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Canadian Shale Gas & LNG in a North American
Context
September 10, 2013
BMO Capital Markets
Canadian Unconventional Natural Gas Plays
North American Natural Gas Fundamentals
North American Demand and LNG Alternatives
Summary
1
BMO Financial Group and BMO Capital Markets
BMO Financial Group
Market Cap C$38 billionTotal Assets C$525 billionLTM Revenue C$16.3 billion Employees 46,000
Key Operating Data
Organization
Canada's first bank: established in 1817 Offers broad range of retail banking, wealth
management and investment banking services One of the largest diversified financial services
providers in North America
Tier 1 Capital Ratio 12.62%
BMO Capital Markets’ Capabilities
BMO Capital Markets –Global Investment Banking Operations
ADVISORY SERVICES Acquisitions & Divestitures Mergers & Acquisitions Strategic Advisory Fairness Opinions Takeover Defense Share Buybacks Valuation Analysis
TREASURY SERVICES Cash Management Risk Management Asset Management Foreign Exchange Trade Finance
DISTRIBUTION & TRADING Institutional Sales Trading Equity Research Fixed Income Research Investor Marketing Investor Conferences Account Sponsorship Retail Distribution
CORPORATE FINANCE Initial Public Offerings Follow-on Offerings Convertible Securities Mezzanine Lending High-Yield Debt Investment-Grade Debt Corporate Lending Securitization Private Placements
AUSTRALIAMELBOURNE
EUROPEDUBLIN | LONDON | LUGANO | MUNICH | ZURICH | PARIS
NORTH AMERICAATLANTA | BOSTON | CALGARY | CHICAGO | DALLAS | DENVER | HOUSTON |
LOS ANGELES | MEXICO CITY | MONTREALNEW YORK | SAN FRANCISCO | TORONTO | VANCOUVER
SOUTH AMERICARIO DE JANEIRO
Note: BMO financials – as of October 31, 2012
ASIAABU DHABI | BEIJING | DELHI | GUANGZHOU | HONG KONG | SHANGHAI | TAIPEI
2
Investment & Corporate Banking Financial Solutions
MERGERS & ACQUISITIONS
Provider of premier M&A services to public and private clients of varying sizes
Over 50 professionals globally
Advised on $29 bn worth of E&P transactions in 2012 (ranked #1 in domestic E&P league tables)
LOAN FINANCING
Arranger, underwriter and provider of syndicated loan financing for M&A, leveraged finance, bridge facilities, project finance and general corporate purposes
125 professionals globally
Complete suite of advisory and corporate banking solutions
EQUITY CAPITAL MARKETS
Equity underwriter for public and private companies through IPOs, follow-on common share and trust offerings, preferred shares, private placements and convertible debentures
Over 19 professionals globally
Ranked #1 in domestic equity E&P league tables via 10 book-run transactions in 2012
`
ACQUISITIONS & DIVESTITURES
Provider of premier in-depth A&D services in Canada and the United States
13 professionals in Canada and 19 in the United States
3
BMO Global Energy Group
145+ Energy professionals with global reach
GUANGZHOU
HONG KONGDELHI
SHANGHAI
TAIPEI
BEIJING
MELBOURNE
RIO DE JANEIRO
DUBLINLONDON
ZURICHVANCOUVER TORONTO
SAN FRANCISCO NEW YORK
MONTREAL
MEXICO CITY
LOS ANGELES
CALGARY
CHICAGODENVER
HOUSTONMILWAUKEE
BOSTON
ATLANTA
PARIS
Key
BMO Energy Offices
Other BMO Offices
North America Based International Reach
HoustonCorporate FinanceA&DLendingResearchM&ACommodities/Derivatives
17161261
10
CalgaryCorporate FinanceA&DLendingResearchCommodity Traders
161312103
TorontoEnergy ECMEnergy SalesEnergy M&A
334
New YorkLendingEnergy SalesCommodity Traders
813
LondonCorporate FinanceLendingCommodity Traders
1612
Hong KongCorporate Finance 1
MelbourneCorporate Finance 4
Delhi Corporate Finance 4
AsiaIndia
AustraliaEurope
ABU DHABI
Abu DhabiLending 1
BeijingCorporate Finance 4
4
Last Twelve MonthsRank Name Transactions Size
(#) (C$ mm)
1 BMO Capital Markets 6 $26,8212 RBC Capital Markets 13 $21,5873 Citi 2 $18,4964 Goldman Sachs & Co 1 $17,9005 Bank of America Merrill Lynch 2 $6,1476 HSBC Bank 2 $2,5267 TD Securities 7 $1,8188 GMP Securities 10 $1,5289 Credit Suisse 3 $1,309
10 Evercore Partners 4 $1,201Other 49 $7,546
Advisor on Merger withWestFire Energy
October 2012
$424 million
Leading Energy M&A Franchise
BMO Capital Markets is the #1 advisor to the Canadian energy sector
August 2011
$1.1 billionAdvisor
on Montney Joint Venture with PETRONAS
November 2011
US$2.2 billionAdvisor on Acquisition of
OPTI Canada Inc.
$611 millionAdvisor on Acquisition of Wild Stream Exploration
Inc.
March 2012May 2012
$1.9 billionAdvisor on sale to
Pengrowth Energy
February 2013
US$17.9 billionAdvisor on Acquisition of
Nexen Inc.
