Adam Bedard, CEO ARB Midstream, LLC Cond ndens nsate from t the - - PowerPoint PPT Presentation

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Adam Bedard, CEO ARB Midstream, LLC Cond ndens nsate from t the - - PowerPoint PPT Presentation

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Adam Bedard, CEO ARB Midstream, LLC Cond ndens nsate from t the e Rock ckies es Produci cing R Reg egion October 29, 2015 Market Observations Lease condensate production from the Rockies (Williston, PRB, DJ) projected to grow by

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SLIDE 1

Adam Bedard, CEO ARB Midstream, LLC

Cond ndens nsate from t the e Rock ckies es Produci cing R Reg egion

October 29, 2015

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SLIDE 2

Market Observations

  • Lease condensate production from the Rockies (Williston, PRB, DJ) projected to grow by

84,000 b/d, from 266,000 b/d to 350,000 b/d, over the next five years

  • 95% of that growth is from the DJ Basin
  • Lease condensate production can be blended into the pipelines, but pipelines have

specs that limit the % light ends

  • However, excess takeaway capacity and batching make hitting any sort of “blend wall” difficult
  • Possibly a problem only in the DJ, depending on how concentrated the barrels area
  • Rail can access the Canadian diluent market or Gulf Coast market (Splitters/Exports)

and provide an uplift to distressed light barrels

  • However current pipeline capacity is causing previously distressed barrels to receive a higher price,

closing the arb.

  • Rail provides Rockies’ producers with a coastal market, rather than only delivering a

Cushing market

  • Producers can get Brent-based pricing

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SLIDE 3
  • Growth oriented, infrastructure development company focused on early stage, organic

development projects and acquisitions in gas liquids, condensate, and crude oil

  • Provide marketing and logistics services to producers and refiners
  • Quantitative analytics drive development strategy
  • Current Projects/Marketing
  • Marketing ~20,000 b/d
  • DJ Basin Energy Hub: Niobrara Connector (“NiCon”)
  • Midland Basin (Big Spring) Energy Hub: Gateway Project

ARB Midstream Overview

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SLIDE 4

Organic Projects – Energy Rail Hubs

Permian Gateway Niobrara Connector

  • Located in Howard County
  • 350 acres
  • Pipe connection to new

gathering system

  • Drilling materials in bound,

liquids outbound

  • Located in the heart of DJ
  • 230 Acres
  • Under construction
  • Drilling materials in bound,

liquids outbound

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SLIDE 5

Rockies Drilling Update

Impact of declining rig count outpaces influence of high grading and efficiencies

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SLIDE 6

Rockies Rig Count Down from 265 to 96 (64%) YoY

50 100 150 200 250 300 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Hz Rig Count Bakken PRB DJ-Niobrara

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SLIDE 7

Bakken Rig Count Down By 113 rigs, nearly 2/3 YoY

  • 113
  • 65%

Oct 2014 175 Rigs Oct 2015 62 Rigs

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SLIDE 8

PRB rigs down by 70% YoY

  • 23
  • 70%

Oct 2014 33 Rigs Oct 2015 10 Rigs

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SLIDE 9

DJ Basin Rig Count Holding Up Slightly Stronger, But Still Down 58%

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  • 58%

Oct 2014 57 Rigs Oct 2015 24 Rigs

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SLIDE 10
  • 0.50

1.00 1.50 2.00 2.50 3.00 3.50 4.00 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Hz Rig Efficiency (wells drilled per month per rig) Williston PRB DJ-Niobrara

Rigs Are Drilling 35% More Wells/Month Today Compared to a Year Ago

DJ: 24 t 24 today = = 37 a 37 a year ago go Bakke ken: 62 62 today = = 81 81 a year ago go PR PRB: 10 t 10 today = 19 a 19 a year ago go

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SLIDE 11

Lease Condensate Production

How much condensate will be produced from the Bakken and Niobrara plays?

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SLIDE 12

20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 Eagle Ford SCOOP Utica Bakken Miss Lime DJ Basin PRB Canadian Condensate Natural Gasoline

API Gravity

Condensate

PRB PRB and Ba Bakken Are N Not a Significant S Source o

  • f

Cond ndensa sate.

  • e. DJ, U

Utica, S SCOOP and nd EF a are e Major S Sources es

Source: DI Desktop 12

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Lease Condensate Makes up 15% of Rockies Total Production. Projected to Grow by 84,000 b/d over next 5 years (f/ 266 Mb/d up to 350 Mb/d)

  • 500,000

1,000,000 1,500,000 2,000,000 2,500,000 Crude Oil and Lease Condensate Production (b/d)

Rockies (Bakken, PRB, DJ) Crude Oil and Lease Condensate Production vs Time

Heavy (<22°) Intermediate (>22° and <38°) Light (>38° and <45°) Condensate (>45°)

  • 500,000

1,000,000 1,500,000 2,000,000 2,500,000 Crude Oil and Lease Condensate Production (b/d)

Rockies (Bakken, PRB, DJ) Crude Oil and Lease Condensate Production vs Time

Heavy (<22°) Intermediate (>22° and <38°) Light (>38° and <45°) Condensate (>45°) Forecast

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Condensate is Fastest Growing Quality Segment, Projected to Grow by 31% Over Next Five Years

37,294 102,188 1,313,333 266,398 40,625 123,139 1,452,937 349,828

  • 200,000

400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 Heavy (<22°) Intermediate (>22° and <38°) Light (>38° and <45°) Condensate (>45°) Crude Oil and Lease Condensate Production (b/d)

  • Dec. 2014 to Dec. 2019: Bakken, PRB, DJ

Dec-14 Dec-19

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SLIDE 15

Bakken Production Drops By 180,000 b/d by Mid 2016, Rebounds Early

  • 2018. Growth in Lease Condensate is Small at (8,000 b/d).

