John Auers of Turner, Mason & Company presented on the impacts of increasing North American crude oil production on US and PADD IV refiners. Production is forecasted to significantly increase in the US and Canada through 2020. This will change the crude slate available, providing more light sweet crude from areas like the Bakken and heavier sour crude from Canada. This is expected to displace some imported crude and cause regional crude price imbalances. PADD IV in particular will see a growing crude surplus that refiners must find markets for through pipelines, rail, or exports. PADD IV refiners should continue to experience strong margins due to lower local crude costs and demand growth above the US average.

1. The North American Crude Boom:
Impacts on US and PADD IV Refiners
John R. Auers
Turner, Mason & Company
Platts’ 7th Annual Rockies Oil & Gas Conference
April 15, 2013
Denver, CO
Presented by

2.  International consulting practice since 1971
 Downstream focus; refinery/chemical engineers
 Industry and financial clients
 Publish various outlook and forecast products
 Crude and Refined Products Outlook
 Refinery Construction Outlook
 World Crude Oil Outlook
 The Great NGL Surge! (with BENTEK Energy)
 Special Studies
2
Turner, Mason & Company

3.  Detailed regional production forecasts; focus on quality
 Determination of refinery demand and capability to run
different types of crude by facility/region
 Analysis of required logistics
 Evaluate challenges and opportunities for producers and
refiners and midstream operators
 Initial publication – June 2012
 Update issued in October 2012
 Next edition scheduled for release in June 2013
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4.  US Production Makes a U-Turn Towards Strong Growth
 Canadian Production Growth Accelerating
 New Production Is Causing Regional Imbalances
 Crude Quality is Different from Previous Forecasts
 Net Effects:
 Pricing Dislocations
 Incentives for Finding Midstream Options
 US Appetite for Imports Receding
 Regulatory Implications
 Yield/Processing/Operating/Investment Issues at Refineries
 Lower supply costs enable US refiners to become major product exporters
4
Driving Force for Crude Study

5. Presentation Agenda
• North American Production Forecast
• Changes in Crude Quality
• Impacts on Crude Supply Balance
• Focus on PADD IV
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6. Recent Developments
U.S. production up by about 2 MMBPD since 2008
•Reverses 20+ year trend of declines
•Comes despite slowdown in Gulf after Macondo
Canadian crude on upward trend for 3 decades
•Up by almost 1 million BPD in the last decade
•Largest reserve base in the world/unconventional resources
•Almost all reserves located in Western Canada
Driven by high prices and technology advances
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7. Production Forecasts
US forecasts differ widely
•All credible forecasts show continued strong growth
•Most expect 2020 production to be 9 to 11+ MMBPD
•Growth levels beyond 2020 even more uncertain
Canadian production forecasts less variable
•Resource base is better understood
•Dependent on price/ability to remove logistical limits
•Expect about 5 MMBPD by 2020 (>50% vs. 2012)
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8. Production Forecasts (cont.)
Where/What Type?
• U.S. growth mostly in PADDs 2 and 3
• Declines in Alaska/California to continue
• Predominantly light sweet
• Canadian growth primarily in the West
• Vast majority heavy sour
Production dependent on key assumptions
• Crude prices – both absolute and regional
• Production potential of tight oil plays very uncertain
• Prospective fields (Utica, Tuscaloosa, SCOOP) even harder to forecast
• Various limitations (manpower, materials, regulatory, etc.) affect growth
• Ability to move crude to markets in timely and cost effective ways will be
particularly critical
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9. U.S. Crude Production Forecast
9
4
5
6
7
8
9
10
11
12
MillionBPD
Low High

10. U.S. Crude Production Change by PADD
2012 to 2020
10
-1000
-500
0
500
1000
1500
2000
2500
3000
3500
PADD I PADD II PADD III PADD IV PADD V
MBPD
Low High

11. U.S. Crude Production Change by Area
2012 to 2020
11
-1000
-500
0
500
1000
1500
2000
2500
3000
3500
Permian/Bakken/Eagle
Ford
Gulf of Mexico All Others California/Alaska
MBPD
Low High

