The North American Shale Revolution Platts Commodity Week - Dubai

Rick Allen, Director, Oil & Gas Consulting Services June 2, 2013

2013 Platts, McGraw Hill Financial. All rights reserved.

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Key Take-Aways
North American oil, natural gas and natural gas liquids (NGLs) production gains are sending the continent toward energy selfsufficiency In the 10-year period ending in 2017, U.S. oil, gas and NGLs production combined is forecasted to grow by 62 Bcfe/d, or 10 MMBOE/d This rapid ramp in production has happened through increasing operator efficiencies Massive capital investment in infrastructure development will be required to deliver these commodities to market Displaced imports (and exports) will balance the market

U.S. Rigs Move to Oil and Wet Gas

1/-2
OTHER ROCKIES

188/+110
WILLISTON

1/-2 17/-13

26/+17

MICHIGAN

WIND RIVER

POWDER RIVER

3/-3
ILLINOIS

48/+30
D-J ANADARKO

MARCELLUS DRY

GREEN RIVER

31/+27
UTICA

55/-21 35/+17 MARCELLUS WET 2/-10

36/+11
UINTA

PICEANCE

13/-10

5/-3
ARK FAYETTEVILLE

CALIFORNIA

46/+18

7/-1

0/+0

RATON

332/+73
EAST TX

15/-22

SAN JUAN PERMIAN

OTHER APPALACHIAN

ARK WOODFORD

2/-27

64/-45 33/-57 453/+235

Rig Increases Dry Gas Focused Areas Rig Increases Liquids-Rich/Oil Focused Areas Rig Declines
FT WORTH

ARKLA

27/-102

66/+7
TX GULF

AL-MS-FL LA GULF

17/+6

24/+9

1887
CHANGE

TOTAL

228/+168

111/+27

OFFSHORE

+537

TX GULF EAGLE FORD

Source: BENTEK, May 2013

Active rig count: May 3, 2013 / Change in rig count from January 1, 2010

Dry Gas Returns at $4 to $5

Strong Returns in Weak Gas Price Environment Higher Pricing Drives Dry Gas Growth

70% 60% 50% 40% 30% 20% 10% 0% -10% -20%

IRR

$2

$3

$4

$5

Note: Oil $80 NGL 30% of Crude

Lower Gas Price Sensitivity

High Gas Price Sensitivity

Value Gap Drives the Chase for BTUs

$30.00 $/MMBtu Equivalent $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 Value Gap $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00

CAPP

WTI

HH

MB NGL

Brent
Source: ICE, EIA

U.S. Oil and Gas Combined add Another 7.5 MMBOE/d by 2018
Cumulative Increase in Production Since 2005
14.0 12.0 10.0 MMboe/d 8.0 6.0 4.0 2.0 0.0 7.5 MMBoe/d 84 72 60 Bcfe/d 48 36 24 12 -

Gas

NGL

Crude

Source: BENTEK NG Market Call Long Term, NGL Market Call, and Crude Oil Market Call Data as of May 6, 2013

Shale Gas Rig Counts Peaked in 2010

300 250 Horizonal Rig Count 200 150 100 50 0

Horizontal Rig Count

Source: BENTEK Production Monitors

Shale Gas Production up 6 Bcf/d

18 16 14 12 Bcf/d 10 8 6 4 2 0 300 250 200 150 100 50 0 Horizontal Rig Count

Fayetteville

Haynesville

Marcellus

Horizontal Rig Count

Source: BENTEK Production Monitors

Drilling Efficiencies Up 600%

1st Quarter 2007 1st Quarter 2008 1st Quarter 2010 2nd Quarter 2012
Source: Southwestern Energy Financials

+607%

Fayetteville Shale

129,813

+190%
53

+130%
4,840 2,104 1,006

+144%
2,454 18,360

-66%
20 7 18

+8%
$2.6 $2.8

Drill Time (Days)

Wells Per Yr. Avg. Lateral 30 Day Ave. Per Rig Length ( Feet) Prod Rate (Mcfd)

IP Additions Per Rig Per Yr. (Mcf/d)

Drill & Complete Costs ($MM)

Efficiencies Across All Basins

Days Required to Drill One Well
60 50 40 30 20 10 0 Haynesville Eagle Ford Marcellus 2009 2010 2011 Barnett 2012 Fayetteville 20 50 38 28 17 17 13 16 7

No. Days

37

11

Climbing the Learning Curve

8.0 7.0 6.0 5.0 Bcf/d 4.0 3.0 2.0 1.0 0.0 2.0 Barnett Marcellus 4.0 6.0 Years 8.0 Haynesville 10.0 Eagle Ford (10) Marcellus (09) Haynesville (07) Barnett (02) Fayetteville (05) Marcellus Haynesville Eagle Ford Barnett Fayetteville

