[PPT] - Dont Hold Your Breath For $70 Oil and The Demise of the Bakken Art PowerPoint Presentation

SLIDE 1

Slide 1 Labyrinth Consulting Services, Inc. artberman.com

Don’t Hold Your Breath For $70 Oil and The Demise of the Bakken

Art Berman Labyrinth Consulting Services, Inc. HRC Oil & Gas Society Houston, Texas February 23, 2017

SLIDE 2

Slide 2 Labyrinth Consulting Services, Inc. artberman.com

Oil Markets In Early Recovery From The Second of Two Major Production Bubbles

The 1st Bubble 1974-1980: oil shocks and price increase from $23 to $117/barrel led to

massive E&P investments, over-production, demand destruction & oil-price deflation until 1998.

Second Bubble: 1999-2014: flat global output & growing Asian demand led to increasing oil

prices from $17 to $148/barrel by 2008.

After the 2008 Financial Collapse, OPEC cut production then, declining OPEC spare capacity,

falling OECD inventories, & near-zero interest rates led to the longest period of high oil prices in history from 2011-2014.

Over-investment resulted in a massive over-supply.
The bubble burst in 2014 and prices collapsed.

52 53 54 55 56 57 58 59 60 61 62 63 64 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Millions of Incremental Barrels of Crude Oil & Condensate Per Day

U.S. + Canada Incremental Ouput: The Major Contributor to Low Oil Prices

Iraq Iran Russia Brazil Saudi Arabia U.S. Canada

Kuwait UAE Angola Venezuela Mexico Algeria

Nigeria Base

Libya

Indonesia-Ecuador-Qatar-Gabon Source: EIA , Labyrinth Consulting Services, Inc. & Crude Oil Peak OPEC, U.S., Canada, Russia & Brazil account for 66% of world crude oil & lease condensate production

U.S. + Canada 4.4 mmb/d Increase (44% of incremental production in Mar 2015)

$52.50

$0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 $110 $120 $130 $140 $150 $160

Jan-70 Feb-71 Mar-72 Apr-73 May-74 Jun-75 Jul-76 Aug-77 Sep-78 Oct-79 Nov-80 Dec-81 Jan-83 Feb-84 Mar-85 Apr-86 May-87 Jun-88 Jul-89 Aug-90 Sep-91 Oct-92 Nov-93 Dec-94 Jan-96 Feb-97 Mar-98 Apr-99 May-00 Jun-01 Jul-02 Aug-03 Sep-04 Oct-05 Nov-06 Dec-07 Jan-09 Feb-10 Mar-11 Apr-12 May-13 Jun-14 Jul-15 Aug-16

CPI Adjusted WTI Prices (July 2016 Dollars Per Barrel)

Oil Shocks

->

Massive E&P Investment (North Sea, Mexico, Siberia) Over-Supply, Demand Destruction & Price Deflation Debt-Fueled Economic Expansion & Rapid Growth in China & East Asia Massive E&P Investment (Shale, Deep Water, Heavy Oil) Over-Supply, Demand Destruction & Price Deflation

Current $54 Oil Price Is 60% Higher Than Jan 1986 - Jan 2004 Average in December 2016 Dollars

Source: EIA, U.S. Bureau of Labor Statistics & Labyrinth Consulting Services, Inc.

Avg 1986-2004 $34/barrel Avg 2005-2015 $86/barrel

All Prices in Constant December 2016 Dollars

Avg 1974-1985 $70/barrel Avg 1950-1973 $23/barrel

$50/barrel

1st Bubble: 1974-1980 2nd Bubble: 1999-2014

SLIDE 3

Slide 3 Labyrinth Consulting Services, Inc. artberman.com

The 2016 OPEC Cut

First mention of a production “freeze” in February 2016 when oil prices were $26/barrel.
Expectation of OPEC action & improving fundamentals lifted prices to $43 average for 2016.
Prices dropped when a freeze agreement failed in August; failure to act in November would have

sent prices into the mid-$30 range.

The cut was more about setting a price floor than about raising prices.
OPEC agreed to cut production in November partly because it was incapable of sustaining output

at 2016 levels.

By July 2016, surplus production capacity was 0.92 mmb/d—the all-time low was 0.71 mmb/d in

late 2004.

Announcing a cut is a good way to cover the reality that commercial reserve limits have been

reached.

Low OPEC spare capacity has usually led to a major oil-price increase (e.g., 2004 & 2007).

