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TRANSCRIPT
SEPT 13TH, 201614.30 -16.00
OIL & GAS SECTOR
AGENDA
Introduction: Global and Regional ContextPresented by Iván Martén, Senior Partner and Managing Director, The Boston Consulting Group
15 MIN.
25 MIN. The Government’s AgendaPresented by Juan José Aranguren, Minister of Energy & Mining
Investment OpportunitiesPresenters: José Luis Sureda – Secretary of Hydrocarbon Resources; Marcos Porteau – Undersecretary for Exploration and Production
15 MIN.
20 MIN.The Private Sector PerspectivePanelists: Miguel Gutiérrez, President -YPF; Marcos Bulgheroni, Board Member - PAE; Teófilo Lacroze, CEO - Shell Argentina; Gastón Remy, President - Dow Argentina and LATAM South Region
AGENDA
Q&A15 MIN.
Presented by Iván MarténSenior Partner and Managing Director
Global Leader Energy PracticeThe Boston Consulting Group
INTRODUCTION
GLOBAL DEMAND FOR OIL & GAS IS EXPECTED TO GROW MAINLY DRIVEN BY EMERGING MARKETS
0
50
100
150
1%
Mbpd1
20402030
115
2035
121109
2025
94100
2015
104
2020
OECDNon-OECD
1. GLOBAL DEMAND FOR OIL & GAS
2.1%
0%
2.7%
1.1%
1. Mbpd: million barrels per day 2. Tfc: Tera cubic feetSource: EIA IEO 2016 – Reference case scenario – BCG Analysis
Global oil demand Global natural gas demand
0
50
100
150
200
250
Tcf2
2020
149
124 133
2025 2030
167
2015
203185
2035
2%
2040
CAGRCAGR
Renewable energy sources Smart grids
Power Generation Transport Petrochemicals
Recycling and efficiency
~30% of global power
generation will come from
renewable sources by 2040
3% to 5% lower demand
from the power grid
Mature markets reaching saturation for plastics - growth
from 1.4 to 1 times
the rate of GDP
AICE1
Technology
AICEcould achieve 20% to 40% combustion efficiency
Electric Car
~35% of new cars
to be electric worldwide by 2030
1. AICE: Advanced Internal Combustion Engine
VTECHNOLOGICAL INNOVATIONS FOR CLEANER AND MORE EFFICIENT CONSUMPTION
WILL IMPACT FOSSIL FUELS DEMAND
1. GLOBAL DEMAND FOR OIL & GAS
Forecasted production (2016–2035)By play type—technical theme
Shale and tight oil & gas
Source: Rystad UCube (June 2016)Note – Production forecast includes potential new discoveries in the years ahead
Growth (Mboed)
Oil sands, Arctic & others
Off-shore
Onshore Russia
Onshore Middle East
Onshore RoW
4.70
19.60
11.86
-4.26
-0.49
-8.35
UNCONVENTIONAL OIL & GAS AND OFF-SHORE DEVELOPMENTS EXPECTED TO HAVE A LARGER ROLE IN SUPPLY
100
0
50
150
200
24%
2020
19%
2016
4%
10%
31%
22%
6%
17%
2025
+1%
12%
2030 2035
32%
16%17%
15%
Mboed
18%
28%
4%
14%
13%
CAGR
2. UNCONVENTIONAL & OFF-SHORE RELEVANCE
Note: Includes crude oil, condensate, NGLs and natural gas onlySource: Rystad energy UCube; BCG analysis
38%
FUTURE INCREASE IN PRODUCTION WILL BE DRIVEN BY OFF-SHORE
38% will come from off-shore fields not yet producing, many requiring new infrastructure
Off-shore will account for 91% of absolute growth between 2016–2030
38% of off-shore oil&gas production will come from fields not yet producing
2. UNCONVENTIONAL & OFF-SHORE RELEVANCE
0
60
120
180
Mboed
2030f2020f20102000
On-shoreOff-shore
100
75
50
25
02010 2020f2000 2030f
Mboed
Off-shore / producingOff-shore / non-producing
1.6%
1.2%
CAGR2000–2016
0.1%
1.9%
38%
62%
CAGR2016–2030
Fields not yet producing as of today
Note: Shale/Tight Gas production includes non-associated, oil-associated tight gas production. Crude /Condensate production includes shale/tight oil and high API C5+ liquidsSource: EIA (historical information 1990-2015), EIA 2016 Annual Energy Outlook, Rystad Energy, BCG Analysis
CAGR05–15
UNCONVENTIONAL PRODUCTION RELEVANCE WILL FURTHER INCREASE
Shale gas & shale oil already account respectively for ~65% and ~30% of US production
US Gas production 1990–2020 US Oil production 1990–2020
+40%
-4%
-5%
2. UNCONVENTIONAL & OFF-SHORE RELEVANCE
0
25
50
75
100
Other production
2020e00
Imports
1005
Bcf/d
90
