Mayer Brown's9th 9thAnnual Annual Mayer Brown's Global Energy Global EnergyConference Conference >PANEL NORTH AMERICAN ENERGY PANEL I: I: NORTH AMERICAN ENERGY ABUNDANCE AND INNOVATION ABUNDANCE AND INNOVATION 1 Mayer Brown Global Energy Conference David C. Carroll President and CEO May 15, 2014 2 NATURAL GAS LEADERSHIP U.S. Energy Production Natural Gas now leading energy source produced in the U.S., with an increasingly bullish domestic resource base outlook. The success of shale gas production can enable the benefits of natural gas to be more fully realized throughout the world. DOE-EIA AEO 2014; Potential Gas Committee (2013) 3 World Energy Outlook: An Expanded Role for Natural Gas ExxonMobil (2014 Outlook for Energy) 4 World Energy Outlook Power Industrial Transportation Expanding use of natural gas for electricity generation—including off-setting coal use. Expanding industrial natural gas and NGL use—especially for chemicals. More heavy-duty vehicle use—natural gas provides economic value and emission benefits. ExxonMobil (2014 Outlook for Energy) 5 Moving Forward on Key Fronts… Markets Social License Technology a Critical Enabler Access 6 International Gas Union 84 Countries Working Together to Advance Global Industry USA Presidency 2015-2018 26th World Gas Conference June 1-5, 2015 7 Roy Lipski, CEO May 15, 2014 Smaller scale GTL Mayer Brown Global Energy Conference Velocys Leader in smaller scale GTL • Leader in smaller scale gas-to-liquids technology — 15 years and >$300 million invested in product development — Exhaustive global patent protection (>7,500 granted GTL patent claims) • First class partners offering a complete GTL solution — Haldor Topsøe, Ventech, Hatch, Toyo, Mourik, SGS, Shiloh • Commercial roll-out underway Solena GreenSky London GTL JV Ashtabula GTL • Well capitalised with strong resources — Commercial center in Houston, Texas; technical centers near Columbus, Ohio and Oxford, UK — Permanent pilot plant in operation 2 • Shale revolution ushering “age of gas surplus” • Growing demand for liquid fuels, especially diesel and jet • Long-term stability of gas-oil arbitrage expected Energy price ($/MMBTU) Market environment Ripe for smaller scale GTL • Decentralized production underpinned by poor transportability of gas Diesel 40 35 Historical data Projections Natural gas 30 25 20 15 10 Source: EIA dataata 5 0 • Environmental benefits e.g. lower emissions, flare elimination and carbon footprint reduction (bio-to-liquids) • Strong location-specific economic and strategic factors • Shell and Sasol plants in Qatar showcase viability of GTL 3 Large-scale economics at smaller scales Velocys enables smaller plants Velocys FT reactor Cost advantage $k/bpd k/bpd capacity Conventional slurry reactor Velocys microchannel reactor Conventional FT Reactor Velocys microchannels − cost range 0 2000 2,000 4000 6000 6,000 8000 10000 10,000 12000 14000 15,000 Plant capacity (bpd) e.g. Sasol Microchannel technology offers strong benefits at smaller scales 4 GTL for the mainstream of the industry Velocys modular GTL • Broader range of sites — 1,500-15,000 barrels per day — Suitable for remote locations • Lower risk — Smaller investments — Less risk of cost over-runs • Reduced costs — Standardized modules and reactors — Possible integration with existing facilities • Easier to execute and expand — Quicker plant construction (18-24 months) — Easier to permit, supply, build and operate — Additional trains can be added later 1,400 bpd FT process unit designed by Ventech Engineers 90 ft L x 46 ft H x ~40 ft W 5 Many applications From low-value gas to high-value fungible products • Source of new demand for abundant shale gas in North America • Economic route to market for stranded gas (over 30% of