the world beyond - ipaa
TRANSCRIPT
Strategic Advisors in Global EnergyStrategic Advisors in Global EnergyStrategic Advisors in Global Energy
The World Beyond:Opportunities and Challenges in Global Energy Investing
IPAA Private Capital Conference
By Robin West
25 February 2010
IPAA Lunch | Page 2
A Little Perspective
IPAA Lunch | Page 3
0
20
40
60
80
100
120
1995 2000 2005 2010 2015 2020 2025 2030
(mmb/d)
Non-OPEC Crude, NGL, & Condensate * Non-OPEC Oil Sands
Biofuels & Other Liquids OPEC Crude, NGL, & Condensate
0.5% Demand Growth 1.5% Demand Growth
1.0% Demand Growth
Danger of Future Supply Crunch Remains
* Includes Refinery Gain
2020 call on OPEC
~25–37 mmb/d
given 0.5% - 1.5% growth
Source: PFC Energy Global Liquids Supply Forecast
OPEC Crude NGL & Condensate
Non-OPEC Crude, NGL, & Condensate
IPAA Lunch | Page 4
Its Their Oil: Increasingly Limited Access—Particularly to the Easiest Reserves
Source: PFC Energy, Oil & Gas Journal, BP Statistical Review
1%
14%85%
Full IOC
Access
1970
Soviet
Reserves
NOC Reserves
(Limited Equity Access)
NOC Reserves
(Equity Access)
Full IOC
Access
Reserves Held
by Russian
Companies
NOC Reserves
(Limited Equity Access)
2009
IPAA Lunch | Page 5
0
1
2
3
4
5
mb
oe/d
CVX XOM BP RDS
SuperMajors Seem Unable to Grow
Chevron –
Texaco 2001
Exxon –
Mobil 1999
BP – Amoco
1998
BP/Amoco –
Arco 2000
TNK-BP
2003
Chevron –
Unocal 2006
Source: PFC Energy
IPAA Lunch | Page 6
Value is Migrating to the Traded NOCs
▪ In 1999, traded NOCS made
up 1% of the combined value
of the PFC Energy 50
companies; this share was
32% in 2009
▪ In a decade, this set
expanded from two
companies (Petrobras,
Gazprom) with a combined
value of worth $22 bn to
eleven companies worth $1.2
trillion
▪ Unlike the SuperMajors,
these companies promise
– Growing demand
– Access to resources
Value of PFC Energy 50 by segment (%)
Source: PFC Energy PFC Energy 50
IPAA Lunch | Page 7
There Are Exceptions, But NOC Control Means Less Investment
▪ NOCs tend to
invest less than
IOCs in the
upstream sector
▪ NOCs with
declining sectors
need major
investments
▪ NOCs with
growing
production (e.g.
Petrobras) need
access to capital
ExxonMobil
BP
Shell
Chevron
COP
TOTAL
LUKoil
Eni
EnCana
PetroChina
Petrobras
Saudi Aramco
Gazprom
PEMEX
PETRONAS
PDVSA
Sinopec
Statoil
Rosneft
Sonatrach
NIOC
$-
$5
$10
$15
$20
$25
$30
$35
0 2,000 4,000 6,000 8,000 10,000
20
08
E&
P S
pe
nd
pe
r B
oe
Pro
du
ce
d (
$/b
oe
)
2008 Production (mboe/d)
2008 Production & Upstream Spend per Boe Produced:Largest IOCs vs. Largest NOCs
IOCs
NOCs
Largest NOCs Spend Substantially Less than the Largest IOCs
IPAA Lunch | Page 8
Expect Dramatic Shifts in the Global Competitive Landscape 2010-2020
▪ Independents focused on the
“incremental” gas shale play (tight
gas) with enormous impacts on
aggregate North American supply
▪ The number of NOCs overseas
accelerated
▪ Large mergers reached a stopping
point with ChevronTexaco
▪ Oil sands investment in Canada
took off
▪ The world’s largest deepwater play
was led by a NOC
▪ Independents made substantial
impacts in new conventional plays
overseas
2000-2010
▪ Tight gas technology will spread
overseas, with success & failure
▪ Global Players move further into
the North American tight gas
play, reversing a 20 year pattern
▪ Deteriorating downstream value
makes global players
disaggregate – opening way for
large mergers
▪ Independents continue
substantial impacts in new
conventional plays overseas
▪ Tight oil play takes off in the US
▪ Tight oil play spreads faster with
greater impact overseas than
tight gas
2010-2020
IPAA Lunch | Page 9
The New Hot International Destination: US!
