A Bakken Producer's Regional View on Gas & NGL Markets. Michael Lutz

Transcription

1 A Bakken Producer's Regional View on Gas & NGL Markets Michael Lutz This presentation contains projections and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of These projections and statements reflect the company s current views with respect to future events. No assurance can be given, however, that these events will occur or that these projections will be achieved, and actual results could differ materially from those projected. Any information and projections contained herein are not intended to be relied upon as advice, financial or otherwise. This presentation contains general information about the topic being presented and has been prepared based on information available to the company, including information derived from public sources that have not been independently verified. No representation or warranty, express or implied, is provided in relation to the fairness, accuracy, correctness, completeness or reliability of the information, opinions, projections or conclusions expressed herein.

2 Hess has a major presence in North Dakota Producing assets since 1950s Large captured oil resource 750,000 net acres Acquired Tracker Resources and American Oil & Gas in 4Q 2010 Tioga Rail Terminal Tioga Gas Plant Tioga Gas Plant 115 MMCFD growing to 250 MMCFD 8 MPD NGL capacity (C3+) growing to 60MBD (C2+) Tioga Rail Terminal 30 MBD NGL loading 200 rail car fleet (leased) Tioga Rail Terminal Tioga Gas Plant 30 Miles Acreage Holdings Gathering Systems Facilities 2

3 Hess Tioga Gas Plant and Rail Terminal expansions Tioga Gas Plant Tioga Rail Terminal Gas Plant Post-Expansion Capacities Gas processing: 250 MMCFD NGL production: 2.5 MM gal/day (~ 60 MBD) C2-1,260,000 gal/day (30 MBD) C3 777,000 gal/day (18.5 MBD) C4 332,000 gal/day (7.9 MBD) C5+ 210,000 gal/day (5.0 MBD) NGL storage: 78 MBBLs C3 36 MBBL C4 18 MBBL C MBBL Gas export capacity (design/hess contracted) WBI 35 MMCFD/5 MMCFD NB 66 MMCFD/52 MMCFD Alliance 120 MMCFD/50 MMCFD NGL Rail Facility Capacities NGLs delivered from TGP via 3 pipes 16 loading racks (8 for C5+) 30 MBD capacity (12-hr shift) 44 rail cars per day Unit train every 2-3 days Track space for 250 NGL cars Dedicated switching engine 200 NGL rail car fleet (leased) 3

4 Hess Bakken gas & NGL transportation Commercial Team Mission Ensure Reliable Offtake Balance routes & provide redundancy Manage volume uncertainty in production forecast Maximize Gas & NGL Value Access multiple markets for each product Create competition for services Seek third party business Minimize plant ullage / maximize operating efficiency Leverage economies of scale Offer competitive netbacks Transportation Strategy - Three Prongs Regional Pipelines Optimize use of existing infrastructure Rail Develop new, flexible capacity for long term transport Maintain and Expand Local Markets Develop new local gas and NGL product demand Gather wells via tie-in or trucking 4

5 North Dakota crude oil production forecast range Source: North Dakota Oil & Gas Division, Dec

6 Bakken gas composition & forecast range Typical Gas Oil Ratio 1100 CF/bbl Bakken GOR ranges between 500 and 1750 Wellhead heat content ~1500 btu/cf Bakken Wellhead Gas Composition C 1 55% C 2 22% C 3 13% C 4 5% C 5+ 5% Residue Gas and NGL Processing Yield Oil Production (MBOPD) Residue Gas (MMCFD) NGL (MBPD) Pipeline Export Capacity Residue Gas ~3.2 BCFD NGLs ~260 MBD + truck & rail 6

7 Bakken gas & NGL regional export options Oneok Cochin Tioga Hess Gathering System Vantage Gas Plant Facilities 900 MMCFD Existing 400 MMCFD Proposed Local Sales MDU Co-Gen/Other Rich Gas Export Facilities Alliance/Tioga Palermo/Prairie Rose Northern Border WBI Y Grade Export Facilities Oneok Bakken Pipeline Rail (McGregor, Ross) Enbridge (truck) Alliance (truck) Purity NGL Export Facilities Vantage Pipeline (Ethane) Cochin Pipeline (C4+) Rail (Tioga, Sidney) Truck (C3/C4/C5+) Source: NDPA (amended) 7

8 US NGL markets Ferndale Alberta Tioga Sarnia Philadelphia Magnum Conway Adamana Bumstead Mont Belvieu Market factors: Distance Y-grade or purity Liquidity Demand (product specific) Export Source: EIA (amended) 8

