Docstoc

Energy _ Utilities Outlook - 2011 _Morgan Stanley_.pdf1

Document Sample
Energy _ Utilities Outlook - 2011 _Morgan Stanley_.pdf1 Powered By Docstoc
					January 19, 2010

                                                                                                                                                                                    MORGAN STANLEY RESEARCH
Energy & Utilities                                                                                                                                                                  North America


2011 Outlook                                                                                                                                                                        Ole Slorer
                                                                                                                                                                                    Ole.Slorer@morganstanley.com
                                                                                                                                                                                    +1 (1)212 761 6197


                                                                                                                                                                                    Greg Gordon
                                                                                                                                                                                    Greg.Gordon@morganstanley.com
                                                                                                                                                                                    +1 (1)212 761 7201


                                                                                                                                                                                    Evan Calio
                                                                                                                                                                                    Evan.Calio@morganstanley.com
                                                                                                                                                                                    +1 (1)212 761 6472


                                                                                                                                                                                    Stephen Maresca
                                                                                                                                                                                    Stephen.Maresca@morganstanley.com
                                                                                                                                                                                    +1 (1)212 761 8343


                                                                                                                                                                                    Stephen Richardson
                                                                                                                                                                                    Stephen.Richardson@morganstanley.com
                                                                                                                                                                                    +1 (1)212 761 3741


                                                                                                                                                                                    Hussein Allidina
                                                                                                                                                                                    Hussein.Allidina@morganstanley.com
                                                                                                                                                                                    +1 (1)212-761-4150


                                                                                                                                                                                    Jonathan Cohen
                                                                                                                                                                                    Jonathan.Cohen@morganstanley.com
                                                                                                                                                                                    +1 (1)212 761 6851




Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the
objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision.

For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.

+= Analysts employed by non-U.S. affiliates are not registered with FINRA, may not be associated persons of the member and may not be subject to NASD/NYSE restrictions on communications with a subject company, public appearances and
trading securities held by a research analyst account.
                                     MORGAN STANLEY RESEARCH
                                         Energy & Utilities 2011 Outlook
                                                        January 19, 2011




Table of Contents

US Equity Strategy Outlook     [3]

Investment Themes              [4]

Top Picks for 2011             [5]

Oil and Natural Gas Outlook    [6]

Oil Services and Drilling      [9]

Integrated Oils, Refiners     [14]

Exploration and Production    [19]

Natural Gas and MLPs          [23]

Diversified Utilities/ IPPs   [29]

Regulated Utilities           [35]




                                                                           2
                                                                                               MORGAN STANLEY RESEARCH
                                                                                                     Energy & Utilities 2011 Outlook
                                                                                                                    January 19, 2011




US Equities Strategy 2011 Outlook

Overall Market
  Morgan Stanley US Equity Strategist Adam Parker forecasts modest EPS growth in 2011 in his base case, with
    growth decelerating and market multiple going lower.
  Adam’s base case YE2011 target for the S&P 500 is 1,238; his bear-bull range is 964 to 1,425, with downside
    exceeding upside potential.


Thematic Ideas
  Adam favors Growth over Value, highlighting that Growth’s premium to the market is below historical levels and
    Value’s beta is near historical highs.
  While Junk has outperformed since early 2009, Adam favors “Moderate” Quality (not High Quality) over Junk in 2011.

  With existing enormous cash balances, capital use will be important in 2011, sustaining M&A as acquirers now
    outperform and allowing moderate yielders to grow their dividend.


Sector Balance
  Overweight: Energy, Healthcare, Technology

  Underweight: Consumer Discretionary, Materials, Staples

  Market-weight: Financial, Utilities, Industrials, Telecom




                                                                                                                                       3
                                                                                                      MORGAN STANLEY RESEARCH
                                                                                                          Energy & Utilities 2011 Outlook
                                                                                                                         January 19, 2011




Investment Themes for 2011 Across the Energy Sector

Sector-Specific Themes
    Oil exposure preferred over pure natural gas exposure
    Exposure to infrastructure spending growth
    Special situations at play (break-ups, spin-offs, sum-of-the-parts stories with a catalyst)
    With interest rates biased to the upside, growth over yield in dividend/income oriented stocks


Relative to Morgan Stanley Equity Strategy Call
    Growth over value
    “Second Tier” quality favored over “High Quality” and “Junk”
    Capital deployment: acquirers have been able to outperform and moderate dividend yielders have raised their dividends


Energy Sector Key Take-Aways
    We support Adam’s Overweight of Energy
    Certain Energy industries can see multiple expansion despite Adam’s call (e.g., oil services)
    Only certain stocks screen as “Second Tier” quality under Adam’s definition
    A reasonably large number of our ideas are special situations and are more value than growth




                                                                                                                                            4
                                                                                                                                          MORGAN STANLEY RESEARCH
                                                                                                                                                 Energy & Utilities 2011 Outlook
                                                                                                                                                                January 19, 2011




   Top Picks for 2011 Across the Energy Sector

                                                                                             Energy                                                                    Utilities

                                      Oil Services             Integrated Oils                       E&P                        Natural Gas & MLPs            Divs'd        Reg'd
                                         Slorer                    Calio                          Richardson                         Maresca                  Cohen        Gordon
Top Picks                         BHI    SLB      WFT    CVX    MUR    SUN       TSO   DVN   SU     SWN    XEC     PWT   EPB   WPZ   EP   NFG WMB WES         CEG        AEP       NVE


Sector-Specific Themes
Oil exposure over natural gas                                                                                                           
Infrastructure spending growth                                                                                                                                             
Special situations                                                                                                                                       
Growth over yield                                                                                                                                                             

"Fit" with Strategy Call
Growth over value                                                                                                                                                         
"Second Tier" quality preferred                                                                                                                                         
Capital deployment                                                                                                                                




                                                                                                                                                                                    5
                   MORGAN STANLEY RESEARCH
                       Energy & Utilities 2011 Outlook
                                      January 19, 2011




Commodities

Hussein Allidina




                                                         6
                                                                                                                                                                   MORGAN STANLEY RESEARCH
                                                                                                                                                                              Energy & Utilities 2011 Outlook
                                                                                                                                                                                             January 19, 2011




Commodities: Tighter Balances to Shift Focus to Supply Side Fundamentals in 2011
    Crude oil and product inventories have declined well in excess of normal in recent months, supported by demand,
     which has moved to new record highs in the 3Q10 of 88.7 mmb/d. With non-OPEC supply seen falling by 380 kb/d in
     2011, and demand set to increase by 1.1 mmb/d or 1.2% YoY, inventories are poised to fall further yet, constructive for
     both flat price and structure.

    We see OPEC needing to increase production in 1H11. We view this action as the catalyst that will refocus the
     market on the supply side (spare capacity included) and its inability to meet growing demand, ultimately lifting prices
     higher to average $100/bbl and $105/bbl in 2011 and 2012, respectively.

    Higher OPEC Production Needed in 1H11 to Keep                                                             Spare Capacity Falling, Untenable by 2013
    Inventories from Declining Materially
    (Left axis: OECD industry inventories, bln bbls; right axis: MoM Δ in OPEC                                (OPEC spare capacity, mmb/d)
    Production, mmb/d)
    2.85                                                                                        1,250         7
                                                                                                                                                                                        Forecast
                                                                                                              6
    2.80

                                                                                                750           5
    2.75
                                                                                                              4
    2.70
                                                                                                250           3
    2.65
                                                                                                              2
    2.60
                                                                                                (250)         1
    2.55
                                                                                                          -
    2.50                                                                                                      (1)
                                                                                                (750)

    2.45                                                                                                      (2)

    2.40                                                                                        (1,250)       (3)
        2005       2006       2007      2008         2009      2010     2011      2012                              20 02        2004         2006          2008          2010e    2012e     2014e
               OPEC Crude Prod MoM Δ - RHS                       OPEC Adds/Cuts
               Stocks - LHS (bln bbls)                           MS Forecast - LHS (bln bbls)
               Inv. Path without OPEC Invervention

    Source: EIA, Morgan Stanley Commodity Research estimates                                                   Source: IEA, Morgan Stanley Commodity Research estimates
                                                                                                                                                                                                                7
                                                                                                                                                   MORGAN STANLEY RESEARCH
                                                                                                                                                           Energy & Utilities 2011 Outlook
                                                                                                                                                                            January 19, 2011




Commodities: Natural Gas – Fundamentally Oversupplied
 The natural gas market remains fundamentally oversupplied.
 Inventory remains high – We entered the 2010-11 heating season with record inventory at +3.8 tcf, and we will likely exit
  the winter with a comfortable amount of stock.
 Production remains robust – Latest EIA data indicate US dry gas production averaged 59.9 bcf/d in October, down 0.1
  bcf/d MoM but up 4.1 bcf/d YoY.
 Drilling activity remains elevated – The resilient level of drilling will likely keep US gas production robust well into 2011.
   The oversupply stems despite very robust demand – The EIA’s latest data show demand averaging 62.4 bcf/d YTD, or
    a YoY increase of 2.3 bcf/d.

US Will Likely Exit Winter With Comfortable Levels of                               Recent Surge in Horizontal Rig Activity Will Keep
Inventory                                                                           Production Elevated
 End-Mar inventory, tcf                                                             (Left axis: rig count; right axis: dry gas production, bcf/d)
                                                                                      1,200                                                                                 65
 1.80

                                                                                      1,000
                                                                                                                                                                            60
 1.60
                                                                                         800
                                                                                                                                                                            55
 1.40
                                                                                         600
                                                                                                                                                                            50
 1.20
                                                                                         400

 1.00                                                                                                                                                                       45
                                                                                         200


 0.80                                                                                    -                                                                                  40
         2004       2005      2006      2007      2008      2009    2010    2011E            J an-07   Jul-07    Jan-08     Jul-08    Jan-09     Jul-09   Jan-10   Jul-10

                Historical      MS est. – low Case          MS est. – high case                 Horizontal, 12-M MA                  Prod, bcf/d           Vert/Direct, 12-M MA


 Source: EIA, Morgan Stanley Commodity Research estimates                           Source: EIA, Smith Bits Stats, Morgan Stanley Commodity Research


                                                                                                                                                                                               8
                            MORGAN STANLEY RESEARCH
                                Energy & Utilities 2011 Outlook
                                               January 19, 2011




Oil Services and Drilling

       Ole Slorer




                                                                  9
                                                                                                                                                                                    MORGAN STANLEY RESEARCH
                                                                                                                                                                                                Energy & Utilities 2011 Outlook
                                                                                                                                                                                                                      January 19, 2011




Oil Services and Drilling: International Pricing Power to Drive Margin Expansion
We expect int’l pricing power to gain traction in 2011,                                    Int’l Margins Usually Recover with Rig Count
                                                                                                                               40%                                                                                           1,500
 driving int’l margin recovery                                                                                                                                                  2008/09 Cycle: Int'l rig
                                                                                                                               36%                                              count back even with prior                   1,350
 Historically, international margins recover with the rig count. In the current                                                                                                peak, but margins haven't
  cycle, rig count and margins have diverged — international rig count is                                                      32%
                                                                                                                                                                                recovered yet. Disconnect                    1,200
                                                                                                                                                                                unlikely to persist
  hitting new all-time highs, while margins are still bouncing along the trough.                                                                  1998/99 Cycle:




                                                                                           SLB Int'l EBIT Margins
                                                                                                                               28%                Margin recovery                                                            1,050




                                                                                                                                                                                                                                        Int'l Rig Count
 We believe the rig count/margin bifurcation is due to the nature of                                                                             simultaneous with rig
  international services contracts, which typically last three years. Thus, it                                                 24%                count recovery                                                             900

  takes 4–6 quarters for realized pricing to reflect leading-edge pricing.                                                                                                                     2008/09 Cycle: Int'l rig
                                                                                                                               20%                                                                                           750
                                                                                                                                                                                               count drops ~12%
 We expect to see international margins expand in 2011 as leading-edge                                                                                                                        peak-to-trough; Int'l
                                                                                                                               16%                                                                                           600
  pricing hits the P&L and international margin recovery mimics the prior                                                                                         1998/99 Cycle: Int'l rig
                                                                                                                                                                                               EBIT margins contract

  1998–2000 cycle.                                                                                                             12%                                count drops; int'l margins                                 450
                                                                                                                                                                  contract

 In the 2004–08 mega-cycle, the Saudi Aramco development program                                                              8%                                                                                            300
  helped drive pricing by soaking up excess capacity. This time, we believe                                                          1Q 97 1Q 98 1Q 99 1Q 00 1Q 01 1Q 02 1Q 03 1Q 04 1Q 05 1Q 06 1Q 07 1Q 08 1Q 09 1Q 10
                                                                                                                                         Int'l EBIT Margin                MS Int'l EBIT Margin Estimates                   Int'l Rigs
  Iraq will play a similar role.
                                                                                                  Source: Baker Hughes, Company data, Morgan Stanley Research estimates


