rbc capital markets - pesa · rbc capital markets february 28, 2013 kurt hallead (co-head of global...

RBC Capital MarketsFebruary 28, 2013

Kurt Hallead (Co-Head of Global Energy Research) (512) 708-6356 [email protected]

February 28, 2013This report is priced as of market close February 22, 2013 ET. All values in U.S. dollars unless otherwise noted.For Required Conflicts Disclosures, please see page 53.

2Kurt Hallead (512) 708-6356 [email protected]

A-Baa23$1,8653$134

A-A35$9397$76

A+Aa3 10$52610$41

A+Aa29$6688$70

A-Baa18$7829$47

AA-Aa36$8255$91

A-Baa22$2,2104$131

$811

$1,423

$2,359

US$bn (2)Assets

7

4

1

RankingAsset

AA21$187

A+A22$185

Senior Debt RatingMarket CapMarket Cap

AA-Aa16$76

S&P (3)Moody’s (3)RankingUS$bn (1)

5th Largest Bank by Market Capitalization in North America

Royal Bank of Canada: Overview and Global Rankings

(1) Market cap as of February 14, 2013(2) Assets for US Banks as at Q4 2012. Assets for CDN Banks as at Q4 2012, converted into US$ using period-end exchange rate(3) Issuer Rating (which would generally correspond to a senior debt rating). Source: Bloomberg


• Agencies & Agency MBS• Commodities• Credit – High Yield & Investment Grade

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Global Equities

• 250+ analysts covering over 1,300 equities & corporate credits

• Credit• Economics• Emerging Markets• Equity• Fixed Income & Currencies• FX• High Yield• Rates

Global Research

• Convertible Debt• Corporate Finance• Equity Capital Markets• Infrastructure Finance• Loan & High Yield Capital Markets• Mergers & Acquisitions• Municipal Finance• Private Placements• Restructuring• Syndicated & Leveraged Finance

Global Investment Banking

Focused Set of Products and Services Targeting a Variety of Global Clients

RBC Capital Markets consistently ranks as a leading distributor of North American equities to institutional investors worldwide

We have an integrated team of global equity professionals who manage and advise on all aspects of the client trading strategy

Our investment banking group helps clients finance their ongoing operations, strategic acquisitions, expansions, and other critical projects.

We provide capital raising, M&A and underwriting capabilities with specific product expertise

We are a leading North American M&A advisor with comprehensive cross-border capabilities in corporate finance

RBC Capital Markets’ global research team delivers in-depth market intelligence and keen insight across asset classes, industry sectors, operating disciplines, and geographies to support and help guide our clients’ investment strategies

With more than 140 publishing analysts worldwide, our proprietary research covers 1,300 equities and corporate credits

We provide a range of fixed income & currencies products as well as debt capital markets capabilities

We also have a dedicated full-service commodities team and are a significant market maker with the ability to provide clients with liquidity and risk management services

Comprehensive Product and Service Offering


Global Research: OverviewRBC Capital Markets Global Research leverages a team of collective expertise to provide deep information and insight across asset classes, industry sectors, disciplines and geographies.

Global FX Strategy (7 Staff)U.S. Investment Grade Credit (3 Staff)

Fixed Income, Currencies, Emerging Markets, Credit and Economics (58 Staff)

Municipals (2 Staff)

Economics (14 Staff)

Fixed Income (14 Staff)

High Yield (12 Staff)

Canadian Credit (4 Staff)

U.K. Credit (2 Staff)

RBC Capital Markets Global Research Staff1

Approximately 300 Research professionals across the globe with North American core

More than 1,540 stocks under coverage, including approximately 815 U.S. stocks

Economic and Strategy commentary published daily

Technical and quantitative research with customized portfolio analysis

Daily FX insight with forecasts on 17 currencies

Credit and Emerging Markets published strategies

Coverage Highlights

Global Financials (32 Staff)2Europe/Australia/Israel/South Africa Equity (55 Staff)

Strategy – Quantitative and Technical (10 Staff)2

Global Energy (53 Staff)2

Global Mining (26 Staff)2

Canadian Equity (85 Staff)

U.S. Equity (125 Staff)

Global Equity Research (265 Staff)

(1) Includes analysts, associates and all support staff as of 2/7/2013. (2) Individuals are included in U.S., Canadian or European/Australian Equity Staff Count based on office location


RBC Capital Markets Global Equity Research

Source: Starmine Thomson Reuters Competitor Coverage – Global. As of 01/31/2013

Large Cap: > $5 Billion USD; Mid Cap: Between $1 Billion and $5 Billion USD; Small Cap: < $1 Billion USD

3.4%53Utilities

100%1,542OVERALL

0.1%1Multi-Industry

1.3%20Telecom Services

13.0%201Materials

11.1%170Information Technology

12.5%193Industrials

6.9%107Health Care

20.2%312Financials

19.0%293Energy

3.6%55Consumer Staples

8.9%137Consumer Discretionary

% of Global Equity Coverage

# Companies CoveredSector

RBC Global Equity Coverage

RBC Capital Markets provides comprehensive coverage in every sector around the globe

FinancialsHealthcare

Industrials

Info Tech

Materials

Telecom Services

Consumer Staples

Consumer Discretionary

Utilities

Energy

Large Cap38.8%

Mid Cap 33.2%

Small Cap28.0%

Coverage by Market Cap

Coverage by Sector


Sector Expertise: Global Energy

Global Energy includes 26 analysts around the globe

Nearly 50 Energy research professionals based in major global energy hubs in North America and Europe

Experienced and Diverse Team of Analysts

Sub Sector Coverage

More than 300 energy stocks under coverage across 9 sub-sectors, including Integrated Oils/Refiners, E&P, Oilfield Services, Utilities, MLPs and Oil Sands

The team provides perspectives on all major energy producing regions around the world

Companies under coverage represents nearly 25% of RBC’s total equity coverage

Extensive Global Coverage

A global team of professionals providing diverse and in-depth coverage

Select Companies Under Coverage

Oil Sands 2%

Integrated Oils 5%

Pipelines & Infrastructure7%

Utilities & Power Generation8%

MLPs 13%

Oilfield Services 16%

Other 4%

Coal 2%

E&P 43%


RBC Global Energy Research Team

OIL SERVICES Kurt HalleadJustin SanderRobbie Pinkard

MLPs, MIDSTREAM TJ SchultzDavid Askew

MLPS, UPSTREAM John RagozzinoPeter Knerr

US E&P Leo MarianiBrad HeffernKyle Rhodes

Austin

CANADIAN E&P Michael HarveyEric GallieShailender Randhawa

OIL SANDS Mark FriesenSam Roach

OIL SERVICES Dan MacDonaldMatt Vines

Calgary

US E&P Scott HanoldJB JouveCory Markling

Minneapolis

MLPs, MIDSTREAM Elvira ScottoAnkit Sharma

POWER & UTILITIES Shelby TuckerEllen NgaiInsoo Kim

SP. CHEMICALS Chris NocellaRipapa Ray

HIGH YIELD Adam LeightBob SzuhanyJustin Schleifer

New York

INTEGRATED OIL, Greg PardySENIOR E&P Carson Tong

Dillon CulhaneINVEST. GRADE CREDIT Matt Kolodzie

TorontoPOWER & PIPELINES, Robert KwanMIDSTREAM Danny HungIPPs Nelson Ng

Kelsey Roste

Vancouver

INTEGRATED OILS Peter HuttonKristine Beese

OIL SERVICES Katherine Tonks

EUROPEAN UTILITIES John MuskMaurice Choy

London

INTERNATIONAL E&P Al StantonJames HosieNathan PiperVictoria McCulloch

Edinburgh

OIL & GAS Andy WilliamsJosh Waudby

INFRASTRUCTURE Paul Johnston

Melbourne


PUBLICATIONSPortfolio Manager’s Summary. A weekly summary of RBC Capital Markets Global Research’s most impactful ideas across all of the product lines.

