PLG

1. Logistics Engineering SupplyChain
Lower Oil Price
Implications for the
North American Rail
& Rail Equipment
Markets
Taylor Robinson
President
PLGConsulting
February 20, 2015

2. 2
Boutique consulting firm with team
members throughout North America
 Established in 2001
 Over 100 clients and 250 engagements
Practice Areas
 Logistics
 Engineering
 Supply Chain
Consulting services
 Strategy & optimization
 Logistics assets & infrastructure development
 Supply Chain design & operationalization
 M&A/investments/private equity
Industry verticals
 Energy
 Bulk commodities
 Freight rail
 Institutional investors and private equity
About PLG Consulting
Partial Client List
Lower Oil Price Implications for the North American Rail & Rail Equipment Markets

3. 3
Deep rail industry experience
• Operational
• Commercial
• Design & engineering
• Equipment market
Broad shale development industry client
experience over past four years
• E&P companies
• Refiners
• Terminal developers
• Investors – private equity, hedge funds, investment
banks
• Government agencies, industry trade groups
• Equipment leasing
PLG’s Crude By Rail Qualifications
Diverse projects
• Frac sand supply chain design & implementation
• CBR supply chain optimization
• Rail commercial negotiations
• Rail car acquisition – commercial & technical inspection
• Comprehensive design & engineering – rail, marine,
tankage, product handling, and related facilities
• EH&S training
• Investment advising
• Industry’s only long term,CBR volume forecast with
complimentary rail tank car forecast
Recognized industry thought leader on CBR and
tank car markets
• Numerous industry presentations, articles and advising
Lower Oil Price Implications for the North American Rail & Rail Equipment Markets

4. 4
Phil Ireland
Senior Consultant
Phil has extensive hands-on senior level
experience in supply chain management, asset
sizing, strategy, and network optimization
gained from 30 years working with the
Canadian Pacific Railroad where he was
responsible for development and execution of
the $5 billion revenue plan. Phil has specific
experience in developing crude by rail supply
chain solutions including asset optimization
and pipeline terminal development. Based in
Calgary, he brings special expertise in
Canadian oil sands crude and the associated
transportation, terminaling, producer, and
refining issues.
Professional Experience
 VP Service Design & Asset Optimization,
Canadian Pacific Railway
 Board Member,
Indiana Harbor Belt Railroad
CRUDE BY RAIL / CANADA
Taylor Robinson
President
Taylor brings more than 25 years of executive
supply chain experience spanning automotive,
aerospace, food, and wind turbine industries
before joining PLG as the President. Utilizing
his real-world, global experience, Over the
past two years, Taylor has led PLG to grow
significantly by adding team network bench
strength, expanding their energy practice and
solidifying PLG’s reputation as the
unconventional energy logistics authority.
Professional Experience
 VP Supply Chain and Production, Northern
Power Systems
 Executive VP of Supply Chain, Watts
Water Technologies
 Chief Procurement Officer, HJ Heinz
 Director of Strategic Sourcing, Honeywell
Aerospace
 Procurement Manager, Honda of America
LEADERSHIP
PLG Crude by Rail Experts On the Call
Lower Oil Price Implications for the North American Rail & Rail Equipment Markets

5. 5
ss
Source: CAPP, About Oil Sands
Source: EIA, May 2014
US Shale
Unconventional Energy Resources and ExtractionTechnologies
Western Canadian (WC)
Oil Sands
Source: www.epmag.com
Steam Assisted Gravity Discharge (SAGD)
Horizontal Drilling & Hydraulic Fracturing
Source: Marathon, February 2014
“Moore’s Law”
at play:
Exponential
advances in
technology,
resulting in:
-Declining
costs
-Surging
production
Lower Oil Price Implications for the North American Rail & Rail Equipment Markets

6. 6
Shale Supply Chain and Downstream Impacts
Feedstock (Ethane)
Byproduct
(Condensate)
Home Heating
(Propane)
Other Fuels
Other Fuels
Gasoline
Gas
NGLs
Crude
Proppants
OCTG
Chemicals
Water
Cement
Generation
Process Feedstocks
All Manufacturing
Steel
Fertilizer (Ammonia)
Methanol
Chemicals
Petroleum Products
Petro-chemicals
Inputs Wellhead
Direct
Output
Thermal Fuels Raw Materials
Downstream
Products
Impacts to-date include:
Dramatic reduction in crude imports,
lower electricity costs, lower gasoline prices,
increased refined products exports
The next wave:
Manufacturing renaissance in the US based on
abundant, low cost energy and feedstocks
Lower Oil Price Implications for the North American Rail & Rail Equipment Markets

