FUELSNews 360 - Q2 & Q3 2012 by FUELSNews

FUELS NEWS 360˚

QUARTERLY REPORT

A Look Back. A View Forward. MARKET NEWS & INFORMATION

From the Desk of the CEO Dear Valued Customers and Partners, Volatile fuel prices, increased government regulation, and global instability at large have been major industry influencers during the last several years and will likely remain so as we move forward. As a result, managing routine day-to-day transactions while anticipating and planning for future events will present major challenges to both buyers and sellers within the energy industry. With these challenges in mind, I’m delighted to present the inaugural issue of FUELSNews 360° – Mansfield’s newest quarterly market report focusing on recent pricing trends, market data and geopolitical matters which directly affect us all.

FUELSNews 360° works alongside our daily electronic newsletter, FUELSNews, to accurately distill vital information from an otherwise daunting amount of raw industry data. In support of our North American and global business partners, Mansfield’s industry-leading professional services, logistics, and supply teams remain dedicated to analyzing the metrics of each passing quarter in order to determine the broader meaning of recent trends and market events. Without speculation, FUELSNews 360° endeavors to provide insights into potential future events that will likely spark dynamic debate along the way. As our industry strives to manage its complex and increasingly volatile supply chain, I believe the timing of FUELSNews 360° could not be better. It is my hope that FUELSNews 360° will become a valuable business tool—one which enhances our already progressive relationship. We look forward to hearing your ideas and comments. Best Regards, Michael F. Mansfield, Sr. CEO, Mansfield Energy Corp.

Index Inaugural Issue FUELSNews 360˚ Quarterly Report Q1 & Q2 2012 FUELSNews 360°, published four times annually by Mansfield Energy Corp, analyzes and summarizes the prior quarter’s activity in the oil, natural gas, renewables and refined products industries. The purpose of this report is to provide industry market data and trends both domestically and globally and provide insight into upcoming challenges facing the energy supply chain.

Overview

16 17 18 19 20-21 21-23 23 24

4 January 2012 through June 2012 5-6 Heating Oil & RBOB, WTI, WTS Spread

International 7 8 9

Price Forward Thoughts Europe, Middle East, China Brazil, OPEC 24

Domestic 10 11 12 13

Economic; PPI, CPI, GDP Fundamentals; U.S. Demand, Crude Oil Inventories, U.S. Refinery Production Fundamentals; Refinery Inputs, Crude Imports, Fuel Exports Price Forward Thoughts

PADD 1, A Northeast PADD 1, A Northeast PADD 1, A Northeast PADD 1, B Southeast PADD 2, Midwest PADD 3, Gulf Coast PADD 4, Rocky Mountains PADD 5, West Coast, AK and HI

Alternative Products 25-29 30 31-32

Natural Gas Ethanol Biodiesel

Price Trend Charts 33 321 Crack, Ethanol/ RBOB Spread 34 EURO/USD & WTI Overlay, HO Historical Candle Chart 35 RB Historical Bar Chart, HO Seasonal Chart

FUELSNews 360˚ Commentaries 14 15

Regional View

Andy, Dan and Sara Hannah, Elizabeth and Jorge 36

FUELSNews 360˚ Supply Team

Overview January 2012 Through June 2012 We started out the year with immediate concerns over the Middle East and crude over $100, but that soon eased. Ultimately, we rode the roller coaster up to $110 along with a few dips and rises along the way, but found ourselves much lower by the end of June.

103.02

*Source: Bloomberg Finance L.P.

84.96

*Source: Bloomberg Finance L.P. 4

ÂŠ 2012 Mansfield Energy Corp.

Another interesting change over the year was the heating oil and RBOB spread (heating oil driving distillate prices and RBOB driving gas pricing). Late in 2011, as we anticipated an economic recovery, gas tended to take the lead. That certainly changed in the first half of 2012, along with lower gasoline demand.

Heating Oil and RBOB Spread

272.72 269.60

*Source: Bloomberg Finance L.P.

Current Forward Curves for Both Heating Oil and RBOB

*Source: Bloomberg Finance L.P.

Above in the heating oil chart, you see a quick increase in the first quarter of 2012, reflecting the change in specification of heating oil from higher sulfur to a lower sulfur requirement (a higher valued product).

ÂŠ 2012 Mansfield Energy Corp.

WCS (Western Canadian Select) Grade of high quality crude oil produced in Western Canada launched in 2004 with volumes of approximately 250,000 barrels per day. It is expected to become a North American benchmark. The delivery point of this futures contract is the Hardisty Terminal which is beginning to have an impact on U.S. refiners through offering a cheaper alternative.

WTI (Western Texas Intermediate) Grade of crude oil used as benchmark in oil pricing and is the underlying commodity in the New York Mercantile Exchange’s (NYMEX) oil futures contracts. It is usually compared to Europe’s brent crude and the OPEC basket price.

*Source: Bloomberg Finance L.P.

Structurally, the seasonality of gasoline appears like a roller coaster due to demand fluctuations and RVP spec changes. These account for the higher than lower value swings which are very normal for gasoline. Another big influencer in the first six months, and something that will impact our world for years to come, is the WCS (Western Canadian Select) to WTI (West Texas Intermediate) spread. We often talk about brent and WTI, but there isn’t enough talk about the WCS impact on the U.S. marketplace. Below is a chart reflecting the spread between the two, with WCS being much less expensive than the traditional U.S. spec of WTI. This has impacted several regions of the country, the biggest of which being the Pacific Northwest and Chicago regions, increasing competition and changing the U.S. supply landscape.

