Dow Jones February 27, 2017

February 27, 2017

ARC Energy Charts

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Chart Watch

9 Net long WTI contracts rose to a multi-year high 17 US crude storage rose to a new record high 32 Mild weather has moderated gas demand 36 Last week's gas storage draw was only 89 Bcf 42 Industry paid $3.69 million at BC's Feb land sale

Spot WTI Crude $US/B

53.49 ?

Edmonton Light $US/B

51.03 ?

Spot Henry Hub $US/MMBtu

2.48

?

Spot AECO $Cdn/GJ

2.18

?

Spot AECO Basis $US/MMBtu

0.73

?

Currency $US/$Cdn

0.7634

?

1

Broad Equity Markets Year-to-Date

Daily Index Values; Rolling 12-Month History

Indexed to 12 Months Ago 130

125

Shanghai Composite S&P/TSX Composite Dow Jones

120

115

110

105

Both the DJIA ...highs last

...TSX retreated

100

and the S&P/ week. However, by 2.4%, led by a

TSX Composite by the end of decline in energy

95

hit all-time...

the week the... stocks.

90 Feb-16

Apr -16

Jun-16

Aug -16

Oct-16

Dec-16

Feb-17

Broad market indices are one the many vital signs measuring the health of the economy. Energy demand is a function of economic health.

Source: Bloomberg, ARC Financial Corp.

3

Oil & Gas Service Equities Year-to-Date

Daily Index Values; Rolling 12-Month History

Indexed to 12 Months Ago

200 Pressure pumpers are

180 reporting increased demand...

160

Philadelphia Service I ndex

PSAC Cana dian In dex

...in Q4. Firms are reporting tightness in the labour market.

140

120

100

80 Feb-16

Apr -16

Jun-16

Aug -16

Oct-16

Dec-16

Feb-17

The performance of Canadian oil and gas service equities are plotted in tandem with the corresponding US index.

Source: Bloomberg, Petroleum Services Association of Canada

2 Performance of Oil and Gas Equities Year-to-Date

Daily Index Values; Rolling 12-Month History

Indexed to 12 Months Ago

180

170

160

150

140

130

120

110

100

90

80 Feb-16

Apr -16

ARC Junior E&P Inde x S&P 500 E&P S&P/TSX E& P Index

E&P equities fell slightly on the week despite a slight gain in...

...oil prices. They are still up significantly in the last 12 mo's.

Jun-16 Aug -16 Oct-16 Dec-16

Feb-17

Performance of Canadian and US oil & gas equities are compared against each other.

Source: Bloomberg, ARC Financial Corp.

4

Canadian Currency Exchange

Daily Close Values; Rolling 24-Month History

$US/$Cdn $0.90

$0.85

A few weeks ago Fed Chair Yellen said it would be "unwise" to... ...wait too long

to hike US interest rates.

$0.80

Further US rate hikes would likely weaken ...Dollar relative the Canadian... to the US

Dollar.

$0.75

$0.70

$0.65 Mar-15

Jun-15

Oct-15

Feb-16

Jun-16

Oct-16

Feb-17

Much of Canada's oil and gas production is sold in US dollars. As such, the exchange rate significantly impacts corporate revenues and profits.

Source: Bloomberg

Please see Advisories and Disclaimers at the end of the publication for important cautionary advisory and disclaimer language



? 2017 ARC Energy Research Institute. All Rights Reserved.

ARC Energy Charts 1

February 27, 2017

ARC Energy Charts

Crude Oil

5 WTI Crude Oil Price and Differential to Brent

Near-Month WTI and Brent Differential; Rolling 12-Month History

WTI ($US/B) 60

50

WTI D iff WTI

WTI Dif f to Brent ($US/B) 5

4

6

US Crude Oil Futures

West Texas Intermediate (WTI) 2017 to 2019

WTI $US/B 60

58

The forward curve is in contango for most of this...

...year, and then flips into a slight backwardation in 2018 and 2019.

July 3, 2006 201 7 201 8 201 9

40

3

30

On Thursday WTI hit its

2

highest level

since July 2015.

