Skip to main contentRise of the Big Three: The Future of L48 Oil Production – Investment Technology Group Inc.(ITG) Investor Presentation | Shale Experts
Rise of the Big Three: The Future of L48 Oil Production 11/2013 Manuj Nikhanj, CFA, FRM Managing Director, Head of Energy Research Gillian Surbey Senior Associate, Energy Research Ryan Horvat Vice President, Energy Research 2013…
Topics of Discussion Historical Oil Production Analysis Gas Versus Oil Boom Comparison ITG IR Play Forecasting Methodology Oil Forecast Key Reasons Why There Is Upside to our Forecast Growth Story Appendix Slides: Impact of Shales…
Historical Production Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 3
WTI (/bbl) 100 150 50 0 Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 Source: ITG IR, raw data provided by didesktop May-07 Jul-07 Sep-07 Nov-07 Base…
WTI (/bbl) 100 150 50 0 Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Source: ITG IR, raw data provided by didesktop Jul-07 Monthly…
Liquids Percentage From Each Play Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 6
L48 Break-Evens by Play BREAK-EVEN NYMEX BREAK-EVEN WTI PLAY TYPE (/Mcf) (/bbl) BREAK-EVEN BREAK-EVEN Gas 0-20% Wellhead Liquids PLAY TYPE 4.41 NYMEX (/Mcf) 110 WTI (/Bbl) Hybrid 20-65% Wellhead Liquids 3.12 78 Gas 0-20%…
L48 Oil Additions and Production by Play Source: ITG IR, raw data provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 8
How Does Oil Growth Compare to Gas Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 9
L48 Oil Versus Gas Source: ITG IR, raw data provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 10
Roll-up by Play Stats on the Big 3 Eagle Ford (7 MM acres): 28 Mboe (15 Bbbl oil) risked remaining resource across 70,000 locations. 5,500 drilled to date/3,000 per year. Bakken (10 MM acres): 9 Bbbl oil risked remaining resource…
Forecasting Methodology Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 13
Eagle Ford How We Model the Play Source: ITG IR, raw data is provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 14
Eagle Ford Creating a Dispatch Curve Source: ITG IR, company presentations, raw data is provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 15
Eagle Ford Forecasting Production Source: ITG IR, raw data is provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 16
Oil Production Forecast Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 17
Rig Forecast ITG IRs forecast runs 1,800 horizontal and vertical rigs, resulting in 2,800 new wells coming onstream each month. 2,500 2,000 1,500 Rigs 1,000 500 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016…
L48 Wellhead Oil Forecast Flat Rig Count Scenario Liquids Plays Weighted- 67.61 66.88 66.55 66.38 66.47 68.87 71.02 73.86 Average Break-Even WTI (/bbl) (25:1) Exit-to-Exit Change in Wellhead Oil…
Key Reasons Why There Is Upside to the Growth Story Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 21
Drill Times Getting Faster 70 We assume no drilling efficiency Drill Times 60 Spud to Rig Release (Days) gains, however 50 40 Average for spud-to-rig release 30 days has dropped dramatically, 20 10 resulting in…
Shadow Rig Count What You See Isnt What You Get Rig counts can be misleading The rig count relative to production may not give the true indication of productive capacity. As operators move to pad drilling and build out…
Completions Designs are Evolving Bakken Example We assume status quo, however Source : ITG IR, raw data provided by NDIC Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 24
Completions Designs are Evolving Eagle Ford Example We assume status quo, however Lateral Length Stages Employed 3,620 ft 4,375 ft 4,821 ft 5,130 ft 14 stages 14 stages 15 stages 17 stages 12,000 40 35 10,000 30 Perf'd…
Is this the Future EOG Changing the Fraccing Game EOG recently drilled two Bakken and two Three Forks/ Location of EOGs Hawkeye Unit Sanish (TFS) wells in McKenzie County with laterals that exceeded 14,000 feet. Stimulated with 14-15…
Is this the Future EOG Eagle Ford Test rates versus sand volumes for EOGs Eagle Ford (Gonzales County) wells suggest test rates for wells completed with 12 million lbs or more of proppant are, on average, twice as prolific as those…
Downspacing Adding Recoverable Resource We assume industry spacing assumptions, however Operators are testing downspacing across all plays to test the limits. Many production forecast models assume existing spacing assumptions.…
Back of the Envelope Field Level Cash Flow We assume a flat rig count, however We expect, at the field level, plays like the Eagle Ford to start to free cash flow by 2015 at which point it becomes a cash register. With oil…
Base Decline Example Bakken World Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 30
Base Decline Analysis How Fast Is the Treadmill High-growth plays inherently have a steep base decline rate because the weighted average age of production is quite young. Most wells are early in their life and, on average, on the steep…
Base Decline Analysis Will Shale Plays Change the Game ITG IR recreated 2007+ production assuming ALL new production comes from the Bakken The base decline only steepens 3%. Why You are building off of a 5 MMbbl/d base and it is…
Bakken 2012 Type Curve vs. Actual Field Production Source: ITG IR, raw data provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 33
Appendix: Eagle Ford Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 34
Eagle Ford EURs and IPs Through Time Source: ITG IR, raw data provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 35
