We ve Seen This Movie Before

Transcription

1 The Dynamic Energy Landscape: Natural Gas in the U.S. We ve Seen This Movie Before October 26, 2015

2 Production of Natural Gas, NGLs & Crude Oil Bcf/d U.S. Lower 48 Dry Gas Production 85% of Worldwide LNG Market MMB/d U.S. LPG* Production From Gas Processing More than Double 2008 MMB/d U.S. Crude Oil Production 3X Alaska in 2 years % % % *LPG = Propane & Butane Source: EIA 2

3 Commodity Prices Impact on Rig Count $/MMbtu $14 $12 $10 $8 $6 $4 $2 Gas Price and Rig Count 1,800 1,600 $140 1,400 $120 1,200 $100 1, Rig Count $/Bbl $80 $60 $40 $20 Oil Price and Rig Count 1,800 1,600 1,400 1,200 1, Rig Count $0 0 $0 0 HH Gas Rigs WTI Oil Rigs Source: Baker Hughes; CME/ Nymex 3

4 EOG Eagle Ford Productivity Gains % +201% +88% 1, % Drill Time (Days) - Wells/Year Per Rig 0 30 Day Avg IP Rate (b/d) - IP Additions Per Rig Per Year (Mb/d) Source: EOG 4

5 Crude Oil & Gas Production Added Per Rig % % % 6.9 Bbl/d % MMcf/d Eagle Ford Oil - Bakken Oil - Permian Oil - Marcellus/ Utica Gas Source: EIA 5

6 Producer Rates of Return Fall October Crude Oil $50.00/bbl; $90/bbl; Natural gas gas $3.75/MMbtu* $2.50/MMbtu Bakken (Williston) 39% 5% Piceance -12% -2% Niobrara 37% 3% Permian Delaware 40% 3% Anadarko 41% 6% Woodford 34% 2% 23% -3% -10% 5% Granite Wash Eagle Ford Oil 3% 40% -2% 24% Eagle Ford Wet * Henry Hub; Excludes lease costs Marcellus Dry Utica Dry 15%/ 2%/ 16%/ -4%/ -8% 1% -11% -1% 22%/ -4%/ 32%/ 1%/ 24% 13% -8% -2% Utica Wet Marcellus Wet -7% 6% Fayetteville Haynesville Dry Gas Plays Wet Gas Plays Oil Plays 6

7 Producer Rates of Return Oct % Reduction Crude Oil $50.00/bbl; Natural gas $2.50/MMbtu Change in D&C Costs since 2014 Bakken Anadarko Perm. Eagle Ford Utica Continental -45% -20% Laredo -25% Oasis Pet -26% Pioneer -25% SM Energy -30% EP Energy -11% -12% Occidental -22% Hess Corp -25% -33% Conoco Phillips EOG Resources -19% -22% -10% Devon Energy -30% -20% Cimarex -30% -20% Average -29% -25% -22% -18% -33% Piceance Bakken (Williston) -12% -5% Permian Delaware Niobrara Anadarko Woodford 16% 3% 19% 3% 16% 5% Eagle Ford Oil 12% 19% 6% -3% 7% Granite Wash 16% 3% 17% -2% 7% Eagle Ford Wet * Henry Hub; Excludes lease costs -7% 1% -10% Fayetteville Haynesville Marcellus Dry Utica Dry 2%/ 9%/ -4%/ 8%/ -8% 0% -11% -2% -4%/ 6%/ 12%/ 1%/ -8% 1% -2% 8% Utica Wet Marcellus Wet Dry Gas Plays Wet Gas Plays Oil Plays 7

8 U.S. Natural Gas Production & Northeast Demand Bcf/d U.S. Lower 48 Dry Gas Production Bcf/d Rest of U.S Rest of U.S. Northeast Annual NE Demand Bcf/d Northeast (Marcellus/Utica) 8

9 Marcellus/Utica Region $/MMbtu $0.60 $0.40 $0.20 $0.00 -$0.20 -$0.40 Col. Gas TCO $/MMbtu $1.00 $0.00 -$1.00 -$2.00 -$3.00 -$4.00 -$5.00 -$6.00 TGP Z4 Marcellus $0.50 $/MMbtu $1.00 $0.50 $0.00 -$0.50 -$1.00 -$1.50 -$2.00 -$2.50 Dominion South $/MMbtu $ $95.00 $75.00 $55.00 $35.00 $ $5.00 Transco Z6 (NY) $0.00 -$0.50 -$1.00 -$1.50 -$2.00 9

10 Five Year Crude and Gas Price Scenarios» Growth Scenario -- WTI prices return to the $80/bbl range by 2021; Natural gas increases to $4.00/MMbtu» Contraction Scenario -- WTI prices increase, but only to average $60/bbl in 2021; Natural gas prices flat at $2.75/Mmbtu» Note: These are not forecasts; nor are they high and low cases. They are possible scenarios used to understand market responses $/Bbl Crude Oil: WTI Cushing $85 $80 $75 $70 $65 $60 $55 $50 Growth $45 Contraction $40 $/MMbtu $4.50 $4.00 $3.50 $3.00 $2.50 $2.00 Natural Gas: Henry Hub Growth Contraction 10

11 U.S. Natural Gas Production Forecast Scenarios Growth Scenario 100 Contraction Scenario Marcellus/Utica Contraction Growth Bcf/d Bcf/d Per Year +2.4 Bcf/d Per Year Bcf/d Per Year

12 Gas Pipeline Capacity Additions 29 Bcf/d of new pipeline take-away capacity from 43 new build and reversal projects will reverse Northeast gas flows Midwest via Ohio (5.3) 12

13 Gas Pipeline Capacity Additions - Gulf Bcf/d Gulf (Ohio) 13

14 The Battle For Henry Hub Williston/ Bakken Marcellus/ Utica Oklahoma Permian Eagle Ford 14

15 We Have Seen This Before--Rockies Price Crash of Rockies Production $14 $12 $10 Henry Hub Opal Rockies Prices Bcf/d $/MMbtu $8 $6 $4 $2 5 $0 15

16 Conclusions» Productivity is up, prices are down» Some producers can still realize acceptable returns, even at today s prices -- if costs are low enough» Natural gas production continues near all-time record volumes, primarily due to growth in Marcellus/Utica» Consequently Northeast natural gas prices have been crushed» $$$ billions are being invested in new pipelines to move supplies out of the Northeast» Over the next five years, those pipelines will transfer the local imbalance to (even more of) a national imbalance» U.S. natural gas prices will continue under significant downward pressure» LNG to the rescue? 16

17 Resource Base Price Cap» There is a base of production in North America that that can come on line within months of a sustained price signal over $60-70/bbl» This base level of production will not disappear at lower prices, it will simply be put on hold» A base level of oil and gas production will act as a price cap whenever prices increase, production growth will resume and price increases will be cut back» Replace the Peak Oil Theory with the Base Oil Theory MMb/d MMB/d It s Base All RBN About Oil Growth Theory That Base History RBN Contraction 17

18 RBN Energy 18