Unconventional Resources: The First Revolution of the 21 st Century

Transcription

1 Pine Brook Annual Meeting, October 22, 2013 Unconventional Resources: The First Revolution of the 21 st Century Presentation by Howard Newman

2 Today s Topics Setting the Stage The Return of Petro America: Oil The Changing Landscape for Gas Geopolitics 2

3 Setting the Stage

4 Setting the Stage The explosion in unconventional oil and gas production is continuing and showing no signs of slowing down in the foreseeable future The size of the resource base is enormous and will grow with new plays, new learning and new technologies Macroeconomic implications for the U.S. are very positive An investment opportunity that is long-lasting and will create long-term employment opportunities in the U.S. The new paradigm: from where to find it to where to sell it Global implications of the unconventional revolution are evolving 4

5 The Return of Petro America: Oil

6 Million Barrels Per Day U.S. Crude Oil Production 12.0 U.S. Crude Oil Production % Source: EIA and BP Statistical Review of World Energy. 6

7 Investment Implications For the first time in 50 years, the U.S. oil industry is growing Instead of releasing capital as production declines, the industry will have a continuing need for new capital to support increasing production 5 million B/D increase in production will require about $500 billion of investment 7

8 But Wait: There s More! New Production Capital Needed = $500 billion Oil Field Service Capital Needed = $125 billion Infrastructure Capital Needed = $100 billion Capital to Maintain Production = $100 billion Total Capital Needed = $825 billion 8

9 Simple Model for Development: Increase Wells Drilled By 10% Per Year Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10 Net Prod'n 1,726 2,576 3,320 4,044 4,784 5,557 6,379 7,260 8,210 9,237 (MMboe) CapEx $131 $145 $159 $175 $192 $212 $233 $256 $282 $310 ($Bn) Financing Need ($67) ($50) ($39) ($30) ($22) ($15) ($9) ($2) $4 $10 ($Bn) 9

10 Financing Investments Is Different than Financing Housing Net Imports vs. Residential Investment 1 ($bn) 1,000.0 Net Imports of Goods and Services Residential Investment (200.0) (400.0) (600.0) (800.0) (1,000.0) 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 1) Source: Bureau of Economic Analysis. 10

11 5 Million Barrels a Day Means Direct boost to GDP of $200 billion import substitution that works! 2 million jobs and maybe more than 3 million Very few direct jobs Indirect jobs everywhere 11

12 Oil: Why So Many Indirect Jobs? Price per barrel of oil: $100 Royalties: $15 Wages: $10 Intermediate goods: $35 Production taxes: $10 Income taxes: $10 Profit: $20 12

13 What Kind of Indirect Jobs? Oilfield service jobs Infrastructure and other civil construction jobs Pipelines and railroads Highways - new and repairs! Regulatory and other government jobs (maybe too many of these) Service and consumer product jobs 13

14 Million Barrels Per Day Unconventional Oil Displaces Imports Imports at a 20 year low And represent the lowest percentage of supply in nearly 22 years % % % % of Supply Net Imports % Net Imports as % of Supply % 14

15 Another Path to Energy Independence (Million barrels per day) Sources of Oil 2012 Potential Sources of Oil 2020 Non-Canadian Imports 6.1 Non-Canadian Imports 2.0 Saudi Arabia 1.4 Mexico 1.0 Venezuela 0.9 Others 2.8 Canada 2.4 Canada 2.0 U.S. Production 6.5 U.S. Production 11.0 Total 15.0 Total 15.0 Source: EIA. Note: Excludes products and natural gas liquids. 15

16 Unconventional Resources Work at $60-80/Barrel Oil Basin Economics Price Required for 10% After-Tax Rate of Return 1 Source: TPH Energy Research as of January ) Does not include costs such as land acquisition and exploration that are considered sunk costs. 16

17 KBD Contribution to Global Productive Capacity ( ) Mexico China Algeria Colombia Qatar Indonesia Egypt Ecuador India Oman Thailand Yemen Malaysia Equitorial Guinea Vietnam United Kingdom Gabon Denmark Azerbaijan Australia Brunei Congo Syria Norway Kuwait Ghana Sudan Nigeria Libya Saudi Arabia Iran Argentina Kazakhstan Venezuela US GoM Angola Russia UAE Iraq Brazil Canada US Onshore Source: Woodmac, Credit Suisse estimates 17

18 Unconventional Oil Balances the World Market Reinvestment Cost Curve UNCONVENTIONAL Source: Credit Suisse Research as of September

19 The Changing Landscape for Gas

20 Gas Consumption (Tcf) Shale Gas and the U.S. Economy 20.0 $ $6.00 $4.00 Gas Price ($ / Mcf) Electric Power Non-Electric Power Wellhead Price 4.0 $ $

