rockies development activity and trends ipams – may 2007

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Wood Mackenzie Energy

Rockies Development Activity and Trends

IPAMS – May 2007

2

Delivering commercial insight to the global energy industry

Agenda

Rockies Overview

Reserves

Production

Basin Updates

Key Issues and Trends

Costs and Rig Count

Regulation

Price Differentials

3


Rockies oil reserves on the rise

From 2003 to 2005, the Rocky Mountains region proved oil reserves profile has grown from 1.6 to over 2 billion barrels - an increase of over 26%

At the beginning of 2006, the Rockies proved oil reserves accounted for nearly 12% of total L48 reserves

Arguably one of the limiting factors to the potential of this resources continues to be local prices differentials and supply competition from out of region crudes

0.0

0.5

1.0

1.5

2.0

2.5

2000 2001 2002 2003 2004 2005

8%

9%

10%

11%

12%

Rockies (bn bbls) % of L48

Source: Data from U.S. EIA web-site

4


Steady growth in Rockies gas reserves

The Rockies region proved gas reserves profile has grown from 46 tcf to 61 tcf in just 5 years – an increase of over 32%

Over the same period, the total Lower 48 proved reserves increased by 28 tcf – Rockies contributed 52% of those additional reserves

The Rockies profile continues to rise – at the end of 2005, the Rockies represented about 31% of total L48 proved reserves, up from 27% at the end of 2000

0

10

20

30

40

50

60

70

2000 2001 2002 2003 2004 2005

26%

27%

28%

29%

30%

31%

32%

Rockies (tcf) % of L48

Source: Data from U.S. EIA web-site

5


If these historical trends continue? A statistical forecast

0

15

30

45

60

75

1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010

Pro

ved

Gas R

eserv

es (

tcf)

.

Source: Historical Data from U.S. EIA, Forecast by Wood Mackenzie

Historical Reserves and Trend Model

Forecast

"Continuing the trend of 29 years of steady reserves growth"

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Oil production rising in the Rockies, as US continues to decline

Rockies annual oil production has increased by over 31 million barrels over the last three years

In contrast, US production has fallen by nearly 10% over the same period

Rockies now accounts for over 9% of total US production (on-shore + off-shore)

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20

40

60

80

100

120

140

160

180

2000 2001 2002 2003 2004 2005 2006

mm

bbl

s

1.7

1.8

1.9

2.0

2.1

2.2

bn b

bls

Rockies US

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Rockies gas production compares favorably to other regions

CAGR = 4.6 %

The Rocky Mountains gas production has increase by nearly 31% from 10.4 bcfd in 2000 to 13.6 bcfd in 2006

Rockies region is a major contributor to US supply and now accounts for nearly 25% of total US onshore output

Growth driven by unconventional production:

Tight gas in the Greater Green River and Uinta-Piceance basins

CBM in the Powder River and Raton basins

0

2

4

6

8

10

12

14

16

2000 2001 2002 2003 2004 2005 2006

20%

21%

22%

23%

24%

25%

Rockies (bcfd) % of US onshore

8


Unconventionals are fundamental to Rockies future production

Unconventional resources accounted for about 74% of Rockies gas production in 2000

Last year, that portion had risen to 82% and could be as much as 88% by 2011

Tight gas is increasing by 30% from 2007 through 2011

CBM shows growth of 6% through 2011

This profile is based on commercial unconstrained 2P production

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2

4

6

8

10

12

14

16

18

2000 2002 2004 2006 2008 2010

bcfd

Tight Gas CBM Conventional Shale Gas

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Greater Green River becomes the largest producing basin in 2008

Steady growth of 0.9 bcfd projected between 2007 and 2011

Driven by giant tight gas projects: Pinedale, Jonah, Wamsutter

Production from these projects expected to provide 67% of basin production by 2011

Development of emerging plays could contribute to further production growth: Vermillion, Atlantic Rim

0

2

4

6

8

10

12

14

16

18

2000 2002 2004 2006 2008 2010

bcfd

Gtr. Green River Rockies

CAGR = 5.3%

CAGR = 5.1 %

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Uinta-Piceance is the fastest growing basin in the region

The Uinta-Piceance Basin shows the largest production growth in the Rockies – increasing by 1.4 bcfd through 2011

Growth primarily from the Mesaverde tight gas play in the Piceance Basin’s Valley and Highland regions.

