Gas Commerciality in Deepwater Colombia Opportunities and Challenges

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1 Gas Commerciality in Deepwater Colombia Opportunities and Challenges Joel Busby - Anadarko Petroleum Corporation

2 Cautionary Language Regarding Forward-Looking Statements and Other Matters This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of Anadarko believes that its expectations are based on reasonable assumptions. No assurance, however, can be given that such expectations will prove to have been correct. A number of factors could cause actual results to differ materially from the projections, anticipated results, or other expectations expressed in this presentation, including Anadarko s ability to meet financial and operating guidance, achieve its production targets, successfully manage its capital expenditures, realize its expectations regarding performance in this challenging economic environment and timely complete and commercially operate the projects and drilling prospects identified in this presentation, achieve production and budget expectations on its mega projects, and successfully plan, secure necessary government approvals, finance, build, and operate the necessary infrastructure and LNG park. See Risk Factors in the company s 2014 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other public filings and press releases. Anadarko undertakes no obligation to publicly update or revise any forward-looking statements. Please also see our website at under Investor Relations for reconciliations of the differences between any non-gaap measure used in this presentation, the appendix slides or the most directly comparable GAAP financial measures. Also on our website at a glossary of terms. Cautionary Note to Investors -The U.S. Securities and Exchange Commission (SEC) permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves that meet the SEC s definitions for such terms. We may use terms in this presentation, such as resources, net resources, net discovered resources, gross resource, recoverable resources, net risked resource, relative resource size, net resource potential, and similar terms that the SEC s guidelines strictly 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 for the year ended December 31, 2014, File No , available from us at or by writing us at: Anadarko Petroleum Corporation, 1201 Lake Robbins Drive, The Woodlands, Texas Attn: Investor Relations. You can also obtain this form from the SEC by calling SEC

3 Caribbean Deepwater Exploration is Just Beginning World-class deepwater exploration and production companies Two natural gas discoveries Continuing exploration Orca #1 High prospectivity Calasu #1 Kronos #1 3

4 What is Colombia s Deepwater Potential? Niger Delta Basin (de-risked) Total Basin Potential: BBOE Deepwater Gulf of Mexico (de-risked) Total Basin Potential: BBOE Colombia Offshore Potential (not yet de-risked) Total Basin Potential:? BBOE Campos Basin (de-risked) Total Basin Potential: BBOE Congo Fan Basin (de-risked) Total Basin Potential: BBOE Large worldwide basins at the same scale 4

5 Deepwater Development: Capital Intensive Significant offshore infrastructure Pompano 1300 ft Baldpate 1650 ft Neptune 1930 ft Gunnison 3149 ft Boomvang 3453 ft Nansen 3678 ft Marco Polo 4300 ft Constitution 4970 ft Red Hawk 5300 ft Fe Ciega 6490 ft Independence Hub 8000 ft FPSO Ghana Subsea Systems 5

6 Large Capital Investment Requires Large Resource Support San Jac Spiderman Q Mondo NW Merganser Atlas Vortex Jubilee Independence Hub Gulf of Mexico 8000 ft Cheyenne Resources from 11 fields needed to meet mínimum investment threshold Requires extended time to aggregate sufficient resources 6

7 Netback Gas Price How Would Large Gas Discoveries be Commercialized? LNG developments can be transformational to a country Long-lived strategic asset Employment Improved government-to-government ties Facilitate other domestic development LNG Threshold price required for deepwater development Large reserves of gas can be stranded if domestic market cannot support development costs High initial development cost typically requires premium-priced gas export markets and guaranteed offtake to support foundation investments LNG supports large investments required for infrastructure development Regional Pipeline Methanol Ammonia Gas to Liquids Regional CNG Technology/Development Risk Market Size LNG Efficient Development of Large Deepwater Gas Resources 7

