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![Page 1: Oil & Gas Industry Presentation Introduction November 21, 2012Canadian Oil & Gas Industry PresentationBUS 417 Energy Sector Analysis – Global Energy Fundamentals.](https://reader038.fdocuments.in/reader038/viewer/2022110400/56649db45503460f94aa5670/html5/thumbnails/1.jpg)
Oil & Gas Industry PresentationIntroduction
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Energy Sector Analysis – Global Energy Fundamentals and Canada’s Emergence as a Key Player of the Vital Resource
Presenters:Allan ChimCaty LiuMarco TangKevin ZhengEugene Wong
![Page 2: Oil & Gas Industry Presentation Introduction November 21, 2012Canadian Oil & Gas Industry PresentationBUS 417 Energy Sector Analysis – Global Energy Fundamentals.](https://reader038.fdocuments.in/reader038/viewer/2022110400/56649db45503460f94aa5670/html5/thumbnails/2.jpg)
Oil & Gas Industry PresentationOil Industry Outline
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Presentation Outline:
1. Oil Industry at a Glance – Allan Chim
2. Gas Industry at a Glance – Caty Liu
3. Case Study: Suncor Energy – Marco Tang
4. Case Study: Cenovus Energy – Kevin Zheng
5. Case Study: Encana Corp – Eugene Wong
![Page 3: Oil & Gas Industry Presentation Introduction November 21, 2012Canadian Oil & Gas Industry PresentationBUS 417 Energy Sector Analysis – Global Energy Fundamentals.](https://reader038.fdocuments.in/reader038/viewer/2022110400/56649db45503460f94aa5670/html5/thumbnails/3.jpg)
Oil & Gas Industry PresentationOil Industry Outline
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Proven Crude Oil Reserves: 1.65 Trillion Bbls (approx. 40 years supply)1. Saudi Arabia – 265.4B Bbls2. Canada – 175.2B Bbls3. Iran – 151.17B Bbls4. Iraq – 143.1B Bbls5. Africa – 132.4B Bbls
![Page 4: Oil & Gas Industry Presentation Introduction November 21, 2012Canadian Oil & Gas Industry PresentationBUS 417 Energy Sector Analysis – Global Energy Fundamentals.](https://reader038.fdocuments.in/reader038/viewer/2022110400/56649db45503460f94aa5670/html5/thumbnails/4.jpg)
Oil & Gas Industry PresentationOil Industry Outline
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
48%
20%
13%
9%
8%2%
Proven Oil Reserves by Geographic Region
Middle East Central & South America North America Europe Africa Asia Pacific
![Page 5: Oil & Gas Industry Presentation Introduction November 21, 2012Canadian Oil & Gas Industry PresentationBUS 417 Energy Sector Analysis – Global Energy Fundamentals.](https://reader038.fdocuments.in/reader038/viewer/2022110400/56649db45503460f94aa5670/html5/thumbnails/5.jpg)
Oil & Gas Industry PresentationOil Industry Outline
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Global Oil Production: 76.2% Crude Oil, 23.8% Gas1. Saudi Arabia – 11.15 Million Bbl/day2. Russia – 10.23 Million Bbl/day3. United States – 10. 23 Million Bbl/day4. China – 4.234 Million Bbl/day5. Canada – 3.6 Million Bbl/day
OPEC produces ~30 million bbl/day, but level of influence lowered from 1970’s, when they produced close to 50% of world’s supply
![Page 6: Oil & Gas Industry Presentation Introduction November 21, 2012Canadian Oil & Gas Industry PresentationBUS 417 Energy Sector Analysis – Global Energy Fundamentals.](https://reader038.fdocuments.in/reader038/viewer/2022110400/56649db45503460f94aa5670/html5/thumbnails/6.jpg)
Oil & Gas Industry PresentationOil Industry Outline
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Other North
America
Canada United States
Central & South America
Asia Pacific
Africa Europe Middle East
0%
5%
10%
15%
20%
25%
30%
35%
Global Oil Production
Expected to double by 2020
![Page 7: Oil & Gas Industry Presentation Introduction November 21, 2012Canadian Oil & Gas Industry PresentationBUS 417 Energy Sector Analysis – Global Energy Fundamentals.](https://reader038.fdocuments.in/reader038/viewer/2022110400/56649db45503460f94aa5670/html5/thumbnails/7.jpg)
Oil & Gas Industry PresentationOil Industry Outline
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
2011 2015 2020 2025 20300
1
2
3
4
5
6
7
Canadian Oil Sands & Conventional Production
Total Canadian Oil Sands Conventional
Mill
ions
bbl
/day
![Page 8: Oil & Gas Industry Presentation Introduction November 21, 2012Canadian Oil & Gas Industry PresentationBUS 417 Energy Sector Analysis – Global Energy Fundamentals.](https://reader038.fdocuments.in/reader038/viewer/2022110400/56649db45503460f94aa5670/html5/thumbnails/8.jpg)
Oil & Gas Industry PresentationOil Industry Outline
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Crude Oil PropertiesLight/Heavy – Has to do with the viscosity of the oil. The heavier/thicker it is, the harder it is to transport.
