bernard duroc danner's presentation slides from the 2010 world national oil companies congress

© 2010 Weatherford. All rights reserved.

World National Oil Companies Congress, June 22, 2010

The Role of Oil Field Services in the Energy Dynamic

Bernard J. Duroc-DannerChairman, President & Chief Executive OfficerWeatherford International Ltd


Oil & Gas Strategic Backdrop

© 2010 Weatherford. All rights reserved. 3

Inelasticity of New Oil Production

Source: DOE, EIA, IEA, Deutsche Bank, *includes OPEC state companies

0

50

100

150

200

250

300

350

400

450

500

0

50,000

100,000

150,000

200,000

250,000

300,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

$bn

k bb

l/d

Production Upstream Capex

12% CAGR

2.8% CAGR

(2009 Real)


Inelasticity (Relative) of New Gas Production (North America)

Source: Deutsche Bank

13% CAGR

19% CAGR

0

10

20

30

40

50

60

0

5,000

10,000

15,000

20,000

25,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

$bn

mm

cfd

US E&P natgas production (RHS) US E&P Capex spend (2009 Real)


Oil Production Spare Capacity

Source: Deutsche Bank

87

92.5

99.9

94.5

0

10

20

30

40

50

60

70

80

90

1983 1990 2000 2009

Prod

uctio

n (m

bd)

80

85

90

95

100

105

Pro

duct

ion

as %

of C

apac

ity

Production (mbd) Production as % of Capacity

Spare Capacity has not increased over the last 20 years in spite of increased spending

%

%

%

%


0

20,000

40,000

60,000

80,000

100,000

120,000

kbbl

/d

Base production DB demand forecast XOM demand est. IEA demand est.

Reserves Required for Production to 2030

Total ProductionGap 2009 – 2030

~ 380bn bbl

Source: EIA, IEA, Deutsche Bank, ExxonMobil


Oil Reserves Steep Cost Curve: Too Steep ?

Source: IEA, Deutsche Bank

0

20

40

60

80

100

120

140

160

0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000

Saudi Arabia

UAE

KuwaitWest Africa

(Jubilee)

Iraq

Brazil Pre-Salt

US LowerTertiary (Tiber)

CanadianOil Sands

Iran Venezuela EOR

Bitumen

Cos

t with

fisc

al $

/bbl

Reserves (bn bbl)Required oil development 380bn bbls

$45/bbl


Cost Curve is a Consequence of an Aging Phenomenon

Formation damage

Lost circulation

Differential sticking

Production decline

Poor oil recovery

Corrosion

Treatment

Sand production

Lifting problems

Bypassed oil

Hot

Deep

Remote

Complex

Viscous

Depleting pressure Encroaching water Less attractive reservoirs


Oil Field Services Context and Relevance:Passenger or Conductor ?


Relevant Attributes of OFS

1. OFS to E&P: Squirrel to Elephant

2. Poor Return Economics

3. OFS has a heavy burden:

• Job shop

• Operation shop

• Technology shop

10


Oil Field Services and Operating Companies – Scale

The four major Oil Field Services

Companies

One company: ExxonMobil

Total Market Capitalization

$122bn* $282bn

Total Return on Capital

7.5% 14.4%

Total Employees 250,700+ 120,000+

*Total OSX Market Capitalization: $180 bn


0 100 200 300 400 500

Chevron

ExxonMobil

Shell

Four major OFS companies

2009 Patents Issued

Oil Field Services Technology Strength

Source : Issued US Patents Int'l Class. E21b from USPTO Website


R&D Spend as % of Revenues

The four major Oil Field Services

Companies

One company: ExxonMobil

2009 2.82% 0.34%

2008 2.37% 0.18%

2007 2.49% 0.20%


Passenger or Conductor ?


Pursue technology imperative

Comprehensive

Accelerate adoption

Drive for efficiency

Within ourselves

Within life cycle

Methods of delivery

Change industry structure

Consolidation

Division of Labour

- Joint Operations

- Divestments

OFS Must Lower the Cost Curve = Productivity

RequireEffectivePartnership


Drilling Rigs

Wireline

Drill bits

Directional Drilling

Subsea equipment

Top drives

Logging while drilling

Reservoir simulation

3D Seismic

Technology

Incremental

Evolutionary

Step Change

Partnership Roles

→ Define Need

→ Steer Design

→ Assist with Testing

→ Use in early form for Value

HistoricalTiming

All Types

Too Long


Drive for Efficiency

Source: Barclays Capital

$0 $100,000 $200,000 $300,000 $400,000 $500,000

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

US

Canada

Rest of World

Within Ourselves

Overhead

Supply Chain

Cultural Change

Within Lifecycle

Manage Volatility

Global E&P spend: Shifts to the East

US $ millions

Peak Trough Delta Peak Trough Delta

WFT

Revenue 1,180 571 (52%) 1,457 1,447 (1%)

Margin 26.5% (1.0%) (275 bps) 23.3% 10% (133 bps)

SLB

Revenue 1,556 819 (47%) 4,801 4,010 (16%)

Margin 22.2% 9.5% (130 bps) 29% 22% (70 bps)

HAL

Revenue 2,246 1,285 (43%) 2,668 2,057 (23%)

Margin 25.3% 2.9% (224 bps) 24.3% 13.5% (108 bps)

Inte rna tio na lNAM


Example: Methods of delivery

Land Rigs

+

Directional Drilling

+

Secure Drilling™ Services

+

Well Construction

Equipment & Services

+

Completion

+

Production Systems

Planning

Optimize Design & Engineering

Streamline Logistics

Executing

CoordinationReduce NPT

Reduce RedundanciesSingle Point Accountability

Improve Safety

Sustaining

Lower Execution Cost Curve

Free-up Scarce Talent

ProductivityIntegration


Change Industry Structure and Attitude

Consolidation

• Baker Hughes + BJ Services

• Schlumberger + Smith

• Schlumberger + Geoservices

Division of Labour

Joint Operations

• Sonatrach ENTP – Weatherford

• Sonatrach Enerfor - Schlumberger

• QPC – Weatherford

Divestments

• BP-TNK OFS – Weatherford

• Gazpromneft OFS – TBD

• Slavneft OFS - TBD

Supply ChainOverhead

InfrastructureR&D

Cost of CapitalAll down

Supply ChainOverhead

InfrastructureR&D

Cost of CapitalAll down

Resource AllocationDedicationPlanning

Resource AllocationDedicationPlanning


Synthesis: Operator Needs to

Pursue technology imperative

• Use OFS technology early for maximum value

• Collaborate in technology development

Drive for efficiency

• Use different forms of integration

• Supply chain has no borders

• Plan through the cycle

• Collaborate through the cycle –master/slave not productive

Adapt market infrastructure

• Don’t fight consolidation

• Encourage opportunities for division of labour

bernard duroc danner's presentation slides from the 2010 world national oil companies congress

Business