September 23, 2019
Chart Watch
2 E&P equities fell after the surge early last week
Oil prices still up modestly due to Saudi outage ARC Energy Charts 5 12 Saudi Arabia working to bring back production
Visit www.arcenergyinstitute.com for more 21 US oil rigs are down by 17% from last year information on this publication and the Institute 39 W. Canada storage is >90 Bcf below 5-yr average
Spot WTI Crude Edmonton Light Spot Henry Hub Spot AECO Spot AECO Basis Currency
$US/B $US/B $US/MMBtu $Cdn/GJ $US/MMBtu $US/$Cdn
á á á
58.49 52.54 2.66 á 0.29 á 2.43 á 0.7540
1 Broad Equity Markets Year-to-Date 2 Performance of Oil and Gas Equities Year-to-Date Daily Index Values; Rolling 12-Month History Daily Index Values; Rolling 12-Month History
Indexed to 12 Shanghai Composite Indexed to 12 Months Ago Months Ago ARC Junior E&P Index S&P/TSX Composite 130 S&P 500 E&P Dow Jones 120 S&P/TSX E& P Index 110 120 100 90 110 80
100 70 60
90 50 40 80 30 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
Broad market indices are one the many vital signs measuring the health of Performance of Canadian and US oil & gas equities are compared against the economy. Energy demand is a function of economic health. each other. Source: Bloomberg, ARC Financial Corp. Source: Bloomberg, ARC Financial Corp.
3 Oil & Gas Service Equities Year-to-Date 4 Canadian Currency Exchange Daily Index Values; Rolling 12-Month History Daily Close Values; Rolling 24-Month History
Indexed to 12 Philadelphia Service Index $US/$Cdn Months Ago PSAC Canadian Index $0.85 120 110 100 $0.80 90 80 70 60 $0.75 50 40
30 $0.70 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19
The performance of Canadian oil and gas service equities are plotted in Much of Canada’s oil and gas production is sold in US dollars. As such, the tandem with the corresponding US index. exchange rate significantly impacts corporate revenues and profits. Source: Bloomberg, Petroleum Services Association of Canada Source: Bloomberg
Please see Advisories and Disclaimers at the end of the publication for important cautionary advisory and disclaimer language
www.arcenergyinstitute.com © 2019 ARC Energy Research Institute. All Rights Reserved. ARC Energy Charts 1 September 23, 2019 ARC Energy Charts
Crude Oil
5 WTI Crude Oil Price and Differential to Brent 6 US Crude Oil Futures Near-Month WTI and Brent Differential; Rolling 12-Month History West Texas Intermediate (WTI) 2019 to 2021
WTI D iff 2019 July 3, 2006 WTI ($US/B) WTI Dif f to Brent ($US/B) WTI $US/B WTI 80 12 65 2020 11 2021 70 10 9 62 60 8 50 7 59 6 40 5 56 4 30 3 53 20 2 1 10 0 50 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec North American crude oil prices can sometimes disconnect from global Forward prices for WTI are plotted against months in the calendar year. prices depending on regional supply and demand dynamics. Years are distinguished by color and symbol coding. Source: Bloomberg Source: Bloomberg
7 Canadian Heavy Oil Price Differential to WTI 8 Canadian Light Crude Oil Price Differential to WTI Western Canadian Select (WCS) Differential; Rolling 12-Month History WTI and Edmonton Light differential; Rolling 12-Month History
WCS ($US/B) WCS Diff. WCS Dif f to WTI ($US/B) Edm. Light ($US/B) Edm. Light Diff. Edm. Light Dif f to WTI ($US/B) 60 WCS 55 80 Edmonton L ight 40 50 70 35 50 45 30 40 60 35 40 25 30 50 20 25 30 40 20 15 15 30 10 20 10 20 5 5 10 0 10 0 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 The differential should reflect quality differences and transportation costs. The differential should reflect the transportation cost from Alberta to Cushing. Greater discounts can result from infrastructure or refinery outages. Greater discounts can result from infrastructure or refinery outages. Source: Bloomberg Source: Bloomberg
9 Canadian Crude Oil Exports by Rail 10 Total US Oil Production Monthly; 2012 to Present Monthly; 2010 to Present
MB/d MMB/d 400 14 Offshore
350 12 Onshore
