Muhlenkamp & Company, Inc.

Intelligent Investment Management
Natural Gas:
An Energy Game Changer
Ron Muhlenkamp
© 2013. All rights reserved.
Natural Gas: An Energy Game Changer
• Consumer
• Environmentalist
• Landowner
• Investor
Natural Gas: An Energy Game Changer
• Consumer

Source: Bloomberg; Oil; Generic 1st 'CO' Future, Natural
Gas; Generic 1st 'NG' Future delivery to Henry Hub
Natural Gas
Crude Oil
1995–3/17/2014 (Daily)
How Shale Gas Benefits the Homeowner
Source: Muhlenkamp & Company, Inc.

Percent of Total U.S. Electricity
Net Generation by Energy Source
2012
Source: U.S. Energy Information Administration; Electric Power Monthly, Tables 7.2b and 8.2b
50%
25%
25%
Home Heating
Industry
Utilities
Historical Natural Gas Consumption
in the U.S.
Source: Muhlenkamp & Company, Inc.
Working Gas in Underground Storage Compared with 5-year Range
Week ending March 7, 2014
Note: The shaded area indicates the 5-year range between the minimum and maximum values for the weekly series.
Between 2009-2014.

Source: U.S. Energy Information Administration; Form EIA-912, “Weekly Underground Natural Gas Storage Report.”
Last 24 Months
5-year average
Energy Source

Source: Bloomberg
Other U.S. “Consumers” of Natural Gas
• Utilities
• Over-the-Road Trucking
• Industry Feedstock
• Manufacturers
Natural Gas: An Energy Game Changer
• Consumer
• Environmentalist

Chemical Composition of Selected Fuel Sources
Source: Muhlenkamp & Company, Inc.
Acres of land needed to produce the fuel to
generate enough electricity to serve 1,000
households for one year
Land Usage: Favors Natural Gas for Power Generation
Source: U.S. Energy Information Administration, Carbon Dioxide Emissions Coefficients Report
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Carbon dioxide emission factors for electric power generation
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Source: U.S. Energy Information Administration, Monthly Energy Review.
Note: Reflects total carbon dioxide emissions in metric tons by month.
U.S. Carbon Dioxide Emissions from Coal
1972-Nov2013 (Monthly)
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Ron Muhlenkamp & Company
U.S. energy-related CO2 emissions in early 2012 lowest since 1992

Source: U.S. Energy Information Administration, Monthly Energy Review.
Note: Reflects total carbon dioxide emissions in metric tons by quarter.
What about the Water?
1) Into well
2) Flow back
3) Water table
4) Burn Methane (CH
4
)
5) Ethanol (C
2
H
6
O)


Water into the Well
It takes 5 million gallons to frac 1 well
which drains 80 acres





ft
3

7.5 Gals.
Acre
43,560 ft
2
1
80 Acres
12 Inches
ft
2.3 Inches of Rain
X
=
X
Source: Muhlenkamp & Company, Inc.
Flow Back
• Center for Sustainable Shale
Development (CSSD)
• Into subsequent wells
Water Table…
Burn Methane, CH
4
CH
4
+ 2O
2
→ CO
2
+ 2H
2
O
1 Billion ft
3
→ 11 Million Gallons of H
2
O

Source: Muhlenkamp & Company, Inc.
Fracturing: What about the Water?

$5 Million + 5 million gallons H
2
O =
88 Million Gallons of H
2
O
→ 83 Million Gallons of H
2
O @ 6¢/Gallon
= Free Energy
Source: Muhlenkamp & Company, Inc.
Ethanol: What about the Water?
• ≈ 30% of U.S. corn crop is used for ethanol
production
• 25-30” of rainfall are required to grow corn
• Average corn yield of 1 acre of farmland
≈ 147 bushels
• 1 bushel of corn ≈ 2.77 gallons of ethanol
• 677,724 gallons of water ≈ 450 gallons of
ethanol

Source: Muhlenkamp & Company, Inc.
Fracturing vs. Ethanol:
What about the Water?
• Marcellus gas well uses 0.16 gallons of
water to generate the energy equivalent
of 1 gallon of gasoline.
• Ethanol requires 2,259 gallons of water to
produce the energy equivalent of 1 gallon
of gasoline.
Shale gas is 14,000 times more water-efficient
in the production of energy than corn ethanol.
Source: Muhlenkamp & Company, Inc.
Source: MarcellusGas.org
Examples of Typical Shale Fracturing Mixture Makeup
Source: AXPC
Natural Gas: An Energy Game Changer
• Consumer
• Environmentalist
• Landowner

