Senior Energy Analyst
Erika Coombs
January 13, 2017
Price Makers vs. Price Takers
BTU Analytics
• BTU Analytics is a data-driven, energy market analytics firm focused on providing clear and timely information to industry decision makers
• Clientele is spread across Private Equity Companies, Producers, Service Companies, Power Providers, Traders, and Marketers.
• Consulting Capabilities Include:
• Natural Gas, Oil, and NGL market analysis
• Infrastructure development analysis
• Producer strategy advisory services
• Products:
• Upstream Outlook Report
• E&P Positioning Report
• Production Scenario Analysis Tool
• Northeast Gas Market Outlook Report
• Oil Market Outlook Report
Agenda
• Some Things Can’t Be Controlled• Changing Middle Eastern
Production Strategies• Wild Cards – Libya, Nigeria, etc.• Shifts in Market Fundamentals
• But, the Best Producers are Adapting and Delivering Impressive Results• Cost Reductions• Increased Well Productivity• Capturing Top Tier Resource• Leveraging Financial Tools
Spectacular Growth of North American Crude Oil
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
MM
b/d
Lower 48 Crude Production
13% CAGR
Source: EIA
US Represents 60% Global Oil Growth Over the Past 10 Years
Source: 2016 BP Statistical Review of World Energy
-4
-2
0
2
4
6
8
US Iraq Russia Canada SaudiArabia
UAE China Iran Other
MM
b/d
2005 to 2015 Change +9.8 MMb/d
US Independents Continue to Play Pivotal Role in US Production Trajectory
0
1
2
3
4
5
6
7
8
MM
b/d
US Crude Oil Production
Independent Major
Source: BTU Analytics, DrillingInfo
Note: Majors include Exxon, Chevron, BP, Shell, and ConocoPhillips
Civil Unrest Wild Card Impacting Global Crude Supply and Prices
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Mb
/d
Libyan Liquids Production
Libya
Source: BTU Analytics, IEA
Arab Spring Uprising, Gaddafi Ousted
Civil War Ensues
Second Civil War
Civil Unrest Wild Card Impacting Global Crude Supply and Prices
$0.00
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
$140.00
$160.00
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Bre
nt
$/B
bl
Mb
/d
Nigerian and Libyan Liquids Production
Libya Brent
Arab Spring Uprising , Gaddafi Ousted
Civil War Ensues
Second Civil War
Source: BTU Analytics, IEA
Global Oil Demand Per Capita Remains Below 1970s Peak
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Bb
ls/C
apit
a
Global Oil Demand Per Capita
US Europe & Eurasia
Middle East S. & Cent. America
Africa Asia Pacific
Source: BP Statistical Review of World Energy;
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Mill
ion
Peo
ple
Global Population
Population
Energy Conservation & Substitution Suggest Limited Future Demand Growth
2,000
2,500
3,000
3,500
4,000
4,500
5,000
2020 2025 2030 2035
MTO
E
Outlook for China Energy Consumption
2016 Outlook 2012 Outlook
Source: BP Statistical Review of World Energy; Bloomberg
Producers Focused on Driving Down Costs to Gain Competitive Advantages
Source: Pioneer Dec 2016 Investor Presentation
Pioneer Production Costs (Per BOE)
Producers Focused on Driving Down Costs to Gain Competitive Advantages
-60%
-50%
-40%
-30%
-20%
-10%
0%
E&P Production Expenses
CHK DVN APC PXD WLL RRC
Source: BTU AnalyticsNote: Assumes WTI Strip at 8/23/2016 $54.43 5 year average. NGL wellhead at 44% of crude wellhead.
Shift to Longer Laterals on Improving Technology and Acreage Consolidation
0
2,000
4,000
6,000
8,000
10,000
12,000
Avg
Lat
eral
Len
gth
Average Lateral Length
2013 2014 2015 2016
Note: 2016 values includes data through October. For individual wells with no reported lateral lengths, a regional average was used.
Source: BTU Analytics, Updated 11/30/2016.
Since 2013, Average Proppant lbs/ft has Doubled in Many of the Largest Producing Regions
0
500
1,000
1,500
2,000
2,500
Ave
rage
Pro
pp
ant
Usa
ge (
lbs/
ft)
Average Proppant (lbs/ft)
2013 2014 2015 2016
Note: 2016 values includes data through August
Source: BTU Analytics, Updated 11/30/2016.
Higher Proppant and Longer Lateral Lengths Contributing to Higher IP Rates Over Time
0
500
1,000
1,500
2,000
2,500
3,000
Bo
e/d
IP R
ate
Average IP Rate Over Time
2013 2014 2015 2016
Note: 2016 values includes data through October
Source: BTU Analytics, Updated 11/30/2016.
Average Well Economics Help Identify Trends, but Are Limited Because of Variations in Acreage/Operators
30
35
40
45
50
55
60
65
70
75
80
Wel
lhea
d B
reak
even
Pri
ce (
$/b
bl)
Average Production Weighted Oil Breakeven Price
Eastern EF Central Midland Delaware TX
DJ Basin Central Williston Delaware NM
Source: BTU Analytics. Wellhead assumes xx Gas Strip. 01/6/2016
Some Operators Have Made Larger Gains Than Others In Terms of Breakevens
Source: BTU Analytics. Assumes gas price strip at 6/30/2016 and average 2Q basin differentials.
30
35
40
45
50
55
60
65
Wel
lhea
d B
reak
even
Pri
ce f
or
Pro
du
ctio
n in
M
ajo
r Sh
ale
Bas
ins
Production Weighted Breakevens
CXO EGN EOG PXD XEC
All Plays Show Significant Variability in Results
Source: BTU Analytics. Assumes gas price strip at 6/30/2016 and average 2Q differentials.
