new crudes for new u.s. & export demand - stratas...

UPSTREAM | MIDSTREAM | DOWNSTREAM | FUEL & TRANSPORT

New Crudes for New U.S. & Export Demand SPE-Gulf Coast Section General Meeting Study Group Luncheon - Houston Petroleum Club

Greg Haas, Director of Integrated Energy, Stratas Advisors

DISCLAIMER

This Presentation contains forward-looking statements, including, but not limited to, statements regarding the value and effectiveness of Stratas

Advisors’ services, that involve risks, uncertainties, assumptions and other factors which, if they do not materialize or prove correct, could cause

Stratas Advisors results to differ materially from those expressed or implied by such forward-looking statements. All statements, other than

statements of historical fact, are statements that could be deemed forward-looking statements, including statements containing the words

"predicts," "plan," "expects," "anticipates," "believes," "goal," "target," "estimate," "potential," "may," "will," "might," "could" and similar words.

Stratas Advisors intends all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained

in Section 21E of the Exchange Act and the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those

projected in such statements due to various factors, including but not limited to: risks and uncertainties inherent in our business; our ability to

attract new customers and retain existing customers; our ability to effectively sell, service and support our products; our ability to manage our

international operations; our ability to compete effectively; our ability to develop and introduce new products and services or enhancements to

existing products; our ability to continue to promote and maintain our brand in a cost-effective manner; our ability to manage growth; our ability to

attract and retain key personnel; the scope and validity of intellectual property rights applicable to our products; adverse economic conditions in

general and adverse economic conditions specifically affecting the markets in which we operate.

Past performance is not necessarily indicative of future results. The forward-looking statements included in this presentation represent Stratas

Advisors’ views as of the date of this presentation. Stratas Advisors anticipates that subsequent events and developments will cause its views to

change. Stratas Advisors undertakes no intention or obligation to update or revise any forward-looking statements, whether as a result of new

information, future events or otherwise. These forward-looking statements should not be relied upon as representing Stratas Advisors’ views as of

any date subsequent to the date of this presentation.

© 2016 Stratas Advisors. All rights reserved. Stratas Advisors is a trademark or registered trademark of Hart Energy Publications, LLLP in the

U.S. and other countries. Other company names, product names and company logos mentioned herein are the trademarks, or registered

trademarks of their owners. This material may not be published, broadcast or distributed in whole or part without express written permission of

Stratas Advisors.

© Stratas Advisors. All rights reserved. 2

Introduction – Stratas Advisors

Global strategic insights, energy research and advisory consulting from well to wheels


Who We Are

www.stratasadvisors.com

• Global consulting and advisory firm

• Coverage of the energy sector and related industries

• Focused on helping clients reach decisions and

achieve tangible results

• Clients include IOCs, NOCs, independents, energy

consumers, financial entities and policy-makers

• Research and consulting staff comprises professionals

located in key global energy centers including Houston,

Brussels, and Singapore

• Combined, our team brings 300 years of energy

industry expertise, including

– Petroleum Engineers,

– Geologists

– Process Engineers

– Financial Analysts

http://www.stratasadvisors.com/

New Crudes for New Demand Markets


Overview

• Upstream Crude Oil Production Growth – Forecasts and Plays

• Price Dislocations on Quantity, Quality, and Location x 3

• Key Projects in the Midstream/Downstream Investment Treadmill

• Independence Now


The Mid-Continent Plays include the Barnett, Mississippi Lime, Panhandle, and Woodford plays

Activity: Mid-Continent has second most rigs as of 9/1/2017

Source: Stratas Advisors, Baker Hughes data


Mid-Continent Crude Oil Production Projected To Increase Due To

Woodward Shale Plays

Source: Stratas Advisors forecasts, EIA historical data


Strong Crack Spreads Incentivizing Refineries To Increase Their Runs

-10

-5

0

5

10

15

20

25

30

35

40

45

2010 2011 2012 2013 2014 2015 2016 2017

Refinery Crack Margins @ USGC LLS versus WTI Cushing, $/bbl

WTI 321 @ GC LLS 321 @ GC

Source: Stratas Advisors with Bloomberg dataSource: Stratas Advisors North American Oil Service, Bloomberg data

13000

13500

14000

14500

15000

15500

16000

16500

17000

17500

18000

Refinery Crude Runs, Mbbl/d

5-Yr Range 5-Yr Ave 2017 2016

Source: Stratas Advisors with EIA data Source: Stratas Advisors North American Oil Service, EIA data

• Running WTI in Gulf Coast refineries rather than LLS more valuable for refinery margins

• As 2017 closes, refining margins have grown well above the mid-single digit breakeven levels