300 10 Thousands 250 8 200 6 150 4 100 2 50
0 0 2012 2013 2014 2015 2016 2017 2018 2019 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Rail is expected to grow as the pipelines have hit the limit for moving The advancement of drilling and completion methods is increasing US crude additional barrels of crude oil, and supply is still growing. oil production. Source: National Energy Board Source: Bloomberg, U.S. Energy Information Administration www.arcenergyinstitute.com © 2019 ARC Energy Research Institute. All Rights Reserved. ARC Energy Charts 2 September 23, 2019 ARC Energy Charts
Crude Oil
11 Alberta Oil Production 12 OPEC Oil Production Monthly; Conventional and Oil Sands Monthly; Rolling 60-Month History
MMB/d MMB/d Upgraded Oil Sands July 3, 2006 34 4.0 Non-Upgraded Oil Sands
3.5 Conventional 33
Millions 3.0 32 2.5
2.0 31
1.5 30 1.0 29 0.5
0.0 28 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 Aug-14 Aug-15 Aug-16 Aug-17 Aug-18 Aug-19
Most of Canada’s oil production comes from Alberta; split between oil OPEC’s production levels relative to its sustainable and spare capacity sands and conventional production. influences global crude prices. Source: Alberta Energy Regulator Source: Petroleum Intelligence Weekly
13 Global Oil Supply-Demand Balance 14 Long and Short Contracts - WTI Quarterly; 2010 to Present Managed Money - Futures
MMB/d Contracts 3.0 Oversupply 600,000
2.0 500,000 Long 1.0 400,000
0.0 300,000
-1.0 200,000 Short 100,000 -2.0 Shortfall 0 -3.0 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Negative numbers indicate a global crude shortfall, while positive numbers Long contracts take the position that WTI oil price will increase, while short indicate an oversupply. contracts expect a decline. Source: International Energy Agency Source: Bloomberg, U.S. Commodity Futures Trading Commission 15 US Crude Oil Imports 16 US Exports of Crude Oil and Refined Products Weekly Data; 2013 to Present Weekly Data; 2013 to Present
MMB/d Other Imports MMB/d Crude Oil 10 Imports from Canada 9 Refined Products 9 8 8 7 7 6 6 5 5 4 4 3 3 2 2 1 1 0 0 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Crude oil imports from Canada are taking market share from overseas The US exports more refined products than crude oil. With the rapid growth of imports. tight oil, most export growth should come from crude oil exports. Source: U.S. Energy Information Administration Source: U.S. Energy Information Administration www.arcenergyinstitute.com © 2019 ARC Energy Research Institute. All Rights Reserved. ARC Energy Charts 3 September 23, 2019 ARC Energy Charts
Crude Oil
17 US Crude Oil Stocks 18 OECD Total Industry Oil Stocks Historical Tracks and Current Year Levels Monthly; 2012 to Present
MMB MMB July 3, 2006 550 3,250
500 2019 3,000 450
2,750 400 2018 350 2,500
300 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2,250 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
US crude oil stock levels can affect crude oil prices. Stock levels for the OECD stock levels can affect crude oil prices. current year are represented by the blue line. Source: International Energy Agency Source: U.S. Energy Information Administration
19 US Weekly Refinery Utilization Rates (%) 20 US Motor Gasoline Consumption Historical Tracks and Current Year Levels Historical Tracks and Current Year Levels
% MMB/d 100 2018 10.0 2019 2018 2019 95 9.5
90 9.0
85 8.5
80 8.0
7.5 75 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Refinery utilization rates change the supply of refined products, impacting Gasoline consumption accounts for almost half of all oil use in the US. price. Utilization for the current year is blue. Gasoline consumption for the current year is represented by the blue line. Source: U.S. Energy Information Administration Source: U.S. Energy Information Administration
21 US Oil Drilling Activity 22 Daily NGL Prices as a % of Edmonton Light Baker Hughes Oil Rig Counts; 2017 to Present Propane & Butane Spot Prices at Edmonton, AB