world reserves are otherwise uneconomic to bring to market) • Solution to problem of associated gas (5% of natural gas production is flared) • Valuable products for existing and new applications — Ultra low-sulfur diesel (70 cetane) & jet — Waxes, lubricants and solvents • Not just gas: also biomass and coal 6 Velocys enables winning economics Taking the plant to the opportunity Costs & proceeds ($/barrel of liquid products) $150 $125 Premium from sale of diesel Oil (WTI) OPEX Depreciation Natural gas $100 $75 $50 $25 Co-location reduces capex & opex e.g. downstream Lower gas costs if stranded or associated Increased product value if specialties e.g. lubricants / waxes or if producing refined products in remote locations Added value from unlocking restrained oil production $0 Costs of Velocys enabled Proceeds from production of GTL plant liquid fuels 7 Summary Velocys smaller scale GTL • GTL “for the mainstream” — Attractive for wide variety of situations and players • Practical — Easier to finance, permit, supply and build • Manageable risks — Shorter project lifecycle; less in-field build; phased investment • Profitable — Capture gas/oil spread; unlock resources; leverage existing infrastructure • Available now — Complete GTL solution; being deployed by customers 8 Thank you Roy Lipski CEO, Velocys +1 713 275 5840 [email protected] Changing the way fuels are made Convening Across the Industry GE & Unconventional Resources John Westerheide General Manager, Unconventional Resources May 15, 2013 Imagination at work. GE technologies from drill bit to burner tip Upstream Exploration Fracturing/ Well stimulation Drilling • • • • • • Healthcare & Industrial CT Well Control Equipment (BOPs) Power Generation Motors & Power Control Drilling Measurement Tech. Wellheads & Flow Control • • • • Pumping Power gen. Water Treatment & Mgmt. Wireline services Frac Trees & Service Mid/Downstream Transportation • • • • • Processing Pipeline Compression Pipeline Power gen. Pipeline Inspection Flow Measurement & Sensing Flow Regulators & Controls • • • • • Compression Pumping Separation Tech. Gas treatment Macro to Small-scale LNG Mayer Brown Energy Conference | 15 May 2014 Completion/ Gathering • • • • • • • Distribution • • • • • Pipeline Compression Pipeline Power gen. Pipeline Inspection Flow Measurement & Sensing Flow Regulators & Control Logging services (WS) Production Trees & Service Downhole Sensors & Tools Produced Water Treatment/ Mgmt. Sensing & Measurement Artificial Lift Tech. Chemical Injection Systems Consumption • • • • Power generation Household consumption NGV Transportation Infra. Petrochemicals GE Proprietary Information 2 One team with a multi-dimensional approach Unconventional Resources Team Cross-GE organization dedicated to an industry, instead of a specific product or technology Investment R&D GE Unconventional Tech, Partners Resources Systems & Services Team Services Venture Capital 3 First GE R&D center focused on O&G • • • • Established in 2013 Will employ 130 employees Permanent facility in 1H 2015 Customer-focused, collaborative research environment • Accelerate key Oil & Gas tech solutions available • Devon TCA signed May 13 GE Oil & Gas Technology Center Oklahoma City, Oklahoma Title or Job Number | XX Month 201X © 2014 General Electric Company - All rights reserved See tutorial regarding confidentiality disclosures. 