Bitumen from Canadian Oilsands requires to be blended with condenstate
Sweet/Sour – Oil with high Sulfuric content (sour) requires further processing or else damages to pipes and refineries will occur
![Page 9: Oil & Gas Industry Presentation Introduction November 21, 2012Canadian Oil & Gas Industry PresentationBUS 417 Energy Sector Analysis – Global Energy Fundamentals.](https://reader038.fdocuments.in/reader038/viewer/2022110400/56649db45503460f94aa5670/html5/thumbnails/9.jpg)
Oil & Gas Industry PresentationOil Industry Outline
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Benchmark Crude Oil Grades1. Brent – International Standard, light and sweet (North Sea)2. WTI (Western Texas Intermediate) – Cushing, Oklahoma
a) Light, sweet grade with main hub in Cushing; Bottleneck constraints
3. Western Canada Select – Heavy crude grade developed by Oil Sands producers, heavy bitumen blended with condensate
4. Others – SCO, Louisiana Light Sweet, Mayan Heavy Crude
![Page 10: Oil & Gas Industry Presentation Introduction November 21, 2012Canadian Oil & Gas Industry PresentationBUS 417 Energy Sector Analysis – Global Energy Fundamentals.](https://reader038.fdocuments.in/reader038/viewer/2022110400/56649db45503460f94aa5670/html5/thumbnails/10.jpg)
Oil & Gas Industry PresentationOil Industry Outline
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Jan-12 Apr-12 Jul-12 Oct-12$0
$20
$40
$60
$80
$100
$120
$140
Crude Oil Benchmark Prices
WTI Spot WCS Spot Brent Spot
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Oil & Gas Industry PresentationOil Industry Outline
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Cushing Bottleneck Alleviation?
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Oil & Gas Industry PresentationOil Industry Outline
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Technological Improvements 1. SAGD (Steam Assisted Gravity Drainage) – Alternative to
mining/extracting crude from oil sands2. Horizontal Drilling – Oil/gas producers able to access tight oil plays
within shallow rocks3. Hydraulic Fracturing – process of injecting highly pressurized fluid
into oil site in order to increase surface area for extraction
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Oil & Gas Industry PresentationOil Industry Outline
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
SAGD Well Operation
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Oil & Gas Industry PresentationOil Industry Outline
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Hydraulic Fracturing Concepts
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Oil & Gas Industry PresentationOil Industry Outline
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Jan-10
Feb-10
Apr-10
May
-10Ju
l-10
Sep-10
Oct-10
Dec-10
Feb-11
Mar-
11
May
-11Ju
l-11
Aug-11
Oct-11
Dec-11Jan
-12
Mar-
12
Apr-12
Jun-12
Aug-12
Sep-12
0
500
1000
1500
2000
2500
0
100
200
300
400
500
600
North American Drilling Activity
US Active Rigs Canada Active Rigs
US
Rig
Coun
ts
Can
Rig
Coun
ts
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Oil & Gas Industry PresentationOil Industry Outline
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Is Oil a Scarce Resource?1. Using proven reserves, the world only has 40 years of supply2. Recent research from Harvard and IEA suggests no “peak oil” in
sightA. Worldwide recovery rates less than 35% of total original oil in place
I. Technological improvements allowing previously untapped oil become economically feasible
B. Wrong depletion rates (forecasters use 6-10%)I. 70% of oil production is from oilfields producing for decades
C. Factoring all risks, projected 17.6mmbbl/day of oil production increase by 2020, IEA states that US could be energy self sufficent by 2020
I. Western Hemisphere will become key oil player by 2020
![Page 17: Oil & Gas Industry Presentation Introduction November 21, 2012Canadian Oil & Gas Industry PresentationBUS 417 Energy Sector Analysis – Global Energy Fundamentals.](https://reader038.fdocuments.in/reader038/viewer/2022110400/56649db45503460f94aa5670/html5/thumbnails/17.jpg)
Oil & Gas Industry PresentationOil Industry Outline
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Case Study – Kern River1. Originally discovered in 1899. Estimated production life 50 years2. Kern River is still producing today3. Water Flooding and future technological developments can yield
additional output
![Page 18: Oil & Gas Industry Presentation Introduction November 21, 2012Canadian Oil & Gas Industry PresentationBUS 417 Energy Sector Analysis – Global Energy Fundamentals.](https://reader038.fdocuments.in/reader038/viewer/2022110400/56649db45503460f94aa5670/html5/thumbnails/18.jpg)
Oil & Gas Industry PresentationOil Industry Outline
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Projected Liquids Production from Shale Plays
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Oil & Gas Industry PresentationFinancials
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Natural Gas Industry
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Conventional• Unconventional• Shale gas
What is natural gas?
