U.S. Research Published by Raymond James & Associates

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1 Energy J. Marshall Adkins, (713) , Pavel Molchanov, (713) , Muhammed Ghulam, Sr. Res. Assoc., (713) , Published by Raymond James & Associates October 22, 2018 (1:25 a.m. EDT) Industry Brief Energy: Energy Stat of the Week Energy Stat: Oil Prices Must Rise Enough to Start Erasing Demand And That Means $100 Brent in 2020 For the past two years, we have consistently maintained one of the most bullish oil price outlooks on the street. Despite recent bearish U.S. oil inventory builds, our already bullish 2019/2020 global oil supply/demand model has recently become even more bullish due largely to deteriorating supply outlooks for both Iranian and Venezuelan exports as well as further clarity on IMO After raising our oil price forecast in April and again in July, we are now raising our oil price forecast again maybe the third time will be the charm! The bottom line is get ready for triple digit oil prices in the next few years. It is important to note that this is not just a near-term issue for the next year or two: the picture beyond 2020 continues to suggest higher long-term oil prices after we refine our assumptions for global oil demand growth, U.S. base decline rates, OPEC production capacity, and non-u.s. supply. Bottom line: 2018 Old RJ WTI RJ WTI Old RJ Brent RJ Brent 2019 Old RJ WTI RJ WTI Old RJ Brent RJ Brent 2020 Old RJ LT WTI RJ WTI Old RJ Brent RJ Brent 2021 (+) Old RJ LT WTI RJ WTI Old RJ Brent RJ Brent RJ&A Oil Price Forecast Source: Bloomberg, FactSet, Raymond James research Q1 18A Q2 18A Q3 18A Q4 18E 2018E $62.89 $67.97 $70.00 $70.00 $67.50 $62.89 $67.97 $69.61 $70.00 $67.50 $66.97 $70.00 $80.00 $85.00 $75.50 $66.97 $74.55 $75.26 $85.00 $75.50 Q1 19E Q2 19E Q3 19E Q4 19E 2019E $70.00 $67.50 $67.50 $65.00 $67.50 $70.00 $75.00 $80.00 $85.00 $77.50 $85.00 $80.00 $80.00 $75.00 $80.00 $85.00 $85.00 $90.00 $ $90.00 Q1 20E Q2 20E Q3 20E Q4 20E 2020E $75.00 $75.00 $75.00 $75.00 $75.00 $95.00 $92.50 $92.50 $90.00 $92.50 $80.00 $80.00 $80.00 $80.00 $80.00 $ $ $ $95.00 $ Long-Term Forecast 2021E+ $70.00 $75.00 $75.00 $80.00 Please read domestic and foreign disclosure/risk information beginning on page 10 and Analyst Certification on page 11. We now believe that oil prices over the next two years must increase to levels that are high enough to materially slow down global demand growth. Accordingly, we are raising our 2019 oil forecast by $10/Bbl (or about 15%), to $77.50/Bbl WTI and $90/Bbl Brent. We now think 2020 will be a cyclical peak year due to IMO 2020, so our forecast rises even more sharply, to $92.50 WTI and $100 Brent. Not only is our new price deck at the high end of consensus, it is even more strikingly bullish when compared to the sharply backwardated futures curve. Specifically, our 2020 oil price estimates are now about 40% ABOVE the current futures strip. Beyond 2020, we are also raising our long-term oil price deck by $5, to $75 WTI and $80 Brent (which is about 30% above strip pricing). While our main focus will be on oil today, we will also preview our updated natural gas price forecast, which we will follow up with a more detailed report in the coming weeks. What has changed? Increasing clarity on Venezuela, Iran, and IMO 2020 drive our incremental bullishness. Over the past year, our global oil model has become even more bullish due to three key factors: 1) significantly higher than expected production declines in Venezuela; 2) Iranian export cutbacks that now seem to be much larger than we originally expected, and are appearing ahead of the return of U.S. sanctions; and 3) increasing clarity on the impact of the International Maritime Organization s (IMO s) 2020 sulfur regulations, which will have a game-changing impact on the oil market. Given the significantly undersupplied market we expect over the next few years, it is clear that oil prices must rise enough to slow global demand growth even more than International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

2 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 E 1Q19 E 3Q19 E 1Q20 E 3Q20 E OECD Days of Consumption WTI Prices ($/Bbl) Raymond James we had previously modeled. Therefore, in conjunction with our higher oil price forecast, we are lowering our global demand growth assumptions for both this year and 2019 by about 200,000 bpd. Even with these lower demand assumptions, the table below shows that we expect significant global oil inventory withdrawals over the next few years. (MMbpd) Oil Supply-Demand: Year-Over-Year Changes Source 2015A 2016A 2017A 2018E 2019E 2020E 2021E 2022E Previous Year Build/Draw U.S. Supply Growth Other Non-OPEC, Ex-U.S OPEC Supply Growth IMO 2020 Impact Total Global Supply RJ Demand (incl. "Missing Bbls") IEA Demand Estimate N/A N/A N/A Inventory Build