane)
Other Fuels
Other Fuels
Gasoline
Inputs >> Wellhead >> Direct Output >> Thermal >> Fuels >> Raw Materials >> Downstream Products
Gas
NGLs
Crude
Proppants
OCTG
Chemicals
Water
Cement
Generation
Process Feedstocks
All Manufacturing
Steel
Fertilizer (Ammonia)
Methanol
Chemicals
Petroleum Products
Petrochemicals
» Over $95B in new announced “energy intensive” industrial plant expansions will come on-line over the next five years
» Shale development impact on the railcar industry is long-term, wide-ranging, and positive with only one exception

9. 9
Hydraulic Fracturing Materials
Inputs and Logistics – Per Well
Materials
Chemicals
Clean Water/
Cement
Proppants
OCTG (Pipe)
Source to
Transloading
2
Local source
40
5
Transloading to
Wellhead Site
8
~1,000
160
20
47 Total
Railcars
~1,200 Total
Truckloads
Oil/Gas/NGLs
Truck, Rail,
Pipeline
Waste Water
~500 Total
Truckloads

10. 10
Correlation of Operating Rig Count
with Sand and Crude Shipments
STCC 14413 (sand) and 13111 (petroleum) Source: US Rail Desktop, Baker Hughes
1,695
1,814
1,270
886
939
1,073
1,299
1,467
1,604
1,6651,691
1,798
1,911
1,9721,9481,965
1,864
1,7631,7621,759
0
500
1,000
1,500
2,000
2,500
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
2007 Avg. 2008 Avg. 2009 2010 2011 2012 2013
OperatingOnshoreRigs
Carloads
Operating On Shore Rigs
All Sand Carloads
Petroleum Carloads

11. 11
All Sand Handled by Railroad
STCC 14413 Source: US Rail Desktop

12. 12
» Wisconsin sand mining industry
§ 72 operational frac sand mines
§ 20 in development, 13 permitted, and 17
proposed
§ New applications are still coming in for new
mines
» Minnesota silica sand mining
§ 17 active frac sand mining facilities
§ Over 20 facilities in the planning stages
» Large barriers to entry
§ 1 - 3 years to find, permit, and start
§ Transportation key to success
» Industry consolidation continues
§ Focus on integrated supply chain
(US Silica)
Sand Mining
Frac Sand Industry Across
Wisconsin, May 1, 2013
Source: WisconsinWatch.org
Source: MPR News
Minnesota Frac Sand Mining, May 1,
2013
12
Source: WisconsinWatch.org, MPR News, May 2013

13. 13
Processed Sand Total Delivered Cost
Source: PLG analysis
» Benchmark cost with well-executed
performance
§ Example unit train movement from
Wisconsin to Texas with total delivered cost
of approx. $180/ton
§ Logistics drives ~60% of total delivered
sand cost
» Potential for significant cost
add-ons caused by strategic
and tactical issues
§ Sub-optimal logistics network design
or infrastructure
- Manifest service (rail)
- Multi-carrier vs. single line haul (rail)
- Equipment/driver shortages
§ Poor planning and/or execution
- Rail and/or truck demurrage costs
– Performance penalties
§ Uncompetitive sand price
§ Poor sand quality

14. 14
Changes in Sand Logistics
Model and Costs
» Rail rate advantage for volume and unit train vs. manifest
service
§ On a per-ton basis between Wisconsin and Texas, spreads are 17-29%
» Western carriers are driving single line hauls and
encouraging longer trains to Eagle Ford via pricing
differentials
» Canadian and Eastern carriers are aggressively working to
grow their markets by providing very competitive pricing
and securing sand originations
§ CN/Superior Silica Sands – Poskin (Barron), WI
» Major sand providers establishing “in the play”
transloading facilities to provide ready access to product
§ U.S. Silica - East Liverpool, OH
§ U.S. Silica – San Antonio, TX
§ Potential 2nd facility under consideration in San Antonio, TX
» Post-boom market maturation Source: PLG analysis

