Jackson Hockley Senior Investment Analyst

© 2009 Northern Trust Corporation northerntrust.com

FALL FOCUS

2009

INVESTMENT CONFERENCE

Jackson HockleySenior Investment Analyst

Energy SectorEquipment & Services, Oil & Gas

2 2009 Fall FOCUS Investment Conference

Energy Performance Review

The Energy Sector, S&P 500, and Commodity Prices

Source: Factset

S&P 500, -14%

Energy Sector, -22%

Light Crude Oil, -38%

Natural Gas, -48%

-70.0%

-60.0%

-50.0%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

Se

p-0

8

Oct

-08

No

v-0

8

De

c-0

8

Jan

-09

Fe

b-0

9

Ma

r-0

9

Ap

r-0

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Ma

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Jun

-09

Jul-

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Au

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9

Ind

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To

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S&P 500

Energy Sector

Light Crude Oil

Natural Gas


Energy Performance Review

The Energy Sub-Sectors

Source: Factset

Integrated, -17%

E&P, -13%

Equip & Svcs, -29%

Drilling, -33%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%S

ep

-08

Oct

-08

No

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De

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Jan

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-09

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Au

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9

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Integrated Majors

E&P

Equipment & Services

Drilling


Oil Prices, What Will They Do Next?

It’s been a wild ride!!

Oil Prices

Crude Prices

$20

$40

$60

$80

$100

$120

$140

$160

9/07 11/07 1/08 3/08 5/08 7/08 9/08 11/08 1/09 3/09 5/09 7/09 9/09

Source: Factset


Where Will Oil Prices Go Next?

“Oil should fall to between $4 and $10 a barrel, which, needless to say, supports our deflationary outlook.”

–Robert Prechter

August 13, 2009

Opinions Are All Over The Board…

Source: Bloomberg, Dinakar Sethuraman, “Oil May Fall Below $10 in Next Decade, Prechter Says”



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




Oil will average $90/barrel in 2010–Goldman Sachs

September 24, 2009



Global Oil Supply & Demand

Source: Schlumberger


Regional Population

Population Map

North America: 337 Mil

Asia: 4.0 Bil(4,000 Million)

Europe: 730 Mil

Africa: 954 MilLatin America & Carib:

575 Mil

Oceania: 34 Mil

Source: CIA "The World Factbook 2008"


Oil Consumption

U.S. vs. Asia Pacific Oil Consumption

0%

5%

10%

15%

20%

25%

30%

35%

40%

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

% o

f G

lob

al C

on

su

mp

tio

n

US % of Global Oil Consumption Asia Pacific % of Global Oil Consumption

Asia Ex-Japan % of Global Oil Consumption

Source: BP Statistical Review Of World Energy 2009


U.S. Natural Gas Storage

U.S. Natural Gas Storage Levels

0

500

1000

1500

2000

2500

3000

3500

4000

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52

Week

Inve

nto

ry L

evel

(B

cf)

2009 2008 12 Year Average (with absolute max and min)Source: DOE


U.S. Natural Gas Demand By Type

Natural Gas Demand By Type 2008

Industrial31%

Commercial15%

Vehicle Fuel0%

Electric Pow er31%

Residential23%

Source: EIA


Power Generation

Power Generation By Fuel Source

Coal

NuclearOil

Natural Gas

Other

0%

20%

40%

60%

80%

100%

Per

cen

tag

e o

f To

tal G

ener

atio

n

Source: EIA

49%

20%

9%

21%


U.S. Shale Gas Plays

Source: EIA


Shale Production Metrics Have Improved Over Time

For example, look at Southwestern Energy’s Fayetteville metrics since 1Q 2007

Source: Wells Fargo, Southwestern Energy, and Bentek Energy LLC

Time To Drill

(Days)

Average Lateral Length (Feet)

30 Day Average

Prod Rate (Mcfd)

Drill & Completion

Costs ($Million)

Wells Per Yr Per Rig

IP Additions Per Rig Per Year (Mcfd)

Quarter 1, 2007Quarter 1, 2008Quarter 2, 2009

2011

2,104

4,123

1,006

2,952

$2.6 $2.9 1833

18,360

97,953Southwestern Energy's Fayetteville Shale Production Metrics


So How High Should Natural Gas Prices Go?

Estimated NYMEX Gas Price Required For A 10% Pretax IRR

$4.10

$4.86 $5.03$4.59$4.42

$3.50

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

Marcellus Haynesville BarnettCore

Fayetteville Woodford BarnettNoncore

Source: Deutsche Bank, Company Data


Wave of New LNG Projects in the Pacific Basin

Source: Deutsche Bank, Wood Mackenzie


Buy-rated Stocks

Majors Chevron (CVX)

Exxon Mobil (XOM)

E&P Apache (APA)

Suncor (SU)

Talisman (TLM)

Noble Energy

Equipment & Services Baker Hughes (BHI)

Halliburton (HAL)

National Oilwell Varco (NOV)

Noble (NE)

Schlumberger (SLB)

Transocean (RIG)


FALL FOCUS

2009


Questions for Energy?


FALL FOCUS

2009


Jackson HockleySenior Investment Analyst

Thank you.

Jackson Hockley Senior Investment Analyst

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