OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 1M A
Y
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0
7
Joseph Allman, CFAExecutive Director [email protected](Houston) 713-216-6503
Brian [email protected](Houston) 713-216-6218
Nicholas [email protected](Houston) 713-216-5036
Rodney Clayton, [email protected](New York) 212-622-2873
Joseph Allman, CFAExecutive Director [email protected](Houston) 713-216-6503
Brian [email protected](Houston) 713-216-6218
Nicholas [email protected](Houston) 713-216-5036
Rodney Clayton, [email protected](New York) 212-622-2873
Oil and Gas Exploration & ProductionIndustry Update
See page 23 for analyst certification and important disclosures, including investment banking relationships. JPMorgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as a single factor in making their investment decision. Customers of JPMorgan in the United States can receive independent, third-party research on the company or companies covered in this report, at no cost to them, where such research is available. Customers can access this independent research at www.morganmarkets.com or can call 1-800-477-0406 toll free to request a copy of this research.
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 2M A
Y
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7
E&P Stock Performance Long Term
Note: Indexed to 100 @ YE94
Source: Bloomberg (Prices as of 5/11/07)
0
200
400
600
800
1,000
1,200
1,400
Jan-
95
Jan-
96
Jan-
97
Jan-
98
Jan-
99
Jan-
00
Jan-
01
Jan-
02
Jan-
03
Jan-
04
Jan-
05
Jan-
06
Jan-
07
E&P Index WTI 12 month strip Gas 12 month strip
100 = $1.78 Gas & $17.81 Oil
E&P Stock Index Participants:
APA, APC, BEXP, CHK, DNR, DVN, EAC, EOG, FST, KWK, NFX, PQ, PVA, PXD, SGY, SKE, SM, SWN, THX, TMR, VPI, WLL, WTI, XEC, XTO
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 3M A
Y
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0
7
EPX Index Since Inception
Source: Bloomberg (Prices as of 5/11/07)
150
175
200
225
250
275
300
325
350Ju
n-05
Jul-0
5
Aug
-05
Sep
-05
Oct
-05
Nov
-05
Dec
-05
Jan-
06
Feb
-06
Mar
-06
Apr
-06
May
-06
Jun-
06
Jul-0
6
Aug
-06
Sep
-06
Oct
-06
Nov
-06
Dec
-06
Jan-
07
Feb
-07
Mar
-07
Apr
-07
May
-07
EC
B
G
A
D F
Declines Days Inclines Days B to C: 17.59% 38 C to D: 26.38% 82 D to E: 17.72% 37 E to F: 19.91% 43 F to G: 23.72% 53 G to H: 28.71% 57 H to I: 15.86% 55 I to J : 24.75% 59 J to K: 15.11% 41 K to L: 13.22% 46 L to M: 6.79% 7 M to N: 17.57% 39 Median 16.73% 40 24.75% 58
M
L
N
K
J
I
H
EPX Participants:
APA, APC, CHK, COG, DNR, DVN, ECA, EOG, FST, KWK, NBL, NFX, PPP, PXD, PXP, RRC, SM, SWN, UPL, WTI, XEC, XTO
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 4M A
Y
2 0
0
7
EPX Index Vs 12 Month Crude, 12 Month Gas, and OSX Index
Note: Indexed to 100 at 28 June 2005
Source: Bloomberg (Prices as of 5/11/07)
40
60
80
100
120
140
160
180
200
220
Jun-
05
Jul-0
5
Au
g-0
5
Se
p-0
5
Oct
-05
No
v-0
5
De
c-0
5
Jan-
06
Fe
b-0
6
Ma
r-0
6
Ap
r-0
6
Ma
y-06
Jun-
06
Jul-0
6
Au
g-0
6
Se
p-0
6
Oct
-06
No
v-0
6
De
c-0
6
Jan-
07
Fe
b-0
7
Ma
r-0
7
Ap
r-0
7
Ma
y-07
Jun-
07
Date EPX OSX Spot Oil Spot Gas
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 5M A
Y
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7
Stocks Covered (Comp Table as of 5-11-07)
U.S. E&Ps - SUMMARY COMPS
LAST PRICE ENTERPRISE NET ASSET VALUE / SHARE PRICE / NAV RLI EV / EBITDA E&P EV / McfeANALYST RATING COMPANY TICKER 5/11/2007 VALUE JPM DECK NYMEX JPM NYMEX (YEARS) 2007E 2008E ADJUSTED YE06
LARGE CAPITALIZATION (>$10B)Allman OW Anadarko Petroleum APC $45.60 $38,127 $47.99 $73.36 95% 62% 12.9 5.5x 5.1x $2.31Allman OW Apache Corporation APA $73.93 $28,857 $79.96 $102.64 92% 72% 11.6 4.5x 4.6x $2.01Allman OW Chesapeake Energy CHK $34.30 $25,957 $40.95 $55.76 84% 62% 13.4 5.3x 5.0x $2.78Allman N Devon Energy DVN $75.06 $40,455 $76.45 $105.26 98% 71% 10.4 5.7x 5.2x $2.84Allman OW EOG Resources EOG $75.91 $19,190 $79.95 $99.41 95% 76% 10.8 5.9x 5.5x $2.79Allman OW XTO Energy XTO $55.89 $23,846 $61.39 $78.58 91% 71% 13.9 6.0x 6.2x $2.74
MEDIUM CAPITALIZATION (>$2B)Clayton N Cabot Oil & Gas COG $37.18 $3,749 Pending 16.3 7.5x 7.6x $2.61Allman OW Denbury Resources DNR $34.58 $4,711 $40.97 $57.69 84% 60% 11.6 9.7x 8.7x $4.44Allman N Newfield Exploration NFX $44.03 $7,008 $47.79 $70.47 92% 62% 8.2 4.4x 4.2x $3.07Clayton OW Noble Energy NBL $59.91 $12,235 Pending 10.9 5.4x 5.3x $2.40Kuzma N Petrohawk Energy HK $15.07 $3,952 $16.58 $23.87 91% 63% 8.9 5.5x 5.0x $3.67Clayton N Pioneer Natural Resources PXD $49.28 $7,934 Pending 22.9 7.7x 6.9x $1.40Clayton N Plains Exploration PXP $48.95 $4,252 Pending 16.2 8.2x 7.1x $2.00Allman N Quicksilver Resources KWK $40.74 $4,109 $47.12 $66.12 86% 62% 21.2 12.3x 11.0x $2.56Clayton OW Range Resources RRC $37.13 $6,026 Pending 14.4 8.4x 7.5x $3.57Allman OW Southwestern Energy SWN $43.27 $7,513 $51.00 $69.28 85% 62% 9.4 12.0x 8.5x $7.23Clayton OW Ultra Petroleum UPL $62.60 $9,709 Pending 20.6 17.2x 13.3x $4.06Allman N W&T Offshore WTI $28.05 $2,858 $32.36 $43.21 87% 65% 5.3 3.5x 3.6x $3.88
