North American Power Credit Organization - RMG Financial...Base Export Capacity

North American Power Credit Organization The Changing Landscape in the Midstream Michael A. Tribolet Managing Director, Energy Group

Las Vegas, Nevada

January 16, 2014

© 2014 Wells Fargo Bank, N.A. All rights reserved.

1

Drilling technology

Wildcatting versus manufacturing

Rig technology

Faster drilling completion times

Pad drilling

Directional drilling and fracing

Longer horizontal well bores

More perforations per distance

Better proppants and chemicals

2

U.S. hydrocarbon production

-

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000Ja

n-07

Jul-

07Ja

n-08

Jul-

08Ja

n-09

Jul-

09Ja

n-10

Jul-

10Ja

n-11

Jul-

11Ja

n-12

Jul-

12Ja

n-13

Jul-

13

Monthly Production

Total Oil

Total Natural Gas

Bbl/day Mcf/day

Source: Energy Information Administration

3

Basins

Bakken

Niobrara

Eagle Ford

Permian Haynesville

Marcellus


4


-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

Jan-

07

Jun-

07

Nov

-07

Apr

-08

Sep

-08

Feb-

09

Jul-

09

Dec

-09

May

-10

Oct

-10

Mar

-11

Aug

-11

Jan-

12

Jun-

12

Nov

-12

Apr

-13

Sep

-13

Mcf

per

day

Monthly Natural Gas Production

Bakken

Eagle Ford

Haynesville

Marcellus

Niobrara

Permian

5

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

Jan-

07

Jun-

07

Nov

-07

Apr

-08

Sep

-08

Feb-

09

Jul-

09

Dec

-09

May

-10

Oct

-10

Mar

-11

Aug

-11

Jan-

12

Jun-

12

Nov

-12

Apr

-13

Sep

-13

Bar

rels

per

Day

Monthly Oil Production

Bakken

Eagle Ford

Haynesville

Marcellus

Niobrara

Permian


6

Bakken

-

100

200

300

400

500

600Ja

n-07

May

-07

Sep

-07

Jan-

08M

ay-0

8Sep

-08

Jan-

09M

ay-0

9Sep

-09

Jan-

10M

ay-1

0Sep

-10

Jan-

11M

ay-1

1Sep

-11

Jan-

12M

ay-1

2Sep

-12

Jan-

13M

ay-1

3Sep

-13

New well production of oil (Bbl/day)

Production per rig

Rig count


7

Bakken


-

50

100

150

200

250

300

350

400

450

500

Jan-

07M

ay-0

7Sep

-07

Jan-

08M

ay-0

8Sep

-08

Jan-

09M

ay-0

9Sep

-09

Jan-

10M

ay-1

0Sep

-10

Jan-

11M

ay-1

1Sep

-11

Jan-

12M

ay-1

2Sep

-12

Jan-

13M

ay-1

3Sep

-13

New well production of natural gas (Mcf/day)

Production per rig

Rig count

8

Eagle Ford


-

50

100

150

200

250

300

350

400

450

Jan-

07M

ay-0

7Se

p-07

Jan-

08M

ay-0

8Se

p-08

Jan-

09M

ay-0

9Se

p-09

Jan-

10M

ay-1

0Se

p-10

Jan-

11M

ay-1

1Se

p-11

Jan-

12M

ay-1

2Se

p-12

Jan-

13M

ay-1

3Se

p-13

New well production of oil (Bbl/day)

Production per rig

Rig count

9

Marcellus


-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Jan-

07Apr

-07

Jul-

07O

ct-0

7Ja

n-08

Apr

-08

Jul-

08O

ct-0

8Ja

n-09

Apr

-09

Jul-

09O

ct-0

9Ja

n-10

Apr

-10

Jul-

10O

ct-1

0Ja

n-11

Apr

-11

Jul-

11O

ct-1

1Ja

n-12

Apr

-12

Jul-

12O

ct-1

2Ja

n-13

Apr

-13

Jul-

13O

ct-1

3

New well production of natural gas (Mcf/day)