15. 15
Sand Railcar Market Conditions
» Conditions are normalizing
§ Builder backlog has been resolved
– Wait time is now attributable to other car types in the pipeline
§ Many surplus cars have found homes
§ 2013 total production of sand cars will be closer to the
historical average of 2,000 – 3,000 units
» Lease market settling into familiar patterns
§ Traditional pricing behavior: Newer/286k cars more
expensive than older/263k cars
§ Cars with sub-optimal design (i.e. older grain cars) being
flushed out and replaced where possible
§ Lessors placing modest “spec” orders
§ Credit-worthiness of lessee is still a critical criteria
§ Market is still trying to find its feet
» Looking forward
§ Positive developments in housing/construction should
equate to additional demand for small cube hoppers
§ General optimism that demand from sand shippers may
also strengthen

16. 16
Shale Play Product Flows Outbound
» Natural Gas
§ Majority via pipelines, some trucks
» Natural Gas Liquids (NGLs)
§ Requires processing (fractionation)
§ 3-9 gallons/MCF (thousand cubic feet)
– Ethane ~42-65%
– Propane ~28%
– Normal Butane ~8%
– Iso-Butane ~9%
– Condensate ~13%
» Crude Oil
§ Bakken play as a model
§ Surging Permian and Eagle Ford development

17. 17
Shale Development Natural Gas Impacts
» Industry a “victim of its own success”
§ Fracking results in oversupply; gas prices down
33% since 2010
§ Breakeven gas price at 10% IRR: ~$3.25 mm/btu
§ Rigs leave Marcellus, other gas plays for oil plays
(~700 “non producing” wells in PA)
§ Helped to deflate frac sand boom
» Lower gas prices have resulted in 10-13%
market share capture from coal for
thermal generation
» Low gas prices fueling industrial
renaissance
§ Overall manufacturing (cost of electricity; “re-
shoring”)
§ Specific sectors that use natural gas as a
feedstock
– Methanol (16MM m/t new capacity under consideration)
– Steel
– Fertilizer
17
Source: RBN, PLG analysis
Source: RBN

18. 18
Source: EIA, Deloitte
Natural Gas Displacement of Coal for
Thermal Generation
» Natural gas now supplying approx. 30% of
thermal fuel demand (~13% share capture from
coal)
» Despite recent increases in prices, natural gas
share capture expected to maintain or grow
§ Environmental regulations of coal burning
§ Scheduled coal unit retirements
§ Eastern US transition through 2018: 18GW coal retirements
vs. 26GW of new natural gas plants under development
» Adversely affecting coal industry,
railroad coal loadings
18Source: RBN Energy, June 2013
Fuel Cost Comparison for Electricity Generation
Source: Bentek, PLG analysis

19. 19
Shale Related Rail Traffic Still Small
Relative to Coal Volumes
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
2008
2009
2010
2011
2012
2013
Sand
Crude
Coal
Carloads
Quarterly Data
Sand
Crude
Coal
STCC 14413 (sand), 13111 (petroleum), 11212 (coal) Source: US Rail Desktop
Railcars Handled: Sand, Crude, & Coal

20. 20
Coal, Crude & Sand Trends:
Carloads and Revenue
$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
-
1
2
3
4
5
6
7
8
9
10
2008 2009 2010 2011 2012
Billions
Millions
Carloads Revenue
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
-
100
200
300
400
500
600
700
800
900
2008 2009 2010 2011 2012
Billions
Thousands
Sand Crude Revenue
STCC 14413 (sand), 13111 (petroleum), 11212 (coal) Source: US Rail Desktop
Total Coal Carloads and Revenue Combined Sand and Crude Carloads and Revenue

21. 21
Shale Gas Driving Steel
Manufacturing Comeback in US
» Shale gas boom makes direct-reduced iron steel
economical
§ Not new technology, but preferable with lower cost natural gas
§ DRI process uses natural gas in place of coal to produce iron
§ Cost of production 20% lower per ton vs. traditional blast furnace
» U.S. jobs and international investment
§ Steel production in the U.S has shrunk 13% since Jan. 2008
– Compare to 20% growth in steel production internationally
§ At least five new DRI steel plants being considered in the U.S. – now
economical for the first time in 30 years due to low cost of natural gas
§ Both domestic and international firms investing in the technology
» Reciprocal growth
§ Increased demand for U.S. steel creates greater demand for U.S. gas
§ Tubular steel products has 8% yearly growth in demand, driven by
increase in shale oil and gas (Oilprice.com)
§ Joint venture between Nucor Corp. and Encana Corp. commits $3
billion to development of new gas wells to support DRI plants
§ Voestalpine $740MM investment in Texas
§ Potential US Steel-Republic Steel JV to produce DRI
§ DRI-derived steel of higher quality than that created from recycled
scrap, further driving demand
Source: World Steel Association