9 US NGL supply by component and source Source: Bentek Energy, LLC - Market Call: North American NGLs, Jan

10 LPG exports forecast to more than quadruple Source: Bentek Energy, LLC - Market Call: North American NGLs, Jan

11 US regional NGL production and demand (MMBD) Legend From Nat. Gas From Refineries Demand Source: Bentek Energy, LLC - Market Call: North American NGLs, Jan

12 US regional propane production and demand (MMBD) Exports: 2012: 0 MBD 2015*: 0 MBD Exports: 2012: 0 MBD 2015*: 0 MBD Legend From Nat. Gas From Refineries Demand Exports: 2012: 3 MBD 2015*: 25 MBD Exports: 2012: 11 MBD 2015*: 11 MBD Exports: 2012: 150 MBD 2015*: 304 MBD Source: Bentek Energy, LLC - Market Call: North American NGLs, Jan

13 International propane demand and supply trends MM Tonnes MM Tonnes LATIN AMERICA EUROPE MM Tonnes MM Tonnes MIDDLE EAST Legend Demand Supply ASIA Source: IHS, Recent Developments in International Supply and Demand of Propane,

14 US propane pricing diverging from international prices Source: Bentek Energy, LLC - Market Call: North American NGLs, Jan

15 International propane pricing trends Prices (cents/gal) Houston - Rotterdam Rotterdam Landed N. Sea (Spot) Prices (cents/gal) Houston - Japan (Panama) Japan Landed Japan (Spot) Prices (cents/gal) 200 Houston - Brazil Arg/BRZ Landed Mt. Belvieu Prices (cents/gal) Yanbu vs. Mt. Belvieu Yanbu (FOB) Mt. Belvieu Source: IHS, LPG Market Outlook, Jan

16 Potential North Dakota propane export netback prices $0.923/gal. minus T&F for Bakken producers is a netback of approximately $60.3/gal. sold in Mont Belvieu, Texas Assumptions: Platts LPGASWIRE Apr 2013 posted prices used for CIF rounded off to the nearest cent; Marine freight rates based on VLGC, proportioned by distance between origin and destination; rail fees per internal Hess estimates; assumes propane is processed to get it to export spec; Mt. Belvieu C3 price source: Bentek NGL Market Monitor Daily 4/8/

17 Bakken gas processing value Flare/Truck Gather / C3+ Gather / C2+ Crude Oil WTI CLB Diff (3.40) (3.40) (3.40) T&G (7.25) (4.00) (4.00) Natural Gas NGLs Total Netback Gas processing can improve overall wellhead netbacks by over 15% to the Producer for C3+ Ethane recovery requires economy of scale to extract, provided spreads support extraction ~ $4.0 billion annual processing margin at 1,200 MBOPD production forecast Pricing assumptions: December 2012 averages. CLB prices Dec incl weekends from Argus; Gas $3.33/MMBtu and NGLs Mt. Belvieu non-tet; Composition Assumption: 1100 GOR, 11 gpm NGLs. Netbacks reflect market-based terms for gas processing and gathering, transport and frac fees 17

18 Gas flaring ~30% erodes value in North Dakota Source: NDPA 18

19 Scope of Bakken infrastructure investment Tie-in costs per well ~$0.5 M Meters and valves Flow line to lease boundary / gathering line North Dakota Rig Count at 184 Rig drills ~11 wells/year 2024 wells/year >$1bn on well tie-ins per year NDIC projecting ~35,000 new wells over the next years ~$17 B gathering investment Infrastructure challenges Changing rig schedules Right of way and permitting lead times Competition with drilling capital Pad drilling early peak profiles vs. long term capacity needs 19

20 Hess & 3 rd party gathering infrastructure Nessen Impact Hess Infrastructure Nessen (North/South) Red Sky (West) Goliath (East) Goliath 3rd Party Infrastructure Hiland (Stony Creek) Bear Tracker (Impact) Myrtle Bakken Express Stony Creek Red Sky 3rd Party Processing Little Knife Petro-Hunt Buffalo Wallow Oneok Murphy Creek Oneok Goliath Oneok Stony Creek Hiland Myrtle Bakken Express 20

21 Conclusions Gas processing improves the overall net value stream Multiple export options now exist in region Regional market strong for C4+ Propane will require export capacity growth to support production Ethane will be recovered as economics justify Gathering pipelines are the current system bottlenecks with flaring ~30% 21