Arthur Lloyd Compressor Presentation

Arthur Lloyd LLC Business Confidential 2006All Rights Reserved Arthur Lloyd LLC

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February 12, 2006

Compression Equipment…A Valuation Primer

Equipment ManagementConference & Exhibition

February 12 – 14, 2006



February 12, 2006

Introduction

Big topic… time is short

We will briefly cover:

Definitions

Compressor Systems and compressor types

Applications

Key valuation issues

Costs

Lives

And a little bit on values

Included a glossary and sources of information



February 12, 2006

Definitions - Compressor

Compressor – A mechanical device that is used to increase the pressure—or compress—a gas.

Compressor Types

Centrifugal Compressor – Machines that use centrifugal force to compress gas by feeling it into a wheel with radial vanes. The wheel is then seal inside of a cylinder and spun. When the wheel rotates, the gas is thrown away from the wheel center. The outward spinning motion compresses the gas.

Reciprocating Compressor – Machines in which the compressing element is a piston having a reciprocating motion in a cylinder.

Rotary Compressor – Machines in which the compressing element is a set of rotating elements (often “screws” or “lobes”). Also a type of compressor belonging to the group of dynamic compressors characterized by having its flow in an axial direction.

Prime Mover – the main mechanical power source of any number of devices. In the energy industry it is typically an electric motor, reciprocating engine or gas/steam turbine.

Compressor Station – Any permanent combination of compressors that move natural gas at increased pressure from fields, in transmission pipelines, or into storage.



February 12, 2006

Definitions – Compressor (cont.)

Compressor Set – Primary components of an assembled natural gas compressor unit. Typically includes a tie-in which connects the system to a natural gas supply pipeline, dryers, filters, prime mover, compressor, cooling unit, controls, frame or skid and a sound enclosure that protects the equipment from the elements and provides noise reduction.

Integral Compressor – Typically, single piece construction and include an “integral” compressor, meaning that the power cylinders and compression cylinders are integrated on (share) the same crankshaft. These units are older technology, and are typically comprised of components assembled by a single manufacturer.

Separable Compressor – Typically consist of component construction, which may include individual pieces comprising an assembled unit of varying manufacture. These units are typically newer technology, may be of low to high horsepower—packages may exceed 8,000 HP—are of higher speed—750 – 1,000 RPM—and have increased power density compared to integral units, which allows operators to move large volumes with fewer machines. These units are typically more flexible in application and operate at greater efficiencies than integral units.



February 12, 2006

Definitions - Appraisal

Fair Market Value – The estimated amount, expressed in terms of money, that may reasonably be expected for property in an exchange between a willing buyer and a willing seller, with equity to both, neither under any compulsion to buy or sell, and both fully aware of all relevant facts, as of a specific date.

Fair Market Value – Installed - The estimated amount, expressed in terms of money, that may reasonably be expected for an installed property in an exchange between a willing buyer and a willing seller, with equity to both, neither under any compulsion to buy or sell, and both fully aware of all relevant facts, including installation, as of a specific date. This amount includes all normal direct and indirect costs, such as installation and other assemblage costs necessary to make the property full operational.

Fair Market Value – In Continued Use - The estimated amount, expressed in terms of money, that may reasonably be expected for a property in an exchange between a willing buyer and a willing seller, with equity to both, neither under any compulsion to buy or sell, and both fully aware of all relevant facts, including installation, as of a specific date and assuming the business earnings support the value reported. This amount includes all normal direct and indirect costs, such as installation and other assemblage costs necessary to make the property full operational.

Source: Valuing Machinery and Equipment: The Fundamentals of Appraising Machinery and Technical Assets, ASA 2005



February 12, 2006

Definitions – Appraisal (cont.)

Fair Market Value – Removal – The estimated amount, expressed in terms of money, that may reasonably be expected for an item of property in an exchange between a willing buyer and a willing seller, with equity to both, neither under any compulsion to buy or sell, and both fully aware of all relevant facts, considering removal of the property to another location, as of a specific date.

Orderly Liquidation Value – The estimated gross amount, expressed in terms of money, that could typically be realized from a liquidation sale, given a reasonable period of time to find a purchaser(s), with the seller being compelled to sell on an as-is, where-is basis, as of a specific date.

