2003 Analyst/Investor Conference
1
Forward-Looking Statements
These presentations contain forward-looking statements. Company management cautions readers
that the assumptions, which form the basis for the forward-looking statements, include many
factors that are beyond company management's ability to control or estimate precisely. Those
factors include, but are not limited to, the following: changes in industrial, commercial, and
residential growth in the company's service territories and those of the company's subsidiaries;
changes in price and demand for natural gas and related products; impact of changes in state and
federal legislation and regulation, including various orders of the state public service
commissions and the Federal Energy Regulatory Commission, on the gas and electric industries
and on the company, including the impact of Atlanta Gas Light Company's performance based
rate plan; effects and uncertainties of deregulation and competition, particularly in markets
where prices and providers historically have been regulated, unknown risks related to
nonregulated businesses, and unknown issues such as the stability of certificated marketers;
impact of Georgia's Natural Gas Consumers' Relief Act of 2002; concentration of credit risk in
certificated marketers and the company's wholesale services segment's counterparties; excess
network capacity and demand/growth for dark fiber in metro network areas of AGL Networks'
customers; AGL Networks' introduction and market acceptance of new technologies and
products, as well as the adoption of new networking standards; ability of AGL Networks to
produce sufficient capital to fund its business; ability to negotiate new contracts with
telecommunications providers for the provision of AGL Networks' dark-fiber services; industry
consolidation; performance of equity and bond markets and the impact on pension fund costs;
impact of acquisitions and divestitures; changes in accounting policies and practices issued
periodically by accounting standard-setting bodies; direct or indirect effects on the company's
business, financial condition or liquidity resulting from a change in the company's credit ratings
or the credit ratings of the company's competitors or counterparties; interest rate fluctuations,
financial market conditions, and general economic conditions; uncertainties about environmental
issues and the related impact of such issues; impact of changes in weather upon the temperature-
sensitive portions of the company's business; and other risks described in the company's
documents on file with the Securities and Exchange Commission.
Sequent Energy:
Going To the Next Level
Douglas N. Schantz
President, Sequent Energy Management
What We Promised for 2003
Deliver EBIT target of $15 MM
Projected 2003 EBIT of $23-25 MM
Land third party asset management deal
Executed four asset management/ peaking transactions
Develop new business systems and controls
Openlink Endur System has been selected
Build a deeper bench of key commercial and support
personnel
Office move in mid-2003; IT depth and execution
Hired 20 experienced people over the year
2002/2003 Comparison
2002
2003
Volumes through Q3 (Bcf/day)
1.29
1.72
Full year EBIT (2003 projected)
$
9.1M
$
23-25 M
Number of counterparties, end of Q3
94
157
Number of employees, end of Q3
42
62
New York
Focus Territory
Henry Hub
Chicago
Atlanta
Katy
Detroit
2003 Price History
Henry Hub Daily Prices, Jan - Oct '03
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
$18.00
$20.00
Changes in Supply/Demand Balances
Sequent’s Opportunity Lies in An
Uncertain Future
Source: National Petroleum Council September 2003 Report.
Vanishing Industry Participants
BP
Mirant
Sempra
ConocoPhillips
Coral (Shell)
ChevronTexaco
Cinergy
Tenaska
El Paso
Nexen
Encana
Williams
Oneok
Reliant
Aquila
Anadarko
Entergy-Koch
Amerada Hess
Western Gas Resources
Enron
BP
Mirant
Reliant
Duke
Dynegy
Sempra
Aquila
El Paso
AEP
Coral
Axia (Koch)
Conoco
Texaco
Cook Inlet
PG&E
Williams
Dominion
Exxon Mobil
Top Marketers in 2003
Top Marketers in 2002
Production Area
Storage
Market Area
Storage
End Use Customers
Producer
Services
Short- and
Long-term
Time value
arbitrage
Pipeline
Segmentation
Locational
arbitrage
Pipeline
segmentation
Locational
arbitrage
Asset management
Delivered” commodity
Delivered Commodity
Peaking Services
Affiliated customer supply optimization
Asset optimization
Deal origination
Sequent Activities
Producer Services - Overview
Top Ten Suppliers At September 30, 2003
$137.8
Total Purchases
Apache
Denbury
Resources
Occidental
Amerada Hess
BG
BP
Devon
MMS
Dominion
Exxon/Mobil
Supplier
Provide basic production area
services to small- and large-cap
producers
Wellhead aggregation
Imbalance management
Pipeline management
Structured pricing products
Extract sustainable margin as
credit worthy buyer
Production Area Storage - Overview
Currently leasing 2 Bcf of high-deliverability storage in
Southern Louisiana
Interconnected with 8 pipelines
Full capacity can be withdrawn in 10 days
Allows Sequent to arbitrage numerous time spreads available
in the market
Cash market vs prompt futures
Balance of month cash vs prompt futures
Prompt futures vs forward futures
Pipe to pipe basis arbitrage
Peaking sales
Distress buys
How Sequent Makes Money From Storage
Parameters
Capacity: 2 Bcf
Injection: 100,000/d
Withdrawal: 200,000/d
Term: thru 10/31/04
Arbitrage Types
Cash market vs. prompt futures
Balance of month cash vs.
