2011 Outlook - E&P and MLP - Pipelines - 19 January 2011

Credit Research | Americas
Contributing Research Analysts
Daniel Volpi, CFA 212-667-1166 daniel.volpi@nomura.com

Brock Jones 212-667-2310 edward.jones@nomura.com January 19, 2011
Nomura Energy Credit Research E&P and MLP/Pipelines 2011 Outlook
See Disclosures Appendix A1 for the Analyst Certification and Other Important Disclosures
Table of Contents
Overview
Recommendation Changes Picks and Trade Ideas Recommendations Key Themes Commodity Prices Inventories Oil-Gas Ratio Rig Counts
Page 3 16
3 47 89 10 11 12 13 14 15 16
Recommendations
Exploration & Production Recommendations
Exploration & Production Comparative Tables Exploration & Production Hedging Profiles Master Limited Partnerships Recommendations
Page 17 68
17 51 52 56 57 58 68
Disclosures Appendix A1
Page 69 71
Page 2
Recommendation Changes
We are revising our ratings on two E&P names.
Nexen Inc. (NXYCN) We are revising our rating to BUY from HOLD on NXYCN long bonds. Despite the pending downgrade to Ba1 at Moodys, we believe
that current levels provide a good entry point for longer-term tightening potential of 20 bps on the long end. We believe that a Ba1/BBBrated Nexen, which is our base case scenario, should trade roughly 10-15 bps through Anadarko Petroleum. We like the lower dollar price NXYCN 5.875% of 2035 at +210bp ($90.85), trading flat on a curve basis to the APC 6.45% of 2036 ($97.00). We also note that there is a reasonable possibility that Nexen management obtains IG ratings from Fitch Ratings, which would keep NXYCN in the major IG credit indices and provide greater upside from our base case scenario. We had moved to a HOLD rating based partially on our concerns over technical selling pressures ahead of the pending Moodys downgrade. However, year-end 2010 positioning is now behind us, and our sense is that bonds have largely transitioned from would-be forced sellers.
Apache Corp. (APA)

We are revising our BUY rating to HOLD on APA senior notes. We had previously expressed the view that APAs recent acquisition spree provided an opportunity to buy APA paper at a discount to historical trading levels. We still view APA as a core holding in the high-quality energy space but with levels now more in-line with single-A rated energy names, the trade has largely played out and we see little opportunity for material tightening/outperformance from current levels.
Page 3
Picks and Trade Ideas

BUY Nexen (NXYXN) 7.5% senior notes 2039, 6.4% senior notes 2037, 5.875% senior notes 2035 We view current levels as a good entry point for 20bp tightening potential on long bonds. See page 40. BUY Plains Exploration and Production (PXP) 7.625% senior notes due 2020 PXP offers attractive yield relative to upper-tier HY E&Ps and potential for debt reduction from pending asset sales. See page 46. BUY Kinder Morgan (KMP) 6.95% senior notes due 2038, 6.5% senior notes due 2039, and 6.55% senior notes due 2040 We view the long end of the senior debt complex as most attractive, with long bonds trading at a roughly 30bp spread to 10-year notes. Note that lower-rated EPD and WPZ 10s-30s curves are flat-10bp. See page 64. Swap into CNQCN 6.25% of 2038, out of CVECN 6.75% of 2039 The trade allows investors to maintain exposure to crude oil, and take out ~$5 dollar price at even spread to the curve. Swap into WPZ 4.125% of 2020, out of EPD 5.2% of 2020 While benchmark MLP issuer EPD has greater scale, WPZ offers lower-leverage and less commodity price exposure. The trade allows investors to diversify their MLP holdings with a modest pick up 5bp and take out of $9 dollar price. Swap into ECACN 5.9% of 2017, out of ECACN 6.5% of 2019 Although we are bearish on natural gas fundamentals, ECACN 2017s appear cheap relative to the ECACN senior notes complex. Investors can shorten 1.5 years in the natural gas producer, take out $4 dollar price and give only 5bp to the curve. Swap into SLB 4.2% of 2021, out of COP 6.0% of 2020 Recent SLB new issuance provides exposure to premier oilfield services player SLB. The trade allows investors to pick up modest yield and take out $15 dollar price into a par bond.
Page 4
2011 Best Picks

BUY Nexen Inc. (NXYCN) long bonds: 7.5% senior notes 2039; 6.4% senior notes 2037; 5.875% senior notes 2035
Despite the pending downgrade to Ba1 at Moodys, we believe that current levels provide a good entry point for longer-term tightening potential of 20 bps on the long end. We believe that a Ba1/BBB- rated Nexen, which is our base case scenario, should trade 10-15 bp through Anadarko Petroleum. We like the lower dollar price NXYCN 5.875% of 2035 at +210bp ($90.85), trading flat to the APC 6.45% of 2036 ($97) on a curve basis. Moodys review for downgrade remains focused on Nexens leverage metrics, which the agency deems as inconsistent with IG ratings. We have argued, however, that debt/EBITDA of 1.4x (1.1x net basis) has improved from 2.5x (1.8x) in the yearago period and is comparable with low-BBB rated E&Ps. On a net debt/production basis, leverage stands at C$21k per boe/day compared with C$30K last year following C$1.5bn of debt repayment since year-end 2009. While we may disagree that NXYCNs credit profile merits below investment grade ratings, we nevertheless must respect the significance of split rating on valuations. As such, we view APC (rated Ba1/BBB) as the best comparison since APCs crossover ratings reflect an expectation of increased leverage from the spill liability. Again, we would expect NXYCN to trade roughly flat with APC with Ba1/BBB ratings. There is also the possibility that NXYCN pursues credit ratings from Fitch Ratings. While management can not comment on the matter, we would point out that an 8 B energy name would remain in the major IG credit indices, alleviating concerns of forced selling pressure. From a technical perspective, we remain cognizant of the potential selling pressure following the pending downgrade . That said, our sense is that bonds have already transitioned from would-be forced sellers and year-end 2010 positioning is behind us.
United Kingdom, 19% Syncrude, 31%
Company Snapshot
Reserves (MMBoe) % Oil % Proved Developed Reserve Life (R/P) Daily Production (MBoe/d) LTM EBITDAX 2010 EBITDAX Cash Total Debt Market Capitalization Enterprise Value Debt/EBITDAX Debt/Reserves EV/EBITDAX EV/Reserves 920 93% 55% 11.8 213 3,929 3,607 1,210 5,678 11,490 15,958 1.4x 6.18 4.1x 17.36
Proved Reserves
United States, 5% Canada, 8% Yemen, 1% Other, 4% Long Lake, 32%
Page 5
Source: Company Filings, Nomura Securities International.
2011 Best Picks

BUY Plains Exploration and Production (PXP) 7.625% senior notes due 2020.
In our opinion, Plains offers attractive yield relative to the upper-tier high yield E&P names. PXP trades roughly 50-70 bps wide of Range Resources and Pioneer Natural Resources. We are attracted to PXPs strong organic production growth, exposure to crude oil prices, and potential for debt reduction with proceeds of the pending deepwater Gulf of Mexico divestiture. PXPs legacy operations in California (~50% production) provide a good measure of stability and exposure to crude oil prices, while its Haynesville operations should drive organic production growth. Plains is in the process of selling its Gulf of Mexico operations. To date, the company has announced the sale of its shallow-water GOM assets for equity consideration of $800mn. Our expected after-tax proceeds from the deepwater divestiture of $1$2bn should comfortably fund the recent Eagle Ford acquisition ($578mn) and modest 2011 capital spending short-fall ($170mn), leaving roughly $750mn (midpoint) of excess cash. Assuming the mid-point for asset sales proceeds, net debt/EBITDA would improve to below 2.0x from 3.1x, pro-forma the Eagle Ford acquisition. We are projecting negative free cash flow of $170mn in 2011. Our recommendation assumes a balanced use of the asset sales proceeds in light of PXPs historical share repurchase initiatives. We note that the company has ample room within its restricted payments basket to complete the $700mn authorized share repurchase program, however, we believe likely use of asset sales proceeds will be bolt-on acquisitions and debt repayment. PXP enjoys a strong hedge profile with almost 75% of its 2011 crude oil production hedged with a floor of $80/bbl. In addition, roughly 70% of 2011 natural gas production is hedged with a floor of $4/mcf.
Company Snapshot
Reserves (MMBoe) % Oil % Proved Developed Reserve Life (R/P) Daily Production (MBoe/d) LTM EBITDA 2010 EBITDA Cash Total Debt Market Capitalization Enterprise Value Debt/EBITDA Debt/Reserves EV/EBITDA EV/Reserves 360 60% 64% 11.9 91 985 997 12 2,803 4,639 7,431 2.8x 7.80 7.5x 20.67
Proved Reserves
MidContinent 6% Gulf of Mexico 4% Gulf Coast Region 22% Offshore California 3% Onshore California 57% Rocky Mountains 8%
Page 6
2011 Best Picks
BUY Kinder Morgan Energy Partners (KMP) 6.95% senior notes due 2038, 6.5% senior notes due 2039, and 6.55% senior notes due 2040.
As one of the largest and most diversified MLPs, we view KMP as a core holding in the high grade MLP space. While the oil production (CO2) segment stands out as atypical to its competitors operations, the related hedging program and very high quality, regulated mix of the conventional segments offsets C02s higher operational risk. We view the long end of the senior debt complex as most attractive, with long bonds trading at a roughly 30bp spread to 10-year notes. We note that lower-rated EPD and WPZ 10s-30s curves are flat-10bp. Kinder Morgans leverage is ~4.6x debt/EBITDA, above the peer average of 4.3x. Over the past 2 years, KMPs leverage has been above the peer average due to guaranteed joint venture debt. This debt was used to fund construction of new projects (Rockies Express, Midcontinent Express, Fayetteville Express) and once these projects are placed into service, KMP typically terms out the debt at the asset level, thus becoming non-recourse to KMP. Currently, KMP has ~$500mn of guaranteed JV debt, primarily related to the Fayetteville Express Pipeline. FEP was placed into service on December 2nd and we expect the pipeline to issue debt to term out construction costs. This reduction in debt and the increase in EBITDA from the new project should bring leverage closer to the peer average. Kinder Morgans has a well diversified and stable business mix: ~25% of EBITDA from natural gas pipelines; ~25% from refined products pipelines; ~20% from storage terminals; and ~30% from its CO2 business. While the first three segments are primarily stable, fee-based businesses, the CO2 segments oil production represents direct commodity price exposure. Approximately 70% of 2011 expected production is currently hedged.
Segment EBITDA
Kinder Morgan Canada 6% Terminals 19%
Products Pipelines 21%
CO2 29%
Natural Gas Pipelines 25%
Page 7
Company
Anadarko Petroleum Company
Recommendation
HOLD
Rationale
We still see longer-term upside as the Macondo liability is resolved but we view current spreads are somewhat full considering the uncertainty. We are revising our BUY rating to HOLD on APA senior notes. We had previously expressed the view that APAs recent acquisition spree provided an opportunity to buy APA paper at a discount to historical trading levels. We still view APA as a core holding in the high-quality energy space, with levels now more in-line with single-A rated energy names, the trade has largely played out and we see little opportunity for material tightening/outperformance from current levels. Attractive exposure to crude oil pricing (70% of production), low leverage, and good free cash flow profile. We believe that the Horizon incident will likely be resolved in the near-term. Exposure to oil (~50% of production), free cash flow generation, and best-in-class oil sands operations. Core holding in high yield energy. Premier assets and consistent production growth offset by risks attendant to recent strategic shift toward liquids production and negative free cash flow. A high quality, well-diversified portfolio and conservative credit profile are offset by tight trading levels. Challenging fundamentals in the North American natural gas market, relatively tight spreads, and negative free cash flow. Minimal hedging policy, high capital requirements for riskier international prospects in Africa and Asia, and sizeable GOM leases. While the recently announced plan to spin-off the refining business will be neutral from a financial leverage perspective, the business profile will be diminished by the loss of the high-quality refining operations. However, management plans to reduce debt by $2.5bn (likely through tender offers) and market technicals will likely keep notes from materially widening from current levels, in our opinion. Low relative yields are offset by a strong hedge profile and free cash flow generation. Attractive entry point for 20bp tightening potential in long end of the curve. Smaller reserve size and nontraditional international development plans are offset by upside potential at the Tamar discovery and competitive cost structure. Management is pursuing robust production targets while maintaining spending within cash flows. The company has moderate leverage but relatively high finding costs. PXP offers attractive yield along with organic production growth, exposure to crude oil prices, and the potential for debt reduction from proceeds of the pending deepwater GOM divestiture. Relatively low yield and projected free cash flow deficit are offset by strong operational profile, very low cost structure, and moderate leverage. Wide spreads are merited due to ongoing strategy shifts and cash flow burn, mitigated to an extent by low leverage.
Apache Corporation
HOLD
Canadian Natural Resources Ltd. Cenovus Energy Inc. Chesapeake Energy Company Devon Energy Company EnCana Corporation Hess Corporation
BUY BUY HOLD HOLD SELL SELL
Marathon Oil Corporation
HOLD
Newfield Exploration Company Nexen Inc. Noble Energy, Inc. Pioneer Natural Resources Company Plains Exploration & Production Company Range Resources Corporation Talisman Energy Inc.
HOLD BUY HOLD HOLD BUY HOLD HOLD
Page 8
Company
DCP Midstream LLC
Recommendation
BUY
Rationale
We are attracted to the DCMPIDs strong business position in natural gas gathering and processing, conservative leverage, and demonstrated support from its 50/50 parents ConocoPhillips (A1/A/A) and Spectra Energy (Baa2/BBB). At 15-20bp wide to benchmark MLPs, we view DCPMID (organized as a c-corp.) as excessively wide. Despite the recent noise surrounding the pipeline spill, we remain comfortable with EEPs credit profile. We note that EEP enjoys an excellent business position in oil and refined products pipelines and a relatively high percentage of fee-based cash flow. In addition, EEP is strategically important to its general partner and largest unit holder, Enbridge Inc. (Baa1/A-), which in the past has provided financial support to the MLP. Our HOLD rating is based on what we view as full valuations relative to its MLP peers and limited upside. We believe that ETPs credit profile has strong positive momentum but the senior notes appear fairly valued, considering the higher dollar price and weaker liquidity in the issues. We are attracted to ETPs scale and diversification across interstate, intrastate, and midstream natural gas operations. The completion of two large interstate pipelines will improve the business mix by increasing regulated interstate pipeline earnings to nearly 30% from 16%, and reduce the less stable intrastate contribution to 40% from 47%.
Enbridge Energy Partners, L.P.
HOLD
Energy Transfer Partners, L.P.
HOLD
Enterprise Products Partners L.P.
HOLD
EPD is one of the better-managed midstream companies and enjoys excellent scale, with a significance presence in existing and emerging natural gas producing regions. While EPD does have above-average commodity price exposure given its NGL operations, this is partially offset by conservative financial policies, including a willingness to issue equity units to balance its capital structure.
As one of the largest and most diversified MLPs, we view KMP as a core holding in the high grade MLP space. While the oil production (CO2) segment stands out as atypical to its competitors operations, the related hedging program and very high quality, regulated mix of the conventional segments offsets the CO2 operational risk . We view the long end of the senior debt complex as most attractive, with long bonds trading at a roughly 30bp spread to 10-year notes. We note that lower-rated EPD and WPZ 10s-30s is roughly flat-10bp. ONEOK should benefit from its exposure to NGL fundamentals and recent growth initiatives in the Bakken and Williston basins. OKS is managing itself to maintain mid-BBB ratings and enjoys support from its parent ONEOK, Inc.(Baa2/BBB), which holds a ~40% interest. We view current levels as roughly fair considering that it is a somewhat illiquid name in the space. We maintain a favorable view on Plains largely fee-based crude oil and products pipeline business. However, we believe that current spreads do not compensate for the high leverage of 5.2x debt/EBITDA (high 4x adjusted for oil inventory related debt) and risk inherent to the marketing operations (20-25% of earnings).
Kinder Morgan Energy Partners, L.P.
BUY
ONEOK Partners, L.P.
HOLD
Plains All American Pipeline, L.P.
SELL
TransCanada PipeLines Ltd.
SELL
Respecting the highly regulated nature of the business mix and the single-A ratings, we view current levels as rich considering the companys high leverage and negative free cash flow profile. Although the name trades wide for its A ratings, we believe that expectations of steady issuance to finance its cash flow deficit will limit upside from current levels. We are attracted to WPZs relatively stable business mix and low leverage compared to its MLP peers. The company owns two major, regulated interstate pipelines and its midstream operations are roughly 50% fee-based. At roughly flat to EPD, we would recommend swapping into WPZ senior notes in order to diversify MLP exposure. While EPD is a larger, better diversified benchmark MLP issuer, WPZ operates with lower leverage (3.8x vs. 4.3x) and less commodity exposure.
Williams Partners, LP
HOLD
Page 9
Key Themes for 2011

Divergent fundamentals for crude oil and U.S natural gas prices.
Global economic activity levels and a balanced inventory picture should maintain supportive pricing for crude oil. The U.S natural gas market, however, remains stubbornly over-supplied. While we would expect a tapering off of natural gas drilling required to hold leases, the implied supply curtailment will likely be insufficient to tighten market conditions in the near- to medium-term. The percentage of hedged production for 2011 is reduced from 2010 levels but nevertheless offers a good degree of downside protection. For 2011 modeling assumptions, we are using $85/bbl WTI and $4.50/mcf Henry Hub.
E&P asset repositioning: more drilling, less land-grab.

