Oil & Gas exploration trends and company · PDF fileOil & Gas exploration trends and company...

Oil & Gas exploration trends and company performanceRio de Janeiro7th August 2014

Strategy with substancewww.woodmac.com

Strategy with substance© Wood Mackenzie

2

Agenda

1. Health of the conventional exploration industry

2. Impact of unconventional plays

3. Company performance

4. The volume to value shift


3

Conventional exploration continues to add big resource volumes

Brazil has been globally important for oil - recent results dwarfed by East Africa gas

Source: Wood Mackenzie Exploration Service

0

5

10

15

20

25

30

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Bill

ion

boe

Discovery year

Brazil

Rest of World

0

5

10

15

20

25

30

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013B

illio

n bo

e

Discovery year

East Africa

Rest of World

Conventional oil discoveries Conventional gas discoveries


4

Was 2013 a disappointing year for conventional exploration?

Headline volumes below average

» New field adds of 18 billion boe versus 28 billion boe decade average

» 41% oil versus 45% decade average

2013 IOC volumes close to par

2013 NOC volumes very low

Overall volumes likely to increase

» Appraisal

» Disclosure, particularly from NOCs

Smaller volumes and fewer play-opening discoveries could support this view, but fewer announcements of giant NOC discoveries is the main factor


0

5

10

15

20

25

30

35

40

45

50

2004 2006 2008 2010 2012

Volu

me

disc

over

ed (b

nboe

)

NOC

Other IOC

Major

Discovery year

Average IOC volumes 15 bnboe


5

Giant discoveries of 2013 continue the strong trend of material finds

Salamat (BP)790 mmboe

Salamat (BP)790 mmboe

Espadarte (APC)1,232 mmboe

Espadarte (APC)1,232 mmboe

Lontra (Cobalt)740 mmboe

Lontra (Cobalt)740 mmboe

Agulha (ENI)739 mmboeAgulha (ENI)739 mmboe

Orca (APC)739 mmboeOrca (APC)739 mmboe

Tangawizi (STO)616 mmboe

Tangawizi (STO)616 mmboe

Iara Entorno (PBR)585 mmboe

Iara Entorno (PBR)585 mmboe

WQ4N (Wintershall)530 mmboe

WQ4N (Wintershall)530 mmboe

Hassi Touimet (Sonatrach)500 mmboe

Hassi Touimet (Sonatrach)500 mmboe

D55 (Reliance)500 mmboe

D55 (Reliance)500 mmboe

Bay du Nord (STO)400 mmboe

Bay du Nord (STO)400 mmboe

Ogo (Afren)770 mmboeOgo (Afren)770 mmboe

At least ten discoveries with provisional resource estimates greater than 500 mmboe

Giant / large discovery trend

0

10

20

30

40

50

60

2004 2006 2008 2010 2012

Dis

cove

ry c

ount

Discovery year

Large discoveryGiant discovery


6

Proportion of annual volumes by water depth Discovery size by water depth

Deepwater increasingly important in conventional new discoveries


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2003 2005 2007 2009 2011 2013

Perc

enta

ge o

f dis

cove

red

volu

mes

Onshore Shelf Deepwater

0

50

100

150

200

250

300

350

2003 2005 2007 2009 2011 2013Av

erag

e di

scov

ery

Size

(mm

boe)

Onshore Shelf Deepwater


7

Big volumes not enough to offset rising discovery costs

Source: Wood Mackenzie Exploration Service. Discovery costs exclude appraisal. Returns at US$105/bbl Brent price scenario. Brazil discovery costs are 3 year rolling average.

Increasing proportion of deepwater and frontier gas limits returns. Brazil outperforms.

Global Brazil

Resource discovery costs Full-cycle exploration returns

0%

5%

10%

15%

20%

25%

30%

35%

2004 2006 2008 2010 2012IR

R0.00

1.00

2.00

3.00

4.00

2004 2006 2008 2010 2012

Dis

cove

ry c

osts

(US$

/boe

)


8

Agenda






9

Conventional exploration is far from the whole story

Source: Wood Mackenzie Corporate Benchmarking Tool. Unconventional oil includes tight oil and oil sands. Unconventional gas includes shale gas, tight gas and CBM.

0

5

10

15

20

25

30

35

40

45

Exxo

nMob

ilC

hevr

on BPSh

ell

LUK

OIL

Tota

lSt

atoi

lC

hesa

peak

eC

onoc

oPhi

llips

Eni

Anad

arko BG

Sunc

or E

nerg

yD

evon

Apac

heC

NR

LN

oble

Ene

rgy

Enca

naBH

P Bi

lliton

Occ

iden

tal

EOG

Ran

geSo

uthw

este

rnC

ontin

enta

lIn

pex

Cor

pora

tion

Mar

atho

nR

epso

lH

usky

Woo

dsid

eH

ess

Pion

eer

Cen

ovus

Can

adia

n O

il Sa

nds

Talis

man

OM

VM

aers

k O

il &

Gas

Tullo

w O

ilM

urph

y O

ilSa

ntos

New

field

Orig

in E

nerg

yD

enbu

ryPl

uspe

trol

Free

port-

McM

oRan

Lund

inO

il Se

arch

Prem

ier

Paci

fic R

ubia

les

Kosm

osC

airn

Ene

rgy

Woo

dmac

Com

mer

cial

Res

erve

s (b

nboe

)