Lag Between Leading-Edge and Realized Pricing                                              We Expect Recent Int’l Margin/Rig Count
                                                                                           Bifurcation to Reverse as Int’l Contracts Roll
                                                                                                                                         2008                  2009                   2010
Realized vs. Leading Edge Pricing                Realized Pricing   Leading Edge Pricing                                        5%                                                                                              40%
120%
                                                             Realized Pricing                                                   0%                                                                                              35%




                                                                                             Int'l Rig Count vs. Recent Peak
                                                                Inflection
                                      Leading Edge
110%                                                                                                                            -5%                                                                                             30%
                                      Pricing Turns




                                                                                                                                                                                                                                                          Int'l EBIT Margins
                                                                                                                               -10%                                                                                             25%
100%
                                                                                                                               -15%                                                                                             20%
 90%
                                                                                                                               -20%                                                                                             15%

 80%                                                                                                                           -25%                                                                                             10%

                                                                                                                               -30%                                                                                             5%
 70%
                                                                                                                               -35%                                                                                             0%
            09

            09

            10

            10

            10

            10

            11

            11

            11

            11
      08

            08

            08

            09

            09


          4Q




          3Q

          4Q

          1Q



          3Q

          4Q
    2Q

          3Q

          4Q

          1Q

          2Q

          3Q



          1Q

          2Q




          2Q




                                                                                                                                        1998                  1999                    2000                   2001
                                                                                                                                     98/00 Int'l Rigs        08/10 Int'l Rigs         98/00 Int'l Margin        08/10 Int'l Margin
 Source: Baker Hughes, Company data, Morgan Stanley Research estimates                                      Source: Baker Hughes, Company data, Morgan Stanley Research estimates
                                                                                                                                                                                                                                                                               10
                                                                                                                                             MORGAN STANLEY RESEARCH
                                                                                                                                                        Energy & Utilities 2011 Outlook
                                                                                                                                                                               January 19, 2011




Oil Services and Drilling: Exploration Spending to Accelerate
We expect an increased focus on exploration                                               Industry Reserve Replacement Ratio Unsustainably
 spending in 2011                                                                         Low; Increase Likely in 2011
                                                                                          Oil reserve replacement ratio - 3 year rolling average (%)
 The industry has underinvested in exploration for the last decade, posting
                                                                                           180%
  reserve replacement ratios of ~100%, below the 120% needed for long-term
  sustainability.                                                                          160%
                                                                                                                                                                       Required for LT oil
                                                                                           140%                                                                        demand growth of
 Likewise, exploration spending has fallen over the last 10 years as a                                                                                                 1.5% pa: ~120%
                                                                                           120%
  percent of total upstream capex.
                                                                                           100%
 We expect exploration spending to figure more prominently in E&P capex                    80%
  budgets going forward, and we have already seen this begin to play out in
                                                                                            60%
  oil majors’ 2011 exploration budgets.
                                                                                            40%
 We see upside to seismic vessel dayrates after recent declines as we
                                                                                            20%
  expect increased exploration focus to drive seismic demand growth faster
  than supply expands over the next two years.                                               0%
                                                                                                     97    98    99    00     01    02    03    04     05    06    07        08     09
                                                                                            Source: Wood Mackenzie, JS Herold, Company data, Morgan Stanley Research


We Expect a Rebound in Exploration as a Percentage                                        After Recent Declines, We See Significant Upside
of Total Upstream Capex in 2011                                                           Potential to Seismic Dayrates
Exploration spending as percentage of total spending* (%)                                   Implied average 3D Dayrates ($'000)                                          PGS      CGG
29%                                                                                         500

27%                                                                                         450
                                                                                            400
25%
                                                                                            350
23%                                                                                         300

21%                                                                                         250
                                                                                            200
19%
                                                                                            150
17%                                                                                         100

15%                                                                                          50
       95    96 97      98   99    00 01      02 03     04 05      06      07   08   09        0
                                                                                                   2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10

Source: Wood Mackenzie, JS Herold, Company data, Morgan Stanley Research                     Source: Wood Mackenzie, JS Herold, Company data, Morgan Stanley Research

                                                                                                                                                                                              11
                                                                                                                                                   MORGAN STANLEY RESEARCH
                                                                                                                                                                 Energy & Utilities 2011 Outlook
                                                                                                                                                                                January 19, 2011




Oil Services and Drilling: Earnings Revisions and Multiple Expansion
We expect both earnings revisions and multiple                                                Applying Prior-Cycle EBIT Margins to Street 2012
 expansion in 2011                                                                            Revenues, We See Significant Room for Consensus
 We see significant potential upgrades to Street earnings expectations in 2011,              2012 EPS Revisions
  fueled largely by renewed confidence in international and exploration                                                                           SLB              HAL        BHI      WFT
  spending.                                                                                   2012e Consensus Revenue ($mm)                     42,580           22,294    19,429     13,644

 Applying prior-cycle EBIT margins (high, avg., and low) to 2012 Street sales,               High Margin, 2005–08                              29.3%            26.1%     23.7%      22.5%
  we see plenty of room for potential upward revisions to Street EPS                          Low Margin, 2005–08                               18.1%            18.8%     17.5%      14.1%
  expectations.                                                                               Avg Margin, 2005–08                               25.4%            22.9%     20.8%      19.4%

 We also expect forward multiple expansion as the buy side is increasingly                   Consensus 2012 Margin                             20.4%            20.9%     15.6%      16.1%
  willing to pay for oil services exposure in advance of the upcycle, while the sell          MS 2012 Margin                                    21.6%            19.8%     16.4%      16.1%
  side typically takes more time to revise its expectations.
                                                                                              High Pro Forma 2012 EPS ($)                          6.89            4.19      6.65       2.86
 We see multiple expansion mostly for international-exposed firms, which we                  Low Pro Forma 2012 EPS ($)                           4.24            2.94      4.82       1.63
  expect to experience increased pricing power and earnings acceleration. We                  Avg Pro Forma 2012 EPS ($)                           5.96            3.64      5.80       2.42
  expect NAm land focused firms, on the other hand, to undergo earnings
                                                                                              Current Street 2012 EPS ($)                         4.88             3.24      4.22       1.82
  growth deceleration and thus potential multiple contraction in 2011.
                                                                                              MS 2012 EPS ($)                                     5.70             3.10      5.00       2.20
Consensus Underestimated SLB’s Earnings in 2005,                                              % MS / Consensus 2012 EPS                         16.8%            (4.4%)    18.5%      20.4%
When Int’l Rig Count Rebounded to Prior Highs                                                 Street Earnings Revision Potential
SLB 2005 EPS                                                                                  High Case                           41.2%                          29.0%     57.5%      57.1%
$1.80                                                                                         Low Case                           (13.3%)                         (9.3%)    14.2%     (10.7%)
                                                                                              Avg. Case                           22.1%                          12.1%     37.5%      32.5%
$1.70
$1.60                                                                                         High P/E Multiple, 2005–08 (x)                       27.9            22.4      23.7       23.3
                                                                                              Low P/E Multiple, 2005–08 (x)                        15.3            11.2      11.9       11.8
                2005 EPS came in 40%
$1.50                                                                                         Avg P/E Multiple, 2005–08 (x)                        19.8            14.6      15.8       15.8
                above initial expectations
$1.40                                                                                         Current Stock Price ($)                             80.68           38.17     56.02      22.08
$1.30                                                                                         Upside from Current Stock Price
$1.20                                                                                         High P/E x High EPS                              138.1%        145.2%       181.2%     201.9%
                                                                                              Low P/E x Low EPS                                (19.9%)       (13.4%)        2.6%     (12.9%)
$1.10                                                                                         Avg. P/E x Avg. EPS                               46.2%         38.7%        63.3%      73.4%
$1.00
      Jan-04     Apr-04       Jul-04     Oct-04     Jan-05         Apr-05   Jul-05   Oct-05
                        Actual                                      Consensus estimates
Source: FactSet, Company data, Morgan Stanley Research estimates                              Source: FactSet, Company data, Morgan Stanley Research estimates
                                                                                                                                                                                               12
                                                                                                                                                               MORGAN STANLEY RESEARCH
                                                                                                                                                                        Energy & Utilities 2011 Outlook
                                                                                                                                                                                            January 19, 2011




Oil Services and Drilling: Top Picks for 2011
 SLB: Exposed to All 3 Themes                                             BHI: Earnings Revision Story                                WFT: Surprise Int’l Exposure
    SLB is exposed to all three major themes we                             We expect the Street to revise EPS forecasts                Though the smallest of the Big 4 integrated
     expect for 2011.                                                         upward for BHI, as we are 23% and 18% above                  services firms, we believe WFT has outsized int’l
                                                                              the Street for 2011/12, respectively.                        exposure beyond its historical mix of ~60%.
    ~75% of SLB sales are generated outside NAm,
     so SLB has most leverage to int’l pricing power.                        Applying prior cycle EBIT margins (high, avg. and           WFT undertook a massive international capital
                                                                              low) to 2012 Street sales, we see the most room              spending program beginning in 2005 and carrying
    SLB is highly exposed to accelerating exploration                        for revisions to BHI expectations, with even the             on through 2009. At the peak, WFT was investing
     and seismic cycle via WesternGeco, while also                            cycle-low margin implying EPS revisions of >15%.             more than 25% of sales in capital projects, twice
     sporting industry-leading production testing, LWD                                                                                     SLB’s investment on a relative basis.
     and reservoir monitoring capabilities.                                  Consensus is modeling HAL EBIT margin of
                                                                              20.9% in 2012, a ~200bps discount to the 2005–              We believe that debt incurred during the course of
    We expect SLB to undergo earnings revisions as                           08 cycle, whereas BHI is only credited with                  the int’l expansion program weighed on the stock
     the Street discounts ramp in int’l and exploration                       15.6%, or a big 520bps discount to its prior cycle           during the crisis, and subsequently execution risk
     spending, driving expectations for earnings                              average.                                                     on the int’l strategy has been an overhang.
     growth acceleration and thus multiple expansion.
                                                                             While HAL managed downcycle well compared                   With int’l acceleration just around the corner, we
                                                                              with BHI, we believe recent margin bifurcation               expect WFT’s half-decade long investment
                                                                              between these names should revert to the 2005–               program to finally pay off.
                                                                              08 mean as the next upcycle gets under way.


 SLB has most int’l exposure                                             BHI has most consensus 2012                                  WFT’s 5 year int’l expansion
                                                                         EPS revision potential                                       program to pay off
% Sales from Int'l Operations, 2010e                                                                                                 Capex / Revenue (%)                  SLB (OFS Only)    HAL      BHI    WFT
                                                                         100%
                                                                                                                       HIGH CASE     30%
                                                                                                                       REVISIONS
 SLB                                                               74%   80%
                                                                                                                                     25%

                                                                         60%
WFT                                                        60%                                                        AVG. CASE      20%
                                                                                                                      REVISIONS
                                                                         40%
                                                                                                                                     15%
                                                                                                      18%      20%                          Average: 10.7%
                                                                                      17%
  BHI                                                55%                 20%
                                                                                                                                     10%
                                                                                                                      MS 2012e EPS
                                                                           current
                                                                         street EPS                                                  5%
 HAL                                              51%                                       -4%
                                                                                                                      LOW CASE
                                                                         -20%
                                                                                                                      REVISIONS      0%
                                                                                      SLB   HAL      BHI       WFT
                                                                                                                                              2004      2005     2006      2007      2008         2009     2010E
Source: FactSet, Company data, Morgan Stanley Research estimates
                                                                                                                                                                                                                   13
                            MORGAN STANLEY RESEARCH
                                Energy & Utilities 2011 Outlook
                                               January 19, 2011




Integrated Oils, Refiners

       Evan Calio




                                                              14
                                                                                                                                                                                                                                                                    MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                                                                                                       Energy & Utilities 2011 Outlook
                                                                                                                                                                                                                                                                                                                                                                 January 19, 2011




Integrated Oil: Expect Market Outperformance on Earnings/Multiple Growth
Morgan Stanley Equity Strategist cautious on the market                            Integrated Oil’s Share of the S&P 500
  Morgan Stanley strategist Adam Parker expects below-consensus                                                                                                                                                                            Market Cap                                   FY1 Earnings
                                                                                   18%
   S&P 500 earnings growth of 10% in 2011 and 6% in 2012. Current
                                                                                   16%
   consensus estimates assume increasing incremental margins, which
   are traditionally too optimistic and are likely to disappoint for companies     14%

   without pricing power.                                                          12%