21 The Changing Landscape for Gas Reduced U.S. carbon footprint to lowest level in 20 years Substitution of natural gas for coal in power generation reduces per kilowatt emissions by approximately 50% North American gas priced at short term marginal cost $ $4.00 commodity before cost improvements Re-establishes the U.S. as the low cost producer of thermally intensive products Great for the chemical industry and other manufacturing 21

22 Creative Destruction and Job Creation First impact from the Shale Revolution was a $100 billion reduction in the cost of energy How would the price reduction result in increased GDP? Displaced coal workers Reduced government revenues Reduced corporate savings Increased imports Development of natural gas from shale shows the importance of creative destruction in economic growth 22

23 Potential for LNG Low prices domestically vs. reduced emissions globally Competing against an increasing global supply World price moving to reflect gas on gas competition 23

24 Relative LNG Prices 24

25 Natural Gas: Moving to Excess Supply Globally The EIA estimates that there are 35,782 Tcf of assessed shale gas in-place and 7,795 Tcf of technically recoverable resources globally Assessed World Shale Gas and Shale Oil Resources 1) Source: EIA Technically Recoverable Shale Oil and Gas Resources Reports for the years 2011 and ) Note: Technically recoverable resource data for Russia not included in 2009 report due to significant quantities of conventional reserves noted to be in place. 25

26 Moving to Excess Supply # Field (Discovery) Country Recoverable Resource Rank Name of Discovery (Tcf) 1 Bowland Shale (1) Britain 1,329 2 South Pars/North Dome Iran and Qatar 1,235 3 Marcellus (Northeast & Southwest) Appalachia, US Urengoy Russia Yamburg Russia Hassi R Mel Algeria Montney Alberta / British Columbia, Canada Shtokman Russia Australia Australia Rovuma Basin Mozambique Dauletabad-Donmez Turkmenistan South Iolotan Osman Turkmenistan Zapolyarnoye Russia Haynesville Shale ArkLaTex, US Hugoton USA (TX-OK-KS) Malay Penninsula(2) Malaysia Groningen Netherlands Bovanenko Russia Medvezhye Russia Horn River Shale British Columbia, Canada North Pars Iran Karachaganak Kazakhstan Kish Iran Orenburg Russia Duvernay Alberta, Canada Kharsavey Russia Shah Deniz Azerbaijan Bossier (Includes Deep Bossier) ArkLaTex, US Golshan Iran Fayetteville Shale Arkansas, US Green River Basin (Pinedale, Jonah, Mesaverde CBM) Wyoming, US Mannville CBM Alberta, Canada Barnett (Core & Southwest) Texas, US Tabnak Iran Kangan Iran West Texas Barnett / Woodford Shale Texas, US Leviathan Field Israel Woodford Shale Oklahoma, US New Albany Shale Illinois/Indiana, US Tamar Field Israel Eagle Ford Shale (Gas & Condensate) Texas, US 9 42 Horseshoe Canyon CBM Alberta, Canada 8 43 Uinta & Piceance Basin (Mesaverde Tight Gas, Niobrara Shale) Utah / Colorado, US 7 44 Granite Wash Texas / Oklahoma, US 5 45 Antrim Michigan, US 4 46 Utica Shale Ohio, US 4 47 Powder River Basin (Big George) Wyoming / Montana, US 3 48 Pearsall Shale Texas, US 3 49 Black Warrior Basin CBM Alabama, US 1 Indicates North American Discovery Nearly half of the largest gas field discoveries are a result of the North American Unconventional Revolution Source: Wood Mackenzie, IPC Petroleum Consultants: Global Natural Gas Reserves A Heuristic Viewpoint, USGS Report: Role of Stranded Gas in Increasing Global Gas Supplies (1) Midpoint estimate of potential resource as outlined in the British Geological Survey. (2) Includes two offshore clusters adjacent to the Malay Peninsula, which together account for 29 TCF of gas. 26

27 Geopolitics

28 The (Old) New World of Energy A return to a world where the principal issue in the energy market is demand, not supply Access to markets will dominate the discussion as opposed to access to commodities The trade-offs between energy, the economy and the environment will change What is the role of the United States as "global policeman in a world when it is essentially energy self-sufficient? Gulf countries distancing themselves from the U.S. in Egypt Impact on the pivot to Asia 28

29 Changing Geopolitical Realities What does a lid on oil prices mean for stability in the MENA region? OPEC required oil price has been rising - and there is no end in sight OPEC as the new Texas Railroad Commission Strange bedfellows in favor of higher prices: OPEC and the Environmentalists Changing the conversation between countries and the oil industry Brazil s auction of its subsalt play Colombia s new terms for unconventional resources Russia, LNG or British Shale Gas to fuel the growth of Europe Natural gas in Iran: a way out of the nuclear stand-off? 29

30 Summary The U.S. is resource rich and production is growing for the first time in 50 years Developing these resources is a game changer in every imaginable way for the U.S. This is a long term opportunity Capital to execute development is substantial but available Interesting geopolitical implications 30