$0 $20 $40 $60 $80 $100 $120 $140 $160 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Brent Price (October 2016 Adjusted Dollars Per Barrel) OPEC Surplus Crude Oil Production Capacity (mmb/d)

Low Spare Capacity Was A Key Factor In The OPEC Output Cut

Incremental OPEC Spare Capacity BASE

Source: EIA and Labyrinth Consulting Services, Inc.

Brent Price (RHS)

0.92 mmb/d 0.86 mmb/d 0.71mmb/d Financial Collapse

20 40 60 80 100 120 $0 $10 $20 $30 $40 $50 $60 $70 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17

Oil-Price Volatility Index NYMEX WTI Futures Prices ($/Barrel)

Oil Prices Have Not Exceeded $54 Per Barrel Since Early 2015 Daily Futures Price (LHS) Daily Oil-Price Volatility Index (RHS)

$61 Per Barrel Ceiling $54 Per Barrel Ceiling

Source: EIA, CBOE, Bloomberg & Labyrinth Consulting Services, Inc.

OPEC "Freeze" Proposed OPEC Cut Sept 28 Agreed Nov 30 $43 $26 OPEC Doha Freeze Meeting Failed $40

SLIDE 4

Slide 4 Labyrinth Consulting Services, Inc. artberman.com

There Never Was An OPEC Strategy or Price War

Analysts created a narrative that OPEC’s strategy was to hurt U.S. tight oil producers.
This story line is unfounded but widely accepted because of American hubris.
Cartel’s inaction since the 2014 price collapse reflected unwillingness to repeat the mistake
f 1979-85 when OPEC cut 14 mmb/d with no affect on over-supply, demand or oil prices.
Saudi Arabia cut 7 mmb/d 1980-1985.
Cuts lowered OPEC market share and greatly reduced revenue.
“We met with non-OPEC producers, we asked ‘what are you going to do?’ They said
nothing. We said the meeting is over.” –Ali Al-Naimi, February 2016.
The 2016 OPEC cut happened because Russia participated along with rest of OPEC.

$0 $20 $40 $60 $80 $100 $120 $140

40
30
20
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10 20 30 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

World Oil Price in 2015 Dollars Millions of Barrels of Liquids Per Day Compared to 1979

OPEC Cut Production 14 mmb/d from 1979-1985 With No Effect on World Supply Surplus or Oil Price OPEC Prod (LHS) World Prod (LHS)

OPEC production decreased 14 mmbpd

World production decreased 9.5 mmbpd

Source: BP and Labyrinth Consulting Services, inc.

Oil Price (RHS)

SLIDE 5

Slide 5 Labyrinth Consulting Services, Inc. artberman.com

Tight Oil Is Not A Threat To OPEC

300 269 171 158 143 104 98 80 60 48 37 37 30 25 25 16 12 11.6 9… 8.4 8.3 50 100 150 200 250 300 350 Venezuela Saudi Arabia Canada Iran Iraq Kuwait UAE Russia Deep Water Libya Nigeria USA Kazakhstan Qatar China Brazil Algeria U.S. Tight Oil Mexico Angola Ecuador Billions of Barrels of Crude Oil & Lease Condensate

Oil Sands Are Saudi Arabia's Chief Reserve Competition, Not U.S. Tight Oil

Source: EIA, Hyperdynamics and Labyrinth Consulting Services, Inc. Tight Oil Deep Water Oil Sands Oil Sands

Tight oil has never been a long-term threat to OPEC because the reserves are relatively

small.

EIA year-end 2015 data indicates that U.S. tight oil proven reserves are less than 12 billion

barrels.

Deep water reserves are more substantial than tight oil but are still small compared with

OPEC reserves.

Canada’s and Venezuela’s combined oil sands reserves exceed 350 billion barrels.
Oil sands are Saudi Arabia’s and OPEC’s chief reserve competition, not U.S. tight oil.

SLIDE 6

Slide 6 Labyrinth Consulting Services, Inc. artberman.com

World Production Surplus Is Moving Unevenly Toward Market Balance

Supply and demand fundamentals improved in 2016 but progress has been uneven.
The global production surplus is ~0.75 mmb/d, the average for 2016, but excursions have

included +2 to -1.5 mmb/d.

Consumption growth was 1.3 mmb/d, less than average since the Financial Collapse but

slightly better than forecasts.

2016 was the lowest average oil price ($2016) since 2003 and 12% less than 2015 and yet,

demand growth was mediocre.

The weak global economy is an important consideration for supporting higher oil prices.
Most of 2016 was without bad economic news to depress markets.

