Oil Industry Trends. Rob Arnott. 26 th January /29/2004 1

Transcription

1 Oil Industry Trends Rob Arnott 26 th January /29/2004 1

2 Oil Industry Trends Overview of global industry trends Regional costs and capital migration Industry costs and implications Why is further consolidation likely? Company specific growth Where will growth come from? Conclusions How much more risk are companies taking on? 3/29/2004 2

3 Global proved reserves base North 6% Africa 7% FSU 6% Asia Pacific 4% Europe 2% R/P Ratio (Years) Middle East World S&C R/P Ratio Africa FSU Asia Pacific North Europe S&C 9% Middle East 66% 1050 bn barrels R/P 40 Years 3/29/2004 3

4 Annual discoveries Emphasis switches from exploration to exploitation 60 Annual discoveries bn bbls Cumulative discoveries OPEC ~ 1100 Gb Non-OPEC~ 1000 Gb OPEC 10 Non- OPEC /29/2004 4

5 Global Oil Supply OPEC will start to gain market share after Total Non-OPEC MMb/d OPEC less Saudi Saudi % OPEC /29/2004 5

6 Cost of Supply Cost ($/bbl) Under $8/bbl for 90 per cent of new capacity ,000 40,000 60,000 80, , ,000 Cumulative Production ('000 bbl/d) 3/29/2004 6

7 OPEC remains the low cost producer For private companies access to OPEC is key Cost ($/bbl) ,000 40,000 60,000 80, , ,000 Production (mbbl/d) OPEC Non-OPEC 3/29/2004 7

8 Global Upstream Investment Private Oil Companies drive upstream investment $MM Development Cost Exploration Cost 3/29/2004 8

9 Recent Sources of Non-OPEC growth Russia has been the big surprise.. But for how long? Russia Kazakhstan Brazil Angola Canada Mexico China Eq. Guinea Colombia UK average annual increase , 000 b/d /29/2004 9

10 Incremental production Deepwater developments driving near term growth DW Atlantic Basin total increment , 7.3 million b/d Russia Caspian Canada /29/

11 Replacement figures are deceptive Reserves Replacement Cost $/boe $14.0 $12.0 $10.0 $8.0 Canada $6.0 Europe US $4.0 Latin Africa/Middle East $2.0 Asia-Pacific $0.0 0% 50% 100% 150% 200% 250% 300% Reserves Replacement % Source: Company data, JS Herold 3/29/

12 Acquisitions a cheaper route to growth $8.00 Consistent pattern explains industry consolidation $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $ Proved Acquisition Cost ($/boe) Finding and Development Cost ($/boe) Source: Company data, JS Herold 3/29/

13 US, Canada and Europe overheated $14.0 Companies overpaying to achieve growth $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 $0.0 Europe Latin Asia-Pacific Canada US Africa/Middle East Proved Acquisition Cost ($/boe) Finding and Development Cost ($/boe) Source: Company data, JS Herold 3/29/

14 Migration of capital away from US 80% 60% 40% 20% 0% Spending changes % 47% 40% -20% -40% -24% -8% US Canada Europe Africa/Middle East Asia-Pacific Source: Company data, Harrison Lovegrove 3/29/

15 Private oil company growth targets ENI to 2008 Total to 2007 Royal Dutch Shell ExxonMobil to 2008 ConocoPhillips BP Chevron Texaco % 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% Source: Company data 3/29/

16 The real cost of growth Smaller companies chase growth at shareholders expense Annual production growth (%) 20 E and P companies Majors $3.00 $5.00 $7.00 $9.00 $11.00 $13.00 $15.00 Spending per boe produced Source: Company data, JS Herold 3/29/

17 Growth without acquisitions unrealistic Even revised targets are unlikely to be achieved 3-Year Avg. F&D Cost $/boe % 3% 5% Small US.-EP Can.-EP Can.-Int US.-Int Super-EP Mid US.-EP Int.-EP Large US.-EP Int.-Integrated Super-majors 80% 100% 120% 140% 160% 180% 3-Year F&D Replacement % Source: Company data, JS Herold, OIES 3/29/

