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

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Trisha Curtis, Director of Research, Upstream and Midstream Energy Policy Research Foundation, Inc. (EPRINC) Wyoming Pipeline Authority, Casper Wyoming June 16, 2015

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Wyoming

Putting unconventional oil production and low oil prices in context

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About EPRINC

• www.eprinc.org
• Oil and Gas Journal
• Embassy Series
• Presentations at Imperial College

London, Colombia University, Wyoming Pipeline Authority, EPA, Oxford Institute for Energy Studies

• Infrastructure Paper

http://eprinc.org/wp- content/uploads/2013/10/EPRINC- PIPELINES-TRAINS-TRUCKS-OCT31.pdf

• Department of Energy – Quadrennial

Energy Review

• Department of Defense
• Rin App http://eprinc.org/2014/02/rins-

around-rosy-app-available-ios/

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When oil prices started to slip

4

Source: Energy Aspects, Aug 24th, 2014, WSJ Nov 4 2014

Several events taken together along with lowered expectations of Chinese and European economic growth caused oil prices to weaken

• 9 mbd plus U.S. production
• Some strong non-OPEC production in 2014
• Significant volumes of crude moving from the U.S. to

Canada displacing African barrels (Bakken and Eagle Ford)

• Libyan crude unexpectedly comes on the market
• ISIS is pushing barrels on the market
• Draghi spooks markets with negative inflation

expectations for Europe in Jackson Hole Sept 2014

• People begin to actually believe the negative data out
• f China
• Saudi’s share of crude into China and Asia eroded by

volumes from Iran and Iraq

• Rise in dollar (drop in Euro)

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Source: Presentation by Dr. Maizar Rahman, Indonesian Governor for OPEC, 29 July 2004

Low oil price forecasts from 1990s through the mid-2000s can be attributed to two major forecasting errors: 1) The extrapolation forward of an ongoing, stable low price environment 2) The expectation that OPEC would currently be producing from 45 mbd to 60 mbd – It currently produces about 30 mbd

Past forecasting errors

$20 @ 2020

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Major cutbacks in global oil and gas projects

Source: Rystad study, FT, May 18 2015, Christopher Adams, “From Canada to Australia, energy cuts are laid bare”

Projects slowed or delayed Over $100 billion reduction in capital spending across the globe by oil and gas companies. Canada, Australia and Norway account for nearly three quarters of the total delayed capital spending

Source: Khalid A. Alsweilem, The Belfer Center for Science and International Affairs Harvard Kennedy School, “A Stable and Efficient Fiscal Framework for Saudi Arabia: The Role of Sovereign Funds in Decoupling Spending from Oil Revenue and Creating a Permanent Source of Income”

Total Development Cost for Upstream Projects (estimate)

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2015 Announced CAPEX Cuts

Company 2014 Capex (millions) 2015 Capex (millions) % Change BP $23,800.00 $20,000.00