SMALL CAPITALIZATION (<$2B)Allman UW Brigham Exploration BEXP $6.42 $478 $11.88 $15.81 54% 41% 9.5 4.9x 4.2x $3.21Allman N Delta Petroleum DPTR $19.73 $1,445 $27.97 $42.68 71% 46% 15.6 14.7x 8.5x $5.05Allman N Edge Petroleum EPEX $13.86 $782 $15.45 $19.97 90% 69% 8.3 5.0x 4.4x $3.31Clayton N Encore Acquisition Company EAC $27.15 $2,954 Pending 16.3 7.4x 6.2x $2.01Allman OW Endeavour International END $1.97 $615 $2.44 $4.32 81% 46% 2.8 4.8x 6.1x $10.37Clayton N EXCO Resources XCO $17.09 $6,145 Pending 12.4 7.9x 6.6x $3.00Clayton N Gasco Energy GSX $1.87 $215 Pending 6.2 10.1x 3.4x $4.90Allman OW Goodrich Petroleum GDP $35.70 $1,275 $30.06 $50.21 119% 71% 10.3 15.3x 9.2x $7.57Clayton N Houston Exploration THX $57.04 $1,781 Pending 8.2 3.7x 3.2x $2.55
Allman OW Mariner Energy** ME $23.74 $2,633 $33.86 $39.04 70% 61% 6.7 3.7x 3.4x $3.68Kuzma N McMoRan Exploration MMR $13.00 $668 $17.54 $23.48 74% 55% 2.7 5.3x 4.3x $8.80Allman N PetroQuest Energy PQ $13.74 $860 $12.47 $19.24 110% 71% 4.3 4.4x 3.6x $6.24Allman N St. Mary Land & Exploration SM $36.44 $2,415 $42.02 $57.19 87% 64% 8.7 4.0x 4.1x $2.70Clayton OW Stone Energy SGY $32.75 $1,706 Pending 7.6 3.7x 4.1x $2.89Allman OW Venoco VQ $18.89 $1,466 $21.30 $31.64 89% 60% 12.2 5.4x 4.9x $2.39Clayton N Whiting Petroleum WLL $42.65 $2,593 Pending 17.4 6.0x 6.2x $1.74
Group Median 88% 62% 10.8 5.6x 5.3x $2.94Group Totals* 12.1 5.8x 5.5x $2.63
2006 2007 2008 2009 2010 BeyondJPM WTI Oil ($/bbl) $66.36 $62.52 $60.00 $60.00 $55.00 $55.00Deck Henry Hub Gas($/Mcf) $7.23 $7.50 $7.50 $7.25 $7.00 $7.00
NYMEX WTI Oil ($/bbl) $66.34 $62.80 $69.61 $70.04 $69.05 $68.195/11/2007 Henry Hub Gas($/Mcf) $7.23 $7.89 $8.96 $8.69 $8.34 $8.04
*Group Totals metrics use the sum of each of the metric's components for the entire coverage universe (e.g. RLI = Group's Total Reserves / Group's Total Production).**NAV analysis does not reflect YE06 proved reserves, potential reserves, and updated cost estimates which may not be directly comparable to other companies' NAVs.
Source: Company reports, Bloomberg, and JPMorgan estimates. Note: OW - Overweight, N - Neutral, UW - Underweight
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 6M A
Y
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Return on Drilling Dollars (RODD)
Source: Company Reports & JPMorgan Estimates
SUMMARY TABLE - RETURN ON DRILLING DOLLARS (RODD)
Current 2006 2006 2007EEV/PD Res. Acquired Drill-bit Return on Drill-bit Cash Margin Adj. YE06 Return on
PD F&D** PD F&D Drilling Dollars PD F&D PD RLI Drilling Dollars($/Mcfe) ($/Mcfe) ($/Mcfe) (RODD) ($/Mcfe) ($/Mcfe) (RODD)
LARGE CAPITALIZATION (>$10B)Anadarko Petroleum $3.20 $6.69 $5.58 0% $3.08 $4.96 8.3 8%Apache Corporation $3.04 $2.48 $5.06 1% $2.69 $5.30 8.1 14%Chesapeake Energy $4.66 $13.07 $4.90 1% $2.74 $5.38 8.9 13%Devon Energy $4.03 $9.86 $3.65 6% $3.33 $5.20 7.8 8%EOG Resources $4.02 $0.00 $3.46 5% $3.60 $4.95 7.9 5%XTO Energy $4.16 $8.77 $2.20 15% $1.99 $5.21 9.8 20%
MEDIUM CAPITALIZATION (>$2B)Cabot Oil & Gas $3.63 $0.00 $2.98 6% $2.67 $4.94 12.4 7%Denbury Resources $6.94 $4.00 $3.59 9% $4.15 $5.21 8.1 3%Newfield Exploration $4.72 $0.00 $5.06 0% $4.03 $5.18 * 7.0 4%Noble Energy $3.40 $6.53 $3.69 8% $2.80 $5.27 9.0 11%Pioneer Natural Resources $1.21 $1.84 $8.43 -5% $4.08 $4.71 14.8 1%Plains Exploration $7.27 $0.00 NM NM $4.17 $4.75 9.3 1%Quicksilver Resources $4.30 $0.00 $2.79 3% $2.46 $3.87 * 8.0 8%Range Resources $3.73 $7.48 $2.96 10% $2.88 $5.54 9.9 10%Southwestern Energy $9.05 $0.00 $5.30 -1% $3.48 $5.47 7.2 9%Ultra Petroleum $8.36 $0.00 $1.69 35% $1.55 $5.00 7.8 39%W&T Offshore $20.27 $7.62 $4.32 21% $3.97 $5.77 3.7 20%
SMALL CAPITALIZATION (<$2B)Brigham Exploration $0.00 $0.00 $7.08 -5% $4.79 $6.10 5.4 6%Delta Petroleum $4.65 $12.16 $6.67 -9% $4.70 $3.74 6.4 -6%Edge Petroleum $18.27 $13.85 $9.70 -19% $4.76 $5.63 3.5 8%Encore Acquisition Company$0.98 $0.00 $12.99 -7% $3.03 $5.11 11.7 6%Endeavour International $87.97 $7.50 $16.96 -67% $4.61 $4.82 3.0 1%EXCO Resources $0.84 $4.55 $3.93 3% $3.76 $5.28 10.8 4%Gasco Energy $149.71 $0.00 $3.20 -5% $2.76 $2.98 9.0 1%Houston Exploration $0.46 $5.10 $3.40 12% $9.54 $5.80 5.8 -8%Mariner Energy $3.12 $5.29 $4.53 14% $3.61 $6.15 3.9 32%McMoRan Exploration $26.15 $0.00 $12.65 -31% $3.90 $4.56 2.6 13%PetroQuest Energy $27.25 $0.00 $4.00 15% $4.03 $5.96 * 6.0 9%St. Mary Land & Exploration $0.92 $6.36 $3.92 7% $4.38 $5.59 6.9 4%Stone Energy $2.04 $0.00 $16.94 -15% $4.10 $5.80 5.3 9%Venoco $7.93 $4.46 $4.09 1% $4.72 $5.41 7.6 2%Whiting Petroleum $1.77 $12.17 $4.67 2% $3.84 $5.09 11.2 3%
Totals $3.99 $6.32 $4.30 3% $3.12 $5.18 8.4 9%
* Indicates that we have adjusted the company's historical number to better reflect future expectations.** Anadarko's KMG and WGR acquisitions account for 55% of the Acquired PD Reserves. Absent APC's acquisitions, the group's average Acquired PD F&D cost was $5.82/Mcfe
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 7M A
Y
2 0
0
7
Return on Drilling Dollars (RODD) – Why Proved Developed F&D?
