Shale Production & Technology - Bentek Presentation to CEA Natural Gas Committee

8/7/2019 Shale Production & Technology - Bentek Presentation to CEA Natural Gas Committee

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Presented To:

Natural Gas CommitteeWashington DC

March 10, 2011

Shale Production & Technology: Unconventionals

Reshape The US & Global Natural Gas Markets

Consumer Energy Alliance


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2BENTEKENERGY.COM

The Current Market: Demand & Production AreGrowing

Productivity Gains: Will They Continue?

Prices: Why Dont Producers Stop Drilling?Growing Production: Implications for Basis andFlows

Forward Curve ProjectionConclusions

Presentation Outline

The Current Market: Demand & Production AreGrowing

Productivity Gains: Will They Continue?

Prices: Why Dont Producers Stop Drilling?Growing Production: Implications for Basis andFlows

Forward Curve ProjectionConclusions


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3www.bentekenergy.com

Permian

Haynesville

Anadarko/G Wash

Barnett

Woodford

Fayetteville

DJ/Niobrara

Williston/Bakken

Eagle Ford

Piceance

Uinta

Gr River/Jonah-Pinedale

San Juan

PRB

Horn River

Montney

WesternSedimentaryBasin

Marcellus

Major Active Oil and Gas Plays


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45.0

50.0

55.0

60.0

65.0

70.0

1/1 2/1 3/1 4/1 5/1 6/1 7/1 8/1 9/1 10/1 11/1 12/1

Comparison of Marketed Production

US Production Is At Record Levels

Source: BENTEK Supply and Demand Report

Jan JulApr Oct

AverageDailyCo

nsumption(

Bcfd)

-2% 1%

Data through March 7, 2011

2008

2009

2010

Q-2Q-1 Q-3 Q-4

5% TD 7%QTD

2011

5%Pre-2010 US Production High


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3.1

-0.3

-0.9

1.9

-0.1

-0.9

0.3

2.1

1.4

So Far In 2011 Production Growth Is

Outstripping Demand Growth2011 versus 2010*

(Bcf)

Source: BENTEK Supply Demand Report

*As of March 9, 2011

1.9 1.4 => 0.5 Bcfd More Into Storage On Average In 2011 YTD

Mex

ExportsIndustrialPowerDryProd

CumSupply

CNImportsLNG

Cum

Demand

Res/

Com


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Storage Inventories Are Still High

0500

1,000

1,500

2,000

2,500

3,000

3,5004,000

4,500

Impact of Cold Weather

2011 Inventory

2009 Inventory

Five Year Max

Storage Inventory Thru 2/25/2011 (Bcf)

Impact of Hot Weather

-200

-100

0

100200

+8 On 2/25

Change In Inventory( 2010-2009)

Oct7

Nov6

Dec4

Jan7

2010 Inventory


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The Current Market: Demand & Production Are

GrowingProductivity Gains: Will They Continue?

Prices: Why Dont Producers Stop Drilling?

Growing Production: Implications for Basis andFlows

Forward Curve Projection

Conclusions


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Historic Relationship Between Rig

Count & Production No Longer Holds

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

0

500

1,000

1,500

2,000

2,500

3,000

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Active Rig CountGross Production (wet)

ActiveRigCount

AverageDailyProduction

(Bcfd)

Source: BENTEK, RigDataData through December 31, 2010


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0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

0

1,500

3,000

4,500

6,000

7,500

2006 2007 2008 2009

Es

timatedUltim

ateRecovery

(EUR)(Bcfe)

AverageLateralLength(Ft)

Longer Laterals & Increased

Fracing Drive Production Gains

5 Stages 5 Stages

11 Stages

9 Stages

Experience of Newfield Exploration Co in Woodford


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Concerns About Fracing Are Misplaced

Cement Casing

Water Aquifer

Several Thousand

Feet of

Impermeable

Rock

Frac


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Early Wells Are Monitored

Marcellus Well Frac Monitor

Source Halliburton, 2010


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Geology Is Another FactorPinedale Production Heat Map

> 2,5001,650 2,5001,430 1,6501,100 1,430< 1,100

Average 36 Month Prod


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Multi-Well Pad Drilling Reduces

Land Disruption


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Haynesville Drilling Is Intended To

Hold Leases . . .


