Seismic shifts in the oil and gas business

Transcription

1 Seismic shifts in the oil and gas business Copenhagen Wednesday, 07 October 2015 Strategy with substance

2 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 US$/bbl The global oil price has more than halved since June last year with both supply and demand factors at play 130 Brent price history A confluence of factors: US oil production growth Reduction in global supply outages Reduction in China energy demand OPEC s decision not to cut production 40 Source: History - Argus; Forecast - Wood Mackenzie Wood Mackenzie 2

3 Index (peak crude oil price = 100) Annual change in demand (million b/d) Annual GDP change % Market fundamentals are different now to the 2008 price crash Comparison of relative price declines GDP and oil demand changes 120 3,5 5% ,0 2,5 2,0 1,5 4% 3% 2% 60 1,0 1% ,5 0,0-0,5-1,0 0% -1% -2% ,5-3% Days from price peak 2008 crash 2014 crash Demand change GDP Source: Argus, Wood Mackenzie Wood Mackenzie 3

4 Million b/d Total non-opec production (million b/d) It has taken longer than expected for lower prices to have an impact on non-opec supply Year-on-year change and total non-opec supply 3,0 2,5 2,0 1,5 Other non-opec Mexico North Sea Brazil Russia Canada Oil Sands United States Total non-opec (right axis) ,0 0,5 0,0-0,5-1,0-1, Source: Wood Mackenzie Wood Mackenzie 4

5 but the over supply in recent years is expected to reverse in 2016 and 2017 Year-on-year change in global supply and demand Million b/d -0,50 0,00 0,50 1,00 1,50 2,00 2,50 3,00 Demand Supply Source: Wood Mackenzie Wood Mackenzie 5

6 US$/bbl We expect prices to show moderate recovery as supply and demand start to rebalance Quarterly nominal prices and forecast Weaker than expected global economic growth Lower than expected oil price floor for US tight oil Supply outages ease forecast Brent OPEC policy decision to cut Oil market anticipates supply response Stronger oil demand recovery Supply slow to come back into the market Source: History - Argus; Forecast - Wood Mackenzie Wood Mackenzie 6

7 Tullow Santos Repsol Premier Total OMV Noble Chevron Newfield Kosmos Apache Pacific Rubiales Continental Marathon CNRL Eni Hess Statoil Lundin Suncor Anadarko Chesapeake Canadian Oil Pioneer ConocoPhillips ExxonMobil BP Denbury Talisman Husky Cenovus Occidental Encana BG Murphy EOG Devon Shell LUKOIL Oil Search US$/bbl Brent The current financial stretch is driving corporate strategy - Pre-slump, the sector was geared up for +$90/bbl oil Brent oil price required for upstream portfolio to be cash flow neutral in 2015/16 as at mid $216/bbl Source: Wood Mackenzie. Based on Wood Mackenzie modelling, and assumptions for buybacks, dividends, exploration and financing costs, as at Q Wood Mackenzie 7

8 The industry response has been fast and deep Dividends -$28 bn -27% Net debt +$66 bn +9% Buybacks -$20 bn -61% Capex -$117 bn -27% Costs down by up to 30% Source: Wood Mackenzie. Y-o-Y changes. Corporate Service coverage group only. Wood Mackenzie 8

9 but many remain exposed in a sub-$60/bbl world Average breakevens are down 28% (majors -22%; US players -40%; internationals -13%) Brent oil price required for upstream portfolio to be cash flow neutral in 2015/16 mid-2014 vs. current view Source: Wood Mackenzie. Based on Wood Mackenzie modelling, and assumptions for buybacks, dividends, exploration and financing costs, as at Q Wood Mackenzie 9

10 Capex Investment (US$ Billion) Future spending levels still highly uncertain Discretionary spend rising out to 2020, propped up by NA onshore investment WM global development investment profile broken down by development status 700 Onstream Under Development Pre-FID yet-to-drill North America Source: Wood Mackenzie Q dataset UDT/Corporate Service Wood Mackenzie 10

