Oil and Gas Industry Research August 19, 2015

Transcription

1 Oil and Gas Industry Research August 19, 2015 Art Hogan Director of Research (212) (617) (cell) Irene Haas Managing Director (713) (713) (cell) Jason Wangler Managing Director (713) (281) (cell) Vedran Vuk Research Associate (713) (202) (cell) Sources: Clockwise from top left: Range Resources, USGS, Matador Resources, Bonanza Creek, Range Resources; Note: For required disclosures and Reg AC, please see slides

2 Lower 48 Resource Plays Source: EIA, annotated by Wunderlich Securities, Inc. 2

3 Permian Midland Basin Source: DrillingInfo, annotated by Wunderlich Securities, Inc. 3

4 North Delaware Basin: Eddy and Lea Source: DrillingInfo, annotated by Wunderlich Securities, Inc. 4

5 South Delaware Basin: From Culberson to Pecos Source: DrillingInfo, test data from public sources, annotated by Wunderlich Securities, Inc. 5

6 Niobrara Source: DrillingInfo, annotated by Wunderlich Securities, Inc. 6

7 Utica Shale Ohio Source: Drilling Info: Permits Map Color coded by producers annotated by Wunderlich Securities, Inc. 7

8 Utica Shale Ohio and Pennsylvania Source: Drilling Info: Permits Map Color coded by producers annotated by Wunderlich Securities, Inc. 8

9 Factors Impacting WTI Boosting Prices: U.S. Demand growth is responding to GDP growth 2. Inland crudes getting to the coasts are displacing imported light oil Mexico to swap U.S. light sweet for Mexican heavy Next steps: Condensate export Blending light sweet with heavy Displace intermediate sweet imports U.S. crude oil export not happen until after election Dampening Prices: Local crude out-running gathering Local demand disruptions such as refining turn around or unplanned outages Lack of outbound oil pipe capacity at Cushing, OK (less and less of a problem) Running into localized bottlenecks Over-running light crude refining capacity in the Gulf Coast and eventually over-running capacity on the East and West Coasts Lack of crude oil storage in the U.S. Source: IEA chart, annotated by Wunderlich Securities, Inc. EIA. Note: Heavy < 25 API, Intermediate 25 < API < 35, Light API > 35. 9

10 Factors Impacting Brent Boosting Prices: 1 2 Increase in global demand due to cheaper oil Supply disruptions, long term or short term, natural declines, outage, pipeline issues, strikes, wars, revolutions Iraq crisis Libya production outage Iran Sanction with 1 mmbpd curtailment Weak U.S. dollar Sustainable economic growth in emerging countries, China, India, South America, and the Middle East 8 Saudi Arabia will need higher crude prices to finance peace in the Kingdom, eventually 9 Saudi Arabia needs crude for power generation Dampening Prices: OPEC s commitment to regaining market shares Iran production returning to normal Libya lifting returning to normal Sluggish growth in Europe China s demand growth moderating Emerging countries hitting speed bumps temporary economic dislocation 7 8 Demand destruction related to high price Growth in crude oil supply, e.g., U.S. resource plays could impact global pricing if export of U.S. crude becomes legal 10

11 Long Term Gas Prices Will we see $4.00/mcf? Boosting Prices: DOE Approved LNG Export Projects 1. Sabine Pass Liquefaction LLC (4Q 2015) 3.7 bcf/d from Sabine Pass, LA (includes 4 facilities) 2. Freeport LNG Expansion and FLNG Liquefaction LLC -(2019) 1.4 bcf/d from Freeport, TX 3. Cameron LNG (2019) 1.7 bcf/d from Hackberry, LA 4. Jordan Cove Energy (1Q - 2Q 2019) 0.8 bcf/d from Coos Bay, OR 5. Lake Charles Exports (2019) 2.0 bcf/d from Lake Charles, LA 6. Dominion Cove Point LNG (3Q - 4Q 2017) 0.8 bcf/d from Cove Point, MD 7. Freeport LNG Expansion and FLNG Liquefaction LLC-(2019) 0.4 bcf/d from Freeport, TX 8. Oregon LNG (2019) 1.3 bcf/d from Astoria, OR 9. Cheniere Marketing LLC 2.1 bcf/d from Corpus Christi, TX Dampening Prices: Possible lags in industrial/commercial demand Weather related heating and cooling demands Strong growth in gas production associated with oil and NGL drilling. Should taper down due to rig count. Drilling efficiency gains Appalachia Gas Factory Marcellus, Devonian, and Utica with monster wells Utica large backlog of shale gas wells (~600) drilled but yet to be completed as a result of lacking infrastructure At >$4/mmbtu, utilities would switch back to coal Natural Gas Prices $5 $4 Henry Hub Other Factors 9.5 bcf/d of export capacity by 2019 Export to bcf/d, continues to grow Drilling only oily and liquids rich assets Low prices stimulate power generation demand and industrial demand i.e. NGL as feedstock for chemical and refining businesses Replacement of coal fired power plant by gas $3 $2 Source: EIA map, Bloomberg chart. 11