3.20 1.90 1.14 2.50 3.15 2.03 3.33

0.60

1.13 0.21 0.69

0.17

0.42 1.62 2.10 0.73 $0 $20 $40 $60 $80 $100 $120 $140

2.0
1.0

0.0 1.0 2.0 3.0 4.0 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16

Brent Price ( October 2016 Dollars Per Barrel) Market Balance (Supply minus Consumption Millions of Barrels Per Day)

The World Production Surplus Peaked in January 2016 & Has Since Moved Unevenly Closer To Market Balance

Source: EIA STEO December 2016 & Labyrinth Consulting Services, Inc.

Market Balance (LHS) Brent Price (RHS) Increasing Surplus Decreasing Surplus

1.2 1.7 1.9 0.5 0.3 1.5 0.9 0.8 1.5 1.7 0.2 2.1 0.8 2.0 1.7 1.9 1.2 2.2 2.1 2.4 2.0 0.4 0.7 0.9 0.5 0.5 1.5 1.7 2.4 1.6 0.7 2.3 1.6 1.6 2.2 0.6 $0 $20 $40 $60 $80 $100 $120 0.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 2.25 2.50 2.75 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Brent Price ($/Barrel) Year-Over-Year Consumption Growth (mmb/d)

2016 Consumption Growth: 1.3 mmb/d: A Good Year After All

YOY Consumption Growth (LHS) Annual Consumption Growth Brent Price (RHS)

Source: EIA December 2016 STEO, Labyrinth Consulting Services, Inc. & Crude Oil Peak

1.15 mmb/d 1.5 mmb/d 1.3 mmb/d

SLIDE 7

Slide 7 Labyrinth Consulting Services, Inc. artberman.com

The OPEC Production Cut Will Not Bring The Market Into Balance Quickly

Production is not supply and consumption is not demand.
Inventory is part of supply and is also a component of demand.
IEA forecasts a supply deficit by Q1 2017 yet OECD inventories > 400 mmb above 5-yr average.
Stocks would have to be drastically reduced over the next 5 weeks for that to occur.
What IEA is showing as “demand/supply balance” is really demand-production balance.
If OPEC cuts as announced, consumption may exceed production in Q1 & Q2 2017 &

withdrawals from storage will occur—legitimate demand increase.

But, the billions of barrels of working capacity in inventory are not considered part of supply!
Inventory is like a savings account—separate from checking but certainly part of available

money.

$0 $20 $40 $60 $80 $100 $120 $140 $160 2.5 2.6 2.7 2.8 2.9 3 3.1 3.2 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Brent Price ($/Barrel) Billions of Barrels of Incremental Liquids

OECD Incremental Inventories Are At Record High Levels Although Absolute Inventories Have Flattened in Recent Months U.S. Inventories (LHS) Base

Source: EIA & Labyrinth Consulting Services, Inc.

OECD Minus U.S. Inventories (LHS) Brent Price (RHS)

~550 mmb Incremental Inventory Since December 2013

SLIDE 8

Slide 8 Labyrinth Consulting Services, Inc. artberman.com

Comparative Inventory Provides Context For Market Balance & Oil Prices

Comparative inventories index current storage levels against a moving average of values for

the same calendar date over the previous 5 years.

OECD comparative inventories (C.I.) are at an all-time high level of more than 300 million

barrels (absolute inventories > 3.1 billion barrels).

C.I. ~ zero corresponds to periods of high oil prices (>$80 per barrel) over the past decade.
Cross-plot of C.I. vs Brent price suggests current ~$56/barrel is at least $10 over-valued.
C.I. must fall >200 mmb to support $70 prices.
OPEC cuts will accelerate movement toward market balance but massive stock reductions

will occur over a year or more.

Also assumes that non-OPEC production falls or remains static.

314

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50 150 250 350 $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 $110 $120 $130 $140 $150 $160 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 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Comparative Inventory (Millions of Barrels of Liquids) Brent Price (December 2016 Dollars/Barrel)

OECD Comparative Inventories Are At An All-Time High & Need to Fall 200-300 mmb To Support $70-$80 Per Barrel Oil Prices Brent Price Comparative Inventory

Source: EIA STEO & Labyrinth Consulting Services, Inc.

C.I. = 0

SLIDE 9

Slide 9 Labyrinth Consulting Services, Inc. artberman.com

U.S. Production Will Not Remain Static

Output fell 1 mmb/d from April 2015-September 2016 but is now increasing.
EIA forecast is for 9.8 mmb/d by December 2018.
WTI does not reach $60/barrel and falls below $50 in February for half of 2017.
The tight oil horizontal rig count has increased by 138 (55%) since the OPEC production cut was first

announced in September 2016.