Brent

WTI - WCS Spread YTD

A major trading classification of sweet light crude oil and an indicator of crude pricing in the Atlantic basin. This product is not usually as light as WTI, but a good indication of pricing for European refineries.

-27.00

*Source: Bloomberg Finance L.P.

International Price Forward Thoughts The global economy is in crisis as some of the world's biggest and most powerful countries continue to struggle. As global industries strive to yield positive results, investor fears increase until signs of an economic balance are present. Due to the direct correlation between the oil industry and global economics, the following countries represent some of the main global economic players with direct influence on the oil industry.

ÂŠ 2012 Mansfield Energy Corp.

Europe

The European economy has been unstable over the last six months as the European Union (EU) bailed out the fourth country in the last three years including its fourth largest economy, Spain. After long talks, Spain accepted outside assistance from EU finance ministers estimated around $125 million. Greece’s struggling economy has also been in the spotlight as their affiliation with the EU was up in the air until the elections of June 18, where voters agreed to continue with the Euro currency in hopes of financial assistance. Additionally, Italy has emerged as the newest candidate for financial help as their debt issues have grown in the past few months, mirroring Spain's recent path.

Middle East

The Middle East continued to be in the spotlight throughout the last six months with Iran being the biggest attention-grabber. Whether it was missile testing or the recent uranium enrichment debate, Iran’s actions affected the market as the world powers usually responded with an oil and financial embargo. The pressure increased in the market, as investors feared the tension between both parties would develop into a global crisis and possible armed conflicts.

China

China has been experiencing the global crisis first hand as countries that are struggling financially have been forced to reduce imports. In fact, China’s factory sector has shrunk every month this year as export order sentiment hit its weakest level since early 2009. Despite this output, China’s oil demand continues to grow. In the first semester of 2012, China's oil demand rose 2.6% compared to last year. Though the numbers are positive, analysts warn the modest increase in demand reflects China’s overall weak economic growth.

Brazil

Brazil has also been a victim of the recent global economic crisis. As the world’s number two producer of ethanol, Brazil has seen investments in new sugarcane plantations, and assets fell from $7.84 billion in 2008 to only $700 million this year. In fact, it is suggested that Brazil may become a net importer of ethanol this year as purchases are exceeding productions. According to experts, even an increase in ethanol production of two billion liters for the next harvest won’t be enough to meet domestic demand. A recent government study showed Brazil’s domestic demand growing to 50 billion liters by 2018 due to a massive increase in flex-fuel cars. At this pace, and including the three plants built last year, Brazil would need to add an average of 15 new distilleries per year to reach the government’s anticipated demand of 60 billion liters by 2021. In order to meet projections, the government is planning an additional $8.4 billion in annual investments through 2015 to boost sugarcane and ethanol output.

OPEC

OPEC (Organization of the Petroleum Exporting Countries) prices fluctuated over the last six months as international events led to constant price changes. Perhaps the biggest contributors have been Iran and Saudi Arabia. Iran’s international conflicts have raised concerns over the last six months, ending in threats of oil embargos on two separate occasions. Subsequently, Saudi Arabia’s production hit a 30-year high last month, causing oil prices to fall under the $100 level (depicted below).

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“Since oil prices are pegged to the U.S. dollar, the volatility of U.S. currency directly impacts the oil market.”

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Fundamentals U.S. Demand Demand for oil has decreased gradually in 2012. In fact, this yearâ&#x20AC;&#x2122;s 18.76 million barrels per day (mb/d) represents the lowest level since 1997. In comparison to last year, oil demand is down 0.3%, as demand for gasoline dropped to 8.69 mb/d, a reduction of 0.6% from 2011. Changes in oil demand are influenced by the on-going global economic crisis and increased domestic oil production.

Crude Imports Crude imports fluctuated throughout the first semester of the year, with a monthly average low of 8,707 in April and a monthly average high of 9,173 in June. As a result, imports influenced the recent surplus of oil inventories.

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U.S. Crude Oil Production As shown below, U.S. production of crude oil over the last six months gradually increased from month to month. With domestic production running at a 91.9% efficiency rate, increased production contributed to ( ( ( ( ( ( (( high oil inventories.

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ÂŠ 2012 Mansfield Energy Corp.

Fundamentals Crude Oil Inventories As shown below, oil inventories increased every month this semester. Numerous factors contributed to this increase including decreasing demand, rising production, increasing net crude imports, refineries running at a 91.9% efficiency rate, and oil inventories growing to the highest point since 1990. However, these high numbers are expected to level out, as the combination of heavy supply and decreasing demand during difficult global economic periods directly impacts the oil industry.

Monthly U.S. Ending Stocks Excluding SPR of Crude Oil (Million Barrels)

Source: U.S. Energy Information Administration based on Bloomberg, L.P.

Refinery Inputs Refiner net input remained relatively constant at an average of 14,800 b/d throughout the first six months of the year. However, as depicted below, input increased roughly 1,000 b/d between January and June of 2012.

