Leadership OK Mickey

The Energy Industry: 

The Energy Industry Still Oklahoma’s Largest Economic Engine

Oklahoma’s Energy Industry:3 Sectors: 

Oklahoma’s Energy Industry: 3 Sectors Upstream – Exploration & Production Approximately 100,000 producing wells still active in Oklahoma. About 500,000 drilled in total. Oklahoma ranks 3rd among natural gas producing states (Texas, Louisiana) and 5th among oil producing states (Texas, Alaska, California, Louisiana). Oklahoma drilling peaked in 1982 with 12,000 wells completed. In 2001, there were 2,400 wells completed in Oklahoma.

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Oklahoma Gas Production History

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Oklahoma Oil Production History

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Oklahoma Average Natural Gas Price 1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000

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Oklahoma Average Oil Price 1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000

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Oklahoma’s Energy Industry: 3 Sectors 2. Midstream – Transportation of natural gas and crude oil from wells to processing/ refining or on to markets Gas gathering systems Gas interstate pipelines Crude oil pipelines Trucking Cushing, Oklahoma – pipeline crossroads of America

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Oklahoma Crude Pipelines

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Oklahoma Gas Pipelines

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US Crude Pipelines

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US Gas Pipelines

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Oklahoma’s Energy Industry: 3 Sectors 3. Downstream – Delivery to end-use customers Refineries 5 operating in Oklahoma (approx. capacity of 500,000 bbls./day; that’s 21 million gallons per day…lots of products, gasoline, lube oils, jet fuel) 9 have closed since 1981. At the pump Gasoline stations/stores At the burner tip Utilities Natural gas as feedstock for electricity generation

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Gasoline Fast Facts Who Get’s What in the Price at the Pump? Price at the Pump $1.50-$1.55 These figures are approximations. Actuals do vary (except taxes) Price for crude is $35/barrel.........$.833/gallon State and federal excise tax……..$.354/gallon Refinery, terminals, transport…...$.280/gallon Retailing……………………………..$.05-.10/gallon Does Anyone Remember Inflation? In inflation-adjusted terms, based on increases in the Consumer Price Index (CPI), a gallon of gasoline today is actually 32 cents cheaper than it was in 1980. How Much Gasoline is Sold in Oklahoma? In 2002, unleaded gasoline sales in Oklahoma were 1.8 billion gallons. Diesel sales were 938 million gallons How Much Fuel Tax is Paid in Oklahoma? Gasoline and diesel excise taxes (state and federal) in ’02 were approximately $1.2 billion.

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Oklahoma Utilities Oklahoma Natural Gas Customers 800,000 Employees 1,273 Miles of distribution mains 17,000 Serve area About ½ of Oklahoma Gas sold Approx. 65 billion cubic feet/year Oklahoma Gas and Electric (Enogex) Customers 700,000 Employees 3,000 8 Power plants; 10,000 miles of pipeline; 18 billion cubic feet of storage Generation 58,000 megawatts of power annually

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Crude Oil “Oil” is crude oil, the raw commodity, price based on world crude market, focused primarily on NYMEX futures index, whose benchmark is West Texas Intermediate (about the same quality as Oklahoma sweet) delivered at Cushing, Oklahoma. Oklahoma’s oil industry is: 80,000 active well bores in Oklahoma. Annual oil production is about 65,000,000 barrels, which means the average Oklahoma oil well production is about 2.2bbls of oil/day. (Saudi Arabia has already produced this much oil this week…and it’s only Friday morning!) Oklahoma’s “share” of domestic oil production is 3%. Oklahoma’s share of global oil production is .3%. Estimated value of oil produced in Oklahoma this year is $2 billion. Estimated state taxes paid by oil industry this year equals $250-300 million. Remains “economic driver” in many rural parts of the state – Ardmore, Duncan, Ada, Seminole, Cushing-Drumright, Okmulgee, Enid, Woodward.

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Natural Gas “Natural gas” is methane, the raw gaseous commodity, price based on domestic/hemispheric market, focused on NYMEX futures index, whose benchmark is a specific quality of gas (BTU content) delivered at Henry hub (Louisiana). Oklahoma’s natural gas industry is: 25,000 active well bores in Oklahoma. Annual gas production is about 1.5 trillion cubic feet. Oklahoma’s “share” of domestic natural gas market is 8%. Estimated value of gas production in Oklahoma this year is $6 billion. Estimated state taxes paid by gas industry this year equals $750 million-$1 billion.

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Exploration Mostly “infill” drilling for know resources. Deep drilling in western Oklahoma increasing (price driven). Chesapeake Energy dominates Oklahoma explorationists. Has not responded as is typical to current price spike.

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Average Rotary Rig Count 1990 - 2001 Source: Hughes Christensen Note: Onshore Louisiana & Texas Source: Hughes Christensen Note: Onshore Louisiana & Texas

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Drill & Complete Cost vs Depth Source: Basin Engineering

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How Much is Left? Estimating Oil & Gas reserves is tricky (at what price?) Oklahoma Geological Survey has said we have produced 14 billion barrels and at least 43 billion barrels remain. OGS has said we have produced 90 tcf and at least 250 tcf remain.

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Composition of Oklahoma E&P Sector “Independent producers” – Companies, large or small, that primarily operate as exploration/production companies. One profit center, the well head. Generally, own little or no pipelines, gathering systems, refining or marketing (retail). “Integrated companies or majors” – Companies with multiple business centers within the energy industry. Global explorationists and producers, who are also involved in transportation or raw and refined products, distribution to customers. Oklahoma is the most independent-producer dominated state among significant energy producing states. About 90% of oil production and 80% of natural gas production is owned by independent producers.

Oklahoma E&P Pros & Cons: 

Oklahoma E&P Pros & Cons Advantages Regulatory climate Tax climate (bad, but better than others!) Pipeline infrastructure in place Disadvantages Mature producing region Deep drilling (gas), tertiary recovery (oil) Costly making Oklahoma very price sensitive

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Key Issues Consolidation & Migration to Houston Exit of Integrated Companies Volatility of Oil, Natural Gas Prices Availability of New Technologies (at a price) Tax Threat Litigation Threat Governmental Regulatory Threat

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Energy Industry Jobs Oklahoma total employment 1,532,600 Exploration and Production 38,000 Refining 3,000 Marketing and Transportation 12,000 Utilities 7,000 Pipelines, Construction, Misc. 5,000 Energy Total 65,000 (4.3%)