Forced Liquidation Value – The estimated gross amount, expressed in terms of money, that could typically be realized from a properly advertised and conducted public auction, with the seller being compelled to sell with a sense of immediacy on an as-is, where-is basis, as of a specific date.

Residual Value (lease) – The value (typically fair market value) of leased equipment at the end of the lease term.




February 12, 2006

Definitions – Appraisal (cont.)

Economic Useful Life – The estimated period of time that a new property may be profitably used for the purpose for which it was intended. Stated another way, it is the estimated number of years that a new property can be used before it would pay the owner to replace it with the most economical replacement property that could perform an equivalent service.

Normal Useful Life – The physical life, usually in terms of years, that a new property will actually be used before it is retired from service. A property’s normal useful life relates to how long similar properties actually tend to be used, as opposed to the more theoretical economic life calculation of how long a property can profitably be used.

Remaining Useful Life –The estimated period during which a property of a certain effective age is expected to actually be used before it is retired from service.

Effective Age – The apparent age of a property in comparison with a new property of like kind; that is, the age indicated by the actual condition of a property. (may be calculated by deducting the Remaining Useful Life from the Normal Useful Life.




February 12, 2006

The general components of a compressed air system are illustrated schematically in the figure below:

Compressor System



February 12, 2006

Many accessories exist for use in compressed air systems. Some are relatively common and will be found in almost every installation, while others are special purpose devices and may be found under certain circumstances. Locations and application of devices that provide the "conditioning/drying" system function can be found in the following schematic.

Compressor System (cont.)



February 12, 2006

Reciprocating Compressors

Reciprocating compressors are positive displacement machines, meaning that they increase the pressure of the air by reducing its volume. The relationship between pressure and volume is illustrated in the figure below. This compressor has a crankshaft, connecting rods, and pistons. Single-stage as well as multi-stage reciprocating compressors are commercially available.

A performance curve for a positive displacement machine is provided in the figure below. It can be seen that despite compressor discharge pressure, load remains constant. Load reduction is achieved by unloading individual cylinders. Typically, this is accomplished by throttling the suction pressure to the cylinder or bypassing air either within or outside the compressor. Capacity control is achieved by varying speed in engine-driven units through fuel flow control.

Types of Compressors



February 12, 2006

Screw Compressors

Screw compressors are positive displacement machines that consist of helically-grooved rotors that mesh together as shown below. The volume of a trapped mass of air is decreased along the rotor and the pressure is increased. Capacity control for these compressors is accomplished by variable speed and variable compressor displacement. For the latter control technique, a slide valve is positioned in the casing. As the compressor capacity is reduced, the slide valve opens, bypassing a portion of the compressed air back to the suction. Advantages of the rotary screw compressor include smooth, pulse-free air output in a compact size with high output volume over along life.




February 12, 2006

Centrifugal Compressors

Centrifugal compressors produce high-pressure discharge by converting angular momentum imparted by the rotating impeller (dynamic displacement), as illustrated in the figure below. In order to do this efficiently, centrifugal compressors rotate at higher speeds than the other types of compressors. These types of compressors are also designed for higher capacity because flow through the compressor is continuous. Adjusting the inlet guide vanes is the most common method to control capacity of a centrifugal compressor. By closing the guide vanes, volumetric flows and capacity are reduced.




February 12, 2006

Gas

Natural Gas

Diesel

Electric

Turbine

Compressors may be driven by almost any prime mover – a motor, steam turbine, combustion turbine, or internal combustion engine. Historically, electric motors have dominated the market. The use of natural gas engine drives has become a popular alternative. Gas engine-drive compressors can be used as the sole source of compressed air, or they may be used as part of a hybrid system. A hybrid air system is one that employs both electric motor and gas engine-driven air compressors.

