Paradoxically Abundant?

Transcription

1 Paradoxically Abundant? Mayer Brown, Houston, April 1, 2014 BEG/CEE UT, 1

2 Simon Erlich Wager Metals & Minerals Non Fuel 160 Energy = Do cartels succeed? It depends upon: How much of the market they control Marketanticipation anticipation vs policy action Data transparency : Copper, Chromium, Nickle, Tin, Tungsten BEG/CEE UT, 2

3 Uses ambient temperatures with Cu in aqueous environment. Can use sulfuric acid if smelter acid not available Beginning in the mid 1980s a new technology SX/EW Process, was widely adopted. This new copper technology utilizes smelter acid to produce copper from oxidized ores and mine wastes. Today, worldwide, approximately 20% of all copper is produced by this is process. In Latin America, the total is closer to 40% whereas in the United States the total is approaching 30%. A second technology that has aided in the production of environmentally clean copper is that of bacterial leaching or bioleaching. BEG/CEE UT, 3

4 Channeling Paul Frankel From his earliest work, Essentials of Petroleum, first published in 1946, he underlined the fact that the industry was not self adjusting. To observe that oil is a liquid as he did might appear a truism. To spell out the economic implications of this fact the relationshipofof fixed and variable costs, the price inelasticity of both supply and demand, the menace of the marginal barrel combined with the aleatory nature of exploration, all leading to the inherent instability of the industry was to illuminate for oil men and women the framework in which they lived their working lives. The Independent, 29 October 1992 BEG/CEE UT, 4

5 A Market at Work Amazon.com BEG/CEE UT, 5

6 Upstream Matters! Part Deux Our sample represents the top tier of U.S. producers including leading shale players. We have *restated work from earlier research for changes to our sample and methodology The 15 publicly traded companies we use comprise 68% of Top 40 gas producers (NGSA.org) and 33% of U.S. marketed natural gas production In this snapshot including 2014 reporting we state results mainly in barrel of oil equivalent terms Overall, whilefdcapex has dropped, largely a result of increased volumes, cash costs remain substantial and stubborn. We add 2014 reporting data and affirm key considerationsgoing forward High Cost Producer Average Low Cost Producer High Cost Producer Average Low Cost Producer High Cost Producer Average Low Cost Producer High Cost Producer Average Low Cost tproducer High Cost Producer Average Low Cost Producer High Cost Producer Average Low Cost Producer $0 $20 $40 $60 $80 $100 3 Yr MA FD Costs/3 Yr MA Additions ($/BOE) Annual Cash Costs per Bbl of Production ($/BOE) FD = capital spending for exploration and development, e e calculated cu ated on a 3 year basis and applied to 3 year reserve additions as a moving average (MA) Cash cost = current year lease operating expense, general and administra tive, marketing, taxes (including state production tax), interest on debt, applied to current year production The cheapest producers are also the gassiest smaller companies that, for the most part, did not move out of gas and into liquids because of cost and capital constraints. * %20Producers.pdf BEG/CEE UT, 6

7 Comparative View Capex Exceeds Cash Flow Challenge: how much in cost, and with what return to hit the type curve? Bernstein Research BEG/CEE UT, 7

8 Weighted Average NOC Breakeven Costs ($/BOE) $120 $100 $80 $60 $40 $ $94 $ Annual Cap. Exp. Fiscal Contribution Cash Op. Exp. Find. & Dev. Costs $20 $ CEE analysis based on company reports BEG/CEE UT, 8

9 Problem We believe that costs for the commodity could be getting cheaper. Costs for companies are stubborn. What is the best way to view extractive industries? i Are cost components increasingly nontechnical and, if so, inadequately managed? BEG/CEE UT, 9

10 Upstream Regimes: Inverse Relationship Favorable Qua ality of Com mmercial Framework ks Alberta (Canada) U.S. Gulf of Mexico (GOM) (Federal, non moratoria) Colombia UK Brazil ( ) India Brazil Mexico Colombia (1995) (2001) Mexico U.S. GOM? Alberta (2007) Venezuela (1996) Norway Norway (1986) China Kuwait Iraq Nigeria Venezuela UAE Saudi Arabia Relative Risk/Reserve Position (BBOE) Base year: 1998 As of: 2012 Iran Other FSU Russia Favorable Approximations, only. Based on Foss, et.al., BEG/CEE UT, 10