E&Ps will continue executing the broad strategic shift toward increased liquids crude oil and NGL production. We expect that acreage acquisition activity will moderate from the torrid pace of 2010. Intensified development drilling on recently acquired acreage should support increased bookings of proved reserves. An increased use of JVs + drilling carries on developing plays and the divestiture of conventional/non-core assets should offset spending.
Gulf of Mexico: focus will be on the regulatory environment.

The administration appears poised to institute a policy response to the Macondo incident rather than aggressively pursuing the involved parties. Macondo will be the platform for a more heavily regulated offshore environment. The involved parties will likely be held liable for damages, but the prospect for severe punitive actions against the involved parties is diminishing. Despite the more burdensome regulatory environment, operating conditions should normalize in the second half of 2011.
Master Limited Partnerships (MLPs) have shifted growth spending toward gathering & processing and NGL operations.
The industry is nearing completion of large, long-haul pipeline construction. Broadly speaking, the recently completed projects should improve earnings and cash flow quality. We are expecting the next phase of growth projects to be directed toward the infrastructure build-out in the developing shale plays. 2011 growth spending should yield near- to medium-term earnings contributions since these typical midstream projects are smaller scale and require less lead time. However, the latest MLP growth phase will increase exposure to the more commodity price sensitive segments of the industry.
The MLP acquisition market should remain active.

Independent E&Ps and majors will continue divesting infrastructure assets in 2011, providing acquisition opportunities for MLPs. M&A financing is expected to remain largely credit neutral given the traditional balanced debt/equity funding approach.
Page 10
Oil and Natural Gas Prices

WTI Crude Oil
$95.00 $90.00 $85.00 $7.00 $6.50 $6.00 $5.50 $5.00 $4.50 $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00
Henry Hub Natural Gas
$80.00
$75.00 $70.00 $65.00 $60.00 $55.00 $50.00 $45.00
$40.00
$35.00
Commentary
Crude oil, gasoline, and distillate inventories have been running at or near five-year highs for the past 12-24 months (See Page 13). Despite this, WTI prices have recovered from the 2009 lows around $35/Bbl and had established a range of $70-85/Bbl before breaking $90/Bbl in December. With the supply picture essentially unchanged since the beginning of 2009, WTI prices appear to be more closely correlated with broader global commodities. On the demand side, with the prospect of a double dip recession decreasing, emerging markets are expected to drive increased global oil demand. We expect the range to hold in the near-term, as neither the supply nor the demand picture is likely to change dramatically. Natural gas bottomed in the fall of 2009 at just under $2.00/Mcf with industrial demand reaching its lows and supplies accumulating to record highs. Henry Hub prices received support in the December to March time frame because of higher than normal heating degree days, which resulted in a draw of inventories down towards more normal levels (see Page 12). However, this strength was short-lived and except for a brief flirtation with $5.00/Mcf during an especially hot summer, Henry Hub prices have straddled the $4.00/Mcf level. In 2010, the U.S. gas rig count has increased ~30% and the horizontal rig count (primarily shale gas drilling) is up ~60% (see Pages 15 and 16). Prices should continue the temperature-driven grind upwards over the next few months but with the increasing production profile, we expect a heavy inventory build out of the winter withdrawal season and continued Henry Hub weakness.
Page 11
Source: Bloomberg
Natural Gas Inventories

Natural Gas Inventories
2010 Inventories Change
11/19/2010 11/26/2010 12/3/2010 12/10/2010 12/17/2010 12/24/2010 3,828 3,805 3,716 3,552 3,368 3,232 (7) (23) (89) (164) (184) (136)
Commentary
5-Year Avg. Variance
3,612 3,571 3,496 3,339 3,193 3,085 216 234 220 213 175 147
The second half of 2009 saw a glut of natural gas, with demand from residential customers, industrials, and power producers waning and producers continuing to ramp up production. Beginning in June 2009, natural gas inventories hit 5-year highs as the 2009 summer was cooler than normal throughout the U.S. Inventory levels dropped slightly at the beginning of 2010, with a cold winter spurring heating and electricity demand. But the prevailing theme over the last 24 months has been the mismatch between supply and demand the unconventional gas boom has increased potential United States gas reserves substantially while industrial demand has weakened. According to the Department of Energy, U.S. proved shale gas reserves increased ~50% from 22 Tcf to 33 Tcf from 2007 to 2008; total U.S. gas reserves were 245 Tcf at the end of 2008. We expect total reserve growth to continue to be driven by shale gas additions over the next decade. Further, U.S. natural gas production increased ~3% in 2009 and ~2% during the first half of 2010. In terms of demand, industrial consumption of natural gas (which represents ~1/3 of total consumption) has remained weak 2009 consumption was down ~8% versus 2008 and while 2010 levels were better than last year, they are still approximately 4% below H1 2008 levels.
2009 Inventories Change

11/20/2009 11/27/2009 12/4/2009 12/11/2009 12/18/2009 12/25/2009 3,835 3,837 3,773 3,566 3,400 3,276 2 2 (64) (207) (166) (124)
Natural Gas Inventories (Bcf)

4,000 3,500 3,000 2,500 2,000 1,500 1,000 Jan Feb Mar Apr May Jun 2009 Jul Aug 2010 Sep Oct Nov Dec
3,232
A hotter than normal 2010 summer eased inventories from their 5-year highs and as a result Henry Hub prices topped $5.00/Mcf briefly. However, a legitimate oversupply reapplied pressure to gas prices into year-end and inventories are back to last years 5-year highs. Inventory levels during the first quarter of the year may dip based on weather, but we expect continued elevated levels throughout 2011.
5-Year Range
5-Year Average
Page 12
Source: Department of Energy
Crude Oil and Refined Products Inventories

Crude Inventories (MBbl)
240,000 390,000 370,000 350,000 330,000 310,000 290,000 270,000
Gasoline Inventories (MBbl)

230,000
220,000 210,000
200,000
190,000 180,000
250,000
Jan Feb Mar Apr May Jun 2009 Jul Aug 2010 Sep Oct Nov Dec
170,000
Jan Feb Mar Apr May Jun 2009 Jul Aug 2010 Sep Oct Nov Dec
5-Year Range
5-Year Average
5-Year Range
5-Year Average
Distillate Inventories (MBbl)

180,000 170,000 160,000 70,000 65,000 60,000 55,000 50,000 45,000 40,000 35,000 30,000 25,000 20,000 Jan Feb Mar Apr May Jun 2009 Jul Aug 2010 Sep Oct Nov Dec Jan
Heating Oil Inventories (MBbl)
150,000
140,000 130,000 120,000 110,000 100,000
Feb Mar 5-Year Range
Apr May
Jun
Jul
Aug 2010
Sep
Oct
Nov Dec
5-Year Range
5-Year Average Page 13
2009
5-Year Average
Source: Department of Energy
Oil-Gas Ratio
Oil-Gas Ratio
40
35 30
25 20 15 10 5 Jan Feb Mar Apr May Jun 2009 Jul Aug 2010 Sep Oct Nov Dec
5-Year Range
5-Year Average
Commentary
Over the past 10 years, the oil-gas ratio has averaged approximately 8x. 2009 represented an extreme (average ratio of ~17x) because of the combination of severe natural gas demand erosion and increasing supplies. A new range for the ratio appears to have emerged, however, as the average in 2010 was roughly 19x. Industrial demand has rebounded from the 2009 lows and weather-induced electricity demand has been strong the last 12 months without a large reaction in natural gas prices. Meanwhile, oil prices had been range-bound between $70 and $85/Bbl for much of 2010 before breaking through $90/Bbl in December, correlating with broader global commodities. As a result, several companies have adjusted their capex programs, allocating more capital to oil and liquids-rich projects in order to maximize returns. This is also illustrated in the subsequent rig count data (see Pages 8 and 9) the U.S. oil rig count has increased over 250% from the June 2009 low, while the U.S. gas rig count is up just under 50%. We expect the oil-gas ratio to remain above historical levels in the near-term, thus continuing to favor oil-weighted producers.
Page 14
Source: Bloomberg, Nomura Securities International.
Rig Counts
U.S. Rig Count
2,250 2,000 1,750 1,500 1,250 1,000 750 500 250 250 750 500 1,000 1,250
International Rig Count
U.S. Gas Rig Count

1,800 1,600 1,400 1,200 1,000 800 600 400 200 900 800 700 600 500 400 300 200 100 -
U.S. Oil Rig Count
Page 15
Source: Baker Hughes Inc.
Rig Counts
U.S. On Land Rig Count
2,250 2,000 1,750 1,500 1,250 1,000 750 500 250 180 160 140 120 100 80 60 40 20 -
U.S. Offshore Rig Count
U.S. Horizontal Rig Count

1,000 900 800 700 600 500 400 300 200 100 1,100 1,000 900 800 700 600 500 400 300 200 100 -
U.S. Vertical Rig Count
Page 16
Source: Baker Hughes Inc.
Exploration & Production Recommendations
Page 17
Relative Value
Issuer Apache Corp. Sr. Notes Outst. Ratings $mn A3 / A500 A3 / A1,500 A3 / A500 Ba1 / BBB1,750 Ba1 / BBB2,000 Ba1 / BBB300 Ba1 / BBB600 Ba1 / BBB1,750 Ba1 / BBB750 Baa1 / BBB 1,100 Baa1 / BBB 400 Baa1 / BBB 1,100 Baa2 / BBB+ 1,299 Baa2 / BBB+ 1,400 Baa1 / BBB+ 700 Baa1 / BBB+ 1,000 Baa2 / BBB+ 700 Baa2 / BBB+ 500 Baa2 / BBB+ 500 Baa2 / BBB+ 800 Baa2 / BBB 1,000 Baa2 / BBB 750 Baa2 / BBB 1,250 Baa1 /*- / BBB+ /*- 687 Baa1 /*- / BBB+ /*- 750 Baa3 /*- / BBB300 Baa3 /*- / BBB- 1,250 Baa3 /*- / BBB700 Baa2 / BBB 1,000 Baa2 / BBB 250 Baa2 / BBB 600 Baa2 / BBB 600 Coupon (%) 3.625 5.100 5.250 5.950 6.375 6.950 8.700 6.450 6.200 5.700 5.900 6.250 5.700 6.750 6.300 7.950 5.900 6.500 6.625 6.500 8.125 6.000 5.600 7.500 6.600 6.200 6.400 7.500 8.250 8.000 3.750 6.250 Maturity 2/1/2021 9/1/2040 2/1/2042 9/15/2016 9/15/2017 6/15/2019 3/15/2019 9/15/2036 3/15/2040 5/15/2017 2/1/2018 3/15/2038 10/15/2019 11/15/2039 1/15/2019 4/15/2032 12/1/2017 5/15/2019 8/15/2037 2/1/2038 2/15/2019 1/15/2040 2/15/2041 2/15/2019 10/1/2037 7/30/2019 5/15/2037 7/30/2039 3/1/2019 4/1/2027 2/1/2021 2/1/2038 STW 72 91 91 220 264 196 180 213 208 140 30 107 60 120 41 95 165 59 149 150 88 118 120 44 112 165 207 218 110 162 115 130 Z-Sprd 66 129 128 181 195 231 224 265 256 79 91 151 84 164 81 153 89 93 197 197 131 160 160 85 158 195 258 270 153 240 110 175 Price 96.18 94.50 96.61 108.95 110.09 110.83 123.21 96.98 94.26 113.24 113.69 108.46 112.64 113.72 117.21 130.20 113.84 117.83 107.45 105.72 126.21 103.55 97.62 125.40 112.45 108.12 97.07 109.49 125.46 118.37 93.81 105.16 YTW 4.09 5.48 5.48 4.16 4.60 5.33 5.17 6.70 6.65 3.36 3.67 5.64 3.97 5.77 3.78 5.52 3.61 3.96 6.06 6.07 4.25 5.75 5.77 3.81 5.69 5.02 6.64 6.75 4.47 6.19 4.52 5.87 Reserves LTM Debt / Debt / (Boe) EBITDA(X) EBITDA(X) Boe 2,974 8,231 1.0x 2.14
Anadarko Petroleum
Sr. Notes
2,304
6,737
2.0x
5.53
Canadian Natural Res.
Sr. Notes
3,557
7,284
1.2x
2.72
Cenovus Energy Devon Energy EnCana Corp.
Sr. Notes Sr. Notes Sr. Notes
1,398 2,624 1,920
3,024 4,875 5,460
1.2x 1.2x 1.4x
2.62 2.66 4.05
Hess Corp.
Sr. Notes
1,482
6,574
0.8x
3.11
Marathon Oil Nexen Inc.
Sr. Notes Sr. Notes
1,076 881
7,247 3,929
1.1x 1.4x
7.93 7.89
Noble Energy Talisman Energy
Sr. Notes Sr. Notes
841 1,118
2,130 4,441
1.0x 0.8x
2.48 3.18
Page 18
Relative Value
Issuer Chesapeake Energy Ratings Sr. Notes Ba3 / BB Ba3 / BB Ba3 / BB Ba3 / BB Ba3 / BB Ba3 / BB Sr. Subordinated Ba2 / BB+ Ba2 / BB+ Ba2 / BB+ Sr. Notes Ba1 / BB+ Ba1 / BB+ Ba1 / BB+ Ba1 / BB+ Ba1 / BB+ Sr. Notes B1 / BBB1 / BBB1 / BBB1 / BBB1 / BBB1 / BBSr. Subordinated Ba3 / BB Ba3 / BB Ba3 / BB Ba3 / BB Ba3 / BB Ba3 / BB Outst. $mn 1,425 1,100 600 800 1,400 499 550 600 700 455 485 450 450 250 600 565 500 400 400 300 150 250 250 250 300 500 Coupon (%) 9.500 6.500 6.875 7.250 6.625 6.875 6.625 7.125 6.875 5.875 6.650 6.875 7.500 7.200 7.750 10.000 7.000 7.625 8.625 7.625 6.375 7.500 7.500 7.250 8.000 6.750 Maturity 2/15/2015 8/15/2017 8/15/2018 12/15/2018 8/15/2020 11/15/2020 4/15/2016 5/15/2018 2/1/2020 7/15/2016 3/15/2017 5/1/2018 1/15/2020 1/15/2028 6/15/2015 3/1/2016 3/15/2017 6/1/2018 10/15/2019 4/1/2020 3/15/2015 5/15/2016 10/1/2017 5/1/2018 5/15/2019 8/1/2020 STW 312 410 268 281 289 307 253 173 209 301 337 234 255 232 269 343 405 265 321 272 326 287 388 250 252 269 Z-Sprd 338 345 376 327 303 318 423 417 376 268 284 293 281 306 435 456 427 507 502 433 474 455 518 450 451 322 Price 116.00 102.25 103.75 106.50 102.50 103.00 103.75 107.50 107.75 104.25 106.75 106.75 110.75 103.00 105.00 113.50 103.50 106.75 110.00 108.50 102.25 104.50 106.00 106.00 109.50 104.00 YTW 5.09 6.08 6.07 6.20 6.27 6.46 4.50 5.11 5.48 4.98 5.35 5.73 5.94 6.90 4.67 5.41 6.03 6.04 6.59 6.11 5.24 4.85 5.86 5.89 5.91 6.08 Next Call Reserves LTM Debt / (Boe) EBITDA(X) EBITDA(X) 2,102 5,099 2.2x Debt / Boe 5.18
8/15/2013
Newfield Exploration
4/15/2011 5/15/2013 2/1/2015
603
1,208
1.8x
3.38
Pioneer Natural Res.
899
1,248
2.0x
3.07
Plains E&P
Range Resources
6/15/2011 3/1/2013 3/15/2012 6/1/2013 10/15/2014 4/1/2015 2/18/2011 5/15/2011 10/1/2012 5/1/2013 5/15/2014 8/1/2015
349
985
2.8x
7.37
521
609
3.0x
3.28
Debt/Proved Reserves metrics for the following companies are typically in $/Mcfe: Chesapeake ($0.86/Mcfe); Newfield ($0.56/Mcfe); and Range Resources ($0.54/Mcfe)
Page 19
Anadarko Petroleum Company (APC)