Types of Engines



February 12, 2006

Compressors

Ariel

Ajax

Cooper-Bessemer

CSI

Frick

Gardner Denver

Gemini

Ingersoll-Rand

LeRoi

Sullair

Worthington

Prime Mover (Engine)

Caterpillar

Cummins

Rolls Royce

Waukesha

White

Manufacturers

- High demand brands



February 12, 2006

Well head compression

Gas gathering and storage systems

Pipeline

Pipeline station optimization

Refrigerator plant compression

Gas processing

Gas transmission

Gas lift

Fuel gas booster

Land fill

Carbon dioxide injection

Field

Transmission

Applications



February 12, 2006

Compressor Package

Skid-Mounted Reciprocating Compressor



February 12, 2006

Compressor Package

Electric “v-belt” drive



February 12, 2006

Compressor Package

Skid-Mounted Rotary Compressor



February 12, 2006

Compressor Package

Non-Skidded Rotary Screw Compressor



February 12, 2006

Compressor Package

Centrifugal Compressor



February 12, 2006

Compressor Package

Skid-Mounted Rotary Screw Compressor



February 12, 2006

Compressor Package

Turbine Driven Centrifugal Compressor



February 12, 2006

Compressor Package

Turbine Driven Centrifugal Compressor

Electric Motor Driven Reciprocating Compressor



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Reciprocating Compressor



February 12, 2006

Rotary Screw Compressor



February 12, 2006

Centrifugal Compressor



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Compressor Package

Cemented FoundationElectric Motor Driven Reciprocating Compressor



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Gas Engine



February 12, 2006

Electric Motor



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Turbine Engine



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Compressor Station



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Processing Plant



February 12, 2006

Descriptive InformationCompressor

Plant Name

Plant Address

Type of Compressor

Manufacturer

Model

Serial Number

Year Installed

Year New

Rated Output Capacity (ACFM)

Typical Peak Capacity (ACFM)

Operating Pressures (Max. and Normal PSIG)

Number of Stages

Number of Cylinders (recip)

Variable Speed

Throttle Intake

DriveType of engine

Manufacturer

Model

Serial Number

Speed (RPM)

Horsepower

Voltage (elect)

Fuel

Year Installed

Year New

Skid Mounted vs. Field Assembled

Pollution Control Data (NOX, CO, O2)

Catalytic Converter

Enclosure

Heat Recovery System (water jacket, exhaust)

OtherIntercooler

After Cooler (air/water)

Oil Cooler

Air/Oil Separator Tank Capacity

Oil Filter

Water Trap

Air Filter

Ventilation Fan

Air Dryer Information

Silencers



February 12, 2006

Value Considerations

Compressor type

Engine type

Manufacturer (brand names)

Age (chronologic and effective)

Horsepower

Configuration

Compressor – number of stages, suction/discharge pressures, controls, etc.

Engine – number of cylinders, stroke, cylinder bore, controls, etc.

Condition

Fleet compatibility

Spare parts availability



February 12, 2006

Value Considerations (cont.)

Installation (skidded, non-skidded, grouted in, trailer mounted)

EnvironmentalCatalytic converterGrandfatheredNOX, CO2

Hours since overhaulTop endBottom endZero hour

Maintenance history (documented)

Overall “cost of ownership” (capital, energy, runtime, parts, environmental, etc.)



February 12, 2006

Other IssuesTime frame for equipment saleProduction life of associated minerals (important for “in-use” buyers)“Swapping” engines and compressorsTypes of buyers

Those that would buy the equipment and relocate it for a similar or alternative use- such as domestic and foreign equipment dealers, brokers, speculators and end-users that may be able to use the equipment for related purposesThose that would purchase the entire mineral producing field inclusive of the compressor units and all other assets necessary for continuing operations such as other similar oil and gas production companies

Rental ratesDemand for new vs. used equipmentCost of new equipmentAvailable alternative compressionMarket Utilization



February 12, 2006

Other Issues (cont.)

Premise of value (FMV-IU, FMV-Removal, OLV, etc.)Commodity pricingGeographic supply/demandLease terms and conditionsExploration and production activityNew unit delivery time“Facts and circumstances”



February 12, 2006

CostsRCN typically quoted on a unit cost (dollar per horsepower ($/HP)) basisUnit costs drop as capacity of system increasesCost new for compressor package includes direct/indirect costs

EquipmentEngineeringConstructionAssemblyTestingLicensing ConstructionEtc.

Installed costs includeEngineeringLaborInstallationTransportationTestingEtc.

Note: Land, site ancillary or infrastructure assets, and spare parts are typically excluded in determining asset replacement costs



February 12, 2006

Costs (cont.)

