API Industry OutlookSecond Quarter 2020

June 18, 2020

www.api.org

API industry health dashboard Q1 2020

Q1 2020 averagesBrent $50.00/bblWTI $45.34/bblNGL composite $4.50/mmbtuHenry Hub $1.89/mmbtu

Revenues

$580 B

Net

income

$(101) B

Capital

expenditures

$57 B

U.S. oil & total

gas production

33.8 mb/doe

U.S. drilling

activity

785 rigs

U.S. refinery

throughput

16.5 mb/d

U.S. petroleum

demand

19.7 mb/d

* Financial compilation based on API 200 companies with shares listed on U.S. stock exchanges. sources: EIA, API MSR, Bloomberg, Baker Hughes, API Team Analysis

Where we are currently

➢ Macroeconomy. After a record shock, third-party consensus

expectations are for a rebound to 4.4% y/y growth in 2021

➢ Oil markets – Historic demand and supply changes

• Low prices can be painful for industry, but beneficial to

consumers and oil & gas competitiveness

• Oil demand fell by record amounts with the global pandemic, but

appeared to bottom out in April and recover in May

• Historically large supply responses occurred in global oil prices,

U.S. drilling activity and production

➢ U.S. natural gas. Dedicated natural gas drilling now

represents 90% of U.S. gas drilling and supported a record

38.9% market share in electricity generation

Key drivers and uncertainties

➢ Pace of global economic and pandemic recovery

➢ Inflation/deflation, debt, foreign exchange rates

➢ Industry financial strength

➢ U.S. oil & gas well productivity

➢ Global gas market evolution

➢ International trade

Key points5-year range Quarterly increase

Quarterly decrease

www.api.org

0

20

40

60

80

100

Mar-19 Jun-19 Sep-19 Dec-19 Mar-20

Equipment, Services and EPC

Downstream

Midstream

Global Integrated

Specialty Petrochemical

The industry invested $57.8 billion in Q1 2020, down from an average of $67.2 billion per quarter in 2019, due to market conditions

Most global integrated companies invested steadily through Q1 2020 but recently announced capex reductions

Upstream companies made the largest reductions in their capital expenditure

Capital expenditures by industry segment

* All other oil & gas industry companies sources: Bloomberg, publicly-available company reports

Billion dollars

Q1 2020 change

(%y/y)

Total: -11.3

+1.0

-21.1

-12.6

-10.5

Upstream

-17.9-29.0

Headlines – Q2 2020

www.api.org

72 pipeline projects and 11.3 MBDOE of additional planned capacity may face liquidity, permitting and

construction delays

sources: S&P Market Intelligence, Oil & Gas Journal, EIA, API Team calculations

Permian Highway

$2.0 billion

0.9 MBDOE

Cheniere MIDSHIP

$1.5 billion

0.5 MBDOE

Mountain Valley

$5.0 billion

0.9 MBDOE

Atlantic Coast

$5.1 billion

0.7 MBDOE

Penn East

$1.0 billion

0.5 MBDOE

EPIC

Ingleside

Airbuckle

Enbridge Line 3

Mariner

Other

Cheniere MIDSHIP

Cheyenne1

Cheyenne2

Lockridge

Sabine

Sierrita

Mainline

Delaware

Other

Mountain Valley

Permian Highway

Trans Cameron

Supply Header

Atlantic Coast

Golden Pass

Capline

0

1

2

3

4

2020 2020 2021 2021 2022 2023

2.90

2.57

0.68

1.14

Other

0.3

3.74Oil

Natural gas

Million barrels per day oil-equivalent

O&G pipeline project capacity additions

EPIC

$2.5 billion

0.6 MBDOE Ingleside

$400 million

0.6 MBDOE

Airbuckle

$1.4 billion

0.4 MBDOE

Enbridge L3

$2.9 billion

0.4 MBDOE

Mariner East

$2.5 billion

0.3 MBDOE

What’s at stake? U.S. pipeline project map

2020 oil 2020 gas

OilNatural gas

2021 oil 2021gas

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Global economy & oil markets

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Deflation is the prime global concern due to unprecedented shocks spurring zero interest rates and $8+ trillion in stimulus

Headlines – Q2 2020

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Global GDP growth could rebound strongly to 4.4% in 2021, according to third-party consensus estimates

Historical global real GDP growth averaged 3.0% per year (1970-2019) but can be volatile and cyclical

The third-party consensus expects growth of 4.4% in 2021, a rebound following a contraction of 4.0% in 2020

Global GDP growth, 1970-2019* Global GDP outlook*

y/y%

-2

0

2

4

6

1970 1980 1990 2000 2010

Average

1970-2019

sources: IMF, Bloomberg * Market exchange rate basis

-6

-4

-2

0

2

4

6

2019 2020 2021 2022-2040

y/y%

Average

1970-2019

Third-party

consensus range

June 2020

sources: IMF, Bloomberg * Market exchange rate basis

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The U.S. dollar remained a global safe haven and reached its strongest foreign exchange rate in April 2020