Unconventional gas

Unconventional oil

Conventional oil & gas

Growing polarisation between conventional Majors and unconventional independentsCommercial reserves by resource theme


10

Unconventional gas companies are worth much less than their liquids-rich competitors

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

0% 20% 40% 60% 80% 100%

Valu

e of

com

mer

cial

rese

rves

(US$

/boe

)

Proportion of unconventional gas

Majors

Other IOCs

Source: Wood Mackenzie Corporate Benchmarking Tool. Unconventional gas includes shale gas, tight gas and CBM. Bubble size reflects upstream NPV

Conventional & liquids-rich portfolios worth US$6-12/boe

Pure unconventional gas portfolios worth US$2-3/boe

Unit value of commercial reserves versus volume proportion of unconventional gas


11

Sweet spots in proven top tight oil plays are extremely importantBakken and Eagle Ford plays dominate US tight oil - 80% from just 8 core counties

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

5,0

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Prod

uctio

n (m

illio

n b/

d)

Emerging/newtight oil

Other Establishedtight oil

BoneSpring/Wolfcamp

Niobrara

Eagle Ford

Bakken

Two discrete plays

Play groupings

0.0

0.5

1.0

2009

2010

2011

2012

Pre-2009

8 core counties

24 non-core producing counties

Prod

uctio

n (m

illio

n b/

d)

US tight oil base case by play Eagle Ford & Bakken sweet spots

Source: Wood Mackenzie Global Oil Supply Tool


12

The pace of global shale drilling will continue to rise with 400 wells in 2014 – only 1% of US drillingTotal planned shale wells in 2014 (excluding US and Canada)

Strong gas activity in Saudi Arabia & Australia

New shale gas drilling in India and Algeria with a renewed focus in Mexico

Source: Wood Mackenzie Unconventional Play Service.

Strong tight oil activity in Russia

0

50

100

150

200

250

Chi

naSa

udi A

rabi

aA

ustr

alia

Arg

entin

aPo

land

Indi

aB

razi

lA

lger

iaM

exic

oTu

rkey UK

Col

ombi

aU

krai

neR

oman

iaD

enm

ark

Tuni

sia

Rus

sia

Egyp

t

Estim

ated

No.

of S

hale

Wel

ls in

201

4

Shale Gas Wells Shale Oil Wells


13

International tight oil is still in its infancyThe outlook is evolving rapidly

0,0

0,5

1,0

1,5

2,0

2,5

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

Prod

uctio

n (m

illio

n b/

d)

Liquids from shale gas playsNGLs from associated gasOtherAustraliaColombiaArgentinaChinaRussia

41%

18%

10%

7%

24% 32%

25%

14%

9%

5%

15%

Russia China ArgentinaColombia Australia Other

2012 forecast

2013 forecast

Source: Wood Mackenzie Global Oil Supply Tool

International tight oil supply base case Change in tight oil forecast 2013 vs 2012


14

Agenda






15

5-year exploration performance benchmarkingMany leading explorers use unconventionals to drive growth

Source: Wood Mackenzie Exploration Service Corporate Benchmarking Report, August 2013.

Organic volume additions of leading explorers (2008-2012)

0

2

4

6

8

10

12Pe

trob

ras

Ana

dark

oEn

iSt

atoi

lB

G

Shel

lN

oble

Ene

rgy

Con

ocoP

hilli

ps

Exxo

nMob

ilTa

lism

an

PETR

ON

AS

Hes

s

BP

Rep

sol

Che

vron

Tota

lA

pach

e

Mar

atho

nTu

llow

Oil

Mur

phy

Oil

Mae

rsk

Lund

in P

etro

leum

Sant

osO

ccid

enta

lO

MV

RW

E D

eaW

oods

ide

INPE

X C

orpo

ratio

n

BH

P B

illito

nW

inte

rsha

llK

osm

os E

nerg

yC

airn

Ene

rgy

Prem

ier O

il

Volu

mes

(bnb

oe)

New fields Brazil New fields Rest of World Organic unconventionals


16

5-year exploration performance benchmarkingThe majority have achieved full organic reserve replacement

0%

100%

200%

300%

400%

500%

Kos

mos

Ene

rgy

Lund

in P

etro

leum

Nob

le E

nerg

yTu

llow

Oil

Ana

dark

oB

GTa

lism

anR

epso

lH

ess

Sant

osR

WE

Dea En

iM

urph

y O

ilC

airn

Ene

rgy

Mar

atho

nPe

trob

ras

Stat

oil

Apa

che

Mae

rsk

Prem

ier O

ilC

onoc

oPhi

llips

Woo

dsid

eO

MV

PETR

ON

AS

Shel

lTo

tal

Exxo

nMob

ilIN

PEX

Cor

pora

tion

Che

vron

Occ

iden

tal

Win

ters

hall

BP

BH

P B

illito

n

New

Vol

umes

/Pro

duct

ion New fields Uncons


Reserve replacement ratio from new fields and organic unconventionals (2008-2012)


