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Copyright ©: EAI, Inc., 2010

1

EAI, Inc.(Energy Analysts International)

Westminster, Colorado


2

Rocky Mountain Petroleum Business Rocky Mountain Petroleum Business UpdateUpdate

Extracts from EAI, Inc.Extracts from EAI, Inc.’’ssRocky Mountain Petroleum Business Analysis & Outlook StudyRocky Mountain Petroleum Business Analysis & Outlook Study

2010 Update in Progress2010 Update in Progress

forfor

Crude Oil Quality Association

June 10, 2010

EAI, Inc. (Energy Analysts International)EAI, Inc. (Energy Analysts International)


3

Presentation Topics

Global Overview

Rocky Mountain Petroleum Business Overview

Crude Supply‐Logistics

Refining Trends and Update

Rocky Mountain Downstream Business

New Production activity


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Global Overview

Rocky Mountain Petroleum Business Analysis and Outlook


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Global Petroleum Situation and Outlook

Global crude oil demand has fallen due to the worldwide economic downturn. China and India had growth in 2008/2009 and are now rebounding. In the U.S., the drop in conventional crude demand is being driven by consumption declines and increasing use of biofuels and NGL’s. Significant probability for slow growth in economy going forward.

Global production reached capacity limitations in 2006 which, when coupled with strong demand, speculation and politically driven activities involving production, drove prices to a July 2008 peak of 145 $/Bbl. Since then, the worldwide financial crises followed by an economic downturn resulted first in declining crude demand, falling prices then a rebound in prices.

Production increases and improved export capability are anticipated for Brazil, Canada, West Africa, Russia and the Caspian and certain South America countries.

The rate of production growth from these countries combined with a potential for slowing demand growth (recession, alternative fuels) will continue to put downward pressure on crude pricing.

Outlook for light heavy spreads is for bottoming in 2009 and slow recovery in 2010 – 2011. High probability for further shakeout in U.S. refining capacity.


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Rocky Mountain Petroleum Business Overview

Rocky Mountain Petroleum Business Analysis and Outlook


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US UNEMPLOYMENT RATE JAN 2010PCT OF LABOR FORCE

13.5 OR MORE11.2 to 13.5

9.4 to 11.27.5 to 9.4

LESS THAN 7.5%

SOURCE: http://www.bls.gov/lau/

U.S. Economy OverviewDownturn in U.S. economy specific to West Coast and Midwest to Southeast corridor. Many other areas relatively low impact in terms of unemployment. Housing and spending patterns highly

impacted across the U.S. Overall real GDP growth outlook, 1.6 and 1.8 percent growth in 2010 and 2011, up from ‐2.9 percent in 2009. 2012 expected to be 3 percent. Major risk of double dip

downturn due to European problems.


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2009 NuStar pipeline volumes down, COP pipeline volumes up.

Total Chevron Pl

Capacity (69)

Refinery Utilization Refineries in Colorado,

Montana , Utah and Wyoming operating

seasonally at full capacity

Casper

Salt Lake City

COUT

IDMT

WY

Billings

North Platte

BoiseBoise

Fountain

Cheyenne (17)

Seminoe(34)

Pioneer Pl (70)

Sinclair Pl

(20)

ConocoPhillips

41.5)

Chase Pl (61)

KN

BPL(8”)

KN

BPl

(8")

CENEX Pl (19)

YellowstonePl (56)

Kaneb (21)

Valero

(50)**

High Utilization

SeasonalBottlenecks

Barge

Chase pipeline deliveries

downPotential MC refinery shutdowns

and low utilizationKM East Leg expanded – Longhorn shutdown but for sale. May be bought

by Magellan.

