Energy Business Unit. Ray Reipas Senior Vice President, Energy

Transcription

1 Energy Business Unit Ray Reipas Senior Vice President, Energy

2 Forward Looking Information Both these slides and the accompanying oral presentation contain certain forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and forward-looking information within the meaning of the Securities Act (Ontario). Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Teck to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These forward-looking statements include statements relating to management s expectations with respect to our Energy projects, including our strategy for our projects, cash flow potential, project and market production, permitting expectations as well as global demand, production and price forecasts. Forward-looking statements regarding our Fort Hills project include statements regarding mine life, size of the resource, capital, operating and sustaining costs, our expectation on our sources of financing costs, marketing opportunities, logistics opportunities and options and management s expectations around the benefits of the project. These forward-looking statements involve numerous assumptions, risks and uncertainties and actual results may vary materially. These statements are based on a number of assumptions, including, but not limited to, assumptions regarding general business and economic conditions, interest rates, the supply and demand for, our oil sand production, Teck s costs of production and production and productivity levels, as well as those of its competitors, power prices, market competition, the accuracy of Teck s reserve and resources estimates and the geological, operational and price assumptions on which these are based, tax benefits, our ongoing relations with our employees and partners and joint venturers, performance by customers and counterparties of their contractual obligations, and the future operational and financial performance of the company generally. Regarding Fort Hills, management s expectations of mine life are based on the current planned production rate and assume that all resources described in this presentation are developed. In general, estimates of bitumen are based upon a number of factors and assumptions made as of the date on which the resource estimates were determined, such as geological and engineering estimates, which have inherent uncertainties. Production timing and rate, capital investment and project costs are based on the approved project development plan and the assumption that the project will be developed and operated in accordance with that plan. There is no certainty that it will be commercially viable to produce contingent resources. The foregoing list of assumptions is not exhaustive. Events or circumstances could cause actual results to differ materially. Factors that may cause actual results to vary include, but are not limited to: adverse developments in business and economic conditions in the principal markets for Teck s products, changes in interest and currency exchange rates, failure of customers or counterparties to perform their contractual obligations, inaccurate geological or metallurgical assumptions (including with respect to the size, grade and recoverability of mineral reserves and resources), changes in taxation regimes, legal disputes or unanticipated outcomes of legal proceedings, unanticipated operational difficulties (including failure of plant, equipment or processes to operate in accordance with specifications or expectations, cost escalation, unavailability of materials and equipment, government action or delays in the receipt of permits or government approvals, industrial disturbances or other job action, and unanticipated events related to health, safety and environmental matters), delays in receiving permits or complying with the terms of permits, political risk, social unrest, lack of available financing for Teck or its partners or co-venturers, and changes in general economic conditions or conditions in the financial markets. Certain of these risks are described in more detail in the annual information form of the company available at and in public filings with the SEC. The company does not assume the obligation to revise or update these forward-looking statements after the date of this document or to revise them to reflect the occurrence of future unanticipated events, except as may be required under applicable securities laws. 2

3 Agenda Building An Energy Business Unit World Oil Market Fort Hills Project Frontier Project Summary 3

4 Mined Oil Sands Are In Teck s Sweet Spot þ þ þ þ þ þ þ þ Strategic diversification Large truck & shovel mining projects World-class resources Long-life assets Competitive margins Minimizing execution risk Tax effective Mining-friendly jurisdiction 4

5 Strategic Diversification Into Energy Energy Production Universe* Mining E&P Key Renewables Thermal Coal Oil Hydro-Electric Uranium Gas Not investing here Wind Bitumen Solar Adding mined oil sands to Teck s portfolio is a strategic diversification that transforms energy into a significant business unit - Bitumen is a consumer-driven commodity Many world-class diversified mining firms have significant mined energy production e.g. BHP Billiton, Rio Tinto, Anglo American, Glencore Xstrata 5 Shaded areas indicate Teck s energy production portfolio.

