Opportunity in the wreckage
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Transcript of Opportunity in the wreckage
• Thank you for invite me to address the SPE in Brisbane.• The global oil and gas industry is in challenging times.• Where is there opportunity in the wreckage.
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Canadian partner with Deloitte.oil and gas experience, commercial not technical25 years experience around the world
Where you can find me:
Blog – http://www.geoffreycann.com/iTunes – search for Fuel Up LNGFacebook – search for Fuel Up LNGTwitter - @geoffreycannGoogle+ search for Fuel Up LNGLinked In – http://www.linkedin.com/au/geoffcann
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• We are experiencing a prolonged oil glut. Expected for many months.
• Markets have reacted following a fairly standard playbook.
• The LNG sector is also impacted, and implications are becoming clear.•• Where is there opportunity - 8 areas for exploration.
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By the numbers:
• direct from OPEC's own publications.• global oil supply has increased from 85 to 90 m bbls/day from 2011.• About 4-5 m bbls per day• OPEC volume has only grown 500k bbls in that time• Rest of growth taken up by US Shale and Canadian oil sands
• Today oil supply is ahead of market by 1-2m bbls/day.
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How OPEC has reacted.
• cheap oil should not make way for expensive oil• marginal products gaining ground - high prices promotes investment• shale is everywhere, technology migrates quickly, highly motivated oil buyers• cuts to production last time resulted in permanent share loss• GHG concerns - after coal, oil next big GHG source. China and US rules• rise of renewables, batteries, energy efficiency• could oil be stranded• stone age ended before we ran out of stones
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How Markets have reacted:
• job losses - concentrated in services. few in oil and gas. Lesson from the lastdownturn.
• grey gold retained. Few buyout packages• capital cutbacks – the headline numbers hide the opportunities.• concentrated among western businesses (not NOCs)• equipment stacking - on shore rigs, work over, off shore, services equipment,
rail cars• asset write downs - cheaper now to grow financially rather than through the
drill bit
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Impact on LNG in Australia:
• pricing - spot and oil linked both depressed. Oil pricing craters future revenuestream
• jobs, capital spend, supply chain pressure, royalties all under strain• consolidation happening - Shell-BG, Seven Group• project cancellation in NA (US, Canada)• M & A - Apache asset divestiture. Private equity interest appearing -
Macquarie Bank• Asset monetisation to pick up pace - capital required for gas supply• Future expansion potential - greenfield penalty
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Slide 8 - Drivers, Enablers for Opportunity
• distress - ratings downgrades, capital constraints, capability limits• technology advancement - small scale conversion technologies, new materials,
digital• new leadership - Shell sat out last round of consolidation in part because of
cautious leadership. Senex, Origin LNG, suppliers• new government - looking for employment (rising rate), capital ledger has
disappeared - no more major capital projects on the docket• climate pressures - US, China - could increase demand for green technology.
EPA passing tough new CO2 rules, China trying to cap coal. New power plantsbeing built are dual fuel
• capital liquidity - US invested 1.5 trillion into shale revolution, that capital nowlooking for new places to invest
• demographics - 2.5b people to move from rural to urban by 2030. 600mAfricans lacking access to power
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8 hot opportunity areas:
1. maintenance and sustainment - ever growing volume of wells, infrastructure.Slow start ups, low prices have pushed some suppliers out of market. Will runto life of well, could be decade. Turnarounds and shutdowns - no solution yetto how Australia will handle turn arounds
2. asset optimisation - true gas flows and volumes, water volumes, revealsproblems with designs. steady demand to optimise asset mix, usage,volumes.
3. new business models - third party asset ownership (APA pipeline),outsourcing, contracting for gas not assets. data, data, data. run to fail or runto production target
4. outsourcing - significant amount of layoffs, no desire to add that capacityback. Should drive interest in third party services contracts
5. new technology - drilling, pipe laying, materials (fiberglass), downholesensors, reliability
6. international growth - PNG projects look promising. Canada close tosanctioning. US already recruiting locally
7. asset monetisation - farms, gathering, compression, gas plants, pipelines,embedded assets (power, telecoms), well heads. other balance sheetsstanding buy - liquidity, take or pay, risk reward. Shareholder alignment
8. community development - Gladstone, Tba, Roma, etc.
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where to from here• Drivers suggest an openness to discuss• pay attention• Bring ideas forward
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