Rig Count
Peak Rig 106 149 334 241 68 Jan 2013 70 26 288 64 16

Fayetteville Eagle Ford

Rig Count Does Not Equal Well Count

1,600 Number of Wells/Rigs 1,400 1,200 1,000 800 600 400 200 -

More Wells with Less Rigs

Horizontal Wells Drilled

Horizontal Rigs
13

Macro-Overview: Natural Gas

14

U.S. Nat Gas Growth Continues

66.0 64.0 62.0 60.0 Bcf/d 58.0 56.0 54.0 52.0 50.0 48.0 2009 Avg. = 55.3 Bcf/d 2010 Avg. = 57.0 Bcf/d 2011 Avg. = 61.4 Bcf/d 2012 Avg. = 63.8 Bcf/d 2013 Est. = 65.2 Bcf/d
Maintenance & Freeze-offs Hurricane Isaac

2009

2010

2011

2012

2013 Fcst

Source: BENTEK Supply and Demand Report, Dry Production

U.S. Up 16 Bcf/d in the Next 6 Years

+2.6 Bcf/d Per Year
90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 50.9 57.1 54.0 55.2 61.5 63.8 65.2 68.1 70.7 74.2 76.4
1.4 Bcf/d

+2.75 Bcf/d Per Year

80.4

Source: BENTEK Forward Curve

U.S Gas Market Will Need Exports

U.S. Supply/Demand Balance
90.0 85.0 80.0 75.0 70.0 65.0 60.0 55.0 50.0 45.0

14% 16% 33%

Dry Production US Demand US Production Forecast US Demand Forecast

26%

U.S. Net Exporter by 2017

15.0 10.0 5.0 0.0 (3.6) -5.0 -10.0 (4.1) U.S. Imports and Exports (Bcf/d)

Exports Exceed Imports Near by 2017

Canadian Imports

LNG Imports

Mexican Exports

LNG Exports

Net Imports

Source: BENTEK Market Call Long Term

Power-Driven Mexican Demand Is Growing

Export Pipeline Expansions:

1. El Paso Wilcox Lateral: 185 MMcf/d, Apr. 2013 2. El Paso Norte Crossing: 366 MMcf/d, Aug. 2013 3. El Paso Samalayuca: 237 MMcf/d, Aug. 2013 4. Kinder Morgan Mier Monterrey: 275 MMcf/d , Apr. 2014 5. TETCO Reynosa: 300 MMcf/d, June 2014 6. El Paso Sierrita: 200-812 MMcf/d, Oct. 2014

Mexican Power Expansion 7. Net Midstream Frontera: 2,100 MMcf/d, 2014 2013Nov. 2025 17,405 MW MMcf/d Incremental Export Capacity by 2015: 4,275 2.5 Bcf/d @ 80%; 7.5 heat rate Total Export Capacity by 2015: 9,598 MMcf/d
Source: Comision Federal de Electricidad (CFE)

19

N.A. LNG Export Proposals

14 5 24 1.8 9.6 9 7.8 1.5 4 8 4 274.3 mtpa (~36.6 Bcf/d) of capacity is planned for North America nearly equivalent to current total global liquefaction capacity (~38.2 Bcf/d). Only a handful of this will be built 5

16 17.6 22.5 15.6 18

12

15.6 11.5 10 21 8 24
Source: BENTEK

mtpa
20

Base Case Forecast for N.A. LNG

Canadian Exports: DC LNG 0.25 Bcf/d (1.8 mtpa) Kitimat LNG 1.4 Bcf/d (10 mtpa) LNG Canada (Phase 1 ) - 1.6 Bcf/d (12 mpta)

HN DC LNG Kitimat LNG LNG Canada

Gulf Coast Export Terminals: Freeport LNG 1.76 Bcf/d (13.2 mtpa) Lake Charles 2 Bcf/d (15 mtpa) Sabine Pass 2.4 Bcf/d (18 mtpa) Cameron 1.6 Bcf/d (12 mtpa)

North East Exports: Cove Point 0.75 Bcf/d (5.6 mtpa)

Cove Pt. Lake Charles Freeport

South East Exports: Elba Island FLNG 0.5 Bcf/d ( 4mtpa)

Elba Island Cameron Sabine Pass

Source: BENTEK

Existing Import + Proposed Export Proposed Export

N.A. LNG Exports Ramp in 2017

North American LNG exports will average 9.25 Bcf (69.45 mtpa) in 2020
14 12 10 8 6 4 2 0
11.71 Bcf/d

Bcf/d

Kitimat Cove Point LNG Canada

Sabine Pass Lake Charles Capacity

Freeport Elba Island

Cameron DC

22

N.A. LNG Balances Global Demand

60 Supply/Demand (Bcf/d eq.) 50 40 30 20 10 0 2012 2013 2014 2015 2016 2017 2018 2019 2020
Supply Net Long/Short W/Out N.A. Demand Global Net Long/Short Position W/N.A.

