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BENTEK North AmericanMarket Overview & Outlook
To Illinois State UniversityInstitute for Regulatory Policy StudiesSpringfield, IL
October 30, 2012
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Agenda
Drilling Efficiencies and Oil & NGLProduction Will Sustain Annual
Growth of Gas Volumes
Demand Is Responding to LowPrices
Prices Will Be Low and Stable asSupply Continues to OverwhelmDemand
Changes in Intra-Regional FlowDynamics Will Impact Local Prices,
Particularly Out West
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Massive Displacement
Forcing Gas Into New Markets
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Supply
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5www.BENTEKENERGY.comSource: BENTEK Supply/Demand Balance History
U.S. Production Slows But Sustains YOY Growth
50
52
54
56
58
60
62
64
66
J an Feb Mar Apr May J un J ul Aug Sep Oct Nov Dec
B
cf/d
2009 2010 2011 2012 YTD
2010 Avg: 57.1 Bcf /d
2009 Avg: 55.1 Bcf /d
2011 Avg: 61.6 Bcf/d
2012 Avg: 63.5 Bcf /d
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9/+1
214/+133
42/+14
70/-6
14/+3
6/+0
36/+11
28/-2
31/+22
103/+65
6/-23
2/-1
260/+200
27/+23
6/-2
43/+25
24/+9
7/+4
Active rig count: October 5, 2012 / Change in rig count from J an. 1, 2010
Rig Increases Dry Gas Focused Areas
Rig Increases Liquids-Rich/Oil Focused Areas
Rig Declines Source: BENTEK, October 2012
3/-9
95/+11
70/+11
42/+24
75/-34
16/-21219/+96
470/+251
43/-50
13/-10PICEANCE
CALIFORNIA
MICHIGAN
POWDER RIVER
GREEN RIVER
WIND RIVER
OTHER ROCKIES
WILLISTON
SAN JUAN
UINTA
OTHER
APPALACHIAN
D-J
MARCELLUS WET
MARCELLUS
DRY
UTICA
ILLINOIS
ARK FAYETTEVILLE
ARK WOODFORD
OFFSHORE
TX GULF
EAGLE FORD
PERMIAN
ANADARKO
FT
WORTH
AL-MS-FL
LA GULF
EAST
TX
ARKLA
OTHER
MIDCONTINENT
TX GULF
30/-99TOTAL
2006
CHANGE
+716
Source: BENTEK Regional Production Monitors, September 2012
Massive Shift of Rigs to Oil & Liquids Plays
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IRRs Shift Production to Oil/NGL-Rich Plays
89%Permian
Bakken
56%
51%
Niobrara
32%UintaCleve/Tonk
98% Miss.Lime94%
Piceance4%
Eagle Ford
50%
Montney
16%
68%
GraniteWash
84%
Haynesville0%
Pinedale
3%
Ark/Wood
1%Fayetteville4%
Horn-1%
WCSB
0%
Marcellus
7%
Source: Company Presentations, Quarterly Reports, and News Releases
Oil Play
NGL Play
Dry Gas Play
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Numerous Plays Become Attractive Again at $4 Gas
Haynesville0%
Pinedale
3%
Ark/Wood
1%
Fayetteville
4%
Horn-1%
WCSB
0%
Marcellus
7%
Source: Company Presentations, Quarterly Reports, and News Releases
@ $5
@ $4
@ Current $
22%41%
16% 29%
8%19%
27% 43%
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Drill Time(Days)
Wells Per Yr.Per Rig
Avg. LateralLength ( Feet)
30 Day Ave.Prod Rate
(Mcfd)
IP AdditionsPer Rig PerYr. (Mcf/d)
Drill &Complete
Costs ($MM)
2007 Q1
2008 Q1
2010 Q1
2011 Q1
20
8
18
43
2,104
4,985
1,006 $2.8
2,673
18,360
116,148
$2.6
Technology Gains Drive Gas Production
SWN EnergyFayetteville Shale
+137%
-58%
+166%
+8%
+138%
+533%
Source: Southwestern Energy Financials
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0
50
100
150
200
250
300
0
2
4
6
8
10
12
14
16
18
2007 2008 2009 2010 2011 2012
HorizontalRig
Count
B
cf/d
Fayetteville Haynesville Marcellus Horizontal Rig Count
Shale Rig Counts Peaked in 2010
Yet Production Has Grown 8 Bcf/d Since 2010
Source: BENTEK Production Monitors
