July 3, Chart Watch ARC Energy Charts Visit for more information on this publication and the Institute 1 1 7 Shanghai Index down by % since May WTI remained volatile over the past week US crude oil production hits a record of 11 Japanese LNG imports fall to year lows Share of oil wells increases in contrast to 17 Spot WTI Crude $US/B 7. Edmonton Light $US/B Spot Henry Hub Spot AECO $Cdn/GJ Spot AECO Basis Currency $US/$Cdn 3.91.7 1.31 1. á.7 á á á á á Indexed to 1 Months Ago 1 13 13 1 1 11 11 1 1 9 9 Broad Equity Markets Year-to-Date 1 Daily Index Values; Rolling 1-Month History Shanghai Index is down by % since May. Shanghai Composite S&P/TSX Composite Dow Jones On Friday, Trump stated that he may proceed with... his plan of $ billion in tariffs on Chinese imports. Jul-17 Sep-17 Nov-17 Jan-1 Mar-1 May-1 Jul-1 Indexed to 1 Months Ago 1 13 1 11 1 Performance of Oil and Equities Year-to-Date Daily Index Values; Rolling 1-Month History 9 ARC Junior E&P Index S&P E&P S&P/TSX E& P Index 7 Jul-17 Sep-17 Nov-17 Jan-1 Mar-1 May-1 Jul-1 Broad market indices are one the many vital signs measuring the health of the economy. Energy demand is a function of economic health., ARC Financial Corp. Performance of Canadian and US oil & gas equities are compared against each other., ARC Financial Corp. Oil & Service Equities Year-to-Date 3 Daily Index Values; Rolling 1-Month History Canadian Currency Exchange Daily Close Values; Rolling -Month History Indexed to 1 Months Ago 1 13 1 11 1 9 Philadelphia Service I ndex PSAC Cana dian In dex $US/$Cdn $. $. $.7 Recently, The Bank of Canada raised the overnight rate...... from 1.% to 1.%, bringing it closer to the % rate in the US. 7 Jul-17 Sep-17 Nov-17 Jan-1 Mar-1 May-1 Jul-1 $.7 Jul-1 Nov-1 Mar-17 Jul-17 Nov-17 Mar-1 Jul-1 The performance of Canadian oil and gas service equities are plotted in tandem with the corresponding US index., Petroleum Services Association of Canada Much of Canada s oil and gas production is sold in US dollars. As such, the exchange rate significantly impacts corporate revenues and profits. Please see Advisories and Disclaimers at the end of the publication for important cautionary advisory and disclaimer language ARC Energy Research Institute. All Rights Reserved. ARC Energy Charts 1
July 3, Crude Oil WTI Crude Oil Price and Differential to Brent Near-Month WTI and Brent Differential; Rolling 1-Month History WTI ($US/B) 7 3 WTI dropped to $US /B early last week but was able to... recover to US$ 7/B by the end of the week. WTI Diff WTI Dif f to Brent ($US/B) 1 11 1 9 7 3 1 1 Jul-17 Sep-17 Nov-17 Jan-1 Mar-1 May-1 Jul-1 North American crude oil prices can sometimes disconnect from global prices depending on regional supply and demand dynamics. WTI 7 7 US Crude Oil Futures West Texas Intermediate (WTI) to WTI $US/B July 3, 19 Forward prices for WTI are plotted against months in the calendar year. Years are distinguished by color and symbol coding. Canadian Heavy Oil Price Differential to WTI Western Canadian Select (WCS) Differential; Rolling 1-Month History 7 Canadian Light Crude Oil Price Differential to WTI WTI and Edmonton Light differential; Rolling 1-Month History WCS ($US/B) 7 3 WCS Diff. WCS WCS Dif f to WTI ($US/B) 3 1 Jul-17 Sep-17 Nov-17 Jan-1 Mar-1 May-1 Jul-1 The differential should reflect quality differences and transportation costs. Greater discounts can result from infrastructure or refinery outages. 3 1 1 Edm. Light ($US/B) 7 3 Edm. Light Diff. Edmonton L ight Edm. Light Dif f to WTI ($US/B) 1 Jul-17 Sep-17 Nov-17 Jan-1 Mar-1 May-1 The differential should reflect the transportation cost from Alberta to Cushing. Greater discounts can result from infrastructure or refinery outages. 