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Equity ResearchPublished by Raymond James & Associates
Raymond James Energy Group
Raymond James Energy Group(800) 945-6275
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863
[email protected]@[email protected]
Please read disclosure/risk information and Analyst Certification at the end of the presentation.
Equity Research
November 13, 2013
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863
Please read disclosure/risk information and Analyst Certification at the end of the presentation.
Published by Raymond James & Associates
Raymond James Energy Group
IPAA: RJ Energy Outlook
John Freeman Andrew ColemanJim Rollyson Collin Gerry
Darren Horowitz Kevin Smith Pavel Molchanov Cory Garcia
E&P Oil Service/Coal
Marshall Adkins
MLP Major & Refiners & Alt. Energy
Raymond James Energy Group(800) 945-6275
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 2
Game Change in U.S. Oil & Gas!
• Oil price structurally challenged– Global oil demand is sputtering
– U.S. oil supply up huge!
– Oil market is telling you there is a problem!
– Bulls must count on additional disruptions
• U.S. nat gas poised for longer-term recovery– Demand poised to surge– But plenty of gas @ $4.00
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 3
Oil OutlookWithout Strong Global Economic Recovery,
Oil Will Be Structurally Challenged
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 4
Why Are We Worried About Oil?
• Oil inventories rising despite massive supply outages (3+ MMBpd offline since 2010)
• Oil inventories on track to max out in 2014
• OPEC excess capacity near 20+ year high
• Will Saudi/OPEC cut an additional 2 MMBpd?
• If not, oil prices are moving lower
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 5
How Does Our Oil Forecast Stack Up?
• In-Line with Consensus for 2013
• 10 –15% below consensus in 2014
• 10 –20% below Consensus in 2015 +
• Way Below Street for 2015 WTI-Brent Spreads2013 2014 2015 Long Term 2013 2014 2015 Long Term 2013 2014 2015 Long Term
New RJ Forecast $100.00 $83.00 $70.00 $80.00 $109.00 $95.00 $90.00 $90.00 $9.00 $12.00 $20.00 $10.00NYMEX Futures Strip $99.86 $99.19 $89.86 $82.93 $109.65 $106.38 $99.15 $90.96 $9.79 $7.19 $9.29 $8.03% Change 0% -16% -22% -4% -1% -11% -9% -1% -8% 67% 115% 25%
WTI Brent Spread
Source: Thomson Reuters; Raymond James Research
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863
Does the Market Now Get It?
6
Source: Bloomberg; Raymond James Research
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 7
Long Term Strip is Coming Our Way
Source: FactSet; Raymond James Research
RJ Forecast
y y y
$78.00
$80.00
$82.00
$84.00
$86.00
$88.00
$90.00
$92.00
$94.00
As of December2010
As of December2011
As of December2012
Current Strip
2015-2020 Average "Long-Term" WTI Strip (NYMEX)
Current Long-term Forecast
Long-Term Oil Price Assumptions Moving Toward Us!
Old Long-term Forecast
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 8
• North American crude supply growing ±1.5 million BPD over next several years.
• “Other” supply growth outpacing declines
• Global demand growing about half as fast as supply (700,000 – 900,000 BPD)
What are the Headwinds for Oil?
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 9
Staggering U.S. Oil Supply Growth!
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 10
Near-Term Supply Growth Very Visible
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 11
U.S. Actuals Tracking Above RJ 2012 Forecast
Source: EIA; Raymond James Research
6,000
6,500
7,000
7,500
8,000
Jan-12 Mar-12May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13May-13 Jul-13 Sep-13
September 2012 RJ Crude Oil Forecast Vs Actual
Sept 2012 Forecast EIA Actuals
MBp
d
Source: EIA (April 2013) , Raymond James research
GOM Maintenance
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 12
Efficiency Improvements Outpacing Our Model
100
120
140
160
180
200
220
240
260
280
300Permian Horizontal Well Productivity
Source: Raymond James, HPDI
*First 6 Months of Production for Horizontal Permian Wells
Av
era
ge
Pro
du
cti
on
Pe
r W
ell
(B
OE
/D
)
Source: EOGSource: Raymond James; Drilling Info
4500046000470004800049000500005100052000530005400055000
2009 2010 2011 2012
Bakken Production
Firs
t 6
mo
nth
s o
f Pr
od
ucti
on
(BO
E)
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863
Won’t Steep Declines Cause Oil Supply to Slow?