  The market multiple will contract as earnings disappoint and earnings           10%
   growth decelerates. Government intervention has likely pulled forward           8%
   earnings from future years which would increase earnings volatility and
                                                                                   6%
   historically reduces the market multiple. The specter of high inflation
                                                                                   4%
   and downside tail risks further weigh on the market multiple.
                                                                                   2%

Integrated Oils earnings growth to outpace broader market                          0%




                                                                                                                       09/29/1995




                                                                                                                                                                                                                                                                                          09/30/2004


                                                                                                                                                                                                                                                                                                                    09/30/2005




                                                                                                                                                                                                                                                                                                                                                                                    09/30/2009
                                                                                                                                                   09/30/1997


                                                                                                                                                                   09/30/1998


                                                                                                                                                                                             09/30/1999




                                                                                                                                                                                                                                         09/28/2001


                                                                                                                                                                                                                                                      09/30/2002


                                                                                                                                                                                                                                                                     09/30/2003




                                                                                                                                                                                                                                                                                                                                       09/29/2006


                                                                                                                                                                                                                                                                                                                                                    09/28/2007


                                                                                                                                                                                                                                                                                                                                                                  09/30/2008




                                                                                                                                                                                                                                                                                                                                                                                                             09/30/2010
                                                                                                                                      09/30/1996




                                                                                                                                                                                                                       09/29/2000
  At the current futures curve (oil + gas), we expect +20% YoY earnings
   growth vs. MS market earnings forecast of +10% YoY.
  Historically, increasing share of market earnings for Integrated Oil’s has            Source: FactSet, Morgan Stanley Research
   driven a corresponding increase in Integrated Oils share of the S&P
   market cap.                                                                     Integrated’s P/E Multiple Expands on Confidence
  Additional earnings upside on oil price upside risk (see Hussein Allidina)
                                                                                   in Oil’s Sustainability and Direction
                                                                                                                          40.0
   and refining supply disruptions.
                                                                                                                          36.0



                                                                                    Integrated Oils NTM P/E (ex-HES)
                                                                                                                          32.0
Potential for multiple expansion in energy growth cycle
                                                                                                                          28.0                                                                                                                                      Multiple expanded from late 2005 to
    We expect moderate multiple expansion similar to 2005-07 as market                                                   24.0
                                                                                                                                                                                                                                                                    2008 as confidence increased in
                                                                                                                                                                                                                                                                    both the sustainability and direction
     confidence increases in the sustainability and direction of crude oil price                                          20.0                                                                                                                                      of crude prices
     and upstream activity.
                                                                                                                          16.0
                                                                                                                          12.0
                                                                                                                              8.0
                                                                                                                              4.0
                                                                                                                              0.0




                                                                                                                                                                                                                                    01/31/2003




                                                                                                                                                                                                                                                                                                                                                    01/31/2008
                                                                                                                                    1/29/1999


                                                                                                                                                      01/31/2000


                                                                                                                                                                                01/31/2001


                                                                                                                                                                                                          01/31/2002




                                                                                                                                                                                                                                                       01/30/2004


                                                                                                                                                                                                                                                                            01/31/2005


                                                                                                                                                                                                                                                                                                       01/31/2006


                                                                                                                                                                                                                                                                                                                                 01/31/2007




                                                                                                                                                                                                                                                                                                                                                                       01/30/2009


                                                                                                                                                                                                                                                                                                                                                                                                 1/29/2010
                                                                                                   Source: FactSet, Morgan Stanley Research                                                                                                                                                                                                                                                                               15
                                                                                                                                                                                                                                                                  MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                                                                                                     Energy & Utilities 2011 Outlook
                                                                                                                                                                                                                                                                                                                                                               January 19, 2011




Integrated Oil: Expect Market Outperformance on Earnings/Multiple Growth
Integrated Oils earnings growth to outpace broader market                        Integrated Oil’s Share of the S&P 500
  At the current futures curve (oil + gas), we expect +20% YoY earnings                                                                                                                                                                  Market Cap                                   FY1 Earnings
                                                                                 18%
   growth vs. Morgan Stanley market earnings forecast of +10% YoY.
                                                                                 16%
  Historically, increasing share of market earnings for Integrated Oil’s has
   driven a corresponding increase in Integrated Oils share of the S&P 500       14%

   market cap.                                                                   12%

  Additional earnings upside on oil price upside risk (see Hussein Allidina)    10%

   and refining supply disruptions.                                              8%

  MS Equity Strategist expects below consensus 2011 market earnings,            6%
   slowing further into 2012 on disappointing incremental margins.               4%

                                                                                 2%
Potential for multiple expansion in energy growth cycle
                                                                                 0%
  We expect moderate multiple expansion similar to 2005-07 as market




                                                                                                                     09/29/1995




                                                                                                                                                                                                                                                                                        09/30/2004


                                                                                                                                                                                                                                                                                                                  09/30/2005




                                                                                                                                                                                                                                                                                                                                                                                  09/30/2009
                                                                                                                                                 09/30/1997


                                                                                                                                                                 09/30/1998


                                                                                                                                                                                           09/30/1999




                                                                                                                                                                                                                                       09/28/2001


                                                                                                                                                                                                                                                    09/30/2002


                                                                                                                                                                                                                                                                   09/30/2003




                                                                                                                                                                                                                                                                                                                                     09/29/2006


                                                                                                                                                                                                                                                                                                                                                  09/28/2007


                                                                                                                                                                                                                                                                                                                                                                09/30/2008




                                                                                                                                                                                                                                                                                                                                                                                                           09/30/2010
                                                                                                                                    09/30/1996




                                                                                                                                                                                                                     09/29/2000
   confidence increases in the sustainability and direction of crude oil price
   and upstream activity.
  “More than one leg to the stool” adds confidence: Refining and                      Source: FactSet, Morgan Stanley Research

   chemicals segments no longer a drag on earnings. US natural gas
                                                                                 Integrated’s P/E Multiple Expands on Confidence
   remains the primary laggard.
                                                                                 in Oil’s Sustainability and Direction
  Corporate action and restructuring has expanded company multiples
                                                                                                                        40.0
   and will continue to support multiple expansion in the group as
                                                                                                                        36.0



                                                                                  Integrated Oils NTM P/E (ex-HES)
   corporates seek to address compressed multiples.
                                                                                                                        32.0
  Potential for acquisitions (particularly US natural gas) poses a modest
                                                                                                                        28.0                                                                                                                                      Multiple expanded from late 2005 to
   risk to multiple expansion.                                                                                          24.0
                                                                                                                                                                                                                                                                  2008 as confidence increased in
                                                                                                                                                                                                                                                                  both the sustainability and direction
  In contrast, our equity strategist expects the market multiple to contract                                           20.0                                                                                                                                      of crude prices

   as earnings disappoint and growth decelerates.                                                                       16.0
                                                                                                                        12.0
                                                                                                                            8.0
                                                                                                                            4.0
                                                                                                                            0.0




                                                                                                                                                                                                                                  01/31/2003




                                                                                                                                                                                                                                                                                                                                                  01/31/2008
                                                                                                                                  1/29/1999


                                                                                                                                                    01/31/2000


                                                                                                                                                                              01/31/2001


                                                                                                                                                                                                        01/31/2002




                                                                                                                                                                                                                                                     01/30/2004


                                                                                                                                                                                                                                                                          01/31/2005


                                                                                                                                                                                                                                                                                                     01/31/2006


                                                                                                                                                                                                                                                                                                                               01/31/2007




                                                                                                                                                                                                                                                                                                                                                                     01/30/2009


                                                                                                                                                                                                                                                                                                                                                                                               1/29/2010
                                                                                                 Source: FactSet, Morgan Stanley Research                                                                                                                                                                                                                                                                               16
                                                                                                                                                                                                              MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                                Energy & Utilities 2011 Outlook
                                                                                                                                                                                                                                                               January 19, 2011




Integrated Oil: Key Themes Driving Differentiated Share Performance
Crude Oil Continues to Outperform Natural Gas (see Hussein                                                             Unrisked Offshore Exploration Exposure as % of Mkt Cap
Allidina)
                                                                                                                       400%
                   Integrateds more oil-levered than E&Ps (63% vs. 38% of reserves). Most
                    exposed to crude are OXY, CVX, MUR and HES
                                                                                                                       350%

Downstream Exposure: Chemicals “Super Cycle” and Upside                                                                300%
risks to refining earnings
                   Chemicals: Polyethylene demand +5.6%/year vs. supply +2.3%/year, driving                           250%
                    global utilization from current 85% to 92% in 2014. Cheap feedstock (natgas) to
                    benefit US producers (XOM, CVX, COP, OXY)                                                          200%
                   Refining: Middle distillate balance flat YoY, with upside risks on supply
                    disruptions.                                                                                       150%


Exploration: Outsized exposure to the drillbit                                                                         100%

                   We expect the highest potential for impact offshore exploration activity since
                    2000. MUR and HES have an average upside to market cap of 100% and 50%,                            50%
                    respectively, in unrisked resource value creation.
                                                                                                                        0%




                                                                                                                                                      MUR




                                                                                                                                                                                           APC




                                                                                                                                                                                                                                                                                           ONGC
                                                                                                                                                                                    RELI
                                                                                                                                                NKO




                                                                                                                                                                                                 PMO




                                                                                                                                                                                                                         ORG




                                                                                                                                                                                                                                                                    BG
                                                                                                                                                                                                                                                 STL
                                                                                                                                                                                                                                           TLM




                                                                                                                                                                                                                                                              XOM
                                                                                                                              CIE




                                                                                                                                                                  TLW

                                                                                                                                                                        HES




                                                                                                                                                                                                             NXY
                                                                                                                                                                                                                   REP




                                                                                                                                                                                                                                                                         COP

                                                                                                                                                                                                                                                                               CVX
                                                                                                                                                                                                                                                                                     RDS



                                                                                                                                                                                                                                                                                                  APA
                                                                                                                                    KAR

                                                                                                                                          AFR




                                                                                                                                                                                                                                     PBR
                                                                                                                                                                                                                               MRO
                                                                                                                                                                              NBL




                                                                                                                                                                                                       WPL




                                                                                                                                                                                                                                                        TOT
                                                                                                                                                            OGX
Corporate Action
                   Restructuring has driven 26% outperformance (MUR, MRO, SUN, TSO, WNR).                                Source: Company data, CMAI, FactSet, Morgan Stanley Research
                    CVX has the largest discount to NAV of remaining Integrateds.
                                                                                                                        Corporate Action Drove 2010 Performance. Who’s Next?
US Chemicals Margins Rising Through 2014                                                                                                                                                                                                            Date                   Relative
            800                                                                                                          Company          Actions Taken                                                                                            Started               Performance*
                                      CMAI Assumptions                                                                                    Intent to sell $10B in assets. Reduced Lukoil
            700                       CMAI Assumptions using forward commodity prices                                    ConocoPhillips   stake, sold Syncrude interest, sold CFJ                                                                      Oct-09                        13%
                                      MS Assumptions                                                                                      Properties (marketing assets)
            600
                                                                                                                                          Closures and sales of refineries and
            500                                                                                                          Sunoco           announced divestiture of noncore assets                                                                      Jun-09                        13%
                                                                                                                                          (chemicals, logistics, and Suncoke)
US$ / Ton




            400                                                                                                                           New CEO institutes corporate strategy and
                                                                                                                         Tesoro                                                                                                                        May-10                        17%
                                                                                                                                          plans IPO for midtsream MLP
            300                                                                                                                           Plans to exit Refining business and sell UK
                                                                                                                         Murphy Oil                                                                                                                    Jul-10                        14%
                                                                                                                                          marketing assets
            200
                                                                                                                                          Shutdown of Yorktown refinery and
                                                                                                                         Western Refining                                                                                                              Aug-10                        88%
            100                                                                                                                           evaluation of strategic alternatives
                                                                                                                         Marathon Oil     Spin off of downstream assets                                                                                Jan-11                        11%
                0                                                                                                        Average Performance                                                                                                                                         26%
                                                                                               2010e
                     1990


                            1992


                                   1994


                                           1996


                                                  1998


                                                         2000


                                                                2002


                                                                       2004


                                                                              2006


                                                                                        2008




                                                                                                       2012e


                                                                                                               2014e




                                                                                                                         *indicates performance versus subsector since date started
            Source: Company data, FactSet, Morgan Stanley Research                                                        Source: Company data, CMAI, FactSet, Morgan Stanley Research                                                                                                        17
                                                                                                                                               MORGAN STANLEY RESEARCH
                                                                                                                                                        Energy & Utilities 2011 Outlook
                                                                                                                                                                          January 19, 2011