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Fuel Exports The U.S. is beginning to establish a reputation as a refined product exporter. With ULSD exports climbing steadily, ULSD reached a record high of 735,000 b/d in March, with most product going to Latin America, Europe and Australia. The increase in ULSD exports largely contributes to the increase in refined product exports as well, where exports are up 236,000 b/d to 3.157 mb/d. Additionally, U.S. exports of finished gasoline increased by 31,000 b/d to 435,000 b/d in March. 12

ÂŠ 2012 Mansfield Energy Corp.

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FUELSNews 360˚ Commentaries Andy’s Answer BEAR

BULL

Dan’s Dissertation BULL

Sara’s Synopsis BEAR

I’m still long-term bullish, however, short-term negative economic data suggests things should stay relatively flat. Alternative products are great as they diversify our energy consumption as a country, but in the end, we’ll still need crude, natural gas, heat, and RB to run the economy. Although, we may see products like RB for gasoline decline in price due to weakening demand. Alternatively products like natural gas could increase in price as we find more ways to utilize its lower base energy cost. Either way, all of our products will continue to be impacted from global variables more so than in the past. Barring any major economic collapse, I expect things to remain in a rather narrow band of recent high and low prices for each product.

“Our wish and hope is we can stabilize this oil price and keep it at a level around $100 [per barrel],” said Ali Naimi, Oil Minister of Saudi Arabia. Riyadh does more than “wish” and “hope” when it comes to massaging the price of oil, especially after a big rise in their domestic public spending. With prompt month WTI closing at $84.96 per bbl and brent crude settling at $97.80 per bbl on June 29, in the moderate to longterm I am bullish.

For the remainder of 2012, or at least until November, I am bearish. The fundamentals surrounding our global economy continue to rule. Crude finds its next support at $74.85. This is not a price we have seen since October of last year, and I have every reason to believe we will get there, and pass through it, in the short-term. Europe is a mess and the dollar remains strong, while Germany continues to stronghold the other players in the EU. New direction will come this fall after the U.S. presidential election when someone (like Israel) may finally step in and do something about Iran and their uranium enrichment production. Of course, this would be the answer to reversing crude's decline, but until then, Europe's woes will be in the driver’s seat for the rest of the year.

Continued

FUELSNews 360˚ Commentaries

Hannah’s Hunch BEAR

BULL

Elizabeth’s Exchange BULL BEAR

Jorge Pradilla’s Predictions BEAR

I see the recent pullback predominantly caused by weakness in the euro. However, once the dust settles, the focus will return to the stagnant U.S. economy and the Fed’s desire to continue easing. While fundamentals speak to decreasing demand and increasing crude production, in the long-term, the global situation will win out. Between emerging economies, a global economic slowdown that will eventually find footing, and Middle East unrest, I’m short-term bearish, but long-term bullish.

Currently, I think we are looking at a bearish market. Considering the growth in shale production, the mild winter season, the increase in production from non-OPEC countries, the European crisis, and a weak U.S. economy, prices seem to want to stay down for the remainder of the year. Although, with the upcoming U.S. election in November and a very volatile economy, this could possibly throw a wrench into my outlook. Overall, I would anticipate the market to be bearish over the next six months.

Though I don’t want to sound negative, I fear the worst is yet to come. I see the market being bearish for a little while as the global economic crisis and high oil inventories have rapidly evolved over the last semester. Since the answer on how to turn things around is still yet to be found, I personally have difficulties believing things will get any better in the next few months considering the following: the current economic chaos that the Eurozone is experiencing (let’s hope Italy is not next in line), the economic slowdown of the U.S. and China and the provoking actions from Iran that keep the world worried about threats, financial instabilities and possible oil embargos.

Regional View Petroleum Administration for Defense Districs

PADD 1 A Northeast

The Northeast has seen many issues over the last two years. It started with ConocoPhillips’ Trainer, PA refinery going idle in September 2011, followed by Sunoco’s Marcus Hook, PA refinery going idle and up for sale in December 2011, and then Sunoco’s Philadelphia, PA refinery going up for sale shortly after. These three refineries accounted for 50% of the region’s production needs.

Source: U.S. Energy Information Administration

PADD 1 A Northeast Continued

“The conversion of sulfur in heating oil in New York and New Jersey will cause an increase of ULSD consumption in the Northeast by approximately 20% during the winter months.”

Sunoco was sold to Energy Transfer for $5.3 billion in April. The Dallas-based company is said to have bought Sunoco to diversify their energy portfolio and expand their footprint. With this purchase, Energy Transfer wants to create new services for their customers and enter more geographic areas. This deal is set to close by the end of the year. Currently, there are no answers as to what will happen to the refinery or any other position at Sunoco. The refinery was said to have been losing millions of dollars daily for almost two years now.

Philadelphia Area Petroleum Assets Close

Source: U.S. Energy Information Administration

Delta Airlines has agreed to buy the ConocoPhillips refinery in Trainer for $180 million. Delta is buying this refinery under a formed subsidiary, Monroe Energy LLC, in order to purchase the refinery. They will use this fuel in order to fulfill 80% of Delta’s jet fuel needs in the U.S. They will use the gasoline and other products refined in this refinery to swap for jet fuel in other parts of the country with Phillips 66. There is already a deal in place with BP for three years to provide the refinery with its crude oil requirements, which will help save most of the jobs at the refinery.