Global Directions. The comprehensive, monthly global outlet for RBC Capital Markets’ Rates Strategy and Economic Research. GD consolidates content previously contained in regional weekly reports to offer a macro global outlook as well as regional perspectives.

Total FX. A weekly publication of comprehensive and insightful FX coverage and analysis inclusive of strategy and trade recommendations.

Macro Monday Memo. A succinct, weekly publication that highlights the most pressing Macro issues across all products and regions.

RBC Capital Markets Research Distribution

RBC INSIGHTRBC Insight is RBC Global Research’s premier online destination for in-depth coverage of Equities, Credit, Rates & Currencies, Foreign Exchange, Economics, Emerging Markets and High Yield Research – comprehensive global research through a single website. www.rbcinsight.com

RBC RESEARCH iPAD APPRBC Capital Markets Global Research is now available on your iPad.

Available on the iPad App Store. RBC Insight username and password required.


Toronto - Commodities sales team focused on consumer clients

- Center for Canadian power trading

Houston- Energy center of North America- Focused team of energy sales and trading with significant E&P relationships

London - Portal to European and Asian energy markets- European markets focused on energy, precious and base metals and futures markets

Calgary- Sales & trading presence focused on E&P & consumer clients

- Key location for the Canadian energy and utilities sector

Cincinnati- Close proximity to the largest utilities in U.S. - Houses RBC’s power, carbon, ags, and coal operations

Experienced Teams in Key Commodities Centers Throughout North America and Europe

Global Commodities Coverage


Extensive Commodities Capabilities

North America, Europe, South Africa: Capp (Nymex), CSX Rail, PRB, API 2 and API 4 Coal

Current Trading Capabilities

Corn, Wheat, Soybean Oil, Soybean Meal, Canola, Barley, Cotton, Sugar, Lean Hogs, Cocoa, Coffee, Feeder Cattle, Live Cattle*Ags / Soft

Commodities

Carbon emissions: European (EUAs/CERs), North American (California, CRT, RGGI) and other various offsetsEmissions

North America, Europe, Asia: Distillates (Heating Oil / Diesel /Jet), RBOB, Gasoline, Fuel OilRefined Products

North America (NYMEX/IPE) and basis examples include AECO, TCO, Chicago, Transco, Malin, SoCal, HSC, Dawn, Appalachia, Dominion, Rockies, Waha, PanhandleNatural Gas

C2 (Ethane), C3 (Propane), C4 (Butane), C5 (Natural Gasoline), Frac spreads*NGL

North America: All locations including basis, PJM, NEPOOL, NYISO, MISO, ERCOT, CAISOPower

Financial

Physical

North America, Europe: Aluminum, Copper, Zinc, Nickel, Lead, Gold, Silver, Platinum Group Metals, UraniumMetals

North America, Europe, Asia: WTI, Brent, Dated Brent, JCC and other various grades of crude Oil

ProductsOptionsSwaps

Risk Management Solutions Across Various Commodities

* Full capabilities in progress


The Big Picture


Still recovering

U-shaped recovery

Tim

ing

?

Running at

Full Speed

Lumpy

New frontier

Acceleration?

New frontier

Pausing for breath

New

frontie

r

New frontier

DW gas

Source: RBC Capital Markets estimates

Steady OFS

Growth

Demand Growing but at a reduced

rate?

World overview


Roughly Flat Oil Prices in 2013• A flat oil environment should continue to be supportive of most oil-directed drilling activity in the US and internationally.

Natural Gas to Remain Sub $4• We don’t see a meaningful pick-up in US natural gas activity in this environment.

US Land Rig Count Down 5% y/y but Up from Current Levels• Rig count should climb modestly throughout the year from depressed 4Q12 levels, but not expected to hit 2012 peak.

Activity Should Continue to Rise in the Gulf of Mexico

Canadian Rig Count Roughly Flat y/y

Steady Growth Internationally• We are forecasting an 8% rise in int’l rig count in 2013 with offshore up 11% and land rig count up 7%.

Source: Baker Hughes, RBC Capital Markets estimates

Macro Assumptions

2012 2013E 2014ECrude Oil (WTI) $94 $91 $96Brent $112 $106 $105Natural Gas $2.75 $3.75 $4.50NGLs (Belvieu) $46 $45 $45

Rig CountsUS Land 1,871 1,784 1,890 Oil 1,335 1,360 1,440 Gas 536 424 450 Horizontal 1,151 1,146 1,226Offshore 48 60 70Canada 352 348 431International 1,243 1,345 1,435 Offshore 305 340 388 Land 938 1,005 1,047

YoY % Change '12 to '13 '13 to '14US Land -5% 6% Oil 2% 6% Gas -21% 6% Horizontal 0% 7%Offshore 25% 18%Canada -1% 24%International 8% 7% Offshore 11% 14% Land 7% 4%

2013 and 2014 Estimates


Commodity Price Outlook

Source: RBC Capital Markets estimates, Bloomberg

Crude Oil 2011 2012 2013E 2014E Long Term

Brent Posted (US$/bbl) $110.97 $112.02 $106.00 $105.00 $102.00

Brent Differential to WTI (US$/B) -15.96 -17.88 -15.00 -9.00 -7.00

WTI Crude Oil (Cushing, US$/bbl) 95.01 94.14 91.00 96.00 95.00

Edmonton Light Oil Differential to WTI (US$/bbl) -1.32 7.75 8.92 8.96 3.00

Edmonton Light Oil Posting (C$/bbl) 95.22 86.35 82.08 87.04 92.00

Bow River Heavy Oil Differential (C$/bbl) 17.52 12.07 12.65 9.30 17.00

Bow River Differential/Edmonton Par (%) 18% 14% 15% 11% 18%

Bow River Heavy Oil Posting (C$/bbl) 77.70 74.28 69.43 77.74 75.00

Natural Gas

Henry Hub Natural Gas (US$/mmBtu) $3.99 $2.75 $3.75 $4.50 $5.00

Henry Hub/AECO Basis Differential (US$/mmBtu) 0.33 0.37 0.35 0.50 0.75

AECO C Natural Gas (C$/mcf) 3.62 2.38 3.40 4.00 4.25

Foreign Exchange (US$/C$) 1.01 1.00 1.00 1.00 1.00

NGLs

Belvieu Composite Price ($/bbl) $45.71 $44.81 $47.56 $49.01

Belvieu Component Prices ($/gal)

Purity Ethane non-LDH $0.40 $0.35 $0.43 $0.46

Propane TET/LDH $1.00 $1.10 $1.22 $1.30

Iso-Butane LDH $1.80 $1.70 $1.70 $1.70

Normal Butane TET/LDH $1.70 $1.55 $1.55 $1.55

Natural Gasoline LDH $2.25 $2.17 $2.15 $2.15


RBC Crude Oil Price Outlook – WTI & Brent

Source: Bloomberg; RBC Capital Markets estimates

$65

$75

$85

$95

$105

$115

$125

2010 2011 2012 2013 2014

US$/bbl

Brent

WTI

E E

Forecast


Forward Natural Gas Price Curve Improving Slowly

Back End of Natural Gas Forward Curve Starting to Head Back Up Again

Source: SNL Financial; RBC Capital Markets estimates

0

2

4

6

8

10

12

14

16

Aug-05

Aug-06

Aug-07

Aug-08

Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21

Aug-22

Nat

ural

Gas

($/m

mbt

u)

Actual 30-Jun-08 31-Dec-10 12-Feb-13


Crude, Nat Gas, NGL and LNG Trends


2013 Crude Outlook – Setting the Stage

Source: IEA; RBC Capital Markets estimates

millions of bbl/d 2011 2012E 2013E 2014E

Global Demand 88.9 89.7 90.5 91.6 % Change 1.0% 0.9% 0.9% 1.2% mbd/change 0.8 0.8 0.8 1.1

