Dynamics Trisha Curtis, Director of Research Upstream and Midstream - PowerPoint PPT Presentation

Crude Oil Movements and Market Dynamics Trisha Curtis, Director of Research Upstream and Midstream Energy Policy Research Foundation, Inc. (EPRINC) Williston Basin Petroleum Conference May 20th, 2014

About EPRINC • www.eprinc.org • Infrastructure Paper http://eprinc.org/wp- content/uploads/2013/10/EPRINC- PIPELINES-TRAINS-TRUCKS-OCT31.pdf • Oil and Gas Journal • Embassy Series • Presentations at Imperial College London, Colombia University, Wyoming Pipeline Authority • Department of Energy – Quadrennial Energy Review • Department of Defense • Rin App http://eprinc.org/2014/02/rins- around-rosy-app-available-ios/ 2

The entire strip… Source: HPDI May 2014 3

North American Oil Production 12000 10000 Thousand Barrels Per Day 8000 6000 Canadian Crude Oil Production U.S. Field Production of Crude Oil Mbbl/d 4000 2000 U.S. 8 mbd Canada 3.7 mbd 0 Source: EIA, Canadian CAPP forecast, EPRINC U.S. forecast, EPRINC Mexico , and EPRINC estimates 4

Jan 2014 EPRINC’s Forecast for Major U.S. Shale Plays 7,000,000 EPRINC forecasts 6,000,000 over 2 mbd by 2020 5,000,000 Periphery 4,000,000 Permian Eagle Ford 3,000,000 Bakken EPRINC's May 2013 Forecast 2,000,000 1,000,000 2020 U.S. 10 mbd Canada 5.1 mbd 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: HPDI data with EPRINC forecast estimates 5

Total Imports, Production, Canadian Imports 12000 U.S. Imports from 10000 Thousand Barrels per Day Canada of Crude Oil Mbbl/d 8000 U.S. Imports of Crude Oil Mbbl/d 6000 U.S. Field 4000 Production of Crude Oil Mbbl/d 2000 Canadian Imports 2.8 mbd 0 or 36% Source: EIA 6

Drilling Activity and Production 7

Permit Activity Willis illiston on Bas asin in Powder der Riv iver er Bas asin in DJ J Bas asin in (Niobr iobrar ara a Res eser ervoir oir) Uinta Uint a Bas asin in Ut Utica ica Per ermian mian Anad nadar arko o Bas asin in Bas asin in (Mis Missis sissippian sippian, , Gran anit ite e Wash, ash, Mis Missis sissippi sippi Lim Lime e Eagle gle For ord d and ot and other her s stac acked ed play plays) Res eser ervoir oir Source: HPDI May 2014, Past 90 Days 8

U.S. Rig Count 2500 2000 1500 # of Rigs Oil Gas 1000 Total 500 0 Source: Baker Hughes 9

Source: HPDI March 2014, Baker Hughes State Rig Count # of Rigs 1000 1200 200 400 600 800 0 Texas 1/7/2000 1/7/2001 1/7/2002 ND: 184 North Dakota 1/7/2003 1/7/2004 1/7/2005 1/7/2006 1/7/2007 Colorado 1/7/2008 1/7/2009 1/7/2010 1/7/2011 Wyoming 1/7/2012 1/7/2013 1/7/2014 10

In Context - Shale Oil Play Production 1,600,000 Permian 1.5 1,400,000 1,200,000 Eagle Ford 1.2 mbd Barrels Per Day 1,000,000 800,000 North Dakota 977,000 b/d 600,000 400,000 Colorado 184,000 b/d 200,000 Wyoming 181,000 b/d - Jan-07 Apr-07 Jul-07 Jan-08 Apr-08 Jul-08 Jan-09 Apr-09 Jul-09 Jan-10 Apr-10 Jul-10 Jan-11 Apr-11 Jul-11 Jan-12 Apr-12 Jul-12 Jan-13 Apr-13 Jul-13 Jan-14 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Eagle Ford North Dakota Permian Basin Wyoming Colorado Source: HPDI May 2013, EIA, NDPA 11

Importance of Technology and Where it Will Go Source: Triangle Petroleum Corporation, Presentation Bakken Product Markets and Source: Vern Whitten photography From NDIC Lynn Helms presentations Take-Away Denver Jan 31-Feb 1 2012 Source: Cosima Theloy and Steve Sonnenberg, SPE Paper 168870, presented Denver Source: Continental Resources March Investor Presentation, Permission granted Aug 2013, “Integrating Geology and Engineering: Implications for Production in the Bakken Play, Williston Basin” 12

Will it change production EURs, decline rates, plateaus…? 450 400 350 300 Barrels Per Day 250 200 1,600,000 150 1,400,000 100 1,200,000 50 1,000,000 Barrels Per Day 0 800,000 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 600,000 400,000 200,000 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: NDPA 13

Infrastructure and Pricing 14

March 2014 Williston Basin Crude Transportation Williston Basin Production: 1,054,776 b/d North Dakota: 977,051 b/d South Dakota: 4,712 b/d Eastern Montana: 73,013 b/d Tesoro Refinery: 68,000 b/d Truck to Canadian Pipeline: 7,000 b/d Rail: 715,000,000 b/d (66%) Pipeline: 293,776 b/d Source: NDPA, EPRINC Estimates 15

