The future ain t what it used to be.

Transcription

1 The future ain t what it used to be. Yogi Berra FRANK PATTERSON Executive Vice President Exploration and Production Chesapeake Energy Corporation

2 Can you believe everything you hear? OCAPL April 3,

3 FORM YOUR OWN OPINION SEPARATE FACT FROM FICTION OCAPL April 3,

4 WE ARE NOT GOOD AT PREDICTING THE FUTURE A study by CXO Advisory Group evaluated 6,000 predictions by stock market experts over several years. Overall accuracy was 47.4%, or approximately a coin flip. Think Like a Freak, Levitt and Dubner, 2014 OCAPL April 3,

5 HISTORICAL PRICE CURVES FORWARD STRIP HAS NOT BEEN A GOOD PREDICTOR Front Month Crude Inflection Points with Strips Front Month Henry Hub Inflection Points with Strips Strip prices have often been used as an indication of expectations, but in hindsight its historical value for predicting actual direction of prices after inflection points has been of limited use. The forward curve cannot account for unknowns in the marketplace, therefore it is not necessarily a price forecast but rather a risk tool where participants can possibly transact. Source: Heikkinen analysis of Bloomberg data and NYMEX Henry Hub contracts, CME Group OCAPL April 3,

6 The foundational elements: production and consumption OCAPL April 3,

7 TOTAL PETROLEUM AND OTHER LIQUIDS PRODUCTION (1) Data provided by EIA (2) Data provided by IEA OCAPL April 3,

8 TOTAL PETROLEUM CONSUMPTION Data provided by EIA OCAPL April 3,

9 SO WHAT ARE WE DEPLETING? Data provided by EIA OCAPL April 3,

10 And what about natural gas? OCAPL April 3,

11 DRY NATURAL GAS PRODUCTION Data provided by EIA OCAPL April 3,

12 DRY NATURAL GAS CONSUMPTION Data provided by EIA OCAPL April 3,

13 GAS PICTURE Data provided by EIA OCAPL April 3,

14 Organic growth OCAPL April 3,

15 RECENT EXPLORATION VOLUME DECLINE BECAUSE OF FEWER WELLS 160 Conventional Exploration Volumes Gas 5 New Discoveries by Country 140 Oil Volume discovered (bboe) bbo Resources (bboe) : new giants found in Alaska and Guyana Egypt Senegal U.S. (Alaska) Mauritania Guyana China U.S. GoM Russia Angola Turkmenistan Malaysia Norway U.K. Australia Myanmar Rest of World Not the end-game for conventional exploration. Plenty of new plays being found. Source: Wood Mackenzie. Conventional volumes only by year of discovery well completion. Includes conventional new field discoveries completed January 2015-December OCAPL April 3,

16 RESOURCE ADDITIONS MIX OF CONVENTIONAL, UNCONVENTIONAL AND BALANCED STRATEGIES 14 Resource Additions Among Top Performers Conventional discoveries Organic unconventionals Eni Chevron Shell Anadarko ExxonMobil Petrobras Statoil Pioneer Chesapeake CNOOC Hess ConocoPhillips BP Noble Energy PETRONAS Apache Total Marathon Occidental Devon BHP Billiton Kosmos Energy EOG Repsol Murphy Oil Tullow Oil Husky Energy ONGC OMV Wintershall Maersk PTTEP Cairn Energy Lundin Petroleum Santos Woodside Premier Oil INPEX Corporation DEA Freeport McMoRan Volumes (bboe) Source: Wood Mackenzie. Volumes are new working interest based on equity in discovery well and include volumes subsequently sold. Organic unconventionals based on play commercialization. OCAPL April 3,

17 VALUE CREATION LEADING UNCONVENTIONAL PLAYERS OUTPERFORM CONVENTIONAL EXPLORATION Exploration Value Creation by Theme and Basin Maturity Value Creation (U.S. $B) Mature Emerging Frontier Unconventionals Pioneer Anadarko Apache Devon Eni Occidental CNOOC Murphy Oil Chesapeake EOG Petrobras RWE Dea Premier Oil Wintershall Freeport McMoRan Lundin Petroleum Woodside Cairn Energy Santos PTTEP Husky Energy OMV Kosmos Energy PETRONAS INPEX Corporation ONGC Noble Energy BHP Billiton Marathon Repsol Tullow Oil Maersk ConocoPhillips Chevron Hess BP Total Statoil Shell ExxonMobil Source: Wood Mackenzie. Value creation at Base price, with Brent at U.S.$70/bbl flat in real terms from OCAPL April 3,

18 Business environment OCAPL April 3,

19 HEAVY LOAD Net Debt in Billions, Quarterly Data The world s biggest oil companies are taking on more debt as they struggle with low crude prices. Source: Wood Mackenzie, The Wall Street Journal OCAPL April 3,

20 MAJOR PROJECTS HAVE BEEN PUT ON HOLD ~$400 billion of total project capex deferred from 68 major projects Delayed spend from 2016 to 2020 totals $170 billion Source: Carnrite Group OCAPL April 3,

21 RAMIFICATIONS OF DEFERRAL Deepwater hit the hardest; 62% of total reserves, 56% of total capex 2.9 mmb/d of liquids production deferred to early next decade Liquids production impacted by project FID delays Source: Wood Mackenzie s Upstream Data Tool OCAPL April 3,