RCN has decreased over time due to advances in materials, construction techniques, technology and operating efficiencies.

Construction costs for annual FERC-related projects can be obtained from the Oil and Gas Journal (O&GJ) as well as industry personnel.



February 12, 2006

Costs (cont.)

Compressor package (RCN) - $1,500 - $500 per horsepower

Installation costs – 15% - 100%+ of equipment cost

Overhaul (zero hour) - $5,000 - $250,000

Skid - $5,000 - $50,000

Emissions Upgrade - $5,000 - $30,000

Important Notes

Representative ranges only – BE CAREFUL!!!

Specific facts and circumstances determine costs

Know the equipment, do your homework



February 12, 2006

LifeWhat “Life” are we talking about?

Economic Useful Life

Expected Useful Life

Life depends on many thingsEquipment type

Application

Configuration

How the equipment has been operated

The type and nature of preventive and ongoing maintenance

The environment in which the equipment was operated

Overhauls, rebuilds, modifications

Controls

Field life

Lease requirements

Spare parts availability

Overall cost of ownership

Commodity pricing

Cost of new equipmentAvailable alternative compressionMarket Utilization

Normal Useful Life

Remaining Useful Life

Compressor equipment expected useful lives are often estimated at 20 - 25 years



February 12, 2006

ValueWhat “Value” are we talking about?

Fair Market Value

Fair Market Value – Continued Use

Fair Market Value – Installed

Fair Market Value - Removal

A Couple “Rules of Thumb”60% - 80% of RCN for excellent equipment

50% or less of RCN for average equipment

25% or less of RCN for poor equipment and parts

Notes Fair market value estimates

Percentages based on equipment RCN only

Estimates reported by dealers/repackagerswithin the last 18 months

Estimates are for skid-mounted units

Orderly Liquidation Value

Forced Liquidation Value

Residual

Other



February 12, 2006

Value (cont.)

Key market value “drivers”Age

Equipment type

Name brand

Size

Skidded

Configuration (stages, etc.)

Hours

Rental rates

Parts availability

Quantity of units being bought/sold

Not the only drivers

Market conditions constantly change



February 12, 2006

Sources of InformationAmerican Gas Association – www.aga.org

American Petroleum Institute – www.api.org

Baker Hughes – www.bakerhughes.com

BP – www.bp.com

Compressor Systems, Inc. – www.compressor-systems.com

E&Pnet.com – www.eandpnet.com

Energy Information Administration (EIA) – www.eia.doe.gov

Engineering News Record – www.enr.com

FedStats – www.fedstats.gov

Foster Associates, Inc. – www.foster-fa.com

Gas Compressor Association – www.gascompressor.org

Gas Processors Association – www.gasprocessors.com

Hanover Compressor Company – www.hanover-co.com

Hydrocarbon Processing – www.hydrocarbonprocessing.com



February 12, 2006

Sources of Information (cont.)

Independent Petroleum Association of America (IPAA) – www.ipaa.org

Interstate Natural Gas Association of America – www.ingaa.org

Natural Gas.Org – www.naturalgas.org

Natural Gas Intelligence – www.intelligencepress.com

Ohio Oil & Gas Association – www.ooga.org

Oil & Gas Investor – www.oilandgasinvestor.com

Oil & Gas Journal – www.ogj.pennnet.com

Pennwell – www.pennwell.com

Society of Petroleum Engineers – www.spe.org

Universal Compression Holdings, Inc. – www.universalcompression.com

US Department of Energy (DOE) – www.doe.gov

UT Petroleum Extension Service (PETEX) – www.utexas.edu/cee/petex



February 12, 2006

GlossaryAbsolute Pressure (PSIA) - Pressure in excess of a perfect vacuum. Absolute pressure is obtained by algebraically adding gauge pressure to atmosphere pressure. Pressures reported in "Atmospheres" are understood to be absolute. Absolute pressure mustbe used in equations of state and in all gas-law calculations. Gauge pressures below atmospheric pressure are called "vacuum.“

Actual Capacity - Quantity of gas actually compressed and delivered to the discharge system at rated speed of the machine and under rated pressure conditions.

Adiabatic Compression - A type of compression where no heat is transferred to or from the gas during the compression process.