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Exploration & Extraction• Production• Transportation• Storage• Distribution & Marketing
Industry: From Wellhead to Burner Tip
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Onshore• Offshore
Exploration & Extraction
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Carbon tool drilling• Horizontal drilling
Onshore Drilling
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Oil and condensate removal• Water removal• Separation of natural gas liquids• Sulfur and carbon dioxide removal
Production
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Gathering system field lines• Transmission trunk lines• Distribution lines
Transportation
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Depleted gas reservoirs• Aquifers• Salt caverns• Liquefied natural gas
Storage
Underground
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Distribution & Marketing
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Market structure• Natural gas demand• Natural gas supply
Business Overview
![Page 29: Oil & Gas Industry Presentation Introduction November 21, 2012Canadian Oil & Gas Industry PresentationBUS 417 Energy Sector Analysis – Global Energy Fundamentals.](https://reader038.fdocuments.in/reader038/viewer/2022110400/56649db45503460f94aa5670/html5/thumbnails/29.jpg)
Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Market Structure• Prior to deregulation and pipeline unbundling
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Simplified structure after pipeline unbundling
Market Structure
Producer
Marketers LDC End Users
Transporters
![Page 31: Oil & Gas Industry Presentation Introduction November 21, 2012Canadian Oil & Gas Industry PresentationBUS 417 Energy Sector Analysis – Global Energy Fundamentals.](https://reader038.fdocuments.in/reader038/viewer/2022110400/56649db45503460f94aa5670/html5/thumbnails/31.jpg)
Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Factors affecting short term demand– Cyclical cycle– Weather– Capacity to switch fuel– Economy
Natural Gas Demand• Factors affecting long
term demand– Residential and
commercial demand– Industrial demand– Electric generation
demand– Transportation sector
demand
![Page 32: Oil & Gas Industry Presentation Introduction November 21, 2012Canadian Oil & Gas Industry PresentationBUS 417 Energy Sector Analysis – Global Energy Fundamentals.](https://reader038.fdocuments.in/reader038/viewer/2022110400/56649db45503460f94aa5670/html5/thumbnails/32.jpg)
Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Short term barriers– Availability of skilled workers– Equipment permitting and
well development– Weather and delivery
disruptions
Natural Gas Supply• Other barriers– Onshore and
offshore access– Pipeline
infrastructure– Financial
environment
![Page 33: Oil & Gas Industry Presentation Introduction November 21, 2012Canadian Oil & Gas Industry PresentationBUS 417 Energy Sector Analysis – Global Energy Fundamentals.](https://reader038.fdocuments.in/reader038/viewer/2022110400/56649db45503460f94aa5670/html5/thumbnails/33.jpg)
Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Federal regulation• Provincial regulation
Regulations
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• DrillingOutlook
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Drilling• Production
Outlook
![Page 36: Oil & Gas Industry Presentation Introduction November 21, 2012Canadian Oil & Gas Industry PresentationBUS 417 Energy Sector Analysis – Global Energy Fundamentals.](https://reader038.fdocuments.in/reader038/viewer/2022110400/56649db45503460f94aa5670/html5/thumbnails/36.jpg)
Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Drilling• Production• Deliverability
Outlook
![Page 37: Oil & Gas Industry Presentation Introduction November 21, 2012Canadian Oil & Gas Industry PresentationBUS 417 Energy Sector Analysis – Global Energy Fundamentals.](https://reader038.fdocuments.in/reader038/viewer/2022110400/56649db45503460f94aa5670/html5/thumbnails/37.jpg)
Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Drilling• Production• Deliverability• Uncertainties
Outlook• Future natural gas
prices• Potential labour
shortages • Future growth of U.S.