Unit Metrics ($/Mcfe)E&Ps that have reported
2005 2006 ChangeAll-in F&D $1.96 $3.49 $1.53Drill-bit F&D $1.89 $2.70 $0.81 (Excl. revisions & corporate acquisitions)
PD F&D $2.54 $4.31 $1.76 (E&D Spending / Proved Developed Reserve Additions inc. Revisions)
Cash Operating $5.72 $5.13 ($0.60)Margins
Sensitivity of Returns
Required NYMEX Gas Price (assuming 8x oil/gas ratio)$4.98 $6.12 $7.26 $8.40 $9.54
Cash Operating Margins2.6% $3.00 $4.00 $5.00 $6.00 $7.00
$1.50 13% 22% 30% 39% 47%PD $2.50 3% 8% 13% 18% 24%F&D $3.00 0% 4% 9% 13% 18%Costs $3.50 -2% 2% 6% 10% 13%
$4.50 -6% -2% 1% 4% 7%
*Assumes PD RLI of 8 years
Source: Company Reports & JPMorgan Estimates
Increase in PUD% from 32.3% in 2005 to 34.2% in 2006.
Companies can book offset locations without incurring the cost.
When including PV impact, the full cash cost to find reserves (PD F&D) needs to be 2x cash operating margins to earn a reasonable rate of return.
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 8M A
Y
2 0
0
7
NAV Model – Devon Energy, Inc.D
evon
En
erg
yN
et A
ss
et V
alu
atio
n
YE
06
As
sum
ptio
ns
Co
mm
od
ity Price
JPM
org
anN
YM
EX
Fu
tures
Cu
stom
Deck
Op
tion
s:G
asO
ilG
asO
ilG
asO
il
2005-A$8.66
$56.57as of
4/27/07
2006-A$7.23
$66.36
2007-E$7.50
$62.52$7.86
$64.73$7.00
$56.00
2008-E$7.50
$60.00$8.90
$71.75$7.00
$56.00
2009-E$7.25
$60.00$8.60
$71.63$7.00
$56.002010-E
$7.00$55.00
$8.27$70.32
$7.00$56.00
Period E
nding
Be
yon
d$7.00
$55.00$8.00
$69.27$7.00
$56.00
Discount R
ate
Sh
ares Ou
tstand
ing
:P
erpetual Com
modity P
rice
Com
mon S
hares Outstanding
444.0as of Y
E06
G&
A C
osts
Potential D
ilution5.0
LOE
Costs
To
tal Po
tential S
hares
449.0S
ervice & D
rilling Costs
Valu
atio
n B
reakdo
wn
JPM
org
an P
ricesN
YM
EX
Strip
Prices
Un
Rsk R
srvR
eservesR
sk Rsrv
Disco
un
tedV
alue
Pre-T
axD
iscou
nted
Valu
e
PR
OV
ED
RE
SE
RV
ES
(at YE
06)(B
cfe)R
isking
(Bcfe)
Net C
FP
er Sh
areP
V-10
Net C
FP
er Sh
areU
.S. P
roved Reserves
8,7761.0%
8,688$16,083
$35.82$1.85
$20,249$45.10
Canadian P
roved Reserves
4,1231.5%
4,061$8,407
$18.72$2.07
$10,811$24.08
Other International (E
xcl. Egypt)
1,4645.0%
1,345$4,319
$9.62$3.21
$5,408$12.04
Adjustm
ent since YE
= P
UD
CA
PE
X - cash flow
generated by proved reserves$0
$0.00$0
$0.00T
otal V
alue O
f Pro
ved R
eserves8,776
1.0%8,688
$28,810$64.16
$3.32$36,468
$81.21
BA
LA
NC
E S
HE
ET
(As o
f YE
06):
Valu
eP
er Sh
areV
alue
Per S
hare
Long-Term
Debt (excludes C
VX
convertibles)($4,841)
($10.78)($4,841)
($10.78)O
ther Liabilities (excludes taxes, AR
O, &
derivative liabilities)($623)
(1.39)($623)
(1.39)N
et Working C
apital (excludes AR
O and derivative liabilities)
($1,271)(2.83)
($1,271)(2.83)
Investments &
Other A
ssets (excludes goodwill &
CV
X stock)
$5071.13
$5071.13
Preferred S
tock (Liquidation Value)
($150)(0.33)
($150)(0.33)
SO
LD
PR
OP
ER
TIE
S Y
ET
TO
BE
CL
OS
ED
Egypt A
sset Sale (after tax proceeds)
300.00.67
300.00.67
Net B
alance S
heet
($6,078)($13.54)
($6,078)($13.54)
FU
TU
RE
CO
ST
S &
OT
HE
RV
alue
Per S
hare
Valu
eP
er Sh
areD
iscounted Future C
ash G&
A (P
roved Reserves)
($3,370)(7.51)
($3,370)(7.51)
Discounted C
ash Taxes (P
roved Reserves)
35%A
ssumed T
ax Shield
($4,228)(9.42)
($5,750)(12.81)
Gathering and M
arketing$2,360
5.25$2,360
5.25P
resent Value O
f Hedges
$00.00
$00.00
Oth
er Co
sts / Reven
ue
($5,239)($11.67)
($6,761)($15.06)
Valu
e Of P
rov
ed R
eserves (A
fter Taxes, B
alance S
heet, &
Hed
ges)
$17,493$38.96
$23,629$52.62
RIS
KE
D P
OT
EN
TIA
LU
nR
sk Rsrv
Reserves
Rsk R
srvD
isc Fu
ture
Valu
eP
re-Tax
Disc F
utu
reV
alue
(Ev
erythin
g U
nb
oo
ked at Y
E06)
(Bcfe)
Riskin
g(B
cfe)N
et CF
Per S
hare
PV
-10N
et CF
Per S
hare
Barnett S
hale Core A
creage (Underbooked)