20

1

10 Feb-16

Apr -16

Jun-16

Aug -16

Oct-16

Dec-16

0 Feb-17

North American crude oil prices can sometimes disconnect from global prices depending on regional supply and demand dynamics.

Source: Bloomberg

7 Canadian Heavy Oil Price Differential to WTI

Western Canadian Select (WCS) Differential; Rolling 12-Month History

WCS ($US/B)

50

WCS Diff.

WCS

WCS Dif f to WTI ($US/B) 20

40

15

30

10

20

According to Enbridge, once the Line 3 replacement and...

...other Enbridge Mainline expansions are completed, only one...

...new Canadian pipeline project will be needed.

5

10 Feb-16

Apr -16

Jun-16

Aug -16

Oct-16

Dec-16

0 Feb-17

Canadian heavy crude oil differentials are becoming less volatile with growing access to new markets via pipeline and rail.

Source: Bloomberg

9

Ratio of Long to Short Contracts - WTI

Managed Money - Futures and Options

The ratio of long

Long:Short to short

14

contracts among Managed... ...Money rose to

12

the highest since July of This was driven

2014.

by a 11% reduc-

10

tion in short

contracts...

8

...and a 4% increase in long contracts.

6

4

2

0 Feb-15 May-15 Aug -15 Nov-15 Feb-16 May-16 Aug -16 Nov-16

This represents the relative bullishness of money managers on the price of oil in the United States. Source: Bloomberg, U.S. Commodity Futures Trading Commission

56

54

52

50 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Forward prices for WTI are plotted against months in the calendar year. Years are distinguished by color and symbol coding. Source: Bloomberg

8 Canadian Light Crude Oil Price Differential to WTI

WTI and Edmonton Light differential; Rolling 12-Month History

Edm. Light ($US/B)

Edm. Light Diff. Edmonton L ight

60

50

Edm. Light Dif f to WTI ($US/B) 5

4

3

40

2

30

Enbridge's Line The line, which

2A was damaged carries light

on Feb 17.

crude and

condensate...

...between Edmonton and Hardisty, remains shut down.

1

20

0

Feb-16 Apr -16 Jun-16 Aug-16 Oct-16 Dec-16

The differential should reflect the transportation cost from Alberta to Cushing. Greater discounts can result from infrastructure or refinery outages.

Source: Bloomberg

10

MMB/d 12 10

Total US Oil Production

Monthly; 2010 to Present

Offsho re O il P roduction Onsho re O il P roduction

8

6

December

4

production data The last two

will be released monthly increa-

2

on Tuesday.

ses averaged 169 MB/d.

0 201 0

201 1

201 2

201 3

201 4

201 5

201 6

The advancement of drilling and completion methods boosted US crude oil production, prior to the downturn in prices.

Source: Bloomberg, U.S. Energy Information Administration



? 2017 ARC Energy Research Institute. All Rights Reserved.

ARC Energy Charts 2

February 27, 2017

ARC Energy Charts

Crude Oil

Millions

11

Alberta Oil Production

Monthly; Conventional and Oil Sands

MMB/d 3.5

3.0

Upgrad ed Oil Sands Non-Upgra ded Oil Sand s Conventional

2.5

2.0

Last week both

1.5

Conoco and

Exxon

...significant

1.0

announced... writedowns of their oil sands

reserves.

0.5

A combined 4.65

billion barrels of

proved reserves were removed...

...from their books.

0.0 Oct-11

Oct-12

Oct-13

Oct-14

Oct-15

Oct-16

Most of Canada's oil production comes from Alberta; split between oil sands and conventional production.

Source: Alberta Energy Regulator

13

Global Oil Supply-Demand Balance

Quarterly; 2010 to Present

MMB/d 2.5

2.0

The IEA's most recent monthly report showed that 2016 oil...

1.5

1.0

...demand growth was 1.6 MMB/d.

This was higher than estimates early in the year of ~1.2 MMB/d.

