Permian Basin 2018

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PERMIAN BASIN: MIDSTREAM 62 | October 2018 | activity and/or acreage positions outside the Permian, given takeaway constraints." SGS reported it was seeing interest in Eagle Ford- and Bakken-weighted stocks. An operator in the former, Lonestar Resources US Inc.'s "exposure to premium Gulf Coast pricing looks extremely hard to resist, given the near-term [Gulf] LLS-Mid- land spread." At the time, the second-half 2018 spread was more than $18. In the Bakken, SGS cited Whiting Petroleum Corp. "A Bakken-levered E&P provides safe haven from Permian differentials and exposure to one of the highest rate of change plays in the Lower 48." Where's the pipe? This pipe-short situation in the basin has appeared before. In this century, until 2013, Permian pro- duction was less than 1 MMbbl/d, according to the University of Texas of the Permian Basin (UTPB). About half of that is used in-basin, equity analysts estimate. In the 1970s, at its peak, the basin pro- duced about 2 MMbbl/d, according to UTPB. 2013 began with a Mid-Cush differential of -$14. In August of 2014, it was -$21. Without takeaway or other above-surface con- straint, KeyBanc's Deckelbaum expects Permian production of 4.9 MMbbl/d by 2022. Hanson at Parkman Whaling forecasted in the first half of 2017 that it will get there sooner, when answering the "What if everyone does what they say they will do" question. By January 2021, Permian production will be between 4.5 and 5.3 MMbbl/d, according to his calculation. In Hanson's analysis, what was needed—capital, equipment, materials, people, low or no cost infla- tion, an improved commodity price, takeaway—to reach the 3.2 MMbbl/d that he forecasted would be seen this summer was tremendous, suggesting the mark wouldn't be reached. But it was reached. Announced new take- away underway, according to Imperial's Haas, would bring capacity by year-end 2019 to more than 5 MMbbl/d, "which should be more than enough to accommodate the expected production—and growth—in 2019 and 2020, in our opin- ion," she reported. The leading projects are Cactus II (585,000 bbl/d) to Corpus Christi/Ingleside with a third-quarter 2019 completion; EPIC (590,000 bbl/d with 440,000 of those from the Permian) to Corpus Christi, second-half 2019; Gray Oak (up to 700,000 bbl/d) to Corpus Christi and Sweeny/Free- port, year-end 2019; and an Enterprise NGL-to-oil conversion (200,000 bbl/d) to the Gulf Coast, 2019. Exxon Mobil Corp. and Plains surprised the mar- ket in mid-June with news of a letter of intent to partner in a 1-MMbbl/d pipe to the Houston Ship Channel and Beaumont. TPH analysts reported that, with this news, the conversation about Perm- ian oil bottlenecks is "quickly shifting … to a 2020- plus overbuild scenario." SunTrust Robinson Humphrey midstream analyst Tristan Richardson estimated that, "although the announcement is purely an LOI at this point" a timeline of a year-end 2018 invest- ment decision would have the pipe in service in mid-2020 at the earliest. Takeaway Midland Delaware Other Hz Non-Hz Permian Production Versus Takeaway Permian Basin Oil Production Mbbl/d 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E Bernstein analysts expect the upcoming new round of big-pipe additions will get the Permian only into mid-2020, when there will be another shortfall at the current rate of production growth. (Source: EIA, HPDI, Bernstein estimates)

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