3570.0%
357538
1.201.51
7121.59
Barnett S
hale Non-C
ore Acreage
7,0780.0%
7,0787,102
15.821.00
9,42020.98
Arkom
a Basin - W
oodford Shale
2,1680.0%
2,1681,590
3.540.73
2,3915.32
Bossier &
Cotton V
alley1,170
0.0%1,170
1,6883.76
1.442,297
5.12Jackfish P
otential1,590
10.0%1,431
9142.03
0.641,607
3.58D
eepwater Low
er Tertiary - D
iscoveries2,439
15.0%2,073
4,93911.00
2.387,046
15.69D
eepwater G
ulf of Mexico- M
iocene Discoveries
2630.0%
263798
1.783.04
1,1192.49
Deepw
ater Gulf of M
exico- Lease Acreage
1,82350.0%
9111,104
2.461.21
1,9784.41
Brazil D
iscoveries - Polvo (U
nbooked)120
0.0%120
4531.01
3.77601
1.34B
razil Inventory2,028
75.0%507
6971.55
1.371,224
2.73O
ther acreage (AC
G, W
.Africa, C
hina, Rockies, T
X, O
ther Canada, G
OM
)3,820
8.51N
A4,514
10.05
Adjustm
ent for YT
D =
Exploration C
AP
EX
(Investment) - cash flow
generated by potential reserves0
0.000
0.00D
iscounted Future C
ash G&
A (P
otential Reserves)
(2,943)(6.55)
(2,943)(6.55)
Discounted C
ash Taxes (P
otential Reserves)
(3,865.3)(8.61)
(5,909.5)(13.16)
To
tal Po
tential N
AV
19,03515.5%
16,078$16,834
$37.49$24,057
$53.58
To
tal Cu
rrent N
AV
/ Sh
are$34,327
$76.4547,686
$106.20
Source: JP
Morgan &
Com
pany Reports
JPMorgan Price D
eck
NYM
EX Futures
Other Price D
eck
Com
modity Price
Discounting
2006YE
10.0%
0.0%
Escalation Assum
ptions
0.0%
0.0%
0.0%
Meth
od
olo
gy: U
se the company's P
V-10 data from
the 10-K to back into a production profile. U
se that production profile with JP
Morgan's com
modity price and
service cost forecasts to generate a cash flow profile for proved reserves. S
ubtract out cash taxes, G&
A, and balance sheet item
s. Develop risked production profiles
and cost schedules for unbooked reserves. Discount cash flow
s at the appropriate discount rate and take the summ
ation.
AR
O, T
axes, and Hedges are
included elsewhere in the m
odel and are based on user input rather than static book values.
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 9M A
Y
2 0
0
7
Crude Oil / Natural Gas Price Relationship
Source: Bloomberg (Prices as of 5/11/07)
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00Ja
n-98
May
-98
Sep
-98
Jan-
99
May
-99
Sep
-99
Jan-
00
May
-00
Sep
-00
Jan-
01
May
-01
Sep
-01
Jan-
02
May
-02
Sep
-02
Jan-
03
May
-03
Sep
-03
Jan-
04
May
-04
Sep
-04
Jan-
05
May
-05
Sep
-05
Jan-
06
May
-06
Sep
-06
Jan-
07
May
-07
Eq
uiv
alen
t
Ratio
BTU Equivalent
Median
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 10M A
Y
2 0
0
7
Outlook for Commodity Prices
2005 2006 2007 2008 2009 2010
JPMorgan estimates $56.57 $66.36 $62.52 $60.00 $60.00 $55.00
Consensus $61.07 $60.36 - -
NYMEX Futures $65.87 $69.64 $70.04 $69.06
JPMorgan estimates $8.66 $7.23 $7.50 $7.50 $7.25 $7.00
Consensus $7.47 $7.87 - -
NYMEX Futures $8.52 $8.97 $8.70 $8.34
Source: Bloomberg & JPMorgan (Prices as of 5/11//07)
Oil (WTI)
Gas (Henry Hub)
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 11M A
Y
2 0
0
7
Commodity Price Sensitivity
JPMorgan Ratings
OW = Overweight
N =Neutral
UW = Underweight
NR = Not Rated
CHK Stock Vs. Natural Gas
y = 0.4876x + 0.0015
R2 = 0.211
-15.0%
-7.5%
0.0%
7.5%
15.0%
-10.0% -7.5% -5.0% -2.5% 0.0% 2.5% 5.0% 7.5%
Wkly Chg in 12-Month Gas Strip
Wk
ly C
hg
in C
HK
OIL PRICE SENSITIVITY E&P GROUP AVERAGESTop 5 Companies Rating BETA Top 5 Companies Rating Correlation BETA CorrelationDenbury Resources OW 1.02 Debury Resources OW 0.67 OIL PRICE SENSITIVITY Southwestern Energy OW 1.01 XTO Energy OW 0.65 Spot Prices 0.51 0.43PetroQuest Energy N 0.99 Cimarex Energy NR 0.64 Front Month 0.50 0.43Quicksilver Resources N 0.93 Apache OW 0.60 12-Month Strip 0.60 0.45Gasco Energy N 0.90 Noble Energy OW 0.58 24-Month Strip 0.61 0.43Average Company 0.60 Average Company 0.45
