North American Gas Outlook Jen Snyder Head of North American Gas Research Wood Mackenzie 2011 Summer Seminar August 1, 2011
End of study area 31 N 32 N $/mmbtu 33 N Resource Doesn t Always Meet Expectations Haynesville breakevens by well cost and size 8 WoodMac Tier 1 outlook: 4.67/mmbtu 95 W Camp Cass ArkLaTex Basin Wright Patman Lake 94 W Red Arkansas 93 W CANADA El Dorado 6 Upshur Marion Lake o' the Pines Caddo Lake Caddo Bossier U.S.A. Claiborne MEXICO 4 Gregg Rusk Longview Tier 2 Harrison Panola De Soto Shreveport Webster Bienville Lincoln Jacks 2 erokee onville Texas Shelby 10 BCF 8 BCF 6 BCF Tier 1 Red River Natchitoches Wi Sabine 0 $8.5 million $9.5 million $10.5 million Well cost 5 bcf 6.7 bcf 8 bcf ouston Trinity Angelina Nacogdoches Lufkin San Sabine End of Augustine study area 6 BCF 4 BCF Sam Rayburn Reservoir Newton Reservoir Toledo Bend Louisiana Vernon Grant Alexandria Haynesville IDW - 6 point Peak Month Rapides (mmcfd) >=8 to <11 >=11 to <16 Tyler Jasper >=16 to <19 >=19 95 W km 0 10 20 40 94 W 93 W Source: Wood Mackenzie, Company Reports and Lasser Inc. Sources: Wood Mackenzie (NAGS, Upstream Service, Corporate Service) 2
Gallons per day of flowback (millions) Percent recycled Production (mmcfd) Environmental Issues Have Yet to be Resolved Marcellus water recycling Impact of a 100 rig limit in Marcellus 7.00 100% 10 6.00 90% 80% 8 5.00 70% 4.00 60% 6 50% 3.00 40% 4 2.00 30% 1.00 20% 10% 2 0.00 2007 2008 2009 2010 2011 2012 2013 2014 2015 Recycled volumes Non-recycled volumes Percent of flowback recycled 0% 0 2010 2015 2020 Base 100 Rig Limit Source: Wood Mackenzie (North America Gas Service) 3
Rigs Billions Competition With Oil and Liquids for Capital and Labor is Intensifying Tight oil assets are cash flow negative for 3-5 years prior to assets turning cash flow positive Looser capital markets, allows for near-term debt and equity funding Horizontal oil and gas drilling Average cash flows of unconventional development 1,600 1,400 $3.0 $2.5 1,200 $2.0 1,000 800 $1.5 $1.0 $0.5 Early acreage acquistion First production 3-5 years for capex to match cash-flows 600 $0.0 400 -$0.5 -$1.0 200 0 -$1.5 Year -2 Year -1 Year -0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 2008 2010 2012 2014 Shale Gas Tight Oil Horizontal gas Horizontal oil Source: Wood Mackenzie (Corporate Service) Sources: Wood Mackenzie (NAGS, Upstream Service, Corporate Service) 4
Time horizon Long Short Numerous Markets are Competing for Gas and Potential is Turning Probable Res/Com Industrial Coal retirements Demand potential 2025 demand 2020 demand NGVs Plug-in hybrids Carbon bill 1 bcfd LNG exports 5 bcfd Significant Capital investment required Minimal 10 bcfd Source: Wood Mackenzie (North America Gas Service) 5
Fukushima has Tightened Pacific Basin Supplies and North America Represents an Alternative to Australia US$/mmbtu Australasia LNG projects by liquefaction status Range of costs for delivered LNG to Japan Greater Sunrise FLNG Liquid Niugini Gas (FLNG and EWC) 16 Prelude LNG (FID May 2011) Bonaparte FLNG Darwin and Darwin Expansion (T2) Ichthys LNG PNG and PNG Expansion (T3) 14 12 Note: Split boxes indicate expansions Browse LNG NWS LNG Pluto and Pluto Expansion (T2) Gorgon and Gorgon Expansion (T4) Wheatstone and Wheatstone Expansion (T3) Scarborough LNG Operating Under Construction Probable Possible Speculative GLNG QCLNG APLNG Arrow LNG Gladstone LNG 10 8 6 4 2 0 Band indicates the sales price achieved in recent deals assuming a US$70/bbl to US$90/bbl range Australia US Gulf Coast Canada West Coast DES Range Average Aus High Capex Average Source: Wood Mackenzie LNG Tool, February 2011 * Additional projects have been proposed, but currently have insufficient definition of concept or reserves 6
2010 $/mmbtu When the Market Demands Gas, Price Must Justify Drilling New-drill contribution up to 10.8 bcfd from 8.6 bcfd in 2011 For 2010, nearly 40% of drilled supplies were outof-the-money based on average NYMEX monthly close Higher demand growth would require more drilling Higher costs would shift curve up 8.00 6.00 4.00 2.00 0.00 Marcellus Eagle Ford Eagle Ford US New Drill Natural Gas Supply Stack* Pinedale Pinedale Barnett Haynesville Barnett Fayetteville Fayetteville Lower Bossier Marcellus 0 2 4 6 8 10 bcfd 2011 2020 Haynesville Cotton Valley Lower Bossier 2010 NYMEX close Cotton Valley *Assumes development breakeven economics (not including land lease costs) at a 10% real IRR adjusted to a Henry Hub- equivalent price Source: Wood Mackenzie 7
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Audience Response Question If you are planning additional gasfired capacity additions, what risk around future gas prices worries you most? 10
Audience Response Question What level of long-term gas prices would cause concern regarding large-scale gas-fired capacity build? 11