Bentek 2012 Shale Gas Outlook

7/27/2019 Bentek 2012 Shale Gas Outlook

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1

BENTEK North AmericanMarket Overview & Outlook

To Illinois State UniversityInstitute for Regulatory Policy StudiesSpringfield, IL

October 30, 2012


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2www.BENTEKENERGY.com

Agenda

Drilling Efficiencies and Oil & NGLProduction Will Sustain Annual

Growth of Gas Volumes

Demand Is Responding to LowPrices

Prices Will Be Low and Stable asSupply Continues to OverwhelmDemand

Changes in Intra-Regional FlowDynamics Will Impact Local Prices,

Particularly Out West


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3www.BENTEKENERGY.com Source: BENTEK Cell Model

Massive Displacement

Forcing Gas Into New Markets


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Supply


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5www.BENTEKENERGY.comSource: BENTEK Supply/Demand Balance History

U.S. Production Slows But Sustains YOY Growth

50

52

54

56

58

60

62

64

66

J an Feb Mar Apr May J un J ul Aug Sep Oct Nov Dec

B

cf/d

2009 2010 2011 2012 YTD

2010 Avg: 57.1 Bcf /d

2009 Avg: 55.1 Bcf /d

2011 Avg: 61.6 Bcf/d

2012 Avg: 63.5 Bcf /d


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9/+1

214/+133

42/+14

70/-6

14/+3

6/+0

36/+11

28/-2

31/+22

103/+65

6/-23

2/-1

260/+200

27/+23

6/-2

43/+25

24/+9

7/+4

Active rig count: October 5, 2012 / Change in rig count from J an. 1, 2010

Rig Increases Dry Gas Focused Areas

Rig Increases Liquids-Rich/Oil Focused Areas

Rig Declines Source: BENTEK, October 2012

3/-9

95/+11

70/+11

42/+24

75/-34

16/-21219/+96

470/+251

43/-50

13/-10PICEANCE

CALIFORNIA

MICHIGAN

POWDER RIVER

GREEN RIVER

WIND RIVER

OTHER ROCKIES

WILLISTON

SAN JUAN

UINTA

OTHER

APPALACHIAN

D-J

MARCELLUS WET

MARCELLUS

DRY

UTICA

ILLINOIS

ARK FAYETTEVILLE

ARK WOODFORD

OFFSHORE

TX GULF

EAGLE FORD

PERMIAN

ANADARKO

FT

WORTH

AL-MS-FL

LA GULF

EAST

TX

ARKLA

OTHER

MIDCONTINENT

TX GULF

30/-99TOTAL

2006

CHANGE

+716

Source: BENTEK Regional Production Monitors, September 2012

Massive Shift of Rigs to Oil & Liquids Plays


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IRRs Shift Production to Oil/NGL-Rich Plays

89%Permian

Bakken

56%

51%

Niobrara

32%UintaCleve/Tonk

98% Miss.Lime94%

Piceance4%

Eagle Ford

50%

Montney

16%

68%

GraniteWash

84%

Haynesville0%

Pinedale

3%

Ark/Wood

1%Fayetteville4%

Horn-1%

WCSB

0%

Marcellus

7%

Source: Company Presentations, Quarterly Reports, and News Releases

Oil Play

NGL Play

Dry Gas Play


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Numerous Plays Become Attractive Again at $4 Gas

Haynesville0%

Pinedale

3%

Ark/Wood

1%

Fayetteville

4%

Horn-1%

WCSB

0%

Marcellus

7%

Source: Company Presentations, Quarterly Reports, and News Releases

@ $5

@ $4

@ Current $

22%41%

16% 29%

8%19%

27% 43%


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Drill Time(Days)

Wells Per Yr.Per Rig

Avg. LateralLength ( Feet)

30 Day Ave.Prod Rate

(Mcfd)

IP AdditionsPer Rig PerYr. (Mcf/d)

Drill &Complete

Costs ($MM)

