1. GROPPE, LONG & LITTELL
OIL AND GAS ANALYSTS AND FORECASTERS
H E N R Y G R O P P E E . W . L O N G , J R . G E O R G E S . L I T T E L L
1 1 1 1 B A G B Y , S U I T E 2 3 3 0 P H O N E ( 7 1 3 ) 6 5 8 - 1 1 9 3 W E B S I T E w w w . g r o p p e lo n g . c o m
H O U S T O N , T E X A S 7 7 0 0 2 F A X ( 7 1 3 ) 6 5 8 - 1 1 9 6 E M A I L g ll@ g r o p p e lo n g . c o m
WORLD OIL AND NORTH AMERICAN
NATURAL GAS OUTLOOK
November 2006

2. PETROLEUM INDUSTRY FUNDAMENTALS
• Depletion is relentless.
• Explorationists seek largest and most profitable
deposits first.
• Production rises initially, peaks and irreversibly
declines.
• United States crude oil production rose 50
percent from 1945 to 1970, peaked and declined
almost 50 percent since.
1

3. OIL SUMMARY CONCLUSIONS
• World crude oil production is peaking and will
decline irreversibly.
• Security and stability concerns are growing in
exporting countries – Saudi Arabia, Russia,
Venezuela, Iraq, Iran, Nigeria – which account for
over 40 percent of world crude oil supply.
• Liquids from the growing international natural gas
industry will supplement crude oil supplies.
• High prices are required to constrain consumption.
There is no such thing as scarcity and no such
thing as surplus. There is only price.
• 100,000 barrel per day supply change moves the
price $1 per barrel.
• Transportation is the dominant growing use for oil.
• High cost oil will be replaced with cheaper natural
gas and other substitutes in stationary fuel use in
developing economies as occurred in OECD
countries in the last oil crisis.
• The world oil industry will continue to operate
essentially at capacity with permanent major price
volatility.
2

4. GAS SUMMARY CONCLUSIONS
• North American natural gas production has
already peaked.
• LNG imports will grow.
• Canadian imports will decline.
• Total supply will decline.
• High prices will drive substitution of lower cost
fuels in industrial and power generation use.
• Nuclear power expansion is the logical long-
term solution.
3

5. 4
0
25
50
75
100
125
150
175
200
Million Barrels
Per Day
Oil Equivalent
Petroleum 38%
Natural Gas 24%
Coal 24%
Renewables 8%
Nuclear 6%
Petroleum 41%
Natural Gas 23%
Coal 22%
Renewables 6%
Nuclear 8%
World
United
States
United States
% of World Energy
Consumption
Petroleum
Natural Gas
Coal
Renewables
Nuclear
25%
23%
21%
18%
31%
United States % of
World Population 6%
Oil & Gas Texas % of
US World
Production 25 3
Consumption 17 4
WORLD AND UNITED STATES
ENERGY CONSUMPTION
2003

6. 5
WORLD CRUDE OIL DISCOVERY RATES
0
10
20
30
40
50
60
70
80
90
100
1930 1940 1950 1960 1970 1980 1990 2000 2010
Billion
Barrels
Annual Discovery
Annual Production

7. UNITED STATES CRUDE OIL DISCOVERY RATE
Lower 48 States Onshore
0
1
2
3
4
5
6
7
8
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
Billion
Barrels
Oil fields larger than 100 million barrels
Annual Discovery
Annual Production
6

8. CRUDE OIL PRICE
WTI Or Equivalent
0
10
20
30
40
50
60
70
80
90
100
1870 1890 1910 1930 1950 1970 1990 2010 2030
2004 $
Per Barrel
Era of Plenty
& U.S. Control
Era of Scarcity &
Price Rationing
$36 Average
$13 Average
Era of Transition
& OPEC Control
U.S. Production
Peaked
World Production
Peaking
Price?
1870 1970 2004 2030
7

9. 8
WORLD CRUDE OIL PRODUCTION
0
10
20
30
40
50
60
70
1945 1955 1965 1975 1985 1995 2005 2015
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
Arabian Light Price
(Right Scale)
Million Barrels
Per Day $/Barrel
Production
(Left Scale)
Actual Forecast

