ISI Energy: Natural Gas Basin Analysis Jonathan D. Wolff, CFA
Summary New Basin Supply Model Should Be Better Predictor: Having the benefit of starting fresh, we decided to upgrade our natural gas supply model. We think the new approach will be a much better predictor of supply as it is not purely rig count driven. Our analysis in the past turned out to be too optimistic regarding supply declines (which have not surfaced). Based on the factors we see supply falling by just ~52 MMcf/d (1%) this year. Multi-Factor Evaluation of 21 US Basins: We have built a bottoms-up model for 21 US basins evaluated (93% of US supply). For forecasting, in addition to predicted rig activity and completion forecasts, the model considers midstream expansions in wet gas and liquids-rich areas, the inventory of drilled and uncompleted wells, the benefits of Pad drilling and the acreage holding (HBP) requirements of operators in the basin. Deeper Analysis of Midstream and Pipelines: In the new era of resource manufacturing, tracking pipelines and gas plant construction is key (particularly in wet gas plays). Natural gas production additions used to be easily tracked by the rig count due to the push nature of energy markets (complete the well and bring it on to sales right away). In today s world, volume growth is much more pull (driven by infrastructure). Significant Gas Plant Expansion Underway: In our estimation, there will be nearly 14 Bcf/d of natural gas processing capacity additions between now and then end of 214. Particular areas of focus are the Marcellus Shale, the Anadarko Basin (Cana, Miss) and the Eagle Ford Shale. Hidden DUCs to Drive Production Beyond What Rig Count Suggests: Incorporated into our model are drilled uncompleted (DUCs) and proved developed non-producing (PDNP). We believe there could be some 1,8 Drilled UnCompleted ( DUCs ) and developed non-producing wells in the U.S. including a significant chunk (perhaps ~1,) in the Marcellus region that are effectively inventory for future production additions. 2
Supply Balances 213 Basin Recent 213E Exit Rig Count Dry Gas Rate Change 213E (MMCf/d) (MMcf/d) Total Peak Gas/ Hybrid Bakken 517 86 24 232 2 Anadarko basin 6, 6 223 251 15 Permian 3,2 32 439 529 16 Northern Midcon 875 5 9 N/A 15 Mature Midcon 1,8 (126) N/A 6 Haynesville (LA) 5,8 (49) 25 149 22 East Texas (CV, HV) 3,9 (735) 43 232 18 Fayetteville 2,9 285 16 68 13 Barnett 5,3 (42) 62 241 39 TXGC (Incl. Eagle Ford) 6,4 54 15 169 13 Marcellus- PA 6,9 4 74 121 7 West Virginia 1,6 25 21 24 23 Utica- OH 2 5 33 N/A 37 Northeast- Mature 665 (4) 4 28 4 Offshore 4,6 (1) 47 154 3 Green River 3,4 (14) 18 88 18 Piceance 1,8 (175) 12 91 11 DJ 1, 24 42 58 45 Uinta 1,1 (131) 36 36 9 PRB 85 (68) 22 55 22 Mature Rockies 55 (44) 7 N/A N/A SubTotal (Active Basins) 59,357 37 1,568 2,526 995 Other Production 4,643 (325) Total Dry 64, (18) Imports (Exports) Mexico (4) Canada (1) LNG Supply Change (518) 3
