Natural Gas Next: Texas and Southeast Gulf Outlook Charles Nevle Vice President September 25, 2017
Texas and Southeast Overview Irma and Harvey impact. Production: Permian, Eagle Ford and Haynesville. Demand: LNG, Mexican exports and what else??? How are flow pipeline changes in the Southeast and Texas being affected by the overall Lower 48 supply and demand dynamics? Expectations through Summer 2018.
Harvey Production Impact Dry Production (Bcf/d) 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 6/21/2017 7/21/2017 8/21/2017 Gulf of Mexico Southeast Texas Estimated Impact (Bcf) Texas 3.5 Southeast 2.1 Gulf of Mexico 10.2 Total 15.8
Harvey in Perspective Gulf of Mexico Dry Production Bcf/d 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Ike >300 Bcf Issac ~40 Bcf
Harvey Demand Impact More difficult to determine impact on demand due to other weather variations, etc. Estimated demand destruction is approximately 75 Bcf. Net impact (supply and demand) is a reduction of about 60 Bcf in consumption.
How PointLogic Reports Production Producing Area County 1 County 2 County 3 Play Play 1 - Shale 1 Play 2 - Play 2 Conventional Play 3 Coal Play 3 Bed Methane Producing Areas Geographic regions comprised of counties with bright lines at state borders. 92 in Lower 48, 17 in Texas, 14 in Canada. Play Geologic designations determined at the individual well level. 154 plays in Lower 48; 74 in Canada. Can span producing areas and states. Type Type of geologic formation of a play (Shale, Conventional, Tight, CBM, Oil Sands) Production modeled up to current day by producing area by type. Actualized production (usually lags 4+ months) reported at the producing area by play by county by type granularity.
Texas Region 17 Producing Areas Anadarko-TX Other-TX North Granite Wash - TX Permian-Central Basin Permian-Delaware Basin Permian-Midland Basin Barnett- Oil/Wet Window Barnett- Dry Window Haynesville-TX Other-TX West Other-TX South Eagle Ford Oil Eagle Ford Wet Eagle Ford Dry
Slicing Production 25.0 Texas Dry Production by Type 25.0 Texas Dry Production by Producing Area 20.0 20.0 15.0 15.0 Bcf/d 10.0 5.0 Bcf/d 10.0 5.0 0.0 0.0 Conventional Conventional/Tight Shale Tight Source: PointlLogic Energy and IHS Anadarko-TX Barnett-Oil/Wet Window Eagleford-Dry Eagleford-Wet Haynesville-TX Other-TX North Other-TX West Permian-Central Basin Texas Gulf Coast Barnett-Dry Window Eaglebine Eagleford-Oil Granite Wash-TX Other-TX East Other-TX South Permian- Delaware Basin Permian-Midland Basin Source: PointlLogic Energy and IHS
Diving Deeper Bcf/d 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Permian Wellhead by Producing Area Bcf/d 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Permian Wellhead by Play Let s take a closer look Permian- Delaware Basin Permian-Midland Basin Permian-Central Basin Permian-NM Source: PointlLogic Energy and IHS Abo Bone Spring Delaware Misc PERMIAN BASIN Spraberry Wolfcamp Delaware Yeso Atoka Canyon-Strawn Misc LLANO UPLIFT Permian Conventional Wolf+ Commingled Wolfcamp Midland Source: PointlLogic Energy and IHS
and Deeper Bcf/d 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Wolfcamp Delaware by County What else is in Reeves? Bcf/d 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 Reeves County by Play CHAVES CULBERSON EDDY HALE LEA LOVING PECOS REEVES ROOSEVELT WARD WINKLER Source: PointlLogic Energy and IHS Atoka Canyon-Strawn Misc PERMIAN BASIN Wolf+ Commingled Bone Spring Delaware Permian Conventional Wolfcamp Delaware Source: PointlLogic Energy and IHS
Eagle Ford Critical to Texas Gas Growth 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Permian growth alone is not enough to grow Texas production. 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Total Barnett Eagle Ford Gulf Coast Haynesville Other Permian Source: PointlLogic Energy
