PERSPECTIVES ON THE ENERGY INDUSTRY

2014 State of the Industry

Chairman’s Letter

To Our Readers,

As part of our commitment to knowing our energy clients’

business, we collect insights from some of the best minds in

the industry. This understanding contributes to how we deliver

counsel that exceeds our clients’ expectations and our ability

to help them make strategy decisions about their business.

The information in this ebook has been invaluable to us and

to our clients, and we hope that it will benefit you as well.

Read some of the trends and best practices gathered from

industry-leading clients and our own energy team. If you find

value in it and would like to hear more, join us for our next

BoyarMiller Breakfast Forum.

Sincerely,

Chris Hanslik

Firm Chairman

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TABLE OF CONTENTS

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UNITED STATES MARKET

Oil & gas industry has created 3.9M new jobs

1 MARCELLUS 2 UTICA 3 EAGLE FORD

Areas will see enough growth through the end of the decade to support LNG exports – up to 3.5 billion cubic feet by 2020

STATE OF THE INDUSTRY

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REFINERS BENEFIT FROM

OVERSUPPLY OF LIGHT, SWEET CRUDE THAT CANNOT BE EXPORTED

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2

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Oil & gas production – boosted by shale –

CONTRIBUTES APPROXIMATELY 3.5% TO U.S. GDP

•Basin

•Shale Gas Plays

250 and above110 to 25050 to 110less than 50

Operable refinery location and capacity volumes as of January 1, 2012

(thousands of barrels per day) *SOURCE: U.S. Energy Information Administration

*SOURCE: EIA, “The Long-term Outlook for Natural Gas”, Feb 2011

Metros with the highest concentrations

of oil & gas jobs

(a location quotient of 1.0 equals the national average)

*SOURCE: EMSI 2013.4 Class of Worker

Shale has given the U.S. a structural, long-term

COMPETITIVE ADVANTAGE in the natural gas and electricity markets

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STATE O

F THE IN

DU

STRY

GLOBAL MARKET5 EUROPE

The resolution of the conflict involving Ukraine and Russia will have a

major,long-term impact on manufacturers in the U.S., U.K. and the rest of the world

3 GLOBAL OFFSHOREGlobal offshore market is currently strong, but may decline because of comparatively

low cost of land rigs

2 LATIN AMERICAInstability in the government and currencies of Venezuela and Argentina have made them

lukewarm markets at best

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State of the Industry, continued

1 NORTH AMERICABy 2035, natural gas in the U.S. will cost

half what it costs in Europe or Asia

Cautious optimism about North American fracturing because the

oversupply situation causes pricing pressures

4 MIDDLE EAST/AFRICANorth Africa’s

instability for the past several years has made it an area of concern

Not a promising well service market because of the

anti-fracing regulations

Middle East has lots of drilling and well service activity, and will continue to be a

STRONG market for the near term

7 AUSTRALIA

significant growth predicted in the near future from Chevron’s large projects Gorgon and Wheatstone

6 ASIAChina will be a

BIGopportunity for years to come, especially as they potentially sit on the largest shale reserves in the world

Malaysia, Indonesia and Vietnam have seen modest but

steadygrowth

EXPERT INSIGHT

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Regulatory & Political Climate“Outside of the U.S., there is no oil production growth. What’s going on in

the U.S. is miraculous.”

2014 INSIGHTSDavid Pursell, Managing Director & Head of Securities, Tudor, Pickering, Holt & Co.

• THERE CAN BE NO LNG EXPORTS WITHOUT HYDRAULIC FRACTURING: It’s been suggested that

the U.S. use LNG exports to project power globally, but that supply is simply not possible with-

out hydraulic fracturing. Allowing natural gas exports and fracturing are regulations that go

hand in hand.

• MARCELLUS, UTICA AND EAGLE FORD ARE THE KEY: All basins outside of Marcellus, Utica and

Eagle Ford are in decline – but in a $5 gas world, those basins don’t need to grow. The three key

basins will show significant enough growth through the end of the decade to support exports.

• HYDRAULIC FRACTURING SAVED THE U.S. INDUSTRIAL SECTOR: With natural gas prices at $4 in

the U.S., compared to $12 in Europe or $16 in Japan, U.S. manufacturing has a distinct advan-

tage. Steel, glass, paper – any number of industries benefit from low gas and power prices.

• OIL PRICES ARE HIGH BECAUSE THE GLOBAL MARKET IS TIGHT: The market is not oversupplied,

as some analysts suggest. Inventories are actually near ten-year lows, and the U.S. is the only

place in the non-OPEC world where oil production is growing.

• WHEN WE CAN’T EXPORT CRUDE, BIG OIL WINS: With a surplus of light, sweet crude in the

U.S., domestic supplies will be priced significantly lower than the global market, meaning

a loss for oil producers. The winners will be refiners like Shell, BP and Exxon – “Big Oil.”

As Managing Director and Head of Securities, David Pursell is responsible for TPH’s analysis of global oil & gas markets, including inventory and price forecasts, supply/demand modeling and rig count/production relation-ships. He is a board member of private energy companies Oxane Materi-als and Unconventional Gas Resources. He holds a BS and MS in Petroleum Engineering from Texas A&M University.

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EXPERT IN

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Capital & Technology: Shaping the Future of Energy“Shale plays are secular, not cyclical; their economic impact is huge;

and they will last a generation or longer.”

2014 INSIGHTSThomas Bates, Co-Chair Energy MBA Advisory Board, Neeley School of Business, TCU

• UNCONVENTIONAL PLAYS HAVE HAD A MASSIVE ECONOMIC IMPACT: Depending on which

economist you listen to, the economic impact of shale in the U.S. is between $500 billion

and $700 billion annually. They probably contributed 3.5% to the U.S. GDP last year and

will generate more than 3.9 million new jobs.