13
0
20
40
60
80
100
120
140
160
180
200
0
1,000
2,000
3,000
4,000
5,000
6,000
2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12
Gas
Pro
ducti
on (M
Mcf
/d)
Barnett Shale Gas Production vs Rig Count
Gas Production Rig Count
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 14
Growing Supply is Not the Only Problem
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E
Ann
ual D
eman
d G
row
th (M
Mbp
d)
Annual Global Oil Demand Growth
Source: IEA, RJ est.
IEA Assumptions
Source: IEA, RJ est.
1999 - 2007 average IEA Assumption
Post "Melt Down"Average
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 15
What is “New Normal” For Oil Demand Growth?
65
70
75
80
85
90
95
1Q94 1Q96 1Q98 1Q00 1Q02 1Q04 1Q06 1Q08 1Q10 1Q12
(MM
Bbls
)
Global Oil Demand 1994-2013
Global Oil Demand
1.4 MMBPD Y/Y Growth
0.8 MMBPD Y/Y Growth
Source: IEA, Raymond James Research
"New Normal" ?
"Old School"
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 16
Why is Oil Demand Growth Slowing?
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.619
60
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
2012
E
Oil Consumption Intensity - Select Developed Countries
Germany Japan
U.S. UK
Bb
ls o
f O
ilp
er $
1,00
0 G
DP
(20
00$)
Source: EIA, IEA, World Bank, CIA World Factbook
Japan
U.S.
UK
Germany
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 17
Efficiency Gains are Real
26
28
30
32
34
36
Mile
s pe
r gal
lon
Average Fuel Efficiency of New U.S. Vehicle Sales vs. WTI Oil Prices
Source: U.S. Department of Transportation
Passenger Car Fuel Efficiency
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 18
Are People Driving Less?
175
200
225
250
Vehi
cle-
mile
s (in
bill
ions
)
U.S. Vehicle-Miles Traveled
Source: U.S. Bureau of Transportation Statistics
- Urbanization?- Demographics?- Low Employment?- High Gasoline Prices?- Internet?
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 19
Better Mileage + Less Driving = Falling Demand
320000
330000
340000
350000
360000
370000
380000
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
000'
s of
gal
lons
/day
U.S. Gasoline All Sales/Deliveries by Prime Supplier
Source: EIA, RJ Research
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 20
U.S. Demand Falling But Lumpy
Source: IEA; Raymond James Research
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
US Oil Demand Growth Y/Y
9 Year Average = 1.0%
5 Year Average = –0.8%
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 21
Japanese Oil Demand Fell 8/10 Years Last Decade
-400
-300
-200
-100
0
100
200
300
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E
(Tot
al C
hang
e M
Bbls
/d)
Japanese Y/Y Oil Demand Change 2000-2014
Japanese Oil Demand Change Y/YSource: IEA, Raymond James Research
Fukushima
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863
Is China Worse than People Think?
3.0
3.5
4.0
4.5
5.0
5.5
6.0
MMBbls/d China's Crude Imports
Source: Bloomberg, National Bureau of Statistics of China, & RJ estimates.
down 1%
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 23
Global Oil Demand is Facing Serious Headwinds
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 24
Where Does That Leave Our Global Oil Model
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 25
Question Is Not “If” But “When?”
2,600
2,700
2,800
2,900
3,000
3,100
3,200
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Q3
2012
Q4
2012
Q1
2013
Q2
2013
Q3
2013
Q4
2013
Q1
2014
Q2
2014
Q3
2014
Q4
2014
OEC
D In
vent
orie
s (M
MBb
ls)
OECD Industry Total Petroleum Inventories
Forecast
Source: IEA, RJ est. (Assume 1/2 the inventory build goes to OECD inventories)
Max Capacity?
Record high!
Iran, Sudan, and Syria down 1.5 MMBpd
Saudi cuts1 MMBpd
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863
If Fundamentals Suck, Why is Spot So High?
26
-
500
1,000
1,500
2,000
2,500
3,000
3,500
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13E
Major Supply Disruptions (2011-2013)
Sudan Nigeria Syria Iraq Iran Libya
MBpd
Source: IEA; Raymond James Research
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 27
Where Could We Be Wrong?
• U.S. Supply & Global Demand #’s Conservative
• Bad Data?