4 Driving natural gas demand with partnerships E&P natural gas fueling Last MileTM Fueling solution Ferus Natural Gas Fuels (CNG) Small-scale LNG fueling network Eagle LNG Partners Energy services, expertise in supply and delivery of cryogenic products Largest U.S. natural gas fuel provider, small LNG plant construction and operational expertise Natural gas expertise and solutions, capital and commercial investment Energy services, expertise in supply and delivery of cryogenic products NG fueling solutions and expertise, capital and commercial investment Industry collaboration to provide reliable, turnkey natural gas solutions Mayer Brown Energy Conference | 15 May 2014 5 Closing thoughts GE’s goals in the unconventional resources space… • … deepen and affirm meaningful customer partnerships • … collaborate internally & externally to solve problems faster • … invest multi-dimensionally to deliver complete solutions • … educate and transfer technology/ solutions to drive global potential • … build GE’s reputation as important industry thought leader 6 GE Title or job number 5/13/2014 Mayer Brown Global Energy Conference May 15, 2014 Brandon Blossman Managing Director, Research [email protected] 713.333.2994 **IMPORTANT DISCLOSURES BEGIN ON PAGE 8** Supportive Commodity Price Environment 16 140 WTI 14 120 HHub 12 Not Bad! 80 10 8 60 Good Enough… 6 Sources: EIA, Bloomberg, TPH forecast 2019 2020 2018 2017 2015 2016 2012 2013 2011 2008 2010 2007 2006 2004 2005 0 2003 0 2001 2002 2 2000 20 1998 1999 4 1997 40 2014 $/bbls 100 $/mmbtu 160 2 Resource Triangle – Same Ol’ Framework Easy to find…hard to produce Hard to find…easy to produce Source: Holditch 3 Drilling Efficiencies Continue To Drive Well Count Growth Hz Rig Count Barnett Eagle Ford Fayetteville Haynesville Marcellus Permian Williston 1.8 1,400 1,200 1.4 1,000 1.2 1.0 800 0.8 600 0.6 400 Horizontal Rig Count Horizontal Days to Drill (indexed) 1.6 0.4 200 0.2 0 Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 0.0 Source(s): Baker Hughes, DrillingInfo, RigData, Tudor, Pickering, Holt & Co. 4 Recent Energy IPO Performance (IPOs Since 2013) C-Corps MLPs & Trusts Source: FactSet as of 5/9/2014. ATHL AR RSPP RICE JONE FI EPE (0.7%) HELI (39.0%) EMES PSXP VLP TEP WNRL SXCP USAC KNOP PAGP DLNG CQH ARCX MEP ENBL SRLP CELP NSLP QEPM CVRR WPT FISH 98.4% 45.8% 37.6% 36.0% 13.3% 10.3% Market continues to reward new issues… 380.1% 136.2% 127.5% 68.6% 58.2% 51.8% 50.0% 29.3% 26.4% 26.3% 24.7% 21.1% 20.1% 17.3% 16.6% 13.8% 11.5% 6.5% 3.2% …with no end in sight for yield appetite (1.1%) (6.8%) 5 Upstream U.S. M&A Activity - Slowing to a “New Normal”? Volume ($B) $100 Resource Volume Conventional Volume $110,577 Annual Activity(1) ($ in billions, unless otherwise noted) $98,850 $80 $79,912 $60 Proved $/Boe/d $83,333 $67 $82,192 $70,513 $56 $60 $47 $40 $60 $43 $9 $96,500 $72 $17 $23 $96,000 $57 $20 $78,391 $46 $44 $55 $25 $9 2006 % Resource: 0% $48,000 $17 $31 $27 $- $72,000 $22 $47 2008 2009 19% 63% 84% 2010 65% 2011 76% ___________________________________ Source: IHS Herold. (1) Deal value >$50 million, excludes Ch. 11 transactions and reflects transactions where United States is listed as primary country. (2) Yellow highlighting indicates Joint Ventures. 2012 35% 2013 54% $24,000 $9 $7 2007 $120,000 $88 $102,711 $16 $37 $/boe/day $- 2014 YTD 43% 6 Midstream M&A Activity – Plateaued? ($ in billions) Total Midstream Annual Activity(1) $80 Midstream asset A&D market is extremely active □ □ …been strong for awhile $70 More buyers than sellers MLPs with strong currency and desperate need to grow / diversify $60 Private equity owners are increasingly seeking to take advantage of the current asset market $40 Numerous corporate M&A discussions, but always face hurdles $20 $51 $47 $50 $30 $67 $49 $42 $23 $18 $12 $7 $10 $1 $0 2005 Sector Deal Count(1) G&P Pipeline 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD Sector Transaction Volume(1) Diversified Terminals / Storage G&P 30 Pipeline Diversified Terminals / Storage $50 25 $40 20 $30 15 $20 10 $10 5 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD $0 2005 2006 2007 2008 ___________________________________ Source: Dealogic, IHS Herold as of 2/23/2014. (1) Includes corporate and asset transactions. Deals with disclosed value of >$50 million. Reflects transactions where United States listed as primary country. 