Natural Gas in Pennsylvania
Round I
Source: sjvgeology.org
Source: Oil and Gas Field Atlas of The Butler Quadrangle
Source: Oil and Gas Field Atlas of The Butler Quadrangle
Natural Gas in Pennsylvania
Round II
6 Laterals (wells) seen here

Range Resources (Dry Gas):
1) Average distance of lateral in 2013: 5,000 feet
2) Currently drill with 25 fracture stages

Source: Oil and Gas Field Atlas of The Butler Quadrangle
Source: Range Resources; Pennsylvania’s Marcellus Gas Play Its History, Potential, and Challenges, 8/31/11
Total Disturbance during drilling, including access road, drilling pad and required pipeline infrastructure:
•Horizontal (yellow) develops 1,000 acres per pad with 1% surface disturbance
•Vertical (purple boxes) on 1,000 foot spacing develop 23 acres per well with 19% total surface disturbance
(old industry method)

10 Laterals (wells) seen here

Range Resources (Dry Gas):
1) Average distance of lateral in 2013: 5,000 feet
2) Currently drill with 25 frac stages
Source: Muhlenkamp & Company
Source: National Geographic
Source: Range Resources
Source: Range Resources: October 29, 2013; Company Presentation

U.S. Natural Gas Pipeline Network
October 29, 2013; Company Presentation
Source: Range Resources
October 29, 2013; Company Presentation
© Muhlenkamp & Company, Inc. 2013
* Typical Marcellus Shale dry gas well pad as of 8/1/13: assumes 58 year well life, 80 acre spacing, 6 Bcfe EUR
(Estimated Ultimate Recovery) per well, 8 wells total, $4/MMBtu Dry Gas Price.
Per Acre Estimate of Pre-Tax Cumulative Dollars Received by the
Landowner Over the Life of a Typical Marcellus Shale Dry Gas
Well in Southwestern Pennsylvania*
© Muhlenkamp & Company, Inc. 2013
* Typical Marcellus Shale dry gas well pad in SW Pennsylvania as of 8/1/13
** EUR = Estimated Ultimate Recovery
Estimate of Pre-Tax Cash Flows to the Landowner
from a Typical Marcellus Shale Dry Gas Well
in Southwestern Pennsylvania*
Natural Gas: An Energy Game Changer
• Consumer
• Environmentalist
• Landowner
• Investor

Source: Bloomberg; Oil; Generic 1st 'CO' Future, Natural
Gas; Generic 1st 'NG' Future delivery to Henry Hub
Natural Gas
Crude Oil
1995–3/17/2014 (Daily)
Source: Examiner.com; 12/6/12
Source: Bloomberg
America’s Natural Gas Highway®
The Clean Energy Solution

Natural Gas: Diesel Replacement
for America’s Trucking Corridors
Source: Clean Energy Fuels; http://www.cleanenergyfuels.com/buildingamerica.html
What’s Next
Changing Supply/Demand Dynamics
Natural Gas Liquids (NGLs)
• Emphasis on products downstream of ethylene.
• Liquefied Petroleum Gas (LPG) exports continue to increase
with U.S. playing a key role.
Crude Oil
North American production continues to grow mostly from
unconventional resources.
• U.S. refined product exports continue to grow, enabled by
increasing crude oil supplies.
Natural Gas
• Markets will grow substantially, including power generation,
and Liquefied Natural Gas (LNG) exports.
• Shut-in wells ready to respond to increases in prices, likely
assuring low prices for years to come.
Natural Gas
Exploration & Production
Cabot Oil & Gas
Chesapeake Energy
Range Resources
Rex Energy
Southwestern Energy

Oil & Gas Services
Halliburton Company
Schlumberger LTD
Baker Hughes

Distribution
Clean Energy


Engine Conversion
Westport Innovations
Fuel Systems
American Power Group

LNG Plant Construction
Chicago Bridge
Fluor Corp.
KBR Inc.

Feedstock
U.S. chemical companies
Muhlenkamp & Company, Inc.
Intelligent Investment Management
Questions and
Responses
Muhlenkamp & Company, Inc.
Intelligent Investment Management
The comments made by
Muhlenkamp & Company are
opinions and are not intended to
be investment advice or a forecast
of future events.
Muhlenkamp & Company, Inc.
Intelligent Investment Management
© 2013. All rights reserved.