Keynote speaker: Joseph Triepke, Managing Director, Oilpro

1. NAVIGATING TURBULENT WATERS – AN
ASSESSMENT & OUTLOOK FOR THE O&G
INDUSTRY
Joseph Triepke Managing Director, Oilpro
KEYNOTE
STRATEGIES & OPPORTUNITIES: MANAGING
IN A TURBULENT OIL & GAS WORLD

2. An Assessment & Outlook For The O&G Industry
Presented by Oilpro.com for WorkforceNEXT - April 2015
Navigating Turbulent Waters

3. A Look In The Rearview Mirror & Crystal Ball
• A small leak sinks a great ship – oil markets imbalanced by 1-2%, prices down 60%
• Sea changes can happen overnight –O&G cyclical inflection is always sharp
• Our lifestyle drafted up & adjusting to the new reality is painful
• US drilling is in midst of the worst downturn ever – US is the new swing producer
• Workforce contracting as we count >100,000 lay-offs with more to come
• $70 oil is the new $100 oil (just as $40- oil is unsustainable, so too is $100+ oil)
• A supply-driven collapse requires a supply-side solution, which means a lag to endure
• An elongated U-shaped recovery seems more likely than a V-shaped recovery

4. At The Center Of The Storm,
Commodity Prices

5. Paycuts That Come After Lifestyles Have
Drafted Up Are The Toughest To Swallow
Source: Bloomberg, Oilpro
$0
$20
$40
$60
$80
$100
$120
$140
$160
Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14
Oil Prices
WTI Spot Price
10-yr Avg
5-yr Avg
$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14
Natural Gas Prices
Nat Gas Spot Price
10-yr Avg
5-yr Avg

6. Oil Plain & Simple: A Supply Driven Collapse
87
88
89
90
91
92
93
94
95
$0
$20
$40
$60
$80
$100
$120
$140
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
GlobalProduction(mmb/d)
OilPrice
Supply Driven Price Crash...
Brent Crude Price
Global Oil Production
60
65
70
75
80
85
0
1
2
3
4
5
6
7
8
9
2000 2002 2004 2006 2008 2010 2012 2014
RestofWorldProduction(mmb/d)
USProduction(mmb/d)
...As US Unconventional Oil Surged
US Oil Production
Rest Of World Production
Source: Bloomberg, BP Statistical Survey, Oilpro

7. Oversupply Crashes Are As Old As Time Itself
• After the Civil War, oil fell from $120 in 1864 to $40
in 1867 (in 2013 dollars)
• During the 1870s, oil prices fell more than 50% twice
in the same decade as speculators overproduced
• In the 1980s, oil prices fell from $32 to $10 as Saudi
adjusted pricing and oversupply fears raged
$5
$10
$15
$20
$25
$30
F-97 J-97 D-97 M-98 O-98 M-99 A-99 J-00
$/barrel
Brent Oil Price
Iconic “it’s hopeless” article
published at the bottom.
Source: The Economist, Bloomberg, Oilpro

8. Beware Of Pundits Bearing Oil Price
Forecasts – Targets Are Based On Hindsight
$0
$20
$40
$60
$80
$100
$120
Jan-13 Jul-13 Jan-14 Jul-14 Jan-15
Tracking CitiGroup's 2015 Oil Price Forecast
WTI Spot Price CitiGroup 2015 WTI Forecast Bottom Prediction
Source: Bloomberg, Oilpro

9. The Most Important Chart In O&G
0
400
800
1,200
1,600
2,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
Oct-06
Oct-07
Oct-08
Oct-09
Oct-10
Oct-11
Oct-12
Oct-13
Oct-14
US Oil Production
Oil Rig Count
1,000s Bpd Rig Count
US Oil Production Vs. Rig Count
Source: Baker Hughes, EIA, Oilpro

10. Natural Gas Analogy Predicted Oil Price Fall
But Doesn’t Predict What Happens Next
0
400
800
1,200
1,600
2,000
50
55
60
65
70
75
80
Oct-06
Oct-07
Oct-08
Oct-09
Oct-10
Oct-11
Oct-12
Oct-13
Oct-14
Nat Gas Daily Production (Lower-48)
Nat Gas Rig Count
Bcfpd Rig Count
US Natural Gas Production Vs. Rig Count
Source: Baker Hughes, EIA, Oilpro