Canadian Oil & Gas M&A
Source: Bloomberg (August 23, 2013): Canadian target or seller or acquirer; credit to acquirer or seller financial advisor only; announced and completed deals LTM; oil and gas E&P
Advisor on Amended Proposal to
Open Range
August 2012
$183 million
US$861 millionAdvisor on Acquisition of
Ute Energy
November 2012December 2012
$6.0 billionAdvisor on Sale to
PETRONAS
Pending
$510 millionAdvisor on Sale of SE SASK Asset to TORC Oil & Gas
5
6
Combination of technical and financial expertise to provide clients with a full service platform
Strong synergies created by combining traditional investment banking with technically-focused A&D group
Full platform of advisory and banking services offered within BMO Capital Markets
Technical expertise allows BMO to effectively sell assets/corporations and support Investment Banking
Extensive contact network of investment banking at C-suite levels supports technical expertise and business development contacts of the A&D group
M&A Platform Combines Financial and Technical Expertise
BMO Capital Markets
Canadian Unconventional Natural Gas Plays
North American Natural Gas Fundamentals
North American Demand and LNG Alternatives
Summary
7
Unconventional Natural Gas Plays
Source: Street Research
Muskwa
Duvernay Shale*
Horn River*
*Montney
CardiumDeep Basin
Glauconite
Colorado Group
Cody
MowryJonah
Hillard-Baxter-Mancos
MancosHermosa
San Juan
Lewis
Gamon
Niobrara
Piceance
PierreBend
Barnett-Woodford
Pearsall-Eagle FordPermian
Mississippi LimeGranite Wash
Anadarko
Barnett
WoodfordWoodford-Caney
Excello-Mulky
Haynesville
Tuscaloosa
Conasauga
Devonian
NewAlbanyUtica
MarcellusAntrim
Michigan Basin
Utica Shale Horton Bluff Fm
Collingwood/Utica
Unconventional/TightGas Resource Plays
North American Shale Basins Commentary
North America has a proliferation of unconventional / tight gas resource plays
3 plays are dominant in Canada
Montney
Horn River
Duvernay
8
Canadian Unconventional Natural Gas Plays
Source: Wood Mackenzie
West Coast Natural Gas PlaysYUKON NORTHWEST TERRITORIES
ALBERTA
BRITISH COLUMBIA
SASKATCHEWANMANITOBA
Liard Basin Horn
River
Montney
Duvernay
CordovaEmbayment
Western CanadaSedimentary Basin
Horn River: Resource Potential: ~100 tcfCurrent Production: ~0.6 bcf/d
Montney: Resource Potential: ~130 tcf Current Production: ~2.5 bcf/d
Duvernay: Evolving liquids-rich gas opportunities with promising early stage results
9
Initial Production EUR/Well Condensate NGL (Deep Cut) Capital RORmmcf/d bcf bbl/mmcf bbl/mmcf $mm %
Montney 3 - 10 3 - 8 0 - 60 7 - 70 4.5 - 8.5 20 - 100+Horn River 5 - 12 6 - 14 0 0 - 2 12 - 18 0 - 25Duvernay 2 - 6 3 - 7 3 - 300+ 80 - 120 10 - 15 50 - 100+2 - 5
1,000
623 563 400 381 355 340
225 199 195 172 156 145 141 125
-
200
400
600
800
1,000
1,200
(1)
1,2811,024 1,011
841694 688
303 266 264 256 201 195 195 190 180
0200400600800
1,0001,2001,400
531450
313 266 245203
156 148 139 141 138 116 113 84 72
0100200300400500600
Western Canada Unconventional Gas Plays – Top Land Holders
Top 15 Key Acreage Holders
Source: Public Disclosure, GeoSCOUT
Horn River (Dry Gas)
Montney (Moderately Liquids-rich)
Duvernay (Liquids-rich)
Net
Sec
tions
Net
Sec
tions
Net
Sec
tions
Producers participating in west coast LNG projects
Producers participating in west coast LNG projects
Producers participating in west coast LNG projects
10
Montney Gas Production – Alberta and British Columbia
Q2 Canadian Montney production proximal to west coast LNG – 2.4 Bcf/d
Montney Production Profile
Well Location Map
June 2013 production – 2.49 Bcf/d
June 2013 well count – 3,144
0
700
1,400
2,100
2,800
3,500
4,200
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2007 2008 2009 2010 2011 2012 2013
Wel
l Cou
nt
Nat
ural
Gas
Pro
duct
ion
(Bcf
/d)
Montney Production Montney Well Count
Montney production has grown rapidly over the last 5 years
Top 5 Producers#1 Encana - 612 mmcf/d#2 Shell – 287 mmcf/d#3 Arc – 267 mmcf/d#4 Murphy – 185 mmcf/d#5 Progress/Petronas – 147 mmcf/d
11
Top 5 Acreage Holders1,281
1,024 1,011841
694
0200400600800
1,0001,2001,400
Net
Acr
es
Horn River Gas Production – British Columbia
Q2 Canadian Horn River production proximal to west coast LNG – 0.6 Bcf/d
Horn River Production Profile
Well Location Map
0
75
150
225
300
0.0
0.2
0.4
0.6
0.8
2008 2009 2010 2011 2012 2013
Wel
l Cou
nt
Nat
ural
Gas
Pro
duct
ion
(Bcf
/d)
Horn River Production Horn River Well Count
May 2013 production – 0.60 Bcf/d
May 2013 well count - 205
Horn River production surpassed 0.5 bcf/d in 2013
Currently > 200 wells producing
Top 5 Producers#1 Encana - 205 mmcf/d#2 Nexen – 145 mmcf/d#3 Quicksilver – 82 mmcf/d#4 Apache – 42 mmcf/d#5 Penn West – 34 mmcf/d
12
Top 5 Acreage Holders531
450
313266 245
0
100
200
300
400
500
600
Net
Acr
es
Duvernay Gas Production - Alberta
Q2 Canadian Duvernay production proximal to west coast LNG – 18 MMcf/d
Duvernay Production Profile
Well Location Map
0
10
20
30
40
0.0
5.0
10.0
15.0
20.0
2011 2012 2013
Wel
l Cou
nt
Nat
ural
Gas
Pro