Production per rig

Rig count

10

New versus legacy decline


-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

Mar

-07

Jun-

07

Sep

-07

Dec

-07

Mar

-08

Jun-

08

Sep

-08

Dec

-08

Mar

-09

Jun-

09

Sep

-09

Dec

-09

Mar

-10

Jun-

10

Sep

-10

Dec

-10

Mar

-11

Jun-

11

Sep

-11

Dec

-11

Mar

-12

Jun-

12

Sep

-12

Dec

-12

Mar

-13

Jun-

13

Sep

-13

Monthly growth in Bakken oil production

Legacy production

New production

Total production

11

New versus legacy decline


-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Feb-

08Apr

-08

Jun-

08Aug

-08

Oct

-08

Dec

-08

Feb-

09Apr

-09

Jun-

09Aug

-09

Oct

-09

Dec

-09

Feb-

10Apr

-10

Jun-

10Aug

-10

Oct

-10

Dec

-10

Feb-

11Apr

-11

Jun-

11Aug

-11

Oct

-11

Dec

-11

Feb-

12Apr

-12

Jun-

12Aug

-12

Oct

-12

Dec

-12

Feb-

13Apr

-13

Jun-

13Aug

-13

Oct

-13

TTM average monthly growth in Bakken oil production

Legacy production

New production

Total production

12

Crude oil and natural gas price

$-

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$-

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

$160.00

$180.00

Crude Oil

Natural Gas

13

Crude oil to natural gas price

-

10.0

20.0

30.0

40.0

50.0

60.0

Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

Crude Oil / Natural Gas

14

Crude oil to natural gas price

-

5.0

10.0

15.0

20.0

25.0

Feb-

14Apr

-14

Jun-

14Aug

-14

Oct

-14

Dec

-14

Feb-

15Apr

-15

Jun-

15Aug

-15

Oct

-15

Dec

-15

Feb-

16Apr

-16

Jun-

16Aug

-16

Oct

-16

Dec

-16

Feb-

17Apr

-17

Jun-

17Aug

-17

Oct

-17

Dec

-17

Feb-

18Apr

-18

Jun-

18Aug

-18

Oct

-18

Dec

-18

Feb-

19Apr

-19

Jun-

19Aug

-19

Oct

-19

Dec

-19

Crude Oil / Natural Gas

15

Processing

Pipeline quality natural gas must be 1,035 Btu per cubic foot, plus or minus 5%

Remove water

Remove hydrogen sulfide

Remove carbon dioxide

16

Natural gas liquids – The “C’s”

Approx. Gross BTU’s per cubic foot

Methane – CH4 1,010

Ethane - C2H6 1,760

Propane – C3H8 2,520

Normal Butane – C4H10

3,270

Isobutane – C4H10 3,260

Pentanes – C5H12 4,010

17

Ethane

Ethane is 1% to 6% of the volume in natural gas

Primarily used in the chemical industry in the production of ethylene

Ethylene is most used as a polymer in the manufacture of plastic packaging

In periods of oversupply ethane trades at its heat value and is then highly correlated to natural gas prices.

Instead of ethane extraction, ethane rejection occurs in this oversupply when it is left in the natural gas stream to increase the blended btu per cubic foot

18

Ethane to natural gas differential

($4.00)

($2.00)

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

Ethane minus natural gas (per mmbtu)

19

Ethane supply

Source: Wells Fargo Securities, LLC estimates and Energy Information Administration

Build up of Ethane Supply2013E 2014E 2015E 2016E 2017E 2018E

Capacity to produce as of Dec 2012 1,030 1,030 1,030 1,030 1,030 1,030

Mont Belvieu Fractionation Expansions 185 386 396 396 396 396 Conway Fractionation Expansion 19 26 26 26 26 26 Appalachia Fractionation Expansion 53 273 367 367 367 367

Total Potential US Ethane Supply 1,287 1,714 1,818 1,818 1,818 1,818

Capacity to Consume as of Dec 2012 1,050 1,050 1,050 1,050 1,050 1,050

Gulf Coast Conversion Projects 31 80 83 118 118 118 Gulf Coast Ethylene Expansions 30 67 98 98 98 98 Gulf Coast Crackers - - - 78 353 423 Other USA 1 14 14 14 14 89 Ethane Export Projects 36 95 135 135 135 135

