brendan o’neil managing director ihs global insight june 4, 2013
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Brendan O’Neil
Managing Director
IHS Global Insight
June 4, 2013
Copyright © 2011 IHS Inc. All Rights Reserved.
About IHS
IHS (NYSE: IHS) is the leading source of information, insight and analytics in critical areas that shape today’s business landscape. Businesses and governments in more than 165 countries around the globe rely on the comprehensive content, expert independent analysis and flexible delivery methods of IHS to make high-impact decisions and develop strategies with speed and confidence. IHS has been in business since 1959 and became a publicly traded company on the New York Stock Exchange in 2005. Headquartered in Englewood, Colorado, USA, IHS is committed to long-term, sustainable growth and employs more than 6,000 people in more than 30 countries around the world.
US Economic Outlook US Economic Outlook
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
• The economy’s fundamentals are improving, but fiscal policy headwinds will restrain near-term growth.
• We expect the federal spending sequester to last through September, taking 0.4 percentage point off 2013 real GDP growth, compared with a no-sequester case.
• Monetary policy will remain accommodative into 2015.
• Housing markets will continue their resurgence, supporting growth.
• Consumers will cautiously increase spending in response to gains in asset values, employment, and income.
• The US energy boom is creating jobs, investment, and a competitive advantage.
• Real GDP growth will pick up from 2.0% this year to 2.8% in 2014. Upside and downside risks are evenly balanced.
The US economy continues its uneven expansion
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
2012 2013 2014 2015
Real GDP 2.2 2.0 2.8 3.2
Consumption 1.9 2.2 2.5 2.5
Residential investment 12.1 16.3 18.5 20.1
Business fixed investment 8.0 4.7 6.6 7.2
Federal government -2.2 -5.3 0.1 -1.5
State & local government -1.4 -0.8 -0.1 0.7
Exports 3.4 2.6 5.1 5.4
Imports 2.4 2.3 5.3 4.2
(Percent change)
US economic growth by sector
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
2012 2013 2014 2015
Industrial production 3.6 3.2 3.0 3.3
Payroll employment 1.7 1.5 1.6 1.8
Light-vehicle sales (Millions) 14.4 15.3 15.7 16.2
Housing starts (Millions) 0.78 0.97 1.27 1.57
Consumer Price Index 2.1 1.4 1.6 1.6
Core CPI 2.1 1.9 2.0 1.8
Brent crude oil price ($/barrel) 112 105 93 89
Federal funds rate (%) 0.1 0.2 0.2 0.2
10-year Treasury yield (%) 1.8 2.0 2.5 3.0
(Percent change unless noted)
Other key US indicators
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
• The most likely outcome is continued moderate economic growth.
• Fiscal tightening is under way, with the expiration of the payroll tax cut, substantial tax increases for high-income households, and spending restraints.
• Real GDP growth will pick up in 2014 and 2015, led by strengthening housing markets and business investment.
• Upside and downside risks are evenly balanced.
• The major downside risks are:• An intensified debt crisis and deepening recession in Europe.• An oil-price shock resulting from supply disruptions in the Middle East.
• On the upside, easing credit conditions and a stronger housing-market recovery could spark faster US growth.
Bottom line for the US economy
Regional Outlook Regional Outlook
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Employment: Top Performers 2012
* Unemployment rate in December 2012.