shale gas production • Well production rates
![Page 38: Oil & Gas Industry Presentation Introduction November 21, 2012Canadian Oil & Gas Industry PresentationBUS 417 Energy Sector Analysis – Global Energy Fundamentals.](https://reader038.fdocuments.in/reader038/viewer/2022110400/56649db45503460f94aa5670/html5/thumbnails/38.jpg)
Oil & Gas Industry PresentationCompany Snapshot
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Company Snapshot
![Page 39: Oil & Gas Industry Presentation Introduction November 21, 2012Canadian Oil & Gas Industry PresentationBUS 417 Energy Sector Analysis – Global Energy Fundamentals.](https://reader038.fdocuments.in/reader038/viewer/2022110400/56649db45503460f94aa5670/html5/thumbnails/39.jpg)
Oil & Gas Industry PresentationCompany Snapshot
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Mainly been trading flat for the year
• Recently upgraded by JPM as they expect a dividend hike in the near future
Source: The Globe and Mail
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Oil & Gas Industry PresentationCompany Snapshot
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Oil & Gas Industry PresentationCompany Snapshot
Source: The Globe and Mail
1 Year Stock Chart
![Page 41: Oil & Gas Industry Presentation Introduction November 21, 2012Canadian Oil & Gas Industry PresentationBUS 417 Energy Sector Analysis – Global Energy Fundamentals.](https://reader038.fdocuments.in/reader038/viewer/2022110400/56649db45503460f94aa5670/html5/thumbnails/41.jpg)
Oil & Gas Industry PresentationCompany Snapshot
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
5 Year Stock Chart
Source: The Globe and Mail
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Oil & Gas Industry PresentationCompany Snapshot
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Max Year Stock Chart
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Oil & Gas Industry PresentationCompany Snapshot
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
1 Year Stock Chart v. TSX Capped Energy (XEG)
Source: The Globe and Mail
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Oil & Gas Industry PresentationCompany History
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Company History
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Oil & Gas Industry PresentationCompany History
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
1917
•Sun Company Inc. opens in Canada as a supplier to war plants in the Montreal area
1923
•Sun Company incorporates as Sun Oil Company Limited
1930
•First Sunoco branded stations open in Toronto, Montreal and Quebec City
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Oil & Gas Industry PresentationCompany History
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
1950
•Sun Company drills first Canadian producing well in Alberta
1979
•Suncor forms when all Canadian operations of the Sun Company are amalgamated with the Great Canadian Oil Sands
1985
•Federal government deregulates oil prices, allowing producers to sell at market value
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Oil & Gas Industry PresentationCompany History
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
1992
•Suncor becomes a publicly listed company (listed NYSE in 97)
1999
•Construction begins on the Project Millennium aimed at increasing oil sands production to 225,000 by 2002
2009
•Suncor and Petro-Canada merged to create Canada’s largest energy company
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Oil & Gas Industry PresentationCompany History
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Petro Canada
All-stock offer of $19B
Creates a $43B company (now at $50B market cap)
Petro-Canada shareholders get 40% of new company and
Suncor shareholders get 60%
Suncor
More than a 100 years worth of reserves
Canadian oil-sands centric strategy
$300M/Y in cost savings and $1B/Y in capital efficiencies
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Business Overview
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Oil weighted assets are very Canada centric
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Oil Sands •Assets located in northeast Alberta•Recovers bitumen and upgrades the production into refinery feeds•Includes growth ventures that Suncor is a part of Fort Hills (40.8%) & Voyageur (51%)
Exploration and Production
•Consists of offshore on the East Coast of Canada and North Sea•Consists of onshore operations in North America, Libya* and Syria*
Refining and Marketing •Refining into broad range of petroleum and petrochemical products with various locations in Canada and US
Corporate, Energy Trading and Eliminations
•Investments in renewable energy•Other activities not directly attributable to operating activities
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Cash from operations were $2.74B in 2012Q3 compared to $2.721B in 2011Q3
• Oil sands is the largest portion of operating CF as well as revenue
44%
23%
33%
Nine Months Ending September 30 2012 (Operating CF)
Oil SandsExploration and Produc-tionRefining and Marketing
43%
28%
28%
Nine Months Ending September 30 2011 (Operating CF)
Oil SandsExploration and Produc-tionRefining and Marketing
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Oil Sands• Production volumes averaged a record 341,300 bbls/d for the third quarter of 2012
• Lower realized average sale prices ($80.79 in 2012Q3 compared to $85.09 in 2011Q3)
• Projects• Syncrude Venture (12% Ownership)• Millenium, Firebag, MacKay River (Fort McMurray)
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Average production from Firebag with the ramp up of operations and use of infill well technology (up from 54,800 bbls/d 113,000 bbls/d)
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Exploration and Production• Production volumes down from 202.4 (Mboe/d) in 2011 to 193.8 (Mboe/d) in 2012
• Higher realized average sale prices ($84.15 in 2012Q3 compared to $78.86 in 2011Q3)
• Projects• Eastern Canada (Terra Nova, White Rose, Hibernia)• International (Libya, Buzzard, Syria*)• North American Onshore (SW of Alberta, NE of BC)
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Production volumes down from 2011Q3 to 2012Q3• Due to maintenance in a East Coast Canada
operation (zero production from Terra Nova)
