Update of the Domestic Exploration and Production Sector What’s Different Now? Dave Donegan Sinclair Oil & Gas Co. Idaho Petroleum Marketers and C-Store

Update of the Domestic Exploration and Production Sector

What’s Different Now?Dave Donegan

Sinclair Oil & Gas Co.

Idaho Petroleum Marketers and C-Store Associations Annual Meeting

Sun Valley, ID – Thursday August 1, 2013

© Sinclair 2011. All rights reserved 2

• Upstream subsidiary of a private integrated oil company – primary objective is attractive rate of return projects in US.

Sinclair Oil & Gas Company


Our Strategy

• Focus on unconventional reservoirs with low geologic risk and lots of running room – in particular we target “shale plays”

• Opportunistic rather than geographic strategy

• Small staff but leverage geologic expertise in shale reservoirs and operational expertise in horizontal drilling and multi-stage hydraulic fracture stimulation


Our Strategy (cont.)

• Current activity in Bakken (MT/ND), Woodford (OK), Wolfcamp/Cline (TX), Cain and A1 Carbonate (MI).

• Looking for new opportunity.

• Typically try to partner with other operators, enter plays early, but not first.

• Partner of choice!


Mature Oil Early

DevelopmentNat. Gas

Mature Nat. Gas

Test Stage

Oil






• Story of the past five years is the dramatic increase in North American crude oil and natural gas production.

• Why?

• Multi-stage frac completions in horizontal wells drilled in unconventional reservoirs (primarily shale's).

Crude prices have remained remarkably stable over the past year in the face of a long list of supply disruptions, from Nigerian oil theft and Syrian civil war to an export standoff between Sudan and South Sudan. The reason in large part is a thick new blanket of North American oil cushioning the markets.


Cross-section of a Typical Horizontal Well

Source: Anadarko



The Shale Gale delivered rapid U.S. production increases - & precipitated gas

price collapseHenry Hub monthly average cash price

September 201264.7 Bcf per day

NGL-and oil-richplays begins to drive third wave

Avg $7.45Jan 04 to Dec 08

Source: Courtesy Pete Stark IHS, CERA, Intelligence Press, and EIA

Hurricanes Katrina, Rita

Shale Gale starts withBarnett, Fayetteville, and Woodford shale plays

Hurricane Ike

July 200856.1 Bcf per day

Avg $3.75Jan 09 to Sept 12

Haynesville, MarcellusShale plays drive second wave


Domestic production of shale gas has grown dramatically over the past few years


North America Key Gas Plays2009-2012 (June) Gas Wells

Source: Courtesy Pete Stark - IHS


Spot natural gas prices vary significantly across global markets since 2008, with many

markets far below oil –related benchmarks



Shale GaleNatural Gas Game Changer Scorecard

• Major competitive advantages for the U.S. economy• Jobs: 2012 = 900,000 2035 = 2.1 million• GDP: $122 billion 2035 = $287 billion• Taxes: 2012 = $31 billion 2035 = $73 billion

• Offset ~ 10 Bcfd of LNG imports to NAM• NAM poised to launch LNG exports• But Canada gas exports to U.S. decrease 4 Bcfd (32%)

• Low priced gas facilitates transformation to clean energy

• Low priced gas helping to drive major petrochemical investments and reviving energy dependent manufacturing



U.S. dependence on imported liquids depends on both supply and demand


Non-OECD liquid fuels use surpasses almost flat OECD liquid fuels use in the near future


Liquids fuel consumption in the United States, China, and India, 1990-2040


World oil prices move together due to arbitrage


Domestic production of tight oil has grown dramatically over the past few years


Key Tight Oil PlaysNorth America Oil & Horizontal Wells 2010-2012



Selected U.S. Tight Oil PlaysHorizontal Oil Well Average Oil + Gas IP (boe/d)



Tight Oil Upside PotentialIncrease in High Volume Wells > 1,000 b/d



Tight OilUpside Potential is Growing

• Continuous process improvements – lower costs & increase recoveries

• Confirm new reservoirs in established plays:• Bakken / Three Forks: 2012 three primary reservoirs; 2013 three new Three Forks

reservoirs plus Bakken silt technically recoverable resource @ 3.5% RF +~ 12 Bboe

(60%)

• Niobrara: 2012 one primary reservoir; 2013 four primary reservoirs: Increase reserves ~

1.3 Bboe

• Wolfcamp: 2012 one primary reservoir; 2013 three – four primary reservoirs, potential

increase of > 5Bboe

• New Play fairways – S. OK Oil Province, Lower Woodford• Continental Resources - ~2 Bboe (~4 Bboe for fairway)


© Sinclair 2011. All rights reserved 27Source: NDIC


ND Drilling Stats

Source: JJ Kringstad – North Dakota Pipeline Authority


ND Oil Pricing: ND-WTI Differential

Source: EIA Data


US Williston Basin Oil Transport*

*Some data based on estimates or assumptionsSource: JJ Kringstad – North Dakota Pipeline Authority


The Tight Oil Revolution Scorecard

• Updated U.S. supply view – plateau ~ 4.5 MMbd 2023

• What does this mean to U.S. economy? $5 Tr investment• Jobs: 2012 = 800,000 2035 = 1.4 million• GDP: 2012 = $116 billion 2035 = $188 billion• Taxes: 2012 = $30 billion 2035 = $51 billion

• Dramatic decrease in U.S. oil imports• In 2005 U.S. net oil imports = 12.2 mbd or 58% of demand. By 2020

U.S. net import requirement will shrink to 30% of demand. (Most of the net imports will be from Canada and Mexico)

• Huge implications for energy security and the economy

• North America tight oil is a model for global potentialSource: Courtesy Pete Stark - IHS


Bakken-Three Forks Williston Basin

Tight Oil Upside Potential New Reservoirs in Established Plays

Source: IHS

© Sinclair 2011. All rights reserved 33Source: Macquarie Capital (USA), IHS, EIA – July 2012

Finding & Development Costs Trending Higher


The Market EnvironmentWhat has changed since 2012?


2Q12 vs. 2Q13


Conclusions

• Fossil fuels are expected to provide the majority of U.S. energy supplies for the foreseeable future.

• Domestic supply of North American crude oil and natural gas has increased dramatically over the past five years and is expected to continue – This was the big surprise.

• Economic benefit to the U.S. of a healthy domestic exploration and production sector is critical to U.S. economic and security objectives. The impact is measurable and significant.

Update of the Domestic Exploration and Production Sector

What’s Different Now?Dave Donegan

Sinclair Oil & Gas Co.

Idaho Petroleum Marketers and C-Store Associations Annual Meeting

Sun Valley, ID – Thursday August 1, 2013

Documents

Update of the Domestic Exploration and Production Sector What’s Different Now? Dave Donegan Sinclair Oil & Gas Co. Idaho Petroleum Marketers and C-Store