Forecasts
THE ART OF FORECASTING AND PROJECTING Sami Yahya Energy Analyst/Artist
BENPOSIUM 2016
Disclaimer RESTRICTIONS ON USE: YOU MAY USE THE PRICES, INDEXES, ASSESSMENTS AND OTHER RELATED INFORMATION (COLLECTIVELY, “DATA”) IN THIS PRESENTATION ONLY FOR YOUR PERSONAL USE. YOU MAY NOT PUBLISH, REPRODUCE, DISTRIBUTE, RETRANSMIT, RESELL, CREATE ANY DERIVATIVE WORK FROM AND/OR OTHERWISE PROVIDE ACCESS TO DATA OR ANY PORTION THEREOF TO ANY PERSON (EITHER WITHIN OR OUTSIDE YOUR COMPANY INCLUDING, BUT NOT LIMITED TO, VIA OR AS PART OF ANY INTERNAL ELECTRONIC SYSTEM OR INTERNET SITE), FIRM OR ENTITY. DISCLAIMER: PLATTS, ITS AFFILIATES AND ALL OF THEIR THIRD-PARTY LICENSORS DISCLAIM ANY AND ALL REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE AS TO THE DATA, OR THE RESULTS OBTAINED BY ITS USE OR AS TO THE PERFORMANCE THEREOF. LIMITATION OF LIABILITY: IN NO EVENT WHATSOEVER SHALL PLATTS, ITS AFFILIATES OR THEIR THIRD-PARTY LICENSORS BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOSS OF PROFITS, TRADING LOSSES, OR LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY OR OTHERWISE. THE DATA IS PROVIDED ON AN “AS IS” BASIS AND YOUR USE OF THE DATA IS AT YOUR OWN RISK. COPYRIGHT © 2016 BY PLATTS, MCGRAW HILL FINANCIAL, INC. ALL RIGHTS RESERVED. NO PORTION OF THIS PUBLICATION MAY BE PHOTOCOPIED, REPRODUCED, RETRANSMITTED, PUT INTO A COMPUTER SYSTEM OR OTHERWISE REDISTRIBUTED WITHOUT PRIOR AUTHORIZATION FROM PLATTS. PLATTS IS A TRADEMARK OF MCGRAW HILL FINANCIAL.
BENPOSIUM 2016
Key Topics
• • • • • • •
Fundamentals driving production forecast Pillars of production projections and exceptions to the rule Data sources – what planet they come from? Projection to forecast Forecasting Natural Gas Liquids Rates of return (IRRs) Calculating the inventory
BENPOSIUM 2016
3
The Natural Gas Industry Field Separation
End User
Dry-Gas Pipeline and Distribution Production
Gas Storage Gas Plant
BENPOSIUM 2016
4
Platts Bentek’s Forecast Are Driven By Fundamentals What are “Fundamentals”? Supply
Any factors that should be considered important to the understanding of a particular market. Technology
Fundamental Analysis: the application of fundamentals to understand and forecast a particular market BENPOSIUM 2016
Flow Dynamics
Weather
Price Implication
Regulatory Changes
Infrastructure
Constraints
Demand
5
Projections Vs. Forecasts
Projections: Historical and current estimates of production are developed using state, well-level data (initial production rates, decline curves, type of well, etc). Projections for future production assume current drilling activity is held constant going forward.
Forecasts: Production forecasts are developed for nat gas and NGLs, not oil. Platts Bentek’s forecasts follow a supply/demand approach in which production, demand, storage injection and withdrawals, imports and exports balance and add to zero.
BENPOSIUM 2016
6
The Pillars Of Projections • History– – Last (most recent) production data for historical production from State Data – Model future history with decline curves
• Fill – – Drilled wells, with RigData, to model production to present – Model future fill production with decline curves
• Future – – Use recent number of drilled wells and project that to the future BENPOSIUM 2016
7
Anatomy Of Projections 1,800 1,600 1,400 MMcf/d
1,200 1,000 800 600 400 200 -
BENPOSIUM 2016
History
History Decline
Fill
Projection
8 Not a recent forecast
Data Sources • RigData – Weekly rig activity – Wells drilled
• DrillingInfo (HPDI) – Production data collected from state agencies – Most production data on the well level
• EIA • Pipeline Sample BENPOSIUM 2016
9
The Art Of Harvesting Organs Pipeline Data
EBB
Collect
Assign
Store
Group
Validate
Model
BENPOSIUM 2016
10
Interstate Pipeline Business Processes
Daily Trading and Nomination Cycle
6:00pm
2:30pm
9:00am
Day 1
BENPOSIUM 2016
Begin Gas Flow
Intraday 1 Cycle Nomination
Day 2
Evening Cycle Nomination
Day Gas Trading Period
Trade
Schedule: Timely Cycle Nomination
Requirement
7:00pm
Intraday 3 Cycle Nomination (Revision)
1:00 pm
Intraday 2 Cycle Nomination (Revision)
7:00am
11
Production Projections – The Recipe •
Best indicator of future performance is looking at the past and current.