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Refining and Marketing• Refined product sales (gasoline from pumps) recorded 87.5 (m3/d) in 2012Q3 up slightly from 86.7 (m3/d) in 2011Q3
• Higher demand for gasoline in Western North America but lower demand in Eastern North America
• Customers• Retail Consumers • Wholesale Consumers
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Higher demand and high utilization rates in Western North America
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Corporate, Energy Trading and Eliminations• Small part of operations but it was a $(28M) loss in 2012Q3 compared to a $84M gain in 2011Q3
• Segments• Renewable Energy• Energy Trading• Corporate Activities• Group Eliminations
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Growth Opportunities
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Oil & Gas Industry PresentationExecutive Profile
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Executive Profile
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Oil & Gas Industry PresentationExecutive Profile
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• BSc in engineering from Colorado State University
• Law degree from the University of Houston Law School
• Graduate of the Harvard Business School Program for Management Development
• Was Suncor CEO from 1991 to 2011
• Numerous awards for Top CEO and inducted into Canadian Petroleum Hall of Fame
Richard George (Former CEO)
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Oil & Gas Industry PresentationExecutive Profile
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• BSc in Chemical Engineering from Exeter University
• Graduate of Advanced Management Program at Harvard Business School
• Graduate of Business Economics Program at Oxford University
• Been with Suncor since 2002Steve Williams (President and CEO)
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Oil & Gas Industry PresentationExecutive Profile
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• BA in Economics from University of Calgary
• Honours graduate from the University of Calgary Management Development Program
• Over 20 years of industry experience in strategy and development, finance, risk management and energy supply and trading
• Been with Suncor since 2006
Bart Demosky (Chief Financial Officer)
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Oil & Gas Industry PresentationExecutive Profile
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• BA in Economics from University of Calgary
• MBA from the University of Alberta
• Been with Suncor since 1996
Eric Axford (VP, Business Services)
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Oil & Gas Industry PresentationFinancials
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Financial Overview
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Oil & Gas Industry PresentationFinancials
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
2011 Financial Highlights
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Oil & Gas Industry PresentationFinancials
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
2012Q3 Financial Highlights
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Oil & Gas Industry PresentationFinancials
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
2011 Balance Sheet
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Oil & Gas Industry PresentationFinancials
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
2012Q3 Balance Sheet
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Oil & Gas Industry PresentationFinancials
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
2011 Income Statement
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Oil & Gas Industry PresentationFinancials
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
2012Q3Income Statement
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Oil & Gas Industry PresentationFinancials
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
2011 Cash Flow Statement
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Oil & Gas Industry PresentationFinancials
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
2012Q3Cash Flow Statement
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Oil & Gas Industry PresentationRecommendation
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
BUY!
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Oil & Gas Industry PresentationCompany Snapshot
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Oil & Gas Industry PresentationCenovus Energy Inc.
Cenovus Energy Inc.(CVE.TO)
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Oil & Gas Industry PresentationCompany Snapshot
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Source: The Globe and Mail
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Oil & Gas Industry PresentationCompany Snapshot
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
1 Year Stock Chart
Source: Yahoo! Finance
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Oil & Gas Industry PresentationCompany Snapshot
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Max Years Stock Chart
Source: Yahoo! Finance
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Oil & Gas Industry PresentationCompany Snapshot
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
CVE vs Industry
Source: Yahoo! Finance
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Oil & Gas Industry PresentationCompany History
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Headquartered in Calgary, Canada• Employs approx. 5000 people• December 1, 2009 - Became independent from
EnCana Corporation– EnCana split into: 1. EnCana 2. Cenovus Energy
• Cenovus retained assets from PanCanadian and Alberta Energy Company– These 2 companies originally merged to form EnCana in
2002
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Canadian oil company• Products includes: bitumen, crude oil, natural gas,
and natural gas liquids (NGL)*bitumen: deposits of extremely heavy crude oil
Main operations includes…1) Oil Producing Projects 2) Emerging Oil Projects3) Natural Gas Projects
4) Refining Projects
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• 2 types 1. Oil sands needs to be processed to separate the bitumen
so that it can be upgraded for usage“Oil sands are a thick, viscous mixture of bitumen hydrocarbons combined with water, sand, heavy metal and clay” – Alberta Canada