Shale/Tight Gas
95 150
15
20
10
5
90 95 00 05 10
Mbbl/d
15 2020e
Forecast
Shale oil
Imports
Forecast
Other production
CAGR05–15
+46%
-3%
-1%
ARGENTINE UNCONVENTIONAL OPPORTUNITY IS COMPARABLE TO U.S. DEVELOPMENT
Quality and size is massive; risks and barriers are manageable
IOC's already recognized the opportunity and are deploying
activities in Neuquén
Vaca Muerta key geological parameters in line with US plays:
• 6% organic content• 200 m thickness
Low environmental risks and great potential upside
2030 Unconventional production Forecast: 2.0 – 4.0 Mbpd
2030 Unconventional production Forecast: 6.9 – 7.7 Mbpd
Stacked pay volumes, mainly in the Permian Basin, are relevant for future
shale US production
Resource bookings willincrease as slow adopters
catch-up with first movers and pursue stacked pay volumes
2. UNCONVENTIONAL & OFF-SHORE RELEVANCE
Production to increase in US as stacked pay volumes are pursued
Argentine unconventional shows an outstanding opportunity
Source: BCG Analysis
OIL PRODUCTION WILL BE VIABLE AT PRICES BETWEEN ~55-70 USD/BBL WITH EXISTING TECHNOLOGIES AND RESOURCES
3. SUPPLY CURVE
1. Includes crude oil, condensates and NGLsNote: breakeven prices are calculated considering all cash flows since approval year with a 10% discount rate Source: Rystad Energy UCube (18 April 2016 release)
Brent real oil price,USD/bbl (2015$)
Break-even price range considering 1Q and 3Q prod. Break-even price range considering 10% and 90% prod.
Under development fields
Onshore Middle EastOnshore rest of worldOff-shore shelf
Tight liquidsDeep water, heavy oils, and others
2020 forecasted production1 from new fields in Mbbld
Development potential
15141312111098762 54310
150
50
125
100
75
25
01716
off-shore shale
Global production from new fields and break-even pricesby types of projects – 2020, in USD/bbl
deepwater
Preconditions for success On localagenda
Competitiveness
Fiscal terms
Regulatory risk
Access to acreage
Prospectivity
• Long-term predictability• Ease of doing business
•National government and provinces coordination
•Potential for technically recoverable resources1
2345
• Technical complexity• Labor productivity• Logistic costs
• Taxes, royalties and bonuses–Returns offered vs. risks taken–Stability of conditions
4. PRECONDITIONS FOR SUCCESS
ARGENTINA IS ADDRESSINGINVESTORS NEEDS
Global demand for oil & gas is expected to grow mainly driven by emerging markets
Cost competitiveness will be key for the development of the oil & gas sector
Argentina is addressing key investor needs: access to acreage, competitiveness, fiscal terms and political & regulatory risks
Unconventional oil & gas and off-shore developments will have a more important role in supply, with Argentina enjoying a privileged position
SIGNIFICANT POTENTIAL OPPORTUNITIES FOR INVESTING IN ARGENTINA
Presented by Juan José Aranguren
Minister of Energy & Mining
THE GOVERNMENT´SAGENDA
+50 years of world class operations with major companies & skilled human capital
Top natural gas and oil producer in the region
50+ Operations and service providers – including top international players
100k +Qualified jobs and highly trained management
8+Universities & institutions specialized in oil & gas
50+ Years of developed world class operations
ARGENTINA IS A KEY OIL & GAS PLAYER IN SOUTH AMERICA
1. INTRODUCTION
101
3500
500
0518567
Oil production/ K barrels per day
90
30742065
982
646
367 337 327224 185
607
800
0
400
Gas production / K boe per day
2nd
4th
Source: IEA Statistics 2015
Increasing demand for gas driven by all segments
Increasing demand for gasoil and gasoline driven by industrial and
transportation uses
Growing demand for gas … … and for refined fuels
GROWING LOCAL DEMAND FOR GAS AND FUELS REPRESENTS AN OPPORTUNITY TO INCREASE PRODUCTION IN ARGENTINA
2. STRONG DOMESTIC MARKET
10
20
0
30
2013
+2%
2012
21.220.9 21.8
20152014