22. 22
Shale Gas Development Impact
on Fertilizer Market
» Natural gas is a feedstock for ammonia production
§ Represents ~70% of cash costs (CF Industries)
» Lower gas prices directly benefit American farmers
§ Increased demand for corn, soybeans has driven fertilizer costs higher
§ Excess natural gas supply can be utilized to produce greater volumes
of nitrogen-based fertilizer more economically
» Cheap U.S. natural gas means billions in investment for
new domestic fertilizer plants, displacing ~11 MM m/t of
imports
§ Orascom/Iowa Fertilizer Company - Wever, IA
§ CHS - Spiritwood, ND
§ Ohio Valley Resources - Spencer County, IN
§ Yara - Belle Plaine, SK Canada
§ Northern Plains Nitrogen – Grand Forks, ND
§ CF Industries – expansions at Donaldsonville, LA and Port Neal, IA
§ PotashCorp - resumption of ammonia production at Geismar, LA
§ Agrium – KY or MO
§ EuroChem – Iberville Parish / St. John the Baptist Parish, LA
» Rush of new plant announcements sparked oversupply
concerns, cancelations (Yara, Agrium)

23. 23
Looking Ahead: Natural Gas
» Oversupply conditions expected to persist through
2015
» Factors that could revive demand, production, and
prices (>$5/MMbtu)
§ Industrial use expansions come online over next 5 years
§ Continued toughening of EPA regulations of coal
§ Historic import/export reversal of US/Canada natural gas flows
by 2014 (Marcellus gas exports to Canada)
§ Technology advancements for increased use of CNG as a
transportation fuel

24. 24
LNG Export Opportunity
» Political/policy battle between domestic industrial users and
producers
» Sabine Pass, LA and Freeport, TX now permitted for exports
§ 3.4 Bcf/day export capacity to come online by 2015
§ Represents ~5% of projected US dry gas production
» 20 additional terminal applications totaling 29 Bcf/day of
export capacity pending before FERC
Source: Waterborne Energy Inc. Data in $US/MMBtu
Source: Congressional Research Service, EIA
Selected US Natural Gas Import & Export Infrastructure

25. 25
Shale Development NGL Impacts
» Leading NGL and “wet gas” plays are Eagle
Ford, Utica
§ Significant investment and expansion of gathering,
fractionation, and takeaway capacity underway in
the Utica Play
§ Takeaway capacity in Eagle Ford well exceeds
current production (4x)
» Requires fractionation facilities proximal to
production
§ “Y-grade” must be separated into purified products
§ 75% of fractionation capacity in US Gulf Coast
§ Mt. Belvieu, TX major trading & storage hub
§ 500 Mb/d of new fractionation capacity planned for
Utica
§ Utica NGL production growth expected to exceed
600% between 2013-2015
» Similar to dry gas, strong production due to
fracking has resulted in oversupply and
depressed prices
§ Chemical industry benefits

26. 26
Source: American Chemistry Council, May 2013
Shale Development Impact:
Chemical Industry
» Abundant ethane supplies have sparked chemical industry renaissance
§ 100% of captured ethane is “cracked” to make ethylene, the most basic building block in the chemicals supply chain
§ Planned expansions will increase US ethylene capacity 33% (11 MMmt) by 2017
§ USA is now the low-cost producer of ethylene-based chemicals due to abundant supplies of ethane from shale plays (up
to 60% raw materials cost advantage)
Source: EIA
§ Domestic end-use
of materials, i.e.
plastics, will
expand
significantly
§ Up to 40% of new
petrochemical
output will be for
export
§ New demand for
plastic resin
hoppers, specialty
and pressure tank
cars