2009 2010 2011 2012 2013 2014 YTD 7 Analyst Certification: I, Brandon Blossman, do hereby certify that, to the best of my knowledge, the views and opinions in this research report accurately reflect my personal views about the company and its securities. I have not nor will I receive direct or indirect compensation in return for expressing specific recommendations or viewpoints in this report. Important Disclosures: The analyst above (or a member of his household) does not own any securities mentioned in this report. For detailed rating information, distribution of ratings, price charts and disclosures regarding compensation policy and investment banking revenue, please visit our website at http://www.TPHco.com/disclosure or request a written copy of the disclosures by calling 713-333-2960 (United States). 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Recipients should not forward this communication to a retail investor. 8 RESEARCH SALES Oil Service / E&C Macro Houston Denver Jeff Tillery 713-333-2964 [email protected] Dave Pursell 713-333-2962 [email protected] Clay Coneley 713-333-2979 [email protected] Win Oberlin 303-300-1919 [email protected] Byron Pope 713-333-7690 [email protected] Midstream Mike Bradley 713-333-2968 [email protected] Jason Foxen 303-300-1960 [email protected] Mike Davis 713-333-2971 [email protected] New York George O’Leary 713-333-2973 [email protected] Klayton Kovac 713-333-3866 [email protected] Integrated Oils / Refiners Robert Kessler 713-333-7696 [email protected] Brandon Mei 713-333-7689 [email protected] Clay Rynd 713-333-3867 [email protected] Coal / Power / Macro Brandon Blossman 713-333-2994 [email protected] Brad Olsen 713-333-7693 [email protected] James Brideau 713-333-3925 [email protected] E&P Matt Portillo 713-333-2995 [email protected] Michael Rowe 713-333-3983 [email protected] Oliver Doolin 713-333-2989 [email protected] John Hurd 713-333-2951 [email protected] Aly McCaffrey 713-333-2983 [email protected] Ken Johnson 212-610-1650 [email protected] *London TRADING - Houston 800.507.2400 Scott McGarvey [email protected] Seth Williams [email protected] TRADING- New York Todd Wood [email protected] *TRADING- London ‡ Harry Grist [email protected] +44 20 3427 5832 Jon Mellberg +44 20 3008 6430 [email protected] ‡ Jonathan Wright +44 20 3008 6436 [email protected] Jeoffrey Lambujon 713-333-7549 [email protected] Jamaal Dardar 713-333-3926 [email protected] *London- E&P Utilities & Power Anish Kapadia +44 20 3008 6433 [email protected] Neel Mitra 713-333-3896 [email protected] Shola Labinjo +44 20 3008 6437 [email protected] Ryan Caylor 713-333-7694 [email protected] David Gamboa +44 20 3427 5896 [email protected] *Office of Tudor, Pickering, Holt & Co. International, LLP Anish Kapadia, Shola Labinjo, and David Gamboa are employed by Tudor, Pickering, Holt & Co. International, LLP in the United Kingdom and are not registered/qualified as research analysts with FINRA. Mr. Kapadia, Mr. Labinjo, and Mr. Gamboa are not associated persons of Tudor, Pickering, Holt & Co. Securities, Inc. and as such are not subject to NASD Rule 2711 restrictions on communications with subject companies, public appearances and trading securities held by a research analyst account. 9 ‡ Employed by Tudor, Pickering, Holt & Co. International, LLP in the United Kingdom and is not registered/qualified with FINRA and is not an associated person of Tudor, Pickering, Holt & Co. Securities, Inc.
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