Transcript Northern Trust

2009
FALL FOCUS
INVESTMENT CONFERENCE
Energy Sector
Equipment & Services, Oil & Gas
Jackson Hockley
Senior Investment Analyst
© 2009 Northern Trust Corporation
northerntrust.com
Energy
Performance Review
The Energy Sector, S&P 500, and Commodity Prices
0.0%
Indexed Total Return
-10.0%
S&P 500, -14%
-20.0%
Energy Sector, -22%
-30.0%
Light Crude Oil, -38%
-40.0%
Natural Gas, -48%
-50.0%
-60.0%
S&P 500
-70.0%
Source: Factset
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2009 Fall FOCUS Investment Conference
Aug-09
Jul-09
Jun-09
May-09
Apr-09
Mar-09
Feb-09
Jan-09
Dec-08
Nov-08
Oct-08
Sep-08
Energy Sector
Light Crude Oil
Natural Gas
Energy
Performance Review
The Energy Sub-Sectors
0%
Indexed Total Return
-10%
E&P, -13%
Integrated, -17%
-20%
Equip & Svcs, -29%
-30%
Drilling, -33%
-40%
Integrated Majors
-50%
E&P
Equipment & Services
-60%
Drilling
Source: Factset
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2009 Fall FOCUS Investment Conference
Aug-09
Jul-09
Jun-09
May-09
Apr-09
Mar-09
Feb-09
Jan-09
Dec-08
Nov-08
Oct-08
Sep-08
-70%
Oil Prices, What Will They Do Next?
It’s been a wild ride!!
Crude Prices
$160
$140
Oil
Prices
$120
$100
$80
$60
$40
$20
9/07
11/07
Source: Factset
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2009 Fall FOCUS Investment Conference
1/08
3/08
5/08
7/08
9/08
11/08
1/09
3/09
5/09
7/09
9/09
Where Will Oil Prices Go Next?
Opinions Are All Over The Board…
“Oil should fall to between $4 and $10 a
barrel, which, needless to say, supports
our deflationary outlook.”
–Robert Prechter
August 13, 2009
Source: Bloomberg, Dinakar Sethuraman, “Oil May Fall Below $10 in Next Decade, Prechter Says”
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2009 Fall FOCUS Investment Conference
Where Will Oil Prices Go Next?
Opinions Are All Over The Board…
Then:
“Oil will sink to $20/barrel.”
–Philip Verleger
(Professor at The University of Calgary)
July 2009
Now:
“I’m fairly certain we’ll see
prices in the $30’s this year.”
–Philip Verleger
(Professor at The University of Calgary)
September 21, 2009
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2009 Fall FOCUS Investment Conference
Where Will Oil Prices Go Next?
Opinions Are All Over The Board…
Oil will average $90/barrel in 2010
–Goldman Sachs
September 24, 2009
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2009 Fall FOCUS Investment Conference
Global Oil Supply & Demand
Source: Schlumberger
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2009 Fall FOCUS Investment Conference
Regional Population
Europe: 730 Mil
North America:
337 Mil
Asia: 4.0 Bil
(4,000 Million)
Latin America & Carib:
Africa: 954 Mil
575 Mil
Oceania: 34 Mil
Population Map
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2009 Fall FOCUS Investment Conference
Source: CIA "The World Factbook 2008"
Oil Consumption
40%
35%
30%
25%
20%
15%
10%
5%
0%
19
65
19
67
19
69
19
71
19
73
19
75
19
77
19
79
19
81
19
83
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85
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87
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89
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91
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93
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97
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99
20
01
20
03
20
05
20
07
% of Global Consumption
U.S. vs. Asia Pacific Oil Consumption
US % of Global Oil Consumption
Asia Ex-Japan % of Global Oil Consumption
Source: BP Statistical Review Of World Energy 2009
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2009 Fall FOCUS Investment Conference
Asia Pacific % of Global Oil Consumption
U.S. Natural Gas Storage
U.S. Natural Gas Storage Levels
4000
Inventory Level (Bcf)
3500
3000
2500
2000
1500
1000
500
0
1
4
7
10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
Week
Source: DOE
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2009
2008
2009 Fall FOCUS Investment Conference
12 Year Average (with absolute max and min)
U.S. Natural Gas Demand By Type
Natural Gas Demand By Type
2008
Electric
Pow er
31%
Residential
23%
Vehicle
Fuel
0%
Commercial
15%
Industrial
31%
Source: EIA
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2009 Fall FOCUS Investment Conference
Power Generation
Percentage of Total Generation
Power Generation By Fuel Source
100%
80%
60%
9%
Other
21%
Natural Gas
Nuclear
Oil
40%
Coal
20%
0%
65 968 971 974 977 980 983 986 989 992 995 998 001 004 007
9
1
1
1
1
1
1
1
1
1
1
1
1
2
2
2
Source: EIA
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20%
2009 Fall FOCUS Investment Conference
49%
U.S. Shale Gas Plays
Source: EIA
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Shale Production Metrics Have Improved Over Time
For example, look at Southwestern Energy’s Fayetteville
metrics since 1Q 2007
Southwestern Energy's Fayetteville Shale Production Metrics
97,953
Quarter 1, 2007
Quarter 1, 2008
Quarter 2, 2009
2,952
4,123
2,104
20
33
1,006
$2.6
$2.9
18
18,360
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Time To
Drill
(Days)
Average
Lateral
Length
(Feet)
30 Day
Average
Prod Rate
(Mcfd)
Drill &
Completion
Costs
($Million)
Wells Per
Yr Per Rig
Source: Wells Fargo, Southwestern Energy, and Bentek Energy LLC
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2009 Fall FOCUS Investment Conference
IP Additions
Per Rig Per
Year (Mcfd)
So How High Should Natural Gas Prices Go?
Estimated NYMEX Gas Price Required For A 10% Pretax IRR
$6.00
$5.00
$4.00
$3.50
$4.10
Marcellus
Haynesville
$4.42
$4.59
$4.86
$5.03
Barnett
Core
Fayetteville
Woodford
Barnett
Noncore
$3.00
$2.00
$1.00
$0.00
So urce: Deutsche B ank, Co mpany Data
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2009 Fall FOCUS Investment Conference
Wave of New LNG Projects in the Pacific Basin
Source: Deutsche Bank, Wood Mackenzie
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2009 Fall FOCUS Investment Conference
Buy-rated Stocks

Majors
 Chevron
 Exxon

(CVX)
Mobil (XOM)
E&P
 Apache
(APA)
 Suncor
(SU)
 Talisman
 Noble

(TLM)
Energy
Equipment & Services
 Baker
Hughes (BHI)
 Halliburton
 National
 Noble
(HAL)
Oilwell Varco (NOV)
(NE)
 Schlumberger
 Transocean
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2009 Fall FOCUS Investment Conference
(SLB)
(RIG)
2009
FALL FOCUS
INVESTMENT CONFERENCE
Questions for Energy?
© 2009 Northern Trust Corporation
northerntrust.com
2009
FALL FOCUS
INVESTMENT CONFERENCE
Thank you.
Jackson Hockley
Senior Investment Analyst
© 2009 Northern Trust Corporation
northerntrust.com