Supply Non-OPEC 52.8 53.3 54.0 55.1 % Change 0.3% 0.9% 1.5% 2.0% mbd/change 0.1 0.5 0.8 1.1

OPEC-11 27.2 28.5 27.8 27.7 OPEC (incl NGL) 35.7 37.7 37.3 37.5 % Change 3.0% 5.6% -0.9% 0.5% mbd/change 1.0 2.0 (0.3) 0.2

Global Supply 88.4 90.9 91.3 92.6 % Change 1.4% 2.8% 0.5% 1.4% mbd/change 1.2 2.5 0.4 1.3

Estimated OPEC-11 Spare Capacity 4.3 3.9 4.5 5.1Usable OPEC-11 Spare Capacity 3.9 2.8 3.3 3.8Usable Spare Capacity as a % of Global Supply 4.4% 3.1% 3.6% 4.1%

Average Brent Price (US$/bbl) $110.97 $112.02 $106.00 $105.00

Average WTI Price (US$/bbl) $95.01 $94.14 $91.00 $96.00

2013 – Global Oil Market Relatively Well Balanced Sluggish Oil Demand Growth Limited OPEC-11 Spare Capacity (3.3

million bbl/d)

US Light Oil Production Growth a Game Changer Structural Wedge between WTI & Brent Spurred US Refined Product Exports

Crude Oil Differentials → Mixed Bag WTI-Brent: Narrowing to US$8-$10/bbl in

2H-2013 Canadian Light-WTI: Widening until Mid-

2014 Canadian Heavy Oil Prices: Brighter Days

Ahead


OPEC Spare Capacity

Source: IEA; RBC Capital Markets estimates

$0

$20

$40

$60

$80

$100

$120

0%

5%

10%

15%

20%

25%

1971

1976

1981

1986

1991

1996

2001

2006

2011

OPEC Spare Capacity as a % of Oil Demand

OPEC Spare Capacity as a % of Oil Demand Oil Prices - WTI, Full Year Avg


Source: RBC Capital Markets, IHS, EIA

0

250,000

500,000

750,000

1,000,000

1,250,000

1,500,000

1,750,000

2,000,000

2,250,000

2,500,000

2,750,000

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

Jul-12

bbls

/d

0%

10%

20%

30%

40%

50%

60%

70%

% of Low

er-48 Onshore

Permian (all formations) Williston (all formations) Eagleford % of On Shore Lower 48

Unconventional Oil Resuscitating US Growth


Cushing (Crude Oil) Inventory Levels

Source: EIA, The U.S. Department of Energy started reporting Cushing inventories in 2004

10

15

20

25

30

35

40

45

50

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

mmbbl


Source: Bloomberg, Saudi Aramco Annual Reviews

Saudi Arabia: Production Volumes

Short-term surge, not sustainable capacity – is this time different ?

Drilling focuson gas

Saudi Arabia Production est

6000

6500

7000

7500

8000

8500

9000

9500

10000

10500

Sep

-90

Sep

-91

Sep

-92

Sep

-93

Sep

-94

Sep

-95

Sep

-96

Sep

-97

Sep

-98

Sep

-99

Sep

-00

Sep

-01

Sep

-02

Sep

-03

Sep

-04

Sep

-05

Sep

-06

Sep

-07

Sep

-08

Sep

-09

Sep

-10

Sep

-11

kbd

Drilling focus on gasSaudi Aramco Well Data

0

50

100

150

200

250

300

350

400

450

500

2003 2004 2005 2006 2007 2008 2009 2010 2011

No

of n

ew w

ells

0

1

2

3

4

5

6

7

8

9

10

Oil

Pro

duct

ion

mbd

Oil wells Oil Production

Saudi Aramco Well Data

0

20

40

60

80

100

120

140

2003 2004 2005 2006 2007 2008 2009 2010 2011

No

of n

ew w

ells

0

2

4

6

8

10

12

Oil

Pro

duct

ion

mbd

Gas wells Gas production

Lowest drilling on oil since 2004


Source: RBC Capital Markets estimates

Global Oil Review: We Believe Saudi Capacity Is Still Constrained

Saudi Aramco Estimated Production by main Fields2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Ghawar 5.00 5.00 5.00 5.00 5.00 4.85 4.70 4.56 4.43 4.29 Adjusted to get to target

Abqaiq 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40

Extra Light Shaybah 0.50 0.50 0.50 0.50 0.50 0.70 0.75 0.75 0.75 0.75 +250 by end 08

Qatif 0.00 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50

Abu Safah 0.00 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30

light Haradh Expansio 0.00 0.00 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 Jan 06 - Aramco review 06

light Khursaniyah 0.00 0.00 0.00 0.00 0.20 0.50 0.50 0.50 0.50 0.50 +300 June, to 500 November

light Khurais 0.00 0.00 0.00 0.00 0.00 0.20 0.80 1.20 1.20 1.20

Super Light Nuayim 0.00 0.00 0.00 0.00 0.00 0.10 0.10 0.10 0.10 0.10 +100 by end 08 ("Dec" AR06)

Safinayah 0.50 0.48 0.45 0.43 0.41 0.39 0.37 0.35 0.33 0.32

Zuluf 0.50 0.48 0.45 0.43 0.41 0.39 0.37 0.35 0.33 0.32

Berri 0.40 0.38 0.36 0.34 0.33 0.31 0.29 0.28 0.27 0.25

Marjan 0.30 0.29 0.27 0.26 0.24 0.23 0.22 0.21 0.20 0.19

Hawtah trend 0.20 0.19 0.18 0.17 0.16 0.15 0.15 0.14 0.13 0.13

heavy Manifa 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.45 0.9mbd, postponed from 07 to 11 then to 2013, now accelerated ?

Neutral Zone 0.30 0.29 0.27 0.26 0.24 0.23 0.22 0.21 0.20 0.19

Other 2.50 2.38 2.26 2.14 2.04 1.93 1.84 1.75 1.66 1.58

Total 10.60 11.17 11.24 11.03 11.03 11.49 11.81 11.90 11.59 11.76 Target 12.5mbd in 2012


Canadian Oil Sands Production Outlook: 2006-2020E

Source: Alberta government, Company reports, RBC Capital Markets Estimates

Note: Bitumen includes conventional heavy oil

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

million bbl/d

Bitumen Synthetic Crude Oil

Synthetic Crude Oil

Bitumen + Other

25Kurt Hallead (512) 708-6356 [email protected] 25

Heavy Oil Differentials – Forecast to Narrow in 2013

• Heavy oil differentials have widened over the past two months and the WTI-WCS spread is now at ~$30 (WTI-WCS), due to increasing Canadian oil sands production, refinery outages in PADD II, and unexpected pipeline outages (Keystone pipeline was shut down for ~5 days in mid October).

• We expect differentials to remain wide for 1H13 but narrow longer term when infrastructure moves into place in the back end of the year, better integrating Canadian heavy oil production with the U.S. Gulf Coast.

• These infrastructure projects including PADD II refinery expansions (Marathon and Whiting), Seaway expansion (Cushing to PADD III), and the start-up of several rail loading facilities in the North Dakota Bakken.

Source: Bloomberg

Western Canada Select versus WTI

$-

$20

$40

$60

$80

$100

$120

Dec

-11

Jan-

12

Feb-

12

Mar

-12

Apr

-12

May

-12

Jun-

12

Jul-

12

Aug

-12

Sep-

12

Oct

-12

Nov

-12

C$/

bbl

WTI - WCS Differential West Texas IntermediateWestern Canada Select


Near Term

Oversupply Concerns Persist: Storage still tracking above 5 year average

Seeing a Production Response: EIA data showed a production response for three months (June – August) followed by a 0.6% increase in September onshore production.