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0
10
20
30
40
50
60
70
80
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
B
cf/d
History Forecast
Source: BENTEK Forward Curve Quarterly 2012.09.28
Associated Gas, Efficiencies, Stronger Prices
Will Sustain Production Growth+10 Bcf/d By 2017
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0
2
4
6
8
10
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
B
cf/d
Net Exports To West Net Exports to Midwest Net Exports to Northeast
Historic Exports: 6.77 Bcf/dHistoric Decline: 0.67 Bcf/d
Forecast Exports: 4.29 Bcf /dForecast Decline: 0.78 Bcf/d
U.S. Substantially Less Reliant on Canadian Gas
Source: BENTEK Canadian Observer Suite and CellCast
History Forecast
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Demand
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10
20
30
40
50
60
70
80
90
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
B
cf/d
Power ResComm Industrial Exports to Mexico Pipe Loss
Power, Industrial, Mexican Exports
Spur Demand Growth
Does not include forecast LNG exportsSource: BENTEK Forward Curve Quarterly 2012.09.28
+9 Bcf/d Vs. 2012History Forecast
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Over 70 Industrial Demand Expansions
Planned By 2017
Source: BENTEK Industrial End Users Report
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Industrial Demand Forecast to Add 0.3 Bcf/d/year
-
5
10
15
20
25
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Bcf
/d
History: BENTEK Supply/Demand Balance Analytic Report History
Forecast: BENTEK Forward Curve Quarterly, 2012.09.28
Demand bottomsout with recession
Summerbaseload has
since increased1.3 Bcf/d
Winter & Summerto average 1.3
Bcf/d above 2012
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Mexican Exports to Continue Rising
Up to 1 Bcf/d ofExport Expansions By
2014
0
1
2
3
4
5
6
7
8
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
B
cf/d
Mexican Demand
History Projected
0.0
0.5
1.0
1.5
2.0
2.5
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Bcf/d
U.S. Exports to Mexico
History Forecast
Mexican Demand: SENER
History: BENTEK Supply/Demand Balance Analytic Report History
Forecast: BENTEK Forward Curve Quarterl 2012.09.28
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YOY Gas Demand from Power Up 5 Bcf/d (23%)
10
15
20
25
30
35
40
B
cf/d
5 Yr. Avg. 2011 2012
Source: BENTEK Supply/Demand Balance History
2012 YTD: 26.7 Bcf/dVs. 2011 YTD: +5.0 Bcf/d
Vs. 5-Yr YTD: +6.7 Bcf/d
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-
500
1,000
1,500
2,000
2,500
3,000
0
5
10
15
20
25
30
35
40
ThousandT
onsEquivalent
B
cf/d
PRB CAPP NAPP Illinois Uinta Imports Other
Gas Prices Capable of Capturing Market Share
Source: EIA, BENTEK Power Burn Report
12-Month Forward
HH Avg$3.63
5.2 Bcf/d
2011 HH Avg$3.98
3.0 Bcf/d
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New Gas-Fired Generation Will Boost DemandUnder Construction
Year MW
2013 8,254
2014 6,488
2015 1,350
2016 624
2017 85
Total 19,293
Gas Burn Equivalent
1.7 Bcf/d
UnderConstruction +Proposed Gas Burn
Equivalent
5.9 Bcf/d
Gas Burn Equivalent assumes all plants are combined-cycle running at 50% utilization with heat rates of 7.5.Source: Platts & BENTEK Generation Data
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10
20
30
40
50
60
70
80
90
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
B
cf/d
Supply Demand (No LNG Exports)
