Adam Bedard, CEOARB Midstream, LLC
Condensate from the Rockies Producing Region
October 29, 2015
Market Observations
• Lease condensate production from the Rockies (Williston, PRB, DJ) projected to grow by 84,000 b/d, from 266,000 b/d to 350,000 b/d, over the next five years
• 95% of that growth is from the DJ Basin
• Lease condensate production can be blended into the pipelines, but pipelines have specs that limit the % light ends
• However, excess takeaway capacity and batching make hitting any sort of “blend wall” difficult• Possibly a problem only in the DJ, depending on how concentrated the barrels area
• Rail can access the Canadian diluent market or Gulf Coast market (Splitters/Exports) and provide an uplift to distressed light barrels
• However current pipeline capacity is causing previously distressed barrels to receive a higher price, closing the arb.
• Rail provides Rockies’ producers with a coastal market, rather than only delivering a Cushing market
• Producers can get Brent-based pricing 2
• Growth oriented, infrastructure development company focused on early stage, organicdevelopment projects and acquisitions in gas liquids, condensate, and crude oil
• Provide marketing and logistics services to producers and refiners
• Quantitative analytics drive development strategy• Current Projects/Marketing
• Marketing ~20,000 b/d• DJ Basin Energy Hub: Niobrara Connector (“NiCon”)• Midland Basin (Big Spring) Energy Hub: Gateway Project
ARB Midstream Overview
3
Organic Projects – Energy Rail Hubs
Permian GatewayNiobrara Connector• Located in Howard County• 350 acres• Pipe connection to new
gathering system• Drilling materials in bound,
liquids outbound
• Located in the heart of DJ• 230 Acres• Under construction• Drilling materials in bound,
liquids outbound
4
Rockies Drilling UpdateImpact of declining rig count outpaces influence of high grading and efficiencies
5
Rockies Rig Count Down from 265 to 96 (64%) YoY
0
50
100
150
200
250
300
Oct-14 Jan-15 Apr-15 Jul-15 Oct-15
Hz R
ig C
ount
Bakken PRB DJ-Niobrara 6
Bakken Rig Count Down By 113 rigs, nearly 2/3 YoY
-113-65%
Oct 2014175 Rigs
Oct 201562 Rigs
7
PRB rigs down by 70% YoY
-23-70%
Oct 201433 Rigs
Oct 201510 Rigs
8
DJ Basin Rig Count Holding Up Slightly Stronger, But Still Down 58%
33-58%
Oct 201457 Rigs
Oct 201524 Rigs
9
-
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15
Hz R
ig E
ffici
ency
(wel
ls dr
illed
per
mon
th p
er ri
g)
Williston PRB DJ-Niobrara
Rigs Are Drilling 35% More Wells/Month Today Compared to a Year AgoDJ: 24 today = 37 a year ago Bakken: 62 today = 81 a year ago PRB: 10 today = 19 a year ago
10
Lease Condensate ProductionHow much condensate will be produced from the Bakken and Niobrara plays?
11
20 25 30 35 40 45 50 55 60 65 70 75 80 85 90
Eagle Ford
SCOOP
Utica
Bakken
Miss Lime
DJ Basin
PRB
Canadian Condensate
Natural Gasoline
API Gravity
Condensate
PRB and Bakken Are Not a Significant Source of Condensate. DJ, Utica, SCOOP and EF are Major Sources
Source: DI Desktop12
Lease Condensate Makes up 15% of Rockies Total Production. Projected to Grow by 84,000 b/d over next 5 years (f/ 266 Mb/d up to 350 Mb/d)
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
Crud
e O
il an
d Le
ase
Cond
ensa
te P
rodu
ctio
n (b
/d)
Rockies (Bakken, PRB, DJ) Crude Oil and Lease Condensate Production vs Time
Heavy (<22°) Intermediate (>22° and <38°) Light (>38° and <45°) Condensate (>45°)
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
Crud
e O
il an
d Le
ase
Cond
ensa
te P
rodu
ctio
n (b
/d)
Rockies (Bakken, PRB, DJ) Crude Oil and Lease Condensate Production vs Time
Heavy (<22°) Intermediate (>22° and <38°) Light (>38° and <45°) Condensate (>45°)
Forecast
13
Condensate is Fastest Growing Quality Segment, Projected to Grow by 31% Over Next Five Years
37,294 102,188
1,313,333
266,398
40,625 123,139
1,452,937
349,828
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
Heavy (<22°) Intermediate (>22° and<38°)
Light (>38° and <45°) Condensate (>45°)
Crud
e O
il an
d Le
ase
Cond
ensa
te P
rodu
ctio
n (b
/d)
Dec. 2014 to Dec. 2019: Bakken, PRB, DJ
Dec-14
Dec-19
14
Bakken Production Drops By 180,000 b/d by Mid 2016, Rebounds Early 2018. Growth in Lease Condensate is Small at (8,000 b/d).
