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North American Energy Updatean Energy Update BP Energy Company March 2016
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Page 1: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

Presenter Name / Date

North American Energy Updatean Energy Update BP Energy Company March 2016

Page 2: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

Copyright ©. All rights reserved. Contents of this presentation do not necessarily reflect the Company’s views.

This presentation and its contents have been provided to you for informational purposes only. This information is not advice on or a recommendation of any of the matters described herein or any related commercial transactions.

BP is not responsible for any inaccuracies in the information contained herein. BP makes no representations or warranties, express or implied, regarding the accuracy, adequacy, reasonableness or completeness of the information, assumptions or analysis contained herein or in any supplemental materials, and BP accepts no liability in connection therewith. BP deals and trades in energy related products and may have positions consistent with or different from those implied or suggested by this presentation.

This presentation may also contain forward-looking statements. Any statements that are not historical facts, including statements about BP's beliefs or expectations, are forward-looking statements. These statements are based mostly on publicly available information, estimates and projections and you should not place undue reliance on them. These statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Therefore, actual future results and trends may differ materially from what is forecast, suggested or implied in any forward-looking statements in this presentation due to a variety of factors. Factors which could cause actual results to differ from these forward-looking statements may include, without limitation, general economic conditions; conditions in the markets; behavior of customers, suppliers, and competitors; technological developments; the implementation and execution of new processes; and changes to legal, tax, and regulatory rules. The foregoing list of factors should not be construed as exhaustive. BP disclaims any intention or obligation to publicly or privately update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Participants should seek their own advice and guidance from appropriate legal, tax, financial and trading professionals when making decisions as to positions to take in the market.

Disclaimer

Page 3: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

North American energy prices: Shifting signal

Source: Platts, NYMEX, OPIS, 03-09-2016

Oil & products

Ethane

Nat Gas

Coal

Propane

Page 4: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

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The Supply Picture

Page 5: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

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U.S. gas storage inventories: Average overall, but different regional trends

Source: EIA, 02-05-2016

Page 6: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

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North American rig counts continue to move lower

Source: Baker Hughes 03-04-16

Page 7: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

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Production per Rig

Source: EIA Drilling Productivity Report, February 2016

Page 8: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

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Rigs don’t tell the entire story: well backlog could continue to support production in the short term

Page 9: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

U.S. gas supply: EIA projecting a slow down in growth

Source: EIA Short Term Energy Outlook, March 2016

Steep ramp up in overall production due to associated gas and Northeast growth

More moderate growth trend due to less oil drilling??

Bcf

d

Page 10: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

U.S. oil production trend shifting in key plays

Sources: EIA Drilling Productivity Report – March 2016; Baker Hughes Rig Counts

On a monthly basis, rigs in 4 key shale oil basins have fallen by over 800 since November 2014. EIA expects oil and gas production to decline. Oil production in these plays has declined from a

high of 5.3 MMb/d in March 2015 to 4.8 MMb/d in March 2016

Page 11: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

11

CAPEX has fallen by 41% since Q3 2014

Source: Morning Star & Company Filings, Q3 2015

Page 12: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

12

Short and long term debt increased over $50 billion since the Q3 2014

Source: Morning Star & Company Filings, Q3 2015

Page 13: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

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Rates of return: Can producers achieve additional cost reductions?

Source: RBN Energy, December 2015

Page 14: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

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How will efficiency gains play in? Gas basin examples

Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts

Marcellus production growth remains resilient despite a flat to declining rig count since the beginning of 2013; Utica is still in its infancy.

Page 15: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

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Changing Flow Dynamics

Page 16: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

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Northeast production growth is having a big impact on regional flows