6 Leverages Core Competency In Large Truck & Shovel Projects In Teck s Current Operations 34 of the largest mining shovels, including 10 of the 72 yard class shovels planned for Fort Hills 250 large-scale mining trucks at 8 similar operations in coal and copper This core competency, combined with knowledge & capabilities gained at Fort Hills, will provide a foundation for creating value at all of Teck s oil sands assets 6

7 World-Class Energy Resources Contingent Bitumen Resources Millions of Barrels Teck s Share Low Best High Low Best High Fort Hills 1 2,460 3,310 3, Frontier 2 1,795 2,824 3,163 1,795 2,824 3,163 Lease 421 Project Total Still to be declared 4,255 6,134 7,003 2,287 3,486 3,931 No Exploration Risk No Large Finding Costs 7 Notes: 1. Contingent Resources - GLJ Petroleum Consultants, December Contingent Resources - Sproule Unconventional Limited, December 2012

8 Oil Production With >50 Year Reserves Lives Are Very Rare 70 Reserve Life Ratios for the 10 Largest Publicly-Traded Oil Producing Companies (Years) Fort Hills mine life expected to be > 50 years Source: Teck, Capital IQ

9 ENERGY Long-Life Cash Flow to Benefit From Multiple Price Cycles Illustrative Annual Cash Flow Profiles Tight Oil Offshore Fort Hills years Oil sands mines don t experience sharp decline rates that conventional oil does, requiring increasing finding and development costs 9 Source: Suncor

10 Margins Competitive with Low Quartile Copper Mining Projects Typical Bitumen Producer Bitumen netback $60/bbl Low-Quartile Cost Copper Mine LME Price $3.25/lb Cash Margin $35 58% Margin Cash Margin $ % Margin Cash Costs $25 Cash Costs $1.25 Fort Hills cash margins are expected to be comparable to the lowest cost mining operations 10

11 Projects Located in One of The Most Mining-Friendly Jurisdictions Athabasca Oil Sands Alberta, Canada Oil Sands Mining Projects Fort Hills Suncor 40.8% (Operator) Total 39.2% Teck 20.0% Frontier Teck 100% Lease 421 Area Teck 50% Frontier Twin Lakes Lease 421 Area Fort Hills 11

12 Teck s Energy Projects Poised to Add Significant Near-Term Value Value increase to next stage Value Creation Steps Lease Acquisition Contingent Resource Development Ready Operations Resource Type Prospective Contingent Proved + Probable Typical Time to Complete (years) Teck Projects Years To Next Step Frontier Wintering Hills (Wind) Fort Hills 4 years 2-3 years Operating Lease years 12

13 Fort Hills Project Will Make Teck A Mid-Sized Canadian Oil Producer Canadian Oil Production in 2012 (bpd) 120, ,000 80,000 60,000 bpd 40,000 20,000 - Bonavista Energy Corp MEG Energy Corp Lightstream Resources Teck Fort Hills Devon Canada Corp Arc Resources Ltd Baytex Energy Corp Crescent Point Energy Corp Canadian Oil Sands Ltd 13 Source: TSX, annual reports & Alberta Oil Magazine *2012 production figures; on a bitumen basis or other pre-blending basis

14 Increasing Energy Production Planned Over The Next 15 Years Teck s Potential Production Profile (kbpd) Teck s share of production could eventually be 200, ,000 bpd 14 * Order of magnitude estimate based on $100 oil price and expected bitumen discount and production costs

15 Agenda Building An Energy Business Unit Through Fort Hills World Oil Market Fort Hills Project Frontier Project Summary 15

16 Global Energy Needs Increasing Global oil demand to increase over the next 20 years Depletion rates are higher New oil production required to replace existing oil fields New sources increasingly costly to find and develop As incomes rise, demand for resources increases and a similar curve is likely in China and India 16 Source: IEA, Global Insight, McKinsey

17 Oil Price Market Forecast Range $90-120/bbl Brent Forecasts, Average, 2013 $US/bbl EIA IEA PIRA Base Case $114 $121 $110 Range $75 - $165 $110 - $130 Average long-term Brent oil price forecast range of US$95-US$115/bbl. Oil price run-ups to $120-$130/bbl are likely if new production faces technical or regulatory delays. However these situations are unlikely to persist over long periods. Scenarios do exist where oil could drop to $65/bbl, but these scenarios are unlikely to persist over long periods. Even at these price levels Fort Hills should remain cash flow positive. 17 Source: EIA, IEA, PIRA, Teck

18 Spreads Forecast To Be Narrow Light Heavy Differential Light oil has a higher value than heavy oil Better light heavy world supply balance is forecast Heavy oil conversion capacity is increasing Bitumen Transportation Costs Transportation costs are low and stable if adequate pipeline capacity exists If pipeline capacity is limited, costs trend higher with use of alternatives, e.g. rail, barge, truck Diluent Adequate pipeline capacity into Alberta Diluent price at Edmonton Transportation from Edmonton to Fort Hills Foreign Exchange Rate USD to CAD 18

19 Heavy Oil Discount to Light Oil Narrowed Considerably 19 Source: Platt s, McKinsey, Teck 1. Totals may differ due to rounding.