10. 9
WORLD PETROLEUM PRODUCTION
0
10
20
30
40
50
60
70
80
90
100
110
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Million Barrels Per Day
78.0
36.0
25.5
Other Non-OPEC Crude Oil
Eastern Europe Crude Oil
OPEC Crude Oil
NGL ** 62.7
75.6
Other *
* alcohols, coal liquefaction, and gas to liquids
** condensate, natural gasoline, butanes, propane, and ethane
80.2
68.7
39.9
28.9
Actual Forecast
EIA
Forecast

11. 10
OIL EXPENDITURES RELATIVE TO
GLOBAL ECONOMIC ACTIVITY
0
1
2
3
4
5
6
7
8
Percent of
Global Gross
Domestic
Product
Crises of
1970’s & 1980’s
OIL EXPENDITURES
Current at $60
per Barrel Oil

12. WORLD PETROLEUM USE BY SECTOR
0
10
20
30
40
50
60
70
80
Million Barrels
Per Day
Transportation 51%
Residential &
Commercial
10%
Industrial & Power 27%
12%Raw Material
World
United
States
Transportation 67%
Residential &
Commercial
7%
Industrial & Power 10%
16%Raw Material
11

13. UNITED STATES PETROLEUM
PRODUCTION AND CONSUMPTION
Million Barrels Per Day
0
2
4
6
8
10
12
14
16
18
20
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Production
Consumption
12

14. 0
50
100
150
200
250
300
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
OIL AND GAS IMPORT COST
Billions of Dollars
13

15. 14
0
100
200
300
400
2005 2010 2015 2020 2025
CHINA & INDIA PROJECTED ECONOMIC GROWTH
8% per yr
Cumulative
Percent

16. 0
10
20
30
40
50
60
70
80
90
100
110
120
ENERGY COST
ENERGY CONSUMED FOR ENERGY PRODUCTION
Oil
1970
Energy Consumed
Percent Of Gross
Energy Input
Oil
1985
Oil From
Oil SandsLNG
Ethanol
From Corn
Gas to
Liquids
15

17. 16
U.S. NATURAL GAS CONSUMPTION,
PRODUCTION AND PRICE
0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
Billion Cubic Feet
Per Day $/MMBTU
Production
Consumption
Average Wellhead Price
(Right Scale)
Imports
& Other
Actual Forecast
LNG

18. UNITED STATES NATURAL GAS PRODUCTION
17
0
5
10
15
20
25
30
35
40
45
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Bcfd
Tight
Coalbed
Associated
Offshore
Onshore Lower 48
Conventional
(Non-Associated)
Price Controls
Section 29 Tax Credits
Actual Forecast
LNG
Canadian
Imports

19. UNITED STATES NATURAL GAS
DRILLING AND PRODUCTION
18
0
2,500
5,000
7,500
10,000
12,500
15,000
17,500
20,000
22,500
25,000
27,500
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
0
1
2
3
4
5
6
7
8
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
$0
$1
$2
$3
$4
$5
$6
$7
$8
Average
Wellhead
Price
$/MMBTU
Gas Well
Completions
Gas
Production
Bcfd
Total
Production
Well
Completions
Average
Wellhead
Price
0
2,500
5,000
7,500
10,000
12,500
15,000
17,500
20,000
22,500
25,000
27,500
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
0
10
20
30
40
50
60

20. UNITED STATES NATURAL GAS
DRILLING PRODUCTIVITY
19
0
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Average First Year
Production Per
New Well - Mcfd

21. 20
UNITED STATES NATURAL GAS CONSUMPTION
Billion Cubic Feet Per Day
0
10
20
30
40
50
60
70
1973 1978 1983 1988 1993 1998 2003 2008 2013
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
Bcf/d
Residential &
Commercial
Boiler Fuel
& Other
46.9
60.8
42.0
24.3
Fuel Use Act
$/MMBTU
Average Wellhead Price
(Right Scale)
59.6
21.7
Actual Forecast