7. 7
Chemical Industry Growth -- Front End of the N.A. Industrial Renaissance
October 2014
Lower Oil Price Implications for the North American Rail & Rail Equipment Markets
>$130B of announced
projects over 10 years
according to ACC

8. 8
• New extraction technologies
resulting in record production of
gas, natural gas liquids (NGL),
and crude oil
• Water-borne imports of crude
being displaced by domestic
production
• North America on pace toward
full “energy independence” by
2020
The North American Energy Revolution So Far….
Source: CAPP Report, June 2014
Source: RBN Energy, December 2014
Lower Oil Price Implications for the North American Rail & Rail Equipment Markets

9. 9
NA Crude Logistics Pre-2010
Sources: EIA, PLG analysis (Google Earth)
Light/Sweet
Heavy/Sour
Pacific
Northwest
Refiners
California
Refiners
2,525
kbpd
PADDV
Demand
Midwest Refiners
3,375
kbpd
PADD II Demand
East Coast
Refiners
PADD I Demand
1,075
kbpd
LA Gulf Coast
Refiners
TX Gulf Coast
Refiners
PADD III
Demand
8,150
kbpd
Permian
ANS
Imports
Imports
Rail
Pipeline
Marine
OilSands
Imports GOM
Lower Oil Price Implications for the North American Rail & Rail Equipment Markets

10. 10
NA Crude LogisticsToday
Sources: EIA, PLG analysis (Google Earth)
Light/Sweet
Heavy/Sour
Pacific
Northwest
Refiners
California
Refiners
2,525
kbpd
PADDV
Demand
Midwest
Refiners
3,375
kbpd
PADD II Demand
East Coast
Refiners
PADD I Demand
1,075
kbpd
LA Gulf Coast
Refiners
TX Gulf Coast
Refiners
PADD III
Demand8,150
kbpd
Eagle Ford
Permian
Bakken
Rail
Pipeline
Marine
OilSands
GOM
Lower Oil Price Implications for the North American Rail & Rail Equipment Markets

11. 11
…But Oversupply Has Caused Precipitous Price Declines…
Source: RBN Energy, January 2015
WTI, Brent & NaturalGas 2014 and
2015
Citibank cut its crude price forecasts,
saying WestTexas Intermediate (WTI)
could go as low as the $20 per barrel
range before recovering to reach a
new equilibrium.
(Reuters, 2/09/2015)
The market doesn’t understand just
how quickly oil companies are scaling
back their activities, and as a result,
oil prices could rebound faster than
many observers expect.
- Continental Resources CEO Harold
Hamm (Fuelfix, 1/28/2015)
• U.S. shale oil industry has now entered
uncharted territories in its brief history
• Natural Gas and NGL pricing has also dropped
dramatically in a similar timeframe…due to
oversupply and NGL ties to oil prices
• Market experts have widely varied opinions on
what the rest of the year holds for pricing - $10
~ $70 per barrel…
Lower Oil Price Implications for the North American Rail & Rail Equipment Markets

12. 12
Source: Baker Hughes, February 2015
…Shale Oil Rigs Are Falling Quickly…
• Producers have taken the following measures:
• Slashed theirCAPEX by 30-50%+ for 2015
• Stopped drilling exploratory wells
• Focus drilling on known “sweet spots”
• Requesting suppliers for price reductions up to 30%
• Will continue to drill “held by production” wells to maintain land assets – but no production
• Conversely, Canadian oil sands producers are completing in-process wells as they already have
significant investments made
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
U.S. LandOil Rigs
Lower Oil Price Implications for the North American Rail & Rail Equipment Markets

13. 13
U.S.
…However, Crude Oil Production Will ContinueTo Grow
Canada
0
1
2
3
4
5
6
7
8
9
Lower 48 States (exclGOM) Crude Oil Production
(MMBPD), Includes LeaseCondensate
Source: EIA, February 2015
Source: CAPP, January 2015
• ~$50 WTI price is very challenging for all
producers right now
• Cost reduction focus and “sweet spot” drilling
will continue to lower break even cost level
• Smaller, weaker players will fall while stronger
producers will actually grow during downturn
• Oil sands has a 20-50 year view on projects
• Have also cut R&D budgets and delayed
new greenfield projects
• SAGD wells also has lower break even costs
compared to shale wells
• Current pricing is a short term issue from
their perspective
Lower Oil Price Implications for the North American Rail & Rail Equipment Markets