22 GLOBAL CAPITAL SPENDING HAS RAPIDLY DECLINED $800 Capital Spending Trends $731 $700 $659 Total Costs Incurred incl. AROC ($B) $600 $500 $400 $300 $200 $100 $230 $347 $346 $145 $194 $93 $201 $137 $153 $424 $346 $176 $112 $247 $233 $529 $522 $193 $214 $336 $308 $597 $248 $349 $293 $438 $304 $356 $452 $163 $289 $325 $326 $ E 2017E All Integrated Oil Companies All E&Ps Capital spending will not initially rebound with commodity prices. 2016E and 2017E for All Integrated Oil Companies estimated based on 35% annual reduction and 3% annual increase, respectively, based on median actuals for Global Integrated Oil Companies 2016E and 2017E for All E&Ps estimated based on 38% annual reduction and 1% annual increase, respectively, based on median actuals for Large North American E&Ps Source: IHS Connect, Carnrite Group Analysis OCAPL April 3,

23 Let s recap Production of oil and consumption basically balanced Conventional discoveries have not replaced oil for years Organic discovery shifted to gas globally Most volumes now unconventional even the majors Three plays carry the unconventional oil load Natural gas has a longer runway Story evolves with growing U.S. and LNG market Balance sheet restoration may slow response Large global projects at standstill OCAPL April 3,

24 What are the options to solve the challenge? OCAPL April 3,

25 U.S. EXPLORATION EFFORT IN 2016 $2,500 $2,000 27% Average exploration spend for onshore U.S. Development capital Exploration capital APC, HES, MRO and NBL removed from data set due to international program. $1,500 $ millions $1,000 $500 0 CHK APA AR CLR COG DVN ECA EOG EQT NFX PXD RICE RRC SWN OCAPL April 3,

26 NORTH AMERICA DOMINATED 2016 DEAL ACTIVITY Permian saw record U.S. $24B spend First private equity splash in Europe Russian privatizations and Asian entrants >U.S.$2 billion >=U.S.$1 billion, <U.S.$2 billion >=U.S.$500 million, <U.S.$1 billion >=U.S.$200 million, <U.S.$500 million <U.S.$200 million and undisclosed Majors entered Brazil Chinese gas distributor ENN buying into Santos Source: Wood Mackenzie. Each circle represents a deal announced during the year. OCAPL April 3,

27 U.S. TRANSACTIONS HEAT MAP OCAPL April 3,

28 PERMIAN TRANSACTIONS HEAT MAP OCAPL April 3,

29 MID-CONTINENT TRANSACTIONS HEAT MAP OCAPL April 3,

30 DOES M&A CREATE LONG-TERM VALUE? 100% Purchase Price Premium/Discount to Current Wood Mac Valuation By Deal Year NOC IOC 50% 0% -50% -100% -150% -200% Only six of 70 deals are profitable under our current view (at U.S. $70/bbl LT) Source: Wood Mackenzie M&A Service OCAPL April 3,

31 In summary Industry not spending enough on exploration to grow Primary growth vehicle acquisition Acquisition economics challenged in uncertain commodity world and overheated asset market OCAPL April 3,

32 So what is left? Thinking beyond the big three PERMIAN, EAGLE FORD, BAKKEN OCAPL April 3,

33 POWDER RIVER BASIN OFF TO A GREAT START ~2.7 bboe Of resource potential ~2,600 risked locations Teapot 90% undeveloped Average 80% working interest 307,000 acres 80% HBP/HBU/HBO 48% Federal acreage Resource Mix 49% 35% Parkman E, A, B/C & Deep Surrey Sussex Niobrara Turner Frontier Mowry 175 mmboe resource base 200+ undrilled locations 150 mmboe resource base 150+ undrilled locations 470 mmboe resource base 575+ undrilled locations 375 mmboe resource base 300+ undrilled locations 1,450 mmboe resource base 550+ undrilled locations 16% Oil NGL Natural Gas OCAPL April 3,

34 WEDGE PLAY SUCCESS APPRAISAL DRILLING YIELDS STRONG RESULTS Hoskins 2H Meramec (St. Genevieve) PR* = 1,357 boe/d, 65% oil (1) Stephen 1H Osage (Pipeline Constrained) PR* = 891 boe/d, FTP = 1,804 PSI Schoeppel 1H Meramec (St. Genevieve) IP 30 = 977 boe/d, 50% oil Hoskins 1H Meramec (St. Genevieve) IP 30 = 1,185 boe/d, 60% oil STACK Impressive results Meramec Silt St. Genevieve target creates additional Wedge play opportunities 2 3 rigs Drilling Wedge play wells in 2017 ~ 870,000 net acres ~800 locations at 50% ROR (1) ~2,100 additional upside locations Johnston 1H Meramec (Stack) IP 30 = 1,360 boe/d, 31% oil SCOOP Wedge Play Cross Section Schematic ~150 miles Hunt 1H Meramec (Stack) IP 30 = 1,050 boe/d, 45% oil (1) Price deck: $3/mcf for gas and $60/bbl oil flat OCAPL April 3,

35 WHERE IS THE NEXT BIG PLAY? It ain t over till it s over. Yogi Berra OCAPL April 3,

36 The future ain t what it used to be. Yogi Berra Q&A