51.90 47.853.463.071.030 - ARC Energy Research Institute

December 20, 2016

ARC Energy Charts 1www.arcenergyinstitute.com

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S&P 500 E&P

S&P/TSX E& P Index

Indexed to Jan 2016

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Indexed to Jan 2016

Shanghai Composite

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Philadelphia Oil & Gas Service

PSAC Cana dian In dex

The Fed hiked rates at its December meeting

Nov OPEC production rose to 34.2 MMB/d

Crude oil inventories fell by 2.6 MMB

The latest gas storage draw was 147 Bcf

WCSB rig utilization is up to 35%

Spot WTI Crude

$US/B

Edmonton Light

$US/B

Spot Henry Hub

$US/MMBtu

Spot AECO

$Cdn/GJ

Spot AECO Basis

$US/MMBtu

Currency

$US/$Cdn

Please see Advisories and Disclaimers at the end of the publication for important cautionary advisory and disclaimer language

47.85 3.46 3.07 1.03 0.7499

Performance of Oil and Gas Equities Year-to-DateDaily Index Values; Indexed to January 2016

Oil & Gas Service Equities Year-to-DateDaily Index Values; Indexed to January 2016

Broad Equity Markets Year-to-DateDaily Index Values; Indexed to January 2016

Canadian Currency ExchangeDaily Close Values; Rolling 24-Month History

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$US/$Cdn

Chart Watch

51.90

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information on this publication and the Institute

ARC Energy Charts

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Broad market indices are one the many vital signs measuring the health of the economy. Energy demand is a function of economic health.

Source: Bloomberg, ARC Financial Corp.

Performance of Canadian and US oil & gas equities are compared against each other.


The performance of Canadian oil and gas service equities are plotted in tandem with the corresponding US index.

Source: Bloomberg, Petroleum Services Association of Canada

Much of Canada’s oil and gas production is sold in US dollars. As such, the exchange rate significantly impacts corporate revenues and profits.

Source: Bloomberg

The Federal Reserve hiked short-term interest rates...

...by 25 basis points at the December meeting.

The Loonie dropped just below $US 0.75.

The DJIA index rose to a new record high on Tues; 19,911.

July 3, 2006

ARC Energy Charts

ARC Energy Charts 2

December 20, 2016

www.arcenergyinstitute.com

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2010 2011 2012 2013 2014 2015 2016

MMB/dOffshore O il Production

Onshore O il Production

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Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16

WTI D iff

WTI

WTI ($US/B) WTI Dif f to Brent ($US/B)

WTI Crude Oil Price and Differential to BrentNear-Month WTI and Brent Differential; Rolling 12-Month History

Canadian Heavy Oil Price Differential to WTI Western Canadian Select (WCS) Differential; Rolling 12-Month History

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Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16

WCS Diff.

WCS

WCS ($US/B) WCS Dif f to WTI ($US/B)

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60


WTI $US/B 2017

2018

2019

US Crude Oil FuturesWest Texas Intermediate (WTI) 2016 to 2018

Canadian Light Crude Oil Price Differential to WTIWTI and Edmonton Light differential; Rolling 12-Month History

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Edm. Light Diff.

Edmonton L ight

Edm. Light ($US/B) Edm. Light Dif f to WTI ($US/B)

Ratio of Long to Short Contracts - WTIManaged Money - Futures and Options

Total US Oil ProductionMonthly; 2010 to Present

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Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16

Long:Short

The differential should reflect the transportation cost from Alberta to Cushing. Greater discounts can result from infrastructure or refinery outages.

Source: Bloomberg

North American crude oil prices can sometimes disconnect from global prices depending on regional supply and demand dynamics.

Source: Bloomberg

Forward prices for WTI are plotted against months in the calendar year. Years are distinguished by color and symbol coding.

Source: Bloomberg

Canadian heavy crude oil differentials are becoming less volatile with growing access to new markets via pipeline and rail.

