Production: Industry view. World Oil Reserves and. World Oil Reserves and. Kuwait Energy Company. Ray Leonard. ASPO 2007 Cork Ireland

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1 World Oil Reserves and World Oil Reserves and Production: Industry view ASPO 2007 Cork Ireland Ray Leonard Kuwait Energy Company

November 2006 Hedberg Conference November 2006 Hedberg Conference Gathering of experts from private industry, state companies, academia and consultants to discuss world oil reserves and potential for

2 November 2006 Hedberg Conference November 2006 Hedberg Conference Gathering of experts from private industry, state companies, academia and consultants to discuss world oil reserves and potential for future growth Attendees included representatives of six largest private companies, major independents, OPEC, major state companies (Aramco, Petrobras, Petronas, Pemex) state organizations and think-tanks All attendees were specifically invited and had to make presentation on their area of expertise No press allowed and presentations only shared among participants, to allow open discussions Conference divided into three sections: Growth from exploration, growth from existing reservoirs and growth from unconventional oil resources (tar sands,bitumen, oil shales, etc..)

3 Growth from Exploration Growth from Exploration United States Geologic Survey (USGS) presented in 2000 a worldwide assessment of future exploration potential indicating about 700 billion barrels of conventional oil to be found That assessment was challenged by individual presentations of individuals, companies and other organizations in light of results and proprietary databases The overall amount was compared to finding rates of the past few decades which was more consistent with much lower potential numbers

4 Comparison of USGS (2000) and Industry (2006) to be discovered Comparison of USGS With Other Studies of Reserves by Region USGS Estimations 120 Industry Estimations West Siberia Niger Delta SW Africa North Caspian Gulf of Mexico Offshore Brazil Saudi Arabia Region Billion Barrels to be found

5 Exploration History West Siberia Number of Discoveries and Added Reserves By Year New Discoveries New Reserves Number of Discoveries Added Reserves in MT.

6 Average Field size by 100 discoveries Average Field size by 100 discoveries Average Lot of 100 Size Additional Reserves Lot of 100 Size in MT.

7 World Reserve Additions IHS dataset World Reserve Additions IHS dataset (red: exploration growth, green: delayed reporting, yellow: reserve growth)

8 Reserve Growth A close study of Reserve Growth in existing fields shows that it has potential to have greater impact than exploration in future reserve additions Reserve Growth from secondary and tertiary recovery will come predominantly in places with largest existing conventional reserve base; Middle East and Former Soviet Union Most reserves are in countries with controlled levels of production with little incentive for rapid increases Cost of Reserve Growth in mature fields significantly higher than new fields and developing existing reserves

9 Reserve Growth: Exploration vs. Reservoir optimization, and cost (Papay 2005) Tertiary Optimized Discoveries Base Exploration reserve additions totaled approx. 240 BBO in Reserve additions from existing reservoirs added 490 BBO during same period (approx 20% from Tertiary recovery) Extrapolating trends to future; BBO to be added through reservoir optimization Full application of Tertiary recovery to reservoirs not now undergoing EOR can add up to 200 BBO

10 West Siberia Reserve Enhancements West Siberia Reserve Enhancements Initial recovery estimates and recovery factors (RF) were based on Central Reserves Commission (CKR) accepted development plans, usually including water injection. Utilization of new techniques, including 3D seismic, computer models, well stimulations (horizontal, frac, etc.) are being utilized to increase RF. YUKOS experience in West Siberia demonstrated average RF increase in producing fields from 33.4% to 43.6% (DGM, 2003) and is taken as general average for basin as a whole. It is predicted that average RF in basin will increase from current 35.2% to 44% with basin-wide optimizations over time 429 BBOOIP x ( ) = BBO

11 West Siberia Tertiary Recovery West Siberia Tertiary Recovery (EOR) West Siberian reservoirs are almost exclusively clastic, relatively high porosity, contain moderate to light oil and have variable permeability Gas miscible flooding (CO2 and hydrocarbon gas) will be the preferred EOR method Average incremental recovery factor of 10% (Papay, 2005) is predicted If assumption of only fields over 1 BBO to undergo tertiary recovery, approximately 60% of reserves will be affected 429 BBOOIP x (0.10) x (0.60) = BBO

12 West Siberia Future Production Profile West Siberia Future Production Profile MMBO Daily Production MMBO/Day Cumulative Production Total Daily Existing Reserves Optimized Secondary Tertiary Recovery New Discoveries Year

13 Unconventional Oil Production Unconventional Oil Production Unconventional in-place resources of bitumen, tar sand and oil shale are roughly 10 trillion barrels or equivalent to initial in-place resources of conventional oil However, compared to average recovery factor of 35% for conventional oil, the recovery of the unconventional resources will average 10% or less The costs, monetary, manpower and environmental are considerably higher to develop these resources Unlike conventional oil, where three most prolific basins are in eastern hemisphere, for unconventional three largest resources are in Canada, Venezuela and western United States

14 Challenges in 3 resources Challenges in 3 resources Alberta tar sands: Procedure needs water, natural gas, emits large amounts of CO2 and is short of trained personnel. More likely to reach lower target of 2.5 MMBOD (from current 1.2 MMBOD) by 2015 than higher targets Venezuela oil sands: Growth to 800,000 BOPD in past decade likely to stop or dramatically slow due to investment policies of government Green River shale (Wyoming USA): Intensive drilling needed unlikely to receive environmental permits on scale needed to have significant impact on USA production

15 Likely results in next decade from Likely results in next decade from unconventional sources Combined production only likely to double from current 2 MMBOD by 2015, most optimistic estimate 6 MMBOD Oil price will need to consistently stay above $40/bbl for investment needed Environmental impact will be negative, consequences still need to be assessed

16 Summary While there continue to be a wide range of views, the general industry consensus of the three future methods of growth was reached Reserve and production growth from existing fields has the greatest potential in the next few decades While exploration will continue to add reserves, the number is more likely to be in the billion barrel range rather than the 700 billion barrel range predicted by the USGS in 2000 In-place reserves for unconventional sources are considerable, however, growth in production will be slow, expensive and have significant environmental consequences

17 Political and other Impacts Political and other Impacts Countries with large reserve bases have significant budget surpluses in high price environment with no incentive to increase production These and other countries with large reserve bases adopt policies of economic resource nationalism limiting foreign control of oil resources reducing economic incentives and opportunities for growth Continued conflict prevents production growth in Iraq Shortage of trained personnel and equipment from budget cuts and lack of investment of is causing project timing slippage Areas available for production growth far more limited than times of previous shortages and high prices

18 Consequences (RL Interpretation) Consequences (RL Interpretation) Current limitation of excess capacity causing high prices likely to exist for the next five years Intensive effort to increase production from existing reservoirs can change oil peak to oil plateau during the following decade Oil Plateau of production around MMBOD will take place in very high price environment as world adapts to need to shift to other energy sources

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