Rank State 2012 (% y/y) Top SectorUnemployment
Rate (%) *
1 North Dakota 6.0 Mining 3.2
2 Oklahoma 2.6 Mining 5.1
3 Utah 2.4 Mining 5.6
4 Texas 2.4 Mining 6.2
5 Arizona 2.1 Construction 7.9
6 Louisiana 2.1 Mining 6.9
7 Kentucky 2.0 Prof. & Business 8.0
8 Indiana 2.0 Durables Mfg 8.3
9 Colorado 1.9 Mining 7.5
10 Washington 1.7 Durables Mfg 7.5
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Continued modest job growth in 2013
2.3%
Percent
-0.8 to 0.7
0.7 to 1.0
1.1 to 1.4
1.5 to 3.1
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
… Picking up in 2014
2.3%
Percent
0.9 to 1.4
1.4 to 1.6
1.6 to 1.9
1.9 to 2.7
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
14131211
2.5
2.0
1.5
1.0
0.5
0.0
5350
5300
5250
5200
5150
5100
5050
5000
per
cent c
han
ge
year
ago
Thousan
ds
Growth - L Level - R
Ohio Employment Forecast
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Ohio Wage Gains (nominal total wages and salaries)
14131211
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
perc
ent c
hang
e ye
ar a
go
percent change year ago
Ohio US
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
(Percent unless otherwise noted)
Ohio Forecast Summary
2011 2012 2013 2014
Employment 1.3 1.5 0.6 1.2
Unemployment Rate 8.7 7.2 7.0 6.7
Personal Income 5.4 3.8 2.4 4.4
Housing Starts (000) 13.4 16.5 19.5 24.6
Retail Sales 8.3 5.4 2.8 2.4
Real Gross State Product 1.1 2.2 1.1 2.1
Economic Contributions of Economic Contributions of Unconventional Oil & GasUnconventional Oil & Gas
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Unconventional Oil and Gas Plays in North America
Enough to satisfy more than 100 years of consumption at current rates
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Nearly $5.1 Trillion in Cumulative Capital Investments are Expected to be Made Between 2012 and 2035.
0
50
100
150
200
250
300
350
400
2012 2015 2020 2025 2030 2035
Unconventional Oil and Gas Capital Expenditures(billions of 2012 dollars)
Unconventional Gas
Unconventional Oil
Spending will feed into broader the broader supply chain through capital-intensive purchases of heavy equipment, technical skills and services, and information technology.
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
From 2012 to 2035, the Employment Contribution of the Unconventional Oil and Gas Industry will Double
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2012 2015 2020 2025 2030 2035
Employment Contributions of Unconventional Oil and Gas Activity
(thousands of workers)
InducedIndirect
Direct
The greatest future job growth will occur between 2012 and 2020 – 3 million jobs by 2020.
Copyright © 2011 IHS Inc. All Rights Reserved.
Impact of Unconventionals on the US Economy in 2020
Producing States Non-Producing States
Top 10 Other Top 10 Other
Extensive Supply Chain will spread Economic Contribution beyond Producing States…
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Top 20 States for Unconventional Related Employment - 2012
Direct Indirect Induced TotalTexas 159,474 171,204 245,406 576,084Pennsylvania 25,628 33,219 43,821 102,668California 6,480 33,337 56,737 96,553Louisiana 24,314 25,511 29,142 78,968Colorado 23,737 21,555 32,329 77,622North Dakota 19,746 24,099 27,978 71,824Oklahoma 21,137 18,821 25,367 65,325Utah 10,123 17,762 26,536 54,421New York 94 13,144 31,191 44,429Ohio 4,210 13,601 21,020 38,830Illinois 3,421 12,563 22,668 38,652Michigan 8,017 10,551 19,280 37,848Missouri 12,404 8,574 16,739 37,716Florida 208 10,603 25,721 36,532Arkansas 11,933 8,661 12,506 33,100New Mexico 7,117 7,690 8,818 23,625Wisconsin 2,280 6,360 11,120 19,760
US State-Level Employment Contribution of Unconventional Oil and Gas: 2012(Number of workers ranked by total employment contribution)
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Top 20 States for Unconventional Related Employment - 2025
Direct Indirect Induced TotalTexas 242,533 299,682 433,487 975,702Pennsylvania 73,984 83,296 113,148 270,428Ohio 52,810 54,222 80,796 187,829Oklahoma 61,882 52,779 72,721 187,382California 9,207 58,534 102,625 170,366Colorado 40,241 39,966 61,757 141,964North Dakota 30,613 38,809 44,870 114,292Louisiana 34,260 34,522 44,712 113,495New York 387 23,119 56,284 79,790Illinois 7,086 24,253 43,331 74,670Florida 308 21,750 51,424 73,483Michigan 15,130 21,555 36,690 73,376Missouri 23,364 16,931 32,324 72,618Arkansas 18,188 14,698 21,089 53,974Utah 6,061 14,110 22,020 42,190Minnesota 5,611 11,058 22,714 39,383West Virginia 13,736 10,315 14,143 38,194