Est. (July Model) Inventory Build Est. (Current) Source: IEA, Raymond James research Specifically, we forecast global inventories falling almost continuously through After a draw of 370,000 bpd in 2018, we now forecast a smaller draw of 70,000 bpd in 2019, before an acceleration to 510,000 bpd in Longer-term, our model calls for a 260,000 bpd draw in 2021 followed by a balanced market in If our numbers are right, this suggests five consecutive years of draws, which would mean global inventories falling to dangerously low levels. Keep in mind that these numbers assume Brent surges to $100 in 2020, causing a slowdown in global demand growth to 1.0 million bpd that year. That is 40% less than the average over the past four years, and about 30% below the IEA s 2019 demand growth forecast. On a normalized days of consumption basis, oil inventories are set to fall to dangerously low levels by As we track global oil inventories to judge how tight the oil market is, let s underscore that rising global consumption means that the world needs higher than historical average inventories to manage the increasing supply chain logistics. When we normalize OECD inventories by looking at them on a days of consumption (DOC) basis, we find that 30 days of consumption has been the long-term average. As shown in the nearby chart, there has historically been a close inverse correlation between oil inventories on a days of consumption basis and oil prices OECD Days of Consumption vs. Oil Prices (Inverted) OECD days of consumption Normalized OECD days of consumption level of 30 days Source: IEA, Raymond James research (Assumes 1/2 the inventory build goes to OECD inventories) WTI Prices $30 $40 $50 $60 $70 $80 $90 $100 $110 $120 $130 The previous low was around 27.5 days of consumption (or ~8% below normal) in late 2013 and coincided with $100+ oil prices. Our latest global oil inventory model is much more bullish than the numbers we saw in 2013, showing oil inventories falling to an unprecedented 26 days of consumption by the end of Again, this would be well below the historical low of 27.5 days reached in late To be clear, this is all a hypothetical scenario. In reality, the system probably cannot bear inventories falling to such an unprecedented level, so something will have to give. Put another way, higher oil prices will be needed to solve the imbalance. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

3 Bullish oil price driver #1: Iranian oil export & supply declines now look bigger (and happen sooner) than we initially thought. When we increased our oil price forecast in July, we were assuming a modest 200,000 bpd reduction in Iranian exports starting next year due to U.S. sanctions. It is now clear that the sanctions have real teeth we have already seen a sharp reduction in the country s oil exports months before they officially take effect. The most recent data suggests that this month Iranian exports are on track to average more than 1 million bpd below early-2018 levels. Keep in mind that the sanctions don t even officially start until EU embargo is announced Iranian Crude Production, E (MMbpd) Nuclear agreement is announced Up 930,000 bpd! early November! With data now showing that the sanctions are creating a clear and credible impediment to flows of Iranian crude, we are lowering our Iranian supply estmates for the fourth quarter of this year to a 600,000 bpd reduction from 1H18 levels (as shown in the adjacent chart). Our current model for Iranian exports is about 500,000 bpd below our assumptions from July, but still about 500,000 bpd above current street expectations, as shown in the chart (keep in mind, Iranian exports and production will not exactly decline in tandem). 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18E 1Q19E 3Q19E 1Q20E 3Q20E Due to the fact that recent export data IEA Reported Iran Crude Production RJ Forecast (Current Model) RJ Forecast (July Model) Estimated Consensus Forecast has been well below our current Source: IEA, Raymond James Research assumptions, we are likely going to have to lower our production forecasts even more as this plays out. Consensus now believes that a reduction greater than 1 million bpd is likely. Recall that the goal of the Trump administration is to end Iran s ability to export crude completely, which would imply a 2 million bpd reduction. Put simply, there is a significant chance that our new estimates will end up being too conservative. If the sanctions prove more effective than we are modeling, that raises the question of how Iran will respond. They have suggested dire consequences going as as far as threatening to close the Straight of Hormuz. Obviously, this would be VERY bullish for short term oil prices. On the other hand, they may respond by agreeing to renegotiate the nuclear deal. If this were to happen, it might spell the