The New Oil World of the 21st Century -...
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Africa in the New Oil World: The Game has Changed, But How? Ray Leonard President and CEO Hyperdynamics Corporation Council for Foreign Relations February 2014
Transcript of The New Oil World of the 21st Century -...
Africa in the New Oil World: The Game has Changed, But How?
Ray Leonard
President and CEO
Hyperdynamics Corporation
Council for Foreign Relations
February 2014
This presentation contains forward looking statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding
Hyperdynamics Corporation's future plans and expected performance that are based on assumptions the
Company believes to be reasonable. Statements preceded by, followed by or that otherwise include the words
"believes", "expects", "anticipates", "intends", "projects", "estimates", "plans", "may increase", "may result",
"will result", "may fluctuate" and similar expressions or future or conditional verbs such as "will", "should",
"would", "may" and "could" are generally forward-looking in nature and not historical facts. A number of risks
and uncertainties could cause actual results to differ materially from these statements, including without
limitation, funding and exploration efforts, fluctuations in oil and gas prices and other risk factors described
from time to time in the Company's reports filed with the SEC, including the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 2013. Information reported on this presentation speaks only as of
today, and you are advised that time sensitive information may no longer be accurate after today. The
Company undertakes no obligation to publicly update these forward looking statements to reflect events or
circumstances that occur after the issuance of this news release or to reflect any change in the Company's
expectations with respect to these forward looking statements.
Investors are cautioned that these statements are not guarantees of future performance, and actual results
could differ materially. Potential risks include, among other things, geologic risks, political risks, oil and gas
price volatility, uncertainties inherent in oil and gas production operations, government regulation and
uncertainties regarding access to capital.
Forward Looking and Other Cautionary Statements
.
“Prediction is very hard, especially
about the future” Yogi Berra
Cautions in
viewing
predictions
• End of history
illusion
• Smartest guy
in the room
• Consider the
source
Technology & Operations(Engineers)
Profitability(Economists)
Politics(Sociologists)
Resources(Geoscientists)
Resources and Definitions• BP Statistical View of World Energy (2013)
• Authors own published studies FSU Resources
• “World Energy Council” Natural Bitumen and Heavy Oil
• United States Energy Information Agency
Definitions
• Conventional Oil: Crude oil, non-renewable, onshore and offshore <400 MWD, lighter than 15 degrees API, non-shale reservoirs
• Deepwater: >400 MWD
• Heavy Oil and tar sands: heavier than 15 degrees API gravity
• Shale oil: Shale reservoir, produced by hydraulic fracking
• NGL’s: Liquified hydrocarbons produced in the manufacture, purification and stabilization of natural gas
Conventional OilPeak discovery decade
1960-1970, peak production 2005
By 2030, 63% of conventional production in Arabian, West
Siberian and North Caspian Basins
0%
10%
20%
30%
40%
50%
60%
70%
0
10
20
30
40
50
60
70
80
2000 2005 2010 2015 2020 2025 2030
Shift of Production
Arabian
West Siberian
North Caspian
Rest of World
Conventional
Percent of Conventional Arabian, West Siberian and North Caspian
MM
BO
D
Share of Deepwater + Unconventional Oil increases in
non-renewable oil production 2000-2030
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0
20000
40000
60000
80000
100000
120000
2000 2005 2010 2015 2020 2025 2030Conventional
Unconventional and deepwater
Total
Percent Unconventional and deepwater
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
2000 2005 2010 2015 2020 2025 2030
Deepwater NGL Total
Shale Oil Heavy Oil and Tar Sands
Total Unconventional
SouthAmerica
Europe
AfricaGhana
Campos/Santos
Gulf ofMexico
>25 BBO10-25 BBO1-10 BBO
Prospective
French Guiana
Eastern Canada
Atlantic Seaway 110 my
North America
West of Shetlands
Ceara
Sergipe-Alagoas
Niger
Congo
Guinea/Sierra Leone/Liberia
Deepwater Oil
Atlantic
Margin Mega
Provinces
• Gulf of
Mexico
• Campos/
Santos
• Niger
• Congo
Deepwater Production limited mainly to basins
of Atlantic Margin
0
20
40
60
80
100
120
140
160
180
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2000 2005 2010 2015 2020 2025 2030
GOM Deepwater Brazil Deepwater
OPEC Deepwater Other Non OPEC DW
Total Deepwater Cumulative Discovered BBO
Common factors:
• World class source rocks
• Continuous subsidence and
deposition
Differentiating factors for mega
provinces
• Presence of massive salt
• Major river systems for sediment
input
Cumulative Reserves
estimated 160 BB0 of
which 115 BBO have been
discovered
Production peaks at 11-12
MMBOD in decade of
2020-2030
Heavy Oil Production
0
1
2
3
4
5
6
7
2000 2005 2010 2015 2020 2025 2030
Venezuela Canada ROW Total
• Production reaches 7 MMBOD
in 2030
• 85% of resources in two
provinces
• High oil prices needed for
profitability
• Heaviest environmental
footprint (surface imprint, CO2
emission, water use) of
unconventional production
• Better commercial environment
in Canada vs. Venezuela makes
Canada leader in production
and technology despite better
reservoir and oil quality in
Venezuela
Heavy Oil and Bitumen in Place
(BBO) World Energy Council 2007
Venezuela 2250
Canada 1600
Rest of World 800
MM
BO
D
Shale Oil Production by hydraulic fracturing
Significant production initiated
in 2010 utilizing combination of
fracking and horizontal drilling
Economics dominated by high
well decline rates and need
for extensive infrastructure
While potential high potential
formations can be found
worldwide, significant
production only started in USA
for mainly non-technical
reasons
The two key questions are
• How high will the
production level reach in
the USA?