Source: DI Desktop
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
Crud
e O
il an
d Le
ase
Cond
ensa
te P
rodu
ctio
n (b
/d)
Williston Basin Production Forecast
Heavy (<22°) Intermediate (>22° and <38°) Light (>38° and <45°) Condensate (>45°) Source: ARB Analytics
Forecast
15
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
Crud
e O
il an
d Le
ase
Cond
ensa
te P
rodu
ctio
n (b
/d)
PRB Production Forecast
Heavy (<22°) Intermediate (>22° and <38°) Light (>38° and <45°) Condensate (>45°)
PRB: Only 6,000 b/d condensate. Overall Production Shrinks Over Next five Years, Doesn’t Achieve 2014 levels
Source: ARB Analytics
Forecast
16
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
Crud
e O
il an
d Le
ase
Cond
ensa
te P
rodu
ctio
n (b
/d)
DJ Basin Production Forecast
Heavy (<22°) Intermediate (>22° and <38°) Light (>38° and <45°) Condensate (>45°)
DJ: Condensate projected to grow by 78,000 b/d
Source: ARB Analytics
Forecast
17
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
Unk
now
n<3
0 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 65+
Prod
uctio
n (b
pd)
API Gravity
DJ Production by API
Splitter Stabilizer/Diluent/Exports
Refining/Blending
End Market for DJ Light Barrel? Cushing by pipe, Rail (to splitter), Rail for Export, Rail to Canada
Source: DI Desktop, ARB Analytics
25% of DJ Production: API > 50
18
Takeaway Capacity, Blending, and Deducts
19
Take-or-Pay Commitments May Override Potential Uplift from Other End Markets
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
1,100,000
Prod
uctio
n &
Tak
eaw
ay C
apac
ity (b
/d)
DJ Supply/Demand By Type
Rail
Pipeline
Refinery
20
Likely to Be Enough Heavier DJ Barrels to Blend Off Lights and Meet Pipe Specs
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
API-3
1AP
I-32
API-3
3AP
I-34
API-3
5AP
I-36
API-3
7AP
I-38
API-3
9AP
I-40
API-4
1AP
I-42
API-4
3AP
I-44
API-4
5AP
I-46
API-4
7AP
I-48
API-4
9AP
I-50
API-5
1AP
I-52
API-5
3AP
I-54
API-5
5AP
I-56
API-5
7AP
I-58
API-5
9AP
I-60
API-6
1AP
I-62
API-6
3AP
I-64
API-6
5
Prod
uctio
n (b
/d)
DJ Basin: Production By API
White Cliffs SpecsPXP “NIO” Specs
Source: HPDI, FERC21
End Markets
22
Where Should DJ Condensate Go?• Utilized Condensate
Pricing Model Developed by Univ. Bauer College of Business
• Provides Sum of Whole Value ex-Splitter
Source: Bauer College of Business, Argus23
Uplift from Splitting $3.57/bbl Today, Compared to $4.88 Two Years Ago
$4.88 $2.72 $3.57 $-
$20
$40
$60
$80
$100
$120
Jan-13 Jan-14 Jan-15
WTI, Brent, and “Split Products” – October 2013, 2014, 2015 – DJ 46API
WTI Brent Split Products Split Products - WTI
Oct - 13 Oct - 14 Oct - 15
Source: Bauer College of Business24
Options for a DJ Barrel (60 API)
• Pipeline to Cushing• DJ Lease Barrel: WTI-$5• Quality Deduct: -$6 (60 API)• Value at Lease: WTI-$11
• Rail to Canada as Diluent• Canadian condensate: WTI-$2
• Implies: If rail is less than $9/bbl, this works
• Rail to Gulf Coast for Splitting• Splitter Uplift: +$3/bbl
• Implies if rail + splitter fee is < $14/bbl, this works
25
Market Observations
• Lease condensate production from the Rockies (Williston, PRB, DJ) projected to grow by 84,000 b/d, from 266,000 b/d to 350,000 b/d, over the next five years
• 95% of that growth is from the DJ Basin
• Lease condensate production can be blended into the pipelines, but pipelines have specs that limit the % light ends
• However, excess takeaway capacity and batching make hitting any sort of “blend wall” difficult• Possibly a problem only in the DJ, depending on how concentrated the barrels area
• Rail can access the Canadian diluent market or Gulf Coast market (Splitters/Exports) and provide an uplift to distressed light barrels
• However current pipeline capacity is causing previously distressed barrels to receive a higher price, closing the arb.
• Rail provides Rockies’ producers with a coastal market, rather than only delivering a Cushing market
• Producers can get Brent-based pricing 26