New Crudes for New U.S. & Export Demand

Transcription

1 New Crudes for New U.S. & Export Demand SPE-Gulf Coast Section General Meeting Study Group Luncheon - Houston Petroleum Club Greg Haas, Director of Integrated Energy, Stratas Advisors UPSTREAM MIDSTREAM DOWNSTREAM FUEL & TRANSPORT

2 DISCLAIMER This Presentation contains forward-looking statements, including, but not limited to, statements regarding the value and effectiveness of Stratas Advisors services, that involve risks, uncertainties, assumptions and other factors which, if they do not materialize or prove correct, could cause Stratas Advisors results to differ materially from those expressed or implied by such forward-looking statements. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including statements containing the words "predicts," "plan," "expects," "anticipates," "believes," "goal," "target," "estimate," "potential," "may," "will," "might," "could" and similar words. Stratas Advisors intends all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act and the Private Securities Litigation Reform Act of Actual results may differ materially from those projected in such statements due to various factors, including but not limited to: risks and uncertainties inherent in our business; our ability to attract new customers and retain existing customers; our ability to effectively sell, service and support our products; our ability to manage our international operations; our ability to compete effectively; our ability to develop and introduce new products and services or enhancements to existing products; our ability to continue to promote and maintain our brand in a cost-effective manner; our ability to manage growth; our ability to attract and retain key personnel; the scope and validity of intellectual property rights applicable to our products; adverse economic conditions in general and adverse economic conditions specifically affecting the markets in which we operate. Past performance is not necessarily indicative of future results. The forward-looking statements included in this presentation represent Stratas Advisors views as of the date of this presentation. Stratas Advisors anticipates that subsequent events and developments will cause its views to change. Stratas Advisors undertakes no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These forward-looking statements should not be relied upon as representing Stratas Advisors views as of any date subsequent to the date of this presentation Stratas Advisors. All rights reserved. Stratas Advisors is a trademark or registered trademark of Hart Energy Publications, LLLP in the U.S. and other countries. Other company names, product names and company logos mentioned herein are the trademarks, or registered trademarks of their owners. This material may not be published, broadcast or distributed in whole or part without express written permission of Stratas Advisors. Stratas Advisors. All rights reserved. 2

3 Introduction Stratas Advisors Global strategic insights, energy research and advisory consulting from well to wheels

4 Who We Are Global consulting and advisory firm Coverage of the energy sector and related industries Focused on helping clients reach decisions and achieve tangible results Clients include IOCs, NOCs, independents, energy consumers, financial entities and policy-makers Research and consulting staff comprises professionals located in key global energy centers including Houston, Brussels, and Singapore Combined, our team brings 300 years of energy industry expertise, including Petroleum Engineers, Geologists Process Engineers Financial Analysts Stratas Advisors. All rights reserved. 4

5 New Crudes for New Demand Markets

6 Overview Upstream Crude Oil Production Growth Forecasts and Plays Price Dislocations on Quantity, Quality, and Location x 3 Key Projects in the Midstream/Downstream Investment Treadmill Independence Now Stratas Advisors. All rights reserved. 6

7 Activity: Mid-Continent has second most rigs as of 9/1/2017 The Mid-Continent Plays include the Barnett, Mississippi Lime, Panhandle, and Woodford plays Source: Stratas Advisors, Baker Hughes data Stratas Advisors. All rights reserved. 7

8 Mid-Continent Crude Oil Production Projected To Increase Due To Woodward Shale Plays Source: Stratas Advisors forecasts, EIA historical data Stratas Advisors. All rights reserved. 8

9 Strong Crack Spreads Incentivizing Refineries To Increase Their Runs Refinery Crack USGC LLS versus WTI Cushing, $/bbl Refinery Crude Runs, Mbbl/d 5-Yr Range 5-Yr Ave WTI GC LLS GC Source: Stratas Advisors with EIA data Source: Stratas Advisors North American Oil Service, EIA data Source: Stratas Stratas Advisors Advisors with Bloomberg North American data Oil Service, Bloomberg data Running WTI in Gulf Coast refineries rather than LLS more valuable for refinery margins As 2017 closes, refining margins have grown well above the mid-single digit breakeven levels Refiners have responded and have taken refinery crude runs higher vs. year ago and 5 year average Stratas Advisors. All rights reserved. 9