• 16%

CNOOC $17,200.00 $11,200.00

• 35%

ConocoPhillips $16,870.00 $11,500.00

• 32%

Occidental Petroleum $8,700.00 $5,800.00

• 33%

Chevron $40,000.00 $35,000.00

• 13%

Hess $5,600.00 $4,700.00

• 16%

Continental Resources $5,200.00 $2,700.00

• 48%

Murphy Oil $3,430.00 $2,300.00

• 33%

Concho Resources $2,600.00 $2,000.00

• 23%

Sanchez Energy $870.00 $625.00

• 28%

Halcon Resources $1,100.00 $400.00

• 64%

Rosetta Resources $1,200.00 $750.00

• 38%

Oasis Petroleum $1,425.00 $800.00

• 44%

Diamondback Energy $710.00 $425.00

• 40%

PDC Energy $650.00 $557.00

• 14%

Bonanza Creek Energy $667.00 $420.00

• 37%

Breitburn Energy Partners $375.00 $200.00

• 47%

Stone Energy $875.00 $450.00

• 49%

Laredo Energy $1,000.00 $525.00

• 48%

EOG Resources $8,300.00 $5,000.00

• 40%

Shell $35,300.00 $35,000.00

• 1%

Statoil $20,000.00 $18,000.00

• 10%

Eni $13,900.00 $11,600.00

• 17%

BG Group $9,400.00 $6,500.00

• 31%

Apache Corp $9,500.00 $3,800.00

• 60%

Denbury Resources Inc $1,100.00 $550.00

• 50%

Emerald Oil Inc $225.00 $72.50

• 68%

Swift Energy $400.00 $100.00

• 75%

Marathon Oil $5,500.00 $4,400.00

• 20%

Goodrich Petroleum $375.00 $175.00

• 53%

Repsol $4,150.00 $2,700.00

• 35%

Bellatrix Exploration $400.00 $200.00

• 50%

Cabot Oil and Gas $1,600.00 $900.00

• 44%

Chesapeake Energy $6,700.00 $3,750.00

• 44%

Chinook Energy $135.00 $45.00

• 67%

Cimarex Energy $2,200.00 $1,200.00

• 45%

Concho Resources $3,000.00 $2,000.00

• 33%

Diamondback Energy $450.00 $425.00

• 6%

Encana Energy $2,550.00 $2,800.00 10% Gulfport $1,100.00 $660.00

• 40%

Linn Energy $1,550.00 $730.00

• 53%

Lonestar Resources $140.00 $93.00

• 34%

Magnum Hunter Resources $400.00 $100.00

• 75%

Newfield Exploration $2,000.00 $1,200.00

• 40%

Nighthawk Energy $22.40 $25.00 12% Parex Resources $290.00 $150.00

• 48%

Whiting Petroeum $4,000.00 $2,000.00

• 50%

ExxonMobil $38,500.00 $34,000.00

• 12%

Cairn India $1,200.00 $500.00

• 58%

Sasol $4,150.00 $3,735.00

• 10%

Average: 6216.188 4855.25

• 36%

Average CAPEX cut: 36%

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Drilling more and completing less

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• Pressuring service costs lower, drilling, but not completing (completion costs roughly 60%
• f well costs)
• Around 900 ND wells are waiting on completion. Similar numbers are likely across the

country – Eagle Ford and Permian (a few thousand in total)

• Reservoir performance, completion best practices, and cost reduction? Technological and

geological advances will likely take a back seat in a low price environment.

• Companies forced to make complex economic and geologic decisions
• Job losses and ability to quickly turn on production…? This limits the ability to bring

production on very quickly. Sort of a swing producer, but not in the OPEC sense.

• All dependent on the longevity of low oil prices

SLIDE 9

• 2,000

4,000 6,000 8,000 10,000 12,000 14,000 Thousand Barrels Per Day U.S. Field Production of Crude Oil Canadian Crude Oil Production

North American Oil Production

9

Source: EIA

U.S. 9.5 mbd (Mar 2015) Canada 3.7 mbd (Dec 2014) North America = 13.2 mbd

SLIDE 10

Source: HPDI, June 8 2015, Past 90 Days

Wil illi liston Ba Basin in Po Powder Riv River Ba Basin in Uint Uinta Ba Basin in DJ DJ Bas Basin in (Ni

(Niobrara R Reser servoir ir)

An Anadarko Ba Basin in

(M (Mis issi sissi ssippian ian, , Granit ite Wash, sh, Mis issi sissi ssippi i Lime ime and other st stacked plays) plays)

Permi mian Ba Basin in Ea Eagle le Ford Reservoir ir Ut Utica ica

Permit Activity

10

SLIDE 11

2000 4000 6000 8000 10000 12000 Thousand Barrels per Day U.S. Imports from Canada

• f Crude Oil Mbbl/d

U.S. Imports of Crude Oil Mbbl/d U.S. Field Production of Crude Oil Mbbl/d

11

U.S. Imports, Production, Canadian Imports

Source: EIA

40% from Canada

SLIDE 12

• 200,000

400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 1,800,000 2,000,000 Barrels Per Day Eagle Ford North Dakota Permian Basin Wyoming Colorado

Permian 1.8 mbd

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Shale oil play production

Source: HPDI June 8 2015, EIA, NDPA

Eagle Ford 1.6 mbd North Dakota 1.2 mbd Colorado 304,000 b/d Wyoming 239,000 b/d

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U.S. Imports from Abroad Steadily Decline

• This crude is

now pushed

• nto the world

market

Source: EIA

500 1000 1500 2000 2500 3000 3500 4000 4500

Thousand Barrels Per Day

Africa Middle East South America Europe North America Eurasia

Africa Middle East

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Source: EIA

Imports from Saudi Arabia, Canada, and Mexico

Trade flows are being altered

500 1000 1500 2000 2500 3000 3500

Thousand Barrels Per Day

Saudi Arabia Canada Mexico

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EPRINC Production Evaluation…what production could be…

2 4 6 8 10 12 14 16 18 20 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Production mbd

0-25 25-35 35-42 42-50 50+

Potential

• utcome

with decline in prices

Source: EPRINC/Ponderosa

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What sets the Bakken (and other tight oil) apart?

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• Globally coveted rocks
• 10,000 plus feet so more expensive to drill
• Break evens vary
• Good and stable crude quality
• Distance from markets – cost of transportation
• Rail accidents
• And other crudes going to those markets (has to go east or west)
• Bakken’s complexities make it tricky in short-term in a low oil price

environment

• The Bakken is the best known shale/tight/unconventional oil play in the

world and there is still a lot to learn. Long-term attraction/investment will continue

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Canadian oil production forecasts - trimmed

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Source: CAPP 2014 and 2015, “Crude Oil Forecast. Markets, and Transportation”

2014 Forecast 2015 Forecast

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100 200 300 400 500 600 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 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

Thousand Barrels Per Day

U.S. Exports of Crude Oil Mbbl/d Gulf Coast (PADD 3) Exports of Crude Oil Mbbl/d

U.S. exports of crude oil

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Source: EIA

Bakken and Gulf Coast crude being sent to eastern Canada pushing out light MENA barrels Jan 2015 - over 500,000 b/d to Canada – mostly to eastern Canada (refining capacity 800,000 b/d)

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500 1000 1500 2000 2500 3000 3500 Jan-73 Dec-73 Nov-74 Oct-75 Sep-76 Aug-77 Jul-78 Jun-79 May-80 Apr-81 Mar-82 Feb-83 Jan-84 Dec-84 Nov-85 Oct-86 Sep-87 Aug-88 Jul-89 Jun-90 May-91 Apr-92 Mar-93 Feb-94 Jan-95 Dec-95 Nov-96 Oct-97 Sep-98 Aug-99 Jul-00 Jun-01 May-02 Apr-03 Mar-04 Feb-05 Jan-06 Dec-06 Nov-07 Oct-08 Sep-09 Aug-10 Jul-11 Jun-12 May-13 Apr-14 Mar-15

Thousand Barrels Per Day

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U.S. imports of Canadian crude oil

Source: EIA

March 2015- 3.3 mbd

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Storage and Rig Count Obsession

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Cushing stockpiles and WTI

Source: EIA

$- $20 $40 $60 $80 $100 $120 $140 $160

• 10,000

20,000 30,000 40,000 50,000 60,000 70,000 1/4/2008 1/4/2009 1/4/2010 1/4/2011 1/4/2012 1/4/2013 1/4/2014 1/4/2015

$/Barrel Thousand Barrels

Weekly Cushing OK Ending Stocks excluding SPR of Crude Oil Thousand Barrels Cushing OK WTI Spot Price FOB $/bbl

3.1 million barrel drop since peak Draws north and south of Cushing

East Coast 97.3% Midwest 95.2 % Gulf Coast 96.9% Rockies 84.2%

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Rigs by location

Source: HPDI data April 10 2015 and Baker Hughes 200 400 600 800 1000 1200 1/7/2000 12/29/2000 12/21/2001 12/13/2002 12/5/2003 11/24/2004 11/18/2005 11/10/2006 11/2/2007 10/24/2008 10/16/2009 10/8/2010 9/30/2011 9/21/2012 9/13/2013 9/5/2014 # of Rigs Texas North Dakota Colorado Wyoming