9 7 3 1 Canadian Rail Shipments of Petroleum Products Weekly; 1 to Present 9 1 Total US Oil Production Monthly; 1 to Present Railcars/Week 11, 1, Crude by rail transport has increased recently. This trend is expected to continue in H 1 1 Offshore Onshore 9,, 7,,, During the second week of July, US oil production hit... a record high of 11., Jan-1 Jul-1 Jan-1 Jul-1 Jan-17 Jul-17 Jan-1 Jul-1 As pipeline capacity becomes more constricted, shipments of petroleum products (especially crude oil) are expected to rise. Source: Canadian National Railway, Canadian Pacific Railway 1 11 1 13 1 1 1 17 The advancement of drilling and completion methods boosted US crude oil production, prior to the downturn in prices., U.S. Energy Information Administration ARC Energy Research Institute. All Rights Reserved. ARC Energy Charts
July 3, Crude Oil Alberta Oil Production Monthly; Conventional and Oil Sands 11 1. 3. 3... Upgraded Oil Sands Non-Upgraded Oil Sands Conventional 3 33 3 31 OPEC Oil Production Monthly; Rolling -Month History July 3, 1. 1... Feb-13 Feb-1 Feb-1 Feb-1 Feb-17 Feb-1 Most of Canada s oil production comes from Alberta; split between oil sands and conventional production. Source: Alberta Energy Regulator 3 9 Jun-13 Jun-1 Jun-1 Jun-1 Jun-17 Jun-1 OPEC s production levels relative to its sustainable and spare capacity influences global crude prices. Source: Petroleum Intelligence Weekly.. 1. 1... -. -1. -1. -. Global Oil Supply-Demand Balance Quarterly; 1 to Present 13 1 Shortfall Oversupply -. 1 11 1 13 1 1 1 17 Negative numbers indicate a global crude shortfall, while positive numbers indicate an oversupply. Source: International Energy Agency Long:Short 3 1 1 Ratio of Long to Short Contracts - WTI Managed Money - Futures and Options Jul-1 Oct-1 Jan-17 Apr-17 Jul-17 Oct-17 Jan-1 Apr-1 This represents the relative bullishness of money managers on the price of oil in the United States., U.S. Commodity Futures Trading Commission 1 US Crude Oil Imports Weekly Data; 13 to Present 1 US Exports of Crude Oil and Refined Products Weekly Data; 13 to Present 1 9 7 3 1 Other Imports Imports from Canada Jan-13 Jan-1 Jan-1 Jan-1 Jan-17 Jan-1 Crude oil imports from Canada are taking market share from overseas imports. 9.. 7.... 3.. 1. Crude Oil Refined Products US exports of crude oil hit 3 in the 3 rd week of June This is the first time this number has been hit.. Jan-13 Jan-1 Jan-1 Jan-1 Jan-17 Jan-1 The US exports more refined products than crude oil. If/when tight oil growth resumes, most export growth should come from crude oil exports. ARC Energy Research Institute. All Rights Reserved. ARC Energy Charts 3
July 3, Crude Oil 17 US Crude Oil Stocks 1 MMB 17 Last week, US oil inventories surged by. MMB. Analysts were forecasting a draw. 1 MMB 3, OECD Total Industry Oil Stocks Americas and Rest of OECD; 1 to Present Commercial crude oil stocks rose by 13.9 MMB to..., MMB, rising only for the third time since July 17. OECD July 3, 3, 3, 3 US crude oil stock levels can affect crude oil prices. Stock levels for the current year are represented by the blue line., Jan-1 Jan-13 Jan-1 Jan-1 Jan-1 Jan-17 Jan-1 Global oil stock levels can affect crude oil prices *Includes U.S. (~9%), Canada, Mexico and Chile. Source: International Energy Agency 19 % 1 9 US Weekly Refinery Utilization Rates (%) 17 1. 9. US Motor oline Consumption 17 9 9... 