11. 260
310
360
410
460
Sep-87
Sep-89
Sep-91
Sep-93
Sep-95
Sep-97
Sep-99
Sep-01
Sep-03
Sep-05
Sep-07
Sep-09
Sep-11
Sep-13
MillionBarrelsofOil
US Crude Oil Stocks
5-Yr Range 5-Yr Range US Oil Inventory
It Gets Worse Before It Gets Better…
Source: EIA, Oilpro

12. …But The Best Cure For Low Oil Prices Is
Low Oil Prices
Source: Schlumberger, BP statistical review, Oilpro estimates
$0
$30
$60
$90
$120
$0
$200
$400
$600
$800
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E
OilPrice
E&PSpend($Bn)
Global E&P Spending Vs Oil Price
E&P Investment (Total Capex)
Oil Price (Brent)

13. $40- Oil Not Sustainable Long-Term…
Source: Schlumberger, BP statistical review, Oilpro estimates
0
30
60
90
120
$0
$200
$400
$600
$800
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E
OilSupply/Demand(mmbpd)
E&PSpend($Bn)
Global E&P Spending Vs Oil Volume
E&P Investment (Total Capex)
Oil Production Capacity
Oil Demand
Spending has risen 5x in 12 yrs to
keep supply ~ in-line w/ demand.
This spending trajectory
requires oil well above $40.

14. …But $100+ Oil Doesn’t Seem Likely Either
Source: Schlumberger, BP statistical review, Bloomberg, Baker Hughes, Oilpro

15. OPEC Rocked The Boat

16. The OPEC “Put” Is Dead - OPEC Is A Price
Taker Now
Source: Bloomberg, Oilpro
$0
$20
$40
$60
$80
$100
$120
$140
$160
20
22
24
26
28
30
32
34
Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15
OPEC Production vs. Brent Price
OPEC Production (MM b/d) Brent Price
OPEC Regime Change: Protect
Market Share Over Price

17. 3 Big Reasons Why Saudi’s Oil Market
Intentions Matter So Much
0
10
20
30
40
50
60
Saudi Arabia US
Unconventional
$CostperBarrelOilProduced
Cost Advantage
0
2
4
6
8
10
12
14
Production Capacity
MMB/D
Plentiful Capacity
$0
$100
$200
$300
$400
$500
$600
$700
$800
2005 2015
USDBillions
Cash Cushion
Source: Bloomberg, Oilpro estimates

18. Destabilization Spiral For Volatile Nations Is
An Unpredictable Wildcard
Source: CNBC
$0 $20 $40 $60 $80 $100 $120 $140 $160
Libya
Venezuela
Iran
Bahrain
Nigeria
Oman
Russia
Saudi Arabia
UAE
Qatar
Kuwait
Kazakhstan
Oil Price Required To Balance Country Budgets

19. An Oil Tsunami
Has Blitzed
The Industry
Marketplace

20. The Sharpest US Drilling Collapse… Ever.
Source: Baker Hughes, Oilpro
0
20
40
60
80
100
120
1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86
RigCountIndexedTo100AtPeak
Weeks Of The Downturn (From Peak To Trough)
US Land Drilling Downcycles
1982 (December)
1985 (December)
1997 (September)
2001 (July)
2008 (September)
2015 (December)
19
weeks
(-46%)
in '15
30
weeks
in '08
40
weeks
in '82
72
weeks
in '97
61
weeks
in '85

21. Drilling, 13,400
Equipment,
24,400
Oil Service,
39,100
E&P, 24,100
101k Global O&G Workforce Reductions
(Shown By Segment)
>100,000 Upstream Sector Lay-offs & Counting
Aggregate total for 85 companies shown
Source: Forbes, company filings & Oilpro estimates
• A workforce designed for
$100 oil is not the same one
needed at $50 oil
• Our bottoms-up, company-
by-company analysis tracks
101,000 lay-offs
• Our sample of 85 companies
is comprehensive but leaves
out thousands of smaller
O&G companies
• Workforce readiness
questions may start to arise

