Understanding the Pipes in Appalachia

21 Pages·2011·2.31 MB·English

by  Station Eight

Understanding the Pipes in Appalachia
Rodney L. Waller – Senior Vice President
Greg Davis – Vice President Marketing Appalachia
September 19, 2011
Forward-Looking Statements

Statements concerning future capital expenditures, production volumes, reserve volumes, reserve values, resource potential,
number of development and exploration projects, finding costs, operating costs, overhead costs, cash flow and earnings are
forward-looking statements. These statements are based on assumptions concerning commodity prices, recompletions and
drilling results, lease operating expenses, administrative expenses, interest expense, financing costs and other costs that
management believes are reasonable based on currently available information; however, management’s assumptions and the
Company’s future performance are both subject to a wide range of business risks and there is no assurance that these results,
goals and projections can or will be met. This presentation includes certain non-GAAP financial measures. Reconciliation and
calculation schedules for the non-GAAP financial measures can be found on our website at www.rangeresources.com.

The “SEC” permits oil and gas companies, in filings made with the SEC, to disclose proved reserves, which are estimates that
geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. Beginning with year-end reserves for 2009, the SEC permits the optional
disclosure of probable and possible reserves. Range has elected not to disclose the Company’s probable and possible
reserves in its filings with the SEC. Range uses certain broader terms such as "resource potential," or "unproven resource
potential" or "upside" or other descriptions of volumes of resources potentially recoverable through additional drilling or
recovery techniques that may include probable and possible reserves as defined by the SEC's guidelines. Range has not
attempted to distinguish probable and possible reserves from these broader classifications. The SEC’s rules prohibit us from
including in filings with the SEC these broader classifications of reserves. These estimates are by their nature more
speculative than estimates of proved, probable and possible reserves and accordingly are subject to substantially greater risk
of being actually realized. Unproved resource potential refers to Range's internal estimates of hydrocarbon quantities that may
be potentially discovered through exploratory drilling or recovered with additional drilling or recovery techniques and have not
been reviewed by independent engineers. Unproved resource potential does not constitute reserves within the meaning of the
Society of Petroleum Engineer's Petroleum Resource Management System and does not include proved reserves. Area wide
unproven, unrisked resource potential has not been fully risked by Range's management. Actual quantities that may be
ultimately recovered from Range's interests will differ substantially. Factors affecting ultimate recovery include the scope of
Range's drilling program, which will be directly affected by the availability of capital, drilling and production costs, commodity
prices, availability of drilling services and equipment, drilling results, lease expirations, transportation constraints, regulatory
approvals, field spacing rules, recoveries of gas in place, length of horizontal laterals, actual drilling results, including
geological and mechanical factors affecting recovery rates and other factors. Estimates of resource potential may change
significantly as development of our resource plays provides additional data.
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NE Pipeline Overview
In the
beginning, all
long-haul
pipelines were
built north to
New England
. . . . . Now
that is changing.
Map Source: Bentek
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Main Appalachia Pipelines
Pipeline System Seasonal Compressor
Pipeline Name Pipeline Owner Operator Miles Capacity Storage Stations
Pipelines flowing up from Gulf Coast --
Columbia Gulf Transmission NiSource Gas Transmission & Storage Columbia Gas Transmission 3,400 2.3 Bcf/d None 11
Tennessee Gas Pipeline Company El Paso Corporation Tennessee Gas Pipeline 13,996 6.7 Bcf/d 29 Bcf 71
Texas Eastern Transmission Spectra Energy Texas Eastern Transmission LP 9,176 6.2 Bcf/d 75.1 Bcf 76
Transcontinental Gas Pipeline The Williams Companies Transcontinental Gas Pipeline Corp. 11,000 7.7 Bcf/d 203.4 Bcf 43
Total capacity (w/out duplication) ~25.0 Bcf/d
Pipelines flowing from the west --
Rockies Express Pipeline Kinder Morgan (51%), Sempra Kinder Morgan NatGas Operator 1,300 1.8 Bcf/d None 11
Pipelines & Storage (25%), Conoco
Phillips (24%)

Pipelines flowing from the north --
Empire Pipeline National Fuel Gas Company National Fuel Gas Company 233 0.75 Bcf/d None 0
Iroquois Gas Transmission System TransCanada (44.5%), Dominion Iroquois Pipeline Operating Co. 411 1.45 Bcf/d None 7
(24.7%), Keyspan (20.4%), NJ
Resources (5.5%), EE (4.9%)

Regional interconnects --
Algonquin Gas Transmission Spectra Energy Transmission Spectra Energy Transmission 1,103 1.9 Bcf/d None 6
Columbia Gas Transmission NiSource Gas Transmission & Storage Columbia Gas Transmission 10,318 3.0 Bcf/d 600 Bcf 103
East Tennessee Natural Gas Co. Spectra Energy Partners, LP Spectra Energy Transmission 1,510 1.5 Bcf/d None 21
Dominion Transmission Dominion Resources, Inc. Dominion Transmission, Inc. 3,142 5.7 Bcf/d 409 Bcf 75
Equitrans Equitable Resources Equitrans 2,391 0.8 Bcf/d 64 Bcf 4
Millennium Pipeline Company NiSource Inc., National Grid & DTE NiSource Gas Transmission & Storage 247 0.525 Bcf/d None 1
Energy
National Fuel Gas Supply Corp. National Fuel Gas Company National Fuel Gas Supply Corporation 1,502 2.3 Bcf/d 113 Bcf 21
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Marcellus Pipeline Overview
Columbia
Map Source: Bentek
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What is Happening in Basin with Marcellus?

