Impacts of Greater North American Oil ProductionRig Count Drilling Moved from Gas to Oil Huge...
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Impacts of Greater North American Oil Production
Center for Energy Economics Annual MeetingRemarks by Marianne Kah
December 4, 2013
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Cautionary Statement
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The following presentation includes forward‐looking statements. These statements relate to future events, such asanticipated revenues, earnings, business strategies, competitive position or other aspects of our operations oroperating results. Actual outcomes and results may differ materially from what is expressed or forecast in suchforward‐looking statements. These statements are not guarantees of future performance and involve certain risks,uncertainties and assumptions that are difficult to predict such as oil and gas prices; refining and marketing margins;operational hazards and drilling risks; potential failure to achieve, and potential delays in achieving expectedreserves or production levels from existing and future oil and gas development projects; unsuccessful exploratoryactivities; unexpected cost increases or technical difficulties in constructing, maintaining or modifying companyfacilities; international monetary conditions and exchange controls; potential liability for remedial actions underexisting or future environmental regulations or from pending or future litigation; limited access to capital orsignificantly higher cost of capital related to illiquidity or uncertainty in the domestic or international financialmarkets; 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, competitiveand/or regulatory factors affecting ConocoPhillips’ business generally as set forth in ConocoPhillips’ filings with theSecurities and Exchange Commission (SEC).
Use of non‐GAAP financial information ‐ This presentation may include non‐GAAP financial measures, which helpfacilitate comparison of company operating performance across periods and with peer companies. Any non‐GAAPmeasures included herein will be accompanied by a reconciliation to the nearest corresponding GAAP measure inan appendix.
Cautionary Note to U.S. Investors – The SEC permits oil and gas companies, in their filings with the SEC, to discloseonly proved, probable and possible reserves. We use the term "resource" in this presentation that the SEC’sguidelines prohibit us from including in filings with the SEC. U.S. investors are urged to consider closely the oil andgas disclosures in our Form 10‐K and other reports and filings with the SEC. Copies are available from the SEC andfrom the ConocoPhillips website.
OFF THE RECORD
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Topics Covered
Growth in North American Oil Production
Impacts on Markets and Economies
Key Uncertainties in Oil Outlook
Challenges to Developing New Supplies
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Lower 48Crude
AlaskaCrude
NGLs
0
2
4
6
8
10
12
0
2
4
6
8
10
12
1949 1953 1957 1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013
Million Ba
rrels pe
r Day
U.S. Oil, Condensate and Natural Gas Liquids (NGL) Production
Turnaround in U.S. Oil Production
Source: U.S. Department of Energy, EIA, Annual Energy Review 2013, Table 5.1b
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Tight OilRevolution
"Peak Oil"
Liquids production has returned to levels not seen since 1986
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0.0
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1.0
1.5
2.0
2.5
3.0
Jan‐81 Jan‐89 Jan‐97 Jan‐05 Jan‐13
Million Ba
rrels p
er Day
The Shale Revolution Has Spread to Oil
% HORIZ.
Gas
0%
10%
20%
30%
40%
50%
60%
70%
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2001
2002
2003
2004
2005
2006
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2008
2009
2010
2011
2012
2013
U.S. R
ig Cou
nt
Drilling Moved from Gas to Oil
Huge turnaround in Texas and North DakotaSource: Baker Hughes, U.S. Department of Energy, Energy Information Administration
Top 4 Oil Producing States
Oil
Texas(Eagle Ford & Permian Basin)
Alaska
California
North Dakota(Bakken)
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U.S. Tight Oil Resources* By Breakeven Cost
Source: Rystad Energy, excludes NGLs* Lower 48 proved, probable, possible and contingent resources; crude and condensate only; excludes existing production and undiscovered resources** Breakeven includes 10% return, land acquisition costs of $5/bbl were added across the board
0
20
40
60
80
100
120
140
160
180
200
0 3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48
WTI Breakeven
Cost (20
13 $ per Barrel)*
*
Eagle Ford BakkenPermian Other Tight Oil
Resources in Billions of Barrels
80% of resources in this range
Most U.S. tight oil resources break even with WTI prices at $50 ‐ $80/bbl
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Eagle Ford Efficiency Improvement
Source: IHS Enerdeq Database 8/9/13. Play level month averages. IP rate – Initial 24 hour production rate for wellhead crude. Use of this content authorized in advance by IHS; further use or redistribution strictly prohibited without written permission from IHS. All rights reserved
Drilling Days (spud to rig release)Oil Initial Production Rate (BBL/d)
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10
20
30
40
50
60
2008 2009 2010 2011 2012 2013
2008‐13 = 45% decrease
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400
600
800
1,000
1,200
2008 2009 2010 2011 2012 2013
2008‐13 = 350 % Increase
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Technology improvement offsets movement away from sweet spots
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U.S. Has Returned to Being a Major World Producer
0
10
20
30
40
50
60
70
U.S.