GAS PRICE SENSITIVITYTop 5 Companies Rating BETA Top 5 Companies Rating CorrelationSouthwestern Energy OW 0.86 Quicksilver Resources N 0.65 GAS PRICE SENSITIVITY Quicksilver Resources N 0.80 Southwestern Energy OW 0.63 Spot Prices 0.12 0.31Gasco Energy N 0.66 Chesapeake Energy OW 0.60 Front Month 0.20 0.38Newfield Exploration N 0.60 XTO Energy OW 0.59 12-Month Strip 0.43 0.45Cabot Oil & Gas N 0.53 Newfield Exploration N 0.56 24-Month Strip 0.52 0.39Average Company 0.43 Average Company 0.45
Beta is a measure of the magnitude of the relationship Over the last 12 months based on weekly dataCorrelation is a measure of the consistency of the relationship
All data uses weekly price changes of the 12-month strip and stock prices from 10/21/05-10/20/0635 E&P companies were included in the survey.JPMorgan Calculation using Bloomberg Prices
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 12M A
Y
2 0
0
7
Natural Gas 12 & 24 Futures Price Performance
Source: Bloomberg (Prices as of 4/30/07)
$0
$2
$4
$6
$8
$10
$12
$14Ju
n-96
Feb
-97
Oct
-97
Jun-
98
Feb
-99
Oct
-99
Jun-
00
Feb
-01
Oct
-01
Jun-
02
Feb
-03
Oct
-03
Jun-
04
Feb
-05
Oct
-05
Jun-
06
Feb
-07
12-Month Natural Gas Future 24-Month Natural Gas Future
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 13M A
Y
2 0
0
7
Oil 12 & 24 Month Futures Price Performance
Source: Bloomberg (Prices as of 4/30/07)
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90Ju
n-96
Feb
-97
Oct
-97
Jun-
98
Feb
-99
Oct
-99
Jun-
00
Feb
-01
Oct
-01
Jun-
02
Feb
-03
Oct
-03
Jun-
04
Feb
-05
Oct
-05
Jun-
06
Feb
-07
12-Month Crude Future 24-Month Crude Future
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 14M A
Y
2 0
0
7
US Monthly Natural Gas Production (bcf/day)
Source: EIA-914 Survey 4/30/07
2006 2007
Month Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec Jan Feb
Gross withdrawal 3.7 3.8 3.9 3.9 4.0 4.0 3.8 3.7 3.0 3.1 3.5 3.6 3.8 3.8 3.9 3.9 3.9 4.0 3.8 3.8 3.8 3.8 3.7 3.7 3.7 3.7
yoy change (%) 0% 0% 1% 0% -1% 0% 0% 3% 30% 20% 6% 2% -3% -4%
Gross withdrawal 4.5 4.4 4.4 4.4 4.5 4.4 4.4 4.4 4.4 4.5 4.4 4.2 4.4 4.4 4.5 4.4 4.3 4.4 4.4 4.4 4.4 4.4 4.4 4.3 4.2 4.2
yoy change (%) -3% 0% 2% -1% -3% -1% -1% -1% 0% -3% -1% 1% -4% -5%
Gross withdrawal 4.5 4.6 4.6 4.6 4.5 4.6 4.6 4.6 4.7 4.7 4.7 4.6 4.7 4.7 4.7 4.7 4.8 4.9 4.9 4.8 4.9 4.9 4.9 4.9 4.7 4.7
yoy change (%) 3% 3% 4% 4% 6% 7% 5% 4% 6% 4% 5% 7% 1% 0%
Gross withdrawal 15.8 16.0 16.1 16.3 16.2 16.3 16.2 16.5 15.8 16.5 16.8 16.7 16.8 16.8 17.0 17.1 17.2 17.1 17.1 17.2 17.5 17.5 17.5 17.6 17.6 17.9
yoy change (%) 7% 5% 5% 5% 6% 5% 5% 5% 11% 6% 5% 6% 5% 7%
Gross withdrawal 5.3 5.4 5.4 5.3 5.4 5.4 5.4 5.5 5.5 5.6 5.8 5.7 5.7 5.6 5.6 5.6 5.5 5.7 6.0 5.9 5.7 6.0 6.2 6.3 6.1 5.9
yoy change (%) 6% 4% 5% 6% 3% 6% 11% 7% 3% 7% 6% 11% 7% 5%
Gross withdrawal 10.7 10.8 10.8 10.6 10.8 10.8 10.7 10.8 10.9 11.0 11.2 11.0 10.9 11.0 11.1 11.2 11.3 11.3 11.4 11.6 11.5 11.7 11.8 11.7 11.6 11.5
yoy change (%) 2% 2% 3% 6% 5% 5% 6% 7% 6% 6% 6% 6% 6% 4%
Gross withdrawal 44.6 45.0 45.1 45.1 45.5 45.6 45.3 45.6 44.4 45.6 46.4 45.8 46.2 46.4 46.8 47.0 47.1 47.4 47.5 47.7 47.9 48.2 48.5 48.5 47.9 47.9
yoy change (%) 4% 3% 4% 4% 4% 4% 5% 5% 8% 6% 4% 6% 4% 3%
Gross withdrawal 10.1 10.3 10.5 10.4 10.4 10.2 9.5 8.9 4.6 4.5 6.6 7.6 8.1 7.9 7.9 8.2 8.5 8.4 8.5 8.3 8.1 7.8 7.9 7.7 7.8 7.8
yoy change (%) -20%-23%-25%-21%-18%-17%-11% -6% 77% 72% 21% 2% -4% -2%
Gross withdrawal 54.6 55.3 55.7 55.5 55.9 55.8 54.8 54.5 49.0 50.1 53.0 53.4 54.3 54.3 54.8 55.1 55.6 55.9 56.0 56.0 56.1 56.0 56.4 56.2 55.7 55.7
yoy change (%) -1% -2% -2% -1% 0% 0% 2% 3% 14% 12% 7% 5% 3% 2%
2005
Wyoming
Other states ex.
