The Unconventional Reservoirs Revolution and the Rebirth of the U.S. Onshore Oil & Gas Industry

Transcription

1 The Unconventional Reservoirs Revolution and the Rebirth of the U.S. Onshore Oil & Gas Industry Feb. 19, 2013

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 or operating results. 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 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). 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 in an appendix. 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. We use the term "resource" in this presentation that the SEC s guidelines prohibit us from including in filings with the SEC. U.S. investors are urged to consider closely the oil and gas disclosures in our Form 10-K and other reports and filings with the SEC. Copies are available from the SEC and from the ConocoPhillips website. 2

3 Discussion Topics The Unconventional Reservoir (U.R.) Revolution Impact of the Revolution on the Oil & Gas Industry Implications for Artificial Lift Research & Development 3

4 Industry Conventional Wisdom Circa 2000 and 2013 Year 2000 Year 2013 The U.S. is running out of natural gas The U.S. has over a 100 year supply of natural gas U.S. oil production peaked in 1970, has fallen ever since, and will continue to do so U.S. oil production is growing rapidly, with no end to growth in sight Global resource scarcity Global resource abundance The Unconventional Reservoir Revolution has Transformed the U.S. O&G Industry 4

5 Drivers Behind the Unconventional Reservoirs Revolution A New Paradigm New Tools and Methods Traditional Target Mature, organicrich source rocks New Target Cartoon cross-section showing elements of a petroleum system From Halliburton website 5

6 BCF per Day U.S. Natural Gas Production Historical Forecast Unconventional Reservoirs Revolution Shale Gas Tight Gas Alaska CBM Associated Offshore Non-Associated Onshore Non-Associated Source : U.S. Department of Energy, Energy Information Administration (EIA) 2013 Annual Energy Outlook Reference Case 6

7 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Natural Gas Production from Shale Reservoirs 25 U.S Shale Gas Production (bcfpd) Eagle Ford 25 Super-Giant Shale Gas Plays 20 Marcellus Liard Basin Horn River Haynesville Montney Fayetteville 5 Barnett 5 Marcellus 0 Other 0 Gas High yield gas/volatile oil Barnett Fayetteville Haynesville Eagle Ford Source for Production Data: U.S. Department of Energy, EIA Website, February 2013; LCI Energy Insight gross withdrawal estimates as of September 2012 that were converted to dry production using EIA calculated average gross to dry shrinkage factors 7

8 Daily LNG Imports (BCF) U.S. Natural Gas Market Transformation Post Y2K Rapid natural gas supply growth Supply greater than demand Natural gas price collapse LNG imports no longer needed LNG exports planned Arctic pipelines no longer needed Gas > share of electric generation U.S. Department of Energy LNG Forecasts Chemical industry rejuvenation Nascent manufacturing comeback -5 U.S. to become net LNG exporter 2012 Source : U.S. Department of Energy, Energy Information Administration (EIA) 8

9 Daily Production (thousands of barrels) Y2K View: U.S. U.S. oil oil production peaked peaked in 1970 in 1970 as predicted! 12, : U.S. Peak Oil 12,000 10,000 8,000 M. King Hubbert in 1956 predicts that U.S. Peak Oil will occur between ,000 8,000 6,000 6,000 4,000 4,000 2,000 2, Sources: BP statistical review of world energy 2012 and U.S. EIA; oil production numbers include condensate and NGLs 9

10 Y2K View: World peak oil is a very real possibility! 10

11 U.S. Oil Production Growth: Driven by the "Big Three" U.R. Oil Plays 16,000 14,000 12,000 U.S. Oil Production (thousands of barrels per day) 1970: U.S. Peak Oil History Forecast Bakken 4-24 BBOE 10,000 8,000 6,000 4,000 2,000 0 Permian Basin BBOE Eagle Ford BBOE = Oil Wells = Gas Wells = Cond. Wells = Dry Holes From a low of 6.5 million bopd in 2008, U.S. production is rising rapidly Sources: Historical U.S. production data from BP statistical review of world energy 2012 and U.S. EIA; oil production numbers include condensate and NGLs; Production prediction from PIRA Energy; EUR numbers from government & industry reports 11

12 Thousand bopd Thousand bopd U.S. Production Trends in the Top Four Oil Producing States 3,000 2,500 North Dakota 2,870 3,000 2,500 2,000 2,000 1,500 1,357 1,313 1,500 1,086 1, Texas 1, Alaska California 0 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 0 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Unconventional reservoir development is driving U.S. production growth Source : U.S. Department of Energy, Energy Information Administration (EIA) website 12