• LOW NATURAL GAS PRICES ARE A BIG WIN FOR AMERICAN CONSUMERS: Low gas prices and

electric power prices benefit residential, commercial and industrial markets. In fact, high

domestic production and low prices delivered an estimated $250 billion annual benefit

to the American consumer.

• U.S. COMPETITIVE ADVANTAGE: PLENTY OF CHEAP NATURAL GAS: We have a potential 150-

year supply of natural gas in this country, which can be produced for 75% less than the

cost we currently pay for imported crude oil. This is a structural, long-term competitive

advantage for our nation’s economy.

• AS OUR OIL IMPORTS GO DOWN, CHINA’S GO UP: Domestic oil production is up 60% in only 6

years – and total imports have dropped from 13 million barrels a day to 7 million. Meanwhile,

China moved from importing virtually no oil in the mid-1990s to 6 million barrels a day last year.

• BECAUSE OF SHALE, WE COULD BECOME ENERGY INDEPENDENT: If through improved mileage

standards and substitution of CNG and LNG for gasoline and diesel we could drop con-

sumption of oil derivatives in the transportation market from 12 million to 6 million barrels

a day. We would then drop to 1 million barrels a day imported and would be virtually

energy independent!.

Tom Bates has more than 25 years of experience in oil service management and operations. He serves on the boards of directors of Hercules Offshore, TETRA Technologies, Southwest Oilfield Products, Independence Contract Drilling and Wellflex Energy Solutions. He is Adjunct Professor of Finance and co-chair of the Energy MBA Advisory Board at the Neeley School of Business at Texas Christian University. Tom received the 1995 University of Houston/American Society of Engineers OTC Award for outstanding leadership and citizenship.

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EXPERT IN

SIGH

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Global Markets: A Manufacturer’s Perspective“What we’re seeing is the renaissance in technology for land drilling.

Companies that don’t keep up with the curve are going to struggle

in years to come.”

2014 INSIGHTSPaul DeWeese, CEO, Southwest Oilfield Products

• TECHNOLOGICAL ADVANCES MEAN FEWER RIGS, MORE OIL AND GAS: Technology like pad

drilling, walking rigs, AC rigs and improved mud pump systems mean faster, more efficient

drilling. Fewer rigs are able to drill more feet and ultimately discover more oil and gas.

• CHINA IS KEEPING U.S. MANUFACTURING ON ITS TOES: Because of increased ease of

transport and long-term relationships with U.S. companies, China is putting heavy

pressure on U.S. manufacturing companies to stay competitive. Manufacturing is a

heavy-hitting, contact sport.

• THE BIG CREW CHANGE ADDS SERIOUS HURDLES: With many of the best employees in the

industry retiring out of the business, companies are in dire need of good, young talent.

The cost and unavailability of talent makes many critical positions a challenge to fill.

• COMPARATIVELY INEXPENSIVE LAND RIGS MAY HURT OFFSHORE MARKET: Due to lower

operating cost, U.S. land rigs have a significant cost-advantage versus offshore rigs.

While the global offshore market is currently strong, we may see a downtick in rig count

offshore over time.

• STABILITY OF A MARKET IS KEY: The political and currency stability of Asia has made it

a solid market, while Latin American markets like Venezuela and Argentina are only

lukewarm now because of uncertainty and instability in politics and economy.

Paul DeWeese has more than 18 years’ experience in the oil and gas field services industry, running both public and private equity-backed companies headquartered domestically and internationally. He is the CEO of Southwest Oilfield Products, a domestic, US-based leader of pump and well service equipment production, and an OEM manufacturer of frac pumps, and mud pump fluid ends and consumables. Paul holds a Bachelor in Business Administration from Regis University and an MBA from the University of Michigan.

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Chris Hanslik Firm Chairman

Represents companies in all aspects of the energy sector, both

domestically and international, in disputes ranging from breach

of contract and fraud to misappropriation of trade secrets and

employment-related disputes. Has secured favorable results in

both state and federal courts, as well as international arbitration

proceedings for energy clients.

Gary Miller Founding Shareholder, Business Group

Represents numerous domestic and offshore-based companies

in connection with acquisitions and divestitures, financings, joint

ventures and general corporate matters in the United States.

ENERGY

PRACTICE LEADERS

Bill Boyar Founding Shareholder, Business Group

Represents the various parties involved in the acquisition, disposition,

capitalization and financing of national and international businesses.

Served as lead counsel for numerous complex, multi-party acquisi-

tions and project financings with significant experience in corporate

finance, mergers and acquisitions, private equity and

structure finance.

PRAC

TICE LEA

DERS

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Steve Kesten Shareholder, Business Group

Represents multiple international energy and energy services

clients with outbound expansion (i.e., U.S. companies expanding

internationally) and inbound expansion (international companies

expanding to the U.S.), including start-up expansion or expansion

by acquisition, as well as in connection with financing and merger

and divestiture transactions.

Gus Bourgeois Shareholder, Business Group

Represents clients doing business domestically and internationally

in connection with mergers and acquisitions, customer and vendor

contracts – including master services agreements – technology

licensing, employment agreements and related matters.

Craig Dillard Shareholder, Litigation Group

Handles litigation in both state and federal courts, as well as on

appeal, for both domestic and international oil and gas clients who

have been sued in the United States or in arbitration. Specializes in

litigation of commercial contracts, including indemnity obligations;

technology protection, including trademark infringement claims,

trade secret misappropriation claims and intellectual property

disputes; and enforcement of oil and gas companies’ non-compete,

confidentiality and other employment agreements.

Energy Practice Leaders, continued

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