GOVERNOR S ENERGY SUMMIT

Transcription

1 GOVERNOR S ENERGY SUMMIT Current State of the Natural Gas Industry From the West Virginia Producers Perspective Charlie Burd, Executive Director October 18, 2017

2 Independent Oil and Gas Association of West Virginia, Inc. Formed in 1959 Largest West Virginia based trade association of oil and gas producers and those that serve them. ~ 600 members Serves ALL WEST VIRGINIA PRODUCERS: Conventional (Vertical) & Unconventional (Horizontal) Members from EVERY ASPECT of the industry. IOGAWV The Voice of ALL WV Producers

3 WV Oil &Gas Industry Labor Statistics 11,950 Direct Employees Of which, in 2014 there are approximately: 190 Petroleum Engineers; Average salary: $115, Drill Operators; Average base salary: $55,600 10,940 Derrick hands, field hands ; Average base salary: $42, Compressor/Station Operators; Average base salary: $56,980 5,320 Natural Gas Distribution/ Administration; Average base Salary: $44,570 WV Bureau of Labor Statistics: May 2014 Our industry can help slow the outward migration of our Best and Brightest

4 The BIG FOUR BASINS

5 MARCELLUS & UTICA SHALE FORMATIONS The Sweet Spots

6 BIG FOUR US Land Rig Count Allocation Marcellus & Utica OH 29 PA 33 WV 16 Total: 78 Other Basin SCOOP Stack: 37 Eagle Ford: 68 Permian: 386 Total: 491 Drillers will drill where they have the best regulatory and economic climate.

7 WEST VIRGINIA RIG COUNT COMPARISON Source: Baker Hughes /1/2000 1/1/2001 5/1/2001 9/1/2001 1/1/2002 5/1/2002 9/1/2002 1/1/2003 5/1/2003 9/1/2003 1/1/2004 5/1/2004 9/1/2004 1/1/2005 5/1/2005 9/1/2005 1/1/2006 5/1/2006 9/1/2006 1/1/2007 5/1/2007 9/1/2007 1/1/2008 5/1/2008 9/1/2008 1/1/2009 5/1/2009 9/1/2009 1/1/2010 5/1/2010 9/1/2010 1/1/2011 Ohio Penn. W. Virgina 5/1/2011 9/1/2011 1/1/2012 5/1/2012 9/1/2012 1/1/2013 5/1/2013 9/1/2013 1/1/2014 5/1/2014 9/1/2014 1/1/2015 5/1/2015 9/1/2015 1/1/2016 5/1/2016 9/1/2016 1/1/2017 5/1/2017 Since 2008, WV has went from the #1 state for drilling to #3 in Appalachia. Why??

8 America s Shale Revolution The Game Has Changed. and natural gas presents the greatest opportunity for WV s future Generations.

9 Total WV Natural Gas Production Source: WVDEP 1,600,000,000 1,400,000,000 1,290,758,001 1,386,705,843 1,200,000,000 1,000,000,000 1,001,969, ,000, ,852, ,000, ,000, ,000, ,665, ,177, ,237, ,125, ,481, WV Production Has Increased > 5X Since 2008.

10 Total Horizontal WV Natural Gas Production Source: WVDEP 1,400,000,000 1,200,000,000 1,133,972,939 1,232,626,545 1,000,000, ,000, ,741, ,000, ,910, ,000, ,000, ,570, ,814,452 6,008,649 21,998,819 66,659, Since 2008, WV Gas Production from Horizontal Wells has increased > 20 X.

11 Number of Horizontal Producing Wells Source: WVDEP 2,500 2,000 1,500 1,383 1,753 2,235 2,349 1, , Today, 89% of WV s Total Production is from 2,349 Horizontal Wells operated by ~ 15 Producers.

12 Total WV Conventional Natural Gas Production Source: WVDEP 300,000, ,000, ,000, ,000, ,656, ,178, ,578, ,310, ,910, ,942, ,228, ,785, ,079, ,000,000 50,000, Since 2008, WV Gas Production from Conventional Wells has decreased 40%.

13 Number of Conventional Producing Wells Source: WVDEP 70,000 60,000 50,000 52,350 48,237 51,834 56,814 60,002 58,490 54,814 52,762 59,321 40,000 30,000 20,000 10, % of WV s Total Gas Production is from 59,321 conventional, vertical wells operated by ~ 1,422 Producers (many of which are family owned companies operated by life long West Virginians).

14 Top Natural Gas Producing Counties In 2016 Source: WVGES : Doddridge (334.5 Bcf) 2015:Doddridge (364.0 Bcf) : Wetzel (208.7 Bcf) 2015: Wetzel (200.4 Bcf : Marshall (143.1 Bcf) 2015: Harrison (143.5 Bcf) : Ritchie (130.7 Bcf) 2015: Marshall (138.1Bcf) : Harrison (128.3 Bcf) 2015: Ritchie (84.3 Bcf) Tyler (120.9Bcf) 2015: Tyler (62.1 Bcf) : Ohio (49.0 Bcf) 2015: Ohio (39.1 Bcf) : Taylor ( 36.7 Bcf) 2015: Taylor (29.8 Bcf) : Marion (30.0 Bcf) 2105: Barbour (29.7 Bcf) : Barbour (23.0 Bcf) 2015: Marion (25.7 Bcf) While Northern WV production has grown exponentially, Southern WV (a historic development area) has lacked any significant development for nearly a decade = GAS SHORTAGE?