18 Decline versus growth More and more growth projects are needed to infill decline Annual decline rate (%) 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Chevron Texaco BP ConocoPhillips ExxonMobil Royal Dutch Shell Total ENI 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% % new growth used up Annual decline (%) % of new growth used infilling decline Source: Company data, OIES 3/29/

19 Industry costs rising Unit costs rise as oil price climbs and decline rates increase F&D costs in $ per barrel year lagged Brent Price in $ per barrel /29/

20 BP s oil production growth Reliance on Russia a high risk strategy? 1200 Production mboe/d Europe North Africa Latin Asia- Pacific Middle East Russia Total Source: Company data, OIES 3/29/

21 Shell s oil production growth Growth reliant on Nigeria (Bonga, NLNG liquids) 400 Production mboe/d Europe North Africa Latin Asia- Pacific Middle East Russia Total Source: Company data, OIES 3/29/

22 Exxon s oil production growth Growth from Bonga (Nigeria) + Kizomba/Dalia (Angola) Production mboe/d Europe North Africa Latin Asia- Pacific Middle East Other Total Source: Company data, OIES 3/29/

23 Total s oil production growth Production mboe/d Deepwater Africa the key (Nigeria: BongaMain, Congo: Moho, Angola: Dalia) Europe North Africa Latin Asia- Pacific Middle East Other Total Source: Company data, OIES 3/29/

24 BP s gas production growth A switch from Europe and North to Egypt, Algeria and Trinidad LNG Production mboe/d Europe North Africa Latin Asia- Pacific Middle East Russia Total Source: Company data, OIES 3/29/

25 Shell s gas production growth NW shelf Australia and Nigeria LNG the drivers Production mboe/d Europe North Africa Latin Asia- Pacific Middle East Russia Total Source: Company data, OIES 3/29/

26 Exxon s oil production growth Middle East gas project (RasGas( LNG trains 3 and 4 + Qatar) driving growth Production mboe/d Europe North Africa Latin Asia- Pacific Middle East Other Total Source: Company data, OIES 3/29/

27 Total s gas production growth Production mboe/d A more even spread from Indonesia, Venezuela (Yucal), Argentina (Carina/Aries), Europe North Africa Latin Asia- Pacific Middle East Other Total Source: Company data, OIES 3/29/

28 Oil is still driving production growth Targets will only be met if oil developments proceed as planned 7.0% 6.0% CAGR (%) 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% BP Chevron Texaco ConocoPhillips ENI ExxonMobil Royal Dutch Shell Total Oil Growth Gas Growth Source: Company data, OIES 3/29/

29 Oil regaining share of production mix Only in Total does gas increase proportionately % Gas 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% BP Chevron Texaco ConocoPhillips ENI ExxonMobil Royal Dutch Shell Total Source: Company data, OIES 3/29/

30 OPEC exposure is increasing OPEC Oil as a percentage of total production 3.6 million b/d out of 15.8 million b/d will come from OPEC in % 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Figure show oil production mb/d BP Chevron Texaco ConocoPhillips ENI ExxonMobil Royal Dutch Shell 581 Total Source: Company data, OIES 3/29/

31 Capital growth is key to equity investors Source: LSE, NYSE 3/29/

32 Reserve growth influences share price Source: LSE, NYSE, Morgan Stanley 3/29/

33 The equity market expects growth but delivery is at risk Source: Morgan Stanley 3/29/

34 The Opportunity Annual expenditure required to meet demand Annual expenditure ($bn) North Middle East Africa Russia Latin Europe South East Asia China Pacific Source: IEA 3/29/

35 Main trends and outlook Further consolidation inevitable US, Canada and Europe are ex-growth Acquisition costs still below FD costs Oil continues to drive POC production growth Companies are not shifting to gas Increasing differentiation between companies Capital flowing from low risk to high risk OPEC exposure increasing Technical and political risk increasing 3/29/

36 Oil Industry Trends Rob Arnott Presentation to Paradigm 26 th January /29/