Equity Research Published by Raymond James & Associates Raymond James Energy Group (800) 945-6275 © 2013 Raymond James & Associates, Inc., member New York.

Equity ResearchPublished by Raymond James & Associates

Raymond James Energy Group

Raymond James Energy Group(800) 945-6275

© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.

International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863

[email protected]@[email protected]

Please read disclosure/risk information and Analyst Certification at the end of the presentation.

Equity Research

November 13, 2013



Please read disclosure/risk information and Analyst Certification at the end of the presentation.

Published by Raymond James & Associates

Raymond James Energy Group

IPAA: RJ Energy Outlook

John Freeman Andrew ColemanJim Rollyson Collin Gerry

Darren Horowitz Kevin Smith Pavel Molchanov Cory Garcia

E&P Oil Service/Coal

Marshall Adkins

MLP Major & Refiners & Alt. Energy

Raymond James Energy Group(800) 945-6275

[email protected]@[email protected]



International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 2

Game Change in U.S. Oil & Gas!

• Oil price structurally challenged– Global oil demand is sputtering

– U.S. oil supply up huge!

– Oil market is telling you there is a problem!

– Bulls must count on additional disruptions

• U.S. nat gas poised for longer-term recovery– Demand poised to surge– But plenty of gas @ $4.00




Oil OutlookWithout Strong Global Economic Recovery,

Oil Will Be Structurally Challenged




Why Are We Worried About Oil?

• Oil inventories rising despite massive supply outages (3+ MMBpd offline since 2010)

• Oil inventories on track to max out in 2014

• OPEC excess capacity near 20+ year high

• Will Saudi/OPEC cut an additional 2 MMBpd?

• If not, oil prices are moving lower




How Does Our Oil Forecast Stack Up?

• In-Line with Consensus for 2013

• 10 –15% below consensus in 2014

• 10 –20% below Consensus in 2015 +

• Way Below Street for 2015 WTI-Brent Spreads2013 2014 2015 Long Term 2013 2014 2015 Long Term 2013 2014 2015 Long Term

New RJ Forecast $100.00 $83.00 $70.00 $80.00 $109.00 $95.00 $90.00 $90.00 $9.00 $12.00 $20.00 $10.00NYMEX Futures Strip $99.86 $99.19 $89.86 $82.93 $109.65 $106.38 $99.15 $90.96 $9.79 $7.19 $9.29 $8.03% Change 0% -16% -22% -4% -1% -11% -9% -1% -8% 67% 115% 25%

WTI Brent Spread

Source: Thomson Reuters; Raymond James Research




Does the Market Now Get It?

6

Source: Bloomberg; Raymond James Research




Long Term Strip is Coming Our Way

Source: FactSet; Raymond James Research

RJ Forecast

y y y

$78.00

$80.00

$82.00

$84.00

$86.00

$88.00

$90.00

$92.00

$94.00

As of December2010

As of December2011

As of December2012

Current Strip

2015-2020 Average "Long-Term" WTI Strip (NYMEX)

Current Long-term Forecast

Long-Term Oil Price Assumptions Moving Toward Us!

Old Long-term Forecast




• North American crude supply growing ±1.5 million BPD over next several years.

• “Other” supply growth outpacing declines

• Global demand growing about half as fast as supply (700,000 – 900,000 BPD)

What are the Headwinds for Oil?




Staggering U.S. Oil Supply Growth!




Near-Term Supply Growth Very Visible




U.S. Actuals Tracking Above RJ 2012 Forecast

Source: EIA; Raymond James Research

6,000

6,500

7,000

7,500

8,000

Jan-12 Mar-12May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13May-13 Jul-13 Sep-13

September 2012 RJ Crude Oil Forecast Vs Actual

Sept 2012 Forecast EIA Actuals

MBp

d

Source: EIA (April 2013) , Raymond James research

GOM Maintenance




Efficiency Improvements Outpacing Our Model

100

120

140

160

180

200

220

240

260

280

300Permian Horizontal Well Productivity

Source: Raymond James, HPDI

*First 6 Months of Production for Horizontal Permian Wells

Av

era

ge

Pro

du

cti

on

Pe

r W

ell

(B

OE

/D

)

Source: EOGSource: Raymond James; Drilling Info

4500046000470004800049000500005100052000530005400055000

2009 2010 2011 2012

Bakken Production

Firs

t 6

mo

nth

s o

f Pr

od

ucti

on

(BO

E)




Won’t Steep Declines Cause Oil Supply to Slow?

