Making The Business Case For Crude- By- Rail As A Sustainable Alterna;ve To Regional Markets for Uinta Waxy Crude. August 22, 2013

Transcription

1 Making The Business Case For Crude- By- Rail As A Sustainable Alterna;ve To Regional Markets for Uinta Waxy Crude August 22,

2 Forward Looking Statements and Related MaDers This presenta;on contains forward- looking statements within the meaning of Sec;on 27A of the Securi;es Act of 1933, as amended, and Sec;on 21E of the Securi;es Exchange Act of 1934, as amended. The words will, believe, intend, plan, expect or other similar expressions are intended to iden;fy forward- looking statements. Other than historical facts included in this presenta;on, all informa;on and statements, such as informa;on regarding planned capital expenditures, es;mated reserves, es;mated produc;on targets, drilling and development plans, the ;ming of produc;on, planned capital expenditures, and other plans and objec;ves for future opera;ons, are forward- looking statements. Although as of the date of this presenta;on Newfield believes that these expecta;ons are reasonable, this informa;on is based upon assump;ons and an;cipated results that are subject to numerous uncertain;es and risks. Actual results may vary significantly from those an;cipated due to many factors, including drilling results, commodity prices, industry condi;ons, the prices of goods and services, the availability of drilling rigs and other support services, the availability of refining capacity for the crude oil Newfield produces in the Uinta Basin in Utah, the availability of capital resources, labor condi;ons, severe weather condi;ons, governmental regula;ons and other opera;ng risks. Please see Newfield s 2012 Annual Report on Form 10- K and subsequent Quarterly Reports on Form 10- Q filed with the U.S. Securi;es and Exchange Commission (SEC) for a discussion of other factors that may cause actual results to vary. Unpredictable or unknown factors not discussed herein or in Newfield s SEC filings could also have material adverse effects on forward- looking statements. Readers are cau;oned not to place undo reliance on forward- looking statements, which speak only as of the date of this presenta;on. Unless legally required, Newfield undertakes no obliga;on to publicly update or revise any forward- looking statements. Cau;onary Note to Investors Effec;ve January 1, 2010, the SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves that meet the SEC s defini;ons for such terms. Newfield may use terms in this presenta;on, such as resources, net resources, net discovered resources, net risked resources, net lower- risked captured resources, net risked captured resources, gross resources, gross resource poten;al, gross unrisked resource poten;al, gross unrisked resources, and similar terms that the SEC s guidelines strictly prohibit in SEC filings. Investors are urged to consider closely the oil and gas disclosures in Newfield s 2012 Annual Report on Form 10- K, available at or by wri;ng Newfield at 4 Waterway Square Place, Suite 100, The Woodlands, Texas ADn: Investor Rela;ons. 2

3 INTRODUCTION TO UINTA BASIN 3

4 Uinta Basin Located ~150 southeast of Salt Lake City Cumulative gross production Oil 570 MMBO Gas 6.1 TCF Current daily gross production Oil 60,000 BOPD Gas 1.4 BCFD Crude oil produced is Uinta Black and Yellow Wax Majority of crude is trucked to the five SLC refineries Oil production has been constrained historically due to limited refining capacity for waxy crudes in SLC and well permitting 4

5 Types of Wax Crude Produced from the Uinta Basin Black Wax Yellow Wax API Gravity Pour Point ~105 F ~120 F Sulfur, % 5

6 INFRASTRUCTURE & LOGISTICS Challenges in moving waxy crude by rail 6

7 Poten;al Waxy Crude Market: Trucking and Rail Orbits There are many attractively configured refineries able to extract maximum value out of the waxy crudes which can be transported by rail Rail Trucking Rail Rail 7

8 Waxy Crude Rail Logis;cs Chain Tank cars steamed on the refinery Transloaded into coiled & insulated tank cars Loaded into insulated trailers at F Lose ~20 F in transit to SLC ( 5 hrs. load/drive time) Heat traced lines Heated tanks: fixed roof for Black Wax Heated tanks: floating roof for Yellow Wax Produced into heated tanks 8

9 Trucking Logis;cs to Rail Transloading Transloading sites in SLC, Ogden and the Price area Trucking cost $8-12/mile depending on location Seasonal winter weather delays - less than 20 days per year Insulated trailers keep oil above pour point for close to 24 hours Oil Transloading Rail Sites 9

10 Transloading: Factors to Consider When Choosing a Site Site Location Lowest trucking cost from field (not always the shortest distance) Proximity to a major highway Dual served by both UP and BNSF rail roads Direct Class 1 rail road or shortline access Surrounding acreage and potential for future capacity expansion/unit trains Capacity of Transloading Facility Number of loading / storage spots Split loads / partial loads count as 1 loading spot and slow down throughput Number of rail cars transloaded per day 1 truck = 1 hour to transload Operating hours of site Need 24/7 operating for maximum loading efficiency Number of daily switches Acts as a multiplier to site capacity 10

11 Transloading: Lessons Learned Transloader operating both trucking and site Incentivized to optimize logistics and site capacity Trucking demurrage not related to lease loading is mitigated Track space must be actively managed Loading and receipt / release of cars must be efficient to avoid both trucking delays and railroad demurrage Safety and quality control HSE Car cleaning costs Longer term commitments lend to quality of labor Term deals in lieu of spot markets allow alignment and retention of well trained labor Measurement and metering accuracy is critical Minimizes back office reconciliation and PPAs Streamlines invoicing process 11