duct
ion
(MM
cf/d
)
Duvernay Production Duvernay Well Count
June 2013 production – 18.0 MMcf/d
June 2013 well count – 21
Early stage development for the Duvernay play
Current producing well count is low (~21 wells)
Many wells drilling or coming on production (~64 wells)
13
Top 5 Acreage Holders
1,000
623 563400 381
0
200
400
600
800
1,000
1,200
Net
Acr
es
0
2
4
6
8
10
12
0 12 24 36 48 60 72
Dai
ly G
as R
ate
(MM
cf/d
)
Month
Montney Horn River Duvernay
Multi-stage fracs in unconventional reservoirs create large initial production rates with large initial declines followed by flattening production profiles
Shale Gas – Production Profile by Play
14
Shale Gas Type Well
Type Curve ParametersIP EUR MD TVD Avg. Hz. Length # of Stages Interstage Spacing
(M M cf/d) (Bcf) (m) (m) (m) (m)
Montney 5.0 5.1 3,600 2,100 1,500 12 125
Horn River 10.3 13 4,650 2,550 2,000 16 125
Duvernay 4.4 3.7 5,000 3,400 1,625 13 125
BMO Capital Markets
North American Natural Gas Fundamentals
Canadian Unconventional Natural Gas Plays
North American Demand and LNG Alternatives
Summary
15
--
$4
$8
$12
$16
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Historical Spot Price
Forward Curve
BMO Equity Research
10 Year Average
$4.39 / mmbtu
$4.50 / mmbtu
$5.78 / mmbtu
$3.58 / mmbtu
NYM
EX
Nat
ural
Gas
Pric
e (U
S$/
mm
btu)
North American Natural Gas Market Fundamentals
Natural Gas Price Outlook
Source: FactSet and BMO Capital Markets Equity Research
As is now well known, the emergence of unconventional natural gas has significantly shifted down the supply cost curve and increased production
Given the size of resource opportunity and lack of current export capability, gas prices are expected to remain trapped in the $3-$5/mcf range for the next several years
Hurricane Katrina
Financial crisis
World oil prices spike
Shale gas production starts to increase rapidly
Very mild winter
16
0
10
20
30
40
50
60
70
80
90
100
1990 2000 2010 2020 2030 2040
bcf/d Shale gas
Coalbed methane
Tight gas
Associated with oilAlaska
36% Shale gas
Coalbed methane
Tight gas
Associated with oilAlaska
36%
Natural Gas Fundamentals
U.S. Dry Natural Gas Production by Source
Source: EIA
Shale gas production has increased substantially and currently represents ~36% of U.S. dry gas production
U.S. production has currently
plateaued
17
Natural Gas Fundamentals
U.S. Unconventional Production
Source: EIA
Total US shale gas production growth is flattening
Marcellus production is increasing while Haynesville production is declining
0
5
10
15
20
25
30
2000 2000 2001 2002 2002 2003 2004 2004 2005 2006 2006 2007 2008 2008 2009 2010 2010 2011 2012 2012 2013
(bcf
/d)
Rest of U.S. Bakken (ND) Eagle Ford (TX)
Marcellus (PA and WV) Haynesville (LA and TX) Woodford (OK)
Fayetteville (AR) Barnett (TX) Antrim (MI, IN, and OH)
18
40
45
50
55
60
65
70
75
300
500
700
900
1,100
1,300
1,500
1,700
2008 2009 2010 2011 2012 2013
Monthly Production (bcf/d)
Rig
Cou
nt
Nat Gas Rotary Rig Count Dry Gas Production
Natural Gas Fundamentals
U.S. Production and Rig Count
Source: Bloomberg, Baker Hughes, DOE
Flat US total production is in contrast to sharply falling rig counts
Higher efficiency of drilling rigs and completions (more production per rig)
Tie in of existing wells and optimization of infrastructure
19
0
2
4
6
8
10
12
14
16
18
20
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Pro
duct
ion
(bcf
/d)
Eastern Canada Coal Bed Methane Western Canada UnconventionalWestern Canada Conventional New Market Opportunity Case
2012 Average
13.7 bcf/d
2030E Average
16.3 bcf/d 1.0%CAGR
2012 - 2030
1.8%CAGR
2012 - 2030
(8.7%)CAGR
2012 - 2030
6.9%CAGR
2012 - 2030
(3.5%)CAGR
2012 - 2030
13%
Canadian Natural Gas Production Forecast
Source: CAPP June 2013
Canadian Natural Gas Production Forecast (2013 Projection)
Unconventional gas represents 13% of total current Canadian production
Production to increase with LNG export in place
20
2
3
4
5
6
7
8
9
10
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
(bcf
/d)
2013 2008
Approx. 4 bcf/d decline (55%) in net U.S. natural gas imports from Canada (June 2008 vs. June 2013)
Natural Gas Fundamentals
Net U.S. Natural Gas Imports from Canada
Canadian exports to the U.S. have decreased dramatically over the last 5 years (55%)
Cleary new export markets (LNG) are required for Canadian production
Source: EIA
21
Natural Gas Supply
North American Natural Gas Supply Costs ($/mcf)
Unconventional shale plays have proliferated throughout North America
At $4.0 / mcf, 13 shale gas plays could economically deliver (half cycle) ~800 tcf of recoverable gas at PV10
This translates to an 80 year supply at current shale gas rates or 30 years at current North American production rates
Montney is very competitive compared to other plays
Duvernay is expected to be very competitive due to high liquids content
Source: BMO Capital Markets Equity Research
Supp
ly C
osts
($/m
cf)
22
Canadian Unconventional Gas Opportunities
