ABOUT US OUR ASSETS NEWS CONTACT US From the desk of I.J. “Chip” Berthelot, II, President AUTUMN 2020 Dear Friends and Stakeholders: 2020 has been a year like no other and has presented us with challenges we could not have imagined a year ago. Yet, as we embark on the final quarter of 2020, I am immensely proud of how our Azure team has adapted, refocused, and continued business without missing a beat. I am convinced that we have turned the corner toward better times as we are seeing much more positive body language from our customers in the Haynesville. In March, when natural gas demand began to decline, forward prices plummeted and producers were reducing activity in reaction to the pandemic, the Azure management team sprang into action. First priority: as an “Essential Business,” making sure the entire Azure team, and those with whom we interact stay safe and healthy. We immediately put into practice adherence to social distancing guidelines and cleaning and quarantine protocols to ensure minimum opportunity for Covid exposure. We closed our offices, opened them back up to half time schedules, closed them again, tested substantially all of our work force and their families (if they wanted it) and are now “back at work,” working more efficiently with better communication tools, spending more family time as we work from home more than we ever have. This will likely permanently increase the number of staff working remotely and the frequency of doing so, because of the things we have learned. We are more committed to our mission and grateful for all that we have because there are so many who don’t have the opportunities that we have! Notably, as this was going on, Azure completed its seventh consecutive year with zero lost time incidents, tied with three other Texas midstream companies for top ranking in its tier for the GPA safety award and lost the tiebreaker on less man hours worked. In case you are wondering, yes, we are competitive and take safety very seriously!!! With the precipitous downturn in energy markets and commercial deals evaporating, the team confronted the new stark business reality without missing a beat. When demand would return was unknown and uncontrollable. So instead, we focused on what we could control: internal costs. We took a hard look at ourselves in the mirror and asked, “How do we challenge our assumptions? How do we continue to get better? How can we do more with less? How do we keep revenue flat or better yet increase it while in this difficult market?” We confronted the status quo with a new, hungry eye for efficiencies and a keen awareness on the priorities of protecting the safety of our team, the service & reliability we provide our customers and the long-term health of our assets. These have included, learning new skillsets internally, hiring new employees to replace multiple contractors, bringing IT systems in-house and reducing 3rd party consultants, renegotiating existing contracts with vendors, and ferreting out inefficiencies wherever they may be hiding. So far, we have identified and reduced our annual costs by over 25%, and we are not done yet! The result: we are hitting our marks and tracking on budget for the year And have just extended the maturity of our debt in an unprecedented market for lending giving us plenty of runway to withstand a longer downturn should that be the case. For efficient Haynesville gathering operators like Azure, the future definitely looks brighter. In its September 2020 Energy Outlook, the U.S. Energy Information Administration (EIA) painted a brightening picture over the next 24 months: “The monthly average Henry Hub natural gas spot price rose to $2.30/MMBtu in August 2020, 53 cents/MMBtu higher than July and the first year-on-year increase in the monthly average price since March 2019. Natural gas inventories have shown year-on-year increases since April 2019. However, EIA forecasts that natural gas production will decline until March 2021, averaging 3.3 Bcf/d lower in 2021 than in 2020, and that natural gas inventories will begin showing year-on-year decreases in December 2020. The decline in inventories is expected to contribute to higher prices. EIA forecasts that Henry Hub spot prices will remain higher than $3.00/MMBtu throughout 2021, averaging $3.19/MMBtu, which would be $1.02/MMBtu higher than in 2020.”1 While the fact that the oil price drop has been significantly more on a percentage basis than the natural gas price is good news for the efficient Haynesville upstream operators where breakeven prices hover around $2.30 - 2.50/MMBtu. Moreover, the Haynesville’s proximity to major LNG fac1ilities is a powerful “hole card” for Azure. In late September, S&P Global upgraded its outlook on the LNG industry to bullish saying: “Following the recent completion of new liquefaction capacity, US feed gas volumes could reach new record highs by late fourth quarter or early next year. According to a recent forecast from Platts Analytics, volumes could top 11 Bcf/d this winter, eclipsing prior single-day records around 9.6 Bcf/d.2 With Azure’s system located with less than 180 miles of two Gulf LNG facilities, this literally offers suppliers new access to an entire world of consumers. With several new takeaway pipeline projects being built from our region to the coast, suppliers may enjoy additional options down the road. 2020 has not been an easy year. And yet, through adversity, we always seem to emerge stronger. Here at Azure, we’ve got a new, leaner, focused posture and are ready to seize opportunity as it begins to bloom. Feel free to reach out, we are open for business at Azure and looking for new opportunities in our new start-up sister company Laser Midstream Energy!! We send all our best to you and your family’s health and wellbeing. l.J. "Chip" Berthelot, II President, Azure Midstream Energy 1 U.S. Energy Information Administration, Short-Term Energy Outlook, Sept. 9, 2020 2 https://www.spglobal.com/platts/en/market-insights/latest-news/natural-gas/092820-haynesville-drilling-gas-production-climb-bolstered-by-rising-henry-hub-forwards © Copyright 2020 Azure Midstream Energy LLC. All Rights Reserved.