22. First Pass: NAM E&P Capex Slashed 33%...
Aggregate total for 50 NAM Independent E&Ps shown
Source: Company Filings, Bloomberg, Oilpro
$0
$20
$40
$60
$80
$100
$120
$140
$160
2007
2008
2009
2010
2011
2012
2013
2014
2015E
AnnualSpending($Billions)
Independent E&P Capex
-39%
+9%
-33%

23. …But Rig Count Implies A Cut Closer To 50%
Data Input Sources: Spears, Halliburton, Baker Hughes, Oilpro estimates
• 1 working land rig = $75 million per year in Drilling & Completion (D&C) spending
• 2014 average rig count 1,800 * $75 million = $140 billion D&C market size
• Our best guess: the US will average about 1,100 land rigs working this year
• 2015 average rig count 1,100 * $75 million = $83 billion D&C market size
• Add in deferred completions and the US drilling & completion market could by
shrink upwards of $65 billion in 2015, close to a 50% spending reduction
• Expect more capex reduction announcements, and more competition for D&C work

24. Watch High-Cost Non-OPEC Projects
Globally For Delays & Cancellations
• We have already seen a huge impact in the US shale plays
• Other non-OPEC projects high on the cost/barrel curve will be delayed and or
cancelled this year
• High risk areas include:
– GTL projects
– Eastern Siberia’s untapped resources & marginal Russian fields
– Oil sands & heavy oil projects
– Arctic drilling
– International shale
– Ultra-deepwater and deepwater globally, particularly areas like Mexico (new with heavy
exploration risk), Brazil (cost disadvantage b/c of local content), and some parts of West Africa (ie
pre-salt Angola)
– LNG – collateral damage as a 50% drop in crude suggests a Far East LNG price of $8/MMBTU vs.
$9/MMBTU production / transport cost from the US to Japan

25. The Storm Is Reshaping The O&G
Workforce – 7 Key Trends

26. 1. Worst Case Scenario: A 1980s Re-run
0
50
100
150
200
250
300
350
400
450
500
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
ThousandsofEmployees
Over 1/2 Of US O&G Jobs Were Lost In The 1980s Downturn
A 50% decline
in workforce over
5 years….
…was followed by a decade
of stagnation
Source: Bureau of Labor Statistics, OGJ, Oilpro estimates

27. 2. Workforce Reductions Will Be Ongoing;
Future Workforce Readiness A Concern
• Companies are managing quarter-to-quarter due to lack of visibility
• Companies have cut spending for a $65-$75 oil price world
• 2-year strip suggests a $60-$65 reality and may be optimistic
• Absent a V-shaped rebound, operational scale will continue to ratchet
down – field cuts first, SG&A (mgmt. and execs.) cuts coming next
• FMC Tech told investors a week ago that their layoffs were deepening
• Basic Energy Services is an example of ongoing workforce reductions:
– January: 7% laid off
– February: 10% laid off
– March: 14% laid off
– April, May, June: ????

28. 3. International Workforce Likely To Hold
Up Better Than The US
0
20
40
60
80
100
120
140
160
180
Mar-05 Mar-07 Mar-09 Mar-11 Mar-13 Mar-15
RigCount(Indexedto100inMarch2005)
International Cycles Are More Muted Than In The US
US Land Rig Count
International Rig Count
Trend Line
Source: Baker Hughes, Oilpro
The US overshoots cyclical highs and
lows more than the int’l average,
resulting in more pronounced US
workforce expansions and
contractions.