•
BENTEK performs projections based on individual basins/plays and are based on current drilling activity.
•
The areas are analyzed from the well level up, using well class and orientation as well groups.
•
Each group is fitted with a type curve in order to predict future production trends in the area from new and existing wells.
•
Each well is then assigned a production profile going forward and all wells are then aggregated to the area level.
•
Each area is then aggregated to a basin, regional and national level projection.
BENPOSIUM 2016
12
Production Projections – Important Distinctions • BENTEK’s Production Estimation is a “Projection” Based on Current Drilling Activity. Rig Counts are not Forecasted into the Future. • BENTEK’s Estimations are Unconstrained Projections With Pipeline Constraints, Future Demand and Price Volatility Not Incorporated into the Model. • BENTEK’s Production Estimations Are What We View as Potential Production Based on Current Drilling Activity, Drill Times, and IP rates.
BENPOSIUM 2016
13
What’s ‘Real’, What’s Modeled 400
Data
Modeled
350
History
Fill
Future
300
MMcf/d
250
Future
200
Fill Declining History 150
HPDI History
100
50
0
BENPOSIUM 2016
*Not a current projection
14
Risks To Projections
• Pipeline Constraints • Producer Guidance Forecast • Uncompleted Wells
BENPOSIUM 2016
15
How Do We Paint Our Forecast?
Infrastructure Constraints
Producer Guidance
Projections
IRR
Forecast
Project Announcements
Trend Analysis Demand
BENPOSIUM 2016
16
How NGLs Are Produced From Gas Plants… Dry Gas Residue Gas C1 – methane “Rejected” ethane
Gas (“Gross Gas” or “Wet Gas”) Processing
Separation Liquid (Lease Condensate, Oil) Wellhead
To natural gas pipeline
To refineries
Recovered NGLs Y-grade Raw mix “Recovered” ethane Purity products
Fractionation
BENPOSIUM 2016
C2 – ethane C3 – propane nC4 – normal butane iC4 – isobutane C5+ – natural gasoline
17
Methodology For Forecasting NGL Production From Gas Plants Step 1
Demandconstrained gross gas forecast by basin
• CellCAST • Bentek’s Oil and Gas Production Monitors
BENPOSIUM 2016
Step 2
Estimate liquids content (GPM) by basin
• Bentek’s Supply Databank • EIA data • Company reports
Step 3
Estimate barrel composition by subPADD
• Bentek’s Supply Databank • EIA data • Company reports
Step 4
Estimate purity products by PADD C2 – ethane C3 – propane nC4 – normal butane iC4 – isobutane C5+ – natural gasoline
• Bentek’s Market Call: North American NGLs
18
IRR: Introduction And Application • Basin-level IRR analysis estimates the return producers would expect from drilling a single typical well • IRR analysis allows the comparison of well economics on an apples-to-apples basis • IRR estimates should drive rig movements and drilling activity, but exogenous factors may impact decisions • Estimates the relative viability of each region BENPOSIUM 2016
19
IRR Methodology: Overview • Research and collect producerreported well economic data • Review the data and determine a representative set of assumptions for each play • Proprietary discounted cash flow tool calculates IRR, breakeven prices, NPV and EUR for a typical well in each play – 10% discount rate
• Half-cycle Return – Land acquisition and exploration are considered sunk costs BENPOSIUM 2016
20
New Shale Play Development Strategy
Vertical Testing
Exploration And Production Costs
Core Analysis, Determine Reserve Estimates Seismic, Optimize Horizontal Orientations Horizontal Testing, Refine D&C Techniques Cost Reductions, Build Efficiencies, Extended Laterals Multi-Well Pad Drilling
Time BENPOSIUM 2016
21
IRR Key Research Inputs
Royalty Rate
Drilling & Completion Costs
Operating Expenses Production Taxes
Research Components
Initial Production Rate