0 (2) (4) (6) (8) (10) (12) (14) Net Long/Short (Bcf/d eq.)

Macro-Overview: Natural Gas Liquids

24

US NGLs Up 1.3 MMBbls/d

3,600 3,400 3,200 3,000 Mb/d 2,800 2,600 2,400 2,200 2,000 2011 2012 2013 2014 2015 2016 2017
Source: BENTEK NGL Market Call

New NGL Pipelines Essential

135 Mb/d

65 Mb/d

Propane/Ethane Pipeline Capacity Additions Y-Grade Pipeline Capacity Additions

Source: BENTEK NGL Market Call
*As of 7/30/2012

Ethane Pipeline Capacity Additions

New Processing is Mandatory

545

1500

1770

2840

453 2515 540

900

Source: BENTEK NGL Facilities Databank

3500

730
Note: Updated as of 1/15/2013

Processing Capacity, MMcf/d

Fractionation Capacity, Mb/d

U.S. NGL Infrastructure Additions

Gas Production 2013-2018 +14.7 Bcf/d Gas Processing 2013-2018 +14.8 Bcf/d NGL Fractionation 2013-2018 +1.5 MMb/d NGL Transportation 2013-2018 2.1 - 2.9 MMb/d

Proposed US NGL Projects

2,000 1,500 Mb/d 1,000 500 2013 2014 2015 Fractionation TBD Processing
28

12,000 10,000 6,000 4,000 2,000 Transport Capacity MMcf/d 8,000

LPG Exports Required: Capacity Overbuild?

1200 1000 800 Mb/d 600 400 200 0 2011 2012 Propane Exports 2013 2014 2015 Butane Exports 2016 2017 2018 Total Export Capacity
29

Faster than Expected Growth Needed to Fill All Projects

Macro-Overview: Crude Oil

30

North American Oil Production Up 3.1 MMb/d Since 2010

12 10 8 MMb/d 6 4 2 -

Note: Excludes U.S. and Canadian Natural Gas Liquids Production

Canada

U.S.

U.S. Oil Growth Mainly Permian, Bakken, and Eagle Ford

10,000 9,000 8,000 7,000 Mb/d 6,000 5,000 4,000 3,000 2,000 1,000 0

Add 3.2 MMB/d; 2.4 from These Top Three Oil Plays

Rest of U.S.
Source: HPDI & May 2013 BENTEK Crude Oil PADD Balances

Permian

Bakken

Eagle Ford

North American Oil Growth

5,000 4,000 Mb/d 3,000 2,000 1,000 0

Oil Production Growth Forecast: = 4 Bcf/d

Light U.S. Growth Light Canadian Growth

U.S. Condensate Growth Heavy Canadian Growth

Other U.S. Growth

Note: Waterborne Import volumes represent avg non-Canadian imports from Nov 2012 Jan 2013. Light >32 API, Heavy < 28 API.

Source: BENTEK, EIA

33

N.A. Growth to Push Back on All Qualities of Waterborne Imports

5,000 4,000 Mb/d 3,000 2,000 1,000 0

U.S. Waterborne Imports vs. N. American Prod Growth

Light Imports U.S. Condensate

Source: BENTEK, EIA

Intermediate Imports U.S. Other

Heavy Imports Canadian Light

U.S. Light Canadian Heavy

Note: Waterborne Import volumes represent avg non-Canadian imports from Nov 2012 Jan 2013. Light >32 API, Heavy < 28 API.

New Pipeline Projects for Oil Growth

Bakken

Niobrara

Anadarko

Permian
Source: Petroleum Project Tracker
Not All Projects Shown

Pipe with Firm Commitments

Eagle Ford

Proposed Pipeline
35

Waterborne Imports Cut to 13% of Total U.S. Crude Supply by 2018

18,000 16,000 14,000 12,000

60% 50% 40% 30% 20% 10% 0% Domestic Production U.S. Waterborne Imports Canadian Imports % Non-Canadian

Mb/d

10,000 8,000 6,000 4,000 2,000 -

Source: BENTEK May 2013 Crude Oil PADD Balances

Key Take-Aways
North American oil, natural gas and natural gas liquids (NGLs) production gains are sending the continent toward energy self-sufficiency In the 10-year period ending in 2017, U.S. oil, gas and NGLs production combined is forecasted to grow by 62 Bcfe/d, or 10 MMBOE/d This rapid ramp in production has happened through increasing operator efficiencies Massive capital investment in infrastructure development will be required to deliver these commodities to market Displaced imports (and exports) will balance the market

 2013 Platts, McGraw Hill Financial. All rights reserved.