7 Refinery utilization rates change the supply of refined products, impacting price. Utilization for the current year is blue. 7. oline consumption accounts for almost half of all oil use in the US. oline consumption for the current year is represented by the blue line. US Oil Drilling Activity Baker Hughes Horizontal Oil Rig Counts; 1 to Present 1 Daily NGL Prices as a % of Edmonton Light Propane & Butane Spot Prices at Edmonton, AB # of Oil Rigs - Play Lev el Total US (Right-Axis) The US oil rig count dropped by to. 3 1 Permian Eagle Ford Bakken Cana Woodford # of Oil Rigs - Total 1, Jan-1 Jan-1 Jan-1 Jan-17 Jan-1 1, 1, 1, 1, Tracking US oil drilling by major play provides insight into the composition of US oil supply and growth trends. Source: Baker Hughes % of Edm. Light 1% 1% 1% 1% % % % % % Cond ensate Butane (Spot) Propa ne (Spot) -% Jun-1 Oct-1 Feb-17 Jun-17 Oct-17 Feb-1 Jun-1 Natural gas liquids have become critical contributors to producer s cash flow. Prices are influenced by the price of oil as well as local supply and demand., ARC Financial Corp. ARC Energy Research Institute. All Rights Reserved. ARC Energy Charts
July 3, Natural 3 Near-Month North American Natural Prices Daily Prices; Rolling 1-Month History $. $3. $3. $. $. $1. $1. $. AECO $C/GJ Differential Henry Hub $. Jul Oct Jan 1 Apr 17 Jul 1 Near-month prices at AECO track Henry Hub prices, the exchange rate and the cost of transportation. Local factors can also affect price. 3. 3..7.. US Natural Futures Nymex (Henry Hub) to July 3, 3. 19 Forward contract prices are plotted against months in the calendar year. Years are distinguished by color and symbol coding. Ratio of Long to Short Contracts Henry Hub Managed Money Futures and Options Canadian Natural Futures AECO Hub (Bloomberg Estimate) to Long:Short. 3. 3... 1. 1.. $C/GJ. 19.. 1.7 1. 1. 1..7. Jul-1 Oct-1 Jan-17 Apr-17 Jul-17 Oct-17 Jan-1 Apr-1. This represents the relative bullishness of money managers on the price of natural gas in the United States. Source: U.S. Commodity Futures Trading Commission AECO forward prices mimic Henry Hub futures plus a differential Global Natural Prices Japanese LNG, UK NBP, Henry Hub; Average Monthly Prices 7 1 1 1 1 1 UK NBP Japanese LNG imports have fallen to a year low due to... increased generation capacity from nuclear reactors Japanese LNG Henry Hub Jun-13 Jun-1 Jun-1 Jun-1 Jun-17 $ $ $3 $ $1 US Coal and Natural Power Generation Cost Converted to a $/MWh Equivalent $US/MWh Appalachian Coal Henry Hub $ 1 1 1 17 International natural gas prices strongly impact the economics of proposed LNG projects., Japanese Ministry of Economy, Trade and Industry This graph illustrates when it may be economic to begin coal-gas switching in power generation. Average power plant efficiencies are assumed. ARC Energy Research Institute. All Rights Reserved. ARC Energy Charts
July 3, Natural 9 Closing Closing Spot Spot Prices Prices at at North North American American Natural Natural Hubs Hubs Superimposed on Relative Pipeline Flows Superimposed on Relative Physical Volumes Traded July 3, AECO US$1. Kingsgate US$1.1 Malin US$.7 Stanfield US$.3 Opal US$. San Juan Ventura US$.9 \ Chicago US$.7 Waddington US$.79 Dawn US$.7 Boston US$.7 TGP Zone - Marcellus US$.3 Socal US$.9 US$. Permian US$.7 Henry Hub US$.7 All prices in North America has an integrated natural gas market. Prices are determined by regional supply and demand, and pipeline flows. Pipeline Flows Out of Western Canada Daily; 3 31 US Natural Exports Excluding Canada Daily; 1 11 1 9 7 The ability of gas producers to move gas out of the WCSB to eastern markets and the US is a major factor in local natural gas prices. Source: Various Pipeline Companies 17 9.. 7.... 3.. 1. 17. 1 Between exports to Mexico and LNG shipments, the US is growing as a natural gas exporter. Robust US supply growth has driven this trend. Source: Bentek ARC Energy Research Institute. All Rights Reserved. ARC Energy Charts
