BTU Analytics: Finding the Premium Markets for US Crude September 18, 2014 info@btuanalytics.com
Who is BTU Analytics? BTU Analytics is a highly nimble, data driven analysis company yproviding market risk assessments, market strategy advisory services, regularly published analysis, and due diligence analysis for participants in the North American oil, NGL, and natural gas markets. Clientele is spread across Private Equity Companies, Producers, Power Providers, Traders, and Marketers. Capabilities Include: Oil, NGL, and natural gas market analysis Producer strategy t advisory di services Infrastructure development analysis Custom regional market studies info@btuanalytics.com 2
Market Conclusions US light production growth outpacing demand, leading to downward pressure on US crude prices Rockies oil production expected to double over next 5 years Limited local refining demand will force growing Rockies production to compete with other growing US plays Rapid build out of pipes and rail have reduced domestic price arbitrage opportunities info@btuanalytics.com 3
US Light Crude/Condensate Growth Is Overwhelming Domestic Demand 14.0 US Oil Production 12.0 10.0 MMb/d 8.0 60 6.0 4.0 2.0 0.0 Source: BTU Analytics 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Heavy Intermediate Light Condensate info@btuanalytics.com 4
Like for Like Displacement Opportunities are Gone, Leaving Domestic Production to Compete with Heavier, Sour grades 2.5 US Light Sweet Waterborne Imports 2.0 MMB/d 1.5 1.0 0.5 0.0 PADD 1 PADD 2 PADD 3 PADD 5 Source: BTU Analytics info@btuanalytics.com 5
US Refining Running at Capacity, Little Incremental Demand in Short Term Relative to Supply Growth 17.0 16.5 16.0 15.5 MMb/d 15.0 14.5 14.0 13.5 13.0 1 Jan 1 Apr 1 Jul 1 Oct 5 year Min 5 year Max 2012 2013 2014 Max Rfii Refining Run Source: EIA & BTU Analytics, Data as of 9 10 2014 info@btuanalytics.com 6
% Productio on 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 29% Rockies Crude Production Quality Varies, but Will be Contributing to the Light/Condensate Oversupply in the US Rockies Production Quality 10% 8% 43% 69% 25% PRB DJ UT Heavy Intermediate ed Light Condensate 45 50 Condensate 50 60 Condensate 60+ NOTE: 2013 Average Source: BTU Analytics info@btuanalytics.com 7
DJ Basin is the Largest Driver of Growth and Also the Lightest Quality MMb/d 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 00 0.0 Rockies Oil Production Source: BTU Analytics WY DJ Basin MT UT NOTE: Excludes Williston Basin info@btuanalytics.com 8
DJ Basin Will Once Again Be Pipeline Constrained in 2015 and Beyond 600 500 400 Pipeline Projects Owner Incremental Capacity DJ Oil Balance ISD White Cliffs SemGroup 70 Mb/d Sept. 2014 Expansion Pony Express Tall Grass 90 Mb/d 1H2015 Lateral Energy Need 250 Mb/d of Incremental Capacity w/o Rail Mb/d 300 200 100 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Inflows Base Case Production High Case Production Refining + Pipe Capacity Rail Capacity info@btuanalytics.com 9
1,200 Rail Infrastructure in Wyoming is Overbuilt, Most Terminals are Integrated with Pipelines to Connect Canadian Crude to California Rail Facilities PRB Balance 1,000 800 Mb/d 600 400 Pony Express 200 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Production Inflows Rfii Refining + Pipe Capacity RilC Rail Capacity Source: BTU Analytics info@btuanalytics.com 10
Northern Gateway 0.6 The Majority of Projects are Headed for Cushing and the Gulf Coast PADD 5 PADD 4 PADD 2 Trunkline 0.4 0.6 PADD 1 PADD 3 Units: MMb/d Source: BTU Analytics info@btuanalytics.com
Producers Drove Initial Development of CBR, Unloading Terminals Expected to Close the Gap Over Next Three Years 435K 376k 836k 556k 237k 1.3M 247k 308k 1.1M 668k 668k 1.6M 396k 396k 150k 390k 823k 1.1M Load Unload 597k 947k 1.3M 1.9M Source: BTU Analytics 2014: 3.8M Loading vs. 2.8M Unloading Capacity 2017: 4.9M Loading vs. 4.7M Unloading Capacity info@btuanalytics.com 12
Rail Has Helped Backfill Declining Production 3.0 PADD 5 Supply 2.5 2.0 MMb/d 1.5 1.0 0.5 00 0.0 Alaska Production California Production Imports Rail Source: BTU Analytics info@btuanalytics.com 13
To date, Crude-by-Rail Deliveries have been Minimal, New Rail Facilities are Facing Environmental Pushback and Regulatory Hurdles 40 California Crude by Rail Receipts by State of Origin 35 30 25 Mb/d 20 15 10 5 0 North Dakota Texas Canada NM Colorado WY UT Other Source: BTU Analytics, California Energy Commission info@btuanalytics.com 14
California Crude Slate Has Historically Been Heavy, Creating Fewer and More Difficult Displacement Opportunities 1,200 California Crude Oil Imports 1,000 800 Mb/d 600 400 200 0 Light Intermediate Heavy Source: BTU Analytics, EIA info@btuanalytics.com 15
Market Conclusions US light production growth outpacing demand, leading to downward pressure on US crude prices Rockies oil production expected to double over next 5 years Limited local refining demand will force growing Rockies production to compete with other growing US plays Rapid build out of pipes and rail have reduced domestic price arbitrage opportunities info@btuanalytics.com 16
Erika Coombs Email: ecoombs@btuanalytics.com Direct Line: 720 552 8044 2600 South Lewis Way, Suite 216 Lakewood, CO 80227 Main line: 720 552 8040 BTU Analytics provides data-driven, market-risk assessments and due diligence analysis for acquisitions and divestitures of oil, NGL, and natural gas assets in North America. We utilize our in-depth understanding of North American energy data to help clients determine the future value of upstream, midstream, and downstream assets in the face of ever-evolving market conditions. DISCLAIMER. THIS REPORT IS FURNISHED ON AN AS IS BASIS. BTU Analytics, LLC DOES NOT WARRANT THE ACCURACY OR CORRECTNESS OF THE REPORT OR THE INFORMATION CONTAINED THEREIN. BTU Analytics, LLC MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE USE OF ANY INFORMATION CONTAINED IN THIS REPORT IN CONNECTION WITH TRADING OF COMMODITIES, EQUITIES, FUTURES, OPTIONS OR ANY OTHER USE. BTU Analytics, LLC MAKES NO EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANT ABILITY OR FITNESS FOR A PARTICULAR PURPOSE. RELEASE AND LIMITATION OF LIABILITY: IN NO EVENT SHALL BTU Analytics, LLC BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFIT) ARISING OUT OF OR RELATED TO THE ACCURACY OR CORRECTNESS OF THIS REPORT OR THE INFORMATION CONTAINED THEREIN,WHETHER BASED ON WARRANTY, CONTRACT, TORT OR ANY OTHER LEGAL THEORY. info@btuanalytics.com
Alon Kern County 9/9/2014 Won approval to increase capacity from current 13 Mb/d to 150 Mb/d Plains Bakersfield 9/9/2014 Startupa a unit train facility in 10/2014 WesPac Pittsburg Terminal On hold Original ISD 3Q2014 info@btuanalytics.com 18