Alaska
Lower 48 States
Onshore + State
Waters
Texas
Federal Offshore
GOM
Louisiana
New Mexico
Oklahoma
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 15M A
Y
2 0
0
7
Gross Withdrawals (EIA 914) & Marketed Production
40.0
42.0
44.0
46.0
48.0
50.0
52.0
54.0
56.0
58.0
60.0
Jan-05 Jul-05 Jan-06 Jul-06 Jan-07
Pro
du
ctio
n (
Bcf
/d)
Gross Withdrawals from lower 48 (including GOM) - EIA 914
Marketed Production from Lower 48 (including GOM) - EIA NG Monthly
Gross Withdrawals from Lower 48 (excluding GOM) - EIA 914
Marketed Production from Lower 48 (excluding GOM) - EIA NG Monthly
Source: EIA
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 16M A
Y
2 0
0
7
Offshore Rig Count - GOM
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07
Offshore GOM Rig Count
Source: Land Rig Newsletter
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 17M A
Y
2 0
0
7
Natural Gas Storage Inventories
Source: EIA & JPMorgan (Storage data as of 5/04/07)
2007 West Natural Gas Storage Vs. 5 Year Average and Prior Year
050
100150200250300350400450500
1/5
2/5
3/5
4/5
5/5
6/5
7/5
8/5
9/5
10/5
11/5
12/5
Gas
In S
tora
ge
(Bcf
)
Average 2006 2007
2007 Producing Natural Gas Storage Vs. 5 Year Average and Prior Year
0100200300400500600700800900
10001100
1/5
2/5
3/5
4/5
5/5
6/5
7/5
8/5
9/5
10/5
11/5
12/5
Gas
In S
tora
ge
(Bcf
)
Average 2006 2007
2007 Total Natural Gas Storage Vs. 5 Year Average and Prior Year
0
500
1000
1500
2000
2500
3000
3500
1/5
2/5
3/5
4/5
5/5
6/5
7/5
8/5
9/5
10/5
11/5
12/5
Gas
In S
tora
ge
(Bcf
)
Average 2006 2007
2007 East Natural Gas Storage Vs. 5 Year Average and Prior Year
0
500
1000
1500
2000
2500
1/5
2/5
3/5
4/5
5/5
6/5
7/5
8/5
9/5
10/5
11/5
12/5
Gas
In S
tora
ge
(Bcf
)
Average 2006 2007
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 18M A
Y
2 0
0
7
Possible Natural Gas Storage Trajectories
Source: EIA, JPMorgan Estimates
Possible Storage Trajectories(Using 12 Year Mininum, Maximum, Average Weekly Injections through Early December)
Beginning with 1747 Bcf in Storage on May 4, 2007
1000.0
1500.0
2000.0
2500.0
3000.0
3500.0
4000.0
4500.0
2/23 3/9
3/23 4/6
4/20 5/4
5/18 6/1
6/15
6/29
7/13
7/27
8/10
8/24 9/7
9/21
10/5
10/1
9
11/2
Gas
in S
tora
ge (B
cf)
Average Low Average Actual High Average
3502
3213
4297
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 19M A
Y
2 0
0
7
U.S. Natural Gas Demand By Sector
Source: EIA, JPMorgan Estimates
Monthly Total Gas Usage (Bcf/d)
40.0
50.0
60.0
70.0
80.0
90.0
J F M A M J J A S O N D
5 Yr
2006e
2005
Monthly Residential Gas Usage (Bcf/d)
0.0
5.0
10.0
15.0
20.0
25.0
30.0
J F M A M J J A S O N D
5 Yr
2006e
2005
Monthly Industrial Gas Usage (Bcf/d)
15.0
17.0
19.0
21.0
23.0
25.0
J F M A M J J A S O N D
5 Yr
2006e
2005
Monthly Commercial Power Usage (Bcf/d)
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
J F M A M J J A S O N D
5 Yr
2006e
2005
Monthly Electric Power Usage (Bcf/d)
8.0
10.0
12.0
14.0
16.0
18.0
20.0
22.0
24.0
26.0
28.0
30.0
J F M A M J J A S O N D
5 Yr
2006e
2005
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 20M A
Y
2 0
0
7
Natural Gas Electric Generation as % of Total Generation
Source: EIA, JPMorgan Estimates
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
22.0%
24.0%
26.0%
28.0%
Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06
2001
2002
2003
2004
2005
2006
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 21M A
Y
2 0
0
7
Monthly Electric Generation (by Source)
Source: JPMorgan, EIA
Electric Generation by Source
0%
10%
20%
30%
40%
50%
60%No
v-00
Feb-
01
May
-01
Aug-
01
Nov-
01
Feb-
02
May
-02
Aug-
02
Nov-
02
Feb-
03
May
-03
Aug-
03
Nov-
03
Feb-
04
May
-04
Aug-
04
Nov-
04
Feb-
05
May
-05
Aug-
05
Nov-
05
Feb-
06
May
-06
Aug-
06
Oct
-06
Sour
ce G
ener
atio
n as
% o
f Tot
al G
ener
atio
n CoalNGNukePetrolOther
Coal
Petroleum Products
Other
NG
Nuclear
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 22M A
Y
2 0
0
7
Natural Gas Production and Rig Count
38.0
43.0
48.0
53.0
58.0
63.0
Ja
n-9
9
Ja
n-0
0
Ja
n-0
1
Ja
n-0
2
Ja
n-0
3
Ja
n-0
4
Ja
n-0
5
Ja
n-0
6
Ja
n-0
7
Pro
du
cti
on
(B
cf/
d)
0.0
200.0
400.0
600.0
800.0
1,000.0
1,200.0
1,400.0
1,600.0
Rig
Co
un
t
Total US Marketed Production
Lower 48 Onshore Marketed Production
Onshore Rig Count
Source: EIA, Land Rig Newsletter
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 23M A
Y
2 0
0
7
U.S. Natural Gas Supply and Demand (Bcfe/d) – Calendar Year
Source: JPM Estimates, Department of Energy, NOAA, & Bloomberg
U.S. Natural Gas Supply And Demand (@ $7/Mcf and $55/bbl)
(Billions of cubic feet per day unless otherwise noted)
Supply 1990 1995 1998 2000 2001 2002 2003 2004 2005 2006 2007e 2008e 2009e 2010e 2001 2005 2010e