Permian Rig Count Arrested Development 300 250 200 150 100 50 0 Permian Rig Counts Permian rig growth stalls. 600 500 400 300 200 100 - Grand Total Permian- Delaware Basin Permian-Central Basin Permian-Midland Basin Permian-NM
All Permian is Not Equal Bcf/d (Wellhead) 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Permian Production by Play Designation 2015-2016 Growth (MMcf/d) 2016 2015 Change % Change Bone Spring 695 637 58 9.1% Wolfcamp Delaware 1,308 896 412 46.0% Wolfcamp Midland 1,439 1,122 317 28.3% Other 3,560 3,732 (171) -4.6% Total 7,003 6,387 616 9.7% Other Bone Spring Wolfcamp Delaware Wolfcamp Midland Source: PointLogic Energy
Western Permian Wolfcamp Delaware & Bone Springs MMcf/d 600 500 400 300 200 100 - Wolfcamp Delaware lays underneath Bone Springs in far West Texas and southeast New Mexico within the Delaware Basin. Bone Springs is primarily in New Mexico. Bone Springs formation depths 8,000-11,000 ft. Wolfcamp mainly depths of 9,000-12,000 ft. Bone Spring Wolfcamp Delaware Based on average 2016 wellhead production. Source: PointLogic Energy
Bone Springs Activity in 2015 and 2016 in this play has waned, with new horizontal wells declining from 704 in 2014 to 556 in 2015 and 290 in 2016. Concho drives growth across the play, contributing 26% of 2016 production. Devon s operated production in the basin declined 27% in 2016 as it allocated more capex to the STACK play. Top 40% of wells break even below $46/bbl, with 60% breaking even below $58/bbl. Efficiency increases continue (drilling faster, longer laterals, increasing proppant intensities) month over month. Recent upticks in drilling activity signal slight production increases in 2017 and 2018 in the play.
Wolfcamp Delaware Fastest-growing play in North America. Production continues to rise and could surpass the Bakken in oil production by the end of 2019. About 90% of production in five counties: Reeves, Loving, Culberson, Eddy and Lea. Production fairly concentrated, with about 50% of oil production coming from five operators: EOG, Cimarex, Anadarko, Concho and Occidental. Top 4 quintiles breakeven below $50/bbl, 60% of wells breakeven at or below $40/bbl. Wolfcamp Delaware breakevens are, on average, $15/bbl lower than Wolfcamp Midland.
Wolfcamp Delaware Production Concentration Mbbl/d 450 400 350 300 250 200 150 100 50 0 Wolfcamp Delaware by producer Top 5 operators make up 50% of play s production Mbl/d Wolfcamp Delaware by county 450 400 350 300 250 200 150 100 50 0 80% of production in 4 counties 65% in 2 counties Other OXY Concho Cimarex Anadarko EOG Source: PointlLogic Energy OTHER LEA EDDY CULBERSON LOVING REEVES Source: PointlLogic Energy
Wolfcamp Delaware Operator Trends Peak rates on the rise led by EOG largely due to increased proppant use Proppant per foot on the rise led by EOG helping to boost productivity. Longer Laterals: better decline rates higher EUR s lower productivity Laterals getting longer led by Cimarex though this leads to lower average productivity rates but better decline rates and thus higher EUR s. Higher Proppant higher peak rates higher productivity minimal impact on decline rates EOG leads productivity increase.
Wolfcamp Midland Main growth is within the Northern Midland sub-play (Upton and Midland counties). Pioneer is the major operator in the play, accounting for 20% of production. Next-largest producers (Apache, Diamondback, Laredo Petroleum, ExxonMobil and Encana) are in the 5% range. Northern sub-play s attractiveness comes from access to multiple Wolfcamp benches, in addition to the Lower Spraberry Shale. Average breakevens in Northern Midland sub-play are near $40/bbl, with Eastern at about $60/bbl due to steeper decline rates, while lower productivity in the Southern sub-play puts breakevens around $68/bbl.