Source: Bloomberg

This represents the relative bullishness of money managers on the price of oil in the United States.

Source: Bloomberg, U.S. Commodity Futures Trading Commission

The advancement of drilling and completion methods boosted US crude oil production, prior to the downturn in prices.

Source: Bloomberg, U.S. Energy Information Administration

Crude Oil

The Brent-WTI differential has grown to its widest since...

Three weeks ago the EIA relea-sed Sept’s oil production data.

Prod. came in at 8.580 MMB/d, a 0.167 MMB/d drop from Aug.

The majority of the decline came from offshore GOM production.

President-Elect Trump has stated that he will move...

...quickly on KXL after taking office.

The Edm. Light differential is currently around $4/B.

Investors are the most bullish on crude oil that they have...

...been since the downturn began more than two years ago.

...February of this year. The futures

curve is still in contango in the near-term...

...but flips into backwardation in the long end of the curve.

July 3, 2006

ARC Energy Charts

ARC Energy Charts 3

December 20, 2016


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Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16

MMB/d Crude Oil

Refined Products

-2.5

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

MMB/d

Global Oil Supply-Demand Balance Quarterly; Rolling 10-Year History

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MMB/d

OPEC Oil Production Monthly; Rolling 60-Month History

Alberta Oil Production

Monthly; Conventional and Oil Sands

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15 US Weekly Crude Oil Imports from CanadaPipeline, Tanker and Barge Crude Imports; Rolling 24-Month History

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MMB/d

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MMB/d

US Crude Oil ImportsHistorical Tracks and Current Year Levels

2015

2016

US Exports of Crude Oil and Refined ProductsWeekly Data; 2013 to Present

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MMB/d

Mil

lio

ns

Upgraded Oil Sands

Non-Upgraded Oil Sands

Conventional

Oversupply

Shortfall

Most of Canada’s oil production comes from Alberta; split between oil sands and conventional production.

Source: Alberta Energy Regulator

OPEC’s production levels relative to its sustainable and spare capacity influences global crude prices.

Source: Petroleum Intelligence Weekly

Negative numbers indicate a global crude shortfall, while positive numbers indicate an oversupply.

Source: International Energy Agency

Prior to the downturn, growing domestic supply was displacing crude oil imports. Crude oil imports for the current year are in blue.

Source: U.S. Energy Information Administration

Crude oil imports from Canada are taking market share from overseas imports.


The US exports more refined products than crude oil. If/when tight oil growth resumes, most export growth should come from crude oil exports.


Crude Oil

Last week the IEA reported that November OPEC...

...production was 34.2 MMB/d, an increase of 0.3 MMB/d from...

The IEA’s latest OMR projects 1.3 MMB/d of demand growth...

...October and a new record high.

...in 2017, down slightly from 2016 growth of 1.4 MMB/d.

The AER released its new Duvernay Reserves and...

...Resources Report.

They reported proved reserves of 34 million barrels of oil,...

...145 million barrels of condensate and 1,052 Bcf of gas.

July 3, 2006

ARC Energy Charts

ARC Energy Charts 4

December 20, 2016


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# of Oil Rigs - Total# of Oil Rigs - Play Lev el

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US Crude Oil Stocks Historical Tracks and Current Year Levels

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2015

2016

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%

US Refinery Utilization Rates (%)Historical Tracks and Current Year Levels

20152016

US Motor Gasoline ConsumptionHistorical Tracks and Current Year Levels

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MMB/d

20162015

Daily NGL Prices as a % of Edmonton Light Propane & Butane Spot Prices at Edmonton, AB

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Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Jul-16 Nov-16

% of Edm. Light

Cond ensate

Butane (Spot)

Propa ne (Spot)

US Oil Drilling ActivityBaker Hughes Horizontal Oil Rig Counts; 2014 to Present

Bakken

Total US (Right-Axis)

Permian

Eagle Ford

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18

19

20

21

22


MMB/d

Total Weekly US Petroleum SuppliedHistorical Tracks and Current Year Levels

2015

2016

US crude oil stock levels can affect crude oil prices. Stock levels for the current year are represented by the blue line.