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U.S. rigs and WTI

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Source: Baker Hughes, EIA

642 222 868

$- $20 $40 $60 $80 $100 $120 $140 $160 500 1,000 1,500 2,000 2,500 1/06/2006 3/17/2006 5/26/2006 8/04/2006 10/13/2006 12/22/2006 3/02/2007 5/11/2007 7/20/2007 9/28/2007 12/07/2007 2/15/2008 4/25/2008 7/04/2008 9/12/2008 11/21/2008 1/30/2009 4/04/2009 6/19/2009 8/28/2009 11/06/2009 1/15/2010 3/26/2010 6/04/2010 8/13/2010 10/22/2010 12/30/2010 3/11/2011 5/20/2011 7/29/2011 10/07/2011 12/16/2011 2/24/2012 5/04/2012 7/13/2012 9/21/2012 11/30/2012 2/08/2013 4/19/2013 6/28/2013 9/06/2013 11/15/2013 1/24/2014 4/04/2014 6/13/2014 8/22/2014 10/31/2014 1/09/2015 3/20/2015 5/29/2015

$/Barrel # of Rigs

Oil Gas Total Cushing OK WTI Spot Price FOB $/bbl

SLIDE 24

Rig cuts by play and region

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Source: Baker Hughes

100 200 300 400 500 600 2/4/2011 3/4/2011 4/1/2011 4/29/2011 5/27/2011 6/24/2011 7/22/2011 8/19/2011 9/16/2011 10/14/2011 11/11/2011 12/9/2011 1/6/2012 2/3/2012 3/2/2012 3/30/2012 4/27/2012 5/25/2012 6/22/2012 7/20/2012 8/17/2012 9/14/2012 10/12/2012 11/9/2012 12/7/2012 1/4/2013 2/1/2013 3/1/2013 3/28/2013 4/26/2013 5/24/2013 6/21/2013 7/19/2013 8/16/2013 9/13/2013 10/11/2013 11/8/2013 12/6/2013 1/3/2014 1/31/2014 2/28/2014 3/28/2014 4/25/2014 5/23/2014 6/20/2014 7/18/2014 8/15/2014 9/12/2014 10/10/2014 11/7/2014 12/5/2014 1/2/2015 1/30/2015 2/27/2015 3/27/2015 4/24/2015 5/22/2015

# of Rigs

DJ - Niobrara Eagle Ford Permian Williston

western Texas/southern New Mexico southern Texas North Dakota Rockies

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Wyoming

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Wyoming rig count

Source: HPDI June 10 2015 and Baker Hughes 20 40 60 80 100 120 1/7/2000 11/3/2000 8/31/2001 6/28/2002 4/25/2003 2/20/2004 12/17/2004 10/14/2005 8/11/2006 6/8/2007 4/4/2008 1/30/2009 11/25/2009 9/24/2010 7/22/2011 5/18/2012 3/15/2013 1/10/2014 11/7/2014 # of Rigs

Wyoming

Wyoming

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Permit focus by reservoir

Source: HPDI, June 9 2015, Permits filed in past 90 days

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Jan 2014 first production

Source: HPDI June 9, 2015

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Multiple formations contributing to a rise in production

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API gravity – From Jan 2014

Source: HPDI data June 10, 2015, First production Jan 2014

40-45 35-39 46-49 50-55 56 plus

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• School of Mines is looking at Wyoming and Colorado crude – carbon

biomarkers

• Depositional environment of the Western Interior Creatateous Seaway –

created different types of crude

• Two different reservoir categories

– Upper = Niobrara/Sussex/Turner – Lower = Mowry/Muddy/Dakota

• Lightest oils typically occur at deepest part of the basin in both categories
• Mowry – 1800 to 8000 ft see the same crude quality at all depths – so

migration occurred

• Turner – Two different oils from two wells next to each other at same

depth

• Muddy and Mowry – see high API gravity and extreme lights in some wells

– indicated fractures and network which induced migration

Source: Information from School of Mines presentation, DUG Bakken Niobrara conference Denver March 2015

31

Varying grades of crude oil in Wyoming

SLIDE 32

Source: CAPP, ArcGIS Hart Energy

32

Wyoming Pipelines

SLIDE 33

Source: Wyoming Pipeline Authority Base Map

33

Wyoming’s Play in Crude by Rail

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Wyoming crude by rail facilities

34

• Casper Logistics Hub – Bishop, WY – Operational; unit train capability
• Granite Peak Development, Stone Peak Infrastructure, Cogent Energy Solutions
• Cheyenne Logistics Hub at Swan Ranch – Cheyenne, WY – Operational; unit train capability; approx.