Many factors contribute to oil prices, but a strong U.S. dollar tended to correlate with low oil prices over the last decade

Oil prices fell by record amounts in Q2 2020, largely due to the same underlying macroeconomic factors

U.S. broad dollar index and Brent crude oil prices, 2009-2020

0

50

100

150

85 90 95 100 105 110 115 120 125

U.S. Federal Reserve broad dollar index (2006=100)

Brent crude oil (2020 constant dollars per barrel)

Q2 2020

Weaker U.S. dollar Stronger U.S. dollar

-30

-25

-20

-15

-10

-5

0

5

Phili

ppin

es

Chin

a

Jap

an

Euro

Ind

ia

Arg

entina

Sin

gap

ore

Ma

laysia

S. K

ore

a

Tha

iland

Sw

ed

en

Ca

nad

a

U.K

.

Ind

on

esia

Austr

alia

South

Afr

ica

Bra

zil

Russia

Me

xic

o

sources: Federal Reserve Board, Bloomberg, U.S. BLS

Currency performance versus U.S. dollarBars are max depreciation in Q1 2020; points are changes year-to-date through June 5

Commodity-linked

Others

June 5 year-to-date

%

sources: Bloomberg, Federal Reserve, IMF

www.api.org

0

10

20

30

Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20

Rest of World Africa Canada MexicoLatin America Europe Japan S. KoreaRest of Asia China

0

10

20

30

Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20

Other ChemicalsHydrocarbon gas liquids (HGLs) Refined productsCrude oil LNG

U.S. energy trade has remained resilient

In Q1 2020, U.S. energy exports rose 8.5% y/y, but flattened in March versus year-ago levels as COVID-19 emerged

Crude oil and liquefied natural gas (LNG) have primarily driven U.S. energy trade gains

Trade with China has been relatively small, but may increase under the U.S.-China trade agreement

U.S. monthly exports of energy goods

Billion 2020 dollars

U.S. select energy exports by country/region

Billion 2020 dollars

sources: U.S. Census Bureau sources: U.S. Census Bureau

www.api.org

Global oil supply responded strongly to price market signals, with May bringing the largest decreases in drilling on record since 1975

With recent low oil prices, the U.S. drilling activity fell the most globally per Baker Hughes

U.S. drilling activity fell by 64% year-to-date to a record low 284 rigs as of June 5

Global rig count by region U.S. rig count by state as of June 5

source: Baker Hughes

0

500

1,000

1,500

2,000

2,500

Jan-19 May-19 Sep-19 Jan-20 May-20

Global rig count of 1,176 for May

2020, lowest since April 1999

1

United States

Middle East

Latin America

Europe

Africa

source: Baker Hughes

Asia Pacific

www.api.org

EIA projects U.S. production to decline, offset by other Non-OPEC nations and OPEC to global markets

Global oil demand fell faster than supply, and EIA expects relatively faster demand recovery after Q2 2020

0

25

50

75

100

2010 2012 2014 2016 2018 2020

2018

OECD (Developed

economiies)

Non-OECD(Emerging

economies)

Million barrels per day

sources:: EIA

Global crude oil and liquids consumptionEIA

estimates

0

25

50

75

100

2010 2012 2014 2016 2018 2020

Other Non-OPEC

OPEC

United States

Million barrels per day

Global crude oil and liquids production

source: EIA

EIA

estimates

www.api.org

After the immediate demand shock, EIA expects the global oil market to rebalance by Q3 2020

0

25

50

75

100

125

-10

-8

-6

-4

-2

0

2

4

6

8

10

2015 2016 2017 2018 2019 2020 2021

Supply less demand Brent crude oil prices Column1

2020$/Bbl

sources: EIA STEO (June 2020), Bloomberg

EIA global supply/demand and Brent price estimates as of June 2020

EIA estimates

Million barrels per day

www.api.org

0 20 40 60

Permian -Midland

Permian -Delaware

Eagle Ford -East

Bakken

Eagle Ford -West

WTI spot price

June 9, 2020

*Half cycle breakevens assuming 10% discount factor and play-specific costs source: BTU Analytics

Dollars per barrel ($/Bbl.)