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And, Creates A Smaller Impact Footprint

7

5

3

1

2

4

6

8


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Conclusions


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Why Is Production Growing With Low Prices?

Source: ICE

$0

$2

$4

$6

$8

$10

$12

$14

$/M

MBTU

Avg. 2008 - $8.85

Since 1/1/09 - $4.15Avg. 2007 - $6.94


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20Source: RigData, BENTEK

+218

Not all rigs/basins shown on map, total lower than 884

Active Rig Additions Since Recent Low - May 2009

-7

+3

+2

+114

+131

+262

+10

+36

+98

North-SouthLiquidsFairway

Developing

+102

+4

+5

+9

+13

-3

+22

+8

-3+11

+26

+61

+10

+2

+9

+2

-1

+24

+723

+4

Gas-ProneOil-Prone


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Distribution Of Value For Typical

Sprayberry Well In The Permian Basin


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The Higher The Oil:Gas Ratio,

The Less Value Accrues To Natural Gas


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3.50

3.75

4.00

4.25

4.50

4.75

5.00

5.25

5.50

Bc

f/d

Oil Will Drive Permian Gas Production

1.1 Bcf/dAssociated Gas

May 2009 Forecast

May 2010 Forecast

Actual & Projected Permian Production


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Haynesville

Fayetteville

Barnett

Woodford

Marcellus

Pinedale

Piceance

Eagle Ford (D)

G Wash (D)

IRR Gas Wells @ $3.50Oil @ $80.00

DJ (W)

Permian (W)

S Juan

Weak (8%-20%)Good (> 20%)

Bank or Lower

Bakken (O)

Comparative Rates Of Return

100+%

8%

14%

12%

17

%

-18%

-2%

6%

8%6%

1%

4%

Dec. 5, 2010

27%

6%

Horn River 10%

Montney


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Haynesville

Fayetteville

BarnettCombo

Woodford

Marcellus

Pinedale

Piceance

Eagle Ford(Combo)

G Wash (W)


DJ (W)

Permian

(Combo)

S Juan

Weak (8%-20%)Good (> 20%)

Bank or Lower

Bakken (O)


100+%

8%

14%

17%

-2%

6%

8%6%

100+%

100+%

100+%

100+%

Dec. 5, 2010

27%

6%

Horn River 10%

Montney


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Haynesville

Fayetteville

BarnettCombo

Woodford

Marcellus

Pinedale

Piceance

Eagle Ford(Combo)

G Wash (W)


DJ (W)

Permian

(Combo)

S Juan

Weak (8%-20%)Good (> 20%)

Bank or Lower

Bakken (O)


100+%

15%

1%

12%

100+%

100+%

100+%

100+%

28%22%

13%

12%

Dec. 5, 2010

29%

9%

Horn River 16%

Montney


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Haynesville

Fayetteville

BarnettCombo

Woodford

Marcellus

Pinedale

Piceance

Eagle Ford(Combo)

G Wash (W)


DJ (W)

Permian

(Combo)

S Juan

Weak (8%-20%)Good (> 20%)

Bank or Lower

Bakken (O)


100+%

7%

100+%

21%100+%

100+%

68%43%

Dec. 5, 2010

100+%

26%

38%

32%

30%

19%

Horn River 30%

Montney


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Conclusions


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$(2.90)

$(0.81)

$(0.59)

$(0.32)

$(0.45)

$(0.11)$.08

$0.27

$1.49

$0.25

$(0.53)

$(0.05)

$(0.44)

In 2007 Price Signals Pulled Gas East

$6.94

Go East!


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As A Result, Many New Pipelines Were

Built Between 2007 & 2009

Negative Basis(prices less

ThanHenry Hub)

Positive Basis(prices greater

thanHenry Hub)

REX 1.8 Bcf/d

6.4 Bcf/dTexas Gas


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Producers Now Have Options & Face

Intense Gas-on-Gas Competition

$(0.43)

$(0.19)

$(0.12)

$(0.03)

$(0.11)

$0.09

$0.02

$0.14

$0.67

$4.26

$(0.02)

$0.27

$0.15

$(0.15)Average Daily Basis

(August 1, 2009 October 13, 2010)

$(0.08)

WestNorth

Go East ???