PADD 1 A Northeast

U.S. Petroleum Assets East of the Mississippi River

Continued

Source: U.S. Energy Information Administration

“Even though there are refineries increasing output in the Gulf Coast, the Colonial Pipeline may not be able to handle all of the additional needs of the Northeast.”

New York and New Jersey will convert their sulfur content of HO to be reduced to 15 PPM as of July 1. This conversion will cause an increase of ULSD consumption in the Northeast by approximately 20% and lead to an even larger demand in the winter months where heating oil is a large proportion of the total diesel demand. The increase in demand of ULSD during the winter months will be 35%-50%, while the summer months will equal a little over 10%. Along with refinery closings and refinery sales, there seems to be only one current solution: the Colonial Pipeline. This pipeline runs from the Gulf Coast to Linden, NJ and contains over 5,550 miles of pipeline. After the increase on the distillate line, they have recently added 120,000 bbls/day of carrying capacity, and this summer will add another 55,000 bbls/day of carrying capacity specifically on their distillate line. Following the increase on the distillate line, they will continue this addition of carrying capacity on their gas lines. All-in-all the line space will increase by 8%. Despite the increase in line space availability, the line has been at capacity. Even though there are refineries increasing output in the Gulf Coast, the line may not be able to handle all of the additional needs of the Northeast. Economists predict there will be either an increase in price or barrels could be brought over from the Ohio Valley (PADD 2) region. 18

PADD 1 B Southeast

Hovensa is a joint venture between Hess and Petroleos de Venezuela. It’s a large refinery in St. Croix, U.S. Virgin Islands. Most of the output has historically gone to the U.S. East Coast. In January, Hovensa announced plans to shut down the refinery process and become a petroleum storage facility. There are already signs of higher prices along the East Coast from Cape Canaveral, FL all the way up to Maine. These prices and costs to suppliers are set to continue to rise for the foreseeable future. The Jones Act, officially known as the Merchant Marine Act of 1920, is a U.S. Federal statute that requires all commercial shipping between U.S. ports and trade or navigation in coastal waters be performed by a U.S. flagship which is also made, owned and operated by U.S. citizens. This has caused many issues in Florida and all along the East Coast. Not only has there been a shortage of barges, and barges that are large enough to handle the capacity, but the costs to ship have also increased. All of these issues have resulted in increased costs in the costs of all products along the coast. Florida was hit several times this year with supply concerns due to heavy fog in the region. The Houston Ship Channel is the path that vessels use to travel from Houston and Louisiana to Florida to deliver products. In February, the ship channel was closed for several days. This caused 40 vessels to wait in line for a couple of days, with 25 more ships being added to go in the “long line” to be sent out to sea. Port operations were also suspended for several days along the Gulf Coast. This closure caused a ripple of fear across Florida, but as soon as the fog lifted, everything resumed normally within a few weeks.

“Not only has there been a shortage of barges large enough to handle the capacity, but the costs to ship have also increased causing the cost of all products along the coast to rise.”

PADD 2 Midwest

One of the largest factors currently influencing Chicago economics is the access to heavy West Canadian crude oil. Refiners able to take advantage of the deeply discounted feedstock have enjoyed up to almost $30 spreads between WTI and WCS prices. The advantaged economics in crude are present in products as well. While traditionally Gulf Coast product is viewed as the cheapest in the nation, the introduction of WCS to the Chicago market has turned this paradigm on its head. 2012 YTD shows an average spread of Chicago pricing six cents under Gulf Coast, opening up many arbitrage opportunities while closing others.

Chicago ULSD - GC USLD 0.1500 0.1000 0.0500

(0.0500) (0.1000) (0.1500) (0.2000) (0.2500) (0.3000)

“One of the largest factors currently influencing Chicago economics is the access to heavy West Canadian crude oil.”

Pipelines carrying Gulf Coast barrels north suffered decreased shipments on the lines as the tariff to Chicago markets can be as much as eight cents, without accounting for the inverted spread. Those most affected are the Enterprise Products Pipeline and Explorer Pipeline. Enterprise, traditionally an open-stock pipeline system where shippers can buy barrels at origin and pick them up immediately at delivery, announced in April it would convert to a “batch system.” The batch system holds shippers to transit time, similar to the operating structure of most pipeline systems in the country. Shippers expressed concerns over the change, leaving many to exit the pipe altogether. In response, the company blamed the sluggish flow of barrels going north and low shipping inventories for its inability to maintain open stock status.

PADD 2 Midwest Continued

Source: Enterprise Products Pipeline (in Blue)

The spread between WCS and WTI also inspired some local refineries to upgrade in order to process the heavier feedstock. BP Whiting in Indiana has undergone work over the past year on each of the crude units, with the last of the work scheduled for completion in August. Conoco Wood River in Illinois also completed an upgrade which increased capacity and allows for processing of the heavier crudes.

PADD 3 Gulf Coast “The increased capacity from the Motiva Port Arthur expansion will be the equivalent of a brand new refinery in the US, the first in more than 30 years.”

Though the Gulf Coast is already home to the majority of the nation’s refining capacity, the Motiva Port Arthur expansion came as no small news. A $10 billion expansion, adding a 325,000 b/d crude unit, makes this Texas refinery the largest in the U.S. with a total capacity of 600,000 b/d. To put this in perspective, the average U.S. refinery capacity is 325 m/bd, essentially making this expansion the equivalent of a brand new refinery in the States – the first in more than 30 years. Unfortunately, while the original deadline for completion was set for April 2012, Motiva continues to run into issues. While the new units were running smoothly as turnaround work on the older units took place, a snag in early June delayed the increased production by up to five months. Sources cite this is due to corrosion problems in the new crude distillation unit.