14. 14
0
200
400
600
800
1,000
1,200
1,400
1,600
0
50,000
100,000
150,000
200,000
250,000
OperatingU.S.LandOilRigs
CarloadsHandled
U.S. Land Oil Rigs
All Sand Carloads
Petroleum Carloads
RailTraffic Impact - Frac Sand vs. Crude by Rail
Lower Oil Price Implications for the North American Rail & Rail Equipment Markets

15. 15
2009-2011
• CBR developed from the
Bakken to bridge the gap until
pipelines are built
• First unit train shipment in
Dec. 2009
• Destination market: Cushing,
OKWTI trading hub
2011-2013
• Ascendancy of trading as main growth driver
in CBR; WTI-Brent-LLS differentials are key
• St. James, LA LLS hub becomes most
attractive destination
• Coastal refineries begin rail receipt
infrastructure build-out
• Tank car market overheats, becomes main
growth constraint
2013-current
• CBR from Bakken assumes long-term structural
role in crude oil market
• Bakken CBR transitioning to east and west
coast markets; LLS andWTI converge as
Permian and Eagle Ford growth floods USGC
• Canadian CBR build-out begins; tank car
market reorienting to coiled/insulated car types
(~2/3 of CBR fleet order backlog)
Historical U.S. Crude-by-Rail Growth
0
200
400
600
800
1,000
1,200
2010-Q1
2010-Q2
2010-Q3
2010-Q4
2011-Q1
2011-Q2
2011-Q3
2011-Q4
2012-Q1
2012-Q2
2012-Q3
2012-Q4
2013-Q1
2013-Q2
2013-Q3
2013-Q4
2014-Q1
2014-Q2
2014-Q3
2014Oct
2014Nov
U.S. Crude by Rail Volumes (kbpd)
US Crude Originations Bakken Crude Originations
0
200
400
600
800
1,000
1,200
1,400
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
US Bakken Basin Crude Production and Rail
Transport (kbpd)
Production Crude by Rail
Lower Oil Price Implications for the North American Rail & Rail Equipment Markets

16. 16
Historical Canadian Crude By Rail Growth
Source: National Energy Board (Canada), January 2015
» Canadian CBR lower in 2014 then predicted
 Shutdown of Canexus Bruderhiem loading terminal due to pipeline issues – was largest loading terminal in Western
Canada
 Delays in opening of other unit train loading terminals in Western Canada
 Tighter differentials between Canadian and U.S. landed import heavy crude prices since Q1 2014
 Approximately 85 kbpd of crude was also moved within Canada in addition to above export volumes
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
2012-Q1 2012-Q2 2012-Q3 2012-Q4 2013-Q1 2013-Q2 2013-Q3 2013-Q4 2014-Q1 2014-Q2 2014-Q3
Canadian Crude Oil Exports by Rail (bbl per day)
Lower Oil Price Implications for the North American Rail & Rail Equipment Markets

17. 17
Pipeline Build-out Remains Key Logistics Issue for Oil Sands
Current pipelines are at capacity with higher
apportionment due to maintenance and expansion
Oil Sands pipelines are under intense scrutiny and
subject to court challenges and protests in U.S. and
Canada
 NEB has extended its review ofTrans Mountain expansion by 7
months
 Recent Canadian Supreme Court ruling gives more power to First
Nations in land claims
Innovation with existing pipelines increasing capacity
 Enbridge has temporarily switched the flows of AlbertaClipper and
Line 3 on 17.5-mile segment across the U.S.-Canadian border
 Will maximize the flows under existing permits until the
Department of State review is completed on expansion
 IncreasedAlbertaClipper flows by 27% to 570 kbpd in September
2014 and potentially up to 800 kbpd in 2015
Large Canadian oil producers and pipeline companies
are strategically investing in CBR as a flexible option to
pipelines for the short and long term
Likely Built Within
Medium Term (~2019)
 Trans Mountain Express
(Kinder Morgan)
 Alberta Clipper
(Enbridge)
 Keystone XL
(TransCanada)
Likely Delayed
Until 2020 or Later
 Northern Gateway
(Enbridge)
 Energy East
(TransCanada)
Lower Oil Price Implications for the North American Rail & Rail Equipment Markets

18. 18
North American CBRVolume Forecast
-
100
200
300
400
500
600
700
800
900
2013 2014 2015 2016 2017 2018 2019
North American Crude by Rail Volume Forecast (kbpd)
Bakken
Western Canada
Niobrara
Permian
Source: PLG Crude by
Rail & Tank Car
Forecast, Feb. 2015
Note: Based on current
$50-55WTI price
remaining constant
Lower Oil Price Implications for the North American Rail & Rail Equipment Markets
• Bakken & Oil Sands are main drivers of CBR volumes, accounting for
~87% of NA movements in 2017
• Other plays such as Niobrara and Permian are seeing increasingCBR
activity but will be adequately served by pipelines long-term

