Economics Society of Northern Alberta

Transcription

1 December 214 Economics Society of Northern Alberta 215 Outlook Conference Oil & Gas Outlook Randy Ollenberger Managing Director BMO Capital Markets

2 Crude Oil Outlook Collapse in crude oil prices due to combination of financial and fundamental factors Unwinding of speculative position Return of Libyan production Weaker demand growth Current price levels are not sustainable Global supply costs support oil price of $9-$1/bbl Shale oil supply costs are not the only costs that matter Cash flow breakeven for the industry is $9-$1/bbl The US industry cannot sustain growth below $8/bbl Slide 2

3 WTI Speculative Net Interest Thousands Slide 3 QE2 Starts Speculative interest in crude oil spiked with the start of QE 2 Liquidity Inflation hedge Global growth stimulus Positioning now being unwound QE 2 over Deflation concerns Lack of meaningful growth outside of US Further reduction in speculative interest could lead to further near-term downside

4 Looser Market Balance Million b/d Slide 4 Source: International Energy Agency Non-OPEC OPEC Demand Sharp drop in OPEC (Libya) production tightened market in 213 Libya production dropped 1 million b/d from Q1/13 to Q1/14 OPEC production dropped 4, b/d Non-OPEC production increased 1.1 million b/d Y-o-Y increase in demand is not enough to accommodate a full return of Libyan production and expected growth in non- OPEC supply

5 Oil Sands vs Tight Oil $/bbl 14 $/bbl Tight Oil Oil Sands 3 Yr Avg Tight Oil 3 Yr Avg Oil Sands Slide 5

6 Global Oil Supply Cost Proved Reserves (Bn bbl) Cumulative % of Reserves 12% 1% 8% 6% 4% 2% % Oil Supply Cost (US$/boe)

7 Oil Price vs Global Supply Cost US$213/bbl 12 1 Brent Price 8 6 Supply Cost 4 2, Company Reports Slide 7

8 US Oil Production Sensitivity b/d 6, 5, 4, 3, 2, 1, Cash flow breakeven is materially higher than economic breakeven US oil production is very sensitive to changes in prices due to higher decline rates 54 company sample accounts for 75% of anticipated growth in US supply over next three years Rapid growth cannot be sustained at $8 oil Slide 8 $8 Brent $1 Brent

9 Myth #1: Oil Sands is High Cost Marginal Source of Supply US shale has emerged as a low cost alternative source of supply Production could increase by another 3 million b/d Concern that US shale oil could back oil sands out of the market Oil sands is cost competitive with shale oil US refiners need access to heavy supplies to optimize refining profitability

10 Cash Costs by Type $/bbl 7 6 Mining Cash Cost In Situ Cash Cost 2 1 MEG CVE SU HSE CLL SU* CNQ COS SU Opex Royalty Transport

11 Cash Costs Trends $/bbl In Situ Bitumen Integrated Mining

12 Cash Cost Sensitivity $/bbl 5 45 In Situ Bitumen Integrated Mining Brent Crude (US$/bbl) Opex Royalty Diluent

13 Cash Costs vs Oil Price $/bbl Royalties Opex Other WTI US$/bbl Cdn Par C$/bbl

14 Oil Sands Supply Costs $/bbl Athabasca In Situ Cold Lake In Situ Mineable 1, 2, 3, 4, 5, 6, Remaining Established Resource (mmbbls)

15 Oil Sands Mining Supply Costs by Type $/bbl Existing Brownfield/Expansion Greenfield

16 Oil Sands Supply Costs by Project $/bbl In Situ Mining Avg Mining Avg In Situ 189

17 Bakken vs Oil Sands $/boe 5 F&D $/boe Supply Cost Oil Sands 3-yr Average Bakken 3-yr Average Oil Sands 3-yr Average Bakken 3-yr Average Horizontal Drilling Horizontal Drilling

18 Permian vs Oil Sands $/boe 35 F&D $/boe 12 Supply Cost Oil Sands 3-yr Average Permian 3-yr Average Oil Sands 3-yr Average Permian 3-yr Average Horizontal Drilling Horizontal Drilling

19 Eagle Ford vs Oil Sands $/boe 6 F&D 5 4 Eagle Ford 3-yr Average $/boe 18 Supply Cost Eagle Ford 3-yr Average 3 Oil Sands 3-yr Average 1 8 Oil Sands 3-yr Average

20 North American Supply Costs Yr Average Supply Cost Model Implied

21 Myth #2: Oil Sands Growth is Limited by Insufficient Market Access Available markets Rate of growth in oil sands production could outpace growth in global oil demand and decline in non-opec supply What markets are available to Canadian oil sands producers? Transportation What are the infrastructure limitations? Competitive positioning Will US shale oil back oil sands out of the market?

