RICK ALLEN
DIRECTOR, OIL & GAS CONSULTING
SERVICES
PLATTS ANALYTICS
NORTH AMERICA
NATURAL GAS OUTLOOK
JUNE 3, 2016
INDIANAPOLIS
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TAKE-AWAYS
• Demand-Constrained Environment: Oversupply
and Lack of Demand Growth Finally Having an
Impact
• Low Prices Destroyed IRRs; Continue to Push
Rig Activity Lower
• Low Prices Have Not Grown Demand Fast
Enough; Demand Growth Will Mean Production
Growth
• Gas Exports: Mexico and LNG Exports are the
Keys to Demand Creation and Price Support
• Henry Hub Price Forecast (Low Price Cures Low
Price)
GAS, OIL AND NGL PRICES: MMBTU
EQUIVALENT
$-
$5.00
$10.00
$15.00
$20.00
$25.00
$/M
MB
tu E
qu
ivale
nt
CAPP WTI HH Mont Belview Brent
PRICE AND PRODUCER ECONOMICS
MAY YEAR-OVER-YEAR IRR (2015 & 2016)
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
May 2016 Price Assumptions: Gas = average of the 12 month forward curve for each regional pricing point (range $1.77 - $2.69/Mcf)
Oil = 12 month forward average WTI +/- differential (range $36.52- $48.56/barrel)
NGLs = weighted average $/barrel, 12-mo forward average Mt. Belvieu prices (range $18.98- $22.75/barrel)
US RIG COUNTS: CURRENT VS. PEAK
3/-18
33/-131
6/-52
8/-39
3/-24
1/-6
3/-30
7/-13
1/-33
19/-115
3/-5
0/+0
49/-175
9/-35
2/-6
15/-50
6/-16
1/-10
Active rig count: May 2016 / Change in rig count from Oct 24, 2014
Rig Increases Dry Gas Focused Areas
Rig Increases Liquids-Rich/Oil Focused Areas
Rig Declines
1/-4
55/-42
13/-
81
18/-24
9/-43
1/-958/-201
150/-404
7/-33
3/-11PICEANCE
CALIFORNIA
MICHIGAN
POWDER RIVER
GREEN RIVER
WIND RIVER
OTHER ROCKIES
WILLISTON
SAN
JUAN
UINTA
OTHER
APPALACHIAN
D-J
MARCELLUS WET
MARCELLUS
DRY
UTICA
ILLINOIS
ARK FAYETTEVILLE
ARK WOODFORD
OFFSHORE
TX GULF
EAGLE FORD
PERMIAN
ANADARKO
FT
WORTH
AL-MS-FL
LA GULF
EAST
TX
ARKLA
OTHER
MIDCONTINENT
TX GULF
18/-14
RATON
1/-1
TOTAL
473
CHANGE
-1674
Source: Platts6
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
0
200
400
600
800
1000
1200
1400
1600
1800
2000
Wells p
er
Rig
per
Mo
nth
Nu
mb
er
of
Wells &
Rig
s
U.S Horizontal Drilling Dynamics
Horizontal Wells Drilled Horizontal Rigs
MODERATE PRICE RECOVERY BRINGS
NEW GAS
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
IRR
$2 HH $3 HH $4 HH
Note: Natural gas is based on Henry Hub at various levels +/- current regional differentials
Oil and NGL prices fixed at current levels
Support U.S. Production in Weak Price Environment Higher Pricing Drives Dry Gas Growth
Low Gas Price Sensitivity High Gas Price Sensitivity
US NATURAL GAS: THE MACRO VIEW
U.S. DRY GAS PRODUCTION
MODERATING
10
60.0
65.0
70.0
75.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Bcf/
d
2013 2014 2015 2016 2016 forecast
2015 GAS PRODUCTION BY REGION
(BCF/D)
11
19.8
20.4
11.3
6.5
1.4
North America
Average Daily
Gas Production -
2015
90.5 Bcf/d
14.3
0.3
4.1
8.6
4.1
U.S.
Production
2015
71.9 Bcf/d
PRODUCTION FORECAST: 2021 V. 2015
12
3
+10.8
+0.8
+2.8
0.0
North America
Gas Production
Growth 2015 -
2021
+14.3 Bcf/d
+0.2
+0.0
-0.6
-0.3
U.S. Gas
Prod.
Growth
2015-2021
+14.3 Bcf/d
0.0
-0.2
DEMAND GROWTH FORECAST: 2021 V.