12 Rail Transporta;on: Shortline RR vs. Class 1 RR Option 1: Shortline RR: provides switching at transloading site and interfaces with Class 1 RR Both manifest and unit train capable Can provide more frequent switching than a Class 1 RR Storage and overflow capacity key in managing fluctuations in rail car arrivals Option 2: Class 1 RR: Manifest only Switches less frequent than with a shortline; more track and storage capacity needed to accommodate & mitigate a reduction in site efficiency Less flexible on switches/requires minimum number of cars to switch Option 3: Class 1 RR: Unit or Manifest site operated by transloader Empty rail cars are dropped off by Class 1 RR and transloader sections out and sort cars Once train is loaded & reassembled by transloader, Class 1 RR picks up 12

13 Results to date Successfully worked through front-end logistics of trucking and transloading Transloaded 11,000 bpd moved by manifest train Resolved handling issues on the receiving end Steaming Heated lines Heated tanks Completed a test run of 250,000 bbls at a major refinery both as crude and FCC feed with very positive results 13

14 DOWNSTREAM MARKETS Why deal with logis;cs of a paraffinic crude? 14

15 Dis;lla;on Profile of Waxy Crudes Waxy crudes are very high in 650F+ material which is in short supply on the market BAKKEN WCS Western Canadian Select Black Wax Yellow Wax F and less (distillate and lighter) 650F-1000F (gasoil) 1000F+ (resid) 35+33= =63 15

16 Refinery Types and Waxy Crude Valua;on as Crude Unit Feed The ideal configuration is a cracking Type 1 refinery with oversized FCC Type 2 wax CDU/VDU Coker FCCU Wax Refining Value ~ heavy crude + $X/b wax CDU/VDU wax Coker FCCU >35% of CDU Coking refinery with normal size cracking unit Wax Refining Value ~ heavy crude + $XX/b Coking refinery with oversized cracking unit Type 3 Type 4 CDU/VDU CDU/VDU wax FCCU Wax Refining Value ~ light crude + $X/b wax wax FCCU >35% of CDU Cracking refinery with normal size cracking unit Wax Refining Value ~ light crude + $XX/b Cracking refinery with oversized cracking unit CDU: Crude Distillation Unit; VDU: Vacuum Distillation Unit; FCC: Fluid Catalytic Cracking Unit 16

17 Waxy Crude Displacement in Refineries bpd 15,000 10,000 5,000-5,000-10,000-15,000 Type 1 Coking refinery with normal size FCC Waxy crude displaces heavy crude The resid value of waxy crude is reduced by processing in the Coker vs. FCC bpd Type 2 Coking refinery with oversized FCC Waxy crude displaces heavy crude and VGO Waxy crude Condensate Heavy crude Condensate Heavy crude Purchased VGO Waxy crude Type 3 Cracking refinery with normal size FCC Type 4 Cracking refinery with oversized FCC bpd 15,000 10,000 5,000-5, Waxy crude disproportionately displaces light crude and adds more condensate bpd Waxy crude displaces a combination of high cost light crude and an even higher cost VGO - 10,000-15, Best value for waxy crude Waxy crude Condensate Light crude Light crude Purchased VGO Waxy crude 17

18 Waxy Crude Value Proposi;on: Crude or FCC feed Waxy crudes can be processed in low conversion refineries with high relative capacity FCC units or can be used as FCC feed wax crude Ideally wax needs to displace a light or medium crude, not heavy Crude/Vacuum Distillation wax catfeed FCCU Light products for finishing Resid Bottoms Processing Gasoil Light products for finishing Waxy crude bottoms lose value in bottoms processing 18

19 Why Black and Yellow Wax as FCC Feed? Very low in sulfur - no hydrotreating required which is a significant cost savings More hydrogen compared to typical VGO, translates into a higher liquid volume gain May lose some gasoline octane, but gasoline yield will be much higher than typical VGO Even though the residue (micro carbon) in Black Wax is 3.5%, it is very mild and only a small part of it will deposit on the catalyst Very low vanadium (severe catalyst poison) compared to VGO - other metals can be passivated (Ni) or removed via desalting (Na) 19

20 Waxy Crude as FCC Feed Study Goals Provide FCC yield data for Black and Yellow Wax through test plant runs and valuate FCC processing issues Make the data available to interested refineries for evaluation Execution Hired a well known engineering firm of FCC experts who are providing technical advice on the value of waxy crude as FCC feed Conducting FST (Fluid Simulation Test) plant tests of Black and Yellow Wax vs. typical FCC feedstocks The tests compare the value generated by typical FCC feedstocks (including conventional residue feedstocks) vs. waxy crudes and will help define their impact on FCC unit operating conditions Next Steps Publish the results in oil & gas/refining publications and present at refining and crude oil supply conferences Share the results with interested refiners for evaluation as potential FCC feedstock 20

21 FST (Fluid Simula;on Test) Technology by Albemarle Catalysts Lab scale FCC unit for feed and catalyst tes:ng Tes:ng samples at different condi:ons and catalyst types to compare the performance of Black and Yellow Wax rela:ve to VGO and residue feedstocks 21

22 Next Steps Con;nue test runs with addi;onal refineries who have expressed interests in Uinta Black and Yellow Wax crude oil now that we have proven large- scale rail logis;cal capabili;es 22