Russia
Iran
Qatar
Canada
Norway
China
Saud
i Arabia
Algeria
Indo
nesia
Billion
Cub
ic Feet p
er Day
U.S. was largest natural gas producer in 2012
Source: BP Statistical Review 2013
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0.3
0.5
0.8
1.0
1.3
1.5
U.S.
Russia
Canada
Colombia
Kazakhstan
Brazil
China
Oman
India
2008
‐2012 Growth, Million Ba
rrels pe
r Day
U.S. crude oil production growth surpassed all others in recent years
Source: Oil and Gas Journal; 2012 vs. 2008 average
Viewed as improvement to U.S. energy security
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U.S. Total Net* Imports of Crude and Petroleum Products
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131995
1996
1997
1998
1999
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2001
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2010
2011
2012
2013
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Oil imports meet only 35% of current U.S. demand vs. 66% in 2006
Million Barrels per Day
Source: U.S. Department of Energy, EIA *Net of exports
~6 MMBD declinex $95 / Bbl ~$208 Billion / Year
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4
6
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2010 2011 2012 2013
Million ba
rrels p
er Day Light Sweet
Light Sour
Medium
Heavy
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Source: U.S. Department of Energy, EIA
Domestic Production is Reducing Reliance on Imports
U.S. imports of light, sweet crude oil have fallen sharply
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U.S. & Canadian Oil Demand, Supply and Net Imports
Oil independence likely by 2020Source: PIRA Energy Group
‐5
0
5
10
15
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25
30
1990 1995 2000 2005 2010 2015 2020 2025 2030
Demand
Net Imports
Million Ba
rrels p
er Day
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Global Shale Oil Resources
Russia22%
U.S.17%(58)
China9%
Argentina8%
Libya7%
Australia5%
Venezuela4%
Mexico4%
Canada3%
RoW21%
Other geographies missing U.S. benefits:
• Privately owned mineral rights
• Pipeline infrastructure with open access
• Large, safe, modern, efficient domestic drilling rig fleet
• Skilled oil & gas workforce
• Supporting road, utility & other infrastructures
• Well‐established, predictable & stable regulatory & legal systems
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Source: ARI for U.S. Department of Energy, EIA, June 2013
Substantial shale potential exists in numerous countries
Technically Recoverable Shale Oil Resources – 345 Billion Barrels
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Market Impact of Rapid Growth in U.S. and Canadian Crude Oil Production
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2005 2007 2009 2011 2013 2015 2017
2013 YTD Average
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2005 2007 2009 2011 2013
LLS‐Brent Crude Oil Price Differential
Current
2013 YTD
‐40
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‐20
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0
2005 2007 2009 2011 2013
WCS‐WTI Crude Oil Price Differential
Current
2013 YTD
13
2013$/BB
L
Discounting of U.S. and Canadian crude oil prices
WTI‐Brent Crude Oil Price Differential
Source: ICE Brent and NYMEX WTI as of 11/29/2013. Platts for historical prices.