Long Term

Structural trends drive long-term growth in natural gas demand from the industrial, power generation and, potentially, transportation fuel sectors.

The RBC price deck sees long-term equilibrium prices of $4-$5/Mcf over the next 3-5 years based on shale play economics / marginal cost of supply and and global LNG capacity.

The US could become an exporter of LNG over the next several years. The recently released DOE study on the impact of LNG exports to the US economy is generally supportive of non-FTA permitting of LNG liquefaction.

EIA Weekly Gas Storage Stocks (Bcf)

1,000

1,500

2,000

2,500

3,000

3,500

4,000

J F M A M J J A S O N D5-Yr Max 5-Yr Min 20112012 5-Yr Avg 2010

RBC Natural Gas Price Deck ($/MMBtu)2008A 2009A 2010A 2011A 2012A 2013E 2014E

Q1 $9.12 $7.69 $6.86 $5.39 $3.58 $3.50 $4.50Q2 $10.39 $7.85 $6.45 $5.43 $3.36 $3.75 $4.50Q3 $9.62 $7.50 $5.91 $5.09 $3.49 $4.00 $4.50Q4 $8.39 $7.40 $5.58 $4.41 $3.74 $4.50 $4.75FY $9.38 $7.61 $6.19 $5.08 $3.55 $3.75 $4.50

Current $3.19

Source: Bloomberg, EIA and RBC Capital Markets estimates

Natural Gas Macro Outlook


0

5

10

15

20

25

30

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09

1Q10

3Q10

1Q11

3Q11

1Q12

3Q12

1Q13

3Q13

1Q14

3Q14

Bcf/d

0%

5%

10%

15%

20%

25%

30%

35%

40%

Barnett Fayetteville HaynesvilleMarcellus % of Total

Source: RBC Capital Markets & Company reports

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

Prod

uctio

n (B

cf/d

)

Production Year

Haynesville-Bossier Fayetteville Barnett Marcellus

Barnett

Haynesville

Fayetteville

Marcellus

In the Barnett and the Fayetteville, acreage-capture drilling has been successful as significant acreage is now HBP which has initiated a modest deceleration to production growth.

High growth in the Marcellus has continued with production now likely above 7 Bcf/d, driven by advantaged well economics. Midstream build-out will be crucial to maintaining the pace of growth in 2H12 and into 2013.

Haynesville rig count has declined by 85-90% since its peak in 2Q10 and the backlog of wells to be completed is at normalized levels. Equipment has been shifted to liquids plays. Steep production growth should start in 4Q12 as the backlog of wells awaiting completion is worked through and curtailed production is all brought back online.

At $4.50 in 2014, production growth in Haynesville and Fayetteville start up again.

NG Supply: Shale Gas Growth Continued in 2011 but Moderated in Late 2012


Ethane prices have rolled over to multi-year lows reaching $0.23/gallon at Mont Belvieu as ethane storage inventories remain elevated.

Ethane is uneconomic to process after including transportation and fractionation (T&F) costs. Producers in the Rockies, Mid-con, and Permian are rejecting ethane (likely at ~100 - 150Mb/d).

Typical seasonal slowdown at US ethylene plants with nameplate operating rates down to ~90% from mid-90% range throughout most of 2012.

Declining propane prices due to mild weather and higher ethylene co-product values (propylene, butadiene, etc.) has made propane the most preferred feedstock (could drive switching at the margin).

Ethane prices likely to remain weak near-term and rejection should continue at higher rates.

Mont Belvieu Ethane Frac Spread ($/gal)

($0.20)

$0.00

$0.20

$0.40

$0.60

$0.80

Jan-

03

Sep

-03

Apr-

04

Dec

-04

Aug

-05

Apr-

06

Dec

-06

Aug

-07

Apr-0

8

Nov

-08

Jul-0

9

Mar

-10

Nov

-10

Jul-1

1

Mar

-12

Nov

-12

Current Spread:$0.03

Ave Spread:$0.23

RBC Ethane Price Deck ($/gallon)2008A 2009A 2010A 2011A 2012A 2013E 2014E

Q1 $1.02 $0.35 $0.73 $0.66 $0.56 $0.39 $0.42Q2 $1.05 $0.43 $0.55 $0.78 $0.40 $0.39 $0.42Q3 $1.10 $0.47 $0.47 $0.78 $0.34 $0.40 $0.42Q4 $0.42 $0.66 $0.63 $0.85 $0.29 $0.42 $0.42FY $0.90 $0.48 $0.59 $0.77 $0.41 $0.40 $0.42

Current $0.23Source: Bloomberg and RBC Capital Markets estimates

NGLs (Ethane) Macro Trends


Propane prices have fallen to $0.82/gallon at Mont Belvieu after reaching $1.00/gallon in mid-October.

Concern over a second mild or non-winter have exacerbated record propane inventories.

The US National Oceanic and Atmospheric Administration expects 2012 to surpass 1998 as the warmest year on record according to its monthly climate report.

Propane Exports: Enterprise propane export project has been slightly delayed to early 2013. Enterprise and Targa increasing export capacity by ~170 Mb/d in 2013.

Propane and heavier NGL components still offer uplift to E&Ps compared to natural gas price.

Weekly US Propane Inventories

15,000

25,000

35,000

45,000

55,000

65,000

75,000

J F M A M J J A S O N D5-Yr Max 5-Yr Min 2011 2012

5-Yr Avg 2010

RBC Propane Price Deck ($/gallon)2008A 2009A 2010A 2011A 2012A 2013E 2014E

Q1 $1.47 $0.68 $1.24 $1.39 $1.26 $1.06 $1.25Q2 $1.70 $0.73 $1.09 $1.50 $0.97 $1.12 $1.30Q3 $1.69 $0.86 $1.08 $1.54 $0.89 $1.18 $1.30Q4 $0.81 $1.09 $1.26 $1.44 $0.89 $1.20 $1.30FY $1.42 $0.84 $1.17 $1.47 $1.00 $1.14 $1.29

Current $0.83Source: Bloomberg, EIA and RBC Capital Markets estimates

NGLs (Propane) Macro Trends


Oil Services


Flat Oil Price Outlook Implies Flat OSX on a Year-to-Year Basis

OSX Performance Linked to Oil Prices. With a flat oil price outlook, we believe subsector positioning and a focus on stocks with company-specific catalysts will be important to driving outperformance in 2013.

Source: Bloomberg, RBC Capital Markets estimates

30

50

70

90

110

130

150

100

150

200

250

300

350

400

Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13

OSX Correlation to WTI, Brent Prices

OSX (left) WTI - spot and forward curve, $/bbl (right) Brent - spot and forward curve, $/bbl (right)

r2 = 0.82


Transition to Oil and Horizontal Rig Activity

0

200

400

600

800

1000

1200

1400

1600

1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12

US Land Rig Count

Oil Land Gas Land

Now 77% Oil Directed

0

200

400

600

800

1000

1200

1400

1600

1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12

US Land Rig Count

HORZ. Non-Horz

Now 61% Drilling Horizontally

Source: Baker Hughes


Subsea - Best Secular Growth. We Like CAM, OII, TEC. Early indications are for an ~25-30% increase in industry subsea project awards to ~$12bn in 2013.

US Land - Cyclical Rebound Possible, use HP to Play the Uplift. Uptick in US activity from 4Q12 levels should begin during 1Q13, though the magnitude remains unknown. AC (Tier 1) pricing is holding firm. Mechanical (Tier 3) rigs should continue to be replaced by AC rigs. The US frac market is ~15-30% under-utilized. Pricing degradation has slowed and will likely base in 1Q13, though any rebound is likely to be tepid.