Integrated Oil, Refining and Marketing: Refining Market Remains Balanced in 2011
Traditional Refining Utilization Build-up Appear Balanced in 2011                  Distillation Utilization Remains Flat Y-o-Y
                                                                                     93%
   2011 global distillate utilization remains flat year-on-year while CDU
    capacity additions moderately exceed demand growth.                              92%


                                                                                     91%
   Global capacity growth is skewed to 2H11, so we expect global distillate
    utilization to tighten in 1H11due to emerging market demand growth yet           90%
    exit 2011 balanced (y-o-y) as incremental capacity from China and the
    Middle East streams.                                                             89%


Less Traditional Themes Provide Support                                              88%


                                                                                     87%
   Mid-Con region will continue to benefit from wider differentials as domestic
    oil/NGLs production ramp in 2011. We also expect a positive “contango”           86%
    benefit as Cushing Ok fills in Spring; another secular trend.
                                                                                     85%
   Latin America remains a secular product growth story that will pull Gulf                     2004      2005      2006     2007      2008     2009    2010E    2011E    2012E

    Coast product south.                                                             Source: EIA, BP, Bloomberg, Morgan Stanley Research


   Heavy 2010 outages – planned and unplanned – provide some headwinds
    for 2011 yet also appear 2H11 concentrated                                     Outages are a Tougher Act to Follow in 2011

   A strong pet-chem cycle will offset some of the gasoline surplus by                       2000
    increasing Naphtha demand (primarily in Asia) while coal outages bid
                                                                                              1800
    distillate
                                                                                              1600

Non-Commodity Catalysts Also Provide Support                                                  1400
                                                                                                                                   7 Year Avg 1.1mbpd
                                                                                              1200
    Commodity agnostic growth among Independent in lower turnarounds,
                                                                                      (000)




                                                                                             1000
    cost improvements, moderate growth projects support y-o-y earnings                         800
    growth
                                                                                               600

                                                                                               400
   Restructuring remains a viable investment theme: SUN (asset sales,
    special dividend, Coke spin); WNR (asset sales/deleveraging); TSO                          200

    (MLP); FTO (special dividend), VLO (buy/sell assets).                                        0
                                                                                                        2004      2005      2006      2007     2008     2009     2010E    2011E
                                                                                        Source: EIA, BP, Bloomberg, Morgan Stanley Research


                                                                                                                                                                                         18
                                                                                                                    MORGAN STANLEY RESEARCH
                                                                                                                            Energy & Utilities 2011 Outlook
                                                                                                                                           January 19, 2011




Integrated Oil: Top Picks – Restructuring Themes Drive Outperformance

 Chevron (CVX) – Least expensive US Integrated and leading oil leverage amongst large-caps
    Cheapest valuation in the sector (20%-25% discount to group) offsets lack of 2011 stock-specific catalysts.
    Production 70% oil-weighted vs. 55% for large cap peers. Most of remaining natgas has international pricing.
    Top 5-yr growth rate amongst large cap peers, at 2.6%/yr vs. XOM at 2.0% and COP at -0.5%.
    Leading 2011 free cash flow yield of 7.0%.


 Murphy Oil (MUR) – Downstream divestiture to cause full stock re-rating
    MUR selling refining and UK retail segments in 1H11, leaving a pure E&P business.
    Visible production growth of 9%/year through 2015 with additional high impact exploration wells in Suriname and Indonesia
    Despite higher oil leverage, trades at 3.6x 2011e EBITDA, a 30% discount to peers based on strip pricing


 Sunoco (SUN) – Continuing break-up story will reduce discount to sum-of-the-parts
    Closure and sales of underperforming refineries have increased profitability and mgmt has been actively pursuing sales of noncore segments with
     SunCoke IPO planned in 2011.
    Near-term catalysts: revised coal pricing for 2011, revised met coal reserve estimate in 1Q11, filing of the SunCoke S-1 and monetization of the
     GP interest of SXL.
    Share price has underperformed all other peer groups since early December: SUN (-1%), refiners (+19%), coal (+17%), industrial gas (+2%),
     SXL (+7%).

 Tesoro (TSO) – Asset monetization opportunities with highest commodity agnostic upside
    Tesoro Logistics (TLLP) IPO occurs 1H2011, adding an estimated risked $6/share in value including additional asset drop-downs of $67MM in
     2011e EBITDA.
    Commodity agnostic 2011 EBITDA +75% YoY from opex and SG&A reductions ($170MM), return of Anacortes refinery ($150MM), and lower
     turnarounds ($46MM).
    Mid-Continent and West Coast regions have structurally protected margins from geography with potential upside in West Coast margins from a
     California economic recovery.



                                                                                                                                                          19
                             MORGAN STANLEY RESEARCH
                                 Energy & Utilities 2011 Outlook
                                                January 19, 2011




Exploration and Production

    Stephen Richardson




                                                               20
                                                                                                                                                                                MORGAN STANLEY RESEARCH
                                                                                                                                                                                              Energy & Utilities 2011 Outlook
                                                                                                                                                                                                              January 19, 2011




Exploration and Production: What Worked in 2010? Likely to Continue into 2011
1 – Capital Efficiency Improvements Are Key…                                                          Capital Efficiency Gains (Rate of Change)
 Most significant outperformance was witnessed from names where                                      Drove Performance
  access to resource and mix shifts drove improving capital efficiency.
                                                                                                                         100%
 Our focus is $/production adds and on incremental returns on investment.
                                                                                                                          80%                                       PXD

2 – Good Resource Getting Better…                                                                                                                                                    XEC
                                                                                                                                                                                                                    FST

                                                                                                                          60%
 The life cycle of resource plays suggests that economics can improve at a
                                                                                                                                                                       NFX
  rapid rate in the early stages of resource delineation and development.




                                                                                                      2010 Performance
                                                                                                                          40%
 Market expectations often follow suit once initial well results are achieved.                                                                               BBG


  Improvements can extend for much longer than some expect.                                                               20%

                                                                                                                                              UPL
                                                                                                                           0%
3 – Commodity Agnostic Investing…                                                                                                      ECA

 While direction of the commodity will continue to influence the direction of
                                                                                                                                                  RRC               COG
                                                                                                                          -20%
  the group, performance has not always been driven by the commodity.                                                                  SWN

                                                                                                                          -40%
 Access to resource, improving rate of change, and an accretive growth
                                                                                                                              -40%   -20%    0%         20%    40%        60%      80%      100% 120% 140% 160% 180%
  strategy (easier in oil vs. gas, but not unique to oil) is likely.                                                                                     Change in Capital Efficiency ($/production adds)


                                                                                                                         Source: Company data, Morgan Stanley Research


    More Than Oil vs. Gas Exposure Explains                                                             Brand Name Liquids Plays Getting Better
    2010 Performance                                                                                              70%            IRR Estimate ~1 year ago
                                                                                                                                 Current IRR Estimate
           100%
                                                                                                                  60%
                   80%
                                                                                                                                                        Better recovery factors and drilling
                                                                                                                  50%
                                                                                                                                                        efficiencies have improved returns
                   60%
                                                                                                                                                          vs. initial expectations (holding
                                                                                                                                                                    commodity flat)
2010 Performance




                                                                                                                  40%
                   40%


                   20%
                                                                                                                  30%


                   0%                                                                                             20%


               -20%                                                                                               10%

               -40%
                                                                                                                         0%
                         0%   10%   20%   30%     40%      50%     60%       70%   80%   90%   100%
                                            2010 Gas Production Percentage                                                             Eagle Ford                                Bakken                     Granite Wash

                    Source: Company data, Morgan Stanley Research                                                        Source: Company data, Morgan Stanley Research
                                                                                                                                                                                                                             21
                                                                                                                                                                                      MORGAN STANLEY RESEARCH
                                                                                                                                                                                                      Energy & Utilities 2011 Outlook
                                                                                                                                                                                                                         January 19, 2011




Exploration and Production: Key Themes for 2011
1 – Oil-weighted EPS revision cycle continues…                                                                                  Consensus Oil Forecasts Lag the Current Strip;
 Consensus oil price expectations (~$87/bbl) remain below the current                                                          Revisions Likely Drive Upside for 2011 EPS
  2011 strip (~$94/bbl), likely driving positive EPS revisions from here.                                                       50.0%
                                                                                                                                                                    Earnings Revision Factor
                                                                                                                                40.0%                               EPX
2 – Capex - Cash Flow gap has tightened due to commodity strength…                                                              30.0%

 E&Ps are likely to outspend cash flow by ~7% on average, based on our                                                         20.0%
  current 2011 commodity outlook of $95/bbl and $4.50/mcf.
                                                                                                                                10.0%
 We see greater upside potential for capex budgets (and production
  growth) assuming commodity prices hold.                                                                                        0.0%


                                                                                                                                -10.0%


3 – M&A being rewarded by the market…                                                                                           -20.0%


 On average, a valuation premium remains for E&P assets in the private                                                         -30.0%

  markets.                                                                                                                      -40.0%

 As long as assets can be sold accretively in the private markets,                                                             -50.0%
  producers maintain an alternative funding vehicle.                                                                                 07/02/09     11/02/09           03/02/10              07/02/10         11/02/10

                                                                                                                                Source: Company data, Morgan Stanley Research


Valuation Premium for M&A Transactions
                                                                                                                                Oil Strength Is closing Funding Gap for Many
Being Rewarded by the Market
$30
                                                                                                                                E&Ps; We See Upside to Capex Budgets
                              Transaction Comps (EV/boe)                                                                           SD
$25                                                                                                                              RRC
                              Public Comps (EV/boe)                                                                              EOG
                                                                                                                                 BBG
                                                                                                                                  NBL
$20                                                                                                                               ECA
                                                                                                                                 SWN
                                                                                                                                  PXD
                                                                                                                                  UPL
$15                                                                                                                              COG                                        2011 Capex / CFO

                                                                                                                                  FST
                                                                                                                                  NXY
                                                                                                                                  PXP
$10
                                                                                                                                 CHK
                                                                                                                                  TLM
                                                                                                                                 DVN
    $5                                                                                                                           DNR
                                                                                                                                 APC
                                                                                                                                  XEC
                                                                                                                                   SU
    $0                                                                                                                            NFX
                                                                                                                                  APA
         7/1/2009



                    8/26/09



                                   10/21/09



                                              12/16/09



                                                         2/10/10



                                                                   4/7/10



                                                                            6/2/10



                                                                                     7/28/10



                                                                                               9/22/10



                                                                                                         11/17/10



                                                                                                                    1/12/2011




                                                                                                                                 CNQ
                                                                                                                                  WTI
                                                                                                                                COS.U

                                                                                                                                         0%     50%          100%          150%                200%      250%          300%

 Source: Company data, Morgan Stanley Research                                                                                    Source: Company data, Morgan Stanley Research
                                                                                                                                                                                                                                        22
                                                                                                                     MORGAN STANLEY RESEARCH
                                                                                                                            Energy & Utilities 2011 Outlook
                                                                                                                                           January 19, 2011




Exploration and Production: Top Picks for 2011
Large-Cap                                                               Mid-Cap

SU - Suncor                                                             PWT – Penn West Exploration
 Our preferred play on long-term oil fundamentals.                      Trust conversion a likely catalyst for increased growth & investor interest.
 Positioned to grow production 6-7% CAGR from high visibility, zero     Upside on both cash flow estimates and NAV to drive share higher.
  decline oil sands project backlog.
                                                                        XEC – Cimarex Energy
DVN – Devon Energy                                                       Accelerating growth & returns from the Cana-Woodford and the emerging
 Post strategic redirection, we believe DVN has the most opportunity     plays in the Permian basin outweigh concerns over the production trajectory
  for change of the large cap E&Ps.                                       of the Gulf Coast.
 Defensive characteristics and oily growth trajectory to support        We see 2011 growth at the high end of the guided 2-10% range, further
  outperformance .                                                        improving a discount valuation vs. peers.

                                                                        SWN – Southwestern Energy
                                                                         Defined multi-year growth plan from Fayettville that will see industry high
                                                                          returns on capital maintained over the cycle.
                                                                         Multiple compression of the higher growth gas names provides opportunity
                                                                          to buy a best in class operator at peer average valuation.




                                                                                                                                                          23
                     MORGAN STANLEY RESEARCH
                         Energy & Utilities 2011 Outlook
                                        January 19, 2011




Natural Gas & MLPs

 Stephen Maresca




                                                       24
                                                                                                          MORGAN STANLEY RESEARCH
                                                                                                                 Energy & Utilities 2011 Outlook
                                                                                                                                January 19, 2011




Natural Gas & MLPs: Diversified Natural Gas – Key Themes in 2011

Stocks with low-cost, high-reserve, improving E&P portfolios should outperform
        For E&P, oil exposure and unique acreage positions become important drivers for the segment.
        NFG in Marcellus for gas; EP in the Eagle Ford for oil; WMB in the Bakken; MDU with a growing Niobrara position.