Refinery supply constrained

Decline from 2008 9MBPD to 5.8 MBPD in

2009

2009 Demand Gasoline f lat but ethanol increasing

Diesel down 4 MBPD

SLC refineries runs down by 2 MBPD. Flying J problems,

Silver Eagle fire. 1 psi waiver for ethanol

blending approved.Approval for UNEV pipeline received. Denver Products

pipeline volumes down

NewcastleKNB Pl (14)

KNB(10")

Rail from Helena toThompson

Falls/Spokane

Missoula

2009 decline by 12 MBPD

Denver

Chevron Pl (17)

To MosesLake

Spokane

To Minot/Fargo

To Rapid City

Sinclair Built Segment to Chase and can reverse Denver Products Pl

Gas Diesel

Major Demand Centers

Major Refining Centers

High Demand Growth Areas

Pipeline Capacities in MBPD(xx)

Billings refinery runs maintained

Flint Hills expanded Pine Bend refinery by

50 MBPD-2008

Refined Product Network StatusRocky Mountain Region

Rockies gasoline demand flat to slightly increasing in 2009. Jet fuel demand down by 5 MBPD mostly at DIA and SLC. Distillate demand down across Rockies, down 24 MBPD in 2009 from 2007 levels. Penetration by ethanol to

continue – further out potential for new gasoline specifications for Denver and SLC markets.

Wyoming refineries have cut runs


9Refinery Throughput ProfileRocky Mountain Region Refineries

2004 – May 2010Crude runs leveled off in 2007 and started to decline in late 2008. This trend is similar to that observed for other areas of the country only much less exaggerated. Year 2009 runs at 532 MBPD down 8 MBPD from

2008 level. Year 2010 runs continuing downward trend so far.

0

200

400

600

800

1000

2004

0120

0407

2005

0120

0507

2006

0120

0607

2007

0120

0707

2008

0120

0807

2009

0120

0907

2010

01

Cap

acity

or T

hrou

ghpu

t [M

BPD

]

0.00

20.00

40.00

60.00

80.00

100.00

120.00

Perc

ent U

tiliz

atio

n

Refinery Input

Refinery Utilization

Crude Tower Capacity

Maximum Utilization


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Rocky Mountain refining capacity at 623 MBPD. In 2009, Rocky Mountain region crude runs averaged 532 MBPD – down from 540 MBPD in 2008 and 549 MBPD in 2007.

With slow demand growth, increasing ethanol penetration and increasing supply availability from outside the region, more pressure on RM refineries to seek new markets to keep refinery runs up. This is the driver for the Holly‐Sinclair UNEV product pipeline project to North Las Vegas.

Light crude discounting has been major “life‐line” for U.S. light crude refiners including those in the Rocky Mountain region. These discounts have been key to keeping refining capacity with continued downward pressure on product margins.

Heavy crude refinery margins (running on heavy crude) are poor to negative and do not support conversion investments. These plants are shifting to lighter crude slate which is not efficient for a plant designed for heavy crude.

Given this situation and no immediate relief in site, total refinery capacity vulnerable to closure in the RM region is in the 80 to 100 MBPD range. This would bring capacity more inline with demand and would tend to improve market and refinery margins.

U.S. Rocky Mountain Integrated Business OutlookRefining


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Crude production in the Rocky Mountain Core production area increased by 10 MBPD during 2009 driven primarily by EOR investment in the Powder River Basin and Wind River Basin. Total Rocky Mountain crude production will be flat to slightly increasing over the next few years due to continued investment in EOR and horizontal drilling technology.

Core production averaged 349 MBPD with Canadian crude making up the incremental 183 MBPD of crude runs during 2009. Rocky Mountain appetite for Western Canadian light grades (synthetic sweet, synthetic sour) will continue to be soft through 2015. Dilbit and synbit delivery to Montana refiners to remain flat with realignment of grade movement out of Rockies to the Midwest contingent on startup of Keystone.

Growth of non‐core production (Williston light sweet crude) continues at dramatic rate and has displaced synthetic from RM markets with Canadian overhang being exported to MC/MW markets via pipeline and rail. Williston supply impacted RM crude prices due to limited export capacity on Butte and Enbridge systems.

U.S. Rocky Mountain Integrated Business OutlookCrude Supply and Logistics ‐ 1


12Western Canada Crude Supply OutlookTotal supply is forecast to increase 2900 and 3200 MBPD by 2014 and 2019 respectively. Production focus on bitumen and heavy blends. Synthetic crude projects have slowed and more focus on bitumen

blends.

