Welcome
Gregg Russell
Vice President, Marketing
Agenda
• Southern Union Update • O&E Update • Commercial Update • Break • Industry Outlook • Supply Panel
– Moderator – Arena Energy – BG Energy Merchants, LLC – Anadarko – Q&A
Rob Bond Jeryl Mohn Gregg Russell Skip Simmons, Wood MacKenzie
Mike Moran Bernice Norris Kyle Hamrick John Ripple
Southern Union Update
Widespread Asset Base
Company Profile (NYSE:SUG) – March 31, 2007 Total Annual Revenue Total Assets Market Capitalization Shares Outstanding Cash Dividend/Yield $2.3 billion $6.8 billion $3.9 billion 119.8 million $0.40 per share/1.3%
Value Through Transformation
CAGR = 19.7% CAGR = 19.7%
$35.00 $35.00
$30.00 $30.00
Acquired SUGS
$25.00 $25.00
$20.00 $20.00
Acquired Panhandle Energy
SUG
Sold LDC assets
$15.00 $15.00
$10.00 $10.00
Investment in CCEH
Exchanged CCEH interests
Sold Texas LDC
$5.00 $5.00
$0.00 $0.00
1/2/03 1/2/03
1/2/04 1/2/04
1/2/05 1/2/05
1/2/06 1/2/06
1/2/07 1/2/07
Southern Union Company
Organizational Structure
Southern Union Company Southern Union Company
El Paso Citrus El Paso Citrus Holding Holding
50% 50%
Missouri Missouri Gas Gas Energy Energy
Panhandle Energy Panhandle Energy
CCE Holdings LLC CCE Holdings LLC
New New England England Gas Gas
Panhandle Panhandle Eastern Eastern Pipe Line Pipe Line Sea Robin Sea Robin Pipeline Pipeline
Trunkline Trunkline Gas Gas Company Company Trunkline Trunkline LNG LNG Southwest Southwest Gas Gas Storage Storage
50% 50% 50% Citrus Corp. Citrus Corp. 100% 100% 100%
PEI PEI Power Power Cogen Cogen
Florida Gas Transmission LLC Florida Gas Transmission LLC
Southern Union Southern Union Gas Services Gas Services
Continuing the Value Trend
• Organic growth projects – Florida Gas Transmission Phase VII expansion
Trunkline Gas Company Field Zone Expansion – Trunkline LNG Infrastructure Enhancement Project – Southern Union Gas Services (“SUGS”) expansion projects (“SUGS”) – LDC rate proceedings
–
• Strategic initiatives – Master Limited Partnership (“MLP”) structure (“MLP”)
Market opportunities – Balance preservation of investment grade credit ratings and return of capital to shareholders
–
Compression and Pipeline Capital Investment
Jeryl Mohn
Senior Vice President, Operations & Engineering
Capital Investment Major Projects Overview
• Significant Capital Investment in Compression and
Pipeline Assets: Years 2006 – 2009
– Compression Assets Total: $283 – $313MM
• PEPL Montezuma Compression Replacement • PEPL Illinois EPA Engine Emission Reduction • PEPL Compression Modernization Project
– Pipeline Assets Total: $174MM
• •
PEPL Tuscola East End Enhancement Pipeline Integrity
– Total for Major Projects: $457 - $487MM • Capital Maintenance Programs: Additional $120MM
Montezuma Compression Replacement
• Project drivers
– Compliance w/ Indiana NOx SIP Rule – Enhance compression integrity and
reliability
• In-service December 2006 In-service • Capital expenditure was $33 MM
Illinois Compression Emissions Reduction
• Project drivers
– Illinois EPA NOx Reduction – Final rule expected Summer 2007 – Requires NOx emission reductions – Comply on PEPL by installing new turbines at
Tuscola and Pleasant Hill & modifications to reciprocating engines at Glenarm
• Capital expenditure estimated at $55 MM on
PEPL
Montezuma Replacement & Illinois Emissions Controls
•
Project Scope - Illinois
– Modify recips at Glenarm – Replace reciprocating HP with new
•
Project Scope - Montezuma
– Retire 10 ea. 1936 – 1956 vintage
gas turbines at Pleasant Hill and Tuscola
compressors (16,100 H.P.) – Install 2 solar turbines
PEPL Compression Modernization Project
Project drivers – Improve compression reliability and eliminate obsolete equipment – Improved operational and fuel efficiency – Comply with emission reduction requirements in Illinois • Project scope
•
– Replace 77 vintage units with 19 turbine-compressors (37% of PEPL – turbine-compressors
horsepower) – Modernize and automate 10 of 13 mainline stations –
•
In-service In-service
– – – – – –
