Quarterly Global Oil Market Imbalance · Quarterly Global Oil Market Imbalance 1.5 2.0 2.5 (Mmbpd)...

Quarterly Global Oil Market Imbalance

1.5

2.0

2.5

(Mm

bpd)

Market modestly undersupplied 2H/ 16

Approximate 0.4 Mmbpd oversupply equals practical market balance

0.5

1.0

Mar

ket I

mba

lanc

e

(1.0)

(0.5)

0.0

1Q/ 14 2Q/ 14 3Q/ 14 4Q/ 14 1Q/ 15 2Q/ 15 3Q/ 15 4Q/ 15 1Q/ 16 2Q/ 16 3Q/ 16 4Q/ 16 1Q/ 17 2Q/ 17 3Q/ 17 4Q/ 17

Glob

al O

il

Source: IEA, KLR Group

1Q/ 14 2Q/ 14 3Q/ 14 4Q/ 14 1Q/ 15 2Q/ 15 3Q/ 15 4Q/ 15 1Q/ 16 2Q/ 16 3Q/ 16 4Q/ 16 1Q/ 17 2Q/ 17 3Q/ 17 4Q/ 17

1

Non-OECD – Preponderance of Oil Demand Growth

3.5

4.0

d)

2.0

2.5

3.0

th '1

5-'1

9 (M

mbp

d

0.5

1.0

1.5

Oil D

eman

d Gr

owt

NorthAmericaFSU OECD

EuropeNon-OECD

Europe

OECDPacific

Middle EastAfricaLatinAmerica

Asia

(1.0)

(0.5)

0.0

Cum

ulat

uve

O


(1.5)

2

Global Breakeven Cost of Supply ~$80 NYMEX (excluding OPEC Gulf States)

$120

$80

$90

$100

$110

l Sup

ply (

$/Bb

l)(1)

$50

$60

$70

keve

n NY

MEX

Cos

t of O

i

$20

$30

$40

U.S. Oil Sands Latin America GlobalDeepwater

North Sea FSU OPEC GulfStates

OPEC non-Gulf States

China Asia (non-China)

Brea

k

Production-Weighted Breakeven Price (excluding OPEC Gulf States)

(1) Cost of supply assuming 0% unlevered return.

3

OPEC Supply Growth Approximates NAM (’15E-’19E)19E)

4

d)

2

3

'15-

'19

(Mm

bpd

1

il Sup

ply G

rowt

h

OECDEurope

Non-OPECMideast

BiofuelsAfrica

FSU OECDPacific

LatinAmerica

Asia

OPECCrude

OPECNGLs

NorthAmerica

(1)

0

Cum

ulat

ive O

i


(2)

4

U.S. Oil Plays Need $90+ NYMEX

$150

$110

$120

$130

$140

rice

($/B

bl)

$80

$90

$100

$110

uire

d NY

MEX

oil p

$50

$60

$70

Eagle Ford Permian Bakken Niobrara SCOOP Mississippian

Requ

Source: Company reports, KLR Group estimates.

0% Unleveraged Return (Breakeven) 10% Unleveraged Return

5

U.S. Liquids Supply Erodes (2H/15-4Q/16)

131415

89

10111213

pply

(Mm

bpd)

345678

U.S

. Liq

uids

Sup

0123

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19

Source: HPDI, EIA, KLR Group

Other Alaska GOM NGLs Permian Williston Eagle Ford Top-Down Forecast

6

Capital Intensity Stabilized Last Two Years

~50%50%

60%

~35%

~25%

30%

40%

Chan

ge P

er A

nnum

)

~10%

~15%

~20% ~20%

10%

20%

Capi

tal In

tens

ity (%

C

~0%~2%

~0%

(~10%)-10%

0%

(~15%)

-20%'99-'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15E

Source: Company reports, KLR Group

7

Light/Heavy Blending Displacing Imported Medium

4.00

4.50

2.50

3.00

3.50

rts (M

mbp

d)

1.00

1.50

2.00

12-M

MA

Impo

r

0.00

0.50

Jan‐2011 Jul‐2011 Jan‐2012 Jul‐2012 Jan‐2013 Jul‐2013 Jan‐2014 Jul‐2014 Jan‐2015

Heavy Crude (API 25⁰ or less) Medium Crude (API 25⁰-35⁰) Light Crude (API 35⁰ or more)

Source: EIA, KLR Group

8

Cushing, OK WTI Daily-Spot Price FOB (1995-Present)Dollars per barrel

Oil Services, Equipment & DrillingMayer Brown’s 10th Annual Global Energy ConferenceMayer Brown s 10th Annual Global Energy Conference

May 13th, 2015

James C. West1 212 653 9047+1 212 653-9047

[email protected]

2015 E&P Spending Decline Global E&P capital expenditures set to decline by ~25% from 2014

International down 15‐20% North America down 35‐40%

Steeper spending decline than during 2008‐2009 downturn Cash flow the key determinant to 2015 capex

North America E&P Spending (2004‐2015E, $B)

$800

$900Rest of the World

Canada

EVR ISIEstimate

Historical and 2015E Spending

$225

$500

$600

$700

Canada

United States

‐35%

33

38

38

4944 43

51

$125

$150

$175

$200

$100

$200

$300

$400

4863

89 96119

8298

128 140 146174

25

30

36 33

25

$25

$50

$75

$100

5

$0

$100

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

$0'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14E '15E

Source: EVR ISI ResearchSource: EVR ISI Research

Global Liquids Cost Curve Higher incentives needed to sustain drilling and exploration NAM Shale average breakeven of $62/bbl

