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Oil & Gas Market Outlook
IMFORMED Oilfield Minerals & Markets ForumJune 11, 2019
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Save the date!Wednesday, January 15, 2020
Houston, Texaswww.adi-forum.com
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Outline
4 About ADI Analytics
4 2019 Oil & Gas Outlook
5www.adi-analytics.com
ADI Analytics is a consulting firm serving oil and gas, energy, and chemical companies with passion, expertise, and rigor
Oil
Gas
NGLs
Coal
Biomass
Gathering & Processing
Pipelines
LNG
Logistics
Power generation
Refining
Fuels
Lubes
Syngas
Renewables
Automotive
Transmission
Plastics
Specialty chemicals
Base chemicals
Operating companies
Equipment manufacturers
Service providers Investors GovernmentTraders
Markets TechnologyOperations Finance PolicyOrganization
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Our value proposition—expertise, analytics, and flexible, cost-effective services—is designed to help clients succeed
Lead with frontline industry expertise
Drive with data and proprietary analytics
Support clients flexibly and cost-effectively
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ADI’s acquisition of CMR brings clients expertise, experience, and an integrated view of the hydrocarbon value chain
ADI is a management consulting firm specializing in oil and gas, power, chemicals, and industrials. It has completed 300+ projects for 100+
clients since 2009.
www.adi-analytics.com
ADI acquired key assets of Chemical Market Resources (CMR) in 2017.
Since 1990, CMR has provided market research and management consulting
services through 500+ projects for 200+ clients in petrochemicals,
chemicals, plastics, and polymers.
www.adi-cmr.com
Midstream and LNG
Upstream oil and gas
Refining and fuels
Chemicals / petrochem.
Distributors / resellers
Fabricators / convertors
Brand owners /
end-users
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Fortune 500 and mid-sized companies, start-ups, investors, and governments have hired us to shape decisions globally
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Our consulting offerings help businesses grow, address uncertainty, improve operations, and strengthen functions
Consulting
Analytics
Research
Address uncertainty
4 Price forecasts
4 Scenario planning
4 Regulatory analysis
4 Technology assessment
Optimize operations
4 Cost benchmarking
4 Supply chain analysis
4 Operational excellence
4 Tech Commercialization
Strengthen functions
4 Workflow design
4 Sustainability strategy
4 Best practices gathering
4 Innovation / R&D strategy
Grow businesses
4 Market research
4 Strategic planning
4 Opportunity analysis
4 Competitive intelligence
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Since 2009, ADI has served 100+ clients through 300+ consulting projects in oil and gas, energy, and chemicals
SHALE GAS / TIGHT OIL / UNCONVENTIONAL RESOURCES4 Sized waste disposal strategies in shale basins for E&P firm4 Estimated economic benefits of shale gas for a state agency4 Analyzed resource and players in Argentina shale for investor4 Analyzed resource and players in US shale basins for investors
4 Designed fit-for-purpose operational model for new shale gas BU4 Conducted scenario planning on fracking regulations for E&P firm4 Developed shale gas JV plan and identified partners for Asian E&P 4 Identified operational and innovation gaps in Marcellus shale for PE
COAL / MINING4 Valued Australian mine for coal major4 Assessed coal monetization for EPC firm4 Led ops improvement for Asian coal miner4 Studied polygeneration with IGCC for DOE4 Sized Asian met coal demand for US miner4 Evaluated rare earth substitutes for VC firm
POWER / ELECTRICITY4 Assessed 6 CCS techs for coal fleet owner4 Profiled demand response market for utility4 Benchmarked energy storage techs for VC4 Analyzed smart grid standard for India govt4 Modeled coal / gas economics for end user4 Forecasted gas demand for power for NOC
RENEWABLE POWER / CLEANTECH4 Benchmarked battery techs for PE firm4 Assessed green building techs for NIST4 Sized US offshore wind market for EPC4 Developed India strategy for solar player4 Studied geothermal supply chain for DOE4 Modeled LCOE of all renewables for DOE