• Refiners have responded and have taken refinery crude runs higher vs. year ago and 5 year average


Domestic Crude Demand Strong, May Get Stronger with Expansions

75

80

85

90

95

100

Jan

uar

y

Feb

ruar

y

Mar

ch

Ap

ril

May

Jun

e

July

Au

gust

Sep

tem

ber

Oct

ob

er

No

vem

ber

Dec

emb

er

Refinery Utilization, %

5-Yr Range 5-Yr Ave 2017 2016

Source: Stratas Advisors with EIA dataSource: Stratas Advisors North American Oil Service, EIA data

Refinery Crude Run Expansions in the Presslog

Source: Stratas Advisors North American Oil Service

• Underpinned by strong exports and growing gasoline demand and the favorable economic

margins that result, U.S. refinery utilization is setting new highs or trending at the top end of the 5-

year range (outside of the extraordinary hurricane shutdown period)

• U.S. could potentially add a combined 271 Mbbl/d of processing capacity by 2020


U.S. Exporting 2 MMbbl/d Crude!

Sources: Stratas Advisors North American Oil Service, EIA data

0

500

1000

1500

2000

2500

Jan

ua

ry

Feb

rua

ry

Ma

rch

Ap

ril

Ma

y

Jun

e

July

Au

gust

Sep

tem

be

r

Oct

ob

er

No

vem

be

r

De

cem

be

r

Crude Exports, Mbbl/d

Max-Min 5-Yr Ave 2017 2016Source: Stratas Advisors with EIA data

• Capacity to export should increase while costs decrease when Very Large Crude Carriers

(VLCC) begin loading North American crude for export

• We are watching the reconfiguration of the Louisiana Offshore Oil Port (LOOP) to enable export

shipments of crude

• We are also watching the innovations/improvements by Oxy at the Port of Corpus Christi and by

others elsewhere

2017 U.S. Crude Oil Export Destinations


0

100,000

200,000

300,000

400,000

500,000

600,000

Jan

ua

ry

Feb

rua

ry

Ma

rch

Ap

ril

Ma

y

Jun

e

July

Au

gust

Sep

tem

be

r

Oct

ob

er

No

vem

be

r

De

cem

be

r

Total Commercial Crude Stocks, Mbbl(Down 81 MMbbl since May 2017 peak. SPR also down 25 MMbbls in 2017)

Max-Min 5-Yr Ave 2017 2016

Source: Stratas Advisors North American Oil Service, EIA data

The Great 2017 U.S. Crude Destocking

Underway is a Rapid & Substantial Crude Destocking

• Commercial crude stocks have declined in 7 months of 2017 so far

• After dropping 81 MMbbls since March 2017, U.S. now at 2015 commercial stock levels

• 25 MMbbls of SPR crude have also been sold off year to date with more coming in years ahead

But Why Now in 2017? Why Ramp Exports & Refining so much to destock the crude overhang?


WTI Discount to Brent Re-Emerging

Sources: Stratas Advisors North American Oil Service, Bloomberg data

0

20

40

60

80

100

120

140

2010 2011 2012 2013 2014 2015 2016 2017

WTI Discount to Brent Re-Emerging, $/bbl(Cushing to Coast Pipelines the Problem today as in 2011-2014)

EUCRBRDT Index

USCRWTIC Index

Differential has widened to more than $6/bbl on a barrel of crude worth less than $60


Waterborne and Inland Crudes Linked, But Separately

• Low differentials between the prices of Brent and LLS waterborne crudes

• Low differentials between the prices of Midland and Cushing WTI inland crudes

• Either of the waterborne light crudes trades at a premium to either of the inland light crudes

• Adequate export logistics and infrastructure between hubs to aid the balance and reduce discounts

• Low Cushing to Gulf Coast tariffs help keep differentials low, but are likely heading higher per the open

season by TransCanada on Marketlink and comments by Enterprise Products on the Seaway pipeline

• The costs of export logistics at the Gulf Coast are likely to rise now too given the rocketing rate of

crude exports – 2 million barrels per day recently – which is up from nothing just a few years ago

0

20

40

60

80

100

120

140

2010 2011 2012 2013 2014 2015 2016 2017

LLS Discount to Brent Still Narrow, $/bbl(U.S. Can Export Today -- 2MMbbl/d+ Currently)

EUCRBRDT Index

USCRLLSS Index

0

20

40

60

80

100

120

2010 2011 2012 2013 2014 2015 2016 2017

WTI Midland Discount to WTI Cushing Still Narrow, $/bbl(Pipelines from Midland to Cushing not the problem)