Ratings Ba1 / BBBBa1 / BBBBa1 / BBBBa1 / BBBBa1 / BBBBa1 / BBBOutstanding $mm Coupon (%) 1,750 5.950 2,000 6.375 300 6.950 600 8.700 1,750 6.450 750 6.200 Maturity 9/15/2016 9/15/2017 6/15/2019 3/15/2019 9/15/2036 3/15/2040 STW 220 264 196 180 213 208 Z-Sprd 181 196 230 223 265 256 Price 108.79 109.97 110.71 123.10 96.76 94.03 YTW 4.19 4.62 5.35 5.19 6.72 6.67
Company Snapshot
Reserves (MMBoe) % Oil % Proved Developed Reserve Life (R/P) Daily Production (MBoe/d) LTM EBITDAX 2,304 44% 70% 10.5 629 6,737 7,374 4,218 13,471 37,566 46,819 2.0x 5.85 6.9x 20.32
Sr. Notes Sr. Notes Sr. Notes Sr. Notes Sr. Notes Sr. Notes
Relative Value
We maintain our HOLD recommendation on Anadarko senior notes. We are comfortable holding the APC senior notes at current levels and we still see longer-term upside once the Macondo liability is resolved. However, we view current spreads as somewhat full given our spread targets and the uncertainty/risk still surrounding the situation. Note that the APC 2019s trade roughly 120 bp through high yield benchmark issuer Chesapeake Energy and roughly 80 bp outside of wider-trading IG names like Talisman Energy. Under our base case scenario where APC is responsible for $5-8bn in spill liabilities, we would expect split-rated (Ba1/BBB-/BBB-) APC to trade roughly 50-75 bp behind TLM.
2011 EBITDAX Cash Total Debt Market Capitalization Enterprise Value Debt/EBITDAX Debt/Reserves EV/EBITDAX EV/Reserves
Business Description
Anadarko Petroleum Corporation is one of the worlds largest independent oil and gas producers, with proved reserves of 2.3 billion barrels of oil equivalent and operations in the United States, Brazil, Africa, China, and Indonesia. In 2009, the company produced 603 MBoe/d of hydrocarbons, approximately 60% of which was natural gas. In addition to its oil and gas operations, Anadarko owns natural gas gathering, processing, treating, and transportation assets in the United States. Anadarkos major growth projects include the Marcellus, Eagle Ford, and Haynesville shale plays and self-titled Mega Projects in the Gulf of Mexico and Africa.
Page 20
Anadarko Petroleum Company (APC)

Financial Summary
2008 EBITDAX Operating Cash Flow Capital Expenditures Dividends Free Cash Flow Divestitures Share Repurchases Adjusted Cash Flow Cash Debt/EBITDAX Net Debt/EBITDAX 9,304 6,464 (4,801) (171) 1,492 2,455 (676) 3,271 2,360 1.3x 1.1x 2009 4,341 3,926 (4,352) (176) (602) 176 (35) (461) 3,531 2.9x 2.1x 2010E 6,659 5,159 (5,013) (182) (36) 44 (35) (27) 2,917 1.8x 1.3x 2011E 7,374 5,533 (5,400) (184) (51) (51) 2,581 1.6x 1.2x U.S. Onshore 75% Deepwater GOM 12%
2009 Proved Reserves

International 13%
Operations Summary
2008 Production (MBoe/d) Realized Price ($/Boe) Lease Operating Expenses Production Taxes G&A Interest Cash Costs F&D Costs Full Cycle Costs Recycle Ratio 563 60.97 8.04 7.05 4.20 3.55 22.84 24.37 47.21 1.56 2009 603 33.96 6.92 3.39 4.47 3.19 17.97 16.93 34.90 0.94 2010E 649 42.52 6.76 4.70 3.94 3.45 18.84 2011E 693 44.32 6.95 5.36 3.73 3.01 19.04
2010 Capital Expenditures

Midstream/ Other 12% Gulf of Mexico 16% U.S. Onshore 44%
International 30%
Page 21
Apache Corporation (APA)

Outstanding $mm Coupon (%) 500 1,500 500 3.625 5.100 5.250
Ratings Sr. Notes Sr. Notes Sr. Notes A3 / AA3 / AA3 / A-
Maturity 2/1/2021 9/1/2040 2/1/2042
STW 72 91 91
Z-Sprd 66 129 129
Price 96.07 94.32 96.42
YTW 4.11 5.49 5.49
Company Snapshot
Reserves (MMBoe) % Oil % Proved Developed Reserve Life (R/P) Daily Production (MBoe/d) 2,974 45% 69% 11.1 667 8,231 11,273 1,211 8,182 48,265 55,235 1.0x 2.75 6.7x 18.57
Relative Value
We are revising our BUY rating to HOLD on APA senior notes. We had previously expressed the view that APAs recent acquisition spree provided an opportunity to buy APA paper at a discount to historical trading levels. We still view APA as a core holding in the high-quality energy space, with levels now more in-line with single-A rated energy names, the trade has largely played out and we see little opportunity for material tightening/outperformance from current levels.
LTM EBITDA 2011 EBITDA Cash Total Debt Market Capitalization Enterprise Value Debt/EBITDA Debt/Reserves EV/EBITDA EV/Reserves
Apache Corporation is one of the worlds largest independent exploration and production companies with proved reserves of approximately 3 billion barrels of oil equivalent and operations in: the Gulf of Mexico; Gulf Coast; East Texas; Permian Basin; Anadarko Basin; Canadian Western Sedimentary Basin; Egypt; Western Australia; North Sea; and Argentina. In 2009, the company produced 583 MBoe/d, approximately 50% of which was oil. Additionally, Apache owns 51% of Kitimat LNG Inc.s proposed LNG export terminal in British Columbia (and has reserved 51% of gas throughput capacity in the terminal).
Page 22
Apache Corporation (APA)

Financial Summary
EBITDA Operating Cash Flow Capital Expenditures Dividends Free Cash Flow Acquisitions Divestitures Share Repurchases Adjusted Cash Flow Cash Debt/EBITDA Net Debt/EBITDA 2008 8,988 7,065 (5,823) (239) 1,003 (150) 308 1,161 1,181 0.5x 0.4x 2009 5,846 4,224 (3,631) (209) 384 (310) 2 76 2,048 0.9x 0.5x 2010E 8,831 6,748 (5,019) (203) 1,527 (7,450) (5,924) 1,165 0.9x 0.8x 2011E 11,273 8,937 (7,200) (204) 1,533 1,533 2,698 0.7x 0.5x

North Sea, 7% Australia, 13%
Argentina, 5%
Gulf Coast, 13% Central U.S., 27%
Egypt, 13%
Canada, 22%
Operations Summary
2008 Production (MBoe/d) Realized Price ($/Boe) Lease Operating Expenses Production Taxes G&A 534 63.04 9.76 5.03 1.48 2009 583 40.27 7.81 2.72 1.62 2010E 672 49.39 8.04 2.95 1.60 2011E 823 51.11 8.10 3.25 1.66
2010 Pro Forma Production

North Sea, 7% Australia, 12% Argentina, 6% Egypt, 22%
Interest
Cash Costs F&D Costs Full Cycle Costs Recycle Ratio
0.85
17.12 25.97 43.09 1.77
1.14
13.28 17.95 31.23 1.50
1.14
13.73
1.45
14.46 Permian, 12% Canada, 15%
Central U.S., 5%
Gulf Coast Onshore, 2% Page 23 GOM Shelf, 17% GOM DW, 2%
Canadian Natural Resources Ltd. (CNQ)

Ratings Sr. Notes Sr. Notes Baa1 / BBB Baa1 / BBB Outstanding $mm Coupon (%) 1,100 400 5.700 5.900 Maturity 5/15/2017 2/1/2018 STW 140 30 Z-Sprd 79 90 Price 113.12 113.60 YTW 3.38 3.69
Company Snapshot
Reserves (MMBoe) % Oil % Proved Developed Reserve Life (R/P) Daily Production (MBoe/d) LTM EBITDA 2011 EBITDA 3,557 85% 75% 17.0 621 7,284 8,685
Sr. Notes
Baa1 / BBB
1,100
6.250
3/15/2038
107
151
108.27
5.65
Relative Value
We are maintaining our BUY recommendation on Canadian Natural Resources (CNQ) senior notes. We are attracted to CNQs exposure to crude oil pricing (70% of production), low leverage, and free cash flow profile. We view the company as a core holding in the large independent E&P universe. From a tactical perspective, we are cognizant that the company may access the debt markets to refinance recent and pending maturities (C$400mn 12/2010 and $400mn 7/2011) and its outstanding revolver draws (C$1.4B at 9/30/10). We believe that new issuance may provide an attractive opportunity to establish or add to existing positions. We are monitoring the recent (January 2011) damage to the Horizon oil sands project (15% production). Our initial impression is that the damage will be disruptive in the short-term but likely prove to be manageable based on the industrys historical experience with oil sands accidents. There remains little information available on Horizon, but typical incidents at competitor Suncor have resulted in 2-6 months of downtime. CNQ maintains a C$2bn umbrella policy that covers business interruptions after 90 days.
Cash
Total Debt Market Capitalization
27
8,490 45,263
Enterprise Value
Debt/EBITDA Debt/Reserves EV/EBITDA EV/Reserves
53,726
1.2x 2.39 7.4x 15.10
Canadian Natural Resources Ltd. is one of the worlds largest independent exploration and production companies, with approximately 3.6 billion barrels of oil equivalent of proved reserves. With 90% of its production and reserves located in North America, CNQ is the largest heavy oil producer in Canada and 2nd largest independent natural gas producer in Canada. Canadian Naturals Horizon Oil Sands began development in 2005 and are estimated to contain 16 billion barrels of oil in place and 6-8 billion barrels of mineable reserves and contingent resources. In addition to its North American assets, CNQ has reserves in the North Sea and Offshore West Africa.
Page 24
Canadian Natural Resources Ltd. (CNQ)

Financial Summary
EBITDA Operating Cash Flow Capital Expenditures Dividends Free Cash Flow Acquisitions Divestitures Share Repurchases Adjusted Cash Flow Cash Debt/EBITDA Net Debt/EBITDA 2008 9,520 6,767 (7,433) (208) (874) 20 (854) 27 1.4x 1.4x 2009 5,741 5,812 (2,985) (225) 2,602 36 2,638 13 1.7x 1.7x 2010E 7,455 6,299 (4,963) (301) 1,035 3 1,038 109 1.2x 1.2x 2011E 8,685 6,643 (5,800) (324) 519 519 228 1.0x 1.0x

North Sea 7% West Africa 4%
North America 89%
Operations Summary
2008 Production (MBoe/d) Realized Price ($/Boe) Lease Operating Expenses Production Taxes G&A Interest Cash Costs F&D Costs Full Cycle Costs Recycle Ratio 565 68.26 21.22 0.86 0.87 0.62 23.57 18.81 42.38 2.38 2009 575 44.15 20.05 0.51 0.86 1.95 23.37 1.48 24.85 14.01 2010E 631 52.98 22.31 0.59 0.93 1.95 25.78 2011E 676 59.76 20.50 0.65 0.95 2.05 24.15

Horizon 19% West Africa 7%
North Sea 6% North America Conventional 68%
Page 25
Cenovus Energy Inc. (CVE)

Ratings Sr. Notes Sr. Notes Baa2 / BBB+ Baa2 / BBB+ Outstanding $mm Coupon (%) 1,299 1,400 5.700 6.750 Maturity 10/15/2019 11/15/2039 STW 60 120 Z-Sprd 83 165 Price 112.53 113.35 YTW 3.99 5.79
Company Snapshot
Reserves (MMBoe) 1,398
% Oil
% Proved Developed Reserve Life (R/P)
82%
42% 14.6 251 3,024 3,669 464 3,574 24,234 27,344 1.2x 2.56 9.0x
Relative Value
We are affirming our BUY recommendation on Cenovus Energy senior notes. We still recommend swapping out of EnCana 6.5% of 2019 into Cenovus 5.7% of 2019 for roughly flat spread and a take-out of $5 in dollar price. We prefer CVEs exposure to crude oil pricing (~50% liquids volumes compared with EnCanas pure-play natural gas) and superior free cash flow profile (we expect EnCana to generate negative free cash flow in 2011). We are attracted to the longer-term potential of Cenovuss best in class oil sands operations at Christina Lake and Foster Creek. While oil sands production currently accounts for ~20% of volumes, CVE plans to steadily ramp up production to 200 MBbl/d by 2018 with staged expansion programs. The conventional natural gas (50% production) and liquids (30% production) operations provide a good measure of stability, generating $11.5bn of annual free cash flow. With company-wide capital expenditures peaking in 2010, CVE should generate roughly $300mn in free cash flow in 2011.
Daily Production (MBoe/d) LTM EBITDA 2011 EBITDA Cash Total Debt Market Capitalization Enterprise Value Debt/EBITDA Debt/Reserves EV/EBITDA
EV/Reserves
19.56
Cenovus Energy Inc. is an integrated oil company headquartered in Calgary, Alberta. Its operations include enhanced oil recovery properties and established oil and natural gas production in Alberta and Saskatchewan. Cenovus has approximately 1.4 billion barrels of oil equivalent of proven reserves, 80% of which are oil. CVE began independent operations on December 1, 2009 following the arrangement with EnCana Corporation in which two independent publicly traded companies (Cenovus and EnCana) were created. Cenovuss enhanced oil recovery projects include Foster Lake, Christina Lake, and Pelican Lake, located in the Athabasca region in northeast Alberta. In addition to its upstream assets, Cenovus owns a 50% stake in two refineries in the United States: Wood River in Illinois and Borger in Texas (ConocoPhillips is the other 50% owner and the operator of both refineries).
Page 26
Cenovus Energy Inc. (CVE)