▪ Gazprom Marketing & Trading USA Inc. begins buying and selling
wholesale gas in the US
▪ Petrobras exercises its preference right to acquire 50% of Devon’s
participation interest in the Cascade field in the GOM
▪ Maersk Oil pays $1.4 billion for Devon’s 25% working interest in
the Jack Lower Tertiary development in the GOM
▪ BP, Statoil and TOTAL invest nearly $5 billion, plus similar amount
in carried costs, in Chesapeake’s unconventional gas plays
▪ ExxonMobil makes $41 billion purchase of XTO
▪ Mitsui invests $1.4 billion to participate in Anadarko’s Marcellus
Shale development
IPAA Lunch | Page 10
Going International
IPAA Lunch | Page 11
Cairn in India Led to Discovery of ~1 bnbbls of Recoverable Reserves – Extends Indian Plateau
0
100
200
300
400
500
600
700
800
900
1,000
19
65
19
70
19
75
19
80
19
85
19
90
19
95
20
00
20
05
20
10
20
15
20
20
Da
ily
Pro
du
cti
on
(m
bo
pd
)
Exploration
PUDsNew Source
Base ProductionActual Production
▪ Cairn’s Mangala, Bhagyam,
Aishwarya complex of oil fields
onshore Rajasthan will add
enough incremental oil
production in 2009/10 to extend
the production plateau of the last
20 years into the early part of the
next decade
1996
Cairn Acquires
Command Petroleum
(interest in Ravva)Corporate
Acquisition
1997
Bought 10% interest from
Shell in Rajasthan
onshore block (RJ-ON-
90/1)
1998
Bought 40% interest
from Shell in
Rajasthan onshore
block (RJ-ON-90/1)
2002
Bought 50% interest from
Shell in Rajasthan
onshore block (RJ-ON-
90/1) for $7.25 mmAsset
Acquisition
Source: PFC Energy Global Liquids Supply Forecast
IPAA Lunch | Page 12
0
50
100
150
200
250
300
350
400
450
500
19
65
19
70
19
75
19
80
19
85
19
90
19
95
20
00
20
05
20
10
20
15
20
20
Da
ily
Pro
du
cti
on
(m
bo
pd
)
Exploration
PUDs
New Source
Base Production
Actual Production
What Triton (Hess) did for Equatorial Guinea
Ceiba
Volumes
North Block G
Volumes
Provided new oil volumes as Zafiro was peaking
Source: PFC Energy Global Liquids Supply Forecast
IPAA Lunch | Page 13
Kosmos, Tullow and Anadarko Changed the West African Margin Play
Ghana: Oil Production Forecast by Reserve Category
0
100
200
300
400
500
600
19
85
19
90
19
95
20
00
20
05
20
10
20
15
20
20
20
25
20
30
Da
ily
Pro
du
cti
on
(m
b/d
)
Base Production New SourcePUDs ExplorationActual Production
Additional Success Outside Ghana
Source: PFC Energy Global Liquids Supply Forecast
IPAA Lunch | Page 14
Tullow Continued the East Africa Play
East Africa rift play was hot in the 1980s, but failed
outside Sudan; Tullow came back to it
Uganda: Oil Production Forecast by Reserve Category
0
50
100
150
200
2501
98
5
19
90
19
95
20
00
20
05
20
10
20
15
20
20
20
25
20
30
Da
ily
Pro
du
cti
on
(m
b/d
)
Base Production New SourcePUDs ExplorationActual Production
Source: PFC Energy Global Liquids Supply Forecast
IPAA Lunch | Page 15
Excellent Opportunities Exist for Companies That Bring Real Expertise—e.g. Drilling Efficiencies
▪ North America is far and away
the world’s expert on land
drilling. Of the 1.7 million wells
that were drilled between 1980
and 2008, 90% were drilled in
North America
▪ US technology, expertise and
competition have delivered
extraordinary productivity
improvements—resulting in
step-function cost reductions—
for unconventional gas
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
1980 1985 1990 1995 2000 2005