2. Conventional oil is oil that can flow through a pipeline without processing or dilution.
“Mixture of mainly pentanes and heavier hydrocarbons recoverable at a well from an underground reservoir and liquid at atmospheric pressure and temperature” – Alberta Canada
Operations – Oil Producing ProjectsOil Sands & Conventional Oil
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Operations – Oil Producing ProjectsOil Sands & Conventional Oil
Oil Sands, 95,625
bbls/day
Conventional Oil, 75,725 bbls/day
44% 56%
Oil Production Breakdown for Third Quarter 2012
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Two 50/50 Venture Oil Sands Operations with ConocoPhillips1. Foster Creek, Alberta Oil Sands (36.9% of Total Oil Production for
Third Quarter 2012)-Production increased 12% in third quarter 2012 from third quarter 2011
2. Christina Lake, Alberta Oil Sands (18.9% of Total Oil Production for Third Quarter 2012)
-Production grew more than threefold in third quarter 2012 compared to 2011
Operations – Oil Producing Projects Oil Sands
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
At Christina Lake and Foster Creek…– The oil is 350-450m below surface. – Primary technology used is steam-assisted gravity
drainage (SAGD)• Process which injects steam to soften the oil so that it can be
pumped to the surface.– Average Steam to Oil Ratio (SOR) of 2 – approx. 2
barrels of steam needed for 1 barrel of oil• Current industry average in Alberta is around 3
Operations – Oil Producing Projects Oil Sands
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Two conventional oil producing projects in 1. Pelican Lake, Northern Alberta (Heavy oil assets) (13.7% of
Total Oil Production for Third Quarter 2012)-Third quarter 2012 production increased 16% compared to same quarter
in 2011 (Averaging more than 23,500 bbls/d)
2. Weyburn Facility, Southeast Saskatchewan (9.4% of Total Oil Production for Third Quarter 2012)
– Third quarter 2012 production same as third quarter 2011 (Averaging around 16,000 bbls/day)
Operations – Oil Producing Projects Conventional Oil
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
– Significant increase in volume produced since 2010 especially at Christina Lake and Foster Creek
Operations – Oil Producing ProjectsIncreases in Production
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Three Main Operations in 1. Telephone Lake
-Expected to produce 90,000 bbls/day in initial phase with potential to produce 300,000 bbls/day
2. Narrows Lake-Expected to produce 130,000 bbls/day at full capacity
3. Grand Rapids-Expected to produce 180,000 bbls/day at full capacity
Operations – Emerging Oil Projects
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Operations – Majority from shallow gas play that covers more than 3
million acres in Southeast Alberta – More than 25,000 gross producing natural gas wells in the Suffield,
Brooks, and Langevin areas that produced an average of 577 million cubic feet per day (MMcf/d) in Q3 2012
– Declined about 12% from Q3 2011: mainly due to expected natural declines and divestures of non-core property in first quarter 2012
Operations – Natural Gas Projects
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Refining crude oil products into petroleum and chemical products– Converting to regular gas
Operations – Refining & Marketing Projects
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Benefits of refining due to rising price of regular unleaded gasoline and decline in price of crude oil
Operations – Refining & Marketing Projects
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
What is Generating Cash?
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Oil & Gas Industry PresentationExecutive Profile
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Brian FergusonPresident Chief Executive OfficerDirector (Non-independent)
HISTORYJoined predecessor (Alberta Energy Company) (1984)
Became EnCana’s Executive Vice-President & CFO (2006)
Became Cenovus’ President & CEO (2009)
EDUCATIONBachelor of Commerce - University of Alberta (1980)
Executive Management Program - University of Western Ontario (1993)
Chartered Accountant (1983)
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Oil & Gas Industry PresentationExecutive Profile
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
John BrannanChief Operating OfficerExecutive Vice-President
HISTORYJoined in 2001 as a Senior Vice-President
Was Managing Director for International & New Ventures (2003-2007)
Became Executive Vice-President and COO (2010)
EDUCATIONBachelor of Science degree in mechanical engineering – Texas A&M University
Member of the Association of Professional Engineers, Geologists, and Geophysicists of Alberta
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Oil & Gas Industry PresentationExecutive Profile
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Ivor RusteChief Financial OfficerExecutive Vice-President
HISTORYJoined in 2006 as Vice-President, Finance of the Corporate Finance Group
Became CFO and Executive Vice-President (2009)
Used to be a Managing Partner of KMPG LLP in Edmonton (1998-2006)
EDUCATIONBachelor of Commerce - University of Alberta
Fellow Chartered Accountant
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Oil & Gas Industry PresentationFinancials
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Balance Sheet – Quarterly Data
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Oil & Gas Industry PresentationFinancials
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Balance Sheet – Annual Data
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Oil & Gas Industry PresentationFinancials
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Income Statement – Quarterly Data
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Oil & Gas Industry PresentationFinancials
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Income Statement – Annual Data
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Oil & Gas Industry PresentationFinancials
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Shareholders’ Equity Statement
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Oil & Gas Industry PresentationFinancials
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Cash Flow Statement – Quarterly Data
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Oil & Gas Industry PresentationFinancials
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Cash Flow Statement – Annual Data
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Oil & Gas Industry PresentationValuation
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Hedges– Refining Operations– Natural Gas
• Cost efficiencies – SOR 2:1 (industry average 3:1)
• Superior properties– Christina Lake & Foster Creek
Advantages of Cenovus Energy
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Oil & Gas Industry PresentationValuation
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• METHOD: Cash Flow Multiple Valuation with Comparable Companies