There are several opportunities to acquire to land / production in Canadian unconventional plays
Montney Canadian Natural Resources
Canbriam – Private Company
UGR – Private Company
Painted Poiny
Canadian Spirit
Birchcliff
Advantage
Horn River Devon
Quicksilver
Spoke Resources – Private Company
Ramshorn
Duvernay Talisman
Penn West
Athabasca
Longview
23
BMO Capital Markets
North American Natural Gas Fundamentals
North American Demand and LNG Alternatives
Canadian Unconventional Natural Gas Plays
Summary
24
13.0
8.7
18.920.7
11.48.0
19.5
24.9
13.2
8.7
20.022.1
12.8
8.7
20.3 21.6
0
5
10
15
20
25
30
Residential Commercial Industrial Electric Power
(bcf
/d)
2011 2012 2013 2014
Natural Gas Consumption
Increased consumption due to a structural shift toward generating more electricity from natural gas-fired power plants from coal fired power plants
Other factors include weather, relatively low natural gas prices, and higher Industrial consumption
2012 gas consumption for power generation was an unusual increase versus previous years
This was due to hot weather and fuel switching from coal to natural gas
2011 - 2014 Year Average Natural Gas Consumption
Increased natural gas consumption for power generation took off in 2012
Source: EIANote: 2013 data includes a projection from July – December
25
--
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
--
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
Jan/10 May/10 Sep/10 Jan/11 May/11 Sep/11 Jan/12 May/12 Sep/12 Jan/13 May/13
$/(m
mbt
u)
Weighted Average Coal
Henry Hub
Gas becomes economic for coal
to gas fuel switching Gas prices above
equivalency in April / May 2013
Coal to Gas Price Equivalency
Coal to gas fuel switching economics dominated H2 2011 and all of 2012
Current coal prices are ~8.9% lower than 2011
Current prices would indicate that coal and gas are close to equivalent from fuel cost perspective
Source: BMO Capital Markets Research
26
Spread
Rising and strong spread between North American and Asian market gas prices driving interest in North American LNG projects
Implied LNG and NYMEX Gas Price Comparison
North American vs. Asian (LNG) Gas Prices
Note: Implied LNG price calculated as Japanese Customs Cleared crude oil price (JCC) * 14.5%Source: Bloomberg
($10)
($5)
--
$5
$10
$15
$20
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013U
S$/M
Mbt
u
LNG Premium (NYMEX)
LNG Premium (AECO)
--
$5
$10
$15
$20
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
US$
/MM
btu
NYMEX Implied LNG AECO
Asian vs N.A. price premium ~$12 / mmbtu
Large gap between LNG and
N.A. gas prices
27
--
20
40
60
80
100
120
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
bcf/d
Existing Under Construction Proposed Demand
LNG Supply“Tightness” Expected to Develop
Market tightening ~ 2016 – 2018 as demand nears capacityRobust pipeline of liquefaction projects announced; not all will be built
3. The inability of some projects to maintain stable and reliable supply is likely to tighten the market in the near term and is a material concern in the long term
1
2
3
2. New supply is drifting out in time(a) Delays in Australian
projects(b) Development
challenges faced in other regions
1. Post-Fukushima Asian requirements and strong emerging markets are increasing demand and tightening the market
119 Bcf/d
67 Bcf/d
Source: PIRA, Wood MackenzieNote: Supply reflects liquefaction capacity available; does not account for projects that may decline due to depletion of upstream resource
Global LNG Supply and Demand – Major Drivers and Implications
Un-satisfied Demand
Sweet spot for LNG development
28
Canadian LNGGlobal Setting & Initial Opportunity Views
Illustrative Comparison (C$/mcf) (Canada vs. Asia)
Regional & North American LNG Transportation Distances
~15 Days ~8 Days
Canadian West Coast to East Asia ~9 - 10 Days
U.S. East/Gulf Coasts to East Asia
~24 Days
Asian Importers
Regional Exporters
North American
LNG
Highly unlikely that non LNG linked North American producers will materially benefit from the price arbitrage
Asian and Indian buyers saying they no longer want liquids-based (JCC) based pricing for LNG – tools to challenge linked pricing:
Canada and U.S. LNG projects
Japan to launch LNG futures trading on Tokyo Commodity Exchange in 2014
Establishment of an Asian natural gas trading hub
Source: PIRA
Domestic Market
Market Price (Spectra Station 2) (1) $2.69
Pipeline Cost to Station 2 (2) ($0.05)
Field Gathering & Processing (2) ($0.91)
Netback (Well Head) $1.73LNG - Asia
Market Price (LNG Asia Delivered Ex-Ship) (3) $15.17
Transport to Asia (B.C. Coast to Asia) (4) ($1.52)
Liquefaction Processing (5) ($4.00)
Pipeline Toll from Plant Gate to B.C. Coast (2) ($1.00)
Gathering & Processing (2) ($0.91)
Netback (Well Head) $7.74Illustrative Value Upside $6.01
1. Bloomberg July 2013 monthly average.2. BMO estimate.3. Japanese Customs Cleared (JCC) * 14.5%, Bloomberg June 2013 monthly average.4. Platts shipping calculator.5. Cheniere Energy Sabine Pass, plus premium reflecting higher Canadian costs.