15,000 bpd

• Granite Peak Development, Cogent Energy Solutions
• Pronghorn Facility– Bill, WY – Operational; unit train capability; double loop design with time efficient

unit train filling system

• Genesis Energy
• Eighty Eight Oil – Ft. Laramie, WY – Operational; unit train capability; approx. 80,000 bpd capacity
• True Companies, Eighty Eight Oil
• Tiger Transfer/Upton Logistics – Upton, WY – Operational; manifest trains only in a mixed use

industrial rail park

• Tiger Transfer LLC
• Powder River Basin Industrial Complex – Douglas, WY – Operational; unit train capability; approx.

20,000 bpd capacity

• Enserco, Crestwood Midstream Partners
• Black Thunder Terminal– Wright, WY – Operational; unit train capability; approx. 15,000bpd
• Meritage Midstream Services

SLIDE 35

BLM Fracking Regulations

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Submit detailed information about the proposed operation, including wellbore geology, the location of faults and fractures, the depths of all usable water, estimated volume of fluid to be used, and estimated direction and length of fractures, to the BLM with the APD or a Sundry Notice and Report on Wells (Form 3160–5) as a Notice of Intent (NOI) to hydraulically fracture an existing well; Sage Grouse

Source, USGS http://nationalmap.gov/small_scale/printable/images/pdf/fedlands/DOI_ALL_2.pdf Source: http://www.gpo.gov/fdsys/pkg/FR-2015-03-26/pdf/2015-06658.pdf

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Sage Grouse

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Source: Fish and Wildlife Service

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Production and Technology

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SLIDE 38

• 200,000

400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 1,800,000 2,000,000 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 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Barrels Per Day Eagle Ford North Dakota Permian Basin Wyoming Colorado

*Permian 1.7 mbd

38

Shale oil play production

Source: HPDI April 10 2015, EIA, NDPA

Eagle Ford 1.5 mbd

North Dakota 1.2 mbd

Colorado 258,000 b/d Wyoming 220,000 b/d

SLIDE 39

ND Crude Forecast

39

SLIDE 40

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A little dive into ND data

Source: NDIC

March 2015 – 880 wells WOC estimated February 2015 – 900 wells WOC January 2015 – 825 wells WOC Dec – 750 Nov – 775 Oct 2014 – 650 Sept 2014 – 610 2014 avg - 646 2013 avg - 478

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Technology advances and then oil prices drop

Source: The American Oil and Gas Reporter, Dec 2011; Continental Resources November 2014 Investor Presentation; Cosima Theloy and Steve Sonnenberg, SPE Paper 168870, presented Denver Aug 2013, “Integrating Geology and Engineering: Implications for Production in the Bakken Play, Williston Basin” Source: Continental Resources March Investor Presentation, Permission granted

Microseismic Monitoring Increasing well density Mud motors Horse power Better and stronger drill bits

SLIDE 42

Room for improvement - Conventional vs. Tight Oil Recovery

42

Source: Robert Kleinberg presentation, Schlumberger, IEA conference at School of Mines Oct 28, 2014

SLIDE 43

43

Example of Refracing – ConocoPhillips

Source: Jon Snyder-ConocoPhillips Completion Engineer, Bakken SPE Workshop April 23, 2015

SLIDE 44

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Infrastructure and Pricing

SLIDE 45

Major chokepoints are still relevant

Source: EPRINC Choke Point Map using Hart ArcGIS Mapping software

45

SLIDE 46

Regional Pricing Disparities

Source: June 12, 2015 Map from AFPM, Flint Hills, EIA, CME Group, and estimates

46

SLIDE 47

47

North Dakota Crude Oil Transport

Source: North Dakota Pipeline Authority

March 2014 Estimates January 2012 Estimates March 2015 Estimates

SLIDE 48

March 2015 Williston Basin Crude Transportation

Source: NDPA, EPRINC Estimates

48

Tesoro Refinery: 68,000 b/d Truck to Canadian Pipeline: 8,000 b/d Rail: 688,000 b/d Pipeline: 518,283 b/d