Current
Futures
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Global Oil Demand vs. Non‐OPEC Oil Production* Growth
‐1.5
‐1.0
‐0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Demand Non‐OPEC Supply
Non‐OPEC supply growth outpacing global oil demand growth
Million Ba
rrels p
er Day
Demand GrowthOutpacing
Non‐OPEC Supply Growth
Non‐OPEC Supply GrowthOutpacing
Demand Growth
Source: International Energy Agency, November 2013 *Non‐OPEC oil production includes NGLs (including OPEC), biofuels and refinery process gain
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Global Crude Supply Disruptions
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2.0
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3.0
3.5
Jan‐10 Jan‐11 Jan‐12 Jan‐13
Growth in Global Supply Disruptions (MMBD)
Increase in losses since December 2009
Source: PIRA Energy Group; oil is crude and condensates only, excludes NGLs
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0.5
1.0
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Jan‐10 Jan‐11 Jan‐12 Jan‐13
Growth in U.S. Tight Oil Production (MMBD)
Increase in production since December 2009
Global supply disruptions outpacing growth in U.S. tight oil
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Importance of Oil and Natural Gas to U.S. Economy
Employment• O&G industry supports 9.8 million U.S. jobs• 1.4 million more jobs possible by 2030 with policies that
encourage greater resource development
Economy• The industry generates ≥ $1.2 trillion or 8% of U.S. GDP• Lower natural gas prices will increase GDP 1.1% in 2013;
support 3% higher industrial production in 2017
Government Revenues
Adds jobs, promotes economic growth & provides government revenues
• O&G companies pay $86+ million/day in federal income taxes & production fees
• Policies that encourage development would raise over $800 billion in additional cumulative government revenue by 2030
Source: Pricewaterhouse Coopers, 2012; WoodMackenzie, 2011; World Economic Forum, 2012 ; API, Putting Energy In Perspective, 2013.
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NGLs are Breathing New Life into U.S. Chemicals Industry
1.4
1.6
1.8
2.0
2.2
2.4
2.6
2008 2009 2010 2011 2012 2013
Million Ba
rrels pe
r Day
NGL Production Growth has Pushed Infrastructure Build‐Outs
(0.15)
(0.10)
(0.05)
0.00
0.05
0.10
0.15
0.20
0.25
0.30
2005 2007 2009 2011 2013
Net im
ports, M
illion ba
rrels pe
r day
U.S. is Now a Net Exporter of LPGs
Plentiful & affordable feedstocks for manufacturersSources: U.S. Department of Energy, EIA for field production of natural gas liquids and LPG net imports. Bloomberg for Mt. Belvieu ethane and Singapore naphtha prices.
0.0
0.5
1.0
1.5
2.0
2003 2005 2007 2009 2011 2013
Chemicals Feedstock Costs Favor U.S.Price ratio of Mt. Belvieu purity ethane vs. Singapore naphtha
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Key Uncertainties in Oil Outlook
Demand Global economic recovery
Penetration of alternative fuels and vehicles (including natural gas) and efficiency improvement (government policy, consumer & technology driven)
Government climate policies
Supply Pace of unconventional supply development (public acceptance, gov’t policy, etc.)
Level of oil supply disruptions (e.g., Iran, Libya)
OPEC response to increases in OPEC and tight oil production
Technology advances (conventional, unconventional, GTL, etc.)
Government policy (e.g., resource access, fiscal terms, regulation, etc.)
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Challenges to Developing New Supplies
Weak demand, commodity price discounts vs. international markets
Infrastructure permitting delays
Import/export needs• U.S. has surplus light oil • Refineries need heavy oil
Stakeholder Issues• Concerns over local impacts • “Off Fossil Fuel” agenda
Workforce issues• Demographics of petro‐techs
Government policy concerns• O&G singled out for taxation• Restricted resource access • Unnecessarily costly regulation• Picking technology “winners”
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Impacts of Greater North American Oil Production
Center for Energy Economics Annual MeetingRemarks by Marianne Kah
December 4, 2013