29
North American Liquefaction Projects
• Douglas Channel LNG
• Kitimat LNG• LNG Canada
Oregon LNG
Jordan Cove
Lake Charles
Cameron LNG
Excelerate
Freeport LNG
Sabine Pass
Gulf Coast LNG
Cove Point
Corpus Christi
GreenfieldBrownfieldSedimentary BasinsGas PipelinesGas Pipelines (Proposed)Cdn projects shaded
LegendKenai LNG• Pac NW LNG• P Rupert LNG• WCC LNG• AltaGas /Idemitsu JV
Gulf LNG Liquefaction
Golden Pass
Main Pass
Goldboro
ST LNG Project
CE FLNG
LNG Direct Rail
Elba Island LNG
Woodfibre LNG
Discovery LNG
Magnolia LNG
``
46 bcf/d (345 mmtpa) of North American LNG projects annouced
Brownfield projects have time and cost advantage over greenfield projects
30
Project Location Ownership Start Year Capacity Cost Estimate (Liquefaction Only) Status / Notes
LNG (1) Outlet Gas Field Gas (2) Totalmmtpa bcf/d bcf/d C$B
West Coast - Larger Scale Projects
LNG Canada Kitimat (Cenovus Site)
Shell / KOGAS / Mitsubishi / CNPC 2019 24.0 3.2 3.8 $24.0 NEB approved; CEA underway
Pacific Northwest LNG Prince Rupert (Lelu Island)
PETRONAS / JAPEX 2018 19.7 2.6 3.1 $10.0 NEB application filed; FID (2014); CEA
underway; FEED study awarded
WCC LNG Kitimat / Prince Rupert Exxon / Imperial 2021 30.0 4.0 4.7 TBA NEB application submitted
Kitimat LNG Kitimat (Bish Cove) Chevron / Apache 2017 10.0 1.3 1.6 $9.5 NEB approved; Chevron took lead role in Dec 2012
Prince Rupert LNG Prince Rupert (Ridley Island) BG Group 2020 21.6 2.9 3.4 TBA Feasibility stage (2013/14); FID (2015);
CEA filing & NEB application submitted
Subtotal 105.3 14.0 16.6 43.5
East Coast
Goldboro LNG Nova Scotia Pieridae Energy 2018 10.0 1.3 1.6 $5.0 NEB application pending; 20-year offtake with E.ON (5 mtpa)
Total 115.3 15.4 18.2 48.5Source: Company Disclosure, NEB, PIRA, Platts, Wood MackenzieNote: Mcf equivalent of LNG per day (48.7 mcf / tonne)1. LNG produced at plant outlet.2. Estimated feed gas requirement at the well head (48.7 mcf / tonne, 8% liquefaction loss, 8% field processing loss).
Canadian LNG Competitive Landscape – Large Scale (>1 bcf/d) Proposed Projects
Large scale announced Canadian LNG projects total 115 mmtpa or 15.3 bcf/d
31
Canadian LNG Competitive Landscape – Smaller Scale (<1 bcf/d) Proposed Projects
Project Location Ownership Start Year Capacity Cost Estimate (Liquefaction Only) Status / Notes
LNG (1) Outlet Gas Field Gas (2) Totalmmtpa bcf/d bcf/d C$B
West Coast - Smaller Scale Projects
AltaGas / Idemitsu Kosan JV Prince Rupert AltaGas / Idemitsu
Kosan 2017 2.0 0.3 0.3 TBA Feasibility study expected to be completed by 2014; considering FLNG
Douglas Channel Energy KitimatLNG Partners / Haisla / Golar / Unnamed Asian
2015 1.8 0.2 0.3 $0.5 NEB approved; Golar offtake and up to 25% ownership; FID Q3-13
LNG Direct Rail Hart, B.C. Adastra Energy TBA 1.5 0.2 0.2 $1.9 Initial consultation, preliminary planning
Woodfibre Squamish B.C. Pacific Oil & Gas TBA 2.1 0.3 0.3 TBA
Has 35% interest in Jiangsu Rudong regas facility in China Fortis to twin existing right of way and Spectra to provide 25 cm pipe support
Discovery Campbell River, B.C. Quicksilver 2019 TBA TBA TBA TBA Regulatory process to begin before the end of 2013
Total 7.4 1.0 1.2 $2.4Source: Company Disclosure, NEB, PIRA, Platts, Wood MackenzieNote: Mcf equivalent of LNG per day (48.7 mcf / tonne)1. LNG produced at plant outlet.2. Estimated feed gas requirement at the well head (48.7 mcf / tonne, 8% liquefaction loss, 8% field processing loss).3. BMO research estimate.
