Operating In Lower-For-Longer

Transcription

1 Operating In Lower-For-Longer Roger Bhalla Manager, Supply Chain Services & Technology February 22, 2017

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 forward-looking 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 Adapting to Lower- For-Longer Pricing 3 February 22, 2017

4 Game Changes to Optimize Resources ; Driving Down Cost of Supply Wins Oil Price ($/bbl) Resource Grab: Barrel Growth Focus $ money of the day $ Optimize Resource Base: Cost of Supply Focus Resource Grab: Barrel Growth Focus 4 1Historical prices are from BP Statistical Review of World Energy Arabian Light posted at Ras Tanura Brent dated

5 Better Together Themes Performance-based contracting Contracting for certainty in an uncertain environment: how do we design win-win, risk neutral deals in today s environment? Ensuring sustainable service quality through commodity price cycles Eliminate waste Automation of transactions Attack Non-Productive Time Improve visibility of information Digitize our interactions Leverage big data to better understand and action opportunities 5

6 Performance Optimization Through Analytics Eagle Ford Drilling Spud to Spud Days L48 On-Shore Drilling Cost Reduction Implemented Drilling Analytics Solution Significant reductions in operational costs through a number of sustainable efforts enabled through analytics: Drilling Process Optimization Flat Time Optimization Vendor High Grading Multi Well Pad Efficiency NPT Reduction >80% 6 Resource February 22, Efficiency 2017 Reduced Capital Spend MORE WELLS DRILLED PER RIG >40% REDUCED DRILLING COST PER WELL 6

7 7 Facilities Design Improvements L48

8 8 Completions Design Improvements Surmont Oil Sands

9 Contract Strategies Leverage enterprise spend Bundle product/services Performance-based contracts Short term Contracts Long term Contracts Will utilize any or a combination of strategies depending on the situation 9

10 Supply Chain Shared Services Deliver Higher Performance Efficiency Combined Shared Services delivered 50% more transactions in 2016 than 2015 average, exceeding 15%+ efficiency improvement target. Staffing reduced 29% by consolidation of Americas business unit transactional work into Shared Services Combined Shared Services capable of >50% more transactions per FTE than business unit peers due to expertise and focus. 10

11 Industry Collaboration to Reduce Cost/Complexity 11 February 22, 2017

12 PIDX and its Role PIDX = Petroleum Industry Data exchange Not-for-profit standards body formed in 1987 and spun off from API in 2010 Mostly staffed by volunteers from Operators, Suppliers, and Technology/Service Partners (including many PESA members) PIDX Mission PIDX provides a global forum for delivering the process, information and technology standards that facilitates seamless, efficient electronic business within the oil and gas industry and its trading community. Why join: Visibility to existing best/better practices Engagement across many industry partners to solve complex solutions Have a voice in the standards that will impact your company in the future 12

13 Following in the Footsteps of other Industries 13 High margin industries tend to have pricing premiums due to differentiation from brand & intellectual property, while lower margin industries tend to be commodities more driven by efficiency and scale. What can we learn from what other industries done? Industry Name Net Margin Bank (Money Center) 24.48% Banks (Regional) 24.33% Financial Svcs. (Non-bank & Insurance) 22.30% Drugs (Pharmaceutical) 17.52% Entertainment 14.97% Information Services 14.00% Software (Entertainment) 13.08% Hotel/Gaming 12.62% Software (System & Application) 11.84% Heathcare Information and Technology 9.09% Restaurant/Dining 8.99% Insurance (Life) 7.70% Food Processing 6.86% Household Products 6.67% Retail (Building Supply) 6.65% Total Market 6.40% Blue = commodity driven industries Source: NYU Stern School (1/2016). Sample of 95 industries shown. Industry Name Net Margin Apparel 6.27% Insurance (General) 6.20% Computer Services 5.95% Office Equipment & Services 5.64% Electronics (Consumer & Office) 5.49% Auto Parts 5.36% Oil/Gas (Integrated) 5.34% Telecom. Services 5.18% Construction Supplies 5.17% Trucking 4.19% Packaging & Container 3.91% Retail (Distributors) 3.84% Oil/Gas Distribution 3.53% Retail (Automotive) 3.43% Auto & Truck 3.36% Farming/Agriculture 3.12% Retail (Online) 3.01% Oilfield Svcs/Equip. 2.76% Publishing & Newspapers 2.52% Retail (General) 2.44% Food Wholesalers 1.13% Chemical (Basic) -3.12% Steel -4.63% Coal & Related Energy % Oil/Gas (Production and Exploration) %

14 Some Potential Improvement Opportunities Auto Quote-to-Requisition Standard Internet of Things (IoT) enabled smart assets Operationalize factory oil field 14

15 Auto Quote-to-Requisition Standard Opportunity: Supplier sends a quote to a buyer that can be reviewed compared to other quotes, and converted to a requisition & PO seamlessly, regardless of systems. Seller Buyer Quote Quote Req. PO PO Speed and accuracy of visibility to data, quote comparison, and award Labor savings on data entry Ease of deployment (no proprietary ecommerce solutions) 15

16 IoT Enabled Smart Assets Opportunity: Sensor-enabled equipment in the field that assess what actions will be needed, and takes action to initiate service and confirm for payment. Buyer Equipment Predicts service need Sends request or Supplier Buyer Quote Req Perform service Schedule Service. PO Confirms service performed Payment initiated (ERS) Allow resource optimization through pre-scheduling Minimize downtime, labor waste, and material stock/obsolescence Increase visibility to future spend requirements 16

17 Operationalize Factory Oil Field Standardization Opportunity: High-volume, repetitive drilling programs enable leveraging of processes and standards such as MRP & scheduled services Auto Custom built Mass-produced, only in black Highly standardized, but millions of combinations Oil Annual drilling & maintenance plan Highly standardized well-designs, but millions of combinations to fit the need Improved material planning Buyer/supplier Integrated services planning Reduced maintenance risk Improved learning curves Optimize supplier capacity utilization for lower costs Able to lock in A-team resources with better commitments Able to optimize stock better than just min/max planning 17

18 18