PADD 3 Gulf Coast Continued

Source: Seaway Pipeline Reversal Project

The Seaway Pipeline reversal project reached completion in mid-May, initially providing 150,000 of capacity to transport crude oil from Cushing, OK to Gulf Coast refineries. Cushing is the physical delivery point for WTI NYMEX crude futures, and prior to the reversal, had no method of shipping Midcon crude by pipeline to Gulf Coast refineries. This created an oversupply in Cushing and ultimately the blown-out spreads reflected between brent and WTI over the past year. The 500 mile, 30-inch diameter pipe will eventually carry more than 400,000 b/d of crude to the Gulf Coast. This is expected to further pinch the arb between WTI and brent. Seaway Crude Pipeline Company LLC is a joint venture between Enbridge and Enterprise Products Partners.

Another reversal to help the glut in Cushing crude supplies is underway in Texas. Magellan Midstream Partners LP announced last September they would convert a portion of pipeline to transport crude oil and reverse the flow to connect their Crane, TX facilities to the Houston market. This change allows oil fields in West Texas to move crude supplies to the Gulf Coast and reduces supply to Cushing, OK. The 18-inch pipeline will ship 135,000 b/d of crude to Houston once the reversal is completed. By the middle of 2013, the pipeline is expected to move up to 225,000 b/d.

Source: Magellan Reversal Plans for Magellanâ&#x20AC;&#x2122;s Longhorn Pipeline

ÂŠ 2012 Mansfield Energy Corp.

PADD 3 Gulf Coast Continued

Further south in the Lonestar state, the Eagle Ford Shale Oilfield brought a rush of new crude oil production, and with it, a dramatic increase in the demand for workers and diesel fuel. With more than 200 rigs today, up from virtually zero in 2008, Halliburton, Schlumberger, and Baker Hughes have all established permanent offices in the area representing a long-term shift in the area’s production environment. To support the new production, Enterprise Products Partners has invested in the Eagle Ford crude oil system that began accepting deliveries in mid June 2012. The 24-inch diameter crude oil pipeline links the Eagle Ford Shale producers with the Gulf Coast area refiners. Reaching its Sealy, TX destination from its origin in Wilson County, the Eagle Ford pipe system will allow access to 4 million b/d of refining capacity.

*Source: GEO ExPro Magazine

PADD 4 Rocky Mountains

The Rocky Mountains continue to march to the beat of their own drummer. This year alone, gasoline rack wholesale prices in Denver went from a $.20/gal to $.35/gal discount to Group 3 gas in February to a $.30/gal to $.45/gal premium to Group 3 gas in April through June. Those same rack wholesale prices for diesel went from a $.13/gal to $.15/gal discount to Group 3 in February to a $.05/gal to $.12/gal premium in March through June. Per the EIA, the average retail price for gasoline in June was $3.634/gal compared to $3.6990/gal a year ago. The average retail price in June for diesel was $3.7790/gal compared to $3.8850/gal a year ago.

“The Eagle Ford pipe system will allow access to 4 million b/d of refining capacity.”

The usual players experienced refinery issues recently. Western Refining had a reformer fire at its Ciniza refinery in New Mexico. Suncor Energy had a malfunction that resulted in emissions at its Commerce City, CO refinery. Sinclair had a fire at its refinery near Rawlins, WY. Otherwise, there were no further refinery issues or significant disruptions in supply.

PADD 5 West Coast AK, HI

The Western U.S. saw the startup of the UNEV Refined Products Pipeline in January 2012. The pipeline, a joint venture between Holly/Frontier and Sinclair spans 406 miles at a cost of approximately $410 million. The pipeline’s initial capacity of 62,000 b/d will carry product from Salt Lake City, Utah to Las Vegas, Nevada. The opportunity to transport product from Salt Lake City to Las Vegas via pipeline opposed to tanker truck will reduce transportation costs by 30 –40%. Both Tesoro and Holly/Frontier have announced major expansions at their refineries in Utah as a result. In addition, trading markets are indicating a trend on the West Coast. Both Mieco and Westport have consolidated their West Coast office staffs. With sharp price volatility plaguing the West Coast, as well as Salt Lake City and El Paso delivering more products to the Southwest, Nevada and Arizona, fewer arbitrage opportunities present themselves to West Coast traders. However, new players are entering the market including Noble Americas and Transmontaigne Product Services.

Source: The Salt Lake Tribune

The spread between the Gulf Coast and West Coast products continues to evolve. In January, Gulf Coast diesel was traded at a discount to West Coast at $.05/gal to as much as $.11/gal in March, and ended flat in June. As for Gulf Coast and West Coast gasoline, the trend was similar. In January, Gulf Coast gas traded at a discount to West Coast at $.02/gal to as much as $.10/gal in March, and ended up at a premium of $.02/gal in June. Per the EIA, the average retail price in June for gasoline was $3.8230/gal compared to $3.7930/gal a year ago. The average retail price in June for diesel was $3.8390/gal compared to $3.6090/gal a year ago. As for recent refinery issues, Exxon announced they would be shutting down some units at their Torrance refinery in Southern California for several weeks and were anticipating an impact to production. In addition, BP’s Cherry Point refinery in Washington returned to normal operations after completing maintenance and repairs following a February fire. The maintenance turnaround and repairs affected gasoline prices in Portland by as much as $.91/gal against futures.