Financial Summary Financial Summary
EBITDA Operating Cash Flow Capital Expenditures Dividends Free Cash Flow Acquisitions Divestitures Share Repurchases Adjusted Cash Flow Cash Debt/EBITDA Net Debt/EBITDA 2008 4,665 2,845 (2,046) 799 47 846 188 0.8x 0.8x 2009 3,280 3,039 (2,165) (159) 715 222 937 155 1.1x 1.1x 2010E 3,146 2,628 (2,104) (600) (76) 312 236 356 1.1x 1.0x 2011E 3,669 3,089 (2,200) (600) 289 289 645 1.0x 0.8x
2009 Production
Other Canadian Plains 5% Foster Creek 15% Christina Lake 3% Athabasca 3% Other Bitumen 1% Weyburn 6% Southern Alberta 59%
Pelican Lake 8%
Operations Summary

Refining 33% Foster Creek 15%
Christina Lake 14%
Interest
2.35
28.17 28.39 56.56 1.05
2.56
26.94 4.76 31.70 5.28
2.98
31.63 4.76 36.40 3.51
2.85
32.45 4.76 37.21 4.77 Page 27 Natural Gas 10% Pelican Lake, Other Oil 28%
Chesapeake Energy Corporation (CHK)

Outstanding $mm Coupon (%) 1,425 1,100 600 800 499 1,400 9.500 6.500 6.875 7.25 6.875 6.625
Ratings Sr. Notes Sr. Notes Sr. Notes Sr. Notes Sr. Notes Sr. Notes Ba3 / BB Ba3 / BB Ba3 / BB Ba3 / BB Ba3 / BB Ba3 / BB
Maturity 2/15/2015 8/15/2017 8/15/2018 12/15/2018 11/15/2020 8/15/2020
STW 312 410 268 281 307 289
Z-Sprd 338 345 376 327 318 303
Price 116.00 102.25 103.75 106.50 103.00 102.50
YTW 5.09 6.08 6.07 6.20 6.46 6.27
Company Snapshot
Reserves (Bcfe) % Gas % Proved Developed Reserve Life (R/P) Daily Production (MMcfe/d) LTM EBITDA(X) 2011 EBITDA(X) 16,900 95% 58% 15.7 3,043 5,099 5,257
Relative Value
We are affirming our HOLD recommendation on Chesapeake Energy senior notes. We view benchmark issuer Chesapeake as a core holding in the HY energy space. CHK has assembled a well diversified, premier-quality asset base in key North American plays. Further, the company continues to post strong organic production and reserve growth. We view the recent strategic shift toward liquids production (25% production volume target by 2015) as positive, but we remain cognizant of the attendant risks. We acknowledge Chesapeakes demonstrated success in executing large-scale development of unconventional resource plays. That said, transforming one of the largest natural gas producers toward liquids production carries a measure of operational risk. Management recently (Jan 2011) announced the so-called 25/25 plan, which aims to dial back growth over the next 2 years to 25% from its previous targeted of 30-40%, and to reduce debt by 25% over the same period. CHK plans to achieve these goals through reduced acreage acquisitions and additional asset monetizations. After +$4.5bn of acreage acquisitions in 2010, we view the plan as conservative but we note that CHK will remain free cash flow negative and reliant on asset sales/monetization to make up cash short-falls.
Cash
Total Debt Market Capitalization
609
11,445 18,064
Enterprise Value
Debt/EBITDAX Debt/Reserves EV/EBITDA(X) EV/Reserves
31,965
2.2x 0.68 6.3x 1.89
Chesapeake Energy Corporation is one of the largest independent exploration and production companies in the world. Chesapeake has approximately 13 trillion cubic feet equivalent of proved reserves and current production of 2.8 Bcfe/d, 90% of which is natural gas. Its core holdings are in the Big 6 natural gas shale plays: Barnett; Bossier; Fayetteville; Eagle Ford; Haynesville; and Marcellus. In addition to its substantial E&P assets, Chesapeake owns 50% of the General Partner, the associated Incentive Distribution Rights, and approximately 41% of the limited partner units of Chesapeake Midstream Partners (CHKM), a master limited partnership with 2,800 miles of gathering pipelines and approximately 1.5 Bcf/d of natural gas gathering capacity.
Page 28
Chesapeake Energy Corporation (CHK)

Financial Summary
EBITDAX Operating Cash Flow Capital Expenditures Dividends Free Cash Flow Acquisitions Divestitures Share Repurchases Adjusted Cash Flow Cash Debt/EBITDAX Net Debt/EBITDAX 2008 5,851 5,236 (9,177) (183) (4,124) (8,472) 7,670 (5) (4,931) 1,749 2.3x 2.0x 2009 4,509 4,356 (5,226) (204) (1,074) (2,298) 1,926 (7) (1,453) 307 2.7x 2.7x 2010E 4,914 4,766 (6,785) (278) (2,297) (4,568) 4,555 (2,310) 609 2.4x 2.3x 2011E 5,257 4,563 (6,600) (352) (2,389) (1,000) 3,200 (189) 925 2.3x 2.1x

S. Appalachian Texas/Gulf/ArkBasin, 8% La-Tex, 4% Permian & Delaware Basins, 5% Barnett Shale, 24%
Mid-Continent, 29%
Fayetteville Shale, 15% Marcellus Shale, 2%
Haynesville Shale, 13%
Operations Summary
2008 Production (MMcfe/d) Realized Price ($/Mcfe) Lease Operating Expenses Production Taxes G&A 2,303 8.38 1.05 0.34 0.45 2009 2,481 6.22 0.97 0.12 0.39 2010E 2,797 4.38 0.90 0.28 0.35 2011E 3,315 6.62 0.90 0.30 0.35

Permian & Delaware Basins 9% S. Texas/Gulf/ArkLa-Tex 6% Appalachian Basin 1% Barnett Shale 34%
Mid-Continent 20%
Fayetteville Shale 5% Marcellus Shale 4% Haynesville Shale 21%
Interest
0.82
2.65 2.41 5.06 2.38
0.91
2.38 1.07 3.46 3.58
0.83
2.36
0.85
2.40
Page 29
Devon Energy Corporation (DVN)

Ratings Baa1 / BBB+ Baa1 / BBB+ Outstanding $mm Coupon (%) 700 6.300 1,000 7.950 Maturity 1/15/2019 4/15/2032 STW 41 95 Z-Sprd 80 153 Price 117.11 130.01 YTW 3.80 5.53
Company Snapshot
Reserves (MMBoe) % Oil % Proved Developed Reserve Life (R/P) Daily Production (MBoe/d) LTM EBITDA 2011 EBITDA Cash Total Debt Market Capitalization Enterprise Value Debt/EBITDA Debt/Reserves EV/EBITDA EV/Reserves 2,733 41% 70% 11.5 613 4,875 5,937 3,608 5,629 35,053 37,074 1.2x 2.06 7.6x 13.56
Sr. Notes Sr. Notes
Relative Value
We are affirming our HOLD recommendation on Devon Energy senior notes. Our recommendation is based on Devons tight trading levels relative to the IG energy space. We view Devon as a very well run, conservatively managed operator with a high quality portfolio of shale, oil sands, and conventional and unconventional onshore oil and natural gas assets. Devon has undergone a recent strategic shift out of the Gulf of Mexico and international plays, and the company is now focused on its North American operations. The portfolio shift was completed in 2010, generating ~$8bn of proceeds from asset sales. Devon will maintain a conservative credit profile with its use of proceeds balanced among debt reduction, share repurchases, and funding development drilling.
Devon Energy Corporation is an independent exploration and production company with operations onshore in the United States and Canada. Devon has approximately 2.6 billion barrels of oil equivalent of proved reserves, 40% of which are oil. In November 2009, Devon announced a strategic repositioning in which the company planned to sell all of its Gulf of Mexico and International assets and emerge as a high-growth North American onshore company. In addition, Devon has marketing and midstream assets including more than 13,000 miles of pipelines, storage and treating facilities, and 64 natural gas processing plants.
Page 30
Devon Energy Corporation (DVN)

Financial Summary
EBITDA Operating Cash Flow Capital Expenditures Dividends Free Cash Flow Acquisitions Divestitures Share Repurchases 2008 9,429 9,408 (8,843) (289) 276 117 (665) 2009 3,977 4,737 (4,879) (284) (426) 34 2010E 5,288 5,475 (6,043) (283) (851) (500) 8,391 (1,679) 2011E 5,941 4,920 (5,200) (288) (568) (1,500)

Lloydminster 3% Northwest 4% Jackfish 15% Other U.S. 11% Groesbeck 2% ArkomaWoodford Cana-Woodford 2% 3% Carthage 7% Deep Basin 2% Other Canada 4% Barnett 39%
Adjusted Cash Flow Cash Debt/EBITDA Net Debt/EBITDA
(272) 195 0.6x 0.6x
(392) 646 1.8x 1.7x
5,361 6,535 0.7x -0.5x
(2,068) 2,717 0.6x 0.2x
Washakie 3%
Permian 5%
Operations Summary

Other Unconventional, 18% Shale Plays, 47%
Interest
1.40
14.08 79.24 93.33 0.48
1.47
12.58 5.83 18.41 3.77
1.66
1.66
Conventional Plays, 23% Oil Sands, 12%
Page 31
EnCana Corporation (ECA)

Ratings Baa2 / BBB+ Baa2 / BBB+ Baa2 / BBB+ Baa2 / BBB+ Outstanding $mm Coupon (%) 700 5.900 500 6.500 500 6.625 800 6.500 Maturity 12/1/2017 5/15/2019 8/15/2037 2/1/2038 STW 165 59 149 150 Z-Sprd 89 92 197 197 Price 113.70 117.72 107.27 105.54 YTW 3.63 3.98 6.07 6.08
Company Snapshot
Reserves (Bcfe) % Gas % Proved Developed 11,522 96% 59%
Sr. Notes Sr. Notes Sr. Notes Sr. Notes
Reserve Life (R/P)

Daily Production (MMcfe/d) LTM EBITDA 2011 EBITDA Cash Total Debt Market Capitalization Enterprise Value
10.5
3,319 5,460 3,305 1,397 7,586 22,537 28,726
Relative Value
We are affirming our SELL recommendation on EnCana Corporation senior notes. Given the more challenging fundamentals in North American natural gas and relatively tight spread range of the IG E&P peer group, we prefer exposure to the more oil-weighted names such as Canadian Natural Resources and Cenovus Energy. With the recent spin-off of Cenovus, EnCana is a pure-play natural gas producer with top-tier North American properties, including considerable acreage in high-potential plays. While we acknowledge the high asset quality and very competitive cost structure, we expect that high development spending and weaker natural gas prices will result in negative free cash flow of $2.3bn in 2011.
Debt/EBITDA
Debt/Reserves EV/EBITDA EV/Reserves
1.4x
0.66 5.3x 2.49
EnCana Corporation is an independent exploration and production company with operations in North America, stretching from Louisiana to northeast British Columbia. EnCana has approximately 11.5 trillion cubic feet equivalent of proved reserves, 95% of which are natural gas. On November 30, 2009, EnCana completed its corporate reorganization to split into two independent companies EnCana Corporation, a natural gas company, and Cenovus Energy, Inc., an integrated oil company. EnCanas major development areas include: the Haynesville Shale; the Horn River Basin; the Montney shale; the Maverick Basin in South Texas; and the Piceance Basin.
Page 32
EnCana Corporation (ECA)

Financial Summary
EBITDA Operating Cash Flow Capital Expenditures Dividends Free Cash Flow Acquisitions Divestitures Share Repurchases Adjusted Cash Flow Cash Debt/EBITDA Net Debt/EBITDA 2008 11,286 8,986 (7,997) (1,199) (210) 904 (326) 368 354 0.8x 0.8x 2009 8,779 7,873 (4,864) (1,051) 1,958 (24) 1,178 3,112 4,275 0.9x 0.4x 2010E 4,577 2,248 (4,837) (590) (3,179) 574 (499) (3,104) 1,397 1.8x 1.5x 2011E 3,305 3,038 (4,800) (588) (2,350) (2,350) 1,397 3.2x 2.7x

Greater Sierra 9% Jonah 18% Other 6% Haynesville 6% Cutback Ridge 13% Piceance 13%
Fort Worth 7%
Horn River 2% Bighorn 7% CBM 12% East Texas 7%
Operations Summary
2008 Production (MMcfe/d) Realized Price ($/Mcfe) Lease Operating Expenses Production Taxes G&A 3,133 8.40 3.22 0.42 0.39 2009 3,003 7.08 2.65 0.16 0.44 2010E 3,330 5.79 1.55 0.20 0.29 2011E 3,493 5.44 1.64 0.24 0.33

Forth Worth 1% East Texas 6% Bighorn 5% Jonah 9% Piceance 4% Haynesville 28%
Interest
0.35
4.37 3.00 7.37 1.34
0.37
3.61 7.39 11.00 0.47
0.42
2.47
0.42
2.63
CBM 9%
Horn River 9%
Other 13% Greater Sierra 2% Cutback Ridge 8% Deep Panuke 6%
Page 33
Hess Corporation (HES)

Ratings Baa2 / BBB Baa2 / BBB Baa2 / BBB Outstanding $mm Coupon (%) 1,000 8.125 750 1,250 6.000 5.600 Maturity 2/15/2019 1/15/2040 2/15/2041 STW 88 118 120 Z-Sprd 130 160 161 Price 126.10 103.36 97.44 YTW 4.27 5.76 5.78
Company Snapshot
Reserves (MMBoe) 1,437
% Oil
% Proved Developed Reserve Life (R/P) Daily Production (MBoe/d) LTM EBITDAX 2011 EBITDAX Cash Total Debt Market Capitalization Enterprise Value Debt/EBITDAX Debt/Reserves EV/EBITDAX
67%
59% 9.7 413 6,574 6,537 2,353 5,584 27,012 30,243 0.8x 3.89 4.6x
Relative Value
We are affirming our SELL recommendation on Hess Corporation senior notes. HES has one of the highest leverage to oil prices given its production mix (~70% liquids) and minimal hedging policy. In addition, HES has amassed a strong position in the very attractive, liquid-rich Bakken shale. Although the area accounts for ~5% of current production, the basin should support longer-term production growth in the US onshore. That said, we note that roughly half of the companys production is from Africa (Equatorial Guinea, Libya, Algeria, Gabon) and Asia (Malaysia, Thailand, Indonesia) and the company will direct significant capital to higher-risk international prospects. While the current GOM drilling ban will likely not have a material near-term effect on HES production profile (~15% volumes), the company does hold significant leases in the Gulf of Mexico and the area remains a key contributor to longer-term production and reserves growth.
EV/Reserves
21.04
Hess Corporation is an integrated energy company with operations in Africa, Europe, Russia, South America, Southeast Asia, the United Kingdom, and the United States. Hess has approximately 1.4 billion barrels of oil equivalent of proved reserves, 65% of which are oil. In addition, Hess owns a 50% interest in HOVENSA L.L.C, a refining joint venture in the U.S. Virgin Islands with PDVSA, and a refinery in Port Reading, New Jersey. The company markets refined products, natural gas and electricity in the United States though its 1,357 HESS gasoline stations, 21 storage terminals, and 50% interest in Bayonne Energy Center, LLC.
Page 34
Hess Corporation (HES)