International - Slow and Steady Growth. SLB Is Our Preferred Name. International E&P spend is expected to increase ~7-10%, with an activity uptick in every major region (LAM, ECA, MEFE).

Canada - Mixed Views on Winter. We Prefer PDS. Activity is expected to be lower year-over-year in 1Q13, which will set the tone for FY13. Drillers are planning for a ~5-10% y/y reduction in 1Q13, while service companies are expecting a ~20-25% decline.

Offshore Drilling - RIG and NE for Company-Specific Stories. Pricing gains are expected to moderate for most asset classes, though UDW rates may see another ~5-10% increase for short contract duration.

Seismic - Positive Industry Fundamentals - PGS Is Our Choice. We expect 2013 demand growth in marine seismic (+15%) to exceed supply growth (+5%), yielding support to pricing. Recent fleet upgrades should further enhance productivity gains.

Subsector Themes


Subsea Sector Overview – Secular Growth Continues

Investment thesis: We have a long-term positive view on the subsea space due to the strong demand for deepwater infrastructure. 2013E-15E CAGR of 15-20% for SPS

capex, driven at 75% by Africa, Brazil and North Sea.

Resilience in the capex spend as 60% of future subsea capex in the hand of 5 super majors + PBR, STL.

Fleet utilisation for DW/HE should bounce back in ’13E, providing a tailwind for margin expansion.

But timing / scope of large WA projects could put ’13E under pressure.

Potential Catalysts Contract awards and…contract awards. Tightening in capacity utilization resulting in

better contractual terms / improved pricing. Increasing project complexity which calls

for further differentiation between the big-3 and the rest of the competition.

Source: Quest Offshore, RBC Capital Markets estimates

2013-15E CapEx by Region

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2009 2010 2011 2012E 2013E 2014E 2015E 2016E

$ M

n

NAM SAM North Sea Africa/Med. Asia Pacific

2012-15E CapEx CAGR - NAM: +3%, SAM:

+43%, NS: +15%, AfMed: +20%, APAC: +38%

Africa/Med.

28%

Asia Pacific

15%

North Sea

21%

SAM

24%

NAM

12%


Subsea Prospects: West Africa Key to the Sector’s Success

Source: Company reports, FMC, Quest Offshore, RBC Capital Markets estimates

SPS Pipelay

ExxonMobil Hadrian North ph 2 US GOM 16 4Q12 Awarded FTI

Shell Malikai Malaysia 16 1Q13 Awarded FTI TEC

Petrobras Cernambi Brazil 20 1Q13 Awarded FTI/CAM Technip

ExxonMobil Erha North ph2 Nigeria 11 1Q13 Awarded CAM Subsea 7

Statoil Aasta Hansteen Norway 8 1Q13 Awarded AKSO SUBC / TEC

BP Block 31 South East Angola 40 4Q13 LOI CAM TEC & SUBC

BP Quad 204 West of Shetlands 24 1Q13 Awarded CAM Technip

Total Egina Nigeria 48 1Q13 Pending award FTI Saipem

ExxonMobil Julia US GOM 10 1Q13 Bidding FTI

Tullow T.E.N Ghana 16 1Q13 Bidding FTI TEC & SUBC

Total Moho North Congo 17 1Q13 Bidding AKSO SUBC

Petronas Kebabangan Malaysa 12 1Q13 Bidding

Petrobras Lula Norte (P-70) Brazil 20 2Q13 Bidding Frame Agreement SPM / TEC/ SUBC

Petrobras Lula Alto Brazil 20 2Q13 Bidding Frame Agreement SPM / TEC/ SUBC

Total Kaombo (block 32) Angola 64 2Q13 Bidding AKSO SPM & SUBC

Total Dalia ph 5 Angola 10 2Q13 Bidding AKSO

BP N Alex Ph 1 Egypt 18 2Q13 Bidding

Petrobras Carioca (P-69) Brazil 20 2Q13 Bidding Frame Agreement SPM / TEC/ SUBC

Petrobras Franco (P-74) Brazil 20 2Q13 Bidding Frame Agreement SPM / TEC/ SUBC

Petrobras Franco (P-76) Brazil 20 2Q13 Bidding Frame Agreement SPM / TEC/ SUBC

Chevron Rosebank - Lochnagar West of Shetlands 18 3Q13 Bidding GE

Enquest Kraken UK 24 3Q13 Bidding

BP Plutonio Infills Angola 15 3Q13 Bidding FTI TEC & SUBC

Chevron Gendalo Gehem Indonesia 18 3Q13 Bidding FTI/GE

BP Mad Dog ph 2 US GOM 33 3Q13 Bidding FTI / CAM TEC

ENI Eastern Hub Angola 23 4Q13 Bidding GE SPM

Expected WinnersOperator Project Location Nb of trees Due Status


Subsea Equipment – Regional Trends

2012 tree orders should reach ~410, short of our last forecast of 500 due to delays in Brazil and softening from Australia.

For 2013, we expect ~520 trees to be awarded. This includes a recovery from Nigeria (assuming PIB is finally passed) but a decline.

Subsea equipment opportunity is seen about $12bn, 25-30% above 2012 levels.

Source: Quest Offshore, RBC Capital Markets estimates

2013E Orders by Region: AfMed ~1/3

0

50

100

150

200

1Q12 2Q12 3Q12 4Q12E 1Q13E 2Q13E 3Q13E 4Q13E

Nb

of s

ubse

a tr

ees

NAM SAM North Sea AfMED APAC

Subsea tree orders by Quarter – Busy 1H13E

NAM

17%

SAM

19%

North Sea

17%

AfMED

34%

APAC

13%


Offshore Drilling Outlook

Offshore drilling day rate momentum stabilizing Near-term focus will be on cost control and efficient operations as repricing opportunities for 2013 seem

pretty uneventful. UDW / DW assets have the best repricing opportunities, with a 5-10% upside potential from current spot

market. Focus on repricing may come back later in 2013 when rigs to be delivered in 2014 will be actively

marketed by drillers.

Potential Catalysts Newbuilds adding optionality in ’14/’15. M&A to drive re-rating of the peer group. Fleet upgrade through the sale of older units (NE, RIG) or through more complex operations (SDRL). More LT commitments (7-10y) are signed increasing the visibility of revenue.

Source: ODS Petrodata, Company reports, RBC Capital Markets estimates


Offshore Drilling Supply / Demand Analysis

Source: ODS Petrodata, RBC Capital Markets estimates

Current 2013 2014 Current 2013 2014

< 3000' Midwater Mat Jackups

Total 102 102 104 Total 47 47 47

Contracted 79 79 81 Contracted 25 25 25

% Contracted 77% 77% 78% % Contracted 53% 53% 53%

3000' - 4999' Midwater Sub 250' Independent Leg

Total 25 25 28 Total 72 72 75



5000'-7499' Deepwater 250'-350' Independent Leg

Total 51 51 53 Total 206 217 218



7500'+ Ultradeepwater +350' Independent Leg

Total 127 149 171 Total 155 197 217



Total 305 327 356 Total 480 533 557



Deliveries Contracted % Contracted Deliveries Contracted % Contracted

7500'+ 22 16 73% 250'-350' 11 1 9%

+350' 42 10 24%

Deliveries Contracted % Contracted

7500'+ 22 3 14% Deliveries Contracted % Contracted

250'-350' 1 0 0%

+350' 20 2 10%

Current 2013 2014

< 3000' 8 8 7 Current 2013 2014

3000' - 4999' 1 1 1 Sub 250' 6 6 6

5000'-7499' 0 0 0 250'-350' 7 16 17

7500'+ 0 0 0 +350' 0 21 37

Floater Supply / Demand Model Jackup Supply / Demand Model

Rig Demand Needed for 90% Utilization

2013

2014

2014

Total Jackup Fleet: Contract Status

Newbuild Supply/Demand Jackups

2013

Total Floater Fleet: Contract Status

Rig Demand Needed for 85% Utilization

Newbuild Supply/Demand Floaters

~99% of the UDW fleet is currently under contract despite the influx of new rigs.