Williston Basin Production: 1.258 mbd North Dakota: 1,190,583 b/d South Dakota: 4,700* b/d Eastern Montana: 63,000* b/d

SLIDE 49

Price Comparison

Source: EIA, Flint Hills, CME Group, Bloomberg

49

$0.00 $20.00 $40.00 $60.00 $80.00 $100.00 $120.00 $140.00 $160.00 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 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 WTI Bakken (North Dakota Light Sweet Flint Hills) WCS (Western Canadian Select) Brent Wyoming Light Sweet (Flint Hills)

Wyoming Sweet June 12th - $53.50

SLIDE 50

50

Source: Flint Hills ND Light Sweet, *Estimates from RBN blog Feb 2015

Bakken netbacks under pressure

50

West Coast by Rail $10 - $15 Gulf by Rail $10 - $15 Gulf by Pipe $11* East Coast by Rail $10 - $15 Cushing by Rail $10 - $15 Cushing by Pipe $9* 6/12/15 $47.50 $60 $64 $64 $64 Good crude, but not close to major markets

SLIDE 51

51

Williston Basin Rail Estimates

Source: NDPA

• 100,000

200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15

Barrels Per Day

688,000 b/d

SLIDE 52

52

Crude by rail volumes

Source EIA

U.S. 876,000 b/d From Canada 106,000 b/d From U.S. to Canada 39,000 b/d

• 200

400 600 800 1,000 1,200

Thousand Barrels Per Day

Canada Receipts by Rail from U.S. of Crude Oil U.S. Crude Oil by Rail U.S. Receipts by Rail from Canada of Crude Oil

SLIDE 53

53

Rockies crude sent to every coast

Source EIA March 31, 2015:

SLIDE 54

Crude by Rail Accidents

54

LAC MAGENTIC: AP PHOTO/THE CANADIAN PRESS, PAUL CHIASSON http://usnews.nbcnews.com/_news/2013/12/30/22113442-mile-long-train- carrying-crude-oil-derails-explodes-in-north-dakota?lite

SLIDE 55

Accident List

55

• July 6, 2013, a run-away train crashed and exploded in Lac-Mégantic, Quebec, killing 47 people and

destroying 30 buildings in the town’s center.

• October 19, 2013, 13 cars carrying crude oil and liquefied petroleum gas derailed west of Edmonton, AB.

Despite the resulting fire, no injuries were reported.

• November 8, 2013, 12 of 90 cars derailed from a train carrying crude oil near Aliceville, Alabama (45 miles

SW Tuscaloosa). Nobody was injured, but 3 cars exploded.

• December 30, 2013, a train hauling grain derailed near Casselton, ND hitting a 106 car train of crude oil

which caused 18 crude tank cars to derail, causing a massive explosion and fireball.

• January 7, 2014, a Canadian National Railway Co. (CN) train jumped its tracks in Plaster Rock, New
• Brunswick. 15 cars, carrying propane and crude oil from Western Canada, derailed and caught fire.
• January 20, 2014, a CSX train derailed in Pennsylvania on a railroad bridge and closed a busy expressway

(Schuylkill). The train did not leak any crude oil.

• January 27, 2014, a CN train derailed near Edmunston, New Brunswick. Five cars left the tracks, three

carrying automobiles, and one each of LPG and clay. No injuries were reported.

• January 31, 2014, a CN train carrying heavy Canadian crude and other products derailed and leaked in New

Augusta, MS. Some houses near the derailment were evacuated, but no injuries reported.

• February 13, 2014, 21 of 120 Norfolk Southern cars carrying heavy Canadian crude derailed in Vandergrift,

PA.

• April 30, 2014, oil-filled cars on a CSX train derailed and caught fire in Lynchburg, VA (3 of 15 cars that

derailed caught fire). No injuries were reported, but 300 people were temporarily evacuated.

SLIDE 56

…Accident List Continued

56

• May 10, 2014, a Union Pacific Railroad train derailed west of LaSalle, CO, spilling 6500 gallons of Niobrara

formation crude oil from six cars.