end for sanctions and would be bearish for oil. If nothing changes, we believe Iran and its customers will eventually be able to figure out ways to circumvent the full impact of the sanctions. These black market exports might occur by shipping small amounts of crude through neighboring countries (e.g., Iraq or Turkey) or by disabling the vessel tracking systems on Iranian-owned crude tankers. For this reason, we expect Iranian production to fall to 3.0 million bpd before recovering modestly to 3.2 million bpd in Bullish oil price driver #2: Venezuelan production continues to deteriorate faster than we had anticipated. At the beginning of this year, we expected Venezuelan production to average around 1.65 million bpd in 2019 equating to a decline of approximately 300,000 bpd from 2017 levels. The latest data shows that the country s output has already declined much faster than we had anticipated, falling below the 1.25 million bpd mark as of 3Q18. After taking into account the latest datapoints, we now estimate that Venezuelan supply Venezuelan Crude Production, E (MMbpd) will decline to just over 1 million bpd next year (a reduction of more than 600, bpd from our January estimates). Beyond , we expect production to stabilize around the 950,000 bpd mark, 1.75 recognizing further declines remain a 1.54 possibility. The bottom line remains that 1.36 PdVSA s mismanagement is a long running story, and any hopes of stabilizing the industry hinge on fundamental political reform. After Nicolas Maduro s electoral victory in May barring the prospect of sudden regime 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18E 1Q19E 3Q19E 1Q20E 3Q20E change further steep production Source: IEA, Raymond James Research IEA Reported Venezuela Crude Production Raymond James Forecast declines are all but certain. 3.2 RJ Forecast (July) RJ Forecast (Current) Consensus Forecast International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

4 Consumption (MMBpd) Raymond James Other OPEC members are ramping up production to offset Iran and Venezuela which means excess capacity is falling fast. Among the lingering oil market myths out there is the notion that OPEC can flood the market as its production cuts unwind, thereby driving oil prices lower. Here is the reality: from the baseline of early 2018 (before the cartel agreed to begin unwinding the cuts) we anticipate only minimal uplift of all-in OPEC supply in As shown in the adjacent table, we forecast that 2019 OPEC supply with members producing all-out to average only 140,000 bpd higher than 1Q18 levels. This is less than one-eighth of the theoretical headline figure of 1.2 million bpd. So, does this mean that no one in OPEC is actually increasing production? On the contrary, the core Gulf members have already increased supply in a big way. Saudi Arabia, which we now expect will produce 10.7 million bpd in 2019, continues to ramp faster than we had expected. We also believe Iraq will now be able to produce 4.8 million bpd in 2019, up 200,000 bpd from our July estimates. Rounding out the list, the UAE and Kuwait will each grow by at least 150,000 bpd from 1Q18 levels. However, as the table shows, most of this incremental production should be offset by Venezuelan and Iranian declines. Russia, which took part in the OPEC+ agreement, is also boosting production, as we detailed in September. However, even though Russia is back to producing at peak post-soviet levels, the amount of the uplift is still significantly less than the headline figure of 600,000 bpd. We anticipate that Russia will produce 11.7 million bpd in 2019, up 340,000 bpd from baseline 1Q18 levels. That equates, for some perspective, to less than half of the decline in Iranian production over the same timeframe. Bullish oil price driver #3: IMO 2020 will effectively reduce global oil supply by 1.5 million bpd in As discussed at length in our cross-industry report from October 10, the International Maritime Organization s low-sulfur shipping fuel regulation will sharply reduce the amount high sulfur bunker fuel that can be used by the global shipping industry. While there remains ample debate about the extent of the impact, our current guesstimate is that IMO 2020 will effectively remove 1.5 million bpd of oil supply at the peak in How do we arrive at this number? As the adjacent chart shows, there is currently 3.8 million bpd of fuel oil in use globally in marine transportation that is not compliant with IMO After the regulation comes into effect, we estimate that 750,000 bpd of this amount will be met by blending, desulfurization, and slowsteaming. In addition, we estimate MBbls/d Member Country Global Marine Transportation Consumption 3.8 MMBpd of fuel oil needs to transition Current diesel consumption = 1.6 MMBpd Source: Raymond James research OPEC Production Growth Potential 1Q18 