NEW ENERGY OPPORTUNITIES IN THE GLOBAL ARENA

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NEW ENERGY OPPORTUNITIES IN THE GLOBAL ARENA

• 2004

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The Energy Industry Is at a Major Inflection
Point Today
Environmental and Regulatory Issues
Three Major Investment Themes
Three Additional Pressures
Conventional Energy Supply and Demand Situation
Change Occurring in Energy Industry
Power Reliability and Quality Demands
Industry Innovation in Short Supply
Security Concerns
Portable Power Requirements
Source Contango Analysis
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Conventional Energy Supplies Are Peaking and
Developing Country Energy Demand Is Soaring
Crude Oil Refiner Acquisition Cost EIA Graph
Data

• BP estimates that at the current global growth
  rate, we will need
• An additional 7.25 mm bpd to meet demand in 2007
• 39mm bpd by 2010 with current 4.8 depletion rate
• Increasing gap in cost drivers
• Productivity is declining rapidly in the
  development and production of oil
• Operating costs are rising faster than inflation
• China and India alone will need
• An additional 13mm bpd by 2010 at 15 per year
  demand increase (Rate that Japanese demand grew
  between 1965 and 1973)
• If China and India
• Increase their per-capita consumption to the
  level of South Korea (only 60 of U.S.)
• Demand in these two countries alone reaches 119
  mm bpd of oil (50 increase over current global
  production of 80 mm bpd)

By 2014 Production Gap is approx 50mm bpd
Source Barrons and British Petroleum
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The World is Dependent on aSmall Number of Oil
Fields andThose Fields Are Peaking in Production
000 Bbls/Day ( Of World Total)
4,000 Other Fields
36,200 (53)
61 Fields Between 100,000 200,000 B/D
7,900 (12)
29 Fields Between 200,000 300,000 B/D
6,400 (9)
Dr. King Hubbert predicted in 1956 that U.S. oil
production would peak in about 1970 and decline
thereafter U.S. peaked in 1972 at 11, 185, 000
bpd Geologists using same methods estimate world
production peak between 2000 and 2012
12 Fields Between 300,000 500,000 B/D
4,100 (6)
13,900 (20)
14 Fields In Excess Of 500,000 B/D
Sources Simmons Company International
Hubberts Peak
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Energy Is Oxygen For the Digital Economy
Causes of Network Downtime

• Business is moving toward an electronic medium
• Consumers around the world are demanding a higher
  level of reliability as a part of a higher
  standard of living

Source Strategic Research Corporation

• Power Density in the Digital Economy is as much
  as 12X of that of the Industrial Equipment
  Economy
• Damage from Power Surges estimated to be over
  100B across all Digital Economy Sectors

Source EPRI, Stephens Inc. Jupiter Research
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Lack of Investment Is Choking Electric
Distribution System

• Investment of 56 Billion in Transmission Assets
  needed between 2000 2010 in order to keep the
  Grid in current condition
• In 1999 U.S. Utilities spent over 3 billion to
  operate and maintain transmission lines
• Transmission Bottlenecks cost consumers at least
  500 million per summer, according to the FERC
• Bottom Line Electric Utilities have and will
  continue to under-invest in Electric Grid
  Infrastructure

Source Eric Hirst, PhD, EEI
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Portable Electronics GrowthIs Threatened
byInadequate Power Sources
History of Portable Power Sources
Growth in Portable Devices

• Energy density requirements for powering portable
  electronic devices are not being met
• Lithium Ion is being challenged due to safety
  issues
• Technology is advancing at 5 or less in energy
  density improvement
• Huge breakthrough in battery technology has not
  occurred for over 10 years
• Lack of long runtime, light, and sizable power
  source is limiting portable electronic innovation
  (Intels investment in fuel cells is an example
  of attempt to solve problem)

Source Motorola
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Geopolitical Security Concerns Are Squeezing
Energy Prices

• The volatile Middle East will garner an
  increasing share of the global hydrocarbon market
  since OPEC controls 77 of the global oil
  reserves and currently comprises only 32 of
  global production
• The nature of interdependency and lack of
  investment in both the U.S. and Western European
  electric and natural gas infrastructure raise
  considerable system failure risks
• Modern militaries require reliable power sources
  for weaponry, computers, and other equipment,
  especially when crossing large, sparsely
  populated distances at high speeds (a la the
  run-up to Baghdad in 2003)
• Internal political strife in Saudi Arabia
• Arafats death

