E&P STRATEGY CRUDE OIL PRICE FALL - CONSEQUENCES FOR AN E&P COMPANY

Transcription

1 E&P STRATEGY CRUDE OIL PRICE FALL - CONSEQUENCES FOR AN E&P COMPANY Hubert des Longchamps 17 th April 2015, Paris Energy Club, Paris.

2 BRENT PRICE EVOLUTION - BACK TO VOLATILITY $/bbl Brent Price (source IEA) : : : : : : : : : 65,1 Brent 2010: xx.x : unweighted yearly average Paris Energy Club - 17th April

3 DEMAND CONTRIBUTED TO THE PRICE FALL Oil demand annual growth (Mbd) Oil demand growth forecasts for 2014 (Mbd) ,4 +1,1 Oil demand (annual growth, Mb/d) +3,1 +1,5 +0,8 +1,1 +1,3 +0,6 +1,2 +1,0 +0, Sources: AIE, TOTAL -0,7-0, OECD Americas Demand Other OECD Middle East China Other non OECD World +0,6 Strong downside revision of oil demand in 2014 Paris Energy Club - 17th April

4 SAUDI ARABIA DECIDED TO DEFEND ITS MARKET SHARE Mb/d Crude production and OPEC quotas Production et quotas OPEP sur le brut (Mb/j) Quota actuel (y.c. Irak à 2,6 Mb/j) January 2012 quotas (incl. Iraq at 2,6 Mb/d) 30 Mb/d 29 OPEC Interventions Quota hors w.o. Irak 24,8 Mb/d Irak Iraq OPEP OPEC hors excl. Irak Iraq OPEC maintained its production in November 2014 Saudi Arabia not willing to lose market share to non OPEC producers especially US tight oil producers and trying to install discipline inside OPEC kb/d Saudi Arabia Production 3,6 Paris Energy Club - 17th April

5 TIGHT OIL MAINTAINED ITS GROWTH IN THE US Mb/d US oil production (crude+ngls) (Mb/d) US production ~11.7 Mb/d Tight oil Conventional GoM Alaska Mb/d 5,5 5,0 4,5 4,0 3,5 3,0 2,5 2,0 1,5 1,0 0,5 US tight oil production (crude+ NGLs) (Mb/d) - Jan-10 Jan-11 Jan-12 Jan-13 Jan US tight oil production : ~4.9 Mb/d Source : EIA Utica Marcellus Haynesville Niobrara Eagle Ford Bakken Permian US production increased by 1 Mb/d en 2012, 1,3 Mb/j in 2013 and 1,6 Mb/j in 2014 Tight oil growing much faster than conventional oil : not far from 5 Mb/d in % of US oil demand (19,1 Mb/d) satisfied by domestic production in 2014 Paris Energy Club - 17th April

6 WHICH RESULTED IN A NEW ORDER FOR OIL PRODUCTION OPEC scale Mb/d OPEC Oil production (Mbd) Oil production OPEC (left sc.) US Russia Saudi Arabia US, Russia, Saudi Arabia scale Mb/d US supply growth driven by shale revolution Paris Energy Club - 17th April

7 IN A RAPIDLY CHANGING BUSINESS ENVIRONMENT Oil prices Resources abundant but increasingly difficult to develop No tolerance for accidents and environmental impacts High cost environment eroding profitability NEW O&G PROJECTS Higher expectations towards acceptability of O&G operations Importance of new players Strong human resources competition & local content requirements World political instability Paris Energy Club - 17th April

8 CONSEQUENCES ON E&P STRATEGY Paris Energy Club - 17th April

9 E&P KEY INDICATORS IN years OF PROVED RESERVES 2,1 Mboe/day OF PRODUCTION >85 % OF GROUP'S ORGANIC INVESTMENT IN STAFF* PRODUCTION OBJECTIVE >8 % FOR 2015 ACTIVITIES IN over 50 COUNTRIES * Consolidated perimeter Paris Energy Club - 17th April

10 OUR STRATEGY IN 4 KEYWORDS Safety, cornerstone of our strategy Delivery - Executing projects on time and on budget - Growing production with major project start-ups Costs - Increasing Opex savings - Enhancing capital discipline Cash - Strong cash flow growth driven by accretive startups - Dynamic portfolio management Accountability key to unlocking performance Paris Energy Club - 17th April

11 REACHING THE HIGHEST STANDARDS OF SAFETY Golden rules No fatality objective - Strict respect of Golden Rules No major incidents Evaluation and management of industrial risks Personal commitment - Strengthening the safety culture Paris Energy Club - 17th April

12 REDUCING OUR 2015 CAPEX AND OPEX 2015 Capex discipline B$ 2015 Opex reduction B$ 23 B$ 10 Greenfield 0.8 B$ Brownfield ~20 B$ Growth Initial New Reduction Reducing greenfield investment - Utica, Zinia 2, Bonga SW Cutting marginal brownfield spend - Mature West Africa, North Sea... Doubling 2015 Opex reduction - Reducing staff to ~15,500 end-2015, logistics Taking advantage of market conditions - Renegotiating contracts, service costs Immediate and significant response to 2015 environment Paris Energy Club - 17th April

13 COST INFLATION UNSUSTAINABLE EVEN BEFORE PRICE FALL Rising costs UCCI and UOCI* Base 100 in 2000 Brent $/b 140 Cost inflation over the past decade has been dramatically impacting O&G companies profitability. Reducing costs is a priority for Total, which has launched a major initiative at Group level UCCI UOCI Brent * IHS CERA Upstream Capital Cost Index and Upstream Operating Cost Index Objectives are to control CAPEX, decrease OPEX and maintain among the lowest technical costs in the profession while not compromising on safety. These efforts will shape the way future developments are conceived: o Development in sequence o No gold plated approach / good enough design o Innovation used as a key driver for lowering costs Cost had reached unsustainable levels, even at 100$/b Paris Energy Club - 17th April

14 IMPACT ON NEW E&P DEVELOPMENTS Capital discipline Strict selection criteria for launching new projects Competition for capital allocation Focus on profitability Seek improvement in fiscal terms with host countries Work with suppliers in order to simplify design, aim at standardization, renegotiate contracts Portfolio management Review of asset portfolio, including assets at development stage Pursue opportunities to rationalize The least profitable projects will be either postponed or cancelled Paris Energy Club - 17th April

15 LONG TERM ENVIRONMENT Paris Energy Club - 17th April

16 LONG TERM OIL DEMAND GROWTH Oil supply-demand Mb/d, crude and NGLs 100 Oil demand +0.6% per year >90 $/b $/b ~50 Mb/d new production needed by 2030, driven by decline rate and demand growth ~20% of new volumes require >90 $/b in 2014 cost environment Decline <60 $/b ~50 Mb/d of incremental production* North America OPEC Marginal supply requires high tech, continuous innovation and significant investment Long term prices likely to recover Source: TOTAL Substantial additional production required by 2030 Paris Energy Club - 17th April

17 Paris Energy Club - 17th April