Badlands NGLs, LLC

A US Ethane Project Case Study

May 24, 2016

1 Badlands NGLS, LLC

 Bakken NGL & Ethane
Production Outlook - 2013

• Oil price ~ constant $100/bbl

(Fall 2013)

Williston Basin
• Gross Gas Production
• 2015 – 1.7 BCF/D
• 2020 – 2.5 BCF/D

• Ethane Production (11 GPM)

• 2015 – 175 MB/D
• 2020 – 260 MB/D

Source: Badlands Proprietary Bentek Energy Study

2 Badlands NGLS, LLC
 Bakken NGL & Ethane
Production Outlook - 2015
• RBN Energy forecasted 2020 Williston
Basin NGL & ethane production in July
of 2015 when oil was priced at ~$50/bbl

• Growth Case (WTI: $95/bbl by 2020)

• NGL Production – 500 MB/D
• Ethane Production – 250 MB/D

• Contraction Case (WTI: $65/bbl by 2020)

• NGL Production – 400 MB/D
• Ethane Production – 200 MB/D

Source: RBN Energy Drill-Down Report

3 Badlands NGLS, LLC
 Bakken NGL & Ethane
Production – July 2015

• July 2015 ND (includes Montana) Gas Production –

1.76 BCF vs. 1.7 BCF (2013)

• July 2015 Ethane Production – 250 MB/D vs. 175

MB/D (2013)

• Actual Bakken NGL and ethane production in the

summer of 2015 was greater than the amount
originally forecasted by Bentek in their 2013 study.

Source: North Dakota Industrial Commission

4 Badlands NGLS, LLC
 Current NB Flow
and Ethane Content

• As of 5/16/2016 – Flow past Glen Ullin was

2,512,639 million BTU’s.

• As of 5/16/2016 – Gross Heating Value (BTU/CF)

was 1065.3.

• Ethane content – 121.6 Mb/d

• Ventura heat limit – 1065

5 Badlands NGLS, LLC

 Current NB Flow
and Ethane Content

• As of 5/16/2016 – Flow past Port of Morgan was

1,658,689 million BTU’s.

• As of 5/16/2016 – Gross Heating Value (BTU/CF)

was 1040.6.

• Ethane content – 37.8 Mb/d

• Ethane from ND producers – less than 84 Mb/d

6 Badlands NGLS, LLC

 Bakken NGL Distribution
July 2015
• July 2015 NGL Production (less flaring, 517 MBPD gross) – 388
MBPD (exclude Palermo and Tioga)
• ONEOK – 111 MBPD

• Vantage – 20 MBPD

• Tioga Lateral – 3 MBPD

• WBI – 5 MBPD

• Northern Border – 100 MBPD

• Local Consumption and Rail/Truck Transportation – 135 MBPD.

7 Badlands NGLS, LLC
 Non-Pipeline NGL
Take Away

• Rail/Truck Transportation in excess of 100 MBPD.

• Based upon Williston Basin gas processing plant

capabilities, the 100 MBPD probably contains not
less than 25 MBPD, or 25% ethane.

• Ethane content of 25% is problematic for either rail or

truck transport.

8 Badlands NGLS, LLC

 By 2020 Physically Stranded
Bakken NGLs – Northern Border

• NB is the sole WB natural gas pipeline outlet.

• The pipeline's Ventura gas marketing limits heat

content of the gas stream to 1065 Btu/cu.ft.

• By 2020, assuming no change in NB Canadian ethane

content, WB ethane could result in NB exceeding
Ventura gas BTU limits.

• As of 5/16/2016, NB BTUs at Ventura equal

1062.2, containing 121.6 thousand barrels of ethane.

9 Badlands NGLS, LLC

 Ethane Price

As of May 11th, 2016

• Mont Belvieu, TX: 19 cents/gal

• Conway, KS: 15.5 cents/gal

• AECO Canada (BTU): 4.7 cents/gal

10 Badlands NGLS, LLC

 Marcellus
Bakken/ /Utica
35¢
Williston

10.5¢
(Transportation)
19¢
5¢
(Processing)
32¢
20¢

Transportation and processing costs.

 By 2020 Physically Stranded
Bakken NGLs – Y Grade

• ONEOK increased their ethane

recovery since June 2015;
however, it does not help reduce
the BTU value in Northern
Border….why?…the Tsunami!