• How quickly will the “shale
oil revolution” spread to the
rest of the world?
Shale Oil Production Increase: How much
and how fast?
0
1000
2000
3000
4000
5000
6000
7000
2000 2005 2010 2015 2020 2025 2030
USA
Russia
ROW
Total
USA Production: (not including
NGL’s)
• Major plays Bakken and Eagle
Ford should plateau at about
1.0 and 1.2 MMBOD for 5 years
before declining.
• Permian a combination of shale
and conventional plays
• Other shale plays an order of
magnitude smaller
• NGL’s major part of play, as
they are needed to make most
gas shale plays economic
• Combination of crude oil and
NGL’s will add about 5 MMBOD
to US production in the 2015-
2020 period.
International Production: Besides good geology, three keys:
• Superior fiscal terms
• Extensive infrastructure (pipelines, rail,roads, service companies)
• Right physical setting (onshore, easy terrain, away from population, availability of water)
Four initial production areas:
• Western Canada: all elements present, current production of 200,000 BOPD should rise to plateau of 500,000 BOPD.
• West Siberia: Bazhenov shale is world class, all elements present except fiscal terms. Test production ongoing, production should gradually rise to 1 MMBOPD by 2030.
• Argentina: Vaca Muerta Shale comparable to best US oil shales, production up to 16,000 BOPD. Production rise limited by infrastructure and fiscal uncertainties.
• Northern Mexico: Eagle Ford trend extends from Texas. All elements present north of border. Speed of development will depend on political events.
Natural Gas Liquid (NGL) production
continues to rise along with gas production
NGL production increase through
2030 associated with:
• NGL’s associated with shale gas
production in North America
• Shift in Russia gas production
from dry gas to wet gas regions
in West Siberia
• By-product of increased gas
production for power generation
and petrochemical industry in
Middle East
• By-product of increased gas
production associated with LNG
projects
0
2
4
6
8
10
12
14
16
18
2000 2005 2010 2015 2020 2025 2030
OPEC Rest of World FSU Total (MMBOD)
BP World Energy Outlook (2012)
MM
BO
D
Sub-Saharan Africa: Major New Oil Source 2000-2030
• Production almost doubles from 2000 to 2020 (3.9 to 7.2 MMBOD)
• While most production still in SW Africa, shift to Transform Margin and East Africa is beginning
• East African Rift play is largest new conventional oil province of the past decade
• New deep-water SW Africa and Transform Margin production is high cost, requiring favorable fiscal terms and economic stability
• Many new producing countries
East Africa Rift+5 BBO
West Africa Deep Water+20 BBO
TransformMargin+3.5 BBO
0
1000
2000
3000
4000
5000
6000
7000
8000
2000 2010 2020 2030
East Africa Rifts
Transform
Margin
SW Africa
SW Africa: Shift from Conventional to Deepwater• In 2000, trend from Cameroon
to Angola produced 3.6
MMBOD oil, 95% conventional,
about 2/3 from Nigeria
• Approximately 20 billion barrels
discovered in deep-water fields
in since 2000
• By 2020, SW Africa will be
producing 6 MMBOD, 1/3 from
Nigeria, however 2/3 will be
from deep-water fields
• Deep-water fields are far higher
cost and require lower
government take than
conventional development: this
will have to be recognized to
attract continued investment
Southwest Africa Production Profile
Angola Deepwater Production Profile
0
1000
2000
3000
4000
5000
6000
7000
2000 2005 2010 2015 2020 2025 2030
deepwater conventional
NW Africa Transform Margin: New deep-
water play• Northwest Africa (Ghana to
Senegal) had poor exploration
results prior to 150 MMBO Espoir
discovery in Ivory Coast in 1981.
