ARB Midstream: Condensate from the Rockies Producing Region

Adam Bedard, CEOARB Midstream, LLC

Condensate from the Rockies Producing Region

October 29, 2015

Market Observations• Lease condensate production from the Rockies (Williston, PRB, DJ) projected to grow

by 84,000 b/d, from 266,000 b/d to 350,000 b/d, over the next five years• 95% of that growth is from the DJ Basin

• Lease condensate production can be blended into the pipelines, but pipelines have specs that limit the % light ends• However, excess takeaway capacity and batching make hitting any sort of “blend wall” difficult• Possibly a problem only in the DJ, depending on how concentrated the barrels area

• Rail can access the Canadian diluent market or Gulf Coast market (Splitters/Exports) and provide an uplift to distressed light barrels• However current pipeline capacity is causing previously distressed barrels to receive a higher

price, closing the arb.• Rail provides Rockies’ producers with a coastal market, rather than only delivering a

Cushing market• Producers can get Brent-based pricing 2

3

• Growth oriented, infrastructure development company focused on early stage, organic development projects and acquisitions in gas liquids, condensate, and crude oil

• Provide marketing and logistics services to producers and refiners • Quantitative analytics drive development strategy• Current Projects/Marketing

• Marketing ~20,000 b/d• DJ Basin Energy Hub: Niobrara Connector (“NiCon”) • Midland Basin (Big Spring) Energy Hub: Gateway Project

ARB Midstream Overview

Organic Projects – Energy Rail HubsPermian Gateway

4

Niobrara Connector• Located in Howard County• 350 acres• Pipe connection to new

gathering system• Drilling materials in bound,

liquids outbound

• Located in the heart of DJ• 230 Acres• Under construction• Drilling materials in bound,

liquids outbound

5

Rockies Drilling UpdateImpact of declining rig count outpaces influence of high grading and efficiencies

6

Rockies Rig Count Down from 265 to 96 (64%) YoY

Oct-14 Jan-15 Apr-15 Jul-15 Oct-150

50

100

150

200

250

300

Bakken PRB DJ-Niobrara

Hz R

ig C

ount

7

Bakken Rig Count Down By 113 rigs, nearly 2/3 YoY

-113-65%

Oct 2014175 Rigs

Oct 201562 Rigs

8

PRB rigs down by 70% YoY

-23-70%

Oct 201433 Rigs

Oct 201510 Rigs

9

DJ Basin Rig Count Holding Up Slightly Stronger, But Still Down 58%

33-58%

Oct 201457 Rigs

Oct 201524 Rigs

10

Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 -

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

Williston PRB DJ-Niobrara

Hz R

ig E

ffici

ency

(wel

ls dr

illed

per

mon

th p

er ri

g)Rigs Are Drilling 35% More Wells/Month Today Compared to a Year AgoDJ: 24 today = 37 a year ago Bakken: 62 today = 81 a year ago

PRB: 10 today = 19 a year ago

11

Lease Condensate ProductionHow much condensate will be produced from the Bakken and Niobrara plays?

12Eagle Ford

SCOOP

Utica

Bakken

Miss Lime

DJ Basin

PRB

Canadian Condensate

Natural Gasoline

20 25 30 35 40 45 50 55 60 65 70 75 80 85 90

API Gravity

Condensate

PRB and Bakken Are Not a Significant Source of Condensate. DJ, Utica, SCOOP and EF are Major Sources

Source: DI Desktop

13

Lease Condensate Makes up 15% of Rockies Total Production. Projected to Grow by 84,000 b/d over next 5 years (f/ 266 Mb/d up to 350 Mb/d)

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jan-19

Jan-20

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

Rockies (Bakken, PRB, DJ) Crude Oil and Lease Condensate Production vs Time

Heavy (<22°) Intermediate (>22° and <38°) Light (>38° and <45°) Condensate (>45°)

Crud

e O

il an

d Le

ase

Cond

ensa

te P

rodu

ction

(b

/d)

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jan-19

Jan-20

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

Rockies (Bakken, PRB, DJ) Crude Oil and Lease Condensate Production vs Time


Crud

e O

il an

d Le

ase

Cond

ensa

te P

rodu

ction

(b

/d)

Forecast

14

Condensate is Fastest Growing Quality Segment, Projected to Grow by 31% Over Next Five Years

Heavy (<22°) Intermediate (>22° and <38°)

Light (>38° and <45°) Condensate (>45°) -

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

37,294 102,188

1,313,333

266,398

40,625 123,139

1,452,937

349,828

Dec. 2014 to Dec. 2019: Bakken, PRB, DJ

Dec-14Dec-19

Crud

e O

il an

d Le

ase

Cond

ensa

te P

rodu

ction

(b/d

)

Bakken Production Drops By 180,000 b/d by Mid 2016, Rebounds Early 2018. Growth in Lease Condensate is Small at (8,000 b/d).

15Source: DI Desktop

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jan-19

Jan-20

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

Williston Basin Production Forecast


Crud

e O

il an

d Le

ase

Cond

ensa

te P

rodu

ction

(b

/d)

Source: ARB Analytics

Forecast

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jan-19

Jan-20

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

PRB Production Forecast


Crud

e O

il an

d Le

ase

Cond

ensa

te P

rodu

ction

(b

/d)

16

PRB: Only 6,000 b/d condensate. Overall Production Shrinks Over Next five Years, Doesn’t Achieve 2014 levels


Forecast

17

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jan-19

Jan-20

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

DJ Basin Production Forecast


Crud

e O

il an

d Le

ase

Cond

ensa

te P

rodu

ction

(b

/d)

DJ: Condensate projected to grow by 78,000 b/d


Forecast

18

Unknown 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

DJ Production by API

API Gravity

Prod

uctio

n (b

pd)

Splitter Stabilizer/Diluent/Exports

Refining/Blending

End Market for DJ Light Barrel? Cushing by pipe, Rail (to splitter), Rail for Export, Rail to Canada

Source: DI Desktop, ARB Analytics

25% of DJ Production: API > 50

19

Takeaway Capacity, Blending, and Deducts

20

Take-or-Pay Commitments May Override Potential Uplift from Other End Markets

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

1,100,000

DJ Supply/Demand By Type

Prod

uctio

n &

Tak

eaw

ay C

apac

ity (b

/d) Rail

Pipeline

Refinery

21

Likely to Be Enough Heavier DJ Barrels to Blend Off Lights and Meet Pipe Specs

API-31

API-32

API-33

API-34

API-35

API-36

API-37

API-38

API-39

API-40

API-41

API-42

API-43

API-44

API-45

API-46

API-47

API-48

API-49

API-50

API-51

API-52

API-53

API-54

API-55

API-56

API-57

API-58

API-59

API-60

API-61

API-62

API-63

API-64

API-65

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

DJ Basin: Production By API

Prod

uctio

n (b

/d)

White Cliffs SpecsPXP “NIO” Specs

Source: HPDI, FERC

22

End Markets

23

Where Should DJ Condensate Go?• Utilized Condensate

Pricing Model Developed by Univ. Bauer College of Business• Provides Sum of

Whole Value ex-Splitter

Source: Bauer College of Business, Argus

Assay

Componen

t Pric

es

Net Pric

es

Composite

Price

24

Uplift from Splitting $3.57/bbl Today, Compared to $4.88 Two Years Ago

Jan-13 Jan-14 Jan-15 $-

$20

$40

$60

$80

$100

$120

$4.88 $2.72 $3.57

WTI, Brent, and “Split Products” – October 2013, 2014, 2015 – DJ 46API

WTI Brent Split Products Split Products - WTI

Oct - 13 Oct - 14 Oct - 15

Source: Bauer College of Business

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Options for a DJ Barrel (60 API)

• Pipeline to Cushing• DJ Lease Barrel: WTI-$5• Quality Deduct: -$6 (60 API)• Value at Lease: WTI-$11

• Rail to Canada as Diluent• Canadian condensate: WTI-$2

• Implies: If rail is less than $9/bbl, this works

• Rail to Gulf Coast for Splitting• Splitter Uplift: +$3/bbl

• Implies if rail + splitter fee is < $14/bbl, this works

Market Observations• Lease condensate production from the Rockies (Williston, PRB, DJ) projected to grow

by 84,000 b/d, from 266,000 b/d to 350,000 b/d, over the next five years• 95% of that growth is from the DJ Basin

• Lease condensate production can be blended into the pipelines, but pipelines have specs that limit the % light ends• However, excess takeaway capacity and batching make hitting any sort of “blend wall” difficult• Possibly a problem only in the DJ, depending on how concentrated the barrels area

• Rail can access the Canadian diluent market or Gulf Coast market (Splitters/Exports) and provide an uplift to distressed light barrels• However current pipeline capacity is causing previously distressed barrels to receive a higher

price, closing the arb.• Rail provides Rockies’ producers with a coastal market, rather than only delivering a

Cushing market• Producers can get Brent-based pricing 26

27

EndAdam Bedard, CEOARB [email protected]

ARB Midstream: Condensate from the Rockies Producing Region

Business

Transcript of ARB Midstream: Condensate from the Rockies Producing Region