Production Mix Decline Curve BENPOSIUM 2016
22
Operating Expenses
• Variable cost associated with operating the well. • Generally split into two main categories: – Lease Operating Expense – Gathering and Transportation
BENPOSIUM 2016
23
Drilling And Completion Costs
Casing Location, Prep & Build Rig and Mobilization
Tubing and Surface Equipment
Perforating, Flowback, Water
BENPOSIUM 2016
Cementing, Fuel
Drilling = 40% Completion = 60%
Stimulation
D&C Range: $4-12M 24
IRR Methodology: Entire Flow Research Top Producers’ economic well data in each play
•Updated quarterly •D&C costs •IP rates •Production mix •Decline curves •Operating expenses
Bentek Analytics Representative set of assumptions for each play
•Production team review & validation •Establish inputs •Update price curve (monthly) •Remove outliers
IRR & Outputs Establishing IRR for a typical well in each play BENPOSIUM 2016
•Quarterly reports •Producer highlights •Sensitivity analysis •Trend analysis 25
May Year-over-year IRR (2015 & 2016) 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0%
May'15 IRR May 2016 Price Assumptions:
BENPOSIUM 2016
May'16 IRR
Gas = average of the 12 month forward curve for each regional pricing point (range $1.77 - $2.69/Mcf) Oil = 12 month forward average WTI +/- differential (range $36.52- $48.56/barrel) NGLs = weighted average $/barrel, 12-mo forward average Mt. Belvieu prices (range $18.98- $22.75/barrel)
How Do We Calculate The Inventory (NE)?
Account for Horz. wells
State Production Data
Exclude inactive/ plugged wells
Assign each well to PRA Calculate # of producing wells
BENPOSIUM 2016
State Permitting Data RigData Determine a span of time, identical for both sets of data
Calculate # of released wells
Inventory= # of released wells - # of producing wells
27
Key Takeaways • Projections are informed by past and present. • Forecast begins with projections and adds more ingredients. • Data comes from State, RigData, DI, Pipe Sample, EIA. • Some projections follow slightly altered model. • Rates of return offer insight into viability of drilling in a particular play. • Well inventory essential in understanding future production. BENPOSIUM 2016
28
Thank you!
QUESTIONS? Platts Analytics Sami Yahya Energy Analyst [email protected] 720-264-6751
1800 Larimer Street in Denver, CO
BENPOSIUM 2016
BENPOSIUM 2016
Disclaimer RESTRICTIONS ON USE: YOU MAY USE THE PRICES, INDEXES, ASSESSMENTS AND OTHER RELATED INFORMATION (COLLECTIVELY, “DATA”) IN THIS PRESENTATION ONLY FOR YOUR PERSONAL USE. YOU MAY NOT PUBLISH, REPRODUCE, DISTRIBUTE, RETRANSMIT, RESELL, CREATE ANY DERIVATIVE WORK FROM AND/OR OTHERWISE PROVIDE ACCESS TO DATA OR ANY PORTION THEREOF TO ANY PERSON (EITHER WITHIN OR OUTSIDE YOUR COMPANY INCLUDING, BUT NOT LIMITED TO, VIA OR AS PART OF ANY INTERNAL ELECTRONIC SYSTEM OR INTERNET SITE), FIRM OR ENTITY. DISCLAIMER: PLATTS, ITS AFFILIATES AND ALL OF THEIR THIRD-PARTY LICENSORS DISCLAIM ANY AND ALL REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE AS TO THE DATA, OR THE RESULTS OBTAINED BY ITS USE OR AS TO THE PERFORMANCE THEREOF. LIMITATION OF LIABILITY: IN NO EVENT WHATSOEVER SHALL PLATTS, ITS AFFILIATES OR THEIR THIRD-PARTY LICENSORS BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOSS OF PROFITS, TRADING LOSSES, OR LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY OR OTHERWISE. THE DATA IS PROVIDED ON AN “AS IS” BASIS AND YOUR USE OF THE DATA IS AT YOUR OWN RISK. COPYRIGHT © 2016 BY PLATTS, MCGRAW HILL FINANCIAL, INC. ALL RIGHTS RESERVED. NO PORTION OF THIS PUBLICATION MAY BE PHOTOCOPIED, REPRODUCED, RETRANSMITTED, PUT INTO A COMPUTER SYSTEM OR OTHERWISE REDISTRIBUTED WITHOUT PRIOR AUTHORIZATION FROM PLATTS. PLATTS IS A TRADEMARK OF MCGRAW HILL FINANCIAL.