Dry Production 48.8 51.0 52.1 51.9 53.9 52.0 52.2 50.8 49.5 50.7 52.4 53.0 53.2 53.4 0.9% -1.1% 1.5% - Marketed Production (Onshore + State Waters)48.8 51.0 52.1 41.2 42.7 42.2 42.5 42.5 43.3 45.3 47.0 47.8 48.4 48.9 - Marketed Production (Federal Waters) 13.5 13.8 12.4 12.1 10.8 8.6 7.8 7.8 7.7 7.3 6.9 - NGL & Extraction Losses Inc. With Onshore Marketed (2.8) (2.6) (2.6) (2.4) (2.5) (2.4) (2.3) (2.4) (2.4) (2.4) (2.5)Suppl. Gaseous Fuels 0.3 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 -4.6% -6.7% 0.3%Pipeline Imports 4.0 7.7 8.4 9.7 10.2 10.4 9.4 9.9 10.2 9.9 9.3 8.9 9.1 8.7 5.3% 0.9% -3.0%LNG Imports 0.2 0.0 0.2 0.6 0.7 0.6 1.4 1.8 1.7 1.6 2.4 2.9 3.5 4.0 42.8% 23.2% 18.5%
Total Dry Gas Supply 53.3 59.0 61.0 62.4 65.0 63.1 63.1 62.6 61.6 62.3 64.2 64.9 65.9 66.3 1.6% -0.4% 1.5%
Demand
Residential 13.3 13.3 12.4 13.7 13.1 13.4 13.9 13.3 13.2 11.9 13.3 13.4 13.5 13.5 -1.8% -0.7% 0.5%Commercial 8.3 8.3 8.2 8.7 8.3 8.6 8.7 8.5 8.5 8.0 8.4 8.4 8.5 8.5 -0.8% -0.5% 0.0%Industrial 22.4 22.4 22.8 22.2 20.1 20.6 19.6 19.8 18.5 18.1 18.2 18.2 18.3 18.3 -2.7% -3.6% -0.2%Electric Power 11.6 11.6 12.6 14.2 14.6 15.5 14.1 14.9 16.1 17.1 18.3 18.9 19.9 20.9 7.1% 2.5% 5.4%Other (lease/plant/pip/vhcl fuel) 5.3 5.3 5.0 4.9 4.8 4.9 4.7 4.6 4.7 4.8 4.8 4.8 4.8 4.8 -2.2% -1.0% 0.5%
Total U.S. Demand 60.8 60.8 60.9 63.8 60.9 63.0 61.0 61.2 60.9 60.0 63.0 63.7 64.9 66.0 -0.3% -0.9% 1.6%Exports 0.4 0.4 0.4 0.7 1.0 1.4 1.9 2.3 2.0 1.8 1.6 1.6 1.6 1.6 19.5% 24.6% -4.2%
Total Dry Gas Demand 61.3 61.3 61.4 64.4 62.0 64.4 62.9 63.5 62.9 61.7 64.6 65.3 66.5 67.6 -0.1% -0.5% 1.5%
5-Year CAGR
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 24M A
Y
2 0
0
7
U.S. Natural Gas Supply and Demand (Bcfe/d) – April-to-April
Source: JPM Estimates, Department of Energy, NOAA, & Bloomberg
U.S. Natural Gas Supply And Demand (@ $7/Mcf and $55/bbl)April to April
(Billions of cubic feet per day unless otherwise noted)
Supply 00-01 01-02 02-03 03-04 04-05 05-06 06-07e 07-08e 08-09e 09-10e 2001 2005 2010e
Dry Production 52.5 53.3 52.0 51.9 50.7 49.3 51.0 52.5 53.2 53.3 0.9% -1.1% 1.5% - Marketed Production (Onshore + State Waters) 41.6 42.6 42.2 42.4 42.7 43.7 45.6 47.1 48.0 48.5 - Marketed Production (Federal Waters) 13.7 13.4 12.4 11.9 10.5 8.0 7.7 7.8 7.6 7.2 - NGL & Extraction Losses Inc. With Onshore Marketed (2.7) (2.6) (2.6) (2.4) (2.5) (2.3) (2.3) (2.4) (2.4) (2.4)Suppl. Gaseous Fuels 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 -4.6% -6.7% 0.3%Pipeline Imports 10.0 10.1 10.3 9.4 10.1 10.0 9.7 9.0 8.9 9.0 5.3% 0.9% -3.0%LNG Imports 0.7 0.5 0.8 1.6 1.8 1.6 1.8 2.5 3.0 3.6 42.8% 23.2% 18.5%
Total Dry Gas Supply 63.4 64.2 63.3 63.0 62.8 61.1 62.7 64.1 65.3 66.0 1.6% -0.4% 1.5%
Demand
Residential 14.4 12.5 14.4 13.7 13.2 12.4 12.8 13.4 13.5 13.6 -1.8% -0.7% 0.5%Commercial 9.0 8.1 9.1 8.6 8.5 8.1 8.4 8.4 8.5 8.5 -0.8% -0.5% 0.0%Industrial 21.8 20.1 20.5 19.6 19.7 18.1 18.2 18.2 18.3 18.3 -2.7% -3.6% -0.2%Electric Power 14.2 14.9 15.4 14.1 14.9 16.0 17.7 18.2 19.1 20.1 7.1% 2.5% 5.4%Other (lease/plant/pip/vhcl fuel) 5.0 4.8 4.9 4.7 4.6 4.6 4.8 4.8 4.8 4.8 -2.2% -1.0% 0.5%
Total U.S. Demand 64.3 60.3 64.3 60.6 60.9 59.3 61.9 63.0 64.2 65.3 -0.3% -0.9% 1.6%Exports 0.7 1.1 1.6 2.0 2.5 1.7 1.7 1.6 1.6 1.6 19.5% 24.6% -4.2%
Total Dry Gas Demand 65.0 61.4 65.9 62.6 63.3 61.0 63.6 64.6 65.8 66.9 -0.1% -0.5% 1.5%
5-Year CAGR
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 25M A
Y
2 0
0
7
U.S. Petroleum Inventories Are Above Average
180,000
185,000
190,000
195,000
200,000
205,000
210,000
215,000
220,000
225,000
230,0001/
6
2/6
3/6
4/6
5/6
6/6
7/6
8/6
9/6
10/6
11/6
12/6
Source: EIA (Data as of 5/4/07)
2007 DOE Gasoline Stocks Vs. 5 Year Average and Prior Year
180,000
185,000
190,000
195,000
200,000
205,000
210,000
215,000
220,000
225,000
230,000
1/5
2/5
3/5
4/5
5/5
6/5
7/5
8/5
9/5
10
/5
11
/5
12
/5
Ba
rre
ls (
00
0's
)
5-Year 2006 2007
2007 DOE Crude Stocks Vs. 5 Year Average and Prior Years
250,000
270,000
290,000
310,000
330,000
350,000
370,000
1/5
2/5
3/5
4/5
5/5
6/5
7/5
8/5
9/5
10/5
11/5
12/5
Bar
rels
(00
0's)
5-Year 2006 2007
2007 DOE Distillate Stocks Vs. 5 Year Average and Prior Year
90,000
100,000
110,000
120,000
130,000
140,000
150,000
160,000
1/5
2/5
3/5
4/5
5/5
6/5
7/5
8/5
9/5
10/5
11/5
12/5
Bar
rels
(00
0's)
5-Year 2006 2007
2007 DOE Resid. Stocks Vs. 5 Year Average and Prior Year
25,000
30,000
35,000
40,000
45,000
50,000
1/5
2/5
3/5
4/5
5/5
6/5
7/5
8/5
9/5
10
/5
11
/5
12
/5
Ba
rre
ls (
00
0's
)
5-Year 2006 2007
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 26M A
Y
2 0
0
7
U.S. Demand Bouncing Back From Weak 1H06
Source: EIA (Data as of 5/4/07)
DOE Diesel Fuel Implied Demand Vs. 5 Year Average and Prior Year
2,000
2,500
3,000
3,500
4,000
1/5
2/5
3/5
4/5
5/5
6/5
7/5
8/5
9/5
10/5
11/5
12/5
Bar
rels
/day
(00
0's)
5-Year 2006 2007
DOE Gasoline Demand Vs. 5 Year Average and Prior Year
7,000
8,000
9,000
10,000
11,000
1/5
2/5
3/5
4/5
5/5
6/5
7/5
8/5
9/5
10
/5
11
/5
12
/5
Ba
rre
ls/d
ay
(0
00
's)
5-Year 2006 2007
DOE Residual Fuel Demand Vs. 5 Year Average and Prior Year
0
200
400
600
800
1,000
1,200
1,400
1,600
1/5
2/5
3/5
4/5
5/5
6/5
7/5
8/5
9/5
10
/5
11
/5
12
/5
Ba
rre
ls/d
ay
