Date: June 2012: No lack of capital to fund Natural Gas drilling: Barclays | www.commodityonline.com | 3

NEW YORK (Commodity Online): Falling natural gas prices have not impacted fund availability for drilling activity. IN 2011- debt and equity issuance remained at the same level as in 2010, according to an assessment by Barclays Capital.

In its Weekly Gas and Power Kaleidoscope, it has been pointed out that joint venture funding in natural gas has declined in 2011. Investor appetite for natural gas exposure may be dented, but the enthusiasm to fund the pursuit of Exploration and Production (E&P) in general remained robust. In 2011, $44 bn had been raised for natural gas drilling activity while it was higher at $50 bn in 2010.

“We believe capital markets are not a disciplining factor in the market today, but with two caveats. First, oil and gas producers have raced to shift drilling away from dry gas locations toward liquids-rich and oil targets, a shift that has been applauded by investors, which helps capital raising. Second, because of this production diversification, there are very few pure gas play producers. Thus, while the E&P sector has been readily able to raise capital, it doesnot necessarily signal the same zest to fund gas drilling as it did a year or two ago. Whether a company uses capital market proceeds to fund gas-directed drilling varies greatly by company, with, for example, some companies pledging to no longer drill for gas,” Barclays said.

 Revolver funding, another form of debtApart from equity and debt market , a further source of capita for oil companies is the revolver. A lineof credit collateralized by the producers’ oil and gas reserves, this is another form of debt. Many companies have fairly undrawn revolvers, providing a ready source of shorter term capital if they need it.

Revolvers are renewed periodically (typically, semiannually) in a process called “borrowing base redetermination.” Since the capacity to borrow grows or shrinks as the underlying value of a producer’s oil and gas assets expands and contracts, one might expect that with the drop in the gas forward curve, borrowing bases would be cut. "Yet, our credit analysts believe that banks that are funding revolvers will remain accommodative for the majority of producers, mostly preserving the size of revolvers, which is consistent with how banks reacted in past gas price dips,"Barclays said.