Olpe & Liberal – 2007 Greensburg, Centralia & Tuscola – 2008 5 remaining stations in 2009
•
Capital expenditure estimated at $250 MM - $280 MM (includes Ill. emission reduction project expenditures)
PEPL Compression Modernization Project
Centralia 2 T-70 15,600 HP Olpe 2 T-70 18,910 HP Greensburg 2 T-70/1 C-50L 23,000 HP Pleasant Hill 1 C-50L 4,800 HP Tuscola 2 T-70 16,600 HP
Liberal 2 T-70 13,350 HP
Edgerton 3 C-50L 18,400 HP
Haven 3 T-70 21,200 HP
Houstonia 1 C-50L 4,960 HP
Montezuma 2 T-70 16,100 HP
Zionsville 1 T-70 6,350 HP
2006 In-service 2007 In-service 2008 In-service 2009 In-service
1930’s Vintage Engine/Compressor
2006/2007 Construction Olpe & Montezuma
Tuscola East End Enhancement
• Project drivers
– Replace 1930’s / 1940’s vintage pipeline 1930’s 1940’s – Improve system flexibility, integrity and
reliability
• FERC approval in May 2007 • In service 2007 • Total capital expenditure estimated at $80
MM
Tuscola East End Enhancement
Project Scope
– Tuscola discharge • Install 7 miles of 36” pipeline in first valve section • Replaces 7 miles of 20” 100-Line – Montezuma discharge • Install 7 miles of 36” Pipeline to 1 Gate • Replaces 7 miles of 20” 100-Line – Zionsville discharge • Install 18 miles of 30” pipeline to 3 Gate • Replaces 18 miles of 24” 200-line – Edgerton discharge • Replace Raisin River Crossing (completed in 2006)
PEPL and TGC Pipeline Integrity
• 2002 Pipeline Safety Act requires integrity
management programs in high consequence areas • PEPL/TGC Status
– 66 % of HCA’s inspected HCA’s – 52 % of entire system inspected YTD 2006 – 6 segments modified for in-line tool inspection in 2006 in-line
& 2007 – 1,153 miles of in-line tool inspection runs in 2006 and in-line 2007
• Annual Capital Expenditures for Pipeline Integrity -
$20MM- 27MM (2006 – 2009 total = $94MM) $20MM-
Commercial Update
Gregg Russell
Vice President, Marketing
Commercial Update
• Trunkline LNG Update • Trunkline Field Zone Expansion Update • East End Storage Enhancements • VectorConnector
Expansion Update
• TLNG Phase I Expansion COMPLETE
– Increase vaporization: .63 Bcf/d
Trunkline LNG
to 1.2 Bcf/d
• •
Peak vaporization of 1.5 Bcf/d In-service September 18, 2005 Additional lay berth
– Increase storage: 6.3 Bcf to 9.0 Bcf
•
•
In-service April 5, 2006
• TLNG Phase II Expansion – COMPLETE
– Increase vaporization: 1.2 Bcf/d to 1.8 Bcf/d
• •
Peak vaporization of 2.1 Bcf/d Convert lay berth to full unloading dock
Infrastructure Enhancement Project
•
Trunkline LNG
Timing:
– – –
In-service 3Q 2008 FERC approval on 1/31/07 Construction began 2/5/07
•
Facilities:
Ambient Air Vaporization (AAV) capable of providing 2.1 Bcf/d of sendout – Natural Gas Liquids (NGL) extraction equipment for 1.18 Bcf/d
–
Trunkline LNG will install new facilities at the Lake Charles terminal to allow for Ambient Air Vaporization of LNG and for Natural Gas Liquids processing.
•
Benefits:
– – –
Gas quality control Lower fuel consumption Increased supply available to Trunkline
TGC NTX Expansion Update
Angelina Trinity
To/From Market Area
Newton Jasper Beauregard Vernon Rapides Avoyelles
Project Description: • 45 miles of 36” pipeline loop Kountze to Longville
• •
ETC & Enbridge @ Kountze Polk
San Jacinto
Tyler
Longville Allen
Montgomery
Evangeline
Field Zone Header System
St. Landry
13.5 miles of 36” pipeline loop Kaplan to Henry Hub Incremental Texas capacity of 525,000 Dth/d from Kountze to Longville 1.1 Bcf/d of new pipe capacity to Henry Hub Use of new and existing compression
Kountze
Hardin Orange Calcasieu
Liberty
Harris
li Jefferson Davis ne
200 line
3 Acadia STX0& WTX 0
Lafayette Hub Henry St. Martin Iberia
Iberville
KM @Liberty
Chambers
Jefferson
Texas
Louisiana
TLNG
Jeff Stor
Cameron
• •
Kaplan Bayou Sale Vermilion St. Mary Centerville Patterson
Galveston
The Field Zone Expansion will allow Trunkline to receive incremental supply from Texas, North Louisiana and the Market Area for transportation to the Henry Hub and other field zone delivery points.