Refinery utilization rates change the supply of refined products, impacting price. Utilization for the current year is blue.


Petroleum supplied represents the total consumption of petroleum products in the US. Consumption for the current year is in blue.


Gasoline consumption accounts for almost half of all oil use in the US. Gasoline consumption for the current year is represented by the blue line.


Tracking US oil drilling by major play provides insight into the composition of US oil supply and growth trends.

Source: Baker Hughes

Natural gas liquids have become critical contributors to producer’s cash flow. Prices are influenced by the price of oil as well as local supply and demand.


Crude Oil

US crude oil inventories fell by 2.6 MMB in the week...

...ending December 9th. Inventories are currently at a...

Since the low point in May, the US oil rig count has risen by 194.

Propane is trading at its strongest ratio to Edmonton...

...a surplus of 24.8 MMB/d to last year.

Refinery utilization is tracking at the low end of...

...normal for this time of year.

The gain in the Permian in this time has been 97 rigs.

...Light since early 2014.

July 3, 2006

ARC Energy Charts

ARC Energy Charts 5

December 20, 2016


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2423 Near-Month North American Natural Gas Prices Daily Prices; Rolling 12-Month History

Henry Hub

$US/MMBtu

AECO

$C/GJ

US Natural Gas FuturesNymex (Henry Hub) 2016 to 2018

2.50

2.75

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3.25

3.50

3.75


$US/MMBtu 2017

2018

2019

Canadian Natural Gas FuturesAECO Hub (Bloomberg Estimate) 2016 to 2018

US Coal and Natural Gas Power Generation Cost

Converted to a $/MWh Equivalent

$0

$10

$20

$30

$40

$50

2012 2013 2014 2015 2016

$US/MWh

Appalachian

Coal

Henry

Hub

Global Natural Gas Prices

Japanese LNG, UK NBP, Henry Hub; Average Monthly Prices

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Japanese

LNG

Henry

Hub

UK NBP

Ratio of Long to Short Contracts – Henry HubManaged Money – Futures and Options

Differential

$US/MMBtu

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3.75


$C/GJ 2017

2018

2019

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Long:Short

Near-month prices at AECO track Henry Hub prices, the exchange rate and the cost of transportation. Local factors can also affect price.

Source: Bloomberg

Forward contract prices are plotted against months in the calendar year. Years are distinguished by color and symbol coding.

Source: Bloomberg

This represents the relative bullishness of money managers on the price of natural gas in the United States.

Source: U.S. Commodity Futures Trading Commission

AECO forward prices mimic Henry Hub futures plus a differential

Source: Bloomberg

International natural gas prices strongly impact the economics of proposed LNG projects.

Source: Bloomberg, Japanese Ministry of Economy, Trade and Industry

This graph illustrates when it may be economic to begin coal-gas switching in power generation. Average power plant efficiencies are assumed.

Source: Bloomberg

Natural Gas

Rising natural gas prices are a driving force behind the….

...EIA’s recent forecast that coal fired electricity...

...generation will surpass natural gas this winter.

Henry Hub fell from a high of $3.75/MMBtu last week to...

…$3.42/MMBtu on Friday.

The Henry Hub futures curve is now significantly backwardated.

2017 futures are averaging $3.42/MMBtu.

By 2018 futures are trading down to $3.08/MMBtu.

Net long Henry Hub contracts among managed money have...

AECO futures are also back-wardated with 2017 and 2018...

...futures avera-ging $3.07/GJ and $2.77/GJ respectively.

...risen to their highest level since the 2014 polar vortex.

