Corporate Overview - Fortress Energy Inc(1)

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					North American Natural Gas Markets
       Presentation to ICoTA
         October 22nd, 2009
            J. Cameron Bailey CFA
      President and Chief Executive Officer
   What Happened?




                                          FEI: TSX October 22, 2009
Canadian Well Completions
  2007         19,144
  2008         20,729
  2009         9,000 down 56%


  2010              ?

                    Acquire and Exploit
Canadian Energy Financing - Activity




                                                     FEI: TSX October 22, 2009
 •   Year to Date 2009
     – $5.8 billion of New Equity
     – 83 transaction
     – Energy accounts for 26% of all equity deals
       completed in 2009
 •   Year to Date 2008
     – $2.3 billion in 2008
     – 64 transactions


 •   Cash Flows         = Activity

                              Acquire and Exploit
     Natural Gas Price Forecasting – When?




                                                 FEI: TSX October 22, 2009
•   Supply
    – Old Supply – Decline Rates?
    – New Supply
       • Drilling Activity – Key Driver
       • Drilling Efficiencies
       • Production Additions
•   Demand
    – Base Demand
    – Weather


                           Acquire and Exploit
Historical Decline Rates




                                                FEI: TSX October 22, 2009
US Production Declining by 30 - 35% per annum
FEI: TSX October 22, 2009
Truth No. 1 - Production Declines!




                                              FEI: TSX October 22, 2009
2009 US Production               57.0 bcf/d

 Decline 25%                     14.2 bcf/d
 Decline 30%                     17.1 bcf/d
 Decline 35%                     19.9 bcf/d




                       Acquire and Exploit
US Natural Gas Production – Well Completions




                                               FEI: TSX October 22, 2009
                 Acquire and Exploit
          US Production Observations




                                                                                      FEI: TSX October 22, 2009
    2007 Production          51.8 bcf/d       2008 Production            54.9 bcf/d
•   January 2007 Average      49.6        •   January 2008 Average       53.5 bcf/d
    bcf/d                                 •   2008 Exit Rate             56.6 bcf/d
•   2007 Exit Rate            53.7        •   Production Additions       3.1 bcf/d
    bcf/d                                 •   Decline 30%                16.4 bcf/d
•   Production Additions      4.1 bcf/d   •   2008 Production Added      19.6 bcf/d
•   Decline 30%               14.8        •   Gas Wells Completed         36,432
    bcf/d
                                          •   Production Added per Well 537 mcf/d
•   2007 Production Added     18.9
    bcf/d
•   Gas Wells Completed        35,605
•   Production Adds per Well 530 mcf/d




                                      Acquire and Exploit
Truth No 2. - Drilling Replaces Production Declines




                                                                                   FEI: TSX October 22, 2009
                                                            2008
                                                       Conventional   Horizontal
                                             Total      Gas Wells     Gas Wells


Number of Rigs                                 1,491      1,012          479

Days per Well                                 15           12            35

Wells per Year per Rig                        24           31            10

Wells Drilled per Year                       36,432      31,430         4,997

Average First Year Production Rate (mcf/d)     537         275          2,200

Incremental Production (bcf/d)                 19.6        8.6          11.0



                                      Acquire and Exploit
US Natural Gas Directed Rig Count – Future Supply?




                                                     FEI: TSX October 22, 2009
Source: Baker Hughes
        700 Rigs Operating – Supply




                                                                                      FEI: TSX October 22, 2009
                                                           Current
                                                      Conventional   Horizontal
                                             Total        Gas        Shale Gas


Number of Rigs                                 700        402           298

Days per Well                                    16       12            35

Wells per Year per Rig                           22        31           10

Wells Drilled per Year                       15,604      12,500               3,104

Average First Year Production Rate (mcf/d)    658         275                 2,200

Incremental Production (bcf/d)                10.3        3.4           6.8


Supply Declines (bcf/d)                        6.2

                                      Acquire and Exploit
The Growing US Supply Deficit




                                      FEI: TSX October 22, 2009
                  US Average Demand
US Natural Gas Production – Declining?
                US Production




                                         FEI: TSX October 22, 2009
Source: Bentek
 US Production - Declining When?




                                        FEI: TSX October 22, 2009
Source: Bentek
                  Acquire and Exploit
  Natural Gas - Investment Cycle




                                               FEI: TSX October 22, 2009
Concept
Land Acquisition
Permits
Rig Count – Baker Hughes Rig Count
Completions
                                   Six Month
Pipeline Construction & Tie-in
                                   Delay?
Production – Daily Estimates



                   Acquire and Exploit
Delayed Production Response – Natural Gas Drilling
Activity in Texas




                                                                                        FEI: TSX October 22, 2009
                                            New well permits are down 73% but
                                            there still remained a large inventory of
                                            wells to complete




                  Well completions have dropped off which
                  will be followed by production declines




 Source: Railroad Commission of Texas
      Texas - Natural Gas Production - Declining




                                                   FEI: TSX October 22, 2009
Source: Railroad Commission of Texas
Canadian Gas Drilling Rig Count – Future Supply?