No significant exploration success
elsewhere for following 25 years
• Deepwater1.5 Billion Barrel
Jubilee discovery in Ghana in
2007 started current deep-water
exploration play
• Additional 700 -1000 MMBO
discovered in Ghana, with TEN
complex declared commercial
• Despite many smaller discoveries
along trend, the next “hub”
discovery has not yet been made
• In 2014, a number of important
deep-water wildcats will test the
play from Ivory Coast to Senegal
0
20
40
60
80
100
120
0
2
4
6
8
10
12
14
16
18
20
Oil
Pri
c, $
/bb
l
Nu
mb
er o
f E
xplo
rati
on
Wel
ls P
er Y
ear
Exploration Wells in NW Africa, 1975-2013
(Senegal-Ghana)
< 500 m Water Depth
> 500 m Water Depth
OilPrice
Exploration wells drilled offshorefrom Senegal southward to Ghana
Cote d’Ivoire Espoir et al discoveries
Jubilee discovery
Cairn
Tullow
Anadarko
Total
Senegal
Guinea
Sierra Leone
Liberia Côte d'IvoireGhana
East Africa Rifts: Largest conventional oil discovery of the decade• Older Cretaceous rift oil discovery in
South Sudan in 1970’s. Due to
political difficulties, 20 years until
commercial production
• Four rift systems extending up
through Tertiary extending into
Uganda, DRC, Kenya, Tanzania and
Ethiopia
• In 2006, discovery in Albertine
Graben in Uganda has led to
proving of 2.5 billion barrels reserves.
• In 2011, discovery in Lokichar basin
in Kenya has led to proving of 600
million barrels of reserves with larger
amounts expected
• Anza Basin in Kenya has
encouraging oil shows and gas
discoveries, but not yet
commercial.
• Basins in Tanzania and Ethiopia
virtually unexplored to date
Copyright Taipan Resources
Different Timelines to
Development
Ghana
Uganda
Kenya
2005 2010 2015 2020
2007Jubilee Discovery
2009Commercial Reserves
2011First Production
Further Developments
Uneconomic Refinery Demand
Pipeline RouteDisputes
Government Transparency
Questions
2008CommercialReserves
2006AlbertineDiscovery
2018Likely First Production
2017Likely First Production
2013Commercial Reserves
2011Lokichar Discovery
No system is perfect, however Ghana demonstrated that fiscal stability results in rapid commercial development. Kenya may follow Ghana’s example while Uganda resolves internal struggles. All three projects led by TullowOil.
Why oil prices will stay at least at
$100/bbl (2012 dollars) in the futureConventional producers need
$100/bbl. oil to balance budgetsUnconventional producers need $100/bbl. oil to make a profit (2015 production and costs)
0
20
40
60
80
100
120
8.7 12.84.13.5Deepwater
ShaleOil
Heavy Oil NGL
3000M
1500M
Marginal
BakkenEagle Ford
Canada
Shale Oil
Conventional
Profits & Taxes
100
95
75
50
Lif
tin
g C
ost
–$/
BB
LOrinoco
MMBBL/D
1
10
100
1000
1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040
$/B
BL
Year
Yearly average price 2012 dollars 1946-2012
US Dominance $25/bbl
The Oil Plateau $100/bbl
Iraq/Iran War
Oil Embargo New North Sea, West Siberian Production
Conventional Peak oil
Following the price stability of US dominance for most of the 20th century, the following 30 years is a period of price instability. Stability ($100/bbl +/- 20%) returns in 2010 although at a higher price. The next price pressure point will come at the end of the current decade when deep-water and US shale oil production peaks.
2020 Next Potential Oil Price Squeeze
Two Contrasting Decades
• Production increase 8 MMBOD
• Conventional production
decline
• Major production increase in
deep-water and
unconventional production
• Stable oil price at $100/bbl.
(2012 dollars)
• Production increase only 3 MMBOD
• Conventional production decline
• Deep-water and US shale oil production plateau and decline
• Upward pressure on oil price
Potential solutions to avoid price spike (each with ramifications….)• Accelerated heavy oil and worldwide shale oil production• Major increase in Arabian Basin conventional production• Reduced demand by shift to natural gas and/or renewables
2010-2020 2020-2030
Summary and Conclusions
New Oil World• Non-renewable conventional
production peaked in 2005 and is rapidly being replaced by high cost deep-water and unconventional oil
• Remaining conventional production focused in the Arabian Basin and FSU, while new production mostly in Western Hemisphere and Sub-Saharan Africa
• World production growth slows in 2020’s when deep-water production peaks, and next price spike a possibility
Sub-Saharan Africa• Production doubles in the
2000-2020 time period
• Low cost conventional oil largely replaced by high cost deep-water oil
• Despite increased production, revenue per barrel is approximately half; without recognizing fiscal reality, necessary investment will not be attracted
• After 2020, production will gradually shift from current SW Africa hub to new provinces in NW Africa and East Africa