27. 27
Natural Gas & Petrochemical
Downstream Products
Feedstock/
Intermediary
Finished
Products
Natural Gas,
OIl
Ethane,
Naphtha, etc.
Ethylene
Miscellaneous
Vinyl Acetate
Linear
Alcohols
Ethyl
Benzene
Ethylene
Oxide
Ethylene
Dichloride
High Density
Polyethylene
Low-Density
Polyethylene
Adhesives, coatings, textile/
paper. finishing, flooring
Detergents
Styrene
Ethylene
Glycol
Vinyl Chloride
House wares, crates,
drums, food containers,
bottles.
Food packaging, film,
trash bags, diapers, toys
PVC
Antifreeze
Fibers
PET
Miscellaneous
Polystyrene
SAN
SBR
Latex
Miscellaneous
Medical gloves,
carpeting,
coatings
Tire, hose
Instrument lenses,
house wares
Insulation, cups
Siding, windows,
frames, pipe, medical
tubing
Pantyhose,
carpets, clothing
Bottles, film

28. 28
Looking Ahead: NGLs
Source:
Canadian
Energy
Research
Ins&tute
Source:
Sunoco
Logis&cs
» US NGL production forecast to increase by
1.6MM b/d from 2012-2018
» The (somewhat) hidden Condensate story
§ Used as diluent for heavy Canadian tar sands oil –
critical for transportation as “Dilbit”
§ Significant investment in infrastructure being made to
deliver Eagle Ford, Utica condensate to Western
Canada
§ Primary delivery via pipeline, but major rail volumes ex.
Utica are required to get to Midwest pipeline injection
points
§ Canadian diluent import demand expected to grow from
200 Mb/d to 500 Mb/d by 2018
» Expect export market for NGLs to expand
§ Pipeline reversals undertaken to meet demand,
particularly ex. Utica to Sarnia, ON petrochemical
complex and export storage and dock facilities in
Philadelphia
§ US projected to export over 1MM bb/d of NGLs by 2018
Source: RBN, PLG analysis

29. 29
Shale Development Crude Oil Impacts
» Dramatic increases in US production due to hydraulic fracturing and horizontal
drilling
§ 7.35 MM bbl./day
§ Projected to grow by ~30% over next four years
§ Strong play in Bakken; surging Permian and Eagle Ford development
§ “Tight” oil sources driving overall North American growth
§ Production forecasts frequently revised upward
Source: Morgan Stanley, February 2013

30. 30
Driving Toward “Oil Independence?”
» Decreasing dependency on foreign crude
§ Combination of US shale plus Canadian oil sands
estimated to reduce imports to <15% by 2020
» Supply isn’t enough – “independence” also
relies on lower domestic fuels consumption
§ CAFE standards the primary driver

31. 31
Displacement of Waterborne Crudes
by Mid-Continent Sources
» Reducing imports means reducing waterborne crudes
§ West African imports already down ~70% from 2010 levels
» Mid-continent sources displacing imports at coasts, making rail
critical to the total crude market
§ Bakken as case study for large crude by rail operations
Source: BENTEK Energy

32. 32
Some Basic Facts About Crude Oil:
Grades and Qualities
» Not all crudes are created equal
– light/sweet vs. heavy/sour
§ Heavy/sour crudes include Western
Canada, Venezuela, Mexico, Alaska
North Slope (ANS), Middle East (light/
sour)
§ Heavy/sour has higher sulfur content,
yield for asphalt, diesel
» Refineries are generally
configured to run certain types of
crude
§ Significant investments made ($48B
since 2005) at select refineries to
install coker units that will allow
processing of heavy/sour
§ Major heavy/sour refining clusters:
Texas Gulf Coast, Chicago, southern
Illinois, California
Source: RBN Energy

