Shale Production & Technology: Unconventionals Reshape The US & Global Natural Gas Markets

Presented To:

Consumer Energy Alliance
Natural Gas Committee Washington DC
March 10, 2011

Presentation Outline
The Current Market: Demand & & Production Are Current Market: Demand Production Are Growing Growing Productivity Gains: Will They Continue? Prices: Why Don’t Producers Stop Drilling? Growing Production: Implications for Basis and Flows Forward Curve Projection Conclusions

BENTEKENERGY.COM

2

Major Active Oil and Gas Plays
Horn River Montney Western Sedimentary Basin Williston/Bakken PRB Gr River/ Jonah-Pinedale DJ/Niobrara Marcellus Uinta Piceance Woodford San Juan Fayetteville Anadarko/ G Wash Haynesville Barnett Permian Eagle Ford
www.bentekenergy.com
3

US Production Is At Record Levels
Average Daily Consumption (Bcfd) Comparison of Marketed Production 70.0 65.0 60.0 55.0 50.0 45.0 Q-1 Jan 1/1 2/1 3/1 4/1Apr 5/1 Q-2 6/1 7/1Jul8/1 Q-3 2008 2009 2010 2011 Q-4 Oct 9/1 10/1 11/1 12/1 -2% 5% 1% 5% TD 7%QTD

Pre-2010 US Production High

BENTEKENERGY.COM Data through March 7, 2011

Source: BENTEK Supply and Demand Report

4

So Far In 2011 Production Growth Is Outstripping Demand Growth
2011 versus 2010* (Bcf)
Dry Prod LNG CN Imports Cum Supply Mex Power Industrial Exports Res/ Com Cum Demand

3.1 1.9 0.3 -0.3 -0.9 -0.1 -0.9 2.1 1.4

1.9 – 1.4 => 0.5 Bcfd More Into Storage On Average In 2011 YTD
*As

of March 9, 2011
Source: BENTEK Supply Demand Report
5

BENTEKENERGY.COM

Storage Inventories Are Still High
Storage Inventory Thru 2/25/2011 (Bcf)
4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 200 100 0 -100 -200
Oct 7 Change In Inventory ( 2010-2009)

Impact of Cold Weather

Impact of Hot Weather

+8 On 2/25
Nov 6 Dec 4 Jan 7

BENTEKENERGY.COM

2009 Inventory 2011 Inventory

2010 Inventory Five Year Max

6

Presentation Outline
The Current Market: Demand & Production Are Growing Productivity Gains: Will They Continue? Prices: Why Don’t Producers Stop Drilling? Growing Production: Implications for Basis and Flows Forward Curve Projection Conclusions

BENTEKENERGY.COM

7

Historic Relationship Between Rig Count & Production No Longer Holds
3,000 2,500 Active Rig Count 2,000 1,500 1,000 500 0 Jan-07 Jan-08 Jan-09 Jan-10 Apr-07 Jul-07 Oct-07 Apr-08 Jul-08 Oct-08 Apr-09 Jul-09 Oct-09 Apr-10 Jul-10 Oct-10 Gross Production (wet) Active Rig Count 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 Average Daily Production (Bcfd)

BENTEKENERGY.COM

Data through December 31, 2010

Source: BENTEK, RigData

8

BENTEKENERGY.COM

9

Longer Laterals & Increased Fracing Drive Production Gains
Experience of Newfield Exploration Co in Woodford 7,500 Average Lateral Length (Ft) 6,000 9 Stages 4,500 3,000 1,500 0 2006 2007 2008 2009 5 Stages 5 Stages 7.0 11 Stages6.0 5.0 4.0 3.0 2.0 1.0 0.0 Estimated Ultimate Recovery (EUR) (Bcfe)
10

BENTEKENERGY.COM

Concerns About Fracing Are Misplaced

Cement Casing Water Aquifer

Several Thousand Feet of Impermeable Rock Frac

BENTEKENERGY.COM

11

Early Wells Are Monitored
Marcellus Well Frac Monitor

BENTEKENERGY.COM

Source Halliburton, 2010

12

Geology Is Another Factor
Pinedale Production Heat Map
Average 36 Month Prod > 2,500 1,650 – 2,500 1,430 – 1,650 1,100 – 1,430 < 1,100

BENTEKENERGY.COM

13

Multi-Well Pad Drilling Reduces Land Disruption

BENTEKENERGY.COM

14

Haynesville Drilling Is Intended To Hold Leases . . .