OILFIELD SERVICES4 Forecasted OCTG pricing for vendor 4 Evaluated new drilling tech for US DOE4 Sized “green” drilling fluids for OFS player4 Sized oil spill market for new tech start-up4 Led oilfield tanks due diligence for PE firm4 Surveyed sourcing trends for proppant firm
UPSTREAM / E&P4 Listed ops excellence ideas for NOC4 Audited upgrader for oil sands producer4 Sized Australian CBM for new EOR firm4 Studied energized fracs use for tech firm4 Designed R&D strategy for oil / gas major4 Planned CSR / HSE / GA strategy for E&P
MIDSTREAM / LNG / GAS MONETIZATION4 Reviewed floating LNG tech for NOC4 Benchmarked large / small GTL for VC4 Sized pipeline coatings market for VC firm4 Analyzed gas monetization plans for major4 Ranked 15 NA LNG projects for Japan firm4 Forecasted Asian LNG demand for licensor
DOWNSTREAM / FUELS / REFINING4 Led licensor selection plan for refiner4 Valued 20 refineries for Asian investor4 Forecasted fuel regulations for licensor4 Sized catalyst market for chemical major4 Analyzed sustainability indices for refiner4 Reviewed asphalt / bitumen trends for user
BIOFUELS / ALTERNATIVE ENERGY4 Optimized ethanol blending for refiner4 Estimated LCAs of biofuels for start-up4 Benchmarked power trains for automaker4 Framed bio-oil pricing strategy for start-up4 Assessed LNG as diesel substitute for VC4 Benchmarked 20 biofuel techs for oil major
CHEMICALS / MATERIALS4 Forecasted butadiene supply for lube firm4 Screened C4-5 investments for Asian firm4 Estimated NGL supply for Canadian major4 Studied carbon black market for tire maker4 Identified white spaces in sulfur for US firm4 Modeled ammonia/methanol IRRs for NOC
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Clients can also monitor markets and accelerate decisions by subscribing to our research services and industry reports
North America Natural Gas Research Service
Focus Areas
4 LNG capacity4 Power / electricity4 Fuels (GTL, MTG)4 Price sets/linkages 4 Gas supply/demand 4 Methanol / chemicals4 Transport (CNG/LNG)
Key Analytics
4 Technology appraisals4 Review firm strategies 4 Project profiles, returns4 Supply, demand, pricing 4 Costs, economics, IRRs4 Competitive landscapes4 Regulatory/policy watch
Deliverables
4 Biweekly briefs4 Quarterly calls4 Annual summary4 Data spreadsheets4 Expert team access4 Subscriber workshops
Subscriber Benefits
4 Quick, cost-effective 4 Rigorous, fact-based4 Enable decision focus4 Independent expertise4 Collaborative, actionable
Refueling North America with LNG
Prospects for bio-based chemicals
Options for gas monetization
Innovation needs in shale gas
Economics of CO2utilization
Small-scale LNG opportunities
Technologies to reduce gas flaring
Ranking LNG export projects
Strategic outlook for biofuels
Monetizing natural gas liquids (NGLs)
Multi-Client Reports
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Finally, ADI’s expert team offers creative and insightful thought leadership in oil and gas, energy, and chemicals
Blog Viewpoints Media Citations Events
Weekly updates and hundreds of insightful posts on oil and gas, energy, and chemicals
ADI experts have presented at ~75 panel sessions, conferences, and company board meetings globally
ADI’s been quoted in Wall Street Journal, Bloomberg, NPR, and news and trade media around the world
Our flagship event, the ADIForum, is held annually in Houston, TX
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Outline
4 About ADI Analytics
4 2019 Oil & Gas Outlook
14www.adi-analytics.com
Key messages
U.S. natural gas will continue to be cheap
and is helping commoditize LNG
markets
… But the M&A market has slowed down
creating opportunities for oil majors
Supply-demand fundamentals point to an oil price in the $70s
There is considerable opportunity to export U.S. oil and gas but
renewables are a real threat
Oil and gas capital spending will rise but the industry is getting
more cost efficient
Private equity seems to be continuing unabated
…
1 3
2
5
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Key messages
Supply-demand fundamentals point to an oil price in the $70s
1
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5.05.3 5.5 5.7
6.5
7.5
