ipaa/tipro september lunch dan pickering september 13, 2006 the pause that refreshes
TRANSCRIPT
3
Who Is Pickering Energy Partners?
Houston-based Energy Research 24 Employees Clients Are:
Institutional Investors Companies Seeking Capital
Wall Street via the Galleria
4
Overview
Oil Stays Strong Gas Worse Before Better U.S. Activity Hiccup Cycle Has Legs Into 2008 E&P Consolidation Continues Service Cost Moderation Stocks Volatile But Cheap
5
We Are In A Boom
Year 1 2 3 4 5 6 7 8 9
U.S. Rigcount
0%
50%
100%
150%
200%
250%
300%
350%
400%
1
1973 - 1981
1999 - Current
6
Viva la Crude!
NYMEX Futures, Crude Oil
0
10
20
30
40
50
60
70
80
90
Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09
Oil
Pri
ce, $
/bb
l
12 Month Strip
7
Oil Thoughts/Outlook
Scarce, But Not Peak
Demand Is Key Factor
Demand Reacts To Price
Recent Correction Not Armageddon
$60/bbl Feels Realistic
8
OPEC Excess Capacity
0
5
10
15
20
1970 1975 1980 1985 1990 1995 2000 2005
OPEC
Exc
ess
Cap
acity,
mm
bpd
0
10
20
30
40
50
60
Oil P
rices (Delivered
US
), $/bbl
OPEC Excess Capacity
Nominal Oil Prices
9
Demand Is THE Cycle Killer
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Glo
bal
Dem
and - A
nnual
% C
han
ge
0
10
20
30
40
50
60
70
Cru
de O
il Price $
Demand
Oil PricesCurrent oil prices
10
No Website For Cheap Milk Or Whiskey!
Consumers Care About Oil Price
Wal-Mart, Starbucks, Detroit Blame Gasoline
U.S. Mogas Demand Only +0.8% In 2006
Asia More Resilient, But Not Impervious
Watch Demand!
11
NYMEX Futures…Natural Gas
0
2
4
6
8
10
12
14
Jan-
95
Jan-
96
Jan-
97
Jan-
98
Jan-
99
Jan-
00
Jan-
01
Jan-
02
Jan-
03
Jan-
04
Jan-
05
Jan-
06
Jan-
07
Nat
Gas
Pri
ce, $
/mcf
12 Month Strip
12
Gas Thoughts/Outlook
Storage At Record Levels
Supply Growing
Price Volatility
Pain Before Gain
Treadmill Running Fast
13
Storage Levels High
0
1,000
2,000
3,000
4,000
1-J an 2-Apr 2-J ul 1-Oct 1-J an
Work
ing G
as, b
cf
Normal
2006
Storage Capacity - 3,500 bcf
14
Supply/Demand Out Of Kilter
(300)
(250)
(200)
(150)
(100)
(50)
0
50
100
150
(300) (250) (200) (150) (100) (50) 0 50 100 150
Predicted Storage Change, bcf
Act
ual S
tora
ge C
hang
e, b
cf
Since 2005 Hurricanes
Base Correlation
Bearish
Bullish
Last week…back on normal trend line
HOT!
15
The Futures Can Lie
-50%
-25%
0%
25%
50%
Jan-95
Jan-97
Jan-99
Jan-01
Jan-03
Jan-05
Jan-07
% D
iffer
nec
e N
YM
EX
12
mo S
trip
and A
ctual StripToo High
(Strip Too Low)
Strip accurate to ±10% only 30% of the time over the past 10 years.
16
The Treadmill Churns
27,3972001
2003
2000
20021997
19981999
19961995
2004
-
200
400
600
800
1,000
1,200
5,000 10,000 15,000 20,000 25,000 30,000
Gas Wells Drilled
Pro
duct
ion, m
cf/d
ay/w
ell
2005
Diminishing Productivity Per Well
17
Not All Wells Are Equal
$- $2 $4 $6 $8 $10
Deep Shelf
GOM Shelf
Piceance
Mid Continent
Woodford
East Texas
Fayetteville
Barnett (Tier 1)
Appalachia
Pinedale
Breakeven Gas Price, $/mcf
Average Well
Marginal Well: Average WellCost+30% Reserves -30%
19
Resource Plays
“If You Don’t Have One….Get One!”
Technology Driving New Areas
Learning Curves Are Big
Not Immune To Gas Prices
Revenge Of The Nerds!
20
Rising Prices, Rising CostsAvg. Dayrate for NBR Land Rigs
0
5,000
10,000
15,000
20,000
25,000
2000
1Q01
2Q01
3Q01
4Q01
1Q02
2Q02
3Q02
4Q02
1Q03
2Q03
3Q03
4Q03
1Q04
2Q04
3Q04
4Q04
1Q05
2Q05
3Q05
4Q04
1Q06
2Q06
$/da
y
21
Relief Is On The Way
350 New Rigs By YE 2007
Pressure Pumping Horsepower +25%
Coiled Tubing +20%
2006 Oil Service Capex +60% y/y
22
Asset Transactions
Acquisition F&D Costs ($/Mcfe)
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
2001 2002 2003 2004 2005E 2006E
23
Basin Specific Deals
2006 M&A $/proved mcfe
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
Overall TX (non-Barnett)
Barnett GOM Rockies
$/m
cfe
24
Public Values Look Intriguing
$2.20
$2.65 $2.70
Asset Deals Large Cap E&PStocks
Mid Cap E&PStocks
Small Cap E&PStocks
$3+
Va
lua
tion
, $
/mcf
25
Consolidation
APC Deal Opened Eyes
Assets vs. Companies
Natural Gas Sentiment Could Create Lull
Too Early For Majors
One Big Deal Topples Dominoes
26
Conclusions
Volatile Commodities
Fickle Wall Street
Big Cash Flows
Nothing Goes Straight Up
Still In An Upcycle
27
www.pickeringenergy.com
Pickering Energy Partners, Inc. is a leading institutional brokerage firm focusing on energy-sector research for institutional investors. The Company, a NASD broker-dealer, develops investment ideas for our clients by actively covering the E&P and oil service
industries, while monitoring energy subsectors such as coal, nuclear, tankers and alternative energy.
In addition to research activities, Pickering Energy has executed share repurchases and helped energy companies raise equity capital via co-manager and syndicate positions in numerous energy offerings including CPX, HERO, WARR, BAS, XCO.
Our research is provided to institutional clients via published reports, concise emails, and through direct interaction with our highly rated analysts and unique, specialized sales force.
Established in February 2004, Pickering Energy Partners has 24 employees working from our main Houston office and two satellite offices in Denver, Colorado and New Orleans, Louisiana.
Contact UsHouston: 713-333-2960Denver: 303-300-1902
New Orleans: 504-371-5563