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BENTEK North American Market Overview & Outlook

To Illinois State University Institute for Regulatory Policy Studies Springfield, IL
October 30, 2012
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Agenda
 Drilling Efficiencies and Oil & NGL Production Will Sustain Annual Growth of Gas Volumes  Demand Is Responding to Low Prices  Prices Will Be Low and Stable as Supply Continues to Overwhelm Demand  Changes in Intra-Regional Flow Dynamics Will Impact Local Prices, Particularly Out West
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Massive Displacement Forcing Gas Into New Markets

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Source: BENTEK Cell Model

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Supply

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BENTEKENERGY.1 Bcf/d 2009 Avg: 55. Production Slows But Sustains YOY Growth 66 64 62 60 Bcf/d 58 56 54 52 50 Jan Feb Mar Apr May 2009 www.U.6 Bcf/d 2010 Avg: 57.1 Bcf/d Jun 2010 Jul 2011 Aug Sep Oct Nov Dec 2012 YTD 5 Source: BENTEK Supply/Demand Balance History .S.5 Bcf/d 2011 Avg: 61.com 2012 Avg: 63.

1.Massive Shift of Rigs to Oil & Liquids Plays 7/+4 OTHER ROCKIES 214/+133 WILLISTON 2/-1 28/-2 31/+22 POWDER RIVER OTHER MICHIGAN WIND RIVER 6/+0 ILLINOIS MARCELLUS DRY 43/+25 MIDCONTINENT D-J GREEN RIVER 27/+23 UTICA 70/-6 36/+11 13/-10 PICEANCE UINTA SAN JUAN 103/+65 ANADARKO 9/+1 16/-21 42/+24 MARCELLUS WET ARK FAYETTEVILLE 3/-9 42/+14 CALIFORNIA 6/-2 PERMIAN 219/+96 EAST TX OTHER APPALACHIAN ARK WOODFORD 6/-23 75/-34 43/-50 ARKLA 30/-99 470/+251 FT WORTH 14/+3 AL-MS-FL TOTAL 70/+11 TX GULF 24/+9 LA GULF 2006 CHANGE Rig Increases Dry Gas Focused Areas Rig Increases Liquids-Rich/Oil Focused Areas Rig Declines 260/+200 TX GULF EAGLE FORD 95/+11 OFFSHORE +716 Source: BENTEK. 2010 www.com Source: BENTEK Regional Production Monitors. 2012 / Change in rig count from Jan. September 2012 6 . October 2012 Active rig count: October 5.BENTEKENERGY.

IRRs Shift Production to Oil/NGL-Rich Plays Horn -1% 16% Montney WCSB 0% Bakken 56% Pinedale Piceance Uinta 32% 3% Niobrara 4% 51% Cleve/Tonk 98% 94%Miss.BENTEKENERGY. and News Releases 7 .Lime 4% Fayetteville 7% 68% Marcellus Dry Gas Play NGL Play Oil Play www.com Granite 84% 1% Wash Permian 89%Ark/Wood 0% Haynesville 50% Eagle Ford Source: Company Presentations. Quarterly Reports.

Numerous Plays Become Attractive Again at $4 Gas Horn -1% WCSB 0% Pinedale 3% 27% 43% 7% 22%41% Marcellus Fayetteville 1% @ Current $ @ $4 @ $5 www.com 4% 16% 29% Ark/Wood 0% Haynesville 8% 19% 8 Source: Company Presentations.BENTEKENERGY. Quarterly Reports. and News Releases .

BENTEKENERGY.360 $2. Per Rig Length ( Feet) Prod Rate (Mcfd) Source: Southwestern Energy Financials SWN Energy Fayetteville Shale +533% 116.104 $2.673 +8% 1.148 43 4. (Mcf/d) Drill & Complete Costs ($MM) 9 www.985 2. Avg.Technology Gains Drive Gas Production 2007 Q1 2008 Q1 2010 Q1 2011 Q1 +166% +137% +138% -58% 20 8 Drill Time (Days) Wells Per Yr.006 18.com . Lateral 30 Day Ave.6 IP Additions Per Rig Per Yr.8 18 2.

BENTEKENERGY.com 300 200 100 2009 Haynesville 2010 Marcellus 2011 2012 Horizontal Rig Count 10 Source: BENTEK Production Monitors Horizontal Rig Count .Shale Rig Counts Peaked in 2010 Yet Production Has Grown 8 Bcf/d Since 2010 18 16 250 14 12 Bcf/d 10 150 8 6 4 50 2 0 2007 0 2008 Fayetteville www.