Strong midstream economics and new infrastructure projects will drive earnings acceleration
        Elevated processing margins, fractionation spreads, and oil prices will have a substantial influence on earnings.
        Additionally, new infrastructure projects will also be key in helping earnings up 7% in 2011e and 13% in 2012e.


Meaningful general partner (GP) stakes will get more noticed by the market
        Stocks with levered GP interests in MLPs garner a valuation premium as market ascribes higher valuations.
        Most exposed names in impact magnitude are WMB, OKE, EP, and SE.


Corporate announcements (e.g., JVs, asset spin-offs) will have positive impacts
        STR’s spin-off in 2010 and recent MRO spin-off sets the stage for further such restructurings to begin in 2011.
        NFG, EP and WMB are all potential corporate announcement beneficiaries.




                                                                                                                                               25
                                                                                                                                                                                            MORGAN STANLEY RESEARCH
                                                                                                                                                                                                                      Energy & Utilities 2011 Outlook
                                                                                                                                                                                                                                                                    January 19, 2011




Natural Gas & MLPs: Fundamental Pillars for Diversified Natural Gas Names
 General partner takeouts at premium multiple valuations a                          NGL Frac Spreads: Supportive for Midstream
continued theme for 2011. We believe the market will place higher values              Per gallon

on the cash flows for the remaining companies with levered GP interests.              $1.20

                                                                                      $1.00
 We believe that owning a GP stake and associated incentive rights
                                                                                      $0.80
in a growing MLP provides a considerable competitive advantage to
diversified stocks in terms of a stable cash inflow and funding capital               $0.60

expenditure needs.                                                                    $0.40

                                                                                      $0.20
  We believe multiple expansion is a high probability event given
investor interest in alternative ways to play the public GP theme, and                $0.00

relative valuation to public GP alternatives.                                         $(0.20)

                                                                                      $(0.40)
 Midstream economics (strong NGL prices) and new infrastructure




                                                                                                May-04




                                                                                                                           May-05




                                                                                                                                                      May-06




                                                                                                                                                                                 May-07




                                                                                                                                                                                                            May-08




                                                                                                                                                                                                                                       May-09




                                                                                                                                                                                                                                                                  May-10
                                                                                                         Sep-04
                                                                                                                  Jan-05


                                                                                                                                    Sep-05
                                                                                                                                             Jan-06


                                                                                                                                                               Sep-06
                                                                                                                                                                        Jan-07


                                                                                                                                                                                          Sep-07
                                                                                                                                                                                                   Jan-08


                                                                                                                                                                                                                     Sep-08
                                                                                                                                                                                                                              Jan-09


                                                                                                                                                                                                                                                Sep-09
                                                                                                                                                                                                                                                         Jan-10


                                                                                                                                                                                                                                                                           Sep-10
                                                                                                                                                                                                                                                                                    Jan-11
projects will drive earnings acceleration in 2011-12.
                                                                                      Source: Bloomberg; EIA; Company data; Morgan Stanley Research


2010 GP Transactions: a Valuation ‘Kick’                                             E&Ps’ Geographic Diversity: Important Driver
                      Implied       Implied Implied                        New
         GP C/F     GP Multiple     Market Per share        New          Per share
 Ticker ($ in m)     in Stock        Value   Value         Multiple       Value
 EP       $57           4.0x          $228    $0            21x              $2
 WMB     $282           2.0x          $564    $1            21x             $10
 OKE     $140          12.5x         $2,103   $20           21x             $27
 SE       $20           2.0x           $40    $0            21x             $1

                   Announcement     Buyer      Seller    Multiple paid
                                      LP         GP        P/DCF
                      Jun-10         BPL        BGH           22x
                      Aug-10        NRGY       NRGP           25x
                      Sep-10         EPD        EPE           22x
                      Sep-10         PVR        PVG           17x
                      Sep-10         NRP       Private        17x
                                              average         21x



    Source: Bloomberg; EIA; Company data; Morgan Stanley Research                      Source: EIA; Morgan Stanley Research
                                                                                                                                                                                                                                                                                             26
                                                                                                            MORGAN STANLEY RESEARCH
                                                                                                                   Energy & Utilities 2011 Outlook
                                                                                                                                  January 19, 2011




Natural Gas & MLPs: Midstream Energy MLPs – Key Themes in 2011

Stable NGL price environment continues throughout 2011, supporting further infrastructure development
         landscape is shifting towards oil and liquid plays (e.g., Bakken, Eagle Ford, Niobrara).
         current oil environment is creating more medium- to longer-term demand for ethane and propane.


MLPs are overreaching on acquisitions
         competition for assets increasing multiples and eating into returns (10.5x EBITDA in 2010 vs. 8.5x historically).
         prefer drop down stories (e.g., CHKM, EPB, WES).


Despite potential for consolidation, MLP asset class is broadening
         without GPs, some are ripe to be acquired, however new entrants (e.g., Tesoro, others) will more than offset.
         types of assets and geography will continue to push the envelope (e.g., fertilizer, E&P, coal).


Institutional participation to surpass that of 2007 levels
         pensions making an allocation, new closed end funds, more mutual funds.
         see near 40% of equity ownership made up by institutions end of 2011.


Rising interest rates environment generates headwinds, but the impact should be limited
         yield based valuations are full, a 4% 10-year treasury could cause 5–10% pullback.
         distribution growth (~5% in 2011e) should help offset.


                                                                                                                                                 27
                                                                                                                                      MORGAN STANLEY RESEARCH
                                                                                                                                                  Energy & Utilities 2011 Outlook
                                                                                                                                                                       January 19, 2011




Natural Gas & MLPs: Fundamental Pillars for MLPs
1 - NGL Outlook: Inventories continue to draw from current levels…           MS Ethane Supply / Demand Model
                                                                                    100                                                     Forecast
 Sustained high ethylene stream cracker utilization rates (90% in Dec.)
 Further heavy feed cracker conversions to accept ethane feedstocks
                                                                                    80

 limited near-term growth in ethane supply (frac capacity not until 2012)          60
                                                                                                                                                        supply in excess of
                                                                                    40                                                                       demand




                                                                             MBPD
2 - Acquisition Multiples: Trending higher…not a good thing                         20

 Expansion in numbers of MLPs                                                      -
 Large cap names pressured to find growth avenues                                  (20)
 New public MLPs looking to establish strong growth track record                   (40)

                                                                                    (60)
                                                                                                     demand in excess of
3 - Coverage Universe: Limited opportunity for outperformance…                      (80)                  supply
 MLPs up 36% on a total return basis in 2010, outpacing S&P500
                                                                                (100)
 Returns in 2011 expected to be solid, but modest (avg. 11%)




                                                                                                09




                                                                                                                                0




                                                                                                                                                         11




                                                                                                                                                                                   2
                                                                                                                0
                                                                                        9




                                                                                                                                           1




                                                                                                                                                                       2
 Current spread to Baa below long-term average, limiting upside




                                                                                      -0




                                                                                                                                 1




                                                                                                                                         -1




                                                                                                                                                                                    1
                                                                                                             -1




                                                                                                                                                                    -1
                                                                                               -




                                                                                                                                                          -
                                                                                                                              p-




                                                                                                                                                                                 p-
                                                                                            ep




                                                                                                                                                       ep
                                                                                    ar




                                                                                                                                       ar
                                                                                                           ar




                                                                                                                                                                  ar
                                                                                                                           Se




                                                                                                                                                                              Se
                                                                                    M




                                                                                                          M




                                                                                                                                      M




                                                                                                                                                                 M
                                                                                            S




                                                                                                                                                   S
                                                                              Source: Company data, Morgan Stanley Research


MLP Yield Spread vs. Baa Bonds                                               Midstream Acquisition EV/EBITDA Multiples
8.0%    MS Coverage Universe                                                    16.0x
7.0%
                                                                                                                    13.6
                                                                                14.0x
6.0%
5.0%
                                                                                12.0x
4.0%                                                                                        10.3
                                                                                                                                     9.7                                   10.0
3.0%                                                                            10.0x
2.0%
                                                                                    8.0x                                                                  7.5
1.0%
0.0%                                                                                6.0x
-1.0%
-2.0%   current spread (bps):   -14                                                 4.0x
-3.0%
                                                                                    2.0x
 D -01




 D 03




 De 05




 De 07




 De 09
  Ju 5




  Ju 7




  Ju 9
 M -01




 M -03
 M 00




 M 02




 M 04




 Fe 06
 M -00

 O 00


 A -01




 O 02


  Ju 3




 O 04




 Se 08




 Se 10
 M -05




 M -07


 Fe 08




 A 09


        10
 O 06
      -0




      -0




        0




        0
    b-
      -


     l-




      -


     l-




      -


     l-




     l-
      -




      -




      -




    b-




      -
      -




    p-




    c-


    p-
      -




      -
   ug
   ct




   ct




   ct




   ct
   ec




   ec
  ay




  ay




  ay
   ar




   ar




   ar




   pr
    n




    c




    c
  ay




  ay
 Ja




                                                                                    0.0x
                                +1 / -1 Std. Dev. Range   Avg. Yld.                         2006                    2007             2008                2009              2010

Source: Company data, Morgan Stanley Research                                   Source: Company data, Morgan Stanley Research

                                                                                                                                                                                        28
                                                                                                             MORGAN STANLEY RESEARCH
                                                                                                                    Energy & Utilities 2011 Outlook
                                                                                                                                   January 19, 2011




Natural Gas & MLPs: Top Picks for 2011
Midstream Energy MLPs                                               Diversified Natural Gas Companies

WPZ - Williams Partners: Midstream liquids driving value            EP - El Paso Corp: Premier US natural gas pipeline network
 Exposure to liquids segment suggests sustained outperformance.     Dropdown opportunity is substantial as a way to fund projects.
 Balanced portfolio of assets given natural gas pipeline assets.    Growing E&P presence in low- to medium-risk plays.
 Expect another drop down (GulfStream pipeline) from WMB in 1Q.     Upcoming Eagle Ford JV is catalyst; strong midstream segment build-out.
 Strong potential for Marcellus G&P volume ramp.                    Adding Eagle Ford rigs, E&Ps continuous improvement.

EPB - El Paso Pipeline Partners: Dropdown potential drives stock    NFG - National Fuel Gas Co.: Marcellus E&P and midstream heavyweight
 Sponsor EP has shown willingness to dropdown assets.               Expansive Marcellus footprint and best-in-class production economics.
 Extensive pipeline assets provides safety in distribution.         Potential for a Marcellus midstream JV is a catalyst.
 ~13.6% distribution growth in 2011e.                               Recent $6k – 8k/acre bodes well for potential JV monetization.
 Expect ~$1b in drop downs in 2011e.                                Solid potential for +25% production growth for 2012/2011 with JV.

WES – Western Gas: Growth visibility                                WMB - The Williams Companies: Getting little credit for asset values
 90+% fee-based contracts support distribution stability.           “Conglomerate” discount unwarranted.
 Sponsor Anadarko fosters drop down opportunities.                  Strategic shift in E&P asset geography and commodity (oil).
 Niobrara, oil/liquids organic development.                         MRO break-up announcement increases likelihood of similar WMB move.
 Solid balance sheet, so little need for equity.                    Power of WPZ to overall growth profile; midstream processing exposure.




                                                                                                                                                  29
                               MORGAN STANLEY RESEARCH
                                   Energy & Utilities 2011 Outlook
                                                  January 19, 2011




Diversified Utilities / IPPs

        Jon Cohen




                                                                 30
                                                                                                              MORGAN STANLEY RESEARCH
                                                                                                                          Energy & Utilities 2011 Outlook
                                                                                                                                              January 19, 2011




Diversified Utilities / IPPs
                                                                              Key Determinants of Power Prices
We Remain Cautious on Near-Term Outlook for
Power Markets
                                                                Commodity Prices
                                                                    • Coal to Gas Switching
                                                                  • Shale Gas Development                                       Demand
(-) Strong Headwinds Due To:                                    • International Coal Demand                                 • Industrial Recovery
                                                                     • Mining / Drilling costs                                      • Weather
    Natural Gas Oversupply                                                 • Rail Costs
                                                                          • LNG Supply
                                                                                                  Capital Markets           • Demand Response
                                                                                                                              • Energy Efficiency
                                                                                                    Regulation
                                                                                                 Government Policy               • Peak Shaving
    Challenging YoY Power Demand Comps                                                                                        • Electric Vehicles
                                                                                                   Tax Incentives
                                                                                                  New Technology
    Limited Coal Plant Retirements to Date
                                                                                                 Consumer Behavior



(+) Eastern Coals Displacing Gas on the Margin.                                                      Supply
                                                                                                 • Supply Curtailments
                                                                                                   • Coal Retirements
    Provides some support to power prices in PJM and                                       • Renewables Development
   Midwest                                                                                   • Transmission Expansion
                                                                                                      • New Nuclear

    Benefits low cost baseload generators                                                     • Distributed Generation


    Potential for additional coal retirements for those
   units that are “economically challenged” (old / small /
   un-scrubbed deregulated markets




                                                             Source: Company data, Morgan Stanley Research
                                                                                                                                                             31
                                                                                                MORGAN STANLEY RESEARCH
                                                                                                      Energy & Utilities 2011 Outlook
                                                                                                                     January 19, 2011




Diversified Utilities / IPPs: Key Themes for 2011

M&A activity should continue, driven by
      Upcoming debt maturities.

