The light tight oil revolution -- the rollover and the recovery Production in major US shale plays, millions of barrels/day

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1 Trend Macrolytics, LLC Donald Luskin, Chief Investment Officer Thomas Demas, Managing Director Michael Warren, Energy Strategist Data Insights: Oil Monday, August 1, 1 The light tight oil revolution -- the rollover and the recovery Production in major US shale plays, millions of barrels/day.. Permian Eagle Ford 1. 1 Other Bakken. Niobrara Source:DOE EIA Drilling Productivity Report, TrendMacro calculations Copyright 1 Trend Macrolytics LLC. All rights reserved. This document is not to be forwarded to individuals or organizations not authorized by Trend Macrolytics LLC to receive it. For information purposes only; not to be deemed to be recommendations for buying or selling specific securities or to constitute personalized investment advice. Derived from sources deemed to be reliable, but no warranty is made as to accuracy.

2 Inside the revolution: depleting legacy, diminishing new production Aggregate production in major US shale plays, millions of barrels/day 7 Total lower light tight oil production Month's new production Month's loss of legacy production Source: DOE EIA Drilling Productivity Report, TrendMacro calculations

3 Low fracking fruit: the inventory of drilled but uncompleted wells (DUC) Wells: Drilled Completed Drilled but uncompleted Total oil regions 1 Total gas regions Permian Eagle Ford Bakken Niobrara Anadarko Appalachia Haynesville Source: DOE EIA Drilling Productivity Report, TrendMacro calculations

4 Doing a lot more New-well oil production per rig, major US shale plays, barrels/day Eagle Ford Bakken Niobrara Permian Source: DOE EIA Drilling Productivity Report, TrendMacro calculations with a lot less Rig count, total oil and major US shale plays 1 Total Permian Other Eagle Ford Niobrara Bakken Source: DOE EIA Drilling Productivity Report, Baker Hughes, TrendMacro calculations

5 Production in US shale regions, millions barrels/day Flooding the productivity zone Most productive quadrant Rig count Source: DOE EIA Drilling Productivity Report, TrendMacro calculations Least productive quadrant

6 US crude oil production -- deep history, and the modern transformation of sources Millions of barrels/day Recession 1 Total US production Differentiated source data available Jan Total Lower light tight Alaska Gulf of Mexico Lower conventional Lower conventional Lower light tight Alaska Gulf of Mexico Separate light tight data available Jan Source: DOE EIA Short Term Energy Outlook, Drilling Productivity Report, TrendMacro calculations

7 Jan 1 Apr 1 Jul 1 Oct 1 Jan 1 Apr 1 Jul 1 Oct 1 Jan 17 Apr 17 Jul 17 Oct 17 Jan 1 Apr 1 Jul 1 Oct 1 Jan 19 Apr 19 Jul 19 Oct 19 The evolution of expectations: booms and busts in US production outlooks Millions of barrels/day Actual Forecast 1. May July 1 April 1 August 1 1. January May 1 December April 1 January Source: DOE EIA Short Term Energy Outlook, TrendMacro calculations 7

8 OPEC: what it's producing, what's left to produce Millions of barrels/day.. Production target Official spare capacity Production Source: Bloomberg News, TrendMacro calculations OPEC's battle for market share Millions of barrels/day OPEC production % % % % % % OPEC market share in world Saudi production % % 1% 9% 7% Saudi market share within OPEC. Iran production 1% 1%.. 1% 1% % Iran market share within OPEC 1 Iraq production % 1% 9% % % Iraq market share within OPEC % Source: Bloomberg News, TrendMacro calculations

9 US petroleum imports and exports Millions of barrels/day 1 1 Total imports 1 1 Total exports Crude imports Crude exports Refined imports Refined exports Source: DOE Weekly Petroleum Status Report, TrendMacro calculations 9

10 The world of oil consumption Millions of barrels/day Recession World 7 US Europe 1 Other Non-OECD 1 China Japan Canada Source: DOE EIA Short Term Energy Outlook, TrendMacro calculations 1

11 US gasoline: paying a lot, using a lot Real gasoline price/gallon, all grades Nominal price/gallon US gasoline consumption, thousands barrels/day 1-month moving average Source: DOE EIA Weekly Petroleum Status Report, Weekly Retail Gasoline Survey, TrendMacro calculations w The rubber meets the road: US gasoline spending as share of GDP Recession % % % Total.1% % 1% Imported.9% % Dec, 1.% Dec, 1.% Source: BEA, DOE EIA, TrendMacro calculations 11

12 The mirror of apparent demand: long-term storage dynamics Millions barrels % weekly commercial ending stocks, millions/barrels US crude ending stocks As of Aug % % 7 Difference Model based on 19-1 % % 1% Jan '1 Jul '1 Jan '1 Jul '1 Jan '17 Jul '17 Jan '1 Jul ' OECD petroleum ending stocks As of May 1 OECD ex-us, 1 to go US, to go 1 from peak 11 from peak OPEC target 1 OPEC target % Source: DOE EIA Weekly Petroleum Status Report, JODI, TrendMacro calculations 1