Drilling in North America s Low Oil Price Environment AMM 8 th Steel Tube & Pipe Conference March 10, 2015 Nicole Leonard, Bentek Energy 2014 Platts, McGraw Hill Financial. All rights reserved.
Key Takeaways Falling oil prices are a result of growing production, particularly from the US, and weakening demand around the globe. Drilling activity has declined but existing rigs are more efficient they can drill faster and produce more oil. North American production expected to continue to grow despite the low-price environment. Oil prices will have to fall further to incentivize producers to stop drilling. 2
Bentek Energy is a leader in energy market fundamentals 40% Majors, producers, marketers, industrials 22% Pipelines, utilities, midstream 33% Financial entities and Hedge Funds 5% Government, associations, consultants 3
Price drop driven by global supply growth, weakening demand $/bbl MMb/d $140 $120 $100 Platts Spot Price Assessment and Global Supply 96 94 92 $80 $60 $40 $20 $0 90 88 86 84 82 Total Global Crude Supply WTI Brent Source: Bentek, Platts, IEA, Data as of February 2015 4
Brent and WTI have fallen to less than half the 2014 high by mid-january $120.00 $110.00 $100.00 $90.00 $80.00 $70.00 $60.00 $50.00 $40.00 Growing cargo glut 2014 Price Forecast Libyan IEA Forecast ReboundRevision Saudi cuts OSP to US Japan enters recessionopec meeting WTI Brent Source: Bentek, Data as of January 2015 5
$/MMbtu High value of liquids drives persistent oil-focused drilling $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 Gas, Oil and NGL Price Comparison: MMBTU Equivalent WTI HH MB NGL Brent CAPP Source: Bentek, Data as of March 2015 6
Crude oil production continues to grow at unprecedented rates MMb/d 10 9 8 7 6 5 Crude Oil Production US Field Production of Crude Oil (since 2012) Jan 2012 Apr 2012 Jul 2012 Oct 2012 Jan 2013 Apr 2013 Jul 2013 Oct 2013 Jan 2014 Apr 2014 Jul 2014 Oct 2014 Jan 2015 MMb/d US Field Production of Crude Oil (since 1983) 9 8 2014 ~ 8.7 MMb/d 7 6 5 4 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 Source: Bentek, Data as of March 2015 7
Prices rebound slightly in February as rig activity subsides WTI/Brent Spot Prices $120.00 $110.00 $100.00 $90.00 $80.00 $70.00 $60.00 $50.00 $40.00 US producers cut rig activity WTI Brent Source: Bentek, Data as of March 2015 8
Rig count had fallen 60% from October peak 19/+1 ALASKA Rig Increases 29/-69 CALIFORNIA 12/-21 11/-15 OTHER ROCKIES 9/-12 0/-1 5/-5 19/-16 119/-43 POWDER RIVER WIND RIVER GREEN RIVER UINTA SAN JUAN 6/-8 PICEANCE 0/-1 RATON PERMIAN 335/-206 WILLISTON 46/-17 D-J ANADARKO 145/-110 25/-28 FT WORTH OTHER MIDCONTINENT 45/-35 EAST TX 165/-52 34/-6 28/-60 5/-2 ILLINOIS 79/-14 5/-14 ARK FAYETTEVILLE TX GULF Rig Declines EAGLE FORD Source: BENTEK, March 2015 11/-1 ARK WOODFORD ARKLA 33/-1 AL-MS-FL 9/-16 LA GULF TX GULF MICHIGAN 1/-4 37/-8 16/-9 UTICA OFFSHORE 37/-2 33/-13 3/+2 OTHER APPALACHIAN MARCELLUS DRY MARCELLUS WET TOTAL 1326 CHANGE -777 Active rig count: Mar 6, 2015 / Change in rig count from Nov 7, 2014 9
Horizontal rigs gain market share over less efficient vertical rigs 2500 2000 1500 1000 500 0 Total US Rig Counts by Orientation 75% 70% 65% 60% 55% 50% 45% 40% Source: Bentek, RigData, Data as of March 2015 DIR VER HOR % HOR 10
