strategic advisors in global energy the world beyond: opportunities and challenges in global energy...
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Strategic Advisors in Global EnergyStrategic Advisors in Global EnergyStrategic Advisors in Global Energy
The World Beyond:Opportunities and Challenges in Global Energy Investing
IPAA Private Capital Conference
By Robin West
25 February 2010
IPAA Lunch | Page 2
A Little Perspective
IPAA Lunch | Page 3
0
20
40
60
80
100
120
1995 2000 2005 2010 2015 2020 2025 2030
(mmb/d)
Non-OPEC Crude, NGL, & Condensate * Non-OPEC Oil Sands
Biofuels & Other Liquids OPEC Crude, NGL, & Condensate
0.5% Demand Growth 1.5% Demand Growth
1.0% Demand Growth
Danger of Future Supply Crunch Remains
* Includes Refinery Gain
2020 call on OPEC ~25–37 mmb/d
given 0.5% - 1.5% growth
Source: PFC Energy Global Liquids Supply Forecast
OPEC Crude NGL & Condensate
Non-OPEC Crude, NGL, & Condensate
IPAA Lunch | Page 4
Its Their Oil: Increasingly Limited Access—Particularly to the Easiest Reserves
Source: PFC Energy, Oil & Gas Journal, BP Statistical Review
1%
14%85%
Full IOC Access
1970
SovietReserves
NOC Reserves(Limited Equity Access)
NOC Reserves (Equity Access)
Full IOC Access
Reserves Held by Russian Companies
NOC Reserves(Limited Equity Access)
2009
IPAA Lunch | Page 5
0
1
2
3
4
5
mb
oe/
d
CVX XOM BP RDS
SuperMajors Seem Unable to Grow
Chevron – Texaco 2001
Exxon – Mobil 1999
BP – Amoco 1998
BP/Amoco – Arco 2000
TNK-BP 2003
Chevron – Unocal 2006
Source: PFC Energy
IPAA Lunch | Page 6
Value is Migrating to the Traded NOCs
In 1999, traded NOCS made up 1% of the combined value of the PFC Energy 50 companies; this share was 32% in 2009
In a decade, this set expanded from two companies (Petrobras, Gazprom) with a combined value of worth $22 bn to eleven companies worth $1.2 trillion
Unlike the SuperMajors, these companies promise
– Growing demand
– Access to resources
Value of PFC Energy 50 by segment (%)
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
5500
Combined Market Cap (US $ billion)
Other
Integrated NOC
Integrated IOC
Source: PFC Energy PFC Energy 50
IPAA Lunch | Page 7
There Are Exceptions, But NOC Control Means Less Investment
NOCs tend to invest less than IOCs in the upstream sector
NOCs with declining sectors need major investments
NOCs with growing production (e.g. Petrobras) need access to capital
ExxonMobil
BP
Shell
Chevron
COP
TOTAL
LUKoil
Eni
EnCana
PetroChina
Petrobras
Saudi Aramco
Gazprom
PEMEX
PETRONAS
PDVSA
Sinopec
Statoil
Rosneft
SonatrachNIOC
$-
$5
$10
$15
$20
$25
$30
$35
0 2,000 4,000 6,000 8,000 10,000
20
08
E&
P S
pe
nd
pe
r B
oe
Pro
du
ce
d (
$/b
oe
)
2008 Production (mboe/d)
2008 Production & Upstream Spend per Boe Produced:Largest IOCs vs. Largest NOCs
IOCsNOCs
Largest NOCs Spend Substantially Less than the Largest IOCs
IPAA Lunch | Page 8
Expect Dramatic Shifts in the Global Competitive Landscape 2010-2020
Independents focused on the “incremental” gas shale play (tight gas) with enormous impacts on aggregate North American supply
The number of NOCs overseas accelerated
Large mergers reached a stopping point with ChevronTexaco
Oil sands investment in Canada took off
The world’s largest deepwater play was led by a NOC
Independents made substantial impacts in new conventional plays overseas
2000-2010
Tight gas technology will spread overseas, with success & failure
Global Players move further into the North American tight gas play, reversing a 20 year pattern
Deteriorating downstream value makes global players disaggregate – opening way for large mergers
Independents continue substantial impacts in new conventional plays overseas
Tight oil play takes off in the US
Tight oil play spreads faster with greater impact overseas than tight gas
2010-2020
IPAA Lunch | Page 9
The New Hot International Destination: US!
