Oil & Gas Investment USEIA, April 7-8, 2009

1. Oil & Gas InvestmentUSEIA, April 7-8, 2009

2. Trends Drivers • Upstream cost structures and margins relative to financing • Demand-side pricing policies by governments (oil) • Impact of financial markets • Resources and opportunities – “frontier” oil • “Frontier” natural gas • Cross-commodity pricing (fuel competition) – the challenge of building value for nat gas • Climate • Investment trends – invest in what you know

3. Players and Cost Structures Oil & Gas Investor, October 2008

4. Improvements in NOCs’ reserve replacement rate are supported by improvements in governance, more effective and stable alliances between NOCs and IOCs, sound competitive frameworks, and progressive fiscal regimes… A Citizen’s Guide to NOCs, CEE and World Bank, www.worldbank.org/noc

5. …and enables them to create and optimize value from assets. A Citizen’s Guide to NOCs, CEE and World Bank, www.worldbank.org/noc

6. A Citizen’s Guide to NOCs, CEE and World Bank, www.worldbank.org/noc

7. Non-Commercial PerformanceContributions by Type/Revenue (%) CEE-UT

8. Subsidies and Demand IEA, NYMEX

9. Not All Opportunities are the Same From Holditch, 2005, “Statistical Correlations in Tight Gas Sands”, American Association of Petroleum Geologists (AAPG) Hedberg Conference Proceedings. http://www.searchanddiscovery.net/documents/abstracts/2005hedberg_vail/abstracts/extended/holditch01/holditch01.htm

10. Electron Imagery of Barnett Fractures Gale, J. F. W., Reed, R. M., and Holder, Jon, 2007, Natural fractures in the Barnett Shale and their importance for hydraulic fracture treatments: AAPG Bulletin, v. 91, no. 4, p. 603–622.

11. US Gas Rigs, Production Production Backlog Baker Hughes, USEIA

12. The Endless Resource Source: NPC 2007

13. Natural Gas vs. Petroleum Prices What kind of business are we in? Sources: U.S. EIA; NYMEX; CEE

14. Public Acceptance: Sample LNG Projects in Same Region Safety/Security What caused the differences? Onshore vs. Offshore? Developer posture? Early dialogue? 5 Other/Intangibles Wetlands 4 3 Property Value Fisheries 2 1 Safety/Security 5 Other/Intangibles Wetlands Air Emissions Energy Costs 4 3 1 - Perceived Benefit Property Value Fisheries Employment Roads 3 - Indifferent 2 5 - Perceived Cost Taxes 1 Immediate Site Community Waterway Community Local Community (City) Greater Community (State) National Community (Federal) External Interest Group Unlicensed Onshore Project Air Emissions Energy Costs 1 - Perceived Benefit Employment Roads 3 - Indifferent 5 - Perceived Cost Taxes Immediate Site Community Waterway Community Local Community (City) Licensed Offshore Project Greater Community (State) National Community (Federal) External Interest Group Sources: CEE, Community and Economic Benefits of LNG, 2008

15. Sample Projects in Different Regions Safety/Security What caused the differences?Onshore vs. Offshore? Developer posture? Early dialogue? 5 Other/Intangibles Wetlands 4 3 Property Value Fisheries 2 1 Safety/Security 5 Other/Intangibles Wetlands Air Emissions Energy Costs 4 3 1 - Perceived Benefit Property Value Fisheries 3 - Indifferent Employment Roads 2 5 - Perceived Cost Taxes 1 Immediate Site Community Waterway Community Local Community (City) Unlicensed Onshore Project Greater Community (State) National Community (Federal) External Interest Group Air Emissions Energy Costs 1 - Perceived Benefit Employment Roads 3 - Indifferent 5 - Perceived Cost Taxes Immediate Site Community Waterway Community Local Community (City) Licensed Onshore Project Greater Community (State) National Community (Federal) External Interest Group Sources: CEE, Community and Economic Benefits of LNG, 2008

16. Math Whiz • Total annual CO2 emitted is 188 bn ton • 8bn is derived from human activity • US produces 2 bn • Net generation from US coal plants is ~170mm MWh • CO2 production is ~2,250 lbs/MWh, or 191mm tons • The total atmosphere is 5 quadrillion tons • We would be removing 0.00000382% if all CO2 from US coal-fired power gen was captured • We would be removing 0.00016% if all CO2 attributed with human activity were captured or eliminated

17. API Truth Primer

18. API Truth Primer

19. API Truth Primer

20. Pipeline trenching and welding, compression, • pressure control, metering; national grid develops Cumulative U.S. Oil & Gas Production, 1936-2007 BBOE (Includes Alaska) Impact of Technology – Deferring Declines • Arctic? • Hydrates? Still looking for the peak… • Offshore below • 10,000ft • 4-d seismic, offshore below 5,000ft • 3-d seismic, horizontal drilling, measurement • while drilling, offshore below 1,000ft Oil & Gas Technology Pathway • Directional drilling, offshore below 250ft water depth • Long-line pipeline transmission • Advances in drilling, early seismic, shallow offshore E&P • Oil discovered at Spindletop (Texas), 1901 • Oil discovered in Titusville, Pennsylvania, 1859; natural gas replaces town gas, 1870s Conventional porosity/permeability Unconventional Nano IT Pathway: Mainframes Minis Micros Work Stations Not to scale 1990 2000 1850 1900 1930 1940 1950 1960 1970 1980

21. Center for Energy Economics www.beg.utexas.edu/energyecon Michelle.Foss@beg.utexas.edu