Eastern Permian Wolfcamp Midland MMcf/d 300 250 200 150 100 50 - Wolfcamp Midland Wolfcamp Midland is within the Midland Basin in the eastern portion of West Texas below the Panhandle. This play designation consists of the Spraberry, Dean and Wolfcamp. It is found at varying depths across the basin, most commonly at 4,500-9,500 ft. Wolfcamp Midland Based on average 2016 wellhead production. Source: PointLogic Energy
Wolfcamp Midland Operator Trends Pioneer main driver of peak rate increase. Operators have found >2,000 lb/ft decreases productivity. Extended laterals (greater than 8,000 ft) become the norm for several operators. Longer Laterals: higher peak rates higher productivity better decline rates higher EUR s Higher Proppant decreased productivity minimal impact on decline rates
Permian Continues to Grow, But More Slowly Bcf/d 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Permian Play Dry Production 2015 +0.7 2016 +0.5 2017 +1.3 2018 +1.2 Permian Conventional Permian Unconventional Forecast Source: PointlLogic Energy Rig activity is expected to slow significantly in the Permian this fall rigs to fall modestly by the end of the year and steeper in 2018. Although production growth in 2018 is in line with 2017, the rate of growth is much slower. Yearend 2018 is only 0.7 Bcf/d higher than year-end 2017. Sufficient infrastructure available (oil, midstream and gas), given current projects through this forecast period.
Proposed Permian Pipelines Target Gulf Coast Kinder Morgan: proposed Gulf Coast Express pipeline Announced projects targeting Waha to Agua Dulce route: KM Gulf Coast Express 1.7 Bcf/d In service October 2019 Pecos Trail Pipeline 1.85 Bcf/d In service July 2019 Access to several downstream markets from Agua Dulce: Mexico exports Gulf Coast LNG liquefaction North to interstate pipeline hubs
Eagle Ford Turns a Corner? 7.0 6.0 Eagle Ford Dry Gas Production Dec. 2014 5.8 Bcf/d May 2017 4.3 Bcf/d Eagle Ford production declined 1.5 Bcf/d from Dec. 2014 to May 2017. But over the past few months has increased by about 0.2 Bcf/d. Bcf/d 5.0 4.0 3.0 2.0 Oil prices may limit growth in the near term. Several operators have reduced activity in the play and concentrated on the Permian and SCOOP/STACK. 1.0 0.0 Chesapeake and EOG remain fully committed to the play, contributing roughly 35% of the wedge volumes in the past 18 months. Eagleford-Dry Eagleford-Oil Eagleford-Wet Source: Pointlogic Energy Focus remains on oil with production growth attributed to associated gas.
Eagle Ford Rigs in Decline 300 250 Eagle Ford Rig Counts 300 250 200 150 100 50 0 Aug 4 th 81 Sep 22nd 73 200 150 100 50 - Grand Total Eagleford-Dry Eagleford-Oil Eagleford-Wet
Eagle Ford Production remains concentrated. Five companies make up about 60% of 2016 production: EOG, Chesapeake, Marathon, ConocoPhillips and Sanchez. Extended length laterals are seeing success in the western portion of the play, though development will likely be skewed to the oilier eastern portion of the play. EOG has been achieving positive results from a 220-ft. spacing program. If it becomes the new normal, vastly increases the remaining wells. Most activity has been focused on the Lower Eagle Ford, though operators are testing the Upper Eagle Ford despite its higher water content. Operators are also testing the Austin Chalk with favorable results so far.