Incremental production of 1.2 MM over next 10 years: 400 synthetic and 1000 bitumen blends (part of this

offsets conventional decline


13Rocky Mountain Crude Supply Regions

Light crude production growth has shifted from Montana to ND Bakken. Utah Black and Yellow wax plays plus Wolverine continues to expand. DJ Basin activity expanding with Niobrara becoming very

active.

CRUDE FLOW (CORE)

FLOW (NON‐CORE)

CENTRALKS PLATFORM

SEUTAH

PICEANCENW CO

SECOLORADO

SWCOLORADO

SAN JUAN

SEVIER

MIDCON

DENVERJULESBURG

UINTA

OVRTHRSTGREEN RIVER

WINDRIVER

POWDER RIVER

BIG HORN

S. CTRL MT

NORTHEASTMONTANA

NORTH CENTRAL MONTANAU.S.

WILLISTON

CENTRAL MONTANA

ANADARKO HUGOTON

SE MT

APAPIEN VALLEYFIELD ADDED TO

HINGLINE DISCOVERY LIST

WILLISTON HEADED TO 350 MBPD AT

CURRENT OIL PRICE

PINEDALE AND JONAH

DOWNSPACING

WAX PLAY MOVES INTO

UNDEVELOPED TRIBAL LANDS

SALT CREEK CO2 FLOODEXPANDING

White Cliffs Started upJune 2009

Pacific (PAA) adds 95 MBPD PL capacityEvanston to SLC

Enbridge ND Pipeline Expands to 161 MBPD. Working on Northern Portal Export option.

BELL CREEKCO2 FLOOD PILOT

NIOBRARA HORIZPLAY ADDS 50 MBPD

TO FORECAST

NEW WRB CO2‘ Beaver Creek’

Enterprise expands NGL system. New gas processing added to Piceance and Uinta Basins

DJ NGL connected to Overland-Pass 2009.

REGION 2008 MBPD 2009 MBPD

BIGHORN BASIN 38.2 34.9

CENTRAL MT 1.4 1.1

DJ 43.1 50.9

GREEN RIVER BASIN 44.1 42.7

OVERTHRUST 5.8 5.4

NE MONTANA 84 76

NORTH DAKOTA 186.1 230 E

PRB 39 40.1

NW COLO 14.9 13.6

SE COLO 4.4 4.5

SE UTAH 17.4 20.1

UINTA BASIN 40.8 43.6

WRB 19.3 19.6


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Average forecast decline (‐%)Core area=Production that is accessed by RM refineries; non‐core=S UT, S CO and ND

Rocky Mountain Crude ProductionTrends and Outlook, MBPD

Increased Williston Basin production has upset Rocky Mountain fundamentals. Light crude is discounted locally and Canadian Synthetic crude has been backed out of some markets. Refiners

continue to court heavy supply – depending on location.

0

100

200

300

400

500

600

700

800

Prod

uctio

n (M

BPD

)

0

100

200

300

400

500

600

700

800

SPEC EOR 0 0 0 0 0 0 0 0 0 0 0 0 0 2 11 17 25 42 54 61 63 63 53 48 45

ND BAKKEN 0 0 0 0 0 0 0 0 0 0 8 29 53 101 167 180 169 161 154 145 137 128 124 117 107

NON CORE 125 137 132 122 114 109 106 101 105 120 126 133 141 135 135 131 130 128 127 125 122 121 119 116 114

NEW EOR (WYO SPEC) 0 0 0 0 1 2 3 8 22 44 57 56 52 50 49 47 45 43 42 40 39 37 35 33 32

NEW PLAYS 0 0 1 0 0 0 0 0 0 1 2 3 8 17 22 25 28 28 27 24 21 19 17 14 12

CORE 329 323 299 274 280 277 267 263 273 273 274 282 280 282 280 275 269 264 258 253 250 246 244 242 238

Total 454 460 432 396 395 387 378 373 403 442 476 502 533 584 654 659 641 623 607 587 569 550 539 522 504