Timing • In-Service – 4Q ’07
Louisiana-Henry Hub Expansion
Epps
Perryville
Pollock Longville
Kountze
36”
24”
30 0L ine
Project Description • 56 miles of up to 36” pipeline • Additional Kaplan and Longville HP • Reverse Flow at Pollock • Florida Lateral & Meter Expansion (East White Lake) • A 500 MMcf/d Henry Hub Meter Expansion • 400/600 MMcf/d incremental capacity
Florida Zn 2 Henry Hub
0 20
Trunkline LNG
200 Line WLA 300 Line WLA Bayou Sale ELA Centerville ELA Proposed Line
ne ne Li
WLA
Kaplan
Jefferson Island Storage
Centerville
ELA
East End Storage Enhancement
Project Description • Phase I – 13 miles 20” pipeline – 4,000 HP at Michcon’s Willow Run Station – 200,000 Dth/d into PEPL – Incremental 9.6 Bcf at DTE Storage – In service November ’08 • Phase II Option – Incremental 5,500 HP at PEPL 10 Gate – Incremental 100,000 Dth/d into PEPL – Incremental 10 Bcf storage
REX
DTE Storage
Howell + West Line Storage
New MichCon line
Union of Canada
PEPL
Edgerton
TGC
Tuscola
Montezuma
Zionsville Columbia
10Gate HP
Lebanon Lateral
REX
Dominion
Lebanon Hub
REX
Texas Gas Columbia
TETCO
VectorConnector Project Drivers
Vector
Panhandle
Trunkline
VectorConnector Project Drivers
Rocky Mountain via Rockies Express
Vector
Panhandle
Fayetteville Shale via Ozark and Boardwalk Barnett Shale/Bossier via CenterPoint, Kinder Morgan, Boardwalk Barnett Shale/Bossier via TGC’s North TX Expansion
• Enhanced access to multiple •
supply basins (Mid-continent, Rockies, Barnett/Bossier)
Trunkline
Gulf Coast LNG Terminals
Deepwater
VectorConnector Project Drivers
Vector
Panhandle
• Enhanced access to multiple •
Trunkline
supply basins (Mid-continent, Rockies, Barnett/Bossier) • Physical connection between • Gulf and Michigan/Canadian storage hubs
Storage Hubs
VectorConnector Project Drivers
Dawn Chicago Vector Lebanon
Panhandle
• Enhanced access to multiple •
Perryville Trunkline Henry Hub
supply basins (Mid-continent, Rockies, Barnett/Bossier) • Physical connection between • Gulf and Michigan/Canadian storage hubs • Bi-directional capability to allow • supply movement between trading hubs
Supply/Trading Hubs
VectorConnector Project
VectorConnector
VECTOR
MICHCON BLUEWATER STORAGE
UNION/DAWN DTE/WASH 10
Chicago Metro Area
New TGC Lateral New Compressor Station
PEOPLES
TGC
Ambia
N. Judson
PEPL
REX PUTNAM LEBANON HUB
Project Description • 16 miles of up to 30” pipeline • Up to 650,000 Dth/d capacity • New compression at Elkhart • November 2009 in-service • Open season through July 2nd
REX TUSCOLA
PROPOSED REX
Montezuma Tuscola
Break
Industry Outlook
Skip Simmons
Principal, North Am erican Gas Research Wood MacKenzie
Wood Mackenzie
Energy
Natural gas: Setting the current stage....challenges of the future.
Delivering commercial insight to the global energy industry www.woodmac.com
Wood Mackenzie
Energy
Wood Mackenzie’s North America Gas Supply Regions
• • • • • • • • • • • • Gulf Coast Gulf of Mexico (GoM) Federal Offshore Midcontinent
160°W
Beaufort Sea
Alaska
U.S.A.