Eagle Ford Break-Evens by Location Break-Even Prices by Area, Window Source: ITG IR, raw data provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 36
Eagle Ford Dispatch by Operator Cumulative Resource and Break-Even by Operator Source: ITG IR Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 37
Eagle Ford Dispatch Curve Eagle Ford Supply Cost and Resource Dispatch Curve Source: ITG IR, raw data provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 38
Eagle Ford Remaining Locations Source: ITG IR, raw data provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 39
Eagle Ford Rig Forecast ITG IRs Projection of Eagle Ford Horizontal Rigs Through Time Source: ITG IR, raw data provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 40
Eagle Ford Rig-Weighted Break-Even ITG IRs Forecast of Rig-Weighted Break-Even by Window and County Source: ITG IR, raw data provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 41
Eagle Ford Regional Forecast ITG IRs Forecast of Production by County Source: ITG IR, raw data provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 42
Eagle Ford Production Forecast ITG IRs Forecast of Eagle Ford Wellhead and Post-Processing Production Source: ITG IR, raw data provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 43
Eagle Ford Production Additions ITG IRs Forecast Production by County Source: ITG IR, raw data provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 44
Appendix: Bakken Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 45
Bakken Region Map Source: ITG IR, NDIC, raw data provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 46
Bakken Dispatch Source: ITG IR, raw data provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 47
Bakken Remaining Locations Source: ITG IR, raw data provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 48
Bakken Historical and Forecast Rigs by Region Source: ITG IR, raw data provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 49
Bakken Production Forecast Source: ITG IR, raw data provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 50
Bakken Production Additions Source: ITG IR, raw data provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 51
2009: Sanish/Parshall and Nesson Anticline Source : ITG IR, raw data provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 52
2010: Activity Begins to Move North and West Source : ITG IR, raw data provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 53
2011: Focused Effort West of the Anticline Source : ITG IR, raw data provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 54
2012: Pushing the Limits Source : ITG IR, raw data provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 55
EURs on Average Have Been Flat Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 56
Economics Deteriorate as Costs Climb 2010-2012 About 15% Reduction in 2013 Cost Source: ITG IR, raw data provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 57
Bakken Production Data Can Be Misleading Source: ITG IR, raw data provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 58
Bakken Operator Production and Well Counts 180,000 1,800 Bakken Wellhead Oil Production by Operator Bakken Well Count by Operator 160,000 1,600 Wellhead Oil Production (bbl/d) 140,000 1,400 Cumulative Well Count 120,000…
Appendix: Permian Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 60
Industry Activity Points to the Midland and Delaware 3MM ac 5MM ac 7MM ac Source: ITG IR, raw data provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 61
Midland Basin Horizontals How Big Could One Zone Be Single Zone May Be 18-24 Bboe Recoverable, However... Source: ITG IR, raw data provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide…
Midland Basin Horizontals Multizone Wolfcamp A, B, C and Cline LPI presented on the impact of pad drilling Wolfcamp A three sections of land drilled with 64 wells in Wolfcamp B four zones over five years with 1 rig Wolfcamp C…
Midland Basin Horizontals Source: ITG IR, raw data provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 64
Top Liquids Plays Permian ITG IRs Projection of Permian Production Wellhead Post-Processing Source: ITG IR, raw data provided by didesktop Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 65
Appendix: Other Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 66
Current Horizontal Rig Concentration and Rig-Weighted Supply Cost by Play Dot size indicates the number of Within a given play, fewer rigs are running rigs running by county. in high-cost counties. Source: ITG IR, Baker Hughes,…
Oily Operator Comparison We believe Bakken and Eagle Ford operators are fairly valued with ITG IR valuations only 3% above current share prices, on average. MHR, NOG, CRZO and ROSE are most attractively valued with ITG IR…
Dont Forget Canada Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 69
Disclosures Rise of the Big Three: The Future of L48 Oil Production 11/2013 Slide No. 70
Companies Mentioned ADDITIONAL COMPANIES MENTIONED IN THIS REPORT Name of Company Ticker Exchange Recent Price Approach Resources AREX NASDAQ 23.88 BHP Billiton BHP NYSE 70.59 Carrizo Oil & Gas CRZO NASDAQ 43.93 ConocoPhillips COP NYSE…
Analyst Certifications and Important Disclosures FINRA Rule 2711 Non-Member Affiliate Disclosures: As of the date of the publication of this report, the Analyst or a member of the Analysts team has a financial interest in the securities…
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