11 Breakeven Brent Price NPV,15 (US$/bbl) Resource theme positioning key to a winning strategy at low prices Tight oil/liquids-rich uncons gas at the low end of the cost curve; LNG/deepwater challenged Resource theme cost curve: Breakeven Brent Price versus % investment in discretionary projects 120 Conventional Deepwater ex Brazil LNG Deepwater Brazil Unconventional Gas Tight Oil IRR < 15% IRR > 15% 0 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Capex as a % of total investment in discretionary projects Source: Wood Mackenzie Q dataset. % of investment in discretionary projects in each resource theme for the period. NA onshore breakeven calculated using our base-case gas prices (US$3.75/mmbtu long-term real); excludes dry gas plays. Capital Spend is the net investment in probable developments and yet-to-drill wells onshore North America (nominal terms). It does not include investment in fields which are already onstream and newfield developments that fall under tax ring fences which are already onstream, with the exception of future expansions at Tengiz, Kashagan, Karachaganak, Lula, Shah Deniz, South Iototan, Haute Mer Zone D, ACG and Clair. Wood Mackenzie 11

12 US unconventionals dominates projects in the money at US$65/bbl, which drastically highlights the challenge for Europe in attracting investment Canada US$7bn Europe US$19 bn Russia & Caspian US$17 bn US US$115 bn Asia US$11 bn Latin America US$14 bn Africa US$20 bn Source: Wood Mackenzie Q dataset. Capex for the period for commercial pre-fid projects and yet-to-drill wells onshore NA that makes a greater than 15% IRR at US$65/bbl long-term real Brent Oceania US$3 bn Conventional Deepwater LNG Wood Mackenzie 12 Unconventional Gas Tight Oil

13 What should Europe do to remains as competitive as possible? 3 areas amongst many Fiscal, doing everything that can be done Not relying solely on deflation working together to find better ways to tackle industry problems Working together to maximise what we have in the most cost effective manner Wood Mackenzie 13

14 Several governments have announced plans to review fiscal terms Canada (Alberta) Royalty? Russia Royalty / Export Duty? USA (L48) Royalty (federal); production tax (states)? Mexico 1 st Round PSC terms? Colombia Royalty/tax terms? Bolivia Tax credits? Brazil Equity? Algeria Tax terms? Ghana New E&P Law? Nigeria New fiscal system? Angola PSC terms? South Africa Equity / tax? Iran Service contracts? India Revenue-sharing? Malaysia EOR incentives? Thailand Introduction of PSCs? Indonesia PSC terms? Source: Wood Mackenzie Wood Mackenzie 14

15 Industry Required Capex Cost Deflation Not relying solely on deflation working together to find better ways to tackle industry problems The Savings Gap: Cost Reductions Needed to Sanction New Projects & Forecast Cost Deflation 50% 40% 30% 20% Operator Stated Needs Realised 2015 Cost Deflation 10% Forecast Average Expected Cost Deflation 12% The Savings Gap 1 Cost reductions between 20% and up to 50% are required before projects can be considered commercial Expectations of cost deflation over the next 6 12 months are around 10% - 15% 10% 0% Cost Reductions Needed to Sanction New Projects (Operator) Source: Wood Mackenzie Q Cost Survey Cost Reductions Realised in 2015 Average Forecast Cost Deflation as per Survey Responses (6-12 Months) Non-Cost Deflation Improvements Still Required Further reductions will be required with the industry, service sector and governments having to work together Optimised Development Solution Effieciency Improvements (Reduced Drill Times, etc.) Standardisation (Drilling, Facilities, Subsea) Wood Mackenzie 15

16 Working together to maximise what we have in the most cost effective manner Resolve area issues e.g opex share redevelop/bypass/alternative Share shuttle tankers, export lines and fuel/diluent imports Build new infrastructure Collaborate - create new clusters Regulatory understanding Wood Mackenzie 16

17 Summary Key takeaways A confluence of factors has led to the oil price today but we expect prices to improve The industry has to make firm decisions to weather the storm the viability of a number of themes/geographies remain a question Oil companies, service companies and governments need to work together to maximise what we have in the most cost effective manner Wood Mackenzie 17

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