US State-Level Employment Contribution of Unconventional Oil and Gas: 2025(Number of workers ranked by total employment contribution)
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
OH Revenue Associated with Unconventional Activity
(2012 $M)2012 2015 2020 2025 2030 2035 2012-2035**
Federal Taxes 537 1,235 2,150 2,877 3,673 4,218 57,681
Personal Taxes 439 960 1,619 2,152 2,748 3,168 43,440
Corporate Taxes 98 275 530 725 925 1,050 14,241
Federal Royalty Payments 0 0 0 0 0 0 0
Federal Bonus Payments 0 0 0 0 0 0 0
State and Local Taxes 911 2,438 4,594 6,147 7,626 8,453 120,275
Personal Taxes 164 349 573 723 854 915 14,175
Corporate Taxes 738 2,018 3,789 5,048 6,225 6,841 97,967
Severance Taxes 1 14 53 96 154 215 2,185
Ad Valorem Taxes 8 56 176 274 383 471 5,807
State Royalty Payments 0 1 4 7 10 12 141
State Bonus Payments 0 0 0 0 0 0 0
Total Government Revenue 1,448 3,673 6,744 9,024 11,300 12,672 177,956
Lease Payments to Private Landowners 4 22 45 67 96 119 1,490
NOTES: *Total unconventional activity represents the sum of unconventional oil and unconventional gas activity.
**2012-2035 represents the total for all years including those years not reported.
Source: IHS Global Insight
Contribution of Unconventional Gas and Oil to Government Revenue and Private Lease Payments: Ohio
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Upstream Development Causing a Ripple Effect Through the Economy
Employment Contribution in 2020
Upstream unconventional oil and natural gas activity, on average, demonstrates
one of the larger employment multipliers.
On average direct employment will
represent about 20% of all job resulting from
unconventional oil and gas activity with the
balance contributed by indirect and induced
employment.
Copyright © 2011 IHS Inc. All Rights Reserved.
U.S. Downstream Investment will total $217 billion over next six years
Striking the BalanceStriking the Balance
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Concern is Motivated by a Variety of Risks, Impacts, and Uncertainties
Local
Macro
StakeholderUncertainty
ImpactManagement
Sca
le o
f Im
pac
t
Source of Concerns
Climate Change
Water Use
Road & Traffic
Air Quality
Public Services
Seismicity
Drinking Water
Complicating Factors
•Priorities unique to each play & community
•Local & national debate inform each other
•Temptation to confuse the means with the ends
•Community preparedness
•Politicized confidence in regulators
•Jurisdictional conflicts
•All pay for the sins of the few
•Uneven distribution of benefits
Wildlife
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Timeline for shale gas development and production
27
Source: IHS CERA.00502-3_1704
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Rapid increase in local bans and moratoriums
• New York• State moratorium since 2010, future unclear• Municipalities: 48 bans, 106 moratoriums, 91 more in development*
• Pennsylvania• Regional moratorium in the Delaware River Basin• Municipalities: At least 5 prohibitions, including the city of Pittsburgh• Act 13 passed in February 2012
• Colorado• Longmont• Fort Collins
• Ohio• Yellow Springs
*As of 2/12/13. Source: fracktracker.org
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
NY Moratoria
Source: fracktracker.org
Dunn County, North Dakota
Growing Pains within County Government Services
30
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• High ratio of splitting of properties. ( small acreage sales)• Increase valuation of property. (land priced by the square foot)• $50,000 homes in 2006 have sold for $175,000 in 2011.• The property valuations have increased by 19.4% since 2010. • Increased recording because of sales & splits.• Numerous requests for valuation of land.• Creations of subdivisions have increased work load.• Higher request for determination of land ownership.(many old
problems arise daily because of the lack of good records)• Department has purchased a service agreement with GIS tracking
system.• Huge demand for property for housing and industrial business. (truck
parting, RV sites, mobile home parks, small shops, etc.)