Production RJ Avg Production Forecast Where does displaced fuel oil demand go? ~150 Mbpd lost to Blending = 350 higher prices Mbpd Desulfurization = Slowsteaming = 300 Mbpd 100 Mbpd Scrubbers = 600 Mbpd Cheating = 800 Mbpd Difference (2019 vs. 1Q18) Saudi Arabia 9,950 10, Iraq 4,450 4, UAE 2,840 3, Kuwait 2,700 2, Angola 1,550 1, Qatar Ecuador Algeria 1,014 1,017 3 Nigeria* 1,664 1,663 (2) Libya* 1,010 1,000 (10) Equatorial Guinea (12) Gabon (12) Venezuela 1,540 1,011 (530) Iran* 3,830 3,075 (755) OPEC Production 32,008 32, Source: OPEC, Bloomberg, Raymond James research Note 1: **Iran, Nigeria, Libya all exempt from the initial OPEC production cuts Current 2020 Which leads to 1.5 MMBpd of new distillate demand! that 150,000 bpd of demand will be erased due to higher oil prices; 600,000 bpd will be met using scrubbers; and 800,000 bpd will continue to be used, i.e. non-compliance/cheating. So, the net impact is about 1.5 million bpd (plus or minus 500,000 bpd). This, while this issue is still somewhat below-the-radar, is shaping up to be a true game-changer for oil prices in Simply put, there is not enough available supply to compensate fully for the loss of 1.5 million bpd from the market. Thus, our $100 Brent cyclicalpeak forecast for 2020 represents a price that is high enough to begin seriously reducing global demand, a necessary step in balancing the market. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

5 Oil prices must rise to slow global oil demand growth! Over the past 40 years, global oil demand has grown by an average of 1.4% per year, and nearly every year it has shown at least some growth. Rising population and increasing auto ownership in emerging markets has been more than enough to offset conservation and rising fuel efficiency. As oil prices collapsed in late 2014, the Global Oil Demand resulting global oil demand growth in the 110 $80 Oil subsequent years was much stronger than $45 Oil 1.3 MMBPD 105 Y/Y Growth the long-term average. On the other side 2.0 MMBPD of the coin (for all the reasons we have $100 Oil Y/Y Growth 100 outlined), it is clear to us that above-trend 1.0 MMBPD demand growth is no longer sustainable 95 "Old School" Y/Y Growth there is simply not enough oil supply. So, 1.6 MMBPD what will slow demand growth? The 90 Y/Y Growth straightforward answer is: higher oil prices. As such, we forecast demand growth of only 1.3 million bpd in 2019 and 1.0 million bpd in 2020, both below the long-term average and below IEA estimates. To clarify, this is not because we are concerned about a global recession, or the 70 rising U.S. dollar, or electric vehicles. Some of those factors may play a role, but the much more immediate issue is this: there is Source: IEA, Raymond James research not enough oil supply available to allow demand to keep growing at the same pace as it has been over the past few years. Million Barrels per day 1Q99 4Q99 3Q00 2Q01 1Q02 4Q02 Should we be worried about recent trends in U.S. inventory data? While the medium and long-term outlook for oil is extremely bullish in our view, we can t ignore the recent bearish data of U.S. oil inventories trends. Given the high volume of calls we have received, it s clear the recent trend has worried some investors. Over the past four weeks, U.S. crude oil inventories have increased by a whopping 22 million barrels. This compares to a normal build (5- year average) over this timeframe of just four million barrels. So, what is going on? There are three things happening right now that explain the surge: 1) normal seasonality, 2) OPEC s 2Q supply increases flowing through the system, and 3) Abnormal plug numbers in the data. Let s look at each of these in more detail. First, this time of year usually sees crude inventory builds due to seasonal refinery turnarounds in the U.S. Mid-continent. That said, overall U.S. refinery utilization has remained higher than normal and gasoline and distillate inventories haven t seen the normal corresponding drop. Second, OPEC (Saudi, Iraq, UAE and Kuwait) increased oil supplies in 2Q ahead of the Iranian supply reductions. This should provide a temporary supply surge that will dissipate as Iran goes offline next month. Additionally, net crude import trends have remained choppy, as absolute import levels have remained elevated, while exports have bounced around likely due to weather (e.g., hurricanes) and ship-load timing. Finally, the plug in the EIA s supply/demand formula has exploded over the past month. This means that at least one component of the reported EIA weekly oil data is being under/overstated or misreported. Overall, as we head out of the refinery turnaround season and Iranian supply declines kick in, we d expect the U.S oil inventory data to resume its negative trend later in November. Keep in mind, we ve also been arguing that U.S. inventories need to increase as we handle more production and export volumes, so this may be a part of the normal trend from here on as well. 3Q03 2Q04 1Q05 4Q05 3Q06 2Q07 1Q08 4Q08 3Q09 Weekly Crude Inventory Builds/Draws (000's BPD) (100) (300) (500) (700) (900) (1,100) Avg. daily draw of ~267,000 Bbls since March 2017 Average U.S. Crude Inventories Change 2017/2018 vs. 10-year Avg. Source: Raymond James research, DOE; 4-week moving average, 10-year avg: year avg. 2Q10 1Q11 10-Year Avg 2017/18 4Q11 3Q12 2Q13 1Q14 4Q14 3Q15 2Q16 1Q17 4Q17 IMO MMBPD Y/Y Growth 3Q18E 2Q19E 1Q20E 4Q20E International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