8.89.4
8.89.4
10.7
2008 9 10 11 12 13 14 15 16 17 18
55 57 5863
66 6671
74 73 74
81
2008 9 10 11 12 13 14 15 16 17 18
Unconventional oil, gas, and NGL production continues to grow rapidly repositioning the U.S. as a major energy producer
Natural Gas(Billion Cubic Feet Per Day)
NGL(Million Barrels Per Day)
1.81.9
2.12.2
2.42.6
3.0
3.33.5
3.84.1
2008 9 10 11 12 13 14 15 16 17 18
Crude Oil(Million Barrels Per Day)
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Unconventionals will continue to drive U.S. oil and gas production but growth may slow after a blockbuster 2018
U.S. Natural Gas Production Forecast(Billion Cubic Feet Per Day)
U.S. Crude Oil Production Forecast(Million Barrels Per Day)
9297
58
81
94
103
2010 2018 2020 2023
13.113.9
5.5
10.7
14.5
17.8
2010 2018 2020 2023
High
Low
High
LowGrowth yoy
9.5%
Growth yoy15.1%
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0.2
0.2
0.2
0.3
0.30.3
0.3
0.2
0.2
0.3
0.3
2008 9 10 11 12 13 14 15 16 17 18
A significant chunk of U.S. oil and gas production is being exported tying the industry’s fortunes to global markets
2.62.93.1
4.14.44.34.1
4.9
6.4
8.79.2
2008 9 10 11 12 13 14 15 16 17 18
Natural Gas(BCFD)
Crude Oil(Million BPD)
0.00.00.00.00.00.1
0.2
0.50.5
1.0
1.9
2008 9 10 11 12 13 14 15 16 17 18
0.20.2
0.3
0.5
0.7
1.0
1.2
1.4
1.6
2008 9 10 11 12 13 14 15 16 17 18
1.61.8
2.0
2.52.62.72.72.8
3.0
3.33.4
2008 9 10 11 12 13 14 15 16 17 18
NGL(Million BPD)
Coal(Million TPD)
Refined Products(Million BPD)
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Light tight oil production in the U.S. has risen significantly and future growth will continue to come from the Permian basin
U.S. Light Tight Oil Production by Basin(Million Barrels Per Day)
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 20230.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Permian
Projected
Other plays
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Breakeven costs continue to be competitive for most U.S. shale production
U.S. Breakeven Prices in Best Oil Plays(Includes D&C, LOE, taxes, transportation, price differentials, and SG&A, USD Per Barrel)
$0
$25
$50
$75
$100
DJBasin
PermianDelaware NM
PermianDelaware TX
Eagle Ford PermianMidland
Bakken SCOOP/STACK
Breakeven range
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New oil supply growth will follow breakeven costs which are most competitive now for OPEC and U.S. unconventionals
$0
$25
$50
$75
$100
0 25 50 75 100
Crude Oil Supply Curve Including Brownfield Expansions
Onshore –Middle East
Offshore –Shallow
Heavy Oil –Latin America
Onshore Russia
Onshore –Rest of
the world
Offshore -Deep-water
Offshore –Ultra-deepwater
Onshore Light tight oil
Heavy Oil –Canada
Arctic
Million Barrels of Oil Per Day
Oil Price, $/bbl
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However, the dramatic decline in upstream capex has reduced the number of new FIDs hurting supply capacity growth
Global Oil & Gas Upstream Capital Spend(USD Billion Per Year)
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Dramatic decline in
upstream capex
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Oil prices have risen but so has volatility clouding forecasts but supply-demand fundamentals warrant a price in the $70s
$0
$25
$50
$75
$100
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
WTI Spot and Forecast Prices(USD Per Barrel)
ForecastSpot prices
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Global economic growth is forecasted to slow slightly across both advanced and emerging economies …
Source: OECD
3.7%3.5% 3.5%
2018 2019 2020
World GDP Growth Rate(Percentage)
3.8% 3.7% 3.7%
2018 2019 2020
G-20 Advanced GDP Growth(Percentage)
5.2%5.0%
5.2%
2,018 2,019 2,020
G-20 Emerging GDP Growth(Percentage)
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… Impacting oil demand whose robust growth in recent years helping mitigate the effects of the oil price collapse of 2014
$0
$25
$50
$75
$100
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
WTI (USD / bbl)
Worldwide Oil Demand Change and WTI Price(Million Barrels Per Day / USD Per Barrel)
Demand Change(mmbpd)
Oil Price(USD/bbl)
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Key messages
U.S. natural gas will continue to be cheap