22 Existing Export Pipeline Capacity Edmonton 3 Burnaby Anacortes Salt Lake San Francisco Los Angles Hardisty 5 28 Billings Denver Guernsey 145 Midland ,5 St Paul Wood River Cushing Flanagan Houston Freeport 1,327 9 Capacity Pipeline Market b/d Enbridge Ont, PADD I, II, III 2,5 Keystone (TransCanada) PADD II 59 Plains PADD IV 15 Express (Kinder Morgan) PADD II, IV 28 TransMountain (Kinder Morgan) BC, PADD V 18 Interpipeline PADD IV 11 Total Capacity 3, Chicago 1 Patoka St James Sarnia Toledo 74 Montreal Warren PADD I PADD II PADD III PADD IV PADD V Delivery Pipelines Other Pipelines

23 Proposed Export Pipeline Capacity Kitimat 525 Edmonton 59 Hardisty Burnaby 72 1,1 Anacortes Billings Capacity 83 Pipeline Market Salt Lake In-Service b/d Guernsey Alberta Clipper Ont, PADD I, II & III Mid San Francisco Alberta Clipper Ont, PADD I, II & III Enbridge Line 9 Que, Export Mid-214 Denver 24 Line 9 Expansion Que, Export Flanagan South PADD II & III Oct Enbridge Line 61 (Phase I) PADD II & III Mid Enbridge Line Los 61 (Phase Angles II) PADD II & III Late Southern Access Extension PADD II & III Mid Trunkline Conversion PADD II & III Line 3 Replacement PADD II & III Keystone XL PADD II & III TransMountain PADD V, Export Midland TransCanada Conversion Que, Export ,1 Enbridge Gateway PADD V, Export Total Capacity 6, St Paul 1,2 Wood River 6 Cushing 83 Flanagan Houston Freeport 3 54 Sarnia 1, Chicago Patoka St James 32 Montreal Portland PADD I PADD II PADD III PADD IV PADD V St John Proposed Pipelines Existing Pipelines

24 North American Market Consumption by Feedstock Type Western Canada: Eastern Canada: 1,14 55 PADD V: 2, PADD IV: PADD III: 7, PADD II: 3, PADD I: Light Sweet Light/Medium Sour Heavy Synthetic Domestic US Source: U.S. Energy Information Administration, National Energy Board, BMO Capital Markets

25 Myth #3: Oil Sands Less Attractive due to Carbon Intensity Environmental challenges has emerged as a material threat to oil sands development Water usage Land disturbance Greenhouse gas emissions Oil sands producers increasing require a social license to operate Facts not always the most relevant consideration

26 Global GHG Emissions U.S. 18% Europe 12% Japan 4% Canada 2% India 7% Other 27% Russia 5% Source: United Nations Statistics Division China 25%

27 North American GHG Emissions Source: Canadian Association of Petroleum Producers

28 Greenhouse Gas Emissions Wells-to-Wheels Source: Canadian Association of Petroleum Producers Saudi Arabia Mexico Iraq Venezuela Nigeria US Gulf Coast California Thermal Oil Sands Average SAGD SOR 2.4 Gasoline Consumption Production and Refining

29 Outlook for Canadian Oil We see significant growth in western Canadian oil production Oil sands production is generally competitive with US shale oil and is a required feedstock for the US refining industry Market access continues to evolve but market forces are working despite political intervention Greenhouse house gas emissions issues are overstated Federal government needs to take a clear role

30 Western Canadian Production Million b/d CAPP Forecast In Situ Mining Conventional Heavy Conventional

31 Oil Sands Production Million b/d In Situ Mining.

32 Natural Gas Outlook Slide 32

33 Withdrawal Season Outlook Tcf 4. Tcf Year Average Slide Forecast winter exit Bcf Season-to-Date Balance of Season 29/1 21/11 211/12 212/13 213/14 214/15

34 Withdrawal Season Outlook Consuming East Region Tcf Year Average 213 Tcf Slide Forecast winter exit Bcf Season-to-Date Balance of Season 29/1 21/11 211/12 212/13 213/14 214/15

35 Northeast Pipeline Expansions Bcf/d Cumulative Increase Bcf/d Slide 35 RexBackhaul Phase 1 ANR Lebanon Lateral Millennium Expansion TGP Utica Backhaul Project Columbia Gas Warren County RexBackhaul Phase 1 West Side Expansion Line 157 RexBackhaul Phase 2 Team 214 NE Connector TGP Uniondale Project, company reports

36 Withdrawal Season Outlook Producing Region Tcf Year Average Tcf Bcf 5 Season-to-Date Balance of Season Slide 36 Forecast winter exit /1 21/11 211/12 212/13 213/14 214/15

37 U.S. Drilling Activity 1,8 1,6 1,4 1,2 1, Source: BakerHughes, BMO Capital Markets $/Mcf Slide 37 Gas Rigs Oil Rigs Henry Hub Strip

38 Withdrawal Season Outlook Consuming West Region Tcf Year Average Tcf Bcf 5 Season-to-Date Balance of Season.2.1 Forecast winter exit -5. Slide /1 21/11 211/12 212/13 213/14 214/15

39 Regional Gas Supply Costs $/Mcf 1 Marcellus $/Mcf Eagle Ford Yr Average 1-Yr Actual 3-Yr Average 1-Yr Actual $/Mcf Dry Type Curve Wet Type Curve $/Mcf Dry Type Curve Wet Type Curve 1 8 Montney 1 8 Fayetteville Slide 39 3-Yr Average 1-Yr Actual Type Curve 3-Yr Average 1-Yr Actual Typer Curve

40 Source:

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