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
Sinclair Oil & Gas Company
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Upstream subsidiary of a private integrated oil company –
primary objective is attractive rate of return projects in US.
© Sinclair 2011. All rights reserved
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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
Development
Nat. Gas
Mature
Nat. Gas
Test
Stage
Oil
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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.
© Sinclair 2011. All rights reserved
• 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).
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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 collapse
Henry Hub monthly
average cash price
September 2012
64.7 Bcf per day
NGL-and oil-rich
plays begins to
drive third wave
July 2008
56.1 Bcf per day
Avg $7.45
Jan 04 to Dec 08
Haynesville, Marcellus
Shale plays drive second wave
Shale Gale starts with
Barnett, Fayetteville, and
Woodford shale plays
Hurricanes Katrina, Rita
Hurricane Ike
Avg $3.75
Jan 09 to Sept 12
Source: Courtesy Pete Stark IHS, CERA, Intelligence Press, and EIA
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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 Plays
2009-2012 (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 Gale
Natural Gas Game Changer Scorecard
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Major competitive advantages for the U.S. economy
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•
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Jobs: 2012 = 900,000
GDP: $122 billion
Taxes: 2012 = $31 billion
2035 = 2.1 million
2035 = $287 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 Plays
North America Oil & Horizontal Wells 2010-2012
Source: Courtesy Pete Stark - IHS
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Selected U.S. Tight Oil Plays
Horizontal Oil Well Average Oil + Gas IP (boe/d)
Source: Courtesy Pete Stark - IHS
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Tight Oil Upside Potential
Increase in High Volume Wells > 1,000 b/d
Source: Courtesy Pete Stark - IHS
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Tight Oil
Upside Potential is Growing
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Continuous process improvements – lower costs & increase
recoveries
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Confirm new reservoirs in established plays:
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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%)
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Niobrara: 2012 one primary reservoir; 2013 four primary reservoirs: Increase reserves ~
1.3 Bboe
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Wolfcamp: 2012 one primary reservoir; 2013 three – four primary reservoirs, potential
increase of > 5Bboe
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New Play fairways – S. OK Oil Province, Lower Woodford
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Continental Resources - ~2 Bboe (~4 Bboe for fairway)
Source: Courtesy Pete Stark - IHS
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Source: 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 assumptions
Source: JJ Kringstad – North Dakota Pipeline Authority
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The Tight Oil Revolution Scorecard
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Updated U.S. supply view – plateau ~ 4.5 MMbd 2023
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What does this mean to U.S. economy? $5 Tr investment
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Jobs: 2012 = 800,000
GDP: 2012 = $116 billion
Taxes: 2012 = $30 billion
2035 = 1.4 million
2035 = $188 billion
2035 = $51 billion
Dramatic decrease in U.S. oil imports
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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)
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Huge implications for energy security and the economy
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North America tight oil is a model for global potential
Source: Courtesy Pete Stark - IHS
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Tight Oil Upside Potential
New Reservoirs in Established Plays
Bakken-Three Forks Williston Basin
Source: IHS
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Finding & Development Costs Trending Higher
Source: Macquarie Capital (USA), IHS, EIA – July 2012
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The Market Environment
What has changed since 2012?
2Q12
vs.
2Q13
Source: Courtesy Pete Stark - IHS
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Conclusions
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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.
© Sinclair 2011. All rights reserved
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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