21.9
Gasoline & gas oil sales(Million M3)
40
20
0
60
20132012
Gas consumption (Billion M3)
2014
+2%
43
2015
42 43 44 +2%
+1%
+3%
+1%Generation
Industrial
Residential
Other
CAGR 2013–'15
Source: Ministerio de Energía & Minería, ENARGAS; SESCO Downstream
Discoveredresources for
approximately 50 billion barrels,
mainly in Santos basins
3. KEY COMPETITIVE ADVANTAGES OF THE SECTOR
Extensive areas in Argentina with exploration potential
Similar basins have shown significant untapped potential
BasinsProductiveExploration potential
HIGH POTENTIAL FOR EXPLORATION & PRODUCTION
Large unexplored potential, particularly for off-shore and deepwater exploration
Source: Brazil’s National Petroleum Agency - Bloomberg
2nd country in the world:recoverable resources of shale gas
4th country in the world:recoverable resources of shale oil
Shale gas TRR
HIGH QUALITY SHALE RESOURCES IN EARLY STAGE OF DEVELOPMENT: VACA MUERTA, LAS LAJAS, AGUADA BANDERA AND LOS MOLLES
Sources: EIA/ARI World shale gas and shale oil Resource Assessment 2013; BP Statistical Review 2015 – Oil & gas proved reserves include conventional and unconventional resourcesTRR: Technically Recoverable Resources
3- KEY COMPETITIVE ADVANTAGES OF THE SECTOR3. KEY COMPETITIVE ADVANTAGES OF THE SECTOR
ARGENTINA IS AMONG THE TOP COUNTRIES IN THE WORLD IN TECHNICALLY RECOVERABLE SHALE OIL & GAS RESOURCES
429
545
573
623
707
802
1115
0 500 1000 1500
Natural gas - TCF
13
16
26
27
32
58
75
0 20 40 60 80
Oil – Billion barrels
Shale oil TRR
4- VACA MUERTA SHALE RESOURCE
1. Average TOC per play 2. Data from three main basins: Marcellus, Haynesville and BarnettSource: SPE, Halliburton; EIA/ARI World Shale Gas and Shale Oil Resource Assessment 2013
Vaca MuertaParameters of attractive plays Ideal Range
1,200m–3,000m
0.6% < Ro < 2%
> 0.4 psi/ft
3,000m
0.65–1.00 psi/ft
0.85–1.5%
> 3% 6% 4–12%
> 20 mts ~200m 60–90m
2,500–4,000m
0.43–0.90 psi/ft
0.5–2.6%
US Basins2
Depth(Meters)
Pressure –gradient (psi/ft)
Thermalmaturity (Ro)
Total organiccontent 1 (TOC%)
Net thickness(Meters)
4. VACA MUERTA SHALE RESOURCE
VACA MUERTA IS A HIGHQUALITY SHALE RESOURCE
Key parameters are in line with US basins
Increasing number of oil & gas wells
Faster horizontal well drilling & completion
Decreasing costsof horizontal wells
EXPERIENCE EFFECTS REDUCED AVERAGE WELLS COSTS AND FURTHER REDUCTIONS ARE EXPECTED AS NUMBER OF WELLS INCREASES
Sources: Expert interviews; BCG Upstream Performance Database, BCG Analysis
New PAD for well alignment increases productivity
4- VACA MUERTA SHALE RESOURCE4. VACA MUERTA SHALE RESOURCE
AS ACTIVITY INCREASES, VACA MUERTA'SFUTURE IS BECOMING EVEN MORE ATTRACTIVE
0
200
400
600
800
Number of producing wells
+69%
2015
562
388
2013
234
116
2011
69
Oil wellsGas wells
11
14
17
0
5
10
15
20
Well costs (MM US$) -35%
201620152014
25
6584
120
181
0
50
100
150
200
2011 2013
Time in days
2015
-86%
Declining trend in oil production
Header
International context increasing pressure on unconventional profitability
Legal and institutional disorder
ARGENTINA'S OIL & GAS SECTOR FACES THREE MAIN CHALLENGES
5. CHALLENGES
1
2
3
6- GOVERNMENT STRATEGY
Maximize the value of Argentina's oil & gas resources
Promote value addedproduction in the downstream sector
Argentina is moving forward on the oil & gas agenda
1 2
6. GOVERNMENT STRATEGY
THE MINISTRY OF ENERGY & MININGHAS DEFINED TWO KEY GOALS
Completed In progress Projected
Complete the price scheme review (RTI1) for natural gas transport and distribution by the end of the yearNominate new directors for ENARGAS by the end of 2016
§ Complete organizational structure of ENARGAS in 1Q-2017
Clarify and normalizeregulatory
agencies' roles
§ Develop geological knowledge of off-shore and deepwater basins through seismic studies in 2016
§ Invite major companies to bid for off-shore E&P:▪ Austral basin: during 2017▪ Other regions: when seismic information is available - 2018
