Global Supply and Shale in 2019 and Beyond

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1 Global Supply and Shale in 219 and Beyond Stephen G. Beck Senior Director, Upstream Gulf Downstream Association December 1, UPSTREAM MIDSTREAM DOWNSTREAM FUEL & TRANSPORT

2 Crude and Condensate Supply Outlook

3 Daily Production (MBbl/d) Supply growing through mid-22 s, then stabilizing 1, 9, 8, 7, 6, 5, 4, 3, 2, 1, Crude Oil and Condensate Production by Region MIDDLE EAST NORTH AMERICA RUSSIA & CIS AFRICA LATIN AMERICA ASIA PACIFIC EUROPE Large resources coupled with technological know-how and proximity to markets are key drivers supporting Middle East, North America, and Russia/CIS success in fossil fuels Stratas Advisors. All rights reserved. 3

4 Global crude and condensate growing in familiar places 218 Global Supply 84.2 MMBbl per Day 12% 5% 5% 5% 13% 5% 13% 13% RUSSIA USA SAUDI ARABIA IRAQ CANADA IRAN CHINA UAE KUWAIT BRAZIL NIGERIA KAZAKHSTAN MEXICO ANGOLA NORWAY QATAR VENEZUELA 223 Global Supply 91.1 MMBbl per Day 12% 5% 5% 16% 6% 12% 12% USA RUSSIA SAUDI ARABIA IRAQ IRAN CANADA UAE BRAZIL CHINA KUWAIT NORWAY KAZAKHSTAN NIGERIA MEXICO ANGOLA QATAR LIBYA ALGERIA Global crude oil and condensate production in October 218 reached 84.8 million b/d, up by 1.2 million b/d compared to July 218 Total supply will reach approximately 86.9 million b/d by the end of 22 as crude price slowly climb Stratas Advisors. All rights reserved. 4

5 Lwr-48 Shale and tight play prospects remain bright Permian Wolfcamp is key driver of rapid growth The Wolfcamp is comprised of multiple productive zones within what are commonly referred to as the A, B, C, and D benches Two other unconventional resources in the Permian remain on our radar, the Bone Spring and Alpine High, both of which have attractive aspects as well as detractions The Eagle Ford will remain an important contributor for many years. Operators arrested declining production by doubling the number of rigs to work in the play since the trough of mid-216. While the Eagle Ford boasts some of the best economics in North America shale, large swaths of the play are densely developed Looking north, the SCOOP (South Central Oklahoma Oil Province) and STACK (Sooner Trend Anadarko basin Canadian and Kingfisher counties) plays have quickly become some of the most interesting plays in the United States In the STACK, over-pressured, liquids-rich Meramec and Woodford tend to have highest production rates In the SCOOP, Woodford prospects remain a top priority The Niobrara reigns supreme among shales and tight rock resources in the Rockies Economics in large portions of the Niobrara are advantaged due to mineral fee aspects of the acreage dating back to the transcontinental railroad. Outside Wattenberg, the prospects look brightest in the Powder River Basin Stratas Advisors. All rights reserved. 5

6 U.S. Oil Production (MMBbl/d) WTI ($/Bbl) The Permian will remain the primary driver of shale growth U.S. oil reaching ~15 MMBbl/d in 27 before falling to ~11.5 MMBbl/d in $ $14 $12 $1 $8 $6 $4 $2 - $- Permian Appalachia Anadarko Rockies Arkoma South Texas GoM Cali Alaska ArkLaTex Other WTI Source: Stratas Advisors The Permian is likely to peak in the mid- to late-22 s, followed by a long plateau Shale represents ~74% of U.S. oil production Stratas Advisors. All rights reserved. 6

7 Production (MBbl/d) Wells Added Technology, better process, and insourcing driving shale results 8, 7, 6, 5, 4, 3, 2, 1, 1,6 1,4 1,2 1, Permian Unconventional Midcon Unconventional Other Unconventional Rockies Unconventional Eagle Ford Unconventional Wells Added The Permian is the beacon in 218. Longer laterals, higher proppant loads, zipper fracs, and enhanced processes kept costs in-line during low prices Looking forward, Stratas anticipates modest cost inflation with rising prices. However, several factors will provide limits to cost escalations Stratas Advisors. All rights reserved. 7

