U.S. Crude Exports and Impact on Trade

Transcription

1 U.S. Crude Exports and Impact on Trade 32 nd Annual Asia Pacific Petroleum Conference Dr. Helen Currie Senior Economist September 7, 2016

2 Cautionary Statement The following presentation includes forward-looking statements. These statements relate to future events, such as anticipated revenues, earnings, business strategies, competitive position or other aspects of our operations, operating results or the industries or markets in which we operate or participate in general. Actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that may prove to be incorrect and are difficult to predict such as oil and gas prices; operational hazards and drilling risks; potential failure to achieve, and potential delays in achieving expected reserves or production levels from existing and future oil and gas development projects; unsuccessful exploratory activities; unexpected cost increases or technical difficulties in constructing, maintaining or modifying company facilities; international monetary conditions and exchange controls; potential liability for remedial actions under existing or future environmental regulations or from pending or future litigation; limited access to capital or significantly higher cost of capital related to illiquidity or uncertainty in the domestic or international financial markets; general domestic and international economic and political conditions, as well as changes in tax, environmental and other laws applicable to ConocoPhillips business and other economic, business, competitive and/or regulatory factors affecting ConocoPhillips business generally as set forth in ConocoPhillips filings with the Securities and Exchange Commission (SEC). We caution you not to place undue reliance on our forwardlooking statements, which are only as of the date of this presentation or as otherwise indicated, and we expressly disclaim any responsibility for updating such information. Use of non-gaap financial information This presentation may include non-gaap financial measures, which help facilitate comparison of company operating performance across periods and with peer companies. Any non-gaap measures included herein will be accompanied by a reconciliation to the nearest corresponding GAAP measure on our website at Cautionary Note to U.S. Investors The SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves. References in this presentation to resources include estimates of quantities of oil, natural gas liquids, natural gas and bitumen that are not classified as proved reserves, as defined in SEC regulations, and therefore this term represents a broader description of potentially recoverable volumes than SEC definitions of probable or possible reserves. Estimates of such unproved resources may change significantly as development provides additional data, and actual quantities that are ultimately recovered may differ substantially from prior estimates. For more information regarding our reserves as calculated pursuant to SEC rules, please read the oil and gas disclosures in our Form 10-K and other reports we file with the SEC. Copies are available from the SEC website and from the ConocoPhillips website.

3 Worldwide Operations As of June 30,

4 40-Year Ban on U.S. Crude Oil Exports Has Been Lifted Contained in Omnibus Spending bill in 2015 Passed U.S. Congress and signed by President on December 18, 2015 First U.S. crude export after lifting of the ban on December 31, 2015 no official of the Federal Government shall impose or enforce any restriction on the export of crude oil Allows President to re-impose restrictions for up to one year at a time in such cases as national emergencies, sustained crude shortages or crude price increases causing adverse effects in the U.S. Maintains restrictions due to sanctions The Theo T tanker loading with crude oil to export at NuStar's North Beach Terminal at the port of Corpus Christi. ConocoPhillips is Proud to Have Supplied the Initial Cargo Exported 4

5 World-Scale Growth in U.S. Unconventional Oil Production 12 U.S. Oil Production (Million barrels per day) 10 Natural Gas Liquids 8 6 Tight Oil 4 Conventional - Lower-48, Gulf of Mexico 2 0 Alaska U.S. Tight Oil Resources are a Game Changer in Global Oil Markets 5 Source: U.S. Department of Energy, Energy Information Administration (EIA)

6 % Rationale for U.S. Crude Exports Eagle Ford/55 Distillation Cuts WTI/40 Mars/29 Maya/22 = API Gravity LPGs/NGLs Naphthas/ Gasolines Middle Distillates Vacuum Gas Oil Resid/Fuel Oil Distillation Capacity versus Heavy Oil Million Barrels per Day Crude Distillation Heavy Oil Coking The U.S. has twothirds of the world s coking capacity 18 U.S Rest-of-World Mismatch in Quality of U.S. Light Tight Oil and Refining Capacity Drove Deep Domestic Price Discounts 6 Source: Haverly Systems Source: Bloomberg

7 U.S. Oil Price Discount To Global Prices Brent and WTI Prices and Spread ($/Bbl) $160 $140 $120 Lines, Left Axis Brent Price WTI Price Area, Right Axis Brent-WTI Spread $30 $25 $20 $100 $15 $80 $10 $60 $5 $40 $0 $20 ($5) $ Growth in U.S. Production Inverted the Brent-WTI Price Spread ($10) 7 Source: U.S. Energy Information Administration, Short Term Energy Outlook July 2016