• Assuming 100% capacity

utilization for ethane export to
Canada, Illinois and Texas,
ONEOK's NGL take-away
capacity will need to almost
double from 165 Mb/d to 240
Mb/d, which may not be
possible at very low NGL prices.

Source: EIA
12 Badlands NGLS, LLC
Here Comes the Tsunami

13 Badlands NGLS, LLC

THE TSUNAMI – Canadian
Supply Increasing

14 Badlands NGLS, LLC

 THE TSUNAMI – Canadian
Supply Increasing
Northern Alliance
Border

15 Badlands NGLS, LLC

 Western Canadian Resources
Montney & Duvernay
• Montney
• Conservative - Reserves 449 Tcf of
natural gas, 14.5 billion bbl of
NGLs and 1.1 billion bbl of oil.
• High Case - Reserves 645 Tcf of
natural gas, 21 billion bbl of
NGLs and 2.4 billion bbl of oil.

• Duvernay
• The Duverney Shale is thought to
contain 443 Tcf of natural gas,
11.3 billion bbls of NGLs, and
61.7 billion bbls of oil.
• Liquids production in the
Duverney would grow from
27,000 b/d in 2015 to more than
320,000 b/d in 2025.

Source: Alberta Geological Survey, Wood Mackenzie Ltd., AER

16 Badlands NGLS, LLC
 Montney & Duvernay

• The Montney formation contains significant amounts

of NGL liquids and the Duvernay formation contains
high concentrations of condensate and NGL liquids.

• The Duvernay produces significant amounts of

condensate. Condensate is priced at a premium to the
WTI oil price. The price realized for NGLs is
secondary to the pricing received from the condensate
sales.

17 Badlands NGLS, LLC

 Canadian Ethane Availability
Outlook – 50% Recovery
1,200 70%

60%
1,000 956
935
915
894
850 867
825 826 829 841
50%
767
800
685 684

504
486
468
627 40%

453
428
595 607

412
400
378
372

377
561 565 559 556 568
kb/d

600 530 530 530 541

%
524

406
490 484 508

321

321
30%

266
275
265
263

281
276
251
236

303

298
255
263

268

400
254
214
231

20%

200
10%

- 0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
HISTORICAL/ACTUAL OUTLOOK

Total Ethane Recovered Potential Ethane Left in Gas/Extracted in Other Markets

Total Ethane Avaialble to Western Canada % of Ethane Recovered

Source: CERI Report August 2015

18 Badlands NGLS, LLC
 Canadian Ethane Availability
Outlook – 70% Recovery
1,200 80%

70%
1,000 956
935
915
894
850 867 60%
825 826 829 841
767

315
800

314
313
50%

313
685 684

312
311
309
307
305
303
627
595 607

300
561 565 559 556 568
kb/d

600 530 530 530 541 40%

%
524
490 484 508

282

297
268
276
265
30%
263

281
276
251
236

303

298
255
263

268

400
254
214
231

20%

200
10%

- 0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
HISTORICAL/ACTUAL OUTLOOK

Total Ethane Recovered Potential Ethane Left in Gas/Extracted in Other Markets

Total Ethane Avaialble to Western Canada % of Ethane Recovered

Source: CERI Report August 2015

19 Badlands NGLS, LLC
 Supply/Demand Imbalance

• Ethane Recovery
• 2014 - 287 MBPD at 50% recovery
• 2021 - 522 MBPD at 70% recovery

• Incremental production - 235 MBPD

• Incremental world scale ethane cracker supply - 2.5

new crackers.

• Number of new Western Canadian crackers

announced/planned - ZERO.

20 Badlands NGLS, LLC

 Western Canada
Ethane Market
• Ethane availability is not the issue, end-use
infrastructure is.
• In 2013 about half of the available ethane is left in
the gas stream. Badlands believes that percentage of
recovery must increase to 70% by 2020.
• BTU content in Northern Border will reach capacity.
• More ethane crackers need to be constructed in
Western North America
• To date, sole new Western North America cracker/PE
licenses announced – Badlands ND/Badlands
Shangri-La

21 Badlands NGLS, LLC

 Molecular Tourism

• While it is possible to understand how oil and gas

producers were less concerned about their midstream
business relationships when crude oil was priced at or
above $100/BBL, at this time, this level of losses
constitute an unsustainable burden on the Bakken E&P
industry.
• Midstream/producer business models that are win/lose
are unsustainable at any WTI price level.
• The bottom line is that undervalued and stranded NGLs
should not be subjected to molecular tourism and
transported by pipeline to distant markets solely for
generating transportation and tolling fees.