Aftercooler - Heat exchangers for cooling air or gas discharge from compressors. Designed to reduce the temperature and liquefy condensate vapors. Both air cooled and water cooled units are available.

Atmosphere - The standard atmosphere is defined as the pressure exerted by a column of mercury 760 mm high with a density of 13,595 g/cm³ at the standard acceleration due to gravity of 9.8 m/s². The 760th part of this pressure unit is the torr. The technical atmosphere (at) denotes the pressure of a force of 1 kg acting on an area of 1 cm².

Atmospheric Pressure - The pressure due to the weight of the atmosphere (air and water vapor) on the earth's surface. The average atmospheric pressure at sea level (for scientific purposes) has been defined at 14.696 pounds per square inch absolute.

Axial Compressor - A compressor belonging to the group of dynamic compressors. Characterized by having its flow in the axial direction.

Bag House - a dust-collection chamber containing numerous permeable fabric filters through which the exhaust gases pass. Finer particulates entrained in the exhaust gas stream are collected in the filters for subsequent treatment/disposal.

Barrel of Oil Equivalent (BOE) - A term frequently used to measure oil and gas on a comparative basis. In Canada, 6 mcf of natural gas is equivalent to one barrel of oil.

Base Pressure - The pressure used as a standard in determining gas volume. Volumes are measured at operating pressures and then corrected to base pressure volume. Base pressure is normally defined in any gas measurement contract. The standard value for natural gas in the United States is 14.73 psia, established by the American National Standards Institute as standard Z-132.1 in 1969.



February 12, 2006

Glossary (cont.)

Booster Station - A facility containing equipment which increases pressure on oil or gas in a pipeline.

Brake Horsepower - The maximum rate at which an engine can do work as measured by the resistance of an applied brake. Expressed in horsepower, typically at the crankshaft.

British Thermal Unit (BTU) - The quantity of heat necessary to raise the temperature of one pound of water one degree Fahrenheit from 58.5 to 59.5 degrees Fahrenheit under standard pressure of 30 inches of mercury at or near its point of maximum density. One Btu equals 252 calories, (gram), 778 foot-pounds, 1,055 joules or 0.293 watt hours.

BTU/Cu ft - A measure of the heat available or released when one cubic foot of gas is burned.

Centrifugal Compressor - A dynamic compressor. A machine in which air or gas is compressed by the mechanical action of rotating vanes or impellers imparting velocity and pressure to the air or gas. In a centrifugal compressor, flow is in a radial direction. Air enters the compressor through the machine mounted inlet control valve and flows to the first stage where the impeller imparts velocity energy to the air. The air then proceeds through a diffuser section which converts the velocity energy to pressure energy. A multistage centrifugal compressor is a machine having two or more of these stages.

Cold Start - Starting a compressor from a state of total shutdown. Usually done with "local" control at the compressor. May be done with "remote" control, but only advised with "heavy" instrumentation and monitoring accessories.

Compressed Natural Gas (CNG) - Natural gas—most often methane--in high-pressure surface containers that is highly compressed (though not to the point of liquefaction). CNG is used extensively as a trans-portation fuel for automobiles, trucks and buses in some parts of Italy, New Zealand, and in Western Canada, and has recently begun to penetrate some regions of the UnitedStates. Small amounts of natural gas are also transported overland in high-pressure containers.

Compressor - A mechanical device for increasing the pressure of a gas.

Compressor Station - Locations along the interstate pipeline at which large (thousands of horsepower) natural gas-powered engines increase the pressure of the market natural gas stream flowing through the station by compression.

Constant Speed Control - The unit that runs continuously and matches air supply to demand, by loading and unloading the compressor.



February 12, 2006

Cubic Foot - The most common unit of measurement of gas volume. It is the amount of gas required to fill a volume of one cubic foot under stated conditions of temperature, pressure, and water vapor.

Cubic Foot – Standard - That quantity of gas which under a pressure of 14.73 psia and at a temperature of 60oF occupies a volume of one cubic foot without adjustment for water vapor content.

Cubic Ft/day - The number of cubic feet of natural gas produced from a well over a 24 hour period, normally an average figure from a longer period of time. Generally expressed as mcf/d = thousand cubic feet per day, mmcf/d = million cubic feet per day, or bcf = billion cubic feet per day.