8 U.S. Crude Oil Export Destinations More Diversified Today U.S. Exports of Crude Oil (MMBD) Canada Europe Latin America Asia All Else Canada s Share of U.S. Exports Cut from % to About 50% in a Few Months 8 Source: U.S. Energy Information Administration

9 New Refining Centers in Asia and Middle East % Share of Global Refining Capacity % 30% 20% 10% 0% North America 40% 30% 20% 10% 0% Latin America 40% Europe 30% 20% 10% 0% 40% 30% 20% 10% 0% Africa 40% Middle East 30% 20% 10% 0% 40% CIS 30% 20% 10% 0% 40% Asia Pacific 30% 20% 10% 0% U.S. Exports Help to Balance Eastward Shift in Global Refining Capacity 9 Source: IHS Energy. The use of this content was authorized in advance by IHS Markit. Any further use or redistribution of this content is strictly prohibited without written permission by IHS. All rights reserved.

10 Global Oil Supply Disruptions Growth in Global Supply Disruptions (Million Barrels per Day) Increase in losses since Growth in U.S. Tight Oil Production (Million Barrels per Day) Increase in production since December U.S. Tight Oil Production Helped Stabilize World Oil Markets 10 Source: U.S. Department of Energy, EIA, Short Term Energy Outlook

11 Global Gasoline Prices Global Gasoline and Crude Prices ($/BBL) $130 $110 U.S. Gulf New York N.W.E. Singapore Brent WTI $90 $70 $50 $ U.S. crude exports support larger global refined products supplies which enable lower prices 11 Source: Bloomberg

12 Productivity Improvements Enable Growth in U.S. Tight Oil Production BOPD Bakken Horizontal Oil Type Curves Peak IP increased 20% Vintage BOPD Permian Horizontal Oil Type Curves Peak IP increased ~300% Production Month Production Month BOPD Eagle Ford Horizontal Oil Type Curves Peak IP increased 100% Production Month Future Productivity Improvements Longer laterals Multi-laterals Increased drilling efficiency More perf clusters per well/stage More consistent proppant placement Productivity Improvements Will Continue but at a Slower Pace 12 Source: Drilling Info. Charts represent production profiles for the average of all wells drilled in that year

13 U.S. Oil Production Projected to Grow Long Term Total U.S. Oil Production (MMBD) EIA High Resource Case EIA Reference Case 9 7 Tight Oil Tight Oil Resources will Underpin Future Growth in U.S. Oil Production 13 Source: U.S. Energy Information Administration, Annual Energy Outlook 2016, Reference Case and High Resource & Technology Projections

14 U.S. Crude Exports: 2015 and 2020 Million Barrels per Day Other* Lower 48 Crude** Condensate Light Crude Other* Condensate Light Crude 0.0 Location Type of Oil Location Type of Oil *ANS, Canadian and processed condensate ** Lower 48 light tight oil exports excluding exports to Canada U.S. crude exports are unlikely to be above MMBD by Source: Turner, Mason and Company, U.S. Light Crude Oil Exports: Likely Destinations, September 8, 2015

15 Medium-Term U.S. Tight Oil Response to Oil Prices MMBD U.S. Tight Oil Production at Various WTI Prices $50 WTI TIGHT OIL PRODUCTION EVENTUALLY RISES U.S. tight oil supply likely to remain resilient over the medium-long term Due to continuing efficiencies, U.S. tight oil production eventually rises in a $50 per barrel WTI price environment WTI price of $85 per barrel required to restore previous production trend, if fully funded from operating cash flow Additional productivity improvements will lower breakevens further 15 Source: ConocoPhillips, based on point forward economics and 100% reinvestment of free operating cash flow. Includes 20% efficiency improvement. Annual averages modeled for top 8 tight oil formations.

16 Summary Free trade in crude encourages investment in new U.S. oil supply, which should have substantial economic and energy security benefits Lifting the export ban should limit the discount of U.S. domesticto-international crude prices as U.S. production growth resumes Consumers benefit from larger supplies of crude oil as well as refined products U.S. refiners remain highly competitive U.S. crude exports are likely to be modest and go to nearby destinations to minimize shipping cost 16

17 Thank You