THE U.S. OIL AND NATURAL GAS INDUSTRY: MARKET DYNAMICS AND INDUSTRY RESPONSES

Transcription

1 THE U.S. OIL AND NATURAL GAS INDUSTRY: MARKET DYNAMICS AND INDUSTRY RESPONSES 1

2 OVERVIEW Market Overview Cost Reduction Actions Best Management/Recommended Practices Technology and Industry Advances Summary 2

3 MARKET OVERVIEW 3

4 Natural Gas Pricing and Rig History 50% Decrease 73% Decrease 4 Source: Baker Hughes, EIACOPYRIGHT BERTISON-GEORGE, LLC ALL RIGHTS RESERVED

5 Production Efficiencies 5 Source: EIA COPYRIGHT BERTISON-GEORGE, LLC ALL RIGHTS RESERVED

6 Natural Gas Value Chain: Midstream and Pipeline Assets 6

7 Tale of Two States 7

8 COST REDUCTION ACTIONS 8

9 Progress Items Optimizing acreage by drilling multiple wells on a pad versus what we did years ago when fewer wells per pad were drilled. Larger units to drill longer laterals since most of the acreage has been leased. Currently the curve and lateral are drilled with one drilling assembly. Years ago we needed to trip the bit and change assemblies after drilling the curve. Better methods to steer the bit using EM technology and drill faster the bit and mud motor systems are better than ever Rigs are built better and with top drives and are using more automation Drilling considerably longer and faster laterals since the agitator system came out to vibrate the drill string. Well costs are at their lowest level ever per ft. drilled since service sector costs have decreased dramatically during the downturn The current logging tools and data analysis methods allow for better understand the complex nature of gas storage On the completion side, we are completing more plug and perf style stages per day than ever before and service sector costs are at a historic low for the modern era. The industry has reduced the stage spacing to pump more frac stages per lateral as well as increased the lbs./ft. of proppant per stage, thus well production has improved dramatically. Water management has improved to reuse as much as possible and to share water between operators when it makes sense Wellsite facilities have focused more on capturing all possible methane emissions 9 COPYRIGHT BERTISON-GEORGE, LLC ALL RIGHTS RESERVED

10 Producers Are Driving Costs Down Cost Improvements Remain a Focus Cash Costs have declined ~40% since 2011 which should drive improved corporate margins Lower debt per mcfe of production from growth at or near cash flow High-grading the asset base, along with operational efficiencies has lowered operating costs through the cycles Combined Cash Costs per Mcfe $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $- $0.40 $0.35 $0.30 $0.25 $0.20 $0.15 $0.10 $0.05 Annual Cash Costs Continue to Decline $- Driving Down Operating Costs 1H14 2H14 1H15 2H15 1H16 2H16E E(c) LOE per Mcfe ~54% Decline ~40% Decline 10 (a)(b) Excludes non-cash stock compensation LOE(a) Prod. Taxes G&A(b) Interest Trans & Gathering COPYRIGHT BERTISON-GEORGE, LLC ALL RIGHTS RESERVED 17

11 Operational Improvements Cost Efficiency Improvements SW Pennsylvania Average Lateral Length Well Cost / Lateral Length 8,000 7,000 6,000 $2,500 $2,000 5,000 4,000 3,000 $1,500 $1,000 2,000 1,000 - $500 $ E E Drilling Cost / Lateral Length (a) Completion Cost / Lateral Length $1,200 $1,000 $800 $600 $400 $200 $- $1,400 $1,200 $1,000 $800 $600 $400 $200 $ E E 11 COPYRIGHT BERTISON-GEORGE, LLC ALL RIGHTS RESERVED 23

12 CONTINUED IMPROVEMENTS IN CABOT S COST STRUCTURE RESULTING FROM EFFICIENCY GAINS Eagle Ford Marcellus Drilling Costs per Foot Completion Costs per Stage Direct LOE ($/Mcfe) FY '14 FY '15 Q1 '16 Q2 '16 Q3 '16 FY '14 FY '15 Q1 '16 Q2 '16 Q3 '16 FY '14 FY '15 Q1 '16 Q2 '16 Q3 '16 No Wells Drilled No Wells Complete d FY '14 FY '15 Q1 '16 Q2 '16 Q3 '16 FY '14 FY '15 Q1 '16 Q2 '16 Q3 '16 FY '14 FY '15 Q1 '16 Q2 '16 Q3 '16 12 COPYRIGHT BERTISON-GEORGE, LLC ALL RIGHTS RESERVED 4