      Private buyers looking past near-term earnings in favor of “through-the-cycle” asset values.

      Diversified Utilities “de-risking” and focusing on regulated activities.

      Discrepancies between relative balance sheet strength.



CAPP “dark spreads” appear to be at a bottom – expect either rationalization in bidding behavior or
 additional supply curtailments


Prefer names that are either:
      Attractively priced to current forward curves with upside to a recovery

               CEG
      Or “less risky” names that have limited exposure to commodity prices

               SRE
               PPL


EPA activity and the 2014/2015 PJM capacity auction the major near-term catalysts...


                                                                                                                                    32
                                                                                                                                                                                    MORGAN STANLEY RESEARCH
                                                                                                                                                                                                    Energy & Utilities 2011 Outlook
                                                                                                                                                                                                                             January 19, 2011




Diversified Utilities / IPPs
   Nat Gas Production and Rig Counts Still High…                                                               … and Demand Expected to Be Flat vs. 2010
                                                                                                             Electric Sales (Twh)
     1,200                                                                        65
                                                                                                                                                                                 MS Demnd Outlook for 2011
                                                                                                             1,400
     1,000
                                                                                  60                         1,300




                                                                                        Production (bcf/d)
            800                                                                                              1,200
                                                                                  55
Rig Count




                                                                                                             1,100
            600
                                                                                                             1,000
                                                                                  50
            400                                                                                               900

                                                                                                              800
                                                                                  45                                                                            95    97    98    98                      95    96    98 100 97                 95
            200                                                                                                       81          81    83    88    90    91                            93    93    93
                                                                                                                                                                                                                                    83
                                                                                                                                                                                                                                          90
                                                                                                              700           79


              0                                                                   40                          600

              Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10                                         500
                                                                                                                     1990        1992        1994        1996        1998        2000        2002        2004        2006    2008        2010
                  Prod, bcf/d         Horizontal, 12-M MA      Vert & Direct, 12-M MA
                                                                                                                                 Electric Intensive IP                 Residential                  Commercial                 Industrial




    But Eastern Coals Now Setting the Price…                                                                     … and More Retirements May Be on the Way
    Fuel Cost per mmbtu (Adjusted)
            $14
                                                                                                                                                                                                                       Announced,
            $12                                                                                                                                          Environmentally                                              Retire by 2020,
                                                                                                                                                          Challenged, >                                                 10.8 GW
            $10                                                                                                                                           300MW, 51.9
                                                                                                                                                               GW
            $8
            $6
                                                                                                                                                            Environmentally
            $4                                                                                                                                               Challenged, <                                            Economically
                                                                                                                                                             300MW, 41.4                                             Challenged, 11.8
            $2                                                                                                                                                    GW                                                       GW
            $0
              Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10
                                PRB              GAS               CAPP

                                                                               Source: FactSet, Morgan Stanley Research
                                                                                                                                                                                                                                                     33
                                                                                                         MORGAN STANLEY RESEARCH
                                                                                                                 Energy & Utilities 2011 Outlook
                                                                                                                                January 19, 2011




Diversified Utilities Leveraged to Power Prices


  The stocks rise and fall with power markets
                             Diversified Utility and IPP Stock Performance vs. Power and Gas Prices



  Relative Prices (Indexed to 100)


  275.0
  250.0
  225.0
  200.0
  175.0
  150.0
  125.0
  100.0
   75.0
   50.0
      Jan-05   Jul-05   Jan-06   Jul-06     Jan-07   Jul-07    Jan-08   Jul-08     Jan-09    Jul-09      Jan-10      Jul-10      Jan-11

                        Diversified Index            Nat Gas            PJM West                IPP Index
                                                                                            Source: FactSet, Morgan Stanley Research



                                                                                                                                               34
                                                                                                                       MORGAN STANLEY RESEARCH
                                                                                                                              Energy & Utilities 2011 Outlook
                                                                                                                                             January 19, 2011




Diversified Utilities / IPPs: Top Picks for 2011

Constellation Energy (CEG) – de-risked and undervalued with upside from NewEnergy valuation
   CEG looks undervalued vs. our base case regarding the outlook for its utility BGE, the mid-cycle earnings power of its merchant power assets, and
    reasonable assumptions regarding the NewEnergy business.
   The key factors outside power markets that will drive value at CEG are what level of retail margins is sustainable at NewEnergy, and whether
    management can clearly communicate the value of the non-retail segments for that business.
   Resolution of EDF’s equity overhang (13.5mm shares, or 7% of the company) would provide a positive catalyst.




                                                                                                                                                            35
                      MORGAN STANLEY RESEARCH
                          Energy & Utilities 2011 Outlook
                                         January 19, 2011




Regulated Utilities

   Greg Gordon




                                                        36
                                                                                                                                        MORGAN STANLEY RESEARCH
                                                                                                                                                   Energy & Utilities 2011 Outlook
                                                                                                                                                                       January 19, 2011




Regulated Utilities: Regulated Names Correlated to the Bond Market
                          BBB Bond Yield vs. Treasury Yields                                    Dividend Yield to Bond Yield – Today (Low Tax)
 7.0%
                                                                                                                                               Expected                   Upside /
 6.0%                                                                                                                                          Defensive    Implied      (Downside)
                                                                                               Confidence Intervals              BBB Yield %   Index Yld   2012 P/E       for Index
 5.0%
                                                                                               - 68.0% Confidence Interval            4.45%        3.30%         18.8x         46.2%
 4.0%
                                                                                                                                      4.65%        3.44%         18.0x         40.1%
 3.0%                                                                                                                                 4.85%        3.58%        17.3x          34.5%
                                                                                                                                      5.05%        3.72%        16.7x          29.4%
 2.0%                                                                                                                                 5.25%        3.87%        16.0x          24.6%
 1.0%                                                                                                                                 5.45%        4.01%        15.5x          20.2%
                                                                                                                                      5.65%        4.15%        14.9x          16.1%
 0.0%                                                                                                                                 5.85%        4.29%        14.4x          12.2%
    Jan-70       Apr-78            Jun-86           Aug-94              Nov-02       Jan-11    Predicted Valuation                    6.05%        4.44%        14.0x           8.6%
                                                                                                                                      6.25%        4.58%        13.5x           5.2%
                                                                                               Current Valuation                      6.45%        4.72%        13.1x           2.1%
                Dividend Yield Premium to 10 Year Treasury Yield                                                                      6.65%        4.86%        12.8x          -0.9%
 3.0x                                                                                                                                 6.85%        5.01%        12.4x          -3.7%
                                                                                                                                      7.05%        5.15%        12.0x          -6.4%
                                                                                                                                      7.25%        5.29%        11.7x          -8.9%
 2.5x
                                                                                               + 68.0% Confidence Interval            7.45%        5.43%        11.4x         -11.3%

 2.0x
                                                                                              Dividend Yield to Bond Yield – 4.25% 10yr (Low Tax)
 1.5x
                                                                                                                                               Expected                   Upside /
 1.0x                                                                                                                                          Defensive     Implied     (Downside)
                                                                                               Confidence Intervals              BBB Yield %   Index Yld    2012 P/E      for Index

 0.5x                                                                                          - 68.0% Confidence Interval            4.90%        3.62%         17.1x         33.2%
   Jan-70        Apr-78            Jun-86           Aug-94              Nov-02       Jan-11                                           5.10%        3.76%         16.5x         28.2%
                                                                                                                                      5.30%        3.90%         15.9x         23.5%
                                                                                                                                      5.50%        4.05%         15.3x         19.1%
                          Dividend Yield to BBB Bond Yield                                                                            5.70%        4.19%         14.8x         15.1%
 1.4x                                                                                                                                 5.90%        4.33%         14.3x         11.3%
                                              The “Bill Gross” Thesis                                                                 6.10%        4.47%         13.9x          7.8%
 1.2x                                                                                                                                 6.30%        4.62%         13.4x          4.4%
                                                                                               Predicted AND Current Valuation        6.50%        4.76%         13.0x          1.3%
                                                                                                                                      6.70%        4.90%         12.7x         -1.6%
 1.0x
                                                                                                                                      6.90%        5.04%         12.3x         -4.4%
                                                                                                                                      7.10%        5.18%         12.0x         -7.1%
 0.8x                                                                                                                                 7.30%        5.33%         11.6x         -9.5%
                                                                                                                                      7.50%        5.47%         11.3x        -11.9%
 0.6x                                                                                                                                 7.70%        5.61%         11.1x        -14.1%
                                                                                               + 68.0% Confidence Interval            7.90%        5.75%         10.8x        -16.3%
 0.4x
   Jan-70    Dec-75       Oct-81     Aug-87      Jun-93       May-99        Mar-05   Jan-11                                                    Source: FactSet, Morgan Stanley Research


                                                                                                                                                                                          37
                                                                                                                                  MORGAN STANLEY RESEARCH
                                                                                                                                             Energy & Utilities 2011 Outlook
                                                                                                                                                                 January 19, 2011




Regulated Utilities: Risk-Reward Looks Favorable Given Interest Rate/Tax Exposure


                                                                          Low Rates /        High Rates /        Low Rates /          High Rates /
         Scenarios:                                                        Low Taxes          Low Taxes          High Taxes            High Taxes

         Rate Assumptions
         10 Year Treasury Yield                                                3.3%               4.5%                3.3%                  4.5%
         Assumed BBB Bond Yield                                                6.0%               6.5%                6.0%                  6.5%

         Tax Assumptions
         Tax Rate Levelized at Ordinary Income Tax Rate 1                                                                                    
         Tax Rate Levelized at 15% Income Tax Rate 2                                               
         Target 2012 PE                                                        13.8x              12.8x               12.6x                 11.7x
         Target 2011 Dividend Yield                                            4.4%               4.8%                4.8%                  5.2%

         Upside to our Target Multiple of 13.5x                                2.4%               -4.6%               -6.2%                -13.0%
         Upside to Current Market Multiple of 12.9x                            7.0%               -0.4%               -2.1%                 -9.1%

         Note: Averages based on our regulated universe excluding CMS, NVE, and WEC
         1) Assumes a positive adjustment to post 2003 dividends in our regression series by approximately 7%. This represents the delta between the c
         dividend tax rate and an assumed rate of 33%, adjusted by our assumption that 40% of shareholders are individual taxpayers. The sensitivity to
         PE mutliple from a 1% change in the assumed tax rate is 0.1x. The sensitivity to the PE multiple from a 10% change in our assumption relating t
         proportion of tax-paying shareholders is 0.1x
         2) Assumes a negative adjustment to pre 2003 dividends in our regression series by approximately 11%. This represents the delta between the
         dividend tax rate and a pre-2003 assumed rate of 33%, redued by our assumption that 60% of shareholders were individual tax payers. The sen
         PE mutliple from a 1% change in the assumed tax rate is 0.1x. The sensitivity to the PE multiple from a 10% change in our assumption relating t
         proportion of tax-paying shareholders is 0.1x




                                                                                                                                Source: FactSet, Morgan Stanley Research


                                                                                                                                                                                38
                                                                                                                                                                                          MORGAN STANLEY RESEARCH
                                                                                                                                                                                                     Energy & Utilities 2011 Outlook
                                                                                                                                                                                                                         January 19, 2011




Regulated Utilities: Dividend vs. Total Return – Now
                                                                     We Like Stocks at a Discounted 2012e P/E Multiple
                                                                           Premium (Discount) to 2012 Median PE
                                                                           -25%             -15%           -5%                      5%           15%            25%

                                                                                                                 NST
                                                                                                                  UIL
                                                                                                                 PGN
                                                                                                                  SO
                                                                                                                   D
                                                                                                                  ED
                                                                                                                  HE
                                                                                                                 DUK
                                                                                                                  NU
                                                                                                                 WEC
                                                                                                                        WR                  < Average P/E 12.9x ‘12
                                                                                 These trade at a
                                                                                                                        XEL
                                                                                  12% discount                          DTE
                                                                                                                        PNW
                                                                                                                        CMS
                                                                                                                        PCG
                                                                                                                        TE
                                                                                                                        NVE
                                                                                                                        AEP