REF_RUNS 525 533 534 551 561 554 574 583 609 612 607 597 594 587 585 596 600 604 608 612 616 620 624 628 632

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

ForecastProduction HistoryRefinery Runs(RM plus Tesoro-Mandan)

SPEC POTENTIAL FOR ND EOR AND HORIZONTAL INVESTMENT AT70 PLUS (WTI)

INCREMENTAL CRUDE COMING FROM NEW RM PLAYS AND EOR INVESTMENTRM Core Supply : directly

accessible by RM refiners

Non-Core RM supply

RM Crude Deficit


15U.S. Rocky Mountain Crude Pipeline BusinessProjects and Trends

Rail export of EOG Bakken crude relieves constraint on Enbridge eastbound line by 30 MBPD (Jan 2010). Producers respond by expanding development. Plains reverses flow between Wamsutter and Fort Laramie to allow southwest Wyoming sweet crude to move east into Cheyenne area, i.e. Suncor Denver. This volume offsets DJ crude export on

White Cliffs to Cushing.

RMP 120 MBPDCAPY TO SLC

with new loop.

Enbridge ND LineExpanded to 161 MBPD

in January 2010

Enbridge ND LineExpanded to 161 MBPD

in January 2010

Butte PL expanded to 115 MBPD

White CliffsStarted up 6‐09moved 21 MBPD

3Q09

White CliffsStarted up 6‐09moved 21 MBPD

3Q09

Plains Wamsutter Reversed Apr 2009

Plains Wamsutter Reversed Apr 2009

Enbridge Portal reversal considered to transport 30 MBPD to Enbridge Cromer

mainline

Enbridge Portal reversal considered to transport 30 MBPD to Enbridge Cromer

mainline

Rail Export on BNSF60 MBPD capacity

Rail Export on BNSF60 MBPD capacity

CC

CC

Constrained Pipeline Segments

Major crude oil gathering and distribution pointsPipeline capacity (MBPCD)

RMP = Rocky Mountain Plcc

Supply growth and reduced refining runs causes discount of Utah grades. UNEV product export would relieve

some of this.

Supply growth and reduced refining runs causes discount of Utah grades. UNEV product export would relieve

some of this.


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Enbridge (80-110)

EXPANDED TO 160 MBPDIN JANUARY 2010

Posted Price

Spot PricePrices are Nov 08 average

cc Constrained Pipeline Segments

ToWood River

UT

ID

Salt LakeCity

Iles

MT

WY Casper

Billings

Poplar

Richey

Baker

Guernsey

Reno

SilverTip

Express (Platte - 145)

RMP 120 MBPDCAPY TO SLCwith new loop.

Chevron(130)

RMP(19)

Bear Tooth(50)

Big Horn)

Butte PL (80)

BelleFourche

BelleFourche (10)

RMP (18)

Sinclair

To Clearbrook

Rangely

FrontierRefinery

Commerce City

To McPhersonEl Dorado Refining

Wamsutter

Glacier (95)

Plains

ExxonMobilConoco

Chevron(65)

Express(165)

Express connectJudith Gap

ND

SD

SevierCounty

Trucking

SuncorRefinery

BILLINGS REFININGCENEX ConocoPhillips ExxonMobil

SLC REFININGChevronFlying JHolly

Tesoro

WyomingRefining

Montana Ref

White CliffsConstruction

cc

cc

Crude Price Spreads to WTI – May 2010Crude prices in Western Rockies particularly depressed relative to WTI – should

continue until logistics to clearing markets opened – Keystone pipeline.

Express (280)

SinclairFrontier (63)

Big Horn (59)

CO

Suncor (60)

CENEX

Suncor loopedline to Commerce City

SinclairPathfinder project

replacing line between Casper and Sinclair

with new 90 MBPD Capy.