Dominion South

TET

TGT

REX

TGP

12/7/2015 2,253YTD 2015 1,204YTD 2014 193

YTD Change 1,011

Northeast Flows

12/7/2015 813YTD 2015 1,366YTD 2014 1,563

YTD Change -197

East Canada Flows

12/7/2015 -401YTD 2015 -254YTD 2014 226

YTD Change -480

Texas Flows

12/7/2015 1,976YTD 2015 3,560YTD 2014 3,150

YTD Change 410

Rockies Flows

12/7/2015 3,169YTD 2015 3,445YTD 2014 3,852

YTD Change -407

West Canada Flows

12/7/2015 -2,033YTD 2015 -543YTD 2014 418

YTD Change -961

NE Flows from SE

12/7/2015 940YTD 2015 1,747YTD 2014 2,862

YTD Change -1,115

Midcon Flows from SE

Gulf Flows to Premium SE 2/4/2016 2,585 YTD 2016 3,138 YTD 2015 4,366

YTD Change -1,228

NGPL

Page 17: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

17

Gas pipeline infrastructure: A closer look at regional dynamics

Source: EV, Bentek

Announced and Under Construction Export Capacity

To Midwest – 5.9 Bcf/d To GCSE – 15.7 Bcf/d

To NE and CAN – 6 Bcf/d

Industrial Power

LNG/MX exp

Power

Power

Page 18: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

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The Demand Picture

Page 19: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

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Gas demand trends

Source: Energy Information Administration, January 2016

Page 20: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

Natural gas generation rises as prices have decreased

South East Power Generation Share Midwest Power Generation Share

Source: EIA Natural Gas Monthly – February 2016

% %

*Wisconsin, Illinois, Indiana, Ohio, Michigan, Pennsylvania, New York, New Jersey

*West Virginia, Maryland, Virginia, North Carolina, South Carolina, Kentucky, Tennessee, Georgia, Alabama, Mississippi, Florida

Page 21: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

California ISO (CAISO)

Electric Reliability Council of Texas

(ERCOT)

Southwest Power Pool

(SPP)

Midcontinent ISO (MISO)

PJM

New York ISO (NYISO)

New England ISO (ISO-NE)

WECC (Including CA)

SERC

• Graph represents new builds under construction and proposed retirements

• Large renewables additions across the West, ERCOT, and SPP

• Watch nuclear space; potential for more retirement announcements

21

More generation capacity changes are coming: 2016-2020 announcements

Source: Energy Velocity December 2015

Coal Gas Renew Nuclear Hydro Petro

Page 22: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

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Low gas prices to prompt an industrial revolution?

• Low-cost gas and growing market for end products spurring new industrial capacity

• Timely permits, financing, and costs will influence the number that break ground

• 70-75% of projects proposed in Gulf Coast

Source: Wood Mackenzie Q4 2015 *Note: Forecast aggregated from public company announcements

Proposed Industrial Projects Incremental Gas Demand

Page 23: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

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Large gas pipeline expansions proposed from U.S. to Mexico

Operating Pipelines Pipelines completed in 2014-2015

Pipelines under construction Awarded Pipelines

CFE Planned Pipelines Compression Station

Source: Sener, January 2016

1

5

2

3

4

Brownsville to Tuxplan : 2.6 Bcf/d – May 2018

Columbia to Escobedo: 0.5 – 1.2 Bcf/d: Jul 2017

Waha to San Elizario: 1.1 Bcf/d – Jan 2017

Waha to Presidio: 1.4 Bcf/d – Mar 2017

NET Mexico / Los Ramones: 2.1 Bcf/d – Dec 2014

1

2

3

4

5

Mmcf/d

*Data up to Nov 2015

Page 24: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

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Over 9 Bcfd of U.S. LNG export projects currently under construction

Sources: Department of Energy, Federal Energy Regulatory Commission, various companies websites

Page 25: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

Source: Cheniere Investor Presentations, 2015

25

Will US LNG exports be competitive in the global market?

**All prices are for illustrative purposes only. Assumes a shipping charge of $1/MMBtu to Europe and $3.50 MMBtu demand charge**

12% Crude indexation at $75/BBL

8% Crude indexation at $50/BBL

115% HH

Shipping

Demand Charge

Page 26: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

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The Price Outlook

Page 27: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

Source: NYMEX, Various External Consultants, 02-10-2016

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Long-Term Henry Hub spot price outlooks

View of crude oil prices, competing fuels, supply costs, production growth, structural demand trends and global trade flows will influence gas price outlook

Page 28: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

Nymex Henry Hub Prompt Month History

28

Page 29: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

Range of the Nymex Contracts Mar16 – Jan21 since 2013

29

Page 30: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

Mar16-Jan 21 Near the All Time Bottoms!

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Page 31: North American Energy Updatean Energy Update · Sources: EIA Drilling Productivity Report – February 2016, Baker Hughes Rig Counts . Marcellus production growth remains resilient

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Questions? Answers?


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