– Data May be Wrong…But It’s Consistently Wrong
– Either Way Demand is Worse Than Pre-2008
• More MENA Supply Interruptions?
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 28
What Solves Structural Oil Problems?
• Robust Global Economic Recovery– Difficult With De-levering & High Oil Prices
• Cut Supply– Temporary Solution
– OPEC Excess Capacity Becomes Problem
• **Lower Oil Prices** - SOLUTION!– Slows U.S. Drillers
– Spurs the Global Economy
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 29
WTI Disconnect Isn’t Going Away
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 30
Watch Light/Sweet Oil Import Timing!
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
000
Bbls
per
day
North American Light Crude Imports
Source: EIA, Raymond James research Note: we classify light crude as API>30, sulfur <1
RJ supply forecast
How long 'til we back out remaining 1.4 MMbpd?
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 31
Gulf Coast Spread Widens When Light is Gone
$2.50
$5.25
$7.25
$12.00
0
250
500
750
1,000
1,250
1,500
1,750
2,000
Light Sweet… …plus Light Sour
…plus Med. Sour
…plus Arab Medium
…plus Heavy
Crud
e Im
port
s, M
bpd
Gulf Coast: Crude Imports vs. Pricing Discounts
Source: EIA, Bloomberg, Raymond James research
<300k bpd until competing w/ G.C. sours @ $5/Bbl discount
Source: EIA, Bloomberg, Raymond James research
Pricing discount to LLS, by crude type
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 32
North American Timing Will Be “Squishy”
0
200
400
600
800
1,000
1,200
1,400
1,600
Imports intoGulf Coast
Exports toCanada
Imports intoWest Coast
Imports intoEast Coast
Crud
e Im
port
s, M
bpd
North American Light Crude Imports, by Region
Source: EIA, Raymond James research Note: assumes lowest cost regions backed out first
Year-end
MayJuly
Q1 2015From today, U.S. supply growth backs out imports by:
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 33
Where is our WTI vs. Consensus?
Source: FactSet; Raymond James Research
$60.00
$65.00
$70.00
$75.00
$80.00
$85.00
$90.00
$95.00
$100.00
$105.00
$110.00
Dec
-13
Mar
-14
Jun-
14
Sep-
14
Dec
-14
Mar
-15
Jun-
15
Sep-
15
Dec
-15
Mar
-16
Jun-
16
Sep-
16
Dec
-16
Mar
-17
Jun-
17
Sep-
17
Dec
-17
Futures
RJ New Deck
RJ More Bearish 2014/2015
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 34
What About U.S. Natural Gas?
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 35
Low Prices & Weather Solved Oversupply in 2013
1,000
1,500
2,000
2,500
3,000
3,500
4,000
U.S
. Gas
Sto
rage
Vol
umes
(Bcf
)
U.S. Gas in Storage
5 Year Gas Storage Range
Series3
2013 Summer Storage Forecast
2013 Summer Storage Forecast
November OctoberSource: EIA, Raymond James research (October 2013)
2011/12 Storage came in at top end of the range
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 36
How Do We Offset Supply Growth?
0.3-2.0 -1.0 0.0 1.0 2.0 3.0
Total
Weather
Industrial
Cswitching
Canada
Mexico
Nuke/Hydro
LNG
Liquids
Base Power
Core Supply
Bcf/day
2014 Theoretical Change in Summer StorageTighter Looser
Bullish Bearish
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 37
Gas to Coal Switching Key To Late 2013 Pricing
($3.00)
($2.50)
($2.00)
($1.50)
($1.00)
($0.50)
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
Y/Y
Nat
ural
Gas
Pric
e D
iffer
entia
l
Gas
to C
oal S
ubsti
tutio
n (B
cf/d
) -Po
sitiv
e =
Coal
Gai
ning
Sha
re
Y/Y Change In Gas Prices Drives Y/Y Fuel Switching
Coal Swiching
Y/Y Gas Price Differential
2012 Avg: -4 Bcf/d
2013E Avg: 2.4 Bcf/d
2014E Avg: -0.3 Bcf/d
Source: Raymond James research, EIA (October 2013)
RJ Forecast
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 38
Gas Growth Slowing But Not Down!