Tightening Balance May Support Near-Term Prices;
Long-Term Supply Surplus Grows
Source: BENTEK Forward Curve Quarterly 2012.09.28
+0.2 +0.1 -0.3+1.9 +1.8 -0.3
-- -0.9+0.8 +1.1
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N.America Becomes Net LNG Exporter By 2016
(0.8)
(0.4)
0.0
0.40.8
1.2
1.6Net LNG Exports (Bcf/d)
First Ex Q1 2016, Net Ex Q3 2016
Source: BENTEK Special Report LNG Surge
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Regional Dynamics
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Massive Displacement
Forcing Gas Into New Markets
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0
2
4
6
8
10
12
14
16
Bcf/d
Northeast Production
Legacy Production Lean Marcellus Wet Marcellus Utica
Incremental7.4 Bcf/d by 2016
0
2
4
6
8
10
12
14
16
2008 2009 2010 2011 2012
B
cf/d
Northeast Inflows
Canada Midcon Southeast LNG
Marcellus to Remain Cheapest Gas Due to
Production Growth and Takeaway Constraints
Source: BENTEK Northeast Production Monitor and BENTEK Cell Model
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8
10
12
14
16
18
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
B
cf/d
Alberta BC Other Montney Horn River Saskatchewan NWT NB NS
Actual Projection
Canadian Production Declines But Exceeds 12 Bcf/d
Source: BENTEK Canadian Production Monitor Monthly
Annual Production: 15.2 Bcf/dAnnual Decl ine: 0.52 Bcf/d
Annual Production: 13.1 Bcf/dAnnual Decl ine: 0.29 Bcf/d
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Rockies Production To Stay Flat
0
2
4
6
8
10
12
Bcf/d
DJ Other Piceance Powder River GR-O Uinta
Source: BENTEK Rockies Production Monitor
History Forecast
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Anadarko Basin Drives MCP Growth
0
1
2
3
4
5
6
7
8
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Bcf/d
Midcon Producing Production Forecast
Source: BENTEK Midcon Production Monitor
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0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.70.8
0.9
1.0
Bcf/d
Williston Basin Expansions
Gross Production Flared Processing Capacity
ONEOK Garden Creek
ONEOK Stateline I
HESS Tioga Plant Expansion
ONEOK Stateline II
330 MMcf/d of PlannedProcessing ExpansionsOver Next Three Years
Expansions Will Support Bakken Growth
Source: BENTEK Midcon Production Monitor
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Midcon Sources Gas From Other AreasMarket Share of Midcon Imports
MCP10%
Canada
43%SE Gulf23%
Rockies
23%
Northeast1%
2007
MCP13%
Canada31%
SE Gulf32%
Rockies
21%
Northeast3%
2012
Source: BENTEK Midcon Observer
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Midcon Demand Stagnant
-
5
10
15
20
25
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
B
cf/d
RCI - History Power - History RCI - Forecast Power - Forecast
+0.2 Bcf/d per year-0.3 Bcf/d per year
Source: BENTEK CellCast and Midcon Observer
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Midcon Market Gas Power Demand Rising
Source: BENTEK Midcon Observer History and Energy Information Administration
-
10,000
20,000
30,000
40,000
50,000
60,000
0.0
0.5
1.0
1.5
2.0
2.5
3-Year Average 2011 2012 YTD
MWG
enerated
B
cf/d
Gas Burn Total Power Generation
Gas Burn:
YTD: 1.99 Bcf/d+0.75 Bcf/d above 2011 YTD+0.9 Bcf/d above 3-Yr YTD
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-$0.25
-$0.05
$0.15
$0.35
Tetco M3
-$0.25
-$0.05
$0.15
$0.35
Chicago
-$0.25
-$0.05
$0.15
$0.35
SoCal
-$0.25
-$0.05
$0.15
$0.35
Dominion S.