prompt futures
Prompt futures vs. forward
futures
Pipe to pipe basis arbitrage
Peaking sales
Distress buys
.40 spread
Injection & storage (.22) cost
Gulf of Mexico
Trunkline
Texas Gas
ANR
Tennessee
Columbia Gulf
Jefferson Davis
Parish
Allen
Parish
Landry
Parish
Iberia
Parish
Lafayette
Parish
Vermilion
Parish
Cameron Parish
Louisiana
Conoco
Florida Gas
TETCO
Acadia Parish
Example: Cash market to prompt month arbitrage
Cash market = $4.00
Prompt month = $4.40
Sequent buys physical at $4.00 and injects
Sequent sell futures at $4.40
.18 margin
Transportation Management - Overview
Currently managing about 1 Bcf/day of firm transportation
Contained in asset management agreements
Short-term capacity releases from pipelines
Allows Sequent to arbitrage many locational spreads available
in the market
Excess transport
Pipeline segmentation
Create value through our understanding of the arbitrage
opportunities available on the gas pipeline grid
Transportation Management -
Segmentation
Understanding all capacity
entitlements is a critical
component to successful
optimization efforts.
Pipeline
Transco
Path
South Texas
to New York
(Zone 1 to Zone 6)
Delivered Commodity - Overview
Mid–marketing
Expanding standardized product offering to customer base
Trading
Active day and intra-day trading
Larger bid-offer spreads
Focus is on portfolio optimization, not speculation
Market Demand for Sequent’s
Products and Services
X
X
X
X
Contract
Restructuring
X
X
X
X
X
Asset
Management
X
X
X
X
X
Commodity
Sales
Pipelines
Power
Generators
LDC’s
Large
Industrials
Municipal
Utilities
Asset Management - Overview
Currently have asset management agreements in place
with four non-affiliated utilities
Some agreements include managing the supply
Value is created by monetizing storage and transport
assets
Gas Assets Managed*
Transport MDQ Dth/Day
Storage MSQ, Dth
Cove Point
69,000
690,000
Sonat
142,000
6,200,000
ANR
170,000
11,300,000
Columbia Gas
229,000
5,050,000
Columbia Gulf
52,000
0
Dominion
114,000
3,500,000
Transco
67,000
11,670,000
Tennessee
40,000
2,900,000
East Tennessee
46,000
0
*Does not include assets managed for industrials and municipal utilities or assets
acquired for Sequent’s own account
Opportunity
Monetize all upstream assets when
not required to serve LDC load.
Obligation
Serve all load on a firm basis
under any weather condition.
Asset Management – Load Duration
Curve Example
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
110,000
120,000
130,000
140,000
150,000
160,000
170,000
180,000
190,000
200,000
210,000
1
11
21
31
41
51
61
71
81
91
101
111
121
131
141
151
Winter Days (Coldest to Warmest)
LNG
Storage 3
Storage 2
Storage 1
Transport C
Transport B
Transport A
2 std. dev. - Colder LDC Load
1 std. Dev. - Colder LDC Load
LDC Load
Peaking Sales - Overview
Currently serving two peaking agreements that provide
delivered commodity options
Demand charges paid
Sequent uses excess storage and transport available from
utilities to back the service
Value is created when better sourcing alternatives are
utilized
New Origination - Overview
Embarking on strategy to accumulate earnings accretive
products and services
Asset management agreements
Contract purchases from exiting merchants
Peaking transactions
Structured commodity sales
Transactions are valued intrinsically; extrinsic optionality is an
upside
Expect to close 10-15 origination transactions per year
New Origination -
Intrinsic & Extrinsic Value Description
futures to futures arbitrage
cash to futures arbitrage
time spread
Storage
Management
segmenting
option to strand transport and
purchase delivered supply
excess transport
Transportation
Management
Intrinsic
Extrinsic
Definitions:
Intrinsic value is transportation and storage value that can be readily hedged in
a forward market.
Extrinsic Value is the transportation and storage value that cannot be readily
hedged in a forward market. Forward market conditions and cash market
conditions dictate these opportunities.
