Williston Basin Greasing the Gears for Growth in North Dakota - - PowerPoint PPT Presentation

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Williston Basin

Greasing the Gears for Growth in North Dakota

NDPA/NDIC Study

Presented By:

BENTEK Energy

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The Williston Basin Is Benefiting From the Significant Shift in Natural Gas Dynamics as a Result of:

• A Realignment of Producer Investment Criteria Toward Oil and

NGL Plays.

• Reduction in Production From Neighboring, Less Economic

Producing Basins. While Still Early, Current Data Suggests the Basin Could Yield Higher Future Gas and NGL Volumes Due to a Rising Gas to Oil Ratio (GOR). Strong Drilling Economics, a Rising GOR and Greater Efficiency Will Increase the Future Output From the Basin. Under BENTEK’s Base Case Scenario, Oil Production Will Climb to 2.2 MMB/d and Gross Gas Production Will Top 3.0 Bcf/d by the end of 2022.

Basin Conclusions

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Oil Prices and Oil Infrastructure Takeaway Capacity Are Primary Drivers of the Strong Economics in the Region and Will Ultimately Drive Growth. Given Growth Expectations, Significant Midstream Investment Will Be Required To Capture Natural Gas and NGL Value in the Basin. Williston Basin Economics Enable Producers in the Region to Sufficiently Compete on Price with Upstream Natural Gas Supply In the Rockies and Canada for Space Out of the Region on Existing Infrastructure.

Basin Conclusions (Continued)

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Canadian Imports/LNG/Storage 20.0 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0 65.0 70.0 Bcf/d US Dry Production US Consumption

Natural Gas Supply Growth is Changing The US Energy Landscape

2011 3.75 Bcf/d 2000 11.34 Bcf/d 1990 3.74 Bcf/d

Source: EIA

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Source: ICE, EIA

Commodity Price Disparities Are Shifting Producer Behavior

• Higher Relative Oil and NGL

Prices Incentivize Producers to Redirect Resources Toward Assets With a Higher BTU Content.

• Driving Capital into the

Williston Basin and Reducing Competition For Space on Existing Infrastructure Moving Gas Out of the Area. AND ARE

$0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00

$/MMBtu Equivalent HH MB NGL WTI

• Low Natural Gas Prices Are

Forcing Producers to Revaluate Economics and Investment in Conventional and Even Unconventional Lean Gas Assets.

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• 20%

0% 20% 40% 60% 80% 100%

Bakken Earns Above Average Returns

Price Assumptions: Gas = 12 month forward average curve for each regional pricing point as of June, 2012 (price range $2.45-$2.86/Mcf) Oil = 6 month average WTI +/- differential as of June, 2012 (price range $84.40-$100.43/barrel) NGLs = weighted average $/barrel based on current Mt. Belvieu prices and the typical composition in each region (range $23.79-$45.22/barrel)

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New Economic Realities Challenge Basin Returns

Conventional Unconventional

8 10 12 14 16 18 Bcf/d

Alberta BC Other Saskatchewan Nova Scotia

2 4 6 8 10 Bcf/d

DJ Other Piceance Powder River GR-O Uinta

Canada Rockies

• 2

4 6 8 10 12 Bcf/d

Haynesville Fayetteville

Southeast

• 1

2 3 4 Bcf/d

Woodford

• E. Tx Haynesville

Midcon/TX

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2168 +809

11/+3 228/+147 52/+24

91/+15

16/+5 7/+1 40/+15 25/-5 20/+11 96/+58 11/-18 3/+0 19/-4 265/+205 23/+19 6/-2 46/+28 30/+15 7/+4

Active rig count: June 15, 2012 / Change in rig count from Jan. 1, 2010

Rig Increases Dry Gas Focused Areas Rig Increases Liquids-Rich/Oil Focused Areas Rig Declines Source: Rig Data, BENTEK, June 2012