-$0.25
-$0.05
$0.15
$0.35
Waha
$0.00
$1.00$2.00
$3.00
$4.00$5.00
Henry Hub
-$0.25
-$0.05
$0.15
$0.35
Opal
-$0.25
-$0.05
$0.15
$0.35
Chicago
Supply Shifts and Production Growth
Will Moderate Prices
Source: ICE/Clearport and BENTEK Natural Gas Price Matrix
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2
4
6
8
10
12
J an-09 J ul-09 J an-10 J ul-10 J an-11 J ul-11 J an-12 J ul-12
Bcf/d
El Paso North El Paso South PG&E (Redwood)
TransWestern (W.Thoreau) Kern (Veyo) Aggregate Capacity
CASW Inbound Pipelines Are At ~80% Capacity
Source: BENTEK West Coast Observer
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2
4
6
8
10
12
2009 2010 2011 2012 2013 2014 2015 2016 2017
Bcf/d
Total Flows Projected Flows
Mexican Expansions (Fully Utilized) Forecast CA/SW Demand Growth
Capacity
Demand & Export Growth Will Test CASW Capacity
Source: BENTEK West Coast Observer, CellCast, and Forward Curve
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0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
Apr-12 May-12 J un-12 J ul-12 Aug-12 Sep-12
Cash($/MMBtu)
PG&E SoCal Henry Chicago Transco Z6 FGT Z3
California Features Highest Demand Prices
Source: CME/NYMEX Clearport and BENTEK Natural Gas Price Matrix
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Another Shift Looms With LNG Exports
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AECO
2009 2010 2011 2012
-$0.44 -$0.49 -$0.32 -$0.42
Dawn2009 2010 2011 2012
$0.32 $0.37 $0.39 $0.29Sumas
2009 2010 2011 2012
-$0.13 -$0.28 -$0.11 -$0.12
PG&E
2009 2010 2011 2012
$0.21 $0.16 $0.25 $0.33
SoCal
2009 2010 2011 2012
-$0.30 -$0.13 $0.07 $0.15
Waha
2009 2010 2011 2012
-$0.51 -$0.22 -$0.12 -$0.08
Henry Hub (Cash)
2009 2010 2011 2012
$3.92 $4.37 $3.99 $2.53
Dominion South
2009 2010 2011 2012
$0.31 $0.21 $0.12 $0.02
Tetco M3
2009 2010 2011 2012
$0.72 $0.74 $0.63 $0.22
Transco Z6
2009 2010 2011 2012
$0.95 $1.03 $0.99 $0.47
NW Rox
2009 2010 2011 2012
-$0.82 -$0.47 -$0.23 -$0.17
Chicago (Nicor)
2009 2010 2011 2012
$0.00 $0.08 $0.12 $0.07
Basis Tightening Continent-Wide
2012 prices are average of year-to-date as of 2012.09.24
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Price Outlook
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$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
U
$/MMBtu
NYMEX BENTEK
Prices To Remain Range Bound Between $3 to $3.50
Source: BENTEK Market Call 2012.09.28
NYMEX is 30-day average as of 2012.10.14
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$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
2013 2014 2015 2016 2017
U$/MMBtu
NYMEX BENTEK
Significant Resistance at $5 Mark
NYMEX is last seven-day average as of 2012.10.14Source: BENTEK US Forward Curve 2012.09.28
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Key Takeaways
Despite Weak Gas PricesSupply Will Remain
Abundant
Structural Demand GrowingBut Not Pacing Supply
Basis Will Flatten Until LNGExports Become Established
Until Then Gas Will Struggle
to Break $5 Mark
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BENTEK Energy
BENTEK is an energy market analytics company focusedon the natural gas market and related energy sectors.
Rick Margolin
Direct: 720.214.3807
AIM: BentekRickM
Or
Contact Any Analyst at 303.988.1320
DISCLAIMER.THIS REPORT IS FURNISHED ON AN AS ISBASIS. BENTEK DOES NOT WARRANT THE ACCURACY OR CORRECTNESS OF THE REPORT OR THEINFORMATION CONTAINED THEREIN. BENTEK MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE USE OF ANY INFORMATION CONTAINED IN THIS REPORT INCONNECTION WITH TRADING OF COMMODITIES, EQUITIES, FUTURES, OPTIONS OR ANY OTHER USE. BENTEK MAKES NO EXPRESS OR IMPLIED WARRANTIES ANDEXPRESSLY 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 CONSEQUENTIALDAMAGES (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.