Alternative Products

Natural Gas

The short-term natural gas story thus far in 2012 has centered on simple supply and demand. Historically high levels of production, coupled with reduced consumption from a warmer winter, have resulted in swelling U.S. inventories and decade low prices. The front-month NYMEX Natural Gas futures contract opened in January near the high of 2012 – $3.096 per MMBtu on January 4 – before generally falling throughout the first four months of the year. The low of the year occurred on April 19, when NYMEX Natural Gas for May delivery settled at $1.907 per MMBtu, a decade-low. That is a 38.5% drop over that five month timeframe. A damper on demand was caused by the warmer than normal winter. In fact, the National Oceanic and Atmospheric Administration (NOAA) dubbed this the fourth warmest winter on record for the contiguous U.S.

“Historically high levels of production, coupled with reduced consumption from a warmer winter, have resulted in swelling U.S. inventories and decade-low prices.”

Dec 2011–Feb 2012 Divisional Ranks

Source: NOAA’s National Climatic Data Center

Natural Gas Continued

“At its peak, natural gas inventories reached 60% above their five-year average for the week ending March 30.”

Above average temperatures dominated the northern and eastern regions of the country, which are historically high demand centers for natural gas. Nearly 51% of U.S. households use natural gas for heating, according to the Energy Department. The average temperature in the conterminous U.S. was 36.8˚F, 3.9˚F above the 1901-2000 long- term average and the warmest since 2000. The lower seasonal demand during the winter months resulted in natural gas inventories beginning the refill season (the period when net positive injections of natural gas occur) at 2.4 trillion cubic feet (Tcf), which was the highest level ever for that timeframe. In March, Francisco Blanch, head of commodities research at Bank of America, explained that gas inventories were “very high and already starting to build ahead of the seasonal normal, and we believe storage congestion will be a key concern in coming months.” At its peak, natural gas inventories reached 60% above their five-year average for the week ending March 30. Below is a graph of U.S. Weekly Natural Gas Inventory through the first quarter of 2012.

U.S. Weekly Natural Gas Inventories (BCF)

Source: Bloomberg Financial L.P. 26

Natural Gas Continued

The lower seasonal demand led many exploration and production (E&P) companies to consider curtailing natural gas production. Two large firms leading the charge were Chesapeake Energy and ConocoPhillips, who both announced earlier in the year they would significantly cut production. Chesapeake, the second largest U.S. producer, said in late January they would “immediately curtail” output of 500 million cubic feet a day and lower planned investment in gas fields by 70% from the $900 million spent in 2011. At the time, analysts estimated that future gas production at Chesapeake wells could be cut by as much as 1 billion cubic feet a day, equaling about 1.5% of U.S. marketed output in 2011. Shortly after that announcement, ConocoPhillips followed suit in an earnings call stating that after a 9% cut in its U.S. gas production last year, similar cuts could be seen this year. Both companies diverted rigs away from gas and toward oil reserves. Cutbacks from these E&P firms and others like them, have led to lower than normal increases in U.S. natural gas storage and prices in recent weeks. As the tail end of the following chart highlights, the dip in natural gas production has led to a corresponding uptick in natural gas spot prices.

U.S. Dry Natural Gas Production (BCFPD) 64.61

4.2683

534.00 Source: Bloomberg Financial L.P. 27

Natural Gas

This also emphasizes a decrease in year-over-year production growth (pink chart) and a drop in the natural gas rig count (blue chart).

Continued Consequently, according to many analysts, the longer term view for natural gas values is actually bullish. “We’re going to see production curtailments and an uptick in power demand this summer,” said Scott Hanold, an analyst at RBC Capital Markets. “Short-term gas contracts can take a beating, but investors have a more constructive view of longer term contracts.” One of the primary reasons for that long-term view is increased demand for power generation. To date, 33 GW of power capacity has been announced to close from 2012 through 2016, of which 91% is supplied by coal. Natural gas would be the new source of power supply, translating into 2.4 Bcf per day of incremental demand. As a result, natural gas prices are well off the lows seen earlier this year with the August futures contract closing at $2.8240 on June 29, up nearly 14% in June alone. A major trend over the first half of 2012 was domestic natural gas prices sharply contrasting global crude oil and refined products values. Accordingly, the below chart highlights the historic relationship of natural gas and crude oil:

Nymex Crude Oil 12-Month Strip VS Natgas 12-Month Strip

3.361

29.8354 26.4417

Source: Bloomberg Financial L.P. 28

Natural Gas Continued

The top half of the chart shows the continuous average price of the next 12 NYMEX Natural Gas futures contracts (white line) compared to the average price of the next 12 NYMEX WTI Crude Oil futures contracts (orange line). From 2000 through most of that decade, the commodities moved similarly, with natural gas often the more bullish of the two; however, beginning in 2009, there was a clear divergence. In fact, as shown by the ratios on the bottom half of the chart, at the greatest difference this year, the 12-month WTI crude oil strip traded over 41.0x the 12-month natural gas futures strip, compared with a historical average of 7.5x. Even more staggering, from a prompt perspective, WTI crude oil traded 54.0x the front-month natural gas contract, nearly seven times its 8.1x historical average. As the chart displays, despite a recent uptick in natural gas prices and falling crude values, the 12-month crude oil strip still trades over 25.0x that of natural gas. This resulted in an attractive opportunity for many transportation fuels customers to capitalize on Compressed Natural Gas (CNG) as a significantly cheaper energy alternative.