Stronger Prices Will Sustain Production Growth 80 70 60 50 Bcf/d 40 30 20 10 0 2008 2009 2010 2011 2012 History www.com +10 Bcf/d By 2017 2013 Forecast 2014 2015 2016 2017 Source: BENTEK Forward Curve Quarterly 2012.Associated Gas.28 11 .09.BENTEKENERGY. Efficiencies.

77 Bcf/d Historic Decline: 0.com Net Exports to Midwest Net Exports to Northeast 12 Source: BENTEK Canadian Observer Suite and CellCast .S.29 Bcf/d ForecastForecast Decline: 0. Substantially Less Reliant on Canadian Gas 10 Historic Exports: 6.67 Bcf/d History 8 Forecast Exports: 4.U.BENTEKENERGY.78 Bcf/d 6 Bcf/d 4 2 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Net Exports To West www.

com 13 .BENTEKENERGY.Demand www.

09.28 14 . Industrial. Mexican Exports Spur Demand Growth 90 History 80 70 60 Bcf/d 50 40 30 20 10 2008 2009 Power www.com Forecast +9 Bcf/d Vs. 2012 2010 2011 2012 2013 2014 2015 Pipe Loss 2016 2017 ResComm Industrial Exports to Mexico Does not include forecast LNG exports Source: BENTEK Forward Curve Quarterly 2012.BENTEKENERGY.Power.

com Source: BENTEK Industrial End Users Report 15 .BENTEKENERGY.Over 70 Industrial Demand Expansions Planned By 2017 www.

09.3 Bcf/d/year 25 20 15 Bcf/d 10 Summer Demand bottoms baseload has out with recession since increased 1.3 Bcf/d Winter & Summer to average 1. 2012.com .28 www.3 Bcf/d above 2012 5 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 16 History: BENTEK Supply/Demand Balance Analytic Report History Forecast: BENTEK Forward Curve Quarterly.BENTEKENERGY.Industrial Demand Forecast to Add 0.

0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 History Forecast 17 www.0 1.09.S. Exports to Mexico 0.0 0.BENTEKENERGY. 2012.com Mexican Demand: SENER History: BENTEK Supply/Demand Balance Analytic Report History Forecast: BENTEK Forward Curve Quarterly.Mexican Exports to Continue Rising 8 7 6 5 Bcf/d 4 3 2 1 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Mexican Demand Up to 1 Bcf/d of Export Expansions By 2014 Bcf/d History 2.5 Projected U.28 .5 2.5 1.

5-Yr YTD: +6. Avg. 2011 YTD: +5.7 Bcf/d 30 Bcf/d 25 20 15 10 5 Yr.YOY Gas Demand from Power Up 5 Bcf/d (23%) 40 35 2012 YTD: 26.0 Bcf/d Vs.BENTEKENERGY.com 2011 Source: BENTEK Supply/Demand Balance History 2012 18 . www.7 Bcf/d Vs.

BENTEKENERGY.98 3.000 12-Month Forward HH Avg $3.Gas Prices Capable of Capturing Market Share 40 35 30 25 Bcf/d 20 15 10 5 0 Thousand Tons Equivalent 3.500 2.000 1. BENTEK Power Burn Report .500 2011 HH Avg $3.000 500 PRB www.2 Bcf/d 2.com CAPP NAPP Illinois Uinta Imports Other 19 Source: EIA.0 Bcf/d 1.63 5.

488 1.9 Bcf/d Gas Burn Equivalent assumes all plants are combined-cycle running at 50% utilization with heat rates of 7.7 Bcf/d Under Construction + Proposed Gas Burn Equivalent 5.com Source: Platts & BENTEK Generation Data 20 . www.293 Gas Burn Equivalent 1.254 6.350 624 85 19.BENTEKENERGY.New Gas-Fired Generation Will Boost Demand Under Construction Year 2013 2014 2015 2016 2017 Total MW 8.5.

9 +1.Tightening Balance May Support Near-Term Prices.8 +1.3 +1.com +0.28 21 .8 -0. Long-Term Supply Surplus Grows 90 80 70 60 Bcf/d 50 40 30 20 10 2008 2009 2010 Supply www.1 2011 2012 2013 2014 2015 2016 2017 Demand (No LNG Exports) Source: BENTEK Forward Curve Quarterly 2012.2 +0.09.9 +0.3 -- -0.1 -0.BENTEKENERGY.

com Source: BENTEK Special Report “LNG Surge” 22 .BENTEKENERGY.8) First Ex Q1 2016.N.0 (0.6 1. Net Ex Q3 2016 www.4 0.America Becomes Net LNG Exporter By 2016 Net LNG Exports (Bcf/d) 1.2 0.8 0.4) (0.

