pipelines, trains, and trucks infrastructure booms and...

4/12/2012

1

Pipelines, Trains, and Trucks —Infrastructure Booms and Busts?

Source of NGL volume balances and forecasts: “The Great NGL Surge!” from BENTEK Energy and Turner, Mason and Company. Crude oil projections from the BENTEK report “Crude Awakening: Shale Boom Hits Oil”

Rockies Oil & Gas ConferenceE. Russell BrazielRBN Energy, LLCApril 12, 2012

2© Copyright 2012 RBN Energy

Pipelines, Trains, and Trucks —Infrastructure Booms and Busts?

» Big Picture

» Rockies Crude oil • Production up

• Capacity constrained

• Refineries profitable

• Differentials Volatile

» Rockies Natural Gas and NGLs• Gas production flat/down, but wet

and associated gas increasing

• Processing capacity and pipeline takeaway capacity increasing

• Processing plants profitable

• NGL Differentials Volatile

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0200400600800

100012001400

Ver Dir Hor

U.S. Active Rigs

Barnett Shale Gas Play

Marcellus Shale Gas Play

Fayetteville Shale Gas Play

Haynesville Shale Gas Play

Woodford Shale Gas Play

Pinedale/Jonah Tight Gas

Granite Wash, Cleveland, Miss.

Williston BasinBakken Shale (Oil Play)

Eagle Ford Shale Play

Permian Basin‐Oil Targets

Niobrara Shale Play(Oil Play)

Source RigData and BENTEK: Lower 48 States, Jan. 15, 2012

Uinta – Piceance

U.S. Active Rig Locations


Crude‐to‐Gas Price Ratio

» Crude‐to‐gas ratio at historic high levels; above 50X

Source: BENTEK

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Oil Plays Provide Superior Returns

9%Pinedale 15%

Haynesville1%

MarcellusDry/Wet

Fayetteville6%2%

Ark/Wood

Piceance11%

Granite Wash

Miss Lime100% 88%

96%

Cleve/Tonk 46%

63%

Permian

Bakken

Niobrara

50%

66%

48%Uinta 29%

Eagle FordOil/Wet

58%/53%

Source: BENTEK


Rig Counts: Crude vs. Gas

Source: Baker Hughes

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2005

2006

2007

2008

2009

2010

2011

2012

Oil Gas

» Crude rig count has increased from 200 in mid‐2009 to 1,300 today

» Natural gas rig count increased from 700 mid‐2009 to 1,000 in 2010, but has now declined back to 670

» Natural gas well productivity has doubled in the past 3 years, so the production impact of fewer rigs has been muted

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Crude Oil Outlook Through 2016

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

1900

1905

1910

1915

1920

1925

1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

‘000s b/d

1900‐2007 2008‐2010 2011‐2016

Source: BENTEK, EIA, Excludes NGLs and Other Liquids

1988


Tight Oil Plays – Growth 2011 to 2016

+550

+250

+150

+530

+700

Bakken

Niobrara (DJ/PRB)

Anadarko

Permian

Eagle Ford

Growth 2011 – 2016 2,200 Mb/d

+550

+250

Source: BENTEK

4/12/2012

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Uinta

Denver Julesberg

PowderRiver Basin

BakkenPADD II

0

50

100

150

200

250PRB

0

200

400

600

800

1,000

1,200

2011

2016

Bakken

0

50

100

150

200 DJ

0

20

40

60

80

100

120 Uinta

Source: BENTEK


PowderRiver Basin

Denver

Salt Lake City

PADD II

Bakken

Denver Julesberg

Guernsey

Casper

Billings

Uinta

To Clearbrook

$

Guernsey

$

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Clearbrook and Guernsey vs. Cushing