2015
13
+1.1
+0.2
+2.5
0.5
+1.4
+0.0
+1.6
+0.2
+0.1
NorAm
Organic
Demand
Growth 2015-
2021
+8.6 Bcf/d
+0.5
+2.7
+3.4
0.3
+0.6
+0.4
U.S.
Organic
Demand
Growth
2015-2021
+5.6 Bcf/d
U.S. Exports
Growth 2015
- 2021
+7.3 Bcf/d
COAL RETIREMENTS OVER THE PAST
YEAR
14
Southeast/Gulf
FL 98
GA 2275
SC 10
TX 165
VA 575
AL 575
Total 3698
Appalachia/
Northeast
WV 1762
TN 985
OH 3025
PA 149
KY 1650
Total 7570
West/Rockie
s
AZ 289
CA 30
CO 150
MT 163
UT 189
Total 821
Midwest/Midcon
IA 131
IL 303
IN 1333
MI 143
MN 361
MO 39
WI 439
Total 2748
Total coal
retirements
in past
year
14.8 GW
INDUSTRIAL DEMAND IN SE AND
MIDCON
15
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2016 2017 2018
MM
cf/
d
Cumulative Industrial Demand Growth from New Projects
Southeast Midcon Market Texas Northeast
Midcon Producing Rockies Southwest Pacific Northwest
US DEMAND FORECAST 2012 V. 2015
16
-
20
40
60
80
100
Bcf/
d
RC/PL Power Industrial Exports to Mexico LNG Exports Production
Res/Comm +1.1 Bcf/d
Source: Platts
US NATURAL GAS: THE
NORTHEAST
PHENOMENON
NORTHEAST HAS BEEN THE GROWTH
ENGINE
18Source: Platts Bentek Cell Model
45.0
50.0
55.0
60.0
65.0
70.0
75.0
Bcf/
d
Northeast Production Growth Vs. Rest of U.S.
Northeast
Rest of US
NORTHEAST GROWTH KEEPS U.S.
PRODUCTION FLAT
0.0
5.0
10.0
15.0
20.0
25.0
Midcon Northeast Rockies Southwest Texas Southeast
Bcf/
d
2013 2014 2015 2016 2016 forecast
Northeast expected
to grow 2.1 Bcf/d
YOY to 22.2 Bcf/d;
It’s already
happened
RIG COUNT BY STATE
20
0
20
40
60
80
100
120
140
160
180
WV
PA
OH
NORTHEAST: BIG PLAYERS HAVE DROPPED
OUT
0102030405060708090
100
Ho
rizo
nta
l ri
gs
Antero Resources Cabot Oil & GasChesapeake ChevronConsol Gas EOG ResourcesEquitable Gulfport EnergyNational Fuel Exploration Noble Energy
Company
Max
Rigs
Curren
t Rigs
Antero Resources 15 6
Cabot Oil & Gas 7 1
Chesapeake 34 0
Chevron 10 1
Consol Gas 9 0
EOG Resources 5 0
Equitable 10 4
Gulfport Energy 9 3
National Fuel Exploration 5 1
Noble Energy 6 0
Range Resources 11 3
Rice Drilling 5 4
Shell 8 1
Talisman Energy 12 2
Southwestern Energy 6 0
21
NORTHEAST WELL INVENTORY REMAINS
HIGH
22
Well
Inventory
(1094 wells)
Well
Inventory
(916 wells)
Wet Marcellus/Utica
NE PA Dry
~2000 Wells
in Inventory
0
500
1000
1500
2000
2500
3000
NE PA Dry PA Central Dry PA South Dry PA SW Wet Ohio Total
# o
f w
ells
December-13 June-14 December-14 June-15 July-15 August-15 September-15
October-15 November-15 December-15 January-16 February-16 March-16
NORTHEAST WELLS IN BACKLOG INVENTORY
TREND
Inventory for PA/OH down ~700 in since late
2015
23
QUARTER CYCLE IRRS DRIVE PRODUCTION
NOW
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
1/4 CycleIRR
May 2016 Price Assumptions: Gas = average of the 12 month forward curve for each regional pricing point (range $1.77 - $2.69/Mcf)
Oil = 12 month forward average WTI +/- differential (range $36.52- $48.56/barrel)
NGLs = weighted average $/barrel, 12-mo forward average Mt. Belvieu prices (range $18.98- $22.75/barrel)
NORTHEAST PRODUCTION – DRILLING ACTIVITY
V. DUCS
25
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