July 3, 2006

ARC Energy Charts

ARC Energy Charts 6

December 20, 2016


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Bcf /d

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7

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Bcf /d

Closing Spot Prices at North American Natural Gas HubsSuperimposed on Relative Pipeline Flows

\

30 31

All prices in $US/MMBtu

Closing Spot Prices at North American Natural Gas HubsSuperimposed on Relative Physical Volumes Traded

AECO

Henry Hub

Kingsgate

Stanfield

Malin Opal

Socal

San Juan

Permian

Ventura ChicagoBoston

29

Dawn

Waddington

TGP Zone 4 -

Marcellus

US Natural Gas Exports – Excluding CanadaDaily; Historical Tracks and Current Year Levels

2016

2015

Pipeline Flows Out of Western CanadaDaily; Historical Tracks and Current Year Levels

2015

2016

The ability of gas producers to move gas out of the WCSB to eastern markets and the US is a major factor in local natural gas prices.

Source: Various Pipeline Companies

Between exports to Mexico and LNG shipments, the US is growing as a natural gas exporter. Robust US supply growth has driven this trend.

Source: Bentek

North America has an integrated natural gas market. Prices are determined by regional supply and demand, and pipeline flows.

Source: Bloomberg

Natural Gas

US$3.46

US$2.43

US$3.71

US$3.51

US$3.66

US$3.89

US$3.62

US$3.73

US$3.60

US$3.68

US$4.07

US$10.19

US$3.84

US$4.96

US$2.67

The Marcellus region is getting new takeaway capacity this...

Year to date exports from the US (excl. Canada) have…

...averaged 1.2 Bcf/d over last year.

...quarter with the startup of the Rockies Express...

...Pipeline Zone Three Capacity Enhancement.

This will add around 0.8 Bcf/d of capacity.

July 3, 2006

ARC Energy Charts

ARC Energy Charts 7

December 20, 2016


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50

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1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52

HDDs

Week

32 33

34 35

36 37

Total US Dry Natural Gas ProductionHistorical Tracks and Current Year Levels

50

53

56

59

62

65

68

71

74


Bcf /d 2016

2013

2015

40

50

60

70

80

90

100

110

120

130


Bcf /d

US Total Natural Gas DemandDaily; Historical Tracks and Current Year Levels

2015

2016

US Weekly Heating Degree DaysSource: NOAA

2015

2016

0.5

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4.5


Tcf

Total Working Natural Gas in US StorageHistorical Tracks and Current Year Levels

2015

2016

(350)

(300)

(250)

(200)

(150)

(100)

(50)

0

50

100

150


Bcf

Weekly US Natural Gas Storage Net ChangeWeekly Injection or (Withdrawals); 2009 to Current

2015

2016

12

13

14

15

16


Bcf /d

Daily Western Canadian ProductionEstimated Using Major Pipeline Receipts

20152016

Weekly natural gas demand is directly tied to the weather. The current year is in dark blue.

Source: National Oceanic and Atmospheric Administration

Total US demand fluctuates between 60 Bcf/d in the summer and over 100 Bcf/d in the winter. Weather is the most important driver of consumption.

Source: Bentek

US production started ramping up in late 2007 and continues to grow year over year.

Source: Bentek

This includes receipts on the TCPL, Alliance, WestCoast and TransGas pipelines.

Source: Various Pipeline Companies

Weekly gas storage reports provide a snapshot of supply and demand. Current year changes are represented by the blue line.


The EIA reports changes in US natural gas inventories held in underground storage facilities on a weekly basis.


Natural Gas

Natural gas pro-duction in the last four weeks has averaged...

...71.2 Bcf/d; a reduction of 3.4 Bcf/d from the February peak.

Colder weather has contributed to a spike in demand.

So far demand in December is almost 18 Bcf/d over last year.

The last storage draw came in at 147 Bcf.

The storage surplus to the 5 year average shrunk to 186...

This was 76 Bcf over the typical withdrawal for this week.

...Bcf after the large withdrawal in the week ending Dec 9.

Heating degree days in the last 4 weeks have been 23%...

...above last year.