Supply Balances 214 Basin Recent 214E Exit Rig Count Dry Gas Rate Change 214E (MMcf/d) (MMcf/d) Total Peak Gas/ Hybrid Bakken 63 1 24 232 185 Anadarko basin 6,6 33 223 251 12 Permian 3,52 32 439 529 15 Northern Midcon 88 64 9 N/A 2 Mature Midcon 1,674 (117) N/A 4 Haynesville (LA) 5,31 (359) 25 149 2 East Texas (CV, HV) 3,165 (415) 43 232 18 Fayetteville 3,185 (315) 16 68 1 Barnett 4,88 (294) 62 241 39 TXGC (Incl. Eagle Ford) 6,94 152 15 169 11 Marcellus- PA 7,3 4 74 121 6 West Virginia 1,85 2 21 24 23 Utica- OH 25 15 33 N/A 52 Northeast- Mature 625 (38) 4 28 4 Offshore 4,5 (75) 47 154 3 Green River 3,26 (112) 18 88 18 Piceance 1,625 (131) 12 91 11 DJ 1,24 288 42 58 55 Uinta 969 (98) 36 36 9 PRB 782 (63) 22 55 2 Mature Rockies 56 (4) 7 N/A N/A SubTotal (Active Basins) 59,664 (52) 1,449 Other Production 4,336 (34) Total Dry 64, (356) Imports (Exports) Mexico (3) Canada (3) LNG Supply Change (956) 4
Historical Basin Output and Midstream Review 5
NE Marcellus Dry Natural Gas Production 6, Rig Count (RHS) Gas Production (LHS) 3 2,5 Marcellus Completions 5, 4, 25 2 2, MMcf/d 3, 2, 15 1 Rigs 1,5 1, 1, 5 5 - Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13-28 29 21 211 212 Source: Bentek, Smith Rig Count, State Filings, ISI estimates 6
SW Marcellus Natural Gas Production Utica Rigs West Virginia Rigs Gas Production Utica Completions 3, 72 14 MMcf/d 2,5 2, 1,5 6 48 36 Rigs 12 1 8 6 1, 24 4 5 12 2 - Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13-21 211 212 Source: Bentek, Smith Rig Count, State Filings, ISI estimates 7
New Northeast Natural Gas Processing Facilities & Expansions Plant Owner County Start-up Date Capacity (MMcf/d) Natrium/44 - Phase I Dominion Transmission, Inc. Marshall, WV 2/1/213 2 Fort Beeler - Phase 3 Williams Company Inc. Marshall, WV 2/28/213 2 Mobley II MarkWest Liberty Midstream Wetzel, WV 3/1/213 12 Majorsville III MarkWest Liberty Midstream Marshall, WV 3/1/213 2 Cadiz I MarkWest Utica Harrison, OH 3/1/213 125 Ft Wetzel - Phase 1 Williams Company Inc. Marshall, WV 4/1/213 2 Sherwood II MarkWest Liberty Midstream Doddridge, WV 6/1/213 2 Columbiana Chesapeake/M3/EV Energy Columbiana, OH 6/1/213 6 Seneca Interim MarkWest Utica Noble, OH 6/1/213 45 Harrison I NiSource Harrison, OH 6/1/213 2 Natrium/44 - Phase II Dominion Transmission, Inc. Marshall, WV 9/1/213 2 Sherwood III MarkWest Liberty Midstream Doddridge, WV 9/1/213 2 Cadiz II MarkWest Utica Harrison, OH 9/1/213 2 Ft Wetzel - Phase 2 Williams Company Inc. Marshall, WV 1/1/213 2 Seneca I MarkWest Utica Noble, OH 1/1/213 2 [Not Yet Named] Pennant Midstream LLC OH 1/1/213 2 Majorsville V MarkWest Liberty Midstream Marshall, WV 12/1/213 2 Mobley III MarkWest Liberty Midstream Wetzel, WV 12/31/213 2 Seneca II MarkWest Utica Noble, OH 12/31/213 2 Bluestone II MarkWest Liberty Midstream Butler, PA 3/1/214 12 Bluestone III MarkWest Liberty Midstream Butler, PA 6/1/214 2 Majorsville IV MarkWest Liberty Midstream Marshall, WV 6/1/214 2 Majorsville VI MarkWest Liberty Midstream Marshall, WV 6/1/214 2 Regional Subtotal (MMcf/d) 4,61 Source: Bentek, company filings 8