1/1
/2005
10
/1/2
00
5
7/1
/2006
4/1
/2007
1/1
/2008
10/1
/2008
7/1
/2009
4/1
/2010
1/1
/2011
10/1
/2011
7/1
/2012
4/1
/2013
1/1
/2014
10/1
/2014
7/1
/2015
4/1
/2016
1/1
/2017
10/1
/2017
7/1
/2018
4/1
/2019
Bcf/
d (
DU
C v
olu
me)
Bcf/
d
Current forecast
Volume based on Current Drilling Activity
Well Inventory Volume
NORTHEAST GROWTH DEPENDS ON NEW PIPE
$(2.00)
$(1.50)
$(1.00)
$(0.50)
$-
$0.50
0
5
10
15
20
25
30
35
40
45
Bcf/
d
Northeast Production vs. Base Case Pipe Capacity
Production Base Case Pipe Capacity
Dom South Basis Dom South Futures Basis
Market expecting Northeast
basis to tighten in 2017
because of new pipeline
capacity
NORTHEAST US GAS MOVING SOUTH FOR
EXPORT
27Source: Platts/Bentek
4.13 Bcf/d
Proposed new
capacity to Gulf
Coast and Texas
1.7 Bcf/d Added in
November-December
2015
Project Target ISD Capacity
TGT Ohio-Utica Access Project 6/1/2016 626,000
TETCO Gulf Markets – Phase I 11/1/2016 250,000
TGT Northern Supply Access
Project 4/1/2017 384,000
Trunkline Backhaul Project 6/1/2017 750,000
TGP Southwest LA Supply Project 9/1/2017 900,000
TGP Broad Run Expansion 11/1/2017 200,000
CPG Leach/Rayne XPress 11/1/2017 600,000
TETCO Access South Project 11/1/2017 320,000
TETCO Gulf Markets – Phase II 11/1/2017 100,000
US NATURAL GAS EXPORTS TO MEXICO
-
2
4
6
8
10
12
Bcf/
d
Dry Production LNG Imports US Pipeline Imports
MEXICO INCREASING RELIANCE ON US
GAS
Production
Down 19%
From 2010
US Imports
Now 40% of
Total Supply
29Source: Platts, EIA
RECORD BREAKING EXPORTS TO
MEXICO
30Source: Platts Bentek
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.01
/11/1
72
/22
/18
3/6
3/2
24
/74
/23
5/9
5/2
56
/10
6/2
67
/12
7/2
88/1
38
/29
9/1
49
/30
10/1
61
1/1
11/1
71
2/3
12/1
9
Bcf/
d
Max-Min Range 2014 2015 2016
MEXICAN LNG IMPORTS DOWN 35% YEAR TO
DATE
0.00
0.25
0.50
0.75
1.00
1.25
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Bcf/
d
Mexico LNG Imports
5 Year Range 2016 5 Year Avg 2015
Source: Eclipse Energy
0
0.2
0.4
0.6
0.8
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Bcf/
d
Altamira LNG Imports
5 Year Range 2016 5 Year Avg 2015
0.0
0.2
0.4
0.6
0.8
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Bcf/
d
Manzanillo LNG Imports
3 Year Range 2016 3 Year Average 2015
Ju
n-
16
Manzanillo still supplying LNG to West
$-
$2.00
$4.00
$6.00
$8.00
$10.00
Jan-1
5
Feb
-15
Ma
r-1
5
Apr-
15
Ma
y-1
5
Jun-1
5
Jul-1
5
Aug-1
5
Sep-1
5
Oct-
15
No
v-1
5
De
c-1
5
Jan-1
6
Feb
-16
$/M
MB
tu
Peru LNG Netbacks
Peru to Manzanillo Peru to JKM
Source: Platts Analytics
U.S. EXPORTS TO MEXICO GROWTH
CONTINUES
0
1
2
3
4
5
6
7
Bcf/
d
Exports to Mexico average 5.3 bcf/d by 2021
Southwest Exports Texas Exports
US NATURAL GAS EXPORTS (LNG)
COLLAPSE OF GLOBAL LNG
PRICES
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
JKM NBP Henry Hub
2013:
HH to
JKM:$12.45
HH to NBP: $6.28 2015:
HH to JKM:$4.58
HH to NBP: $3.42
34Source: Platts, ICE
March 11, 2011:
Fukushima
Daiichi Nuclear
Disaster
GLOBAL LNG LIQUEFACTION
CAPACITY
0
50
100
150
200
250
300
350
400
450
500RoW
Malaysia
Russia
Qatar
Australia
Indonesia
