Platt s NGL Forum NGL Supply Outlook September 26, 2011 Anne B. Keller Midstream Energy Group, Inc. abk@midstreamenergygroup.com
NGL Supply Update Updated Map N American Shales Plenty of opportunity to put new technology to work worldwide 2
NGL Supply Update Lower 48 Shale Basins Today s presentation will focus on an updated NGL supply outlook for the Lower 48 and how things look in the NGL infrastructure race to keep pace with the drillers 3
NGL Supply Outlook The Search Switches From Gas to Oil 1400 1200 1000 800 600 400 200 0 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 US Well Completions Oil well completions outpacing gas well completions since 2Q 2010 Mar-11 May-11 0Jul-11.6 Million Bbl/day 3,000 2,500 2,000 1,500 1,000 500 US Active Rotary Rigs in Operation More rigs looking for oil than for gas First time since the 1980 s 2.0 Million Bbl/day Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 4
NGL Supply Outlook Historical Production Trends Past years variability in NGL supply largely due to ethane recovery decisions: 150 100 50 - (50) (100) (150) (200) Change in Ethane Recoveries Change in Avg NGL Production 2002 2003 2004 2005 2006 2007 000 BPD Annual Changes in Total US NGL Supply Reflect more drilling, higher NGL content in oil well gas 180 160 140 120 100 80 60 40 20 - (20) Recent changes appear due to higher overall volumes + high ethane recovery: 2008 2009 2010 5 Source: EIA, Natural Gas Plant Field Production, through June 2011
NGL Supply Outlook - 2015 Major Shale Plays Summary Forecast change in 000 BPD NGL Production Net +493,000 BPD +606,000 for Shales, (113,000) Conventional Plays 700 600 500 400 300 200 100 - (100) (200) 2015 Vs 2011 Bakken Avalon/Bone Spr Eagle Ford Granite Wash "Emerging" Shales Woodford Marcellus Barnett Conventional 6
NGL Supply Update Regional Commentary Focus on Eagle Ford Current Rig Count 239 Gas Rigs 121 Oil Rigs 138 NGL Yield Ranges 4 to 9 gal/mcf Current NGL Production est. 100 M BPD, 75 M BPD Existing Conventional, 25 M BPD est shale based 7
NGL Supply Update Regional Commentary Focus on Permian (Avalon/Bone Springs) Current Rig Count 56 Smaller shale play than Eagle Ford Est recoverable reserves of 41 Tcf includes conventional and shale zones Going back into some traditional areas around Lea, Eddy county NM NGL Yields are high: Example well 41% oil, 31% NGL, 28% gas This is primarily an oil play, wells with IP of 700-1000 BPD, high yield associated gas 8
NGL Supply Update Regional Commentary Focus on Bakken Shale Current Rig Count 181 2,600 producing wells 500 awaiting completion About 28,000 wells and 14 years needed to develop existing spacing NGL Yields: Can be 12+ GPM gas Relatively small volume from oil wells Oil production forecasts range from +300,000 BPD to + 1 million BPD higher by 2015 Ethane pipeline project to Alberta, possible C3+ project to extend OneOk s Overland Pass system, plus local markets should handle supply increases here 9
NGL Supply Update Regional Commentary Focus on Granite Wash Current Rig Count 95 Texas Express NGL Line planned to handle increased volumes here and in other plays between Texas Panhandle and Mont Belvieu NGL Yields: Example well reported 1,316 Btu/cf Range estimated 4-6 gals/mcf 10
NGL Supply Update Regional Commentary Focus on Cana Woodford Shale Current Rig Count ~ 50 NGL Yields: This area is the oil fairway of the Woodford Shale play GPM range 4-6 per Mcf Close proximity to Granite Wash could allow integrated infrastructure in some areas NGL capacity being developed by OneOk and DCP Midstream to handle Increased volumes from this corridor 11
NGL Supply Update Regional Commentary Focus on Marcellus Area Shales Current Rig Count ~ 140 Most are in PA, West VA Deemed to have highest potential recoveries of the shale plays Drilling just ramping up in Ohio portion of the Utica Shale NGL Yields: Currently estimated to be around 70/30 low/high NGL ratio After infrastructure expansions will see more drilling in higher NGL plays Forecasting production increase by 2015 of 170M BPD vs current levels if drilling is sustained and ethane transportation options are in place 12
NGL Supply Update Regional Commentary Focus on Emerging Shales New Albany Shale extends across Southern Illinois over coal seams Has been explored for many decades with limited success New technology and access to infrastructure developed to support Marcellus production could improve economics Potential for more ethane supply here someday? 13
NGL Supply Update Emerging Plays Tuscaloosa Trend, Mississippi Lime Devon and others have acquired acreage and are now drilling here This play extends shale technology to limestone; more porous, easier to frac Current rig count - 36 Both these areas have limited gas infrastructure currently but are high in NGL 14