Promote exploration of
off-shore and deepwater basins
§ Foster exchange of best practices between companies and with other countries for technology adoption
§ Help provinces control investments in existing concessions§ Promote infrastructure & services:
▪ Easing interprovincial permits for oil pipeline construction▪ Promoting a competitive fiscal regime▪ Speeding up import permits
Boost thedevelopment ofunconventionals
Enable appropriate conditions
for investment
■ Work with the Labor Ministry to facilitate dialogue with unions to ■ enhance productivity and working conditions§ Align national oil prices with import parity§ Establish a competitive gas environment moving towards market prices
6. GOVERNMENT STRATEGY
MAXIMIZE THE VALUE OF ARGENTINA'S OIL & GAS RESOURCES1
1. RTI: Revisión tarifaria integral
NormalizeLPG market
Support investments in petrochemicals
Reach global standardsfor cleaner
refined fuels
■ Evaluate which sectors need demand-side subsidies§ Allow LPG prices to converge with international prices§ Promote a more efficient and competitive market
Establish clear path through res. 5/2016, towards clean fuel standards(starting 2016)Aim at lowering sulfur content on gas oil and gasolineReview investment plans of existing refineries
§ Increase ethanol usage for industry
Set the conditions to optimize fuel production from
existing refineries
Promote enhancement of conversion and processing capacities of existing refineries
▪ Enhance conversion reducing heavy products▪ Minimize gas oil imports▪ Increase use of biofuels
§ Encourage potential investment in ethane and propaneprocessing plants
▪ Support the industry to set up of a world class steam crackerand a PDH plant to supply growing regional demands for chemicals
6. GOVERNMENT STRATEGY
Completed In progress Projected
PROMOTE VALUE ADDED PRODUCTION IN THE DOWNSTREAM SECTOR2
Argentina is a key oil & gas player in South America
The Argentine oil & gas sector has strong development potential
In particular, Vaca Muerta is a high quality shale resource with a promising future
Growing local demand for fuels represents an opportunity to increase production
1-
2-
3-
4-
ARGENTINA IS AN ATTRACTIVE MARKET FOR OIL & GAS PRODUCTION
ARGENTINA IS AN ATTRACTIVE MARKET FOR OIL & GAS PRODUCTION
Argentina's oil & gas sector faces three main challenges:
• Declining trend in oil production
• International context increasing pressure on profitability
• Legal and institutional disorder
5-
The Ministry of Energy & Mining has defined two key goals:
• Maximize the value of Argentina's oil & gas resources
• Promote value added production in the downstream sector
6-
Argentina is moving forward on the oil & gas agenda
Presented by Juan José Aranguren
Minister of Energy & Mining
THE GOVERNMENT´SAGENDA
Panelists:
Ø Miguel Gutiérrez, President – YPFØ Marcos Bulgheroni, Board Member – PAEØ Teófilo Lacroze, CEO – Shell ArgentinaØ Gastón Remy, President – Dow Argentina and LATAM South Region
THE PRIVATE SECTOR PERSPECTIVE
Presenters:
Ø José Luis Sureda – Secretary of Hydrocarbon ResourcesØ Marcos Porteau – Undersecretary of Exploration and Production
INVESTMENT OPPORTUNITIES
INVESTMENT OPPORTUNITIES
Opportunity Context
THERE IS A USD 20 BN+ ANNUAL INVESTMENT OPPORTUNITY TO PARTICIPATE IN ARGENTINA’S ENERGY REVOLUTION
Opportunity Detail (USD Bn)
Argentina’s oil & gas sector has very strong development potential• Conventional resources across the country with a history of strong production• Vast and high quality known shale oil & gas resources in the early stages of development (including
Vaca Muerta, the 2nd largest shale gas and 4th largest shale oil reserves -TRR- in the world)• Large unexplored potential in offshore and deepwater