• June 7, 2014, a CSX train carrying one car of light petroleum derailed on the Jerome Bridge near

McKeesport, PA. No oil spilled as a result of the derailment. ***

• January 31, 2015, tank cars derailed in CSX in Philadelphia, PA, but did not rupture
• February 14, 2015, 29 of 100 cars derailed on CN in Timmins, Ontario transporting crude and product, 7 out
• f the 29 caught fire
• February 16, 2015, 26 cars in a 109 CSX unit train carrying Bakken crude derailed in Mount Carbon, WV. 14
• f the 26 cars caught fire. A home was destroyed and a person was injured. Drinking water was
• contaminated. The pressure of the Bakken oil on the train, said to be at 13.9psi, was above the new North

Dakota maximum (13.7) implemented in April.

• March 2, 2015, a Union Pacific Railroad train derailed 10 cars near Meacham, OR, 1 of which contained

residual liquefied petroleum gas. None of the cars that derailed caused any significant environmental damage as the result of leakages.****

• March 5, 2015, 21 of 105 cars carrying Bakken crude derailed on BNSF in Galena, IL. At least 5 cars caught

fire.

• March 7, 2015, 39 cars derailed on a 94 car CN train in Gogama, Ontario carrying heavy Canadian crude. 5

cars entered the Makami River, while 7 others caught fire and burned for multiple days.

• May 6, 2015, 6 cars filled with crude oil spilled and ignited after the BNSF train on which they were

travelling derailed in Heimdal, ND. The small town and surrounding farms were temporarily evacuated.

SLIDE 57

Final DOT Crude by Rail Ruling

57

SLIDE 58

Pipeline vs. Rail Costs

Source: CAPP 2015 Forecast

58

• 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: EPRINC Maps using Hart Energy data and ArcGIS Mapping software

SLIDE 59

2013 vs. 2014 Crude Disposition

Source: CAPP Crude Oil Forecast June 2013

59

SLIDE 60

Canadian pipeline export options becoming limited

Source: Canadian Energy Pipeline Association

60

• Kinder Morgan’s Transmountain line
• ff 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 1.1 mbd

SLIDE 61

Supply vs. Take-Away Capacity is Risky at Best

61

Source: CAPP 2015, “Crude Oil Forecast. Markets, and Transportation”

AT RISK

SLIDE 62

Bakken Pipeline and Refinery Capacity

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Source: NDPA

Source: EPRINC’s article in Oil and Gas Journal March 2014

SLIDE 63

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Source: Energywire, April 10 2015, Daniel Cisick, “Bakken-bearing pipeline meets stiff opposition in the Land of 10,000 Lakes” and TransCanada

Pipeline development still at risk

Sandpiper Pipeline $2.6 billion, 610 miles – 225,000b/d from ND to Superior, Wisconsin ND approved, but in administrative review in Minnesota

Source: TransCanada

Energy East Pipeline $12 billion project, 1.1 mbd (1 mbd firm long- term contracts) Now expected 2020 in service date

SLIDE 64

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Forecast and Transport Comparison

Source: North Dakota Pipeline Authority

2014 vs. April 2015

SLIDE 65

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Refining/Downstream

SLIDE 66

Bakken Quality Comparison

Source: Continental Resources March Investor Presentation, Permission granted

66

SLIDE 67

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Distillation yield comparison

Source: EIA, “Technical Options for Processing Additional Light Tight Oil Volumes within the United States,” April 2015

SLIDE 68

Crude quality comparisons

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In comparison to other light sweet crudes being produced in the U.S., the Bakken shakes out well

• Natural fit for more simple East Coast refineries
• Good resid cracking feed properties
• East Coast will continue to be a long-term home for Bakken crude
• Decent distillate yield
• High level of reformer feed can cause some naptha handling issues
• Eagle Ford – varying grades with extreme lights (high naptha 60%

plus cause problems)

• Utica – condensate
• Niobrara – mix of light and heavy

SLIDE 69

10 20 30 40 50 60

• 1,000,000

2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000 10,000,000 PADD 1 East Coast PADD 2 Midwest PADD 3 Gulf Coast PADD 4 Rockies PADD 5 West Coast Number of Refineries Barrels Per Calendar Day Operable Atmospheric Crude Oil Distillation Capacity Thermal Cracking Coking Downstream Charge Capacity Operating Refineries

Where the light and heavy need to go….