73% of NB with delivery in 2013E are contracted, 14% for 2014E; we believe there is sufficient operator demand to absorb these rigs as they near delivery date.

94% of the Hi-Spec JU fleet is currently contracted.

This drops to 73% as 62 new units come on line by 2014E.


Floater Market: Day Rates Trend and Optionality

7,500’+ - day rates still growing but at a moderate pace DW day rates on the rise

Source: ODS Petrodata

$450,000

$475,000

$500,000

$525,000

$550,000

$575,000

$600,000

$625,000

$650,000

Feb-12 Mar-12 Apr-12 May-12May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13

UDW Dayrates

$350,000

$400,000

$450,000

$500,000

Feb-12Mar-12 Apr-12May-12May-12 Jun-12 Jul-12 Aug-12Sep-12 Oct-12 Nov-12 Dec-12 Jan-13

DW Dayrates

$100,000

$125,000

$150,000

$175,000

$200,000

Feb-12Mar-12 Apr-12 May-12May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13

Hi Spec JU Dayrates

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

$110,000

$120,000

$130,000

$140,000

$150,000

Feb-12Mar-12Apr-12May-12May-12Jun-12 Jul-12 Aug-12Sep-12 Oct-12 Nov-12Dec-12Jan-13

Standard JU Dayrates

Hi Spec JU Day Rates Standard JU Day Rates


Offshore Pipelay – Utilisation Should Continue to Pick Up into 2014

Source: Company reports, IHS estimates, RBC Capital Markets Estimates

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E

km o

f pi

pe in

stal

led

NAM SAM Europe Africa APME

Demand in km of pipes should increase by 17% in 2013.

Conversely, supply growth in 2013E/14E seems limited at about 5% p.a.

This should be supportive of margin expansion for the industry as fleet utilisation recovers.

Recovery in fleet utilisation remains however company specific (i.e., backlog scheduling).

Longer lead times and margin dilution from procurement likely to dampen the magnitude of margin expansion.

Asia Pacific opening up to European/US installers as its moves into deeper waters.

0

20

40

60

80

100

120

140

160

180

200

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E

Nb

of V

esse

ls

Pipelay Derrick Pipelay

Offshore Pipelay Demand in km

Evolution of Offshore Pipelay Fleet


EPC Opportunities: Middle East Bid Pipeline Looks Healthy

EPC contract outlook – overall the picture is relatively good

Source: MEED, RBC Capital Markets estimates

0

20

40

60

80

100

120

140

160

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12E '13E '14E

Con

trac

t va

lue

($bn

)

Awarded Bidding PQ FEED Study

0%

20%

40%

60%

80%

100%

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12EAsian Euro/US Other

Korean yards made a push in 2010-12. Chinese yards appearing on the bid lists.


Energy Infrastructure Projects


INGAA Est NGL & Oil Pipeline Infrastructure CapEx

2011-20 2011-35Average Annual

NGL Pipeline InfrastructureMiles of Transmission Mainline (1000s) 10.6 12.5 0.5 Cost of Transmission Mainline (Billions 2010$) $12.3 $14.5 $0.6

Oil Pipeline InfrastructureMiles of Transmission Mainline (1000s) 13.0 19.3 0.8 Cost of Transmission Mainline (Billions 2010$) $19.6 $31.4 $1.3

Total NGL and Oil Pipeline InfrastructureMiles of Transmission Mainline (1000s) 23.6 31.8 1.3 Cost of Transmission Mainline (Billions 2010$) $31.9 $45.9 $1.8 Source: North American Midstream Infrastructrure Through 2035 - A Secure Energy Future (June 28, 2011)Study prepared for the Interstate Natural Gas Association of America Foundation by ICF International

Source: Interstate Natural Gas Association of America (INGAA) and Bloomberg

IEA Est. US Light Tight Oil Production (Mb/d)

2010 2011 2012 2013 2014 2015 2016 Williston Basin 270 400 580 730 800 840 880 Barnett 20 20 30 40 50 50 50 Eagle Ford 30 100 140 200 260 340 390 Monterey 10 10 10 20 30 40 50 Niobrara 30 40 60 70 90 100 120 Utica 0 0 0 0 10 50 90 Other Light Tight Oil 20 50 50 80 80 110 120

Total Light Tight Oil 380 620 870 1,140 1,320 1,530 1,700

Other Crude / Condensate 5,090 5,040 4,910 4,750 4,630 4,750 4,920

Total Crude / Condensate 5,470 5,660 5,780 5,890 5,950 6,280 6,620

Growing Production and Changing Flow Patterns: Rapid growth in US and Canadian production and refinery conversions drives long-term demand for additional infrastructure: gathering (pipeline, truck), transportation (pipeline, rail and barge) and staging (terminalling and storage).

US consumes ~19MMbpd of crude oil, of which US produces ~6MMbpd.

Projections indicate US crude oil production could grow by as much as 4MMbpd over the next 5-7 years.

Expect Sustained Investment in Pipeline Infrastructure as Long-term Solution: INGAA study estimates capital requirements of $41.4 billion for oil pipeline infrastructure over the next 25 years.

Best Positioned for Long-term Pipeline Development: EEP, EPD, MMP and PAA given leading existing liquids asset positions.

US Crude Pipeline & Logistics: Production Drives Infrastructure Demand


Pipeline Projects Helping Canadian Crude Reach New Markets

Source: CAPP

North American Liquids Pipelines: Existing and New Projects


0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

bbls

/d o

f ca

paci

ty

Capacity Adds Upgrading

Capacity Adds Mining

Capacity Adds Insitu

Source: Company reports and RBC Capital Markets

Oil Sands Projects: Small-to-Big Transition H2/13

Larger-scale project construction presents risk to industry

Our view

Projects to achieve first steam in 2013 include: MEG Christina Lake Phase 2B (35 mbbl/d)

Cenvous Christina Lake Phase E (40 mbbl/d)

Grizzly Algar Lake Phase 1 (5.7 mbbl/d)

Laricina Germain Phase 1 (5 mbbl/d)

Suncor Firebag Stage 4 (62.5 mbbl/d)

Sunshine West Ells A Phase 1 (5 mbbl/d)

Projects under construction in 2013 include: Athabasca Hangingstone Phase 1 (12 mbbl/d)

ConocoPhillips Surmont Phase 2 (83 mbbl/d)

North West Upgrading Partners Redwater Upgrader (77 mbbl/d)

Large-scale project construction in 2013 presents higher risk of decreased labour productivity and increased capital costs. Smaller-scale phased projects at relatively lower risk of cost inflation.

Capacity Additions Peak in 2016

Oil Sands Capital Spending Forecast

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

$mm

CAPP Actual Capex

RBC Unconstrained Estimate

CAPP Estimate

ERCB Forecast

Source: CAPP, ERCB and RBC Capital Markets estimates

Sources: Company Reports and RBC Capital Markets Estimates


US Natural Gas Pipeline Projects: Near-term Cautious

Source: EIA, RBC Utilities Team, RBC Capital Markets estimates

Near term

$46B of natural gas pipeline expansion capital (+110Bcf/d of capacity) from 2007-2011 has led to gas on gas competition and flattening of basis differentials.

Emerging shale plays (i.e., Marcellus), have altered regional supply/demand dynamics. Marcellus remains a bright spot with highly supportive economics.

Gas on gas competition, flattened basis across the U.S. and changing gas flows has led to discounting on contract renewals.

Re-contracting risk and reduced utilization rates in some areas likely to persist in the near term.

Most exposed in the near term: BWP, SEP.

