Investment in unconventional and conventional, Oil&Gas production

Transcription

1 EIGHTH IEA IEF OPEC SYMPOSIUM ON ENERGY OUTLOOKS 14 th February 2018, IEF Secretariat, Riyadh, Saudi Arabia Investment in unconventional and conventional, Oil&Gas production Alexandre ANDLAUER Head of Oil & Gas Sector

2 Key Questions How are shale players (and investors) impacting Big Oils strategies? Can US shale grow sustainably at +1.2mbpd? Is there another shale boom to come outside the US? 2

3 How are shale players impacting Big Oils strategies? More competition on returns (cost cutting and capex cuts more important than production growth) Short-term production growth: in-fill drilling (Decline ratio at 1%, going to 3%), shale growth There is a battle to have the lowest free cash flow break-even to the detriment of capex More diversification from players (Petrochemicals, LNG ) Share buy-backs and dividend increase before capex increase 3

4 How are shale players impacting Big Oils strategies? Big Oils are no longer taking the long-term bet on oil production: investors doubt about the future of oil and reward capex and cost cuts Cost cutting period Reward period US shale players look like the only ones that want to grow (capital discipline is moderated) 4

5 Can US shale grow sustainably at 1.2mbpd? We integrate that from a geological point of view there is little limit We see two issues on long-term growth above +1.2mbpd per year: Increasing Legacy production Long-term bottlenecks 5

6 Can US shale grow sustainably above 1.2mbpd? Legacy production currently at -0.5mbpd, going to -1mbpd by 2020 (based on shale growth of +1mbpd per year) Technology is changing the declining curve only slightly Achieving growth of 1.2mbpd in 2020 would require an additional 2.2mbpd (gross production): how many trucks, how much sand, water? 6

7 Can US shale grow sustainably above 1.2mbpd? Short-term issues can be resolved : Frac crews (going from 30 to 20 people) Sand : 13 sand mines opening in Texas Pressure pumps Takeaway capacity But there are bottlenecks in the longterm with limited solutions Logistics on sand: 50 trucks a day, 24 hours a day, each truck hauling 20 to 25 tons of sand : road issues, too much traffic, no solution to transporting sand over the last few miles Water: Shale wells use twice as much water as they did a few years ago, around 10 million gallons each, or about 15 Olympic-sized swimming pools Road and water look like the main concerns for locals as from mbpd gross production looks already unrealistic (even with oil above $80/bbl) Source: Kpler 7

8 Is there another shale boom to come outside the US? What is needed to create another shale boom: Government policy towards oil Favourable geology Water availability Private entrepreneurship (and land?) Flexible labour market Infrastructure No chance in Europe (France and Poland have been disappointments, the UK is linked to gas) Argentina and Russia look to be the only ones to become important shale players. Canada close to Bakken growth 8

9 Is there another shale boom to come outside the US? Argentina : $30bn investment from YPF over the next five years (10% of US investment) But $240bn is needed 60% of Argentina s resources lie in the Vaca Muerta formation Still remains to be seen if the oil majors are willing to put in that kind of money Production around 100kbpd in 2018, growing by 50kbpd until 2020, then 100kbpd in the period Russia : No significant shale production is expected before the mid-2020s Gazprom Neft is leading Moscow s drive to replicate the US shale boom and forecasts shale oil from the Bazhenov could make up to 2.5% of its total oil&gas production in 2025 Canada : Production potential up to 1.5mbpd by 2030 Canada s shale output stands at about 335,000bpd and should grow to 420,000bpd in a decade 9

10 THANK YOU Alexandre ANDLAUER Senior Equity Analyst Head of Oil & Gas Sector Founded in 2007, AlphaValue has become the world s leading provider of Independent European Equity and Credit Research, helping money managers to generate ideas and assess the risks and opportunities within their mid to large cap portfolios. Ranked N 1 independent equity research provider by Extel, we provide comprehensive, unconflicted research-only (no execution) coverage of c. 480 European mid and large cap stocks. We have an average of 46% of negative recommendations at any one time. research@alphavalue.com T.: +33(0)