Sources EIA World Sites Map Collection website
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Environmental and Other Regulatory Issues Are
Creating Pressures and OpportunitiesIn the
Global Energy Markets
Atmospheric Concentrations of Carbon Dioxide
Since 1750

• Air and water quality are major issues with
  increasingly global importance
• The pressure from U.S. and Global
  environmentalists continues to escalate
• Concern over global warming is more likely to
  continue over the next 10 years
• Declines of oil and natural gas reserves place
  greater emphasis on dirtier fuels to meet demand
  (i.e. coal)
• Any U.S. energy legislation will have an impact
  on the current capital structure in the energy
  market
• Re-election of Bush portends passage of an Energy
  Bill in 2005

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Energy Industry RequiresCharting a New
Investment Approach

• We drilled our way out of the last energy crisis
  no major oil and gas fields to be found now
• This crisis needs to be answered from the demand
  side
• Example New technologies to squeeze more
  kilowatt hours out of a molecule of gas
• Reliability and Application historically drive
  change in the energy industry
• Conventional Approach the Upstream, Midstream,
  Downstream sectors

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Why Fuel Cells?
Advantages
Choke Points

• Hydrogen storage or production technologies
• Weight
• Cost
• Amount of energy or runtime for the fuel cell
• Conversion device
• Cost
• Life
• Ambient operating temperature

• Fuel cells act as a battery replacement, often
  at a much lower weight and higher power density
  than existing technology
• Fuel cells act as an efficient generation
  technology, solving the problem of Btu cost
• Fuel cells provide a reliable power source that
  can work with and permit wider use of other
  forms of renewable energy, such as solar and
  wind
• Fuel cells and hydrogen are efficient at
  converting natural gas into electricity

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First Markets, First Profits

• Mid-wattage (20 to 300 Watts) portable markets
• Pro video camera power
• Covert camera power
• Military solutions
• Medical systems
• Pipeline monitoring stations
• Back-up Power
• Telecom back-up
• Data center back-up
• Remote powering of homes / commercial sites
• Developing country power

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Where Will Hydrogen Take Us?

• Hydrogen is a storage medium
• Fuel cells will serve as batteries first, then
  migrate to generation
• Fuel cells must come down in cost and up in
  reliability and life
• Fuel cells will eventually decrease the amount of
  hydrocarbons needed per capita through
• Ability to store wind and solar energy on site
  and bring reliability to renewable energy
• Higher efficiency

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Funding Issues forAlternative Energy
CompaniesThe Collapse of Energy Trading and
Merchant Companies

• 2000
• Enron
• Reliant
• Dynegy
• Aquilla
• Williams
• El Paso

• 2004
• Enron
• Reliant
• Dynegy
• Aquilla
• Williams
• El Paso

• Sudden collapse of the U.S. and European Energy
  Merchant sector reduced a significant source of
  innovation and energy venture investments
• Energy ideas and entrepreneurs are now scattered
  across the landscape. No clear funding
  alternatives
• Erosion of venture investment domain expertise
  has created a barrier to venture funding. Lack of
  expertise slows the velocity of venture capital
• 1970s status quo revisited Slow-moving oil
  majors, utilities, and financial institutions
  again dominate the energy business

The Source of over 1 billion in Energy Venture
Funding no longer exists in the market.
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The Solution Formation of Funds Focusing on
Alternative Energy Technology
Contango Capital is looking for technologies that
solve the energy storage issue, provide a cheap
and storable energy source, and/or reduce the
cost of hydrocarbons.

• Contango Capital divides the industry into
• Reliability / Portable Power Solutions
• Cost of the Btu, synthetic or real hydrocarbon
  Btu

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Contango Capitals Investment Strategy

• Contango Capital invests in companies that are
• Three years or fewer from commercialization (low
  rate production product launch, revenues)
• Targeted to specific, identified markets
• Focused on enterprise solutions, not incumbent
  utility solutions
• Positioned to deliver multiple value propositions

• Contango Capital focuses on achieving liquidity
  events for investors through
• Purchase by larger company
• Investment going public Current public market
  valuations average 15X revenues for the energy
  technology industry

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Disclaimer

• This material should not be construed as an
  offer to sell or a solicitation as an offer to
  sell any security in any jurisdiction where such
  an offer or solicitation would be illegal. We are
  not soliciting any action based on this material.
  This material is for general information purposes
  only. It does not constitute a personal
  recommendation or take into account the
  particular investment objectives, financial
  solutions, or needs of individual investors.
  Before acting on any advice or recommendation in
  this material, individuals should consider
  whether it is suitable for their particular
  circumstances and, if necessary, seek
  professional advice.