July 3, Natural 3 33 CDDs 1 1 US Weekly Cooling Degree Days Source: NOAA 1 7 1 13 1 19 31 3 37 3 9 Week 17 Weekly natural gas demand is directly tied to the weather. The current year is in dark blue. Source: National Oceanic and Atmospheric Administration 1 1 13 1 11 1 9 7 US Total Natural Demand Daily; July 3, 17 Total US demand fluctuates between Bcf/d in the summer and over 1 Bcf/d in the winter. Weather is the most important driver of consumption. Source: Bentek Total US Dry Natural Production 3 3 Daily Western Canadian Production Estimated Using Major Pipeline Receipts 7 17 17 1 17 7 13 1 According to EIA s outlook, US natural gas production will... average 1.3 Bcf/d in. 1 13 Reduced outages have aided a recovery in production in... the WCSB and have also helped stabilize prices. US production started ramping up in late 7 and continues to grow year over year. Source: Bentek 1 This includes receipts on the TCPL, Alliance, WestCoast and Trans pipelines. Source: Various Pipeline Companies 3 37 Bcf 1 () Weekly US Natural Storage Net Change Weekly Injection or (Withdrawals); 9 to Current 17 Tcf.. 3. 3. Total Working Natural in US Storage Total storage in the US is 3 Bcf below the year average... of.7 Tcf. 17 (1). () (3) Last week s injection of Bcf was less than expected.. 1. 1. () Weekly gas storage reports provide a snapshot of supply and demand. Current year changes are represented by the blue line.. The EIA reports changes in US natural gas inventories held in underground storage facilities on a weekly basis. ARC Energy Research Institute. All Rights Reserved. ARC Energy Charts 7
July 3, Natural and Other Indicators 3 39 TransCanada Intra-AB Deliveries; Current Year and Historical Tracks 7....... 3. 3. Alberta Natural Demand 17. Alberta natural gas demand has grown steadily in recent years, largely driven by new oil sands projects coming on line. Source: TransCanada Pipelines Bcf 3 1 Western Canadian Natural Storage Levels Weekly; Current Year and Historic Tracks 1 July 3, Canada s natural gas storage level provides a good metric if the country is well stocked. Abnormally high or low storage can affect the basis. 17 Weekly Canadian Oil and Drilling Activity Baker Hughes Average Rig Counts; Rolling -Month History 1 US Drilling Activity Baker Hughes Horizontal Rig Counts; 1 to Present # of Rigs 3 1 1 As per the Daily Oil Bulletin, % of wells drilled in H1... were oil wells compared to 7% in 17. Oil Rigs Rigs Jul-1 Nov-1 Mar-17 Jul-17 Nov-17 Mar-1 Unlike US drilling activity, Canadian rigs are dispatched seasonally. Capital allocation by operators is driven by views of future oil and gas prices. Source: Baker Hughes 1 1 1 # of Rigs - Play Lev el Total US (Right Axis) Marcellus Haynesville Eagle Ford The # of active gas rigs in the US decreased by to 17. # of Rigs - Total Jan-1 Jan-1 Jan-1 Jan-17 Jan-1 Tracking US gas drilling by major play provides insight into the composition of US gas supply and growth trends. Source: Baker Hughes 3 3 1 1 Alberta Crown Land Sales Excluding Oil Sands Year-over-Year; Cumulative 3 $ Billions. 3. 3... 1 11 1. 1 1. 13 17. 1. Land prices are an important component of F&D costs. In Alberta, sales of petroleum and natural gas rights are held every two weeks. Source: Alberta Department of Energy Well Completions (s) 1 1 1 1 1 Canadian Cumulative Well Completions Current Year vs Years Prior As per the Daily Oil Bulletin, total wells drilled were... 11 down by ~% YoY. However, meters drilled were up as lateral lengths...... are incresing. 1 1 11 1 1 31 3 1 1 Week Relative year-over-year drilling activity is highlighted in this chart. Cumulative well completions for the current year are shown in blue. Source: Daily Oil Bulletin/JWN 1 1 17 1 ARC Energy Research Institute. All Rights Reserved. ARC Energy Charts