8 Gas Export Development: Capital Intensive LNG Jetties Permanent Housing Materials Offloading Facility (MOF) LNG Storage Tanks Construction Camp 1 1 y 2 3 y 4 5 y 6 Laydown Area Scale: 1km = 7 y 8 9 y 10 Production Landing Construction Camp 2 Liquifaction Trains Each 5 mtpa LNG train requires: ~ billion m 3 (5-8 Tcf) of gas reserves for a 20 to 30 year project $10-15 billion upfront investment and $6-10 billion in operating costs (Typical project builds two trains per phase) 8

9 LNG Projects Differ From Oil Projects Major initial investments for LNG and longer recoupment periods require long-term contractual stability The development timeline depends in large part on the time needed to develop: Long-term and stable governmental policies and regulations Certified proven reserves Quality markets Commercial structure and related agreements Average daily production (Thousand of BOE*/d) Initial Exploration Oil ~1 BBOE Example Deepwater Oil vs. 5 MTPA** LNG Train LNG ~1.4 BBOE Developing LNG takes more time than oil but it can be a long-lived strategic asset Cumulative Cash Flow (US$-billion) (Income OPEX CAPEX) The return time for LNG investment can be more than doublé that of oil Oil cash flow LNG can be a strategic, long-term legacy asset LNG cash flow *BOE Barrels of oil equivalent **MTPA millón tons per annum -20 Initial investment in LNG can be 3-4 times that of oil Years 9

10 MTPA LNG Market: Global Competition Is Intense LNG not a freely traded commodity no worldwide market price LNG is pulled into the market vs. oil which is pushed Tight Supplier-Buyer linkages Historic pricing based on alternative fuel pricing Prices & indices negotiated specific to each Buyer Supply overhang pushing SPAs from oil-based to hybrid oil & gas pricing formulas Buyers have choices Project credibility defined by Resource size & quality Pricing terms Supportive government Competent operator Need assurances that LNG can and will be delivered for the full SPA term LNG Demand vs Liquefaction Capacity LNG Demand Speculative Possible Under Construction Probable Development Operational Source: Various Forecasted demand growth between now and 2020 will be fulfilled by projects already under construction, leaving limited space for new projects 10

11 How Much Time Does It Take to Develop an LNG Project? Development pace of new LNG projects Keys to rapid development Government support & coordination Sufficient time to explore and aggregate discoveries Internationally-recognized legal and contractual structure Market demand Egypt Pluto Brunei Oman Mozambique ALNG 2&3 Tangguh Malaysia United States NWS Angola Equatorial Guinea Sakhalin Snohvit Peru PNG Yemen Qatargas NLNG Years Discovery to LNG Decision LNG Decision to FID FID to 1st Cargo Source: Wood MacKenzie, Amadan, IHS 11

12 Summary LNG projects can be transformational LNG can be optimal method to transform large stranded gas resource into strategic asset Mutually beneficial to all stakeholders Requires long-term contractual certainty Premium prices and assured offtake required to justify deepwater development costs Capital intensive, complex and long time to first sales Foundation for other gas-based industry Facing well-supplied global LNG market Greenfield project economics challenged Contract performance periods and fiscal regime must reflect development realities Focus on strategic project credibility Demonstrate ability to consistently deliver volumes over long term Schedule, reserves, productivity, transportation Legal and contractual structure Transparent, internationally-accepted framework Government support is critical Clear political support and decision-making processes 12

13 Challenge: Incentivize Deepwater Exploration & Production We are at a key point in terms of continued development of the deepwater offshore industry Colombia has an incredible opportunity to increase its reserves and compete in the growing international gas market Deepwater gas development is expensive» Requires special conditions to be a viable business Important to incentivize deepwater exploration & development 1. Economic incentives for deepwater gas 2. Legal, contractual and regulatory framework for evaluation and development 3. Regulatory and fiscal stability is fundamental Develop a long-term strategic vision that adapts to all interested parties 13

14 Gracias por su atención 14