10 January February March April May June July August September October November December Domestic Crude Demand Strong, May Get Stronger with Expansions Refinery Utilization, % 5-Yr Range 5-Yr Ave Refinery Crude Run Expansions in the Presslog Source: Stratas Advisors with EIA data Source: Stratas Advisors North American Oil Service, EIA data Source: Stratas Advisors North American Oil Service Underpinned by strong exports and growing gasoline demand and the favorable economic margins that result, U.S. refinery utilization is setting new highs or trending at the top end of the 5- year range (outside of the extraordinary hurricane shutdown period) U.S. could potentially add a combined 271 Mbbl/d of processing capacity by 2020 Stratas Advisors. All rights reserved. 10

11 January February March April May June July August September October November December U.S. Exporting 2 MMbbl/d Crude! Crude Exports, Mbbl/d 2017 U.S. Crude Oil Export Destinations 0 Max-Min 5-Yr Ave tratas Advisors with EIA Sources: data Stratas Advisors North American Oil Service, EIA data Capacity to export should increase while costs decrease when Very Large Crude Carriers (VLCC) begin loading North American crude for export We are watching the reconfiguration of the Louisiana Offshore Oil Port (LOOP) to enable export shipments of crude We are also watching the innovations/improvements by Oxy at the Port of Corpus Christi and by others elsewhere Stratas Advisors. All rights reserved. 11

12 January February March April May June July August September October November December The Great 2017 U.S. Crude Destocking Total Commercial Crude Stocks, Mbbl (Down 81 MMbbl since May 2017 peak. SPR also down 25 MMbbls in 2017) 600, , , , , ,000 0 Max-Min 5-Yr Ave Source: Stratas Advisors North American Oil Service, EIA data Underway is a Rapid & Substantial Crude Destocking Commercial crude stocks have declined in 7 months of 2017 so far After dropping 81 MMbbls since March 2017, U.S. now at 2015 commercial stock levels 25 MMbbls of SPR crude have also been sold off year to date with more coming in years ahead But Why Now in 2017? Why Ramp Exports & Refining so much to destock the crude overhang? Stratas Advisors. All rights reserved. 12

13 WTI Discount to Brent Re-Emerging 140 WTI Discount to Brent Re-Emerging, $/bbl (Cushing to Coast Pipelines the Problem today as in ) EUCRBRDT Index USCRWTIC Index Sources: Stratas Advisors North American Oil Service, Bloomberg data Differential has widened to more than $6/bbl on a barrel of crude worth less than $60 Stratas Advisors. All rights reserved. 13

14 Waterborne and Inland Crudes Linked, But Separately 140 LLS Discount to Brent Still Narrow, $/bbl (U.S. Can Export Today -- 2MMbbl/d+ Currently) 120 WTI Midland Discount to WTI Cushing Still Narrow, $/bbl (Pipelines from Midland to Cushing not the problem) EUCRBRDT Index USCRLLSS Index USCRWTIM Comdty USCRWTIC Index Sources: Stratas Advisors North American Oil Service, Bloomberg data Low differentials between the prices of Brent and LLS waterborne crudes Low differentials between the prices of Midland and Cushing WTI inland crudes Either of the waterborne light crudes trades at a premium to either of the inland light crudes Adequate export logistics and infrastructure between hubs to aid the balance and reduce discounts Low Cushing to Gulf Coast tariffs help keep differentials low, but are likely heading higher per the open season by TransCanada on Marketlink and comments by Enterprise Products on the Seaway pipeline The costs of export logistics at the Gulf Coast are likely to rise now too given the rocketing rate of crude exports 2 million barrels per day recently which is up from nothing just a few years ago Stratas Advisors. All rights reserved. 14

15 Cushing Stocks Not Moving Like Gulf Coast Stocks Crude Cushing Hold While USGC PADD 3 Drops, Mbbls 160, , , , ,000 80,000 60,000 40,000 20,000 - Cushing PADD 3 350, , , , , ,000 50,000 - Sources: Stratas Advisors North American Oil Service, EIA data USGC PADD 3 crude stocks are down 62 MMbbls from 1Q17 high, and now stand just 10% over 5YA Cushing crude stocks are over up 50% higher than 5YA and are setting new records for this time of year The Cushing inland hub has no tidewater or cross-border export opportunities Cushing-connected Midcon refineries have less capacity than the Gulf Coast regional refining network So if new Permian, Scoop/Stack, Uinta, Bakken & other crude flows pile into Cushing, there they will sit, and potential rate increases at TransCanada s Marketlink and Enterprise Seaway will widen differentials. Stratas Advisors. All rights reserved. 15