and is helping commoditize LNG
marketsSupply-demand
fundamentals point to an oil price in the $70s
1
2
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Gas supply has grown significantly with most of the growth coming from Marcellus and that will continue
U.S. Dry Shale Production by Basin(Billion Cubic Feet Per Day)
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 20230
25
50
75
Marcellus
Other
Projected
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A significant fraction of natural gas production growth is now coming from associated gas and is linked to oil economics
U.S. Total Gas Production(Billion Cubic Feet Per Day)
0.0
25.0
50.0
75.0
100.0
2015 2016 2017 2018 2019 2020 2021 2022 2023
Associated gas
Other gas
Permian will drive growth in associated natural gas
production
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Given this background, we anticipate sustained production and …
-$9
-$6
-$3
$0
$3
$6
$9
500 1000 1500 2000
U.S. Natural Gas Supply Curve(USD Per Million Cubic Feet)
Trillion cubic feet
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… Supply of cheap natural gas at prices below $4 per Mcf through the next few decades
-$9
-$6
-$3
$0
$3
$6
$9
500 1000 1500 2000
U.S. Natural Gas Supply Curve(USD Per Million Cubic Feet)
Trillion cubic feet
Total demand through 2030 and 2040
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Natural gas prices will continue to grow moderately as seen recently but will likely stay below or around $3.50 per Mcf
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Henry Hub Spot and Forecast Prices(USD Per Million Btu)
ForecastSpot prices
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Natural gas demand has grown primarily in the power sector followed by industrials in comparison to other segments
13.113.413.913.313.212.012.913.413.113.112.9
11.413.413.9
12.611.912.112.7
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Residential Natural Gas Demand(Billion Cubic Feet Per Day)
Commercial Natural Gas Demand(Billion Cubic Feet Per Day)
Industrial Natural Gas Demand(Billion Cubic Feet Per Day)
Natural Gas Demand for Power(Billion Cubic Feet Per Day)
8.3 8.6 8.7 8.6 8.2 7.8 8.3 8.6 8.5 8.5 8.6 7.9 9.0 9.5 9.2 8.3 8.7 9.1
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
20.120.619.619.918.117.918.218.3
16.918.719.219.820.420.920.621.221.822.8
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
14.615.514.115.016.117.0
18.718.318.820.220.8
25.022.422.3
26.327.425.4
30.0
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
5.0%
2.5%
-0.4% 0.9%
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Natural gas exports via pipelines and LNG will after a long time account for the bulk of demand growth until 2023
U.S. Natural Gas Utilization Growth(Billion Cubic Feet Per Day, 2018-23)
81.0
97.1
2018demand incl
exports
Exports -LNG
Exports -Pipeline -Mexico
Exports -Pipeline -Canada
Industrial Power Res, comm,and transp
2023demand incl
exports
34www.adi-analytics.com
U.S. LNG capacity is very competitively positioned on the supply curve relative to other projects
Capital Cost of LNG Capacity
0 10 20 30 40 50 60 70 80 90 100
Supply Cost,$/mtpa
QatarU.S. Mozambique Yamal
Canada
Australia
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North American supply has helped weaken LNG’s price linkage with oil but other factors cannot be ignored
$0
$5
$10
$15
$20
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Natural gas, US Natural gas, Europe Liquefied natural gas, Japan
Natural gas and LNG Prices (USD Per Million Btu)
Warmer weather has led to a significant
fall in LNG prices
36www.adi-analytics.com
Key messages
U.S. natural gas will continue to be cheap
and is helping commoditize LNG
marketsSupply-demand
fundamentals point to an oil price in the $70s
Oil and gas capital spending will rise but the industry is getting
more cost efficient
1 3
2
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Growth in oil and gas capital spending should pick up but at a slower pace and will be more broad based than in the past
Global Oil & Gas Capital Spend(USD Billion Per Year)
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Up-stream
Down-stream
Mid-stream
LNG