2007 Q1

2008 Q1

2010 Q1

2011 Q1

20

8

18

43

2,104

4,985

1,006 $2.8

2,673

18,360

116,148

$2.6

Technology Gains Drive Gas Production

SWN EnergyFayetteville Shale

+137%

-58%

+166%

+8%

+138%

+533%

Source: Southwestern Energy Financials


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0

50

100

150

200

250

300

0

2

4

6

8

10

12

14

16

18

2007 2008 2009 2010 2011 2012

HorizontalRig

Count

B

cf/d

Fayetteville Haynesville Marcellus Horizontal Rig Count

Shale Rig Counts Peaked in 2010

Yet Production Has Grown 8 Bcf/d Since 2010

Source: BENTEK Production Monitors


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0

10

20

30

40

50

60

70

80

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

B

cf/d

History Forecast

Source: BENTEK Forward Curve Quarterly 2012.09.28

Associated Gas, Efficiencies, Stronger Prices

Will Sustain Production Growth+10 Bcf/d By 2017


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0

2

4

6

8

10

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

B

cf/d

Net Exports To West Net Exports to Midwest Net Exports to Northeast

Historic Exports: 6.77 Bcf/dHistoric Decline: 0.67 Bcf/d

Forecast Exports: 4.29 Bcf /dForecast Decline: 0.78 Bcf/d

U.S. Substantially Less Reliant on Canadian Gas

Source: BENTEK Canadian Observer Suite and CellCast

History Forecast


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Demand


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-

10

20

30

40

50

60

70

80

90

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

B

cf/d

Power ResComm Industrial Exports to Mexico Pipe Loss

Power, Industrial, Mexican Exports

Spur Demand Growth

Does not include forecast LNG exportsSource: BENTEK Forward Curve Quarterly 2012.09.28

+9 Bcf/d Vs. 2012History Forecast


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Over 70 Industrial Demand Expansions

Planned By 2017

Source: BENTEK Industrial End Users Report


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Industrial Demand Forecast to Add 0.3 Bcf/d/year

-

5

10

15

20

25

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Bcf

/d

History: BENTEK Supply/Demand Balance Analytic Report History

Forecast: BENTEK Forward Curve Quarterly, 2012.09.28

Demand bottomsout with recession

Summerbaseload has

since increased1.3 Bcf/d

Winter & Summerto average 1.3

Bcf/d above 2012


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Mexican Exports to Continue Rising

Up to 1 Bcf/d ofExport Expansions By

2014

0

1

2

3

4

5

6

7

8

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

B

cf/d

Mexican Demand

History Projected

0.0

0.5

1.0

1.5

2.0

2.5

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Bcf/d

U.S. Exports to Mexico

History Forecast

Mexican Demand: SENER

History: BENTEK Supply/Demand Balance Analytic Report History

Forecast: BENTEK Forward Curve Quarterl 2012.09.28


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YOY Gas Demand from Power Up 5 Bcf/d (23%)

10

15

20

25

30

35

40

B

cf/d

5 Yr. Avg. 2011 2012

Source: BENTEK Supply/Demand Balance History

2012 YTD: 26.7 Bcf/dVs. 2011 YTD: +5.0 Bcf/d

Vs. 5-Yr YTD: +6.7 Bcf/d


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-

500

1,000

1,500

2,000

2,500

3,000

0

5

10

15

20

25

30

35

40

ThousandT

onsEquivalent

B

cf/d

PRB CAPP NAPP Illinois Uinta Imports Other

Gas Prices Capable of Capturing Market Share

Source: EIA, BENTEK Power Burn Report

12-Month Forward

HH Avg$3.63

5.2 Bcf/d

2011 HH Avg$3.98

3.0 Bcf/d


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New Gas-Fired Generation Will Boost DemandUnder Construction

Year MW

2013 8,254

2014 6,488

2015 1,350

2016 624

2017 85

Total 19,293

Gas Burn Equivalent

1.7 Bcf/d

UnderConstruction +Proposed Gas Burn

Equivalent

5.9 Bcf/d

Gas Burn Equivalent assumes all plants are combined-cycle running at 50% utilization with heat rates of 7.5.Source: Platts & BENTEK Generation Data


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-

10

20

30

40

50

60

70

80

90

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

B

cf/d

Supply Demand (No LNG Exports)

Tightening Balance May Support Near-Term Prices;