USCRWTIM Comdty

USCRWTIC Index

Sources: Stratas Advisors North American Oil Service, Bloomberg data


Cushing Stocks Not Moving Like Gulf Coast Stocks

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

Crude Stocks @ Cushing Hold While USGC PADD 3 Drops, Mbbls

Cushing PADD 3

Sources: Stratas Advisors North American Oil Service, EIA data

• USGC PADD 3 crude stocks are down 62 MMbbls from 1Q17 high, and now stand just 10% over 5YA

• Cushing crude stocks are over up 50% higher than 5YA and are setting new records for this time of year

• The Cushing inland hub has no tidewater or cross-border export opportunities

• Cushing-connected Midcon refineries have less capacity than the Gulf Coast regional refining network

• So if new Permian, Scoop/Stack, Uinta, Bakken & other crude flows pile into Cushing, there they will sit,

and potential rate increases at TransCanada’s Marketlink and Enterprise Seaway will widen differentials.


• YE 2017 outbound expansions of 315

Mbbl/d to be muted by inbound production

deliveries gains from Permian and

Scoop/Stack

• Cushing stocks may continue to grow up to

Mid-2018, when USGC-bound takeaway

from Permian will takeaway 730 Mbbl/d to

Corpus Christi, Houston, and Nederland

• In 2019-2020, a reversed Capline could flood

Gulf Coast with light crude from Canada,

Bakken, or Scoop/Stack and Rocky (and

conceivably Permian) supplies via Cushing

• In 2019-2020 timeframe, Permian takeaway

expansions will divert more crude to USGC

although some to Cushing as well

Better Balance via Cushing Region Long Haul Pipelines and Projects


Takeaways

Upstream Growth: Crude-directed drilling and completions will take field production to new highs and

push new light crudes into Cushing. We expect highest growth from Permian and Scoop/Stack.

Midstream Investment : Midstream takeaway projects will need to get back on pace and stay ahead of

production to efficiently move light crude to more U.S. refining and offshore markets.

Key Crude Projects: Refinery expansion less important than exports as crude gains swamp fuel

demand. Midstream projects to watch include the Capline Reversal, DAPL, Diamond, Ozark,

Midland-Sealy, Permian Express 2 and the LOOP reconfiguration.

Differentials Widen on Growth (Quantity): By location, Inland crudes will be at a discount to

waterborne grades when infrastructure to the Gulf Coast refiners and through the export terminals

there is insufficient or costly. Already, tariffs between Cushing and the Gulf Coast rise are showing

inflationary signs at the TransCanada Marketlink and Enterprise Products Seaway pipelines.

Terminal fees on the Gulf Coast may rise as well given strong utilization. Wide differentials are

foreseeable until pipeline takeaway out of Cushing improves around 1H18. If production stays high

and all else equal, differentials should tighten further when VLCCs lower international transit costs.

Differentials May Widen on Quality: By quality, U.S. light crudes (inland WTI and coastal LLS) will be

at a discount as a whole if crude quality continues to lighten and vary as U.S. shale plays age.

Independence Now: Already, U.S. net imports represent just 10%of petroleum demand. We expect the

U.S. to continue to achieve even greater levels of energy independence as the industry works under

favorable governance to advance toward full net-export status in petroleum.

Questions and Answers

© Stratas Advisors. All rights reserved.

APPENDIX: U.S. Crude Distillation Expansions Anticipated by 2020

PADD 4 Crude Oil Refining Capacity Expansions (Mbbl/d)

Operator Location

Crude

Capacity at

Start of 2017

Expanded

Crude Distillation

Capacity

In-

Service

Year

HollyFrontier Corp. Woods Cross, UT 45 60 2018

CHS Inc. Laurel, MT 56 81 2020

Refinery Crude Distillation Capacity Totals Total 101 141

Additional PADD 4 Capacity 40


Operator Location

Crude

Capacity at

Start of 2017

Expanded

Crude Distillation

Capacity

In-

Service

Year

ExxonMobil Beaumont, TX 345 405 2018

MMEX Resources Corp. Fort Stockton, TX 0 50 2019

Raven Petroleum Laredo,TX 0 50 2018

Refinery Crude Distillation Capacity Totals 345 505

Additional PADD 3 Capacity 160


Operator Location

Crude

Capacity at

Start of 2017

Expanded

Crude Distillation

Capacity

In-

Service

Year

Meridian Energy Group - Phase I Belfield, ND 0 27.5 2018

Meridian Energy Group - Phase II Belfield, ND 0 27.5 2019

Western Refining St. Paul, MN 84.5 100 2020

Refinery Crude Distillation Capacity Totals 84.5 155

Additional PADD 2 Capacity 70.5

Sources: Stratas Advisors North American Oil Service, media reports, company disclosures

new crudes for new u.s. & export demand - stratas...

Documents