29. 4. When The Tide Goes Out, You Learn
Who Has Been Swimming Naked
-$8Bn
-$6Bn
-$4Bn
-$2Bn
$Bn
$2Bn
$4Bn
0 1 2 3 4 5 6 7
2014FreeCashFlow(CFO-Capex)
Years To Pay Off Debt (All 2015 EBITDA Paid To Creditors)
Financial Health Of NAM Independent E&Ps Less Than Ideal For A Downturn
Bubble size represents total O&G production (MBOE/D)
Blue datapoint is the average company profile
Saving Money
Burning Cash
Summary Statistics:
- 60 companies in sample, only 5 were FCF positive
- Together, the 60 names produce 11.5 MBOE/D
- In total, they outspent 2014 cash flow by $50 bn
- On average, their net debt to 2015 EBITDA is 2.6x
SAFE ZONE
DANGER ZONE
Source: Bloomberg, Oilpro

30. 5. Growing “Fracklog” Means Sharper
Slowdown In Completion-Related Positions
• EOG: “We'll exit 2015 with 285 uncompleted
wells in some of the best parts of our
properties.”
• Anadarko: “In the Eagle Ford, we’ll drill 100
wells for inventory that we can frac when
prices change.”
• Apache: “We are delaying the completion of
some wells in backlog until costs reset.”
• Chesapeake: “We will build inventory of
uncompleted wells in the Eagle Ford.”
• Core Labs: “Fewer stages are being
completed at this point.”
Ancillary
Drilling, 25%
Drilling Rig,
10%
Stimulation,
50%
Ancillary
Completion,
15%
Typical Horizontal Well Cost Breakdown
Shows Why DUCs Increase In Downturns
Source: Oilpro estimates

31. 6. Turning Rigs To Razor Blades Means
Shuffling The Offshore Drilling Workforce
• Transocean has announced the scrapping
of 16 older rigs
• Diamond Offshore has announced it will
scrap 6 midwater semis
• Noble Corp is scrapping 3 deepwater
semis
• ENSCO: “40 30-year-old floaters see
contracts expire this year – they are
scrap candidates, and industry scrapping
trend will continue into next year.”
0
50
100
150
200
250
1960s 1970s 1980s 1990s 2000s 2010s
NewbuildsDelivered
Offshore Rig Fleet Age Profile
Floaters
Jackups
Scrap Candidates
Source: Wall Street research, company filings, Oilpro estimates

32. 7. M&A Activity Will Pick Up
• Plenty of good opportunities in the scorched earth of US shale
• Look for frequent smaller deals and a few large ones
• Bottom tier E&Ps will struggle in new environment, to become take-out candidates
• Majors, NOCs, Private Equity will all be looking at the US independent E&Ps
• HAL / BHI encourages more consolidation in oilfield services

33. Steady As She Goes –
The Storm Before The Calm

34. The “Bathtub” Recovery?
Source: Baker Hughes, Oilpro
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
1980 1985 1990 1995 2000 2005 2010 2015
USLandRigCount
Recovery Phase Shape Precedents & "Bathtub" Hypothetical
Historical US Drilling Activity
Bathtub Recovery Scenario Illustration
1985
L-shaped
2008
V-shaped
2001
U-shaped
2015
Bathtub???

35. $50 Oil Solves Some Operational Challenges
• War on talent fading
• Its an employer’s market
now
• Labor cost inflation gone
• Less temporary housing
• Lead times for key
equipment and
consumables falling
• Risk of overbuilding fading
• New entrants slowing
Busts Are Tough,
But Booms Aren’t Easy Either

36. The “We’ve Always Done It This Way” Pitfall
• $100 oil status quo doesn’t cut it at $50 oil
• The industry is known for its habits
• Surviving and succeeding now require
questioning everything
• Industry must undergo a structural re-
tooling to drive cost/barrel down
• New ways of doing things and new
technologies must be considered

37. Niches That Can Thrive In A $50 Oil World
• Technology, integration & collaborative workflows that
reduce the cost of a barrel will gain traction
• New teams forming across non-traditional groupings
• Mature fields have a low-cost-barrel advantage
• Midstream & US oil storage capacity build out growing
• Production-related services to stay busy (EOR, well
maintenance / servicing, re-fracturing old wells)

