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© 2009 Northern Trust Corporation northerntrust.com
FALL FOCUS
2009
INVESTMENT CONFERENCE
Jackson HockleySenior Investment Analyst
Energy SectorEquipment & Services, Oil & Gas
2 2009 Fall FOCUS Investment Conference
Energy Performance Review
The Energy Sector, S&P 500, and Commodity Prices
Source: Factset
S&P 500, -14%
Energy Sector, -22%
Light Crude Oil, -38%
Natural Gas, -48%
-70.0%
-60.0%
-50.0%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
Se
p-0
8
Oct
-08
No
v-0
8
De
c-0
8
Jan
-09
Fe
b-0
9
Ma
r-0
9
Ap
r-0
9
Ma
y-0
9
Jun
-09
Jul-
09
Au
g-0
9
Ind
ex
ed
To
tal R
etu
rn
S&P 500
Energy Sector
Light Crude Oil
Natural Gas
3 2009 Fall FOCUS Investment Conference
Energy Performance Review
The Energy Sub-Sectors
Source: Factset
Integrated, -17%
E&P, -13%
Equip & Svcs, -29%
Drilling, -33%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%S
ep
-08
Oct
-08
No
v-0
8
De
c-0
8
Jan
-09
Fe
b-0
9
Ma
r-0
9
Ap
r-0
9
Ma
y-0
9
Jun
-09
Jul-
09
Au
g-0
9
Ind
ex
ed
To
tal R
etu
rn
Integrated Majors
E&P
Equipment & Services
Drilling
4 2009 Fall FOCUS Investment Conference
Oil Prices, What Will They Do Next?
It’s been a wild ride!!
Oil Prices
Crude Prices
$20
$40
$60
$80
$100
$120
$140
$160
9/07 11/07 1/08 3/08 5/08 7/08 9/08 11/08 1/09 3/09 5/09 7/09 9/09
Source: Factset
5 2009 Fall FOCUS Investment Conference
Where Will Oil Prices Go Next?
“Oil should fall to between $4 and $10 a barrel, which, needless to say, supports our deflationary outlook.”
–Robert Prechter
August 13, 2009
Opinions Are All Over The Board…
Source: Bloomberg, Dinakar Sethuraman, “Oil May Fall Below $10 in Next Decade, Prechter Says”
6 2009 Fall FOCUS Investment Conference
Where Will Oil Prices Go Next?
Then: “Oil will sink to $20/barrel.”
–Philip Verleger(Professor at The University of Calgary)
July 2009
Now: “I’m fairly certain we’ll see prices in the $30’s this year.”
–Philip Verleger(Professor at The University of Calgary)
September 21, 2009
Opinions Are All Over The Board…
7 2009 Fall FOCUS Investment Conference
Where Will Oil Prices Go Next?
Oil will average $90/barrel in 2010–Goldman Sachs
September 24, 2009
Opinions Are All Over The Board…
8 2009 Fall FOCUS Investment Conference
Global Oil Supply & Demand
Source: Schlumberger
9 2009 Fall FOCUS Investment Conference
Regional Population
Population Map
North America: 337 Mil
Asia: 4.0 Bil(4,000 Million)
Europe: 730 Mil
Africa: 954 MilLatin America & Carib:
575 Mil
Oceania: 34 Mil
Source: CIA "The World Factbook 2008"
10 2009 Fall FOCUS Investment Conference
Oil Consumption
U.S. vs. Asia Pacific Oil Consumption
0%
5%
10%
15%
20%
25%
30%
35%
40%
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
% o
f G
lob
al C
on
su
mp
tio
n
US % of Global Oil Consumption Asia Pacific % of Global Oil Consumption
Asia Ex-Japan % of Global Oil Consumption
Source: BP Statistical Review Of World Energy 2009
11 2009 Fall FOCUS Investment Conference
U.S. Natural Gas Storage
U.S. Natural Gas Storage Levels
0
500
1000
1500
2000
2500
3000
3500
4000
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
Week
Inve
nto
ry L
evel
(B
cf)
2009 2008 12 Year Average (with absolute max and min)Source: DOE
12 2009 Fall FOCUS Investment Conference
U.S. Natural Gas Demand By Type
Natural Gas Demand By Type 2008
Industrial31%
Commercial15%
Vehicle Fuel0%
Electric Pow er31%
Residential23%
Source: EIA
13 2009 Fall FOCUS Investment Conference
Power Generation
Power Generation By Fuel Source
Coal
NuclearOil
Natural Gas
Other
0%
20%
40%
60%
80%
100%
Per
cen
tag
e o
f To
tal G
ener
atio
n
Source: EIA
49%
20%
9%
21%
14 2009 Fall FOCUS Investment Conference
U.S. Shale Gas Plays
Source: EIA
15 2009 Fall FOCUS Investment Conference
Shale Production Metrics Have Improved Over Time
For example, look at Southwestern Energy’s Fayetteville metrics since 1Q 2007
Source: Wells Fargo, Southwestern Energy, and Bentek Energy LLC
Time To Drill
(Days)
Average Lateral Length (Feet)
30 Day Average
Prod Rate (Mcfd)
Drill & Completion
Costs ($Million)
Wells Per Yr Per Rig
IP Additions Per Rig Per Year (Mcfd)
Quarter 1, 2007Quarter 1, 2008Quarter 2, 2009
2011
2,104
4,123
1,006
2,952
$2.6 $2.9 1833
18,360
97,953Southwestern Energy's Fayetteville Shale Production Metrics
16 2009 Fall FOCUS Investment Conference
So How High Should Natural Gas Prices Go?
Estimated NYMEX Gas Price Required For A 10% Pretax IRR
$4.10
$4.86 $5.03$4.59$4.42
$3.50
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
Marcellus Haynesville BarnettCore
Fayetteville Woodford BarnettNoncore
Source: Deutsche Bank, Company Data
17 2009 Fall FOCUS Investment Conference
Wave of New LNG Projects in the Pacific Basin
Source: Deutsche Bank, Wood Mackenzie
18 2009 Fall FOCUS Investment Conference
Buy-rated Stocks
Majors Chevron (CVX)
Exxon Mobil (XOM)
E&P Apache (APA)
Suncor (SU)
Talisman (TLM)
Noble Energy
Equipment & Services Baker Hughes (BHI)
Halliburton (HAL)
National Oilwell Varco (NOV)
Noble (NE)
Schlumberger (SLB)
Transocean (RIG)
© 2009 Northern Trust Corporation northerntrust.com
FALL FOCUS
2009
INVESTMENT CONFERENCE
Questions for Energy?
© 2009 Northern Trust Corporation northerntrust.com
FALL FOCUS
2009
INVESTMENT CONFERENCE
Jackson HockleySenior Investment Analyst
Thank you.