# of Oil Rigs - Play Lev el % of Edm. Cond ensate 1000 Light Butane (Spot) Permian (Horizontal) 900 180% Propa ne (Spot) Other 800 160% 700 140% 600 120% 500 100% 400 80% 300 60% 200 40% 100 20% 0 0% Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Aug-17 Dec-17 Apr-18 Aug-18 Dec-18 Apr-19 Aug-19 Tracking US oil drilling by major play provides insight into the composition of Natural gas liquids have become critical contributors to producer’s cash flow. US oil supply and growth trends. Prices are influenced by the price of oil as well as local supply and demand. Source: Baker Hughes Source: Bloomberg, ARC Financial Corp. www.arcenergyinstitute.com © 2019 ARC Energy Research Institute. All Rights Reserved. ARC Energy Charts 4 September 23, 2019 ARC Energy Charts
Natural Gas
23 Near-Month North American Natural Gas Prices 24 US Natural Gas Futures Daily Prices; Rolling 12-Month History Nymex (Henry Hub) 2019 to 2021
July2019 3, 2006 5.00 $US/MMBtu Henry Hub 3.00 4.50 2020 $US/MMBtu 4.00 2021 3.50 2.75 3.00
2.50 2.50 2.00 1.50 2.25 1.00 AECO Differential 0.50 $C/GJ $US/MMBtu 2.00 0.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Sep 23 Dec 22 Mar 22 Jun 20 Sep 18 Near-month prices at AECO track Henry Hub prices, the exchange rate and Forward contract prices are plotted against months in the calendar year. the cost of transportation. Local factors can also affect price. Years are distinguished by color and symbol coding. Source: Bloomberg Source: Bloomberg
25 Long and Short Contracts – Henry Hub 26 Canadian Natural Gas Futures Managed Money - Futures AECO Hub (Bloomberg Estimate) 2019 to 2021
Contracts $C/GJ 2019 400,000 2.50 Long 2020 350,000 2.25 2021 300,000
250,000 2.00 200,000
150,000 1.75
100,000 1.50 50,000 Short 0 1.25 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Long contracts take the position that Henry Hub gas price will increase, while AECO forward prices mimic Henry Hub futures minus a differential. short contracts expect a decline. Source: U.S. Commodity Futures Trading Commission Source: Bloomberg 27 Global Natural Gas Prices 28 US Coal and Natural Gas Power Generation Cost Japanese LNG, UK NBP, Henry Hub; Average Monthly Prices Converted to a $/MWh Equivalent $US/MMBtu $US/MWh
16 40 14 Japanese Henry LNG 12 30 Hub 10
8 20
6 Henry UK NBP Pennsylvania 4 Hub 10 Coal 2
0 0 Aug-14 Aug-15 Aug-16 Aug-17 Aug-18 2016 2017 2018
International natural gas prices strongly impact the economics of proposed This graph illustrates when it may be economic to begin coal-gas switching in LNG projects. power generation. Average power plant efficiencies are assumed. Source: Bloomberg, Japanese Ministry of Economy, Trade and Industry Source: Bloomberg www.arcenergyinstitute.com © 2019 ARC Energy Research Institute. All Rights Reserved. ARC Energy Charts 5 September 23, 2019 ARC Energy Charts
Natural Gas
29 CClloossiinngg SSppoott PPrriicceess aatt NNoorrtthh AAmmeerriiccaann NNaattuurraall GGaass HHuubbss Superimposed on Relative Pipeline Flows Superimposed on Relative Physical Volumes Traded July 3, 2006
AECO US$0.30
Kingsgate US$2.14
Stanfield Waddington US$2.32 US$2.39 Ventura Chicago Dawn Malin Opal US$2.32 US$2.18 US$2.25 Boston US$2.48 US$2.27 \ US$2.15 TGP Zone 4 - Marcellus US$2.05 San Juan
US$2.08 Socal US$3.23 Permian US$1.54 Henry Hub US$2.62
All prices in $US/MMBtu
North America has an integrated natural gas market. Prices are determined by regional supply and demand, and pipeline flows. Source: Bloomberg
30 Pipeline Flows Out of Western Canada 31 US Natural Gas Exports – Excluding Canada Daily; Historical Tracks and Current Year Levels Daily; Historical Tracks and Current Year Levels
Bcf /d Bcf /d 14 12 12 2019 11 2018 2018 10 10 8 9 6 8 2019 4 2016
7 2