Source: DI Desktop

  • 200,000

400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 Crude Oil and Lease Condensate Production (b/d)

Williston Basin Production Forecast

Heavy (<22°) Intermediate (>22° and <38°) Light (>38° and <45°) Condensate (>45°)

Source: ARB Analytics

Forecast

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SLIDE 16
  • 20,000

40,000 60,000 80,000 100,000 120,000 140,000 Crude Oil and Lease Condensate Production (b/d)

PRB Production Forecast

Heavy (<22°) Intermediate (>22° and <38°) Light (>38° and <45°) Condensate (>45°)

PRB: Only 6,000 b/d condensate. Overall Production Shrinks Over Next five Years, Doesn’t Achieve 2014 levels

Source: ARB Analytics

Forecast

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SLIDE 17

50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 Crude Oil and Lease Condensate Production (b/d)

DJ Basin Production Forecast

Heavy (<22°) Intermediate (>22° and <38°) Light (>38° and <45°) Condensate (>45°)

DJ: Condensate projected to grow by 78,000 b/d

Source: ARB Analytics

Forecast

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SLIDE 18
  • 5,000

10,000 15,000 20,000 25,000 30,000 35,000 40,000 Unknown <30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 65+ Production (bpd) API Gravity

DJ Production by API

Splitter Stabilizer/ Diluent/Exports Refining/ Blending

End Market for DJ Light Barrel? Cushing by pipe, Rail (to splitter), Rail for Export, Rail to Canada

Source: DI Desktop, ARB Analytics

25% of DJ Production: API > 50

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SLIDE 19

Takeaway Capacity, Blending, and Deducts

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Take-or-Pay Commitments May Override Potential Uplift from Other End Markets

  • 100,000

200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 1,000,000 1,100,000 Production & Takeaway Capacity (b/d)

DJ Supply/Demand By Type

Rail Pipeline Refinery

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SLIDE 21

Likely to Be Enough Heavier DJ Barrels to Blend Off Lights and Meet Pipe Specs

5,000 10,000 15,000 20,000 25,000 30,000 35,000 API-31 API-32 API-33 API-34 API-35 API-36 API-37 API-38 API-39 API-40 API-41 API-42 API-43 API-44 API-45 API-46 API-47 API-48 API-49 API-50 API-51 API-52 API-53 API-54 API-55 API-56 API-57 API-58 API-59 API-60 API-61 API-62 API-63 API-64 API-65 Production (b/d)

DJ Basin: Production By API

White Cliffs Specs

PXP “NIO” Specs

Source: HPDI, FERC

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SLIDE 22

End Markets

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SLIDE 23

Where Should DJ Condensate Go?

  • Utilized Condensate

Pricing Model Developed by Univ. Bauer College of Business

  • Provides Sum of

Whole Value ex- Splitter

Source: Bauer College of Business, Argus

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SLIDE 24

Uplift from Splitting $3.57/bbl Today, Compared to $4.88 Two Years Ago

$4.88 $2.72 $3.57 $- $20 $40 $60 $80 $100 $120 Jan-13 Jan-14 Jan-15

WTI, Brent, and “Split Products” – October 2013, 2014, 2015 – DJ 46API

WTI Brent Split Products Split Products - WTI Oct - 13 Oct - 14 Oct - 15

Source: Bauer College of Business

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SLIDE 25

Options for a DJ Barrel (60 API)

  • Pipeline to Cushing
  • DJ Lease Barrel: WTI-$5
  • Quality Deduct: -$6 (60 API)
  • Value at Lease: WTI-$11
  • Rail to Canada as Diluent
  • Canadian condensate: WTI-$2
  • Implies: If rail is less than $9/bbl, this works
  • Rail to Gulf Coast for Splitting
  • Splitter Uplift: +$3/bbl
  • Implies if rail + splitter fee is < $14/bbl, this works

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SLIDE 26

Market Observations

  • Lease condensate production from the Rockies (Williston, PRB, DJ) projected to grow by

84,000 b/d, from 266,000 b/d to 350,000 b/d, over the next five years

  • 95% of that growth is from the DJ Basin
  • Lease condensate production can be blended into the pipelines, but pipelines have

specs that limit the % light ends

  • However, excess takeaway capacity and batching make hitting any sort of “blend wall” difficult
  • Possibly a problem only in the DJ, depending on how concentrated the barrels area
  • Rail can access the Canadian diluent market or Gulf Coast market (Splitters/Exports)

and provide an uplift to distressed light barrels

  • However current pipeline capacity is causing previously distressed barrels to receive a higher price,

closing the arb.

  • Rail provides Rockies’ producers with a coastal market, rather than only delivering a

Cushing market

  • Producers can get Brent-based pricing

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SLIDE 27

End

Adam Bedard, CEO ARB Midstream adam.bedard@arbmidstream.com

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