USA
Algeria
Huge expansion
150 million tonnes added 2015-
2019
Mainly in Australia & USA
Source: Platts LNG Navigator
10
15
20
25
30
35
1/1
/2010
7/1
/2010
1/1
/2011
7/1
/2011
1/1
/2012
7/1
/2012
1/1
/2013
7/1
/2013
1/1
/2014
7/1
/2014
1/1
/2015
7/1
/2015
1/1
/2016
7/1
/2016
1/1
/2017
7/1
/2017
1/1
/2018
7/1
/2018
1/1
/2019
7/1
/2019
1/1
/2020
7/1
/2020
Bcf/
d
Other Contracts US contracts Imports Forecast
NEW US LIQUEFACTION CAPACITY ILL-
TIMED
36
- Resulting in -
Source: Platts Eclipse
Times when US LNG is
not needed to meet
demand
- BENTEK expects 10.1 Bcf/d of
LNG Liquifaction Capacity to get
built
- LNG Exports could reach nearly 5
Bcf/d annually by 2020
37
East Coast Export Terminals:
Cove Point – 1 Bcf/d
Gulf Coast Liquefaction
Capacity:
Sabine Pass T1-5 3.5– Bcf/d
Freeport LNG T1-3 – 2.1 Bcf/d
Cameron T1-3 – 2.1 Bcf/d
Corpus Christi T1-2 – 1.4 Bcf/d
LNG CAPACITY: LOW LOAD FACTORS IN EARLY YEARS
0
2
4
6
8
10
12
14
2016 2017 2018 2019 2020 2021
Bcf/
d
Base US LNG Capacity
Sabine Pass T12 Sabine Pass T2
Sabine Pass T3 Sabine Pass T4
Sabine Pass T5 Freeport LNG T1
Freeport LNG T2 Freeport LNG T3
Cameron LNG T1 Cameron LNG T2
Cameron LNG T3 Cove Point T1
Corpus Christi T1 Corpus Christi T2
Bentek LNG Export Forecast
Source: Platts Analytics
0%10%20%30%40%50%60%70%80%90%100%
0
2
4
6
8
10
12
Uti
lizati
on
Bcf/
d
US LNG export forecast
Southeast Texas Northeast Capacity Utilization
LNG CAPACITY UTILIZATION UNDERWHELMING UNTIL
2020
Source: Platts Bentek
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
5 Yr Avg 2013/2014/2015/2016
INVENTORY GOES FROM LOW TO HIGH IN 18
MONTHS
40
US Storage Inventories (Bcf)
Source: EIA
Polar
Vortex
All-time
high
PLATTS ANALYTICS – HENRY HUB
FORECAST
41
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
Bentek NYMEX Foreward Curve
Source: Platts Analytics
Natural gas prices
expected to rise
dramatically assuming
return to normal winter
Demand growth will continue to
prop up prices, depending
largely on how Northeast
production responds
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
5 Yr Avg 2013/2014/2015/2016 Forecast
INVENTORIES MOVE FROM HIGH TO LOW
AGAIN
42
US Storage Inventories
(Bcf)
Source: EIA, Bentek
GAS IRR SENSITIVITY TO HENRY HUB
PRICE
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
IRR
$2 HH $3 HH $4 HH
Support U.S. Production in Weak Price Environment Higher Pricing Drives Dry Gas Growth
Low Gas Price Sensitivity High Gas Price Sensitivity
May Henry Hub Sensitivity: Natural gas is based on Henry Hub at various prices +/- current regional differentials
Oil and NGL prices remains at current 12-month forward curve prices for their respective
regions43
TAKE-AWAYS
• Demand-Constrained Environment: Oversupply
and Lack of Demand Growth Finally Having an
Impact
• Low Prices Destroyed IRRs; Continue to Push
Rig Activity Lower
• Low Prices Have Not Grown Demand Fast
Enough; Demand Growth Will Mean Production
Growth
• Gas Exports: Mexico and LNG Exports are the
Keys to Demand Creation and Price Support
• Henry Hub Price Forecast (Low Price Cures Low
Price)