6 Despite summer-ending natural gas storage near multi-year lows, $3.00+ gas prices are not sustainable for long. It has become clear in recent months that U.S. natural gas inventories are set to exit the summer injection season near multi-year lows. Does that mean it is time to get sustainably bullish on gas prices? No! In conjunction with our new oil price forecast, we are also updating our gas price forecast for 2019 and rolling out 2020, as shown in the adjacent table. Overall, we still remain bearish 2018 Bloomberg Consensus NYMEX Futures Old RJ Gas RJ Gas 2019 Bloomberg Consensus NYMEX Futures Old RJ Gas RJ Gas 2020 Bloomberg Consensus NYMEX Futures Old RJ Gas RJ Gas RJ&A Henry Hub Natural Gas Price Forecast Q1 18A Q2 18A Q3 18A Q4 18E 2018E $3.03 $2.76 $2.90 $3.03 $2.95 $3.03 $2.76 $2.90 $3.12 $2.95 $3.03 $2.76 $2.90 $2.75 $2.85 $3.03 $2.76 $2.90 $3.00 $2.90 Q1 19E Q2 19E Q3 19E Q4 19E 2019E $3.13 $2.94 $2.96 $3.10 $3.05 $3.18 $2.68 $2.71 $2.79 $2.85 $2.40 $2.20 $2.10 $2.30 $2.25 $2.90 $2.70 $2.60 $2.80 $2.75 Q1 20E Q2 20E Q3 20E Q4 20E 2020E $3.05 $3.02 $3.02 $3.02 $3.05 $2.89 $2.51 $2.54 $2.64 $2.65 $2.50 $2.40 $2.20 $2.10 $2.30 $ (+) Long-Term Forecast Bloomberg Consensus NYMEX Futures Old RJ Gas RJ Gas Source: Bloomberg, FactSet, Raymond James research relative to the futures strip and consensus. The backdrop for our bearishness is the U.S. gas market s inverse relationship with oil prices. As higher prices spur growth in oil production, they also drive an increasing supply of associated gas whether or not anyone actually wants that gas. Simply put, the better things get for oil prices, the worse the read-through for gas. Improving takeaway capacity from the Permian will only exacerbate this, along with increased access to Northeast markets from the Marcellus and Utica. The supply side of the gas equation outweighs the mostly upbeat story on the demand side, led over the next three to four years by the ramp-up of U.S. LNG exports. Pipeline exports to Mexico are also a growth driver; whereas the power sector is more of a mixed picture, as coal plant retirements are disproportionately being displaced by wind and solar rather than gas. This sneak preview of our latest thinking on gas will be followed up in the coming weeks with a more detailed report. Conclusion: The prospect of a return to $100 Brent, at least temporarily, is no longer a fantasy. There are three primary reasons that we are raising our oil price forecast for a third time this year: First, Venezuelan oil production continues to deteriorate at a much faster rate than we had predicted at the beginning of the year. Secondly, the sanctions that the U.S. has placed upon Iran are already having a much greater impact on Iranian exports/production that we thought just a few months ago. Finally, it is increasingly clear that the consequences of IMO 2020 will effectively mean a 1 to 2 million bpd reduction in global oil supplies starting late The consequences of these lower oil supply estimates are that oil prices must increase to levels that are sufficiently high to begin meaningfully slowing global demand growth over the next few years. Accordingly, we are raising our 2019 forecast by $10/Bbl (or ~15%), to $77.50/Bbl WTI and $90/Bbl Brent. For 2020, the cyclical peak year, our price deck rises even more sharply, to $92.50 WTI and $100 Brent (representing about a 25% increase from our prior estimates). Beyond 2020, we are raising our price deck by $5, to $75 WTI and $80 Brent. Not only is our new price deck at the high end of consensus, but it is even more striking when compared to the longer-term backwardated futures curve. Specifically, these new out-year oil price estimates are now about 30% above current futures strip pricing. While we do not think that triple-digit oil prices will become the new normal, at least temporarily that is what the market should require to squeeze demand out of the system. $3.00 $2.65 $2.50 $2.50 International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