Plays With High Returns Attract Drilling Rigs

3/-9 96/+12 68/+9 48/+30

78/-31

22/-15 254/+131 521/+302 44/-49 37/-92

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0% 20% 40% 60% 80% 100% 50 100 150 200 250 % Horizontal Rigs to Total

• No. of Rigs

Total Dir Ver Hor % Horizontal

Capital Moving to Oil - Williston Basin (MT and ND) Rigs

RigData: July 2012

Added 193 Rigs Since May 2009 Rigs Reach All Time High of 236

BENPOSIUM 2009 11

Williston Basin Forecasts

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50 100 150 200 250 300 350 400 450 b/d Month

2012 2011 2010 2009 2008 2007 2006 2005 Type Curve

Williston ND Horizontal Oil Type Curve Converges

Yr Decline 1 65% 2 30% 3 22% 4 19% 5 16% 6 10% 7 10% 8 5% 9 5% 10 2%

30-day IP rate: 400 b/d EUR: 459,000 bbls Well Life: 25 years

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50 100 150 200 250 300 350 400 450 Mcf/d Month

2012 2011 2010 2009 2008 2007 2006 2005 Type Curve Adjusted Type Curve

Older ND Wells Suggest a Flat Gas Type Curve

Yr Avg Decline Adj Decline 1 58% 58% 2 30% 30% 3 26% 10% 4 15% 5% 5 15% 5% 6 10% 5% 7 10% 5% 8 6% 5% 9 4% 4% 10 2% 2%

30-day IP rate: 340 Mcf/d EUR: 669,000 Mcf

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ND Model EURs Inline with Producers Expectations Model Oil: 459,000 Bbls Gas: 111,500 Boe

• Total: 570,500 Boe

CLR: 603 Mboe Whiting: 450-900 Mboe (Sanish) Oasis: 450-750 Mboe (Middle Bakken)

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Williston MT Horizontal Associated Gas Type Curves Reflect Adjusted ND Type Curve

20 40 60 80 100 120 140 160 Mcf/d Months

2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 Type Curve

Yr Decline 1 40% 2 15% 3 15% 4 10% 5 5% 6 5% 7 5% 8 5% 9 5% 10 5%

30-day IP rate: 139 Mcf/d EUR: 369,000 Mcf

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Stronger Gas Oil Ratio (GOR) Expected For ND Horizontal Oil Wells

0.0 0.5 1.0 1.5 2.0 2.5 Mcf/bbl Month 2012 2011 2010 2009 2008 2007 2006 2005 GOR Adjusted GOR

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5 10 15 20 25 30 35 Days

• Avg. Drill Time Per Well

Basin Avg. 2010 to 2012

PAD Drilling Leads to a Reduction in Drill Time of 11 Days

Source: RigData

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50 100 150 200 250 300 350 400

• 500

1,000 1,500 2,000 2,500 3,000 3,500 4,000

• No. Rigs
• No. Wells

Rigs-ND Rigs-MT Wells- ND Wells-MT

Base Case- Level of Activity Remains At Current Levels For the Next 10 years

Reserve Requirement: 22 Billion Boe

CLR: 24 Billion Boe Technically Recoverable Oil and Gas

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Nine New Pipeline Expansions or New Build Slated in the Next Six Years; One Refinery Expansion

1,155 Mb/d of Additional Pipeline Capacity *map does not include Banner and

Sandpiper projects

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High Case Scenario-Consistently Tests Oil Takeaway Capacity, Stressing Prices and Producers

50 100 150 200 250 300 350 400

• 500

1,000 1,500 2,000 2,500 3,000 3,500 4,000

• No. Rigs
• No. Wells

Rigs-ND Rigs-MT Wells- ND Wells-MT Reserve Requirement: 28 Billion Boe

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Drilling Economics Struggle @ $50 Oil