Source: AFPM map, EIA data for graph

Total Coking Capacity vs. Atmospheric Crude Distillation Capacity by PADD Cokers = Heavy refining capability

69

SLIDE 70

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Canadian imports by PADD - RED

Source: EIA 200 400 600 800 1000 1200 1400 1600 2008 2009 2010 2011 2012 2013 2014 Jan-Mar 2015 Thousand Barrels per Day

East Coast PADD I

East Coast (PADD 1) Total Foreign Imports East Coast (PADD 1) Imports from Canada 1000 2000 3000 4000 5000 6000 Thousand Barrels per Day

Gulf Coast PADD III

Gulf Coast (PADD 3) Total Foreign Imports Gulf Coast (PADD 3) Imports from Canada 50 100 150 200 250 300 2008 2009 2010 2011 2012 2013 2014 Jan-Mar 2015 Thousand Barrels per Day

Rockies PADD IV

Rocky Mountain (PADD 4) Total Foreign Imports Rocky Mountain (PADD 4) Imports from Canada 200 400 600 800 1000 1200 1400 Thousand Barrels per Day

West Coast PADD V

West Coast (PADD 5) Total Foreign Imports West Coast (PADD 5) Imports from Canada 500 1000 1500 2000 2500 2008 2009 2010 2011 2012 2013 2014 Jan-Mar 2015 Thousand Barrels per Day

Midwest PADD II

Midwest (PADD 2) Total Foreign Imports Midwest (PADD 2) Imports from Canada

2015 Avg 338,000 b/d

SLIDE 71

Do exports matter for the Rockies?

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Source: Drilling Info and EOG Investor Presentation

• 1. Too much light sweet in the Gulf
• 2. Varying grades of condensate
• 3. Lack of clarity on exports – Do

refiners expand? Build splitters?

SLIDE 72

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Geology of the Eagle Ford = Varying Liquid Grades

Source: Momentum Oil and Gas LLC, DUG Eagle Ford Conference Presentation Oct 2011; EOG Investor Presentation Feb 2014;

SLIDE 73

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These differences have been impacting prices

June 15, 2015 WTI $59.66 Brent $62.61 Nat Gas $2.91

SLIDE 74

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Comparing options to handle more lights

Source: EIA, “Technical Options for Processing Additional Light Tight Oil Volumes within the United States,” April 2015

SLIDE 75

2015 Energy Sector CAPEX Cuts and Debt Troubles

75

SLIDE 76

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Optimism and yield prevail

Source: FT, April 7, 2015, “Energy junk bonds find much needed support,” Robin Wigglesworth

This is a new environment of easy money and low oil prices and it has allowed a lot of smaller independent

• il companies to take on more debt

and continue financing their operations despite a dramatic change in price. Bankruptcies Asset reallocation

SLIDE 77

77

Source: WSJ, March 9 2015, Investors Are Buying Stocks and Bonds From Energy Producers Amid Oil Price Drop, By CORRIE DRIEBUSCH, RYAN DEZEMBER and MIKE CHERNEYDeep Debt Keeps Oil Firms Pumping; Producers Have Increased Their Borrowings by 55% Since 2010 By ERIN AILWORTH, RUSSELL GOLD and TIMOTHY PUKO January 6, 2015

Able to sell more bonds and issue more stock

77

SLIDE 78

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Source: ITG Investment Presentation Nov 2012

Break-evens vary across the board

78

SLIDE 79

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Long-term production stability in North America

• The unconventional oil sector has only been around since 2008
• Unconventional/shale/tight oil has been lumped together with deepwater and other

costly oil production types, suggesting that the long-term productivity and economics of this type of production may just not work if prices do not recover back into the $80s

• The youth of the industry, lack of knowledge of the reservoirs, and high cost of

production are actually what make U.S. unconventional oil a good long-term investment – the upside remains vast.

• The industry has yet to integrate geology, completion design, and production into one

package.

• Long-term production has simply been an afterthought in the oil boom. The potential to

alter well design and completions with long-term production in mind could alter EURs.

SLIDE 80

Final Thoughts

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This is a boom and bust business! Right now it is busting, but it will boom again.