DALTA Summer 2012 Seminar Oil & Gas Marketing Overview Stuart Nance – Bill Barrett Corp. July 19, 2012 1
Typical Royalty Provision in O&GL 2
So you drilled a new well….now what? • Get it connected to a pipeline. • Sell the products. (Oil, Gas, NGLs) • Collect the proceeds from sale ($) • Pay partners and royalty owners 3
Marketing Department’s Role • Objective - flow 100% of the production, while getting the best Net Back price. • Well Connects • Gas Gathering Contract negotiations • Processing Contract negotiations • Transportation Contract negotiations • Oil and Gas Sales negotiations • Pipeline Nominations & Scheduling • Invoicing, Collections, Reporting 4
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The Natural Gas Industry a LDC b Long Haul Pipeline Gathering & Transportation Processing c Storage 1 End Users • Industrial 2 • Power Producers • Commercial Storage • Residential 3 7
Proceeds - Who gets how much $ ? • Oil, Gas, & NGLs are sold and $ collected. • What price did we get for each product? • What adjustments (deductions) are made? • What is the “netback” price @ well or lease? 8
Pricing for each product - Oil • Oil - $ per barrel (42 gallons = 1 Barrel) BBL • Posted field prices – specific location. • Adjustments are made for quality differences • What is the “netback” price @ well or lease? 9
Pricing for each product - Gas • Gas - $ / MMBtu – defined later. • Index/Hub prices – at specific locations (e.g. Cheyenne, Opal, Blanco, White River). • Adjustments are made for costs to “market” • What is the “netback” price @ well or lease? 10
Natural Gas Pipelines Today Henry Hub 11
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Some definitions – Gas Adjustments Gathering – collecting gas in a series of small-diameter pipelines (sometimes described as being like spider webs) that are installed in the field(s) to individual wells or leases. Gathering systems or pipelines are “upstream” of any processing or treating facilities or plants. Compression – raising the pressure of the gas in pipelines to higher pressures so that gas can flow to downstream pipelines that operate at higher pressures. Dehydration – drying gas and removing water in the gas. Processing – removing impurities and liquid hydrocarbons from gas streams – usually done at processing plants. Transportation – moving gas from the field(s) to points further downstream (markets) through pipelines that are typically larger diameter, operate at higher pressure and serve multiple fields. 13
Well Connects and Gathering • Work with Exploration, Production and Facilities teams Location • Identify existing gathering, processing and transmission facilities What type of facilities will be needed? • Gas composition • System pressures – (what are the current needs and also what pressures will be needed as the play matures) • Processing needs • Expansion potential Production • Expected initial production • Expected growth production Facilities – Who will own and operate facilities or will a Third party company own and operate? Identify other Producers in area Markets in area Negotiate Well Connect and Gathering Agreements 14
Gas Processing • Gas processing serves two purposes: Gas conditioning: remove impurities and other substances necessary to make the gas quality “merchantable” for sale (useable to consumers) • Needs to meet residue gas pipeline specifications Value enhancement: Natural Gas Liquids (“NGLs”) have two values • In the Gaseous state (phase) as a heating value to burn • In the Liquid state (phase) as a marketable liquid 15
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Marketing/Sales • Two primary types of natural gas marketing and trading Physical trading -buying and selling the physical commodity Financial trading – involves derivatives and sophisticated financial instruments which the buyer and seller never take physical delivery of the natural gas. • Natural Gas commodity is sold as a heat content (MMBTU vs. a volumetric (MCF) BTU = is defined as the amount of heat required to raise the temperature of one pound of liquid water by one degree from 60° to 61°Fahrenheit at a constant pressure of one atmosphere • Three different types of physical gas sales contracts Term – anything longer than on month and is typically a Term transaction Base load – one month sale Swing – Daily or semi-daily 17
Gas Sales • Pricing Henry Hub : The pricing point for natural gas futures contracts traded on the NYMEX. The point is located in Erath, Louisiana Index price: an average of physical fixed price trades for the prompt month at defined locations during bid week • Bid week: The last 5 business days of the month • Nymex close is 3 business days prior to the end of the month • Index prices are based off of liquid locations on pipelines. If points are outside of this area, then there will typically be a + or – to the pricing point. 18
Gas Sales • Sales Portfolio - diversification Long term (1 to 3 years or longer) Seasonal • Summer (Apr – Oct) • Winter (Nov – March) Monthly Daily – to balance out actual production to total sales • Sales to Several different purchasers and purchaser types to diversify our portfolio LDC’s (Local Distribution Companies – XCEL Energy, Colorado Springs) Marketers Power Generators End Users (Industrial, Residential, Consumer) • Point of sale of Oil and/or Gas production: Into pipeline in the field Transport production to a different location 19
Nominations & Scheduling • Gas Scheduling - A process by which nominations are consolidated by receipt point, by contract, and verified with upstream/downstream parties. All nominated quantities will be allocated according to transportation/scheduling priorities. All gas sold must be scheduled. • Scheduling works hand in hand with production personnel, facilities, pipelines, marketers and markets to ensure gas flows. • On call 24/7 • Schedulers must monitor daily production flows and pipeline nomination confirmations then coordinate with marketers how much volumes to sell and at what points on a daily basis and intra day. • Schedulers must be able to react on a moments notice when force majeure situations happen. 20
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Weekly natural gas rig count and spot Henry Hub prices Active Rigs $ per MMBtu 26
Questions ? 27
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