Cumulative Number of Wells
Drilled Since 1980 (Land)
North America ROW
Gas Rig Count and Production
500
700
900
1,100
1,300
1,500
1,700
(2,000) (1,000) - 1,000 2,000 3,000 4,000 5,000
Yr-on-Yr Change in Gross Onshore Prod in mmcf/d
Gas R
ig C
ou
nt
2000
2001
2002
2003
2004
2005
2006
2007
Source: EIA, Baker Hughes, PRC
Learning/Efficiency
Source: PFC Energy Global LNG Service
IPAA Lunch | Page 16
International Interest in Unconventional Gas, but Potential Looks Smaller…
Sources: PFC Energy Global LNG Service; NPC 2007; Rogner 1997
Coal Bed Methane
Tight Gas
Shale Gas
Estimated Resources
8.2
9.7
5.5
3.4
3.4
1.1
1.0
Continent total shown in
quadrillion cubic feet
IPAA Lunch | Page 17
…and Few of the Prerequisites for Unconventional Gas Plays are in Place Elsewhere Today
▪ Large and capable service sector with pre-positioned equipment
▪ Experienced field and drilling personnel
▪ Multitude of small players drilling aggressively and learning fast
▪ Sophisticated land title system
▪ Gas gathering infrastructure
▪ Good roads, bridges and other physical access
▪ Appropriate legislation/regulation
IPAA Lunch | Page 18
As More Countries’ Fields Mature, US EOR Expertise Will be in Demand Internationally
19
65
19
70
19
75
19
80
19
85
19
90
19
95
20
00
20
05
USA Romania
IndonesiaTunisia
PeruDem Rep Congo
CameroonOther Europe
EgyptPakistan
Papua New GuineaSyria
UKGabon
UzbekistanNorway
OmanNew Zealand
ArgentinaCongo
ColombiaAustralia
YemenDenmark
MexicoChad
Equatorial GuineaBrunei
MalaysiaIndia
ChinaTurkmenistan
SudanRussia
Countries in Plateau
Countries in Decline
Duration of Plateau
Onset of DeclineOnset of Plateau
Source: PFC Energy Global Liquids Supply Forecast
IPAA Lunch | Page 19
A Huge New Play
▪ Areally extensive shale resource
– USGS estimated OOIP of 414 bbo
– Very low permeability (<5% recovery)
▪ Accelerating development
– Started in 2000 with Elm Coulee field in Montana, but shifted to N. Dakota
– Intensive development from 2005- 1H 2008
– Squeezed into unprofitability by collapse of oil prices
– Window of profitability has re-opened as costs have plummeted
IPAA Lunch | Page 20
In the Bakken, Initial Month Production Per Well Has Doubled Since 2000
▪ Well productivity has grown materially
▪ Driver of real growth is ability raise both activity and the portion of
wells in top productivity categories
– Learning spreads
– Experience grows, meaning fewer mistakes
IPAA Lunch | Page 21
Bakken Shale Production Forecast: 1200 Wells/yr
0
50
100
150
200
250
300
350
400
450
500Jan-0
0
Jan-0
1
Jan-0
2
Jan-0
3
Jan-0
4
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Vin
tag
e P
rod
ucti
on
(m
b/d
)
Pre-2000 2000 2001 2002 2003
2004 2005 2006 2007 2008
2009 2010 2011 2012 2013
Tight Shale Promises Incremental Gains – But Gas Shale Seemed Incremental, Until The Numbers Added Up
IPAA Lunch | Page 22
You Can Make Money: International Independents Delivered More Value
▪ Average return for companies with operations in North Africa, Middle East
and Central Asia: 41%
▪ Average return for companies focused on North America: 13%
Source: PFC Energy Upstream Competition Service
-40% -20% 0% 20% 40% 60% 80% 100%
StoneStratic
S&P 500Forest
SwiftPioneerCimarex
UnitHeritage
CalvalleyNewfield
PlainsTransglobe
MelroseChesapeakeQuicksilver
DevonQuestar
BerryCircleHusky
ATP Oil & GasEnCana
PetrocelticEOG