Gazprom Marketing & Trading USA Inc. begins buying and selling wholesale gas in the US
Petrobras exercises its preference right to acquire 50% of Devon’s participation interest in the Cascade field in the GOM
Maersk Oil pays $1.4 billion for Devon’s 25% working interest in the Jack Lower Tertiary development in the GOM
BP, Statoil and TOTAL invest nearly $5 billion, plus similar amount in carried costs, in Chesapeake’s unconventional gas plays
ExxonMobil makes $41 billion purchase of XTO
Mitsui invests $1.4 billion to participate in Anadarko’s Marcellus Shale development
IPAA Lunch | Page 10
Going International
IPAA Lunch | Page 11
Cairn in India Led to Discovery of ~1 bnbbls of Recoverable Reserves – Extends Indian Plateau
0
100
200
300
400
500
600
700
800
900
1,000
19
65
19
70
19
75
19
80
19
85
19
90
19
95
20
00
20
05
20
10
20
15
20
20
Da
ily
Pro
du
cti
on
(m
bo
pd
)
ExplorationPUDsNew SourceBase ProductionActual Production
Cairn’s Mangala, Bhagyam, Aishwarya complex of oil fields onshore Rajasthan will add enough incremental oil production in 2009/10 to extend the production plateau of the last 20 years into the early part of the next decade
1996
Cairn Acquires Command Petroleum
(interest in Ravva)Corporate
Acquisition
1997
Bought 10% interest from Shell in Rajasthan
onshore block (RJ-ON-90/1)
1998
Bought 40% interest from Shell in
Rajasthan onshore block (RJ-ON-90/1)
2002
Bought 50% interest from Shell in Rajasthan
onshore block (RJ-ON-90/1) for $7.25 mm
Asset Acquisition
Source: PFC Energy Global Liquids Supply Forecast
IPAA Lunch | Page 12
0
50
100
150
200
250
300
350
400
450
500
19
65
19
70
19
75
19
80
19
85
19
90
19
95
20
00
20
05
20
10
20
15
20
20
Da
ily
Pro
du
cti
on
(m
bo
pd
)
Exploration
PUDs
New Source
Base Production
Actual Production
What Triton (Hess) did for Equatorial Guinea
Ceiba Volumes
North Block G Volumes
Provided new oil volumes as Zafiro was peaking
Source: PFC Energy Global Liquids Supply Forecast
IPAA Lunch | Page 13
Kosmos, Tullow and Anadarko Changed the West African Margin Play
Ghana: Oil Production Forecast by Reserve Category
0
100
200
300
400
500
600
19
85
19
90
19
95
20
00
20
05
20
10
20
15
20
20
20
25
20
30
Da
ily P
rod
uc
tio
n (
mb
/d)
Base Production New SourcePUDs ExplorationActual Production
Additional Success Outside Ghana
Source: PFC Energy Global Liquids Supply Forecast
IPAA Lunch | Page 14
Tullow Continued the East Africa Play
East Africa rift play was hot in the 1980s, but failed outside Sudan; Tullow came back to it
Uganda: Oil Production Forecast by Reserve Category
0
50
100
150
200
2501
98
5
19
90
19
95
20
00
20
05
20
10
20
15
20
20
20
25
20
30
Da
ily P
rod
uc
tio
n (
mb
/d)
Base Production New SourcePUDs ExplorationActual Production
Source: PFC Energy Global Liquids Supply Forecast
IPAA Lunch | Page 15
Excellent Opportunities Exist for Companies That Bring Real Expertise—e.g. Drilling Efficiencies
North America is far and away the world’s expert on land drilling. Of the 1.7 million wells that were drilled between 1980 and 2008, 90% were drilled in North America
US technology, expertise and competition have delivered extraordinary productivity improvements—resulting in step-function cost reductions—for unconventional gas
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
1980 1985 1990 1995 2000 2005
Cumulative Number of WellsDrilled Since 1980 (Land)
