TIGHT OIL PRODUCTION Leaping out of North America and Onto the World Stage

JULY 2014 GOING GLOBAL: TIGHT OIL PRODUCTION Leaping out of North America and onto the World Stage

Jamie Webster, Senior Director Global Oil Markets [email protected]

GOING GLOBAL: TIGHT OIL PRODUCTION 1 Key Message: Tight Oil Production will change in the Tight Oil Will Have coming decades. It will be: Unconventional Effects . More global, as it leaps out of North America

. More inclusive, as companies come to the US for experience and US companies go international for production

. A source of renewal, as unconventional techniques are used in conventional fields

The United States will continue to be an important laboratory for global development of tight oil and unconventional techniques

Global tight oil production has significant energy security implications

GOING GLOBAL: TIGHT OIL PRODUCTION 2 Top Ten Countries with Largest Shale Oil Resources

Top 10 Countries By Technically bbl Recoverable Shale Oil Resources 80 70 60 50 40 30 20 10 0

Shale Oil (billion barrels) 60 - 80 20 - 40 Source: EIA Report, June 10 2013 40 - 60 0 - 20

Shale oil resources are concentrated in Russia and the United States – their resources are almost equal to those of the other eight countries combined.

GOING GLOBAL: TIGHT OIL PRODUCTION US Success Key factors in US tight oil success:

Factors in Tight Oil: Resource Base Quality Internationally Resource Base Quantity Repeatable? Cooperative Government

Property Rights

Innovation via competition

Service sector capacity

Financial markets

Functioning and available market The US focused on natural gas first, then switched to oil as gas prices fell. The opposite is likely to occur in many other countries.

GOING GLOBAL: TIGHT OIL PRODUCTION 4

Typical Risk Progression and Investment Impact on Investors Typical Risks Faced by Operators High

•Higher Gov’t Take •Build Greater Capacity •Alter Contract •Value-added Investments Type/Terms Seeking •Local Content •Nationalization •Create NOCs and Value-Added Regulatory Agencies Capacity •Export Restrictions Building

•Low Gov’t Take •Quick ApprovalRisk •Lack of NOCs or Institutions Favorable •Low Regulatory Terms Burden

Favorable Terms Low

Frontier Exploration Ramp-up Plateau Mature Source: Petroleum Risk Manager, IHS Production Cycle

GOING GLOBAL: TIGHT OIL PRODUCTION Top 10 Shale Oil and Gas Resources: Span the Gamut of Above-Ground Risk 10 Low Risk Petroleum Risk Manager Overall Risk Scores 9 Top 10 Shale Oil and Gas 8 Top 10 Shale Oil 7

High Risk

Iraq Iran

UAE

Peru

DRC

India

Chile Syria

Cuba Libya Chad

Qatar Brazil

Egypt

China

Oman

Kenya

Sudan

Bolivia

Ghana Kuwait Gabon

Russia

Angola Algeria

Cyprus Mexico Yemen Nigeria

Norway

Bahrain

Canada Guyana Uganda

Vietnam

Ecuador

Uruguay

Thailand Pakistan

Australia

Lebanon

Malaysia

Tanzania

Myanmar

Colombia

Suriname

Argentina

Indonesia

Cambodia

Mauritania

Azerbaijan Venezuela

Philippines

Greenland

Kazakhstan

Bangladesh

Timor-Leste

SouthAfrica

Madagascar

Coted'Ivoire

SaudiArabia Mozambique

SouthSudan

UnitedStates

Turkmenistan

French Guiana

Kurdistan(Iraq)

UnitedKingdom

EquatorialGuinea

CongoBrazzaville

Trinidad& Tobago

PapuaNew Guinea SaoTome Principe & Countries identified by the EIA with the largest unconventional resources vary widely in terms of overall above-ground risk – but those in the top ten for both shale gas and shale oil are mostly found in the top half of the risk range.

Source: Petroleum Risk Manager, IHS

GOING GLOBAL: TIGHT OIL PRODUCTION Tight/Shale oil plays will exhibit the same wide range of breakeven economics as in the US Non-US Tight/Shale Oil Breakeven Cost Estimates PV10 $/barrel $225 $200 Range Average $175 $150 $125 $100 $75 $50 $25 $0

• Incubating a play requires a very high oil price. Sustaining a known play only needs a fraction of that price.

GOING GLOBAL: TIGHT OIL PRODUCTION 7 By end of decade, up to 10% of tight oil production could come from outside North America

Global tight oil production outlook

7 Argentina Russia 6 Canada

Million perday barrels United States 3

0 2000 2005 2010 2015 2020 2025 2030 2035 2040 China Mexico Colombia Australia Libya Algeria Tunisia

GOING GLOBAL: TIGHT OIL PRODUCTION 8 Companies coming to North America to learn techniques, US companies to go international for production

2020 new source production by asset type of internationalizing Asian NOCs

mboe/d 2020 International New Source International by Asset Type 350

300

250 ConventionalOil Onshore Sands 200 & Shallow Water Unconventional

150 Conventional Onshore 100 Conventional LNG Shallow Deepwater 50 Thailand 0

GOING GLOBAL: TIGHT OIL PRODUCTION Applying unconventional techniques to conventional plays

Concept is still in early stages – but has potential to renew old oil fields in new ways, while helping to increase recovery factors - critical in meeting future supply Controlled

Low-productivity conventional reservoirs, fractures horizontal wells:

Allow access to thinner zones where vertical wells were not commercially productive.

Can connect compartmentalized portions of the reservoir with one well instead of many vertical wells. Thin target zone

Hydraulic fracturing may or may not be used

It may not be practical or necessary in conventional reservoirs that have higher permeability than shales. Disconnected target zones Horizontal wells decline faster than vertical wells, but decline rates are highly variable—typically between 40% and 90% in the first year.

GOING GLOBAL: TIGHT OIL PRODUCTION Tight Oil has Tight oil production growth impacts: Significant Energy Security Impacts

A barrel of oil anywhere increases energy security everywhere

Can radically change the import/export balance of a country

Has the potential to disrupt OPEC as it collapses the signal to production time

GOING GLOBAL: TIGHT OIL PRODUCTION Tight oil, and particularly responsive tight oil, can disrupt OPEC’s control – an event that could add price volatility

Share of Oil Demand by Type Short-Term Responsive Oil Production

70% 4,000

60% 3,500

3,000

50%

2,500

40% % % share

2,000 millions of millionsbarrels 30% 1,500

20% 1,000

10% 500

0% 0 2005 2008 2011 2014 2017 2020 2023 2005 2008 2011 2014 2017 2020 2023 OPEC Non-OPEC Biofuels Tight Oil OPEC Tight Oil

GOING GLOBAL: TIGHT OIL PRODUCTION Key Messages: Tight oil production will be more global in Global tight oil the future. production is coming – and will Countries will unlock their recipe for disrupt like the US allowing tight oil production as they gain from the US laboratory

Companies will see big opportunities- potentially reversing the trend towards less international openness

The continuation of the US laboratory is critical for global success of tight oil

Energy security will be improved- but within it is the potential for price volatility if OPEC power is disrupted

GOING GLOBAL: TIGHT OIL PRODUCTION Contact us

Americas: +1.800.IHS.CARE (+1.800.447.2273); [email protected]

Europe, Middle East, and Africa: +44.(0).1344.328.300; [email protected]

Asia and the Pacific Rim: +604.291.3600; [email protected]

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