Alaska
Baffin Bay
Vic to ria I
GREENLAND
sl a nd
Ba ffin
Isla
nd
Rockies San Juan Southwest Northeast West Coast Alaska Western Canada Sedimentary Basin (WCSB) East Coast Canada Arctic Canada
Yukon
Arctic Canada
North West Territories Labrador Sea Nunavut
50°N
British Columbia
WCSB
Alberta Saskatchewan
Hudson Bay Newfoundland
Manitob a
East Coast Canada
Quebec Ontario
Vancouver Island
CANADA
Washington Montana Oregon Idaho North Dakota Minnesota Superior Huron
NH
On o tari
rk New Yo
lvani Psnnsy a
Rockies
M cky Ro
e Main
VT
Michigan
Wyoming
s tain
So uth Dakota
Wisconsin
Erie
140°W
. Mass CO I R
Nevada Utah
Co lo ra do
Nebraska
Iowa
Ind iana
30°N
Pacific Ocean
California
UNITED STATES OF AMERICA
Oklahoma
Midcontinent
Kansas
W Vi est rg in ia
West Coast
Illinois
Mis p sip sis
Ohio
New Jersey Maryland Northeast
ia
Colorado
Missou ri
Kentucky
Virgin
Atlantic Ocean
Southwest
Regional basin/play focused Company analyses utilized for US Lower 48 (Rockies, San Juan, Gulf Coast) and WCSB. Additional analyses & insights from proprietary knowledge gained through various Wood Mackenzie multi-client and consulting studies.
Gulf of Mexico
THE BAHAMAS
GoM
CUBA MEXICO
10°N
120°W
100°W
80°W
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60°W
Traditional Wood Mackenzie upstream research comprises asset-by-asset analyses (Deepwater GoM & North America Frontier services).
Tennessee
i
Alabama
Arizona New San Juan Mexico
Arkansas
sipp
South Carolina Georgia
Texas
Gulf Coast
a an
Miss is
30°N
rolina North Ca
50°N
n iga ch Mi i
20°W
vis Da ait Str
ss Mi ri ou
12 Major North America supply regions:
160°W
140°W
120°W
100°W
80°W
60°W
40°W
70°N
20°W
oun
rr Si e
eva aN da
i uis Lo
da Flori
Wood Mackenzie
Energy
US L48 Production Will Grow—With Unconventional Supplies as an Increasing Part of the Mix
55 50 45 40 35 Bcfd 30 25 20 15 10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Conventional Tight Gas CBM Shale Gas
29% 51%
Ft. Worth & Arkoma basins: Barnett, Fayetteville, & Woodford/Caney Rocky Mountains: San Juan, Powder River, & Raton
Rocky Mountains: Piceance & Greater Green River basins ArkLaTex: Cotton Valley, Travis Peak, & Bossier
Although conventional supply for the US L48 is in decline, unconventional supply from tight gas, shale gas, and CBM are forecast to grow and enable future supply support. Comprising 29% of US L48 supply in 2000, unconventional supply is set to increase its share to 51% by 2013 primarily in the Rockies, Ft. Worth Basin, ArkLaTex, and the Arkoma basins.
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Gulf Coast Supply Region
100°W 95°W 90°W 85°W 80°W
Topeka
Geographically includes: • Texas RRC Districts 1, 2, 3, 4, 5 (excluding Newark East field), 6, and state offshore waters • Louisiana and state offshore waters • Arkansas South (salt basins) • Mississippi • Alabama • Florida Major gas producing basins include: • TX/LA Gulf Coast • East TX/AK-LA-MS-AL salt • Black Warrior Key gas plays include: • Lower Wilcox/Lobo Tight Gas • Deep Vicksburg Tight Gas • Cotton Valley Tight Gas • Bossier Tight Gas • Austin Chalk Tight Gas • Black Warrior Basin Pottsville CBM
Kansas City
Mi s sou ri
Ohio
St.Louis
Lexington
Frankfort
West ia Virgin
Charlestown
Kansas
Wichita
Jefferson City
Richmond
Missouri
Springfield
Kentucky
Nashville
sipp
Virginia
Raleigh Knoxville
35°N 25°N 80°W 30°N
Oklahoma
Oklahoma City
35°N
Tulsa
Tennessee
a North Carolin
Charlotte
Arkansas
Little Rock
Mis sis
i
Memphis
BLACK WARRIOR BASIN Columbia
Atlanta
Cotton Valley Play Bossier Play
Fort Worth Dallas Jackson