           …and Low Payout Ratios Relative to Their P/Es                                                                                    …but With Higher Relative Total Returns

                                                              NST                                                                   15.50                        NST
           15.50


           14.50                                                                                                                    14.50
                                                                                                            UIL                                                                                            UIL
                                                                                                                          2012 PE
                                                                                                                                                                                            SO
 2012 PE




                                                          D    ED            SO             PGN                                     13.50       D                     ED      PGN
           13.50
                       WEC       NU                                                                                                                                                 NU
                                                    XEL                                                                                                                       XEL
                                                                    DUK                                                                                   DUK                       WEC
           12.50               SRE                                           WR        HE                                           12.50                        WR                SRE                                           HE
                                            CMS                                                                                                                                 PNW
                                                  DTE                     PNW                                                                                         DTE          CMS
           11.50       PCG                        TE                                                                                11.50                                TE         PCG
                               NVE                 AEP                                                                                                                 AEP                                       NVE
           10.50                                                                                                                    10.50
                0.45    0.50         0.55     0.60        0.65     0.70         0.75    0.80        0.85   0.90                          0.03    0.05    0.07     0.09         0.11      0.13       0.15         0.17    0.19   0.21
                                                           2011 Payout                                                                                                          Total Return



                                                                                                   These Stocks Look Cheap

                                                                                                                                                                                     Source: FactSet, Morgan Stanley Research
                                                                                                                                                                                                                                        39
                                                                                                                           MORGAN STANLEY RESEARCH
                                                                                                                                  Energy & Utilities 2011 Outlook
                                                                                                                                                 January 19, 2011




Regulated Utilities: Top Picks for 2011
American Electric Power Co. Inc. (AEP) – discount is unwarranted given AEP’s stable balance sheet and leverage to
an economic recovery through its utilities and wholesale business
   AEP generates one-third of its sales from industrial consumers. Thus, it is one of the most levered companies in our defensive universe to a recovery
    in domestic manufacturing.
   The Ohio PUC ordered Columbus Southern Power to refund ~$43mm of excess earnings. This one time refund is equivalent to $0.06 of EPS and is
    consistent with our expectation of $0.04-0.14/share exposure. We find PUCO ruling constructive, removing the overhang on the stock.
   AEP Ohio will file its Electric Security Plan (ESP) in the next few weeks to determine electric rates for customers in Ohio for 2012. While regulatory
    and political uncertainty persist surrounding this issue, we believe this is more than fully reflected in the current valuation.


NV Energy (NVE) – appreciation of 2012 earnings power should be driver for stock
   Our 2012 EPS estimate assumes NVE continues to under-earn its authorized ROE in 2012, but we think an eventual recovery of the Nevada
    economy coupled with the rate increase expected at YE2011 to bring the Harry Allen power plant in to service will allow for continued earnings
    growth and a rising ROE in 2013.
   The stepping down of PUCN Chairman, Sam Thompson, with a new appointment expected before Jan. 28, injects increased regulatory uncertainty in
    to the NVE investment thesis when they are filing a significant base rate case proceeding later this year.
   We don’t see the need for an offering to reach a +/-44% equity ratio at NPC before rate case filing but with EPS dilution of $0.015, to $0.02 for every
    $50mm of equity issued, even if we are wrong we think the impact would be small on the investment thesis.




                                                                                                                                                                40
                                                                                                                                    MORGAN STANLEY RESEARCH
                                                                                                                                              Energy & Utilities 2011 Outlook
                                                                                                                                                             January 19, 2011




Disclosure Section
                                            Morgan Stanley ModelWare is a proprietary analytic framework that helps clients uncover value,
                                            adjusting for distortions and ambiguities created by local accounting regulations. For example,
                                            ModelWare EPS adjusts for one-time events, capitalizes operating leases (where their use is significant),
                                            and converts inventory from LIFO costing to a FIFO basis. ModelWare also emphasizes the separation of
                                            operating performance of a company from its financing for a more complete view of how a company
                                            generates earnings.




Top Picks for 2011           BHI     SLB      WFT         CVX         MUR         SUN        TSO         DVN          SU         SWN         XEC
Stock price as of 1/18/11   59.30   86.76     23.83       93.35       74.31       41.83      19.23       84.02       39.03       38.95       99.38


Top Picks for 2011                  PWT       EPB         WPZ          EP         NFG        WMB         WES         CEG         AEP         NVE
Stock price as of 1/18/11           16.82     34.44       46.40       14.26       70.51      26.25       31.19       32.17       36.21       14.38




                                                                                                                                                                            41
                                                                                                                                MORGAN STANLEY RESEARCH
                                                                                                                                         Energy & Utilities 2011 Outlook
                                                                                                                                                        January 19, 2011




Disclosure Section
 Disclosure Section
 The information and opinions in Morgan Stanley Research were prepared by Morgan Stanley & Co. Incorporated, and/or Morgan Stanley C.T.V.M. S.A. As used in
 this disclosure section, "Morgan Stanley" includes Morgan Stanley & Co. Incorporated, Morgan Stanley C.T.V.M. S.A. and their affiliates as necessary.
 For important disclosures, stock price charts and equity rating histories regarding companies that are the subject of this report, please see the Morgan Stanley
 Research Disclosure Website at www.morganstanley.com/researchdisclosures, or contact your investment representative or Morgan Stanley Research at 1585
 Broadway, (Attention: Research Management), New York, NY, 10036 USA.
 Analyst Certification
 The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have
 not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Ole Slorer, Greg
 Gordon, Evan Calio, Stephen Maresca, Stephen Richardson, Hussein Allidina, Jonathan Cohen.
 Unless otherwise stated, the individuals listed on the cover page of this report are research analysts.
 Global Research Conflict Management Policy
 Morgan Stanley Research has been published in accordance with our conflict management policy, which is available at
 www.morganstanley.com/institutional/research/conflictpolicies.
 Important US Regulatory Disclosures on Subject Companies
 As of December 31, 2010, Morgan Stanley beneficially owned 1% or more of a class of common equity securities of the following companies covered in Morgan
 Stanley Research: American Electric Power Company, Inc, Baker Hughes, Constellation Energy Group, Inc., El Paso Pipeline Partners LP, Penn West Exploration,
 Tesoro Corp, Weatherford International, Western Gas Partners LP, Williams Companies, Inc.
 Within the last 12 months, Morgan Stanley managed or co-managed a public offering (or 144A offering) of securities of El Paso Pipeline Partners LP, Weatherford
 International, Western Gas Partners LP, Williams Partners LP.
 Within the last 12 months, Morgan Stanley has received compensation for investment banking services from American Electric Power Company, Inc, Baker
 Hughes, Chevron Corporation, Constellation Energy Group, Inc., Devon Energy, El Paso Corp., El Paso Pipeline Partners LP, Murphy Oil Corporation, National
 Fuel Gas Co, Schlumberger, Suncor, Sunoco, Inc., Tesoro Corp, Weatherford International, Western Gas Partners LP, Williams Partners LP.
 In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from American Electric Power
 Company, Inc, Baker Hughes, Chevron Corporation, Constellation Energy Group, Inc., Devon Energy, El Paso Corp., National Fuel Gas Co, NV Energy, Inc., Penn
 West Exploration, Schlumberger, Southwestern Energy Company, Suncor, Sunoco, Inc., Tesoro Corp, Weatherford International, Western Gas Partners LP,
 Williams Companies, Inc, Williams Partners LP.
 Within the last 12 months, Morgan Stanley has received compensation for products and services other than investment banking services from American Electric
 Power Company, Inc, Chevron Corporation, Constellation Energy Group, Inc., Devon Energy, El Paso Corp., Murphy Oil Corporation, NV Energy, Inc., Penn West
 Exploration, Schlumberger, Southwestern Energy Company, Suncor, Sunoco, Inc., Tesoro Corp, Weatherford International, Williams Companies, Inc.
 Within the last 12 months, Morgan Stanley has provided or is providing investment banking services to, or has an investment banking client relationship with, the
 following company: American Electric Power Company, Inc, Baker Hughes, Chevron Corporation, Constellation Energy Group, Inc., Devon Energy, El Paso Corp.,
 El Paso Pipeline Partners LP, Murphy Oil Corporation, National Fuel Gas Co, NV Energy, Inc., Penn West Exploration, Schlumberger, Southwestern Energy
 Company, Suncor, Sunoco, Inc., Tesoro Corp, Weatherford International, Western Gas Partners LP, Williams Companies, Inc, Williams Partners LP.
 Within the last 12 months, Morgan Stanley has either provided or is providing non-investment banking, securities-related services to and/or in the past has entered
 into an agreement to provide services or has a client relationship with the following company: American Electric Power Company, Inc, Baker Hughes, Chevron
 Corporation, Constellation Energy Group, Inc., Devon Energy, El Paso Corp., Murphy Oil Corporation, NV Energy, Inc., Penn West Exploration, Schlumberger,
 Southwestern Energy Company, Suncor, Sunoco, Inc., Tesoro Corp, Weatherford International, Williams Companies, Inc.

                                                                                                                                                                        42
                                                                                                                                 MORGAN STANLEY RESEARCH
                                                                                                                                         Energy & Utilities 2011 Outlook
                                                                                                                                                        January 19, 2011




Disclosure Section
Morgan Stanley & Co. Incorporated makes a market in the securities of American Electric Power Company, Inc, Baker Hughes, Chevron Corporation, Cimarex
Energy Co, Constellation Energy Group, Inc., Devon Energy, El Paso Corp., El Paso Pipeline Partners LP, Murphy Oil Corporation, National Fuel Gas Co, NV
Energy, Inc., Penn West Exploration, Schlumberger, Southwestern Energy Company, Sunoco, Inc., Tesoro Corp, Weatherford International, Western Gas Partners
LP, Williams Companies, Inc, Williams Partners LP.
The equity research analysts or strategists principally responsible for the preparation of Morgan Stanley Research have received compensation based upon various
factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues.
Morgan Stanley and its affiliates do business that relates to companies/instruments covered in Morgan Stanley Research, including market making, providing liquidity
and specialized trading, risk arbitrage and other proprietary trading, fund management, commercial banking, extension of credit, investment services and investment
banking. Morgan Stanley sells to and buys from customers the securities/instruments of companies covered in Morgan Stanley Research on a principal basis.
Morgan Stanley may have a position in the debt of the Company or instruments discussed in this report.
Certain disclosures listed above are also for compliance with applicable regulations in non-US jurisdictions.
STOCK RATINGS
Morgan Stanley uses a relative rating system using terms such as Overweight, Equal-weight, Not-Rated or Underweight (see definitions below). Morgan Stanley
does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, Not-Rated and Underweight are not the equivalent of buy, hold and
sell. Investors should carefully read the definitions of all ratings used in Morgan Stanley Research. In addition, since Morgan Stanley Research contains more
complete information concerning the analyst's views, investors should carefully read Morgan Stanley Research, in its entirety, and not infer the contents from the
rating alone. In any case, ratings (or research) should not be used or relied upon as investment advice. An investor's decision to buy or sell a stock should depend
on individual circumstances (such as the investor's existing holdings) and other considerations.
Global Stock Ratings Distribution
(as of December 31, 2010)
For disclosure purposes only (in accordance with NASD and NYSE requirements), we include the category headings of Buy, Hold, and Sell alongside our ratings of
Overweight, Equal-weight, Not-Rated and Underweight. Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-
weight, Not-Rated and Underweight are not the equivalent of buy, hold, and sell but represent recommended relative weightings (see definitions below). To satisfy
regulatory requirements, we correspond Overweight, our most positive stock rating, with a buy recommendation; we correspond Equal-weight and Not-Rated to hold
and Underweight to sell recommendations, respectively.