12 S&P 500 v. WTI Crude (3-mo) 12

13 Wunderlich Macros and Theme Pieces Date Title Topic 2015 Aug-14 A Day in Dallas Checking Pulses and Gauging Temperatures Other Jul-23 Midland Is Buzzing: Expect More Mergers and Acquisitions in 2H15 Permian Apr-29 Taking a Peek Ahead at Hedging Strategies Going into 2016 Other Mar-22 E&P Spending Cuts Are Set in Motion, Now Waiting for Production to Drop Other Mar-15 E&P/OFS Debt Revisited Post-4Q14 & Pre-Redetermination - Equity to the Rescue? Other Mar-8 Drilling Permits Continue to Show Where Activity Is and Where It Is Going? Other Jan-8 December Drilling Permits in Multiple U.S. Plays: Running for High Ground Other 2014 Dec-23 The Utica-Point Pleasant Trend in Ohio - Looking Back and Looking Forward Utica Dec-22 Drilling Permits Falling off the Cliff (With Oil Prices) in Multiple Basins Other Dec-12 How Private Producers Are Reacting to This Downturn: Midland Basin Permian Nov-24 Mirror, Mirror on the Wall: Who is the Most Hedged of Them All? Other Nov Upstream Capex Review Ahead of this Week's OPEC Meeting Other Jun-5 DJ Basin Niobrara Play: Four Years After the Land Grab, One More Sweet Spot! Niobrara Apr-9 Delaware Basin: Dare to Think Big! Permian Apr-2 Visited First Movers in Two Iconic Trends: the Eagle Ford and the Permian Permian 2013 Nov-13 Wattenberg Field Quarter Recap, Determining Optimal Drilling Configurations Niobrara Nov-12 Delaware Basin Third Quarter Recap Record Flow Rates, Longer Laterals Permian Nov-12 Midland Basin Third Quarter Recap Pushing North, Testing Wolfcamp D Permian Nov-6 Why we love the Southern Delaware Basin Permian Sep-30 Permian Panoramic: Capturing an Inflection Point Permian Sep-16 Colorado Flash Flood: Potential Impacts on the Wattenberg Field Niobrara Sep-13 Utica Shale : 57 of Point Pleasant Found at the JB Hayes Well in Athens County Utica Aug-18 A String of Gushers Leading to Washington County, Ohio Utica Jul-10 Not a One-Trick Pony: The Permian Basin Offers a Full Spectrum of Plays Permian Jul-8 Wattenberg Field: A Larger Footprint + Multiple Horizons = More Oil and Gas Niobrara Jul-1 About to Know a lot More About the Southern Utica-Point Pleasant Play in Ohio Utica Source: Wunderlich Securities, Inc. 13

14 Wunderlich Macros and Theme Pieces Date Title Topic 2013 Cont'd Jun-3 DFW Roundup: Navigating the Domestic Liquids Boom Other May-20 DOE Approved Freeport LNG to Export to non-fta Nations Other May-16 How Big is the Midland Basin Wolfcamp Play Again? Permian Apr-30 The Wattenberg Field is Not Just About the Niobrara Anymore Niobrara Apr-4 Houston, We have a Problem What to do with all the Light Sweet Crude? Other Mar-5 Next Hot Spot for the Utica-Point Pleasant Play: Washington County, Ohio Utica Jan-17 Permian Crude More Direct Routes to the Gulf Coast soon Permian 2012 Oct-7 US Natural Gas Price Recovery Is This For Real? Other Oct-3 The Wattenberg Field Gearing Up for Major Expansions Niobrara Aug-15 Midland Basin Wolfcamp Shale Play: Delineating the Southern Limit Permian Aug-10 Utica Shale in Ohio - A Better Picture of the Oil, NGL and Gas Windows Utica Aug-1 Midland Basin JV Bringing in Big Bucks: $7,200 Per Acre for Devon Energy Permian Jun-22 DJ Basin Niobrara Play: Two Years After the Land Grab, Sweet Spots Emerging Niobrara Jun-18 The Health Shale Play in Central Montana is Taking Shape Other May-29 Utica Shale in Ohio Looking for More Test Results in August Utica Apr-25 Utica Point Pleasant Play Ohio Geologic Survey Mapping the Core Utica Apr-12 Who Let the Wolves Out? Resource Plays Unleashed in the Permian Permian Apr-4 Chasing the Wolfbone Play in Delaware Basin, Texas Permian Mar-8 Utica Shale in Ohio More than 45 Horizontal Wells Drilled Utica Feb-28 A New Niobrara Play Emerging the Sand Wash Basin Moffat County Colorado Niobrara Jan-20 The Midland Basin Wolfcamp Shale Horizontal Play - Taking off in 2012 Permian 2011 Sep-29 Test Data Put Utica Shale in the Same League as the Eagle Ford Shale Utica Sep-9 Understanding the Utica Shale in Ohio Utica Source: Wunderlich Securities, Inc. 14