                                                         FEI: TSX October 22, 2009
                               Lowest levels witnessed
                               in 10 years




Source: Baker Hughes
                       Acquire and Exploit
    Canadian Gas Production - Declining




                                              FEI: TSX October 22, 2009
                Canadian gas production
                is declining leaving less
                for exports to the US




Source: NEB
                        Acquire and Exploit
     Canadian Gas Export to the United States




                                                FEI: TSX October 22, 2009
Source: Bentek
       Production Forecast - Assumptions




                                                                        FEI: TSX October 22, 2009
                                      2008 Actual    2009/10 Forecast
% of Horizontal Wells                    39%                 45%
Conventional IP Rate mcf/d                360                360

Horizontal IP Rate mcf/d                 3,300              3,500
Conventional First year Decline          43%                 43%
Rate
Horizontal First year Decline Rate       60%                 60%
Conventional Drilling Times             12 days            12 days
Horizontal Drilling Times               35 days            35 days
Time On-Stream after Drilling          6 months            6 months



                                     Acquire and Exploit
Production Forecast – 2008 to 2009




                                     FEI: TSX October 22, 2009
Production Decline Analysis – 700 Rigs




                                         FEI: TSX October 22, 2009
                              Forecast




                  Acquire and Exploit
        NATURAL GAS DEMAND




FEI: TSX October 22, 2009
Total US Natural Gas Demand – Recession?




                                               FEI: TSX October 22, 2009
                             More affected
                             by weather than
                             recession



Source: Bentek 2009
     Recession and Demand? – Industrial Demand




                                                          FEI: TSX October 22, 2009
            Industrial demand is off 1.3
            bcf/d Y/Y but has recovered




Source: Bentek 2009
                                    Acquire and Exploit
     Recession and Demand? – Power Demand




                                                    FEI: TSX October 22, 2009
            Power Demand
            continues to be
            strong.




Source: Bentek 2009
                              Acquire and Exploit
The Growing US Supply Deficit




                                      FEI: TSX October 22, 2009
                  US Average Demand
Seasonal Affect on Demand – Forecasting?




                                           FEI: TSX October 22, 2009
                 Acquire and Exploit
      Natural Gas Inventories – Awash in Gas ?




                                                                FEI: TSX October 22, 2009
              The difference between surplus
              and critically low inventories is 500
              bcf = 8 days of consumption




Source: EIA                               Acquire and Exploit
Forecast Gas Storage Levels – 700 Rigs Operating
     Average Gas Demand




                                                    FEI: TSX October 22, 2009
                       3.8 TCF Storage




              Not enough gas
              production to fill
              storage in 2010



                              Acquire and Exploit
Forecast Gas Storage Levels – 700 Rigs Operating
            Mild Winter – Low Gas Demand - 2006




                                                   FEI: TSX October 22, 2009
                                 3.8 TCF Storage




                          Acquire and Exploit
Forecast Gas Storage Levels – 700 Rigs Operating
            Cold Winter 2008 – Perfect Storm




                                                    FEI: TSX October 22, 2009
                       3.8 TCF Storage




              Not enough gas
              production to fill
              storage in 2010



                              Acquire and Exploit
Change in Natural Gas Inventory – Supply/Demand Balance




                                                          FEI: TSX October 22, 2009
  Source: EIA            Acquire and Exploit
US Wellhead Prices vs US Natural Gas Rig Count




                                                 FEI: TSX October 22, 2009
  Source: EIA
                       Acquire and Exploit
Production Decline Analysis – Response from Drilling
     + 60 Rigs per month Return to Work




                                                       FEI: TSX October 22, 2009
                        Acquire and Exploit
     Natural Gas Myths




                                                               FEI: TSX October 22, 2009
1.   New technology applied to Shales and Tight
     Sand plays have changed the game?
     –   Fewer wells – more productivity – replacing
         declines?
2.   Recession has destroyed Demand?
     –   Demand is running at historical highs
3.   Drilling efficiencies have improved?
     –   Few rigs can drill more wells – only the best crews
         and equipment are currently working



                           Acquire and Exploit
Drilling Rig Efficiency – Improving?




                                        FEI: TSX October 22, 2009
                  Acquire and Exploit
       Conclusions




                                                        FEI: TSX October 22, 2009
•   The low pace of drilling activity cannot be
    sustained
•   Price response will anticipate supply shortages
•   Price response will create cash flow
    increase capital budgets        Drilling Activity
•   Weather is the biggest factor to when supply
    shortages will emerge.




                         Acquire and Exploit

				
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posted:7/19/2013
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