North America ROW
Gas Rig Count and Production
500
700
900
1,100
1,300
1,500
1,700
(2,000) (1,000) - 1,000 2,000 3,000 4,000 5,000
Yr-on-Yr Change in Gross Onshore Prod in mmcf/d
Gas
Rig
Co
un
t2000
2001
2002
2003
2004
2005
2006
2007
Source: EIA, Baker Hughes, PRC
Learning/Efficiency
Source: PFC Energy Global LNG Service
IPAA Lunch | Page 16
International Interest in Unconventional Gas, but Potential Looks Smaller…
Sources: PFC Energy Global LNG Service; NPC 2007; Rogner 1997
Coal Bed Methane
Tight Gas
Shale Gas
Estimated Resources
8.2
9.7
5.5
3.4
3.4
1.1
1.0
Continent total shown in quadrillion cubic feet
IPAA Lunch | Page 17
…and Few of the Prerequisites for Unconventional Gas Plays are in Place Elsewhere Today
Large and capable service sector with pre-positioned equipment
Experienced field and drilling personnel
Multitude of small players drilling aggressively and learning fast
Sophisticated land title system
Gas gathering infrastructure
Good roads, bridges and other physical access
Appropriate legislation/regulation
IPAA Lunch | Page 18
As More Countries’ Fields Mature, US EOR Expertise Will be in Demand Internationally
19
65
19
70
19
75
19
80
19
85
19
90
19
95
20
00
20
05
USA Romania
IndonesiaTunisia
PeruDem Rep Congo
CameroonOther Europe
EgyptPakistan
Papua New GuineaSyria
UKGabon
UzbekistanNorway
OmanNew Zealand
ArgentinaCongo
ColombiaAustralia
YemenDenmark
MexicoChad
Equatorial GuineaBrunei
MalaysiaIndia
ChinaTurkmenistan
SudanRussia
Countries in Plateau
Countries in Decline
Duration of Plateau
Onset of DeclineOnset of Plateau
Source: PFC Energy Global Liquids Supply Forecast
IPAA Lunch | Page 19
A Huge New Play
Areally extensive shale resource
– USGS estimated OOIP of 414 bbo
– Very low permeability (<5% recovery)
Accelerating development
– Started in 2000 with Elm Coulee field in Montana, but shifted to N. Dakota
– Intensive development from 2005- 1H 2008
– Squeezed into unprofitability by collapse of oil prices
– Window of profitability has re-opened as costs have plummeted
IPAA Lunch | Page 20
In the Bakken, Initial Month Production Per Well Has Doubled Since 2000
Well productivity has grown materially
Driver of real growth is ability raise both activity and the portion of wells in top productivity categories
– Learning spreads
– Experience grows, meaning fewer mistakes
IPAA Lunch | Page 21
Bakken Shale Production Forecast: 1200 Wells/yr
0
50
100
150
200
250
300
350
400
450
500Ja
n-00
Jan-
01
Jan-
02
Jan-
03
Jan-
04
Jan-
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Jan-
06
Jan-
07
Jan-
08
Jan-
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Jan-
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Jan-
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Jan-
12
Jan-
13
Vin
tag
e P
rod
uct
ion
(m
b/d
)
Pre-2000 2000 2001 2002 2003
2004 2005 2006 2007 2008
2009 2010 2011 2012 2013
Tight Shale Promises Incremental Gains – But Gas Shale Seemed Incremental, Until The Numbers Added Up
IPAA Lunch | Page 22
You Can Make Money: International Independents Delivered More Value
Average return for companies with operations in North Africa, Middle East and Central Asia: 41%
Average return for companies focused on North America: 13%Source: PFC Energy Upstream Competition Service
-40% -20% 0% 20% 40% 60% 80% 100%
StoneStratic
S&P 500Forest
