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 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% -50% Integrated Majors -60% Equipment & Services E&P Drilling Source: Factset 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!! Oil Prices Source: Factset 2009 Fall FOCUS Investment Conference 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” 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 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 2009 Fall FOCUS Investment Conference Global Oil Supply & Demand Source: Schlumberger 2009 Fall FOCUS Investment Conference Regional Population Europe: 730 Mil North America: 337 Mil Asia: 4.0 Bil (4,000 Million) Africa: 954 Mil Latin America & Carib: 575 Mil Oceania: 34 Mil Population Map 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 19 85 19 87 19 89 19 91 19 93 19 95 19 97 19 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 10 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 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 Week Source: DOE 2009 2008 11 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 12 2009 Fall FOCUS Investment Conference Power Generation 100% Other 80% 9% 21% Natural Gas 60% Nuclear Oil 20% 40% Coal 20% 49% Source: EIA 13 2009 Fall FOCUS Investment Conference 07 20 04 20 01 20 98 19 95 19 92 19 89 19 86 19 83 19 80 19 77 19 74 19 71 19 19 19 68 0% 65 Percentage of Total Generation Power Generation By Fuel Source U.S Shale Gas Plays Source: EIA 14 2009 Fall FOCUS Investment Conference 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 20 2,104 33 1,006 $2.6 $2.9 18 18,360 11 Time To Drill (Days) Average Lateral Length (Feet) 30 Day Average Prod Rate (Mcfd) Drill & Completion Costs ($Million) Wells Per Yr Per Rig Source: Wells Fargo, Southwestern Energy, and Bentek Energy LLC 15 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 16 2009 Fall FOCUS Investment Conference Wave of New LNG Projects in the Pacific Basin Source: Deutsche Bank, Wood Mackenzie 17 2009 Fall FOCUS Investment Conference Buy-rated Stocks Majors Chevron Exxon Mobil (XOM) E&P Apache (APA) Suncor (SU) Talisman Noble (CVX) (TLM) Energy Equipment & Services Baker Hughes (BHI) Halliburton National (NOV) Noble (HAL) Oilwell Varco (NE) Schlumberger Transocean 18 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