North American Shale Revolution

7/28/2019 North American Shale Revolution

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2013 Platts, McGraw Hill Financial. All rights reserved.

The North American Shale Revolution

Platts Commodity Week - Dubai

Rick Allen, Director, Oil & Gas Consulting ServicesJune 2, 2013


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North American oil, natural gas and natural gas liquids (NGLs)

production gains are sending the continent toward energy self-

sufficiency

In the 10-year period ending in 2017, U.S. oil, gas and NGLsproduction combined is forecasted to grow by 62 Bcfe/d, or 10

MMBOE/d

This rapid ramp in production has happened through increasingoperator efficiencies

Massive capital investment in infrastructure development willbe required to deliver these commodities to market

Displaced imports (and exports) will balance the market

Key Take-Aways


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5/-3

188/+110

46/+18

55/-21

17/+6

3/-3

36/+11

17/-13

26/+17

2/-27

1/-2

228/+168

31/+27

7/-1

48/+30

24/+9

1/-2

Active rig count: May 3, 2013 / Change in rig count from January 1, 2010

Rig Increases Dry Gas Focused Areas

Rig Increases Liquids-Rich/Oil Focused Areas

Rig DeclinesSource: BENTEK, May 2013

2/-10

111/+27

66/+7

35/+17

64/-45

15/-22332/+73

453/+235

33/-57

13/-10PICEANCE

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

TXARKLA

TX GULF

27/-102

RATON

0/+0

U.S. Rigs Move to Oil and Wet Gas

TOTAL

1887

CHANGE

+537


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-20%

-10%

0%

10%20%

30%

40%

50%

60%

70%

IRR

$2 $3 $4 $5

Dry Gas Returns at $4 to $5

Note: Oil $80

NGL 30% of Crude

Strong Returns in Weak Gas Price Environment Higher Pricing Drives Dry Gas Growth

Lower Gas Price Sensitivity High Gas Price Sensitivity


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$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$/MMBtu

Equivalent

CAPP WTI HH MB NGL Brent

Value Gap Drives the Chase for BTUs

Source: ICE, EIA

Value Gap


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U.S. Oil and Gas Combined addAnother 7.5 MMBOE/d by 2018

-

12

24

36

48

60

72

84

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Bcfe/d

MMbo

e/d

Cumulative Increase in Production Since 2005

Gas NGL Crude

Source: BENTEK NG Market Call Long Term, NGL Market Call, and Crude Oil Market Call

Data as of May 6, 2013

7.5 MMBoe/d


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Shale Gas Rig Counts Peakedin 2010

0

50

100

150

200

250

300

HorizonalRigCount

Horizontal Rig Count

Source: BENTEK Production Monitors


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Shale Gas Production up 6 Bcf/d

0

50

100

150

200

250

300

0

2

4

6

8

10

12

14

16

18

Horizontal

RigCount

Bcf

/d

Fayetteville Haynesville Marcellus Horizontal Rig Count

Source: BENTEK Production Monitors


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Drill Time(Days)

Wells Per Yr.Per Rig

Avg. LateralLength ( Feet)

30 Day Ave.Prod Rate

(Mcfd)

IP Addit ionsPer Rig PerYr. (Mcf/d)

Drill &Complete

Costs ($MM)

1st Quarter 2007

1st Quarter 2008

1st Quarter 2010

2nd Quarter 2012

207

18

53

2,104

4,840

1,006 $2.8

2,454

18,360

129,813

$2.6

Drilling Efficiencies Up 600%

Fayetteville Shale

+130%

-66%

+144%

+8%

+190%

+607%

Source: Southwestern Energy Financials


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Efficiencies Across All Basins

11

50

38

28

17 16

37

2017

13

7

0

10

20

30

40

50

60

Haynesville Eagle Ford Marcellus Barnett Fayetteville

No.Day

s

Days Required to Dri ll One Well

2009 2010 2011 2012


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0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

- 2.0 4.0 6.0 8.0 10.0

B

cf/d

Years

Barnett Fayetteville Haynesville

Marcellus Eagle Ford

Haynesville (07)