Eagle Ford Grows then Slows Bcf/d 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Eagle Ford Play Dry Production History 2015 +0.7 2016-0.6 2017-0.3 Forecast 2018 +0.0 Source: PointlLogic Energy Despite increased activity from Chesapeake and EOG, the exit of capital from the play to focus on the higher returns in Permian and SCOOP/STACK (Devon, Marathon) prevents growth momentum from taking hold. Rig activity is expected to slow significantly in the Eagle Ford this fall, with rigs continuing to fall this year and in 2018. Gas production is expected to peak this winter and fall by 0.5 Bcf/d by the end of 2018.
Haynesville Dominates Southeast Production Bcf/d 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Haynesville-LA makes up nearly 75% of Southeast regional production. Haynesville-LA production has grown 0.9 Bcf/d (28%) since October 2016. Peak production was 7.0 Bcf/d in January 2012. Other Other-LA South Haynesville-LA Source: Pointlogic Energy
Haynesville is Back! (for a while) $2.5 billion is being invested in Haynesville in 2017, led by Chesapeake and Vine. Chesapeake and Vine make up nearly 70% of 2016 wedge production. Chesapeake finding growing success with longer laterals. Vine is focusing on increasing proppant loads. Challenges by 2019 for as best wells are exhausted making continued growth unlikely given current gas pricing.
Southeast Pipes Benefit from Haynesville 3.5 3.0 2.5 Biggest beneficiaries are ETC Tiger Enable Midstream Gulf South Bcf/d 2.0 1.5 1.0 0.5 +390 (45%) +149 (19%) +206 (103%) 0.0 Note: Volume increases are from April 2017 to September 2017. Other TGPL Enable Gulf South ETC Tiger Source: PointlLogic Energy and IHS
Longer Lateral and Proppant Use Lead to Higher Productivity Haynesville More is More Longer Laterals: higher peak rates higher productivity better decline rates higher EUR s Higher Proppant increased productivity The Haynesville play has historically been drilled on 4,500 minimal ft laterals, impact with on some decline operators rates drilling the occasional 6,000 8,000 ft laterals; however, as of early 2016, 6,000 ft has become the new norm. Operators have tested extended-length laterals, reaching nearly 12,000 ft. These wells have shown higher peak rates and generally lower decline rates than the shorter laterals the play was historically developed with. Proppant intensities have doubled since 2012, with Vine and Comstock at the forefront. Chesapeake, despite extending laterals, has remained relatively consistent in proppant per foot intensities, though the operator has generated significantly improved production and productivity through high-grading. Productivity has shown a modest rebound since mid-2015, as operators have pushed higher proppant loads in the most productive portions of the play.
Haynesville Continues to Grow Bcf/d 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Haynesville Forecast Summer 2018 vs. Summer 2017 +0.8 Haynesville to grow 0.8 Bcf/d in Summer 2018 vs. Summer 2017. End-October 2018 Haynesville production to be 6.4 Bcf/d. Beyond 2018, Haynesville growth will be challenged. Haynesville-TX Haynesville-LA Forecast
Nat Gas Power Growth Stronger in Southeast than in Texas Generation (Million MW Hours) 500 450 400 350Texas power demand is growing. 300 250 200 150 100 50 0 Texas Electricity Generation by Fuel Wind growth capping gas growth in Texas. 900 800 700 600 500 400 300 200 100 0 Generation (Million MW Hours) 1,000 900 800 Southeast demand 700 growth flat. 600 500 400 300 200 100 0 Southeast Elec. Generation by Fuel Gas growth outright market grab from coal. 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 Total Coal Nat Gas Nuke Wind Other Source: EIA Total Coal Hydro Nat Gas Nuke Solar Other Source: EIA
Coal Retirements Coming in 2018 GW 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Texas and Southeast Coal-Fired Retirements 2017 2018 2019 Southeast Texas Source: EIA