Pipeline Additional Capacity (Bcf/d)

5.5 6.74.5

8.9 8.711.2

9.05.8

8.1 9.7

15.1

44.6

22.3

14.5 13.8

19.9 19.0

6.6 6.1

0

5

10

15

20

25

30

35

40

45

50

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

E

2013

E

2014

E

2015

E

1997-2006: 78 Bcf/d2007-2011: 110 Bcf/d

Katy - Waha Basis

(2.00)

(1.50)

(1.00)

(0.50)0.00

0.50

1.00

1.50

2.00

2.50

4/4/

01

1/29

/02

11/1

9/02

9/15

/03

7/13

/04

5/6/

05

3/2/

06

12/2

2/06

10/1

6/07

8/12

/08

6/10

/09

4/5/

10

1/27

/11

11/3

0/11

10/2

2/12

CurrentAve+1 Stdev-1 Stdev

Ave: 0.25

Current: -0.01


Canadian West Coast Projects

Jordan Cove Energy Project

Port Esperanza

Energia Costa Azul

Sonora

Freeport / Lake Charles / Gulf Coast LNG

Cameron LNG / Sabine Pass

Cove Point

Canaport

Rabaska

Source: Company reports and RBC Capital Markets estimates

Proposed North American LNG Terminals


Capital Spending for Transmission Has Doubled in 10 Years

Source: Database of State Incentives for Renewables and Efficiency

30 States Have Passed Renewable Laws

Source: Edison Electric Institute, RBC Capital Markets estimates

State Deadline M andate S tate D eadline Ma ndateA rizona 2025 15% North Dakota* 2015 10.0%C aliforn ia 2020 33% New Ham pshire 2025 23.8%C olorado 2020 30% New Jersey 2021 22.5%C onnecticut 2020 23% New Mexico 2020 20%D istrict of Colum bia 2020 20% Nevada 2025 25%D elaware 2026 25% New York 2015 30%H awaii 2030 40% Ohio 2025 25%Iowa Oregon 2025 25%Illino is 2025 25% Pennsylvan ia 2021 18%Indiana* 2025 10% Rhode Island 2020 16%K ansas 2020 20% South Dakota* 2015 10%M assachusetts 2020 15% Tex asM aryland 2022 20% Utah* 2025 20%M aine 2017 10% Virg in ia* 2025 15%M ichigan 2015 10% Verm ont* 2017 20%M innes ota 2025 25% W ashington 2020 15%M issouri 2021 15% W isconsin 2015 10%M ontana 2015 15% W est Virgin ia* 2025 25%N orth Caro lina 2021 12.5% *Goal on ly

105 MW required

5,880 MW by 2015

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1999 2000 2001 2202 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E 2013E 2014E

$ M

illio

ns

- R

eal 2

009$

Utility Infrastructure Investments


Chemicals: Beneficiary of Advantaged Natural Gas Liquids

Our View: NGL-based Ethylene Margins Will Continue to Improve

• With roughly half of the global ethylene production naphtha-based in regions such as Europe and Asia, these higher cost

producers have been the global ethylene price setters, making little margin.

• With the expectation that U.S. natural gas will continue to be relatively advantaged, we expect the NGL-based chain margins

to improve along with global operating rates in the next few years.

• NGL-related investments will outpace ethylene production growth, therefore shifting the chain margin in favor of the

ethylene producers; similar to what was experienced in mid 2012.

Ethylene Chain Margins: Shifting in favor of Ethylene U.S. Ethane Production vs. Demand

0

500

1,000

1,500

2,000

1H'12E 2H'12E 1H'13E 2H '13E 1H'14E

'000 b/d

Ethane Fractionation AdditionsRecent Max Production

U.S. Ethane Production

1H'12E2H'12E 1H'13E2H'13E1H'14E

Base Additions

U.S. Ethane Demand

Source: Company reports, IHS Chemical, RBC Capital Markets estimates

-10

0

10

20

30

40

2000-'09 2010-'12E 2013E-'16E+

U.S

. Et

hane

to

PE C

hai

n M

argi

n, c

/lb

Ethane Margin Ethylene Margin PE Margin

Phase 1 Phase 2 Phase 3

10-15 c/lb

20-25 c/lb

30-35 c/lb

Entering Phase 3: Natural Gas Liquids Become Cheaper, Ethylene Producers Benefit


Summary

• RBC is a Top 10 Global Investment Bank with a strong global energy presence.

• Our forecast calls for flat oil prices in 2013 with a modest improvement in natural gas.

• NGL markets likely to remain oversupplied.

• International rig count should continue to grow at a slow and steady pace while US rig count should rebound from recent dip.

• Global energy infrastructure build-out should benefit many PESA members.


Companies Mentioned

1 TP = Top Pick; OP = Outperform; SP = Sector Perform; UP = Underperform

2 A = Average Risk; AA = Above Average Risk; S = Speculative Risk

3 Covered by RBC Europe Limited Analyst Katherine Tonks +44 20 7029 0787 [email protected]

4 Covered by RBC Capital Markets, LLC Analyst Justin Sander 512- 708-6386 [email protected]

5 Covered by RBC Capital Markets, LLC Analyst Leo Mariani 512-708-6381 [email protected]

6 Covered by RBC Capital Markets, LLC Analyst TJ Schultz 512-708-6385 [email protected]

7 Covered by RBC Capital Markets, LLC Analyst Elvira Scotto 212-905-5957 [email protected]

Ticker Company Name Rating1 Risk Rating2

CAM Cameron International Corporation TP AOII Oceaneering International, Inc. OP ATEC Technip S.A. OP AHP Helmerich & Payne Inc OP ASLB Schlumberger Limited OP APDS Precision Drilling Corporation OP AARIG Transocean Ltd. OP ANE Noble Corporation OP APGS Petroleum Geo‐Services ASA OP AEEP Enbridge Energy Partners, L.P. SP AEPD Enterprise Products Partners L.P. OP AMMP Magellan Midstream Partners, L.P OP APAA Plains All American Pipeline, L.P. OP ABWP Boardwalk Pipeline Partners, LP SP ASEP Spectra Energy Partners, LP SP A

4

3

4

3

5

6

6

7

7

7

7


Required DisclosuresConflicts DisclosuresThis product constitutes a compendium report (covers six or more subject companies). As such, RBC Capital Markets chooses to provide specific disclosures for the subject companies by reference. To access current disclosures for the subject companies, clients should refer to https://www.rbccm.com/GLDisclosure/PublicWeb/DisclosureLookup.aspx?entityId=1 or send a request to RBC CM Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7.

The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including total revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated by investment banking activities of the member companies of RBC Capital Markets and its affiliates.

Distribution of RatingsFor the purpose of ratings distributions, regulatory rules require member firms to assign ratings to one of three rating categories -Buy, Hold/Neutral, or Sell - regardless of a firm's own rating categories. Although RBC Capital Markets' ratings of Top Pick/Outperform, Sector Perform and Underperform most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are not the same because our ratings are determined on a relative basis (as described above).

Rating Count Percent Count PercentBUY[TP/O] 788 50.48 285 36.17HOLD[SP] 701 44.91 181 25.82SELL[U] 72 4.61 9 12.50

RBC Capital Markets, Equity ResearchInvestment BankingServ./Past 12 Mos.


Required DisclosuresConflicts PolicyRBC Capital Markets Policy for Managing Conflicts of Interest in Relation to Investment Research is available from us on request. To access our current policy, clients should refer to https://www.rbccm.com/global/file-414164.pdf or send a request to RBC CM Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7. We reserve the right to amend or supplement this policy at any time.

