Update of the Domestic Exploration and Production Sector What’s Different Now? Dave Donegan Sinclair Oil & Gas Co. Idaho Petroleum Marketers and C-Store Associations Annual Meeting Sun Valley, ID – Thursday August 1, 2013
Feb 24, 2016
Update of the Domestic Exploration and Production Sector
What’s Different Now?Dave Donegan
Sinclair Oil & Gas Co.
Idaho Petroleum Marketers and C-Store Associations Annual Meeting
Sun Valley, ID – Thursday August 1, 2013
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• Upstream subsidiary of a private integrated oil company – primary objective is attractive rate of return projects in US.
Sinclair Oil & Gas Company
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Our Strategy
• Focus on unconventional reservoirs with low geologic risk and lots of running room – in particular we target “shale plays”
• Opportunistic rather than geographic strategy
• Small staff but leverage geologic expertise in shale reservoirs and operational expertise in horizontal drilling and multi-stage hydraulic fracture stimulation
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Our Strategy (cont.)
• Current activity in Bakken (MT/ND), Woodford (OK), Wolfcamp/Cline (TX), Cain and A1 Carbonate (MI).
• Looking for new opportunity.
• Typically try to partner with other operators, enter plays early, but not first.
• Partner of choice!
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Mature Oil Early
DevelopmentNat. Gas
Mature Nat. Gas
Test Stage
Oil
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• Story of the past five years is the dramatic increase in North American crude oil and natural gas production.
• Why?
• Multi-stage frac completions in horizontal wells drilled in unconventional reservoirs (primarily shale's).
Crude prices have remained remarkably stable over the past year in the face of a long list of supply disruptions, from Nigerian oil theft and Syrian civil war to an export standoff between Sudan and South Sudan. The reason in large part is a thick new blanket of North American oil cushioning the markets.
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Cross-section of a Typical Horizontal Well
Source: Anadarko
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The Shale Gale delivered rapid U.S. production increases - & precipitated gas
price collapseHenry Hub monthly average cash price
September 201264.7 Bcf per day
NGL-and oil-richplays begins to drive third wave
Avg $7.45Jan 04 to Dec 08
Source: Courtesy Pete Stark IHS, CERA, Intelligence Press, and EIA
Hurricanes Katrina, Rita
Shale Gale starts withBarnett, Fayetteville, and Woodford shale plays
Hurricane Ike
July 200856.1 Bcf per day
Avg $3.75Jan 09 to Sept 12
Haynesville, MarcellusShale plays drive second wave
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Domestic production of shale gas has grown dramatically over the past few years
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North America Key Gas Plays2009-2012 (June) Gas Wells
Source: Courtesy Pete Stark - IHS
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Spot natural gas prices vary significantly across global markets since 2008, with many
markets far below oil –related benchmarks
Source: Courtesy Pete Stark - IHS
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Shale GaleNatural Gas Game Changer Scorecard
• Major competitive advantages for the U.S. economy• Jobs: 2012 = 900,000 2035 = 2.1 million• GDP: $122 billion 2035 = $287 billion• Taxes: 2012 = $31 billion 2035 = $73 billion
• Offset ~ 10 Bcfd of LNG imports to NAM• NAM poised to launch LNG exports• But Canada gas exports to U.S. decrease 4 Bcfd (32%)
• Low priced gas facilitates transformation to clean energy
• Low priced gas helping to drive major petrochemical investments and reviving energy dependent manufacturing
Source: Courtesy Pete Stark - IHS
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U.S. dependence on imported liquids depends on both supply and demand
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Non-OECD liquid fuels use surpasses almost flat OECD liquid fuels use in the near future
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Liquids fuel consumption in the United States, China, and India, 1990-2040
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World oil prices move together due to arbitrage
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Domestic production of tight oil has grown dramatically over the past few years
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Key Tight Oil PlaysNorth America Oil & Horizontal Wells 2010-2012
Source: Courtesy Pete Stark - IHS
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Selected U.S. Tight Oil PlaysHorizontal Oil Well Average Oil + Gas IP (boe/d)
Source: Courtesy Pete Stark - IHS
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Tight Oil Upside PotentialIncrease in High Volume Wells > 1,000 b/d
Source: Courtesy Pete Stark - IHS
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Tight OilUpside Potential is Growing
• Continuous process improvements – lower costs & increase recoveries
• Confirm new reservoirs in established plays:• Bakken / Three Forks: 2012 three primary reservoirs; 2013 three new Three Forks
reservoirs plus Bakken silt technically recoverable resource @ 3.5% RF +~ 12 Bboe (60%)
• Niobrara: 2012 one primary reservoir; 2013 four primary reservoirs: Increase reserves ~ 1.3 Bboe
• Wolfcamp: 2012 one primary reservoir; 2013 three – four primary reservoirs, potential increase of > 5Bboe
• New Play fairways – S. OK Oil Province, Lower Woodford• Continental Resources - ~2 Bboe (~4 Bboe for fairway)
Source: Courtesy Pete Stark - IHS
© Sinclair 2011. All rights reserved 27Source: NDIC
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ND Drilling Stats
Source: JJ Kringstad – North Dakota Pipeline Authority
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ND Oil Pricing: ND-WTI Differential
Source: EIA Data
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US Williston Basin Oil Transport*
*Some data based on estimates or assumptionsSource: JJ Kringstad – North Dakota Pipeline Authority
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The Tight Oil Revolution Scorecard
• Updated U.S. supply view – plateau ~ 4.5 MMbd 2023
• What does this mean to U.S. economy? $5 Tr investment• Jobs: 2012 = 800,000 2035 = 1.4 million• GDP: 2012 = $116 billion 2035 = $188 billion• Taxes: 2012 = $30 billion 2035 = $51 billion
• Dramatic decrease in U.S. oil imports• In 2005 U.S. net oil imports = 12.2 mbd or 58% of demand. By 2020
U.S. net import requirement will shrink to 30% of demand. (Most of the net imports will be from Canada and Mexico)
• Huge implications for energy security and the economy
• North America tight oil is a model for global potentialSource: Courtesy Pete Stark - IHS
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Bakken-Three Forks Williston Basin
Tight Oil Upside Potential New Reservoirs in Established Plays
Source: IHS
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Finding & Development Costs Trending Higher
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The Market EnvironmentWhat has changed since 2012?
Source: Courtesy Pete Stark - IHS
2Q12 vs. 2Q13
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Conclusions
• Fossil fuels are expected to provide the majority of U.S. energy supplies for the foreseeable future.
• Domestic supply of North American crude oil and natural gas has increased dramatically over the past five years and is expected to continue – This was the big surprise.
• Economic benefit to the U.S. of a healthy domestic exploration and production sector is critical to U.S. economic and security objectives. The impact is measurable and significant.
Update of the Domestic Exploration and Production Sector
What’s Different Now?Dave Donegan
Sinclair Oil & Gas Co.
Idaho Petroleum Marketers and C-Store Associations Annual Meeting
Sun Valley, ID – Thursday August 1, 2013