1. Bureau of Economic Geology, The University of Texas at Austin Oil & Gas Investment USEIA, April 7-8, 2009

2. ©CEE-UT, 2 Dr. Michelle Michot Foss, CEE-UT Trends Drivers Upstream cost structures and margins relative to financing Demand-side pricing policies by governments (oil) Impact of financial markets Resources and opportunities – “frontier” oil “Frontier” natural gas Cross-commodity pricing (fuel competition) – the challenge of building value for nat gas Climate Investment trends – invest in what you know

3. ©CEE-UT, 3 Dr. Michelle Michot Foss, CEE-UT Players and Cost Structures Oil & Gas Investor, October 2008

4. ©CEE-UT, 4 Dr. Michelle Michot Foss, CEE-UT Improvements in NOCs’ reserve replacement rate are supported by improvements in governance, more effective and stable alliances between NOCs and IOCs, sound competitive frameworks, and progressive fiscal regimes… A Citizen’s Guide to NOCs, CEE and World Bank, www.worldbank.org/noc www.worldbank.org/noc

5. ©CEE-UT, 5 Dr. Michelle Michot Foss, CEE-UT …and enables them to create and optimize value from assets. A Citizen’s Guide to NOCs, CEE and World Bank, www.worldbank.org/noc www.worldbank.org/noc

6. ©CEE-UT, 6 Dr. Michelle Michot Foss, CEE-UT A Citizen’s Guide to NOCs, CEE and World Bank, www.worldbank.org/noc www.worldbank.org/noc

7. ©CEE-UT, 7 Dr. Michelle Michot Foss, CEE-UT Non-Commercial Performance Contributions by Type/Revenue (%) CEE-UT

8. ©CEE-UT, 8 Dr. Michelle Michot Foss, CEE-UT IEA, NYMEX Subsidies and Demand

9. ©CEE-UT, 9 Dr. Michelle Michot Foss, CEE-UT Not All Opportunities are the Same From Holditch, 2005, “Statistical Correlations in Tight Gas Sands”, American Association of Petroleum Geologists (AAPG) Hedberg Conference Proceedings. http://www.searchanddiscovery.net/documents/abstracts/2005hedberg_vail/abstracts/extended/hold itch01/holditch01.htm http://www.searchanddiscovery.net/documents/abstracts/2005hedberg_vail/abstracts/extended/hold itch01/holditch01.htm

10. ©CEE-UT, 10 Dr. Michelle Michot Foss, CEE-UT Electron Imagery of Barnett Fractures Gale, J. F. W., Reed, R. M., and Holder, Jon, 2007, Natural fractures in the Barnett Shale and their importance for hydraulic fracture treatments: AAPG Bulletin, v. 91, no. 4, p. 603–622.

11. ©CEE-UT, 11 Dr. Michelle Michot Foss, CEE-UT US Gas Rigs, Production Baker Hughes, USEIA Production Backlog

12. ©CEE-UT, 12 Dr. Michelle Michot Foss, CEE-UT Source: NPC 2007 The Endless Resource

13. ©CEE-UT, 13 Dr. Michelle Michot Foss, CEE-UT Natural Gas vs. Petroleum Prices Sources: U.S. EIA; NYMEX; CEE What kind of business are we in?

14. ©CEE-UT, 14 Dr. Michelle Michot Foss, CEE-UT Public Acceptance: Sample LNG Projects in Same Region 1 2 3 4 5 Safety/Security Wetlands Fisheries Energy Costs Roads Taxes Employment Air Emissions Property Value Other/Intangibles Immediate Site CommunityWaterway CommunityLocal Community (City) Greater Community (State)National Community (Federal)External Interest Group 1 - Perceived Benefit 3 - Indifferent 5 - Perceived Cost 1 2 3 4 5 Safety/Security Wetlands Fisheries Energy Costs Roads Taxes Employment Air Emissions Property Value Other/Intangibles Immediate Site CommunityWaterway CommunityLocal Community (City) Greater Community (State)National Community (Federal)External Interest Group 1 - Perceived Benefit 3 - Indifferent 5 - Perceived Cost What caused the differences? Onshore vs. Offshore? Developer posture? Early dialogue? Unlicensed Onshore Project Licensed Offshore Project Sources: CEE, Community and Economic Benefits of LNG, 2008

15. ©CEE-UT, 15 Dr. Michelle Michot Foss, CEE-UT Sample Projects in Different Regions 1 2 3 4 5 Safety/Security Wetlands Fisheries Energy Costs Roads Taxes Employment Air Emissions Property Value Other/Intangibles Immediate Site CommunityWaterway CommunityLocal Community (City) Greater Community (State)National Community (Federal)External Interest Group 1 - Perceived Benefit 3 - Indifferent 5 - Perceived Cost 1 2 3 4 5 Safety/Security Wetlands Fisheries Energy Costs Roads Taxes Employment Air Emissions Property Value Other/Intangibles Immediate Site CommunityWaterway CommunityLocal Community (City) Greater Community (State)National Community (Federal)External Interest Group 1 - Perceived Benefit 3 - Indifferent 5 - Perceived Cost What caused the differences? Onshore vs. Offshore? Developer posture? Early dialogue? Unlicensed Onshore Project Licensed Onshore Project Sources: CEE, Community and Economic Benefits of LNG, 2008

16. ©CEE-UT, 16 Dr. Michelle Michot Foss, CEE-UT Math Whiz Total annual CO2 emitted is 188 bn ton 8bn is derived from human activity –US produces 2 bn Net generation from US coal plants is ~170mm MWh –CO2 production is ~2,250 lbs/MWh, or 191mm tons The total atmosphere is 5 quadrillion tons –We would be removing 0.00000382% if all CO2 from US coal-fired power gen was captured –We would be removing 0.00016% if all CO2 attributed with human activity were captured or eliminated

17. ©CEE-UT, 17 Dr. Michelle Michot Foss, CEE-UT API Truth Primer

18. ©CEE-UT, 18 Dr. Michelle Michot Foss, CEE-UT API Truth Primer

19. ©CEE-UT, 19 Dr. Michelle Michot Foss, CEE-UT API Truth Primer

20. ©CEE-UT, 20 Dr. Michelle Michot Foss, CEE-UT 18501900193019401950196019701980 19902000 Oil discovered in Titusville, Pennsylvania, 1859; natural gas replaces town gas, 1870s Advances in drilling, early seismic, shallow offshore E&P Long-line pipeline transmission Directional drilling, offshore below 250ft water depth Pipeline trenching and welding, compression, pressure control, metering; national grid develops 3-d seismic, horizontal drilling, measurement while drilling, offshore below 1,000ft IT Pathway: Mainframes Minis Micros Work Stations Offshore below 10,000ft Oil discovered at Spindletop (Texas), 1901 Impact of Technology – Deferring Declines Cumulative U.S. Oil & Gas Production, 1936-2007 BBOE (Includes Alaska) Not to scale Arctic? Hydrates ? 4-d seismic, offshore below 5,000ft Still looking for the peak… Conventional porosity/permeabilityUnconventionalNano

21. ©CEE-UT, 21 Dr. Michelle Michot Foss, CEE-UT Center for Energy Economics www.beg.utexas.edu/energyecon Michelle.Foss@beg.utexas.edu