DUG Mid-Continent Tulsa, OK March 2-4, 2014 THOMAS A. PETRIE, CFA

PETRIE PARTNERS, CHAIRMAN

Navigating a Path to Improved Energy Security

“Shale Gale” News/Awareness is Ubiquitous

“EPA Turns Up Heat on New Coal Plants”

“U.S. forecasts an energy boom through 2040”

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How did we get to where we are today

The oil price Supercycle

Three M&A consolidation waves

Evolution of technology

Today’s Transformed Outlook

Natural gas

Oil and NGLs

Path to petroleum Flexibility

Assessing the Risks of Unconventional Fossil Fuels

Conclusions

Topics

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(1) Prices are adjusted for inflation to July 2013 prices using the Consumer Price Index (CPI-U) as presented by the Bureau of Labor Statistics.

The Oil Price Supercyle WORLD EVENTS AND OIL PRICES – NOMINAL AND INFLATION ADJUSTED PRICING (1971 – 2013)

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Nominal Pricing Inflation Adjusted Pricing (1)

Iranian Revolution Shah deposed

Saudis abandon “swing producer”

role; oil prices collapse

Iran-Iraq War begins;

oil prices peak

Prices rise sharply on OPEC cutbacks, increased demand

Prices fall sharply on 9/11 attacks,

economic weakness

Prices spike on Iraq war, rapid demand increases, constrained

OPEC capacity, low inventories, etc.

Fear of global economic meltdown

Back from the abyss

Fiscal Cliff fallout concerns

OPEC agrees to quota increase

Gulf War ends

OPEC agrees to quotas

Syrian civil war escalates

Rising Peak Oil fears

“New Normal”

Iraq invades Kuwait

THE ACQUISITIONS OF COMPANIES THAT HAVE CREATED BIG OIL

M&A Consolidation Waves

Source: Thomas A. Petrie’s Following Oil.

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HORIZONTAL WELLS – THE SHIFTING TO THE EXPLOITATION MODEL

Evolution of Technology

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100+ Tcfe

Horn River

70 Tcfe

Montney

12 – 24 BBoe

Bakken

4 – 6 BBoe

Niobrara

250 – 500 Tcfe

Marcellus

24+ Tcfe

Utica

25 – 45 Tcfe

Fayetteville

10 – 30 Tcfe

Woodford

200 – 500 Tcfe

Haynesville

30 – 50 Tcfe

Eagle Ford

30 – 50 Tcfe

Barnett

3 - 6 BBoe

Mississippian

9+ Tcfe

Granite Wash

• 700 – 1,400 Tcfe from gas and liquids-rich gas shale plays

• 20 – 60 BBoe from unconventional oil shale plays

2 - 20 BBoe

Permian

Source: United States Geological Survey, EIA and Select Wall Street research.

CONFIRMED SOURCES OF UNCONVENTIONAL SHALE GAS AND OIL SHALE PRODUCTION

Evolution of Technology

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Powerful production increases are resulting from application of well-incentivized capital focused on unconventional fossil fuel resources

The land rush is largely over; efficiency of execution is now critical

High-grading of validated development projects is the new priority

Avoidance of pitfalls still matters (capital destruction is still possible)

Oil and NGL resource potential has expanded possibly four-fold

Natural gas resource potential is probably at least 10-fold higher

Today’s Transformed Outlook

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POTENTIAL GAS PRODUCTION RATE THAT COULD BE DELIVERED BY THE MAJOR U.S. SHALE PLAYS UP TO 2030

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Today’s Transformed Outlook

Source: The Future of Natural Gas, An Interdisciplinary MIT Study, page 35.

Marcellus Haynesville Woodford Fayetteville Barnett

Bc

f /

Da

y

30

25

20

15

10

5

0

2000 2005 2010 2015 2020 2025 2030

Actual

U.S. OIL PRODUCTION BY TYPE IN NEW POLICIES SCENARIO

Today’s Transformed Outlook

Source: IEA, World Energy Outlook 2012.

Light Tight Oil

Other Unconventional Oil

NGLS

Crude Oil:

Fields yet-to-be found

Field yet-to-be developed

Currently producing

MB

op

d

12

1980

10

8

6

4

0

2

1990 2000 2010 2020 2030 2035

Crude Oil:

Note: The World Energy Model supply model starts producing yet-to-find oil after it has put all yet-to-develop fields into production. In reality, some yet-to-find fields would start production earlier than shown in the figure.

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Total US Demand

16.9 MMBpd

US Production 7.0 MMBpd US Imports 10.5 MMBpd

US Production

10.0 MMBpd

US Imports

6.9 MMBpd

Canadian

Oil Supplies

2.5 MMBpd

Non North American

Imports

8.0 MMBpd

Total US Demand 17.5 MMBpd

US Production 10.0 MMBpd US Imports 6.9 MMBpd

Canadian

Oil Supplies

3.0 MMBpd

Non North American

Imports

3.9 MMBpd

Total US Demand

15.2 MMBpd

Canadian

Oil Supplies

3.5 MMBpd

Non North American

Imports

0.7 MMBpd

US Production 11.0 MMBpd US Imports

4.2 MMBpd

Oil equivalent

of gas exports

0.6 MMBpd

Oil equivalent

of gas exports

NA

Oil equivalent

of gas exports

1.5 MMBpd

North American

Constructive

surplus

0.8 MMBpd Increase in production combined with decrease in

demand signals the likelihood of domestic surplus

Demand reduction from 2010 to 2018 results from fuel

efficiencies and hybrid vehicles

Demand reduction from 2018 to 2025 results from fuel

efficiencies and gas/electric vehicles

2010

2018

2025

A PATH TO PETROLEUM FLEXIBILITY

Today’s Transformed Outlook

Source: IEA, World Energy Outlook 2012 and Thomas A. Petrie’s Following Oil.

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Environmental Issues and Constraints

Infrastructure Challenges

Energy Price Volatility

Shifting Globalization Trends

Assessing the Risks of Unconventional Fossil Fuels

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Shifting Globalization Trends GEOPOLITICAL CONSIDERATIONS

Russia

China

India

Iran

Saudi Arabia

Historical view: To US and West

?

Evolving Power Triangles

Turkey

New view to east

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Opposition to fracking is substantial, organized and now being proactively addressed by the industry in multiple public forums

When analyzed in the context of competing alternatives, most environmental issues are being effectively dealt with especially by explaining the options to mitigate impacts

The challenges of infrastructure build-out represent major opportunities for economic growth throughout the US

Energy price volatility will likely survive the unconventional revolution, albeit probably within a dampened range of variability

The shale revolution should present US leadership with an enhanced ability to deal with shifting and increasingly challenging global trends

Conclusions

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