New Northeast Pipeline Projects & Expansions Owner KMI Name In-Service Date Capacity (MMcf/d) Route Tennesee Gas Pipeline - Northeast Upgrade 4Q 213 636 Expansion of 3 line: Bradford County, PA to NJ WPZ Transco Northeast Supply Link 4Q 213 25 Leidy, PA to Northeast TCP Millennium Minisink Compressor 1Q 213 15 Millennium to Algonquin at Ramapo TCP Millennium Hancock Compressor 4Q 213 17 Marcellus to Northeast NFG West to East 214 425 Marcellus to Leidy, PA hub SE TETCO - TEAM 214 4Q 214 6 Expansion of TETCO: SW Marcellus to Northeast WPZ/COG Constitution Pipeline 1Q 215 65 NE PA to Iroquios pipeline (at Albany, NY) Source: Bentek, company filings 9
Texas Gulf Coast (incl. Eagleford) Natural Gas Production 7,6 Rig Count (RHS) Gas Production (LHS) 3 3,5 Eagleford Completions 7, 25 3, 6,4 2 2,5 MMcf/d 5,8 5,2 4,6 4, Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 15 1 5 - Rigs 2, 1,5 1, 5 28 29 21 211 212 Source: Bentek, Smith Rig Count, State Filings, ISI estimates 1
New Texas Gulf Coast Natural Gas Processing Facilities & Expansions Plant Owner County Start-up Date Capacity (MMcf/d) Flag City Boardwalk Field Services LLC Jackson, TX 2/1/213 15 Eagle DCP Midstream, LP Jackson, TX 2/28/213 2 Houston Central Copano Energy Colorado, TX 3/1/213 4 Yoakum Enterprise Products Lavaca, TX 3/1/213 3 Jackson Energy Transfer Company Jackson, TX 3/1/213 4 Pettus TexStar Midstream Services Bee, TX 6/1/213 25 Brasada Western Gas Partners La Salle, TX 6/1/213 2 Catrina DCP Midstream, LP Dimmit, TX 1/1/214 2 Reveille Howard Energy Partners Webb, TX 1/31/214 2 Jackson Energy Transfer Company Jackson, TX 3/1/214 2 Jackson Energy Transfer Company Jackson, TX 3/1/214 2 Silver Oak TEAK Midstream Bee, TX 3/1/214 2 Goliad DCP Midstream, LP Bee, TX 3/1/214 2 Houston Central Copano Energy Colorado, TX 7/1/214 4 Regional Subtotal (MMcf/d) 3,5 Source: Bentek, company filings 11
Anadarko Basin Natural Gas Production 7, Rig Count (RHS) Gas Production (LHS) 3 2,5 Anadarko Completions 6,2 24 2, MMcf/d 5,4 4,6 18 12 Rigs 1,5 1, 3,8 6 5 3, Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13-27 28 29 21 211 212 Source: Bentek, Smith Rig Count, State Filings, ISI estimates 12
New Anadarko Basin Natural Gas Processing Facilities & Expansions Plant Owner County Start-up Date Capacity (MMcf/d) Carmen Caballo Energy Alfalfa, OK 3/1/213 6 Ajax Enbridge Energy Partners Wheeler, TX 3/1/213 15 Northern Oklahoma System SemGas L.P. Woods, OK 3/1/213 125 Fort Elliot Enogex Wheeler, TX 6/1/213 8 Wheeler Eagle Rock Energy Wheeler, TX 6/1/213 6 National Helium DCP Midstream, LP Seward, KS 9/1/213 - [Not Yet Named] Next Generation ProcessinReno, KS 9/1/213 1,4 McClure Enogex Custer, OK 12/1/213 2 Cana - Mustang Devon Energy Canadian, OK 12/31/213 15 Canadian Valley ONEOK Partners Canadian, OK 3/1/214 2 Regional Subtotal (MMcf/d) 2,425 Source: Bentek, company filings 13