7 Raymond James Weekly Oilfield Review For Week Ending: 10/19/ Month Oil Calendar Strip 12 Month Gas Calendar Strip Brent Henry Hub $90.00 $4.00 $80.00 $70.00 $60.00 $3.00 $50.00 $40.00 $30.00 $ This Last Beginning Last This Last Beginning Last Week Week of Year Year Week Week of Year Year Price $78.77 $79.28 $58.35 $59.25 Price $2.95 $2.92 $3.32 $2.96 Percent Change -0.6% 35.0% 33.0% Percent Change 1.0% -11.3% -0.2% Source: Bloomberg, Raymond James Source: Bloomberg, Raymond James 19-Oct Oct Oct-17 Change From: This Last Last Last Last Week Week Year Week Year 1. U.S.Rig Activity U.S. Oil % 18.5% U.S. Gas % 12.8% U.S. Miscellaneous U.S. Total 1,067 1, % 17.4% U.S. Horizontal % 20.4% U.S. Directional % -2.7% U.S. Offshore % 0.0% U.S. Offshore Gulf of Mexico Fleet Size % -21.3% # Contracted % -8.3% Utilization 44.6% 44.6% 38.3% 0.0% 16.4% U.S. Weekly Rig Permits * ,146 1, % 9.8% 2. Canadian Activity Rig Count % 0.0% 3. Stock Prices (10/19/18) OSX % 7.3% S&P 500 2, , , % 7.2% DJIA S&P E&P Select Index 25, , , , , , % 0.4% 23.5% 8.6% Alerian MLP Index % 0.4% 4. Inventories U.S. Gas Storage (Bcf) 3,037 2,956 3, % -18.1% Canadian Gas Storage (Bcf) % -14.6% Total Petroleum Inventories ('000 bbls) 1,262,983 1,259,996 1,271, % -0.7% 5. Spot Prices (US$) Oil (W.T.I. Cushing) $69.12 $71.34 $ % 28.2% Oil (Brent) $79.78 $80.43 $ % 32.0% NGL Composite $34.94 $37.54 $ % 5.7% Gas (Henry Hub) $3.25 $3.16 $ % 18.1% Residual Fuel Oil (New York) $12.36 $12.19 $ % 40.2% Gas (AECO) $0.08 $1.39 $ % -92.3% Sources: Baker Hughes, ODS-Petrodata, API, EIA, Oil Week, Bloomberg, Raymond James * Note: Weekly rig permits reflect a 1 week lag International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

8 U.S. Rig Count Breakdown 10/19/ /12/2018 W/W YTD YTD % Y/Y Y/Y % Total Count U.S. Rig Count % % By Basin* Permian % % Cana Woodford (1) 2 2% 10 12% Eagle Ford % 14 18% Marcellus % 11 26% Bakken % 1 2% Haynesville % 6 14% DJ Basin % 1 4% Gulf of Mexico (3) 19 NM -4-17% Utica % % Powder River Basin % 6 67% Mississippi Lime % 3 30% Pinedale % 0 0% San Joaquin Basin % 0 0% Granite Wash % 0 0% Arkoma Woodford % -2-20% Piceance Basin % -2-22% Uinta % -5-50% Barnett % -2-40% Other % 14 18% Drill For Oil % % Dry Gas (1) 10 12% 13 16% Wet Gas % 4 4% Miscellaneous 0 1 (1) 0 0% 0 0 Trajectory Horizontal Oil % % Horizontal Gas (1) 10 7% 11 8% Horizontal (1) % % % Horizontal 87% 87% 0% 1% 2% Vertical/Directional Oil % (7) -6% Vertical/Directional Gas % 6 18% Vertical/Directional % (1) -1% Source: Baker Hughes, Inc, Raymond James research *Includes all trajectories International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

9 Total U.S. Rig Count Horizontal Rig Count This Last Beginning Last This Last Beginning Last Week Week of Year Year Week Week of Year Year Rig Count Rig Count Percent Change 0.4% 14.9% 15.0% Percent Change -0.1% 16.3% 17.8% Source: Baker Hughes Source: Baker Hughes Oil Rig Count 4 Gas Rig Count This Last Beginning Last This Last Beginning Last Week Week of Year Year Week Week of Year Year Rig Count Rig Count Percent Change 0.5% 16.9% 17.5% Percent Change 0.5% 6.6% 4.9% Source: Baker Hughes Source: Baker Hughes International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

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11 The views expressed in this report accurately reflect the personal views of the analyst(s) covering the subject securities. No part of said person's compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. In addition, said analyst has not received compensation from any subject company in the last 12 months. Ratings and Definitions Raymond James & Associates (U.S.) definitions Strong Buy (SB1) Expected to appreciate, produce a total return of at least 15%, and outperform the S&P 500 over the next six to 12 months. For higher yielding and more conservative equities, such as REITs and certain MLPs, a total return of at least 15% is expected to be realized over the next 12 months. Outperform (MO2) Expected to appreciate and outperform the S&P 500 over the next months. For higher yielding and more conservative equities, such as REITs and certain MLPs, an Outperform rating is used for securities where we are comfortable with the relative safety of the dividend and expect a total return modestly exceeding the dividend yield over the next months. Market Perform (MP3) Expected to perform generally in line with the S&P 500 over the next 12 months. Underperform (MU4) Expected to underperform the S&P 500 or its sector over the next six to 12 months and should be sold. Suspended (S) The rating and price target have been suspended temporarily. This action may be due to market events that made coverage impracticable, or to comply with applicable regulations or firm policies in certain circumstances, including when Raymond James may be providing investment banking services to the company. The previous rating and price target are no longer in effect for this security and should not be relied upon. Raymond James Ltd. (Canada) definitions Strong Buy (SB1) The stock is expected