Changing Flow Dynamics: Natural Gas, Oil, NGL Pipeline Development & Expansion Conference September 22, 2011 The Westin Oaks Houston, TX E. Russell Braziel BENTEK Energy Bentek Energy 2011
Shale Infrastructure Adoption Curve Natural Gas Crude Oil NGLs Bentek Energy 2011 2006 2008 2010 2012 2014 2
Changing Flow Dynamics Impact of shale technologies has shifted from natural gas to crude oil and NGLs We ve seen this movie before constrained flows > basis blow-outs > infrastructure investments But parallels go only so far. Supply dynamics, physical properties and markets are completely different It will take years and billions in midstream investment to return crude oil and NGL markets to equilibrium 3
U.S. Natural Gas 2006-2011 $$ $ $$$ Production Up Go East 4
Natural Gas Market Impact $16.00 $16.00 Henry Hub Prices ($/MMBtu) $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $0.00 $8.87 $6.74 $6.93 $8.85 $3.92 $4.37 $4.21 $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $0.00 Henry Hub $/MMBtu Yearly Average Source: ICE, EIA 5
Continued Strong Production Growth 65 Current Dry Production Levels At All Time Highs 60 Hurricanes Gustav and Ike Bcf/d Dry Production 55 50 45 40 35 30 Barnett Hurricane Katrina Woodford Fayetteville Haynesville Marcellus Eagle Ford Source: BENTEK Pipeline Flow Data --- Daily Supply and Demand Report: 6
NGLs and Crude Economics Eclipse Natural Gas Horn 11% Montney WCSB 39% 9% 104% Duvernay PRB 78% Bakken Pinedale 36% 11% Niobrara Marcellus Piceance 32% 59% 78% San Juan 8% Anadarko Woodford 107% 12% Barnett 15% Fayetteville Permian 98% 14% 21% Haynesville 98% Eagle Ford 37% Primary Production Dry Gas Rich Gas/ Liquids Crude Oil Source: BENTEK 7
Active Rig Additions Since Recent Low May 2009 5 Bakken 156 Oil and Liquid Rich Gas Plays Attract Capital 3 5 28 DJ- PRB Niobrara 2 3 31 15 8 1 27 30 Anadarko 168 2 11 4 21 1 84 Marcellus Permian 369 Haynesville 14 8 9 8 19 8 1,256 185 Eagle Ford 26 www.bentekenergy.com Source: RigData, BENTEK: September 3, 2011 8 5 10 15 20 25 30 35 40 45 5
U.S. Crude Oil Market Flow $ Production Up $$$ 9
U.S. Crude Oil Supply Growth 250 200 150 100 50 0 Denver-Julesberg & Niobrara Denver-Julesberg Niobrara Ft. Worth 200 160 120 80 40 0 2,000 1,500 1,000 500 0 Permian Basin 600 500 400 300 200 100 0 Eagle Ford Area Permian-TX Permian-NM Bentek Energy 2011 Mb/d 10
U.S. Crude Oil Supply Growth 2016 vs. 2010 +482 Bakken +273 DJ/Niobrara 2,024 MB/d in 2016 Above 2010 Mb/d (149) CA/AK +617 +204 +447 +38 Bentek Energy 2011 Permian Anadarko Eagle Ford Ft. Worth /Haynesville +112 Offshore Note: 2010 Average to 2016 Average 11
A New Peak in Crude Oil Production 000s b/d 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1900 1905 1910 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 1900-2007 2008-2010 2011-2016 1991 Source: BENTEK, EIA, Excludes NGLs and Other Liquids 12
Adding In Canada 4,500 4,000 3,500 3,000 2,500 2,000 1,500 Canada Bentek Energy 2011 13
U.S. + Canada Crude Oil Supply Growth +971 +273 +482 2,024 2,995 MB/d in 2016 Above 2010 (149) +204 +617 +38 +447 +112 Mb/d Bentek Energy 2011 Note: 2010 Average to 2016 Average 14
U.S. and CN Production Exceeding 1970s Level 12,000 10,000 000s b/d 8,000 6,000 4,000 1972 2,000 0 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 U.S. 1965-2010 U.S. 2011-2016 Canada 1965-2010 Canada 2011-2016 Source: BENTEK, EIA, BP Stat Review Excludes NGLs and Other Liquids 15
2011 YTD WTI Basis $ (20) $ (12) $ (10) $ (16) $ (11) $ 5/11 $ 96 $ (2) $ 13 $ 16 Bentek Energy 2011 16
N. American Crude Oil Production Growth +971 +482 350 2,995 Mb/d by End of 2016 +273 (149) +204 +617 +38 170 +182 +377 200 Mb/d Bentek Energy 2011 Note: 2010 Average to 2016 Average 17
Forward Curve WTI - Brent $/Bbl WTI Brent Futures Forward Curve $0 -$5 -$10 -$15 -$20 -$25 -$30 Spread Mb/d Bentek Energy 2011 18
Natural Gas Liquids Similar to Crude Production up in middle of continent Demand along Gulf Capacity constraints & price differentials Unique to NGLs 5 End-use markets Processing, Transport, Fractionation, Demand Compete with refinery LPGs Production Up $ $$$ 19
MBPD 3500 3000 2500 2000 1500 U.S. Gas Plant NGL Production Rising Actual Forecast Processing Transportation Fractionation Demand 1000 500 0 Source: BENTEK/Turner Mason NGL Report October 2011 Other Other USGC Anadarko Permian Fort Worth TX Gulf Coast Marcellus 20 Bentek Energy 2011
MBPD 300 250 200 150 100 50 - MAPL Delivering >250,000 B/D NGLs into the Permian Colorado Receipts Utah Receipts Capacity New Mexico Receipts WY Receipts MAPL 600 500 Permian Takeaway Capacity Permian Takeaway MBPD 400 300 200 100 - Seminole Skelly-Belvieu Total Takeaway Capacity Bentek Energy 2011 West Texas LPG Chaparral 21
U.S. NGL U.S. Pipelines NGL Pipelines & Expansions & Expansions - $5.7 Billion 60 Mb/d Bentek Energy 2011 22
Mt. Belvieu NGL Fractionation Capacity Should be Adequate MBPD 1600 1400 1200 1000 800 600 400 200 0 Mt. Belvieu NGL Supply Frac Capacity 23
Conclusions Impact of shale technologies has shifted from natural gas, to crude oil and NGLs Production in Canada + U.S. is increasing beyond historical peaks Current infrastructure is inadequate to move the growth in production to market Price differentials across capacity constraints will continue for some time, until the bottlenecks are relieved by new infrastructure For the next few years, regional basis differentials for crude oil and NGLs will be wide and volatile 24
BENTEK Energy, LLC BENTEK is an energy market analytics company, focused on the natural gas market and related energy sectors. E. Russell Braziel 32045 Castle Court, Ste. 200 Evergreen, CO 80439 Office: 303-988-1320 rbraziel@bentekenergy.com 25