Fayetteville Shale Natural Gas Production 3,3 Rig Count (RHS) Gas Production (LHS) 35 1, Fayetteville Completions 3,1 28 8 MMcf/d 2,9 2,7 21 14 Rigs 6 4 2,5 7 2 2,3 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 25 26 27 28 29 21 211 212 Source: Bentek, Smith Rig Count, State Filings, ISI estimates 14
Permian Basin Natural Gas Production Gas Production Conventional Rigs Unconventional Rigs MMcf/d 3,3 3,2 3,1 3, 2,9 2,8 2,7 5 45 4 35 3 25 2 15 2,6 1 2,5 5 2,4 - Jan-13 Nov-12 Sep-12 Jul-12 May-12 Mar-12 Jan-12 Nov-11 Sep-11 Jul-11 May-11 Mar-11 Jan-11 Jan-13 Nov-12 Sep-12 Jul-12 May-12 Mar-12 Jan-12 Nov-11 Sep-11 Jul-11 May-11 Mar-11 Jan-11 Source: Bentek, Smith Rig Count, State Filings, ISI estimates 15
New Permian Basin Natural Gas Processing Facilities & Expansions Plant Owner County Start-up Date Capacity (MMcf/d) Bone Springs Regency / Anadarko PecosWard, TX 2/1/213 1 Driver Atlas Pipeline Partners Upton, TX 4/1/213 2 Rawhide Plant DCP Midstream, LP Glasscock, TX 6/1/213 75 Red Bluff Southern Union Gas ServicReeves, TX 6/1/213 2 Ramsey III Nuevo Midstream Reeves, TX 6/1/214 2 Midway DCP Midstream, LP Midland, TX 6/1/214 75 High Plains Targa Resources Glasscock, TX 6/1/214 2 Regional Subtotal (MMcf/d) 1,5 Source: Bentek, company filings 16
Bakken Natural Gas Production 6 Rig Count (RHS) Gas production (LHS) 24 2,1 Bakken Completions 5 2 1,8 4 16 1,5 MMcf/d 3 2 1 12 8 4 Rigs 1,2 9 6 3 - Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13-27 28 29 21 211 212 Source: Bentek, Smith Rig Count, State Filings, ISI estimates 17
New Bakken Natural Gas Processing Facilities & Expansions Plant Owner County Start-up Date Capacity (MMcf/d) Stateline II ONEOK Partners W. Williams, ND 4/1/213 1 Tioga Hess Corporation Williams, ND 6/1/213 13 South Heart New Frontier Midstream Stark, ND 7/1/213 4 Ross Plains Gas Solutions Mountrail, ND 12/1/213 75 Garden Creek II ONEOK Partners McKenzie, ND 9/1/214 1 Regional Subtotal (MMcf/d) 445 Source: Bentek, company filings 18
Haynesville Natural Gas Production 12, 11, Rig Count (RHS) Gas Production (LHS) 18 15 18 16 14 Haynesville Completions 1, 12 12 MMcf/d 9, 8, 9 6 Rigs 1 8 6 7, 6, Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 3-4 2 27 28 29 21 211 212 Source: Bentek, Smith Rig Count, State Filings, ISI estimates 19
Rockies Natural Gas Production 1, Rig Count (RHS) Gas production (LHS) 12 2,5 Rockies Completions 9,6 96 2, MMcf/d 9,2 8,8 72 48 Rigs 1,5 1, 8,4 24 5 8, Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 28 29 21 211 212 Source: Bentek, Smith Rig Count, State Filings, ISI estimates 2
Barnett Shale Natural Gas Production 6,5 Rig Count (RHS) Gas Production (LHS) 7 3,5 Barnett Completions 6, 56 3, MMcf/d 5,5 5, 42 28 Rigs 2,5 2, 1,5 4,5 14 1, 4, Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 5 24 25 26 27 28 29 21 211 212 Source: Bentek, Smith Rig Count, State Filings, ISI estimates 21
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