July 3, 2006

ARC Energy Charts

ARC Energy Charts 8

December 20, 2016


2015

2010

2011

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Week

Well Completions (000s)

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Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16

# of Gas Rigs - Total# of Gas Rigs - Play Lev el

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40 41

42 43

Weekly Canadian Oil and Gas Drilling ActivityBaker Hughes Average Rig Counts; Rolling 24-Month History

0

50

100

150

200

250


# of Rigs

Gas

Rigs

Oil

Rigs

US Gas Drilling ActivityBaker Hughes Horizontal Gas Rig Counts; 2014 to Present

MarcellusTotal US (Right Axis)

Western Canadian Natural Gas Storage LevelsWeekly; Current Year and Historic Tracks

2015

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200

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400

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600


Bcf

2016

Alberta Natural Gas DemandTransCanada Intra-AB Deliveries; Current Year and Historical Tracks

2.5

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7.0


Bcf /d

2016

2015

2012

2015

Canadian Cumulative Well CompletionsCurrent Year vs Years Prior

2016

2014

Alberta Crown Land Sales – Excluding Oil SandsYear-over-Year; Cumulative

0.0

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2.0

2.5

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$ Billions

2016

2013

2012

2010

2011

Haynesville

Eagle Ford

Alberta natural gas demand has grown steadily in recent years, largely driven by new oil sands projects coming on line.

Source: TransCanada Pipelines

Canada’s natural gas storage level provides a good metric if the country is well stocked. Abnormally high or low storage can affect the basis.

Source: Bloomberg

Unlike US drilling activity, Canadian rigs are dispatched seasonally. Capital allocation by operators is driven by views of future oil and gas prices.


Tracking US gas drilling by major play provides insight into the composition of US gas supply and growth trends.


Land prices are an important component of F&D costs. In Alberta, sales of petroleum and natural gas rights are held every two weeks.

Source: Alberta Department of Energy

Relative year-over-year drilling activity is highlighted in this chart. Cumulative well completions for the current year are shown in blue.

Source: Daily Oil Bulletin/JWN

Natural Gas and Other Indicators

Lower production and higher demand have helped…

Colder weather has driven Alberta gas demand to... ...a new record

high; passing 6 Bcf/d.

...draw down storage in recent weeks. The surplus to...

Rig utilization in the WCSB has risen in recent weeks.

The US natural gas rig count rose by 1 up to 126.

According to the CAODC 35% of the fleet was active in the...

The CAODC released its 2017 forecast for wells...

The B.C. govern-ment closed the year with $15.19 million in total...

...bonus bids, the lowest annual total since 1978. ...drilled, estima-

ting 4,665 in ’17 versus 3,562 for this year.

...last year has shrunk by over 20 Bcf in the last two weeks.

...week ending December 12, vs 21% at this time last year.

At this time last year there were 168 gas rigs active.

July 3, 2006

ARC Energy Charts

ARC Energy Charts 9

December 20, 2016


Estimated Capital Flow in the Canadian Oil and Gas Economy for 2017Industry Revenue, Cash Flow, Reinvestment, Drilling Activity and Production

Oil & Gas

Prices

Production

Volume

Debt,

Equity

E&P

Revenue

Service Sector

Revenue

Land,

Acquisitions

Operating

Expenditures

Reserve

Additions

Capital Flow

in the

Canadian

Oil and Gas

Economy

Royalties

& Taxes

G&A

Exploration &

Development

Cash

Flow

CAPEX

Dividends and

Distributions

Foreign Investment

and Capital Outflow

Drilling

Activity

$C 42.64 per BOE

7.1 Million

BOE/day

$C 45.4

Billion

$C 110.1

Billion

$C 41.6

Billion

4,700

Wells

Canadian Industry Statistics: Historical Data and Forecast44

Canadian Industry Metrics

Advisories and Disclaimers: This document is provided for informational purposes only and none of the information contained herein is intended to provide, nor should be

construed as, investment, financial, legal or other advice and should not be relied upon as such. Certain of the information and data contained herein has been obtained or

prepared from publicly available documents and other sources prepared by third parties, and ARC has relied upon such information and data. ARC does not audit or

independently verify such information and data and ARC makes no representations or warranties as to the accuracy or completeness of such information and data nor the

conclusions derived therefrom. This document has been published on the basis that ARC shall not be responsible for, and ARC hereby expressly disclaims any responsibility

or liability for, any financial or other losses or damages of any nature whatsoever arising from or otherwise relating to any use of this document.