Financial Summary
EBITDAX Operating Cash Flow Capital Expenditures Dividends Free Cash Flow Acquisitions Divestitures Share Repurchases Adjusted Cash Flow Cash Debt/EBITDAX Net Debt/EBITDAX 2008 7,789 4,688 (4,438) (130) 120 120 908 0.5x 0.4x 2009 5,010 3,046 (2,918) (131) (3) (3) 1,362 0.9x 0.6x 2010E 6,397 4,053 (4,451) (164) (562) (1,546) 183 (1,925) 2,353 1.2x 0.8x 2011E 6,537 4,391 (4,200) (139) 53 53 2,406 1.1x 0.8x

Asia and Other 26% United States 21%
Africa 23%
Europe 30%
Operations Summary
2008 Production (MBoe/d) Realized Price ($/Boe) Lease Operating Expenses G&A Interest Cash Costs 381 69.74 13.43 2.17 1.92 17.51 2009 408 44.82 12.12 1.71 2.42 16.25 2010E 414 55.94 12.50 1.72 2.29 16.51 2011E 421 59.36 12.65 1.75 2.21 16.61

Refining and Marketing 4% United States E&P 37%
F&D Costs
Full Cycle Costs Recycle Ratio
16.48
33.99 3.17
20.35
36.60 1.40 Page 35
International E&P 59%
Marathon Oil Corporation (MRO)

Ratings
Outstanding $mm Coupon (%) 687

750
Maturity
STW
Z-Sprd
Price
YTW
Company Snapshot
Reserves (MMBoe) % Oil % Proved Developed Reserve Life (R/P) Daily Production (MBoe/d) LTM EBITDA 2011 EBITDA Cash Total Debt Market Capitalization Enterprise Value Debt/EBITDA Debt/Reserves EV/EBITDA EV/Reserves 1,679 73% 71% 11.6 386 6,636 9,959 2,062 7,930 30,335 36,203 1.2x 4.72 5.5x 21.56
Sr. Notes
Sr. Notes
Baa1 /*- / BBB+ /*Baa1 /*- / BBB+ /*-
7.500
6.600
2/15/2019
10/1/2037
44
112
84
158
125.29
112.26
3.83
5.70
Relative Value
We are affirming our HOLD recommendation on Marathon Oil senior notes. While the recently announced plan to spin-off the refining business will be neutral from a financial leverage perspective, the business profile will be diminished by the loss of the high-quality refining operations, in our opinion. However, management plans to reduce debt by $2.5bn (likely through tender offers) and market technicals will likely keep the notes from materially widening from current levels, in our opinion. Marathon recently (Jan 2010) announced a plan to spin off the downstream business, creating an independent E&P and independent refiner. MRO plans to reduce existing debt by $2.5bn from cash on hand ($1.6bn) and distributions from the spin-co, which will raise $2.5-3bn of debt and maintain cash on hand at about $750mn. We estimate that leverage at post-spin MRO will be roughly unchanged at 1.0x debt/EBITDA (0.7x net) and the refining entity, MPE, will be levered at roughly 1.9x debt/EBITDA (1.4x net). S&P and Moodys have indicated that both entities likely will be rated Baa2/BBB.
Marathon Oil Corporation is an integrated energy company with operations in Africa, Europe, North America, and Southeast Asia. Marathon has proved reserves of approximately 1.7 billion barrels of oil equivalent, 70% of which are oil. Additionally, the companys integrated gas segment markets and transports products manufactured from natural gas, such as LNG and methanol. In its refining, marketing, and transportation segment, Marathon owns and operates six refineries in the United States with aggregate refining capacity of 1.1 million barrels per day and distributes refined products through approximately 5,100 Marathon-branded retail outlets. Marathon also owns a product transportation system including terminals, pipelines, inland waterway tow boats and barges, tractor-trailer units, and rail cars.
Page 36
Marathon Oil Corporation (MRO)

Financial Summary
EBITDA Operating Cash Flow Capital Expenditures Dividends Free Cash Flow Acquisitions Divestitures Share Repurchases Adjusted Cash Flow Cash Debt/EBITDA Net Debt/EBITDA 2008 9,433 6,752 (6,989) (681) (918) 999 (402) (321) 1,285 0.8x 0.6x 2009 5,851 5,268 (6,231) (679) (1,642) 865 (777) 2,057 1.5x 1.1x 2010E 7,868 5,086 (4,869) (706) (489) 1,361 872 2,301 1.0x 0.7x 2011E 9,959 6,560 (5,080) (712) 768 768 3,069 0.8x 0.5x

Africa 39%
Europe 7% United States 18%
Canada 36%
Operations Summary

Refining, Marketing and Transportation, 25% Corporate and Other, 10%
F&D Costs
26.63
37.68 1.94
48.58
61.44 0.59 Page 37 Oil Sands Mining, 9% E&P, 56%
Newfield Exploration Company (NFX)

Ratings Sr. Subordinated Sr. Subordinated Sr. Subordinated Ba2 / BB+ Ba2 / BB+ Ba2 / BB+
Outstanding $mm Coupon (%)

550 600 700 6.625 7.125 6.875
Maturity 4/15/2016 5/15/2018 2/1/2020
STW 253 173 209
Z-Sprd 423 417 376
Price 103.75 107.50 107.75
YTW 4.50 5.11 5.48
Next Call 4/15/2011 5/15/2013 2/1/2015
Company Snapshot
Reserves (Bcfe) % Oil % Proved Developed Reserve Life (R/P) Daily Production (MMcfe/d) LTM EBITDA 2011 EBITDA Cash Total Debt Market Capitalization Enterprise Value Debt/EBITDA Debt/Reserves EV/EBITDA EV/Reserves 3,619 28% 53% 14.3 763 1,208 1,692 128 2,169 9,473 11,514 1.8x 0.60 9.5x 3.18
Relative Value
We are affirming our HOLD recommendation on Newfield Exploration senior subordinated notes. With the sub notes trading 20-40 bp inside of Pioneer and Chesapeake Energy, NFX is one of the tightest trading high yield energy names. Newfields operations are performing well and management is directing capital toward development of its liquids plays. We expect the company to generate free cash flow in 2011, protected by significant (60-65%) hedges on its natural gas production at attractive prices ($6.35/Mcf).
Newfield Exploration Company is an independent oil and gas company with operations in the U.S. in the Anadarko Basin, Arkoma Basin, Rocky Mountains, onshore Texas, and Gulf of Mexico and internationally in Malaysia and China. In 2009, Newfield signed a joint exploration agreement with Hess Corporation covering up to 140,000 gross acres in Marcellus shale play. Newfield has proved reserves of approximately 3.6 trillion cubic feet equivalent, 30% of which are oil. The companys strategy is to focus on domestic, unconventional resource plays, which represent approximately 80% of proved reserves.
Page 38
Newfield Exploration Company (NFX)

Financial Summary
EBITDA Operating Cash Flow Capital Expenditures Dividends Free Cash Flow Acquisitions Divestitures Share Repurchases Adjusted Cash Flow Cash Debt/EBITDA Net Debt/EBITDA 2008 1,662 854 (2,067) (1,213) (223) 9 (1,427) 24 1.3x 1.3x 2009 872 1,578 (1,392) 186 (9) 33 (1) 209 78 2.3x 2.2x 2010E 1,275 1,732 (1,637) 95 (209) 14 (14) (114) 118 1.7x 1.6x 2011E 1,692 1,974 (1,680) 294 294 412 1.3x 1.0x

Onshore Texas, 9% Gulf of Mexico, 5% International, 5%
Rocky Mountains, 26%
Mid-Continent, 55%
Operations Summary
2008 Production (MMcfe/d) Realized Price ($/Mcfe) Lease Operating Expenses Production Taxes G&A 646 8.30 1.12 0.66 0.60 2009 694 8.64 1.02 0.25 0.57 2010E 783 8.13 1.15 0.41 0.54 2011E 887 8.09 1.15 0.40 0.55

Onshore Texas 10% International 13% Mid-Continent 40%
Interest
0.47
2.86 2.89 5.75 1.88
0.50
2.34 1.35 3.69 4.67
0.55
2.66
0.54
2.64 Gulf of Mexico 14%
Rocky Mountains 23%

Page 39
Nexen Inc. (NXY)

Ratings Baa3 /*- / BBBBaa3 /*- / BBBBaa3 /*- / BBB-
Outstanding $mm Coupon (%) 300 6.200 1,250 6.400 700 7.500
Maturity 7/30/2019 5/15/2037 7/30/2039
STW 175 220 225
Z-Sprd 205 272 278
Price 107.27 95.35 108.36
YTW 5.14 6.78 6.83
Company Snapshot
Reserves (MMBoe) % Oil % Proved Developed Reserve Life (R/P) Daily Production (MBoe/d) LTM EBITDAX 920 93% 55% 11.8 213 3,929
Relative Value
We have revised our rating on Nexen long bonds to BUY from HOLD. Despite the pending downgrade to Ba1 at Moodys, we believe that current levels provide a good entry point for longer-term tightening potential of 20bp on the long end. We believe that a Ba1/BBB- rated Nexen, which is our base case scenario, should trade 10-15bp through Anadarko Petroleum. We like the lower dollar price NXYCN 5.875% of 2035 at +210bp ($90.80), trading flat on a curve basis of the APC 6.45% of 2036 ($97). We also note that there is a reasonable possibility that Nexen management obtains IG ratings from Fitch Ratings, which would keep NXYCN in the major IG credit indices and provide greater upside to our base case scenario. We had moved to a HOLD rating based partially on our concerns over technical selling pressures ahead of the pending Moodys downgrade. However, year-end 2010 positioning is now behind us and our sense is that bonds have largely transitioned from would-be forced sellers.
2011 EBITDAX
Cash Total Debt Market Capitalization Enterprise Value Debt/EBITDAX Debt/Reserves EV/EBITDAX EV/Reserves
4,122
1,210 5,678 12,562 17,030 1.4x 6.18 4.3x 18.52
Nexen Inc. is an independent, Canadian-based global energy company with 3 operating segments: oil sands, which includes a 65% operated interest in the Long Lake project and a 7.23% participating interest in Syncrude; conventional oil and gas, which includes properties in Canada, the Gulf of Mexico, the North Sea, offshore West Africa, and Yemen; and unconventional gas production in the Horn River Basin in northeastern British Columbia. Nexen has approximately 900 million barrels of oil equivalent of proved reserves, 93% of which are oil. In addition, the company has oil and gas marketing operations in North America as well as legacy power and chemicals businesses.
Page 40
Nexen Inc. (NXY)

Financial Summary
2008 EBITDAX Operating Cash Flow Capital Expenditures Dividends Free Cash Flow Acquisitions Divestitures Adjusted Cash Flow Cash Debt/EBITDAX Net Debt/EBITDAX 5,678 4,354 (3,044) (92) 1,218 (22) 6 1,202 2,003 1.2x 0.8x 2009 3,232 1,886 (2,742) (104) (960) (755) 17 (1,698) 1,700 2.2x 1.7x 2010E 3,607 2,665 (2,760) (104) (199) 1,256 1,057 1,288 1.6x 1.2x 2011E 4,122 3,079 (2,700) (104) 275 275 1,563 1.4x 1.0x United Kingdom, 19% Syncrude, 31%

United States, 5% Canada, 8% Yemen, 1% Other, 4% Long Lake, 32%
Operations Summary

Other Countries 7% Canada 24% Chemicals 4% North Sea 33%
F&D Costs
30.03
45.64 2.47
NM
NM NM Page 41 West Africa 25% Gulf of Mexico 7%
Noble Energy, Inc. (NBL)

Ratings Baa2 / BBB Baa2 / BBB Outstanding $mm Coupon (%) 1,000 8.250 250 8.000 Maturity 3/1/2019 4/1/2027 STW 110 162 Z-Sprd 152 240 Price 125.35 118.22 YTW 4.49 6.20
Company Snapshot
Reserves (MMBoe) % Oil % Proved Developed Reserve Life (R/P) Daily Production (MBoe/d) 820 41% 67% 10.7 229 2,130 2,582 1,149 2,194 14,547 15,592 1.0x 2.68 7.3x 19.01
Sr. Notes Sr. Notes
Relative Value
We are affirming our HOLD recommendation on Noble Energy senior notes. Noble is a smaller independent energy company with sizeable non-traditional international development projects. Its recent discovery, Tamar in offshore Israel, has significant upside potential over the next 2-3 years. We note that the companys far flung operations and acreage positions may appear somewhat unfocused, and we have some concern over the development capital requirements relative to Nobles smaller size. Still, Noble has to date successfully managed its sizeable development projects, maintaining a competitive cost structure and low financial leverage. We believe that Noble may need to access the capital markets to term out its credit facility and/or fund development spending. We believe that an issuance could provide an interesting entry point.
LTM EBITDAX 2011 EBITDAX Cash Total Debt Market Capitalization Enterprise Value Debt/EBITDAX Debt/Reserves EV/EBITDAX EV/Reserves
Noble Energy, Inc. is an independent energy company with U.S. operations in the Rocky Mountains, Mid-continent, and deepwater GOM and international operations in West Africa, China, Ecuador, Israel, and the North Sea. Noble has proved reserves of 841 million barrels of oil equivalent, 67% of which are oil. In 2009, Noble produced 210 MBoe/d of hydrocarbons, with natural gas constituting approximately 60%. Nobles major development projects are: Galapagos and Gunflint (deepwater Gulf of Mexico); Tamar (offshore Israel); and Aseng, Belinda and Diega/Carmen (offshore West Africa).
Page 42
Noble Energy, Inc. (NBL)

Financial Summary
EBITDAX Operating Cash Flow Capital Expenditures Dividends Free Cash Flow Acquisitions Divestitures Share Repurchases Adjusted Cash Flow Cash Debt/EBITDAX Net Debt/EBITDAX 2008 3,071 2,285 (1,971) (115) 199 (292) 131 (3) 35 1,140 0.7x 0.4x 2009 1,551 1,508 (1,268) (126) 114 3 (1) 116 1,014 1.3x 0.7x 2010E 2,218 1,930 (2,126) (127) (323) (458) 552 (12) (241) 1,149 1.1x 0.6x 2011E 2,582 1,946 (2,060) (128) (242) (242) 1,149 1.1x 0.6x

Israel 5% Other International 8% Wattenberg 33%
Equatorial Guinea 30% Other U.S. 10% Deepwater GOM 4%
Mid-Continent 10%
Operations Summary

Other International, 4% Deepwater GOM, 16%
Interest
0.88
11.74 32.90 44.64 1.14
1.10
11.31 51.97 63.28 0.34
1.00
11.99
1.02
12.38 Major International, 46% Page 43 U.S. Onshore, 34%
Pioneer Natural Resources Company (PXD)