Details Are Important to Our
Customers and To Us
Operational
Expertise
Flexible Product
Offering
Customer Relationships
Risk Processes
Credit Worthy Counterparty
4% 4% 2% 1% 7% 10% 5% 12% 16% 33% 19% 26% 6% 51% 0% 2% 2% 0% 0% 100% % 11/10/03 9.90 9.90 3.90 2.46 17.97 24.33 12.15 31.41
39.69 83.25 47.05 67.75 15.56 130.36 0.96 4.70 5.66 0.01 0.01 253.51 Rating Group Group Group Equivalent AAA AA+ AA AA- Group A+ A A
- Group BBB+ BBB BBB- BB+ BB Group CCC+ Total S&P Credit AAA AA A BBB BB CCC A 12% A+ 5% A- 16% by Rating AA- 7% AA 1%
24 AA+ 2% exposure Management AAA 4% of BBB Credit exposure is CCC+ 0% Exposures BB 2% $253.51 this rating BB+ 0% with of Energy
61% credit BBB- 6% BBB+ 19% Counterparties represent portfolio Conference Equivalent 20 Average 111 Top Counter party Analyst/Investor
Sequent S&P 2003 BBB 26%
% 32% 25% 21% 7% 5% 3% 3% 2% 2% 0% 0% 100% 32% 11/10/03 81.56 62.39 53.51 18.20 12.76 8.30 6.55 4.82 4.51 0.84 0.07 253.51 Natural Gas Utility $ $ Industry Type Chemical Companies Electric and Natural Gas Oil & Gas Refining Total Natural Gas Utility Electric Utility Nat Gas Dist - Nonpipeline Manufacturing Nat Gas Dist - Pipeline Oil and Gas Producers Packaged Foods Banking Banking 0% Packaged Foods 0% 25% Electric Utility 25 Oil & Gas Refining 2% Oil and Gas Producers 2% 3% Electric and Natural Gas 3% Chemical Companies 5% 21% Sequent Energy Management Counterparty Exposures by Industry Type Nat Gas Dist - Pipeline Manufacturing 7% Nat Gas Dist - Nonpipeline 2003 Analyst/Investor Conference
Sequent Systems Initiative
Openlink ENDUR chosen for Sequent’s Energy Trading
and Risk Management system after thorough evaluation
process
Sapient engaged as project manager to assist Openlink in
design and implementation
AGLR technology organization has been actively involved
in this process
Extensive contractual provisions negotiated with both
vendors (Openlink and Sapient)
Go live date scheduled for summer 2004
Sequent Energy Management
Risk Control
In order for Executive Management to effectively capture and
monitor risks identified and quantitatively measured, a sound
Risk Management framework is required.
Organization & People
Well defined risk management organization structure
Methodologies
Consistent and approved valuation and risk measurement
methodologies
Limits & Controls
Appropriate risk limits to communicate the Company’s
risk appetite
Reporting
A comprehensive and consistent framework for
communicating risk taking activities across the
organization
Policies
Comprehensive policies to communicate strategies,
approved activities, risk tolerances, and control
processes and procedures
Systems & Data
integrated systems and consistent and reliable data are
the backbone of an effective risk management program
Risk-Adjusted Performance Indicators
Value at Risk
VaR: Maximum expected variation in the portfolio's value within a given degree of confidence, over a
specific holding period.
VaR Details:
95% confidence interval
Sequent’s VaR model is based on weighted historical price changes
The Sharpe Ratio is the difference between the return to an investment
and a benchmark return, divided by the standard deviation of that
difference.
Inputs to the Sharp Ratio:
Operating Income: Wholesale Services
Average Monthly Capital Deployed: Wholesale Services
90-Day Treasury Bill Rates
Sharpe Ratio - Benchmarks
Mutual Funds:
Trading Systems
Sharpe > 0
Sharpe > 0
Sharpe > 1 “Pretty Good” Sharpe > 2 “Very Good”
Sharpe >2 “Outstanding” Sharpe >3 “Outstanding”
Wholesale Services - Sharpe Ratio
Risk-Adjusted Performance Indicators
Summary of Results:
The Sharpe Ratio for Sequent Wholesale Services is 2.12 for the 2003 year-
to-date period ending September 2003.
The decrease in the value is attributed primarily to lower profitability.
The decreasing trend of this ratio is expected to reverse as we move out of
the shoulder/fall season and into the winter season when we usually see
increased profitability.
Sharpe Ratio =
Return - Risk Free Rate
Standard Deviation of Difference
Between Return and RFR
Risk-Adjusted Performance Indicators
Risk Adjusted Return On Capital (RAROC) - Wholesale Services
RAROC is a risk-adjusted performance
measure. The metric measures the
profitability of a firm based on economic
capital.
References: Keers, Greg. “Risk Adjusted Capital Allocation For Energy Project Appraisal.” 2002.
Crouhy, Michel. Risk Management. 2001.
Standard & Poor’s. “Debt Treatment of Contingent Capital for Energy Trading and
. Marketing.” 20 March 2003.
Preliminary work on RAROC includes the
following inputs & results:
Operating Income (Wholesale Services)
Market Risk (Average 10-day VaR x 4)
Credit Risk
Operational Risk (1/2 VaR x 4)
Results: 8-month average = 17.5%
RAROC =
Revenues - Costs - Expected Losses
Risk Capital
=
Operating Income
Market Risk (VaR)
+ Credit Risk
+ Operational Risk
Sequent Energy Management
Net Assets and Dividend History
Sequent Energy Management
Working Capital and NYMEX Settled Prices
Sequent will move to the next level
Significant increase in activity
Geographical diversity across the eastern half of the
United States
Expand into additional service activities
Implement new end-to-end business system
Leverage the current Sequent infrastructure
Develop a higher sustainability of margins
Less driven by weather events
Origination activities will be a significant contributor
2004 Outlook
2004 Plan
Projected Volumetric
Share by Pipeline
Projected Gross Margin
Contribution