8 Non OPEC Crude and Condensate Production (Million b/d) Non OPEC Percentage to World Production (%) Shale share of global supply pushing higher in % 6% 59% 58% 57% 56% 55% Source: Stratas Advisors USA RUSSIA REST of Non OPEC CANADA CHINA BRAZIL KAZAKHSTAN MEXICO NORWAY UK OMAN COLOMBIA AZERBAIJAN Non OPEC Production Percentage Currently, U.S. and Russia together account for 47% of non-opec production Total non-opec production will account for 58%-59% of global supply by driven by strong growth in the US Stratas Advisors. All rights reserved. 8

9 Global Crude and Condensate Supply by Quality (%) Global crude quality becoming slightly sweeter and lighter 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % Source: Stratas Advisors Medium Sour Light Sweet Light Sour Heavy Sour Medium Sweet Cond. Sweet Cond. Sour Heavy Sweet The top 3 crude streams are medium sour oil (33%), light sweet oil (21%), and light sour oil (14%) As U.S. keeps ramping up oil production from its shale operations, the percentage of light sweet oil will increase by 1.2% by the end of 22 Stratas Advisors. All rights reserved. 9

10 Global Crude and Condensate Production by Region (Million b/d) The Middle East, North America, and Russia/CIS account for nearly 7% of global supply Source: Stratas Advisors Middle East Supply North America Supply Russia & Cis Supply Africa Supply Latin America Supply Asia Pacific Supply Europe Supply The Middle East is the top oil and condensate producing region, contributing 34% of estimated total world supply Production growth will mainly come from North America over the next 2 years Stratas Advisors. All rights reserved. 1

11 Assessment of longer-term drivers IMO compliance will reduce the demand for heavy crude by some 4, barrels per day in 22. Russia/CIS, Middle East, and Latin America are expected to bear the brunt of the decrease due to sulfur content and operational challenges Offshore activity is expected to begin picking up in the new decade. Supporting factors for offshore include higher average prices, consolidation in shale, and improved economics for offshore due to process improvements Natural gas markets are expected to begin resembling global crude oil markets with expanding LNG activity, highlighted by well-identified global benchmark prices, flow tracking of cargos, and liquid spot markets Natural gas demand will increasingly be serviced by supplies from North America, Russia/CIS, the Middle East and Asia Pacific Companies operating in shale applied technology, process improvements, and changed business practices to remain competitive during the low price environment. These enhancements will continue to benefit shale companies for years The U.S. will be a major supply source for natural gas liquids, especially propane Stratas Advisors. All rights reserved. 11

12 Daily Production (MBbl/d) Shale, led by North America, driving light crude production 4, Light Crude Production by Region 35, 3, 25, 2, 15, 1, 5, MIDDLE EAST NORTH AMERICA AFRICA RUSSIA & CIS ASIA PACIFIC EUROPE LATIN AMERICA North American shale will drive production through the mid- to late-22 s Longer-term, the Middle East retakes the lead as top producer in light crude Stratas Advisors. All rights reserved. 12

13 Daily Production (MBbl/d) Shale is also driving condensate production 1, 9, 8, 7, 6, 5, 4, 3, 2, 1, Condensate Production by Region MIDDLE EAST NORTH AMERICA RUSSIA & CIS AFRICA ASIA PACIFIC LATIN AMERICA EUROPE Portions of the Permian, Eagle Ford, and SCOOP are rich in condensate resources Longer-term, the Middle East, is the top producer in condensate Stratas Advisors. All rights reserved. 13

14 Daily Production (MBbl/d) Medium crude supply geared for slow, steady growth 45, 4, Medium Crude Production by Region 35, 3, 25, 2, 15, 1, 5, MIDDLE EAST RUSSIA & CIS LATIN AMERICA ASIA PACIFIC AFRICA NORTH AMERICA EUROPE Iraq and Iran are key drivers of Medium growth While risk is omnipresent, these are resources of known quantity and value Stratas Advisors. All rights reserved. 14

15 Gas and NGL Supply Outlook

16 Daily Production (MMcf/d) North America is a major source of gas and NGL growth 6, Total Gas Supply by Region 5, 4, 3, 2, 1, NORTH AMERICA RUSSIA & CIS MIDDLE EAST ASIA PACIFIC AFRICA LATIN AMERICA EUROPE With respect to dry gas, the Marcellus is a world scale resource with access to multiple markets Associated gas from the Permian and Eagle Ford, among others, are insensitive to gas prices Stratas Advisors. All rights reserved. 16