16 Better Balance via Cushing Region Long Haul Pipelines and Projects YE 2017 outbound expansions of 315 Mbbl/d to be muted by inbound production deliveries gains from Permian and Scoop/Stack Cushing stocks may continue to grow up to Mid-2018, when USGC-bound takeaway from Permian will takeaway 730 Mbbl/d to Corpus Christi, Houston, and Nederland In , a reversed Capline could flood Gulf Coast with light crude from Canada, Bakken, or Scoop/Stack and Rocky (and conceivably Permian) supplies via Cushing In timeframe, Permian takeaway expansions will divert more crude to USGC although some to Cushing as well Stratas Advisors. All rights reserved. 16

17 Takeaways Upstream Growth: Crude-directed drilling and completions will take field production to new highs and push new light crudes into Cushing. We expect highest growth from Permian and Scoop/Stack. Midstream Investment : Midstream takeaway projects will need to get back on pace and stay ahead of production to efficiently move light crude to more U.S. refining and offshore markets. Key Crude Projects: Refinery expansion less important than exports as crude gains swamp fuel demand. Midstream projects to watch include the Capline Reversal, DAPL, Diamond, Ozark, Midland-Sealy, Permian Express 2 and the LOOP reconfiguration. Differentials Widen on Growth (Quantity): By location, Inland crudes will be at a discount to waterborne grades when infrastructure to the Gulf Coast refiners and through the export terminals there is insufficient or costly. Already, tariffs between Cushing and the Gulf Coast rise are showing inflationary signs at the TransCanada Marketlink and Enterprise Products Seaway pipelines. Terminal fees on the Gulf Coast may rise as well given strong utilization. Wide differentials are foreseeable until pipeline takeaway out of Cushing improves around 1H18. If production stays high and all else equal, differentials should tighten further when VLCCs lower international transit costs. Differentials May Widen on Quality: By quality, U.S. light crudes (inland WTI and coastal LLS) will be at a discount as a whole if crude quality continues to lighten and vary as U.S. shale plays age. Independence Now: Already, U.S. net imports represent just 10%of petroleum demand. We expect the U.S. to continue to achieve even greater levels of energy independence as the industry works under favorable governance to advance toward full net-export status in petroleum. Stratas Advisors. All rights reserved. 17

18 Thank you for your attention Greg Haas, Director, Integrated Energy, A Hart Energy Company UPSTREAM MIDSTREAM DOWNSTREAM FUEL & TRANSPORT Strategic Insights Across The Energy Value Chain 1616 S. Voss Road Suite 675 Houston, TX Bogotá Brussels Denver Houston London Melbourne Mexico City New Delhi New York San Diego São Paulo Singapore Washington, DC Stratas Advisors. All rights reserved.

19 Questions and Answers

20 APPENDIX: U.S. Crude Distillation Expansions Anticipated by 2020 PADD 4 Crude Oil Refining Capacity Expansions (Mbbl/d) Crude Capacity at Start of 2017 Expanded Crude Distillation Capacity In- Service Year Operator Location HollyFrontier Corp. Woods Cross, UT CHS Inc. Laurel, MT Refinery Crude Distillation Capacity Totals Total Additional PADD 4 Capacity 40 PADD 3 Crude Oil Refining Capacity Expansions (Mbbl/d) Crude Capacity at Start of 2017 Expanded Crude Distillation Capacity In- Service Year Operator Location ExxonMobil Beaumont, TX MMEX Resources Corp. Fort Stockton, TX Raven Petroleum Laredo,TX Refinery Crude Distillation Capacity Totals Additional PADD 3 Capacity 160 PADD 2 Crude Oil Refining Capacity Expansions (Mbbl/d) Crude Capacity at Start of 2017 Expanded Crude Distillation Capacity In- Service Year Operator Location Meridian Energy Group - Phase I Belfield, ND Meridian Energy Group - Phase II Belfield, ND Western Refining St. Paul, MN Refinery Crude Distillation Capacity Totals Additional PADD 2 Capacity 70.5 Sources: Stratas Advisors North American Oil Service, media reports, company disclosures Stratas Advisors. All rights reserved.