Ratings Ba1 / BB+ Ba1 / BB+ Ba1 / BB+ Ba1 / BB+ Ba1 / BB+ Outstanding $mm Coupon (%) 455 5.875 485 6.650 450 6.875 450 7.500 250 7.200 Maturity 7/15/2016 3/15/2017 5/1/2018 1/15/2020 1/15/2028 STW 301 337 234 255 232 Z-Sprd 268 284 293 281 306 Price 104.25 106.75 106.75 110.75 103.00 YTW 4.98 5.35 5.73 5.94 6.90
Company Snapshot
Reserves (MMBoe) % Oil % Proved Developed Reserve Life (R/P) Daily Production (MBoe/d) LTM EBITDAX 2011 EBITDAX Cash Total Debt Market Capitalization Enterprise Value Debt/EBITDAX Debt/Reserves EV/EBITDA(X) EV/Reserves 899 54% 58% 21.4 113 1,214 1,510 198 2,531 10,730 13,063 2.1x 2.82 10.8x 14.54
Sr. Notes Sr. Notes Sr. Notes Sr. Notes Sr. Notes
Relative Value
We are affirming our HOLD recommendation on Pioneer Natural Resources senior notes. Pioneer has good scale, moderate leverage, and management is maintaining spending levels within cash flows despite its robust production targets. As operations ramp up in the Eagle Ford, Pioneer should be able to improve its relatively high company-wide finding costs. Should management continue to execute well and maintain its disciplined capital spending approach, we believe that Pioneer could be a longer-term candidate for a ratings upgrade to IG.
Pioneer Natural Resources Company is an independent exploration and production company with operations in the Unites States, South Africa and Tunisia. Pioneer has approximately 900 million barrels of oil equivalent of proved reserves, 54% of which are oil. The companys core asset base consists of the Spraberry field in West Texas, the Raton field in southern Colorado, the Hugoton field in southwest Kansas, and the West Panhandle field in the Texas Panhandle. In addition, Pioneer has exploration and development opportunities in the Eagle Ford Shale, the Barnett Shale, Alaska, and internationally in South Africa and Tunisia.
Page 44
Pioneer Natural Resources Company (PXD)

Financial Summary
EBITDAX Operating Cash Flow Capital Expenditures Dividends Free Cash Flow Acquisitions Divestitures Share Repurchases Adjusted Cash Flow Cash Debt/EBITDAX Net Debt/EBITDAX 2008 1,499 1,034 (1,444) (36) (446) 293 (182) (335) 48 1.9x 1.9x 2009 991 543 (463) (9) 71 52 (22) 101 27 2.8x 2.8x 2010E 1,263 1,187 (1,187) (10) (10) 298 (14) 274 78 2.0x 2.0x 2011E 1,510 1,457 (1,300) (9) 147 147 225 1.7x 1.6x

South Texas 5% Mid-Continent 11% Barnett 2% Alaska 2% Other 3%
Raton 21%
Spraberry 56%
Operations Summary

Barnett 5% Alaska 13% Tunisia 7% Other 5%
Interest
4.07
21.86 49.24 71.10 0.66
4.13
18.90 (28.71) (9.82) (0.68)
4.35
20.51 (28.71) (8.21) (0.90)
3.93
19.43 (28.71) (9.28) (1.01) Page 45
Eagle Ford 10%
Spraberry 60%
Plains Exploration & Production Company (PXP)

Ratings B1 / BBB1 / BBB1 / BBB1 / BBB1 / BBB1 / BBOutstanding $mm Coupon (%) 600 7.750 565 10.000 500 7.000 400 7.625 400 8.625 300 7.625 Maturity 6/15/2015 3/1/2016 3/15/2017 6/1/2018 10/15/2019 4/1/2020 STW 269 343 405 265 321 272 Z-Sprd 435 456 427 507 502 433 Price 105.00 113.50 103.50 106.75 110.00 108.50 YTW 4.67 5.41 6.03 6.04 6.59 6.11 Next Call 6/15/2011 3/1/2013 3/15/2012 6/1/2013 10/15/2014 4/1/2015
Company Snapshot
Reserves (MMBoe) % Oil % Proved Developed Reserve Life (R/P) Daily Production (MBoe/d) LTM EBITDA 2011 EBITDA Cash Total Debt Market Capitalization Enterprise Value Debt/EBITDA Debt/Reserves EV/EBITDA EV/Reserves 360 60% 64% 11.9 91 985 1,151 12 2,803 4,688 7,480 2.8x 7.80 7.6x 20.80
Sr. Notes Sr. Notes Sr. Notes Sr. Notes Sr. Notes Sr. Notes
Relative Value
In our opinion, Plains offers attractive yield relative to the upper-tier high yield E&P names. PXP trades roughly 50-70 bps wide of Range Resources and Pioneer Natural Resources. We are attracted to PXPs strong organic production growth, exposure to crude oil prices, and potential for debt reduction with proceeds of the pending deepwater Gulf of Mexico divestiture. PXPs legacy operations in California (~50% production) provide a good measure of stability and exposure to crude oil prices, while its Haynesville operations should drive organic production growth. Plains is in the process of selling its Gulf of Mexico operations. To date, the company has announced the sale of its shallow-water GOM assets for equity consideration of $800mn. Expected after-tax proceeds from the deepwater divestiture of $1-$2bn will comfortably fund the recent Eagle Ford acquisition ($578mn) and modest 2011 capital spending short-fall ($170mn), leaving roughly $750mn (mid-point) of excess cash. Assuming the mid-point for asset sales proceeds, net debt/EBITDA would improve to below 2.0x from 3.1x, pro-forma the Eagle Ford acquisition.
Plains Exploration & Production Company is an independent oil and gas company with principal operations in onshore and offshore California, the Gulf Coast, the Gulf of Mexico, the Mid-Continent, and the Rocky Mountains. In addition to these assets, the company has an interest in an exploration block offshore Vietnam. Plains has approximately 350 million barrels of oil equivalent of proved reserves, 60% of which are oil. The companys development program includes its significant Haynesville Shale and Eagle Ford acreage.
Page 46
Plains Exploration & Production Company (PXP)

Financial Summary
EBITDA Operating Cash Flow Capital Expenditures Dividends Free Cash Flow Acquisitions Divestitures Share Repurchases Adjusted Cash Flow Cash Debt/EBITDA Net Debt/EBITDA 2008 1,674 1,371 (1,161) 210 (2,084) 2,970 (304) 792 312 1.7x 1.5x 2009 679 499 (1,643) (1,144) (1,160) (2,304) 2 3.9x 3.9x 2010E 997 902 (1,095) (193) (543) 81 (654) 12 3.4x 3.4x 2011E 1,151 1,023 (1,190) (167) (167) 12 3.1x 3.1x

Mid-Continent 6% Guld of Mexico 4% Rocky Mountains 8%
Gulf Coast Region 22% Offshore California 3%
Onshore California 57%
Operations Summary

Other, 18% California, 23% Granite Wash, 18%
Interest
3.53
20.88 (6.34) 14.54 (8.03)
2.44
16.82 16.52 33.35 3.35
3.22
16.67
3.13
17.08 Haynesville Shale, 18%
Eagle Ford, 23% Page 47
Range Resources Corporation (RRC)

Ratings Sr. Subordinated Sr. Subordinated Sr. Subordinated Sr. Subordinated Sr. Subordinated Sr. Subordinated Ba3 / BB Ba3 / BB Ba3 / BB Ba3 / BB Ba3 / BB Ba3 / BB
Outstanding $mm Coupon (%)

150 250 250 250 300 500 6.375 7.500 7.500 7.250 8.000 6.750
Maturity 3/15/2015 5/15/2016 10/1/2017 5/1/2018 5/15/2019 8/1/2020
STW 326 287 388 250 252 269
Z-Sprd 474 455 518 450 451 322
Price 102.25 104.50 106.00 106.00 109.50 104.00
YTW 5.24 4.87 5.86 5.89 5.91 6.08
Next Call 2/14/2011 5/15/2011 10/1/2012 5/1/2013 5/15/2014 8/1/2015
Company Snapshot
Reserves (Bcfe) 3,129
% Oil
% Proved Developed Reserve Life (R/P) Daily Production (MMcfe/d) LTM EBITDAX 2011 EBITDAX Cash Total Debt Market Capitalization Enterprise Value Debt/EBITDAX Debt/Reserves EV/EBITDAX
16%
55% 19.7 503 609 911 2 1,851 7,677 9,526 3.0x 0.59 15.6x
Relative Value
We are affirming our HOLD recommendation on Range Resources senior subordinated notes. Range has an excellent operational profile, very low cost structure, and moderate leverage. However, we are projecting roughly $500mn negative free cash flow in 2011. Absent sizeable asset sales, leverage would increase modestly over the next year. Considering the potential funding needs and relatively low yields, we see little upside from current levels. Ranges core natural gas plays Marcellus Shale, Barnett Shale, and Nora support consistently strong production and management is guiding to a 25% production growth rate in 2011. Additionally, Range has one of the lowest cost structures of the HY peer group ($2.30/Mcfe cash costs and $0.78/Mcfe finding costs) and modest leverage of $0.59/Mcfe. Despite a favorable hedge position through 2011, we are projecting negative free cash flow (~$640mn in 2010; ~$450mn in 2011) given the spending levels required to attain its production targets. Management has indicated it may fund a portion of the spending short-fall with asset sales.
EV/Reserves
3.04
Range Resources Corporation is an independent natural gas company with principal operations in the Southwestern and Appalachian regions of the United States. Range has proved reserves of approximately 3.1 trillion cubic feet equivalent, 84% of which are natural gas. The companys strategy is to focus on developing its large acreage position in the Marcellus Shale, with 85% of planned 2010 capital expenditures attributable to the Appalachian region.
Page 48
Range Resources Corporation (RRC)

Financial Summary
EBITDAX Operating Cash Flow Capital Expenditures Dividends Free Cash Flow Acquisitions Divestitures Share Repurchases Adjusted Cash Flow Cash Debt/EBITDAX Net Debt/EBITDAX 2008 941 825 (918) (25) (118) (835) 68 (884) 1 1.9x 1.9x 2009 558 592 (574) (25) (8) (139) 234 87 1 3.1x 3.1x 2010E 620 525 (962) (26) (462) (250) 327 (385) 2 3.4x 3.4x 2011E 911 704 (1,230) (26) (551) (551) 2 2.9x 2.9x Appalachian, 58%

Mid-Continent, 8% Southwestern, 34%
Operations Summary
2008 Production (MMcfe/d) Realized Price ($/Mcfe) Lease Operating Expenses Production Taxes G&A 386 8.58 1.01 0.39 0.65 2009 436 6.44 0.84 0.20 0.73 2010E 491 5.37 0.71 0.19 0.74 2011E 555 6.05 0.67 0.20 0.70

Mid-Continent, 6%
Southwestern, 8% Appalachian, 5%
Interest
0.71
2.76 1.95 4.71 2.98
0.74
2.51 0.78 3.29 5.04
0.73
2.36
0.73
2.30
Marcellus, 81%
Page 49
Talisman Energy Inc. (TLM)

Outstanding $mm Coupon (%) 600 600 3.750 6.250
Ratings Sr. Notes Sr. Notes Baa2 / BBB Baa2 / BBB
Maturity 2/1/2021 2/1/2038
STW 115 130
Z-Sprd 109 176
Price 93.71 104.98
YTW 4.54 5.88
Company Snapshot
Reserves (MMBoe) % Oil % Proved Developed 1,201 39% 84%
Reserve Life (R/P)

Daily Production (MBoe/d)
7.7
404 4,441 5,341 2,078
Relative Value
We are affirming our HOLD recommendation on Talisman Energy senior notes. Although Talisman trades somewhat wide to the energy space, we believe that a discount is warranted given the ongoing strategic repositioning of its asset base. Talisman recently announced the acquisition of BP assets in Colombia. We believe that the company may seek further acquisitions to bolster its North American shale plays and international exploration. Although Talisman maintains fairly low leverage, we are projecting a modest free cash flow burn in 2011.
LTM EBITDAX 2011 EBITDAX Cash
Total Debt
Market Capitalization Enterprise Value Debt/EBITDAX Debt/Reserves EV/EBITDAX EV/Reserves
3,705
23,165 24,792 0.8x 3.08 5.6x 20.64
Talisman Energy Inc. is an independent oil and gas producer with operations in North America, the North Sea, and Southeast Asia. In addition, the company has development projects in Algeria, Colombia, Peru, Qatar, and the Kurdistan region of northern Iraq. Talisman has proved reserves of approximately 1.1 billion barrels of oil equivalent, 40% of which are oil. The Companys strategy is to develop its substantial acreage in the Marcellus and Montney shale plays and its Southeast Asia assets, while its North Sea operations act as a stable, cash generator.
Page 50
Talisman Energy Inc. (TLM)

Financial Summary
2008 EBITDAX Operating Cash Flow Capital Expenditures Dividends Free Cash Flow Acquisitions Divestitures Adjusted Cash Flow Cash Debt/EBITDAX Net Debt/EBITDAX 6,890 6,154 (4,872) (204) 1,078 (436) 90 732 91 0.6x 0.6x 2009 3,935 3,599 (4,080) (229) (710) (310) 2,541 1,521 1,690 1.0x 0.5x 2010E 4,391 3,763 (4,085) (257) (579) (1,763) 2,107 (235) 2,078 0.9x 0.4x 2011E 5,341 4,111 (4,000) (260) (149) 260 111 2,388 0.8x 0.3x Scandinavia 6% United Kingdom 22% United States 8% Indonesia 20%

Other SE Asia 6% Other 2% Canada 36%
Operations Summary

Other 17% Southeast Asia 6% North America 47%
Interest
1.06
17.79 301.46 319.25 0.17
1.24
18.38 14.49 32.86 2.03
1.07
18.59
1.20
19.07
Scandinavia 13%
United Kingdom 17%

Page 51
Comparative Tables
Page 52
Comp Tables
Reserves (MMBOE)
4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
% Reserves Oil
% Reserves Proved Developed

90% 80% 70% 60% 50% 40% 1200% 1000% 800% 600% 400% 200% 0% -200%
Reserve Replacement
30%
20% 10% 0%
Page 53
Comp Tables
Total Cash Costs ($/BOE)
30.00 25.00 20.00 15.00 10.00 5.00 18.00 16.00 14.00 12.00 10.00 8.00 6.00 4.00
LOE Costs ($/BOE)
2.00
-
G&A Costs ($/BOE)

8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 5.00 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 -
Interest Costs ($/BOE)
Page 54
Comp Tables
% GOM Production
30% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
% Oil Production
25%
20% 15% 10% 5% 0%
3 Yr. Avg. FD&A Costs ($/BOE)