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
STACK SCOOP PRB WesternEagle Ford
DJ DelawareBasin
Bakken MidlandBasin
EasternEagle Ford
2015-Present Well Breakeven Distribution (WTI Price)
<$20 $20-$25 $25-$30 $30-$35 $35-$40 $40-$45
But Variability Isn’t Random, Certain Operators have Captured Top Tier Resource
Permian Basin Breakeven And Operator Reported Acreage 2013-2016
Note: Assumes natural gas strip pricing as of 6/30/2016.
Each Play has it’s Winners & Losers
1. Assumes futures strip as of 6/30/2016. (WTI 5 Yr Avg $53.84/Bbl) NGLs 44% of crude less transport.
Sub $2.00 $2.00 - $3.00 $3.00- $4.00 Over $4.00
$0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00
BHP (20)
CHK (41)
XCO (40)
XOM (12)
CRK (5)
APC (37)
BP (5)
2015-2016 Haynesville Average Wellhead Breakeven @ Strip WTI
Uncharacteristic Contract Re-negotiations Enabled Producers to Eek Out Margins or Avoid Bankruptcy
0% 20% 40% 60% 80% 100%
Appalachia SW(1498)
Haynesville - (172)
Appalachia NE(492)
Percent Of Economic Wells At $3.00/MMBtu For 2015-Current Wells
Economic Additional Economic Wells at Reduced Gathering Costs Uneconomic
Source: BTU AnalyticsNote: Assumes WTI Strip at 8/23/2016 $54.43 5 year average. NGL wellhead at 44% of crude wellhead.
Transportation Weighs Heavily on Economics and New Projects Will Affect Future Differentials
2015-2016 % Bakken Wells w/ Sub $50 Breakeven
Note:@ Strip Henry Hub as of 6/30/2016 (Number of Wells)10% discount rate, maximum observed IP rates for crude oil and wet gas over the first 12 months of production and first year decline rates for crude oil and wet gas ifhistorical data is present. BTU Analytics’ estimates for drilling and completion costs are based on reported well depth, lateral length, proppant use and operator. NGLprices are calculated based on the price of each purity product as a percent of the wellhead crude price. Gathering, processing, compression, fractionation and operatingexpenses are estimated for individual basins and plays. Royalty rates assumed to be 20% for all wells unless otherwise noted.
0% 20% 40% 60% 80% 100%
Bakken - WTI(1620)
Wellhead Bakken(1620) Uneconomic
Uneconomic
Infrastructure Relief Not Necessarily in the Cards Everywhere
Source: BTU Analytics’ July 2016 North American Oil Market Model
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0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
MM
b/d
Permian Oil vs Takeaway Capacity
Refining Capacity Pipe Capacity Dec 2016 Permian Forecast
Expansion on Existing Pipes or New Builds?
Who pays for it?
Those Least in Need of Cash Can Get It–Permian and Northeast Players Accounted for 70% of
Equity Market Activity
Permian45%
Northeast25%
SCOOP/STACK9%
Bakken6%
Niobrara5%
Other10%
Equity Capital Markets Activity By Primary Basin
Source: Bloomberg, BTU Analytics. E&P equity raises >$10MM from 2015 to Aug 2016.
Sampling of Independents Hedging Activity, 19% of 2017E Crude Volumes Hedged
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
XEC
WLL
SWN
RRC
RICE
PXD
PDCE
OAS
NFX
NBL
MRO
GPOR
EQT
EOG
ECR
DVN
CXO
COG
CNX
CLR
CHK
AR
APC
Percent of 2017E Production Hedged
% Gas % Crude
Source: Company Filings and Consensus Production Estimates as of Aug 2016
Key Takeaways
• Growth outlook for US supply weighted down by shifting production strategy from Mideastproducers along with revising outlooks for global energy consumption
• Slower growth = fewer growing independent producers
• Tomorrow’s market leaders are posturing today – capturing low cost resources, locking in hedges and services contracts, swapping acreage, planning facilities for sustained low-cost ‘manufacturing’ style development
• Wellhead economics of various basins really don’t look that different – Best of the Best and Also Rans
• Transportation commitments and concentration of assets and infrastructure will differentiate which producers can grow production and gain market share and which producers must hope for event driven volatility giving way to higher prices
Additional Topics to Be Covered at BTU Analytics’ Oil & Gas Conference
• Recovery Timing & Price Stability. Can OPEC cuts re-balance the market in time for Saudi 2018 IPO?
• Permian Gas, Oil, NGL Production. Do breakevens matter anymore or are there other constraints that will dictate production growth?
• Northeast Pipelines. Which pipes will be on time? Which will end up in pipeline purgatory?
• SCOOP and STACK. Is it really as good as everybody is saying?
• US Gas Market Outlook. Henry Hub - Starved for gas or awash in supply?
What Lies AheadBTU Analytics’ Annual Oil and Natural Gas Conference
Date: February 8, 2017Venue: Hyatt Regency, 1200 Louisiana St.,
Houston, TX
More Information at: www.btuanalytics.com or call 720.552.8040
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BTU Analytics provides data-driven, market-risk assessments and due diligence analysis for acquisitions and divestitures of oil, NGL, and natural gas assets in North America. We utilize our in-depth understanding of North
American energy data to help clients determine the future value of upstream, midstream, and downstream assets in the face of ever-evolving market conditions.
Contact Us: [email protected]
445 Union Blvd., Suite 124Lakewood, CO 80228
BTU Analytics provides data-driven, market-risk assessments and due diligence analysis for acquisitions and divestitures of oil, NGL, and natural gas assets in North America. We utilize our in-depth understanding of North American energy data to help clients determine the future value of upstream, midstream,
and downstream assets in the face of ever-evolving market conditions.