                                 Coverage Universe           Investment Banking Clients (IBC)

                                                     % of                       % of      % of Rating
    Stock Rating Category          Count             Total    Count        Total IBC        Category

Overweight/Buy                    1145               40%       437            44%               38%

Equal-weight/Hold                 1192               42%       422            42%               35%
Not-Rated/Hold                      119              4%         25              3%              21%
Underweight/Sell                    382              13%       109            11%               29%
Total                             2,838                        993

                                                                                                                                                                       43
                                                                                                                                    MORGAN STANLEY RESEARCH
                                                                                                                                             Energy & Utilities 2011 Outlook
                                                                                                                                                            January 19, 2011




Disclosure Section
Data include common stock and ADRs currently assigned ratings. An investor's decision to buy or sell a stock should depend on individual circumstances (such as
the investor's existing holdings) and other considerations. Investment Banking Clients are companies from whom Morgan Stanley received investment banking
compensation in the last 12 months.
Analyst Stock Ratings
Overweight (O). The stock's total return is expected to exceed the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-
adjusted basis, over the next 12-18 months.
Equal-weight (E). The stock's total return is expected to be in line with the average total return of the analyst's industry (or industry team's) coverage universe, on a
risk-adjusted basis, over the next 12-18 months.
Not-Rated (NR). Currently the analyst does not have adequate conviction about the stock's total return relative to the average total return of the analyst's industry (or
industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.
Underweight (U). The stock's total return is expected to be below the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-
adjusted basis, over the next 12-18 months.
Unless otherwise specified, the time frame for price targets included in Morgan Stanley Research is 12 to 18 months.
Analyst Industry Views
Attractive (A): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be attractive vs. the relevant broad market
benchmark, as indicated below.
In-Line (I): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be in line with the relevant broad market
benchmark, as indicated below.
Cautious (C): The analyst views the performance of his or her industry coverage universe over the next 12-18 months with caution vs. the relevant broad market
benchmark, as indicated below.
Benchmarks for each region are as follows: North America - S&P 500; Latin America - relevant MSCI country index or MSCI Latin America Index; Europe - MSCI
Europe; Japan - TOPIX; Asia - relevant MSCI country index.
.
Important Disclosures for Morgan Stanley Smith Barney LLC Customers
Citi Investment Research & Analysis (CIRA) research reports may be available about the companies or topics that are the subject of Morgan Stanley Research. Ask
your Financial Advisor or use Research Center to view any available CIRA research reports in addition to Morgan Stanley research reports.
Important disclosures regarding the relationship between the companies that are the subject of Morgan Stanley Research and Morgan Stanley Smith Barney LLC,
Morgan Stanley and Citigroup Global Markets Inc. or any of their affiliates, are available on the Morgan Stanley Smith Barney disclosure website at
www.morganstanleysmithbarney.com/researchdisclosures.
For Morgan Stanley and Citigroup Global Markets, Inc. specific disclosures, you may refer to www.morganstanley.com/researchdisclosures and
https://www.citigroupgeo.com/geopublic/Disclosures/index_a.html.
Each Morgan Stanley Equity Research report is reviewed and approved on behalf of Morgan Stanley Smith Barney LLC. This review and approval is conducted by
the same person who reviews the Equity Research report on behalf of Morgan Stanley. This could create a conflict of interest.




                                                                                                                                                                            44
                                                                                                                                      MORGAN STANLEY RESEARCH
                                                                                                                                               Energy & Utilities 2011 Outlook
                                                                                                                                                              January 19, 2011




Disclosure Section
Other Important Disclosures
Morgan Stanley & Co. International PLC and its affiliates have a significant financial interest in the debt securities of American Electric Power Company, Inc, Baker
Hughes, Chevron Corporation, Constellation Energy Group, Inc., Devon Energy, El Paso Corp., El Paso Pipeline Partners LP, Murphy Oil Corporation,
Schlumberger, Suncor, Sunoco, Inc., Tesoro Corp, Weatherford International, Western Gas Partners LP, Williams Companies, Inc, Williams Partners LP.
Morgan Stanley produces an equity research product called a "Tactical Idea." Views contained in a "Tactical Idea" on a particular stock may be contrary to the
recommendations or views expressed in research on the same stock. This may be the result of differing time horizons, methodologies, market events, or other
factors. For all research available on a particular stock, please contact your sales representative or go to Client Link at www.morganstanley.com.
Morgan Stanley Research does not provide individually tailored investment advice. Morgan Stanley Research has been prepared without regard to the individual
financial circumstances and objectives of persons who receive it. Morgan Stanley recommends that investors independently evaluate particular investments and
strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on an investor's
individual circumstances and objectives. The securities, instruments, or strategies discussed in Morgan Stanley Research may not be suitable for all investors, and
certain investors may not be eligible to purchase or participate in some or all of them.
The fixed income research analysts or strategists principally responsible for the preparation of Morgan Stanley Research have received compensation based upon
various factors, including quality, accuracy and value of research, firm profitability or revenues (which include fixed income trading and capital markets profitability or
revenues), client feedback and competitive factors. Fixed Income Research analysts' or strategists' compensation is not linked to investment banking or capital
markets transactions performed by Morgan Stanley or the profitability or revenues of particular trading desks.
Morgan Stanley Research is not an offer to buy or sell or the solicitation of an offer to buy or sell any security/instrument or to participate in any particular trading
strategy. The "Important US Regulatory Disclosures on Subject Companies" section in Morgan Stanley Research lists all companies mentioned where Morgan
Stanley owns 1% or more of a class of common equity securities of the companies. For all other companies mentioned in Morgan Stanley Research, Morgan
Stanley may have an investment of less than 1% in securities/instruments or derivatives of securities/instruments of companies and may trade them in ways different
from those discussed in Morgan Stanley Research. Employees of Morgan Stanley not involved in the preparation of Morgan Stanley Research may have
investments in securities/instruments or derivatives of securities/instruments of companies mentioned and may trade them in ways different from those discussed in
Morgan Stanley Research. Derivatives may be issued by Morgan Stanley or associated persons.
With the exception of information regarding Morgan Stanley, Morgan Stanley Research is based on public information. Morgan Stanley makes every effort to use
reliable, comprehensive information, but we make no representation that it is accurate or complete. We have no obligation to tell you when opinions or information in
Morgan Stanley Research change apart from when we intend to discontinue equity research coverage of a subject company. Facts and views presented in Morgan
Stanley Research have not been reviewed by, and may not reflect information known to, professionals in other Morgan Stanley business areas, including investment
banking personnel.
Morgan Stanley Research personnel may participate in company events such as site visits and are generally prohibited from accepting payment by the company of
associated expenses unless pre-approved by authorized members of Research management.
The value of and income from your investments may vary because of changes in interest rates, foreign exchange rates, default rates, prepayment rates,
securities/instruments prices, market indexes, operational or financial conditions of companies or other factors. There may be time limitations on the exercise of
options or other rights in securities/instruments transactions. Past performance is not necessarily a guide to future performance. Estimates of future performance are
based on assumptions that may not be realized. If provided, and unless otherwise stated, the closing price on the cover page is that of the primary exchange for the
subject company's securities/instruments.
Morgan Stanley may make investment decisions or take proprietary positions that are inconsistent with the recommendations or views in this report.




                                                                                                                                                                              45
                                                                                                                                    MORGAN STANLEY RESEARCH
                                                                                                                                             Energy & Utilities 2011 Outlook
                                                                                                                                                            January 19, 2011




Disclosure Section
To our readers in Taiwan: Information on securities/instruments that trade in Taiwan is distributed by Morgan Stanley Taiwan Limited ("MSTL"). Such information is
for your reference only. Information on any securities/instruments issued by a company owned by the government of or incorporated in the PRC and listed in on the
Stock Exchange of Hong Kong ("SEHK"), namely the H-shares, including the component company stocks of the Stock Exchange of Hong Kong ("SEHK")'s Hang
Seng China Enterprise Index; or any securities/instruments issued by a company that is 30% or more directly- or indirectly-owned by the government of or a
company incorporated in the PRC and traded on an exchange in Hong Kong or Macau, namely SEHK's Red Chip shares, including the component company of the
SEHK's China-affiliated Corp Index is distributed only to Taiwan Securities Investment Trust Enterprises ("SITE"). The reader should independently evaluate the
investment risks and is solely responsible for their investment decisions. Morgan Stanley Research may not be distributed to the public media or quoted or used by
the public media without the express written consent of Morgan Stanley. Information on securities/instruments that do not trade in Taiwan is for informational
purposes only and is not to be construed as a recommendation or a solicitation to trade in such securities/instruments. MSTL may not execute transactions for clients
in these securities/instruments.
To our readers in Hong Kong: Information is distributed in Hong Kong by and on behalf of, and is attributable to, Morgan Stanley Asia Limited as part of its regulated
activities in Hong Kong. If you have any queries concerning Morgan Stanley Research, please contact our Hong Kong sales representatives.
Morgan Stanley Research is disseminated in Japan by Morgan Stanley MUFG Securities Co., Ltd.; in Hong Kong by Morgan Stanley Asia Limited (which accepts
responsibility for its contents); in Singapore by Morgan Stanley Asia (Singapore) Pte. (Registration number 199206298Z) and/or Morgan Stanley Asia (Singapore)
Securities Pte Ltd (Registration number 200008434H), regulated by the Monetary Authority of Singapore, which accepts responsibility for its contents; in Australia to
"wholesale clients" within the meaning of the Australian Corporations Act by Morgan Stanley Australia Limited A.B.N. 67 003 734 576, holder of Australian financial
services license No. 233742, which accepts responsibility for its contents; in Australia to "wholesale clients" and "retail clients" within the meaning of the Australian
Corporations Act by Morgan Stanley Smith Barney Australia Pty Ltd (A.B.N. 19 009 145 555, holder of Australian financial services license No. 240813, which
accepts responsibility for its contents; in Korea by Morgan Stanley & Co International plc, Seoul Branch; in India by Morgan Stanley India Company Private Limited;
in Canada by Morgan Stanley Canada Limited, which has approved of, and has agreed to take responsibility for, the contents of Morgan Stanley Research in
Canada; in Germany by Morgan Stanley Bank AG, Frankfurt am Main and Morgan Stanley Private Wealth Management Limited, Niederlassung Deutschland,
regulated by Bundesanstalt fuer Finanzdienstleistungsaufsicht (BaFin); in Spain by Morgan Stanley, S.V., S.A., a Morgan Stanley group company, which is
supervised by the Spanish Securities Markets Commission (CNMV) and states that Morgan Stanley Research has been written and distributed in accordance with
the rules of conduct applicable to financial research as established under Spanish regulations; in the United States by Morgan Stanley & Co. Incorporated, which
accepts responsibility for its contents. Morgan Stanley & Co. International plc, authorized and regulated by the Financial Services Authority, disseminates in the UK
research that it has prepared, and approves solely for the purposes of section 21 of the Financial Services and Markets Act 2000, research which has been prepared
by any of its affiliates. Morgan Stanley Private Wealth Management Limited, authorized and regulated by the Financial Services Authority, also disseminates Morgan
Stanley Research in the UK. Private U.K. investors should obtain the advice of their Morgan Stanley & Co. International plc or Morgan Stanley Private Wealth
Management representative about the investments concerned. RMB Morgan Stanley (Proprietary) Limited is a member of the JSE Limited and regulated by the
Financial Services Board in South Africa. RMB Morgan Stanley (Proprietary) Limited is a joint venture owned equally by Morgan Stanley International Holdings Inc.
and RMB Investment Advisory (Proprietary) Limited, which is wholly owned by FirstRand Limited.
The information in Morgan Stanley Research is being communicated by Morgan Stanley & Co. International plc (DIFC Branch), regulated by the Dubai Financial
Services Authority (the DFSA), and is directed at Professional Clients only, as defined by the DFSA. The financial products or financial services to which this
research relates will only be made available to a customer who we are satisfied meets the regulatory criteria to be a Professional Client.
The information in Morgan Stanley Research is being communicated by Morgan Stanley & Co. International plc (QFC Branch), regulated by the Qatar Financial
Centre Regulatory Authority (the QFCRA), and is directed at business customers and market counterparties only and is not intended for Retail Customers as defined
by the QFCRA.




                                                                                                                                                                            46
                                                                                                                                  MORGAN STANLEY RESEARCH
                                                                                                                                          Energy & Utilities 2011 Outlook
                                                                                                                                                         January 19, 2011




Disclosure Section
As required by the Capital Markets Board of Turkey, investment information, comments and recommendations stated here, are not within the scope of investment
advisory activity. Investment advisory service is provided in accordance with a contract of engagement on investment advisory concluded between brokerage
houses, portfolio management companies, non-deposit banks and clients. Comments and recommendations stated here rely on the individual opinions of the ones
providing these comments and recommendations. These opinions may not fit to your financial status, risk and return preferences. For this reason, to make an
investment decision by relying solely to this information stated here may not bring about outcomes that fit your expectations.
The trademarks and service marks contained in Morgan Stanley Research are the property of their respective owners. Third-party data providers make no warranties
or representations of any kind relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability for any damages of any kind
relating to such data. The Global Industry Classification Standard ("GICS") was developed by and is the exclusive property of MSCI and S&P.
Morgan Stanley Research, or any portion thereof may not be reprinted, sold or redistributed without the written consent of Morgan Stanley.
Morgan Stanley Research is disseminated and available primarily electronically, and, in some cases, in printed form.
Additional information on recommended securities/instruments is available on request.




                                                                                                                                                                         47