Natural Gas and Wind Lead New Generation Construction GW 7.0 4.0 3.0 2.0 1.0 0.0 Texas Power Generation Additions Through 2018, wind power 6.0 dominates project additions. Gas 5.0 projects pick up in 2018 and 2019. 2017 2018 2019 2020 Natural Gas Wind Solar Source: EIA and PointLogic Energy GW 4.0 Southeast Power Generation Additions Vogtle nuclear plants in 6.0 Georgia at risk of pushback or cancellation in wake of 5.0 South Carolina s cancellation of the VC Summer plants. 3.0 2.0 1.0 0.0 2017 2018 2019 2020 Natural Gas Nuclear Solar Source: EIA and PointLogic Energy
Pet-Chem Projects Lead Industrial Demand Growth Bulk of new petrochemical industrial projects are in the olefins (plastics) and ammonia (fertilizer) and related derivatives. Most of the gas-intensive projects are slated for buildout along the Gulf Coast in Louisiana and Texas, while a sizeable build out of ammonia facilities is also salted for the MidCon region. Overall gas demand growth from these projects will likely be less than the above projections due to project delays or cancellations and potential lower than full utilization. Source: IHS-Markit & PointLogic Energy
LNG Exports Approach 3 Bcf/d 3.5 3.0 Sabine Train 4 precommissioning? 2.5 Bcf/d 2.0 1.5 1.0 0.5 - Creole Trail NGPL Transco Export Capacity
Sabine Gets Some Competition Bcf/d 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 Sabine Train 1 0.6 Bcf/d Sabine Train 2 0.6 Bcf/d Sabine Train 3 0.6 Bcf/d Pushback from global LNG oversupply and competition from Cove Point Sabine Train 4 0.6 Bcf/d Freeport Train 1 0.7 Bcf/d Nov. 2018 Elba Island 0.2 Bcf/d - Pipeline Deliveries Freeport LNG Exports Sabine Pass LNG Exports Elba Island LNG Exports Cove Point SE and TX Capacity
New Capacity Targets LNG Facilities 4,000 Cameron LNG MMcf/d 5,000 Corpus Christi LNG MMcf/d 3,000 2,000 1,000-4,000 3,000 2,000 1,000 - Sep-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 TETCO Gulf Markets Expansion Project Phase 2 Cameron Interstate Pipeline Expansion Project Cameron LNG Liquefaction Capacity Oct-17 Freeport LNG MMcf/d 4,000 3,000 2,000 1,000 Combination of long haul - expansion projects and last mile header projects will meet the NGPL Gulf Coast Southbound Expansion Project Phase 1 Cheniere Corpus Christi Pipeline Project TGP Southwest Louisiana Supply Project Kinder Morgan Tejas Corpus Christi TGP Lone Star Expansion Project Columbia Gulf Cameron Access Project growth in Southeast LNG export projects. Transco Gulf Connector Project NGPL Gulf Coast Southbound Expansion Project Phase 2 Corpus Christi LNG Liquefaction Capacity Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Gulf South Coastal Bend Header Project TETCO Stratton Ridge Expansion Project Kinder Morgan Tejas Expansion Project FGT East-West Project Transco Gulf Connector Project Freeport LNG Liquefaction Capacty 400 350 300 250 200 150 100 50 0 Sep-17 Sep-17 Oct-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Elba LNG MMcf/d Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Elba Express Modification Project Elba LNG Liquefaction Capacity
Change in Flow Patterns Jan.-Aug. 2017 Average flows from Texas (Bcf/d) 2012: 7.5 2017: 4.2 5.9 Change: -3.3 2.0 3.9 Note: Throughputs are average flows for Jan.-Aug.
Texas Summer 2017 vs. 2018 Supply Demand Dry Prod 0.4 Total Supply Power Industrial 0.4 0.3 0.0 Res/Com Mex Ex 0.5 LNG Ex 0.1 Demand 0.9 0.0 Increasing production in Permian is not enough to compensate for increasing Mexican exports. LNG exports begin to show up in 2018 in Texas, but become significant in 2019. Source: PointLogic Energy Supply & Demand Report
Texas Gets Shorter (or Less Long ) Bcf/d 25.0 20.0 15.0 10.0 5.0 - With Permian increasing, Eagle Ford staying essentially flat, and the rest of the state in decline, overall production growth for Texas is just 0.3 Bcf/d from October 2017 to October 2018. Texas native demand remains relatively flat. Mexican exports continue to gain, but more slowly. Domestic Demand Mexican Exports Length LNG Exports Production LNG exports begin in Texas in a moderate amount as Freeport begins prepping for in service.