Oversupply

0.5

0.0

-0.5

The IEA is fore-

-1.0

casting growth

of 1.4 MMB/d

-1.5

Shortfall

for 2017.

-2.0

-2.5 201 0

201 1

201 2

201 3

201 4

201 5

201 6

Negative numbers indicate a global crude shortfall, while positive numbers indicate an oversupply.

Source: International Energy Agency

15 US Weekly Crude Oil Imports from Canada

Pipeline, Tanker and Barge Crude Imports; Rolling 24-Month History

MMB/d 3.8 3.6 3.4 3.2 3.0 2.8 2.6 2.4 2.2 2.0 1.8 Feb-15

Jun-15

Oct-15

Feb-16

Jun-16

Oct-16

Crude oil imports from Canada are taking market share from overseas imports.

Source: U.S. Energy Information Administration

12

MMB/d 34 33

OPEC Oil Production

Monthly; Rolling 60-Month History

According to the IEA, OPEC achieved 90% ...with the compliance... stated cuts in

January.

July 3, 2006

32

31

30

29

28 Jan-12

Jan-13

Saudi Arabia cut ...production

more than

coming in 0.56

required, with MMB/d below

January...

December levels.

Jan-14

Jan-15

Jan-16

Jan-17

OPEC's production levels relative to its sustainable and spare capacity influences global crude prices.

Source: Petroleum Intelligence Weekly

14

MMB/d 10

US Crude Oil Imports

Historical Tracks and Current Year Levels

2017

US crude oil imports so far this year have averaged...

...almost 600 MB/d over the same time period last year.

9

2016

8

7

6 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Prior to the downturn, growing domestic supply was displacing crude oil imports. Crude oil imports for the current year are in blue. Source: U.S. Energy Information Administration

16 US Exports of Crude Oil and Refined Products

Weekly Data; 2013 to Present

MMB/d 6.0

Crude Oil Refined Produ cts

5.0

4.0

3.0

2.0

1.0

0.0 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17

The US exports more refined products than crude oil. If/when tight oil growth resumes, most export growth should come from crude oil exports. Source: U.S. Energy Information Administration



? 2017 ARC Energy Research Institute. All Rights Reserved.

ARC Energy Charts 3

February 27, 2017

ARC Energy Charts

Crude Oil

17

MMB 550 500 450

US Crude Oil Stocks

Historical Tracks and Current Year Levels

2017

US crude oil inventories rose by almost 0.6 MMB last week.

Although the gain brought storage to a new record high...

...it was well under the average gain in the last 6

wks of 6.5MMB.

2016

400

350

300 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

US crude oil stock levels can affect crude oil prices. Stock levels for the current year are represented by the blue line.

Source: U.S. Energy Information Administration

19

Total Weekly US Petroleum Supplied

Historical Tracks and Current Year Levels

MMB/d

22

2017

21

2016

18

US Refinery Utilization Rates (%)

Historical Tracks and Current Year Levels

%

July 3, 2006

100

2017

95

2016

90

85 According to the

EIA, refinery ...by 1.8 MMB/d

80

inputs last week from the

were down...

beginning of the

year.

75 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Refinery utilization rates change the supply of refined products, impacting price. Utilization for the current year is blue.

Source: U.S. Energy Information Administration

20

MMB/d 10.0

9.5

US Motor Gasoline Consumption

Historical Tracks and Current Year Levels

2016

20

9.0

19

8.5

18

17 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Petroleum supplied represents the total consumption of petroleum products in the US. Consumption for the current year is in blue. Source: U.S. Energy Information Administration

21

US Oil Drilling Activity

Baker Hughes Horizontal Oil Rig Counts; 2014 to Present

# of Oil Rigs - Play Lev el

The US oil rig

600

count rose by 5

Total US (Right-Axis) rigs last week to

# of Oil Rigs - Total 180 0

602. Recent gains

160 0

500

have come from

the Eagle Ford

140 0

400

Permian

and Permian.

120 0

300

Eagle Ford

100 0 800

200

600

100

Bakken

Cana

400

Woodford 200

0

0

Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17

Tracking US oil drilling by major play provides insight into the composition of US oil supply and growth trends.

