Rockies Crude to the West CoastCalifornia Crude Market and How Rockies Crude Coming by Rail

Will Reshuffle the Market Dynamics

Eric Peterson

Senior Business Analyst

Moving Crude Supplies to West Coast End Markets

Los Angeles, CA

December 2014

Introduction to ARB Midstream

• Denver based infrastructure development company providing midstream solutions

• Strong financial support from private equity

• Utilize in-depth fundamental analysis to identify value propositions of our assets

• Emphasis on early stage development opportunities

• Developing a new crude-by-rail terminal• Niobrara Connector “NiCon”

• Centrally located in the DJ Basin

• Unit train capable

• Scheduled in-service date: Q3 2015

2

Observations

3

• Drilling activity continues to accelerate in many plays, driving incremental growth in crude oil production

• Even in a low Brent price environment, many plays remain economical

• Midstream infrastructure build out continues, however, the West Coast is still disconnected from the pipeline network

• California imports ~800,000 bpd of waterborne crude from markets other than ANS and Canada

• ANS crude is well poised to reach the global markets, leaving possible market share for domestic US crudes

• Crude By Rail is critical to bringing more cost advantaged US crude oil barrels to the West Coast

• The Niobrara is more economical than other plays in terms of transport costs to parts of the West Coast

Brent Breakeven Prices of Various Plays

4

Utica

Permian

Bakken

DJ Basin

Eagle Ford

$60

Mid-Con$53

$55 $69

$66

Source: Company Reports and Citi Research Estimates

$58

Monteray

$54

Growing Plays Show a Rapid Increase in Hz Rig Count, While Mature Plays Focus on Rig Efficiency

Horizontal

Vertical

Directional

-16 /

+768

-8 /

+377

+19 /

+114

+62 /

+409

Hz Rig Change /

Production Increase (Mbpd)

Oct ‘12 – Oct ‘14

Source: RigData, HPDI 5

The Introduction of Hz Rigs and Their Continued Increase in Numbers Has Caused Rapid Growth in Crude Production

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

0 12 24 36 48 60 72

Incre

me

nta

l P

rod

uctio

n (

bp

d)

Months Developed

Bakken

PRB

DJ Basin

Permian

Eagle Ford

6

Mature Plays

Growing Plays

Source: HPDI, ARB Midstream

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2012 2013 2016 2019

Mb

pd

US Crude Oil Production

PADD 1 PADD 2 PADD 3 PADD 4 PADD 5

-

1,000

2,000

3,000

4,000

5,000

6,000

2012 2013 2016 2019

Mb

pd

Canadian Production

WC Oil Sands WC Conventional EC Domestic

Over the Next 5 Years, New Shale Oil and Oil Sands Supply Will Find New Markets in the U.S, While Displacing Over 5MMbpd of Waterborne Crude Imports

7

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2012 2013 2016 2019

Mb

pd

US Waterborne Imports

PADD 5

PADD 3

PADD 1

Source: EIA, Bentek

Big Differentials Cause the Market to Build Pipelines to Break Through the Barriers

8Source: Bloomberg

WCSWTI - 24

ANSWTI + 10

WTSWTI - 3

BakkenWTI - 5

LLSWTI + 9

BrentWTI + 11

WTI$98

Based off of 2013 Average Prices and Differentials

Over 9MMbpd of New Pipeline Capacity Has Been Built Since 2012 With Another ~9.5MMbpd Under Construction or Planned

Williston

DJ-

Niobrara

Permian

Eagle

Ford

Utica

Anadarko

Source: Company Information, ARB Midstream

*Not All Pipelines Shown

No

Pipelines

to the

West

Coast

9

California Balance

Largest Sources of Crude Oil Are Expensive ANS and Foreign Waterborne

549

0

200

400

600

800

1000

1200

1400

1600

1800

Cru

de

Vo

lum

es (

Mb

pd)

California Crude Supply

Rail

Canada

Alaska Crude

California Crude

Foreign

Source: EIA, HPDI, California Energy Almanac, Bentek 11

Little to No Growth in California Production Over the Next 5 Years

12Source: HPDI, Bentek

-

100

200

300

400

500

600

700

Cru

de

Pro

du

ctio

n (

Mb

pd

)

California Production

San Joaquin

Sacramento

California Offshore

CA Coast

Forecast

Horizontal Rigs, A Key Part of Unlocking Tight Oil In North America, Have Not Made Meaningful Progress In California

13

0

10

20

30

40

50

60

Rig

Cou

nt

California Rig Count by Type

Directional Vertical Horizontal

Source: BakerHughes

Meanwhile ANS Production, A Major Input Into California, Set To Decline 20% (100kbpd) Leaving Production Just Under 400kbpd

0

100

200

300

400

500

600

700

800

Cru

de

Pro

du

ctio

n (

Mb

pd)

Alaska Production

Forecast

Source: HPDI, Bentek 14

800,000 bpd of Waterborne Imports Into California

Note: ANS and Canadian imports not included

Los Angeles, 1,006 San Fransisco,

853

Bakersfield, 120

Refining Capacity ('000s bpd)

-

100

200

300

400

500

600

700

800

900

Cru

de

Im

po

rts (

Mb

pd)

Foreign Imports Into California

Source: EIA 15

-

20,000

40,000

60,000

80,000

100,000

120,000

20

13

Ca

lifo

rnia

Wate

rbo

rne I

mp

ort

s (

bp

d)

API Gravity

LA

SF

2013 California Imports by API show similar quality to Permian, Niobrara and Canadian.

BakkenDilbit/Synbit Permian

Niobrara

Source: EIA

Note: ANS and Canadian imports not included16

CBR Provides Backfill for ANS and Foreign Imports, creating up to 350Mbpd of California Incremental Demand for Inland US Crudes

Railroads

UP

BNSF

Other

Backfill for

ANS

100-125

Mbpd

Bakken

DJ-

Niobrara

Permian

Source: BTU Analytics

Backfill ANS

and Foreign

180-200 Mbpd

Backfill ANS

and Foreign

130-150 Mbpd

17

Unit Train Crude Transportation Rates

$10

Railroads

UP

BNSF

Other

Source: Argus, ARB Midstream 18

Niobrara Connector “NiCon” Crude by Rail Terminal

Niobrara Connector “NiCon” –Centrally located in the DJ Basin

20

PXP NECL

A Look at Niobrara Connector “NiCon” Crude-by-Rail Terminal Specifications

21

• 79,000 bpd nameplate capacity

• 120 car unit train capable

• 224 Acres

• Industrial spur serviced by the UP

• In Service date Q3 2015

• Segregation of product in up to 4 - 100,000 bbl tanks

Summary

22

• Drilling activity continues to accelerate in many plays, driving incremental growth in crude oil production

• Even in a low Brent price environment, many plays remain economical

• Midstream infrastructure build out continues, however, the West Coast is still disconnected from the pipeline network

• California imports ~800,000 bpd of waterborne crude from markets other than ANS and Canada

• ANS crude is well poised to reach the global markets, leaving possible market share for domestic US crudes

• Crude By Rail is critical to bringing more cost advantaged US crude oil barrels to the West Coast

• The Niobrara is more economical than other plays in terms of transport costs to parts of the West Coast

Eric PetersonSenior Business Analyst

eric.peterson@arbmidstream.com

www.arbmidstream.com