U.S. Renaissance Trends & Opportunities PRESENTATION TO THE 2014 NDT CONFERENCE David P. Ginther, CPA, Portfolio Manager Waddell & Reed Investment Management Company 6300 Lamar Avenue Overland Park, Kansas 66202 May 20, 2014
Important Disclosures For general informational purposes only. The opinions expressed are those of the portfolio manager and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through May 20, 2014, and are subject to change due to market conditions or other factors. Past performance is not a guarantee of future results. 2
Opportunities in 3
When is the Best Time to Invest? Source: U.S. Central Intelligence Agency World Factbook, population is 2013 estimated. 4
Market Outlook Focus on fundamentals driving the energy markets Demand for energy - Global demand growth led by non-oecd countries - Demand destruction from higher oil prices Supply growth for energy - Disappointing supply growth outside the U.S. and Canada - Marginal costs moving higher New technology and resources - Hydraulic fracturing - Horizontal drilling - Unconventional resources in the form of shale plays Geopolitical issues - Iran, Iraq, Arab Spring Commodity prices remain volatile Natural gas remains a North American market 5
The Shale Revolution Oil production is booming in the U.S. - Led by the Bakken, Eagle Ford and Permian Basin Natural gas production is growing - Led by the Marcellus, associated gas and emerging Utica Large infrastructure spending Exports of energy Shale-driven industrial renaissance in the U.S. - Low energy cost advantage Job growth 6
U.S. Oil Fundamentals Production growth continues to exceed expectations - Unconventional oil plays in the U.S. offer superior returns and profitability - Higher capital spending Demand growth remains weak - Greater energy efficiencies - Employment Increase in well productivity lowers cost and drives production growth Differentials between WTI and Brent 7
Million bpd Oil Production Growth in the U.S. 12 10 Anadarko Basin Utica 8 Bakken Mississippian 6 Eagle Ford Bakken Eagle Ford 4 Permian Permian Other onshore 2 Other onshore Offshore Alaska Offshore Alaska 0 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E Source: EIA, Goldman Sachs Global Investment Research 8
Rig Count by Resource 1800 1600 1400 1200 1000 800 Oil Gas 600 400 200 0 1/4/2008 1/4/2009 1/4/2010 1/4/2011 1/4/2012 1/4/2013 Source: Baker Hughes, Waddell & Reed 9
U.S. Natural Gas Fundamentals Production growth led by associated gas from oil shale Well productivity drives production growth Demand will be led by power and industrial growth Liquefied Natural Gas (LNG) imports or exports Marginal cost remains above current prices 10
Gas Production Growth in the U.S. U.S. dry gas production, Bcf/d 90 80 70 Marcellus 60 50 40 Haynesville Other key shale gas Associated gas 30 20 10 Other onshore gas Offshore 0 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E 2017E 2018E Source: EIA, Goldman Sachs Global Investment Research 11
Rig Productivity Estimated Average 1 st Year Production Rate Horizontal/Tight Gas Plays 7000 6000 5000 4000 Oil NGLs Gas These days are long gone! 3000 2000 1000 0 Source: Company Reports, Land Rig Newsletter, SMITH Bits STATS, RJ Est. 12
U.S. Utilities Fundamentals Coal Coal vs. Natural Gas Carbon regulation Coal ash disposal Mercury and Air Toxins MATS Nuclear Regulators New builds Retirement Low Carbon Footprint Renewables Solar Wind Efficiency 13
U.S. Benefits from Renaissance Increases jobs Lowers consumer and business energy costs Makes U.S. manufacturing more competitive Boosts spending for infrastructure Lowers inflation Lowers the trade deficit Boosts revenue for energy producing states and the federal government Improves national security Changes geopolitical balance in favor of the U.S. 14
Opportunities Oil and gas producers with exposure to shale basins Services companies with North American exposure U.S. Refiners have a cost advantage in the world MLPs and Pipelines opportunity to large infrastructure spending U.S. Chemical and Fertilizer companies benefit from low feedstock cost in the U.S. intensive companies such as steel and refining Engineering and Construction Companies with exposure to large infrastructure build out Industrial Companies due to cheap energy cost and those increasing energy efficiencies Water companies for disposal and treatment of contaminated water Negative - Coal 15
Portfolio Management David P. Ginther, CPA Senior Vice President, Portfolio Manager David Ginther is a Senior Vice President of Waddell & Reed Investment Management Company and Ivy Investment Management Company. Mr. Ginther graduated from Kansas State University in 1986 with a BS in accounting. He earned a Certified Public Accountant designation in 1992. Prior to joining Waddell & Reed, Mr. Ginther was a senior business analyst with Amoco Corporation. He began his career with Amoco in 1986, analyzing natural gas fields in Tulsa. He then moved to Amoco corporate headquarters in Chicago and joined its international operations. From there, he moved to Houston and worked in the Worldwide Exploration Business Unit, including international assignments in Africa. Mr. Ginther joined Waddell & Reed in March 1995 as an investment analyst. He was appointed assistant vice president, senior investment analyst, and assistant portfolio manager of the Waddell & Reed Advisors Core Investment Fund in January 1999. He was appointed vice president in July 2000. Mr. Ginther was named portfolio manager of the Waddell & Reed Advisors, Ivy, and Ivy Funds VIP Dividend Opportunities Funds (formerly the Dividend Income Funds) upon the funds inception in 2003. He was appointed senior vice president in February 2006. He was named portfolio manager of the Waddell & Reed Advisors, Ivy, and Ivy Funds VIP Funds upon the funds inception in 2006. Mr. Ginther was named portfolio manager of Ivy Global Natural Resources Fund and Ivy Funds VIP Global Natural Resources in July 2013. Mr. Ginther is currently portfolio manager of Waddell & Reed Advisors Fund, Ivy Fund, and Ivy Funds VIP ; and of the Global Natural Resources Funds. 16