Peter Beutel

President

Cameron Hanover
 Changing Paradigms in Oil & Gas

The Role of Investment in Trading

Shale Production & Its Impact on Gas – and Possibly Oil

The Deepwater Horizon – Fallout from the Oil Spill

Oil & Gas Prices

Used to be set by TRC

Then by Seven Sisters

Then by Opec

After 1980, prices were set by open

outcry on the Nymex, and were
Influenced by supply & demand
Through the 1980’s, 1990’s and the first part of this new century

Prices were influenced most by supply & demand

Speculators had their days, but their decisions were

influenced by supply & demand, or by the charts – which
typically reflected prices made by supply & demand
new century, that all changed

The seeds had been planted three decades earlier …

With the concept of putting 10% in commodities

The theory was to diversify risk …
… and protect against inflation …

But it worked out

very differently

It added to volatility …
It created convergence
with equities …
And it created inflation …
 Instead of protecting companies
against volatility and risk

Exchange-Traded Funds and Index Funds

Created a brand new set of problems
 Spot Nymex Crude Oil

130.00

90.00

50.00

10.00
2 2 2 2 2 2 3 3 3 3 3 3 4 4 4 4 4 5 5 5 5 5 5 6 6 6 6 6 7 7 7 7 7 7 8 8 8 8 8 9 9 9 9 9 9
00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00
8/2 4/2 7/2 4/2 6/2 2/2 6/2 1/2 7/2 0/2 3/2 1/2 9/2 2/2 9/2 1/2 3/2 1/2 7/2 0/2 5/2 8/2 2/2 1/2 4/2 1/2 3/2 5/2 5/2 0/2 5/2 8/2 1/2 4/2 1/2 5/2 0/2 3/2 5/2 2/2 8/2 1/2 7/2 9/2 2/2
1/ 3/1 5/1 7/2 9/2 12/ 2/ 4/1 6/1 8/2 0/2 2/3 3/ 5/1 7/1 9/2 1/2 2/ 4/ 6/1 8/1 0/1 2/2 3/ 5/ 7/1 9/1 1/1 1/2 3/3 6/ 8/ 0/1 2/1 2/2 4/2 6/3 9/ 11/ 1/1 3/1 5/2 7/2 9/2 12/
1 1 1 1 1 1 1 1

The real problem came to ahead in August, 2007. The

market that reacted to Hurricane Katrina in 2005 was the
old market. By August 2007, we had a new market
 After breaking
145.00 Front Month Crude Oil $80 in August,
2007, the market
was owned by
135.00
Wall Street

125.00 With investors

plowing money
115.00
into ETF’s and
index funds, oil
prices kept going
105.00 higher and
higher. They
reached a high
95.00
3/25/2008 5/4/2008 6/13/2008
over $147/bbl.
 140.00

It seemed really 120.00

good for
producers … at 100.00
first. But once
the investors got 80.00

out, it turned out

to be just as bad 60.00

or worse for Front Month Crude Oil

suppliers of crude 40.00

as it had been for

consumers. 20.00
9/11/2008 10/21/2008 11/30/2008 1/9/2009
 Since March, 2009
Prices have been
ollowing the same script
Some days, prices follow
supply and demand

On other days, they follow

equities or currencies or the
general state of the
economy.
 On many days, now, oil prices
represent large piles of money
chasing smaller, large piles of money
more than supply or demand
On other days, prices follow oil supply in the morning …

And currencies in the afternoon

Margin calls can
be huge, and can
keep legitimate
producers from
hedge-selling
forward.
The existing paradigm of following
equities, currencies or economic
activity, of huge amounts of
money from unions, college
foundations or sovereign wealth
funds pushing oil prices higher
than they really should be –
based on supply and demand
hurts end-users and consumers ,,,
and is a major reason so many
end-users support financial
reform.
 Financial reform carries its
own set of uncertainties

But it is just as clear that end-users

and consumers cannot survive oil
prices at $147 a barrel.

And producers cannot survive too

many declines to $34 or less given
existing costs.
Most traders from a corporate oil
background would prefer to see oil prices
influenced by supply and demand again …

Wall Street wants to have

unlimited access to oil and gas
futures …

A compromise is likely to
be reached
As it stands right now, oil
prices are artificially high,
while natural gas prices are
artificially low because of
heavy buying in oil futures
and selling in gas futures by
managed money accounts.
In the last year and a half, oil prices have risen,
largely as a result of the influence of equities

For most of 2010, oil prices followed equities

higher. When they were not following
equities, they were following currencies.

That ended – briefly – in May …

But lately, the pattern has re-emerged.
While crude oil prices have been rising
on fund buying, Natural gas prices have
been falling on fund selling
In Crude Oil Futures,
Funds are long 158,544
contracts and
Short 103,428 contracts

That is more than

one and a half long
for each short
In Natural Gas, There Are
197,029 contracts held
Short against 86,453 held
long by Funds

That is more than two

short for each long
That helps explain why Natural Gas prices
remain so stubbornly low
As Dramatically as Trading has changed, Shale
has changed Natural Gas More
Shale Gas has made a
huge difference in the
supply of Natural Gas

No one single factor has done more to

change the gas business this century

And it seems that shale oil is about

to do the same with oil
 The opportunities for Oil & Gas
Services Companies are likely to
increase spectacularly over the
next decade, as more shale
formations become available for
development.
 A host of new
opportunities and
challenges will become
available and apparent in
the next ten years

A large number of
these will be in areas
once thought
inaccessible, or
needing every kind of
infrastructure
imaginable
Companies will be looking
for Creative Solutions

In Technology

Finance

And Staffing
It will rarely be a case of one size fitting all

So Creativity and Understanding

of Companies will be critical
The Deepwater Horizon Has Changed
Everything in Offshore Drilling

It will create an entirely new set of

opportunities and challenges