(0
00
's)
5-Year 2006 2007
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 27M A
Y
2 0
0
7
OPEC Spare Capacity
Source: IEA and JPMorgan estimates.
20
22
24
26
28
30
32
Jan-
01
Jul-0
1
Jan-
02
Jul-0
2
Jan-
03
Jul-0
3
Jan-
04
Jul-0
4
Jan-
05
Jul-0
5
Jan-
06
Jul-0
6
Jan-
07
MM
Bb
ls/d
ay
18
23
28
33
38
43
48
53
58
63
68
73
78
$/B
bl
OPEC-10 Production OPEC Spare Capacity WTI Nigeria Outages
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 28M A
Y
2 0
0
7
Expected Additions to OPEC Capacity
Source: JPMorgan Energy Strategy, wire and company reports.
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 29M A
Y
2 0
0
7
Independence Hub Subsea
Source: Enterprise Products Partners L.P.
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 30M A
Y
2 0
0
7
Arctic Gas Opportunities
Two gas projects competing to bring arctic gas to US markets
Mackenzie Delta Three fields controlled by Imperial Oil, ConocoPhillips,
Shell Canada and Exxon Mobil Initital pipeline capacity of 1.2 Bcf/d and expandable to
1.9 Bcf/d on pipeline to Alberta Production online 2011 or 2012 at earliest, regulatory
delays have pushed dates back Fields contain 5.8 Tcf of proved natural gas reserves
Alaska’s North Slope Fields controlled by BP, ExxonMobil, and ConocoPhillips Alaska pushing plan for pipeline to Alberta, recently
passed bill for path of pipeline (May 2007) Production online by 2014-2016 Initital capacity of 4.3 Bcf/d and expandable to 7 Bcf/d Potential northern route would connect both projects, but
is opposed by Alaska politicians North Slope fields contain 34 Tcf of proved natural gas
reserves
Winning proposal could delay other project by 10-15 years according to ExxonMobil
Source: Hydrocarbon Technology
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 31M A
Y
2 0
0
7
Analyst Certification:
The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.
Important Disclosures
Important Disclosures for Equity Research Compendium Reports: Important disclosures, including price charts for all companies under coverage for at least one year, are available through the search function on JP Morgan’s website https://mm.jpmorgan.com/disclosures/company or by calling this U.S. toll-free number (1-800-477-0406)
Explanation of Equity Research Ratings and Analyst(s) Coverage Universe:
JPMorgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] The analyst or analyst’s team’s coverage universe is the sector and/or country shown on the cover of each publication. See below for the specific stocks in the certifying analyst(s) coverage universe.
Coverage Universe: Joseph Allman, CFA: Anadarko Petroleum (APC), Apache Corporation (APA), Brigham Exploration Company (BEXP), Chesapeake Energy (CHK), Delta Petroleum (DPTR), Devon Energy (DVN), Edge Petroleum (EPEX), EOG Resources, Inc. (EOG), Mariner Energy, Inc. (ME), Newfield Exploration Company (NFX), PetroQuest Energy, Inc. (PQ), Quicksilver Resources Inc (KWK), Southwestern Energy Company (SWN), Venoco Inc. (VQ), W&T Offshore, Inc. (WTI), XTO Energy (XTO)
JPMorgan Equity Research Ratings Distribution, as of September 29, 2006
Overweight (buy)Neutral (hold)Underweight (sell)JPM Global Equity Research Coverage42%41%17% IB clients*44%46%35%JPMSI Equity Research Coverage38%48%15% IB clients*62%55%47%*Percentage of investment banking clients in each rating category.For purposes only of NASD/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category.
Valuation and Risks: Please see the most recent JPMorgan research report for an analysis of valuation methodology and risks on any securities recommended herein. Research is available at http://www.morganmarkets.com , or you can contact the analyst named on the front of this note or your JPMorgan representative.
Analysts’ Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Institutional Equities and Investment Banking.
OIL AND GAS EXPLORATION & PRODUCTION RESEARCH 32M A
Y
2 0
0
7
Other Disclosures
Options related research: If the information contained herein regards options related research, such information is available only to persons who have received the proper option risk disclosure documents. For a copy of the Option Clearing Corporation’s Characteristics and Risks of Standardized Options, please contact your JPMorgan Representative or visit the OCC’s website at http://www.optionsclearing.com/publications/risks/riskstoc.pdf.
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General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively JPMorgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to JPMSI and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. All pricing is as of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein. JPMSI distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a JPMorgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise.
Revised September 30, 2006.
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