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 Meeting Remarks by Marianne Kah December 4, 2013

Transcript of Impacts of Greater North American Oil ProductionRig Count Drilling Moved from Gas to Oil Huge...

Page 1: Impacts of Greater North American Oil ProductionRig Count Drilling Moved from Gas to Oil Huge turnaround in Texas and North Dakota Source: Baker Hughes, U.S. Department of Energy,

Impacts of Greater North American Oil Production

Center for Energy Economics Annual MeetingRemarks by Marianne Kah

December 4, 2013

Page 2: Impacts of Greater North American Oil ProductionRig Count Drilling Moved from Gas to Oil Huge turnaround in Texas and North Dakota Source: Baker Hughes, U.S. Department of Energy,

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

Page 3: Impacts of Greater North American Oil ProductionRig Count Drilling Moved from Gas to Oil Huge turnaround in Texas and North Dakota Source: Baker Hughes, U.S. Department of Energy,

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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Page 4: Impacts of Greater North American Oil ProductionRig Count Drilling Moved from Gas to Oil Huge turnaround in Texas and North Dakota Source: Baker Hughes, U.S. Department of Energy,

Lower 48Crude 

AlaskaCrude

NGLs

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12

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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

Page 5: Impacts of Greater North American Oil ProductionRig Count Drilling Moved from Gas to Oil Huge turnaround in Texas and North Dakota Source: Baker Hughes, U.S. Department of Energy,

0.0

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The Shale Revolution Has Spread to Oil

% HORIZ.

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U.S. R

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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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Page 6: Impacts of Greater North American Oil ProductionRig Count Drilling Moved from Gas to Oil Huge turnaround in Texas and North Dakota Source: Baker Hughes, U.S. Department of Energy,

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 

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0 3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48

WTI Breakeven

 Cost (20

13 $ per Barrel)*

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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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Page 7: Impacts of Greater North American Oil ProductionRig Count Drilling Moved from Gas to Oil Huge turnaround in Texas and North Dakota Source: Baker Hughes, U.S. Department of Energy,

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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2008 2009 2010 2011 2012 2013

2008‐13 = 45% decrease

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2008 2009 2010 2011 2012 2013

2008‐13 = 350 % Increase

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Technology improvement offsets movement away from sweet spots

Page 8: Impacts of Greater North American Oil ProductionRig Count Drilling Moved from Gas to Oil Huge turnaround in Texas and North Dakota Source: Baker Hughes, U.S. Department of Energy,

U.S. Has Returned to Being a Major World Producer

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Russia

Iran

Qatar

Canada

Norway

China

Saud

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Algeria

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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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1.0

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U.S.

Russia

Canada

Colombia

Kazakhstan

Brazil

China

Oman

India

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‐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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Page 9: Impacts of Greater North American Oil ProductionRig Count Drilling Moved from Gas to Oil Huge turnaround in Texas and North Dakota Source: Baker Hughes, U.S. Department of Energy,

U.S. Total Net* Imports of Crude and Petroleum Products

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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

Page 10: Impacts of Greater North American Oil ProductionRig Count Drilling Moved from Gas to Oil Huge turnaround in Texas and North Dakota Source: Baker Hughes, U.S. Department of Energy,

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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

Page 11: Impacts of Greater North American Oil ProductionRig Count Drilling Moved from Gas to Oil Huge turnaround in Texas and North Dakota Source: Baker Hughes, U.S. Department of Energy,

U.S. & Canadian Oil Demand, Supply and Net Imports

Oil independence likely by 2020Source: PIRA Energy Group

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Demand

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Page 12: Impacts of Greater North American Oil ProductionRig Count Drilling Moved from Gas to Oil Huge turnaround in Texas and North Dakota Source: Baker Hughes, U.S. Department of Energy,

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

Page 13: Impacts of Greater North American Oil ProductionRig Count Drilling Moved from Gas to Oil Huge turnaround in Texas and North Dakota Source: Baker Hughes, U.S. Department of Energy,

Market Impact of Rapid Growth in U.S. and Canadian Crude Oil Production 

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LLS‐Brent Crude Oil Price Differential

Current

2013 YTD

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WCS‐WTI Crude Oil Price Differential

Current

2013 YTD

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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

Page 14: Impacts of Greater North American Oil ProductionRig Count Drilling Moved from Gas to Oil Huge turnaround in Texas and North Dakota Source: Baker Hughes, U.S. Department of Energy,

Global Oil Demand vs. Non‐OPEC Oil Production* Growth

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Demand Non‐OPEC Supply

Non‐OPEC supply growth outpacing global oil demand growth

Million Ba

rrels p

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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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Page 15: Impacts of Greater North American Oil ProductionRig Count Drilling Moved from Gas to Oil Huge turnaround in Texas and North Dakota Source: Baker Hughes, U.S. Department of Energy,

Global Crude Supply Disruptions

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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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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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Page 16: Impacts of Greater North American Oil ProductionRig Count Drilling Moved from Gas to Oil Huge turnaround in Texas and North Dakota Source: Baker Hughes, U.S. Department of Energy,

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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Page 17: Impacts of Greater North American Oil ProductionRig Count Drilling Moved from Gas to Oil Huge turnaround in Texas and North Dakota Source: Baker Hughes, U.S. Department of Energy,

NGLs are Breathing New Life into U.S. Chemicals Industry

1.4

1.6

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2008 2009 2010 2011 2012 2013

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NGL Production Growth has Pushed Infrastructure Build‐Outs

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ports, M

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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.

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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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Page 18: Impacts of Greater North American Oil ProductionRig Count Drilling Moved from Gas to Oil Huge turnaround in Texas and North Dakota Source: Baker Hughes, U.S. Department of Energy,

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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Page 19: Impacts of Greater North American Oil ProductionRig Count Drilling Moved from Gas to Oil Huge turnaround in Texas and North Dakota Source: Baker Hughes, U.S. Department of Energy,

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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Page 20: Impacts of Greater North American Oil ProductionRig Count Drilling Moved from Gas to Oil Huge turnaround in Texas and North Dakota Source: Baker Hughes, U.S. Department of Energy,

Impacts of Greater North American Oil Production

Center for Energy Economics Annual MeetingRemarks by Marianne Kah

December 4, 2013