67% of the increase has been in the Permian basin where the rig count has increased 95.
Eagle Ford has made a come-back in recent weeks.
This suggests that U.S. production will increase.
Increased production from Nigeria and Libya plus U.S. tight oil may cancel OPEC/NOPEC production cuts.
Lack of frack crews & poor condition of frack equipment are a concern for near-term production growth.

9.63 8.57 8.86 9.28 9.78

$0 $20 $40 $60 $80 $100 $120 0.00 2.00 4.00 6.00 8.00 10.00 12.00 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18

WTI Price ($/Barrel) Millions of Barrels of Crude Oil Per Day

EIA Forecast is 9.8 mmb/d by December 2018

April 2015 Source: EIA STEO Febuary 2017 & Labyrinth Consulting Services, Inc.

1.06 mmb/d

Oil Production (LHS) WTI Price (RHS)

Jan 2017 Dec 2017

+0.29 mmb/d

Sept 2016 Dec 2018

+0.92 mmb/d Jan 2017-Dec 2018

20 40 60 80 100 120

10
8
6
4
2

2 4 6 8 10

Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 NYMEX WTI Price ($/Barrel) & Oil Price Volatility Index Weekly Rig Count Change

Eagle Ford (LHS) Bakken (LHS)

NYMEX Price (RHS) Oil-Price Volatility Index (RHS) 138 Tight Oil Rigs Added Since Mid-Sept 2016: 67% Are In The Permian Basin

Apr-June 2015 Price Rally Source: Baker Hughes, EIA, Bloomberg & Labyrinth Consulting Services, Inc.

Permian (LHS)

SLIDE 10

Slide 10 Labyrinth Consulting Services, Inc. artberman.com

Record U.S. Crude Oil Inventories Reflect Over-Valued Oil Prices

U.S. crude oil inventories are at all-time high levels: 519 million barrels.
That is 46 million barrels above 2016 and 144 million barrels above the 5-year average.
The 14 million barrel addition the week ending February 3 was the 2nd highest in history—the highest

was in October 2016 when WTI was $5/barrel lower.

Comparative inventories are also at record high levels.
When C.I. was closest, WTI was less than $50 per barrel.
The trend line shows that oil prices are at least $6 to $7 per barrel over-valued.

250 300 350 400 450 500 550 JanJanJanJan

Millions of Barrels of Crude Oil

2016

2015 2013 2014 2012 2011 +46 mmbo above 2016 level; +144 mmbo above the 5-year average

Source: EIA & Labyrinth Consulting Services, Inc.

2017 Inventory

Crude Oil Inventories Are At Record Levels 146 mmb Above the 5-Year Average

SLIDE 11

Slide 11 Labyrinth Consulting Services, Inc. artberman.com

379.93

$0 $20 $40 $60 $80 $100 $120 $140 $160 50 100 150 200 250 300 350 400 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 NYMEX Futures Price ($/Barrel) Millions of Barrels of Crude Oil

Record Long Positions on Crude Oil Futures Suggests That Prices Will Fall Net Long Positions (LHS) NYMEX Price (RHS)

Source: CFTC, EIA & Labyrinth Consulting Services, Inc.

Financial Collapse Oil-Price Collapse 2015 Price Rally Record High 1/31/2017

20 40 60 80 100 120 $0 $10 $20 $30 $40 $50 $60 $70 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17

Oil-Price Volatility Index NYMEX WTI Futures Prices ($/Barrel)

$7+ Per Barrel Expectation Premium Is Included in Current Oil Price Daily Futures Price (LHS) Daily Oil-Price Volatility Index (RHS)

$61 Per Barrel Ceiling $54 Per Barrel Ceiling

Source: EIA, CBOE, Bloomberg & Labyrinth Consulting Services, Inc.

OPEC "Freeze" Proposed OPEC Cut Sept 28 Agreed Nov 30 $43 $26 OPEC Doha Freeze Meeting Failed $40

Record U.S. Crude Oil Inventories Reflect Over-Valued Oil Prices

Both WTI and Brent have record number of long positions on futures prices.
Long positions historically precede falling oil prices.
Prices remain range-bound between $43 and $54 per barrel and are at the upper limit of that range

today.

Prices have gotten to these levels based on expectation of market balance from the OPEC cuts.
Fundamentals indicate that there is as much likelihood that prices may fall as that they may rise.
Realistically, the OPEC cuts have put a floor under oil prices and volatility should continue to

characterized oil markets.