13 Benefits from the Unconventional Reservoirs Revolution Economic Energy Security Environmental 13

14 Environmental Benefits of Natural Gas Utilization About half the CO 2 emissions of coal-fired power generation Clean-burning (low or no SO 2, NOX, PM, VOC) Small water usage footprint No solid waste Enables wind & solar power Enables low CO 2 electrification of transportation Potential transportation fuel Power Source Pounds of CO 2 per MWh of Power Biomass 2,988 Coal 2,249 Oil 1,672 Natural Gas 1,135 U.S. CO2 Emissions Chart from U.S. Department of Energy, Energy Information Administration (EIA) website Source for Pounds of CO2 data: California State Polytechnic University 14

15 Discussion Topics The Unconventional Reservoir Revolution Impact of the Revolution on the Oil & Gas Industry Implications for Artificial Lift Research & Development 15

16 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 U.S. Drilling Rig Count Percentage of Total Rigs (%) Oil & Gas Industry Changes Driven by the U.R. Revolution 2,250 2,000 1,750 Rig Count 100% 90% 80% Hydrocarbon Type Gas Wells 1,500 1,250 1, Gas Wells 70% 60% 50% 40% 30% 20% Oil Wells 10% 0% Oil Wells Source: Baker Hughes website 16

17 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Percentage of working rigs Rig Count Oil & Gas Industry Changes Driven by the U.R. Revolution Well Trajectory Recent Rig Count Changes 100% 2,250 80% Vertical 2,000 1,750 Total 1,500 60% 1,250 40% 1, % Directional 500 0% Horizontal Horizontal Source: Baker Hughes website 17

18 ConocoPhillips Oil & Gas Industry Changes Driven by the U.R. Revolution Horizontal Drilling Performance year-on-year improvement Eagle Ford Competitors Bars = 2012 performance benchmarking; dashes -= 2011; Source: IHS Enerdeq, November 2012 and

19 Discussion Topics The Unconventional Reservoir Revolution Impact of Revolution on the Oil & Gas Industry Implications for Artificial Lift Research & Development 19

20 ConocoPhillips North American Unconventional Plays Big position in big three liquid rich plays (Eagle Ford, Bakken and Permian Basin) Canol Horn River Montney Duvernay Bakken Niobrara Also have acreage in the Barnett, Canol Niobrara, Duvernay and other plays Have already drilled 100 s of U.R. wells; 1,000 s to 10,000 s yet to be drilled Over 21 million acres in U.S. and Canada Oil High yield gas/volatile oil Gas Permian Barnett Eagle Ford Continuing to acquire leases in North America and around the world Artificial Lift in Horizontal U.R. Wells is Important to ConocoPhillips 20

21 TVD Artificial Lift of Horizontal Unconventional Reservoir Wells Goal = Determine optimal combination of well design and artificial lift strategy Well Design: Lateral length Toe up or down Dogleg severity Casing size Frac design and execution Cross-section view Typical Bakken Well Profiles Horizontal Offset 50' 2,000' Toe-up Toe-down Artificial Lift Selection: Plethora of lift options; but well design and reservoir properties narrow choice Single lift type over well life? Understanding IPR curve Monitoring & control systems Bakken well profile diagram based upon figure in Dec SPE JPT article titled: "Coiled Tubing Advances Improve Extended Reach Drilling Operations" 21

22 Rock & Fluid Variations: Importance of Cross-Functional Collaboration Rock properties can vary rapidly laterally and vertically Fluid properties can change appreciably over short distances Fluid properties can change over a well s productive life Frac fluids may or may not be produced back Frac fluids can alter rock and/or reservoir fluid properties COP Eagle Ford Acreage Eagle Ford Outcrop Photo Eagle Ford Outcrop Photo 22

23 Data Gathering: New Technologies and Best Practices Having the right data can improve: Selection of the optimal artificial lift method for horizontal wells Understanding of flow regimes and IPR curve Wellbore trajectory design criteria Data gathered during drilling and fracturing can help define well performance expectations Some data gathering technologies will be deployable on all wells Other technologies might be used on only a few wells given cost Our industry will continue to learn, innovate and improve! Hot Cold 23

24 U.R. Artificial Lift Research & Development Wish List Improved lift efficiency Longer effective life Tools that send back data Self-optimizing as conditions change Lower installed cost Able to go through doglegs Easy to repair or replace Low operating cost 24

25 Joint Industry Efforts to Advance U.R. Artificial Lift Capabilities Oil & Gas Operators Service Companies Academic Institutions Professional Societies Government Labs Horizontal Well Artificial Lift Projects (TUHWALP) 25

26 Looking to the Future The unconventional reservoirs revolution is the "biggest energy story of the 21 st century" It has changed perceptions about energy abundance, and is providing environmental, economic and energy security benefits North America is currently the focal point With time, unconventional reservoir E&P will become a global phenomenon There is considerable opportunity for artificial lift research and development to add value 26

27 The Unconventional Reservoirs Revolution and the Rebirth of the U.S. Onshore Oil & Gas Industry Feb. 19, 2013