EASTERNCORRIDORSYSTEMS

TesoroMandan

KEYSTONEROUTEKEYSTONEROUTE

15.79WCO

15.79WCO

9.46ND SW

9.46ND SW

12.04SW WY

12.04SW WY

12.66BlkWx

12.66BlkWx 3.62

DJ

3.62DJ

14.96ND SW

14.96ND SW

7.96WySwSpot

7.96WySwSpot

23.87WY Asp

Sour

23.87WY Asp

Sour

-2.08Synthetic

-2.08Synthetic 4.02

Par

4.02Par 14.53

Bow

14.53Bow

8.76WCS

8.76WCS


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The shift to heavy in the RM plus increasing light crude production in the region has supported a sustained light crude surplus in the Rocky Mountain region. This light crude discounting has been a key advantage for RM light crude refiners. With increased Williston sweet delivery into eastern refineries and resumption of Rockies production declines, this advantage has narrowed

The RM discounting is “global” in nature with increasing light crude supply overhang at Cushing expected to continue. The shortfall of heavy crude and surplus of light‐medium crude at Cushing has narrowed the light‐heavy differential. This occurred simultaneously with RM and other U.S. heavy crude projects having a major negative impact on conversion investments.

A flat to declining conventional gasoline market, corresponding downward pressure on refinery crude runs and increasing light crude supply will likely extend the light crude discounting.

Production from the “new” Niobrara play, increasing ND crude movements into the RM and existing light crude plays in the RM will create new light crude loadings on the Eastern RM crude supply corridor (Butte, Platte, Suncor & White Cliffs)

U.S. Rocky Mountain Integrated Business OutlookCrude Supply and Logistics ‐ 2


18Rocky Mountain Update

Unconventional oil plays expanding

RM CORE: Most of the Rockies crude supply increase was Bakken development but the increases noted in Unita, and DJ Basins all have direct impact on RM trade.

Western Canadian Select expands to 250 MBPD. Synbit and other Hardisty area blends are being replaced by WCS which is being held at consistent export grade similar to ‘Bow River Heavy’. Refiners accept the WCS blend where other varieties had been rejected in the past.

North Dakota adds Three Forks – Sanish play to burgeoning Bakken development. New plays capable of adding 150 MBPD to existing Williston supply by 2012‐13. As of March 2010 overall Williston supply at 323 mbpd (ND 250 MBPD and MT 73 MBPD).

Williston EUR’s continue to improve. Recent completions suggest EUR in 500‐900 MBOE range for combo Bakken – TFS wells. Prior outlook assumed 425 MBO per lateral completion.

Sevier County Utah. Current production estimated at 8.2 MBPD. Providence Field discovery announced in 2008 (Wolverine‐Oxy, Arapien Valley well) producing small volume of very light oil/condensate.

Monument Butte replaces Bluebell‐Altamont as Utah’s #1 oil field making Newfield the #1 producer. Hundreds of wells shut in during 2006 due to lack of market options during refinery turn‐arounds in SLC. New activity on Ute Minerals and deep drilling to increase supply.

Niobrara horizontal development in SE Wyoming ‐ NE Colorado has potential to add 50 MBPD to area crude. Crude anticipated to be 34‐38°API in core area (northern Weld County).


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BAKKEN_ESTBPD 2009

1,000

500100

ST. DEMETRIUS

ROUGH RIDER

FIELD NAME

BAKKEN ACTIVITY

Mature Bakken hydrocarbon source(OLD BOUNDARY)

Mature Bakken hydrocarbon source(OLD BOUNDARY)

PARSHALL UNITEOG RESOURCES

Updip edge of middle sandstone trend

Williston Basin Bakken ActivityField Locations And Trend Outlines

HUMMINGBIRD BAKKEN 40° API

RONCOTTBAKKEN

NEW PLAYTHREE FORKS(SANISH)ANTELOPE

(below Bakken)

NEW PLAYTHREE FORKS(SANISH)ANTELOPE

(below Bakken)

BAKKEN INSINCLAIRDALY, BIRDTAIL UNITS

BAKKEN INSINCLAIRDALY, BIRDTAIL UNITS •Montana play peaked in 2006 at 102

MBPD. Current 42 MBPD. Field limits appear to have been found. Infill and EOR being considered.

