Oil Market Recovery and the Future Role of US Unconventionals Lars Eirik Nicolaisen (lars.eirik.nicolaisen@rystadenergy.com) Partner, Rystad Energy 4th Annual Capital Link, New York, March 2nd, 2017 This document is the property of Rystad Energy. The document must not be reproduced or distributed in any forms, in parts or full without permission from Rystad Energy. The information contained in this document is based on Rystad Energy s global oil & gas database UCUBE, public information from company presentations, industry reports, and other, general research by Rystad Energy. The document is not intended to be used on a stand-alone basis but in combination with other material or in discussions. The document is subject to revisions. Rystad Energy is not responsible for actions taken based on information in this document.
Our approach and heritage: A bottom-up database of ~60.000 upstream oil and gas projects Rystad Energy UCube A microcosmos of the upstream oil and gas industry 2
Setting the stage: $100 oil took us into an oversupply of 1-2% and prices plummeted to $30 Global liquid supply Million bbl/d 120 100 $100 Supply scenarios The $100-scenario triggers positive investment decisions in upstream projects with break-evens below $100 /bbl. The scenario seems to maintain an oversupplied situation. 80 60 40 20 Global liquids production 1970-2013 IEA demand forecast 0 1970 1980 1990 2000 2010 2020 * Future demand is based on the IEA World Energy outlook 2014 New Policies demand scenario approx. +1% per annum 3 Global liquids demand 2014-2025*
2015 saw record E&P capex contraction and 2016 followed suit 2017 still shrinking Change in upstream capex budgets, year-over-year Billion USD real terms 150 100 50 0 1980 1985 1990 1995 2000 2005 2010 2015-50 -5% - 100-150 - 200-25% - 250-25% 4
2017 will see shale budgets expand again, while rest of upstream capex budgets contracts Change in upstream capex budgets, year-over-year Billion USD real terms 150 100 Non-shale Shale/Tight oil 50 0 1980 1985 1990 1995 2000 2005 2010 2015 +40% -9% - 50-100 - 150-200 - 250 5
How supply responds to lower oil prices: Four key forces at work Global liquid supply Million bbl/d 120 Forces at work 100 Nonsanctioned 4. Non sanctioning When yesterdays hangover becomes tomorrows party-starter 80 3. Tailwinds When yesterdays party becomes todays hangover 60 Producing 40 20 Global liquids production 1970-2013 Real decline 2. 1. Accelerated decline The secondary response from producing fields Overproduction Peeing our pants to keep warm 0 1970 1980 1990 2000 2010 2020 Future sources Source: Rystad Energy UCube 6
Supply responding to lower oil prices summarized: Shortfall ahead? Rystad ICE Brent Energy s crude, base historical case oil price front is month contract price and latest five year forward curve the USD forecast per bbl, used nominal the base case scenario in our bottom-up field-by-field upstream 140 database UCube. Rystad 1. + Energy forecasts a higher crude price Overproduction curve than the current futures curve Peeing our pants to keep warm traded in the market as we set our base case 120 prices at the level necessary to prevent significant supply shocks from occurring in the market. Our bottom-up global liquids production profile 100 at the current base case Brent oil price (nominal terms) by year shows: 2015: 94.9 mmbbl/d baseline production 2016: 94.8 mmbbl/d at 47 USD Brent 80 1Q 16: 94.6 mmbbl/d at 35 USD Brent 2Q 16: 95.0 mmbbl/d at 42 USD Brent 3Q 16: 95.2 mmbbl/d at 47 USD Brent 4Q 60 16: 94.6 mmbbl/d at 64 USD Brent 2017: 95.4 mmbbl/d at 67 USD Brent 2018: 97.0 mmbbl/d at 80 USD Brent 2019: 97.9 mmbbl/d at 95 USD Brent 2020: 40 98.7 mmbbl/d at 105 USD Brent 2. 4. Accelerated decline The secondary response from producing fields 3. Tailwinds When yesterdays party becomes todays hangover Non sanctioning When yesterdays hangover becomes tomorrows party-starter + 20 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jul-20 7 Source: Bloomberg, Rystad Energy research and analysis
Oil Market Recovery and the Future Role of US Unconventionals Lars Eirik Nicolaisen (lars.eirik.nicolaisen@rystadenergy.com) Partner, Rystad Energy 4th Annual Capital Link, New York, March 2nd, 2017 This document is the property of Rystad Energy. The document must not be reproduced or distributed in any forms, in parts or full without permission from Rystad Energy. The information contained in this document is based on Rystad Energy s global oil & gas database UCUBE, public information from company presentations, industry reports, and other, general research by Rystad Energy. The document is not intended to be used on a stand-alone basis but in combination with other material or in discussions. The document is subject to revisions. Rystad Energy is not responsible for actions taken based on information in this document.