1. Husky Energy Inc.2. Imperial Oil Ltd.3. Suncor Energy Inc.
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Oil & Gas Industry PresentationValuation
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Price/CashFlow FY1
Husky Energy Inc. 5.456455489
Imperial Oil Limited 8.441097887
Suncor Energy 4.824105231
Average 6.240552869
Cenovus Energy Inc.
Cash Flow per Share FY1
Target Price per Share
4.951827774 $ 30.90
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Oil & Gas Industry PresentationRecommendation
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
HOLD
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Oil & Gas Industry PresentationCompany Snapshot
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Company Snapshot
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Oil & Gas Industry PresentationCompany Snapshot
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Trending up with the appreciation of natural gas prices
• Price increase with speculation on buyout of liquids rich assets
Source: The Globe and Mail
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Oil & Gas Industry PresentationCompany Snapshot
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Oil & Gas Industry PresentationCompany Snapshot
Source: The Globe and Mail
1 Year Stock Chart
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Oil & Gas Industry PresentationCompany Snapshot
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
5 Year Stock Chart
Source: The Globe and Mail
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Oil & Gas Industry PresentationCompany Snapshot
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Max Year Stock Chart
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Oil & Gas Industry PresentationCompany Snapshot
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
1 Year Stock Chart v. TSX Capped Energy (XEG)
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Oil & Gas Industry PresentationCompany History
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Company History
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Oil & Gas Industry PresentationCompany History
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
2002•Originated from two Canadian independent oil companies in 2002:•Pan Canadian Energy Corporation•Alberta Energy Company Ltd.
2003•Acquires Cutbank Ridge natural gas resource play and commences storage expansion in the States
2005•Gulf of Mexico Assets sold to Statoil
2007•Upstream oil interests in Chad and Brazil are sold•Encana and ConocoPhillips create integrated NA business
2009•Company split into to focused companies - Cenovus (integrated oil) and Encana (natural gas)
2010•3 Year Joint Venture with Kogas Canada Ltd.
2012•First LNG station in Louisiana•Announcement of 40% interest by Mitsubishi in Cutbank Ridge Partnership
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Oil & Gas Industry PresentationCompany History
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Encana
Focus in Natural Gas Assets
Shareholders of Encana received 1 share of Cenovus for
every one share of Encana
Fallen from its high of $60/share
Cenovus
Focus in Integrated Oil Operations
Canadian oil-sands centric strategy
Risen from $25.50
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Business Overview
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Goal: Encana's goal is to be the lowest-cost, highest-growth senior natural gas producer in North America through the following six-faceted strategy:1. Comprehensive disclosure of reserves and resources.2. Accelerated pace of development.3. Advancing resource play hub design and development.4. Increasing exposure to oil and natural gas liquids.5. Attracting third-party investments in undeveloped6. reserves and resources.7. Growing the market for North American natural gas
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Strategy: unlock the tremendous value unrecognized within our asset base– investing in the highest-return projects– establishing increased liquids weighting and diversifying revenue
sources– maintaining industry-leading cost structures– leveraging third-party funding through farm-outs, partnerships
and joint ventures
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Natural gas, • NGLs and Crude Oil • Refined petroleum products
88%
11%
2%
Production Breakdown for 2011Natural Gas Crude Oil & NGLs Other
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Reserves
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Operations – Production Profile
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Operations – Canadian Core Assets• Cutbank Ridge
– 4500 wells with EUR of 4-16 Bcfe– Production of 600 MMcfe/d– Montney formation: liquids rich gas– Horizontal & Multi-stage hydraulic fracture– Oil gravity: 45-65 API
• Bighorn– 1400 wells with EUR of 2-12 Bcfe– Oil gravity: 55-60 API– Well inventory: 1400 wells
• Coalbed Methane– Production of 475 MMcfe/d– Sweet natural gas with high methane content (over 90%)– Oil gravity: 55-60 API– Well inventory: 1400 wells
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Operations – US Core Assets• Haynesville
– Production of 508 MMcfe/e– $1.018B capex spent in expansion of assets and drilling program– Reserves: 5.0 Tcfe
• Jonah– Production of 497 MMcfe/e– Reserve life: 40-60 years– Joint venture with Northwest Natural