Source: Dunn County Commissioner Daryl Dukart
Tax Department
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
• 765 traffic violations• 213 criminal court cases• 205 civil cases• 3 staff employees• Recorders office collected
$147,107 • Oil revenue starts to come into
the county
• 2576 traffic violation• 377 criminal court cases• 298 civil cases• 6 staff employees• Recorders office collected
$603,095• Addition of a new Courtroom • Moved to digital documents
Clerk of Court
2012 estimates
Source: Dunn County Commissioner Daryl Dukart
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
• 1200 miles of road with only 27 paved miles
• Very few highly impacted roads from truck traffic
• General road maintenance was two to three operation per year on all roads
• General road surface materials used are gravel or scoria
• Annual cost to maintain was about $1500 per mile
• 1202 miles of roads with only 25 paved miles
• 330 miles of heavily impacted truck traffic routes (over 100 trucks per day)
• Weekly maintenance is required on the 330 miles of highly impacted roads
• Cost to maintain impacted roads is $26,000 per mile annually
• Materials for road surfacing are getting tighter in supply because of competition from the energy sector
Roads and Traffic
2011
Source: Dunn County Commissioner Daryl Dukart
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
• 3 employees• 4 vehicles• Average calls per day 6
• 9 employees• 9 vehicles• Average calls per day 46• Large amounts of overtime
causing stress to employees and equipment
• Looking at adding another employee and vehicle on July 1st 2012
• Budget has increased by 300% over three years
Sheriff’s Department
Q1 2012
Source: Dunn County Commissioner Daryl Dukart
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
• The States Attorney Office has seen a substantial increase in child abuse and neglect, domestic violence, violent crime, alcohol related offenses, and illegal drugs.
• Traffic and alcohol related offenses combined had a substantial increase of 300%.
• Financial problems combined with alcohol and illegal drugs appear to the be the gateway for an increase in domestic violence and child abuse and neglect cases.
• Most of the increased case load involves individuals who have recently relocated to western North Dakota to pursue employment opportunities in the Bakken.
States Attorney Office
Source: Dunn County Commissioner Daryl Dukart
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Bakken Shale Development Impacts
Positive:
•Created many new job opportunities (many $50,000 plus salary type of jobs )
•Increased salary levels in western North Dakota
•Brought additional money to the farm and ranch communities
•Creation of many new businesses in the area
•Increase sales of trucks, cars, and farm equipment
•Has changed our life styles
Negative:
•Estimated 3200 outside workers drive
to Dunn County daily to work
•Overload of patrons at restaurants,
gas stations, and stores of all kinds
•Lack of employees
•Detrition of roads because of heavy
traffic loads
•Traffic everywhere
•Total stress on all county
departments is greater than we
expected
•Lack of funds to meet demandsSource: Dunn County Commissioner Daryl Dukart
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Takeaways
• Fiscal and social pressures ride shotgun with prosperity. • There is a structure to environmental regulation at federal, state, and local levels, as
well as limitations.• However, some of the boundaries are blurry, and power struggles ensue.• Local authorities are entering the fray, creating a new and highly uncertain dimension of
regulation.
Discussion Questions• Can industry and environmental stakeholders really work together?• Are Energy Security & Economic Development incompatible Environmental Protection
& Health Safety?• Is “political entrepreneurialism” trumping the political process?• What steps can industry take? Collaboration with regulators, communities, NGOs?• What aspects of environmental regulation are most important, and what level of
government is responsible?• What are the mutually agreeable best practices to optimize opportunities and minimize
risks?• Will lingering uncertainty be the risk premium that deters future investment?• Is disenfranchisement the source of local opposition?
Thank youThank you
Brendan O’Neil
Managing Director
IHS Global Insight
brendan.oneil@ihs.com
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