â&#x20AC;&#x153;A major trend over the first half of 2012 was domestic natural gas prices sharply contrasting global crude oil and refined products values.â&#x20AC;?

ÂŠ 2012 Mansfield Energy Corp.

Ethanol

After three long years of hearings, tests and votes, the EPA recently provided its final approval for the sale and use of E15 in 2001 and later model year vehicles. In 2011, the EPA finalized waivers and approved labeling for the higher ethanol blend, but this most recent step officially registered the fuel. “In the eyes of the federal government, E15 is a legal fuel for sale to cars, pickups, and SUVs made since 2001,” said Renewable Fuels Association President Bob Dinneen. However, the key word in Mr. Dinneen’s statement is “federal,” as many hurdles remain with state fuel regulations. For instance, the Department of Energy estimates there are more than 90 state laws and regulations currently limiting the sale of E15 in more than 30 states; some state restrictions in conflict include a 10% ethanol blend cap, state biofuels mandates, technical fuel specification standards, and waivers. It’s no secret why the ethanol industry is pushing an increased blend percentage, as in recent years U.S. production has well outpaced domestic demand. Just as ethanol activists push for more use of the biofuel, the 2012 U.S. corn crop is facing deteriorating conditions in the field. In the areas of Indiana, Southern Illinois, and Southeast Missouri, persistent hot and dry weather is hampering development of corn during the important pollination phase – when the plants’ tassels shed pollen to fertilize the silks and create kernels. Much of those locations have received 25% of their normal rainfall within the last 30 days and extended forecasts call for triple digit temperatures. As a result, U.S. corn in “good” or “excellent” condition, as determined by the USDA, fell to 54%, from 63% a week ago, the lowest in 20 years at this point of the season. On the back of that news, CBOT corn futures for December delivery increased 24.5% for the month of June, closing at $6.3475 per bushel on June 29.

U.S. Drought Monitor (Midwest) June 19, 2012

Biodiesel

After unsettling the industry in 2011, biodiesel Renewable Identification Number (RIN) fraud continued to be a hot topic in 2012. On April 30, the EPA issued Houston-based Green Diesel LLC with a notice of violations (NOVs) of the Renewable Fuels Standard; specifically, the agency stated the biodiesel producer generated more than 60 million invalid RINs in 2010 and 2011 without producing the requisite fuel. That brings the total known fradulent biodiesel RINs to a total of 140 million. But the inquiry did not stop with biodiesel plants, as the EPA itself was scrutinized over their handling of RIN fraud, namely the “caveat emptor” stance they adopted in regards to the industry policing itself. EPA Administrator Lisa Jackson testified on Capitol Hill in late February, defending her agency’s stance stating, “There is fraud that is potential in the system. And although we enforce to look for opportunities to crack down on fraud, part of the system in this marketplace also requires that buyers beware and that they insure that what they’re buying, that they make some effort to ensure that they’re not being subject to fraudelent RINs.” In May, following that encounter, the House Energy and Commerce Committee requested detailed information and documentation surrounding the agency’s handling of the RIN fraud. Several law makers wrote to Jackson stating that the production and trade of invalid RINs has become a huge problem, “And EPA’s efforts to address the problem so far appear ineffective, and in some respects have harmed the renewable fuels marketplace.” The same drought affecting corn has also influenced soybean development; soy estimated at “good” or “excellent” recorded its lowest level in 20 years, at 53% vs. last year's 56%.

USDA –“Good”+ “Excellent” Condition

45.00

Source: USDA 31

Biodiesel Continued

This data has had a bullish affect on soybean oil prices, with the December contract up 6.82% in the month of June to 53.08 cents per pound. At the same time, crude oil and refined products have lost a significant amount of value, drastically affecting the blending economics of biodiesel. The heating oil to bean oil (HOBO) spread, coupled with the price of RINs, is a good indication of the economics of blending biodiesel. The lower the spread, the more expensive soybean based biodiesel is in relation to heating oil. The spread reached a low of roughly $.47 per gallon on June 25.

NYMEX HOBO Spread ŝī

Bean Oil, Outright

,ĞĂƟŶŐ Kŝů

Bean Oil, less RINs

$4.5000 $4.0000

Dollars per Gallon

$3.5000 $3.0000 $2.5000 $2.0000 $1.5000 $1.0000 $0.5000 $0.0000

To note, this is a futures equivalent spread, and cash prices will reflect basis, transportation, and infrastructure costs to various destinations. This will likely cut into the blending economics even further.

“The heating oil to bean oil (HOBO) spread, coupled with the price of RINs, is a good indication of the economics of blending biodiesel. The lower the spread, the more expensive soybean based biodiesel is in relation to heating oil.” 32

Price Trend Charts 321 Crack

30.652

Source: Bloomberg Finance L.P.