53
56
59
62
65
68
71
74
77
Jan
-00
Jul-
00
Jan
-01
Jul-
01
Jan
-02
Jul-
02
Jan
-03
Jul-
03
Jan
-04
Jul-
04
Jan
-05
Jul-
05
Jan
-06
Jul-
06
Jan
-07
Jul-
07
Jan
-08
Jul-
08
Jan
-09
Jul-
09
Jan
-10
Jul-
10
Jan
-11
Jul-
11
Jan
-12
Jul-
12
Jan
-13
Jul-
13
Pro
du
ctio
n (
Bcf
/d)
U.S. Natural Gas Production- EIA 914 Data
EIA Survey Hurricane Losses
Huge surge in growth from shale playsLong term trend
Source: U.S. Energy Information Administration (December 2012), RJ est. Note: Data sets adjusted to reflect hurricane-related shut ins
RJ Estimate
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 39
Well Productivity Now 5x-10x Better?
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 40
Lower Oil Prices Are Bullish For Gas!
1.8
1.1
4.4 3.5
0.7
2.3
(4.0)
(2.0)
-
2.0
4.0
6.0
8.0
2009 2010 2011 2012 2013 2014
Bcf/
d
Dry Gas Plays Wet Gas Plays
Oil Plays Other
Sum
Total Dry Gas Production Growth YOY
*Note Gas Year is Nov-Nov
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863
Huge Nat U.S. Demand Growth Coming…
41
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2011 2012 2013 2014 2015 2016 2017
Cum
ulati
ve N
atur
al G
as D
eman
d G
row
th B
cf/d
Y/Y
Nat
ural
Gas
Dem
and
Gro
wth
Bcf
/dY/Y Natural Gas Demand Growth
Cumulative (Right Axis) Industrial Industrial (Upside-Case)Mexican Exports Electric Power Electric Power (Upside-Case)LNG Exports
Source: EIA, RJ Research
Cumulative Natural Gas Demand (Right Axis)
Y/Y Natural Gas Demand Growth
(Left Axis)
Equity ResearchPublished by Raymond James & Associates
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International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863
…Driven Largely by Industrial Gas Demand
42
16.0
18.0
20.0
22.0
24.0
26.0
28.0
2012 2013 2014 2015 2016 2017 2018 2019 2020
Bcf/
d
Cumulative Industrial Natural Gas Demand
Steel Companies
MethanolProductionAmmonia Plants
Ethylene Crackers
GTL
Base IndustrialDemand
Source: EIA, RJ ResearchSource: EIA, RJ Research
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 43
And Wave of LNG Export Facilities?
Project Location Est. Cost Status Targeted Owner/ApplicantInitial Max. Target ($ MM) Startup
Kenai Alaska 0.19 0.19 NM In operation Producing ConocoPhillipsDouglas Channel BC, Canada 0.1 0.3 $3,500 CNEB-approved 2015 BC LNG Export CooperativeSabine Pass Louisiana 1.0 3.0 $12,000 Under construction Late 2015 ChenierePlaquemines Louisiana 0.2 1.1 ? DOE-approved 2016 Cambridge Energy (CE FLNG)Elba Island Georgia - 0.2 $1,100 DOE-approved; under FERC review 2016 Kinder Morgan, ShellKitimat BC, Canada 0.7 1.4 $5,500 CNEB-approved 2017 Chevron, ApacheCameron LNG Louisiana - 1.7 $6,000 DOE-approved; under FERC review 2017 Sempra, Mitsui, Mitsubishi, NYKCove Point Maryland - 0.8 $3,400 - $3,800 DOE-approved (incl. non-FTA); under FERC review 2017 DominionLavaca Bay FLNG Texas 0.4 1.1 ? DOE-approved; under FERC review 2017 Excelerate EnergyOregon LNG Oregon - 1.3 $6,000 DOE-approved; under FERC review 2017 LNG Development Co.Main Pass Energy Hub Louisiana - 3.2 $10,000-$12,000 DOE-approved Mid-2017 McMoRan Exploration, United LNGCorpus Christi Texas - 1.5 ? DOE-approved; under FERC review Late 2017 CheniereFreeport Texas 0.6 1.9 $4,000 DOE-approved (incl. non-FTA); under FERC review Late 2017 Freeport LNG, Zachry, Dow Chemical, Osaka GasGulf Coast Texas - 2.8 ? DOE-approved 2018 Gulf Coast LNG ExportS. Texas LNG Export