Photo: Newfield Exploration

Shales: 101Energy Policy Forum

March 2015

Shale Plays - The Basics❖ About 32 shale plays in US

❖ Only 6 have meaningful production

❖ All gas plays are in decline except Marcellus (2015)

❖ All shales expected to peak about 2018-2020

❖ Reserves overestimated by minimum of 100% to as much as 400-500% in some plays

Asset Write Downs 2013

Exxon Mobil $2BShell $2B

Devon$2BBP $2.1B

BHP $2.84BChesapeake $3.3B

Encana $1.7B

More to come in 2015$35B in write downs on 15

shale companies in 2013

CAPEX = Free Cash Flow?

❖ Not in Shales

Shale CAPEX vs. Free Cash FlowUniverse of 20 shale operators

Source: Company Financials, Energy Policy Forum

-35

-17.5

0

17.5

35

52.5

70

2010 2011 2012 2013

59.4661.89756.88248.717

-14.387-23.266-21.64-19.723

Free Cash Flow $B Shale CAPEX $B

0

4.75

9.5

14.25

19

2013 2014

% Energy Debt of Total High Yield Debt

Growth in Energy Debt As % of Total HY DebtDefaults Expected

Source: JP Morgan

Job Creation?

(000

's)

0.0

8.0

16.0

24.0

32.0

2012 2013 2014

New jobs created - Oil and Gas New jobs created - Solar

Direct Industry Jobs - Oil and Gas vs. Solar

Source: Bureau of Labor Statistics, Solar Foundation

Rig Counts Have Plunged

❖ Rig counts have plunged ~40%

❖ Significant deterioration in new production needed to offset declines

❖ Reserve values down 25% Bloomberg

❖ Defaults expected on HY bonds JP Morgan Chase

Photo: Forbes

Permian

Eagle Ford

Bakken

0% 22.5% 45% 67.5% 90%

% Nov. 2014 % Feb. 2015

3 Month Deterioration of Tight Oil New Production Needed To Offset Declines

Source: EIA Monthly Drilling Reports

Permian

Eagle Ford

Bakken

0% 30% 60% 90% 120%

% Nov. 2014 % March 2015

% New Production Needed to Offset Declines

Source: EIA Monthly Drilling Reports, Energy Policy Forum

Note that over 100% of new production is now needed in

Bakken and Eagle Ford so plays have tipped into

decline

0

750

1500

2250

3000

Iraqi Wells Needed Bakken wells needed

1M BPD Production

Number of Wells Needed Per Year to Produce 1M BPD CrudeBakken vs. Iraq

Source: IEA

Shale Exportation

❖ Spreads have disappeared

❖ LNG plans scrapped❖ Sell out of long term

contracts particularly in Asia

LNG Spreads Have Disappeared

❖ Natural gas indexed to crude in rest of world

❖ Crude price of ~$70/bbl needed for Europe to make LNG profitable

❖ Crude price of ~$85/bbl needed for Asia

❖ Crude currently trading ~$45

-120%

-90%

-60%

-30%

0%

30%

60%

90%

120%

CHK XCO RRC APC EOG S&P500 Nasdaq

Shale Index

Top Marcellus Operators vs. Indices 5 Year Share Performance

Source: NYSE, Energy Policy Forum

-30%

0%

30%

60%

90%

120%

WLL HES EOG CLR S&P500 Nasdaq

Shale Index

Top Bakken Operators vs. Indices 5 Year Share Performance

Source: NYSE, Energy Policy Forum

-45%

-22.5%

0%

22.5%

45%

67.5%

90%

BHP CHK APC MRO EOG S&P500

Shale Index

Top Eagle Ford Operators vs. Index 5 Year Share Performance

Source: NYSE, Energy Policy Forum

% R

etur

ns

-100

-75

-50

-25

0

25

50

75

100

Exco Chesapeake Range Res. Anadarko EOG First Solar Can. Solar SunPower Jinko Solar

Marcellus Operators Solar Co.s

Marcellus vs. Solar 5 Year Share Performance

Source: NYSE, Energy Policy Forum

0

30

60

90

120

Decarbonization Cost to 2050 Fuel Savings

$ Trillions

Global Decarbonization Costs vs. Fuel Savings

Source: IEA

Energy Policy Forum energypolicyforum.com

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