17 Daily Production (MMcf/d) North America, Russia/CIS, and the Middle East are well positioned for the long-term 6, Dry Gas Supply by Region 5, 4, 3, 2, 1, NORTH AMERICA RUSSIA & CIS MIDDLE EAST ASIA PACIFIC AFRICA LATIN AMERICA EUROPE More than half of global dry gas is sourced from North America, Russia/CIS, and the Middle East Intense competition and large resource bases will benefit conumers Stratas Advisors. All rights reserved. 17

18 Global Dry Gas Production (Bcf/d) LNG Price (USD/MMBtu) Global gas production to rise steadily over the next 2 years Source: Stratas Advisors World Total Dry Gas Supply LNG Price-US-Henry Hub LNG Price-Japan Global dry gas production reached 353 Bcf/d in October 218, setting yet another new production record. Looking forward, global dry gas is projected to grow by another 24 Bcf/d by yearend 22 Robust growth in dry gas should lead Asian LNG prices to $1/MMBtu by the end of 22 Stratas Advisors. All rights reserved. 18

19 Global Dry Gas Supply by Region (Bcf/d) North America will contribute a third of global dry gas production growth in the next 2 years Source: Stratas Advisors North America Russia & Cis Middle East Asia Pacific Africa Europe Latin America North America and Russia/CIS are the top 2 gas producing regions, followed by the Middle East and Asia Pacific North America should see a 1 Bcf/d increase between August 218 and December 22 Stratas Advisors. All rights reserved. 19

20 Daily Production (MBbl/d) North America is projected to supply more than 6% of NGL volume NGL Supply by Region 2, 18, 16, 14, 12, 1, 8, 6, 4, 2, NORTH AMERICA MIDDLE EAST LATIN AMERICA AFRICA RUSSIA & CIS ASIA PACIFIC EUROPE Wells in the Permian, Eagle Ford, SCOOP, Utica, and more are a key source of NGLs In recent years, significant volumes of ethane were not captured by processors. Hence, growth in ethane could outpace expectations should prices rise adequately Stratas Advisors. All rights reserved. 2

21 Global NGL Supply by Region (Million b/d) Global NGL production will continue to be dominated by North America Butane 12% Propane 26% P5 Ethane 53% Source: Stratas Advisors North America Middle East Latin America Asia Pacific Russia & Cis Europe Africa North America is the top NGL producer, accounting for approximately 58% of global NGL supply Ethane constitutes more than half of global NGL output Stratas Advisors. All rights reserved. 21

22 Daily Production (MBbl/d) Ethane supply to ramp rapidly 12, Ethane Supply by Country 1, 8, 6, 4, 2, USA SAUDI ARABIA UAE QATAR CANADA NORWAY RUSSIA IRAN Ethane growth driven largely by robust Permian activity Efforts to curb flaring and ongoing infrastructure build-outs add to ethane capture Stratas Advisors. All rights reserved. 22

23 Daily Production (MBbl/d) Propane shares a similar story with ethane Propane Supply by Country 5, 4,5 4, 3,5 3, 2,5 2, 1,5 1, 5 USA SAUDI ARABIA ALGERIA CANADA Stratas Advisors. All rights reserved. 23

24 Major Takeaways Crude Oil Global oil and condensate production to reach 86.9 million b/d by end of 22, and 93.2 million b/d by 24 U.S. will account for almost half of global growth before 22. Long term growth relies on Middle East OPEC production cuts of 1.2 million b/d indicated for 1H219 Asian countries stand to benefit from ample supply and low prices caused by the shale boon Natural Gas and NGL Global dry gas production will ramp up to over 38 Bcf/d by the end of 22, and 59 Bcf/d by 24 Global NGL production will reach close to 15 million b/d by the end of 22, and over 19 million b/d by 24 U.S. and Middle East will account for the majority of global gas output As U.S. expands LNG export capacity, Asian LNG consumers will benefit from lower price, while Qatar and Australia will experience fierce competition for market share Stratas Advisors. All rights reserved. 24

25 Stratas Advisors, a Hart Energy company, is a global consulting and advisory firm that covers the full spectrum of the energy sector and related industries. We can help you develop a deeper understanding of the developments that are shaping the future of oil & gas. Our support includes customized consulting that is focused on a client s specific strategic objectives, competitive challenges and asset base. Additionally, we offer support through subscription services and comprehensive market studies UPSTREAM MIDSTREAM DOWNSTREAM FUEL & TRANSPORT 1616 South Voss Road Suite 675 Houston, TX 7757 United States TEL stratasadvisors.com Bogotá Brussels Denver Houston London Melbourne Mexico City New Delhi New York San Diego São Paulo Singapore W ashington, D.C.