(3)
Small Canadian LNG projects account for ~6% of the total announced Canadian LNG volumes
32
Western Gas
PrinceRupert
Fort St. John
Station 2
Terrace
Prince George
Fort Nelson
PIPELINESSpectra – West coast AllianceTCPL – NOVAGroundbirch
SHALE GAS PLAYSMontney FairwayHorn River
Kitimat
Vanderhoof
BG Group
Pacific Trails (Chevron)
Coastal Gas (Shell)Summit Lake
West Coast B.C. LNG Supporting Pipelines
Dawson Creek
Hudson Hope
North Montney
$18.5 bn of proposed pipelines to transport ~11 bcf/d
33
Canadian LNGRelative Comparison
Supply Cost (Regional)
Canadian projects generally cost competitive relative to other global developments
Middle East Expansion Nigeria LNG Atlantic Basin
Expansion Iranian LNG Trin/Egypt/Yemen
Pacific BasinExpansions
Atlantic BasinOther Greenfield Australia Expansion Canada LNG US Brownfield LNG
FLNG East African LNG Australian GreenfieldLNG Venezuela LNG Russian LNG
Source: Street Research, Wood Mackenzie
$/mmbtu16.0
14.0
12.0
10.0
8.0
6.0
4.00 31 60 91 121 152 182 213 244 274 305
mtpa
Canada
34
BMO Capital Markets
North American Natural Gas Fundamentals
North American Demand and LNG Alternatives
Canadian Unconventional Natural Gas Plays
Summary
35
Summary
Canadian Unconventional Gas
3 Dominant plays in Canada – Montney, Horn River, and Duvernay
Economically competitive with other North American plays
Opportunities exist to acquire significant positions in each of these plays
North American Liquefaction Gaining Momentum
Recent years have seen the announcement of numerous LNG liquefaction projects both in Canada and the U.S.
Global LNG market participants have been seeking out new sources of supply to fulfill existing obligations and to meet futureincreased demand
– North America is quickly emerging as one of these sources as the recent shale gas boom has left the continent awash in natural gas; not long ago North America was planning on importing LNG
● 11 projects announced in Canada (122.7 mmtpa, 16.4 bcf/d), some of which are integrated greenfield developments tied to upstream assets
Several other, as yet unannounced, projects also being developed
● 17 major projects announced in the U.S. (218.4 mmtpa, 29.1 bcf/d), a number of which are brownfield developments which will leverage existing regasification facilities
Canada an Attractive LNG Supply Source Close proximity to end-use market
Shipping time from Canada to Asia comparable with Australian LNG
Significantly closer than the U.S.
Better ability to participate in integrated projects
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Appendix A
Recent North American LNG Developments
Conoco (Freeport) DOE recently approved Conoco’s Freeport LNG application – the first approval in 2 years
Many other projects are waiting on DOE decisions before moving forwardChevron / Apache (Kitimat LNG) Chevron entered the Canadian LNG game by taking out EnCana and EOG in the Kitimat LNG project – Chevron will operate the
facility with Apache as its partner operating the production
Crude-linked pricing remains primary obstaclePacific Oil & Gas (Woodfibre) Pacific Oil & Gas also announced a new project at Squamish, BC
200 mmcf/d facility on Howe Sound Fortis and Spectra will build required pipeline This is a brownfield site with an existing deep water port
AltaGas / Idemistu JV AltaGas partnered 50/50 on a joint venture with Idemistu, to explore LNG export opportunities with potential all-in investment in the
$2-5 bn range (feasibility study currently underway)
PETRONAS / JAPEX (Pacific Northwest LNG) Progress (PETRONAS) announced the selection of TransCanada to build its pipeline to Prince Rupert (remember TransCanada is
also building the pipeline for Shell to Kitimat)
BG Group (Prince Rupert LNG) Canadian Environmental Assessment Agency currently reviewing BG Group’s proposed 3.3 bcf/d Prince Rupert LNG export
project proposal (construction to commence in 2016 with Phase 1 completion targeted by 2021)
38
Other Potential Canadian LNG Projects
Grassy Point Project(s) – Expressions of Interest (EOI) Process
March 2013 BC government sought expressions of interest for LNG projects on Crown land at Grassy Point near Prince Rupert
Proponents required to:
Identify financial capacity, LNG experience, and natural gas source plan
Provide project description, aboriginal and community engagement and consultation, and potential to work with other companies/projects
Eligible EOIs received from:
Nexen/CNOOC/INPEX/JGC
Woodside Petroleum
SK E&S
Imperial Oil Resources/ExxonMobil
Eligible EOI undergoing evaluation by government to determine how many projects Grassy Point can accommodate
Quicksilver (Discovery)
Quicksilver purchased Elks Falls industrial site in Campbell River, B.C. (Vancouver Island) from Catalyst Paper to develop LNG export facility
Regulatory process expected to begin before the end of 2013
39
Canadian LNG Considerations Federal Department of Transport working on report regarding
shipping and infrastructure (radar and other) needs to facilitate more shipping capacity
Potential “black swans” (for example, Russia building natural gas pipe to South Korea)
BC government proposing LNG-funded Prosperity Fund $100 to $260 billion to be generated from LNG royalties and
business taxes Intended to wipe out BC debt and eliminate sales tax
Increasing aboriginal assertion of ownership rights and entitlements (including right of consent)
Local west coast (Kitimat) First Nations groups supportive of LNG development “The Haisla people look forward to a long partnership with
Kitimat LNG. The economic opportunity that comes withthe project will benefit our people for a very long time.”- Chief Councilor Dolores Pollard (Haisla Nation)
Significant new-build electrical supply will be required to support the NEBC projects Christy Clark is adamant that her province will “not allow
the lack of power supply to stand in the way of further important steps in LNG.” - Christy Clark (B.C. Premier)
40
North American LiquefactionCanada vs. United States
Canadian Liquefaction Developing as Integrated Model
Canadian liquefaction development primarily occurring in NEBC; a relatively shallow and less liquid market than the U.S. GOM Announced west coast liquefaction projects are expected to require ~19 Bcf/d of feed gas which is in excess of B.C’s current
production by 4-5x– EOI projects could push excess much higher
In order to secure supply for Canadian liquefaction projects, liquefaction parties are moving into the upstream by way of joint ventures with Canadian producers and/or outright asset purchases
Potential to provide higher heat content gas; a characteristic that is preferred in certain markets, including Japan
Political Environment
Energy export is more “politically charged” in the U.S. relative to Canada The U.S. is traditionally an energy importer vs. Canada as an exporter Potential U.S. LNG exports receiving push back from special interest groups
– Many issues dealt with by DOE in Freeport permit
December 2012 – DOE commissioned NERA report which concluded that LNG exports are of a net benefit to the U.S.
