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Update of the Domestic Exploration and Production Sector What’s Different Now?

Update of the Domestic Exploration and Production Sector What’s Different Now?. Dave Donegan Sinclair Oil & Gas Co. Idaho Petroleum Marketers and C-Store Associations Annual Meeting Sun Valley, ID – Thursday August 1, 2013. Sinclair Oil & Gas Company.

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Update of the Domestic Exploration and Production Sector What’s Different Now?

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  1. Update of the Domestic Exploration and Production SectorWhat’s Different Now? Dave Donegan Sinclair Oil & Gas Co. Idaho Petroleum Marketers and C-Store Associations Annual Meeting Sun Valley, ID – Thursday August 1, 2013

  2. Sinclair Oil & Gas Company • Upstream subsidiary of a private integrated oil company – primary objective is attractive rate of return projects in US.

  3. Our Strategy • Focus on unconventional reservoirs with low geologic risk • and lots of running room – in particular we target • “shaleplays” • Opportunistic rather than geographic strategy • Small staff but leverage geologic expertise in shale reservoirs and operational expertise in horizontal drilling and multi-stage hydraulic fracture stimulation

  4. Our Strategy (cont.) • Current activity in Bakken (MT/ND), Woodford (OK), Wolfcamp/Cline (TX), Cain and A1 Carbonate (MI). • Looking for new opportunity. • Typically try to partner with other operators, enter plays early, but not first. • Partner of choice!

  5. Mature Oil Early Development Nat. Gas Mature Nat. Gas Test Stage Oil

  6. Crude prices have remained remarkably stable over the past year in the face of a long list of supply disruptions, from Nigerian oil theft and Syrian civil war to an export standoff between Sudan and South Sudan. The reason in large part is a thick new blanket of North American oil cushioning the markets. • Story of the past five years is the dramatic increase in North American crude oil and natural gas production. • Why? • Multi-stage frac completions in horizontal wells drilled in unconventional reservoirs (primarily shale's).

  7. Cross-section of a Typical Horizontal Well Source: Anadarko

  8. The Shale Gale delivered rapid U.S. production increases - & precipitated gas price collapse Henry Hub monthly average cash price September 2012 64.7 Bcf per day NGL-and oil-rich plays begins to drive third wave July 2008 56.1 Bcf per day Avg $7.45 Jan 04 to Dec 08 Haynesville, Marcellus Shale plays drive second wave Shale Gale starts with Barnett, Fayetteville, and Woodford shale plays Avg $3.75 Jan 09 to Sept 12 Hurricane Ike Hurricanes Katrina, Rita Source: Courtesy Pete Stark IHS, CERA, Intelligence Press, and EIA

  9. Domestic production of shale gas has grown dramatically over the past few years

  10. North America Key Gas Plays2009-2012 (June) Gas Wells Source: Courtesy Pete Stark - IHS

  11. Spot natural gas prices vary significantly across global markets since 2008, with many markets far below oil –related benchmarks Source: Courtesy Pete Stark - IHS

  12. Shale GaleNatural Gas Game Changer Scorecard • Major competitive advantages for the U.S. economy • Jobs: 2012 = 900,000 2035 = 2.1 million • GDP: $122 billion 2035 = $287 billion • Taxes: 2012 = $31 billion 2035 = $73 billion • Offset ~ 10 Bcfd of LNG imports to NAM • NAM poised to launch LNG exports • But Canada gas exports to U.S. decrease 4 Bcfd (32%) • Low priced gas facilitates transformation to clean energy • Low priced gas helping to drive major petrochemical investments and reviving energy dependent manufacturing Source: Courtesy Pete Stark - IHS

  13. U.S. dependence on imported liquids depends on both supply and demand

  14. Non-OECD liquid fuels use surpasses almost flat OECD liquid fuels use in the near future

  15. Liquids fuel consumption in the United States, China, and India, 1990-2040

  16. World oil prices move together due to arbitrage

  17. Domestic production of tight oil has grown dramatically over the past few years

  18. Key Tight Oil PlaysNorth America Oil & Horizontal Wells 2010-2012 Source: Courtesy Pete Stark - IHS

  19. Selected U.S. Tight Oil PlaysHorizontal Oil Well Average Oil + Gas IP (boe/d) Source: Courtesy Pete Stark - IHS

  20. Tight Oil Upside PotentialIncrease in High Volume Wells > 1,000 b/d Source: Courtesy Pete Stark - IHS

  21. Tight OilUpside Potential is Growing • Continuous process improvements – lower costs & increase recoveries • Confirm new reservoirs in established plays: • Bakken / Three Forks: 2012 three primary reservoirs; 2013 three new Three Forks reservoirs plus Bakken silt technically recoverable resource @ 3.5% RF +~ 12 Bboe (60%) • Niobrara: 2012 one primary reservoir; 2013 four primary reservoirs: Increase reserves ~ 1.3 Bboe • Wolfcamp: 2012 one primary reservoir; 2013 three – four primary reservoirs, potential increase of > 5Bboe • New Play fairways – S. OK Oil Province, Lower Woodford • Continental Resources - ~2 Bboe (~4 Bboe for fairway) Source: Courtesy Pete Stark - IHS

  22. Source: NDIC

  23. ND Drilling Stats Source: JJ Kringstad – North Dakota Pipeline Authority

  24. ND Oil Pricing: ND-WTI Differential Source: EIA Data

  25. US Williston Basin Oil Transport* *Some data based on estimates or assumptions Source: JJ Kringstad – North Dakota Pipeline Authority

  26. The Tight Oil Revolution Scorecard • Updated U.S. supply view – plateau ~ 4.5 MMbd 2023 • What does this mean to U.S. economy? $5 Tr investment • Jobs: 2012 = 800,000 2035 = 1.4 million • GDP: 2012 = $116 billion 2035 = $188 billion • Taxes: 2012 = $30 billion 2035 = $51 billion • Dramatic decrease in U.S. oil imports • In 2005 U.S. net oil imports = 12.2 mbd or 58% of demand. By 2020 U.S. net import requirement will shrink to 30% of demand. (Most of the net imports will be from Canada and Mexico) • Huge implications for energy security and the economy • North America tight oil is a model for global potential Source: Courtesy Pete Stark - IHS

  27. Tight Oil Upside Potential New Reservoirs in Established Plays Bakken-Three Forks Williston Basin Source: IHS

  28. Finding & Development Costs Trending Higher Source: Macquarie Capital (USA), IHS, EIA – July 2012

  29. The Market EnvironmentWhat has changed since 2012? 2Q12 vs. 2Q13 Source: Courtesy Pete Stark - IHS

  30. Conclusions • Fossil fuels are expected to provide the majority of U.S. energy supplies for the foreseeable future. • Domestic supply of North American crude oil and natural gas has increased dramatically over the past five years and is expected to continue – This was the big surprise. • Economic benefit to the U.S. of a healthy domestic exploration and production sector is critical to U.S. economic and security objectives. The impact is measurable and significant.

  31. Update of the Domestic Exploration and Production SectorWhat’s Different Now? Dave Donegan Sinclair Oil & Gas Co. Idaho Petroleum Marketers and C-Store Associations Annual Meeting Sun Valley, ID – Thursday August 1, 2013

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