20 Narrowing Oil Price Differentials In North America Conversion (narrow differentials) 20 Source: Platt s, OilDesk, Teck

21 US Production & Demand Outlook Total US production to grow from 9.8 mbpd in 2012 to 17.4 mbpd by Driven by US Light Tight Oil (LTO) production - to grow from total of 1.5 mbpd in 2012 to 5.8 mbpd in Domestic oil production growth will mainly be light oil from LTO resources US to continue to rely on imports of heavy oil to meet its refining demand Light-heavy oil price differentials to remain at lower end of historical range 21 Source: Lee and Doma, CAPP, Teck

22 Western Canadian Supply Outlook Steady growth to 2030 Oil sands continuing to be primary driver for future growth Improvements in drilling & completion technology will increase conventional oil production 22 Source: CAPP 2013 Crude Oil Forecast, Markets & Pipelines

23 Western Canadian Supply To Increase By 2-3 Mbpd By 2025 Strong growth expected due to oil sands development - CAPP forecasts Western Canadian supply to increase to 6.7 mbpd in 2030, vs. 3.0 mbpd in 2012 (annual growth of 230 KBD) - Historical 3 & 5 year annual growth rates: 210 kbpd & 140 kbpd Heavy oil supply expected to increase to 6.1 mbpd in 2030, vs mbpd in 2012 Oil sands production expected to increase to 5.2 mbpd in 2030, vs mbpd in Source: CAPP

24 Market Capacity For Canadian Heavy 24 Source: Muse Stancil, CAPP and Lee & Doma Energy Group * Notional maximum volumes of Canadian heavy that can be placed if pipeline capacity to the markets were to exist.

25 Canadian Oil Production & Market Refinery Capacity Canadian oil sands production is forecast to increase through 2030 The US - the largest heavy oil market with the most complex refining sector in the world - will continue to rely on substantial volumes of heavy oil imports to meet its refining demand Heavy oil refining capacity in the continental US and USGC can accommodate much of the expected increase in oil sands production By 2025, access to offshore markets will be required to maintain the projected oil sands production increases The US, Asia and Canada are expected to have sufficient market capacity for growing Canadian heavy oil supply 25

26 Agenda Building An Energy Business Unit Through Fort Hills World Oil Market Fort Hills Project Frontier Project Summary 26

27 FORT HILLS Teck s Oil Sands Project Partnership Large truck & shovel mining project in the Athabasca oil sands, Alberta, one of the most mining-friendly jurisdictions 20% ownership, with strong partners - Working with Suncor, the most experienced oil sands operator (40.8%) - Strong partner in Total E&P Canada (39.2%) World-class resource & expected to have a mine life >50 years Robust project economics Multiple options for marketing and logistics Knowledge & capabilities gained at Fort Hills will provide a foundation for creating value at all of Teck s oil sands assets 27

28 FORT HILLS One of the Best Undeveloped Oil Sands Mining Leases Strip Ratio vs. Ore Grade (TV:BIP vs. Wt% Bitumen) Fort Hills billion bbls of contingent resources* - Production 180,000 barrels per day (bpd) of bitumen - Teck s share is significant at 36,000 bpd; equivalent to 13 million barrels per year (Mbpy) 13 Frontier TV:BIP Ore grade is a function of the bitumen quantity in the deposit Ore Grade (wt% bit) World-class resource - Average ore grade of 11.4% - Strip ratio of 1.5:1 and TV:BIP of 10.5 Consistent production year-over-year through multiple decades - Scheduled to produce first oil as early as Q Expect 90% of planned production capacity within 12 months TV:BIP is a ratio of the total volume of bitumen in place to the total volume of material required to be moved (like a strip ratio) 28 Source: Teck * Best estimate of recoverable barrels of bitumen.