38. Final Thoughts
• Operating costs are the problem today, but workforce readiness will be the problem
tomorrow
• $70 oil is the new $100 oil – just as $40- oil is unsustainable, so too is $100+ oil given
the “flip the switch” factor on US oil production at $100 oil
• Elongated U-shaped recovery more likely than a V-shaped rebound
• Industry is recalibrating & will continue to re-tool for several years
• Layoffs & capex cuts come first, but new workflows, technologies, & teams are needed
• Opportunities exist for creative companies – lowering the cost per barrel is critical, it is
an employer’s market now, revisiting mature fields is a big opportunity
• Recovery roadmap: Watch O&G equities, US oil production & storage data, 1Q EPS
conference calls in April, and the June OPEC meeting results

39. Questions / Contact Info
• Questions about these trends and other O&G
issues can be posed to an engaged community of
industry professionals at Oilpro.com/questions
• You can connect with and contact Joseph Triepke
at Oilpro.com or by email at jtriepke@oilpro.com

40. About Author: Joseph Triepke
Managing Director, Oilpro.com
Joseph Triepke is a finance professional with a decade
of upstream experience.
As an energy investor and analyst for institutions like
Citadel, Guggenheim, and Jefferies, he focused on
O&G industry research and analysis.
Today, he is Managing Director at Oilpro.com where he
oversees content created by the community and
publishes his own research on oil services, equipment
and drilling.
Joseph earned a Bachelor’s of Business Administration
in Finance from UT Austin with Honors in 2004, has
successfully completed 2/3 CFA examinations, and
currently resides with his wife in Dallas, TX.

41. Appendix

42. Recovery Roadmap – 7 Near-term
Indicators To Monitor
1. US production & oil inventory data – Wednesdays from EIA
2. Permian, Bakken, Eagle Ford oil production trends – monthly from EIA
3. 2Q14 EPS season – mid-April company conference calls are key
4. June OPEC meeting
5. M&A picking up this summer
6. Recapitalization: borrowing base revisions, new debt & equity issuance
7. O&G equities – the stocks are great indicators & reflect conditions 6 months ahead

43. 7 Unanswered Questions To Contemplate
1. With lay-offs ongoing, will the workforce be capable of offsetting production declines?
2. Is the oil price collapse enough to shut-in production at the highest cost fields?
3. What shape will the US oil production response ultimately take?
4. How long will it take for non-OPEC production to fall enough to neutralize the
supply/demand imbalance?
5. Will new realities eventually change the independent E&Ps’ access to capital?
6. How will governments respond (ie new policies to attract investment, time to rethink tax
and incentive structures)?
7. What role will OPEC ultimately assume if the price protection regime is dead?

44. Opportunities In Conventional Resource Plays
Source: Oilpro research, Schlumberger
Number Average Year Percent Of
Nation Of Fields Of Discovery Nation's Output
Saudi Arabia 7 1955 85%
Iraq 3 1951 66%
Iran 5 1949 75%
U.A.E. 5 1963 85%
Venezula 6 1934 >80%
Kuwait 2 1950 75%
Qatar 3 1956 80%
Libya 3 1963 70%
Average 1953 77%
OPEC Reliance On Aging Fields
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
0
2
4
6
8
10
12
14
Saudi Russia US
NumberofWellsDrilled
Production(MMbpd)
2014 Liquids-Related Activity
Wells Drilled (# wells & sidetracks) Production

45. 30 OPEC Fields 60 Years Old On Average
Deliver 2/3rds OPEC Production
Source: Oilpro research
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
0%
10%
20%
30%
40%
50%
60%
70%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
1917
1927
1928
1938
1938
1940
1941
1948
1950
1951
1953
1955
1957
1957
1957
1958
1960
1960
1960
1961
1962
1962
1963
1964
1965
1966
1968
1970
1973
1980
Cumulative%OPECProductionCapacity
DailyProduction(000sb/d)
Year Of Field Discovery
OPEC's Aging Elephants
Field Production Capacity
Cumulative % OPEC Production Capacity

46. Don’t Count On The Curve
Source: Bloomberg
$40
$45
$50
$55
$60
$65
Apr-15 Sep-15 Feb-16 Jul-16 Dec-16 May-17 Oct-17
WTIOilPrice
Given Bearish WTI Vacuum, Forward Curve May Be Too Optimistic;
Management Teams Seem To Be Taking It At Face Value