lina South Caro
Birmingham
Georgia
Alabama
Montgomery
EAST TEXAS BASIN
Texas
Lower Wilcox / Lobo Play
San Antonio
ARKANSAS-LOUISIANAMISSISSIPPI-ALABAMA Mississippi SALT BASINS
Louisiana
Houston New Orleans
Jacksonville Tallahassee
30°N
Florida
Austin Chalk Play TEXAS / LOUISIANA GULF COAST BASIN Deep Vicksburg Play
MEXICO
25°N
Miami
CUBA
0
100°W
100
200
95°W
Km 400
90°W 85°W
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Supplies from coastal regions – Non-conventionals increasing portion
20,000 18,000 16,000 14,000 12,000 m m cfd 10,000 8,000 6,000 4,000 2,000 0 2000 Gulf Coast
“Traditional onshore coastal areas”
25% 61%
Gulf Coast region: previous slide
2005 ArkLaTex Fort Worth
2010 MS. Salt Dome
2015 Black Warrior
2020
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GoM Declines No Longer Mitigated by Deepwater Volumes
10,000 9,000
100°W 95°W 90°W 85°W 80°W
Slight growth, but decline continues over time
Topeka Kansas City
Mis sou ri
Ohio
St.Louis
Lexington
Frankfort
V
Wes t irginia
Virginia
8,000
Richmond
7,000 6,000 mmcfd
Kansas
Wichita
Jefferson City
Charlestown
Missouri
Springfield
Kentucky
Nashville
Miss issip p
Raleigh
35°N
5,000 4,000 3,000 2,000 1,000 0 2005
Knoxville
Oklahoma
35°N
Tulsa
Tennessee
lina North Caro
Charlotte Columbia
Arkansas
Oklahoma City Little Rock
Memphis Atlanta Birmingham
i
lina Sout h Caro
Georgi a
Alabama
Fort Worth Dallas Jackson Montgomery
2006
2007
2008
2009
2010 DW Tech
2011 DW YTF
2012 UDS
Jacksonville Tallahassee
Louisiana
30°N
New Orleans Houston San Antonio
30°N
Texas
Mississippi
Shallow Shelf Comm.
Shallow Shelf YTF
DW Comm.
14,000
Fl orida
Independence Hub Capacity
Gulf of Mexico Shelf
Central Western Eastern
12,000 10,000 mmcfd
Miam
25°N
Gulf of Mexico Deepwater
8,000 6,000 4,000 2,000
MEXICO
25°N
40 0
me tres
GULF OF MEXICO
CUBA
80°W
HAVANA
0
100°W
100
200
95°W
Km 400
90°W 85°W
0 2000
2002 GoM other
2004
2006
2008
2010
2012
Independence Hub
Atlantis & Thunderhorse
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16 0 °W 1 40 °W 12 0 °W 10 0 °W 8 0° W
Energy
60 °W 4 0 °W 7 0 °N 20 °W 20°W
160°W
North America Shale Gas Plays
Lisburne
U . S. A .
Al a s ka
Be a uf o rt Se a B af f i n B ay
V ic to r
GR E E N LA N D
ia
I sl
an d
Ba f f in
vi Da
I sla
tra sS
nd
it
Yu k o n
N o rth W e s t T e rr i to r ie s L ab r ad or S e a N u n av u t
50°N
Montney
Br i ti s h C o l u mb i a H ud so n B ay Al b e rt a Ne w fo u n d l a n d
Sas k a tch e w a n V a nc o uv er I sl a nd
M a n it ob a Q u e b ec
C AColorado NADA
W a s h i n g to n M o n ta n a O re g o n
Group
O n tar i o
Bakken Gammon
N o rth D ak o t a M i n n es o ta S up e rio r H ur o n
Antrim
On io ta r
Ne w Yo r k
M a in NH
VT
e
Michigan
Id a h o
W y o m i ng
S o u th D ak o t a
W is c o n s in
Kettle Point Erie
O h io
W e Vi s t rg in ia
140°W
Mancos/Mowry
N e va d a U tah
Baxter
s
Niobrara
Ne b ra s k a K an s a s
Io w a
Ind iana
P sn n
ia sy lv an
Ma s CO
s. RI
Devonian/Ohio
Ne w Je r se y M ar yl a n d
I l l in o i s New Albany
M is p sip sis
ra d
McClure Cane Creek
o Co lo
C o l o ra d o
30°N
P aci f ic O cea n
C al i fo r n i a
U NI TE D S TA TE S O F A M E R I C A
Excello/Mulky
i
M i s so u ri
K en t u ck e T e n n e ss
Alabama
y
N o rt h
V ir g
Ca
in ia
Monterey
Lewis/Mancos
A ri zo n a N ew M ex i co
Bend
A r ka n s a s
Barnett/Woodford Established Emerging Potential
Barnett Pearsall
Tuscaloosa
rida Flo
G u lf of M exi co
T HE BA HAM AS
CUBA M E X IC O
10°N
1 20 °W
10 0° W
80 °W
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60°W
T e xa s
Mis s is
Barnett/Woodford
Fayetteville Floyd/Neal Woodford/Caney G e o rg ia
s ipp i
e
S o u t h C a r o li n a
30°N
Woodford O k la h o m a
ro l in a
A t la n ti c O c ea n
50°N
ss Mi n i ga ch Mi
Ro M cky o un t ai n
ri ou
rr Si e
aN
e va
da
i uis Lo
a an
Wood Mackenzie
Energy
Barnett Shale Supply Outlook Scenarios
3.0 3.0 4.0 6.0 8.0
Annual production decline of 20% Annual production growth of 10% Annual production decline of 20% Annual productiongrowth of 0% growth from New Drilling Activity from New Drilling Activity
New forecast 2.75 bcf/d 2P production
7.0 5.0
3.0 6.0 2.0 2.0 4.0 5.0 2.0 3.0 4.0
1.0 3.0 1.0 2.0 1.0 2.0 1.0 1.0 0.0 0.0 0.0 0.0 0.01999 1999 1999 1999 1999
Note: Annual YOY Production Growth in 2006 was 28%
Bcfd Bcfd Bcfd Bcfd Bcfd
2000 2001 2002 2000 2001 2002 2000 2001 2002 2000 2001 2002 2000 2001 2002 Prior Years Prior Years Prior Years Prior Years Prior Years 2004 2004 2004 2004 2009 2004 2009 2009 2009 2009
2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2000 2000 2000 2000 2000 2005 2005 2005 2005 2010 2005 2010 2010 2010 2010
2005 2005 2005 2005 2005
2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2001 2001 2001 2001 2001 2006 2006 2006 2006 2011 2006 2011 2011 2011 2011
2008 2008 2008 2008 2008
2009 2009 2009 2009 2009 2002 2002 2002 2002 2002 2007 2007 2007 2007 2012 2007 2012 2012 2012 2012
2010 2010 2010 2010 2010
2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2003 2003 2003 2003 2003 2008 2008 2008 2008 2013 2008 2013 2013 2013 2013
2013 2013 2013 2013 2013
After initial decline, long-term production base is solid platform for future growth
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Shale Gas Economics
70 60 50 IRR (%) 40 30 Barnett core Barnett non-core Fayetteville Woodford/Caney Bend
Fall 2006
20 10 $4 0 2007 Real $/mcf
Play Barnett core Barnett non-core Fayetteville Woodford/Caney Bend Basin Ft. Worth Ft. Worth Arkoma Arkoma Palo Duro EUR (bcf) 1.7 1.5 1.5 2.2 1.5 Well Costs ($MM) $1.5 $1.4 $2.1 $4.0 $2.5 Assumed Royalty 30% 25% 15% 20% 25% Drilling Costs ($/mcf) $1.24 $1.28 $1.65 $2.27 $2.22 Breakeven Cost @10% Return $4.94 $5.65 $6.21 $6.82 $8.05
$5
$6
$7
$8
$9
$10
Source: Modified from Wood Mackenzie Gulf Coast Upstream Service
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Canada Gas Supply Declines...
18,000 15,000 12,000 mmcfd 9,000 6,000 3,000 0 2000
Imperial Oil’s Mackenzie Valley project may be at risk to economics
2005 WCSB CBM
2010 East Coast
2015 Arctic
2020
Canadian supplies were stable in 2006 with a small year-over-year gain. However, Canadian supplies are projected to decline with increasing cost escalations, reduced drilling activity levels, reduced E&P budgets, and the shift of focus to oil directed operations. Significant resource potential remains in Canada in stranded Arctic gas as well as unconventionals that have yet to be fully exploited.
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….While Significant Future Oil Sands Production Grows Local Demand
6,000 5,000
Oil Supply
5.6 mmbbl/d 5 mmbbl/d
4,000 '000 b/d 3,000 2,000 1,000
4 mmbbl/d
Gasification may be a technology adopted to temper this gas demand growth
0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 WM current forecast Announced new projects Announced expansions Peak production 5.6 mmbbl/d
Source: Wood Mackenzie WCSB Upstream Research Service
2006 production was around 1 million barrels per day (~35% of total Canadian production). By 2020, oil sands production forecast to account for over 90% of total Canadian oil production.