13

0

20

40

60

80

100

120

140

160

180

200

0

1,000

2,000

3,000

4,000

5,000

6,000

2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12

Gas

Pro

ducti

on (M

Mcf

/d)

Barnett Shale Gas Production vs Rig Count

Gas Production Rig Count




Growing Supply is Not the Only Problem

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E

Ann

ual D

eman

d G

row

th (M

Mbp

d)

Annual Global Oil Demand Growth

Source: IEA, RJ est.

IEA Assumptions

Source: IEA, RJ est.

1999 - 2007 average IEA Assumption

Post "Melt Down"Average




What is “New Normal” For Oil Demand Growth?

65

70

75

80

85

90

95

1Q94 1Q96 1Q98 1Q00 1Q02 1Q04 1Q06 1Q08 1Q10 1Q12

(MM

Bbls

)

Global Oil Demand 1994-2013

Global Oil Demand

1.4 MMBPD Y/Y Growth

0.8 MMBPD Y/Y Growth

Source: IEA, Raymond James Research

"New Normal" ?

"Old School"




Why is Oil Demand Growth Slowing?

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.619

60

1964

1968

1972

1976

1980

1984

1988

1992

1996

2000

2004

2008

2012

E

Oil Consumption Intensity - Select Developed Countries

Germany Japan

U.S. UK

Bb

ls o

f O

ilp

er $

1,00

0 G

DP

(20

00$)

Source: EIA, IEA, World Bank, CIA World Factbook

Japan

U.S.

UK

Germany




Efficiency Gains are Real

26

28

30

32

34

36

Mile

s pe

r gal

lon

Average Fuel Efficiency of New U.S. Vehicle Sales vs. WTI Oil Prices

Source: U.S. Department of Transportation

Passenger Car Fuel Efficiency




Are People Driving Less?

175

200

225

250

Vehi

cle-

mile

s (in

bill

ions

)

U.S. Vehicle-Miles Traveled

Source: U.S. Bureau of Transportation Statistics

- Urbanization?- Demographics?- Low Employment?- High Gasoline Prices?- Internet?




Better Mileage + Less Driving = Falling Demand

320000

330000

340000

350000

360000

370000

380000

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

000'

s of

gal

lons

/day

U.S. Gasoline All Sales/Deliveries by Prime Supplier

Source: EIA, RJ Research




U.S. Demand Falling But Lumpy

Source: IEA; Raymond James Research

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

US Oil Demand Growth Y/Y

9 Year Average = 1.0%

5 Year Average = –0.8%




Japanese Oil Demand Fell 8/10 Years Last Decade

-400

-300

-200

-100

0

100

200

300

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E

(Tot

al C

hang

e M

Bbls

/d)

Japanese Y/Y Oil Demand Change 2000-2014

Japanese Oil Demand Change Y/YSource: IEA, Raymond James Research

Fukushima




Is China Worse than People Think?

3.0

3.5

4.0

4.5

5.0

5.5

6.0

MMBbls/d China's Crude Imports

Source: Bloomberg, National Bureau of Statistics of China, & RJ estimates.

down 1%




Global Oil Demand is Facing Serious Headwinds




Where Does That Leave Our Global Oil Model




Question Is Not “If” But “When?”

2,600

2,700

2,800

2,900

3,000

3,100

3,200

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

Q3

2014

Q4

2014

OEC

D In

vent

orie

s (M

MBb

ls)

OECD Industry Total Petroleum Inventories

Forecast

Source: IEA, RJ est. (Assume 1/2 the inventory build goes to OECD inventories)

Max Capacity?

Record high!

Iran, Sudan, and Syria down 1.5 MMBpd

Saudi cuts1 MMBpd




If Fundamentals Suck, Why is Spot So High?