Pipeline Capacity Ample, But • Plenty of pipeline capacity now , but if more crude should move back to pipe (rail concerns) could see prices further decline in Clearbrook Source: EPRINC’s article in Oil and Gas Journal March 2014 16

U.S. Crude Oil Exports 300 • Canada imported a total of 331,000 b/d (oil and refined products) from the U.S. in Jan 250 2013 THOUSAND BARRELS PER DAY 200 • 110,000 b/d from ND alone • Quebec: 71,000 b/d • Valero’s Jean Gaulin 265,000 b/d 150 • Saskatchewan: 7,000 b/d • Manitoba: 4,000 b/d • New Brunswick: 27,000 b/d 100 • Irving Oil’s St John refinery 300,000 b/d 50 0 Jan-93 May-94 Jan-95 May-96 Jan-97 May-98 Jan-99 May-00 Jan-01 May-02 Jan-03 May-04 Jan-05 May-06 Jan-07 May-08 Jan-09 May-10 Jan-11 May-12 Jan-13 Sep-93 Sep-95 Sep-97 Sep-99 Sep-01 Sep-03 Sep-05 Sep-07 Sep-09 Sep-11 Sep-13 Source: EIA 17

Pipeline Choke Points Source: EPRINC Choke Point Map using Hart ArcGIS Mapping software 18

All Canadian Pipeline Export Options are Full • Kinder Morgan’s Transmountain line off BC coast - currently 300,000 b/d capacity- planned expansion up to 800,000 b/d (early 2017) • (Now Spectra) Platte line to Wood River 280,000 b/d-full • Enbridge mainline system currently transporting over 1.5 mbd with potential capacity around 2.5 mbd — Northern Gateway off BC coast planned 525,000 b/d, several other planned expansions, light oil access +400,000 b/d to eastern U.S. and Canada • TransCanada’s Keystone 581,000 b/d-full — XL would add 700,000 b/d, Energy East Pipeline Project 500 to 800k Source: Canadian Energy Pipeline Association 19

Regional Pricing Disparities Source: Map from AFPM, Flint Hills, EIA, CME Group, and estimates 20

Price Comparison $140.00 $120.00 $100.00 $80.00 $60.00 $40.00 $20.00 $- 5/1/2013 6/1/2013 7/1/2013 8/1/2013 9/1/2013 10/1/2013 11/1/2013 12/1/2013 1/1/2014 2/1/2014 3/1/2014 4/1/2014 5/1/2014 WTI Cushing WTI Midland Bakken Clearbrook WCS LLS Brent Source: Bloomberg Data 21

Daily Crude by Rail Shipment in U.S. and Canada 1,600,000 1,400,000 U.S. Average Barrels Per Day of Petroleum and Petroleum Product 1,200,000 Canadian Average Barrels Per Day of Petroleum and 1,000,000 Petroleum Product Barrels Per Day 800,000 EPRINC's U.S. Daily Crude by Rail Estimate - 825,000 b/d 600,000 EPRINC's Canada Daily Crude by Rail Estimate - 160,000 b/d 400,000 200,000 0 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 12 12 12 12 13 13 13 13 14 Source: AAR; Crude and petroleum product includes liquefied gases, asphalt, fuel oil, lubricating oil, jet fuel, etc. U.S. operations exclude U.S. operations of CN and CP. Canadian operations include CN and CP and their U.S. operations. One carload holds 30,000 gallons (or 714.3 barrels). 22

Pipeline vs. Rail Costs • New fees for older tank cars • Narrow spreads • From Bakken to Coasts between $10 - $15 • Slight increases due to fees by railroads for older tank cars and testing fees • From Alberta to Gulf $20 Source: CAPP Source: EPRINC Maps using Hart Energy data and ArcGIS Mapping software 23

Refineries 24

Canadian Still Isn’t Getting to PADD III PADD I PADD II PADD III 1600 2500 6000 Thousand Barrels per Day 1400 5000 2000 1200 East Coast (PADD Gulf Coast (PADD 4000 1000 1) Total Foreign 1500 Midwest (PADD 3) Total Foreign 800 3000 Imports 2) Total Foreign 600 Imports 1000 2000 400 East Coast (PADD Imports Gulf Coast (PADD 500 200 1000 1) Imports from Midwest (PADD 3) Imports from 0 Canada 0 0 2) Imports from Canada 2008 2009 2010 2011 2012 2013 Jan-Feb 2014 2008 2009 2010 2011 2012 2013 Jan-Feb 2014 2008 2009 2010 2011 2012 2013 Jan-Feb 2014 Canada PADD IV PADD V 300 1400 Thousand Barrels per Day Thousand Barrels per Day 1200 250 1000 200 Rocky Mountain West Coast (PADD 5) 800 150 (PADD 4) Total Total Foreign Imports 600 100 Foreign Imports 400 50 200 Rocky Mountain 0 West Coast (PADD 5) 0 (PADD 4) Imports Imports from Canada from Canada Source: EIA Data 25

Good Crude BUT Too Many Light Ends Source: Continental Resources March Investor Presentation, Permission granted 26