to appreciate and produce a total return of at least 15% and outperform the S&P/TSX Composite Index over the next six months. Outperform (MO2) The stock is expected to appreciate and outperform the S&P/TSX Composite Index over the next twelve months. Market Perform (MP3) The stock is expected to perform generally in line with the S&P/TSX Composite Index over the next twelve months and is potentially a source of funds for more highly rated securities. Underperform (MU4) The stock is expected to underperform the S&P/TSX Composite Index or its sector over the next six to twelve months and should be sold. Raymond James Europe (Raymond James Euro Equities SAS & Raymond James Financial International Limited) rating definitions Strong Buy (1) Expected to appreciate, produce a total return of at least 15%, and outperform the Stoxx 600 over the next 6 to 12 months. Outperform (2) Expected to appreciate and outperform the Stoxx 600 over the next 12 months. Market Perform (3) Expected to perform generally in line with the Stoxx 600 over the next 12 months. Underperform (4) Expected to underperform the Stoxx 600 or its sector over the next 6 to 12 months. Suspended (S) The rating and target price have been suspended temporarily. This action may be due to market events that made coverage impracticable, or to comply with applicable regulations or firm policies in certain circumstances, including when Raymond James may be providing investment banking services to the company. The previous rating and target price are no longer in effect for this security and should not be relied upon. In transacting in any security, investors should be aware that other securities in the Raymond James research coverage universe might carry a higher or lower rating. Investors should feel free to contact their Financial Advisor to discuss the merits of other available investments. Rating Distributions Coverage Universe Rating Distribution* Investment Banking Distribution RJA RJL RJEE/RJFI RJA RJL RJEE/RJFI Strong Buy and Outperform (Buy) 56% 71% 50% 25% 34% 0% Market Perform (Hold) 39% 25% 35% 11% 9% 0% Underperform (Sell) 5% 4% 15% 5% 33% 0% * Columns may not add to 100% due to rounding. Suitability Ratings (SR) Medium Risk/Income (M/INC) Lower to average risk equities of companies with sound financials, consistent earnings, and dividend yields above that of the S&P 500. Many securities in this category are structured with a focus on providing a consistent dividend or return of capital. Medium Risk/Growth (M/GRW) Lower to average risk equities of companies with sound financials, consistent earnings growth, the potential for long-term price appreciation, a potential dividend yield, and/or share repurchase program. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

12 High Risk/Income (H/INC) Medium to higher risk equities of companies that are structured with a focus on providing a meaningful dividend but may face less predictable earnings (or losses), more leveraged balance sheets, rapidly changing market dynamics, financial and competitive issues, higher price volatility (beta), and potential risk of principal. Securities of companies in this category may have a less predictable income stream from dividends or distributions of capital. High Risk/Growth (H/GRW) Medium to higher risk equities of companies in fast growing and competitive industries, with less predictable earnings (or losses), more leveraged balance sheets, rapidly changing market dynamics, financial or legal issues, higher price volatility (beta), and potential risk of principal. High Risk/Speculation (H/SPEC) High risk equities of companies with a short or unprofitable operating history, limited or less predictable revenues, very high risk associated with success, significant financial or legal issues, or a substantial risk/loss of principal. Raymond James Relationship Disclosures Raymond James expects to receive or intends to seek compensation for investment banking services from the subject companies in the next three months. Stock Charts, Target Prices, and Valuation Methodologies Valuation Methodology: The Raymond James methodology for assigning ratings and target prices includes a number of qualitative and quantitative factors including an assessment of industry size, structure, business trends and overall attractiveness; management effectiveness; competition; visibility; financial condition, and expected total return, among other factors. These factors are subject to change depending on overall economic conditions or industry- or company-specific occurrences. Risk Factors General Risk Factors: Following are some general risk factors that pertain to the businesses of the subject companies and the projected target prices and recommendations included on Raymond James research: (1) Industry fundamentals with respect to customer demand or product / service pricing could change and adversely impact expected revenues and earnings; (2) Issues relating to major competitors or market shares or new product expectations could change investor attitudes toward the sector or this stock; (3) Unforeseen developments with respect to the management, financial condition or accounting policies or practices could alter the prospective valuation; or (4) External factors that affect the U.S. economy, interest rates, the U.S. dollar or major segments of the economy could alter investor confidence and investment prospects. International investments involve additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. Additional Risk and Disclosure information, as well as more information on the Raymond James rating system and suitability categories, is available at rjcapitalmarkets.com/disclosures/index. Copies of research or Raymond James summary policies relating to research analyst independence can be obtained by contacting any Raymond James & Associates or Raymond James Financial Services office (please see raymondjames.com for office locations) or by calling , toll free or sending a written request to the Equity Research Library, Raymond James & Associates, Inc., Tower 3, 6 th Floor, 880 Carillon Parkway, St. Petersburg, FL For clients in the United Kingdom: For clients of Raymond James Financial International Limited (RJFI): This document and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed, being persons who are Eligible Counterparties or Professional Clients as described in the FCA rules or persons described in Articles 19(5) (Investment professionals) or 49(2) (High net worth companies, unincorporated associations etc) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) or any other person to whom this promotion may lawfully be directed. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons and may not be relied upon by such persons and is therefore not intended for private individuals or those who would be classified as Retail Clients. For clients of Raymond James Investment Services, Ltd.: This report is for the use of professional investment advisers and managers and is not intended for use by clients. For purposes of the Financial Conduct Authority requirements, this research report is classified as independent with respect to conflict of interest management. RJFI, and Raymond James Investment Services, Ltd. are authorised and regulated by the Financial Conduct Authority in the United Kingdom. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

13 releasable resear ch Raymond James For clients in France: This document and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed, being persons who are Eligible Counterparties or Professional Clients as described in Code Monétaire et Financier and Règlement Général de l Autorité des Marchés Financiers. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons and may not be relied upon by such persons and is therefore not intended for private individuals or those who would be classified as Retail Clients. For clients of Raymond James Euro Equities: Raymond James Euro Equities is authorised and regulated by the Autorité de Contrôle Prudentiel et de Résolution and the Autorité des Marchés Financiers. For institutional clients in the European Economic Area (EEA) outside of the United Kingdom: This document (and any attachments or exhibits hereto) is intended only for EEA institutional clients or others to whom it may lawfully be submitted. For Canadian clients: This report is not prepared subject to Canadian disclosure requirements, unless a Canadian analyst has contributed to the content of the report. In the case where there is Canadian analyst contribution, the report meets all applicable IIROC disclosure requirements. Proprietary Rights Notice: By accepting a copy of this report, you acknowledge and agree as follows: This report is provided to clients of Raymond James only for your personal, noncommercial use. Except as expressly authorized by Raymond James, you may not copy, reproduce, transmit, sell, display, distribute, publish, broadcast, circulate, modify, disseminate or commercially exploit the information contained in this report, in printed, electronic or any other form, in any manner, without the prior express written consent of Raymond James. You also agree not to use the information provided in this report for any unlawful purpose. This is RJA client This report and its contents are the property of Raymond James and are protected by applicable copyright, trade secret or other intellectual property laws (of the United States and other countries). United States law, 17 U.S.C. Sec.501 et seq, provides for civil and criminal penalties for copyright infringement. No copyright claimed in incorporated U.S. government works. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida