IPAA: RJ Energy Outlook

Transcription

1 Raymond James Energy Group Equity Research IPAA: RJ Energy Outlook John Freeman E&P MLP Andrew Coleman Oil Service/Coal Marshall Adkins Jim Rollyson Collin Gerry Major & Refiners & Alt. Energy Darren Horowitz Kevin Smith Pavel Molchanov Cory Garcia Raymond James Energy Group (800) November 13, Please read disclosure/risk information and Analyst Certification at the end of the presentation. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

2 Game Change in U.S. Oil & Gas! Oil price structurally challenged Global oil demand is sputtering U.S. oil supply up huge! Oil market is telling you there is a problem! Bulls must count on additional disruptions U.S. nat gas poised for longer-term recovery Demand poised to surge But plenty of $4.00 International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

3 Oil Outlook Without Strong Global Economic Recovery, Oil Will Be Structurally Challenged International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

4 Why Are We Worried About Oil? Oil inventories rising despite massive supply outages (3+ MMBpd offline since 2010) Oil inventories on track to max out in 2014 OPEC excess capacity near 20+ year high Will Saudi/OPEC cut an additional 2 MMBpd? If not, oil prices are moving lower International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

5 How Does Our Oil Forecast Stack Up? In-Line with Consensus for % below consensus in % below Consensus in Way Below Street for 2015 WTI-Brent Spreads WTI Brent Spread Long Term Long Term Long Term New RJ Forecast $ $83.00 $70.00 $80.00 $ $95.00 $90.00 $90.00 $9.00 $12.00 $20.00 $10.00 NYMEX Futures Strip $99.86 $99.19 $89.86 $82.93 $ $ $99.15 $90.96 $9.79 $7.19 $9.29 $8.03 % Change 0% -16% -22% -4% -1% -11% -9% -1% -8% 67% 115% 25% Source: Thomson Reuters; Raymond James Research International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

6 Does the Market Now Get It? Source: Bloomberg; Raymond James Research International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

7 Long Term Strip is Coming Our Way $ Average "Long-Term" WTI Strip (NYMEX) $92.00 $90.00 Long-Term Oil Price Assumptions Moving Toward Us! $88.00 $86.00 $84.00 Old Long-term Forecast $82.00 Current Long-term Forecast $80.00 $78.00 As of December 2010 As of December 2011 As of December 2012 Current Strip Source: FactSet; Raymond James Research International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

8 What are the Headwinds for Oil? North American crude supply growing ±1.5 million BPD over next several years. Other supply growth outpacing declines Global demand growing about half as fast as supply (700, ,000 BPD) International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

9 Staggering U.S. Oil Supply Growth! International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

10 Near-Term Supply Growth Very Visible International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

11 U.S. Actuals Tracking Above RJ 2012 Forecast September 2012 RJ Crude Oil Forecast Vs Actual 8,000 7,500 GOM Maintenance MBpd 7,000 6,500 6,000 Jan-12 Mar-12May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13May-13 Jul-13 Sep-13 Sept 2012 Forecast Source: EIA (April 2013), Raymond James research EIA Actuals Source: EIA; Raymond James Research International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

12 Efficiency Improvements Outpacing Our Model First 6 months of Production (BOE) Source: Raymond James; Drilling Info Bakken Production Source: EOG 300 Permian Horizontal Well Productivity Average Production Per Well (BOE/D) *First 6 Months of Production for Horizontal Permian Wells 100 Source: Raymond James, HPDI International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

13 Won t Steep Declines Cause Oil Supply to Slow? Barnett Shale Gas Production vs Rig Count 6, Gas Production Rig Count 180 5, Gas Production (MMcf/d) 4,000 3,000 2, , Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 0 International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

14 Growing Supply is Not the Only Problem 3.5 Annual Global Oil Demand Growth Annual Demand Growth (MMbpd) average Post "Melt Down" Average IEA Assumptions E 2014E -1.0 Source: IEA, RJ est. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

15 What is New Normal For Oil Demand Growth? Global Oil Demand "New Normal"? 0.8 MMBPD Y/Y Growth 85 "Old School" (MMBbls) MMBPD Y/Y Growth Q94 1Q96 1Q98 1Q00 1Q02 1Q04 1Q06 1Q08 1Q10 1Q12 Source: IEA, Raymond James Research Global Oil Demand International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

16 Why is Oil Demand Growth Slowing? 1.6 Oil Consumption Intensity - Select Developed Countries Bbls of Oil per $1,000 GDP (2000$) U.S. UK Japan Germany U.S. Japan UK Germany Source: EIA, IEA, World Bank, CIA World Factbook E International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

17 Efficiency Gains are Real Equity Research 36 Average Fuel Efficiency of New U.S. Vehicle Sales vs. WTI Oil Prices 34 Miles per gallon Passenger Car Fuel Efficiency 26 Source: U.S. Department of Transportation International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

18 Are People Driving Less? Equity Research U.S. Vehicle-Miles Traveled Vehicle-miles (in billions) Urbanization? - Demographics? - Low Employment? - High Gasoline Prices? - Internet? Source: U.S. Bureau of Transportation Statistics International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

19 Better Mileage + Less Driving = Falling Demand U.S. Gasoline All Sales/Deliveries by Prime Supplier 's of gallons/day Source: EIA, RJ Research International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

20 U.S. Demand Falling But Lumpy Equity Research US Oil Demand Growth Y/Y 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% 9 Year Average = 1.0% 5 Year Average = 0.8% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% Source: IEA; Raymond James Research International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

21 Japanese Oil Demand Fell 8/10 Years Last Decade 300 Japanese Y/Y Oil Demand Change Fukushima 100 (Total Change MBbls/d) E 2014E Source: IEA, Raymond James Research Japanese Oil Demand Change Y/Y International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

22 Is China Worse than People Think? MMBbls/d China's Crude Imports down 1% Source: Bloomberg, National Bureau of Statistics of China, & RJ estimates. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

23 Global Oil Demand is Facing Serious Headwinds International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

24 Where Does That Leave Our Global Oil Model International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

25 Question Is Not If But When? 3,200 OECD Industry Total Petroleum Inventories Forecast OECD Inventories (MMBbls) 3,100 3,000 2,900 2,800 Iran, Sudan, and Syria down 1.5 MMBpd Saudi cuts 1 MMBpd Max Capacity? 2,700 2,600 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Record high! Source: IEA, RJ est. (Assume 1/2 the inventory build goes to OECD inventories) International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

26 If Fundamentals Suck, Why is Spot So High? MBpd 3,500 3,000 Major Supply Disruptions ( ) Sudan Nigeria Syria Iraq Iran Libya 2,500 2,000 1,500 1, Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13E Source: IEA; Raymond James Research International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

27 Where Could We Be Wrong? U.S. Supply & Global Demand # s Conservative Bad Data? Data May be Wrong But It s Consistently Wrong Either Way Demand is Worse Than Pre-2008 More MENA Supply Interruptions? International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

28 What Solves Structural Oil Problems? Robust Global Economic Recovery Difficult With De-levering & High Oil Prices Cut Supply Temporary Solution OPEC Excess Capacity Becomes Problem **Lower Oil Prices** - SOLUTION! Slows U.S. Drillers Spurs the Global Economy International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

29 WTI Disconnect Isn t Going Away International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

30 Watch Light/Sweet Oil Import Timing! 000 Bbls per day 4,000 3,500 3,000 2,500 2,000 1,500 1, North American Light Crude Imports How long 'til we back out remaining 1.4 MMbpd? RJ supply forecast 0 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Source: EIA, Raymond James research Note: we classify light crude as API>30, sulfur <1 International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

31 Gulf Coast Spread Widens When Light is Gone Crude Imports, M bpd 2,000 1,750 1,500 1,250 1, Gulf Coast: Crude Imports vs. Pricing Discounts <300k bpd until competing w/ G.C. $5/Bbl discount Light Sweet Pricing discount to LLS, by crude type $2.50 plus Light Sour $5.25 plus Med. Sour $7.25 plus Arab Medium $12.00 plus Heavy Source: EIA, Bloomberg, Raymond James research International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

32 North American Timing Will Be Squishy Crude Imports, M bpd 1,600 1,400 1,200 1, North American Light Crude Imports, by Region From today, U.S. supply growth backs out imports by: Year-end Imports into Gulf Coast Source: EIA, Raymond James research May Exports to Canada July Imports into West Coast Q Imports into East Coast Note: assumes lowest cost regions backed out first International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

33 Where is our WTI vs. Consensus? $ $ $ $95.00 $90.00 RJ More Bearish 2014/2015 Futures $85.00 $80.00 $75.00 $70.00 $65.00 $60.00 RJ New Deck Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Source: FactSet; Raymond James Research International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

34 What About U.S. Natural Gas? International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

35 Low Prices & Weather Solved Oversupply in ,000 U.S. Gas in Storage U.S. Gas Storage Volumes (Bcf) 3,500 3,000 2,500 2, /12 Storage came in at top end of the range 1,500 5 Year Gas Storage Range Series Summer Storage Forecast 2013 Summer Storage Forecast 1,000 November Source: EIA, Raymond James research (October 2013) October International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

36 How Do We Offset Supply Growth? 2014 Theoretical Change in Summer Storage Tighter Looser Bullish Bearish Core Supply Base Power Liquids LNG Nuke/Hydro Mexico Canada Cswitching Industrial Weather Total Bcf/day International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

37 Gas to Coal Switching Key To Late 2013 Pricing Y/Y Change In Gas Prices Drives Y/Y Fuel Switching Gas to Coal Substitution (Bcf/d) - Positive = Coal Gaining Share Coal Swiching Y/Y Gas Price Differential 2013E Avg: 2.4 Bcf/d 2012 Avg: -4 Bcf/d RJ Forecast 2014E Avg: -0.3 Bcf/d $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 ($0.50) ($1.00) ($1.50) ($2.00) ($2.50) ($3.00) Y/Y Natural Gas Price Differential Source: Raymond James research, EIA (October 2013) International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

38 Gas Growth Slowing But Not Down! 77 U.S. Natural Gas Production- EIA 914 Data EIA Survey Hurricane Losses Production (Bcf/d) RJ Estimate Long term trend Huge surge in growth from shale plays 53 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Source: U.S. Energy Information Administration (December 2012), RJ est. Note: Data sets adjusted to reflect hurricane-related shut ins International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

39 Well Productivity Now 5x-10x Better? International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

40 Lower Oil Prices Are Bullish For Gas! 8.0 Total Dry Gas Production Growth YOY Bcf/d (2.0) (4.0) Dry Gas Plays Wet Gas Plays Oil Plays Other Sum *Note Gas Year is Nov-Nov International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

41 Huge Nat U.S. Demand Growth Coming Y/Y Natural Gas Demand Growth Y/Y Natural Gas Demand Growth Bcf/d Y/Y Natural Gas Demand Growth (Left Axis) Cumulative Natural Gas Demand (Right Axis) Cumulative Natural Gas Demand Growth Bcf/d Cumulative (Right Axis) Industrial Industrial (Upside-Case) Mexican Exports Electric Power Electric Power (Upside-Case) LNG Exports Source: EIA, RJ Research International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

42 Driven Largely by Industrial Gas Demand 28.0 Cumulative Industrial Natural Gas Demand Bcf/d Steel Companies Methanol Production Ammonia Plants Ethylene Crackers GTL Base Industrial Demand Source: EIA, RJ Research International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

43 And Wave of LNG Export Facilities? North American Liquefaction Plants Project Location Est. Capacity (Bcf/d) Est. Cost Status Targeted Owner/Applicant Initial Max. Target ($ MM) Startup Kenai Alaska NM In operation Producing ConocoPhillips Douglas Channel BC, Canada $3,500 CNEB-approved 2015 BC LNG Export Cooperative Sabine Pass Louisiana $12,000 Under construction Late 2015 Cheniere Plaquemines Louisiana ? DOE-approved 2016 Cambridge Energy (CE FLNG) Elba Island Georgia $1,100 DOE-approved; under FERC review 2016 Kinder Morgan, Shell Kitimat BC, Canada $5,500 CNEB-approved 2017 Chevron, Apache Cameron LNG Louisiana $6,000 DOE-approved; under FERC review 2017 Sempra, Mitsui, Mitsubishi, NYK Cove Point Maryland $3,400 - $3,800 DOE-approved (incl. non-fta); under FERC review 2017 Dominion Lavaca Bay FLNG Texas ? DOE-approved; under FERC review 2017 Excelerate Energy Oregon LNG Oregon $6,000 DOE-approved; under FERC review 2017 LNG Development Co. Main Pass Energy Hub Louisiana $10,000-$12,000 DOE-approved Mid-2017 McMoRan Exploration, United LNG Corpus Christi Texas - 1.5? DOE-approved; under FERC review Late 2017 Cheniere Freeport Texas $4,000 DOE-approved (incl. non-fta); under FERC review Late 2017 Freeport LNG, Zachry, Dow Chemical, Osaka Gas Gulf Coast Texas - 2.8? DOE-approved 2018 Gulf Coast LNG Export S. Texas LNG Export Texas - 1.1? Under DOE review 2018 Pangea LNG (North America) Gulf LNG Mississippi $1,000 DOE-approved 2018 El Paso, GE Energy Financial Services Goldboro LNG NS, Canada $5,000 Preliminary project design Late 2018 Pieridae Energy Canada Lake Charles Louisiana $9,500 DOE-approved (incl. non-fta); under FERC review 2019 Energy Transfer, BG Group Pacific NorthWest LNG BC, Canada $9,000-$11,000 Under CNEB review 2019 Petronas, Japex Prince Rupert LNG BC, Canada ? Under CNEB review 2020 BG Group West Coast Canada LNG BC, Canada ? Under CNEB review 2021 ExxonMobil, Imperial Oil Alaska LNG Alaska - 3.5? Preliminary project design 2024 ExxonMobil, ConocoPhillips, BP, TransCanada LNG Canada BC, Canada - 3.2? CNEB-approved TBD Shell, Kogas, Mitsubishi, PetroChina Jordan Cove Oregon $7,500 DOE-approved; under FERC review TBD Veresen Golden Pass Texas $10,000 DOE-approved TBD Qatar Petroleum, ExxonMobil Waller Point Louisiana - 0.2? DOE-approved TBD Waller LNG Services Magnolia LNG Louisiana $2,200 Under DOE review TBD Liquefied Natural Gas Ltd. Total 46.6 Source: FERC, EIA, Waterborne LNG, company reports. Assumes 1 mtpa = Bcf/d unless specific Bcf/d figure is given by company. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

44 U.S. Gas Prices Drift Slowly Higher RJ&A Natural Gas Price Estimates (as of September 2013) 2012 H Hub Actual Q1 Q2 Q3 Q $2.74 $2.22 $2.81 $3.40 $ Estimates Bloomberg Consensus NYMEX Futures Old RJ Gas Est. Current RJ Gas Q1 13A Q2 13A Q3 13E Q4 13E 2013E $3.34 $4.09 $3.80 $4.00 $3.81 $3.34 $4.09 $3.54 $3.63 $3.65 $3.50 $3.90 $4.15 $4.00 $3.85 $3.35 $4.09 $3.54 $3.85 $ Estimates Bloomberg Consensus NYMEX Futures Old RJ Gas Est. Current RJ Gas Q1 14E Q2 14E Q3 14E Q4 14E 2014E $4.16 $4.07 $4.20 $4.35 $4.20 $3.87 $3.82 $3.90 $4.03 $3.91 $4.10 $4.00 $4.00 $3.90 $4.00 $4.00 $3.50 $3.50 $4.00 $3.75 Source: Bloomberg, Thomson Reuters, Raymond James research International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

45 Who Are The Winners In This New World? Energy Spectrum: Infrastructure, Refiners & Niche Stories U.S. wins as trade deficit shrinks U.S. manufacturing wins Gas input costs provide huge cost advantage U.S. dollar goes higher U.S. workers & consumers win International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

46 Outlook For Oil Independence? (Pay Attention To This Graph!) Lower U.S. Oil Imports Contribute to a Narrowing Trade Deficit Equity Research Import requirement (MMbpd) Down 6 MMbpd over past 7 years E 2015E 2017E 2019E Source: EIA, IEA, RJ est. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

47 What About the Non-Oil Trade Deficit? Price Ratio U.S. Energy Cost Advantage Brent/Natural Gas 2 0 International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

48 Conclusion Game Changed For U.S. Gas 5 Years Ago Oil Game Changing Now! Oil Decline Pushed Out by Interruptions U.S. Nat Gas Price Improvement Here to stay! International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida