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Energy Crisis and Solutions for California Oilfield Producers

Gas Supply and Demand and Future Outlook

Presented byWilliam J. Keese, Chairman

California Energy CommissionMarch 15, 2001

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Overview

Current California conditionsNatural gas fundamentals Wrap up

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21st Century has Hit California With a Bang

High gasoline pricesHigh electric pricesHigh natural gas prices

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Natural Gas Prices

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U.S. Gas Prices and Drilling RigsMonthly U.S. Wellhead Natural Gas Price

vs

Active Gas Drilling RigsJul-87 to Jan-01

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Jul-87Jul-88Jul-89Jul-90Jul-91Jul-92Jul-93Jul-94Jul-95Jul-96Jul-97Jul-98Jul-99Jul-00

Number of Rigs

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Rig Count US Wellhead Prices

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Power Plants in California

Status Number ofPlants

Capacity(MW)

Approved 10 6,329

UnderReview

15 7,083

PubliclyAnnounced

12 7,520

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1999 California Natural Gas Demand by Sector MMcfd

6,132 MMcfd

Noncore25%

Nonutility18%

EG 23%

Core34%

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1999 California Natural Gas Supply: Production Region Shares

(6,132 MMcfd)

Calif16%

So West46%

Rocky Mtn10%

Canada28%

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California Natural Gas Production

2000 Proved Reserves - Onshore and Offshore Estimated 3.46 Trillion cubic feet

Estimated 2000 reserve/production ratio: 10.3 years

Associated Nonassociated Total1996 202.3 86.4 288.7 1997 210.2 81.5 291.7 1998 238.1 82.7 320.8 1999 281.9 94.5 376.4 2000 285.0 91.4 376.4

Billion Cubic FeetCalifornia Net Gas Production - Onshore and Offshore

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1999 California Oil and Natural Gas Production Activity

Well Activity 1,752 drilled for production and injection

1,379 completed wells capable of production

125 wells redrilled to side-track or deepen

1,307 plugged and abandoned wells no longer available for production or injection

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2010 Forecasted California Natural Gas Demand MMcfd

Resid

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EG

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2010 California Natural Gas Supply: Production Region Shares

7,500 MMcfd

Calif14%

Rocky Mtn13%

Canada25%

So West48%

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Interstate Pipeline Capacity to California

Pipeline Delivery Capacity (MMcfd)

PG&E – GTN 1,833

El Paso 3,530

Transwestern 1,065

Kern River 700

Total 7,128

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New Interstate Pipelines and Expansions to California Kern River Expansion

2002: 125 MMcfd, additional expansion expected PG&E - GTN Expansion

2003: 200 MMcfd Questar Southern Trails Pipeline

Late 2001: 90 MMcfd El Paso’s All American Pipeline Conversion

Planning stage: 100 MMcfd North Baja Pipeline

2003: 500 MMcfd

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Liquefied Natural Gas Potential Not yet a viable option for California Current imports on the East Coast

Operating Terminals• Distrigas’ Everett, MA LNG complex - 535 MMcfd• CMS Trunkline LNG Co., Lake Charles, LA - 200 MMcfd

Scheduled to reopen in next 12-24 months• Williams Gas Pipeline, Cove Point, MD -1,000 MMcfd• Southern LNG’s Elba Island, GA complex -330 MMcfd

Potential in MexicoEl Paso and Phillips Petroleum are in preliminary talks to

bring LNG from Australia to the West Coast in 2005

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Issues for TEOR Production High natural gas price

Too costly to produce steam for injection Excess water from not producing steam

Water has to be cleaned and disposed High electricity prices

Electric pumping of oil is costly New wells in Kern County now need CEQA review Result: Higher barriers or costs to production

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Opportunities for Producers

Marginal wells Wells not producing in past five years will not

have the Division of Oil, Gas and Geothermal assessment for 10 years

Orphan wells Producers can test an orphan well for 90 days

Firm can decline ownership of well within 90 days without liability concerns

Firm can take ownership after 90 days and accept liability

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Opportunities for Producers Explore the 'Stripper Well Consortium' program to

obtain funding for specific well improvement projects in the range of $50K - $150$. www.energy.psu.edu/swc

CEC joint venture to assist small California oil and gas producers Aimed to reduce electricity consumption and

lower field operational cost

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