6 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec The ability of gas producers to move gas out of the WCSB to eastern Between exports to Mexico and LNG shipments, the US is growing as a markets and the US is a major factor in local natural gas prices. natural gas exporter. Robust US supply growth has driven this trend. Source: Various Pipeline Companies Source: Bentek www.arcenergyinstitute.com © 2019 ARC Energy Research Institute. All Rights Reserved. ARC Energy Charts 6 September 23, 2019 ARC Energy Charts
Natural Gas
32 US Weekly Cooling Degree Days 33 US Total Natural Gas Demand Source: NOAA Daily; Historical Tracks and Current Year Levels
CDDs Bcf /d July 3, 2006 120 140 130 2019 100 2018 120 110 80 2018 100 60 90 80 40 70 2019 60 20 50 0 40 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Weekly natural gas demand is directly tied to the weather. The current Total US demand fluctuates in the summer and during the winter as weather year is in dark blue. is an important driver of consumption. Source: National Oceanic and Atmospheric Administration Source: Bentek
34 Total US Dry Natural Gas Production 35 Daily Western Canadian Production Historical Tracks and Current Year Levels Estimated Using Major Pipeline Receipts
Bcf /d Bcf /d 95 2019 17 2019 2018 90 85 16 80 2018 15 75 70 14 65
60 13 55 50 12 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
US production started ramping up in late 2007 and continues to grow year This includes receipts on the TCPL, Alliance, WestCoast and TransGas over year. pipelines. Source: Bentek Source: Various Pipeline Companies
36 Weekly US Natural Gas Storage Net Change 37 Total Working Natural Gas in US Storage Weekly Injection or (Withdrawals); 2009 to Current Historical Tracks and Current Year Levels
Tcf Bcf 4.5 150 2018 4.0 50 2019 3.5
(50) 3.0
(150) 2.5 2018 2.0 (250) 1.5 2019 (350) 1.0
(450) 0.5 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Weekly gas storage reports provide a snapshot of supply and demand. The EIA reports changes in US natural gas inventories held in underground Current year changes are represented by the blue line. storage facilities on a weekly basis. Source: U.S. Energy Information Administration Source: U.S. Energy Information Administration www.arcenergyinstitute.com © 2019 ARC Energy Research Institute. All Rights Reserved. ARC Energy Charts 7 September 23, 2019 ARC Energy Charts
Natural Gas and Other Indicators
38 Alberta Natural Gas Demand 39 Western Canadian Natural Gas Storage Levels TransCanada Intra-AB Deliveries; Current Year and Historical Tracks Weekly; Current Year and Historic Tracks
Bcf /d Bcf July 3, 2006 7.5 600 7.0 2019 6.5 500 2018 2019 6.0 400 5.5
5.0 300 2018 4.5 4.0 200 3.5 100 2014 3.0 2.5 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Alberta natural gas demand has grown steadily in recent years, largely Canada’s natural gas storage level provides a good metric if the country is driven by new oil sands demand and power generation projects. well stocked. Abnormally high or low storage can affect the basis. Source: TransCanada Pipelines Source: Bloomberg
40 Weekly Canadian Oil and Gas Drilling Activity 41 US Gas Drilling Activity CAODC Drilling Rig Count; Current Year and Historical Tracks Baker Hughes Gas Rig Counts; 2017 to Present
# of Rigs Drilling # of Gas Rigs - Play Lev el Marcellus (Horizontal) 250 700 Haynesville (Horizontal) Other 600 2014 200 500 150 400
300 2018 100 200 50 100 2019 Eagle Ford 2016 0 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Unlike US drilling activity, Canadian rigs are dispatched seasonally. Capital Tracking US gas drilling by major play provides insight into the composition allocation by operators is driven by views of future oil and gas prices. of US gas supply and growth trends. Source: CAODC Source: Baker Hughes
42 Alberta Crown Land Sales – Excluding Oil Sands 43 Canadian Cumulative Well Completions Year-over-Year; Cumulative Current Year vs Years Prior
Well Completions (000s) $ Millions 600 12 2017 500 10 2014
