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Equity Research Published by Raymond James & Associates Raymond James Energy Group (800) 945-6275 © 2013 Raymond James & Associates, Inc., member New York.

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Presentation on theme: "Equity Research Published by Raymond James & Associates Raymond James Energy Group (800) 945-6275 © 2013 Raymond James & Associates, Inc., member New York."— Presentation transcript:

1 Equity Research Published by Raymond James & Associates Raymond James Energy Group (800) © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Please read disclosure/risk information and Analyst Certification at the end of the presentation. Equity Research November 13, 2013 © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Please read disclosure/risk information and Analyst Certification at the end of the presentation. Published by Raymond James & Associates Raymond James Energy Group IPAA: RJ Energy Outlook Raymond James Energy Group (800)

2 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Game Change in U.S. Oil & Gas! Oil price structurally challenged –Global oil demand is sputtering –U.S. oil supply up huge! –Oil market is telling you there is a problem! –Bulls must count on additional disruptions U.S. nat gas poised for longer-term recovery –Demand poised to surge –But plenty of $4.00

3 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Oil Outlook Without Strong Global Economic Recovery, Oil Will Be Structurally Challenged

4 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Why Are We Worried About Oil? Oil inventories rising despite massive supply outages (3+ MMBpd offline since 2010) Oil inventories on track to max out in 2014 OPEC excess capacity near 20+ year high Will Saudi/OPEC cut an additional 2 MMBpd? If not, oil prices are moving lower

5 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | How Does Our Oil Forecast Stack Up? In-Line with Consensus for –15% below consensus in –20% below Consensus in Way Below Street for 2015 WTI-Brent Spreads Source: Thomson Reuters; Raymond James Research

6 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Does the Market Now Get It? 6 Source: Bloomberg; Raymond James Research

7 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Long Term Strip is Coming Our Way Source: FactSet; Raymond James Research

8 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | North American crude supply growing ±1.5 million BPD over next several years. “Other” supply growth outpacing declines Global demand growing about half as fast as supply (700,000 – 900,000 BPD) What are the Headwinds for Oil?

9 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Staggering U.S. Oil Supply Growth!

10 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Near-Term Supply Growth Very Visible

11 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | U.S. Actuals Tracking Above RJ 2012 Forecast Source: EIA; Raymond James Research

12 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Efficiency Improvements Outpacing Our Model Source: EOG Source: Raymond James; Drilling Info

13 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Won’t Steep Declines Cause Oil Supply to Slow? 13

14 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Growing Supply is Not the Only Problem

15 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | What is “New Normal” For Oil Demand Growth?

16 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Why is Oil Demand Growth Slowing?

17 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Efficiency Gains are Real

18 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Are People Driving Less? -Urbanization? -Demographics? -Low Employment? -High Gasoline Prices? -Internet?

19 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Better Mileage + Less Driving = Falling Demand

20 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | U.S. Demand Falling But Lumpy Source: IEA; Raymond James Research

21 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Japanese Oil Demand Fell 8/10 Years Last Decade

22 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Is China Worse than People Think?

23 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Global Oil Demand is Facing Serious Headwinds

24 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Where Does That Leave Our Global Oil Model

25 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Question Is Not “If” But “When?”

26 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | If Fundamentals Suck, Why is Spot So High? 26 Source: IEA; Raymond James Research

27 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Where Could We Be Wrong? U.S. Supply & Global Demand #’s Conservative Bad Data? –Data May be Wrong…But It’s Consistently Wrong –Either Way Demand is Worse Than Pre-2008 More MENA Supply Interruptions?

28 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | What Solves Structural Oil Problems? Robust Global Economic Recovery –Difficult With De-levering & High Oil Prices Cut Supply –Temporary Solution –OPEC Excess Capacity Becomes Problem **Lower Oil Prices** - SOLUTION! –Slows U.S. Drillers –Spurs the Global Economy

29 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | WTI Disconnect Isn’t Going Away

30 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Watch Light/Sweet Oil Import Timing!

31 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Gulf Coast Spread Widens When Light is Gone

32 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | North American Timing Will Be “Squishy”

33 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Where is our WTI vs. Consensus? Source: FactSet; Raymond James Research

34 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | What About U.S. Natural Gas?

35 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Low Prices & Weather Solved Oversupply in 2013

36 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | How Do We Offset Supply Growth?

37 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Gas to Coal Switching Key To Late 2013 Pricing

38 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Gas Growth Slowing But Not Down!

39 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Well Productivity Now 5x-10x Better?

40 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Lower Oil Prices Are Bullish For Gas!

41 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Huge Nat U.S. Demand Growth Coming… 41

42 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | …Driven Largely by Industrial Gas Demand 42

43 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | And Wave of LNG Export Facilities?

44 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | U.S. Gas Prices Drift Slowly Higher

45 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Who Are The “Winners” In This New World? Energy Spectrum: –Infrastructure, Refiners & Niche Stories U.S. wins as trade deficit shrinks U.S. manufacturing wins –Gas input costs provide huge cost advantage U.S. dollar goes higher U.S. workers & consumers win

46 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Outlook For Oil Independence? (Pay Attention To This Graph!)

47 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | What About the Non-Oil Trade Deficit?

48 Equity Research Published by Raymond James & Associates © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida | Conclusion Game Changed For U.S. Gas 5 Years Ago Oil Game Changing Now! Oil Decline Pushed Out by Interruptions U.S. Nat Gas Price Improvement Here to stay!


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