BENTEKENERGY.COM

15

And, Creates A Smaller Impact Footprint
7 5

3 1 2 4

6 8

www.bentekenergy.com

16

Technological Advances Enable Multi-Well Pads & Increase Recovery Rates
Drilling Unit Boundary Legal Activity Limit

17 Stage Frac

12 Stage Frac

5 Additional Frac Stages = 1.250 MMcf EUR / Well @ $4.50 per Mcf = $5,625,000
www.bentekenergy.com
17

Presentation Outline
The Current Market: Demand & Production Are Growing Productivity Gains: Will They Continue? Prices: Why Don’t Producers Stop Drilling? Growing Production: Implications for Basis and Flows Forward Curve Projection Conclusions

BENTEKENERGY.COM

18

Why Is Production Growing With Low Prices?
$14 $12 $10

Avg. 2008 - $8.85

$/MMBTU

$8 $6 $4 $2 $0

Since 1/1/09 - $4.15 Avg. 2007 - $6.94

BENTEKENERGY.COM

Source: ICE

19

Active Rig Additions Since Recent Low - May 2009
+114
+22 -3 +13 -1 +10 -7 +9 +36 +8 +2

+2 +4 +2

North-South “Liquids” Fairway Developing
+5

+102

+131

+11

-3

+61

+262

+26 +10 +9 +24

+4

Oil-Prone

Gas-Prone
+3

+98

+723

+218
Not all rigs/basins shown on map, total lower than 884

Source: RigData, BENTEK

20

Distribution Of Value For Typical Sprayberry Well In The Permian Basin

BENTEKENERGY.COM

21

The Higher The Oil:Gas Ratio, The Less Value Accrues To Natural Gas

BENTEKENERGY.COM

22

Oil Will Drive Permian Gas Production
Actual & Projected Permian Production
5.50 5.25 5.00 4.75 Bcf/d 4.50 4.25 4.00 3.75 3.50 May 2009 Forecast May 2010 Forecast

Associated Gas

1.1 Bcf/d

BENTEKENERGY.COM

23

Comparative Rates Of Return
6%

Horn River

Montney

10 %

IRR – Gas Wells @ $3.50 Oil @ $80.00
100+% Bakken (O)

Pinedale
14 % Piceance 6%

DJ (W) Woodford G Wash (D)
12 % 8% 4% 1% 6% 27%

Marcellus

17 %

S Juan -2%

Fayetteville

Permian (W) -18%

Bank or Lower Weak (8%-20%) Good (> 20%)

Barnett

8%

Haynesville

Eagle Ford (D)
Dec. 5, 2010 24

BENTEKENERGY.COM

Comparative Rates Of Return
6%

Horn River

10%

IRR – Gas Wells @ $3.50 Oil @ $80.00
100+% Bakken (O)

Montney Pinedale
14%

DJ (W) Woodford G Wash (W)
100+% 8% 6% 27%

Marcellus 17%

Piceance 6% S Juan -2%

Fayetteville

Good (> 20%)

Permian 100+% 100+% (Combo) Bank or Lower Barnett Weak (8%-20%) Combo
100+%

8%

Haynesville

Eagle Ford (Combo)
Dec. 5, 2010 25

BENTEKENERGY.COM

Comparative Rates Of Return
9%

Horn River

16%

IRR – Gas Wells @ $4.00 Oil @ $80.00
100+% Bakken (O)

Montney Pinedale
22%

DJ (W)
29%

Marcellus 28%

Piceance

13%

Woodford G Wash (W)
100+% 12% Fayetteville 12% 15%

S Juan 1%

Good (> 20%)

Permian 100+% 100+% (Combo) Bank or Lower Barnett Weak (8%-20%) Combo
100+%

Haynesville

Eagle Ford (Combo)
Dec. 5, 2010 26

BENTEKENERGY.COM

Comparative Rates Of Return
19%

Horn River

30%

IRR – Gas Wells @ $5.00 Oil @ $80.00
100+% Bakken (O)

Montney Pinedale
43%

DJ (W)
30%

Piceance

Woodford G Wash (W)
100+% 21% 26%

32%

Marcellus 68%

S Juan 7%

Fayetteville

Good (> 20%)

Permian 100+% 100+% (Combo) Bank or Lower Barnett Weak (8%-20%) Combo

38%

Haynesville

100+%Eagle Ford

(Combo)
BENTEKENERGY.COM
Dec. 5, 2010 27

Presentation Outline
The Current Market: Demand & Production Are Growing Productivity Gains: Will They Continue? Prices: Why Don’t Producers Stop Drilling? Growing Production: Implications for Basis and Flows Forward Curve Projection Conclusions

BENTEKENERGY.COM

28

In 2007 Price Signals Pulled Gas East
$(0.44)

$(0.11) $(0.05) $(2.90)

$1.49 $.08

Go East!
$(0.81) $(0.53) $(0.59) $(0.45) $(0.32) $6.94

$0.27

$0.25

www.bentekenergy.com

29

As A Result, Many New Pipelines Were Built Between 2007 & 2009

REX – 1.8 Bcf/d
Negative Basis (prices less Than Henry Hub)

6.4 Bcf/d
Texas Gas

Positive Basis (prices greater than Henry Hub)

www.bentekenergy.com

30

Producers Now Have Options & Face Intense Gas-on-Gas Competition
$(0.15)