‐30

‐25

‐20

‐15

‐10

‐5

0

Vs Clearbrook

vs. Guernsey

» Warm Winter = Massive production increases

» Canadian Production

» Slack Demand

» Unfinished rail terminals

» Refinery turnarounds

Source: PLatts


Brent vs. Cushing Crude Prices

‐35.00

‐30.00

‐25.00

‐20.00

‐15.00

‐10.00

‐5.00

0.00

5.00

10.00

15.00

$/Bbl

Brent – Cushing WTI

» Flows south to Gulf from Cushing constrained

» Windfall for Rockies and midcontinent refinery crack spreads and margins

» Will experience continued volatility for several years

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Great Falls

Mandan

Billings

Sinclair

Cheyenne

New‐castle

Casper

Denver

Salt Lake City

Guernsey

Alzada

Williston

Baker

PADD II

EnbridgePADD IV

Bear Tooth

Plains Rocky Mountain Pipeline System

Bakken

PowderRiver Basin

Denver Julesberg

GR 23

Uinta

ONEO

K Bakke

n Crude

Express P

ipelin

e –200

‐2015


Crude Market Implications

Source: BENTEK

$12‐$14

$5‐7

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Crude Market Implications

» Investments in pipelines, truck terminals and refineries will increase the volume of Rockies crude run in local refineries.

» Canadian crude imports will be backed out of the Rockies market

» Small volumes of Canadian heavy crude will continue to be required by a few refineries

» Discounts of Rockies crudes to Gulf markets will continue and will remain volatile for years

» Attractive margins will encourage Rockies refineries to compete aggressively for barrels


Rockies Natgas Production Outlook

Source: BENTEK

0.0

0.5

1.0

1.5

2005 2007 2009 2011 2013 2015

Bcf

/d

Williston Basin (North Dakota) Gross Gas Production

Gathered Production Flared Production

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North Dakota Flared Natural Gas

Source: BENTEK Natural Gas Production Monitor


Rockies Natgas Drilling Declining

218/+55Great Plains

Big Horn Powder River

Green River

UintaPiceance

Williston

DJ

31/‐3

37/+624/‐1

47/+13

23/+53/1

2/0

Liquids Rich/Oil

Rig Declines

Source: BENTEK

» Increased drilling activity is in the Bakken, the Niobrara (PRB & DJ) and Uinta

» Other basins such as the Green River and Piceance are experiencing declines

Note: Rig count as of 2/3/12 and Change in rig count from Feb. 2011; Source: BENTEK

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Wet Gas Production Drives NGLs

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5Raw

Mix Production, M

Mb/d

PADD I PADD III PADD II PADD IV PADD V

Source: BENTEK


Infrastructure Build Out Essential To Maintaining Growth(Announced Increases Through 2014)

Gas Production Drives NGLs

PADD I

+275

PADD II

+170

PADD III

+390

PADD IV

+115

Source: BENTEK

End 2016 versus current production

4/12/2012

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Gas Production Drives NGLs

PADD I

+275

PADD II

+170

PADD III

+390

PADD IV

+115

60 M

b/d

Source: BENTEK

End 2016 versus current production


460640

405

MAPL


Rockies Processing Capacity Increasing 1.5 MMb/d

» ND ‐ ONEOK Stateline I & II, 200; Plains Ross, 75, Hess Tioga 130

» UT ‐ QEP Iron Horse II & Red Wash 300; Newfield Pleasant Valley 40; Western Gas Chipeta 300

» CO ‐ DCP LaSalle 110, Williams Parachute Creek 350

Incremental Capacity (MMcf/d) Source: Bentek

Source: BENTEK

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Conway Price Differential

10

20

30

40

50

60

Cnts/G

allon

Conway Ethane» Since early 2011,

Conway NGL prices have weakened, especially ethane

» Increased volumes are moving into Conway from Overland Express and other PADD II sources


Conclusions

» Surplus natural gas supplies have driven natural gas prices down; Crude oil prices remain strong• Producers have shifted drilling budgets to

liquids rich gas and crude oil plays

» In the Rockies crude oil market• Production up; Capacity constrained• Lots of new infrastructure coming online• Refineries profitable; Differentials Volatile

» In the Rockies gas and NGL markets• Gas production flat/down, but wet and

associated gas increasing• Processing capacity and pipeline takeaway

capacity increasing• Processing plants profitable• NGL Differentials Volatile

4/12/2012

13

25rbnenergy.com

E. Russell Braziel 3814 Lake Street

Houston, TX, 77098

[email protected]

@rustybraziel

Office: 888‐400‐9838Direct: 903‐881‐9260

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