September 19th, 2017
Havar Blakset – Partner Rystad Energy Introduction to Rystad Energy – an energy database and advisory firm
• Independent energy database & advisory firm established 2004
• Headquartered Oslo, Norway with offices in major oil & finance hubs globally.
• Vendor of business intelligence databases for the Strategy advisory, Online, global Standardized and market analysis, E&P and oilfield tailor-made global oil & gas industry business service databases research reports development • A leading energy advisor within E&P, MIDSTREAM and OFS strategy, market analysis and business development
• Publishing a number of industry reports on high impact topics
Source: Rystad Energy
2 Our approach and heritage: A bottom-up database of ~65.000 upstream oil and gas projects
Rystad Energy UCube A microcosmos of the upstream oil and gas industry
4 2017 OPEC cutting growth, Non-OPEC/shale oil is responding immediately to the cuts
Change in liquids production year on year Historical oil price (Brent*), 1980-2017 Million bbl/d Dollar per barrel, real December 2017 4 160 OPEC Brent oil price Non-OPEC (right axis) 140 …and instead 3 started a volume 120 war 100 2. 2 80 60
1 40
4. 20 0 0 1980 1985 1990 1995 2000 2005 2010 2015 3. 1. … shale oil expanding, -1 OPEC decided no Y/Y cut from OPEC against cutting …Non-opec is supply at Nov stabilizing the -2 27, 2014 market, the meeting largest cut A B C D since 1992 -3 1986 1998 2000/2001 2008 OPEC production increase Asian crisis Dot-com & 911 Financial crisis Saudi Arabia led the OPEC cut supply OPEC cut supply OPEC cut supply production increase after ~1.5 mmbbl/d in 1999 ~365 kbbl/d in 2001 & ~1.8 mmbbl/d in -4 several years of reduction to rebalance the ~1.6 mmbbl/d in 2002 2009 to strengthen and lost market share market oil price
Source: Rystad Energy UCube
5 Despite no Y/Y cut from OPEC, the OPEC communication maters and moves the market
ICE Brent crude front month contract price and OPEC policy announcements (2015-to-date) USD per bbl
80
OPEC boosts production 70 JMCC recommends 6- OPEC meeting month cut Target cuts extension introduced Non-OPEC OPEC meeting 60 OPEC meeting OPEC agreement Cuts extended 9 No deal, but agree reintroduce months to monitor market target range closely 50
OPEC/non- Nigeria OPEC status production cap Non-OPEC meeting in agreed 40 KSA announces meeting, no Kuwait Doha producer talks commitment OPEC meeting production in Sep-16 made No policy freeze talks change end without 30 agreement Production freeze agreement announced (KSA, 20 RU, QA, VZ)
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0 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17
Source: Bloomberg, Rystad Energy research and analysis
6 March 2017 - OPEC needed to continue the cuts, if not 2014/15 all over again, 40 USD/bbl not clearing the market
World liquids supply and demand, quarterly But are the OPEC Million bbl/d cuts large enough? Million bbl/d 102 Historical Forecast 3.0
2.5 100 2.0
98 1.5
1.0 96 0.5
94 0.0
-0.5
92 Normal Normal -1.0
90 Implied stock chg, rhs -1.5 Implied stock chg (US shale at 40 USD), rhs -2.0 Supply (63 USD WTI 2018) 88 Demand -2.5 Supply (US shale at 40 USD) 86 -3.0 1Q-15 2Q-15 3Q-15 4Q-15 1Q-16 2Q-16 3Q-16 4Q-16 1Q-17 2Q-17 3Q-17 4Q-17 1Q-18 2Q-18 3Q-18 4Q-18
Note: The 1Q drop in global supply in 2017 and 2018 is partly driven by the ~400 kbbl/d seasonal drop q/q in biofuels production in Brazil. Source: Rystad Energy research and analysis
7 Spending vise the cycle turned in 2016
Change in upstream capex budgets, year-over-year Billion USD real terms 200
150
100
50
+2% 0 1980 1985 1990 1995 2000 2005 2010 2015
- 50
- 100
- 150
-24% - 200
- 250 -25%
Source: Rystad Energy UCube
9 1. Driven by shale oil – already more then a doubling in spudded wells
US shale oil activity (LHS) and associated DUC inventory (RHS) Number of wells Number of wells 2000 7000 DUCs (RHS) More completed than 1800 spudded Spudded Wells (LHS) 6000 Completed Wells (LHS) 1600 More spudded than completed. Delays due to bottlenecks and price 5000 1400 expectations OFS
1200 4000
1000
3000 800
600 2000
400 1000 200
0 0 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17
Source: Rystad Energy NASWellCube
10 1. Main driver for shale comeback – significant reduction in breakevens and oil price above 45
Average wellhead breakeven oil price, by play and spud year* USD/bb
100
90
80
70
60
50
40 Bakken 30 Eagle Ford Niobrara 20 Permian Delaware Permian Midland 10 Average 0 2010 2011 2012 2013 2014 2015 2016
*Does not include test activity, where well was shut-down after completion Source: Rystad Energy NASWellCube Premium
11 1. Total US supply up by 1.0 mbbl/d Dec17 vs Dec16 – first time EIA is overestimating
US crude oil and lease condensate production forecast, August 2017 Million bbl/d
11.5
11.0
10.5
10.0
9.5 Impact from Harvey
9.0
History Forecast 8.5 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18
Rystad Energy Aug 17 (50 USD/bbl 2017; 55 USD/bbl 2018) Rystad Energy Sept 17 (50 USD/bbl 2017; 55 USD/bbl 2018)2 Rystad Energy Sept 17 (forward curve) EIA (Aug17)
Source: Rystad Energy research and analysis, EIA 12 Stock draws through 1Q 18, OPEC will need to continue the cuts 2H 18 due to US shale surge
World liquids supply and demand, quarterly Million bbl/d 102 3.0 Implied stock change, rhs 100 Total Supply Total Demand Opec 2.0 98 cuts 96 1.0 94
92 0.0 4Q 4Q 4Q 4Q
90 Normal Normal -1.0 88
86 -2.0 84
82 -3.0 1Q2011 1Q2012 1Q2013 1Q2014 1Q2015 1Q2016 1Q2017 1Q2018
Source: Rystad Energy research and analysis, IEA OMR
13 Havar Blakset Partner New York
Oslo, Stavanger, Singapore, Dubai, Moscow, London, New York, Houston, Rio
Main: +1 646 774 2943 Consulting: strategy, market studies, DD, macro Mobile: +1 917 254 5938 200 Park Avenue, 17th Floor New York, USA Databases: E&P, Oil Service, Carbon Footprint www.rystadenergy.com
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