Midstream Development in the Marcellus. March 2011

Transcription

1 + Midstream Development in the Marcellus March 2011

2 + Introduction Rich Marcellus Market for NGLs Ethane Options Caiman Energy Experience Execution Expansion Key Takeaways

3 + Marcellus Overview: Rich Acreage Producers & capital shifting focus to liquids-rich areas: Eagle Ford, Woodford-Cana, & Marcellus Rich acreage in Marcellus is 3,000-5,000 sq. miles: Approx size of Barnett core Lack of adequate infrastructure: Billions in investment required to maximize producer netbacks from NGLs Rich production issues: Lack of processing facilities Lack of fractionation facilities Lack of NGL pipeline Lack of local industrial market

4 + Marcellus Is The Place To Be RICH & LEAN MARCELLUS CORES PROVIDE EXCELLENT RETURNS AT LOW NATURAL GAS PRICES: Range anticipates a 74% IRR from Marcellus production at $4.00 NYMEX EQT expects an after-tax IRR of 78% for its lean gas wells in the Marcellus core at $5.00 NYMEX

5 + Economics of Rich Gas LEAN GAS NETBACK $4.00 NYMEX $4.25 DTI Appalachia Net to Producer 1 Mcf Lean Gas (1000 Btu) $0.50 gathering fee 1.00 MMBtu $3.75/Mcf RICH GAS NETBACK (residue, processed liquids & condensate) $4.00 NYMEX 1 Mcf Rich Gas (1250 Btu) $0.63 gathering fee $4.25 DTI Appalachia 1.01 MMBtu $60/Bbl.054 Bbl NGL $7.10/Mcf $80/Bbl.015 Bbl Condensate $1.00 incremental fee

6 + Markets Drive NGL Alternatives ROBUST LOCAL PROPANE MARKET JUSTIFIES FRAC FACILITIES ETHANE No market PROPANE Strong seasonal market NORTHEAST PROPANE SUPPLY BUTANES Marginal regional market PENTANES+ Strong regional market ISSUE Frac capacity needed to bring Marcellus NGLs to market SOLUTION Caiman and others are constructing fractionators Source : Inergy.

7 + Rich Gas: Ethane Solution or Option? ALTERNATIVES FOR ETHANE DISPOSITION IN THE MARCELLUS BLEND: Pipeline specs allow up to 12% C 2 + TETCO Upstream 2-4% C 2 + Lean Marcellus 1-4% C 2 + Rich Marcellus 8-17% C 2 + MARKET: C2 Crackers: Sarnia Petrochemical Nova/Imperial Gulf Coast Petrochemical via pipeline or ship Local petrochemical facilities New or reactivation

8 + Ample Capacity for Ethane Blending LEAN GAS UPSTREAM & DOWNSTREAM ALLOWS PRODUCERS TO FLOW SIGNIFICANT QUANTITIES OF RICH GAS INTO TETCO Additional REX Volumes Rich Marcellus Uniontown C2+ Tariff 12% TETCO Gas at Berne Station Lean Marcellus.64 Mcf 17% C2+ + Illustrative Rich Gas Capacity TETCO Capacity 4.2 Bcfd.36 Mcf 3% C2+ = 1.00 Mcf 12% C2+ 17% C2 Gas Composition 64% 17% C2 Gas Capacity 2.7 Bcfd Uniontown C2 Composition 12%

9 + Proximity of Ethane Markets Est. Transport Rates ($ / gal) Sarnia Local 2 Gulf Coast NG Spot Price (Implied Shrink) ($ / Gal) TETCO, zone M-3 $0.282 Henry Hub $0.250 Cheyenne Hub Houston Ship Ch. $0.239 $0.249 Source: Platts Gas Daily, March 1 pricing. Source for map: EIA, Key C 2 Markets

10 + Historical Ethane Undersupply EHTANE DEMAND HAS OUTPACED SUPPLY OVER THE PAST DECADE MANY ANALYSTS EXPECT THIS RELATIONSHIP TO INVERT Ethane Supply/Demand Model Impact on Pricing? Source: Wells Fargo. February, 17, 2011.

11 + Historically Thin Ethane Margins LOW FRAC SPREADS MAKE IT DIFFICULT TO JUSTIFY EXPENSIVE ETHANE SOLUTIONS, EVEN IN TIMES OF UNDERSUPPLY Ethane Projects Cost Range Range of Forward Margins (adjusted for DTI) Historical MBV Frac Margins, adjusted for DTI Appalachia basis. Basis projected at $0.18 / MMBtu going forward.

12 + Caiman History: Timeline of Major Events Feb, 2009 EEIF commits $50 MM to Caiman Energy Nov, 2009 Caiman acquires Trans Energy s Wetzel System Chief AMI executed May, 2010 Cryo plant at Ft. Beeler approved Jan, 2011 Caiman signs GPA with CHK & Statoil Sept, 2009 Caiman signs GGA with AB- Chief March, 2010 First well connected to Ft. Beeler system July, 2010 Caiman secures $380 MM in equity commitments Dec, 2010 Cryo #1 complete Cryo#2 ordered

13 + EXPERIENCE: Shale Expertise CAIMAN BRINGS EXTENSIVE EXPERIENCE FROM MAJOR US SHALE PLAYS TO THE MARCELLUS Gas Gathering Fractionation Compression EVERYTHING MIDSTREAM Processing

14 + EXECUTION: Construction PROCESSING Fort Beeler Cryogenic Plant (Phase I, 120 mmcf/d) GATHERING PIPELINE 6-24 gas gathering pipeline, 50 miles completed COMPRESSION 6 operating compressor stations CONDENSATE PIPELINE 35 miles of condensate pipeline constructed CAPITAL INVESTED To date, Caiman has invested more than $200 MM of capital

15 + EXECUTION: Flow Assurance TETCO & INERGY PROVIDE PRODUCERS ON CAIMAN S SYSTEM WITH DEPENDABLE TAKE-AWAY SERVICE

16 + EXECUTION: Strategic Partners CAIMAN PARTNERS WITH INERGY TO DISTRIBUTE OUR CUSTOMERS NGLs TO WHOLESALE & RETAIL MARKETS. INERGY IS ONE OF THE LARGEST PROPANE MARKETERS IN THE NATION.

17 + EXPANSION PROCESSING, Fort Beeler Cryogenic Plant Phase II Additional 200 mmcf/d (January 2012) Phase III Additional 200 mmcf/d (2012) Phase IV Additional 200 mmcf/d (TBD) GATHERING PIPELINE miles under construction NGL FACILITIES, Ohio River Site Y grade pipeline to Ohio River: July 2011 Phase I 12,500 Bbl/d (January 2012) Phase II 15,000 Bbl/d (2012) CAPITAL INVESTMENTS Caiman anticipates investing up to $400 MM in 2011

18 + Caiman s Rich Gas System

19 + Summary BEST shale play in the United States RICH acreage provides the best economics in the United States CLOSE proximity to natural gas market Tremendous NEED for new infrastructure OPTIONS & OPPORTUNITIES exist for Marcellus NGLs, but no clear solutions

20 + Thank You EVERYTHING MIDSTREAM Jack Lafield President & CEO Caiman Energy 5949 Sherry Lane Suite 1300 Dallas, Texas CaimanEnergy.com