29 FORT HILLS Competitive Costs 1 Fully Escalated Go-Forward Capital 2 Capital Cost Per Flowing Barrel (C$000 per barrel/day) Project Capital: ~C$13.5 billion Teck Capital: ~C$2.94 billion over four years ( ) ~ 27.5% of the next $3.2 billion in project capital spending (expected by early 2015) and then 20% thereafter Includes remaining earn-in of C$240M Operating & Sustaining Costs: C$25 to $28/bbl total Sustaining C$3-5/bbl (included in above) Excludes diluent purchase Costs $Thousands per Barrel/day $140 $120 $100 $80 $60 $40 $20 $0 Full project cost including spent to date: C$84 Project 1 Project 2 Fort Hills To be financed by a combination of cash balance, free cash flow over the four year period and $2B unused line of credit All costs and capital are based on Suncor s estimates. 2. Go-forward capital is the go-forward amount from the date of the Fort Hills sanction decision (October 30, 2013), denominated in Canadian dollars and on a fully-escalated basis.

30 FORT HILLS Minimizing Execution Risk Suncor has completed 4 projects of ~ $20 billion over last 5 years, all under budget All major approvals in place Cost-driven schedule - Cheaper rather than sooner Disciplined engineering approach - majority of project has completed Engineering Design Specification Shovel Ready - significant site work including camp and infrastructure started Global sourcing of engineering and module fabrication Efficient manpower profile ~15% of total capital already invested Benefiting from Suncor s operational and project development experience 30

31 FORT HILLS Multiple Marketing Options Options for Teck s Share of Diluted Bitumen (~50,000 bpd) 1. Teck Marketing 2. Third-Party Marketing 3. Third-Party Marketing; Then Teck Marketing Experience with complex products Additional support available from consultants Contract out Contract out initially Take over marketing in the future Teck has multiple marketing options to consider over the next four years 31

32 FORT HILLS Bitumen Netback Bitumen Netback Calculation Example* Typical Diluted Bitumen (Dilbit) Blend Western Canadian Select (WCS) at Hardisty $120 $100 $80 $60 $100 $95 $81 $60 ~25% Diluent $40 $20 ~75% Bitumen $0 Teck seeks to secure dedicated transportation capacity for Fort Hills volumes to key markets, including the US Gulf Coast, to minimize WCS discount 32 Source: Alberta Energy bitumen valuation methodology ( * Based on example exchange rate of $1.05 CAD/USD

33 FORT HILLS Multiple Options For Western Canadian Market Access Common Carriage Pipeline No take or pay commitments When pipe capacity is constrained, access to capacity may be apportioned and netback prices are discounted Western Canada Contract Carriage Pipeline Typically requires year take or pay commitments Firm, secure access to capacity, and netbacks are linked to international benchmark related prices Rail More expensive (may require additional capital) Has the flexibility to alter destinations based on market conditions Firm, secure access to capacity, and netbacks are linked to international benchmark related prices Markets Traditional Markets US Gulf Coast Eastern Canada / US East Coast West Coast Exports East Coast Exports 33

34 FORT HILLS Proposed Logistics Solutions Teck Purchase its own share of diluent from the Edmonton market Responsible to take its share of Fort Hills diluted bitumen at Hardisty and arrange for further transportation and marketing Enbridge To transport diluent from Edmonton to Fort Hills To transport diluted bitumen (dilbit) from Fort Hills to Hardisty 34

35 FORT HILLS Growing Take-Away Capacity In North American Pipelines Keystone XL Northern Leg Routing Size Hardisty to Cushing Timing kbpd Enbridge Northern Gateway Routing Size Edmonton to Kitimat Timing kbpd Fort Hills Enbridge Line 9 Reversal Routing Size TCPL Eastern Oil Pipeline Routing Size Hardisty to Quebec City / Saint John 1,100 kbpd Timing Sarnia to Montreal 300 kbpd Timing Kinder Morgan TMX Routing Size Edmonton to Burnaby 590 kbpd Timing Keystone XL Southern Leg Routing Size Timing 2014 Cushing to Houston/Port Arthur kbpd Legend Under construction or expected to start construction soon Additional proposed projects Enbridge Flanagan South Routing Size Flanagan to Houston kbpd Timing Q Other Mid-Continent to USGC Routing Size Cushing / West Texas to USGC ~1,500 kbpd total Timing Source: CAPP