In the Uinta Basin, production growth driven by ongoing expansion of Natural Buttes tight gas field

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2

4

6

8

10

12

14

16

18

2000 2002 2004 2006 2008 2010

bcfd

Uinta-Piceance Rockies

CAGR = 5.1 %

CAGR = 18%

11


Powder River has strong growth on smaller volumes

Production from the Powder River Basin expected to grow by 260 mmcfd through 2011

Growth from the Powder River driven by ongoing development of the Big George coals

Current litigation surrounding disposal of CBM has potential to impact development

0

2

4

6

8

10

12

14

16

18

2000 2002 2004 2006 2008 2010

bcfd

Pow der River Rockies

CAGR = 5.1 %

CAGR = 9%

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Lots of activity in other basins

San Juan

Production in 2007 around 4.3 bcfd – largest producing basin

Overall gas production declines by 4% through 2011

Production from CBM relatively flat reflecting infill drilling of Fruitland coalbeds

Denver-Julesburg

2007 production of around 678 mmcfd – majority tight gas from Wattenberg

Marginal growth of 4% through 2011

Reflects large volume of development projects and workovers

Raton

CBM Production of around 360 mmcfd in 2007

Expected to grow by 16% through 2011

Reflects accelerated development of the Raton and Vermejo coals

13


Key Issues and Trends

14


Rig count cycles and costs

320

330

340

350

360

370

380

390

400

410

420

Jan-06 Apr-06 Jun-06 Sep-06 Dec-06 Mar-07

Source: www.bakerhughes.com

17 year peak at 406 rigs

"soft landing"

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50

100

150

200

250

300

350

400

450

1990 1992 1994 1996 1998 2000 2002 2004 2006

Source: www.bakerhughes.com

"Foothills""Mountains"

"Peak?"

15


Regulation still the largest obstacle to development

A number of ‘battles’ ongoing regarding disposal of CBM water in the Powder River

Development would be severely restricted if regulation passed

Economic Impact from stopping drilling could result in billions of lost revenue

Lengthy regulatory process continues to hinder development

Atlantic Rim CBM – Initial development proposal submitted in May 2001. Final ROD submitted to Washington in March 2007

Jonah Field – three years to issue ROD relating to the Jonah Infill Drilling Project

Extent of regional opposition to industry

State government: In Colorado, six energy bills pending or recently approved

The extent of opposition apparent when comparing with other onshore regions

Wide range of organizations opposed to oil and gas development: Opposition to proposed drilling in the Wyoming Range includes the United Steelworkers Union

16


Rockies Oil Differentials – a trend with a complicated explanation

40%

50%

60%

70%

80%

90%

100%

110%

120%

1/7/2004 7/7/2004 1/7/2005 7/7/2005 1/7/2006 7/7/2006 1/7/2007

WTI Williston Sweet Williston Sour WY Sour WY Sweet W. Colorado

"Stable" Differentials

Downward Trending Differentials

Extreme Volatility

17


Rockies Gas Differentials – Long-run view

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05

HH CIG OPAL Cheyenne Questar San Juan NW, WY Pool NW, S of GRV

Historical Minimums

Differentials > HH

San Juan Deviation

18


Rockies Gas Differentials – Short-run view

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07

CIG Opal Questar Cheyenne Northwest, WY NW, Sth. of GRV El Paso, San Juan Henry Hub

"Consistent"

"Narrowing"

"Inconsistent"

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Rockies Differentials – Is it really all about Rockies Express?

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07

HH CIG Cheyenne San Juan

Minimum Spreads

Maximum Spreads

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rockies development activity and trends ipams – may 2007

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