Dissemination of Research and Short-Term Trade IdeasRBC Capital Markets endeavors to make all reasonable efforts to provide research simultaneously to all eligible clients, having regard to local time zones inoverseas jurisdictions. RBC Capital Markets' research is posted to our proprietary websites to ensure eligible clients receive coverage initiations and changes in ratings, targets and opinions in a timely manner. Additional distribution may be done by the sales personnel via email, fax or regular mail. Clients may also receive our research via third-party vendors. Please contact your investment advisor or institutional salesperson for more information regarding RBC Capital Markets' research. RBC Capital Markets also provides eligible clients with access to SPARC on its proprietary INSIGHT website. SPARC contains market color and commentary, and may also contain Short-Term Trade Ideas regarding the securities of subject companies discussed in this or other research reports. SPARC may be accessed via the following hyperlink: https://www.rbcinsight.com. A Short-Term Trade Idea reflects the research analyst's directional view regarding the price of the security of a subject company in the coming days or weeks, based on market and trading events. A Short-Term Trade Idea may differ from the price targets and/or recommendations in our published research reports reflecting the research analyst's views of the longer-term (one year) prospects of the subject company, as a result of the differing time horizons, methodologies and/or other factors. Thus, it is possible that the security of a subject company that is considered a long-term 'Sector Perform' or even an 'Underperform' might be a short-term buying opportunity as a result of temporary selling pressure in the market; conversely, the security of a subject company that is rated a long-term 'Outperform' could be considered susceptible to a short-term downward price correction. Short-Term Trade Ideas are not ratings, nor are they part of any ratings system, and RBC Capital Markets generally does not intend, nor undertakes any obligation, to maintain or update Short-Term Trade Ideas. Short-Term Trade Ideas discussed in SPARC may not be suitable for all investors and have not been tailored to individual investor circumstances and objectives, and investors should make their own independent decisions regarding any Short-Term Trade Ideas discussed therein.

Analyst CertificationAll of the views expressed in this report accurately reflect the personal views of the responsible analyst(s) about any and all of the subject securities or issuers. No part of the compensation of the responsible analyst(s) named herein is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the responsible analyst(s) in this report.

The Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard & Poor’s Financial Services LLC (“S&P”) and is licensed for use by RBC. Neither MSCI, S&P, nor any other party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.


DisclaimerRBC Capital Markets is the business name used by certain branches and subsidiaries of the Royal Bank of Canada, including RBC Dominion Securities Inc., RBC Capital Markets, LLC, RBC Europe Limited, RBC Capital Markets (Hong Kong) Limited, Royal Bank of Canada, Hong Kong Branch and Royal Bank of Canada, Sydney Branch. The information contained in this report has been compiled by RBC Capital Markets from sources believed to be reliable, but no representation or warranty, express or implied, is made by Royal Bank of Canada, RBC Capital Markets, its affiliates or any other person as to its accuracy, completeness or correctness. All opinions and estimates contained in this report constitute RBC Capital Markets’ judgment as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. Nothing in this report constitutes legal, accounting or tax advice or individually tailored investment advice. This material is prepared for general circulation to clients and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The investments or services contained in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about the suitability of such investments or services. This report is not an offer to sell or a solicitation of an offer to buy any securities. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. RBC Capital Markets research analyst compensation is based in part on the overall profitability of RBC Capital Markets, which includes profits attributable to investment banking revenues. Every province in Canada, state in the U.S., and most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as the process for doing so. As a result, the securities discussed in this report may not be eligible for sale in some jurisdictions. RBC Capital Markets may be restricted from publishing research reports, from time to time, due to regulatory restrictions and/or internal compliance policies. If this is the case, the latest published research reports available to clients may not reflect recent material changes in the applicable industry and/or applicable subject companies. RBC Capital Markets research reports are current only as of the date set forth on the research reports. This report is not, and under no circumstances should be construed as, a solicitation to act as securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. To the full extent permitted by law neither RBC Capital Markets nor any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. No matter contained in this document may be reproduced or copied by any means without the prior consent of RBC Capital Markets.

Additional information is available on request.To U.S. Residents: This publication has been approved by RBC Capital Markets, LLC (member FINRA, NYSE, SIPC), which is a U.S. registered broker-dealer and which accepts responsibility for this report and its dissemination in the United States. Any U.S. recipient of this report that is not a registered broker-dealer or a bank acting in a broker or dealer capacity and that wishes further information regarding, or to effect any transaction in, any of the securities discussed in this report, should contact and place orders with RBC Capital Markets, LLC.To Canadian Residents: This publication has been approved by RBC Dominion Securities Inc. (member of IIROC, CIPF). Any Canadian recipient of this report that is not a Designated Institution in Ontario, an Accredited Investor in British Columbia or Alberta or a Sophisticated Purchaser in Quebec (or similar permitted purchaser in any other province) and that wishes further information regarding, or to effect any transaction in, any of the securities discussed in this report should contact and place orders with RBC Dominion Securities Inc., which, without in any way limiting the foregoing, accepts responsibility for this report and its dissemination in Canada.To U.K. Residents: This publication has been approved by RBC Europe Limited ('RBCEL') which is authorized and regulated by Financial Services Authority ('FSA'), in connection with its distribution in the United Kingdom. This material is not for general distribution in the United Kingdom to retail clients, as defined under the rules of the FSA. However, targeted distribution may be made to selected retail clients of RBC and its affiliates. RBCEL accepts responsibility for this report and its dissemination in the United Kingdom.To Persons Receiving This Advice in Australia: This material has been distributed in Australia by Royal Bank of Canada - Sydney Branch (ABN 86 076 940 880, AFSL No. 246521). This material has been prepared for general circulation and does not take into account the objectives, financial situation or needs of any recipient. Accordingly, any recipient should, before acting on this material, consider the appropriateness of this material having regard to their objectives, financial situation and needs. If this material relates to the acquisition or possible acquisition of a particular financial product, a recipient in Australia should obtain any relevant disclosure document prepared in respect of that product and consider that document before making any decision about whether to acquire the product.To Hong Kong Residents: This publication is distributed in Hong Kong by RBC Investment Services (Asia) Limited, RBC Investment Management (Asia) Limited and RBC Capital Markets (Hong Kong) Limited, licensed corporations under the Securities and Futures Ordinance or, by the Royal Bank of Canada, Hong Kong Branch, a registered institution under the Securities and Futures Ordinance. This material has been prepared for general circulation and does not take into account the objectives, financial situation, or needs of any recipient. Hong Kong persons wishing to obtain further information on any of the securities mentioned in this publication should contact RBC Investment Services (Asia) Limited, RBC Investment Management (Asia) Limited, RBC Capital Markets (Hong Kong) Limited or Royal Bank of Canada, Hong Kong Branch at 17/Floor, Cheung Kong Center, 2 Queen's Road Central, Hong Kong (telephone number is 2848-1388).To Singapore Residents: This publication is distributed in Singapore by the Royal Bank of Canada, Singapore Branch and Royal Bank of Canada (Asia) Limited, registered entities granted offshore bank and merchant bank status by the Monetary Authority of Singapore, respectively. This material has been prepared for general circulation and does not take into account the objectives, financial situation, or needs of any recipient. You are advised to seek independent advice from a financial adviser before purchasing any product. If you do not obtain independent advice, you should consider whether the product is suitable for you. Past performance is not indicative of future performance. If you have any questions related to this publication, please contact the Royal Bank of Canada, Singapore Branch or Royal Bank of Canada (Asia) Limited.To Japanese Residents: Unless otherwise exempted by Japanese law, this publication is distributed in Japan by or through RBC Capital Markets (Japan) Ltd., a registered type one financial instruments firm and/or Royal Bank of Canada, Tokyo Branch, a licensed foreign bank.

® Registered trademark of Royal Bank of Canada. RBC Capital Markets is a trademark of Royal Bank of Canada. Used under license.Copyright © RBC Capital Markets, LLC 2013 - Member SIPC

Copyright © RBC Dominion Securities Inc. 2013 - Member CIPFCopyright © RBC Europe Limited 2013

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