15 COMPANIES MENTIONED Ticker Rating Price Price Target HK BUY PDCE BUY EVEP HOLD GST BUY CHK BUY REN HOLD BBG BUY XEC BUY BCEI BUY CWEI HOLD MTDR BUY REI BUY Ticker Rating Price Price Target NBL BUY SYRG BUY MHR HOLD 0.97 NA CLR HOLD EOG BUY GPOR BUY EGN BUY WLL BUY AREX HOLD FANG BUY PXD BUY RSPP BUY Disclosures Valuation/Risks: This report constitutes a compendium report (covers six or more subject companies). As such, Wunderlich chooses to provide specific disclosures for the subject companies by reference. To access current disclosures for the subject companies, clients may a request to research@wundernet.com, or may write or call the Wunderlich Research Department at Wunderlich Securities, Inc., 400 E. Pratt Street, Suite 720, Baltimore, MD, 21202, Company-specific disclosures: In the past 12 months, Wunderlich has received compensation from Gulfport Energy Corporation, Gastar Exploration, Inc., Matador Resources Company and Synergy Resources Corporation for investment banking services. Wunderlich makes a market in the shares of Gulfport Energy Corporation and Rosetta Resources Inc.. In the past 12 months, Wunderlich managed or co-managed a public offering of the securities of Gulfport Energy Corporation, Gastar Exploration, Inc., Matador Resources Company and Synergy Resources Corporation. Wunderlich intends to seek or expects to receive compensation for investment banking services from Bill Barrett Corporation, Chesapeake Energy Corporation, Continental Resources, Inc., EV Energy Partners L.P., Gulfport Energy Corporation, Halcón Resources Corporation, Resolute Energy Corporation, Synergy Resources Corporation and Whiting Petroleum Corporation in the next three months. In the past 12 months, Gulfport Energy Corporation, Gastar Exploration, Inc., Matador Resources Company and Synergy Resources Corporation has been a client of Wunderlich. 15

16 General disclosures: Prices are as of the close of Aug Ratings Distribution (in Percentages) & Investment Banking Disclosure Chart Information Ratings Distribution & Investment Banking Disclosure Rating Count Ratings Distribution* Count Investment Banking** Buy -rated Hold -rated Sell -rated * Percentage of all Wunderlich-covered stocks assigned an equivalent Buy, Hold, or Sell rating. ** Percentage of companies within Wunderlich-rated Buy, Accumulate (Buy), Neutral (Hold), and Sell categories for which Wunderlich or an associated firm provided investment banking services within the past 12 months. Rating System: There are three rating categories within the Wunderlich Investment Rating System: Buy, Hold, and Sell. The rating assigned to each company is based on the following criteria. Buy a security which at the time the rating is instituted or reiterated indicates an expectation of a total return of greater than 20% over the next months. Hold - a security which at the time the rating is instituted or reiterated indicates an expectation of a total return of plus or minus 5% over the next months. Sell a security which at the time the rating is instituted or reiterated indicates an expectation of a negative total return of greater than 10% over the next months. The analyst(s) who prepared this report may be compensated in part from a bonus pool that is partially funded by fees received by Wunderlich for providing investment banking services. To request further information regarding the companies discussed in this report, readers may send an to research@wundernet.com or may write to the Wunderlich Research Department, Wunderlich Securities, Inc., 400 E. Pratt Street, Suite 720, Baltimore, MD, Other Disclosures Wunderlich Securities, Inc. ("Wunderlich") is a U.S. broker-dealer registered with the U.S. Securities and Exchange Commission and a member of Financial Industry Regulatory Authority and the Securities Investor Protection Corp. This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Wunderlich or any divisions, subsidiaries or affiliates to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to Wunderlich. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of Wunderlich. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of Wunderlich or its affiliates. The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. Wunderlich may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. Wunderlich will not treat recipients as its customers by virtue of their receiving the report. The investments or services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice or a representation that any investment or strategy is suitable or appropriate to your individual circumstances or otherwise constitutes a personal recommendation to you. Wunderlich does not offer advice on the tax consequences of investment and you are advised to contact an independent tax adviser. Please note in particular that 16

17 the bases and levels of taxation may change. Wunderlich believes the information and opinions in the Disclosure Appendix of this report are accurate and complete. Information and opinions presented in the other sections of the report were obtained or derived from sources Wunderlich believes are reliable, but Wunderlich makes no representations as to their accuracy or completeness. Additional information is available upon request. Wunderlich accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that liability arises under specific statutes or regulations applicable to Wunderlich. This report is not to be relied upon in substitution for the exercise of independent judgment. Wunderlich may have issued, and may in the future issue, a trading call regarding this security. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of Wunderlich, Wunderlich has not reviewed the linked site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to Wunderlich's own website material) is provided solely for your convenience and information and the content of the linked site does not in any way form part of this document. Accessing such website or following such link through this report or Wunderlich's website shall be at your own risk. 17