Southeast Flow Changes 5.9 2.1 3.8 5.5 0.9 4.6 Jan.-Aug. 2017 Average flows to Southeast (Bcf/d) 2013: 10.5 2017: 13.0 Change: +2.5
Over 7 Bcf/d of New Capacity to Southeast Through 2019 2017: 2.1 Bcf/d Project name Type In-Service Capacity (Bcf/d) Target sector FGT Western Division Project Expansion 10/1/2017 0.1 LDC/industrial Transco Atlantic Sunrise Phase 1B Expansion 11/1/2017 0.5 LDC/power CGT Rayne XPress Expansion 11/1/2017 1.1 Unspecified TETCO Access South/Adair Southwest Expansion 11/1/2017 0.5 Unspecified ANR Collierville Expansion Expansion 11/1/2017 0.2 Power DCG Transco to Charleston Project Expansion 12/1/2017 0.1 LDC/power/industrial Transco Atlantic Sunrise Phase 2 Expansion 1/1/2018 0.4 LDC/power Transco Atlantic Sunrise Phase 3 Expansion 6/1/2018 0.5 LDC/power TGP Broad Run Expansion Expansion 6/1/2018 0.2 Unspecified 2018: 4.0 Bcf/d 2019: 1.5 Bcf/d SONAT Fairburn Expansion Project Expansion 10/1/2018 0.3 LDC/power/industrial CGT Gulf XPress Expansion 11/1/2018 0.9 Unspecified EQT Mountain Valley Pipeline New pipe 12/1/2018 2.0 LDC Dominion Atlantic Coast Pipeline New pipe 11/1/2019 1.5 LDC/power Total 8.2 * Assumes Projects Enter In-Service Dates as Announced Source: PointLogic s Project Tracker
Southeast Summer 2017 vs. Summer 2018 Supply Demand Dry Prod LNG Imports Total Supply Power Industrial Res/Com LNG Ex Demand 0.8 0.8 0.4 0.1 0.7 1.1 0.0 0.0 Normal weather helps boost demand, but LNG exports stay flat. 2017 was first year of production increases in Southeast since 2012. Source: PointLogic Energy Supply & Demand Report
Southeast Forecast Bcf/d 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 - Haynesville production drives a regional production surge. A return to a normal winter and the continued penetration of gas into the power generation market boosts Southeast demand. LNG exports growth from the region stunted by global LNG oversupply and competition from Cove Point. Southeast Demand Production LNG Exports Net Short The region becomes net shorter -- needing a record 13.7 Bcf/d of imports or storage withdrawals in December 2017 to balance.
$0.20 $0.10 $0.00 -$0.10 -$0.20 -$0.30 -$0.40 -$0.50 Permian Basis Gets Worse Before It Gets Better Texas and Southeast Basis East Texas HSC East Texas Forecast HSC Forecast South Texas Permian South Texas Forecast Permian Forecast Permian basis continues to weaken as production ramps up. Beyond this forecast period, additional pipeline capacity and growing demand from LNG and Mexican exports provides relief. HSC and South Texas are helped by increasing demand as LNG projects and Mexican exports pick up and new pipeline capacity provides additional takeaway. Increasing production from Haynesville creates downward pressure on East Texas. Seasonal Basis East Texas South Texas HSC Permian Win 16-17 $ (0.12) $ (0.11) $ (0.04) $ (0.25) Sum 17 $ (0.14) $ (0.09) $ 0.05 $ (0.37) Win 17-18 $ (0.11) $ (0.06) $ 0.01 $ (0.38) Sum 18 $ (0.13) $ (0.04) $ 0.05 $ (0.43) Price Data Source: IHS-Markit
Southeast and Texas Big Takeaways Permian continues to grow, but more slowly. Eagle Ford grows, then falls. Haynesville grows for now. Southeast LNG exports face competition. An abundance of projects insure that Northeast production continues to inundate the Southeast.