Ethanol/RBOB Spread

19.9500

Source: Bloomberg Finance L.P. 33

ÂŠ 2012 Mansfield Energy Corp.

EURO/USD & WTI Overlay

92.52

Source: Bloomberg Finance L.P.

HO Historical Candle Chart

293.63

Source: Bloomberg Finance L.P.

ÂŠ 2012 Mansfield Energy Corp.

RB Historical Bar Chart

291.69

Source: Bloomberg Finance L.P.

HO Seasonal Chart

Source: Bloomberg Finance L.P.

ÂŠ 2012 Mansfield Energy Corp.

The FUELSNews 360˚ Supply Team Mansfield’s supply team brings unique experience and industry expertise to the table. From contract pricing and hedging to trading of fuel, renewables and alternatives such as CNG and LNG, the Mansfield team covers the gamut of knowledge that is required to manage today’s complex national and international fuel supply chain. Although they work as a national team, each member’s regional focus enables Mansfield to deliver geographic based supply solutions by more efficiently managing market specific refining, shipping and terminal/assets.

Andy Milton VP of Supply & Distribution

Andy Milton heads the supply group for Mansfield and during his tenure, the company has grown from 1.3 billion gallons to over 2.5 billion gallons per year. Andy’s industry experience spans all aspects of the fuel supply business from truck dispatch, analytics, and index pricing to hedging and bulk purchasing. Prior to Mansfield, Andy worked at RaceTrac Petroleum. Andy’s expertise in purchasing via pipeline, vessel, and the coordination via futures and options for hedging purchases enables him to successfully lead a team of experienced and motivated supply personnel at Mansfield. Andy’s team handles a wide geographic area of all 50 states and Canada, including all gasoline products, ULSD, kerosene, Heating Oil, biodiesel, Ethanol, and Natural Gas. Andy’s education began at Young Harris College and later at Georgia Southern University where he received a BS in Sports Management.

Sara Hordinski’s extensive background in supply and trading, futures hedging, and rack marketing, brings a unique perspective to Mansfield. Although new to Mansfield’s supply department, Sara has more than twenty-five years’ experience in the oil & gas refined products industry. She has marketed refined products throughout much of the United States by pipeline, truck, and rail. In addition, she worked with numerous suppliers, refiners, jobbers, c-store owners, and distributors nationwide to develop competitive contract pricing and hedging programs tailored to their needs.

Sara Hordinksi VP of Western US Supply 36

Elizabeth Brooks

East Coast

Elizabeth Brooks serves as the East Coast Supply Manager where she is responsible for purchasing, hedging, and the distribution of all gas and diesel supply on the East Coast. She is also responsible for all trading activities on the East Coast as well as all contracts, and daily rack purchases. At Mansfield, she developed an optimization group that helps the purchasing of all loads across the country. Elizabeth graduated from North Georgia College with a BA in Accounting and prior to Mansfield, she worked in the accounting field as a Staff Accountant.

Dan Luther

Natural Gas & Renewable Fuels

Dan Luther is responsible for purchasing, hedging, and the distribution of natural gas and renewable fuels. Before joining Mansfield, Dan was Director of Operations at Aska Energy and also worked at RaceTrac Petroleum, where he helped manage all barge, rail, and truck fuel deliveries before assuming ethanol trading responsibilities, including purchasing product to fulfill RaceTrac’s demand while trading product across other U.S. markets. Dan holds a BSBA in Supply Chain Management and Marketing from Ohio State University and is currently working towards his MBA at Georgia Tech.

Hannah Hauman

Midcontinent

Hannah Hauman serves as the Midcontinent Supply Manager, based out of Houston, TX. Hannah manages all refined products trading, supply distribution, contracts and daily rack purchases. In addition, Hannah manages Mansfield’s fixed price shorts nationwide. Prior to joining Mansfield, Hannah worked for Marathon Petroleum Company, RaceTrac Petroleum, and Atlas Oil Company in a wide variety of functions ranging from truck dispatch to speculative futures trading. Hannah holds a BS in Business Management from The University of Findlay and is currently pursuing an MBA at the University of Houston.

Jorge Pradilla

Risk Management

Jorge Pradilla started at Mansfield as an intern where he assisted with tracking supplier postings and market analytics. Jorge progressed to become a supply risk supervisor focusing on Mansfield’s futures and clearport activities including reconciliation, broker dealings and trade executions. Jorge oversees the company’s hedging portfolio as well as tracks liabilities, fixed price contracts and analyzes market trends. Jorge also authors the FUELSNews daily market newsletter. Born in Colombia, Jorge holds a BS in Marketing from Piedmont College and an MBA in Managerial Leadership. 37

FUELS NEWS 360Ë&#x161;

QUARTERLY REPORT

MARKET NEWS & INFORMATION

Mansfield Energy Corp. www.mansfieldoil.com 678.450.2000 1025 Airport Pkwy SW Gainesville, GA 30501 United States of America

ÂŠ2012 Mansfield Energy Corp.

Disclaimer: The information contained herein is derived from sources believed to be reliable; however, this information is not guaranteed as to its accuracy or completeness. Furthermore, no responsibility is assumed for use of this material and no express or implied warranties or guarantees are made. This material and any view or comment expressed herein are provided for informational purposes only and should not be construed in any way as an inducement or recommendation to buy or sell products, commodity futures or options contract.