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Operations – Joint Ventures• Cutbank Ridge Partnership
– Mitsubishi acquring 40% of the property for $2.9 billion– $1.45 billion upfront to fuel commitments on the projects– Alleviates capital commitments for Encana
• Kogas Joint Venture– Extension of former JV agreement for partnership in Horn River
operations– Invest a further $185 million in 20,000 additional acres
• Kitimat LNG– BC’s first LNG export facility– Partners may include: Apache, EOG, and Encana (30% interest)– Proposed plant capacity is 700 MMcf/d of LNG– Pending final investment decision
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Operations – Kitimat LNG
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Operations – Natural Gas Capital Efficiency
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Operations – Liquids Capital Efficiency
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Operations – Resource Play Hub
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
• Higher demand and high utilization rates in Western North America
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Operations – Shifting Exposure
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Oil & Gas Industry PresentationBusiness Overview
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Hedging
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Oil & Gas Industry PresentationExecutive Profile
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Executive Profile
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Management Team
Randy EresmanPresident Chief Executive Officer
HISTORYJoined in Encana’s predecessor companies in 1980
Chief Operating Officer (2002)
EDUCATIONBachelor of Science in Petroleum Engineering – Northern Alberta Institute of Technology
ASSOCIATIONAssociation of Professional Engineers, Geologists, and Geophysicists of Alberta
World Presidents’ Organization
Canadian Council of Chief Executives
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Management Team
Sherri BrillonChief Financial OfficerExecutive Vice-President
HISTORYJoined in Encana’s predecessor companies in 1985
Vice President of Strategic Planning & Portfolio Management (2007)
EDUCATIONBachelor’s Degree in Economics – University of Calgary
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Management Team
Bob GrantCorporate DevelopmentExecutive Vice-President
HISTORYJoined in Encana’s predecessor companies in 1985
Roles in asset management, business development, acquisitions and divestitures
EDUCATIONBachelor of Science in Engineering – Dalhousie University
Bachelor of Science in Mechanical Engineering – Nova Scotia Technical College
ASSOCIATIONAssociation of Professional Engineers, Geologists, and Geophysicist of Alberta
Society of Petroleum Engineers
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Management Team
Eric MarshSenior Vice President (USA Division) Executive Vice-President
HISTORYPromoted to Vice President (2009)
Promoted to Vice-President of the South Rockies Business Unit (2002)
Joined in Encana’s predecessor companies (2000)
Production/Operations Manager at Questar
EDUCATIONBachelor of Science in Petroleum Engineering – University of Wyoming
ASSOCIATIONCanadian Natural Gas Initiative Executive Committee
ANGA Cross Border Committee
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Management Team
Mike McAllisterSenior Vice President (Canadian Division) Executive Vice-President
HISTORYJoined in Encana’s predecessor companies (2000)
Leadership roles at Taxaco Canada and Imperial Oil
EDUCATIONBachelor of Science in Mechanical Engineering – Concordia University
Awarded the Mechanical Engineering Medal
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Oil & Gas Industry PresentationFinancials
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Financial Statement Analysis
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Oil & Gas Industry PresentationFinancials
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Balance Sheet – Quarterly Data
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Oil & Gas Industry PresentationFinancials
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Balance Sheet – Annual Data
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Oil & Gas Industry PresentationFinancials
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Income Statement – Quarterly Data
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Oil & Gas Industry PresentationFinancials
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Income Statement – Annual Data
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Oil & Gas Industry PresentationFinancials
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Shareholders’ Equity Statement
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Oil & Gas Industry PresentationFinancials
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Cash Flow Statement – Quarterly Data
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Oil & Gas Industry PresentationFinancials
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
Cash Flow Statement – Annual Data
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Oil & Gas Industry PresentationRecommendation
November 21, 2012 Canadian Oil & Gas Industry Presentation BUS 417
SELL