•ND Bakken production has increased from 35 MBPD in midyear 2008 to over 160 MBPD by year end 2009. Most of the increased volume is coming from the Parshall area in Mountrail County.

•Three Forks‐Sanish play has developed into a new stand alone play The Devonian aged sandstone lies directly beneath the Bakken shale.

•SK Bakken play went from less than 1 MBPD in 2004 to over 20 MBPD during 2007 and ended 2008 at over 35 MBPD. SK Play extends into Daly, Sinclair, Birdtail, Field Units, Manitoba 36‐41° API sweet crude.

SK

MB

NDMT

GREAT PLAINSSYNFUEL PLANT

WEYBURN‐MIDALECO2 EOR UNITS

LONE BUTTE

POPLAR, EAST

CHALSON

NORTH TIOGA

WEST BANKBEAVER LODGE(AMERADA – MUREX)

ELM COULEE

VERTICAL

GUN SITE‐BAINVILLEPRODUCING CAPA

AMERADA

PRODUCINGWILLMEN UNIT

PRIOR TO 2003FALLON COUNTY REPRESENTED A

THIRD OF MT SUPPLYSEMPRA ENERGYCO2 PIPELINECONCEPT

VIEWFIELD UNITBAKKEN ACTIVITY

ROCANVILLEBAKKEN‐36.3° API

ROBINSON LAKESANISHWHITING

NEW PLAYSPEARFISH

NEW PLAYSPEARFISH


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WELD

LOGAN

MORGAN

CHEYENNE

LARAMIE

GOSHEN

MORILL

WattenbergNiobrara O&GSweet Spot

WattenbergNiobrara O&GSweet Spot

Niobrara 38° APIFractured Limestone

Niobrara 38° APIFractured Limestone

Niobrara Fracture Trend

Oil Bearing

Niobrara Fracture Trend

Oil Bearing

Niobrara BIOGENIC GAS

Niobrara BIOGENIC GAS

YUMA

EXPRESSPLATTE – 20”

PAAPL – 16”SUNCOR – 10”

Cheyenne

EOGNorseman Prospect

EOGNorseman Prospect

HORIZ NIOBRARA ACTIVITY

HORIZ NIOBRARA ACTIVITY

SUNCOR – 10”

SILOFIELD

SILOFIELD

NOBLEHORIZ

ACTIVITY

NOBLEHORIZ

ACTIVITY

Niobrara Fractured Limestone FairwayUSGS 2002: Estimated mean undiscovered recoverable oil 7.6 million barrels (Silo

Trend). Plus 32 million barrels mean undiscovered recoverable resource in Niobrara‐Codell (Wattenberg Trend).


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PRB SWEET

WAX

SW WYOMING

PRB EOR

NE MT WILLISTON

0

50

100

150

200

250

300

350

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Prod

uctio

n (M

BPD

)Sweet Crude Accessible to RM Refiners

EAI, Inc. Base Case (Being updated with new EAI, Inc.’s New Niobrara forecast & Williston supply scenarios)

Rocky Mountain sweet crude production is undergoing production surge with Williston Bakken play leading the way. Williston sweet crude available to RM via Guernsey on Butte is limited to current

capacity of 115 MBPD (with DRA).

ForecastLIMITED TO BUTTE 115 MBPD CAPY

Actual

UINTA‐EORSEVIERUT‐PLAY


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Rocky Mountain Petroleum Business Rocky Mountain Petroleum Business UpdateUpdate

Extracts from EAI, Inc.Extracts from EAI, Inc.’’ssRocky Mountain Petroleum Business Analysis & Outlook StudyRocky Mountain Petroleum Business Analysis & Outlook Study

2010 Update in Progress2010 Update in Progress

forfor

Crude Oil Quality AssociationJune 10, 2010

Questions regarding this presentation or inquiries regarding EAIQuestions regarding this presentation or inquiries regarding EAI, Inc. products and , Inc. products and consulting services can be directed to:consulting services can be directed to:

EAI, Inc. (Energy Analysts International)EAI, Inc. (Energy Analysts International)Joseph J. LetoJoseph J. Leto303303--469469--51155115

[email protected] [email protected]

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