Total Potential US Ethane Demand 1,149 1,306 1,380 1,493 1,768 1,914

Ethane Over / (Under) Supply 138 408 438 325 50 (96)

Fig u r es m a y n ot a dd du e to r ou n din g

Thousand barrels per day

20

Propane supply / demand

Source: EIA, Hodson Report, CMAI, and Wells Fargo Securities, LLC estimates

21

Propane price differentials

Source: Wells Fargo Securities, LLC, CMAI, Waterborne

22

Propane exports encouraged by global price differentials

0

100

200

300

400

500

600

700

800

900

2009 2010 2011 2012 2013 2014 2015 2016 2017

Tota

l Ex

por

t C

apac

ity

(MB

BLS

/D)

EPD Export Terminal Capacity NGLS Export Terminal Capacity Vitol Group Sunoco Logistics

Est. in Service 2009 2010 2011 2012 2013 2014 2015 2016 2017

EPD Export Terminal CapacityBase Export Capacity <Q1'09 132 132 132 132 132 132 132 132 132Base De-Bottleneck Q3'12 0 0 0 2 3 3 3 3 3Expansion I Q1'13 0 0 0 0 120 153 153 153 153Exp. De-bottleneck Q3'13 0 0 0 0 24 48 48 48 48

NGLS Export Terminal CapacityBase Export Capacity <Q1'09 33 33 33 33 33 33 33 33 33Base De-Bottleneck Q1'12 0 0 0 16 16 16 16 16 16Expansion I Q3'13 0 0 0 0 36 72 72 72 72Expansion II Q3'14 0 0 0 0 0 36 72 72 72

Vitol GroupCoastal Caverns (Vitol) Q4'14 0 0 0 0 0 9 37 37 37

Sunoco LogisticsBase Export Capacity Q2'15 0 0 0 0 0 0 26 35 35Mariner South (SXL) Q1'15 0 0 0 0 0 0 200 200 200

Total LPG Export Capacity 165 165 165 183 364 502 792 801 801

*Company terminal capacities are based on an assumed available daily operating rate of 80%

Source: Wells Fargo Securities, LLC, CMAI, BPN’s Weekly Propane Newsletter

23

Butane Supply / Demand Model

Butane fundamentals

Source: EIA, Jacobs Consultancy; The Hodson Report, CMAI, and Wells Fargo Securities, LLC estimates

24

Processing contracts

Fee-based: The processor receives a fee based on the volumes of gas it processes. Volume sensitive, but less so to commodity price. When NGL prices are low, producers may leave NGL in the gas stream to meet pipeline quality natural gas requirements.

25


Keep-whole: The processor commits to accept natural gas from the producer and the processor retains ownership of the NGLs, but gives the producer processed natural gas with the same overall heat content.

For example, if the producer sends 10 mmbtu’s of unprocessed gas, of which 2 mmbtu’s are NGL’s and 8 mmbtu’s are pure natural gas, the processor would return 10 mmbtu’s of natural gas.

If NGL’s are higher in price relative to natural gas, keep-whole contracts give the processor larger processing margins.

26


Percent of proceeds (POP): The producer and processor agree to split the value of the natural gas and the NGL’s on a set percentage.

For example, the producer may agree to accept 85% of the value of the natural gas and NGL’s, while the processor is paid 15% for processing the gas.

The processor benefits from high natural gas prices and NGL prices, as opposed to NGL’s being high in price relative to natural gas.

27

LNG exports

Source: Bentek (11/6/2013)

28

US natural gas exports to Mexico

0.00

0.50

1.00

1.50

2.00

2.50

Apr-00 Oct-01 Apr-03 Oct-04 Apr-06 Oct-07 Apr-09 Oct-10 Apr-12

Nat

ural

Gas

Exp

orts

to

Mex

ico

(BCF/

D) 110% Growth since 2005


29

Questions

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