BENPOSIUM 2016
Key Topics
• • • • • • •
Fundamentals driving production forecast Pillars of production projections and exceptions to the rule Data sources – what planet they come from? Projection to forecast Forecasting Natural Gas Liquids Rates of return (IRRs) Calculating the inventory
BENPOSIUM 2016
3
The Natural Gas Industry Field Separation
End User
Dry-Gas Pipeline and Distribution Production
Gas Storage Gas Plant
BENPOSIUM 2016
4
Platts Bentek’s Forecast Are Driven By Fundamentals What are “Fundamentals”? Supply
Any factors that should be considered important to the understanding of a particular market. Technology
Fundamental Analysis: the application of fundamentals to understand and forecast a particular market BENPOSIUM 2016
Flow Dynamics
Weather
Price Implication
Regulatory Changes
Infrastructure
Constraints
Demand
5
Projections Vs. Forecasts
Projections: Historical and current estimates of production are developed using state, well-level data (initial production rates, decline curves, type of well, etc). Projections for future production assume current drilling activity is held constant going forward.
Forecasts: Production forecasts are developed for nat gas and NGLs, not oil. Platts Bentek’s forecasts follow a supply/demand approach in which production, demand, storage injection and withdrawals, imports and exports balance and add to zero.
BENPOSIUM 2016
6
The Pillars Of Projections • History– – Last (most recent) production data for historical production from State Data – Model future history with decline curves
• Fill – – Drilled wells, with RigData, to model production to present – Model future fill production with decline curves
• Future – – Use recent number of drilled wells and project that to the future BENPOSIUM 2016
7
Anatomy Of Projections 1,800 1,600 1,400 MMcf/d
1,200 1,000 800 600 400 200 -
BENPOSIUM 2016
History
History Decline
Fill
Projection
8 Not a recent forecast
Data Sources • RigData – Weekly rig activity – Wells drilled
• DrillingInfo (HPDI) – Production data collected from state agencies – Most production data on the well level
• EIA • Pipeline Sample BENPOSIUM 2016
9
The Art Of Harvesting Organs Pipeline Data
EBB
Collect
Assign
Store
Group
Validate
Model
BENPOSIUM 2016
10
Interstate Pipeline Business Processes
Daily Trading and Nomination Cycle
6:00pm
2:30pm
9:00am
Day 1
BENPOSIUM 2016
Begin Gas Flow
Intraday 1 Cycle Nomination
Day 2
Evening Cycle Nomination
Day Gas Trading Period
Trade
Schedule: Timely Cycle Nomination
Requirement
7:00pm
Intraday 3 Cycle Nomination (Revision)
1:00 pm
Intraday 2 Cycle Nomination (Revision)
7:00am
11
Production Projections – The Recipe •
Best indicator of future performance is looking at the past and current.
•
BENTEK performs projections based on individual basins/plays and are based on current drilling activity.
•
The areas are analyzed from the well level up, using well class and orientation as well groups.
•
Each group is fitted with a type curve in order to predict future production trends in the area from new and existing wells.
•
Each well is then assigned a production profile going forward and all wells are then aggregated to the area level.
•
Each area is then aggregated to a basin, regional and national level projection.
BENPOSIUM 2016
12
Production Projections – Important Distinctions • BENTEK’s Production Estimation is a “Projection” Based on Current Drilling Activity. Rig Counts are not Forecasted into the Future. • BENTEK’s Estimations are Unconstrained Projections With Pipeline Constraints, Future Demand and Price Volatility Not Incorporated into the Model. • BENTEK’s Production Estimations Are What We View as Potential Production Based on Current Drilling Activity, Drill Times, and IP rates.
BENPOSIUM 2016
13
What’s ‘Real’, What’s Modeled 400
Data
Modeled
350
History
Fill
Future
300
MMcf/d
250
Future
200
Fill Declining History 150
HPDI History
100
50
0
BENPOSIUM 2016
*Not a current projection
14
Risks To Projections
• Pipeline Constraints • Producer Guidance Forecast • Uncompleted Wells
BENPOSIUM 2016
15
How Do We Paint Our Forecast?