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Learnings from unconventionals are now finding their way across the oil and gas value chain, e.g., offshore oil and gas
Offshore Opex Optimization and Value Realization(USD per barrel)
Opex in 2016 Technical Support Pipeline logistics Production services Opex in 2018
§ Automation§ Manpower
de-intensification§ Process
simplification§ Digital
dashboards§ Agile and
scrums
§ Shared pipelines
§ Big data maintenance
§ Optimized transport schedules
§ Machine learning
§ Predictive maintenance
§ Lower staffing
Pipeline logistics
Production services
Technical support
Opex optimization initiatives
39www.adi-analytics.com
Key messages
U.S. natural gas will continue to be cheap
and is helping commoditize LNG
marketsSupply-demand
fundamentals point to an oil price in the $70s
Oil and gas capital spending will rise but the industry is getting
more cost efficient
Private equity seems to be continuing unabated
…
1 3
2
4
40www.adi-analytics.com
2… 08 09 10 11 12 13 14 15 16 17 18 19 20
Global PE Fundraising(USD Billion)
Further, energy-focused PE fundraising is robust and PE funds are having a record year in a world awash with capital
PE Capital Raised for U.S. Energy(USD Billion)
2… 08 09 10 11 12 13 14 15 16 17 18 19 20
PE firms have more than $1 trillion to
invest today
41www.adi-analytics.com
Key messages
Key insights from ADI research
U.S. producers with OPEC are best
positioned suppliers of oil with oil prices likely
determined by the pace of drilling in the
U.S.
Natural gas demand growth will be eclipsed by pipeline and LNG
exports, which will after a long time surpass power and industrial
demand growth
Natural gas supply will continue to be
abundant and cheap driven by declining well costs and rising share
of price-inelastic associated gas
Although expectations are high, U.S.
producers are unlikely to show restraint
especially as oil prices touch $60
Oil growth will be supported by emerging
markets but carbon limits and infrastructure
limits will drive both fuel and crude exports
1 3
2
5
4
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2014 Q2 Q3 Q4 2015 Q2 Q3 Q4 2016 Q2 Q3 Q4 2017 Q2 Q3 Q4 2018 Q2 Q3 Q4
Permian Bakken Mississippian Lime Niobrara Marcellus UticaHaynesville Barnett CBM Eagle Ford SCOOP Midcontinent Unc.Powder River Unc. Other Multiple Conventional Total
Permian has been the focus of multiple acquisitions over the past few years but M&A activity is slowing down quite a bit
Source: Drilling Info
U.S. Quarterly Deal Value by Play Table(USD Billion)
43www.adi-analytics.com
Key messages
U.S. natural gas will continue to be cheap
and is helping commoditize LNG
markets
… But the M&A market has slowed down
creating opportunities for oil majors
Supply-demand fundamentals point to an oil price in the $70s
There is considerable opportunity to export U.S. oil and gas but
renewables are a real threat
Oil and gas capital spending will rise but the industry is getting
more cost efficient
Private equity seems to be continuing unabated
…
1 3
2
5
46
44www.adi-analytics.com
$0.00
$0.02
$0.04
$0.06
$0.08
$0.10
$0.12
$0.14
$0.16
$0.18
$0.20
2010 11 12 13 14 15 16 17 18 19
Renewable power project auctions have witnessed prices that are at par or better than gas-fired power generation
Onshore Wind Auction Prices(USD/kWh)
Solar PV Auction Prices(USD/kWh)
$0.00
$0.02
$0.04
$0.06
$0.08
$0.10
$0.12
$0.14
$0.16
$0.18
$0.20
2010 11 12 13 14 15 16 17 18 19 20
Gas combined cycle
Gas combined cycle
45www.adi-analytics.com
Key messages
U.S. natural gas will continue to be cheap
and is helping commoditize LNG
markets
… But the M&A market has slowed down
creating opportunities for oil majors
Supply-demand fundamentals point to an oil price in the $70s
There is considerable opportunity to export U.S. oil and gas but
renewables are a real threat
Oil and gas capital spending will rise but the industry is getting
more cost efficient
Private equity seems to be continuing unabated
…
1 3
2
5
46
46www.adi-analytics.com
Save the date!Wednesday, January 15, 2020
Houston, Texaswww.adi-forum.com
Copyright © 2009-2019 ADI Analytics LLC
440 Cobia DriveSuite 1704
Houston, Texas 77494
+1.832.768.8806info@adi-analytics.comwww.adi-analytics.com