CabotUltraDNO
DenburyCNR
EmeraldDragon
PA ResourcesSouthwestern
Average AnnualTSR 2004 to 2009 (%)
IPAA Lunch | Page 23
Liquidity Ratio 20%
Primary Fiscal Balance 20%
Net External Financing Needs 20%
Real per capita GDP Growth 20%
Oil Sector Dependency 10%
Economic Openness 10%
Total PRM Score
Country Economics 20%
Country Politics 20%
Oil Sector Entry 20%
Oil Sector Operations 20%
Oil Sector Surprises 10%
Social 10%
Country Economics: 20% Country Politics: 20%
Political Violence 25%
Rogue Factor 25%
Political Legitimacy 15%
Government Volatility 10%
Rule of Law 15%
Political Competition 10%
Oil Sector Entry: 20%
Government Take 35%
International Openness 20%
NOC Influence 15%
NOC Mandate 15%
Expeditiousness of Contract 15%
Oil Sector Operations: 20%
Facility and Personnel Violence 35%
Sanctity of Contract 20%
Expeditiousness of Operations 10%
Regulatory Burden 15%
Energy Sector Corruption 15%
Contract Type 5%
Oil Sector Surprises: 10%
Natural Disasters 35%
Export Risk 35%
Labor Unrest 15%
Ministerial Volatility 15%
Social: 10%
Civil Society Influence 50%
Environmental Regulatory
Capacity 30%
Local Environment 20%
But Need To Assess Risk, Which Has Many Different Ingredients
Source: PFC Energy Petroleum Risk Manager
IPAA Lunch | Page 24
Conclusions
▪ There are always international opportunities for companies that
bring real expertise—but if they were easy, someone would
already have done them
▪ Independents can thrive in the gap between the ambitions and
capabilities of NOCs with technically challenging portfolios
▪ There are international opportunities to export US tight (oil and
gas) reservoir technology
▪ International E&P is not easy, but the breadth and depth of
international opportunities can be very large—even those that
appear “incremental” to the global players, at least initially
▪ Companies that work to understand the real risks and manage
these can be very successful
▪ For companies with a comparative advantage funding is
increasingly available
Strategic Advisors in Global Energy
Main regional offices:
Asia
PFC Energy, Kuala Lumpur
Level 27, UBN Tower #21
10 Jalan P. Ramlee
50250 Kuala Lumpur, Malaysia
Tel (60 3) 2172-3400
Fax (60 3) 2072-3599
PFC Energy, China
Kerry Center N-1137
1 Guanghua Road
Chaoyang District
Beijing 100020, China
Tel (86 10) 6599-7937
Fax (86 10) 6530-5093
Europe
PFC Energy, France
19 rue du Général Foy
75008 Paris, France
Tel (33 1) 4770-2900
Fax (33 1) 4770-5905
PFC Energy International,
Lausanne
19, Boulevard de la Forêt
1009 Pully, Switzerland
Tel (41 21) 721-1440
Fax: (41 21) 721-1444
Middle East
PFC Energy, Bahrain
Bahrain Financial Harbor (BFH)
East Tower
5th Floor
P.O. Box 11118
Manama- Bahrain
Tel (973) 7705 8880
North America
PFC Energy, Washington D.C.
1300 Connecticut Avenue, N.W.
Suite 800
Washington, DC 20036, USA
Tel (1 202) 872-1199
Fax (1 202) 872-1219
PFC Energy, Houston
4545 Post Oak Place, Suite 312
Houston, Texas 77027-3110, USA
Tel (1 713) 622-4447
Fax (1 713) 622-4448
www.pfcenergy.com | [email protected] regional offices are shown in blue.
PFC Energy consultants are present in
the following locations:
Beijing
Brussels
Delhi
Ho Chi Minh City
Houston
Kuala Lumpur
Lausanne
London
Manama
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New York
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Washington, DC