Infrastructure Constraints
Producer Guidance
Projections
IRR
Forecast
Project Announcements
Trend Analysis Demand
BENPOSIUM 2016
16
How NGLs Are Produced From Gas Plants… Dry Gas Residue Gas C1 – methane “Rejected” ethane
Gas (“Gross Gas” or “Wet Gas”) Processing
Separation Liquid (Lease Condensate, Oil) Wellhead
To natural gas pipeline
To refineries
Recovered NGLs Y-grade Raw mix “Recovered” ethane Purity products
Fractionation
BENPOSIUM 2016
C2 – ethane C3 – propane nC4 – normal butane iC4 – isobutane C5+ – natural gasoline
17
Methodology For Forecasting NGL Production From Gas Plants Step 1
Demandconstrained gross gas forecast by basin
• CellCAST • Bentek’s Oil and Gas Production Monitors
BENPOSIUM 2016
Step 2
Estimate liquids content (GPM) by basin
• Bentek’s Supply Databank • EIA data • Company reports
Step 3
Estimate barrel composition by subPADD
• Bentek’s Supply Databank • EIA data • Company reports
Step 4
Estimate purity products by PADD C2 – ethane C3 – propane nC4 – normal butane iC4 – isobutane C5+ – natural gasoline
• Bentek’s Market Call: North American NGLs
18
IRR: Introduction And Application • Basin-level IRR analysis estimates the return producers would expect from drilling a single typical well • IRR analysis allows the comparison of well economics on an apples-to-apples basis • IRR estimates should drive rig movements and drilling activity, but exogenous factors may impact decisions • Estimates the relative viability of each region BENPOSIUM 2016
19
IRR Methodology: Overview • Research and collect producerreported well economic data • Review the data and determine a representative set of assumptions for each play • Proprietary discounted cash flow tool calculates IRR, breakeven prices, NPV and EUR for a typical well in each play – 10% discount rate
• Half-cycle Return – Land acquisition and exploration are considered sunk costs BENPOSIUM 2016
20
New Shale Play Development Strategy
Vertical Testing
Exploration And Production Costs
Core Analysis, Determine Reserve Estimates Seismic, Optimize Horizontal Orientations Horizontal Testing, Refine D&C Techniques Cost Reductions, Build Efficiencies, Extended Laterals Multi-Well Pad Drilling
Time BENPOSIUM 2016
21
IRR Key Research Inputs
Royalty Rate
Drilling & Completion Costs
Operating Expenses Production Taxes
Research Components
Initial Production Rate
Production Mix Decline Curve BENPOSIUM 2016
22
Operating Expenses
• Variable cost associated with operating the well. • Generally split into two main categories: – Lease Operating Expense – Gathering and Transportation
BENPOSIUM 2016
23
Drilling And Completion Costs
Casing Location, Prep & Build Rig and Mobilization
Tubing and Surface Equipment
Perforating, Flowback, Water
BENPOSIUM 2016
Cementing, Fuel
Drilling = 40% Completion = 60%
Stimulation
D&C Range: $4-12M 24
IRR Methodology: Entire Flow Research Top Producers’ economic well data in each play
•Updated quarterly •D&C costs •IP rates •Production mix •Decline curves •Operating expenses
Bentek Analytics Representative set of assumptions for each play
•Production team review & validation •Establish inputs •Update price curve (monthly) •Remove outliers
IRR & Outputs Establishing IRR for a typical well in each play BENPOSIUM 2016
•Quarterly reports •Producer highlights •Sensitivity analysis •Trend analysis 25
May Year-over-year IRR (2015 & 2016) 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0%
May'15 IRR May 2016 Price Assumptions:
BENPOSIUM 2016
May'16 IRR
Gas = average of the 12 month forward curve for each regional pricing point (range $1.77 - $2.69/Mcf) Oil = 12 month forward average WTI +/- differential (range $36.52- $48.56/barrel) NGLs = weighted average $/barrel, 12-mo forward average Mt. Belvieu prices (range $18.98- $22.75/barrel)
How Do We Calculate The Inventory (NE)?
Account for Horz. wells
State Production Data
Exclude inactive/ plugged wells
Assign each well to PRA Calculate # of producing wells
BENPOSIUM 2016
State Permitting Data RigData Determine a span of time, identical for both sets of data
Calculate # of released wells
Inventory= # of released wells - # of producing wells
27
Key Takeaways • Projections are informed by past and present. • Forecast begins with projections and adds more ingredients. • Data comes from State, RigData, DI, Pipe Sample, EIA. • Some projections follow slightly altered model. • Rates of return offer insight into viability of drilling in a particular play. • Well inventory essential in understanding future production. BENPOSIUM 2016
28
Thank you!
QUESTIONS? Platts Analytics Sami Yahya Energy Analyst [email protected] 720-264-6751
1800 Larimer Street in Denver, CO
BENPOSIUM 2016