45.00 40.00 35.00 30.00 25.00 20.00 60.00 50.00 40.00 30.00
3 Yr. Avg. F&D Costs ($/BOE)
15.00
10.00 5.00 0.00
20.00
10.00 0.00
Page 55
Comp Tables
Reserve Life
25 20 15 10 5 2,000 1,500 1,000 500 (500) (1,000) (1,500) (2,000) (2,500)
2011 FCF
Debt/BOE
9.00 8.00 7.00 6.00 5.00 4.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 -
Net Debt/BOE
3.00
2.00 1.00 -
Page 56
Hedging Comparison
Company APA APC CHK CNQ CVE DVN ECA HES MRO NBL NFX NXY PXD PXP RRC TLM 2011 % Hedged Oil 20% 59% 13% 5% 71% 28% 0% NM 0% 31% 48% 36% 95% 77% 0% 14% 2012 % Hedged Oil 9% 1% 8% 0% 0% 0% 0% NM 0% 30% 41% 0% 93% 77% 30% 0% 2011 % Hedged Gas 12% 23% 51% 10% 53% 20% 35% NM 0% 27% 64% 0% 79% 72% 90% 11% 2012 % Hedged Gas 10% 20% 7% 0% 20% 0% 31% NM 0% 6% 40% 0% 89% 58% 17% 0% 2011 Avg. Oil Swap $70.12 $91.17 $86.92 NM $81.51 $77.25 2012 Avg. Oil Swap $70.99 $100.00 NM $87.47 $82.27 $79.32 2011 Avg. Oil Floor $68.94 $79.29 $70.00 $75.00 NM $80.15 $77.58 $73.75 $80.00 2012 Avg. Oil Floor $69.30 $50.00 NM $81.25 $78.13 $80.48 $80.00 $70.00 Page 57 2011 Avg. Oil Ceiling $96.05 $99.95 $102.33 $109.00 NM $94.63 $107.76 $99.33 $110.00 2012 Avg. Oil Ceiling $98.11 $92.50 NM $101.06 $111.18 $119.70 $80.00 2011 Avg. Gas Swap $6.20 $6.17 $6.98 $4.87 $5.82 $5.56 $6.33 NM $6.41 $6.26 $6.13 $5.81 2012 Avg. Gas Swap $6.58 $6.15 $5.96 $6.46 NM $5.42 $5.82 2011 Avg. Gas Floor $5.43 $6.50 $7.70 NM $5.95 $5.95 $6.32 $4.00 $5.56 $6.04 2012 Avg. Gas Floor $5.78 $6.50 NM $5.50 $5.63 $5.83 $4.30 $5.50 2011 Avg. Gas Ceiling $8.35 $8.29 $11.50 NM $6.82 $7.71 $8.55 $4.92 $6.48 $6.62 2012 Avg. Gas Ceiling $7.29 $9.03 NM $7.92 $6.68 $7.61 $6.25 -
Company
APA APC CHK CNQ CVE DVN ECA HES MRO NBL NFX NXY PXD PXP RRC TLM
Master Limited Partnerships/Pipelines Recommendations
Page 58
Relative Value
Issuer Ratings Outst. $mn Coupon (%) Maturity STW Z-Sprd Price YTW Debt / EBITDA Distribution Coverage
DCP Midstream Enbridge Energy Partners
Energy Transfer Partners Enterprise Products Partners
Kinder Morgan Energy Partners
ONEOK Partners Plains All American Pipeline
TransCanada PipeLines
Williams Partners
Baa2 Baa2 Baa2 Baa2 Baa2 Baa2 Baa3 Baa3 Baa3 Baa3 Baa3 Baa3 Baa2 Baa2 Baa2 Baa2 Baa2 Baa2 Baa3 Baa3 Baa3 A3 A3 A3 Baa3 Baa3 Baa3
BBB BBB BBB BBB BBB BBB BBBBBBBBBBBBBBBBBBBBB BBB BBB BBB BBB BBB BBBBBBBBBAAABBBBBBBBB-
600 450 500 500 400 400 650 550 500 1,000 600 750 500 600 600 400 500 600 500 600 600 1,000 1,000 750 1,500 600 1,250
5.350 6.750 9.875 5.200 7.500 5.500 9.000 7.500 5.250 5.200 6.450 5.950 9.000 5.300 6.500 6.550 8.625 6.850 5.750 5.000 6.650 3.800 6.200 6.100 5.250 4.125 6.300
3/15/2020 9/15/2037 3/1/2019 3/15/2020 4/15/2038 9/15/2040 4/15/2019 7/1/2038 1/31/2020 9/1/2020 9/1/2040 2/1/2041 2/1/2019 9/15/2020 9/1/2039 9/15/2040 3/1/2019 10/15/2037 1/15/2020 2/1/2021 1/15/2037 10/1/2020 10/15/2037 6/1/2040 3/15/2020 11/15/2020 4/15/2040
145 162 165 122 160 150 163 168 121 135 150 150 144 130 165 160 150 170 154 151 175 82 114 110 142 142 155
160 211 211 136 210 193 205 218 137 142 195 193 189 136 212 206 193 220 173 150 225 82 159 152 157 141 200
103.88 107.25 131.86 104.36 117.18 91.99 126.71 116.21 104.76 103.51 104.96 98.13 127.48 104.68 103.49 104.91 124.75 107.24 105.89 100.77 103.97 96.76 106.44 105.87 103.22 94.68 102.20
4.820 6.190 5.040 4.610 6.186 6.086 5.000 6.256 4.600 4.740 6.086 6.086 4.830 4.690 6.236 6.186 4.890 6.286 4.930 4.901 6.336 4.210 5.726 5.686 4.810 4.811 6.136
2.8x 5.3x
n/a 1.2x
4.4x 3.9x
0.9x 1.4x
4.6x
1.0x
3.8x 5.2x
1.0x 1.1x
5.6x
n/a
3.4x
1.4x
Page 59
DCP Midstream (DCPMID, Baa2/BBB)

Issuer DCP Midstream Ratings Baa2 BBB Baa2 BBB Outst. $mn Coupon (%) Maturity 600 5.350 3/15/2020 450 6.750 9/15/2037 STW 145 162 Z-Sprd 160 211 Price 103.88 107.25 YTW 4.820 6.190
Recommendation
We maintain our BUY recommendation on DCP Midstream 5.35% senior notes due 2020 and the 6.75% senior notes due 2037. We are attracted to DCMPIDs strong business position in natural gas gathering and processing, conservative leverage, and demonstrated support from its 50/50 parents ConocoPhillips (A1/A/A) and Spectra Energy (Baa2/BBB). At 15-20bp wide to benchmark MLPs like Enterprise Partners Products, we view DCPMID (organized as a c-corp.) as excessively wide.
Segment Analysis
Structure: DCP Midstream LLC (DCPMID) is a 50-50 JV between Spectra Energy and ConocoPhillips. DCPMID is the general partner of DCP Midstream Partners (DPM) and owns ~30% of the common units. DPM owns the propane segment as well as ~4,700 miles of gas pipelines, ~95 Mbbl/d of NGL pipeline capacity, 10 natural gas processing plants, and 2 fractionation facilities. Natural Gas Gathering and Processing: Consists of ~60,000 miles of natural gas gathering pipelines in Colorado, Kansas, New Mexico, Oklahoma, Texas, and Wyoming with total system throughput of 7.0 Tbtu/d. In addition, the segment owns or operates 59 natural gas processing plants and owns 6 Bcf of natural gas storage capacity. NGL Logistics: DCP owns or operates 10 fractionation facilities in Louisiana and Texas and produces an average of ~360 MBbl/d of NGLs. The segment also includes NGL pipeline assets in Louisiana, Texas, and Wyoming. The marketing business markets and trades an average of ~480 MBbl/d of natural gas. Propane: The propane segment is concentrated in the Northeast and consists of: five owned and operated rail terminals; one owned marine terminal; one leased marine terminal; and one pipeline terminal.
Segment Operating Income

Propane 2%
Gathering & Processing / NGLs 98%
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Enbridge Energy Partners (EEP, Baa2/BBB)

Issuer Enbridge Energy Partners Ratings Baa2 BBB Baa2 BBB Baa2 BBB Baa2 BBB Outst. $mn Coupon (%) 500 9.875 500 5.200 400 7.500 400 5.500 Maturity 3/1/2019 3/15/2020 4/15/2038 9/15/2040 STW 165 122 160 150 Z-Sprd 211 136 210 193 Price 131.86 104.36 117.18 91.99 YTW 5.040 4.610 6.186 6.086
Recommendation
We maintain our HOLD recommendation on Enbridge Energy Partners senior notes complex. Despite the recent noise surrounding the pipeline spill, we remain comfortable with EEPs credit profile. We note that EEP enjoys an excellent business position in oil and refined products pipelines and a relatively high percentage of fee-based cash flow. In addition, EEP is strategically important to its general partner and largest unit holder, Enbridge Inc. (Baa1/A-), which in the past has provided financial support to the MLP. Our HOLD rating is based on what we view as full valuations relative to its MLP peers and limited upside from current levels.
Segment Analysis
Liquids: Consists of: the Lakehead system, 4,700 miles of crude oil and liquid petroleum pipelines and terminal assets in the Great Lakes and Midwest regions; the MidContinent system, which includes the Ozark pipeline, West Tulsa pipeline, and storage terminals at Cushing and El Dorado Kansas (480 miles of pipelines and 15.9 MMBbl of crude storage capacity); and the North Dakota system, 240 miles of crude oil gathering lines connecting to a 730 mile interstate transportation system servicing the Williston Basin in North Dakota and Montana. Natural Gas: Includes: the East Texas system ~3,400 miles of natural gas gathering and transportation pipelines, nine natural gas treating plants, and seven natural gas processing plants; the Anadarko system ~1,800 miles of natural gas gathering and transportation pipelines in southwest Oklahoma and the Texas panhandle and six natural gas processing plants; and the North Texas system ~4,500 miles of natural gas gathering pipelines and nine natural gas processing plants in the Fort Worth Basin. The processing facilities and the treating facilities have combined capacities of ~1,800 MMcf/d and ~1,200 MMcf/d, respectively. Marketing: Maximizes the value of the natural gas purchased by its gathering systems and the throughput on its gathering and intrastate pipelines by transacting with various counterparties to provide natural gas supply, transportation, balancing, storage, and sales services.

Natural Gas 17% Marketing 1%
Liquids 82%
Page 61
Energy Transfer Partners (ETP, Baa3/BBB-)

Energy Transfer Partners Ratings Outst. $mn Coupon (%) Maturity Baa3 BBB650 9.000 4/15/2019 Baa3 BBB550 7.500 7/1/2038 STW 163 168 Z-Sprd 205 218 Price 126.71 116.21 YTW 5.000 6.256
Recommendation
We recommend a HOLD rating on Energy Transfer Partners 9.0% senior notes due 2019 and 7.5% senior notes due 2038. We believe that ETPs credit profile has strong positive momentum but the 2019s and 2038s appear fairly valued, considering the higher dollar price and weaker liquidity in the issues. We are attracted to ETPs scale and diversification across interstate, intrastate, and midstream natural gas operations. The completion of two large interstate pipelines should improve the business mix by increasing regulated interstate pipeline earnings to nearly 30% from 16%, and reduce the less stable intrastate contribution to 40% from 47%.
Segment Analysis
Intrastate Transportation and Storage: Consists of ~7,800 miles of natural gas transportation pipelines and three natural gas storage facilities in the state of Texas the largest intrastate system in the United States. This system includes: the ET fuel system; Oasis Pipeline; Houston Pipeline System; and East Texas Pipeline. Interstate Transportation: Consists of ~2,700 miles of natural gas pipelines, with additional gross mileage under construction/recently completed of ~350 miles. The anchor of this segment is Transwestern Pipeline, which runs from East Texas to California and has capacity of 2.1 Bcf/d. The recently completed Fayetteville Express Pipeline (50/50 JV with Kinder Morgan Energy Partners) has an initial capacity of 2.0 Bcf/d. The Tiger Pipeline has capacity of 2.4 Bcf/d. Midstream: Consists of ~7,000 miles of natural gas gathering pipelines, three natural gas processing plants and treating and conditioning plants in Colorado, New Mexico, Texas, and Utah. Retail Propane: The propane segment is the 3rd largest propane marketer in the United States, with 440 locations in 41 states and ~1.2 million customers. This business is largely seasonal and weather dependant, with nearly all earnings coming in the 1st and 4th quarters.

Retail Propane, 18% Midstream, 19% Intrastate Transportation and Storage, 47%
Interstate Transportation, 16%
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Enterprise Products Partners (EPD, Baa3/BBB-)

Issuer Enterprise Products Partners Ratings Outst. $mn Coupon (%) Baa3 BBB500 5.250 Baa3 BBB1,000 5.200 Baa3 BBB600 6.450 Baa3 BBB750 5.950 Maturity 1/31/2020 9/1/2020 9/1/2040 2/1/2041 STW 121 135 150 150 Z-Sprd 137 142 195 193 Price 104.76 103.51 104.96 98.13 YTW 4.600 4.740 6.086 6.086
Recommendation
We recommend a HOLD on Enterprise Products Partners senior notes. EPD is one of the better-managed midstream companies and enjoys excellent scale, with a significant presence in existing and emerging natural gas producing regions. While EPD does have above-average commodity price exposure given its NGL operations, this is partially offset by conservative financial policies, including a willingness to issue equity units to balance its capital structure.
Segment Analysis
NGL Pipelines & Services: Consists of: 25 natural gas processing plants located in the Gulf Coast, west Texas, and Rocky Mountains and associated NGL marketing activities; 16,300 miles of NGL pipelines; 163.4 MMBbls of NGL and related product storage and terminal facilities; and 16 fractionation facilities. Onshore Crude Oil Pipelines & Services: Consists of ~4,400 miles of onshore crude oil pipelines in Oklahoma, New Mexico and Texas and 10.5 MMBbls of storage tank capacity in Cushing, OK and Midland, TX. Onshore Natural Gas Pipelines & Services: Includes ~19,200 miles of onshore natural gas pipeline systems in Alabama, Colorado, Louisiana, Mississippi, New Mexico, Texas, and Wyoming. This segment also includes 2 salt dome storage facilities in Mississippi and leased natural gas storage in Texas and Louisiana. Offshore Pipelines & Services: Consists of ~1,400 miles of offshore natural gas pipelines, ~1,000 miles of offshore crude oil pipelines, and six offshore hub platforms in the Gulf of Mexico. Petrochemical and Refined Products & Services: Consists of: 2 propylene fractionation plants and related marketing activities; a butane isomerization complex - 3 butamer reactor units and 8 associated deisobutanizer units; an octane enhancement facility; refined products pipelines in the Gulf Coast; and marine transportation and other services.