Average Daily Basis (August 1, 2009 – October 13, 2010)
$0.82

$(0.08) $2.47 $0.27 $(0.43) $0.14 $(0.19) $(0.02) $(0.12) $0.09 $0.15

$0.67

WestGo East ??? $(0.11)
$(0.03) $4.26

North

$0.13 $0.02

www.bentekenergy.com

31

BENTEK Appalachia Production Projections
8 7 6 Bcf 5 4 3 2 1

Kentucky Virginia
BENTEKENERGY.COM

New York West Virginia

Ohio Q4 2009

Pennsylvania
Source: BENTEK
32

Market Implications of Production Trends
Canada

Rockies

Marcellus

Anadarko/ Permian

SE Supply Area

BENTEKENERGY.COM

33

Presentation Outline
The Current Market: Demand & Production Are Growing Productivity Gains: Will They Continue? Prices: Why Don’t Producers Stop Drilling? Growing Production: Implications for Basis and Flows Forward Curve Projection Conclusions

BENTEKENERGY.COM

34

Production Will Continue To Grow
Lower 48 Dry Gas Production Forecast (Bcf)
67.0 64.0 61.0 58.0 55.0 52.0 49.0 46.0 43.0 40.0
SE/Gulf Unconventional (Haynesville, Fayetteville, Eagle Ford, Granite Wash) + Marcellus

4.3% Avg Daily Growth + 2.4 Bcf/d
(Dec 10 – Dec 12)

9.1% Avg Daily Growth + 5.2 Bcf/d
(Dec 10 – Dec 15)

BENTEKENERGY.COM

35

Coal Switching May Add Significant Demand

West
(Bcfd) 0.3 0.5

Midwest
(Bcfd) 0.8 0.5 0 0.2

Northeast
(Bcfd) 0.7 0.4 0.1 $5.00 $4.00 $3.00 $2.00 1.7 1.3 1.0

0.1

0.2

$5.00 $4.00 $3.00 $2.00

$5.00 $4.00 $3.00 $2.00

Total US
(Bcfd) 1.7 0.7 2.7

4.0

Southeast
(Bcfd) 0.9 0.5

$5.00 $4.00 $3.00 $2.00

$5.00 $4.00 $3.00 $2.00

36

BENTEK Total N. Gas Demand Forecast Through 4/1/2011
120 100 80 Bcf/d 60 40 20 0 1/1
BENTEKENERGY.COM

2008 2010 2011 Forecast 2/1 3/1 4/1 5/1 6/1 7/1

2009 2010 Bal Forecast

8/1

9/1

10/1 11/1 12/1
37

BENTEK Dry Gas Production Forecast Through 4/1/2011
70

60 Bcf/d 50 2008 2010 2011 Forecast 40 1/1
BENTEKENERGY.COM

2009 2010 Bal Forecast

2/1

3/1

4/1

5/1

6/1

7/1

8/1

9/1

10/1 11/1 12/1
38

NA Should Be Long Next Summer
Canada 0.4 (0.4) Short 0.8

West (0.1) 0.0 Long 0.1

Rockies (0.1) (0.1) Even

Midcontinent 0.6 0.0 Short 0.6

Northeast 0.8 1.1 Long 0.3 Total NA

Southeast 0.2 1.4 Long 1.2

Demand - 1.8 Bcfd Supply - 2.0 Bcfd
Long 0.2 Bcfd

BENTEKENERGY.COM

39

We Believe The Forward Curve Is Overstated
NYMEX Futures and BENTEK Forecast $6.50 $6.00 $5.50 $5.00 $4.50 $4.00 $3.50 $3.00 $2.50
NYMEX Futures BENTEK Forward Curve

BENTEKENERGY.COM

40

What Keeps N. Gas Prices Off The Floor?
Improved ability of industry to market the benefits of gas Increased power demand EPA – criteria pollutants (SO2, NOX, Mercury) Increasing pressure on wind/other renewables Additional demand from feedstock consumers Dow Chemical plans to increase its ethane cracking capacity 20 – 30% over next 2-3 years.

Increasing use in transportation market
Exports Kitimat Chenier MOU with Morgan Stanley Chenier MOU with ENN (XinAo Gas) Development of a global trading culture/market
BENTEKENERGY.COM
41

Conclusions
Technology is radically transforming the natural gas and oil businesses. Operational and development process efficiency will increasingly define winners and losers. The disparity between haves and have-nots will widen. Global markets will ultimately be impacted. The pipeline network functions as a national grid, shifting capacity in response to market need. The value of FT is diminished. Oil and liquids exploration will place a floor under gas production. BENTEK believes the forward curve will continue to drop. QE and other misguided government policy might arrest the fall (i.e. cause prices to rise). Increased power gen, industrial, transport and export demand will hold prices in the $4.00 to $4.50 range for years to come. Finally, consumers should be the principle beneficiaries. Natural gas is poised to provide a cost effective solution for our nation’s energy needs. It is abundant, clean, cost effective and domestic. If the market is allowed to prevail, natural gas will be the base of our energy future for the foreseeable future.
BENTEKENERGY.COM
42

Questions?

Porter Bennett
32045 Castle Court, Suite 200 Evergreen, CO 80439 Office: 303-988-1320 Toll Free: 888-251-1264
pbennett@bentekenergy.com

BENTEKENERGY.COM

43

Sign up to vote on this title
UsefulNot useful