Source: Baker Hughes

8.0

2017

7.5 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Gasoline consumption accounts for almost half of all oil use in the US. Gasoline consumption for the current year is represented by the blue line. Source: U.S. Energy Information Administration

22 Daily NGL Prices as a % of Edmonton Light

Propane & Butane Spot Prices at Edmonton, AB

% of Edm. Light

160 %

Cond ensate Butane (Spot) Propa ne (Spot)

140 %

120 %

100 %

80%

60%

40%

20%

0%

-20% Jan-15 May-15 Sep -15 Jan-16 May-16 Sep -16 Jan-17

Natural gas liquids have become critical contributors to producer's cash flow. Prices are influenced by the price of oil as well as local supply and demand.

Source: Bloomberg, ARC Financial Corp.



? 2017 ARC Energy Research Institute. All Rights Reserved.

ARC Energy Charts 4

February 27, 2017

ARC Energy Charts

Natural Gas

23 Near-Month North American Natural Gas Prices

Daily Prices; Rolling 12-Month History

$4.00 $3.50

Warmer weather has pushed gas prices down.

Henry Hub is down $1.10/ MMBtu since Dec 30th.

Henry Hub

$US/MMBtu

$3.00

$2.50

$2.00 $1.50 $1.00

AECO

$C/GJ

Differential

$US/MMBtu

$0.50

$0.00 Feb 26

May 27

Aug 25

Nov 23

Feb 21

Near-month prices at AECO track Henry Hub prices, the exchange rate and the cost of transportation. Local factors can also affect price.

Source: Bloomberg

25 Ratio of Long to Short Contracts ? Henry Hub

Managed Money ? Futures and Options

Long:Short 3.5 3.0 2.5 2.0

1.5

1.0

0.5

0.0 Feb-15 May-15 Aug -15 Nov-15 Feb-16 May-16 Aug -16 Nov-16

This represents the relative bullishness of money managers on the price of natural gas in the United States. Source: U.S. Commodity Futures Trading Commission

27

Global Natural Gas Prices

Japanese LNG, UK NBP, Henry Hub; Average Monthly Prices

$US/MMBtu 20 18 16 14 12 10

8 6 4 2 0 Jan-12

Japanese LNG

According to the Japanese METI, Japanese prices have risen to...

...$8.40/MMBtu; the highest since January 2015.

UK NBP

Jan-13

Henry Hub

Jan-14

Jan-15

Jan-16

International natural gas prices strongly impact the economics of proposed LNG projects.

Source: Bloomberg, Japanese Ministry of Economy, Trade and Industry

24

US Natural Gas Futures

Nymex (Henry Hub) 2017 to 2019

Henry Hub gas

$US/MMBtu futures are

3.75

averaging $2.96/MMBtu...

3.50

3.25

...for the rest of 2017, and fall to $2.86/MMBtu for the same...

...time period in 2018.

July20137, 2006

201 8 201 9

3.00

2.75

2.50 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Forward contract prices are plotted against months in the calendar year. Years are distinguished by color and symbol coding. Source: Bloomberg

26

Canadian Natural Gas Futures

AECO Hub (Bloomberg Estimate) 2017 to 2019

$C/GJ 3.25

3.00

201 7 201 8 201 9

2.75

2.50

2.25

2.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

AECO forward prices mimic Henry Hub futures plus a differential

Source: Bloomberg

28 US Coal and Natural Gas Power Generation Cost

Converted to a $/MWh Equivalent

$US/MWh $50 $40 $30

Henry Hub

With the recent fall in natural gas prices, the relative...

...economics of coal for power generation have improved.

$20

Appalachian

$10

Coal

$0 201 2

201 3

201 4

201 5

201 6

This graph illustrates when it may be economic to begin coal-gas switching in power generation. Average power plant efficiencies are assumed.

Source: Bloomberg



? 2017 ARC Energy Research Institute. All Rights Reserved.

ARC Energy Charts 5

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