Cubic Ft/min (CFM) - An airflow measurement of volume.

Cubic M/sec - A volume. Cubic meters per second.

Dedicated Gas Reserves - Gas reserves dedicated to a natural gas pipeline company by contract. For a pipeline it is the sum of all reserves dedicated to the company by contract.

Discharge Piping - Is the piping between the compressor and the aftercooler, the aftercooler separator and the air receiver.

Discharge Pressure - Is the total gas pressure (static plus velocity) at the discharge port of the compressor. Velocity pressure is considered only with dynamic compressors.

Discharge Temperature - Is the temperature existing at the discharge port of the compressor.

Distribution System - Generally mains, services, and equipment which carry or control the supply of gas from the point of local supply to and including the sales meters. The system operates at various pressures as indicated below. a. High Pressure. A system which operates at a pressure higher than the standard service pressure delivered to the customer; thus, a pressure regulator is required on each service to control pressure delivered to the customer. Sometimes this is referred to as medium pressure. b. LowPressure or Utilization Pressure. A system in which the gas pressure in the mains and service lines is substantially the same as that delivered to the customers' appliances; ordinarily a pressure regulator is not required on individual service lines.

Drive - A coupling between the compressor and the engine or motor. The three types of drives most common are; flange mounted motor, V belt drive or direct coupling.

Glossary (cont.)



February 12, 2006

Drive - A coupling between the compressor and the engine or motor. The three types of drives most common are; flange mounted motor, V belt drive or direct coupling.

Electronic Gas Measurement (EGM) - "Real time" monitoring of natural gas quantities, and characteristics, as it passes through a specific location.

Ethane (C2H6) - A colorless hydrocarbon gas of slight odor having a gross heating value of 1,773 Btu per cubic foot and a specific gravity of 1.0488. It is a normal constituent of natural gas.

Field Pressure - The pressure of natural gas as it is found in the underground formations from which it is produced.

Full Load - Achieved when the air compressor is running at full RPM with a fully opened inlet and discharge, delivering the maximum volume at the rated pressure.

Gas Lift - The effect of gas pressure in an oil well which causes the oil to flow from the well. May be either natural or artificially induced by injecting gas into the hole under pressure. Below the surface, gas intermixes with the oil, lightens the oil column, and allows it to flow.

Gas Plant - Any plant which performs one of the following functions: removing liquefiable hydrocarbons from wet gas or casingheadgas (gas processing); removing undesirable gaseous and particulate elements from natural gas (gas treatment); removing water or moisture from the gas stream (dehydration). Also, the original cost of property, plant and equipment owned and used by the utility in its gas operations and having an expectation of life in service of more than one year from the date of installation.

Gas Turbine - A prime mover in which gas, under pressure or formed by combustion, is directed against a series of turbine blades; the energy in the expanding gas is converted into mechanical energy supplying power at the shaft.

Gathering Station - A compressor station at which gas is gathered from wells by means of suction because pressure is not sufficient to produce the desired rate of flow into a transmission or distribution system.

Gathering System - A network of pipelines (mains) transporting natural gas from individual wells to compressor station, processing point, or main trunk pipeline.

Glossary (cont.)



February 12, 2006

Gauge Pressure (PSIG) - Pounds per square inch above atmospheric pressure.

Grouting - Installation of a compressor system whereby the a solid bond is created between the machine base and concrete foundation, typically using an epoxy bonding material.

Horsepower - Is a unit of work equal to 33,000 foot pounds per minute, 550 foot pounds per second, or 746 Watts.

Hydrogen Sulfide (H2S) - A poisonous, corrosive compound consisting of two atoms of hydrogen and one of sulfur, gaseous in its natural state. It is found in manufactured gas made from coals or oils containing sulphur and must be removed. It is also found to some extent in some natural gas. It is characterized by the odor of rotten eggs.

Impeller - The part of the rotating element of a dynamic compressor that imparts energy to the flowing medium by means of centrifugal force. It consists of a number of blades mounted so as to rotate with the shaft.

Inlet Pressure - Is the total pressure (static plus velocity) at the inlet flange of the compressor.

Inlet Temperature - Is the temperature at the inlet flange of the compressor.