19. 19
Bakken Production andTakeaway Share
CBR share of production expected to remain stable due to the
optionality it provides and the lack of pipeline options to the key
markets onWest and East Coast
-
200
400
600
800
1,000
1,200
1,400
1,600
2014 2015 2016 2017 2018 2019
Bakken Takeaway Forecast (kbpd)
Crude by Rail Forecast
Pipeline Forecast
Local Refinery Forecast
Note: Based on current
$50-55WTI price
remaining constant
Source: PLG Crude by
Rail & Tank Car
Forecast, Feb. 2015
Lower Oil Price Implications for the North American Rail & Rail Equipment Markets

20. 20
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
2014 2015 2016 2017 2018 2019
Western Canada Takeaway Forecast (kbpd)
CBR Forecast
Pipeline Forecast
Local Refinery Forecast
Note: Based on current
$50-55WTI price
remaining constant
Western Canada Production andTakeaway Share
Source: PLG Crude by
Rail & Tank Car
Forecast, Feb. 2015
Lower Oil Price Implications for the North American Rail & Rail Equipment Markets
Proportion of production handled by rail expected to ramp up through
2017 and then drop back as pipeline capacity starts to develop

21. 21
Industry Awaiting U.S. DOT PHMSA Decision – May 2015
NPRM (July 2014) addressed following key areas:
 Classification & characterization of mined gases and liquids
 Rail routing risk assessment
 Reduced operating speeds
 Enhanced braking
 Three tank car options announced for HHFT trains – Option 2 (9/16” tank, no enhanced
braking) is likely the new standard
Recent accidents continue to put pressure on increasing tank car
safety specifications
Current rail tank car market conditions
 New-build backlog is 20-24 months and most/all orders have “no cancellation” clauses
 New order active on “pause” till new rules announced in May
 Some orders for 9/16” cars already on order books
 Current lease price ~$1,900 / month
 Spot market rate is ~$1,000/month or lower, very soft market
 Numerous crude oil sets are in storage, leading to improved operations and availability
of power which was in short supply
 Industry in a holding pattern - general sentiment is “wait and see”
Tank Car
Insulation
Top Fittings Housing
Manway
Tank
Jacket
Tank Shell
Tank Head
Head Shield
Source: API with PLG simplification
Bottom Outlet
Valve/Protection Skid
Lower Oil Price Implications for the North American Rail & Rail Equipment Markets

22. 22
Small Covered Hoppers – Market Update
Current market is one of “mixed signals”
 Significant activity in short-term subleasing and railcar storage
 Some shifting of new-build delivery schedules
 Minimal outright cancellations of car orders
 “Mixed signals” should be expected due to oil price volatility and continual revisions to 2015
well completion plans
Availability positions are showing some “cracks”
 New-build production schedules are “full” through mid-2016….for now
 A few late-2015 low volume, new-build slots are available through negotiation
 Overriding attitude for 2016 production is “wait and see”
Typical full service lease rates are currently $650 - $675, down from late Q3
2014 (was over $700)
Frac sand shippers/receivers will continue to move towards more efficient
methods of rail transportation, especially with heightened pressure on frac
sand delivered cost per ton
Cement consumption is expected to grow by 8%+ in 2015
 Cement railcar lessees are carefully watching the market for lease opportunities
Plastic pellet cars are successfully competing for small hopper build capacity
Lower Oil Price Implications for the North American Rail & Rail Equipment Markets

23. 23
Presentation Summary
We are in the early innings of the North American
energy revolution
 Natural gas – the first shale “oversupply” example
 Crude oil – new shale and maturation of Canadian oil sands
 NGL – a valuable byproduct from natural gas and crude drilling
 Downstream chemicals and manufacturing – coming soon!
Lower hydrocarbon pricing environment is mainly
caused by oversupply
 Pricing will speed up cost reduction throughout supply chain
 Industry consolidation will ensure long term global
competitiveness
 Lower oil prices will dampen growth profile for shale oil and
crude by rail volume in the short term
 Tank car and small covered hopper market has shifted gears to
“neutral” for now
Expect volatility in the middle and later innings as well!
Lower Oil Price Implications for the North American Rail & Rail Equipment Markets

24. Logistics Engineering SupplyChain
ThankYou !
For follow up questions and information,
please contact:
Taylor Robinson, President
+1 (508) 982-1319 / trobinson@plgconsulting.com
This presentation is available for download at:
http://plgconsulting.com/category/presentations/