OPEC vs Shale in A Tightening Market. Rystad energy Marine Money Japan Ship Finance Forum David Mullins Senior Vice President, Asia Pacific

Transcription

1 OPEC vs Shale in A Tightening Market Rystad energy Marine Money Japan Ship Finance Forum David Mullins Senior Vice President, Asia Pacific

2 RYSTAD ENERGY HISTORY & LOCATIONS OIL AND GAS KNOWLEDGE HOUSE Office locations Independent upstream database & advisory firm established in Headquartered in Oslo, Norway. STAVANGER Tokyo A leading advisor in the E&P and OFS segments providing strategic advisory, market studies, and commercial analysis. Dubai Bangalore Extensive global databases for both the E&P and oilfield service markets. Rio de janeiro Singapore Sydney Industry thought leader with market reports on high impact topics. Complimentary market analysis via newsletters, information sessions and webinars.

3 Rystad Energy consulting clients and topics 1000 projects for more than 350 clients E&P Oilfield Service Mid/Downstream, other energy Investors Governments/ Associations CLIENTS Majors NOCs Integrated and Independents Smaller E&Ps Energy companies / Utilities Large international service companies Rig and vessel owners Oil service companies Equipment providers Niche tech companies Refineries and gas processing companies Shipping companies Energy intensive industry Renewable energy operators and suppliers Investment funds Private Equity Venture Investment banks Financial institutions Governments International associations and institutions Industry associations TOPICS Global oil and gas macro Corporate strategy and benchmarking Value creation in E&P Exploration strategy E&P valuation/transaction support GHG emissions Global E&P spending and driver analysis Company strategy and market assessment Competitor analysis Products and services strategy Oil service DD/ transaction support Global crude oil and products flow LNG markets Gas infrastructure valuation Offshore wind market forecast Energy sourcing strategy Oil and gas advisory E&P and oil service deal screening Commercial DD support, buy/sell side VDD reports Post-investment and Exit support Petroleum province assessment and benchmarking E&P and oil service player analysis Tax regime and regulations Cost level analysis Future production forecasts : projects completed for more than 350 clients 3

4 Our complete data product portfolio built on same, consistent data structure and platform

5 Rystad Energy with regular appearance in presentations worldwide 5E&P Other Oil Field Service companies

6 How we got here: the generic commodity cycle supply, demand, prices A commodity market with no price maker (OPEC, etc) endlessly repeats this cycle Higher reinvestment increases production Production outpaces demand Increased investment, capacity issues Prices drop, hurting cash flow and returns Higher prices improve cash flows Demand outpaces production Low reinvestment hurts production Cash flow declines, spending cuts, lay offs Source: Rystad Energy research and analysis 6

7 In 2015 & 2016, we witnessed the largest drop in oil & gas industry spending ever. Investments in the global E&P industry USD billions (real 2016 dollars) - 25% Cash flow declines, spending cuts, lay offs - 22% 7

8 Supply impact: Some now, but a large gap from conventional oil emerges Liquids production (excl. shale assets) by approval year Million bbl/d Low reinvestment hurts production Source: Rystad Energy UCube 8

9 Just as the natural commodity price cycle began to rebound OPEC stepped in again. Q Higher reinvestment increases production Production outpaces demand Q OPEC reintroduces production target Increased investment, capacity issues Higher prices improve cash flows Q Demand outpaces production Low reinvestment hurts production Prices drop, hurting cash flow and returns Cash flow declines, spending cuts, lay offs Q Q Source: Rystad Energy research and analysis 9

10 No longer a Normal Commodity Price Cycle: But not OPEC vs. OECD anymore either Source: Rystad Energy Dynamic Oil Price Simulation Model

11 Global oil supply growth Shale continues to dominate;; Conventional Onshore declines despite OPEC ramp-up 11

12 Oil supply, demand and implied stock changes under OPEC agreement through 2Q:2018 Stock draws before OPEC cut extension announced last week World liquids supply and demand, quarterly Million bbl/d Million bbl/d Note: The 1Q drop in global supply in 2017 and 2018 is partly driven by the ~400 kbbl/d seasonal drop q/q in biofuels production in Brazil. Source: Rystad Energy s Global Oil Market Trends Report (OMT) 12

13 Oil supply, demand and implied stock changes as OPEC led supply agreement currently stands OPEC cut extension through year-end 2018: Creating a new glut in 2019 Source: Rystad Energy s Global Oil Market Trends Report (OMT) 13

14 US shale oil production short term Latest quarterly reporting reveals shale producers increasing gap in cash flow balances Shale peer group s reported cash flow breakdown Billion USD Cash in Cash out Other financing Net borrowing/reimbursement Other Investing Acquisition of Assets Cash from Operations Net Change in Cash Net cash of Equity Dividends Sale of Fixed Assets Capex Cash Flow before Financing Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 Source: Rystad Energy s Global Oil Market Trends Report (OMT), Rystad Energy NASWellCube Peer group: APC, AR, APA, BBG, CRZO, CHK, XEC, CXO, COP, CLR, DVN, ECA, EGN, EOG, EPE, EQT, HK, LPI, MRO, MUR, NFX, NBL, OAS, OXY, PE, PDCE, PXD, QEP, SN, SD, SM, SWN, WLL, WPX 14

15 Global oil supply growth Shale production that is commercial at US$50/bbl 15

16 Global oil supply growth Shale production that is commercial at US$80/bbl an additional ~5 mmbbls/d in

17 Field economics require 70+ USD/bbl for global supply to meet demand. But Shale will meet most of that demand out to Consensus 2020 Demand *Using 10% nominal discount rate for calculating present value of future cash flows. Source: Rystad Energy research and analysis, UCube 17

18 Conclusions: The conflict between OPEC, Shale, and Conventional is a three-sided balancing act. It can appear stable at times. OPEC intervention has sped up the recovery, but could also bring about the next downturn if cuts are maintained too long. Shale has breakevens that effectively create commercial production peaks at different price levels. Shale commerciality has required significant support from investors/financing. If this support dwindles, shale production will fall and the global supply/demand gap will be accelerated and exacerbate. Stronger oil prices do not mean the market is balanced or stable price will be driven by Shale vs. Conventional breakevens with OPEC regaining market share where ever possible. 18