U.S. oil well productivity –

new production per rig

0

500

1,000

1,500

2,000

2,500

3,000

2016 2017 2018 2019 2020

Eagle Ford

Bakken

source: EIA Drilling Productivity Report(Mar. 2020)

Barrels per day oil-equivalent

Permian

Apr. 2020Apr. 2019

Oil estimated breakeven

prices – April 2020*

0

200

400

600

800

1000

2016 2017 2018 2019 2020

Drilling rigs

Oil-directed drilling activity

source: Baker Hughes

Permian

All other

Eagle FordBakken

U.S. oil drilling requires at least $40 per barrel in most basins per Btu Analytics, so drilling slowed despite solid productivity

BTU Analytics estimates breakeven prices exceeded recent oil prices in most producing regions

EIA reported solid oil well productivity, but with the oil price drop drilling fell by the most on record to 206 rigs as of June 5

Steep YTD declines

www.api.org

0

100

200

300

400

500

0

200

400

600

800

1000

Jan-19 May-19 Sep-19 Jan-20 May-20

Crude oil storage building paused after an unprecedented increase due to the COVID-19 demand impact

Strategic Petroleum Reserve leasing of 23 million barrels of storage capacity and also procuring 15.0 million barrels

since April helped alleviate energy market concerns

A potential upside to consumers is that strong inventories could cushion the market through the hurricane season

U.S. inventories by petroleum product U.S. crude oil stocks by PADD

source: EIA, API Team Analysis

Jet Fuel

Million barrels

COVID-19 crisis

PADD 1

PADD 2

PADD 3

PADD 4PADD 5

Million barrels

source: EIA, API Team Analysis

Distillates

Motor Gasoline

Crude Oil

Jan-19 May-19 Sep-19 Jan-20 May-20

Rapid

Cushing build

Gulf coast storage fill

www.api.org

Motor gasoline and diesel fuel prices have generally moved with crude oil, and EIA expects limited impact from IMO 2020

0

1

2

3

4

2015 2016 2017 2018 2019 2020 2021

West Texas Intermediate crude oil Gasoline - U.S. average Diesel - U.S. average

2020$ per gallon

Crude oil, retail gasoline and diesel fuel prices, adjusted for consumer price inflation

sources: EIA, AAA, Bloomberg, BLS

EIA estimates

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Natural gas

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Global natural gas prices decreased to record lows in April 2020

Mexico$1.80

UK$1.65

Spain$1.75

India$2.05

Korea$2.25 Japan

$3.00

Belgium$2.20

Argentina$2.05

China$2.25

Lake Charles$1.47

sources: U.S. FERC (June 2020) and METI

Canada$1.40

www.api.org

With a rise in productivity, nearly 90% of U.S. natural gas drilling is concentrated in Appalachia and the Haynesville

BTU Analytics estimates breakeven prices in Appalachia and the Haynesville formation were competitive at recent prices

EIA reported record gas well productivity, and with recent market events Appalachia and the Haynesville rose to account for

nearly 90% of U.S. natural gas drilling activity

0

5,000

10,000

15,000

20,000

25,000

2016 2017 2018 2019 2020

Appalachia

Thousand cubic feet per day nat. gas-equivalent0 1 2 3

Appalachia -Ohio

Appalachia -Southwest PA

Appalachia -Northeast PA

Haynesville

Natural gas well productivity –

production per rig

source: EIA Drilling Productivity Report

Henry Hub

spot price

June 9, 2020

Natural gas estimated

breakeven prices – April 2020*

*Half cycle breakevens assuming 10% discount factor and play-specific costs source: BTU Analytics

Dollars per million Btu (mmBtu)

Haynesville

Apr. 2020

Apr. 2019

0

50

100

150

200

250

2016 2017 2018 2019 2020

Drilling rigs

Natural gas-directed

drilling activity

source: Baker Hughes

Appalachia

Haynesville

All other

www.api.org

In a reversal of recent trends, EIA expects natural gas production and demand to decline

EIA reports U.S. natural gas production declined beginning in November 2019 and does not project a rise before 2021

EIA separately expects natural gas consumption to decline in 2020 and again in 2021

0

25

50

75

100

2010 2012 2014 2016 2018 2020

Residential & Commercial

Electricity generation

Billion cubic feet per day (Bcf/d)

Industrial

EIA estimates

Transportation

Dry gas production

Net imports

Net exports

Natural dry gas production and consumption by segment

source: EIA

www.api.org

Natural Gas continued to gain share in power generation, and EIA expects low wholesale and retail prices

EIA expects natural gas’ share of electricity generation to reach 38.9% in 2020; prices at Henry Hub to remain below

$3.00 per million Btu through 2021; as well as lower retail margins above Henry Hub

U.S. natural gas prices

source: EIA source: EIA

0

2

4

6

8

10

12

14

2016 2017 2018 2019 2020 2021

U.S. electricity generation share by source

0%

25%

50%

75%

100%

2016 2017 2018 2019 2020 2021

Natural Gas

Wind

Coal

Hydroelectric

Solar

Nuclear

Dollars per million Btu (2020$/mmBtu)EIA estimates EIA estimates

Henry Hub (wholesale)

Industrial

Commercial

Residential

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API economics resources available at www.api.org

API Industry OutlookSecond Quarter 2020

June 18, 2020