Texas - 1.1 ? Under DOE review 2018 Pangea LNG (North America)Gulf LNG Mississippi - 0.3 $1,000 DOE-approved 2018 El Paso, GE Energy Financial ServicesGoldboro LNG NS, Canada 0.7 1.4 $5,000 Preliminary project design Late 2018 Pieridae Energy CanadaLake Charles Louisiana - 2.0 $9,500 DOE-approved (incl. non-FTA); under FERC review 2019 Energy Transfer, BG GroupPacific NorthWest LNG BC, Canada - 2.8 $9,000-$11,000 Under CNEB review 2019 Petronas, JapexPrince Rupert LNG BC, Canada 2.0 3.0 ? Under CNEB review 2020 BG GroupWest Coast Canada LNG BC, Canada 2.1 4.3 ? Under CNEB review 2021 ExxonMobil, Imperial OilAlaska LNG Alaska - 3.5 ? Preliminary project design 2024 ExxonMobil, ConocoPhillips, BP, TransCanadaLNG Canada BC, Canada - 3.2 ? CNEB-approved TBD Shell, Kogas, Mitsubishi, PetroChinaJordan Cove Oregon - 0.9 $7,500 DOE-approved; under FERC review TBD VeresenGolden Pass Texas - 2.2 $10,000 DOE-approved TBD Qatar Petroleum, ExxonMobilWaller Point Louisiana - 0.2 ? DOE-approved TBD Waller LNG ServicesMagnolia LNG Louisiana 0.5 1.1 $2,200 Under DOE review TBD Liquefied Natural Gas Ltd.
46.6Source: FERC, EIA, Waterborne LNG, company reports. Assumes 1 mtpa = 0.1433 Bcf/d unless specific Bcf/d figure is given by company.
North American Liquefaction Plants Est. Capacity (Bcf/d)
Total
Equity ResearchPublished by Raymond James & Associates
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International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 44
U.S. Gas Prices Drift Slowly Higher
Q1 Q2 Q3 Q4 2012
$2.74 $2.22 $2.81 $3.40 $2.79
Q1 13A Q2 13A Q3 13E Q4 13E 2013E
$3.34 $4.09 $3.80 $4.00 $3.81
$3.34 $4.09 $3.54 $3.63 $3.65
$3.50 $3.90 $4.15 $4.00 $3.85
$3.35 $4.09 $3.54 $3.85 $3.71
Q1 14E Q2 14E Q3 14E Q4 14E 2014E
$4.16 $4.07 $4.20 $4.35 $4.20
$3.87 $3.82 $3.90 $4.03 $3.91
$4.10 $4.00 $4.00 $3.90 $4.00
$4.00 $3.50 $3.50 $4.00 $3.75
Source: Bloomberg, Thomson Reuters, Raymond James research
RJ&A Natural Gas Price Estimates (as of September 2013)
Current RJ Gas
2013 Estimates
Bloomberg Consensus
NYMEX Futures
Old RJ Gas Est.
Old RJ Gas Est.
Current RJ Gas
Bloomberg Consensus
NYMEX Futures
2012 H Hub Actual
2014 Estimates
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 45
Who Are The “Winners” In This New World?
• Energy Spectrum:– Infrastructure, Refiners & Niche Stories
• U.S. wins as trade deficit shrinks• U.S. manufacturing wins
– Gas input costs provide huge cost advantage
• U.S. dollar goes higher• U.S. workers & consumers win
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 46
0
2
4
6
8
10
12
14
16
2005 2007 2009 2011 2013E 2015E 2017E 2019E
Imp
ort
req
uir
emen
t (M
Mb
pd
)
Lower U.S. Oil Imports Contribute to a Narrowing Trade Deficit
Source: EIA, IEA, RJ est.
Down 6 MMbpd over past 7 years
Outlook For Oil Independence?(Pay Attention To This Graph!)
Equity ResearchPublished by Raymond James & Associates
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International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 47
What About the Non-Oil Trade Deficit?
0
2
4
6
8
10
12
Pric
e Ra
tio
U.S. Energy Cost Advantage
Brent/Natural Gas
Equity ResearchPublished by Raymond James & Associates
© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 48
Conclusion
• Game Changed For U.S. Gas 5 Years Ago
• Oil Game Changing Now!
• Oil Decline Pushed Out by Interruptions
• U.S. Nat Gas Price Improvement Here to stay!