Long-Term Supply Surplus Grows

Source: BENTEK Forward Curve Quarterly 2012.09.28

+0.2 +0.1 -0.3+1.9 +1.8 -0.3

-- -0.9+0.8 +1.1


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N.America Becomes Net LNG Exporter By 2016

(0.8)

(0.4)

0.0

0.40.8

1.2

1.6Net LNG Exports (Bcf/d)

First Ex Q1 2016, Net Ex Q3 2016

Source: BENTEK Special Report LNG Surge


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Regional Dynamics


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Massive Displacement

Forcing Gas Into New Markets


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0

2

4

6

8

10

12

14

16

Bcf/d

Northeast Production

Legacy Production Lean Marcellus Wet Marcellus Utica

Incremental7.4 Bcf/d by 2016

0

2

4

6

8

10

12

14

16

2008 2009 2010 2011 2012

B

cf/d

Northeast Inflows

Canada Midcon Southeast LNG

Marcellus to Remain Cheapest Gas Due to

Production Growth and Takeaway Constraints

Source: BENTEK Northeast Production Monitor and BENTEK Cell Model


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8

10

12

14

16

18

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

B

cf/d

Alberta BC Other Montney Horn River Saskatchewan NWT NB NS

Actual Projection

Canadian Production Declines But Exceeds 12 Bcf/d

Source: BENTEK Canadian Production Monitor Monthly

Annual Production: 15.2 Bcf/dAnnual Decl ine: 0.52 Bcf/d

Annual Production: 13.1 Bcf/dAnnual Decl ine: 0.29 Bcf/d


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Rockies Production To Stay Flat

0

2

4

6

8

10

12

Bcf/d

DJ Other Piceance Powder River GR-O Uinta

Source: BENTEK Rockies Production Monitor

History Forecast


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Anadarko Basin Drives MCP Growth

0

1

2

3

4

5

6

7

8

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Bcf/d

Midcon Producing Production Forecast

Source: BENTEK Midcon Production Monitor


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0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.70.8

0.9

1.0

Bcf/d

Williston Basin Expansions

Gross Production Flared Processing Capacity

ONEOK Garden Creek

ONEOK Stateline I

HESS Tioga Plant Expansion

ONEOK Stateline II

330 MMcf/d of PlannedProcessing ExpansionsOver Next Three Years

Expansions Will Support Bakken Growth

Source: BENTEK Midcon Production Monitor


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Midcon Sources Gas From Other AreasMarket Share of Midcon Imports

MCP10%

Canada

43%SE Gulf23%

Rockies

23%

Northeast1%

2007

MCP13%

Canada31%

SE Gulf32%

Rockies

21%

Northeast3%

2012

Source: BENTEK Midcon Observer


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Midcon Demand Stagnant

-

5

10

15

20

25

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

B

cf/d

RCI - History Power - History RCI - Forecast Power - Forecast

+0.2 Bcf/d per year-0.3 Bcf/d per year

Source: BENTEK CellCast and Midcon Observer


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Midcon Market Gas Power Demand Rising

Source: BENTEK Midcon Observer History and Energy Information Administration

-

10,000

20,000

30,000

40,000

50,000

60,000

0.0

0.5

1.0

1.5

2.0

2.5

3-Year Average 2011 2012 YTD

MWG

enerated

B

cf/d

Gas Burn Total Power Generation

Gas Burn:

YTD: 1.99 Bcf/d+0.75 Bcf/d above 2011 YTD+0.9 Bcf/d above 3-Yr YTD


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-$0.25

-$0.05

$0.15

$0.35

Tetco M3

-$0.25

-$0.05

$0.15

$0.35

Chicago

-$0.25

-$0.05

$0.15

$0.35

SoCal

-$0.25

-$0.05

$0.15

$0.35

Dominion S.