Integral Compressor - Integral units are typically single piece construction and include an “integral” compressor, meaning that the power cylinders and compression cylinders are integrated on the same crankshaft. These units are older technology, and are typically comprised of components assembled by a single manufacturer. Integral compressor operating characteristics include higher horsepower—1,000 HP or greater—and lower speed operation—300 revolutions per minute (RPM) or less—which generally results in lower wear and tear.

Liquefied Natural Gas (LNG) - Natural gas which has been liquefied by reducing its temperature to minus 260 degrees Fahrenheit at atmospheric pressure. It remains a liquid at -116 degrees Fahrenheit and 673 psig. In volume, it occupies 1/600 of that of the vapor at standard conditions

Main System - The network of distribution piping to which customers' service lines are attached. Generally, large pipes are laid in principal streets with smaller laterals extending along side streets and connected at their ends to form a grid; sometimes laterals are brought to dead ends.

Glossary (cont.)



February 12, 2006

MCF - The quantity of natural gas occupying a volume of one thousand cubic feet at a temperature of sixty degrees Fahrenheit and at a pressure of fourteen and seventy-three hundredths pounds per square inch absolute.

MMCF - A million cubic feet.

MMCF/d - Millions of cubic feet per day (24 hours).

Methane (CH4) - The first of the paraffin series of hydrocarbons. The chief constituent of natural gas. Pure methane has a heating value of 1012 Btu per cubic foot.

MMBTU - A thermal unit of energy equal to 1,000,000 Btus, that is, the equivalent of 1,000 cubic feet of gas having a heating content of 1,000 Btus per cubic foot, as provided by contract measurement terms.

Multi-Stage Compressor - A compressor employing two or more stages.

Name Plate Rating - The full-load continuous rating of a generator, prime mover, pump, compressor, or other equipment under specified conditions as designated by the manufacturer. It is usually indicated on a name plate attached mechanically to the individual machine or device.

Natural Gas - A naturally occurring mixture of hydrocarbon and nonhydrocarbon gases found in porous geologic formations beneath the earth's surface, often in association with petroleum. The principal constituent is methane. 1. Dry. Gas whose water content has been reduced by a dehydration process. Gas containing little or no hydrocarbons commercially recoverable as liquid product. Specified small quantities of liquids are permitted by varying statutory definitions in certain states. 2.Liquefied (LNG). See LIQUEFIED NATURAL GAS. 3. Sour. Gas found in its natural state, containing such amounts of compounds of sulfur as to make it impractical to use, without purifying, because of its corrosive effect on piping and equipment. 4.Sweet. Gas found in its natural state, containing such small amounts of compounds of sulfur that it can be used without purifying, with no deleterious effect on piping and equipment. 5. Wet. Wet natural gas is unprocessed natural gas or partially processed natural gas produced from strata containingcondensable hydrocarbons. The term is subject to varying legal definitions as specified by certain state statutes. (The usual maximum allowable is 7lbs./MMcf water content and .02 gallons/Mcf of Natural Gasoline.)

OEM - Original equipment manufacturer.

Glossary (cont.)



February 12, 2006

Oil System - Consists of a vessel which is a combination of oil sump and oil separator, an oil cooler and an oil filter.

Performance Curve - A plot of expected operating characteristics (e.g.., discharge pressure versus inlet capacity, shaft horsepower versus inlet capacity).

Pipeline - All parts of those physical facilities through which gas is moved in transportation, including pipe, valves, and other appurtenances attached to pipe, compressor units, metering stations, regulator stations, delivery stations, holders, and fabricated assemblies.

Pressure Differential (PSID) - Pounds per square inch, differential.

Processing Plant - A plant, generally located at the terminus of a gathering system, in which liquefiable hydrocarbons such as propane, butane, ethane, or natural gasoline are extracted from the gas stream.

Propane (C3H8) - A gas, the molecule of which is composed of three carbon and eight hydrogen atoms. Propane is present in most natural gas and is the first product refined from crude petroleum. It has many industrial uses and may be used for heating and lighting. Contains approximately 2,500 Btu per cubic foot.

Receivers - Tanks used for the storage of air discharged from compressors. They serve also to damp discharge line pulsations.

Reciprocating Compressor - Compressors in which the compressing element is a piston having a reciprocating motion in a cylinder.