33. 33
Some Basic Facts About Crude Oil:
Major Production and Refining Areas
» The special case of the Canada Oil Sands
§ Heavy/sour crude has a natural home in Midwest and US Gulf
Coast (~2.8 MM bpd demand at USGC)
§ Pipeline capacity to US Midwest refining centers is at capacity
§ Pipeline developments to coasts, US markets still 2+ years
away
§ Railbit/dilbit via rail requires coiled, lined/insulated cars
» Brent, WTI, and US shale play crudes (Bakken,
Permian, Niobrara, Eagle Ford) are light/sweet
§ US is close to saturation point on light/sweet crude at mid-
continent and USGC refining areas Source: CAPP, June 2013
Source: Turner Mason, RBN Energy
US Crude Oil Production Growth
by Grade
Source: RBN Energy

34. 34
Crude Market Overview
Bakken
Oil
Sands
Permian
Eagle Ford
Hardisty, AB
Clearbrook, MN
Cushing, OK
St. James, LA
East Coast
Refiners
Pacific Northwest
Refiners
California
Refiners
TX Gulf Coast
Refiners
LA Gulf Coast
Refiners
PADD I
Demand
PADD III
Demand
7,650
kbpd
PADD V
Demand
2,400
kbpd
1,050
kbpd
Light/Sweet
Heavy/Sour
Light/Sweet
Heavy/Sour
Light/Sweet
Heavy/Sour
Brent
Mexican Maya
Venezuela Crude
West African
ANS
Source: EIA, Google, PLG Consulting

35. 35
Bakken Oil Production and
Logistics - History
» 2010-2011 discount of ~$8-12/bbl for Bakken
crude vs. peer WTI
§ Undervalued due to logistics constraints “stranding” the oil
» Early objective of crude-by-rail was to bridge gap
until pipelines built, but has now become the
primary transport mode for Bakken crude
§ ~70% rail market share
§ Pipelines operating below capacity; some project cancelations
» Significant development of crude by rail loading
terminals in 2011-2012
§ Takeaway capacity now exceeds production
§ Bakken vs. WTI differential near even (within ~$3)
§ Rail captures majority market share
Source: North Dakota Pipeline Authority, PLG Analysis
Source: EIA, North Dakota Pipeline Authority, PLG
~810,000 BPD May 2013
First outbound unit
train shipment
December, 2009

36. 36
Crude Oil by Rail – North
Dakota Terminals
North Dakota Crude Oil Rail Loading Capacity (Barrels Per Day)
Rail Terminals 2013 2014* 2015* Rail Carrier
EOG Rail, Stanley, ND (Up to 90,000 BOPD) 65,000 65,000 65,000 BNSF
Inergy COLT Hub, Epping, ND (Q2 2012) 120,000 120,000 120,000 BNSF
Hess Rail, Tioga, ND (Up to 120,000 BOPD) 60,000 60,000 60,000 BNSF
Bakken Oil Express, Dickinson, ND 100,000 100,000 100,000 BNSF
Savage Services, Trenton, ND (Q2 2012 Unit Trains) 90,000 90,000 90,000 BNSF
Enbridge, Berthold, ND (Q4 2012) 80,000 80,000 80,000 BNSF
Great Northern Midstream, Fryburg, ND (Q1 2013) 60,000 60,000 60,000 BNSF
Musket, Dore, ND (Q2 2012) 60,000 60,000 60,000 BNSF
Plains, Ross, ND 65,000 65,000 65,000 BNSF
Global/Basin Transload, Zap, ND (Estimate Not Confirmed) 40,000 40,000 40,000 BNSF
BNSF Total Capacity 740,000 740,000 740,000
Plains - Van Hook, New Town, ND 65,000 65,000 65,000 CP
Dakota Plains, New Town, ND 30,000 80,000 80,000 CP
Global Partners, Stampede, ND 60,000 60,000 60,000 CP
CP Total 155,000 205,000 205,000
Various Sites in Minot, Dore, Donnybrook, and Gascoyne 30,000 30,000 30,000
Total Crude Oil Rail Loading Capacity 925,000 975,000 975,000
*Project still in the review or proposed phase Year End System Capacity
Source: North Dakota Pipeline Authority (June 2013), PLG Analysis

37. 37
North Dakota Class I Railroads and
Crude Oil Terminals
Map by PLG Consulting
37

