Light Crudes and Condensates in Turmoil: Production, Exports, Splitters and Blending

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1 Light Crudes and Condensates in Turmoil: Production, Exports, Splitters and Blending Crude Oil Quality Association October 13, 2016

2 Light Crudes and Condensates in Turmoil» Oil prices remain ~ $50/bbl, but the oil-directed rig count is up by more than 110» U.S. crude oil production is down about 1.0 MMb/d since January 2015, but over the past three months has stabilized» Most of the decline in crude production over the past two years was condensate and light sweet crude oil» Crude exports are now legal, but exports have not increased, averaging about 500 Mb/d, the same as 2015» Most exports are condensate and light sweet crude oil grades» Condensate markets have tightened with exports competing with new condensate splitters and refineries upgraded to increase light crude capacity 2

3 Gas, NGL and Crude Prices $25 Shale 1.0 Inception to Q Shale 2.0 $140 $20 PRE SHALE SHALE GAS WET GAS SHALE OIL $120 Natural Gas Crude Oil NGLs $ per MMBtu $15 $10 $5 $0 $100 $80 $60 $40 $20 $0 $ per Bbl 3

4 U.S. Rig Counts Trend With Commodity Prices $/Bbl $140 $120 $100 $80 $60 $40 $20 Oil Price and Rig Count 1,800 1,600 1,400 1,200 1, Rig Count $/MMbtu $14 $12 $10 $8 $6 $4 $2 Gas Price and Rig Count 1,800 1,600 1,400 1,200 1, Rig Count $0 0 $0 0 WTI Oil Rigs HH Gas Rigs Source: Baker Hughes; CME/ Nymex 4

5 Production of Natural Gas, NGLs & Crude Oil U.S. Lower 48 Dry Gas Production U.S. NGL Production From Gas Processing U.S. Crude Oil Production Bcf/d MMB/d MMB/d Source: EIA/RBN 5

6 Oil and Gas Production Added Per Rig 1,200 1, ,200 1,200 1, % 1, % 1, % % 9.2 Bbl/d MMcf/d Eagle Ford Bakken Crude Oil Niobrara Marcellus/Utica Natural Gas Source: EIA 6

7 Active Rigs- October 7 th 2016 Oil Rigs 4 6 > 6 Gas 7

8 Eagle Ford Production and Rig Count Production (Mb/d) 2,000 1,800 1,600 1,400 1,200 1, Eagle Ford 11/14/2014 vs. 10/7/ Maverick 4 0 Zavala Frio LaSalle Dimmit Atascosa 19 5 McMullen 10 Wilson 8 1 Live Oak 33 6 Karnes 13 1 Gonzales 10 Bee 27 3 DeWitt 4 0 Fayette 12 1 Lavaca Webb Source: EIA, Baker Hughes 8

9 agle Ford County Rates of Return Oil Maverick 8% Wet Gas/Condensate Frio Atascosa Zavala 2% 11% 8% Dimmit La Salle McMullen 3% Wilson 0% 2% 3% 15% 13% Webb 10% Live Oak Karnes 10% Gonzales 4% Bee 26% DeWitt 2% Fayette 9% Lavaca Gas 9

10 BOE IP by Top Eagle Ford Counties BOE/d 1,400 1,200 1, Oil Gas 10

11 Eagle Ford Crude and Condensate Production Mb/d 1,800 1,600 1,400 1,200 1, Crude Condensate & Super Light (>50 API) 11

12 Lower-48 Production Growth Was Light Crude & Conde MMb/d Condensate >55.0 Superlight Light Medium Heavy <=30.0 Source: EIA/RBN 12

13 Condensate and Light Crude Now Declining Faster 1,300 >50 API 3, API 3, API 1,600 <=30 API 1,200 3,700 3,100 1,500 1,100 3,600 3,000 1,400 1,000 3,500 2,900 1, ,400 2,800 1, ,300 2,700 1, ,200 2,600 1,000 Source: EIA 13

14 U.S. Condensate Splitter Capacity Mb/d Buckeye Kinder Morgan #2 Marathon KY Kinder Morgan #1 Marathon OH BASF/Total Magellan Condensate Splitter Projects Shelved/Cancelled Capacity Company Location Mb/d Phillips 66 Sweeny 110 Targa/Noble Group Channelview 36 Martin Corpus Christi 50 Oil Tanking Beaumont 50 Cheniere Corpus Christi 100 Castleton? Corpus Christi 100 Total

15 U.S. Crude Oil Exports Mb/d Canada Non Canada Source: EIA/ClipperData/RBN 15

16 Production, Imports and Transport Modes U.S. Crude Production & Imports 18.0 Refinery Crude Receipts By Transport Mode MMb/d Crude production left axis Crude imports right axis MMb/d Pipeline Tanker Barge Rail Truck Source: EIA/RBN (2016 Est.) 16

17 U.S. Crude Oil Production Forecast Scenarios Crude Oil: WTI Cushing $ Mb/d/y $/Bbl $65 $60 $55 $50 $45 $40 MMb/d (389) Mb/d/y 6.9 $ Growth Contraction Cutback Growth Cutback Contraction 17

18 Crude Oil Production by Basin Growth Cutback Contraction Production Production Production (Mb/d) (Mb/d) (Mb/d) Production (Mb/d) Production (Mb/d) 3,500 2,000 1,600 2, ,800 3,000 1,400 1,800 1, ,200 1, ,500 1,400 1,400 1, ,200 2,000 1,200 1, , , , STACK/SCOOP Gulf Eagle Permian Bakken and of Niobrara Ford Mexico Other Anadarko Williston/ Bakken Niobrara/ PRB DJ Anadarko/ GW SCOOP Permian Eagle Ford Gulf Coast MMb/d Total Crude Oil Production 18

19 Last Time It Took 14 Years.. $45 $40 CME/NYMEX Crude Oil Price WTI Cushing Operation Desert Storm $/Bbl $35 $30 $25 $20 $15 $10 19

20 Another 14 Years? $130 CME/NYMEX Crude Oil Price WTI Cushing $110 $90 $/Bbl $70 $50 $30 $10 20

21 Hydrocarbon Markets in Turmoil» We have entered the next phase of the shale revolution» Shale development has concentrated in just a few counties, primarily due to the economics driven by high IP rates» Most of the decline in crude production over the past two years was condensate and light sweet crude oil» Crude exports are now legal, but exports have not increased, averaging about 500 Mb/d, the same as 2015» Most exports are condensate and light sweet crude oil grades» Condensate markets have tightened with exports competing with new condensate splitters and refineries upgraded to increase light crude capacity» The level of future crude oil production varies significantly depending on the outlook for prices» Crude oil prices may trade in a relatively narrow range for years to come 21

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