July 3, Canadian Industry Metrics Estimated Capital Flow in the Canadian Oil and Economy for Industry Revenue, Cash Flow, Reinvestment, Drilling Activity and Production $C.93 per BOE Oil & Prices 7. Million BOE/day Production Volume $C 1. Billion E&P Revenue Capital Flow in the Canadian Oil and Economy G&A Royalties & Taxes Operating Expenditures Cash Flow $C 9. Billion Exploration & Development Foreign Investment and Capital Outflow CAPEX Dividends and Distributions Debt, Equity $C 3.3 Billion July 3, Reserve Additions 7,19 Wells Drilling Activity Service Sector Revenue Land, Acquisitions Canadian Industry Statistics: Historical Data and Forecast Canadian Industry Metrics P rice P ro ductio n Vo lume C apital Inflo w R einvestment D rilling Well Split Average Price Edmonton Par AECO Conv. Liquids Bitumen + Synthetic Natural Total Volume Total Revenue After-tax Cash Flow Conv. Oil and Oilsands Reinvest Ratio Wells Compl. Avg Rig Utiliz. Oil Wells Wells $/BOE $C/B $C/GJ Average M BOE/d Average M BOE/d M BOE/d M BOE/d (@ :1) (@ :1) $C millions $C millions $C millions $C millions x:1 #/ Year % % % 9.. 3.79 1, 1,331,1,3 9,7 3,,33 11,7.91,3 % 1% 1% 1.1 77. 3.79 1,3 1,3,3, 11, 3,9 3, 17,19 1.1 1,119 % % % 11.3 9. 3. 1,73 1,,3,7 11,9 3,,139,91 1.1 1,7 % 9% 31% 1..3.7 1,9 1,73,37,97 111,39,9 39,733 7,199 1.37 11,7 % 3% 17% 13.9 93.7 3.,3 1,9,33,3 1,77,711 3,1 3,9 1.3 11,71 % % 1% 1 1.3 9.7.3,,1,,99 19,71 7,1,7 33, 1.1 11, % 7% % 1 37.1 7.3. 1,93,3,, 93,1,99 31,9,99 1.9,3 % 9% 31% 1 3.3 3.9. 1,9,1,7,93,,7, 1, 1., 17% 7% 3% 17e 3...1 1,9,9,7 7,17 9,7 37,7 31,7 13, 1.19 7,7 % 7% 3% e.3.7 1.7 1,9,9,9 7, 1,9 9,9 3,7 1,19.73 7,19 % 7% 3% Advisories and Disclaimers: This document is provided for informational purposes only and none of the information contained herein is intended to provide, nor should be construed as, investment, financial, legal or other advice and should not be relied upon as such. Certain of the information and data contained herein has been obtained or prepared from publicly available documents and other sources prepared by third parties, and ARC has relied upon such information and data. ARC does not audit or independently verify such information and data and ARC makes no representations or warranties as to the accuracy or completeness of such information and data nor the conclusions derived therefrom. This document has been published on the basis that ARC shall not be responsible for, and ARC hereby expressly disclaims any responsibility or liability for, any financial or other losses or damages of any nature whatsoever arising from or otherwise relating to any use of this document. Certain information contained herein may constitute forward-looking information and forward-looking statements" (collectively, "forward-looking statements") under the meaning of applicable Canadian securities laws. Forward-looking statements include estimates, plans, expectations, intentions, opinions, forecasts, projections, guidance or other statements that are not statements of fact, including but not limited to global and industry economic conditions and policies, production, demand and commodity prices. Although ARC believes that the assumptions underlying and expectations reflected in such forward-looking statements are reasonable, it can give no (and does not give any) assurance that such assumptions and expectations will prove to have been correct. Such forward-looking statements involve known and unknown risks, uncertainties and other factors outside of ARC's control that may cause actual results to differ materially from those expressed herein. Neither ARC nor any of its affiliates undertakes any obligation to publicly revise such forward-looking statements to reflect subsequent events or circumstances, except as required by law. ARC Energy Research Institute. All Rights Reserved. ARC Energy Charts 9