Marcellus (09)

Fayetteville (05)

Barnett (02)

Climbing the Learning Curve

Eagle Ford (10)

Peak

Rig

Jan

2013

Marcellus 106 70

Haynesville 149 26

Eagle Ford 334 288

Barnett 241 64

Fayetteville 68 16

Rig Count


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Rig Count Does Not EqualWell Count

13

-

200

400

600800

1,000

1,200

1,4001,600

Numberof

Wells/Rigs

More Wells with Less Rigs

Horizontal Wells Drilled Horizontal Rigs


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Macro-Overview: Natural Gas

14


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U.S. Nat Gas Growth Continues

48.0

50.0

52.0

54.0

56.0

58.0

60.0

62.0

64.0

66.0

Bcf/d

2009 2010 2011 2012 2013 Fcst

Source: BENTEK Supply and Demand Report, Dry Production

Maintenance &

Freeze-offs

2009 Avg. = 55.3 Bcf/d

2010 Avg. = 57.0 Bcf/d

2011 Avg. = 61.4 Bcf/d2012 Avg. = 63.8 Bcf/d

2013 Est. = 65.2 Bcf/d

Hurricane Isaac


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U.S. Up 16 Bcf/d in the Next 6 Years

50.9 54.055.2 57.1

61.5 63.865.2 68.1

70.774.2 76.4

80.4

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

+2.6 Bcf/d Per Year +2.75 Bcf/d Per Year1.4 Bcf/d

Source: BENTEK Forward Curve


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U.S Gas Market Will Need Exports

45.0

50.0

55.0

60.0

65.070.0

75.0

80.0

85.0

90.0

U.S. Supply/Demand Balance

Dry Production US Production Forecast

US Demand US Demand Forecast

16%

14%

26%

33%


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Base Case Forecast for N.A. LNG

Sabine Pass

Freeport

Lake Charles

Cameron

Cove Pt.

Existing Import +

Proposed Export

Source: BENTEK

North East Exports:

Cove Point 0.75 Bcf/d (5.6 mtpa)Gulf Coast Export Terminals:

Freeport LNG 1.76 Bcf/d (13.2 mtpa)

Lake Charles 2 Bcf/d (15 mtpa)

Sabine Pass 2.4 Bcf/d (18 mtpa)

Cameron 1.6 Bcf/d (12 mtpa)

Kitimat LNG

HN DC LNG

LNG Canada

Proposed Export

Canadian Exports:

DC LNG 0.25 Bcf/d (1.8 mtpa)Kitimat LNG 1.4 Bcf/d (10 mtpa)

LNG Canada (Phase 1 ) - 1.6 Bcf/d (12 mpta)

South East Exports:

Elba Island FLNG 0.5 Bcf/d ( 4mtpa)

Elba Island


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N.A. LNG Exports Ramp in 2017

22

0

2

4

6

8

10

12

14

Bc

f/d

Kitimat Sabine Pass Freeport Cameron

Cove Point Lake Charles Elba Island DC

LNG Canada Capacity

North American LNG exports will average 9.25 Bcf (69.45 mtpa) in 2020

11.71 Bcf/d


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(14)

(12)

(10)

(8)

(6)

(4)

(2)

0

0

10

20

30

40

50

60

2012 2013 2014 2015 2016 2017 2018 2019 2020

NetLong/Sh

ort(Bcf/d

eq.)

Supply/Demand(Bcf/d

eq.)

Supply Demand

Net Long/Short W/Out N.A. Global Net Long/Short Position W/N.A.