-$0.25

-$0.05

$0.15

$0.35

Waha

$0.00

$1.00$2.00

$3.00

$4.00$5.00

Henry Hub

-$0.25

-$0.05

$0.15

$0.35

Opal

-$0.25

-$0.05

$0.15

$0.35

Chicago

Supply Shifts and Production Growth

Will Moderate Prices

Source: ICE/Clearport and BENTEK Natural Gas Price Matrix


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-

2

4

6

8

10

12

J an-09 J ul-09 J an-10 J ul-10 J an-11 J ul-11 J an-12 J ul-12

Bcf/d

El Paso North El Paso South PG&E (Redwood)

TransWestern (W.Thoreau) Kern (Veyo) Aggregate Capacity

CASW Inbound Pipelines Are At ~80% Capacity

Source: BENTEK West Coast Observer


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-

2

4

6

8

10

12

2009 2010 2011 2012 2013 2014 2015 2016 2017

Bcf/d

Total Flows Projected Flows

Mexican Expansions (Fully Utilized) Forecast CA/SW Demand Growth

Capacity

Demand & Export Growth Will Test CASW Capacity

Source: BENTEK West Coast Observer, CellCast, and Forward Curve


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0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Apr-12 May-12 J un-12 J ul-12 Aug-12 Sep-12

Cash($/MMBtu)

PG&E SoCal Henry Chicago Transco Z6 FGT Z3

California Features Highest Demand Prices

Source: CME/NYMEX Clearport and BENTEK Natural Gas Price Matrix


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Another Shift Looms With LNG Exports


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AECO

2009 2010 2011 2012

-$0.44 -$0.49 -$0.32 -$0.42

Dawn2009 2010 2011 2012

$0.32 $0.37 $0.39 $0.29Sumas

2009 2010 2011 2012

-$0.13 -$0.28 -$0.11 -$0.12

PG&E

2009 2010 2011 2012

$0.21 $0.16 $0.25 $0.33

SoCal

2009 2010 2011 2012

-$0.30 -$0.13 $0.07 $0.15

Waha

2009 2010 2011 2012

-$0.51 -$0.22 -$0.12 -$0.08

Henry Hub (Cash)

2009 2010 2011 2012

$3.92 $4.37 $3.99 $2.53

Dominion South

2009 2010 2011 2012

$0.31 $0.21 $0.12 $0.02

Tetco M3

2009 2010 2011 2012

$0.72 $0.74 $0.63 $0.22

Transco Z6

2009 2010 2011 2012

$0.95 $1.03 $0.99 $0.47

NW Rox

2009 2010 2011 2012

-$0.82 -$0.47 -$0.23 -$0.17

Chicago (Nicor)

2009 2010 2011 2012

$0.00 $0.08 $0.12 $0.07

Basis Tightening Continent-Wide

2012 prices are average of year-to-date as of 2012.09.24


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Price Outlook


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$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

U

$/MMBtu

NYMEX BENTEK

Prices To Remain Range Bound Between $3 to $3.50

Source: BENTEK Market Call 2012.09.28

NYMEX is 30-day average as of 2012.10.14


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$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

2013 2014 2015 2016 2017

U$/MMBtu

NYMEX BENTEK

Significant Resistance at $5 Mark

NYMEX is last seven-day average as of 2012.10.14Source: BENTEK US Forward Curve 2012.09.28


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Key Takeaways

Despite Weak Gas PricesSupply Will Remain

Abundant

Structural Demand GrowingBut Not Pacing Supply

Basis Will Flatten Until LNGExports Become Established

Until Then Gas Will Struggle

to Break $5 Mark


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BENTEK Energy

BENTEK is an energy market analytics company focusedon the natural gas market and related energy sectors.

Rick Margolin

Direct: 720.214.3807

[email protected]

AIM: BentekRickM

Or

Contact Any Analyst at 303.988.1320

DISCLAIMER.THIS REPORT IS FURNISHED ON AN AS ISBASIS. BENTEK DOES NOT WARRANT THE ACCURACY OR CORRECTNESS OF THE REPORT OR THEINFORMATION CONTAINED THEREIN. BENTEK MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE USE OF ANY INFORMATION CONTAINED IN THIS REPORT INCONNECTION WITH TRADING OF COMMODITIES, EQUITIES, FUTURES, OPTIONS OR ANY OTHER USE. BENTEK MAKES NO EXPRESS OR IMPLIED WARRANTIES ANDEXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANT- ABILITY OR FITNESS FOR A PARTICULAR PURPOSE.RELEASE AND LIMITATION OF LIABILITY: IN NO EVENT SHALL BENTEK BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIALDAMAGES (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.

Documents

Bentek 2012 Shale Gas Outlook