11 KXL Barometer BEG/CEE UT, 11

12 Exports: The Crude Oil Debate In a situation where we still import 7 million barrels of crude oil per day, I don t think an overly compelling argument has been made on the basis of pragmatic economics, Moniz said [at CERAWeek]. Fuel Fix, 4/23/5 What are the economic, environmental benefits of petroleum system optimization? BEG/CEE UT, 12

13 We the People Are Changing AFRICA ASIA EUROPE LATIN AMERICA AND THE CARIBBEAN NORTHERN AMERICA OCEANIA 3.00 Brazil 2.00 Russian Federation 1.00 India 0 China South Africa UN Population Prospects, 2012 Revision BEG/CEE UT, 13

14 8% 7% 6% Oil and Growth Politics World GDP growth (annual %) Oil Price (annual %) 250% 200% 5% 150% World GDP Growth, Y Y 4% 3% 2% 1% 100% 50% Ch ange in Oil Pr rice, Y Y 0% 0% 1% 50% 2% 3% 100% World Bank, BP Statistical Review BEG/CEE UT, 14

15 What About Oil and Freedoms? Is there an inverse relationship? 193 PARTLY NOT Countries FREE FREE FREE Oil 23 mmb/d 20 mmb/d 30 mmb/d Production Avg. GDP $12,292 $2,677 $2,283 per Capita Freedom House Survey, 2001, ouse o Sources: U.S. EIA, IEA, BP, Freedom House. BEG/CEE UT, 15

16 Politically Convenient Texas Insider; Mulvaney, et.al., nature11391 BEG/CEE UT, 16

17 Have Model, Will Publish BEG/CEE UT, 17

18 Dynamic Earth f p Sea Surface Temp. Although warming of the northeastern Antarctic Peninsula began around 600 years ago, the high rate of warming over the past century is unusual (but not unprecedented) d)in the context tof natural climate variability over the past two millennia. JRI Ice Core Temp. Mean (black lines are estimates of open water based on sediment cores) BAS Ice Core Temp. Mulvaney, et.al., Nature 11391; SOTU 2014 BEG/CEE UT, 18

19 The Role of Science BEG/CEE UT, 19

20 Climate Math Whiz Total annual CO2 emitted is 188 bn ton 8bn is derived from human activity US produces 2 bn Net generation from UScoal plants is ~170mm MWh CO2 production is ~2,250 lbs/mwh, or 191mm tons The total atmosphere is 5 quadrillion tons We would be removing % % if all CO2 from US U.S. coal fired power gen was captured or eliminated We would be removing % if all CO2 attributed with human activity were captured or eliminated Current atmospheric CO2 concentration is about 386ppm or 0.039% [400ppm %) Based on estimates from U.S. EIA, U.S. EPA, IEA BEG/CEE UT, 20

21 The Energy Storage Gap BEG/CEE UT, 21

22 Zoom Zoom Treehugger.com BEG/CEE UT, 22

23 16% China Real GDP Growth (History and Expectations) 14% 12% 10% 8% 6% 4% 2% 0% WB 2010$ WB average through 2010 EIA IEO 2013 Reference EIA IEO 2013 High Macro EIA IEO 2013 Low Macro IEA IEA WECO 2014/ BEG/CEE UT, 23

24 Population Growth Slowing Fast, Expected dto Plateau by 2025 BEG/CEE UT, 24

25 BCM China Gas Demand Outlooks WEO Publication Year (each color stack represents revisions added to / subtracted from previous outlook): Actuals Outlook Year: WEO Publication Year: WEO Publication Year Base Year Base Year to Final Outlook Year CAAGR % to % to % to % to %t 5.8% to % to % to % to % to %t 6.0% to % to NOTE: Golden Age of Gas (2012) called for 323 BCM in 2020 and 593 in International Energy Agency, World Energy Outlook, various years; U.S. Energy Information Administration actuals; 2014 actual BEG/CEE UT, 25

26 Natural Gas Trajectories China U.S BCM BEG/CEE UT, 26

27 An Impact (Scale) 5 Energy 4 GHG (Climate) Energy Security Web Envt (Land, Water) 0 Safety Coal Natural Gas LNG Nuclear Envt (Air) Hydroelectric Solar, Wind (grid-based) Solar, Distributed Market Friendly Reliability BEG/CEE UT, 27

28 An Impact (Scale) 5 Energy GHG (Climate) 4 Energy Security Web Envt (Land, Water) 0 Safety Coal Natural Gas LNG Nuclear Envt (Air) Hydroelectric Reliability Solar, Wind (grid-based) Solar, Distributed Market Friendly BEG/CEE UT, 28