400 8 2017 300 6 2014 2018 4 2015 200 2015 2019 100 2018 2 2016 2016 2019 0 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Land prices are an important component of F&D costs. In Alberta, sales of Relative year-over-year drilling activity is highlighted in this chart. petroleum and natural gas rights are held every two weeks. Cumulative well completions for the current year are shown in blue. Source: Alberta Department of Energy Source: Daily Oil Bulletin/JWN www.arcenergyinstitute.com © 2019 ARC Energy Research Institute. All Rights Reserved. ARC Energy Charts 8 September 23, 2019 ARC Energy Charts
Canadian Industry Metrics
Estimated Capital Flow in the Canadian Oil and Gas Economy for 2019 Industry Revenue, Cash Flow, Reinvestment, Drilling Activity and Production July 3, 2006 Foreign Investment G&A and Capital Outflow $C 113.4 Royalties $C 40.99 per BOE Billion & Taxes Dividends and Distributions Oil & Gas E&P Cash Revenue Debt, Prices Flow Equity $C 48.9 Billion Operating CAPEX $C 31.5 Capital Flow Billion 7.6 Million Expenditures BOE/day Production in the Volume Canadian
Oil and Gas Exploration & Economy Development
5,125 Reserve Wells Land, Acquisitions Additions Service Sector Drilling Revenue Activity
44 Canadian Industry Statistics: Historical Data and Forecast
Canadian Industry Metrics
P rice Production Volume Capital Inflow Reinvestment D rilling Well Split
Average Edmonton Conv. Bitumen + Natural Total Total After-tax Conv. Oil Reinvest Wells Avg Rig Oil Gas Price Par AECO Liquids Synthetic Gas Volume Revenue Cash Flow and Gas Oilsands Ratio Compl. Utiliz. Wells Wells
Average Average M BOE/d M BOE/d $C $C $C $C #/ $/BOE $C/B $C/GJ M BOE/d M BOE/d (@ 6:1) (@ 6:1) millions millions millions millions x:1 Year % % % 2010 48.41 77.55 3.79 1,830 1,403 2,434 5,668 101,056 43,569 35,666 17,195 1.16 12,119 41% 56% 40% 2011 55.32 95.24 3.44 1,873 1,482 2,386 5,740 115,890 53,448 40,139 22,491 1.10 12,827 52% 69% 31% 2012 50.60 86.38 2.27 1,905 1,743 2,327 5,975 111,389 48,908 39,733 27,199 1.37 11,067 44% 83% 17% 2013 55.95 93.47 3.02 2,023 1,940 2,343 6,306 128,787 54,711 43,165 30,809 1.35 11,071 42% 84% 16% 2014 61.36 95.07 4.23 2,085 2,160 2,449 6,694 149,933 72,250 46,872 33,868 1.12 11,222 45% 78% 22% 2015 37.42 57.63 2.56 1,983 2,368 2,497 6,848 93,517 29,375 31,609 22,929 1.86 5,382 24% 69% 31% 2016 32.69 53.09 2.06 2,011 2,418 2,538 6,967 83,124 23,526 23,040 15,426 1.63 4,060 17% 70% 30% 2017 39.21 62.42 2.10 2,096 2,670 2,580 7,347 105,159 44,402 28,712 13,803 0.96 7,076 30% 70% 30% 2018e 38.84 69.24 1.46 2,033 2,984 2,603 7,620 108,029 44,830 27,384 12,529 0.89 6,927 32% 70% 30% 2019e 40.99 69.06 1.56 2,028 2,929 2,620 7,577 113,357 48,935 19,491 12,024 0.64 5,125 24% 70% 30%
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Certain information contained herein may constitute forward-looking information and forward-looking statements" (collectively, "forward-looking statements") under the meaning of applicable Canadian securities laws. Forward-looking statements include estimates, plans, expectations, intentions, opinions, forecasts, projections, guidance or other statements that are not statements of fact, including but not limited to global and industry economic conditions and policies, production, demand and commodity prices. Although ARC believes that the assumptions underlying and expectations reflected in such forward-looking statements are reasonable, it can give no (and does not give any) assurance that such assumptions and expectations will prove to have been correct. Such forward-looking statements involve known and unknown risks, uncertainties and other factors outside of ARC's control that may cause actual results to differ materially from those expressed herein. Neither ARC nor any of its affiliates undertakes any obligation to publicly revise such forward-looking statements to reflect subsequent events or circumstances, except as required by law. www.arcenergyinstitute.com © 2019 ARC Energy Research Institute. All Rights Reserved. ARC Energy Charts 9