BENTEKENERGY.Regional Dynamics www.com 23 .

com Source: BENTEK Cell Model 24 .Massive Displacement Forcing Gas Into New Markets www.BENTEKENERGY.

Marcellus to Remain Cheapest Gas Due to Production Growth and Takeaway Constraints Northeast Production 16 14 12 10 Bcf/d 8 6 4 2 0 Incremental 7.BENTEKENERGY.4 Bcf/d by 2016 Northeast Inflows 16 14 12 10 Bcf/d 8 6 4 2 0 2008 2009 Canada 2010 Midcon 2011 Southeast LNG Source: BENTEK Northeast Production Monitor and BENTEK Cell Model Legacy Production Lean Marcellus Wet Marcellus Utica 2012 www.com 25 .

1 Bcf/d Projection Annual Decline: 0.2 Bcf/d Annual Decline: 0.Canadian Production Declines But Exceeds 12 Bcf/d 18 Annual Production: 15.29 Bcf/d 14 Bcf/d 12 10 8 2007 2008 Alberta www.BENTEKENERGY.52 Bcf/d Actual 16 Annual Production: 13.com 2009 BC Other 2010 Montney 2011 2012 2013 2014 2015 NWT NB 2016 NS 26 Horn River Saskatchewan Source: BENTEK Canadian Production Monitor Monthly .

com Other Piceance Powder River GR-O Uinta 27 Source: BENTEK Rockies Production Monitor .BENTEKENERGY.Rockies Production To Stay Flat History 12 Forecast 10 8 Bcf/d 6 4 2 0 DJ www.

Anadarko Basin Drives MCP Growth Midcon Producing Production Forecast 8 7 6 5 Bcf/d 4 3 2 1 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 www.com Source: BENTEK Midcon Production Monitor 28 .BENTEKENERGY.

com Source: BENTEK Midcon Production Monitor 29 .8 0.4 0.BENTEKENERGY.1 0.9 0.5 0.7 0.2 0.3 0.0 0.Expansions Will Support Bakken Growth 1.0 Williston Basin Expansions ONEOK Stateline II HESS Tioga Plant Expansion ONEOK Stateline I ONEOK Garden Creek Bcf/d 330 MMcf/d of Planned Processing Expansions Over Next Three Years Gross Production Flared Processing Capacity www.6 0.

com Source: BENTEK Midcon Observer 30 .BENTEKENERGY.Midcon Sources Gas From Other Areas Market Share of Midcon Imports Northeast 1% 2007 MCP 10% Northeast 3% 2012 MCP 13% Rockies 21% Rockies 23% SE Gulf 23% Canada 43% Canada 31% SE Gulf 32% www.

3 Bcf/d per year +0.History www.com Power .2 Bcf/d per year 20 15 Bcf/d 10 5 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 RCI .Forecast Power .Forecast 31 Source: BENTEK CellCast and Midcon Observer .BENTEKENERGY.History RCI .Midcon Demand Stagnant 25 -0.

000 0.0 3-Year Average Gas Burn www.Midcon Market Gas Power Demand Rising 2.000 .000 2.000 40.75 Bcf/d above 2011 YTD +0.9 Bcf/d above 3-Yr YTD 50.0 1.99 Bcf/d +0.5 Bcf/d 30.BENTEKENERGY.0 20.5 10.000 1.000 0.com 2011 Total Power Generation 32 2012 YTD Source: BENTEK Midcon Observer History and Energy Information Administration MW Generated Gas Burn: YTD: 1.5 60.

com Source: ICE/Clearport and BENTEK Natural Gas Price Matrix 33 .00 $0.05 -$0.00 $1.25 Dominion S.05 -$0.25 $0.05 Henry Hub $5.15 -$0.15 -$0.00 $2.35 $0.25 www.15 -$0.Supply Shifts and Production Growth Will Moderate Prices Opal $0.25 $0.35 $0.15 -$0.00 $4.35 Waha $0.05 -$0.BENTEKENERGY.25 $0.35 $0.25 Tetco M3 Chicago $0.15 -$0.05 -$0.00 -$0.35 $0.15 -$0. SoCal $0.00 $3.35 $0.05 -$0.

BENTEKENERGY.CASW Inbound Pipelines Are At ~80% Capacity 12 10 8 Bcf/d 6 4 2 Jan-09 Jul-09 El Paso North TransWestern (W.com Jan-10 Jul-10 El Paso South Kern (Veyo) Jan-11 Jul-11 Jan-12 Jul-12 PG&E (Redwood) Aggregate Capacity 34 Source: BENTEK West Coast Observer .Thoreau) www.