26

-

500

1,000

1,500

2,000

2,500

3,000

3,500

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13E

Major Supply Disruptions (2011-2013)

Sudan Nigeria Syria Iraq Iran Libya

MBpd

Source: IEA; Raymond James Research




Where Could We Be Wrong?

• U.S. Supply & Global Demand #’s Conservative

• Bad Data?

– Data May be Wrong…But It’s Consistently Wrong

– Either Way Demand is Worse Than Pre-2008

• More MENA Supply Interruptions?




What Solves Structural Oil Problems?

• Robust Global Economic Recovery– Difficult With De-levering & High Oil Prices

• Cut Supply– Temporary Solution

– OPEC Excess Capacity Becomes Problem

• **Lower Oil Prices** - SOLUTION!– Slows U.S. Drillers

– Spurs the Global Economy




WTI Disconnect Isn’t Going Away




Watch Light/Sweet Oil Import Timing!

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

000

Bbls

per

day

North American Light Crude Imports

Source: EIA, Raymond James research Note: we classify light crude as API>30, sulfur <1

RJ supply forecast

How long 'til we back out remaining 1.4 MMbpd?




Gulf Coast Spread Widens When Light is Gone

$2.50

$5.25

$7.25

$12.00

0

250

500

750

1,000

1,250

1,500

1,750

2,000

Light Sweet… …plus Light Sour

…plus Med. Sour

…plus Arab Medium

…plus Heavy

Crud

e Im

port

s, M

bpd

Gulf Coast: Crude Imports vs. Pricing Discounts

Source: EIA, Bloomberg, Raymond James research

<300k bpd until competing w/ G.C. sours @ $5/Bbl discount

Source: EIA, Bloomberg, Raymond James research

Pricing discount to LLS, by crude type




North American Timing Will Be “Squishy”

0

200

400

600

800

1,000

1,200

1,400

1,600

Imports intoGulf Coast

Exports toCanada

Imports intoWest Coast

Imports intoEast Coast

Crud

e Im

port

s, M

bpd

North American Light Crude Imports, by Region

Source: EIA, Raymond James research Note: assumes lowest cost regions backed out first

Year-end

MayJuly

Q1 2015From today, U.S. supply growth backs out imports by:




Where is our WTI vs. Consensus?

Source: FactSet; Raymond James Research

$60.00

$65.00

$70.00

$75.00

$80.00

$85.00

$90.00

$95.00

$100.00

$105.00

$110.00

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

Mar

-17

Jun-

17

Sep-

17

Dec

-17

Futures

RJ New Deck

RJ More Bearish 2014/2015




What About U.S. Natural Gas?




Low Prices & Weather Solved Oversupply in 2013

1,000

1,500

2,000

2,500

3,000

3,500

4,000

U.S

. Gas

Sto

rage

Vol

umes

(Bcf

)

U.S. Gas in Storage

5 Year Gas Storage Range

Series3

2013 Summer Storage Forecast

2013 Summer Storage Forecast

November OctoberSource: EIA, Raymond James research (October 2013)

2011/12 Storage came in at top end of the range




How Do We Offset Supply Growth?

0.3-2.0 -1.0 0.0 1.0 2.0 3.0

Total

Weather

Industrial

Cswitching

Canada

Mexico

Nuke/Hydro

LNG

Liquids

Base Power

Core Supply

Bcf/day

2014 Theoretical Change in Summer StorageTighter Looser

Bullish Bearish




Gas to Coal Switching Key To Late 2013 Pricing

($3.00)

($2.50)

($2.00)

($1.50)

($1.00)

($0.50)

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

Y/Y

Nat

ural

Gas

Pric

e D

iffer

entia

l

Gas

to C

oal S

ubsti

tutio

n (B

cf/d

) -Po

sitiv

e =

Coal

Gai

ning

Sha

re

Y/Y Change In Gas Prices Drives Y/Y Fuel Switching

Coal Swiching

Y/Y Gas Price Differential

2012 Avg: -4 Bcf/d

2013E Avg: 2.4 Bcf/d

2014E Avg: -0.3 Bcf/d

Source: Raymond James research, EIA (October 2013)

RJ Forecast




Gas Growth Slowing But Not Down!