36 FORT HILLS Enbridge Pipelines Suncor East Tank Farm Norlite Pipeline (new diluent) Norealis Terminal Woodland Pipeline Wood Buffalo Pipeline (existing) Cheecham Terminal Norlite Pipeline (new diluent) Athabasca Pipeline Fort Hills Blend Line (new) Kirby Lake Terminal Waupisoo/Woodland Pipeline Edmonton Terminal Athabasca Pipeline Fort Hills Blend Line (new) Hardisty Terminal 36

37 FORT HILLS Robust Mine Plan Proven Technology Ultra-class conventional truck and shovel mine plan North Pit South Pit Pit Development South Pit (TV:BIP 12:1) - Improves early economics - Increases infrastructure space - Enhances tailings containment North Pit (TV:BIP 16:1) - Allows access to increased reserves as infrastructure space restrictions diminish 37

38 FORT HILLS Proven Mining & Processing Systems Crushing Mine Ore Ore Preparation Bitumen Froth Tank Product Tanks Surge Bin Primary Extraction Froth Treatment 38

39 FORT HILLS Robust Process Plant Design Extraction plant is based on commercial, proven technology Clark Hot Water Process Extraction plant is based on existing plant designs Suncor s operating experience built in the design assumptions Froth Treatment uses Paraffinic Froth Treatment (PFT) which is an emerging standard design PFT is operating at two oil sands mining operations Most expansion plans are based on PFT technology Creates a marketable bitumen product Plant configuration - maximizes bitumen production, quality and recovery 39

40 FORT HILLS Two-Phase Mining Royalties In Alberta Are Based on WTI Prices Phase 1 Prior to Capital Recovery Base royalty until the initial capital costs are recovered - Interest accrued on initial capital costs at the long-term bond yield Payment is 1-9% of gross revenue 1 - Linear scale between C$55-120/bbl WTI Phase 2 After Capital Recovery Royalties calculated using the revenue minus cost approach Payment is the greater of the base royalty payment or 25-40% of net revenue 2 - Linear scale between C$55-120/bbl WTI Gross revenue is project revenue less cost of diluent. 2. Net revenue is project revenue less allowed costs, including operating and sustaining capital costs.

41 FORT HILLS Tailings Plan Tailings plan is based on Suncor s tailings management systems Based on Suncor s experience 1 external tailings pond 2 external dedicated tailings disposal areas Early transition to in-pit tailings deposition External Pond 41

42 FORT HILLS A Great Value Proposition Working with Suncor, the most experienced oil sands operator One of the best undeveloped oil sands mining leases Multi-decade asset life Solid project economics Builds Teck s energy business unit 42

43 Agenda Building An Energy Business Unit Through Fort Hills World Oil Market Fort Hills Project Frontier Project Summary 43

44 FRONTIER Early-Stage Mining Project Frontier Project 110 km north of Fort McMurray Designed for 277,000 barrels per day Regulatory application proceeding Frontier Resource 2.8 billion bbls of best estimate contingent bitumen resource (prior to lease exchange) Production Partially de-asphalted bitumen Marketable premium heavy oil product 44

45 FRONTIER Enhanced Configuration Frontier Shell s leases to Teck Asset Exchange with Shell Shell receives the Equinox lease Teck receives the leases east of Frontier to the Athabasca River and some lease area immediately south of Frontier Teck secures development space for the Frontier extraction plant and infrastructure Statements of Concern removed by both Teck and Shell Mutual access agreements negotiated Agreement to explore opportunities to share development of regional infrastructure Pierre River Equinox Resources Teck currently updating the contingent resource estimate for Frontier Teck expects that the asset exchange will have a net positive effect on project resources 45

46 FRONTIER Permit Process Proceeding Current Status Received regulator s second round information requests (SIRs) in June 2013 Executed Frontier asset exchange in June 2013 Updating mine plan with new leases Upcoming Milestones File response to second round SIRs and provide a project update in Q Conduct a 2014 exploration program Regulatory hearing in late 2015/2016 Explore new partnerships opportunities for 2015/

47 Agenda Building An Energy Business Unit Through Fort Hills World Oil Market Fort Hills Project Frontier Project Summary 47

48 Mined Oil Sands Are In Teck s Sweet Spot þ þ þ þ þ þ þ þ Strategic diversification Large truck & shovel mining projects World-class resources Long-life assets Competitive margins Minimizing execution risk Tax effective Mining-friendly jurisdiction 48

49 Thank You Ray Reipas Senior Vice President, Energy 49