NGL Supply Update Drilling Ahead of the Pipeline E&P activity is outpacing resources in many locations Profits going up in smoke in some regions: Carter County, OK 15
NGL Supply Update Current Issues Other Near Term Challenges to Production Growth Equipment Shortages Estimated backlog of 4,000 completions by Q1 2012 due to shortage of frac crews Increasing need for water treating, handling People High demand for experienced engineers and operators No housing for new workers Infrastructure Many deals have been done for plants and takeaway capacity, but construction will take 12-24 months for some projects Rail and truck as interim solutions 16
NGL Supply Update Project Highlights New Capacity - Marcellus Mariner West to bring ethane to Sarnia Nova Chemical to buy ethane from some Marcellus producers; pipeline should be ready by the time blending options become limited 17
NGL Supply Update Other Projects - Marcellus Dominion Natrium, West VA (Dec 2012): Building 200 Mmcf/day processing capacity; expandable to 400 Mmcf/day Building 36,500 Bpd fractionator; can be expanded to 59,000 Bpd Caiman Energy Fort Beeler, West VA: Currently have 120 Mmcf/day processing capacity online Increases to 520 Mmcf/day by 4Q 2012 Building 12,500 Bpd fractionator for propane/butane/c5+ These plants, together with the existing MarkWest Houston facility, can handle the propanes plus from around 170,000 of NGL (total volume would include 85,000 BPD of ethane at 50% recovery without blending) 18
NGL Supply Update - Marcellus Market Assumptions and Possible New Projects Current infrastructure configuration assumes regional markets can absorb most of the increased volumes of propane plus production Propane and butane will displace imports in the winter IF they are stored in the region during the summer Producers unlikely to bear cost of transportation and storage; will want to sell ratably If current 2015 forecast comes to pass, there will likely be one more ethane transportation project; probably to the Gulf Coast via an existing NGL line; could displace barrels coming into the Midwest from Conway 19
NGL Supply Update Infrastructure for Other Shales Recently announced projects will likely be able to handle forecast increases in volumes from Eagle Ford, Woodford, Granite Wash, Bakken, Rockies: DCP Seaway line conversion and OneOk Stirling III provide NGL transportation from MidContinent to Mont Belvieu (>200 M BPD additional capacity) DCP Sandhills and Texas Express joint venture NGL lines can provide up to 600 M BPD incremental capacity from Granite Wash, Barnett Shale, Permian, Eagle Ford Enterprise MAPL line expansion from Rockies can provide up to 85,000 BPD for Niobrara, Uintah, Piceance volumes 20
NGL Supply Update Infrastructure Sticker Shock Adds to Delays No existing available NGL capacity in most active plays; new capacity requires 5-10 year commitments Producers want to prove up their acreage before deciding on a long term takeaway strategy balance sheet commitment Costs have escalated 200-300% vs legacy fees: Pipelines were $50,000 per inch mile, now $90-100,000 Fractionation was $1,000 to $1,250 per 1,000 barrels of capacity; now $2,000 and up Plants installation costs have escalated significantly in the past 5 years 21
NGL Supply Update Fees and Gas Content Affect Upgrade Value $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $- Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Marcellus Eagle Ford Difference in upgrade vs gas value between regions; actual gas samples, 6 GPM recoveries Marcellus gas has more ethane content; fees do not include gathering or compression 22
NGL Supply Update Upgrade Sensitivity to Gas Values $2.00 $1.50 $1.00 $0.50 $- $(0.50) $(1.00) $(1.50) $(2.00) $(2.50) Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Marcellus Eagle Ford Recalculation of upgrade value if gas prices were at a 12 to 1 ratio to WTI crude on a Btu equivalent basis 23
NGL Supply Update Conclusions Outlook for Growth NGL production has grown rapidly due to stepped up drilling activity and pursuit of higher NGL content gas If drilling continues at current rates and the sweet spots are there, could see another 500 BPD increase in NGL supply by 2015 Takes many wells to sustain growth (13,500 in Barnett to reach 6 Bcf/day level) 24
NGL Supply Update Growing Pains Planned infrastructure should be able to handle the growth in most areas currently in development, BUT Higher fees for new capacity; large wellhead revenue upgrades depend on the current favorable price environment to continue Will take 18-24 months for resources to catch up with well inventory and get things moving to market without delays Increased price pressure could result from new supply waiting for downstream markets to expand Continued opportunities exist to connect resources to markets in emerging plays 25