Prices will probably fall below $50 until the effects of the OPEC cuts are seen in inventory levels.

SLIDE 12

Slide 12 Labyrinth Consulting Services, Inc. artberman.com

1,227 1,190 1,177 1,191 1,169 1,203 1,211 1,202 1,188 1,162 1,171 1,182 1,153 1,122 1,119 1,111 1,047 1,027 1,027 1,030 982 972 1,044 1,034 942

5,000 6,000 7,000 8,000 9,000 10,000 11,000 12,000 13,000 14,000 700 800 900 1,000 1,100 1,200 1,300 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Number of Producing Wells Oil Production (kbpd) & Number of Wells Waiting-On-Completion

Bakken Production Declined 92,000 bopd (9%) in December

Waiting-On-Completion Wells Number of Producing Wells

Oil production declined 285 Kbopd (-23%) since December 2014

Oil Production (kbopd) Current Wellhead

il price:

$42.50

Source: North Dakota DMR & Labyrinth Consulting Services, Inc.

Demise of The Bakken: Production Has Declined 285 kbpd since December 2014

Bakken production fell 92,000 bopd in December—a 9% drop in one month.
Some of the decline is probably weather-related but also because of a sizeable decrease in the number
f producing wells—why?
Current wellhead price is $42.50 per barrel.

SLIDE 13

Slide 13 Labyrinth Consulting Services, Inc. artberman.com

Considerable Area Is Commercial at $45 Wellhead Prices

A detailed reserve analysis of the 8 top
perators indicates that a 1.2 million acre area

is commercial at $50/barrel wellhead prices.

There are currently 5,500 producing wells in

that area yielding an average well density of 215 acres per well.

Operators suggest 40-120 acre infill spacing

for tight oil plays, favoring the lower end of that range.

215 acre spacing suggests considerable down-

spacing and potential for several years of production growth at higher oil prices.

SLIDE 14

Slide 14 Labyrinth Consulting Services, Inc. artberman.com

EUR, Gas-Oil Ratios & Water Cut Trends Suggest Declining Output More Likely

100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 WHITING CONTINENTAL HESS XTO EOG STATOIL CONOCO MARATHON Estimated Ultimate Recovery (Millions of Barrels of Oil Equivalent 15:1)

Bakken EUR Has Generally Decreased Over Time

2012 2013 2014 2015

Source: Drilling Info & Labyrinth Consulting Services, Inc.

500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 WHITING CONTINENTAL HESS XTO EOG STATOIL CONOCO MARATHON Gas-Oil Ratio (Cubic Feet of Gas Per Barrel of Oil)

Bakken Gas-Oil Ratio Has Generally Increased Over Time

2012 2013 2014 2015 2016

Source: Drilling Info & Labyrinth Consulting Services, Inc.

0% 10% 20% 30% 40% 50% 60% 70% 80% WHITING CONTINENTAL HESS XTO EOG STATOIL CONOCO MARATHON Percent Water

Bakken Water Cut Has Generally Increased Over Time

2012 2013 2014 2015

Source: Drilling Info & Labyrinth Consulting Services, Inc.

EUR has decreased over time except for

Continental Resources.

Gas-oil ratios have increased for all operators.
Water cuts are consistently higher over time

and average almost 50% of total liquids.

These trends suggest depletion and that the

play has been over-drilled—not conclusive without pressure data.

SLIDE 15

Slide 15 Labyrinth Consulting Services, Inc. artberman.com

Long Lateral Lengths & Focused Drilling Suggest Maximum Optimum Development 2015-2016 Wells Only All Wells

Parshall-Sanish Early Drilling/Shorter Laterals

2015-2016 drilling has collapsed to the commercial core area so declining EUR suggests well interference.
Most of the core area has been drilled with 8,000-10,000 ft laterals.
It is reasonable that 215 acre/well exceeds optimum infill spacing.
Shorter laterals probably reflect earlier Parshall-Sanish development.

SLIDE 16

Slide 16 Labyrinth Consulting Services, Inc. artberman.com

Only 3 Companies Can Break Even Near Current Wellhead Prices ($42.50) Based On Average Well EUR

Only EOG is breaking even at current wellhead prices.
ConocoPhillips and Marathon break even at slightly higher prices.
Despite large $50 commercial area, companies’ project average includes poorer performing wells
utside of core.
This is typical of the resource plays because lease positions are taken before the core is well

defined.