22 Badlands NGLS, LLC

 Solution – Part 1

As in the Marcellus, the North Dakota

Oil & Gas industry needs to have an
appropriate balance between long
distance midstream NGL takeaway and
value-added hydrocarbons.

23 Badlands NGLS, LLC

 Solution – Part 2

• PE value-added hydrocarbons should be

developed as close to the wellhead as is feasible
in order to take advantage of ND physically and
economically stranded natural gas liquid
sourced ethane gas; Shell and PTT Marcellus
benefit Marcellus Oil & Gas producers and
Enterprise and Kinder Morgan likewise are an
integral part of economic health of Marcellus
Oil & Gas producers.

24 Badlands NGLS, LLC

 Badlands Gulf Coast
Petrochemical Project
• Badlands is currently developing a near term petrochemical
value added project that will be constructed on the Gulf
Coast.
• Badlands believes that the all-in CAPEX requirements for
the project will be $300 million and will be completed in
2018.
• Assuming some form of monetization of the petrochemical
project at project Financial Close; all or a significant portion
of Badlands required Phase I PE equity contribution should
be available from the value of this near term petrochemical
project.

25 Badlands NGLS, LLC

Badlands Strategy – Shangri-La

• Shell Marcellus and PTT Marcellus support the idea

of building polyolefins close to production.
• 3 Potential Badlands Shangri-La plant sites under
active consideration.
• Most of the potential sites are close to the wellhead,
the railway and the water.
• Badlands has preliminary agreement with major
midstream producers to supply 100% of feedstock
requirements.

26 Badlands NGLS, LLC

 Shangri-La PE Plant

• World Scale PE facilities- 1.5+ million MT of ethane feedstock ethylene and

corresponding PE assets

• Shangri-La- “on the water,” existing 1.5 million MT cracker design, modular
construction, 36 months to hydrocarbons

• Technip cracker- 1.53 million MT…same design being built for SASOL and
Chevron Phillips

• 94 Modules fabricated in Mexico- delivered “on the water” to Gulf Coast

• SASOL most advanced- Firm module delivered price and +/- 10% cracker
installed cost

• Shangri-La Transportation Study confirms “on the water” delivery of 94

modules….2000 construction headcount versus 9000 stick built
headcount….time and money savings
27 Badlands NGLS, LLC
 Technology & Agreements

• Cracker technology - Technip – currently market leader and building three

plants in the U.S. for Sasol, CP Chem and Dow.

• PE technology - Univation – market leader in PE products owned by Dow.

• Captive Co-Monomer Manufacture – “Name Brand”

• Product Off-Take - “Name Brand”

• Feedstock Agreement(s) in advanced discussion

• EPC - Agreement in principal, lump sum turn key

• Financing - advanced stage

• Site Selection - Advanced stage, Shangri-La site close to selection, North

Dakota close to selection

28 Badlands NGLS, LLC

 Shangri-La PE Plant and
Related Assets
• Two Univation 600 KT gas phase PE reactors- up to 24
different PE products (HDPE, bimodal HDPE, butene
LLDPE, hexene LLDPE, metallocene LLDPE)

• According to Univation (formerly Union Carbide) Badlands will

produce the most diverse product line of any Univation licensee

• Co-monomer facility will reduce PE production costs by

$0.11/lb.

29 Badlands NGLS, LLC

 North Dakota PE Plant

• Identical Univation reactors and capacity- Duplicate

Shangri-La facility but assign different catalyst families to
each reactor

• Own electrical generation assets

• Over 500 permanent and high paying North Dakota jobs

• North Dakota has physically and economically stranded

natural gas liquid sourced ethane gas

30 Badlands NGLS, LLC

 Solution – Badlands ND

• The best solution for all Western North American oil and gas
producers - value added polyolefins as close to the wellhead as
possible
• Badlands intends to purchase C1 through C4.
• Crack C2 and produce polyethylene.
• Sell purity C3 and I-C4.
• Isomerize N-C4 and sell I-C4.
• Sell C5 to Canadian market for better price.
• Return “lean gas” to NB pipeline, thereby reducing BTU
content.

• Producers/Badlands polyolefins business plan – Win/Win

31 Badlands NGLS, LLC