0% 20% 40% 60% 80% 100% 120% 140% $50 $60 $70 $80 $90 $100 $110 IRR Oil $/barrel

IRR Sensitivities to Changes in Oil Prices

Anad-Miss Bakken Eagle Ford Oil Granite Wash Montney Niobrara Permian Uinta

Note: Assumes NGL: Oil price ratio 50%; IP(oil/gas/ngl): 700 B/d, 400 Mcf/d, 60 b/d; 1,300 BTU; D&C Costs $8.5 Mil

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Williston Growth Can Be Maintained at Low Prices

0% 20% 40% 60% 80% 100% 120% 140% 160% 400 500 600 700 800 900 1,000 IRR Oil IP Rate (B/d)

Williston IRR Sensitivities: Oil IP Rates/Oil Prices

$50/bbl $60/bbl $70/bbl $80/bbl $90/bbl $100/bbl $110/bbl Oil Price

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$50 Oil Challenges Fringe Economics

10 20 30 40 50 60 0% 10% 20% 30% 40% 50% 60% Active Rigs IRR IRR Active Rigs $50 Oil

Other counties with active rigs that see reduced activity include: Bowman, Roosevelt, Richland, Golden Valley, Burke

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Low Case – Driven By Low Oil Prices

50 100 150 200 250 300 350 400

• 500

1,000 1,500 2,000 2,500 3,000 3,500 4,000

• No. Rigs
• No. Wells

Rigs-ND Rigs-MT Wells- ND Wells-MT Reserve Requirement: 13 Billion Boe

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Comparison of Oil Production Based on Various Scenarios

• High Case:

Consistently Tests Oil Takeaway Capacity, Stressing Prices and Producers.

• Base Case: Provides

Strong Consistent Growth For the Basin Without Straining Takeaway Capacity Until Around 2022.

• Low Case: Suggests

a Significant Pullback in Activity Due to Falling Oil Prices. 0.0 0.5 1.0 1.5 2.0 2.5 3.0 MMb/d High Base Low Capacity Sandpiper Project

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0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 Bcf/d

North Dakota Gross Gas Production

ND_High Case ND_Base Case ND_Low Case

North Dakota Gross Gas Production Set To Climb

BENPOSIUM 2009 27

Bring Gas Supply to Market

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0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 Bcf/d Gross Production Flared Processing Capacity

Plains Ross Plant ONEOK Stateline I ONEOK Stateline II

HESS Tioga Plant Expansion

New Frontier Midstream ONEOK Garden Creek

New Processing and Midstream Infrastructure Needed to Meet Growing Gas Production in the Williston

545 MMcf/d of Planned Processing Expansions Over Next Two Years

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Open Capacity Leaving N. Dakota Is Tight

0.0 0.5 1.0 1.5 2.0 2.5 3.0 Bcf/d

Northern Border Flows

Flows Capacity 0.0 0.5 1.0 1.5 2.0 2.5 Bcf/d

Alliance

Flows Capacity

• Northern Border and Alliance Serve As the

Primary Routes to Transport Gas From the Region.

• Each Have Limited Open Mainline Capacity to

Carry Additional Williston Supply.

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WBI Provides Local Demand Support

0.0 0.1 0.2 0.3 Bcf/d

WBI Deliveries

End User Demand LDC Muni Power Plant

• 0.1

0.0 0.1 0.2 0.3 0.4 Bcf/d

WBI State Receipts

WY MT SD

• Total Deliveries off of WBI Have Not Increased

Substantially Over the Last Several Years

• Receipts Into the WBI System From MT, WY

and SD Have Already Been Reduced.

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Inlet Flows Currently Losing Market Share

0.0 0.5 1.0 1.5 2.0 2.5 3.0 Bcf/d

Northern Border – Port of Morgan

Flows Capacity 0.0 0.1 0.2 0.3 0.4 0.5 0.6 Bcf/d

Bison

Flows Capacity

• Declining PRB Production and Increased

Competition For Space Has Resulted in Reduced Flows on Bison.

• Canadian Inflows Into Northern Border Have

Remained Relatively Strong, But Have Experienced Displacement in the Past and Now.