38. 38
Bakken Area
Outbound Pipelines
38
North Dakota Crude Oil Pipeline Capacity (Barrels Per Day)
Pipelines 2013 2014* 2015*
Butte Pipeline 160,000 160,000 160,000
Butte Loop* (Late 2014) - 110,000 110,000
Enbridge Mainline North Dakota 210,000 210,000 210,000
Enbridge Bakken Expansion Program (Q1-11/Q1-13) 145,000 145,000 145,000
Plains Bakken North (Q2 2013, Up to 75,000 BOPD) 50,000 50,000 50,000
High Prairie Pipeline* - 150,000 150,000
Enbridge Sandpiper* (Q1 2016) - - -
TransCanada Keystone XL* (2015) - - 100,000
TransCanada Bakken Marketlink * (4Q 2015) - - 100,000
Hiland Partners Double H Pipeline (Q3 2014, Up to 100,000 BOPD) 50,000 50,000
Pipeline Total 565,000 875,000 1,075,000
*Project Still in the Review or Proposed Phase Year End System Capacity
Source: North Dakota Pipeline Authority (June 2013)

39. 39
Bakken Production vs. Total Takeaway
Capacity: 2013–2015 Projection
Year ND Production
Forecast (Bpd)
Pipeline
Capacity
Rail Terminal
Capacity
Rail Carrier
Capacity
ND Refinery
Consumption
Total
Outbound &
Refinery
Capacity
Excess Logistics
Capacity
2013 850,000 565,000 925,000 1,300,000 68,000 1,558,000 708,000
2014 980,000 875,000 975,000 1,300,000 68,000 1,918,000 938,000
2015 1,150,000 1,075,000 975,000 1,350,000 108,000 2,158,000 1,008,000
Source: North Dakota Pipeline Authority, PLG AnalysisBpd
=
Barrels
per
Day

40. 40
Crude Oil by Rail vs. Pipeline
$6.50
$12.00
$10.50
$15.00
$-
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
Pipeline to
Cushing
Rail to
Cushing
Pipeline to Pt
Arthur
Rail to Pt
Arthur
DollarsPerBarrel
Source: PLG analysis
» Rail cost: 50-100% more expensive
than pipeline transport
» Near-term offsetting rail advantages:
§ Site permitting, construction much faster
§ Lower capital cost
§ Scalable
§ Shorter contracts (2-3 year commitments vs. 10
years for pipeline)
§ Faster transit times
§ Access to coastal areas not connected via
pipeline
§ Origin/destination flexibility
§ Primary advantage: Tool of arbitrage for trading
desks
» Rail pricing drivers
§ Advantaged rate structures for first-movers,
volume, and unit train operators
§ “Floor” has been set for crude by rail pricing
§ Crude price differentials more important than cost
vs. pipeline
Cost Comparison: Bakken to Cushing and USGC

41. 41
All Crude Handled by Railroad
Volume Growth
STCC 13111 Source: US Rail Desktop

42. 42
Source: CAPP Report, 2013
Crude Oil Pipelines:
Existing and Planned
» Current pipelines ex.
Bakken operating below
capacity
§ However, volumes have
increased over past 60 days
» Pipeline industry has
been challenged by new
dynamic NA oil market
§ Fixed routes, long lead times
§ 10 year commitments required
for new build pipeline projects
§ Lack of subscription interest in
KM Freedom project (Permian-
California)
» Several natural gas
pipeline conversions
planned
§ Trunkline (ETP) – Patoka, IL-
St. James, LA
§ Energy East (TransCanada) –
Hardisty, AB-St. Johns, NS

43. 4343
Crude Tank Car
Market Conditions
» Potential bottleneck: Railcars
§ Current order backlog runs to early 2015 (~48,000 cars)
§ Major purchases by oil majors and midstream companies
§ Extremely tight market with very high lease rates
§ Current crude by rail fleet ~30,000 railcars, or 1-1.5 MM bbl./day
equivalent
§ Short term demand is highly dependent on WTI – Brent spread
» Railcar type is important
§ General service 31k gallon capacity cars can hold more crude
than heavier coiled cars
§ Coiled cars can transport heavier crudes that need heat to
offload
– Some shippers prefer the general purpose (GP) rail cars because
the larger capacity can be significant on their transportation cost for
hauling lighter crudes
– Some lessors prefer to have more coiled cars that have more uses
than general service cars built to hedge themselves on an
oversupply of general service tank cars if/when the crude by rail
market declines
» Key question: If/is/when will the crude tank car
industry become overbuilt?