Rotary Compressor - Compressors in which compression is effected by the positive action of rotating elements.

Rotor - The rotating element of a machine and, in the case of a compressor, is composed of the impeller (impellers) and shaft, and may include shaft sleeves and a thrust balancing device.

Glossary (cont.)



February 12, 2006

SCFM - Standard cubic feet per minute., SCFM or scfm. Flow of free air measured at some reference point and converted to a standard set of reference conditions (e.g., 14.4 psia, 80° F, and 60% relative humidity.) Scfm means cfm at standard conditions. However, standards vary and some care is necessary. In the United states, the usual standard is 14.696 psiA and 60°F. Some chemical engineers will use one ATA and 0°C, but usually will be specific about the reference point. Europeans normally use one ATA and 0°C. It is not the same to all people, therefore it is best that the reference pressure and temperature be definitely specified.

Separable Compressor - Separable units typically consist of component construction, which may include individual pieces comprising an assembled unit of varying manufacture. These units are typically newer technology, may be of low to high horsepower—packages may exceed 8,000 HP—are of higher speed—750 – 1,000 RPM—and have increased power density compared to integral units, which allows operators to move large volumes with fewer machines. These units are typically more flexible in application and operate at greater efficiencies than integral units.

Skid - Portable platform designed specifically to house the components of a compressor or compressor package.

Sour Gas - Natural gas contaminated by corrosion inducing impurities such as hydrogen sulfide.

Stages - Steps in the compression of a gas, In reciprocating compressors, each stage usually requires a separate cylinder, in dynamic compressors, each requires a separate rotor disc.

Steam/Gas Turbine - An enclosed rotary type of prime mover in which heat energy in steam or gas is converted into mechanical energy by the force of a high velocity flow of steam or gas directed against successive rows of radial blades fastened to a central shaft.

Suction Pressure - This is the pressure found on the suction side of a refrigeration system.

Sweet Gas - Natural gas not contaminated by corrosion inducing impurities such as hydrogen sulfide, or with a low level of impurities.

Top End Overhaul - A maintenance level that includes an overhaul of the “top end” of the engine or compressor only. Typically includes removal and overhaul of the cylinders, pistons, piston rings, valves and other components that are serviceable without disassembling of the crankcase.

Glossary (cont.)



February 12, 2006

Transmission System - Pipelines (mains) installed for the purpose of transmitting gas from a source or sources of supply to one or more distribution centers, to one or more large volume customers, or a pipeline installed to interconnect sources of supply. In typical cases, transmission lines differ from gas mains in that they operate at higher pressures, are longer, and thedistance between connections is greater.

Utilization Factor - The ratio in percentage of the time that the equipment is in operation to the total working time.

V-Belt Drive - A drive arrangement for power transmission to compressors.

Voting Alarm - (Compressors/Gas Turbines) Is an alarm system that has maybe 3 sensors connected to it and it will require minimum of 2 of the 3 to alarm before the alarm will act. There is a controller connected that does the logic decision based on set parameters.

Zero Hour Overhaul - A completely remanufacture a compressor prime mover to “as new” specifications.

Glossary (cont.)



February 12, 2006

Remember This

Equipment may differ, valuation issues are similar

Due diligence is key

Understand the equipment

Understand the market today and in the future

Understand the lease terms & conditions and their impact on value

Remember the valuation issues

Keep track of the assets

Current valuation and residual forecasting is not an exact science



February 12, 2006

Jeffrey A. Hutton, PartnerArthur Lloyd LLC120 Oxford Court, Suite 100Austin, Texas 78737

Office: (512) 301- 5364

E-mail: [email protected]: www.arthurlloyd.com

Thank You!

About Arthur Lloyd LLCArthur Lloyd LLC is an asset valuation and consulting firm with offices in Austin and Dallas, Texas, providing a broad range of valuation services to a variety of companies in a wide range of industries.

Our management team consists of two principals with more than 30 combined years of asset valuation, engineering and business consulting experience.

We have extensive experience providing valuation and consulting services to Fortune 1000 companies both domestically and internationally in the areas of mergers and acquisitions, federal tax and financial reporting, property tax planning and appeal and asset based lending.

Arthur Lloyd Compressor Presentation

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