53

56

59

62

65

68

71

74

77

Jan

-00

Jul-

00

Jan

-01

Jul-

01

Jan

-02

Jul-

02

Jan

-03

Jul-

03

Jan

-04

Jul-

04

Jan

-05

Jul-

05

Jan

-06

Jul-

06

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Pro

du

ctio

n (

Bcf

/d)

U.S. Natural Gas Production- EIA 914 Data

EIA Survey Hurricane Losses

Huge surge in growth from shale playsLong term trend

Source: U.S. Energy Information Administration (December 2012), RJ est. Note: Data sets adjusted to reflect hurricane-related shut ins

RJ Estimate




Well Productivity Now 5x-10x Better?




Lower Oil Prices Are Bullish For Gas!

1.8

1.1

4.4 3.5

0.7

2.3

(4.0)

(2.0)

-

2.0

4.0

6.0

8.0

2009 2010 2011 2012 2013 2014

Bcf/

d

Dry Gas Plays Wet Gas Plays

Oil Plays Other

Sum

Total Dry Gas Production Growth YOY

*Note Gas Year is Nov-Nov




Huge Nat U.S. Demand Growth Coming…

41

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2011 2012 2013 2014 2015 2016 2017

Cum

ulati

ve N

atur

al G

as D

eman

d G

row

th B

cf/d

Y/Y

Nat

ural

Gas

Dem

and

Gro

wth

Bcf

/dY/Y Natural Gas Demand Growth

Cumulative (Right Axis) Industrial Industrial (Upside-Case)Mexican Exports Electric Power Electric Power (Upside-Case)LNG Exports

Source: EIA, RJ Research

Cumulative Natural Gas Demand (Right Axis)

Y/Y Natural Gas Demand Growth

(Left Axis)




…Driven Largely by Industrial Gas Demand

42

16.0

18.0

20.0

22.0

24.0

26.0

28.0

2012 2013 2014 2015 2016 2017 2018 2019 2020

Bcf/

d

Cumulative Industrial Natural Gas Demand

Steel Companies

MethanolProductionAmmonia Plants

Ethylene Crackers

GTL

Base IndustrialDemand

Source: EIA, RJ ResearchSource: EIA, RJ Research




And Wave of LNG Export Facilities?

Project Location Est. Cost Status Targeted Owner/ApplicantInitial Max. Target ($ MM) Startup

Kenai Alaska 0.19 0.19 NM In operation Producing ConocoPhillipsDouglas Channel BC, Canada 0.1 0.3 $3,500 CNEB-approved 2015 BC LNG Export CooperativeSabine Pass Louisiana 1.0 3.0 $12,000 Under construction Late 2015 ChenierePlaquemines Louisiana 0.2 1.1 ? DOE-approved 2016 Cambridge Energy (CE FLNG)Elba Island Georgia - 0.2 $1,100 DOE-approved; under FERC review 2016 Kinder Morgan, ShellKitimat BC, Canada 0.7 1.4 $5,500 CNEB-approved 2017 Chevron, ApacheCameron LNG Louisiana - 1.7 $6,000 DOE-approved; under FERC review 2017 Sempra, Mitsui, Mitsubishi, NYKCove Point Maryland - 0.8 $3,400 - $3,800 DOE-approved (incl. non-FTA); under FERC review 2017 DominionLavaca Bay FLNG Texas 0.4 1.1 ? DOE-approved; under FERC review 2017 Excelerate EnergyOregon LNG Oregon - 1.3 $6,000 DOE-approved; under FERC review 2017 LNG Development Co.Main Pass Energy Hub Louisiana - 3.2 $10,000-$12,000 DOE-approved Mid-2017 McMoRan Exploration, United LNGCorpus Christi Texas - 1.5 ? DOE-approved; under FERC review Late 2017 CheniereFreeport Texas 0.6 1.9 $4,000 DOE-approved (incl. non-FTA); under FERC review Late 2017 Freeport LNG, Zachry, Dow Chemical, Osaka GasGulf Coast Texas - 2.8 ? DOE-approved 2018 Gulf Coast LNG ExportS. Texas LNG Export Texas - 1.1 ? Under DOE review 2018 Pangea LNG (North America)Gulf LNG Mississippi - 0.3 $1,000 DOE-approved 2018 El Paso, GE Energy Financial ServicesGoldboro LNG NS, Canada 0.7 1.4 $5,000 Preliminary project design Late 2018 Pieridae Energy CanadaLake Charles Louisiana - 2.0 $9,500 DOE-approved (incl. non-FTA); under FERC review 2019 Energy Transfer, BG GroupPacific NorthWest LNG BC, Canada - 2.8 $9,000-$11,000 Under CNEB review 2019 Petronas, JapexPrince Rupert LNG BC, Canada 2.0 3.0 ? Under CNEB review 2020 BG GroupWest Coast Canada LNG BC, Canada 2.1 4.3 ? Under CNEB review 2021 ExxonMobil, Imperial OilAlaska LNG Alaska - 3.5 ? Preliminary project design 2024 ExxonMobil, ConocoPhillips, BP, TransCanadaLNG Canada BC, Canada - 3.2 ? CNEB-approved TBD Shell, Kogas, Mitsubishi, PetroChinaJordan Cove Oregon - 0.9 $7,500 DOE-approved; under FERC review TBD VeresenGolden Pass Texas - 2.2 $10,000 DOE-approved TBD Qatar Petroleum, ExxonMobilWaller Point Louisiana - 0.2 ? DOE-approved TBD Waller LNG ServicesMagnolia LNG Louisiana 0.5 1.1 $2,200 Under DOE review TBD Liquefied Natural Gas Ltd.