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Projected Gas Demand for Such Oil Sands Production
4,500 4,000 Canadian supply is declining at the same time Oil sands demand is increasing…….
3,500 3,000 2,500 2,000 1,500 1,000 500 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Mining gas demand In-situ gas demand
• Available exports to
US markets will decrease as these dynamics come into play
• Canadian prices will increase due to tighter supply/demand balance •Note: WM forecasts do include the Mackenzie Delta resources (2014). If those resources are not produced, this situation is aggravated
mmcfd
Source: Wood Mackenzie WCSB Upstream Research Service
At the same time this regional demand is increasing, WCSB supply is in decline…(super-imposed red line)…exacerbating the supply/demand balance
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LNG is coming to North America, just not as much, or as soon, as thought
Some increase in global availability as ’06 CID projects produce closer to capacity in 2007, and Indonesia supply stabilizes. Next wave of increase comes in 2008-2009 as significant Atlantic Basin supplies are brought online Global dynamics have reduced our 2012 expectations to 10 bcfd
12,000 10,000 8,000 mmcfd 6,000 4,000 2,000 2003 2004 Lake Charles Freeport Cameron Canaport 2005 2006 Everett Golden Pass Gulf (Pascagoula) Energy Bridge 2007 2008 Cove Sabine Cheniere Gulf (2) Altamira 2009 2010 Elba Gulf Landing Baja Manzanillo 2011 2012
Note: WM’s LNG team carries (2) generic GOM terminals in its build-up, (1) at Gulf Landing and (1) at Gulf (2). These volumes will be placed at onshore terminals in GOM as/when commercial commitments are made. Source: WM Global LNG Online
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So what are the challenges of this evolving environment?
bcf/day
2007-2010 2007-2014 2007-2018
Supply +2.27 +3.09 + 2.72
Demand +1.56 +2.25 +3.12
Supply <1.13> <1.49> <2.22>
Demand +1.46 +3.19 +4.80
Supply/Demand
Major L48 supply growth recently has been and will continue to be primarily in the “west” and from more-costly non-conventional resources Impact: West-to-east pipelines needed to “bridge the gap” – both physically & financially Major US demand growth continues primarily in the “east”, fueled by gas-fired generation demand LNG will come to US, but…. Impact: Worldwide demand and delays in liquefaction decisions and developments have lowered potential import levels and extended time horizons. Developed regas facilities will provide “options”, but can they “pull-in” needed supply? S
Demand/Supply
S
S A B I N E R I V E R
This “locational” supply/demand imbalance has been recently reflected in price, i.e, basis to HH
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Price risk exposure is a significant deterrent to US resource development
Access to market
Unacceptable Price Risk Exposure
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Major new pipeline projects are developing to “bridge the gap”…..
Domestic supply/demand “imbalance” is mediated by new infrastructure • Supplies from the Rockies can have a Lebanon, Ohio/Pennsylvania market entry point, or points enroute • Supplies from East Texas & Oklahoma will thus appear at Mississippi market points
Projects
REX REX Expansion CNP/Duke Boardwalk Gulf Crossing Kinder MEP Fayetteville lateral Greenville lateral
Capacity mmcf/d
1,800 2,500 [WM view} 1,200 1,000/1,600 1,500 1,500 800 (max. 1,100) 750
Supply/Demand Demand/Supply
1,800 – 2,500
5,500
525
Trunkline North Texas Expansion
525
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Targeted pipeline infrastructure/downstream market opportunities
“Basis” Bridge is being successfully completed !
Repsol
Canaport LNG: up to 800
1,800 – 2,500 Cove Point LNG: + 800 5,500
Shell/BP/Statoil Sempra/Shell
Baja LNG: up to 2,000 Re-connection of western supply basins and somewhat-delayed arrival of LNG posit a higher Henry Hub price and reasonable western region locational basis – both of which will continue to facilitate domestic resource development
Shell/BG
Elba LNG: +900 GOM LNG: up to 8,500
ExxonMobil/QatarGas/ConocoPhillips/ ChevronTexaco/BG/Total/Others
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<$.50 > <$.36> <$.38 >
WM near-term view (avg 2007 - 2010)
+$.18
+$.81
<$.28> +$.14 <$.20> <$.88> <$.85> Rockies Express 2008/2009
PL PE
+$.62
+$.34 +$.19
<$.35>
<$.63> +$.00 <$.19> <$.30> <$.23> <$.26> +$.06 <$.06> +$.02
TG C
+$.17
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<$.21> <$.04> <$.09 >
WM mid-term view (avg 2011 - 2014)
+$.29
+$.74
+$0.02 +$.25 +$0.09 <$.65> <$.64> Rockies Express expansion 2011
PL PE
+$.64
+$.35 +$.17
<$.16>
<$.37> +$.03 <$.06> <$.14> <$.08> <$.12> +$.04 <$.01> +$.05
TG C
+$.18
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<$.13> +$.07 <$.01 >
WM mid-term view (avg 2015 - 2018)
+$.34
+$.85
+$0.11 +$.30 +$0.15 <$1.00> <$1.13> +$.21
PL PE
+$.75
+$.40
<$.25>
<$.39> +$.03 <$.07> <$.14> <$.08> <$.13> +$.04 <$.01> +$.04
TG C
+$.21
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Looking closer to home…. Trunkline LNG Trunkline Gas Panhandle Eastern Sea Robin Pipeline
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Lake Charles LNG – An established market presence….
BG is the principal player at Lake Charles and is a large, pro-active upstream LNG portfolio player. BG’s 1,800 mmcf/d contract in Trunkline’s field zone provides them with considerable optionality and market potential for their LNG supplies on the Trunkline system and into other pipes at various field area interconnects. BG also has current regas terminal capacity at Elba Island, SC. This capacity – contracted from Southern LNG Co. – allows for delivery to northern Florida markets via the recently-activated Cypress Pipeline. Later, with implementation of the Elba Express Pipeline system, access to other markets in the southeast via Transco and Southern Natural will be available.
BG, like all other Gulf Coast LNG sellers, will find themselves in head-to-head competition with producer gas received into the Perryville, LA area and into other eastbound pipes
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Trunkline Gas – Impacts and Opportunities
Buyers on Trunkline should be smiling: • Considerable LNG available from BG and others in the field zone, al beit later than sooner. LNG may have a more-seasonal US market entry than some may have originally anticipated. • Barnett and Bossier supplies available via Trunkline North Tx. expansion • Texas and Oklahoma supplies available at the Perryville Hub (Zone 1A), • REX’s proposed connection to Trunkline in Rex Zone 3 (Trunkline Zone 2) Trunkline’s low variable-cost rate structure should continue to keep the system competitive into the future. Field zone prices continue to be modestly negative to Henry Hub while fuel to market delivery points is in the order of 1% - 1.5% WM estimates of forward basis spreads should provide excellent value for TGC transportation capacity.
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Panhandle Eastern – 2008 opportunity
Though probably short-lived, REX West’s initial termination point will be into Panhandle Eastern’s system in Missouri, Buyers will get their “first taste” of the recent Rockies region supply growth coupled with the very-efficient, low variable cost REX delivery capability.
Longer-term: (2009-2015)
Regional supply: Mid-continent supply region remains in general decline, but a supportive HH price path and “reasonable” basis price differential to HH will support continuing regional efforts to augment/sustain such. Supply from Canada into Midwest markets declines over time and the price of that Canadian resource climbs to all-time highs. Mid-continent gas “returns to favor” as an essential supply to Midwest markets. Pre-Alaska, entire Midwest market regional indices are increasing over time as Canadian gas import capability is declining into the future. REX gas generally routes further east; Lebanon becomes a very competitive market point. Regional prices provide for developing shale gas supplies in Oklahoma; these supplies are directed primarily towards new regional export capacity, but they also can serve markets in the Midwest region.
Overall Midwest regional supply picture and increasing spread value to downstream markets indicate PEPL transportation capacity to be an essential component of a Buyer’s regional portfolio.
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REX’ impact on Midwestern pipes and storage
REX seeks markets at far-end: • WM-Modeled results would have majority of REX volumes seeking downstream markets at Lebanon and/or into Pennsylvania/NJ firm capacity and/or storage (Dominion, East Ohio, Tennessee Zone 4, TETCO M-2, Columbia/TCo) New products and services will evolve: • Following commercial opportunities are likely to originate:
• • Injection possibilities into all Midwest storage facilities, i.e., Panhandle Eastern, DTE, Consumers, NGPL, ANR, other regional storages, etc. Withdrawals from storage into REX may be possible, but only via displacement scheduling. (REX is very high pressure and physical deliveries into REX are problematic). REX will be an alternative supply source for customers on same pipelines throughout the year Segmentation of REX capacity is likely in winter months, with traditional supply availability at Lebanon providing that additional in-line supply source required to allow sourcing of multiple REX segments. Possibility of many new services originating along the REX corridor, such as seasonal sales, power load-following, added park-n-ride capability, etc.
• •
•
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