13 BEST MANAGEMENT/RECOMMENDED PRACTICES 13

14 Areas of Concentration - Examples Marcellus Shale Coalition Drilling and Completions Pipeline Boring Water Pipelines Supply Chain Motor Vehicle Safety Responding to Stray Gas Incidents Pre-Drill Water Supply Surveys Site Planning, Development and Restoration American Petroleum Institute Proper well construction and integrity Zonal isolation through casing, cementing and mechanical barriers Water management and disposal Mitigating surface impacts Overall site management Good neighbor performance Center for Sustainable Shale Development Water performance Pits/impoundments Groundwater protection Air performance 14

15 Impact of Initial Implementation of Recommended Practices 15 Source: PA DEP

16 Development Process Evaluating BMPs Need for a baseline. What is currently being spent and for what? What are the incremental costs of BMPs? What are the benefits. What are all stakeholders willingness to accept risks? Focus on ecological outcomes rather than prescriptive practices that may or may not be relevant/effective in all contexts. 16 COPYRIGHT BERTISON-GEORGE, LLC ALL RIGHTS RESERVED

17 Reasons for Implementation Rapid Technological Change Intensive Shale Development Underway Globally Economic Risks and Benefits are Significant Risks are Critical to All Stakeholders 17

18 TECHNOLOGY AND INDUSTRY ADVANCES 18

19 Industry Reaction Increasing Exports Increasing Electric Generation Increasing Pipelines and additional uses 19 COPYRIGHT BERTISON-GEORGE, LLC ALL RIGHTS RESERVED

20 Increase in Electric Generation: (Gas Transportation Via Wire) 20

21 Increased Demand and Pipelines Compressed Natural Gas Mostly utilized as a transportation fuel source Small Scale LNG Natural gas on trucks New supply for constrained end users New Pipeline Expansion: 21 COPYRIGHT BERTISON-GEORGE, LLC ALL RIGHTS RESERVED

22 Case Studies Industry Hurdle: Gaps in document management Internal analysis not always supported by systems and processes Silos in geospatial Information System (GIS): The lack of a unified GIS to support well location evaluation hindered the ability to take informed decisions and resulted in delayed decision-making Solution: Development of an integrated database including GIS based data Benefits: Multidisciplinary teams share information for enhanced decision making Improved ability to meet regulatory requirements 22 COPYRIGHT BERTISON-GEORGE, LLC ALL RIGHTS RESERVED

23 Case Studies, Cont. Industry Hurdle: In-line inspection of low flow/pressure pipelines Obstruction of the inspection tool Solution: Friction reducing magnetizer was developed including a design change from existing model tools Benefits: No need for off-line inspection in nitrogen Lines can now be inspected in-service New tool is light enough to be carried, thus eliminating the need for cranes 23 COPYRIGHT BERTISON-GEORGE, LLC ALL RIGHTS RESERVED

24 Summary Market prices have forced North American shale development companies to extract value from every aspect of operations Longer than expected drop in prices have created buying opportunities Mid-stream assets are in high demand Best Management/Recommended Practices have been adapted through out North America Adapted is the key word since it is critical to modify practices for a specific geographic area These practices need to be reviewed periodically Companies in the US have survived through integrating recommended practices, new technology, research/experimentation, and process redesign. 24

25 B-G Background Valuations Follow prudent techniques to provide clients a clear, concise, and supportable result. Business Turnaround and Restructuring Advise executive, board-level management and creditors to stabilize performance and/or maximize recoveries. Synthesize complex issues involved in distressed situations and develop plans that stabilize and drive value. Due Diligence Evaluate operational and financial historic performance and model potential market impacts. Acquisition and Divestment Assist companies looking to expand their existing oil and gas asset base, sell properties, find a merger candidate or undertake corporate transactions required to diversify their portfolio. Market Intelligence Develop studies based on changes in the marketplace and potential impacts to each market segment or individual entity. Research and Publications Act 13 Impact Fee Map Series, Drilled and Capped Well Status, China Unconventional Resource and LNG Map, etc. Formation/Basin Experience Antrim, Bakken, Barnett, Black Warrior, Chattanooga, Eagle Ford, Haynesville, Huron, Marcellus, Monterey, New Albany, Rhinestreet, Upper Devonian, Utica, Woodford 25

26 Joe Baran Principal Bertison-George, LLC 2400 Ansys Drive, Suite 102 Canonsburg, PA Schermerhorn St #621 Brooklyn, NY