Petrochem. & Refined Prods Svcs 17% Onshore Natural Gas Pipelines & Svcs 15%
Offshore Pipelines & Svcs 10%
Onshore Crude Oil Pipelines & Svcs 4%
NGL Pipelines & Svcs 54%
Page 63
Kinder Morgan Energy Partners (KMP, Baa2/BBB)

Issuer Kinder Morgan Energy Partners Ratings Baa2 BBB Baa2 BBB Baa2 BBB Baa2 BBB Outst. $mn Coupon (%) 500 9.000 600 5.300 600 6.500 400 6.550 Maturity 2/1/2019 9/15/2020 9/1/2039 9/15/2040 STW 144 130 165 160 Z-Sprd 189 136 212 206 Price 127.48 104.68 103.49 104.91 YTW 4.830 4.690 6.236 6.186
Recommendation
We are recommending a BUY rating on Kinder Morgan Energy Partners 6.95% senior notes due 2038, 6.5% senior notes due 2039, and 6.55% senior notes due 2040. As one of the largest and most diversified MLPs, we view KMP as a core holding in the high grade MLP space. While the oil production (CO 2) segment stands out as atypical to its competitors operations, the related hedging program and very high quality, regulated mix of the conventional segments offsets the higher operational risk associated with the CO2 business. We view the long end of the senior debt complex as most attractive, with long bonds trading at a roughly 30bp spread to 10-year notes. We note that lower-rated EPD and WPZ 10s-30s is roughly 10bp.
Segment Analysis
Products Pipelines: Consists of ~8,400 miles of refined petroleum products pipelines delivering gasoline, diesel fuel, jet fuel, and NGLs as well as ~60 associated product terminals and petroleum pipeline transmix processing facilities. Natural Gas Pipelines: Consists of over 15,000 miles of natural gas transmission and gathering pipelines and natural gas storage, treating and processing facilities. Major components of this segment include Rockies Express, Midcontinent Express, the KinderHawk JV, and the Fayetteville Express project. Approximately 60% of this segment is interstate pipelines (virtually all take or pay) and the remaining 40% is Texas intrastate pipelines (~80% take or pay). The average remaining contract life on the pipelines is ~8.9 years. CO2: Produces, markets, and transports carbon dioxide for increased recovery in oil production, through ~1,400 miles of pipelines. In addition, KMP holds ownership interests in oil-producing fields in west Texas including a 97% working interest in the SACROC field and a 50% working interest in the Yates field, with total proved reserves of ~87 MMBoe. Terminals: Consists of ~120 owned or operated liquids and bulk terminal facilities and more than 32 rail transloading and materials handling facilities. These facilities transload, store, and deliver a wide variety of bulk, petroleum, petrochemical, and other liquids products. Kinder Morgan Canada: Consists of ~800 miles of common carrier pipelines, originating in Edmonton, Alberta, for the transportation of crude oil and refined petroleum to the interior of British Columbia and to marketing terminals and refineries in the Greater Vancouver and Puget Sound areas. KM Canada also owns 5 associated product terminals and a 1/3rd interest in the Express Pipeline system. Page 64
Segment EBITDA
Kinder Morgan Canada 6% Products Pipelines 21%
Terminals 19%
CO2 29%
ONEOK Partners (OKS, Baa2/BBB)

Issuer ONEOK Partners Ratings Baa2 BBB Baa2 BBB Outst. $mn Coupon (%) Maturity 500 8.625 3/1/2019 600 6.850 10/15/2037 STW 150 170 Z-Sprd 193 220 Price 124.75 107.24 YTW 4.890 6.286
Recommendation
We recommend a HOLD rating on ONEOK Partners 8.625% senior notes due 2019 and 6.85% senior notes due 2037. The company should benefit from its exposure to NGL fundamentals and recent growth initiatives in the Bakken and Williston basins. OKS is managing itself to maintain mid-BBB ratings and enjoys support from its parent ONEOK, Inc. (Baa2/BBB), which holds a ~40% interest. We view current levels as roughly fair considering that it is a somewhat illiquid name in the space.
Segment Analysis
Natural Gas Gathering & Processing: Consists of gathering and processing assets in the Anadarko Basin, Hugoton Basin, Central Kansas Uplift Basin, Williston Basin, and Powder River Basin. These assets include 15,000 miles of pipe and 13 processing plants with capacity of 770 MMcf/d. Contract structure for this segment is ~55% percent of proceeds, ~35% fee-based, and ~10% keep-whole. Natural Gas Pipelines: Owns and operates 7,100 miles of FERC-regulated natural gas pipelines with peak capacity of 6.5 Bcf/d and 52 Bcf of storage facilities in the Midwest as well as Kansas, Oklahoma, and Texas. ~85% of the transportation capacity is contracted under demand-based rates. Further, this segment has a 50% interest in Northern Border Pipeline, an interstate pipeline spanning from the Montana-Saskatchewan border to Indiana. Natural Gas Liquids: Consists of: interests in 4 fractionators with capacity of 549 MBbl/d; 1 isomerization unit with capacity of 9 MBbl/d; 26.5 MMBbl of NGL storage capacity; ~3,500 miles of NGL distribution pipelines with capacity of 757 MBbl/d; and 3,200 miles of gathering pipelines with capacity of 690 MBbl/d. These assets span from Mont Belvieu, TX into Oklahoma and Kansas and east to Chicago. This segment is subject to a degree of commodity exposure the fractionation and storage assets are ~70% feebased while the remainder of the assets are only ~10% fee based.

Natural Gas Liquids 44% Natural Gas Gathering & Processing 28%
Page 65
Plains All American Pipeline (PAA, Baa3/BBB-)

Issuer Plains All American Pipeline Ratings Outst. $mn Coupon (%) Baa3 BBB500 5.750 Baa3 BBB600 5.000 Baa3 BBB600 6.650 Maturity 1/15/2020 2/1/2021 1/15/2037 STW 154 151 175 Z-Sprd 173 150 225 Price 105.89 100.77 103.97 YTW 4.930 4.901 6.336
Recommendation
We maintain our SELL recommendation on Plains All American senior notes. We maintain a favorable view on Plains largely fee-based crude oil and products pipeline business. However, we believe that current spreads do not compensate for the high leverage of 5.2x debt/EBITDA (high 4x adjusted for oil inventory related debt) and risk inherent to the marketing operations (20-25% of earnings).
Segment Analysis
Transportation: Consists of ~16,000 miles of crude oil and refined products pipelines and gathering systems as well as trucks, trailers, barges, and transport tugs. Plains has a large gathering system in west Texas as well as systems in California, Canada, Gulf Coast, Mid-Continent, and the Rocky Mountains. Facilities: Provides storage, terminalling, and throughput services for crude oil, refined products, LPG, and natural gas, as well as LPG fractionation and isomerization services. PAA owns ~51 MMBbls of crude oil and refined products capacity at various locations (including 11 MMBbls at Cushing), 6 MMBbls of LPG storage capacity, ~40 Bcf of natural gas storage capacity, a fractionation plant in Canada with processing capacity of 4,400 Bbl/d, and a fractionation and isomerization facility in California with aggregate processing capacity of 22,500 Bbl/d. This segment includes PAAs investment in PAA Natural Gas Storage (PNG). Supply & Logistics: Consists of the following merchant activities: the purchase of U.S. and Canadian crude oil at the wellhead and at pipeline and terminal facilities; the storage of inventory during contango market conditions and seasonal storage of LPG; the purchase of refined products from producers, refiners, and other marketers; the resale or exchange of crude oil, refined products, and LPG at various points along the distribution chain.
Segment EBITDA
Transportation 26% Supply & Logistics 22%
Facilities 52%
Page 66
TransCanada PipeLines Ltd. (TRP, A3/A-)

Issuer TransCanada PipeLines Ratings A3 AA3 AA3 AOutst. $mn Coupon (%) 1,000 3.800 1,000 6.200 750 6.100 Maturity 10/1/2020 10/15/2037 6/1/2040 STW 82 114 110 Z-Sprd 82 159 152 Price 96.76 106.44 105.87 YTW 4.210 5.726 5.686
Recommendation
We are recommending a SELL rating on TransCanada PipeLines senior notes (see above). Respecting the highly regulated nature of the business mix and the single-A ratings, we view current levels as rich considering the companys high leverage and negative free cash flow profile. Although the name trades wide for its A ratings, we believe that expectations of steady issuance to finance its cash flow deficit will limit upside from current levels.
Segment Analysis
Pipelines: Consists of ~37,500 miles of wholly-owned natural gas pipelines and ~5,500 miles of partially-owned natural gas pipelines, accounting for ~15 Bcf/d of average daily volume. In addition, TRP owns the Keystone Oil Pipeline, a 2,147 mile pipeline system with capacity of 1.1 BBbl/d (expandable to 1.5 BBbl/d). The first phase began commercial operations in mid-2010 and the full system will be in service by 2013. Canadian Power: Consists of ~6,400 MW of power generation capacity in Ontario and West Canada, anchored by TRPs 40% interest in the 6,200 MW Bruce Power nuclear plant. The rest of the Ontario assets are wind and gas plants, while the Western Canada assets are coal and gas. The company-wide capacity breakdown is: 55% gas; 21% nuclear; 14% coal; 5% hydro; and 5% wind. U.S. Power: Consists of ~4,300 MW of power generation capacity primarily in the Northeast. The Ravenswood gas plant in Queens, NY accounts for ~2,480 MW of this capacity, various hydroelectric plants account for 567 MW, and the balance consists of additional gas plants and wind assets. Natural Gas Storage: Consists of natural gas storage facilities in Canada and the U.S., with capacity of 380 Bcf. 250 Bcf of this is regulated storage capacity operated by ANR and 130 Bcf is non-regulated.
Segment EBITDA
U.S. Power 7% Canadian Power 16% Natural Gas Storage 4%
U.S. Pipelines 24%
Canadian Pipelines 49%
Page 67
Williams Partners (WPZ, Baa3/BBB-)

Issuer Williams Partners Ratings Outst. $mn Coupon (%) Baa3 BBB1,500 5.250 Baa3 BBB600 4.125 Baa3 BBB1,250 6.300 Maturity 3/15/2020 11/15/2020 4/15/2040 STW 142 142 155 Z-Sprd 157 141 200 Price 103.22 94.68 102.20 YTW 4.810 4.811 6.136
Recommendation
We rate Williams Partners senior notes as a HOLD. We are attracted to WPZs relatively stable business mix and low leverage compared with its MLP peers. The company owns two major, regulated interstate pipelines and its midstream operations are roughly 50% fee-based. At roughly flat to EPD, we would recommend swapping into WPZ senior notes in order to diversify MLP exposure. While EPD is a larger, better diversified benchmark MLP issuer, Williams Partners operates with lower leverage (3.8x vs. 4.3x) and less commodity price exposure. Although likely a longer-term event, WPZ is a better candidate for ratings improvement.
Segment Analysis
Gas Pipeline: WPZ owns Transcontinental Gas Pipe Line, Northwest Pipeline, and a 24.5% interest in Gulfstream Pipeline. These systems have a combined peak-day delivery capacity of ~12 Bcf/d and a total annual throughput of ~2,700 TBtu, which is approximately 12% of the natural gas consumed in the U.S. Transco is a 10,000 mile natural gas pipeline extending from Texas to New York. Northwest is a 3,900 mile system originating in the San Juan basin in New Mexico and Colorado and extending through the northwest United States to Washington. Gulfstream is a 745 mile system extending from the Alabama coast to Florida, under the Gulf of Mexico. Midstream: WPZs midstream assets are concentrated in major producing basins in Colorado, New Mexico, Wyoming, the Gulf of Mexico, and Pennsylvania and provide: natural gas gathering, treating, and processing; NGL fractionation, storage, and transportation; and oil transportation. Major assets include: the Opal and Echo Springs processing plants in Wyoming, which have a combined daily capacity of 1.8 Bcf/d of natural gas and 100,000 Bbl/d of NGL production capacity; the Willow Creek processing plant in Colorado (450 MMcf/d gas capacity and 30,000 Bbl/d of NGL production); the Four Corners system, comprised of 6,400 receipt points and five natural gas processing/treating plants; and four processing plants on the Gulf Coast that are integrated with 5 major deepwater oil and gas pipeline systems and 2 offshore production handling platforms.

Gas Pipelines 42%
Midstream 58%
Page 68
Disclosures Appendix A1
ANALYST CERTIFICATIONS
We, Daniel Volpi & Brock Jones hereby certify (1) that the views expressed in this report accurately reflect my personal views about any or all of the subject securities or issuers referred to in this report, (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report and (3) no part of my compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.
ISSUER SPECIFIC REGULATORY DISCLOSURES

Issuer name Anadarko Petroleum Apache Corp Ticker APC US APA US Price 79.65 USD 127.56 USD Price date 18-Jan-2011 18-Jan-2011 Stock rating Not Rated Not Rated Disclosures 123 123
Canadian Natural Resources

Chesapeake Energy Devon Energy Encana Corporation Enterprise Products Partners HESS CORP Kinder Morgan Marathon Oil Corp Nexen Noble Energy ONEOK INC Pioneer Natural Resource Talisman Energy
CNQ CN
CHK US DVN US ECA CN EPD US HES US KMI US MRO US NXY CN NBL US OKE US PXD US TLM CN
42.40 CAD
27.67 USD 84.02 USD 31.88 CAD 43.46 USD 82.03 USD 107.48 USD 42.47 USD 24.22 CAD 85.55 USD 57.83 USD 93.61 USD 23.00 CAD
18-Jan-2011
18-Jan-2011 18-Jan-2011 18-Jan-2011 18-Jan-2011 18-Jan-2011 30-May-2007 18-Jan-2011 18-Jan-2011 18-Jan-2011 18-Jan-2011 18-Jan-2011 18-Jan-2011
Not Rated
Not Rated Not Rated Not Rated Not Rated Not Rated Not Rated Not Rated Not Rated Not Rated Not Rated Not Rated Not Rated 123 123 123 123 123 123 123
Disclosures required in the U.S.

123 Market Maker - NSI Nomura Securities International Inc. makes a market in securities of the company.
Additional Disclosures required in the U.S

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2011 Outlook - E&amp;P and MLP - Pipelines - 19 January 2011

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2011 Outlook - E&amp;P and MLP - Pipelines - 19 January 2011

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Credit Research | Americas

Contributing Research Analysts

Daniel Volpi, CFA 212-667-1166 daniel.volpi@nomura.com

Nomura Energy Credit Research E&P and MLP/Pipelines 2011 Outlook

Apache Corp. (APA)

Picks and Trade Ideas

2011 Best Picks

Source: Company Filings, Nomura Securities International.

2011 Best Picks

Source: Company Filings, Nomura Securities International.

2011 Best Picks

Kinder Morgan Canada 6% Terminals 19%

Products Pipelines 21%

Natural Gas Pipelines 25%

Source: Company Filings, Nomura Securities International.

BUY BUY HOLD HOLD SELL SELL

Marathon Oil Corporation

HOLD BUY HOLD HOLD BUY HOLD HOLD

Enbridge Energy Partners, L.P.

Energy Transfer Partners, L.P.

Enterprise Products Partners L.P.

Kinder Morgan Energy Partners, L.P.

ONEOK Partners, L.P.

Plains All American Pipeline, L.P.

TransCanada PipeLines Ltd.

Key Themes for 2011

E&P asset repositioning: more drilling, less land-grab.

Gulf of Mexico: focus will be on the regulatory environment.

The MLP acquisition market should remain active.

Oil and Natural Gas Prices

Henry Hub Natural Gas

Natural Gas Inventories

2009 Inventories Change

Natural Gas Inventories (Bcf)

Source: Department of Energy

Crude Oil and Refined Products Inventories

Gasoline Inventories (MBbl)

Distillate Inventories (MBbl)

Heating Oil Inventories (MBbl)

Feb Mar 5-Year Range

5-Year Average Page 13

Source: Bloomberg, Nomura Securities International.

International Rig Count

U.S. Gas Rig Count

U.S. Oil Rig Count

Source: Baker Hughes Inc.

U.S. Offshore Rig Count

U.S. Horizontal Rig Count

U.S. Vertical Rig Count

Source: Baker Hughes Inc.

Exploration & Production Recommendations

Canadian Natural Res.

Cenovus Energy Devon Energy EnCana Corp.

Sr. Notes Sr. Notes Sr. Notes

1,398 2,624 1,920

3,024 4,875 5,460

1.2x 1.2x 1.4x

2.62 2.66 4.05

Marathon Oil Nexen Inc.

Sr. Notes Sr. Notes

Noble Energy Talisman Energy

Sr. Notes Sr. Notes

Source: Company Filings, Nomura Securities International.

2011 Outlook - E&P and MLP - Pipelines - 19 January 2011

2011 Outlook - E&P and MLP - Pipelines - 19 January 2011