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Port of Morgan: The Rex Effect

• From 2008 – 2010, Rex Deliveries

Into The Midwest Pushed out Existing Inflows From Canada. Once Rex Completed Zone Three Into the Northeast, Canada Resumed Stronger Flows Into the U.S. on Northern Border.

0.0 0.5 1.0 1.5 2.0 2.5 2008 2009 2010 2011 2012 Bcf/d

Port of Morgan Average Daily Flow

0.0 0.5 1.0 1.5 2.0 2.5 Bcf/d

Port of Morgan Flows REX East Flows

REX East

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Contract Holders and Expirations Provide Latitude

Northern Border Alliance

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 Bcf/d

Expirations

LDC 11% Marketer 34% Pipeline 6% Producer 49%

Type of Shipper

0.0 0.2 0.4 0.6 0.8 1.0 1.2 Bcf/d

Expirations

End User 6% LDC 24% Marketer 34% Pipeline 5% Producer 31%

Type of Shipper

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New Residue Volumes Move In on Canada

• Garden Creek Deliveries Into

Northern Border Have Ramped Up Quickly, Effectively Displacing Other Receipts Into the System.

• Other New Facilities That Are Coming

Online in the Williston Basin Have the Potential to Displace Canadian Supplied Gas.

• Williston Basin Supply Has A

Competitive Advantage When Competing For Access to Pipeline Space.

North Dakota

Port of Morgan

Garden Creek Plant

• 20

40 60 80 100 MMcf/d

Garden Creek Processing Plant

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Canada Continues to Lose U.S. Market Share

2 4 6 8 10 12 Bcf/d

Net Imports from Canada

Northeast West Midwest

SE/Gulf 0.12 $ Bakken 0.16 $ Midcon 0.16 $ Rockies 0.22 $ Canada 0.24 $ Variable Transport Cost To Chicago @ $4.00 per MMBtu

• In Addition to An IRR Economic

Advantage, Williston Basin Producers Also Have Transport Advantage Versus Canadian Suppliers.

• In a Low Gas Price Environment, The

Marginal Suppliers Gets Pinched at the Wellhead.

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Canadian Spreads Narrow to Surrounding Markets

$0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 ($1.00) ($0.80) ($0.60) ($0.40) ($0.20) $0.00 $0.20 Henry Hub Price Basis Price

Market Price Forecasts

CIG Basis Ventura Basis AECO Basis Chicago Basis Henry Hub Spot

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The Williston Basin Is Benefiting From the Significant Shift in Natural Gas Dynamics as a Result of:

• A Realignment of Producer Investment Criteria Toward Oil and

NGL Plays.

• Reduction in Production From Neighboring, Less Economic

Producing Basins. While Still Early, Current Data Suggests the Basin Could Yield Higher Future Gas and NGL Volumes Due to a Rising Gas to Oil Ratio (GOR). Strong Drilling Economics, a Rising GOR and Greater Efficiency Will Increase the Future Output From the Basin. Under BENTEK’s Base Case Scenario, Oil Production Will Climb to 2.2 MMB/d and Gross Gas Production Will Top 3.0 Bcf/d by the end of 2022.

Basin Conclusions

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BENTEKENERGY.COM

Oil Prices and Oil Infrastructure Takeaway Capacity Are Primary Drivers of the Strong Economics in the Region and Will Ultimately Drive Growth. Given Growth Expectations, Significant Midstream Investment Will Be Required To Capture Natural Gas and NGL Value in the Basin. Williston Basin Economics Enable Producers in the Region to Sufficiently Compete on Price with Upstream Natural Gas Supply In the Rockies and Canada for Space Out of the Region on Existing Infrastructure.

Basin Conclusions (Continued)

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BENTEK Energy

BENTEK is an energy market analytics company, focused

• n the natural gas market and related energy sectors.

Justin Carlson jcarlson@bentekenergy.com Jodi Quinnell jquinnell@bentekenergy.com Jennifer Van Dinter jvandinter@bentekenergy.com Contact Any Analyst Direct at (303) 988-1320

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