Certain information contained herein may constitute forward-looking information and forward-looking statements" (collectively, "forward-looking statements") under the

meaning of applicable Canadian securities laws. Forward-looking statements include estimates, plans, expectations, intentions, opinions, forecasts, projections, guidance or

other statements that are not statements of fact, including but not limited to global and industry economic conditions and policies, production, demand and commodity prices.

Although ARC believes that the assumptions underlying and expectations reflected in such forward-looking statements are reasonable, it can give no (and does not give any)

assurance that such assumptions and expectations will prove to have been correct. Such forward-looking statements involve known and unknown risks, uncertainties and

other factors outside of ARC's control that may cause actual results to differ materially from those expressed herein. Neither ARC nor any of its affiliates undertakes any

obligation to publicly revise such forward-looking statements to reflect subsequent events or circumstances, except as required by law.

Average

Price

Edmonton

Par AECO

Conv.

Liquids

Bitumen +

Synthet ic

Natural

Gas

Total

Volume

Total

Revenue

After-tax

Cash Flow

Conv. Oil

and Gas Oilsands

Reinvest

Rat io

Wells

Compl.

Avg Rig

Utiliz.

Oil

Wells

Gas

Wells

$/BOE $C/B $C/GJ

Average

M BOE/d

Average

M BOE/d

M BOE/d

(@ 6:1)

M BOE/d

(@ 6:1)

$C

millions

$C

millions

$C

millions

$C

millions x:1

# /

Year % % %

2008 68.22 102.66 7.75 1,994 1,207 2,700 5,864 145,425 83,255 36,293 18,113 0.65 16,877 41% 36% 56%

2009 42.26 66.42 3.79 1,840 1,331 2,514 5,683 89,057 36,680 22,335 11,227 0.91 8,368 25% 41% 51%

2010 48.41 77.55 3.79 1,830 1,403 2,434 5,668 101,056 43,569 35,666 17,195 1.16 12,119 40% 56% 40%

2011 55.32 95.24 3.44 1,873 1,482 2,386 5,740 115,890 53,448 40,139 22,491 1.10 12,827 52% 69% 31%

2012 50.60 86.38 2.27 1,905 1,743 2,327 5,975 111,389 48,908 39,733 27,199 1.37 11,067 44% 83% 17%

2013 55.95 93.47 3.02 2,023 1,940 2,343 6,306 128,787 54,711 43,165 30,809 1.35 11,071 42% 84% 16%

2014 61.20 95.07 4.23 2,086 2,163 2,445 6,694 149,530 71,846 46,872 33,868 1.12 11,226 45% 78% 22%

2015 35.34 57.63 2.56 1,983 2,373 2,479 6,835 88,170 24,109 30,551 22,948 2.22 5,394 24% 69% 31%

2016e 31.32 52.62 2.04 1,921 2,393 2,495 6,809 77,844 20,386 20,527 16,209 1.80 3,500 17% 60% 40%

2017e 42.64 68.19 3.25 1,868 2,655 2,548 7,070 110,052 45,351 28,315 13,242 0.92 4,700 24% 60% 40%

R einvestment D rilling Well Split

Canadian Industry Metrics

P rice P ro duct io n Vo lume C apital Inf lo w

We are now showing estim-ated metrics for 2017.

Documents

51.90 47.853.463.071.030 - ARC Energy Research Institute