12. 0
1
2
3
4
5
6
2012 2013 2014 2015 2016 2017 2018 2019 2020
MillionBPD
Western Eastern
Forecast
Canadian Crude Production Forecast
12
Actual

13. Presentation Agenda
• Crude Production Forecast
• Changes in Crude Quality
• Impacts on Crude Supply Balance
• Focus on PADD IV
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14. Gravity
°API
Sulfur
Wt.%
Condensate ≥ 55.0 All
Super Light ≥ 42.0 All
Light Sweet 31.0 – 42.0 ≤ 0.99
Light Sour 31.0 – 42.0 ≥1.00
Medium 24.0 – 31.0 All
Heavy ≤ 24.0 All
TM&C Crude Quality Categories
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15. Change in Crude Production by Grade
2012 to 2020
15
-500
0
500
1000
1500
2000
2500
3000
3500
4000
4500
Condensate/ Light
Sweet
Light Sour Medium Heavy
MBPD
US Low US High Canada

16. 0.2
0.4
0.6
0.8
1.0
1.2
1.4
31
32
33
34
35
36
37
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Sulfur,wt.%
APIGravity
API Gravity Sulfur, wt. %
Future Quality of U.S. Crude Oil Production
16
Low Cases

17. 17
30
30.5
31
31.5
32
32.5
33
APIGravity
API Gravity
High Crude
Forecast
Low Crude
Forecast

18. Shale Crude vs Displaced Light Imports
18
Property Bakken Eagle
Ford
Soyo
Bonny
Light
API Gravity 41 45 39 34
Sulfur, wt% 0.20 0.60 0.14 0.24
Distillation Yield, volume %
Lt. Ends, C1-C4 3.5 3.8 2.1 1.3
Naphtha 35.7 40.1 23.5 20.3
Middle Distillates 30.9 29.7 34.5 45.5
Gas Oil 24.8 21.2 31.1 27.4
Vacuum Residue 5.2 5.2 8.7 5.4

19. Heavy Canadian Crude Quality Shift
19
Property Current 2020 Change
API Gravity 20.3 20.3 - -
Sulfur, wt% 3.4 3.4 - -
TAN, mg KOH/gm 1.15 1.50 0.35
Distillation Yield, volume %
Lt. Ends, C1-C4
2.7 4.9 2.2
Naphtha 14.0 15.0 1.0
Middle Distillates 21.7 17.8 -3.9
Gas Oil 33.8 31.2 -2.6
Vacuum Residue 27.8 31.1 3.3

20. • Crude Production Forecast
• Changes in Crude Quality
• Impacts on Crude Supply Balance
• Focus on PADD IV
Presentation Agenda
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21. Waterborne Imports into PADD I Replaced by Bakken
 Refineries particularly well suited for Bakken quality; FCC resid capability
 Unit rail unloading capacity expanding quickly – 700 MBPD by end of 2013
 Rail likely remains primary transportation option thru the end of the decade
 Rail will allow even heavier WB imports to be replaced
 PADD II to Rely on In-PADD and Heavy Canadian Crude
 Non-Canadian imports already displaced
 PADD III and Canadian non-heavy to decline rapidly
 Growing production/coking additions limit ability to absorb more light sweet
 PADD III Will Reach Limit in Ability to Absorb Light Crude
 Strong in-PADD growth from Eagle Ford/Permian
 Bakken deliveries to substantially decrease over the next two years
 Will incentivize ways to move PADD III crude to other markets
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22.  Significant Heavy Crude Imports into PADD III Will Remain
 Estimate floor of 1.0 to 1.5 MMBPD for Latin American imports
 PDVSA and PEMEX control about 600 MBPD of heavy crude capacity
 Additional heavy capacity is contractually “locked-in”
 Overall Latin American heavy production will grow/natural home is USGC
 Small amounts of other WB imports remain – Motiva and for lubes/other quality reasons
 PADD V Challenges
 LCFS could limit/prevent heavy Canadian imports
 Requires new mid-stream projects to access PADD II/III/IV crude
 California refineries built for heavy crude; will continue to import some heavier grades
 Pacific Northwest is first to absorb PADD II crude; better fit for refineries and also
supported by rapid build-out of rail unloading facilities
 Exports
 Not forbidden/requires export license in most cases
 Politically controversial
 Potential destinations – first Canada and then Asia
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23. U. S. Waterborne Imports
Recent History
23
31%
11%
58%
2005
8493 MBPD
PADD III Heavy
PADD V
Other
34%
17%
49%
2012
6086 MBPD