The country’s long history in O&G has already attracted many companies (50+ operations and service providers) to the country and led to the development of skilled human capital in the sector (100K+ qualified personnel)
O&G relatedinfrastructure 3.3**
Off-Shore O&G
Vaca Muerta (per year) 20.01
2
Opportunities to partner with operators and participate in the world’s 2nd largest shale gas and 4th largest shale oil TRR
Opportunities to secure concessions for proven offshore O&G reserves
Projects to expand and increase the capacity of Argentina’s gas pipelines and freight rail to keep pace with the increased production out of Vaca Muerta
TBC (7 basins totaling 500 thousand km2)
**USD 1 Bn of the 3.3 Bn (railway project) also included in the transportation section, but included here for context, given it’s importance for O&G
INVESTMENT OPPORTUNITIES
VACA MUERTA IS A USD 20 BN/YEAR OPPORTUNITY TO DEVELOP ONE OF THE LARGEST SHALE OIL & GAS TRR IN THE WORLD
Opportunity Background
USD 20 Bn per year to achieve Vaca Muerta’s full production potential• 35 year concession (plus a 5 year extension for
exploration)• Concessions already allocated but local operators are
looking for financial and operational partners with know-how in unconventional exploration (partnership types could include farmout agreements, M&A, JOAs)
Vaca Muerta holds the 2nd largest shale gas and 4th largest shale oil TRR in the world• The Vaca Muerta formation is very thick (≈1,000ft) and
laterally extensive (7,700 Mn acres), converting it in high quality resource compared to other world class basins:
• Vaca Muerta has favorable location due to its location on a desert with a low population density
• O&G services and transport infrastructure is already in place, given that the Vaca Muerta area is also a conventional play
Project Description Location
Acreage Concession Details
Contact information
Joint Operation Agreements with existing players:• YPF holds almost 40% of VM and is willing to explore
partnerships under IPT scheme (Integrated project team)• Other main players in VM are: Total, PlusPetrol, Shell,
GyPRenewal of expiring concessions to be launched by Provinces
• Andrés Ondarra – Vicepresident [email protected]
• José Luis Sureda – Secretary of Hydrocarbon Resources [email protected]
Main province:
• Neuquén
Other provinces:
• Mendoza
• La Pampa
• Rio Negro
1
INVESTMENT OPPORTUNITIES
THE GAS PIPELINE INFRASTRUCTURE WILL REQUIRE USD 2.25 BN IN INVESTMENTS TO KEEP PACE WITH INCREASED PRODUCTION ACTIVITY
Opportunity Background
• USD 1.5 Bn work for construction of GNEA´s 4th tranche
• GNEA to connect to Juana Azurduypipeline (coming from Bolivia) and provide natural gas to 3.4 million inhabitants
• Work to be tendered by Enarsa• USD 750 Mn to increase and broad the
gas transport capacity of TGS and TGN• Work to be tendered by Enarsa• USD 1 Bn for the development and
improvement of freight railway to connect Vaca Muerta with the port of Bahia Blanca (Atlantic Ocean). Will significantly decrease the cost of transporting equipment, sand and other supplies to develop Vaca Muerta
• Part of Argentina’s transportation plan to improve freight railway utilization at national level
Argentina will require significant investments to expand its infrastructure, following the expected expansion of its oil & gas exploration and production capacity• The additional infrastructure needed includes the
expansion of Argentina´s gas pipeline network, treatment facilities and the improvement of freight rail to provide Vaca Muerta with sand and other supplies
Project Description Location
Contact information
• Andrés Ondarra – Vicepresident [email protected]
• José Luis Sureda – Secretary of Hydrocarbon Resources [email protected]
GNEA Gas Pipeline
Extension
Añelo-Bahia Blanca
Railway*
TGS/TGN
*Project accounted for in the Transportation section, but also included here for context
AÑELO – BAHIA BLANCA RAILWAY
GNEA
2
QUESTIONS & ANSWERS