# of active rigs Rig declines primarily from less efficient rigs 400 350 300 250 200 150 100 50 0 Permian Rig Counts by Orientation Permian Rig Count October 2014: 549 rigs March 2015: 335 rigs Vert/Dir rigs decrease 65% Horz rigs decrease 21% Directional Vertical Horizontal Source: Bentek, Data as of March 2015 11
Permian producers continue to realize horizontal drilling efficiencies # of horizontal rigs Average IP rate (b/d) Permian Horizontal Rig Count and Average IP Rates 400 350 300 250 200 150 100 50 0 450 400 350 300 250 200 150 Source: Bentek, Data as of March 2015 Horizontal Rig Count Avg. Horizontal IP Rate (b/d) 12
# of rigs Top basins account for 50% of active rigs in February, versus 35% in 2010 1,200 1,000 800 Rig Count by Area 600 400 200 0 Other US Anadarko Eagle Ford Permian Bakken Source: Bentek, Data as of March 2015 13
Lateral Length (feet) Lateral lengths and total depths of wells expected to increase 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Lateral Lengths in Colorado Source: Bentek, Data as of March 2015 Average Lateral Length 14
Days Producers can drill more wells per month with existing rigs 35 30 Average Drill Time 4 days 8 days 25 10 days 20 15 10 5 0 2012-Q32012-Q42013-Q12013-Q22013-Q32013-Q42014-Q12014-Q22014-Q32014-Q4 Anadarko Permian Williston Source: Bentek, Data as of March 2015 15
Mb/d North American crude to grow nearly 40% from 12.3 MMb/d in 2014 to 16.3 MMb/d in 2020 US Crude Oil Production Projection 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Bakken Eagle Ford Permian Offshore DJ Basin Other US Canada Previous Production Outlook Source: Bentek Oil & Gas Production Monitors, Data as of February 2015 16
MM bbls Crude stocks build on low refining demand, oversupply 460 440 420 400 380 360 340 320 US Crude Stocks 5 Year Min-Max Range Avg. 2010-2014 2014 2015 Source: EIA, Data as of March 2015 17
$/bbl Current forecast implies need for further capex and drilling reduction Mb/d $105 $95 $85 Bentek s Crude Oil Price Forecast and Supply/Demand Balance 700 600 500 $75 400 $65 $55 $45 $35 At currently drilling activity. 2015: $41.67/bbl 2020: $61.46/bbl 2025: $67.97/bbl 300 200 100 0 North American Crude Balance WTI Source: Bentek s Crude Oil Market Call, Bentek s PADD Balances, Data as of February 2015 18
Key Takeaways Falling oil prices are a result of growing production, particularly from the US, and weakening demand around the globe. Drilling activity has declined but existing rigs are more efficient they can drill faster and produce more oil. North American production expected to continue to grow despite the low-price environment. Oil prices will have to fall further to incentivize producers to stop drilling. 19
Thank You BENTEK is an energy market analytics company, focused on the natural gas, NGL and crude oil markets. Nicole Leonard Energy Analyst, Crude Oil nleonard@bentekenergy.com DISCLAIMER. THIS REPORT IS FURNISHED ON AN AS IS BASIS. BENTEK DOES NOT WARRANT THE ACCURACY OR CORRECTNESS OF THE REPORT OR THE INFORMATION CONTAINED THEREIN. BENTEK MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE USE OF ANY INFORMATION CONTAINED IN THIS REPORT IN CONNECTION WITH TRADING OF COMMODITIES, EQUITIES, FUTURES, OPTIONS OR ANY OTHER USE. BENTEK MAKES NO EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANT- ABILITY OR FITNESS FOR A PARTICULAR PURPOSE. RELEASE AND LIMITATION OF LIABILITY: IN NO EVENT SHALL BENTEK BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFIT) ARISING OUT OF OR RELATED TO THE ACCURACY OR CORRECTNESS OF THIS REPORT OR THE INFORMATION CONTAINED THEREIN,WHETHER BASED ON WARRANTY, CONTRACT, TORT OR ANY OTHER LEGAL THEORY. 20