BENTEKENERGY. CellCast. and Forward Curve Projected Flows Forecast CA/SW Demand Growth 35 .Demand & Export Growth Will Test CASW Capacity 12 10 8 Bcf/d 6 4 2 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total Flows Mexican Expansions (Fully Utilized) Capacity www.com Source: BENTEK West Coast Observer.

00 Apr-12 PG&E www.50 3.00 1.com May-12 SoCal Henry Jun-12 Chicago Jul-12 Aug-12 Sep-12 Transco Z6 FGT Z3 36 Source: CME/NYMEX Clearport and BENTEK Natural Gas Price Matrix .50 2.00 0.00 Cash ($/MMBtu) 2.50 1.BENTEKENERGY.California Features Highest Demand Prices 3.50 0.

Another Shift Looms With LNG Exports www.com Source: BENTEK Cell Model 37 .BENTEKENERGY.

07 2012 $0.49 2011 -$0.02 2009 $0.08 2011 $0.07 Tetco M3 2010 $0.12 2012 $0.74 2011 $0.25 2012 $0.37 2011 $3.12 NW Rox 2009 -$0.51 2010 -$0.00 Chicago (Nicor) 2010 $0.08 2009 $3.72 2010 -$0.32 $0.Basis Tightening Continent-Wide AECO 2009 -$0.31 Dominion South 2010 $0.13 2010 -$0.23 2012 -$0.21 2010 $0.22 2009 $0.32 2012 -$0.99 2012 $2.28 2011 -$0.33 2009 SoCal 2009 -$0.82 PG&E 2009 $0.com 2012 prices are average of year-to-date as of 2012.53 38 $0.30 2010 -$0.03 2011 $0.15 Waha 2009 -$0.22 2011 -$0.39 $0.63 2012 $0.29 Transco Z6 2010 $1.95 $0.16 2011 $0.44 Sumas 2009 -$0.21 2011 $0.37 $0.17 2009 $0.92 Henry Hub (Cash) 2010 $4.09.BENTEKENERGY.13 2011 $0.24 .47 2010 -$0.11 2012 -$0.42 2009 2010 Dawn 2011 2012 www.12 2012 $0.99 2012 $0.47 2011 -$0.12 2012 -$0.

Price Outlook www.com 39 .BENTEKENERGY.

28 NYMEX is 30-day average as of 2012.Prices To Remain Range Bound Between $3 to $3.BENTEKENERGY.09.00 $1.50 $1.00 $2.10.00 $0.50 $3.50 U$/MMBtu $2.50 $3.50 $0.00 NYMEX www.14 .com BENTEK 40 Source: BENTEK Market Call 2012.

00 $1.Significant Resistance at $5 Mark $5.00 $4.BENTEKENERGY.com 2015 BENTEK 2016 2017 NYMEX is last seven-day average as of 2012.00 $3.50 $0.14 Source: BENTEK US Forward Curve 2012.28 41 .50 U$/MMBtu $3.00 $0.50 $1.50 $2.00 $2.10.09.00 2013 2014 NYMEX www.50 $4.

com 42 .Key Takeaways  Despite Weak Gas Prices Supply Will Remain Abundant  Structural Demand Growing But Not Pacing Supply  Basis Will Flatten Until LNG Exports Become Established  Until Then Gas Will Struggle to Break $5 Mark www.BENTEKENERGY.

com AIM: BentekRickM Or Contact Any Analyst at 303. OPTIONS OR ANY OTHER USE. RELEASE AND LIMITATION OF LIABILITY: IN NO EVENT SHALL BENTEK BE LIABLE FOR ANY DIRECT.WHETHER BASED ON WARRANTY. EXPRESS OR IMPLIED. INDIRECT. AS TO THE USE OF ANY INFORMATION CONTAINED IN THIS REPORT IN CONNECTION WITH TRADING OF COMMODITIES. FUTURES.1320 DISCLAIMER.214. OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFIT) ARISING OUT OF OR RELATED TO THE ACCURACY OR CORRECTNESS OF THIS REPORT OR THE INFORMATION CONTAINED THEREIN. BENTEK MAKES NO WARRANTY. BENTEK MAKES NO EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANT.com 43 . THIS REPORT IS FURNISHED ON AN “AS IS”BASIS. INCIDENTAL.988. BENTEK DOES NOT WARRANT THE ACCURACY OR CORRECTNESS OF THE REPORT OR THE INFORMATION CONTAINED THEREIN.ABILITY OR FITNESS FOR A PARTICULAR PURPOSE. Rick Margolin Direct: 720. EQUITIES.BENTEK Energy BENTEK is an energy market analytics company focused on the natural gas market and related energy sectors.3807 rmargolin@bentekenergy. www. CONTRACT. SPECIAL. TORT OR ANY OTHER LEGAL THEORY.BENTEKENERGY.