44. 44
0
500
1,000
1,500
2,000
2,500
3,000
Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15
Thousandbbl/day
Best-Case Crude by Rail Potential vs. Crude
Railcar Capacity
Other Production Sources Williston (Bakken)
Oil Sands Crude Railcar Capacity
Forecast of Crude Railcar
Supply and Demand
» Production increases vs. railcar
capacity increases
§ March crude fleet was ~30k cars and
backlog was ~48.2k Backlog runs
through mid 2015
§ If pipelines and local refining can
consume production increases in
Permian and Eagle Ford, crude by rail
will be primarily Bakken and
Canadian Oil Sands productions
» Under best-case scenario for rail
market share capture, data
suggests existing & planned
tank car fleet exceeds demand
Sources: CAPP, AAR, NDPA, GATX, and PLG analysis
Railcar backlog is through mid 2015;
retirement of old railcars will reduce
capacity if no additional railcars built
Q1 2013 originated rail carloads of crude
petroleum were 97,135, which equates to
755,000 barrels per day (assume 700/bbl.
average capacity)
Assumptions:
• 80% of projected Williston Basin production
• 80% utilization of Oil Sands announced 300 kbpd of rail terminals through 2014, and 80% utilization of an additional 300 kbpd for 2015
• 30,000 crude railcars in March and build rate of 21,500 railcars/year through 2015 with attrition rate of 7,800 railcars/year
• 700 bbl. average railcar capacity and average 17 day turn
• Other production sources at constant 165 kbpd

45. 45
45
Shale Development and Crude By
Rail: Current Market Dynamics
» Recent History:
§ Original (2009-2010) objective of crude by rail to “bridge the gap” until pipelines built
§ By 2012, crude by rail viewed as a core mode of transportation and means of arbitrage
– Differentials made rail attractive: Bakken and WTI trading at ~$10-$15/bbl. less than Brent; Alberta Bitumen trading at ~$30/bbl. less
than Brent
– Market response: E&P, midstream players willing to rapidly deploy significant capital to enable access and capitalize on spreads
– Multi-modal logistics hubs in shale plays and at destination markets (i.e. Cushing, OK, St. James, LA, Pt. Arthur, TX, Albany,
NY, Bakersfield, CA)
– Lease and purchase of railcar fleets
– Pipeline expansions, reversals, new construction
– Refineries installing unit train receiving capability - particularly coastal refineries previously captive to waterborne imports (i.e.
Philadelphia, PA, St. John, NB, Anacortes, WA, Ferndale, WA)
» Today:
§ Spreads have narrowed, limiting arbitrage opportunities and slowing crude by rail growth
§ Price differentials driving trading and logistics patterns
45
Key Drivers
Supply Sources
Oil Prices
Destination
Markets
Capital

46. 46
Oil
Sands
Hardisty, AB
Heavy/Sour Crude Logistics and Price
Differentials – July 2013
$89
Heavy/Sour at TX GC
Mexican Maya (ship): $98
WCS (pipe): $107
WCS (rail): $113
Spread Dec. 2012 July 2013 Change
Mexican Maya - WCS $33.55/bbl $8.90/bbl -$24.65/bbl
Crude Prices from July 2013
Sources: EIA, CME Group, Platts, Google,
PLG analysis 46
TX Gulf Coast
Refiners
Pacific Northwest
Refiners
California
Refiners
PADD III
Demand
7,650
kbpd
PADD V
Demand
2,400
kbpd Light/Sweet
Heavy/Sour
Light/Sweet
Heavy/SourMexican Maya
Marine
Rail
Pipeline
Clearbrook, MN
Chicago, IL