6

Source: Rystad Energy, EVR ISI Research

2015 U.S. Oil Production Set to Decline U.S. oil production growth set to slow from pace of recent years

2015 output to rise by 8% or ~0.7 mmbpd to 9.3 – below last week’s 9.4 Slower than 2014 growth rate of 14% or 1.1 mmbpdg p Slower than 2013 growth rate of 20% or 1.2 mmbpd

4Q15 production to roughly match 4Q14 production or be lower

U.S. Crude Oil Production, 2014‐2016E (mmbpd) U.S. Crude Oil Y/Y Production Growth (mmbpd)1.49.5

0 6

0.8

1.0

1.2

8.8

9.0

9.3

0 0

0.2

0.4

0.6

8.0

8.3

8.5

Jan‐14 Jul‐14 Jan‐15 Jul‐15 Jan‐16 Jul‐16 Jan‐17

6

0.02013 2014 2015E

Source: EIA, EVR ISI ResearchSource: EIA, EVR ISI Research

U.S. Crude Oil Production Expected Production

Canadian Oil Sands Projects Postponed 19 projects have been postponed Output growth of 1.2 mmbpd delayed Canadian drilling activity plummeting 600

800Canadian Rig Count

Ca ad a d g act ty p u et g

Name Developer Capacity (bbl/d)Pierre River Shell 200,000Grand Rapids Cenovus 180 000

200

400

Grand Rapids Cenovus 180,000Narrows Lake Cenovus 130,000MacKay River‐2/3 Brion Energy 115,000Joslyn North Total 100,000Telephone Lake Cenovus 90,000Black Rod Black Pearl 80 000

01 13 25 37 49

2010-2014 Range 2013 2014 2015Source: Baker Hughes, EVR ISI Research

NAM Drilling Activity, February 2015Black Rod Black Pearl 80,000Foster Creek‐G Cenovus / Conoco 45,000Christina Lake‐H Cenovus / Conoco 45,000Kirby North CNR 40,000Corner Statoil 40,000Taiga Osum Oil Sands 35,000g ,Sunrise‐2B Husky / BP 30,000Great Divide/Algar Connacher 26,000MacKay River‐2/3 Suncor 20,000Lindbergh‐2 Penn Growth 18,000Orion Osum Oil Sands 10,000

6

Source: Baker Hughes, EIA, OPEC Secretariat, EVR ISI ResearchSource: Platts, EVR ISI Research

STP‐McKay Southern Pacific 10,000Black Gold‐1 KNOC (Harvest Energy) 10,000

Oil Market Bottoming Historically Major oil price declines historically unfold over 10 months, with peak‐to‐trough

declines of 60% The bottoming typically phase unfolds over 2 months Prices tend to recover 100% of their losses over 6 months

12

1Q Results Ugly But Costs Well Managed The speed and severity of the downturn have been greater than anticipated Pricing is a “knife fight”, with concessions around 20% thus far NAM levered land names suffering high decrementalsg g Tone of management teams has shifted considerably over 1Q Companies who adhered to initial guidance have disappointed FX headwinds add fuel to the fireFX headwinds add fuel to the fire

0%2014 Cycle 2008 Cycle 2001 Cycle 1997 Cycle

Fastest Rig Count Decline in the Past 20 Years2,000

U.S. Land Rig Count (LTM)

‐30%

‐20%

‐10%

1,400

1,600

1,800

‐60%

‐50%

‐40%

800

1,000

1,200

10

‐70%

800

Apr-

14

May

-14

Jun-

14

Jul-1

4

Aug-

14

Sep-

14

Oct

-14

Nov

-14

Dec

-14

Jan-

15

Feb-

15

Mar

-15

Source: Baker Hughes, EVR ISI Research Source: Baker Hughes, EVR ISI Research

Rig Count Forecast U.S. Land Rig Count to bottom at ~800 rigs during 2Q15 Vertical rigs have fallen the hardest, down 66% from peak to trough, to 121 Directional rigs down 56% peak to trough, to 91g p g , Horizontal rigs down 48% peak to trough, to 720 Oil rigs down 55% to 703; gas rigs down 37% to 225

U.S. Land Rig Count Forecast2 000

U.S. Rig Count by Type2,000

1 000

1,500

2,000

1,400

1,600

1,800

2,000

0

500

1,000

600

800

1,000

1,200

1 1 1 1 2 2 2 2 3 3 3 3 4 4 4 4 5 E E E

12

0 Jan‐10 Jan‐11 Jan‐12 Jan‐13 Jan‐14 Jan‐15

Horizontal Directional VerticalSource: Baker Hughes, EVR ISI Research Source: Baker Hughes, EVR ISI Research

1Q1

2Q1

3Q1

4Q1

1Q1

2Q1

3Q1

4Q1

1Q1

2Q1

3Q1

4Q1

1Q1

2Q1

3Q1

4Q1

1Q1

2Q15

3Q15

4Q15

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•Ratings Definitions

•Current Ratings Definition

21

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Coverage Universe Investment Banking Services / Past 12 Months• Ratings Count Pct. Rating Count Pct.

22

Ratings Count Pct. Rating Count Pct.• Buy 294 50% Buy 38 13%• Hold 255 44% Hold 11 4%• Sell 32 5% Sell 1 3%• Suspended 3 1% Suspended 1 33%

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