15 How d We Do It? Technology & Efficiency Today, the current record lateral is 19,300 ft. and located in OH while WV is averaging ~6,000 ft. WV policies are negatively impacting our competitiveness for investment dollars.

16 A Victim Of Our Own Success? Average Annual Natural Gas Prices WV Producer Markets vs. Henry Hub Henry Hub TCO DTI Price per MMBtu Point at Which Appalachian Basis Flips Negative Henry Hub $2.59 $2.11 $2.27 $3.89 $4.27 $3.22 $5.39 $6.14 $8.62 $7.23 $6.86 $9.03 $3.99 $4.39 $4.04 $2.79 $3.65 $4.41 $2.66 $2.46 TCO $2.73 $2.24 $2.41 $4.05 $4.49 $3.41 $5.65 $6.39 $9.01 $7.48 $7.12 $9.39 $4.18 $4.54 $4.14 $2.79 $3.65 $4.37 $2.55 $2.32 DTI $2.78 $2.26 $2.43 $4.12 $4.57 $3.41 $5.95 $6.49 $9.04 $7.55 $7.22 $9.53 $4.27 $4.59 $4.20 $2.79 $3.45 $3.28 $1.44 $1.37 Years With current pricing, continued drilling and operating efficiencies are the only path to survival for WV producers.

17 Basis Differential to Henry Hub Spot Source: Direct Energy Business Marketing LLC $1.500 $1.000 $0.534 $0.653 $0.500 $- $(0.500) $(1.000) $0.294 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 $0.054 $(0.573) DOM May-17 Jul-17 Sep-17 $(0.189) TCO $(1.500) $(1.251) $(2.000) $(2.500) $(1.944) $(2.072) Due to the current over supply situation in the Northeast, WV gas no longer affords a premium And is significantly discounted from the published Henry Hub price.

18 The Players are Changing/Consolidating in WV Chesapeake is out. Sold to SWN (Northern WV) and CORE Southern WV) Cabot is out (concentrating on NE PA). Sold to NYTIS/Carbon Natural Stone Energy is out. Filed Chapter 11. Sold to EQT TransEnergy is out. Sold to EQT Statoil is out. Sold to EQT Gastar is out. Sold to Tug Hill Operating Noble is out. Sold to HG Energy Magnum Hunter is out. Filed Chapter 11, reorganized to Blue Ridge Mountain Resources WV competitiveness with other states and the market downturn is having a real impact in WV

19 WV Producers Impact First Marcellus well drilled in Marshall County, West Virginia by Chesapeake Energy in Now, the biggest natural gas producing basin in the US 53 of 55 West Virginia counties have oil or natural gas operations All 55 counties benefit from state severance and property taxes paid by the industry More than $870 million in severance and property taxes has been paid since the implementation of horizontal drilling ( ) More than $255 million in special production assessment taxes paid to help retire the Unfunded Workers Comp Debt ( ) Estimated $500 Million (or one half BILLION) in net (after expenses) royalty payments in 2016 (many of which are to fellow West Virginians). Source: WV State Tax Department One WV producer distributed $160 Million to the mineral owners in 2016 alone.

20 $200.0 $180.0 $160.0 Oil & Natural Gas Severance Tax Contributions (Millions) Source: WV State Department of Revenue $186.8 $156.8 $140.0 $120.0 $124.7 $100.0 $80.0 $60.0 $87.6 $81.4 $61.2 $59.0 $78.4 $87.8 $72.3 $40.0 $20.0 $ Market prices do impact severance tax collections. Producers believe that by building new pipelines to new markets, the basis differential will improve = > Severance Taxes.

21 $500.0 $450.0 $400.0 $350.0 $300.0 $250.0 $200.0 $150.0 $100.0 $50.0 $- WV Severance Tax Coal Vs Gas Comparison (Millions) Source: WV State Department of Revenue $59.0 $449.9 $460.1 $78.4 $87.8 $386.7 $186.8 $343.4 $156.8 $311.2 $72.3 $218.7 $ Oil & Gas Coal Linear (Oil & Gas) Linear (Coal) $236.2 Since 2011, Natural Gas severance tax has more than doubled while Coal has decreased nearly 50%.

22 Producers Oil and Gas Property Tax Contributions (Millions) Source: WV State Department of Revenue $160.0 $140.0 $134.9 $120.0 $110.6 $106.0 $105.4 $100.0 $80.0 $84.0 $77.5 $80.0 $91.3 $71.7 $60.0 $40.0 $20.0 $ WV Producers are contributing $100 s of millions to the state and local tax coffers. NOT including the estimated $500 million in 2016 in royalty payments.

23 HOPE FOR THE FUTURE Safer, Cleaner, Greener & More Efficient Increased Workforce Training Water Treatment & Re-Use (e.g. Antero Clearwater) Longer laterals (Co-Tenancy needed to allow WV to better compete) Value Creation Natural Gas Power Generation (Moundsville Power, Harrison County, & Brooke County Power) Downstream Industries (i.e., Rebuild the Rust Belt ) Appalachian Storage Hub Did you know: PA has 60 operating Natural gas fired power plant and 22 under construction. Ohio has 17 operating plants and 4 under construction. West Virginia has 4 operating and 0 under construction.

24 Natural Gas Can Be the Fuel and the HOPE for WV s Future THANK YOU