Questions?
Contact Us Today! Charles Nevle Vice President, Production 832.679.7228 cnevle@pointlogicenergy.com Customer Support Phone: 855.650.4500 ext. 1 support@pointlogicenergy.com Gaithersburg HQ: 9737 Washingtonian Blvd. Sales Phone: 855.650.4500 ext. 2 sales@pointlogicenergy.com Houston, TX Office: 1401 Enclave Parkway
Appendix
Texas Demand Cyclical but Steady Texas demand largely split between power and industrial sectors with little residential and commercial. Slight upward trend in power burn demand, other sectors flat. Power burn summer peaks are approximately equivalent to additions to residential and commercial increases that come in the winter.
Expected Normal Winter Boosts Demand Big year-on-year variation in size of winter residential and commercial peak. Weather dependent. Summer power peaks relatively steady.
Permian Activity Slows, But DUCs Help Out 160 140 120 100 80 60 40 20 - Permian Rigs Forecast MMcf/d 300 250 200 150 100 50 0 DUC Production Bone Spring Wolfcamp Delaware Wolfcamp Midland Source: IHS DUC Production Source: IHS
Bone Springs Production Waning? Bone Springs production by sub-play Despite recent declines, drilling picked up considerably in late 2016 and is leading to increasing production in 2017 and 2018.
Wolfcamp Midland Northern Sub-play Dominates Growth Northern sub-play accounts for 58% of production.
Texas Balance 2012 vs. 2017 Supply Demand Dry Prod Total Supply Power Industrial Res/Com Mex Ex LNG Ex Demand 2.0 2.1 0.3 0.0-0.2 0.0-2.4-2.4 Texas production peaked in 2015, and as a state has not recovered from the commodity collapse in 2015 despite growing Permian production. As wind power grows, Texas s domestic demand has remained flat, leaving Mexican exports as the single demand growth driver. Source: PointLogic Energy Supply & Demand Report
Texas Winter 2016/17 vs. 2017/18 Supply Demand Dry Prod 0.5 Total Supply Power Industrial Res/Com Mex Ex 0.5 0.1 0.1 0.4 0.2 LNG Ex Demand 0.8 0.0 Increasing production in Permian is not enough to compensate for increasing Mexican exports. Assumption of normal winter boosts Res/Com. Source: PointLogic Energy Supply & Demand Report
Southeast Gets Shorter 2013 vs. 2017 Supply Demand Dry Prod LNG Imports Total Supply Power 1.3 Industrial 0.0 Res/Com LNG Ex Demand 2.1 2.5-1.2-0.1-1.3-0.9 Lower production, combined with growing LNG exports. 2017 was first year of production increases in Southeast since 2012. Source: PointLogic Energy Supply & Demand Report
Southeast Winter 2016/17 vs. Winter 2017/18 Supply Demand Dry Prod 0.9 LNG Imports Total Supply Power 0.9 0.6 Industrial 0.1 Res/Com 1.3 LNG Ex 0.4 Demand 2.5 0.0 Lower production, combined with growing LNG exports. 2017 was first year of production increases in Southeast since 2012. Source: PointLogic Energy Supply & Demand Report
Karnes County Attracts the Most Investment in Eagle Ford Operators continue to focus on the Eastern Eagle Ford sweet spot situated in Karnes County, where ConocoPhillips and Marathon are the leaders in permit activity. La Salle and Dimmit counties follow closely behind Karnes County for new activity in the first half of 2017. Chesapeake has been the most active in La Salle and Dimmit counties, followed by Carrizo and Sanchez.