Ponderosa Energy’s Weekly Market Bulletin

• Flooding in Missouri and Illinois is impacting crude movements into and out of the area with two pipelines currently offline (Enbridge Ozark from Cushing to Wood River, and Spectra’s Platte pipeline from Guernsey to Wood River). Product terminals also are being impacted because 50 miles of the Illinois River and 81 miles of the Mississippi River have been closed. There are no refinery shutdowns as of this writing, though refinery operations along the Mississippi are at risk if flooding persists. Ponderosa expects the Ozark pipeline shut-in will push Cushing crude stocks higher this week. Sustained flooding may impact terminal and refinery operations through January based on current forecasts.

• EIA reported a 2.6-MMbbl increase in commercial crude oil inventories last week, in line with market expectations and Ponderosa’s current view of U.S. fundamentals. Ponderosa thinks another crude stock build is likely this week. Expect slight downward price pressure.

• Natural gas production declined almost 4 Bcf/d, from 72 Bcf/d to nearly 68 Bcf/d between Dec. 20 and Dec. 28. The drop was largely a result of freeze-offs, and expansion tie-ins in the Northeast, though nearly 1 Bcf/d can’t be attributed to short-term events and is likely a result of voluntary shut-ins and new-well-in-service delays in the face of low prices. Current production has rebounded to 69 Bcf/d. Expect a recovery above 70 Bcf/d as weather-related drops come back online.

Natural Gas • Final, full-year 2015 earning calls will begin their release on Jan. 8 with Synergy Resources, and continue through March. In the Q4 earnings calls, Ponderosa expects further decreases in capital expenditures (capex) in 2016, but no significant change in production in 2016 from 2015 levels given the seemingly ever-decreasing production costs. Ponderosa also expects producers will continue their cost-reduction efforts in both drilling/completion and operating expenditures going forward in light of the low-price environment.

• The first crude export cargo since the repeal of the crude export ban departed from the NuStar terminal at Corpus Christ, Texas, on Dec. 31. Enterprise Products Partners announced on Dec. 23 that it will load its first export of crude oil from the U.S. during the first week of January (the 600,000-barrel cargo of light crude oil is expected to originate from Enterprise Hydrocarbon Terminal on the Houston Ship Channel). Ponderosa expects crude exports will be minimal for at least six months due to the lack of WTI/Brent spread, weak crack spread due to weak distillate prices (relative to gasoline), and short-term export infrastructure bottlenecks.