17

Exploration performance benchmarking reveals the challenge of creating value in unconventionalsTop performers accessed the best plays early and/or sold out to NOCs and Majors

-5

0

5

10

15

20

Petr

obra

s

Ana

dark

o

Eni

BG

Stat

oil

Con

ocoP

hilli

ps

Nob

le E

nerg

y

Rep

sol

Sant

os

Lund

in P

etro

leum

Tullo

w O

il

Apa

che

Mur

phy

Oil

Talis

man

Win

ters

hall

Mae

rsk

Prem

ier O

il

Mar

atho

n

Kos

mos

Ene

rgy

Tota

l

RW

E D

ea

INPE

X C

orpo

ratio

n

Occ

iden

tal

OM

V

Woo

dsid

e

Shel

l

PETR

ON

AS

Cai

rn E

nerg

y

Hes

s

BH

P B

illito

n

Che

vron

Exxo

nMob

il

BP

Valu

e cr

eatio

n, B

ase

pric

e (U

S$bn

)

Source: Wood Mackenzie Exploration Service Corporate Benchmarking Report, August 2013. Petrobras value creation US$47 billion.

New fields Uncons

Value creation from new fields and organic unconventionals (2008-2012)


18

10-year company exploration performance Returns from conventional exploration are robust for most


MajorsLeading

Independentsand Petrobras

APCBG

BHP

BP

CVX

COP

ENIXOM

HES

INP

LUP

MAE

MROMUR

NBL

OXY

OMV

PBR

PNS

PMOREP

RWE

STORDS STL

TLM

TOTTLWWIN

WPL

0%

5%

10%

15%

20%

25%

10% 100% 1000%

IRR

New volumes/production

Low volume, high value

Low volume, low value

High volume, high value

High volume, low value


19

Agenda






20

Exploration industry adopts a more cautious trajectory

Market wants more cash returned to shareholders

Corporate-level challenges – rising costs and taxes have eaten into free cash flow

Renewed emphasis on value

Portfolio fine-tuning

A buyer’s market for exploration assets

Adjusting course after a number of years marching towards high-impact frontiers


21

Some implications of the shift from volume to value

0

20

40

60

80

100

120

2004 2006 2008 2010 2012 2014E2016E

Expl

orat

ion

& a

ppra

isal

spe

nd (U

S$bn

)

Upside case

Base case

Rising Falling

Short term, existing ventures

Long term, new ventures

Emerging and mature basins Frontier basins

Appraisal of promising recent discoveries

High cost, long lead time geophysics

Deepwater oil plays – US Gulf of Mexico, Atlantic transform margin, West Africa pre-salt, Canada Grand Banks

Arctic basins

Onshore oil plays – East Africa rifts

Long-term LNG plays

Early and high recovery of exploration spend against existing revenues – Norway

High cost deepwater gas

Proven liquids-rich unconventional plays

Unproven and international unconventionals

Exploration themes Conventional exploration spend


22

Selling new discoveries is one strategy for explorers to support high returns

Source : Wood Mackenzie Exploration Service.

0%

10%

20%

30%

40%

50%

Cai

rn E

nerg

yA

nada

rko

Rep

sol

Mar

atho

nPr

emie

rEx

xonM

obil

Tullo

w O

ilM

urph

yEn

iTo

tal

BG

BH

P B

illito

nA

pach

eSa

ntos

Petr

obra

s

IRR

IRR with disposals

IRR without disposals

A few explorers have boosted returns with sales – many more still could

Broadly value-neutral but positive for IRR by accelerating payback

Favoured by investors as a clear demonstration of value

Maintains leverage to exploration

But will NOCs continue to support the M&A market?

Impact of selling recent discoveries on returns


23

Summary – industry trends and challenges

The conventional exploration industry is under some stress

» Costs are the issue, not volumes

» Was 2013 a poor year that signals structural changes for the worse?

Brazil

» Big volumes support low discovery costs and strong returns

Impact of unconventional plays

» Very important for volumes but can more companies unlock value?

The volume to value shift

» A more cautious trajectory for many

» Widespread access opportunity in a buyer’s market?

» The star explorers of 2015+ are those working hardest on acreage re-load now


24

Disclaimer

This presentation has been prepared by Wood Mackenzie for the Britcham International Energy Conference 2014, Rio, Brazil. It has not been prepared for the benefit of any particular attendee and may not be relied upon by any attendee or other third party. If, notwithstanding the foregoing, this presentation is relied upon by any person, Wood Mackenzie Limited does not accept, and disclaims, all liability for loss and damage suffered as a result.

The information contained in these slides may be retained by attendees. However, these slides and the contents of this presentation may not be disclosed to any other person or published by any means without Wood Mackenzie Limited's prior written permission.

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