May 2013 the DOE released Freeport NFTA export permit and confirmed: Non-FTA export decisions on a case-by-case basis DOE to take “measured approach” to granting permits Will assess cumulative impact each successive request will have on public interest (including U.S. gas supply/demand) Permits not to be issued unless developer shows there are / will be facilities to handle exports and gas supply (commercial
maturity test) Secretary of Energy, Ernest Moniz, saying DOE “will expeditiously work through the remaining (LNG permit) applications”
41
North American LiquefactionCanada vs. United States (cont’d)
The U.S. Gas Market is Deeper & More Liquid than Canada’s
The U.S. market is significantly larger and more liquid than the Canadian market, in particular in the Gulf of Mexico (GOM) region where the majority of north American liquefaction projects are being proposed GOM region (Texas, Louisiana and federal offshore) production is ~35 Bcf/d vs. 3 Bcf/d in B.C.
Existing Regas Infrastructure Allows for Brownfield Development in the U.S.
The U.S. currently has 17 Bcf/d of LNG regasification infrastructure that is almost completely unutilized (~5% in 2011) In addition to greenfield development, the majority of existing regas terminals are developing liquefaction capabilities and
leveraging existing storage and regulatory approvals (brownfield) Canada has only one regas facility that could facilitate brownfield development (Canaport – New Brunswick)
U.S. Liquefaction Developing With Long-Term Agreements
LNG buyers entering into long-term arrangements to guarantee access to LNG Not obligated to take LNG, thus protected against Henry Hub price volatility
– But still pay on use-or-pay facilities agreements
Facilities are being underpinned by long-term tolling/processing agreements (i.e., Cheniere SBP, Sempra Cameron)
Upstream participants not economically integrated in U.S. liquefaction model
42
Canadian LNG Required Gas – Select Projects
Canadian LNG ProjectsProject Feed Gas Requirements (1) Resource vs. Required Gas
Daily Total (25 Yr) Fill (2) Commentarybcf/d tcf
Announced
LNG Canada 3.8 34.5 Shell et al have the ability to source significant gas from their existing WCSB operations
Pacific Northwest LNG 3.1 28.3 With PETRONAS' acquisition of Progress this facility looks to be well supplied
WCC LNG 4.7 43.2 Significant upstream holdings through existing Imperial lands and recent Celtic acquisition
Kitimat LNG 1.6 14.4 The combined upstream resources of Chevron and Apache should be adequate
Prince Rupert LNG 3.4 31.1 No upstream resource identified to date
AltaGas / Idemitsu Kosan 0.3 2.9 Idemitsu CEO publicly stated that the company is looking for Canadian reserves for its LNG project
Douglas Channel 0.3 2.6 MOU for gas supply from third party (not equity gas)
Goldboro LNG 1.6 14.4 Although in a JV with Contact Exploration, has nowhere the gas supply required
Other / Potential (3)
Nexen (CNOOC) / Inpex / Japan Gas 1.9 17.3 Expected gas to be supplied through partnership with Inpex and Japan Gas
Woodside 1.9 17.3 No upstream resource identified to date
SK E&S 1.9 17.3 No upstream resource identified to date
Total 24.5 223.3
1. Estimated well head gas assuming 8% liquefaction loss and 8% field processing loss.
2. BMO estimate of liquefaction feed gas requirements vs. resource currently held.
3. Assumed project size of 12 mmtpa.
43
Is There Enough Gas?
The continent is “awash” in natural gas with the U.S. and Canada having 1,916 and 535 tcf of remaining resource, respectively Illustratively, U.S. and Canada could sustain production rates of 53 and 16 bcf/d for 100 years, respectively
Given that western Canada’s proven resource only accounts for ~10% of the total (57 tcf, or 6 bcf/d over 25 years) LNG exports will be relying on probable / undiscovered resources to meet the potential demand Geological plays such the Montney, Duvernay, and Horn River have been identified by industry as the likely sources of feed-gas for
LNG– With 132 tcf of resource the Montney could sustain production levels of 14 bcf/d for 25 years
Western Canada Natural Gas Resources
Source: Ziff Energy Group
98%
1% 1%Shale Gas
77%
14%
9%
Tight Gas
31%
10%59%
Shale Gas260 Tcf Remaining261 Tcf Ultimate PotentialHorn 101 Tcf; Duvernay Rich 14 Tcf;Liard 140 Tcf
Tight Gas149 Tcf Remaining163 Tcf Ultimate Potential
Conventional Gas121 Tcf Remaining293 Tcf Ultimate Potential
CBM
Coalbed Methane5 Tcf Remaining7 Tcf Ultimate Potential
5%
63%
32%
Undiscovered ResourceProved Reserve / ResourceProduced 189 Tcf
Remaining Resource 535 Tcf
44
Is There Enough Gas?