N.A. LNG Balances Global Demand


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Macro-Overview: Natural Gas Liquids

24


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US NGLs Up 1.3 MMBbls/d

2,000

2,200

2,400

2,600

2,800

3,000

3,200

3,400

3,600

2011 2012 2013 2014 2015 2016 2017

Mb/d

Source: BENTEK NGL Market Call


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135Mb

/d

Y-Grade Pipeline Capacity

Additions

Ethane Pipeline Capacity

Additions*As of 7/30/2012

65 Mb/d

Propane/Ethane Pipeline

Capacity Additions

New NGL Pipelines Essential

Source: BENTEK NGL Market Call


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Note: Updated as of 1/15/2013

New Processing is Mandatory

Source: BENTEK NGL

Facilities Databank

17702840

1500

545

900

2515

3500

540

453

730

Processing Capacity, MMcf/d Fractionation Capacity, Mb/d


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U.S. NGL Infrastructure Additions

28

Gas Production

2013-2018

+14.7 Bcf/d

Gas Processing

2013-2018

+14.8 Bcf/d

NGL

Fractionation

2013-2018

+1.5 MMb/d

NGL

Transportation2013-2018

2.1 - 2.9 MMb/d

-

2,000

4,000

6,000

8,000

10,000

12,000

-

500

1,000

1,500

2,000

2013 2014 2015 TBD

M

Mcf/d

Mb/d

Proposed US NGL Projects

Transport Capacity Fractionation Processing

LPG Exports Required: Capacity


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LPG Exports Required: CapacityOverbuild?

29

0

200

400

600

800

1000

1200

2011 2012 2013 2014 2015 2016 2017 2018

Mb/d

Propane Exports Butane Exports Total Export Capacity

Faster than Expected Growth

Needed to Fill All Projects


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Macro-Overview: Crude Oil

30

North American Oil Production


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North American Oil ProductionUp 3.1 MMb/d Since 2010

-

2

4

6

8

10

12

MMb

/d

Canada U.S.Note: Excludes U.S. and CanadianNatural Gas Liquids Production

U S Oil Growth Mainly Permian


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U.S. Oil Growth Mainly Permian,Bakken, and Eagle Ford

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Mb/d

Add 3.2 MMB/d; 2.4 from These Top Three Oil Plays

Rest of U.S. Permian Bakken Eagle Ford

Source: HPDI & May 2013 BENTEK Crude Oil PADD Balances


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North American Oil Growth

33

0

1,000

2,000

3,000

4,000

5,000

Mb/d

Oil Production Growth Forecast: = 4 Bcf/d

Light U.S. Growth U.S. Condensate Growth Other U.S. Growth

Light Canadian Growth Heavy Canadian Growth

Source: BENTEK, EIANote: Waterborne Import volumes represent avg non-Canadian imports from Nov 2012 Jan 2013. Light >32

API, Heavy < 28 API.

N A Growth to Push Back on All


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N.A. Growth to Push Back on AllQualities of Waterborne Imports

0

1,000

2,000

3,000

4,000

5,000

Mb/d

U.S. Waterborne Imports vs. N. American Prod Growth

Light Imports Intermediate Imports Heavy Imports U.S. Light

U.S. Condensate U.S. Other Canadian Light Canadian Heavy

Note: Waterborne Import volumes represent avg non-Canadian imports from Nov 2012 Jan 2013. Light >32

API, Heavy < 28 API.Source: BENTEK, EIA

New Pipeline Projects for Oil


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Bakken

NiobraraAnadarko

Permian

Eagle FordSource: Petroleum Project

TrackerNot All Projects Shown

Pipe with Firm

Commitments

Proposed Pipeline

New Pipeline Projects for OilGrowth

35

Waterborne Imports Cut to 13% of


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Waterborne Imports Cut to 13% of

Total U.S. Crude Supply by 2018

0%

10%

20%

30%

40%

50%

60%

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Mb

/d

Domestic Production Canadian Imports

U.S. Waterborne Imports % Non-Canadian

Source: BENTEK May 2013 Crude Oil PADD Balances


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North American oil, natural gas and natural gas liquids(NGLs) production gains are sending the continent toward

energy self-sufficiency

In the 10-year period ending in 2017, U.S. oil, gas and NGLs

production combined is forecasted to grow by 62 Bcfe/d, or10 MMBOE/d

This rapid ramp in production has happened throughincreasing operator efficiencies

Massive capital investment in infrastructure developmentwill be required to deliver these commodities to market

Displaced imports (and exports) will balance the market

Key Take-Aways


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North American Shale Revolution

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