46.6Source: FERC, EIA, Waterborne LNG, company reports. Assumes 1 mtpa = 0.1433 Bcf/d unless specific Bcf/d figure is given by company.

North American Liquefaction Plants Est. Capacity (Bcf/d)

Total




U.S. Gas Prices Drift Slowly Higher

Q1 Q2 Q3 Q4 2012

$2.74 $2.22 $2.81 $3.40 $2.79

Q1 13A Q2 13A Q3 13E Q4 13E 2013E

$3.34 $4.09 $3.80 $4.00 $3.81

$3.34 $4.09 $3.54 $3.63 $3.65

$3.50 $3.90 $4.15 $4.00 $3.85

$3.35 $4.09 $3.54 $3.85 $3.71

Q1 14E Q2 14E Q3 14E Q4 14E 2014E

$4.16 $4.07 $4.20 $4.35 $4.20

$3.87 $3.82 $3.90 $4.03 $3.91

$4.10 $4.00 $4.00 $3.90 $4.00

$4.00 $3.50 $3.50 $4.00 $3.75

Source: Bloomberg, Thomson Reuters, Raymond James research

RJ&A Natural Gas Price Estimates (as of September 2013)

Current RJ Gas

2013 Estimates

Bloomberg Consensus

NYMEX Futures

Old RJ Gas Est.

Old RJ Gas Est.

Current RJ Gas

Bloomberg Consensus

NYMEX Futures

2012 H Hub Actual

2014 Estimates




Who Are The “Winners” In This New World?

• Energy Spectrum:– Infrastructure, Refiners & Niche Stories

• U.S. wins as trade deficit shrinks• U.S. manufacturing wins

– Gas input costs provide huge cost advantage

• U.S. dollar goes higher• U.S. workers & consumers win




0

2

4

6

8

10

12

14

16

2005 2007 2009 2011 2013E 2015E 2017E 2019E

Imp

ort

req

uir

emen

t (M

Mb

pd

)

Lower U.S. Oil Imports Contribute to a Narrowing Trade Deficit

Source: EIA, IEA, RJ est.

Down 6 MMbpd over past 7 years

Outlook For Oil Independence?(Pay Attention To This Graph!)




What About the Non-Oil Trade Deficit?

0

2

4

6

8

10

12

Pric

e Ra

tio

U.S. Energy Cost Advantage

Brent/Natural Gas




Conclusion

• Game Changed For U.S. Gas 5 Years Ago

• Oil Game Changing Now!

• Oil Decline Pushed Out by Interruptions

• U.S. Nat Gas Price Improvement Here to stay!

Equity Research Published by Raymond James & Associates Raymond James Energy Group (800) 945-6275 © 2013 Raymond James & Associates, Inc., member New York.

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