Overall, it is not a question of do we have the gas, but rather what gas (plays) will be developed to meet the demand Factors such as heat content and proximity will largely influence which plays are developed for LNG export
Source: Ziff Energy Group
62%26%
4%8%
30%
33%1%
12%
24%
22%
64%
3%
4%
7%34%
13%
8%
14%
31%
Alaska200 Tcf Remaining217 Tcf Ultimate Potential
Canada535 Tcf Remaining724 Tcf Ultimate Potential
Rockies296 Tcf Remaining561 Tcf Ultimate Potential
Appalachia430 Tcf Remaining459 Tcf Ultimate Potential
61%
3%
8%
28%Pacific56 Tcf Remaining77 Tcf Ultimate Potential
9%
18%
1%15%
57%Mid-Continent / Permian280 Tcf Remaining635 Tcf Ultimate Potential
29%
16%
5%
50%
Pacific56 Tcf Remaining77 Tcf Ultimate Potential
UndiscoveredConventional & Tight GasShale GasCBMProved ReserveProduced 1.389 Tcf
Remaining Resource 1,916 Tcf
North American Natural Gas Resources
45
0
5
10
15
20
25
30
35
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
bcf /
d
Domestic Canadian Production Kitimat LNG Douglas ChannelPacific Northwest LNG Prince Rupert LNG LNG CanadaWCC LNG Goldboro LNG AltaGas / Idemitsu KosanLNG Direct Rail Woodfibre Domestic Canadian Consumption
LNG Export Relative to Status Quo (Canada)
Significant new production required to support LNG developments
Source: Wood Mackenzie
Illustrative Canadian Natural Gas Supply / Demand Balance (100% Project Completion)
46
Project Location Ownership Start Year Capacity Cost Estimate (Liquefaction Only) Status / Notes
LNG (1) Outlet Gas (2) Field Gas (3) Totalmmtpa bcf/d bcf/d C$B
Non - FTA Approved
Sabine Pass Louisiana Cheniere 2016 27.0 3.6 4.3 $10.0 FTA & NFTA approved (2.2 bcf/d),under construction
Freeport Texas Conoco, Micheal Smith 2018 21.0 2.8 3.3 $10.0 FTA & NFTA approved (1.4 bcf/d)Lake Charles Louisiana BG, Southern Union 2018 15.0 2.0 2.4 TBA FTA & NFTA approved (2.0 bcf/d)Non - FTA In Process (4)
Cove Point Maryland Cove Point LNG 2017 5.8 0.8 0.9 TBA FTA approved, NFTA pendingCameron Louisiana Sempra 2017 12.0 1.6 1.9 $6.0 FTA approved, NFTA pendingJordan Cove Oregon Veresen 2017 6.0 0.8 0.9 $5.4 FTA approved, NFTA pendingOregon LNG Oregon Oregon LNG 2017 9.6 1.3 1.5 $6.3 FTA approved, NFTA pendingCorpus Christi Texas Cheniere 2017 13.5 1.8 2.1 $10.0 FTA approved, NFTA pendingExcelerate Texas Excelerate Energy 2018 10.0 1.3 1.6 $4.8 FTA approved, NFTA pending; FloatingGulf Coast LNG Export Texas Gulf Coast LNG 2018 21.0 2.8 3.3 $12.0 FTA approved, NFTA pendingElba Island LNG Georgia EPB/Shell TBA 2.5 0.3 0.4 TBA FTA approved, NFTA pendingGulf LNG Liquefaction Co. Mississippi El Paso TBA 11.5 1.5 1.8 TBA FTA approved, NFTA pendingCE FLNG Louisiana CE FLNG 2018 8.0 1.1 1.3 TBA FTA approved, NFTA pendingGolden Pass Texas Qatar Petroleum TBA 15.6 2.1 2.5 $10.0 FTA approved, NFTA pending
ST LNG Project Texas Pangea LNG (NorthAmerica) Holdings 2017 8.0 1.1 1.3 TBA FTA approved, NFTA pending
OtherMagnolia LNG (Lake Charles) Louisiana LNG Limited 2017 8.0 1.1 1.3 $4.4 FTA approved (0.54 bcf/d)Main Pass Louisiana Freeport McMoRan TBA 24.0 3.2 3.8 TBA FTA approved; FloatingTotal / Average 218.4 29.1 34.4 $78.9Source: Company Disclosure, NEB, Wood Mackenzie, PIRA, Platts1. LNG produced at plant outlet.2. Mcf equivalent of LNG per day (48.7 mcf / tonne).3. Estimated feed gas requirement at the well head (48.7 mcf / tonne, 8% liquefaction loss, 8% field processing loss).4. In order of non-FTA application processing per DOE.
U.S. LNG Competitive Landscape – Major Project Development
47
0
20
40
60
80
100
120
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
bcf /
d
Domestic U.S. Production Kenai Cameron Sabine PassFreeport Excelerate Lake Charles Gulf LNG Liquefaction Co.Golden Pass Corpus Christi Gulf Coast LNG Export Jordan CoveOregon LNG Cove Point Main Pass CambridgeCE FLNG ST LNG Project Elba Island LNG Magnolia LNG (Lake Charles)Domestic U.S. Consumption
LNG Export Relative to Status Quo (U.S.)
The U.S. would have to increase production in order to meet LNG exports, should they occur
Source: U.S. Energy Information Administration
Illustrative U.S. Natural Gas Supply / Demand Balance (100% Project Completion)
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“BMO Capital Markets” is a trade name used by the BMO Investment Banking group, which includes the wholesale arm of Bank ofMontreal and its subsidiaries BMO Nesbitt Burns Inc. in Canada, BMO Capital Markets Corp in the U.S. and BMO Capital Markets Ltd inthe U.K.
BMO does not provide tax or legal advice. Any discussion of tax matters in these materials (i) is not intended to be used, and cannot beused or relied upon, for the purposes of avoiding any tax penalties and (ii) may have been written in connection with the “promotion ormarketing” of the transaction or matter described herein. Accordingly, the recipient should seek advice based on its particularcircumstances from an independent tax advisor.
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