$2.47

$0.82

$0.13


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BENTEK Appalachia Production Projections

-

12

3

4

5

6

7

8

Bcf

Kentucky New York Ohio Pennsylvania

Virginia West Virginia Q4 2009

Source: BENTEK


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Market Implications of Production Trends

Rockies

Anadarko/Permian

Marcellus

SE SupplyArea

Canada


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Conclusions


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Coal Switching May Add Significant Demand

00.2

0.50.8

$5.00 $4.00 $3.00 $2.00

0.10.4

0.71.0

$5.00 $4.00 $3.00 $2.00

Northeast(Bcfd)

0.5

0.9

1.3

1.7

$5.00 $4.00 $3.00 $2.00

0.1 0.20.3

0.5

$5.00 $4.00 $3.00 $2.00

0.7

1.7

2.7

4.0

$5.00 $4.00 $3.00 $2.00

Total US(Bcfd)

West

(Bcfd)

Midwest

(Bcfd)

Southeast(Bcfd)


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BENTEK Total N. Gas Demand

Forecast Through 4/1/2011

0

20

40

60

80

100

120

1/1 2/1 3/1 4/1 5/1 6/1 7/1 8/1 9/1 10/1 11/1 12/1

Bcf/d

2008 2009

2010 2010 Bal Forecast2011 Forecast


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BENTEK Dry Gas Production

Forecast Through 4/1/2011

40

50

60

70

1/1 2/1 3/1 4/1 5/1 6/1 7/1 8/1 9/1 10/1 11/1 12/1

Bcf/d

2008 2009

2010 2010 Bal Forecast2011 Forecast


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NA Should Be Long Next Summer

(0.1)

0.0

Canada

Northeast

Midcontinent

Southeast

RockiesWest

Long 0.1

(0.1)

(0.1)Even

0.4(0.4)

Short 0.8

0.60.0

Short 0.6

Long 0.3

0.81.1

0.21.4

Long 1.2

Total NA

Demand - 1.8 BcfdSupply - 2.0 Bcfd

Long 0.2 Bcfd


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We Believe The Forward Curve Is Overstated

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

$5.50

$6.00

$6.50

NYMEX Futures and BENTEK Forecast

NYMEX Futures

BENTEK Forward Curve


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Improved ability of industry to market the benefits of gas

Increased power demand

EPA criteria pollutants (SO2, NOX, Mercury) Increasing pressure on wind/other renewables

Additional demand from feedstock consumers

Dow Chemical plans to increase its ethane cracking capacity 20 30% over next 2-3 years.

Increasing use in transportation market

Exports

Kitimat

Chenier MOU with Morgan Stanley

Chenier MOU with ENN (XinAo Gas)

Development of a global trading culture/market

What Keeps N. Gas Prices Off The Floor?


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Technology is radically transforming the natural gas and oil businesses.Operational and development process efficiency will increasingly definewinners and losers.

The disparity between haves and have-nots will widen.

Global markets will ultimately be impacted.

The pipeline network functions as a national grid, shifting capacity inresponse to market need. The value of FT is diminished.

Oil and liquids exploration will place a floor under gas production.

BENTEK believes the forward curve will continue to drop. QE and othermisguided government policy might arrest the fall (i.e. cause prices to rise).

Increased power gen, industrial, transport and export demand will holdprices in the $4.00 to $4.50 range for years to come.

Finally, consumers should be the principle beneficiaries. Natural gas ispoised to provide a cost effective solution for our nations energy needs. Itis abundant, clean, cost effective and domestic.

If the market is allowed to prevail, natural gas will be the base of our energyfuture for the foreseeable future.

Conclusions


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43BENTEKENERGY.COM

Porter Bennett

32045 Castle Court, Suite 200

Evergreen, CO 80439

Office: 303-988-1320

Toll Free: [email protected]

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Shale Production & Technology - Bentek Presentation to CEA Natural Gas Committee

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