47. 47
Light/Sweet Crude Logistics and Price
Differentials – July 2013
Bakken
Permian
Eagle Ford
East Coast
Refiners
Pacific Northwest
Refiners
California
Refiners
TX Gulf Coast
Refiners
LA Gulf Coast
Refiners
$6
Light/Sweet at TX GC
Bakken (pipe): $107
Brent (ship): $108
WTI (pipe): $111
Light/Sweet at PNW
Bakken (rail): $109
Brent (ship): $108
Light/Sweet at EC
Bakken (rail): $111
Brent (ship): $108
Light/Sweet at LA GC
Bakken (rail): $111
LLS (local): $110
Spread Dec. 2012 July 2013 Change
Brent - WTI $21.83/bbl $2.82/bbl -$19.01/bbl
LLS - WTI $20.00/bbl $4.90/bbl -$15.10/bbl
WTI - Bakken
(Clearbrook)
$3.00/bbl $2.54/bbl -$0.46/bbl
Brent
ANS
Brent
47
Crude Prices from July 2013
Sources: EIA, Bloomberg, Platts, Baytex
Energy, Google, CME Group, PLG analysis
PADD I
Demand
PADD III
Demand
7,650
kbpd
PADD V
Demand
2,400
kbpd
1,050
kbpd
Light/Sweet
Heavy/Sour
Light/Sweet
Heavy/Sour
Light/Sweet
Heavy/Sour
Marine
Rail
Pipeline
Chicago, IL
Clearbrook, MN
Cushing, OK
St. James, LA
$96
(wellhead)
WTI:$105

48. 48
48
Looking Ahead:
North American Crude Oil Logistics
» The gusher of new US light/sweet shale oil production made possible
by fracking has upended the traditional oil logistics and trading
patterns
§ Result: “Wrong place/wrong oil” supply displacements, i.e. Cushing overflow
§ Rapid investment in new logistics infrastructure, routes, modes, and terminals
– Bakken now sufficiently developed; next immediate areas for significant investment are Utica, Oil Sands,
Permian, coastal areas and intermediate routes and facilities that support bitumen transport in particular
» A “new normal” in crude oil flows will emerge in conjunction with
continued North American oil production over the next five years
§ Continued shifts of mid-continent light/sweet to coastal destinations
§ New modes and infrastructure to get Canadian bitumen to USGC, with or without Keystone
XL
§ Permian, Eagle Ford to meet USGC light/sweet demand; Bakken flows primarily east-west
§ Significant oversupply of light/sweet and super-light grades
» Expect eventual government approval of light/sweet crude oil and
condensate exports on a limited basis, similar to LNG
» Primary threats to crude by rail business
1. Narrow WTI-Brent spread
2. Glut of Permian and Eagle Ford light sweet oil displacing rail volumes to USGC to Gulf
Coast (but somewhat offset by new rail deliveries from Oil Sands)
3. Continued pipeline development
4. Water-borne Eagle Ford crude deliveries to USEC

49. 49
Looking Ahead: Crude Oil Anticipated
Production Growth and Product Flows
Source: BENTEK Energy, CAPP, Railroad Commission of Texas, ND Pipeline Association, Google, PLG Consulting
= Current 2013
= Future 2017
Anticipated Production
Growth
Permian1,680
1,200
+40%
1,600
800 Eagle Ford
+100%
Bakken +56%871
1,363
Marine
East Coast
Refiners
Oil
Sands
2,590
1,985
+30%
Hardisty, AB
Cushing, OK
LA Gulf Coast
Refiners
Light/Sweet
St. James, LA
Rail
Pipeline
Pacific Northwest
Refiners
California
Refiners
TX Gulf Coast
Refiners
Heavy/Sour
Clearbrook, MN
Chicago, IL

50. 50
Thank You!
For follow up questions and information, please contact PLG:
+1-312-957-7757 / info@prologisticsgroup.com
Taylor Robinson, President
Graham Brisben, CEO
Jean Arndt, Vice President
Jeff Dowdell, Senior Consultant
Gordon Heisler, Senior Consultant
Jeff Rasmussen, Senior Consultant
Jay Olberding, Analyst
This presentation is available at:
WWW.PLGCONSULTING.COM
Professional Logistics Group