The premature demise of the Bakken is a signal that the other plays may meet a similar end.
That scenario is confirmed in the shale gas plays.

SLIDE 17

Slide 17 Labyrinth Consulting Services, Inc. artberman.com

Bakken & Other Tight Oil Have Added 6.2 Billion Barrels of Ultra-Light Oil Since 2010

Unconventional oil plays have added more than 6 billion barrels of oil greater than 40 API gravity

since January 2010.

31 API gravity is the average input to to U.S. refineries.
There is limited capacity to refine ultra-light oil.
It must be blended with heavier, mostly imported oil to be refined.
There is a surplus that can neither be refined nor exported—the world refining capacity is similar

to the U.S.

The only way to find export markets for U.S. light oil is by deep discounting.
U.S. exports have not increased since the oil export ban was lifted in late 2015.
Some significant amount of light oil goes into storage.
The OPEC production cut will reduce foreign inventories but not U.S. inventories as much.

0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 Jan-00 Jun-00 Nov-00 Apr-01 Sep-01 Feb-02 Jul-02 Dec-02 May-03 Oct-03 Mar-04 Aug-04 Jan-05 Jun-05 Nov-05 Apr-06 Sep-06 Feb-07 Jul-07 Dec-07 May-08 Oct-08 Mar-09 Aug-09 Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Millions of Barrels of Crude Oil Per Day

U.S. Unconventional Crude Oil Production By API Gravity

< 35

Source: Drilling Info, EIA, Labyrinth Consulting Services, Inc. & Crude Oil Peak

35-40 40-45 45-50 > 50

*Unconventional Oil Includes Gulf

f Mexico Deep Water Production

Unconventional Plays Have Added 6.2 Billion Barrels of Ultra-Light Oil (>40 API) Since January 2010

20 40 60 80 100 120 140 100 200 300 400 500 600 1/3/14 3/3/14 5/3/14 7/3/14 9/3/14 11/3/14 1/3/15 3/3/15 5/3/15 7/3/15 9/3/15 11/3/15 1/3/16 3/3/16 5/3/16 7/3/16 9/3/16 11/3/16 Brent Price ($/Barrel) Thousands of Barrels of Crude Oil Per Day (200-day Moving Average)

U.S. Exports Have Not Increased Since The Export Ban Was Lifted Because There Is A Limited Market For Ultra-Light Oil

Export Ban Lifted

Source: EIA, Labyrinth Consulting Services, Inc. & CrudeOil Peak

Crude Oil Exports (200-Day Average) Brent Price

SLIDE 18

Slide 18 Labyrinth Consulting Services, Inc. artberman.com

Don’t Hold Your Breath For $70 Oil Prices

Oil markets look for every excuse to increase prices because we are conditioned by 4 years of

prices >$90 as normal.

Expectations for a return to $70 prices are premature given the magnitude of the bubble.
Over-supply was the price-collapse trigger but was not the sole cause.
A global economy exhausted by debt, weak demand growth and the high price of energy even at

today’s prices are of at least equal weight.

Over-supply can be fixed but the other factors are more problematic.
Inventories are the key—when inventories fall systematically, prices will increase.
Under-investment in E&P will result in tight supply over the next several years and prices will

increase to abnormal levels.

Even with considerable improvement in the global economy, this may be a disaster.

80 90 100 110 120 130 140 20 40 60 80 100 120 140 160 1/2/08 1/2/09 1/2/10 1/2/11 1/2/12 1/2/13 1/2/14 1/2/15 1/2/16 1/2/17 Trade-Weighted U.S. Dollar Index WTI Price ($/Barrel) & Oil-Price Volatiility Index

The Strength of the Dollar Suggests Continued Lower Oil Prices But Is Also Is Due For A Reversal

WTI Price Oil-Price Volatility U.S. Dollar Value End of QE Oil-Price Collapse

Source: EIA, CBOE, U.S. Federal Reserve Bank & Labyrinth Consulting Services, Inc. $0 $20 $40 $60 $80 $100 $120 $140 $160 2.5 2.6 2.7 2.8 2.9 3 3.1 3.2 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Brent Price ($/Barrel) Billions of Barrels of Incremental Liquids

OECD Incremental Inventories Are At Record High Levels Although Absolute Inventories Have Flattened in Recent Months U.S. Inventories (LHS) Base

Source: EIA & Labyrinth Consulting Services, Inc.

OECD Minus U.S. Inventories (LHS) Brent Price (RHS)

~550 mmb Incremental Inventory Since December 2013