 Positives:
 Marcellus is more productive than first estimated
 Appalachia has numerous big capacity pipelines for take-away
volumes unlike Barnett Shale where large diameter pipelines were
required to be built before development could expand
 Existing NE demand in US for natural gas is over an annual average
of 10 Bcf/day with Marcellus producing 3.5 Bcf/day currently
 2.2 Bcf/day of existing Appalachia shallow production

 Challenges:
 Existing gathering and compression facilities are not sized to
accommodate Marcellus high pressured, larger volumes
 New gathering and compression facilities will have to be built to
connect wells to take-away pipelines
 Large natural gas volumes are filling up existing take-away
pipelines faster than anticipated requiring accelerated expansions
 Marcellus development occurring in three separate areas causing
different transportation issues for each area
 Seasonal demand requires storage in area and creates more of a
challenge to market gas during the summer

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Announced Expansions for Marcellus Area
Capacity
Company/Project System / Interconnect States (Mmcf/d) Start-up Details
Spectra Energy
TEMAX / TIME III Texas Eastern PA 455 2H2011 new pipe, looping
TEAM 2012 Texas Eastern PA 190 4Q2012 new pipe, compression
NJ-NY Expansion Texas Eastern/ Algonquin NJ, NY 800 4Q2013 NYC access for major producers
Williams Cos
Springville Gathering Transco PA 50 4Q2011 gas gathering in NE Pennsylvania
Northeast Supply Link Transco PA, NJ 245 2H2013 pipeline looping
Keystone Connector Transco OH, PA TBD proposed expansion
El Paso
TGP 300 Line Tennessee Gas Pipeline PA, NJ 350 4Q2011 pipeline looping, compression
Northeast Supply Tennessee Gas Pipeline PA, NY 245 2H2012 pipeline looping, compression
MPP Project Tennessee Gas Pipeline PA 240 4Q2013 pipeline looping, compression
Northeast Upgrade Tennessee Gas Pipeline PA, NJ 620 TBD pipeline looping, compression
Dominion
Northeast Expansion N / A PA 200 2H2012 new compression
Appalachian Gateway Texas Eastern (Spectra) WV, PA 484 4Q2012 gathering trunkline expansion
Gathering enhancements Dominion WV, PA TBD 4Q2012 new pipe, compression
Source: Company websites
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What do Producers do in the mean time?

 NE PA portion of the Marcellus has challenges until expansions are on-line
 Not enough pipelines move through the region to choose from
 Firm transportation is a premium commodity
 Back haul arrangements implemented by transporters to move more
gas for producers
 Absent firm transport, choices are shut in production or take a severe
discount to move the gas
 Current range of prices in the NE PA are quoted at $1.75 to $4.29 per
mcf

 SW PA portion of the Marcellus has access to more take-away pipelines and
interconnects to move gas
 Displacing Gulf coast and Rockies gas is continuing allowing gas to
flow due to the economic difference in transportation rates to the NE
premium markets from outside the Marcellus
 Combination of FT and selling to existing holders of FT on the pipelines
to the NE premium markets
 Back haul arrangements are being discussed for SW PA if needed
 All pipelines move through this region except for Transco
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What do Producers do in the mean time?

 Lycoming Co. portion of the Marcellus is moving gas on Transco through
firm sales arrangements with owners of FT and storage at Leidy HUB
 Short-term relief from TN300 is to move gas to Transco
 Williams building 24” inch pipe from TN300 to Transco for 50 Mmcf/d
but is targeting 1.25 Bcf/d ultimately
 PVR is building 1.0 Bcf/d interconnect from Transco to TN300; Range
currently controls 350 Mmcf/d on this pipeline
 Range is moving its Lycoming gas on Transco at NYMEX plus 15 cent
premium

 Development in the “C” counties will seek to utilize Texas Eastern,
Columbia, Dominion and Transco pipelines
 Challenge will be for enough producers to join together to aggregate
enough volumes to justify expansion and interconnects
 Good wells being drilled but most producers concentrating their capital
in areas where they have a more dominate position
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Marcellus Net Backs After Transportation
Tennessee 200
NYMEX Premium
Millennium
NYMEX Plus $0.20
Tennessee 300
NYMEX Less ~ $0.50
TCO Columbia
NYMEX Less $0.10
Transco
NYMEX Plus ~ $0.15
TRANSMISSION PIPELINES

COLUMBIA
DOMINION
MILLENIUM
NATIONAL FUEL
The back haul fees have a big impact on wellhead realizations TENNESSEE
TEXAS EASTERN
TRANSCO
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