24. U. S. Waterborne Imports
Forecast
24
68%
22%
10%
2020 Low
2500 MBPD
PADD III Heavy
PADD V
Other
81%
13%
6%
2020 High
1600 MBPD

25. Presentation Agenda
• Crude Production Forecast
• Changes in Crude Quality
• Impacts on Crude Supply Balance
• Focus on PADD IV
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26. Total PADD IV
No. Refineries 14
Total Capacity 625 MBPD
PADD IV Refineries
26
Billings
Salt Lake
City

27. Region
Average
Crude
Capacity
MBPD
Cat
Cracking
Capacity
Hydro-
cracking
Capacity
Coking
Capacity
Total
Upgrading
Capacity
PADD IV 45 32% 5% 14% 51%
US 134 34% 10% 15% 59%
PADD I 133 48% 2% 8% 58%
PADD II 159 33% 8% 12% 53%
PADD III 169 34% 10% 16% 61%
PADD V 155 32% 21% 21% 74%
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27

28. 28
In-PADD
Production
56%
Canadian
Heavy
29%
Other
Canadian
15%
Supply Source
Light Sweet
49%
Lt. Sour and
Medium
18%
Heavy
34%
Quality Mix
PADD IV Crude Slate - 2012
Average API Gravity 33.8
US Average 31.1

29. PADD IV Product Balance
26
Denver/Colorado
Springs
TX Panhandle
Refineries
Las Vegas, NV
Spokane, WA
Salt Lake
City
North Dakota
South Dakota/
Nebraska

30. Gasoline Diesel Jet/Kero Total
Demand 308 190 51 549
Refinery Prod.
(incl. ethanol) 309 193 26 528
From PADD II/III 30 3 25 58
To PADD V (31) (6) 0 (37)
Total Supply 308 190 51 549
30
29

31. Actual
2012 2013
Forecast
2015 2020
Growth
2012 to
2020
Gasoline 308 311 316 319 11
Diesel 190 195 202 216 26
JetA/Kero 51 52 53 56 5
Total 549 558 571 591 42
% Annual
Growth
1.6 1.2 0.7 0.9
US %
Annual
Growth
0.5 0.1 -0.2 0.0
31
30

32. PADD IV Crude Production Forecast
32
200
300
400
500
600
700
800
900
1000
MillionBPD
Low High
PADD IV Crude Runs

33. PADD IV Crude Movements to Other
PADDs
33
0
100
200
300
400
500
600
2012 2013 2014 2015 2016 2017 2018 2019 2020
MBPD
Low High

34. 34
-2.00
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
20.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
DollarsperBarrel
LLS - WTI WTI -Wy. Sweet
Regional Light Crude Differentials

35.  Surplus of Crude in PADD IV will Continue to Grow
 Only PADD with production greater than in-PADD demand
 Wide range for potential surplus due to unknown production prospects
 Quality of new crude will be light; question is how light?
 Finding Markets for New Crude/Ways to Access Markets Critical
 Several P/L projects are being developed
 Rail projects are also moving ahead; well behind developments in Bakken
 A major challenge: PADD II and III are already saturated with light crude
 PADD V could be potential destination; challenge is logistics
 One advantage in marketing to California refiners is the low CI assigned to Niobrara
 PADD IV Refiners Should Continue to Experience Superior Margins
 Lower crude costs than in other regions
 Product demand growth above U.S. averages
 Incentivize some small projects – focus on running local crude/produce distillates
 Expansion of capacity/crude runs limited by regional demand
 More exposed to domestic economic conditions because of inability to export products
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36. 36

37. John R. Auers – Senior Vice President
Turner, Mason & Company
jauers@turnermason.com
Telephone: 214-754-0898
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