SwiftPioneerCimarex
UnitHeritage
CalvalleyNewfield
PlainsTransglobe
MelroseChesapeakeQuicksilver
DevonQuestar
BerryCircleHusky
ATP Oil & GasEnCana
PetrocelticEOG
CabotUltraDNO
DenburyCNR
EmeraldDragon
PA ResourcesSouthwestern
Average AnnualTSR 2004 to 2009 (%)
IPAA Lunch | Page 23
Liquidity Ratio 20%Primary Fiscal Balance 20%Net External Financing Needs 20%Real per capita GDP Growth 20%Oil Sector Dependency 10%Economic Openness 10%
Total PRM Score
Country Economics 20%Country Politics 20%Oil Sector Entry 20%
Oil Sector Operations 20%Oil Sector Surprises 10%
Social 10%
Country Economics: 20% Country Politics: 20%
Political Violence 25%Rogue Factor 25%Political Legitimacy 15%Government Volatility 10%Rule of Law 15%Political Competition 10%
Oil Sector Entry: 20%
Government Take 35%International Openness 20%NOC Influence 15%NOC Mandate 15%Expeditiousness of Contract 15%
Oil Sector Operations: 20%
Facility and Personnel Violence 35%Sanctity of Contract 20%Expeditiousness of Operations 10%Regulatory Burden 15%Energy Sector Corruption 15%Contract Type 5%
Oil Sector Surprises: 10%
Natural Disasters 35%Export Risk 35%Labor Unrest 15%Ministerial Volatility 15%
Social: 10%
Civil Society Influence 50%Environmental Regulatory Capacity 30%Local Environment 20%
But Need To Assess Risk, Which Has Many Different Ingredients
Source: PFC Energy Petroleum Risk Manager
IPAA Lunch | Page 24
Conclusions
There are always international opportunities for companies that bring real expertise—but if they were easy, someone would already have done them
Independents can thrive in the gap between the ambitions and capabilities of NOCs with technically challenging portfolios
There are international opportunities to export US tight (oil and gas) reservoir technology
International E&P is not easy, but the breadth and depth of international opportunities can be very large—even those that appear “incremental” to the global players, at least initially
Companies that work to understand the real risks and manage these can be very successful
For companies with a comparative advantage funding is increasingly available
Strategic Advisors in Global Energy
Main regional offices:
AsiaPFC Energy, Kuala LumpurLevel 27, UBN Tower #2110 Jalan P. Ramlee50250 Kuala Lumpur, MalaysiaTel (60 3) 2172-3400Fax (60 3) 2072-3599
PFC Energy, ChinaKerry Center N-11371 Guanghua RoadChaoyang DistrictBeijing 100020, ChinaTel (86 10) 6599-7937Fax (86 10) 6530-5093
EuropePFC Energy, France19 rue du Général Foy75008 Paris, France Tel (33 1) 4770-2900Fax (33 1) 4770-5905
PFC Energy International,Lausanne19, Boulevard de la Forêt 1009 Pully, Switzerland Tel (41 21) 721-1440 Fax: (41 21) 721-1444
Middle EastPFC Energy, Bahrain Bahrain Financial Harbor (BFH)East Tower5th Floor P.O. Box 11118Manama- BahrainTel (973) 7705 8880
North AmericaPFC Energy, Washington D.C.1300 Connecticut Avenue, N.W. Suite 800Washington, DC 20036, USATel (1 202) 872-1199 Fax (1 202) 872-1219
PFC Energy, Houston4545 Post Oak Place, Suite 312 Houston, Texas 77027-3110, USA Tel (1 713) 622-4447 Fax (1 713) 622-4448
www.pfcenergy.com | [email protected] regional offices are shown in blue.
PFC Energy consultants are present in the following locations:
Beijing
Brussels
Delhi
Ho Chi Minh City
Houston
Kuala Lumpur
Lausanne
London
Manama
Mumbai
New York
Paris
Vancouver
Washington, DC